Fallout Could Impact Political Ad Ruling

In my Jan. 29 column, I summarized the Supreme Court's 5-4 January 21 blockbuster, highly controversial campaign ad ruling in Citizens United v. Federal Election Commission (FEC).  I addressed what it did and didn't do, its meaning for broadcast TV (and radio, cable and satellite), its implementation, possible action by Congress to limit its impact, and suggested to TV stations steps to take and pitfalls to avoid. 

The opinion held for the first time that corporations and labor unions have the same First Amendment political free speech rights as individual Americans. From this, the court majority concluded that existing limits on corporate and union financing of "independent expenditure" ads (not coordinated with candidates or their campaigns) -- such as in the McCain/Feingold campaign finance law -- violated corporate free speech rights.

The court voided the ban on corporate "express advocacy" (explicitly calling for election or defeat of a named federal candidate, e.g. "vote for" or "vote against"), except for disclaimer and disclosure requirements, and freed corporations and unions to spend with no limit from their own general funds on such ads any time before primaries and general elections. The ruling also affects state and local campaign ad spending. Ads by non-candidates are not entitled to lowest unit charge.

Today's column summarizes the main developments and effects of the ruling so far and suggests some steps for stations to take.

The ruling rocked campaign ad spending and opened the door to more election-related advertising on local stations this year than ever before in history.  What happens in the aftermath of the ruling at the FEC, in Congress and the states will shape campaign ad spending for years to come - the devil's in the details.  Broadcasters have a stake in the outcome, both in terms of the service they provide to the public by their role in elections, and ad revenues.  Staying alert to developments and participating in the process may be good business.

Effect on 2010 Campaign Spending

A storm of criticism followed the ruling, which came amid high interest in further campaign finance reform. President Obama set the tone in his State of the Union address ("I don't think American elections should be bankrolled by America's most powerful interests, or worse, by foreign entities. And I urge [Congress] to pass a bill that helps correct some of these problems.")

The storm has continued, but one aspect generates relatively little controversy: the ruling's probable significant increase in the amounts spent on local station political advertising this year. One estimate is an additional $400 million on top of what was projected to be a record election season even before Citizens United.

The U.S. Chamber of Commerce and its 6,000 local affiliates exemplify both the revenue potential and what causes concern to opponents of the ruling.  According to the lead article in the March 17 Washington Post, the Chamber spent more on lobbying and political activities last year than either the Democratic or Republican National Committee. This year, the Chamber plans to spend at least $50 million on political races and related activities, 40% more than in 2008. The Chamber expects to focus on about 10 Senate and 40 House races in "battleground" states such as Florida, Indiana, Ohio and Pennsylvania.

According to the report, "the chamber's potential impact on the November elections was bolstered further by [Citizens United], which allows corporations and their surrogates to spend freely on political ads for and against specific candidates right up to Election Day."  

For several reasons, the increased spending seems likely, even if legislation reins in the ruling and despite the oft-repeated observation that most for-profit corporations will not risk -- this year, at least -- alienating elected officials and stockholders by openly advertising for or against a candidate.

Legislation, if enacted, is unlikely to restore corporate campaign spending limits completely to their pre-ruling status.

For-profit corporations which avoid doing their own pro- or anti-candidate ads are still expected to funnel funds to incorporated nonprofit advocacy groups such as the U.S. Chamber, AARP and others who will run the ads with far less public visibility for the for-profit corporations.The is also a high number of closely contested elections this year compared to most. Some states such as California have potentially close races for all three. And ballot issues are plentiful and corporations can spend without limit on them too.

FEC Actions

As the main implementing agency for campaign spending law for candidates for Congress, the Presidency and Vice Presidency, the FEC:

-- said on its website that it is considering the ruling's impact and will provide guidance as soon as possible on steps to be taken to "comply fully with the opinion."

--received a petition for rulemaking, filed by the Indiana lawyer who represented Citizens United, seeking repeal of implicated FEC rules and other steps.

--asked for comments on the effects of the ruling on proposed new rules for "coordinated" (with candidates) communications before holding hearings on them. The FEC has been trying to adopt those rules for seven years.

--issued a Feb. 5 statement that due to the ruling the FEC is no longer enforcing laws and rules  prohibiting corporations and labor unions from making independent expenditures (broadcasts not coordinated with a candidate or campaign and expressly advocating election or defeat of clearly identified federal candidates) or electioneering communications (TV or radio broadcasts, cable or satellite communications that refer to a clearly identified federal candidate, aired within 30 days of a primary or 60 days of a general election, and able to be received by at least 50,000 people in a state). 

