August 15, 2003
Nielsen, Merksamer, Parrinello, Mueller & Naylor, LLP
591 Redwood Highway #4000
Mill Valley, California 94941-3039
Dear Mr. Black:
You requested the Ethics Commission’s advice regarding various provisions of the Lobbyist Ordinance, S.F. Campaign and Governmental Conduct Code sections 2.100 et seq.
The Ethics Commission provides two kinds of advice: written formal opinions and informal advice. S.F. Charter § C3.699-12. Written formal opinions are available to individuals who request advice about their responsibilities under local laws. Formal opinions provide the requester immunity from subsequent enforcement action if the material facts are as stated in the request for advice, and if the District Attorney and City Attorney concur in the advice. Id. Informal advice does not provide similar protection. Id.
Because your letter seeks general advice and does not pertain to particular persons or events, the Commission is treating your letter as a request for informal advice.
Confirmation of Verbal Advice
You asked for written confirmation of the following verbal advice:
* You state that Commission staff conducting a lobbyist workshop provided the following advice: “The law does not require contract lobbyists to report ‘pass-through expenses’ as economic consideration. In other words, lobbyists do not have to report reimbursements received from their clients for payments to vendors for expenses relating to a lobbyist project.”
This advice does not appear to be a direct quote from the Ethics Commission staff. It is unclear what you mean by “pass-through expenses.” But in determining what reimbursements for expenses must be reported, the Commission would analyze the issue as follows. Under the Lobbyist Ordinance, contract lobbyists must report the total economic consideration promised by or received from clients in exchange for lobbyist services. S.F. C&GC Code § 2.110(b)(2)(D). Economic consideration is “any payments, fees, reimbursement for expenses, gifts, or anything of value.” Id., § 2.105(e) (emphasis added). In order to determine what payments must be reported, we must determine the meaning of the phrase, “reimbursement for expenses.”
Under rules of statutory construction, we ascertain the legislative intent in order to effectuate the law’s purpose, looking to the statute’s words and giving them their usual and ordinary meaning. “The statute’s plain meaning controls the court’s interpretation unless its words are ambiguous. If the plain language of a statute is unambiguous, no court need, or should, go beyond that pure expression of legislative intent.” White v. Ultramar, Inc. (1999) 21 Cal.4th 563, 572 (citations omitted). The plain language of the Ordinance requires lobbyists to report reimbursements for expenses they receive from clients in exchange for lobbyist services, which is defined as “services rendered for the purpose of influencing or attempting to influence local legislative or administrative action.” S.F. C&CG Code § 2.105(k).
In addition to the plain meaning of the statute, the legislative history suggests that reimbursements for expenses related to lobbyist services must be reported. In enacting the Lobbyist Ordinance, the Board of Supervisors found that “public disclosure of the identity and extent of efforts of lobbyists to influence decision-making regarding local legislative and administrative matters is essential to protect public confidence in the responsiveness and representative nature of government officials and institutions.” Id., § 2.100. Accordingly, the Board imposed on lobbyists “reasonable registration and disclosure requirements to reveal information about lobbyists’ efforts to influence decision-making regarding local legislative and administrative matters.” Id.
Inasmuch as the intent of the Ordinance is to require lobbyists to reveal information about their efforts to influence legislative and administrative matters, lobbyists must disclose the reimbursements that they receive for influencing local legislative and administrative action. For example, if a lobbyist receives reimbursements for costs she or he incurred in driving and parking a car in order to meet with a City officer to influence legislative or administrative action, or if the lobbyist receives reimbursements for the costs of printing a brochure used in connection with the lobbying efforts, the lobbyist must report such reimbursements because they were incurred in connection with efforts to influence local legislative and administrative matters. If, on the other hand, a lobbyist receives reimbursements for expenses not associated with lobbying efforts, the lobbyist need not report the reimbursement. For example, if a client reimburses the lobbyist for Giants tickets that the lobbyist purchased for the client, and the tickets were not related to any lobbyist services provided by the lobbyist, the lobbyist need not report the reimbursement as economic consideration.
It is not clear what you mean by “pass-through expenses,” which you describe as “reimbursements from clients for payments to vendors for expenses relating to a lobbyist project.” If, as discussed above, the reimbursements involve expenses that the lobbyists incur in order to provide lobbyist services for their clients, such expenses must be reported, as they are economic consideration, as that term is defined in the Ordinance. The Commission would be pleased to provide further advice if you provide additional information as to what you mean by “pass-through expenses.”
* You add that staff also provided the following advice at the workshop: “The 10-day deadline for Contract Lobbyist registration begins on the day which a person passes the $3,200 threshold.” You provide the following example: a person working for $1500 a month would reach the $3,200 threshold on approximately the fourth day of the third month ($1,500 divided by 30 = $50 per day; $3,200 divided by $50 = 64 days); in this case, the 10-day deadline for registration would begin on the fourth day of the third month – even if the person has not sent the client a bill for that month.
