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Contractor Contribution Bans Post McCutcheon – “Um, Hans, There Appear to be More Cracks in the Dike!”

Stefan

As predicted, the United States Supreme Court’s analysis in McCutcheon v. FEC threatens once again to topple the constitutional underpinnings supporting contractor bans on contributions.

This time, the crack in the dike in dire need of young Hans Brinker’s able finger appears in the D.C. Circuit where the court – sitting en bancannounced today in Wagner v. FEC that it will hear oral argument in September on First Amendment challenges to the long-standing prohibition against federal contractor contributions in connection with federal elections.

It is difficult to see how this law (2 USC 441c) survives Justice Roberts’ analysis in McCutcheon. As noted political law academic Rick Hasen sagely (and succinctly) observes on his blog, “[t]his will be a tough case for the government after McCutcheon, and potentially a big decision.”  He is correct, of course. This might be the case that cracks the pay-to-play dike and floods us all with contractor contributions.

See you in September. Russell Crowe and I will be out back working on our boat.

Contractor Contribution Bans Post McCutcheon – “Um, Hans, There Appear to be More Cracks in the Dike!”

Holiday “Gifts” from the Nation’s Capitol

A Contrasting Pair of Pay-to-Play Reprieves Emerge in the District

Just in time for the holiday season, an unexpected present from the U.S. Commodity Futures Trading Commission (CFTC) has found its way under the tree of a group that was most likely expecting to receive coal in its pay-to-play stocking. “Swap dealers”, the target of increased pay-to-play scrutiny from the CFTC over the past year, recently received the gift of thoughtful pay-to-play enforcement restraint from the Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO). Meanwhile, a similar enforcement reprieve has also been given by the D.C. Council to the city’s municipal government contractors, a popular target among pay-to-play reform groups – although perhaps not for the same reason. The gifts brought to the manger might be the same, but the wisdom of the bearers … not so much.

The CFTC was the first to show its holiday spirit in the form of a no-action letter addressing the pay-to-play rules applicable to swap dealers who conduct business with certain “governmental special entities”. The CFTC pay-to-play rules in Commission Regulation 23.451, which this blog previously covered in detail, restrict a swap dealer from engaging in certain activities with a “governmental special entity” if the swap dealer (or a covered associate of the swap dealer) made or solicited contributions to an official of that governmental special entity during the two preceding years. Such rules were meant to be in regulatory harmony with similar pay-to-play provisions promulgated by the Securities and Exchange Commission (SEC) and Municipal Securities Rulemaking Board (MSRB). The DSIO, however, found them to be unnecessarily broader than their SEC and MSRB counterparts, particularly as they applied to political contributions associated with officials of federal or other non-state or non-local government agencies or instrumentalities.

As such, the DSIO issued its November no-action letter to provide swap dealers and their covered associates with relief from having to unnecessarily “expend significant resources to update their current policies and procedures to ensure compliance with Regulation 23.451’s prohibition” on contributions not otherwise covered by the SEC and/or MSRB rules. In its letter, the DSIO officially stated that “the Division will not recommend that the [CFTC] take an enforcement action against any [swap dealer] or covered associate of any [swap dealer] for failure to be fully compliant with Regulation 23.451” with respect to contributions not generally subject to restriction by the SEC and/or MSRB pay-to-play rules.

By implementing this limitation, the DSIO appears to be making an effort to provide swap dealers with clarity regarding the scope of the CFTC’s pay-to-play provisions and likewise to harmonize such regulatory requirements with the statutory directives of the Dodd-Frank Act and other federal law. In this sense, the CFTC reprieve is both well meaning and a sensible policy decision. The reprieve offered by the D.C. Council, however, appears to be more the product of bureaucracy and delay than sensibility.

As such, on the other end of the naughty/nice list, we have the D.C. Council’s foot dragging on pay-to-play reform. As detailed in the pages of this blog over the course of the past year, various elected officials in the District of Columbia have been “hard at work” pushing comprehensive ethics and pay-to-play reform proposals in front of the D.C. Council. Back in March, Councilman Tommy Wells introduced a piece of legislation containing a collection of pay-to-play reforms for the District that had been previously ignored by the Council in 2011. Similarly, in September of this year, Mayor Vincent Gray presented his own proposal, drafted by D.C. Attorney General Irvin Nathan, which would seriously restrict the ability of major Washington vendors to make political contributions to any District official or candidate involved in influencing the award of a contract or grant by the municipal government.  Shortly thereafter, Councilman Jack Evans also introduced his own “pay-to-play” proposal that seeks to entirely remove the D.C. Council from the municipal contract-approval process.

