New Pay-to-Play Enactments Expand Types of Campaign Contributions That Will Result In
Loss of State Work

by Steven Srenaski, Esq.

Governor Corzine has expanded the categories of contributions that may bar vendors from receiving State contracts. In order to prevent your company from being barred from receiving a State contract or forfeiting an existing one, vendors who previously made political contributions to municipal party committees and legislative leadership committees should carefully review newly enacted Executive Order 117 and its ramifications.

In enacting Executive Order 117, Governor Corzine extended the reach of existing contribution prohibitions governing State vendors. Under the previously existing provisions of Chapter 51 (Pay-to-Play), State contractors and all principals owning or controlling more than 10 percent of that entity were barred from making reportable contributions State political party committees, county political party committees and gubernatorial candidates.

Effective November 15, 2008, EO 117 expanded these restrictions by also banning reportable contributions to legislative leadership committees, municipal party committees, and this year’s inaugural candidates for Lieutenant Governor. EO 117 also significantly enlarged the complement of entities and individuals whose contributions preclude the receipt of a State contract or result in the loss of an existing agreement.

The potential penalties that accompany a violation of Chapter 51 (as modified by EO 117) can be severe and result in the loss of an existing contract, liability for a penalty up to the value of the contract and debarment from future contracts by the State Treasurer for a period of up to 5 ½ years. While EO 117 adds complexity to the political process and increases risks for those who are not fully informed of its provisions, one need not retreat from the political spectrum.

The attorneys at Florio, Perrucci, Steinhardt & Fader possess the expert knowledge you need to stay engaged in the political process and in complete compliance with the new pay-to-play rules. For more information on this subject, please contact Steven Srenaski, Esq. at ssrenaski@florioperrucci.com or 908-454-8300.

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State Redevelopment Projects Now Subject
to Pay-to-Play Restrictions

Governor Corzine’s issuance of Executive Order 118 aims to close the redevelopment loophole in the campaign finance laws by extending the statewide contribution restrictions of Chapter 51 (State Pay-to-Play Law) to redevelopment contracts with the State of New Jersey. This change, which became effective on November 15, 2008, could result in the loss of a redevelopment designation if prohibited campaign contributions are made.

EO 118 builds upon the EnCap matter and the proliferation of local redevelopment measures by imposing an additional regulatory framework upon the unwary company or business professional. Pursuant to EO 118, a State redevelopment entity is prohibited from entering into a redevelopment agreement with any redeveloper who makes a prohibited contribution after the issuance of a request for proposal, request for qualifications or other comparable solicitation. That contribution ban extends throughout the term of the redevelopment agreement.

Extending Chapter 51’s ban on contributions to State political party committees, county political party committees and gubernatorial candidates, EO 118 further prohibits contributions to municipal party committees, legislative leadership committees and candidates for Lieutenant Governor (who will be campaigning for the first time this year). EO 118 also applies to contributions made to a candidate committee or election fund of any candidate for or holder of a State legislative, county, or municipal elective office in a State legislative district, county, or municipality in which any property subject to the redevelopment agreement is situated. The prohibition on these otherwise disqualifying contributions took effect on November 15, 2008 and applies to “reportable contributions”, i.e., contributions in excess of $300 per election to a candidate committee and per calendar year to a party committee or legislative leadership committee.

While EO 118 is notable for the breadth of political entities subject to its restrictions, perhaps the most remarkable and potentially dangerous feature is created by its broad definition of individuals and entities covered by these restrictions. The Order extends its prohibition on the aforementioned contributions not only to the redevelopment entity itself, but also expands Chapter 51’s definition of a “business entity” and now includes: (i) a corporation, any officer thereof and any person or entity that owns or controls ten percent (10%) or more of the stock of that corporation; (ii) a partnership and any partner thereof; (iii) a limited liability company and any member thereof; (iv) a professional corporation and any shareholder or officer thereof; (v) a sole proprietor; and (vi) any principal, officer or partner of any other form of entity. Consequently, the definition now encompasses the full panoply of ownership interests in these business organizations, regardless of the size of individual equity interests. The contribution ban further applies to any subsidiaries or PACs “directly or indirectly controlled” by the redeveloper, as well as the redeveloper’s spouse, civil union partner, or child residing with that individual.

