New York State Issues Guidance on Prohibited Coordination with Super PACs

After Citizens United and its progeny paved the way for independent expenditure activity and unlimited contributions to Independent Expenditure Only committees (better known as Super PACs), one key question in campaign-finance law has become how to determine whether Super PACs are coordinating their activities with candidates, party committees, and their agents.

Although the FEC has issued guidance on what constitutes prohibited coordination under federal law, many states have yet to offer their own interpretation of the types of coordination that would be prohibited for Super PACs active in state or local elections. It is under this backdrop that the State of New York has defined for the first time what types of activities will give rise to a finding of prohibited coordination.

These factors include (but are not limited to):

  • Whether a candidate formed an entity that later makes expenditures benefitting the candidate;
  • Whether a candidate raised funds on behalf of an entity that later makes expenditures benefitting the candidate;
  • Whether an entity making expenditures benefitting a candidate is operated by former staffers or immediate family members of the candidate;
  • Whether a communication reproduces material prepared by a candidate’s campaign, such as b-roll footage;
  • Whether an entity making expenditures benefitting a candidate engages in strategic discussions with the candidate’s campaign regarding the campaign’s strategy;
  • Whether an entity making expenditures benefitting a candidate shares vendors or space with the candidate’s campaign; and
  • Whether a donor to a candidate also provides a material portion of total funding to an entity making expenditures benefitting the candidate.

As Citizens United develops from a new phenomenon to established law, it is likely that additional individual states will offer their own guidance on the definition of coordination. The state of New York is one of the first to establish factors for regulators to consider. New Jersey, through several bills currently under consideration in the Assembly, may be attempting to do the same. These types of definitions and the role that Super PACs may play will be felt in the 2016 presidential election, New Jersey’s 2017 gubernatorial election, and beyond.

Allison Benz, a summer associate at Genova Burns, assisted in the preparation of this post.

New York State Announces Broad Set of Ethics and Campaign-Finance Reforms

Late last week, New York Governor Andrew Cuomo and State legislative leaders announced agreement on a broad set of ethics and campaign-finance reforms focused on increased disclosure, transparency, and public trust.

Pursuant to this reform package:

  1. Super PACs (also known as Independent Expenditure Committees) may make and receive unlimited contributions so long as they do not coordinate with a political candidate. New York’s agreement expands the definition of coordination in this context to include the retention of a common vendor, the employment of a candidate’s former staffers, and the sharing or rental of common space. This agreement also increases disclosure requirements for Super PACs.
  2. Any public officer convicted of corruption is precluded from collecting a public pension.
  3. New disclosure requirements will be put in place for political consultants who represent both political officeholders or candidates and also private-sector clients with government business.
  4. Various reporting thresholds have been lowered under the State’s lobbying laws, including a reduction from $50,000 to $15,000 of the reporting threshold for organizations that lobby on their own behalf.
  5. 501(c)(4) social-welfare organizations are permitted to engage in political activities so long as political activity does not become the primary purpose of the organization. In contrast, 501(c)(3) charitable organizations are strictly prohibited from engaging in any political activity. Under New York’s agreement, 501(c)(4)s will be required to disclose funding and support received from 501(c)(3)s.  Additionally, a 501(c)(4) will be required to disclose its funding sources if they engage in political activities.

Political Law Roundup – July 13, 2015

This is the first post in a new series on the blog, providing a quick recap of recent political-law news and developments.

  • What role will non-profits have on the 2016 presidential election? According to a report in the New York Times, 501(c)(4) political activity is expected to be an important factor in the upcoming race.
  • In Wagner v. FEC, the DC Circuit Court upheld the prohibition on political contributions by federal contractors. You can see our full analysis of this important case here.
  • Challenges in defining coordination and enforcing restrictions means that Super PACs will continue to play an important role in federal elections, including the 2016 presidential race.
  • The New York City Campaign Finance Board is holding a hearing on Monday, July 13, 2015 to solicit comments on proposed amendments to Board rules on public-funds eligibility and disclosure-statement documentation. More information is available here.
  • The Brennan Center for Justice, the New York City Campaign Finance Board, and the Committee for Economic Development will be hosting a conference titled American Elections at the Crossroads, on Wednesday, July 22. Ann Ravel, chair of the FEC, will deliver remarks.

