Bergen County recently joined the numerous counties in New Jersey in restricting government contracting opportunities for business entities that make political contributions.  Bergen’s “pay-to-play” ordinance went into effect on January 1, 2012.

Under the Ordinance, covered individuals or entities may make or solicit contributions of no more than $300 per year to a covered recipient if the associated business entity wishes to maintain eligibility for contracting with Bergen County.  “Covered recipients “ include: (i) any candidate or holder of elected office in Bergen County; (ii) any campaign committee of a candidate or holder of public office in Bergen County; (iii) any Bergen County party committee; (iv) any municipal party committee within Bergen County; (v) any candidate committee, state or county political party committee, legislative leadership committee, continuing political committee or political action committee (PAC) organized under Section 527 of the Internal Revenue Code, that has within the past year provided financial or in-kind support to any candidates for Bergen County municipal elections or candidates for Bergen County elections.   

The Ordinance also contains a $2,500 annual aggregate limit to all covered recipients for any group of individuals or entity associated with the business entity. 

For a business entity, both the per recipient and the aggregate limitations on contributions to covered recipients commence at the time of the first public announcement or solicitation of a request for proposals by the County of Bergen and continue through the term of the contract, if awarded to the business entity.

The Bergen Ordinance’s prohibition provisions are similar to many of the other county and municipal ordinances in New Jersey.  Unlike many other local ordinances, however, the Bergen County Ordinance contains comprehensive disclosure requirements.  For example, the Bergen County Ordinance requires disclosure of contributions in any amount to Federal and state officeholders representing the County of Bergen.  Care must be taken, therefore, to maintain compliance given the subtle distinctions that often occur in language and/or interpretation among various local ordinances.

New York may soon set the record in moving from no regulation to overregulation in a bureaucratic nanosecond. The NY State Board of Elections recently proposed for public comment rules on “Disclosure of Independent Expenditures”, pursuant to last year’s legislative directive.

As you may recall, the NYC Campaign Finance Board (CFB) has been wrestling with a similar, albeit different, mandate since a Charter Revision Commission proposal passed in 2010.

So, are the two IE disclosure proposals now on the table compatible? In a word, no.

While the State proposal sets forth IE disclosure standards for state and local elections across the State, the City proposal overlaps in setting IE disclosure standards for NYC elections. Both proposals would therefore cover independent expenditures by individuals, organizations, corporations and other entities in NYC elections.

The first divergence is that the State proposal would require the spender to register and report as a political committee, whereas the City proposal does not maintain that the making of IEs requires registration as a political committee. The reason for the State’s approach is obvious: without registration as a political committee, the current statutory disclosure requirements would be inapplicable.  Ominously for the current City proposal, the proposed State rule establishes that “a political committee is the sole vehicle through which individual(s) or entities disclose an independent expenditure.” Does preemption loom?

[Alternatively, does unconstitutionality loom? Individuals, corporations, and unions have a First Amendment right to make unlimited independent expenditures. The Supreme Court in Citizens United frowned upon an argument that it was sufficient to require that right be exercised through a political committee structure and subject to political committee rules.]

Another divergence: the State’s proposed definition of IE is quite narrow, express advocacy through “magic words” (the Buckley v. Valeo standard) done without the candidate’s cooperation. The City’s proposed definition is much broader. It expands “express advocacy” to include a subjective “reasonable person” standard and further extends IEs to include “electioneering communications”, a third rail the State refuses to touch. While a news media exemption is likely encompassed by the State proposal, no exemption for member communications is signaled, an ironic development given the grief to which the CFB has been subjected on this subject. Another irony is that the State mandate of political committee reporting implies that its disclosure of contributions to IE spenders may encompass more transactions that what the City’s proposal contemplates.

Compliance with the dual requirements will certainly be a headache. Let’s say a group wishes to make two expenditures in the 2013 NYC mayoral election: A billboard that says vote for Candidate X and a radio ad that says Candidate Y will raise your taxes. What reporting obligations would be triggered?

• State proposal: the group must first register as a political committee and then report what it raises and spends for the billboard to the State Board of Elections (if the billboard costs more than $1,000). Even though the radio commercial is not an IE under the State proposal, it might still be subject to disclosure as an expense of a political committee.

