Center for Non-Profits - "Pay to Play" Fact Sheet

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Fact Sheet:
Pay to Play and New Jersey Non-Profits

(updated 11/29/07)

This document is for informational purposes only and does not constitute legal advice or a legal opinion. For answers to specific questions concerning your situation, you should consult a knowledgeable attorney who can advise you regarding your particular circumstances.

Background

The Pay to Play laws and regulations are designed to reduce the influence of campaign contributions on the awarding of public contracts. The laws restrict state, county and local government's ability to enter into contracts with a "business entity" if that entity has made certain "reportable" campaign contributions (generally $300 or more) to various political candidates and committees.

Although 501(c)(3) organizations are themselves prohibited from donating to political campaigns or otherwise promoting or opposing candidates for public office, the New Jersey Department of Treasury, the New Jersey Department of Community Affairs and the New Jersey Election Law Enforcement Commission have issued guidelines that state that parts of the new laws do, in fact, apply to non-profits, including charities.

The "Pay to Play" laws are rather complicated, but key provisions include the following:

County/Local Contracting Prohibition (P.L.2004, c.19)
Prohibits campaign contributions by certain business entities performing State, county and local contracts; prohibits certain contributions by county political party committees. A municipal or county government agency (including instrumentalities, subdivisions and fire districts) cannot award a contract in excess of $17,500 without using a "fair and open process" if the contractor is a contributor to a candidate committee or a political party committee where a member of the party is serving in an elective public office of that municipality or county, and, either:

made "reportable" contributions (those in excess of $300) during the year prior to the award; and/or
makes contributions during the life of the contract.

Non-profit connection: At the request of the Center for Non-Profits, the NJ Department of Community Affairs has clarified that county and local government ban on non-fair and open contracts applies to contributions made by the business entity and/or persons that control 10% or more of the assets of the organization - a situation that does not apply to the typical 501(c)(3) organization. Although it is less likely that 501(c)(3) organizations would be covered under these conditions, organizations should consult with legal counsel to be sure, particularly if for-profit subsidiaries or other unusual circumstances are involved.

State Contracting Prohibition (P.L.2005, c.51)
Restricts certain campaign contributions by business entities seeking and receiving State contracts. Under this portion of the pay-to-play statute, state agencies are barred from entering into contracts, lease or purchase agreements in excess of $17,500 with business entities that have made reportable contributions to a gubernatorial candidate committee or to any State or county political party committee within the previous eighteen months. Businesses with contracts in excess of $17,500 are prohibited from contributing to such campaigns prior to the completion of the contract period. These provisions apply to all State contracts regardless of whether they are "fair and open."

Non-profit connection: Like the county and local contracting prohibition, this law covers contributions by the business entity or by any person with an interest of 10% or greater in the business entity. Although it is less likely that 501(c)(3) organizations would be covered under these conditions, organizations should consult with legal counsel to be sure, particularly if for-profit subsidiaries or other unusual circumstances are involved.

State/County/Local Disclosure and Annual Reporting to ELEC (P.L.2005, c.271) Requires business entity disclosure of political contributions prior to entering a government contract; also requires a business entity receiving $50,000 or more in a calendar year through agreements or contracts to file an annual statement with the NJ Election Law Enforcement Commission (ELEC). C. 271 has two relevant disclosure requirements:

Disclosure to government contracting entity - Prior to entering a contract with a State, legislative, county or municipal governmental entity of more than $17,500 that is not publicly advertised, a business entity must disclose to that governmental entity reportable contributions made during the past year. The disclosure applies to contributions made by the business entity as well as its "principals, partners, officers or directs" or their spouses. The disclosure must be made at least 10 days prior to the execution of the contract. If the process is "fair and open" (i.e., publicly advertised and bid), this disclosure requirement does not apply.
Annual report to ELEC -- The law requires a business entity with public contracts [state (including some federal pass-throughs), county, local, legislative, school or fire districts] of $50,000 or more in a calendar year to file an annual disclosure statement with the Election Law Enforcement Commission (ELEC) to report contract information and reportable contributions (generally $300 or more). The disclosure applies to contributions made by the business entity as well as its "principals, partners, officers or directors" or their spouses. This requirement applies to all contracts, whether publicly advertised or not.

Non-Profit Connection - As with the other statutes, non-profits have been deemed to be "business entities" under the law. Additionally, the disclosure statute states that contributions made by directors, officers, trustees and their respective spouses are deemed to be contributions by the business entity. This means that in order to comply with the disclosure requirements, non-profits must collect information regarding the campaign contributions made by these individuals and report them to the appropriate government agencies - despite the fact that public charities themselves are legally prohibited from making campaign contributions.

Comments/Next Steps

Barring government action to the contrary, non-profits will have to disclose the reportable political contributions made by their directors, officers, trustees and respective spouses. For non-profits which received $50,000 or more in government contract payments during calendar year 2006, ELEC has extended the deadline for the first required online disclosure statement from November 30, 2007, to January 15, 2008. This is the third (and likely the last) filing extension granted by ELEC to non-profit filers (see this article for more information).

The Center has developed templates, talking points and other materials to assist you as you work with your board members on this issue. Although the Center is continuing to seek to remedy the problems with the pay-to-play disclosure requirements, we recommend that non-profits gather the necessary information from their board members, officers and spouses in preparation for the online ELEC filing. The Center for Non-Profits has developed a sample form that non-profits can modify for their use to request the needed information from their board members, officers and respective spouses. Non-profits can request a copy by sending an e-mail to center@njnonprofits.org . Please be sure to identify your organization in your request.

The Center for Non-Profits fully supports reforms designed to increase the accountability and transparency of the appropriations process, and proposed legislation to tighten conflict of interest restrictions in the appropriations process. However, the Center remains concerned that the pay-to-play disclosure requirements - which force charities to collect and repackage information regarding campaign contributions that have already been reported by the individuals making them - will not accomplish the goals that reformers seek. We believe that the pay-to-play regulations are inappropriate in the context of charitable organizations, whose activities under federal law must be scrupulously non-partisan. We believe that the current rules are duplicative, intrusive and will have significant and unintended consequences for charities in terms of their nonpartisan status, board recruitment/retention, and their dealings with policy makers, funders and the public. We are continuing to work to address the underlying problems with respect to the disclosure requirements.

For some tips to assist with the ELEC filing, see www.njnonprofits.org/paytoplayfilingtips.html . For more information, contact Linda Czipo at the Center.

NJ Government Pay to Play Web Sites

Election Law Enforcement Commission - "Pay to Play" information pages:
http://www.elec.state.nj.us/PayToPlay/ptp_main.html and https://wwwnet1.state.nj.us/lpd/elec/ptp/laws.html

NJ Department of Community Affairs - County and Local Pay to Play Information:
http://www.nj.gov/dca/lgs/p2p/

NJ Department of Treasury - State Pay to Play Information: http://www.state.nj.us/treasury/purchase/execorder134.htm

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