Federal Election Commission Main Page
July 13, 1984
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
ADVISORY OPINION 1984-24
Mr. H. Richard Mayberry, Jr., Esq.
Law Office of H. Richard Mayberry, Jr.
1667 K Street, N.W.
Washington, D.C. 20006
Dear Mr. Mayberry:
This responds to your letter of May 4, 1984, as supplemented
by your letters of June 1 and June 28, 1984, requesting an
advisory opinion on behalf of the Sierra Club ("the Club") and
its separate segregated fund, the Sierra Club Committee on
Political Education ("SCCOPE") or ("the Committee"), concerning
application of the Federal Election Campaign Act of 1971, as
amended ("the Act"), and Commission regulations to SCCOPE's
payment procedures for in-kind contributions it proposes to make
to candidates for Federal office through the use of Club
employees and facilities.
You state that the Club is a nonprofit membership
organization, incorporated in the State of New York, and granted
tax exempt status pursuant to 26 U.S.C. SS 501(c)(4). It is a
national conservation organization dedicated to promoting the
preservation of the environment through educational and lobbying
efforts. It has 53 chapters and more than 350,000 individual
members. It employs approximately 200 people, including a field
staff of 29 persons, and operates 12 national and regional
offices.
The Club has established and administers a separate
segregated fund, SCCOPE. SCCOPE is governed by the Club's
committee on Political Education, which consists of Club members
and has a chairman, vice chairman, treasurer, and assistant
treasurer, who are also Club members. The Committee decides
which candidates to endorse and to receive SCCOPE's financial
support. The day-to-day operations of SCCOPE are performed by
Club staff employees. You state that SCCOPE intends to make
in-kind contributions to approximately 60 to 70 U.S. Senate and
House candidates in the 1984 elections by purchasing from the
Club and providing to the candidates the services of 15-20 Club
employees and the use of Club facilities incident to these
services. You define "services" as the labor of Club employees
and "facilities" as Club office space, furniture, equipment and
any goods incidental to the use of the facilities. You state
that these employees may spend complete days or part days at
either a candidate's offices or at Club offices on
campaign-related activities.
You offer two examples to illustrate your proposed activity:
(a) an employee may spend two days in one week on
candidate-related activities working out of a candidate's campaign
headquarters and the remaining three days of the week on Sierra
Club nonelection membership relations at a Club regional office;
or (b) an employee, operating out of a Club office, may spend
part of a working day assisting a Federal candidate and the
remainder of the day on Club matters that are not campaign
related. You state that the Club anticipates that its employees
will, (1) research and prepare campaign materials on
environmental issues and the environmental record of the
candidates and their opponents; (2) assist in fundraising and
volunteer recruitment, including telephone banks, among Club
members and the environmental community; and (3) identify voters
interested in environmental issue and develop plans to reach
these voters.
You state that there are three methods by which SCCOPE may
pay the Sierra Club for these services and facilities: (a)
reimbursement by SCCOPE to the Club of the normal and usual
charge for the services and facilities; (b) advance payment
through an escrow account by SCCOPE to the Club of the normal and
usual charge for Club services and facilities; or (c)
establishment of SCCOPE as the second employer of Club employees
who engage in campaign-related activities.
In this regard, you pose five questions in your request:
(1) Whether SCCOPE may purchase from the
Sierra Club the services of its employees
for candidate-related activities and
pay to the Sierra Club the normal and
usual charge for the services within thirty
days of rendering them.
(2) whether SCCOPE may purchase the use of
Sierra Club facilities in connection with
the provision of services purchased from the
Sierra Club and pay the Sierra Club
the normal and usual charge for their
use within thirty days.
(3) Whether SCCOPE may pay the Sierra Club in
advance the normal and usual charge for
services and for the use of facilities with
the funds to be held in escrow by the
Sierra Club and debited monthly for the
services performed and facilities used.
(4) With the advance payment procedure,
whether the level of funding may be
maintained only at a reasonable estimate
of the normal and usual charge for the
services to be purchased from the
Sierra Club and for the Sierra Club
facilities to be used and may excess funds
be returned to SCCOPE.
(5) With the advance payment procedure, what are
the recordkeeping and reporting requirements
in connection with the use of escrow account?
