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1996-1: Certain Compliance Costs Exempt from the Expenditure Limit

April 04, 1996

Re: Administrative Code §3-706(4); Campaign Finance Board Rules 1-08(e)(1), (l); 4-01(a), (e)(1) and (2), (f), (g); Op. No. 1996-1

The New York City Campaign Finance Act permits candidates participating in the Campaign Finance Program to claim certain "compliance" expenditures as exempt. Specifically, the Act states:

Expenditures made for the purpose of complying with the provisions of this chapter or the election law, including legal fees, accounting fees, the cost of record creation and retention, and other necessary compliance expenditures ... shall not be limited by the expenditure limitation of this section.

New York City Administrative Code § 3-706(4).

The Board has previously issued several advisory opinions interpreting the compliance cost exemption. For purposes of clarification, this opinion supersedes previous opinions on this subject1 It is intended to serve as a comprehensive summary of what is an exempt compliance cost under §3-706(4).

As an initial matter, it is important to note a distinction between standard bookkeeping and other practices that political committees routinely perform as entities that raise and spend funds and those functions performed for purposes of complying with the requirements of the Campaign Finance Program and New York State Election Law. Costs incurred for a standard practice, such as depositing checks, may not be claimed as an exempt compliance cost. As described below, however, if an expense is incurred for both compliance and non-compliance purposes, a portion of the expense may be claimed as exempt, but only if the claim is reasonable and satisfactorily documented.

The following expenditures may be claimed as exempt compliance costs under §3-706(4):

1. Compensation paid to attorneys and their support staff are exempt compliance costs, but only to the extent it is attributable to counsel or representation that is directly connected with the campaign's duty to comply with the Campaign Finance Program requirements or New York State Election Law. Thus, for example, attorneys' fees incurred in connection with a claim brought by a lender or vendor or with a cause of action under federal law would not, in general, be exempt from the expenditure limit2.

2. The cost of preparing financial disclosure statements required by the Campaign Finance Program or State Election Law is exempt. The cost of creating and retaining records is exempt, except for those records that are kept pursuant to standard practices. Thus, the costs of maintaining the following routine records that are also required to be maintained by Board rules are not exempt compliance costs: checkbook register, petty cash journal, bank records, and loan records. See Rule 4-01(e)(1) and (2), (f), (g).

Compensation paid to an accountant for any services other than an exempt compliance cost as described in this item 2 is not an exempt compliance cost.

3. The cost of circulating and filing designating and nominating petitions as required by State Election Law is an exempt compliance cost. See Rule 1-08(e)(1).

4. Expenditures for goods and services, including computer hardware and software, compensation paid to employees and consultants, and overhead3 are exempt compliance costs if incurred solely in support of activities that are exempt compliance costs, as described in items 1 through 3 above. If these costs are partly for compliance and partly for other purposes, the campaign must be prepared to propose to the Board a reasonable allocation for what percentage is exempt. The Board will determine what portion, if any, may properly be claimed as an exempt compliance cost.

Expenditures for the following purposes, among others, are not exempt compliance costs under §3-706(4), regardless whether it is asserted that the expenditure also relates to the campaign's duty to comply with Program requirements or State Election law4:

- planning and managing the campaign's budget and the expenditures that will be made, including consideration of how to allocate spending within the expenditure limit;

- bookkeeping for payroll and paying vendors;

- fund raising, including all costs incidental to gathering information from contributors at fund raising events or in fund raising solicitations;

- advertisements;

- mailings and telephone calls, except those made solely for the purpose of gathering contributors' employment and occupation information and information about intermediaries that is required to be disclosed or recorded, as described in item 2 above.

Participating campaigns are required to substantiate all exempt expenditure claims made. Campaign Finance Board Rule 4-01(a) sets forth the relevant general standard:

Participants shall maintain clear and accurate records sufficient to show an audit trail that demonstrates compliance... The records shall be made and maintained contemporaneously with the transactions recorded...

The burden is on the campaign to show that an expenditure is exempt and that adequate records have been maintained5. These records must be submitted with disclosure statements as provided in Rule 1-08(l)(3).

The expenditures described in this advisory opinion as exempt compliance costs are the only expenditures that may be claimed as such, except to the extent that Board interpretation may be extended by subsequent advisory opinions. Campaigns are encouraged to request advisory opinions, as described in Rule 1-08(1)(ii), on whether other particular expenditures are exempt from the expenditure limits of the Act and on what kind of documentation or methodology will be sufficient to substantiate an exemption claim.


1 Those portions of the following advisory opinions that interpret the compliance cost exemption are hereby overruled: Advisory Opinion No. 1989-2, (January 3, 1989), Advisory Opinion No. 1989-15, (March 23, 1989), Advisory Opinion No. 1989-33, (July 19, 1989), and Advisory Opinion No. 1991-3, (June 11, 1991). This opinion does not supersede previous opinions on exempt expenditures that were not interpretations of the compliance cost component of §3-706(4), including Advisory Opinion No. 1989-40, (August 30, 1989) (exempting certain costs in a petition challenge) or Advisory Opinion No. 1991-7, (October 9, 1991) (exempting expenses incurred to challenge or defend the results of a primary election).

2 Attorneys' fees may be exempt from the expenditure limit for other reasons. See Administrative Code §3-706(4) (exempting attorneys' fees incurred "to challenge or defend the validity of petitions of designation...").

3 The Board considers overhead to include rent, electricity, phone costs, and office supplies. Campaigns seeking to claim a percentage of their overhead as an exempt expenditure should propose a methodology subject to Board approval detailing how the percentage of overhead claimed as exempt is to be calculated.

4 This is not a complete list of all non-exempt expenditures.

5See Rule 1-08(1). To meet this burden, the participating candidate's committee must keep very detailed records, unless it has previously obtained Board approval to use a methodology that would allow it to substantiate its claims with reduced recordkeeping. Additional information on the Board's requirements for "preapproval submissions," available methodologies, and other instructions for making and substantiating exempt expenditure claims, is available in the Board's publication, Exempt Expenditures, (April 4, 1996).