The Campaign Finance Board (the "Board"), at a meeting on July 14, 2003, withdrew, for the reasons stated below, a penalty previously assessed against Friends of Leroy Comrie (the "Committee") for violating the primary election expenditure limit. The Board also announced at the conclusion of that meeting that it was troubled by the Committee's failure to report exempt expenditure claims properly and by the Committee treasurer's failure to provide documentation as promised. The Board was concerned by the Committee's lack of cooperation in this matter, including its failure to provide information to the Board on a timely and contemporaneous basis, which caused delay in resolving this matter. The Board further indicated that it would consider what additional action, if any, it should take and issue a written opinion.
Leroy Comrie ran successfully for City Council in the 27th Council district. He received a total of $71,388 in public funds and won his primary election by receiving just 177 more votes than Helen Cooper-Gregory in a race in which about 16,000 people voted.
The Committee's draft audit report was sent on September 13, 2002. The deadline for responding was October 15, 2002. The Committee requested additional time to prepare a response and the deadline was extended to November 14, 2002. When the Committee did not provide a response by that date, the staff again extended the deadline to January 7, 2003, on which date the Committee mailed a response, received on January 9th.
On April 8, 2003, the staff sent a Notice of Recommended Penalties to the Committee. The staff recommended a total of $35,194 in penalties for six violations. Among those recommendations was a $29,466 penalty for exceeding the primary election expenditure limit by $14,733.
The Committee's treasurer, Raynel Trotman, provided two responses to the Notice of Recommended Penalties, on April 18, and April 30, 2003. As a result of the additional documentation provided by Mr. Trotman, the staff lowered its penalty recommendation for the expenditure limit violation to $7,648 for exceeding the expenditure limit by $3,824 (2.7% over the $137,000 limit) and withdrew one of its penalty recommendations altogether.
Mr. Trotman appeared at the May 1, 2003 Board meeting. In the course of the presentation, evidence was presented on the noticed violations and the delay in providing information to Board staff. Mr. Trotman stated that $4,000 he received during the primary election was for exempt expenditures for compliance with the Campaign Finance Program that should not be counted towards the primary expenditure limit. The staff's view was that the full $4,000 should not be considered exempt -- that while Mr. Trotman undoubtedly worked on compliance, not all of his work could be considered exempt because as the campaign's treasurer, he presumably performed routine accounting that would not be considered exempt. (Indeed, some expenditures made to Mr. Trotman indicate that he performed additional functions, including some related to fundraising.) The Committee failed to submit a methodology or any detailed documentation that could have assisted the staff in determining the percentage of Mr. Trotman's time that was actually spent on compliance. Further, when the Committee first submitted the $4,000 invoice, it did not include the sentence: "Services provided for campaign compliance consultancy and accounting." This sentence was added to the invoice when it was resubmitted on April 18, 2003 as part of the Committee's response to the Notice of Recommended Penalties.
At the May 1, 2003 meeting, the Board agreed to allow Mr. Trotman to submit to the staff additional documentation substantiating his claim that his duties were entirely compliance-related. Mr. Trotman stated at the May 1 meeting that he had such documentation and that he would provide it, including timesheets. It was expressly on this basis that an extension of time was granted. The Board instructed the staff to send a letter to Mr. Trotman confirming the need for and opportunity to submit additional documentation. This letter, from Chris Oldenburg, was sent on May 1, 2003 and identified documentation to be submitted, including "contemporaneous invoices or other evidence of the extent to which [Mr. Trotman's] work consisted of compliance services. ..."
The staff did not receive a reply to this letter prior to the next Board meeting, held on June 4, 2003. At the June 4 meeting, the Board assessed penalties in the amounts recommended by the staff, a total of $11,348, including the $7,648 penalty for exceeding the primary expenditure limit by $3,824. Following this meeting, Mr. Trotman and Mr. Comrie learned that penalties had been assessed against the Committee and called the staff. Each stated that he had not received a copy of the May 1, 2003 letter. Subsequent investigation revealed that the letter addressed to Mr. Trotman had been returned by the Post Office due to an incorrect address. The letter to Mr. Comrie had not been returned, indicating that he had received it. Nevertheless, the staff faxed copies of the May 1 letter and sent a new letter (signed by Julius Peele), along with the Final Board Determination and Final Audit, again requesting that the Committee submit any documentation concerning exempt expenditures, by June 20, 2003.
On June 20, 2003, the Committee, rather than submitting a response, submitted a "Rule 5-02(a)" petition. In this letter, the Committee claimed that the Board's decision, contained in the Final Audit Report, to deny a further public funds payment to the Committee based on the Board's finding that the Committee had violated the expenditure limit, was erroneous.
A Rule 5-02(a) petition is not a proper vehicle for challenging a Board penalty determination, directly or indirectly. Rule 5-02(a) is exclusively available to challenge payment determinations, and the consequence that some violations may result in non-payment does not by itself justify use of Rule 5-02(a). In this case, however, because the confluence of events resulted in the issuance of the Final Board Determination and Final Audit before the Committee submitted its complete response, the Board is treating the June 20 letter as a continued response to the notice of recommended penalties first issued on April 8, 2003.
