March 17, 2026 · 4,038 words · 4 speakers · 73 segments
All right. This is the review and comment hearing for proposed initiative measure 2025-2026, number 265, concerning limits on political spending by artificial persons. It is March 13th at 1.03 p.m. I am Alex Kelly. I'm with Legislative Council staff.
Allison Killen, staff attorney with the Office of Legislative Legal Services.
I'm Ivana Dallas, here just to represent our initiative as a private citizen.
Sherry Stee, one of the proponents.
Great. So section 1-40-1051. Yeah, there it is. Okay, sorry. I just thought it counts. Oh, no. Oh, sorry. That should be said proponents. We do, for the record, we do have both of our proponents here. Okay. Sorry. It is a crucial step, so we want to make sure. Section 1-40-1051, Colorado Revised Statute, requires the Directors of Legislative Council Staff and the Office of Legislative Legal Services to review and comment on initiative petitions for proposed laws and amendments to the Colorado Constitution. We hereby submit our comments and questions to you regarding the Appendant Proposed Initiative. The purpose of this statutory requirement of the Directors of Legislative Council Staff and the Office of Legislative Legal Services is to provide comments and questions intended to aid designated representatives and the proponents they represent in determining the language of their proposal and to avail the public of the contents of their proposal. Our first objective is to be sure we understand your intended purposes of the proposal. We hope that the comments and questions in this memorandum provide a basis for discussion and understanding of their proposal. Discussion between designated representatives or their legal representatives and employees of legislative council staff and the Office of Legislative legal services is encouraged during review and comment meetings, but comments or discussion from anyone else is not permitted. All right, go through the purposes. Sure. So the major purposes of the proposed amendment, I'm so sorry, to the Colorado Constitution appear to be, I just completely lost my voice, to add a new section to Article 15 of the Colorado Constitution to establish that the state extends to artificial persons only those powers defined as artificial person powers and no others as a condition of state-conferred legal status and charter privileges. Two, to specify that any action taken by an artificial person outside of those powers with respect to political spending power is ultra-various and void. Three, to specify that any ultra-various exercise of political spending power results, as a matter of law, in the withdrawal of all charter privileges. Four, to subject the reinstatement of charter privileges to procedures enacted by the legislature during its first regular session following January 1st, 2027, upon the full disgorgement of amounts expended in such activity and certification of future compliance, along with any additional conditions the legislature considers appropriate, and five to define terms used in the proposed Section 15, including artificial person, artificial person powers, charter privilege, and political spending power.
Are those the purposes?
essentially. Okay, move into our substantive comments and questions. The substance of the proposed initiative raises the following comments and questions. Number one, article five, section one, 5.5 of the Colorado Constitution requires all proposed initiatives to have a single subject. What is the single subject of the proposed initiative? The single subject is the powers of artificial persons with respect to political spending. Every provision in the initiative, the definitions of artificial person powers, the ultra virus consequence, and the reinstatement process serves that one single purpose, powers of artificial persons with respect to political spending. The state is defining what powers it extends to corporations and similar entities as
a condition of doing business here. Thank you. Number two, in Citizens United versus Federal
Election Commission 558 U.S. 310 2010. The U.S. Supreme Court held that the government may not suppress political speech on the basis of the speaker's corporate identity. Have the proponents considered whether prohibiting artificial persons from exercising political spending power conflicts with the First Amendment to the United States Constitution and controlling federal case
law? Yes, we have considered it extensively and not just us, but other groups interested and feel confident that there is a large distinction between the two. Citizens United was about regulatory authority, whether the government can restrict the political speech of a corporation that already possesses the legal power to spend? That is a different question entirely from the one this initiative addresses. This initiative is about power granting authority at the state level. What powers the state of Colorado chooses to extend to artificial persons as a condition of conferring legal status on them? The state isn't regulating anyone's speech. It is deciding what's included in the package of legal privileges it offers to artificial persons. Natural persons are completely unaffected. No court has ever held that the First Amendment requires a state to include political spending power in the package of powers it grants to artificial persons.
Just as a follow-up. So would the proposed initiative then only apply to newly formed corporations and not corporations that already exist and have the power to spend in Colorado?
It will apply to all corporations and artificial persons chartered within the state. The legislature has in the past specifically said, you know, as part of their corporations law, that they retain the power to amend authorities.
Okay. I'm good to go to three. Number three, the proposed initiative states that any ultra-virus exercise of political spending power results as a matter of law in the withdrawal of all charter privileges. Who determines that an action was ultra-virus and void? Also does this require a court order or is this an automatic administrative action by the Secretary of State?
