OPINION NUMBER - 141

ADOPTED - 1993/11/05

SUBJECT - Campaign Financing/PACs

REQUESTED BY: Patricia A. Theno, Manager/Public Affairs, U. S. West Communications Inc.

QUESTIONS PRESENTED: May a corporation establish a combined federal PAC which makes contributions to state and federal candidates and remain in compliance with the Nebraska Political Accountability and Disclosure Act?

CONCLUSION

See Analysis.

FACTS

U.S. West Communications, Inc. (U.S. West) is a Colorado corporation which does business in the State of Nebraska. It currently maintains a separate segregated political fund or PAC known as U.S. West Communications Nebraska Political Action Committee. The purpose of this Nebraska PAC is to solicit money from certain individuals and make contributions to candidates for public office in Nebraska. U.S. West also sponsors a federal PAC for the purpose of making contributions to federal candidates. U.S. West operates in 14 states. U.S. West expects to raise more than $2,000 each year from its employees who are Nebraska residents. It expects to contribute more than $2,000 each year to non-federal candidates in Nebraska.

U.S. West is proposing to reorganize its federal PAC such that it will be a "combined" federal PAC. That is, from the combined PAC contributions would be made to both state and federal candidates. It is contemplated that the combined PAC would receive voluntary contributions from the officers and employees of U.S. West. This would primarily occur through payroll deductions. Officers or employees making contributions to the PAC would be informed that their money will support both federal and state candidates. All money received would go first to the federal PAC fund. A budget would first be established by U.S. West for federal candidates. A secondary budget would be for state candidates. The budget as to state candidates would be allocated based upon (a) the expected revenues from the state and (b) historical benchmarks; that is, past contributions to that state's candidates. A contributor, upon inquiry, could receive an estimate as to how his or her particular contribution would be allocated between the state fund and the federal fund, but no hard information could be given. Money would be transferred from the federal fund to a Nebraska state fund as needed.

ANALYSIS

Section 49-1469 applies to corporations which are either organized under Nebraska law or doing business in Nebraska. Paragraph 2(a) of 49-1469 provides:

A corporation, labor organization, or industry, trade, or professional association may not receive contributions unless it establishes and administers a separate segregated political fund which shall be utilized only in the manner set forth in this subsection.

Section 49-1469(2)(e) provides that a separate segregated political fund is an independent committee subject to all of the provisions of the Accountability and Disclosure Act applicable to independent committees.

Section 49-1427 defines the term independent committee as a committee other than a candidate, ballot question, or political party committee. Section 49-1413 generally defines the term committee as a person of two or more individuals who receive or make contributions or expenditures of over $2,000 in a calendar year for the purpose of influencing or attempting to influence the action of the voters for or against the nomination or election of one or more candidates or the qualification, passage, or defeat of one or more ballot questions.

A summation of the previously noted provisions is that if a corporation receives contributions to support or oppose candidates or ballot questions it must form a committee. If the contributions received or the expenditures made exceed $2,000 in a calendar year the committee must be registered with the Nebraska Accountability and Disclosure Commission. Such a committee must do the following:

1. File a Statement of Organization with the Accountability and Disclosure Commission;

2. Appoint as the committee treasurer a qualified Nebraska elector;

3. Establish one account in a financial institution in Nebraska as the official depository of the committee; and

4. File periodic Campaign Statements.

A separate segregated political fund (or PAC) is limited to receiving and expenditure only "money or anything of ascertainable value obtained through the voluntary contributions of the employees, officers, directors, stockholders, or members of the corporation . . . ." See 49-1469(2)(c). This is somewhat different than the restrictions pertaining to federal PACs. Federal law limits federal PACs to solicitation of stockholders, their families and executives or administrative personnel and their families. Two times per calendar year employees and their families may be solicited. 2 U.S.C. 441b.

Section 49-1446(2) provides that:

. . . each committee shall designate one account in a financial institution in this state as an official depository for the purpose of depositing all contributions which it receives in the form of or which are converted to money, checks, or other negotiable instruments and for the purpose of making all expenditures.

Paragraph 7 of 49-1446 prohibits the commingling of committee funds.

We now apply these provisions to the proposed combined PAC.

Under the proposed combined PAC many of the requirements of the Accountability and Disclosure Act could be easily met. Others require additional discussion.

