The Art of the Possible?

Presentation of a bill likely reflects positions the proponent sees as good public policy, attainable, and/or, at least, negotiable. When New York Governor Cuomo’s proposed “Campaign Finance Reform Act of 2013” is compared with current New York City campaign finance law, we find an interesting mix of imitations and deviations. Here are several highlights.

Topic Issue Governor’s Bill New York City Law
Contribution Limits Publicly Funded Candidates (primary and general election combined)
Statewide – $12,000 (primary and
general)

Legislature – $4,000 or $8,000 (primary and general)

City-wide – $4,950

City Council – $2,750

Higher receipt limits for Non-Publicly Funded Candidates Yes No
Higher contribution limits for Candidate’s relatives Yes No
Corporations $1,000 annual aggregate limit Prohibited to covered candidates
Limited Liability Companies $1,000 annual aggregate limit Prohibited to covered candidates
Labor Organizations and Labor PACs Treated like individual contributors May be treated as affiliated under a single contribution limit if they meet do not meet separate governance and account standards
Reduced contribution limits if doing business with government or a lobbyist No Yes
Political Party May transfer $5,000 to
candidate; also permits unlimited expenditures, including in coordination with candidate
Subject to regular contribution limit which also caps coordinated expenditures
Spending Limits No Yes
Independent Expenditures Contains Magic Words (e.g., “vote for”, “vote against”) Yes Yes
Can have no reasonable meaning  other than to advocate election or defeat n/a Yes
Between 1 year and 60 days before general election (or 30 days before primary), could only be interpreted by a reasonable person as advocating for the election or defeat of the candidate based upon unequivocal, unambiguous terms of support or opposition Yes n/a
Refers to a clearly identified candidate within  60 days or general election or 30 days of primary Yes Yes
By telephone Not specified Yes, for communications with magic words or no other reasonable meaning
Advance registration as
political committee required
Yes No
Permissible Uses of Campaign Funds Payment of fines No, if under State campaign finance law, criminal conviction, or imposed by J-COPE Yes, if non-criminal and arising out of political campaign
Public Disclosure – for State elections (Bill) or NYC elections (NYC law) Reporting of all contributions
and loans > $1,000 within 48 hours
Yes No
Intermediary Yes, defined as “delivery” Yes, defined as delivery or solicitation
Threshold for  disclosing
contributor’s or intermediary’s occupation and business address
Contribution of $500 or more Contributions of $100 or more
Name of contributor’s and intermediary’s employer disclosed Not specified Yes
Public Financing May opt-in for public funding in primary but not general election, and vice versa? Unclear No
May receive public funds pre-primary even if unopposed in primary? Yes, half maximum payment allowed if there’s a primary in a major party for office sought No
May receive maximum public funds for each primary in which candidate is on the ballot (i.e., Wilson-Pakula authorization)? Not precluded Specifically precluded
Provisions to reduce public funds payments in non-competitive elections No Yes
Permissible Uses of Public Funds Pay business entity in which candidate has an interest Not prohibited Prohibited
Pay penalty or fine Not prohibited Prohibited
Payment to defend ballot petitions Not prohibited Prohibited
Public Financing Administration and Enforcement Non-Partisan No, State Board of Elections Enforcement Unit Yes, NYC Campaign Finance Board
Bi-Partisan Yes No
Deadline for completing
post-election audit
2 years Variable and subject to indefinite postponement

New York Governor Delivers Reform Bill; New Law to Follow?

On June 11, 2013, with about one week of the legislative session remaining, Governor Cuomo introduced his plan for campaign finance reform in New York State. Citing New York as having some of the weakest campaign finance restrictions in the country, Cuomo’s proposed bill  seeks to:

  • Create the toughest disclosure requirements in the country by requiring full disclosure of any independent expenditure advertisement and disclosure of contributor information for all contributions over $1,000 within 48 hours of receipt.
  • Create a statewide public financing program that is modeled on the New York City Campaign program that both provides a matching funds program and significantly reduces the contribution limits to both participating and non-participating candidates.
  • No longer treat LLC contributions as a contribution from an individual and instead as a corporate contribution with a proposed limit of $1,000 per year.
  • Amend the current election law provision on personal use of campaign contributions to allow for contributions to be used only for expenses that are directly related to the election or public office.

The Governor’s bill provides for an effective date of June 1, 2014 for the independent expenditure reform provisions in time for next year’s state elections. The proposed campaign contribution and public financing reform provisions would go into effect for State elections held after January 1, 2015.

