Pay to Play Law Blog : Pay to Play Lawyer & Attorney : Bribery, Campaign Contributions

In a move that avoids an inevitable constitutional challenge, the Indiana House yesterday unanimously passed House Bill 1001, authored by House Speaker Patrick Bauer and co-sponsored by Minority Leader Brian Bosma, without the original pay-to-play language which was struck from the bill by the Senate.

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Last Thursday, the Indiana State Senate passed a comprehensive piece of ethics legislation by an impressive 50-0 vote. Conspicuously absent from the Senate bill was previously-included language containing "pay-to-play" language, including a provision that would bar vendors holding or seeking state contracts worth $100,000 or more per year from donating to the campaigns of candidates seeking state office. At issue now is whether a House-Senate conference committee will reinstate the stricken language before sending the bill to Governor Mitch Daniels for signature.

Even without the pay-to-play language, the proposed legislation has teeth, in that it imposes a one year “cooling off period” on lawmakers seeking to become lobbyists, a requirement that lobbyists report conflicts of interest involving more than one of their clients, and a ban on incumbents or candidates for statewide office raising campaign funds during budget-writing legislative sessions.

The once on again, now off again, perhaps on again, pay-to-play language is notable for its breadth as well as in the sanctions it imposes for non-compliance. The proposed pay to play language requires all entities whose business with the state aggregates more than $100,000 to maintain registration information in an online, downloadable format, for four years from the award of the contract or for a year after the termination of the contract, whichever is longer, and prohibits the company , its “executives”, their spouses, and their minor children, from making any contributions to any state officeholder or candidate.

We’re watching this one. If the proposed pay-to-play language is reinserted and signed by (purported dark horse presidential candidate) Governor Daniels, Indiana will join the ranks of those states imposing extremely stringent contribution limitations that the regulated community will struggle to comply with. Indiana will also join the ranks of states in possession of a statute likely to encounter significant difficulty in overcoming First Amendment challenge in the courts.

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Despite the numerous "pay-to-play" scandals that have rocked Sante Fe in recent years, numerous pieces of major ethics reform died on the floor of the New Mexico State Senate during the waning hours of the 2010 regular legislative session.

Specifically, HB 118, which would have placed significant restrictions on the activities of lobbyists and certain state contractors, passed the House less than 48 hours before the end of the session. Despite hope from supporters of HB 118 that it would find its way through the Senate, the legislation stalled in the upper chamber.

Had it passed, HB 118 would have arguably made New Mexico one of the toughest "pay-to-play" jurisdictions in the country. The legislation, which passed the House 46-24, broadly prohibited contributions from lobbyists, state contractors and principals of state contractors. Indeed, HB 118 placed total prohibitions on contributions from lobbyists, state contractors, principals of state contractors, and even "seekers of targeted subsidies" to any "candidate for nomination or election to a state public office or political committee established the candidate." Contributions to certain political committees would have been similarly prohibited.

Notably, legislation which would have allowed for the creation of an Ethics Commission in New Mexico, as well as a series of other open government initiatives that were lauded by advocates of transparency also failed to pass the Senate.

Due to the failure to adopt any reforms, there is speculation that some package of legislation will be addressed during an upcoming Special Session.

Given the upcoming election season, it would seem as if New Mexico legislators would try to adopt some sort of legislation that can be sold to constituents as "good government reform" during the Special Session. We at the Pay-to-Play to Law Blog will continue to monitor this situation for any new developments.

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As we previously reported in our blog entry  “SEC Bans Third Party Solicitations of Municipal Investors,”  the investment industry has been in an uproar over the SEC’s proposed ban on the use of third party intermediaries (such as placement agents registered as broker-dealers with the SEC) by advisors in the government arena. In what appears to be a response to numerous comment letters the SEC received urging alternatives to the outright ban, the SEC is contemplating exemptions to its pay-to-play proposal. As reported in Reuters, “the agency appears to be willing to allow broker-dealers to act as legitimate placement agents if the Financial Industry Regulatory Authority (FINRA) the broker-dealer watchdog, implements strict pay-to-play rules.”

