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Connecticut Stands Firm to Enforce Pay-to-Play Against State Party Committee

In announcing a $325,000 settlement with the Connecticut Democratic State Central Committee, the State Elections Enforcement Commission (“SEEC”) has made clear that it will not tolerate efforts to circumvent the state’s pay-to-play laws.  At issue was the state party’s solicitation of state contractor money into the party’s federal account and subsequent use of those funds to finance mailers in support of Governor Dannel Malloy’s re-election campaign.  The agency, which oversees enforcement of Connecticut’s pay-to-play law (Ct. Gen. Stat. 9-612), had earlier chosen 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 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.

You can thus imagine that the SEEC was none too amused to read news reports back in 2014 highlighting Connecticut Governor Malloy’s prowess in raising funds in $10,000 chunks from state contractors for the Connecticut Democratic Party’s federal account.  (PRO TIP: If you are going to “launder” state contractor funds through your federal account, don’t issue press releases airing your dirty laundry).  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.”

When the state party failed to acquiesce and acknowledge the SEEC’s inherent wisdom, the Commission filed suit in state court asserting the long-standing principles of administrative law and common law sovereignty referred to by legal scholars as the “Doctrine of Can You Hear Me Now?”

While Connecticut Republicans expressed dismay that the Democratic Party will not have to abandon its argument that federal campaign finance laws “Trump” the Connecticut statute and were able to characterize their payment of $325,000 as “voluntary”, the fact remains that SEEC executive director Michael Brandi was able to state that the penalty was “probably in the range of multiple times what the commission has ever issued in the past” and that to his recollection the previous high-water mark for such a “voluntary” payment was $20,000.

Ultimately, the solution set forth in the proposed settlement agreement involves the common use of separate “Compliance Accounts” within the state party’s federal account.  The fix is relatively simple but one which allows state regulators to ensure their guidance is being heard.

Connecticut Stands Firm to Enforce Pay-to-Play Against State Party Committee

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.

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

Second Circuit Upholds Connecticut Pay-to-Play Law

In a much anticipated opinion, the United States Court of Appeals for the Second Circuit has upheld significant portions of Connecticut’s pay-to-play law. Interestingly, while the Court upheld the state’s very strict prohibition against contractors from contributing to the campaigns of state candidates, it invalidated a similar provision as applied to state lobbyists. The opinion also rejected a provision of the law which prohibited contractors and lobbyists from soliciting campaign contributions from others.

The ruling is quite significant when one considers the breadth of the existing Connecticut law as compared with pay-to-play restrictions in other states. Like many states, lobbyists, state contractors and prospective state contractors are prohibited from making contributions to certain state candidates, candidate-affiliated political action committees and party committees. What makes the law noteworthy, and a special little compliance nightmare for those seeking to adhere to it, is that the solicitation restrictions apply not just to principals of state contractors, but also to their families.

In upholding the portion of the law pertaining to contributions by state contractors, the Court noted Connecticut’s sordid (but hardly unique) history with political scandal that fostered the law. Because of this past history with corruption, and the State’s recognized interest in preventing even the appearance of future such corruption, the Second Circuit determined that the contractor contribution ban survived First Amendment scrutiny. (See Green Party of Ct. v. Garfield, 09-0599-cv(L) at p.15-16 & 18-19). That analysis, as far as it goes, seems sensibly grounded and well rooted in Constitutional precedent.

Where the Court’s opinion could be argued to deviate from the terra firma of reality, and where compliance officers throughout the country can be forgiven for muttering to themselves in disbelief, is with respect to the analysis upholding the prohibition on contributions by spouses and children of contractors. Without even identifying past evidence that malevolent contractors have ever used their immediate families to circumvent any laws, the Court nonetheless upheld the ban:

In light of the recent corruption scandals, [the Connecticut] General Assembly must be given “room to anticipate and respond to concerns about” the “circumvention” of the bans on contractor contributions. Indeed, were we to affirm the ban on contributions by contractors but strike down the ban on contributions by their family members, we would invite the very circumvention that the General Assembly was trying to prevent.

Id. at 22.

What may appear logical in judicial chambers can take on an entirely new light when confronted from the perspective of a compliance officer tasked with ensuring that the CEO’s spouse complies with the ban and then periodically inquiring about ongoing compliance. I know I wouldn’t want to be put in the position of telling my own wife who she could make a campaign contribution to. It is especially difficult counseling clients that this conversation has to take place with the CEO. And equally as troubling when weighed against the First Amendment privileges it infringes upon.

Nonetheless, the law and constitutional analysis are clearly here to stay. Look for more states to follow Connecticut’s lead and impose pay-to-play restrictions on extended families.

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Second Circuit Upholds Connecticut Pay-to-Play Law