HISTORY AND CONSTITUTIONALITY OF “PAY-TO-PLAY” CAMPAIGN FINANCE RESTRICTIONS IN AMERICA

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HISTORY AND CONSTITUTIONALITY OF “PAY-TO-PLAY” CAMPAIGN FINANCE RESTRICTIONS IN AMERICA

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Introduction
“The hallmark of corruption is the financial quid pro quo: dollars for political favors.” - National Conservative Political Action Committee.,
470 U.S. 480, 496-497 (1985)

The US federal government, several states, and numerous local governments in America have adopted restrictions on campaign donations by government contractors in the past 15 years. This method of government ethics reform began as far back as 1940 with the Hatch Act, which prohibited federal government contractors from making campaign contributions (now part of the Federal Elections Campaign Act). Many of these restrictions were preceded by simple anti-bribery laws, but those laws proved too easy to circumvent. Bribery laws “deal with only the most blatant and specific attempts of those with money to influence government action.” (Buckley v Valeo, 424 U. S. 1 (1974)). However, “Actors in this field are presumably shrewd enough to structure their relations rather indirectly”, (Blount v. SEC, 61 F.3d 938 (D.C. Cir 1995)). Campaign finance restrictions extend “to the broader threat from politicians too compliant with the wishes of large contributors.” (Nixon v. Shrink Missouri Gov’t PAC, 528 U.S. 377
(2000)). “Pay to Play” restrictions around the country vary in their scope, duration, and degree, but all are aimed at combating the

quid pro quo between campaign contributions and access to political favors; that is, the corrupt practice of political candidates soliciting or accepting campaign cash in return for the preferential treatment in the award of lucrative government contracts to the campaign donors. The competing legal interests at play in this context are the guaranteed rights of free speech and association. A person’s right to make campaign contributions receives only limited constitutional protection because contributions “…only marginally impact political speech.” A principal consideration of every “Pay to Play” law is to provide the proper respect for constitutional rights while effectively combating the evil of buying political favor and its official counterpart, influence peddling. The spirit and intent of these laws are clear, but the sophisticated perpetrators of quid pro quo schemes adapt quickly and readily to take advantage of loopholes in the letter of the law. Various money laundering techniques can conceal or even legalize what are still, in effect, kick backs. A timidly drawn law can be worse than none at all, because it creates the illusion of reform while perpetrators laugh all the way to the bank. As discussed below, some statutes narrowly restrict the contributions so that the contributor is only restricted or prohibited from giving money to candidates or issues that have a direct connection with that contributor’s business dealings with the government. Many state statutes, and the federal election laws, ban corporate and union donations altogether. Some states prohibit a person in a particular regulated industry (gaming, for example) from making a contribution to any politician, while others only prohibit or restrict donations to any candidate who can directly influence regulations. A statute might only prohibit contributions to a political candidate, but allow contributions to ballot issues. Others ban the award of government contracts to certain campaign contributors. Still others prohibit or restrict only the narrow class of people who have, or seek no-bid contracts with the government from making political contributions to some, or all, candidates but allow people who have competitive-bid government contracts with the government to continue their political contributions. “Pay to Play” laws are now an established mainstream approach for tackling the problem of graft in government procurement practices, and they have been roundly approved by the courts as being “closely drawn” to vindicate the Government’s “important interest in preventing corruption and the appearance of corruption.”

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The Problem
Graft is nothing new in the world, especially soft “white collar” corruption involved in the award of government contracts based on “special relationships” between public officials and government contractors. Particular acts of corruption are often hard to detect, one at a time, but the aggregate effects of “Pay to Play” are refelected by the heavy financial toll that corrupted actors within our government system take on the taxpayer. Graft takes the collective wealth of working taxpayers and transfers that wealth to the benefit of corrupt government officials and their private sector accomplices. Graft increases the cost of government by motivating officials “on the take” to mismanage government project spending. An inside deal, that is good for the corrupt official personally, usually leads to a bad economic decision for the public because the extra cost of corruption must be passed on to the taxpayer; a bought politician tends to make distorted choices. This “mismanagement effect” is costly to the public trust. One dollar of corruption is estimated to impose a burden of $1.67 on the taxpayers.
Corruption, 10 J. ASIAN ECON. 591 (1999)). (Vinod D. Hrishiikesh, Statistical Analysis of Corruption Data and Using the Internet to Reduce

