California has recently added a new pay-to-play law to the books, increasing the burden on state and local officials and those doing or seeking to do business in the state. Governor Newsom signed SB 1439 into law on September 29th, substantially increasing the number of California officials subject to pay to play prohibitions and lengthening the period of time during which contributions to those officials are prohibited.
The new California pay-to-play legislation makes two substantive changes to current law, which is already extensive. First, it extends the current law’s “contribution prohibition period” for covered parties, participants and agents to a proceeding from three months following the final decision in a proceeding to twelve months following the final decision. Second, it eliminates an exemption previously applicable to elected officials of local agencies so that they will now be considered covered “officials” for pay-to-play purposes. Thus, when the law goes into effect in January 2023, local elected officials, such as members of school boards, city councils, boards of supervisors, and similar agencies, will be under the purview of the state pay-to-play framework.
California’s current pay-to-play framework prohibits a party, participant or agent to a proceeding involving a license, permit or other entitlement for use pending before any state agency from making a contribution of more than $250 to an officer of the agency in question while the proceeding is pending and for three months thereafter. While the definition of a “proceeding involving a license, permit or other entitlement for use” for the purposes of the pay-to-play rule includes many state contracts, contracts that are competitively bid, labor contracts and personal employment contracts fall outside the definition. The contribution prohibition is also construed broadly, so its bar on giving applies to: parties who file applications or are the subjects of proceedings; participants who actively support or oppose decisions in proceedings, including lobbyists; and agents of both, including majority owners and parents/subsidiaries. The current scope of the term “officer” includes elected or appointed officers of, and candidates for, many state or local government agencies and members of the governing board or commission of any public agency. With the enactment of SB 1439, individuals appointed to such positions with local agencies will also be covered by pay-to-play laws beginning in January 2023.
The passage of SB 1439 follows in the wake of a series of recent corruption scandals involving public officials across the state, including in Los Angeles, Anaheim, and San Francisco. This subtle expansion of the state’s pay-to-play provisions is likely just the first of many shoes likely to drop in the next few years as legislators and regulators across the state explore additional avenues to stamp out the influence of campaign contributions in state and local procurement. In light of this recent change and those yet to come, businesses operating in the Golden State should be careful to vet their participation in California politics to minimize compliance risk and ensure alignment with the state’s rapidly-changing regulatory schemes.