Everything You Need to Know About Political Action Committees

By the time ballots are cast and votes counted on Nov. 3, up to $10 billion will be spent on more than 2,000 local, state, and federal election campaigns nationwide. Much of this money will be raised and spent by state- and federal-registered political action committees (PACs) on behalf of individual candidates, multi-candidates, or in support or opposition to proposed ballot measures. 

Under federal law, there are two types of basic PACs: connected and nonconnected. A 2010 Supreme Court ruling created a third: independent expenditure-only committees, also known as “super PACs.”

There are more than 4,600 active political action committees registered with the Federal Elections Commission (FEC), including 1,918 “super PACs.” By the end of July, these groups had raised more than $1.1 billion and spent $230 million in the 2020 election cycle. 

What is a PAC?

The textbook definition of a political action committee is a tax-exempt 527 organization that pools contributions from donors to direct funds into campaigns for or against candidates, ballot initiatives, or proposed legislation. PACs are technically referred to in federal election law as "separate segregated funds" because contributions are kept in bank accounts independent of any corporation, association, or union treasury.

PACs have evolved for more than 75 years. In 1907, Congress adopted the Tillman Act, restricting corporate contributions to political campaigns. The 1943 Smith-Connally Act extended that prohibition to labor unions. That same year, the Congress of Industrial Organizations (CIO) formed a “political action committee” to raise money for President Franklin D. Roosevelt’s reelection. Because the money was voluntary contributions from union members and not from the union’s treasury, CIO’s seminal PAC did not violate the Smith-Connally Act and, thus, a new way to finance political campaigns emerged. 

It wasn’t until the Federal Election Campaign Act (FECA) of 1971, and its 1974 amendments, however, that PACs became a significant component in campaign financing. FECA allowed corporations, trade associations, and labor unions to directly form political action committees and set limits on amounts a corporation, union, or individual can contribute. In soliciting smaller contributions from a larger pool of individuals, PACs could generate substantial funds for candidates. 

Following the 70s reforms, political action committees proliferated from about 600 in 1975 to nearly 4,000 in 2010, to more than 4,600 now.

Types of PACs

Not all political action committees are created equal. Depending on who creates it, how it raises money, and how disburses it, different rules apply.

Nearly 2,700 PACs registered with the FEC are defined as “connected” or “nonconnected” PACs.

Connected PACs

Connected PACs are formed by businesses, nonprofits, labor unions, trade groups, and an array of associations. Although direct contributions from corporate or labor union treasuries are illegal, entities may sponsor a PAC and provide financial support for its administration and fundraising. 

Connected PACs raise money from a "restricted class,” which for corporations means salaried employees with decision-making authority, shareholders, and these groups’ families. For labor unions and nonprofits, “restricted class” is its membership. A connected PAC may solicit voluntary contributions of up to $5,000 per year from members of its restricted class and can make contributions to candidates for federal office of up to $5,000 per election cycle.

Nonconnected PACs

Nonconnected PACs are independent committees that can solicit contributions from the general public, including connected PACs, but must pay their own costs from those funds. Most nonconnected PACs are formed by ideological, single-issue groups. Members of Congress and other political leaders may also form nonconnected PACs.

Connected and nonconnected committees are also sub-classified as multi-candidate and non-multi-candidate PACs.

Multi-Candidate PACs

Multi-candidate PACs have more than 50 contributors, must be registered with the FEC for at least six months, and have donated to at least five federal office candidates. They can contribute $5,000 to candidates per election cycle; $15,000 to a national party a year; $5,000 (combined) to state, district, and local party committees a year; and $5,000 to any other PAC per year.

Non-Multi-Candidate PACs

Non-multi-candidate PACs can contribute $2,600 to one candidate per election (indexed for inflation); $32,400 to a national party committee a year; $10,000 (combined) to state, district, and local party committees a year; and $5,000 to any other PAC annually.

Leadership PACs

A fourth type of campaign committee has surfaced in the last decade called “leadership PACs,” which allow elected officials to raise money for other candidates' campaigns. Leadership PACs are tools used by lawmakers to gain influence within their parties, boost opportunities for leadership posts and committee chairmanships, and to lay the groundwork for their own campaigns for higher office.

Super PACS

Shortly after the U.S. Supreme Court partially overturned the 2002 McCain-Feingold Act restricting corporate and union campaign contributions in its 2010 Citizens United ruling, a new type of PAC materialized in its subsequent SpeechNow.org v. Federal Election Commission decision. Coined “super PACs” by former CQ Roll Call reporter Eliza Newlin Carney, federal election law refers to them as “independent expenditure-only committees.” Unlike traditional PACs, they do not have a “restricted class” and can raise funds from individuals, corporations, unions, and other groups without any cap.

Under federal law, super PACs do not contribute to individual candidates or parties, nor are they permitted to coordinate with candidate and party campaigns. However, they can make “independent expenditures” advocating on behalf of or against a specific candidate, ballot measure, or proposed legislation through multi-media ads and direct mail.

By 2012, there were more than 400 super PACs. There were more than 1,600 in 2016 and almost 2,000 are now registered with the FEC.

What Does a Connected PAC Do?

Lawrence H. Norton, co-chair of the Political Law Practice Group at Washington, D.C.-based Venable LLP, said forming connected or corporate PACs offers numerous advantages for trade groups, associations, and nonprofits.

“The primary reason for establishing a PAC for federal elections and in a number of states is incorporated entities — and that includes trade groups — cannot make campaign donations but what they can do is establish a PAC funded through voluntary contributions to amplify its voice and make contributions to candidates who support their agenda,” he says. “The association itself can fund the administrative expenses of the PAC. In most cases, every dollar raised is put to work there.”

“The common misconception is that an [entity] made a [direct] contribution to a candidate, that they are funding their own PACs when, in fact, what a PAC is aggregating contributions, pooling money” with voluntary contributions from restricted class donors, Norton said.

Even for trade association PACs, there is a lot of misunderstanding about the fact that the association and the PAC are separate entities regulated by “very restrictive and archaic rules” about who can contribute and who can’t, Norton says. 

A trade association’s PAC management cannot “simply ask the general public to contribute,” Norton says, but it can solicit voluntary donations from its restricted class members. This is why it is important for trade associations and nonprofits to get businesses and corporations to sign on as members of the association.

Trade associations and corporations’ PACs are limited to soliciting certain individuals and entities, but there are ways to legally expand that fundraising base. Under federal election law, businesses and LLCs wholly owned by corporations may authorize a trade association that it is a member of to solicit its employees for contributions to its political action committee.

“If [PACs] get permission from members, they can solicit donations to make political contributions in the name of the trade association,” Venable’s Norton says. “The complexities are often misunderstood; get permission from members to solicit corporations. [Because] corporations have their own PACs, it can be profoundly misunderstood.”

When factoring in state-based PACs, complexities multiply because not all states have the same rules, reporting requirements, and timelines.

PAC management, Norton says, needs to inform donors that their contributions are public record. “People are very often surprised that their contribution is public,” he adds. “Anyone can go online and find out exactly what their neighbor has done in the way of political contributions.”

Also, trade associations need to ensure contributions to their PACs are voluntary. “Prominent [PACs] have gotten in trouble where PAC donations were automatically deducted [from members’ paychecks],” he says. Each member should sign an agreement approving the deduction. 

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