Posted on January 4, 2012 by Kelly Lamendola

Federal Appeals Court Upholds New York City Pay-to-Play Rules

Through its recent decision in Ognibene v. Parkes, the Second Circuit Court of Appeals has rejected a constitutional challenge of New York City’s political contribution limits on “lobbyists” and others having business dealings with the City (a/k/a the “pay-to-play” rules), finding that such limits do not violate First Amendment free speech rights.

 In 2007, the New York City Council adopted Local Law Number 34, which amended the City Campaign Finance Law to severely limit contributions from people having “business dealings with the City,” including “lobbyists.” The term “business dealings with the City” is broadly defined to cover contracts with the City, concessions and franchises, and the acquisition of disposition of real property, among other activities.   As well as limiting the amount of contributions, the amendments to the Campaign Finance Law made such contributions ineligible for matching funds through the City’s publicly funded campaign finance program. And, the amendments extended the existing ban on corporate contributions to City candidates to contributions from LLCs, LLPs, and partnerships. 

Queens Republican and former lieutenant governor candidate Tom Ognibene, Democratic State Senator Martin Dilan, and the New York State Conservative Party, among others, sued the New York City Campaign Finance Board and City officials, challenging the “pay-to-play” restrictions as unduly burdening protected political speech and violating the equal protection clause of the Fourteenth Amendment; citing the U.S. Supreme Court’s landmark decision in Citizens United v. Federal Election Commission, 130 S. Ct. 876 (2010). Citizens United held that the government could not ban corporations and unions from expenditures to advocate for the election or defeat of a candidate.  

 

In the Ognibene suit, the U.S. District Court for the Southern District of New York found for the Campaign Finance Board and granted their motion for summary judgment, dually holding that the ‘doing business’ contribution limits served the important government interest of preventing actual and apparent corruption, and were narrowly drawn. The District Court also upheld the prohibition on matching funds and the extension of the contribution ban to various business entities.

In its Opinion issued on December 21, 2011, the Second Circuit Court of Appeals affirmed the district court, holding that the ‘doing business’ restrictions are an indirect constraint on protected speech, subject to the more lenient burden that the government demonstrate that the restrictions are justified by a legitimate state interest. 

 

“Contributions to candidates for City office from persons with a particularly direct financial interest in these officials’ policy decisions pose a heightened risk of actual and apparent corruption, and merit heightened government regulation,” Judge Paul A. Crotty wrote in the main opinion.  

The Second Circuit found that the restrictions served the City’s anti-corruption interest and were “closely drawn” to address that interest; distinguishing the contribution limits in the New York City Campaign Finance Law from the “expenditure” restrictions in Citizens United.

 

Despite this unanimous ruling from a three-judge panel of the Second Circuit, it may only be a matter of time before an appeal is lodged with the U.S. Supreme Court. Stay tuned to this blog moving forward for additional coverage…..  
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Posted on September 9, 2011 by Stefan Passantino

New Jersey Has a Busy Week

We’ve noted before that New Jersey remains the hands-down leader in pay-to-play ordinance proliferation.  Until Governor Christie (or someone at the state level) succeeds in implementing a uniform statewide protocol for procurement efforts such as the one proposed here, New Jersey will extend its dubious distinction of having more varieties of pay-to-play legislation than its Turnpike has exits. (Think I’m kidding?  Read on.  It’s not even close).

This week saw two such ordinances seek admission to New Jersey’s growing family. First, Montclair, New Jersey proposed an ordinance, which would, if passed, debar contractors and their companies, which have made local political contributions in excess of $300 (and in some instances $500) within the preceding year from contracting with the township. The provision further provides for two relatively punitive provisions for its violation. First, the proposed law makes clear that a violation “shall be a material breach of the terms of a Montclair agreement or contract for Professional Services or Extraordinary Unspecified Services”, which virtually ensures that discovery of inadvertent violations of the ordinance shall be the first order of business for any losing bidder contemplating a bid protest. Second, making matters worse for the intentional or unintentional violator, contractors discovered to have transgressed (by a disgruntled bid protestor or others) would be barred from bidding on township contracts for four years. Ouch.

A second pay-to-play ordinance is being contemplated by the Bergen County, New Jersey Board of Chosen Freeholders. This ordinance has drawn criticism not for the penalties it imposes but rather for the exemptions it contains (one payer’s “exemption” is another player’s “loophole”). At issue in the Bergen County ordinance is a provision that its penalties and restrictions do not apply to contracts procured via open, competitive bidding (the so-called “fair and open process” exception). While it might strike some (such as myself) that contracts awarded through a transparent and open bidding process do not require the same, strict level of safeguards in the form of complex, and often punitive, restrictions on campaign activity, the “fair and open process” exception has drawn fire in the township. This clause has drawn the ire of Jersey residents before and shows no sign of abating any time in the near future.

Until New Jersey finds a way to adopt a common regulatory standard throughout the state, it will remain safely ensconced as the clear national leader in multiple, contradictory political procurement regulatory schemes.

While you’re holding your breath for that development, I strongly recommend that any entities or individuals seeking to navigate New Jersey pay-to-play or doing business with the State’s numerous townships to bookmark this extremely handy reference to the State’s numerous (literally over 100) current pay-to-play provisions. I further recommend that anyone seeking to navigate the State’s famous turnpike be on the lookout for these signs.

 
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Posted on August 25, 2011 by Stefan Passantino

Can Investment Advisors, Private Fund Managers, and their Employees Contribute to Governor Perry?

Last February, we posted an entry flagging potential concerns arising from the SEC’s new pay-to-play rules for investment advisors as applied to presidential candidates. Admittedly, at the time we were talking about Governors Haley Barbour and Mitch Daniels, but the same holds true now for Texas Governor Rick Perry.

The Compliance Building blog (Presidential Campaign Season and the SEC’s Pay-to-Play Rule) has just posted an excellent analysis of the issue. I highly recommend you check it out. As the blog notes:

 

“Registered Investment Advisors, private fund managers getting ready to register with Securities and Exchange Commission, and their employees need to be very cautious about making contributions to Governor Perry if they have a Texas state sponsored fund as a client or investor, or hope to have one as a client or investor in the next two years.”     

 

Transparency Alert: the author is campaign counsel to several federal candidates including former Speaker Newt Gingrich.
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Posted on August 23, 2011 by Stefan Passantino

Transparency Advocates Look to the SEC to Accomplish What Congress, The White House, and the IRS To-Date Have Not

By Stefan Passantino & Ben Keane

 

It has been almost exactly 19 months since the Supreme Court handed down its controversial decision in Citizens United v. Federal Election Commission, but the plot continues to thicken as those favoring mandatory corporate disclosure of political activities look for a non-judicial fix to the ruling. 

 

To date, the fields are littered with detritus of failed efforts at identifying a mechanism that compels corporations and wealthy individuals to disclose all exercise of their newly-recognized First Amendment freedoms. This blog has previously reported on failed efforts to mandate such disclosure in Congress, as well as the Obama White House’s proposed executive order circumventing both Congress and the Supreme Court.  To achieve these same goals, groups such as Democracy21 and the Campaign Legal Center have promoted changes to the Internal Revenue Code, while the American Bar Association has encouraged Congress to make pertinent amendments to the Lobbying Disclosure Act. 

 

Our latest contestants in this Sisyphean legal drama are a united band of like-minded law school professors looking to utilize the Securities and Exchange Commission (SEC) as a vehicle to counter the perceived negative impact of Citizens United. It appears this group has concluded that the imposing moniker “Committee on Disclosure of Corporate Political Spending” (the “Committee”) sounds more authoritative than “a united band of like-minded law school professors”. I think I agree with them on that. 

 

Under either moniker, this group has filed a petition for rulemaking with the SEC requesting draft regulations that require public companies to disclose to shareholders information regarding the use of corporate resources for political activities. The main gist of its petition – stricter SEC disclosure rules are necessary to ensure that corporate political activities are subject to the appropriate level of shareholder scrutiny in the wake of Citizen’s United. The Committee bases this conclusion on the following contentions:

 

First, it asserts that there is strong data indicating that public investors have become increasingly interested in receiving information about corporate political spending. To support this statement, the like-minded professors reference a 2006 Mason-Dixon poll indicating that 85% of shareholder respondents held that “there is a lack of transparency surrounding corporate political activity.” They also make note of a FactSet Research Systems analysis that indicates 50 out of 465 shareholder proposals appearing on public-company proxy statements in 2011 involved political spending issues.

 

Second, the Committee grounds its request in the belief that there is increasing momentum toward political spending transparency in the corporate community, as evidenced by the growing number of large public companies that have voluntarily adopted policies requiring disclosure of their political expenditures. To this point, and perhaps undercutting the urgency of their call to action, the professors highlight a study by the Center for Political Accountability indicating that nearly 60% of S&P 500 companies voluntarily provide shareholders with information regarding corporate spending on political activities.

 

Third and finally, the Committee bases its request on the idea that stricter SEC regulation of corporate political disclosure will lead to better corporate oversight and accountability mechanisms. At present, the professors assert, shareholders are unable to hold directors and officers accountable when they spend corporate funds on politics in a way that departs from the interests of the company. From the Committee’s point of view, this is due to the fact that public information regarding corporate political activity is out of the average shareholder’s reach (because it is either dispersed among too many regulatory bodies or not gathered at all). By requiring companies to disclose to one central entity (the SEC), it is the professors contention that there will be better information available to shareholders, and in turn, a subsequent improvement in corporate accountability.

