OLR Bill Analysis

sHB 5511

AN ACT CONCERNING DISCLOSURE OF COORDINATED AND INDEPENDENT SPENDING IN CAMPAIGN FINANCE.

SUMMARY:

This bill modifies laws affecting elections, campaign finance, and the State Elections Enforcement Commission (SEEC). Among other things, the bill:

1. expands the contribution and expenditure exemptions for certain communications;

2. eliminates aggregate individual contribution limits;

3. creates a category of spenders called “coordinated spenders” and defines their expenditures as contributions subject to campaign finance reporting and limits;

4. codifies “independent expenditure political committees” as a type of political committee (known as a PAC) and requires them to register with SEEC;

5. changes certain independent expenditure (IE) reporting requirements and expands others, including for IEs that support or oppose referenda;

6. expands certain covered transfer disclosure requirements;

7. prohibits business entities from controlling, not only establishing, more than one PAC ( 16); and

8. potentially increases maximum penalties for failing to file IE reports.

The bill also makes several minor, conforming, and technical changes.

EFFECTIVE DATE: Upon passage

3, 4 & 13 — CONTRIBUTIONS AND EXPENDITURES

Definitions ( 3 & 4)

Current law defines “contribution,” in part, as anything of value made to promote the success or defeat of any candidate seeking nomination or election. The bill expands the definition to cover persons, not only candidates, seeking nomination or election and makes the same change to the parallel definition of expenditure. It thus covers contributions and expenditures made to benefit or oppose individuals who have not officially declared their candidacy.

The law further defines contribution and expenditure, in part, as any communication that refers to one or more clearly identified candidates and (1) is broadcast by radio, television (other than a public access channel), satellite communication, via the Internet, or as a paid-for telephone communication; (2) appears in a newspaper, magazine, or on a billboard; or (3) is sent by mail.

Under current law, such a communication is not considered a contribution or expenditure if it is made more than 90 days before the primary or election and its purpose is to influence legislative or administrative action, as defined by the State Ethics Code, or executive action. The bill (1) extends the exemption to include all communications made more than 90 days before the primary or election and (2) exempts communications that constitute candidate debates, or that solely promote such debates, and that are made by or on behalf of the debate sponsor.

Aggregate Limit for Individuals ( 13)

Current law prohibits an individual from contributing more than $30,000 in the aggregate during a single primary and election to (1) candidate committees; (2) exploratory committees; and (3) slate PACs for justice of the peace (in a primary). The bill removes this limit, thus allowing individuals to make unlimited aggregate contributions to these committees (see BACKGROUND).

5 — INDEPENDENT AND COORDINATED EXPENDITURES

The law authorizes persons (including individuals, entities, and committees) to make unlimited IEs and defines “independent expenditure” as an expenditure made without the consent, coordination, or consultation of a (1) candidate or candidate's agent, (2) candidate committee, (3) PAC, or (4) party committee. It creates a rebuttable presumption that certain expenditures are not IEs, and thus are coordinated and considered contributions for campaign finance purposes.

The bill:

1. creates a new category of spenders called “coordinated spenders”;

2. establishes their relationship to candidates and committees;

3. specifies that their expenditures are coordinated, not independent, and thus are contributions subject to campaign finance limits; and

4. modifies the rebuttable presumption.

The bill defines “candidate,” with respect to IEs and coordinated spenders, as any person who, during an election cycle, later becomes a candidate and who benefits from (1) an expenditure made by a coordinated spender or (2) any other spending that is not an independent expenditure. It defines “election cycle,” with respect to an office to which a person seeks nomination or election, as the period beginning the day after the previous regular election for that office and ending on the day of the upcoming regular election for the office.

Coordinated Spenders

Under the bill, expenditures by coordinated spenders are deemed to be made with a candidate's or committee's consent, coordination, or consultation, or at its request or suggestion. By law, “committee” means candidate and party committees and PACs.

Unlike existing law, which creates a rebuttable presumption that certain expenditures are not IEs, coordinated spenders' expenditures are by definition not IEs. Since, by law, expenditures that are not IEs are contributions, coordinated spenders' expenditures are considered contributions. However, for the first type of coordinated spending listed below, the bill also creates a rebuttable presumption that it is not an IE (see Rebuttable Presumptions below).

