PAY TO PLAY DEADLINE Attorney Advertising MANY BUSINESSES WITH NEW - - PDF document

Businesses that received $50,000 or more during calendar year 2006 from contracts with New Jersey public entities must file a statement setting forth all political contributions of more than $300 made by the business and certain of the business’s key personnel and affiliated entities. The statement — known as the Chapter 271 Business Entity Dis- closure Statement (“Form BE”) — must be filed with the New Jersey Election Law Enforcement Commission (“ELEC”) no later than September 28, 2007. Examples of businesses likely subject to the pay to play re- quirements include nonprofit or- ganizations, medical professionals, hospitals, private schools and universities, invest- ment management firms, law firms, accountants, construction companies, engineering firms, real estate developers, and any

• ther individual or organization

that provides goods or services

• r otherwise engages in busi-

ness with New Jersey govern- mental entities. We are pleased to provide the following step-by-step guide for businesses subject to this re- porting requirement.

A Brief History Of Pay To Play And Chapter 271

“Pay to play” refers to the perception that government work is awarded on the basis of a business’s political contri- butions, rather than merit.1 To combat that perception in New Jersey, a com- plex series of laws was enacted to reg- ulate and monitor political contributions made by those compa- nies doing business with New Jersey government at the State, county, or local level.2 In September 2004, then-Governor James McGreevy issued Executive Order 134,3 which was later codified as amended by legislation known as Chapter 51.4 Executive Order 134 and Chapter 51 disqualify businesses from contracts with State-level Executive agencies if the business has con- tributed to the current Governor, any candidate for Governor, or any State or county political party committee within eighteen months prior to the com- mencement of contract negotiations.5 Executive Order 134 and Chapter 51 also require such businesses to disclose contributions made to any political ac- tion committees (“PACs”) within the prior four years.6 Another law, known as Chapter 19,7 restricts businesses that made certain political contributions from entering contracts with the Executive and Leg- islative branches of State government, as well as agencies, counties, and mu- nicipalities.8 Finally, on January 5, 2006, Chapter 271,9 the most recent addition to New Jersey’s pay to play laws, was en- acted.10 Chapter 271 requires the dis- closure of a business’s political contributions made within the twelve months prior to the award of certain contracts.11 Additionally — and for the purposes of the upcoming September 28, 2007 deadline — Chapter 271 re- quires businesses that received $50,000 or more from government contracts in 2006 to file an annual disclosure statement providing detailed contract and contribution information.12

Who Must File?

A Form BE must be filed by every busi- ness that received $50,000 or more in aggregate payments from contracts with New Jersey public entities during calendar year 2006. Chapter 271’s re- quirements apply to both for-profit and nonprofit organizations.13

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PAY TO PLAY DEADLINE

Attorney Advertising

MANY BUSINESSES WITH NEW JERSEY GOVERNMENT CONTRACTS MUST FILE DISCLOSURE STATEMENTS BY SEPTEMBER 28, 2007

By: Christopher S. Porrino and Michael T.G. Long September 2007

LOWENSTEIN SANDLER PC CLIENT ALERT

In determining whether the $50,000 threshold has been met, every con- tract with a New Jersey public entity must be included.14 In other words, there are no exceptions related to the method by which the contract was awarded or a minimum dollar amount per contract.15 For contracts that span multiple years,

• nly payments that the business re-

ceived in 2006 are included in the $50,000 calculation. However, this may well include contracts entered prior to 2006 from which the business received payments in 2006. Further- more, under Chapter 271, most grants from public entities are consid- ered government “contracts” and must be included in threshold calcula- tion as well.16

Whose Contributions Are Relevant?

