Testimony of Paul Seamus Ryan, Executive Director of the New York City Campaign Finance Board to the New York City Council Committee on Governmental Operations Committee

06/14/2024

Thank you, Chair Restler and members of the Committee on Governmental Operations, State & Federal Legislation, for the invitation to appear before you today. My name is Paul Seamus Ryan, and I am the new Executive Director of the New York City Campaign Finance Board (CFB). This is my first time officially testifying before the City Council and I am hopeful that we will continue to have a productive partnership during my tenure.

The Campaign Finance Board is a nonpartisan, independent City agency that administers the City’s matching funds program and directly reaches voters through our NYC Votes initiative. The CFB’s mission is to make our local democracy more open, transparent, and equitable. We eliminate barriers to participation by providing access to the information and resources New Yorkers need to vote or run for office. We also reduce the corrupting influence of money in politics by enhancing the impact of New Yorkers’ small-dollar contributions.

To execute this very important mission, the law that serves as a backbone for our agency can be improved to better account for modern-day fundraising practices, while also furthering transparency to the public and simplifying compliance for campaigns. It is our view that this hearing provides an opportunity to improve parts of the law to the benefit of all campaigns and all New Yorkers.

As for the legislation before us today, the first bill I will discuss is Introduction 953, which amends the legal definition of “intermediary” and limits people with business dealings with the city from engaging in certain intermediary activity. Intermediaries, often referred to as “bundlers,” are individuals or entities that serve as a conduit between contributors and a campaign by delivering contributions to, or soliciting contributions for, candidates. Bundling contributions is a legal and constitutionally protected way to fundraise. However, some individuals engage in this behavior seeking political power through access and influence with candidates and officeholders. In short, they try to leverage the funds they raised to receive special treatment from public officials. Of course, the real problem for democracy is when public officials respond with such special treatment.

Intermediary disclosure increases transparency and accountability, providing public information that may highlight potential instances of pay-to-play corruption. New York City is far ahead of the rest of the country in regulating disclosure of intermediaries. In a 1996 report aptly named “Bundles of Trouble?,” the CFB recommended requiring intermediary reporting for non-participants and expanding the definition of intermediaries to include solicitation; both recommendations were passed into law soon thereafter. Since the Board’s creation in 1988, it has been ahead of the national curve with respect to regulating bundling activity. Indeed, New York City has the most far-reaching bundling disclosure laws of any jurisdiction I am aware of. Federal law, for example, only requires disclosure of bundling by registered lobbyists and their PACs, and only under narrowly specified circumstances.

Here in New York City, a vast majority of campaigns do not report any intermediaries, and the number of campaigns reporting zero intermediaries has remained consistent over time; in 2021, 70% of campaigns reported zero intermediaries, including many of the council members on this committee. We also know that City Council campaigns are less likely to report intermediaries than their borough and city-wide counterparts.

However, for 30% of campaigns that do report intermediaries, the number and dollar amount reported have decreased over time. While there are multiple possible causes of the decrease, we suspect that the largest factor is a shift in how campaigns fundraise. Campaigns now predominantly fundraise online, and contributors give by credit card, compared to in-person fundraising methods where contributors gave by check. For example, in 2021 86% of all contributions were made by credit card, compared to only 20% in 2009. That year 75% of all contributions were made by check.

Bundling was easier for campaigns to identify when intermediaries hand-delivered checks, but it is not as visible when contributors give by clicking an email hyperlink. This is one reason we firmly support the provision in Introduction 953 that would introduce the concept of “referral” hyperlinks to track intermediated contributions. Internally, we have already discussed adding this function to the NYC Votes Contribute platform, and a legal requirement would ensure this feature also captures campaigns that use 3rd party fundraising systems like ActBlue and WinRed.

The CFB would like to work with the Council on our shared policy goal of improving transparency around intermediaries, and we believe that revising the legal definition of “intermediary” is a critical place to start. One way to increase transparency would be to eliminate exemptions around campaign-sponsored events and multiple hosts. Current exemptions carved out by past Councils are not intuitive and should be streamlined. The law could also be amended to place a straightforward monetary threshold on reporting intermediaries. As a bonus, these changes would also increase reporting of intermediaries on the Doing Business Database, who might otherwise not be reported as such under the current definition.

