Are Campaign Finance Laws Ready for the Internet Bandwagon?

By Joseph E. Sandler and Neil P. Reiff
(Campaigns & Elections, July 1999)

There is a basic conflict between the fundamental assumptions of campaign finance law and the unique features of the Internet.

Much attention has been devoted to the impact of the Internet on U.S. political campaigning. There has been little or no discussion, however, about the extent to which the current campaign finance legal regime is capable of accommodating the unique aspects of the Internet as a broad-based, interactive communications medium.

The Internet is supposed to offer the promise of expanding participation in American political life by ordinary citizens. By empowering citizens to communicate and have their views heard, the Internet can improve democracy and reduce the role of large contributions and special interests. Arguably, then, a policy objective of campaign finance law should be to facilitate broad-based use of the Internet for political communication by and among informal, loosely organized groups of citizens. But the current legal regime creates unnecessary and undesirable obstacles to expanded use of the Internet for political communication and is in fact generally ill-suited for regulating Internet communication precisely in those areas of greatest promise.

Federal and state campaign finance regulation is based on the quantification, limitation and disclosure of the costs of communications. Such costs, in the case of Internet communication, are minimal and diffuse. In addition, by contrast, all of the traditional media of political communication, the Internet is interactive - the senders and recipients of messages communicate with each in real time - whereas campaign finance regulation assumes a single entity creating and disseminating a message and controlling its content. There is a basic conflict, then, between the fundamental assumptions of campaign finance law and the unique features of the Internet. As a result, the very kind of informal, individualized, broad-based exchange of political information that should be encouraged is instead caught up in a web of complex regulation that can only serve to discourage such activity.

The current campaign finance scheme creates obstacles in several areas to hinder maximum use of the Internet for political communication by groups of ordinary citizens, as distinct from campaigns and parties:

* Web sites offering information about multiple candidates and political groups give rise to complex questions of allocation of costs, and the triggering of registration and reporting requirements, for which there is no legally safe and practical solution.
* It is difficult to avoid these obstacles even by taking a purportedly "non-partisan" approach.
* Even the use of links by one site to other sites now implicates the campaign regime.
* Fledgling efforts to create communities of politically involved and informed citizens are governed by rules relating to membership communications that are obsolete and unresponsive to the special features of cyber-community.
* Rules for political fundraising on the Web impose several burdens on Internet fundraising that do not exist for other forms of political solicitation.

Therefore, consideration should be given to amending the campaign finance laws to facilitate use of the Internet for grassroots political communication.

Internet Communication and Regulation

Federal and state regulation of campaign finance is based on the quantification, limitation and disclosure of money that is raised and spent for political communication. For example, under federal law, a "political committee" subject to regulation is defined as any group of persons that receives contributions or makes expenditures of more than $1,000 in any calendar year "for the purpose of influencing any election for federal office."

A political committee must register and file regular public disclosure reports with the Federal Election Commission (FEC), the independent federal agency that enforces the Federal Election Campaign Act (FECA). A political committee may be the authorized committee of a federal candidate, a "PAC" connected with a corporation, union or organization, or a non-connected "PAC." An individual or PAC may contribute only $1,000 per election, in money or in-kind, to a candidate for federal office; committees meeting certain requirements (multi-candidate PACs) may contribute up to $5,000 per election.

Political committees other than campaigns of federal candidates can receive a contribution from an individual (or from another committee) of up to $5,000 per year. Contributions to federal candidates and federal political committees by corporations and unions are banned.

State laws vary widely, with some states imposing few restrictions and others imposing restrictions as complex as those of federal law. For example, in California, any group that receives contributions of $1,000 or more in a calendar year must register with and file reports with state election authorities, although there are no limits on what an individual or group can contribute to or spend on behalf of a candidate for state office. By contrast, in Kentucky, a group that spends anything, even a few dollars, on state elections must register and report as a political committee, and such a committee is limited to contributing no more than $1,000, in money or in-kind, to a candidate for state office. In Vermont, any group that spends $500 or more on state elections must register and report as a political committee, and no individual or group can contribute or spend more than $400 to assist a candidate for governor.

These limits are based on capturing the costs of political communication. Any spending for political communication potentially influencing an election may be subject to the limitations of the campaign finance rules. For example, under federal law if an individual purchases a newspaper advertisement on behalf of a federal candidate, in cooperation with that candidate, the costs constitute an in-kind contribution to the candidate; thus, if the costs exceed $1,000, the individual has violated the law. An individual may spend an unlimited amount of his or her own funds for such an advertisement if he or she acts "independently" of the candidate, meaning essentially having no contact whatsoever with the candidate or the campaign.

