ELECTION LAW ENFORCEMENT COMMISSION REGULATIONS OF THE ELECTION LAW ENFORCEMENT COMMISSION

Transcription

1 ELECTION LAW ENFORCEMENT COMMISSION REGULATIONS OF THE ELECTION LAW ENFORCEMENT COMMISSION Disclosure of Contributions by Business Entities Proposed New Rules: N.J.A.C. 19:25-26 Authorized By: Election Law Enforcement Commission, Frederick M. Herrmann, Ph.D., Executive Director Authority: N.J.S.A. 19:44A-6. Calendar Reference: See summary below for explanation of exception to calendar requirement. Proposed Number: PRN 2006 The sitting New Jersey Election Law Enforcement Commission (hereafter, Commission) will conduct a public hearing concerning this proposal on Tuesday, November 21, 2006 at 11:15 a.m. at: Election Law Enforcement Commission Edward J. Farrell Memorial Conference Room 28 West State Street, 12 th Floor Trenton, New Jersey Persons wishing to testify are requested to reserve time to speak by contacting Administrative Assistant Elbia L. Zeppetelli at (609) no later than Friday, November 17, Submit written comments by January 5, 2007 to: Michelle R. Levy, Esq., Associate Legal Director Election Law Enforcement Commission P.O. Box 185 Trenton, New Jersey The agency proposal follows: Summary The New Jersey Election Law Enforcement Commission (Commission) proposes new rules to implement "pay-to-play" disclosure legislation, a further innovation in ethics reform begun by the Legislature in This proposal follows the Commission s recently completed rulemaking to implement the first phase of pay-to-play reform legislation which restricted the award of a contract by a New Jersey government entity to a business if that business entity had made certain political contributions; see 38 N.J.R (May 1, 2006). The first set of rules, Subchapters 24 and 25 (N.J.A.C. 19:25-24 and 19:25-25) were the result of two new laws: P.L.2004, c.19, signed by Governor James E. McGreevey on June 16, 2004; and, P.L.2005, c.51, signed on March 22, 2005, by Governor Richard Codey. These laws affected contracting practices at all levels of New Jersey government, but did not include school boards and fire districts.

2 Page 2 The proposal which follows is in response to P.L.2005, c.271 (Chapter 271), signed by Governor Codey on January 5, 2006, which added a comprehensive disclosure component to the pay-toplay reform initiative. Chapter 271 supplements the two earlier laws and requires disclosure of contributions made by a business at two junctures: to the government entity awarding a contract having a value in excess of $17,500, if the contract is not awarded pursuant to a fair and open process; and to the Commission in an annual report if a business entity has received $50,000 or more in a calendar year as a result of contracts with New Jersey government entities. Chapter 271 also extends the disclosure requirements to entities doing business with school boards and fire districts. Chapter 271 requires that a business entity that is not a natural person disclose contributions made not only from business entity funds, but also contributions made by the principals, partners, officers, or directors of the business entity or their spouses; see P.L.2005, c.271, 2 and 3, and N.J.S.A. 19:44A-20.26b and 19:44A-20.27d. The Commission understands that the purpose of the additional disclosure requirements in Chapter 271 is to provide transparency for all contributions related to a business entity that are made to candidates and committees at different levels of New Jersey government. The proposed rules which follow are intended to implement the additional disclosure requirements applicable to business entities contracting with New Jersey government entities. As it stated in its proposal to implement the first two pay-to-play laws, the Commission has no jurisdiction over the procurement process by which a government entity awards a contract to a business entity. Similarly, while these proposed rules recite the requirement that a business entity disclose contributions to a government entity, the Commission has no authority to determine whether or not that disclosure affects the award of a contract by a New Jersey government entity. The Commission will rely upon the determination of a State or other governmental entity as to the existence and precise date of a contract. 1. Definitions The Commission proposes a new rule, N.J.A.C. 19: , Definitions, to define terms relevant to Chapter 271, including the terms business entity, interest, and State agency, as they appear in the new law, and terms used in the law for which no definitions are provided. The Commission proposes inclusion of several definitions contained in the New Jersey Campaign Contributions and Expenditures Reporting Act, N.J.S.A. 19:44A-1 et seq. (hereafter, the Campaign Reporting Act or Act) and Commission regulations, N.J.A.C. 19:25-1 et seq., in the proposed rule because they are necessary to implement Chapter 271. For example, Chapter 271 does not define the terms candidate committee, legislative leadership committee, State committee of a political party, county committee of a political party, or continuing political committee, which are essential to administration of the law. The proposed rule therefore includes definitions of those terms that are taken from the Act and the regulations, as well as the following terms: candidate, Commission, contribution, in-kind contribution, municipal committee of a political party, and political party committee.

