1. Skip to navigation
  2. Skip to content
  3. Skip to sidebar

California State Treasurer Sets His Sights on Curbing Pay-to-Play in the Municipal Bond Arena

California Treasurer SealWhile it’s easy for mainstream news outlets to get caught up in the mid-summer drama of Vice-Presidential selections, national political party conventions, and the geopolitical repercussions of Brexit, we remain focused on sharing updates on the real hot button issues of 2016 – like municipal bond pay-to-play. Don’t worry… you can thank us after you get back from your summer vacations and tune back into the reality of regulatory creep.  (“You want us on that wall.  You NEED us on that wall!”)

As many in the regulated community were enjoying some well-earned time away from the office last week, California State Treasurer John Chiang was hard at work in Sacramento announcing new policies aimed at curbing the ability of municipal bond counsels, underwriters, and financial advisors to participate in local bond election campaigns.  These policies are part of a new enforcement initiative launched July 27 that requires municipal finance firms seeking California state business to certify that they will no longer make contributions to local bond election campaigns.

As detailed in Treasurer Chiang’s letter to law firms, underwriters and financial advisors currently in the California state bond pool, continued participation in the underwriter pool will now be contingent upon the making of “an affirmative statement that the firm, or any officer, director, partner, co-partner, shareholder, owner, or employee of the firm, will not make any cash or in-kind service contributions … to promote or facilitate any bond or ballot measure in California.”  Additionally, access to the underwriter pool will also be premised on a concurrent certification by covered entities and officials that they will not provide “bond campaign services” in connection with California municipal bond campaigns or ballot measures.

This second certification will effectively prevent municipal bond attorneys, underwriters and financial advisors from performing or facilitating any of the following activities in conjunction with local bond campaigns or ballot measures: fundraising; public opinion polling; election strategy and management; volunteer organization; get-out-the-vote services; development of campaign literature; or the production of advocacy materials.  Certain exceptions to these prohibitions will apply, but the Treasurer’s Office is clearly looking to take an aggressive stance against any and all behaviors that it views as pay-to-play tactics designed to engender favoritism in the issuance of bond packages approved by local California voters.

While the addition of a few basic certification statements may seem minor to the untrained eye, requiring affirmative statements such as these will also almost certainly heighten the compliance risk borne by the regulated community.  After all, the “inadvertent non-compliance” defense is dramatically more difficult to assert, and a “false statement” indictment is dramatically more easy to obtain, when affirmative certifications are a compliance obligation.

The launch of this new initiative was met with strong support from members of the local government community, including the California Association of County Treasurers and Tax Collectors, and by transparency advocacy organizations such as California Forward and Common Cause.  Those entities and individuals caught in the regulatory crosshairs of the Treasurer’s new policies, however, undoubtedly have a more cynical view of their adoption.  This is particularly the case given the fact that the initiative targets forms of political engagement that are already highly-limited by Municipal Securities Rulemaking Board Rule G-37, and was introduced at a time when Treasurer Chiang is launching his candidacy for California Governor.  Coincidence?  They think not.

Regardless of timing, the restrictions put in place by this new enforcement initiative require entities in the current California state bond pool to comply by August 31, 2016 or risk suspension from participation.  Those entities and individuals seeking to gain entry into the current pool will also face similar certification requirements as of that date.  So, a small public service announcement to those of our readers in either category – be sure to get your Golden State pay-to-play house in order before summer comes to an end.

California State Treasurer Sets His Sights on Curbing Pay-to-Play in the Municipal Bond Arena

“It’s About to Get Real Up in Here”

calpers

Former CalPERS CEO to Plead Guilty in Pay-to-Play Case

Last week we highlighted the case of TL Ventures to warn of the large enforcement claim staked by the SEC in connection with Rule 206(4)-5 of the Advisers Act. Not to be outdone by a sister regulator, the Justice Department has now announced that Federico R. Buenrostro Jr., the former CEO of the California Public Employees’ Retirement System, is expected to plead guilty for his involvement in the CalPERs “pay-to-play” scheme. When one considers that TL Ventures was required to disgorge their fees – and that the firm associated with former CalPERS board member Mr. Villalobos’ firm brought in $14 million in connection with the alleged scam, the regulated community needs to see the threat and recognize that this is likely not all a coincidence.

