Moreland Commission Testimony: Campaign Reform Can Curb Albany Corruption

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Submitted to the Moreland Commission to Investigate Public Corruption
Public Hearing, September 17, 2013

Co-chairs Fitzpatrick, Rice, and Williams, and members and staff of the Commission, thank you for the opportunity to testify today. There are few things more important to the health of our State than ensuring that state government has the trust of the people. On behalf of the Brennan Center for Justice at NYU School of Law,[1] I thank you for your service.

Many of today’s speakers will rightly focus on the criminal scandals that have enveloped Albany in the last few years, and what tools are necessary to ensure that those committing such crimes are brought to justice. On this score, I have little to add to the testimony of the distinguished speakers who have come before me. It is obvious that more must be done. In particular, the Brennan Center has long argued that it is crucial the state establish a new, independent board or unit to administer and enforce all campaign finance laws and that we vest the Attorney General and local district attorneys with power to independently investigate and prosecute alleged violations of campaign finance laws. Prosecution and censure for illegal activity is, of course, a necessary step if we are to prevent that activity in the future.

But it is not enough. Often, what is most scandalous in Albany is what is perfectly legal. And this encourages behavior that many New Yorkers rightly consider corrupt, whether technically legal or not.

Even where no quid pro quo bribe has taken place, moneyed special interests dominate our state’s politics, elections and policies in a way that the public sees as corrupt.[2] The public record is rife with special benefits provided by the legislature and others in government to big donors. From jobs at state agencies[3] to retroactive tax breaks (on projects that were already underway),[4] to earmarks for big contributors,[5] there is evidence that money greases the wheels of the system. Voters who cannot afford to donate thousands of dollars have little influence over who becomes a candidate, who gets elected, and what agenda gets debated and acted upon. This inability to meaningfully participate in the system breeds disaffection and cynicism. 

There is evidence that political giving from special interests has less to do with ideology or political speech than with securing access to those in power. When the Democrats took control of the Senate in 2009, corporate contributions to Republicans fell to half of their 2008 level and contributions to Democrats increased significantly.[6] Similarly, unions’ contributions to Senate Republicans fell to half their 2007 levels.[7] The greater part of these contributions flowed back to Republicans when they regained control in 2011. The same dynamic played out for contributions to committee chairs as party control switched back and forth. As I will discuss in greater detail in my testimony, this is the money that dominates New York State’s political system.

It would be a tragedy if the Commission failed to address this systemic and most basic problem in the State’s political culture.  As I will more thoroughly detail in this testimony, all of the state’s major good government groups, as well as editorial boards from around the State, agree that any systemic solution to the corrupting influence of money in politics must include comprehensive campaign finance reform, with a small donor matching system like New York City’s at its core.[8]

1. Tax Break Extensions for Major Contributors

The repeated extension of tax breaks for major campaign contributors is a prime example of how our state’s broken campaign finance system has warped policy outcomes. Until now, it has received little attention. The Brennan Center has identified fourteen separate tax credits that have been repeatedly extended over the last several years. All of them have been provided to industries that are major sources of campaign contributions in New York State: financial services, gambling, film production, energy and real estate. A list of these extensions is provided in appendix A of this testimony.

To be clear, the Brennan Center takes no position on the wisdom of these tax incentives as a policy matter. It is entirely possible that each has a positive impact on the State’s environment, jobs, or economy. But if these provisions are indeed good policy, generating positive results, the legislature should make them permanent.

Instead, what we appear to have in New York is a phenomenon that Professor Rebecca Kysar of Brooklyn Law School has documented at the federal level, where tax sunsets and extensions make it easier “for politicians to more easily extract … campaign contributions from the parties affected by the threatened provision.”[9] By ensuring a tax break is revisited repeatedly, politicians also make certain that interest groups cannot afford to let their influence wane. The pattern of scheduling the expiration and extension of tax breaks and over and over suggests that their presence in the tax code involves something more than a mere policy choice.

Of course, there are policy justifications for making some tax provisions temporary. The provision might address an inherently temporary problem, such as reconstruction after a disaster, or the legislature might want to test whether the provision works in practice before making it permanent. Sunset provisions can also make tax expenditures appear cheaper from a budgetary perspective, which is not a compelling policy justification, but certainly a political reality. However, these justifications fall away when tax provisions are reauthorized repeatedly over many years, making them temporary only in theory and permanent in practice.

This appears to be the case with many of the repeated extensions the Brennan Center has identified. At the very least this process is inefficient, but more importantly, it increases the likelihood of conflicts of interest and corruption in policy making.

