Supreme Court Requires Donor Disclosure by 501(c) Organizations

Since the Supreme Court’s 2010 ruling in Citizens United, spending by outside groups and non-political organizations has increased in federal elections. Many of these groups are organized as 501(c)(4) social-welfare organizations and 501(c)(6) trade associations. Under current IRS rules, these groups are not required to disclose their donors and may engage in political activity, including making independent-expenditures, provided the political activity is not the organization’s primary purpose.

Previously, under FEC regulations, such groups and organizations were only required to identify donors who contributed over $200 for the purpose of influencing a federal election if the contribution was earmarked for a specific independent expenditure; general contributions were not required to be disclosed. Last month, in a case brought against the Federal Election Commission and Crossroads GPS by the Committee for Responsibility and Ethics in Washington, the U.S. District Court for the District of Columbia struck down the FEC regulation allowing 501(c)(4) and 501(c)(6) organizations to shield their donors, stating that the regulation was overly narrow and inconsistent with the Federal Election Campaign Act. Crossroads GPS appealed the decision, lost on appeal, and filed an application for a stay with the U.S. Supreme Court, which was denied.

The Supreme Court’s denial for a stay has important implications for 501(c)(4) and 501(c)(6) organizations. Going forward, nonprofit organizations that file independent expenditure reports with the FEC may be required to disclose ALL donors who contribute more than $200 toward influencing a federal election, regardless of whether that particular contribution was earmarked for a particular independent expenditure. The FEC has not issued any rules or guidance regarding this expanded disclosure requirement, but 501(c)(4) and 501 (c)(6) organizations should know that this new disclosure rule may require a change in their fundraising and disclosure processes.

Prior to the Supreme Court’s ruling, many donors felt comfort in giving to 501(c)(4) and 501(c)(6) organizations knowing they their identities would not be publicly disclosed. Now, with less than seven weeks until the 2018 Mid-Term Elections, this recent decision has these groups and their donors wondering what is next. At a minimum, groups considering running ads in connection with the 2018 Mid-Term Elections should evaluate their strategy to determine whether the ads fall within the category of independent expenditures (that would be subject to FEC reporting) or issue advocacy (that would be exempt from current reporting requirements). If disclosure is a concern, donors must also make sure that they fully understand whether a group to which they wish to make a donation plans to engage in independent expenditures.

While the finer details will not be known until the FEC issues temporary guidance or regulations, one thing is clear: the fact that the rules of the road have changed with less than two months before Mid-Term Elections means that many groups and donors may need to re-evaluate their strategy with respect to participation in the upcoming election. For more information on what this ruling means with respect to your plans for participating in the 2018 Mid-Term Elections, please contact Rebecca Moll Freed, Esq., Chair of the Corporate Political Activity Law Group, at rfreed@genovaburns.com or 973-230-2075, Rajiv D. Parikh, Esq. at rparikh@genovaburns.com or 973-535-4446, Avi D. Kelin, Esq. at akelin@genovaburns.com or 973-646-3267, or Paul M. Rozenberg, Esq. at prozenberg@genovaburns.com or 973-646-3283.

It’s Golf Outing Season: Do You Know Where Your Check Is Going?

Although it has been a long winter, we have recently had a taste of spring (or maybe even summer) here in New Jersey. The warmer weather means that golf outing season is upon us. In the political world, this means that your company may soon be receiving invitations to sponsor a hole, beverage cart or foursome at a golf outing. Before you register for the golf outing, you should ask yourself the following questions:

  • Who is hosting the event? Is it a political party committee, candidate committee, political action committee or not-for-profit entity?
  • If the host is a political recipient, does your company currently hold or are you seeking contracts in the jurisdiction where the political recipient is located?
  • Have you evaluated all applicable campaign finance and pay-to-play limits? Do they apply on a calendar year, per election or per election cycle basis?
  • Are you inviting anyone outside of your company to attend as your guest? If so, are they an elected official or government employee? If they are, is your invitation in compliance with relevant gift rules?

To assist compliance with campaign finance pay-to-play and gift rules, these questions should be a part of your company’s internal review process for each and every political event you are asked to attend. The bottom line is that your company should not write a check without knowing the exact name of the recipient committee, how it is organized and whether the sponsorship will jeopardize your eligibility for current or future government contracts.

Genova Burns LLC can help your company comply with campaign finance pay-to-play and gift rules. Contact Rebecca Moll Freed, Esq., Chair of the Corporate Political Activity Law Group, at rfreed@genovaburns.com or 973-230-2075 or Avi D. Kelin, Esq. at akelin@genovaburns.com or 973-646-3267.

