CAMPAIGN FINANCE 101

For Cities and Towns

REFERENCE OUTLINE

Updated through 2015 Regular Legislative Session and

2016 Regular Session for laws effective June 1, 2016

Arizona City Attorney Association Summer Meeting

May 2016

Prepared and Presented by:

Cris Meyer

City Clerk

City of Phoenix

602-261-8900

CAMPAIGN FINANCE 101 FOR CITIES AND TOWNS

All section ( § ) references are to Arizona Revised Statutes (A.R.S.) unless otherwise noted. Updated through the 2015 Regular Legislative Session, and 2016 Regular Session for laws effective June 1, 2016.

Page

I.INTRODUCTION...... 1

A.PURPOSE AND CONTENT...... 1

  1. LEGAL COUNSEL
  2. THE LAW AND RESOURCES...... 1
  3. RECENT LEGISLATIVE CHANGES...... 2
  4. OVERVIEW OF CLERK RESPONSIBILITIES...... 2

II.POLITICAL COMMITTEES...... 4

A.DEFINITION OF A POLITICAL COMMITTEE – §16-901(19)...... 4

B.TYPES OF COMMITTEES & DEFINITIONS–§16-901(19)...... 4

C.SPECIFIC SITUATIONS –IS IT A COMMITTEE?...... 6

D.WHEN TO CONSIDER WHETHER A COMMITTEE EXISTS...... 6

III.REGISTRATIONOF POLITICAL COMMITTEES...... 7

A.REGISTRATIONFILING –§16-902.01...... 7

B.CANDIDATE COMMITTEES–§16-903(A)...... 8

C.EXPLORATORY COMMITTEES–§16-903(B)...... 8

D.OTHER POLITICAL COMMITTEES–§§16-902, 16-902.01...... 9

E.BALLOT MEASURE COMMITTEES – §§ 16-902; 16-902.01...... 9

F.STANDING POLITICAL COMMITTEES –§16-901(23); §16-902.01...... 9

G.STATEMENT OF ORGANIZATION –§§16-902, 16-902.01...... 10

H.TREASURER DUTIES –§16-904...... 10

I.IRS FILING REQUIREMENTS FOR POLITICAL COMMITTEES...... 10

IV.CONTRIBUTION LIMITATIONS...... 11

A.CONTRIBUTION LIMITS (FOR CANDIDATES ONLY)–§16-905...... 11

B.PERSONAL MONEY–§§ 16-901(18)...... 12

C.FOREIGN CONTRIBUTIONS ...... 12

D.PROHIBITED CONTRIBUTIONS BY CORPORATIONS &
LABOR ORGANIZATIONS –§16-919...... 12

E.PERMITTED EXPENDITURES BY CORPORATIONS &
LABOR ORGANIZATIONS –§16-920...... 12

F.PROHIBITED CONTRIBUTIONS FROM SEPARATE FUND – §16-921...13

V.CAMPAIGN LITERATURE & ADVERTISEMENT DISCLOSURE...... 13

A.CANDIDATES & INDEPENDENT EXPENDITURES – §16-912...... 13

B.INDEPENDENT EXPENDITURES – §16-917...... 14

C.BALLOT MEASURE COMMITTEES – §16-912.01...... 14

CAMPAIGN FINANCE 101 FOR CITIES AND TOWNS

All section ( § ) references are to Arizona Revised Statutes (A.R.S.) unless otherwise noted. Updated through the 2015 Regular Legislative Session, and 2016 Regular Session for laws effective June 1, 2016.

Page

  1. REPORTINGFOR ORGANIZATIONS MAKING INDEPENDENT

EXPENDITURES (Corporations, LLCs, Labor Orgs)– §16-914.02...... 15

A.REGISTRATION...... 15

B.NOTICE OF INDEPENDENT EXPENDITURES...... 16

C.SUGGESTED PROCEDURE...... 16

D.NON-PROFIT CORPORATION ISSUES (“DARK MONEY”)...... 17

VII.REPORTING CONTRIBUTIONS & EXPENDITURES –§16-913...... 17

A.CONTRIBUTION & EXPENDITURE REPORTS...... 17

B.ALTERNATIVES TO FILING REPORTS(NOACTIVITY) –16-913...... 19

C.CONTRIBUTION NOTICES FROM CANDIDATES - §16-913.02...... 19

D.“10K NOTICES” – §16-914.01...... 20

E.REPORTING & FILING SOFTWARE...... 20

VIII.ENFORCEMENT OF REPORT FILING–§16-918...... 21

  1. "FAILURE TO FILE" DETERMINATION –§16-918(D)...... 21
  2. FAILURE TO FILE NOTICES (from Filing Officer)–§16-918(A)...... 22

