Ethics Opinion Search

February 28, 1990


Opinion No. 1990-7


William W. Sneed
General Counsel
Kansas Republican Party
Gehrt & Roberts, Chartered
5601 SW Barrington Court South
PO Box 4306
Topeka, Kansas 66604

Dear Mr. Sneed:

This opinion is in response to your letter of December 2, 1989 in which you
request an opinion from the Kansas Public Disclosure Commission concerning
the Campaign Finance Act.

We understand you request this opinion in your capacity as General Counsel
for the Kansas Republican Party.

You ask the following questions:

1. K.S.A. 25-4153 was amended to include new subsection (c), and it is
this subsection that your questions arise from. One issue is what, if any,
effect subsection (c) has on the limitation of contributions made by
corporations, their subsidiaries, and/or their political action committees.
For instance, if a corporation has subsidiaries that it wholly owns and
also has a political action committee, and such corporation makes a maximum
contribution to a particular candidate, is the subsidiary and/or the
political action committee unable to make any additional contributions?

2. Again, using the scenario above, and if a maximum contribution to a
candidate is made by a political action committee, what limitations are
then imposed on any individuals who have contributed to the political
action committee?

3. Again, under new subsection (c), if a partnership or closely held
corporation makes a maximum contribution to a candidate, what effect does
that contribution have on the individual partners and/or shareholders?

4. Under K.S.A. 25-4153 (e), what, if any, limitation does a state elected
official have relative to a contribution to a party committee as
encompassed in subsection (e) and defined in the Act?

5. The amendments to the Campaign Finance Act found in Senate Substitute
for House Bill 2359 now require annual reporting of campaign finance
reports in addition to the reporting requirements held during an election
year. What is the position of the Public Disclosure Commission as it
relates to who must file such reports? In other words, does the reporting
requirement compel all candidates, whether declared or undeclared, to file
such a report if such candidate has a campaign committee in existence after
July 1, 1989?

K.S.A. 25-4153 (c) states:

"For purposes of the contribution limitations, the following apply:
(1) All payments made by a person, organization, or political action
committee whose contribution or expenditure activity is financed,
maintained, or controlled by a corporation, labor organization,
association, or any other person or committee, including a parent,
subsidiary, branch, division, department, or local unit of the
corporation, labor organization, association, or any other person, or
by a group of such persons are considered made by the same person or
committee. (2) Two or more entities are treated as a single entity
if the entities: (A) Share the majority of members on their board of
directors; or (B) are owned or controlled by the same majority
shareholder or shareholders; or (C) are local units or divisions of a
political committee. An entity will be deemed a local unit or
division if membership in the political committee is a condition of
membership in the local unit or division or the local unit or division
is required to pay membership dues to the political committee or
members of the local unit or division are required to pay membership
dues to the political committee."

In your first question you ask whether a corporation and its wholly owned
subsidiary will be treated as a single entity for contribution limitation
purposes. The threshold questions are whether the corporation "financed,
maintains or controls" the contribution activities of its subsidiary.
Thus, if the parent corporation provides the funding directly for the
contribution, it would be "financed" and one limitation would apply (This
would also be illegal under separate provisions of the act). If the
subsidiary were simply a shell maintained in the office of the parent, one
limitation would apply. The more common question though will be whether
the parent "controls" the subsidiary. In this regard, subsection (2)(A) &
(B) gives guidance. It is clear that if the two entities share the
majority of members on their board of directors or are owned or controlled
by the same majority shareholder or shareholders, a single limit applies.
In all other cases, whether the requisite control exists would depend on
the facts of each case; but, as a general rule in the wholly-owned
subsidiary situation, by applying the above guidelines a single limitation
would result.

The second part of your first question deals with corporations and their
political action committees. The same test is applied, that is, does the
corporation "finance, maintain or control" the contribution activity of the
political action committee or vice versa. In those situations where the
political action committee serves as a savings plan for individual
employees and each employee makes an independent decision on how their
funds are used and the contribution is reported in the individual's name,
this section does not apply. At the other extreme, where the political
action committee is maintained in the corporate office, costs for
solicitation of contributions come from corporate overhead, and the
directors of the corporation and decision makings of the political
committee share majority identities, it is clear that a single contribution
limitation will apply. We would caution corporations with political action
committees that their political action committee should be removed from the
corporate office and a truly independent decision-making process be
established or the single entity treatment may very well apply.

In your second question, you ask if a maximum contribution is given by a
political action committee, is an individual contributor to that committee
then limited in amount. It is our view generally that only in the
circumstances where the contributor controlled the decision by the PAC that
a single limit would apply. Thus, in the situation when the contributor
played no role in the decision-making process of the PAC, there would be no
limitation imposed on the individual. In a significantly large enough PAC
where there could be no inference of a ruse to avoid contribution
limitations, the mere fact that one person voted with the majority on a
contribution decision would not affect that person's individual
limitations. Other situations would depend on the specific facts.

In your third question, you ask what effect a partnership or closely held
corporation making a maximum contribution will have on the individual
partners or shareholders of the corporation. Here again, the paramount
question is one of control. In the partnership setting if one person
controls the decision-making process on the partnership contribution, then
the limitation will be applied to that individual's personal contributions.
A 51% or more ownership in a partnership creates a rebuttable presumption
of control. Other members of the partnership will not be so limited. In
the closely held corporation setting the same rule applies. Any individual
who can control the corporate decision as to contributions will have their
individual giving limited; other shareholders will not.

In your fourth question, you ask how much a state elected party official
may give to a party committee. These persons are treated like any other
individual and the limitation is $1500 for each election.

Lastly, you ask which candidates must file annual reports. You use the
phrase "declared or undeclared". For our purposes the phrase has no real
legal meaning. The issue is whether a person is a "candidate" as defined
by K.S.A. 25-4143 and declaration is only one of the tests. To answer your
question, every individual who meets the definition of candidate must file
and this includes anyone who has an ongoing fund which has not properly
terminated.

The Commission also takes this opportunity to address an additional issue
concerning the application of contribution limitations to spouses.
Clearly, each spouse may give the maximum amount allowed. The question we
wish to cover is whether the funds must come from the separate account or
moneys of each spouse. It is our opinion under Kansas law that each spouse
has an inchoate interest in the assets of the other and it is, therefore,
irrelevant when both spouses make a contribution whose funds are used.
Thus, it is permissible for all of a spousal contribution to be drawn from
the separate account of one of the spouses. The real issue in spousal
contributions is that the spouse in whose name the contribution is given
must consent to the contribution. Otherwise the spouse who made the
contribution in both their names has made an illegal contribution.

Please note that there are several bills pending in the legislature which
might materially modify this opinion.

Sincerely,


Lowell K. Abeldt, Chairman

By Direction of the Commission

LKA:DDP:dlw