In response to the Supreme Court’s decision in Citizens United, the staff recommends amending the Charter to require the disclosure of independent expenditures “to provide the citizens of New York City with the information they need to properly assess the content of political communications intended to influence their behavior at the polls, and to maintain the City’s status as a national leader in campaign finance law.”    The proposed amendment would make three major changes the Charter, including:

• Requiring any individual or entity making independent expenditures in excess of $1,000 to disclose such activities to the CFB.
• Empowering the CFB to require any entity making independent expenditures in excess of $5,000 to disclose the sources of the funds used to make such expenditures.
• Requiring disclosure of the name of the individual or entity that funds certain literature or advertisements through independent expenditures.

The amendment would also make a knowing violation of the disclosure requirements punishable both as a misdemeanor and through a civil penalty of up to $10,000 for each violation.  These changes, if adopted, would continue an ever-expanding evolution in the scope of public disclosure requirements: first from participating candidates in the public financing program (1988), then from non-participating candidates (2004), and now, possibly, from non-candidate entities, which seek neither public funding nor the attainment of public office.

There are other staff recommendations of note.  For example, while the staff recommends further discussion on replacing the current three-term maximum provision with a two-term provision, the staff specifically recommends amending the charter so as to permit the City Council to enact only prospective changes to the term-limits provision where the amendment would extend the term of any incumbent.   Additionally, the staff recommends amending the Charter to reduce the number of signatures required on ballot petitions to ease candidate burdens.

Many of these changes, if adopted, would certainly alter New York City’s political landscape. Whether or not the Commission adopts the recommendations of its staff, however, remains to be seen.

On the one hand, the Court upheld Connecticut’s pay-to-play ban against contributions to candidates for state offices by state contractors, prospective state contractors, and their principals, spouses and dependent children. On the other, it struck down, on First Amendment grounds, the following provisions:

• the ban against contributions by lobbyists (and their spouses and dependent children) to candidates for state offices.
• the ban against contractors’ and lobbyists’ soliciting contributions on behalf of candidates for state offices.
• “trigger” provisions granting supplemental public funding to candidates participating in the Citizens Election Program on the basis of the level of expenditures made by non-participating opponents or independent expenditures opposing the participating candidate.

We briefly comment on the potential significance of these holdings in two parts.

Pay-to-Play Reforms

By Rebecca Moll Freed

Pay-to-play reform has been spreading to a growing number of states in recent years. The Second Circuit decision trims back some of the more ambitious restrictions and raises additional potential concerns about the constitutionality of outright contribution bans (as opposed to limitations). Was this victory for First Amendment principles too narrow?

The Court struck the ban on contributions by lobbyists, distinguishing between contractors and lobbyists because the recent corruption scandals in Connecticut in no way involved lobbyists. The Court reasoned, therefore, that no constitutional basis existed for subjecting lobbyists to an outright ban on contributions.

The Second Circuit struck down the solicitation ban as unconstitutional because unlike limiting contributions which present “marginal speech” restrictions, the Court reasoned that a ban on solicitation is a ban on speech itself – the core activity protected by the First Amendment. As such, solicitation restrictions are subject to strict scrutiny and must be narrowly tailored to serve a compelling government interest. The Second Circuit opined that while it is easy to see how a large contribution may be given to secure a political quid pro quo, it is not clear that individuals might secure political favors simply by urging others to make contributions.

In contrast, the decision maintains that a total ban on contributions by certain business entities with or seeking state contracts (and associated individuals and PACs) is constitutional based on a history of actual corruption by state contractors and the resulting public perception of corruption posed by contributions from this class of contributors. The decision referenced a long line of campaign finance jurisprudence, from Buckley v. Valeo through Citizens United v. FEC. But was the Court’s reasoning in upholding the contractor ban consistent with its concurrent striking down of the lobbyist contribution and contribution solicitation bans?

For example, in striking down the ban as applied to lobbyists the Court noted that an outright contribution ban “utterly eliminates an individual’s right to express his or her support for a candidate.” The Court also states that “[a] ban is a drastic measure.” Because an outright ban strips individuals of the right of political association and of the right to express their support for candidates of their choice, the ban raises the question of whether it will continue to survive constitutional scrutiny as the recent corruption scandals recede into history and public perceptions of state contractors change.

