NYC Campaign Finance Memo
Content
MEMORANDUM FROM: RE: DATE: City Council Member Brad Lander Legislation to address “Independent Expenditures” (to protect NYC’s campaign finance program from a flood of corporate cash) August 27, 2013
Summary New York City’s strong campaign finance system is under threat from a flood of corporate cash through “independent expenditures.” (IEs). While more attention has been paid to IEs at the citywide level, they are especially dangerous in the City Council, where they can more easily overwhelm all other spending by candidates, and become the majority of information provided to most voters. This threat to democracy is becoming increasingly clear in the 2013 election cycle, especially in the case of the “Jobs for NY” IE created by the Real Estate Board of NY (REBNY), which has raised over $6 million in large contributions from real estate corporations that do frequent business with the City, and is now engaged in massive expenditures in City Council races, including numerous negative mailings. While IEs are legal under the Supreme Court’s Citizens United decision, the City Council can take meaningful action through legislation that would: Close the “LLC loophole” (which allows corporations to exceed contribution limits) at the city level Require the disclosure of top donors (people, not corporate shells) on communications Require stronger disclosure language on IE communications
Background New York City has one of the strongest campaign finance programs in the country. According to the Brennan Center for Justice: “New York City’s … system has benefits beyond simply limiting the size of campaign contributions and expenditures … [It] changes how candidates campaign—in a way that betters democracy. Candidates have a much greater incentive to reach out to ordinary voters, everyday New Yorkers without deep pockets. In turn, being asked to contribute—even small amounts—increases citizen interest and participation in elections.”1 By combining a small donor public matching program, voluntary campaign spending limits, contribution limits, and restrictions on donors “doing business” with the City (in real estate development, contracts, etc), NYC has dramatically reduced “pay-to-play” contributions. Unfortunately, the NYC campaign finance system is under existential threat from Independent Expenditures (IEs), which are flooding vast amounts of corporate cash into City campaigns. While IEs are taking place in citywide races as well, they are especially dangerous in the City Council. Candidates who participate in the NYC campaign
1Angela
Migally and Susan Liss (2012), Small Donor Matching Funds: The NYC Election Experience, Brennan Center for Justice.
matching system are limited to spending $168,000 in each of the primary and general elections.2 But this year, a PAC backed by the real estate industry is on track to spend three to five times more than what candidates are allowed to spend. In these downballot, lower-information races, where name recognition through mailings and paid canvassers matters a great deal, this is about as close to buying races as you can get. REBNY’s “Jobs for New York” PAC The PAC created by REBNY (the Real Estate Board of New York), deceptively titled “Jobs for New York,” reveals the dangers presented by IEs, and highlights major issues with current campaign finance regulations:
REBNY is taking huge advantage of the LLC loophole for IEs. Under NYS law, individuals can give up to $150,000 in annual aggregate to political committees, but corporations are supposed to be capped at $5,000. However, LLCs (the form for many real estate corporations) are treated as individuals, and so can give up to $150,000. And an individual can funnel money through multiple LLCs. This is NOT true under the CFB's rules for contributions to candidates (LLC contributions are prohibited entirely), but we have not yet addressed this for IEs in local or state law. The vast majority of the $6 million that Jobs for NY has raised comes from real estate corporations and LLCs, most of it in large contributions of $50,000 – $100,000. Many of these are from entities that "do business" with the City (the donor limit to Council candidates is $2,750, but for people "doing business" with the City, it is just $250 in order to reduce pay-to-play). Even though Jobs for NY portrays itself as a PAC representing a broader range of business and labor groups, all five of their board members are REBNY officers or leaders. “Pay-to-play” is a clear and present danger: For example: well-connected developers (who are REBNY members) are under investigation by the Moreland Commission for large political contributions to legislators and the governor. These donations came just before the Legislature passed and the governor signed a law allowing five developments to gain special access to a “421-a” property tax break worth tens of millions of dollars. According to a recent analysis by Common Cause, “from 2011 to July 2013, over 70% of REBNY contributions to State Senate candidates went to districts outside of NYC in return for tax breaks and lax regulations.”3
Because of the weakness in current IE disclosure rules, REBNY is able to hide who is behind their mailing to mislead voters:
None mention REBNY, or say anything real about who "Jobs for New York" is. Their use of endorser logos and pictures makes it look like a broad, pro-good-jobs, pro-affordable-housing PAC with labor and elected official support, rather than an entity entirely controlled by REBNY, and funded with large contributions from real estate LLCs. They have mailed multiple negative mail-pieces, which amount to anonymous hitjobs on candidates who are participating in the campaign finance system.