Another section of Introduction 953 would amend the law to apply the current doing business contribution limits to the aggregate total of contributions intermediated by persons on the doing business database. This provision would address a concern that people doing business with city government may be circumventing New York City’s strict limits on so-called “pay-to-play” contributions by bundling contributions from other donors. For anyone in the doing business database, the bill would extend these limits to cover bundled contributions, so that no lobbyist, contractor, or other person “doing business” with city government could deliver contributions to any candidate in excess of those limits.

While we share the Council’s goal of limiting the potential for private campaign contributions to impact government decision-making, we are concerned that this provision would undermine transparency and fail to effectively deter pay-to-play activity.

The Council has made a previous effort at limiting the impact of contributions bundled by people in the doing business database. Local Law 167 of 2016 prohibited any such contributions from being matched with public funds. We believe this provision may have had the unintended impact of reducing transparency, rather than restricting influence. For the 2017 election cycle, 24.4% of all intermediaries were listed in the doing business database. For the next citywide election in 2021, conducted after the passage of Local Law 167, only 6.3% of intermediaries appeared in the database—the lowest amount since the creation of the database. With numerous current exceptions to intermediary reporting in the law, potential doing business bundlers could legally avoid disclosure—and ensure their bundled contributions were eligible for matching—by raising funds for a campaign-sponsored event, for instance.

Administratively, applying the proposed aggregate limit to doing business intermediaries would create an additional burden for campaigns. We believe this added administrative burden would fail to provide additional protection against influence-seeking behavior, and potentially hide more bundling activity away from public view.

Another step to increase disclosure would be requiring campaigns to submit documentation associated with fundraising events–lists of hosts and attendees–with each disclosure statement, instead of in the post-election audit process. Overall, there are a few ways to legislate on this topic, and we look forward to discussing these options further with the Council.

The next bill under discussion today is Introduction 952. The CFB broadly supports the section of this bill that would provide a 30-day deadline to respond to our existing right to request information from campaigns. However, many requests for information are delivered as part of the disclosure statement review process. We have concerns that this provision, if enacted, would conflict with Local Law 187 of 2016, which prevents the CFB from setting a disclosure statement review deadline any earlier than the subsequent disclosure statement deadline. We are more than happy to discuss this issue with the Council to identify a solution.

Relatedly, under this bill, a candidate who fails to respond to a CFB request for information pertaining to specific contributions, intermediaries, or possible intermediaries within 30 days of our request would become ineligible to receive any public funds at all (i.e., the disqualification from public funding does not relate only to the contributions at issue in the CFB's request for information). Under this provision, a candidate could respond to a CFB request in the heat of an election only a few days late, with information confirming that all related contributions are lawful and were correctly reported, yet still be completely disqualified from the public matching funds program.

This legislation also adds additional steps to the auditing process that would require the CFB to affirmatively verify certain contributions directly with a contributor before they can be matched with public funds. Candidates are rightly concerned with expediting the audit process. In fact, every time we visit the Council, we get asked about how we can perform audits faster. Perhaps you will ask me about audits today! This legislation would slow down the audit process significantly by adding additional steps to the process of qualifying to receive matching funds.

This legislation applies additional scrutiny to contributions exceeding $50 made via intermediary or by cash or money order. Cash and money order contributions already require a contribution card and are limited to $100. The Campaign Finance Board would be prohibited from matching such contributions with public funds unless the Board is able to affirmatively verify that the purported contributor did in fact make the contribution and was not reimbursed for that contribution. Numerous serious logistical challenges to obtaining such verification make it likely that a very high percentage of such contributions would be ineligible for matching funds.