 

New York Requires Social Welfare Organizations to Disclose Donors

Yesterday, New York Attorney General Eric Schneiderman announced that, effective immediately, new regulations will require non-profit organizations, such as 501(c)(4) organizations,  making expenditures related to New York elections to disclose expenditures they make and donations they receive.  These rules apply to organizations that must register with the Attorney General as charities, other than 501(c)(3) organizations.  The required disclosures will be made in annual financial reports.

The new disclosure requirement is triggered when the organization makes direct or indirect expenditures for “express election advocacy” or “election-targeted issue advocacy”, the latter of which is defined as a communication that refers to a clearly identified candidate in an election that is made within 45 days before the primary or 90 days before the general election.  The disclosure will include: (i) the aggregate amount of election related expenditures and the percentage of total expenses during the reporting period it represents; and (ii) itemization of each election-related expenditure exceeding $50 made and each covered donation of $1,000 or more received by an organization that makes New York election related expenditures that total more than $10,000 in the reporting period.

Non-segregated donations need not be disclosed if the organization keeps segregated bank account(s) containing funds used solely for New York election related expenditures, if all of such expenditures are made from such accounts.  Covered organizations may apply to the AG for an exemption from disclosing any information to the public about a covered donation if the applicant shows that “the covered organization’s primary activities involve areas of public concern that create a reasonable probability that disclosure will cause undue harm, threats, harassment or reprisals to any person or organization.”

While there is also an exception for information that must be reported to other government agencies, the overlap with other public disclosure requirements is complex (as, for instance, with New York City Campaign Finance Board disclosure requirements), such that the scope of the exception may be unclear.

Will the Attorney General’s push for donor disclosure by social welfare organizations inspire similar reforms elsewhere?  Or might the AG’s action spur challenges arguing that he has reached beyond his authority?  Or both?

Overlapping Public Disclosure Requirements Can Be Complicated

Much controversy attends the ability of tax exempt 501(c)(4) social welfare organizations to make expenditures in connection with candidates in U.S. elections.  We’ll spare you the links.  Since Citizens United, new public disclosure requirements have been sought and, in places, implemented for these and other corporations engaged in political spending.

To illustrate our topic, we look at the public disclosure requirements that apply in this year’s New York City elections.  Consider the following hypothetical expenditure:

  • An employee of a 501(c)(4) organization uses office resources and supplies to produce flyers to expressly support the election of a candidate for New York City Council.  She distributes those flyers as she collects signatures on ballot petitions as a volunteer for that same candidate.

The first question is whether the value of these flyers would be treated as an in-kind contribution to the candidate.  The NYC Campaign Finance Board (CFB) would determine whether the candidate’s campaign authorized, suggested, requested, fostered, or cooperated in the flyer production and distribution activity.

If the answer is yes, the candidates’ campaign would report the value of the contribution from the 501(c)(4) organization to both the CFB and the State Board of Elections.  Because NYC law prohibits the acceptance of contributions from corporations, the campaign would also need to refund that same amount to the organization.

If the answer is no, the organization would report to the CFB the cost of these flyers as an independent expenditure, if the organization has met the $1,000 threshold for covered expenditures referring to that same candidate during the current election cycle.   In this instance, the flyers are treated as a reportable independent expenditure because they expressly advocate the candidate’s election.  Moreover, if the organization makes covered expenditures of at least $5,000 in the 12 months preceding the election that refer to any single candidate, the organization would also be required to report to the CFB all contributions it received from entities since January 1, 2012 and all contributions of $1,000 or more from individuals during the 12 months preceding the election.

(It is unclear whether the organization would be relieved of this reporting obligation to the CFB if it did not authorize or even have knowledge of its employee’s use of its resources for election-related activity.  In any event, the organization would be well-advised to have a policy prohibiting use of office resources for individual political activity.)

The State Board of Elections defines independent expenditure as including express advocacy.  But unlike in-kind contributions, there would be no corollary reporting of the independent expenditure to the State Board of Elections – unless the organization registers and submits disclosure statements as a political committee.

Finally, if the 501(c)(4) organization is registered as a charity with the NYS Attorney General, under proposed rules, the cost of the flyers would be reportable in its annual financial report, and would also be separately itemized (along with covered donations) if the fair market value exceeded $10,000.  The Attorney General’s proposed rules include an exception: information need not be itemized if disclosed to another government agency, as required by law.  On its face, however, the applicability of this proposed exception may turn on whether it is the organization that must report the flyers to the CFB as an independent expenditure.  If the flyers are reported to the CFB only by the candidate’s campaign as an in-kind contribution, it is unclear that the exception would be applicable.

 

 

IRS Goes Political?

