Campaign Finance: Constitutional and Legal Issues of Soft Money

Campaign Finance: Constitutional and Legal Issues of Soft Money

Order Code IB98025
CRS Issue Brief for Congress
Received through the CRS Web
Campaign Finance:
Constitutional and Legal
Issues of Soft Money
Updated March 31, 2005
L. Paige Whitaker
American Law Division
Congressional Research Service ˜ The Library of Congress

CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Definitions of Hard and Soft Money in Federal Elections
Political Party Soft Money
Overview
Supreme Court Upholds Restrictions on Political Party Soft Money: McConnell v. FEC
Soft Money Spent On Issue Advocacy
Overview
Supreme Court Upholds Prohibition on Using Corporate and Labor Union Treasury
Funds to Finance Electioneering Communications: McConnell v. FEC
Issue Advocacy Distinguished from Independent Expenditures
Corporate and Labor Union Soft Money
Bipartisan Campaign Reform Act of 2002 (BCRA) (P.L. 107-155) (enacted March 27, 2002;
effective November 6, 2002)
Political Party Soft Money
Issue Advocacy
FOR ADDITIONAL READING
CRS Issue Briefs
CRS Reports
Selected World Wide Websites

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Campaign Finance: Constitutional
and Legal Issues of Soft Money
SUMMARY
The term “soft money” generally refers to
money spent for issue advocacy communica-
unregulated funds for election related activi-
tions gained great popularity. Issue advocacy
ties that are not subject to the Federal Election
typically occurs when a group, such as a for-
Campaign Act’s (FECA) source restrictions,
profit or non-profit corporation or labor union,
contribution limits, and disclosure require-
pays for an advertisement that could be inter-
ments. The Bipartisan Campaign Reform Act
preted to favor or disfavor certain candidates,
of 2002 (BCRA), P.L. 107-155, which
while also serving to inform the public about
amended FECA and became effective on
a policy issue. BCRA prohibits corporations
November 6, 2002, restricts the raising and
and unions from using treasury funds to fund
spending of soft money. This Issue Brief
“electioneering communications,” defined as
discusses constitutional and legal issues
broadcast, cable or satellite advertisements
surrounding two major types of soft money
that “refer to” a federal candidate, 60 days
that BCRA regulates: political party soft mon-
before a general election and 30 days before a
ey and soft money used for issue advocacy
primary, and regardless of the source of fund-
communications. Corporate and labor union
ing, requires disclosure of an ad’s cost,
soft money, which FECA exempts from regu-
sponsor, and contributors. In McConnell v.
lation and is not addressed by BCRA, is also
FEC, the U.S. Supreme Court upheld the
discussed.
constitutionality of this regulation of “elec-

tioneering communications.”
Prior to BCRA, political party soft
money was funds raised by the national parties
Finally, soft money can be used to pay
from sources and in amounts that FECA
for certain corporate and labor union activities
otherwise prohibited. Such funds were used
that are expressly exempt from FECA regula-
in part for overhead expenses and issue ads,
tion: (1) communications by a corporation di-
and then largely transferred to state and local
rected at stockholders, executive or adminis-
parties, in accordance with the applicable state
trative personnel and their families or by a
law, for grassroots and party building activity.
labor organization directed at its members and
As a result of BCRA, FECA now generally
families, on any subject; (2) voter registration
prohibits national parties from raising or
and get-out-the-vote activities by a corpora-
spending soft money (i.e., funds raised outside
tion, directed to its stockholders, executive or
the restrictions of FECA). In McConnell v.
administrative personnel and their families, or
FEC, 124 S. Ct. 619 (2003), the U.S. Supreme
by a labor organization to its members and
Court upheld the constitutionality of these
their families; and (3) the establishment and
restrictions on party soft money.
administration of a political action committee
(PAC). The recently enacted BCRA does not
Over the last several election cycles, soft
address this type of soft money.
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MOST RECENT DEVELOPMENTS
On January 3, 2005, the U.S. Court of Appeals for the Sixth Circuit ruled that federal
courts cannot intervene in an Ohio case regarding disclosure of funding for television issue
ads that attack judicial candidates during the 2000 election, Citizens for a Strong Ohio v.