Under the bill, a “coordinated spender,” with respect to a candidate or committee, is:

1. a person directly or indirectly formed, controlled, or established in the current or preceding election cycle by, at the request or suggestion of, or with the encouragement of, the candidate or committee, any agent of the candidate or committee, or any other person deemed to be a coordinated spender or agent of the spender with respect to the candidate or committee, including with the candidate's, committee's, or agent's express or tacit approval;

2. a person established, directed, or managed by any other person who, during the current or preceding election cycle, (a) was employed or retained as a political, media, or fundraising advisor or consultant for the candidate, committee, or any entity directly or indirectly controlled by the candidate or committee or (b) held a formal position, with a title, for the candidate or committee;

3. a person established, directed, or managed by a member of the candidate's family (see below);

4. a person, or officer or agent of the person, that has had more than incidental discussion about the candidate's or committee's, or related coordinated spender's, campaign advertising, message, strategy, policy, polling, fundraising, or resource allocation; or

5. with one exception, a person on whose behalf the candidate, committee, or agent, during an election cycle, solicits funds or engages in fundraising activities, including providing donor or other lists to assist with fundraising activities, regardless of whether the person pays fair market value for the information.

The bill creates an exception under the last type of coordinated spender. Under the exception, a person is not considered a coordinated spender if funds that the candidate, committee, or agent raises for the person are segregated from other accounts the person controls and not used to make (1) IEs benefitting the candidate or committee or (2) contributions or covered transfers to any other person that, later in the current election cycle, makes IEs, contributions, or covered transfers benefitting the candidate or committee.

The bill also specifies that a person, or person's agent, that merely engages a candidate, committee, or candidate's or committee's agent in discussion about the person's position on a legislative or policy matter is generally not considered a coordinated spender. This (1) includes discussions in which the person or agent urges the candidate or committee to adopt a position but (2) excludes discussions on campaign advertising, message, strategy, policy, polling, fundraising, resource allocation, or operations.

The bill defines “member of the family” as the (1) candidate's spouse or civil union partner; (2) sibling, parent, child, grandparent, grandchild, aunt, or uncle of the candidate or the candidate's spouse or civil union partner; or (3) spouse, civil union partner, or child of anyone described above.

Rebuttable Presumptions

The law creates a rebuttable presumption that certain expenditures are not IEs and thus are coordinated and considered contributions for campaign finance purposes. The bill modifies two types of expenditures under the rebuttable presumption and adds another, as shown in Table 1.

Table 1: Expenditures Not Considered IEs Under The Rebuttable Presumption

Current Law

Bill

Expenditures made by an individual who, in the same election cycle, is serving or has served (1) as the campaign chairperson, treasurer, or deputy treasurer of a candidate committee, PAC, or party committee benefiting from the expenditure or (2) in any other executive or policymaking position, including as a member, employee, fundraiser, consultant, or other agent, of a candidate committee, PAC, or party committee

Adds expenditures by an individual who served as an employee, fundraiser, consultant, or other agent of a candidate

Expenditures made by a person or an entity, on or after January 1st in an election year, that benefit a candidate when (1) the person or entity has hired an individual as an employee or consultant and (2) such individual was an employee of, or consultant to, the candidate's committee or that of his or her opponent during any part of the 18-month period preceding the expenditure

Specifies that the (1) provision also applies to individuals who were employees of, or consultants to, the candidate and (2) applicable time period covers the current or preceding election cycle, rather than the 18-month period preceding the expenditure

N/A

Expenditures made by any person directly or indirectly formed, controlled, or established in the current or preceding election cycle by, at the request or suggestion of, or with the encouragement of any other person deemed to be a coordinated spender or coordinated spender's agent, including with the spender's or agent's express or tacit approval

With respect to the last type of expenditure listed in Table 1, the bill also makes it a contribution by definition. It is thus unclear which provision applies.

Additionally, the bill eliminates a prohibition on SEEC presuming that certain activities constitute evidence of consent, coordination, or consultation. Generally, they are:

1. participation by a candidate or his or her agent in an event that an entity sponsors;

2. membership of the candidate or his or her agent in the entity; and

3. financial support for, or solicitation or fundraising on behalf of, the entity by a candidate or his or her agent.

1, 2, 8-10 & 14-20 — IE-ONLY PACS

The bill codifies “independent expenditure political committees” (known as IE-Only PACs) as a type of PAC under Connecticut's campaign finance laws and, like other committees that make IEs, requires their registration with SEEC. It defines them as PACs that (1) make only IEs and (2) are prohibited from making contributions to or for the benefit of any candidate or committee, other than to other IE-Only PACs.

The bill authorizes individuals, labor unions, and party committees to make unlimited contributions to IE-Only PACs. By law, these persons may also make IEs (see BACKGROUND).

Lawful Purposes ( 9)

The bill defines “lawful purposes of the committee” for IE-Only PACs as promoting (1) a political party, (2) the success or defeat of candidates for nomination or election, or (3) the success or defeat of referendum questions. It requires these committees to act entirely independently of any candidate or candidate's agent, candidate committee, PAC, or party committee. It also authorizes treasurers of IE-only PACs organized for ongoing political purposes to refund contributions to any source since, by law, they may not accept contributions unless they are from other IE-only PACs.