That is the procedural detail that the legislature is designed to fill in. So it will be the legislature that decides how to fulfill that. what the constitutional text establishes is the legal consequence and when it attaches. The loss of privileges goes back to the moment the ultra-virus action was taken. The how and by whom are properly legislative decisions.
so so then the legislature is going to be legislating more than just the reinstatement procedures so subject to only reinstatement pursuant to procedures enacted by the legislature that the reinstatement is one of the things but there are other areas that um the legislature will be determining. What are the legal and practical consequences of the withdrawal of all charter privileges For example is the entity immediately dissolved What happens to the entity ongoing contracts property and employees
The specifics are for the legislature to work out what the constitutional provision establishes that the consequences of engaging in the ultra virus action is real and meaningful. An entity that steps outside its powers loses the state conferred privileges that come with legal status here. The entity is not immediately dissolved. It still exists as a legal entity. It simply has no benefits, particularly limited liability. of being one. Its ongoing contracts, property, and employees are separate questions the legislature will address through reinstatement procedures. Separately, the Attorney General retains independent discretionary authority to revoke a charter or a certificate of authority that is a distinct enforcement action on top of the initiative's self-executing consequence. So the attorney's authority already exists. This isn't something that we're bringing as part of the proposed amendment.
Okay. You good for a quick? Mm-hmm. Number five. Can the state of Colorado withdraw the charter privileges of an entity organized under the laws of another jurisdiction, or does this only revoke their authorization to transact business in Colorado? For an entity organized in another state, what Colorado has conferred is the authorization
to operate here in the state. The power to act as a corporation within Colorado's borders. That is, Colorado's to give and Colorado's to withdraw. Losing those privileges, however, does not affect the entity's status in its home state. Colorado cannot touch that. But it means the entity would be operating in Colorado without any limited liability protection whatsoever. As in the case of entities chartered in the state of Colorado, the Attorney General can also revoke the Certificate of Authority as a separate discretionary action. The initiative makes clear that spending money to influence Colorado elections is itself doing business in Colorado. So there is no evasion by routing spending through a foreign entity. It also puts in-state artificial entities on the same footing as out-of-state. We wouldn't want to stop in-state and then say out-of-state can do whatever they want.
Okay. Six. The initiative allows for reinstatement, quote, pursuant to procedures enacted by the legislature during its first regular session following January 1st, 2027.
Is it the proponent's intent to require the legislature to enact these procedures? What happens if the legislature fails to enact these procedures during that specific session? Does the entity have any alternative path to reinstatement?
It is the proponent's intent to create a legislative obligation to act during that specific session. The deadline is deliberate. it is designed to ensure prompt action. As a practical matter, however, corporations and other affected entities will bring considerable pressure to bear on the legislature. So it is the expectation that the reinstatement procedures will get addressed quickly, both in terms of what the initiative says but also just because we're sure that the legislature is going to want to act promptly. On the underlying due process question, corporations have always operated under the understanding that the state can change the terms of the legal status it confers. Courts have consistently recognized this as a foundational principle of corporate law. An entity that steps outside its defined powers cannot claim it was blindsided by the consequences.
Just as a follow up, the last part of that question, if if if the legislature, for some reason, did fail to act in that session, does the entity have an alternative path to reinstatement or would they just have to wait for the legislature to act?
I am unaware of any alternate path, but obviously corporations and lawyers can come up with all sorts of things that possibly I haven't thought of. But I'm not aware of anything. So possibly a court action, but we don't know.
Okay. Don't know. Okay. I think it's probably very unlikely that that ever will be addressed. I can't see the legislature letting it rest. All right. Number seven, the initiative requires full disgorgement of amounts expended to be paid to qualify for reinstatement. Disgorgement is a remedy that requires a party that profits from illegal or wrongful acts to give up any profits they made as a result of that illegal or wrongful conduct. In the case of the initiative, an artificial person would not have profited from wrongful acts, but instead would have spent money for political purposes in a manner made a wrongful act by the initiative. By using the term disgorgement, is your intent to impose a monetary penalty on an artificial person that exercises political spending power in an amount equal to its political spending?
No, this is, you know, just in this case, it's not a punitive penalty. The intent is to return the entity to the position it would have occupied had it stayed within its defined powers. An entity that spent money on politics outside its authorized power must return that amount before its privileges are restored. This ensures that no entity benefits from acting outside its powers, the legislature will determine the mechanics, including to whom the funds are paid when it enacts reinstatement procedures. And they might very well choose to add other things besides just the disgorgement.