Graft tends to perpetuate itself, and indeed spread and intensify, because large sums of money siphoned off government contracts, and put into the hands of corrupt officials in the form of campaign cash, give corrupt incumbents such a huge advantage against election challengers that serious challenges are rare. The huge rewards that graft can bring embolden wrongdoers, and the raw power they gain in the process helps insulate them from, and cover up, their bad acts. Pervasive corruption is often dismissed by its very public perpetrators; some just deny it as political mythology while the more brazen see official “favoritism” as a perfectly legitimate rewards system of friends trusting friends. “To the victor go the spoils.” is a familiar saying as old as our Republic. More recently, party “boss” Joseph A. Ferriero, County Democratic Chairman of Bergen County, New Jersey, put it like this, “Yes, Democratic supporters have been given contracts. There’s nothing wrong with it, because the government is giving work to people who are supportive of the team.” (New York Times -January 25, 2006). Even when some corrupt official gets caught red handed, and publicly prosecuted in a highly visible case, many well intentioned defenders of in the established order paint the events as isolated incidents that “can’t happen here.” Efforts to make government transactions transparent are met with disdain and with incredulous personalized claims that people who don’t trust their public officials are just paranoid, and should not be allowed to interrupt the people’s business by prying into the inner workings of government procurements. Fear of being targeted for ridicule or worse by society’s powerful elite makes it easy to look the other way, live in denial, or just accept government corruption as the way of the world. This is the most dangerous attitude of all; the perception that our government system is just unethical and corrupt and that there is nothing anyone can do about it. By this attitude, the perception of pervasive corruption at all levels of government, citizens lose hope and lose faith in their governing institutions. When this fundamental disconnect occurs people disengage from government, and self-governance is at risk. Competitive cost and price bidding takes much (though certainly not all) of the discretion out of selection of government contractors, and removes some of the most obvious opportunities for corrupt preferences. Sometimes, however, there are

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perfectly good reasons why public officials must award a sole source contract, where no competitive bids are solicited. When time, flexibility, expertise, reputation, and capacity to perform are so crucial that price must be a secondary consideration, no-bid contracts are properly awarded; the right contractor is first chosen, then the terms are negotiated in the absence of competition. Determining whether a sole source contract is necessary, and which contractor should get the contract, requires the exercise of sound discretion on the part of government officials. There is no price competition to help measure value, and the lack of a cost benchmarks gives rise to the opportunity for mischief by officials willing to peddle influence in the award of lucrative government contracts. Who can say exactly what the contract should cost, when there are no other credible detailed cost estimates by anyone in the marketplace other than the contractor? This leaves room for windfall profits to the contractor willing to overcharge the government, but only if an unethical public official in charge of spending the taxpayers’ money is willing to overpay - for a fee. When the proverbial fox is watching the chicken coop, there is no objective safeguard of the public trust. The solutions for protecting against corrupt “Pay to Play” kick back arrangements involve a difficult balance because of the need to prevent mismanagement without interfering with the essential management function; a law that does not allow public officials to exercise sound discretion and make common sense decisions would doom government projects to inflexible control by penny pinching bookkeepers with no instinct for results. Every state, and every town, has its own unique best way of getting things done right, and the process of framing a good and uniform solution for preventing fraud in the government contract procurement process must take care not to interfere with legitimate management decision making by the many honest officials who are the backbone of successful public works. The problem with crafting the right solution is simply put in this famous admonition, “Exercise caution in your business affairs, for the world is full of trickery. But let this not blind you to what virtue there is; many persons strive for high ideals, and everywhere life is full of heroism.” Max Ehrmann – Desiderata (1927)

