On the one hand, the Court upheld Connecticut’s pay-to-play ban against contributions to candidates for state offices by state contractors, prospective state contractors, and their principals, spouses and dependent children. On the other, it struck down, on First Amendment grounds, the following provisions:

• the ban against contributions by lobbyists (and their spouses and dependent children) to candidates for state offices.
• the ban against contractors’ and lobbyists’ soliciting contributions on behalf of candidates for state offices.
• “trigger” provisions granting supplemental public funding to candidates participating in the Citizens Election Program on the basis of the level of expenditures made by non-participating opponents or independent expenditures opposing the participating candidate.

We briefly comment on the potential significance of these holdings in two parts.

Pay-to-Play Reforms

By Rebecca Moll Freed

Pay-to-play reform has been spreading to a growing number of states in recent years. The Second Circuit decision trims back some of the more ambitious restrictions and raises additional potential concerns about the constitutionality of outright contribution bans (as opposed to limitations). Was this victory for First Amendment principles too narrow?

The Court struck the ban on contributions by lobbyists, distinguishing between contractors and lobbyists because the recent corruption scandals in Connecticut in no way involved lobbyists. The Court reasoned, therefore, that no constitutional basis existed for subjecting lobbyists to an outright ban on contributions.

The Second Circuit struck down the solicitation ban as unconstitutional because unlike limiting contributions which present “marginal speech” restrictions, the Court reasoned that a ban on solicitation is a ban on speech itself – the core activity protected by the First Amendment. As such, solicitation restrictions are subject to strict scrutiny and must be narrowly tailored to serve a compelling government interest. The Second Circuit opined that while it is easy to see how a large contribution may be given to secure a political quid pro quo, it is not clear that individuals might secure political favors simply by urging others to make contributions.

In contrast, the decision maintains that a total ban on contributions by certain business entities with or seeking state contracts (and associated individuals and PACs) is constitutional based on a history of actual corruption by state contractors and the resulting public perception of corruption posed by contributions from this class of contributors. The decision referenced a long line of campaign finance jurisprudence, from Buckley v. Valeo through Citizens United v. FEC. But was the Court’s reasoning in upholding the contractor ban consistent with its concurrent striking down of the lobbyist contribution and contribution solicitation bans?

For example, in striking down the ban as applied to lobbyists the Court noted that an outright contribution ban “utterly eliminates an individual’s right to express his or her support for a candidate.” The Court also states that “[a] ban is a drastic measure.” Because an outright ban strips individuals of the right of political association and of the right to express their support for candidates of their choice, the ban raises the question of whether it will continue to survive constitutional scrutiny as the recent corruption scandals recede into history and public perceptions of state contractors change.

The Second Circuit’s decision may also have consequences beyond Connecticut. Take New Jersey for example. Although New Jersey’s statewide pay-to-play restrictions contain a reduced limit rather than an absolute ban, many local pay-to-play ordinances include absolute bans on contributions by government contractors. Will these provisions withstand constitutional muster? Will the State of New Jersey look to ban contributions by contractors rather than subjecting contractors to a reduced limit? Another question arises with respect to solicitation restrictions in New Jersey’s statewide pay-to-play laws. Currently a state vendor may solicit contributions of up to $300 each to/for a covered recipient. Is this solicitation restriction constitutional?

In the wake of the Green Party v. Garfield, it looks as though the ever changing landscape of pay-to-play reform may evolve into an even more intricate labyrinth of limitations, restrictions and prohibitions. The question is – will these more stringent restrictions work to prevent actual corruption and to counter the perception of corruption in the government contracting process?

Public Financing

By Laurence D.  Laufer

Earlier this week Trigger, the late Roy Rogers’ taxonomically-preserved horse, brought $266,000 at auction.  The New York Times laments that the “trigger” provisions of public campaign financing laws might likewise be on their last legs. In issuing a stay last month blocking additional matching funds to gubernatorial candidates under Arizona’s trigger provision (McComish v. Bennett), the U.S. Supreme Court sent a strong signal that it would hold such provisions unconstitutional, much as the Second Circuit just did.

Following the Supreme Court’s 2008 decision in Davis v. FEC, the Second Circuit found the trigger provision to be a “penalty” on a nonparticipant’s or independent spender’s choice to spend personal funds. The Court found the governmental interest in encouraging participation in a public financing program or in leveling electoral opportunities insufficient justification for this trigger under the First Amendment.

Is there a legislative alternative that might pass constitutional scrutiny? The New York City campaign finance law suggests a possibility.

While it includes a now similarly vulnerable provision triggering additional matching funds based on the level of an opposing non-participant’s spending, New York City’s law also contains a separate provision designed to conserve public funds for competitive elections. Specifically, if a participant’s opponent fails to raise or spend at least one-fifth of the applicable spending limit (and fails to meet alternative criteria demonstrating competitiveness), the maximum public funds payment to the participant is reduced by 75 percent.

