Substitute H.B. 694 ("H.B. 694"), Ohio's pay-to-play law, has had a short but volatile history. H.B. 694 enacted sweeping changes to Ohio's campaign finance laws and added significant new restrictions on political contributors who seek state or local government contracts. Since its passage on December 20, 2006, the law has been the subject of two lawsuits, was recently amended by the Ohio General Assembly, is now the subject of administrative rulemaking, and has generated a series of Advisory Opinion requests to the Ohio Elections Commission.
A recent court decision and legislative amendments help clarify application of this new law to political subdivisions. Most significantly, it is now clear that the new provisions of R.C. 3517.13 do not apply to political contributions made before April 4, 2007, the effective date of H.B. 694. This clarification makes application of the new law much easier for city council members, county commissioners, township trustees, school boards, and other legislative bodies that were not included in the pay-to-play laws prior to H.B. 694.
However, the application of the new law is not so straightforward for mayors. Long before H.B. 694 was enacted, Ohio's pay-to-play laws governed city contracts issued by mayors and are still in effect today. The new provisions of the law enacted by H.B. 694 expand on the previous regulations, and went into effect on April 4, 2007. Finally, the state budget bill (H.B. 119) contains even more pay-to-play clarifications that go into effect on September 29, 2007.
With different provisions and different effective dates to consider, application of the pay-to-play law to municipal contracts is challenging, at best. This article explores some of those challenges and provides practical guidance to cities seeking to meet their obligations under the current pay-to-play laws. As of this writing, Ohio's pay-to-play laws and campaign finance laws are still subject to additional clarification and amendments by the Courts, the Elections Commission, the Secretary of State, and potentially, the General Assembly. To be certain that you have the most recent information, please consult with your city attorney.
Current Status of the Law
Ohio Revised Code Section 3517.13 prohibits state and local officials from awarding a contract to certain political contributors. Before Sub.H.B. 694 was enacted, R.C. 3517.13(I) and (J) prohibited a mayor from awarding an unbid contract to a vendor if certain owners of that vendor made contributions totaling over $1,000 to the mayor. The prohibition looked back over a two-calendar year contribution history and only applied when the mayor initially awarded the contract.
Since April 4, 2007, when H.B. 694 became effective, additional restrictions now apply. A few of those changes are:
- Many more political subdivisions are now included in the new law. Since April 4, 2007, local legislative authorities such as city councils, boards of county commissioners, boards of township trustees, and other political subdivisions are included in the purview of the law.
- The new law now includes a $2,000 contribution limit that is aggregated across the organization. For example, under the old law, three members of ABC LLC and each of their spouses could have each contributed $1,000 to the mayor for a total between them of $6,000. Prior to H.B. 694, ABC LLC would still be eligible for award of contracts from agencies under the mayor's control. Under the new law, contributions by all three partners and their spouses made since April 4, 2007 are aggregated so that the total of all six of their contributions are considered when determining whether or not ABC LLC is eligible to receive a contract. Contributions through an affiliated corporate political action committee are no longer exempted and are now counted against the $2,000 threshold if that PAC is "affiliated."
- Both bid and unbid contracts are now included.
- The new law also restricts political contributions after the contract is awarded. Under the old law, there was no ban on making political contributions during the term of a contract. Now, vendors could lose their existing contract if they make contributions exceeding allowable limits during the term of the contract.
- The law requires that all contracts issued since April 4, 2007 include a certification that the contractor is in compliance with the new law.
- Collective bargaining agreements are now to considered "contracts" for the purchase of services under the law, and labor organizations are deemed to be unincorporated businesses for purposes of the contract ban. A stipulated order entered in a pending Franklin County Common Pleas Court case has stayed application of these provisions to collective bargaining agreements for the time being.
House Bill 119 Amendments
On September 29, 2007, when non-appropriation portions of H.B. 119 become effective, additional changes to Ohio's pay-to-play law will impact municipalities as they implement this new law in the future.
Significantly, H.B. 119 makes the following changes:
- The look-back period will be changed from two calendar years to a rolling 24 month period;
- The dollar amounts used in the definition of a contract for goods and services for political subdivisions is increased from $500 to $10,000;
- Contractors may avoid contract recision if excessive contributions are refunded within a certain period of time; The Secretary of State is authorized to adopt administrative rules defining what constitutes a contract for goods and services;
- Specifies that public authorities may require a certification of compliance on an annual basis.
