New Executive Order Expands Prohibition on State Contracts for Business Entities Making Campaign Contributions

Article

Corporate & Finance Alert

November 18, 2008

Under Executive Order 134, which Governor McGreevey issued shortly before he left office and the legislature later codified into statute, business entities that make or solicit certain campaign contributions of more than $300 to an applicable recipient are prohibited from entering into contracts with New Jersey state agencies. Last September, Governor Corzine issued Executive Order 117, which expands the definitions of applicable recipient and business entity. The new Executive Order applies to contributions made on or after November 15, 2008.

Under Executive Order 134, the applicable recipients are a candidate committee of any candidate for Governor; a candidate committee of any holder of the Office of Governor; a state political party committee; and a county political party committee. The contributions that trigger the prohibition are as follows:

  1. Contributions to and solicitations for a candidate committee of any candidate or holder of the Office of Governor, or any state or county political party committee, made within eighteen months immediately preceding the commencement of negotiations for the contract.
  2. Contributions to and solicitations for a candidate committee of the holder of the Office of Governor, or a state or county political party committee of the same party as the Governor, made during the term of office of the Governor.
  3. Contributions to and solicitations for a candidate committee of the holder of the Office of Governor for the next term, or a state or county political party committee of the same party as the Governor for the next term, made during the eighteen months immediately preceding the last day of the current term of office of the Governor and during the next term.
  4. Contributions made during the preceding four years to political action committees that the State Treasurer finds pose a conflict of interest.

If a business entity makes an impermissible contribution to an applicable recipient, then neither the State of New Jersey, nor any of its purchasing agents or agencies, or those of its independent authorities, can enter into a contract that exceeds $17,500 with the business entity for services, materials, supplies, or equipment, or to acquire, sell, or lease any land or building. In addition, a business entity that has entered into a state contract cannot knowingly make or solicit an impermissible contribution prior to completion of the contract.

Executive Order 117 expands the applicable recipients to include the candidate committee of any candidate for or holder of the Office of Lieutenant Governor, municipal political party committees, and legislative leadership committees. Accordingly, business entities contemplating contributions to these committees should determine whether the contributions will trigger the prohibition on state contracts.

Executive Order 134 defines a business entity as follows:

  1. Any natural or legal person, business corporation, professional services corporation, limited liability company, partnership, limited partnership, business trust, association, or any other legal commercial entity.
  2. All principals who own or control more than 10% of the profits or assets of a business entity, or more than 10% of the stock of a corporation for profit.
  3. Any subsidiaries directly or indirectly controlled by the business entity.
  4. Political action committees directly or indirectly controlled by the business entity.
  5. If the business entity is a natural person, that person’s spouse and child residing with that person.

Executive Order 117 expands the definition of business entity to include the following:

  1. Any officer of a corporation.
  2. Any shareholder or officer of a professional corporation.
  3. Any partner of a general partnership, limited partnership, or limited liability partnership.
  4. Any member of a limited liability company.
  5. For an individual who is a business entity, that individual’s spouse or civil union partner, and any child residing with the individual. The Executive Order does not apply to a contribution made by the spouse, civil union partner, or child to a candidate for whom the contributor is entitled to vote, or to a political party committee within whose jurisdiction the contributor resides, unless the contribution is prohibited under the state contract rules.

In light of the broad expansion of the definition of business entity, the executive management of a business entity should regularly monitor the contributions of its officers and holders of interests in the business entity, and consider adopting rules prohibiting contributions by these persons without first obtaining permission from executive management.

Should you have any questions regarding your own situation, please contact Steven H. Sholk of our Corporate Department.