Just as a follow up. So the wrongful act is is the political spending by the corporation, by the artificial person. So the money is going out to a candidate. So wouldn't it be the candidate or the political committee that needs to disgorge? Because they're the ones that have the money requiring the artificial person to disgorge.
disgorge so maybe you want to pick a different term besides disgorgement the idea is you have to go back to the way it was uh okay it does not in this case because we are specifically targeting only the um actions of a artificial person we are not saying as part of this we are going to insist that the money come back from the candidate. I mean, that would be nice, but that isn't part of this.
You might want to consider. Make a different term besides disgorgement. I mean, disgorgement is saying that they need to pay more money than they already paid out.
We will look into a different term. But the idea is, and again, the legislature can pick other things, but at a minimum, it says, as part of reinstatement, the corporation has to replace the money or restore the money.
With interest.
To themselves, because they have paid it out. So they need to claw it back.
That is, I mean, the interest, not interest, that's legislative, not part of this. No, I'm just thinking in terms of returning them to the state they were in before.
Right.
Okay. Sorry Okay Yes Me I don know I lost you Um so this is a follow To whom must the full disgorgement of amounts expended be paid to qualify for reinstatement?
Uh, that is a legislative decision. The legislature will determine where the funds go and, you know, could be anything, general fund, dedicated fund, other recipient, whenever, when it enacts reinstatement procedures. It's strictly legislative.
number nine the definition of artificial person includes an entity whose existence or limited liability shield is conferred by colorado law does this include labor unions non-profit organizations and homeowners associations? Yes. If an entity is chartered within the state
and receives a limited liability shield or otherwise their existence is conferred by Colorado law, this proposed amendment would apply to it. On unions specifically, unions have important federal rights under federal labor law. But federal law does not create the unions and does not give them their state-level limited liability protections. Those specifically come from Colorado. The initiative applies to state-conferred privileges, not to federal rights, which are entirely untouched.
10. The definition of artificial person also includes an entity organized under the laws of another jurisdiction that directly or indirectly undertakes, finances, or directs the exercise of political spending power in the state of Colorado. How would the state enforce this provision against foreign entities that do not hold property or transact regular business in the state?
So states have well-established authority to define what constitutes doing business within their borders. Spending money to influence how Colorado is governed is a clear example of activity that affects Colorado. so yeah it would be strange to say that a corporation can pour in money and claim it has no presence here the initiative's conclusive presumption on this point that such spending is itself doing business in Colorado is necessary to prevent evasion. So again, the remedies would be It would not affect the entity's charter, which is in another state, but it would, for any business it continues to do in Colorado, be doing it without state privileges, specifically the limited liability.
11. Charter privilege is defined as any legal benefit to an artificial person that exists only because the state of Colorado confers it. Does this include fundamental rights such as the right to own property, the right to sue and be sued, or the right to enter into
developed contracts? No. The rights that you mentioned, owning property, sue, be sued, flow from powers corporations retain, and that includes owning property and entering into contracts. That's the way they're chartered to begin with. those are powers this initiative leaves completely intact. Because those powers remain, the rights associated with them remain as well. The initiative addresses only political spending power, which is a separate and distinct capacity. A corporation without political spending power still has every power it needs to own property, sign contracts, hire employees, go to court, and with those powers come all the rights that attach to them.
So, but if they violate the initiative and all of their charter privileges are withdrawn, are these charter privileges because they are conferred by Colorado law? That's the question.
No, because what it's talking about is the Ultravirus Act. As far as those Ultravirus Act, they they would keep authority to own property go to court however they would no longer have limited liability so but the initiative states
could you hold on one second am I allowed to I don't know you're not allowed
no
he he was answering he understood the question differently right yeah sorry okay so let me
Clarifying. Yes. Those charter privileges would also be revoked. It would not require them. It would not interfere with any of the contracts they have. It would not interfere with any of the property they have, their employees or things like that.
i'm just gonna follow up one more time just for the so the charter privilege is any legal benefit that exists only because the state of colorado confers it and the state of colorado confers on corporations and people the right to own property to sue and be sued enter contracts so if this says as a matter of law they're going to lose all their charter privileges, do they lose these rights? If they've engaged in an ultra virus act? Yes. So I guess I don't understand how that doesn't affect their property and contracts
and employees if they've just lost these rights. So it's not going, so I want to clarify, it's not going to, it's not, so this initiative is not going to require dissolution, it's not going to require getting rid of the property or any contracts they have or anything like that. Have no idea if that's, you know, something the legislative body would bring or not, but what I'm saying was I answered incorrectly when I started.
