Testimony to
Senate Standing Committee on Elections, Taxpayer Funded Political Campaign Systems

Presented by
Kenneth J. Pokalsky
Vice President, Government Affairs
May 7, 2013

Elections matter. Elected officials approve state budgets and adopt legislation, and budgets and legislation have a significant impact – good and bad – on private sector business. For these reasons, the business community is compelled to participate in the political and legislative processes.

We appreciate the invitation to testify today. We have looked at, and responded to, existing campaign financing programs – including New York City’s public financing law – as well as a number of proposals before the New York State legislature. From that experience, I would like to share the following comments, observations and recommendations.

  1. Match “Solutions” to Specific Problems - Before acting on any reform legislation, we need to have an honest discussion about what problems we are trying to fix, and whether proposed reforms offer a real fix.

    Some reformers cite New York’s recent history, and conclude that “campaign finance reform” is the remedy. While, New York has had more than its share of ethics and corruption cases in recent years, few were related to actual campaign contributions, so campaign finance reform, or more specifically public financing of campaigns, strikes us as not a particularly effective deterrent to violations of current law.
    Proposals need to be subject to careful evaluation of both the direct and intended impacts, and unintended consequences, with a special focus on whether we making real improvements.
  2. Equal Treatment – Some campaign finance reforms are self-serving, including proposals that tilt the law to the advantage of organized labor and the disadvantage of business or other interests.  

    New York State campaign financing law is already lopsided, with corporations subject to a $5,000 annual limitation in total “hard” campaign contributions, whereas other entities are subject to no such aggregate limits and are limited only by the individual candidate or committee’s limit which can be as high as $102,300.

    Likewise, by statute, union dues – from which most of union PAC funds are derived – can be withheld from workers’ paychecks, but voluntary paycheck withholdings to support employee PACs are categorically prohibited (a prohibition we have not found in most other states, and which do not apply under federal election law.)

    We have seen proposals before the New York State legislature that would restrict a business with a state contract from making political contributions (i.e., S.4897/Klein, whose restrictions on contributions to candidates receiving public funds extends to an entity at any time within 24 months of an election) – but impose no comparable restrictions on labor unions that receive state grants, or negotiate collective bargaining agreements with state government.

    As another example, campaign finance reform legislation, i.e., S.4705-A (Stewart-Cousins)/A.4980-C (Silver) would treat affiliated unions as separate entities under Article 14 (campaign receipts and expenditures) of the Election Law, compared to other legislation, i.e., S.192 (Squadron)/A.86 (Kavanagh), that would require all affiliated corporations and partnerships be treated as a single entity for this same purpose.

    Other proposals would mandate corporations to get majority shareholder approval of individual campaign contributions, an administrative hurdle we have not seen proposed for other types of organizations such as unions.

    Any reforms – such as lower limits on contributions – should apply equal standards regardless of the source or form of financial or in-kind contributions.
  3. Do No Harm – We need to avoid imposing other harmful or misdirected mandates as part of campaign or campaign finance “reform” legislation.

    As example, several legislative proposals before the New York State legislature – including S.4705-A (Stewart-Cousins)/ A.4980-C (Silver), S.4897 (Klein) and S.4239 (Rules @ request of the State Comptroller), would use new surcharges on penalties under the Martin Act - New York’s notoriously open-ended securities fraud law – to partially fund public campaign expenditures.

    We have several real problems here. Due to its inappropriate, unfair standards, The Business Council opposes any expansion of the Martin Act, including an expansion of its financial penalties or settlement provisions, regardless of the use of funds.

    More broadly, we believe it is inappropriate to make the funding of governmental program dependent upon any category of enforcement income generated by the state. Civil and criminal penalties should be based on the nature and degree of a violation, and not influenced by a perverse incentive to meet spending needs.
  4. Public Funding? – Many “reformers” support some form of public financing of elections. The Business Council has not previously taken a formal position on public campaign funding. We are asking our Board to ratify a set of campaign finance reform principles its meeting next week, with our proposal patterned on the comments presented above.

    We do not support public campaign financing. Our most significant concerns with public financing can be summarized as follows:

    First, we are concerned with its costs. Cost estimates for a statewide system with a 6 to 1 match, patterned on New York City’s public financing model, have varied widely from $140 million to almost $400 million per election cycle. In a state that already taxes too much and spends too much, we are concerned with new, permanent, nine-figure expenditure commitments. We also note that S.4705-A (Stewart-Cousins)/A.4980-C (Silver) indexes their public funds receipts limit every four years, leading to higher system costs over time. These concerns are exacerbated by the likely calls for new revenues sources, including but not limited to enforcement penalty surcharges such as those on which we have already commented.

    Moreover, we strongly question whether public financing is the reform panacea that some suggest. Since you can never fully divorce government from politics, the key details of any public financing legislation will be largely influenced by who holds political power at the time of its adoption. In other words, any public financing plan will be shaped by politicians and – if the reform advocates have accurately described the impact of our current financing mechanisms – by the special interests that fund them.

    Likewise, the impact of public financing laws like that adopted in New York City, with a 6 to 1 public funding match for certain contributions, is amplified by statutory authorizations for and restrictions on private contributions. As we have already discussed, we are very concerned that public financing legislation will be designed to benefit one party or one set of interests over others.

I hope these comments are of help to the Committee as you consider campaign finance reform proposals. I look forward to any questions or comments you may have.