The Second Circuit’s decision may also have consequences beyond Connecticut. Take New Jersey for example. Although New Jersey’s statewide pay-to-play restrictions contain a reduced limit rather than an absolute ban, many local pay-to-play ordinances include absolute bans on contributions by government contractors. Will these provisions withstand constitutional muster? Will the State of New Jersey look to ban contributions by contractors rather than subjecting contractors to a reduced limit? Another question arises with respect to solicitation restrictions in New Jersey’s statewide pay-to-play laws. Currently a state vendor may solicit contributions of up to $300 each to/for a covered recipient. Is this solicitation restriction constitutional?

In the wake of the Green Party v. Garfield, it looks as though the ever changing landscape of pay-to-play reform may evolve into an even more intricate labyrinth of limitations, restrictions and prohibitions. The question is – will these more stringent restrictions work to prevent actual corruption and to counter the perception of corruption in the government contracting process?

Public Financing

By Laurence D.  Laufer

Earlier this week Trigger, the late Roy Rogers’ taxonomically-preserved horse, brought $266,000 at auction.  The New York Times laments that the “trigger” provisions of public campaign financing laws might likewise be on their last legs. In issuing a stay last month blocking additional matching funds to gubernatorial candidates under Arizona’s trigger provision (McComish v. Bennett), the U.S. Supreme Court sent a strong signal that it would hold such provisions unconstitutional, much as the Second Circuit just did.

Following the Supreme Court’s 2008 decision in Davis v. FEC, the Second Circuit found the trigger provision to be a “penalty” on a nonparticipant’s or independent spender’s choice to spend personal funds. The Court found the governmental interest in encouraging participation in a public financing program or in leveling electoral opportunities insufficient justification for this trigger under the First Amendment.

Is there a legislative alternative that might pass constitutional scrutiny? The New York City campaign finance law suggests a possibility.

While it includes a now similarly vulnerable provision triggering additional matching funds based on the level of an opposing non-participant’s spending, New York City’s law also contains a separate provision designed to conserve public funds for competitive elections. Specifically, if a participant’s opponent fails to raise or spend at least one-fifth of the applicable spending limit (and fails to meet alternative criteria demonstrating competitiveness), the maximum public funds payment to the participant is reduced by 75 percent.

In its 1976 landmark ruling, Buckley v. Valeo, the U.S. Supreme Court upheld presidential public financing which reflected the government’s “interest in not funding hopeless candidacies”. Thus, legislatures adopting public campaign financing may constitutionally choose to calibrate levels of funding made available to candidates as a safeguard against wasting taxpayer dollars.

Here’s how a “reverse trigger” might work. Initial public funds awards are made up to the maximum level permitted in the hypothetical law. But then portions of that funding are not actually released to the qualifying candidate until an opponent demonstrates a sufficient level of competitiveness; the opponent’s level of spending may be one of several alternative criteria. Importantly, the law would make no distinction as to whether the opponent is a participating or non-participating candidate.

The goal would not be to level the playing field among candidates, but rather to protect against wasteful disbursements of public money. Thus, a full award would be released in segments, according to the opponent(s)’ competitive performance. Each segment of the full award would be released only if and when it is actually needed by the qualifying candidate.

As against a First Amendment challenge, this reverse trigger just might be seen as a horse of a different color.

The order allows Appellants to file a supplemental brief specifically addressing the “importance” of Citizens United and gives the City the opportunity to respond.

The NYC Campaign Finance Board made its position clear in a press release issued on the day that Citizens United was decided.

In light of the Supreme Court’s rationale in Citizens United that “restrictions distinguishing among different speakers, allowing speech by some but not others” are prohibited, this case may test whether Citizens United has any applicability to speaker-based contribution limits.

Theoretically, the Commission would be an independent City agency. As a practical matter, especially in recent years, mayors have taken a dominant role in shaping past commissions’ agendas and proposals. Indeed, like the mayor, various officials and employees of the City of New York have potentially enormous stakes in the changes Charter revision may make in the City’s government for years to come. Government officials and employees can therefore be expected to advocate for their institutional interests.

Lobbying regulation is intended to shed light on attempts to influence the actions of public officials. Will City and State lobbying laws facilitate public scrutiny of City officials’ and employees’ efforts to influence the actions of a Charter Revision Commission?

The brief answer is No.

The lobbying laws generally require persons meeting certain thresholds of compensation or expenditures for lobbying activity to register with the applicable monitoring agency and submit periodic reports. But neither City nor State lobbying law, in their current form, mandates registration and reporting by City officials and employees who lobby a Charter Commission.

