Thursday, December 22, 2011

NYC's campaign finance rules satisfy the First Amendment

Pushing aside recent Supreme Court cases that take a dim view of campaign finance legislation, the Second Circuit holds that the First Amendment does not prevent the New York City Council from regulating campaign contributions in order to avoid the appearance of public corruption flowing from possible "pay-to-play" contributions.

The case is Ognibene v. Parkes, decided on December 22. The Supreme Court has rewritten campaign finance law over the past few years under an expanded view of the First Amendment. These cases include Citizens United v. F.E.C., 130 S.Ct. 876 (2010), a decision that everyone hates because it allows in some instances for unlimited corporate contributions to political campaigns. But New York City forged ahead in regulating contributions, which do the following: (1) people who do business with the City, including lobbyists, are held to more strict campaign contributions than Johnny Average; (2) there are no matching funds for those who do business with the City; and (3) the existing prohibition on corporate contributions are now extended to partnerships, LLC's and LLP's. Are these restrictions constitutional? Yes.

Here's why. First, the Supreme Court distinguishes between limits on campaign expenditures and campaign contributions. Expenditures are hard to limit ("strict scrutiny" test), but the government has more leeway to limit contributions so long as they are "closely drawn to address a sufficiently important state interest." That interest may include the prevention of actual or perceived corruption. The "doing business" restriction is legal under the more lenient standard of review because "the perception of corruption, or of opportunities for corruption, threatens the public's faith in democracy." In enacting this law, the City Council may take into account the common-sense view that people doing business with the City are making contributions in order curry favor with policymakers and regulators. While the plaintiffs who challenge this law argue that the Council needs more concrete evidence of corruption to justify this law, "there is no reason to require the legislature to experience the very problem it fears before taking appropriate prophylactic measures. ... Appellees essentially propose giving every corruptor at least one chance to corrupt before anything can be done, but this dog is not entitled to one bite." (That's district judge Crotty, ladies and gentlemen. Judges Livingston [for the most part] and Calebresi join him in this opinion). In addition, there is some evidence that the largest donors are the ones doing the most business with the City. Donors with business dealings were less than 5.3 percent of the contributors, but they accounted for 21 to 25 percent of all dollars contributors. That's pretty good evidence that the public might perceive a pay-to-play mentality in City politics.

Second, the non-matching contributions are also constitutional. While non-matching does not prevent you from making a contribution, it does minimize the value of that contribution. Encouraging small, individual contributions, the public financing law matches contributions of up to $175 using tax dollars at the rate of 6 to 1. This also discourages the entrenchment of incumbent candidates. As the Court of Appeals interprets Supreme Court authority, these interests are enough to justify the non-matching funds rule for contributors doing business with the City.

Finally, the City law includes a ban on contributions by partnerships, LLC's and LLP's. The First Amendment allows for this prohibition, for two reasons: (1) anti-corruption and (2) to prevent those who run partnerships, etc., from circumventing contribution limits. The anti-corruption focus is obvious to anyone reading this decision. As for anti-circumvention, the government has an interest in preventing individuals from taking advantage of the minimal disclosure requirements such that entity contributions only have to be attributed to a partner or owner when they exceed $2,500. In a footnote, the Court of Appeals explains how you can circumvent contribution limits in the absence of the City's law:

The following examples demonstrate how easily campaign contribution can be bundled to circumvent limits: (1) a real estate developer, his wife, and two executives from his LLC all gave maximum contribution to the same incumbent candidate for City Council; (2) the same developer, his immediate family, his LLC, and officers of his LLC contributed nearly $100,000 in the 2001 and 2005 City election cycles, id. at 32; (3) two real estate developers and their newly-formed LLC gave nearly ten times the amount of donations they had given in the past after initiating a particular project; (4) the owner of a parent company of the construction company that received a contract to build a major transportation hub in Manhattan, his children, and the owner of the parent company’s marketing firm all gave significant contributions to an incumbent candidate for Borough President.

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