Cracks In The CFB
John Liu stood stoically during a press conference earlier this month in a law office above Rockefeller Plaza in Manhattan. His attorney, Richard Emery, was reading a federal lawsuit Liu had filed against the New York City Campaign Finance Board, an avenue of recourse against an agency that he holds responsible for stymieing his political ambitions, at least for the time being.
Mere months ago, Liu was the second highest ranking elected official in the city, a smooth-talking, savvy and telegenic politician who had effectively wielded the bully pulpit of his office to be one of the sharpest thorns in the side of former mayor Michael Bloomberg. The most prominent Asian-American elected official in New York history, from the moment he took office in 2009 Liu immediately vaulted into the top tier of contenders to be the next mayor. By the time Liu officially announced his candidacy for the mayoralty in March of 2013, however, his campaign was immediately dismissed as quixotic at worst and a long shot at best—though not because of anything that had to do with his personality or politics.
In October 2011 The New York Times cast a spotlight on Liu’s campaign finance reporting, noting roughly two dozen irregularities that raised questions as to the legitimacy of his donations and indicated a failure to comply with basic campaign finance laws. A federal investigation would eventually ensnare Liu’s 25-year-old campaign treasurer, Jia “Jenny” Hou, and Xing Wu “Oliver” Pan, one of his fundraisers, both of whom would be convicted—she for attempted wire fraud, obstruction of justice and making false statements, and he for conspiracy to commit wire fraud and attempted wire fraud—for taking contributions from “straw donors,” people whose names were entered as campaign contributors even though someone else had provided the money.
The three-year probe did not result in any charges against Liu, despite law enforcement officials reportedly wiretapping the comptroller for 18 months. The by-product of the investigation was arguably just as significant, however. As a result of the evidence revealed in the trial of Hou and Pan, as well as findings from its own investigation into Liu’s campaign, the Campaign Finance Board denied Liu $3 million in public matching funds for his mayoral campaign in a unanimous decision issued roughly a month before the Democratic primary—a crushing blow that essentially extinguished any hope Liu had of victory.
Eight months after the demise of his campaign, it seemed fitting that Liu would be standing in a bland conference room overlooking the celestial St. Patrick’s Cathedral as Emery read the complaint filed against the CFB—the city’s church of campaign finance law.
Emery’s remarks took the form of a fiery sermon inveighing against an institution that had “evolved into a nitpicking, bureaucratic, oppressive prosecutorial agency which sees [as] its mission to undermine democracy by harassing candidates and contributors and destroying campaigns.”
Liu, by contrast, played to perfection the role of lapsed “believer”—a formerly devout disciple of the CFB system who had lost his religion as a result of his ordeal.
“I am a strong supporter and believer in the New York City campaign finance system, which for a long time has been touted as a model that should be adopted statewide and nationally,” Liu said. “The problem is it has now been adulterated by some out of control bureaucrats and board members … It is a broken system that needs to be reformed, and I look forward to helping flesh out these issues that will benefit all New Yorkers.”
With the exception of those who are philosophically opposed to publicly financed elections, few people would dispute the Campaign Finance Board’s widely held reputation as a model for sensible campaign finance reform. Advocates hail the CFB system as one that has leveled the playing field for candidates of limited means to compete with the well funded, while also precipitating a marked increase in low-dollar donations, amplifying the impact of small money contributors and boosting citizen participation in campaigns. The widely acclaimed success of New York City’s system has led to a very vocal campaign to expand public financing statewide, and the most ardent CFB proponents suggest that it could be a template for the nation to adopt.
Despite the CFB’s accolades, Liu’s lawsuit brings to the fore a larger question that has been quietly debated by campaign finance experts and candidates for some time now: whether the weight of carrying the campaign finance reform banner has become too heavy a burden for the agency. Numerous critics, both sympathetic and hostile to the agency, believe the CFB has become morally self-righteous in upholding the tenets of the city’s campaign finance system, while bogging down candidates with a burdensome auditing process and meting out punishments inconsistently.
“I worry that they confuse the support they get from the New York Times editorial board with the idea that everything’s fine,” said Laurence Laufer, a leading New York City election lawyer and former general counsel at the Campaign Finance Board. “All kinds of campaign people and candidates say there’s something not right, and the CFB always finds a way to skirt around dealing with that as opposed to seizing on this sentiment to make improvements.”
HISTORY OF REFORM
Before delving into the CFB’s perceived deficiencies, it is important to recognize that as one of the first agencies of its kind, the board has experienced growing pains parallel to the evolution of campaign finance reform as a whole in the United States.
