Editor’s Note: This is Part One of a two-part series. Part Two will be published on May 22.
With an increased emphasis on ethics in the halls of government, it has become increasingly important for North Carolina nonprofits to understand State law restrictions on gifts to legislators and government officials.
These restrictions may be implicated even when an organization does not retain a lobbyist or engage in lobbying. This article explains who those rules cover, what counts as a prohibited gift, and how nonprofits – particularly IRC 501(c)(4) organizations involved in public affairs — and others can provide food and beverages to State officials at events without running afoul of the State Government Ethics Act (“Ethics Act”) or State lobbying rules.
That case is a stunning reminder that North Carolina’s gift restrictions are relevant not just to lobbyists but to any organization that works with them. This article explains who those rules cover, what counts as a prohibited gift, and how IRC 501(c)(4) Social Welfare Organizations and other event sponsors can provide food and beverages to State officials at events without running afoul of the State Government Ethics Act (“Ethics Act”).
Part Two of this series covers the broader gift exceptions, reporting obligations, penalties, and key takeaways for organizations navigating these rules.
What Counts as a Gift?
Under the State Government Ethics Act, a gift is anything of monetary value that a recipient received for free from a lobbyist, lobbyist principal, State government liaison personnel, or certain “interested persons” with business before a government agency. There is no minimum dollar threshold. If a covered official received it for free from one of those sources, it is a gift.
For Public Servants specifically, “interested persons” includes people seeking to do business with, regulated by, or with a financial interest that may be affected by, the Public Servant’s agency. The rules regarding interested persons are beyond the scope of this article.
The North Carolina Gift Ban
The Ethics Act and related State lobbying laws prohibit lobbyists, lobbyist principals, and State government liaison personnel from making gifts to a Legislator, Legislative Employee, or Public Servant, either directly or indirectly (the “Gift Ban”). Covered public officials are forbidden from knowingly accepting such a gift. Following are the covered groups in the Ethics Act.
“Legislators” are members and presiding officers of the State Senate and House of Representatives. Legislators are not Public Servants for purposes of the Gift Ban.
“Legislative Employees” are employees and officers of the General Assembly, committee counsel paid by State funds, and certain law school externs at the General Assembly. The category does not include nonsupervisory Facility Maintenance and Food Services staff or pages.
“Public Servants” include the Governor, members of the Council of State, leaders of principal State departments, appointees to State boards and commissions, and judicial employees. Legislators and Legislative Employees are not Public Servants.
“Covered Persons” is a broader group that generally includes Legislators, Public Servants, and judicial officials. The Ethics Commission publishes the full list on its website. Legislative Employees are not Covered Persons.
A “lobbyist principal” is a business or person that hires a lobbyist. A current list of registered lobbyists and lobbyist principals is on the Secretary of State’s website.
“State government liaison personnel” are any State employee, legal counsel, or officer whose principal duties, in practice or as set forth in their job description, include lobbying legislators or legislative employees.
There are exceptions to the Gift Ban. Social Welfare Organizations and other event sponsors can stay on the right side of the law by making sure that any event attended by a state official qualifies for one of those exceptions.
The Indirect Gift Problem
The Gift Ban covers indirect gifts, not just direct ones. An indirect gift occurs when an event sponsor uses funds from a lobbyist, lobbyist principal, or other restricted donor to pay for food, beverages, or other benefits, and the donor knew a Legislator, Legislative Employee, or Public Servant would benefit. (See N.C. Ethics Commission, AO-L-12-002, May 11, 2012.) In practice, to avoid indirect gift implications, the Ethics Commission expects event sponsors to ensure that a Gift Ban exception applies or to prove their funding came from permitted sources, usually by keeping those funds in a separate bank account that has never received money from restricted sources. Policies for tracking contributions and expenditures help demonstrate compliance.
North Carolina Gift Ban Exceptions: Food and Beverages at Events
The Ethics Act has 12 exceptions to the Gift Ban. For Social Welfare Organizations hosting local meetings and events with a mix of State officials, the most relevant exceptions involve food and beverages served for immediate consumption.
