Attorney-Client Privileged Attorney Work-Product. February 3, Cheryl Mills Robby Mook. Marc E. Elias

Transcription

1 Attorney-Client Privileged Attorney Work-Product February 3, 2015 TO: FROM: Cheryl Mills Robby Mook Marc E. Elias RE: Use of general election funds before the convention You have asked under what circumstances a presidential campaign may spend funds that have been raised for the 2016 general election before the date of the 2016 nominating convention. 1 We refer to the campaign in the memorandum, to refer to Secretary Clinton s campaign committee in the event she decides to become a candidate. In short, a candidate may use general election funds before she is chosen as her party s nominee in certain limited circumstances, which we outline below, but the law is also ambiguous in this area and spending significant amounts of general election funds before a primary is not common. This memorandum is for planning purposes only. Because of the legal uncertainty in this area, we recommend that any proposed use of general election contributions before the date of the nominating convention be reviewed in advance with counsel. I. Legal Background Federal law limits the amount of money that a candidate may receive in connection with an election. 2 During an election cycle, a presidential campaign may raise funds in connection with two separate elections, with the primaries and convention collectively counting as the first election, and the November general election counting as the second. 3 Federal Election Commission ( FEC ) rules expressly permit a candidate to raise funds for the general election before the date of the primary election. 4 And, furthermore, the rules also contemplate that a candidate may use general election contributions to make general election disbursements before the date of the primary election. 5 However, in order to protect the 1 Nothing herein should be understood to suggest that Secretary Clinton has decided to become a candidate. All references to her as a candidate are merely intended to underscore or illustrate the points of legal discussion contained in the memorandum. 2 See 52 U.S.C (a), (f). 3 Id (a)(6) C.F.R (e). 5 See id (e)(2).

2 integrity of the limits, the candidate must use a reasonable accounting method to distinguish between contributions received for the primary and general elections (e.g., separate books and records or separate bank accounts), and must also return all general election contributions -- even those that have already been spent -- in the event that there is no general election candidacy. 6 Accordingly, most political committees do not spend general election funds before the primary election in order to avoid a legal obligation to refund general election contributions without enough cash on hand to do so (and being legally prohibited from raising any additional funds to cover the deficit). If a candidate spends general elections funds before the convention but then does not secure the nomination, she will be in violation of the law because the campaign has an obligation to refund contributions with no money to make the refunds and no legal way to raise more funds for that purpose. Additionally, while the rules do contemplate that a candidate may use general election contributions to make general election disbursements before the date of the primary election, the rules do not define this term and the FEC has only specifically addressed and approved of the pre-primary use of general election contributions in a very few circumstances. Thus, on top of the peril of spending general election funds and then not securing the nomination, even candidates that are very confident of winning the primary election must still face the uncertainty of determining what qualifies as a legitimate general election disbursement in the eyes of the FEC. Against this backdrop, there are several options for addressing a relative shortage of primary funds or using general election funds before securing the nomination, which we discuss in order of least to most risky. II. Primary Election Loan Repaid with General Election Funds The simplest way to address a shortage of primary funds from a compliance point of view is to secure a bank loan during the primary election. A loan, or line of credit, from a commercial bank is permissible and does not constitute a prohibited contribution from the bank as long as the loan: (i) bears the bank s usual and customary interest rate for the relevant type of loan; (ii) is done in writing; (iii) is subject to a due date or amortization schedule; and (iv) is made on a basis which assures repayment. 7 The appeal of this approach is that there is no concern about the legal implications of not qualifying for the general election, and no limitation on the use of the loan. Then, during the general election, the campaign can either use general election funds to repay the balance owed on the loan, or alternatively, can continue to raise primary funds to retire the loan as a primary debt from donors who did not previously make the maximum permissible contribution to the primary election. 6 Id (e)(1), (3). 7 Id (a). If you would like to consider obtaining a loan or line of credit, we can provide further advice regarding legally acceptable methods of assuring repayment under applicable campaign finance law. -2-