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The SEC Reduced Corruption with Municipal Bonding “Pay to Play” Prohibitions
By the early 1990’s it was clear by anecdotal evidence that the issuance of municipal bonds had become a hotbed of systematic corruption. When a state or municipality issues bonds to raise the capital for a large government project, it backs those bonds with tax revenues. Bond underwriters put together the aggregate capital by marketing these tax-backed bonds to investors. Generally, municipal bonding contracts should be issued in a competitive bidding process because price competition brings the highest price to the issuer. In some complex bond issues, price auctions do not make sense, and bonds are negotiated with a preselected contractor instead. However, by the early ‘90’s the limited practice of issuing “negotiated bonds”, where the underwriter first gets the contract and then negotiates price, seemed to be generally and suspiciously on the rise. This was explained away as the proper, though highly subjective, exercise of discretion by the officials in charge of awarding the underwriting contract until 1993, when a series of scandals resulted in the major underwriters entering into an agreement with the Securities Exchange Commission (the Federal Agency having jurisdiction) to stop making campaign contributions to the bond issuers. This agreement was formalized and became Rule G-37, which prohibited all underwriters and their employees from conducting business in states where they have made campaign contributions in the past two years and prohibited contributions in the two years following the award of bond business. The elegance of this rule is that it eliminated the incentive for corrupt decisions (at taxpayers’ expense) to engage inappropriately in the practice of awarding “negotiated bonds” (no bid contracts), without putting fetters on the decision making process of ethical public officials, who sometimes need to make an honest discretionary call that a sole source contract is the best fit for the unique situation their own constituents face. Of course, not everyone thought this solution was fair, or constitutional, even though it reduced corruption without interfering with the exercise of discretion in the procurement process. According to some, the rule prevented big business bond underwriters and their families from engaging in free political expression, so they sued claiming it violated their First Amendment rights. In the meantime, Rule G-37 had hit the nail on the head and was working well precisely because removed corrupt incentives without interfering with the sound exercise of management discretion. The process by which it reduced corruption was measureable, and allowed for empirical study of the period before and after the enactment of rule G-37. This study showed what everyone already knew, but had not yet proven on a system wide basis – that without the lure of legalized kick backs, bond issuers were less likely to award no-bid “negotiated bonds” to pre-selected underwriters: “The results show that, as would be expected in the presence of corruption, the use of negotiated bonds dropped suddenly following the banning of campaign contributions. Results imply that about one-third of municipal bond issuers (measured by value) acted corruptly, willing to switch from their natural preference for a competitive issue to a negotiated issue in order to gain the opportunity to realize a private gain in the form of campaign contributions. The results display a high degree of statistical significance and are robust to the selection of the event window. The results suggest the prohibition of campaign contributions was effective in reducing a large portion of the corruption in the industry. A rough estimate suggests that the enacting of G-37 by reducing corruption saved municipalities $500 million in real interest costs for bonds sold in the first year it was enacted alone.”
Excerpt: DO CAMPAIGN CONTRIBUTIONS AND LOBBYING CORRUPT? Gajan Retnasaba. Journal of Law, Economics & Policy (Spring, 2006)

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“Pay to Play” Restrictions Validated in Court against First Amendment Challenges: SEC Rule G-37 Upheld in Federal Court
“In every case where a quid in the electoral process is being exchanged for a quo in a particular market where the government deals, the corruption in the market is simply the flipside of the electoral corruption.” (Blount v. SEC, 61 F.3d 938 (D.C. Cir 1995), rehearing
and suggestion for rehearing en banc denied (1995), certiorari denied by 517 U.S. 1119, 116 S.Ct. 1351, 134 L.Ed.2d 520 (1996)).

The Rule G-37 limitation on the right to make political contributions was challenged as a violation of First Amendment rights and on grounds that it violated the Tenth Amendment by regulating state and local elections. Plaintiff William Blount, a securities broker and then chair of the Alabama Democratic Party, challenged Rule G-37 on the grounds that the regulation sought to restrict speech based on content by prohibiting contributions to campaigns. Predictably, First Amendment challenger William Blount is still making news in 2008. (See U.S. SECURITIES AND EXCHANGE COMMISSION, Litigation Release No. 20545 / April 30, 2008:) “According to the SEC’s complaint, Langford selected Blount-Parrish to participate in every Jefferson County municipal bond offering and security-based swap agreement transaction during 2003 and 2004, earning Blount-Parrish over $6.7 million in fees. Moreover, the SEC alleges, Langford and Blount concealed the payment scheme by using their long-time friend, LaPierre, an Alabama registered political lobbyist, as a conduit.” In 1995 the Federal Court of Appeals for the District of Columbia Circuit upheld MSRB Rule G-37. The Supreme Court then refused to review the case, and therefore Pay to Play restrictions are unlikely to face successful challenge in court. Blount v. SEC, decided over 10 years ago, paved the way for a wave of state and local Pay to Play legal reforms that have steadily developed since that time. The Blount court found that “Pay to Play” corruption was prevalent without requiring strict proofs. Bount himself remarked on national radio that, “most likely [state and local officials] are gonna call somebody who has been a political contributor” and, at least in close cases, award contracts to ‘friends’ who have contributed”. (Morning Edition (National Public Radio, June 1, 1994), available
in LEXIS, News Library, Transcript No. 1358-9)).

The court ruled that disclosure rules alone were not likely to curb the corruption, and that

the campaign donation restrictions were closely drawn to prevent special relations between underwriters and their employees on the one hand, and officials who might influence the award of the contract on the other. The court also approved broad “loophole-closer” extensions of campaign restrictions to brokers, executives, employees, and others by prohibiting brokers, dealers, municipal securities dealers, and municipal finance professionals in general from “directly or indirectly” doing anything that would “result in a violation of the direct contribution restrictions.” The court said, “…the prohibition only affects Blount’s family to the degree that ‘he is directing their contributions, thus seeking to evade the rule’s provisions.’” The Blount court also confirmed that, “The Supreme Court has said that ‘preventing corruption or the appearance of corruption’ is ‘the only legitimate and compelling government interest thus far identified for restricting campaign finances.’ (FEC
v. National Conservative PAC, 470 U.S. 480, 496-97 (1985))”.