Comments due for JCOPE Proposed Guidance on Consultants and Grassroots Lobbying

In May, the Joint Commission on Public Ethics (JCOPE) issued proposed guidance on consultants and grassroots lobbying and is currently seeking informal comments on the proposal by July 10, 2015.

The proposed guidance would broaden the definition of lobbyist to include individuals who have “direct interaction” with public officials in connection with lobbying or lobbying activities.  Direct interaction would include verbal or written communications, including communications made for the purpose of facilitating access to a public official, and attendance at a meeting or presence on a phone call with a public official.  In other words, if a consultant facilitates a meeting with a public official or attends a meeting with a public official (and meets the threshold requirements) the consultant would be subject to registration and reporting with JCOPE.

The proposed guidance would also broaden the definition of “grassroots” lobbying, which is commonly understood as using media, including newspaper and television ads, to encourage the public to engage in lobbying.  Not all states require registration or reporting for grassroots lobbying – New York does. The proposed guidance would clarify that individuals or entities that “control” the content and delivery of a message that encourages grassroots lobbying is engaged in lobbying.  As per the proposed guidance the definition of “control” includes participation in the formation of the communication or some influence over reviewing or editing the communication.

Public Trust Act Preserves Candidate Choices

Political communications are like trees in a forest.  Blessed with monetary sunshine political communications reach toward the sky, dominate the horizon, and potentially drench competitors in shade.  Legal limits on financial support serve to wither these other messengers who, like trees in a forest, fall to silence.

Consider then what this April showered upon New York’s thicket of contribution limits.

First came the Public Trust Act.  It marks the first time the State has adopted a public campaign financing law, in the form of a this-year-only pilot for one office, State Comptroller.  As was the case for all New York City elections between 1988 and 2004, this new State law does not purport to change the currently high contribution limits for non-publicly-financed candidates and reduces contribution limits only for those candidates seeking public matching funds.

Immediately on the heels of that legislation, the U.S. Supreme Court in McCutcheon v. FEC struck down aggregate contributions limits in federal elections, seemingly imperiling New York’s $150,000 annual aggregate limit.

Now, Judge Paul Crotty has brought New York’s $150,000 annual aggregate contribution limit to an inevitable (albeit incomplete) denouement pursuant to McCutcheon by striking down its applicability to SuperPACs.  When the rest of the $150,000 limit falls, contributors will also get to sprinkle maximum financial support upon as many candidates and party committees as they may wish.  In theory, according to McCutcheon, these candidates will remain insulated from risk of quid pro quo corruption by “base limits.”

Returning then to the distinction the new Public Trust Act makes between the base limits that apply to publicly-financed and the lower base limits that apply to non-publicly-financed candidates: what public policy does this serve?  (While this blog has generally not been a forum for discussion of active cases in which we appear as attorneys, I’m about to make an exception.)

At the very time Judge Crotty was (however reluctantly) sprinkling sunshine on SuperPACs, this lawyer was arguing an appeal on behalf of former NYC Republican mayoral candidate George McDonald (McDonald v. New York City Campaign Finance Board).  Putting aside the specific legal issues of that case, which is a challenge to a 2004 local law leveling base limits for non-publicly-financed candidates, the McDonald appeal aims to help candidates compete for sunshine in a post-Citizens United wilderness.

Under the Public Trust Act, candidates have three financing options: 1) self-financing; 2) raise matchable contributions for public financing and comply with reduced base limits; or 3) raise legally permissible campaign contributions under the pre-existing base limits.  Each option for candidates runs up against limits: the limits of a candidate’s personal wealth, the limits of the time and effort that will be necessary for demonstrating eligibility for public funding, and the base limits themselves.  In contrast, independent spending is constitutionally unlimited.  Indeed, SuperPACs serve as a force multiplier for uniting the potentially unlimited fortunes of (non-candidate) citizens in pursuit of a common political message.

Precisely because independent spending may be financed by unlimited sources, base limits inadvertently weaken the voice of candidates and amplify the impact of independent spending.  Candidates therefore need all the options that campaign finance law may afford for financing their own campaign advocacy effectively.  The Public Trust Act follows this approach precisely both by creating and preserving choice for candidates.