In the June 20, 2003 letter, the Committee claims that it incurred three kinds of expenditures during the primary election period, totaling $6,776, that should be considered exempt, thereby bringing the Committee's primary expenditures below the $137,000 limit:
The $4,000 expenditure to Mr. Trotman described above. In the June 20 letter, the Committee described, for the first time, a breakdown purporting to show that these wages were paid exclusively for the preparation of disclosure statements 6, 8, 9, and 10 and for "training staff in the use of CFB contribution forms." But despite his representation at the May 1 meeting, Mr. Trotman provided no documentation, much less contemporaneous documentation, to substantiate this. The Committee asserts, as it did in its earlier responses to the Notice of Recommended Penalties, that Mr. Trotman was hired only for compliance and that the invoice and "revised invoice" are sufficient documentation.
$1,150 for circulating petitions. The Committee cited two expenditures that were coded as petition expenses when reported in disclosure statements but were never claimed as exempt before the submission of the June 20th letter.
$1,626 for challenging designating petitions. These expenditures were reported in disclosure statements as "legal services" and were never claimed as exempt before the submission of the June 20th letter.
A hearing on the matter was held on July 14, 2003.
Based on the information provided at the hearing, the Board accepts that the expenditures in items #2 and #3 above are exempt expenditures that should not be counted towards the Committee's primary expenditure limit although they were not previously properly reported as exempt and not raised in the Committee's earlier responses.1 This brings the potential expenditure limit violation down to $1,048.
The Board rejects the campaign's position that a treasurer is simply by definition, a 100% exempt expense.2 In particular, given the facts described above, payment to this Committee's treasurer cannot be claimed to have been an entirely exempt expense. The assertion that Mr. Trotman worked only on compliance is not credible. Campaigns require routine accounting and other tasks that are not considered exempt. Here, the Committee has not made it clear who, if not Mr. Trotman, was in charge of such tasks. Further, according to the Committee's own reporting, Mr. Trotman had responsibilities other than compliance. For example, he was paid monies that he in turn paid to campaign workers, spent money on catering and office supplies, and made advances. This is evidence that he worked on more than compliance, and these expenditures were in fact denominated by the campaign itself as non-exempt expenditures through the use of purpose codes such as "fundraising." Finally, the Committee's and Mr. Trotman's reporting and failure to produce promised records is inconsistent with the assertion by the Committee that Mr. Trotman worked only on compliance.
The Board also notes its serious concern at the Committee's failure to meet its burden of providing the Board with contemporaneous documentation or with the documents the treasurer represented that he had. The Committee was questioned about this. Counsel to the Committee asserted that he made a "complete submission" on July 14, a submission that did not include the additional documentation previously offered by Mr. Trotman. No explanation was offered by the Committee or its counsel for the failure to come forward with the promised documents, giving rise to the inference that the documents, if they in fact existed, would be inconsistent with the Committee's claims.
The expenditure limit provisions of the Act are crucial to its effectiveness. This is clear in all cases. The Board must be vigilant in its oversight of expenditures and, hence, exempt expenditures that do not count against the expenditure limit. Public confidence in the system would be particularly shaken if it appeared that over-the-limit spending affected the outcome, as in a close race.
Under the circumstances, including the Board's acceptance of items 2 and 3, it is not necessary to decide in this case the precise portion of time devoted by Mr. Trotman to compliance. When items 2 and 3 above are accepted as exempt, $1,048 is the amount by which the Committee remains above the expenditure limit. Although the Committee did not offer an allocation of the treasurer's exempt and non-exempt functions, the Board nonetheless is satisfied on the facts in this case that Mr. Trotman devoted at least $1,048 worth (one quarter) of his paid time to compliance issues. Therefore, when coupled with the Board's acceptance of items 2 and 3, the Board concludes that the Comrie campaign did not exceed the expenditure limit.
At the same time, the Board will not ignore the Committee's failure to claim exempt expenditures contemporaneously and to maintain contemporaneous, detailed documentation as required under the Rules. To allow campaigns to maintain and report activities without up-to-date, detailed records that are correctly reported to the Board contemporaneously would be to invite campaigns to create records or explanations after the fact and to ignore well-based protections required by the rules against fraudulent or erroneous records and disclosure.
Contrary to the Committee's assertion, the rules in effect during the 2001 elections required, as do the current rules, that campaigns report their exempt expenditure claims in disclosure statements as they were incurred: "Each disclosure statement shall include the following information about expenditures (disbursements and liabilities) made by the committee during the reporting period:.(iii) the reason why an expenditure is exempt.." Rule 3-03(e)(1) (emphasis added).3 The plain language of Rule 3-03(e) also precludes the Committee from plausibly arguing that a campaign can claim exempt expenditures without actually indicating that the expenditures are exempt. In addition to the requirement that it report exempt expenditures contemporaneously, the Committee was under an obligation to provide documentation, at a minimum, upon reaching the expenditure limit. See Rule 1-08(l)(2)(i).4
The burden was on the campaign to monitor whether its total expenditures exceeded the expenditure limit and to show whether a particular expenditure was exempt. See Rule 1-08(l)(1). See also Advisory Op. No. 1996-1 ("The burden is on the campaign to show that an expenditure is exempt and that adequate records have been maintained. These records must be submitted with disclosure statements as provided in Rule 1-08(l)(3).") The current version of Rule 1-08(l)(1) continues to place this burden on the candidate.
