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1997-12: Deductions from Public Funds Payments Pursuant to Rule 5-01(n)

Thursday, October 09, 1997

Re: Administrative Code §3-702(3); 3-710(2)(c); Campaign Finance Board Rules 1-03(a); 5-01(n); Op. No. 1997-12

Friends of Ruth Messinger has requested an advisory opinion regarding the applicability of Campaign Finance Board Rule 5-01(n)(3) to small expenditures made by a participating candidate for journal advertisements, dinners, and fundraisers, in which the payee is either a political club or another candidate (or political committee authorized by the latter candidate).1 Rule 5-01(n) states, in relevant part:

The following will be presumed to consist entirely of contributions claimed to be matchable and therefore shall be deducted from the amount of public funds the participant is otherwise eligible to receive:

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(3)... contributions... to... other candidates... and contributions... to... political party committees,... not reimbursed within 30 days.

The request describes the following circumstances. Local political clubs often sell advertising space in journals that are circulated at periodic fundraisers held to augment the club's general budget. Candidates often place advertisements in these journals that range in cost from $50 to $300. The candidate receives a benefit (or value) from placing the advertisement, and the political club applies part of the payment to production costs of the journal. Similarly, when candidates purchase tickets to fundraising dinners held by local political clubs or by another candidate, the candidate derives a benefit (or value) by socializing with potential supporters, and the club or candidate (payee) must apply part of the funds it has received to the costs for the meal and/or rental of space.

The primary purpose of Rule 5-01(n) is to ensure that the contributions a participating candidate claims to be matchable were in fact raised for use in that candidate's election effort and not instead given over for another political purpose. New York City Administrative Code §3-702(3), defining "matchable contribution." If contributions are diverted in a manner contrary to this rule, there is a risk that public funds would be paid on a one dollar for zero dollar basis, rather than at the dollar for dollar rate intended by the Campaign Finance Act.2

Rule 5-01(n) does not apply to expenditures made to political clubs. See New York State Election Law §14-100(1)(defining "political committee" to include political clubs).3 Therefore, the amount of expenditures made to political clubs will not be deducted from public funds payments pursuant to Rule 5-01(n).

The remaining expenditures described in the request are expenditures made to other candidates. If the participating candidate can show that an expenditure made to another candidate (or candidate's committee) was for a tangible item that directly promotes the first candidate's election effort, such as an advertisement in a fund raising journal, the presumption of Rule 5-01(n)(3) would be overcome for the fair market value of that item.4 Accordingly, this amount would not be deducted from public funds payments pursuant to Rule 5-01(n)(3).

Clearly, the portion of an expenditure attributable to socializing opportunities and to reimbursing the other candidate for the costs of staging an event may also be intended primarily for the political benefit of the candidate making the expenditure. But the intangible good will that may be gained thereby is no different in kind from the benefits that flow from any contribution made to another candidate. To allow the presumption to be overcome on the basis of intangible benefits would render Rule 5-01(n)(3) a nullity and undermine its remedial purpose. Thus, deductions from public funds payments will continue to be made for contributions to other candidates, as described in Rule 5-01(n)(3), unless the candidate makes the demonstration described above for the fair market value of tangible items.

NEW YORK CITY CAMPAIGN FINANCE BOARD

1 The request was made by letter of Jesse Schaffer, dated August 19, 1997.

2 Related rules serve to prevent campaigns from reducing their campaign assets so as to avoid the repayment of public funds required by Administrative Code §3-710(2)(c). See, e.g., Rule 1-03(a).

3 The political party committees referred to in Rule 5-01(n)(3) are constituted committees and party committees as those terms are defined in New York State Election Law §14-100(2), (3).

4 As noted above, payment to a political club for an advertisement in its journal is not subject to Rule 5-01(n)(3).