OLR Bill Analysis
AN ACT CONCERNING CAMPAIGN FINANCE REFORM.
This bill modifies laws affecting campaign finance and elections. Principally, it:
1. creates a category of spenders called “coordinated spenders” and defines their expenditures as contributions subject to campaign finance reporting and limits;
2. codifies “independent expenditure political committees” as a type of political committee (known as a PAC) and requires them to register with the State Elections Enforcement Commission (SEEC);
3. prohibits any person from accepting covered transfers of more than $70,000, in the aggregate, during a calendar year;
4. expands covered transfer disclosure requirements;
5. requires the governing boards of certain Connecticut entities to vote to pre-authorize campaign-related disbursements of more than $4,000;
6. prohibits foreign-influenced entities from making covered transfers or IEs; and
7. expands political advertising disclaimer requirements for entities, generally, to include messaging from the chief executive officer or equivalent.
Violators of the bill's provisions are subject to SEEC's enforcement authority. Among other things, SEEC may levy civil penalties or refer matters to the chief state's attorney.
The bill also makes several minor, technical, and conforming changes.
EFFECTIVE DATE: Upon passage
§ 3 — INDEPENDENT AND COORDINATED EXPENDITURES
Existing law authorizes persons (including individuals, entities, and committees) to make unlimited IEs. It creates a rebuttable presumption that certain expenditures are not IEs, and thus are coordinated and considered contributions for campaign finance purposes.
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.
Current law 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. The bill expands the definition to include agents of the above-listed committees. It also specifies that the expenditure qualifies as an IE when it is made entirely without consent, coordination, or consultation.
The bill specifies that with respect to IEs and coordinated spenders, “candidate” includes any person who, during an election cycle, later becomes a candidate and who benefits from an expenditure (1) made by a coordinated spender or (2) that is not an IE.
The bill defines “election cycle,” with respect to an office to which an individual 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 regular election (for that office) that immediately follows.
“Member of the family” means the (1) candidate's spouse; (2) sibling, parent, child, grandparent, grandchild, aunt, or uncle of the candidate or the candidate's spouse; or (3) spouse or child of any of these individuals.
Under the bill, expenditures by coordinated spenders are deemed to be made with the consent, coordination, or consultation of a candidate, committee, or agent of a candidate or committee. By law, “committee” means a candidate or party committee, or a PAC.
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.
Under the bill, a “coordinated spender,” with respect to a candidate or committee, is a person:
1. directly or indirectly formed, controlled, or established in an election cycle or the one immediately preceding it, by, at the request or suggestion of, or with the encouragement or approval of, the candidate, committee, or agent of the candidate or committee;
2. established, directed, or managed by any other person who, during an election cycle, (a) served 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. who is a candidate's family member or who is established, directed, or managed by a candidate's family member;
4. that has had, or whose officer or agent has had, more than incidental discussion with a candidate's family member about the candidate's, committee's, or person's campaign advertising, message, strategy, policy, polling, fundraising, campaign operations, or resource allocation; or
5. 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 listed above. 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 election cycle, makes IEs, contributions, or covered transfers benefitting the candidate or committee.
The bill also specifies that a payment is not considered made by a person with the consent, coordination, or consultation of, or at the request or suggestion of, a candidate or committee solely on the grounds that the person or person's agent engaged a candidate, committee, or agent of a candidate or committee in discussion about the person's position on a legislative or policy matter. 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 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 three 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
Expenditures made by a person in cooperation, consultation, or concert with; at the request, suggestion, or direction of; or pursuant to a general or particular understanding with a candidate, candidate committee, party committee, PAC, or consultant or agent of a candidate or any such committee
Applies instead to expenditures made by a person pursuant to a general or tacit understanding with a candidate, candidate committee, party committee, PAC, or consultant or agent of a candidate or any such committee
Expenditures made by an individual who, during an election cycle, serves 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 1 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 an election cycle or the one preceding it, rather than the 18-month period preceding the expenditure
Expenditures made by any person directly or indirectly formed, controlled, or established in an election cycle or the one immediately preceding it, 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
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, 4 & 6-13 — 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 make only (1) IEs and (2) contributions to other IE-only PACs.
