CCP’s analysis of the DISCLOSE Act

At last, there’s a clear indication that congressional leaders plan to unveil their bill to supposedly increase disclosure in campaign finance after Citizens United v. Federal Election Commission. Sen. Chuck Schumer and Rep. Chris Van Hollen have been crafting the bill behind closed doors since February, when they released a framework for action.

In what appears to be a targeted leak from Democratic aides to Roll Call, The Hill and The Washington Post, leadership staffers said they plan to delay the bill’s roll out until next week and provided more details about the provisions.

The bill is to be deemed the DISCLOSE Act, for “Democracy is Strengthened by Casting Light on Spending in Elections.” Cute. Nonetheless, it’s clear that the real intent and purpose of the bill is to harass and intimidate those who might criticize members of Congress into silence during the midterm elections and beyond.

Is DISCLOSE bipartisan?

The effort to bring on a bipartisan coalition of legislators to push forward this bill has been exposed as an insincere effort to simply find one or two Republicans to join on to provide cover for plans to curb congressional criticism.

Roll Call reported that, “[m]ost Republicans continue to argue that Van Hollen and Schumer are being disingenuous in their appeal for bipartisanship. ‘Unlike prior election initiatives, the Schumer-Van Hollen bill up to now gives every indication of partisan motivations,” reads an April 15 [letter] three House Republicans sent to House Administration Chairman Robert Brady (D-Pa.). “Despite the chairman’s failure to respond to our request for cooperation, he continues to deceitfully assert that he has reached out to Republican on what he claims should not be a partisan issue.'”

The Hill also noted that the three Republicans-Reps. Dan Lungren, Kevin McCarthy and Gregg Harper-sent a letter to Van Hollen and Brady requesting a “true bipartisan process,” including committee hearings:

Van Hollen did not respond to the letter. Brady acknowledged receipt of it but did not agree to sit down with the Republicans.

“Changing the rules on the conduct of elections always requires great care,” says the letter, signed by Lungren and Reps. Kevin McCarthy (R-Calif.) and Gregg Harper (R-Miss.). “It implicates core constitutional rights, and it raises the risk that one party will rig the rules to help its own candidates.”

Should U.S. employees of U.S. subsidiaries lose their First Amendment rights?

The Washington Post notes reaction from the trade association representing U.S. subsidiaries of foreign corporations:

Nancy McLernon, president of the Organization for International Investment, which represents U.S. subsidiaries of foreign-based firms, said the legislation ignores the rights of U.S. citizens who work for companies based overseas.

“These firms are incorporated in the U.S. with the same rights and obligations as any U.S. company,” McLernon said. “If other initiatives follow this bill’s lead, it would have a detrimental impact on the ability for these companies to do business in the U.S. and support jobs here.”

Restrictions on government contractors and coordinated speech

The Hill explains additional planks of Schumer-Van Hollen:

It also tries to curb the appearance of corruption and possible misuse of taxpayer funds, by barring any entity with a government contract worth more than $50,000 from spending money in elections. Similarly, government contractors or firms that have received and not repaid Troubled Asset Relief Program (TARP) funds will not be allowed to spend money on political advertising and advocacy.

More broadly, the bill seeks to prevent any coordination that could occur between candidates and corporations. It prohibits coordination between a candidate and outside group on ads that reference a candidate from the time period beginning 90 days before a primary and running through the general election.

Extending coordination restrictions to ads that merely reference officeholders who are also candidates 90 days before the primary election sweeps in protected issue advocacy, unrelated to elections. Are we to believe that groups asking incumbents who happen to be in cycle to stop filibustering judicial nominees—the same facts before the Supreme Court in the Wisconsin Right to Life case—may not coordinate anti-filibuster ads with an opposing political party committee?

According to Politico, a new framework released this weekend now contains an updated plank on coordination that differs from the original framework released in February and the framework released last week. This version contains a loosening of coordination rules between parties and candidates. CCP has advocated for more lax coordination regulations after Citizens United as a way to allow candidates to more effectively respond to business, union and nonprofit advocacy without restricting First Amendment rights.

Several prominent Democrats have advocated loosening the coordination regulations for candidates and parties. DNC general counsel Marc Elias, who is advising congressional Democrats on the DISCLOSE Act, used his testimony at FEC hearings on coordination last month to advocate for this change. Elias argued that McCain-Feingold never intended to regulate coordination by political parties. Another influential Democrat, former FEC Chairman Robert Lenhard, testified at a February hearing of the House Administration Committee that Congress should abolish the restriction:

“Congress could take one relatively easy step to restore some balance to the system: it could repeal the limits on how much national political parties can spend in coordination with their candidates,” he wrote in a prepared statement.