NYC Campaign Finance Board. “Spending Limits.” http://www.nyccfb.info/candidates/candidates/limits/2013.htm#spending 3 "Moreland Monday" Analysis of REBNY Contributions Raises Serious Issues for Commission to Consider, August 5, 2013
2
At least one Jobs for NY mailing engages in ethnically-divisive practices behind the veil of relative anonymity.
Taking Action: New York City Council Legislative Package While IEs are permissible under the United States Supreme Court’s decision in Citizens United, the City Council can take the meaningful steps to reduce the harm. Together with several of my colleagues (including some Council Members who have denounced Jobs for NY spending in their district), I am therefore introducing a package of legislation that will: 1. Close the LLC loophole for IEs. Under New York State election law, individuals can give up to $150,000 annually to all registered political committees. However, corporations are limited to $5,000 annually. Unfortunately, under a 1996 NYS Board of Elections opinion, LLCs are considered individuals, so a single firm can funnel $150,000 through each of its LLCs. And real estate corporations often set up an LLC for each property they own. NYC’s Campaign Finance Law currently addresses this issue only for direct contributions to candidates by banning LLC contributions entirely. However, it is silent on LLC contributions to IEs. Since the Campaign Finance Act already regulates LLCs separately, it would be legally permissible for the NYC law to treat LLCs as corporations, for contributions to IEs in NYC elections. There are legal challenges underway to New York State’s contributions limits regarding IEs. However, as long as those limits stand, New York City could close the LLC loophole. 2. Require any IE mailings and communications to list the identity of the top five donors to the political committee, so voters will know who the people are behind the corporate donors. Both California and Connecticut have laws in place that require this. Connecticut’s recent law, Public Act 13-180, which Governor Molloy signed into law earlier this year, also includes additional reporting requirements on transfers and payments into IE accounts, in order to prevent individuals from hiding behind corporate shells. 3. Requiring a disclosure statement on each IE communication such as the following: “This mailing is funded by an Independent Expenditure, paid for by [top 5 donors], and is not subject to the contribution and expenditure limits of the NYC Campaign Finance Board, which were designed to protect NYC’s elections from the undue influence of money in politics. Find out more at [CFB website].”
Summary New York City’s strong campaign finance system is under threat from a flood of corporate cash through “independent expenditures.” (IEs). While more attention has been paid to IEs at the citywide level, they are especially dangerous in the City Council, where they can more easily overwhelm all other spending by candidates, and become the majority of information provided to most voters. This threat to democracy is becoming increasingly clear in the 2013 election cycle, especially in the case of the “Jobs for NY” IE created by the Real Estate Board of NY (REBNY), which has raised over $6 million in large contributions from real estate corporations that do frequent business with the City, and is now engaged in massive expenditures in City Council races, including numerous negative mailings. While IEs are legal under the Supreme Court’s Citizens United decision, the City Council can take meaningful action through legislation that would: Close the “LLC loophole” (which allows corporations to exceed contribution limits) at the city level Require the disclosure of top donors (people, not corporate shells) on communications Require stronger disclosure language on IE communications
Background New York City has one of the strongest campaign finance programs in the country. According to the Brennan Center for Justice: “New York City’s … system has benefits beyond simply limiting the size of campaign contributions and expenditures … [It] changes how candidates campaign—in a way that betters democracy. Candidates have a much greater incentive to reach out to ordinary voters, everyday New Yorkers without deep pockets. In turn, being asked to contribute—even small amounts—increases citizen interest and participation in elections.”1 By combining a small donor public matching program, voluntary campaign spending limits, contribution limits, and restrictions on donors “doing business” with the City (in real estate development, contracts, etc), NYC has dramatically reduced “pay-to-play” contributions. Unfortunately, the NYC campaign finance system is under existential threat from Independent Expenditures (IEs), which are flooding vast amounts of corporate cash into City campaigns. While IEs are taking place in citywide races as well, they are especially dangerous in the City Council. Candidates who participate in the NYC campaign
1Angela
Migally and Susan Liss (2012), Small Donor Matching Funds: The NYC Election Experience, Brennan Center for Justice.
