[co-author: Emily Dau]
Last week, California Governor Gavin Newsom signed a new law that amends key provisions of the state’s pay-to-play statute which limits political contributions by state and local contractors and their agents.
Under the existing law, commonly referred to as the “Levine Act,” parties to a proceeding involving a non-competitively bid government contract, license, permit or other entitlement are prohibited from contributing more than $250 to any officer of the agency with decision-making authority over the proceeding. The contribution limit applies both to the business entity (corporate contributions are permissible under California law) and employees or officers who have a financial interest in the proceeding or who act to influence the agency’s decision. The $250 contribution limit applies for 12 months before a proceeding, while the proceeding is pending, and for 12 months after the contract is awarded or a final decision is rendered. In 2023, the pay-to-play prohibitions were broadened to cover contributions to local elected officials, including city councilmembers and county supervisors.
When the amendments to the Levine Act become effective on January 1, 2025:
- The de minimis contribution limit will increase from $250 to $500;
- State and local government contracts valued under $50,000 will be exempt from the pay-to-play restrictions; and
- The period during which a covered state or local government official may cure a violation by returning an excessive contribution made during the 12-month period following a final decision will be extended from 14 to 30 days.
Keep in mind, however, that local jurisdictions within California may apply their own, stricter pay-to-play limitations. Moreover, political contributions from financial industry participants to state and local candidates and officeholders in California may also implicate federal pay-to-play rules, including:
- Securities and Exchange Commission Rule 206(4)-5;
- Municipal Securities Rulemaking Board Rule G-37;
- Commodity Futures Trading Commission Rule 23.451; and
- Financial Industry Regulatory Authority Rule 2030.
These rules impose de minimis contribution limits that are lower than California’s new $500 limit. For instance, the de minimis limit under the SEC, CFTC and FINRA rules is $350 per election to a candidate for whom the contributor is entitled to vote and $150 per election to a candidate for whom the contributor is not. The MSRB rule is even more restrictive. As a reminder, both the California and federal pay-to-play rules apply to state or local officeholders who are candidates for federal office.
Donors seeking state or local government business in California, including financial industry participants and others, should carefully review their compliance procedures and pre-clear contributions by covered employees to mitigate the risk of violating federal, state or local pay-to-play rules.
The Akin Political Law team will continue to monitor relevant developments.