Marsh, (6th Cir., No. 04-3112). Citing the Younger doctrine, under which federal courts
cannot intervene in ongoing state litigation, the three-judge panel ruled that the constitutional
questions raised by the litigation should be decided by the Ohio state courts.
On August 19, 2004, by a vote of 4 to 2, the Federal Election Commission (FEC)
adopted new regulations to regulate non-party political groups by requiring, under certain
circumstances, the use of federally regulated hard money contributions to pay for at least half
of their expenses. The new rule, which will take effect in the 2006 election cycle, will
regulate certain organizations based on whether their communications soliciting
contributions indicate that “any portion of the funds received will be used to support or
oppose the election of a clearly identified federal candidate.” If such solicitations are made,
the organization would be considered a political committee and would therefore be subject
to FEC regulation. The FEC action was taken in response to recent criticism of the activities
by certain political organizations filing under Section 527 of the Internal Revenue Code, also
known as 527s. (For text of the adopted new rule adopted, see Final Rules for Political
Committee Status, Draft Proposal, submitted by Commissioners Smith, Weintraub, and
Mason at [http://www.fec.gov/agenda/agenda20040819.html].)
On December 10, 2003, in McConnell v. FEC, 124 S. Ct. 619 (2004), the most
comprehensive campaign finance ruling since Buckley v. Valeo in 1976, the U.S. Supreme
Court upheld against facial constitutional challenges key portions of the Bipartisan Campaign
Reform Act of 2002 (BCRA), (P.L. 107-155, also known as the McCain-Feingold or Shays-
Meehan campaign finance reform law). A 5 to 4 majority of the Court upheld restrictions
on the raising and spending of previously unregulated political party soft money and a
prohibition on corporations and labor unions using treasury funds to finance “electioneering
communications,” requiring that such ads may only be paid for with corporate and labor
union political action committee (PAC) funds. The Court invalidated BCRA’s requirement
that parties choose between making independent expenditures or coordinated expenditures
on behalf of a candidate and its prohibition on minors age 17 and under making campaign
contributions.
BACKGROUND AND ANALYSIS
Definitions of Hard and Soft Money in Federal Elections
The term “soft money” or non-federal funds generally refers to unregulated funds for
election related activities that are not subject to the Federal Election Campaign Act’s (FECA)
source restrictions, contribution limits, and disclosure requirements. The Bipartisan
Campaign Reform Act of 2002 (BCRA), P.L. 107-155, which amended FECA and became
effective on November 6, 2002, restricts the raising and spending of soft money.
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The term “hard money,” has typically been used to refer to funds raised and spent in
accordance with the limitations, prohibitions, and reporting requirements of the FECA. See
2 U.S.C. §§ 441a, 441b(a). Unlike soft money, hard money may be used in connection with
a federal election. Under the FECA, hard money restrictions apply to contributions and
expenditures from any “person,” as defined to include, “an individual, partnership,
committee, association, corporation, labor organization, or any other organization or group
of persons, but does not include the Federal Government or any authority of the Federal
Government.” 2 U.S.C. § 431(11).
This Issue Brief discusses constitutional and legal issues surrounding two major types
of soft money that BCRA regulates: political party soft money and soft money used for issue
advocacy. Corporate and labor union soft money, which FECA expressly exempts from
regulation and BCRA does not address, is also discussed.
Political Party Soft Money
Overview
Before the enactment of BCRA, political party soft money funds were raised by the
national parties from sources and in amounts that FECA otherwise prohibited. Such funds
were used in part for party overhead expenses and issue ads, and then largely transferred to
state and local parties, in accordance with the applicable state law, for grassroots and party
building activity. Since the 1979 FECA Amendments, certain grassroots, voter-registration,
get-out-the-vote, and generic party-building activities were exempt from FECA coverage.
2 U.S.C. § 431(9)(B)(viii),(ix). In addition, certain Federal Election Commission (FEC)
advisory opinions permitted soft money to be used for a portion of activities that promoted
both federal and state candidates. (See, e.g., AO 1978-10). Money raised and spent for these
activities was in large part unregulated and hence, was considered political party soft money.