3 Page 3 The Commission also proposes that the definition of the term joint candidates committee in the Act and Commission rules be included in N.J.A.C. 19: ; see N.J.S.A. 19:44A-3r and N.J.S.A. 19:25-1.7, 19: Wherever disclosure of contributions to a candidate committee is required in Chapter 271, the Commission believes that disclosure must also include contributions made by a business entity to a candidate s joint candidates committee, because failure to do so would permit a business entity to circumvent disclosure by making a contribution to a candidate s joint committee. The Commission also includes definitions for the terms contribution reportable by the recipient, fair and open process, legal person, and natural person in proposed N.J.A.C. 19: These terms were defined in the recently-adopted rules implementing the earlier pay-to-play prohibition laws, and the Commission proposes that the same definitions for the four terms be incorporated in the new rules concerning Chapter 271; see N.J.A.C. 19: and 19: , as adopted at 38 N.J.R (May 1, 2006). The Commission believes that it is beneficial to the public to use consistent terminology in all rules concerning pay-to-play concepts. The terms director, officer, partner, principal, and public entity appear in Chapter 271, but are not defined in either the pay-to-play laws or the Campaign Reporting Act. The Commission therefore proposes definitions for these terms in N.J.A.C. 19: because they are necessary to uniform application of the new law. Chapter 271 requires disclosure of contributions made by the directors of a business entity that is not a natural person; see P.L. 2005, c and 3 and N.J.S.A. 19:44A-20.26b and 19:44A d. The proposed definition of director in N.J.A.C. 19: is based upon the definition of the term in the New Jersey Business Corporations Act; see N.J.S.A. 14A:1-2.1(h). In addition, information from both the Department of Treasury and the Department of Community Affairs concerning the pay-to-play laws states that nonprofit corporations, as well as for-profit corporations, are subject to pay-to-play requirements. The Commission has therefore included a reference to nonprofit businesses in the proposed definition of business entity and director to provide notice that the governing bodies of all business entities, including nonprofit entities, are included in the ambit of pay-to-play disclosure requirements. Chapter 271 also requires disclosure of contributions made by the principals, partners, or officers of a business entity; see P.L.2005, c.271, 2 and 3, and N.J.S.A. 19:44A-20.26b and 19:44A d. To define the term principal, the Commission relied upon the earlier pay-to-play prohibition law, which included as part of a business entity principals who own or control more than 10 percent of the profits or assets of a business entity or 10 percent of the stock in the case of a business entity that is a corporation for profit... ; see N.J.S.A. 19:44A and N.J.A.C. 19: The Commission believes that the 10 percent standard, which already exists in the pay-to-play laws, is a reasonable test for the status of principal in a business entity. The proposed definition of officer is based upon the definition of corporate officer which appears in Black s Law Dictionary (Eighth Edition) and upon Commission review of the provisions of Rule G-37 of the Municipal Securities Rulemaking Board (MSRB). As explained on its website, [t]he Municipal Securities Rulemaking Board was established in

4 Page by Congress to develop rules regulating securities firms and banks involved in underwriting, trading, and selling municipal securities.... [The MSRB] sets standards for all municipal securities dealers.... [and] is a self-regulatory organization that is subject to oversight by the Securities and Exchange Commission (SEC). The MSRB has rulemaking authority. Rule G-37 is a pay-to-play measure, enacted by the MSRB, which prohibits a municipal securities dealer from engaging in the municipal securities business if the dealer has made certain political contributions and requiring disclosure of political contributions. The Commission determined that Rule G-37 disclosure reaches not only the traditional titles of corporate officer, such as president, vice president, secretary, and treasurer, but also includes the chief executive officer of a business entity and similarly situated officials. See Rule G-37(g)(iv). Rule G-37 is available on the MSRB website at The Commission therefore proposes that the definition of officer to be applied for pay-to-play disclosure include the president, vice president, secretary, treasurer, chief executive officer, or chief financial officer of a corporation, as well as any person routinely performing such functions for a corporation. The definition of partner proposed at N.J.A.C. 19: was derived from the definition in Black s Law Dictionary (Eighth Edition) and lists the types of partnership entities that are identified in the pay-to-play statutory definition of business entity and in the Commission rule concerning partnership contributions; see N.J.S.A. 19:44A-20.26c and 19:44A-20.27d and N.J.A.C. 19: , Partnership contributions prohibited, which instructs candidates and committees on the reporting of a contribution received by means of a check drawn on a partnership account. To simplify the references to the many units of county and municipal government, the Commission proposes a new definition at N.J.A.C. 19: for the term local unit, which includes a county, municipality, agency or instrumentality of a county or municipality, independent authority, board of education, or fire district. This list of government entities appears in the new law at N.J.S.A. 19:44A-20.26a. The Commission also believes use of the term local unit is appropriate because it is used by the Department of Community Affairs in its pay-to-play instructional materials to refer inclusively to all entities in county and municipal government. Further, the definition comports with definitions appearing in Title 40A, Municipalities and Counties; see N.J.S.A. 40A:5A-3 and 40A: The term public entity is used in the pay-to-play statutory provisions concerning both disclosure to the government entity and to the Commission, but is not defined; see N.J.S.A. 19:44A-20.26a and 19: a. The Commission believes that it was the intent of the Legislature that the term be used to refer collectively to government entities at all levels of New Jersey government. The Commission therefore proposes a definition for the term public entity at N.J.A.C. 19: to mean all State agencies, as that term is defined in the law, and all local units, as discussed above. 2. Business Entity Disclosure to Government Entities: The Commission proposes two new rules, N.J.A.C. 19: , Business entity disclosure to a State agency, and N.J.A.C. 19:25-

