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.

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

Lessons Learned from the Della Pello Decision

Earlier this year, a government contractor lost just over $7 million in New Jersey state government contracts because of a single political contribution that was inadvertently made payable to the WRONG political recipient. Don’t let this happen to your company:

  • If an invitation for a political event gives you a choice of recipients to which you can write your check, always evaluate your options and understand the pay-to-play limits with respect to each recipient committee. Different pay-to-play restrictions apply to different types of recipients. Choose wisely …
  • Always have a clear understanding of each type of recipient committee. Ask yourself – are we writing our check to a candidate, party, PAC, Super PAC or legislative leadership committee?
  • Look at the check before it goes out to make sure the check is payable to the intended recipient. Ask yourself – does the name on the check match up with the name on the invitation? Is this the committee to which we want to contribute?
  • Use a cover letter with each contribution. Stick to the basics – Who, What , When, Where – remember less can sometimes be more – there is no need to include a Why!
  • Review your canceled checks on a regular basis to make sure your check was deposited by the intended recipient and didn’t end up in the wrong pile of checks (sometimes recipient committees share a Treasurer).
  • Train relevant people within your company about the “Dos and Don’ts” of political activity compliance (although too many cooks in the kitchen can sometimes be a recipe for disaster, having more than one set of eyes involved in the process is usually helpful).
  • Do not participate as a matter of routine – recipient committees will always be happy to accept your contribution after an event – contact the recipient committee if you need additional information and take your time to make an informed decision – remember – political contributions are NOT an emergency!
  • And, if a mistake occurs because you did not have (or follow) the proper procedures at the time of the contribution, review the refund provisions and do everything in your power to get the check back within the correct time-frame.

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

Candidates, Contributions & Compliance in Connection with New Jersey’s 2017 Gubernatorial Election

On Tuesday, June 6th, New Jersey held its 2017 gubernatorial primary election. Voters went to the polls to choose the Republican and Democratic candidates for Governor. Now that we know that the general election will feature a race between Phil Murphy and Kim Guadagno, here are a few campaign-finance and pay-to-play reminders to keep in mind as you decide how you would like to participate:

  • If your company holds New Jersey State government contracts or would like to remain eligible for New Jersey State government contracts in the future, you should limit your corporate contribution to a gubernatorial candidate to no more than $300 per election per candidate.
    • Compliance Tip – Regardless of how your company is organized, contributions by your company’s shareholders, officers, equity partners, equity members and the spouses, resident children and civil union partners of these individuals may impact your company’s eligibility for State government contracts.
  • If remaining eligible for New Jersey State government contracts is not a concern, and your company is organized as a corporation, your company may contribute up to $4,300 per election per candidate.
    • Compliance Tip – Please note that affiliated corporations may share a contribution limit.
  • If your company is organized as a corporation, shareholders, officers and directors enjoy individual contribution limits that are separate from the limit enjoyed by the company.
    • Compliance Tip – Please note that certain regulated-industry companies may not contribute with corporate funds, but individual officers and directors may participate individually.
  • If your company is organized as a partnership or limited liability company, your company may not contribute as an entity, but each partner or member is entitled to his or her own limit.
    • Compliance Tip – If your contribution is drawn upon a partnership or limited liability company check, be sure to follow the allocation rules set forth under NJ campaign finance law.
  • Even though the primary election was held two days ago, any contribution received thru June 23rd counts toward your 2017 primary election limit. So, if you already maxed out in connection with the primary, you should wait until June 24th to write your next check. On the flip side, if you have yet to contribute (and would like to), you still have time!
    • Compliance Tip – To help properly track your contribution with the relevant election cycle, use the memo line of  your check and review relevant ELEC reports to make sure your contribution was reported in connection with the appropriate election.

Tuesday’s primary made it clear that New Jersey’s 2017 election season is now in high-gear! As we head into the summer months, it is the perfect time to focus on political-activity compliance.

Independence, Coordination & Super PACs in the 2016 Presidential Election

Yesterday we celebrated Independence Day. In the next three weeks, the Nation will focus on the Republican and Democratic National Conventions. We cannot turn on the television without catching a political ad. Some ads will be run by the candidates themselves. Based on recent reports filed with the Federal Election Commission (“FEC”), there is a good chance that many ads will be run by Super PACs.

Although Super PACs are required to disclose their donors, it is not always clear who is behind a Super PAC ad and whether a Super PAC is truly independent from a candidate, a party or their agents. The FEC has, therefore, adopted a three-prong test to determine whether a Super PAC is acting independently and is, therefore, entitled to receive unlimited contributions.

Under the FEC’s coordination test, when an election-related communication (content prong) has been paid for by a third-party (payment prong), the FEC will ask the following questions (conduct prong) to determine whether the ad was coordinated:

  • Was the communication created, produced or distributed at the request or suggestion of the candidate, party or their agents?
  • Was the candidate, party committee or their agents materially involved in decisions related to the ad’s content, intended audience, mode of communications, etc.?
  • Were there substantial discussions between the Super PAC and the candidate, party or their agents?
  • Does the Super PAC share a common vendor with the candidate, party or their agents?
  • Does the Super PAC employ an employee or independent contractor who worked for the candidate or party committee during the previous 120 days?

Because proving an ad was not coordinated, isn’t always as easy as 1-2-3, it is not too late for Super PACs involved in the 2016 presidential election to develop policies, procedures and protocols to help protect against potential allegations of coordination.

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.