Again, it is not clear that the above statement is a direct quote from Ethics Commission staff. However, to answer the question of when a contract lobbyist must register, the following analysis applies. Under the Ordinance, a contract lobbyist is any person who (1) contracts for economic consideration to contact any officer of the City on behalf of any other person, and who
(2) receives or becomes entitled to receive at least $3,200 in economic consideration within any three consecutive calendar months in exchange for lobbyist services or has at least 25 separate contacts with City officers within any two consecutive calendar months. Id., § 2.105(i)(1)(A). For purposes of calculating whether a person has reached the income threshold, all economic consideration the person has received or becomes entitled to receive, during any three consecutive calendar months, from all clients in exchange for lobbyist services must be combined. Id., § 2.105(i)(1)(B). Each individual or entity that qualifies as a lobbyist must register with the Ethics Commission before contacting City officers and in any event no later than 10 days after the date of qualification. Ethics Commission Regulation 2.110(a)-1.
In determining when a contract lobbyist “becomes entitled to receive at least $3,200 in economic consideration,” it is instructive to look at government ethics laws that regulate public officials. Under state law, for example, a public official must report on financial statements income which has been promised to the official but not yet received, if the official has a legally enforceable right to the promised income. See, e.g., 2 Cal. Code Regs. § 18703.3. We conclude that if a contract lobbyist who is promised $3,200 at the outset of an engagement has a legally enforceable right to those funds, the contract lobbyist must report the promised income. Whether the contract lobbyist has a legally enforceable right to the promised income will depend upon the circumstances. If the lobbyist does have a legally enforceable right to $3,200 in promised income, then he or she must register no later than 10 days after obtaining a legally enforceable right to the promised income, regardless of when in the next three months he or she bills the client or actually receives the payments.
On the other hand, if the lobbyist does not have an enforceable right to at least $3,200 for performing lobbyist services at the onset of the engagement, then the lobbyist may wait until he or she actually becomes entitled to receive $3,200 before registering. For example, a person who is hired in January and paid $1,500 to perform lobbying services may not have a contract to continue to perform lobbyist services in February or March and therefore does not have an enforceable right to future payments. Accordingly, she may wait until she makes 25 separate contacts in two consecutive months, or actually is entitled to receive $3,200 in three consecutive months before registering as a lobbyist. In the case of the example you cite, this would be approximately the 64th day of representation.
Disclosure of Promised Income
You asked how a contract lobbyist must disclose “promised” income in the following situations:
* Monthly retainer: How would a contract lobbyist disclose that a client has agreed to pay a set amount per month for a particular number of months? For example, ABC Corp. contracts with Jane Smith for lobbying services for 10 months at $2,000 per month. How would Jane list the promised income? Would she list it as $2,000 per month? $20,000? Just $2,000? If Jane must report the entire $20,000 as “promised,’ what happens when ABC Corp. cancels the contract after three months? What if the monthly retainer agreement is indefinite?
The Lobbyist Ordinance requires contract lobbyists to report the total economic consideration promised by or received from clients during the reporting period as well as the economic consideration promised by or received from each client. As in the response to the request for confirmation of advice above, we conclude that economic consideration is promised by a client when a contract lobbyist has an enforceable right to the economic consideration.
Thus, if Jane Smith enters into an enforceable agreement whereby ABC Corp. agrees to pay her $20,000 to perform lobbyist services and Smith is a new lobbyist, Smith must report $20,000 on Form 1A, the Initial Registration Report for Contract Lobbyists, on the line “Report the total payments promised by clients in exchange for lobbyist services during the three months preceding this filing.” If Smith is already registered as a lobbyist when she enters into a contract with ABC Corp., she must report $20,000 on Form 3A, Quarterly Report of Lobbyist Activity for Contract Lobbyists, under “Information about the Filer’s Clients,” in the section “Total payments promised by the filer for lobbying services, including reimbursement expenses.” In the same report, in the section “Total payments received from the client, including reimbursement for expenses,” Smith must report the amount she actually received during the 3-month reporting period, $6,000.
You asked what happens if ABC Corp. cancels the contract after three months. Whenever Smith has an enforceable promise to receive $20,000, she must report $20,000 as the amount promised to her by her client, as discussed above. If ABC Corp. cancels the contract before the full amount is paid, Smith presumably still has an enforceable right to the $20,000, unless she and ABC Corp both mutually agree to terminate the contract. If both parties agree to terminate the contract, Smith must file a client termination report within 15 days of the termination. In the next quarterly report, Smith must amend the information she previously provided regarding the promised income. In addition, in the part that directs “For each payment that was previously reported as a payment promised by (but not actually received from) the client, report the amount of the payment and the date(s) on which the promised payment was previously reported,” Smith must fill in the appropriate amount of payment she received, which could be zero if she received nothing.
You also asked what happens if the monthly retainer agreement is indefinite. Again, if Smith knows at the onset of her engagement that she is entitled to receive $20,000, she must report $20,000. If Smith knows at the onset that she is entitled to receive $2,000 a month, but she does not know how many months she will be performing lobbyist services, then she must report the amount to which she is actually entitled to receive during the reporting period. Thus, if Smith performs lobbyist services for ABC Corp. and knows she will earn $2,000 per month for three months, and she is not yet registered as a lobbyist, she must register sometime during the second month of activity, when she reaches the lobbyist qualification threshold. On the registration report, she must report what she earned in the last three months in exchange for lobbyist services. If Smith is already a registered lobbyist, she must report on the quarterly report the amount she earned during the reporting period in exchange for lobbyist services.