5 Page , Business entity disclosure to a local unit, to reiterate the new law s requirement that a business entity must, not later than 10 days before entering a contract, disclose to a New Jersey government entity political contributions in excess of $300; see P.L.2005, c.271, 2. Two rules are necessary because there are significant differences between contracting procedures applicable at the State level and those operative at the county and municipal levels, and because Section 2 of Chapter 271 requires disclosure of contributions to different candidates, depending on the contracting government entity; see N.J.S.A. 19:44A Section 2 of Chapter 271 (N.J.S.A. 19:44A-20.26) establishes the requirement that not later than 10 days before entering into a contract in excess of $17,500, except a fair and open contract, a business entity disclose to the contracting public entity certain contributions made during the preceding 12-month period. The Commission has determined that among the differences in government contracting practices is the point at which the government entity is considered to have entered into a contract. A State agency enters a contract at its execution, while a county or municipality enters a contract at the time of the resolution required pursuant to the Local Public Contracts Law, N.J.S.A. 40A:11-1 et seq. The Commission therefore proposes that subsection (a) of N.J.A.C. 19: refer to execution of the contract as the time for calculating the deadline for a business entity to file its disclosure with a State agency. The Commission similarly proposes subsection (a) of N.J.A.C. 19: to refer to the date of the resolution awarding a contract as the time for calculation of the deadline for a business entity to file its disclosure with a local unit of government. Section 2 of Chapter 271 also requires that a business entity submit its list of political contributions to a government entity along with its bid or price quote. Because the Commission does not have jurisdiction to administer the contracting process at any level of government and because it is possible that each State agency, county, municipality, school board, fire district, or other contracting entity may have its own procedures for submitting the list of contributions, proposed subsections (a) of N.J.A.C. 19: and 19: include text to indicate that the list must be submitted according to procedures established by the State agency, or according to procedures established by the local unit, respectively. Section 2 of Chapter 271 exempts a business entity from the requirement to disclose contributions to a government entity if the contract is required by law to be publicly advertised for bids. In discussing this exemption in the signing statement accompanying Chapter 271, Governor Codey used the term fair and open process instead of referring to a contract that is publicly advertised for bids. The term fair and open process was specifically defined in P.L.2004, c.19 (N.J.S.A. 19:44A-20.7) and has been explained in detail in the pay-to-play information available from the Department of Community Affairs. The Commission therefore proposes to use the term fair and open process in proposed subsections (a) of N.J.A.C. 19: and 19: , instead of the reference to contracts that are publicly advertised, because the public is familiar with the fair and open definition in the pay-to-play context and because the Commission understands that it was the intent of the signing statement to use the terms interchangeably. Proposed subsection (a) of N.J.A.C. 19: and proposed subsection (b) of N.J.A.C. 19: reiterate the statutorily required contribution information that must be submitted by a

6 Page 6 business entity to a government entity; see N.J.S.A. 19:44A This information includes a list of contributions that varies depending upon the contracting government entity and requires reporting of the contribution date(s) and amount(s). Among the contributions that must be disclosed to a State agency by a business entity are contributions to a candidate for, or holder of, a State elective office, however there is no definition in the new law of State elective office ; see P.L.2005, c.271, 2 (N.J.S.A. 19:44A ). The Commission therefore proposes subsection (b) of N.J.A.C. 19: to define State elective office to mean candidates for the offices of Governor, State Senate, and General Assembly. This definition is supported by Governor Codey s signing statement which included both gubernatorial and legislative candidates at the State level of government. N.J.S.A. 19:44A (Chapter 271, Section 2) further requires disclosure of an extensive list of contributions to candidates for elective office by a business entity contracting at the county, municipal, school board, or fire district level. Because the law does not define elective office, the Commission proposes a definition of elective office at subsection (c) of N.J.A.C. 19: , to include candidates, other than candidates for party office, who appear on the ballot and are therefore elected in a primary, general, municipal, school, or special election. The proposed definition is consistent with the election types identified in the definition of any election at N.J.S.A. 19:1-1 and excludes candidates for election to party office, as required by the Campaign Reporting Act; see N.J.S.A. 19:44A-4d. A business entity is specifically exempt from the requirement to disclose contributions to a government entity when a public emergency requires the immediate delivery of goods or services. See P.L. 2005, c and N.J.S.A. 19:44A The Commission has no statutory responsibility for determining whether or not such an emergency exists. Therefore proposed subsection (c) of N.J.A.C. 19: and subsection (d) of N.J.A.C. 19: recite the exemption and state that it is the responsibility of the government entity to determine whether or not a public emergency exists. 3. Business Entity Annual Disclosure to the Commission: The second disclosure method of Chapter 271 requires that a business entity that has received $50,000 or more in the aggregate during a calendar year through contracts with New Jersey government entities shall file an annual disclosure statement of all such contributions made by the business entity during the 12 months prior to the reporting deadline ; see P.L.2005, c.271, 3 and N.J.S.A. 19:44A To implement this requirement, The Commission proposes N.J.A.C. 19: , Business entity annual disclosure statement. Proposed subsection (a) reiterates the statutory requirement to file the annual disclosure statement when a business entity receives $50,000 or more in the aggregate in a 12-month period through contracts with one or more government entities. Paragraphs 1 through 4 of proposed subsection (b) recite the information that shall be reported to the Commission on the annual disclosure statement, including information to identify the business entity and its contracts, the amount(s) received, and the name(s) and address(es) of the candidate(s) and committee(s) to whom or to which contributions were made.

