Ask the Experts – Preclearance Program for Personal Contributions

Question: Every six months we survey our officers and directors asking whether they have made personal political contributions. Is this sufficient for purposes of pay-to-play reporting?

Answer: Unfortunately, an after-the-fact survey is insufficient in protecting your company from running afoul of pay-to-play laws.
Surveys provide information about personal contributions after the contribution has already been made. When you sit down to complete a pay-to-play report and you consult the survey responses, the damage has already been done if the contribution was made in violation of the pay-to-play law. Furthermore, the time for corrective measures (seeking reimbursement of the contribution) has more than likely passed.
Developing an internal program whereby employees (and in some instances their immediate family members) must seek pre-approval before making a personal political contribution is the gold standard. It is the best practice to ensure compliance with the varied pay-to-play laws.
The most compelling reasons to implement a pre-clearance program are to avoid debarment, fines, and negative publicity. Moreover, having a contract rescinded because of a pay-to-play violation can result in the loss of millions of dollars in revenue.
The success of any program is directly proportional to the education provided to employees. Educating them on the need for a pre-clearance strategy results in increased participation, which in turn results in decreased risk to the company.
At its core, a thorough program must let employees know the company is not prying into their personal spending habits and requiring permission is not an attempt to invade their privacy. The message must be conveyed that the company has legitimate business reasons for requiring pre-approval. Such reasons include: maintaining the company’s ability to effectively conduct business with states and municipalities; ensuring the conduct of the company’s employees does not jeopardize the company’s reputation; and shielding the company’s employees and their family members from personal liability.
There is no one-size-fits-all compliance program, but if a pre-clearance strategy is not used, a violation of a jurisdiction’s pay-to-play law is more likely to occur.

For more information, be sure to check out the “Pay-to-Play” section for each state and local jurisdiction in the U.S. Procurement Lobbying Compliance Laws online publication. Please feel free to contact us if you have any questions. – https://stateandfed.com/contact-us/

Q: My employer is a wholly-owned subsidiary of a parent corporation. Does a parent corporation, a subsidiary, or other affiliated entity have its own contribution limit or must the contributions be aggregated and have a shared limit?

A: The answer varies and is jurisdiction-dependent.  If a limit is shared, the parent, subsidiary, or other affiliated entity must have an open line of communication when it comes to making political contributions.

In California, a parent and subsidiary share a contribution limit if the decision to make a contribution is directed and controlled by a majority of the same persons.  If the parent and subsidiary act wholly independent of each other in deciding to make a contribution, the parent and subsidiary each have their own limit.

In New Jersey, if a corporation has subsidiaries, affiliates, branches, or locals then the contributions of these organizations cannot exceed the applicable contribution limit in the aggregate.  Two or more corporations will be conclusively deemed to be affiliated if:

• Any individual, corporation, partnership, company, association, or other entity owns, directly or indirectly, more than a 30 percent interest in each of such corporations; or
• One such corporation owns, directly or indirectly, more than a 30 percent interest in the other such corporation.

In New York, an organization financially supported by a corporation may not make expenditures for political purposes (including contributions to candidates, political parties, and political committees) in excess of $5,000 in the aggregate in any calendar year.

An organization financially supported by a corporation is an entity, among other things, run by the corporation, features no discernible differences between the organization and the corporation, and is simply doing the corporation’s business under a different name.  If a political committee is created by a corporation, but is run separately and distinctly, then it is not an organization financially supported by a corporation and is not subject to the $5,000 yearly contribution limit.

Each affiliated or subsidiary corporation, if a separate legal entity, has its own limit.

These are just a few broad examples of aggregation of limits.  As always, we advise you follow best practice to verify the rules in your jurisdiction before making political contributions.

For more information, be sure to check out the “Contribution” section of the U.S. Political Contributions Compliance Laws online publication. Please feel free to contact us if you have any questions.