Registration ( 8)

The bill requires a group of two or more individuals who join to form an IE-Only PAC to register with SEEC if the group makes or incurs expenditures exceeding $1,000 in the aggregate. Under the bill, IE-Only PACs must register within 10 business days after reaching the $1,000 expenditure threshold.

Periodic Campaign Finance Statements ( 10)

By law, candidate committees, PACs, and party committees must file periodic campaign finance statements with SEEC according to specified schedules. The statements must include, among other things, an itemized accounting of each contribution the committees and PACs receive.

The bill requires IE-Only PACs to include the name of any person that makes a covered transfer to one of its contributors if the covered transfer (1) equals $25,000 or more in the aggregate and (2) occurs during the 12-month period before the primary, general election, or referendum whichever applies.

By law, a “covered transfer” is, with certain exceptions, any donation, transfer, or payment of funds by a person to a recipient that (1) makes IEs or (2) transfers funds to another person who makes IEs.

11 — Surplus Distributions

By law, candidate committees and PACs, other than exploratory committees or PACs organized for ongoing purposes, must generally spend or distribute surplus funds within 90 days after (1) a primary when a candidate loses or (2) March 31 following an election or a referendum held in November.

The bill establishes a surplus distribution procedure for IE-only PACs created for a single primary or election. Specifically, it requires them to distribute surplus funds, according to the schedule outlined above, to (1) their contributors, on a prorated basis; (2) state or municipal governments or agencies; or (3) tax-exempt organizations.

6-8, 15 & 22 — IE REPORTING REQUIREMENTS

The law requires persons to disclose information about IEs they make that exceed $1,000 in the aggregate. Under current law, a person must file a long-form report, as well as a short-form report, after first making or obligating to make an IE during a primary or general election campaign that promotes the success or defeat of a statewide office or legislative candidate. For any subsequent IE, a person must file only the short-form report. Both reports must be filed with SEEC electronically within 24 hours after making or obligating to make an IE.

The bill instead applies the 24-hour electronic filing requirements to such IEs made on or after July 1 in a regular election year through the day following the primary or general election for which the IE is made or incurred. For any other IEs, it requires that IE reports be filed according to the same schedule as the periodic statements filed by PACs. As under existing law, IEs made for or against (1) statewide office or legislative candidates, or statewide referenda, must be filed with SEEC and (2) municipal office candidates or municipal referenda must be filed with town clerks.

The bill also (1) conforms law to practice by requiring all persons that make IEs, including IEs supporting or opposing municipal candidates or referenda, to use the long- and short-form reports and (2) adds to the reports' required contents.

For the person making or obligating to make the IE, the bill requires the long-form report to also include (1) a statement indicating the person files a report with the Federal Election Commission (FEC), the Internal Revenue Service (IRS), or any similar out-of-state agency, if applicable, and the identification number or other identifying information under which any such filings are made; (2) the person's street address, if different from the mailing address; and (3) the street address, if different than the mailing address, of the agent for service of process.

With respect to referenda, the bill requires that the (1) long-form report include the date, the question's text, and whether the IE supported or opposed it and (2) short-form report identify the question's text and whether the IE supported or opposed it.

The bill requires both reports to also include any other information SEEC requires to facilitate compliance with state campaign finance laws.

Disclosing Covered Transfers ( 6 & 22)

As part of both the long- and short-form reports, the law requires a person to disclose the source and amount of any covered transfer of $5,000 or more, in the aggregate, it received during the 12 months before the applicable primary or election if the IE (for which the report is being filed) is made or obligated to be made 180 or less days before the primary or election. The bill extends the requirement to covered transfers made to promote or oppose referenda.

The law exempts from this disclosure requirement a person that discloses the source and amount of a covered transfer in a report it files with the FEC, IRS, or similar out-of-state agency, provided the person includes a copy of such report in the statement it files with SEEC. The bill extends the exemption to persons that include in their IE reports information sufficient for SEEC to find their FEC, IRS, or similar out-of-state agency report.

Top Five Transferors. By law, printed, video, and audio political advertisements must include certain attributions, known as “disclaimers.” A person that makes an IE (“IE maker”) during the 90 days before a primary or general election must, among other things, list the names of the five persons that made covered transfers, in the five largest aggregate amounts, during the 12 months immediately preceding the applicable primary or election. If a person listed as a “top five transferor” is also a recipient of a covered transfer (“recipient transferor”), the IE maker must disclose in its reports to SEEC the names of the top five transferors to that recipient transferor.

