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1997-6: Spending Limit for Candidate Who Abandoned Mayoral Campaign and Seeks Re-Election as Bronx Borough President

June 24, 1997

Re: Administrative Code 3-702(3); 3-706; 3-710(2) (c); 3-712; 3-713; Campaign Finance Board Rules 1-03(a) (3); 1-04(c) (1), (f); 1-07(a); 1-08(c) (1) (i); 1-08(d) (1), (2), (j); 5-01(d) (12), (n) (1); 5-03(e); 7-01; 7-03; Op. No. 1997-6

An advisory opinion has been requested on behalf of Ruiz '97, City Councilman Israel Ruiz, Jr.'s, authorized committee for his Bronx Borough President campaign. The question raised is which expenditures made by Ferrer '97, Bronx Borough President Fernando Ferrer's authorized political committee, are subject to the spending limit applicable to a campaign for borough president. Ruiz '97 and Ferrer '97 each submitted written materials which serve as the basis for this advisory opinion1. Both candidates are participating in the New York City Campaign Finance Program.

On January 27, 1997, Ferrer announced his candidacy for mayor. On May 13, 1997, Ferrer announced his withdrawal from the mayoral race and his intent to seek re-election as Bronx Borough President2. The last Campaign Finance Board disclosure statement filed by Ferrer '97 on January 15, 1997, reported total campaign expenditures-to-date of $960,176. The total spending limit applicable in a mayoral primary is $5,002,000. The total spending limit applicable in a borough president primary is $1,245,0003.

Advisory Opinion No. 1993-7 (July 20, 1993) also addressed an issue similar to the one in the instant case, although in a different context. In that case, the Board was asked to determine whether expenditures for an abandoned campaign for mayor made by a candidate for public advocate not participating in the Campaign Finance Program would trigger accelerated public funds payments and the removal of the spending limit for his participating opponents under Administrative Code 3-706(3). That opinion relied, in substantial part, on a presumption about expenditures that is equally applicable to the Ferrer campaign. Specifically, Campaign Finance Board Rule 1-08(c) (1) (i) states, "an expenditure is presumed to be made for the first election (in which the participant is a candidate) following the day it is made..." See also Rule 7-03 (non-participating candidates).

Advisory Opinion No. 1993-7 concluded that in reviewing a non-participating candidate's financial transactions for purposes of Administrative Code 3-706(3), the Board would not exclude transactions on the basis of their arguable relationship to the abandoned campaign for mayor. While similar in a number of respects, Advisory Opinion No. 1993-7 is not conclusive for the present case because of two significant distinctions:

1) Ferrer is now seeking re-election as borough president, not election to another city-wide office. The borough president election covers a much smaller constituency, which is located entirely in one of the five boroughs. As a result, a number of campaign expenses made by Ferrer '97 for a mayoral campaign prior to Ferrer's withdrawal as a mayoral candidate clearly would not be made or have a benefit for a re-election campaign for Bronx Borough President. See Advisory Opinion No. 1989-2, discussed below. This fact may be sufficient to rebut the presumption with respect to certain expenditures, as described below.

2) In the instant case, the Board is construing the applicability of the spending limit to expenditures made by a participating candidate. Unlike the provisions of Administrative Code 3-706(3) that address monies "spent... or received" by a non-participating candidate for purposes of determining whether participants are entitled to a two-for-one matching rate, the spending limits of the Act clearly do not cover every expenditure encompassed by the presumption that spending is made for the next election following the expenditure. See Administrative Code 3-706(4), 3-712; Rule 1-08(d) (1).

It should be noted that the Board does not entertain arguments asserting that the "value" or utility of a particular expenditure for a candidate in the Program is somehow less than the amount actually spent, so that all or some of the full amount spent should be excluded from the Program's spending limits. It is the Board's view that such arguments cannot be sustained under the Campaign Finance Act.

