A caution for PACs and parties: a deposit can be forever

Reprinted from the Spring 2014 Compliance Connections Newsletter
Download the complete Spring 2014 issue

Three recent rulings from federal and state regulators to political action committees (PACs) and political parties highlight the need for committee treasurers to be diligent about deposits and upkeep of their committees. In each matter, committees tried to refund contributions or move contributions from one account to another. Regulators’ responses to each request highlight the importance of solid fiscal practices and maintaining good campaign finance records.

On February 21, 2014, the Federal Elections Commission (FEC) issued a draft Advisory Opinion to the Solano County Democratic Central Committee (Committee) denying its request to use funds held in a dormant bank account related to a prior federal committee (Draft AO 2014-01-A). A former treasurer for the Committee failed to file nine required reports with the FEC and did not respond to FEC inquiries, leading to administrative termination of the Committee in 2005. Upon discovery of the activity in 2008, the Committee chairman isolated the federal account and suspended its use, then registered a new federal committee (New Committee). The account containing more than $10,000 remained unused and was nearly forgotten until four years later when a new treasurer took over operations.

The New Committee requested permission to deposit the dormant funds into its federal account, but with the passage of time, could not locate sufficient records to establish that money raised into the account complied with federal campaign finance laws. As a result, the FEC proposed denying the request. But this year, the Committee was able to retrieve some old bank records and provided supplemental information to the FEC in March. Finally, on April 3, 2014, the FEC voted to permit the transfer, but only to the extent the Committee could establish from its records and using best efforts, that the funds were not excessive and were not from a prohibited source (AO 2014-01-D).

The Advisory Opinion distinguishes a similar earlier situation involving a dormant committee that was permitted to transfer funds from a forgotten account into an existing federal account. In that situation though, the committee did file the required disclosure reports with the FEC at the time. Because that committee complied with disclosure laws, the new treasurer was permitted to use “best efforts” to disclose sources of funds to be transferred into the new federal account (AO 1981-01).

At the state level, the Ohio Election Commission (OEC) issued two rulings on February 20, 2014. In 2014-ELC-01, a PAC asked if it could refund a contribution to a contributor. Relying on an earlier ruling, the OEC denied the request. Ohio law permits contribution refunds in specific statutory circumstances, which did not apply in the situation presented. Moreover, Ohio law permits PACs to use their funds only to influence an election or to make a charitable contribution; refunds to contributors met neither authorized purpose.

Also on February 20, 2014, the OEC advised a political party that it could not refund gifts that were made to its building fund. Using the same reasoning, the OEC concluded that: 1) state law did not authorize a refund; and 2) a refund did not meet any of the four purposes that are statutorily authorized for building account funds.

In each situation, the various committees have mechanisms to lawfully spend the funds in question. But being diligent about initial deposits and record-keeping could have avoided issues or preserved greater flexibility for the committees in question.