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2010-1: Guidance Concerning Contributions Raised by Group 1 and 2 Candidates

Thursday, January 07, 2010

Re: New York City Administrative Code ("Admin. Code") §§ 3-702(11), (18), 3-703(1), (e), (f), (l)(1-a), (1-b), (14), 3-708(11); New York City Campaign Finance Board Rules ("Rules") 1-04(f), 1-07, 1-08(c), 4-01, 7-03(c); Advisory Opinion Nos. 2001-12 (September 20, 2001), 2008-7 (November 3, 2008), 2009-8 (October 29, 2009), Op. No. 2010-1.

The New York City Campaign Finance Board (the "Board") is issuing an advisory opinion in response to a November 30, 2009 letter from Laurence D. Laufer of Genova, Burns & Vernoia,1 in which Mr. Laufer requested an advisory opinion as to (1) whether contributions received by Groups 1 and 2 (as described in Advisory Opinion No. 2008-7 ("AO 2008-7"))2 during the 2009 election cycle are matchable with public funds in the 2013 election and (2) whether limited liability company and partnership contributions can be used in the 2013 election by Groups 1 and 2. Mr. Laufer urges the Board to answer these two questions in the negative. The Board is issuing this advisory opinion in order to reaffirm and clarify the Board's guidance provided in AO 2008-7 and Advisory Opinion No. 2009-8 (Oct. 29, 2009) ("AO 2009-8").

Advisory Opinion Nos 2008-7 and 2009-8

After the enactment of Local Law No. 51 (2008), which extended term limits for current elected officials from two terms to three, the Board issued AO 2008-7 to address the impact of this legislation on candidates—both incumbents and challengers.  In AO 2008-7, the Board interpreted 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 "Rules") to permit Group 1 candidates to either "restart" the 2009 election by "freezing" their original committee and opening a new one for 2009, applying a 15 percent fundraising expenditure to the 2013 expenditure limit (Group 1-A), or maintain the same committee for 2009 and allocate expenditures between the aborted 2009 campaign and the 2009 re-election campaign (Group 1-B). Group 2 candidates, candidates who did not run in 2009 due to the change in the term limits law, were permitted to maintain the same committee for 2013 and apply a 15 percent rate of expenditures for funds raised prior to the 2013 election cycle towards the 2013 expenditure limit.

In order to address candidates who had activity in the 2009 election cycle but were not covered by AO 2008-7, the Board issued AO 2009-8 to clarify that these candidates are not eligible to receive the benefits of AO 2008-7. Those candidates who do not fall under Groups 1 and 2, yet who wish to run for office in a future election covered by the Act and participate in the Campaign Finance Program, must create a new committee and may transfer funds to the new committee; those candidates who will not be participants in a future covered election may retain their current committees and do not need to transfer their funds.

Contributions accepted during the 2009 election cycle are matchable with public funds in the 2013 elections pursuant to AO 2008-7

In AO 2008-7, the Board clearly stated that contributions in the original 2009 committees, which were either frozen (Group 1-A) or remained active for the 2013 elections (Group 2), would be eligible for public matching funds for a 2013 election. As the Board comprehensively reviewed this issue prior to the issuance of AO 2008-7, there is no reason to reevaluate it now. If Group 1-A and Group 2 candidates demonstrated that they were not running for higher office (or not running at all) due to the extension of term limits, these candidates were able to overcome the presumption that contributions and spending were for the next election (the 2009 election). See e.g., Rules 1-04(f) (contributions), 1-08(c) (expenditures), 7-03(c) (both). Thus, they were able to receive the favorable treatment for contributions and spending that AO 2008-7 provides, including public matching funds eligibility of their contributions for a 2013 election. This guidance is in accordance with the Act and the Rules and has been upheld in New York State Supreme Court. See Kurland, et al. v. New York City Campaign Finance Board, 23 Misc.3d 567, 873 N.Y.S.2d 440, (Sup. Ct. N.Y.Co. 2009) (finding that the AO is consistent with the Act and effectuates its goals and purposes, and "to hold otherwise would be to eviscerate the powers the Act granted to the CFB to administer the Program"); see also Admin. Code §§ 3-703(1); 3-703(14); Rule 1-07.

AO 2009-8 does not extend the same benefits outlined in AO 2008-7 to candidates whose decisions were not impacted by the extension of term limits, as they cannot overcome the presumption that their 2009 contributions were for the next election; thus, their committees were deemed "otherwise active" in the 2009 election, and any funds in such committees must be transferred for use in the 2013 elections and are not eligible to be matched with public funds. See Admin. Code §§ 3-703(1)(e); 3-703(14); Rule 1-07.

