Re: New York City Administrative Code ("Admin. Code") §§ 3-702(8), 3-703(1)(d), 3-703(1)(f), 3-703(1)(l), 3-708(5), 3-711(1), 3-719(2)(b); New York City Campaign Finance Board Rules 1-02, 1-04(e), 1-04(g), 1-08(f)(1), (2), (4), 2-02(c); Op. No. 2009-7.
The New York City Campaign Finance Board (the "Board") is issuing an advisory opinion in response to a July 7, 2009 letter from Jerry H. Goldfeder of Stroock & Stroock & Lavan LLP on behalf of Green for New York, Mark Green's principal committee for the 2009 public advocate election, in which Mr. Goldfeder requested an advisory opinion as to how the Board "intends to interpret and implement the law relating to third party expenditures, and, specifically, what constitutes sufficient evidence to warrant a finding of improper ‘coordination'."1 The issues raised by this request are extremely important and the Board is committed to ensuring that the law with respect to non-independent expenditures is enforced vigorously and consistently. The Board is issuing this advisory opinion in order to provide guidance as to how it interprets the New York City Campaign Finance Act (Admin. Code §§ 3-701, et seq.) (the "Act") and the rules of the Board promulgated pursuant thereto (the "Board Rules") with respect to third party expenditures.
Generally speaking, independent activity by third parties2 is not regulated by the Act. A campaign, however, must account for and report non-independent activity conducted on the campaign's behalf. Accordingly, a campaign that engages in campaign-related activity with another party must compensate that party for the non-independent activity it performs on the campaign's behalf. If the campaign does not compensate the third party, the campaign will have received an "in-kind" contribution from the other party equal to the other party's share of the costs of the activity. 3 All contributions, including "in-kind" contributions, are subject to the contribution and expenditure limits for the election.4 Thus, a campaign may not engage in campaign-related activity with another party without compensating that party, if the value of the non-independent activity would constitute an over-the-limit in-kind contribution or that party is a prohibited contribution source.5
The Act defines "independent" activity as that which a candidate or a candidate's committee "did not authorize, request, suggest, foster or cooperate in."6 Put differently, "non-independent activity" includes any activity by another party that is either authorized, requested, suggested, fostered by or done in cooperation with a campaign.7 Board Rule 1-08(f) (entitled "Independent Expenditures") lays out specific factors the Board considers in determining whether a third party expenditure is independent or non-independent.8 Specifically, Board Rule 1-08(f)(1) provides that factors for determining whether an expenditure is independent include, but are not limited to:
- (i) whether the person, political committee, or other entity making the expenditure is also an agent of a candidate;
- (ii) whether the treasurer of, or other person authorized to accept receipts or make expenditures for, the person, political committee, or other entity making the expenditure is also an agent of a candidate;
- (iii) whether a candidate has authorized, requested, suggested, fostered, or otherwise cooperated in any way in the formation or operation of the person, political committee, or other entity making the expenditure;
- (iv) whether the person, political committee, or other entity making the expenditure has been established, financed, maintained, or controlled by any of the same persons, political committees, or other entities as those which have established, financed, maintained, or controlled a political committee authorized by the candidate;
- (v) whether the person, political committee, or other entity making the expenditure and the candidates have each retained, consulted, or otherwise been in communication with the same third party or parties, if the candidate knew or should have known that the candidate's communication or relationship to the third party or parties would inform or result in expenditures to benefit the candidate;9 and
- (vi) whether the candidate, any agent of the candidate, or any political committee authorized by the candidate shares or rents space for a campaign-related purpose with or from the person, political committee, or other entity making the expenditure.10
In addition, Board Rule 1-08(f)(2) provides that "financing the dissemination, distribution, or republication of any broadcast or any written, graphic, or other form of campaign materials prepared by a candidate is a contribution to, and an expenditure by, the candidate, unless this activity was not in any way undertaken, authorized, requested, suggested, fostered, or otherwise cooperated in by the candidate."11
With regards to activity by a political party on behalf of its nominee, Board Rule 1-08(f)(4) provides that "communication between, or common agents shared by, parties and their nominees" will not necessarily result in a determination that expenditures by the party on behalf of its nominee are non-independent.12 Moreover, certain expenditures made by a political party are presumed not to be in-kind contributions to a candidate, absent some indication that the campaign cooperated in the activity and that the activity was intended to benefit the candidate.13 These include, among other things, expenditures for: (i) materials or activities that promote the party, or oppose another party, without reference to particular candidates in an upcoming election; (ii) training, compensating, or providing materials for poll watchers appointed by the party; (iii) promoting party enrollment or voter turnout without reference to particular candidates in an upcoming election; and (iv) raising funds for the party without reference to particular candidates in an upcoming election.14 However, the Board may require a candidate to demonstrate that certain expenditures made by a political party are not in-kind contributions to the candidate.15 These include expenditures for: (i) materials or activity that include an electioneering message about a clearly identified candidate; (ii) advertisements, broadcasting, mailings, or electronic media for a candidate or against his or her opponent; and (iii) which the candidate has promised or made reimbursement to the political party.16
The determination of whether a particular expenditure is independent or non-independent is necessarily fact-specific.17 Of course, the Board is not privy to the communications that campaigns have with third parties. Thus, the information about whether campaign-related activity has been discussed or otherwise coordinated between a campaign and a third party is uniquely within the campaign's possession. For this reason, each campaign bears the burden of demonstrating that any third party activity conducted on the campaign's behalf is indeed independent.18 Further, it is very difficult in the abstract to say whether a particular activity would or would not lead to a conclusion that activity is non-independent. Evidence of non-independent activity is usually largely circumstantial and must be evaluated based on the totality of the circumstances.
