Less Than One Month: NJ ELEC Broadens Annual Pay-to-Play Form & Requires Companies to Disclose Additional Information

Recent changes in the annual filing requirement for companies doing business with local, county or state government in New Jersey may make the process for completing this year’s ELEC Business Entity Annual Statement (“Form BE”) more complicated and time consuming. Although ELEC has yet to issue guidance on these additional requirements, government vendors must still electronically file the disclosure form by the March 30 submission deadline.

In effect since 2006, Form BE requires every company that receives payments of $50,000 or more from New Jersey government entities to disclose those contracts as well as its reportable New Jersey political contributions. All businesses that receive such payments must file regardless of whether the company or certain associated people have made any reportable contributions, but the level of detail required by Form BE depends on whether you have any contributions to report.

There are two new requirements for the 2015 reporting year (due March 30):

  • Fair-and-Open Check Box Requirement: Check a box to indicate whether each contract was awarded pursuant to a “fair-and-open-process”; and
  • Certification Requirement: Certify that the statements and/or information contained in Form BE are true and acknowledge that if any of the statements or information are willfully false that you may be subject to punishment.

Expect completing your 2015 Form BE to be more time consuming than in the past. Here are some obstacles to be on the alert for:

  • Businesses may find it challenging and time consuming to identify whether a contract was awarded pursuant to a “fair-and-open-process” given that your 2015 Form BE may cover long-term contracts that could very well have been awarded years ago.
  • In many cases it will be unclear how vendors should classify Executive Branch contracts awarded pursuant to a competitive process because the phrase “fair-and-open process” is a term of art with respect to county, municipal and legislative contracts.
  • In past years, ELEC asked the person filing Form BE to simply “acknowledge” that he or she was familiar with the information contained in the Form BE. Now, ELEC is asking the person filing Form BE to certify to the accuracy of the statement and to acknowledge that he or she may be subject to punishment for willfully false information.

New Jersey Lobbying Reports Due on February 16, 2016

A business that engages in New Jersey lobbying must electronically file an annual report with the New Jersey Election Law Enforcement Commission. Although the filing is normally due on February 15, this year’s deadline is moved to February 16 because of Presidents’ Day.

Any business that expended at least $2,500 on New Jersey lobbying during the 2015 calendar year is required to file the annual lobbying disclosure—but the specific form to be used depends on the particular facts and circumstances of the company’s lobbying efforts.

Short-Form Disclosure (Form L-2) – A business that is represented by only one lobbyist may file a short-form disclosure that merely designates the lobbyist to file the annual report on behalf of the business. The lobbyist’s report would then cover all relevant information about the lobbying efforts of the business.

Compliance Tip: If you are relying upon an outside lobbyist to file on your behalf be sure to communicate that expectation to your outside lobbying firm.

Full Disclosure (Form L1-L) – In contrast, a business that is represented by more than one lobbyist (either in-house or through an outside lobbying firm) must file its own lobbying form. As you prepare this form, you will need the following information for each of your lobbyists or lobbying firms:

  • Lobbyist information;
  • Lobbying purpose;
  • Compensation of lobbyist;
  • Prior government service of lobbyist; and
  • Communications expenses.

Compliance Tip: For an in-house lobbyist who performs functions other than lobbying for your organization, you are not required to report that individual’s total compensation; rather, you should report only the portion of his or her compensation that pertains to lobbying.

Grassroots-Lobbying Disclosure (Form L1-G) – This form is geared specifically toward a business whose only lobbying activity is communicating with the general public, also known as grassroots lobbying. The information required to be disclosed on this form is focused on the relevant expenditures and communications of the business.

Compliance Tip: A communication with the general public for the purposes of this form does not include communications by a business to its members, partners, individuals, or stockholders. Similarly, communications required to be made by law are not communications with the general public in this context.  

Consent to Service of Process (Form L-3) – An out-of-state business that engages in New Jersey lobbying must consent to service of process within the State of New Jersey by filing this form.

Compliance Tip: This form is required for any company that is not authorized to do business in New Jersey and for any individual who is not a resident of New Jersey.

