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Maryland Just Can’t Help Itself When It Comes to Pay-to-Play Revisions

Avid followers of the Pay to Play Law Blog know how active the State of Maryland has been over the past few years with regard to the amendment and revision of its pay-to-play framework for those contracting with or otherwise doing business with state and local governments.  In 2014, we saw a new pay-to-play regime implemented that instituted an array of new filing obligations, contribution reporting requirements, and enhanced record retention and certification obligations for Maryland government contractors.  Then, in 2015, state legislators followed up with a collection of amendments to the new regime that closed unintended disclosure loopholes and shifted the semi-annual reporting calendar to the May and November schedule that now applies to covered contractors across the Old Line State.  A few months after those legislative changes, the State Board of Elections (“SBOE”) joined the party with the promulgation of an array of regulations clarifying how the rapidly evolving pay-to-play regime would be administered and enforced moving forward.

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Fast forward to 2016 and the regulated community probably feels like it’s having deja vu all over again.  During this year’s General Assembly session, lawmakers in Annapolis once again took it upon themselves to pass legislative amendments tweaking their beloved pay to play framework.  The changes, which are relatively minor in comparison to last spring’s modifications, codify an interpretive rule proposed by the SBOE last year that sought to broaden the political contribution disclosure obligations of covered contractors who have politically-active business affiliates.

Under the existing regulatory regime codified in state law, pay-to-play filers are required to report the political donations of their subsidiaries provided such affiliates are “doing business with” Maryland state or local government and 30% or more owned or controlled by the covered contractor.  The 2016 amendments, however, broaden the scope of potential affiliate disclosure.  The recent legislative revisions, which were signed into law by Governor Larry Hogan in late April and go into effect on October 1 of this year, clarify that covered contractors should disclose the donations of all politically-active subsidiaries (which are 30% owned or controlled) regardless of whether or not such affiliates do business with state or local governments in Maryland.  An express exemption to this disclosure obligation was provided for a very narrow group of subsidiaries that are affiliated with publicly-traded, bank holding companies and that are not doing public business in Maryland.  The legislative changes will, however, require that most covered contractors disclosure the political contributions of their affiliated subsidiaries.

A few short days after these legislative changes were signed into law, the SBOE followed the General Assembly’s lead in preening over Maryland’s “precious” pay-to-play framework.  The Board, in a Notice of Proposed Action published in the State Register, recommended changes to several of its current regulatory provisions governing the disclosure of political contribution activity by covered state and local government contractors.  First, as one might expect, the proposed regulations seek to align current SBOE rules with this year’s legislative changes regarding the attribution of contributions by the subsidiaries of covered government contractors.  Perhaps more interestingly, however, the proposed rules also seek to alter the current timing of the “initial” pay to play disclosure filings required of new Maryland contractors and to clarify how entities doing business in the state can comply with the “CEO reporting obligations” concerning disclosable political contributions.

As those in the regulated community know well, Maryland’s current regulations require specific state and local government contractors to file with the SBOE an initial registration statement (highlighting specific contract information) and a statement of reportable political contributions (covering the two years prior to the contract) within one business day of the contract’s award.  The Board’s new proposal advocates for an extension of the filing window for the registration from one business day to fifteen business days after the contract’s award.  The proposed rules also request that the time frame for submitting the political contribution disclosure report be extended to fifteen business days after the registration statement is filed.

In addition to these administrative changes, the Board’s newly-proposed rules seek to clarify how covered government contractors can meet their CEO-reporting requirements under existing law.  Under current law, the officers, directors and partners of covered contractors are required to report disclosable political contributions to the CEOs of their entities as part of the state disclosure requirements.  Such CEOs are also obligated to notify all reporting individuals with their entities (and reporting subsidiaries) that Maryland law requires public disclosure of their contributions.  To ease the administrative burdens associated with the incoming notification process, the SBOE’s proposed rules would permit a designee of the CEO to collect contribution information on behalf of a reporting entity provided such collection is completed within five business days of the close of the applicable reporting period.  In regard to the outgoing notification process, the proposed rules would allow CEOs to avoid their obligation to warn all reporting individuals about their reporting requirements under state law if the disclosing entity implements a legal pre-clearance framework and a written compliance policy that is annually reviewed by such donors.

These proposed rules and regulations are open for public comment with the SBOE until May 30, 2016.  As the comment period comes to a conclusion and final provisions are adopted, Pay to Play Law Blog will be sure to closely monitor any relevant changes to help the regulated community stay abreast of the latest on Maryland pay-to-play law.