Q: My employer makes corporate contributions in California. We have not yet exceeded $10,000 in calendar year 2024. The primary election is in March, along with the general election in the fall. If we decide to make contributions, when do we have a late contribution report due?

A: The California “Late Contribution Report” [Form 497], sometimes referred to as the “24-hour report” is due during the 90-day period preceding any election if all of the following criteria are met:

• The contribution is $1,000 or more, or multiple contributions aggregating $1,000 or more, to a single candidate, ballot measure committee, or political party. This includes non-monetary and in-kind contributions;
• The corporation making the contribution must have already qualified as a major donor or the contribution made during the 90-day period before the election puts it over the $10,000 threshold and it becomes a major donor; and
• The recipient candidate or ballot committee must appear on the ballot at the election for which the 90-day period applies.

Contributions to political parties made during the 90-day period are also included. Contributions to PACs are not.
We are currently in the 90-day period for the March 5 primary election. The 90-day period for the November 5 general election begins August 7. Currently, no special elections are scheduled, but if one is, this triggers a new 90-day period. Check with the Fair Political Practices Commission for the exact dates of the 90-day period.

The filing requirements for Form 497 are:

• The report is due within 24 hours of making the contribution. The contribution is made on the date it is mailed, hand-delivered, or otherwise transmitted to the candidate, ballot measure committee, or political party.
• The report must be filed electronically with the California Secretary of State, Political Reform Division. No paper report is required.
• If a report is due on a Saturday, Sunday, or official state holiday, the 24-hour deadline is extended to the next business day. However, the Form 497 must be filed within 24 hours on a Saturday, Sunday, or an official state holiday when the report is due the weekend immediately prior to an election. For example, if a donor makes a contribution on the Saturday before the election, the Form 497 is due on Sunday.

As a reminder, the late contribution must still be reported on the next major donor report that is due. In 2024, major donor reports are due July 31 for the period covering January 1 to June 30; and January 31, 2025, for the period covering July 1 to December 31.

For more information, be sure to check out the “Registration and Reports Required” section of the U.S. Political Contributions Compliance Laws online publication for California. Please feel free to contact us if you have any questions.

Q: As a registered lobbyist, I am often contacted by elected officials to make a corporate contribution to the officials’ charity of choice, foundation, or scholarship fund.  Is this legal?  Am I required to disclose these contributions on my lobbying reports?

A: This scenario is happening more and more every day.  Even though the official does not derive direct, political contributions for his or her campaign, such charitable contributions nonetheless result in positive exposure for the official, goodwill by the lobbyist, and beneficiaries that include the underprivileged, the sick, and the elderly.  Furthermore, the monetary amount of corporate charitable donations can surpass the amount of permissible political contributions under campaign finance law.

Most states allow a lobbyist’s employer to make charitable contributions at the behest of an elected official and there are no reporting obligations.  Some of the other jurisdictional requirements include:

FEDERAL:  Pursuant to House and Senate Rules, charitable contributions made by a registered lobbyist at the behest or designation of a legislative member or employee are prohibited, unless the member or employee has designated the contribution to a charitable organization in lieu of an honorarium.

Please note, however, a charitable organization established by a person before that person became a covered official and where that covered official has no relationship to the organization after becoming a covered official, is not considered to be established by a covered official.

CALIFORNIA:  Payments may be made at the behest of a state elected officer for a charitable, legislative, or governmental purpose.  The state official must report the payment.

CONNECTICUT:  If a client lobbyist makes a charitable contribution at the behest of a public official, the contribution generally will be deemed to have been made to foster goodwill with the public official and hence to constitute an expenditure in furtherance of lobbying. If deemed in furtherance of lobbying, the expenditure must be reported on the client lobbyist’s ETH-2D report as lump sum under “Other Expenses.”

DELAWARE:  Charitable contributions made at the behest of an official are required to be disclosed on lobbying reports. A charitable contribution made at the behest of a legislator must be reported as a gift. If the amount is over $50, it must be itemized and the specific legislator must be named. A notation may be made if it was a donation to a charity.

