Implementation of 2016 Campaign Finance Amendments

1. Implementation of 2016 Campaign Finance Amendments Phoenix Candidate Elections Fall & Spring Arizona City Attorneys Association June 2017

2. Overview • Review Major Changes in 2016 • What is gone – What is new • Issues related to Changes • Resolutions and alerts • Remaining issue for June 2017 (Termination) • Statutory Issues from 2016 Legislation • Reporting and Form Issues • Common Questions (and Answers)

3. THE LAW • Arizona Constitution, Art VII, Sec 16 “The legislature, at its first session, shall enact a law providing for a general publicity, before and after election, of all campaign contributions to, and expenditures of campaign committees and candidates for public office.”

4. THE LAW • Arizona Revised Statutes - Title 16, Chapter 6 • Campaign Finance (Article I) • §16-901 through 938 • New organization • Clean Elections (Article II) • §16-940 through 961 • (Not applicable to cities and towns)

5. Limitation on Regulation First Amendment - political speech • Supreme Court decisions • Striking restrictions, upholding disclosure • Exploring when anonymity is necessary (no disclosure) • AZ Legislative response to court decisions • Remove restrictions (prior registration, Indep Expend) • Reduce disclosure, expand anonymity • “Primary purpose” and increased registration threshold • Eliminate Independent Expenditure notices Issue – State Constitutional Provision

6. THE LAW - RESOURCES • Arizona Election Law Pamphlet • “Camo” Book, Oct 2016 – Constitution, Titles 16, 19, 38 • CAUTION – includes entire old & new Title 16! (p. 624 / p. 719) • Attorney General Opinions • Secretary of State (materials online) • Campaign Finance Handbook (Feb 2017) • Election Procedures Manual (Latest version 2014) • League of Cities and Towns • Municipal Election Manual (MEM) • Campaign Finance Reports Handbook • League General Counsel Opinions

7. Political Committee Changes • Repealed separate definitions for “Types” • No Exploratory, Ballot Measure, or Indep Expend • New Definition – “Committee” means: • A Candidate Committee • A Political Action Committee (PAC) • A Political Party • Significantly fewer entities must register • An entity is a “committee” if satisfies requirements in 16-905

8. Political Committee Changes Candidate Committees • Candidate must register a committee IF: • The candidate receives contributions or makes expenditures (in any combination) of at least $1100 in connection with that candidacy • Any combination: Receive $550 and spend it! • Amount increases $100 in Jan odd years (2017) • Only have 1 for same office during election cycle • Must combine any old committees into one

9. Political Committees Political Action Committee (PAC) • An Entity must register as a PAC IF: • Entity is organized for the “primary purpose” of influencing an election; and • Entity knowingly receives contributions or makes expenditures (in any combination) of at least $1100 in connection with any election during a calendar year • “Primary purpose” - excludes many (most) entities • Provision in statute for what is Not (501 Charity orgs) • Guidelines establishing a rebuttable presumption of when primary purpose is influencing elections

10. Political Committee Changes Political Action Committee (Cont) • “Any combination” of spend or receive $1100 • If receive $550 and spend it – registration required • “During calendar year” (not during election cycle) • Entity can receive or spend $1099 annually ($2198 for election cycle), even if primary purpose is influencing elections, and not be required to register or report • Amount low for state, significant in smaller jurisdictions • Threshold increases $100 in Jan odd years • Increased in Jan 2017 to $1100 ($1200 in 2019)

11. Political Committee Changes Registration • Must file Statement of Organization (only form) • $500 Threshold Exception Statement Repealed • Must provide an email address and agree to accept all notices at that email address • Registered PAC may engage in any lawful activity • Not required to register separate committees for different activities (e.g. support measure and candidate) • Not required to identify types of activities on registration statement

12. Reporting Changes Contributions & Expenditures Reports • PACs file reports for every calendar quarter every year, regardless of whether there is any election • Reports due by 15th of month following end of quarter (Jan 15, Apr 15, Jul 15, Oct 15) • Also file a pre-election report in quarters with an election • No Post–election reports (report in next quarterly report) • Candidates file reports only during the year preceding the general (second) election for that office (only file when a candidate in that election) • If 4 year term, do not file for 3 years - media issue

13. Contribution Limit Changes • Limits now increase $100 in Jan of odd years • Increased to $6350 in Jan 2017 • Limits apply to election cycle, not term office • Cycle 2 yrs – General (second) to General (second) • Now 2 cycles in a 4 year term again (like before 2015) • Reattribute “excess” contributions • If a candidate unknowingly accepts amount above limit from an individual contributor (“Excess Contribution”) • Can “reattribute” excess to another donor if meets conditions in §16-913(C) (related / joint donor)

14. Changes to Reporting by Independent Expenditure Orgs Corps, LLCs, Labor Orgs making Independent Expenditures Repealed requirement to “Register” Repealed requirement to file separate notices at time of expenditure Disclosure now through filing a CF Report Not disclosed until same time committees file reports No separate form Use a specific schedule in campaign finance report Must identify candidate supported / opposed

15. Electronic Filing Requirement • Filing officers must provide electronic filing option • Online database not required (yet) • SOS wants entire state to opt into State System • Availability to other jurisdictions delayed - 2018? • Interim compliance using fillable pdf forms & email • All forms prescribed and provided by SOS • Filing officers can no longer change forms

16. Changes to Enforcement • Enforcement of Reporting • Determine Failure to File (on time) • Send Failure to File Notices (By email within 5 days) • Refer to attorney if not filed within 30 days • Penalties for Failure to File • $10 / day during first 15 days after due • $25 / day for each subsequent day (after 15) • Penalties accrue until report is filed • No maximum accrual amounts (Old law $250 / $1000)

17. Changes to Enforcement • Enforcement of other CF Violations • Written complaint from 3rd party now required • Only filing officer can initiate investigations • If filing officer determines “reasonable cause” to believe someone is violating CF law, must notify attorney • City / Town Attorney is Enforcement Officer • If have conflict, filing officer or attorney may refer to other jurisdiction, if jurisdiction accepts referral • Guidelines for Investigations • SOS required to establish in Procedures Manual • Procedures Manual not yet updated for 2016 (last 2014)

18. Pending Implementation Issue Session Law – HB 2297 (2016) • All committees in existence on Nov 8, 2016 must terminate by June 30, 2017 • Clerks have informed committees several times • Reasons for session law: • New registration requirements, fewer committee types • New state database (new design / data conversion) • If committee does not terminate: • Filing officer may terminate or • “Convert” to new committee type (Candidate or PAC)

19. Termination Requirement Issue Conditions for Termination • Committee either: • Has no outstanding debt or obligations; or • Debts are more than 5 years old and creditors have agreed to discharge and the termination • Any surplus money has been distributed • All contributions / expenditures have been reported • May need to file final report with Termination Statement

20. Termination Requirement Issue Committees with Surplus Money • Permitted ways to distribute surplus: • Candidate - transfer to a subsequent campaign • Return surplus monies to the contributors • Contribute surplus to other committees, including candidate committees, within limits • Donate surplus monies to 501(C)(3) charity • Repay loans • Cannot convert to personal use (or family)

21. Termination Requirement Issue Issues with Termination by Filing Officer • Unknown if committee meets requirements • Have surplus, debt, or unreported activity? • Filing officer cannot prepare a final report • Filing officer cannot distribute any surplus • Committees would still need to file a report and certify that conditions satisfied • Does filing officer terminate and then enforce failure to file the final report (late on July 1)?

22. Termination Requirement Issue Issues for Filing Officer to Convert Committee • “Convert” not defined – statutorily is Term & Reg • Unknown if committee is still required to register • Filing officer cannot complete new registration • Lacks required info – email address, bank, etc • Cannot agree for committee to accept email notices • Possible prior restraint issue to register if entity is no longer required to register as a committee • Committee would still need to file new registration • Does filing officer convert, enforce failure to register?

23. Termination Requirement Issue Proposed Recommendation to Clerks • Proactively encourage committees to act by Jun 30 • Send a letter to committees reminding of requirement • Provide new requirements for committee registration • Explain process to terminate if not intend to register • Explain process to convert if will register new committee • File Statement of Org for new committee • Terminate old committee and transfer balance to new • Provide forms or link to online forms • Sample letter has been prepared for Clerks to send

24. Termination Requirement Issue Discussion – If committee fails to act by June 30? • Administratively terminate on June 30? • Enforce failure to file required report (with termination)? • Late as of July 1? • Administratively “convert” committee on June 30? • Enforce filing of new / amended registration form? • Enforce filing of final report for Term showing transfer? • Most committees have report due on Jul 15 • Allow committee to report transfer on next report due? • Which is better if committees never act?

25. Statutory Issues - 2016 Laws Election Cycle • Cycle start and end dates were on Election Day • Previously was end of post-election reporting period • Committees had to file 2 reports to split on Election Day • HB 2486 (Chap 233) – New definition, §16-901(18) • Still 2 years, from General (second) to General (second) • Now start and end dates aligned with reporting periods • Ends last day of calendar quarter with an election • Begins first day of next calendar quarter • Also clarifies cycles for Special & Recall Elections

26. Statutory Issues - 2016 Laws Name of Candidate Committee • Candidate committee name must include office • Committees had to change name to add office • Some had used same name for many years • HB 2486 (Chap 233) • Now required only when candidate has committees for multiple offices at same time

27. Statutory Issues – 2016 Laws Candidate Committee Transfers • A candidate committee can transfer money to other committees for same candidate without limit • Exception: City / town candidate committees can’t transfer to own committee for a state office! • City / town candidates can transfer to committee for county office (but then cannot transfer for a state office for 2 years) • Challenges possible • Some city candidates registered a committee for state office and transferred surplus before effective date (no restriction on transfer from a committee for state offices) • Not amended in 2017

28. Statutory Issues - 2016 Laws Reporting of Expenditures Less than $250 • Not required to itemize expenditure transactions in reports if amount less than $250 • Statute omitted a requirement to report the aggregate total of expenditures less $250 • SOS included a schedule in the report for aggregate total of expenditures under $250 • Not amended in 2017