Despite the sound and fury associated with the introduction of these reform efforts, the council has yet to produce any results. In fact, none of these proposals has moved an inch in the D.C. Council’s legislative process, leaving many reform advocates wondering whether the push toward campaign finance and pay-to-play reform in the District is more about politicians seeking to score public relations points and less about serious legislative changes. As the Editorial Board of The Washington Post put it earlier this week:

            “[The fact] that the council didn’t have the time [to move forward on campaign finance and pay-to-play reform] – the excuse offered for inaction – speaks to a distressing lack of urgency in addressing this critical issue. Even more worrisome, it suggests a reluctance among those who benefit from the slack regulation of political dollars to fix a system that has helped perpetuate the District’s ‘pay-to-play’ culture.”

The excuse being referenced by the Post is a recent statement by D.C. Council Chairman Phil Mendelson indicating that no legislative progress will be made on campaign finance reform before the end of the Council’s yearly session. Similar comments have also been made by Councilwoman Muriel Bowser, the Chairwoman of the Government Operations Committee, who claimed that “most members [of the Council] … don’t want to rush” with regard to reform efforts. Can kicking at its best.

Long story short… don’t expect pay-to-play changes in the District any time soon. Nevertheless, should the D.C. Council decide to take action in the new year, Pay-to-Play Law Blog will be right here keeping our readers up to date.

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Holiday “Gifts” from the Nation’s Capitol

D.C. Pay-to-Play Updates – Examining the Legislative Language of the Mayor’s Proposed Pay-to-Play Rules and A New Proposal From D.C. Councilman Jack Evans

Right before the Labor Day holiday weekend, Pay-to-Play Law Blog offered its readers a quick update on some of the latest pay-to-play regulatory happenings along the Potomac.  In particular, we previewed the strict pay-to-play proposal being championed by Washington, D.C. Mayor Vincent Gray and Attorney General Irving Nathan, and promised a follow-up post in the wake of a formal legislative submission to the D.C. Council.  Well… that time is upon us.  And for all of our readers who bet that Gray and Nathan would offer up a bill that matched their rhetoric, it’s time to collect.

Submitted to the Council at the end of September, Gray and Nathan’s draft bill memorialized their previous verbal proposals in a written form that, if passed, would make the District’s pay-to-play regulatory scheme one of the strictest in the nation. The key provision in the draft legislation is designed to severely curb political donations from city vendors and prospective vendors who hold or seek municipal contracts valued at $250,000 or more. The proposed legislative language appears to accomplish that goal by attacking pay-to-play politics from both the government and contractor side of the equation.

First and foremost, the bill prohibits the D.C. government, its purchasing agents or agencies, and its independent authorities from entering into any agreement or otherwise contracting to procure goods, services or equipment from or sell property to any “covered contractor” if such contractor seeks or holds grants with the District with a cumulative value of $250,000 or more and has solicited or made any contribution or expenditure to a “prohibited recipient” within the prescribed time period. Simultaneously, from the contractor perspective, the legislation also prohibits any prospective or current “covered contractor” seeking or holding District grants worth $250,000 or more from soliciting or making any contribution or expenditure to a “prohibited recipient” within the same prescribed time period. Under either prohibition, the prescribed time period encompasses at least the bid/proposal solicitation and determination window, and for successful contractors, stretches for one year following the final payment date on the contract or grant at issue.

For the purposes of these legislative restrictions, the term “covered contractor” is defined to refer to any individual or sole proprietor, business, corporation, firm, partnership or association seeking or holding a contract to provide goods or services to the D.C. government, or seeking or holding a grant from the D.C. government. Meanwhile, the term “prohibited recipient” refers to a wide range of individuals and entities, including the following: any elected District official who is or could be involved in influencing the award of a government contract or grant; any candidate for elected District office who is or could be involved in influencing the award of a government contract or grant; any political committee affiliated with such officials or candidates; any constituent-service program or fund controlled by such officials or candidates; any political party; or any entity or organization controlled or owned by an official, candidate, or their immediate family.

The bill’s ban on contributions and expenditures by covered contractors also stretches to cover any “related party” of the contractor, including associated trusts, LLCs, general partners of LLCs, and political committees. If the contractor is a corporation, the ban also applies to the officers and directors of the corporation, or any principal who has a controlling interest in the corporation. The terms of the legislation even go so far as to limit contributions and expenditures to prohibited recipients by the immediate family members of covered contractors to $300 per election per person.

