H.R. 5175 is expected to be considered on the floor of the House on Thursday, June 24, 2010, under a structured rule, allowing five amendments in order.  The rule provides for one hour of debate, extends suspension authority through Friday, and also allows for the same-day consideration of H.R. 4213, the American Jobs and Closing Tax Loopholes Act of 2010.  The legislation was introduced by Rep. Chris Van Hollen (D-MD) on April 29, 2010.

EXECUTIVE SUMMARY

H.R. 5175 was introduced by Rep. Van Hollen (D-MD) in conjunction with Sen. Chuck Schumer (D-NY) in late April.  The Committee on House Administration marked up the bill on May 20, 2010, on a party-line five to three vote.  After weeks of being unable to reach agreements on H.R. 5175, Democrats have accepted language that may help them get the necessary votes for passage.

The proposed legislation is a punitive measure for associations of persons who choose to exercise their right to free political speech as guaranteed by the Constitution, and affirmed in the Citizens United v. FEC case.  The bill’s disclosure requirements and limits on foreign corporations and government contractors target only the political speech of corporations, with no effect on unions, including foreign-influenced labor unions, public-employee unions, or government grant recipients.

SUMMARY

TITLE I

Government Contractors: The bill prohibits independent expenditures and electioneering communications by anyone with a government contract over $10 million (this was increased from $50,000 to $10 million by the rule).  This prohibition is not applied to unions in collective bargaining agreements with the government, unions who receive dues from government payroll deduction, or grant recipients.

TARP Recipients: The bill prohibits independent expenditures and electioneering communications by TARP recipients who have not fully repaid their federal funds, but does not prohibit unions of TARP companies from such communications.

Foreign Nationals: The bill bans independent expenditures or electioneering communications by corporations where: 20 percent or more of the company is owned by foreign nationals; the majority of the board are foreign nationals; foreign national(s) have the power to control the decision-making process of the corporation with respect to its interests in the U.S.; foreign national(s) have the power to control the decision-making process of the corporation with respect to political activities.

The bill would also require that CEOs (or the other highest ranking official of the corporation) certify, under the penalty of perjury, the company’s eligibility for political spending to the Federal Elections Commission.  The bill excludes U.S. based corporations with U.S. employees and revenue from political participation, and prohibits those corporations from forming PACs or making PAC contributions.

The bill does not apply the same prohibitions to unions with foreign members, non-citizen members, foreign board representation or other foreign agreements/affiliations.

Coordinated Communication: The bill defines “coordinated communication” as a covered communication which is “made in cooperation, consultation, or concert with, or at the request or suggestion of, a candidate, and authorized committee of a candidate, or a political committee of a political party; or any communication that republishes, disseminates, or distributes, in whole or in part, any broadcast or any written, graphic, or other form of campaign material prepared by a candidate, an authorized committee of a candidate, or their agents.”

The bill defines “covered communication” as a public communication that refers to a clearly identified candidate for Federal office and is publicly distributed or publicly disseminated.

The bill sets 120 days prior to the first primary for the office of the President as the applicable election period.  The bill expands the period in which coordinated communication is treated as a contribution to start 90 days before all other Federal election primaries and end at general election.

The bill excludes the political party committees from the contribution rule for coordinated spending on public communications unless the communication is “controlled by or under the direction of” the candidate.

As noted by the Committee on House Administration Republican Staff, the new definition of coordination based solely on conduct may conflict with court holdings, or lead to a finding of coordination where a candidate had no control or knowledge of the communication.  The expansion of the covered period may also mean issue ads would be subject to coordination limits for an extremely long period (up to a year in some states).

Internet Communications: An amendment authored and accepted by Rep. McCarthy (R-CA) would provide that communications disseminated over the internet would not be treated as a form of general public political advertising subject to the Federal Election Campaign Act, provided that the communication was not laced for a few on another person’s Web site.

TITLE II

Express Advocacy: The bill expands the definition of independent expenditure to include express advocacy or its functional equivalent, and would require the filing of independent expenditure reports within 24 hours regardless of when the expenditure is made.  The bill sets the threshold amount at $10,000 during the period up to the 20^th day before an election, and $1,000 during the period after the 20^th day before the date of an election.

Electioneering Communications: The bill expands the definition of electioneering communication from 60 days to 120 days before the general election and would require a report on any and all electioneering communications.  The bill also requires that any person who is required to file a statement in electronic form do so in a form accessible by computers, and in a manner that makes it searchable, sortable, and downloadable.

Additional Reporting: The bill would require that an organization report all campaign-related donations over $600 for independent expenditure reports, and $1,000 for electioneering communication reports.  The bill requires that all independent expenditures not made from the Campaign Related Activity Account over $600 be reported, and if from the Campaign Related Activity Account, report all donations over $6,000.  Similarly, if electioneering communications are not made from the Campaign Related Activity Account, they must report all donations over $1,000; and if made from the Campaign Related Activity Account, they must report all donations over $10,000.