The bill makes several conforming changes, including specifying that (1) individuals, business entities, and labor unions may make contributions to IE-only PACs and (2) various types of IE-only PACs, such as those formed for a single election or primary, are prohibited from making contributions, other than to other IE-only PACs (see BACKGROUND). It also establishes disclosure requirements for these PACs (see COVERED TRANSFERS below).
Lawful Purposes (§ 4)
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, candidate committee, party committee, PAC (other than an IE-only PAC), or agent of such a candidate or committee.
Surplus Distributions (§ 6)
By law, candidate committees and PACs, other than exploratory committees or PACs organized for ongoing political activities, 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, other than those formed for ongoing activities. 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.
§§ 5, 17 & 18 — COVERED TRANSFERS
By law, a person must disclose information about IEs it makes that exceed $1,000 in the aggregate. Among other things, the person must 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 fewer days before the primary or election.
The bill (1) expands the covered transfer-related information that IE-makers must disclose and (2) limits the amount of covered transfers a person may accept.
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 (CGS § 9-601(29)). A “person” is an individual, committee, firm, partnership, organization, association, syndicate, company trust, corporation, limited liability company, or any other legal entity (other than the state or its political or administrative subdivisions) (CGS § 9-601(10).
Limit on Acceptance (§ 17)
The bill prohibits any person from accepting covered transfers of more than $70,000 in the aggregate during a calendar year. Under current law, a person may accept unlimited covered transfers. (It appears that limiting covered transfers may conflict with recent federal court decisions (see BACKGROUND).)
Disclosures by Persons Making IEs (§ 18)
Under existing law, persons must disclose information about IEs they make that exceed $1,000 in the aggregate using SEEC's long- and short-form reports (see BACKGROUND), including information about covered transfers, as described above. Under the bill, the IE-maker must obtain and disclose additional information about the money funding any such covered transfer.
Specifically, the bill requires IE-makers to disclose the source and amount of any donation, transfer, or payment of $1,000 or more, in the aggregate, that funded a covered transfer it reports to SEEC in a long- or short-form report, as described below.
Dedicated Accounts. A person that makes a covered transfer to an IE-maker from a dedicated and segregated IE-expenditure account must provide the source and amount of each donation, transfer, or payment of $1,000 or more, in the aggregate, to the account. The IE-maker (including one who obligates to make an IE) must include the information with its covered transfer disclosure.
Other Accounts. A person that makes a covered transfer from a source other than a dedicated IE-expenditure account must provide the source and amount of each donation, transfer, or payment of $1,000 or more, in the aggregate, to the person during the 12 months before the primary or election, whichever applies, for which the IE is made. The IE-maker (including one who obligates to make an IE) must include the information with its covered transfer disclosure.
In addition to these requirements, the bill prohibits (1) covered transfer recipients from knowingly making a covered transfer to an IE-maker without disclosing the information described above and (2) IE-makers from accepting a covered transfer unless such information is disclosed.
Disclosures by IE-Only PACs (§ 5)
Under the bill, an IE-only PAC must include additional information in its campaign finance statements if any of its contributors are recipients of covered transfers of $25,000 or more in the aggregate per calendar year. (The requirement appears to apply to any previous calendar year.) Specifically, it must include the names of the persons that made the top-five largest aggregate covered transfers to any such contributor during the 12-month period immediately preceding the primary, election, or referendum.
Similarly, each contributor must provide the IE-only PAC with a statement, signed under penalty of false statement, if the contributor (1) receives any covered transfer and (2) makes contributions to an IE-only PAC that separately, or in the aggregate, exceed $25,000 per calendar year.
