On Thursday, the FEC will consider Draft Advisory Opinion 2006-33 (.pdf). We believe the opinion mistakenly prohibits lawful activity and should be rejected by the Commission. The Draft Advisory Opinion also illustrates the importance of staying mindful of–and the consequences of forgetting–the rationale for existing campaign finance regulation.
First, a little bit of background (a more extensive description of the facts can be found in the Advisory Opinion Request (.pdf)). The National Association of Realtors ("NAR") is a nonprofit 501(c)(6) corporation. It operates a separate segregated fund, Realtors Political Action Committee ("RPAC"). There are also 50 state associations, affiliated with the NAR, which operate their own non-federal PACs ("State PACs"). The NAR and 49 of the state associations engage in joint fundraising. Pursuant to a written agreement, they split each personal contribution, with 70% going to the State PAC and 30% going to RPAC.
NAR would like a larger cut of the personal contributions. In order to persuade the state associations to agree to a smaller cut, they propose "incentive payments": For each dollar of individual donations over 30% that the new agreement designates for RPAC, the NAR will give an equal amount of money from its treasury account to the state association. The NAR will not reimburse or give money to any of the individual donors.
NAR asks the Commission whether this arrangement is permissible. We believe this requires the Commission to consider three questions.
The first question is whether, apart from any other transaction, it is permissible for NAR to negotiate for a different split with the state associations than the current 70/30. The answer, naturally, is yes. The Commission has previously held that NAR and the State Associations are a "federation of trade associations." AO 1995-17. Among other things, this means that they may engage in joint fundraising, 11 CFR 114.8(g)(i). While this requires that they establish a formula for dividing contributions and publicize that formula to contributors, 11 CFR 102.17, the formula may provide for any division of contributions that the federation and its member associations desire.
The second question is whether the NAR, apart from any other transaction, would be permitted to transfer corporate treasury funds to the various state associations for them to use as they wish. Here, federal campaign finance law is not implicated at all; NAR may give its treasury funds to the state associations. The state associations, in turn, may use the funds it receives in any way that is permitted by law, which includes donations and disbursements in state and local races in states that do not prohibit these activities.
The third question–and the question before the Commission–is whether these two activities, unquestionably permissible when performed separately, remain permissible when performed together. The answer, again, is yes. The Draft Advisory Opinion, however, erroneously concludes that this arrangement violates the Commission’s prohibition on "us[ing] the establishment, administration, and solicitation process as a means of exchanging treasury monies for voluntary contributions." 11 CFR 114.5(b).
The Advisory Opinion’s conclusion is incorrect because it reads "voluntary contributions" too broadly. The "voluntary contributions" at issue in NAR’s proposed arrangement are the contributions made by individual members of the federation to RPAC and the State PACs. NAR would be prohibited from "trading" treasury funds for contributions from these individuals, but that’s not what is happening here. The Draft Advisory Opinion goes too far by treating the transfer of RPAC’s share of these contributions from the State PAC to RPAC as if it were another "voluntary contribution." This interpretation not only strains the language of the regulations, it ignores the purpose of 11 CFR 114.5, which is to prevent circumvention of the corporate source prohibition in federal elections.
In Austin v. Michigan Chamber of Commerce, the Court justified corporate contribution and expenditure limits as a means of combating "the corrosive and distorting effects of immense aggregations of wealth that are accumulated with the help of the corporate form and that have little or no correlation to the public’s support for the corporation’s political ideas." 494 U.S. 652, 660 (1990). That concern is absent here. As a federation of trade associations, RPAC and the State PACs are treated as a single political committee, 11 CFR 114.8(g), and it is individuals, not corporations, who are filling the federal account of that political committee. Regardless of the division of contributions between RPAC and the State PACs, all of the funds available to RPAC will have been raised from individuals within the contribution limits and source prohibitions that apply to political committees. Moreover, the state associations that receive NAR’s treasury funds are prohibited from making contributions or expenditures in relation to a federal campaign, 2 U.S.C. 441b, and may only make donations or disbursements in relation to state campaigns to the extent permitted by state law.
We do not doubt that, in joint fundraising, the allocation of contributions between organizations may affect an individual donor’s propensity to give. This is true of any number of factors. But unless corporate funds are being used to reimburse individual donors, or to facilitate donations in the name of another, Austin‘s concerns and the concerns of 11 CFR 114.5(b) are simply absent. The Draft Advisory Opinion, by failing to recognize this absence, illustrates the consequence of forgetting (or ignoring) the rationale for existing campaign finance regulation: regulation without cause, regulation for regulation’s sake.
We hope that in considering this matter, the Commission will remain mindful of Austin‘s rationale, and reject the Draft Advisory Opinion.
