NC’s Ethics and Lobbying Reform Law
The following appears courtesy of Rob Schofield and the NC Center for Nonprofits.
House Bill 1843 (Session Law 2006-201), which was signed into law by Governor Easley on August 4, 2006, is a lengthy and ambitious effort to clarify the ethical standards that apply to state government and more thoroughly regulate the behavior of state officials. In addition (and of more direct relevance to the state’s nonprofit community), the bill also includes a substantial rewrite of state lobbying laws. This memo provides a synopsis of some of the main provisions of the bill that are likely to be of immediate relevance to the state’s nonprofit sector. A copy of the bill may be obtained by visiting the website of the General Assembly at www.ncleg.net. Note that many of the descriptions included are very general in nature and should not be relied upon without consulting the law itself, the directives and/or rules issued by the Secretary of State’s (www.sosnc.com) office and the new Ethics Commission, or an attorney. Useful summaries of the federal laws that govern (and encourage) lobbying by 501(c)(3)s can be accessed at the website of the national Alliance for Justice (www.afj.org).
Part I of the bill enacts “The State Government Ethics Act.” The new act amounts, in many respects, to the codification of a series of standards, prohibitions, and requirements that have traditionally been set forth by North Carolina governors by executive order. House Bill 1843 now establishes these requirements in statutory form in a new chapter of the General Statutes known as 138A.
While most of the provisions of this section deal with the new, independent state Ethics Commission with respect to its composition, duties, and procedures, etc., some provisions have the potential to directly impact nonprofits. The most important of these is the definition of “gift.” A gift is defined at §138A-3(15) as anything of monetary value given by a lobbyist, a lobbyist’s principal (i.e., client/employer) or other defined person doing business with a specific state agency and for which no valuable consideration is given. Some obvious things are excluded from the definition, including commercial loans and lawful campaign contributions. The law establishes several other less obvious exceptions to the gift ban that include (among other things):
- Food and beverages for immediate consumption in connection with certain public events,
- Informational materials relevant to the public official’s duties,
- Reasonable expenses associated with attendance a number of specified types of meetings and events (“educational meetings” must, for instance, be attended by 10 or more participants, have a formal agenda and be noticed at least 10 days in advance),
- Plaques and other small mementos recognizing service in a particular field or charitable cause,
- Gifts given in connection with other relationships in which a reasonable person would conclude that the gift was not given for the purpose of lobbying.
The gift definition is very important because it applies to what public officials may not take (§138A-32) and, later in the bill (in the lobbying law rewrite), what lobbyists are prohibited from giving. Note, however, that despite the numerous exceptions to the gift ban, virtually all such items must be reported (if given to public officials) by lobbyists and principals pursuant to Part III of the bill, which is described below.
Other sections of note in the new State Government Ethics Act include:
- A section (§138A-13) that permits the new Commission to give advisory opinions to public officials,
- A directive to establish an ethics education and awareness program (§138A-14),
- Specifics regarding who must file and what must be contained in a statement of economic interest (§§138A-21 through 27), and
- Specific directives on the ethical standards for specified public officials, including a general prohibition on the use of a public position for private gain (§138A-31) and the ban on acceptance of gifts (§138A-32).
Part II of the bill amends the existing Legislative Ethics Act to make changes that reflect the duties given over to the State Ethics Commission with regard to legislative ethics. Previously, the Commission had no authority with respect to members of the General Assembly.
Part III of the bill is the section that will be of greatest interest to nonprofits that interact with state government officials. This is the lobbying law rewrite that establishes a new Chapter 120C of the General Statutes. The new chapter regulates both legislative and executive branch lobbying. It also shifts some authority for regulating lobbying from the Secretary of State to the new Ethics Commission.
“Lobbying” is defined as influencing or attempting to influence legislative or executive action, or both, through direct communication with a legislator, legislative employee or public servant, or their immediate family. It also includes developing goodwill and building relationships with such persons with the intention of influencing current or future legislative or executive action. This is a more expansive definition than in the past – especially with the closure of the so-called “goodwill” loophole.
Despite the expansion, there are several important exceptions. The bill, for instance, makes clear that “executive action” does not include activity related to the proceedings of a contested case hearing under the Administrative Procedure Act. Similarly, mere applications for licenses, permits, state benefits and the like do not constitute lobbying. The bill also specifically exempts individuals acting merely to express their personal opinions, and individuals appearing before a committee, board, commission, etc. at the request of that group and who lobby no further after their appearance. The simple rendering of opinions or drafting of bills on behalf of clients can also be exempted in some circumstances as well. There are other common sense exemptions.
