Lobbying in Chicago: Nonprofit Compliance Challenges

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Is your nonprofit affected by Chicago’s amendments to its lobbying ordinance?  Last summer, the City of Chicago updated applicable lobbying registration and other requirements, including new applicability for nonprofit employees and other advocates.  On January 14, 2020, the Chicago Board of Ethics issued three binding advisory opinions aimed at nonprofit lobbying compliance, with a strong emphasis on ethics and transparency coupled with the promise of more guidance to come. Enforcement of the nonprofit registration provisions in the lobbying ordinance has been delayed until April 20, 2020. Here’s what responsible nonprofit leaders need to know now about Chicago lobbying, and how they can best prepare.

Lobbying Basics – Federal Tax Law

By virtue of Section 501(c)(3) public charity status, such nonprofits face significant legal constraints for any lobbying activities. From a federal tax perspective, they may engage in only “insubstantial” amounts of lobbying. This restriction translates generally to no more than 5% of expenditures (on an annual basis) for “indirect lobbying,” also known as “grassroots lobbying,” and 15% of expenditures for “direct lobbying.” Proportionality is key:  how much a nonprofit spends on lobbying in relation to its other tax-exempt activities, measured periodically over time.

Through grassroots lobbying, nonprofits seek to influence legislation by stirring up the public, such as urging people to contact their lawmakers.  Grassroots lobbying communications usually state a position to a targeted group and ask them to contact legislators and other individuals who participate in the formulation of legislation.  On the other hand, direct lobbying refers to attempts to influence legislation through direct communication with any member of a legislative body, or other staff or official who may participate in the formation of legislation, with the purpose of influencing such legislation.  Direct lobbying communications state a position on specific legislation to legislators or others who participate in the formulation of legislation.  For more information about federal tax considerations for nonprofit lobbying, please see our blog here.

Chicago Lobbying Ordinance – Broad Coverage, with Narrowed Nonprofit Exceptions

The amended Chicago ordinance is aimed at regulation of those who lobby on nonprofits’ behalf.  Previously, the ordinance provided a blanket exemption for nonprofits and their representatives. That is now gone. Consequently, nonprofits now should evaluate whether they use “lobbyists,” which could include employees or others – and therefore make sure they are registered.  The ordinance defines a “lobbyist” rather vaguely as follows: “A person who seeks to influence legislative or administrative action on behalf of a not-for-profit entity . . .  if such person: (i) is paid or otherwise compensated for those efforts; or (ii) undertakes those efforts as a matter of professional engagement, regardless of pay or other compensation.”

Such “lobbying” activities under the ordinance would likely fall within the “direct lobbying” federal definition above.  Note, however, that the term “administrative action” is defined to include “any decision on, or any proposal, consideration, enactment or making of any rule, regulation, or any other official non-ministerial action or non-action by any executive department, or by any official or employee of an executive department, or any matter which is within the official jurisdiction of the executive branch.”  This City definition is thus broader than the federal direct lobbying definition, because it includes activities seeking to influence actions by administrative and regulatory agencies and the Mayor’s office - not just legislative bodies.

The ordinance contains important registration exceptions for nonprofit representatives. More specifically, registration is not required for “[p]ersons who, either as a member of, or on behalf of, a not-for-profit entity” do the following “(1) undertake nonpartisan analysis, study, and research; (2) provide technical advice or assistance; or (3) examine or discuss broad social, economic, and similar problems.” 

The ordinance further contains a discretionary waiver or reduction of registration fees, not of the registration requirement itself, if “the lobbyist is a person who is paid or otherwise compensated to influence legislative or administrative action solely on behalf of one not-for-profit entity” exempt under section 501(c)(3).  Such waiver or reduction requires a written application.

Chicago Lobbying Registration and Regulation Requirements

Covered “lobbyists” must register with the Chicago Board of Ethics and pay a $350 registration fee, unless waived or reduced per above.  Lobbyists representing more than one organization must pay an additional annual fee of $75 per organization unless granted an exception. The penalties for non-compliance can be severe: $1,000 for each day that a violation continues. 

Required registration information includes the following: name; permanent and temporary address; name, business and permanent address and nature of the business of the client or business entity and whether the relationship involves compensation; and the name of each city agency before which the registrant expects to lobby.

