[co-author: Pavla Ovtchinnikova]
New Jersey has overhauled its pay-to-play and campaign finance laws, dramatically changing the rules for government contractors, nonprofits, and individual donors. The passage of the Elections Transparency Act has been accompanied by considerable controversy, including litigation and the resignation of all four members of the New Jersey Election Law Enforcement Commission (ELEC). In the meantime, some provisions have already taken effect. Others are slated to take effect after the June 2023 primary and apply to the 2023 general election and future elections.
Here are the most important things to know.
Pay-to-Play
Since 2006, New Jersey’s complex state pay-to-play law has barred contributions over $300 by companies and nonprofits bidding for, or under contract with, state agencies, including colleges and universities. The contribution ban applies not only to bidding and contracting entities, but also to their principal owners, officers and directors, and even their spouses.
Over the years, New Jersey’s pay-to-play law has ensnared dozens of government contractors, resulting in disqualified bids and voided contracts. Adding to the compliance burden, the prior state law permitted local governments to enact their own pay-to-play laws provided they were at least as stringent as the state law. Dozens of localities adopted such ordinances. This patchwork of pay-to-play laws has drawn criticism from government contractors as well as ELEC’s executive director who has called the state pay-to-play regime “convoluted and complicated,” and cited its “stunning inconsistency.”
The Elections Transparency Act makes major changes to pay-to-play regulation in New Jersey, which, except for the reduction in de minimis thresholds, take effect retroactively to January 1, 2023. Among the highlights:
- The act preempts all pay-to-play ordinances adopted by local governments, including ordinances that apply to re-developers and their consultants, and pay-to-play rules adopted by local independent authorities and boards of education. Note, however, that under state law some contribution restrictions still apply to local government contractors.
- Businesses that hold or seek government contracts are no longer prohibited from contributing to state, county, or municipal party committees or to legislative leadership committees. Such contributions are also not reportable on pre-award or annual disclosure reports.
- The act extends the contribution ban’s “fair and open process” exception to contracts with the executive branch and independent authorities and clarifies that this exception applies to contracts awarded through public bidding or competitive contracting.
- The act lowers the threshold under which contributions are exempt from reporting by contractors from $300 to $200. Unlike the act’s other changes to pay-to-play laws, this change does not take effect until after the June 2023 primary.
Nonprofit Donor Disclosure
After the primary on June 6, 2023, the act requires 527, 501(c)(4), and 501(c)(6) organizations that make independent expenditures (IEs) exceeding $7,500 in the aggregate, per election, to register as IE committees and file pre- and post-election reports. An IE is defined as an expenditure that is not coordinated with a candidate or political party and (1) is made for the purpose of expressly advocating the election or defeat of a clearly identified candidate or ballot measure, or (2) is the “functional equivalent” of express advocacy, meaning that a reasonable person could not interpret the communication in any other way.
IE reports must include the names of donors who have given the organization over $7,500 since the beginning of the preceding calendar year. Late edits to the bill, however, limited such disclosure to those who contribute for the “purpose of furthering the independent expenditure.” While ELEC will likely attempt to clarify what this means, donors who give to a nonprofit’s general treasury without conditions or restrictions may not have to be disclosed. Notably, this is the legislature’s second attempt to mandate donor disclosure by nonprofits, after a court found the current law unconstitutionally broad and enjoined its enforcement.
Contribution Limits
After the primary on June 6, 2023, the act increases the limits for contributions by individuals and corporations to candidates, political parties, and committees, as summarized in the table below. ELEC will adjust the contribution limits every two years, instead of the previous schedule of every four years.
The act also permits the two major state political parties, and their respective county committees, to create “housekeeping accounts,” which are common in other states. In New Jersey, the housekeeping accounts may accept up to half the limit for the political party (e.g., $37,500 per year per state or county party committee). Housekeeping accounts may be used to pay for certain “non-political” expenses, such as rent, utilities, taxes, legal and accounting expenses, and expenses related to county, state, or national party conventions. Additionally, gubernatorial campaigns may use party housekeeping accounts for non-political expenditures following their election, and the expenses will not be considered in-kind contributions from the party to the campaign.
2023 Contribution Limits for Individuals and Corporations
Additional Changes
The act shortens the statute of limitations for agency enforcement actions from 10 years to 2 years following an alleged violation. The governor is authorized on a one-time basis to appoint a new slate of commissioners without Senate confirmation. The executive director may also be replaced at the governor’s discretion.
***
Businesses, nonprofit organizations, and donors involved in political activities in New Jersey need to be aware of the new requirements and restrictions under the act.