C.PENALTIES –§16-918...... 23

D.GOOD CAUSE DEFENSE FOR FAILURE TO FILE –§16-918(E)...... 24

IX.ENFORCEMENT OF OTHER CAMPAIGN FINANCE VIOLATIONS...... 25

X.TERMINATION OF POLITICAL COMMITTEES –§16-914...... 26

A.FILING OFTERMINATION STATEMENT...... 26

B.COMMITTEES WITH OUTSTANDING DEBT OR SURPLUS...... 26

C.DISPOSAL OF SURPLUS MONEY –§16-915.0...... 26

D.COMMITTEE ACTIVE IN MULTIPLE JURISDICTIONS–§16-914...... 26

E.EFFECT OF TERMINATION...... 26

XI.RELATED TOPICS...... 27

  1. FINANCIAL DISCLOSURE – §38-541 thru 545...... 27
  2. USE OF RESOURCES TO INFLUENCE ELECTIONS – §9-500.14...... 27

APPENDIXA – SUMMARY OF NEW LAWS AFFECTING CAMPAIGN FINANCE...29

CAMPAIGN FINANCE 101 FOR CITIES AND towns

  1. INTRODUCTION
  1. PURPOSE AND CONTENT
  1. Content of Outline
  2. Focus on duties and issues for Clerks as local filing officers
  3. NOT contribution / expenditure details(SOS Candidate Workshops)
  1. Reference Summary
  2. Reference guide for applying law and requirements to situations
  3. Includes provisions for Candidate Elections and Ballot Measure Elections
  4. Outline is only a summary and does not cover all relevant details.

Always refer to text of statutes and consult with your attorney!

  1. LEGAL COUNSEL
  1. Important to consult with your attorney!
  2. Campaign Finance regulation is increasingly complex
  3. Law, responsibilities, and duties unclear in many situations
  4. Legal opinions differ. Need to know your attorney’s position.
  5. Responding to Questions
  6. Campaign finance law increasingly unclear. Many answers are legal advice.
  7. Clerk role is filing officer. Can provide information, not give advice!

Note: Your attorney also cannot give legal advice to the public.

  1. The public or other candidatescould challenge any guidance you provide.
  2. Response - "You need todiscuss that with your own attorneyor advisor."
  1. THE LAW AND RESOURCES
  1. Constitution, Art. VII, §16 – Campaign contributions & expenditures to be public
  1. Arizona Revised Statutes (ARS), Title 16, Chapter 6
  1. Article I, Campaign Finance, §16-901 - 925(written for state elections in fall)
  2. Article II, Clean Elections, §16-940 to 961 (applies only to state offices)
  1. Resources / Reference

a.Title 16 Pamphlet: Blue book (Aug2014); Annual Supplement (2015)

b.Attorney General Opinions – Legal opinions of AG. Advisory, not law.

c.Secretary of State (SOS) – resources available on SOS website

1)Campaign Finance Filing Guide (Handbook & Statutes)

2)Election Procedures Manual (2014) (updated early in even years)

d.League of Arizona Cities and Towns

1) Municipal Election Manual (MEM) (Online) (2015) (withcase citations)

2)Campaign Finance Reports Handbook of Instructions / Forms

3)League General Counsel Opinions

  1. Purpose and Limitations for Regulation of Campaign Finance
  1. Public disclosure of contributions and expenditures (who gave, how much)
  2. Protect public contributions from misuse
  3. Limit amount of contributions to candidates (Declining - $410 to $6250)
  4. First Amendment limits regulation (protected political speech).
  5. Supreme Court generally invalidating restrictions but upholding disclosure.
  1. Enforcement
  1. Through disclosure and inspection of reports by media, candidates, voters
  2. Filing officers enforce filing of reportsto ensure disclosure! (Added 1996)
  3. Filing officer also determines “reasonable cause” on other alleged violations
  4. Increasing use of campaign finance complaints as a campaign tactic

D. RECENT LEGISLATIVE CHANGES

See Appendix A, “New Laws Affecting Campaign Finance”, for summary of adopted Campaign Finance Bills in last two sessions. Changes included in outline.