The bill redefines “top five transferors” with respect to these recipient transferors as the five persons that made the five largest aggregate covered transfers to the recipient transferor during the 12 months before “the covered transfer” to the recipient transferor. Under current law, the period covers the 12 months immediately preceding the applicable primary or election.

The bill eliminates provisions in current law prohibiting disclaimers from listing certain persons that make covered transfers. Specifically, current law prohibits disclosing the name of any person that made a covered transfer to a 501(c)(4) organization if the organization is a top five transferor. Under federal law, these organizations are not required to publicly disclose their donors.

Current law also prohibits disclosing the name of any person that made a covered transfer to a top five transferor listed on a disclaimer if the recipient accepts covered transfers from at least 100 different sources. The prohibition applies if no such source accounts for 10% or more of the covered transfers accepted by the recipient during the 12 months immediately preceding the applicable primary or election.

Penalties for Failure to File an IE Report ( 6)

By law, persons that make or obligate to make IEs exceeding $1,000 in the aggregate during a primary or general election campaign must file IE reports with SEEC. The bill potentially increases the maximum (1) civil penalties SEEC may impose for failure to file certain required IE reports and (2) fine SEEC or a court may impose for a knowing and willful failure to file. It also subjects IEs that support or oppose referendum questions to these penalties.

Specifically, the law allows SEEC to impose a maximum penalty of $10,000 for failure to file more than 90 days before a primary or general election. The bill extends this penalty to IEs that support or oppose a referendum.

For failure to file 90 days or less before a primary or general election, SEEC may currently impose a maximum penalty of $20,000. The bill instead allows SEEC to impose a penalty of up to $20,000 or twice the amount of any unreported IE, including for a referendum, whichever is greater.

Currently, a knowing and willful failure to file an IE report is punishable by a fine of up to $50,000. The bill instead allows SEEC to impose a penalty of up to $50,000 or 10 times the amount of any unreported expenditure, whichever is greater.

By law, in addition to the penalties described above, (1) SEEC may refer the matter to the chief state's attorney and (2) any knowing and willful violation of Chapter 155 of the General Statutes (i.e., campaign finance, other than the CEP) is a class D felony punishable by up to five years in prison, a fine of up to $5,000, or both.

8 — AFFILIATED PACS

By law, most PACs must register with SEEC, and the registration statement must include, among other things, the name of the committee and its purpose. The bill requires a PAC established by an individual acting as an agent for another person (known as Affiliated PACs) to additionally (1) include the name of the person for whom the agent is acting and (2) indicate whether the PAC filed a report with the FEC or other out-of-state agency and if so, include the agency name.

12 — CANDIDATE COMMITTEE EXPENSE REIMBURSEMENTS

Existing law allows a candidate committee to reimburse another candidate committee to pay its pro rata share of expenses for operating a campaign headquarters or preparing, printing, or disseminating political communications on behalf of any candidates. This includes instances when the committee receiving the reimbursement is under a contract with the vendor; the committee that pays or reimburses need not be under contract.

The bill authorizes candidate committees to additionally reimburse party committees, legislative leadership committees, and legislative caucus committees for these expenses. It also clarifies that this authorization, as well as the authorization to reimburse party committees for expenditures that benefit a candidate committee, apply to candidates participating or not participating in the Citizens' Election Program, among others.

21 — POLITICAL ADVERTISING

By law, printed, video, and audio political advertisements must include certain disclaimers. The bill exempts from the law's IE disclaimer requirements (1) editorials, news stories, or commentaries published independently and without compensation in any newspaper, magazine, or journal; (2) banners; (3) political paraphernalia, including pins, buttons, badges, emblems, hats, or bumper stickers; or (4) signs with a surface area of not more than 32 square feet. These communications are already exempt from the disclaimer requirements that the law establishes for non-IE spending.

BACKGROUND

Aggregate Contribution Limits

In McCutcheon et al. v. Federal Election Commission, 134 S.Ct. 1434 (2014), the U.S. Supreme Court held that aggregate limits on contributions by individuals to federal candidates, political parties, and PACs were unconstitutional under the First Amendment.

In Advisory Opinion 2014-03, SEEC announced that, unless it received further guidance from the legislature or a court, it would no longer enforce current law's $30,000 aggregate limit on contributions by individuals during a single primary and election to (1) candidate committees, (2) exploratory committees, and (3) slate PACs for justice of the peace (in a primary).

IE-Only PACs

In Declaratory Ruling 2013-02, SEEC ruled that, in light of a line of cases ruling that contribution limits to IE-Only PACS are unconstitutional, it would no longer enforce contribution limits to PACs that receive and spend funds only for IEs, unless it received further guidance from the legislature or a court.

COMMITTEE ACTION

Government Administration and Elections Committee

Joint Favorable Substitute

Yea

8

Nay

6

(03/21/2016)