The court distinguished betweenthe special justifications for political

contribution bans on certain players, “Contributions and solicitation of contributions have two aspects. They may communicate support for a candidate and his ideas, but they may also be used as the cover for what is much like a bribe: a payment that

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accrues to the private advantage of the official and is intended to induce him to exercise his discretion in the donor’s favor, potentially at the expense of the polity he serves. The SEC clearly rested its approval of Rule G-37 on a wish to curtail this latter function.” Finally, the Court also described the focus of “Pay to Play” restrictions, “Unlike general campaign financing restrictions, ... which seek to combat unspecified forms of undue influence and political corruption, [these] conflict of interest provisions, ... are tied to a contributor’s business relationship with governmental entities and are intended to prevent fraud and manipulation.”

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State Laws That Currently Restrict Contributions from Agents of Government Regulated Industries
Eight states have banned contributions from gaming interests. Because of the perception that gaming has traditionally been connected with corruption, states have been aggressive in ensuring that a proper distance is kept between gaming interests and politicians. These types of statutes fit the model of separating political contributions from political favors, and therefore provide guidance and justification for Pay to Play laws. Indiana prohibits contributions from any officer or person who holds an interest in a gaming entity (Ind. Stats. 4-33-10-2.1); Iowa prohibits contributions from riverboat gambling corporations (Iowa Stats. 99F.6(4)(a)); Kentucky prohibits contributions from persons owning lottery contracts (KY Rev. Stats. 154(a).160); Louisiana prohibits contributions from casino officers or key employees (La. Rev. Stats. 18:1505.2) Michigan prohibits contributions from any licensee or person who has an interest in a gaming entity (Mich. Stats. 7(b)(4)-(5)); Nebraska prohibits contributions from lottery contractors for duration of contract and three years after (Neb. Stats. 49-1469.01); The law covers contributions from the individual, an officer of the company, its PAC, or anyone acting on behalf of the company, officer, or PAC (Neb. Rev. Stat. § 9-835). Furthermore, a lottery contractor may not make a campaign contribution or independent expenditure for a statewide office candidate during the term of the contract and for three years after the award or renewal (Neb. Rev. Stat. 49-1469.02). The law also prohibits a candidate from receiving such a contribution. New Jersey prohibits contributions from casino officers or key employees (NJ Perm. Stats. §5:12-138); and Virginia prohibits contributions from pari-mutual corporations, executives and their spouses and families
(VA Stats. §59.1-375, 376).

Louisiana and New Jersey’s bans on contributions from those involved in the gaming industry have been upheld in the courts. In re Petition of Soto, (236 N.J. Super. 303 (App. Div. 1989), certif. denied, 121 N.J. 608, cert. denied, 496 U.S. 937, 110 S. Ct. 3216, 110 L. Ed.
2d 664 (1990)),

the Court upheld the constitutionality of a statute that prohibits any officer or key employee of a casino from

contributing any “money or thing of value” to a candidate for public office or to any party or group organized to support such candidates. The threat of impropriety is “particularly insidious when the concern is that casinos, with their enormous economic power, might appear to infiltrate” the governmental process. Casino Ass’n of La. v. Foster, (820 So. 2d 494, 502-504 (La. 2002)), rejected arguments that a state law prohibiting any political contributions from any officer, director, trustee, partner, senior management level employee, or key employee in the casino industry, or the spouse of any of the foregoing was unconstitutionally broad. In Michigan, the Attorney General approved the constitutionality of that state’s ban on gaming contributions. (Michigan AG Opinion
7002 (Dec. 17, 1998)).

In Schiller Park Colonial Inn, Inc. v. Berz, (349 N.E.2d 61, 66-67 (Ill. 1976)) the Court rejected arguments that an

Illinois law prohibiting any political contributions from any officer, associate, agent, representative, or employee of a liquor licensee was unconstitutionally broad.

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In addition to the broader bans on campaign contributions from regulated sectors such as the gambling industry, several states have implemented more narrowly tailored restrictions on campaign contributions from regulated sectors to those whom are the regulators: Delaware, Florida, Montana, and Washington prohibit insurance agents from making contributions to candidates for the Office of Insurance Commissioner. (Delaware Code 18 §2304(6), Florida Statutes Title XXXVII §627.0623, Montana Code Ann. 33-18-305, and
Washington RCW 48 -30.110).