Thus, in the instant case, Ferrer '97 must overcome the Board's presumption that an expenditure is made for the candidate's next election. The Board's presumption functions as the starting point for determining which, if any, of the following expenditures described by the Ferrer campaign are not subject to the spending limit for borough president:

1. A January 23, 1994 Bronx Borough President inaugural event held for Ferrer. The event was not a fundraising event.

2. Polls conducted by Ferrer '97 to gauge public support for his candidacy for the office of mayor.

3. A January 27, 1997 mayoral announcement event held at the Waldorf Astoria.

4. Opinion research conducted by Ferrer '97 on other mayoral candidates.

5. Mayoral campaign literature paid for by Ferrer '97.

6. Mayoral campaign events held outside of Bronx County.

7. Political contributions made by Ferrer '97 to candidates and political clubs located outside of Bronx County.

8. The cost of retaining mayoral campaign staff, other than fundraising coordinators.

9. The cost of mayoral campaign offices in Manhattan, Queens, and Brooklyn and the cost of purchasing and renting equipment for these offices. Ferrer '97 has maintained a campaign office in Bronx County throughout the 1997 election cycle, but does not seek to exclude the cost of the Bronx County office from the borough president spending limit.

10. The cost associated with "holiday cards" mailed in 1996 to individuals living outside of Bronx County.

See Letter on behalf of Ferrer '97, dated June 9, 1997; Letter on behalf of Ferrer '97, dated June 13, 1997.

To the extent that the Act or the Board's rules permit any flexibility in accommodating a change in a participating candidate's choice of office sought, the Board must also protect against unfairness to other participating candidates for the same office, who do not have the opportunity to argue that any of their spending was for a different election and should therefore be excluded from the borough president spending limit.

Each category of expenditures, identified by number as listed above, is separately addressed below.

Pre-Expenditure Limit Spending

1. The January 23, 1994 Bronx Borough President inaugural event. There was no expenditure limit applicable under the Campaign Finance Act to the first and second years of an election cycle until June 23, 1994, when City Council Resolution Number 433, which established a $60,000 spending limit for the office of borough president for the years 1994-1995, was adopted. Therefore, the cost of this inaugural event is not under any spending limit.

Polls and Research

2. Mayoral Polls. While, in general, the Board will not consider the impact, effectiveness, or utility of an expenditure in determining whether it is subject to a spending limit, in Advisory Opinion No. 1989-2 (January 3, 1989), the Board found a narrow exception in concluding that, should a candidate ultimately choose to run for a non-city-wide office, mayoral poll expenditures would not be governed by spending limits applicable to non-city-wide offices, provided the poll results are statistically unreliable for preparing campaign strategy with respect to the non-city-wide office. It is the change from a mayoral to a borough campaign that is the critical factor here. Therefore, should Ferrer '97 establish that the mayoral polls conducted were statistically unreliable for preparing campaign strategy for the borough president campaign, the expenses incurred in conducting the polls would not be subject to the borough president spending limit.

4. Mayoral Opinion Research. These expenditures may be analogous to the expenditures for polling, if the campaign can show that the opinion research conducted for Ferrer's race for mayor is not of any assistance in preparing campaign strategy for a campaign for borough president.

Political Contributions

7. Political Contributions to Non-Bronx Recipients. A candidate's contributions to other candidates and political organizations are generally subject to the Act's spending limits. Advisory Opinion No. 1989-2 (January 3, 1989); see also Advisory Opinion No. 1993-12 (December 16, 1993). Given the routine practice by political committees of contributing money to other candidates and political organizations located in other geographic constituencies, the Board is very skeptical that such expenditures could be excluded from the borough president spending limit. Furthermore, because it would be extremely difficult for a regulatory agency to gauge, after the fact, the significance or meaning that a political contribution holds for the contributor, recipient, and other interested parties, it is unlikely that the campaign could carry the heavy burden to demonstrate that these expenditures had no relation to a campaign for borough president, although the campaign can, of course, attempt to do so. Otherwise, these expenditures remain subject to the borough president spending limit, unless they are refunded by the recipients. The amount of any refunded expenditures would not be subject to the borough president spending limit.

Staff, Offices, and Equipment

8. Mayoral Campaign Staff. All or part of the salaries paid to campaign staff hired by Ferrer '97 would not be subject to the borough president spending limit if the campaign can demonstrate that all or some of the work performed by a particular staff member was undertaken solely for the candidate's bid for city-wide office and was without purpose or benefit for a campaign for Bronx borough president. As a first step, the committee would have to provide detailed information about each employee, the work he or she performed, and the amount of time devoted to various tasks.

9. Non-Bronx Campaign Offices and Equipment. The rental cost of mayoral campaign offices in Manhattan, Queens, and Brooklyn and the cost of renting office equipment for such offices are not subject to the borough president spending limit to the extent they were not used for fundraising purposes. In the event that an office or equipment was used for fundraising, its cost is entirely attributable to the borough president race. To the extent office equipment was not used for fundraising purposes, Ferrer '97 must demonstrate that the equipment was neither retained for use in the borough president race nor resulted in proceeds of sale that benefitted the borough president race.

