Pay to Play Law Blog

Citizens United Update: LXBN TV Wants to Know More

Stefan Passantino — Thu, 12 Apr 2012 15:30:45 -0500

By Stefan Passantino

As a follow-up to my post yesterday on the future of Citizens United, the folks at LXBN TV conducted a follow-up interview which I’m posting here. Note, degenerate gamblers, that Colin O’Keefe of LXBN TV has chosen to take the “over” in my 25 word over/under line for the number of words expended by the Supreme Court in dispatching Western Tradition Partnership, Inc. v. Attorney General of Montana, 2011 MT 328. There is still time to place your bets.

US Supreme Court Agrees to Revisit Citizens United - Should We Be On High Court Alert for a News Stunner?

Stefan Passantino — Mon, 09 Apr 2012 16:32:54 -0500

By Stefan Passantino

The United States Supreme Court has recently announced that it might be revisiting its uber-controversial opinion Citizens United v. FEC. The ruling at issue was in the form of a little-noticed order entered by the Court staying a Montana Supreme Court opinion declining to enforce Citizens United. Nothing controversial there. What makes the opinion intriguing, as noted by recent news reports, is the fact that Justices Ginsburg and Breyer went out of their way to note that:

Montana’s experience, and experience elsewhere since this Court’s decision in Citizens United v. Federal Election Comm’n, 558 U. S. ___ (2010), make it exceedingly difficult to maintain that independent expenditures by corporations “do not give rise to corruption or the appearance of corruption.” Id., at ___ (slip op., at 42). A petition for certiorari will give the Court an opportunity to consider whether, in light of the huge sums currently deployed to buy candidates’ allegiance, Citizens United should continue to hold sway.

Can you feel the thrill running up Chris Matthews’ leg at the mere thought of such a ruling? Is this a sign that the Court has had a change of heart and is about to rethink its controversial holding that corporations have the right under the first amendment to freely advocate for and against federal candidates?

Spoiler Alert: Not likely.

At issue here is a Montana Supreme Court opinion in which that court concluded that the sky is too big in Montana for some pesky infringement of its laws by the United States Constitution: “Citizens United does not compel a conclusion that Montana’s law prohibiting independent political expenditures by a corporation related to a candidate is unconstitutional.” (Western Tradition Partnership, Inc. v. Attorney General of Montana, 2011 MT 328, p. 28).

Of course the US Supreme Court stayed application of that opinion. To do anything else would invite an undermining of the primacy of the federal constitution.

You gotta’ give Montana credit for chutzpa, if not for originality. South Carolina tried this gig first in 1832 with its Ordinance of Nullification but that didn’t work out too well.

A good example of what to expect in the future from the Supreme Court in this case can be found in Bluman v. FEC; a fun case in which a few individuals sought to challenge the prohibition against foreign nationals from making direct contributions or independent expenditures in domestic elections on first amendment grounds by arguing that Citizens United didn’t mean what it said.

The U.S. Supreme Court dispatched that argument in four words. I’m setting the “over-under” for the Court’s reversal and remand consistent with its ruling in Citizens United in this case at twenty-five words. Any takers?

In the Wake of Recent Scandals and Brewing Federal Investigations, The D.C. Council Appears To Be Taking Another Look at Pay-To-Play Reform

Benjamin P. Keane — Mon, 12 Mar 2012 09:59:57 -0500

With all apologies to 1980s rockers Great White, it would have been quite easy for D.C.Councilman Tommy Wells (D – Ward 6) to take a “Once Bitten, Twice Shy” approach to pay-to-play reform in the District of Columbia. After all, two of his 2011 proposals on the subject were actively left out of the final version of the city’s recently-passed comprehensive ethics reform bill. Those two proposals would have prohibited bundled corporate campaign contributions and barred District officials from accepting donations from city contractors, but both were met with universal opposition from the other members of the Council.

Rather than give up on the idea of reform, however, Wells went back to the drawing board, reconfigured his pay-to-play proposals, and waited for the opportune moment to reintroduce them before the Council. Just this week, after three months of waiting, Wells seems to have found his moment. . . . thanks in large part to the parade of federal corruption investigations being initiated against current and former D.C. officials, as well as the District’s largest corporate contractor.

For those who have missed the media coverage, since the beginning of the year, federal investigators from myriad agencies have been exploring various corruption allegations lodged against a number of Washington, D.C. officials and political kingmakers. For example, nearly two months ago, Mr. Harry Thomas, Jr., who previously represented Ward 5 on the D.C. Council, was forced to resign his post before pleading guilty to felony charges related to the theft of $353,000 in taxpayer funds. Likewise, Mayor Vincent Gray has been the subject of an ongoing investigation by the U.S. Attorney’s Office for the District of Columbia concerning potential violations of city campaign finance laws during his 2010 election run against Adrian Fenty. Now, just this past week, federal investigators raided the home and offices of Mr. Jeffrey Thompson, the city’s single-largest contractor and a prolific political donor, as part of what appears to be an investigation into his business and political ties to the Mayor and other District officials.

With a growing number of District officials under the microscope, Wells found just the opportunity he was looking for – a more fertile environment for the reintroduction of his pay-to-play proposals. This time, with the support and co-sponsorship of Ms. Mary Cheh (D – Ward 3), Wells has introduced a piece of legislation that would limit “pay-to-play” politics by forbidding District procurement contracts from being granted to individuals who have given more than $2,000 in the aggregate within the three previous calendar years to any political organization authorized to make contributions to or expenditures on behalf of any official or candidate who can vote on such agreements. This $2,000 limit would apply to contributions made to District campaign committees, political committees, political party committees, PACs, exploratory committees, legal defense committees, inaugural committees, and constituent-service programs.

In addition to this strict pay-to-play provision, the Wells-Cheh bill seeks to prohibit individuals who have raised more than $10,000 for any District official or candidate during an election cycle from receiving any procurement contract, lease or appointment from the District for a period of three years following the fundraising activity. The legislation also includes an outright ban on corporate political contributions in the District and a strict prohibition on political contributions by District contractors during any period of procurement application or performance.

Will this latest effort at pay-to-play reform gain any traction with any of Wells and Cheh’s fellow D.C. Council members? It depends on how desperate their colleagues are to distance themselves from the investigative storm clouds rolling in on the Mayor and Mr. Thompson… For those Council members up for reelection in 2012, the pressure to get on the right side of the corruption issue might lead some to reconsider last year’s opposition to pay-to-play restrictions. The Washington Post Editorial Board and a citizen-led ballot initiative group are doing their part to support the reform efforts, but on a Council that counts Marion Barry as one of its own, passage of any type of pay-to-play legislation is far from a sure thing….

Regardless of that fact, however, individuals and corporations that do business with the District of Columbia and actively participate in its politics should keep a close eye on the Wells-Cheh bill and the parallel ballot initiative. The implementation of any one of the provisions set forth in either the proposed legislation or initiative would fundamentally change the nature of contract procurement and political participation in the District, bringing Washington, D.C. into line with some of the more restrictive pay-to-play jurisdictions in the country. As things progress along the Potomac, Pay-to-Play Law Blog will keep you updated….

