Redeveloper Pay-to-Play is Coming to Newark

The City of Newark has had a contractor pay-to-play executive order in effect since 2007, which specifically excludes redevelopment contracts.  All that is about to change.  In one week, a new redeveloper pay-to-play ordinance will take effect in Newark. 

The Newark redeveloper pay-to-play ordinance has been under consideration for quite some time, but was not passed by the City Council until May 4, 2011

The ordinance will take effect on Thursday, June 2, 2011 and bars redevelopers from contracting with the City of Newark if the redeveloper has made or solicited a contribution greater than $300 to a covered recipient within the year period prior to the contract. 

The ordinance defines the term “redeveloper” to include: any person or entity entering into a contract with the city, or with another redeveloper, for the rehabilitation of any area in the City of Newark.  The definition includes: those with a 10% or greater ownership in the entity, partners, officers, subsidiaries, and the spouses and adult resident children of the 10% or greater shareholders, partners and officers.

Covered recipients include:   

  • A holder of or candidate for Newark elective office;
  • A Newark municipal political party committee;
  • An Essex County political party committee; and
  • Any PAC that regularly engages in the support of Newark municipal campaigns.

The ordinance also contains a $3,000 aggregate limit on contributions to covered recipients during the four-year municipal election cycle.

The Newark redeveloper ordinance permits covered persons and entities to make and solicit contributions up to the reduced limits set forth above both during the one-year period prior to entering into a contract with the City of Newark and during the term of any such contract.

Unlike many contractor pay-to-play ordinances, not only does the Newark redeveloper pay-to-play ordinance cover contributions by the persons and entities listed above, but the ordinance also covers contributions by certain professionals, consultants and lobbyists contracted or employed by the business entity ultimately designated as the redeveloper.

Donations to Not-for-Profits and the Gift Tax

In today’s world, many not-for-profits work together in a web of different connected organizations to help achieve overarching objectives. Typically, these efforts may be serviced by a 501(c)(3) organization for education and training, a 501(c)(4) organization for social welfare/issue advocacy and a 527 organization for political activity.

Many not-for-profit organizations develop a name as a brand to help gain attention for their message and enthusiasm for their efforts. The brand helps attract support (i.e., raise money). But a brand name may also unintentionally create confusion for potential donors. Hypothetically speaking, a group that aims to “Build a Better World” may set up various connected not-for-profit organizations, beneficially labeled with the brand they share: a To Build a Better World Education and Training Fund (a (c)(3)), a To Build a Better World Action Fund (a (c)(4)) and a To Build a Better World Political Action Committee (a 527).

Confusion is a leading cause of inadvertent non-compliance. As the IRS begins to enforce the gift tax for donations to certain not-for-profit groups, donors will want to be sure of the implications of their donations. Donors need to be aware that, in contrast with donations to (c)(3) charitable organizations and 527 political organizations, donations to (c)(4) social welfare organizations may result in gift tax liability.

Thus, while branding may be a useful tool for carrying forward the organization’s message, clear distinctions should be drawn for potential donors. After all, it’s hard to build a better world, if unwelcome surprises from the IRS are sapping the enthusiasm of your strongest supporters.

Reflections on Nevada Ethics Commission v. Carrigan

In the U.S. Supreme Court, the last oral argument of the term was in Nevada Ethics Commission v. Carrigan, concerning whether a Sparks, Nevada, city councilmember may be censured by the Nevada Ethics Commission for casting a legislative vote on a casino project for which his campaign manager served as a consultant. Similar concerns have been raised in New York City in recent years, as some saw potential conflicts of interest for elected officials in regard to their choice of campaign consultants and in the casting of legislative votes.

For example, at one time the New York City Conflicts of Interest Board wrestled with restricting elected officials from retaining political consultants who also work as City lobbyists. We testified. While the Conflicts Board ultimately imposed no restriction, its scrutiny of this issue helped spur local legislation requiring City lobbyists to detail their fundraising and political consulting work on behalf of City candidates.

Later the Conflicts Board once more opted against constraining elected officials by rejecting the contention that casting a legislative vote to extend the term limits law would pose a conflict of interest for term-limited NYC Council members.

Governor Cuomo Proposes New Pay-to-Play Restrictions

New York’s Governor has directed the State Insurance Department to draft permanent regulations to ban “pay-to-play” in the State pension fund. The new regulations would include:

• A permanent ban on the prospective investment manager’s use of elected officials, lobbyists and all placement agents, whether paid or unpaid.