E. OVERVIEW OF CLERK RESPONSIBILITIES

  1. Clerk is “Filing Officer” for campaign finance documents– §16-901(12)
  1. For candidates for city/town office–§16-916(A)(3)
  2. For political committees supporting or opposing candidates or any measures for the city/town ballot–§16-916(A)(3)
  3. Filing officer may prescribe the form of campaign finance documents filed in that jurisdiction. §§16-902.01, 902.02, 903, 913-14 (New 2010)
  1. Assign committee identification numbers – §16-902.01(C)
  1. Filing officer establishes format of identification number
  2. Filing officer must maintain a Log of identification numbers issued

3.Provide Statement of Organization to petition applicants – §19-111(C)

a.Must provide Statement of Organization form (and $500 Exemption Statement form) to initiative, referendum & recall petitionapplicants

b.Also provide SOS Title 19 pamphlet in electronic format (in print on request)

4.Receive Campaign Finance Documents (as Filing Officer)

  1. Campaign Financing & Reporting Statement – §16-905(I)(5)
  • Statement that candidate has readall campaign finance laws
  • Candidates must file with nomination paper (included as part of form)
  • Statement that chairman and treasurer have read campaign finance laws is required in Statement of Org (included in form). §16-902.01(B)(6)
  1. Committee Registration Documents and Amendments – §16-902.01
  • Statement of Organization (SO), OR
  • $500 Threshold Exemption Statement (ES)(“Exempt” from filing reports)
  • $250 threshold for candidatesto register repealed. (2015, HB 2649)

  1. Periodic Reports of Contributions and Expenditures – §16-913
  • Periodic Campaign Finance Reports or No Activity Statement
  • OR - Alternative for Candidates Only - Annual No Activity Statement
  1. Notices of contributions of $1000 or more from a single source received by candidates less than 20 days before election. §16-913.01(2013, HB 2593).
  2. “10K” Notices of large contributions or expenditures by ballot measure and recall committees – §16-914.01
  3. Termination Statements (for registration with SO or $500 ES) –§16-914
  4. “Registrations” and Notices from organizations making independent expenditures to influence candidate elections(Corporations, Limited Liability Companies and Labor Organizations) – §16-914.02 (2010)

5.Post Campaign Finance Reports on Internet – §16-916(A)(3) (Since 2008)

  1. A city or town (with population over 2500) that maintains a website must post to the site “statements of contributions and expenditures”

1) What to Post –

  • Reports (and probably No Activity Statements) for committees that must file reports (those registered with a Statement of Organization)
  • A list of committees that filed a $500 Exemption Statement

2)If the city/town does not have a website, must post on website of an association of cities and towns in this state. (New 2012, HB 2033).

  1. Posting on websiteNOTREQUIREDfor other documents, including:

1)Committee registration docs (SO or $500 ES)

2)Financial Disclosure Statements (SOS and Phoenix do post)

3)Registrations Notices for Independent Expenditures by Corporations, LLCs and Labor Organizations (only SOS must post these)

4)Notices of large contributions (candidates or ballot measure committees)

6.Enforcement of Campaign Finance Reporting – §16-918

  1. Determine whether a committee failed to file a report –§16-918(A)-(D)

(1)Report timely filed? (Must track committees required to file)

(2)Report properly signed? By treasurer or candidate (or explorer)

(3)Good faith effort made to substantially complete report? See VIII.A.4.

