We’ve talked about the compliance hazards of zombie committees before. But with a new announcement by the FEC last month, there’s now greater impetus to wind down these rudderless entities.
The FEC is set to increase scrutiny of dormant committees and their spending this summer. It said in an April press release: “Starting in July 2018, the Commission will examine the use of campaign funds by dormant committees as part of its review of campaign finance disclosure reports, to ensure the activity meets the regulatory standards for permissible use.”
In laymen’s terms, the FEC is reprising the lyrics from Semisonic’s classic song “Closing Time.”
“You don’t have to go home, but you can’t stay here” — if your dormant activity veers from federal law and the FEC’s strict regulations.
First, I think it’s important to understand why a campaign might stay open for many years after its active cycle. Every campaign is different. Some congressionals — the kind that lose a primary — last only a few weeks. This kind of campaign can easily wind down and terminate within a few months.
A national presidential campaign, given its large scope and tremendous amount of activity, takes many years to wind-down. Reasons for delays are numerous and varied: reasons may include campaign debt, ongoing FEC matters, pending lawsuits, candidate indecision about whether to seek another office soon or convert the committee to a PAC, or lack of personnel to administer the maintenance and wind-down. Whatever the reason, campaign funds may only be spent for permissible uses.
The first task of any committee is to make sure that there’s a person or professional compliance firm in charge of the committee’s wind-down. Campaigns are short-terms entities. When they end, staff tend to scatter. Someone needs to remain to make sure that the committee attends to all of its legal obligations while winding down. Some of the important tasks include bill paying, record keeping, document organizing, and public disclosure reporting,
For the committee in debt, the first job is to assess the damage — how much debt is there? As I have previously advised, it’s wise for a campaign to create a contact list of staff and volunteers so that institutional knowledge can be harnessed. Then, someone should contact vendors and request a “last call” for invoices.
For debt reporting purposes, it’s important to know exactly what bills are outstanding. Once the amount of debt is determined, the committee can decide how it should pay the debt. If the candidate can afford it, a candidate contribution might be the easy answer. If the candidate cannot afford it, or doesn’t want to personally pay for the debt, the committee will need to develop a fundraising plan to retire the debt. Under most campaign finance regimes — whether federal or at the state level — you cannot terminate until the debt is paid down. This is a huge obstacle for many committees and the reason for some dormant committees.
Some committees, on the other hand, have a surplus of campaign cash sitting in the coffers. If the candidate knows he doesn’t want to run for office again or convert the committee to a PAC — and assuming there are no outstanding FEC matters or lawsuits — there are permissible ways to spend down the money so you can terminate. First, you can refund donors. This is often done in either a pro-rata manner, or a last-in-first-out method. You can often donate the money to a charitable organization of your choice—provided no conflicts of interest exist. Generally speaking, you may contribute to other candidate committees or transfer money to a party committee.
Campaign money cannot be converted to personal use. Campaigns should consult with competent and experienced election law attorneys for their legal judgment regarding what constitutes personal use. It’s a very fact-specific inquiry. Some expenditures are ipso facto considered personal use. For example, you cannot use campaign money to pay the candidate’s mortgage. You cannot use campaign money for household food and supplies.
While it may seem odd that the FEC chose an extremely busy time of the midterm year to increase scrutiny of dormant committees, they are clearly sending a message that committees need to take the wind-down of a campaign more seriously. A responsible person needs to execute all of the wind-down steps that I have advised and more. And former candidates or officeholders need to be more decisive about their political futures.
Like those Semisonic lyrics, you can’t sit at the bar all night. The lights turn on, patrons are ushered out and the staff prepare to go home. The FEC is professionally and politely telling dormant committees maybe they should go home, too.
Brad Crate is the founder and president of Red Curve Solutions, a GOP compliance firm.