Testimony of Amy Loprest to the City Council Committee on Standards and Ethics
Testimony of Amy Loprest
Executive Director
New York City Campaign Finance Board
City Council Committee on Standards and Ethics
November 21, 2016
Good morning Chair Maisel and members of the Committee on Standards and Ethics. My name is Amy Loprest, and I am Executive Director of the New York City Campaign Finance Board. With me are Sue Ellen Dodell, General Counsel, and Eric Friedman, Assistant Executive Director for Public Affairs.
Today is our first opportunity to appear before this committee. As such, I hope you will permit me to use part of my testimony to talk in some detail about our work, which will provide context for the legislation before you.
First, we commend the Council for addressing the clear danger of influence-seeking raised by the activities of political non-profits connected with elected officials. Under the Campaign Finance Act, a businessman bidding on a city contract can give no more than $400 to a candidate for mayor. As the Board noted in July when it issued its final determination on the Campaign for One New York, the law allows the same businessman to give a six-figure contribution to a political non-profit entity associated with the mayor.
Int. No. 1345 seeks to close this loophole, and the Board is pleased the Council is seeking to strengthen our protections against the possibility and perception of corruption associated with money in city politics.
We note the several concerns regarding the bill’s drafting and implementation raised by our colleagues at the Conflicts of Interest Board. We urge the Council to take those into account, and we will be available to assist in any way they or the Council deems appropriate.
Our comments on this legislation are based on our experience administering the strict, low “pay-to-play” contribution limits in the Campaign Finance Act for individuals doing business with city government. Those limits apply to individuals listed in the Doing Business Database, while the limits proposed by Int. No. 1345 would apply also to spouses and children of those individuals.
At present, the database does not include the names of covered individuals’ family members. We share the Council’s expectation that the penalties established in Int. No. 1345 will deter most questionable contributions. Nevertheless, any successful implementation of the bill as drafted must ensure sufficient information is available to allow the covered non-profit entities to comply with the law, and to provide the oversight body with a basis to identify potential violations.
Again, the Board supports this measure and urges the Council to adopt it once these issues can be resolved.
However, this important piece of legislation is accompanied by several “poison pill” measures that would significantly weaken the CFB’s oversight of the matching funds program. These measures should not be the cost of implementing a commendable and necessary reform.
We are disappointed the Council is considering these significant changes to the Campaign Finance Program only ten months before many of its members will appear on primary ballots in 2017.
The Act requires the Board to issue its recommendations for legislative changes three years before the next election. This timeline provides ample time to assess the potential impact of changes, discuss the policy, and ensure their smooth implementation. Those recommendations are informed and supported by comprehensive analysis of data from the previous election and our experience administering the Program. Following the last election, we issued our recommendations on September 1, 2014, and the Council heard some of those proposals on May 2 of this year.
If the proposals under consideration today had been issued on the timeline that applies to the Board’s post-election report, there would have been more than sufficient time to do the fact-finding and analysis about the potential impact these bills may have on our system.
We urge the Council to delay consideration of many of these proposals until after the 2017 elections. This would allow for a thoughtful analysis of their impact, and deflect accusations that members are seeking advantage for their own campaigns.
Enacting these proposals now will disrupt the Board’s preparations for the election year, and require hasty decisions about implementation.
Because of its oversight role as administrator of the city’s public campaign finance system, the Board was created to be nonpartisan and independent.
Through seven citywide election cycles, independence has been key to the success of the Program. This isn’t just a talking point; it is an important policy issue. The Board’s independence gives the public confidence that enforcement decisions are made based on the facts and the law—not on politics.
Unlike other elections enforcement entities at the state or federal level, the Campaign Finance Board isn’t beholden to political parties or elected officials—the Board is accountable to the public, with a primary responsibility to protect city taxpayers’ investment in a fairer, cleaner campaign finance system. Several of the proposals under consideration would intrude on the Board’s independence.