Holiday Card Mailing

10. Costs Associated with the Mailing of Holiday Cards in 1996. To the extent that the Ferrer campaign can show that the recipients of the cards (or their successors, in the case, for example, of officers of organizations) did not reside in the Bronx and were not on a comparable mailing list for previous years, the Board will accept that such costs were without purpose or benefit for a campaign for borough president. Thus, the portion of this spending for which this demonstration is made would not be subject to the borough president spending limit.

Public Events and Publications

For each of the following items, the Ferrer submission represents that the expenditure "was solely applicable and beneficial to Mr. Ferrer's discontinued campaign for Mayor and had no consequential and/or salutary benefit on behalf of Mr. Ferrer's candidacy for re-election":

3. Mayoral announcement at Waldorf Astoria;

5. Mayoral campaign literature; and

6. Mayoral campaign events held outside of Bronx county.

Expenditures for public events and other public communications raise a complex web of issues. Clearly such spending was made to promote, and would have the effect of promoting, a particular candidate. But the Board also accepts the campaign's representation for the purpose of issuing this opinion that a direct association was in fact established at the event or in the publication between that candidate and the office that had been sought (mayor). The question then becomes whether this association can overcome the presumption that spending for the event or publication would be subject to the borough president spending limit4.

Previously, the Board has stated that "for the purpose of determining whether the Act's spending limits apply to certain spending by participants, the Act makes no distinction between expenditures made before and after a formal declaration of candidacy for a particular office." Advisory Opinion No. 1993-7 (emphasis added). This conclusion addressed expenses incurred in evaluating the viability of a candidacy, such as authorizing a political committee and raising funds. Advisory Opinion No. 1989-9 (January 25, 1989). Thus, the fact that Ferrer made a formal declaration of candidacy on January 27, 1997 is not a consideration in evaluating the expenditures discussed above in categories 2, 4, 7, 8, 9, and 10.

But the fact that a formal public declaration of candidacy was made can hardly be overlooked when determining whether it would be appropriate to apply the borough president spending limit to events and publications associated with the abandoned effort for mayor. Indeed, the formal announcement for mayor is the one essential fact that allows the Board to consider at all whether spending for public events and publications between the formal announcement and the formal withdrawal can be excluded from the borough president spending limit5.

The Board, on the one hand, accepts the premise that many such candidate appearances and other political communications taking place between January 27 and May 12, 1997 would have had no purpose or benefit for a campaign for Bronx borough president precisely because these activities were closely and expressly intertwined with the mayoral campaign then taking place. The Board assumes only for purposes of this opinion that the representation made by the Ferrer campaign that these public events and publications have an exclusively mayoral association will be corroborated by specific information as the Board reviews the Ferrer campaign's compliance with Program requirements. On the other hand, the fact that the campaign for borough president may have derived some ancillary benefit from a candidate appearance or publication in that period requires that Ferrer '97 propose a method for allocating some portion of the spending that would remain subject to the borough president spending limit.

Proposed Transfer of Funds

The Ferrer campaign also requests that the Board address the following proposal:

It is proposed that Mr. Ferrer be permitted to: (i) establish a new Political Committee, (ii) transfer the balance of monies from Ferrer '97 to the new Political Committee in excess of $125,000 (which shall remain in the Ferrer '97 account), (iii) apply to the CFB to obtain matching funds in the amount of $125,000 (if documentation provided warrants the issuance of such matching funds), (iv) expend no more than the aggregate sum of $250,000 between the date of the issuance of a confirming Advisory Opinion and September 9, 1997, i.e. the 1997 Primary Election date and (v) retain the balance of funds transferred to the new committee for a future election, without the obligation of returning all or any part of the $125,000 of matching funds provided to Ferrer '97 by and to the CFB6.

First, the Board notes that this transfer of funds could only be permitted because the candidate has not yet received public funds for the 1997 election. Rule 1-03(a) (3). The question remains to what extent such a transfer would reduce the amount of public funds that the candidate may otherwise receive.