“It’s About to Get Real Up in Here”

Compliance Warnings on Both Coasts: Connecticut and California Both Issue Pay-to-Play Warnings

There is nothing like a snow day to focus the mind on compliance and there is nothing like public admonition and discipline of others to induce night-sweats on a cold day.  Just this week, both the Connecticut Office of Government Accountability and the California Fair Political Practices Commission have used different vehicles to remind us all that pay-to-play compliance is not simply theoretical.  The consequences for circumvention are very real.

The Connecticut Office of Government Accountability’s State Elections Enforcement Commission (“SEEC”), which oversees enforcement of Connecticut’s pay-to-play law (Ct. Gen. Stat. 9-612), chose to offer a friendly warning not to use federal political party accounts to circumvent the state’s pay-to-play regulatory scheme.  As we have previously noted, Connecticut takes some degree of pride in its restrictive pay-to-play statute, and in the fact that the statute’s constitutionality was upheld in federal court.  Connecticut is one of those states which will debar (which is just a fancy lawyer word for “put in the contracting penalty box”) a state contractor or prospective state contractor from future business for a full year if it, or its employees, directors, spouses, or children, engage in impermissible contribution activity.  (**Kids, want to get back at Mom for taking the car away? Make a contribution to the Connecticut State Treasurer and debar her company from state contracts for a year!  That’ll teach her! **).

You can thus imagine that the Connecticut State Elections Enforcement Commission was none too amused to read news reports earlier this month highlighting Connecticut Governor Malloy’s prowess in raising funds in $10,000 chunks from state contractors for the Connecticut Democratic Party’s federal account (which some contractors have concluded is “juuuusssst a bit outside” of  SEEC’s enforcement reach). Thus, on February 11, 2014, the SEEC convened a special meeting for the purpose of issuing an unsolicited advisory opinion “clarify[ing] and publish[ing] advice on the use of money and assets of the federal account in Connecticut elections”.  Mostly, however, the SEEC used the opportunity to clarify that “[o]f most concern is the fact that much of the reported fundraising has involved Connecticut state contractors, who are prohibited from making contributions to party committees registered with the SEEC,” and to make clear everyone understands that federal “funds that are generally prohibited from being used in Connecticut elections are not, in fact, used to make expenditures in Connecticut elections.”

One state contractor is already under the microscope
 and the SEEC wants it known that it will not tolerate “loophole jumpers” when it comes to pay-to-play.

Meanwhile, on the Left Coast, state regulators opted for a less subtle approach in imposing a record-setting fine of $133,500 against a Sacramento lobbyist for violating state laws prohibiting lobbyists from making campaign contributions.  Interestingly, just as the SEC did in the Goldman Sachs case, California’s Fair Political Practices Commission used the largest ever fine it has imposed to date to remind us that “in-kind contributions” from lobbyists in the form of free wine, liquor, and cigars at in-home political fundraisers count are just as illegal under state law as monetary contributions.  In case the message wasn’t clear enough, Governor Brown, Lt. Governor Gavin Newsome, and forty other public officials received formal warning letters from the CFPPC against accepting such campaign largesse from state lobbyists.  Not surprisingly, members of California’s General Assembly are “shocked, shocked to learn of such behavior going on in their state” and have introduced legislation (that somehow will never become law) banning lobbyists from hosting fundraisers at their homes.

Members of the Regulated Community, we have been warned: seeking out pay-to-play loopholes may “seem like a good idea at the time” but have the capacity to cause more trouble than the exercise is worth.

Compliance Warnings on Both Coasts: Connecticut and California Both Issue Pay-to-Play Warnings

No More “Golden Goose” for School Bond Campaign Donors in the Golden State?

As frequent readers of this blog know well, California has always been considered a fairly restrictive jurisdiction when it comes to the regulation of pay-to-play politics. One large exception to that general rule, however, has been in the school bond campaign context, where financial institutions, attorneys and underwriters have traditionally been permitted to give sizable campaign contributions in support of potential bond initiatives that could benefit their bottom line.