The Next Domino – New York Knocks Down Limits to SuperPACs

Last week, Judge Paul Crotty of the Southern District of New York ruled that New York Election Laws §§ 14-114(8) and 14-126, which impose limits on the amount of money that may be contributed to political candidates, are unconstitutional as applied to independent expenditure-only organizations. The full opinion can be downloaded here. 

New York’s Election Law had applied the $150,000 aggregate contribution limit to SuperPACs. In other words, a contributor could only give up to $150,000, despite contrary rulings in Citizens United and SpeechNow v. FEC (see here).  The Second Circuit made clear back in October that it disagreed when it reversed the district’s decision to deny the preliminary injunction sought to prevent enforcement of the limit and sent the case back down.

Consequently, contribution limits to independent expenditure-only committees have seen their last day in New York. This decision represents the fall of yet another domino in the ongoing movement away from contribution limits by U.S. courts.  The next one? New York’s $150,000 annual aggregate limit applicable to all political recipients, including candidate committees and political parties.

Public Trust Act – A Public Financing Trial and Tribulation

The NY State Legislature and Governor Cuomo enacted a new State budget on April 1, and with it, enabling legislation that includes changes in NY’s campaign finance law. In addition to new independent expenditure disclosure requirements, which we discussed here, the new law includes a this-year-only public financing test program applicable only to the NYS Comptroller’s race.

The State Board of Elections (SBOE) is charged with implementing the new public financing scheme.  But with so little time in advance of this year’s election to adopt the necessary rules and regulations, disclosure forms and software, pre-election review and post-election auditing procedures, many are skeptical that the test program will actually take flight. Indeed, following the urging of public financing proponents,the State Comptroller has indicated that his campaign is opting-out and no other candidate has step forward to participate.

Yet, the new law marks the first time that public campaign financing has been adopted at the state level in New York.  Even with its December 31, 2014 sunset, these provisions offer a new point of departure for future public financing reforms in the Empire State.  Let’s take a look.

Like New York City’s public financing law, candidates for comptroller may “opt-in” to try to qualify for $6 for every $1 raised up to the first $175 from each New York State resident contributor (natural persons only).  Contributions deemed non-matchable include illegal contributions, contributions from minors, and, contributions from registered lobbyists.  The threshold for eligibility for “participating candidates” requires $200,000 in donations that qualify for the match from at least 2,000 donations of $10 to $175.  The maximum amount of public funds payable to each participating candidate is $4 million for the primary and another $4 million for the general.

The law requires reporting of every contribution, loan received and expenditure made and requires the Board of Elections to review each report and advise committees of “relevant questions” regarding compliance with the law and rules issued by the Board and qualifications for receiving matching funds. The law affords committees an opportunity to respond and correct potential violations.

Participating candidates may file more reports on a weekly basis on Fridays “so that their matching funds may be paid at the earliest allowable date.”  The law requires the SBOE to pay matching funds “as soon as practicable” and to verify eligibility for matching funds within four days of receiving a report and pay the committee within two days of eligibility (though no earlier than 30 days after ballot petitions have been filed and not less than 45 days before the primary).

The law requires public financing participants to disclose each “intermediary”, an individual, corporation or other entity which “bundles, causes to be delivered or otherwise delivers any contribution from another person or entity” to a candidate or his committee.  NY Election Law does not otherwise require disclosure of intermediaries.

Public financed campaigns are not subject to spending limits (unlike New York City law).  Restrictions apply to the use of public funds, however, such as prohibitions against use for illegal expenses, political contributions, gifts and legal fees to defend against a formal criminal charge.

The new law sets a limited time period for the SBOE to audit participating campaigns after the election.  Provisions require participants to maintain 3 percent of matching funds for expenditures needed to comply with the post-election audit.

The reform lowers contribution limits for donations to participating candidates to $6,000 per election, which is far below the current statewide election limits of $19,700 and $41,100 for the primary and general elections, respectively.  These current high limits are retained without change for non-publicly-financed candidates and for statewide offices other than comptroller.  A special provision for the retroactive application of the new $6,000 limit would require the segregation and non-use (or return) of contributions over $6,000 raised previously.  As with the reduced limits, the segregation/return requirements are not extended to non-participating candidates or to other state-wide offices.