In sum, Gray and Nathan’s bill seeks to institute a comprehensive, but not quite universal, ban on political contributions and expenditures by major District contractors and prospective contractors, their officers, directors and principals, and any other “related parties” affiliated with such contractors or prospective contractors. In the process, the legislation also sets up a penalty structure whereby offending parties are subject to a panoply of punishments, including sizeable civil penalties, termination of existing contracts or grants, temporary debarment from District contracting (for a period of up to four years), and even criminal prosecution (in certain settings).

The language of the present bill is certain to change as it makes its way through the D.C. Council this fall, but it would be naïve to think that some components of its pay-to-play restrictions will not survive to become law. This is particularly the case in light of the bill’s early endorsement by several Democrat political organizations within the District, including the Ward 4 Democrats.  Stay tuned to Pay-to-Play Law Blog for continuing coverage…

Proposal to Remove the D.C. Council’s Right of Review Over Large City Contracts

In the wake of the legislative submission by Mayor Gray and Attorney General Nathan, we have also seen other D.C. officials scrambling to hop on board the pay-to-play reform train. One of the officials leading the charge down the Union Station platform has been Councilman Jack Evans, who recently announced a legislative proposal that would revoke the District Council’s “right of review” with regard to city contracts worth over $1 million.

From Evans’ perspective, the best way to remove the D.C. Council’s incentive to engage in pay-to-play politics is to remove it entirely from the contract-approval process. Under D.C.’s current procurement procedures, both the executive and the legislative branches of District government are tasked with reviewing and approving contracts and grants. This system was initially established in the 1990s as a reaction to increasing mistrust concerning the executive branch’s handling of the procurement review process. Evans’ proposed bill, however, would effectively turn back the clock on contract review in the District and give the Mayor’s office much more sway over grant approval or rejection.

According to Evans, the dual contract review system is “supposed to serve as a check and a balance on the [M]ayor”, but instead functions as an invitation to either blind rubber-stamping or pay-to-play activities on the part of the District Council. From his point of view, the Council typically engages in the procurement process for political purposes and rarely meddles in contracts or grants because of the relative merits of the awards.

That very well may be the case, but Pay-to-Play Law Blog is not at all convinced that Evans’ proposal fully tackles pay-to-play activities in the District. In fact, in the absence of any other regulatory changes, the proposal might well be seen as a larger opportunity for pay-to-play conduct on the part of the Mayor and those in the executive branch. Not that Evans would participate in such activities if he is successful in his future mayoral run, but his proposal certainly wouldn’t decrease the temptation to play politics with District contracts among future mayors.

It remains to be seen what the ultimate outcome of Evans’ proposal will be, but it is safe to say that Mayor Gray is unlikely to turn down an opportunity to secure greater authority over the District procurement process. Commentators and other members of the D.C. Council, however, have not been so quick to offer support to Evans’s legislative idea. We’ll see how things proceed in the coming weeks and be sure to keep our readers posted as D.C. continues to reshape its campaign finance and pay-to-play regulatory structures.

D.C. Pay-to-Play Updates – Examining the Legislative Language of the Mayor’s Proposed Pay-to-Play Rules and A New Proposal From D.C. Councilman Jack Evans

Local Pay-to-Play Provision To Be Put Before the Voters In South Jersey, While DC Mayor Vincent Gray Makes A Push for New Pay-to-Play Rules in the Nation’s Capitol

With Labor Day weekend at hand and the Republican and Democratic National Conventions upon us, much of the American electorate is finally beginning to tune back into politics and prepare themselves for what will certainly be a very interesting close to the 2012 campaign season. News regarding the race for The White House will certainly dominate the media over the coming months, and rightfully so, but Pay-to-Play Law Blog is here to offer our readers, particularly those residing in swing states, a brief respite from the 24-7 presidential election coverage. We know our readers love Super PAC advertisements, political campaign internet pop-ups, and robo-calls as much as (if not more than) anyone, but we also know that they like to stay up to date on the important state and local pay-to-play news that might otherwise be slipping through the cracks between now and November 6th. With that in mind, we offer up a few recent items of interest from the Garden State and D.C.

New Jersey

In New Jersey, where individuals and businesses alike must already deal with restrictive pay-to-play provisions at the state level, we are continuing to see similar (and often more serious) restrictions contemplated and put in place at the municipal level. For example, consider recent developments in Gloucester Township, an exurb of Philadelphia, which has had an extraordinarily busy summer when it comes to “pay-to-play” developments.