Tremors in the Bay Area: Berkeley Looks at Significant Pay-to-Play Reform Tomorrow Night

Stefan Passantino — Mon, 05 Mar 2012 16:09:15 -0500

If you heard talk of tremors in the Bay Area recently, that wasn't the relatively benign 2.9 and 4.0’s that struck this morning (causing no reported injury). San Franciscans use 4.0 earthquakes to stir their coffee in the morning.

No, the tremors you felt this morning are from the repercussions of the impending plan by the Berkeley City Council to examine strict new pay-to-play laws tomorrow possibly designed to give the Golden Bears more bite than have their San Francisco brethren across the Bay. Under the proposed resolution, the City of Berkeley intends to request that its Fair Campaign Practices Commission institute prohibitions against city contractors from making campaign contributions to candidates for public office.

To his credit, the recommending Berkeley City Councilmember, Jesse Arreguin, went out of his way in his recommending memorandum to caution that Berkeley should take note of the “possible unintended consequences” realized any time government seeks to outlaw a broadly-defined “person who contracts” as Section 1.126 (a)(1) of San Francisco’s pay-to-play law does.

Mr. Arrequin, by virtue of being correct on this point, you are officially forgiven for not also citing as authority the numerous times this blog has made that same observation.

Interestingly, there are some, including former San Francisco Ethics Commission member Eileen Hansen, who argue that Berkeley should model its prohibition after the stricter enforcement model enacted one year ago in Los Angeles:

“I don’t think it should be so difficult at all,” Hansen said. “It’s more … about educating people on the law.”

Hansen said she thinks Berkeley ought to look to Los Angeles, not San Francisco, for pay-to-play politics regulation — saying that the San Francisco Ethics Commission lacked the proper power to enforce any kind of punishment for violations of its campaign law.

As San Francisco’s politicians and donors have learned, it's easy to talk punishment when you’re not the poor compliance officer responsible for ensuring that your company’s board of directors, chairperson, chief executive officer, chief financial officer, chief operating officer, any twenty percent owner of your company (and their executives), any subcontractor listed in any bid or contract (and their executives), as well as any “committee” your company sponsors or controls (and their executives) are all fully aware of, and comply with, the pay-to-play laws passed throughout the country.

Now those will be aftershocks.

The White House is Not Giving Up on Federal Contractor Pay-to-Play

Stefan Passantino — Wed, 29 Feb 2012 16:27:52 -0500

By Stefan C. Passantino

The White House is very serious about mandating contribution and issue advocacy disclosure obligations on federal contractors.

We have reported several times (most recently here) on the various tell-tale signs, tea leaves and trial balloons that would lead one to believe that the White House is very serious about mandating disclosure by executive order. Much of the drama stemmed from a draft Executive Order (discussed here) that was floated last April and didn’t appear to get very far.

Most notably, the executive order under consideration would have required “every contracting department and agency” to “require all entities submitting offers for federal contracts to disclose certain political contributions and expenditures that they have made within the two years prior to submission of their offer” including:

(a) All contributions or expenditures to or on behalf of federal candidates, parties or party committees made by the bidding entity, its directors or officers, or any affiliates or subsidiaries within its control; and

(b) Any contributions made to third party entities with the intention or reasonable expectation that parties would use those contributions to make independent expenditures or electioneering communications.

Congress responded with language inserted into the 2012 Defense authorization bill and again in the December 2012 omnibus spending bill.

With apologies to Jack Nicholson, they’re baaaack . . .

On Monday, Senator Susan Collins of Maine announced on the US Senate Committee on Homeland Security and Government Affairs website that the White House Fiscal Year 2013 budget seeks to reverse the prohibition on such requirements included in the Fiscal Year 2012 omnibus appropriations bill.

Sure enough, she’s right. Check it out yourself. The 2013 budget seeks to remove Section 743 which contained the prohibition against requiring such disclosures.

Said Senator Collins: “What possible good can come from linking political information to a process which must be grounded solidly and unequivocally on providing the very best value to American taxpayers? It is unfathomable why this Administration would consider a move that would, at worst, corrupt the process, and at best, create a perception that political beliefs of private citizens is to be considered in selecting the winners and losers among businesses vying for federal contracts.”

I’m guessing that’s a rhetorical question.

Contractors, lock your doors. This ain’t over yet.

The STOCK Act Explained (video interview)

Stefan Passantino — Wed, 15 Feb 2012 09:45:06 -0500

Still have questions about what the STOCK Act really means?

In this interview with LexBlog Network Television, I explain the legislation, what drove it, and where it could be headed.

Taking Stock of The STOCK Act. . . . Wither "Political Intelligence"?

Stefan Passantino — Fri, 10 Feb 2012 14:29:41 -0500

by Stefan C. Passantino and Benjamin P. Keane

Proponents of ethics reform and increased political transparency in Washington don’t often see reform proposals pass through Congress by overwhelming margins, and rarely does anyone bemoan an excess of “political intelligence” in Washington, but that’s exactly what happened on Capitol Hill this past week. While the reform community can’t quite be sure what version of reform will survive the ongoing tug of war between the U.S. Senate and U.S. House of Representatives, it is clear that those trading on “inside political knowledge” are clearly in the transparency crosshairs.

If you are a consultant, a lobbyist, a law firm, or simply a person with inside knowledge of how Washington thinks, this post pertains to you (but you already know that, of course).

Two relevant reform proposals emerged in the wake of growing public outrage generated by CBS’ “Sixty Minutes” and other reports highlighting the ability of elected officials and their staff to trade on otherwise “non-public” information for personal investment gains. Near universal public outrage is about the only catalyst for Congressional action these days but, despite bipartisan grass-roots calls for reform, no singular solution is ever presented by Congress…. Instead, as many might have predicted, Congress produced two competing visions of what problems need to be addressed and how to go about it.

The Senate set forth its vision last Thursday when it passed the Stop Trading on Congressional Knowledge (“STOCK”) Act of 2012 in a lopsided, 96-3 roll call vote. In addition to tackling the fundamental problem not so subtly referenced in its title, the STOCK Act seeks to implement a number of aggressive ethics rules and revisions to the Lobbying Disclosure Act aimed at further restricting legislative and executive branch conflicts of interest and mandating more transparency in the area of non-lobbyist political consulting.

Most significantly for “Establishment Washington”, included within the Senate proposal’s ban on “insider trading” is a controversial obligation that all “political intelligence” consultants register and disclose their activities as if they were federal lobbyists, and a contentious legislative fix to the poorly-written “honest services fraud” statute that was recently-deemed unconstitutional by the U.S. Supreme Court in contexts outside of bribery and kickback schemes.

The language of the Senate bill would reach individuals and entities who engage in “political intelligence contacts” for the purpose of obtaining information from officials of the executive and legislative branches of government “for use in analyzing securities or commodities markets, or in informing investment decisions.” Any organization employing or retaining an individual who engages in one such contact would be required to register and report in the same fashion as if they were a lobbyist-registrant under the Lobbying Disclosure Act (LDA). As such, they would be subject to the same quarterly and semi-annual disclosure requirements that lobbyist-registrants currently meet.

