The FEC explained it was simply following the logic of court rulings in Citizens United v. FEC  and SpeechNow.org. v. FEC. Because “‘independent expenditures do not lead to, or create the appearance of, quid pro quo corruption’”, the FEC found no basis to limit contributions to these independent expenditure PACs, including contributions by corporations and labor unions.

Here is the power of Citizens United at full throttle. While the Supreme Court disclaimed application of its holding to the statutory prohibition on direct corporate contributions to federal political committees and SpeechNow did not purport to address contributions by corporations at all, the FEC nevertheless rather readily conceded that statutory prohibitions could not be constitutionally sustained in case of corporate and union giving to independent expenditure PACs.

And there’s no reason to think that only federal dominoes will fall. For example, in 1994 the New York State Board of Elections reached a very different conclusion. Its formal opinion No. 1994-3 applied New York’s statutory contribution limits to contributions made to an “independent committee.” That hallowed decision now appears to be on rather shaky ground.

Especially in light of the difficulties encountered in the legislative pushback, it appears that campaign finance regulators may find themselves opening new vistas to campaign spending in response to court rulings for some time to come.

• Set severely reduced contribution limits for public contractors and lobbyists.  These limits would apply to candidates for state and local offices and to political party “housekeeping accounts.”  In addition to lobbyists and contractors, the limits would extend to owners, senior managers, immediate family members, and controlled political committees (largely following the New York City doing business reform model).

• Prohibit the award of State or local government contracts to companies at which associated persons exceeded these reduced limits (essentially following the New Jersey pay-to-play reform model).

• Within the last 36 days of an election (the time period currently covered by a single 11-day pre-election filing by political committees), require the following contributors to make disclosure within 48 hours: lobbyists, public contractors, immediate family members, and controlled political committees.

• Establish a voluntary public campaign financing system (like New York City’s), allowing for spending limits and debate requirements for participating candidates.

• Subject party “housekeeping accounts” to contribution limits.

• Reduce generally applicable contribution limits.  (The level of the proposed limit is not specified.)

• Subject corporate subsidiaries and related limited liability companies to the current $5,000 annual limit on corporate contributions (i.e., treating related entities as a single source subject to a single limit).

• Require public disclosure of a contributor’s employment and occupation (as under federal law).

• Restrict Albany-area fundraisers during legislative session and require timely disclosure of funds raised at such fundraisers.

• Specify permissible and impermissible uses of campaign funds and more clearly prohibit non-campaign related, personal uses of any kind.

• Improve enforcement, such as by granting the Attorney General concurrent authority with the State Board of Elections enforcement counsel unit to investigate and prosecute criminal and civil campaign finance violations, directing the State Board to publish the names of violators (following the New York City Campaign Finance Board’s example) and increasing penalties for violations significantly.

• Prohibit investment firms from making campaign contributions, charitable contributions or gifts to the State comptroller (or to pension fund trustees – another proposal).

• Establish ongoing disclosure requirements for investment firms, including disclosure of information relating to campaign contributions (New Jersey State Investment Council rules might serve as a model).

• In proposing the holding of a Constitutional Convention, the Cuomo plan first recommends reform of the delegate selection process, which would include relaxed ballot access requirements and public campaign financing.

All-in-all, it appears to be an impressive and ambitious set of reforms.  One cautionary note: in building a new structure of reform, it will be necessary to carefully re-examine current legal foundations.  For example, what lessons for the future legal definition of “contribution” should be drawn from the acquittals in the Anderson case?  This issue has particular significance since the concept of campaign contribution lies at the core of so many of the proposed reforms.

Likewise, looking to the future, this week at the 2010 annual meeting of the New York State Bar Association, the Committee on Attorneys in Public Service sponsored panel discussions on The State Legislature and the State Constitution: The Path Forward.  My presentation addressed recent proposals to reform campaign financing, and included consideration of the Citizens United decision.

Currently, New York imposes no disclaimer or public disclosure requirements on corporations or unions making independent expenditures in State and local elections.  That would change under the Ethics Bill, which passed the Assembly and Senate last week (A.9544/S.6457).

Among other reforms, the bill would require disclaimers to indicate when a political communication was not authorized by a candidate and to identify who paid for it.  The makers of independent expenditures would be required to disclose to the State Board of Elections: the person making the independent expenditure; persons giving money to fund the independent expenditure; the amount and date of each independent expenditure; and the election and candidate to whom the independent expenditure pertains.  These provisions are analogous to the federal requirements upheld in Citizens United.

As of this writing, the future of the Ethics Bill is uncertain.  Governor Paterson seeks a broader set of ethics reforms and has threatened a veto.

On February 2, 2010, the Governor vetoed the bill.  The Legislature failed to override the veto.

This article is the first in a series that will examine gift laws under New York, New Jersey and Federal law.   First up: New York.

