Starting this July, Maryland’s “pay-to-play” law, which requires public contractors to file campaign contribution disclosure reports with the State Board of Elections, will require for the first time that local government contractors disclose their beneficial owners while streamlining such reporting for state contractors. The law hands authority to the state election board to impose penalties on contractors who fail to disclose their beneficial owners and will likely increase public scrutiny of ties between political contributions and the award of public contracts.
Under current law, all organizations that have a single contract with the state, county, or other political subdivision of the state with a total value of at least $200,000 must register with the State Board of Elections and, for as long as they hold government contracts, file semi-annual reports disclosing certain political contributions made by the contractor, its principals, and, if it has one, its affiliated political action committee. Separately, under Maryland procurement law, contractors with state agencies must file reports with the Secretary of State identifying each person who has “beneficial ownership” of the contracting entity, defined as:
- Any ownership interest of five percent or more in a business;
- Any ownership interest of five percent or more in one or more entities in a chain of parent and subsidiary entities, any one of which participates in at least five percent of the capital or profits of a business; or
- Possession of an interest that exists under a contract, a relationship, an understanding, or any other arrangement and entitles a person to benefits substantially equivalent to an ownership interest of five percent or more of a business.
Beginning in July, rather than submit reports about “beneficial ownership” to the Secretary of State, which, according to an analysis accompanying the new legislation were infrequently reviewed, state contractors must include this information when registering with the State Board of Elections under the pay-to-play law. In addition, contractors with Maryland local government bodies, such as county agencies and local school boards, will have to list beneficials owners on their election board registrations. Contractors already in Maryland’s pay-to-play system will need to update their registrations in accordance with regulations yet to be adopted by the State Board of Elections. The new law will likely result in more public scrutiny of ties between political contributions and the award of public contracts. The law will also enable the state election board to impose civil penalties on public contractors who fail to list their beneficial owners.
The law makes other changes as well. Pay-to-play law registrations will now have to list a Maryland resident agent, and for contracts subject to approval by the Board of Public Works, contractors must certify that they have filed the required initial political contribution disclosure statement that covers contributions made in the 24 months preceding the contract award.
