Tuesday, September 22, 2009

DC Circuit Rejects Rules Limiting Fundraising by Nonprofits for Election-Related Spending

We previously blogged about the pending Supreme Court case of Citizens United v. FEC that may result in the Court holding that all corporations, for-profit and nonprofit, must be allowed under the First Amendment to make unlimited independent expenditures relating to elections.  While the decision in that case is still pending, the U.S. Court of Appeals for the District of Columbia Circuit issued an opinion last week declaring unconstitutional other rules limiting spending by nonprofit entities on elections.  In Emily's List v. FEC, the well known political committee that promotes abortion rights and supports pro-choice Democratic women candidates challenged new Federal Election Commission rules that limited the amounts that any individual donor could give to the group to use for federal election-related activities.  The rules provided that if a nonprofit group is an FEC registered political committee that both makes independent expenditures relating to elections and maintains a separate segregated fund - a "hard-money account"  - from which it makes contributions to candidates and political parties, the group has to pay not only for the contributions but also for at least a significant part of its independent expenditures with hard money.  Hard money is money raised from individual donors but subject to a limit of $5,000 per donor annually.  Emily's List did not challenge the requirement that it only use hard money for contributions, but it did challenge the requirement that it pay for some or all of its independent expenditures with hard money.  It asserted that individual donors should be able to give in unlimited amounts for those expenditures.  It also challenged a rule that imposed the hard money limits on any response to a solicitation that indicated that donations would be used to support the election or defeat of a federal candidate.

The court agreed with Emily's List, with two of the three judges finding the hard money requirements for independent expenditures a violation of the First Amendment as it has been interpreted by the Supreme Court.  The third judge concurred with the result, but he did so solely on the grounds that the rules at issue exceeded the FEC's authority.  If the majority decision stands, Congress will be barred from limiting the amount that individual donors can give to nonprofit entities for independent, election-related expenditures - including 527 organizations and nonprofits registered as political committees(which are also usually tax-exempt under Internal Revenue Code section 527).  There is no word yet on whether the United States will seek certiorari in this case.  That decision is complicated by the pending Citizens Unitedcase, the Supreme Court's decision in which the appellate court may have been anticipating in reaching its conclusion that the FEC had overreached constitutionally.  One interesting issue raised by this decision, if it survives, is it would leave nonprofit groups such as Emily's List in a better fundraising position than national political party committees such as the Democratic National Committee because such committees are currently limited to raising only hard money - i.e., contributions from individuals subject to the $5,000 per donor per year limit. 



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