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2008-2: In the Matter of Kaufman for Council

Thursday, August 14, 2008

Stephen Kaufman was a participant in the New York City Campaign Finance Program for the 2005 primary election. Mr. Kaufman's principal committee seeks review in a Rule 5-02(a) petition of the denial of a final post-election public funds payment. The Board denied this petition at its August 14, 2008 meeting.

Public funds are granted from the City's treasury to support honest, fair competition in elections. To that end, all participating campaigns agree to adhere to a strict expenditure limit. Enforcement of the expenditure limit advances a core principle of the CFB: leveling the playing field among campaigns.

Emphasizing the importance of spending limit compliance, the Campaign Finance Act provides a unique penalty for expenditure limit violations. There is no maximum penalty amount; the Campaign Finance Act1 allows the Board to assess penalties up to three times the amount of the overage.2 In comparison, other violations of the Act carry a maximum $10,000 penalty.3 This statutory disparity underscores the seriousness of an expenditure limit violation.

In addition to sizable potential penalties for an expenditure limit violation, the Act provides that, to remain eligible to receive public financing, campaigns must not exceed the expenditure limit. Campaigns that exceed the limit lose their eligibility. There are several other violations that cause a campaign to lose eligibility, including, inter alia, prohibited contributions, late filing of disclosure statements, and over-the-limit contributions. However, those other violations can be, and must be, cured. Once so cured, the campaign can regain eligibility.

In contrast, an expenditure limit violation can never be cured. A campaign that exceeds the expenditure limit has gained a permanent advantage over its opponents. It cannot regain adherence to the expenditure limit, and the added benefit received cannot adequately be disgorged. In addition, the abuse of the expenditure limit by a campaign presents its opponents with a lose-lose situation: the opponent either has to violate the expenditure limit or face a competitive disadvantage.

In the instant matter, Kaufman for Council (the "Kaufman campaign") received $63,528 in public funds before the 2005 primary election. In August 2005, Board staff calculated that the Kaufman campaign had exceeded the primary spending limit, and notified the campaign of its calculation in a Notice dated August 19, 2005. The Board thereafter suspended public funds payments to the Kaufman campaign unless and until the Kaufman campaign could demonstrate compliance with the primary election expenditure limit. The Kaufman campaign was unable to do so, and the suspension of public funds continued.5 Following the post-election audit, the Board determined that the Kaufman campaign had exceeded the expenditure limit by $9,076 and assessed a penalty of $18,152 for the violation. The Kaufman campaign submitted a Board Rule 5-02(a)6 petition (the "Petition") seeking an additional post-election public funds payment for the primary election of $18,9727 and challenging the Board's denial of payment.

The Board has not previously been asked to issue a post-election public funds payment for an election where the candidate seeking the payment had been determined to have exceeded that election's spending limit. Because the Board believes that the following is an issue of first impression, it has published this numbered Final Determination to deny the Kaufman campaign's Petition.8 The Board takes this opportunity to announce its policy regarding eligibility for public funds when a campaign has exceeded the spending limit. The Board will not grant campaigns which have been found to have exceeded the expenditure limit any additional public funds after a determination is made that the campaign has exceeded the expenditure limit.9 If a campaign is determined to have exceeded the primary election expenditure limit, it will not receive public funds for the primary or general election. Expenditure limit violations defy the spirit and letter of the Campaign Finance Act, and will result in permanent ineligibility throughout the election cycle for the offending campaign. The Board also reserves the right to demand repayment of all the public funds received by a campaign that the Board determines has violated the expenditure limit, although it chooses to not do so in the instant matter.

