Corporate Political Activity, Reputational Risk Management and the 2016 Federal Election

As the 2016 presidential primary season concludes, 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.

The 2016 presidential election poses unique challenges for companies and organizations. As we discussed here and here, both for-profit and not-for-profit corporations need to be mindful of their involvement in the electoral process. Corporations also need to make sure that their employees are not improperly using corporate resources for individual political activity. While it is easy to develop a policy prohibiting employees from using copy machines, conference rooms and other organizational resources in connection with federal political activity, it is not as easy to measure the potential reputational risk associated with their activity.

What if the CEO of the company decides to hold a political fundraiser for one candidate over the other?

The CEO of Intel “took heat” over an event that he was planning to host for Donald Trump. The event ultimately got canceled because customers were questioning whether the event signaled that Intel supported Donald Trump.

What if your organization decides to support one candidate over another by participating in independent expenditure activity?

Target faced backlash in 2011 when it supported an organization that in turn supported a candidate that many considered a bigot. The support drew criticism from customers, celebrities with products in Target stores and shareholders alike.

What if your connected federal PAC fails to get shareholder approval before making political contributions?

Corporations need to determine whether their company will suffer negative consequences if their connected federal PAC makes contributions to candidates that do not support the corporation’s overall goals and mission.

Many of these consequences are difficult to predict – it is not always clear at the outset how a decision to participate in an election as an individual, through independent expenditures or through a connected  corporate PAC will ultimately impact your organization and its reputation. Although hindsight is always 20/20, corporations need to be forward thinking so they do not find themselves at the center of political controversy.

New Jersey’s 2016 Primary: Potential Pitfalls of Per Election & Pay-to-Play Limits

New Jersey held its 2016 primary election on Tuesday, June 7, 2016. While most of the focus has been on the presidential primary, individuals and entities that contribute in connection with New Jersey state and local elections need to keep the following in mind:

  • New Jersey campaign finance law sets “per election” limits for contributions to candidate committees; however, the limit does not automatically reset the day after the primary election. Rather, the 2016 primary election cycle remains open until Friday, June 24, 2016 (candidates are required to file a 20-day post-election report with ELEC on Monday, June 27, 2016). So, any contribution made between the primary election and June 24, 2016 will count toward the 2016 primary and not the 2016 general. This is an important consideration if a contributor is concerned with pay-to-play compliance and wants to limit contributions to a particular candidate to no more than $300 per election.
    • If a contributor wants a contribution to count toward the 2016 primary, the contributor should make sure that the check arrives before June 24, 2016 and that the recipient committee will report the contribution in connection with the 2016 primary.
    • If a contributor wants a contribution to count toward the 2016 general, the contributor should wait to send the check after the June 24 “cut off” date to avoid any confusion (and the possibility of exceeding a pay-to-play limit).
  • New Jersey campaign finance law sets “per calendar” year limits for contributions to party committees, PACs and legislative leadership committees. So, if a contributor is concerned with pay-to-play compliance and wants to limit contributions to $300 or less, the limit does not re-set now that the primary is over.
  • Some New Jersey pay-to-play ordinances set “per calendar year,” “per contract” or “per election cycle” limits for contributions to candidates. Some even prohibit contributions in any amount during certain periods of time. So, if your company does business with a particular county or municipality or wishes to remain eligible for future contracts with a particular county or municipality, do not assume that because the 2016 primary election is over, it is now safe to write another check.

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.

Pay-to-Play Resolutions

As we approach the end of the first work week of 2016, companies should be thinking about their “pay-to-play resolutions” in the upcoming year. New Jersey is home to numerous and varied pay-to-play restrictions. One misstep can have severe consequences. New Jersey’s pay-to-play restrictions may make your head spin, but any company that does business (or wants to do business) with the New Jersey government needs to make compliance with these laws part of its 2016 business plan.

Although many companies think that they have their political activity compliance program under control, companies often ignore these key facts:

  1. The laws change;
  2. Similar laws are often interpreted differently; and
  3. Those covered by pay-to-play restrictions within your organization may change from year to year as people join your team, leave your team or change positions within your company.

As 2012 came to a close, we discussed 2013 Pay-to-Play Resolutions. Given, however, that we are now in a Presidential election year and New Jersey’s gubernatorial election is not far behind, it is important to address pay-to-play resolutions once again. As we enter this busy political season with many hotly contested issues (and races), thinking that individuals within your company are going to sit on the sidelines is not realistic. If you are a government contractor (or hope to be one in the future), now is the perfect time to make the adoption of a meaningful political activity compliance program a key part of your list of New Year’s resolutions.

 

Public-Private Partnerships and Pay-to-Play in New Jersey: “P3s and P2P in the Garden State”

Public-Private Partnerships (commonly known as “P3s”) are very popular across the country, including the recently announced renovations at LaGuardia Airport as one example. P3s are also gaining significant attention here in New Jersey. Although P3s have thus far been focused on educational settings in New Jersey, there is potential for this funding method to be used for a wide variety of projects ranging from infrastructure to transportation.

