Welcome to the September Edition of the Political Law Playbook. As summer has unofficially come to an end, so has the abridged version of the Playbook. This full edition highlights several notable developments, including Federal Election Commission (“FEC”) efforts to revamp its filing systems and a continued push for ethics reform both in the Supreme Court and Department of Defense.
Also of note, Republicans on the House Ways and Means Committee issued a request for information (“RFI”) asking stakeholders to provide details on certain tax-exempt organizations’ compliance with Internal Revenue Service (“IRS”) guidelines for political activities, and to opine on whether foreign funds are being channeled through these groups to influence American politics. Nonprofits, law firms, think tanks, and several other organizations have responded to offer their respective takes on the state of the current regulatory framework and how it might be improved.
There has also been significant election-related activity in courts across the country, as federal judges in Alabama and Ohio have ruled or are reviewing cases related to redistricting and campaign finance. As these decisions come down the pike in the lead up to the 2024 election, they have the potential to significantly impact how stakeholders engage in campaign-related activities.
Federal Elections & Campaign Finance
FEC Requests Public Comment On Improvements To Report Filing Processes And Website Usability – The FEC is currently requesting public comment on ways the agency can improve its report filing processes and public website. The request comes as the FEC prepares for the 2024 election, which will see an influx in traffic to the site from members of the public and regulated entities alike. The 60-day window for comment will also provide an important opportunity for entities filing reports through the FEC’s electronic submission software to give feedback on ways to improve the logistics of the reporting process.
ChatGPT Breaks Its Own Rules On Political Messages – OpenAI, the organization responsible for the popular AI tool ChatGPT, has allegedly not been enforcing a self-imposed restriction on the use of the technology for campaign purposes. When the platform debuted ChatGPT last year, it banned political campaigns from using the AI bot. This March, it loosened the ban to only prevent its use for materials targeting specific voting demographics because of the risk of spreading disinformation. However, OpenAI has not enforced this ban for months – when prompted, its technology will still generate the targeted campaign communications it supposedly bans. While this tool could be helpful for small campaigns, observers warn that it could lead to a proliferation of disinformation by making it faster and cheaper to spread targeted political falsehoods. Though the FEC is currently reviewing AI regulations, Congress has yet to pass any laws regulating the use of generative AI in federal elections.
X To Allow Political Ads For The First Time Since 2019 – The app formerly known as Twitter is allowing political advertising on its platform for the first time since 2019. Paid political ads will be allowed, though the company – now “X” – will have policies in place to combat the spread of false and misleading information. To support this effort, X announced its plans to expand its safety and elections teams to focus on combating manipulation, surfacing inauthentic accounts, and closely monitoring the app for emerging threats. The platform will also provide a global advertising transparency center available to the public and implement screening processes for its political advertisers. The return of the highly visited social media platform to the political advertising space suggests that it will again be a critical resource for candidates, committees, and other advertisers in the lead up to the 2024 election.
Federal Court Rejects Alabama’s Newly Redrawn Congressional Map, Orders New Lines Drawn – In the long running saga associated with Alabama’s congressional redistricting efforts post 2020 census, a three-judge federal panel based in Birmingham recently ruled that the state’s attempt to redraw its 2021-adopted congressional map so as to comply with the US Supreme Court’s decision in Allen v. Milligan fell short of meeting the requirements of the Voting Rights Act (“VRA”). Earlier this year, the Supreme Court upheld the same three-judge panel’s rejection of the Alabama legislature’s 2021 congressional redistricting map, which was challenged by liberal groups and African American voters for purportedly violating Section 2 of the VRA by unduly packing an excessive number of African American voters into Alabama’s 7th Congressional District. Although the 2021 map was very similar to congressional plans adopted by Alabama without issue in past redistricting cycles, the three-judge panel and Supreme Court found that the 2021 iteration made it too difficult for African American Alabamians outside of the 7th District to elect a “leader of their choice”. In response to the high court’s recent order, Alabama redrew the congressional plan to increase the African American population in the state’s 2nd Congressional District to nearly 40%, making it a potential “opportunity” district for African American voters. Despite this change, the new map was challenged again in court for falling short of the Supreme Court’s remedial mandate – leading to the present ruling by the three-judge panel. As part of its decision, the three-judge panel has appointed a special master and given him until September 25 to draft and submit three potential remedial maps that can address the identified VRA violations. In the meantime, however, the Alabama Attorney General’s office is presently seeking Supreme Court review of the panel’s recent decision.