Maryland Just Can’t Help Itself When It Comes to Pay-to-Play Revisions

In the Wake of Maryland’s Recent Pay-to-Play Changes … A Chance to Weigh In on Pending State Regulations

detailsAs the reader’s of this blog know well, the State of Maryland has been hard at work over the past few years refining and retooling its pay-to-play framework for those contracting with or otherwise doing business with Annapolis or local governments across the Old Line State.  In late August, companies with one or more Maryland government contracts valued at $200,000 or more were obligated to file their first semi-annual disclosure reports under the state’s newest regulatory regime.  With the second round of reports coming due in November, the State Board of Elections (SBOE) has finally proposed regulations for public comment that deserve the attention of our readers and all businesses engaged in government procurement activities in Maryland.

The proposed regulations, which were published in the Maryland State Register last Friday, provide important insight into how the SBOE plans on administering and enforcing the currently-operative, pay-to-play framework.  The released rules touch on a wide range of significant subjects, including registration procedures and timelines, disclosure protocols for registrants with parent companies, certification and affidavit systems for registrants, waiver procedures, and internal corporate reporting mandates.

These are the “details” made famous by the phrase “The Devil is in . . . ”

From the registration perspective, SBOE’s regulations seek to speed up the timeline by which prospective registrants are obligated to submit their initial political contribution reports following the award of a covered contract or contracts.  These initial disclosures, covering the two years leading up to the start of the procurement, would effectively become same-day reports contemporaneously due at the time the agreement is signed.  This tweak to the statutorily-referenced “one business day” deadline is minor, but would undoubtedly place greater time pressure on prospective state and local contractors to complete their pre-contract, due diligence concerning organizational political activity.

In the technical disclosure context, the recently-released regulations help to clarify the disclosure obligations of registrants with corporate parent entities, and likewise seek to formalize the certification requirements for registrants who have no reportable contributions in a given disclosure period.  For registering companies with parent entities, the SBOE’s proposed rules confirm that only the immediate parent of a registrant with a qualifying contract need register and report with the state for pay-to-play purposes (provided the parent company possesses the requisite 30% ownership or controlling stake in the registrant).  The regulations also attempt to clarify the meaning of the terms ownership and control as they relate to this standard.

For registrants with qualifying Maryland contracts but no applicable political contributions in a given disclosure period, the new regulations also specify the process by which proper notice of this fact may be given to the SBOE.  Specifically, the regulations allow for an electronic system through which registrants can certify that no reportable contributions were given and list their qualifying procurement relationships with state and/or local governments in Maryland.

In addition to the above subject matters, the proposed SBOE regulations also provide meaningful insight into the state’s proposed waiver system for registrants seeking leave of the standard procedures for contribution disclosure, contract reporting, and the payment of late filing fees.  The released rules also shed light on how the SBOE believes the internal corporate reporting mandates contained in the present pay-to-play structure should be implemented.

All of the rules and regulations set forth in SBOE’s proposal are open for public comment until November 16, 2015.  We here at Pay-to-Play Law Blog anticipate a wide range of letters of opposition and support for the proposed rules and will be ready to offer further insight on any major changes incorporated into the final adopted provisions.

 

 

 

In the Wake of Maryland’s Recent Pay-to-Play Changes … A Chance to Weigh In on Pending State Regulations

April Showers Bring… Another Round of Pay-to-Play Changes in the State of Maryland

Spring may have sprung in the mid-Atlantic, but those contracting and doing business with the State of Maryland don’t feel like they’re receiving anything close to a flowery reception from the Maryland General Assembly this April. On the heels of a winter of discontent in the Old Line State, where those in the regulated community had to scramble to adjust to a new pay-to-play regime that involved unwieldy online filing obligations, modified contract valuation standards and contribution reporting requirements, and enhanced record retention and certification obligations, another new set of legislative changes has been adopted that will further alter the compliance playing field. You know what they say – when it rains it pours.unnamed

This new round of amendments to Maryland’s pay-to-play framework, contained in House Bill 769, was passed by the state legislature earlier this month and has been sent to new Governor Larry Hogan for his signature. If the bill is signed into law, as anticipated, Maryland state contractors will have until June 1, 2015 to “unlearn” some of what they just learned about Maryland’s comprehensive pay-to-play overhaul on January 1st of this year. Given that we’re currently less than four months into the new framework, at least the regulated community can say it hasn’t had time to get comfortable with the “suddenly-old” regime.

Under the changes proposed by House Bill 769, entities with more than $200,000 in total Maryland contracts as of the end of 2014 will be required to submit semi-annual pay-to-play contribution disclosure reports with the State Board of Elections starting in August of this year. This is the case even if such contractors receive no new government contracts from the state during 2015 – a change from the pay-to-play regime that went into effect on January 1, 2015, which exempted companies with no new 2015 contracts from having to file disclosures.

