Show Me The Money, Part 2: An Organization’s Guide to Compliance
Campaign finance law — while complicated and headache-inducing — is important for transparency and trust-building with voters.
In part one of this series we covered basics candidates need to know on the campaign trail: hiring a legit treasurer, properly documenting every single contribution and how it is spent, meeting report deadlines, and always include the proper disclosure information on your materials (the “Paid for by…” line). The repercussions are serious — if you don’t play by the rules, you could get fined, risk your reputation with voters, and even land in jail (yes, this is real).
In part two, we look at how compliance works for political organizations. So whether you’re planning to run for office yourself or running a PAC, we’ll cover the need-to-know basics.
The Sky’s the Limit
As mentioned in part 1, campaign finance rules differ depending on the jurisdiction of the race. It’s important to always check your local rules with the Secretary of State’s office or the Federal Election Commission.
Generally, organizations don’t have contribution limits for money going in, but they might for money going out. (The Supreme Court has twice ruled that independent groups of people that are not affiliated with a campaign cannot have a contribution limit.) There are rules about how much a PAC can send to campaigns or political parties, but less restrictions if they fund their own independent ventures that could be in support or opposition to a particular candidate, as long as they are not affiliated. That’s where you will see ads paid for by “Friends of John Doe” rather than “John Doe for Congress.”
However, rules change depending on what kind of PAC it is. Rules about money-in, money-out, who can donate, states they can operate in, and levels of coordination between PACs are all subject to change depending on their legal organization.
Transparency is Key
Many states require transparency in how the money is spent, with similar reporting times based around elections and amounts spent.
PACs have to report their contributions either monthly or quarterly, depending on the size of the PAC, donations, and what state they operate in. To further complicate things, though some states don’t require any changes to federal PACs to operate in their state, some states require the PAC to spin-off and create a state-specific PAC for the purpose of being involved in their elections.
Confused yet?
To put it as cleanly as possible, the first question when forming a PAC is whether or not the PAC will be connected to a campaign or organization. Usually that organization is a labor union or a company. If it is, then the PAC can only take in contributions from sources affiliated with the parent organization. If it is a labor union for instance, the contributions are from paying members.
If the PAC will not be associated with an organization, it is considered a non-connected PAC, meaning it can take money from anywhere, because it isn’t tied to a particular organization.
Non-connected PACs include Super PACs and Hybrid PACs — they are independent and have no rules regarding where they can receive their money, as long as it is spent independently, not in affiliation with any campaign or organization directly. A Hybrid PAC is essentially split down the middle, half Super PAC, with a half that is subject to the relevant standard PAC rules and can donate to campaigns directly.
The last type of PAC is a Leadership PAC, which is a PAC owned and operated by an elected official, usually for the purpose of spending to support other candidates for office. These PACs are commonly created after an election for the purpose of divvying out remaining campaign funds.
What if it’s not a PAC?
Other than PACs, there are two common types of organizations that may run into similar reporting and disclosure rules: 501(c)(3)s, aka c3, and 501(c)(4)s, aka c4.
A c3 is a non-profit organization that has limitations on lobbying or advocacy. For example a church may lobby on behalf of pro-life policies, but not for a specific candidate. These activities are seen as largely “educational” and therefore cannot be targeted to a particular lawmaker or campaign. A lot of c3s shy away from any political activity in an effort to protect their tax-exempt status, but it is possible for a c3 to be politically engaged if they understand the rules.
A c4 is a “social advocacy group” which can endorse candidates, while also advocating or lobbying like a non-profit. However, donations are not tax exempt like a non-profit. C4s are allowed to be far more targeted or partisan in how they spend and advocate for their causes, because they are not “educational” and are more explicitly political, though still independent of any campaign.
That’s it.
We hope this quick guide helps you make the choice of what campaign or type of organization best suits your political goals, while also serving as a foundation for how to avoid common pitfalls.
This can be complicated and scary, especially for first-time candidates. These rules can be a huge barrier to entry, and we once again encourage you to hire a professional treasurer, especially if you plan on working in multiple cities or states. We assure you the investment is worth it.
Not sure how to pick a treasurer? Let’s talk — book a 15 minute call with us now.
Read part 1 of the series, where we talk about campaign financial compliance.
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