On a quarterly basis, via a Form LD-2, “political intelligence” registrants would need to disclose the “issue areas” their organizations are discussing, the legislative body or federal agencies they are contacting, the employee(s)/consultant(s) that engage in such contacts, and the total expenses incurred with regard to the intelligence-gathering activities. On a semi-annual basis, via a Form LD-203, political intelligence registrants would also need to disclose political contributions and contributions to events honoring or recognizing covered executive or legislative branch officials. Such contribution reports would be required of both individual consultants and their employing organizations, effectively opening up a new segment of the Washington political class to public scrutiny of its campaign and non-campaign donations. Certain limited exemptions to these disclosure requirements do exist under the Senate version of the bill, but they are not nearly as broad as those carved out under the LDA for current lobbyist-registrants.

Reform and transparency are all well and good, but these requirements proved too much for the House (and legions of the suddenly activated “political intelligencia”) to accept.

Yesterday morning, the House followed the Senate’s lead by passing its own amended version of the STOCK Act by a similarly enormous voting margin – 417 to 2 to be exact – but without the requirement that non-lobbyist “political intelligence” consultants register and report their activities. Likewise, the House version of the bill refrains from amending the honest services fraud statute to allow for its use in non-bribery and non-kickback scenarios.

House Majority Leader Eric Cantor (R-VA) articulated the House rationale when he commented that the Senate’s disclosure requirements were something “outside of what we do” and that they were not part of the original purpose of the STOCK Act legislation. Also criticized was the “vagueness” of the political intelligence provisions as pertains to anything that happens in Washington.

Thus, in as sure an effort towards “assisted suicide” as Congress has in its arsenal these days, the amended House STOCK Act calls for a federal study of the “political intelligence” industry for the purpose of making future legislative recommendations and additionally prohibits lawmakers from receiving access to initial public offerings of stock. THAT always results in action, right?

Looking to the future, many believe that the political intelligence requirements of the Senate’s STOCK Act are yet another reformulation of recent efforts attempting to compel increased disclosure, and thus disincentivize, political spending by corporations and wealthy individuals. This blog has discussed similar efforts by the SEC, Congress, the ABA, and the Obama Administration in the past. And as such, it is easy to understand the negative reaction that has come from these House Members and many on K Street. Particularly when coupled with the drastic effect the expansion of registration and reporting requirements would have on business activities in and around Washington, D.C moving forward.

In the end, it will be interesting to see whether the overarching goal of banning “insider trading” by Members of Congress and congressional staff becomes collateral damage in the battle over establishing political intelligence registration and reporting requirements. Stranger things have happened on Capitol Hill. Anyone selling information or access in Washington needs to be closely watching Congress in the coming weeks to see how this tug of war ends.

But you already know that.

McKenna Long & Aldridge Launches "Politics, Law & Policy" Blog

Stefan Passantino — Mon, 09 Jan 2012 12:01:47 -0500

The team here at Pay to Play Law Blog wants to welcome a phenomenal group of commentators to the McKenna Long & Aldridge blogosphere. Last week, MLA launched its newest blog, “Politics, Law and Policy,” authored by a bipartisan group of attorneys and public policy advisors in the firm’s nationally-recognized government affairs practice. The blog will serve as an important resource for those seeking analysis and resources on the impact of federal and state politics and public policies on a wide range of issues and debates, including health care, energy, infrastructure, taxes, transportation, cybersecurity, and campaign and election compliance.

Led by Eric Tanenblatt, head of MLA’s National Government Affairs practice, the MLA Politics, Law and Policy blog follows law and public policy developments and political campaigns at the state and national levels. It features legal, political and policy insights from attorneys and professionals who have held public office and served as their advisors, including governors, mayors, ambassadors, attorneys general, congressional members, and senior administration officials.

Contributors to the Politics, Law and Policy blog from MLA’s Government Affairs practice include Speaker Emeritus Mark Burkhalter (R-GA); Cindy Gillespie, co-chair of the firm’s Health Insurance Exchange team and former special counselor to Massachusetts Governor Mitt Romney; and Governor Howard Dean (D-VT), former chair of the Democratic National Committee. Other contributors include: former U.S. Ambassador to Canada Gordon Giffin; former Georgia Attorney General Thurbert Baker; former Washington, DC Mayor Anthony Williams; and former assistant to President William J. Clinton, Keith Mason to name a few.

We invite our readers to visit the blog and subscribe to updates at http://www.politicsandlawblog.com. The Politics, Law and Policy blog can be found on Twitter at http://www.twitter.com/politics_law.

Federal Appeals Court Upholds New York City Pay-to-Play Rules

Kelly Lamendola — Wed, 04 Jan 2012 16:36:00 -0500

Through its recent decision in Ognibene v. Parkes, the Second Circuit Court of Appeals has rejected a constitutional challenge of New York City’s political contribution limits on “lobbyists” and others having business dealings with the City (a/k/a the “pay-to-play” rules), finding that such limits do not violate First Amendment free speech rights.

In 2007, the New York City Council adopted Local Law Number 34, which amended the City Campaign Finance Law to severely limit contributions from people having “business dealings with the City,” including “lobbyists.” The term “business dealings with the City” is broadly defined to cover contracts with the City, concessions and franchises, and the acquisition of disposition of real property, among other activities. As well as limiting the amount of contributions, the amendments to the Campaign Finance Law made such contributions ineligible for matching funds through the City’s publicly funded campaign finance program. And, the amendments extended the existing ban on corporate contributions to City candidates to contributions from LLCs, LLPs, and partnerships.

Queens Republican and former lieutenant governor candidate Tom Ognibene, Democratic State Senator Martin Dilan, and the New York State Conservative Party, among others, sued the New York City Campaign Finance Board and City officials, challenging the “pay-to-play” restrictions as unduly burdening protected political speech and violating the equal protection clause of the Fourteenth Amendment; citing the U.S. Supreme Court’s landmark decision in Citizens United v. Federal Election Commission, 130 S. Ct. 876 (2010). Citizens United held that the government could not ban corporations and unions from expenditures to advocate for the election or defeat of a candidate.

In the Ognibene suit, the U.S. District Court for the Southern District of New York found for the Campaign Finance Board and granted their motion for summary judgment, dually holding that the ‘doing business’ contribution limits served the important government interest of preventing actual and apparent corruption, and were narrowly drawn. The District Court also upheld the prohibition on matching funds and the extension of the contribution ban to various business entities.

In its Opinion issued on December 21, 2011, the Second Circuit Court of Appeals affirmed the district court, holding that the ‘doing business’ restrictions are an indirect constraint on protected speech, subject to the more lenient burden that the government demonstrate that the restrictions are justified by a legitimate state interest.

