New Jersey’s Pay-to-Play Law

New Jersey enacted the Campaign Contributions and Expenditure Reporting Act, N.J.S.A. 19:44A-20.13 et seq. (“Chapter 51”) to limit abuses of pay-to-play.

Among other things, Chapter 51 prohibits a State agency from awarding a State contract whose value exceeds $17,500 to a business entity that contributed more than $300 to the Governor, a candidate for Governor, or any State or county political party committee in the preceding 18 months.

On January 15, 2009, the New Jersey Supreme Court issued a unanimous opinion upholding the constitutionality of Chapter 51 and rejecting arguments that it violated free speech and free association constitutional rights. In the Matter of the Appeal by Earle Asphalt Company, ____ N.J. ____ (2009).

Chapter 51 also provides that a company that makes a contribution that would otherwise render it ineligible to receive State contracts will retain its eligibility so long as it receives reimbursement of the contribution within 30 days of making it. In the Earle Asphalt case, the president of a company made a $1,500 contribution to a county political party committee. Upon realizing that the contribution would render the company ineligible for State contracts, the president requested that the contribution be returned. Although he made that request 20 days after the contribution, he did not receive the reimbursement until 41 days after the contribution. The Supreme Court rejected the company’s argument that it should not be disqualified from receiving State contracts because it had attempted to obtain return of the contribution within the 30-day window. Instead, the Court, employing a strict and literal interpretation of the provision, concluded that the company was not entitled to the exemption because it did not receive the reimbursement within 30 days of making the contribution.

The lesson from the Earle Asphalt decision is that failure to comply with the provisions of a pay-to-play law could result in crippling financial consequences to a company that depends on public contracts if the company’s breach results in it being disqualified from receiving those contracts.

States With Pay-to-Play Laws

Twelve states have some variant of a pay-to-play law: California, Connecticut, Hawaii, Kentucky, Maryland, New Jersey, New Mexico, Ohio, Pennsylvania, South Carolina, Rhode Island, and West Virginia.

Regardless of where you are doing business, if it entails contracting with, attempting to contract with or otherwise providing goods or services to a governmental entity, you need to analyze whether your company and its employees are in any way limited with regard to making political contributions as a result of the business relationship with the government.

Registration Disclosure for Illinois Entity Registration

Illinois has a new business entity registration for procurement law in place to counteract “pay-to-play” in state contracting.

As part of the registration process, you must register the company as well as any “affiliated entity” and any “affiliated person.” Both of these terms are defined in Section 50-37 of Illinois Procurement Code.

“Affiliated person” means
(i) any person with any ownership interest or distributive share of the bidding or contracting business entity in excess of 7.5%,
(ii) executive employees of the bidding or contracting business entity, and
(iii) the spouse and minor children of any such persons.

“Affiliated entity” means
(i) any subsidiary of the bidding or contracting business entity,
(ii) any member of the same unitary business group,
(iii) any organization recognized by the United States Internal Revenue Service as a tax‑exempt organization described in Section 501(c) of the Internal Revenue Code of 1986 (or any successor provision of federal tax law) established by the bidding or contracting business entity, any affiliated entity of that business entity, or any affiliated person of that business entity, or
(iv) any political committee for which the bidding or contracting business entity, or any 501(c) organization described in item (iii) related to that business entity, is the sponsoring entity.