A “lobbyist” is defined as a person who is employed or otherwise receives compensation to engage in lobbying. Of most importance to nonprofits, the definition seeks to clarify the point at which employees for whom only a small portion of their jobs involve lobbying, become a lobbyist that needs to register. §120C-100 (a)(10)(d) states that “In no case shall an employee be considered a lobbyist if less than five percent (5%) of that employee’s actual duties an any 30-day period include engaging in lobbying as defined in subdivision (9)a. of this section.” This provision should insulate nonprofit executive directors/CEOs and employees who only occasionally interact with public officials – though given the relatively modest registration and reporting requirements that the law contains, there is little downside to going ahead and registering.
A “reportable expenditure” means any kind of expenditure by a lobbyist or principal that benefits a legislator, legislative employee, or other public servant. There is a $10 per calendar day threshold. As mentioned above, this is an important concept, for while gifts are generally banned, there are many exceptions – see “Reporting” below.
The new law requires lobbyists and principals to register annually. There will be one fee of $100 per lobbyist per year for each principal he or she represents that will cover both branches of government. There is also a $100 fee for each principal. The Secretary of State is directed to adopt rules that will provide for a waiver or reduction of the fees for 501(c)(3) nonprofits and their lobbyists. A provision adopted last year that would have required separate registration for each branch was repealed. Registration is required before a lobbyist can lobby.
In addition to lobbyists and principals, the new law also requires registration by a class of persons it terms “solicitors.” Solicitors are persons that are not otherwise required to register as a lobbyist or a principal who spend more than $3,000 during any 90-day period to solicit members of the public to contact public officials with regard to a legislative or executive action. Communication with members and others who have affirmatively assented to receive such communications does not count. There is no fee for solicitors. While it appears that so-called “Astroturf” organizations (i.e., sham groups that try to manufacture the appearance of grassroots pressure on an issue) are the chief targets of this section, such expenditures by lobbyists and principals must also be reported.
Prohibitions and Restrictions (§120C-300)
As in the past, contingency fee lobbying (in which the lobbyist’s compensation is dependent upon the result or outcome of a legislative or executive action) is prohibited. An exception is included for salespeople doing business with the state. The law also makes it unlawful for a lobbyist to:
- Provide gifts to specified public officials. As noted, however, in the description of Part I of the bill, there are many exceptions to the “no gifts” rule.
- Attempt to influence the action of a specified group of pubic officials by promising financial support of the person’s candidacy or threatening financial support of his or her opponent. This prohibition applies to non-lobbyists as well.
- Make campaign contributions (or “bundle” and deliver the contributions of others) to legislators or a designated class of public servants. A constitutional challenge to this section is expected.
- Permit a specified list of officials to make use of his or her cash or credit, except where he or she is present and the matter constitutes a lawful and reportable expenditure.
The new law also establishes a minimum “cooling off” period of six-months for specified public officials who would become lobbyists.
Lobbyists and principals will be required to file regular reports with the Secretary of State’s office. The reports will be due quarterly and must be notarized. Lobbyists and principals must file additional reports when they make “reportable expenditures” during any month in which the General Assembly is in session. These reports must be filed within 10 days of the end of the month in which the reportable expenditures are made. As was mentioned above, this means that all items provided to lawmakers must be reported – even if, for instance, it is explicitly exempted from the definition of a “gift.” Both lobbyists and principals must also generally report expenditures of more than $3,000 on solicitation of members of the public to influence legislative or executive action (even though such outlays are not included in the formal definition of “reportable expenditure).”
Other Items of Note
- Language that makes lobbying regulations applicable to liaisons for state government departments (§120C-500).
- The availability of advisory opinions from the Commission to anyone affected by the new chapter that can confer immunity when relied upon (§120C-102),
- Establishment of a lobbying education program (§120C-103).
- A list of individuals exempted from the lobbying regulations, including: persons solely expressing a personal opinion; persons appearing at the request of official bodies that include one or more public officials; government officials (other than liaison personnel) acting in their official capacities; person performing professional services in drafting bills, or in advising or rendering opinions to clients or public officials as to the construction of effect of proposed or pending legislative or executive action; reporters and others (§120C-700).
The bill includes different effective dates for different sections, but the main lobbying law changes do not become effective until January 1, 2007.
Though admittedly complex and, perhaps, even a little daunting to those with limited lobbying experience, House Bill 1843 should be an improvement for North Carolina nonprofits and for the state as a whole. In addition to curbing past abuses, the new law should – once fully implemented – be clearer and easier to comply with than the old law. While some nonprofits could find themselves confronting an increase in paperwork, they should also have much less doubt about where they stand in relation to the law. This should provide an incentive for more nonprofits to become active in public policy advocacy. Regulators from the Secretary of State’s office have assured the staff of the Center for Nonprofits that they stand ready to work with licensees (and potential licensees) in cooperative, non-adversarial fashion to make the new law work. It is not their intent, they assure us, to play a game of “gotcha.” In the months ahead, the staff of the Center will be both working hard to make the new law work for the nonprofit sector and looking for ways to improve the law. Be on the lookout for additional communications on this issue.