As summer winds down, we are entering the home stretch for the 2021 gubernatorial election in New Jersey. Because of the importance of this election, businesses and individuals who normally sit out politics may find themselves getting involved in political activity. This process can be especially tricky for New Jersey’s regulated industries—banks, utilities, insurance companies, and more—because the rules of the road for their political activity have recently changed.
Our column today provides an overview of what regulated-industry companies need to know about getting involved in the political process.
- Regulated-industry companies and their majority shareholders may not make any direct corporate political contributions to New Jersey political candidates or committees. This prohibition is based on a 1911 statute that sought to insulate the potential political influence of companies that are highly regulated by the state. Therefore, no corporate treasury funds from a bank, utility, or insurance company may be used for direct political contributions to New Jersey state or local recipients.
- A big change in the law arrived in June 2021, when the United States District Court in New Jersey ruled that this 1911 statute does not ban regulated-industry companies from making independent expenditures. An independent expenditure is a political communication that urges the public to support or oppose a candidate; but, crucially, this communication may not be coordinated with the candidate or the agents of the candidate. Based on this recent court decision, banks, utilities, and insurance companies are now free to make their own independent expenditures urging the public to support the candidate of their choice, and they may also contribute money to a Super PAC, which is an organization that raises money but itself makes only independent expenditures. Provided that there is no coordinated activity with the candidate, regulated-industry companies now have new avenues to participate in the political process.
- The prohibition on direct political contributions from a regulated-industry company extends to individual contributions only when the individual is a majority shareholder of the company. However, owners with less-than-majority stakes, officers, directors, and employees have always been free to make, with personal funds, political contributions to New Jersey recipients. These individuals must keep in mind, though, that their personal political contributions may be covered by New Jersey’s pay-to-play laws. For example, an officer of an insurance company is permitted to contribute to a gubernatorial candidate under the law, but, if that contribution exceeds $300 per election, the officer’s personal contribution will jeopardize the company’s eligibility for New Jersey Executive Branch contracts. The same is true for contributions made to New Jersey political party committees (State, county, or municipal) and legislative leadership committees. Contributions to local candidates and committees are subject to prohibitions related to local government contracts in that jurisdiction. Because the stakes are high when it comes to government contracts, all businesses need to ensure that they and their people understand the complexities of New Jersey’s multiple pay-to-play laws—it is always better to vet and review a contribution before it goes out, because the law in many situations does not permit a refund to cure a violation.
- A long line of advisory opinions from the New Jersey Attorney General have clarified that the employees of a regulated-industry company may form and operate a voluntary employee PAC. This means that the employees of a regulated-industry company can decide to raise money from the employee community and others, and then make direct contributions to New Jersey candidates and committees. This PAC is required to represent the interests of the employee community as a whole. In addition, the company may not contribute any funds or other corporate resources for use of the PAC. Instead, the organization must be completely funded by individuals and, to the extent that any company resources are used by the PAC, those costs must be pre-paid or immediately reimbursed to the company.
- Regulated-industry companies are free to engage in lobbying activities, but they should remember that their lobbying will likely be subject to registration and reporting to the New Jersey Election Law Enforcement Commission.
Compliance Tip: While New Jersey law certainly makes things more complex for a bank, utility, or insurance company, there are options for them to participate in the political process. These companies need to make their voices heard in Trenton and throughout the State, but they also need to institute procedures and policies to ensure compliance with the law.