Analysis of the Castle Bill on Nonprofit "Political" Activities

Charities Would Be Adversely Affected

Congress is debating new donor and expenditure disclosure requirements for nonprofit organizations engaged in political activities. The Senate has already passed an amendment to a defense authorization bill, sponsored by Sen. John McCain (R-AZ), to require such disclosure of tax exempt organizations organized under Section 527 of the tax code. However, since the Senate cannot generate tax legislation it will need to be removed from the defense authorization bill upon final passage. McCain will not agree to remove the amendment until he is assured of satisfactory action on this topic this year, which will likely hold up the defense authorization bill.

In the past few days, Sen. Mitch McConnell (R-KY), who opposes many versions of past campaign finance reform, has drafted his own disclosure bill that extends the disclosure requirements in the McCain amendment for 527 groups to unions and others. McCain is considering the McConnell formulation in determining whether he will agree to remove his amendment from the defense authorization bill.

In the meantime, action is brewing in the House. Rep. Michael Castle (R-DE) has drafted the Accountability and Disclosure Act of 2000 (H.R. 4621) to disclose sources of funds used for certain types of election-related communications. In a National Public Radio interview on June 15, Castle acknowledged the difficulty in drafting such a bill to insure that it does not trample on the constitutional rights of free speech and free association. As a testament to the difficulty, even when attempting to craft a bill that protects constitutional rights and reduces the influence of money in politics, the Castle bill overreaches and creates serious problems for all nonprofit organizations, even 501(c)(3) (charity) organizations that do not engage in electioneering activities.

The Castle bill covers any communication "which mentions an individual holding Federal office," a candidate for Federal office, or the political party of the office holder or candidate. The bill also covers communications "which contain the likeness of such an individual or candidate." This definition applies to any entity, whether tax-exempt or taxable, that spends $10,000 or more in a year on such communications.

This definition is extremely broad and covers far more than election-related communications, the stated purpose of the bill. Virtually all public policy research, discussion, advocacy, and lobbying activities would be covered by the definition. The mere mention of a member of Congress in a speech or written document (when the organization spending $10,000 or more on such activities) would trigger the requirements of the bill. Given the bill has no limit on how far back this reaches, it would suggest that airing a nonpartisan Public Service Announcement today that was developed a few years ago with First Lady Hillary Clinton, for example, would be covered by the definition in the Castle bill, since she is now a Senate candidate. In an example that shows just how broad the reach of this bill is, a performing arts center would have to disclose its donors if members of Congress are on its board -- even if Ex Officio -- and the board members are printed in every program (assuming more than $10,000 is spent on programs in a year). This OMB Watch analysis, by mentioning Castle's name, would also be covered.

The Castle bill requires different types of reporting requirements for radio and television communications than for any other communications. For communications other than through radio and television broadcast (e.g., print, speech), the entity must:

• Identify its name, address and phone number in the communication, or provide an Internet site where certain information (described below) can be obtained;
  
  
• Within 24 hours of receiving a request from the public provide a list of all donors that gave $1,000 or more to the entity for the calendar year (along with how much they gave), and a list of directors and officers of the entity with their address and phone number. If the entity has no directors or officers, then the people responsible for the communication must be identified, along with their address and phone number.

For communications through radio or television broadcast:

• The entity must provide the broadcaster with the information that the entity would be required make available if through other forms of communication;
  
  
• It must contain a statement on the radio or TV advertisement identifying who is responsible for the content of the ad (which is current practice). If 90% or more of the communication was paid for by 3 or fewer people, then those names must be listed in the statement; and
  
  
• The broadcaster must make the information about the entity and its donors publicly available.

Civil and, potentially, criminal penalties can be levied by the Federal Communications Commission on the entity or the broadcaster for violating the requirements. Based on statements made by Castle upon release of the bill, he intends for the penalties to also apply to other forms of communication and to have the Federal Election Campaign enforce those penalties. However, the bill does not provide such detail.

To repeat, this would mean that a 501(c)(3) organization that mentions a member of Congress (and spends an aggregate of $10,000 in a year doing such things) would be subject to disclosing donors giving $1,000 or more to the organization. The same would be true for 501(c)(4) organizations, unions, trade associations, and businesses. Presumably, for a business such as General Motors, this could mean that they must disclose the name of everyone who bought a car and how much they paid (i.e., their donors).

Currently, those communications that endorse or oppose a candidate (called express advocacy) are regulated by the Federal Election Commission. Charities cannot engage in express advocacy, and 501(c)(4)s and 527 groups that engage in express advocacy already must comply with FEC disclosure requirements. Castle and others are concerned about another category of communications, called issue advocacy, that can come very, very close to being express advocacy, but stops just short. Entities that engage in this type of communication, including 527 groups, evade disclosure to the FEC.

The difficulty is in legislatively defining a bright line test that covers these almost-express advocacy communications without including legitimate issue advocacy. Should legislation be drafted that impedes issue advocacy, it raises substantial constitutional concerns over free speech, association, and privacy. Imagine someone who donates to a group who advocates on controversial issues – say gay rights. The group attempts to hold Congress accountable for their voting actions by informing the public through ads about the actions of certain members. The danger emerges if the donor's name is suddenly disclosed, thereby trampling on the donor's right to anonymously associate with the organization. Will that chill the donor's participation in the group? Does it invade the donor's privacy?

The McCain approach was to require disclosure of a category of groups -- those that organize under section 527 of the tax code -- rather than the Castle approach, which is to focus on types of communications. 527 groups, which are organized specifically to influence elections, are not required to register with the IRS and they are not required to submit annual information on a Form 990 or equivalent as 501(c)(4)s must do. (501(c)(4)s are permitted to engage in electoral activities as long as it is not their primary purpose.) Since 527 groups are organized primarily to influence elections, McCain argues that is the bright line test, even though they may undertake activities that are similar to non-electoral activities of 501(c)(3) and 501(c)(4) organizations. For example, a 501(c)(4) environmental group may run an ad focusing on environmental problems in Texas, with the intent of spurring an environmental cleanup in the state, while a 527 may run a very similar ad with the intent of defeating Gov. Bush in the presidential election.

While it certainly is appropriate to require 527 groups to register and provide annual disclosure of directors, expenditures, and program activities that are provided in the Form 990, it is another matter entirely to require public disclosure of donors. Indeed, as McConnell has noted, if 527 groups are disclosing donors, why shouldn't other entities that engage in virtually the same type of activity. In the end, this raises serious constitutional issues. Most certainly, the Castle approach, as it is currently drawn with its broad reach to all types of policy communications, is the most problematic of the approaches currently under consideration.

Prepared June 16, 2000

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