From the perspective of political transparency advocates, such school bond campaigns have long been the “golden goose” of California’s pay-to-play politics. The formula in these settings has been simple – feed the government “goose” with large donations to help a municipal bond campaign pass, and reap the “golden egg” benefits by being hired by the corresponding state or municipal government to underwrite, advise or consult on the bond issuance. Based upon the recent comments and actions of various California officials, however, it appears that the era of the school board campaign golden goose may soon be coming to an end in the Golden State.

The push to curb pay-to-play activities in the school bond context began earlier this year when California State Treasurer Bill Lockyer sounded the alarm on such activities and asked State Attorney General Kamala Harris to examine the legality of several deals involving active school bond campaign donors. Building off of that effort, Treasurer Lockyer next called on state officials in Sacramento to take legislative action to institute a rule forbidding financial advisers, bond underwriters and bond lawyers that give money to bond campaigns from working in association with such bond projects.

While Lockyer has failed to spell out a specific regulatory model of his own, he has embraced statewide legislative action and backed a bill previously introduced by State Assemblyman Donald Wagner earlier this year. That bill, A.B. 621, passed the California Assembly by an overwhelming margin in mid-May. Despite broad bipartisan support for the legislation, however, it has since stalled out in the State Senate Governance and Finance Committee. Lockyer has also endorsed similar legislative solutions put forth by municipal groups such as the California Association of County Treasurers and Tax Collectors.

Coinciding with the push from Lockyer and other state officials for a California-wide approach to school bond campaign pay-to-play regulation, there has also been recent momentum on the municipal front. Leading the charge has been Los Angeles County Treasurer Mark Saladino, who earlier this month pledged to ban bond underwriting firms who donate to school bond campaigns from doing business with the county. Saladino asserts, based upon research conducted by the Los Angeles Times and other publications, that virtually all vendors hired by California school districts in recent years to assist with bond issuances have made contributions to the associated district bond campaigns and been retained without competitive bidding. This phenomenon, he claims, drives up the cost of bond issuance for state taxpayers.

In the wake of this recent announcement, Saladino has been rallying his local government counterparts across the state to adopt similar approaches until such time as Treasurer Lockyer and the folks in Sacramento implement a broad-based solution. Not all county and municipalities have been quick to follow suit, however.

San Diego County appears to be one such municipality. Despite what appears to be strong evidence of a growing pay-to-play culture in San Diego area school bond campaigns, San Diego County Treasurer-Tax Collector Dan McAllister is skeptical of the Los Angeles County approach. While sympathetic to Saladino’s call for tighter pay-to-play restrictions in the school bond campaign context, McAllister believes that a local, piece-meal approach to reform will be both difficult to implement and enforce, and unlikely to be as effective as a comprehensive, statewide approach to the problem.

Regardless of which reform model leads the charge in the Golden State over the next few months, it appears relatively clear that the days of school bond campaign pay-to-play in California are numbered. As changes occur in the state and local landscape, we here at Pay to Play Law Blog will be here to help you take a “gander” at the relevant legal changes.

,

No More “Golden Goose” for School Bond Campaign Donors in the Golden State?

San Diego Pay-to-Play in the Spotlight

Like a slow-moving train wreck, we simply cannot look away from the debacle stirred up by the sexual harassment allegations lodged against San Diego Mayor Bob Filner recently. Admittedly, those allegations rank pretty high on the “Public Official Being Gross” Scale; sufficiently high, in fact, to break John Oliver’s “Eww-O-Meter”. That’s impressive in the modern political era when one considers the, uh, stiff competition Filner faces in the category. Here at the Pay-to-Play Law Blog, however, we are far too cerebral to focus on such prurient matters and are instead drooling salaciously at the brewing scandal currently hidden behind the icky one playing out before us everywhere.