7 Page 7 The Commission believes that while the legislation states that all contributions are reportable, it was not the intent of the law to require reporting of all contributions, regardless of amount. To do so would require a business entity to report contributions that are below the $300 reporting threshold applicable to candidates and committees as established in the Campaign Reporting Act; see N.J.S.A. 19:44A-8 and 19:44A-16, as amended by P.L.2004, c.33, 1 and 3. The text of Governor Codey s signing statement supports the Commission s conclusion that it was not the intent to require disclosure of contributions that are below the $300 threshold: Another new disclosure required by the bill is that businesses that have received more than $50, shall disclose reportable contributions to the Election Law Enforcement Commission. (Emphasis added.) The Commission therefore proposes that subparagraph 3 of N.J.A.C. 19: (b) require that a contribution be reported by a business entity on the annual disclosure statement if it is a contribution reportable by the recipient. The term contribution reportable by the recipient is defined in proposed N.J.A.C. 19: and does not require reporting of a contribution or aggregate contribution from a contributor below the $300 statutory reporting threshold. The law mandates disclosure of contributions to a candidate for or the holder of any public office having ultimate responsibility for the awarding of public contracts, or to a political party committee, legislative leadership committee, political committee or continuing political committee.... See P.L.2005, c.271, 3 and N.J.S.A. 19:44A Chapter 271 does not define the term any public office having ultimate responsibility for the awarding of public contracts, and no other provision of the Campaign Reporting Act makes reference to the concept of a candidate having ultimate responsibility for the awarding of public contracts. The Commission believes that it is essential to administration of the annual disclosure requirement that the rules specifically identify such candidates and therefore has relied upon Governor Codey s signing statement for guidance, which states that: [b]oth of these disclosure forms [disclosure to the government entity and to the Commission] require listing of contributions made to candidates for, and holders of elected offices including the governor, State legislators, county constitutional officers, and members of county, municipal, school board and fire district governing bodies. The Commission has therefore incorporated this list of candidates in subparagraph i of paragraph 3 of proposed N.J.A.C. 19: (b) as the list of recipient candidates that must be disclosed. The remaining subparagraphs identify the other committees subject to disclosure. The Campaign Reporting Act requires that a candidate who has spent no funds in an election is nevertheless required to file a campaign report to that effect so that the public does not have to speculate whether or not the candidate has failed to file a report or has no contributions and expenditures to report; see N.J.S.A. 19:44A-16a. The Commission believes that the public is similarly entitled to know whether or not a business entity has made contributions if the business

8 Page 8 has received $50,000 or more through government contracts. The Commission therefore proposes subsection (c) of N.J.A.C. 19: to require a business entity which has received $50,000 or more in the aggregate during a calendar year, but has made no contributions to candidates or committees, to file an annual disclosure statement to report that no contributions were made during the calendar year. 4. Filing the Annual Disclosure Statement. The Commission proposes N.J.A.C. 19: , Filing the business entity annual disclosure statement, to establish uniform procedures and deadlines applicable to business entities. The Commission anticipates that there may be thousands of businesses receiving $50,000 or more in a calendar year through government contracts. To manage the expected volume of reports, the Commission expects to provide an electronic form for filing on the Commission s website at and proposes subsection (a) of N.J.A.C. 19: , Filing the business entity annual disclosure statement, to require electronic filing by business entities of the annual disclosure statement. To provide sufficient time for computer development, education, and training, proposed subsection (b) establishes June 29, 2007, as the filing deadline for business entities that have received $50,000 or more in government contracts in calendar year Proposed subsection (c) establishes March 30 th as the filing deadline for annual business entity contribution reporting relevant to each calendar year following Contributions Deemed to Be Made by a Business Entity. Chapter 271 requires that a business entity report to the contracting government entity and to the Commission on the annual disclosure statement not only contributions made from business entity funds, but also contributions made by related and affiliated individuals and entities; see P.L.2005, c.271, 2 and 3, and N.J.S.A. 19:44A-20.26b and 19:44A-20.27d. The concept of business entity is broad because the law deems that contributions made by individuals and entities related to the business entity are the equivalent of and must be reported as contributions made by the business entity. The Commission believes that each business entity will therefore require specific guidance concerning which contributions it must report, and proposes N.J.A.C. 19: , Contribution deemed to be a contribution by a business entity, to include in one rule the specific conditions under which a contribution, in addition to a contribution from business entity funds, shall be treated as a contribution from the business entity. The Commission has included specific references to proposed N.J.A.C. 19: in the rules for business entity disclosure to government entities and to the Commission to notify each business that it must also report contributions made by other individuals and entities; see N.J.A.C. 19: (a), 19: (a), and 19: (b)3. Proposed subsection (a) of N.J.A.C. 19: reiterates the statutory requirement that if a business entity is a natural person, a contribution made by that person's spouse or child, residing with the contributor, shall be deemed to be a contribution by the business entity; see P.L.2005, c.271, 2 and 3, and N.J.S.A. 19:44A-20.26b and 19:44A-20.27d. Proposed subsection (b) recites the list of contributions that must be reported by a business entity that is not a natural person. A business entity that is not a natural person is required to disclose

