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2007-5: Campaigns Must Not Compensate Volunteers for Personal Services

Thursday, 09/06/2007
Thursday, September 6, 2007

Re: New York City Administrative Code §§ 3-702(8), 3-703(1)(l), 3-704(2)(b); Campaign Finance Board Rules 1-02, 1-04(e), 1-04(g); Advisory Opinion Nos. 1989-8, 1989-20, 2003-1; Op. No. 2007-5.

The New York City Campaign Finance Board (the "Board") has received a request for an advisory opinion from the 2009 campaign of Eric Gioia (the "Campaign") to determine how the Board will treat, for the purposes of the Campaign's compliance with the Campaign Finance Act, the work of (i) Mr. Gioia's wife, Lisa Hernandez Gioia, a professional fundraiser, and (ii) Ms. Hernandez Gioia's company, The Esler Group, Inc. (the "Company").1 The request specifically asks for guidance regarding the proper treatment of Ms. Hernandez Gioia's volunteered personal services as well as the Campaign's use of the Company's facilities, equipment, supplies, and employee services.2

Applicable Statutes and Board Rules

Section 3-702(8) of the New York City Administrative Code (the "Administrative Code") provides that the term "contribution" includes:

any payment, by any person other than a candidate…made in connection with the nomination for election, or election, of any candidate, including but not limited to compensation for the personal services of any individual which are rendered in connection with a candidate's election or nomination without charge…the term "contribution" shall not include: (i) the value of services provided without compensation by individuals who volunteer a portion or all of their time on behalf of a candidate or political committee….

New York City Campaign Finance Board Rule ("Rule") 1-02 defines "In-kind contribution" as "a gift, subscription, loan, advance of, or payment for, any thing of value (other than money) made to or for any candidate or authorized committee." Significantly, however:

‘In-kind contribution' does not include personal services provided without compensation by individuals volunteering a portion or all of their time on behalf of a candidate or authorized committee.

Furthermore, Administrative Code § 3-703(1)(l) and Rule 1-04(e) prohibit a candidate or committee from accepting a contribution (directly or in-kind) from a corporation.

Applicable Advisory Opinions and Board Actions

(a) Advisory Opinion No. 1989-8

In Advisory Opinion No. 1989-8 (January 25, 1989), the Board determined that a law firm partner's volunteered legal services were not a contribution. Notably, however, if other compensated co-workers assisted the partner in providing legal advice to the campaign, such services would be considered a contribution by the law firm. The Advisory Opinion also provides that: "the value of the law firm's goods and services provided to the candidate by the partner is not exempt from the definition of a ‘contribution', unless the candidate pays the law firm its usual and normal charge for these goods and services." 3

Advisory Opinion No. 1989-8 also addresses the situation of an associate at the partner's law firm interested in providing pro bono work to the campaign as part of his law firm's expected pro bono educational activities. The Board concluded that such activity could not be classified as volunteered because the law firm would be compensating the associate for his volunteered services. Thus the law firm would be making a contribution to the candidate.

In contrast, if the associate volunteered his own time to the candidate over and above what he normally devoted to the work of the law firm (including expected pro bono activities), the compensation to the associate by the law firm would not be considered a contribution by the law firm, but, rather, volunteered activity by the associate. Nevertheless, the Board placed the burden on the law firm to show that the associate continued to devote, over a reasonable period, an equivalent amount of hours that an associate was expected to work on law firm matters.

(b) Advisory Opinion No. 1989-20

In Advisory Opinion No. 1989-20 (May 24, 1989, superseded in part on other grounds), the Board examined the issue of an artist who donates his or her art to be resold at an art auction to raise funds for a participating candidate's campaign committee. The Board determined that, if not reimbursed, "the artist has made an in-kind contribution to the committee equal in value to the cost of the materials used to create the donated artwork. The value of the artist's services in creating a work (the ultimate value of which is greater than the cost of the materials used) is the same as any services an individual may volunteer to a candidate's campaign." Thus, materials and tangible goods donated to a campaign were considered contributions while services in creating such a finished product were not considered contributions.

(c) Advisory Opinion No. 2003-1

In Advisory Opinion No. 2003-1 (February 11, 2003), the Board examined the issue of a candidate's spouse volunteering some of his time providing compliance services to the campaign, while also receiving compensation for other time spent providing compliance services to the campaign. The result of the spouse's actions would have been significantly reduced expenditures by the candidate's campaign. The Board rejected the notion that the spouse's activities were purely voluntary, and determined that "once an individual has been compensated for a service, he or she may no longer be considered a volunteer for that service." In addition, the Board explained that by paying for only a portion of work performed, the campaign would in reality be receiving services at below-fair-market value, which would result in an in-kind contribution equal to the value of the discount. 4

(d) The 2001 Alan Hevesi Campaign5

During the 2001 mayoral campaign, Board staff raised questions about the fee arrangement between Alan Hevesi's campaign committee and its principal campaign consultant, Morris, Carrick & Guma. Although the services this consultant provided were more comprehensive than those of other consultants, the cost to the campaign was unusually low. In addition, the campaign reported no expenditures for rent.

