Insights

During the 2019 legislative session, the Texas Legislature enacted House Bill 2586, which permits certain committees to accept and spend corporate or labor organization political contributions. As a result of its enactment, the Texas Ethics Commission quietly released new forms and instructions on its website dictating how a general-purpose committee (“GPAC”) and a special-purpose committee (“SPAC”) can convert to and operate as a “hybrid” political committee (a “Hybrid PAC”).

BACKGROUND ON HOW THE LAW HAS EVOLVED

Following the U.S. Supreme Court’s Citizens United decision in 2011, the Texas Legislature amended the state election code to repeal all sections of the code prohibiting a single corporation from making direct campaign expenditures (more commonly known as “independent expenditures” under federal law). The Legislature did not, however, repeal or amend code provisions that prohibited corporations from contributing to political action committees (i.e., “Super PACs”) for the same purpose. The Texas Ethics Commission then tried to maintain the position that it was illegal for Super PACs to influence state and local races in Texas.

Texans for Free Enterprise, a political committee represented by The Gober Group’s Chris Gober, sued the Texas Ethics Commission alleging the prohibitions unconstitutionally infringed its First Amendment rights. Shortly after the 2012 general election, the U.S. District Court for the Western District of Texas issued a preliminary injunction enjoining the State of Texas from enforcing the Texas Election Code laws that prohibited Texans for Free Enterprise from accepting corporate contributions for the purpose of making direct campaign expenditures (i.e., independent expenditures). In 2013, the Fifth Circuit issued a published opinion unanimously affirming the lower court’s decision.

Following the Texans for Free Enterprise case, the Texas Ethics Commission conceded they could not enforce sections 253.094(a) and 253.003(b) of the Texas Election Code against political committees that submitted a sworn statement to the Commission stating the following:

1. That the committee intends to act exclusively as a “direct campaign expenditure only committee”; AND
2. That the committee will not use its political contributions to make political contributions to candidates for elective office, officeholders, or political committees that support or oppose candidates or that assist officeholders.

In other words, the Texas Ethics Commission effectively required political committees to make a mutually exclusive choice of either:

1. Using its political contributions to make political contributions to candidates for elective office, officeholders, or political committees that support or oppose candidates or that assist officeholders; OR
2. Using its political contributions only to make direct campaign expenditures (i.e., independent expenditures).

INTRODUCING THE HYBRID PAC

In contrast to this mutually exclusive choice previously required by the Texas Ethics Commission, this new type of Hybrid PAC can both:

1. Use its political contributions (but no corporate money) to make political contributions to candidates for elective office, officeholders, or political committees that support or oppose candidates or that assist officeholders; AND
2. Use its political contributions (individual and corporate money) to make direct campaign expenditures (i.e., independent expenditures).

A Hybrid PAC may also use its corporate funds to make a political contribution to another Hybrid PAC or Super PAC.

OBTAINING HYBRID PAC STATUS

For a GPAC or SPAC to operate as a Hybrid PAC, the committee must submit an affidavit to the Texas Ethics Commission on its original or amended campaign treasurer form. This affidavit must state that:

1. The committee is not established or controlled by a committee or an officeholder; and
2. The committee will not use any corporate/labor organization contribution to make a political contribution to a candidate for elective office, an officeholder, or a political committee that has not filed an affidavit stating the same.

A GPAC would complete and submit this affidavit to the Texas Ethics Commission found on page four of Form GTA or Form AGTA, and a SPAC would similarly complete and submit the affidavit found on page four of Form STA or Form ASTA. Notably, an existing GPAC or SPAC must file this affidavit to convert into a Hybrid PAC.

A WORD OF CAUTION: SEGREGATE AND ALLOCATE

Although the Texas Ethics Commission has not posted additional guidance on Hybrid PACs, the operation of such committees comes with complexity and risk. At a minimum, at least until the Texas Ethics Commission says otherwise, The Gober Group generally recommends that Hybrid PACs take the following precautions:

1. The committee should deposit corporate contributions received for either (i) administrative/overhead expenses or (ii) for the purpose of financing direct campaign expenditures (i.e., independent expenditures) in a separate bank account (we’ll call this the “Administrative/Overhead/IE Account”);
2. This Administrative/Overhead/IE Account should remain segregated from any accounts that receive contributions for the purpose of making contributions (direct or in-kind) to candidates (we’ll call this the “Hard-Dollar Account”); and
3. Although the committee may pay for 100% of its administrative/overhead expenses with funds maintained in the Administrative/Overhead/IE Account, it should monitor and allocate the types of political expenditures (e.g., fundraising, research, polling, political consulting, etc.) that ultimately support both direct campaign expenditures (i.e., independent expenditures) and contributions (direct or in-kind) to candidates. For example, if the Hybrid PAC spends $10,000 on a single fundraising expense that results in $15,000 in corporate contributions received for the Administrative/Overhead/IE Account and $30,000 in individual contributions received for the Hard-Dollar Account, then 1/3 of the fundraising expense should be paid out of the Administrative/Overhead/IE Account and 2/3 of the fundraising expense should be paid out of the Hard-Dollar Account.

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