P3s are often touted as a solution for economic growth and development because a private entity steps in to fill a funding gap that is not being filled by the government. Because, however, P3s require a private entity to “partner” with the government, private entities that are interested in participating in P3s need to be mindful of New Jersey’s pay-to-play restrictions, which limit a business entity’s eligibility for government contracts or agreements based on political contributions. For example, if a private entity wants to enter into a public-partnership with the State of New Jersey, the private entity needs to make sure that the entity and certain associated individuals (such as the entity’s officers and owners) have not made “reportable” contributions (a contribution greater than $300) to a New Jersey gubernatorial candidate, political party committee or legislative leadership committee within certain periods of time that may range from 18 months to 5 ½ years. If a private entity wants to partner with the government at the local level, the entity will need to certify compliance with local pay-to-play restrictions, which may contain an absolute ban on contributions (in any amount) and may also cover contributions to PACs that provide support to local candidates and party committees.

Although pay-to-play compliance is often the last piece of the “P3” puzzle, it cannot be overlooked. If a private entity cannot certify compliance with New Jerseys pay-to-play restrictions, this failure may result in significant delays or may even render the private entity ineligible for the project. As businesses explore new opportunities to work with the government, they will have to keep in mind that their political contributions may affect eligibility for P3s and other contracting opportunities.

What is a Super PAC?

The Wall Street Journal’s Washington Wire has reported that in the first half of 2015, presidential Super PACs have raised a total of $211,457,755. This money is in addition to money raised directly by presidential candidate committees and does not include money raised by 501(c)(4) entities that might be involved in the political process.

Since Citizens United was decided in 2010, Super PACs have been a hot topic. Despite all of the press and discussion, it seems that confusion still surrounds Super PACs. So, we decided to go back to the basics:

  • A Super PAC is an independent-expenditure-only committee, which means that it can only spend its money on expenditures that are not coordinated with candidates.
  • A Super PAC may not make contributions to candidate committees.
  • A Super PAC may raise unlimited funds.
  • A Super PAC is required to disclose its donors.
  • A Super PAC may be registered with the IRS, the FEC or a state election commission (depending on the nature of the Super PAC’s focus and activities).
  • A Super PAC may be required to file reports with more than one government entity (depending on the nature and timing of its activities).

 

What Do The Jersey Shore, The 2015 General Election & Understanding Applicable Contribution Limits Have in Common?

No – this is not a bad joke (although it could have the makings of one) – rather, because this past weekend marked the “official” start to summer and also marked the start of New Jersey’s 2015 general election cycle, we thought we would use this opportunity to discuss one of the most common mistakes in political-contribution compliance.

Although the 2015 primary election was held on June 2nd, the cut-off for receiving primary-election contributions was June 19th. So, contributors that maxed out with respect to the 2015 primary are now starting with a clean slate with respect to the 2015 general. Or are they?

We know that most contributors would rather be spending their summer days at the Jersey Shore than worrying about political-contribution compliance, but contributors can do both if before writing a check in connection with what the contributor believes is the 2015 general election, the contributor checks to make sure:

  • Any contributions made prior to the June 19th primary election deadline were in fact received and reported in connection with the 2015 primary.
    • Compliance tip – contributors often use the date on the check as the date of the contribution and committees often use the date of deposit.
  • No local ordinance is in place with “election cycle” limits that impose a combined limit on the 2015 primary and general election cycles.
    • Compliance tip – the Bergen County Ordinance is one example of this type of ordinance.
  • The candidate was successful in the 2015 primary and will be seeking election in the 2015 general.
    • Compliance tip – this is especially important with joint candidate committees.

Although election cycles seem straightforward, understanding when a new election cycle begins is often a source of confusion for contributors. This confusion can lead to mistakes, which may result in excessive contributions and violations of applicable pay-to-play limits.

So, if you want to maximize your time in the summer sun without the headaches associated with making contributions in violation of applicable limits, consider communicating your intent to the recipient committee by using cover letters and by writing “2015 General” on the memo line of your check. While we cannot guarantee that these simple steps will eliminate all confusion, they may very well help if you learn that the contribution you thought was made in connection with one election was in fact deposited and reported in connection with another!

Top Ten New Jersey Pay-to-Play Myths

Now that David Letterman has hosted his last show, the universe is experiencing a distinct lack of top-ten lists. We are happy to take on this awe-inspiring responsibility in the best way we know how: with a list of the top ten New Jersey pay-to-play myths.