Int. No. 1364, which would interfere with the proper functioning of the Board’s enforcement process, is one of these. State Open Meetings Law allows public bodies like the Board to decide who is allowed into their executive sessions. By preventing the Board from consulting with its own staff during executive session, Int. No. 1364 would deny the Board critical expertise and counsel as it conducts its deliberations.
Continued public support for the matching funds program depends on continued public confidence that those funds are in good hands. To protect the public’s investment in cleaner politics, the Board audits campaigns for city office.
The requirements of the CFB’s regular audit and enforcement process are rigorous and complex, with many steps between the campaign’s first filing and the issuance of its final audit report. Imposing new discrete mandates or deadlines on a particular step in that process can affect all of the others. Several of these bills propose significant changes to various steps of the audit process. The Board believes these changes are likely to produce unanticipated and unwelcome consequences.
Regular audit reviews start as soon as a campaign begins filing disclosures with the CFB. Before the election, auditors review documentation provided by campaigns along with each disclosure statement. These reviews confirm that contributions are consistent with the limits in the Act, and ensure that contributions to be matched with public funds meet the requirements of the law.
The results of these statement reviews are sent to campaigns. If information for a particular contribution is missing or incomplete, campaigns have the opportunity to provide documentation that makes the contribution valid for matching funds.
Int. No. 1354 would impose strict, unreasonable deadlines on those reviews. Early in the four-year election cycle, work on the statement reviews coincides with work on the audits from the previous election; the tight deadlines on statement reviews would draw staff resources away from those audits.
During the election year, those reviews are performed on a shorter timeline. In the last few months before the election, as the Board prepares to issue payments of public matching funds, the reviews are performed within four business days as required by the Act.
In our experience, most candidates make an honest effort to comply with the Program’s requirements, which can be strict. In rare cases, candidates seek to defraud the city by submitting forged or altered documents in an attempt to obtain public matching funds. A Council candidate in last year’s special election in Queens was indicted in just such a scheme.
Int. No. 1355 would make it more difficult for CFB auditors to detect these rare instances of fraud and prevent payment of public funds, by lowering our documentation standards and requiring that CFB staff accept altered or “corrected” documentation from campaigns.
Instead of lowering our standards, the better way to help candidates to document their contributions is through the smart use of technology. We created NYC Votes Contribute, an online fundraising platform for candidates that connects directly to C-SMART, to simplify the requirements for credit card contributions. The Contribute platform collects all the information necessary to ensure eligible contributions are valid for matching funds. Contribute also creates and submits the documentation for credit card contributions directly to CFB.
The platform was launched in February and, to date, 50 candidates have used it to raise over 1,600 contributions totaling more than $320,000.
Shortly after the election, CFB auditors send campaigns an initial request for documents (IDR) related to the campaign’s spending. Those documents are reviewed to ensure that the campaign’s reporting was complete and accurate, and that spending was related to the campaign. For campaigns that received public funds, the documents can show whether the public funds they received were spent on qualified purposes. Campaigns have 30 days to respond to the IDR.
After the staff reviews those documents, we prepare and send most campaigns a draft audit report (DAR) that outlines any preliminary findings; the Act requires those reports to be sent to campaigns within eight to ten months of the last disclosure filing for the election cycle. Campaigns can address each finding with an explanation or further documentation; they are required to respond within 30 days, though extensions are often granted to campaigns that request them.
The campaign’s response to the DAR is reviewed by CFB staff. Afterwards, if evidence of a violation remains, the staff prepares and sends a notice of alleged violations (NAV) with recommended penalties, the amounts of which are based on fixed guidelines that are published and available for review on the CFB’s website. Deviations from the penalty guidelines generally are left to the Board’s discretion.
Assuming the campaign’s responses have been provided timely, the Act requires the NAV to be sent within 14 to 18 months of the last filing of the cycle. If the campaign has requested extensions or missed deadlines to respond, the NAV may be delayed.