  1. Send Failure to File Notice of delinquency –§16-918(A)
  2. Notify attorney if committee still delinquent after notice –§16-924(A)
  3. Notify attorneyif “reasonable cause” to believe someone violating CF laws

7.Enforcement for Organizations Making Independent Expenditures – §16-914.02

a.Registration and Notices of expenditures from corporations, limited liability companies and labor organizations making independent expenditures in candidate elections. (New 2010, HB 2788). See Section VI.

b. Notice of Independent Expenditure - when filed, verify that entity has filed registration for that election cycle

1)If not registered, make reasonable effort to contact about registering

2)If not registered within 5 days – delinquent; remove from public view

8.Responsibility Issues

  1. Compliance with Campaign Finance requirements is ultimately the responsibility of the political committees and candidates
  2. The scope of Clerk duties regarding campaign finance reporting and contribution violations are unclear in some areas and opinions differ
  3. Some actions are not specifically requiredof a filing officer, but are appropriate for the Clerk role, further the purposes of the law, and are helpful to committees and candidates (and clerks!) (e.g. reminder notices)
  1. POLITICAL COMMITTEES
  1. DEFINITION OF A POLITICAL COMMITTEE – §16-901(20) (2015, HB 2649)
  1. Definition of political committee amended by HB 2649 (2015) by removing the general definition of a committee and the followingspecific requirements:
  1. An association or combination of persons
  2. Organized for the purpose of influencing an election
  3. Engaging in political activity
  4. Receiving contributions or making expenditures
  1. The definition now states that a political committee “means any of the following” and lists several specific types of committees previously listed in the definition as examples. Some types have specific requirements that are different than other committees. HB 2649 (2015).
  1. TYPES OF COMMMITTEES AND DEFINITIONS – §16-901(20) (2015, HB 2649)
  1. A candidate or a candidate’s campaign committee.§16-901(20)(a)
  1. “Candidate” means an individual who receives or gives consent for receipt of contributions for nomination or election. §16-901(2)
  2. A candidate’s campaign committee is a committee designated and authorized by a candidate. §16-901(3)
  3. Elements removed from candidate committee definition:(2015, HB 2649)
  • An association of combination of persons
  • Organized for purpose of influencing elections or determining whether a person will become a candidate
  • Engaging in political activity
  • Receiving contributions or making expenditures of more than $250
  1. An exploratory committee. §16-901(20)(h); §16-901(10)
  1. Candidates can now circulate petitions if they form an exploratory committee
  2. Have limited value under current law. (SB 1516, 2016 eliminates).
  1. A separate, segregated fund established by a corporation or labor organization under §16-920(A)(3). §16-901(20)(b)
  1. A corporation or labor organization cannot contribute directly to candidates
  2. A Fund allows these entities to contribute to candidates using money voluntarily donated to the Fund by managers, employees, retirees, etc.
  3. Corporations and labor organizations also can make “independent expenditures” using corporate funds to influence candidate elections, but are not required to register as a political committee to make these expenditures.
  1. An association or combination of persons that circulates a recall petition. §16-901(20)(d). Groups that “support or oppose a recall election” not included.
  1. A political party. §16-901(20)(e). See definition in §16-901(22).
  1. A political organization.§16-901(20)(g). See definition in §16-901(21).
  1. An association or combination of persons that meets BOTH of the following requirements in §16-901(20)(f):

1)Is organized conducted or combined for the primary purpose of influencing the result of any election

2)Knowingly receives contributions or makes expenditures of more than $500 in connection with any election during a calendar year

  1. Influencing an election now has to be the primary purpose of the association or organization. This appears to now exclude many entities from registration and reporting, including chambers of commerce and trade associations.
  2. The “during a calendar year” phrase appears to give associations even with the primary purpose of influencing elections an annual $500 exemption from registering and reporting. Not required to use $500 ES.
  1. Committee organized to support or oppose one or more candidates
  1. No longer specifically listed as a type of committee (2015, HB 2649)
  2. An association apparently must meet both requirements in §16-901(20)(f) to be a committee and required to register and report.
  1. Independent Expenditure Committees & Independent Expenditures
  1. No longer listed as a type of committee. (2015,HB 2649)
  2. An association for this purpose apparently must meet both requirements in §16-901(20)(f) to be a committee and required to register and report.
  3. “Independent expenditure” defined in §16-901(15)

1)An expenditure by a person or political committee, other than a candidate’s campaign committee, that “expressly advocates” (see §16-901.01) the election or defeat of a clearly identified candidate;

2)Expenditure is made without cooperation or consultation with any candidate or committee or agent of the candidate; and

3)Expenditure is not made in concert with or at the request or suggestion of a candidate, or any committee or agent of the candidate.