Contributions from Limited Liability Companies, Limited Liability Partnerships and Partnerships

Local Law No. 34 (2007) prohibits a candidate subject to the Act, and his or her principal committee, from accepting, either directly or by transfer, any contribution, loan, guarantee, or other security for such loan from any corporation, limited liability company ("LLC"), limited liability partnership ("LLP") or partnership.3 See Admin. Code § 3-703(1)(l); Rule 1-07(c)(2).  This section of Local Law No. 34 became effective January 1, 2008; thus, candidates were allowed to retain any such contributions that they received prior to this date.4 These contributions were received in compliance with the Act and the Rules and as such are legal.5 AO 2008-7 provides Groups 1 and 2, due to the extension of term limits, with the benefit of maintaining their contributions raised during the 2009 election cycle for the 2013 election; this includes LLC, LLP and partnership contributions received prior to January 1, 2008. In that AO, the Board did not explicitly exclude such contributions from being used in the 2013 elections, nor did it require candidates to refund such contributions.

Any LLC, LLP or partnership contributions received by Group 1 and Group 2 candidates after December 31, 2007, were returned or will be returned to the contributor, as required by the Act and the Rules.  Further, candidates have relied on the guidance provided in AO 2008-7, and to narrow that guidance more than one year after its issuance would be unfair to those candidates who made their decisions regarding the 2009 and 2013 elections based on that AO.

It is important to note that since Group 1-A and Group 2 candidates receive a benefit in 2013 of contributions raised in the 2009 election cycle, the cost of raising those funds will count towards the 2013 expenditure limit. See AO 2008-7. Thus, these candidates are subject to a 15% flat rate of the total amount of funds in their 2009 committees as a proxy for the expenses of raising contributions carried over from the 2009 election cycle.6

The Board recognizes that, if not for the extension of term limits and the Board's one-time approach to address the impact of this legislation on Group 1 and 2 candidates, such candidates would have had to open a new committee for the 2013 elections; they would have been required to transfer the funds they raised in the 2009 election cycle to be used for the 2013 elections, excluding the transfer of any LLC, LLP or partnership contributions (just as candidates discussed in AO 2009-8, whose decision not to run in 2009 was not based on the extension of term limits, are required to do). See Admin. Code §§ 3-703(1)(f), (l); Rules 1-07(c); 4-01(n). However, as stated in AO 2008-7, the extension of term limits three years into the 2009 election cycle created an unprecedented challenge for the Board and compelled it to provide guidance concerning the legislation's effect on candidates subject to the provisions of the Act. The Board's one-time approach in dealing with the extension is consistent with the law and attempts to be as fair and practical as possible to all candidates in both the 2009 and 2013 elections.

CONCLUSION

In sum, the Board finds that for those candidates who complied with the provisions of AO 2008-7: (1) contributions received by Groups 1 and 2 during the 2009 election cycle are eligible to be matched with public funds in the 2013 election to the extent to which they otherwise comply with the law; and (2) LLC, LLP and partnership contributions received prior to January 1, 2008 do not have to be refunded by Groups 1 and 2 candidates.7 Given the unique and extraordinary circumstances presented by the legislation extending term limits, the Board has attempted to provide a legal, practical, and fair course of action to all candidates who may run in the 2013 elections. The Board's guidance is grounded in its interpretation of the Campaign Finance Act and is supported by the Board's power to take actions "necessary and proper to carry out the purposes of the Act." Admin. Code § 3-708(11); see Advisory Opinion No. 2001-12 (September 20, 2001); AO 2008-7.8

NEW YORK CITY CAMPAIGN FINANCE BOARD

1See Letter from L. D. Laufer to Board Chairman Joseph P. Parkes, received November 30, 2009 ("Laufer Letter") (available on the NYCCFB website)

2AO 2008-7 addressed two groups of candidates who were affected by the extension of term limits in Local Law No. 51 (2008). Group 1 included candidates who sought re-election to their incumbent offices in 2009, instead of the higher offices they anticipated seeking in 2009. Group 2 included candidates who chose not to run in 2009, but will seek office in 2013.

3This does not apply to contributions from a corporation, limited liability company, limited liability partnership or partnership that is a political committee as defined in §3-702(11). See § 3-703(1)(l). Additionally, candidates were prohibited from accepting corporate contributions prior to the passage of Local Law No. 34. See Local Law No. 48 (1998) at §3 and New York City Charter § 1052(13). For the 2001 elections, the Board permitted campaigns to keep direct contributions from corporations that were received prior to the corporate contribution ban in 1998.

4This law did not apply retroactively to contributions raised earlier. See Local Law No. 34 (2007) at §41, as amended by Local Law No. 67 of 2007 §26 ("this section of this local law shall take effect on January 1, 2008").

5See Local Law No. 34 (2007) at §41, as amended by Local Law No. 67 of 2007, §26.

6The 15% flat rate will be assessed for Group 1-A candidates based on the total amount of funds on hand in the candidate's frozen committee on January 11, 2009; this rate will be assessed for Group 2 candidates based on the total amount of funds on hand in the candidate's committee on January 11, 2010. See AO 2008-7.

7To the extent that this Advisory Opinion reflects any new interpretation of the Act and Rules, it is applicable to candidates only affected by AO Nos. 2008-7 and 2009-8.

8Candidates are strongly encouraged to contact the Board's Candidate Services Unit to clarify any questions they may have regarding AO Nos. 2008-7, 2009-8 and this Opinion.