The NAV concludes the CFB’s investigation, and the adjudicatory process follows. The Charter requires a strict separation of the Board’s investigative and adjudicatory powers, and forbids staff members from performing both functions. As there is at many law enforcement agencies, there is a strict separation of these functions within the CFB. As Executive Director, I do not review or participate in the investigative work of the Audit staff, and neither does the General Counsel.
Prior to a hearing, campaigns are given another chance to provide additional materials in response to the NAV. Candidates who wish to contest the staff’s findings have two choices: they can appear at an informal hearing before the Board, or participate in a formal adjudication before the Office of Administrative Trials and Hearings (OATH).
Candidates or campaign representatives often appear before the Board without legal counsel, and often request leniency based on the circumstances of their election. A review of Board determinations issued since the start of the 2013 calendar year shows that many of those requests are honored. Of the candidates who appeared before the Board during that time, 65 percent had their penalties reduced. In practically all the other cases, the Board accepted the penalties recommended by staff under the published guidelines.
Int. No. 1364 seeks to correct a problem that doesn’t exist. Moreover, by interfering in the Board’s deliberations, this legislation would deprive the Board of the expertise of its own staff in those cases where it seeks to reduce penalties without disrupting precedent.
An OATH trial is a more formal proceeding, with stricter rules of evidence and procedure. To initiate a case, the enforcement agency must serve the respondent with a petition. Board practice is to provide campaigns the opportunity to respond before we docket the case with OATH. By placing a new, unrealistic deadline for the Board to docket an OATH proceeding upon request, Int. No. 1350 would effectively deprive candidates of their pre-hearing opportunity to mitigate the penalties recommended by staff.
After the Board hears the candidate’s arguments, receives a recommendation from an administrative law judge following an OATH trial, or reviews a set of uncontested findings from staff, it issues its determination.
The staff takes the Board’s determination and issues the final audit report (FAR), which is sent to the campaign and published on the CFB website. In a citywide election cycle, there can be between 250 and 300 candidates who receive an audit review. The majority of those candidates receive final audits that reflect substantial compliance with the rules—during a review of the 2009 election cycle, we found that 59 percent of all candidates for City Council were assessed no penalties.
As we’ve explained, the audit and enforcement cycle is a complex process with many steps, and we understand these complexities pose challenges for candidates. It is necessarily rigorous—we oversee a system that paid more than $38 million in taxpayer funds to candidates in the last four-year cycle. The candidates who receive those public funds should be accountable for their use.
Still, the matching funds program fulfills its objective of maximizing small-donor engagement only if candidates choose to participate, and our oversight should not impose a barrier to participation.
We meet the deadlines mandated by the Act, but we know we must go beyond that. We need to do the audits smarter and more efficiently by doing a better job of prioritizing our staff time and resources by better assessing risk.
This is a goal during every election cycle, across the entire agency. To help candidates better handle compliance, we are improving our trainings to provide more detailed and focused information in more convenient formats—including e-learning and one-on-one consultations. We are improving our software resources for campaigns, including C-SMART.
And we are closely reviewing our audit standards to ensure the next round of post-election audit reviews will be done smarter and better. We recently created a Quality Assurance team in our Audit Unit to help us find ways to meet those goals.
Any significant changes to the audits must take a broad view of the entire audit process, and focus on the essential objective of protecting the public fisc. To audit smarter and better we must simplify, rather than add complexity.
We welcome the Council’s thoughtful participation in this conversation, but it is important the Council consider that hastily imposing new mandates on the audit process will likely give rise to unintended consequences.
We address each of the proposals before the committee below. I want to acknowledge that Council staff has consulted with CFB staff on many of these proposals. Many of the introduced bills reflect feedback provided by CFB staff, though many of the objections we’ve raised remain in the introductions under consideration today.
We appreciate the opportunity to provide our feedback on these bills, and will continue to do so in any forum we are offered.
