407 West State Street, Trenton, NJ 08618  (609)695-3481
 NJLM logo 

William G. Dressel Jr, Executive Director - Michael J. Darcey, CAE, Asst Executive Director

Pay to Play
Questions and Answers


Edward J. Buzak
League Assistant Counsel and
President, New Jersey Institute of Government Attorneys

With the approval of Chapter 19, P.L. 2004 on June 16, 2004 and the promulgation of Executive Order No. 134 (2004) on September 22, 2004, coupled with the adoption of various ordinances dealing with the relationship between campaign contributions and public sector contracts, a myriad of questions have arisen. This article will attempt to offer some practical answers. The reader must be cautioned that this article deals solely with these two Acts. There is significant movement in the Legislature to modify and/or refine these laws and thus the most recent versions of the law should be reviewed before relying on the contents of this article.

1. Hasn’t “Pay to Play” always been illegal, even before various new laws have been adopted?

Yes. Under specific portions of the Faulkner Act, Local Government Ethics Law, Local Public Contracts Law, the Criminal Code and various other provisions of law, the making of a campaign contribution of any amount in return for receiving a government contract has been and continues to be illegal. One of the difficulties in pursuing such a claim, however, is to create the nexus or quid pro quo between the contribution and the contract. The Acts eliminate this problem by assuming that certain levels of contribution are made in return for receiving public sector contracts (a proposition of some dubious validity) and therefore completely prohibit the participation of campaign contributors above certain minimum levels in the public sector contracting field, except, in some cases, under very limited circumstances.

2. When do the new laws go into effect?

The legislation goes into effect January 1, 2006. The Executive Order (E.O.) has gone into effect as of October 15, 2004, but its validity has recently been questioned by the non-partisan Office of Legislative Services (OLS).

However, legislation has passed the Assembly essentially incorporating the E.O. into a statutory provision (A-3013/S-1698).

3. Is there any dollar threshold in public contracts covered under the new laws?

In both Acts, the public sector contract threshold is established at contracts in excess of $17,500.

4. Is there is a contribution dollar threshold before the law is applicable?

Both Acts refer to “reportable contributions” under the election law. Technically all campaign contributions are “reportable” irrespective of the amounts. However, until January 1, 2005, contributions in excess of $400 must not only be reported, but the contributor’s name, address and occupation must be identified. Most commentators have assumed that the use of the word “reportable” was intended to reference contributions which trigger the requirement that the donor be identified as above.

Beginning January 1, 2005, c 28, P.L. 2004 lowers the threshold for identifying contributors to any contribution in excess of $300 and furthermore, eliminates any ability of the Election Law Enforcement Commission (ELEC) to change that threshold as it currently has the power to do.

5. Is a vendor on a public contract precluded from participating in the bid if it has made a triggering contribution?

Under the legislation, only contracts in excess of $17,500 that are not awarded as a result of a “fair and open process” are subject to the law. Under the E.O., which relates to contracts with the state, or any of its purchasing agents or agencies, or independent authorities of the state, all contracts, are affected irrespective of whether or not they are publicly bid. It remains to be seen whether these discrepancies will be reconciled in some way.

6. What if there is an emergency? Does the law still apply?

Both Acts contain exceptions for “public exigencies” which require the immediate delivery of goods or performance of services as determined by the State Treasurer. It remains to be seen how the State Treasurer will be contacted to declare such an emergency when a municipality faces such a crisis.

7.Do reportable contributions at the municipal level prohibit a vendor from obtaining a contract at the county or state level?

No. Reportable contributions at the local level do not preclude the award of contracts at the county or state level.

8. Do reportable contributions at the county level prohibit the contributor from being awarded a contract at the state or local levels?

No, insofar as the legislation is concerned. However, under E.O., contributions to a county political committee of the political party nominating the Governor in the last gubernatorial election, or within 18 months immediately preceding the last day of the term of the Governor, will preclude the contributor from participating in state contracts.

9. Do reportable contributions to the state committee of the particular party of which the Governor is serving when a contract is awarded, or to a candidate committee of the Governor prohibit the award of a contract at the county or local level?

No. Neither Act prohibits contract awards at the county or local level based upon reportable contributions to a state committee of the Governor’s political party or to a candidate committee of the Governor.

10. After a contract is awarded, can the successful contractor make reportable contributions to committees at the same level of government for which the contract is awarded?

No.

11. How will the contracting agency at the state, county or local level know whether a campaign contribution has been made which prohibits the award of the contract?

