Legislature(1995 - 1996)
04/11/1995 08:07 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 241 - NO PERSONAL USE OF CAMPAIGN ACCOUNT Number 275 REPRESENTATIVE CON BUNDE, sponsor of HB 241, provided his sponsor statement to the committee. He said his least favorite part of public service is having to raise money for campaigning. Another concern he had was how people have reacted to fund raising. Many will gladly support their candidates, yet they resent the idea that, at some point, the surplus funds could be taken as personal income. Citizens who contribute to campaigns or to nonprofit organizations usually want to know where their money is expended. So, HB 241 will increase the accountability of candidates funds, and this will facilitate and increase the publics trust. REPRESENTATIVE BUNDE explained that this bill provides new choices for the disposal of surplus campaign funds after a candidate elects not to run for office again. These choices are not currently available to them. Contributions given to candidates, whether before, during or after campaigns, are given by people who want that candidates representation; also, they wish to participate in representative government. Campaign funds are raised annually from the same supporters, and it can result in a surplus of funds that can be used in future campaigns, or taken as personal income if the candidate elects not to run again. HB 241 provides for surplus funds to be given to charities, repaid to contributors, contributed to other candidates, political parties or groups supporting ballot propositions, or given to the general fund. It cannot be taken as personal income. This legislation would change what has been formerly allowed in regard to surplus funds. The use of campaign funds as personal income or as office allowance funds will not be an available choice for the disposal of surplus funds. He added that he doubted anyone in the room has surplus campaign funds, but it has been known to happen. REPRESENTATIVE GREEN brought out, first, that this may not hold for candidates who ran unopposed in the last election. Representative Green added that it could be a campaign strategy. He pointed to Item four, where it said the interest must be left in the account, which, in most cases, is reportable as taxable income. He asked if Representative Bunde was saying to leave the money in, but pay the tax on the interest. REPRESENTATIVE BUNDE said if a candidate chose to end his campaign there is no provision against repaying loans to your campaign. As for the interest he did not think it was reportable for tax purposes. As long as the money remained in the account and was not used as personal income the candidate did not have to pay tax on it. CHAIR JAMES said that somebody has to pay. A social security number is on the account, and whomever the social security number belongs to is responsible to pay taxes on the interest. REPRESENTATIVE BUNDE thought that as long as the accrued interest is left in the campaign account, and it is used exclusively for campaign activity, it is not taxable. REPRESENTATIVE PORTER agreed. If portions of the total are withdrawn for personal use it would then be taxable. He believed the interest is treated as a campaign contribution. REPRESENTATIVE BUNDE pointed out that this legislation does not change the existing law; candidates are required to leave the interest in the account now. CHAIR JAMES stated that the interest on that account will be reported to the candidate on a 1099 tax form. REPRESENTATIVE GREEN concurred, and stated that the interest on the account, wherever they have the funds, is reported as income. CHAIR JAMES asserted that they would have to report the amount of interest with an explanation of why it is not taxable. REPRESENTATIVE PORTER agreed that was true; however, he would have to check it out. His recollection was that interest is treated as a campaign contribution and is not taxable. Number 385 REPRESENTATIVE BUNDE told the Chair he just had his taxes done, and he was told by the CPA who does the taxes, that they wanted to know what the funds are. It is reported as income kept in a campaign account, but there is no tax liability to the candidate. He stressed that HB 241 does not change the existing regulation on tax laws. Number 397 REPRESENTATIVE PORTER had a question about the language on the first page of the bill where it says that the candidate can give the surplus funds to charity. He recommended they define charity. It would eliminate candidates from naming family members and friends as charity cases. REPRESENTATIVE BUNDE agreed he had a good point. CHAIR JAMES mentioned a 501C3 definition of qualifying charity. REPRESENTATIVE PORTER asked about last section of the bill, beginning at the end of line 22. It says: The Campaign shall report the disposal of any item worth at least $1000 at the time of acquisition. Representative Porter also asked to whom this item must be reported. Number 420 REPRESENTATIVE BUNDE said it was referring to a purchase costing more than $1000, then disposing of it later. It was brought out that the reports before them were referring to APOC. He added that building public confidence and filling loop holes to reduce opportunities to pocket money when reselling of high ticket items after