• City proposal: regardless whether the group registers as a political committee, it must disclose both expenditures to the CFB if the total cost exceeds $5,000. The contributions the group receives may then also be subject to the City’s disclosure.

Even as the content of the reports may diverge, will the timing or the software for the disclosures match? Assuming the CFB proceeds to carry out its local mandate (a good bet), what are the odds the State and City will get together to have a unitary, or at least compatible, disclosure system? Will good government groups work to resolve the unnecessary complexities, or will they be content to declare victory and go home once two incompatible regulatory regimes are adopted?

Stay tuned.

Last year Governor Cuomo’s state of the state address advocated public financing of State elections. The Governor renewed his call for campaign finance reform yesterday, this time at length and with details. Specifically:

“It’s time we make sure that all New Yorkers have an equal voice in our political process. Therefore, it is imperative that we implement real campaign finance reform and provide citizens with a voice in the very foundation of democracy —the ballot box.

“New York currently ranks 48th in voter turnout in the nation. Moreover, according to the Campaign Finance Institute, a smaller percentage of the population gives to candidates for election to state office in New York than in any other state.

“We must reconnect the people to the political process and their government.

“First, we must achieve fundamental campaign finance reform by implementing a system of public funding of elections. New York City’s public financing system provides a good model for statewide reform. The system has helped to increase the number of overall contributors — and especially the number of small donors — in city elections. To make sure we are protecting taxpayers, we will enact strict limits on total public funding per election, and we will phase the system in gradually.

“Second, we must lower contribution limits. For most offices, New York State’s contribution “limits” are substantially higher than those of any other state that imposes limits. Further, existing contribution limits for corporations are riddled with loopholes. In short, the state’s campaign finance laws fail to prevent the dominance of wealthy contributors and special interests.

“Third, we must enact pay-to-play rules to further restore the public trust. Companies and individuals who do business with the state should have no undue influence over elected officials. Accordingly, we must enact low contribution limits for public contractors and lobbyists.

“Fourth, we must improve the enforcement of our state’s campaign finance laws by creating a new enforcement unit in the State Board of Elections with the independence and authority to investigate alleged violations.

“These and other reforms to our campaign finance laws are necessary to empower New Yorkers by giving them an equal voice in our elections.”

The Governor then concluded: “We must enact campaign finance reform this year.”

Given that some zealots have foretold the end of the world in 2012, the question may be whether New York State will actually enact campaign finance reforms before that happens. Cynics generally link the timing of those two possible events, so we’ll see.

Interested in attending an informative program on pay-to-play regulations in the financial sector and earning NY and NJ CLE credit?

When: Today, Monday December 5, 2011; 6-9PM
Where: NY County Lawyers’ Association (14 Vesey Street, NY, NY)

Faculty:

• Rebecca Gordon, Partner, Perkins Coie
• Laurence Laufer, Partner, Genova, Burns & Giantomasi
• Lee Michel, Director, Barclays Capital

To register click here.

In the past few years, pay-to-play restrictions have flourished, particularly in the context of contracts related to the management of public pension plan assets and similar government investment accounts.   While some regulations such as MSRB Rule G-37 have been in place for some time, there has been a flurry of activity to pass additional regulations, such as the recently-passed SEC Rule 275.206(4)-5.  Now comes a new trend:  shareholders seeking disclosure of corporate political spending.

For example, in March 2011 the SEC agreed with a Home Depot shareholder that Home Depot must include on its proxy ballot a proposal recommending that the Home Depot Board disclose its policies on political contributions and give shareholders an advisory vote on those policies.

In August 2011 a group called the Committee on Disclosure of Corporate Political Spending, which is comprised of ten corporate and securities law professors, submitted a rulemaking petition to the SEC urging the SEC to develop rules to require public companies to disclose to shareholders the use of corporate resources for political activities.

And this month, the California State Teachers’ Retirement System (“CalSTRS”) passed amendments to its shareholder voting guidelines stating that if CalSTRS concludes that a company in which it holds an interest lacks sufficient policies on the disclosure of political activity, it is likely to vote with proponent shareholders to establish such policies. The amendments also call for corporate boards to exercise oversight over political contributions through the adoption of written policies and procedures.