Florida also prohibits licensed food outlets and convenience stores from contributing to candidates for Commissioner of Agriculture. (Florida Statutes Title IX §106.082). Georgia prohibits public utilities from contributing to any political campaign. (Official Code of Georgia Ann. 21-5-30(f)). Georgia law further prohibits any regulated entity from contributing to any candidate for the office that regulates that entity.
Official Code of Georgia Ann. 21-5 30.1. (Source: Craig Holman, Ph.D. - Public Citizen)

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State by State “Pay to Play” Restrictions on Government Contractors
An ever-growing number of states and municipalities are enacting “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. In order to prevent money laundering, most “Pay to Play” legislation contains anti-circumvention language that restricts contributions from other persons closely associated with a state contractor to entities that pass legal contributions through to banned recipients, and requires disclosure reports. A loophole called “wheeling”, making contributions to a permitted recipient which is later transferred to a banned recipient, is a common work around that newer statutes address. Some states, like Maryland, Pennsylvania, and Rhode Island, do not have Pay-to-Play laws prohibiting or restricting campaign contributions, but only impose reporting requirements on any person doing business with the state. New Jersey - N.J. Perm. Stat. 19.44a-20.13 applies to state government contracts (no-bid and competitive) above a $17,500 contract threshold. It restricts principals of a contractor (10% ownership interest), as well as the spouses of individual contractors (and controlled PACs and Section 527 organizations) from contributing more than $300 aggregate/election from and after 18 months (or a full gubernatorial term) before the award until termination of the contract to any Gubernatorial candidates and state and county party committees. Compliance certificates required. IN THE MATTER OF THE APPEAL BY EARLE ASPHALT COMPANY, June 30, 2008 Superior Court Appellate Division of New Jersey, the court rejected all arguments against the restrictions, even on competitive contractors, “even when contracts are competitively bid, State officials exercise substantial discretion that contractors may seek to influence through campaign contributions”. The court demonstrated competitive government contracts were subject to the same influences as no-bid government contracts, For example, the Commissioner of Transportation has the authority to determine whether a contractor is ‘responsible,’ (see
Inc. v. Kohl, 59 N.J. 471, 481-86 (1971), cert. denied, 405 U.S.1065, 92 S. Ct. 1500, 31 L. Ed. 2d 796 (1972)), Trap Rock Indus.,

whether a bid conforms to the

“specifications” of the contract, N.J.S.A. 27:7-30, (see Meadowbrook Carting Co. v. Borough of Island Heights,138 N.J. 307, 313-14 (1994)), and whether to reject all bids because they are ‘excessively above the estimated cost, or for any other cause,’ (N.J.S.A. 27:7-30; see
DGR Co. v. State, Dep’t of Treasury, 361 N.J. Super. 467, 474-77 (App. Div. 2003)).

Moreover, even after a competitively bid construction

contract is awarded, the Commissioner or other State contracting official may exercise substantial discretionary authority in determining whether to execute change orders and in resolving disputes concerning performance of the contract or payments to the contractor. See Home Owners Constr. Co. v. Borough of Glen Rock, 34 N.J. 305, 315-16 (1961); Capital Safety, Inc. v. State, Div. of
Bldgs. and Const., 369 N.J. Super. 295, 302-03 (App.Div. 2004).

Therefore, we reject appellant’s argument that the governmental interest

in preventing the actuality or appearance of public corruption does not support a limitation upon the amount of political contribution by contractors who seek the award of competitively bid contracts.’ Further, the court found the token $300 contribution limit to be constitutionally valid, “the particular danger that contractors’ campaign contributions may influence the discretionary decisions of State contracting officials or create a public perception of such influence establishes the ‘special justification’ for the contribution limits…” The court said, “The strong governmental interest in limiting political contributions by businesses that contract with the State is similar to the governmental interest that this court in Soto found to justify an absolute prohibition against political contributions by high-level casino employees”.

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Connecticut – Conn. Gen. Stat. 9-612(g) applies to all state government contracts (no bid and competitive) above a $50,000 contract threshold. The contractor (including board members, officers, managers, and individuals who hold at least 5% ownership interest, their spouses and adult dependent children) is prohibited from making any campaign donations to state and local candidates responsible for awarding the contract from the start of negotiations until the end of the calendar year after termination. Violations result in contract cancellation and 1 year debarment). In Connecticut, state contractors who were convicted for giving illegal gifts to Governor Rowland, but for many years they had given him far more money in legal campaign contributions. Connecticut responded to this scandal with meaningful reforms. Connecticut lobbyists and state contractors can no longer give or solicit contributions for legislative and statewide candidates. This law was recently modified after a lower court preliminary court order that the transparency measure in the law should not have required the public Internet database to disclose the identities of minor children of principals of state contractors. Securities Industry & Fin. Markets Ass’n v. Garfield,
(469 F. Supp. 2d 25, 38 (D. Conn. 2007)).