We are concerned the additional scrutiny of cash and money order contributions will have an unintended disproportionate impact on unbanked contributors, who are the predominant users of cash and money orders. According to the federal Department of Consumer and Worker Protection, 9.4% of New York City households are unbanked. This is significantly higher than the national average of 5.4%. Federal Deposit Insurance Corporation survey data reports that most households were unbanked because they lacked the funds necessary to meet minimum balance requirements.

CFB analysis of contributions made in 2021, show that cash and money order contributions over $50 are more likely to come from the Bronx and Queens Council Districts 20 and 31, places with lower voter turnout compared to the rest of the City. This is exactly the group of people we want to engage more in the democratic process by incentivizing and matching their small contributions, instead of erecting additional barriers to their participation. In fact, many of the districts whose candidates and contributors would be most impacted by this bill are NYC Votes priority neighborhoods—places we’ve identified for extra outreach as part of our mandate to reach underrepresented communities.

The most diverse City Council was recently elected in 2021; this is the time to build on progress making the Council a more inclusive body. We believe this bill would make it more difficult for people from diverse backgrounds to have their contributions matched with public funds and, by extension, make it more difficult for candidates relying on such supporters to receive public funding, discouraging them from running for office.

We do not deny that there have been, and will be, instances of a small number of individuals attempting to take advantage of the public matching funds program. On the other hand, a vast majority of campaigns are just trying to do the right thing and comply with the law. The proposed verification process seemingly assumes that all covered contributions, including, under the proposed expansion of the definition of intermediary, those made by credit card through a personalized hyperlink, are fraudulent and invalid unless and until proven otherwise by CFB staff in collaboration with the donor. In our effort to uncover straw donors, we may throw a lot of babies out with the bathwater.

We look forward to finding a solution that doesn’t adversely impact unbanked contributors, other legitimate donors, and the candidates who rely on their support.

Some jurisdictions, for example, verify the identity of individual contributors by comparing the names and addresses of contributors against voter file records, a technique that is useful but limited because lawful contributors are not required to be registered voters. We are also looking into technology solutions—like anomaly detection or signature comparison software—that might enhance our auditing processes.

The last bill under discussion today is Introduction 954, which would require the CFB to communicate an acknowledgment of a contribution to each contributor; we are largely supportive of the aims of this bill. We believe it furthers the CFB’s broad mandate to make democracy more inclusive and accessible to everyone in this city and provides an additional method of oversight to carry out that mandate.

Campaigns don’t always mention the matching funds program when fundraising, so this is a great tool to spread awareness of the program and further our mission to engage underrepresented communities. It also doubles as a useful enforcement tool that happens after a contribution is made, but before a campaign’s full audit begins, and may expose one type of straw donor scheme, wherein the reported contributor is unaware of the scheme. (In a straw donor scheme involving reimbursement, however, the straw donor would be unlikely to contact the Board to report their crime.)

We would like the legislation to allow us to contact contributors by email and phone, instead of, or in addition to, by mail. Currently, campaigns are not required to disclose contributor emails or phone numbers to the CFB–a section of Introduction 952 requires campaigns to collect phone numbers and email addresses, but not to disclose that information to the CFB. Our friends in Portland, Oregon send similar acknowledgments to their contributors and report higher response rates over email and phone for certain contributors.

The CFB is grateful for the opportunity to provide testimony on three bills being considered by this committee today. We are committed to working with the Council to arrive at thoughtful, comprehensive solutions to improving the law, while maintaining the integrity and accessibility of the matching funds program, which doesn’t work unless campaigns can use it.

As you can surely tell, the CFB shares this Committee's goals of strengthening oversight and enforcement of campaign finance rules. As I close, I want to underscore that we believe this needs to happen on our end, by finding efficient and effective processes to identify any issues that may arise. It is entirely possible to strengthen the integrity of our system while maintaining its accessibility and inclusivity.

We’re not going to out-regulate a bad actor. Someone intent on carrying out a straw donor scheme is going to find a way to do that, even if we make it harder for all donors and all campaigns to use the program. But we can make it a lot harder for those bad actors to get away with it, which we agree is of the utmost importance in this moment.

Thank you again for the opportunity to testify. I am happy to answer any questions you might have.