Applying the rules set forth above, the Board has made several determinations in past elections regarding non-independent expenditures.19 For example, the Board determined that Annabel Palma and her 2003 campaign committee violated the Act by accepting an over-the-limit in-kind contribution arising from non-independent activity by 1199 SEIU, including: (i) fundraising; (ii) literature design, production and distribution; and (iii) activities on primary election day and the days leading up to primary election day. The Board's determination was based on, inter alia, the following indicia of non-independent activity:
- Common vendors: 1199 SEIU served as a vendor to Ms. Palma's campaign for, among other things, phone banking, literature production and distribution, and election day activities, yet also allegedly provided these same services as independent third party expenditures.
- Literature production and distribution: Campaign literature paid for by Ms. Palma's campaign and literature paid for by 1199 SEIU contained identical or substantially similar photographs, text, contribution cards and contact information.
- Election day activities: Various activities on primary election day and the days leading up to primary election day were conducted by Ms. Palma's campaign in conjunction with 1199 SEIU, including recruitment of election day workers, staffing at the campaign's election day space and the campaign's headquarters, campaign management and oversight, poll-site operations, literature distribution, get-out-the-vote efforts, use of a sound truck, food for election workers, and use of a "mobile office."
Similarly, the Board determined that Pamela Junior and her 2005 campaign committee violated the Act by failing to report non-independent expenditures by the Unity Democratic Club. The Board's determination was based on, inter alia, the following indicia of non-independent activity:
- Shared office space: Ms. Junior's campaign shared office space with the Unity Democratic Club, which also made purportedly independent third party expenditures on Ms. Junior's behalf for, among other things, campaign literature, food and transportation.
- Election day activities: Primary day workers operating on behalf of Ms. Junior's campaign were materially supported (e.g., provided food and transportation) by the Unity Democratic Club, but were supervised by an employee of the campaign.
Most recently, the Board determined that Fernando Ferrer and his 2005 campaign committee violated the Act by accepting an over-the-limit in-kind contribution arising from non-independent activity by 1199 SEIU. The Board's determination was based on, inter alia, the following indicia of non-independent activity:
- Joint strategy meeting: 1199 SEIU officials attended a campaign strategy meeting in the month preceding the election, which Mr. Ferrer and campaign staff also attended.
- Common employees: Key personnel on leave from their positions at 1199 SEIU were involved with organizing the campaign's field operations and get-out-the-vote efforts, which extensively utilized 1199 SEIU members, as evidenced by accounts of election day activities and newspaper reports.
