Title
Referral to the Ballot - Charter Amendment Relating to City of Phoenix Election Funding Disclosure (Ordinance S-44549)
Description
This report requests approval of an ordinance referring a ballot measure for a proposed amendment to the Charter of the City of Phoenix relating to Election Funding Disclosure, sometimes referred to as "dark money."
Report
Summary
On Feb. 15, 2018, Councilwoman Kate Gallego, along with Mayor Greg Stanton and Councilwoman Debra Stark, requested that an item be placed on a Formal agenda related to a proposed Charter Amendment regarding the disclosure of the contribution source for election-related independent expenditures, sometimes referred to as "dark money." The proposed Charter amendment would be referred to voters at the November 2018 General Election. On March 7, 2018, the City Council approved an eight-hour rule request for staff to conduct research on proposed ballot language for election funding disclosure. This report provides the City Council with information on election funding disclosure for independent expenditures, and provides a draft ordinance based on recommendations approved by the Sustainability, Housing, Efficiency and Neighborhoods Subcommittee on April 17, 2018.
Background
In January 2010, the United States Supreme Court decided Citizens United v. Federal Election Commission, 558 U.S. 310 (2010), involving regulation of political campaign spending by organizations. The Supreme Court overruled previous decisions and held (5-4) that the Constitution’s First Amendment free speech clause prohibits the government from restricting independent expenditures by nonprofit corporations, for-profit corporations, labor unions, and other associations advocating for the election or defeat of a candidate.
The Court concluded that associations of individuals have free speech rights under the First Amendment, and that since spending money is essential to disseminating speech, limiting a corporation's ability to spend money is unconstitutional because it limits the ability of its members to associate effectively and to speak on political issues. The decision permits corporations, labor unions and other associations to spend money on "electioneering communications" and to directly advocate for the election or defeat of candidates (although not to contribute directly to candidates or political parties). The Supreme Court did not invalidate requirements for public disclosure by sponsors of advertisements.
Research
State Legislation
Since the Citizens United decision, the Arizona State Legislature has amended campaign finance laws to conform to the decision. Although not required by the Court’s decision, the Legislature has also amended provisions decreasing the requirements for public disclosure. The term “dark money” has been used to describe these expenditures by organizations for which there is limited disclosure, particularly related to the funding source.
Immediately after the ruling, in 2010, Arizona law was amended to remove the prohibition on independent expenditures by organizations and to enact the following registration and disclosure requirements:
Organizations making independent expenditures of $1,000 or more to influence an election in a jurisdiction were required to register as an independent expenditure organization within five days of making an expenditure.
Organizations making independent expenditures were not required to register as a political committee, and consequently, were not required to file contribution and expenditure reports, or to disclose the source of the funds for expenditures.
Entities making independent expenditures were required to disclose the expenditures and some details within 24 hours each time the entity cumulatively spent $1,000 or more.
The most recent and significant State legislation was Senate Bill (SB) 1516 in 2016. This Bill changed the requirements for when an association must register as a political committee, resulting in fewer entities and groups being required to register a committee and report contributions and expenditures. The Bill provides that:
Candidate committees must register if contributions and/or expenditures exceed $1,100 in a calendar year;
An entity must register as a political action committee if it exceeds $1,100 in contributions and/or expenditures in a calendar year, and the entity’s primary purpose is influencing the outcome of an election. Influencing elections is not the primary purpose of many entities that make independent expenditures, so these entities are no longer required to register as a political committee.
SB 1516 also changed the requirements related to disclosure of independent expenditures. It provides:
Reporting is no longer required at the time an expenditure is made, but rather is required at the time political committees are required to file campaign finance reports. Disclosure would not occur until after the election for independent expenditures made within 16 days prior to an election.
There is still no requirement to disclose contributions or the source of funds.
Disclosure Requirements and Legal Challenges
The effect of the changes to state law in 2016 was to reduce the number of candidates and organizations that are required to register a political committee, and consequently the requirement to report contributions and expenditures. Importantly, however, the Citizens United decision did not prohibit disclosure requirements for either independent expenditures or the source of contributions. Furthermore, the Arizona State Constitution, Article 7, Section 16 states "The legislature, . . . 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." A legal challenge to SB 1516 is pending in Superior Court related to the reduced public disclosure.
Several other jurisdictions have implemented laws to require the disclosure of the source of contributions for independent expenditures. Austin, Texas, and Denver, Colo., passed laws in 2016 and 2017, respectively, requiring the disclosure of the source of contributions for independent expenditures. A legal challenge has been filed against the Denver ordinance regarding the constitutionality of the requirement to disclose the sources of the contributions for independent expenditures.
In March 2018, voters in the City of Tempe passed, with 91 percent of votes in favor, a ballot measure to amend the Tempe City Charter to require the disclosure of contributors for independent expenditures of $1,000 or more. The Tempe ordinance adopts provisions similar to those in State law prior to the adoption of SB 1516 in 2016. However, the Legislature passed, and on April 5 the Governor signed, House Bill (HB) 2153 that prohibits filing officers of cities and towns in Arizona from requiring disclosure of the source of funds for nonprofit 501(a) entities. This legislation is likely to be the subject of a legal challenge, and at this time does not prevent the Phoenix City Council from referring the proposed Charter amendment to voters.
Referral to Ballot
Per City Council direction, the attached ordinance refers a Charter Amendment to the Nov. 6, 2018, ballot. If approved by voters, the proposed language would amend Chapter XIII, Section 5 of the Phoenix City Charter to permit the City to adopt requirements for disclosure of election funding sources for independent expenditures that impact City of Phoenix elections.
Staff will develop an ordinance for the City Council to consider that adopts City Code provisions requiring the disclosure of the source of contributions for independent expenditures, similar to the Tempe ordinance, as recommended by the Sustainability, Housing, Efficiency and Neighborhoods Subcommittee. The ordinance could become effective upon voter approval of the proposed Charter amendment.
The Tempe ordinance requires any person or association, other than a candidate committee or a registered political action committee, that makes expenditures to influence a City election totaling more than $1,000 within an election cycle to disclose the original source or sources of all major contributions received during that period and attributed to that expenditure, and any intermediary through which such contributions passed.
The ordinance would require entities currently not subject to disclosure under state law, including nonprofit organizations such as 501(a) entities, to disclose independent expenditures of $1,000 or more to influence the outcome of a City of Phoenix election, as well as the source(s) of contributions received of $1,000 or more, including any intermediary through which such contributions passed. These disclosure reports would be required to be filed with the City Clerk Department within 48 hours of making an independent expenditure of $1,000 or more. The disclosure would be required for any person or association that makes independent expenditures to influence a City candidate or ballot measure election. Entities that are found to be in violation of this policy may be fined up to three times the amount spent on the independent expenditure they failed to disclose.
Concurrence / Prior Council Action
This item was recommended for City Council approval by the Sustainability, Housing, Efficiency and Neighborhoods Subcommittee on April 17, 2018, by a vote of 2-0.
Department
Responsible Department
This item is submitted by Acting Deputy City Manager Toni Maccarone and the City Clerk Department.