• Prohibitions against: improper relationships between pension fund officials and an investment firm’s personnel or agents, “revolving door” employment by investment firms of former public pension fund officials and employees, and improper gifts by investment firms to public pension fund employees and officials.

• A ban on investment firms that directly or indirectly make campaign contributions, charitable contributions, or gifts to the Comptroller.

This new initiative builds on a foundation that includes the code of conduct the Governor had incorporated into the settlement of investigations of investment firms he had conducted as Attorney General, State Comptroller DiNapoli’s executive order banning pension fund investment opportunities for firms making contributions to Comptroller candidates, and SEC rules prohibiting investment advisers from providing investment advisory services to a governmental entity within two years after covered contributions to government officials.

2011 New Jersey Local Government Financial Disclosure Statements Due April 30th

New Jersey local government officials are required to file a Financial Disclosure Statement (“FDS”) by April 30th of each year.   Forms are filed at the local level of government and are subsequently forwarded to the New Jersey Department of Community Affairs.

Local government officials include: mayors, council members, county constitutional officers, freeholders, county prosecutors, members of local government boards and authorities and municipal attorneys. A roster of 2011 local government officials can be found on the New Jersey Department of Community Affairs’ website

The FDS requires disclosure of all sources of income, fees, honorariums, sources of gifts, reimbursements or prepaid expenses received by the local government official and/or his/her immediate family members during the previous calendar year. 

All sources of gifts, reimbursements and prepaid expenses with an aggregate value of $400 or more from any single source, excluding relatives, received by the local government official and/or his/her immediate family members must be disclosed. So, before offering to take a local government official and/or the official’s immediate family members out to a high priced ball game, a government vendor should decide whether the peanuts and crackerjacks are worth the public scrutiny.

NY: Breaking the $100,000 Barrier

The New York State Board of Elections has posted new contribution limits to be effective in July 2011 for the 2014 gubernatorial cycle.   As is well known, New York’s contribution limits are distinctively high and that tradition continues.  For example, the new general election limit for statewide candidates will be $41, 100, and political party committees may now receive up to $102, 300 per calendar year to use for candidate-related expenditures.


The Obama Pay-to-Play Initiative

The White House is circulating a draft executive order to require federal government contractors to disclose contributions or expenditures made within the two years prior to submission of their offer by the bidding entity, its directors or officers, and affiliates or subsidiaries within its control. As drafted, the disclosure would also extend to contributions made to third parties “with the intention or reasonable expectation that parties would use those contributions to make independent expenditures or electioneering communications,” arguably capturing donations to IRC 501(c)(4) organizations that are not currently disclosed to the public. Certification of disclosure would be required as a condition of award. Reports suggest that the draft executive order was drafted in response to the Citizens United decision and the failure of the DISCLOSE Act to pass Congress last year.

The precedent for executive action to implement pay-to-play standards was famously set by New Jersey Governor James McGreevey in 2004 after he announced his pending resignation from office. Indeed, there are striking echoes of the 2004 McGreevey EO in the draft Presidential order. For example:

• McGreevey: political contributions “to obtain a contract awarded by a government agency … raise[] legitimate public concerns about whether the contract was awarded on the basis of merit”

• White House: the “Federal Government must ensure that its contracting decisions are merit-based in order to deliver the best value for the taxpayer.”

• McGreevey: “it has long been the public policy of this State to secure for the taxpayers the benefits of competition, to promote the public good by promoting the honesty and integrity of bidders for public contracts … and to guard against favoritism, improvidence, extravagance and corruption”

• White House: “When the public lacks confidence that the contracting system works fairly, it may deter participation and deprive the government of the most robust competition and the best providers”

• McGreevey: “I must … impos[e] restrictions on State agencies … to insulate the negotiation and award of State contracts from political contributions that pose the risk of improper influence, purchase of access, or the appearance thereof”

• White House: “additional measures are appropriate and effective in addressing the perception that political campaign spending provides enhanced access to or favoritism in the contracting process”.

When a legislature fails to act, executives may tests the limits of their constitutional authority, as current New Jersey Governor Chris Christie unsuccessfully attempted last year with an executive order limiting labor union contributions. Given that the draft EO would seemingly extend the reach of pay-to-play disclosure to encompass independent expenditures, despite the U.S. Supreme Court’s conclusion that such expenditures pose no risk of quid pro quo corruption, one might conclude the draft EO is a bit of an odd mix, such that other constitutional boundaries may also be tested.


