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.

Calling All Government Contractors: Upcoming Pennsylvania 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 second in a 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.

Pennsylvania (Filling Deadline – February 15, 2015)

Business entities that have been awarded any no-bid contract by the Commonwealth of Pennsylvania or any of its political subdivisions must file Form DSEB-504 with the Pennsylvania’s Department of State by February 15, 2015. Because February 15 falls on a Sunday this year, make sure that your form is postmarked or received before that date. The form requires disclosure of all political contributions made during the preceding calendar year by any covered individual whose contributions exceed $1,000 in the aggregate for the year. There is an alternative form (Form DSEB-504B) that must be filed when the contributions made in the previous year do not exceed the $1,000 aggregate limit. Electronic filing is not available in Pennsylvania, so the appropriate form must be submitted either by mail or by bringing a copy to the Department of State’s offices.

Compliance Tip – Although Pennsylvania law prohibits corporate contributions, the definition of “covered individuals” is broad and includes a company’s officers, directors, associates, partners, owners and employees. The definition also includes the immediate family members of any covered individual. Whether a company is required to file Form DSEB-504 or Form DSEB-504B depends on whether any of these covered individuals made a contribution in excess of the $1,000 aggregate limit. 

Pay-to-Play Lessons from New Jersey’s State Investment Council Rules

New Jersey is often thought of as the “pay-to-play” state – primarily because we have five separate statewide pay-to-play prohibition laws in effect (covering state procurement, county procurement,  local procurement, state redevelopment projects and the investment of state funds). We also have one statewide disclosure law (applying on both a pre-contract and an annual basis) and hundreds of local pay-to-play ordinances (covering local government contracts, local redevelopment contracts, land use approvals and board of education contracts).

Until recently, most of the discussion on pay-to-play restrictions in New Jersey focused on state, county and local restrictions applicable to procurement contracts. Now, the focus seems to be shifting to New Jersey’s State Investment Council Rules.

Yesterday, the State of New Jersey Department of Treasury issued an audit confirming that whether a particular individual is covered under the State Investment Council rules may very well depend on whether the individual falls within the definition of an “investment management professional.” The results of the audit also raise the question of whether pay-to-play rules serve their intended purpose of preventing undue influence in the award of government contracts when many of the rules primarily rely on self-disclosure by the company or firm seeking government businesses.

Unlike other pay-to-play rules, the State Investment Council rules provide limited exemptions when the investment management firm demonstrates in writing that the violation of the rule was unintentional and inadvertent. The SIC has the discretion to grant the exemption if it determines that the beneficiaries of the Pension and Annuity Funds, the State taxpayers and the public are best served by such an exception.

The discretion afforded to the SIC under its pay-to-play rules raises the question of whether New Jersey’s other pay-to-play restrictions should be amended to include similar exceptions. The exception should not be a blanket “get of jail free card”; rather, the exception should allow the contracting government entity to exercise sound business judgment to evaluate whether the taxpayers are better served by terminating a contract with a particular vendor or whether the taxpayers would be better served by allowing that vendor to complete the contract at issue.

Calling All Government Contractors: Upcoming Maryland 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 first in a 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.

Maryland (Filing Deadline – February 5, 2015 & August 5, 2015) 

The filing requirements applicable to Maryland government contractors changed on January 1, 2015. This means that all Maryland government contractors need to familiarize themselves with new filing requirements this year! Maryland law now requires businesses that hold a single contract worth at least $200,000 with the state to electronically file the Contribution Disclosure Form semi-annually with the Maryland Board of Elections. The first semi-annual report must be filed no later than Thursday, February 5, 2015.

Compliance Tip – Companies subject to this disclosure requirement must not only disclose information specific to each of their Maryland government contracts, but they must also disclose contributions that exceed $500 per reporting period to covered candidates and officeholders made by the company; a subsidiary of the company; an officer, director, or partner of the company or of the subsidiary; a Political Action Committee sponsored by the company; and an employee or agent of the company or the subsidiary, if the employee or agent made the contribution at the direction of the company or the subsidiary. Regardless of whether a company has contributions to report, the company must still file a Contribution Disclosure Form if the company holds Maryland government contracts.

Looking Back at Five Years of Citizens United

This month marked the fifth anniversary of the Supreme Court handing down its decision in Citizens United v. FEC. More than perhaps most other recent Supreme Court decisions, Citizens United has remained in the public consciousness, with defenses and criticisms arising anew during every election season. And, as demonstrated by last week’s protests at the Supreme Court in which eight protesters were arrested, tensions remain high.

