Campaign Finance Laws Still Affect Public Contractors

Don’t let the era of SuperPACs and free corporate election spending fool you – even proper contributions to candidates can still bar contractors from receiving future government contracts.

The recent U.S. Supreme Court case, Citizens United v. FEC (2010), struck down prohibitions against independent expenditures made by corporate entities toward influencing an election. In the wake of the Citizens United decision, Pennsylvania’s Department of State officially refused to enforce state restrictions on corporate expenditures. The age of free corporate election spending dawned.

But not all spending is equal. Prior to Citizens United, Pennsylvania law prohibited both election expenditures and contributions by corporations. Accordingly, even as it freed corporations to make election expenditures, the State Department clung to its prohibition on campaign contributions.

The main difference between an expenditure and a contribution is not who gives, but who receives. Generally, a permitted expenditure includes any independent spending not coordinated with or given to a candidate, a candidate’s committee, or a PAC. Thus, corporations may freely spend on TV or internet ads, billboards, websites, or mailings to support or oppose a candidate (with minor restrictions). However, it may not give that same money to a candidate, a candidate’s committee, or a PAC – even if the money would be spent in the very same way. The former is an independent expenditure: OK. The latter is a contribution: not OK.

So, for now, who can make contributions to candidates in Pennsylvania? Only individuals, sole proprietorships, and partnerships. But it is these contributions that can place future public contracts at risk – primarily at the local level.

The Philadelphia Code limits yearly contributions to city office candidates, including Mayor. Contributors exceeding these limits, currently $2,900 for individuals, will forfeit all non-competitively bid City contracts for the candidate’s term of office. The ordinances cover contributions by business PACs, partnerships, principals, and even immediate family. “Attribution rules” link businesses with the individual contributors – meaning that, in theory, if a CEO exceeds the limits, the CEO’s company will forfeit all City contracts. A list of FAQ on the City’s limitations can be found here.

The City of Pittsburgh recently followed suit – with a narrow City Council vote this Spring to approve limits of $2,000 per election by individuals or partnerships, and $5,000 by political committees. It supplants prior legislation deemed ineffective. However, the bill is not yet signed by Pittsburgh Mayor Luke Ravenstahl.

Across the bridge, New Jersey maintains a statewide public contract forfeiture law – similar in concept to Philadelphia’s law. At the state level, Pennsylvania requires holders of “non-bid” public contracts to formally report all yearly contributions by principal individuals, including officers, directors, partners, and their immediate family.