NEW YORK:  A state official may not designate or recommend a third party to receive a gift, and no prohibited gift may be offered to, or received by, a third party under circumstances in which it would be reasonable to infer the gift was intended to influence a public official. In other words, an interested source is presumptively prohibited from giving a gift to a third party, even a charity, at the behest of a public official.

A gift offered on behalf of or at the designation or recommendation of a public official is only permissible if, under the circumstances, all of the following criteria are met:

It is not reasonable to infer the gift was intended to influence such public official;

The gift could not reasonably be expected to influence the public official in the performance of his or her official duties; and

It is not reasonable to infer the gift was intended as a reward for any official action on the public official’s part.

NEVADA:  Charitable contributions are reportable if made in the legislator’s name. A registered lobbyist is required to report the total expenditures made to any other person on behalf and for the benefit of a legislator.

QUESTION:  Are there any rules that pertain to making contributions in the weeks leading up to an election?

ANSWER:  With this being an election year, it is wise to know what the rules are when making contributions in the days and weeks leading up to an election.  Usually, there is a monetary threshold that must be exceeded and typically there is a short turnaround time to disclose the contribution, usually within 24 hours.  In some instances, there is an outright ban on contributions.

In California, contributions of $1,000 or more per candidate made by a major donor during the 90-day period before an election must be disclosed within 24 hours of making the contribution.  Contributions to ballot measure committees and political party committees are also included within this reporting requirement.  The candidate and the ballot measure committee must be on the ballot at the election for which the 90-day period applies.  California’s 90-day pre-election period is the longest in the country.  If numerous special elections are being held, the 90-day periods may overlap.

In Washington, a contribution of $1,000 or more per candidate made by a registered lobbyist during the seven days before a primary election and 21 days before the general election must be disclosed within 24 hours of making the contribution.  This includes contributions to candidates and ballot measures appearing on the ballot at the election for which the seven day and 21-day period applies, as well as contributions to political party committees and PACs.  The Washington Public Disclosure Commission has a link on its home page that allows for the electronic filing of this report.

In Florida, opposed candidates must return contributions received less than five days prior to an election.

In Tennessee, a PAC is prohibited from making a contribution to a candidate for office after the 10th day before an election until the day of the election.  This prohibition only applies if the contribution is going to a candidate who is running in that election.

These are just a few examples.  As we always advise, verify the rules in your state before making political contributions.

For more information, be sure to check out the “Registration and Reports Required” section of the U.S. Political Contributions Compliance Laws online publication on our website.   Please feel free to contact us if you have any questions.

Meet Nola Werren, esq., Assistant Director, Compliance Services!

What are your areas of expertise?

Corporate Contribution Compliance, Employee Preclearance of personal contributions, Pay-to-Play Reporting, and State Audits.

How long have you been with State and Federal Communications?

In May, I will have been with the company for 25 years.

How do you help our clients?

I make sure that if a client makes direct state corporate contributions, they are abiding by the state corporate reporting requirements.  For some of our clients, I vet their corporate contributions for compliance with the states’ contribution limits, reporting requirements, restrictions on contributions during legislative session, pay-to-play restrictions and reporting requirements, and restrictions on contributions from lobbyists. For other clients, I pre-clear their employees’ personal political contributions. I ensure that clients file the required pay-to-play reports. If one of our clients is selected for a state audit of its lobbying reports, I draft the response and submit it to the auditor.

In 2010, shortly after I told my daughters—ages 11 and 9 at the time—that I had been diagnosed with breast cancer, we were watching television when an advertisement for the new Seidman Cancer Center at University Hospital in Cleveland came on.  I looked at my 9-year-old’s face as she watched the commercial.  I knew the word “cancer” would now take on an entirely different meaning when she heard it.