going out of office, is what they are talking about. REPRESENTATIVE ROBINSON wondered if there had been a major problem with candidates pocketing money. She was not fighting this bill, but she wanted to stress that not everyone could afford to take six months off work to campaign for office. Some people are less privileged and do not have political money to finance them. She urged the committee to be careful about what they are saying, and to be sure they really wanted such tight restrictions for candidates leaving office. She would not like to see candidates taking political money illegally, but she thought it should be up to the people contributing their money. Some people need more help than others during an election. Number 477 REPRESENTATIVE BUNDE said they seemed to be talking about two different kinds of people. Nothing in this legislation would prevent a new person running from paying for lunches and so forth. This bill aimed at a different kind of person, namely persons who have achieved power and influence. Contributors often do not feel they have the flexibility to contribute or not. If they do not there might be retribution. Even if there is not, the concern is there. He pointed out that ongoing campaign expenses are not addressed. Also, when someone decides not to run for office again, there is a question about how to dispose of that money, such as a surplus of $60 or $70 thousand. Contributors normally do not intend for their contributions to be used as income. Number 524 REPRESENTATIVE ROBINSON spoke of herself when she was a new candidate, and at the end of the campaign she had a surplus of $2 thousand. She lost the campaign and was struggling to find a job. As she understood it, she could not use that surplus of $2 thousand to live on until she found work. REPRESENTATIVE BUNDE stated that she was correct in her assumption that she could not use the money. REPRESENTATIVE ROBINSON did not have a problem with saying a candidate whos been in office for five, ten or twelve years, with a surplus of $60 thousand, cannot take all of that as personal income. It could go back to a political party of their choice, a particular charity of their choice, or back to the contributors. Her concerns were the first time people who are just getting started. Running for office is an incredible strain on the family, even for families with two incomes. Number 550 REPRESENTATIVE BUNDE concurred. He realized that campaigning is a strain and he understood Representative Robinsons concern. To open the door, however, to personal income, and to those people who are accustomed to a life style that is several hundred thousand a year, might say they should be allowed to take extra $60 thousand just as the less privileged person would about taking $2 thousand. REPRESENTATIVE ROBINSON wondered what would stop anyone from pocketing surplus funds. She did not believe this bill would stop them. REPRESENTATIVE BUNDE said this legislation will not stop this, yet if candidates continue to raise funds and have surplus funds it will go into the political process somewhere and not into their pocket. He thought they might become less ambitious, perhaps, about fund raisers. Number 610 REPRESENTATIVE OGAN said he was supportive of this bill. He said he knew some long time legislators who retired with significant amounts of money in their campaign accounts. He is interested to see the next APOC report. He said they would spend what they had last year, then what they raised this year kept building up for retirement. This is a good bill, since it will end that activity. REPRESENTATIVE PORTER said, for the record, if the bill passed it would capture existing campaign accounts. It would not start with campaign contributions after the effective date. Number 661 CHAIR JAMES said she is one who has worked on reduced government. What we do in this country is make laws to fit the few and inhibit the many. We do it consistently. She said we also have the attitude that candidates and legislators are cleaning up. People complain about the per diem and say legislators should not take it. Some people probably do not need the higher per diem rate, while others do. The solution they think is to put everyone at the same level, and in the process they could squeeze people out from the bottom. She had concerns about that. She would like to see how big of an infraction it is, and if it inhibits the political process or makes it dirtier. Chair James reflected on what Representative Robinson said, and she would visualize a political process opened to everyone, whether or not they are financially able. A campaign takes its toll, whether the candidate wins or loses, and her belief was that after a person has been in the process for a while, and they have accumulated a war chest, that it should be treated differently. CHAIR JAMES noted on the 1994 APOC report that only one was very large. However, she said she could see a person with a family being down and out by the end of the campaign. She did not feel comfortable with that, and could not take a position one way or another on the bill. She said she was happy to move the bill out, but she had concern about it. It is the same old practice of getting to a few and then inhibiting the many. REPRESENTATIVE OGAN shared Chair James