The bill would allow transfers to other entities be deemed for independent expenditure/electioneering communication and reported as such.  The bill applies this to corporations, unions, 501(c)(4)s, 501(c)(5)s, 501(c)(6)s & 527s.  However, as modified, the bill includes a provision that would allow 501(c)(4)s an exemption if they meet these criteria:

1. They are exempt from tax under section 501(c)(4) for each of the last ten years
2. They have at least 500,000 individuals who have paid membership dues
3. They have at least one dues paying member from every state (including D.C. and Puerto Rico)
4. They receive no more than 15 percent of their funding from corporations or unions
5. None of the funds from corporations or labor unions received are used for campaign-related activity

**This provision was originally crafted to exempt specific organizations and has since been manipulated to now exempt even more organizations.

The bill treats amounts transferred between affiliates as attributable to regular dues or assessments from individuals, and requires no reporting on such a transfer.

Donor Intent: The bill would allow donors to avoid reporting donations to the FEC so long as there is a mutual agreement that donations will not be used for campaign related activity.  Donors making this agreement must receive a certification from the CFO that their donation will not be used for campaign activity.

The bill would require that the donor and the recipient entity agree at the time a donation or payment is made that it would not be used for campaign activity.  However, the bill would not require union members to reach any agreement when dues are deducted from their paychecks.  Members may be concerned that these requirements turn the presumption of voluntary compliance on its head and that these provisions would deter speech because of the unnecessary burden.

Campaign Related Activity Accounts: The bill defines a new category of accounts called “Campaign Related Activity Accounts” and circumvents holdings in the Citizens United vs. FEC case that allow general treasury funds to be used for political speech.

Stand by your Ad Requirements: The bill greatly expands current “stand by your ad” requirements by requiring the head of the organization and the organization’s largest donor to be named and provide approval statements during the communication; the organization to be named up to three times in each disclaimer; and the five largest donors to be listed on screen (with the two largest stated in radio ads).

While the bill includes language that would seem to require regulations be promulgated to allow for exceptions to be made if the bill’s new requirements create a “hardship” by “requiring a disproportional amount of the communication’s content to consist” of these requirements, it is unlikely that any regulations would actually invalidate the concerns of many small organizations with even smaller budgets.  Additionally, the “hardship” exception is effectively meaningless for 2010 because it does not go into effect until the FEC issues rules.  While the bill’s requirements take effect immediately, the exception is delayed and would not be made available until much after November of 2010.

Members may be concerned that the disclaimers required by the bill could take an estimated 14 seconds to cite, and when combined, can use up much of the time of a 30 second advertisement.  Members may feel that the disclaimer is designed to deter speech rather than provide useful information.  Furthermore, the bill does not address how an organization would comply with these onerous regulations if many donors gave the same amount.

Political Robocalls: The bill would require a disclaimer at the beginning of political robocalls identifying who is funding the call.

Lobbyists: The bill would require registered lobbyists and organizations to report spending on independent expenditures and electioneering communications.

TITLE III

Web site Reporting: The bill would require annual reports that list each disbursement for campaign related spending be made available on the company’s web site, in machine-readable format, linked directly from the organization’s home page.

TITLE IV

Judicial Review: The bill would provide for judicial review through the D.C. District Court, D.C. Court of Appeals, and then the Supreme Court.  The bill also provides for actions and challenges brought by Members of Congress.

According to the House Committee on Administration Republican staff, this new process for judicial review is in conflict with the review provisions in both Federal Elections Campaign Act and the Bipartisan Campaign Reform Act, and will likely lead to delays for litigation to determine the correct review procedure.  Members may be concerned that this section is intended to make a quick resolution of constitutional challenges impossibly before the 2010 election.

The bill would take effect 30 days after enactment, regardless of FEC rules.

In 2008, Citizens United, a nonprofit corporation, produced a documentary film critical of then-Senator Hillary Clinton.  Senator Clinton was, at the time, a candidate for the Democrat party’s nomination for president.  Citizens United wanted to make the film available to cable subscribers through video on-demand within 30 days of the primary elections.  The organization produced television ads, but due to its concern about McCain-Feingold’s civil and criminal penalties, Citizens United sought declaratory and injunctive relief, arguing that civil and criminal penalties were unconstitutional as applied to the ads for their documentary.

On January 21, 2010, the U.S. Supreme Court held that independent political advocacy (expressly advocating for the defeat or support of a political candidate on the federal level) by corporations and labor unions could not be limited under the First Amendment.  The court also overturned the ban on corporations’ and labor unions’ use of their general treasury funds to make independent expenditures for “electioneering communication.”  An electioneering communication is any broadcast, cable or satellite communication that fulfills each of the following conditions: (1) the communication refers to a clearly identified candidate for federal office; (2) the communication is publicly distributed shortly before an election for the office that candidate is seeking; and (3) the communication is targeted to the relevant electorate (U.S. House and Senate candidates only).  While the court’s decision did not overturn the general ban on direct corporate and labor union contributions to political parties or candidates, the Democrats, attempting to suppress one of the nation’s foundational rights—the right to free speech, especially political speech, guaranteed by the Constitution—have scheduled consideration of H.R. 5175 to restrict political speech and defy the ruling of the court.