Congressional Activity

At least 16 separate bills have been introduced in the House and Senate to address aspects of the Citizens result.

Even before the Supreme Court issued Citizens United, more than 100 members of Congress signed on to the Fair Elections Now Act. It would create a system of public financing of Congressional campaigns. Legislators, especially in the House, are seeking freedom from constant pressure to raise campaign funds. 

Members of Congress were not alone in this. Two days after the Court ruled, 40 corporate executives wrote Congressional leaders (through the group Fair Elections Now) urging passage of such legislation. Among them were leaders of Ben & Jerry's, Playboy Enterprises, Delta Airlines, Hasbro and MetLife.

"Members of Congress already spend too much time raising money from large contributors," the executives said. "And often, many of us individually are on the receiving end of solicitation phone calls from members of Congress. With additional money flowing into the system due to the court's decision, the fund-raising pressure on members of Congress will only increase."

In the Senate, a proposal would finance congressional campaigns with a fee on businesses having more than $10 million in government contracts. In the House, a bill would use money obtained by the government from the auctioning of spectrum that TV stations had to return when they switched to all-digital operation.

Probably the most comprehensive proposal is being written by Senator Charles Schumer (D-N.Y.), chairman of the Senate Rules Committee, and Rep. Chris Van Hollen (D-Md.), chairman of the Democratic Congressional Campaign Committee and assistant to the Speaker of the House. Closely coordinated with the White House, this legislation has not been introduced at this writing but its principal authors released a summary on Feb. 11.

The main provisions:

Foreign influence: Banning corporations from spending money on U.S. elections if they are 20 percent or more foreign-owned, or a majority of their board of directors is foreign principals, or their U.S. operations or political decision-making is controlled by a foreign entity, including a foreign government.

"Pay to Play": A prohibition against government contractors and TARP (Troubled Asset Relief Program) recipients (federal relief for distressed companies due to the recession) from making political expenditures with taxpayer funds. The ban would apply to TARP recipients until the money is repaid.

Enhanced disclaimers to identify ad sponsors: A requirement that corporate political ads include their CEOs on camera to say they "approve this message" as candidates must continue to do under Citizens United.  The "top funder" of the ad must also record a "stand-by-your-ad disclaimer" and the top five contributors that donate for political purposes would be listed on-air at the end.

Strengthened disclosure to the FEC (and, through it, the public): Require separate "political broadcast spending" bank accounts by corporations/unions, and organizations formed under sections 501©4, 5 or 6 or 527 of  federal law. All funds spent or transferred from the accounts would have to be reported to the FEC and become public.

Other provisions:

--Require all political expenditures by a corporation to be disclosed within 24 hours on the company website, and to shareholders in quarterly and annual reports.

--Require federally registered lobbyists to disclose information on all campaign expenditures over $1,000.

--Strengthen current coordination rules for House and Senate campaigns by banning coordination between a corporation or union and candidates on ads referencing a congressional candidate within 90 days of the start of the primary-through-general election season. For all federal elections, coordination would be prohibited, regardless of timing, when the ads promote, support, attack, or oppose a candidate.

--Expand the lowest unit rate. If a corporation buys broadcast, cable or satellite TV ads that support or oppose a candidate, the candidate or his or her political party or authorized committee would be entitled to lowest unit rate for that media market, perhaps including outside the 45- and 60-day lowest unit rate periods if the corporate ads run then. 

Note that some provisions of the Schumer/Van Hollen summary have been introduced in both houses as stand-alone bills.

Constitutional Amendments

To date three constitutional amendments have been introduced to counteract Citizens United. Sen. Chris Dodd's (D-Conn.) proposal, co-sponsored by Sen. Tom Udall (D-N.M.), would grant Congress explicit authority to regulate campaign-related spending in federal elections and to states in their elections, including for ads.

Senator John Kerry (D-Mass.) has expressed support  for a constitutional amendment "to make it clear once and for all that corporations do not have the same free speech rights as individuals." In the House, Rep. Leonard Boswell's (D-Iowa) proposal would prohibit "corporations and labor organizations from using operating funds for advertisements in connection with any campaign for election for Federal office." A third, sponsored by Reps. Donna Edwards (D-Md.) and John Conyers (D-Mich.), would permit "Congress and the states to regulate the expenditure of funds by corporations engaging in political speech."

Miscellaneous Proposals 

Among these are requiring prior approval of a percentage of shareholders before a corporate ad supporting or opposing a federal candidate airs -at least one bill requires this for public corporations spending $10,000;  and prohibiting the use of any federal funding to contribute to political campaigns or participate in lobbying. The Stand By Your Ad Act of 2010, sponsored by Rep. John Boccieri (D-OH), would require campaign-related communications financed by certain tax-exempt or political organizations to name their five largest donors. The Pick Your Poison Act of 2010, introduced by Rep. Alan Grayson (D-Fla.), would prohibit corporations that employ registered lobbyists from spending on electioneering communications. Another concern that may be addressed is assuring that stations provide adequate airtime to political candidates.