Both Acts require that prior to the award of the contract, a written certification be provided that the business entity to which the contract is to be awarded has not made a contribution that would bar the award of the contract. In addition, the E.O. provides that the certification must set forth all contributions (irrespective of whether they were “reportable”) that the contractor made during the preceding four years to any political organization organized under Section 527 of the Internal Revenue Code that also meets the definition of a “continuing political committee” within the New Jersey Election Laws.

12. How do the “look back” provisions in both Acts work?

Under the legislation, the “look back” provisions cover the one year period preceding the award of the contract, except that contributions made prior to January 1, 2006 are not considered for the purposes of determining whether a contractor is prohibited from being awarded a contract.

Under the E.O., however, contributions made on and after October 15, 2004, will count toward the determination as to whether a contractor can participate in state contracts. Furthermore, under the E.O., the “look back” period is 18 months immediately preceding the commencement of negotiations for the contract or agreement. In addition, the E.O. goes even further to cover any reportable contribution made (i) during the term of office of the Governor, in the case of contributions to a candidate committee, or election fund, or to the holder of the office, or to any state or county political party committee of a political party nominating the Governor in the last gubernatorial election preceding the commencement of the term; or (ii) within 18 months immediately preceding the last day of the term of office of the Governor, in which case the prohibition shall continue through the end of the next immediately following term of the Office of Governor in the case of contributions to a candidate committee and the election fund of the holder of that office or to any state or county political party committee of a political party nominating the Governor in the last gubernatorial election preceding the commencement of the latter term.

13. Our business has a strict policy of not making any political contributions. However, individuals are encouraged to make contributions to candidates and political committees of their choice. Will our business be able to participate in public sector contracts?

It depends. If the business is a corporation, and if the individuals making the contribution do not own or control more than 10 percent of the profits or assets of the corporation, or 10 percent of the stock in the corporation, those contributions will not be counted toward meeting any threshold.

14. I own more than 10 percent of an interest in our business entity and am entitled to more than 10 percent of the profits of the business entity. However, all of the political contributions in our household are made by my spouse. Are those contributions attributable to me or the business entity of which I am a part?

No. This is another of many loopholes in the legislation. A contribution by a spouse or a child residing within the household is only attributable to the business entity if that business entity is a natural person.

15. A. I run my business as a sole proprietorship. Can I make contributions as an individual and still participate in the public sector contracts at the level of government to which my contribution is made?

No, if you make a reportable contribution. Essentially, as a sole proprietor, you own or control more than 10% of the assets or receive more than 10% of the profits of the business and therefore are covered under the law.

B. If I cannot make contributions, can my spouse or child?

No. Where a business entity is a natural person, a contribution made by that person’s spouse or child residing in your household is deemed to be a contribution by the business entity.

16. With our business organization, while I can control contributions made by our business, I am not always knowledgeable of the contributions made by individuals whose contributions will be attributable to our business entity. Is there any provision in the law to undo a prohibitory contribution once it has been made?

Both Acts have “give back” provisions. Under the legislation, a business entity may request in writing within 60 days of the date that the contribution was made that the recipient of it return the contribution. If repayment is received within those 60 days, the contribution is erased and the business entity is again eligible to receive an award of the contract or to continue to maintain the contract that it already has been awarded.

The repayment period is reduced to 30 days under the E.O.

17. I raise funds for local candidates by calling friends and associates and soliciting their contributions. I do not make any contributions myself nor do any other interested parties owning 10 percent or more of the assets of the business or those entitled to 10 percent or more of the profits of the business. Can our business entity participate in public sector contracting?

Under the legislation, the act of soliciting contributions is not regulated and therefore you would be free to participate in public sector contracting. However, under the E.O., you would be prohibited from participating in state contracts if any of those solicited contributions reach the level of a “reportable” contribution.

18. You said earlier that under the legislation, contracts in excess of $17,500 that are awarded under a “fair and open process” are not covered under the legislation. What is a “fair and open process”? Is that another term for “public bidding”?

This exception for contracts awarded under a “fair and open process” only applies under the legislation, not the E.O.

The “fair and open process” can be a process that is less than a full fledged public bid. It means, at a minimum (i) that the contract is publicly advertised in newspapers or on the internet website maintained by the public entity; (ii) that the advertisement provide sufficient time to give notice in advance of the award of the contract of the fact that such a contract is being contemplated; (iii) that the contract is awarded and disclosed under criteria established in writing by the public entity prior to the solicitation of the proposals or qualifications; and (iv) that the submissions be publicly opened and announced when awarded. This definition provides another loophole in the law not only because the definition of the “fair and open process” is so ambiguous as to be meaningless, but further because the legislation specifically provides that the decision of the public entity as to what constitutes a “fair and open process” “shall be final.” Thus, while there must be a form of public solicitation, it does not have to be of proposals for the particular contract. Instead, the solicitation could be solely for qualifications.

