Image Source: Casey Botticello
What is a Super PAC?
Super PACs are a relatively new phenomena in American politics. They are a product of two judicial decisions: the U.S. Supreme Court’s ruling in Citizens United v. Federal Election Commission, delivered in January 2010, and the D.C. Circuit’s decision in Speechnow.org v. Federal Election Commission, two months later. Together, these two decisions enabled the creation of a new entity: a political action committee that could accept unlimited donations so long as it did not coordinate its expenditure with any political campaign.
Super PACs, officially known as “independent-expenditure only committees”, may not make contributions to candidate campaigns or parties, but may engage in unlimited political spending independently of the campaigns. Unlike traditional PACs, they can raise funds from individuals, corporations, unions, and other groups without any legal limit on donation size.
The term “Super PAC” was coined by reporter Eliza Newlin Carney. According to Politico, Carney, a staff writer covering lobbying and influence for CQ Roll Call, “made the first identifiable, published reference to ‘super PAC’ as it’s known today while working at National Journal, writing on June 26, 2010, of a group called Workers’ Voices, that it was a kind of ‘super PAC’ that could become increasingly popular in the post-Citizens United world.”
According to FEC advisories, Super PACs are not allowed to coordinate directly with candidates or political parties. This restriction is intended to prevent them from operating campaigns that complement or parallel those of the candidates they support or engaging in negotiations that could result in quid pro quo bargaining between donors to the PAC and the candidate or officeholder. However, it is legal for candidates and Super PAC managers to discuss campaign strategy and tactics through the media.
Why Should I Start a Super PAC?
In 2017, I formed the Cryptocurrency Alliance Super PAC. I am passionate about cryptocurrencies and the potential for blockchain technology. I knew that there was likely a wave of regulation that would follow the vast amounts of money being invested in the cryptocurrency market. Forming a Super PAC, based around cryptocurrency regulation and education, seemed like an interesting way to advocate for groundbreaking technology and meet new people who shared my interest in the field.
Image Source: Casey Botticello
1. Creating a Super PAC is one of the Best Ways to Learn About our Political System
Whether you like it or not, Super PACs are likely here to stay and are becoming a dominant force in US Elections. As of June 2018, 2,392 groups organized as super PACs have reported total receipts of $1,790,569,447 and total independent expenditures of $1,060,490,102 in the 2016 cycle, alone.
Although Super PACs are often associated with “dark money” and wealthy donors advancing their own agendas, Super PACs can be formed quite easily by anyone (process outlined below). You don’t need to be a legal expert and the process is fairly straightforward.
2. Making Connections, Boosting Visibility of Your Cause, Establishing Credibility
Super PACs are publicly listed and tracked by the FEC and various watchdog groups. So if you have a cause that needs increased visibility, creating a political organization around that can be very effective.
It can also be a great source of earned media. Since creating the Cryptocurrency Alliance Super PAC, my website traffic has skyrocketed, volunteers I never knew existed have materialized, and I have received calls from numerous media organizations and reporters.
Recently this Medium article itself was featured on John McAfee’s 2020 Presidential Campaign site. There have not been many views so far, but this just happened a couple days ago. It’s also a high authority domain (for those of you looking for creative SEO/backlinks).
While it did not shape the outcome of the 2020 Presidential Election, I still found it pretty cool!
While guerilla marketing may not be the most obvious use of a Super PAC, it certainly can play a role. After realizing that the FEC literally posts every correspondence on their website (including the scanned copy of any physical mail), I sent in some slides from a PowerPoint Presentation I had recently created on The Global Emergence of Cryptocurrencies. Subsequently, the FEC posted them online:
Granted, the low quality black and white scanned copy did not do an epic presentation justice:
But they did publish what I sent in full, which will be forever preserved by law. A creative approach to earned media.
3. Ensuring That Money you Contribute is Being Utilized Efficiently and for the Group’s Intended Purpose
Even if a group exists that champions your cause or candidate, they likely aren’t utilizing donations effectively. So if you plan on contributing financially to political groups, why not ensure your money is being utilized properly?
The People’s Majority Super PAC is a great example of how political contributions can end up funding unintended expenses. “We are the only super PAC dedicated to the research, development and enhancement of motivating conservatives to the polls,” it proclaims on its website. “No dinners, no pictures with VIPs, no shirts or yard signs here. People’s Majority uses every penny of your contribution to identify and motivate low-turnout voters on Election Day.”
Well, not every penny. The super PAC, which registered with the Federal Election Commission with the express purpose of advocating for and against political candidates, spent nearly ten grand on meals alone last year, including eye-popping bills at restaurants including Sorellina in Boston, Manny’s Steakhouse in Minneapolis, Henri in Chicago and Michael’s on the Hill in Vermont.
And even though it is an “independent expenditure-only committee” — the formal name for a super PAC — it didn’t spend a cent on independent expenditures, the activities that help elect or defeat candidates, such as political advertisements and targeted get-out-the-vote efforts.
How to Form a Super PAC
- Select a name. The Super PAC’s name must appear in public filings and in most public communications in the form of a “paid for by” statement. At a minimum, some initial screening should be done to determine the likelihood of trademark challenges to the PAC’s name, logo, and slogans.