In addition, registered lobbyists must submit quarterly reports detailing their lobbying activities and providing the following information: registrant's name and permanent and temporary address; name, business and permanent address and nature of the client on whose behalf lobbying was performed; a statement of the amount of compensation received from each client; the name of each city agency before which the registrant lobbied and a description of the action involved; a list of expenditures and expenses incurred while lobbying; a list of gifts given to any official or employee of the city; and a list of political contributions made to a candidate for city office, elected official of the city, and any official or employee of the city seeking election to an office other than a city office.  All quarterly reports will be posted online by the Board of Ethics. 

Does the Ordinance Apply?

What next?  Many Section 501(c)(3) public charities do not engage in direct lobbying (through their employees or otherwise) under the federal lobbying law. But it is hard to discern to what the Chicago ordinance may more broadly apply, particularly given its significant lack of clarity.  

Here are some examples of what is listed as not covered, including guidance from the Chicago Board of Ethics’ recent advisory opinions.[1]

1.  Applications for City permit or licenses, as part of its standardized processes (e.g., for parade permits, street signs, or garbage carts);

2.  Responses to City requests for proposals or qualifications;  

3.  Activities addressing social, economic, and other public policy issues through educational activities aimed at the general public, or otherwise outside the ambit of seeking to influence City legislative or administrative action;

4.  Inviting City officials to community meetings or other event (so long as there is no “ask” for City administrative or legislative action);

5.  Accessing City resources that are generally available to the public (e.g., cleaning supplies for neighborhood clean-up);

6.  Communicating with City officials indirectly, such as through general newsletters and social media; and

7.  Attorneys engaged in in formal adversarial hearings on behalf of clients.

However, these examples still leave room for confusion.  For example, nonprofits may carry out their regular educational, charitable, or religious missions without registration or reporting. But what crosses the line into attempting to influence City administrative action?  It may be hard to say.  In addition, responding to a contract or grant solicitation by the City in itself should not constitute lobbying under the ordinance.  Nor should negotiating the terms of a pending contract or extension or re-issuance of an existing contract, if the contract provides for such extension.  However, encouraging the City to issue a “Request for Proposals,” or not issue one, likely would constitute lobbying.   Consider zoning matters too: applications may come in different varieties, ranging from zoning variances that should be fairly routine to zoning reclassifications that are much more complicated and discretionary for City officials, with resulting potential confusion about which activities amount to lobbying. And last, attorneys are not considered lobbying while representing clients in “formal adversarial hearings,” but what about preliminary or ancillary discussions?  Many questions thus can arise across a broad spectrum of situations.

Regulating Lobbying as “Speech” – Unconstitutional?

A speech-related tension arises from laws like the Chicago lobbying ordinance. Both the United States Constitution and the Illinois Constitution guarantee the rights of citizens to petition their government.[2] But the federal government and most states have enacted requirements for lobbyists to register and pay annual fees.  However, their legal capability to do so is bounded by free speech rights. Courts generally disfavor government regulation of speech, requiring a substantial governmental interest not met through less restrictive means. 

Focusing on Chicago’s lobbying ordinance, the ACLU of Illinois - in conjunction with other organizations - has raised such constitutional and practical concerns through two letters written to Mayor Lori Lightfoot, asserting that the ordinance is vague and overbroad.[3] The ACLU further questions whether Chicago can demonstrate a sufficient legitimate interest in regulating the behavior of individuals acting on behalf of non-profits, which typically seek only to advance the organizations’ charitable mission.  The argument is that such activities are qualitatively different than the actions of professional lobbyists advocating on behalf of for-profit businesses and other commercial interests, which may stand to gain or lose millions of dollars based on City officials’ decisions (although charitable grants and contracts may involve government funding too).

Will a lawsuit be filed, challenging the ordinance on constitutional free speech grounds? If so, the ordinance’s effectiveness may be delayed months or even years, and it may ultimately be struck down as unconstitutional.  In the meantime, responsible nonprofit leaders operating in Chicago should evaluate their activities, determine whether their employees or other representatives should register when the ordinance becomes effective in April 2020 (barring judicial action), and otherwise stay tuned for further City guidance as promised.  Additional City information is available here.

 

[1] The City’s January 14, 2020 Press Release containing Advisory Opinions is available here.

[2] “Congress shall make no law . . . abridging . . . the right of the people peaceably to assemble, and to petition the government for a redress of grievances.”  U.S. Const Amend 1; “The people have the right to . . .  make known their opinions to their representatives and to apply for redress of grievances.”  Illinois Const. Art I. Sect. 5.

[3] The letters sent on December 6, 2020 and December 12, 2020 are available here and here respectively.