matching system are limited to spending $168,000 in each of the primary and general elections.2 But this year, a PAC backed by the real estate industry is on track to spend three to five times more than what candidates are allowed to spend. In these downballot, lower-information races, where name recognition through mailings and paid canvassers matters a great deal, this is about as close to buying races as you can get. REBNY’s “Jobs for New York” PAC The PAC created by REBNY (the Real Estate Board of New York), deceptively titled “Jobs for New York,” reveals the dangers presented by IEs, and highlights major issues with current campaign finance regulations:
REBNY is taking huge advantage of the LLC loophole for IEs. Under NYS law, individuals can give up to $150,000 in annual aggregate to political committees, but corporations are supposed to be capped at $5,000. However, LLCs (the form for many real estate corporations) are treated as individuals, and so can give up to $150,000. And an individual can funnel money through multiple LLCs. This is NOT true under the CFB's rules for contributions to candidates (LLC contributions are prohibited entirely), but we have not yet addressed this for IEs in local or state law. The vast majority of the $6 million that Jobs for NY has raised comes from real estate corporations and LLCs, most of it in large contributions of $50,000 – $100,000. Many of these are from entities that "do business" with the City (the donor limit to Council candidates is $2,750, but for people "doing business" with the City, it is just $250 in order to reduce pay-to-play). Even though Jobs for NY portrays itself as a PAC representing a broader range of business and labor groups, all five of their board members are REBNY officers or leaders. “Pay-to-play” is a clear and present danger: For example: well-connected developers (who are REBNY members) are under investigation by the Moreland Commission for large political contributions to legislators and the governor. These donations came just before the Legislature passed and the governor signed a law allowing five developments to gain special access to a “421-a” property tax break worth tens of millions of dollars. According to a recent analysis by Common Cause, “from 2011 to July 2013, over 70% of REBNY contributions to State Senate candidates went to districts outside of NYC in return for tax breaks and lax regulations.”3
Because of the weakness in current IE disclosure rules, REBNY is able to hide who is behind their mailing to mislead voters:
None mention REBNY, or say anything real about who "Jobs for New York" is. Their use of endorser logos and pictures makes it look like a broad, pro-good-jobs, pro-affordable-housing PAC with labor and elected official support, rather than an entity entirely controlled by REBNY, and funded with large contributions from real estate LLCs. They have mailed multiple negative mail-pieces, which amount to anonymous hitjobs on candidates who are participating in the campaign finance system.
NYC Campaign Finance Board. “Spending Limits.” http://www.nyccfb.info/candidates/candidates/limits/2013.htm#spending 3 "Moreland Monday" Analysis of REBNY Contributions Raises Serious Issues for Commission to Consider, August 5, 2013
2
At least one Jobs for NY mailing engages in ethnically-divisive practices behind the veil of relative anonymity.
Taking Action: New York City Council Legislative Package While IEs are permissible under the United States Supreme Court’s decision in Citizens United, the City Council can take the meaningful steps to reduce the harm. Together with several of my colleagues (including some Council Members who have denounced Jobs for NY spending in their district), I am therefore introducing a package of legislation that will: 1. Close the LLC loophole for IEs. Under New York State election law, individuals can give up to $150,000 annually to all registered political committees. However, corporations are limited to $5,000 annually. Unfortunately, under a 1996 NYS Board of Elections opinion, LLCs are considered individuals, so a single firm can funnel $150,000 through each of its LLCs. And real estate corporations often set up an LLC for each property they own. NYC’s Campaign Finance Law currently addresses this issue only for direct contributions to candidates by banning LLC contributions entirely. However, it is silent on LLC contributions to IEs. Since the Campaign Finance Act already regulates LLCs separately, it would be legally permissible for the NYC law to treat LLCs as corporations, for contributions to IEs in NYC elections. There are legal challenges underway to New York State’s contributions limits regarding IEs. However, as long as those limits stand, New York City could close the LLC loophole. 2. Require any IE mailings and communications to list the identity of the top five donors to the political committee, so voters will know who the people are behind the corporate donors. Both California and Connecticut have laws in place that require this. Connecticut’s recent law, Public Act 13-180, which Governor Molloy signed into law earlier this year, also includes additional reporting requirements on transfers and payments into IE accounts, in order to prevent individuals from hiding behind corporate shells. 3. Requiring a disclosure statement on each IE communication such as the following: “This mailing is funded by an Independent Expenditure, paid for by [top 5 donors], and is not subject to the contribution and expenditure limits of the NYC Campaign Finance Board, which were designed to protect NYC’s elections from the undue influence of money in politics. Find out more at [CFB website].”