In addition, lobbying firms must file their own specific forms to report their lobbying activity from the applicable calendar year.

If your business has not yet determined its lobbying-disclosure obligations, there is still time to do so before the February 16, 20 deadline.

Pay-to-Play Resolutions

As we approach the end of the first work week of 2016, companies should be thinking about their “pay-to-play resolutions” in the upcoming year. New Jersey is home to numerous and varied pay-to-play restrictions. One misstep can have severe consequences. New Jersey’s pay-to-play restrictions may make your head spin, but any company that does business (or wants to do business) with the New Jersey government needs to make compliance with these laws part of its 2016 business plan.

Although many companies think that they have their political activity compliance program under control, companies often ignore these key facts:

  1. The laws change;
  2. Similar laws are often interpreted differently; and
  3. Those covered by pay-to-play restrictions within your organization may change from year to year as people join your team, leave your team or change positions within your company.

As 2012 came to a close, we discussed 2013 Pay-to-Play Resolutions. Given, however, that we are now in a Presidential election year and New Jersey’s gubernatorial election is not far behind, it is important to address pay-to-play resolutions once again. As we enter this busy political season with many hotly contested issues (and races), thinking that individuals within your company are going to sit on the sidelines is not realistic. If you are a government contractor (or hope to be one in the future), now is the perfect time to make the adoption of a meaningful political activity compliance program a key part of your list of New Year’s resolutions.

 

Public-Private Partnerships and Pay-to-Play in New Jersey: “P3s and P2P in the Garden State”

Public-Private Partnerships (commonly known as “P3s”) are very popular across the country, including the recently announced renovations at LaGuardia Airport as one example. P3s are also gaining significant attention here in New Jersey. Although P3s have thus far been focused on educational settings in New Jersey, there is potential for this funding method to be used for a wide variety of projects ranging from infrastructure to transportation.

P3s are often touted as a solution for economic growth and development because a private entity steps in to fill a funding gap that is not being filled by the government. Because, however, P3s require a private entity to “partner” with the government, private entities that are interested in participating in P3s need to be mindful of New Jersey’s pay-to-play restrictions, which limit a business entity’s eligibility for government contracts or agreements based on political contributions. For example, if a private entity wants to enter into a public-partnership with the State of New Jersey, the private entity needs to make sure that the entity and certain associated individuals (such as the entity’s officers and owners) have not made “reportable” contributions (a contribution greater than $300) to a New Jersey gubernatorial candidate, political party committee or legislative leadership committee within certain periods of time that may range from 18 months to 5 ½ years. If a private entity wants to partner with the government at the local level, the entity will need to certify compliance with local pay-to-play restrictions, which may contain an absolute ban on contributions (in any amount) and may also cover contributions to PACs that provide support to local candidates and party committees.

Although pay-to-play compliance is often the last piece of the “P3” puzzle, it cannot be overlooked. If a private entity cannot certify compliance with New Jerseys pay-to-play restrictions, this failure may result in significant delays or may even render the private entity ineligible for the project. As businesses explore new opportunities to work with the government, they will have to keep in mind that their political contributions may affect eligibility for P3s and other contracting opportunities.

Explaining Jon Stewart’s Monologue on Campaign Finance

After more than 16 years at the helm of The Daily Show, Jon Stewart hosted his final episode last night. The hour-long show devoted most of its running time to Stewart saying farewell to the correspondents and staffers who have played a part in the show’s history. But Stewart found time to deliver a short monologue on how truth is often obscured in business, policy, and politics. (Because this is a family-friendly Corporate Political Activity Law Blog, we won’t mention the term Stewart repeated throughout the monologue.) One strategy, Stewart explains, is hiding the truth through complexity:

Hey, a handful of billionaires can’t buy our elections, right? Of course not. They can only pour unlimited, anonymous cash into a 501(c)(4) if 50% is devoted to issue education, otherwise they’d have to 501(c)(6) it, or funnel it openly through a non-campaign coordinated Super PAC.