19. What are the penalties if the law is violated?

Under the legislation, a business entity which has been determined by ELEC to have willfully and intentionally made a contribution, or failed to reveal a contribution in violation of the Act, may be liable for a penalty of up to the value of its contract with the public entity and furthermore, may be debarred by the State Treasurer from contracting with any public entity for up to five years. The E.O. provides no specific monetary penalty, but declares a violation constitutes a breach of the terms of a government contract for the business entity.

20. As an elected official, if my campaign committee or if my party’s committee receives a reportable contribution by a public sector contractor, is there any penalty to which I am subject?

The legislation provides that any person who is determined by ELEC to have willfully and intentionally accepted a contribution that would otherwise make a public sector contractor ineligible for the contract, is liable for penalties equal to the penalties in effect for violations of campaign contribution laws. Those penalties currently range from $5,000 to $100,000 and will increase effective January 1, 2005 to range from $10,000 to $200,000.

21. We have a “Pay to Play” ordinance in effect in our municipality. Does it continue to be effective in light of the Legislature’s actions since the legislation does not take effect until 2006? Will the ordinance continue to be valid after January 1, 2006?

There continues to be some question as to whether there is sufficient legislative authorization for municipalities to adopt “Pay to Play” ordinances presently. The general issue is whether under current law, the state has preempted the field in terms of regulating public sector contracting and any relationship that such activity may have with campaign contributions. With the enactment of c 19, directly relating to the essence of “Pay to Play,” it is likely that local “Pay to Play” ordinances, if not invalid currently, will become invalid as of January 1, 2006, the date that the state legislation becomes effective. The non-partisan OLS has issued a memorandum in which it was concluded that it is likely local “Pay to Play” ordinances would not successfully stand a challenge, if made.


407 West State Street, Trenton, NJ 08618  (609)695-3481
 NJLM logo 

William G. Dressel Jr, Executive Director - Michael J. Darcey, CAE, Asst Executive Director

Pay to Play
Questions and Answers


Edward J. Buzak
League Assistant Counsel and
President, New Jersey Institute of Government Attorneys

With the approval of Chapter 19, P.L. 2004 on June 16, 2004 and the promulgation of Executive Order No. 134 (2004) on September 22, 2004, coupled with the adoption of various ordinances dealing with the relationship between campaign contributions and public sector contracts, a myriad of questions have arisen. This article will attempt to offer some practical answers. The reader must be cautioned that this article deals solely with these two Acts. There is significant movement in the Legislature to modify and/or refine these laws and thus the most recent versions of the law should be reviewed before relying on the contents of this article.

1. Hasn’t “Pay to Play” always been illegal, even before various new laws have been adopted?

Yes. Under specific portions of the Faulkner Act, Local Government Ethics Law, Local Public Contracts Law, the Criminal Code and various other provisions of law, the making of a campaign contribution of any amount in return for receiving a government contract has been and continues to be illegal. One of the difficulties in pursuing such a claim, however, is to create the nexus or quid pro quo between the contribution and the contract. The Acts eliminate this problem by assuming that certain levels of contribution are made in return for receiving public sector contracts (a proposition of some dubious validity) and therefore completely prohibit the participation of campaign contributors above certain minimum levels in the public sector contracting field, except, in some cases, under very limited circumstances.

2. When do the new laws go into effect?

The legislation goes into effect January 1, 2006. The Executive Order (E.O.) has gone into effect as of October 15, 2004, but its validity has recently been questioned by the non-partisan Office of Legislative Services (OLS).

However, legislation has passed the Assembly essentially incorporating the E.O. into a statutory provision (A-3013/S-1698).

3. Is there any dollar threshold in public contracts covered under the new laws?

In both Acts, the public sector contract threshold is established at contracts in excess of $17,500.

4. Is there is a contribution dollar threshold before the law is applicable?

Both Acts refer to “reportable contributions” under the election law. Technically all campaign contributions are “reportable” irrespective of the amounts. However, until January 1, 2005, contributions in excess of $400 must not only be reported, but the contributor’s name, address and occupation must be identified. Most commentators have assumed that the use of the word “reportable” was intended to reference contributions which trigger the requirement that the donor be identified as above.