The Board determinations discussed above provide examples of the types of indicia of non-independent activity the Board has considered in making its determinations regarding non-independent expenditures. These examples are not intended to provide, and should not be considered, an exhaustive list of the kind of evidence the Board will consider. Again, the determination of whether a particular expenditure is independent or non-independent is fact-specific. The critical question in every case is whether, in light of the facts and indicia of non-independent activity, the campaign authorized, requested, suggested, fostered or otherwise cooperated in a third party's activity on the campaign's behalf, and if so, whether such activity was properly accounted for.20
Non-independent expenditures pose a serious threat to New York City's Campaign Finance Program. A campaign's failure to account for and report non-independent activity undermines the Program in several ways: the activity of a potentially major campaign contributor remains undisclosed; over-the-limit in-kind contributions can go undetected; and non-independent activity that is unaccounted for may constitute violations of the expenditure limit. Further, non-independent activity creates an un-level playing field: a candidate who is able to derive non-independent expenditures from a third party is at a significant advantage over an opponent who complies with the Act's contribution and expenditure limits (and may not have the backing of a powerful third party contributor).21
As noted above, campaigns are the best source of information about the true nature of third party expenditures. In determining where to focus its investigative resources, the Board relies on information it receives from and about campaigns, through formal and informal complaints, through disclosure to the Board, and from other sources. The Board investigates fully every complaint it receives.22 Candidates are encouraged to report to the Board any information they come across regarding third party expenditures. Such information will assist the Board in its efforts to enforce the law vigorously and consistently.
NEW YORK CITY CAMPAIGN FINANCE BOARD
2 Third parties are any persons or entities separate from the campaign, including, but not limited to labor organizations, political parties, and political clubs.
5 Campaigns are prohibited from accepting contributions from corporations, limited liability companies and partnerships. See Admin. Code §§ 3-703(1)(l), 3-719(2)(b); Board Rule 1-04(e).
8See Board Rule 1-08(f). These factors are used for evaluating all third party expenditures, regardless of the intended audience for the activity. With respect to labor organizations, the Act and Board Rules make no distinction between "member-to-member" activity and "member-to-non-member" activity; this distinction exists only in federal law, within the context of an entirely distinct regulatory scheme. See 2 U.S.C. §§ 441b(b)(2)(A), 441b(b)(4)(A). The Board's analysis of even purely member-to-member activity turns on the same determination as that of any other third party activity: whether the campaign authorized, requested, suggested, fostered, or otherwise cooperated in such activity. See Admin. Code § 3-702(8). Of course, the Act does not directly regulate the activity of labor organizations or any other third parties, which are fully entitled to engage in campaign-related activity (whether independent or non-independent) in support of campaigns; rather, the Act regulates only a campaign's obligation to account for and report non-independent third party activity.
9 This factor applies to, among others, "common vendors." Once an entity provides goods or services to a campaign for fair market value, it becomes a vendor. A vendor cannot, in most circumstances, logically "sell" goods and services to a campaign and make independent expenditures on behalf of that campaign, particularly for the same kinds of activities for which it billed that campaign, since once a vendor has provided these goods or services to a campaign, it has acquired knowledge and information about the campaign's activities that will render the provision of the same kinds of goods and services a non-independent expenditure. See Board Rule 1-08(f)(1)(v).
17 For this reason, it would not be useful for the Board to opine on the hypothetical examples posed in the Goldfeder Letter, which contain limited facts and vague descriptions. See Goldfeder Letter at 2. The Board would need to evaluate the relevant evidence available in each case. For example, in "Example A," it might be relevant whether the communication by the member organization was a one-time "you can count on our members to help" conversation versus conversation(s) during which a specific strategy of where to deploy members to the best effect was discussed. Instead of opining on hypothetical examples, this advisory opinion provides examples of the indicia of non-independent activity which underlay several recent Board determinations. See discussion infra.
19 This is not an exhaustive review of all cases in which the Board has found non-independent activity. Indeed, in addition to the examples discussed herein and others, the Board determined that Mr. Green's 2001 mayoral campaign violated the Act by accepting an over-the-limit in-kind contribution arising from non-independent activity by SEIU Local 32BJ.
20 Of course, by definition, a campaign is not involved in independent expenditures on its behalf. Thus, in many instances, a truly independent expenditure may just as easily risk hurting the candidate it was intended to benefit (e.g., through duplication of efforts or conveying a divergent message).
21 In light of the seriousness of this violation of the Act, "cooperation in alleged independent expenditures . . . that are in fact authorized, requested, suggested, fostered or cooperated in" by the campaign may constitute a fundamental breach of certification, which will result in a candidate being ineligible to receive public funds and the forfeiture of any previously received public funds. See Board Rule 2-02(c). (However, it should be noted that the Board did not find any of the campaigns discussed in this advisory opinion to be in breach of their certification). Candidates and treasurers may also be assessed penalties up to the maximum amount for each violation ($10,000). See Admin. Code § 3-711(1).
22 As part of its investigations, the Board has the authority to, inter alia, depose witnesses, issue subpoenas for documents, require sworn interrogatory responses, and compel all relevant parties (including candidates and any alleged independent actors) to appear before the Board. See Admin. Code §3-708(5).