The CFB was established in 1988 as an outgrowth of former mayor Ed Koch’s Campaign Finance Act. Mirroring the frustrations of today’s campaign finance reform advocates, the state Legislature was slow to embrace the concept of public financing and campaign spending and contribution limits, despite the best efforts of then Assembly Speaker Stanley Fink and his successor, Mel Miller. At Koch’s behest, the New York City Council picked up the reform baton and ran with it, passing a similar bill to the one that had stalled in the Legislature. The new law established the outlines of the current public financing system, setting contribution and spending limits for citywide and Council candidates who voluntarily agreed to accept these restrictions in exchange for becoming eligible for public matching funds.
The Campaign Finance Board was created to administer the new system. It was designed as a five-person body—and remains so today— with two members appointed by the mayor and two members appointed by the Speaker of the City Council. The mayor, in consultation with the Speaker, appoints the chairperson of the board.
How the CFB allocates the public’s funds has been the most fluid aspect of its structure. Initially candidates who opted in to the system had to reach a monetary threshold of contributions collected from a specific number of city residents in order for the CFB to match the candidates’ donations dollar-for-dollar, up to $500 per contributor. In 1998 the City Council, led by then Speaker Peter Vallone, introduced and passed legislation to increase matching funds from a 1-to-1 match to 4-to-1, dramatically changing the equation in terms of incentivizing candidates to participate in the program.
Campaign finance experts say that the advent of 4-to-1 matching changed the CFB’s approach to oversight and enforcement by raising the stakes. Tasked with handing out a much greater amount of taxpayer dollars than was previously the case made the agency more wary of committing errors at the public’s expense.
That level of risk was magnified in 2004, when the City Council mandated that even candidates who declined to participate in the system had to abide by the CFB’s disclosure requirements. All candidates were also forced to adhere to the CFB’s contribution limits and ban on corporate donations, except for those able to entirely self-fund their campaigns. In 2007 another law change further intensified the CFB’s responsibility by upping the matching ratio to its current level of 6-to-1 for the first $175 raised per individual.
“The cautions have been very well founded. The staff is very mindful of the fact that the candidates are eager to get their funding, but it is taxpayer money, and it has to be protected, and the burden is on the candidate to show that the candidate is in compliance, not the other way around,” said Nicole Gordon, who served as executive director of the Campaign Finance Board from 1998 to 2006. “That’s something that gets lost sometimes, when people think as a candidate, ‘[Matching funds are] my money,’ whereas in fact we do have an audit process which is protective of the taxpayer dollar.”
In response to numerous specific questions posed via email and phone by City & State for this article, Matt Sollars, a spokesman for the CFB, offered only this blanket written statement: “For more than 25 years, New York City’s landmark small-dollar matching funds program has amplified the voices of average New Yorkers and reduced the influence of big money in city elections. While the program cannot fix all of the ills of our political system, it brings elected officials closer to the voters they represent. The program has succeeded in large part because the CFB’s enforcement creates a culture where the rules matter. Our enforcement has always been tough, but fair. It holds candidates accountable for the conduct of their campaigns, and safeguards the public’s investment in our elections. The legislators who wrote the law in 1988 wisely gave the CFB a mandate for regular self-improvement. We have sought constructive, meaningful ways to improve our work after every election, and we are engaged fully in that process now.”
PRESUMPTION OF GUILT
Historically, the CFB has vigorously defended its practices, characterizing its auditing process as a wholly necessary aspect of the matching funds system and insisting that each and every campaign is audited thoroughly and equitably.
Yet several former political candidates interviewed for this story, all of whom had participated in the matching funds program, suggested that the process has become onerously burdensome—that it was no longer a basic review of campaign paperwork and financial statements but rather a procedure with an overly stringent “gotcha” mentality.
“I understand that when public money is involved, a public authority has to be very diligent,” said Mark Green, a former New York City public advocate who has participated in the matching funds system on numerous occasions. “But it is offensive and time-wasting for the CFB to presume every qualified recipient is Al Capone until he or she proves differently. They have turned a regulatory function into a prosecutorial function.”
Green should know. Not only was he an author of the 1998 law to raise the matching funds threshold to 4-to- 1, but in his 2001 mayoral campaign Green, thanks in large part to the public financing program, spent more money on his race at the time than any other candidate in the city’s history— except, of course, for the man who defeated him, billionaire Michael Bloomberg. Yet despite his extensive knowledge of the system, a CFB audit resulting from that campaign determined that Green had to repay over $71,000 in public funds based on a calculation of unspent campaign dollars. For his infraction, the board levied a $36,569 penalty against him.