Most notably, EO 118 also extends its contribution ban to businesses contracting with the redeveloper “to perform professional, consulting, or lobbying services in connection with the redevelopment project.” Thus, in practical application, EO 118 now requires a redeveloper to manage the risk of not only its own campaign activities and those of its principals and their families, but those of its professionals as well. This dispersion of risk throughout a redeveloper’s supply chain to entities or individuals it neither owns nor controls is as novel as it is potentially problematic. The far reaching scope of EO 118 will require considerable coordination and information - sharing concerning the political activities of the redeveloper, its principals and its contracted professionals, the attendant effect of which may be to diminish if not altogether end their participation in the political process. This is particularly true at a time when an errant contribution or a mistaken failure to disclose a single contribution carries with it not just the loss of a contract or the ability to obtain future government work, but also the tacit imprimatur of impropriety or corruption.

While EO 118 and several similar local redevelopment ordinances may not withstand judicial scrutiny if challenged, you do not want to be the test case. The time, cost and energy that would be required in such a matter will harm any potential project and stall redevelopment activities for an extended period of time.

In short, redevelopers who elect not to forfeit their ability to participate in constitutionally protected campaign activity must navigate New Jersey’s ever-evolving local and State political contribution restrictions. The line between acceptable campaign activity and disqualifying conduct is fine and the consequences for a single misstep can be catastrophic to a business and its owners. The attorneys at Florio, Perrucci, Steinhardt & Fader can assist your business in all aspects of political risk management, including advice on proposed political contributions, reporting of contributions on a continual and/or annual basis, and, in the event of disqualification or debarment, mounting a constitutional challenge to the decision.

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The purpose of this alert is to inform our clients and friends of recent developments in the law. It is not intended nor should it be used as a substitute for specific legal advice or opinions, as legal counsel may only be given in response to inquiries regarding particular factual situations.

SPOTLIGHT ON:

Steven R. Srenaski

Mr. Srenaski is an associate with Florio, Perrucci, Steinhardt & Fader, working with clients in the labor & employment, education, government relations and civil litigation groups.

Mr. Srenaski received his Juris Doctorate from Seton Hall University School of Law where he was selected to serve on the Sports Law and Entertainment Journal and the Appellate Advocacy Moot Court Board. While on the Moot Court Board, Mr. Srenaski received the prestigious honor of having the appellate problem and bench memorandum he co-authored selected for use as the coursework for second year law students in several sections of the school’s Appellate Advocacy classes. Mr. Srenaski also served as a teaching assistant for those classes using his appellate problem. During law school Steven also served as a legal intern at the Hudson County Prosecutor’s Office writing trial level and appellate briefs. Mr. Srenaski additionally served as a legal intern for Senator John Kerry’s New Jersey presidential campaign.

Mr. Srenaski received his undergraduate degree from Virginia Tech, where he double majored in English and Political Science. While at Virginia Tech Mr. Srenaski held the positions of Editorial Page Editor and Managing Editor of the Collegiate Times newspaper, a nationally award winning publication. While serving as the Editorial Page Editor, Mr. Srenaski authored the newspaper’s daily editorials, some of which received the honor of national syndication in other news outlets and one was published in a Journalism textbook.

Following receipt of his law degree, Mr. Srenaski served as a judicial law clerk to the Honorable John J. Coyle, Jr. in the Superior Court of New Jersey, Law Division. Upon completion of his clerkship, Mr. Srenaski joined Florio, Perrucci, Steinhardt & Fader where he has represented clients in many different venues including arbitration, mediation, governmental bodies and agencies, and state and federal court. Mr. Srenaski has served as counsel in a variety of litigation matters, and has counseled clients during all stages of litigation from pre-litigation strategy, through trials before judges and juries. In addition, Mr. Srenaski assists the firm’s governmental affairs group in counseling clients regarding corporate political activity and risk management, as well as election law and compliance matters.

Mr. Srenaski is admitted to practice law in New Jersey and New York.

ssrenaski@florioperrucci.com

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