Federal Lobbying & Ethics
Calls for Supreme Court Ethics Reform Continue – Over the past month the push for increased ethics scrutiny of US Supreme Court Justices by left-leaning watchdog groups and Democrat leaders continued. Against the backdrop of these calls, Justice Clarence Thomas released his personal annual financial disclosure, which reported several trips on the private plane of a friend and prominent conservative activist. Justice Alito recently opined that current legislative efforts by Congress to regulate the ethical obligations of the federal judicial branch were unconstitutional, spurring Senator Sheldon Whitehouse (D-RI) to lodge an “ethics complaint” against him for allegedly violating judicial standards. In the midst of these outside efforts to influence the Court’s approach to ethics, there are at least some preliminary indications that it may soon be taking measures to address these concerns itself.
Department of Defense Ethics and Anti-Corruption Act of 2023 Introduced in US House, Senate – Congressman Andy Kim (D-NJ) and Senator Elizabeth Warren (D-MA) have introduced companion bills in their respective chambers of Congress aimed at strengthening lobbying and revolving door restrictions for former Department of Defense (“DOD”) employees and contractors. The bills – H.R. 5306 and S. 2050 – would impose on certain DOD contractors a four-year bar on hiring former DOD officials and employees who managed their contracts, extend the four-year cooling off period for former military generals lobbying DOD, expand the cooling off period restrictions to other senior officials, and institute annual public reporting requirements for defense contractors who hire former DOD senior officials. The bills also contain provisions designed to limit foreign influence, preventing senior national security officials and military and civilian intelligence personnel from working on behalf of foreign governments or entities that operate on behalf of foreign governments. Finally, the proposed measures – if passed – would mandate that defense contractors file extensive disclosures regarding lobbying, contracts, and other financial activity. At this time, neither bill has advanced passed committee referral.
Non-Federal Elections & Campaign Finance
California Passes Law to Bring Light to Political Influencers – California Governor Gavin Newsom signed Senate Bill 678 into law earlier this month targeting political engagement by social media “influencers.” The law requires that a person paid by a political committee to post content online supporting or opposing a candidate or a ballot measure include a disclaimer stating they were paid to make the post. These additional disclaimer requirements will go into effect January 2024.
Non-Federal Lobbying & Ethics
Ex-Anaheim Mayor To Plead Guilty To Corruption Charges Tied To Angel Stadium Sale – Following an extensive multi-year FBI investigation into corruption surrounding the sale of the Anaheim Angels stadium, former Anaheim Mayor Harry Sidhu has agreed to plead guilty to federal corruption charges. According to the allegations against Sidhu, the former mayor supposedly intended to solicit campaign contributions of $1 million in exchange for performing official acts to finalize the sale of the Angels stadium. Despite initially denying such conduct during an FBI interview, the plea agreement states that Sidhu knowingly lied to a federal agent when he said that he did not expect anything in return for the sale of the stadium, did not conduct city business from his personal email, and that he did not recall ever providing information about the stadium sale to the Angels consultant during negotiations over that sale. This plea agreement stems from a sprawling federal corruption investigation into the city government’s dealings with private actors, including the city’s Chamber of Commerce.