The law establishes the New York State Campaign Finance Fund, which consists of revenues raised from the abandoned proper fund and names the State Comptroller and the Commissioner of Taxation and Finance as joint custodians.

Putting aside issues of feasibility this year, imagine the re-enactment of these very same provisions in time for the beginning of the next statewide election cycle in January 2015 and their extension to every statewide office, not just comptroller.  Just imagine.

New York’s New Public Trust Act Expands Independent Expenditure Disclosure

Effective June 1, 2014, the Public Trust Act included in this year’s State Budget legislation redefines “Independent Expenditures” (IEs) in state and local elections.  The new definition includes expenditures conveyed to 500 or more members of a general public audience in the form of an audio or video sent by broadcast, cable or satellite, a written communication via advertisements, pamphlets or the like, or other published statement that meets either the “magic words” test of expressly calling for the election or defeat of a clearly identified candidate at any time OR “refers to and advocates for or against” a clearly identified candidate or ballot proposal on or after January 1 of the relevant election year.

Exceptions are made for news and editorial publications, candidate debates, member-to-member communications within membership organizations of not more than 500 members, and Internet communications (other than paid ads).  Moreover, the definition of general public audience does not extend to an audience “solely comprised” of members, employees and other specified persons connected to a labor organization, corporation, unincorporated business entity, or trade association.

The new definition appears to both broaden and narrow current State Board of Elections (SBOE) section 6200.10 regulations.  For example, the current SBOE rules do not specify an audience threshold or format trigger for the definition.  Most significantly, the current SBOE rules extend only to communications that meet the magic words test; the election-year-communication-that-refers-to+advocates-for/against-a-candidate is a new trigger, as is the coverage of ballot proposal advocacy.

The new law (like current SBOE regs) requires all persons making IEs to first pre-register with the SBOE as a political committee.  If an IE costs more than $1,000 it must include a disclaimer clearly stating who paid for or otherwise published or distributed the communication and that the communication was “not expressly authorized” by any candidate.  These IE registrants must disclose to the SBOE on a weekly basis (each Friday) any contribution received of over $1,000 and expenditures made over $5,000.

Given the June 1 effective date, the first weekly IE disclosures would be due on Friday June 6.  That’s right, D-Day.  Within the last 30 days before the primary or general election, these disclosures are due within 24 hours.  Unlike current political committee disclosure requirements, an IE registrant’s report must include the occupation and employer of contributors, the name of the clearly identified candidate or ballot proposal referenced in the IE-paid ad, and a copy of that political communication.

The SBOE is directed to promulgate regulations and to provide suitable forms.  Presumably, the SBOE will now conform its existing IE rules to the new statutory standard.  It is less clear whether the State Attorney General or NYC Campaign Finance Board will see a need to adjust their separate IE definitions and disclosure provisions in light of this new Election Law definition.

One oddity is the new statute’s description of when communications are not treated as independent of a candidate.  After enumerating the content triggers as including a “call for … the defeat of the clearly identified candidate” or “advoca[cy] … against a clearly identified candidate”, the definition excludes “communications where such candidate… did authorize … or cooperate in such communication.”  (Emphasis added.)  This phrasing suggests that a negative ad against a clearly identified candidate may remain an IE,and therefore not be treated as an in-kind contribution to an opposing candidate who benefits, even if that opponent has authorized or cooperated in that ad.  In all likelihood, such a result is not what was intended.

 

 

Court Issues McCutcheon V. FEC; Strikes Down Aggregate Limits

Today the Supreme Court of the United States issued its decision in McCutcheon v. FEC.  The decision, which was 5-4 and authored by Chief Justice Roberts, struck down the aggregate limits under the Federal Election Campaign Act. Specifically, the Court found that 2 U.S.C. section 441a(a)(3)(A), which limits individual contributions to federal candidates and party committees over the course of a two-year election cycle (i.e. the biennial limit) was unconstitutional because “aggregate limits do little, if anything, to address [the permissible objective of combatting corruption], while seriously restricting participation in the democratic process.” Justices Scalia, Kennedy and Alito joined in the majority opinion.  Justice Breyer authored the dissent.  Justice Thomas authored a concurrence.