  1. Evaluating whether Expenditure is Independent – §16-911 (2014, SB 1344)

1)Provisions in various sections combined into this new section on IE

2)3-Part test for whether Trade Association expenditure is independent

3)A candidate (or agent) serving on a host committee for a fundraising event is not presumptively coordination. (New 2013, SB 1454)

  1. Distinguish from corporations, LLCs and labor orgs making independent expenditures for candidates, which do not have to register as a committee.
  1. SPECIFIC SITUATIONS –IS IT A COMMITTEE?
  1. A candidate?
  • A candidate IS a committee (even if acting alone)§16-901(20)(a).
  • If spends under $500, can use $500 ExemptionStatement
  1. An individual (not a candidate) acting alone?
  • A person is not a committee if nobody helps! Not an association of persons.
  • What if all help is paid? Unclear. Spending only own money may be protected speech and registration may not be required. (Note, under AZ law, an individual (except candidate) cannot register alone because a separate chairman and treasurer are required!). But, Supreme Court has generally upheld disclosure requirements(reporting).
  1. A corporation, limited liability company or labor organization making independent expenditures to influence a candidate election?
  • Not required to register as a political committee – not a committee! Is a business entity spending its money to influence candidate elections!
  • Must file a “registration” for making independent expendituresfor an election cycle if cumulative expenditures exceed $1,000 for one or more races in a city / town.
  • Must file Notice each time exceed $1,000.
  1. A business or organization that becomes involved in a ballot measure?
  • Not a committee unless meets the test in §16-901(20)(f)
  • What if the entity spends $500 or less in a calendar year? Not a committee. See §16-901(20)(f) (more than $500 during a calendar year).
  1. A person, group or organization that files and pays a deposit for an argument in a publicity pamphlet?
  • Not a committee solely because of filing an argument and paying a deposit. §16-901(8)(e) (thedeposit is not an “expenditure”).
  1. A public utility expending only its own money or resources in support of its proposed franchise agreement?
  • Not a committee. Exempt from Title 16, Chapter 6. §9-502(G)
  • Also, a Utility does not appear to meet committee definition in §16-901(20)(f)
  1. WHEN TO CONSIDER WHETHER A POLITICAL COMMITTEE EXISTS
  1. Upon inquiries about candidacy (always advise on first contact)
  2. Upon inquiry from an organization about making contributions to candidates.
  3. Upon inquiry about Initiative, Referendum or Recall (required by statute)
  4. Upon filing of publicity pamphlet arguments for or against ballot measures
    Note: Not a committee solely because filed argument. §16-901(8)(e). But may be a committee because of additional activity.
  5. Upon inquiry from an organization about making contributions to ballot measures in your jurisdiction.

  1. REGISTRATION OF POLITICAL COMMITTEES
  1. REGISTRATION FILING – §16-902.01
  1. WHEN to Register?
  1. Most committees must register before engaging in political activity. §16-902.01(A)

1)Accepting any contributions –defined in §16-901(5)

2)Making any expenditures –defined in §16-901(9)

3)Distributing any literature – defined in §16-901(18)

4)Circulating any petitions – not defined in statute

  1. §16-901(20)(f) committees do not have to register before engaging in activity. Must register within 5 business days after meeting the definition of a committee (including exceeding $500 in a calendar year). §16-902.01(A)
  1. HOW to Register?
  1. File a Statement of Organization (SO)– §16-902.01(A)
  • If intends to receive or expend more than $500
  • Must file contribution and expenditure reports
  1. File a $500 Exemption Statement (ES)–§16-902.01(B)
  • If intends to receive or expend $500 or less
  • Committee is “exempt” from filing contribution expenditure reports
  • Note: §16-901(20)(f) committees not required to use $500 ES (not required to register unless exceed $500 in a calendar year).