Specific Comments on the Proposed Legislation
Int. No. 1345: Conflicts of interest and organizations affiliated with elected officials
The bill would prohibit donations above $400 per year from those doing business with the city (matching the limits in the Act) to non-profit political advocacy entities controlled by an elected official; those limits would apply only to entities that make significant expenditures on public communications featuring the public official. It would require disclosure of fundraising activities from a broader range of non-governmental entities controlled by an elected official, whether or not they engage in public-facing communications.
The Council should be commended for addressing the danger of influence-seeking raised by the activities of political non-profits connected with elected officials. Under the Campaign Finance Act, a businessman bidding on a city contract can give no more than $400 to a candidate for mayor. Under current law, the same businessman can give a six-figure contribution to a political non-profit entity associated with the mayor. The proposed legislation seeks to close this loophole. Though the proposal could be more ambitious, and the Board is pleased the Council is seeking to extend the city’s protections against the possibility and perception of corruption in city government.
While the strict, low “pay-to-play” limits in the Campaign Finance Act apply to individuals listed in the Doing Business Database, the limits proposed by the bill before this committee would apply also to spouses and children of those individuals. The current database does not include family members of listed individuals, and any successful implementation strategy must consider a plan to gather information that will allow the covered non-profit entities to comply with the law.
Int. No. 1349: Compatibility of campaign finance board disclosure software
When the CFB’s disclosure software, C-SMART, cannot enable candidates to complete and submit their filings to the State Board of Elections (BOE), the bill would require that CFB prepare and provide to candidates an electronic file that satisfies their BOE filing obligations. It also requires CFB to report to the Council and Mayor on the issue.
The bill does not solve the underlying problem. It makes a new, unprecedented requirement for CFB to report on its operations to the Council and Mayor, which is an invitation to micromanage.
The Act already requires that C-SMART be fully compatible with the State BOE. Many of the places where the two systems were incompatible have been eliminated; one technical issue remains outstanding.
Successful implementation of this requirement is dependent on active cooperation with NYSBOE, which has been elusive and difficult to maintain. NYSBOE is in the process of developing their new disclosure system, which is on schedule to be completed in August 2017. Because of a lack of communication from NYSBOE staff, it is unclear what impact, if any, the new system will have on C-SMART compatibility. Ultimately, it is impossible to direct the state BOE’s cooperation through a local law.
Int. No. 1350: Adjudication of campaign finance violations
The bill would codify the right of candidates to contest findings of violation before the Office of Administrative Trials and Hearings (OATH) and require that a case be “docketed by the board within thirty days” of the candidate selecting an OATH adjudication.
The bill imposes an unrealistic deadline on events that are out of the Board’s control.
An understanding of OATH procedure makes it clear that 30 days from the candidate’s request is not a reasonable time frame to require a case be docketed. Our regular audit process allows campaigns to provide a substantive response to their Notice of Alleged Violations (NAV), which can resolve potential violations before going to OATH or an informal Board hearing. A more aggressive timeline, such as the deadline proposed here, would deprive campaigns of this opportunity.
Enacting a tight deadline to commence OATH proceedings would advantage candidates with the resources to hire counsel to represent them in a formal OATH adjudication. A more equitable proposal would apply to all candidates, regardless of whether they choose OATH or the more informal Board proceeding.
Int. No. 1351: Deposits of campaign contributions
The bill would extend the time that candidates have to deposit contributions in the bank. It is currently 10 days, with an exception for checks deposited by Council candidates in the first three years of the four-year election cycle. The bill would extend the requirement to 20 days for all contributions throughout the election cycle except for cash contributions, which must still be deposited within 10 days.
The bill would weaken proper controls over campaign funds.
The Act already allows Council candidates 20 days to deposit checks during the first three years of the four-year cycle. During the election year, campaign fundraising traditionally increases, and campaign should want to deposit checks as soon as possible to have the funds available. Further, contributions should be deposited timely, so that funds enter the bank account in a way that CFB staff can properly authenticate the campaign’s reporting.