“Contributions to candidates for City office from persons with a particularly direct financial interest in these officials’ policy decisions pose a heightened risk of actual and apparent corruption, and merit heightened government regulation,” Judge Paul A. Crotty wrote in the main opinion.

The Second Circuit found that the restrictions served the City’s anti-corruption interest and were “closely drawn” to address that interest; distinguishing the contribution limits in the New York City Campaign Finance Law from the “expenditure” restrictions in Citizens United.

Despite this unanimous ruling from a three-judge panel of the Second Circuit, it may only be a matter of time before an appeal is lodged with the U.S. Supreme Court. Stay tuned to this blog moving forward for additional coverage…..

Philadelphia Gets Into the Ring on January 3, 2012

Benjamin P. Keane — Mon, 19 Dec 2011 13:26:01 -0500

Cue the obligatory training montage and iconic theme music…Like its best known fictional sports hero, the City of Philadelphia is looking to pick itself up off the ethical mat and take a first step toward regaining the public trust when it comes to political decision making and government action. Battered and bruised by an ongoing ethics investigations against its former mayor, allegations of improper political activity on the part of city council staff, and a sordid history of pay-to-play corruption, it appears as if Philadelphia and its Board of Ethics are finally working to change the culture of politics in the City of Brotherly Love, one reform idea at a time.

The newest Philly reform effort of note is the city’s lobbyist registration regulation, which was signed into law in June 2010 but will not go into official effect until January 3, 2012. This regulation, labeled as Regulation No. 9 by the Philadelphia Board of Ethics, will for the first time in the city’s history require individuals who attempt to influence legislative or administrative action, or who endeavor to obtain city contracts, to register as lobbyists. In addition, the rule will place significant disclosure requirements on most lobbyists, lobbying firms, and lobbying principals operating in Philadelphia. Specifically, the regulation will require most registrants (those expending more than $2,500 or lobbying more than 20 hours per quarter) to periodically report their lobbying expenditures on gifts, hospitality, transportation, lodging and other associated activities. In addition, the new rule will mandate that registered Philadelphia lobbyists publically divulge basic information about the nature of their lobbying contacts and communications with city officials and employees.

Beyond these fundamental disclosure requirements, Regulation No. 9 will also prohibit contingency fee lobbying among registrants, mandate lobbyist training, and impose a number of conflict-of-interest rules on city lobbyists. In addition, the regulation will prevent registered city lobbyists from serving as officers for the political committees and political action committees of candidates seeking elected office in Philadelphia. Also, interestingly, the new rule prohibits any registrant from transmitting, uttering, or publishing any false, forged, counterfeit or fictitious communication to a city official or employee for the purpose of influencing legislative or administrative action. How broadly the false statement provision will be enforced moving forward will be interesting to watch. All told, however, Regulation No. 9 appears to take significant steps toward bringing Philadelphia’s municipal lobbying rules up to speed with those in place in other major cities around the county.

Enactment of Philadelphia’s lobbyist registration regulation comes on the heels of another noteworthy reform put into place by the city council and Board of Ethics earlier this year. This reform, known as Regulation No. 8., went into effect in late March, and is designed to severely limit improper, partisan political activity on the part of city officers and employees. Like a mini-version of the federal Hatch Act, Regulation 8 seeks to prevent appointed Philadelphia officials and employees from using city resources to engage in partisan political activities. Likewise, the regulation seeks to prohibit city officials and employees from utilizing their status or title as a means of influencing or coercing participation in political activities. Along these same lines, Regulation 8 endeavors to prevent improper, partisan political behavior through the following mechanisms: (1) a ban on collecting, receiving, and soliciting political contributions for a partisan purpose; (2) a ban on membership in national, state, and local political party committees; (3) a ban on political campaigning and political management activities; (4) a ban on circulating nomination petitions or papers for political candidates; and (5) a ban on get-out-the-vote participation when such activities are organized or sponsored by a political party, candidate, or partisan political group.

In practice, these provisions are designed to preserve a proper separation between impartial policy making and partisan political activity by city government officials and employees … a line that has not always been so clear in Philadelphia. Whether Regulation 8 will accomplish this goal moving forward, however, remains to be seen. This is particularly the case in light of a few of the broad carve-outs contained within the regulation. Exceptions to the political activity restrictions discussed above exist for a wide range of partisan political behavior, including engaging in most political activities organized by civic, community, labor, and professional organizations, and campaigning for or against referendum questions and municipal ordinances. Likewise, the regulation also exempts city council employees from having to comply with several of the aforementioned prohibitions, including the exclusion on partisan political campaigning and management. It is doubtful that the loopholes in Regulation 8 are broad enough to swallow the entire rule, but how they affect overall compliance is certainly something to keep an eye on in the future.

For many, reforms like Regulation No. 8 and Regulation No. 9 might seem like too little, too late on the part of the Philadelphia city government and Board of Ethics. After all, over the past few decades, the City of Brotherly Love has become an environment more synonymous with appearances of cronyism and corruption than transparency and good governance. But in a city known for its comeback stories, I wouldn’t count out meaningful political reform quite yet.

Advice for General Counsel and Boards of Directors on Pay-to-Play Compliance

Stefan Passantino — Tue, 29 Nov 2011 10:24:34 -0500

The Conference Board was kind enough to share the following link to portions of a webinar they hosted a few weeks back on best practices for corporate political spending. It is about 20 minutes long and focused on some of the issues those tasked with pay-to-play compliance lay awake worrying about (yes, those people do exist).

I hope it is helpful and entertaining (hey, one out of two wouldn’t be bad either).

CalPERS Chooses Not to Follow the Chamber's Advice on Transparency

Stefan Passantino — Fri, 18 Nov 2011 16:35:34 -0500

Last year (coincidentally, almost to the day), this blog was all atwitter (you’re following us, right?) about CalPERS’ announcement that it would now require contractors to reveal whether they are using placement agents to seek business with the pension fund. Now, one year later, CalPERS has announced that its governing board approved new corporate governance principles calling upon corporations to detail all yearly political and charitable donations -- including those made through trade associations and tax-exempt groups.

As we have noted here, the pressures faced by CalPERS to respond to recent Supreme Court authority allowing unfettered corporate independent expenditures, are not at all unique. Transparency advocates are rightfully concerned about an environment in which secret corporate and union political advocacy can possibly run amok. Here, the revisions to the CalPERS guidelines were sought by California State Treasurer Bill Lockyer, a Democrat and member of the CalPERS governing board. In his letter calling for action, Treasurer Lockyer noted (without apparent empirical or anecdotal support) that a lack of transparency harms “corporate value” and that:

Increasingly, corporations are using [trade associations and tax exempt groups] in an attempt to cloak massive political spending in secrecy through “independent expenditure” campaigns, many of which are notorious for making unfair and unfounded personal attacks with which no company or its investors would want to be publicly associated.

The California Chamber of Commerce was not amused:

The new proposed policy amounts to “forcing publicly held corporations to show their competitors and political adversaries their political investment strategy, without receiving the same information in return,” Barrera said.