Rule 5-01(n) (1) states that this kind of transfer is presumed to consist entirely of contributions claimed to be matchable. This presumption has the effect of eliminating any public funds payment to the campaign, should the amount of the transfer exceed the full amount of matchable contributions claimed by the campaign. The presumption is critical and necessary under Administrative Code 3-710(2) (c), which protects the fiscal integrity of the New York City Election Campaign Finance Fund by providing for repayment of unspent campaign funds up to the full amount of public funds received. See also Rule 5-03(e) .

To rebut the presumption, Ferrer '97 makes the following argument:

We believe that there are unique circumstances applicable to the fundraising activities which Ferrer '97 engaged in,... which, from the outset, were in facilitation of a candidacy for Mayor... Monies raised by this Committee were obtained in recognition of the maximum contribution limit... for a candidate for citywide office. It is mere happenstance that such funds are currently available to Ferrer '97 in light of Mr. Ferrer's withdrawal from the mayoral race...

Letter on behalf of Ferrer '97, dated June 13, 1997.

In this case, the change in office sought by itself would not adversely affect the campaign's ability to demonstrate qualification for public funds for the borough president election, because it is presumed that Ferrer will be on the ballot for borough president only, campaigns for both mayor and borough president are covered by the Act, and the borough president contribution limit is applicable to all contributions raised by Ferrer '977. Thus, in the absence of this transfer, Ferrer '97 may now qualify to receive public matching funds on the basis of contributions it has received throughout the 1997 election cycle, if it otherwise demonstrates eligibility for payment under Program requirements. If unspent campaign funds remain on hand after the election, the Ferrer campaign would have to make repayment to the City up to the full amount of public funds received. Administrative Code 3-710(2) (c).

Because Ferrer '97 apparently believes it has sufficient funds on hand to meet expenditures for the remainder of the borough president campaign, it seeks to transfer out the excess so as to reduce the possibility that, in the end, it will have to repay to the City the full amount of public funds it has received. The "happenstance" argument it makes, that contributions originally intended for an abandoned mayoral campaign should not be subject to repayment under Administrative Code 3-710(2) (c), would make that fact equally significant for evaluating whether contributions received during the abandoned campaign are now matchable for a borough president race. Thus, accepting Ferrer '97's argument for the purpose of overcoming the Rule 5-01(n) (1) presumption would have the unintended consequence of requiring the invalidation of matching claims on all contributions received before Ferrer withdrew from the mayor's race. See Administrative Code 3-702(3) ; Rules 1-07(a); 5-01(d) (12) (contributions originally received for elections other than the one in which the candidate is currently a participant are not matchable). The Act's requirements for payment and repayment of public funds run in tandem; the Board cannot accept a theory concerning repayment that undermines the basis for making payment in the first place.

To grant the relief sought here would serve only to undermine the Act's express safeguard against retention of public funds by a candidate who ends a campaign with a surplus. It would open the door for arguments by other candidates who succeed in raising more funds than they believe necessary for their current campaign to set aside the excess, take public funds, spend what remains on hand, and then repay nothing to the City.

There is no public policy or consideration of equity that supports deviating from the clear requirements of Administrative Code 3-710(2) (c) and Rule 5-01(n) (1) in this case. The Board emphasizes that applying these provisions as written in no way impedes Ferrer's ability to run and spend for borough president in the primary and general elections and to receive public funds for those elections. Moreover, this opinion does not restrict Ferrer '97's ability to transfer out as much or as little as it wants, but any transfer out will result in a corresponding reduction in public funds payments. Thus, the only negative consequence for the campaign in the end is that the amount of campaign funds that remain available to Ferrer after the 1997 election is likely to be reduced. Maximizing the campaign funds a candidate will have available for possible use after the election for which the candidate joined the Program, however, is not an objective of the Campaign Finance Act in general, nor of its public financing provisions in particular.

The Board emphasizes that the Ruiz and Ferrer campaigns have requested an advisory opinion. Advisory opinions are based on hypothetical facts and provide guidance to candidates and Board staff in following and administering Program requirements. Throughout the election cycle, however, it is through the Board's audit and complaint processes that it conducts fact finding for all participating candidates to determine the actual circumstances of each campaign.