With respect to the reimbursement payment method, as
referenced in questions (1) and (2) you have provided additional
facts. You state that each Club employee who provides any
services to SCCOPE will maintain a log to determine the time
involved in election versus nonelection activity, the extent of
the use of any Club facilities, and the identification of any
goods used. You state that the purpose of the log is to serve as
a basis for computing the amount of any reimbursement. Since the
Club pays its employees on a biweekly basis, you propose to
aggregate every two weeks the value of the time expended by each
Club employee on SCCOPE's in-kind contributions. You state that
SCCOPE will reimburse the Club within two weeks after the Club
issues it paycheck to such an employee. You add that two weeks
is necessary to allow time for the forwarding of time records
from the Club's field offices and their analysis at the Club's
headquarters. You propose to have SCCOPE reimburse the Club for
all its services and the use of all its facilities within 30 days
of their provision.
You further state that the services of Club employees are
unique and unavailable from other sources. In this regard, you
state that the Club will charge SCCOPE the total compensation
paid to its employees for their campaign-related activities plus
a seven and one-half percent administrative surcharge. You note
that the club's practice is to charge the actual costs of its
goods and services and up to a maximum of a seven and one-half
percent surcharge. The decision on the amount of the surcharge
is discretionary and depends on the ability of the contracting
party to pay it, the value of the services in promoting the
Club's objectives, and the status of the contracting party as
nonprofit or for-profit. You note that in the past the Club
provided goods at actual cost to Citizens Against Waste, a
California nonprofit corporation, and services at cost plus the
maximum surcharge to Southern California Gas Company.
With respect to the advance payment method using an escrow
account questions (3) and (4) , you also provide additional facts.
You state that SCCOPE would periodically forward to the Club an
amount of money that is estimated to cover the normal and usual
charge of any services and facilities provided by the Club. The
Club would place these funds in an escrow account and withdraw
funds monthly to pay for these services and facilities. The
level of funding of the escrow account would be commensurate with
SCCOPE's estimated use of Sierra Club employees and facilities.
The Act makes it unlawful for a corporation to make a
contribution or expenditure in connection with a Federal
election. 2 U.S.C. SS 441b. It defines "contribution" or
"expenditure" to include "any direct or indirect payment,
distribution, loan, advance, deposit, or gift of money, or any
services, or anything of value...to any candidate, campaign
committee, or political party or organization, in connection
with..." any Federal election. 2 U.S.C. SS 441b(b)(2). The Act
excludes from this definition, however, the "establishment,
administration, and solicitation of contributions to a separate
segregated fund to be utilized for political purposes by a
corporation, labor organization, membership organization,
cooperative, or corporation without capital stock." 2
U.S.C. SS 441b(b)(2)(C). Except for certain activities such as
internal communications and nonpartisan activities, the Act
requires that a corporation or labor organization direct and
finance its political activities solely through the use of the
voluntary contributions in its separate segregated fund and not
through the use of general treasury funds. 117 Cong. Rec. 43381
(Remarks of Rep. Hansen). The Commission's regulations at 11 CFR
Part 114 comport with this purpose and intent of the Act. The
regulations specifically provide that a corporation or labor
organization may not use the establishment, administration, and
solicitation process as a means of exchanging treasury monies for
voluntary contributions. 11 CFR 114.5(b).
The relationship between a separate segregated fund and its
connected organization has been noted by the U.S. Supreme Court.
It has held that a separate segregated fund must be separate from
its connected organization "only in the sense that there must be
a strict segregation of its monies from" general treasury funds.
Pipefitters v U.S., 407 U.S. 385, 414 (1972). Furthermore, a
separate segregated fund need not be formally or functionally
independent of its connected organization's control. Id. at 415.
Accordingly, Commission regulations specifically give a connected
organization the right to control its separate segregated fund.
See 11 CFR 114.5(a).
Thus, the statutory and regulatory framework permits a
corporation to use its general treasury monies to establish and
administer a separate segregated fund and to solicit voluntary
contributions to that fund from its solicitable class. Only the
monies in the separate segregated fund may be disbursed for
political purposes, and the corporation may not use its general
treasury funds for such purposes.
In this regard, the Act and regulations prohibit a
corporation from using its general treasury funds to provide
goods and services at no charge to candidates in any Federal
election. A corporation's donation of the services of its
employees and the use of its facilities incident to its
employees' services qualifies as a gift of something of value to
the candidate. Thus, the expenditure of corporate treasury funds
to provide such services and facilities falls squarely within the
prohibition of 2 U.S.C. SS 441b. Nothing in the Act or regulations
excludes such corporate disbursements from the Act's prohibition.