CFB rules now require campaigns to provide copies of their bank statements with their disclosure statements, to provide for a more timely and thorough review of each disclosure statement, which in turn will reduce the post-election audit burden. Allowing candidates more time to deposit their contributions will make those reviews less accurate.
Int. No. 1352: Inquiring if a person or entity is doing business with the city
The bill ends the requirement that candidates ask their contributors if they are doing business with the city. As required by the Act, enforcement of the doing business limits is based completely on the database, so information provided by campaigns is not used to enforce the limit.
The Board has longstanding concerns about the quality and completeness of the data in the doing business database—especially lobbyist data—but the Mayor’s Office of Contract Services and the covered city agencies have taken meaningful steps to improve the database over the past year.
The bill would leave the requirement to notify contributors of the existence of the limits in the Act.
Int. No. 1353: Return of a contribution to protect a reputational interest
Generally, there are limits on campaigns returning contributions after receiving public funds; the bill would allow candidates to return contributions “because of the particular source involved.”
The bill would codify existing practice.
Int. No. 1354: Timing of statement reviews
The bill would set deadlines for the CFB staff to review candidates’ disclosure statements.
The unreasonable deadlines in the bill do not allow the CFB’s audit staff adequate time to perform basic reviews, and it would weaken our ability to protect public funds.
In the out-years, a filing period is six months. Candidates currently receive their reviews 60 days before the subsequent filing deadline. The bill requires that reviews be sent 30 days after the filing deadline, which is an unreasonable time frame during the out-years. Reviews are already performed on a much shorter timeframe during the election year—with disclosure filings two months apart, 30 days for reviews is sufficient. As the Board prepares to make payments, reviews are performed (as required by the Act) within four days.
A more lenient deadline, with a deadline that requires candidates to respond to the review before the next filing date, would improve the bill.
Int. No. 1355: Required documentation for contributions
The bill would remove the requirement that candidates obtain and provide contribution cards for all types of contributions, except cash. It requires an additional statement of “intent to contribute” for checks not signed by the contributor, and a statement of the contributor’s name and address for money orders that don’t have this information. It would allow the candidate to complete or correct the card as long as it is “signed or electronically affirmed” by the contributor.
By lowering the documentation standards, the bill makes it more difficult to discover and prevent the rare instances of fraud in the system.
The requirement for CFB to accept contribution cards that are “completed or corrected by the candidate” could enable fraud by creating an affirmative defense for campaigns that submit altered contribution cards to dishonestly obtain public matching funds. These cases are rare, but as recently as September a candidate in last year’s special election in Queens was indicted for forging contribution cards in an attempt to qualify for public funds. She was not paid public funds, and the bill would make it more difficult to deny matching funds to candidates whose documentation shows indicia of fraud.
The bill states that the documentation provided “shall be sufficient to demonstrate compliance and validity for matching funds,” which is vague and would prevent CFB staff from requesting additional documentation when necessary.
By encouraging candidates to “correct” the contribution cards for legitimate reasons, the bill would make it more difficult for staff to differentiate and detect documentation that may be altered for fraudulent purposes.
In other areas, the bill lowers standards beyond those established by rules adopted by the Board this month. Those standards should be the starting point for any documentation required for contributions that are claimed for matching funds.
Int. No. 1356: Transfer of non-public campaign funds
Except for transfers from a principal (participant) committee to another principal committee, the Act requires candidates to obtain “evidence of the contributor's intent to designate the contribution for such covered election.” The bill would extend that exemption to cover non-participants who wish to transfer leftover funds to a principal committee without obtaining permission from their contributors. The requirement to obtain permission would still apply to candidates who seek to transfer funds from a non-CFB/state/federal committee.
