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:
- The laws change;
- Similar laws are often interpreted differently; and
- 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 (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.
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!
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).
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.
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.
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.
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.
No – this is not a bad joke (although it could have the makings of one) – rather, because this past weekend marked the “official” start to summer and also marked the start of New Jersey’s 2015 general election cycle, we thought we would use this opportunity to discuss one of the most common mistakes in political-contribution compliance.
Although the 2015 primary election was held on June 2nd, the cut-off for receiving primary-election contributions was June 19th. So, contributors that maxed out with respect to the 2015 primary are now starting with a clean slate with respect to the 2015 general. Or are they?
We know that most contributors would rather be spending their summer days at the Jersey Shore than worrying about political-contribution compliance, but contributors can do both if before writing a check in connection with what the contributor believes is the 2015 general election, the contributor checks to make sure:
- Any contributions made prior to the June 19th primary election deadline were in fact received and reported in connection with the 2015 primary.
- Compliance tip – contributors often use the date on the check as the date of the contribution and committees often use the date of deposit.
- No local ordinance is in place with “election cycle” limits that impose a combined limit on the 2015 primary and general election cycles.
- Compliance tip – the Bergen County Ordinance is one example of this type of ordinance.
- The candidate was successful in the 2015 primary and will be seeking election in the 2015 general.
- Compliance tip – this is especially important with joint candidate committees.
Although election cycles seem straightforward, understanding when a new election cycle begins is often a source of confusion for contributors. This confusion can lead to mistakes, which may result in excessive contributions and violations of applicable pay-to-play limits.
So, if you want to maximize your time in the summer sun without the headaches associated with making contributions in violation of applicable limits, consider communicating your intent to the recipient committee by using cover letters and by writing “2015 General” on the memo line of your check. While we cannot guarantee that these simple steps will eliminate all confusion, they may very well help if you learn that the contribution you thought was made in connection with one election was in fact deposited and reported in connection with another!
The United States Court of Appeals for the Ninth Circuit recently upheld a number of Hawaii’s contribution and disclosure requirements, thus cementing the legacy of Citizens United’s defense of transparency in campaign contributions and further strengthening the legality of outright bans on campaign contributions by government contractors.
The decision, citing to Citizens United, determined that Hawaii’s reporting and disclosure requirements, which require that “noncandidate committees” seeking to influence elections must file certain reports and identifying information related to their electioneering communications, survived exacting scrutiny and served the important governmental interest of informing the public about who is speaking in favor or opposition to a particular candidate.
Further, the decision upheld Hawaii’s outright ban on political contributions by entities that have contracts or perform services for the government. Relying on the Second Circuit’s decision in Green Party of Connecticut vs. Garfield, which upheld such a ban in Connecticut, the court reasoned that the history of pay-to-play scandals in a state can serve as a justification for actions which prohibit quid pro quo corruption, or even the appearance thereof.
The Ninth Circuit’s decision serves as a timely reminder that although Citizens United paved the way for big spending in elections, certain restrictions and disclosure requirements have persisted. Government contractors especially should consider the decision a clarion call that pay-to-play restrictions are here to stay.