Past Practice

There is some scant evidence presented by the Kaufman campaign that the Board, in elections prior to 2005, paid campaigns post-election public funds despite a determination that those campaigns had exceeded the expenditure limit(s). The Board does not believe, however, that those matters govern a possible payment to the Kaufman campaign. In addition, the Board has never affirmatively stated that it would pay additional public funds to campaigns which violated the expenditure limit. Further, campaigns prior to 2005 may not have had adequate notice of the Board's policy.10

Although it does not appear that any other 2005 candidate has been denied a public funds payment because of an expenditure limit violation (no others to whom public funds might be due11 have been determined by the Board to have this violation), numerous candidates in 2005 were denied public funds because they accepted an impermissible contribution, and were only issued payment following return of the contribution. Other candidates were denied payment pending receipt of an overdue disclosure statement. Still other candidates from previous election cycles who continued to the general election, including the 2001 campaigns of James Gennaro and Elizabeth Crowley, received general election public funds payments only pending production of documentation substantiating exempt expenditures, thus establishing that they had not violated their respective primary election expenditure limits.

In addition, as noted in the Petition, some candidates who had violations which would otherwise result in ineligibility, including prohibited contributions, received post-election public funds payments. While this may be true, as discussed above, many violations which would otherwise result in ineligibility can be "cured" by disgorging the benefit of the prohibited activity.12 Expenditure limit violations cannot be "cured," are unique in their treatment in the law regarding penalties, and merit different treatment regarding post-election public funds payments.

The Petition states that "[i]n the 2001 elections and thereafter, the Board made public funds payments to 25 campaigns found to be in violation of the spending limit, without issuing any conclusion that any of these campaigns was not eligible for public funds as a result of the spending limit violations." Contrary to that assertion, in most instances, the Board was unaware that the campaign exceeded the expenditure limit until the conclusion of the Board's routine post-election audit. Therefore, most campaigns had already received their maximum public funds payment before the election and before the expenditure limit violation had occurred and/or was discovered.13

The Board has uncovered only two instances of a post-election public funds payment made to campaigns that the Board determined, following the conclusion of the Board's post-election audit, had exceeded the expenditure limit:

  1. The Board determined that the 2001 campaign of Joseph Addabbo violated the primary election expenditure limit, but issued a post-election public funds payment for the general election. Unlike the Kaufman campaign's large overage, the Addabbo campaign was found in violation of the 2001 primary election expenditure limit by $215, was penalized $215, and received a $2,911 post-election public funds payment for the general election.

    The Board did not deny post-election payment to the Addabbo campaign because the overage was so minor and there was a plausible argument, unique to the delayed 2001 primary election, that the campaign did not violate the expenditure limit at all.14 In addition, as noted above, campaigns may not have had clear notice of the ineligibility policy until after the 2001 elections.

  2. Similar to the Kaufman campaign, the 2001 City Council campaign of Letitia James (the "James campaign") was alleged to have exceeded the primary election expenditure limit. However, unlike the instant matter, the James campaign had already received its maximum amount of public funds for the primary election, so no post-election public funds payment for the primary election was potentially outstanding. Ms. James lost the Democratic party primary, but continued to the general election as the Working Families Party candidate. Based on the suspicion15 that the James campaign had exceeded the primary election expenditure limit, the Board declined to authorize a pre-election public funds payment for Ms. James's general election campaign, and Ms. James proceeded without public funds in her unsuccessful general election campaign.

    Following its post-election audit of the James campaign, the Board determined that the James campaign had exceeded the 2001 primary election expenditure limit by $14,372, and assessed a $28,744 penalty for this violation. The James campaign submitted a Board Rule 5-02(a) petition in October 2003 claiming that it was owed a public matching funds payment of $73,762 for the 2001 general election, and filed an Article 78 petition challenging both the penalty determination and the Board's denial of public funds. The court ruled in the Board's favor, finding that "the petition is in all respects denied."

    Despite the court's ruling, the Board ultimately decided to pay the James campaign public funds in July 2004 for the 2001 general election despite its violation of the primary election expenditure limit. The decision was based on two factors: (1) the James campaign fully paid the penalties assessed against the campaign; and (2) the James campaign did not have sufficient notice that the consequence of a primary election expenditure limit violation would be that the campaign was ineligible to receive public funds for the general election.