1) If exceeds $500 in contributions or expenditures, must file a SO within five business days and begin filing reports

2) The committee must track all contributions & expenditures and include the activity on the first report if exceeds $500. §16-904(F) (2010)

  1. $250 Threshold - There is no longer a $250 threshold before a committee is required to register. Removed from §16-901(20).(2015, HB 2469)
  1. PENALTYfor violation
  2. Civil Penalty of up to three times the amount received or expended
  3. Petition signatures for I/R/R invalid. §19-114(B); §19-202(C). See III.E.2.
  4. Nomination Petition Signatures
  • Filing officers not authorized to invalidate nomination signatures if committee was not registered. There is no statute invalidating signatures on nomination petitions, unlike initiative, referendum and recall petitions.
  • Since 2006, Superior Courts have ruled nomination signatures invalid if committee not registered. Rulings were not appealed, so no binding appellate decision yet to provide authority for filing officers to invalidate.
  1. Registration Exemption - religious, charitable tax exempt entities – §16-922(New 2011, SB 1282). (Amended 2016, HB 2296; Effective 6/1/16).
  1. A religious assembly or institution that does not spend a “substantial amount of time or assets” on influencing an election is not required to register as a political committee. §16-922. (2011, SB 1282)
  2. Extended to charitable tax exempt entities under §501(C)(3) of the Internal Revenue Code. (Added 2016,HB 2296; Effective 6/1/16)
  3. Note: Even without the exemption, most of these entities probably do not meet the new definition of a political committee (primary purpose is not to influence an election). §16-901(20)(f)
  4. “Substantial amount of time or assets” has same meaning as in §501(c)(3) of Internal Revenue Code. Determined by comparing amount spent on ballot measure relative to total expenditures of the entity in a specific year. See 26 U.S.C.A. §501(c)(3); §501(h); §4911. Amount allowed depends on total expenditures of entity, but permits about 5% of total expenditures, up to $250,000, on total expenditures of $1.5 million or more.
  5. The exception does not apply to activity related to candidate elections, only ballot measures (specifies federal, state or local legislation, referendum, initiative or constitutional amendment). Apply to Charter amendment?
  6. A person with tax exempt status must register as a committee if all of the criteria in paragraph 2 apply. §16-922(2)
  7. Entities also exempt from filing reports.(2016,HB 2296; Effective 6/1/16)
  8. Enforcement by city/town impractical. Need detailed financial records of institution, including tax returns, which are not usually available.
  1. CANDIDATE COMMITTEES– §16-903, §16-902
  1. Special provisions for candidate committees
  1. A candidate may be the Chairman and Treasurer. §16-902(A)
  2. Committee name must include name of candidate. (Last? First? Full?)
  3. Candidates must designate a committee for each election cycle. §16-903(A)
  • Designate by filing a Statement of Organization §16-902(A)
  • Required to register a new committee for each election?
  • Can an existing committee be designated for a new election?
  • How to designate an existing committee? File amended SO?
  1. A candidate may only designate one committee for each election cycle, but may have more than one simultaneously in existence. §16-903(C)
  1. Resign to Run Law – now only triggered by filing nomination papers. Making a declaration of candidacy, forming a candidate committee, or circulating petitions does not require resignation. (2013, HB 2157) §38-296; §16-903(F).
  1. EXPLORATORY COMMITTEES– §16-903(B),§16-902
  1. Special Provisions for Exploratory Committees
  1. Chairman and Treasurer must be different people. §16-902(A)
  2. Committee name must include name of designating individual(candidate)
  3. Individual may have only oneexploratory committee at a time. §16-903(C)
  4. Candidates that register an exploratory committee may also circulate nomination petitions. §16-903(G)
  1. Now limited benefit to an exploratory vs. candidate committee
  1. OTHER POLITICAL COMMITTEES – §16-902, §16-902.01
  1. Special Requirements
  1. Chairman and Treasurer must be different people. §16-902(A)
  2. Committee name must identify any sponsoring organization. §16-902(B).

See §16-901(23) (“sponsoring organization”).