 

Based upon these assertions, the Committee’s petition recommends that the SEC initiate a rulemaking project to adopt a series of regulations that mandate periodic disclosure of corporate political spending. Whether the SEC will take heed of the Committee’s request remains to be seen, but the petition itself has already begun to draw a mix of criticism and support from members of the business, legal, and academic communities.

 

For example, just a few days after the Committee’s petition was submitted, Keith Paul Bishop – the former California Commissioner of Corporations and an adjunct professor at the Chapman University School of Law – filed a response letter with the SEC refuting the professors’ contentions and requesting that no such rulemaking project be initiated by the Commission. In his response, Bishop contends that the Committee’s proposal will only add to the already extensive public disclosure burden faced by reporting companies and that it is unnecessary in light of the growing trend toward voluntary corporate disclosure. He also argues that it is not the role of the SEC to mandate corporate expenditure on public disclosure of political activity when statistics show that not even a third of 2011 proxy proposals on the subject enjoyed shareholder support.

 

In contrast, official comments filed by Mark Latham, founder of VoterMedia.org, and executives from the International Corporate Governance Network expressed strong support for the Committee’s request. Specifically, both comments revealed a common respect for the Committee’s belief that the disclosure of corporate political spending is necessary to help stave off abuse or the breach of business ethics by officers and directors.

 

The debate over who has the better side of the argument will rage on in the coming months as the SEC weighs the proposal and determines whether to take any action. One would have to expect the Obama Administration to lend its support to the Committee’s cause in it’s typical “no fingerprints here, I don’t know what you’re talking about” approach. The response from the corporate community will undoubtedly be more mixed and more direct, but it will be interesting to see what reaction emerges from groups such as the U.S. Chamber of Commerce and The Conference Board’s newly formed Committee on Corporate Political Spending (to which, BIAS ALERT, I am an advisor). Stay tuned….
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Posted on June 8, 2011 by Stefan Passantino

There is DEFINITELY a New Sheriff in Albany - Governor Cuomo Proposes Sweeping Ethics and Pay-to-Play Reform

Having apparently abandoned all hope of reforming New York’s Congressional delegation (and with a bipartisan ethics All-Star team including Congressmen Anthony Weiner (D-NY), Christopher Lee (R-NY), Eric Massa (D-NY), Charlie Rangel (D-NY) and Vito Fosella (R-NY)), Governor Cuomo has concluded that it's time to focus on New York State ethics and disclosure.

This week, Governor Cuomo announced that he, Senate Majority Leader Dean Skelos and Assembly Speaker Sheldon Silver had reached a three-way agreement on a substantial ethics reform package. Initially, and possibly more appropriately, named the “Clean Up Albany Act” in early press releases, the “Public Integrity Reform Act of 2011” proposes sweeping changes across a number of ethical disciplines. The proposed changes include the following:

Financial Disclosures: Financial disclosure statements filed with the new Joint Commission on Public Ethics from elected officials will now be posted on the internet and the practice of redacting the monetary values and amounts reported by the filer will be ended. The Act also includes greater and more precise disclosure of financial information by expanding the categories of value used by reporting individuals to disclose the dollar amounts in their financial disclosure statements. The Act requires disclosure of the reporting individual’s and his or her firm’s outside clients and customers doing business with, receiving grants or contracts from, seeking legislation or resolutions from, or involved in cases or proceedings before the State as well as such clients brought to the firm by the public official.

In Albany, this is a controversial measure as a number of legislators – who will now be required – effective July 1, 2012 and upon potential penalty of $40,000 for failing to do so – to disclose the names of “outside clients and customers” – are attorneys who do not wish to disclose the identities of their clients. As one would expect, backlash from legal members of the Assembly was immediate and vociferous.

Increased Access to Who is Appearing Before the State and Why: The Act establishes a new database of any individual or firm that appears in a representative capacity before any state governmental entity.

Additional Disclosures for Registered Lobbyists: The bill expands lobbying disclosure requirements, including the disclosure by lobbyists of any "reportable business relationships" of more than $1,000 with public officials. It also expands the definition of lobbying to include advocacy to affect the "introduction" of legislation or resolutions, a change that will help to ensure that all relevant lobbying activities are regulated by the new Joint Commission.

A New Joint Commission on Public Ethics: This is potentially the most significant development of the newly proposed legislation. The new Joint Commission on Public Ethics will replace the existing Commission on Public Integrity with jurisdiction over all elected state officials and their employees, both executive and legislative, as well as lobbyists. Among other restrictions, no individual will be eligible to serve on the Joint Commission who has within the last three years been a registered lobbyist, a statewide office holder, a legislator, a state commissioner or a political party chairman. Commissioners will be prohibited from making campaign contributions to candidates for elected executive or legislative offices during their tenure.

The Joint Commission will have jurisdiction to investigate potential violations of law by legislators and legislative employees and, if violations are found, issue findings to the Legislative Ethics Commission, which will have jurisdiction to impose penalties. Significantly, if the joint commission reports such a violation to the Legislative Ethics Commission (with full findings of fact and conclusions of law), that report must be made public along with the Legislative Ethics Commission’s disposition of the matter within strict timeframes. The Joint Commission will have jurisdiction to impose penalties on executive employees and lobbyists. Any potential violations of federal or state criminal laws will be referred to the appropriate prosecutor for further action.

This provision has proven controversial almost immediately. In order to initiate an investigation, the new Joint Commission will require that two appointees of the same party in a given branch assent. This means, as many have already pointed out, that in theory the commission could vote 11-3 to take action without anything being done. Similarly, the New York Times noted that “commissioners appointed by the Assembly speaker, Sheldon Silver, a Democrat, could effectively block investigations of any Democrat in the Legislature, while commissioners appointed by the Senate majority leader, Dean G. Skelos, a Republican, would have similar power over investigations of any Republican.”

Overall, however, it appears that most public interest groups believe that the newly proposed Joint Commission will strike the right balance between unbiased investigation and the prevention of politically motivated “witch hunts” against the party out of power.

Forfeiture of Pensions for Public Officials Convicted of a Felony: Certain public officials who commit crimes related to their public offices may have their pensions reduced or forfeited in a new civil forfeiture proceeding brought by the Attorney General or the prosecutor who handled the conviction of the official.

Clarifying Independent Expenditures For Elections: The Act requires the state board of elections to issue new regulations clarifying disclosure of Independent Expenditures.

Increased Penalties for Violations: The Act substantially increases penalties for violations of the filing requirements and contribution limits in the Election Law, and provides for a special enforcement proceeding in the Supreme Court. The bill also increases penalties for violations of certain provisions of the state’s code of Ethics that prohibits conflicts of interest.

Without a doubt, this legislation represents sweeping change that must be carefully studied, and compliance prepared for, by all doing business in New York.

Now, if only we could get the Governor to introduce a “Clean Up Washington Act”.
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Posted on April 5, 2011 by Stefan Passantino

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.
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Posted on March 21, 2011 by Stefan Passantino

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!
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Posted on February 14, 2011 by Stefan Passantino

SEC Pay-to-Play Rule Factor in Republican GOP Presidential Primary Fundraising Battle

Much has been written and said about the SEC’s new pay-to-play rules, which will go into effect on March 14.

Recent commentary has generally focused on the lack of certainty to the business community on how these rules will be applied, as well as the administrative difficulties that will likely arise as the rule first goes into effect. RealClearPolitics has an interesting new take on the regulations, which focuses on how this could impact the 2012 Republican Presidential Primary.

More on that later. As a reminder, the SEC’s new rule has three key elements:

1) It prohibits investment advisors from providing advisory services for compensation—either directly or through a pooled investment vehicle—for two years, if the advisor or certain of its executives or employees have made prohibited political contributions to an elected official in a position to influence the selection of the advisor;

2) It prohibits advisory firms and certain executives and employees from soliciting or coordinating campaign contributions from others (a practice referred to as “bundling”) for any elected official in a position to influence the selection of the adviser. It also prohibits solicitation and coordination of payments to political parties in the state or locality where the adviser is seeking business; and

3) It prohibits investment advisors from paying third parties, such as placement agents, from soliciting a government client on behalf of the investment adviser, unless that third party is an SEC-registered investment advisor or broker/dealer subject to similar pay to play restriction.
Importantly, for the purposes of campaign fundraising, it doesn't matter whether a state official directly oversees a fund or can appoint someone who does. In either situation, investment advisers interested in obtaining contracts for those funds cannot donate more than $150 to their campaigns in a cycle. The limit goes up to $350 if the investment adviser lives in the state of the elected official.

National political reporter for RealClearPolitics, Erin McPike, writes in "SEC 'Pay to Play' Rule Could Inhibit Barbour, Daniels" that:

Daniels has a direct role on a board that oversees some public funds in the Hoosier State, and Barbour appointed his chief of staff to sit on a board that oversees the public retirement fund in Mississippi, meaning both potential presidential contenders’ campaign accounts could take a hit from the new rules.

In the presidential race, they appear to be the only two politicians in the still-forming field who could be affected by the rule. President Obama is not affected, and the rest of the GOP field is populated by former officials and a senator, none of whom have to worry about the rules.

It remains to be seen how deeply the rules will shape the money chase in the impending GOP presidential primary. A number of sources say that while the giving trends of investment advisers have tended to favor Democrats, there's a growing interest in the industry for two potential Republican candidates: [Mitt] Romney, who isn't affected by the rules, and Daniels, who is.

