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Lisa Farnum

Lisa Farnum

President of
Honeycutt Executive Resources, LLC

The Truth About Super PAC’S

A Closer Look at “Soft Money” and “Issue Ads”

October 24, 2014

There is no doubt that Michigan is a hotspot for political television advertising this year. A recent study by The Center for Public Integrity found that Michigan viewers see one political ad every two minutes, and that counted only the ads for U.S. Senate race.

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Voters across the state will also decide races for Attorney General, Secretary of State, all state House and Senate seats, plus three seats on the Michigan Supreme Court. Some of the statewide races are drawing considerable outside “issue ad” spending. To gain a better understanding of who is behind Michigan’s recent storm of political ads, it is essential to understand the differences between the types of organizations involved. First, a few definitions before diving into the composition of each political group:

Definitions

Person: In this case, a corporation, union or domestic dependent sovereign.

Express Advocacy/Advertising: Advocating the election—or defeat—of a clearly identified candidate. This may include print, broadcast, radio and many other types of communications.

“Hard Dollars”: Money received from individuals that are fully disclosed via reporting requirements.

“Soft Money”: Money contributed by corporations cannot be given directly to candidates. Corporate dollars can only be used for issue advocacy and education.

“Dark Money”: Money received from individuals that remain “anonymous” because no disclosure is required.

Coordinated Communication: A communication that is “made in cooperation, consultation, or concert with—or at the request or suggestion of—a candidate, a candidate’s authorized committee or their agents, or a political party committee or its agents” if it is a coordinated communication under 11 CFR 109.21, or a party coordinated communication under 11 CFR 109.37.

A coordinated communication can be made by individuals or Political Action Committees (e.g. PAC’s and using hard dollars). However, if these communications involve producing express advocacy advertisements for a candidate, they must be reported as an, “in-kind contribution” to that candidate’s committee. These contributions also count toward the contribution limits a PAC may give to a committee within an election cycle.

Issue Advocacy/Advertising: Ads that reference a specific issue, tie a candidate’s voting record to the issue, but are prohibited from stating, “vote for” or, “vote against” the named candidate.

Electioneering communications: Advertising that names a particular candidate and targets likely voters within thirty days of a Primary and sixty days of a General election, but avoids words like, “elect” and, “vote against.”

In addition, there are three main types of political groups (other than candidate committees) that air political ads: Super PAC’s, 527 political groups and 501(c)4 organizations.

Super PAC’s: Fact vs. Fiction

Confusion and misinformation regarding Super PAC’s can make it appear that these PAC’s are responsible for so called “dark money” finding it’s way into elections. Unlike other political organizations, Super PAC’s are required to disclose their donors and all expenditures either to the Federal Election Commission (FEC), or, if registered in Michigan, on quarterly state Campaign Finance reports. Under Internal Revenue Service (IRS) rules, Super PAC’s are organized under section 527 as political entities, but they are also regulated by the FEC or state bureau of elections because they can raise unlimited funds and make unlimited independent expenditures in the form of express advocacy.

Independent Expenditures are defined in the Federal Register under section 100.16, 2 U.S.C. 431 (17) as:

  1. An expenditure by a person for a communication expressly advocating the election or defeat of a clearly identified candidate that is not made in cooperation, consultation, or concert with, or at the request or suggestion of, a candidate, a candidate’s authorized committee, or their agents, or a political party committee or its agents.

Expenditures are not independent if:

  1. An expenditure is made by an authorized committee of a candidate on behalf of that candidate.
  2. The person making the expenditure allows a candidate, a candidate’s authorized committee, or their agents, or a political party committee or its agents, to become materially involved in decisions regarding the communication as described in 11 CFR 109.21 (d)(2), or shares financial responsibility for the costs of production or dissemination with any such person.

Super PACs are permitted to run express advocacy ads that say, “vote for” or, “vote against, defeat or reject,” but they must also disclose who they are in any television or printed advertisement. The Ending Spending Action Fund is one example of a federal SuperPAC that is running attack ads in Michigan against U.S. Congressman Gary Peters. It can be accessed at: http://endingspendingfund.com/adarchive/.

527’s: Soft Dollars & Issue Ads

527 groups are another type of political entity organized under Section 527 of the Internal Revenue Code (26 U.S.C. § 527). The primary objective of this type of group is to influence the selection, nomination, election, appointment or defeat of candidates to federal, state or local public office. Most political committees, including state, local, and federal candidate committees, Super PACs, political action committees, and political parties are, in principle, 527’s.

However, the term, “527” is typically applied primarily to organizations that are not regulated under state or federal campaign finance laws, mostly because they do not expressly advocate for the election or defeat of a candidate or party.