New York State

The New York Public Officers Law prohibits state officers and employees from accepting gifts of more than nominal value under circumstances where it may reasonably be inferred that the gift was intended to influence the State officer or employee in the performance of his or her official duties.   Additionally, lobbyists and lobbyist-clients are prohibited from giving gifts of more than nominal value to public officials “unless under the circumstances it is not reasonable to infer that the gift was intended to influence such public official.”  The New York Public Integrity Commission, which enforces the gift laws, does not define “nominal value” with a dollar amount, but states that “nominal value is considered such a small amount that acceptance of an item of nominal value could not be reasonably interpreted or construed as attempting to influence a State employee or public official.”

There are exceptions to these prohibitions, which allow gifts in certain circumstances, including promotional items with little resale value such as pens, mugs or calendars, which bear an organization’s name or logo and gifts based on personal friendships.

New York City

New York City law also restricts gifts over $50 to City public servants from any person or firm that does, or intends to do business with the City.  Separately, New York City imposes a ban against registered City lobbyists making any gifts to NYC public servants.

The 2004 New Jersey gubernatorial executive order spurred state legislation and a proliferation of local regulations. Will the DiNapoli order similarly give rise to additional reforms in New York?

In contrast, New York City’s “doing business” limits restrict candidates from accepting large contributions from certain persons associated with firms seeking the investment of City pension funds, but do not make the firm’s compliance a condition of eligibility for City investments. The New York City rules require candidates to disclose the intermediaries for particular contributions, which is defined to include successful solicitation, but do not restrict municipal finance professionals from soliciting contributions altogether.

Under the NYS Lobbying Act, registered lobbyists and their clients may not make or offer gifts to New York public officials “unless under the circumstances it is not reasonable to infer that the gift was intended to influence such public official.” Exempted from the definition of gift, however, is complimentary attendance (including food and beverage) at a bona fide political event or complimentary attendance offered by the event sponsor at a “widely attended” event.

In a 2004 advisory opinion, the former Temporary State Commission on Lobbying (which has been succeeded by the Commission on Public Integrity) held that a reception or event during a 2004 national party convention did not fit within the widely attended event exception because there was no “official relation” between the public official’s duties and attendance at the event.

In the same advisory opinion, the former Commission stated that such an event would qualify for the political event exception only if it is “hosted by or financially benefits a political party, an elected official, a candidate for public office, or a campaign committee of a candidate for public office.” Thus it’s possible that if a reception invite were to list a political party or an elected official as a host of the reception, then NY public officials could attend the reception under the “political event” exception.

Note: the Commission on Public Integrity has advised that advisory opinions issued by the New York Temporary State Commission on Lobbying have not been rescinded to the extent they are consistent with current law and are currently under review.

Lawyers representing private clients often make lobbying communications at the municipal level, which may subject the attorney to registration and reporting requirements of the NYS Lobbying Act and/or applicable local law (such as New York City’s lobbying law). We debated whether a lawyer’s lobbying communications to public officials are, or should be, restricted by the Disciplinary Rule of the Lawyer’s Code of Professional Responsibility that prohibits lawyer contacts with parties represented by another attorney (in this case a municipal attorney or outside counsel retained by the municipal entity).

Under the no-contact rule, the questions to be examined are:

(1) Is the municipal official considered to be a “party” in the matter that is the subject of the communication?

(2) Is the municipal official represented by a lawyer in that matter?

(3) Does or should the private lawyer know that the municipal official is represented by counsel?

(4) Regardless of any of the above, is the communication authorized by law? For example, is it protected under the First Amendment right to petition government?

Below is a calendar of lobbying filing deadlines for the City and the State Commission on Public Integrity.

* The City Clerk’s Office has issued an alert advising that these three reports are now due on February 15, 2008.

The safe harbor lists internal controls and additional steps to be taken after discovering that committee funds were misappropriated that would preclude the FEC from seeking monetary penalty for the filing of incorrect reports due to the misappropriation. These measures include:

• Review of bank statements for unauthorized transactions and reconciliation with accounting records on a monthly basis. Bank records must also be reconciled to disclosure reports prior to filing.
• These reconciliations must be done by a person other than a check signer or an individual handling the committee’s accounting.
• Double signatures or written authorization required for payment checks in excess of $1,000.
• Restrictive endorsement on all checks received, such as: “For Deposit Only to the Account of the Payee”. The individual receiving checks must not also handle accounting or have banking authority for the PAC.

Post-discovery measures require notifying relevant law enforcement and the FEC of the misappropriation and voluntarily filing amended reports with the FEC.

The FEC’s guidelines are a baseline for internal control.  Comerica Bank, which provides administrative services for PACs, advises that additional controls can give additional protection. Examples include: 1) having authorized requestors and authorized signers – these should not be the same people; and 2) utilizing a third party for administration of the PAC.

While the FEC’s guidance pertains only to federal political committees, all PACs should adopt similar safeguards.