A group of individuals may also spend an unlimited amount for an "independent" expenditure, but if the content of their communication "expressly advocates" the election or defeat of an identified candidate, and they spend more than $250 in a calendar year, they must register and report to the FEC as a federal PAC, and must observe restrictions and limits on the funds they raise (e.g., contributions from individuals and other federal PACs only, limited to $5,000 per year).

A communication by a group of individuals, a corporation, a union that does not "expressly advocate" the election or defeat of any candidate, but discusses specific candidates in the context of discussing public policy issues, may or may not trigger these limits and restrictions. The courts have ruled that an incorporated organization that is not a political committee, and that pays for a communication that refers to a candidate - but does not expressly advocate the candidate's election or defeat - falls outside the scope of FECA. However, the organization must act independently of any candidate or political party.

The extent to which such communications can be based on discussions with or information obtained from candidates is an open question, which is currently being litigated in the courts. The FEC's Office of General Counsel, however, takes the position that the costs of any communication that refers to a candidate, regardless of whether it contains "express advocacy" language, is an in-kind contribution to the candidate unless the rigorous requirements of "independence" have been met.

The Internet has introduced a new and different animal into this cage. Communicating via the Internet costs something, to be sure, but what are the costs and how much are they? Maintaining a site on the web may involve costs ranging from purchase of a server for tens of thousands of dollars, to paying a few thousand dollars to a consultant to create and host a site, to a few hundred dollars a year to reserve a domain name and have a site hosted, to a hundred dollars or so for a software package, to virtually nothing for the electricity to operate the computer and have a friend with some expertise in html create a simple site. And whatever costs are involved may support more than one site, each with a different purpose or focus.

The FEC has ruled that "use of [a] World Wide Web site . . . should be viewed as a form of general public political advertising" subject to regulation under FECA based on the costs of the communication. Capturing and regulating the costs of Internet communication pose few obstacles to a campaign already spending substantial sums, since such groups are already regulated, are already filing reports with election authorities and are already observing applicable limits on contributions and expenditures. Unfortunately, however, there is no exemption in the campaign finance scheme for grassroots efforts to use the Internet for political communication, even where the costs of those efforts are minimal.

That point is illustrated by a recent ruling of the FEC. In the situation addressed in Advisory Opinion 1998-22, a voter in Connecticut, who happened to be a registered independent, created his own Web site advocating the defeat of U.S. Rep. Nancy Johnson (R-CT) and the election of her opponent, Democrat Charlotte Koskoff. The site offered the option to contribute to or volunteer time for Koskoff, and had a link to the official site of the Koskoff campaign. The voter, who was in the business of creating Web sites for others as well as for himself, created and maintained this independent site on his own computer and collected no funds for it. The only costs involved in creating and maintaining the anti-Johnson site were a $35 annual fee paid to InterNIC for registration of the domain name (www. e-source.com/koskoff).

The FEC ruled that the Web site "would be viewed as something of value under the [FECA] because it expressly advocates the election of a federal candidate" and that "the costs associated with the creation and maintaining of the Web site would be considered an expenditure under the Act and Commission regulations." The FEC held that the site must have a disclaimer, as required by FEC rules, stating the voter's full name and including "a truthful statement as to whether or not your communication via the Web site is authorized by any candidate."

More significantly, the FEC rejected the voter's claim that the creation of the Web site was essentially cost-free, and instead ruled that whatever costs were expended by the voter for all of his sites domain name registration fees, amounts invested in hardware and utility costs- had to be apportioned among the sites, including the anti-Johnson site. If, after such apportionment, the costs allocable to the anti-Johnson site were sufficient to trigger registration and reporting requirements, the voter would have to register and report as a federal political committee. While there would be no limit on what he could spend against Johnson and for Koskoff, if his efforts were completely "independent" under FEC rules, the voter might still "be required to file reports with the Commission if the total value of your [independent] expenditures exceeds $250 during 1998."

If a single voter, raising no funds from others and spending a few hundred dollars of his own funds, can be pulled into the maze of regulations that now constitutes the campaign finance regime, it seems clear that this regime may pose significant obstacles to widespread, grassroots use of the Internet for political communication. We now explore the nature of some of these obstacles in somewhat more detail.