The CalChamber is leading a coalition to oppose the change to the corporate governance principles, specifically the section dealing with charitable and political contributions. In a letter to CalPERS, the coalition noted that the new section “is an unfair and discriminatory mandate on corporate boards of directors, designed to chill the ability of businesses to defend themselves from political attacks by competitors, overzealous regulators, labor unions or no-growth advocates.”

If the publicly traded companies are unable to defend themselves against the political attacks of their adversaries, the proposal will have massive unintended consequences for the very people CalPERS is obligated to protect and support.

In addition, the CalChamber noted the general invalidity of the premise behind the CalPERS proposal:

The CalChamber has pointed out that the premise of Lockyer’s proposal—that corporate value is negatively correlated with corporate political transparency—is not true.

Professor Lawrence Ribstein of the University of Illinois notes that the negative correlation “may be because firms hurt most by government regulation must engage in more political activity.”

Professor Roger Coffin of the University of Delaware has found that companies “that signed the ‘anti-Citizens United pledge’ in the aftermath of the decision did not see a material increase in firm value. Nor did the value of several industry-specific indexes go down. This represents good news for shareholders and the companies themselves.”

Notwithstanding this opposition, on November 14, the proposed revision to CalPERS’ Global Principles of Accountable Corporate Governance passed as follows:

6.5 Charitable and Political Contributions: Robust board oversight and disclosure of corporate charitable and political activity is needed to ensure alignment with business strategy and to protect assets on behalf of shareowners. We recommend the following:

a. Policy: The board should develop and disclose a policy for approving that outlines the board‘s role in overseeing corporate charitable and political contributions, the terms and conditions under which charitable and political contributions are permissible, and the process for disclosing charitable and political contributions annually.

b. Board Monitoring, Assessment and Approval: The board of directors should monitor significant charitable and political contributions (including trade association contributions

directed for lobbying purposes) made by the company. The board should ensure that only contributions consistent with and aligned to the interests of the company and its shareowners are approved. The terms and conditions of such contributions should be clearly defined and approved by the board.

c. Disclosure: The board should disclose on an annual basis the amounts and recipients of significant monetary and non-monetary contributions made by the company during the prior fiscal year. If any expenditures earmarked or used for political or charitable activities were provided to or through a third-party to influence elections of candidates or ballot measures or governmental action, then those expenditures should be included in the report.

As a final tease, blogger Keith Paul Bishop of Allen Matkins wrote of the change: “Interestingly, the Chamber has completely overlooked the most obvious legal infirmity of the guideline, but I’ll save that discussion for a future post.” Argghh! Don’t you hate it when that happens? I guess we’ll have to stay tuned. (For the record, my vote on the “obvious legal infirmity” is that this policy completely misses the fundamental Citizens United distinction between corporate independent expenditures and contributions).

California's New "Habit" of Pay-to-Play Regulation in the Public Employee Pension Fund Arena

Benjamin P. Keane — Wed, 19 Oct 2011 11:35:49 -0500

By Stefan C. Passantino & Benjamin P. Keane

If it takes three times to make something a habit, it is safe to say that “pay-to-play” legislation in the State of California is getting to be a bit habitual. For the third time in as many years, the California State Legislature has decided to ripple the “pay-to-play” regulatory waters by passing an “urgency” measure designed to clarify and modify the state’s existing restrictions on investment managers and investment placement agents who do business with California’s public employee pension funds, such as the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS). The new piece of legislation, Senate Bill 398 (SB 398), was signed into law on October 9, 2011 by Governor Jerry Brown, and is designed to complement two other recently-passed bills regulating the activities of pension fund investment managers.

The first of those recently-passed bills was Assembly Bill 1584 (AB 1584), which was passed by the state legislature in 2009 as part of an effort to increase transparency in the management of public employee pension fund assets. Specifically, AB 1584 required all California pension funds to adopt disclosure policies that would require the reporting of all campaign contributions and gifts made to pension fund board and staff members by “placement agents” and external investment managers. Likewise, the bill mandated that all outside investment managers disclose information regarding the fees they pay to placement agents for the purpose of securing asset management business opportunities with state and local pension funds across California.

The second of those complementary pieces of legislation was Assembly Bill 1743 (AB 1743), which was passed by the state legislature in 2010 as part of an effort to build on the transparency provisions of AB 1584 by explicitly restricting the ability of placement agents and external investment managers to engage in pay-to-play activities associated with California’s public employee pension funds. As this blog highlighted at the time of the bill’s passage, AB 1743 placed a broad swath of placement agents, external investment managers, and external investment management firm staff under an obligation to register as lobbyists with the State of California. In addition, AB 1743 banned these same individuals from making campaign contributions to the elected board members of California’s pension funds and prohibited them from setting up contingency fee arrangements to manage such pension fund assets.

While not as groundbreaking as either AB 1584 or AB1743, SB 398 does build upon each of those bills and make some noteworthy changes to California’s pay-to-play regulatory framework for pension fund placement agents and external investment managers. Specifically, SB 398 modifies existing law in the following ways:

· The bill revises the definition of the terms “external manager”, “placement agent”, “investment fund”, and “investment vehicle” to clarify that almost all managers of securities and assets for California public employee pension funds, whether directly or through managed funds, are subject to the disclosure and lobbyist registration rules put in place by AB 1743 for external managers and placement agents. Despite this fact, however, SB 398 does exempt investment management companies that are registered with the Securities and Exchange Commission (SEC) pursuant to the Investment Company Act of 1940 and that make public offerings of their securities from having to comply with the statutory disclosure and registration standards.

· The bill extends AB 1743’s “safe harbor” exemption from state-level lobbyist registration so that it also applies to local-level lobbyist registration requirements. Under AB 1743’s safe harbor provision, investment managers of public pension funds need not pursue state-level lobbying registration if they meet three separate requirements: (1) they are registered with the SEC as investment advisers or broker-dealers; (2) they obtain their pension fund business through competitive bidding processes; and (3) they agree to be subject to the California fiduciary standard imposed on public employee pension fund trustees. In turn, SB 398 extends a similar exemption to investment managers who would otherwise be required to register as local-level lobbyists on account of their management of local public employee pension fund assets.

Since SB 398 was passed by the state legislature and signed by the governor as an “urgency” measure, it is now the active law of the land in California. It remains to be seen, however, what sort of impact it will actually have on the ethics of public pension fund asset management. While its changes will certainly have some effect on investment managers and placement agents doing business with public employee pension funds in California, it will certainly not be as significant an effect as either AB 1584 or AB 1783. After all, individuals working in the pension fund investment management business have to be slowly getting used to California’s growing pay-to-play regulation habit.

In light of this fact, perhaps the most interesting thing to watch in the wake of SB 398’s passage just might be the reaction of California localities to the extension of AB 1743’s safe-harbor exemption. How will localities with a history of tackling pay-to-play issues (like Los Angeles) react to the state’s intrusion into municipal issues such as the regulation of local public employee pension fund management? We shall see if any drama ensues in the Golden State… Stay tuned…

Deficit "Super Committee" Transparency - Will We Get to See the Budgetary Sausage in Production?

