Caution Ahead! New City of Chicago Ordinance Requires More Nonprofit Employees and Directors to Register as Lobbyists
Tax-Exempt Organizations Alert 10/28/19 Martin Childs IV
The Chicago City Council recently amended the City’s Governmental Ethics Ordinance (the “Amended Ordinance”) to impose new registration and reporting requirements on individuals who interact with the City of Chicago on behalf of nonprofit organizations and the communities they serve. The new rules take effect January 1, 2020. The changes are significant and non-compliance is costly; nonprofit organizations should take steps now to understand them and prepare for compliance.
The current ordinance grants an almost blanket exception from registering as a lobbyist to individuals who lobby on behalf of nonprofit organizations. This exception applies to individual employees, directors, and staff members of nonprofit organizations. Thus, individual employees and directors of nonprofit organizations generally can communicate with city officials and advocate for specific policies that benefit those organizations without needing to register as lobbyists.
Beginning January 1, 2020, however, the Amended Ordinance will no longer include that blanket exception. Individuals instead will be required to register as a “lobbyist” with the City of Chicago’s Board of Ethics (the “Board of Ethics”) if in the course of their paid employment or pursuant to another agreement the individuals lobby on behalf of a nonprofit organization or the communities they serve.
Who is a “Lobbyist”?
Under the Amended Ordinance, an individual who “seeks to influence legislative or administrative action” on behalf of a nonprofit organization is a “lobbyist” if: (i) the individual is paid or otherwise compensated for his or her efforts; or (ii) the individual undertakes those efforts as a matter of a professional engagement, regardless of whether the individual is paid or receives other compensation.
Individual Registration Required
The Amended Ordinance requires individuals--not organizations--to register with the Board of Ethics. The Board of Ethics has the discretion to waive the registration fee for individuals who lobby solely on behalf of nonprofit organizations. Failing to register as a lobbyist will result in a $1,000 per day penalty. One important consideration is that registration requires the individual to disclose political contributions made to city officials.
Critical Exceptions: More Clarity Needed
The Amended Ordinance includes important exceptions to the definition of “lobbyist”. For example, a “lobbyist” does not include anyone who: (i) attempts to influence a city action on his or her own behalf; (ii) submits an application for a permit or license; (iii) responds to a request from the City for a proposal from the public; (iv) represents a client in an adversarial proceeding as an attorney; or (v) is uncompensated and lobbies for a nonprofit organization, unless the individual is doing so pursuant to an employment agreement (e.g., an attorney providing pro bono services to a nonprofit organization). The Amended Ordinance also exempts individuals requested by the City to aid in legislative drafting and individuals publicly testifying before a City agency (presumably in their personal capacities).
Additionally, the Amended Ordinance borrows from the exceptions to the 501(c)(3) definition of “lobbying” by saying that, for purposes of the Amended Ordinance, registration as a lobbyist is not required of individuals who undertake nonpartisan analysis, study, or research; individuals who examine or discuss broad social, economic, or similar problems on behalf of the nonprofit organization; and individuals who provide the City with technical advice or assistance. The Board of Ethics has indicated that the terms used in the Amended Ordinance should be interpreted in a manner consistent with their meanings under the 501(c)(3) rules, except that administrative and regulatory actions are also covered by the Amended Ordinance whereas only legislative actions can result in lobbying under the 501(c)(3) rules.
Quarles & Brady Comment
The Amended Ordinance is a significant and challenging development for the nonprofit community. Organizations and their staff likely will be surprised to see just how wide of an application it has, including its apparent effect of making most interactions with the City subject to the lobbying registration and reporting requirement. Some key observations and open issues include:
- Nonprofit organizations accustomed to tracking “lobbying” under the 501(c)(3) rules will be surprised to see that the Amended Ordinance considers work on administrative and regulatory matters (which generally are not lobbying under the 501(c)(3) rules) to be lobbying. This will require the development of additional reporting and compliance procedures by nonprofits.
- Early reactions from the Board of Ethics indicate that the City is likely to interpret the Amended Ordinance broadly. For example, an employee of a community organization who calls the local alderman to request additional trash pick-up in the organization’s service area may be a “lobbyist” required to register. Similarly, a request by a nonprofit staff member that the City reissue an RFP may require that staff member to register as a lobbyist.
- The individual registration requirement will impose additional administrative burdens on already stretched staff, but failure to comply will result in extremely costly penalties ($1,000 per day). Compliance is critical.
- It is unclear how the “borrowed” 501(c)(3) lobbying exceptions in the Amended Ordinance will be interpreted or applied. Many nonprofit organizations frequently participate in roundtable discussions and working groups with the City (typically at the City’s request) to discuss how the City and the nonprofit community can work together to address pressing issues. Those discussions are very likely to include recommendations regarding the City’s role in addressing those issues. Absent guidance clearly stating that such participation falls within one of the Amended Ordinance’s exceptions, staff participation in such groups would require lobbyist registration because it would not appear to satisfy the technical requirements for any of the exceptions.
- On a positive note, the Amended Ordinance applies only to the City of Chicago and not to any of its sister agencies like Chicago Public Schools, the Chicago Park District, and others.
- The Amended Ordinance does not change or expand any of the 501(c)(3) lobbying rules; it instead reflects a separate and distinct set of rules. Thus, an activity may be “lobbying” for purposes of the Amended Ordinance but not for purposes of the 501(c)(3) rules.
- The Board of Ethics has repeatedly indicated that it welcomes specific questions and requests for interpretation from the nonprofit community. Until more public, authoritative guidance is available, nonprofit organizations should reach out to the Board of Ethics to determine how the Amended Ordinance might apply to a specific program, activity, or initiative.
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If your organization interacts with the City of Chicago, it is extremely important that you analyze the potential application of the Amended Ordinance to those interactions. Failure to comply could result in costly penalty taxes for your staff. The attorneys in the Tax-Exempt Organizations Group at Quarles & Brady are continuing to monitor the implementation of these new rules and are looking for ways to advocate on behalf of the nonprofit community. For more information, please contact: