Federal Election Commission Public Hearing

Statement Prepared for

Federal Election Commission Public Hearing

On the McCutcheon v. FEC

Advance Notice of Proposed Rulemaking

February 11, 2015

Madam Chair and members of the Commission, I am honored by the opportunity to testify before you today concerning the Commission’s proposed rule-making in response to the Supreme Court’s decision in McCutcheon v. FEC. By way of brief introduction, I am the Joseph P. Chamberlain Professor of Legislation at Columbia Law School, where I am also Executive Director of the Legislative Drafting Research Fund. Much of my academic work has focused on campaign finance regulation. The views I present today are entirely my own.

I will focus my comments on two subjects which are within your jurisdiction: (1) coordination, and (2) disclosure. The evolution of campaign finance techniques requires the adaptation of the rules in these areas to current campaign practices. My goal is to make modest but concrete proposals to update regulation in these areas within our existing regulatory framework.

Coordination.The rise of single-candidate Super PACs has given new urgency to the need for a more effective and realistic definition of coordination. Coordinated expenditures may be treated as contributions and subject to limitation because, as the Supreme Court recognized in Buckley, coordinated expenditures are in reality “disguised contributions” to the candidate who benefits from them and thus pose the same dangers of corruption and the appearance of corruption as contributions.

Over the last three election cycles, single-candidate Super PACs have begun to obliterate the lines between contributions and expenditures – and between coordination and independence -- which are central to our campaign finance jurisprudence. By one count, seventy-five Super PACs dedicated to advancing the electoral fortunes of individual candidates were active in the 2011-12 election cycle and accounted for roughly 45% of all Super PAC spending in that election. These organizations were able to take contributions of unlimited size and devote them entirely to aiding a specific candidate. Many enjoyed close relationships with the candidates they backed. They were often organized and directed by former staffers to that candidate, and they relied on the same pollsters, media buyers, ad producers, fundraisers and other common vendors as those candidates. Candidates often raised funds for the Super PACs backing them, and representatives of candidates met with the staffs of and donors to their supportive Super PACs.

The rules governing coordination are based on an older model of independent committee – one withan independent existence apart from the current election, and a set of ideological or policy goals beyond the election of specific candidates. Those rules need to be revised and supplemented to address the new phenomenon of nominally independent committees that are really aimed at electing specific candidates.

I suggest that an organization’s expenditures should be treated as coordinated with a candidate ifit (i) focuses all of its electioneering expenditures on one or a very small number of candidates, and (ii) either is (a) staffed by individuals who workedin the current or past election cycle for the candidate, the candidate's committee, or a political party; (b) has received fundraising support from a candidate, the candidate's campaign, staff, or party; or (c) has been publicly endorsed by the candidate or the candidate’s party as a vehicle for supporting that candidate.Donations to such an organization should be treated as donations to that candidate or candidates. Although the goal is to reach single-candidate committees, they could evade the rule through some nominal spending for an additional candidate. As a result, the rule needs to reach committees that focus on a small number of candidates--say, two to four--not just one, or perhaps a committee that devotes more than half (or some other very large fraction) of its spending to only one candidate regardless of the total number of candidates supported.

This change would be no panacea but itwould safeguarda fundamental feature of the Federal Election Campaign Act -- the requirement that candidates centralize their financesin a single authorized campaign committee. This is to prevent the use of multiple campaign committees to circumvent campaign finance laws that marked the elections of the 1940s, 50s, and 60s. The single authorized committee makes contribution limits more effective and campaign finance activity more transparent. Single-candidate committees threaten to undo this signal accomplishment by enabling candidates to have more than one campaign committee, evade contribution limits, and undermine transparency.

Disclosure. Our disclosure laws are reasonably successful at providing desirable transparency for donations to candidates and parties. But they fall short with respect to the independent committees, Super PACs, and other organizations that play a growing role in our elections. These organizations report their expenditures but they are vehicles for large donors to avoid disclosing their campaign role. At the very least, two steps must be taken to provide the same kind of donor disclosure for electorally active organizations as for candidates and political parties.

First, if an organization reports a contribution from a corporation it must be required to pierce the corporate veil and report not just the corporation as donor but also the identities of the principal individuals behind that corporation. This is not an issue for candidates and parties, as they may not accept donations from corporations. But independent spenders can take and use corporate donations without limit, so major donors can hide their roles by donating through shell corporations. This is also not really an issue about publically-held business corporations, which are likely to have a broad base of shareholders, nor, similarly, is it an issue for mass membership organizations. The problem is posed by closely held corporations and, especially, politically active not-for-profitsthat draw their funds from donors.

When a Super PAC accepts a contribution from a non-profit it should be required to report the principal individual donors to the non-profit, defined either as those who provide more than a threshold fraction of the non-profit’s funds (say, 10%), or, given that such a fraction may be a moving target, more than a threshold amount, say $10,000. If the nonprofit chooses to use only funds specifically contributed to an electoral activity account for its campaign spending, then only funds contributed to that account above the threshold would have to be reported.

Second, campaign spenders which are not political committees subject to political committee reporting and disclosure but are required to report their independent expenditures or electioneering communications should also be required to disclose their principal donors, and not just those that “earmark” contributions for that campaign activity. Such a limitation on disclosure, as the Commission’s rules currently provide, is an invitation to evasion. The propriety of that rule is, of course, the subject of the Van Hollen litigation, but apart from the administrative law question at issue in the litigation the rule is mistaken on the merits. With shell organizations playing a growing role in financing expenditures, disclosure of the principal individual donors behind the nominal spenders is essential for transparency.

Again, the issue is less the spending by publicly held business corporations or mass membership unions, which may have been the focus of the Commission’s concern when it limited disclosure of the identity of the financial backers of these spenders. The real issue is spending by closely-heldfirms and by non-profits. These campaign spenders should be required to disclose their principal investors or donors – again defined as either those who provide a percentage of funds or more than a high threshold amount of money. As with the proposal for regulated political committees, if the spender chooses to limit its campaign spending to funds specifically contributed to an electoral activity, then only funds contributed to that account above the threshold would have to be reported. This would provide the same transparency for independent committees as that required of candidates and parties.

Again, thank you for giving me the opportunity to speak today. I look forward to answering any questions you may have.

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