The Supreme Court’s decision in Citizens United v. FEC opened the doors to freedom for companies to participate in the political process, but today we realize that freedom may come with a price: transparency.  Transparency, or at least disclosure of political contributions in the context of independent expenditures, was upheld by the Court in Citizens United.  The reality is that due to increased shareholder interest, many public companies have voluntarily adopted policies requiring disclosure of corporate political spending.   Voluntary disclosure also means increased shareholder (and public) scrutiny, and the savviest of companies will carefully weigh the choice.

Yesterday, New Jersey voters went to the polls to elect candidates for local and legislative office.  Despite the fact that all 120 seats in the New Jersey Legislature were up for grabs, in a press release issued last week, ELEC reports that fundraising and spending by legislative candidates is at an all time low since 2001.

Although the economy and pay-to-play restrictions may be partially to blame, ELEC has indicated that “the recent growth of independent non-profit political groups organized under IRS rules” may be one of the factors leading to this decline.  Prior to yesterday’s election, these groups – commonly referred to as Super PACs or Independent Expenditure Only PACs – were required to report their independent spending in excess of $1,200 to ELEC on pre-election and 48-hour notice reports. 

In the wake of Citizens United v. FEC, will the level of independent spending in New Jersey foreshadow the level of independent spending in the 2012 federal election cycle or in the 2013 New York City elections where new independent expenditure reporting requirements will likely be in effect?

The NYC Campaign Finance Board conducted a public hearing today to receive comments on proposed rules to require the disclosure of independent expenditures in municipal elections.  We submitted written comments, which includes issues covered in our recent series of blog posts, here, here, here and here.  A comprehensive set of written comments will be published here.

Tomorrow, the NYC Campaign Finance Board will conduct a hearing on the rules it has proposed for independent expenditure (IE) disclosure.  Today we ponder issues that stem from the proposed provision for the verification of IE reports.

The proposed rules require that the Independent Spender verify that IEs were not made in cooperation with any candidate.  Conversely, according to the proposed rules, if a candidate cooperated in the expenditure, it would be reported by the candidate as an in-kind contribution.   Both the verification and the in-kind provisions erase any distinction between the candidate who is supported by the express advocacy or electioneering communication and the candidate who cooperated in the expenditure.  But are these two are necessarily one and the same candidate?

The proposed rules references factors enumerated in the existing CFB candidate rules that address whether an expenditure is independent or non-independent.  These factors are primarily concerned with identifying cooperation between the candidate and the spender, and generally presume that the candidate who is the subject of the expenditure is identical to the candidate who potentially cooperated in the expenditure.  On the other hand, the existing rules may be read as establishing that an expenditure must be made “for the purpose of promoting or facilitating the nomination or election of a candidate” in order for it to be treated as either an IE or an in-kind contribution.  If this reading is correct, it may resolve the multiple candidate problem by offering a basis for distinguishing the candidate whose nomination or election the IE was intended to promote or facilitate from the candidate who cooperated in the IE.  Perhaps, in the final rulemaking notice, the CFB will clarify just what it means here.

Consider how the proposed rules would apply to this hypothetical: an entity consults with candidate B for the purpose of making an express advocacy communication in support of candidate A.

1. Is the expenditure reportable as an IE?  If so, would candidate A be the only candidate named in the disclosure statement?
2. Is the expenditure simultaneously reportable as an IE on behalf of candidate A but an in-kind contribution to candidate B?
3. Alternatively, is the expenditure reportable only as an in-kind contribution to candidate B?
4. In answering these questions, would it be relevant if candidate B was separately in communication with candidate A?  Does the spending entity have a duty of inquiry with candidate B before completing the verification?
5. If the communication mentions both candidates A and B, may the full (or apportioned) cost be reported as an IE for candidate A and an apportioned share reported as an in-kind to candidate B?
6. If candidate B pays for an apportioned share, must the spending entity list candidate B as a contributor or third party payor on the IE report?

The NYC Campaign Finance Board has scheduled an October 27^th public hearing on proposed rules on independent expenditure (IE) disclosure.  This is our third installment commenting on the proposed rules.

