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2005-1: In the Matter of Fisher 2001

February 09, 2005

Kenneth Fisher was a candidate for Brooklyn borough president in the 2001 primary elections. He participated in the New York City Campaign Finance Program (the "Program") in connection with his candidacy, and received $645,600 in public funds. Following a comprehensive post-election review of the Fisher campaign's (the "Campaign") activities, the October 18, 2004 final audit report (the "Final Audit Report") for the Campaign indicated that it must return $113,597 in unspent campaign funds. The Campaign filed a Rule 5-02(a) petition on November 5, 2004 (the "Petition"), challenging its obligation to repay $113,597 in unspent campaign funds.1 At a meeting held on January 13, 2005, the Board announced its final determination, denying the Petition.


The Campaign's Penalties and Unspent Funds Repayment Obligation

A. Penalties

The Board assessed a penalty of $48,110 against the Campaign for exceeding the primary election expenditure limit by $48,110 (4.4%) at a meeting held on July 15, 2004. At another meeting held on October 13, 2004, the Board assessed an additional $520 in penalties against the Campaign for additional violations of the New York City Campaign Finance Act (New York City Administrative Code §§ 3-701, et seq.) (the "Act"). These assessed penalties were included in the Final Audit Report.2

B. Unspent Funds Repayment Obligation

The Final Audit Report also indicated that the Campaign was required to return $113,597 in unspent campaign funds to the Board.

The Petition

In the Petition, the Campaign asserts that the repayment obligation is "excessive" because there is no deduction for either: 1) the outstanding liabilities that the Campaign incurred in assessed penalties, in responding to the "notice of alleged violation and proposed penalties…and in otherwise defending its legal rights," or 2) $10,285.95 in post-election expenditures, which the Campaign asserts it made for the purpose of "winding up" the election campaign.

Outstanding Liabilities for Penalties and Legal Fees

Legal Fees

Although the Petition repeatedly refers to liabilities that the Campaign has "and continues to incur" in responding to the penalty notice and "in otherwise defending its legal rights," the Campaign has failed to provide any documentation or facts regarding these liabilities, or even to quantify the amount of them.3 The Board cannot permit deductions of claimed, but undocumented and unquantified, liabilities from unspent funds repayment obligations. Accordingly, the Campaign's request to deduct these liabilities from its unspent campaign funds repayment obligation is denied.

Using Public Funds to Pay Penalties

Under the Program, participants receive public funds subject to the express condition, inter alia, that any unspent campaign funds left over at the end of the election will be returned to the Board (up to the amount of public funds received). SeeAdmin. Code § 3-710(2)(c). Unspent campaign funds are calculated by subtracting all of a campaign's reported expenditures from all of its receipts. The requirement that unspent campaign funds must be returned to the City ensures that public taxpayer funds, which were issued for a specific public purpose (to assist in a candidate's efforts to be nominated for election or to be elected to office), are used only for that purpose. Otherwise, the City would be subsidizing whatever that candidate chooses to do with the unspent campaign funds, even though the funds are not being used for the specific public purpose for which they were distributed. Certainly, the law, in requiring the return of unspent campaign funds, does not envision that the City should subsidize a campaign's payment of penalties arising from violations of the Act. Indeed, to permit candidates to use unspent campaign funds to pay penalties would eliminate the meaningful sanction that the assessment of penalties is supposed to represent.

For example, if a candidate with a $2,500 unspent funds repayment obligation and a $500 penalty is permitted to deduct this penalty from the $2,500 in unspent funds, and then repay only $2,000 to the Board, he or she would suffer no financial consequence from the penalty. (See chart below) The candidate would be repaying to the City exactly the same amount he or she would have had to pay if no penalty had been assessed. This illogical result is not what the law contemplates. To ensure that the penalty has a punitive impact, the candidate must be required to pay the entire $2,500 unspent funds repayment obligation as well as the $500 penalty, for a gross payment to the Board of $3,000.

Board Practice

Thus, the Board's practice has been to require candidates whose final audit reports contain both an unspent campaign funds repayment obligation and any outstanding assessed penalties to satisfy each obligation separately, rather than by deducting the penalty from the candidate's unspent campaign funds repayment obligation as the Campaign seeks to do here.4 There are several reasons for this longstanding practice. First, it supports, and is consistent with, the purpose and underlying policies behind unspent campaign funds and penalties, as discussed above. Second, it prevents public money from being used, directly or indirectly, to pay penalties. Third, it ensures that all candidates are treated alike, regardless whether they have an unspent funds repayment obligation, an outstanding penalty, or both.