Stefan Passantino — Wed, 28 Sep 2011 16:20:41 -0500

By Stefan C. Passantino and Benjamin P. Keane

Whether you agree with Justice Brandeis that sunlight is the “best of disinfectants” or with former American League of Lobbyists president Dave Wenhold that “too much sunlight causes cancer”, it should be readily apparent to the readers of this blog that public officials of all stripes have increasingly begun to listen to the chorus of voices calling out for more transparency in all levels of government. At PaytoPlayLawBlog, we often write about how the push for greater transparency at the federal, state and local levels is affecting the operation of government, as well as the interaction of the public with government officials. As strictly objective, rational observers (ahem), it seems to us that disclosure alone generally trumps both inaction and punitive regulation in the pay-to-play space. Over the past month or so, we have come to see new evidence of this welcome push for openness at the federal level, particularly with regard to the activities of the newly-formed Joint Select Committee on Deficit Reduction (or the so-called Deficit “Super Committee”).

For those who have spent all of their time recently tracking satellite orbits and running calculations on their chance of having to make a potentially uncovered homeowners claim, the Super Committee is a balanced delegation of six Democrats and six Republicans (split evenly between members of the U.S. House of Representatives and U.S. Senate) formed in August of this year as a means of permitting Congress and the White House the opportunity to avoid responsibility for identifying an additional $1.5 trillion in federal budgetary cuts over the next decade. Whether one agrees with the premise of granting 12 Members of Congress such extraordinary authority over federal, fiscal decision making, it is readily apparent that the ongoing work of the Super Committee has drawn a great deal of attention from political organizations and commentators across the ideological spectrum. Given the nature of the current (entirely justified) cynicism with the political process, and the enormity of the task before the Super Committee, it should not surprise readers of this blog to learn that much of this attention across the political continuum has been focused on increasing the political transparency of the Committee’s activities.

One of the more prominent efforts to accomplish this goal has been organized by the Sunlight Foundation, a non-profit organization dedicated to using the “power of the Internet to catalyze greater government openness and transparency.” On August 3, 2011, the Foundation issued a letter to congressional leadership urging them to adopt a series of recommendations that the Foundation believes will ensure the Super Committee operates in a fully open and transparent manner. Those recommendations included: (1) holding live webcasts of all official Committee meetings and hearings; (2) posting the Committee’s draft recommendations for at least 72 hours prior to a final committee vote; (3) promoting disclosure of every meeting held by Committee members with lobbyists and other “powerful interests”; (4) ensuring the immediate disclosure of all campaign contributions received by Committee members during their service on the Committee; and (5) demanding additional financial disclosure standards for Committee members and their staffers. In addition, the Foundation has teamed up with various transparency activists and supporters to launch a grassroots campaign designed to encourage greater accountability and openness from the Super Committee. The movement’s allies in this endeavor include such left-leaning organizations as The Brennan Center for Justice, the Project on Government Oversight, and Public Citizen.

Although not necessarily backing each of the Sunlight Foundation’s specific recommendations, many organizations and individuals on the conservative and libertarian end of the political spectrum have also echoed the Foundation’s calls for transparency in Super Committee activities. For example, Jim Harper of the CATO Institute and Rob Bluey of The Heritage Foundation’s Center for Media and Public Policy have both recently demanded that the Super Committee permit open public access to Committee meetings and legislative proposals as a means of ensuring that all citizens are kept abreast of the activities of this uniquely powerful legislative panel. Along those same lines, Harper and Bluey have also called for Committee transparency as a safeguard against the passage of expansive legislation that is subject to little or no debate or public input.

All of this makes perfect sense. As we have previously observed here, efforts to govern matters such as this from behind closed doors can lead to embarrassing exchanges.

Bi-partisan support for greater Super Committee transparency has even begun to emerge within Congress itself. In fact, in early September, Representatives Mike Quigley (D-IL), Dave Loebsack (D-IA), and Jim Renacci (R-OH) introduced H.R. 2860, the Deficit Committee Transparency Act, which would implement six transparency reforms along the lines of those recommended by the Sunlight Foundation. Similarly, Senators David Vitter (R-LA) and Dean Heller (R-NV) have also introduced two separate bills, S. 1501 (the Budget Control Joint Committee Transparency Act) and S. 1498 (the Super Committee Sunshine Act), that are designed to ensure the openness of Super Committee meetings and greater transparency in the political fundraising of Committee members.

At present, none of the aforementioned bills have been acted upon in Congress, but there does appear to be growing support on both sides of the political aisle for a more open and forthright framework for Super Committee action. Recognizing the growing momentum in support of such transparency, the Committee has taken the initial step of keeping its three preliminary meetings open to the public (and also available for video review over the Internet). It remains to be seen, however, whether this policy will continue as the Committee gets deeper into the task of formulating its deficit-reduction proposals. Likewise, it remains to be seen whether any of the other aforementioned transparency proposals will gain any traction with the Committee itself. Stay tuned in the coming months to find out.

New Jersey Has a Busy Week

Stefan Passantino — Fri, 09 Sep 2011 15:53:15 -0500

We’ve noted before that New Jersey remains the hands-down leader in pay-to-play ordinance proliferation. Until Governor Christie (or someone at the state level) succeeds in implementing a uniform statewide protocol for procurement efforts such as the one proposed here, New Jersey will extend its dubious distinction of having more varieties of pay-to-play legislation than its Turnpike has exits. (Think I’m kidding? Read on. It’s not even close).

This week saw two such ordinances seek admission to New Jersey’s growing family. First, Montclair, New Jersey proposed an ordinance, which would, if passed, debar contractors and their companies, which have made local political contributions in excess of $300 (and in some instances $500) within the preceding year from contracting with the township. The provision further provides for two relatively punitive provisions for its violation. First, the proposed law makes clear that a violation “shall be a material breach of the terms of a Montclair agreement or contract for Professional Services or Extraordinary Unspecified Services”, which virtually ensures that discovery of inadvertent violations of the ordinance shall be the first order of business for any losing bidder contemplating a bid protest. Second, making matters worse for the intentional or unintentional violator, contractors discovered to have transgressed (by a disgruntled bid protestor or others) would be barred from bidding on township contracts for four years. Ouch.

A second pay-to-play ordinance is being contemplated by the Bergen County, New Jersey Board of Chosen Freeholders. This ordinance has drawn criticism not for the penalties it imposes but rather for the exemptions it contains (one payer’s “exemption” is another player’s “loophole”). At issue in the Bergen County ordinance is a provision that its penalties and restrictions do not apply to contracts procured via open, competitive bidding (the so-called “fair and open process” exception). While it might strike some (such as myself) that contracts awarded through a transparent and open bidding process do not require the same, strict level of safeguards in the form of complex, and often punitive, restrictions on campaign activity, the “fair and open process” exception has drawn fire in the township. This clause has drawn the ire of Jersey residents before and shows no sign of abating any time in the near future.