concerns. He ran one of the most frugal campaigns, maybe in history. He spent a total of $5 thousand to get elected. He is not a rich man; he is a working man with a small business. If he had not won, he would probably still be working to catch up. So, he was wondering if setting some limits would be workable. There are long-time political types that run year after year; they hold fund raisers and take in huge donations and build up a retirement account. Representative Ogan wondered if they should consider some kind of amendment to set a dollar amount. It could allow people on the lower end who run for office the ability to recover some expenses for time out of work. Number 633 REPRESENTATIVE BUNDE spoke about the necessity for restrictions. He knew of people who bought tires and other things that he might not consider a normal campaign expense, but this would defray the impact the actual campaign makes. As for reimbursements, it is a more difficult situation. To get to that we need the Federally Financed Campaign where everyone gets the same amount, and it comes through taxes. Most people will not be impacted by this legislation. Some people might even be negatively impacted. The goal is to re-establish public confidence in the process, and to change the perception some have that we are all getting rich here. CHAIR JAMES wished to add that although she has been here only three years, she could personally say that you give up a lot to be in this position. It is hard to say if a balance in a campaign account is not worth it for what you give up. She is cautious about this, because she doesnt want anyone to be hurt. Number 678 REPRESENTATIVE PORTER said he recently got a sheet with transfers to legislative office account. He asked if this bill would preclude that. REPRESENTATIVE BUNDE answered Yes. The reason is that legislative office accounts can be personal income. There are two ways they can take their office account money: take it and verify it with receipts, or take it in a lump and pay taxes on it. That way it is personal income. TAPE 95-46, SIDE B Number 000 REPRESENTATIVE BUNDE said that only when you stop running are you required to define the money in a campaign account as personal income. REPRESENTATIVE ROBINSON did not see that they had a definition for personal income. During the campaign she used a very small percentage of her office for her business. So, she took a percentage of that and used the money from the campaign to pay for it. The office, at that time, was 100 percent campaign. She wondered if that would be perceived as personal. REPRESENTATIVE BUNDE said that it would not. This would apply when a candidate stopped running. Number 042 REPRESENTATIVE ROBINSON still thought they should define personal income. Also, pertaining to what Representative Porter had said, she was trying to spend as little as possible of her $6 thousand and it is disappearing very quickly. She is only responding to constituents who write, who want information on different bills. REPRESENTATIVE PORTER thought they decided that charities should be defined, and he asked the sponsor to consider adding a definition of personal income that would perhaps exclude money spent for legitimate campaign or legislative activities. REPRESENTATIVE BUNDE asked if they could defer to APOC. Number 071 BROOKE MILES, Juneau Branch Administrator, Alaska Public Offices Commission, said the Commission had the opportunity to review HB 241, and thanked the Chair for the opportunity to participate. The Commission had recommendations concerning the original draft, having worked with the sponsors staff, and they came forward with the CS that is in the packets. One idea the commission had that the sponsor did not embrace was to permit transfers to an office account, but to require reporting expenditures from the transfers on their Campaign Disclosure Report. Currently, a candidate only reports the transfer on their expenditure schedule to an office account. There is no follow up reporting on how the funds were expended. That would tighten up that issue if the committee would prefer that recommendation be put back in. Ms. Miles said the commission supports this legislation. Nationwide, in all of the states and at the federal level, there have been reform acts regarding the personal use of campaign funds. This legislation simply prohibits taking surplus funds as personal income when a candidate is no longer going to be an active candidate. REPRESENTATIVE PORTER asked if his impression was correct, that a candidate could take funds as personal income. Number 134 MS. MILES answered that the campaign disclosure law would not prohibit making expenditures from the campaign account, which may be construed as personal use. Each expenditure must be listed with an explanation on the campaign disclosure, however. Candidates must list expenditures by date, check number and payee. This bill would not prohibit a single mother from paying rent or buying groceries, for instance during the course of her campaign, though she would be required to disclose this on her report (i.e., Foodland, for groceries). REPRESENTATIVE PORTER asked if Ms. Miles knew what other states provide in this area of law. MS. MILES said she was not familiar with what each state provides in this