Once a business determines that it re- ceived payments of $50,000 or more from government contracts in calen- dar year 2006, the business must de- termine which political contributions, if any, should be disclosed on the Form BE. Under Chapter 271, contributions made by certain of the business’s high-level personnel and affiliated en- tities are treated as if made by the business itself. More specifically, con- tributions are attributed to the busi- ness if made by the following persons and entities: 1. any “principal” (i.e., person or entity that owns or controls more than 10% of the busi- ness’s profits, assets, or stock);17 2. any “partner” (i.e. person or entity with any level of owner- ship interest in a business that is organized as a general part- nership, limited partnership, limited liability partnership, limited liability company, lim- ited partnership association,

• r similar business form);18

3. any “officer” (i.e., president, vice president with “senior management responsibility,”19 secretary, treasurer, chief ex- ecutive officer, chief financial

• fficer, or any person per-

forming such function regard- less of title);20 4. any “director” or “trustee” (i.e., member of the business’s governing body, whether des- ignated as directors, trustees, managers, governors, or by another title);21 5. the spouse of any principal, partner, officer, director, or trustee;22 6. any “subsidiary directly or in- directly controlled by the busi- ness” (i.e., where the business

• wns a sufficient interest in

the subsidiary to elect a ma- jority of the subsidiary’s gov- erning body or where the business has “sufficient con- trol . . . to direct the sub- sidiary’s decision-making”);23 7. any “continuing political com- mittee” (i.e., PAC) that is “di- rectly or indirectly controlled” by the business (i.e., where the business participates in the PAC’s organization, deci- sion-making, or policy formu- lation);24 and 8. if the business is a natural per- son (i.e., a sole proprietor- ship), that person’s spouse or any child residing with the person.25 As only those contributions made dur- ing calendar year 2006 are relevant, the business need only focus on those persons and entities associated with the business in 2006.

Which Contributions Must Be Disclosed?

Once the relevant persons and entities have been identified, the business must assess whether any reportable contributions were made by those per- sons or entities. Whether a given con- tribution is reportable is driven by two key considerations: (1) the recipient

• f the contribution; and (2) the

amount of the contribution. Contributions to the following list of recipients must be disclosed: 1. Governor; 2. State Senator; 3. Member of General Assembly; 4. county executive; 5. county freeholder; 6. county sheriff; 7. county clerk; 8. county registrar of deeds; 9. county surrogate;

• 10. mayor;
• 11. member of municipal council;
• 12. member of school board;
• 13. fire commissioner;

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• 14. member of charter study

commission;

• 15. ballot question committee

(including gubernatorial inaugural event committee);

• 16. State political party

committee;26

• 17. county political party

committee;

• 18. municipal political party

committee;

• 19. legislative leadership

committee; and

• 20. PAC.27

Only contributions that exceed $300 must be disclosed under Chapter 271. However, contributions made in an election cycle or calendar year must be considered in the aggregate.28 For example, if a business contributed $200 to a municipal political party committee in February 2006 and made a second $200 contribution to the same committee in November 2006, those contributions must be dis- closed because together they exceed $300 in a calendar year. Similarly, if a business contributed $200 to a candi- date for a general election and later contributed another $200 to the same candidate for the same general elec- tion, the business must disclose both $200 contributions because, in the ag- gregate, they total more than $300 in

• ne election cycle.29

All types of contributions must be in- cluded, whether in the form of a check, cash (“currency”), loan, or “in- kind”30 contribution. In-kind contribu- tions include free “goods or services” provided to a candidate or committee, but do not include services provided by individuals volunteering their own time to support the candidate or com- mittee.31

How To File The Form BE

The 2006 Form BE is available on ELEC’s website.32 For each reportable contribution, the Form BE requires dis- closure of the contributor’s name, ad- dress, and “type” (i.e., sole proprietor, “other business entity,” principal, partner, officer, director, spouse, child, subsidiary, or PAC).33 The Form BE also requires the business to identify the recipient’s name, political office or committee type, contribution type, contribution date, and amount.34 Every business that received $50,000 from government contracts in 2006 must file a Form BE even if the busi- ness had no reportable contributions in 2006.35 However, those businesses with no reportable contributions are relieved of the obligation of providing detailed contract information.36 If the business made at least one re- portable contribution in 2006, it must provide detailed information regarding the government contracts from which it received payments during 2006. The Form BE requires the disclosure of the name of the contracting public en- tity; the contract date;37 the contract identification number;38 the public en- tity type; the public entity’s address; a description of the goods, services, or equipment provided or the property sold; and the amount received by the business from the public entity in 2006.39 The completed Form BE must be up- loaded to ELEC’s website by Septem- ber 28, 2007. The filing of future Form BEs will be required no later than March 30 of each year disclosing contribution and contract information for the prior calendar year.40 Busi- nesses that fail to file a Form BE are subject to fines41 and potentially other sanctions. Chapter 271 and New Jersey’s other pay to play laws have become a nec- essary consideration when doing busi- ness with State, county, or local