Economists have documented that sunsetting tax breaks are also frequently harmful to our economy.[10]  Businesses cannot effectively plan without knowing how their actions will affect their tax bill.[11] A high level of uncertainty makes businesses unwilling to invest, and it can even encourage businesses to move out of the state.[12] Especially where tax credits are designed to encourage investment in a preferred field or technology, it is irrational to keep the constant threat of expiration hanging over taxpayers’ heads.[13] In some cases, Albany actually allows tax credits to expire and then makes the extension effective retroactively. This process increases administrative burdens on both the state and its taxpayers, and it further limits businesses’ ability to plan.[14]

2. The Need for Comprehensive Campaign Finance Reform

The apparent conflict of interest posed by temporary tax credits and associated political giving is an example of the corrupting culture of Albany. Sky-high contribution limits, low levels of political participation, a lack of disclosure, and lax enforcement all contribute to a system that seems to allow money to buy legislative favoritism. Public trust in government has been eroded not just by politicians’ indictments and prison terms, but by the completely legal ways that wealthy interests influence Albany’s policy choices.

It should not be surprising that New York State is at the very bottom of states in terms of percentages of adults contributing to state election campaigns.[15]  Why contribute when the playing field is so heavily tilted to a small number of moneyed, special interest donors?

This explains why the vast majority of New Yorkers (78 percent) agree that “reforming New York’s campaign finance laws is key to cleaning up Albany, rooting out corruption and improving the work of state government.”[16]  It is also why the Brennan Center, all of the state’s major good government groups, and editorial boards across the state have argued that combating systemic corruption requires reform that includes the following:

• Limited matching funds for small donations. A voluntary program for candidates that matches small donations – $175 or less – with public funds will encourage small donors to contribute and participate in the electoral process.   When small donations are matched, average New Yorkers will be able to offer meaningful support to candidates, and candidates will be able to combine campaigning and fundraising. A similar system of matching small donations has been in place for twenty years in New York City and has earned strong support among voters and candidates alike.
   
• Reasonable contribution limits. New York State’s soft money loopholes and exorbitant contribution limits encourage politicians to seek huge funds from their contributors. Setting reasonable limits will allow individuals to show their political support without being shaken down for unlimited donations.  Ending pay-to-play will save public dollars by preventing contributions and bundling by contractors and lobbyists from influencing decisions about state business.
   
• Disclosure of campaign contributions and political expenditures. As a result of the Citizens United decision, tens of millions of dollars in political spending are hidden from public view. Transparency is an essential principle of free and competitive markets. The rise of Super PACs during the 2012 election cycle makes this reform even more urgent.
   
• Independent and robust enforcement. New York State’s enforcement of campaign finance laws is notoriously lax, leading to corruption and abuses of the system. We need professionalized, non-partisan administration of campaign finance laws that also helps candidates and donors with compliance.

I provide a more detailed explanation of the Brennan Center’s policy recommendations in Appendix B of this testimony.

3. The New York City Experience with Systemic Reform

New York City’s overhaul of its campaign finance system in 1989, after widespread corruption scandals, demonstrates the transformative impact of such changes. Simply put, since passing its small donor public financing system, New York City elections have a far greater number and diversity of contributors to candidates than in state contests.[17]  Encouraged by the matching funds, New York City residents contribute to city elections at a rate three times that of state elections.[18] As the city system increased its matching ratio between 1997 and 2009, the pool of small donors increased by 40 percent. In 2009, almost 90 percent of New York City’s census block groups had at least one person who gave $175 or less to a City Council candidate.[19] By contrast, in 2010, only 30 percent of the city’s census block groups had at least one small donor to a State Assembly candidate. [20]

Moreover, a much higher percentage of money raised in City elections is from individuals and small donors, with special interest money playing a much smaller role in elections: in 2012, nearly 70 percent of contributions in state legislative races came from special interests, and less than a third from individuals; by contrast, less than 7 percent of contributions to New  York City candidates in 2013 have come from special interests, versus over 90 percent from individuals.[21]

Since the enactment of pubic campaign financing, New York City has not seen another corruption crisis even remotely resembling that of the 1980s. Of course, any system is still vulnerable to bad actors, and New York City is no exception. But the city’s reforms have succeeded in making elections more competitive, in allowing candidates to campaign more than they fundraise, and in greatly increasing the influence and voice of small donors who lack access to large sums of money.[22]

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The scandals of the last few years have taken a toll on the public’s faith in State government.  We need to be wary of stoking that cynicism. Comprehensive change to our campaign finance system, including small donor public financing, is the systemic change we should be offering. The Brennan Center respectfully urges the commission to make such change a focus of its investigation and recommendations.

To read the full testimony, download the PDF here.