Limiting Out of State Campaign Contributions

2,373 words

In American elections, candidates who outspend their opponents tend to win. Some question whether correlation is the same as causation because donors may want to bet on the stronger horse to ensure access after the election. But when the top spending Congressional candidate usually wins 90% of the time or more, its hard to explain this away as anything other than primarily causation. This is especially true since the problem of democracy devolving into rule by money is not a new phenomenon. Decades ago, Oswald Spengler observed in The Decline of the West that “Democracy is the completed equating of money with political power.”

There have been many efforts to mitigate the effect money has on politics, either in good faith or to maintain a façade of legitimacy.

If money can influence elections, then such manipulation of the political system should at least be limited to domestic actors. Thus, its no surprise that black letter federal law prohibits foreign nationals from making election contributions. A common work around for this is for foreign individuals to funnel money through “foreign influenced” corporations, however. As such, there is an incipient movement to prohibit foreign influenced corporations from making campaign contributions.[1]

Furthermore, as the regions and states of the United States are becoming practically different nations on a cultural level, then it logically follows that out of state election influence is almost as nefarious as foreign influence. If politics is downstream from culture, then campaign finance laws should reflect the growing cultural reality of balkanization.

An underlying principle of democracy is that politicians should represent their constituents. If money is essential for winning, and most of their money comes from outside their districts, then it naturally follows that politicians will be less focused on representing their constituents. This even more true for out of state election contributions.

Unfortunately, out of state election contributions are on the rise. As documented by Open Secrets, “From 1998 through 2016, the percentage of contributions from in-state donors to U.S. House candidates typically hovered around 75%. In 2018, though, it fell to 66%, and it dipped below 62% in 2020 and 2022.” Out of state donors are more common in rural elections because they have a smaller donation base in their district, making them more vulnerable to outside influence and especially if they are rich in extractable resources. This is not speculation. For example, the 1996 Atlantic Richfield Company (ARCO) scandal in Alaska showed that the oil and gas industry could buy a considerable portion of the state legislature– and for cheap.

Banning or at least limiting out of district and out of state contributions should be a defensible, non-partisan, common sense reform. But as with many national populist policies, the courts have said no.

Alaska, Hawaii, Vermont, and New Hampshire were the only states to limit nonresident contributions. Of these, Hawaii’s limit is the only one to survive. For a while, Alaska limited out of state contributions despite how the courts struck down the laws of Oregon and Vermont.[2] This is probably because regardless of any arguments about free speech and federalism which are mere theory, it is a geopolitical fact that Alaska and Hawaii are not contiguous with the other states, and thus out of state influence is more foreign than neighborly. In 1994, a federal court struck down the portion of a Vermont state law that would have limited out of state contributions to 25% of a campaign’s budget. Landell v. Sorrell, 382 F.3d 91, 146 (2d Cir. 2004). And in 1998, a federal court struck down an Oregon state law banning all out of state contributions. VanNatta v. Keisling, 151 F.3d 1215, 1218 (9th Cir. 1998).

The Supreme Court has avoided directly addressing the issue of whether out of state contributions can be regulated, leaving the matter to the federal circuit courts of appeals to decide by applying the Supreme Court’s two-part test that limits on election contributions must be: 1. closely drawn, and 2. achieve a narrow state interest.

Alaska’s exception was not to last. In 2018, a federal circuit court (after the Supreme Court remanded the case to them) struck down Alaska’s limit on nonresident contributions on the grounds that it did not pass the test of being “closely drawn” (ie “narrowly tailored”) to achieve an “important state interest.”[3] Thompson v. Hebdon, No. 17-35019 (9th Cir. 2018). The Ninth Circuit Court explained that after the landmark case of Citizens United v. Federal Election Commission (2010), undue influence or its appearance does not pass muster for an “important state interest.” While corruption or its appearance meets the threshold for an important state interest, courts have defined corruption as a quid pro quo exchange. This is a difficult if not impossible threshold to meet for nonstate contributions.

Of the four states who took a stand against out of state contributions, Hawaii is the only one whose nonresident contribution law has not been struck down by judicial fiat. See HI Rev Stat § 11-362 (2023). Hawaii’s law limits candidates from having no more than 30% of their contributions come from out of state sources.