The differences between the Addabbo and James campaigns' circumstances and the immediate matter are significant. The Addabbo and James campaigns exceeded the primary election expenditure limit, but appealed for a general election public funds payment; the Kaufman campaign has attempted to get additional public funds for the same election period for which it exceeded the expenditure limit. Further, the Kaufman campaign submitted a Board Rule 5-02(a) petition in August 2005 challenging the Board's suspension of public funds (before its primary election) that the Board denied. Thus, as discussed above, the Kaufman campaign had ample notice that an expenditure limit violation would result in a determination that it would be ineligible for public funds; notice about potential ineligibility was far less prominent in 2001.

The final situation cited by the Kaufman campaign which bears slight resemblance to the instant matter was the 1993 mayoral campaign of David Dinkins (the "Dinkins campaign"). The Dinkins campaign exceeded the $4,000,000 primary election expenditure limit by 4% ($160,000). The over-the-limit expenditure was discovered before the general election, and a penalty of $320,000 was preliminarily assessed and withheld from the Dinkins campaign's public funds payments during the general election campaign period.

The Dinkins campaign situation is not comparable to the instant matter. The Dinkins campaign exceeded the primary election expenditure limit, yet received general election public funds. The Kaufman campaign has sought additional public funds for the primary election despite exceeding the primary election expenditure limit. In addition, the Board's penalty and the withholding of $320,000 of public funds for which the Dinkins campaign had qualified in the 1993 general election campaign occurred during the course of the election. The Board's determination in the instant matter occurred many years after the 2005 primary election. Further, as noted above, campaigns may not have had clear notice of the ineligibility policy in 1993. Finally, it is unclear whether the Board even considered the question of withholding general election public funds from the Dinkins campaign. The Board held a hearing to give the Kaufman campaign an opportunity to present its Petition and carefully considered the Kaufman campaign's arguments.

For the reasons listed above, and due to the lack of precedent and dissimilarity between the instant matter and previous situations, the Board denies the Petition. The Board issues this determination to serve as additional guidance to future campaigns: the Board will not grant campaigns which have been found to have exceeded the expenditure limit any additional public funds after a determination is made that the campaign has exceeded the expenditure limit. If a 5 campaign is determined to have exceeded the primary election expenditure limit, it will not receive public funds for the primary or general election. Expenditure limit violations defy the spirit and letter of the Campaign Finance Act, and will result in permanent ineligibility throughout the election cycle for the offending campaign. The Board also reserves the right to demand repayment of all public funds previously received from campaigns deemed ineligible because of an expenditure limit violation.

1 New York City Administrative Code §§ 3-701, et seq.

2 New York City Administrative Code § 3-711(2)(a).

3 New York City Administrative Code § 3-711(1).

4 New York City Administrative Code § 3-703(1)(i) and Board Rule 5-01(f).

5 On August 29, 2005, the Kaufman campaign filed a Rule 5-02(a) petition challenging the suspension of public funds. On September 29, 2005, the Board formally denied the Kaufman campaign's petition "on the grounds that the campaign had not demonstrated compliance with the primary election expenditure limit."

6 Board Rule 5-02(a) provides that: "[a]fter the Board determines that a participant is ineligible for public funds, matchable contribution claims are invalid, or public funds must be repaid, the participant, within 30 days of such determination, may submit to the Board a written petition for review of the determination including a request to appear before the Board concerning the subject of such petition. To the extent practicable, the Board shall make a determination on such petition within 30 days of receipt of the written petition, or within 10 business days of receipt if the petition is received less than 30 days before a covered election. Upon such determination, the Board shall issue written notice to the petitioner of the Board's determination, including the reason(s) for the determination."

7 The maximum public funds amount that the Kaufman campaign could have received was $82,500. The Kaufman campaign's request for a post-election payment of $18,972 represents the difference between the maximum possible payment amount and the amount of public funds previously received by the Kaufman campaign.