The Board learned that the Hevesi campaign maintained no formal campaign office; rather it worked out of the consultant's headquarters. In addition, it was revealed that the owner of the consulting company, Hank Morris, was volunteering his own services as a consultant while charging the Hevesi campaign for other work performed by his firm.

While the Board recognized the right of a candidate to run his campaign in an unusual and frugal manner, the Board determined that the arrangement between the Hevesi campaign and Mr. Morris would constitute a violation of the corporate contribution ban and a violation of the contribution limit because Mr. Morris had never operated as a political consultant separately from his firm. As long as the firm he owned was receiving payment for its services to the campaign, Mr. Morris could not be considered a volunteer. To allow such "volunteer" services would effectively allow the acceptance of an in-kind corporate contribution from the firm to the Hevesi campaign.

In addition, the arrangement between the Hevesi campaign and Mr. Morris whereby the Hevesi campaign paid Mr. Morris' firm for its work, but did not pay Mr. Morris personally for his consulting services, significantly reduced the Hevesi campaign's expenditures and provided that campaign with an advantage not enjoyed by the other mayoral candidates.

As a result of the Board's determination, the Hevesi campaign agreed to modify its contract with the consulting firm and paid an additional $250,000 to account for the fair market value of Mr. Morris' services.


(i) Ms. Hernandez Gioia's Role

The request states that Ms. Hernandez Gioia "wishes to volunteer for her husband's campaign." The request's assertion that "her right to volunteer, and the Committee's right to receive her volunteered services, is clearly provided for in the Campaign Finance Act" is correct. To be considered a volunteer, however, Ms. Hernandez Gioia must neither charge, nor accept any payment, for her services. Acceptance of any compensation from the Campaign for personal services will result in the requirement that the Campaign fully compensate Ms. Hernandez Gioia for the fair market value of all services rendered. See above discussion of Advisory Opinion No. 2003-1. The nature of Ms. Hernandez Gioia's profession, i.e., political fundraising, does not affect this analysis.

(ii)(a) The Esler Group, Inc. Employees' Services

The request states that "the Committee and the Company will agree that any Company employee assisting Ms. Hernandez Gioia in connection with the Committee is not a volunteer but is instead providing services as part of his or her employment duties to the Company. Accordingly, the Company will bill the Committee and the Committee will pay the Company for the fair market value of such personal services…."

Ms. Hernandez Gioia is the sole proprietor of The Esler Group, Inc. Payments by the Campaign to The Esler Group, Inc. for Company employees' services will, in theory, enrich Ms. Hernandez Gioia. To retain her volunteer status, it is imperative that Ms. Hernandez Gioia not receive any personal compensation for her volunteer services; and, in addition, neither she nor the Company may profit from the efforts of Company employees in service of the Campaign.

The request proposes that the Company bill the Committee for the "fair market value" of any services provided by any Company employee assisting Ms. Hernandez Gioia. This proposal is consistent with some prior Board Advisory Opinions, but raises an issue not adequately addressed previously, particularly in the determination described above with regard to the 2001 Hevesi mayoral campaign. The fair market value of services for which the Company bills its clients presumably contains a profit element above the out-of-pocket and overhead costs to the Company for providing such services. As owner of the Company, Ms. Hernandez Gioia is the beneficiary of such profit. The Board believes that it is in the interests of the Campaign to avoid the risk of a later determination similar to that described above with respect to the 2001 Hevesi mayoral campaign. The Board therefore recommends that the Campaign obtain from the Company, and submit to the Board for its approval, a methodology for the Company to eliminate such profit element when determining the value of the services to be performed by its employees on behalf of the Campaign. Inevitably, such a methodology will result in the Company charging the Campaign less than the amount it charges a campaign to which Ms. Hernandez Gioia is not volunteering her personal services. However, the Board's pre-approval of such a methodology will avoid the risk of the Campaign facing the issues faced by the 2001 Hevesi mayoral campaign and those issues described above. See Administrative Code §§ 3-702(8), 3-703(1)(l); Rules 1-02 and 1-04(e); see also Advisory Opinion No. 2003-1 and discussion of the 2001 Alan Hevesi Campaign.

All disbursements from the Campaign for Company employees' actions must be documented and completed according to the Administrative Code and Board Rules.

Regardless of the Campaign's payment amount to the Company for its employees' Campaign-related activities, there must not be a reduction in Company employees' compensation packages, unless there is a corresponding reduction in the amount charged by the Company to the Campaign. Any reduction in employee compensation as a consequence of Campaign payments would result in the enrichment of the Company's sole proprietor, Ms. Hernandez Gioia, and the loss of her volunteer status.

