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1989-42: Treatment of Unpaid Loans as Contributions

Tuesday, September 05, 1989

An opinion has been requested whether the portion of a loan which is not repaid by the date of the election is a contribution in the following circumstances:

1) the loan is used to pay for qualified campaign expenditures, such as newspaper, radio, and television advertising, for which cash payments must be made in advance of publication or broadcast;

2) prior to the date of the election the candidate has received matchable contributions, for which the Board makes a matching public fund payment after the election; and

3) the post-election public fund payment is used to repay the loan.

New York City Administrative Code §3-702(8) provides, in relevant part:

A loan made...other than in the regular course of the lender's business shall be deemed, to the extent not repaid by the date of the primary or general election, as the case may be, a contribution by the lender. A loan made...in the regular course of the lender's business shall be deemed, to the extent not repaid by the date of the primary or general election, as the case may be, a contribution by the obligor on the loan and by any other person endorsing, cosigning, guaranteeing, collateralizing or otherwise providing security for the loan.

To the extent an unpaid loan is a contribution pursuant to Administrative Code §3-702(8), it is subject to the contribution limit applicable under §3-703(1) (f). See also Campaign Finance Board Rule 102(j), (k).

The Campaign Finance Act requires that eligible candidates "receive payment for qualified campaign expenditures of one dollar for each one dollar of matchable contributions...obtained and reported" to the Board. Administrative Code §3-705(2) (emphasis added). "Qualified campaign expenditures" for which public funds may be used are limited to expenditures which:

further the candidate's nomination for election or election... Public funds may be used only for services, material, facilities or other things of value used to educate the public as to the candidates and issues of an election. Such expenditures may include expenditures associated with advertising, communication with potential voters, and voter registration drives, and such other expenditures that the...Board determines serve the function of educating the public.

Administrative Code §3-704(1).

The treatment of unpaid loans as contributions and the limitation on the use of public funds serve different legislative purposes. The loan rule is an adjunct to the contribution limit, which was intended to "reduce improper influence on local officers by large campaign contributors." Local Law No. 8 of 1988 §1. In restricting the used of public funds to purposes associated with voter education, the City Council sought to "improve popular understanding of local issues...and to increase participation in local elections by voters and candidates." Id. The question raised requires the Board to reconcile these two rules and the different public policies they serve.

The Campaign Finance Act anticipated, and provided for, a time period during which the Board reviews candidate eligibility, prior to the payment of public funds. See Administrative Code §3-705(4). The Board has adopted a schedule for the regular filing of contribution reports so as to facilitate the efficient review of candidate compliance with the requirements of the Act and qualification for public fund payments. See Campaign Finance Board Rule 331(b). Under this schedule, public fund payments for certain matchable contributions received shortly before the election will not be made until after the date of the election. The provision for post-election payments, following Board review, was not, however, intended to inhibit the making of qualified campaign expenditures prior to the election.

Public funds may be used to repay a loan, to the extent the loan was used to pay for qualified campaign expenditures. Indeed, a candidate may determine to use a loan for voter education expenses precisely because he or she expects to apply subsequent public matching payments toward the repayment of the loan. In the circumstances described, the loan functions as a mechanism through which a post-election public fund payment promotes voter education in the period when it matters most, before the election. The treatment of a loan used for qualified campaign expenditures as a contribution therefore, if the candidate is eligible for matching funds prior to the date of the election which have not been received by the candidate, effectively limits the making of qualified campaign expenditures and the use of public funds.

Candidates would be unfairly penalized, and the voter education purposes of the Campaign Finance Act significantly undermined, if the Board determined that the delay in payment necessitated by the Board's review of matching fund claims compelled candidates to forego using loans for qualified campaign expenditures in the period immediately preceding the election. In the situation described, the purposes served by the loan rule are clearly outweighed by the fundamental goal of the Campaign Finance Act: that candidates who choose to abide by enumerated contribution and expenditure limits and who otherwise qualify for public fund payments are able to make an effective use of public funds in their campaigns for office. The Board therefore concludes that a loan used for qualified campaign expenditures is not a contribution under Administrative Code §3-702(8), to the extent that the candidate receiving the loan has earned public funds prior to the date of the election, which, upon receipt after the election, are applied to the repayment of the loan.

This opinion is applicable only to candidates who demonstrate to the Board that a loan was used for qualified campaign expenditures, and that public funds earned but not received by the candidate prior to the election have been used to repay the loan. These candidates have the burden of establishing (and accept the risk of failure to establish) 2 that the amounts claimed as matchable contributions prior to the date of the election do in fact qualify for matching public fund payments under the Act prior to that date. A candidate's failure to meet this burden may result in a violation of the contribution limit.

 

NEW YORK CITY CAMPAIGN FINANCE BOARD