Recent Corruption Arrests Could Lead To More, And Tougher, Pay-To-Play Laws
Christopher P. DePhillips and Brian P. Sharkey
The recent arrests of 44 individuals, including two State legislators, three mayors, and numerous other local officials, in a corruption and money-laundering scheme has once again focused attention on corruption and ethics in New Jersey government. In the wake of the arrests, there have been calls for reform and the enactment of tougher laws to try to eliminate these kinds of abuses. As a result, pay-to-play laws are likely to be the subject of attention both at the State and local level.
Before examining what may happen, it is first necessary to consider the pay-to-play laws that are already in place. N.J.S.A. 19:44A-20.13 et seq. (“Chapter 51”) governs the award of State contracts. Among other things, Chapter 51 prohibits a State agency from awarding a State contract whose value exceeds $17,500 to a business entity that contributed more than $300 in the preceding 18 months to: 1) the Governor; 2) a candidate for Governor; or 3) any State or county political party committee. In Executive Order 117, signed on September 24, 2008, Governor Corzine expanded the scope of Chapter 51 to include contributions to: 1) a candidate for or holder of the office of Lieutenant Governor; 2) legislative leadership committees; and 3) municipal party committees. Chapter 51 also bars business entities that have State contracts from making such contributions during the term of those contracts. The New Jersey Supreme Court upheld the constitutionality of Chapter 51 in In the Matter of the Appeal by Earle Asphalt Co., 198 N.J. 143 (2009).
In September 2008, Governor Corzine also signed Executive Order 118, which extended the State’s pay-to-play laws to cover redevelopers that enter into a redevelopment agreement with: 1) New Jersey Meadowlands Commission; 2) New Jersey Redevelopment Authority; and 3) Capital City Redevelopment Corporation. Executive Order 118 prohibits those three entities from awarding a redevelopment agreement to a redeveloper if, after the public issuance of a request for proposal or similar solicitation, the redeveloper contributes more than $300 to: 1) a candidate committee or election fund of any candidate or holder of the office of Governor or Lieutenant Governor; 2) a State, county, or municipal political party committee or a legislative leadership committee; or 3) 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, county, or municipality in which any property subject to the redevelopment agreement is located. Once a redeveloper has been awarded a redevelopment agreement, it is barred from making such contributions during the term of the agreement. Significantly, Executive Order 118 broadly defines “redeveloper” to include not only the redeveloper itself, but also any subsidiaries and any entity that the redeveloper contracts with to perform professional, consulting, or lobbying services in connection with the redevelopment project.
N.J.S.A. 19:44A-20.3 et seq. (“Chapter 19”) governs the award of contracts by the Legislature, counties, and municipalities. Under Chapter 19, a business entity will not be awarded a contract greater than $17,500 if during the preceding year it made a contribution greater than $300 to certain recipients. However, Chapter 19 contains a significant provision that is absent from Chapter 51: the restrictions on the award of contracts do not apply if a contract is awarded pursuant to a fair and open process.
A business entity will not be eligible to receive a Legislative contract if it contributes more than $300 to a candidate or joint candidates committee of the presiding officer of either house of the Legislature, a legislative leadership committee established by a presiding officer, or a State political party committee of the political party of which the presiding officer is a member. A business entity will be unable to obtain a county contract if it contributed more than $300 in the year preceding the award to a candidate or joint candidates committee of any person serving in an elective public office of the county when the contract is awarded or to a county political party in that county if a member is serving in an elective public office when the contract is awarded. Municipalities are treated similarly to counties, in that a business entity is not eligible to receive a municipal contract greater than $17,500 if it made a contribution greater than $300 to a candidate or joint candidates committee of any person serving in elective public office of the municipality when the contract is awarded or to a municipal party committee in that municipality if a member is serving in an elective public office of that municipality when the contract is awarded. Chapter 19 also prohibits a business entity that has a contract with the Legislature, a county, or municipality from making such contributions during the term of the contract.
N.J.S.A. 40A:11-51 is another important provision with respect to pay-to-play issues in New Jersey. Under that provision, counties and municipalities are empowered to enact their own pay-to-play laws, which can be even more restrictive than Chapter 19’s provisions. For example, a municipality can pass a law that it will not award a contract to a business entity if it made any contributions to elected officials or candidates in the municipality. To the extent that a local pay-to-play law conflicts with Chapter 19, then the more restrictive provision governs that particular issue. A business entity interested in performing work in a municipality with its own pay-to-play law must ensure that it complies with both Chapter 19 and the local law.
If a county or municipality does not enact its own pay-to-play law, then Chapter 19’s provisions govern the award of contracts in that locality. To date, six counties (Hunterdon, Mercer, Monmouth, Burlington, Atlantic, and Gloucester) have enacted their own pay-to-play laws. Similarly, over 150 municipalities have passed their own pay-to-play laws. There is no single trend that can be gleaned from these local laws. Many local laws have eliminated the fair and open process exception for the award of contracts. Several others have imposed harsher penalties than the State law does for violations. Other variations from Chapter 19 include an expansion of the list of recipients to whom contributions are restricted and a lowering of the $300 contribution limit, to name just a few.
It is clear that businesses interested in obtaining government contracts at the State, county, or municipal level must be aware of and comply with a host of laws. The existing mixture of laws is likely to become even more complex in light of the recent arrests that shook the New Jersey political community. Those arrests make it more likely that current laws will be more vigilantly enforced and that new pay-to-play laws will be introduced.
Following the high-profile arrests, several State legislators announced their support for a variety of new ethics measures, including a tightening of pay-to-play laws. Furthermore, because so many of the arrested individuals were local officials, municipalities and counties that already have pay-to-play laws may try to strengthen them in a variety of ways, while those that do not are likely to pass their own laws. In fact, the Mayor of Secaucus was one of the 44 individuals arrested. At its first meeting following the arrests, the Secaucus Town Council voted to introduce a pay-to-play ordinance. This type of response may come to be the trend as local governments seek to root out corruption by enacting stringent pay-to-play laws.
Christopher P. DePhillips is a Principal at Porzio, Bromberg & Newman P.C. (“PBN”) in Morristown, New Jersey, and New York, New York. He concentrates his practice in the areas of product liability, general liability, and governmental affairs. Mr. DePhillips is also the Vice President and General Counsel of Porzio Governmental Affairs, LLC (“PGA”), in Trenton, New Jersey, which is PBN’s lobbying subsidiary. Brian P. Sharkey is Counsel to PBN and focuses his practice on product liability, mass tort, and governmental affairs. Mr. Sharkey is also the Director of Compliance and Legal Affairs for PGA.