New Jersey Local Unit Pay To Play Laws Where We’ve Been and Where We’re Going Rutgers Public Purchasing Educational Forum Center for Government Services Atlantic City, April 30, 2014

PROGRAM PANEL Michael Long, Esq. Partner Lowenstein Sandler LLP Joseph A. Valenti (Ret.) Former Chief, Bureau of Local Management Services Division of Local Government Services New Jersey Department of Community Affairs 2

OUTLINE OF PRESENTATION  The Basics  Definitions & Rules  Local Procurement & Contracting  Fair & Open Contracts  Window Contracts  Quotations  The Laws  State-level  County & Local 3

PAY TO PLAY DEFINED  Pay to play laws regulate the political activity of companies that do business with government  Public perception that government officials expect companies to “pay” (i.e., make political contributions) in order to “play” (i.e., be considered for government work)  Includes making and soliciting contributions 4

BASIC TYPES OF PAY TO PLAY LAWS (1)Disqualification Laws  Penalty is disqualification from certain gov’t contracts  Can be severe – 5 years or more (2) Disclosure Laws  Periodic disclosure – can be “per contract” or “per year”  Can be extremely burdensome  Penalties for nondisclosure can vary 5

RELEVANT CONTRIBUTIONS Dollar Threshold  Rule of Thumb -- in excess of $300 Attribution Rules  Whose contributions are attributed to the business?  May include: Entities: Major shareholders, subsidiaries Individuals: Officers, directors, partners, LLC members, spouses, resident children 6

RELEVANT CONTRIBUTIONS (CONT.) Aggregation Rules  Small contributions can be combined to exceed $300.  For candidates -- per election (primary or general).  For political organizations -- per calendar year. 7

RELEVANT RECIPIENTS OF CONTRIBUTIONS  Which contributions are prohibited?  Differs considerably under the various laws  May include Candidates for / holders of elective office at various level of government State, county, or local political party committees Legislative leadership committees PACs (a/k/a “continuing political committees”) Inaugural expense committees Ballot question committees 8

RELEVANT CONTRACTS Dollar Threshold -- More Than $17,500  Contracts valued at $17,500 or less are excluded from most pay to play laws. Not linked to the agency’s bid threshold Will not increase based on index rate Includes some contracts with non-profits 9

RELEVANT CONTRACTS Dollar Threshold – Multi-Year Contracts  For determining the $17,500 threshold, value of the contract over its entire term is considered.  Contractor receiving a non-fair and open contract cannot make disqualifying contributions during the life of the contract. 10

RELEVANT CONTRACTS Dollar Threshold – Aggregation Rules  Multiple contracts/purchases between a contractor/vendor and a government agency in a single product/service category Aggregated for the purpose of the $17,500 threshold 11

RELEVANT CONTRACTS (CONT.) Fair and Open vs. “Non-Fair and Open” (Alternate Process)  (1) Public competitive bidding;  (2) Competitive contracting (RFP); OR  (3) minimum requirements for “fair and open” process (see next slide) 12

RELEVANT CONTRACTS (CONT.) Fair and Open – Minimum Requirements  Public advertisement (either conventionally in newspapers OR posted on the entity’s website) with “sufficient time to give notice” (10 days or more); and  Award under “a process that provides for public solicitation of proposals OR qualifications”; and  Established on the basis of an award and disclosure process documented in writing prior to any solicitation; and  Publicly opened and announced when awarded by the governing body. 13

RELEVANT CONTRACTS (CONT.) Window Contracts  Contracts over $17,500 but less than the agency’s bid threshold.  Are subject to the law as a fair and open or non-fair and open process.  Fair and open contracts must now be awarded by the governing body, not by the purchasing agent. 14

RELEVANT CONTRACTS (CONT.) Quotations  Are still permissible, but must comply with pay to play laws.  i.e., use a “fair and open” process OR comply with Ch. 19 and Ch

CHAPTER 19 County & Local Contracting  Disqualification Law -- 1 year from prohibited contribution  “Willful and intentional” violations can be punished more severely: 5-year Debarment Fines up to $100,000 16