It Was $10K In A Paper Bag. But Was It A Bribe Under The Law? It Sure Was, Says NJ’s Top Court – The New Jersey Supreme Court recently upheld bribery charges against former state Assemblyman Jason O’Donnell, who in 2019 allegedly accepted $10,000 in cash from a tax attorney while O’Donnell was a mayoral candidate in the City of Bayonne. At issue was whether O’Donnell could be charged with official corruption because he was not a public official at the time the money was exchanged—in a paper bag—for the promise of a lucrative municipal contract. Despite the New Jersey Superior Court’s earlier determination that there was no bribery involved in the scenario because the mayoral candidate had no power to make any promises in return for the cash payment, the state appellate court and state Supreme Court both disagreed. The New Jersey Supreme Court ultimately determined that the state’s bribery law provides no exemption for non-incumbent candidates in an election.
Lobbying Topped $300 Million In NY For The First Time In 2022 – Lobbyists in New York State spent a record $332 million to influence elected officials in 2022, according to reports from the state’s Commission on Ethics and Lobbying. This was the largest annual amount spent on lobbying on record, with labor unions and organizations in the health care sector spending the most money. In response to the findings of the Commission, Governor Kathy Hochul issued a strong statement indicating that the state will continue to be diligent in its enforcement of lobbying registration and reporting requirements. Hochul’s focus on these issues is quite predictable in the wake of ethics and corruption allegations lodged against former statewide officials in New York in recent years and considering continued questions raised by the media and other groups concerned about the influence of political donors in state government.
Ethics Watchdogs Worry About Low Number of Registered Lobbyists in Tallahassee – The number of lobbyists registering in Tallahassee, Florida decreased by 77% from 2022 to 2023, leading ethics watchdogs to be concerned about the exploitation of a so-called “consultant loophole” in the city’s lobbying ordinance. The sharp decline comes in the wake of reform attempts to broaden the city’s lobbying framework, which ultimately failed. While some observers see the drop in registered lobbyists as innocuous – perhaps even an indication that people feel comfortable coming directly to the commission rather than hiring lobbyists – other ethics reformers disagree. Those individuals see the drop in registered lobbyists as indicative of lobbyists using the definition loopholes in the ordinance to avoid paying the registration fee and work in the background without disclosing clients.
Pay-to-Play
San Francisco Voters To Decide on Anti-Corruption Ballot Measure – Last month, the San Francisco Ethics Commission voted to place a package of anti-corruption matters on the March 2024 election ballot that would tighten conflict of interest laws, prohibit certain gift-giving and bribery, and implement additional ethics training. The proposed revisions to gift rules could have implications for city contractors and those engaged in procurement activities, and generally would be targeted at increasing transparency and decreasing pay-to-play tactics used to secure favorable treatment from city officials.
The Courts & Free Speech
NRSC v. FEC Could Be One of the Most Impactful Campaign Finance Cases Since Citizens United – There is growing interest among political stakeholders regarding an ongoing federal campaign finance lawsuit that, if successful, would reform the way official party committees and candidates can operate together. Plaintiffs in National Republican Senatorial Committee v. FEC, first filed in late 2022, challenged federal law limits on coordinated party expenditures on First Amendment grounds. Currently, federal law limits the amount party committees can spend in coordination with candidates for House and Senate offices. The NRSC’s suit argues that such limits violate free speech protections and challenges the FEC’s interest in restricting this coordinated spending—instead, it argues that a more narrowly-tailored alternative is required. They seek a declaratory judgement that these limits are unconstitutional and an injunction preventing the FEC from enforcing these limits. The result of this case could dramatically change the way elections operate. A ruling for the NRSC would allow party committees to work with candidates, receive cheaper advertising rates provided to candidates, and eliminate the need for party committees to create separate operations for purposes of making independent expenditures. The case is currently sitting in the US District Court for the Southern District of Ohio and will likely be headed to the 6th Circuit for review.
