The Status of the Federal Contractor Ban as Applied to Super PACs

July 7, 2015, 10:22 amcampaign finance, campaignsRick Hasen

As I noted in my earlier post on today’s Wagner v. FEC decision, the DC Circuit today did not address the question whether federal contractors have a constitutional right to make contributions to super PACs despite the contractor ban. It turns out the issue was raised in a matter involving Chevron at the FEC a few years ago, but the FEC did not resolve it. Here’s a Covington Bulletin (my emphasis):

In Chevron Case, FEC Brings Clarity to the Federal Contractor Ban and Super PACs

By Robert Kelner, Robert Lenhard and Kevin Glandon on April 11th, 2014

The rules on corporate contributions to Super PACs were made clearer today when the Federal Election Commission (FEC) released its finding that Chevron Corporation’s $2.5 million contribution in 2012 to the Congressional Leadership Fund (a Super PAC) had not violated the bar on government contractors making contributions in federal elections.

Public Citizen and several environmental groups had alleged that Chevron Corporation and Chevron U.S.A. Inc. had numerous federal contracts, and consequently could not contribute to a Super PAC. On a bipartisan 5-1 vote, the FEC dismissed the charges, finding that Chevron Corporation—which made the contribution—was not a federal contractor at the time, and that federal contractor status could not be imputed to the company merely because it had a wholly-owned subsidiary that owned a subsidiary that in turn owned a subsidiary that owned a federal contractor. In so doing, the FEC followed the agency’s longstanding practice of permitting a parent company with a federal contractor subsidiary to make a contribution as long as it has sufficient funds from sources other than the contractor subsidiary. Nor is the federal contractor ban particularly stringent, permitting officers, shareholders, a corporate PAC, and subcontractors to contribute, even when the contractor cannot.

Having resolved the case by applying the facts to existing law, the FEC did not address an even more fundamental issue raised by Chevron: Applying the federal contractor ban to contributions to a Super PAC is inconsistent with the Supreme Court’s limiting of campaign finance restrictions to the prevention of quid pro quo corruption or its appearance. Last Wednesday’s decision in McCutcheon v. FEC highlights the doctrinal fragility of the federal contractor ban in cases like this.

Full disclosure: Covington represented Chevron before the FEC in this matter.

UPDATE:

Craig Holman sent the following message to the election law listserv (reprinted with permission):

Every indication at this point is that the federal pay-to-play law applies to super PACs, though this question has yet to be litigated. The federal law explicitly prohibits federal contractors from making campaign contributions to federal candidates, parties and PACs, and super PACs are federal PACs.

This was the basis of a “recent” FEC complaint filed by Public Citizen, in which Chevron made a $2.5 million contribution to Boehner’s super PAC, the Congressional Leadership Fund. The FEC dismissed the complaint on the grounds offered by Chevron: that the campaign contribution to the super PAC was made by Chevron Corporation, while the federal contract was held by Chevron USA, a different division of the same corporate family. (This rationale of allowing one division of a company make campaign contributions while another division of the same corporate family holds the contracts is currently the subject of an FEC rulemaking petition).

The issue of whether the federal pay-to-play law applies to super PACs was not questioned in that decision, and individual commissioners have on occasion said that they believe the law does indeed apply to super PACs.

Public Citizen contends that the law does indeed apply to super PACs. It makes sense. Not only is the law clear that it does apply to all PACs, the very close association and coordination of super PACs with candidates and parties warrants such an interpretation. Such an interpretation is not only appropriate for the federal pay-to-play law, but also for SEC rule 206(4)-5. The SEC has not yet made it clear that the SEC pay-to-play rule applies to super PACs, but the agency has routinely applied the pay-to-play rule in other situations where it deemed appropriate to close evasion of the pay-to-play rule.