United States: Maryland Changes Rules Again On Political Contribution Disclosure By Government Contractors; Lobbyist-Employers Also Affected

Following a major rewrite last year of its "pay-to-play" disclosure rules, Maryland has made further changes that expand the obligations of state and local government contractors to report their political contributions, and those of their subsidiaries, officers, directors, partners, and PACs. Now, in addition to reporting direct contributions to candidates, contractors will also have to disclose contributions made to independent expenditure groups and political parties that are "for the benefit" of covered candidates. The new law also changes reporting deadlines, and clarifies that companies holding state or local contracts awarded prior to January 1 must file disclosure reports until performance is complete.

The contribution disclosure requirements for lobbyist-employers will also change so that the two disclosure regimes mirror one another.

These new changes take effect on June 1, 2015, just five months after the last round of changes and the rollout of a new online reporting system.

Key features of the new law include:

Donations "For the Benefit of" a Candidate. Under a law that took effect on January 1, 2015, companies doing business with Maryland state or local government agencies must disclose contributions to incumbent officeholders and candidates in jurisdictions where the company is doing business. As of June 1, the disclosure report must also list donations made "for the benefit of" an officeholder (or candidate for office) where the contractor is doing business.

This requirement is intended to cover donations to independent expenditure groups that advocate for and against covered candidates, and party committees formed to support specific candidates, such as the Hogan Victory Fund, which the Maryland GOP used to raise money for then-gubernatorial candidate, Larry Hogan. In addition to raising serious constitutional questions—the Supreme Court has held that contributions to independent expenditure groups do not create even the appearance of corruption—this new rule makes compliance more burdensome by forcing contractors to scour public filings and determine whether a committee to which it contributed supports or opposes particular candidates.

Major questions remain about how one determines whether a donation made to a group is "for the benefit of a candidate." For example, what if a donation is made to a group that is engaged primarily in issue advocacy, but then, after the filing period, starts making independent expenditures for a candidate? Or, how does one account for a contribution to an independent expenditure group supporting multiple candidates, if the donor does not know exactly which candidate the group will support? We anticipate that the State Board of Elections will issue regulations to help explain these requirements.

Change in Filing Dates. The reporting periods and filing dates will also change. Because the new law will not go into effect until June 1, there are special reporting periods and filing dates for 2015. This year, reports will be due on August 31 (covering the period from February 1 through July 1) and November 30 (covering just a three-month period from August 1 through October 31).

Beginning next year, and then each year after that, reports will be due at the end of May for contributions made during the six-month period ending on April 30, and at the end of November, covering the six-month period ending on October 31.

Contracts Awarded Prior to January 1. Companies awarded contracts (valued at $200,000 or more) after January 1, 2015, are required to file an initial contribution report the day after the contract is awarded, and list contributions made in the preceding 24-months. However, there is ambiguity in the current law concerning the obligations of companies that on December 31, 2014, held one or more contracts valued at $200,000 or more, but that have not received any new contracts this year. The new law specifies that these companies must also file semi-annual contribution reports, beginning this August. Thus, if a company received a contract worth more than $200,000 on November 1, 2014, and performance will continue until December 31, 2015, the company will have to file a semiannual report on August 31 disclosing contributions it and certain individuals associated with the company made from February 1 through July 31, 2015.

Limited Disclosure of Contract Terms on "No Contribution" Reports. The new law will reduce the disclosure burdens for contractors (and their PACs, subsidiaries, officers, directors and partners) that have not made any political contributions of $500 or more in a reporting period. These "no contribution" reports need only identify the government agencies with which a contractor did business during the reporting period, but not the nature and value of each contract, and each contract's beginning and ending dates.

Lobbyist-Employers. Companies that employ registered Maryland lobbyists are also required to file semi-annual reports disclosing their political contributions. Their reporting schedule will change to correspond with the new schedule for government contractors. Thus, reports will be due this year on August 31 and November 30, and beginning next year, on May 31 and November 30. Also, while the current law calls for lobbyist-employers to report contributions of more than $500, the new law will change the reporting threshold to $500 or more, which will capture contributions of exactly $500 and mirror the disclosure threshold for the contractor contribution disclosure law.

Penalties. Neither of the new Maryland laws changes the penalties for violating political contribution reporting requirements. It is worth noting, however, that the penalties can be severe. Companies, as well as their officers and partners, can be charged with misdemeanors for knowing and willful violations, which carry penalties of up to $1,000 fines, imprisonment up to a year, or both. Additionally, lobbyists and lobbyist-employers may be subject to late filing fees for untimely contribution disclosure reports.

As we explained in our alert on the Maryland disclosure law that took effect on January 1, 2015, in addition to altering the disclosure rules for government contractors, that law increased contribution limits for individuals and business entities, and requires politically active nonprofits to register and disclose their donors. It also granted authority to the State Board of Elections to issue civil citations for strict liability offenses, such as failing to keep accurate books and records.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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