10th Circuit Reinstates Challenge To Colorado’s Regulations On Ballot Issue Advocacy Groups – A three-judge panel of the US Court of Appeals for the 10th Circuit reinstated a legal challenge to Colorado’s registration and disclosure requirement for ballot issue advocacy groups last month in Colorado Union of Taxpayers, Inc. v. Griswold et al. A Colorado state law imposes registration requirements on issue committees that engage in ballot initiative advocacy. “Small scale issue committees” that receive contributions and make expenditures between $200 and $5,000 are required to register with the state, while issue committees whose contributions and expenditures exceed $5,000 are subject to additional disclosure requirements. The plaintiff organization argued against the law on free speech grounds, saying that the state has no valid interest in regulating the political speech of groups that do not primarily advocate on ballot initiatives. They also asserted that the $5,000 threshold for disclosure was arbitrary and that the registration and disclosure requirements were overbroad as applied to ballot initiatives in the signature-gathering phase. The case was initially dismissed in federal district court in March 2022 on standing grounds for lacking a credible threat of enforcement. However, the 10th Circuit disagreed and reinstated the challenge finding the plaintiff’s fear reasonable in light of a concurrent enforcement action against another regulated entity while the lawsuit was ongoing. The panel also noted that the law has some discrepancies with the state constitution.
Federal Judge Rules That Ban On Lobbying By Elected Officials Violates Free Speech – US District Judge Beth Bloom recently permanently enjoined a constitutional amendment passed in Florida in 2018 that would prevent officeholders from receiving compensation for lobbying in a private capacity. The amendment was challenged by Miami-Dade County Commissioner René Garcia and South Miami Mayor Javier Fernández in Garcia v. Stillman for violating the First Amendment’s free speech protections, despite being approved by nearly 80% of voters. The amendment was aimed at closing the “revolving door” between public office and private lobbying, but Judge Bloom held that there was no evidence that there was a conflict-of-interest problem with officeholders receiving income for lobbying. However, Bloom left intact a provision of the amendment that requires a six-year “cooling off” period for former government officials before they can lobby before their former agency.
Nonprofit Compliance and Disclosure
House Ways and Means Committee Issues Request for Information Regarding the Regulation of Political Activities by Tax-Exempt Groups – The House Committee on Ways and Means issued a request for information last month seeking input from the public on whether tax-exempt organizations are abiding by the federal statutory and regulatory limitations and prohibitions on certain political activities, and whether foreign sources of funding are being funneled through such organizations to influence America’s elections. The request cites reports that there are significant amounts of foreign money flowing through Section 501(c)(3) and 501(c)(4) organizations to Super PACs to influence America’s elections. This RFI has resulted in a flurry of responses from stakeholders in the space, including from free speech nonprofits, tax practitioners, and government transparency groups. The tone of the responses cover a wide spectrum, ranging from urging that the IRS should not regulate political activity at all, to asking that the Service revamp its definitions and guidance for political activity by nonprofit organizations.
Practice Pointers
This month’s edition of Political Law Playbook highlights an uptick in congressional scrutiny of how tax-exempt groups operate in the political space. Concerns about coordination between political entities (like Super PACs), donors, and Section 501(c)(3) and (c)(4) groups, in addition to worries about foreign funding and influence, have been driving the renewed focus. While the regulations and guidance in this space are outdated and confusing at best, the recent flurry of legislative interest in the area suggests that it is crucial for tax-exempt organizations to work closely with legal counsel to ensure compliance with the current framework governing fundraising, operational, and advocacy efforts. Many nonprofit groups are already hard at work educating and influencing policy and politics in advance of the 2024 elections, so it is imperative that these stakeholders stay abreast of the changing compliance environment in Washington and around the country.
The Dentons Political Law team will continue to cover developments from the RFI and any other related changes in this space. Further, our team regularly advises tax-exempt organizations, nonprofits, issue advocacy groups, and other stakeholders on compliance with IRS and FEC regulations governing this activity. Please don’t hesitate to reach out if you have any specific questions or concerns.
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