The new proposal is not perfect. Unlike Lenhard’s sensible suggestion to simply abolish the restriction, the framework only calls for loosening the restrictions “a bit.” Also, the framework still contains a restrictive definition of coordination for everyone else, which would unfairly sweep up protected issue advocacy.

The ban on government contractors’ political speech is particularly troubling, and it’s difficult to imagine how it could possibly survive a court challenge. In Citizens United, the Supreme Court ruled that independent speech cannot be corrupting. To pass judicial muster, Congress must show a compelling interest for why contractors—and not others who receive government money, like doctors who receive Medicaid reimbursements or public employee unions who negotiate with government on behalf of their members—should be silenced.

Disclosure or intimidation the goal?

The main policy push on the DISCLOSE Act, seems to be forcibly requiring groups engaged in political speech to reveal all of their backers, not just those who are contributing to support the ads. This, too, seems to have major constitutional problems, as anyone familiar with NAACP v. Alabama can attest (government does not always compel disclosure of group membership for noble reasons).

Added disclosure regulations, though, are perhaps the most disingenuous provisions in Van Hollen-Schumer because they obfuscate the real purpose of the bill: making it harder for people to speak out about candidates and elections while cloaking the muzzle in rhetoric about sunshine and disclosure. This bill ignores the fact that sufficient disclosure already exists—any group that wishes to speak out, whether a 98-year-old institution like the U.S. Chamber of Commerce or a group formed weeks before the election, must disclose donations used to fund ads calling for the election or defeat of a candidate. There can be no “shadow groups,” to borrow a phrase from the February framework.

First, disclosure for candidate campaigns and for independent groups serves two very different purposes. The former allows citizens to serve as watchdogs over politicians. Members of Congress and the President control vast budgets and giving money directly to candidates may have the potential to corrupt, according to the Supreme Court. Disclosure for independent groups, though, has limited utility to voters, serving only as an informational interest: to allow the public to place candidates in the political spectrum beyond their reliance on candidate platforms and party labels. Independent groups spending their own money without coordinating with candidates cannot corrupt. Exposing the backers of these efforts allows powerful politicians and other interest groups to pressure them, audit their companies, refuse to hire them, etc.

Second, the sponsors of the DISCLOSE Act insinuate that campaign spending post-Citizens United is hidden in the shadows. Yet a disclosure regime-in-waiting has existed long before the Court affirmed corporations’ associational right to speak. For example, The Washington Post reported that a provision of Van Hollen-Schumer “would also mandate disclosure of major donors whose money is used for ‘campaign-related activity.’ [This] measure would require powerful trade groups such as the U.S. Chamber of Commerce for the first time to identify the companies that fund its political-related spending.” [emphasis added]

Yet, the Chamber of Commerce could not engage in “political-related spending” before Citizens United. It could only air issue ads; corporations and trade associations like the Chamber and their members were barred from funding independent expenditures or electioneering communications (Individuals who worked for or were members of the Chamer could contribute to PACs that could in turn make independent expenditures-but the businesses could not).

There is already a great deal of disclosure required for those who engage in independent expenditures (IEs) and electioneering communications (ECs). The only political ads not requiring disclosure are issue ads (IAs). After Citizens United, the statutory reporting system for IEs and ECs remains essentially unchanged, and it lay effectively dormant for corporations and unions. The only thing different is that the source prohibition has been removed—unions and corporations may now fund IEs and ECs through their general treasuries. Indeed, the IE and EC reporting regulations encompass corporations after Citizens United:

IEs — 2 U.S.C. § 434(c): “Every person (other than a political committee) who makes independent expenditures in an aggregate amount or value in excess of $250 during a calendar year shall file a statement containing the information required under subsection (b)(3)(A) of this section for all contributions received by such person… (C) the identification of each person who made a contribution in excess of $200 to the person filing such statement which was made for the purpose of furthering an independent expenditure.”

ECs — 2 U.S.C. § 434(f): “Every person who makes a disbursement for the direct costs of producing and airing electioneering communications in an aggregate amount in excess of $10,000 during any calendar year shall, within 24 hours of each disclosure date, file with the Commission a statement containing the information described in paragraph (2).”

According to 11 CFR § 100.10, “A person means an individual, partnership, committee, association, corporation, labor organization, or group of persons, but does not include the Federal government or any authority of the Federal government.”

So, it’s clear that under current law, organizations that air IEs and/or ECs will be statutorily required to disclose the donors who contributed for the purpose of furthering an independent expenditure, even if those funds were not earmarked for a specific ad.

Provisions in the DISCLOSE Act would not just duplicate this statutory disclosure requirement, they would add more onerous requirements. The current framework calls for organizations to either create a separate “Political Broadcast Account” or disclose every donor above $1,000. But the Chamber is a trade association that spends funds for many purposes, most of which are not federal electoral politics. MoveOn.org is an advocacy organization that does the same. Both organizations fund their treasuries through membership dues and other sources of revenue such as, perhaps, magazine sales or conference fees.  They also accept funds for political efforts.