As a result of the BCRA amendments, the FECA now generally prohibits national party
committees from raising or spending soft money by subjecting such funds to the limitations,
prohibitions, and reporting requirements of FECA.
Supreme Court Upholds Restrictions on Political Party Soft Money:
McConnell v. FEC
Title I of BCRA prohibits national party committees and their agents from soliciting,
receiving, directing, or spending any soft money, 2 U.S.C. § 441i(a). In addition, Title I
prohibits state and local party committees from using soft money for activities that affect
federal elections; prohibits parties from soliciting for and donating funds to tax-exempt
organizations that spend money in connection with federal elections; prohibits federal
candidates and officeholders from receiving, spending, or soliciting soft money in connection
with federal elections and restricts their ability to do so in connection with state and local
elections; and prevents circumvention of the restrictions on national, state, and local party
committees by prohibiting state and local candidates from raising and spending soft money
to fund advertisements and other public communications that promote or attack federal
candidates, 2 U.S.C. §§ 441i(b), (d), (e), (f).
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In McConnell v. FEC, plaintiffs challenged Title I based on the First Amendment as
well as Art. I, § 4 of the U.S. Constitution, principles of federalism, and the equal protection
component of the Due Process Clause of the 14th Amendment. The Supreme Court upheld
the constitutionality of all provisions in Title I, finding that its provisions satisfy the First
Amendment test applicable to limits on campaign contributions: they are “closely drawn” to
effect the “sufficiently important interest” of preventing corruption and the appearance of
corruption. Rejecting plaintiff’s contention that the BCRA restrictions on campaign
contributions must be subject to strict scrutiny in evaluating the constitutionality of Title I,
the Court applied the less rigorous standard of review – “closely drawn” scrutiny. Citing
its landmark 1976 decision, Buckley v. Valeo, and its progeny, the Court noted that it has
long subjected restrictions on campaign expenditures to closer scrutiny than limits on
contributions in view of the comparatively “marginal restriction upon the contributor’s
ability to engage in free communication” that contribution limits entail. The Court observed
that its treatment of contribution limits is also warranted by the important interests that
underlie such restrictions, that is, preventing both actual corruption threatened by large dollar
contributions as well as the erosion of public confidence in the electoral process resulting
from the appearance of corruption. The Court determined that the lesser standard shows
“proper deference to Congress’ ability to weigh competing constitutional interests in an area
in which it enjoys particular expertise.” Finally, the Court recognized that during its lengthy
consideration of BCRA, Congress properly relied on its authority to regulate in this area, and
hence, considerations of stare decisis as well as respect for the legislative branch of
government provided additional “powerful reasons” for adhering to the treatment of
contribution limits that the Court has consistently followed since 1976.
Soft Money Spent On Issue Advocacy
Overview
Over the last several election cycles, soft money spent for issue advocacy
communications gained great popularity. Issue advocacy communications are paid for by a
group, such as a for-profit or non-profit corporation or labor organization, for advertisements
that could be interpreted to favor or disfavor certain candidates, while also serving to inform
the public about a policy issue.
In Buckley v. Valeo, 424 U.S. 1 (1976), the Supreme Court construed FECA’s
disclosure and reporting requirements, as well as its expenditure limitations, to apply only
to funds used for communications that contain express advocacy of the election or defeat of
a clearly identified candidate. Numerous lower courts have since interpreted Buckley to
stand for the proposition that communications must contain express terms of advocacy, such
as “vote for” or “vote against,” in order for regulation of such communications to pass
constitutional muster under the First Amendment. Absent express advocacy, lower courts
have held, a communication is considered issue advocacy, which is protected by the First
Amendment and therefore many not be regulated.
Supreme Court Upholds Prohibition on Using Corporate and Labor
Union Treasury Funds to Finance Electioneering Communications:
McConnell v. FEC
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Effectively overturning previous lower court rulings, the McConnell Court held that
neither the First Amendment nor Buckley prohibits BCRA’s regulation of “electioneering
communications,” even though electioneering communications, by definition, do not
necessarily contain express advocacy. The Court determined that when the Buckley Court
distinguished between express and issue advocacy it did so as a matter of statutory
interpretation, not constitutional command. Moreover, the Court announced that, by
narrowly reading the FECA provisions in Buckley to avoid problems of vagueness and
overbreadth, it “did not suggest that a statute that was neither vague nor overbroad would be
required to toe the same express advocacy line.” “[T]he presence or absence of magic words
cannot meaningfully distinguish electioneering speech from a true issue ad,” the Court
observed.