9 Page 9 to the contracting public entity and on the annual disclosure statement contributions made by any subsidiaries it directly or indirectly controls; see N.J.S.A. 19:44A-20.26b and 19:44A-20.27d. However, the law does not define the term any subsidiaries directly or indirectly controlled by the business entity. The Commission believes that businesses will need direction to determine whether or not they must report contributions made by affiliated entities, and therefore proposes subsection (c) of N.J.A.C. 19: for a standard to determine whether or not an entity is a subsidiary. The Commission relied upon the definition of subsidiary in the New Jersey Business Corporation Act, N.J.S.A. 14A:1-1, et seq., as the basis for the proposed test for a subsidiary in proposed subsection (c) of N.J.A.C. 19: ; see N.J.S.A. 14A:1-2.1(o). A corporate subsidiary is defined in the Business Corporation Act as a domestic or foreign corporation whose outstanding shares are owned directly or indirectly by another domestic or foreign corporation in such number as to entitle the holder at the time to elect a majority of its directors.... Similarly, the Commission believes that where a non-corporate business entity has sufficient ownership in another business entity to direct the decision making of the other business entity, it possesses control equivalent to that required in the corporate definition of subsidiary. The Commission therefore incorporates the decision-making test in proposed subsection (c) of N.J.A.C. 19: to apply to business entity subsidiaries. Chapter 271 also requires that a contribution made by any political organization organized under section 527 of the Internal Revenue Code that is directly or indirectly controlled by the business entity is deemed to be a contribution by the business entity; see N.J.S.A. 19:44A b and 19:44A-20.27d. The signing statement specifically advises that the new pay-to-play disclosure applies to entities that are 527 s and are filing as continuing political committees... in New Jersey. The Commission believes that the text of Governor Codey s signing statement supports use of the term continuing political committee, which is specifically defined in the Act, rather than undefined and non-specific term political organization, in the proposed new rule. A contribution by a continuing political committee (CPC), organized under section 527 of the Internal Revenue Code, that is directly or indirectly controlled by a business entity is a contribution required to be reported by a business entity to the contracting public entity and on the annual disclosure statement; see N.J.S.A. 19:44A-20.26b and 19:44A-20.27d. Because the law does not include a standard for determining whether or not a business entity directly or indirectly controls a CPC, the Commission proposes subsection (d) of N.J.A.C. 19: to establish criteria for making such a determination. Control of a CPC is a concept that already exists in the Campaign Reporting Act which prohibits candidate participation directly or indirectly in the management or control of a political committee or a continuing political committee; see N.J.S.A. 19:44A-9h (Section 9h). The Commission believes that criteria developed in its advisory opinions concerning application of Section 9h are relevant to and can be applied to determine whether or not a business entity directly or indirectly controls a CPC. In its advisory opinions, the Commission has articulated the following as indicia of candidate control of a CPC: participation in decision-making with regard to the specific activities of a CPC (Advisory Opinion ); participation in formation of a CPC s policies (Advisory Opinion

