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.

What Do The Jersey Shore, The 2015 General Election & Understanding Applicable Contribution Limits Have in Common?

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!

Ninth Circuit Upholds Ban on Contributions by Government Contractors and Other Disclosure Requirements in Hawaii

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.

Top Ten New Jersey Pay-to-Play Myths

Now that David Letterman has hosted his last show, the universe is experiencing a distinct lack of top-ten lists. We are happy to take on this awe-inspiring responsibility in the best way we know how: with a list of the top ten New Jersey pay-to-play myths.

  1. MYTH: Contributions of $300 or less are always permissible.
    • FACT: Some stringent local pay-to-play ordinances do not allow contributions in any amount once a business entity has entered a contract (or even started negotiations for a contract) with the government entity.
  2. MYTH: Reduced contribution limits are the same before and during a contract.
    • FACT: As mentioned above, some local ordinances do not allow contributions, in any amount, to be made once a business entity starts negotiations for a contract even though they allow for reduced contributions prior to the negotiation period.
  3. MYTH: Contributions to New Jersey PACs are not subject to pay-to-play restrictions.
    • FACT: There are some local pay-to-play ordinances that cover contributions to PACs that were either “formed for the primary purpose of” or “that regularly engage in the support of” the jurisdiction’s candidates or elections. This is different than the treatment of PACs under statewide Executive Branch pay-to-play restrictions.
  4. MYTH: It is always permissible to contribute $300 to a candidate for the primary election and an additional $300 for the general election.
    • FACT: Some municipalities hold municipal elections once every four years and do not hold separate primary and general elections. So, in these jurisdictions, a contributor may only be permitted to contribute $300 over the course of four years. Also, some local ordinances impose a per-election-cycle limit, treating the primary and general elections as one unit.
  5. MYTH: Pay-to-play limits are the same for candidates, political party committees, and New Jersey PACs.
    • FACT: Pay-to-play limits are often based on reportable periods. A reporting period generally runs on a per-election basis for a candidate committee and a per-calendar-year basis for party committees and PACs.
  6. MYTH: Contributions to legislative candidate committees are not subject to pay-to-play.
    • FACT: Contributions to legislative candidate committees may have pay-to-play implications if the legislator serves as the presiding officer of either house or represents a legislative district that includes part of a State redevelopment area.
  7. MYTH: If a county or municipality has its own local ordinance in effect, there is no reason to worry about the State laws.
    • FACT: Local ordinances and the State laws can sometimes offer divergent limits. For example, some local ordinances impose a per-calendar-year contribution limit for a candidate, while the State laws work on a per-election basis for candidates. The best approach is for a business entity to comply with both the State laws and any local ordinance in effect.
  8. MYTH: Only shareholders and officers of a business entity are covered by pay-to-play.
    • FACT: Some local ordinances extend the definition of a business entity to include any employee who earns more than $100,000 in a calendar year. Spouses and children of a covered individual may also be subject to pay-to-play limits.
  9. MYTH: Contributions to federal PACs and candidates are subject to New Jersey pay-to-play restrictions.
    • FACT: Federal elections are outside of ELEC’s jurisdiction and thus contributions to federal committees are not subject to New Jersey pay-to-play laws.
  10. MYTH: Only procurement contracts are subject to pay-to-play restrictions.
    • FACT: Some municipalities have redevelopment or land-use ordinances, which set reduced contribution limits for a business entity that enters redevelopment agreements or seeks certain land-use approvals.

New Jersey’s Investment Pay-to-Play Law Remains Unchanged in the Wake of Governor Christie’s Conditional Veto

On Monday, Governor Chris Christie conditionally vetoed Senate Bill No. 2430, which sought to expand New Jersey’s pay-to-play laws governing State investments. The current law requires external investment managers of State funds to disclose political contributions made to New Jersey candidates and committees. The now-vetoed bill would have required disclosure of political contributions to federal and non-New Jersey candidates and committees.

As the law currently stands, external investment advisors may contribute to federal groups such as the Republican Governors Associations, the Democratic Governors Association, and federal political action committees without having to disclose those contributions in connection with an investment by the State of New Jersey. If the bill had become law, managers of New Jersey investments would not only have been required to disclose contributions to these federal recipients if they wanted to remain eligible for State-investment opportunities, but their contributions to those federal recipients could have impacted the State’s inability to invest in their funds.

