Behind the Headlines on the NDP Convention Sponsorships Issue
August 27th, 2012
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[Welcome, National Newswatch readers!]
The NDP's communications plan to handle the situation arising from their disagreement with Elections Canada over convention advertising by 8 unions and 7 other organizations is an interesting study in contrasts as against the Conservative Party's approach in the past.
It might be that the former views itself as having a greater interest in maintaining a neutral election arbiter willing to muscularly enforce a common set of rules even-handedly, while the latter has been able to fundraise effectively based on stoking the fear that the election authority was part of a liberal monolith in Ottawa where conservatives felt like outsiders.
Or it could just be that the NDP did a cost-benefit analysis, and learning from the Conservatives' experience, decided that the legal fees and on-going news story would be costlier than just accepting Elections Canada's decision and moving on.
Regardless, one of the difficulties facing both parties is that, notwithstanding the current fascination with tactics and campaign machinery amongst the media and regular inhabiters of Twitter, it is almost impossible to have a lengthy, calm and factual discussion about the facts, timelines, and merits of such cases without descending into spin, finger-pointing, and hyperventilating torque.
Almost impossible, that is, except for here.
I've prepared a briefing note below, starting with a look at the relevant sections of the Elections Act, and how they've changed over the last couple of decades.
[PS, I've also started using the version of the Act published on the Department of Justice's laws-lois.justice.gc.ca site, which is organized a little more compactly than the one at elections.ca, and also contains links to previous versions of the various sections. Check it out. On the other hand, the version at elections.ca lets you link to specific sections, rather than just specific parts, so they both have their uses.]
Elections Act on Political Contributions
The provisions regarding contributions to a political entity are contained in sections 404-405.2 of the Canada Elections Act. In summary they now say:
- only citizens or permanent residents of Canada can make contributions, and "no other person or entity shall"
- contributions means both monetary and non-monetary contributions, and include contributions made to any of the entities regulated under the Canada Elections Act (a registered party, a registered association [aka "riding association", aka "electoral district association", aka EDA], a candidate, a leadership contestant or a nomination contestant)
- contributions from ineligible contributors have to be returned to them, or if that's not possible, have to be paid to the Chief Electoral Officer, who will forward them on to the federal government's general revenues (i.e., the Consolidated Revenue Fund of the government)
- various exemptions and clarifications are then outlined:
- transfers and provisions of goods and services within various arms of a political family are excluded
- an employer who grants an employee a paid leave of absence to run for office is not considered to be making a contribution to that employee's political party
- party membership fees of $25 or less in a year are not considered a contribution
- convention fees (the full amount) *are* considered a contribution by the person who paid them (whether the delegate him- or herself, or someone else on their behalf)
- (see more details in the Elections Canada factsheet)
Changes to Elections Act provisions on Contributions over the years
These provisions have undergone a lot of amendment over the years, however*. Regulation of campaign finance started in 1873 after some grubby dealings around the building of the Canadian Pacific Railway, but we'll start with the era before 2000.
- Pre-2000 – There was no cap on contributions, though the federal political tax credit limits provided an effective ceiling for all but the most ardent financial supporters (75% of the first $100; 50% of the next tranche, and 33% of a subsequent tranche, up to a fixed ceiling). Publication of the names and amounts over $100 was argued to suffice for accountability. This regime had been in place since the Election Expenses Act of 1974.
- Bill C-2 (2000) – The tax creditable ceiling was raised to 75% of the first $200, and the reportable amount ceiling was also hiked to $200.
- Bill C-24 (2003) – The so-called "Chrétien reforms", but based on a regime first introduced by the Parti Québécois government of Réné Lévesque in the 1970s. It introduced contribution ceilings of $5,000; and directed that only individuals could donate to registered parties (meaning no donations could be made by businesses, unions, other levels of government, or other organizations). Businesses and unions could still contribute up to $1,000 to local candidates or ridings. The tax creditable ceiling was raised to 75% of the first $400, though the reportable amount ceiling was left at $200.