area. She directed Representative Porter to the sponsors staff, saying they could probably supply him with summaries. Number 146 REPRESENTATIVE OGAN asked if Ms. Miles was aware of anyone who retired and where there were major withdrawals from campaign accounts used as personal income. MS. MILES answered, Yes. Candidates have retired with over $100 thousand in their campaign accounts, which they took as personal income. Number 175 REPRESENTATIVE ROBINSON asked about the report Ms. Miles gave them, which Ms. Miles said was a jumbled list, and it listed the balances in campaign accounts of 60 unidentified legislators. She also reiterated her suggestion that they add a definition of personal income. MS. MILES said in statute there are existing definitions of personal income that could be incorporated. REPRESENTATIVE ROBINSON wondered if the Commission discussed the person who loses a campaign and has to use some of the finances while running to live, then had a $2 thousand surplus at the end of the campaign and needed to use that to get going again. She wondered if it was discussed or if it was more on the large left- over amounts after a person has been around for a long time. MS. MILES said this was not discussed. Many issues were discussed in past times, including the personal use of campaign funds, which is much more complex and controversial. Usually, there is not a significant surplus left in a campaign account. CHAIR JAMES asked what the committee wished to do with the bill. REPRESENTATIVE PORTER wanted to ask a question of the sponsor before making any decision. He said it appears, even though it must be reported, that there is unlimited opportunity for conversion while a person is an active candidate or active legislator. It is only that you cannot convert it if you quit. He asked what the rationale for making that distinction is. REPRESENTATIVE BUNDE said there is plenty of sunlight on campaign funds while a person is actively campaigning; the active candidate is personally responsible. When a person is no longer running the public has no more influence on them. CHAIR JAMES said, with her background in accounting, that she understands how people get around things. Her impression was that when a person is an active legislator they can take money out, and it is reportable. There is nothing stopping a person from transferring that money, but, of course, they tell the world they are doing it. If they decide not to run again and they have a large surplus of funds, say $100 thousand, they cannot take it. She wondered what would stop a person from splitting the amount, and putting some in their own savings account somewhere and leaving the rest in the campaign account. Number 272 REPRESENTATIVE PORTER thought he understood the intent of the bill, but he questioned the operative line, page 1, line 6, where it says, A candidate may not take money from the surplus balance of the candidates campaign account as personal income. He asked where the bill says this only means after he or she decides never to run again. CHAIR JAMES said the candidates report a surplus every month if they do an APOC report. REPRESENTATIVE BUNDE explained that any expenses a candidate feels they can justify to APOC, and to the public, they can reasonably pay for out of the campaign account. They cannot just take the money and put it in their pocket. REPRESENTATIVE PORTER did not see how their description of paying rent could not be personal income. MS. MILES said this issue would be different if this law goes into effect. It would be different as to making expenditures from your campaign account, which could be construed as personal use, or taking a lump sum as personal income. Taking a lump sum as personal income would be prohibited. She said writing amounts that could be construed as personal use would not be prohibited under this bill. The IRS may see it differently, however. Number 325 CHAIR JAMES said they are defining surplus balance. All the money in a campaign account that the candidate has not used is the surplus balance. Any time a person writes something, and it could be construed as personal income, they are taking it out of the surplus. She believes that is prohibited in this bill, so what this bill would do is make everything on everyones campaign report suspect as personal. In Chair James opinion, ethics violations would skyrocket. REPRESENTATIVE PORTER noted that he did not oppose this legislation; he was just trying to make it work. He thought the first sentence needed changing. Number 352 CHAIR JAMES thought the net was too big. It is not doing what the sponsor intends. MS. MILES said that when the commission considered this bill, they were limiting the scope as to an actual surplus. The first sentence could be amended to say something like: "When a candidate elects not to run for office and is ready to disperse the surplus balance in a campaign account," and it would probably remove the concerns. REPRESENTATIVE BUNDE said they should look at Section 15.13.105. He would not be opposed to adding that language, but he would speak with his staff about it. REPRESENTATIVE ROBINSON commented that they are trying to get at the person who has the $100 thousand, who is no longer going to run and takes the money to live on. They are not