Interestingly, the SEC’s rules are also impacting other races nationwide. McPike further explains:

Of course, the rules affect candidates down the ballot and across the country, so Barbour and Daniels are not alone. Take Indiana, for example. Indiana Treasurer Richard Mourdock plans to challenge Republican Sen. Dick Lugar in a primary, so Mourdock's role on the same board on which Daniels sits that oversees a state fund impairs the treasurer's ability to raise money from this part of the financial services industry. If Republican Rep. Mike Pence runs for governor, he'll face the same complication given the governor's role on the board and the fact that candidates for affected offices are included.

In neighboring Ohio, Treasurer Josh Mandel has the authority to appoint an investment designee to the Ohio Public Employees Retirement System Board of Trustees. Mandel, a Republican, is a potential opponent for Democratic Sen. Sherrod Brown, and investment advisers would be subject to penalty if they donated substantial contributions to him for the Senate race.

Chalk this up as another unintended consequence of pay-to-play regulations. While it is still unclear just how much these restrictions will limit an impacted candidate’s fundraising prowess, what is clear is the need for comprehensive compliance programs in order to proactively address these challenges prior to March 14.
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Posted on February 7, 2011 by Stefan Passantino

New Jersey and Pennsylvania Highlight Different Approaches to Pay-to-Play Enforcement

The only consistent element one can discern from state and local pay-to-play enforcement is that municipal approaches to enforcement vary widely. Local legislation and enforcement is driven far more by politics and past scandal than a desire to afford the regulated community with consistent national application. Recently, this blog engaged in something of a back and forth with the public interest group CityEthics.org over realistic approaches to pay-to-play enforcement. Trenton, New Jersey’s City Hall and Pennsylvania’s House of Representatives now offer the most recent embodiment of these tensions.

Pennsylvania’s scandals of choice in recent years have involved allegations that the State contracting employees -- from the Governor on down -- have been all too cozy with political allies and former employees in the awarding of no-bid contracts; political allegations that date back several years. It should not be surprising, therefore, that the Pennsylvania House State Government Committee recently passed proposed legislation by a unanimous vote that focuses on the conduct and relationships of state procurement evaluators rather than on the conduct of those seeking state contracts.

House Bill 107, if passed and signed into law, would prohibit any state employee from evaluating a state contract proposal if that employee “has been employed by an offeror within the last two years”. Pennsylvania’s House Republican Caucus left no doubt that this legislation is being proposed as a political response to past scandal:

“This legislation is a direct answer to eight years of allegations concerning back-door, pay-to-play politics from Pennsylvania taxpayers and job creators who have legitimately questioned the integrity regarding the slew of multi-million dollar, no-bid state contracts entered into by the Rendell administration,” said (Rep. George) Dunbar (R-Westmoreland). House Bill 107 will prevent anyone from coming to work for state government and rewarding their former boss with a multi-million dollar contract paid for by you, the taxpayer—strictly on the basis of political favoritism,” said Dunbar. “Put simply, this legislation will bring a long overdue end to this blatant, unethical conflict of interest where back-room, pay-to-play politics generates countless overpriced and uncompetitive state contracts.”

Placing additional compliance responsibility on those awarding state contracts, as opposed to those seeking such contracts and all of their various and sundry potential “agents” is a refreshing and atypical approach to enforcement.

Meanwhile, across the Delaware River, Trenton New Jersey’s Law Director found himself in the uncomfortable, and procedurally murky, position of having his enforcement of the city’s strict pay-to-play ordinance reversed by the city’s mayor after significant “input” from the affected party. Last week, Trenton’s Law Director Marc McKithen concluded that a well-connected state law firm should lose its contract with the City because it had made a political contribution within a year of bidding on a city contract. Under the city’s strict ordinance, that single violation, if not undone, theoretically served as grounds to rescind the contract. Within a single day, however, several heated phone calls by the law firm to the Mayor’s office appears to have demonstrated the difficulties of no-tolerance pay-to-play restrictions as the Mayor’s office effectively countermanded the finding.

Whether the Mayor had the authority to undo such a determination by the city’s Law Director, and whether application of such unforgiving laws is good public policy, remains to be seen. What is clear is that the tension between reporting and debarment has given rise to another interesting anecdote in the world of pay-to-play.
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Posted on January 14, 2011 by Stefan Passantino

Lay of the Land 2011

As this blog has sought to highlight, pay-to-play laws at the state and municipal levels are in a constant state of transition as political forces seek to respond to public sentiment surrounding the uneasy connections between money, politics and government contracting. If anything, the national patchwork of pay-to-play regulation has become less coherent or uniform over the past several years. This is a trend which does not look to abate in 2011 and which places a premium on corporate compliance personnel who understand the various trends in the law.

Absent dedicated in-house personnel, it is virtually impossible for entities that sell their goods and services on a national scale to remain attuned to the constant evolution of these laws at the local level. It is also virtually impossible for entities found to have violated a local law to engender much sympathy from those charged with its enforcement by pointing out regulatory inconsistencies across the national spectrum or the relevant insignificance of the regulator’s jurisdiction to overall sales. Trust me, we’ve seen folks try it and it doesn’t go over well.

With this in mind, we thought it might be helpful to categorize a few representative jurisdictions to highlight some recent trends. This listing is not comprehensive but rather is designed to be illustrative. Moreover, these laws are always in a state of flux so be sure to check your local jurisdiction for recent updates before relying on what you read on the internet:

Jurisdictions that Impose Significant Restrictions on Contracting with a Potential Penalty of Debarment. The most aggressive jurisdictions ban entities from engaging in government contracting when they, or their agents (however defined), have made political contributions. Those doing business in such jurisdictions need to be especially watchful of their compliance systems and internal data gathering. The stakes are simply too high. With more and more jurisdictions employing online contribution databases, one can easily see how such laws will present a new realm of a “gotcha” bid protest for disgruntled losing bidders. We haven’t seen much of this tactic yet, but one can easily see how step one after being notified that one has lost a competitive bid will be to go online and see if the winner’s board, executives, spouses, family members or domestic partners have inadvertently made a contribution to a relevant government procurement officer’s campaign.

Examples of laws falling in this category include: California, Hawaii, Ohio, New Jersey, Virginia and West Virginia.

Jurisdictions that Mandate Disclosure of Pay-to-Play Contributions. Many jurisdictions do not prohibit entities from procuring government contracts if they, or their agents, have made political contributions. These jurisdictions simply require disclosure of those contributions with the relevant government agency. While such laws certainly lessen the stakes (and cases of “night sweats” so common with in-house compliance personnel), they do not obviate the often unpleasant task of reaching out to your Chairman’s spouse every quarter to inquire about contributions the spouse might have made.

Examples of laws falling in this category include: Connecticut, Illinois, New Mexico, Pennsylvania, and Rhode Island.

Jurisdictions that have limited Pay-to-Play Restrictions to Specific Municipal or Contracting Subsets. Examples of such jurisdictions include Indiana, in which contractors with the State Lottery Commission, and the contractor’s directors, officers and political action committees, are prohibited from making contributions to candidates for state, state legislative or local office, and to a candidate’s committee, a regular party committee or a state legislative caucus committee, while the contract is in effect and during the three years following expiration or termination of the contract.

Likewise, in Louisiana, persons entering into contracts, subcontracts or transactions to provide goods or services related to hurricane rebuilding efforts, which are not publicly or competitively bid, are prohibited from making a contribution to an elected official if such contract or transaction is under the jurisdiction or supervision of the elected official’s agency. In New York, while no expansive regulations have been enacted to date, the State Comptroller has issued an Executive Order which sets forth robust “pay-to-play” regulations relating to entities who do business, or seek to do business, with the New York State Common Retirement Fund.

Jurisdictions that are Designing, but have not yet Implemented, Pay-to-Play Laws. Candidly, this category captures just about every other jurisdiction. It is simply too easy for a legislator, county commissioner, city council or school board to adopt such laws - or talk about adopting such laws - when one of their own has been caught with her hands in the cookie jar.

Examples of laws falling in this category include: Colorado, Georgia, Michigan, North Carolina, Texas and Wisconsin.
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Posted on December 22, 2010 by Stefan Passantino

Alabama Gets Serious about Ethics and Lobbying Reform

One isn't giving away state secrets to note that Alabama has historically been regarded as the political Wild West when it came to campaign finance, lobbying and ethics reform. Recent high profile criminal indictments and guilty pleas involving legislators and lobbyists alike have certainly helped solidify that reputation. Now, with a press announcement giving nod to Alabama's -- shall we say -- checkered penal past, Alabama Governor Bob Riley can claim triumph in transitioning Alabama from having "some of the weakest ethics and public corruption laws in the country to some of the strongest."

Earlier this month, pursuant to powers afforded by the Constitution of Alabama, the governor called the Alabama Legislature into Extraordinary Session to provide him with comprehensive Political Law reform. On December 16th, the Legislature adjourned having provided Governor Riley with the legislation he was seeking. In a photo op on December 20, surrounded by Boy Scouts whose stern little faces showed how serious their Governor is about corruption reform, Governor Riley signed seven separate pieces of legislation including provisions "to ban PAC-to-PAC transfers, put the first-ever limits on what lobbyists and those who hire lobbyists can spend on public officials, grant the Alabama Ethics Commission subpoena power, ban pass-through pork spending and double dipping  by legislators, end taxpayer funding of political activity for special interest groups, and require lobbyists who lobby the executive branch to register and file disclosures."