To illustrate the potential for a conflict of interests in the current state of the law, the press has pointed to the example of the State’s decision to invest $100 million with a firm whose managing director contributed $2.5 million to the Republican Governors Association, which was chaired by Governor Christie in 2014. But even if the bill had been signed into law, questions of its legality may have persisted. Under principles of federal preemption, the states may not impose limits on contributions to federal candidates and committees, as federal law was intended to occupy the field of federal elections. With the Governor’s conditional veto, the federal-preemption question will likely have to wait for another day.

Calling All New Jersey Government Contractors: The Clock is Ticking . . . Are you Ready for the March 30th Pay-to-Play Filing Deadline?

As we have previously discussed here, the New Jersey Pay-to-Play Annual Disclosure filing deadline is right around the corner.

Any entity that received payments of $50,000 or more as a result of payments from a New Jersey government entity during the 2014 calendar year is required to file Form BE electronically with the New Jersey Election Law Enforcement Commission no later than Monday, March 30, 2015.

Not sure whether your company is required to file Form BE? If you are not sure whether you are required to file Form BE, you may want to start your information-gathering process by compiling all of your New Jersey government-contract information. As you compile this information, please keep in mind that:

• Contracts with bi-state agencies, such as the Port Authority of New York & New Jersey and the Delaware River Port Authority, are not included.

• Contracts with Boards of Education and Fire Districts are included.

• The $50,000 threshold is an aggregate threshold – so, if you hold ten (10) contracts with New Jersey government entities and received payments totaling $10,000 for each contract during the 2014 calendar year, you are required to file Form BE.

Not sure whether you have any political contributions to report? Whether you need to file a “detailed” Form BE setting forth both contract and contribution information depends on whether you have any political contributions to report. So, if you know that you exceeded the $50,000 threshold and are not sure whether you have any contributions to report, you may want to start your information-gathering process by compiling contribution information. As you compile this information, please keep in mind that:

• The “reportable” threshold is $300 per election when the contribution was made to a candidate committee (election cycles may span multiple calendar years) and $300 per calendar year when the contribution was made to a party committee, political action committee/continuing political committee or a legislative leadership committee.

• The group of covered contributors is broader than under other pay-to-play laws (in addition to surveying owners of your company or firm, you will also need to survey officers and directors).

• The group of covered political recipients is broader than under other pay-to-play laws (with the exception of contributions to federal recipients, you are required to disclose contributions to all other New Jersey political recipients from the State level down to the school board level).

Not sure whether you are on the right track to file a timely and accurate disclosure? You still have time to gather all relevant information to make that determination. The key is to designate a point person within your organization who is responsible for gathering all contract and contribution information.

Remember – you may need to reach out to various individuals within your company so the sooner you begin to gather the information, the better!

The Pay-to-Play Effect in New Jersey’s 2015 Statewide Elections

2015 is a unique year in New Jersey politics, as the New Jersey Assembly races are the only set of elections scheduled for this year that extend beyond county and municipal lines. Even the Assembly Members’ colleagues in the Senate are not up for re-election until 2017.

With the State’s attention turned to the Assembly, this is an opportune time to examine how pay-to-play laws in effect at the State, county, and municipal level may affect this year’s Assembly campaigns.

Contributions to Assembly candidates will not generally affect a vendor’s eligibility for most government contracts in New Jersey. There are, though, two limited scenarios in which contributions to Assembly candidates may impact a vendor’s eligibility for government contracts. The first is when the member of the Legislature represents a district that is part of a State redevelopment entity and the second is when a vendor seeks a non-fair-and-open contract with the Legislative Branch itself.

Although we cannot discount the possibility that one of New Jersey’s hundreds of local pay-to-play ordinances may cover contributions to legislative candidate committees, most local ordinances do not extend to legislative recipients, as pay-to-play restrictions must be narrowly tailored to withstand constitutional scrutiny. For example, even some of the most stringent pay-to-play ordinances in the State (such as the ordinances in effect in Jersey City, Paterson, and Camden) do not cover contributions to legislative candidate committees.

