AO 2007-26: Disposal of excess state campaign funds by federal candidate

A federal candidate's previous state campaign committee may make donations to certain charitable organizations, refund donations to its donors under certain conditions and, so long as the donated funds are federally permissible, make donations to state party nonfederal accounts and nonfederal candidates.

Background

Aaron Schock currently serves as an Illinois state representative. Mr. Schock, first elected in 2004, began to campaign for reelection to the Illinois state legislature in 2008, but ended his state campaign and is now a Republican candidate for the U.S. House of Representatives. His state campaign committee, Citizens for Schock (the Committee), has paid all of it expenses and contains a surplus consisting of funds from his 2006 and 2008 state campaigns. The funds in the state account are permissible under Illinois law, which allows donations from corporations and unions and does not limit donations from individuals to state candidates. However, some of the funds are impermissible under the limits and prohibitions of federal law.

Mr. Schock asked whether he may donate the Committee's surplus funds to:

• Nonfederal accounts of state and local party committees;
• State and local candidates in Mr. Schock's district and other parts of Illinois;
• The Republican party candidate who will run in the 2008 election to replace Mr. Schock in the state legislature (the "successor Republican party candidate"); and
• Certain charitable organizations.

Additionally, Mr. Schock asked whether his committee could refund donations in the surplus made by individuals and nonfederal committees and whether his committee could retain funds indefinitely.

Analysis

Threshold Determination Regarding Reasonable Accounting Methods. The Committee proposes to make disbursements to various types of entities. As a preliminary matter, the Commission noted that the Committee must use one reasonable accounting method to identify the donations it received that compose the remaining funds it has on hand and to identify the donations in its remaining funds that are the federally permissible funds. See for example 11 CFR 110.3(c)(4). The Committee must use the same accounting method for all of its disbursements and must ensure that funds received by the committee and used for one disbursement (according to the accounting method) are not used to fund another disbursement.

State and Local Candidates and Nonfederal Party Accounts. The Federal Election Campaign Act (the Act) prohibits federal officeholders and candidates, their agents and any entities directly established, controlled or maintained by federal candidates or officeholders from soliciting, receiving, spending or disbursing funds in connection with a nonfederal election unless those funds are within the Act's amount limits and source prohibitions. 2 U.S.C. §441i(e)(1) (B) and 11 CFR 300.62. Commission regulations additionally require such funds to be in compliance with state law. 11 CFR 300.62.

Since Mr. Schock is a federal candidate and the Committee is a nonfederal campaign organization that he directly established, financed, maintained or controlled, all disbursements made by the Committee in connection with a nonfederal election must be made from funds that the Committee has identified as "federally permissible" funds. (This means that any funds donated by the Committee must have been received from federally permissible sources in amounts that are within the applicable contribution limit to a federal candidate). Therefore, the Committee may donate only federally permissible funds to the nonfederal accounts of state and local party committees and to nonfederal candidates, as permitted by state law. 2 U.S.C. §441i(e)(1)(B). Because Illinois law permits unlimited donations from one state or local candidate committee to another, and from a state candidate committee to a state party committee, the Committee may donate any amount of federally permissible funds remaining in its account.

The restriction on a federal candidate's soliciting, receiving or spending nonfederal funds applies to federal candidates at any time and does not depend on whether a federal candidate appears on the ballot. Thus the rules on donations by the Committee to nonfederal candidates do not change based on whether the nonfederal candidates' elections occur on the same date as a federal election. See AO 2005-2.

"Successor Republican Party Candidate." For federal candidates who also seek state or local office, the Act provides a limited exception to the general prohibition on federal candidate's raising or spending of nonfederal funds. See 2 U.S.C. §441i(e)(2). The restrictions do not apply to a federal candidate or officeholder who is or was also a candidate for state or local office as long as the solicitation, receipt or spending of funds (1) is solely in connection with such election for state or local office, (2) refers only to the candidate, other candidates for the same nonfederal office or both and (3) is permissible under state law. 11 CFR 300.63.

The purpose of the limited exception is to provide an equitable basis for a federal candidate or officeholder to conduct his or her state or local campaign so that he or she is not financially disadvantaged when competing with a nonfederal opponent who may raise and spend funds without the same restrictions that section 441i(e) imposes on federal candidates and officeholders. The exception applies only to a federal candidate's own campaign for state or local office and does not apply to Mr. Schock's situation, where he is no longer a nonfederal candidate and where he is no longer raising or spending funds for his former nonfederal campaign. See AOs 2007-1, 2005-12 and 2005-5.

Thus, the Committee may not make donations of federally impermissible funds to the Republican candidate running to replace Mr. Schock in the state legislature. Any donations to a state candidate must follow the same rules as the above donations to other nonfederal candidates and party accounts and must be made from federally permissible funds. 2 U.S.C. § 441i(e)(1)(B).

Refunds of Donations. Although 2 U.S.C. 441i(e)(1)(B) and 11 CFR 300.62 require that funds spent by a nonfederal committee controlled by a federal candidate consist of federally permissible donations, the Committee, under the facts presented here, would be refunding donations to the donors that provided them. The Committee may refund donations of any amount to the donors to the extent permitted by state law. The funds identified to be refunded may not also form the basis to fund the above-described Committee donations to state and local candidates and nonfederal accounts of party committees.

Charitable Donations. The Committee may make donations to certain, nonpolitical 501(c)(3) organizations (such as the American Red Cross), if permissible under state law. The Act's restriction on federal candidates' spending of nonfederal funds does not apply to donations to 501(c)(3) charities that do not engage in election-related activity, including federal election activity. Thus the Committee may make these donations without limit, regardless of whether the funds are federally permissible. See 2 U.S.C. §441i(e)(1) and 11 CFR 300.61 and 300.62.

Indefinite Retention of Funds. If state law allows, the Committee may keep the funds in its account indefinitely, because the Act and Commission regulations do not prohibit the Committee from doing so.

AO 2007-26: Date Issued: December 6, 2007; length: 7 pages.