making local government more ethical

An Important Court Decision on Limiting and Banning Campaign Contributions from Restricted Sources

The law on limiting campaign expenditures has been changing over the past couple of years. But the law on limiting campaign contributions has not. The standard in many instances is more liberal than with campaign expenditures, in others it is the same. And the application of the standard is highly contextual. A law in one jurisdiction, or at a particular time, might be constitutional, while in another jurisdiction, or at a different time, it is not.

Contribution limits are an important part of government ethics, because contributions from those doing business with local governments, often called "legal bribery," are a major source of the belief people have that government officials can be bought. Removing this appearance of impropriety is a principal goal of public campaign financing programs.

The state of the law on limiting and banning campaign contributions from, and their solicitation by, restricted sources, including contractors and lobbyists, as well as their principals and immediate family members, is well summarized in the Second Circuit's decision in Green Party v. Garfield (July 13, 2010).

The Closely Drawn Standard for Restrictions on Campaign Contributions
The relevant part of the decision begins (on p. 13) by reiterating the "closely drawn" standard established in Fed. Election Comm’n v. Beaumont, 539 U.S. 146, 162 (2003): a law limiting contributions “passes muster if it satisfies the lesser demand of being ‘closely drawn’ to match a ‘sufficiently important interest.’”

The "closely drawn" standard is in contrast to the "strict scrutiny" standard involving campaign expenditures and First Amendment free speech, which “requires the Government to prove that the restriction furthers a compelling interest and is narrowly tailored to achieve that interest.”

Connecticut law prohibits current and prospective state contractors, lobbyists, and associated individuals (principals, spouses, and dependent children) from making contributions to the campaigns of anyone running for a state office.

The Second Circuit notes (on p. 14) that "the Connecticut General Assembly enacted the ... ban on contractor contributions in response to a series of scandals in which  contractors illegally offered bribes, “kick-backs,” and campaign contributions to state officials in exchange for contracts with the state. The ban was designed to combat both actual corruption and the appearance of corruption caused by contractor contributions."

Then the court notes that the actuality and appearance of corruption has long been considered a legitimate reason to restrict campaign contributions. And it notes (on p. 15) that recent scandals in Connecticut "created a strong appearance of impropriety in the transfer of any money between contractors and state officials—whether or not the transfer involved an illegal quid pro quo." This is an important observation, because it recognizes that there does not have to be proof of criminal behavior to justify restrictions on campaign contributions. An appearance of impropriety is sufficient.

Campaign Contributions by Principals of Government Contractors and Their Immediate Families
Then the court moves on to determine whether the Connecticut law is "closely drawn." With respect to contractors themselves, there is no doubt that the law is closely drawn. The court expresses (on p. 20) some doubt with respect to the broad definition of "principal" of a contractor (see below), but concludes that "in light of the troubling episodes involving state contractors in Connecticut’s recent history, we are reluctant to second-guess the judgment of the General Assembly when it defines which individuals associated with an artificial entity are likely to attempt to exert improper influence over a state official."
    A “principal” is defined to include, among other things, (1) any member of the entity’s board of directors, (2) any “individual” who “has an ownership interest of five per cent or more” in the entity, (3) the “president, treasurer or executive vice president” of the entity, and (4) any “officer” or “employee” of either a business entity or a nonprofit organization who “has managerial or discretionary responsibilities with respect to a state contract.”
As for the ban on contributions by family members, the state argued that it is a “reasonable measure to avoid circumvention of the prohibition of contributions by [contractors].” The court notes (on p. 21) that the Supreme Court, in McConnell v. Fed. Election Comm’n, 540 U.S. 93 (2003), "has recognized that, in regulating campaign contributions, the legislature must be given 'room to anticipate and respond to concerns about circumvention of regulations designed to protect the integrity of the political process.'” But the McConnell decision states that "scant evidence" of evasion is required, and the court here finds that no direct evidence of evasion was presented. However, "the recent corruption scandals in Connecticut have shown that contractors are willing to resort to varied forms of misconduct to secure contracts with the state. That, we think, is far more than the 'scant evidence' required by McConnell."

Bans on Campaign Contributions
The court then turns to the fact that Connecticut law places a ban on contributions rather than the usual limit. The court considers a ban "a drastic measure" (p. 23), extinguishing part of an individual's freedom of political association. A limit preserves at least a symbolic expression of support.

The court states that a limit would be sufficient to address actual corruption. But a limit would not necessarily be sufficient to address the appearance of corruption, which is also an important goal of the statute. Therefore, the court concludes (on p. 24) that, "although the CFRA’s ban on contractor contributions is a drastic measure, it is an appropriate response to a specific series of incidents that have created a strong appearance of corruption with respect to all contractor contributions."

However the court notes that the recent corruption scandals in the state did not involve lobbyists and, therefore, there is not a problem of appearance of corruption with respect to their campaign contributions. Therefore, it concludes that a ban is too drastic a remedy in their case, that a limit would suffice.

Bans on the Solicitation of Campaign Contributions
The final relevant part of the Green Party decision involves contractors and lobbyists soliciting campaign contributions. The court notes (on p. 28) that while it is only arguable that giving money is speech, soliciting contributions is certainly a form of speech — effectively the statement, "You should support this candidate, not only at the polls but with a financial contribution.” Therefore, any law limiting solicitation must be looked at with "strict scrutiny." And an anticorruption reason for a law, although it satisfies the "closely drawn" standard, is not a compelling government interest necessary to satsify the "strict scrutiny" standard. A law would have to prevent quid pro quo corruption in order to survive strict scrutiny.

But the court then notes (on p. 30) the possibility of contractors and lobbyists “bundling,” that is, "promising to deliver large numbers of coordinated contributions to a state official in exchange for political favors. A prospective state contractor, for instance, might promise to organize a large fundraising event in exchange for a candidate’s assistance in securing a lucrative state contract." This might be sufficient reason for a law, but this particular law is "not narrowly tailored to address that threat."

The court notes the state's argument that lobbyists will bundle contributions by their “deep-pocketed clients” and that state contractors will bundle contributions from their “many employees and subcontractors.” The court states (on p. 31) that a less restrictive means to address this bundling problem would be "simply to ban lobbyists from soliciting contributions from their clients and contractors from soliciting contributions from their employees and subcontractors."

This would be a good thing to do, but it would not be sufficient to prevent other sorts of bundling that are equivalent to giving from the point of view of a candidate. In other words, to a court, with respect to the First Amendment, giving and bundling may seem very different; but to a candidate they are the same thing. The only difference, to the candidate, is the total amount received. This contrast in views of giving and bundling puts into question, at least for me, the use of First Amendment free speech standards. If large contributors and bundlers, as well as candidates, don't treat giving and bundling as free speech, except in the context of a judicial proceeding, why should courts?

Robert Wechsler
Director of Research, City Ethics