- Determine governance structure. While not required, it’s recommend that Super PACs incorporate for liability purposes. Donors also often like to see the PAC run by a board with fiduciary obligations responsible for determining how the money will be spent, rather than a hired political consultant who may have a strong incentive to spend money in a way that is beneficial to the consultant. As an incorporated entity, the Super PAC will need articles of incorporation, bylaws, and organizing resolutions. The Super PAC will also need to designate a registered agent to accept service of process.
- Open a bank account. The Super PAC must open a bank account in its own name, through which all receipts and disbursements should be made. To open the account, the Super PAC will need an Employer Identification Number (EIN) from the Internal Revenue Service. This can be obtained for free on the IRS website.
- Select a treasurer. The Super PAC must appoint a treasurer who is legally responsible for safeguarding PAC funds and ensuring that the PAC files timely and accurate reports. A PAC may not receive or disburse funds if there is a treasurer vacancy.
- Prepare and file initial registration with the FEC. File FEC Registration Check box 5(f) under “Type of Committee.”
Also, write a short cover letter to the Federal Election Commission. You’ll want to be sure you make it clear your new committee will be functioning as a Super PAC.
You can do that by including the following paragraph verbatim:
“This committee intends to make unlimited independent expenditures, and consistent with the U.S. Court of Appeals for the District of Columbia Circuit decision in SpeechNow v. FEC, it therefore intends to raise funds in unlimited amounts. This committee will not use those funds to make contributions, whether direct, in-kind, or via coordinated communications, to federal candidates or committees.”
Below is a copy of the letter the Cryptocurrency Alliance Filed with the FEC:
Make sure to include your Statement of Organization your name, address, contact information, and the name of your super PAC and its treasurer.
Mail your form to:
Federal Election Commission
1050 First St NE
Washington, D.C. 20463
Maintaining Your Super PAC
6. Fundraising. A federal Super PAC may accept contributions in unlimited sums from individuals (U.S. citizens or green card holders) and other groups or business entities, including corporations and unions. However, federal political committees, including Super PACs, are prohibited from accepting contributions from foreign nationals and federal government contractors.
7. Coordination. Super PACs may not make expenditures at the request or suggestion of a candidate, campaign, or political party, or use nonpublic information obtained from a candidate, campaign, or political party in connection with media strategy, development, or production. Likewise, a Super PAC may not republish campaign materials prepared by a candidate, campaign committee, or political party, except for a brief quote to illustrate a candidate’s position or certain other limited purposes. The coordination ban also applies to interactions with agents of the candidate and campaign finance entity of a candidate, such as common vendors and employees (present and former).
Coordination may cause the Super PAC’s disbursement to be considered an illegal, in-kind contribution. Such activity can lead to intrusive investigations, significant penalties, and even criminal prosecution. To minimize these risks, every Super PAC should adopt and implement a coordination policy, provide training regarding the policy to its employees and vendors, and exercise care in its interactions with candidates, campaigns, and political parties.
8. Advertising and Legal Disclaimers. Public communications by Super PACs must include “paid for by” disclaimers in compliance with FEC rules. The specific disclaimer requirements vary onsiderably, depending on the communication medium. Any automated phone calls must also comply with sponsorship identification and other restrictions promulgated by the Federal Communications Commission, and may also be subject to state law requirements.
9. Reporting and Compliance. Super PACs are subject to the same reporting obligations as traditional federal PACs. During an election year, the Super PAC must file reports with the FEC disclosing all receipts and disbursements on either a monthly or quarterly schedule. Quarterly filers must also file pre-primary reports 12 days before every primary in which the PAC is active. Super PACs must also file 24- or 48-hour reports disclosing certain expenditures made just before an election. Given the short turnaround time for these reports, it is important to have good accounting systems in place to make certain that the reports are accurate and filed on time.
Federally registered Super PACs are automatically tax-exempt under Section 527 of the Internal Revenue Code, and generally have no filing obligations with the Internal Revenue Service. However, a Super PAC must file Form 1120-POL with the IRS and pay any associated tax for any year in which the organization has investment or similar taxable income over $100.
Can Super PACs Pay Salaries?
Political consultants can create super PACs or political nonprofits to raise money according to Stefan Passantino, a partner at McKenna Long & Aldridge. These entities can then use that money to pay themselves.
“Yeah, I would say it is the new growth industry,” says Trevor Potter, former chair of the Federal Election Commission and general counsel to John McCain’s two presidential campaigns. “If you are a consultant who is part of the control group that forms a super PAC or one of these nonprofits, then you get to figure out how you are going to compensate yourself, and it is not always a matter of public record.”
There are a few ways this can work. A super PAC can pay a fee to a consulting firm that is run by the same consultant who started the super PAC. That firm could charge fees on ads the super PAC buys. According to Potter, this happens in what he calls “a black box.”
“It’s actually pretty hard to figure out how much administrative costs many of these groups have, and then, how much of that is ending up back in the consultant’s pocket,” he notes.
A super PAC’s founder can be an employee of his own super PAC. “Under election laws, there is nothing improper about taking a salary out of your own super PAC,” says Ken Gross, who spent most of his career as an FEC attorney. That money is taxable, however. He notes there is also nothing improper under election laws about taking money you have raised and spending it on personal items.
“Right now, there are 109 super PACs in our data that reported spending money but have made no independent expenditures,” says Sheila Krumholz, who tracks political spending at the Center for Responsive Politics. All they are doing, Krumholz explains, is paying staff and consultants to help them raise more money. “They are capitalizing on political interests in order to siphon off money that would otherwise go to support candidates and parties, and instead, they are using it for their own personal enrichment.”