Here’s a quick overview of the campaign-finance concepts that Stewart referenced, which also doubles as a handy primer on the different ways money is raised and spent on political activity.

  • For federal elections, the making of political contributions to a candidate or a political party is subject to both contribution limits and disclosure requirements. The FEC has jurisdiction over these issues.
  • Tax-exempt organizations are not subject to the FEC’s jurisdiction. Instead, the IRS ensures that 501(c) organizations do not engage in prohibited political activity. A 501(c)(3) organization, for example, may not engage in any political activity but may engage in limited lobbying expenditures. In contrast, a 501(c)(4) or a 501(c)(6) may carry on partisan political activity so long as political activity is a secondary—and not the primary—activity of the organization. The IRS has expressed an apparent tolerance of political activity by 501(c)(4)s and 501(c)(6)s, so long as the political activity is less than 50% of the organization’s total activity. A 501(c)(4) or a 501(c)(6) may also engage in unlimited lobbying expenditures. There are no limits on the money that may be donated to 501(c) organizations and the donations are not subject to disclosure.
  • As we’ve discussed here on the blog, a Super PAC is a political organization that may only make independent expenditures, which means that they are not coordinated with candidates. A Super PAC may raise unlimited funds but it is required to disclose its contributors.

Stewart is right. The world of campaign finance can be complicated. Although he will no longer be around to explain the complexities of campaign-finance law, we will!

What is a Super PAC?

The Wall Street Journal’s Washington Wire has reported that in the first half of 2015, presidential Super PACs have raised a total of $211,457,755. This money is in addition to money raised directly by presidential candidate committees and does not include money raised by 501(c)(4) entities that might be involved in the political process.

Since Citizens United was decided in 2010, Super PACs have been a hot topic. Despite all of the press and discussion, it seems that confusion still surrounds Super PACs. So, we decided to go back to the basics:

  • A Super PAC is an independent-expenditure-only committee, which means that it can only spend its money on expenditures that are not coordinated with candidates.
  • A Super PAC may not make contributions to candidate committees.
  • A Super PAC may raise unlimited funds.
  • A Super PAC is required to disclose its donors.
  • A Super PAC may be registered with the IRS, the FEC or a state election commission (depending on the nature of the Super PAC’s focus and activities).
  • A Super PAC may be required to file reports with more than one government entity (depending on the nature and timing of its activities).

 

Political Law Roundup – July 13, 2015

This is the first post in a new series on the blog, providing a quick recap of recent political-law news and developments.

  • What role will non-profits have on the 2016 presidential election? According to a report in the New York Times, 501(c)(4) political activity is expected to be an important factor in the upcoming race.
  • In Wagner v. FEC, the DC Circuit Court upheld the prohibition on political contributions by federal contractors. You can see our full analysis of this important case here.
  • Challenges in defining coordination and enforcing restrictions means that Super PACs will continue to play an important role in federal elections, including the 2016 presidential race.
  • The New York City Campaign Finance Board is holding a hearing on Monday, July 13, 2015 to solicit comments on proposed amendments to Board rules on public-funds eligibility and disclosure-statement documentation. More information is available here.
  • The Brennan Center for Justice, the New York City Campaign Finance Board, and the Committee for Economic Development will be hosting a conference titled American Elections at the Crossroads, on Wednesday, July 22. Ann Ravel, chair of the FEC, will deliver remarks.

Comments due for JCOPE Proposed Guidance on Consultants and Grassroots Lobbying

In May, the Joint Commission on Public Ethics (JCOPE) issued proposed guidance on consultants and grassroots lobbying and is currently seeking informal comments on the proposal by July 10, 2015.

The proposed guidance would broaden the definition of lobbyist to include individuals who have “direct interaction” with public officials in connection with lobbying or lobbying activities.  Direct interaction would include verbal or written communications, including communications made for the purpose of facilitating access to a public official, and attendance at a meeting or presence on a phone call with a public official.  In other words, if a consultant facilitates a meeting with a public official or attends a meeting with a public official (and meets the threshold requirements) the consultant would be subject to registration and reporting with JCOPE.