- Bill C-2 aka "Federal Accountability Act" (2006) – This bill ended business and union contributions to local candidates and ridings, and lowered the contribution ceiling to $1,000 (adjusted for inflation, whenever the accumulated annual inflation increments from a 1992 base would raise the ceiling by another $100; thus it hit $1,100 almost right away, and just hit $1,200 this past year). An amendment made by Liberal Senator Rod Zimmer added the provision in s.404.2(7) which clarified that convention delegate fees are fully recognized as political contributions.
All along the way, another principle had been ensconced about the tax treatment of political fundraisers, to the effect that a receipt can only be issued for the portion of the ticket price not covering food, beverages, or other tangible benefits received by the contributor as part of the event. Thus the contribution here is not the full value of the ticket, but the ticket price minus the tangible benefits. All the parties are familiar with and have accepted these rules.
With Bill C-24 set to come into effect on January 1, 2004, the NDP wrote to Elections Canada with a series of questions, including this one:
6. Would the purchase of an advertisement on the Party's website or in a convention magazine be considered a contribution or merely a payment for services rendered? Likewise, can the Party continue to sell items such as sweatshirts, baseball caps and buttons to unions, businesses or riding associations? Would the profit be considered a receiptable donation?
Where a person or entity purchases goods or services from a registered party with the intention of economically benefiting the party, the payment for goods and services will not constitute contributions to the extent that the payment reflects the fair market value of the goods and service purchased. Any amount of the payment above the fair market value will constitute a contribution if the person purchasing the good and service intended to benefit the party.
The Toronto Star's Joanna Smith reported that a party insider from the time told her:
An NDP insider familiar with the issue said that in 2003, when the Liberal government under Jean Chrétien moved to limit donations from unions and corporations, the party sought an opinion from Elections Canada as to whether money obtained through selling advertising would be considered a political contribution….
Three years later, the Conservative government banned donations from unions and corporations altogether.
The party insider said the NDP also sought legal opinion and hired a third-party company to assess what fair market value for advertising would be in advance of each of the three policy conventions in question and followed those recommendations.
On that basis, former party National Director Brad Lavigne told Smith that:
"We put an emphasis on going to a third-party company to assess market value in order to keep (to) the letter as well as the spirit of the law…. We felt that while it wasn’t legally necessary to seek third-party validation for market value, we felt that it would be appropriate and well worth the investment.".
[The sentence about the Conservative government banning donations from unions and corporations altogether three years later is a red herring, because those new provisions only applied to riding associations and candidates. Union and corporations donations to national parties - the provision which is relevant here - were already outlawed by Bill C-24 as of 2004.]
So after consulting their third party consultant on the fair market value, the party charged:
- 2006 Québec City Convention – 3 national unions (Steel, CEP, and the UFCW), along with the CLC, Douglas-Coldwell Foundation and NOW Communications $38,500 + GST of $2,360 for a total of $40,860
- 2009 Halifax Convention – 4 national unions (Steel, CUPE, CEP, and the UFCW) 97,619.04 + GST of $4,880.96 for a total of $102,500
- 2011 Vancouver Convention – 6 national unions (Steel, the UFCW, CUPE, PSAC, the Firefighters, and the Machinists), along with the CLC, and 5 businesses $179,337.49 + GST of $21,770.51 for a total of $201,108
Two months after the June 2011 convention, the Conservative Party's lawyer, Arthur Hamilton, wrote to the Chief Electoral Officer. He referred to earlier correspondence from the Commissioner of Elections to his own party, over an earlier dispute regarding the treatment of convention fees to their own 2005 annual meeting.
[As a sidebar, the Liberals back then were smarting because the timing of the retroactive coming into force of the Conservatives' Federal Accountability Act undermined their 2006 leadership convention, both from the perspective of the registration fee (at $995 it was going to account for most of their supporters' contribution ceilings that year) and the now well-known change to the contribution limits for leadership candidates. Probably for that reason, they seized on a June 27, 2006 comment made by newly-elected then-Treasury Board President John Baird at a Senate Committee studying Bill C-2 to the effect that he had not received a tax credit for his 2005 convention fees, and after the then-Chief Electoral Officer asked the Conservative Party to open its books on the convention costs, the Liberals wrote to the Commissioner of Elections in July asking for an inquiry. The Conservatives argued that the convention only broke even and thus if treated like any other fundraising event should not result in any political contributions, meanwhile filing a retaliatory complaint about the Liberals' convention fees. But the party wound up having to file revised financial returns for 2005, which they did in late December, 2006, after Senator Zimmer's amendment to their bill was adopted by the House and the law came into effect. Jean-Pierre Kingsley's retirement as Chief Electoral Officer became public a week later.]
