Client Alert

An ever-growing number of states and municipalities are enacting so-called “pay-to-play” laws that bar or severely limit campaign contributions by state and local contractors, their top executives, and in some instances, the executives’ spouses and dependents. The stakes for noncompliance are high. Businesses that have (or hope to have) a contract with state or local governments that fail to comply with these laws face the immediate severing of existing contracts, suspension from consideration for future contracts, monetary fines, and even criminal penalties.

The scope and operation of these laws is complex and varies widely from state to state, and city to city. They can differ according to:

• The kinds of contracts covered, which can include construction, furnishing of goods and services, sale or lease of land or buildings, licensing agreements, loans and grants, and investment advisory services to governmental pension plans 
• The type of state or local agency with which the current or prospective contractor holds or seeks a contract 
• Whether the contract is let on a sole source or competitive bid basis 
• Which company officials are covered and whether spouses or dependents are included 
• Which candidates, political parties, or state political action committees are covered
• Certification and notification requirements
• "Look back" and "look forward" provisions, which capture contributions by companies or restricted persons for some period of time before and after a decision to contract with them
• Whether there is an opportunity to “cure” an improper contribution

More than a dozen states currently have pay-to-play laws, including Connecticut, Florida, Kentucky, New Jersey, Ohio, South Carolina, and West Virginia. The cities of Houston, Los Angeles, Oakland, Philadelphia, and San Francisco have similar rules in place. In addition to imposing a contribution bar, some of these jurisdictions also require the filing of disclosure reports to prevent a practice called “wheeling” – making a contribution to a permitted recipient that is later transferred to a candidate committee or political party subject to the bar. Several states, including Maryland, Pennsylvania, and Rhode Island, do not have pay-to-play laws prohibiting or restricting campaign contributions, but impose extensive reporting requirements on any person doing business with the state.

Pay-to-play laws make it more important than ever for businesses to adopt effective compliance programs for their political activities. This has been true for some time, as regulation grows more complex and varied, penalties for violations skyrocket, and corporations are increasingly sanctioned for executive fundraising and other volunteer activity that make impermissible use of corporate facilities and staff time. Now the stakes are even higher. Companies that lack appropriate policies and training, or lack diligence in tracking contributions from their PACs, executives, and their executives’ families face the loss of contracts, monetary penalties, and reputational harm.

Womble Carlyle attorneys can help companies stay on top of these fast-changing laws and avoid potential problems. Our team of experienced political law attorneys can also assist you to develop and implement an effective compliance program.

Please contact the attorney with whom you usually work or any one of the following attorneys if you have any questions.

Lawrence H. Norton and James A. Kahl - Larry and Jim served as General Counsel and Deputy General Counsel, respectively, of the Federal Election Commission, spanning the period from September 2001 to March 2007. As leaders of the FEC’s legal team, Larry and Jim played a critical role in every aspect of implementation and enforcement of the landmark McCain-Feingold law. Larry and Jim also have extensive experience providing training for, and working with, state and local officials who oversee campaign finance, gift, and lobbying laws. Larry and Jim are frequent speakers on corporate political activities and related compliance issues.