The existing provision of the Act ensures donors in one election must agree if a candidate uses their funds for a different election. Removing the requirement may encourage candidates to amass war chests, and provide incentives to opt out of the Program. To avoid perceptions of self-dealing for any candidates with existing war chests, the effective date of this bill should be postponed to after the 2017 election.
Int. No. 1358: Expenditures of non-public funds to assist public officers in the performance of their duties
The bill would expand the permissible uses of campaign funds to include “expenditures to facilitate, support, or otherwise assist in the execution or performance of the duties of public office” by adding the language above to the list of allowable campaign expenditures in §3-702(21)(a). Such expenditures related to the holding of public office would not be qualified uses of public funds.
It is true that some of the spending anticipated by the bill (e.g. enhanced participatory budgeting events) may provide some political benefit in addition to the stated governmental purpose. Specifically prohibited spending (e.g. clothing, grooming, tickets to sporting events) would still be prohibited by the Act and is not superseded by this new provision.
Though the bill incorporates our feedback, some concerns remain. Allowing incumbents to spend campaign funds on functions related to their elected office would exacerbate inequality between officeholders in wealthy districts and those from poorer neighborhoods, allowing good fundraisers to provide enhanced services to their constituents. Though expenditures to support the duties of public office would not be qualified uses of public funds, the bill would mean that participating campaigns who make these expenditures would have fewer funds remaining after the election, and repayments of leftover public funds to the city’s general funds would likely decrease.
Int. No. 1361: Viewing of dates from the doing business database
The bill would require that the public doing business database display the date that individuals entered the database.
The date is currently not displayed with search results, but doing so would provide useful information for the public, and help candidates better understand which of their contributors are covered by the doing business limits. This update to the database would be implemented by DOITT, and they should be consulted on its implementation.
Int. No. 1362: Contributions in a special election
Current law requires that for special elections, only the first $87 of NYC resident contributions is matchable, instead of $175 for a primary or general election. The bill would equalize the matching amount, and match up to $175 for special elections.
This would ease administration for CFB by providing a uniform application of the matching rate in special elections and other elections. It is likely this bill will increase the total amount of funds paid to candidates in special elections.
Int. No. 1363: Deadline for rescinding the written certification of participation in the matching funds program
The bill allows candidates who have joined the Program to opt out prior to the deadline to file designating petitions for the primary election (in late July), or prior to the receipt of public funds, whichever comes first.
This bill reflects some feedback from CFB staff; the inclusion of a hard calendar deadline is a necessary provision. Still, the decision to opt in to the matching funds program should not be based on who your opponent may (or may not) be. Predictability is important both for CFB and for candidates in a particular election.
A later opt-out date will create some operational issues. For instance, we advertise which candidates are participants in our Voter Guide and elsewhere; decisions about the allocation of Audit staff time and resources are made based on the number of candidates who certify to join the Program.
Int. No. 1364: Executive sessions of the Campaign Finance Board
The bill would require that “no candidate, representative of a candidate or campaign finance board staff other than a professional clerk hired or retained for such purpose and not otherwise supervised by campaign finance board staff shall be present during an executive session of the board at which an adjudication before the board is discussed.”
This bill is an intrusion by the Council into the proper functioning of the Board’s enforcement process, and it undermines the independence of the Board’s deliberations.
The NY State Open Meetings Law allows the Board to deliberate in executive session, and to decide who can attend its executive sessions. The bill unreasonably limits the right of the Board to consult anyone it believes can be helpful in its deliberations and provide substantive answers to questions about CFB process.
Under current practice, CFB staff members involved in the campaign’s audit are barred from attending deliberations over penalties in executive session; only staff with no involvement in the investigations under discussion are allowed to attend.
Perceptions that the Board’s deliberation process is unfair to candidates are not supported by a review of the outcomes. A review of candidate appearances before the Board since the start of 2013 shows that the Board reduced the amount of penalties recommended by staff 65 percent of the time. In practically all of the other cases, the penalties remained unchanged from the staff recommendations, which are based on the published penalty guidelines.