Pursuant to Rule 1-08(l)(3), "[a] participant's failure to make a sufficient [exempt expenditure] submission when required. shall give rise to a presumption that the participant has violated the expenditure limit applicable under §3-706(1) of the Code."
Moreover, the rules governing exempt expenditures are detailed in a four-page pamphlet entitled "Exempt Expenditures," that was provided to campaigns that requested additional guidance concerning exempt expenditures. This pamphlet has been unchanged since it was first published in 1996. On the fourth page of the pamphlet is a chart outlining "basic guidelines for exempt expenditures." This chart provides that all campaigns claiming exempt expenditures for personnel engaged in compliance activities must maintain "standard payroll records for these personnel" and that those campaigns that do not obtain pre-approval from the Board of an exempt expenditure methodology must maintain "detailed time records and job descriptions" for these individuals.
Based on the record above, the Board confirms that the penalty previously assessed against the Committee for violating the primary election expenditure limit is withdrawn and concludes that pursuant to Administrative Code §3-711, the following penalties are appropriate for violations of §1052 of the New York City Charter and the New York City Campaign Finance Act (New York City Administrative Code §3-701, et seq.) and Rules of the Board by the Committee:
$400 for failing to report exempt expenditure claims contemporaneously, which resulted in an enormous waste of Board and staff time-as well as the time of the campaign and its counsel. See Rule 3-03(e)(1). Had the Committee properly and timely indicated these exempt expenditures, this matter might never have had to come before the Board.
$500 for failing to maintain adequate records of its exempt expenditures as required and to provide this documentation upon request. Rule 1-08(l)(1). Again, this failure to maintain these documents resulted in an enormous waste of the agency's time and prevented an early resolution of this matter.
$1,000 for Mr. Trotman's representations to the Board based upon which it allowed delay of its consideration of the original Notice of Recommended Penalties. At the May 1 Board meeting, Mr. Trotman stated that he had additional documentation, including timesheets, which he would provide. It was expressly on this basis that an extension of time was granted to the Committee. However, Mr. Trotman did not come forward with the material he said existed, and the Committee's counsel at the July 14 hearing confirmed that he was making a "complete submission" on behalf of the Committee in relation to the exempt expenditure issue at that hearing. Counsel's submission did not include the additional documentation promised by Mr. Trotman. Administrative Code §3-711.
NEW YORK CITY
CAMPAIGN FINANCE BOARD
1 But see discussion at pp. 4-5 below of the Committee's failure to report these in a timely manner. Had the Committee complied with its obligations in the first instance, no issues would have been presented to the Board in this matter. Furthermore, had the Committee identified its arguably exempt expenditures to the Board staff at an earlier time, additional efforts of the Board might have been avoided. In order to claim exempt expenditures, the Committee, as a manual filer, merely had to write in an exempt code on its disclosure statements, on the line next to the word "exempt," for each expenditure it wanted to claim as exempt. (The Committee claimed the $4,000 expenditures to Mr. Trotman as exempt in its disclosure statement no. 12, indicating that the Committee knew how to claim exempt expenditures.)
2 In the June 20 letter, the Committee claims that the treasurer function is "a fully exempt compliance cost" and that compensation to a treasurer, "a position that is required by both the Election Law and the Campaign Finance Program for filing [.] financial disclosure statements, fits squarely within the exemption as described in this opinion." (See footnotes 7 and 9.) These statements misstate the proper inquiry. What is required with regard to exempt expenditure claims is to determine whether a particular claim is for an expenditure that in fact fits within the legal definition for exempt expenditures. Treasurers typically engage in a range of activities, some of which can qualify as exempt and others which cannot. The fact that a particular task is carried out by a treasurer as opposed to an individual with another job title does not place that task in the "exempt" category. Of course, it is possible that a particular treasurer whose duties are explicitly and actually confined to exempt purposes may be entirely exempt.
3 Before the 2001 elections, Board staff told campaigns that they need not report exempt expenditures unless they expected to meet the spending limit. This instruction was changed, however, before the publication in April 2001 of the 2001 Handbook. In addition, Mr. Trotman is an experienced treasurer, having worked on Campaign Finance Board matters since 1988. Further, Mr. Trotman did report his own expenditures for this and other 2001 campaigns as exempt, undermining any argument about confusion.
4 Rule 1-08(l)(2)(i), as in effect during the 2001 elections, states: "At such times as the Board may request and, in any event, when the amount of a participant's total expenditures exceeds the amount of the limit applicable under §3-706(1) of the Code, the participant shall submit with each disclosure statement documentation that substantiates the exempt expenditure claims made in that disclosure statement. This submission shall also include other documentation sufficient to substantiate such amount of previous exempt expenditure claims. The participant shall also make this submission with each subsequent disclosure statement until the Board shall direct otherwise."