Deadline for New Jersey’s Annual Pay-to-Play Disclosure is Approaching: Is Your Company Ready to File?

The New Jersey Election Law Enforcement Commission (“ELEC”) requires each business entity that received payments of $50,000 or more (in the aggregate) as a result of government contracts during the 2017 calendar year to electronically file a Business Entity Annual Statement (“Form BE”) with ELEC no later than Monday, April 2, 2018. (Although the Form BE must be filed in most years by March 30, the deadline has been extended this year because of Good Friday.)

The obligation to file arises whenever payments from New Jersey government entities reach the $50,000 threshold. This includes contracts with the State of New Jersey Executive and Legislative branches, counties, municipalities, boards of education, fire districts, and independent authorities, regardless of method of award.

Whether the $50,000 filing threshold is reached depends on payments received by the business entity during 2017. Therefore, the obligation to file may vary from year to year—a business entity that was not required to file in previous years may still be obligated to file for calendar year 2017.

Last, detailed contract and contribution information must be disclosed whenever the business entity or a covered individual made a “reportable” contribution during 2017. A contribution is “reportable” when it exceeds $300 per reporting period. In light of these requirements, it is necessary to review personal political contributions made by a business entity’s partners, officers, and directors (and certain members of their families). Additionally, because of varying election cycles, it may be necessary to review contributions made over the course of several years to determine whether any 2017 contributions are reportable.

Companies that fail to file on time may be subject to monetary penalties. To ensure a timely and accurate filing, companies that have yet to begin preparing Form BE should not delay.

Genova Burns LLC can help your company comply with the Form BE filing requirements. Contact Rebecca Moll Freed, Esq., Chair of the Corporate Political Activity Law Group, at rfreed@genovaburns.com or 973-230-2075 or Avi D. Kelin, Esq. at akelin@genovaburns.com or 973-646-3267.

No Room for Refunds: Pay-to-Play Limits and New Jersey’s Upcoming Gubernatorial Election

With summer vacations over and the New Jersey political world focused on the November gubernatorial election, Friday, September 8, 2017 marks an important milestone under New Jersey’s pay-to-play laws.

Under the law, a business entity can find itself ineligible for New Jersey Executive Branch contracts if the business entity or its covered individuals have made a reportable political contribution (a contribution greater than $300) to a gubernatorial candidate, political party committee, or legislative leadership committee. As previously discussed here, a contribution in excess of pay-to-play limits can have a devastating effect on a company.

The good news is that, generally, if a company or a covered individual makes a contribution in excess of the applicable pay-to-play limit, the contributor can request and receive a refund within 30 days of the contribution without jeopardizing eligibility for New Jersey Executive Branch contracts. The bad news is that, for contributions made within 60 days of a gubernatorial election, a refund will not cure a violation.

As New Jersey draws closer to electing its next Governor and companies and individuals are increasingly engaged in the political process, government contractors (and prospective government contractors) must understand pay-to-play limits. Smart companies know that each contribution must be reviewed and approved in advance and that relying upon obtaining a refund is not a prudent strategy for compliance.

For more information on how you or your company may safely participate in the political process, please contact Rebecca Moll Freed, Esq., Chair of the Corporate Political Activity Law Group, at rfreed@genovaburns.com or 973-230-2075

Is New Jersey’s Regulated-Industry Ban on Political Contributions Ripe for Challenge?

Since 1911, New Jersey law has prohibited the making of political contributions by such highly regulated industries as banks, utilities, and insurance companies. The reasoning underlying this prohibition was clarified by a New Jersey Attorney General Advisory Opinion, which explained that these “[c]omprehensive regulatory programs, vital to the protection of the public, could become prime targets of elected officials seeking to satisfy perceived debts to corporate benefactors affiliated within a regulated industry.” For more than a century, this law has remained in effect. But new legal developments raise questions about the constitutional validity of this ban on regulated-industry political contributions.

In early May of 2017, in Free and Fair Election Fund, et al. v. Missouri Ethics Commission, et al., the U.S. District Court for the Western District of Missouri declared unconstitutional a provision of Missouri campaign-finance law that prohibited banks, insurance companies, and telephone companies from making any political contributions to PACs. (Missouri law already prohibitions all contributions to candidates and political parties from corporations, without regard to whether the corporations in engaged in a heavily regulated industry.) The court determined that this complete ban on contributions from heavily regulated industries is unconstitutional because the law was not closely drawn to avoid abridging First Amendment rights to engage in the political process. This decision was based in part on the U.S. Supreme Court’s recognition that “there is not the same risk of quid pro quo corruption or its appearance when money flows through independent actors to a candidate, as when a donor contributes to a candidate directly.” In this case, making contributions to PACs did not give rise to the same risks of quid pro quo corruption or the appearance thereof because the PACs were independent entities that could determine for themselves how to use funds received from a contributor. This lessened risk was not reason, in the eyes of the court, to prohibit certain corporations from participating in the political process.

