Article

The Next Wave of Reform: Redevelopment Pay to Play
by Paul P. Josephson and Lauren E. Bucksner

In 2005, the New Jersey Legislature authorized municipalities and counties to enact their own so-called “pay to play” laws prohibiting the award of “public contracts” to contributors to certain political campaigns, in addition to those proscribed by state law. With little uniformity but much confusion and misunderstanding, over 100 towns and counties have jumped aboard the pay to play bandwagon. The result has been a bewildering, and perhaps unconstitutional, panoply of pay to play laws throughout New Jersey. There is little evidence that pay to play reforms to date have had any meaningful or intended impact, except to concentrate political power and exacerbate the power imbalances reformers ostensibly sought to eliminate.

Proliferation of Local “Pay to Play” Ordinances

Spurred on by good intentions to take the next “logical” step, some municipalities have begun to adopt “redeveloper pay to play” ordinances. These ordinances purport to impose limits or outright bans on political contributions by redevelopers and redevelopment professionals. Our most recent survey identified at least eighteen towns that already specifically regulate contributions by would-be redevelopers and their professionals— even though there is no legislative authorization for these ordinances. Redevelopment designations and redevelopment agreements have never before been viewed as public contracts, nor have they been subject to public bidding laws.

As the new Legislature considers reform of eminent domain laws and the redevelopment process, it is inevitable that calls will be made to extend State pay to play law to redevelopment activities, and perhaps to again allow local variants. More communities will propose a new wave of redevelopment pay to play restrictions, each having its own twists, turns and pitfalls for the unsuspecting. Let’s review some of those traps.

Local redevelopment pay to play ordinances generally impose strict contribution limits or bans to control the amounts of campaign contributions that elected officials can receive from developers. Pay to play measures also attempt to confront and deter the practice commonly known as “wheeling”, where campaign contributions are funneled through so-called “passthrough accounts,” i.e., county political committees and political action committee (PAC) accounts, even though these may well be bona fide organizations performing crucial roles in our political process. The ordinances restrict contributions from actual and prospective redevelopers, and often prohibit contributions through third parties such as family members or lobbyists. Sub-developers of the redeveloper may also be subject to the restrictions, as may development professionals that have performed services or will perform services for the developer in relation to the development project.

Local redevelopment pay to play ordinances don’t simply restrict contributions by the redeveloper during the term of the redevelopment project. They also limit the amount a redeveloper may contribute for some time prior to the date of the redevelopment contract. The amount that a redeveloper may contribute varies based on local political tastes. Some municipalities may prohibit contributions above $300, while others take a more constitutionally suspect route and completely ban any contribution commencing a specific period of months prior to the agreement. Almost all of the redevelopment ordinances place a total ban on any contribution in any amount by developers during the term of the redevelopment agreement.

Consequences of Local “Pay to Play” Ordinances

These strict limitations on political contributions can have serious repercussions if they are violated. Most ordinances consider a violation to be a breach of the redeveloper agreement, resulting in loss of the agreement (and all the investment made in reliance thereon) and a prospective ban on contracting with the municipality. The harsh economic penalties associated with local pay to play ordinances, coupled with lack of uniformity among municipalities, needs to be a growing cause for concern among developers who seek to participate in the political process while also protecting their economic interests.

We predict that in this year, a serious (and likely successful) constitutional challenge will be brought by a redeveloper or professional when one of these municipalities seeks to enforce an existing restriction. A redeveloper will simply have too much money at stake to walk away from a project. It is likely that this issue will arise under laws of dubious statutory and constitutional underpinnings, making the likelihood of a successful challenge that much stronger.

As the Legislature considers additional ways to restructure the redevelopment process and protect it against future abuses, reformers will advocate for broad-based state redevelopment restrictions. We continue to be concerned that these well-intentioned efforts to level the playing field only skew it further in the opposite direction, and drive money underground. In this scenario, opponents of redevelopment (who may include not only traditional environmental groups and local NIMBY organizations, but also owners of older existing commercial properties that would be threatened by new competition) will contribute to their local elected officials, and solicit their allies to do so. Those favoring redevelopment will be barred from contributing, and from soliciting support from others as well. Redevelopers will instead contribute to charities favored by local elected officials, with little or no public disclosure or insight as to the existence of those activities.

What Does the Future Hold for “Pay to Play”?

The far better view, in our experience, is to treat redevelopers (and government contractors for that matter) just like all other citizens, and allow them to fully participate in the political process. The ballot box remains the best and most efficient regulator of the conduct of elected officials. Allow redevelopers and their professionals to make contributions and to solicit funds, subject to the same limits and rules as every other concerned voter or business. Require them to fully disclose their contributions during the redevelopment process. Allow voters to decide whether an elected official deserves to be reelected after balancing the merits of the redevelopment plan, the official’s position on the plan, and the contributions he or she received.

Finally, any redevelopment or eminent domain reform that addresses pay to play must take heed of the mess and constitutional infirmity local pay to play variations have wrought in the field of public contracting. Whatever the Legislature does, it ought to set down one rule, statewide, and force all towns to abide by that rule.

With the inconsistencies amongst localities, understanding the crucial elements of the local pay to play regime can be a baffling and frustrating process. It is important to stay abreast of these various enactments and their diverse reporting requirements and contribution limitations. You need not go at it alone. Consult counsel well-versed in all pay to play rules to help you. They can advise you on particular regulations and assist you in navigating through pay to play to avoid disaster. And should you find your project jeopardized by an inadvertent violation, counsel should be engaged to challenge these laws.

In any event, it is plain that the days of making a large contribution to gain an elected official’s support are over. Redevelopers must adopt a multi-pronged strategy that includes public outreach and grassroots organizing to develop bona fide support for their efforts. Today, it is crucial to retain a media and public affairs consultant to help you develop and deliver a message that will be key to success in the turbulent times ahead.

Paul P. Josephson is a partner of Hill Wallack LLP. He is partner-in-charge of the firm’s Regulatory & Government Affairs and Gaming Law Practice Groups. Mr. Josephson concentrates his practice in regulatory law, with a focus on redevelopment, gaming, government procurement, complex civil litigation, election and campaign finance, government ethics and corporate compliance issues.

Lauren E. Bucksner is an associate of Hill Wallack LLP where she is a member of the General Litigation and Regulatory & Government Affairs Practice Groups. She concentrates her practice in commercial litigation, family law, municipal law and regulatory law with a focus on corporate compliance issues.