“The accounting firm doing my filing, a professional firm—my accountants demonstrated how I had zero in the bank at the end of [the campaign], but the CFB accountant said I had [$71,000] in my bank account,” Green recalled. “[The CFB] demanded that they would either prosecute me or [I had to] write a personal check to them for [$71,000]. It was a big percentage of my net worth, and I was frankly pissed that they would impose this price on a candidate who obviously was trying to cooperate.”
The irony in Green’s case is the dichotomy of enforcement as it applies to the self-funder; almost all the stringent compliance requirements with which a publicly funded candidate has to grapple under threat of financial penalty are largely inapplicable to the person with the greatest means to satisfy them. “Bloomberg tells the state and the city, ‘I have one donor, my filing is one page long,’ [meanwhile] I file a telephone book,” Green said.
“You don’t want to be Ahab going after the whale; that’s when prosecutors are at their worst,” said a former city official who has participated in the matching funds program. “For whatever reason, the Campaign Finance Board really seems to have forgotten that their purpose was to pursue democracy and get big money out. They’ve made it harder for good candidates to follow the law.”
Indeed many candidates and campaign finance experts complain that the board does not provide enough guidance about penalties and how they are assessed. The CFB has a unit within the agency that specifically deals with candidate services. However, even when campaigns are dutifully trying to comply with CFB regulations, notes Leo Glickman, a lawyer and former chief of the board’s Candidate Services Unit, there is almost a “gamesmanship” in how the agency determines eligibility for public funds.
Glickman gives as an example the case of a campaign contributor living in a new condo that was previously a commercial property. Until the contributor proves otherwise, Glickman said, the CFB will classify his contribution as having come from a business, a violation of the board’s rules.
Another notoriously difficult area of compliance Glickman points to is that of substantiating expenditures on campaign staff wages. If a campaign does not keep signed, detailed, daily records with the Social Security number of each person working for the campaign, Glickman says—even an employee doing a mundane task like handing out literature on Election Day—the CFB presumes that money was spent on nonelection purposes, and will often make demands that a candidate return some public money on that basis. Such stumbling blocks inadvertently weed out the sort of candidates the CFB system was meant to empower, Glickman argues.
“[These regulations] have a disparate impact on candidates who are running in less affluent and communities of color—where actually having people hand out flyers is a more important way to advertise to people than doing mailers,” Glickman said. “Because in public housing, a lot of people don’t get their mail reliably, for example. So what you do is you hire people to go and put fliers under doors. To substantiate an expenditure on a mailer, you have to show an invoice and that’s it. To substantiate expenditures on $10-an-hour wages, on people who are doing the grunt work on a campaign is extremely challenging.”
“Death penalty.” That is what Martin Connor called the board’s decision to deny John Liu matching funds at a CFB hearing held last summer just as the mayoral campaign was beginning to heat up.
Connor is now months removed from working as counsel to the Liu campaign, but his disdain for the CFB’s practices still drips off of every word he utters about the agency.
“I don’t think, constitutionally, a governmental body like [the Campaign Finance Board] with a program like [the public financing system] can simply use any discretion in deciding who gets money,” Connor said. “If they’re going to disqualify somebody [from receiving matching funds], they have to have a real hearing with real evidence, an opportunity for both sides to present evidence … Then all the facts come out and everybody has a fair chance to make their case—and their system doesn’t do that.”
This call for due process lies at the heart of many critics’ complaints about how the CFB decides its penalties for candidates. Legislation passed by the City Council in 2007 established administrative hearings as the default provision in the law for how post-election cases would be determined should a candidate pursue recourse against a board ruling on fines or, as in Liu’s case, the denial of matching funds. The hearings allow both sides to present evidence in discovery and question witnesses before an administrative law judge, who in turn decides the validity of the matching funds claim.
For Liu, however, because the board’s determination was made so late in the election cycle, actually taking full advantage of the appeals process was not feasible.
“People have to ask for it,” said one legal expert who declined to be named so as to not undermine a relationship with the CFB. “It’s more expensive, more time-consuming, and more of a commitment to the litigation process.”
By the time an administrative judge would have ruled on Liu’s case, Connor noted, the primary election would have long since been over, effectively rendering the judge’s decision moot.
“Even if you win [in administrative court], it’s going to take a couple of days for the judge there to write a decision,” he said. “The CFB can then appeal to the appellate court, and that automatically stays until a Supreme Court judgment. If you can get the appellate court to act within four or five days, you are now a couple of days before the primary, and if you happen to win … what are you gonna do with all the money, with three days to go? You’re running for mayor— what, you’re gonna spend $3 million in three days? It’s too late to do TV commercials, too late to do all of the stuff you need to do.”