Hamilton's August 31, 2011 letter to the CEO about the NDP convention quoted the former Commissioner of Elections as saying:
Our position, simply put, is that under the [Elections Act] any voluntary provision of money, property or service for the Convention purposes described above, minus the fair market value of any tangible benefit one receives in return, constitutes a contribution. Opportunities to view or participate in debates, presentations, votes and so forth pertaining to party policies have significant political value only and cannot be excluded as tangible benefits from the calculation of the contribution.
Hamilton wrote that:
In the circumstances, which include the declarations by the NDP, the various unions identified and at least one corporate identity, it appears that the NDP has received what the Commissioner of Elections Canada has deemed to be contributions in contravention of the Elections Act.
and he asked the CEO to investigate. Conservative M.P. Dean Del Mastro separately filed a complaint to the Ethics Commissioner, but she later referred the issue back to Elections Canada as well.
Reaction from the NDP and the unions was consistent with the provisions of the opinion letter the party had received from Elections Canada: that advertisements and sponsorships were allowed, so long as they were at fair market value. Indeed, the Chief Electoral Officer himself made the same argument before the Procedures and House Affairs Committee a month later.
But according to the Democracy Law Blog, the issue may have been a distinction between sponsorships and advertising, though the blogger also questioned how market value could be determined (not knowing about the third-party consultant hired by the NDP), and further questioned whether political parties should be in the business of advertising at all.
This past June, the Deputy Chief Electoral Officer François Bernier responded to Hamilton's letter as follows:
With reference to the letter of August 31, 2011, from Arthur Hamilton, Counsel to the Conservative Party of Canada, I wish to confirm that it is the position of Elections Canada that sponsorships of political events constitute contributions that are subject to the rules set out in the Canada Elections Act, including the rules regarding the inadmissibility of certain contributors and contribution limits.
Four days later he also wrote to the NDP, enclosing a copy of his letter to the Conservatives, and thanking the party "for the full cooperation it has given to Elections Canada in order to resolve the issue promptly and effectively".
The party appears to have paid the funds back, but rather than including the reports of returned contributions in their 2011 annual return, have been advised to file a revised 2nd quarter 2012 return instead, which will be posted shortly we're told. Evidently it picked a reporter from a paper with a Sunday edition to tell its side of the story long-form, but is otherwise acquiescing to Elections Canada's position.
The interpretation of the newly-amended Elections Act leading to the so-called "in-and-out" case (referred to as the "media buys" case by Elections Canada) was vigourously disputed by the Conservative Party, both in court and in the court of public opinion. And there were some valid points worth litigating, in the interests of clarifying how the new Elections Act would be applied. Eventually the party lost, and repaid $230,198 in rebates along with a $52,000 fine, in order to settle the case and have charges dropped against the principals involved. But as a result, the principle that local election expenses can only be "incurred" by the agent for a local candidate was established.
The NDP believes it had a valid case to make legally on the issue of fair market value for advertising and sponsorships, in view of its earlier effort to obtain an opinion on the issue from Elections Canada, and its retaining of a third-party consultant to help establish what such a fair market value would be. Obtaining a legally-tested answer to that question would be not only to their own interest but that of their competitor political parties, but that won't come to pass. The lesson the NDP appears to have learned from watching the Conservatives is that they're better off disposing of the dispute quickly, than dealing with years of spin and torque in the chattering classes while the lawyers settle the issues at hand.
In effect, Elections Canada has ruled that all sponsorships at political conventions by definition have a fair market value of zero, and therefore all sponsorship payments are political contributions, and can't be made by ineligible contributors. Conventions have to be paid for somehow, so the NDP will have to raise the price of its convention fees next time around, or else cut back on some of the production values or content to make up the difference. This might be the right ruling, but it's not going to get any legal review, more out of a fear of needing to explain a complex issue of public policy over and over in the sound-bite era than anything else.
