In recent weeks, Congresswoman Elise Stefanik, R-N.Y., announced her campaign for governor of New York and Congressman Eric Swalwell, D-Calif., announced for governor of California, joining several federal officials already running for state office in 2026, including Rep. Byron Donalds, R-Fla., Rep. Nancy Mace, R-S.C., and Sen. Tommy Tuberville, R-Ala. Contributions to support such campaigns can implicate both state and federal pay-to-play rules. This can result in a situation where even a small contribution to a state campaign inadvertently triggers severe penalties for a company, including a multiyear ban on contracting with, or receiving compensation for contracting with, the government.
For example, such contributions will implicate federal pay-to-play rules for some companies, including SEC Rule 206(4)-5 (for investment advisers), MSRB Rule G-37 (for municipal advisors and broker-dealers), CFTC Rule 23.451 (for swap dealers), SEC Rule 15Fh-6 (for security-based swap dealers) and FINRA Rule 2030 (for FINRA members engaged in soliciting governments for investment advisory services). Even contributions to the federal campaign committee of a state candidate may raise questions under these rules.
At the same time, contributions to state candidates may also trigger state-level rules, which often have varying triggers, thresholds, and penalties. For instance, the California State Teachers’ Retirement System (CalSTRS) generally bars companies engaged in or seeking an investment relationship with CalSTRS (and certain of their employees and financially affected persons) from making contributions in excess of $1,000 individually or $5,000 in the aggregate to certain candidates, including those for governor. Similarly, South Carolina prohibits companies from making any contribution to a candidate for public office involved in the award of a noncompetitive contract. Violations of state-level pay-to-play rules could trigger debarment, fines, or the voiding of contracts for the company.
As the midterm election cycle begins, and more candidates begin their fundraising efforts, companies should keep in mind that even contributions to federal officials can implicate pay-to-play rules if the official is running for state or local office and analyze requests accordingly.
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