An initial difficulty with the proposal is that all contributions to the combined PAC would initially be placed in the federal fund. Money would be transferred from the federal to a Nebraska state fund as needed. The Commission has previously taken the position that a contribution may be distributed between a state and a federal fund. This position was taken in connection with a situation in which funds were to be deposited in a Nebraska state PAC and a portion of the funds were to be transferred to a federal PAC. In Advisory Opinion #70 the Commission ruled that it is the intent of the contributor which controls the use of the contribution, including the allocation of the contribution. The Commission stated that "this can be done by means of participating with the federal PAC in a joint solicitation or when the contributions to the Nebraska PAC are designated as percentages or fixed dollar amount for one PAC or the other." In Advisory Opinion #107 the Commission stated that "the contributor must designate how he or she wishes those funds to be used or the solicitation of the funds must indicate how the funds will be used." The sense of these statements by the Commission is that the contributor must know at the time the contribution is made how his or her contribution will be allocated. Under the proposed combined PAC plan it is not the contributor that makes the designation but the PAC itself. That is, the contributor does not know how his contribution will be allocated until after the allocation is made. The contributor's intent does not control.

A second difficulty pertains to the requirement that funds be deposited in the official depository of a committee. This depository must be established in a Nebraska financial institution. While secondary depositories are permissible, section 49-1446 requires that all contributions placed in a committee's secondary depository be transferred to the official depository immediately. U.S. West's description of its plan is not a description of a secondary account. It appears to be a description of a collecting agent situation. However, all money will go to the federal fund in a financial institution located outside of the State of Nebraska. Money would be transferred from the federal fund to the state fund as needed. Because there is no allocation by the contributor at the time his or her contribution reaches the federal fund, it is unknown how much should be transferred from the federal fund to the state fund. This also creates a reporting problem. Section 49-1455 requires the Campaign Statement of a committee to disclose the full name of each person from whom contributions totaling more than $100 are received either during the reporting period or cumulatively for an election period. The lack of a predeposit allocation of the funds makes it difficult to relate a deposit in the state fund to a particular contributor to the federal fund.

A third consideration is the fact that the proposed combined PAC plan may tend to make the auditing trail more difficult to follow. If all funds are deposited in the official depository, and all expenditures are made from the official depository, the activity of the committee may be easily discerned. Establishing the official depository in a Nebraska institution makes the records of the activity in that account more readily available to the Commission and its staff. Requiring that the treasurer of a Nebraska PAC be a qualified Nebraska elector helps to insure that there is an individual within the state who is accountable for the statutorily established duties of a committee treasurer. The combination of these requirements enables the Commission to determine if Campaign Statements filed by a PAC accurately reflect the contributions made to the PAC and the expenditures made by the PAC to support or oppose candidates and ballot questions. Ultimately the goal of the Nebraska Political Accountability and Disclosure Act in the area of campaign finance is to permit the public to determine the ultimate sources of contributions to candidates and ballot question committees. The proposed combined PAC plan tends to inhibit reaching that goal.

The combined PAC plan as described does not comply with the Nebraska Political Accountability and Disclosure Act. However, a variation of the described combined PAC plan would be acceptable.

If during the solicitation process a Nebraska employee is informed that a specific percentage of his or her contribution would be allocated to the federal PAC and a specific percentage of his contribution would be allocated to the Nebraska state PAC, a deposit could be made into the federal PAC account as long as the Nebraska state allocation was then immediately transferred to the Nebraska account. For the purposes of the Nebraska account there would be a record kept by the treasurer of the Nebraska PAC of the contributor and the amount of the Nebraska portion of the contribution. An alternative would be to permit the contributor to designate what percentage or dollar amount of his contribution would go to which account. Perhaps such a plan would meet the goals of the combined PAC. Certainly such a plan would be in compliance with the Nebraska Political Accountability and Disclosure Act. Of course, the account for the Nebraska PAC would need to be in a financial institution located in Nebraska and the treasurer of the Nebraska PAC would need to be a qualified Nebraska elector. The treasurer would need to record the name of each contributor to the Nebraska PAC for the purpose of reporting the same as required by law. In addition, the Nebraska PAC could only accept contributions from the employees, officers, directors, stockholders or members of the corporation as provided by Nebraska law. It could not accept contributions from their families as permitted by the federal law applicable to federal PACs.

The Commission takes no position as to whether the initial deposit of funds in a federal PAC and the transfer of a portion of those funds to a state PAC is permissible under the Federal Election Campaign Act of 1971 as amended. That is a matter more appropriately left to the consideration of the Federal Election Commission.

SUMMARY

The combined PAC plan as proposed does not meet the requirements of the Nebraska Political Accountability and Disclosure Act because the allocation between the state and federal PAC is not made by the contributor and because the Nebraska portion is not immediately placed in the designated official depository of the Nebraska PAC.