Currently, both the United States Department of Justice and the San Diego City Council are quietly investigating several substantial contributions made by private developers allegedly in an effort to remove certain “development holds” on their projects. According to sources within the DOJ, the feds are reviewing a $100,000 donation by developer Sunroad Enterprises purportedly made in an (apparently successful) effort to cause Mayor Filner to reconsider a veto of the city’s plan to make land available for development of an apartment complex. Another developer, Centrepoint, is alleged to have contributed $150,000 as a way of convincing the Mayor to release an “administrative hold” on student apartments near San Diego State University.

“How is this possible?” you ask. San Diego currently possesses among the most stringent campaign finance restrictions in the country with a $500 contribution limit and a total ban on corporate contributions. California also had the foresight to impose a tight, statewide, pay-to-play ban that has been difficult for law-abiding contractors to comply with. Under California’s Political Reform Act, members of city agencies may not accept a contribution of more than $250 within three months of rendering a decision in which the contributing party has a financial stake. Moreover, San Diego’s Municipal Code (§27.3564) prohibits the mayor from using his authority to induce or coerce anyone to provide anything of value to the mayor. (Two “Ick Points” for you, Reader, if your mind went back to the sexual harassment cases upon reading that).

It appears Mayor Filner avoided application of campaign finance and pay-to-play rules by asking Sunroad to contribute $100,000 to city programs as opposed to his campaign account. Centrepoint’s contribution of $150,000 went to improve a City park. Regardless, the holds were lifted.

It is inevitable that these developments will result in new pay-to-play legislation being initiated by the San Diego City Council, the State General Assembly, or both. It is also sadly inevitable that the Mayor Filners, Sunroads, and Centrepoints of the world won’t see that legislation as more than a speed bump on their road to accomplishing their goals.

One loophole closes . . .

San Diego Pay-to-Play in the Spotlight

Tremors in the Bay Area: Berkeley Looks at Significant Pay-to-Play Reform Tomorrow Night

 

If you heard talk of tremors in the Bay Area recently, that wasn’t the relatively benign 2.9 and 4.0’s that struck this morning (causing no reported injury). San Franciscans use 4.0 earthquakes to stir their coffee in the morning.

No, the tremors you felt this morning are from the repercussions of the impending plan by the Berkeley City Council to examine strict new pay-to-play laws tomorrow possibly designed to give the Golden Bears more bite than have their San Francisco brethren across the Bay. Under the proposed resolution, the City of Berkeley intends to request that its Fair Campaign Practices Commission institute prohibitions against city contractors from making campaign contributions to candidates for public office.

To his credit, the recommending Berkeley City Councilmember, Jesse Arreguin, went out of his way in his recommending memorandum to caution that Berkeley should take note of the “possible unintended consequences” realized any time government seeks to outlaw a broadly-defined “person who contracts” as Section 1.126 (a)(1) of San Francisco’s pay-to-play law does.

Mr. Arrequin, by virtue of being correct on this point, you are officially forgiven for not also citing as authority the numerous times this blog has made that same observation.

Interestingly, there are some, including former San Francisco Ethics Commission member Eileen Hansen, who argue that Berkeley should model its prohibition after the stricter enforcement model enacted one year ago in Los Angeles:

“I don’t think it should be so difficult at all,” Hansen said. “It’s more … about educating people on the law.”

Hansen said she thinks Berkeley ought to look to Los Angeles, not San Francisco, for pay-to-play politics regulation — saying that the San Francisco Ethics Commission lacked the proper power to enforce any kind of punishment for violations of its campaign law.

As San Francisco’s politicians and donors have learned, it’s easy to talk punishment when you’re not the poor compliance officer responsible for ensuring that your company’s board of directors, chairperson, chief executive officer, chief financial officer, chief operating officer, any twenty percent owner of your company (and their executives), any subcontractor listed in any bid or contract (and their executives), as well as any “committee” your company sponsors or controls (and their executives) are all fully aware of, and comply with, the pay-to-play laws passed throughout the country.

Now those will be aftershocks.