The last of these reforms, requiring lobbyists who lobby the executive branch in search of awards and state contracts to register and file disclosures, certainly makes sense and promotes transparency. It also, as many sister states have come to learn, comes with unintended consequences and uncertainty. For example, under Alabama law, "Lobbying" is now defined  to include "the practice of promoting, opposing, or in any manner influencing or attempting to influence the enactment, promulgation, modification, or deletion or regulations before any regulatory body." The scope of these new regulations will need to be considered carefully and, unfortunately, tends to require some degree of "regulatory definition by enforcement" over time.

Additionally, the provision pertaining to the end of "taxpayer funding of political activity for special interest groups" -- press speak for forbidding unions and public agencies from using payroll deductions to fund political activity -- was a special Christmas gift from a Republican Governor and a newly Republican State Legislature to the state's teachers unions that did not go unnoticed by them. As reported by the Gadsden Times, the Alabama Education Association has termed the legislation as "draconian" and has vowed to fight the measure.

Overall, despite some loose ends and wrinkles that will have to shake out over time, one must tip their hat to Governor Riley and the State of Alabama for implementing some reforms that were long overdue.
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Posted on November 24, 2010 by Amol Naik

"Pay-to-Play" Restrictions Debated in Newark: Unfair Advantage for Popular Mayor?

Critics of "pay-to-play" restrictions have long come from throughout the political spectrum, raising concerns ranging from free speech to ballot access. But the recent "pay-to-play" proposals in Newark, NJ have been criticized by some public officials for a rather novel reason: they can't pick up the phone and call Oprah for a contribution like their popular Mayor, Corey Booker, can.

While the proposed legislation in Newark is in its infancy and is likely to change, it appears to be aimed at limiting contributions from local redevelopment companies. Specifically, the Star Ledger reports that the legislation's current language, "would bar contributions to city candidates from redevelopers, their subcontractors and their consultants starting the moment there is interest in an area for redevelopment."

This concept is not a novel one, particularly in New Jersey, which has arguably the toughest "pay-to-play" laws in the country. In fact, numerous localities in New Jersey have similar laws on the books. And as we detailed previously, Governor Chris Christie has proposed a wave of robust reforms that would further regulate the political law environment in the Garden State.

What is unique here, however, are claims such as the ones contained in the Star Ledger article:

As "pay-to-play" legislation limiting campaign donations from local redevelopers wends its way through City Hall, some city leaders are saying the proposed fundraising restrictions would create an unfair playing field for candidates who don’t have Oprah Winfrey on speed dial.

"I am not a rock star councilwoman," said at large council member Mildred Crump this week. "We have a rock star mayor."

Indeed, candidates without nationwide networks would be more directly impacted by the current Newark "pay-to-play" proposals than a national figure like Mayor Booker. Yet another reason for some to dislike this sort of piecemeal "pay-to-play" regulation. Nonetheless, reports on the ground indicate that passage of some form of this legislation is likely.

In any case, New Jersey continues to be a focal point for developments in the "pay-to-play" arena. We will monitor such developments closely as the end of 2010 nears.

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Posted on November 9, 2010 by Stefan Passantino

"Handbook on Corporate Political Activity: Emerging Corporate Governance Issues"

Pay-to-play law blog author Stefan Passantino, has recently co-authored the "Handbook on Corporate Political Activity: Emerging Corporate Governance Issues," published by The Conference Board. As a co-author, Mr. Passantino draws on some of the experiences commented upon in this blog and offers an overview of the legal rules and standard practices related to political activity, as well as a discussion of internal oversight of political spending. Like the blog, the Handbook focuses on the challenges confronting corporations and other groups looking to comply with the myriad of inconsistent and ever-changing regulations affecting the Political Law space and offers some compliance best-practices from some of the largest corporations in the country. Also, like this blog, IT'S FREE!

Click here for a preview of the Handbook.

The "Handbook on Corporate Political Activity" addresses:

  • The legal framework for understanding political giving, including an overview of federal/state pay-to-play laws
  • How corporations can monitor the political engagement and policy positions of the trade associations to which they belong 
  • Standards of director conduct that can potentially be applied to political activity 
  • The rewards of a robust political engagement program, and the risks if such programs aren't managed well 
  • Examples of companies that have successfully managed political engagement programs 
  • The importance of embedding political-spending decisions into a corporation's ethical framework

To download a complimentary copy of the "Handbook on Corporate Political Activity" by The Corporate Board, go to http://bit.ly/aJW1U6.

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Posted on November 1, 2010 by Stefan Passantino

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.

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Posted on October 21, 2010 by Stefan Passantino

Congress "Paves the Way" for Pay-to-Play Regulation of Federal Highway Administration Procurement Practices

My apologies for the headline, but sometimes one must succumb to the siren song of the obvious.

In one of its last acts before its Members left Washington to fight for their jobs, the House passed the “State Ethics Protection Act of 2010” to avoid a growing concern that Federal Highway Administration (FHWA) procurement rules were in direct conflict with the ever-growing roster of state-mandated pay-to-play laws. Lost in the noise of the shuffle out of town is the potential signal that Congress is getting closer to expanded pay-to-play regulation of its own.

Recently, government transportation officials recognized they had a problem. FHWA provides over $40 billion each year to states to offset the costs of various highway projects. As a condition of receiving those funds, state procurement rules must remain consistent with FHWA competitive bidding policies. Unfortunately (or fortunately, depending on your perspective), neither Congress nor FHWA have seen fit to impose procurement restrictions on contractors associated with individuals who contribute money to candidates or parties - which puts FHWA policy in direct conflict with the many states that do. Theoretically, this conflict would preclude pay-to-play states from entitlement to FHWA funds. According to the House Committee on Transportation and Infrastructure summary accompanying the proposed legislation, FHWA has gone so far as to threaten to withhold such funds in light of the conflict.

Not wanting to appear to disincentivize state pay-to-play reform, the House passed the State Ethics Protection Act of 2010 by a simple voice vote - a House procedure reserved for bills considered to be “noncontroversial”. In its entirety, the bill provides:

‘‘(h) PAY TO PLAY REFORM.—A State transportation department shall not be considered to have violated a requirement of this section solely because the State in which that State transportation department is located, or a local government within that State, has in effect a law or an order that limits the amount of money an individual or entity that is doing business with a State or local agency with respect to a Federal-aid highway project may contribute to a political party, campaign, or elected official.’’

The lack of fanfare and procedural efficiency attached to this legislation belies its potential significance. With this legislation, Congress has moved a large step towards imposition of federal pay-to-play legislation in the government procurement arena.
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Posted on September 17, 2010 by Amol Naik

NJ Governor Christie Proposes Sweeping Ethics Reform Package; Robust New "Pay-to-Play" Provisions On the Horizon

New Jersey Governor Chris Christie recently announced an ambitious proposal to overhaul New Jersey's ethics regulations which takes aim at perceived campaign finance loopholes and conflicts of interest, while also significantly increasing disclosure requirements for legislators. Importantly, the proposals by Christie, who campaigned vigorously on ethics reform, also contain several new "pay-to-play" regulations.

Specifically, an announcement from the Governor's office announced three proposals which would directly address New Jersey's current "pay-to-play" regime.

First, Christie has stated that he will "impose a uniform set of contract award standards on all levels of government and all branches of state government" by ending the “fair and open contract” exception for businesses that make reportable campaign contributions at the legislative, county and municipal levels, but are currently still able to receive contract awards valued greater than $17,500 with local governments. As Christie correctly notes, this practice is not currently permitted at the state/gubernatorial level.

Christie also aims to restrict what is commonly known as “wheeling” by "imposing contribution limitations on county and municipal committees for committee-to-committee contributions and committee contributions to out-of-county or out-of municipality candidates." If enacted, this proposal would have a significant impact primarily at the local level, where contributions are routinely "wheeled" between committees, making the original source of campaign contributions unclear.

Finally, and most controversially, Christie proposes to limit political contributions from labor unions which have contracts with the state. As you will recall, Christie previously signed an executive order setting forth such regulations, only to have the Executive Order overturned by a state appeals court, which stated that legislation was necessary in order to enact such restrictions. Given that Christie is a Republican taking aim at perhaps the largest source of campaign contributions to Democrats, it is certain that this proposal will be met with significant opposition in the Democratic controlled legislature.

While the specifics of the proposals are sure to change in substance throughout the legislative process, it appears as if at least some new "pay-to-play" provisions are on the horizon in the garden state. As we have indicated previously here with respect to pay-to-play regulation, structure and statewide uniformity are sorely needed within the Garden State. We will continue to monitor what is sure to be a dynamic situation in New Jersey.

 
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Posted on August 23, 2010 by Stefan Passantino

Alaska Gets in on the Act (but Potential Constitutional Pitfalls Loom Large)

On Tuesday, Alaska voters will take to the polls to consider a ballot initiative designed to deter the appearance of corruption by prohibiting the holders of public works construction projects from making contributions to state candidates. The initiative, to promulgate the “Alaska Anti-Corruption Act”, further seeks to ensure public funds are not used to finance campaign advocacy and has already been identified (correctly, if my humble legal opinion has any relevance) by the Alaska Attorney General as being of dubious constitutionality.

With respect to pay-to-play issues, Alaska voters will be asked to approve legislation that bans political contributions by government contractors and members of their “immediate families” for the duration of their contracts and for two years thereafter. The proposed penalties for violation of this law would be both criminal in nature and contractual debarment of the contractor. For those of you who would like to try your hand at law enforcement, take heart: the proposed legislation authorizes initiation of an action for enforcement of a violation in Alaska Superior Court by “any entity or group, or any member of the public”. The nice thing is, if you wrongly commence an action against that crotchety old lady up the street who never waves when you drive by for violating the Alaska Anti-Corruption Act, the proposed law thoughtfully provides that “[a]ny person, government, group or entity that initiates an action pursuant to the subsection shall be immune from any claim or legal action for doing so”.

