Pay-to-Play and State Governments
Every state, directly or indirectly, prohibits bribery in obtaining government contracts. Only a few states, however, have implemented some form of pay-to-play restriction, though the ranks appear to be growing in light of new contracting scandals.
States with some form of pay-to-play constraints for contracts with government entities beyond bribery laws, little Hatch Act restrictions or contribution limits to regulated industries, include South Carolina, West Virginia, Ohio and, most recently, Hawaii (in addition to federal law, the SEC and the ABA). New Jersey may soon be joining this group.
South Carolina prohibits government contractors from making campaign contributions to those responsible for issuing the contract. West Virginia bans campaign contributions to any state candidate, party or political committee from those seeking a government contract beginning at negotiation of the contract through its termination. Until recently, Ohio had the most stringent pay-to-play restriction. In Ohio, persons seeking a government contract – including owners of more than 20 percent of the business, decisionmaking officers of the business, their spouses and dependents – are prohibited from making campaign contributions of $1,000 or more in the previous two years to officeholders of an executive agency having “ultimate responsibility” for awarding the contract.
Hawaii recently missed becoming the most recent recruit to the pay-to-play policy league. After years of requiring simple disclosure of campaign contributions from government contractors, a spate of corruption allegations in Honolulu prompted a swift toughening of the law by the state legislature, which the governor later vetoed. The law would have prohibited the state or any county from issuing a government contract to a business entity whose company and partners (of at least 25 percent ownership interest) and their dependents had made a campaign contribution of any amount to the responsible officeholder for two years prior to the notice of availability of the contract. Furthermore, the business entity and its partners would have been prohibited from making campaign contributions to any candidate or officeholder responsible for the contract through its duration and for two years after completion of the contract.
What plagues all of these state laws, however, is ambiguity regarding enforcement. It is often not clear whether the state ethics agency, elections agency or state contracting agent is responsible for enforcing the law. This also means that the penalty for violating the law is often unclear. Penalties for violating the elections code are often very different from penalties for violating government contracts.
A pay-to-play bill in New Jersey (SB 2536), which appears to be advancing rapidly through the legislature, draws from the experience in other states while adding some unique features. The bill limits campaign contributions from business entities, their decisionmaking officers and spouses and dependents – during the calendar year prior to commencement of negotiations – to $250 or less to candidates and officeholders ultimately responsible for the contract, and bans such contributions altogether during commencement of negotiations through termination of the contract. Additionally, the business entity and its decisionmaking officers combined are prohibited from making contributions of $5,000 or more to all public officials responsible for a contract, in the aggregate, for the year preceding contract negotiations. If a business entity discovers that its officers have exceeded the aggregate limit, the business entity may “cure” the violation by getting the excess contributions returned. New Jersey’s law would fall under the government contracting statutes, granting enforcement authority to the state contracting agent, and specifying such penalties for violations as the immediate revoking of the contract and suspension of the business entity from any further government contracts for four years.
Though the problems of pay-to-play are at least as old as the New Deal, there appears to be momentum by state and local officials to address the problems head-on. As more and more money pours into the political process, the integrity of government contracting has become particularly suspect. Well-targeted pay-to-play restrictions can be very useful in fostering fair and open competition in the contracting process and in eliminating the appearance of buying government contracts through campaign contributions.
February 3, 2004