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The Political Finance Market Has Evolved

Trey Richardson, Managing Partner

 

New strategies and tactics in political finance have emerged over the last two decades that allow organizations to empower their public policy agenda in Congress and legislatures, as well as affect election outcomes for champions serving in office. These strategies work hand in hand with political action committee efforts yet are independent of the Federal Election Commission (FEC) and state ethics commission reporting in some cases.  

 

Environment  

The political finance environment has evolved. While direct contributions from PACs to candidates and committees remain a steady funding source for election and re-election efforts, soft money (funds from corporate sources that cannot be used for candidate and committee purposes) is becoming more prominent. In the 2020 and 2022 elections, approximately $85 million in independent expenditures by associations, labor unions, and social welfare organizations was spent. An additional $3.5 billion was spent by SuperPACs.  

 

The 2010 Supreme Court rulings on Citizens United and SpeechNow.org v. Federal Election Commission allowed soft money to be used for independent expenditures and gave rise to “SuperPACs.” These committees may raise and spend unlimited sums of money, either in the form of hard or soft dollars, for the sole purpose of making independent expenditures to support or oppose political candidates. Fundamentally, there are three primary vehicles for funding electioneering activities. These include: 1) a soft money account within an association or corporation, 2) the establishment or use of an outside 501(c)(4) social welfare organization, and/or 3) the creation of a SuperPAC.  

 

501(c)(6) Soft Money Fund 

A soft money fund is an account of a 501(c)(6) trade or professional association that is used for permissible “corporate” political activities. These accounts may not be used for direct federal candidate contributions. However, the funds may be used for grassroots, issue advocacy, public relations campaigns, independent expenditures, partisan communication, travel, fundraising, state candidate support (in certain states), SuperPAC contributions, and administrative expenses, to name a few. Some of these activities must be disclosed to the Federal Election Commission and relevant state entities.  

 

501(c)(4) Social Welfare Organization 

A growing strategy in the political market is 501(c)(4) Social Welfare Organizations. Several national trade associations and other independent coalition groups have created organizations under Section 501(c)(4) of the IRS code to build grassroots advocates, raise undisclosed dollars from corporations and individuals, and make expenditures for numerous permissible legislative and political activities. Unlike 501(c)(6) trade associations, these groups are organized and exempt for IRS purposes because they are devoted exclusively to social welfare, charitable, educational, or recreational purposes. In addition, an exemption exists for groups seeking legislation or political outcomes germane to the organization's programs. Typically, these group’s political activities are very similar to those of trade associations including grassroots, issue advocacy, public relations campaigns, education, independent expenditures, partisan communication, travel, fundraising, state candidate support (in certain states), SuperPAC contributions, and administrative expenses. As above, some of these activities must be disclosed to the Federal Election Commission and relevant state entities. While similar to soft money funds of associations, these groups operate independently under their own boards of directors and staffing. 

 

Political Action Committees 

A political committee that raises or spends more than $1,000 to influence the outcome of a federal election in a calendar year and must register with the Federal Election Commission. A PAC may accept a contribution of up to $5,000 per year from any individual.  It may not accept union or corporate treasury funds. A multicandidate PAC may contribute up to $5,000 per election to a candidate and $15,000 to a party committee. It has no limit on the aggregate amount it may contribute. PACs established by corporations and labor unions are referred to as separate segregated funds (SSF) and operate under slightly different rules, e.g., a corporation, association, or union may cover its SSF’s administrative expenses. In addition, some trade associations, corporations, and individuals have established independent committees (non-SSF) to collect contributions from any individual industry stakeholder, whether eligible or ineligible to give to a respective SSF. 

 

SuperPACs 

A SuperPAC is a type of independent political action committee that may raise unlimited sums of money from corporations, unions, and individuals but is not permitted to contribute to or coordinate directly with parties or candidates. Unlike associations and social welfare organizations, all contributions to and expenditures from the PAC are fully disclosed to the Federal Election Commission. 

 

Fundraising 

Regardless of the direction taken regarding these strategies, if any, the tactics to raise funds are generally: 1) create a defined funding channel between stakeholders and political accounts, 2) persuade existing donors to give dollars from their respective individual or business operating accounts to a fund, 3) persuade vendors and other stakeholders to give from their respective individual or business operating accounts to a fund, 4) secure ongoing funding from an organization’s treasury accounts, and/or 5) use relationship and direct marketing tactics to generate large and small-dollar contributions to these funds. 

 

Trey Richardson is managing partner of Sagac Public Affairs and GR Pro, national firms that provide communications, market research, fundraising, issue advocacy, and independent expenditure solutions to hundreds of political, nonprofit, and corporate organizations. 

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