10 Page ); and participation as an organizer of a CPC (Advisory Opinion ). The Commission proposes these criteria at subsection (d) of proposed N.J.A.C. 19: to provide criteria for business entity control of a CPC. The Commission understands that it may be necessary to develop additional criteria in the future in response to advisory opinion requests specifically concerning business entities and the pay-to-play law. 6. The Commission has the authority under Chapter 271 to impose a penalty, which may be based upon the amount that the business entity failed to report, upon a business entity that fails to comply with the requirement to disclose contributions to a contracting government entity or to the Commission on an annual disclosure statement; see P.L.2005, c.271, 2d and 3e. The Commission proposes a new rule, N.J.A.C. 19: , Allegation of a violation; fine, to provide specific guidance for a member of the public who wishes to request that the Commission investigate an allegation of a violation of N.J.A.C. 19: , 19: , or 19: Subsection (a) specifies the information that must be provided in order for the Commission to undertake an investigation. This information includes the name and address of the person or entity requesting the investigation, the name and address of the business entity which is alleged to have failed to comply with the requirements of this subchapter, a copy of the contract awarded by the State agency or the local unit, and information concerning the business entity contributions that were not disclosed. To assist the Commission in its investigation, it is reasonable to require that a complainant provide a copy of the contract, and the Commission notes that a citizen may request a copy of any public contract under the provisions of The Open Public Records Act, N.J.S.A. 47:1A-1 et seq., which requires that [i]mmediate access shall be granted [by a government entity] to... contracts.... See N.J.S.A. 47:1A-5e. 7. The Commission proposes two additional new rules, N.J.A.C. 19: , Opportunity for hearing, and N.J.A.C. 19: , Default for failure to answer complaint. These rules are modeled on existing rules, N.J.A.C. 19: , 19: A, 19: , and 19: , which are currently applicable to violations of the Campaign Reporting Act by candidates, committees, treasurers, and business entities, including the pay-to-play prohibition requirements. The Commission believes the two new rules are necessary to specify the rights of individuals or entities which may be subject to complaint action by the Commission for pay-to-play disclosure violations. The first rule provides that each respondent shall have the opportunity for a hearing pursuant to the provisions of the Administrative Procedure Act, N.J.S.A. 52:14B-1 et seq. and 52:14F-1 et seq., and N.J.A.C. 1:1. The second rule provides that the Commission may find a respondent to be in default for failing to file a timely answer to a complaint. As the Commission has provided a 60-day comment period on this notice of proposal, this notice is excepted from the rulemaking calendar requirements, pursuant to N.J.A.C. 1:30-3.3(a)5. Social Impact The Commission believes that it was the intent of the Legislature in Chapter 271 to not only reform the government contracting process, but also to promote the principles of accessible information and transparency in the decision-making process in government contracting within New Jersey. The Commission believes further that the Legislature s intent was to establish an

11 Page 11 open and accessible government, which helps assure the preservation of democracy. By requiring disclosure in the pay-to-play contracting arena, Chapter 271 advocates these principles. The Commission s proposed regulations have the positive social impact of creating transparency, through the additional disclosure requirements applicable to business entities contracting with New Jersey government entities, making the process open to public scrutiny by allowing the sun to shine on government procurement within the State, and ensuring integrity of the process. The Commission believes that individuals and entities in the business community must be able to determine with certainty whether or not they are subject to the "pay-to-play" disclosure requirement of contributions they have made. The Commission therefore anticipates that the definitions in proposed N.J.A.C. 19: serve the salutary purpose of specifically identifying the business entities, candidates, and committees, state government and local units, that are involved in to "pay-to-play" disclosure of political contributions. Further, by adopting terminology used in existing Commission regulations, such as fair and open process, candidate committee, legislative leadership committee, and contribution reportable by the recipient, among other terms, the Commission proposal provides consistency with prior regulations and avoids confusion among the regulated community. The Commission proposes a bifurcated set of rules, N.J.A.C. 19: for business entity disclosure to a State agency and N.J.A.C. 19: for business entity disclosure to a local unit, to conform to contracting procedures, and for the socially beneficial purpose of clarifying for business entities the differences between the contracting process pertinent to each level of government, as described in the Summary, above. The disclosure requirements imposed upon business entities by Chapter 271 are without precedent in New Jersey. The Commission therefore believes that proposed N.J.A.C. 19: , 19: , and 19: are necessary and beneficial because they provide notice and guidance to affected business entities that are subject for the first time to the completely new disclosure requirements of Chapter 271. Because a business entity may be subject to one or both of the two new disclosure requirements, that is disclosure to a government entity and disclosure to the Commission, the three proposed new rules use plain language to describe the events which trigger the new reporting requirements and to describe the information necessary to complete the reports. The Commission believes these rules serve the business community by clearly defining when and how the new reports must be filed and serve the public by ensuring that required information is reported. The Commission understands that the annual disclosure statement requirement of Chapter 271 will serve its disclosure objective only if the public has ready access to the information filed by business entities. Proposed N.J.A.C. 19: , Filing the business entity annual disclosure statement, therefore serves this important public policy goal by requiring that business entities file the report in an electronic format which will enable the Commission to speed dissemination of information filed by business entities. The concept of business entity as applied in Chapter 271 is expansive, and a business is required to report not only contributions made from business entity funds, but also to report