Legal Obstacles

Multi-candidate Sites. Consider the case of a group of friends who want to set up an Internet site to expand political involvement by making it easier for people to obtain information about candidates and to exchange views about candidates, campaigns and political issues. The costs are $2,000, which they fund out of their own pockets. The site will include information from candidates themselves, information from various publications (including newspaper articles and editorials), and will include links to official candidate sites. The site will also include a bulletin board where people can react, exchange and post their views about candidates and issues.

To begin with, the group will collect and post information about 10 candidates for Congress and five candidates for governor, in interesting and important races. To promote the site and ultimately upgrade its quality, the group will solicit contributions from the public on the site. Other than collecting a variety of information from campaigns, the group will have no connection with or contact with any campaign or political party.

The potential legal considerations in setting up this seemingly straightforward project are formidable. If the site includes any words - even a reprint of an editorial or reprint of candidate material - "expressly advocating" the election of any of these candidates, it falls under the FECA regime. The meaning of "express advocacy" is itself a controversial subject, about which courts in different parts of the country have taken different views- a special challenge for the sponsor of a Web site that will necessarily reach citizens across the country.

Assuming that the content threshold has been crossed, under FEC rules, an expenditure on behalf of more than one clearly identified candidate is normally allocated based on the amount of space devoted to each. In this case, if equal space is devoted to each of the 15 candidates, and 2/3 of them are federal candidates, then 2/3 of the costs - or $1,500 - are "expenditures" to influence a federal election under FECA. In that case, this group of friends must register with the FEC as a federal "political committee," begin filing regular public disclosure reports, and observe limits on who can contribute to the site and how much they can contribute.

As the costs and scope of the site expand, the group members will have to be concerned with how much they are spending on what might be treated as an in-kind contribution to each candidate.

Although the law is unclear because of developments in analogous areas of the regulations, the FEC might take the position under its current rules that merely collecting information from various campaigns precludes the group from claiming would be unable to spend more than $1,000 in costs attributable to any one federal candidate, per election, unless and until it qualified as a "multi-candidate committee," in which case it could spend $5,000 per election.

Further, the group would be required to post a variety of prescribed disclaimers on its site, varying in content depending on whether it could indeed claim "independent" status or not. Specific additional disclaimers and other information would be required to be posted in order to solicit funds for the project on the site.

Nor would that be end of the group's foray into campaign finance law. It would also have to cope with the vagaries of state laws. If one of the candidates mentioned was, for example, running for governor of Kentucky, the group would have to register as a Kentucky political committee, regardless of how much or how little the site cost.

If another candidate was running for governor of Vermont, the group would have to wonder whether the allocable share of costs exceeded $400 - the limit on in-kind contributions to a candidate for governor - and would have to register and report as a Vermont political committee if those costs exceeded $500.

Further, state law may trigger registration, reporting and the application of limits based on standards of the content of political communication that differ from those that have been developed in federal law.

Thus, informal efforts to create communications about multiple candidates and campaigns are likely to be caught up in a complex maze of difficult regulation, under the current regime.
Non-partisan. Sites. It should be noted that it is not a simple matter to avoid these restrictions by adopting a stance of "non-partisanship." To be sure, it is possible to set up a site to collect and make available information about a variety of candidates on a nonpartisan basis, without worrying about being treated as a political committee - a feat accomplished, for example, by Project Vote Smart, an educational organization recognized as a non-partisan organization under section 501(c)(3) of the Internal Revenue Code (www.vote-smart.org).

Similarly, the FEC recently ruled that the Secretary of State of Minnesota could include, on her official Web site, links to the sites of all candidates qualifying for the ballot in that state, as part of a "non-partisan" effort to encourage voter participation.

Apart from the rigors of qualifying as a section 501 (c)(3) organization - including mandatory application to the IRS for recognition of exempt status - IRS rules strictly limit what such an organization can communicate about candidate's views, generally requiring, for example, a voter guide to include responses to candidate questionnaires without editing, bias or additional comment of any kind.

Under current FEC rules - already ruled unconstitutional in part by the courts - any contact with a campaign to obtain such information means that a site sponsored by an organization must avoid not only "expressly advocating" the election or defeat of a candidate, but any "electioneering" message - a stricter standard that, in the FEC's view, could include any discussion of a candidate's views in the context of voting or elections.