Beginning January 1, 2005, c 28, P.L. 2004 lowers the threshold for identifying contributors to any contribution in excess of $300 and furthermore, eliminates any ability of the Election Law Enforcement Commission (ELEC) to change that threshold as it currently has the power to do.

5. Is a vendor on a public contract precluded from participating in the bid if it has made a triggering contribution?

Under the legislation, only contracts in excess of $17,500 that are not awarded as a result of a “fair and open process” are subject to the law. Under the E.O., which relates to contracts with the state, or any of its purchasing agents or agencies, or independent authorities of the state, all contracts, are affected irrespective of whether or not they are publicly bid. It remains to be seen whether these discrepancies will be reconciled in some way.

6. What if there is an emergency? Does the law still apply?

Both Acts contain exceptions for “public exigencies” which require the immediate delivery of goods or performance of services as determined by the State Treasurer. It remains to be seen how the State Treasurer will be contacted to declare such an emergency when a municipality faces such a crisis.

7.Do reportable contributions at the municipal level prohibit a vendor from obtaining a contract at the county or state level?

No. Reportable contributions at the local level do not preclude the award of contracts at the county or state level.

8. Do reportable contributions at the county level prohibit the contributor from being awarded a contract at the state or local levels?

No, insofar as the legislation is concerned. However, under E.O., contributions to a county political committee of the political party nominating the Governor in the last gubernatorial election, or within 18 months immediately preceding the last day of the term of the Governor, will preclude the contributor from participating in state contracts.

9. Do reportable contributions to the state committee of the particular party of which the Governor is serving when a contract is awarded, or to a candidate committee of the Governor prohibit the award of a contract at the county or local level?

No. Neither Act prohibits contract awards at the county or local level based upon reportable contributions to a state committee of the Governor’s political party or to a candidate committee of the Governor.

10. After a contract is awarded, can the successful contractor make reportable contributions to committees at the same level of government for which the contract is awarded?

No.

11. How will the contracting agency at the state, county or local level know whether a campaign contribution has been made which prohibits the award of the contract?

Both Acts require that prior to the award of the contract, a written certification be provided that the business entity to which the contract is to be awarded has not made a contribution that would bar the award of the contract. In addition, the E.O. provides that the certification must set forth all contributions (irrespective of whether they were “reportable”) that the contractor made during the preceding four years to any political organization organized under Section 527 of the Internal Revenue Code that also meets the definition of a “continuing political committee” within the New Jersey Election Laws.

12. How do the “look back” provisions in both Acts work?

Under the legislation, the “look back” provisions cover the one year period preceding the award of the contract, except that contributions made prior to January 1, 2006 are not considered for the purposes of determining whether a contractor is prohibited from being awarded a contract.

Under the E.O., however, contributions made on and after October 15, 2004, will count toward the determination as to whether a contractor can participate in state contracts. Furthermore, under the E.O., the “look back” period is 18 months immediately preceding the commencement of negotiations for the contract or agreement. In addition, the E.O. goes even further to cover any reportable contribution made (i) during the term of office of the Governor, in the case of contributions to a candidate committee, or election fund, or to the holder of the office, or to any state or county political party committee of a political party nominating the Governor in the last gubernatorial election preceding the commencement of the term; or (ii) within 18 months immediately preceding the last day of the term of office of the Governor, in which case the prohibition shall continue through the end of the next immediately following term of the Office of Governor in the case of contributions to a candidate committee and the election fund of the holder of that office or to any state or county political party committee of a political party nominating the Governor in the last gubernatorial election preceding the commencement of the latter term.

13. Our business has a strict policy of not making any political contributions. However, individuals are encouraged to make contributions to candidates and political committees of their choice. Will our business be able to participate in public sector contracts?

It depends. If the business is a corporation, and if the individuals making the contribution do not own or control more than 10 percent of the profits or assets of the corporation, or 10 percent of the stock in the corporation, those contributions will not be counted toward meeting any threshold.

14. I own more than 10 percent of an interest in our business entity and am entitled to more than 10 percent of the profits of the business entity. However, all of the political contributions in our household are made by my spouse. Are those contributions attributable to me or the business entity of which I am a part?

No. This is another of many loopholes in the legislation. A contribution by a spouse or a child residing within the household is only attributable to the business entity if that business entity is a natural person.

15. A. I run my business as a sole proprietorship. Can I make contributions as an individual and still participate in the public sector contracts at the level of government to which my contribution is made?