Complicating matters further for Liu was the CFB’s delay in resolving the 2009 postelection audit of his comptroller campaign, which nearly five years later has still not been completed, despite the fact that a standard CFB audit takes roughly 8 months to 2 years to finish, according to experts familiar with the board’s inner workings.
Connor said the CFB had nearly completed the audit and had a final agreement that Liu would refund between $7,000 and $9,000 in contributions over the limit. However, when the Times story ran in October 2011 alleging fundraising violations in Liu’s mayoral campaign, the CFB decided to put a hold on the audit until the criminal investigation was concluded.
CFB defenders argue that continuing the auditing process during a criminal investigation is counterproductive— that the constant turning over of paperwork and financial statements is an inadvertent obstacle to law enforcement officials in helping to build their case. Yet of the handful of lawyers and election law experts interviewed for this article, none indicated any legal grounds for delaying civil enforcement for these reasons.
The current special prosecutor’s investigation into Staten Island Councilwoman Debi Rose’s 2009 City Council campaign involves a similar instance of the CFB inexplicably delaying civil enforcement, when simply resolving the matter could actually be of assistance to investigators.
Rose, now a deputy leader of the Council, allegedly did not report the full value of services rendered by the Working Families Party’s for-profit campaign operations arm, Data and Field Services, in her successful 2009 bid for office. A source familiar with the investigation said that the CFB has been less than cooperative in resolving the Rose case, in part by failing to complete a postelection audit of the 2009 campaign, but also by not responding to numerous requests by investigators to meet with CFB Chairwoman Rose Gill Hearn, who was appointed to a five-year term by Mayor Bloomberg on Dec. 30 of last year in one of his final acts in office. [Liu’s suit questions Gill Hearn’s appointment, alleging that the mayor’s appointment was not made with the approval of then Council Speaker Christine Quinn, as required by law.]
In settling a lawsuit filed against the WFP by Randy Mastro, an attorney and former deputy mayor in the Rudy Giuliani administration, Rose agreed to pay $8,800 to Data and Field Services, acknowledging that her campaign had received some services for which it had not fully paid. Based on the unaudited reports Rose filed with the CFB, which do not include the $8,800, when the payment to DFS is added to her filings, the Rose campaign will be over the spending limit for her 2009 campaign, a clear violation of campaign finance law. But because of a quirk in the law, though the Rose campaign has reported its $8,800 payment to the state Board of Elections, it has no vehicle for reporting it to the CFB because it closed the books on the 2009 campaign early in 2010.
“What if they found out somebody won his or her election because of [Rose’s lack of disclosure]?” said the source familiar with the Rose investigation. “What does that say about [the CFB] system?”
Liu’s current attorney Richard Emery believes that these delays in resolving audits are a way for the board to hold candidates over a barrel.
“The CFB is well-known for dragging out audits for years and years,” Emery said. “They resolve things incredibly slowly, they don’t give anybody comfort, and it allows them to extend their oversight and extend their power over candidates with a pending audit.”
Meanwhile, because of the timing of the board’s decision, Liu essentially lost the opportunity to exonerate himself. Even more troubling is the fact that it appears the CFB did not follow its own historical precedent of allowing a candidate to continue to collect matching funds despite running afoul of campaign finance law.
During his 1997 mayoral campaign, Rudolph Giuliani was fined $220,000 after the CFB found $342,602 in campaign contributions that were over the limit—which amounted to $7,700 per donor at the time. The Giuliani campaign agreed to have the amount deducted from the matching funds it had already received, but the board did not unilaterally revoke his matching funds, as it would do with Liu.
A CFB decision involving former mayor Michael Bloomberg also reflects the board’s apparent inconsistency in meting out punishment for campaign finance violations. In 2009, shortly after winning re-election for a third term, Bloomberg wrote two checks totaling $1.2 million to the state’s Independence Party but did not report those payments in its postelection filings. The CFB determined that Bloomberg’s campaign did not violate the city’s campaign finance law because the disclosure requirement of reporting contributions to political committees had not yet gone into effect when the payment was made.
Liu’s own federal complaint cites the case of Sheldon Leffler, a 2001 candidate for Queens borough president. The board found that Leffler submitted matching funds claims for 38 contributions in groups of sequential money orders and bank checks, after noticing discrepancies in the contribution cards submitted with those money orders and checks. The CFB allowed Leffler to continue participating in the matching funds program, withholding the claims for those contributions, while also referring his case to the Manhattan District Attorney’s office.