,

Tremors in the Bay Area: Berkeley Looks at Significant Pay-to-Play Reform Tomorrow Night

California’s New “Habit” of Pay-to-Play Regulation in the Public Employee Pension Fund Arena

If it takes three times to make something a habit, it is safe to say that “pay-to-play” legislation in the State of California is getting to be a bit habitual.  For the third time in as many years, the California State Legislature has decided to ripple the “pay-to-play” regulatory waters by passing an “urgency” measure designed to clarify and modify the state’s existing restrictions on investment managers and investment placement agents who do business with California’s public employee pension funds, such as the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS).  The new piece of legislation, Senate Bill 398 (SB 398), was signed into law on October 9, 2011 by Governor Jerry Brown, and is designed to complement two other recently-passed bills regulating the activities of pension fund investment managers.

The first of those recently-passed bills was Assembly Bill 1584 (AB 1584), which was passed by the state legislature in 2009 as part of an effort to increase transparency in the management of public employee pension fund assets.  Specifically, AB 1584 required all California pension funds to adopt disclosure policies that would require the reporting of all campaign contributions and gifts made to pension fund board and staff members by “placement agents” and external investment managers.  Likewise, the bill mandated that all outside investment managers disclose information regarding the fees they pay to placement agents for the purpose of securing asset management business opportunities with state and local pension funds across California.

The second of those complementary pieces of legislation was Assembly Bill 1743 (AB 1743), which was passed by the state legislature in 2010 as part of an effort to build on the transparency provisions of AB 1584 by explicitly restricting the ability of placement agents and external investment managers to engage in pay-to-play activities associated with California’s public employee pension funds.  As this blog highlighted at the time of the bill’s passage, AB 1743 placed a broad swath of placement agents, external investment managers, and external investment management firm staff under an obligation to register as lobbyists with the State of California.  In addition, AB 1743 banned these same individuals from making campaign contributions to the elected board members of California’s pension funds and prohibited them from setting up contingency fee arrangements to manage such pension fund assets.

While not as groundbreaking as either AB 1584 or AB1743, SB 398 does build upon each of those bills and make some noteworthy changes to California’s pay-to-play regulatory framework for pension fund placement agents and external investment managers.  Specifically, SB 398 modifies existing law in the following ways:

  • The bill revises the definition of the terms “external manager”, “placement agent”, “investment fund”, and “investment vehicle” to clarify that almost all managers of securities and assets for California public employee pension funds, whether directly or through managed funds, are subject to the disclosure and lobbyist registration rules put in place by AB 1743 for external managers and placement agents.  Despite this fact, however, SB 398 does exempt investment management companies that are registered with the Securities and Exchange Commission (SEC) pursuant to the Investment Company Act of 1940 and that make public offerings of their securities from having to comply with the statutory disclosure and registration standards.
  • The bill extends AB 1743’s “safe harbor” exemption from state-level lobbyist registration so that it also applies to local-level lobbyist registration requirements.  Under AB 1743’s safe harbor provision, investment managers of public pension funds need not pursue state-level lobbying registration if they meet three separate requirements: (1) they are registered with the SEC as investment advisers or broker-dealers; (2) they obtain their pension fund business through competitive bidding processes; and (3) they agree to be subject to the California fiduciary standard imposed on public employee pension fund trustees.  In turn, SB 398 extends a similar exemption to investment managers who would otherwise be required to register as local-level lobbyists on account of their management of local public employee pension fund assets.

Since SB 398 was passed by the state legislature and signed by the governor as an “urgency” measure, it is now the active law of the land in California.  It remains to be seen, however, what sort of impact it will actually have on the ethics of public pension fund asset management.  While its changes will certainly have some effect on investment managers and placement agents doing business with public employee pension funds in California, it will certainly not be as significant an effect as either AB 1584 or AB 1783.  After all, individuals working in the pension fund investment management business have to be slowly getting used to California’s growing pay-to-play regulation habit.