CHAPTER 19 (CONT.)  Fair & Open Exclusion  But, if Contract is “Non Fair & Open”: Certification of no disqualifying contributions Continuing duty to disclose to ELEC later made disqualifying contributions  Ch. 19 Applies to Non-Profits 17

CHAPTER 19 (CONT.)  Prohibited Contribution – in excess of $300  “Winner Rule” – in office at time contract awarded  For County: County political party committees County candidates/officeholders For Municipality: County political party committees County candidates/officeholders 18

CHAPTER 19 (CONT.)  Relevant Contributors – Attribution Rule  Applies to: Business 10%+ owners (shareholders, partners, LLC members, etc.) If proprietorship, also to proprietor’s spouse and resident children 19

DLGS CH.19 “DECISION TREE” 20

CHAPTER 271 County & Local Contracting Disclosure Law  (1) “Per Contract” Disclosure Business must disclose all reportable contributions 10 days before award of contract  (2) Annual Disclosure ELEC Form BE Potential significant impact of a single  Non-Profits excluded from Ch

CHAPTER 271 (CONT.)  Attribution Rules – broadest in NJ:  (1) the business  (2) 10%+ shareholders  (3) partners, members, officers, and directors  (4) their spouses and resident children; and  (5) subsidiaries or PACs controlled by the business. 22

CHAPTER 271 (CONT.)  Relevant Recipients – broadest in NJ:  (1) State, county, and municipal political parties;  (2) PACs;  (3) Legislative leadership committees; or  (4) any State, county, or municipal candidate in the jurisdiction where the contracting entity is located. 23

CHS.19 & 271 – ADDITIONAL GUIDANCE  Department of Community Affairs  ns/dlgs/programs/pay_2_play.html ns/dlgs/programs/pay_2_play.html  Includes:  Local Finance Notices  Plain language guides  Forms  FAQs 24

COUNTY & LOCAL PAY TO PLAY LAWS  County, local, and other government units are permitted to enact their own pay to play laws and rules  Posted to the NJ Secretary of State Website  to_play.html to_play.html  Nearly 200 separate laws – county, municipal, school board, authority, etc. 25

COUNTY & LOCAL PAY TO PLAY LAWS  Key possible differences to watch out for: Lower contract amount threshold No “fair and open” exception Broader attribution rules Lower contribution limits Different aggregation rules (Broader scope of relevant recipients 26

EO 134/CH 51 & EO 117  State Contracting Applies to all State executive agencies, authorities, instrumentalities, etc. Disqualification Law – at least 18 months disqualification NO “fair and open” exception Attribution rules – very broad Relevant recipients – very broad  EO 18 – FHWA Exclusion 27

INDIRECT VIOLATIONS Very Important Concept  Circumvention of pay to play laws can be treated as a separate violation  Certain acts can result in criminal sanctions and other punishments E.g., intentional use of “strawmen” or sham companies to disguise contributions 28

THE “HEADLINE PROBLEM”  Media coverage is driven by scandal -- even being associated with the words “pay to play” carries risk  “ELEC reports N.J. ‘pay to play’ money totaled $5.1B” ( April 4, 2009)  Pay to Play: How Rod Blagojevich Turned Political Corruption Into a National Sideshow (book by Elizabeth Brackett, 2009)  Bottom Line: You don’t want your name in the headline 29

FURTHER DEVELOPMENTS 1.Constitutional Challenges 2.Boxer Report 3.Reform Legislation 4.Lobbyist Registration Laws 30

COMPLIANCE ISSUES Laws are New  vague wording  limited guidance  few judicial and appellate decisions Laws are in Flux  constantly evolving body of laws, rules, regulations, and executive orders  First Amendment and other challenges 31

COMPLIANCE ISSUES (CONT.) Enforcement is Uncertain  lack of enforcement track record and transparency  unclear boundaries of enforcement authority Limited/Non-Existence of “Good Faith” Defenses 32