In a decision likely to be reviewed by the Supreme Court, a three judge panel of the United States Court of Appeals for the Second Circuit, sitting in New York, reversed a lower court decision that had struck down the state's limits on campaign spending by candidates for state and local government. However, the Second Circuit panel did stop short of declaring Vermont's limits constitutional, instead remanding the case for the district court to determine whether the state's interests could have been met by other means, and whether the spending limits were lower than necessary.

Although the Supreme Court has, beginning with its seminal decision in Buckley v. Valeo "routinely struck down limitations on independent expenditures by candidates, other individuals, and groups," FEC v. Colorado Republican Federal Campaign Committee, 533 U.S. 431, 441 (2001), the panel nonetheless held that such spending limits could be upheld, and that Vermont had established compelling interests in "protecting the time of candidates and elected officials, and preventing the reality and appearance of corruption." These holdings directly contradict a decision by the Tenth Circuit earlier this year as well as an earlier decision by the Sixth Circuit holding similar spending limits to be unconstitutional as a matter of law, and specifically rejecting the time and corruption interests as inadequate to justify such limits. Homans v. City of Albuquerque, 366 F.3d 900, 914 (10th Cir. 2004); Kruse v. City of Cincinnati, 142 F.3d 907 (6th Cir. 1998).

According to James Bopp, Jr., lead counsel for the Vermont Republican State Committee and several other plaintiffs who had challenged the Vermont limits, "On the one hand, this is a shocking break from the Supreme Court decision in Buckley, as well as several federal courts of appeals that have struck down spending limits as a matter of law, in several cases rejecting the identical interests that the panel relied upon here. On the other hand, this decision ultimately shows what a daunting task the state faces because they still have to prove that there was no other way to accomplish their objectives, and that's almost impossible to do." Mr. Bopp also indicated that further appeals were likely, either to the entire Second Circuit en banc or to the Supreme Court.

The spending limits were enacted as part of a campaign finance scheme that also included some of the nation's lowest campaign contribution limits, limits on contributions from non-residents, public financing for some offices, and other restrictions on contributions and expenditures by political parties, committees, and other independent political speakers. Many of the provisions were challenged in three consolidated cases. The panel decision also upheld most contribution limits but struck down the limit on contributions from non-Vermont residents and remanded for further consideration limits on contributions to independent expenditure committees and on transfers of money to Vermont political parties from their national affiliates.