In light of this fact, perhaps the most interesting thing to watch in the wake of SB 398’s passage just might be the reaction of California localities to the extension of AB 1743’s safe-harbor exemption.  How will localities with a history of tackling pay-to-play issues (like Los Angeles) react to the state’s intrusion into municipal issues such as the regulation of local public employee pension fund management?  We shall see if any drama ensues in the Golden State… Stay tuned…

, ,

California’s New “Habit” of Pay-to-Play Regulation in the Public Employee Pension Fund Arena

Los Angeles Passes its Pay-To-Play Ordinance

As we anticipated for you here last November, Angelenos have indeed passed into law an ordinance establishing pay-to-play restrictions in the City of Angels. If ever one needed a sense of the public sentiment towards pay-to play regulation, one need only look at the 75% -25% margin by which the measure passed. As anticipated, the Measure targeted a single class of campaign donors (City contractors) who are perceived to make their living procuring contracts greased by campaign contributions. The full Resolution – which you can count on approximately 5 people having actually read – can be found here.

As proposed, the ballot measure put before the public read:

Shall the Charter be amended to (1) restrict campaign contributions and fundraising by bidders on certain City contracts; require increased disclosure for bidders; and provide for bans on future contracts for violators; and (2) build upon the city’s voter-approved campaign trust fund, which provides limited public matching funds for qualified city candidates who agree to spending limits, by lifting the maximum balance in the fund while allowing the LA City Council by a two-thirds vote to not make the annual appropriation and temporarily transfer funds to meet City budgetary obligations in certain emergency conditions?

Language like that is difficult to vote against. The Devil, as they say, is in the details. Specifically, as passed, the measure restricts contractors holding or seeking City contracts in excess of $100,000 from making campaign contributions to, or fundraising for, City officials (including the Mayor, the City Attorney, the Controller or a member of the City Council) or candidates to those offices. Second, the ordinance lifts the maximum balance on the City’s public finance vehicle – the Campaign Trust Fund.

This contribution ban extends not just to those authorized by the company to represent it in seeking or negotiating the contract, but also to the contractor’s Board Chairman, President, Chief Executive Officer, Chief Operating Officer, and anyone who holds more than a 20% ownership stake in the contractor.

As if these compliance challenges are not imposing enough for the well meaning corporation that might not have absolute control over the campaign contributions of its 21% minority owners, the new ordinance extends the ban to subcontractors and their officers if the subcontractor has a $100,000 interest in the City contract. While it is easy to perceive the logic that leads to such a prohibition, one can anticipate that the unintentional violations of this ordinance – and dramatic negative consequences – will be legion.

On the other hand, many argued against the measure on the ground that it does not go far enough in banning contributions and will simply drive unscrupulous contractors to measures that will evade disclosure altogether. A good example of such an argument can be found here.

Interestingly, the City taketh away just as it giveth. A third element of the ordinance provides that the City may, during “financial emergencies” (when do you anticipate LA won’t be laboring under a “financial emergency”?), borrow money from that trust fund without appropriating funds back in. Now that’s playing without paying!

, ,

Los Angeles Passes its Pay-To-Play Ordinance

California takes on CalPERS – Causing CalPERS to Respond to California

One of the most prominent public displays of the once secretive world of pay-to-play in recent history surrounded the California Public Employees’ Retirement System (affectionately referred to as “CalPERS”). As many will recall, CalPERS’ board of directors was subjected to significant scrutiny as a result of investigations in New York that demonstrated an all-too comfortable secret relationship between placement agents, investment firms, and public retirement systems. In California, CalPERS came to learn that several placement firms led by a former board member had received millions of dollars in service fees for helping certain investment firms land contracts to manage their funds.

As sure as night follows day, public political scandal inevitably begets additional legislation; even if the genesis of the scandal was already illegal before coming to light. One of the easiest ways to accomplish a desired move towards transparency is to identify some new form of private interaction with government and label it “lobbying”. California’s response to the CalPERS scandal is no exception. Earlier this year, the California General Assembly enacted Assembly Bill 1743 designed to make placement agents for public retirement systems register as lobbyists and comply with all attendant restrictions, registration and disclosure requirements.

To show it was serious, Assembly Bill 1743 imposes additional criminal sanctions upon California’s existing regulatory scheme for lobbyist disclosure.