In addition to closing this potentially-unintended loophole in the recently-enacted pay-to-play regime, the legislative amendments in House Bill 769 also attempt to somewhat ease the existing reporting burden for disclosing contractors. Specifically, the new changes will excuse companies without reportable political contributions (by either the entity or its covered representatives) from having to openly disclose the minute details of all of their existing state contracts. Moving forward, contractors without such reportable contributions will need only indicate the specific government agencies with which they do business, but will no longer need to report the value, start date and termination date of all their state contracts. This will undoubtedly be seen as a small ray of sunshine for those in the reporting community.

Before those doing business with the State of Maryland go getting all giddy, however, they should also take note of how House Bill 769 will alter the traditional pay-to-play reporting schedule for state contractors. As noted above, the next semiannual disclosure filing for contractors will be due in August of this year. The filing deadline for that report, however, has been moved from the customary date of August 5th to a new date of August 31st. The August disclosure will be required to cover reportable contractor activities between February 1, 2015 and July 31, 2015.

Following the completion of that submission, filing parties will be required to submit another pay-to-play report by November 30, 2015 covering reportable activities between August 1st and October 31st. Subsequent to that November 30th filing, all government contractors will face a semi-annual filing schedule for 2016 and beyond. Such reports will be due on May 31st and November 30th of each year, and will cover reportable activities during the preceding six month periods.

Keeping the above amendments in mind, the good news for the regulated community is that these changes will be the only new legislative wrinkles in Maryland pay-to-play law for at least the next 8 months. The bad news is that regulators in Annapolis will have ample time between now and next January (when the General Assembly goes back into session) to weigh in on the changes and unleash their own brand of administrative storm clouds. No matter when the next storm hits, however, you can count on your friendly legal meteorologists here at Pay-to-Play Law Blog to keep you up to date

April Showers Bring… Another Round of Pay-to-Play Changes in the State of Maryland

Prince George’s County, Maryland Adopts a Different Approach to Pay-to-Play

As we’ve observed here a few times before, nothing gets a legislator in the mood for regulatory action like press accounts of one of their own getting busted for pocketing a few dollars in exchange for government largess. One could hardly second guess Prince George’s County, Maryland for following this predictable pattern. In this case however, the funds forming the catalyst for action weren’t “pocketed” – they were “bra’d”.

Last November, the Washington, DC area was somewhat titillated by news reports that Prince George’s County Executive Jack B. Johnson and his wife, Prince George’s County Councilwoman-Elect Leslie Johnson had been arrested by the FBI in connection with an investigation into allegations that certain real estate developers in Prince George’s County, Maryland were bribing public officials in exchange for official acts benefitting the developers and their companies. The FBI moved in, it was reported, when their wiretaps overheard Johnson instruct his wife to flush a developer’s check for $100,000 down the toilet and to conceal another $79,600 in cash in her bra.

Regardless of where the money went, the result was inevitable – pay-to-play legislation.

In an interesting symbiotic pairing, corrective legislation is moving through the Maryland General Assembly at precisely the same pace as Prince George’s County Council member Leslie Johnson moves through the Maryland criminal justice system. On March 25, 2011, the very day the Justice Department filed new criminal charges against Johnson for conspiracy to commit witness and evidence tampering, Maryland’s House of Delegates passed House Bill 614 in response to the Johnson episode.

What makes the Maryland legislation unique is the approach taken to remedy the harm inflicted on public confidence in local government. The easy approach would have been to enact feel-good prohibitions against developer interactions with county executives. Such legislation is easy to pass but is exceedingly difficult for well-meaning citizens to comply with and often does little to prevent the truly nefarious bad actors who simply “find another way”. As the team at CityEthics.org correctly observed, the problem in Prince George’s County was not as much with the private sector but rather an inadequate ethics program and unique powers to hold up development unless a payoff is made:

But there can be no pay-to-play without special powers. Developers only pay when they have to. And there can be no special powers without a very poor ethics environment. It’s a vicious circle, and it appears that Prince George’s County is caught up in it.

House Bill 614 goes a long way towards addressing these issues, and does so by placing limitations where they belong, on the county executives who are perceived to have abused their far-reaching powers for personal gain. According to the Washington Post the County has long housed “complaints that past councils have operated secretively, threatening developers that their plans would be held up indefinitely unless they offered concessions or hired an associate of a council member.” If signed into law, the current legislation will severely curtail the County Council’s ability to shelve development deals and enhance the County’s ethics commission by installing a full time executive director and require regular meetings.

This strikes us a sensible approach, targeted to address a clearly identified problem, that does not place undue hardships on the honest 99% in the private sector who have succeeded in keeping their knickers clean.

Prince George’s County, Maryland Adopts a Different Approach to Pay-to-Play