On Friday, Governor Andrew Cuomo announced an agreement reached with legislative leaders on ethics reform. The Clean Up Albany Act of 2011, which has yet to be released, covers a number of areas including lobbying, financial disclosure and creates the Joint Commission on Public Ethics which will replace the Commission on Public Integrity.
More to follow!
Some stories about public campaign financing get a visceral response. For example, how many public dollars are distributed to candidates during an election and how much of that money is not being recovered after the election is over? The public’s investment in campaigns doesn’t end with the matching rates or provisions for “bonus” funding that yield payments to candidates. Provisions for repayment, and the administrative tools and procedures used in securing repayment, are just as fundamental in making a reform cost-effective – and maintaining public support.
Earlier this year an appellate court ruling (Fields v. NYC Campaign Finance Board) diminished the New York City Campaign Finance Board’s ability to hold candidate’s personally liable for public funds repayments. When this kind of constraint on recoveries at the “back-end” is coupled with limits on the government’s “front-end” ability to target public funds to candidates most in need (as the U.S. Supreme Court may soon decide), the visceral swing is against public financing.
How will reform advocates find a way forward? In today’s New York Law Journal, we offer some navigational aids (at least for New York City).
Last week a decision issued by a US District Court in Virginia made headlines across the country. The Court in U.S. v. Danielczyk struck down the 100-year old federal ban on corporate contributions. One of the more eyebrow raising facts of the decision was that it never discussed or even cited to FEC v. Beaumont, the US Supreme Court decision issued in 2003 which upheld the ban on corporate contributions. Indeed, nor did the Government cite to the case in its brief.
Now comes word (via the Election Law Blog) that the Judge has issued an order asking the parties to submit briefs on whether the Court should reconsider its ruling in light of FEC v. Beaumont. The order also cites to Agostini v. Felton, 521 U.S. 203 (1997) which held that “if a precedent of [the Supreme Court] has direct application in a case, yet appears to rest on reasons rejected in some other line of decisions, the Court of Appeals should follow the case which directly controls, leaving to this Court the prerogative of overruling its own decisions.”
Stay tuned.
As another New York state legislative session ticks down to the inevitable deal-making climax, campaign finance reform advocates may once again begin to echo that old Brooklyn Dodgers refrain: “wait until next year!” Despite earlier high hopes, inaction seems likely as has been true for decades.
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.
Last week Chicago Mayor Rahm Emmanuel signed three Executive Orders creating new ethics restrictions applicable to Chicago City employees. The Mayor also signed three Executive Orders originally issued by former Mayor Daley.
Executive Order 2011-1 prohibits new appointees from lobbying City government for two years after leaving their government position. Additionally, EO 2011-1 prohibits lower level employees from lobbying the departments or agencies in which they worked and prohibits appointees to boards and commissions from lobbying the board or commission on which they sat.
Executive Order 2011-2 prohibits registered City lobbyists from making political contributions to the Mayor.
And Executive Order 2011-3 protects City employees against pressure to give gifts or make political contributions to their superiors by prohibiting gifts and contributions from such employees. The EO also prohibits any contributions from City employees or appointees to the Mayor or his political committee.
The three re-issued Executive Orders on ethics are: 1) Executive Order 2011-4, which bans political contributions to the Mayor from the owners of companies that do business with the City; 2) Executive Order 2011-5, which requires every City employee to report wrongdoing to the Inspector General; and 3) Executive Order 2011-6, which requires City employees to comply with the hiring oversight rules which prohibit political considerations in hiring decisions.
The City of Newark has had a contractor pay-to-play executive order in effect since 2007, which specifically excludes redevelopment contracts. All that is about to change. In one week, a new redeveloper pay-to-play ordinance will take effect in Newark.
The Newark redeveloper pay-to-play ordinance has been under consideration for quite some time, but was not passed by the City Council until May 4, 2011.
The ordinance will take effect on Thursday, June 2, 2011 and bars redevelopers from contracting with the City of Newark if the redeveloper has made or solicited a contribution greater than $300 to a covered recipient within the year period prior to the contract.