The government has no legitimate interest in requiring disclosure for the non-electoral activities of the Chamber or MoveOn.org. 434(c) does all of the work that needs doing after Citizens United: money intended for influencing federal elections must be disclosed under current statutes. There is no need for “Political Broadcast Accounts,” and such accounts raise constitutional concerns. They threaten to expose mixed-purpose organizations to disclosure for their non-electoral activities in furtherance of no governmental interest.

That said, why would some members of Congress want to add restrictions to political speech if groups are already required to disclose?

(1) Get around disclosure protections of 501(c) groups

This ultimately seems to be an effort to get around the donor privacy protections of (c)(4)s (5)s and (6)s. A great deal will depend on the text of the legislation once it emerges from the shadows, but one of our primary concerns is that disclosure is only appropriate for large donors to independent expenditure efforts—not rank-and-file members or donors not directly connected to such activity. The courts have long recognized the right of private associations of citizens to protect the privacy of donors and members. It is not difficult why the state of Alabama was eager to find out who was giving to the NAACP in the 1950s or why the Supreme Court rightly slapped down this early effort at “transparency.”

(2) Require reporting immediately instead of at the point of speech

Right now, the campaign finance disclosure regime requires disclosure at the point of speech: Groups engaging in IEs and ECs must disclose when the ads air; candidates are required to disclose quarterly (not when they receive the funds), with additional disclosures as the election gets closer. This disclosure policy proposal (especially Political Broadcast Accounts) would shift that regime to require immediate, up-front disclosure whether or not an entity really plans on using the funds for advertising that cycle.

A significant problem with that, besides it being unfair as compared to candidates, is that it puts opponents on notice that ads may be run against them. For example, the public gains very little information that the AFL-CIO local whatever based out of Iowa has transferred $1 million to its account, but it’s useful intelligence for the state Republican Party or Democrats unfriendly to labor. It’s also unfair to corporations and unions. Wealthy individuals like Boone Pickens, George Soros, etc. disclose their independent expenditures only when they actually decide to cut and air advertisements. Corporations and unions should be treated the same way.

(3) Political Broadcast Accounts: A new way to trip up speakers?

Forcing companies, unions and other groups to create Political Broadcast Accounts to fund independent expenditures is another path in the maze of paperwork and regulations required for political groups. If a company transfers a donation to a trade association for one purpose or a general purpose and the money is then used for political ads (perhaps because the political landscape has changed and there’s a greater need for the ad later in the process), they could be punished. According to the memo, the legislation requires any organization that funds political ads to disclose its campaign activity and transfers that could be used for political ads “within 24 hours.”

In Citizens United, the Supreme Court ruled that PACs were not a sufficient option to allow unions and corporations to speak because they did not allow for immediate and effective speech. The same problem may exist with Political Broadcast Accounts, and they’re yet another way to trip up and intimidate groups from funding ads.

(4) Use ‘Stand By Your Ad’ disclosure to dissuade corps.

The SBYA provision is modeled after the McCain-Feingold provision requiring federal candidates to appear in their ads to ‘approve’ the message. Even some prominent “reformers,” such as Prof. Rick Hasen, thought this provision was unconstitutional. Former political consultant—and current Obama advisor—David Axelrod called the provision “absurd” and “just one more example of reform gone amok.” Nonetheless, the Supreme Court upheld it in McConnell v. Federal Election Commission. Still, that provision dealt only with candidates, and a provision compelling the speech of independent groups may face a tougher constitutional obstacle.

After all, candidates submit to ‘Stand By Your Ad’ disclosure to secure the lowest unit broadcast rate for their ads (See 47 U.S.C. 315). But corporations and unions won’t be enjoying that rate-indeed, DISCLOSE provides even more of a cut-rate, windfall ad rate to candidates if corporations or unions date run an ad criticizing a member of congress. So, the government would be compelling changes to the content of political advertising for no benefit to the speaker or public.

The provision’s sponsor, Sen. Ron Wyden, claimed it would discourage negative ads. Yet SBYA has failed miserably to curb negative campaigning-not that such restrictions would be a sound governmental interest anyway, especially when incumbents are writing laws to restrict independent groups and not just candidates. In 2008, researchers at the University of Wisconsin found that more than 60 percent of Barack Obama’s ads—and more than 70 percent of ads for John McCain, who earlier praised “Stand By Your Ad” as “cut[ting] way down on negative ads”—were negative. In Schumer-Van Hollen, lawmakers seek to force corporate CEOs—and, presumably, union leaders and other nonprofit officials—to appear in political ads, thereby discouraging them from criticizing incumbents and candidates. Congress should compile a factual record to show why the written disclaimer on broadcast advertisements is not sufficient to satisfy the public interest of who is funding the ads and why it is necessary to compel corporate and union heads to spend 10 to 15 percent of their advertising time to personally explain that, yes, they approved the ad of their organization.