Several months ago, a conservative transparency group known as South Jersey Citizens made an effort to launch citizen-crafted pay-to-play provisions through the township’s petition process, but were unable to gather the requisite signatures to advance the proposed legislation to the Gloucester Council and, if necessary, the November ballot. At nearly the same time, Gloucester Councilman Dan Hutchinson presented his own set of pay-to-play rules specifically targeting Super PAC donation disclosure, which were unanimously approved by the Council on first reading, but subsequently withdrawn before a final vote. Following the withdrawal of these proposed rules, a group of Democratic Gloucester residents took up the pay-to-play mantle by repackaging the Councilman’s draft ordinance and gathering the requisite petition signatures for its public submission to the Council. As a result of their work, the pay-to-play proposal came before the Council members for tacit approval on Monday and will appear on the November general election ballot for the voters of Gloucester Township to consider.

The content of Gloucester’s prospective pay-to-play ordinance, O-12-17, places a combination of contribution restrictions and disclosure requirements on prospective township vendors. Specifically, if passed, the proposed provision would prohibit any business entity from entering into any agreement or contract with Gloucester Township or any of its departments, instrumentalities, purchasing agents or authorities for a one year period following the solicitation or making of a contribution above the “monetary threshold” to any Gloucester-specific candidate, candidate committee, joint candidate committee, political party committee, or to any PAC or Super PAC that “regularly engages in the support of Gloucester Township municipal elections…” The monetary threshold for this one-year, cooling-off period is set at the following levels: $300 per calendar year for mayoral or governing body contributions; $500 per calendar year for joint candidate committees supporting mayoral or governing body candidates; $300 per calendar year to municipal political committees or municipal political party committees; $500 per calendar year to any PAC or Super PAC; and $2,500 in aggregate in to all Gloucester candidates, committees, joint committees, political committees and political party committees. The potential ordinance would also require all business entities entering into agreements or contracts with the township to file a certification statement disclosing all their contributions to Super PACs, regardless of whether or not those Super PACs actively engage in Gloucester elections.

All-in-all, the proposed ordinance appears to represent an honest attempt by the township to reign in pay-to-play corruption and encourage transparency in political giving. Like many of the municipal pay-to-play provisions in the Garden State, however, it takes a fairly heavy-handed approach and, if passed, may force many potential Gloucester vendors to either cool their political speech at the local level or avoid municipal contract work altogether. Regardless of this blog’s commentary, however, the residents of Gloucester Township will weigh in with their thoughts on the proposed ordinance on November 6th.

District of Columbia

Meanwhile, a few hours down I-95, embattled Washington, D.C. Mayor Vincent Gray made news this week by proposing a series of campaign finance disclosure requirements and donation restrictions that he claims will curb “pay-to-play” activities in D.C., and minimize the influence of lobbyists and contractors on District politics. While at least partially a public relations move designed to draw attention away from the continuing federal investigation into Gray’s fundraising and campaign spending activities, the proposals – if passed by the D.C. Council this fall – would leave Washington, D.C. with one of the strictest campaign finance structures in the country. Although not yet memorialized in legislative language, let’s nevertheless take a quick look at some of the rough proposals set forth by the Mayor and D.C. Attorney General Irvin Nathan this past Tuesday.

From a pure pay-to-play perspective, Gray and Nathan suggested putting in place legislative provisions that curb political donations from any city vendor who holds a municipal contract valued at $250,000 or more. Specific details regarding how significant this “curbing” would be have yet to be put forth, but Gray and Nathan pledged to have more definite plans for the D.C. Council’s consideration this fall. Stay tuned for updates on this front…

In addition to this proposed contribution restriction for D.C. government vendors, Gray and Nathan also called for additional legislation that would prohibit registered District lobbyists from bundling campaign contributions, ban corporations from donating to District candidates through linked or affiliated entities, and require candidates that receive campaign donations within 30 days of an election to disclose such contributions within 24 hours of receipt. They also floated two other proposals that, if passed, could have a profound impact on political participation in D.C. Specifically, the Mayor and Attorney General announced that they will be pursuing campaign finance rules that severely restrict political contributions from LLCs and corporations, and also seeking legislation that will require candidate-like donor disclosure for other types of political organizations in the District.

Just as with the pay-to-play proposal discussed above, the details of these legislative prerogatives are hazy at best. Gray and Nathan will be working in the coming weeks to put meat on the bone for D.C. Council consideration, but the final product (if any) that emerges from that body will almost certainly tackle the pertinent policy issues in a different manner than proposed by the Mayor and Attorney General. With that in mind, Pay-to-Play Law Blog will be here to monitor the process and keep our readers up-to-date on all the fun.