Got it. I think we, thank you.
No, no.
I was like, I don't think I understand. I heard the words coming out of my mouth and I was trying to think ahead. It's like, well, but anyway. All right. I'm good. That's good. Yeah, I think so. Thanks. What this process is for. All right. On to number 12. Political spending power is defined as expending money or anything of value to influence a vote. What constitutes anything of value? Does it include volunteer time by employees, use of corporate facilities, or non-monetary endorsements?
So I'm not an expert on campaign finance law, but I did talk to someone who is. And anything of value, he says, is a standard well understood term in campaign finance law. And it used here to have the same meaning It encompasses in kind contributions of goods services and any other non benefits Use of corporate facilities and directed employee time fall within anything of value Volunteer time, however, is very different. If a corporation is directing or paying employees to engage in political activity, that is an in-kind expenditure, and it is covered. If employees are genuinely volunteering their own time on their own initiative, that is their personal activity, not the corporation's, and it is not covered. and you know i would add um you know as to other things um for instance you know a non-profit um uh i volunteer with non-profits that might be interested in this but i am doing all of this voluntary on my own time, if this were in effect, I could still do that.
Does the phrase influence the outcome of a vote of the electorate apply exclusively to candidate elections, or does it also encompass ballot measures, constitutional amendments, and referenda?
Influence the outcome of a vote of the electorate is intended to be taken broadly. It encompasses all of the above, candidate elections, ballot measures, constitutional amendments, and referendum.
Okay. Referenda. Okay. Fourteen. The initiative exempts the distribution of bona fide news, commentary, or editorial content. Who determines what qualifies as bona fide news?
The term bona fide is taken from federal campaign finance regulations, specifically 11 CFR 100.73A, which exempts costs incurred by a bona fide press entity in publishing news stories, commentary, and editorials. Courts have applied the standard for decades under federal law. The limiting principle in the initiative that the exemption does not apply if the outlet is owned or controlled by a political party, political committee or candidate tracks the federal approach and provides a clear workable boundary.
The initiative states that political spending power may be exercised by political committee political committees, as provided by law. If a political committee is legally organized as an entity with a limited liability shield under Colorado law, is it considered an artificial person? If so, how does this exemption interact with the absolute ban in subsection one? Furthermore, does this provision allow an artificial person to donate money to a political committee to exercise political spending power?
So a political committee organized with limited liability shield under Colorado law is an artificial person under the definition. However, the initiative includes a specific carve out that resolves the attention, the attention directly. Political committees are artificial persons that receive political spending power as an explicit defined exception. Their entire purpose is to exercise that power. And the initiative recognizes that specifically. The structure is not a contradiction. Contradiction, it's a deliberate allocation.
so specific carve out
an artificial person however cannot donate to a political committee donating to a political committee is itself an exercise of political spending power the entity is expending money to influence a vote just through an intermediary the existence of a middleman is not intended to change the analysis.
Okay. All right, that's the end of our substantive comments.
Do you have any questions or want to go through any of the technical comments?
We should go through this line by line. We probably have the technical comments. Fine. Did you heard our answer to what the single subject of the proposed initiative is?
And we, you know, after a lot of analysis, firmly believe it is a single subject, powers of artificial persons with respect to political spending. and that everything else is just intended to explain what that means.
Do either of you have thoughts on that? That'll be something that is decided by the title board. So we don't decide whether or not anything has a single subject here, but if you do submit to the title board, they'll tell you yes or no.
Do you want to go out on a limb for me?
I can't give an opinion on that. That's what the title, I would hate it for the title word to come out.
The purpose of our question is to just get you guys thinking about how to articulate your single subject.
But yeah, we are not in the middle making a determination about whether we think it does or does not.
Understood. Can I have one more minute? Okay. Great. Anything else you want to get on the record before we wrap up?
maybe so unions are artificial persons because of and they you know because of the citizens united decision they changed the way they operated This does prevent them from donating money directly. But I want to point out that unions, 501C4s, were able to operate effectively before Citizens United. And I feel confident that they will be able to operate again within the limits of the initiative. One very extra positive thing for the citizens of Colorado is as a side benefit, there's a lot of transparency. They will know exactly where money is coming from. there isn't some entity that says here it is and you know candidly for some of the members of some of these artificial persons I'm sure they would appreciate that an entity is no longer able to expend money saying this is on behalf of all of us
All right, that concludes the hearing for measure 265 at 141 on March 17th.