State of Alaska

Department of Administration

Alaska Public Offices Commission

Alaska Department of Administration, Alaska Public Offices Commission

AO99-04-CD

Number: AO99-04-CD

Requested by: Thomas P. Amodio
Foster Pepper Rubini & Reeves LLC

Prepared by: Jenifer Kohout, Assistant Director

Date issued: August 26, 1999

Subject: Political Participation by a Nonprofit Corporation

This opinion responds to your July 8, 1999, request for guidance from the Commission regarding application of the Alaska Supreme Court’s decision in State v. Alaska Civil Liberties Union, Opin. No. 5108 (Alaska April 16, 1999) to contributions and expenditures by the Alaska Conservation Voice, Inc. (ACV).

Summary

Because ACV satisfies the criteria identified by the Alaska Supreme Court in ACLU, it is a "qualified nonprofit corporation." As a result, it may make contributions and independent expenditures to influence the outcome of state and local candidate elections. To keep its qualified status, however, ACV must put in place a mechanism to screen out business contributions; and during fundraising, must notify donors that contributions may be used for political purposes. In addition, ACV must comply with the "requirements, monetary limitations, and restrictions" applicable to groups under AS 15.13. ACV must also report as a group unless it meets the criteria in 2 AAC 50.314. Staff has recommended that the advice in this letter be formalized into regulation.

The Law

Prohibitions on Corporate Activity

AS 15.13.074(f) prohibits the following entities from making contributions to candidates or groups: a corporation, company, partnership, firm, association, organization, business trust or surety, labor union, or publicly funded entity that does not satisfy the definition of group in AS 15.13.400.

AS 15.13.135(a) permits only individuals and groups to make independent expenditures supporting or opposing candidates for election to public office. Requires that independent expenditures supporting or opposing candidates be reported in accordance with AS 15.13.040 and 15.13.100 - 15.13.110 and other requirements of this chapter.

SLA 1996, ch. 48—Section 30. Applicability of AS 15.13 to persons other than individuals—If a court determines that, under the federal or state constitutions, persons who are not individuals must be allowed to contribute to candidates or groups, then the requirements, monetary limitations, and restrictions of AS 15.13 are applicable to those persons.

Reporting Requirements

AS 15.13.040 (b) Each group shall make a full report upon a form prescribed by the commission listing

(1) the name and address of each officer and director;

(2) the aggregate amount of all contributions made to it; and, for all contributions in excess of $100 in the aggregate a year, the name, address, principal occupation, and employer of the contributor, and the date and amount contributed by each contributor; and

(3) the date and amount of all contributions made by it and all expenditures made, incurred or authorized by it.

AS 15.13.040 (d) Every individual, person, or group making a contribution or expenditure shall make a full report, upon a form prescribed by the commission, of (1) contributions made to a candidate or group and expenditures made on behalf of a candidate or group . . . (2) unless exempted from reporting by (h) of this section, any expenditure whatsoever for advertising in newspapers or other periodicals, on radio, or on television; or, for the publication, distribution, or circulation of brochures, flyers, or other campaign material for any candidate or ballot proposition or question.

2 AAC 50.314. Definition of "Group"; Reporting by Businesses.

(b) A corporation, partnership, sole proprietorship, trade association, fraternal or charitable organization, incorporated or unincorporated association, firm, or business trust may report its contributions and expenditures as required by AS 15.13.040(d) and (e) as an individual if

(1) all contributions and expenditures to influence the outcome of an election are made from the organization’s general day-to-day operating account;

(2) the organization does not conduct a fundraising drive or assessment among its members or employees for the purpose of influencing an election;

(3) the organization does not exercise direction, control or discretion over the choice of the recipient candidate or group, and the organization does not exercise direction, control, or discretion over the expenditure of money or other things of value collected, pooled, solicited, or otherwise paid by others for the purpose of influencing an election.

Facts

You write on behalf of the ACV requesting that the Commission find that the ACV is exempt from the bans on contributions and expenditures by corporations. Ex. A.

The Alaska Conservation Voice, Inc., has qualified as a 501(c)(4) organization under federal law. Ex. B. Under state law it is organized under the Alaska Nonprofit Corporation Act for "educational, civic, and any other lawful purpose." Ex. C.

The amended articles of incorporation identify the primary purpose of the corporation as engaging in social welfare activities that "promote environmental preservation, conservation, and quality of life." According to the ACV newsletter, United Voices, the organization is "dedicated to protecting Alaska’s environment through public education and advocacy in the Alaska State Legislature, Congress and other forums." In your letter, you state that ACV

helps protect Alaska’s environment through public education and advocacy in the Alaska State Legislature, Congress and other forums. As a secondary activity, the ACV supports pro-conservation candidates for public office (to the extent legally allowed). The ACV seeks to influence lawmakers and executive branch decision makers to take pro-conservation actions. It seeks to achieve pro-conservation majorities in the electorate and in local, state and national governing bodies and public offices.

