Last month, New York Governor Andrew Cuomo announced that he and legislators in the New York State Assembly had agreed on a “5 Point Ethics Reform Plan,” a sweeping proposal to create substantial changes in New York campaign finance law. The reform bill passed out of the legislature in mid-June and is expected to be signed by the governor any day.
Most of the significant changes will become effective 30 days after the governor signs the bill into law, meaning those preparing to get involved in New York state elections this fall will need to become familiar with the new requirements quickly. The changes are particularly important for entities considering making independent expenditures in those elections, as the bill creates a new definition for an “independent expenditure committee” and adds more detail to New York’s definition of “coordination.” Nonprofit organizations exempt from federal income tax under Internal Revenue Code section 501(c)(4) are also targets for further disclosure obligations under this new law. Finally, the bill includes specific registration and reporting requirements for “political consultants” – the first-ever provision of its kind in New York law – which may impact many consultants and other service providers active in the political arena.
Some of the biggest changes in the bill create what the Governor’s office has heralded as “the nation’s strongest independent expenditure reforms.” The central component of these reforms is the addition of a definition of “independent expenditure committee” (called an IEC) and of “political action committee” (called a PAC). An IEC will be defined as any political committee that makes only independent expenditures to support or oppose candidates or ballot proposals and does not coordinate those expenditures. IECs can be created by persons, corporations, labor organizations, and trade or professional associations.
On the other hand, a political action committee – a term that had not previously been defined in New York law – will be an political committee that makes no expenditures to support or oppose any candidate or ballot proposal and instead only makes contributions to candidates, parties, and IECs. Under the proposed law, IECs are expressly prohibited from contributing to candidate committees, party committees, and PACs.
Though New York has required independent groups to register and to regularly report their political spending in the past, the new bill is unique in the frequency of reporting and level of disclosure it requires for IECs. Any entity or person making an independent expenditure in New York will need to register with the New York State Board of Elections (the Board) as an IEC prior to making that independent expenditure. When registering with the Board, new IECs will be required to disclose the following categories of individuals on the registration:
- Category 1: If the IEC is a person, the name, address, occupation, and employer of the person.
- Category 2: If the IEC is an entity, the name and employer of any individual who has operational or managerial control or influence over the entity, plus any salaried employees of the IEC.
- Category 3: If any of the individuals falling in Categories 1 or 2 have, in the two years before the registration is filed, been employed or retained as a political, media, or fundraising consultant for a candidate or party committee – or held a formal position in an elected candidate’s office or in a party committee – that must be indicated on the registration, with the name of the prior employer disclosed.
- Category 4: If any person disclosed under Categories 1, 2, or 3 is an immediate family member of a candidate, that individual also has to be identified as a family member on the registration.
Any changes in control or management of the IEC will require an updated registration to be filed within 24 hours of that change. PACs will additionally be subject to similar, detailed disclosures about individuals who control the PAC and the PAC’s salaried employees when registering with the Board.
After registering, IECs will then be required to report to the Board, every Monday, all contributions of $1,000 or more and all expenditures over $5,000 made during the past week. In certain pre-election periods, IECs will have to report contributions of $1,000 or more within 24 hours of receipt. The names, addresses, occupations, and employers of donors giving $1,000 or more to the IEC will be disclosed in these reports.
The bill creates one of the more expansive definitions of coordination in current state law. What is and is not coordination is always an important question under campaign finance law, because activities that are coordinated – and are therefore not independent – count as contributions to the candidate or party involved. In New York, that means the amount spent on those coordinated communications will be subject to contribution limits.
The bill contains a laundry list of situations that will be considered coordination, including:
- A candidate, candidate’s committee, or agent of a candidate (referred to here as the “candidate”) participates in the creation of an IEC within two years of an election in which the candidate is running and the IEC makes an expenditure benefiting that candidate.
- The candidate appeared at a fundraising event hosted by the IEC within two years of the IEC making an expenditure to benefit that candidate.
- The IEC and the candidate knowingly hire the same consultants and use those consultants to share strategic information within two years of the relevant election.
- The IEC and the candidate have engaged in other strategic discussions within two years of the applicable election.
- The IEC uses information or data that is not publicly available and that is received from someone who was previously a paid consultant, advisor, vendor, or contractor of the candidate within the two years before the relevant election.
- The candidate uses a space for a campaign-related purpose and shares that space with the IEC or rents it from the IEC.
Certain types of nonprofit organizations seeking to participate in New York political processes will face additional reporting and donor disclosure obligations under the new bill as well. 501(c)(4) organizations, specifically, will be required to file reports for certain types of communications that contain issue advocacy but do not clearly support or oppose a New York candidate or ballot proposal.
Covered communications that trigger this reporting will be those that (1) are distributed to at least 500 members of the public and (2) either reference and advocate for or against a clearly identified elected official or reference and advocate for or against the position of any elected official or any government body regarding any vote on any legislation, pending legislation, rule, regulation, or hearing, with limited exceptions. This definition is broad enough to potentially include many types of traditional grassroots lobbying communications.
If a 501(c)(4) organization spends $10,000 or more in a calendar year on these issue advocacy communications, it must file financial disclosure reports that contain detailed disclosures about the 501(c)(4). These reports include the names of all individuals who have operational or managerial control over the entity, itemized expenses for the communication(s), and the name of any individual, corporation, association, or group that made a donation of $1,000 or more to that 501(c)(4), with the date of the donation. The bill provides one mechanism for avoiding donor disclosure here – the 501(c)(4) organization can create a separate bank account to be used for issue communications and report only donors to that separate bank account rather than all donors to the organization.
In a new twist, the bill also adds one more layer of registration and reporting to the already complex web of New York campaign finance and lobbying laws. It requires that “political consultants” register with the New York Department of State if the consultant is hired by another client to work on other matters before the state government. A person is a political consultant under the bill’s definition if he or she is compensated for providing services intended to assist a New York elected official or a candidate with that official/candidate’s campaign, such as fundraising services, voter outreach, consulting on communications and advertisements, or otherwise providing political advice. Luckily for some lawyers, providing legal advice or litigation services related to qualifying for the ballot or compliance with election laws is not considered political consulting.
A political consultant then triggers the new registration requirement if he or she provides any services, advice, or consultation to another client regarding any of the following:
- State or local government contracts of any value for real property, goods, or services;
- Appearances in ratemaking proceedings;
- Appearances in any regulatory matter; or
- Appearances in any legislative matter, beyond simply responding to a request for information.
It does not matter whether the political consultant’s activities qualify as “lobbying” or if the person qualifies as a “lobbyist” under New York law, as this new registration scheme is separate from the lobbying laws.
The registration will require disclosing the names of the consultant’s political consulting clients and information about the other clients who retain the consultant for these other, “regulatory” consulting services. Reports of the same information will then be required, based on six-month reporting periods. There is a small silver lining, however: this portion of the law will not be effective until 60 days after the governor signs, and the New York Department of State will need to develop regulations and forms to implement the law. There remains a possibility, then, that the Department might set a compensation or other activity threshold before this new registration is required for political consultants.