Iowa legislative leaders attempt to defy Supreme Court

A bill to regulate independent political speech raises serious constitutional concerns and poses policy and logistical problems, according to an analysis by the Center for Competitive Politics sent to Iowa legislative leaders.

“This legislation would not enshrine Iowa as a leader in good government, it would give Iowa the dubious distinction of being the first state to openly flout the Supreme Court by passing unconstitutional restrictions on independent political speech,” said Sean Parnell, president of the Center for Competitive Politics.

In Citizens United v. Federal Election Commission, the Supreme Court held that “[T]he First Amendment stands against attempts to disfavor certain subjects or viewpoints or to distinguish among different speakers.” The bill, Senate File 2354, which advanced out of the Iowa Senate’s State Government Committee on an 11-4 vote, would restrict the right of companies to speak out on candidates by micro-managing core political speech.

“The Supreme Court’s decision allowed for disclosure of independent expenditures,” Parnell said. “It did not permit states to throw up a regulatory gauntlet of overly-burdensome shareholder regulations to force companies to run through before they’re allowed to speak out on urgent political issues.”

“This legislation is not meant to protect citizens from harmless independent speech,” he said. “It is meant to stifle the speech of organizations who may oppose powerful incumbents and the politically connected.”

At a press conference this month, Sen. Jeff Danielson, the bill’s sponsor, indicated he would pare back language requiring the registration of the personal information of all shareholders with the state in order to engage in independent speech and add comparable restrictions on labor unions.


Danielson acknowledged that the Supreme Court decision protected both corporate and unions speech, but he said the decision created a new category of speech in Iowa: “We have a new area of political speech, called independent expenditures,” he said. Actually, unions have always been free to fund unlimited political expenditures in the state. The final legislation must consider this reality and other serious constitutional and policy problems:

Absence of union regulations raises equal protection constitutional concerns

This bill singles out business corporations for byzantine regulations while omitting similar restrictions for labor unions, which are organized as 501(c)5 corporations but not currently required to register with the state of Iowa as corporations.

Before Citizens United, national and local unions could engage in unlimited independent political expenditures to support or oppose state candidates in Iowa, while corporate political expenditures were banned (Unions may also donate unlimited sums directly to candidates, while corporate contributions are banned). This long-standing practice apparently never raised a concern with legislators. Lawmakers proposing a bill face an extraordinary burden to justify why restrictions on corporations are now needed after years of deregulatory treatment of labor unions.

Shareholder restrictions pose constitutional and logistical concerns

A corporation must obtain majority consent of shareholders for any independent expenditure to “influence public opinion on matters not related to the corporation’s products or services.”

Requiring majority consent of shareholders for each independent expenditure is a de facto ban on independent speech, especially for corporations that are not closely held. This is an unconstitutional prior restraint on independent speech. It also raises equal protection concerns, because similar restrictions are not applied to unions or nonprofit corporations in the bill.

Shareholder votes at some companies take place only annually, and this legislation would virtually ensure that independent speech about a candidate would be stale by the time a company receives such approval.

Furthermore, the language of this clause appears to be broader than independent expenditures, thus violating the Supreme Court’s ruling in Federal Election Commission v. Wisconsin Right to Life that the government could not ban issue ads near an election.

A corporation must disclose the names and addresses of “all individual shareholders.”

This burden is impossible to satisfy for publicly-traded companies. Even if the legislation allowed annual disclosure of such information, it’s an unneeded burden on companies and on individual shareholders.

In Citizens United, the Supreme Court ruled that the government must justify restrictions on independent political speech with a compelling government interest. The Court further held that restricting independent speech, unlike direct contributions to candidates, does not further the government’s interest because it does not pose a risk of quid pro quo corruption.

Criminal liability for engaging in political speech is outrageous

The bill requires chief executives to certify that an expenditure “significantly advances the corporation’s business interest” under threat of criminal liability.

“Significant” is a vague standard, and this clause would expose corporations and CEOs to politically motivated investigations and lawsuits. It’s not for the government to decide how managers determine to engage in independent political speech. They may decide to do so to fight a specific regulation, to improve a local business climate or for another reason. Whether that advances shareholder interests is a matter for existing, internal shareholder governance, not g
overnment speech codes.

Definition of coordination is restrictive and would drive jobs and political activity out of Iowa

The bill bans organizations making political expenditures from retaining consulting firms that have also been retained by the candidate, candidate committee or ballot issue committee at issue.

This regulation is a de facto ban on independent expenditures considering the modest size of the political consulting industry in Iowa, and it would drive such business out of state.

The Federal Election Commission is rewriting its coordination rules, but they do not currently define coordination so narrowly. Political consulting firms, like law firms, should be able to represent clients with different interests.

The Center for Competitive Politics is now the Institute for Free Speech.