What President Trump’s Executive Order Means for 501(c)(3) Political Activity

Recently, President Trump signed his Executive Order “Promoting Free Speech and Religious Liberty.”  It directs the Secretary of the Treasury to exercise discretion to avoid taking any adverse action against an individual, house of worship, or religious organization that speaks about moral or political issues from a religious perspective, including the revocation of 501(c)(3) status.  According to President Trump, this Executive Order “removes the financial threat faced by tax-exempt churches from the Internal Revenue Service when pastors speak out on behalf of political candidates.”

Under the Internal Revenue Code, 501(c)(3) charitable organizations are prohibited from engaging in partisan political activity.  This means: making political contributions, making statements that endorse or oppose a candidate, and asking candidates to sign pledges on any issue.  However, charitable organizations are allowed to engage in limited non-partisan activity, such as: voter-registration drives, limited lobbying on ballot initiatives, and educating candidates on issues that fall under the purview of the entity.  Also, the officers, directors, and employees of a 501(c)(3) retain the right to personally engage in partisan political activity.

So, does this Executive Order free religious 501(c)(3) charitable organizations to engage in partisan political activity without fear of tax-exempt status revocation?  Perhaps not. While the Executive Order may promote more relaxed enforcement, the restrictions on partisan political activity still exist in statute and legislative action would be required to change the law. In addition, this Executive Order may face legal challenges in court. The Executive Order also raises the question whether churches should be treated differently from non-religious 501(c)(3) entities. Until and unless the statute is changed, 501(c)(3) organizations would do well to refrain from participating in partisan political activity.

For more information on how this Executive Order may effect you, please contact Rebecca Moll Freed, Esq., Chair of the Corporate Political Activity Law Group, at rfreed@genovaburns.com or 973-230-2075.

 

Is the Time Ripe for New Jersey Pay-to-Play Reform?

For more than a decade, New Jersey has had in place a series of pay-to-play laws that impose reduced contribution limits and heightened disclosure requirements for government contractors. The goal of these laws is to ensure fair contracting procedures and to remove favoritism from the procurement process.

But are these laws working as intended when seemingly innocent mistakes leading to relatively small political contributions remove otherwise qualified and competitive bidders from government contracts? News last month that a paving company was disqualified from $7 million in New Jersey Executive Branch contracts because of a $500 political contribution has government contractors throughout the State understandably concerned about their own compliance procedures. The disproportionate effect of a relatively small political contribution has highlighted the need to reform New Jersey’s pay-to-play laws.

And Jeff Brindle, the Executive Director of the New Jersey Election Law Enforcement Commission, agrees. The need for reform is not a new issue, but the dramatic nature of this ineligibility determination may provide the impetus to begin this process in earnest.

In the current legal landscape and a blockbuster New Jersey election year that will see the election of a new governor as well as 120 State legislative races, government contractors need to focus on their pay-to-play compliance. Merely assuming that you are in compliance is simply not good enough, when a contribution of only a few hundred dollars can disqualify your company from millions of dollars of contracts. At this point in the election cycle, even one unintentional contribution can disqualify your company for up to 5 ½ years and, starting in April, refunds will not cure an excessive contribution once we have entered the 60 days preceding the 2017 primary election.

Genova Burns LLC has been at the forefront of pay-to-play compliance since New Jersey’s law was enacted more than a decade ago. If you are unsure of your compliance procedures, Genova Burns LLC can assist you in navigating the current legal landscape as well as any reforms that the future may bring. If you have any questions or would like to discuss your pay-to-play compliance program, please contact Rebecca Moll Freed, Esq. at 973-230-2075 or Avi D. Kelin, Esq. at 973-646-3267.

Deadline for New Jersey’s Annual Pay-to-Play Disclosure is Approaching: Is Your Company Ready to File?

After ELEC sent out its reminder email on March 6, we are reproducing below a Genova Burns LLC client alert that was distributed last week for any potential filers who may require additional information about the annual pay-to-play disclosure.

The New Jersey Election Law Enforcement Commission (“ELEC”) requires each business entity that received payments of $50,000 or more (in the aggregate) as a result of government contracts during the 2016 calendar year to electronically file a Business Entity Annual Statement (“Form BE“) with ELEC no later than Thursday, March 30, 2017.