* “Hourly rate: How does a contract lobbyist disclose promised income when the lobbyist bills on an hourly basis, and prepares and sends an invoice after the close of the month (such as the way law firms typically prepare and send client bills)? What if the bill covering the third month of the quarter is not prepared and sent until after the 15th of the following month (i.e., after the filing deadline)?”
Under the Ordinance, a lobbyist must report total payments promised or received during the reporting period. S.F. C&GC Code § 2.110(d)(3)(c). If during the first reporting period covering January 1 – March 31, a lobbyist does not send out a bill until after the April 15 reporting deadline, she is nonetheless entitled to receive payment for services she performed through March 31. Accordingly, the lobbyist must report such payments in the first quarterly report. If the actual amount is unknown because the lobbyist has not finished her March bill, she may estimate the amount she will bill and may amend the lobbyist report as necessary when the exact amount is known.
* Performance bonus: Often clients agree to pay a contract lobbyist a “bonus” at the end of the contract depending on the quality of services which the lobbyist provides. Would the contract lobbyist have to disclose a bonus as “promised” income? What if the bonus amount is not specified at the time of the agreement?
A lobbyist must report the total economic consideration promised by or received from clients during the reporting period in exchange for lobbyist services. See id. As explained above, a lobbyist is required to report only income that is received or income to which she has an enforceable right. If, because the bonus is based on performance and is discretionary, the lobbyist does not have an enforceable right to the bonus, the lobbyist need not report the bonus as promised income. However, the lobbyist must report the bonus once it is received or once he or she gains an enforceable right to receive it.
* Commission or contingency pay: How does a contract lobbyist list money that a client may pay them depending on whether a certain result occurs (i.e., when the contract lobbyist acts as a salesperson, earning commission if the City agrees to purchase the client’s goods or services)?
A commission or contingency pay is promised income if a certain event occurs. Because it is promised income that a lobbyist has an enforceable right to receive if certain events occur, the contingency amount must be reported. See id. As a clarifying point, the lobbyist may state in the report that the promised income is based on a contingency.
Reporting Contacts with City Employees
You state that at a lobbyist workshop, Ethics Commission staff stated that City staff can be considered officers for the purposes of reporting contacts in the lobbyist reports. You cite to the following Commission instruction in the Lobbyist Manual:
Under limited circumstances, contacts with individuals other than City officers are considered contacts with City officers for purposes of determining whether an individual or entity qualifies as a lobbyist and for reporting purposes. If a lobbyist communicates with City staff for the purpose of influencing local legislative or administrative action, and the communication is intended or reasonably could be expected to be conveyed to a City officer, the communication is deemed to be a contact with the officer. (See Advice Letter to John Taylor, dated November 15, 1993.)
You ask whether the Commission has reconsidered its earlier decision that lobbyists need not list the actual names of City employees they contacted. You point out that requiring the lobbyist to list the name of a City officer as a contact when the lobbyist never spoke with the actual officer is misleading and would undermine the goal of promoting accurate public disclosure.
The Commission follows the advice as stated in the Taylor letter. As the letter provides, whether communications with department staff are the kind of activities which the Ordinance defined as lobbying
turns on whether the communication between the lobbyist and the City staff member is one that is intended to or reasonably could be expected to be communicated to a City officer. For example, if a lobbyist is interested in having a provision of a contract changed and only the department head or commission is authorized to approve such a change, then discussions of that contractual change with a staff member would constitute a communication with an officer; it must be assumed that the staff member would communicate information regarding the contractual change to commissioners or the department head, where only the commission or department head is authorized to make that change.
Taylor letter at page 5.
For reporting purposes in these situations, lobbyists must list the names of the City officials whom they are considered to have contacted. Part II of Form 3A provides space for the lobbyist to report the name and title of each City officer and department that the lobbyist contacted on behalf of a client during the reporting period. This information is required under section 2.110(d)(3)(D) of the Ordinance. To report such contacts, lobbyists should list the office or department of the City officer and then list in parenthesis the name of the actual employee contacted. For example, a lobbyist who contacts Sally Smith, an aide to Supervisor Jones, should report the contact as “Supervisor Jones’s office (Sally Smith),” if the contact is intended or necessarily could be expected to be conveyed to Supervisor Jones. That way, the lobbyist would assure that accurate public disclosure has occurred.
I hope that his information is helpful. Please feel free to contact Deputy Executive Director Mabel Ng if you have further questions.
By: Mabel Ng
Deputy Executive Director
See November 5, 2001 advice letter to James R. Sutton, in which the Ethics Commission advised that campaign consultants are required to report reimbursements for expenses incurred when providing campaign consulting services but not required to report reimbursements for advance payments they made to vendors on behalf of their clients.