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North Carolina Ethics and Lobbying Law Changes from the 2010 Session.
By William G. Scoggin, Principal, Troutman Sanders Strategies
In 2006, the North Carolina General Assembly passed a sweeping set of new state government ethics and lobbying laws, known collectively as the "Ethics Act." codified in Chapters 120C (lobbying) and 138A (ethics), with multiple references back and forth between the two acts. The laws placed a number of disclosure requirements and restrictions on those serving in public office. They also broadly banned the provision of anything of value by a registered lobbyist or principal (the "gift ban"), save for a fairly short list of exemptions. Finally, the definition of lobbying was expanded to include attempting to influence the Executive Branch and reporting requirements were expanded. Most of these new laws were effective January 1, 2007. The law had barely become effective when, in 2007, the legislature amended the Act extensively. Every session since, there has been at least one Ethics Act amendments bill per session. The 2010 regular session of the 2009 General Assembly included passage of H 961 (SL 2010-170). The changes are usually responsive to problems recognized by legislators, staff or the lobbying community. Sometimes they address opinions or guidance by the regulatory bodies, of which there are two: the State Ethics Commission ("SEC") and the Secretary of State, Lobbying Compliance Division ("SoS").
House Bill 961, chaptered as SL 2010-169, contains all the substantive changes to the ethics and lobbying laws. This bill went through eight official versions; there were at least ten proposed committee substitute versions for the Senate consideration of the bill alone. This provides a flavor for challenges legislators faced reaching agreement on scope and substance of the bill. Overlaid atop the consideration of the bill were the upcoming November elections.
Changes to Chapter 138A, the State Government Ethics Act These changes concerned primarily statements of economic interest (SEI) filed by individuals covered by the Act, in sections 12-13. The definition of "indirect" gifts banned by the Act is clarified in section 15. Finally, further clarification was made to the anti-coercion statute (GS 126-14) to prohibit specifically Constitutional officers from coercing those doing business with the office via threat or preferential treatment (Sections 1-3). The six-month "revolving door" rule was broadened to include state employees (Section 4).
Section 10 expands the list of "public servants" covered by the Act to add a number of agency heads and other senior officials who were apparently not clearly covered by the Act. Section 14 specifically authorizes the Governor to issue broader, supplemental ethical standards for agencies, boards, commissions and employees.
Section 16 restates the rulemaking requirements for the SEC and voids ab initio any rules or guidance that did not comply with the requirements. Opinions issued by the SEC are not affected by this particular provision, as they are only binding as to the entities requesting them and even then only provide immunity if properly relied upon. However, as discussed below, changes to the law did serve to render several opinions ineffective going forward.
Changes to Chapter 120C, the Lobbying Laws Section 5 of the bill modifies a long-standing exemption for city and county employees from the lobbying statutes. Previously, local government employees were not required to register as lobbyists or liaisons no matter how much time they spent lobbying. Now if the principal duties of such an employee include legislative lobbying, the employee is treated like a state agency liaison and must register.
The meat of the lobbying law changes start at Section 17. Most of these changes were a response to the SEC opinion (AO-L-010) in which the Commission unilaterally expanded the scope of the existing statute to attempt to require reporting of compensation for certain non-lobbying activities. The opinion turned on the phrase "for the purpose of lobbying." The changes in H 961 strike the words "the purpose of" wherever they appear in Chapter 120C. The term "payment for services" was also stricken in favor of just "payment" for lobbying, also in response to the opinion. The net effect of these provisions is to eviscerate AO-L-010.
The legislature did create a new category of "ancillary services" that will now need to be reported where paid for by a principal. The change to GS 120C-403 specifies that an aggregate number must be reported yearly by the principal. The number includes payment for lobbying and payment for ancillary services that support lobbying as specified in GS 120C-403(e)(2). While expanding slightly the range of things lobbyists do for which principals must report payments made, the reporting method is much improved. Effective January 1, 2011, principals will only report a combined number for all these payments once a year, in the fourth quarter report. Thus the next report containing this information (after the 2010 fourth quarter report under the old law, due in January 2011) will not be due until January 2012.
The primary handlers of the bill also sought to address a situation termed the "loaned lobbyist." Apparently there have been instances of one principal hiring a contract lobbyist and then seconding the lobbyist to another organization (not registered as a principal) to work at its direction. The new GS 120C-403(b)(6) allows this, but requires its disclosure.
The SoS is also required under Section 19 to publish annual statistics on complaints it receives and systematic reviews it undertakes. The Commission is subject to a similar requirement.
The bill in section 17.(j) also corrected an inconsistency in the reporting statutes created by the 2009 changes. The deadline for quarterly reporting found in the GS 120C-403 was harmonized with the fifteen-day computation in GS 120C-401. Monthly reports, where required from principals, are still on a ten-day deadline.
Effective Dates in House Bill 961 The coercion provisions (sections 1-3), campaign contribution/gift ban exception (section 6), and indirect gift (section 15), are effective December 1, 2010. The six-month revolving door expansion (section 4) is effective October 1, 2010. The lobbying law reporting changes are generally effective January 1, 2011 and apply to reporting after that date. The balance of the provisions in H 961 discussed above is generally effective August 2, 2010 (when the bill was signed). There are a few other provisions in the bill not discussed (public records, state employee information) that have varying effective dates.
One Campaign Finance Bill of Note Campaign finance laws reside in Chapter 163, but are a close cousin to the ethics and lobbying laws. The State Board of Elections regulate campaigns and political activity related to them. One bill of particular note this past session was House Bill 748 (SL 2010-170). Unlike the ethics/lobbying law changes, the campaign finance law changes were more of a response to the Citizens United Supreme Court decision than to state regulatory activity. A lengthy legislative battle did take place around expansion of "pay-to-play" prohibitions, which would have banned or severely limited campaign contributions by those doing business with the State. That effort died after the debate turned partisan and agreement could not be reached. Further consideration of "pay-to-play" is expected in 2011, prefaced by a study by the Legislative Ethics Committee (section 25 of H 961). H 748 did include modifications of the definition of gift to specifically exclude lawful campaign contributions. The bill also contains other changes to Chapter 163 which are not summarized here.