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1996-2: Financial Reporting Guidance for a Participating Candidate Running for an Office Subject to the Campaign Finance Program and a Federal Office

Thursday, July 18, 1996

Re: Administrative Code § 3-703(8), (12); 3-712; 3-715; Campaign Finance Board Rules 1-03(a) (3); 1-04(n); 1-07; 1-08(c) (1), (l); 1-11(c); 2-06(b); 3-02(f) (5); 5-01(n) (1), (2); Op. No. 1996-2

An advisory opinion has been requested on behalf of People for Green ("PFG"), Public Advocate Mark Green's authorized committee for his anticipated 1997 re-election campaign, concerning the allocation of expenses between "PFG" and Green for Senate, a federal campaign committee ("Federal Committee") created to explore the possibility of running for a United States Senate seat in 19981. For purposes of this opinion, the Board assumes that the candidate will join the New York City Campaign Finance Program for the 1997 election. The request describes the following relevant circumstances:

PFG and the Federal Committee are separate organizations, having different treasurers and maintaining accounts at different banks. As both committees support the same individual's candidacies, they share certain facilities and personnel. PFG thus requests guidance as to how to allocate expenses incurred in conjunction with the Federal Committee.

PFG proposes setting up an "allocation account" at a bank at which neither PFG nor the Federal Committee maintain their accounts. For each period in which shared expenses are incurred, the costs of the shared facilities and personnel will be allocated between the respective committees in a manner ensuring that each committee's expenditures are proportionate to the benefit each receives: each committee will accordingly write a separate check to the allocation account and together these checks will total the amount of shared expenses. All shared expenses will be paid from this allocation account. Expenses incurred separately will be paid directly from each committee. PFG further states that the two committees may engage in joint fundraising activities and, in accordance with Federal Election Commission Advisory Opinion No. 1994-37 (January 13, 1995), the attribution of the cost of such activities will be "determined by the proportion of funds received by each committee as compared to the total received by all of them."2

To comply with the disclosure requirements of the Campaign Finance Act, PFG proposes reporting each payment it makes to the allocation account as separate expenditures made by PFG to the vendor receiving the ultimate payment from the allocation account. Each such expenditure would be reported with the PFG check number and an explanation that the payment was made "via allocation account."

The request also notes that transfers between PFG and the Federal Committee may be needed to correct any misallocation of expenses. PFG seeks confirmation that any such transfers, made solely for the purpose of ensuring the correction of inadvertently misallocated expenses, would be in compliance with applicable law or rules.

1. Allocation Account

The Federal Election Commission advisory opinion cited in the request specifically provided that the allocation account would be created by the federal committee and included in federal disclosure reports. In addition to its federal disclosure and other obligations, the allocation account would also be an account of PFG and thus subject to all the City's Campaign Finance Program requirements, including contribution and spending limits, the filing of disclosure statements, record keeping, and audit procedures3.

2. Disclosure

If its activities are confined to the federal election, the Federal Committee is not subject to disclosure or other Program requirements, regardless whether it makes or receives transfers from PFG or the allocation account. Rule 3-02(f) (5) (interpreting Administrative Code §3-703(8)). The Board may, however, request the Federal Committee to file copies of its Federal Election Commission disclosure statements with the Board, and its financial records are subject to Board review for purposes of monitoring the participating candidate's compliance with Program requirements. Id.

The funds PFG's "City campaign" account sends to the allocation account it shares with the Federal Committee would not be reported as a transfer in the disclosure statements PFG files with the Campaign Finance Board4. Rather, the date and amount of each such transaction must be set forth in a cover letter to the relevant disclosure statement. The cover letter to the disclosure statement shall also include the total federal spending from the allocation account during the reporting period. PFG would report the amounts the allocation account receives from the Federal Committee as transfers-in on CFB Schedule G. Disbursements made by the allocation account would be reported by PFG as expenditure payments on a separate CFB Schedule F for this account and must include the allocation account check number. The portion of any expenditure claimed to be for the federal election, and thus exempt from the Program limits under Administrative Code §3-712, should be listed on its own line as a separate transaction with the exempt code "E."5

3. Allocation Method and Record Keeping6

When a participant is running for two offices, one subject to the Program and one not, the two campaigns may share personnel and facilities, as long as the shared expenditures are accurately allocated between the two campaigns and the payment made from each campaign account correctly reflects the allocation. The participating candidate is also subject to the documentation and submission requirements of Rule 1-08(l) to substantiate the federal portion of the allocation account expenditures that is exempt from Program limits. To meet this burden, PFG must keep detailed records, unless it has previously obtained Board approval to use a methodology that would allow it to substantiate its claims with reduced record keeping7.

For expenditures for shared personnel, the allocation shall be based on the actual time worked on each campaign. Contemporaneous time records must be maintained, detailing the time spent by personnel on the City campaign and the work completed for the City campaign. For non-personnel expenditures, such as office space, equipment, supplies, and telephone, it is unclear from the request exactly what allocation methodology is proposed. Thus, PFG should include in a preapproval submission a proposal for how shared costs for facilities will be allocated and documented.