No, if you make a reportable contribution. Essentially, as a sole proprietor, you own or control more than 10% of the assets or receive more than 10% of the profits of the business and therefore are covered under the law.

B. If I cannot make contributions, can my spouse or child?

No. Where a business entity is a natural person, a contribution made by that person’s spouse or child residing in your household is deemed to be a contribution by the business entity.

16. With our business organization, while I can control contributions made by our business, I am not always knowledgeable of the contributions made by individuals whose contributions will be attributable to our business entity. Is there any provision in the law to undo a prohibitory contribution once it has been made?

Both Acts have “give back” provisions. Under the legislation, a business entity may request in writing within 60 days of the date that the contribution was made that the recipient of it return the contribution. If repayment is received within those 60 days, the contribution is erased and the business entity is again eligible to receive an award of the contract or to continue to maintain the contract that it already has been awarded.

The repayment period is reduced to 30 days under the E.O.

17. I raise funds for local candidates by calling friends and associates and soliciting their contributions. I do not make any contributions myself nor do any other interested parties owning 10 percent or more of the assets of the business or those entitled to 10 percent or more of the profits of the business. Can our business entity participate in public sector contracting?

Under the legislation, the act of soliciting contributions is not regulated and therefore you would be free to participate in public sector contracting. However, under the E.O., you would be prohibited from participating in state contracts if any of those solicited contributions reach the level of a “reportable” contribution.

18. You said earlier that under the legislation, contracts in excess of $17,500 that are awarded under a “fair and open process” are not covered under the legislation. What is a “fair and open process”? Is that another term for “public bidding”?

This exception for contracts awarded under a “fair and open process” only applies under the legislation, not the E.O.

The “fair and open process” can be a process that is less than a full fledged public bid. It means, at a minimum (i) that the contract is publicly advertised in newspapers or on the internet website maintained by the public entity; (ii) that the advertisement provide sufficient time to give notice in advance of the award of the contract of the fact that such a contract is being contemplated; (iii) that the contract is awarded and disclosed under criteria established in writing by the public entity prior to the solicitation of the proposals or qualifications; and (iv) that the submissions be publicly opened and announced when awarded. This definition provides another loophole in the law not only because the definition of the “fair and open process” is so ambiguous as to be meaningless, but further because the legislation specifically provides that the decision of the public entity as to what constitutes a “fair and open process” “shall be final.” Thus, while there must be a form of public solicitation, it does not have to be of proposals for the particular contract. Instead, the solicitation could be solely for qualifications.

19. What are the penalties if the law is violated?

Under the legislation, a business entity which has been determined by ELEC to have willfully and intentionally made a contribution, or failed to reveal a contribution in violation of the Act, may be liable for a penalty of up to the value of its contract with the public entity and furthermore, may be debarred by the State Treasurer from contracting with any public entity for up to five years. The E.O. provides no specific monetary penalty, but declares a violation constitutes a breach of the terms of a government contract for the business entity.

20. As an elected official, if my campaign committee or if my party’s committee receives a reportable contribution by a public sector contractor, is there any penalty to which I am subject?

The legislation provides that any person who is determined by ELEC to have willfully and intentionally accepted a contribution that would otherwise make a public sector contractor ineligible for the contract, is liable for penalties equal to the penalties in effect for violations of campaign contribution laws. Those penalties currently range from $5,000 to $100,000 and will increase effective January 1, 2005 to range from $10,000 to $200,000.

21. We have a “Pay to Play” ordinance in effect in our municipality. Does it continue to be effective in light of the Legislature’s actions since the legislation does not take effect until 2006? Will the ordinance continue to be valid after January 1, 2006?

There continues to be some question as to whether there is sufficient legislative authorization for municipalities to adopt “Pay to Play” ordinances presently. The general issue is whether under current law, the state has preempted the field in terms of regulating public sector contracting and any relationship that such activity may have with campaign contributions. With the enactment of c 19, directly relating to the essence of “Pay to Play,” it is likely that local “Pay to Play” ordinances, if not invalid currently, will become invalid as of January 1, 2006, the date that the state legislation becomes effective. The non-partisan OLS has issued a memorandum in which it was concluded that it is likely local “Pay to Play” ordinances would not successfully stand a challenge, if made.

However, there have been numerous legislative efforts undertaken to legitimize local ordinances banning “Pay to Play” in any form (A-3013/S-1698). As of this writing, they have not become law. But stay tuned because you haven’t seen the last of it.

 

Article in January 2005, New Jersey Municipalities