Unless otherwise noted, each of the five exceptions below covers all four groups: Legislators, Legislative Employees, Public Servants, and Covered Persons.
- Open Public Meetings
Food and beverages may be served at open meetings of a public body that are properly noticed under the Public Meetings Act.
- Gatherings Open to the Public
Food and beverages may be served at any gathering that is open to the public, attended by 10 or more people, and has a sign posted stating the meeting is open to the public.
- Invited-Group Gatherings
This is the most commonly used exception for events that include Legislators. It applies when invitations go out in writing at least 24 hours in advance to one of the following groups:
- 10 or more Public Servants, or all members of a State board comprising Public Servants;
- all members of the House of Representatives;
- all members of the Senate;
- all members of a county or municipal legislative delegation;
- all members of a recognized legislative caucus with regular meetings;
- all members of a committee, subcommittee, joint committee, or joint commission of the General Assembly; or
- all employees of the Legislature.
The gathering must also meet one of two requirements:
Option A: At least 10 individuals “associated with” the host must actually attend.
“Associated with” refers to the lobbyist principal group sponsoring the event, not any non-lobbyist principal co-sponsors. The 10 individuals do not include the Covered Person or Legislative Employee, or their immediate family members.
“Associated persons” include employees, directors, officers, partners, proprietors, LLC members or managers, and owners of a beneficial interest of $10,000 or more (or 5% of the business, whichever is less), other than a trustee on a deed of trust, or a lobbyist for the entity. This list is not exhaustive. (See N.C. Ethics Commission, AO-L-09-001, Jan. 16, 2009.)
Option B: At least 24 hours beforehand, all shareholders, directors, officers, members, employees, or subscribers of the meeting sponsor are invited in writing.
A few practical rules apply to both options:
- The invitation must include the date, time, and location of the event.
- Email is acceptable. (See C. Ethics Commission, Lobbying Newsletter, vol. 14, Issue 3, June 2011.)
- Meeting spaces other than resort areas are generally not considered gifts. (See C. Ethics Commission, AO-E-10-001, May 24, 2010.)
- The exception covers food and beverages only. Tickets, travel, and entertainment are not included.
If at the time of the invitation the host knows that the gathering qualifies under the Gift Ban, the invitation should state that. Sample language: “This gathering is permitted under the following provision of the State Government Ethics Act permitting the attendance of Legislators and other Covered Persons: (insert statute).”
In practice, this exception is easier to utilize than other exceptions if the event host invites a House and Senate delegation (such as a county delegation) and ensures that either 10 or more people associated with their organization attend, or sends written invitations to all of their board members, members, or employees at least 24 hours ahead.
- Gatherings with Public Servants
This exception applies to Public Servants only, not to Legislators or Legislative Employees, and is the easiest exception to satisfy. Food and beverages may be provided to a Public Servant if:
- the Public Servant is invited because of their official position, not for informal or social reasons; and
- the event is either attended by at least 10 people other than the Public Servant and their family members, or all shareholders, directors, employees, officers, members, or subscribers of the sponsor in a specific North Carolina office or county were invited in writing at least 24 hours beforehand.
The invitation should note the date, time, and location, and if possible, identify the specific Ethics Act provision that permits the Public Servant’s attendance.
- Events Where the Official Has an Organizational Role
If a public official is a director, officer, board member, employee, or independent contractor of the organization hosting the event (or of the lobbyist principal funding it), the Gift Ban does not apply to food, beverages, or transportation provided at that event, as long as those items are available to all attendees in the same category as the official.
This exception is relevant when a board member of a Social Welfare Organization also holds a public office. This exception is only available for food, beverage, or transportation given by a lobbyist principal (not a lobbyist).
Editor’s Note: Part Two of this series covers the broader gift exceptions, reporting obligations, penalties for violations, and key takeaways for organizations navigating these rules.
Ward and Smith’s nonprofits team works closely with our government relations attorneys on issues like these. If you have questions, please contact your counsel.
