Political Laws: a Trap for the Unwary


With the passage last year of the Lobbying Disclosure Act of 1995 (P.L. 104-65), the first Federal lobbying reform in nearly 50 years took effect. In addition, both the U.S. House of Representatives and the U.S. Senate substantially revised their internal rules governing the making of gifts to members, officers and employees of Congress. In California, the Legislature is considering several bills to reform the state's Political Reform Act, while at least one comprehensive political reform initiative will appear on the November 1996 general election ballot. Finally, at the local level, jurisdictions ranging in size from Los Angeles and San Francisco to Clovis in the Central Valley have all enacted statutes regulating political activity.

As these developments illustrate, laws regulating campaign contributions, lobbying and gifts to public officials are becoming both more pervasive and more complex, making compliance by individuals and businesses in the private sector more difficult. The purpose of this advisory letter is to outline the primary issues to look for when coming into contact with public officials at the federal, state or local levels of government.

Lobbying

Although lobbying laws vary from jurisdiction to jurisdiction, their essential components are substantially similar. Generally speaking, these laws are designed to require individuals who seek to influence decisions of government on a substantial or regular basis to register as lobbyists and file periodic disclosure reports of lobbying payments received, descriptions of the issues sought to be influenced and summaries of campaign contributions and gifts made to public officials. An emerging trend in lobbying regulation is to include as lobbying more than mere attempts to influence legislation before the applicable legislative body. Many jurisdictions also include attempts to influence rulemaking proceedings and similar quasi-legislative activity, as well as government actions on permits, contracts, licenses and similar quasi-judicial activity, within the definition of lobbying. This means that a significantly greater amount of activity will be considered as lobbying, and more individuals will qualify as lobbyists who must register and file reports.

To illustrate how these rules work in practice, consider who qualifies as a lobbyist under California's lobbying law: A "lobbyist" is any individual who is employed for economic consideration, other than reasonable travel expenses, to communicate directly with any elective state official, agency official or legislative official for the purpose of influencing legislative or administrative action on a substantial or regular basis. The California Fair Political Practices Commission ("FPPC"), the state agency responsible for administering the lobbying law, has indicated "substantial or regular" activity to be present if either of two qualification tests is met. The "compensation" test requires an individual to have one lobbying contact and be paid $2,000 in compensation during a calendar month.1 The "contacts" test requires that the individual be compensated to lobby and have 25 or more lobbying contacts in two consecutive calendar months. If either test is met, the individual must register as a lobbyist in California and file quarterly disclosure reports.

The Federal lobbying law and the lobbying laws of many jurisdictions have similar lobbyist definitions and thresholds, but each jurisdiction's rules should be reviewed separately, since the differences can be significant. Accordingly, prior to communicating with a public official at the federal, state or local level, it is important to ascertain whether or not the jurisdiction has a lobbying statute, what the thresholds are for registration and reporting and what types of communications are covered.

Campaign Contributions

Campaign contributions, particularly in an election year, are an important component of the political process. Generally speaking, a campaign contribution is monetary or in-kind support of a political candidate which is made for political purposes. At the federal level, banking and other corporations are prohibited from making contributions to candidates for federal office or committees supporting or opposing such candidates. (National banks are prohibited by federal law from making contributions to candidates at the federal, state and local level.) In addition, individuals and political action committees ("PACs") are subject to limitations in the amounts they may contribute to federal candidates.

In California, bank holding companies, state banks and other corporations may contribute to state and local candidates, absent any local prohibition. Contributions may be made without limitation at the state level, except in the case of special elections (e.g., an election to fill a vacancy prior to the end of the term) where a $1,000 per person limit applies.2 These rules may change should the voters approve one or both of the campaign finance reform initiatives which may appear on the November 1996 ballot. Corporations which make contributions totaling $10,000 or more in a calendar year to state or local candidates must file semi-annual disclosure reports with the Secretary of State and/or local election officials.

Cities and counties also have adopted campaign contribution rules with increasing frequency. For example, both the City of San Diego and the County of the San Diego prohibit corporate campaign contributions, while many jurisdictions have enacted contribution limitations of $500 or less per candidate per election.

Compliance with these myriad campaign contribution rules can be made easier by ensuring that there is only one unit or individual within the organization that is authorized to make contributions on behalf of the organization. In addition, the applicable laws should be checked beforehand to ensure that the contribution will not violate any prohibitions or limitations. Reliance on the word of fundraising professionals or the candidates themselves is not advised. Finally, organizations should make their political contributions directly and never reimburse contributions made by their officers, employees, consultants or others.

Gifts

While campaign contributions generally benefit a campaign committee organized to elect or defeat a candidate or ballot measure, a gift is intended to benefit a public official personally. Examples of gifts include meals and refreshments, travel and lodging. With the recent adoption of stricter limitations on gifts to members of each house of Congress, the trend toward further restrictions on the ability of public officials to accept direct payments or benefits from private sources continues.

At the federal level, gifts to members, officers and employees of the U.S. House of Representatives are banned, absent a specific exception, while gifts to members, officers and employees of the U.S. Senate are limited to $50 per occasion with a calendar year cap of $100, absent a specific exception. In addition, gifts to most federal executive branch officials are severely limited (to $20 per official per occasion in most cases).

In California, "honoraria" payments to most public officials (e.g., compensation for speeches or appearances) are prohibited. Moreover, gifts to most public officials are limited to $280 per year (except in localities, like the City of Los Angeles, where lower limits have been imposed). Registered lobbyists and lobbying firms are limited to gifts of $10 per state official per month. Finally, state and local government officials may be disqualified from participating in votes or other governmental decisions if gifts or contributions are received within 12 months of certain governmental decisions.

Prior to the making of a gift to a public official, care should be taken to ensure that the gift does not violate any applicable gift prohibition or limitation and that the gift will not create a disqualifying conflict of interest for the official. This latter issue can be particularly important if the bank is involved in an administrative proceeding with an agency where the otherwise sympathetic recipient may be disqualified from participating in the decision of the bank's claim. A centralized system of tracking gifts to public officials is helpful in ensuring compliance with these rules.

Enforcement

All this regulation means that providing financial support, whether as a gift or campaign contribution, to a public official requires an understanding of these rules--and the adverse consequences that may result from their breach. Similarly, failure to register and properly report as a lobbyist or lobbyist employer can result in monetary penalties imposed by the applicable governmental authority.