(5) Use the ‘Top 5′ disclosure to dissuade corps.

While there may some minimal value to disclosing in the written disclaimer of an ad who the major funders to the ad are, the additional oral disclaimer would place a significant burden on those seeking to air political advertisements without having any real informational value. Combined with the required ‘Stand By Your Ad’ disclaimer of the company, union, or organization CEO, ten seconds of a thirty second ad could easily be consumed by these disclaimers, dramatically curtailing the amount of political speech that is able to take place.

UPDATE: The U.S. Chamber of Commerce issued a statement from President and CEO Thomas Donohue criticizing the bill:

Democratic Congressional Campaign Committee Chairman Chris Van Hollen’s release of the outline of his legislative proposal to ‘fix’ the Citizens United decision of the Supreme Court is nothing more than a thinly veiled attempt to hijack the political playing field to his advantage on the eve of mid-term elections.

It is no secret that Mr. Van Hollen’s campaign committee faces significant losses in the House this fall, and nothing in this ill-conceived and one-sided piece of legislation would change that. We will fight any and all attempts to muzzle and or demonize independent voices from the election discussion.

UPDATE: TPM posted a formatted version of the DISCLOSE Act memo. The text is below.

The DISCLOSE Act:
Democracy is Strengthened by Casting Light on Spending in Elections Act

Updated Response to Citizens United from Congressman Van Hollen:

The Supreme Court, in a 5-4 decision on January 21, 2010, in the Citizens United v. Federal Election Commission case, overturned decades of campaign finance law and policy, thereby permitting the influx of special interest money into our elections. On February 11th, I released a proposed legislative framework in response to this decision. I have been soliciting input from a number of my colleagues, on both sides of the aisle, as I finalize legislation for introduction next week. Here is an updated summary of the bill:

The legislation will address six major points:

1. Enhance Disclaimers: Make CEOs and other leaders take responsibility for their ads.

If a corporation, union, section 501(c)(4), (5), or (6) organization, or section 527 organization spend money on campaign-related activity, its CEO or organization head will have to stand by the ad and say that he or she “approves this message,” just like candidates have to do now. In order to seek out the real money behind the ad, this legislation will drill down several layers and require the top contributor directing the funds to also “stand by the ad.” Additionally, we require the top five contributors to an organization to be listed on the screen.

2. Enhance Disclosures: It is time to follow the money.

Any covered organization must disclose within 24 hours to the FEC not just its campaign-related activity, but also transfers of money to other groups which then can be used for campaign-related activity. Additionally, a covered organization must disclose its donors and has two options: 1) it can disclose all of its donors $1,000 and above to its general fund, or 2) it can set up a “Campaign-Related Activity” account and disclose only those political donors to that account $1,000 and above. If, however, the organization transfers $10,000 or more from the general fund into the political account then it must then disclose all its general fund donors in excess of $10,000. In both options, the Act allows for organizations to “wall-off” donations if the donor restricts the donation from use for political purposes.

3. Prevent Foreign Influence: Foreign countries and entities should not be determining the outcome of our elections.

Corporations that have either 1) a foreign entity controlling 20% of its voting shares; 2) foreign nationals comprising a majority of its board of directors; 3) a foreign national who directs, dictates, or controls U.S. operations; or 4) a foreign national who directs, dictates, or controls political decision-making are banned from spending in U.S. elections. If a corporation is under the direction or control of a foreign entity, it should not be able to spend money on our elections.

4. Shareholder/Member Disclosure: We should allow shareholders and members to know where money goes.

This provision would mandate disclosure by corporations, unions, and other groups to their shareholders and members in their annual and periodic reports. This would also require these groups to make their political spending public on their websites within 24 hours after filing with the FEC.

5. Prevent Government Contractors from Spending: Taxpayer money should not be spent on political ads

Due to the appearance of corruption and possible misuse of taxpayer funds, government contractors with a contract worth more than $50,000 will not be allowed to spend money on elections. Similarly, TARP recipients who have not paid back government funds are also banned from spending.

6. Tighten Coordination Rules: Corporations should not be able to “sponsor” a candidate.

Loopholes in current coordination rules must be filled, thereby banning coordination between a candidate and outside groups on ads that reference a candidate from the time period beginning 90 days before a primary and running through the general election.

If you have any questions please contact Karen Robb at [e-mail removed].

Talking Points Memo has also posted the Democratic talking points for the DISCLOSE Act (no pun intended).

NOTE: After discussing this issue on the Election Law Listserv, we have clarified this post, particularly in regards to the issue of disclosure. We have also updated the analysis with new information on coordination. Expect further analysis as soon as legislative language is available [April 26, 2010].

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