Sunday, November 27, 2011

Los Angeles Passes its Pay-To-Play Ordinance

As we anticipated for you here last November, Angelenos have indeed passed into law an ordinance establishing pay-to-play restrictions in the City of Angels. If ever one needed a sense of the public sentiment towards pay-to play regulation, one need only look at the 75% -25% margin by which the measure passed. As anticipated, the Measure targeted a single class of campaign donors (City contractors) who are perceived to make their living procuring contracts greased by campaign contributions. The full Resolution - which you can count on approximately 5 people having actually read - can be found here.

As proposed, the ballot measure put before the public read:

Shall the Charter be amended to (1) restrict campaign contributions and fundraising by bidders on certain City contracts; require increased disclosure for bidders; and provide for bans on future contracts for violators; and (2) build upon the city's voter-approved campaign trust fund, which provides limited public matching funds for qualified city candidates who agree to spending limits, by lifting the maximum balance in the fund while allowing the LA City Council by a two-thirds vote to not make the annual appropriation and temporarily transfer funds to meet City budgetary obligations in certain emergency conditions?

Language like that is difficult to vote against. The Devil, as they say, is in the details. Specifically, as passed, the measure restricts contractors holding or seeking City contracts in excess of $100,000 from making campaign contributions to, or fundraising for, City officials (including the Mayor, the City Attorney, the Controller or a member of the City Council) or candidates to those offices. Second, the ordinance lifts the maximum balance on the City’s public finance vehicle - the Campaign Trust Fund.

This contribution ban extends not just to those authorized by the company to represent it in seeking or negotiating the contract, but also to the contractor’s Board Chairman, President, Chief Executive Officer, Chief Operating Officer, and anyone who holds more than a 20% ownership stake in the contractor.

As if these compliance challenges are not imposing enough for the well meaning corporation that might not have absolute control over the campaign contributions of its 21% minority owners, the new ordinance extends the ban to subcontractors and their officers if the subcontractor has a $100,000 interest in the City contract. While it is easy to perceive the logic that leads to such a prohibition, one can anticipate that the unintentional violations of this ordinance - and dramatic negative consequences - will be legion.

On the other hand, many argued against the measure on the ground that it does not go far enough in banning contributions and will simply drive unscrupulous contractors to measures that will evade disclosure altogether. A good example of such an argument can be found here.

Interestingly, the City taketh away just as it giveth. A third element of the ordinance provides that the City may, during “financial emergencies” (when do you anticipate LA won’t be laboring under a “financial emergency”?), borrow money from that trust fund without appropriating funds back in. Now that’s playing without paying!

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