12 Page 12 contributions made by individuals and other entities related to the business. To assist business entities in understanding and complying with this statutory concept of business entity disclosure, the Commission has proposed N.J.A.C. 19: , Contribution deemed to be a contribution by a business entity, to highlight for and provide specific notice to affected businesses of the expanded definition of business entity. The Commission believes that proposed N.J.A.C. 19: , Allegation of a violation, serves an important educational purpose by providing specific instructions to members of the public who may wish to request a Commission investigation of an alleged pay-to-play disclosure violation. Proposed N.J.A.C. 19: , entitled Opportunity for hearing, has a beneficial effect by advising potential respondents that they have a right to a hearing concerning any Commission allegation that a violation of the pay-to-play disclosure rules has occurred. The proposed new rule headed Default for failure to answer complaint, N.J.A.C. 19: , serves the additional important purpose of advising potential respondents of the consequences of failure to respond to a Commission enforcement complaint. The Commission believes that the proposed new rules will assist in effectuating the socially desirable goal of the pay-to-play disclosure laws to protect New Jersey s citizens from the negative effects of political contributions on the government contracting process. Economic Impact The Commission anticipates that its proposed rules to implement "pay-to-play" disclosure legislation will have an economic impact upon business entities involved with contracts at all levels of New Jersey government. The Commission believes that compliance with the new requirements to report contributions to a contracting government entity and to the Commission will mean that a business must keep detailed records of its contributions to candidates and committees. In a large business entity with many partners, directors, or officers, it will be necessary to obtain information concerning reportable contributions made by the spouses of partners, directors, or officers. The Commission expects that a business entity will incur costs associated with making and maintaining such records of contributions and preparing the disclosure reports. The economic impact of the disclosure requirements may necessitate expenditures for additional personnel, as discussed below. It is possible that a business entity may choose not to make contributions to candidates and committees in order to avoid the costs associated with the recordkeeping and reporting requirements of Chapter 271. As a result, there may be a reduction in contributions to candidates and committees. However, it is not possible at this time to predict whether or not the disclosure requirements of the new law and proposed rules will have an economic impact on candidates and committees.

13 Page 13 The Commission believes, however, that the potential negative economic effects of the pay-toplay disclosure law on business entities and on candidates and committees are outweighed by the beneficial social impact of increased integrity of the procurement process. Federal Standards Statement A Federal standards analysis is not required because the proposed new rules concern New Jersey filing entities. The new rules and amendments are not subject to any Federal requirements or standards. Jobs Impact The Commission anticipates that for-profit and nonprofit business entities of all sizes may need to hire employees or dedicate existing employees to the task of ensuring compliance with "payto-play" disclosure requirements. Further, the Commission may require additional staff to implement and enforce the recently-enacted pay-to-play laws. Agriculture Industry Impact The proposed new rules are not expected to have any impact on the agriculture industry. Regulatory Flexibility Analysis The proposed new rules may affect small businesses, as that term is defined under the Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq., by requiring a business entity to keep records of its contributions to candidates and committees and to report the contributions in two contexts: to a contracting government entity prior to the award of a contract; and to the Commission if the business entity receives $50, or more in one year in government contracts. Under the rules proposed by the Commission, a small business must file an annual disclosure statement with the Commission setting forth all reportable political contributions made by the business entity during the 12 months prior to the reporting deadline. To reduce the economic impact on small businesses, the Commission has not mandated any specific method by which a business must track its political contributions. A business entity therefore has discretion to select whatever recordkeeping method is most cost effective. Further, to reduce costs of complying with the annual disclosure requirement, the Commission anticipates establishing an electronic filing system, that will be available at no cost, for the annual reports. The Commission does not anticipate that any professional services will be needed by small businesses to comply with the proposed "pay-to-play" rules. Smart Growth Impact The proposed new rules are not expected to have any impact on the achievement of smart growth and implementation of the State Development and Redevelopment Plan. Full text of the proposal follows (additions indicated in boldface thus; deletions indicated in brackets [thus]):

14 Page 14 SUBCHAPTER 26. CONTRIBUTION DISCLOSURE BY FOR-PROFIT AND NONPROFIT ENTITIES 19: Definitions The following words and terms, when used in this subchapter shall have the following meanings unless a different meaning clearly appears from the context. "Business entity" means a natural or legal person, business corporation, professional services corporation, limited liability company, partnership, limited partnership, business trust, association or any other legal commercial entity organized under the laws of this State or of any other state or foreign jurisdiction. The term business entity shall include for-profit and nonprofit entities. "Candidate" means: 1. An individual seeking election to a public office of this State or of a county, municipality or school or fire district at any election; 2. An individual who shall have been elected or failed of election to an office, other than a party office, for which he or she sought election and who receives contributions and makes expenditures for any of the purposes authorized by N.J.S.A. 19:44A-11.2; and 3. An individual who has received funds or other benefits or has made payments solely for the purpose of determining whether the individual should become a candidate as defined in paragraphs 1 and 2 above. This definition does not include an individual seeking Federal elective office, or State, county or municipal political party office. Candidate committee means a committee established by a candidate pursuant to N.J.S.A. 19:44A- 9(a) for the purpose of receiving contributions and making expenditures. Commission means the New Jersey Election Law Enforcement Commission. "Continuing political committee" includes any group of two or more persons acting jointly, or any corporation, partnership, or any other incorporated or unincorporated association, including a political club, political action committee, civic association or other organization, which in any calendar year contributes or expects to contribute at least $4,300 to aid or promote the candidacy of an individual, or the candidacies of individuals, for elective public office, or the passage or defeat of a public question or public questions, and which may be expected to make contributions toward such aid or promotion or passage or defeat during a subsequent election, provided that the group, corporation, partnership, association or other organization has been determined by the commission to be a continuing political committee in accordance with N.J.S.A. 19:44A-8(b). A continuing political committee does not include: 1. A candidate committee, joint candidates committee, political committee, a political party committee, or a legislative leadership committee.