This issue is far from settled, as Missouri’s Attorney General announced that he will appeal the court’s decision, and there are key differences between New Jersey’s regulated-industry ban and Missouri’s regulated-industry ban and New Jersey campaign-finance law and Missouri campaign-finance law.  However, the Free and Fair Election Fund decision begs the question whether New Jersey’s regulated-industry ban is ripe for challenge.

 

Is the Time Ripe for New Jersey Pay-to-Play Reform?

For more than a decade, New Jersey has had in place a series of pay-to-play laws that impose reduced contribution limits and heightened disclosure requirements for government contractors. The goal of these laws is to ensure fair contracting procedures and to remove favoritism from the procurement process.

But are these laws working as intended when seemingly innocent mistakes leading to relatively small political contributions remove otherwise qualified and competitive bidders from government contracts? News last month that a paving company was disqualified from $7 million in New Jersey Executive Branch contracts because of a $500 political contribution has government contractors throughout the State understandably concerned about their own compliance procedures. The disproportionate effect of a relatively small political contribution has highlighted the need to reform New Jersey’s pay-to-play laws.

And Jeff Brindle, the Executive Director of the New Jersey Election Law Enforcement Commission, agrees. The need for reform is not a new issue, but the dramatic nature of this ineligibility determination may provide the impetus to begin this process in earnest.

In the current legal landscape and a blockbuster New Jersey election year that will see the election of a new governor as well as 120 State legislative races, government contractors need to focus on their pay-to-play compliance. Merely assuming that you are in compliance is simply not good enough, when a contribution of only a few hundred dollars can disqualify your company from millions of dollars of contracts. At this point in the election cycle, even one unintentional contribution can disqualify your company for up to 5 ½ years and, starting in April, refunds will not cure an excessive contribution once we have entered the 60 days preceding the 2017 primary election.

Genova Burns LLC has been at the forefront of pay-to-play compliance since New Jersey’s law was enacted more than a decade ago. If you are unsure of your compliance procedures, Genova Burns LLC can assist you in navigating the current legal landscape as well as any reforms that the future may bring. If you have any questions or would like to discuss your pay-to-play compliance program, please contact Rebecca Moll Freed, Esq. at 973-230-2075 or Avi D. Kelin, Esq. at 973-646-3267.

Deadline for New Jersey’s Annual Pay-to-Play Disclosure is Approaching: Is Your Company Ready to File?

After ELEC sent out its reminder email on March 6, we are reproducing below a Genova Burns LLC client alert that was distributed last week for any potential filers who may require additional information about the annual pay-to-play disclosure.

The New Jersey Election Law Enforcement Commission (“ELEC”) requires each business entity that received payments of $50,000 or more (in the aggregate) as a result of government contracts during the 2016 calendar year to electronically file a Business Entity Annual Statement (“Form BE“) with ELEC no later than Thursday, March 30, 2017.

The obligation to file arises whenever payments from New Jersey government entities reach the $50,000 threshold. This includes contracts with the State of New Jersey Executive and Legislative branches, counties, municipalities, boards of education, fire districts, and independent authorities, regardless of method of award.

Additionally, detailed contract and contribution information must be disclosed whenever the business entity or a covered individual made a “reportable” contribution during 2016. A contribution is “reportable” when it exceeds $300 per reporting period. In light of these requirements, it is necessary to review personal political contributions made by a business entity’s partners, officers, and directors (and certain members of their families). Additionally, because of varying election cycles, it may be necessary to review contributions made over the course of several years to determine whether any 2016 contributions are reportable.

Companies that fail to file on time may be subject to monetary penalties. To ensure a timely and accurate filing, companies that have yet to begin preparing Form BE should not delay.

Genova Burns LLC can help your company comply with the Form BE filing requirements. Contact Rebecca Moll Freed, Esq., Chair of the Corporate Political Activity Law Group, at rfreed@genovaburns.com or 973-230-2075 or Avi D. Kelin, Esq. at akelin@genovaburns.com or 973-646-3267.