Under City law, attempts to influence the “determination of a … commission” are defined as lobbying, but the term “lobbyist” expressly excludes officers and employees of the City of New York when discharging their official duties.

State lobbying law is more complex. Lobbying includes attempts to influence “passage or defeat of any local law … by a municipality.” There is no express exception for municipal officers and employees. Indeed, municipal corporations are required to register and report their lobbying, an obligation which does not distinguish between lobbying at the State or NYC level.

There has, however, been a longstanding unwritten exception for “government-to-government” contacts that has allowed municipal corporations to avoid registration. In any event, because a Charter Commission is not a legislative body, it only proposes local law(s) for public referendum. Attempts to influence the Commission’s proposals are legally distinct from attempts to influence the “passage or defeat” of the local law itself.

Are these gaps in City and State lobbying regulation loopholes? Given the likelihood that some NYC officials and employees will try to influence the Charter Commission’s proposals, should existing lobbying regulations be extended to promote transparency and public scrutiny of their Charter lobbying efforts?

And even if these laws are not amended, should officials be encouraged to voluntarily submit their lobbying on Charter revision to the current State and City registration and reporting regimes, and to direct their employees to do likewise?

The answer may depend on how highly the public values the independence of a Charter Commission. If Commission independence is seen as critical to the credibility of its proposals, an expanded lobbying law could be useful as a means of fostering that independence. On the other hand, if independence is not a prime value, there would be little public benefit in burdening “government-to-government” communications with compliance obligations under the overlapping and detailed regimes that regulate private sector lobbyists.

New Jersey

New Jersey law permits a state vendor to “cure” a contribution over the $300 limit set forth under P.L. 2005, c. 51 if the vendor requests and receives a refund within 30 days of making an excessive contribution. If a vendor fails to cure an excessive contribution, the vendor may be declared ineligible for New Jersey state government contracts for a period ranging from 18 months to 5 ½ years.

A recent New Jersey Supreme Court case, In the Matter of the Appeal of Earle Asphalt Company, demonstrates just how stringently the 30 day refund period is enforced. In the Earle case, the New Jersey Supreme Court held that a refund requested within 30 days but not received until the 41st day was not sufficient to “cure” an excessive contribution.

Under the scores of local pay-to-play ordinances, the refund provisions vary. For example, Mercer County allows a vendor to cure an excessive contribution if the vendor seeks and receives a refund within 30 days after the general election. The City of Newark allows a vendor to cure an inadvertent contribution if the vendor seeks and receives a refund within 60 days after the relevant ELEC report is filed. Jersey City allows a vendor to seek and receive a refund within 30 days after the relevant ELEC report is published. Under Edison’s local ordinance, a vendor may seek and receive a refund within 60 days of the date on which the contribution was made. Failure to cure a prohibited or excessive contribution within the stated refund period would result in ineligibility for contracts with local government.

New York City

At the other extreme are limitations on the receipt of contributions from persons defined as “doing business” with the City of New York. Under NYC law, the initial burden is on the Campaign Finance Board to provide notice to the candidate of an excessive contribution within 20 days or three business days of its reporting, depending on the proximity of the election. If the CFB fails to meet this deadline, the contribution may be retained. If timely notice is provided, the candidate’s committee has 20 days from the notice to refund the excessive amount in order to avoid a finding of violation. Compliance is shown by postmark or delivery within 20 day period.

Connecticut

Connecticut law prohibits  state vendors from making and/or soliciting contributions in any amount to/for candidates seeking state elected office. Under Section 9-612(g)(1)(c) of Connecticut law, a vendor may cure an “improper” contribution by receiving a refund by the later of 30 days after the receipt of the contribution or the filing date that corresponds with the reporting period in which the “improper” contribution was made.

In Connecticut, a company that makes an excessive contribution may be declared ineligible for state contracts for a period of 1 year after the election for which a prohibited contribution is made or solicited.

Associate Bonnie Fire contributed to this post.

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.

Looking forward to the 2013 election cycle, Genova, Burns & Vernoia has submitted a request for an advisory opinion setting ground rules for 2013.

New York City law requires “every expenditure made by the candidate and [his or her] committee” to be reported to the City’s Campaign Finance Board (CFB). This disclosure requirement was extended to candidates not participating in the NYC matching funds program by a 2004 law adopted over Mayor Bloomberg’s veto. (Mr. Bloomberg has self-financed all his political campaigns and has not participated in the matching funds program.) That 2004 law was intended to ensure that all City campaigns make comprehensive and comparable public disclosure, which would then be reviewed for completeness and accuracy by CFB auditors.