In the wake of the decision, there have been efforts, both traditional and creative, to change how the country approaches campaign finance. Sixteen states have called for a constitutional convention to propose an amendment to overturn Citizens United and just last week Senator Bernie Sanders introduced a constitutional amendment to achieve the same result. There was even a super PAC, MaydayPAC, that raised more than $10 million dollars during the 2014 election to support candidates who are sympathetic to the idea of reforming campaign-finance law.

Perhaps the biggest boost to the visibility of the Citizens United decision and the changing state of campaign-finance law came from a television show airing on Comedy Central. Stephen Colbert formed a super PAC and documented the entire process on his now-defunct show The Colbert Report, including seeking an advisory opinion from the FEC. In the last five years, campaign finance became a part of popular culture.

One predictable consequence of the decision is the renewed efforts of political parties to expand their fundraising abilities to keep pace with the new power of independent groups. The congressional spending bill that was passed in December of 2014 included provisions that would allow national political party committees to effectively triple their fundraising limits, up to a potential $3.1 million per couple in each election cycle. There have been calls in New Jersey to impose disclosure requirements on independent groups and to increase the limits governing contributions to candidates and parties, all in an effort to help strengthen the party structure in the State.

You can find our complete coverage of Citizens United and its aftermath here.

Citizens United and the Surge of Political Non-Profits

It has been five years since the U.S. Supreme Court decided Citizens United v. FEC.

When the Supreme Court first decided the case, which allows individuals, corporations and special interest groups to spend unlimited amounts on independent expenditures, many thought that corporations would become more engaged in the political process. Although some corporations have done just that, for-profit corporations do not appear to be jumping on the independent-expenditure bandwagon. Perhaps they are afraid of offending their shareholders, customers and clients with their political message – an unknown risk that Target took within months of the Citizens United decision.

Despite the fact that for-profit corporations seem to be reluctant about engaging in the political process, in the five years since Citizens United was decided, certain non-profit corporations have become more engaged. Although the Internal Revenue Code prohibits 501(c)(3) organizations from participating in any political activity, the law does not prohibit other non-profit corporations from voicing their partisan political views. In fact, the law permits 501(c)(4) social-welfare groups, 501(c)(5) labor unions and 501(c)(6) trade groups to participate in the political process provided it is not their “primary activity.”

The IRS has yet to define “primary activity,” but has demonstrated an apparent tolerance for a 49% threshold, which means that certain non-profits may be spending as much as 49% of their time on political activity without being subject to the same disclosure requirements as true political organizations. This discrepancy has led to these groups being labeled as “shadow organizations” and calls upon the IRS to take action. The IRS issued its first report on 501(c)(4) political activity over a year ago, but little has been done in the way of reform. In fact, the IRS itself has revealed that “it has only begun auditing 26 organizations specifically for political activity since 2010 [which] represents a tiny fraction of the more than 1 million nonprofits regulated by the agency.”

While the IRS takes its time auditing “political” non-profits, many groups who want to become involved in the political process find that forming a 501(c)(4) is the best way to achieve their goals. Although the organization will be subject to tax on its political activity, the organization is not required to reveal its donors to the public and also can engage in issue advocacy, lobbying and other activity to benefit the “social welfare” of the community without that activity counting toward its “political activity” threshold.

ELEC Lobbying Deadlines Approach

On Monday, February 16, 2015, businesses, non-profits and special interest groups that paid more than $2,500 in 2014 to make lobbying communications to New Jersey State government officials, directly or indirectly (i.e. “grassroots”), will be required to file Annual Reports with the Election Law Enforcement Commission (“ELEC”). Lobbying activities in New Jersey have been becoming more extensive with over 2,000 entities reporting more than $62 million in lobbying communication expenditures in 2013.

An understandably sensitive disclosure area is the category of salaries of “in-house” government affairs agents. Employers therefore should be aware that only the portion of an agent’s salary attributable to making lobbying communications to New Jersey State (not local) government officials is reportable. Thus, the figures reported as salaries typically reflect only a portion of an entire salary and, because the fraction or percent used to arrive at that portion is not disclosed, the report does not result in public disclosure of an agent’s full salary but only the portion specifically attributed to lobbying in New Jersey. However, it is important to maintain good records of the agent’s time spent undertaking lobbying activity so that in the event of an ELEC inquiry the reported salary figure can be defended.

A separate requirement is the reporting of “benefit passing” activity, which is typically gifts or reimbursements made to State officials by lobbying entities. If a lobbying entity provided more than $200 during 2014 to a State government official, or more than $25 in a day, written notice that the recipient will be reported on the lobbying entity’s Annual Report must be provided to that recipient by Monday, February 2, 2015. “Benefit passing” activity has sharply declined from a peak totaling over $163,000 in 1992 to only $4,168 reported in 2013.

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