SB 284 - CAMPAIGN EXPENDITURES  3:15:01 PM CHAIR RAMRAS announced that the final order of business would be CS FOR SENATE BILL NO. 284(FIN), "An Act relating to state election campaigns, the duties of the Alaska Public Offices Commission, the reporting and disclosure of expenditures and independent expenditures, the filing of reports, and the identification of certain communications in state election campaigns; prohibiting expenditures and contributions by foreign nationals in state elections; and providing for an effective date." 3:19:34 PM JOHN PTACIN, Assistant Attorney General, Labor and State Affairs Section, Civil Division (Anchorage), Department of Law (DOL), explained that DOL feels that Alaska's expenditure restrictions on corporations, labor unions, and other entities is likely unconstitutional. He noted that SB 284 considers the current disclaimer and disclosure laws and changes the law for restricting expenditures by corporations and labor unions in candidate elections. He allowed that disclosure and disclaimer laws are still given a lot of scrutiny, as they uncover hidden interests and deter reporting violations. He emphasized that disclaimer and disclosure laws still need to show that they are only a modest burden on free speech rights. 3:22:17 PM CHARLES DUNNAGAN, Resource Development Council (RDC), referring to Section 10 on page 5, opined that the general rule for expenditures and contributions by foreign nationals tracked federal law, but he directed attention to line 29, (b)(5), which disallowed election contributions from domestic subsidiaries. He offered his belief that this created a class of U.S. corporations that no longer have First Amendment rights in an Alaskan election. He pointed out that contributions by foreign nationals are already illegal in a state election. He opined that this would add a new class of person to be discriminated against. MR. DUNNAGAN explained that domestic subsidiaries of American corporations have been given a right to participate in elections, but that subsection (b)(5) eliminates that right. He said that it was not necessary to create a rule to prevent direct and indirect contributions from foreign nationals because it was already illegal. He opined that this created concerns for First Amendment, due process, and equal protection rights. He expressed concern for the drafting of parts of the bill. He pointed to proposed AS 15.13.068(b)(2)-(4), which defines domestic subsidiary and noted that there was not a mention of individual foreign nationals. He said that for an individual foreign national with a wholly owned corporation, the domestic subsidiary rule did not apply, while an Alaskan working for a company of more than 50 percent foreign ownership could not participate in an election campaign. He commented that issuing public traded stock was how American businesses raised money. He opined that this change could affect the investment decisions of foreign investors. MR. DUNNAGAN referred to a March 17, 2010, memorandum from Legislative Legal and Research Services [Included in members' packets.] which raised questions for the right of Alaska to pass a law different than federal law and regulation. He stated that this part of SB 284 is badly drafted legislation. He directed attention to page 6, lines 3-7, subsection (c), which "prohibits conduct only to the extent that federal law prohibits the same conduct." He referred back to page 5, line 29, (b)(5), and noted that this was not in federal law, and opined that subsection (c) would nullify subsection (b)(5). He stated that courts do not like to interpret legislation as nullifying itself. He called this section "a complete litigation magnet" and that there was no idea how the court will interpret it. He emphatically stated that he "cannot see how this provision has anything to do with disclaimer or disclosure rules." CHAIR RAMRAS agreed that he wants to encourage disclosure but did not want to limit discourse. REPRESENTATIVE GRUENBERG asked if the concern was for all of Section 10, or solely for subsection (b)(5). MR. DUNNAGAN, responding to Representative Gruenberg, offered his belief that all of Section 10 is problematic, as it parrots existing law. He reflected that Section 10(b)(5) "is a mess and it's clearly unconstitutional." 3:31:41 PM REPRESENTATIVE GRUENBERG directed attention to paragraph (5), and asked if Mr. Dunnagan was aware of any other jurisdiction that has enacted anything similar, and if there was a court challenge. MR. DUNNAGAN replied no. REPRESENTATIVE GRUENBERG asked whether there was federal precedent for Section 10, if paragraph (5) were eliminated. MR. DUNNAGAN agreed. REPRESENTATIVE GRUENBERG asked if any states have enacted state laws similar to that remainder of Section 10 [without paragraph (5)]. MR. DUNNAGAN replied that he did not know. REPRESENTATIVE GRUENBERG asked about any court cases for challenges to similar federal legislation. MR. DUNNAGAN replied that there were none, and he was not aware of any pending litigation. REPRESENTATIVE GRUENBERG asked if there was concern with any other provisions of SB 284. MR. DUNNAGAN replied that his comments and concerns were for Section 10 specifically. REPRESENTATIVE GRUENBERG offered his belief that one potential reason for including subsection (b)(5) would be to: Prevent a foreign national that would be precluded from contributing, from simply forming a domestic subsidiary to get around the law. It seems to me that there is an old equity maxim that says 'the law will not permit something to be done indirectly that could not be done directly.' Isn't this a valid state purpose to prevent somebody from setting up a shell domestic corporation to evade the general prohibition? 