In New York State, there are no specific restrictions in place with respect to campaign contributions by investment fund managers. New York City, however, has passed New York City Local Law 34 of 2007 (“Law 34”), effective as of July 31, 2008, which limits campaign contributions by investment fund managers.
Law 34 was passed in order to limit the actual or perceived influence that campaign contributions have on the awarding of New York City contracts. Law 34 limits the campaign contributions that may be accepted by a candidate (whether or not a candidate is participating in the optional public financing program) from principal officers, owners and senior managers of entities with business dealings with The City of New York and mandates the creation of a “Doing Business Database” to help New York City enforce the law. Law 34 amends NYC Administrative Code §§ 3-702 and 3-703, sections of the New York City Campaign Finance Act.
The definition of “business dealings with the city” includes any contract for the investment of pension funds, including investments in a private equity firm and contracts with investment related consultants. The term “person” includes an entity that has business dealings with The City, any chief executive officer, chief financial officer and/or chief operating officer of such entity or persons serving in an equivalent capacity, any person employed in a senior managerial capacity regarding such entity, or any person with an interest in such entity which exceeds 10% of the entity. This would cover both fund principals, as well as owners of any fund management company holding in excess of 10% of any such company.
The aggregate contribution limits to a candidate, whether or not such candidate is publicly funded, and his or her principal committee for a covered election, are as follows:
- for the office of mayor, public advocate or comptroller: $400
- for borough president: $320
- for a member of the city council: $250
The contribution limits applicable to persons with business dealings with The City are effective from the date of the presentation of an investment opportunity or the submission of a proposal, whichever is earlier, and during the term of such contract (or for the period for which such funds are invested in an investment fund) and for 12 months after the end of such term.
Law 34 does not apply retroactively. A person will be considered to be doing business with The City as of the date the person’s name is entered in the Doing Business Database, or the date the person began doing business with The City, as such date is indicated in such database, whichever is earlier, except that the date on which the person is considered doing business with The City shall not be earlier than 30 days prior to the date the person’s name is entered into such database.
Violation of Law 34 penalizes the candidate but does not affect the contracting entity or the fund principals. The onus is on the candidate to inquire whether a contributor has business dealings with The City, and if so, to report that contribution. If the contribution limit has been met, the candidate has 20 days after notification to return the excess funds, without violation. When a violation occurs, the candidate, regardless of whether he or she is participating in the optional public financing program, is subject to civil penalties up to an amount equal to $10,000. In addition, for those candidates that receive public funding, failure to return the excess funds may result in a deduction of the excess amount from any public funds awarded to such candidate.
It is interesting to note that other states, such as New Jersey, California and Connecticut, have also adopted restrictions that affect campaign contributions by investment fund managers. While New York City does not impose an outright ban on contributions by investment fund managers, New Jersey has specific restrictions that are more stringent and far reaching than Law 34. For example, while Law 34 restricts candidates from accepting funds in excess of the contribution limits, and violation may result in a fine being imposed on the candidate, the New Jersey Division of Investment cannot even do business with an investment management fund which exceeds campaign contribution limits. The New Jersey Division of Investment cannot make an investment with a particular fund if the investment management firm itself or any of the investment management professionals, among others, have given contributions, within the two years prior to such firm’s engagement or during the term of such firm’s engagement, in excess of $250, to any incumbent or candidate for New Jersey State office, or any candidate for local office who is also a State official or an employee or advisor of either the State or a State official.