3 III. Goods or Services Received During the General Election Funds If the decision is made to spend any general election funds prior to the general election, then there are at least some types of expenses that clearly constitute general election disbursements. In an opinion issued in 1986, Mark Green, then a candidate for U.S. Senate, asked the FEC whether he could use general election funds to pay for activities to influence both the primary and potential general election. 8 The FEC permitted him to use general election funds exclusively for the purpose of influencing the prospective general election in those limited circumstances where it is necessary to make advance payments or deposits to vendors for services that will be rendered, or goods that will be provided after he established his candidacy with respect to the general election and that would not influence the primary election or nominating process. 9 Though almost thirty years old, this opinion has been cited by the FEC as good law as recently as Accordingly, any good or service that a campaign will not receive until after the primary can clearly be paid for with general election funds. The most obvious example would be reserving television air time after the convention, but the rule would apply equally to any payments for vendors that are required to be made before the convention for deliverables that will come after, polling commissioned before the convention but received after, payments to reserve space, or for other aspects of post-convention events, or similar expenses. IV. Equipment Used for Both Primary and General Purposes While far more aggressive and uncommon, there is also an argument that equipment or items that will be used both during the primary and general period can be paid for with a mix of primary and general election funds. In one advisory opinion, the FEC permitted a campaign to accept an in-kind contribution of a computer valued at more than $1,000 (the per-election limit at the time) and to allocate the in-kind contribution, and resulting expenditure, across the primary and general elections. 11 The FEC distinguished its decision from the Green advisory opinion on the basis that computers and similar equipment have a long-term useful life beyond the primary election. Because in-kind contributions are treated both as contributions to, and expenditures by, the recipient committee, the opinion tacitly recognized that a campaign may pay for a portion of this type of equipment with general election funds before the date of the primary, although that question was not directly before the Commission. Extending this authority, a campaign could pay for items like computers, furniture, technology, software or any other goods with use postconvention with some percentage of general election funds. Again, we are not aware of other 8 Fed. Election Comm n Adv. Op , n.3. 9 Id. at Fed. Election Comm n Adv. Op , n Fed. Election Comm n Adv. Op

4 campaigns taking this approach on a large scale basis, and would not recommend pursuing it if there are other acceptable ways to avoid a shortage of funds during the primary period. V. Advertisements Made for the Purpose of Influencing the General Election Similar to the advisory opinion on allocating an in-kind contribution across the primary and general election limits, the FEC determined in one other decision that an advertisement aired by the RNC during the primary election would still be an in-kind contribution to the general election limit of a Republican candidate for President, when the ad clearly concerned a potential Democratic nominee. 12 While this opinion did not concern the spending of general election funds, as in-kind contributions are considered both contributions and expenditures by the recipient, one could read the opinion to allow for the use of general election funds for general election ads, even during the primary. A campaign could rely on this opinion to defend paying for ads attacking one s likely Republican opponent with general election funds before the convention, especially if the ads did not promote the campaign s own candidate, and were only run in states in which the primary had already occurred. However, this advisory opinion was arguably overruled by the Green opinion and again, we are not aware of campaigns generally putting this argument into action; it should only be considered if there are not other options during the primary election. VI. Reliance on Presidential Public Financing Rules A final approach for proceeding could be based on the FEC s rules governing the public financing of presidential campaigns. In 1995, the FEC passed rules to govern the proper allocation of primary and general expenses by candidates who seek public funding in connection with the primary or general election. 13 While they are not directly applicable to privately financed campaigns, we could attempt to rely on these rules as defining what constitutes a general election disbursement by a presidential campaign in line with the Green advisory opinion. The rules address the following types of expenses:. Overhead and Salary Expenses: Under the public financing rules, overhead and salary costs incurred on or after June 1 of the presidential election year, but on or before the date of nomination, may be attributed to the general election in an amount not to exceed 15 percent of the limitation on primary-election expenditures by candidates receiving public funding. 14 The overall limit is indexed to inflation; in the 2012 election cycle, the overall 12 Fed. Election Comm n Adv. Op C.F.R (e)(1). 14 Id (e)(3). -4-