On the contrary, Commission regulations specifically define a
contribution as the payment of compensation to a person who
renders services to a candidate or political committee or the
provision of goods or services at less than the usual and normal
charge for them. See 11 CFR 100.7(a)(1)(iii) and (a)(3). See
also Advisory Opinions 1978-45, 1978-34, 1976-70, 1975-94, and
1975-14. The regulations also prohibit a corporation from
continuing to pay the employer's share of the cost of fringe
benefits for an employee who has taken an unpaid leave of absence
to volunteer his or her services to a Federal candidate or
campaign. Instead, the employer's share of such cost may be paid
by the corporation's separate segregated fund. See 11 CFR
114.12(c)(1). The prohibition of 2 U.S.C. SS 441b also includes
advances by a corporation of its general treasury funds and the
extension of credit which is not made in the ordinary course of
the corporation's business and on terms similar to those extended
to nonpolitical debtors. See Advisory Opinions 1980-44 and
1979-36.
The Commission notes that both the reimbursement payment
method and the advance payment method using an escrow account
involve the initial disbursement of corporate treasury funds to
compensate employees for the time in which they have rendered
political services to Federal candidates and to pay for the use
of any corporate facilities incident to the rendering of such
services. After these corporate disbursements are made, the Club
will determine what proportion of an employee's compensation and
the use of any facilities is attributable to political work. The
Club will then transfer this amount plus up to a seven and
one-half percent surcharge from its separate segregated fund to
its general treasury fund.
In the Commission's view, the initial disbursement of
corporate treasury monies is a loan, advance, or something of
value to both the candidate and the corporation's separate
segregated fund. It, thus, falls within the prohibition of
corporate contributions or expenditures of 2 U.S.C. SS 441b. None
of the exceptions in the Act or regulations remove such a
disbursement from the general prohibition of SS 441b. Therefore,
once the Club disburses its treasury funds to pay an employee for
political services rendered to a Federal candidate and for the
use of any Club facilities in rendering those services, the Club
makes a prohibited corporate contribution or expenditure and a
violation of the Act occurs. The subsequent transfer of
voluntary contributions from the Club's separate segregated fund
under either a reimbursement payment method or an advance payment
method using an escrow account does not cause the violation to
abate.
The Commission notes your arguments that 11 CFR 114.9 and
114.10 support or authorize a reimbursement payment method. The
Commission, however, does not view either regulation as
supporting or authorizing a reimbursement payment method or an
advance payment method using an escrow account in the
circumstances you have described.
First, by its own terms, section 114.9 applies only to the
use of corporate facilities and does not include the use of the
paid services of corporate employees. Therefore, this section
cannot be read as supporting or authorizing either the reimbursement
or advance payment methods regarding the compensation paid
to Club employees for the political services rendered to Federal
candidates. Second, this section was not intended to apply to
permissible corporate disbursements of treasury funds or to
disbursements by a corporation's separate segregated fund because
such activities are covered in other sections of Part 114. This
section applies only to the use of corporate facilities by
stockholders and employees engaged in individual volunteer activity
and by persons, other than stockholders and employees such as
candidates and their committees for activity in connection with a
Federal election. It does not purport to apply to the use of
corporate facilities in connection with a Federal election by
corporate employees who are being compensated for rendering their
services to a Federal candidate. Third, section 114.10 is
intended to apply to commercial transactions made in the ordinary
course of a corporation's business, where it extends credit as
part of such a transaction to a political purchaser on terms
comparable to those for similar nonpolitical purchasers. It was
not intended to apply to the circumstances presented in this
request. Thus, neither of these provisions support a
reimbursement or advance payment method.
Therefore, the Commission concludes that neither the
reimbursement payment method nor the advance payment method using
an escrow account as described in your request is permissible
under the act. For this reason it is not necessary to address
your fourth and fifth questions.
You state that if neither the reimbursement nor the advance
payment method is permissible, the Club's only choice is to make
SCCOPE a dual employer of employees who perform political work.
You have not raised this method as a specific question in your
request. Accordingly, the Commission expresses no opinion with
regard to this method. It does note, however, that this or any
other method must not entail the disbursement of corporate
treasury funds, but only disbursements, initially and directly,
from its separate segregated fund.
The Commission expresses no opinion whether the described
activities would have any effect on the tax exempt status of the
Club since that issue is not within the Commission's
jurisdiction.
This response constitutes an advisory opinion concerning
application of the Act, or regulations prescribed by the Commission,
to the specific transactions or activities set forth in
your request. See 2 U.S.C. SS 437f.
P.S. Commissioners Elliot and Aikens voted against approval of
this opinion. A dissenting opinion will be submitted at a later
date.