Voters in Michigan and Montana approved two significant campaign finance measures last week. Michigan adopted an expansive new pay-to-play law and broad new rules for political communications. Montana adopted a novel restriction on corporate political spending that appears designed to test the Supreme Court’s campaign finance precedents. Below, we address the practical implications of Michigan’s new requirements, the novel legal theory underlying Montana’s measure, and the constitutional questions and likely litigation ahead for both laws.
Michigan Adopts New Pay-to-Play and Disclosure Rules
Michigan voters approved Proposal 2, which makes several significant changes to the Michigan Campaign Finance Act. It creates a new state “pay-to-play” regime restricting political contributions by certain regulated utilities and government contractors, and also expands disclosure requirements for political communications. The law is already subject to a suit alleging it is unconstitutional.
The law has two key sections. First, persons who have or seek large state or local contracts; subcontractors; and certain affiliated “principals” and entities of the contractor or subcontractor are prohibited from making contributions while seeking or during the term of the contract and for eighteen months after the term ends. Principals include officers, directors, owners of 5% of the entity, agents, lobbyists, and the family of some of these; covered entities include any entity established, financed, maintained, or controlled by the contractor or any of its principals. A similar law applies to utilities.
Second, Proposal 2 expands regulation of political communications. Among other changes, it extends campaign finance rules, including donor disclosure requirements, to so-called “electioneering communications”—communications that clearly identify candidates or ballot questions in certain circumstances but do not expressly advocate voting for or against them. It similarly expands the definition of “expenditure” to include a communication that “promote, supports, attacks, or opposes” a candidate or measure without expressly advocating for the candidate or measure. Finally, it extends payer disclosure requirements to internet political advertising.
These changes are particularly significant because Michigan previously had no comparable statewide pay-to-play prohibition of this scope, and because the communications changes could radically expand the type of spending regulated as campaign-finance activity. Current and potential Michigan contractors; regulated utilities; and people engaged in Michigan political or policy spending should be aware of these changes that could affect their activities. We will watch as the pending lawsuit develops.
Montana Adopts Novel Approach to Corporate Political Spending
Montana voters approved Initiative 194, known as the “Montana Plan.” What is particularly notable about the measure is the legal theory it uses to restrict corporate political spending.
Rather than enact a traditional campaign finance prohibition, the measure relies on the corporate law principle that corporations and other artificial entities are creatures of state law whose powers and privileges may be defined by the state. Initiative 194 provides that political spending is not among the powers Montana extends to covered “artificial persons,” including corporations, nonprofits, trusts, partnerships, trade associations, and certain other entities. The measure applies both to entities organized under Montana law and to out-of-state entities that are authorized to transact business or hold property in Montana. Moreover, an out-of-state entity that directly or indirectly undertakes, finances, or directs political spending in Montana is deemed to be transacting business there.
Covered entities may not pay, contribute, or spend money or anything of value to support or oppose a candidate, political party, or political committee in a Montana election, or any ballot measure submitted to Montana voters at the state or local level. The restriction includes independent spending on candidates and ballot measures, not just direct contributions. Prohibited spending is void, and the entity automatically forfeits all of its Montana-conferred charter privileges, including limited liability, perpetual duration, and any statutory limitation on personal liability.
The law is an effort to sidestep Citizens United v. FEC and its progeny, which allow corporations and other entities to engage in political speech independent of any candidate or party, and to make contributions to groups that do the same, leading to the creation of “Super PACs.” Rather than prohibit a corporation from exercising a right to engage in political spending, the measure provides that the power to engage in such spending is not among the corporate powers Montana grants in the first place. In other words, the measure seeks to characterize the restriction as an exercise of the state’s authority to define the powers of entities it creates or authorizes to do business, which historically has been broad, rather than as a direct restriction on corporate speech that courts subject to heightened First Amendment review.
Whether that distinction will survive constitutional scrutiny is far from clear. Hawaii enacted a similar law, Act 11, earlier this year. Hawaii likewise framed its law as an exercise of the state’s authority to define the powers of entities it charters or authorizes to do business. The law already faces two federal challenges, including one brought by the U.S. Chamber of Commerce arguing that a state cannot avoid Citizens United simply by characterizing a restriction on corporate political speech as a limitation on corporate “powers.”
Similar challenges to the Montana measure have followed. Initiative 194 takes effect January 1, 2027, making litigation over the measure something to watch in the coming months. In the meantime, corporations, nonprofits, trade associations, and other covered entities that are politically active in Montana should review planned contributions and expenditures and consult with counsel to determine how they will respond.