In the example given, a bulletin board where people can express views about candidates and have those views posted on the site, could easily destroy "non-partisanship" for FEC purposes. Even though the sponsor of the site has no control over, and may not endorse, the comments of individuals posting views on a message board on the site, the dissemination of those comments by the site sponsor by still trigger the application of the federal campaign finance laws to the extent such comments contain "express advocacy." To maintain non-partisanship under the FEC regime, then, ironically a site sponsor might actually have to censor the views and comments of persons participating in the site.

The difficulty of avoiding the campaign finance regime by trying to create a "nonpartisan" site is illustrated by FEC Advisory Opinion 1996-2, addressing a proposal by CompuServe to create a "nonpartisan online election headquarters," offering CompuServe members information, discussion and news about candidates, issues and elections across the United States.

The FEC ruled, however, that CompuServe's "proposed gift to Federal candidates of valuable services which enable them to communicate with voters and advocate their candidacies would constitute in-kind contributions to those candidates and would be prohibited" by FECA's ban on corporate contributions.

Thus, a group of ordinary citizens attempting to establish an even-handed, objective site, "non-partisan" in the commonsense meaning of the term, is likely to face a difficult choice between becoming ensnared in the full panoply of campaign finance rules, or observing an almost equally murky set of restrictions in order to avoid application of those rules.
Links as Expenditures

It is logical that an informal group of citizens might conclude that the easiest way to create a Web resource for information about political candidates is simply to link to the candidates' official sites. Such an effort would at least seem to take advantage of one of the Web's unique features, the use of hypertext, to make information and ideas available to fellow citizens without triggering campaign finance requirements.

In fact, the FEC recently ruled that links are something of value for purposes of FECA. In Matter Under Review 4340, a corporation, among other things, maintained a Web site containing a link to the official site of a candidate for Congress. There was no other reference to the candidate on the corporate site. The company and the campaign argued that "Web sites routinely refer users to additional Web sites. These links are free of charge and it is these references which make 'surfing the net' possible and popular."

Nevertheless, the FEC's General Counsel ruled that "the reference in the Corporation's web site directing users to the campaign site does appear to constitute something of value, i.e., additional exposure to members of the general public, which is tantamount to advertising."
Since corporations are absolutely prohibited from making expenditures in connection with federal elections, the General Counsel ruled that the corporation had violated federal regulations.

As noted, the FEC recently ruled that a state government site merely providing links to sites of all qualified candidates was a "non-partisan" effort to encourage voter participation, exempt from regulation. The result could well be different for private groups, however, especially if any selection or editorial judgment is involved. In the example given, suppose the group of friends set up a site simply setting forth a list of links to official candidate sites, selected by that group on the basis of what they thought were interesting or important races. If a list of 15 sites included 10 U.S. House and Senate sites and total costs were $2,000, the group would likely still have to register, report and be regulated as a federal political committee.

Membership Rules

One of the central features of the Internet is the ability to capture information about interested citizens, give them a chance to express and exchange views, and communicate with them in the future. It would be logical, for example, to invite users to give their views in a chat room or post them on a bulletin board, and in any event provide their e-mail address so that the site could communicate with them in the future, with updated information, future solicitations and the like. Creators of a site of that nature could thus establish "virtual" organizations of citizens communicating political information and views with each other on an ongoing basis.

Here, the good news is that the right of an organization to communicate political information to its own members is protected by the law; such communications, as a general rule, are not subject to the limits or political committee registration requirements of federal law even when they "expressly advocate" election or defeat of a federal candidate. The bad news, however, is that the law's current conception of "membership" does not take account of the special features of cyber-communities.

The Supreme Court has ruled that, to be a "member" of an organization, a person or entity must have "some relatively enduring and independently significant financial or organizational attachment" to the group. Under the FEC's current rules, a "member" must either have a significant financial attachment beyond payment of dues, have the right to vote directly for all members of the organization's highest governing body, or pay regularly assessed dues and have the right to vote directly or indirectly for at least one member of the organization's highest governing body. Those rules have been struck down by the U.S. Court of Appeals for the D.C. Circuit, and the FEC is currently undertaking a rulemaking proceeding to develop new regulations.

Under the proposed new rules, a "member" would still have to have a significant financial attachment, be required to pay regular dues or have direct and enforceable governing rights, such as the right to vote directly or indirectly for at least one member of the highest governing board, for officers or on policy questions. In addition, the organization, among other things, would have to expressly solicit members, state the requirements of membership in its bylaws and acknowledge acceptance of membership and make its bylaws available to its members.
Clearly, an informal group of citizens setting up a Web site, inviting the public to react and interact via e-mail, collecting e-mail addresses, and intending to communicate regularly through e-mail or the web site to its "members" or participants, could not meet these requirements.