The Court found that while the Court in Buckley “in three sentences” provides “some guidance”, because statutory safeguards against circumvention have been “considerably strengthened since Buckley was decided. . .the indiscriminate aggregate limits under BCRA appear particularly heavy-handed.”  Particularly the Court noted: 1) the 1976 FECA amendments that capped limits on contributions to political committees; 2) 1976 amendment that added an antiproliferation rule prohibiting donors from creating or controlling multiple affiliated political committees; 3) FEC regulations on the earmarking provisions of the FECA. The Court also noted distinct legal arguments that Buckley did not consider, including that the Court never addressed an overbreadth challenge in the specific context of aggregate limits.

In addressing the government interest in the case the Court again emphasized that “while preventing corruption or its appearance is a legitimate objective, Congress may target only a specific type of corruption – ‘quid pro quo” corruption.”

The Court noted Citizens United, and seems to dig in its heels: “As an initial matter, there is not the same risk of quid pro quo corruption or its appearance when money flows through independent actors to a candidate, as when a donor contributes to a candidate directly.”

The Court notably offers Congress suggestions: 1) targeted restriction on transfers among candidates and political committees; 2) strengthening FEC regulations on defining how many candidates a PAC must support in order to ensure that ‘a substantial portion’ of a donors contribution is not rerouted to certain candidate; 3) modified version of aggregate limits, such as one that prohibits donors who have contributed the current maximum sums from further contributing to political committees that have indicated they will support candidate to whom the donor has already contributed.  Indeed, like in Citizens United, the Court emphasized the role of disclosure because “disclosure of contribution minimizes the potential for abuse of the campaign finance system.”

Currently, eight states impose comparable aggregate contribution limits on a single contributor’s contributions to multiple recipients during a specified time period.  All of these limits are now vulnerable to challenge under the Court’s decision, though with the Court’s suggestions for reform, there is much room for debate.  As we previously discussed here and here the Court’s decision may have an impact in New Jersey and certainly will in New York.

The Answers Depend on the Questions that are Asked

After each City-wide election, the NYC Campaign Finance Board is required to produce a post-election report to the Mayor and City Council.  Today intrepid politicos, reformers and observers braved a blizzard to participate in a public hearing that is a key component in this mandated review.

The hearing was scheduled to include four panel discussions, the first of which examined NYC’s “small-dollar matching program.”  The CFB’s upcoming evaluation of this program will also have resonance in Albany where the governor, legislators and reformers continue to forcefully advocate its replication at the state level.  

To assess how the matching funds program is working, what issues will the CFB choose to examine? Among other topics, the law directs the CFB to analyze “the effect of this chapter on political campaigns, including its effect on the sources and amounts of private financing, the level of campaign expenditures, voter participation, the number of candidates and the candidates’ ability to campaign effectively for public office”.  In addition, the law mandates “a review of the procedures utilized in providing public funds to candidates”.

      In thinking about the three mandated topics highlighted above, consider the kinds of questions the CFB could choose to examine:

      1)  Voter Participation.  Small donor matching has been hailed for broadening the number, geography, and demography of campaign contributors.  But is there any correlation between stimulating more local resident contributors and voter participation?  Is an effect on voter turnout relevant in evaluating the ultimate benefit of public financing for democracy?

      2)     Candidates’ Ability to Campaign Effectively.   The New York City Campaign Finance Act contains approximately 23,000 words.  CFB regulations on the matching funds program add another 45,000 words, give or take.  While reform-advocates might look to espouse new regulations and restrictions to govern campaign behavior, what might a bit of de-regulation achieve for candidates’ ability to campaign effectively?

      3)     Procedures Utilized in Providing Public Funds.  Self-assessments are always difficult.  For simplicity sake, our comment highlights just one area: the use of time.  A NYC-election cycle generally runs four years.  How well does the CFB use those 1461 days in administering the matching funds program and enforcing associated legal requirements?  For example, does the CFB work to enable candidates to resolve all compliance issues in a steady, even and timely manner throughout the four year cycle?  Or are the burdens on CFB staff and campaigns unduly deferred until the peak of campaign season?   And, returning to question 2, what effect did the timing of CFB actions in the 2013 election cycle have on the ability of candidates to campaign effectively?

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