The ordinance defines the term “redeveloper” to include: any person or entity entering into a contract with the city, or with another redeveloper, for the rehabilitation of any area in the City of Newark. The definition includes: those with a 10% or greater ownership in the entity, partners, officers, subsidiaries, and the spouses and adult resident children of the 10% or greater shareholders, partners and officers.
Covered recipients include:
The ordinance also contains a $3,000 aggregate limit on contributions to covered recipients during the four-year municipal election cycle.
The Newark redeveloper ordinance permits covered persons and entities to make and solicit contributions up to the reduced limits set forth above both during the one-year period prior to entering into a contract with the City of Newark and during the term of any such contract.
Unlike many contractor pay-to-play ordinances, not only does the Newark redeveloper pay-to-play ordinance cover contributions by the persons and entities listed above, but the ordinance also covers contributions by certain professionals, consultants and lobbyists contracted or employed by the business entity ultimately designated as the redeveloper.
In today’s world, many not-for-profits work together in a web of different connected organizations to help achieve overarching objectives. Typically, these efforts may be serviced by a 501(c)(3) organization for education and training, a 501(c)(4) organization for social welfare/issue advocacy and a 527 organization for political activity.
Many not-for-profit organizations develop a name as a brand to help gain attention for their message and enthusiasm for their efforts. The brand helps attract support (i.e., raise money). But a brand name may also unintentionally create confusion for potential donors. Hypothetically speaking, a group that aims to “Build a Better World” may set up various connected not-for-profit organizations, beneficially labeled with the brand they share: a To Build a Better World Education and Training Fund (a (c)(3)), a To Build a Better World Action Fund (a (c)(4)) and a To Build a Better World Political Action Committee (a 527).
Confusion is a leading cause of inadvertent non-compliance. As the IRS begins to enforce the gift tax for donations to certain not-for-profit groups, donors will want to be sure of the implications of their donations. Donors need to be aware that, in contrast with donations to (c)(3) charitable organizations and 527 political organizations, donations to (c)(4) social welfare organizations may result in gift tax liability.
Thus, while branding may be a useful tool for carrying forward the organization’s message, clear distinctions should be drawn for potential donors. After all, it’s hard to build a better world, if unwelcome surprises from the IRS are sapping the enthusiasm of your strongest supporters.
In the U.S. Supreme Court, the last oral argument of the term was in Nevada Ethics Commission v. Carrigan, concerning whether a Sparks, Nevada, city councilmember may be censured by the Nevada Ethics Commission for casting a legislative vote on a casino project for which his campaign manager served as a consultant. Similar concerns have been raised in New York City in recent years, as some saw potential conflicts of interest for elected officials in regard to their choice of campaign consultants and in the casting of legislative votes.
For example, at one time the New York City Conflicts of Interest Board wrestled with restricting elected officials from retaining political consultants who also work as City lobbyists. We testified. While the Conflicts Board ultimately imposed no restriction, its scrutiny of this issue helped spur local legislation requiring City lobbyists to detail their fundraising and political consulting work on behalf of City candidates.
Later the Conflicts Board once more opted against constraining elected officials by rejecting the contention that casting a legislative vote to extend the term limits law would pose a conflict of interest for term-limited NYC Council members.
New York’s Governor has directed the State Insurance Department to draft permanent regulations to ban “pay-to-play” in the State pension fund. The new regulations would include:
• 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.
New Jersey local government officials are required to file a Financial Disclosure Statement (“FDS”) by April 30th of each year. Forms are filed at the local level of government and are subsequently forwarded to the New Jersey Department of Community Affairs.
Local government officials include: mayors, council members, county constitutional officers, freeholders, county prosecutors, members of local government boards and authorities and municipal attorneys. A roster of 2011 local government officials can be found on the New Jersey Department of Community Affairs’ website.
The FDS requires disclosure of all sources of income, fees, honorariums, sources of gifts, reimbursements or prepaid expenses received by the local government official and/or his/her immediate family members during the previous calendar year.
All sources of gifts, reimbursements and prepaid expenses with an aggregate value of $400 or more from any single source, excluding relatives, received by the local government official and/or his/her immediate family members must be disclosed. So, before offering to take a local government official and/or the official’s immediate family members out to a high priced ball game, a government vendor should decide whether the peanuts and crackerjacks are worth the public scrutiny.