1 This request was first made on behalf of Ruiz '97 by letter dated May 29, 1997. Following a Campaign Finance Board invitation for Ruiz '97 and Ferrer '97 to submit written arguments by June 9, 1997, submissions were received on behalf of both parties. See Letter on behalf of Ruiz '97, dated June 9, 1997; Letter on behalf of Ferrer '97, dated June 9, 1997. Enclosed with the Ruiz '97 letter and on file with the Campaign Finance Board are two "Ferrer '97" buttons; Ferrer campaign literature entitled "A Mayor For Every New Yorker"; an invitation for a Ferrer '97 "Spring Forward Gala"; nine newspaper articles pertaining to Ferrer's mayoral and borough president candidacies; and copies of numerous Campaign Finance Board disclosure statements filed by Ferrer '97. Enclosed with the Ferrer '97 letter and on file with the Campaign Finance Board is a copy of a Conflicts of Interest Board financial disclosure report completed by Ferrer for calendar year 1996. A supplemental submission was received from Ferrer '97 on June 13, 1997.

2 The Ruiz '97 letter alleges that the Ferrer mayoral campaign was a "sham" and "it was never the intention of Ferrer to run for mayor." Ruiz '97 Letter at 8. The Ruiz '97 letter does not provide specific facts that would serve as a basis for such a conclusion. In addition, because advisory opinions are not the method by which the Board conducts fact-finding, these allegations are not addressed in this advisory opinion. The filing of a complaint, pursuant to Rule 7-01, is the proper procedure to trigger a factual inquiry by the Board into such allegations. In any event, this opinion does not address, and its conclusions would not necessarily be applicable in, circumstances where it is shown that an abandoned campaign was in fact a sham intended to subvert the Act's spending limits.

Other issues raised in the Ruiz request are routinely addressed in the audit process.

In the event that the Board were to determine, during the audit process or pursuant to the submission of a complaint pursuant to Rule 7-01, that Ferrer '97 had exceeded the borough president spending limit by reason of expenditures made in the abandoned campaign for mayor, relief under Administrative Code 3-706(3) (accelerated public funds payments) apparently sought by the Ruiz campaign is unavailable, because Ferrer is participating in the Campaign Finance Program. See Advisory Opinion No. 1993-6 (July 7, 1993) (footnote 1).

3 For the 1994-1995 and 1996 components of the total limit and special requirements applicable to pre-1997 spending, see New York City Administrative Code 3-706(1), (2), (5); Campaign Finance Board Rule 1-08(d) (2), (j). To the extent that current law may not be sufficiently sensitive to the risk of spending limit abuse through "exploratory spending" or to the fact that candidates may change the office they seek due to political realities that develop over the course of a campaign, the Board may recommend appropriate local law amendments after the 1997 election. Administrative Code 3-713.

4 To the extent that the publication or event did not expressly refer to the office of mayor, e.g. a campaign button that reads "Ferrer '97," the cost would be subject to the borough president spending limit as the Ferrer campaign has conceded.

5 Spending for public events and communications during this time period (January 27, 1997 through May 12, 1997) would have a clear and singular public association with a campaign for mayor that is altogether distinct from earlier spending for events and publications, that would necessarily have had a more hybrid quality, and from spending for "behind-the-scenes" campaign activities. As difficult as it is for the Board to draw rational distinctions among the purposes and benefits of post-mayoral announcement public events and communications, it would be impossible to make similar distinctions for earlier public events and communications or for activities behind the scenes, and the latter two categories must remain subject to the borough president spending limit, except in the narrow circumstances described above.

6 The dollar amounts set forth in this request appear to be conjectures by the Ferrer campaign as to the amount of expenditures they may prospectively make within the borough president spending limit and the amount of public funds for which the Ferrer campaign may qualify. While the Board has quoted these figures for the purpose of illustrating the issue, it must be emphasized that the Board has no basis for opining on the ultimate accuracy of these figures.

7 The fact that a transfer-out may be made does not, in any way, change the applicability of the $5,900 borough president contribution limit, nor does it support an argument that any expenditures made for raising funds would not be subject to the borough president spending limit. See Advisory Opinion No. 1993-8 (July 20, 1993) (footnotes 3 and 5) and Local Law No. 69 of 1990 at 5 (repealing special allowance for fundraising expenditures). Under Rule 1-04(f) contributions are considered to be for the next following election. This presumption clearly subjects all contributions at issue here to the borough president contribution limit. See Advisory Opinion No. 1993-12 (December 16, 1993). Accordingly, Ferrer '97 has represented that all contributions it has received in excess of the $5,900 borough president contribution limit will be returned to contributors, as is required pursuant to Rule 1-04(c) (1).

8 Board Chairman O'Hare was not present for the consideration of this advisory opinion.