In its 1976 landmark ruling, Buckley v. Valeo, the U.S. Supreme Court upheld presidential public financing which reflected the government’s “interest in not funding hopeless candidacies”. Thus, legislatures adopting public campaign financing may constitutionally choose to calibrate levels of funding made available to candidates as a safeguard against wasting taxpayer dollars.

Here’s how a “reverse trigger” might work. Initial public funds awards are made up to the maximum level permitted in the hypothetical law. But then portions of that funding are not actually released to the qualifying candidate until an opponent demonstrates a sufficient level of competitiveness; the opponent’s level of spending may be one of several alternative criteria. Importantly, the law would make no distinction as to whether the opponent is a participating or non-participating candidate.

The goal would not be to level the playing field among candidates, but rather to protect against wasteful disbursements of public money. Thus, a full award would be released in segments, according to the opponent(s)’ competitive performance. Each segment of the full award would be released only if and when it is actually needed by the qualifying candidate.

As against a First Amendment challenge, this reverse trigger just might be seen as a horse of a different color.

The bill aims to reach “stealth PACs” which seek to influence the outcome of elections but do not fit within the definition of political committee.  Specifically, an issue advocacy organization would be a not-for-profit organization organized under Internal Revenue Code sections 527 (political organization), 501(c)(3) (charitable organization) or 501(c)(4) (civic league or social welfare organization) “that engages in influencing or attempting to influence the outcome of any election . . . to any State or local elective public office, or the passage or defeat of any public question, or in providing political information on any candidate or public question.”

Much like the federal legislative response to the Citizens United holding, which has now been passed by the House, A-2595 seeks to ensure that the financing and source of any expenditures designed to influence elections should not evade public scrutiny.

The Annual Report suggests that the time has come for ELEC and the Legislature to work together to overhaul New Jersey’s pay to play system.  The goal is to “simplify and standardize” the various state, county and local laws by creating a cohesive set of restrictions statewide.

ELEC’s recommended changes, which require legislative action, include:

• Extending current statewide pay to play restrictions to county and municipal vendors;

• Removing the “fair and open process” exception for local pay to play laws;

• Potentially raising the reduced pay to play contribution limit from $300 to $1,000 (if the fair and open process exception is abolished); and

• Lowering the filing threshold for the ELEC Business Entity Annual Disclosure Statement from $50,000 to $17,500.

ELEC’s desire to overhaul New Jersey’s pay to play laws may stem from a hearing held earlier this year before the N.J. Assembly Judiciary Committee.  The hearing focused on the impact of Citizens United on New Jersey’s campaign finance and pay to play laws.  All those testifying agreed that complying with New Jersey’s pay to play laws has become increasingly difficult because of the variations among all of the pay to play restrictions.

Should legislation to promote uniformity move forward, how will it treat labor unions?  Governor Christie’s Executive Order 7 is currently being challenged in court.

ELEC’s recommendations for overhauling New Jersey’s pay to play system come in the wake of amendments to New Jersey’s pay to play regulations, which took effect earlier this week.  In short, ELEC’s recent amendments:

• Require business entities filing annual disclosure statements to maintain their records for four (4) years;

• Make it clear that a currency contribution in any amount will trigger pay to play prohibition and disclosure provisions; and

• Delete references to not-for-profits from the annual disclosure filing requirements.

Associate Bonnie B. Fire contributed to this post.

The general consensus was that New Jersey’s existing campaign finance laws are not directly affected by the Supreme Court holding unconstitutional campaign expenditure limitations for corporations.    Mr. Genova cautioned, however, that the logic underpinning the decision could ultimately impact current restrictions on political participation that are keyed to the identity of the speaker, such as the ban on contributions from regulated industries and pay-to-play restrictions.  At this early stage, in the wake of Citizens United, it remains to be seen whether the presumptive corrupting influence of money will stand as a justification for such identity-based restrictions.

Associate Bonnie B. Fire contributed to this post.

The law requires a business entity to disclose the details of all of its New Jersey government contracts (state, county, municipal, school board and fire district) where a business entity or any covered person or entity has made a “reportable” contribution (i.e. $300 or more) to a New Jersey political recipient during the 2009 calendar year.

Covered persons and entities include: shareholders, principals, partners, officers, directors and their spouses and resident children. Covered entities include the vendor itself, the vendor’s parent company and any subsidiaries and/or CPCs/PACs “directly or indirectly” controlled by the vendor.

Not-for-profits are not currently required to file a Business Entity Annual Disclosure Form. In light of Governor Christie’s Executive Order No. 7 will labor unions be required to file this form in the future?

The Business Entity Annual Statement Form can be downloaded from the New Jersey Election Law Enforcement Commission’s website.

New Jersey

New Jersey law permits a state vendor to “cure” a contribution over the $300 limit set forth under P.L. 2005, c. 51 if the vendor requests and receives a refund within 30 days of making an excessive contribution. If a vendor fails to cure an excessive contribution, the vendor may be declared ineligible for New Jersey state government contracts for a period ranging from 18 months to 5 ½ years.

A recent New Jersey Supreme Court case, In the Matter of the Appeal of Earle Asphalt Company, demonstrates just how stringently the 30 day refund period is enforced. In the Earle case, the New Jersey Supreme Court held that a refund requested within 30 days but not received until the 41st day was not sufficient to “cure” an excessive contribution.

