Disapproving the Message

Watchdog groups and lawmakers want to stop election advertising by federal contractors before it starts.

Suppose, at some point in the not-too-distant future, the Defense Department wants to cut funding for a multibillion-dollar weapons program run by one of its largest contractors. The plan wins the approval of the White House and key leaders of Congress. But a top committee chairman steps in to restore the funding. And it just so happens the chairman's recent reelection campaign was the beneficiary of an advertising blitz funded by the contractor.

Sound far-fetched? Up until now, this scenario was at best highly unlikely, given federal restrictions on corporate support for candidates. Now, though, it's at least theoretically possible.

On Jan. 21, a closely divided Supreme Court issued a landmark decision in Citizens United v. Federal Election Commission, ruling that corporations and other organizations are entitled to the same freedom of speech afforded to individual citizens. In theory, that means companies, labor unions and trade associations can now make unlimited "independent expenditures" on advertisements supporting candidates. Contractors say they have little interest in jumping into the political ad business. After all, becoming tied to an individual politician or even a party can be damaging to a company's long-term interest in doing business with the government. But that hasn't stopped some watchdogs and lawmakers from seeking to curb contractors' ad spending before it starts.

"The fear is that [contractors] will take government money and then use it to create an unfair playing field," says Ian Ayres, co-author of Voting With Dollars: A New Paradigm for Campaign Finance [Yale University Press, 2002] and a professor at Yale Law School.

Unlimited Advertising

The 5-4 Supreme Court decision, which overruled precedents dating back 20 years, declared government has no role in regulating political speech by businesses. The decision didn't address laws and regulations prohibiting corporations, government contractors and labor unions from direct contributions to candidates. Such donations still must be funneled through political action committees. PACs are popular with large companies and labor unions looking to make inroads with influential lawmakers, but they have a limited ability to sway elections because of a $5,000- per-year cap on contributions to particular candidates. On the other hand, political advertisements, particularly on television and radio, can cost millions, often comprising a campaign's largest expense. "Companies with a desire to affect legislation can now spend as much money as they like" on such ads, says Josh Israel, a political reporter with the nonprofit Center for Public Integrity. "And they can do so without the fingerprints of the candidate."

While influential trade associations such as the U.S. Chamber of Commerce have signaled their intent to explore the realm of political advertising, government contractors have reacted to the Supreme Court decision with less enthusiasm. Federal procurement experts suggest contractors are comfortable operating within the parameters of the current system, contributing to members of both parties and lobbying Congress on specific issues. Campaign data indicate firms generally contribute to candidates who control their programs' purse strings and represent districts that host key operations.

In the past, when contractors have run ads, they've generally been program-specific, such as the dueling campaigns in 2009 by Boeing and Northrop Grumman to win support for their proposals to build new refueling tankers for the Air Force. Bankrolling partisan campaign advertisements would be out of character for most companies, says Alan Chvotkin, vice president and counsel for the Professional Services Council, a contractor trade association. "Savvy companies contribute to Democrats and Republicans, to the chairman and the ranking member," he says.

A spokesman for Northrop Grumman, which took in more than $17 billion in federal contracts in fiscal 2009, said the company "is very conscientious in its adherence to the rules and regulations that guide contributions to elected representatives via its political action committee. Insofar as the U.S. Supreme Court's recent decision is concerned, Northrop Grumman does not expect to change its strategy regarding campaign contributions or its PAC strategy."

Lorraine Mullings Campos, a partner in the government contracts practice at law firm Reed Smith, says her clients have expressed little interest in taking advantage of the Citizens United ruling. "Their response is that their board of directors would never go along with that kind of activity," Campos says. "I think contractors are going to proceed with extreme caution."

Contractors could avoid scrutiny by directing funds to trade groups, which would then purchase campaign commercials on their behalf. But a defense industry source, who agreed to discuss the Supreme Court ruling on condition of anonymity, says funding campaign advertisements simply does not fit into the business model for most contractors. "I don't think it's worth it," says the source.

While election year advertising is rife with political drawbacks, for contractors willing to take the risk, it offers some opportunity for return on investment. Although agency contracting officers have the final say in making contract awards, lawmakers remain intimately involved in the federal procurement system. In theory, contractors could be rewarded for their help on the campaign trail with bumps in funding for their programs or sole-source earmarks in appropriations bills. House Democrats have proposed banning earmarks to for-profit companies next year, and House Republicans have responded with a suggested one-year ban on earmark requests. But the Senate appears uninterested in adopting such changes.

Beyond that, "companies could try to affect labor laws, environmental standards, safety provisions for workers or even what type of health care they have," Israel says.

The decision could affect the federal procurement system in other ways, too. If large contractors start spending on ads, small companies unable to match their expenditures could find themselves further squeezed out of the federal marketplace. Meanwhile, contractors that previously had been unwilling to dive into the political process might feel pressure to do so if their competitors take the leap first.