The Green Party has filed suit in the US District Court of Connecticut in Green Party of

Connecticut v Garfield, (3:06-CV-1030(SRU)), to invalidate the Pay to Play provisions. This litigation is pending at the trial court level, but no decision has been reached as this survey goes to print. Persons wishing to check the status of this case are referred to www.brennancenter.org/content/resource/green_party_of_connecticut_v_jeffrey_garfield_et_al/ Hawaii – HI Rev. Stat. 11-205.5 covers all no-bid and competitive-bid contracts of any value, and prohibits any contributions by the contractor to any state and local candidates, parties, and committees from the award to until the termination of the contract. South Carolina - An individual, corporation, or other entity awarded a no-bid contract with the state or any of its political subdivisions may not contribute to a public official who was in a position to act on the contract award (S.C. Code Ann. § 8-131342).

West Virginia - West Virginia law generally prohibits anyone who bids on or has a public contract at the state or local level from contributing to any political party, committee, or candidate for public office or to anyone for political purposes or use
(W. Va. Code § 3-8-12(d)).

The ban applies during the period of contract negotiation and performance.

Vermont - Vt. Stat. Ann. tit. 32, § 109. An investment firm (or its PAC) which has contract with a the state treasurer is banned from making or soliciting campaign contributions on behalf of any candidate for state treasurer, and is disqualified for any contract with state treasurer for five years after making any contribution to a state treasurer candidate. Ohio – Applied to both no-bid and competitive contracts over a $10,000 threshold. Restricted contributions from

government contractor, PACs, partners, shareholders, administrators, executors, trustees, and individuals with at least 20% ownership interest (spouses and minor children), and collective-bargaining labor organization for the benefit of state and local officials ultimately responsible for awarding the contract, or for appointing the official who directly awards the contract. The limit is $1,000 within 2 years before the award, and $1,000 within 1 year of the termination of the contract, but no more than $2,000 aggregate. Officials can’t solicit contributions from contractors even for others from date of the

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award until 1 year after contract. Considered one of the most comprehensive laws in the nation after sweeping expansive changes in 2007, implementation of this new law had been stalled by a trial court on purely procedural grounds not relating to the constitutional validity of the law’s substantive provisions, but as of this writing has been reinstated by a stay in the appellate court. UAW v Brunner, Case No. (05CVH-03-2553 (June 18, 2008)) In 2007, the Court issued an order striking Ohio’s law (H.B. 694) because of technical deficiencies in the way the law was enacted, signed and filed, having nothing to do with the constitutionality of the campaign restrictions it imposed on county commissioners, city council members, township trustees, school board members, and other local boards, commissions, task forces, and other authorities. The bill as passed by the legislature had minor typographical differences from the bill as it was actually presented to the governor, and this kind of hyper technicality is enough to invalidate any law. H.B 694 was immediately re-passed by the legislature, in Am. Sub. H.B. 119 (the Ohio budget bill), in an attempt to cure any defects in the way the manner in which H.B. 694 was signed and filed. Judge Bender ruled on June 18, 2008 that the insertion of the bill into the budget bill invalidly attempted to amend an unconstitutionally passed statute, saying that the campaign contribution provisions of H.B. 119 unconstitutionally violated the so-called “single subject rule” for passing statutes because they did not relate to the prime purpose of the budget bill. If that ruling holds, then the previous version of the law, which existed prior to April 4, 2007, is now back in effect. The State of Ohio has appealed Judge Bender’s decision and asked for a stay of his ruling pending appeal. Judge Bender granted the stay on July 17, 2008, which effectively puts Ohio’s stricter, more comprehensive laws back into effect. So as of this date of writing, and until the appellate court rules, the version of the law as enacted in HB 694 and HB 119 is still in effect pending appeal. Persons wishing to check for updates should refer to www.bricker.com/legalservices/practice/govern/ptop. asp. Previous pay to play law prohibits any state agency or department or its political subdivisions from awarding a no-bid contract valued at more than $500 to anyone who has contributed an aggregate of over $1,000 within the prior two years to the person holding the public office that has responsibility for awarding the contract. No contract worth more than $500 may be awarded to a corporation, or business trust, if an owner (or spouse) with more than a 20% interest has contributed more than $1,000 in the previous two years to the public official or his campaign committee. [Ohio Rev. Code Ann. § 3517.13(J)]. For purposes of this restriction, if the contract awarding authority is a gubernatorial appointee, the governor is considered to have ultimate responsibility for awarding the contract, in which case, the ban applies to those who contributed to the governor’s campaign.