• government. Compliance with the

complex statutory and regulatory scheme frequently involves significant information-gathering efforts coupled with highly fact-sensitive analysis. Fur- thermore, in New Jersey’s ever-chang- ing legal and political landscape, up-to-date knowledge of the pay to play laws is essential. Accordingly, businesses that perform government work in New Jersey must give careful consideration to numerous issues, in- cluding the development of appropri- ate policies and protocols and the appointment of internal personnel with oversight responsibility. For more information on the material presented in this Alert, please contact

Christopher S. Porrino,

Member of the Lowenstein Sandler Litigation Group, at 973 597 6314, or cporrino@lowenstein.com, or

Michael T. G. Long,

associate of the firm's Litiga- tion Group, at 973 422 6726,

• r mlong@lowenstein.com.

LOWENSTEIN SANDLER PC CLIENT ALERT

1 N.J.S.A. 19:44A-20.13; see also Governor Codey’s Statement Upon Signing Assembly Committee Substitute for Assembly Bills Nos. 3013 and 3421 (Jan.

5, 2006), available at http://www.state.nj.us/dca/lgs/p2p/refs/c271signing_statement.pdf (Chapter 271 signing statement).

2 Contributions to federal candidates or federal political organizations do not implicate Chapter 271 or other pay to play laws. See N.J.A.C. 19:25-26.1;

see also N.J. Dep’t Treasury, Chapter 51 Q & A, available at http://www.state.nj.us/treasury/purchase/execorder134Q&A.htm.

3 Exec. Order 134 (Sept. 22, 2004), available at http://www.state.nj.us/infobank/circular/eom134.htm. 4 L. 2005, ch. 51 (codified at N.J.S.A. 19:44A-20.13 to -20.25). 5 N.J.S.A. 19:44A-20.14. Under certain circumstances, this period of disqualification can be extended for the length of the Governor’s current or future

• term. Id.

6 N.J.S.A. 19:44A-20.18. 7 L. 2004, ch. 19 (codified at N.J.S.A. 19:44A-20.3 to -20.12). 8 N.J.S.A. 19:44A-20.2 to -20.5. 9 L. 2005, ch. 271 (codified at N.J.S.A. 40A:11-51, 19:44A-20.26 to -20.27). ELEC adopted final regulations regarding Chapter 271 on March 6, 2007.

N.J.A.C. 19:25-26.

10 Additional pay to play rules have been enacted at the agency and local level. For example, the State Investment Council issued regulations setting forth

disclosure and disqualification provisions applicable to investment management firms engaged by the New Jersey Division of Investment. N.J.A.C. 17:16-

• 4. Many municipalities have also enacted pay to play ordinances and resolutions that apply to government contracts with the municipality and its agen-
• cies. See http://www.state.nj.us/state/secretary/ordinance.html (listing municipalities with local pay to play laws).

11 N.J.S.A. 19:44A-20.26. 12 N.J.S.A. 19:44A-20.27. 13 N.J.A.C. 19:25-26.1. The applicability of Chapter 271 to nonprofit organizations was the subject of considerable debate during the proposal and adop-

tion of ELEC’s regulations. Ultimately, however, ELEC concluded that Chapter 271 contained no exception for nonprofits. See 39 N.J. Reg. 1498(a) (March 6, 2007), available at http://www.elec.state.nj.us/Regulations/OAL_Adopt_04102007.pdf.

14 N.J.A.C. 19:25-26.4(b); see also 38 N.J. Reg. 4661(a) (Nov. 6, 2006), available at http://www.elec.state.nj.us/Regulations/disclosureContrib102006.pdf.

“Public entity” is defined to include the following: (1) the “principal departments in the Executive Branch”; (2) any “division, board, bureau, office, com- mission or other instrumentality within or created by such [Executive] department”; (3) the State Legislature; (4) any “office, board, bureau or commis- sion within or created by the Legislative Branch”; (5) “any independent State authority, commission, instrumentality or agency”; (6) any county; (7) any municipality; (8) any “agency or instrumentality of a county or municipality”; (9) any independent authority; (10) any board of education; and (11) any fire district. N.J.A.C. 19:25-26.1.