State and Local Activity

At least 24 states, and a number of localities, had state and local election laws similar to the federal corporate spending limits struck down by the Supreme Court. Other states lacked those and allowed state and local election activity prohibited for federal elections. In states with limits matching the federal, one or more of the following steps have been taken or may be planned in the wake of the ruling:

--State repeal, rewriting in light of Citizens United or suspension of enforcement of existing state law on corporate/union campaign spending. For example, a bill introduced March 5 in the Connecticut legislature would create new disclosure/ disclaimer requirements for independent expenditures, including by unions and corporations. In Montana, the attorney general said the state's corporate spending limits would stay in place until challenged, and a challenge was filed March 8. In New York, a bill introduced Feb. 17 would require shareholder approval for corporate independent expenditures, which are currently unlimited there for non-federal candidates. The Los Angeles Ethics Commission announced recently that it will stop enforcing a 2001 city ordinance banning direct corporate support in ads for candidates in city elections.

--Lawsuits by opponents of campaign finance limits to force repeal under Citizens United.

--Lawsuits using Citizens United to challenge other state law election-related provisions. (At the federal level, there were already pending court challenges to federal "soft money" and other restrictions, and the effect of the Supreme Court ruling on them is being assessed).

State Court Cases

The ruling is triggering aftershocks in some of the dozens of campaign finance-related lawsuits pending in state (and federal) courts. For example, some judges have ordered the parties to file briefs assessing the impact of the decision. In some states pending cases are similar to the Citizens United challenge; other cases attack state laws such as allowing public financing of campaigns for judgeships.

Suggested Station Responses to the Ruling

--Keep in touch with further federal, state and local law changes that affect political ads, how they can be financed and what in-ad "disclaimers" they require. Knowing what ads are legal and whether modified restrictions have been adopted locally or federally will help stations decide whether to run ads over which they have discretion (i.e. ads other than by federal candidates), and to maximize election-related revenue.

--If a station does not expect to be sold out of political inventory, whether for the primary or general election, consider being proactive in letting new sources of political ads know you have availabilities.  All kinds of corporations, for-profit and nonprofit, publicly traded and privately held, labor unions and incorporated advocacy groups of every political stripe, can take advantage of the liberalized spending regime.

--Work with federal candidates and their campaigns, who have a right of access to all kinds of air time. Negotiate with them to reach a reasonable compromise between their demands and station inventory, equal time obligations and other concerns. This is necessary in any election year, but perhaps especially so this year due to greater demand by more non-candidates.

--Have a revised, written political disclosure statement that sets out clearly the station's policies on selling political time to candidates and non-candidates for the primary and general election. Don't defer this until the last minute.

--Know what hasn't changed (see earlier column).  In particular, ad disclaimer requirements indicating who paid for them were not struck down. Stations should continue to insist that federal candidates comply with the written federal candidate certification requirements of Section 315 of the Communications Act at the time of purchase. In order to qualify for lowest unit charge, a federal candidate or authorized committee whose ad refers directly to an opposing candidate must certify to the station in writing that the ads comply with the disclaimer requirement (for TV, candidate image must be shown for at least four seconds at the ad's end, and simultaneously a readable printed statement is shown identifying the candidate and stating that he/she has approved the broadcast and the candidate's authorized committee paid for it.) 

--Plan ahead to assure adequate available time to comply with unchanged reasonable access requirements for all federal candidates, and for equal opportunities time to their opponents. While state and local candidates lack a right to airtime, assess whether to offer to sell what time to which if any of those races and assure equal opportunities to opposing candidates. Be prepared for unusually heavy early and late political ad demand.

Conclusion

There is a lot to be gained, in serving station audiences, assisting candidates and other political advertisers to reach voters, and financially, in this election year.

This column on TV law and regulation by Michael D. Berg, a veteran Washington, D.C., communications lawyer and the principal in the Law Office of Michael D. Berg, appears periodically. He is also the co-author of FCC Lobbying: A Handbook of Insider Tips and Practical Advice. He can be reached at mberg@michaelberglaw.com or 202-530-8560. Read more of Berg's Legal Memos here.

Lyndsey Grunewald, a graduating Georgetown Law Center legal intern, contributed to this article.

Note: This article provides general guidance only and is not a substitute for individualized legal advice for particular situations.