United States: New Campaign Finance Rules in Effect as Primary Season Begins

February 28, 2011

Originally published by The Legal Intelligencer

As we enter a new primary election season, it is worth taking note of the recent restrictions on campaign contributions by people — or affiliated entities — seeking or entering into professional service contracts with any Pennsylvania municipal pension system, which took effect in December 2009 and July 2010. The restrictions were part of House Bill 1828, which former Gov. Edward G. Rendell signed into law on Sept. 18, 2009.

Bill 1828 is better known for ending the budget stalemate facing the city of Philadelphia in the fall of 2009 by allowing the city to raise its sales tax by 1 percent in exchange for reforms to its pension system. The pension reform provisions of Bill 1828, which also apply to all Pennsylvania cities and municipalities, significantly overshadowed the bill's campaign finance provisions, which received very little press coverage or analysis.

Bill 1828 amended the Municipal Pension Plan Funding Standard and Recovery Act, 53 PS 895.101, et seq. On July 9, 2010, Rendell also signed into law House Bill 2493, sponsored by former state Rep. Todd Eachus, D-Luzerne, and state Rep. Dwight Evans, D-Phila., which amended Bill 1828 and incorporated additional provisions concerning solicitation of contributions to candidates to a 1974 law providing implementation provisions for the Deferred Retirement Option Plans (DROP). (See Bill 2493 amended of Pennsylvania Municipal Retirement Law, 53 PS 881.101, et seq.)

Both bills apply to people or entities — and affiliated entities, including lobbying firms and subsidiaries — seeking or entering into professional service contracts with a municipal pension system, including the Pennsylvania Municipal Retirement System, which are not subject to the requirement that the lowest bid be accepted. (See 53 P.S. § 895. 701-A; 53 P.S. § 881.110.1.) Investment services, legal services, real estate services and "other consulting services" are included in the definition of professional services contracts. (See 53 P.S. § 895. 702-A; 53 P.S. § 881.110.1.)

Bill 2493 prohibits solicitations of contributions from others to candidates for municipal office and also broadly prohibits solicitations of contributions from others to a candidate's political party or political action committee:

Bill 1828's campaign finance provisions appear in Chapter 7-A of the Municipal Pension Plan Funding Standard and Recovery Act and were added as an amendment by state Sen. Patrick Browne, R-Lehigh. In addition to the new campaign finance-related provisions, Chapter 7-A also sets out new conflict of interest guidelines and communication standards between providers of professional services and municipal pension systems. (See 53 P.S. §§ 895.702-A, 703-A, 704-A, 706-A.)

Bill 1828 disqualifies a person or affiliated entity from entering into a professional services contract with a municipal pension system if that person or entity has made a contribution to a municipal official or candidate for municipal office in the municipality that controls the municipal pension system within the previous two years before seeking or entering into a professional services contract. Unlike the provisions of Bill 2493, this provision does not include contributions to a political party or political action committee and does not apply to any contribution made prior to the effective date of Chapter 7-A, which is Dec. 16, 2009. (See 53 P.S. § 895. 704-A(a).)

Bill 1828 also mandates annual disclosure, and details the procedures for such disclosure, of certain campaign contributions made by any person or affiliated entity with a professional services contract with a municipal pension system. (See 53 P.S. § 895.705-A.) Under the new measure, contributions to a candidate or political committee of a candidate for any public office in the commonwealth, or to an individual who holds that office, must be disclosed where the contribution is $500 or more; was made within the last five years; and was made as a single or aggregate contribution by any officer, director, executive-level employee or owner of at least 5 percent of the contributing entity. (See 53 P.S. § 895.705-A (a)(1).)

The broad prohibitions of the campaign finance restrictions in Bills 1828 and 2493, especially the prohibition on soliciting a contribution to the political party or political action committee of a municipal candidate for office, raise questions that may give rise to legal challenges. As drafted, it appears that such prohibitions may apply to professionals who solicit contributions to even the national or Pennsylvania chapter of the party or political action committee of a candidate for municipal office. Such prohibition may not withstand court scrutiny.

Bill 1828 includes a "no pre-emption" provision, which states that a municipality's own code of ethics will not be pre-empted by Chapter 7-A, if that code of ethics is "stricter than" the provisions of Chapter 7-A. 53 P.S. § 895.707-A. A legal challenge to the "no pre-emption" provision could prompt a review by a court to determine the relative stringency of the new additions to the law as a whole.

Given the campaign finance restrictions in Bills 1828 and 2493, professionals seeking or entering into contracts with any municipal pension system in Pennsylvania should be alert to potential violations of these new laws, and seek compliance advice where necessary. Because these new restrictions on campaign contributions and disclosure requirements are broad, they provide ample opportunity for professionals to accidentally render themselves ineligible for professional services contracts with municipal pension systems or in violation of disclosure requirements.

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