15 In contrast, other pay to play laws exclude contracts that are valued at $17,500 or less or that were awarded through a “fair and open process” (i.e.,

publicly advertised, solicited, and awarded). See, e.g., N.J.S.A. 19:44A-20.2; N.J.S.A. 19:44A-20.26. The Chapter 271 annual disclosure requirement does not contain these exceptions.

16 See N.J. Dep’t Community Affairs, Div. Local Gov’t Servs., Frequently Asked Questions, available at http://www.state.nj.us/dca/lgs/p2p/refs/p2pfaq.pdf. 17 N.J.S.A. 19:44A-20.26.b; N.J.A.C. 19:25-26.1. 18 Id. 19 Neither the statute nor regulations further define “senior management responsibility.” However, ELEC has explained that the term “officer” includes

• nly “senior level business officials,” but does not include the “multitude of ‘vice presidents’ whose responsibility is characterized as middle manage-

ment.” 39 N.J. Reg. 1498(a).

20 N.J.S.A. 19:44A-20.26.b; N.J.A.C. 19:25-26.1. 21 Id. 22 N.J.A.C. 19:25-26.6(b)3. 23 N.J.A.C. 19:25-26.6(b)4, (c). 24 N.J.A.C. 19:25-26.6(d). According to ELEC, this definition does not include PACs, such as trade association PACs, that are not solely controlled by the

• business. See 39 N.J. Reg. 1498(a); ELEC, Adv. Op. No. 02-2007 (June 19, 2007), available at http://www.elec.state.nj.us/pdffiles/AO/ao022007.pdf).

ELEC has indicated that additional regulations on this issue are forthcoming. See 39 N.J. Reg. 1498(a).

25 N.J.S.A. 19:44A-20.26.b; N.J.A.C. 19:25-26.6(a). 26 According to ELEC, contributions made to the “federal account” of a State political party committee are exempt from Chapter 271 as long as the funds

in that account are spent exclusively to support candidates for federal office. See ELEC, Adv. Op. No. 03-2006 (Apr. 19, 2006), available at http://www.elec.state.nj.us/pdffiles/AO/ao032006.pdf.

27 N.J.A.C. 19:25-26.4(b); see also Form BE, available at https://wwwnet1.state.nj.us/lpd/elec/ptp/p2p.html. 28 For aggregation purposes, contributions to a particular candidate (either to a candidate committee or joint candidates committee) are assessed per “elec-

tion cycle” (i.e., primary or general election), rather than per year. In contrast, contributions to other political organizations (e.g., political party commit- tees, legislative leadership committees, PACs) are assessed per calendar year.

29 According to ELEC, contributions made by the various relevant individuals and entities (e.g., officers, directors, subsidiaries) are not aggregated with each

• ther. Thus, for example, if an officer contributed $200 to a PAC and a director contributed $200 to the same PAC, those two contributions are not ag-

gregated and the business does not need to report either one.

30 N.J.A.C. 19:25-26.1. 31 Id. 32 See https://wwwnet1.state.nj.us/lpd/elec/ptp/p2p.html. Adobe Reader 8.0, which is available on the website, is required to download the Form BE. 33 See Form BE, available at https://wwwnet1.state.nj.us/lpd/elec/ptp/p2p.html. 34 See id. 35 N.J.A.C. 19:25-26.4(c). 36 See Form BE, available at https://wwwnet1.state.nj.us/lpd/elec/ptp/p2p.html. 37 For multiyear contracts, enter the original contract date that the contract was executed. 38 The contract identification number should be that assigned by the contracting public entity, not the business’s own internal reference number. If the

public entity’s identification number is not available, the field should be left blank.

39 See Form BE, available at https://wwwnet1.state.nj.us/lpd/elec/ptp/p2p.html. 40 N.J.A.C. 19:25-26.5(c). 41 N.J.S.A. 19:44A-20.27.e; N.J.A.C. 19:25-26.7(b).