The legislation enjoyed considerable support from the California State Teachers’ Retirement System (CalSTRS), other municipal public employees unions and good government groups. The legislation passed through both state legislative bodies this past August before being signed into law by Governor Schwarzenegger on September 30, 2010. As a result the bill is set to take effect on January 1, 2011.

Perhaps a day late, and surely a dollar short, CalPERS has announced that it will now require contractors to reveal whether they are using placement agents to seek business with the pension fund. CalPERS has further required that those using such agents must disclose payment terms, any “financial or familial” relationship with current or former board members, as well as any gifts or other items of value offered to CalPERS.

Consider the CalPERS barn door officially closed.

, ,

California takes on CalPERS – Causing CalPERS to Respond to California

Look For Proposed Pay-to-Play Regulation on the March Ballot in Los Angeles

The Los Angeles City Council is expected to approve a recommendation to place a measure on the March 2011, Los Angeles municipal ballot banning bidders on LA contracts from making contributions or fundraising for City officials or candidates. The recommendation was made by a unanimous vote of the Los Angeles City Ethics Commission earlier this month.

Interestingly, the LA City Ethics Commission chose to enhance the bite of the proposed ban on bidder contributions by adding further recommended restrictions. The Commission recommended that the proposed ban:

Apply the ban to bidders and their agents, their subcontractors, and their subcontractors’ agents and require bidders to disclose these agents and subcontractors in the bid documents. A common drafting, enforcement (and ultimately compliance) challenge with pay-to-play legislation surrounds the casting of the “agent” net. Here, when one examines the staff recommendations – which were ultimately adopted – the net is cast to ban contributions by to the following agents of bidders: the bidder’s Board chair; its president; its chief executive officer; its chief financial officer; its chief operating officer; any individual who holds an ownership interest of 20 percent or more; and any individual authorized in the bid to represent the bidder before the City. That 20 percent ownership piece becomes a pretty widely-cast net and one that has seen successful constitutional challenges in other jurisdictions.

Apply the ban from the date a bidder submits a bid until one of the two following dates: a) For bidders who are not awarded the contract, the date the successful bidder signs the contract; and b) For bidders who are awarded the contract, the date 12 months after they sign the contract.

Apply the ban to any contract (including a lease, franchise, permit, license, grant, amendment, change order, renewal or extension) that is required by law to be approved by an elected City official.

Apply the ban to both personal contributions and fundraising activity and apply the same restrictions to lobbying entities that are applied to bidders. Again, without much fanfare, the proposed ban extends not just to “bidders” but also to any lobbyist. In our experience, lobbyists dance in the aisles when legislation such as this is passed and incumbents come to learn that their campaign coffers pay a steep price for a “throw-in” expansion such as this.

Apply the ban to a City official who would solicit or receive contributions or fundraising proceeds from a person that the official knows or has reason to know is a person subject to the ban. Well, THAT should serve as a particular little compliance nightmare for officials and the unfortunate lawyers who work to keep them on the straight and narrow path. The opportunity for inadvertent violation and second-guessing is rampant with language such as this.

Apply the ban to contributions to and fundraising for any City committee controlled by an elected City official or candidate for elected City office.

Require invitations for bids to include notice of the ban. This provision will require bidders to certify that they will comply with and inform their agents and subcontractors of the ban.

Prohibit persons who violate the ban from contracting with the City for four years following the violation. Ouch. That is a steep price to pay for an inadvertent violation. Does that mean I can buy a 20% ownership interest in a competitor and effectively put them out of business with a $10 contribution?

Interestingly, several news reports have noted that while “law firms, taxicab companies, airport concessionaires and construction firms doing business with the city get a special rule against padding the pockets of city officials”, one group is conspicuously absent from the “Rolls of the Regulated”: developers. The reason for the omission has nothing to do with the power or wealth of developers, said Yusef Robb, spokesman for City Council President Eric Garcetti, but rather because to include such a group would be “extremely complex”.

I buy that. Do you? Let’s just chalk it up to bad timing that the same day that Robb’s quote hit the LA Times, this article ran as well.

, ,

Look For Proposed Pay-to-Play Regulation on the March Ballot in Los Angeles