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.

“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.

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.

The proposed rules mark the first time that non-candidate individuals, corporations, non-profit entities, and labor organizations must register with, report expenditures and contributions to, and retain records subject to review by the CFB – a regulated existence previously only experienced by candidates for NYC office.  The proposal defines the “express advocacy” and “electioneering” communication expenditures that trigger such obligations.  There’s an exemption for the news media and a limited exemption for certain “member” communications.

The CFB is inviting public comment and will soon schedule a public hearing.  In the interim, we offer one hypothetical question: Suppose Labor Union President A is a candidate for NYC office.  The Labor Union scrupulously avoids making any express advocacy or electioneering communication in support of Candidate A, but freely makes independent expenditures in support of other candidates, B through Z.  Assuming Candidate A participates in the Labor Union’s decision to make these expenditures, would the expenditures be reportable to the CFB as independent expenditures, as in-kind contributions to Candidate A(!), or not reportable at all?

Update:  NY Times coverage

Update 2: The proposed rules (reflecting technical corrections) are here.  The public hearing is scheduled for October 27.

Curiously, the Act references requirements under existing law “for individuals, organizations, corporations, political committees, or any other entities to disclose independent expenditures.”  The existing requirements, however, apply only when the person or entity making the expenditure is a political committee.  Existing law defines a political committee as including “any corporation aiding or promoting and any committee, political club or combination or one or more persons operating or co-operating … to aid or to promote the success or defeat … of any ballot proposal; or to take part in the election or defeat of a candidate ….”  It stands to reason, therefore, that the coming regulations will clarify when an individual or a corporation making an IE must register and file disclosure reports as a political committee.

Come to think of it, hasn’t the New York City Campaign Finance Board (CFB) been working on regulations for a similar objective?  Indeed, the State and City regulations will overlap since both are applicable to IEs for candidates and ballot proposals in New York City.  This creates some potential for problems.

For example, the NYC Charter authorization for the CFB rulemaking does not limit the required disclosure to persons and entities that are subject to regulation as political committees.  Further, will there be differences in the State and City rules’ definitions of “independent expenditure”, such that the two disclosure regimes will not apply to precisely the same categories of spending?  Also, will the State parameters for contribution disclosure to political committees trump the narrower range of contribution disclosure by persons and entities subject to the CFB disclosure rules?

New York City lobbyists and candidates for NYC offices are familiar with similarly duplicative, but not identical, disclosure requirements.  As has generally been achieved for City candidates (but not City lobbyists, see the preliminary report of the NYC Lobbying Commission, at pp. 58 – 59), will the State and City work together to design and provide software that enables filers to meet their obligations under both IE disclosure regimes?

• Lobbyists will  be subject to disclosing their business relationships with officials.

• Any lawmaker convicted of a felony could be forced by a judge to give up their pension.

• The Board of Elections must issue regulations clarifying requirements for individuals, corporations, political committees and other entities to disclose independent spending for advertisements or any other type of advocacy that expressly identifies a political candidate or ballot proposal and that is not coordinated or approved by the candidate in question.

When the agreement was first reached in June, lawmakers and the Governor were quick to praise the agreement, though since then, questions have been raised as to its effectiveness.

More to follow!

But things may soon be different in New York City. While the Campaign Finance Board (CFB) currently has its hands full in crafting rules to implement independent expenditure disclosure requirements, another clock has been ticking. The Supreme Court will soon rule on the matching funds trigger under Arizona law. And while not likely on every New Yorker’s mind, the question being asked is whether the holding will be broad enough to undercut the bonus matching funds trigger provisions in New York City’s law.

For speculation sake, let’s posit that the Supreme Court holding casts serious doubt on the constitutionality of NYC’s bonus provisions. The additional public funding the law currently provides for participating candidates opposed by high-spending nonparticipants would evaporate. The remaining triggers for and levels of public financing would then need to be reexamined and potentially recalibrated. An overarching question looms: how to ensure that the NYC program remains effective and cost-effective.

No proposals have been made in specific anticipation of this possible problem. Rather, current legislative proposals would curb the cost of public financing more generally. Seven City Council members are currently sponsoring a bill to reduce the matching rate from 6:1 (up to $1,050 in public funds per contributor) to 2:1 (up to $350 in public funds per contributor), in election years in which the Mayor’s office has projected a budget deficit of $2 billion or more.

In its September 2010 report, the CFB made four different legislative proposals for adjusting public financing payouts, three of which would reduce payments:

• Making it more difficult for a candidate to qualify for maximum public funding against a “nominal” opponent

• Decreasing the maximum public funds payable in special elections

• Increasing the amount a non-participating candidate must raise or spend before a publicly financed opponent may qualify for an increased (“bonus”) matching rate (modifying the kind of provision now at issue now before the Supreme Court).

The fourth CFB proposal, potentially resulting in increased payments, would reduce the threshold of contributions candidates for mayor and other citywide offices would need to raise to be eligible for public funds.

A recalibration of payment formulas is only one element of changes that may be desirable to enhance cost-effectiveness. Attention also must be paid to provisions and administrative safeguards supporting the City’s recovery of matching funds. We’ll have more to say on that topic in the coming days.

• A permanent ban on the prospective investment manager’s use of elected officials, lobbyists and all placement agents, whether paid or unpaid.

• Prohibitions against: improper relationships between pension fund officials and an investment firm’s personnel or agents, “revolving door” employment by investment firms of former public pension fund officials and employees, and improper gifts by investment firms to public pension fund employees and officials.

• A ban on investment firms that directly or indirectly make campaign contributions, charitable contributions, or gifts to the Comptroller.

This new initiative builds on a foundation that includes the code of conduct the Governor had incorporated into the settlement of investigations of investment firms he had conducted as Attorney General, State Comptroller DiNapoli’s executive order banning pension fund investment opportunities for firms making contributions to Comptroller candidates, and SEC rules prohibiting investment advisers from providing investment advisory services to a governmental entity within two years after covered contributions to government officials.