Are attempts to regulate out of state contributions dead in the water then? Are rural districts doomed to be flooded with big city dollars? Is there even any point in trying to enact limits on nonstate contributions if unaccountable courts will say no?

No. The states should still pass laws regulating out of state contributions. First, caselaw is not static. It is in a constant state of becoming. Despite a strong preference of not changing established caselaw under the doctrine of stare decisis, modifying or even outright reversing caselaw is more common than one may think. For example, the US Supreme Court overturned the landmark abortion case of Roe v. Wade in the summer of 2022, thereby making abortion a state issue. This suggests that the current Supreme Court: 1. does not weigh stare decisis as heavily as past courts, and 2. they are more open to allowing the states to regulate themselves.

Furthermore, while the US Supreme Court case of Citizens United v. Federal Election Commission did not deal with nonresident contributions, its reasoning was critical for the federal appellate court in Thompson v. Hebdon which struck down Alaska’s nonresident contributions law. Citizens United was decided in 2010. Since then, both the justices on the Supreme Court and the underlying facts on the ground have substantially changed.

Since 2010, Justices Barret, Brown, Gorsuch, Kagan, and Kavanaugh have replaced Justices Breyer, Ginsburg, Kennedy, Scalia, and Stevens– over half of the Court. The fact that more dissenting Justices (Breyer, Ginsburg, and Stevens) have left than non-dissenting Justices (Kennedy and Scalia) is overshadowed by how over half of the Court is entirely new, thereby bringing a fresh perspective to the Court.

Furthermore, the political reality has substantially changed. Nonresident contributions have simply gotten out of hand. Although she lost, one candidate for a New Hampshire congressional seat in 2018 received 96.7% of her campaign contributions came from out of state—principally the cosmopolitan areas of Boston, New York City, the Washington DC area, and San Francisco.

In addition to outright reversing caselaw, another option is to modify it. The problem in Thompson v. Hebdon was that explicit quid pro quo corruption or its appearance would meet the bar for an “important state interest,” but undue influence or its appearance does not. These are only two options. What if a third issue arises which needs to be addressed?

The above two issues involved an individual human or entity (such as a corporation, PAC, etc.) bribing or influencing an individual candidate. What about states subverting the political process of other states? Or of cities dominating the countryside? Or that its essential for democracy that politicians focus on representing their constituents? Could a court find that such concerns meet the bar for an important state interest? Why not? The greatest barrier to this reasoning would be the inordinate focus on the individual in American jurisprudence, which is incongruent with the factual reality that politics is inherently a team sport in which groups compete against other groups.

This reasoning is not novel at all. The oft-complained of Electoral College is essential to federalism and exists in great part to prevent populous urban states from dominating sparsely populated rural states with their votes.[4] As discussed above, if money is a major factor in who prevails at the polls, then the end result of nonresident urban donors flooding rural and suburban districts will be substantially the same as if the Electoral College was abolished outright. Large, cosmopolitan cities will dominate everyone else, and especially small rural states. This is actually more dangerous than openly abolishing the Electoral College and then outvoting us because it is more sinister.

Hawaii is allowed to stand as an exception to the general rule in caselaw that the states can not regulate nonresident contributions. Carl Schmitt said that “The rule proves nothing; the exception proves everything.” While this quote was focused on political exceptions such as a constitutional crisis, the underlying reasoning still applies here. Rules are defined by their exceptions because the exceptions define the exact contours of a rule, such as how far one can stretch the definition of a “dwelling of another” for the crime of burglary.

It is hard to find any meaningful distinction between Hawaii and Alaska. They are both noncontiguous states with a small population and under the purview of the Ninth Circuit Court of Appeals which struck down Alaska’s law. However, Alaska’s law allowed candidates to only accept $3,000 from out of state sources—a paltry sum and practically nothing in modern election campaigns.

In contrast, Hawaii’s law caps how much of a campaign’s funds can come from nonresident sources at 30%, which is a much more generous amount. This suggests that a law which does not outright ban or severely limit nonresident contributions has a better chance at surviving judicial review, probably because the method is “narrowly tailored.” But this is counterbalanced by how another federal circuit court struck down Vermont’s law, which like Hawaii had a percentile cap on nonresident contributions.