Many campaigns make contributions to political parties and other candidates, since these can help build support for their election efforts. According to the CFB, the making of a political contribution is reportable as a campaign expenditure, which is also subject to expenditure limitations if made by a participating candidate.

What is distinctive about Mayor Bloomberg’s 2009 re-election campaign is that it has reported making no political contributions. (To date, the Bloomberg campaign has reported over $36 million in campaign expenditures.) Instead, Mr. Bloomberg has separately spent another $3.35 million from his own funds, mostly as contributions to Republican and Independence party committees – political parties which have nominated him for re-election. Thus, Mr. Bloomberg is self-financing both his political contributions and his campaign committee, but only acknowledging the latter as an aid in his re-election effort.

The fact that Mr. Bloomberg’s political contributions are reported to Boards of Elections by the recipients will not likely win him credit at the CFB. Similarly, the fact that the CFB has not questioned some other candidates about occasional small political contributions from personal funds does not likely stem from an unusual unwritten exemption, but is more likely reflective of a wise tolerance for de minimis transactions that do not undermine campaign finance law fundamentals. This is especially true for candidates whose campaign committees reported making political contributions during the same time period.

Indeed, the CFB will likely be concerned not to set a precedent that opens large loopholes. For example, one option the law allows for self-financed candidates is “limited participation.” (Mr. Bloomberg declined to exercise this option.) Limited participation permits a self-financed candidate to agree to abide by the same spending limits that apply to his or her participating opponents without accepting any private contributions or public funds for the campaign. The CFB will not likely countenance a result that permits future limited participants to “abide” by spending limits, while simultaneously using personal funds to make millions in political contributions that aid their election efforts “off the books.”

Perhaps the most significant issue in the Bloomberg case is not the large sum of political contributions, but rather the contrast between the zero reported by the campaign committee and that $3.35 million. The reporting of zero in political contributions appears to be apiece with his campaign’s favored narrative of a mayor standing above partisan politics and influence peddling. Shielding his political contributions from public disclosure is thus a statement that those contributions play no part in his re-election effort.

At its heart, however, “pay-to-play” is a transaction between a buyer and seller. The mayor has touted his credentials in curbing this phenomenon by signing a 2007 law that limited and brought greater public scrutiny to political contributions from those deemed to be “doing business” with the City. In the mayor’s race, these limits are set as low as $400 per contributor. Given his stated concern that others may be seeking to exercise undue influence with political contributions of as low as $400, isn’t it fair to question what the mayor thinks he is buying with $3.35 million in political contributions and why he represents that it has no relationship to his re-election effort?

From 1988 – 1992, Judge Sotomayor was one of five founding members of the newly-created New York City Campaign Finance Board. (I then served as Counsel to the Board’s Executive Director.) I remember Judge Sotomayor as thoughtful, detail-oriented, and tough. She along with the other founding members were charged with making a new, untried law an effective and meaningful reform in an incredibly short timeframe. Board members and staff learned from experience. Regulations, opinions, and an approach to enforcement were continually refined – always with an eye toward striking the right balance between the broad aspirations of reform and the reality of trying to make the regime “livable” for candidates who could choose to participate, or not.

Judge Sotomayor never shied away from difficult issues or cases. Indeed, she struck me as utterly immune to external pressures. I also remember her as a quick study, with a clear appreciation for legal nuance.

Judge Sotomayor helped infuse the NYC Campaign Finance Board with qualities that have earned it a national reputation as perhaps the leading local campaign finance regulatory agency. She will therefore bring a unique real-world-tested knowledge of this subject area, as well as a demonstrated capacity for leadership in a collegial body.

Under NYC’s conflicts law, public servants may not, for example, accept any valuable gift from any person or firm which the public servant knows is or intends to become engaged in business dealings with New York City. Likewise, a public servant shall not solicit any position with any person or firm who or which is involved in a particular matter with the city, while such public servant is actively considering, directly concerned, or personally participating in that matter on behalf of the city.

Persons required to be listed on a NYC-lobbyist registration statement, such as the lobbyists, their spouses and domestic partners, and certain employees of lobbying organizations, may not offer or make a gift to a public servant. While the new opinion does not address the lobbyist gift ban directly, the implication is that lobbyists may not make gifts to employees, trustees, and trustee-designated representatives of the five NYC pension funds.