  1. MYTH: Contributions of $300 or less are always permissible.
    • FACT: Some stringent local pay-to-play ordinances do not allow contributions in any amount once a business entity has entered a contract (or even started negotiations for a contract) with the government entity.
  2. MYTH: Reduced contribution limits are the same before and during a contract.
    • FACT: As mentioned above, some local ordinances do not allow contributions, in any amount, to be made once a business entity starts negotiations for a contract even though they allow for reduced contributions prior to the negotiation period.
  3. MYTH: Contributions to New Jersey PACs are not subject to pay-to-play restrictions.
    • FACT: There are some local pay-to-play ordinances that cover contributions to PACs that were either “formed for the primary purpose of” or “that regularly engage in the support of” the jurisdiction’s candidates or elections. This is different than the treatment of PACs under statewide Executive Branch pay-to-play restrictions.
  4. MYTH: It is always permissible to contribute $300 to a candidate for the primary election and an additional $300 for the general election.
    • FACT: Some municipalities hold municipal elections once every four years and do not hold separate primary and general elections. So, in these jurisdictions, a contributor may only be permitted to contribute $300 over the course of four years. Also, some local ordinances impose a per-election-cycle limit, treating the primary and general elections as one unit.
  5. MYTH: Pay-to-play limits are the same for candidates, political party committees, and New Jersey PACs.
    • FACT: Pay-to-play limits are often based on reportable periods. A reporting period generally runs on a per-election basis for a candidate committee and a per-calendar-year basis for party committees and PACs.
  6. MYTH: Contributions to legislative candidate committees are not subject to pay-to-play.
    • FACT: Contributions to legislative candidate committees may have pay-to-play implications if the legislator serves as the presiding officer of either house or represents a legislative district that includes part of a State redevelopment area.
  7. MYTH: If a county or municipality has its own local ordinance in effect, there is no reason to worry about the State laws.
    • FACT: Local ordinances and the State laws can sometimes offer divergent limits. For example, some local ordinances impose a per-calendar-year contribution limit for a candidate, while the State laws work on a per-election basis for candidates. The best approach is for a business entity to comply with both the State laws and any local ordinance in effect.
  8. MYTH: Only shareholders and officers of a business entity are covered by pay-to-play.
    • FACT: Some local ordinances extend the definition of a business entity to include any employee who earns more than $100,000 in a calendar year. Spouses and children of a covered individual may also be subject to pay-to-play limits.
  9. MYTH: Contributions to federal PACs and candidates are subject to New Jersey pay-to-play restrictions.
    • FACT: Federal elections are outside of ELEC’s jurisdiction and thus contributions to federal committees are not subject to New Jersey pay-to-play laws.
  10. MYTH: Only procurement contracts are subject to pay-to-play restrictions.
    • FACT: Some municipalities have redevelopment or land-use ordinances, which set reduced contribution limits for a business entity that enters redevelopment agreements or seeks certain land-use approvals.

Calling All New Jersey Government Contractors: The Clock is Ticking . . . Are you Ready for the March 30th Pay-to-Play Filing Deadline?

As we have previously discussed here, the New Jersey Pay-to-Play Annual Disclosure filing deadline is right around the corner.

Any entity that received payments of $50,000 or more as a result of payments from a New Jersey government entity during the 2014 calendar year is required to file Form BE electronically with the New Jersey Election Law Enforcement Commission no later than Monday, March 30, 2015.

Not sure whether your company is required to file Form BE? If you are not sure whether you are required to file Form BE, you may want to start your information-gathering process by compiling all of your New Jersey government-contract information. As you compile this information, please keep in mind that:

• Contracts with bi-state agencies, such as the Port Authority of New York & New Jersey and the Delaware River Port Authority, are not included.

• Contracts with Boards of Education and Fire Districts are included.

• The $50,000 threshold is an aggregate threshold – so, if you hold ten (10) contracts with New Jersey government entities and received payments totaling $10,000 for each contract during the 2014 calendar year, you are required to file Form BE.

Not sure whether you have any political contributions to report? Whether you need to file a “detailed” Form BE setting forth both contract and contribution information depends on whether you have any political contributions to report. So, if you know that you exceeded the $50,000 threshold and are not sure whether you have any contributions to report, you may want to start your information-gathering process by compiling contribution information. As you compile this information, please keep in mind that:

• The “reportable” threshold is $300 per election when the contribution was made to a candidate committee (election cycles may span multiple calendar years) and $300 per calendar year when the contribution was made to a party committee, political action committee/continuing political committee or a legislative leadership committee.

• The group of covered contributors is broader than under other pay-to-play laws (in addition to surveying owners of your company or firm, you will also need to survey officers and directors).

• The group of covered political recipients is broader than under other pay-to-play laws (with the exception of contributions to federal recipients, you are required to disclose contributions to all other New Jersey political recipients from the State level down to the school board level).

Not sure whether you are on the right track to file a timely and accurate disclosure? You still have time to gather all relevant information to make that determination. The key is to designate a point person within your organization who is responsible for gathering all contract and contribution information.

Remember – you may need to reach out to various individuals within your company so the sooner you begin to gather the information, the better!

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.