Testimony of Amy Loprest, Executive Director of the New York City Campaign Finance Board, on Int. No 1325

01/14/2019

My name is Amy Loprest and I am the Executive Director of the New York City Campaign Finance Board. Thank you Chair Cabrera and members of the committee for the opportunity to submit testimony on Int. No. 1325 which would allow the creation of legal defense funds.

We appreciate that care was taken in drafting the legislation to ensure that the permissible expenditures are well-defined, that legal defense trusts cannot be used to defray any campaign-related costs, and that influence-seeking by donors is minimized. With that, we have some concerns with the bill as drafted that we would like to share with the members of the committee today.

It is our understanding that the purpose of this bill is to provide elected officials and other public servants with an avenue for paying certain legal fees they may incur if they are under investigation, while minimizing the risk of corruption or conflicts of interest associated with fundraising. The bill defines these fees as “legal expenses in connection with a governmental, administrative, criminal or civil investigation, audit or action… that is related to a political campaign, issue advocacy, or the holding of a civil office or appointment, public office or political party position.”

Our interpretation of Int. No. 1325 as drafted is that it would allow legal defense trusts to make expenditures for legal representation in connection with CFB audits and enforcement actions, and towards any penalties incurred.

Int. No. 1325 meets an identifiable need—it provides elected officials and other public servants with an avenue for raising funds to defray the costs of a legal defense for a matter related to their work, in instances when the Corporation Counsel is not available to represent them. It sets limits that protect against the corrupting influence of large contributions, and it requires transparency and public disclosure of contributions.

However, there is already a mechanism in place that allows candidates to raise funds for defense costs related to a CFB post-election audit. Any candidate for city office—including sitting elected officials and other public servants—can cover these costs through their campaign committee, subject to contribution limits and disclosure requirements. The Campaign Finance Act permits candidates to spend campaign funds on legal fees associated with responding to a CFB audit or any other legal defense of a non-criminal matter arising out of a political campaign. Candidates can also use campaign funds to pay any non-criminal penalties or fines with campaign funds. To the extent that such costs are incurred post-election, as most are, they are not bound by the expenditure limits that apply to Program participants.

By providing certain candidates, i.e. those who are elected officials or public servants, with an additional vehicle to raise funds, Int. No. 1325 creates a path for those candidates to solicit and accept contributions from individuals that aggregate well over the existing contribution limits. A clear majority of voters in last November’s Charter referendum voted to reduce these limits by more than half, with reducing the risk of corruption as the main rationale. As such, we recommend amending the bill to clarify that legal defense trusts may not be used to make expenditures that are already a permitted use of campaign funds.

In setting limits and rules around fundraising for legal defense trusts, it would be useful to find other parallels to those that apply to candidates for city office generally. As drafted, Int. No. 1325 prohibits donations from people who are doing business with the city, including lobbyists, and extends this prohibition to anyone appearing before a city agency. It matches the Campaign Finance Act’s prohibition on donations from corporations, limited liability companies, and partnerships.

We recommend that the $5,000 limit on donations be amended to $3,500, to match the highest contribution limit for non-participants. We urge the Council to consider requiring disclosure of bundled donations, as required in the Act. We also urge the Council to make it clear that the limit applies to donations in the aggregate to a single beneficiary over a fixed timeframe. For example, the limit could apply to aggregate contributions made in a 12-month period, so that even if the beneficiary is under two simultaneous investigations, no contributor could donate $10,000 all at once to both trusts. Finally, transition and inauguration entities (TIEs) should also be designated to ensure consistency with how the bill determines which political committees are not deemed to be trusts. This is yet another way to make certain that any funds dedicated for a different purpose cannot be used to form trusts.

As always, the CFB appreciates the Council’s collaboration in our joint work. 

Thank you for the opportunity to provide testimony today.