The statement must certify:
1. if the contributor is a human being, the name of his or her employer or employers, if any;
2. whether the contributor is a client or communicator lobbyist, or an immediate family member of one, under the State Code of Ethics;
3. that the contributor is not prohibited from making a contribution to the IE-only PAC; and
4. if the contributor is not a human being, the names of the five persons that made the top-five largest aggregate covered transfers to it during the 12-month period immediately preceding the applicable primary, election, or referendum.
The bill requires SEEC to prepare a sample form for the above certification and make it available to treasurers and contributors. The sample form must explain the term "covered transfer." IE-only PACs must include the sample form's information in any written solicitation they conduct.
A treasurer who receives a contribution without the certification must (1) send a request for the certification, within three business days after receiving the contribution, to the contributor by certified mail, return receipt requested and (2) refrain from depositing the contribution until obtaining the certification. If the contributor still does not provide the certification, the treasurer must return the contribution at the end of the reporting period in which it was received or within 14 days after the treasurer's written request, whichever is later.
The bill provides treasurers a complete defense to any action taken against them, including an investigation by SEEC, concerning a contribution they deposit based on a signed certification that is later determined to be false.
§ 14-16 & 19 — ENTITIES
The bill makes various changes affecting “entities,” which, by law, are organizations, profit and nonprofit corporations, cooperative associations, limited partnerships, professional associations, limited liability companies and partnerships, 501(c) tax-exempt organizations, and 527 tax-exempt political organizations (CGS § 9-601(19)).
Board Authorizations for Campaign-Related Disbursements (§ 14)
The bill requires the governing board, if any, of an entity incorporated, organized, or operating in Connecticut to vote to pre-authorize each campaign-related disbursement it makes of more than $4,000. The bill does not define “campaign-related disbursement.”
Prior to the vote, the board must be informed of the money's specific use, including whether it may be used for an IE to target or benefit a candidate. No later than 48 hours after the vote, the entity must (1) publicly disclose on its website individual board members' votes and details on the expenditure and (2) electronically file a disclosure report with SEEC. (The bill contains an incorrect internal reference and thus, it is unclear which reporting requirements apply.)
After making or obligating to make an IE, the entity must do at least one of the following:
1. include in any periodic financial or activity report to its shareholders, members, or donors the (a) identity of the individual making any campaign-related disbursement and his or her business address; (b) disbursement's amount, date, and recipient; (c) candidates or ballot issues to which the disbursement is related; and (d) identity of individuals who donated over $1,000 to the entity for campaign-related disbursements during the period that the report covers or
2. provide a link on its website to the disclosure reports it has filed with SEEC.
Foreign-Influenced Entities (§§ 8, 15 & 16)
Federal law generally prohibits foreign nationals from making contributions, donations, or IEs in connection with federal, state, or local elections (see BACKGROUND). The bill additionally prohibits foreign-influenced entities from making covered transfers or IEs. It makes a conforming change by requiring persons that make IEs to certify, after due inquiry, in the long-form campaign finance reports they submit to SEEC that they are not foreign-influenced business entities as of the date they made or obligated to make the IE (see BACKGROUND).
Under the bill, a "foreign-influenced entity" means an entity that:
1. one foreign owner holds, owns, controls, or has directly or indirectly acquired beneficial ownership of equity or voting shares of at least 5% of the total equity or outstanding voting shares;
2. two or more foreign owners hold, own, control, or have directly or indirectly acquired beneficial ownership of equity or voting shares of at least 20% of the total equity or outstanding voting shares; or
3. any foreign owner participates in any way, directly or indirectly, in the process of making decisions with regard to the entity's political activities in the United States, including its political activities during an election in the state or any town, city, municipality, borough or other local government unit within the state.