8 The Kaufman campaign made some procedural objections regarding the failure of the final audit report or the Final Board Determination to mention its ineligibility for public funds. The Board finds these objections unavailing. Subsequent to issuance of the Kaufman campaign's final audit report, the General Counsel sent a letter informing the Kaufman campaign of the reason that it did not receive a post-election payment. The Kaufman campaign appealed the Board's ineligibility determination through its Petition and appearance, precisely the same remedy it would have had if the final audit report and Final Board Determination specifically mentioned the non-payment. The Kaufman campaign also had a full and fair opportunity to challenge the penalties recommended against it.

9 The Board will continue its policy of suspending public funds payments during the election cycle if the campaign cannot demonstrate compliance with the expenditure limit.

10 The 2005 New York City Campaign Finance Handbook for candidates included a section entitled "rule and legislative changes following the 2001 elections." The Handbook states: "as it has in the past, the CFB will suspend public funds payments to candidates who violate the spending limit. We may also require the candidate to return any public funds received even though the CFB has not required payment in the past." See New York City Campaign Finance Handbook at 17-3.

11 This includes candidates who may have exceeded the primary spending limit but declined public funds for the general election.

12 On July 3, 2008, the Kaufman campaign submitted a letter supplementing its Petition (the "Petition supplement"). The letter included minutes of the September 5, 2003 Board meeting which the Kaufman campaign states 6 "demonstrate that the Board has reversed omissions of public funds payments in response to a Rule 5-02(a) petition…when penalties imposed for Admin. Code §3-703(1) violations had previously resulted in an improper affect [sic] on the public funds payment. In both cases, the penalty payment obligations were changed downward." Although untimely, the Board has chosen to consider the Petition supplement. The Kaufman campaign appears to refer to an instance where the Board granted a post-election public funds payment in response to a Rule 5-02(a) petition despite the Board's determination that the campaign accepted an over-the-limit contribution in the form of a loan that was not repaid by Election Day. An over-the-limit contribution may result it public funds ineligibility pursuant to Admin. Code §3-703(1). However, loans are only considered contributions by operation of law. Because of the expectation of repayment inherent in loans, loans are not truly contributions. (In the past, the Board permitted campaigns to obtain "bridge loans" where at the end of the election cycle a campaign could demonstrate that it was eligible and qualified to receive public funds; the Board has eliminated this practice.) Further, as noted in the Petition, the Board paid the campaign committee of Wellington Sharpe public funds following the 2007A election despite the fact that the Board had determined the committee had accepted an over-the-limit contribution in the form of a loan. Whereas the penalty for an over-the-limit contribution in the form of a loan was once a small penalty (10% of the value of the loan in the case of Anna Lewis's 2001 campaign), the current penalty for an overthe-limit contribution in the form of a loan is now at least 100% of the overage. Thus, the benefit of the loan is disgorged from the campaign. Finally, the Kaufman campaign exceeded the spending limit. The penalty referred to in the Petition supplement was an over-the-limit contribution in the form of a loan.

13 Campaigns make periodic disclosure of their finances prior to and after the election. The first disclosure statement after the primary election is filed ten days after the primary and includes activity in the period immediately preceding the primary. Thus, the Board is often unaware that a campaign has exceeded the primary election spending limit until after the election. The same is true for the general election, except the first postelection disclosure statement is due 27 days after the general election.

14 The Addabbo campaign asserted that this $215 overage was constituted by exempt replication of primary election day activities pursuant to Advisory Opinion No. 2001-12 (September 20, 2001), but did not provide documentation substantiating this assertion.

15 Like the Kaufman campaign, the Board had not completed its post-election audit of Ms. James's 2001 campaign when it suspended further public funds payments. Board staff calculated that an expenditure limit violation had occurred, and the James campaign was unable to prove compliance with the expenditure limit. This was sufficient to halt further public funds payments.