While Title II prohibits corporations and labor unions from using their general treasury
funds for electioneering communications, the Court observed that they are still free to use
separate segregated funds (PACs) to run such ads. Therefore, the Court concluded that it is
erroneous to view this provision of BCRA as a “complete ban” on expression rather than
simply a regulation. Further, the Court found that the regulation is not overbroad because
the “vast majority” of ads that are broadcast within the electioneering communication time
period (60 days before a general election and 30 days before a primary) have an
electioneering purpose. The Court also rejected plaintiffs’ assertion that the segregated fund
requirement for electioneering communications is underinclusive because it only applies to
broadcast advertisements and not print or internet communications. Congress is permitted,
the Court determined, to take one step at a time to address the problems it identifies as acute.
With Title II of BCRA, the Court observed, Congress chose to address the problem of
corporations and unions using soft money to finance a “virtual torrent of televised election-
related ads” in recent campaigns.
In upholding BCRA’s extension of the prohibition on using treasury funds for financing
electioneering communications to non-profit corporations, the Court found that even though
the statute does not expressly exempt organizations meeting the criteria established in its
1986 decision in FEC v. Massachusetts Citizens for Life (MCFL), 479 U.S. 238 (1986), it
is an insufficient reason to invalidate the entire section. Since MCFL had been established
Supreme Court precedent for many years prior to enactment of BCRA, the Court assumed
that when Congress drafted this section of BCRA, it was well aware that this provision could
not validly apply to MCFL-type entities. In MCFL, the Supreme Court ruled that a
publication urging voters to vote for “pro-life” candidates, while also identifying and
providing photographs of certain candidates who fit that description, could not be regarded
as a “mere discussion of public issues that by their nature raise the names of certain
politicians.” Instead, the Court found, the publication “in effect” provided a directive to the
reader to vote for the identified candidates and ergo, constituted express advocacy. Id. at
249-250.
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Issue Advocacy Distinguished from Independent Expenditures
Soft money spent for issue advocacy communications is sometimes confused with
independent expenditures. Although both types of expenditures are purportedly independent,
(Justice Kennedy argues that, by nature, practically all expenditures are coordinated with a
candidate and, thus, cannot be considered independent. Colorado Republican Committee v.
FEC (Colorado I), 518 U.S. 604 (1996)(Kennedy, J., concurring in the judgment, dissenting
in part), only independent expenditures are subject to the FECA. The Colorado I Court held
that the First Amendment would prohibit the application of a FECA provision, 2 U.S.C. §
441a(d)(3), limiting political party expenditures made independently and without any
coordination with a candidate or his or her campaign. The Colorado decision essentially
banned any limitations on political party expenditures when they are made independently of
a candidate’s campaign. Colorado I, 518 U.S. at 614-17. Since a political committee
making independent expenditures, however, is still subject to FECA restrictions regarding
sources and contribution amounts it may receive from a person (see, e.g., 11 C.F.R. §
110.0(d)), an independent expenditure is not considered soft money.
In FEC v. Colorado Republican Federal Campaign Committee (Colorado II), 533 U.S.
431 (2001), the Supreme Court held that a political party’s coordinated expenditures, unlike
genuine independent expenditures, may be limited in order to minimize circumvention of the
Federal Election Campaign Act’s (FECA) contribution limits. While the Court’s opinion in
Colorado I was limited to the constitutionality of the application of FECA’s “Party
Expenditure Provision,” 2 U.S.C. § 441a(d)(3), to an independent expenditure by the
Colorado Republican Party, in Colorado II the Court considered a facial challenge to the
constitutionality of the limit on coordinated party spending. Persuaded by evidence
supporting the FEC’s argument, the Court found that coordinated party expenditures are
indeed the “functional equivalent” of contributions. Id. at 447. Therefore, in its evaluation,
the Court applied the same scrutiny to the coordinated “Party Expenditure Provision” that
it has applied to other contribution limits: inquiring whether the restriction is “closely drawn”
to the “sufficiently important” governmental interest of stemming political corruption. Id.