How we got to the point where election law is being made through a series of gotchas is the sadder part. The Chretien government tolerated almost no amendments from the Reform Party to its overhaul of the Elections Act in 2000, so the Conservatives got them back with punitive retroactive amendments to the Act in 2006, which led the Liberals to exploit a slip of John Baird's at a Senate committee to launch a complaint about their convention fees, which led the Conservatives to counter-complain about the Liberals convention fees, and now the NDP's. Meanwhile, civil society groups are trying to get in on the action themselves.
Basic misapprehensions abound, such as the belief that Elections Canada can just make up its own rules (it has to implement and enforce the Elections Act as passed by Parliament, warts and all), that party activists know or could be expected to know everything that's going on in their party across the country, and/or know every nuance of our complex and always-evolving electoral legislation.
Call me old-fashioned, but I'd like to see election law made on the basis of what's good for our electoral system as a whole, and without people on either side of the issue deciding what their position is based on who they want to win, rather than a consideration of the facts and the outcome for the electoral system as a whole. We'll come back to this perspective again soon, when I get a chance to discuss the Etobicoke Centre case.
Thanks to those who provided me with copies of the relevant documents.
* For a good overview of the legislative developments, see these chapters in the Carleton University election series:
- MASSICOTTE, Louis (1997). "Electoral Reform in the Charter Era", in Frizzell, Alan & Pammett, Jon H. (eds), The Canadian General Election of 1997, Dundurn Press, pp. 167-191.
- MASSICOTTE, Louis (2006). "Electoral Legislation Since 1997: Parliament Regains the Initiative", in Pammett, Jon H. & Dornan, Christopher (eds), The Canadian General Election of 2006, Dundurn Press, pp. 196-219.
- FLANAGAN, Tom & JANSEN, Harold J. (2009). "Election Campaigns under Canada's Party Finance Laws", in Pammett, Jon H. & Dornan, Christopher (eds), The Canadian General Election of 2008, Dundurn Press, pp. 194-216.
Also, here's a bibliography of news clippings and other online sources on the current case:
- Sept 4, 2011 – CBC News – [includes CPC letter] Tories file complaint over NDP convention sponsorship
- Sept 4, 2011 – HuffPo – Conservative Complaint Over Sponsorship At NDP Event 'Groundless,' Union Head Says
- Sept 5, 2011 – Democracy Law Blog – NDP Convention Sponsorships Raise Election Financing Questions
- Sept 29, 2011 – CBC News – Ethics czar passes on complaint over NDP sponsorships
- Oct 5, 2011 – CP – "No evidence" NDP tainted by union ads
- June 5, 2012 – CP (via CBC) – NDP ordered to pay back some union sponsorships: Elections Canada says sponsorships are political contributions
- June 5, 2012 – CP (via HuffPo) – NDP Union Sponsorship: Elections Canada Orders Party To Pay Back Some Convention Donations
- June 6, 2012 – CP – NDP Union Sponsorship: Tom Mulcair Silent On Convention Donations Payback
- June 6, 2012 – CP – Mulcair refuses to reveal cost of NDP convention-finance violation
- June 6, 2012 – Democracy Law Blog – Elections Canada: Union Sponsorships at NDP Convention a Contravention of the Elections Act
- Aug 27, 2012 – TorStar – NDP returned $344,468 in advertising income after Conservatives complained to Elections Canada
and related sources about the Conservatives' convention case:
- June 27, 2006 – Senate Legal and Constitutional Affairs Committee Transcript – Baird on C-2 (convention fees)
- June 28, 2006 – CP (via Calg Grit) – Tories may have taken $2M in illicit donations
- June 29, 2006 – Elxns Cda – Chief Electoral Officer Requests Conservative Party of Canada to Open Its Books
- June 30, 2006 – David Akin blog – Delegate fees and a political skirmish
- July 1, 2006 – Vanc Sun – Conservatives faked delegate donations: Conservative party officials engaged in a "cheque-swapping" scheme that enabled delegates to get federal tax credits for donations that were not donations
- July 21, 2006 – Calg Grit – ConConCon Scam (includes letter from Liberal Party executive director Steven MacKinnon)
- Dec 29, 2006 – CP – Elections chief resigns