The obligation to file arises whenever payments from New Jersey government entities reach the $50,000 threshold. This includes contracts with the State of New Jersey Executive and Legislative branches, counties, municipalities, boards of education, fire districts, and independent authorities, regardless of method of award.

Additionally, detailed contract and contribution information must be disclosed whenever the business entity or a covered individual made a “reportable” contribution during 2016. A contribution is “reportable” when it exceeds $300 per reporting period. In light of these requirements, it is necessary to review personal political contributions made by a business entity’s partners, officers, and directors (and certain members of their families). Additionally, because of varying election cycles, it may be necessary to review contributions made over the course of several years to determine whether any 2016 contributions are reportable.

Companies that fail to file on time may be subject to monetary penalties. To ensure a timely and accurate filing, companies that have yet to begin preparing Form BE should not delay.

Genova Burns LLC can help your company comply with the Form BE filing requirements. Contact Rebecca Moll Freed, Esq., Chair of the Corporate Political Activity Law Group, at rfreed@genovaburns.com or 973-230-2075 or Avi D. Kelin, Esq. at akelin@genovaburns.com or 973-646-3267.

Plainfield Repeals Local Pay-to-Play Ordinance

New Jersey is home to a multitude of overlapping pay-to play laws. The State has a default statute covering pay-to-play restrictions at the municipal level. In 2006, however, the State Legislature allowed municipalities to craft their own pay-to-play ordinances further restricting certain political contributions from vendors. Although these local ordinances are supposed to be “consistent with the themes” of New Jersey’s statewide pay-to-play restrictions, variations exist among the local ordinance in effect in more than 100 municipalities across the State.

As of last week, the number of municipalities with local pay-to-play ordinances in effect dropped by one when, in a 4-3 vote, the Plainfield Municipal Council voted to repeal its 2011 pay-to-play ordinance. Until recently, Plainfield had a stringent pay-to-play ordinance in effect. Under the old ordinance, covered contributors were subject to reduced contribution limits for municipal candidates and political party committees, as well as for county political party committees and PACs that regularly engage in the support of Plainfield municipal or Union county elections. Additionally, all contributions were prohibited once negotiations for a contract began. Without the ordinance, the State’s default pay-to-play laws will be in force in Plainfield. This means, if the City of Plainfield awards contracts pursuant to a “fair and open” process, vendors may contribute up to $2,600 per election to a candidate for Plainfield municipal office. If, however, the City of Plainfield does not use a “fair and open” process, vendors must adhere to the reduced pay-to-play limit of $300 per election to a candidate for or holder of Plainfield municipal office and $300 per calendar year to a Plainfield municipal party committee.

Proponents of the repeal argue that this will bring more transparency to the political process by encouraging direct contributions to candidates and party committees instead of PACs (a sentiment that echoes ELEC’s recent calls to revisit the State’s pay-to-play laws). The repeal of this ordinance is part of a trend of New Jersey counties and municipalities that have revised or rescinded local ordinances in an effort to simplify the government-contracting process. Will other municipalities follow Plainfield’s lead?

When it Comes to Pay-to-Play, Not All Political Recipients are Created Equal

If any New Jersey State contractor or potential State contractor out there ever thought that it didn’t need to put political-activity and pay-to-play compliance at the top of its “To Do” list, we have a cautionary tale for you.

Earlier this week, after losing out on the opportunity to perform two separate NJDOT contracts worth just over $7 million, the Superior Court, Appellate Division in Mercer County held that a paving company would remain ineligible for New Jersey state government contracts through the end of Governor Chris Christie’s current term of office because the company made a $500 contribution to a county party committee. Under New Jersey’s pay-to-play laws, contributions that exceed $300 per calendar year to a county political party committee will disqualify the contributor for contracts with the State of New Jersey Executive Branch. In this case, the devil is in the details – the company wrote its check payable to the “Somerset County Republican Org to Elect Provenzano,” referencing a candidate for County Sheriff. The contribution was made in connection with an event sponsored by the Somerset County Republican Organization, which provided attendees with the option of making their checks payable to different recipients. Unfortunately for the paving company, the payee name on its check was ambiguous and was eventually deposited by the Somerset County Republican Organization. If the company check had been more clear, or had been deposited by the County Sheriff candidate (or had been made payable to the County Freeholder candidates that were also listed on the invitation), the paving company would not have been declared ineligible for contracts with the State of New Jersey. The company only realized the implications of the contribution after the close of the 30-day refund period, and thus finds itself sitting on the sidelines for the remainder of Governor Christie’s current term of office.