Under the scores of local pay-to-play ordinances, the refund provisions vary. For example, Mercer County allows a vendor to cure an excessive contribution if the vendor seeks and receives a refund within 30 days after the general election. The City of Newark allows a vendor to cure an inadvertent contribution if the vendor seeks and receives a refund within 60 days after the relevant ELEC report is filed. Jersey City allows a vendor to seek and receive a refund within 30 days after the relevant ELEC report is published. Under Edison’s local ordinance, a vendor may seek and receive a refund within 60 days of the date on which the contribution was made. Failure to cure a prohibited or excessive contribution within the stated refund period would result in ineligibility for contracts with local government.

New York City

At the other extreme are limitations on the receipt of contributions from persons defined as “doing business” with the City of New York. Under NYC law, the initial burden is on the Campaign Finance Board to provide notice to the candidate of an excessive contribution within 20 days or three business days of its reporting, depending on the proximity of the election. If the CFB fails to meet this deadline, the contribution may be retained. If timely notice is provided, the candidate’s committee has 20 days from the notice to refund the excessive amount in order to avoid a finding of violation. Compliance is shown by postmark or delivery within 20 day period.

Connecticut

Connecticut law prohibits  state vendors from making and/or soliciting contributions in any amount to/for candidates seeking state elected office. Under Section 9-612(g)(1)(c) of Connecticut law, a vendor may cure an “improper” contribution by receiving a refund by the later of 30 days after the receipt of the contribution or the filing date that corresponds with the reporting period in which the “improper” contribution was made.

In Connecticut, a company that makes an excessive contribution may be declared ineligible for state contracts for a period of 1 year after the election for which a prohibited contribution is made or solicited.

Associate Bonnie Fire contributed to this post.

It remains to be seen how the Order will be implemented. Initially, several issues merit attention.

It is unclear how EO 7 affects the scope of EO 117 and 118, both of which limit the definition of “business entity” to for-profit entities. Since labor unions typically are tax exempt under IRC 501(c)(5), and thus are not for-profit entities, unions would either become the only not for-profit entities subject to EO 117 and 118 or otherwise remain exempt from coverage. And, if covered, would the pay-to-play contribution limitation extend to officers of the union, their spouses, civil union partners, and resident children?

The inclusion of political committees “formed” by labor organizations may be a relatively significant change in the coverage of political committees. Previous executive orders have covered political committees “directly or indirectly controlled” by the business entity.

Another open issue is whether the Order is meant to cover collective negotiations agreements with the State. This issue appears to depend on the scope of contracts and agreements covered by the state pay-to-play legislation, Chapter 51 (which codified and superseded the original Executive Order on pay-to-play, No. 134 issued by Governor McGreevey in 2004).

Similarly, Executive Order 7 states it applies to labor organizations which enter into contracts with the State, its instrumentalities “or with other New Jersey public entities.” Is EO 7 intended to cover contracts with county and municipal government entities? Neither Chapter 51 nor the prior executive orders on pay-to-play reached beyond State government contracts.

Finally, EO 7 states that prior executive orders are modified to include legislative leadership committees in the list of covered recipients. But legislative leadership committees were already covered by Executive Orders 117 and 118.

Executive Order 7 takes effect immediately.

As a general rule of thumb, a New Jersey public official and/or employee may not accept any gift, which is intended to influence the performance of his or her official duties.  Exceptions may exist if you are a relative or close personal friend of an elected official, and depending on the branch or level of government served by the potential recipient.

Executive Branch officials and employees are governed by the Uniform Ethics Code, which prohibits Executive Branch officials or employees from accepting any gift, favor, service or other thing of value related in any way to their public duties.  The New Jersey Department of Treasury recently issued guidance to state vendors, which asks all vendors to “refrain from sending any gifts or inviting state employees to any functions.”

Legislative Branch officials and employees are governed by the Legislative Code of Ethics, which prohibits a member of the New Jersey Legislature from receiving any gift or other thing of value from any source other than the State of New Jersey in relation to the member’s official duties.  If you are a governmental affairs agent, you may not give a member of the Legislature gifts totaling more than $250 in the aggregate during a calendar year or any gift of lesser value intended to influence a legislator’s official duties.  Not sure whether you are up to speed on the Legislative Code of Ethics?  You can take the New Jersey Legislature’s Ethics Tutorial here.

Local government officials and employees are governed by the Local Government Ethics Law, which requires a local government official to annually disclose each source of gifts, reimbursements or prepaid expenses having an aggregate value exceeding $400 in a calendar year.  Although local government officials may accept gifts under certain circumstances, no local government official may accept any gift given or offered for the purpose of influencing him/her, directly or indirectly, in the discharge of his/her official duties.

The Uniform Ethics Code, the Legislative Code of Ethics and the Local Government Ethics Law provide general guidance on gift-giving to Executive, Legislative and local government officials and employees.  State agencies and localities may additionally have their own Codes of Ethics in effect.