Substitute House Bill 694 made sweeping changes to Ohio’s pay-to-play laws. Every LLC, partnership, sole proprietor, and most corporations that have (or hope to have) a contract with the state or a political subdivision should be aware of these changes. But keeping up with these changes has not been easy. Since its passage on December 20, 2006, H.B. 694 has been the subject of two lawsuits, numerous Ohio Elections Commission Advisory Opinion requests and legislative amendments enacted in House Bill 119, the state’s 2008-2009 biennial budget. Further changes are expected, including administrative rule-making by the Secretary of State, opinions from the Ohio Elections Commission, and additional judicial review. However, contractors should not wait until the law is settled before learning how it might affect their business.
Political contributions made in violation of the new law could result in your company being subject to fines, penalties and possible forfeiture of existing government contracts. Moreover, these contributions could prohibit you from doing work for the state or local governments in the future. Limitations on political contributions by government contractors are very strict and could lead to inadvertent violations, even for relatively small political donations. Thus, contractors should keep up-to-date on this law even though some aspects of the law may change.
Ohio’s Current Pay-to-Play Law
Ohio’s pay-to-play laws, contained primarily in R.C. 3517.13, are triggered when 1) a partner or owner of an LLC, LLP or partnership, or an individual who owns 20% or more of the shares of a corporation contributes over $1,000; or 2) if those business owners, their spouses, children, and the company’s affiliated political action committee (“PAC”) cumulatively contribute over $2,000 over the course of two years. For many companies, analyzing the corporate structure will be the first and most important step in determining how Ohio’s pay-to-play laws apply.
For example, ABC LLC is a partnership owned by 10 married partners, which operates the ABC PAC. Under the current law, contributions by all 10 partners and their spouses and the PAC are aggregated so that the total contributions made by all 20 individuals plus ABC’s PAC over the past two-year period are all considered when determining whether or not ABC is eligible to receive a contract. Thus, if each partner of ABC LLC, each of their spouses and the PAC gave $100 for the governor’s campaign (total of $2,100 in contributions), the partnership could be ineligible for contracts from the state. Further, if just one partner or one spouse contributed $1,001 over a two-year period, ABC could be ineligible for state contracts for the next two years.
Now, presume that ABC is a corporation and that no owner holds more than 20% of the company. Under the law, contributions from ABC’s corporate owners and spouses do not trigger the contract ban because no individual owns more than 20% of ABC. ABC’s corporate PAC is not affiliated either, thus ABC remains eligible for contracts under R.C. 3517.13 regardless of the amount of political contributions its owners have made.
If the law applies to your company, it applies very broadly. The current law applies to the state and political subdivisions including any board, commission, committee, task force or other authority appointed by the candidate who received the contribution. It applies to all bid or unbid contracts of more than $500, if to the state, and more than $10,000 if to a political subdivision.
The current law also restricts political contributions after the contract is awarded. Owners of a company with an existing contract are prohibited from making excessive contributions to the officeholder who awarded the contract during the term of the contract and for one year after the contract is ended. Finally, the law requires that all contracts include a certification that the company is in compliance with R.C. 3517.13.
Penalties for violating this provision can be severe. The law provides that any holder of a contract who makes an excessive contribution can be fined up to three times the amount of the excessive contribution, and is subject to having the contract rescinded by the Ohio Elections Commission. Falsely certifying to compliance with the law is a fifth degree felony.
Frequently Asked Questions
Who is covered under the current law?
The following individuals should be concerned about political contributions to state and local candidates and officeholders if they hold or intend to seek a contract from any agencies under the control of that political candidate or officeholder.
- 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.
Can contributions from my 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 also meets the definition as an owner, the 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.
What is the look-back period for political contributions?
As of this writing, the look-back period for political contributions is two calendar years. In other words, the current look-back period is from January 1, 2005 to December 31, 2006. However, an amendment to this provision in House Bill 119 changes the lookback period to a rolling 24 calendar months. That amendment becomes effective September 29, 2007. Therefore, after September 29, 2007, the look-back period is 24 months prior to the award of the contract. However, the full 24-month look-back period is only applied to contracts issued by the state, a mayor, or a charter county.