Until New Jersey finds a way to adopt a common regulatory standard throughout the state, it will remain safely ensconced as the clear national leader in multiple, contradictory political procurement regulatory schemes.

While you’re holding your breath for that development, I strongly recommend that any entities or individuals seeking to navigate New Jersey pay-to-play or doing business with the State’s numerous townships to bookmark this extremely handy reference to the State’s numerous (literally over 100) current pay-to-play provisions. I further recommend that anyone seeking to navigate the State’s famous turnpike be on the lookout for these signs.

Can Investment Advisors, Private Fund Managers, and their Employees Contribute to Governor Perry?

Stefan Passantino — Thu, 25 Aug 2011 15:44:27 -0500

Last February, we posted an entry flagging potential concerns arising from the SEC’s new pay-to-play rules for investment advisors as applied to presidential candidates. Admittedly, at the time we were talking about Governors Haley Barbour and Mitch Daniels, but the same holds true now for Texas Governor Rick Perry.

The Compliance Building blog (Presidential Campaign Season and the SEC’s Pay-to-Play Rule) has just posted an excellent analysis of the issue. I highly recommend you check it out. As the blog notes:

“Registered Investment Advisors, private fund managers getting ready to register with Securities and Exchange Commission, and their employees need to be very cautious about making contributions to Governor Perry if they have a Texas state sponsored fund as a client or investor, or hope to have one as a client or investor in the next two years.”

Transparency Alert: the author is campaign counsel to several federal candidates including former Speaker Newt Gingrich.

Transparency Advocates Look to the SEC to Accomplish What Congress, The White House, and the IRS To-Date Have Not

Stefan Passantino — Tue, 23 Aug 2011 14:46:46 -0500

By Stefan Passantino & Ben Keane

It has been almost exactly 19 months since the Supreme Court handed down its controversial decision in Citizens United v. Federal Election Commission, but the plot continues to thicken as those favoring mandatory corporate disclosure of political activities look for a non-judicial fix to the ruling.

To date, the fields are littered with detritus of failed efforts at identifying a mechanism that compels corporations and wealthy individuals to disclose all exercise of their newly-recognized First Amendment freedoms. This blog has previously reported on failed efforts to mandate such disclosure in Congress, as well as the Obama White House’s proposed executive order circumventing both Congress and the Supreme Court. To achieve these same goals, groups such as Democracy21 and the Campaign Legal Center have promoted changes to the Internal Revenue Code, while the American Bar Association has encouraged Congress to make pertinent amendments to the Lobbying Disclosure Act.

Our latest contestants in this Sisyphean legal drama are a united band of like-minded law school professors looking to utilize the Securities and Exchange Commission (SEC) as a vehicle to counter the perceived negative impact of Citizens United. It appears this group has concluded that the imposing moniker “Committee on Disclosure of Corporate Political Spending” (the “Committee”) sounds more authoritative than “a united band of like-minded law school professors”. I think I agree with them on that.

Under either moniker, this group has filed a petition for rulemaking with the SEC requesting draft regulations that require public companies to disclose to shareholders information regarding the use of corporate resources for political activities. The main gist of its petition – stricter SEC disclosure rules are necessary to ensure that corporate political activities are subject to the appropriate level of shareholder scrutiny in the wake of Citizen’s United. The Committee bases this conclusion on the following contentions:

First, it asserts that there is strong data indicating that public investors have become increasingly interested in receiving information about corporate political spending. To support this statement, the like-minded professors reference a 2006 Mason-Dixon poll indicating that 85% of shareholder respondents held that “there is a lack of transparency surrounding corporate political activity.” They also make note of a FactSet Research Systems analysis that indicates 50 out of 465 shareholder proposals appearing on public-company proxy statements in 2011 involved political spending issues.

Second, the Committee grounds its request in the belief that there is increasing momentum toward political spending transparency in the corporate community, as evidenced by the growing number of large public companies that have voluntarily adopted policies requiring disclosure of their political expenditures. To this point, and perhaps undercutting the urgency of their call to action, the professors highlight a study by the Center for Political Accountability indicating that nearly 60% of S&P 500 companies voluntarily provide shareholders with information regarding corporate spending on political activities.

Third and finally, the Committee bases its request on the idea that stricter SEC regulation of corporate political disclosure will lead to better corporate oversight and accountability mechanisms. At present, the professors assert, shareholders are unable to hold directors and officers accountable when they spend corporate funds on politics in a way that departs from the interests of the company. From the Committee’s point of view, this is due to the fact that public information regarding corporate political activity is out of the average shareholder’s reach (because it is either dispersed among too many regulatory bodies or not gathered at all). By requiring companies to disclose to one central entity (the SEC), it is the professors contention that there will be better information available to shareholders, and in turn, a subsequent improvement in corporate accountability.

Based upon these assertions, the Committee’s petition recommends that the SEC initiate a rulemaking project to adopt a series of regulations that mandate periodic disclosure of corporate political spending. Whether the SEC will take heed of the Committee’s request remains to be seen, but the petition itself has already begun to draw a mix of criticism and support from members of the business, legal, and academic communities.

For example, just a few days after the Committee’s petition was submitted, Keith Paul Bishop – the former California Commissioner of Corporations and an adjunct professor at the Chapman University School of Law – filed a response letter with the SEC refuting the professors’ contentions and requesting that no such rulemaking project be initiated by the Commission. In his response, Bishop contends that the Committee’s proposal will only add to the already extensive public disclosure burden faced by reporting companies and that it is unnecessary in light of the growing trend toward voluntary corporate disclosure. He also argues that it is not the role of the SEC to mandate corporate expenditure on public disclosure of political activity when statistics show that not even a third of 2011 proxy proposals on the subject enjoyed shareholder support.

In contrast, official comments filed by Mark Latham, founder of VoterMedia.org, and executives from the International Corporate Governance Network expressed strong support for the Committee’s request. Specifically, both comments revealed a common respect for the Committee’s belief that the disclosure of corporate political spending is necessary to help stave off abuse or the breach of business ethics by officers and directors.

The debate over who has the better side of the argument will rage on in the coming months as the SEC weighs the proposal and determines whether to take any action. One would have to expect the Obama Administration to lend its support to the Committee’s cause in it’s typical “no fingerprints here, I don’t know what you’re talking about” approach. The response from the corporate community will undoubtedly be more mixed and more direct, but it will be interesting to see what reaction emerges from groups such as the U.S. Chamber of Commerce and The Conference Board’s newly formed Committee on Corporate Political Spending (to which, BIAS ALERT, I am an advisor). Stay tuned….

Atlanta Update: Cooler Heads Prevail

Stefan Passantino — Fri, 19 Aug 2011 14:46:07 -0500

Atlanta’s Fulton County Commission met yesterday as predicted here to take up its latest pay-to-play resolution.

Everyone’s dying to know what happened.

Drum roll . . . It failed.

Interestingly, Fulton County’s Commission didn’t simply reject the resolution, they made sure to give the bill sufficient medical attention to permit the orderlies to wheel it in to the room where they could execute it properly and with finality. The Atlanta Journal Constitution reported on the gruesome course of events thusly:

Fulton County commissioners didn't just reject Vice Chair Emma Darnell's proposal to limit contractors' donations to political campaigns. They killed it.

