Beyond Utilities: Proposal 2’s Reach May Surprise Michigan Businesses

Takeaways

• The restrictions extend beyond utilities. Businesses with more than $250,000 annually in government contracts may also be subject to the new contribution restrictions.
• Affiliated individuals and organizations may be affected. Proposal 2 reaches certain people and organizations with substantial connections to covered utilities and government contractors.
• Political communication rules are expanding. Certain communications identifying candidates or ballot questions, including online communications, may face additional disclosure requirements.

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Michigan voters have approved Proposal 2, bringing significant changes to the Michigan Campaign Finance Act. While much of the public discussion surrounding Proposal 2 focused on regulated electric and gas utilities, the potential reach of the new law is considerably broader.

Proposal 2 restricts certain political contributions not only by regulated utilities, but also by businesses with more than $250,000 annually in government contracts. Importantly, the restrictions under Proposal 2 also extend to certain individuals and organizations with substantial connections to covered utilities and government contractors.

As a result, Proposal 2 may create compliance obligations in places that are not immediately obvious. Businesses that do not consider themselves part of a regulated industry may nevertheless be affected because of their contracts with state or local governmental entities. Likewise, the analysis may not end with the company itself. Organizations should consider whether the law reaches affiliated entities or individuals connected to a covered business.

Who Should Be Looking at Proposal 2?

Organizations should consider evaluating the new law if they:

• are a regulated electric or gas utility;
• have contracts with state or local governmental entities that, in the aggregate, may exceed $250,000 annually;
• are affiliated or otherwise substantially connected with a covered utility or government contractor; or
• have owners, officers, directors, employees, or other individuals whose political contributions or activities could potentially be affected by their relationship with a covered entity.

The government-contractor provisions are particularly important because they mean Proposal 2 is not simply a utility law. Businesses across industries that contract with governmental entities may need to determine whether they fall within the new requirements. The official ballot language expressly identifies contractors exceeding $250,000 annually in government contracts as potentially subject to the contribution restrictions.

The Changes Go Beyond Contribution Restrictions

Proposal 2 also expands Michigan's regulation of certain political communications, including communications identifying candidates or ballot questions that do not expressly advocate for or against them, and expressly extends certain disclosure requirements to internet political communications.

Accordingly, organizations evaluating Proposal 2 should consider not only who may make a political contribution, but also whether existing policies and procedures governing political communications, expenditures, approvals, and disclosures need to change.

What Should Organizations Do Now?

Organizations potentially affected by Proposal 2 should consider:

• Determining whether they are covered, including reviewing government contracts across the organization rather than assuming the law applies only to utilities.
• Identifying individuals and affiliated organizations that may also be affected by the law's connection to a covered entity.
• Reviewing existing political-contribution policies and approval processes to determine whether additional controls are appropriate.
• Assessing political and public communications in light of the proposal's expanded campaign-finance and disclosure provisions.
• Monitoring implementation and legal developments, particularly as interpretive questions concerning the scope of the new restrictions are addressed.

Proposal 2 presents potentially significant interpretive and compliance questions, and some impacts may not be immediately apparent from a company's industry or its existing approach to campaign-finance compliance.

Our team is available to assist businesses and individuals in determining whether Proposal 2 applies to them, evaluating the potential impact on their activities, and developing practical compliance measures in response to the new law.