Leffler would later receive $296,084 in matching funds, despite the board’s suspicion of criminal activity. While Leffler was subsequently indicted by a grand jury on 13 criminal counts— and later convicted on six of those charges—the board had agreed to postpone its decision whether to penalize Leffler until after his criminal appeal was filed. In August of 2004, three years after the CFB’s initial findings of wrongdoing, the Board fined Leffler for the false matching funds claims.
Unlike it did in the instances of its investigations into Giuliani, Bloomberg and Leffler, the CFB did not detail the rationale behind its decision in Liu’s case, saying only in its statement by then chairman Rev. Joseph Parkes that there was “reason to believe” Liu committed violations of the Campaign Finance Act and CFB rules. The board cited “evidence” suggesting these violations to be “serious and pervasive” across Liu’s financing, but gave no hints as to what exactly that evidence was, aside from citing the convictions of Pan and Hou—an investigation, it should be noted, that did not implicate Liu.
The Campaign Finance Board declined to comment on the specifics of John Liu’s suit, as well as the investigation into Debi Rose's campaign for this article, citing its policy on not discussing pending legal cases.
STATEWIDE PUBLIC FINANCING
As the clock ticks down toward the deadline for the state’s final executive budget, one of the major questions good-government organizations and campaign finance reform advocates will be waiting to resolve is whether Gov. Andrew Cuomo will expend some political capital to cajole the Legislature into adopting a statewide public financing system.
Many reformers would like to see a statewide system based on the one New York City has with the Campaign Finance Board, although campaign finance experts and advocates are decidedly split on whether the CFB model can be expanded on a macro level.
“It’s so much more complicated on the state level, because you have competitive primaries and generals, you have two viable political parties, a two-year election cycle, 213 [legislative] seats as opposed to 59,” said election lawyer Laurence Laufer. “The smart thing to do is to create a core program, administer it and work the bugs out, but no one’s talking in ‘phase-in terms,’ which is the obvious compromise.”
As it stands now, there are two proposals on the table, one from Cuomo and one from Assembly Speaker Sheldon Silver, both of which have traces of CFB DNA. Both proposals include a 6-to-1 matching funds program for the first $175 contributed by an individual, though Silver’s program would begin with only the comptroller’s race this year, legislative races in 2016 and the governor’s race in 2018. Cuomo’s proposal would establish 6-to-1 matching funds for all legislative races starting in 2016, with a voluntary public financing program available to statewide candidates in 2018. Cuomo is also calling for the creation of a civil enforcement arm of the Board of Elections. Silver’s proposal has a similar mechanism with regard to campaign finance only, a proposal some good-government advocates say would be calamitous.
“We would like to see something separate from the Board of Elections, because we think the Board of Elections is a disaster,” said Blair Horner, the legislative director for the New York Public Interest Group. “To put something new into something that doesn’t work would be a recipe for disaster. We believe you can make a new campaign finance enforcement system that would have its own board, similar to the New York City Campaign Finance Board in that way.”
It is still an open question as to whether there is a real appetite for a public financing system throughout the state, Horner said, given how different the politics are from New York City, which has a nominal two-party system but is solidly Democratic.
“[Whether] it will have the same candidate appeal at the state level as it does in New York City is an open question—you don’t have to [opt in to the system] if you don’t want to,” he said. “The more attractive the current system is, the less likely that somebody will opt in to a system of public financing unless they have to. The appeal, we believe, at the state level is that 99 percent of New Yorkers can actually contemplate running for office, which they can’t even do now because it’s such a wealthy special interest game—it’s almost impossible for outsiders of any sort to really compete in a meaningful way unless you have a system of public financing, or you happen to have the last name Bloomberg.”
Gale Brewer, the Manhattan borough president and a vocal supporter of the city’s public financing system, sees areas where a statewide program could even improve upon parts of the Campaign Finance Board model—for instance, educating candidates on the ins and outs of compliance.
“It would take a great deal of training, because you have so many more people you’re dealing with,” Brewer said. “It would take a huge training and education budget. I’ll be honest with you, as a candidate, [the Campaign Finance Board is] a pain in the ass, it’s so much paperwork. It’s important, but it is a pain in the ass.”
The Campaign Finance Board’s record of inconsistency remains a cautionary tale, however. A John Liu situation in New York City, with major questions about due process toward electoral candidates, would be significantly magnified if it occurred with statewide ramifications to an Andrew Cuomo or Comptroller Tom DiNapoli.
There is a common observation among CFB critics: The New York City system looks better the farther you are from it, and the agency’s wrinkles and cracks are only visible under a microscope.
Kristen Meriwether contributed reporting.