As we have discussed with respect to other states where the proposed legislation presents a potential compliance nightmare for state contractors regarding contributions by “immediate family” members of the contractor. Not only is a contractor banned from making a political contribution upon criminal penalty and threat of loss of his contracts, but so too are her “spouse, child, spouse’s child, son-daughter-in-law, parent, sibling, grandparent, grandchild, step-brother-sister, step-parent, parent-in-law, brother-in-law, sister-in-law, aunt, uncle, niece, nephew, guardian, and domestic partner”. Is your insufferable brother-in-law always bragging at family barbeques about how much money he makes as a state contractor? Make a $50 contribution to his state procurement official. That’ll shut him up.

I don’t often link to YouTube but these are humorous spots highlighting the implications of the proposed initiative as posted by an Alaska union-based ballot committee called “Stop the Gag Law”: Spot 1 and Spot 2.

Alaska’s Attorney General appears to grasp the legal tensions here. In a December 18, 2007 analysis of the proposed initiative, Senior Assistant Attorney General Michael A. Barnhill observed,

“the bans proposed here (particularly with regard to the bans on campaign spending by persons holding small public contracts) are quite broad and may not pass muster. We are particularly concerned about the prohibitions on campaign expenditures (defined in AS 15.13), which the courts have been extremely careful to protect.”

Ultimately, the constitutional issues implicated by the initiative, and the significant opposition raised to it within the state, are unlikely to deter passage on Tuesday. As is true in the “Lower 48” and Hawaii, legislation promising to deter corruption through increased criminal mandates is generally simply too seductive for voters to shun in the current climate. Pesky issues pertaining to Constitutional freedoms and enforcement quagmires will likely have to wait for another day.
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Posted on August 17, 2010 by Amol Naik

New Ethics Code in Broward County Indicative of Increased Legislation at the Local Level

As if keeping up with Federal and State rules and regulations wasn't challenging enough for corporations and others seeking to do business on a national platform, there has recently been an uptick in the implementation and enforcement of ethics and "pay-to-play" regulations at the municipal and county level.

The latest such local jurisdiction to implement its own ethics legislation is Broward County, Florida. As the Sun-Sentinel reports, a new Ethics Code will go into effect this Friday. What makes the situation in Broward County unique is that after the County Commission unanimously approved a relatively tough new ethics policy, legislation was passed the same day which will likely put the reforms before the voters via a referendum in November. If passed, the referendum will significantly alter the implementation of what will be the law on Friday.

As is all the rage these days, the new legislation outlaws all gifts from lobbyists and County Commissioners and their families are barred from serving as paid lobbyists before the county and city boards. Commissioners are barred from accepting anything in their "official capacity" in a value in excess of $50.00.

So, in sum, Broward County now has new Ethics Legislation on the books, going into effect this week. But it is possible that the reforms will be completely gutted in November. And, as the reporting by the Sun-Sentinel indicates, there seems to be signficant confusion as to how the law will be applied even between now and November. Indeed, as can bee seen from the transcript of the last meeting of the Broward County Ethics Commission, tempers have been getting a bit frayed over the subject of ethics.

All of this means one thing for the regulated community: little certainty with high risks. We will continue to monitor the developments in Broward County (for our own amusement if nothing else) as well as throughout the country in an effort to help our readers manage the increasingly difficult playing field.
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Posted on July 21, 2010 by Stefan Passantino

Second Circuit Upholds Connecticut Pay-to-Play Law

In a much anticipated opinion (attached), 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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Posted on July 20, 2010 by Amol Naik

Investigations in North Carolina Prompt Overwhelming Support for Ethics Reform; "Pay to Play" Provisions Excluded at Eleventh Hour

Reacting to investigations that have followed the administration of former Governor Mike Easley, the North Carolina legislature recently passed a sweeping package of ethics reform. The text of the bill, which was passed in the waning hours of the General Assembly, can be found here.

Specifically, the new legislation strengthens fines for illegal campaign contributions, which were reportedly not uncommon in the Tarheel state due to weak penalties.  Additionally, the legislation subjects board and commission members, as well as state employees, to more robust disclosure requirements. As is typical in the area of ethics reform, all areas have been subjects of contention in recent North Carolina ethics investigations.

Notably, the legislation did not include "pay to play" provisions, which were advocated for by some in North Carolina. Rather, the legislation establishes a commission to study whether pay-to-play legislation is needed in North Carolina, as well as the scope of any such provisions.

Given the political climate in North Carolina at this juncture, and the likelihood that investigations will continue in the ethics realm, it is likely that the North Carolina legislature will readdress the issue in 2011. Of course, we at the pay-to-play law blog will continue to monitor the developments on the ground in Raleigh.

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Posted on July 16, 2010 by Stefan Passantino

New Jersey Continues to Examine and Refine its Pay-to-Play Laws

Several efforts are underway at the state and local levels to re-examine New Jersey’s stringent pay-to-play laws. This is probably a good development. Without question, New Jersey’s pay-to-play laws, put into effect in 2006, are considered by most in the regulated community to be among the most intrusive and confusing in the country. That is not a good combination for those doing business in the state or the lawyers seeking to advise them. Fortunately, it appears that the New Jersey Election Law Enforcement Commission (ELEC) agrees with that assessment and has announced its intention to support revisions to the law.

In its July newsletter, ELEC’s Commission Chair Jerry Fitzgerald English announced ELEC’s plans “to prioritize proposals for legislative reforms that are designed to improve the regulation of campaign financing, lobbying, and pay-to-play.” While recognizing that legal challenges pending nationally will have an influence on New Jersey’s actions, ELEC proposes significant changes to the State’s pay-to-play law.

ELEC’s first proposal, which almost makes too much sense to originate from government, is to revise the state’s pay-to-play laws to ensure that a single law applies at both the State and municipal level. Currently, local municipalities are free to pass a quilt-like patchwork of ordinances; all most none of which bear any relationship to the others. As ELEC points out, in addition to state law, over 50 local ordinances and executive orders also control local contracting and contribution rules. Such a regulatory scheme not only makes compliance exceedingly difficult for major vendors, but fosters costly and discouraging legal challenges with the passage of each new ordinance (this reaction to the Borough of Dumont’s new pay-to-play ordinance being only the most recent example).

Of the various changes proposed, probably the most significant is ELEC’s proposal is to remove the authority of county and municipal governments to circumvent state procurement laws by publicly advertising bids (referred to as the State’s “Fair and Open” provision). These changes, in addition to the ubiquitous calls for increased “transparency” through lower filing thresholds combined with a sensible call for increased contribution limits to provide defense against inevitable First Amendment challenge, appear to indicate that New Jersey is on the road toward common sense reforms.

Consider this blog among those supporting ELEC’s proposals.

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Posted on June 13, 2010 by Stefan Passantino

Ohio County Files Suit to Strike Down Pay to Play Statute Statewide

In early June 2010, Greene County, Ohio filed suit against the Ohio Secretary of State in an effort to ensure that Ohio’s pay to play statue can not be enforced anywhere in the state. The Statute in question, referred to as “HB 694”, purported to ban the award of public contracts to those who had contributed $1,000 or more to those with the power to award the contract.

In April of 2009, the Tenth Appellate District of the Ohio Court of Appeals issued an order finding Ohio’s pay to play law to be invalid due to the procedure used to enact it. Because that opinion was never appealed to the Ohio Supreme Court, the enforceability of HB 694 remained in question in every appellate district of Ohio other than the Tenth. It is this uncertainty which has led to the filing of this most recent lawsuit by the Greene County Board of County Commissioners.

While unlikely to reach the constitutional merits of HB 694, this most recent litigation can be added to a growing list of jurisdictions that have seen their legislative efforts to impose restrictions on contributions fail on the courthouse steps.

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Posted on June 10, 2010 by Stefan Passantino

Chicago - It Was All About Pay to Play All Along

It just wouldn’t be right to have a pay to play blog and not post a comment about recent developments in the grand daddy of all pay to play trials: United States v. Blagojevich. According to recent AP reports, the Governor’s former top aid testified today that it was concern over Illinois’ recent pay to play legislation that compelled Governor Blagojevich to make a deal to sell President Obama’s Senate seat. As we reported here, Governor Blagojevich had vetoed Illinois legislation banning state contractors from making campaign contributions to the politicians who controlled those contracts and had an interest in ensuring that the Illinois State Senate did not override his veto.

According to the testimony of Alonzo Monk yesterday, Governor Blagojevich was so sufficiently concerned about the impact the new legislation would have on his fundraising efforts that he reached a deal with former state Senate President Emil Jones to let the veto stand in exchange for his agreement to appoint a state legislator to the US Senate seat. Ultimately, as we know, the deal fell apart when then President Obama urged Jones to action on the veto and US Attorney Fitzgerald revealed that he had been listening in on Blagojevich’s dealings.

And they said pay to play law was boring!

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Posted on April 20, 2010 by Stefan Passantino

Proposed Pay-to-Play Laws in the Wake of Citizens United v. FEC: Congress and States get in on the Act

As we have previously analyzed on the blog, the recent U.S. Supreme Court decision in Citizens United v. FEC has sparked both election law commentary over the limits of government efforts to restrict political speech as well as a much celebrated one-way fight between branches of government at the State of the Union Address. Now, the third branch of government is about to get in on the act as Senator Charles Schumer (D-N.Y.) and Congressman Chris Van Hollen (D-Md.) are set to unveil “responsive” federal legislation containing federal pay-to-play prohibitions with the apparent support of at least one Republican, Rep. Mike Castle (R-Del.). This legislation was recently released and is called the "DISCLOSE ACT". Please click here to view the summary.