at 456. The Court further determined that circumvention of the law through “prearranged
or coordinated expenditures amounting to disguised contributions” is a “valid theory of
corruption.” Id. In upholding the limit, the Court noted that “substantial evidence
demonstrates how candidates, donors, and parties test the limits of the current law,” which,
the Court concluded, “shows beyond serious doubt how contribution limits would be eroded
if inducement to circumvent them were enhanced by declaring parties’ coordinated spending
wide open.” Id. at 457.
Corporate and Labor Union Soft Money
Generally, contributions and expenditures by corporations, labor unions, membership
organizations, cooperatives, and corporations without capital stock have been prohibited in
federal elections. 2 U.S.C. § 441b. FECA, however, provides for three exemptions from this
broad prohibition, that is, contributions and expenditures for: (1) communications by a
corporation to its stockholders, executive or administrative personnel and their families or
by a labor organization to its members or families on any subject; (2) nonpartisan voter
registration and get-out-the-vote activities by a corporation aimed at its stockholders and
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executive and administrative personnel and their families or by a labor organization aimed
at its members and their families; and (3) the establishment, administration and solicitation
of contributions to a separate segregated fund (commonly known as a political action
committee or PAC or SSF) to be utilized for federal election purposes by a corporation, labor
organization, membership organization, cooperative, or corporation without capital stock.
2 U.S.C. § 441b(b)(2)(A)-(C); see also 11 C.F.R. § 114.1(a)(2)(i)-(iii).
In Communication Workers of America v. Beck, 487 U.S. 735 (1988), the Supreme
Court held that labor unions are not permitted to spend funds exacted from dues-paying
non-union employees under an agency shop agreement for certain activities unrelated to
collective bargaining when those employees object to such expenditures. According to the
Court, Congress’ purpose in providing the union shop was to force employees to bear their
fair share of the costs of labor-management negotiations and collective bargaining activities,
but not to force employees to support unrelated labor union political activities they oppose.
As a result of Beck, non-union employees in an agency shop agreement can request a refund
of that portion of their dues used by the union for political activities. Accordingly, if workers
exercise their rights under Beck, labor unions would lose some soft money funds, which
would otherwise be available for election-related expenses. Campaign finance reform
legislation that would simply codify the Beck decision, without expanding on the Court’s
ruling, would appear to be constitutional.
Bipartisan Campaign Reform Act of 2002 (BCRA)
(P.L. 107-155) (enacted March 27, 2002; effective
November 6, 2002)
The following summarizes BCRA provisions addressing political party soft money and
soft money spent on issue advocacy, which were upheld as constitutional by the Supreme
Court on December 10, 2003 in McConnell v. FEC, 124 S. Ct. 619 (2003).
Political Party Soft Money
Prohibits national party committees from soliciting, receiving, directing, transferring,
or spending soft money; generally prohibits spending of soft money for a “federal election
activity” by state and local party committees, including an association or group of state or
local candidates or officials. Prohibits state or local candidates from using soft money for
public communications that promote or attack a clearly identified federal candidate, but
exempts communications referring to a federal candidate who is also a state or local
candidate. Permits state, district or local party committees to use some funds raised under
state law for an allocable share (at a 50-50 hard to soft money ratio) of voter registration
drives in the last 120 days of a federal election, and voter identification, get-out-the-vote
drives, and generic activity if it: (1) does not refer to a federal candidate; (2) does not pay for
a broadcast, cable or satellite communication (unless it refers solely to state/local
candidates); (3) takes no more than $10,000 per year from any person for such activity (or
less, if state law so limits); and (4) uses only funds raised by that party committee expressly
for such purposes, with no transfers from other party committees. Defines “federal election
activity” to include (1) voter registration drives in last 120 days of a federal election; (2)
voter identification, get-out-the-vote drives, and generic activity in connection with an
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election in which a federal candidate is on the ballot; and (3) “public communications” that
refer to a clearly identified federal candidate and promote, support, attack, or oppose a
candidate for that office (regardless of whether it expressly advocates a vote for or against)
or services by a state or local party employee who spends at least 25% of paid time in a
month on activities in connection with a federal election. Requires disclosure by national
parties of all activity (federal and non-federal), and by state and local parties of specified
activities, that might affect federal elections; removes building fund exemption.