15 Page A contributor not involved in fundraising (that is, not soliciting or accepting contributions to aid or promote candidates, or the passage or defeat of public questions), and not conducting any election-related activity other than making contributions from its own funds to a candidate committee, joint candidates committee, political committee, continuing political committee, political party committee, or legislative leadership committee. "Contribution" includes every loan, gift, subscription, advance or transfer of money or other thing of value, including any, in-kind contribution, made to or on behalf of any candidate committee, joint candidates committee, political party committee or legislative leadership committee and any pledge or other commitment or assumption of liability to make such transfer. For the purposes of this subchapter, any such commitment or assumption shall be deemed to have been a contribution upon the date when such commitment is made or liability assumed. Funds or other benefits received solely for the purpose of determining whether an individual should become a candidate are contributions. Contribution reportable by the recipient shall mean a contribution or contributions in excess of $ in the aggregate per election made to or received by a candidate committee, joint candidates committee, or political committee or per calendar year made to or received by a political party committee, legislative leadership committee, or continuing political committee. County committee of a political party means a committee organized pursuant to N.J.S.A. 19:5-3. Director means any member of the governing board of a corporation, including a nonprofit corporation, whether designated as a director, trustee, manager, governor, or by any other title. "Fair and open process" means, at a minimum, that the contract shall be: 1. Publicly advertised in newspapers or on the Internet website maintained by the public entity in sufficient time to give notice in advance of the contract; 2. Awarded under a process that provides for public solicitation of proposals or qualifications and awarded and disclosed under criteria established in writing by the public entity prior to the solicitation of proposals or qualifications; and 3. Publicly opened and announced when awarded. The decision of a public entity as to what constitutes a fair and open process shall be final. In-kind contribution means a contribution of goods or services received by a candidate committee, joint candidates committee, political committee, continuing political committee, political party committee, or legislative leadership committee, which contribution is paid for by a person or entity other than the recipient committee, but does not include services provided without compensation by an individual volunteering a part of or all of his or her time on behalf of a candidate or committee. "Interest" means the ownership or control of more than 10% of the profits or assets of a business entity or more than 10% of the stock in the case of a business entity that is a corporation for profit, as appropriate.

16 Page 16 "Joint candidates committee" means a committee established pursuant to N.J.S.A. 19:44A-9(a) by at least two candidates for the same elective public offices in the same election in a legislative district, county, or municipality, but not more candidates than the total number of the same elective public offices to be filled in that election, for the purpose of receiving contributions and making expenditures. For the purposes of this definition, the offices of member of the Senate and members of the General Assembly shall be deemed to be the same elective public offices in a legislative district; the offices of member of the board of chosen freeholders and county executive shall be deemed to be the same elective public offices in a county; and the offices of mayor and member of the municipal governing body shall be deemed to be the same elective public offices in a municipality. Legal person means a corporation which possesses legal rights. "Legislative leadership committee" means a committee established, authorized to be established, or designated by the President of the Senate, the Minority Leader of the Senate, the Speaker of the General Assembly, or the Minority Leader of the General Assembly pursuant to N.J.S.A 19:44A for the purpose of receiving contributions and making expenditures. Local unit means a county, municipality, agency or instrumentality of a county or municipality, independent authority, board of education, or fire district. Natural person means a human being. Municipal committee of a political party means a committee organized pursuant to N.J.S.A. 19:5-2. Officer means a president, vice president, secretary, treasurer, chief executive officer, or chief financial officer of a corporation, including a nonprofit corporation, or any person routinely performing such functions for a corporation. Partner means one of two or more natural persons or other entities, including a corporation, who or which are joint owners of and carry on a business for profit, and which business is organized under the laws of this State or of any other state or foreign jurisdiction, as a general partnership, limited partnership, limited liability partnership, limited liability company, limited partnership association, or other such form of business organization. "Political party committee" means the State committee of a political party, as organized pursuant to N.J.S.A. 19:5-4; any county committee of a political party, as organized pursuant to N.J.S.A. 19:5-3; or any municipal committee of a political party, as organized pursuant to N.J.S.A. 19:5-2. Principal means a natural person or other entity who or which owns or controls more than 10 percent of the profits or assets of a business entity or 10 percent of the stock in the case of a business entity that is a corporation for profit. Public entity means any State agency or any local unit, as those terms are defined herein.