Disclosure, of course, is at the heart of the proposed rules.  What must Independent Spenders disclose?

Contributions.  The NYC Charter directs that entities making IEs must report contributions they receive from individuals and entities above specified threshold amounts.  The proposed rule establishes a four year period to be covered by disclosure statements.  If the entity reaches the IE reporting threshold late in this four year period, its first disclosure statement would nonetheless “look back” and cover contributions from other entities dating back to the beginning of the four year period and contributions of $1,000 or more from received individuals in the 12 months preceding the covered election.  No allowance is made for excluding contributions that precede the effective date of the proposed rules.

Contributions must be disclosed regardless of their relationship to the covered election or independent expenditure.  Thus, the total amount of contributions required to be reported may far exceed the amount of IEs to be reported.   The rationale for such an extensive contribution disclosure is unclear.

Public Communications. The proposed rules draw a distinction between reporting public communications and reporting expenditures.  It is not clear whether the Independent Spender must report all public communications it makes, regardless whether these public communications are reportable as independent expenditures.

Expenditures.  Only expenditures that are “directly related” to the “design, production, and distribution” of a public communication must be reported.  What does “directly related” cover?  For example, are expenditures for general strategy meetings and consulting, polling and research, equipment purchases, and salaries for personnel categorically excluded from disclosure?

Apportionment.  The proposed rules require Independent Spenders to apportion the cost of IEs in support or opposition to more than one candidate (or ballot proposal).  This requirement derives from apportionment requirements for joint candidate expenditures that pertain to the enforcement of contribution and spending limits.  What purpose does apportionment serve in the case of IEs for which contribution and spending limits are not applicable?  Why not allow an Independent Spender to report the full amount of an expenditure as being in relation to all the candidates and ballot proposals referenced – without apportionment?

This is the second installment on the NYC Campaign Finance Board’s proposed rules on independent expenditure (IE) disclosure. The CFB has scheduled a public hearing for October 27.

The NYC Charter requires the reporting of expenditures made in support of or in opposition to a candidate in an election for municipal office or municipal ballot proposal, where no candidate cooperated in that activity.  In fleshing out the Charter requirement, the CFB’s proposed rules define ballot proposal but do not define candidate.

Candidate:  Presumably, “candidate” is limited to a candidate for one of the five covered municipal offices.  If so, political committees authorized by other candidates (e.g., for state or federal office) may be subject to the IE reporting requirements, as proposed.  This coverage may be unexceptional, except that candidates often authorize committees for unspecified offices and elections – or then change the office sought/election during the course of an election cycle.  Should a change in office sought occur between a covered and a non-covered election, how would this change affect the committee’s obligations under the IE reporting rules?

For example, a candidate’s authorized committee for City Council may make express advocacy expenditures attacking the incumbent.  What if that candidate then decides to run instead in a different election, such as for State Legislature, or decides not to run for office at all – are the IE reporting rules retroactively applicable to the authorized committee?  Conversely, what if a person makes and reports IEs, but then subsequently, in the same election cycle, becomes a candidate for a covered office?

Ballot proposal: The proposed rules define ballot proposal by reiterating the Charter language.  This leaves unresolved the question: when does a proposition become a municipal ballot proposal?  Here are some possibilities:

• Before an initiative petition is circulated?
• Upon the initial circulation of an initiative petition?
• Upon the filing of an initiative petition – but which filing in the event the Municipal Home Rule Law’s two-stage initiative procedure is used?
• Upon the City’s clearance of the petition for placement on the ballot?

Are the costs of circulating the initiative petition reportable as IEs?  Are litigation or other costs to place a question on the ballot (or to oppose its placement on the ballot) public communications reportable as IEs?

Candidates and Ballot Proposals: As noted above, the Charter (and the proposed rule) define IE to exclude expenditures cooperated in by a candidate.  But, as the NYC campaign finance law and the CFB recognize, candidates may make expenditures for or against ballot proposals.

Do any IE reporting requirements apply to candidate-authorized advocacy for or against ballot proposals?  If not, may disclosure of ballot proposal advocacy be avoided altogether simply by the spender discussing its planned public communication with a candidate?