In FEC Advisory Opinion 1997-16, for example, an established environmental group with 5,000 dues paying members, meeting all the "membership" requirements, wanted to post its list of endorsements of federal candidates on its web site. The group was a 501(c)(4) non-profit corporation. The FEC ruled that, while the group was free to communicate its endorsements to its dues-paying members, posting on the Web site would reach the general public; without any limitation on public access to those endorsements, such a posting would be prohibited.

The FEC held that "communication of the list of endorsed candidates in the organization's Web site, without some limit on access, could not be viewed as only a de minimus corporate communication by electronic means outside the restricted class," i.e., outside the group of dues-paying members.

The FEC offered the group the choice of e-mailing the list of endorsements to dues-paying members only, or actually limiting access to the endorsement list through use of a password available only to those official members.

Thus, a fledgling "cyber-community" wishing to create a large group of people with whom it could share and exchange information and views about candidates and campaigns, would need to confront the regulatory maze applicable to political committees communicating to the general public.

Fundraising

The solicitation of political contributions on the Internet has become commonplace, and the past election cycle witnessed the growth of commercial services facilitating the use of Web sites for that purpose. Yet it has been observed that, even for established campaigns and committees, the Internet is still underutilized for political fundraising.

The legal obstacles to political fundraising on the Internet are not especially significant for well-funded campaigns and party committees, many of whom already engage in such activity. They present a somewhat more intimidating challenge to informal groups of citizens who find themselves treated as political committees.

All solicitations of funds to a federal political committee must contain certain disclaimers required under FEC rules, and must contain a request for the information the committee is required to report to the FEC. The committee must take certain steps to show that it has made its "best efforts" to obtain this information. Contributions from foreign nationals who are not legal permanent residents are prohibited. Anonymous contributions over $50 are prohibited. All contributions must be deposited within 10 days of receipt.

The FEC has approved use of the Internet for soliciting political contributions. A site that allows a potential contributor to print out a response form and send it to the campaign by regular mail with a personal check is subject to the same requirements as solicitation by any other means.

The FEC has approved solicitation of contributions by credit card over the Internet. And, in a development welcomed by both Republican and Democratic presidential hopefuls, the FEC recently changed its rules to allow credit card contributions made via the Internet to presidential primary candidates to qualify for federal matching funds. In its rulings, the FEC also allowed the required contributor information to be captured and maintained electronically.

The FEC conditioned this approval on use of a series of screening questions - a procedure not required for solicitations by direct mail or telephone. The site is supposed to include a form on which contributors are asked to attest that they are making the contribution from their own funds and not those of another; that the contribution is not from the general treasury funds of a corporation, labor organization or national bank; that the contributor is not a federal government contractor; that the contributor is not a foreign national who lacks permanent resident status of the U.S.; and that the contributor is not a minor except for a minor making the decision knowingly and out of his or her own funds. If any item is checked in the negative or left blank, the screen is supposed to inform contributors that they cannot contribute, in specified language, e.g., "Sorry, Federal law prohibits foreign nationals who lack permanent residence status from contributing to" the political committee, and the site is supposed to block the transaction.

Solicitations by means other than the Internet are not required to take contributors through these steps. To the contrary, while committees soliciting contributions via the Internet are required to reject contributions by credit card instantly if these steps show any indication of a potential legal problem, committees soliciting through traditional means are given 30 days from receipt of a contribution to determine its legality.

The FEC nevertheless has sought to impose these requirements precisely because of the unique features of the Web: anyone can access a site, from anywhere in world. The contributor is faceless. Justified or not, these restrictions can only serve to inhibit greater use of the Internet for broad-based political fundraising.

Clearly as the Internet evolves as an interactive communications tool, numerous new issues will be presented about its use for political communication and activity. Recently, the FEC instructed its staff to begin first steps toward developing new rules to address these issues.

That is welcome news. The legal regime should be shaped, in tandem with evolution of technology, to ensure that our democracy benefits from the great potential of the Internet for expanding participation and involvement in the political system by the vast majority of citizens who currently find no meaningful role in that system.

This article was adapted from a paper presented to the conference on "Online Politics and Democratic Values" sponsored by The George Washington University Graduate School of Political Management's Democracy Online Project.