Considering Evolving Pay-to-Play Risks In The 2026 Elections

Companies that obtain public sector business or engage lobbyists in the United States should be mindful of the evolving pay-to-play risk landscape in 2026. Pay-to-play laws restrict or require disclosure of political contributions made by companies, their principals, lobbyists, executives, and sometimes employees to candidates seeking offices that may have influence over those contracts. The consequences for failure to adhere to these obligations can be severe, including resulting in effective suspensions or debarment for a period of years in a whole jurisdiction, cancellation of contracts, and loss of fees. These laws apply to individuals' personal political contributions that are made from personal funds and so the compliance obligation can be challenging to manage in any sized organization.

State, municipalities, and even individual agencies may have their own overlapping pay-to-play rules that cover different donors, recipients, exceptions, and consequences. Most companies subject to pay-to-play laws have broad compliance measures, including requiring pre-clearance of some employees' personal and spousal political activities to ensure no restriction is triggered.

While pay-to-play laws continue to proliferate and present challenges for corporate compliance programs, there are also some new trends that are likely to further complicate corporate compliance considerations in the pay-to-play area.

2026 Elections 

The 2026 election cycle presents a heightened risk of potential pay-to-play violations with dozens of current elected officials running for new offices at the federal, state, and local levels. There are 39 gubernatorial elections in 2026, including elections in 36 states and three territories. Fifteen current federal officials are running in those gubernatorial races. In addition, elections will be held for 88 state legislative chambers in 44 states, involving roughly 6,000 state legislative seats. Those races will be accompanied by thousands of county, municipal, school-board, prosecutor, and other local elections.

The risk analysis can be especially complicated where officeholders change levels of government. For example, when a federal officeholder seeks state or local office, or a state or local official runs for federal office. In those circumstances, the fact that a contribution is made to a federal campaign does not necessarily end the analysis if the candidate continues to hold a covered state or local position with authority or influence over relevant government business.

Senior executives and government affairs personnel may be on the receiving end of robust solicitation efforts from officeholders. Ensuring they're aware of the risks and avenues for giving is all the more important in the 2026 election.

Quid Pro Quo and Appearance Concerns 

Federal, state, and local bribery, corruption, campaign finance, conflicts of interest, and government procurement laws of criminal and civil nature also may regulate corporate and executive political activities. Factors such as the proximity in time to a decision, the candidate's ability to influence the decision, and the vehicles used to make political contributions may all be factors a regulator might look to in considering whether to pursue an investigation and whether there was an intent to improperly influence government decision-making.

Pay-to-play laws, however, generally do not require an intent finding and very uniquely impose business harms for political activity by employees, some of whom may have no involvement whatsoever in any relevant contracts.

Pay-to-Play Risks for Federal Government Contractors 

Federal government contractors are prohibited from making contributions to "any political party, committee [any PAC], or candidate for public office or to any person for any political purpose or use." 52 U.S.C. § 30119. While all corporations are prohibited from making contributions directly to candidates, they may make contributions to so-called Super PACs, which are PACs that may raise and spend in unlimited amounts, as long as the activities are not in coordination or cooperation with a candidate or party. 

Federal government contractors that have made contributions from corporate funds to Super PACs have agreed to pay civil penalties to the FEC for such payments.¹ And a knowing and willful violation could also lead to criminal penalties.

With the significant uptick in outside spending in 2026 and the proliferation in types of PACs and entities that are fundraising, federal government contractors should consider the nuances of this prohibition when making corporate contributions.

Pay-to-Play Risks for Financial Services

Financial services institutions are subject to various federal pay-to-play laws that actually apply to contributions made to candidates for state and local office, as well as state and local political parties.² While these rules fall under different regulators and apply to different types of financial institutions, they generally follow a similar approach, with relatively low de minimis amounts that do not trigger the fee prohibition, no intent requirement, limited ability to correct inadvertent contributions after-the-fact, and broad application to both direct and indirect contributions. Importantly, the rules generally apply to covered state and local officeholders and candidates, even where the state or local officeholder seeks a federal office or where a federal officeholder seeks a state or local office.