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“Pay to Play” Laws and Proposals Pending in States
Illinois - The General Assembly approved in May 2008 a ban on contractors with state deals of $50,000 or more from giving campaign contributions to the officeholders who hired them. Whether it becomes law depends on the signature of a governor who has been held up as the primary example of why such a ban is needed. The bill will soon be formally submitted for the signature of Gov. Rod Blagojevich, a Democrat who ran as a reformer in 2002, who has allegedly made such deals. One of Blagojevich’s top fundraisers and political insiders, Antoin “Tony” Rezko, was convicted on 16 of 24 federal felony counts of money laundering, bribery and fraud in attempting to twist campaign contributions out of companies seeking state business or regulatory approval. Former Republican Gov. George Ryan is serving a 6 1/2-year federal prison sentence for racketeering. South Dakota – Ballot Question I-10 is a comprehensive statutory voter initiative which would prohibit misappropriating public funds for political campaigns and lobbyists, imposes a “golden parachute” cooling off periods for legislators, and contains “Pay to Play” campaign finance reform for all government contracts over a $500 threshold. The proposal has a transparency measure which provides a public Internet summary of all government contracts; it classifies contracts as competitive bid or sole-source contracts, and identifies the contractor and its principals to aid enforcement of the statute. The measure requires sole-source (no bid) government contracts to contain contract-based consensual restrictions which bind the contract holders (principals) to refrain making or soliciting campaign donations or spending to state and local candidates during the contract term and for 2 years thereafter. Loophole-closers prohibit the contract holders from using others people or entities as proxies or conduits to make prohibited donations “indirectly, through any officer, employee, immediate family member of any officer or employee, vendor, or agent.”, or through “any person who intends to make such a contribution”. These persons and organizations are not prohibited from making donations directly on their own behalf, so long as they are not making an indirect pass-through donation as a conduit for a prohibited donor. Prohibited donors include partners, 5% owners, officers, and includes exclusive public sector labor union principals and the PACs they control (but do not include not public employees). Any public official or candidate who does or would have “ultimate responsibility for the award” of a specific public contract (whether competitive or no-bid) is banned from soliciting or accepting donations from the holder contractor of that contract or his immediate family members. Violators forfeit contracts and are debarred from state contracts for 3 years. The law would empower citizens to bring suit as private attorneys general in the event the government fails to act. Colorado – I-59 ballot question is proposed initiative amendment to the campaign finance section of the state constitution. It applies only to no-bid government contracts over a $50,000 threshold, and includes exclusive collective bargaining agreements with a labor organization representing employees, but not employment contracts with individual employees. It contains a transparency measure which publically discloses contract summaries and prohibited donors. Under this measure, a “person who makes or causes to be made any contribution intended to promote or influence the result of an election on a ballot issue shall not be qualified to enter into a sole source government contract relating to that particular ballot issue.” Sole source contractors (and their principals) agree to refrain from making political contributions to state and local candidates and parties for the term of the contract plus two years. Contributions made indirectly to sidestep restrictions, through political entities for the benefit of

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banned recipients, or by self-restricted donors using family members as conduits, are prohibited by anti-circumvention clauses. Official accomplices are subject to misconduct proceedings and restitution, and violators are liable for breach of contract and ineligible to hold public contracts or public employment for 3 years.

General Constitutional Standards for Campaign Finance Regulations
In 1974 the US Supreme Court ruled, with reference to the FECA, that combating “prevention of corruption and the appearance of corruption spawned by the real or imagined influence of large financial contributions on candidates” is a sufficient state interest. (Buckley v. Valeo, 424 U.S. 1, 25–26 (1976)). The FECA prohibits an individual who is a federal contractor from making contributions to candidates for federal office or federally registered political committees (PACs) during the term of the contract. The restriction applies from the time the individual begins negotiations with a federal agency or the agency issues its request for proposals (RFP) until the negotiations cease or the contract which was the subject of the RFP has been completed (2 USCA § 441c). “State is not compelled to verify logical assumptions with statistical evidence”, (Hughes v Alexandria Scrap Corp, 426 U.S. 794 (1976)). See Randall v.
Sorrell, 126 S. Ct. 2479, 2491 (2006)

which noted the absence of any “special circumstances” for extremely severe across-the-board

