FEC Update with Matt Petersen: Non-Federal Transfers to Federal Candidates and Reporting Implications

By: Matthew Petersen

Recently, the Federal Election Commission (FEC) issued an advisory opinion that provided a valuable clarification about the prohibition against federal candidates raising or spending “soft money.”

Quick refresher: under the Federal Election Campaign Act (the Act), a federal candidate or officeholder may not raise, receive, or spend funds in connection with a federal election “unless the funds are subject to the [1] limitations, [2] prohibitions, and [3] reporting requirements of this Act.”  Funds that do not meet one or more of these three conditions are colloquially known as soft money.  

The meaning of “limitations” and “prohibitions” is straightforward enough:  the former refers to federal contribution limits; the latter, to sources (like corporations and labor unions) that are banned from making federal political contributions.

But what does it mean for funds to be subject to the reporting requirements of the Act?  That question rose to the forefront during the Commission’s deliberations over the advisory opinion request from Congresswoman Maxine Waters, who asked whether her campaign committee could (1) pay to produce and mail out brochures featuring Waters’ endorsements of non-federal candidates and her support of (or opposition to) ballot measures and then (2) receive reimbursement from the featured non-federal candidates and committees for their share of the brochures’ production and distribution costs.

The non-federal candidates and committees at issue are allowed under applicable state law to receive contributions in amounts and from sources that do not comply with the Act.  So, the Commission had to decide whether the proposed reimbursements to the Waters committee would be permissible in light of the federal restrictions on soft money described above.  

Congresswoman Waters confirmed that her committee would require the non-federal sources to attest that funds used for reimbursement were raised consistent with federal contribution limits and from permissible sources.  Thus, the funds clearly would be subject to the “limitations” and “prohibitions” of the Act. 

The remaining issue then was whether the funds would also be subject to the “reporting requirements” of the Act, even though the Act does not impose reporting obligations on non-federal sources for such payments.  The Commission, by a 4-2 vote, concluded the “reporting requirements” condition was met and approved Congresswoman Water’s proposal.

The Commission majority held that “[t]he condition … that any funds solicited or received in connection with a federal election must be subject to the Act’s reporting requirements does not itself impose any standalone duty to report that would not otherwise exist under the Act.  Therefore, because the Act does not require non-federal candidates and committees to separately report their reimbursement of a federal candidate for their pro-rata share of the brochure, and provided that the non-federal committees are not otherwise required to report to the Commission, then such reimbursement is subject to the reporting requirements of the Act ….”

In other words, according to the Commission, when determining whether a payment from a non-federal source to a federal candidate meets the “reporting requirements” condition (found at 52 U.S.C. § 30125(e)(1)(A)), one must look to see whether other provisions of the Act impose distinct reporting obligations on the non-federal source.  If (as here) none exist, then the “reporting requirements” condition is satisfied, and the non-federal source is under no further duty to report.

Two Commissioners disagreed with this reasoning and supported a draft that concluded that the Waters committee “may not solicit or receive funds for the brochures described in the request because the Requestors do not represent that the funds solicited and received from non-federal sources will have been reported to the Commission, as required by the Act and Commission regulations.”

As Chairman Cooksey noted in a concurring statement, this advisory opinion importantly “clarifies that non-federal committees may contribute or transfer funds to federal candidates without taking on any additional federal reporting obligations under § 30125(e)(1)(A), and that federal candidates may solicit and receive such funds in accordance with the statute.”