trying to get after the other candidates who lose the election and have a small surplus balance and who might need to use it to get their lives back in order. She suggested putting a dollar amount on this also. REPRESENTATIVE PORTER said the only thing that will do is set the level from which someone will be influenced. Some people would be influenced by $1000; others would not. If you set into statute that you can give someone a $1000, you could have a problem. REPRESENTATIVE OGAN had a question for Ms. Miles about a candidate who decided not to run for a few years, then decided to run again. MS. MILES said this would apply to people who are stopping their campaign and closing their campaign account. REPRESENTATIVE BUNDE concurred that they were not focusing on people who might decide to run again later. All they want to do is determine that people dont pocket the money. REPRESENTATIVE ROBINSON said the majority of people who are candidates continue to do that. People who lose are included, because they probably intend to run again. Number 431 REPRESENTATIVE GREEN spoke hypothetically about a candidate who had a good bank account and planned to run again. He built his campaign fund for several years, then he decided to siphon off the money and leave the country. He wondered if this bill would inhibit that type of thing. REPRESENTATIVE BUNDES response was only that you cannot take this money as personal income at any time. The other is a gray area and a candidates personal integrity keeps them out of it. REPRESENTATIVE ROBINSON asked about one change, to add definitions for charity and personal income. She would also like to see that the bill would permit transfers of money from the campaign account to the legislative account to use for public purposes. There is a running count because in the legislative account they keep an ongoing record of everything spent, so it would be public record. Number 481 REPRESENTATIVE PORTER said that was not true. The way it is now, a person can take campaign money and put it into the legislative account and transfer it as personal income; then they do not have to account for it. MS. MILES stated under current law an office holder can transfer money in one of two ways: They can transfer a lump sum to an office account, and that is all the reporting that the public gets on it; or they can write checks on their campaign account that deal directly with expenses arising from legislative offices. The public sees that they used the money for stamps, newsletters, etc., so the Commissions suggestion was if they continue to permit bulk transfers, such as $5000 to an office account, they will also request the disclosure. After speaking with Representative Bunde about what how he wished to deal with the necessary changes, Chair James said they would hold the bill over until the next meeting. Representative Bunde said he would come back with a CS. REPRESENTATIVE PORTER said his concerns about the office account and so forth would be fixed with a definition of personal income that excludes campaign or legislative expenses. One thing that bothered him was defining what some activities are. For instance, if they send out a newsletter, is it a campaign item or is it a legislative item? It probably depends on the timing. He supposed that during an election year it would be a campaign item, and other times it would be a legislative item. He would prefer campaign and legislative were defined the same. REPRESENTATIVE BUNDE agreed. Whatever they do as legislators can be considered as campaigning, and he was not concerned about using campaign expenses to pay for legislative mail-outs, nor did he feel the legislation would preclude that. Whatever they do pertaining to personal income would not countermand IRS regulations. They could use IRS regulations to define personal income. REPRESENTATIVE PORTER said he does that and he pays the tax. He would rather pay the tax and avoid the hassle. The wording about expenditures concerned him. He thought it should be reworked. Number 557 REPRESENTATIVE ROBINSON said would like the charity concept to be broader. She brought up a donation to the Police Department for the teddy bear program. What she was concerned about was the definition of charitable organization. She would like to give money to the school district for student activities, but she wondered if that would fit. REPRESENTATIVE BUNDE brought up that if you give money to an individual, or to a relative, it is not a charity. CHAIR JAMES added that you can give donations to an organization, but not directly to a person and consider it as a charitable donation. REPRESENTATIVE OGAN wondered if they should consider giving a minimal amount that a person can use after a campaign to get started again. It might be worth helping the people who are not so privileged but want to run for office, as compensation. REPRESENTATIVE BUNDE sympathized with the goal, but he saw problems. He wondered how many first time people who run and lose will have a positive balance. He said they might encourage some people to win an election just for the money. CHAIR JAMES thought Representative Bunde had plenty of instructions, so she suggested that he return to the next meeting with a new CS.
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