So, to return to our 2015 example, if an Assembly member does not represent a district that is part of a State redevelopment entity and does not serve as the Speaker of the Assembly, a vendor likely may contribute more than $300 per election to that candidate without negative pay-to-play implications. Before writing a check, however, vendors should keep mind that there is a distinction between contributing to a legislative candidate committee and to a legislative leadership committee (contributions greater than $300 to the latter will impact eligibility for contracts with the State of New Jersey and its departments and agencies).

Calling All Government Contractors: Upcoming New Jersey Political Contribution Disclosure Form

For government contractors, the start of a new year brings with it a host of filing requirements in many states along the Northeast Corridor. Although some states (such as New York and Connecticut) do not impose annual or semi-annual filing requirements on government contractors, other states such as New Jersey, Pennsylvania, and Maryland require government contractors to file reports. This is the final part of our series of blog posts that focuses on the upcoming filing deadlines in Maryland, Pennsylvania, and New Jersey. These reports generally require government contractors to disclose certain information about their political contributions, but no two filing requirements are the same. As your company prepares to put its best foot forward in 2015, this series will share what you need to know about these disclosure requirements and some compliance tips to make sure that your company is accurately capturing all relevant information.

New Jersey (Filing Deadline – March 30, 2015)

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 2014 calendar year to electronically file a Business Entity Annual Statement (“Form BE”) with ELEC no later than Monday, March 30, 2015.

Compliance TipAll businesses that received payments in excess of the $50,000 threshold must file Form BE. Whether a company is required to file a “detailed” Form BE (setting forth contract and contribution information) depends on whether the company and/or certain associated individuals made any “reportable” contributions (a contribution in excess of $300) during the 2014 calendar year.

Atlantic County Freeholders Vote to Repeal Pay-to-Play Ordinance

Earlier this week, the Atlantic County Freeholders approved a measure that rolls back the County’s pay-to-play ordinance. New Jersey is home to an overlapping series of pay-to-play laws. Although there is a statewide law in place that covers all counties in New Jersey, another statute allowed room for each County to enact its own ordinance, provided that the local ordinance is consistent with the themes of the statewide law. Despite this requirement, some of the hundreds of local ordinances in effect across the state vary widely from the statewide law.

Until days ago, Atlantic County had one of the most stringent pay-to-play ordinances in the State. Now, like Monmouth County, Atlantic County has decided to replace its local pay-to-play ordinance with the standard State law that applies to all counties. Among other differences, the now-defunct Atlantic County ordinance did not allow contributions in any amount to be made by a business entity that holds a contract with the County, while the State law allows contributions to covered recipients of up to $300 per reporting period, even for vendors who currently hold contracts with the government. Additionally, while the Atlantic County ordinance previously placed limits on the amount a vendor could contribute to a PAC that is engaged in the support of County candidates or elections, the State law does not extend to PACs of this type.

The timing of the County’s decision may prove controversial, coming only two months after a Superior Court judge ruled that the County had violated its own pay-to-play ordinance in awarding a contract to a business entity that had contributed to the statewide candidate committee of an individual who also served as the Atlantic County Sheriff. The decision to rescind the county ordinance already has some issuing calls to remove the decision from the hands of the politicians and candidates who are most affected by local pay-to-play ordinances, by revising the State statute to match the stricter standards of some of the more stringent county and municipal ordinances.

FEC Contribution Limits for 2015-2016

Last week, the Federal Election Commission (“FEC”) released increased contribution limits for individuals for the 2015-2016 federal election cycle. Certain federal contribution limits are indexed for inflation and are increased in odd-numbered years.

Under the new limits, individuals may now give up to $2,700 per election to a federal candidate committee and up to $33,400 per calendar year to a national political party committee. The limits upon permissible contributions by individuals to federal PACs and to the federal account of state, district, and local party committees are not adjusted for inflation. Like the previous cycle(s), contributions to PACs are limited to $5,000 per calendar year, while contributions to the federal account of a state, district, or local party committees remain subject to the combined limit of $10,000 per calendar year.

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