PFG also indicates that it intends to engage in "joint fundraising activities" with the Federal Committee. While participating candidates may solicit contributions for an election not subject to the Act, they may not solicit or accept contributions at a single fundraising event both for elections subject and not subject to the Act. Rule 1-04(n). Therefore, Green's committees may not hold a single fundraising event for both his City and federal campaigns. Other joint fundraising activities, such as telephone solicitations, are not prohibited8.

As for joint fundraising activities other than events, PFG proposes apportioning shared costs according to the ratio of funds received for each campaign. The request, however, does not make clear what records will be maintained to document such activities or whether this allocation formula will be applied to the proceeds of a particular joint activity or to the total contributions received during a defined period of time. The Board needs further information before determining whether PFG's proposed allocation methodology for permissible joint fundraising activities is acceptable. PFG should therefore specifically address these issues in its preapproval submission.

4. Transfers

a. Federal Committee to City Committee

These transfers are subject to Rule 1-07, which regulates funds originally received for elections other than the one for which the candidate is participating in the Program. Pursuant to Rule 1-07(c), a participating candidate has the burden of demonstrating that a transfer of funds from the Federal Committee did not derive from contributions in excess of the Act's limits.9

b. City Committee to Federal Committee

These transfers will ordinarily result in reduced public funds payments, pursuant to Rule 5-01(n) (1). Moreover, once the participating candidate receives public funds, a transfer from a City Committee to a Federal Committee is specifically prohibited. See Rule 1-03(a) (3).

The Campaign Finance Board encourages campaigns with questions regarding the relationship between federal and New York City Campaign Finance Program requirements to request an advisory opinion from the Federal Election Commission before requesting one from the Board10.



1 The request was made by John Siegal, counsel to PFG, in a letter to the Campaign Finance Board dated June 18, 1996.

2 The advisory opinion request states that Federal Election Commission Advisory Opinion 1994-37 "is the model that the Federal Committee is following in organizing its exploratory activities and that PFG proposes to follow in allocating expenses as between it and the Federal Committee." The Board notes that this opinion is distinguishable from the present situation in a number of respects. For example, the opinion was issued to a local federal officeholder seeking a possible state-wide state office, whereas in the present situation, a local elected official is seeking a possible state-wide federal office.

3 Although Campaign Finance Board Rule 2-06(b) specifically prohibits receipts accepted for one election to be commingled in an account with receipts accepted for any other election, the Board is satisfied that, with respect to the allocation account, the purpose behind this rule would be met by compliance with the allocation procedures outlined in this advisory opinion and record keeping requirements, and the Board is accordingly proposing for public comment an appropriate amendment to this rule. See Notice of Opportunity to Comment on Proposed Amendments to Campaign Finance Board Rules (issued today).

Because PFG is submitting disclosure statements to the Board pursuant to New York City Administrative Code §3-703(12) ("contemporaneous disclosure"), the allocation account must be listed in an amendment to the Filer Identification Form previously submitted by PFG. Rule 1-11(c).

4 The request does not indicate that funds would be transferred from the allocation account to any other account held by PFG or to any other account held by the Federal Committee. Indeed, the request represents that the only inter-account transactions contemplated are those needed to fund the allocation account and transfers between the non-allocation accounts of PFG and the Federal Committee to correct any misallocations. The Board accepts this representation as a basic premise for this advisory opinion and emphasizes that this opinion is limited to the facts as stated in the request.

5 To date, the Board has only addressed payments for a previous election, not for a prospective future election. See Advisory Opinion No. 1993-2 (February 17, 1993), codified in Rule 5-01(n) (2). Thus, on the disclosure form, exempt code "E" refers only to previous elections. But because Administrative Code §3-712 makes no distinction between past and future elections that are not subject to the Act, the same conclusions must also apply with respect to expenditure limit exemptions and public funds deductions for future elections. The presumption of Rule 5-01(n) (2) will be overcome if PFG demonstrates that it has conformed to an acceptable allocation theory, and if the Federal Committee's transfers to the allocation account fully account for only the federal share of its expenditures.

It should be noted that pursuant to Rule 1-08(c) (1), an expenditure is presumed to be made for the first election in which the participant is a candidate following the day it is made. Therefore, in the present case, Green has the burden of proving that an expenditure is not for the 1997 City election.

6 In its request, PFG cites Administrative Code §3-715 and Advisory Opinion No. 1993-10 (September 23, 1993) as authority for its proposed allocation method. However, these citations are not relevant to the instant analysis, as §3-715 and that opinion pertain to situations involving two candidates. The instant case does not involve two candidates, but one candidate possibly seeking election for two different offices.

7 Additional information on the Board's requirements for "preapproval submissions," available methodologies, and other instructions for making and substantiating exempt expenditure claims, is available in the Board's publication, Exempt Expenditures, (April 4, 1996).

8 Should a contributor decide to donate money to both the City and federal campaigns, the contributions must be made by separate checks payable to the separate committees.

9 Thus, contributions that exceed the Act's contribution limits when aggregated with other contributions that PFG accepted from the same source may not be transferred to PFG.

Former Rule 3-03(c) (2) (iv), cited in the request, required notice to the Board before a City committee received a transfer from a federal committee. The rule was repealed in October 1995 and is no longer in effect.

10The issue whether this proposal for allocating shared expenses complies with the requirements of federal law or New York State Election Law is beyond the scope of this Advisory Opinion.