Issue Advocacy
Creates a new term in federal election law, "electioneering communication," in order
to regulate political ads that "refer" to a clearly identified federal candidate, are broadcast
within 30 days of a primary or 60 days of a general election, and for House and Senate
elections, are “targeted to the relevant electorate.” Generally, it requires disclosure of
disbursements over $10,000 for such communications, including identification of each donor
of $1,000 or more, and prohibits such communications from being financed with union or
certain corporate funds. With respect to corporate funds, it exempts Internal Revenue Code
§ 501(c)(4) or § 527 tax-exempt corporations from making “electioneering communications”
with funds solely donated by individuals who are U.S. citizens or permanent resident aliens,
unless the communication is “targeted,” (i.e., it was distributed from a broadcaster or cable
or satellite service and is received by 50,000 or more persons in the state or district where
the Senate or House election, respectively, is occurring).
FOR ADDITIONAL READING
CRS Issue Briefs
CRS Issue Brief IB87020. Campaign Financing, by Joseph E. Cantor.
CRS Reports
CRS Report 97-973. Business and Labor Spending in U.S. elections, by Joseph E. Cantor.
CRS Report RS21511. Campaign Finance: Brief Overview of McConnell v. FEC, by L.
Paige Whitaker.
CRS Report RL31290. Campaign Finance Bills Passed in the 107th Congress: Comparison
of S. 27 (McCain-Feingold), H.R. 2356 (Shays-Meehan), and Current Law, by Joseph
E. Cantor and L. Paige Whitaker.
CRS Report RS21693. Campaign Finance Law: The Supreme Court Upholds Key
Provisions of BCRA in McConnell v. FEC, by L. Paige Whitaker.
CRS Report 98-282. Campaign Finance Reform: a Legal Analysis of Issue and Express
Advocacy, by L. Paige Whitaker.
CRS Report RS20849. Campaign Finance Reform: Constitutional Issues Raised by
Disclosure Requirements, by L. Paige Whitaker.
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CRS Report RS20854. Campaign Finance Reform and Incentives to Voluntarily Limit
Candidate Spending from Personal Funds: Constitutional Issues Raised by Public
Subsidies and Variable Contribution Limits, by L. Paige Whitaker.
CRS Report RL30669. Campaign Finance Regulation under the First Amendment: Buckley
v. Valeo and its Supreme Court progeny, by L. Paige Whitaker.
CRS Report 97-1040. Campaign Financing: Highlights and Chronology of Current Federal
Law, by Joseph E. Cantor.
CRS Report RS21725. IRS Guidelines for Political Advocacy by Exempt 501(c)
Organizations: Revenue Ruling 2004-6, by Erika Lunder.
CRS Report RS21716. Political Organizations Under Section 527 of the Internal Revenue
Code, by Erika Lunder.
CRS Report RL31288. Soft Money, Allegations of Political Corruption, and Enron, by Jack
Maskell and L. Paige Whitaker.
CRS Report 97-618. The Use of Union Dues for Political Purposes: a Legal Analysis, by L.
Paige Whitaker.
Selected World Wide Websites
Federal Election Commission:
[http://www.fec.gov]
For access to full text of court decisions:
[http://www.findlaw.com/casecode/cases.html]
For access to U.S. Supreme Court BCRA cases page regarding McConnell v. FEC litigation:
[http://www.supremecourtus.gov/bcra/bcra.html]
For access to McConnell v. FEC comprehensive case materials from Stanford Law School:
[http://www.law.stanford.edu/library/campaignfinance/#case]
For ongoing tracking of issue advocacy by the Annenberg Public Policy Center of the
University of Pennsylvania:
[http://www.annenbergpublicpolicycenter.org/issueads/]
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