With 2020 now in the books, individuals and businesses are starting to prepare their annual tax returns for the just-concluded year. But businesses need to also be aware of the annual pay-to-play filings that are due in the coming weeks.
Pay-to-play laws are statutes that impose certain requirements and restrictions on current and prospective government contractors. Pay-to-play laws sit at the intersection of government contracting and campaign-finance. The stated goals of these laws are generally to increase transparency in government contracting and to ensure that government contracts are awarded based on qualifications and expertise rather than favoritism. To further these goals, many states and local government entities throughout the country have adopted laws that, in some cases, impose reduced contribution limits on businesses and their key people when those businesses hold or wish to pursue government contracts. In other jurisdictions, government contractors are required to make disclosures of political contributions on a pre-contract basis or on an annual basis. These disclosures may be stand-alone disclosures or may be in addition to reduced pay-to-play limits.
While there is much ground to cover in the world of pay-to-play law, this blog post will provide an overview of selected upcoming annual pay-to-play disclosures.
Pennsylvania Annual Pay-to-Play Disclosure – Due February 15
Under Pennsylvania's pay-to-play disclosure law, any business entity that has been awarded any no-bid contract by the Commonwealth of Pennsylvania or any of its political subdivisions must file a disclosure with the Pennsylvania Department of State by February 15 of the following year.
In this case, a report due on Monday, February 15, 2021 will cover activity from the 2020 calendar year.
Although Pennsylvania law prohibits corporate contributions, the definition of “covered individuals” is broad and includes a company’s officers, directors, associates, partners, owners and employees. The definition also includes the immediate family members of any covered individual.
If contributions above the $1,000 aggregate reporting threshold were made to Pennsylvania recipients by the business entity’s covered individuals during 2020, Form DSEB-504 must be used to disclose those contributions.
If no reportable contributions were made during the covered calendar year by the business entity’s covered individuals, a form must still be filed to indicate that no contributions were made. This is done using Form DSEB-504B.
Electronic filing is not available in Pennsylvania, so the appropriate form must be submitted either by mail or by delivering a copy to the Department of State’s offices.
New Jersey Annual Pay-to-play Disclosure – Due March 30
New Jersey law requires each business entity that received payments of $50,000 or more (in the aggregate) as a result of New Jersey government contracts during the preceding calendar year to electronically file a Business Entity Annual Statement (“Form BE”) with the New Jersey Election Law Enforcement Commission (“ELEC”) no later than March 30. For example, a business entity that received payments of $50,000 or more in 2020, must file a Form BE with ELEC by Tuesday, March 30, 2021.
The obligation to file arises whenever payments from New Jersey government entities to a business reach the $50,000 aggregate threshold, regardless of whether a contract was awarded prior to the 2020 calendar year and regardless of whether the company has any political contributions to report. Government contracts covered by this law include contracts with the State of New Jersey Executive and Legislative branches, independent authorities, counties, municipalities, boards of education, and fire districts, regardless of method of contract award.
Detailed contract and contribution information must be disclosed whenever the business entity or a covered individual made a "reportable" contribution during the 2020 calendar year. When reviewing your company’s records to determine whether a detailed Form BE must be filed, please keep the following in mind:
A contribution is "reportable" when it exceeds $300 per reporting period for the recipient (which could be per election or per calendar year depending on the political recipient). Because of varying election cycles, it may be necessary to review contributions over the course of several years to determine whether any 2020 contributions are reportable.
Not only do you have to disclose reportable contributions made by the company, you are also required to disclose personal political contributions made by your company’s owners, partners, officers, and directors (and certain members of their families).
This filing requirement has been in effect since 2006. Companies that fail to file on time may be subject to government investigations and monetary penalties.
Maryland Twice-Annual Pay-to-Play Disclosure – Due May 31 and November 30
Maryland’s pay-to-play disclosure law applies to an entity that is “doing public business,” which is defined to mean holding a single Maryland government contract worth at least $200,000. The $200,000 figure is not an annual value, but rather the total value of the contract. For example, if a business entity holds a single contract that will pay $70,000 over the course of three years, the threshold will be reached because the total amount is $210,000 for this single contract.
If the $200,000 threshold is reached, you would then be required to file an initial report (covering the 24 months prior to the contract award date) and then semiannual reports every six months thereafter (due on May 31 and November 30 each year).
Once the $200,000 threshold is reached, a report must be filed regardless of whether contributions have been made. However, the reports are more detailed if the business entity, or its covered individuals, have contributed more than $500 per candidate during a reporting period (the reporting period is 24 months for the initial report, and six months for semiannual reports). Covered individuals for a business entity include the officers, directors, and partners of the business entity; officers, directors, and partners of a subsidiary of the business entity; and employees or agents of the business entity if the contributions were made at the suggestion or direction of the business entity or its officers.
In addition to the annual pay-to-play disclosures described above, other states (such as Illinois and Connecticut) have imposed contract-based disclosures of political contributions. Even many local government entities have adopted ongoing reporting obligations for government contractors. These local jurisdictions include Philadelphia, Pennsylvania and the County of Bergen in New Jersey.
Now, at the start of the new year, it is important for business entities that are involved in government contracting to understand their ongoing pay-to-play reporting obligations, which in many jurisdictions will include an annual report.
Rebecca Moll Freed, Esq. is Partner & Chair of Genova Burns LLC’s Corporate Political Activity Law Practice Group.
Avi D. Kelin, Esq. is a Senior Associate in Genova Burns LLC’s Corporate Political Activity Law Practice Group and Chair of the firm’s Autonomous Vehicle Law Practice.
This post is for educational and informational purposes only and is not intended and should not be construed as legal advice. It is recommended that readers not rely on this post but that professional advice be sought for individual matters.