The Congressional Budget Office (CBO) estimates CBO estimates that implementing H.R. 5175 would cost $2 million in fiscal year 2011 and about $10 million over the 2011-2015 period, subject to appropriation of the necessary funds.  Those amounts would cover additional administrative costs for the FEC to ensure compliance with the bill.  Enacting H.R. 5175 could increase revenues and direct spending from the collection of civil and criminal penalties; therefore, pay-as-you-go procedures would apply.  However, CBO estimates that the net budgetary effect of any additional penalty collections would be negligible for each year.

MANAGERS AMENDMENT

The manager’s amendment is incorporated into the bill through the rule on a self-executing basis.  The amendment makes the following notable changes to the underlying bill:

Government Contractors: The bill prohibits independent expenditures and electioneering communications by anyone with a government contract over $10 million (it was $50,000 in the original bill and $7 million in the reported bill).

Carve out for Organizations: An exemption from the bill’s reporting requirements is added for organizations that:

1. They are exempt from tax under section 501(c)(4) for each of the last ten years
2. They have at least 500,000 individuals who have paid membership dues
3. They have at least one dues paying member from every state (including D.C. and Puerto Rico)
4. They receive no more than 15 percent of their funding from corporations or unions
5. None of the funds from corporations or labor unions received are used for campaign-related activity

**This provision was originally crafted to exempt specific organizations and has since been manipulated to now exempt even more organizations.

Another Union Loophole: If a transfer is made between affiliated entities and the transferred funds are attributable to regularly paid dues, fees, or assessments paid by individuals based on a per-individual calculation, then the transfer amount is attributable to the individuals rather than the organizations and would not be reported – regardless of the aggregate amount – unless an individual’s share exceeded $50,000.  The definition of affiliated entities includes two entities that are affiliated with the same entity, so the ability to move funds among organizations is quite far-reaching.

Reasonable Beliefs: In order to receive the lesser reporting requirements of a Campaign-Related Activity Account, the amendment would require that organizations spend money from the account “on the basis of a reasonable belief” that the disbursements are for exempt functions per section 527(c)(2) of the tax code.  The amendment also treats Campaign Related Activity Accounts as separate segregated funds for purposes of section 527 (f)(3) of the tax code.

SpeechNow Entities: The amendment includes expanded language to deal with the treatment of entities authorized under the SpeechNow decision.

MEMBER CONCERNS

Suppression of Free Speech: Legislative proposals to reduce or limit the political speech of corporations can only result in the suppression of speech by those who choose to advocate through associations, a fundamental right guaranteed by the Constitution.  Any proposed “remedy” is certain to infringe upon that right.  Writing for the majority, Justice Anthony Kennedy stated, “If the First Amendment has any force, it prohibits Congress from fining or jailing citizens, or associations of citizens, for simply engaging in political speech.”

Union Loopholes: Democrats have previously pledged to apply the same restrictions and requirements on unions as they do business corporations.  Republicans understand that anything short of equal treatment of unions is an attempt to provide traditional Democrat allies with an unfair advantage.

Furthermore, according to the House Committee on Administration Republican staff, the bill’s new thresholds for reporting will likely have little effect on unions (whose average annual dues per employee were only $377 in 2004) but a huge effect on associations and advocacy groups. The bill requires highly complex reporting requirements that would likely come with high compliance costs—disproportionately affecting small organizations.

Violates Principle of Federalism: State corporate law traditionally governs corporate governance issues, producing a diverse set of corporate governance structures that has allowed the U.S. economy to be the most prosperous in the world.  Yet, Democrats are determined to essentially federalize corporate governance despite proven success on the state level.

False Claims Regarding Foreign Influence: In his State of the Union address, President Obama stated that the court’s decision would “open the floodgates for special interest, including foreign corporations, to spend without limit in our elections.”  However, current federal law and Federal Election Commission regulations already ban foreign corporations from participating directly or indirectly in American elections (see, 2 U.S.C. § 441e and 2 U.S.C. 437g).

Effect on the November 2010 Election: Members may be concerned that it will be impossible for the FEC to pass regulations before the bill takes effect.  Organizations would have to risk possible legal action to speak without detailed guidance from the FEC, especially on sections that are ambiguous or require forms or procedures.

1.)   Rep. Ackerman (D-NY):  The amendment would require covered organizations to report required disclosures to shareholders, members or donors in a “clear and conspicuous manner.”

2.)   Rep. King (R-IA):  The amendment would eliminate all limitations on federal election campaign contributions.

3.)   Rep. Kucinich (D-OH):  The amendment would prohibit those with leases on the Outer Continental Shelf from political spending.

4.)   Rep. Pascrell (D-NJ), Rep. Grayson (D-FL), and Rep. Perriello (D-VA):  The amendment would broaden the definition of foreign nationals by prohibiting political expenditures by corporations with significant foreign government ownership and corporations that have a majority of shares owned by foreign nationals.

Rep. Murphy (D-PA):  The amendment would enhance advertisement disclaimers to include the city and state of the ad funder’s residence or principle office.