A more plausible explanation is that Hawaii has fewer extractable resources, and so there have been fewer efforts to overturn its limit on nonresident contributions. Should states only be allowed to limit out of state interference in their affairs by mega-corporations, moral busybodies, and similar when it matters less, and not when more is at stake? This is ludicrous and unjust.

If Hawaii is still allowed to have their cookie, why not everyone else, and especially if the states are becoming more like Hawaii in relevant ways? Their geography might not change, but the states are culturally and politically drifting apart to such an extent that there is a metaphorical ocean between Red America and Blue America.

Additionally, the question of out of state contributions is as much a question of politics and power as it is about legal theories. Populists may want to pass state laws on nonresident contributions and if they withstand judicial review, then great. And if they don’t survive judicial review, this will force the federal courts to tell state legislatures and citizens again and again that they must submit to out of state subversion by rich urbanites. This would further delegitimize the current system and bolster the forces of populism and states rights.

One tactic the Left uses is to constantly advance laws and policies which they know cannot survive judicial review under current caselaw (such as reparations and onerous gun restrictions) to normalize them. As they become normalized it becomes easier to push them through, thus setting a new precedent and seizing the high ground of stare decisis for themselves.

Furthermore, while the rules promulgated by the Supreme Court are mandatory authority for the federal circuit courts, how other federal circuit courts apply those rules is merely persuasive authority. Because so few states have even bothered enacting laws against nonresident contributions, only three out of the thirteen federal circuit courts have ruled on the issue. That three out of three appellate circuit courts who have addressed the issue have ruled against limits on nonresident contributions is overshadowed by how ten out of thirteen circuit courts have not ruled on the issue at all. Other circuit courts ruling in favor of nonresident contribution limits would not be the first nor the last circuit court split. Such a split could finally push the Supreme Court to rule on the issue, thus potentially freeing Alaska, Vermont, and New Hampshire to reenact their laws which were struck down while encouraging other states to limit noncontribution limits.

National populists should strive to make the survival of Hawaii’s law an inflection point instead of a last stand for nonresident contributions. Populists should push for similar laws, albeit with the understanding that any limits on nonresident contributions will have to pass the test of being “narrowly tailored” to an “important state interest.” Using a percentile cap (such as Hawaii’s 30%) is probably the best way to pass the “narrowly tailored” prong of the test. Extensive legislative history and findings that politicians representing their constituents is an “important state interest” and that excessive nonresident contributions are undermining this is probably the best way to pass that prong of the test.

In addition to state efforts, the federal government could also attempt to regulate nonresident contributions in Congressional and Senatorial campaigns pursuant to the Article 1 Section 4 of the US Constitution. However, the same caselaw hurdles would apply.

While outright banning out of state contributions is unlikely to survive judicial review, some may still want to enact such laws on principal or for metapolitical purposes.

Even if seeking to limit the flood of out of state contributions does not survive judicial review, such attempts will still be a populist victory in terms of legitimacy, balkanization, and polarization.

Notes

[1] See also https://www.americanprogress.org/article/nationwide-momentum-grows-to-stop-political-spending-by-foreign-influenced-u-s-corporations/#:~:text=A%20U.S.%20corporation%20is%20considered,for%20large%20publicly%20traded%20corporations.

[2] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2291000 Partisan Federalism, Harvard Law Review, Vol. 127, 2014, Columbia Public Law Research Paper WP 13-363, page 1137

[3] “Closely drawn” and “narrowly tailored” would appear to be mixing and matching language for different levels of judicial review, specifically intermediate scrutiny and strict scrutiny. However, clarifying these tests took “decades to achieve” during which there was substantial overlap in words. See https://elibrary.law.psu.edu/cgi/viewcontent.cgi?article=1059&context=pslr page 395.

[4] That federalism, which splits and thereby dilutes and distorts sovereignty between the states and national government is a poor system, and why it should be replaced by a collection of nation states through a National Divorce will be the topic of a future article.