Local Pay-to-Play Provision To Be Put Before the Voters In South Jersey, While DC Mayor Vincent Gray Makes A Push for New Pay-to-Play Rules in the Nation’s Capitol

In the Wake of Recent Scandals and Brewing Federal Investigations, The D.C. Council Appears To Be Taking Another Look at Pay-To-Play Reform

With all apologies to 1980s rockers Great White, it would have been quite easy for D.C.Councilman Tommy Wells (D – Ward 6) to take a “Once Bitten, Twice Shy” approach to pay-to-play reform in the District of Columbia. After all, two of his 2011 proposals on the subject were  actively left out of the final version of the city’s recently-passed comprehensive ethics reform bill. Those two proposals would have prohibited bundled corporate campaign contributions and barred District officials from accepting donations from city contractors, but both were met with universal opposition from the other members of the Council.

Rather than give up on the idea of reform, however, Wells went back to the drawing board, reconfigured his pay-to-play proposals, and waited for the opportune moment to reintroduce them before the Council. Just this week, after three months of waiting, Wells seems to have found his moment. . . . thanks in large part to the parade of federal corruption investigations being initiated against current and former D.C. officials, as well as the District’s largest corporate contractor.

For those who have missed the media coverage, since the beginning of the year, federal investigators from myriad agencies have been exploring various corruption allegations lodged against a number of Washington, D.C. officials and political kingmakers. For example, nearly two months ago, Mr. Harry Thomas, Jr., who previously represented Ward 5 on the D.C. Council, was forced to resign his post before pleading guilty to felony charges related to the theft of $353,000 in taxpayer funds. Likewise, Mayor Vincent Gray has been the subject of an ongoing investigation by the U.S. Attorney’s Office for the District of Columbia concerning potential violations of city campaign finance laws during his 2010 election run against Adrian Fenty. Now, just this past week, federal investigators raided the home and offices of Mr. Jeffrey Thompson, the city’s single-largest contractor and a prolific political donor, as part of what appears to be an investigation into his business and political ties to the Mayor and other District officials.

With a growing number of District officials under the microscope, Wells found just the opportunity he was looking for – a more fertile environment for the reintroduction of his pay-to-play proposals. This time, with the support and co-sponsorship of Ms. Mary Cheh (D – Ward 3), Wells has introduced a piece of legislation that would limit “pay-to-play” politics by forbidding District procurement contracts from being granted to individuals who have given more than $2,000 in the aggregate within the three previous calendar years to any political organization authorized to make contributions to or expenditures on behalf of any official or candidate who can vote on such agreements. This $2,000 limit would apply to contributions made to District campaign committees, political committees, political party committees, PACs, exploratory committees, legal defense committees, inaugural committees, and constituent-service programs.

In addition to this strict pay-to-play provision, the Wells-Cheh bill seeks to prohibit individuals who have raised more than $10,000 for any District official or candidate during an election cycle from receiving any procurement contract, lease or appointment from the District for a period of three years following the fundraising activity. The legislation also includes an outright ban on corporate political contributions in the District and a strict prohibition on political contributions by District contractors during any period of procurement application or performance.

Will this latest effort at pay-to-play reform gain any traction with any of Wells and Cheh’s fellow D.C. Council members? It depends on how desperate their colleagues are to distance themselves from the investigative storm clouds rolling in on the Mayor and Mr. Thompson… For those Council members up for reelection in 2012, the pressure to get on the right side of the corruption issue might lead some to reconsider last year’s opposition to pay-to-play restrictions. The Washington Post Editorial Board and a citizen-led ballot initiative group are doing their part to support the reform efforts, but on a Council that counts Marion Barry as one of its own, passage of any type of pay-to-play legislation is far from a sure thing….

Regardless of that fact, however, individuals and corporations that do business with the District of Columbia and actively participate in its politics should keep a close eye on the Wells-Cheh bill and the parallel ballot initiative. The implementation of any one of the provisions set forth in either the proposed legislation or initiative would fundamentally change the nature of contract procurement and political participation in the District, bringing Washington, D.C. into line with some of the more restrictive pay-to-play jurisdictions in the country. As things progress along the Potomac, Pay-to-Play Law Blog will keep you updated….

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In the Wake of Recent Scandals and Brewing Federal Investigations, The D.C. Council Appears To Be Taking Another Look at Pay-To-Play Reform