FEC’s Latest Proposal Still Threatens Nonprofit Advocacy

COALITION TO PROTECT NONPROFIT ADVOCACY

Alliance for Justice
Leadership Conference on Civil Rights
League of Conservation Voters
NAACP National Voter Fund
NARAL Pro-Choice America
People For the American Way
Planned Parenthood Federation of America
Sierra Club

TO: Editorial Editors, Editorial Writers, Political Editors and Reporters, Columnists, and Philanthropy Editors and Reporters
FROM: Coalition to Protect Nonprofit Advocacy
DATE: May 11, 2004
RE: FEC’s Latest Proposal Still Threatens Nonprofit Advocacy

I. Introduction

Last month, the Coalition to Protect Nonprofit Advocacy wrote to you about the Federal Election Commission (“FEC”)’s proposed rules for enforcing the McCain-Feingold campaign finance law that would have decimated nonprofit advocacy in this country.

On April 30, two FEC commissioners unveiled a scaled-back version of these measures known as the Toner-Thomas proposed rules. Although they are certainly narrowed, the Toner-Thomas proposals carry far-reaching implications that still endanger the First Amendment rights of nonprofit organizations. And, the FEC could take action on the proposed rules as early as its next meeting on Thursday, May 13.

The Coalition to Protect Nonprofit Advocacy – a collection of groups formed under the federal tax code as 501(c)(3)s, 501(c)(4)s, and/or 527s – opposes the FEC’s attempts to improperly restrict nonprofit advocacy in the name of campaign finance reform. Even our member groups that supported McCain-Feingold (such as the Sierra Club) firmly oppose these efforts.

We are a diverse coalition, but we agree on the following:

1. The FEC should not rush in the middle of an election year to decide these issues, which Congress previously had the opportunity to consider and rejected.

2. Given the profound impact the proposals pose to the First Amendment, Congress – and not the FEC – is the proper body to consider such changes.

This memo briefly outlines important points about the latest proposals. We would very much appreciate the opportunity to discuss the foregoing and any other issues of interest to you either in person or via telephone. Please contact Peter Montgomery at (202) 467-4999 or Julie Bernstein at (202) 822-6070 if you have any questions or to schedule an appointment for a discussion about these issues.

II. The Current Proposals

Like the February proposed rules, the Toner-Thomas proposal takes aim at a handful of 527s that are engaged in 2004 election activities. In doing so, they have once again misfired. If passed, the rules would exceed the FEC’s congressional mandate under the McCain-Feingold law and the Supreme Court’s McConnell opinion upholding it – and jeopardize many nonprofits in the process.

The February proposed rules would have transformed overnight nonprofit organizations into federal political committees for engaging in certain activities described by the FEC as political, thereby subjecting them to strict financial rules. Such conversions would have destroyed many organizations that could not have survived under such restrictions.

The Toner-Thomas proposal would also curtail free speech and public debate. The following is a brief summary of problems with the Toner-Thomas proposal:

1. The Toner-Thomas proposal does not explicitly carve out 501(c)(3) and 501(c)(4) organizations. Despite its authors’ assertions that it is not aimed at such groups, it does not take them off the table. It leaves them unprotected.

2. Even if 501(c) organizations do not find themselves converted into political action committees regulated by the FEC, their ability to advocate through separate 527 funds - as permitted and even encouraged by federal tax law - could be severely hampered. The treatment of these connected 527 funds under the proposal is not clear, but it is possible that they might either be treated as political committees themselves or considered an integral part of the 501(c) organization, thus jeopardizing the entire organization’s status.

The range of activities for these 527 organizations or accounts has been developed to be the flip side of the permitted sphere of operations for 501(c)(3) charitable organizations, which are prohibited from coming anywhere close to partisan politics. The IRS defines 527 activities broadly, and their activities often lack electoral intent. Yet, the IRS might regard the same activities as illegal for (c)(3)s.

For example, to protect themselves under the tax code, 501(c)(4)s often use affiliated 527s to distribute voter guides and discuss issues arising in political campaigns. Even if the organization does not favor or oppose any candidate, mere comment on candidate positions may be considered engaging in 527 “political” activity. By piggy-backing on the IRS definitions, the FEC would be extending its reach to regulate constitutionally protected advocacy that is not designed to promote the election of a federal candidate.

3. The Toner-Thomas proposal would take aim at nonprofit, nonpartisan voter participation activities by altering the definition of such activities. The proposed measure could effectively prohibit voter participation efforts in which the message urging people to register or vote promotes or opposes a political party. There is no requirement that the party be identified by name, so ultimately, any communication by a nonprofit that urges citizens to vote for or against an issue on which the parties differ could be banned.

Once again, all groups along the political spectrum would be affected - right, center and left. And, all forms of organizations, regardless of their purpose or organizational strategy, including corporations, charities, informal associations of friends, advocacy organizations, and labor unions, could likewise feel the effects. In the end – as with the prior proposals - a vast number of groups could essentially be silenced on the issues that define them.

III. The FEC should not decide an issue in the middle of an election year that Congress considered and rejected and that would have such a significant impact.

It should be noted that Congress considered the role of 527s three times in the last several years – twice through the Internal Revenue Code, and once during the debate over Bipartisan Campaign Reform Act (“BCRA,” also known as the McCain-Feingold law).

In 2000, before BCRA’s passage, Congress decided 527s should register and file with the Internal Revenue Service and disclose information on their donors. During the BCRA debate, Congress could have decided – but never did – to outlaw 527s or even authorize the IRS or FEC to limit their activities. In fact, BCRA contemplates the existence of soft-money 527s that are not PACs. And, in 2002, after BCRA was enacted, Congress decided to ease the registration and reporting requirements for 527s.

Indeed, in the landmark McConnell opinion that upheld McCain-Feingold, the U.S. Supreme Court clearly stated that McCain-Feingold’s limits on unregulated corporate, union and large individual contributions apply to political parties and not interest groups.

The FEC should first monitor and enforce the operation of the new campaign finance law under its newly enacted regulations, and only afterward explore adding new rules. There has not been enough time to build a record assessing BCRA and its existing rules. If the record demonstrates the need for reform, Congress is the body that should consider it.

As FEC Vice Chair Ellen Weintraub has said, “What we are talking about is making a new regulation, and that is not something we ought to do in a rushed fashion that does not give us time to consider all the ramifications.” (“McCain Says FEC Is Not Enforcing Law,” Thomas Edsall, A4, Washington Post, March 11, 2004).

Hundreds of nonprofit organizations have worked for months to make major adjustments to comply with the McCain-Feingold law and the Supreme Court’s decision upholding it, and thousands of donors have contributed to these groups. Changing the rules mid-course is unjust.

IV. Conclusion

The Toner-Thomas proposal may seem more benign than the FEC’s previous proposed rules, but don’t be fooled. It, too, would have a devastating impact on the Constitution’s guarantees for free speech not only in elections but profoundly beyond them.

Under the proposed rules, nonprofit organizations that advocate for cancer research, gun and abortion restrictions or rights, fiscal discipline, tax reform, poverty issues, immigration reform, the environment, or civil rights or liberties – all these organizations could be faced with curbs on their ability to carry out vigorous advocacy on policy issues during an election year.

New rules should not be implemented in the midst of an election year, and, given their threat to First Amendment guarantees, Congress needs to consider them first.

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