The proposed guidance would also broaden the definition of “grassroots” lobbying, which is commonly understood as using media, including newspaper and television ads, to encourage the public to engage in lobbying.  Not all states require registration or reporting for grassroots lobbying – New York does. The proposed guidance would clarify that individuals or entities that “control” the content and delivery of a message that encourages grassroots lobbying is engaged in lobbying.  As per the proposed guidance the definition of “control” includes participation in the formation of the communication or some influence over reviewing or editing the communication.

DC Circuit Upholds Federal Contractor Pay-to-Play Ban

Today, the DC Circuit issued its decision in Wagner v. FEC and upheld the 75 year-old pay-to-play prohibition applicable to federal contractors.

The Federal Election Campaign Act prohibits federal contractors from making contributions to party committees and candidates for federal office.  As we previously described here, three federal contractors had challenged the provision.

In addressing the correct scrutiny to apply, the court found that the “closely drawn” standard remained the appropriate standard for review of a ban on campaign contributions, notwithstanding Citizens United as that case involved independent expenditures rather than contributions.  Because this was a restriction on government contractors, the court noted that Congress had greater latitude to restrict the expression of both employees and government contractors than it did with the general public.

As such, the government’s stated interests in: 1) protecting against quid pro quo corruption and; 2) protecting merit-based administration of government contracts were compelling.  Delving into the 75 year-old history of the provision, the court found that “more recent evidence confirms that human nature has not changed since corrupt quid pro quos and other attacks on merit-based administration first spurred the development of the present legislative scheme,” citing to corruption scandals in Congress as well as the passage of pay-to-play laws in at least seventeen states, including New Jersey, Illinois, Connecticut and New York City, due to corruption scandals.

The court also found that the ban as applicable to political parties was narrowly tailored because there “is no meaningful separation between the national party committees and the public officials who control them.”

The court made specific reference to independent expenditure-only committees, finding that the challenge at issue did not involve the “law as the [FEC] might seek to apply it to donations to PACs that themselves make only independent expenditures, commonly knowns as ‘Super PACs.’”  Instead, the only issue before the court was the application of the ban by an individual contractor to a federal candidate or political party.

As acknowledged in today’s decisions:

  • Corporate federal contractors remain able to form political actions committees (i.e. separate segregated funds)
  • Officers, employees and shareholders of such contractors remain free to make contributions from personal assets.

Pay-to-Play Implications of Governor Chris Christie’s Presidential Run

After today’s announcement, New Jersey Governor Chris Christie joins a long list of 2016 presidential candidates, from both parties. But Christie’s position as a sitting governor means that he is subject to different campaign-finance rules than some of his opponents.

In particular, under the Securities and Exchange Commission’s pay-to-play rules, investment advisors are subject to reduced contribution limits when making political contributions to a covered candidate or official—including any official who has authority to appoint members to government funds that select investment advisors. Governor Christie, who appoints members to the New Jersey State Investment Council, is covered by the SEC pay-to-play restrictions, even in a campaign for federal office. Similarly, the Municipal Securities Rulemaking Board has its own pay-to-play restriction that covers municipal-securities dealers. Under guidance issued by the MSRB, this rule applies to presidential campaigns of covered State officeholders. Covered municipal-securities professionals may therefore be subject to reduced contribution limits for Governor Christie’s presidential run. These pay-to-play restrictions apply not just to Governor Christie but may also apply to such other 2016 presidential candidates as Bobby Jindal, Scott Walker, and John Kasich—all sitting governors.

For political prognosticators, it is worth considering how a presidential candidate from the northeast, who may expect extensive support from Wall Street, will fare when political contributions from the financial community are potentially governed by SEC, MSRB, and local pay-to-play rules. But it is equally important for the investment advisors and financial professionals themselves to keep these restrictions in mind, to ensure that their political contributions do not jeopardize their firms’ government contracts. Although there may be understandable excitement over a local presidential candidate, it is crucially important for investment advisors in New Jersey, Wall Street, and beyond to understand these pay-to-play restrictions and to abide by their limits.

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