SEC Plans to Amend its Pay-to-Play Rule, Post-Election

One of the key pay-to-play rules is the SEC's rule for investment advisers, which imposes a two-year ban on the receipt of fees for investment advisory services if the adviser, its PAC or any employees who seek or supervise the soliciting of such services from public sector clients, such as public pension funds.³ 

The SEC is currently considering amending the rule to reduce the compliance burden.⁴ In March, Chair Paul Atkins has called the rule a "trap for the unwary"⁵ and Commissioner Hester Peirce has a long history of critiquing the rule, as an "exceedingly blunt instrument," that chills political speech.⁶ Critics argue that the rule imposes compliance burdens even where the potential for corruption or its appearance is negligible or non-existent, for instance, for relatively low dollar contributions, that the pool of employees who are covered is too broad, resulting in inadvertent violations, and that the prohibition on fees applies even if the candidate could not have any influence over the selection of the investment adviser (e.g., the candidate lost the election, the fund was closed, or the investment decision long precedes the contribution). 

Proponents of the rule argue that there is a history of corruption through campaign contributions that should be prevented with a prophylactic rule that does not require evidence of an intent to corrupt government decision-making.

The SEC intends to release a Notice of Proposed Rulemaking in October, which means any amendments will not be in place prior to the election. In any event, even if the SEC elects to amend the Rule, it has and can bring "pay-to-play" cases using its anti-fraud provisions where there is a connection between political contributions and winning business from public sector entities, and this can be applied to any type of services, not only investment advisory services. Given the other federal, state, and local pay-to-play laws that are increasing, rather than decreasing, any changes to 206(4)-5 are unlikely to result in a meaningful reduction in pay-to-play risk or compliance resourcing for most large financial institutions.

Coordination Considerations 

Pay-to-play laws generally restrict contributions made directly or indirectly to candidates and parties, but do not restrict contributions to Super PACs or other independent spending, such as a corporation spending directly on independent expenditures or electioneering communications. Under FECA, if outside spending is coordinated with a candidate or party, the spending could be treated as a contribution to the campaign.

And because many Super PACs are closely affiliated with or support a particular candidate or party, ensuring that a contribution could not be viewed as an "indirect" contribution or an attempt to circumvent a pay-to-play rule may require some additional due diligence and other mitigation measures.

While the FEC has at times interpreted its own coordination regulations loosely, the regulators that enforce pay-to-play laws may rely on their own interpretation as to whether an organization has coordinated sufficiently closely with a candidate or party such that a contribution to the outside organization could trigger a pay-to-play rule.

Party, Party, Party

The Supreme Court's campaign finance decision in NRSC v. FEC from June of this year⁷ may also cause parties and candidates to fundraise in different ways that could increase the pay-to-play risk for companies. The Supreme Court struck down the limits on political party coordinated campaign expenditures, which means that parties may now spend unlimited funds on elections in coordination with federal candidates.⁸ This could lead candidates and parties to fundraise more aggressively through joint fundraising committees, which requires additional consideration under any applicable pay-to-play laws.

Examples of Unique Pay-to-Play Laws

California

California's pay-to-play law, the Levine Act, is designed to prevent parties with a financial interest in a pending agency decision from influencing officials through political contributions. Its application is broad as it applies to proceedings before both state and local agencies involving licenses, permits, and other entitlements for use.

Under the Levine Act, agency officers may not accept, solicit, or direct a contribution of more than $500 from any party participant to a covered proceeding while the matter is pending and for 12 months following the date the agency renders its final decision. The restriction applies where the elected officer or body of which they are a member has the authority to make decisions or recommendations in the proceeding and the officer knows or has reason to know that the party participant has a financial interest in the matter.

