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April 20, 2009

Beyond the Election - New Limitations are a Win for Good Government

With a stroke of the pen, the Governor's Executive Order 117 ("EO 117") issued on September 24, 2008, and effective since November 15, 2008, quickly called the question of whether political contributors and their First Amendment right to freedom of association were entitled to obtain and maintain government contracts. EO 117 drastically increased the categories of regulated contributors, but more importantly, imposed limits on the contributions of spouses and civil union partners as well as adult children residing at home, including them within its reach much as the Local Government Ethics Law did in defining conflicts of interest nearly 20 years ago. See N.J.S.A. 40A:9-22.5(d).

Made effective just a year before a sitting governor of significant personal wealth was anticipated to seek re-election, many a hardened cynic groused that EO 117 was enacted to shut off the flow of contributions from those actively involved, and with a stake, in the operations of government. Those of a more objective mind, however, recognized that EO 117 was an outgrowth of the first executive order governing what have come to be known as "pay-to-play" contributions: Governor James E. McGreevey's Executive Order 134 ("EO 134"), effective since October 15, 2004, disqualified contributors to the governor, candidates for governor, or any state or county political party committee from receiving contracts that were not publicly bid.

Chapter 51

The original "pay-to-play" restrictions encompassed in EO 134, and later incorporated into P.L. 2005, Chapter 51, disqualified business entities from contracts with State agencies or authorities in excess of $17,500, if the entity or natural persons owning more than 10 percent of the assets, profits or stock of the entity, contributed more than $300 to a candidate committee or election fund of any candidate or holder of the Office of Governor, or to any state or county political party committee within 18 months prior to the commencement of negotiations for the contract. Furthermore, if the contractor was a natural person owning more than 10 percent of the assets, profits or stock of the entity, then contributions made by their spouse or civil-union partner or adult child residing at home would also disqualify the entity from the state contract. Chapter 51 never reached other members of a business entity nor their spouses, civil-union partners or adult children, and they were left to freely contribute without any effect on the entity's ability to do business with the state.

Executive Order 117 Expanded Pay To Play Prohibitions

EO 117 significantly broadened the pay-to-play restrictions codified in Chapter 51 by expanding both the list of potential contributors and the potential recipients of such contributions that may disqualify a business entity from state contracts. Like Chapter 51, under EO 117, a corporation will be disqualified from state contracts if any officer or any person or business entity that owns 10 percent or more of the stock of the corporation makes a restricted contribution. However, EO 117 goes beyond the 10 percent ownership threshold. Now, regardless of the percentage of their ownership, any partner, LLC member, shareholder or officer of a professional corporation making a contribution in excess of $300 will preclude the business entity from receiving any state contracts or cause it to forfeit those already held by the entity. Moreover, if an individual is subject to these pay-to-play restrictions, then contributions made by that individual's spouse, civil-union partner or any adult child residing with the individual will also disqualify the given business entity from state contracts. (There is an exception: an otherwise restricted contribution made by a spouse/civil-union partner/child will not result in disqualification or forfeiture if the contribution was made to a candidate for whom the contributor was entitled to vote or to a political committee located in the jurisdiction where the contributor resides.)

In addition to expanding the categories of restricted contributors, EO 117 further expanded the reach of Chapter 51's contribution restrictions by broadening the number of potential candidate recipients and organizations covered by the Order. Now, pay-to-play restrictions and the resulting ban on state contracting may be triggered not only by contributions made to the current Governor, any candidate for Governor, or any state or county political party committee, but also for any contributions made to a legislative leadership or municipal political party committee, or to a candidate committee or election fund of any candidate for or holder of the Office of Lieutenant Governor. (A legislative leadership committee includes a committee established by the President or Minority Leader of the Senate or the Speaker or the Minority Leader of the General Assembly; a political party committee includes the state, county or municipal committee of any political party.) Thus, EO 117 closed the loopholes the Legislature previously (and conveniently) left wide open in enacting Chapter 51.