The Citizens United opinion expressly recognized the First Amendment rights of corporations and labor unions to participate in the political process through the funding of independent communications expressly advocating the election or defeat of clearly identified candidates. Couched as it was in Constitutional principles, there are limits to what Congress can do to overturn the opinion. The Senate and House Democratic leadership appears to have concluded that if the prohibition of such speech is unconstitutional, the preferred response will be to require disclosure of corporate and union independent expenditures to the FEC and to shareholders and further to require corporate CEOs to appear on expenditures with the same “stand by your ad” messages we have learned to love in campaign advertising. The bill will also seek to impose additional limitations on the abilities of foreign individuals and companies to influence political speech by U.S. corporations.

Of significance for corporations doing business with the federal government, it is expected that the Schumer/Van Hollen legislation will contain significant federal pay-to-play limitations. Under draft versions of the legislation currently circulating on Capitol Hill, Schumer/Van Hollen is expected to entirely bar federal government contractors from using corporate funds to finance independent expenditures advocating the election or defeat of a federal candidate. Such contractors are already barred by federal law from making campaign contributions (11 CFR 115.2) but the proposed legislation is expected to seek in addition to preclude such contractors from financing independent speech about federal candidates. Whether such a prohibition could withstand constitutional scrutiny is, at best, an open question.

Another class of citizens expected to have their right to finance independent expressions of support or opposition of federal candidates muzzled under the proposed Schumer/Van Hollen legislation are all recipients of federal TARP (bailout) funds. Again, the constitutionality of such a prohibition remains open to debate, but considering the degree to which Members of Congress on both sides of the aisle have been scoring political points by demonizing TARP recipients, one can certainly understand why Congress would try.
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Posted on April 19, 2010 by Amol Naik

Pay-to-Play Laws Stifling Campaign Contributions in New Jersey

A new report issued by the New Jersey Election Law Enforcement Commission (ELEC) is being cited as evidence that New Jersey's pay-to-play laws, which are undoubtedly amongst the most robust in the nation, are reducing the amount of money entering New Jersey politics.

Specifically, ELEC's analysis of contributions to candidates participating in the upcoming May 11 municipal elections in New Jersey indicate that total contributions are down 19% from fundraising totals at the same point four years ago. While current economic conditions would undoubtedly seem to have had some impact on these figures, a close examination of all campaign contributions in New Jersey indicates that pay-to-play laws are playing a significant factor in the reduced fundraising totals.

For example, ELEC is reporting that gross receipts for New Jersey state political parties, and House and Senate Leadership PACs, are down 36% from 2006 levels. Similarly, ELEC states that county party committees have reported 28% reductions in gross receipts over the same period.

Though municipal pay-to-play limits in New Jersey are generally very stringent by national standards, municipal candidates generally have more flexibility to accept contributions from municipal contractors than New Jersey state candidates do from state contractors. As the ELEC's Executive Director states, this flexibility may be a significant factor as to why the reductions in municipal contributions are less dramatic than those that are being seen statewide.

In any case, pay-to-play laws are clearly having an impact on the political playing field in New Jersey. Click here for more insight on this trend.

We at the pay-to-play law blog will continue to monitor such developments nationwide.
 
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Posted on March 3, 2010 by Pay-to-Play Blogger

Colorado Supreme Court Finds Pay-to-Play Law Unconstitutional

The below Colorado update was written and circulated today by Government Contracts attorneys C. Richard Pennington and Tyson Bareis out of McKenna Long & Aldridge LLP’s Colorado office.

The Colorado Supreme Court recently struck down a law that prohibited holders of sole-source state and local government contracts from making contributions to elected officials in Colorado. As we previously reported, this case is the latest episode in the continuing tension between a public that is increasingly skeptical of government contractors’ campaign contributions and the First Amendment rights, including the right to participate in the political process, that are afforded to all individuals and organizations. While the Colorado Supreme Court’s decision should rightfully be viewed as a victory for contractors and the First Amendment, the decision will not be the end of this tension or such laws.

 

In November 2008, Colorado voters narrowly passed Colorado’s Pay-to-Play law, which took the form of Amendment 54 to the Colorado Constitution. Citing a "presumption of impropriety between contributions to any campaign and sole source government contracts, "Amendment 54 prohibits holders of sole source state and local contracts from contributing to any political party or any candidate for elected office in the state. The law defines a sole source contract as “any government contract that does not use a public and competitive bidding process soliciting at least three bids prior to awarding the contract.”

The Colorado Supreme Court held that the Pay-to-Play law was unconstitutional in its entirety because, among other things, the law was not drafted narrowly enough to achieve its goal of eliminating the appearance of impropriety in the award of sole source contracts without significantly limiting constitutionally protected activity. The Court also noted that the cross-jurisdictional nature of the Amendment meant that fundraising in local governments would be limited by a donating entity’s contractual relationships with other, unrelated jurisdictions, like state government.

For contractors doing business in Colorado, the state’s Supreme Court decision means that they are no longer subject to the Pay-to-Play law’s prohibitions on political contributions. Importantly, however, the decision does not eliminate the possibility that Colorado may seek to enact laws similar to the “Pay-to-Play” law that was found to be unconstitutional. Instead, the Court’s decision implied that similar laws, even if they specifically target contractors, may be constitutional as long as the laws are drafted narrowly enough to address the laws’ stated concerns without significantly limiting constitutionally protected speech.

While it is impossible to predict future legislation, in light of the current anti-contractor sentiment and the political gains that can be had by proposing sweeping legislation to eliminate perceived “corruption,” contractors in Colorado and elsewhere should not expect the Colorado Supreme Court’s decision to prevent attempts to enact similar “Pay-to-Play” laws. MLA will continue to follow efforts to enact such laws, and contractors may wish to involve themselves in responding to such proposed laws by educating lawmakers and the public as to the ineffective and counterproductive nature of such laws.
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Posted on March 3, 2010 by Stefan Passantino

BREAKING NEWS: Indiana Ethics Bill Passes Without Pay-to-Play Language

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

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Posted on March 2, 2010 by Stefan Passantino

Pay-to-Play Still Up In the Air for Indiana

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

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

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

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

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Posted on February 25, 2010 by Amol Naik

Major Ethics Reform Passes New Mexico House, But Dies on Senate Floor; Changes May Come During Special Session

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

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

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

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

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

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

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Posted on February 19, 2010 by Allix Magaziner

The SEC Considers Exemptions for Pay-to-Play Proposal on Registered Broker-Dealers

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

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

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

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Posted on February 16, 2010 by Stefan Passantino

The Perils of Watered Down Reform

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

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

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

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

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

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

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Posted on February 12, 2010 by Pay-to-Play Blogger

California Proposes Registration of Placement Agents as Lobbyists in Order to Regulate Pay to Play

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

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

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

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

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

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Posted on January 25, 2010 by Stefan Passantino

What Does Citizens United v. FEC Really Mean?

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

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

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

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

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

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

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

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Posted on January 22, 2010 by Amol Naik

Governor Christie Issues Pay-to-Play Executive Order

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

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

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Posted on January 19, 2010 by Stefan Passantino

Pay-to-Play Winds Blowing in New Jersey

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

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

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

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

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Posted on January 6, 2010 by Pay-to-Play Blogger

Governor Paterson Announces Sweeping Ethics and Campaign Finance Reform Legislation

New York Governor David A. Paterson has announced extensive ethics and campaign finance reform legislation, the "Reform Albany Act", which will be a focus of his second State of the State address.

The proposed legislation calls for the creation of a single, independent State Government Ethics Commission with advisory and enforcement powers regarding campaign finance, ethics and lobbying; and which would replace the New York State Commission on Public Integrity. It also provides for increased oversight and enhanced reporting by state officers of outside business activities, and enhanced reporting requirements for lobbyists. And, it would replace the State Comptroller as sole trustee of the New York State Common Retirement Fund (one of the largest pension funds in the U.S.) with a 5-member Board of Trustees.

The legislation also includes sweeping campaign finance reform: drastically reducing maximum contribution limits, limiting contributions to housekeeping accounts, and banning corporate contributions; as well as providing for a new system for the public financing of campaigns. The Governor has also proposed term limits for members of the Legislature and statewide officials (which would require a State Constitutional amendment).

The sweeping ethics reform initiative follows the recent trial and conviction former Senate Majority Leader Joseph L. Bruno on corruption charges, which exposed weaknesses in State ethics laws; as well as Attorney General Andrew Cuomo's investigation of Pay to Play activity involving the administration of the Common Retirement Fund under the former State Comptroller.

While several of the concepts in the legislation have been the subject of prior proposals, the reform package faces an uphill battle in the State Legislature. The State Senate and State Assembly are developing their own ethics initiatives. And, the estimated 30 million dollar price tag for public financing of campaigns comes at a time of financial crisis in the State, with the budget deficit in 2010 estimated at between 7 and 9 billion dollars.

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Posted on December 17, 2009 by Pay-to-Play Blogger

Broad, Bipartisan Ethics Legislation Being Considered in Missouri

With the opening of legislative sessions nationwide, 2010 is sure to be one of the busiest years ever for pay-to-play legislation. As the Kansas City Star reports, numerous pieces of ethics reform legislation have already been filed in advance of Missouri's 2010 legislative session, which begins on January 6.