Significantly, the law imposes strict recusal obligations, which could make a material difference to the outcome of a matter or the ability of the company to obtain the approval it seeks. Officers must disqualify themselves from participating in the proceeding if the officer has willingly and knowingly received a covered contribution. In addition, officers and parties involved in a covered proceeding must disclose on the record of the proceeding any contribution over $500 given or received within the 12 months prior to any decision.

Los Angeles

Some local jurisdictions in California apply their own, stricter pay-to-play limitations. Los Angeles, for example, prohibits certain political contributions by "restricted developers" seeking planning entitlements from the City. This prohibits both the applicant and the owner from making contributions to candidates for Mayor, City Attorney, member of City Council, or a City-controlled committee for these elected City offices.

The restriction applies from submission of an application through 12 months after a determination or final decision.

The consequences of violating the ban can be significant. An applicant, owner, or principal found by the Los Angeles Ethics Commission to have violated the ban may be barred from being an applicant, owner, or principal on a new planning application for 12 months after the Commission's determination,

New Jersey

New Jersey maintains one of the country's most extensive pay-to-play frameworks. It has four statutory pay-to-play bans, including bans covering executive branch, legislative branch, county, and municipal contracts. There is also a state pay-to-play rule specific to school board contracts, a state pay-to-play ban for certain state redevelopment agreements, and a State Investment Council rule specific to investment management services provided to state pension funds. The compliance landscape is further complicated by over 300 county and municipal pay-to-play ordinances, which impose varying contribution limits, disclosure requirements, and lookback periods.

New York City

New York City's "doing business" rule takes a different approach. Persons and entities deemed to be "doing business" with the City, including certain City contractors, lobbyists, and applicants for land-use actions, are subject to significantly reduced campaign contribution limits for City candidates. The City maintains a Doing Business Database, and covered individuals may include senior managers, owners, and executives, not merely the entity holding the City business.

What Can You Do Now To Mitigate Pay-to-Play Risk?

• Review your pay-to-play policies and compliance program and ensure it is fit for purpose for your organization's current risk profile.
• Ensure that senior executives, government affairs personnel, and other external facing personnel are aware of the company's policies and procedures on corporate and employee contributions and solicitations.
• As election interest and campaign solicitations ramp up, typically in early September, consider sending reminders to your employee populations that are covered by pay-to-play rules, such as senior executives, government affairs personnel, public sector sales teams, and anyone who supervises such activities.
• Consider whether the Board has oversight over these risks and the company's compliance program.

Footnotes

1. See, e.g., FEC MUR 7887 (Hamilton Company); FEC MUR 7843 (Marathon Petroleum); FEC MUR 7451 (Ring Power Corporation); FEC MUR 7450 (AshBritt, Inc.).

2. See MSRB Rule G-37 (municipal advisors and broker dealers); SEC Rule 206(4)-5 (investment advisers); CFTC Rule 23.451 (swap dealers); SEC Rule 15Fh-6 (for security-based swap dealers); and FINRA Rule 2030 (for members soliciting public entities to provide investment advisory services).

3. 17 C.F.R. § 275.206(4)-5.

4. The SEC's agenda of upcoming rulemaking activity explained that the Divion of Investment Management is considering recommending amendments to the rule "to address identified compliance burdens."

5. Law360, SEC's Atkins Promises Changes to Adviser Pay-to-Play Rule (March 23, 2026).

6. Laudable Ends, Poorly Pursued: Statement Regarding Recent Pay-to-Play Settlements, Commissioner Hester M. Peirce (Sept. 15, 2022).

7. Nat'l Republican Senatorial Comm. v. FEC, No. 24-621, slip op. at 20 (June 30, 2026).

8. See What Does the Supreme Court's Latest Campaign Finance Decision Mean for the 2026 Midterm Elections Fundraising?, Steptoe Client Alert (June 30, 2026).