Not So Fast

Contractors might never get the opportunity to decide whether they want to start funding political ads. In February, Sen. Chuck Schumer, D-N.Y., and Rep. Chris Van Hollen, D-Md., unveiled the outline of a bill aimed at limiting campaign ad spending. The bill, which hadn't been introduced as of mid-April, would bar government contractors, corporations with at least a 20 percent foreign ownership and all recipients of Troubled Asset Relief Program bailout funds from funding campaign ads.

Contractors would be forced to choose: endorse candidates or do business with the government, but not both. "We need to protect the integrity of the procurement process," says a Van Hollen staffer who asked not to be named.

The contractor provision builds off the existing prohibition on direct campaign contributions, the aide said. The bill would apply to all companies that contract with the government-including firms such as General Electric and Exxon Mobil, which derive the bulk of their revenue from nonfederal sources. Federal grantees and government labor unions would not be subject to the exclusion.

The bill also includes several somewhat less controversial disclosure requirements for campaign expenditures. Companies would be required to disclose political advertisements to corporate shareholders and to the Federal Election Commission, coordination between a firm and a candidate would be prohibited, and the company's CEO would have to appear on camera stating that he or she "approves this message." "If we don't act quickly, this [Supreme Court] decision will have an immediate and devastating impact on the 2010 elections," Schumer said in a February news conference.

But some analysts suggest the restrictions in Schumer and Van Hollen's bill venture into shaky constitutional territory. "In order to satisfy equal protection and due process concerns, such provisions would also need to apply to public employee unions, doctors, and other groups and individuals who rely on government funding or assistance," former FEC Chairman Bradley A. Smith told the Senate Judiciary Committee during a March hearing.

Smith, now chairman of the nonprofit Center for Competitive Politics, argues the bill also appears to violate the "unconstitutional conditions doctrine," which bars the government from imposing a condition on the grant of a benefit that requires the relinquishing of a constitutional right.

"Even if Congress were prepared to prohibit all of these classes of people from speaking out in elections, restrictions on the political expenditures of government contractors, U.S. subsidiaries and other corporations pose constitutional problems," he testified.

Karl Sandstrom, a former FEC commissioner, says lawmakers need to be careful that the contractor prohibition is not interpreted as penalizing entities on the basis of their political views. "You have to be clear that the purpose of this [bill] is not to prevent speech that the government does not approve of," he says.

While it is unclear whether the bill will pass-particularly before the mid-term elections later this year-or whether it will survive an almost certain legal challenge, contractors are being urged to take a wait-and-see approach. "Companies are going to proceed cautiously and carefully until there is clarity with the scope [of the decision]," Chvotkin says. "They don't want to be out there in the spot-light when there is ambiguity."

Some suggest the legislation actually could be a blessing in disguise for contractors. "They may find it liberating," says Ayres. "By maintaining their contracting status, they could avoid the political pressure from candidates. I have heard responses from some companies that they don't want to get into the political thicket with their shareholders."

Money for Nothing?

Federal contractors are no strangers to the political process. Top company executives regularly contribute the maximum $2,300 to candidates in both congressional and presidential elections. And 19 of the 20 largest contractors in Government Executive's annual ranking of the Top 200 Federal Contractors operate political action committees, which raise voluntary donations from individuals to support preferred candidates. All but one of those 19 PACs contributed to candidates in the 2008 and the 2010 election cycles, according to data from the nonpartisan Center for Responsive Politics.

On average, about 60 percent of those contributions went to Democrats. Roughly the same ratio went to Republicans when they were the majority party in Congress. More than 90 percent of PAC contributions go to support incumbent lawmakers, statistics show.

While the 2010 elections are still months away, some of these committees have already shown a willingness to raise money for candidates. In fact, of the top 20 PACs in terms of contributing money this cycle to candidates, four are run by companies that do business with the government: Honeywell, Boeing, Lockheed Martin and Raytheon.

What do companies receive in return for their fund-raising efforts? Not much, according to an October 2002 study by MIT's Sloan School of Management, which found only a tenuous relationship between PAC contributions and legislators' voting records.

"Legislators' votes depend almost entirely on their own beliefs and the preferences of their voters and their party. Contributions explain a minuscule fraction of the variation in voting behavior in the U.S. Congress," the report found.

While a $5,000 PAC contribution might not do much for a corporation, a multimillion-dollar advertising campaign on behalf of a candidate could be a different story, say some critics of the Citizens United decision. They're committed to finding ways to continue to limit corporate sponsorship of political campaigns.

In the current climate, that might not be easy. While the Citizens United case dealt with campaign ads, Supreme Court Justices Anthony Kennedy, Clarence Thomas and Antonin Scalia have supported providing First Amendment protection to direct campaign contributions, too. That could set the stage for the next battle in the high court.