The Christie Reform Agenda: More Restrictions on the Way?

Governor-Elect Chris Christie takes office on January 19, 2010.  During the campaign Mr. Christie promised widespread ethics reform to “ensure that we restore honesty, transparency and ethical behavior to this state.”

Among the proposals he has suggested are an expansion of New Jersey’s already extensive pay-to-play laws, which may include:

  • covering labor unions as “business entities” subject to statewide pay-to-play restrictions.  For example, number 27 in the list of  “88 Ways that Chris Christie Will Fix New Jersey” includes a promise to “strengthen our weak ‘pay to play’ laws by eliminating special interest labor union loopholes to ensure labor unions are treated just like any other entities that have contracts with government.”
  • Extending current statewide pay-to-play restrictions “to all groups at all levels of government.”
  • Stronger anti-circumvention provisions.
  • A ban on wheeling.

Mr. Christie has also suggested more detailed financial disclosure forms for of state officials.  For example, he suggested that elected officials might be required to disclose the receipt of political contributions in advance of voting on certain land transactions involving developers.

Law Clerk Bonnie Fire contributed to this post.

Pay-to-Play Restrictions Come to New York State

Pay-to-play reforms take many different forms. For example, in New Jersey, the current restrictions are embodied in state statutes, gubernatorial executive orders, municipal ordinances, and State Investment Council regulations. Now, almost five years to the day after the first gubernatorial executive order limiting political contributions in relation to New Jersey State contracting opportunities, New York State Comptroller Thomas J. DiNapoli has issued an executive order to prohibit the New York State Common Retirement Fund from doing business with investment advisers who make, solicit or coordinate political contributions to the State Comptroller or a candidate for State Comptroller. The DiNapoli executive order is modeled on recent SEC proposals.

The 2004 New Jersey gubernatorial executive order spurred state legislation and a proliferation of local regulations. Will the DiNapoli order similarly give rise to additional reforms in New York?

SEC to Propose New Pay to Play Restrictions: What Might Be Covered?

The Securities and Exchange Commission (“SEC“) plans to reconsider a rule it last considered in 1999 to curb political contributions by investment advisers seeking to manage the investment of state pension funds. The new proposal comes in the wake of continuing investigations by New York Attorney General Andrew Cuomo (“NYAG”) concerning investments by New York’s largest pension fund under former State Comptroller Alan Hevesi. These investigations have resulted in a “Public Pension Fund Reform Code of Conduct,” issued by the NYAG, which restricts campaign contributions by investment firms and related parties as a condition of maintaining eligibility to accept, manage or retain investments from or to provide investment management services to public pension funds. The Cuomo Code is national in scope; it is not limited to government pension funds in New York. The NYAG has made firm acceptance of this Code of Conduct a condition for resolving allegations.

As in its 1999 proposal, the SEC may again look to Municipal Securities Rulemaking Board (“MSRB”) Rule G-37 as a model. In brief, G-37 bans broker-dealers and municipal finance professionals from engaging in the municipal securities business for two years after soliciting or making a contribution to an official of a governmental issuer. G-37 is distinctive as the product of a self-regulatory organization and not merely an imposition by an agency of government.

In 1999, the SEC proposed but ultimately failed to adopt a similar rule to ban investment advisory firms from providing paid advisory services to a government entity for two years after the firm (or its partners, executive officers, or political action committee) made or solicited a contribution to an official of that government entity directly or indirectly responsible for the use of an investment adviser (including candidates for such office). As in G-37, contributions up to $250 per election made to officials for whom the contributor was entitled to vote would not trigger the ban. Since the 1999 SEC proposal, some states, notably New Jersey and Connecticut, have stepped into the breach by implementing pay to play restrictions on investment managers.

The New Jersey rules, also modeled after G-37, are similar to the 1999 SEC proposal. Both (i) impose a two year ban on the award of business following a covered contribution; (ii) reach the making and solicitation of contributions, as well as “indirect” violations; and (iii) include a de minimis exception for certain contributions of $250 or less. The New Jersey rules have a broader reach. For example, the New Jersey ban extends beyond partners, executives, solicitors, and PACs to also cover contributions made or solicited by the investment management firm’s parent company, controlling persons or entities, various employees defined as “investment management professionals”, and third party solicitors. The New Jersey ban also covers a broader range of contribution recipients, including candidates for state and local office, and political parties, regardless whether the recipient has a role in choosing investment advisers for the state. New Jersey also requires extensive periodic reporting, a feature absent from the 1999 SEC proposal.