NY Commission on Public Integrity Revises Proposed Regulations

The NY Commission on Public Integrity (CPI) recently announced that it had revised proposed two sets of regulations regarding gifts, including those made by lobbyists and those received by State officers and employees.  The CPI initially proposed the regulations last summer.

For example, by law, complimentary attendance, food or beverages offered by the sponsor of an event that is “widely attended” and related to the attendee’s duties or responsibilities as a public official are not considered gifts.

Pursuant to the proposed regulation, a “widely attended event”  would now be defined as “an event that is intended to be open to a large number of persons, a substantial number of which must include invitees who are not members, employees or agents of the sponsoring organization, their spouses or public officials.”   Previously, the proposed definition would have required that the attendees must “represent a broad and diverse range of interest in a given subject matter” and that the “event must provide the opportunity for an exchange of ideas and opinions among those in attendance.”

Another change related to the widely attended event exception is in the standard for whether the event is related to the public official’s duties or responsibilities: under the proposed rules for lobbyists, the answer would be “yes”, if the event “includes a presentation of information and an exchange of ideas and opinions among those in attendance about an issue or issues that are related to the public official’s official duties.”  The previous, much briefer rule would have required “as its principal purpose promoting the exchange of information about an issue or issues of public interest.”

Additionally, food and beverage of a nominal amount, which is permissible, would expressly allow “non-alcoholic beverages such as regular coffee, tea, water and soft drinks” and “snack items such as cookies, crackers, or pretzels.”  Query: the beverages are enumerated conjunctively (“and”), whereas the snacks are enumerated disjunctively (“or”).  Does the proposal mean that the exception for nominal value would allow provision of multiple beverages, but only one kind of snack?

Since these changes are considered “substantial changes” an additional comment period is required.  The CPI has, however, indicated that it will use the proposed regulations as the basis for staff guidance.

A Pay-to-Play Platypus

Pay-to-play laws are generally designed to curb the risk that a political contribution would be made as a quid pro quo for a government contract. Thus, limits and prohibitions are generally made applicable both to business entities that seek and to those that receive government contracts.

In Citizens United v. FEC, the U.S. Supreme Court reaffirmed its longstanding view that, unlike political contributions, independent expenditures do not pose a risk of quid pro quo corruption. Thus, one might think that pay-to-play type restrictions would not be a means of restricting independent expenditures.

Yet legislation sometimes yields surprising amalgamations. (Hence, Platypus.)  Exhibit A: a bill in the New York State Legislature, S.1565/A.5907, described in press reports as “eliminating pay to play.”  The stated purpose of this bill “is to ensure that business entities receiving or renewing state contracts cannot directly or indirectly make expenditures for political purposes, which could influence their ability to receive such a contract or renewal, and would in effect involve the use of public funds to buy such influence.”

Oddly, the bill lets prospective contractors off the hook; prior to a contract award, a business entity’s right to make contributions in the hope of influencing a contract award remains unhindered. This seems like an unintended loophole, until you parse the bill’s purpose and discover it’s really not a pay-to-play restriction at all. The bill is actually a restriction on the indirect use of public funds for political purposes, a familiar feature of government grants and tax exemptions.

There is potential danger in mixed-up motives, however. The recent oral argument before the Supreme Court in the Arizona public financing case is a reminder that judges may not take kindly to a law founded on intentions of questionable constitutionality. In other words, if you are looking to curb quid pro quo corruption, your pay-to-play law should cover both prospective and actual contractors (so as to be effective) but not prohibit independent expenditures (so as to be constitutional).

New Jersey School Board Elections are Around the Corner

Most New Jersey school districts will be holding their annual school board elections on Wednesday, April 27th. The New Jersey Election Law Enforcement Commission reports in White Paper #21 that overall spending on school board elections has doubled during the past decade to $9.6 million.

Without regard to pay-to-play restrictions, an individual or corporation may contribute up to $2,600 per election to a candidate running for school board in New Jersey.  Vendors are required to disclose contributions greater than $300 per election to a school board candidate on certain pay-to-play disclosure forms. 

Although contributions to school board candidates are generally beyond the scope of New Jersey’s statewide pay-to-play prohibition laws, school boards are authorized to adopt local pay-to-play ordinances.  Thus, before writing a check (in any amount) to a school board candidate, vendors should determine whether a local ordinance is in effect.