Ohio's pay-to-play law can be difficult to administer, especially for cities that must consider several different versions of the law. Pending rules, Advisory Opinions and court cases will likely provide more clarity to the law in the future. Meanwhile, some answers to frequently asked questions, based upon the current version of the law follow.
Frequently Asked Questions
What is a contract?
A contract is defined in the law as any contract of $500 or more for goods and services. Effective September 29, 2007 the definition of a contract for political subdivisions will change to be a contract for goods and services with a cost aggregating over $10,000 in a calendar year. In addition, H.B. 119 gave the Ohio Secretary of State the authority to draft rules to better define what constitutes a contract.
Are purchase orders, emergencies purchases, and credit card purchases covered?
Current law simply covers all contracts for goods and services. Thus, any agreement for goods and services is technically covered under the law. However, H.B. 119 granted the Ohio Secretary of State the authority to provide definitions of a contract, which may result in some clarification in this regard.
What type of certification is needed?
The law does not specify the format of certification. Various municipalities are using different forms, which vary in length from a single sentence in a contract to a longer and more specific affidavit outlining most facets of the law. Cities should work with their city attorneys to craft a certification that is clear and accurate, but not so detailed that the issuance of anticipated rules, Advisory Opinions, or legislation will require that certifications in existing contracts be amended.
Are collective bargaining agreements covered?
H.B. 694 included a provision that collective bargaining agreements and labor unions were covered under the provisions of Ohio's pay-to-play laws. These sections were not changed by H.B. 119. However, a Franklin County Court of Common Pleas issued an agreed entry staying the provisions of H.B. 694 as against labor unions and collective bargaining agreements. Until that case is decided, H.B. 694 does not affect the collective bargaining process.
What is the two year look-back period?
The look-back period is different depending on the contracting authority and will change in September once H.B. 119 becomes effective. In short, for a mayor who was included in R.C. 3517.13 prior to the passage of H.B. 694, the look-back period is as it was in previous law. A mayor must currently look back two calendar years to determine whether or not any covered company owner contributed $1,000 or more to his or her campaign. Effective September 29, 2007, the look-back changes to a 24 month rolling period.
For city council members who were not covered under the law prior to H.B. 694, the amendments in H.B. 694 do not apply to any contributions made prior to April 4, 2007. Therefore, until September 29, 2007 city council members effectively have no look-back period. Although the law applies to city council members and requires a two year look-back period, temporary law in H.B. 119 also makes clear that contributions made prior to April 4, 2007 are not considered for purposes of city council contracts. City council contracts must still include a certification of compliance with R.C. 3517.13. However, until September 29, 2007 none of the contributions that were made in calendar years 2005 and 2006 can be used to preclude granting a contract.
After September 29, 2007, the 24 month rolling look-back period will be in effect. Thus after September 29, 2007, city council members will need to review contribution histories for the prior 24 months, but going back no later than April 4, 2007.
Who is covered under the new law?
Contributions from the following individuals should be considered before awarding a contract:
- An individual or sole proprietor
- Any partner or owner of the partnership or unincorporated business;
- Any shareholder of an association;
- The administrator or executor of an estate;
- A trustee of a trust;
- The owner of more than 20% of a corporation or business trust;
- The spouse of any one of the above;
- The minor child of any of the above; or
- A political action committee affiliated with the business.
What about corporations that are publicly held?
Provisions in the old law remain unchanged as they apply to corporations. The contract ban only applies to corporate contracts where the contributors owned more than 20% of the shares of the corporation. Contributions by shareholders who hold less than 20% of the company or contributions by corporate employees do not trigger the contract ban.
Can contributions from employees or corporate officers trigger the contract ban?
No. The ban only applies to partners, owners, and members of LLCs and other partnerships and to any shareholders or owners of over 20% of a corporation and to their spouses and minor children. Unless the employee or officer is also a company officer meeting this definition, his contributions will not trigger the contract ban. Please remember that there are other laws that prohibit anyone from making a contribution in the name of another.
Ohio's pay-to-play law creates significant new limitations and certification requirements for cities. Because this law has changed twice in the last six months and been subject to judicial interpretation, application of the law is not clear cut. Additional clarifications are expected and should help cities as they implement pay-to-play laws in the future. Please continue to work with your city attorneys to keep apprised of relevant developments in this changing area of the law.