This case reaffirms that although both contributors and recipients sometimes make mistakes, New Jersey’s Executive Branch pay-to-play restrictions provide no room for “inadvertent” contributions except during the limited 30-day refund period. In this case, the President of the company “signed the check as a matter of office routine since he signs virtually all company checks every month.” There is nothing routine when it comes to New Jersey pay-to-play restrictions. What is the moral of the story?  If you hold a State contract with the New Jersey Executive Branch and are thinking of making a political contribution, be informed about the State’s stringent pay-to-play laws and implement careful compliance and oversight policies for political contributions. Make it crystal clear who the recipient of your contribution is.  Don’t let lax compliance and an inadvertent $500 contribution cost you $7 million in contracts.

Calling all New Jersey Government Contractors: What is your Plan for Political Activity Compliance in Anticipation of the 2017 Gubernatorial Election?

With only 19 days until the presidential election and the final debate being held tonight, most of the country is focused on national politics. Although the presidential election may be taking center stage, now is the time for companies to focus on their New Jersey political-activity compliance.

We are currently within the 18-month period before the inauguration of New Jersey’s next governor, which means that a contribution made today may impact your company’s eligibility for contracts with the State of New Jersey for years to come. If your company or even one covered individual (including officers, shareholders, equity partners or their spouses, civil-union partners and resident children) contributes more than $300 to a gubernatorial candidate or certain other political recipients, your company could be declared ineligible for contracts with the State of New Jersey through January of 2022!

Focusing on political-activity compliance is important for all companies, but it is especially important if your company has recently gone through a merger, conducted a re-organization, hired new officers or partners, promoted individuals within your company to new roles or simply needs a refresher. If you have no policy is place, it is not too late to adopt one before New Jersey’s gubernatorial election kicks into full swing and you find yourselves ineligible to compete for government-contracting opportunities.

Pay-to-Play for New Jersey Public-Sector Labor Unions?

New Jersey’s pay-to-play laws are perhaps the most stringent in the country, with a web of overlapping laws, executive orders, and ordinances covering procurement contracts and redevelopment agreements with all levels of government. As the law stands now, labor union collective-bargaining agreements are not covered by any of these pay-to-play restrictions. (Governor Christie issued an Executive Order in 2010 that would have expanded existing pay-to-play restrictions to cover labor unions, but this Executive Order was struck down because it didn’t advance any then-existing legislative act or constitutional mandate.)

But there have been renewed calls in recent days to enact Senate Bill 341, which would limit the political contributions of those labor unions that enter into collective negotiations agreements with the State of New Jersey, or with New Jersey counties and municipalities.  Unlike current statewide Executive Branch pay-to-play restrictions, the proposed legislation provides for monetary penalties for violations. This legislation raises the possibility of a future amendment of New Jersey’s current statewide Executive Branch pay-to-play restrictions to provide for monetary penalties in the traditional procurement context as well. If passed, these new union pay-to-play restrictions would represent a profound transformation in New Jersey’s pay-to-play regime and for New Jersey politics as a whole.

2016 Presidential Conventions: What Congress Members and Attendees Need to Know

With the 2016 presidential conventions underway and as the November presidential election draws near, this post is part of a series on what different entities and groups need to know about their political activity as the 2016 election approaches. This post examines congressional gift rules that may be implicated during the conventions.

Congressional gift rules permit Members and staff who are convention delegates to attend convention events that are open to all convention delegates or to all delegates from their state or region.

Generally, Members of the House of Representatives and their staff may accept any gift paid for by the host cities (in this case, Cleveland, Ohio and Philadelphia, Pennsylvania). Additionally, a Member or staff person may accept a non-cash gift valued at less than $50 from any individual who is not a registered federal lobbyist, registered foreign agent, or an entity that employs or retains such individuals.

Impermissible, however, is Member or staff acceptance of a gift, provided by the host city, that was specifically or informally designated by a donor for distribution to Members or staff. The following non-exhaustive list of gifts may not be given to or received by Members of the House of Representatives or their staff:

  • Meals;
  • Entertainment;
  • Transportation;
  • Services; and
  • Anything of monetary value except as provided in the rule.