general political contribution limits. Pay to play laws are based on special justifications for limiting the narrow group of wouldbe donors, the government contractors and their affiliates, whose donations may influence discretionary decisions of state and local contracting officials or create a public perception of such influence. The right to make political contributions is not entitled to the same high level scrutiny as other First Amendment rights, limits on contributions nevertheless must be “closely drawn” to a “sufficiently important state interest.” Absolute bans on corporate contributions for federal candidates have been in existence since 1907 and are constitutional. (FEC V. Beaumont (02-403) 539 U.S. 146 (2003)) In 2002 Congress passed the McCain-Feingold Act. The purpose of the BCRA was to curb the circumvention of FECA’s limitations by bringing “soft money” contributions and spending into regulation. The US Supreme Court addressed the constitutionality of the BCRA in McConnell v. Federal Election Commission. 540 U.S. 93 (2003). The Court declined to subject BCRA’s solicitation and spending restrictions to strict scrutiny, noting that the restrictions of BCRA only marginally impact political speech. “As with direct limits on contributions, therefore, §323’s spending and solicitation restrictions have only a marginal impact on political speech”. The Court held BCRA to the less rigorous “closely drawn” scrutiny applicable to contribution limitations, even though, ”many of its provisions restrict not only contributions but also the spending and solicitation of funds raised outside of FECA’s contribution limits. But for purposes of determining the level of scrutiny, it is irrelevant that Congress chose in §323 to regulate contributions on the demand rather than the supply side. See, e.g., National Right to Work, supra, at 206-211 (upholding a provision
restricting PACs’ ability to solicit funds).

The relevant inquiry is whether the mechanism adopted to implement the contribution limit, or

to prevent circumvention of that limit, burdens speech in a way that a direct restriction on the contribution itself would not.” The McConnel court went on to say, “Our treatment of contribution restrictions reflects more than the limited burdens they impose on First Amendment freedoms. It also reflects the importance of the interests that underlie contribution limits-interests in preventing “both the actual corruption threatened by large financial contributions and the eroding of public confidence in the electoral process through the appearance of corruption.” (National Right to Work, 459 U. S., at 208; see also Federal Election Comm’n v.

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Colorado Republican Federal Campaign Comm., 533 U. S. 431, 440-441 (2001) (Colorado II)).

We have said that these interests directly implicate

“ ‘the integrity of our electoral process, and, not less, the responsibility of the individual citizen for the successful functioning of that process.’“ (National Right to Work, supra, at 208 (quoting Automobile Workers, 352 U. S., at 570)). Because the electoral process is the very “means through which a free society democratically translates political speech into concrete governmental action,” (Shrink
Missouri, 528 U. S., at 401 (Breyer, J., concurring)), contribution limits, like other measures aimed at protecting the integrity of the process,

tangibly benefit public participation in political debate. For that reason, when reviewing Congress’ decision to enact contribution limits, “there is no place for a strong presumption against constitutionality, of the sort often thought to accompany the words ‘strict scrutiny.’ “
(Id., at 400 (Breyer, J., concurring)).

The less rigorous standard of review we have applied to contribution limits

(Buckley’s “closely drawn” scrutiny) shows proper deference to Congress’ ability to weigh competing constitutional interests in an area in which it enjoys particular expertise. It also provides Congress with sufficient room to anticipate and respond to concerns about circumvention of regulations designed to protect the integrity of the political process.

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Conclusion
“Pay to Play” laws are developing and evolving as they have spread state by state, first by statute and more recently by voter initiative. No such laws have ever been invalidated by any court on substantive constitutional grounds, and indeed the US Supreme Court is showing more and more appreciation for the need for campaign finance restrictions, like those found in “Pay to Play” statutes, to close potential loopholes and anticipate novel and ambitious avoidance schemes of corrupt officials and the lobbyists and government contractors who are their private sector accomplices. “Pay to Play” laws are becoming more savvy, and more strict, but they remain committed to preserving the flexibility and discretion of honest public officials. Competitive procurement of goods and services from the private sector is both beneficial and necessary in government, and government officials must be free to exercise broad discretion to make good decisions that provide a good fit for every unique need or situation. By precisely targeting only the corrupt incentives that lead officials and contractors to mischief, and leaving the management process of contract procurement alone, “Pay to Play” laws help combat graft without violating the maxim that should govern all thoughtful solutions; Primum non nocere - “First, do no harm.”

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Greg Schmid is general counsel for ALG. Schmid graduated in 1982 with a BA degree from University of Michigan in Ann Arbor and received his law degree in 1985 from Thomas Cooley Law School. Schmid has practiced law in Michigan for 23 years, with a concentration in government policy and procedure.

Americans for Limited Government Research Foundation | 9900 Main Street, Suite 303 Fairfax, VA 22031 (703) 383-0880 | (703) 383-5288 fax | info@getliberty.org

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