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.

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.

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 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?

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?

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?

Today, we look at two aspects of the proposed rules: registration and pre-clearance.

Registration.  Under the proposed rules, individuals and entities must first register with the CFB before reporting IEs.  The required registration is akin to the treatment of political committees under NY State and City law.

The purpose of the registration requirement is not explained, but it was probably designed to serve an administrative need to identify potential filers before the filing comes in (as the CFB does for candidate committee disclosure).  But the candidate model may not be optimal here, since for IEs registration is tantamount to giving the public (and potential opponents) advance notice of an intention to make IEs.

Given that the Supreme Court has recognized greater constitutional protection for making IEs than for making political contributions, it is odd – to say the least – to impose a potentially chilling registration requirement on IEs where no such requirement applies to the making of political contributions.  And the chill would be a deep freeze should the filing of an IE report without advance registration trigger a civil penalty.

Why can’t the CFB simply collect the registration information it seeks in the first IE report?

Pre-clearance. As with registration, the NYC Charter does not set forth a procedure for the CFB to pre-clear communications as against IE reporting requirements.  The proposed rules invite voluntary pre-clearance submissions to the CFB, which presumably would entail a CFB assessment of whether the proposed communication fits within its proposed definitions of express advocacy and electioneering communication.

But is pre-clearance an appropriate or wise function for the CFB?  Since the procedure would apply prior to the dissemination of the communication, might the CFB appear to be taking on the role of censor?

For example, what would the CFB do if presented with a proposed communication in the form of a t-shirt or website content containing the statement, “F__k  [Candidate Name]”, to be published or distributed in the time period covered by the electioneering communication definition?  (Since the CFB rules cover communications beyond the broadcast realm, the potential for inventive expression is limitless.)

Might an Independent Spender seize on a CFB “pre-clearance” as some kind of broader imprimatur for his message?  Since communications are often controversial, does it make sense for the CFB to place itself in the center of multiple potential controversies before each election?

Indeed, this element of the proposal almost reads like a “Kick Me” sign.

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?