According to published reports, the most notable legislation is a bipartisan proposal aimed at overhauling Missouri's campaign finance system. Among other things, the legislation proposes to stop the common practice in Missouri of transferring funds between campaign committees, which can obscure the original donor of such funds. Additionally, the legislation would institute a mandatory online filing system for Missouri filing entities, and would require registration of some political consultants as "de facto lobbyists."

Notably, such legislation also has significant pay-to-play ramifications. Specifically, the new Missouri legislation would codify a prohibition on exchanging campaign contributions for legislative action. The Pay-to-Play blog will monitor this legislation as it goes through the legislative process, as well as similar legislation that is sure to be at issue nationwide in 2010.

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Posted on December 4, 2009 by Pay-to-Play Blogger

Michigan Adds a New Wrinkle

A bill has recently been introduced in the Michigan State Senate to curtail a new element of “pay to play” politics. Michigan State Senator Cameron Brown (R-Fawn River Township, MI), has introduced a bill to prohibit candidates from paying others to endorse their candidacy. Like virtually all new restrictive pieces of pay to play legislation (especially those of dubious constitutionality), this legislation arises from recent significant media attention paid in Detroit to an alleged practice by city council candidates to pay unions, community organizations and other organizations to endorse their candidacy.

Senate Bill 984, which has been referred to the Michigan Senate Committee on Campaign and Election Oversight, provides that “A person shall not make a contribution to another person with the agreement or arrangement that the person receiving the contribution will then endorse a particular candidate”. The bill contemplates that violation of this new prohibition shall be a criminal misdemeanor.

Senator Brown is quoted as saying that he introduced this criminal prohibition because the practice of paying others to endorse one’s candidacy “raises questions of political corruption and pay to play. The support of respected community organizations should not be up for sale to the highest bidder.”

While this is surely true, one has to wonder whether criminal prohibitions on speech serve as the best means available to accomplish this worthy objective. One would assume that mere disclosure of such payments, similar to those now required of federal lobbyists through Form LD-203, combined with the desire of respected community organizations not to be revealed as up for sale, would serve to squelch such “corruption” as surely as the proposed legislation.

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Posted on November 10, 2009 by Pay-to-Play Blogger

Pay-to-Play Reform Enacted in Wake of Corruption Conviction

Trends regarding the enactment of pay-to-play legislation remain remarkably consistent and robust nationwide. Typically, pay-to-play legislation is passed in the wake of a corruption scandal that befalls a high-ranking public official. In such an instance, the political pressure on governing bodies is so tremendous to act, that pay-to-play reform is inevitable.

This trend has just played itself out once again in Dallas, where the Dallas City Council just yesterday passed a series of Ethics reform measures in the wake of the corruption conviction of former Mayor Pro Tem Don Hill. The entirety of the legislation, which exceeds some 1300 pages, can be found here.

The ethics package contains numerous changes to existing lobbyist registration and disclosure requirements, City Council zoning powers and the disclosure of gifts to Council members. Most relevant to the pay-to-play space is that anyone bidding on a city contract is now prohibited from making donations during the bid period. Additionally, "major" zoning applicants can no longer make contributions to Council members during the window which begins on the date of public notice of the zoning case, and which ends 60 days after the zoning case is resolved. Such changes are not too surprising in this instance, given that the scandal involving Hill revolved around favorable treatment for developers.

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Posted on November 2, 2009 by Pay-to-Play Blogger

Common Cause Georgia Proposes Pay to Play Ordinance for the City of Atlanta

We at the Pay to Play Law Blog have received the following from Georgia Common Cause concerning their proposal for a Pay to Play ordinance for the City of Atlanta. We appreciate the submission and attach it herein in its entirety and unedited. The positions taken here are entirely those of Georgia Common Cause.

While we salute Mayor Franklin for her leadership in establishing a more ethical climate in City government, one of the things we see as little changed from past administrations is well-connected insiders continuing to show up in disproportionate numbers of the chosen few who are selected for work contracted by the City of Atlanta, and by the Atlanta airport.

While we can’t – and don’t want to try to - change human nature, we do believe in taking steps to increase trust that those whom we elect and employ to administer our procurement policies will not allow personal preferences to steer contracts to less qualified companies, and that our tax dollars will not be wasted. One reform we can implement, if we want to raise the level of confidence in how our tax money is spent, is to separate the offering up of campaign contributions from the awarding of contracts. That is what Pay-to-play reform is all about.

Pay-to-play has been at the heart of numerous news stories around the country within the past year: Alaska Senator Ted Stevens, Illinois Governor, Rod Blagojevich, The withdrawal of New Mexico Gov. Bill Richardson’s Cabinet nomination, and the collapse of the mortgage giants after Congress – which reaped millions from Wall Street in campaign cash – deregulated the industry and ignored repeated warnings of disaster. In August, New Jersey Governor Jon Corzine issued an order freezing the development approval process in cities and towns whose mayors have refused to resign despite being charged in a federal corruption probe involving bribes paid to local officials to speed up development projects.

Atlanta has had its share of scandals around pay-to-play. The Ronnie Thornton airport runway dirt deal dominated the headlines a few years ago. Airport advertiser Billy Corey and his Airport Services company continue to this day their five year court battle over alleged cronyism in the awarding of the 2002 advertising contract to Clear Channel Communications and their DBE partner Barbara Fouch, a close friend of Former Mayor Maynard Jackson, who has had a piece of the airport advertising business since 1981.

Rather than wait for a local scandal to prompt us, why not take steps to discourage practices that can lead to scandals? Let’s work together to find a way to make it work in the City of Atlanta, then make it work elsewhere in the state as well. Let’s start the process.

How does Pay to play reform work?
Common Cause has offered a model ordinance for consideration in the current Atlanta Mayoral and Council races. Our proposal is not structured as a campaign finance law change, but as a new condition of contracting. It’s quite a simple concept. People can either contribute freely to the campaigns of candidates, or they can qualify to receive contract work with the City of Atlanta. They cannot do both. All companies submitting bids and continuing contracting arrangements with the City would be asked to certify that they had not contributed more than a minimal amount to candidates for Mayor of City Council in the previous 12 months. Enforcement would rest with the contracting office. Companies or individuals violating the statute would be disqualified from further business with the City. To see a summary of the proposed reforms for Atlanta, click here. To read the model ordinance, click here.

We believe it’s time to take Atlanta to the next level of ethical government. No more inferences that those who play should pay. Let’s create a system where we are making sure that City contracts go to the best cost-effective service provider, not the best-connected company.

Bill Bozarth
Common Cause Georgia

We are grateful to Georgia Common Cause for their submission, and invite any interested commentary on the topic. Our personal views on Georgia Common Cause’s proposal were originally posted here.

In addition to the concerns addressed in our previous post, the regulated community should take notice - and contemplate the impact - of the proposed amendment to the City of Atlanta Procurement and Contracting Code. To be sure, the specter of campaign contributions to procurement officials from those seeking city contracts can be unseemly; but so can the prospect of a system in which only individuals wealthy enough to self-fund their campaigns have the means to seek elected office. In our view, public disclosure of contributions and transparency far better balance the competing ideals of democracy and procurement fraud prevention than outright contribution bans.

Moreover, the proposed City of Atlanta Procurement and Contracting Code as offered imposes considerably greater restriction than simply offering one a choice between contributing “freely to the campaigns of candidates, or [qualifying] to receive contract work with the City of Atlanta” as advertised by Georgia Common Cause. Rather, the proposal proffered seeks to disqualify any person or entity from obtaining - or keeping - a city contract, if that person or entity has

             made, directly or indirectly, any payment, gift or other contribution to or for the benefit 
             of any holder of elective office of the City of Atlanta or to any employee;

It is easy to contemplate how that language - crafted as broadly and vaguely as it is - could capture a great deal of seemingly innocent behavior with dire consequences. Imagine being the compliance office who has to tell your boss the CEO that her company’s life-blood contract with the City of Atlanta has been terminated for cause, and the company is liable to the City of Atlanta for all damages resulting from the termination, because the aggregate of all the contributions to a City of Atlanta politician by all of the company’s officers, directors, partners and salaried employees of the company exceeded $250, or because a competitor alleged that the company made a single “indirect” gift “for the benefit” of an employee of the City of Atlanta.

One can envision that birthday parties for City of Atlanta employees would be lonely places indeed.

Stefan Passantino, Esq.
Partner, McKenna Long & Aldridge LLP

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Posted on October 28, 2009 by Pay-to-Play Blogger

Missouri Campaign Disclosure: Are Unlimited Contributions with Full Disclosure a Growing Trend?

As media reports of criminal misconduct by legislators hit the airwaves and the public is inundated with tales of various unseemly financial relationships between politicians and their campaign contributors, state legislatures have worked anxiously to show action - any action - by passing “Campaign Transparency” legislation at a fever pitch. While most actors in the regulated community have recognized some virtue to increased disclosure of campaign activities, a companion effort by several states to permit unlimited contributions along with that disclosure remains controversial - it certainly is in Illinois on the last day of the Fall Veto Session. Clearly, the unintended pitfalls inherent to unlimited contributions can manifest easily. Nonetheless, there is a growing trend afoot at the state level (although decidedly not within the Congress or the SEC) to address “pay to play” scandals with transparency rather than limited contributions. One example of this phenomenon can be found in a state earning one disclosure advocacy group’s “Most Improved” award: the State of Missouri.

