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How Candidates Duck Reporting Campaign Funds

Exploratory committees becoming more common down-ballot

Former Judge Russell Fagg announces his run for Senate in Billings, Montana, on Oct. 14. (Bronte Wittpenn/Billings Gazette file photo)
Former Judge Russell Fagg announces his run for Senate in Billings, Montana, on Oct. 14. (Bronte Wittpenn/Billings Gazette file photo)

Presidential candidates have been doing it for years.

They raise money and explore their viability long before they announce they’re running. And that practice is increasingly trickling down to the House and Senate level. 

The latest example comes from the Montana Senate race, where Republican candidate Russell Fagg won’t have to disclose any of the money he’s raised until January — seven months after he formed his exploratory committee for Senate this summer. 

That’s because he didn’t officially become a candidate until October, in the fourth quarter of 2017.

But Democrats have argued that Fagg, who’s running in a crowded GOP primary to take on Democratic Sen. Jon Tester, was acting like a candidate well before October. A liberal group has filed a complaint against him with the Federal Election Commission. Fagg recently hired a lawyer to respond to the allegations from the American Democracy Legal Fund.

Anyone who has decided to run for office or is actively campaigning must register with the FEC as soon as they’ve raised $5,000. Reaching that fundraising threshold triggers an official candidacy, which requires regular FEC reporting.

But exploratory committees, like Fagg’s, allow people to explore the possibility of running for office — and raise money to do so — without having to register with or report to the FEC.

It’s called “testing the waters,” and FEC regulations around doing so are murky at best. 

“This is a Byzantine area,” said election lawyer Michael Toner, a former chairman of the FEC.

How it works 

Potential candidates use exploratory committees in one of several ways. In the first instance, candidates sometimes open campaign committees and call them exploratory committees.

They may not have decided to run, but if they’ve filed with the FEC, they’re a candidate, even if they refer to the committee as “exploratory.”

Democrats attacked Missouri Attorney General Josh Hawley for soliciting funds for “Hawley for Senate” while he was still supposedly in the exploratory phase. Under the FEC’s “testing the waters” guidelines, that’s not allowed.

But Hawley’s campaign later clarified that it had set up a regular campaign committee and just called it an exploratory committee.

Under a true exploratory committee, people can use their own money to test the waters. They can pay for political consulting or polling, for example, to gauge strength in an upcoming race.

They don’t have to report any of the money spent during this exploratory phase to the FEC. But those expenses must be reported on the first FEC report filed after becoming a candidate. If the person never becomes a candidate, they don’t ever have to report the money.

This pathway has become more common. “We’re seeing more and more people from a business background and they want to know, ‘Is this real? Am I viable?’” Toner said. 

People can also start fundraising while testing the waters and still not file with the FEC. But they still do have to keep track of that money — to which contribution limits apply — and report it to the FEC if and when they become a candidate.

This is the path Fagg is taking. 

A former Yellowstone County district court judge, Fagg announced in June that he would retire from the bench on Oct. 13 to open a private law firm. In June — while he was still a sitting judge — Fagg formed an exploratory committee for Senate. 

Fagg supporters hold signs before the event at Billings Flying Service Inc. on Saturday, Oct 14. (Bronte Wittpenn, Billings Gazette)
Fagg supporters hold signs before the event at Billings Flying Service Inc. on Saturday, Oct 14. (Bronte Wittpenn, Billings Gazette)

Under the Montana Code Of Judicial Conduct, judges can’t publicly identify themselves as political candidates or raise money for political candidates. But Fagg insisted he was within ethical bounds since his exploratory committee didn’t technically make him a candidate. 

Where it gets confusing 

Democrats have attacked Fagg for acting like a candidate well before he filed his statement of candidacy with the FEC last month.  That’s the American Democracy Legal Fund’s assertion, too — that he was speaking about his candidacy in public and in the media while he was still legally in “testing the waters” mode. 

So what distinguishes testing the waters from actual campaigning?

“There are two ways that you can become a candidate — based on what you say and what you do,” Toner said.

Announcing a candidacy is an obvious giveaway that someone is no longer testing the waters and is a candidate, subject to regular FEC reporting.

But becoming a candidate can also be more subtle, and sometimes, harder to prove.

According to the FEC, actions that trigger candidacy include: someone making a statement referring to themselves as candidate, using “general public political advertising to publicize their intention to campaign,” taking action to qualify for the ballot or “conducting activities over a protracted period of time or shortly before the election.”

One of the less obvious ways someone could become a candidate? Raising more money than “reasonably needed” to test the waters.

But the FEC doesn’t specify how much is too much. 

“Once an individual begins to campaign or decides to become a candidate, the testing the waters period ends,” FEC guidelines say. A 2015 FEC advisory opinion clarifies that someone who’s raised or spent more than $5,000 becomes a candidate “when he or she makes a private determination that he or she will run for federal office.” 

Democrats argue that Fagg’s plan was to run for Senate all along.

“There is no way this guy hadn’t decided he was going to run when he announced he was going to step down,” a Democratic election lawyer said. 

But that may be impossible to prove. 

“I was trying to decide whether I was going to run or not,” Fagg said, when asked why he set up an exploratory committee. “To do that, I wanted to travel the state and talk to people about the pros and cons of running to see what kind of support I might get.”

“Even the day before the day I announced, I had a real serious reflection time about, ‘Should I do this, is this the right decision for my family, for the state?’” Fagg said. 

Fagg maintains he did nothing wrong and has asked that the American Democracy Legal Fund pay his legal bills if he wins his challenge to its complaint. He also wants the FEC to be compensated for its time (and taxpayer money) spent looking into what he calls a “frivolous complaint.” 

The FEC has acknowledged it has received the complaint, but its enforcement process is confidential, so the commission won’t comment on where the complaint is in the review process.

Many of these complaints don’t have much political impact by themselves, but they can bubble up when opposing campaigns try to make a big deal of them. Fagg denounced the complaint as political “mudslinging.” 

“Our role is identifying these possible transgressions,” said Brad Woodhouse of the American Democracy Legal Fund. “We don’t apologize for the fact that these are partisan in nature. That’s what we set ourselves up to do.” Woodhouse is affiliated with American Bridge 21st Century, the Democratic opposition research group. Conservative groups lodge these complaints too.  But even if the complaints don’t have a political impact on a race, Woodhouse believes the work is now more important than ever. “If you look at the way that Trump is setting the stage for flouting any norms,” he said, “this is a time to say enough is enough.”

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