In a December letter to FINRA, an SEC official was quoted as saying “It occurs to us that an exception to the ban for registered broker-dealers acting as legitimate placement agents might be feasible if FINRA were to implement rules that would prohibit pay-to-play activities by those persons.” Herb Perone, a spokesman for FINRA acknowledged that FINRA had received letters from the SEC and that the proposal was under discussion.

The SEC proposal must be put to a final commission vote before the proposal becomes a rule. The SEC is still evaluating public comments and has not yet made a final recommendation to the commission.

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Last week, the State of New York provided a graphic illustration of the perils confronting legislators as they attempt to balance public calls for dramatic reform against their own natural self-interest in blunting the impact of the restrictions they are imposing upon themselves.

Responding to public concerns over several high-profile scandals to plague the state, the New York State Assembly recently passed, by a significant margin, what it had advertised to be a comprehensive ethics, lobbying and campaign finance package. On February 2, 2010, New York Governor David Paterson vetoed that legislation on the grounds that the Assembly had effectively neutered the reform package called for by the public. The Assembly had touted the proposed legislation as delivering significant ethics reform by granting the legislature authority to appoint a commission designed to permit the legislature to police itself.

Despite the fact that the measures had garnered widespread support and had originally passed both chambers of the state legislature by wide margins, Governor Paterson vetoed the legislation saying it failed to provide solutions in multiple areas, including campaign limits and the establishment of an independent ethics body to oversee the Assembly.

Gov. David Paterson further stated he is preparing a different, harsher version of the bill, and that he is planning to release new draft legislation containing tighter external controls on local politicians and stricter campaign contribution limits. With concerns that such proposed legislation would be forthcoming, the New York State Senate last week attempted, but failed, to gain the two-thirds majority needed to override the Governor's veto. As is typical, the parties traded barbs over responsibility for the failure with New York's Democratic Majority Leader accusing Senate Republicans of having killed ethics reform in Albany and the Senate Minority Leader accusing Democrats of trying to ram through an override even if it meant a weaker bill was enacted.

Common Cause New York released a statement urging the governor and both houses to stop the political grand-standing and work together to negotiate a compromise that means a strong ethics bill for the State of New York.

Ultimately, for now, the State of New York is left with no reform at all and the setback serves as a cautionary tale for other state legislatures as they attempt to balance public outcry for "reform" against restrictions they can live with.

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New legislation in California, if passed, would prohibit a person acting as a placement agent in connection with any political investment made by a state public retirement system, unless the person is registered as a lobbyist and is in full compliance with California’s Political Reform Act of 1974 as that act applies to lobbyists. California’s law would not be as restrictive as New York, which has an outright ban on placement agents in this area.

The bill defines a placement agent as: “any person or entity hired, engaged, or retained by, or acting on behalf of, an external manager, or on behalf of another placement agent, as a finder, solicitor, marketer, consultant, broker, or other intermediary to raise money or investment from, or to obtain access to, a public retirement system in California, directly or indirectly, including, without limitation, through an investment vehicle.”

There is an exemption for employees of external managers who spends at least one-third of their time managing the assets of their employer.

The bill is sponsored by the California Public Employees’ Retirement System (CalPERS), state Controller John Chiang and Treasurer Bill Lockyer. Mr. Lockyer says “This legislation will help protect the integrity of those decisions by increasing transparency and reducing the ability of high-paid middlemen to use money and gifts to win favorable treatment,” he says. “And it will help make sure the interests of workers, retirees and taxpayers remain paramount.”

“Our legislation puts the interests of taxpayers, public pension fund members, and retirees first,” Chiang said. “Subjecting placement agents to the same ethics rules as lobbyists will help safeguard public pension fund investments from individuals seeking questionable influence.”

