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.
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.
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.
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.
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.
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.
Yesterday the Supreme Court denied cert. in Vermont Right to Life, Inc. v. Sorell – a case with important implications for coordination violations and enforcement. See our full discussion of the lower court decision here.
New Jersey’s pay-to-play laws have been described as a “dizzyingly complex array of statutes, ordinances and executive orders.” New Jersey currently has different laws in effect that apply to State government contracts, State redevelopment agreements, county, municipal and legislative contracts, Board of Education contracts (where Boards of Education are receiving state aid) and a statewide disclosure law that applies on both a pre-contract and annual basis. This list of laws also does not include the hundreds of local ordinances that are currently in effect at the municipal and county levels of government in New Jersey, nor does it include municipal redevelopment ordinances, (which may regulate political activity by redevelopers and their consultants) and land use ordinances (which may cover those seeking land use approvals in connection with development projects).
Although ELEC has been pushing for reform for years, with the recent Atlantic County pay-to-play decision, 2015 may just be the year that existing laws are streamlined to eliminate the multifarious patchwork of ordinances, which currently vary from locality to locality. Until that time, however, government contractors need to stay on top of the varying (and sometimes conflicting) labyrinth of laws, including compliance with ELEC’s upcoming Pay-to-Play Annual Disclosure filing requirement.
There’s a controversy brewing over Governor Chris Christie’s attendance at Sunday’s Dallas Cowboys game, which, according to published reports, was paid for by the Cowboys owner, Jerry Jones. Public officials are generally prohibited from accepting “gifts,” though the laws vary by state. And this isn’t a new issue – you may recall that back in 2010 then-Governor David Paterson was fined $62,000 by the New York Joint Commission on Public Ethics for accepting tickets from the New York Yankees to Game One of the 2009 World Series. So let’s take a look at New Jersey’s ethics rules.
The New Jersey Conflicts of Interest Law prohibits any State official, including any State officer, employee, special State officer and member of the Legislature, from soliciting or accepting anything of value, including a gift, “which he knows or has reason to believe is offered to him with intent to influence him in the performance of his public duties and responsibilities.” There are exceptions to this rule; for example, it permits State officers to receive compensation for published books and reimbursement of reasonable expenditures for travel or subsistence and allowable entertainment expenses associated with attending an event in New Jersey. The State Ethics Commission, which enforces the gift and conflicts-of-interest laws, enforces a zero-tolerance policy against a government official’s acceptance of gifts related in any way to the officer’s official duties.
But a different law applies to the New Jersey Governor. Under the State’s Code of Conduct for the Governor, adopted by Executive Order 77 (McGreevey), the Governor is prohibited from soliciting or receiving any gift intended to influence him in the conduct of his public duties. The Governor may, however, “accept gifts, favors, services, gratuities, meals, lodging or travel expenses from relatives or personal friends that are paid for with personal funds.” In other words, Governor Christie acted within the bounds of the Code of Conduct for the Governor if Jerry Jones is a personal friend and Jones personally paid for the expenses. The Governor may also attend “any function and accept food and beverages and related privileges if his attendance at the event furthers a public purpose.” Thus, because gift rules may vary (even within the same branch of government), whether a particular government official or employee complied with respective gift rules may not only depend upon applicable law, but may also depend upon all relevant facts and circumstances.
Atlantic County is one of three counties in the State of New Jersey with a stringent county pay-to-play ordinance in effect. Like many local pay-to-play ordinances, the Atlantic County ordinance covers contributions to candidates for or holders of county office. The goal is to limit political contributions made by “those seeking or currently performing business with the County,” so as to allay the “reasonable concerns on the part of taxpayers and residents as to their trust in government contracts.”
By its express terms, the Ordinance covers contributions made “to any campaign committee of any candidate for elective County office or to the current holders of any elective County office.” The use of the phrase “any campaign committee” raises the question of whether a contribution to a candidate committee for non-county office is covered by the ordinance when the candidate is also a holder of an Atlantic County office. Last week, a Superior Court judge ruled that the answer is “yes.” In his opinion, Judge Julio Mendez held that the use of the word “any” means that a contribution to the State Senate campaign committee for a sitting Atlantic County Sheriff is covered under the Ordinance even though the sitting County Sheriff plays no role in the award of county contracts and even though the office of State Senator is not an Atlantic County office.
Although the court’s ruling was specific to the Atlantic County Ordinance, the interpretation may spread to other counties and municipalities with local ordinances in effect. Thus, before a vendor makes a contribution to a sitting elected official seeking election to another office, the vendor must determine whether a local pay-to-play ordinance is in effect that may potentially cover the contributions to a candidate committee for that “other” office.