The following example illustrates these rationales:5


    Candidate A
(No Penalty)
Candidate B
(Paying Penalty Under
the Campaign's
Proposed Method)
Candidate C
(Paying Penalty Under CFB Determination)
Receipts   $50,000 $50,000 $50,000
Public Funds   $30,000 $30,000 $30,000
Total Receipts   $80,000 $80,000 $80,000
(Total Expenditures)   ($77,500) ($77,500) ($77,500)
Unspent Funds
(Total Receipts Less Total Expenditures)
  $2,500 $2,500 $2,500
Penalty Assessed   None $500 $500
Unspent Funds Owed After Penalty Offset   N/A $2,000 N/A
Check to New York City   $2,500 $2,500 $3,000
      ($2,000 "unspent funds" plus $500 penalty)  


In this example and if the Campaign's request to have its outstanding penalties deducted from its unspent campaign funds were granted Candidate B would be treated the same as Candidate A, even though Candidate B was assessed a penalty and Candidate A was not. In other words, Candidate B would suffer no financial consequence despite having violated the Program and having incurred a penalty. Only by requiring a candidate to pay both the penalty and the unspent funds repayment obligation separately, as Candidate C is required to do, would: (1) all candidates be treated alike with respect to paying penalties and repaying unspent funds repayment obligations; (2) public funds not be used to subsidize violations of the Program; and (3) penalties and repayments of public funds be kept conceptually and legally distinct.

Other Issues

In the Petition, the Campaign argues that it "has taken considerable steps to protect New York City taxpayers" by not accepting public funds it was eligible to receive in the 2001 general election, and by limiting its spending during the general election period. In other words, the Campaign argues that because it did not go on a spending spree during the general election period (when the candidate was running on a third-party line, after losing in the Democratic primary election), the Campaign conserved resources and should be rewarded for this.6 While the Campaign may have commendably declined to waste taxpayer funds, this has no bearing on its separate legal obligation to repay unspent campaign funds.

The Campaign notes in its Petition, when calculating the Campaign's $113,587 unspent funds repayment obligation, the Board inadvertently failed to account for the $720 in penalties that the Campaign paid before the election, and had reported as an expenditure. Thus, in the Final Audit Report, the Campaign's unspent funds repayment obligation was reported as $720 less than it should have been. This erroneous deduction is what the Campaign now asks the Board to replicate in a far higher amount with $48,6307 in penalties. Board error does not justify overturning the Board's long-established and correct practice dictated by the law's language and purpose regarding the repayment of post-election penalties and unspent campaign funds.

Post-Election Expenditures

Rule 5-02(a)(2)

A participant seeking Board review of a determination pursuant to Rule 5-02(a) is precluded from submitting "factual information not submitted to the Board prior to the determination under review" unless he or she can demonstrate "good cause" for not submitting this information earlier "and for any failures to communicate on a timely basis with the Board."Rule 5-02(a)(2) (emphasis added).8 The Board finds that the $10,285.95 in post-election expenditures (including undocumented expenditures to the Internal Revenue Service for taxes and late filing fees and payments to consultants for compliance services) may not be deducted from the Campaign's unspent funds repayment obligation because the Campaign failed to comply with Rule 5-02(a)(2). The Campaign did not bring these items to the Board's attention in a timely manner. In fact, it did not inform the Board of any of these expenditures prior to issuance of the Final Audit Report, and provided no explanation for why it did not apprise the Board of these expenditures earlier. Indeed, even though the latest of the post-election expenditures that the Campaign now seeks to deduct occurred by June 8, 2004, many months prior to issuance of the Final Audit Report, issued on October 18, 2004, the Campaign informed the Board of these expenditures for the first time in its Rule 5-02(a) Petition, filed on November 5, 2004. The Campaign did not address the requirement of Rule 5-02(a)(2) at all, nor did it argue that "good cause" exists. Instead, it merely noted that these "disbursements were duly reported" to the Board of Elections ("BOE"), and stated that Campaign Finance Board staff never requested this information. However, as the Campaign is well aware, the Campaign Finance Board is not the BOE, and providing information to the BOE does not satisfy the Campaign Finance Board's requirements.

Further, the Campaign was required to inform the Board of (and to substantiate through documentation) any post-election expenditures it made after submitting the last required disclosure statement to the Board, or of any other transactions that could affect its unspent funds repayment obligation. See cover letter to the February 6, 2003 draft audit report (the "Draft Audit Report").9 As the Campaign was informed, the unspent funds repayment obligation is based entirely on information and documentation that the candidate provides to the Campaign Finance Board. Id. Yet, the Campaign now suggests that it was the Campaign Finance Board's responsibility to elicit this information from the Campaign. The Campaign's suggestion improperly and illogically shifts the burden of providing such information from the Campaign to the Board.10
Because the Campaign did not met its burden of demonstrating that any portion of the $10,285.95 in disbursements was for permissible post-election expenditures, this portion of the Petition is denied.