Political Contributions and First Amendment Protection

There has long been a tension between the right to participate in government via political contributions and the right to work with and for the government as a contractor or vendor. Indeed, more than 30 years ago, political contributions were formally recognized as constitutionally protected behavior.

In Buckley v. Valeo, 424 U.S. 1, 23 (1976), the United States Supreme Court held that limiting the rights of individuals to make political contributions implicated "fundamental First Amendment interests," including the freedom of political association. While the freedom of political association was recognized as a basic constitutional right and constitutional jurisprudence typically required that potential violations be subjected to the closest scrutiny, in deciding Buckley, the Supreme Court did not apply the usual strict scrutiny test to analyze whether limits on political contributions were constitutional. See also McConnell v. Fed. Election Comm'n, 540 U.S. 93, 137 (2003). Instead, the Buckley Court held that a limitation on political contributions will be held constitutional, if it was enacted in response to a "sufficiently important interest" and employed a means so "closely drawn" to avoid unnecessary abridgment of associational freedoms.

The Earle decisions

Closer to home, the N.J. Supreme Court's per curiam January 15 decision on EO 117 made the constitutional debate surrounding the new Executive Order short and sweet. In affirming the Appellate Division's judgment of In re Earle Asphalt Co., 401 N.J. Super. 310 (App. Div. 2008), the New Jersey Supreme Court upheld the constitutionality of the provisions of Chapter 51 discussed above and essentially retired the First Amendment freedom of association questions raised by the appellant and surrounding the Executive Order.

In Earle, the Earle Asphalt Company, a road paver, appealed the decision of the Division of Purchase and Property of the Department of Treasury, which deemed it ineligible to receive a state paving contract because it made contributions in violation of Chapter 51. On appeal, Earle Asphalt Company claimed the restrictions of Chapter 51 violated its right of free speech and association protected by the First Amendment of the United States Constitution. Following the United States Supreme Court's decision in Buckley, the Appellate Division stated that the right of political association is the focus of any First Amendment challenge to the validity of a statute that limits political contributions; therefore, in order for the statute to pass constitutional scrutiny, it must have been enacted for a sufficiently important public interest and be construed in such a way as to avoid unnecessary abridgement of First Amendment freedoms. In upholding the constitutionality of Chapter 51, the Appellate Division found: (1) New Jersey's interest in insulating the negotiation and award of state contracts from political contributions that pose the risk of improper influence, purchase of access, or the appearance thereof, was a sufficiently important interest to justify a limitation on political contributions; and (2) the $300 dollar limitation on contributions to gubernatorial candidates and political committees by businesses and the principals of businesses who enter into substantial contracts constitutes a means of protecting this interest that is closely drawn to avoid violations of associational freedoms.

In its per curiam decision, the New Jersey Supreme Court adopted this rationale wholesale and quickly closed the constitutional debate. In re Earle Asphalt Co., No. A-37-08, 2009 WL 137165, at *1 (N.J. Jan. 15, 2009).


Having spoken quickly and definitively, the New Jersey Supreme Court has answered the constitutional question pertaining to this Executive Order. Those doing business. with government entities, as well as their families, are left to choose between taking and keeping a government contract and making a campaign contribution. As government contracts are a multibillion dollar business in this state, it seems unlikely that vendors will simply walk away from such a lucrative and continuing business opportunity.

Backed by the New Jersey Supreme Court's decision, the Governor's Executive Order has accomplished much: it has enhanced the transparency of government contracting, and in the long run, will undoubtedly decrease the public's perception that our government and its officials can be bought by virtue of campaign contributions. These important results are long overdue.

Patrick B. O'Reilly is an associate with the firm.

Reprinted with permission from the April 20, 2009 edition of the New Jersey Law Journal. ©2009 Incisive Media US Properties, LLC. All rights reserved. Further duplication without permission is prohibited.


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