In addition to strictly following the guidelines announced in this Advisory Opinion, it is incumbent upon the Campaign to provide additional information to the Board. Specifically, the Board requires: (i) a detailed report on Company employees' expected tasks on behalf of the Campaign, including the number of hours the Campaign expects those employees will work on its behalf; and (ii) the Campaign's proposed method of recording the amount of time Company employees work on Campaign tasks.

(ii)(b) The Use of Esler Group, Inc. Facilities, Equipment and Supplies

To the extent that The Esler Group, Inc. will use office space, equipment, or supplies in connection with its work for the Campaign, those costs must be billed directly to the Campaign. See Advisory Opinion No. 1989-8; Advisory Opinion No.1989-20.

The Campaign's request asks for "guidance on the proper method of determining the fair market value of the Company facilities used by Councilman Gioia while he is making telephone calls from the Company office. These will include the use of a desk, telephone, computer, and other basic office accoutrements during the times that he is making calls from the Company's office. In addition, Committee staff will also utilize the Company's offices and facilities on a part-time basis."

The Campaign states that the Company routinely charges for the use of its office space only when a client's employee works full time from the Company's offices, in which case the Company charges the client $1,500 per month. However, an agreement effective February 15, 2003 between The Esler Group, Inc. and Miller for New York provided "a separate charge for overhead costs (including but not limited to Esler rented office space & Esler-owned or leased equipment), initially $2,000 per month." The Campaign should explain why the Company charges $1,500 per month in 2007 for overhead, when it charged $2,000 per month in 2003. If no adequate explanation is given, this difference would be viewed as an unlawful corporate in-kind contribution to the Campaign.

The Board advises the Campaign to pay the Company an hourly rate for the use of the Company's office space, equipment, and incidental supplies.6, 7, 8 The Board requires the Company and the Campaign to keep records indicating the amount of time the Campaign uses the Company's work space.

The use of equipment and supplies by the Company for extraordinary purposes (i.e., long-distance phone calls, large-scale photocopying, postage, etc.)9 in furtherance of the Gioia campaign must also be billed to the Campaign. Donation of the use of such equipment and supplies would be considered an unlawful corporate in-kind contribution. See Administrative Code §§ 3-702(8), 3-703(1)(l); Rules 1-02 and 1-04(e); see also Advisory Opinion No. 2003-1. Accordingly, the Board encourages the Campaign to use exclusively materials and supplies purchased with Campaign funds.

(iii) The Campaign correctly recognized in its request that "because Ms. Hernandez Gioia is the spouse of the candidate, and has a 10% or greater ownership interest in the Company, expenditures made by the Campaign for services rendered by the Company are not qualified expenditures, and may not be paid for with public funds." See Advisory Opinion No. 2003-1 and Administrative Code 3-704(2)(b).

(iv) Finally, if Campaign activities during the 2009 election cycle have been inconsistent with the guidelines contained in this Advisory Opinion, the Board strongly encourages the Campaign to contact Board staff. Board staff will advise the Campaign on adherence to Board guidelines, and present counsel on how to remedy past activities not in conformity with this Advisory Opinion.


1 Ms. Hernandez Gioia is the sole proprietor of the Company, which employs five full-time workers and three part-time workers.

2 The request was made by letter dated June 21, 2007 from John Siegal of Baker & Hostetler LLP on behalf of Eric Gioia's principal committee for the 2009 elections.

3 Pursuant to Local Law No. 34 of 2007, as of January 1, 2008 for elections held after that date, candidates may not accept contributions from LLPs and LLCs; contributions from corporations were banned in 1998.

4See Rule 1-04(g)(3). "If goods or services are provided at less than fair market value, the amount of the resulting in-kind contribution is the difference between the fair market value of the goods or services at the time the goods or services are received and the amount charged to the candidate."

5See the discussion of the Hevesi campaign in the Board's 2001 post-election report, "An Election Interrupted…" at 134-35. See also Campaign Finance Board Final Audit Report of Friends of Hevesi (December 19, 2003), available here.

6 The Board suggests that $10 per hour is an appropriate rate if adequate explanation is given to explain the $500 reduction in monthly overhead costs between 2003 and 2007. This amount is based on the following calculation: a typical full-time working month is approximately 160 hours (40 hours x 4 weeks per month). $1,500 (the amount charged for full-time office use) divided by 160 hours is slightly less than $10 per hour, but the inclusion of the use of office equipment and incidental office supplies should closely approximate the difference.

7 If the Committee does not adequately explain the discrepancy in monthly overhead costs, the Board suggests paying the Company $13 per hour. This amount is based on the following calculation: a typical full-time working month is approximately 160 hours. $2,000 (the amount charged in 2003 to Miller for New York for overhead costs) divided by 160 hours is $12.50 per hour, but the inclusion of the use of office equipment and incidental office supplies should raise the hourly rate to $13.

8 The calculations contained in Footnotes 6 and 7 apply exclusively to this Advisory Opinion, and are not intended for use by other campaigns.

9 This list is intended to demonstrate "extraordinary purposes" and should not be construed as exhaustive.