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.

On October 11, 2009, Governor Schwarzenegger signed into law Assembly Bill 1584 (“AB 1584”), which became effective immediately.  AB 1584 requires that the boards of all public employees’ pension or retirement systems in California implement a disclosure policy detailing payments made to placement agents in connection with system investments in or through asset management firms. Additionally, the required disclosure policy must include a five year solicitation ban on external asset managers and placement agents who violate the disclosure policy.  The required disclosure policy must be adopted by June 30, 2010.

AB 1584 also:

• Requires that intermediaries disclose all campaign contributions made to any member of the board as well as all gifts given to any board member in the preceding twenty-four months before acting as a placement agent in connection with a potential system investment;

• Requires that intermediaries disclose any contributions or gifts made after becoming placement agents; and

• Prohibits any board member or board employee from directly or indirectly selling or providing any investment product that would be considered an asset of the fund to any public retirement system.

Looking forward to the 2013 election cycle, Genova, Burns & Vernoia has submitted a request for an advisory opinion setting ground rules for 2013.

In the case of a State contractor, the prohibition applies for the duration of the term of office or for two years following the expiration or termination of the contract, whichever is longer. For business entities with aggregate bids or proposals (combined with the annual total value of current State contracts, if any) that total more than $50,000, the prohibition applies from the date the invitation for bids or RFP is issued through the date the contract is awarded.

The contribution prohibition is enforced through a requirement that the business entity register with the State Board of Elections. The registration must include the name and address of the business entity, any affiliated entity, and any affiliated person. Affiliated persons and entities are subject to the same contribution prohibition. Affiliated persons include persons with an ownership interest in excess of 7.5%, executive employees, and the spouse and minor children of such persons. Affiliated entities include subsidiaries, members of the same unitary business group, 501(c) organizations established by the business entity, affiliated person, or affiliated entity, and political committees for which the business entity or such 501(c) organization is the sponsoring entity.

See here for our overview of Connecticut’s pay-to-play law.

The Connecticut pay-to-play legislation was passed in December 2005. The law imposes an absolute ban on campaign contributions made and solicited by state contractors, prospective state contractors, and their principals. Once a contractor makes or solicits a proscribed contribution, the state is prohibited from awarding a contract for one year after the election for which the contribution was made. The law also requires the CEO of a company to notify the “principals” of the company that they may not make or solicit contributions to covered officials or committees. The prohibition applies to the branch of government with which the contractor or prospective state contractor does business, and exempts the holders of valid prequalification certificates. Thus, with respect to contracts with a state agency in the executive branch or quasi-public agencies, the recipients covered are candidates for the office of governor, lieutenant governor, attorney general, state comptroller, secretary of the state and state treasurer. With respect to contracts issued by the General Assembly, the recipients covered are candidates for the office of state senator or representative.

In February 2007, Connecticut made several changes to its pay-to-play law, including an amendment which narrowed the definition of “principal” so as to include:

• Individuals owning 5% or more of the company’s stock;
• Members of the company’s Board of Directors
• Those with the title of president, treasurer, or executive vice president;
• Spouses and dependent children (age 18 or older and living at home) of the above; and
• A political action committee established or controlled by an individual described above or by the state contractor or prospective state contractor.

Another amendment to the law includes a 30-day cure provision for refunding impermissible contributions.

Philadelphia’s campaign finance law limits contributions to $2,500 per year from individuals. Additionally, the City’s pay-to-play laws prohibit the awarding of non-competitively bid contracts to those individuals who contribute more than $2,500 per year.