Will the Supreme Court’s recent campaign finance ruling affect Texas nonprofits?

by Andrew Cates
Andrew Cates is General Counsel and Director of Government Affairs at the Texas Nurses Association. He is the author of “Texas Ethics Laws Annotated” and is an expert on Texas campaign finance and lobby law.

In a surprise move last week by the Supreme Court, a non-ruling actually had a big impact on the state of campaign finance reform and the use of independent money in the midterm elections.

Many of you know the story already, but here’s the short version: Citizens for Responsibility and Ethics in Washington (CREW) filed a lawsuit against the Federal Election Commission (FEC) and Crossroads GPS for what they saw as exploitation of a loophole that should be closed.

They argued that the FEC rule that required disclosure of nonprofit donors only when the donors earmark their donations as for political purposes violated the spirit of transparency and disclosure rules that apply to everyone else.

The D.C. Circuit Court of Appeals agreed, and after Justice Roberts issued a stay on the ruling pending an emergency appeal, the remainder of the SCOTUS bench overruled Roberts and declined to intervene.

This means that the ruling at the D.C. Circuit level will stand, and will require nonprofits^[1] to disclose donors when the nonprofits engage in independent expenditures to influence the outcome of federal elections.

But what does this mean for Texas?

Short answer: if you’re engaging in direct campaign expenditures at the state level only here in Texas, it doesn’t change anything for you.

This ruling was at the federal level, with FEC regulations on independent expenditures to influence the outcome of federal elections.

In Texas-only races, the Texas Ethics Commission has rules that apply to nonprofits and corporations that seek to influence state elections.

Namely:

• 253.094, Tex. Elect. Code – Contributions Prohibited

Direct contributions to candidates by corporations are prohibited by law with a 3rd degree felony punishment. This includes all groups that are considered corporations under the Texas Business Organizations Code, but does not include entities such as LLC’s, Partnerships, and Sole Proprietorships.

• 253.098, Tex. Elect. Code – Communication with Stockholders or Members

Direct expenditures to communicate with a group’s own members, even if political in nature, are not reportable to the TEC.

• 254.261, Tex. Elect. Code – Direct Campaign Expenditure Exceeding $100

Any person or group who makes a direct campaign expenditure over $100 must report the expenditure to the TEC. (See also, 1 Tex. Admin. Code §22.6).

Rules
1 Tex. Admin. Code §20.1(20) – Principal Purpose

This rules states that a group (any group, including a nonprofit) has as a principal purpose of accepting political contributions or making political expenditures, including direct campaign expenditures, when that activity is an important or main function of the group. It goes on to say that if a group accepts political contributions that amount to more than 25% of their total contributions in a year, or spend more than 25% of their total expenses on political expenditures, then political activity is now a principal purpose of your group.

Why is that important? Because once it’s a principal purpose of your group, you have to register with the TEC as a political action committee and report all donors and expenses.

There are certainly other rules and statutes that apply in more specific situations, but this is the broad strokes lay of the land.

So what does all this mean?

In Texas, if you operate a nonprofit that regularly takes in political contributions and makes political expenditures on state or local level candidates/issues with the understanding that you do not have to report your contributors, the SCOTUS ruling doesn’t change anything for you.

As long as the contribution/expenditure proportion doesn’t pass the 25% threshold of overall income/expenses, then nonprofits are not required to report contributors in Texas. If a group goes over that threshold, current rules require that the group form as a PAC and report everything.

All direct campaign expenditures over $100 still have to be reported to the TEC, but contributors do not.

Any nonprofits that expend funds to influence BOTH state and federal races will have to comply with the federal regulations though.

An impact at the federal level is that many groups are already turning to Super PAC’s to continue coordinating independent expenditures with others, but Super PAC’s still have to disclose their donors. This is true as well in Texas, where we have “Direct Campaign Expenditure-Only Committees.” While the use of a Super PAC does allow for bundling of otherwise impermissible corporate contributions for political expenditures, DCE-Only committees in Texas still use the GPAC form to report contributions and expenditures, which means that all donors must be reported.^[2]