Contributing factors

The Federal Election Commission (FEC) is considering a proposed rule to eliminate a 28-year-old regulation that has hampered fund-raising by trade association political action committees (PACs). If adopted, the proposal will enhance the clout of Ohio businesses and trade associations in Washington, D.C.

Approximately a dozen Ohio trade associations, including the Ohio Bankers Association, the Ohio Farm Bureau Federation and the Ohio Grocers Association, have established federal PACs. Other Ohio trade groups may want to consider creating a federal PAC if the FEC adopts the proposal.

The proposed rule would allow trade association federal PACs to collect contributions through automatic payroll deductions from employees of member companies. Ohio trade associations have long been able to collect contributions to their state PACs from member company employees via payroll deduction.

The use of automatic payroll deductions could allow trade associations to boost their annual fund-raising by as much as 100 percent. Corporate PACs have enjoyed dramatic growth in recent years, fueled by the use of automatic payroll deductions; during the first 18 months of the 2003-04 election cycle, 32 corporate PACs reported receiving more than $1 million in contributions.

The FEC proposal may enable smaller trade associations in Ohio to establish federal PACs for the first time. This may be especially true for trade associations representing service industries, whose lower-wage workers are more likely to contribute $10 to $15 per pay period via an automatic payroll deduction than to write one annual check for $500.

FEC regulations have long stated that there are no limitations on the methods that a trade association may use to solicit and collect contributions. However, since 1977, the same regulation has specifically prohibited member companies from using a payroll deduction system to collect contributions for a trade association’s federal PAC.

Citing this inherent contradiction in the regulation and noting the widespread acceptance of automatic payment processes in the workplace over the last 25 years, America’s Community Bankers (ACB) filed a petition for rulemaking with the FEC in August 2003 seeking an end to the prohibition. The FEC was required by statute to seek public comments on the ACB petition and was apparently surprised by the overwhelming support for lifting the prohibition.

Twenty-two trade associations submitted comments endorsing the ACB proposal. The FEC conceded that the ACB petition “raise[d] a reasonable question as to whether the regulatory prohibition against payroll deduction and check-off systems continues to make sense.” As a result, the FEC sought comments on a proposal to eliminate the prohibition on the use of payroll deduction mechanisms.

The FEC proposal goes beyond the ACB request to affirmatively authorize a corporation to “provide incidental services to collect and forward contributions from its employee[s]. . .to the [PAC] of a trade association of which the corporation is a member, including a payroll deduction or check-off system, upon written request of the trade association.”

Comments on the FEC proposal were due Jan. 21. At least one political Web site ( erroneously denounced the proposed rule as a special rule for bankers and urged its readers to submit comments to the FEC opposing the proposal. Nevertheless, FEC adoption of the proposed rule is likely, but not certain. The FEC could take final action by the summer of 2005, giving Ohio trade association PACs and businesses in the Buckeye State plenty of time to expand their operations before the mid-term elections in 2006.

Brett Kappel is with the law firm of Vorys, Sater, Seymour and Pease LLP. His practice is focused on government relations and campaign finance law. Reach him at (202) 467-8886 or [email protected].