The Petition is denied.




1 Rule 5-02(a) provides that "[a]fter the Board determines that a participant is ineligible for public funds, matchable contribution claims are invalid, or public funds must be repaid, the participant…may submit to the Board a written petition for review of the determination….Upon such determination, the Board shall issue written notice to the petitioner of the Board's determination, including the reason(s) for the determination."

2 Specifically, the Board determined that the Campaign had violated the Act by accepting a $2,500 over-the-limit contribution; failing to document an in-kind contribution; making a prohibited expenditure between September 12, 2001 and September 24, 2001; failing to file a contemporaneous pre-election disclosure statement; and failing to document two transactions. In addition, the Board assessed $720 in penalties against the Campaign on November 30, 2001 for accepting four corporate contributions. These penalties have been paid. See also "Other Issues," infra.

3 This determination does not address the question of whether such liabilities may be claimed as an offset of unspent campaign funds.

4 The final audit stage is the first time a candidate can have an unspent public funds repayment obligation because conclusive public funds eligibility is not determined until the post-election audit. See Rules 5-01(g), (k), and 5-03(e).

5 The Campaign also provided its own chart in the Petition, which attempted to show that two hypothetical candidates would be treated equally under the Program only if one candidate were permitted to deduct an assessed penalty from his or her unspent campaign funds repayment obligation. The chart was unpersuasive, however, because one hypothetical candidate had an outstanding debt after the election, while the other hypothetical candidate had no outstanding liabilities and actually owed unspent campaign funds to the Board. The two hypothetical candidates thus did not ultimately need the same amount of public funds.

6 In another matter involving this campaign, the Board took into account mitigating circumstances. As referred to on p.1, the Campaign was charged with a primary expenditure limit violation, which under law can carry a penalty of up to three times the overage. A penalty of twice the overage was considered, but ultimately a penalty for the amount of the overage itself ($48,110) was assessed.

7 Even though the Campaign's unspent funds repayment obligation should actually be $720 higher than the Final Audit Report provides, the Board will not correct this mistake by requiring the Campaign to repay an additional $720 to the City, since it was the Board's error, and, in this case, a relatively small amount of money. The same error was made for other 2001 and 2003 candidates who paid penalties before the election and reported them as expenditures.

On the other hand, the Board has consistently required candidates whose final audit reports contain both an unspent funds repayment obligation and any outstanding penalties to satisfy each obligation separately, rather than by deducting the penalty from the unspent funds obligation, as the Campaign seeks to do here. Indeed, one campaign has paid $224,634 in outstanding penalties from the 2001 elections and remains in the process of separately repaying $241,344 in an unspent funds obligation.

8 Among other purposes, this rule is intended to bring closure to the process of the post-election audit, which depends upon the campaigns' cooperation and participation in a series of questions and responses. There must be an endpoint after which campaigns can no longer supplement the record or make demands on the Public Fund, and the Final Audit Report thus is confined by the requirements of Rule 5-02(a)(2).

9 In this letter, the Campaign was informed that the Board's unspent funds calculation is based on data reported by the Campaign. The letter directed the Campaign to provide a narrative response and documentation to the Board if the Campaign believed that the Board's calculation of the Campaign's unspent campaign funds at that time was inaccurate.

10 Even if the Campaign had timely informed the Board of these expenditures, it did not provide any documentation to substantiate that the post-election expenditures are permissible or even to show that the expenditures were made at all. Participants are required to "maintain clear and accurate records sufficient to show an audit trail that demonstrates compliance" with the Act and Rules. See Rule 4-01. Before repaying unspent campaign funds, participants are permitted to make post-election expenditures only for "routine activities involving nominal cost associated with winding up a campaign and responding to the post-election audit." Rule 5-03(e)(2). This Rule protects the Public Fund by ensuring that candidates with excess funds after the election reimburse the City with those funds (up to the amount of public funds received), rather than employing the funds for activities unrelated to the purpose for which they were issued.

Central to verification of participant compliance with the Program's requirements is the Board's audit authority, which relies in turn upon participants' production of their own and third parties' contemporaneous, detailed documentation - including invoices, cancelled checks, and contracts - to verify participants' statements regarding campaign activities. In this instance, the Campaign merely presented the facts of the alleged expenditures in narrative form, without any documentary substantiation, and has asked the Board simply to accept the Campaign's say-so.