Rather than engage in business activities, ACV’s activities are primarily focused on promoting conservation issues, communicating with and educating the public regarding conservation issues, lobbying, fundraising, and secondarily, supporting pro-conservation candidates for public office.

The bylaws of the organization reflect that there are members but no shareholders. Members do not have any claim on corporate earnings. Property of the corporation is dedicated to social welfare purposes, rather than the benefit of any director, officer, or member. There are no benefits associated with being a member of ACV other than participation in the organization.

ACV was formed in 1997 when the name of the Alaska Environmental Lobby was changed to ACV. The organization was formed by leaders from various conservation groups including Southeast Alaska Conservation Council, Earth Justice, and Alaska Center for the Environment. No business organizations were involved.

Most of ACV’s funding comes from membership dues and member support and from grants awarded by conservation and philanthropic foundations. Some of ACV’s members are conservation organizations; however, it has no business members. Organizational members do not have voting authority. ACV does do some fundraising. A minor portion of ACV’s funding comes from grass roots activities to raise money such as raffles and auctions. As a general policy, ACV does not solicit contributions or support from businesses or business corporations. However, it has no formal policy against accepting money from businesses. It is possible that a small amount of money from fundraising activities originates from businesses.

You indicate that ACV currently has a gaming account and a general account. You add that it plans to open a political account.

Analysis

Background

The 1996 campaign finance reforms significantly restricted how non-group entities could participate in political campaigns. Current law now prohibits business entities and labor organizations from making contributions or independent expenditures on candidate campaigns. AS 15.13.074(f) specifically prohibits corporations from making contributions to candidates and groups, while AS 15.13.135 permits independent expenditures on candidate campaigns by individuals and groups only.

In State v. ACLU, the Alaska Supreme Court found that these two provisions were constitutional when applied to certain organizations—namely those which could amass great wealth through state-created advantages. Opin. No. 5108 (Alaska April 16, 1999). Relying on U.S. Supreme Court holdings, the state court found that the "unique state-conferred corporate structure that facilitates the amassing of large treasuries" posed a danger of corruption.

However, not all corporations meet this definition. Relying on U.S. Supreme Court holdings, the Alaska Court in ACLU identified a class of entities that were not "groups" but whose speech was constitutionally protected. ACLU, op. no 5108, at 31. These are organizations which do not benefit economically from the state-created advantages of the corporate form--organizations which do not pose a danger of corruption because they are formed to disseminate political ideas, not amass capital. As a result, their resources are a function of their popularity in the political marketplace, not their success in the economic marketplace. These are factors which the U.S. Supreme Court found determinative in Federal Election Comm’n v. Massachusetts Citizens for Life, 479 U.S. 238, 107 S.Ct. 616 (1986).

Criteria Identified by the State and Federal Courts

In ACLU, the Alaska Court construes the law to exclude from the corporate prohibition organizations that meet the three conditions identified in Austin v. Michigan Chamber of Commerce, 494 U.S. 652, 110 S.Ct. 1391(1990).

First, the entity does not participate in business activities. Instead, it must be formed for the express purpose of promoting political ideas. This narrow focus ensures that the resources of the entity reflect its political support. In Austin, the Court found that, because the Michigan Chamber of Commerce had a variety of purposes, several of which—like professional training--were not inherently political, it did not satisfy this criteria. Austin, 110 S.Ct. at 1399.

Second, the entity may not have shareholders. According to the Austin Court, this requirement ensures that "persons connected with the organization will have no economic disincentive for disassociating with it if they disagree with its political activity." This criteria further ensures that the political resources of the organization reflect the members’ agreement with the political purposes of the organization rather than a desire to receive a financial or business benefit. Austin, 110 S.Ct. at 1399.

Finally, the entity must be independent from the influence of business corporations. Discussing this condition, the Supreme Court distinguished Massachusetts Citizens for Life from the Michigan Chamber of Commerce. MCFL had a policy of not accepting contributions from business corporations. Austin, 494 U.S. at 664. "Thus MCFL could not ‘serve as a conduit for the type of direct spending that creates a threat to the political marketplace.’" Id. Membership in the Chamber of Commerce, however, was predominately corporate. As a result, "[b]usiness corporations therefore could circumvent the Act’s restriction by funneling money through the Chamber’s general treasury. Because the Chamber accepts money from for-profit corporations, it could, absent application of [a ban on expenditures], serve as a conduit for corporate political spending." Id.

Criteria for Qualified Nonprofit Corporation Status in Alaska

The Federal Election Commission has promulgated regulations to implement the federal corporate expenditure ban in light of these Supreme Court holdings. The criteria set out in those regulations provide a helpful framework for the Commission ’s interpretation of AS 15.13.135 and 15.13.074(f) in light of the ACLU case.

