The Maryland legislature overhauled the state's campaign finance law almost two years ago, but many of the key provisions did not take effect until January 1, 2015. These changes significantly affect state government contractors by introducing a new electronic registration system overseen by the State Board of Elections, and requiring electronic reporting of contributions made by the contractor, as well as by its PAC and subsidiaries, and its officers, directors, and partners.
The new law also increases the limits on contributions by individuals and business entities, and compels politically active nonprofits to register and disclose their donors. Stiff penalties may be imposed on nonprofits that knowingly and willfully fail to file registration notices or reports. Also, the State Board of Elections now has the power to issue civil citations for strict liability offenses, such as failing to keep accurate books and records.
Changes for Maryland Government Contractors
Maryland has had a pay-to-play law for many years, which required government contractors to register and file reports concerning certain political contributions. The new law, however, changes how contractors must approach compliance. Among other things, the law eliminates the filing exemption for contractors that have no contributions to report in a given period and exposes the reports to more scrutiny – by regulators, competitors, and watchdog groups – by moving the entire registration and reporting regime online.
The law applies to companies that enter into or maintain a contract with a state or local government entity with a total value of $200,000 or more (previously, registration was required if a company had one or more contracts with a cumulative value of $100,000 or more). Such companies must register within one business day of any contract awarded on or after January 1, 2015, and are subject to record retention and certification requirements. Contract renewals and extensions may be considered new contracts and trigger additional registration.
Semi-annual reports must be filed through the life of the contract. Such reports must list contributions of $500 or more made by covered donors to an officeholder (or candidate for such office) of the State, county, or other political subdivision with which the company is doing public business. Thus, if a company has a contract with the City of Baltimore, it does not have to disclose contributions to state candidates such as the governor or member of the state legislature. Covered donors that must be disclosed include the contractor, its subsidiaries and PACs, and its officers, directors and partners. In addition, any contributions from employees, agents, and other persons who make a contribution at the direction of the company must be disclosed. The reports must also provide information about the company's covered contracts; however, a company may seek a waiver regarding disclosure of the nature and value of its contracts if it can show that requiring the information would be unduly burdensome and that omitting it would not harm the public interest.
The reports are due every year on February 5 and August 5. If a company is still performing under a contract of $200,000 or more that was awarded prior to this year, the company will need to register this month – the State Board of Election recommends doing so by January 15 – in order to be able to file the February 5, 2015 report.
Changes Regarding Contributions
The new law also makes changes to contribution limits and the rule for determining when contributions by affiliated business entities are subject to a single limit.
An individual or an entity formed for a genuine business or organizational purpose may contribute up to $6,000 per four-year cycle to any one candidate for state or local office, or any one state PAC. The current election cycle began on January 1, 2015, and runs through December 31, 2018. The prior limit was $4,000. There are no longer aggregate contribution limits as a result of a Supreme Court decision in 2014.
Contributions made by two or more affiliated entities will be considered made by the same entity (and thus subject to one $6,000 limit) when one entity is a wholly owned subsidiary of the other or the entities are owned or controlled by at least 80% of the same individuals or business entities. Ownership or control may be determined by equity interest, voting shares or rights, membership, or partnership interests. This change in the law was designed to close the so-called "LLC loophole," through which related Maryland LLCs (often controlled by a single developer) could each make the maximum contribution to the same candidate.
Changes for Politically Active Nonprofits
Section 501(c)(4), 501(c)(6), and 527 organizations must register with the State Board of Elections within 48 hours of making cumulative contributions of $6,000 or more to a State PAC, a person or entity making independent expenditures, a person or entity making electioneering communications, or an out-of-state political committee for the purpose of influencing a Maryland election. These organizations, if required to register, must report the names, addresses, and occupations of their five largest donors in the year prior to the date of registration or indicate how the public may access, via an active Internet website, the organization's reports showing its expenditures and donations. These reports are submitted under penalty of perjury.
For the first time, the State Board of Elections is empowered to issue civil penalty citations, on a strict liability basis, for a variety of violations, including failure to maintain a proper bank account and failure to maintain accurate books and records. These penalties are in addition to other sanctions that may apply. If a campaign finance entity (such as a candidate committee or State PAC) has insufficient funds with which to pay the full amount of a civil penalty in a timely manner, the entity's officers are jointly and severally liable. If a violation is committed by a person not acting on behalf of, or at the request or suggestion of, a candidate or campaign finance entity, the civil penalty must be paid by the person who committed the violation.
A nonprofit subject to the new registration and reporting requirements that knowingly or willfully fails to register or file a required report is subject to a fine up to $25,000, imprisonment not exceeding one year, or both.
If you have any questions about this alert, please contact one of the authors or a member of Venable's Political Law Practice Group.