Connecticut’s statute reaches an even broader group of contributors. These individuals, defined as principals of an investment services firm, include directors, individuals with an ownership interest, senior executives, employees with managerial or discretionary responsibilities with respect to investment services, and their spouses and dependent children. Investment services are broadly defined as investment legal, banking or advisory services, underwriting services, financial advisory services and brokerage firm services. Likewise following the G-37 structure, the Connecticut State Treasurer is barred from issuing any contract to any firm which provides investment services if a principal of that firm has made or solicited a contribution to a candidate for State Treasurer. The ban covers the full term of office as State Treasurer following the contribution and also the remainder of the prior term in the case of an incumbent Treasurer seeking reelection. There is no exception for small contributions.

Will the SEC draw on these models or opt for a new approach? Regardless of how strict it may be, will the new pay-to-play restrictions bring about national uniformity or stimulate further local innovation? A new proposal is expected soon.  And here it is.

Maria Bernido assisted in the preparation of this post.

New York to Follow New Jersey?

Since April 2007, the New Jersey State Investment Council has subjected firms seeking investment of state pension funds, and associated persons, to a ban on political contributions. The New Jersey regulation makes compliance with the ban a condition of eligibility for State investments. A proposal floated by New York Attorney General Andrew Cuomo appears intended to take New York State down the same path. New Jersey’s rules also prohibit solicitation of contributions – will that be a feature of AG Cuomo’s proposal?

In contrast, New York City’s “doing business” limits restrict candidates from accepting large contributions from certain persons associated with firms seeking the investment of City pension funds, but do not make the firm’s compliance a condition of eligibility for City investments. The New York City rules require candidates to disclose the intermediaries for particular contributions, which is defined to include successful solicitation, but do not restrict municipal finance professionals from soliciting contributions altogether.

Reminder: Chapter 271 Annual Disclosure Form Due March 30, 2009

Businesses with government contracts in New Jersey are subject to an annual disclosure requirement, which is due one week from today.  Here are a few things to keep in mind:

  • Only “reportable” contributions need to be disclosed. A “reportable” contribution is one in excess of $300 in the aggregate per election to candidate committees and political committees; and $300 in the aggregate per calendar year to political party committees, legislative leadership committees, and continuing political committees.
  • The $50,000 threshold relating to the receipt of government contracts is in the aggregate. This means that if your business received 5 government contracts worth $10,000 each (from the same or different governmental entities), you must file a report.

Third Annual Chapter 271 Disclosure Form Due March 30, 2009

Pursuant to Chapter 271, a business entity that has received $50,000 or more in government contracts in a calendar year must file an annual disclosure statement electronically with New Jersey Election Law Enforcement Commission.  The disclosure form requires reporting contract information and reportable contributions that the business entity made in calendar year 2008.

The due date for the third annual disclosure report for calendar year 2008 is March 30, 2009.

NJ Supreme Court Finds Ch. 51 Constitutional

Yesterday, the NJ Supreme Court issued a decision in The Matter of the Appeal by Earl Asphalt Company which upheld the constitutionality of Chapter 51 of the Campaign Contributions and Expenditure Reporting Act.  The Court affirmed an Appellate Division decision and found that “the State’s interest in insulating the negotiation and award of State contracts from political contributions that pose the risk of improper influence, purchase of access, or the appearance thereof, is a sufficiently important interest to justify a limitation on political contributions.”

The Obama Economic Stimulus Package and Pay-to-Play

The incoming Obama administration and members of Congress are reportedly close to an agreement on the principles of an economic stimulus package.  The costs of the plan have been reported to be anywhere from $800 billion to $1.2 trillion.  So what does this have to do with pay-to-play?

A major part of the plan includes making $25 billion immediately available for infrastructure projects, including rebuilding roads, bridges and schools.  Indeed, as evinced by the letters written yesterday by several governors, including the governors of New York and New Jersey, many states are in such financial turmoil that the only hope for some infrastructure projects is this stimulus money.  Of course contractors are needed to actually build these roads, bridges and schools.

The stimulus plan does not, at this point, specify whether federal dollars will allocated for specific projects, or whether states will be given grants to complete the projects as they see fit. Either way, pay-to-play laws should be on every contractor’s radar screen.

Federal contractors are prohibited from making political contributions to a federal candidate, a political party or a political committee. (A federal contractor is also prohibited from using appropriated federal funds to pay any person to lobby federal officials.)   Additionally, many states, including New Jersey and Connecticut, have restrictions on eligibility for state contracts based on political contributions the business entity or affiliated persons make.

In these tough economic times, don’t let pay-to-play restrictions get in the way of what could be a significant contract.