Legal Corner: Campaign Finance Update

In March of this year the Legislature passed Senate Bill 1516, which repeals and rewrites Arizona's campaign finance laws. On the final day of session this May, two bills amending parts of S.B. 1516 were also passed - House Bills 2296 and 2297. These three bills make significant changes to all aspects of campaign finance including redefining a political committee, applying contribution limits to a two-year election cycle instead of the term of office, restricting or limiting transfers of monies from city and town candidate committees to state or county committees for the same candidate, and establishing new reporting cycles and filing deadlines. In addition, filing officers will have to offer electronic filing for campaign registration and reporting for the November general election.

While most of the provisions are not effective until November 5, the day after the pre-election reporting deadline, a couple of provisions will become effective prior to the August election and are highlighted in this article.

Charitable and Tax-Exempt Organizations - Section 2, H.B. 2296 (A.R.S. § 16-922)

Beginning June 1, two different types of organizations will no longer have to register as political committees. In 2011, Arizona law exempted a religious assembly or institution from having to register as a committee if the institution does not spend a substantial amount of time or assets on federal, state or local legislation, referendum, initiative or constitutional amendment. This determination is based on the 501(c)(3) requirements pursuant to the Internal Revenue Code. H.B. 2296 expands this exemption to any entity that has a charitable tax exemption under the Code.

Additionally, the bill creates a new exemption from registration requirements if the person or entity meets the following criteria:

  1. Has a tax exempt status under the IRS code;
  2. Has properly filed IRS Form 1023 or 1024 (religious assembly or institutions exempt);
  3. Has properly filed IRS Form 990;
  4. The tax exempt status has not been denied or revoked by the IRS; and
  5. The person remains in good standing with the Arizona Corporation Commission.
Since these entities are being exempted from registration and reporting requirements, municipalities may notice an increase in committee terminations from organizations that may no longer be required to register.

Disclosure Requirements - Section 4, H.B. 2297 A.R.S. § 16-912)

Current law requires a political committee to make "paid for by" disclosures on advertisements that list the top three contributors for that expenditure. A political committee that makes an independent expenditure on campaign literature or advertisements that expressly advocates the election or defeat of any candidate or solicits contributions must include the names and telephone numbers of three political committees making the largest contributions to the expenditure. H.B. 2297 changes the disclosure requirements from the top three contributors to a committee making the largest contribution that in the aggregate totals twenty percent or more of the total amount of contributions to the committee making the independent expenditure. The legislation requires up to three committees to be listed if the committees make the aggregate contributions of twenty percent or more of the total contributions but if no political committee has contributed an aggregate of twenty percent, then the names of the three political committees with the largest aggregate contributions must be disclosed.

For example, under current law the top three contributors are disclosed regardless of the amount of their individual contribution. After August 6, 2016, if one committee makes a contribution that is twenty percent of the total contributions and all other committees do not contribute twenty percent or more, only one committee will be disclosed on the advertisement. However, if no committees expend twenty percent or more, the three committees with the largest amount of aggregate contributions must be disclosed. While this may not impact the day-to-day role of the clerks, it is important to be aware of these changes in order to explain them to committees and the public or when determining reasonable cause based on a complaint that a committee has failed to properly disclose its contributors.

Senate Bill 1516 - Rewrite of Title 16, Chapter 6, Article 1

Senate Bill 1516 along with other sections of House Bills 2296 and 2297 make additional changes to campaign finance laws, which will take effect on November 5, 2016, several days prior to the November 8th General election. While there are extensive revisions to the law, smaller municipalities may experience a decrease in committee registrations and reporting since S.B. 1516 requires a committee, including a candidate committee, to receive or expend $1,000 before registration is required, and threshold exemption statements and exploratory committees have been eliminated. The bill also requires all cities and towns to provide an electronic option for committees to register and file reports and a city or town may comply by opting into the Secretary of State's new campaign finance system. Session law in H.B. 2297 specifies that cities and towns that utilize the state system will not pay any cost until January 2019 and must receive a notice of the estimated maintenance cost a year prior to the payment deadline in 2019.

It is important to note that a referendum has been filed against S.B. 1516 (See R-01-2016), and if sufficient signatures are obtained before August 6, and subsequently verified, the bill will not become effective unless it is approved by voters at the November 8th General election. With such significant changes in the law, it is important to remain up-to-date especially if your city or town is holding an election this year. This month over 50 city attorneys and assistant attorneys received an overview of these new laws at the city attorney conference, and additional training is scheduled for all municipal clerks at their summer conference. Additionally, the legislation requires the Secretary's office to provide guidance to all jurisdictions on these new processes, and must prescribe the format for campaign finance reports and statements for these new committees, and establish procedures, timelines and other processes that apply to campaign finance investigations. The League will continue to keep cities and towns informed as the changes take effect and provide as much information as possible to assist municipalities who are conducting elections in the upcoming year.

League of Arizona Cities and Towns
1820 W. Washington St.
Phoenix, AZ  85007
Phone: 602-258-5786
Fax: 602-253-3874

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