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.

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.

New York State Announces Broad Set of Ethics and Campaign-Finance Reforms

Late last week, New York Governor Andrew Cuomo and State legislative leaders announced agreement on a broad set of ethics and campaign-finance reforms focused on increased disclosure, transparency, and public trust.

Pursuant to this reform package:

  1. Super PACs (also known as Independent Expenditure Committees) may make and receive unlimited contributions so long as they do not coordinate with a political candidate. New York’s agreement expands the definition of coordination in this context to include the retention of a common vendor, the employment of a candidate’s former staffers, and the sharing or rental of common space. This agreement also increases disclosure requirements for Super PACs.
  2. Any public officer convicted of corruption is precluded from collecting a public pension.
  3. New disclosure requirements will be put in place for political consultants who represent both political officeholders or candidates and also private-sector clients with government business.
  4. Various reporting thresholds have been lowered under the State’s lobbying laws, including a reduction from $50,000 to $15,000 of the reporting threshold for organizations that lobby on their own behalf.
  5. 501(c)(4) social-welfare organizations are permitted to engage in political activities so long as political activity does not become the primary purpose of the organization. In contrast, 501(c)(3) charitable organizations are strictly prohibited from engaging in any political activity. Under New York’s agreement, 501(c)(4)s will be required to disclose funding and support received from 501(c)(3)s.  Additionally, a 501(c)(4) will be required to disclose its funding sources if they engage in political activities.

501(c)(3)s and the 2016 Federal Election: Do You Know What Your Employees Are Doing?

As the 2016 presidential primary season proceeds, we are quickly approaching the summer conventions and the November presidential election. With the political contests becoming more heated, this post is part of a new series on what different entities and groups need to know about their political activity as the 2016 election approaches.

There are many obvious benefits to earning the designation of a 501(c)(3) charitable organization—the organization is exempt from tax and donations are deductible. But the Internal Revenue Code places a key limitation on all 501(c)(3) organizations by prohibiting them from engaging in any political activity. Violation of this prohibition on political activity may lead the IRS to refuse or revoke 501(c)(3) status. A 501(c)(3) therefore must avoid any partisan activity that supports or opposes political candidates or political parties.

A 501(c)(3) generally MAY NOT:

  • Make political contributions (monetary or in-kind).
  • Issue a statement that supports or opposes a candidate (e.g., stand-alone statements, statements in newsletters, or material on a website).
  • Endorse a candidate.
  • Ask a candidate to sign a pledge on any issue.

However, a 501(c)(3) may generally engage in non-partisan activity that is related to the democratic process. Therefore, a 501(c)(3) generally MAY:

  • Engage in non-partisan election-related activities such as get-out-the-vote and voter registration drives.
  • Engage in limited lobbying (related to the mission of the organization), including ballot-measure advocacy.
  • Educate all candidates on issues within the purview of the organization.
  • Conduct non-partisan public-education and training sessions about participation in the political process.
  • Prepare and disseminate non-partisan candidate questionnaires and sample ballots.

However, the officers, directors, and employees of a 501(c)(3) retain the right to personally engage in political activity (just as we described in our recent post on political activity for corporations). A 501(c)(3) must simply be careful to avoid allowing organization resources (from mailing lists to letterhead) to be used for political activity or permitting individuals to engage in political activity that suggests the support or endorsement of the organization.

Corporations and the 2016 Federal Election: Do You Know What Your Employees Are Doing?

As the 2016 presidential primary season proceeds, we are quickly approaching the summer conventions and the November presidential election. With the political contests becoming more heated, this post is part of a new series on what different entities and groups need to know about their political activity as the 2016 election approaches.

One of the key principles of federal campaign-finance law is that corporations are prohibited from making political contributions to federal candidates, political action committees, and party committees. This means not only that corporations are prohibited from writing checks to federal candidates, political action committees, or parties, but that a corporation should not use its resources—or allow its resources to be used—for any federal election purpose (though some exceptions exist for a corporation’s federal connected PAC). This prohibition on the corporation’s activity must be balanced, though, with the individual political activity of a corporation’s employees. Although a corporation may not make federal political contributions, a corporation’s employees have a First Amendment right to engage in the political process.  To maintain this balance, corporations should keep the following guidelines in mind:

Employees MAY:

  • Make individual political contributions with personal funds.
  • Volunteer or work for a political campaign on their own time.
  • Run for political office.

Employees may NOT:

  • Be reimbursed for any political contributions they make.
  • Use any corporate resources (including letterhead, printers, conference rooms, and mailing lists) for federal-election purposes.
  • Provide even individual volunteer services for a federal campaign during normal business hours—the corporation’s time is itself a resource of the corporation.
  • Take even unpaid leave to work or volunteer for a federal campaign if the leave is granted in a way that demonstrates a preference for one candidate or political party.
  • If an employee runs for political office, the corporation may not endorse the candidate or indicate support through such avenues as a newsletter or website.

Because the scope of what is prohibited is so broad, it is important for corporations to adopt and enforce political-activity policies to ensure that employees are not unknowingly making prohibited political contributions by performing work for a political campaign during paid business hours or by using corporate resources for political purposes. Similarly, corporations should have a plan in place to govern how and when employees are entitled to take unpaid leave to work or volunteer for a federal campaign.

Corporations may be faced with navigating these and other challenges in this heated political season. It is therefore important for corporations to begin thinking about how to navigate between the federal prohibition on corporate political contributions and the First Amendment right of a corporation’s employees to engage in the political process.

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.

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