The federal regulations address only the qualifications for making independent expenditures because the U.S. Supreme Court in both MCFL and Austin addressed the ban on independent expenditures in candidate campaigns. It did not address whether qualified entities could be prohibited from making contributions. In fact, the Supreme Court has "consistently held that restrictions on contributions require less compelling justification than restrictions on independent spending." MCFL 479 U.S. at 259-60. However, because the Alaska Court covers both expenditures and contributions in its holding (without distinguishing between the two in its analysis), we have extended the FEC’s qualification for making expenditures to cover contributions.

Business entities who satisfy the following criteria will be considered "qualified nonprofit corporations" for the purposes of AS 15.13 and, as a result, not be subject to the prohibitions on corporate contributions and independent expenditures:

I. No business activities 1

1. Nonprofit status—the corporation is a social welfare organization as described in 26 U.S.C. Sec. 501(c)(4).

2. Express purpose—the corporation’s organic documents, authorized agents or actual activities indicate that the only purpose is issue advocacy, election influencing activity or research training or educational activities tied to the corporation’s political goals.

3. No business activities—the corporation does not engage in business activities which are defined to include the provision of goods, services, advertising or promotional activity that results in income to the corporation, other than in the form of membership dues or donations. If fundraising activities are expressly described as a request for donations which may be used for political purposes, they are not business activities.

1. The three conditions identified by the Alaska Court are designated with roman numerals. The criteria required to establish each condition are numbered (1) through (5).

2. No shareholders

4. No shareholders or persons other than employees who:

(i) have an equitable interest in the corporation or are affiliated in a way the would allow them to make a claim on the organization’s assets or earnings; or

(ii) receive a benefit that they lose if they end their affiliation with the corporation or cannot obtain unless they become affiliated, e.g., credit cards, insurance policies, savings plans, education or business information. These types of benefits are disincentives for individuals to disassociate themselves from the organization.

III. Independent from the influence of business corporations

5. The corporation

(i) was not established by a business corporation or a labor organization;

(ii) does not accept monetary or non-monetary donations from such organizations; and

(iii) if unable to demonstrate that it has not accepted such donations, has a written policy against accepting donations from them.

Under the federal approach, qualified nonprofit corporations are expected to screen income for prohibited contributions.

Criteria Applied to ACV

It appears that the ACV satisfies the following criteria and, therefore, is a "qualified nonprofit corporation."

1. Nonprofit status--ACV is a social welfare organization under 26 U.S.C. Sec. 501(c)(4) and a nonprofit corporation under state law.2

2. Express purpose—The ACV’s purpose is political. The articles of incorporation identify the organization’s purpose as engaging in social welfare activities that promote environmental preservation, conservation, and quality of life. ACV’s newsletter, United Voices, states that the organization is "dedicated to protecting Alaska’s environment through public education and advocacy in the Alaska State Legislature, Congress and other forums."

3.No business activities—As long as ACV notifies potential donors that the proceeds from its fundraising efforts may be put towards political purposes, such as supporting or opposing candidates, then ACV will not engage in business activities. Fundraising efforts like raffles and auctions constitute business activities unless a donor knows that the money may be used for political purposes. As a result, to ensure that the effort is not characterized as a business activity, ACV must notify potential donors that it may use the money for political purposes.

2 It is conceivable that entities which are not incorporated might qualify as the type of entity not subject to the prohibitions. However, because ACV is a nonprofit corporation, this answer addresses only nonprofit corporations.

4. ACV does not have shareholders. Its bylaws ensure that directors and other persons (who are not paid employees) do not have a financial interest or claim on the organization or its assets. In addition, ACV’s members do not receive any benefits which would motivate a person to continue to pay membership dues even if that person did not agree with the organization’s actions.

5. (i) ACV was not established by a corporation or a labor organization.

(ii) ACV’s funding comes from membership dues and support, grants, and grass roots fundraising. ACV has no business members and does not receive grants or contributions from businesses.

With regard to member dues, ACV appears to satisfy the Court’s condition that it be independent from businesses. The Commission assumes that conservation groups that are members of ACV have nonprofit status. If ACV were to receive member dues or support from a business entity, it would no longer qualify as a "qualified nonprofit corporation" exempt from the corporate prohibitions. To ensure that it does not receive dues or support from business entities, ACV should consider formalizing its policy of not having business members. At a minimum, ACV must establish a screening mechanism to filter out business donations.

Similarly, ACV may not accept any grant funds from businesses or it will risk losing its qualified status. Likewise, ACV must adopt a mechanism to screen out business income received in the course of fundraising activities.

Compliance with AS 15.13

If an entity, like ACV, satisfies these criteria and, therefore, is a "qualified nonprofit corporation," it is not subject to the prohibition on corporate contributions and independent expenditures to candidate campaigns. It is, however, subject to the requirements, monetary limitations, and restrictions of AS 15.13. 1996 SLA Ch. 48, section 30.