Now, it was personal.  She turned to me and asked, “Mommy, why is breast cancer more important than other cancer?  Why does it get more attention?”  To which I responded, “Maggie, I can tell you the answer in two words:  Susan Komen.”  “Huh?” she replied.  My daughter then got a crash course in patient advocacy, medical research, awareness, education, sisterly love, and yes, even grassroots lobbying.  Her eyes got a little wider when I told her that in 2009, the Susan G. Komen Breast Cancer Foundation [now known as Susan G. Komen for the Cure] illuminated the Great Pyramids at Giza in pink.  “Wow!” she replied. “Every cancer needs a Susan Komen.”

So when the Northeast Ohio Affiliate of Susan G. Komen for the Cure announced in 2011 that it would host its inaugural Akron Race for the Cure on Sunday, July 29, 2012, at Firestone Country Club, I knew I would be there.

Little did I know that by then, State and Federal Communications, Inc. would have started its own “Walking Challenge” as part of a fitness initiative and wellness program for its employees.  Little did I know that by then, a team consisting of numerous co-workers and their family members would be participating in the Akron Race for the Cure, including Elizabeth Bartz, President and CEO of State and Federal Communications and a 6½ year breast cancer survivor herself. Little did I know that my breast surgeon, Dr. Jessica Partin from Akron General Hospital’s Reflections Breast Health Center, would speak at the Survivor Ceremony and get to meet my daughters (“Mommy, tell Dr. Partin that she has a really great smile!).

But here is what I did know:  that when I crossed that finish line, I would be hand-in-hand, arms raised above our heads, with my two daughters and my “rock”—my sister, Christine Tvaroch.  We crossed the finish line in honor of the family members, friends, neighbors, and co-workers that have fought the good fight, some winning and unfortunately, some losing their battle with breast cancer.  But thanks to Susan G. Komen for the Cure, a breast cancer diagnosis today is no longer a death sentence.  And when the second annual Akron Race for the Cure is held in 2013, who knows what might happen? I sure intend on being there to find out!

Here is the Akron Beacon Journal coverage of the event: “Cancer survivors race toward a cure” by Dave Scott.

Above photo courtesy of Karen Schiely. Nola Werren is a Client Specialst at State and Federal Communications.

The Council of Engineering and Scientific Society Executives [CESSE] held its annual meeting in Pittsburgh from July 13 to July 16, 2010. CESSE is a professional society comprised of over 1,200 executives from 165 science and engineering societies, whose combined memberships total approximately four million.  Some of CESSE’s members include the American Association of Artificial Intelligence, the America Association of Pharmaceutical Scientists, and the Society of Critical Care Medicine.

The objective of CESSE is to advance, in the public interest, the arts and sciences of the management of engineering and scientific societies.  Essentially, CESSE is an “association of associations”….and therein lie the unique compliance challenges when it comes to government relations and grassroots activity.

I was invited to speak to those members attending the conference’s general management and public affairs program tracks.  Not only did this include those individuals working in the company’s public affairs department, but also its senior executives.

At the federal level, the biggest concern for the group was compliance with the Lobbying Disclosure Act of 1995 [LDA], as amended by the Honest Leadership and Open Government Act of 2007 [HLOGA], along with federal lobbying restrictions by nonprofit organizations.  In particular, I addressed the permissible monetary thresholds for lobbying expenditures by a 501(c)(3) nonprofit organization when making an election under Internal Revenue Code Section 501(h).  Group discussion included questions regarding the difference between direct and grassroots communication, both at the state and federal level.  Finally, no discussion about compliance would be complete without addressing the ethical disclosure obligations that accompany the vast array of state and federal gift laws.

Although no ninety minute presentation could ever include an in-depth, detailed discussion of state and federal lobbying regulations, the CESSE group walked away with a very comprehensive and practical overview.  I’d like to take this opportunity to wish CESSE all the best for its 2011 annual meeting in Vancouver!

Photo of Nola Werren and Brad Smith of the American Chemical Society.