What about contributions made before House Bill 694 went into effect?
This question was the subject of recent litigation in the Franklin County Court of Common Pleas, as well as, a legislative amendment contained in House Bill 119. In short, the answer to the question depends on whether or not the contribution was regulated under the versions of R.C. 3517.13 that existed before House Bill 694 went into effect. Contributions which were regulated prior to enactment of House Bill 694 include contributions made by individual owners, mayors, and charter county officials. These contributions are subject to the full two-year look-back period. Contributions made to other local candidates should only be considered after April 4, 2007, the effective date of H.B. 694. To complicate matters further, individual contributions (the $1,000 limit) must be reviewed for the entire two-year period, but cumulative contributions (the $2,000 limit), are only considered since April 4, 2007.
What is a contract?
The definition of a contract varies depending on whether it is with the state or with a local political subdivision. For the state, the definition is a contract for goods and services over $500. For political subdivisions, the definition is a contract for goods or services of over $10,000. House Bill 119 authorized the Ohio Secretary of State to implement administrative rules to provide further definition and clarifications to what constitutes a contract.
Is my corporate PAC “affiliated”?
For purposes of R.C. 3517.13, a PAC is affiliated only if more than 50% of the contributions made to the PAC come from corporate owners who are otherwise covered by the pay-to-play laws. Thus, while your PAC may be affiliated with your corporation for purposes of allowing your corporation to provide administrative support to the PAC, or limiting who the PAC can solicit for contributions, the PAC may not necessarily be “affiliated” for purposes of Ohio’s pay-to-play laws.
My spouse contributed $1,500 to the Governor’s campaign in 2006. Does this mean that my LLC is now ineligible for an RFP for computer consulting services from a state department?
Yes, contributions of over $1,000 by a partner of a partnership or a partner’s spouse make the partnership ineligible.
My LLC is thinking about bringing in a new partner who donated $10,000 to the Governor’s campaign in January of 2007. We regularly do consulting work for a state department. Should we postpone the deal with our new partner?
No, contributions made by individuals who were not spouses, business partners, or owners of the company at the time the contribution was made are not considered for purposes of determining whether the contract ban has been triggered. However, if this individual makes a contribution of over $1,000 after she becomes a partner in your company, the award of state contracts might be prohibited in the future. And if your company already holds a contract and the new partner makes a contribution over $1,000, your new partner could face penalties and your company could lose that contract.
What boards and commissions are included in the contract ban?
The law does not specify precisely which boards, commissions, or other entities are included in the ban. Rather, the law contains a general prohibition against any agency, board, commission, or other entity that is appointed by the elected official from awarding a contract to political contributors. Thus, all agencies, boards, and commissions, including state universities, advisory boards, state colleges, multi-jurisdictional bodies, and similar entities, are conceivably included in the contract ban.
I’ve been asked to sign a certification of compliance with R.C. 3517.13. Should I do this?
Be very careful when signing these certificates of compliance. Falsely completing such a certificate is a fifth degree felony. Before signing, make sure you know how the law applies to your company and your company’s relevant contribution history.
All business owners and corporate officers who fall under the provisions of R.C. 3517.13 should immediately take steps to notify the appropriate individuals of these new provisions.
First, any business or corporation that may seek public contracts in the future, from the state or a political subdivision, should be aware that contributions by its owners, members, shareholders, their spouses, minor children, and the corporate PAC could prohibit the company from obtaining a contract in the future. Steps should be taken immediately to notify the individuals who are regulated by this law to review and discuss any anticipated political contributions with the corporation to assure that the prohibitions and penalties are not inadvertently triggered.
Second, any corporation or business that currently holds a state contract should immediately notify the appropriate individuals that political contributions could result in a fine to that individual of three times the amount of the excess contribution made and could result in forfeiture of the contract by the company.
Corporate owners should be very cautious about making any political contributions in the future. Contributions to political parties or unaffiliated political action committees, instead of individual candidates, are not impacted by the current law.