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I received an email from a law student who posed a question about the impact of the recent Supreme Court decision in Citizens United v. FEC. The student asked:

"After the recent Supreme Court decision in Citizens United v. Federal Election Commission, it seems to me that pay-to-play laws across the nation will now serve even more of a purpose as corporations are now free to contribute to the political process (although not directly to candidates).

In saying that, I was wondering about your take on the matter. Am I missing something, or does Citizens really mean what I think it does?"

It’s a very good question because, while Citizens United doesn’t directly affect state pay-to-play issues, its impact is certain to be felt this legislative session. States and municipalities have already been struggling to respond to voter angst about the political process - and recent election results combined with breathless media reporting is certain to exacerbate that angst.

In a nutshell, Citizens United is a landmark ruling for corporations, unions and groups of individuals interested in participating in any aspect of the federal political debate. The ruling is particularly relevant because it is predicated upon a recognition that corporations, tax exempt groups and unions have a First Amendment right to use unlimited corporate funds for independent expenditures that expressly advocate the election or defeat of federal candidates. For those interested in reading more about the decision, a link to our firm’s client alert is attached here.

The ruling does not directly impact state pay-to-play laws because it expressly left intact existing federal and state limitations on campaign contributions and upon the ability of federal candidates to “coordinate” their activities with outside groups. It would be an error, however, to conclude that the Supreme Court’s ruling will not affect state legislative action on pay-to-play simply because the ruling doesn't affect contributions, coordination or any of the quid pro quo issues that pay-to-play laws are generally looking to capture. If anything, it is more likely that Citizens United is going to cause a number of state legislatures and municipal bodies to feel they need to pass tougher pay-to-play laws to counter the perceived invitation for corporations and unions to overwhelm the political process.

It is likely that such concerns are somewhat exaggerated. Rather than being incentivized by this enhanced recognition of rights to engage in pay-to-play politics, if anything, corporations and unions now have the opportunity to exert much more leverage with politicians simply by threatening to fund independent expenditures either for or against candidates depending on how responsive they are to the corporate or union cause. These groups no longer have to make contributions to exert leverage - they can do just fine on their own, thank you. As was seen just last week when a group of 40 corporate executives notified congressional leaders that they were tired of being solicited for campaign contributions, the ruling has already begun to change the political landscape away from the candidates and parties and towards the “independent expenditure”.

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As we mentioned in our previous blog entry, New Jersey is giving even further attention to its pay-to-play laws. Yesterday, to show the seriousness of his promises of reform, Governor Chris Christie issued an executive order that curbs political donations by labor unions and is intended to prevent pay-to-play politics from this donor group. Specifically, unions are now included in the group of donors who are barred from having state contracts worth more than $17,500 if they had donated more than $300 to a campaign for Governor or county political committee in the previous 18 months.

Democrats are voicing their opposition saying it is "over the top", as an important portion of their base is made up of labor unions. They do not believe the order will stay in place, denouncing it as an unconstitutional violation of free speech. Governor Christie claims that this simply applies the same rules as other similar types of businesses must comply with such as law and engineering firms.

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For those that interact with this area of the law, it is well known that New Jersey has some of the most robust pay-to-play laws in the nation, at both the state and local levels. Perhaps not surprisingly, due to the numerous recent political scandals in New Jersey, the pay-to-play heat in the Garden State has been turned up even further.

At the state level, newly elected Governor Chris Christie made strengthening pay-to-play laws a central issue in his November 2009 campaign against John Corzine. Additional pay-to-play legislation at the state level seems likely, and the issue has already come up for the Governor personally during the short time after his victory.

Despite the fact that New Jersey's statewide pay-to-play statute applies in part to municipalities, local jurisdictions have joined in the rush to act. With the coming of the new year, New Jersey's media has been abuzz about pay-to-play in recent weeks in towns and cities across the state:
South Bergen
Seaside Park
Morristown

We at the Pay to Play Law Blog will continue to monitor the developments in New Jersey closely, as 2010 is sure to bring more complexity to an already difficult procurement environment. Stay tuned.

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