5 limit was $45.6 million, 15 so the total amount of general election money that could have been allocated to overhead leading up to the 2012 convention was $6.84 million. If applied outside of the public financing context, this would permit a campaign to spend a set amount of general election funds to pay for payroll, office space, and other office overhead between June 1 and the end of the convention. 16 Campaign Materials: The rules provide that campaign materials, including bumper stickers, campaign brochures, buttons, pens and similar items, that are purchased by the primary election campaign committee and later transferred to and used by the general election committee are attributed to the general election limits. 17 Applied to a nonparticipating campaign, this rule could be read to permit a campaign s general election account to reimburse the primary election account for chum that is purchased before the convention, but not used until after nomination. Media Production Costs: Under the public financing rules, if a media communication is broadcast or published both before and after the date of the candidate s nomination, half of the production costs are attributed to the primary and the other half are attributed to the general. Media buy costs are paid for with 100 percent primary or general election funds based on when the communication is broadcast or distributed. 18 Thus, if a campaign wished to air the same advertisement both before and after the date of nomination, a campaign could arguably pay for half of the production costs with general election funds. Fundraising Costs: Under the public financing rules, the costs of fundraising for the primary campaign and the General Election Legal and Accounting Compliance Fund, including the cost of solicitations and events, may be allocated based on the funds received by each. 19 This is an allocation method that the FEC has used in other contexts, including when a party committee raises funds for both its general and recount funds 20 or its federal and nonfederal accounts. 21 Applied in this context, the rule would 15 See Presidential Spending Limits for 2012, at 16 Before 2000, the FEC instead permitted participating presidential campaigns to use general election contributions to pay for payroll and overhead costs for offices where the exclusive use was in connection with the general election. See 64 Fed. Reg. 61,777, 61,779 (Nov. 15, 1999). The FEC replaced this requirement with the 15 percent rule in an attempt to provide campaigns with flexibility, acknowledging that a portion of presidential campaign efforts before the date of nomination are necessarily devoted to general election activities. Id. To the extent that it is discordant to use the public spending limits to determine the spending of a non-participating campaign, we could instead contend that the previous standard should apply to non-participating candidates. Thus, instead of facing a hard cap, the Campaign could arguably pay for staff and overhead in those states where the Campaign has ceased all primary-related activity C.F.R (e)(4). 18 Id (e)(5). 19 Id (e)(6). The FEC did not apply this allocation to funds raised for the general election, as participating candidates are not permitted to accept private contributions in connection with their general election campaign. See 60 Fed. Reg. 31,853, 31,867 (June 16, 1995). 20 Fed. Election Comm n Adv. Op C.F.R (f), 106.7(d)(4). -5-

6 arguably permit a campaign to pay for its fundraising solicitations, the cost of its fundraising events, and other fundraising costs with a split of primary and general election contributions that reflects the percentage of funds that the event or program raises for each. Travel Costs: Under the public financing rules, the costs of travel incurred by a person who is working exclusively on general election campaign preparations are to be considered general election expenses even if the travel occurs before the candidate s nomination. 22 Applied to a non-participating campaign, this rule would arguably permit a campaign to use general election contributions to pay the cost of travel that is exclusively in connection with the general election before the date of nomination. As noted above, these rules are not controlling outside of the public funding context and it would be risky to rely on them in different circumstances. Nevertheless, if it is critical to use general election funds before the convention, the rules could arguable provide guidelines for what might constitute a general election disbursement by a presidential campaign and, therefore, provide a plausible basis upon which to proceed. VII. Conclusion There are many safe ways to avoid running out of primary funds during the primary election, including structuring contracts to not pre-pay vendors for general election activities, taking out a loan during the primary to be repaid with general election funds, or paying for goods or services that will not be delivered until after the convention with general election funds. However, if it is still necessary to use additional general election funds before the convention and one is willing to take on risk, there are other categories of expenses that could plausibly be defended, including equipment used throughout the cycle, ads clearly related to only the general election, and expenses addressed in the public financing regulations. We look forward to discussing any specific questions you have regarding potential options. 22 Id (e)(7). -6-