29. Issues from 2016 Legislation • Filing Date for Reports • Must be filed “no later than” due date • Filing date is date of actual receipt in office • Repealed: Cert mail postmark, delivery confirm date • If report due Sat/Sun/Hol – no provision extending to next business day (old law did extend) • Good cause exception for late filing - repealed

30. Issues from 2016 Legislation • Advance copy of IE Ads to candidate • Repealed requirement to provide a copy of IE ad to the candidate identified in ad within 24 hours of distribution or submission • Now disclosed at time of next campaign finance report (report using the IE schedule of the report) • “Paid for by” disclosure on candidate signs • Repealed former exception for candidate’s own signs that were paid for by the candidate’s own committee • Candidate’s own signs must have disclosure

31. Issues from 2016 Legislation Determining “Reasonable Cause” • Filing officer must determine if “reasonable cause” exists to believe there is a violation of CF law • “Reasonable cause” standard • Undefined / unclear • No Guidelines or standards • Like Motion to Dismiss? (Assume facts true, violation?) • Probable cause? Summary judgement? Other? • Standard is affected by ability / inability to obtain and review evidence

32. Issues from 2016 Legislation • Investigation to determine reasonable cause • Must give alleged violator reasonable opportunity to respond • No audit or subpoena powers to compel production of documents or attendance of witness • May request voluntary production or appearance • Treasurer is required to provide records to filing officer • Guidelines for Investigations • SOS required to establish in Procedures Manual • No update yet for new law (Last update in 2014) • Uniform process, standards, timelines important

33. Form Issues Primary Issue with New Law - Forms! • Must use forms prescribed by SOS (fillable pdf) • Numerous issues identified when first released • 2 revisions issued • One revision very late – some had to redo reports • Some issues not yet fixed • Clerks have / will receive all details and guidance on form issues through League • Today – • Review some examples, primary complaints

34. Form Issues • No Signature on Reports • Statue requires only certification under penalty of perjury - §16-926(B)(5) • Statement to that effect appears at bottom of page 1 • Committees frequently questioned – some signed • Calculation Errors • Fillable pdfs not a good media for auto calculations • Intermittent errors on Summary Sheets (p. 2-3) • Committees should check math and totals! • Usually can fix by deleting and re-entering data

35. Form Issues • Report form includes 62 schedules! (65 pages) • Receipts (A) - 33 Sched • Expenditures (B) - 29 Sched • Do committees have to file blank schedules? • No. SOS revised form to add note at bottom of p. 1 • No Activity Report • Former “No Activity Statement” repealed • No separate form - must file a Report (Page 1 only) • “No Activity” check box added on last line of page 1 • Fill in Summary on page 1 (show zeros for current period) • Also carry forward / repeat campaign to date totals from previous report (only 2 totals)

36. Form Issues Need for Additional Pages for a Schedule • Form has only one page per schedule • Forms unable to generate additional pages • Contribution & Expenditure pages have only 5 lines! • Problem allowing more pages is pdf format issue • Use pdf software (e.g. Adobe Pro, Cute pdf) to complete the forms, which can generate additional pages for a schedule • Fill out page, print, delete data, enter new data, print, repeat • Print multiple copies of blank schedules, complete manually

37. Form Issues Data Columns on Individual Schedules • Many schedules have three columns • Amount received or expended • Total for reporting period • Total amount for election cycle • Must complete all columns for each item / donor • Committees must calculate by referring to prior reports • Manual calculations for multiple contributions for individuals (Statute requires Treasurer to track individual donor totals) • Election cycle totals require knowing date cycle began, which may not have coincided with reporting periods! (Fixed HB 2486)

38. Form Issues Cumulative Total Problems on Schedules • Forms require totals for Reporting Period and Election Cycle on last page of most schedules • If donors gave more than once in a period or cycle, adding columns gives incorrect total (double counts cumulative totals) • SOS direction to only include the latest cumulative total for donors that gave multiple times in the period or cycle • Election Cycle totals in report may not balance with actual totals • Occurs if a donor did not give in that reporting period. (If no contribution in period, donor not listed, so cumulative amounts for the cycle are not included on this report)

39. Common Questions • How to complete and file new forms? • Which schedule to use to report specific items? • When SOS Handbook issued, answered many questions, but there is no other information if not addressed in Handbook. • Handbook does not address most non-form issues • Questions related to calculations and errors • How to file? • Could send pdf by email, or file on paper. More than expected filed on paper. • How to sign, or to verify not required to sign

40. Common Questions • What is Reported in “Equity” Column? • Receipt schedules have columns for cash and equity • SOS Answer: Use equity column for assets, in-kind contributions and things that are not cash and cannot be spent. • The equity totals are not carried forward to the Summary Sheet on reports and are not included in committee cash totals.

41. Common Questions • Extensions of Time to File Reports • Good cause defense repealed. No provision to waive late fees for good cause for filing late. • Penalties accrue on weekends and holidays. Exclusion for these days repealed. • Also, provision extending filing deadline to next business day when due on holiday or weekend was repealed.

42. Implementation of 2016 Campaign Finance Amendments Implementation Issues Questions / Discussion