A “foreign owner” is a (1) foreign national, as defined in federal law, or (2) business entity of which a foreign national holds, owns, controls, or otherwise has directly or indirectly acquired beneficial ownership of equity or voting shares of at least 50% of the total equity or outstanding voting shares (see BACKGROUND).
Political Advertising (§ 19)
By law, printed, video, and audio political advertisements must include certain attributions, known as “disclaimers.” Among other things, they must identify the person making the expenditure and indicate that additional information is available on SEEC's website. For IEs made during the 90 days before a primary or election, they must disclose names of the five persons that made the five largest aggregate covered transfers to the person making the communication during the 12 months immediately preceding the applicable primary or election.
The bill expands the disclaimer requirements for entities, as shown in Table 3.
Table 3: Expanded Disclaimer Requirements for IEs by Entities
Type of Advertisement
for Which IE Is Made
New Information Required Under the Bill
Written communication, including one that is typed, on a billboard, printed, or web-based
The name of the entity's chief executive officer, or equivalent, and principal business address
Video advertising broadcast by television, Internet, or satellite
The end of the advertisement must air, for at least four seconds, (1) a clearly identifiable video, photographic, or similar image of the chief executive officer or equivalent and (2) the following personal audio message: “I am… (name of entity's chief executive officer or equivalent), … (title) of … (entity). This message was made independent of any candidate or political party, and I approved its content.”
Audio advertising broadcast by radio, Internet, or satellite
The end of the advertisement must air the following personal audio message: “I am… (name of entity's chief executive officer or equivalent), … (title) of … (entity). This message was made independent of any candidate or political party, and I approved its content.”
Telephone calls (including Robo calls)
The narrative of the telephone call must identify the entity's chief executive officer or equivalent.
The bill also eliminates a provision in current law prohibiting disclaimers from 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.
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.
Limit on Covered Transfers
In New York Progress and Protection PAC (NYPPP) v. Walsh, et al., 733 F.3d 483 (2013), the Second Circuit Court of Appeals found that a New York law limiting political contributions to an independent expenditure political committee violated NYPPP's First Amendment right to political speech. Relying on several other circuit court decisions, the court stated that because the government has no anti-corruption interest in limiting independent expenditures, it follows that “a donor to an independent expenditure committee such as NYPPP is even further removed from political candidates and may not be limited in his ability to contribute to such committees.”
By law, persons must disclose information about IEs they make that exceed $1,000 in the aggregate. 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.
“Foreign Nationals” and Related Federal Law
Foreign Nationals. Federal law defines a “foreign national” as any of the following:
1. a government of a foreign country and a foreign political party;
2. a person outside of the United States, unless it is established that the person is (a) an individual and a U.S. citizen domiciled within the United States or (b) not an individual, has its principal place of business in the United States, and is organized under, or created by, the United States, a state, or other place subject to U.S. jurisdiction;
3. a partnership, association, corporation, organization, or other combination of persons organized under the laws of, or having its principal place of business in, a foreign country; or
4. an individual who is not a U.S. citizen or national, and who is not lawfully admitted for permanent residence (52 U.S.C. § 30121 and 22 U.S.C. § 611(b)).
Prohibited Activities. Federal law prohibits a foreign national from, among other things, directly or indirectly making:
1. in connection with a federal, state, or local election, a contribution or donation of money or anything of value; an express or implied promise to make a contribution or donation; or an expenditure or IE or
2. a contribution or donation to a federal, state, or local political party's committee.
It similarly prohibits a person from soliciting, accepting, or receiving any contribution or donation described above from a foreign national (52 U.S.C. § 30121 and 11 C.F.R. § 110.20).
SB 582, reported favorably by the House Government Administration and Elections (GAE) Committee, contains the same provisions on foreign-influenced entities (except that it uses the term “foreign-influenced business entities”) and covered transfers of more than $70,000.
sSB 934, reported favorably by the GAE Committee, also modifies campaign finance laws and contains provisions expanding political advertising disclosure requirements.
Government Administration and Elections Committee