These 527’s:

  • Can raise unlimited funds and have no restrictions on who may contribute to them
  • Have no spending limits imposed on the organization
  • Are required to register with the IRS
  • Must publicly disclose their donors (through the IRS, not the FEC)
  • File periodic reports of contributions and expenditures to the IRS (descriptions of their activities tend to be more ambiguous than reports to the FEC)
  • Are prohibited from contributing/coordinating directly with candidate committees

Since 527’s are prohibited from giving directly or coordinating with candidate committees, they participate in elections by running issue ads. The Democratic Governors Association (DGA)—itself a 527—has released a series of online videos targeting Governor Snyder which can be accessed at: https://www.youtube.com/watch?v=YMbq3RL2Cyg.

In response to the DGA ads, the Republican Governor’s Association (RGA), also a 527, has begun running a series of ads promoting Rick Snyder’s plan for Michigan. A sample can be viewed here: http://www.rga.org/homepage/new-rga-ad-michigans-future/.

501(C) 4’s: Unlimited Issue Ads & Electioneering Communications

Under the Internal Revenue Code, 501(c)4 organizations are tax-exempt, nonprofit associations, or corporations.  They have historically been organized as social welfare organizations, civic leagues, or local associations of employees.  More recently, 501(c)4 organizations have been used as lobbying and political campaign tools. While the 2010 Supreme Court decision, Citizens United, determined that corporations and non-profits have the same freedom-of-speech rights as individuals, it did not overturn the federal ban on direct corporate and union contributions to candidates and political parties. It did, however, strike down the part of the McCain-Feingold Act that prohibited for-profit corporations, non-profit corporations, and unions from broadcasting electioneering communications.

Prior to the Citizens United decision, 501(c)4’s that wanted to make electioneering expenditures had to file as a “Qualified Nonprofit Corporation” and report electioneering activities over $10,000. The Court ruled that the Act’s prohibition of electioneering communications violated the First Amendment.  Today, 501(c)4’s are able to air unlimited electioneering/issue-type communications at any time.

The lack of requirements for donor disclosure has led to extensive use of 501(c)4’s as a way for organizations to form politically active nonprofit groups. 501(c)4’s such as Crossroads GPS and American Action Network were both organized for the chief purpose of promoting political ideas. These groups:

  • Raise unlimited funds
  • Have no spending limits imposed on the organization
  • Are required to register with the IRS
  • File tax returns
  • Do not have to publicly disclose donors under the tax law
  • Are allowed to participate in political activity as long as it is not their primary activity (in order to maintain a non-profit status)
  • Participate in election influencing such as issue advocacy
  • Provide research, training or educational activity that is expressly tied to the organization’s political goals
  • Are prohibited from contributing/coordinating directly with candidate committees

Spending by these organizations on political TV ads has actually exceeded spending by Super PACs. As of 2012, Michigan is one of 25 states that does not regulate electioneering communications, which stop just short of expressly advocating for or against candidates. This basically allows non-profits to run political ads under the guise of issue advocacy. The most recognized of these 501(c)4’s is Americans for Prosperity (AFP), an AFP ad running in Michigan can be viewed here: https://www.youtube.com/watch?v=mfJZW_jENpY&feature=youtu.be.

In summary, three types of political groups spend large amounts of money on political advertising: SuperPAC’s, 527’s and 501(c)4’s.

SuperPAC’s

  • Are allowed express and issue advocacy
  • Raise unlimited amounts of money
  • Make unlimited independent expenditures
  • Must fully disclose income, spending and donors to the FEC/MI

527’s

  • Are allowed issue advocacy only
  • Raise & spend unlimited amounts
  • Fully disclose income, spending & donors to IRS

501(c)4’s

  • Are allowed issue advocacy only
  • Raise & spend unlimited amounts
  • Are regulated and report to the IRS for taxable activities
  • Do not disclose donors.

Of course, the content above is meant to serve only as a guide. Every filing situation is different and you should always call me or email your questions (517/482-5311 or Lfarnum1@gmail.com), visit the Bureau of Elections for more information (http://www.michigan.gov/sos/0,4670,7-127-1633_8723—,00.html) and consult with your attorney.

Lisa Farnum, MPP is President of Honeycutt Executive Resources, LLC, a firm that specializes in PAC compliance, research and association management. Lisa has been helping clients resolve campaign finance issues and maintain compliance for more than 15 years. She earned a Bachelor of Arts in Business Administration from Northwood University and a Master of Public Policy from the University of Michigan, Dearborn. Ms. Farnum has over 25 years of experience in business and association management.

October 22, 2014 · Filed under Lisa Farnum

1 response so far ↓

  • 1 Bob Balwinski // Oct 24, 2014 at 12:34 pm

    A few thoughts: 1) Advocacy ads are usually partial truths with the piece the advocate wants you to hear presented but certain details that might taint your final view left out, 2) Ads are a great source of revenue for media outlets so they do not monitor the content of any ad to be presented with the possible exception of some ad that is obviously a falsehood…..not sure about even this exception, 3) Donors names should be public so that voters can clearly see who is behind the ads. Furthermore, if behind the ad is one of those innocuous groups, the donors to these groups should be made public.


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