The Campaign Disclosure Project (CDP) recently ranked Missouri’s campaign disclosure law  among its “top five” in 2008 and gave the state’s disclosure laws an “A-”. In so doing, the CDP pointed out several positive components of the Missouri campaign disclosure law: Candidates must disclose detailed information on contributions and expenditures in excess of $100; a reporting requirement of late contributions and independent expenditures before Election Day; and the requirement of detailed loan disclosures.

On the other hand, Missouri is among the growing number of states to repeal virtually all contribution limits to candidates. This has generated controversy as recent bribery cases, as they always do, have prompted calls to address past criminal behavior with increased “ethics reform” legislation. There is little doubt that some form of ethics reform legislation is on the docket for Missouri’s General Assembly in 2010 but Missouri’s Speaker of the House recently has indicated any ethics reform proposed in 2010 will focus on closing disclosure loopholes in the current law rather than revisiting the rights of individuals, corporations, unions, PACs, or associations to make unlimited contributions to candidates. An article dated October 26th in the Joplin Globe has quoted Speaker Ron Richard as saying “. . . people should be able to give what they want. It should be transparent and direct, to the campaign and not through committees.”

Should Missouri decide to broach ethics reform, and continue with its perfectly acceptable policy decision not to re-impose contribution limits, Missouri’s legislators will probably be well served in the current “pay to play” environment to examine the transparency of their own personal financial disclosures. This is because, while Missouri scores relatively well in campaign disclosure requirements, the Center for Public Integrity (CPI) awarded Missouri’s personal financial disclosure requirements with 70.5 out 100 points and a letter grade of “C”. Missouri’s personal financial disclosure laws were identified as failing to require the disclosure of: the legislator’s job titles; income amount from each employment interest; amount from each investment interest; identifying clients associated with filer’s outside interests; income amount for each client; spouses’ client information; and value amount of each real property interest. Further, the CPI identified the state as not publishing a list of delinquent filers on the Web or in printed document as well not making public a list of lawmakers who failed to file reports by the required deadline, or filed incomplete or inaccurate reports.

The public mood, if such a thing can ever be gleaned, is most distraught by concerns of “too cozy” relationships between legislators and donors in their financial activities outside the public system. Increased disclosure in that regard is likely to be perceived as a true “reform” more necessary than contribution limits.

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Posted on September 29, 2009 by Pay-to-Play Blogger

State Comptroller Bans Pension Fund Pay to Play

On September 23, 2009, New York State Comptroller Thomas P. DiNapoli announced a ban on pay-to-play practices related to the $116.5 billion dollar New York State Common Retirement Fund (the “CRF”). The Comptroller issued an Executive Order and Interim Policy that prohibits the CRF from doing business with any outside Investment Adviser within two years after the Investment Adviser, or any senior officers or executives of the Investment Adviser, has made a contribution to the State Comptroller, or to a candidate for State Comptroller. An “Investment Adviser” is any Investment Adviser required to be registered with the SEC, and those Investment Advisers exempt from registration under section 203 of the Federal Advisers Act.

The Interim Policy does not apply to contributions made by senior officers and executives (specifically defined in the Policy as “Covered Associates”) to the Comptroller or a candidate for Comptroller, provided that the individual was entitled to vote at the time of the contribution, and the aggregate amount of the contribution does not exceed $250 to any one candidate per election.

The Interim Policy goes into effect on November 7, 2009, and will remain in effect until the SEC adopts a final rule pertaining to political contributions.

The New York State Comptroller is a statewide elected official, and is the sole trustee of the CRF, which is the third largest pension plan in the United States. Two different retirement systems receive benefits from the CRF: the Police and Fire Retirement System and the Employees Retirement System, which include both State and local employees. Together, these systems have over one million members, retirees and beneficiaries.

Ban on Placement Agents

The ban on political contributions from Investment Advisers follows the Comptroller’s recent prohibition of the use of “placement agents”.

On April 22, 2009, Comptroller DiNapoli announced a ban on the use of third-party placement agents and other paid intermediaries and lobbyists (herein, “placement agents”) with respect to investments with the CRF. The ban precludes placement agents from accepting any type of fee for providing access to the CRF and its investments.

The ban on placement agents followed an investigation by New York State Attorney General Andrew Cuomo, which in March of 2009 resulted in a 123-count indictment against two aides of former State Comptroller Alan Hevesi, on charges that they brokered deals between the CRF and politically-connected outside investment funds, earning millions of dollars in fees in the process. That case is awaiting trial. Comptroller Hevesi resigned in 2006, and subsequently plead guilty to charges of defrauding the government, which arose out of his use of state employees for personal purposes.

Attorney General Cuomo’s ongoing investigation of public pension fund corruption has involved several private equity and investment firms. Many firms have settled with the Attorney General’s Office in recent months, and while generally not admitting wrong doing, have agreed to: (i) make a significant settlement payment, which will be submitted to the CRF, and (ii) sign a “Public Pension Fund Reform Code of Conduct”, which prohibits the use of placement agents with respect to public pension funds, and bans campaign contributions to officials at public pension funds.

Ban on Placement Agents - New York City

In April and May of 2009, the trustees of the City of New York’s five municipal pension funds each voted to suspend the use of placement agents.

The five pension funds are the City Employees Retirement System (“NYCERS”), which is the largest municipal public employee retirement system in the U.S.; the City Fire Department Pension Fund; the City Police Pension Fund; the New York City Teachers Retirement System and the City Board of Education Retirement System. The funds have combined assets of approximately 80 billion dollars. 

Contributed by Kelly Lamendola, Esq.
Albany, NY
McKenna Long & Aldridge LLP

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Posted on September 28, 2009 by Pay-to-Play Blogger

SEC Bans Third Party Solicitation of Municipal Investors

While most agree the SEC’s proposed new pay-to-play rules are a necessary development, there has been controversy around a proposal that would ban placement agents from representing clients before state and local persons. Unlike the MSRB pay-to-play rules, the SEC would prohibit investment advisers from using any third party intermediary, including placement agents registered as broker-dealers with the SEC, to solicit municipal investors on their behalf. In several comment letters filed with the SEC, participants in the private equity and venture capital industry argue that the SEC’s proposal to ban investment advisers’ use of third-party placement agents is overreaching and will put small and new funds out of business. London-based private equity research firm Preqin said in a comment letter that 85% of public pension funds and other institutions handling public money felt larger managers would be the main beneficiaries of the proposed ban.

Industry leaders such as Blackstone (which has a proprietary placement agent) have been urging the SEC to reconsider its proposed outright ban because they believe that third-party placement agents play a vital role for investment advisers. Blackstone’s Chief Executive Officer, Stephen Schwartzman, said in a comment letter that he agrees with getting rid of political fixers, but taking the “drastic step” of eliminating the function of legitimate placement agents would unfairly burden firms just starting out. For many first-time funds, a placement agent is often utilized to introduce the general partner to potential investors, including large institutional investors such as public pension funds. The ban on using placement agents is seen as harmful to an emerging industry just at the time the agent business is growing; Preqin reported that of the private equity firms that raised funds in 2008, 54 percent used a placement agent, up from 45 percent in 2007 and 40 percent in 2006.

The ban on placement agents has been compared to steroid usage in Major League Baseball. As Schwartzman wrote in his comment letter: “Recently, there have been reports of a few high profile baseball players using illegal steroids to unfairly enhance their performance. Their illegal and unethical behavior has unquestionably challenged professional baseball and yet no one is suggesting banning baseball.” In contrast, others support the ban. For example, one private equity executive said the danger of corruption is a big issue that needs to be regulated. “How do you decide who is legitimate and who isn’t?” the person asked.

As opposed to an outright ban of placement agents, smaller funds are asking the SEC to consider alternative approaches, such as implementing more stringent licensing, oversight and disclosure regulations equally on all participants in the investment process. The California Public Employees’ Retirement System (Calpers), the biggest U.S. public pension fund, said in May it adopted a new policy requiring external managers to disclose fees about placement agents they hire to seek Calpers business.

Given the controversy over this issue, the SEC has a challenging task at hand.

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Posted on September 24, 2009 by Pay-to-Play Blogger

Proposed Pay-to-Play Regulation in Atlanta: Good Government or Overly Restrictive?

Common Cause Georgia has entered the fray of the upcoming Atlanta Mayoral election by challenging all candidates to support "pay-to-play" reform. Under Common Cause's proposed legislation, no person or entity who made a contribution of over $250 to the campaign of a Mayoral or City Council candidate would be eligible to submit a bid or perform a contract for the City of Atlanta for the next year. Further, the proposed legislation would restrict contributions of any amount by a City contractor to a City official or candidate during the term of the contract. The proposal places similar restrictions on gifts to City officials or employees.

While few would argue that the procurement process in Atlanta doesn't need more sunshine, the Common Cause proposal appears to go a few steps to far. Most troublesome is the proposal to prohibit persons who make contributions of over $250 from bidding on any City of Atlanta contracts for the next year, as the prohibition applies even if the contract in question was not in existence at the time of the contribution. Restricting contribution amounts in this manner would undoubtedly chill the making of political contributions for City of Atlanta elections altogether, as any person or entity with any potential interest in any City contract in the future could not make contributions without the fear of being locked out of all future business. This is the sort of broad restriction that has proven to be problematic in jurisdictions such as Colorado. Similarly problematic is the apparent willingness to consider contributions by spouses and children of contributors in making prohibition determinations. Again, Colorado should serve as a cautionary tale here.

In sum, real ethics reform for the City of Atlanta needs to be seriously contemplated. However, the current Common Cause proposal is far too broad in its current state to warrant further consideration.

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