Darnell sought to prohibit any company or individual from bidding for county work if they have donated more than $500 to a commission candidate, or have given gifts to commissioners or county employees, during the past year.

The board opposed the plan 4-2, then, on a motion from Commissioner Tom Lowe, voted 4-2 to officially deny it so it can't be brought up again. Lowe called the idea stupid and bad for business

Not everyone sees the issue the same way. On the same day Fulton County was doing its work, the Brigantine Beach, New Jersey, City Council voted a strikingly similar piece of legislation onto the books. The Brigantine Beach ordinance, based largely on an Atlantic County, NJ, ordinance, and drafted with the assistance of the Atlantic County counsel, bans all professional contractor contributions one year before bidding and limits successful bidders to $300 candidate contributions after that with aggregate total limit contributions from a corporation holding a city contract to no more than $2,500 annually.

The regulatory patchwork continues to be sewn together stitch by stitch with no sign of uniformity on the horizon.

So, Does Fulton County KNOW the Resolution it is Considering is Invalid?

Stefan Passantino — Tue, 16 Aug 2011 12:36:43 -0500

We just posted about a pay-to-play resolution being considered by the Fulton County, Georgia, Board of Commissioners. That post considers whether the campaign regulation proposed by the county is good policy and further warns about the legal pitfalls encountered in other states adopting similar proposals.

What I didn’t address is the possibility that someone at Fulton County already knows the resolution is legally invalid as an attempt to regulate campaign activity statutorily reserved to the State. The evidence would appear to indicate that they do.

A careful read of Commissioner Emma Darnell’s website announcing the resolution shows that someone appears to have inadvertently attached a privileged legal analysis from the Indiana Attorney General to the Indiana Senate to the end of her proposal concluding that a virtually identical resolution, “if enacted by the City of Fort Wayne, would be invalid as an attempt to regulate, without specific statutory authority, conduct which is regulated by a state agency.” (emphasis added)

One can only speculate as to the reason why such a legal opinion would be attached to the proposed Fulton County resolution. One potential possibility would be that the Commission is already concerned that the resolution as proposed is legally invalid. On the off-chance that Commissioner Darnell’s website changes subsequent to this post, here is a screen-grab of the resolution along with the apparently inadvertently attached legal opinion as it was originally circulated.

Without offering any legal advice upon which anyone should rely, it would appear that Georgia’s constitutional and statutory structure mirrors that which concerned the Indiana Attorney General when he analyzed the Fort Wayne pay-to-play proposal. As is the case in Indiana, the Fulton County proposal clearly seeks to regulate conduct related to campaign financing and contributions. As is the case in Indiana, Georgia’s “Home Rule” provisions limit the power of municipalities to matters not preempted by the General Assembly through general law and not specifically enumerated as matters of state authority under O.C.G.A § 36-35-6. Included among those powers reserved to the state are authority over election procedures and campaign finance rules, which are specifically administered by the State Board of Elections and Georgia Government Transparency and Campaign Finance Commission in accordance with the requirements of general law and the state constitution.

In fairness, there are some in Indiana who disagree with the analysis and conclusion reached by Indiana Attorney General Zoeller; including Fort Wayne’s former city attorney. Nonetheless, this would appear to be a good opportunity for Fulton County to slow down, exhale, and reconsider.

Atlanta Takes Another Shot at Procurement Restriction

Stefan Passantino — Tue, 16 Aug 2011 09:28:30 -0500

Fulton County, Georgia – home county to the City of Atlanta - is poised once again to take up an ordinance designed to prohibit any corporation, officer, agent or individual who makes relevant campaign contributions or gifts from seeking county contracts. Just yesterday, the Fulton County Commission announced an agenda item for its August 17, 2011 recess meeting. Deep on page 12 of that agenda is a single line item styled:

Request approval of a Resolution amending the Fulton County Code of Laws regarding campaign contributions from entities doing business with, or seeking to do business with, Fulton County.

The resolution to be taken up, proposed by Commissioner Emma Darnell, closely mirrors a pay-to-play contract restriction proposed two years ago for the City of Atlanta by Common Cause Georgia. In its current form, the proposed resolution provides that no corporation, entity, or individual will have the right to bid for, or hold, a county contract if it has either made a campaign contribution of $500 or more to a County Commissioner or has provided any direct or indirect gift or contribution to a County Commissioner or any Fulton County employee.

For the purposes of determining whether a person has reached the $500 threshold, Commissioner Darnell’s resolution proposes aggregating all contributions or gifts made by an individual, their parents, siblings, spouse, or children as well as by any company that the individual controls or holds a 10% stock interest in. With respect to company contributions and gifts, the proposed resolution would aggregate all contributions or benefits conferred by any “officers, directors, partners, members, or salaried employees of the entity, and of any affiliated or subsidiary entities.”

Yes, you read that right. Under the proposed resolution, a company such as Delta Air Lines would theoretically be debarred from contracting with Fulton County (they have an airport in Atlanta, don’t they?) if even one of its salaried employees pays for a birthday cake for a next door neighbor who just happens to be a Fulton County employee. (Transparency Note: Delta Air Lines is a client of our firm, but this example could just as easily apply to any corporation having any employee who inadvertently makes a $500 campaign contribution or any gift to a County Commissioner or county employee).

As this blog has noted before, well-meaning and good-intentioned efforts to restrict back room dealing almost always get hoisted upon the petard of the broad language necessary to prevent circumvention but predictably results in negative, unintended consequences. The Law of Good Intentions almost always loses out to the Law of Unintended Consequences. Under this proposal, compliance costs will skyrocket, as will the likelihood of unnecessary and inefficient bid protest litigation due to inadvertent violations. In light of these potential effects, simple disclosure of all campaign and gift activity in the contracting process strikes me as the much more sensible approach.

I also have concerns that such restrictions will needlessly limit campaign activity and chill political speech inside of Fulton County. The words I wrote two years ago here still ring true to my ear:

While few would argue that the procurement process in Atlanta doesn't need more sunshine, the Common Cause proposal appears to go a few steps to far. Most troublesome is the proposal to prohibit persons who make contributions of over [$500] from bidding on any … contracts for the next year, as the prohibition applies even if the contract in question was not in existence at the time of the contribution. Restricting contribution amounts in this manner would undoubtedly chill the making of political contributions for City of Atlanta elections altogether, as any person or entity with any potential interest in any City contract in the future could not make contributions without the fear of being locked out of all future business. This is the sort of broad restriction that has proven to be problematic in jurisdictions such as Colorado. Similarly problematic is the apparent willingness to consider contributions by spouses and children of contributors in making prohibition determinations. Again, Colorado should serve as a cautionary tale here.

Needless to say, Common Cause Georgia, and many others, do not share my concerns. Whether Fulton County’s proposed resolution passes tomorrow or not, however, the waves of “restriction as reform” continue to hit the beach.