Donald Simon Testimony for McCutcheon ANPRM

Two weeks ago, according to press reports, a roomful of multi-millionaires decided they are going to raise and spent about $900 million to make the 2016 elections turn out their way.  This money is going to be donated to outside spending groups in very large amounts by very rich people.  Much of the money will undoubtedly be spent through groups that, under the Commission’s rules, do not disclose their donors.  So the public will never know the identity of the wealthy interests who are behind much of this spending.

This group will almost certainly support Republican candidates exclusively.  But there will be plenty of multi-millionaires on the Democratic side as well, and they are likely to deploy their vast wealth in similar ways.  And their identities are also likely to be hidden from the public.

To an important degree, this illustrates the state of campaign financing for the upcoming presidential elections: a contest of plutocrats spending hundreds of millions of dollars, whose identities will not be known to the public, but only to the candidates, officeholders and party leaders they seek to benefit and curry favor with.

To compound the problem, much of the spending in this election will be done under the guise of being independent of candidates, officeholders and party leaders.  But at least for the spending done through candidate-specific Super PACs, this truly is a legal fiction, not any sensible conception of independence.  When the Supreme Court has discussed independent spending, it has said such spending must be “totally independent,” “wholly independent,” “truly independent,” and done “without any candidate’s approval (or wink or nod).”

The reality with candidate-specific Super PACs is very different.  In the 2012 election, one donor gave $1 million to the Santorum Super PAC, and that donor said that he helped shape the spending decisions by the Super PAC.  At the same time, he traveled with Santorum, was reported to be part of Santorum’s inner campaign circle, and according to press reports, participated in sensitive conversations with Santorum about campaign advertising.  Santorum himself said that this donor “is someone who I talk to, who gives me plenty of advice on … what I say.”

In another example, according to other press reports, one consulting firm simultaneously provided voter research services to both the Romney campaign and to the Romney Super PAC.  The head of the consulting firm was quoted in a New York Times story as stating about this arrangement that “he understood how it could look ridiculous.”

In Buckley, the Supreme Court said that the independent nature of outside spending is what “alleviates the danger” that the spending will be given as a quid pro quo in exchange for improper commitments from a candidate.  But according to press reports, Sheldon Adelson had direct face to face talks with Mitt Romney before donating $30 million to the Romney Super PAC.  Can anyone seriously contend that this is what the Supreme Court meant when it said that independent spending poses no danger of corruption?

By now, it is considered a virtual necessity for any serious candidate to have a dedicated Super PAC which, as a practical matter, functions as the soft money arm of the campaign. Nor is there much danger of the Super PAC getting off message.  The Super PAC is typically run by the candidate’s own political operatives or former staff.  The candidate raises money for the Super PAC and meets with its large donors.  And now the candidate even supplies the video footage for the Super PAC to use in its ads.

It has been widely observed that the premise of the Citizens United decision is that unlimited corporate spending does not pose any threat of corruption for two reasons: first, because such spending will be fully disclosed, and second, because it will be independent of a candidate’s campaign. Instead, we now have hundreds of millions of dollars of undisclosed spending.  And we now have spending that can be considered independent only by applying the yardstick of the FEC’s inadequate coordination regulations.  The very safeguards against corruption relied on by the Supreme Court have been undermined by the Commission’s rules.

With regard to disclosure, the Commission has said about its role that “Disclosing the sources and amounts of funds used to finance federal elections is perhaps the most important of the FEC’s duties. In fact, it would be virtually impossible for the Commission to effectively fulfill any of its other responsibilities without disclosure.”  Yet the Commission is failing at this job.

A district court has now twice declared illegal the Commission’s reporting rules for electioneering communications.  The Commission is not even appealing the latest ruling, although another party is.  But the Commission can and should fix the rules right away, to close the most obvious of loopholes that turns a statutory reporting requirement into little more than a suggestion to an outside spending group that it might want to volunteer the names of its donors, and not surprisingly, few do.  Similarly, the Commission should fix its rules regarding disclosure of independent expenditures, which also result in almost no donor disclosure.

It is hard to square the Supreme Court’s ringing endorsement of disclosure as a panacea for the possible ills of big money, with the Commission’s tolerance for its obviously flawed rules that result in hundreds of millions of dollars of secret money in federal elections.

Indeed, in McCutcheon itself, the Court again said that disclosure “minimizes the potential for abuse of the campaign finance system.”  There is no excuse, statutory or constitutional, for the Commission’s existing inadequate disclosure regime.

So let me suggest that if you are looking for issues to examine in a rulemaking, disclosure and coordination would be the two most important areas for the Commission to pursue.

As to the specific McCutcheon-related issues raised in the ANPRM, our written comments set forth our suggestions with regard to existing rules relating to earmarking, affiliation and joint fundraising committees.  The Court in McCutcheon did not question the importance of effective measures to guard against circumvention of the base contribution limits; it held only that the aggregate limits were not a narrowly tailored means to achieve this objective.  The Court said the Commission’s earmarking, affiliation and joint fundraising rules are a better means to accomplish this anti-circumvention goal, but it also specifically invited the Commission to strengthen those rules to ensure that they do so.

For instance, the Court three times said that it would be impossible—or at least, illegal—for a donor to funnel contributions through an intermediary because the Commission’s rules forbid even implied earmarking.  Yet the Commission has announced that it enforces the earmarking prohibition only where the earmarking is direct and express. The Commission’s announced enforcement policy is at war with the express language of its own regulation, and it is certainly at war with the rationale of the McCutcheon opinion.  It should be of obvious importance for the Commission to reconcile its enforcement practice with its regulation and with the Supreme Court’s reliance on its regulation.

So too, the Court specifically said that the Commission “might strengthen” its rules set forth in section 110.1(h) to order to more effectively guard against improper earmarking.  The Court said that “tighter rules could have a significant effect.”

These kinds of technical changes are important, but they pale in comparison to what the Commission should do first, which is to fix its disclosure and coordination rules.