With the 1996 reforms, many of the limitations and requirements applicable to "persons" were eliminated from the law. In the face of an express prohibition on corporate contributions and expenditures, there was no need to further regulate "persons." Key requirements, limitations and restrictions were amended to apply only to individuals and groups. The legislature, however, anticipated that, if certain persons were allowed by the court to make contributions, those entities should be subject to existing limitations and requirements. 1996 SLA Ch. 48, section 30. In enacting the 1996 reforms, the legislature included the following provision:

Sec. 30. Applicability of AS 15.13 to persons other than individuals. If a court determines, that under the federal or state constitutions, persons who are not individuals must be allowed to contribute to candidates or groups, then the requirements, monetary limitations, and restrictions of AS 15.13 are applicable to those persons.

Section 30, however, does not indicate whether "persons who are not individuals" should be treated as individuals or as groups under the law. This distinction is important for contribution limits and for reporting purposes.

Contribution Limits and Other Requirements

Because qualified nonprofit corporations resemble political groups, they should comply with the requirements, monetary limitations and restrictions applicable to groups. Like groups, qualified nonprofit corporations consist of individuals who have organized and taken joint action to further their political beliefs. This similarity is part of the basis for the Alaska Court’s decision that qualified nonprofit corporations are not like other corporations. According to the Court, qualified nonprofit corporations have more in common with voluntary political associations than business firms. For the purposes of compliance with the campaign disclosure law, an analogy to group activity is appropriate.

As a result, all income received by the corporation for the purpose of influencing the outcome of state and local elections is subject to the same limitations applicable to groups. It must be from individuals, registered groups or other qualified nonprofit corporations and may not exceed $500 (individual) or $1000 (group or qualified nonprofit corporation) annually. AS 15.13.070. The qualified nonprofit corporation may use its general operating funds to make contributions. Contributions from the qualified nonprofit corporation may not exceed $1000 to a candidate during the year. Id. The Commission recommends that each qualified nonprofit corporation put in place some process to ensure that money which will be used on elections complies with the requirements of state law. To facilitate that process, the Commission recommends that money which will be used to make campaign contributions or expenditures be deposited into a separate political funds account—as the ACV plans to do.

Reporting Requirements

In determining whether a qualified nonprofit corporation should be treated as an individual or as a group under AS 15.13 for reporting purposes, the Commission relies on 2 AAC 50.314. According to the regulation, a corporation reports as an individual if it (1) uses operating account money to make political contributions and expenditures; (2) does not fundraise for the purpose of influencing an election; and (3) does not exercise direction, control or discretion over the expenditure of money or other things of value collected for the purpose of influencing an election. A qualified nonprofit corporation which meets these criteria reports as an individual. It must disclose its campaign activity by filing either a Statement of Contribution (Form 15-5) or Statement of Expenditure (Form 15-6) when appropriate.

A qualified nonprofit corporation which does not meet these criteria, however, must report as a group. For example, a qualified nonprofit corporation which conducts a fundraising drive or assessment of members to influence an election must report its election-related activity as a group under AS 15.13.040. Requiring qualified nonprofit corporations to report as a group promotes public disclosure. Reports filed by individuals do not disclose the source of funds. The presumption is that the individual is using his or her own personal money. However, when a qualified nonprofit corporation receives money from third parties for the purpose of influencing an election, the source of those funds should be disclosed to the public. On its group report forms, the qualified nonprofit corporation must disclose all income and expenses related to its election activities.

Starting Off

A nonprofit corporation that believes it is qualified to make contributions and expenditures must submit a letter and supporting evidence to demonstrate that it meets the five criteria set out in this advisory opinion. The corporation should provide this documentation with the first filing it is required to make. That first filing will be a Statement of Contributions or Expenditures if the qualified nonprofit corporation uses its operating account to make all contributions and expenditures; does not fundraise or assess members for the purpose of influencing the election; and does not make expenditures from pooled funds. If the qualified nonprofit corporation does not satisfy those criteria, the first filing will be a group registration form.

Conclusion

ACV falls into the class of qualified nonprofit corporations entitled to make contributions and independent expenditures in candidate campaigns. To maintain its qualified status, however, ACV must put into place a mechanism to screen out money from business entities and must notify donors that their contributions may be used for election-related purposes. ACV must comply with the "requirements, monetary limitations, and restrictions" applicable to groups. Unless it meets the criteria in 2 AAC 50.314, it must report as a group.



The Commission approved the advice in this letter by an affirmative vote of 5-0 on November 1, 1999. The advice in this opinion applies only to the specific activity for which the advice was requested.

A copy of the original letter requesting the above advisory opinion is available upon request at the Alaska Public Offices Commission. 907/276-4176.