Staff and Members who are convention delegates may accept invitations to events and other gifts that are offered to all of the convention delegates or to, for example, all of the convention delegates from their state.

Additional general exceptions to the normal prohibition rules may also be relevant during the convention, including the widely-attended-event exception. This exception allows event sponsors to invite Staff and Members to attend an event that is attended by at least twenty-five individuals from outside Congress who are interested in a given issue and which is related to the official duties or representative function of elected officials.

As the 2016 conventions will be attended by many people subject to the congressional gift rules, it is important to keep these restrictions in mind as convention events are held.

Babatunde Odubekun, a summer associate at Genova Burns, assisted in the preparation of this post.

2016 Presidential Conventions: What Delegates and Attendees Need to Know

With the 2016 presidential conventions underway and as the November presidential election draws near, this post is part of a series on what different entities and groups need to know about their political activity as the 2016 election approaches. This post examines the rules governing contributions made to convention delegates under federal law.

Permissible Contributions to Delegates

Events and gifts paid for by the host cities (in this case, Cleveland, Ohio and Philadelphia, Pennsylvania) may be accepted by delegates. It is also permissible for a delegate to accept any gift paid for by any unit of federal, state, or local government. Delegates are also permitted to accept meals, lodging, entertainment, and transportation from a political organization in connection with a campaign or fundraising event that the organization is sponsoring.

Classification of Funds Raised and Spent for Delegate Activity

Funds raised and spent for the purpose of furthering delegate selection are considered contributions and expenditures made for the purpose of influencing a federal election. There are no limitations on the monetary amount of contributions from permissible sources to delegates for the purpose of furthering their own selection as delegates. Once selected, travel and subsistence expenses related to the delegate selection process and the national nominating convention are considered expenditures. Additional considerations may arise when a federal candidate or officeholder attends the convention as a delegate.

Who is Prohibited from Contributing to a Delegate?

Individual delegates may not accept contributions from sources prohibited from making contributions in connection with federal elections. These sources include:

  • Corporations (including banks, trade associations, and non-profit corporations);
  • Labor organizations;
  • Foreign nationals or businesses (except lawful permanent residents); and
  • Federal government contractors, such as partnerships and sole proprietors with federal contracts.

With the Republican National Convention underway and the Democratic National Convention is only a few days away, it is not too late for delegates and their potential supporters to be aware of the rules.

Babatunde Odubekun, a summer associate at Genova Burns, assisted in the preparation of this post.

New York State Issues Guidance on Prohibited Coordination with Super PACs

After Citizens United and its progeny paved the way for independent expenditure activity and unlimited contributions to Independent Expenditure Only committees (better known as Super PACs), one key question in campaign-finance law has become how to determine whether Super PACs are coordinating their activities with candidates, party committees, and their agents.

Although the FEC has issued guidance on what constitutes prohibited coordination under federal law, many states have yet to offer their own interpretation of the types of coordination that would be prohibited for Super PACs active in state or local elections. It is under this backdrop that the State of New York has defined for the first time what types of activities will give rise to a finding of prohibited coordination.

These factors include (but are not limited to):

  • Whether a candidate formed an entity that later makes expenditures benefitting the candidate;
  • Whether a candidate raised funds on behalf of an entity that later makes expenditures benefitting the candidate;
  • Whether an entity making expenditures benefitting a candidate is operated by former staffers or immediate family members of the candidate;
  • Whether a communication reproduces material prepared by a candidate’s campaign, such as b-roll footage;
  • Whether an entity making expenditures benefitting a candidate engages in strategic discussions with the candidate’s campaign regarding the campaign’s strategy;
  • Whether an entity making expenditures benefitting a candidate shares vendors or space with the candidate’s campaign; and
  • Whether a donor to a candidate also provides a material portion of total funding to an entity making expenditures benefitting the candidate.

As Citizens United develops from a new phenomenon to established law, it is likely that additional individual states will offer their own guidance on the definition of coordination. The state of New York is one of the first to establish factors for regulators to consider. New Jersey, through several bills currently under consideration in the Assembly, may be attempting to do the same. These types of definitions and the role that Super PACs may play will be felt in the 2016 presidential election, New Jersey’s 2017 gubernatorial election, and beyond.

Allison Benz, a summer associate at Genova Burns, assisted in the preparation of this post.

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