3:35:02 PM MR. DUNNAGAN agreed, but then he questioned the agenda for what is currently written. He relayed that it is a difficult question, especially as to how many levels [of corporate ownership] this would apply. He pointed out that there are not many definitions and almost no court guidance. He again voiced his belief that direct and indirect contributions from foreign nationals are illegal. Referring to domestic subsidiaries, he said that indirect contributions are already illegal. He said that SB 284 creates a problem, as it will not allow foreign nationals a 51 percent ownership in a business, and this will make it difficult for a business to raise capital. He opined that SB 284 goes beyond what is necessary to protect Alaska from inappropriate influence from foreign nationals. REPRESENTATIVE GRUENBERG replied that SB 284 did not prohibit foreign ownership; it only prohibited a political contribution from the business. He posited that if the only reason to set up a domestic subsidiary was for its political contributions, then it would be a sham. MR. DUNNAGAN responded that he did not agree, as the reference in SB 284 was to "domestic corporations controlled by a foreign entity." He opined that with the passage of SB 284, a business could follow lawful procedures and yet violate the law, which itself would be a violation of both the First Amendment and the United States Supreme Court's ruling in Citizens United v. Federal Election Commission. 3:38:53 PM JASON BRUNE, Executive Director, Resource Development Council (RDC), shared that the RDC had been actively involved in ballot measures, including "the cruise ship head tax initiative, the gas reserves initiative, and the clean water initiative." He went on to say: The industries that were targeted by these initiatives have spent billions of dollars investing in this state. Each industry employs hard working Alaskans, and each pays significant taxes to the state treasury. Be it fishing, tourism, oil and gas, or mining, RDC members have a vested interest in defending their investments. By doing business in Alaska these businesses have demonstrated that they have a dog in any initiative fight and they should be allowed to participate in the process. However, ... [proposed AS 15.13.068] appears to potentially impact an investor's ability to fight an initiative that targets them because they are a domestic subsidiary of a foreign corporation. MR. BRUNE offered his understanding that according to Legislative Legal and Research Services, proposed AS 15.13.068 only applies to a domestic subsidiary of a foreign national to the extent that the foreign national is making the decision or is financing that domestic subsidiary's involvement in a state election, and does not prohibit a domestic subsidiary of a foreign national from involving itself in state elections if it's using money that was made in Alaska or the United States, and the decision to spend the money was made by the domestic subsidiary Offering some examples, he pointed out that that interpretation only raises more questions such as who is it that's ultimately making the decision to spend money to defend a company against initiatives, and whether the bill would apply in situations where the domestic entity isn't yet making money in Alaska. He urged the committee to either clarify proposed AS 15.13.068 or delete it entirely. In conclusion, he stated that the RDC supports open discourse, open disclosure, and transparency in election campaigns, but is very much opposed to any law that would prohibit contributions that would allow RDC members to fight initiatives that target their industries. 3:43:05 PM REPRESENTATIVE GRUENBERG agreed that Section 10 was "not just the disclosure, it's prohibition," and stated that he understood the concern. CHAIR RAMRAS concurred, stating that it limits discourse, and he stated concern that it would limit commerce. REPRESENTATIVE GRUENBERG asked whether there is any precedent supporting the argument that it is unconstitutional to deny this type of free expression, a prohibition against expenditures by a foreign national. MR. BRUNE offered to research the issue and respond immediately. REPRESENTATIVE GRUENBERG asked that Mr. Ptacin also respond to the same question on precedents. [CSSB 284(FIN) was held over.]