Citizens United helped spur the formation of IRS 501(c)(4) social welfare organizations that became engaged in independent political activities.  Yesterday, the Treasury Inspector General for Tax Administration issued a report addressing the recent controversy regarding the review process for certain 501(c)(4) tax exemption applications.

An organization may qualify for 501(c)(4) status if its primary purpose is to engage in social welfare activity, which is broadly defined.  These organizations may engage in unlimited lobbying efforts, as well as political activity, provided political activity is not their primary purpose.  The report concludes that IRS employees used “inappropriate criteria” to screen political advocacy groups and those groups with keywords such as “tea party” or “patriot” in their names faced months of delays in getting their applications approved.

With this latest controversy, it would appear there are at least three major issues receiving considerable attention as the role of 501(c)(4) organizations in American politics continues to evolve:

  1. Should donations to entities be subject to public disclosure requirements when they engage in advocacy in relation to elections?
  2. Should standards for tax exempt status be clarified or revised with respect to the level of political activity that is permitted?
  3. What new safeguards are needed to ensure that IRS personnel do not bring politics into the administration of tax laws?

New Jersey Statewide Pay to Play Reform to be Introduced in the Senate Today

This afternoon, Senate Democrats plan to introduce legislation aimed to overhaul “loopholes” in New Jersey’s current pay-to-play laws.  One of the goals of this legislation is to direct local governments to follow the same rules that currently apply to State government contractors.  If municipal and county governments are required to follow restrictions similar to those in place at the State Executive Branch level of government, the “fair and open process” exception to the local contracting process may become obsolete.  Another goal set by the proposed legislation is to broaden political contribution disclosure requirements for public government contractors and to require political candidates and non-profit advocacy groups to disclose all donors (regardless of the amount of their contribution or donation).  Another significant potential change is that the broadened disclosure brings non-profit advocacy groups into the ambit of New Jersey’s pay-to-play regime.  If this bill moves forward, it will likely present the most significant changes to New Jersey’s pay-to-play laws since their inception in 2004.

New Jersey says No to SuperPACs

Today, the New Jersey Election Law Enforcement Commission issued Advisory Opinion 01-2013  holding that a committee organized under Section 527 of the IRS code and intending to make solely independent expenditures (i.e., expenditures not coordinated with candidates or parties) of $2,400 or more in the 2013 New Jersey legislative elections must be classified as a political committee under New Jersey law, subject to registration, reporting, and contribution limits, if over half of its total activity is for that purpose.  The Fund for Jobs and Growth represented that it is an organization incorporated in the District of Columbia that will make only independent expenditures in support of legislative candidates in New Jersey elections in 2013 and that more than  half of its spending will be in support of that independent expenditure program in New Jersey.

ELEC held that independent expenditure activity comes within the meaning of “aid or promote” the election or defeat of a candidate as used in the definition of “political committee” under New Jersey law because that definition does not differentiate between activity that is “coordinated” and activity that is “independent” of a candidate.  ELEC applied the “major purpose” test derived from Buckley v. Valeo (1976) in concluding that spending in excess of half of the Fund’s total spending on independent expenditures in New Jersey elections would constitute a “major purpose” of supporting New Jersey candidates in 2013 elections.

Because the Fund is a “political committee,” ELEC stated it must observe New Jersey law with respect to contribution limits in addition to registration and contributor reporting requirements.  Specifically, the Fund may receive no more than $7,200 per election from a contributor (except for contributions from political party committees and legislative leadership committees).  ELEC reached this result notwithstanding the Fund’s representation that since the time of the U.S. Supreme Court opinion in Citizens United v. FEC (2010) and the subsequent Court of Appeals opinion in Speechnow.org v. FEC (D.C. Cir. 2010) (en banc), no court has upheld a government restriction on the amount that an independent expenditure-only committee (more popularly known as a super PAC) may receive as a contribution.

Will this ELEC Advisory Opinion become the subject of a court challenge?  Stay tuned.

Genova Burns Of Counsel Gregory E. Nagy assisted with this post. 

Court Denies Cert in Danielczyk

It’s been a roller coaster week for campaign finance law. Last week the Supreme Court accepted the McCutcheon case, as we discussed here. And this morning, the Court denied cert in the Danielczyk case which involved the constitutionality of the long-standing ban on direct corporate  contributions (see our previous discussions of the case here and here).

SCOTUS Accepts Campaign Finance Case for Review

Today,  the Supreme Court of the United States agreed to hear McCutcheon v. FEC, which as we discussed here, addresses the constitutionality of the federal aggregate contribution limits.  These limits restrict how much an individual can give to federal candidate and party committees in a two-year period.  This will be the first case the Court hears on campaign contribution limits after its landmark  ruling three years ago in Citizens United.

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