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Stimulus Funds Vulnerable to Pay-to-Play Contracting

Stimulus Funds Vulnerable to Pay-to-Play Contracting

Ingrid Drake | Project on Government Oversight

September 25, 2009

A POGO investigation has found that many state and local governments with laws limiting contractors’ campaign contributions (meant to reduce the influence of private interests in the public contracting process) are facing obstacles to enforcing these “pay-to-play” laws on stimulus-funded contracts. As a result, stimulus-funded contracts are not being subjected to this additional level of corruption prevention, a missed good-government opportunity.

Nine states and at least 60 city governments have enacted pay-to-play laws. For example, Illinois prohibits current and prospective state contractors that do more than $50,000 a year in business with the state from making campaign contributions to state races. There is a wide range of differences between the laws, and some are being challenged in court. And with a larger economy than many states, New York City has its own pay-to-play laws that it will apply to stimulus-funded contracts. The Big Apple restricts campaign contribution not only from those who have or are bidding on city contracts, concessions, franchises, and grants totaling at least $100,000, but also land use ruling applicants and those with economic development agreements.

The federal government, on the other hand, lacks comprehensive pay-to-play laws for federal contractors, other than the Security and Exchange Commission’s groundbreaking Rule G-37, which limits the contributions of brokers, dealers, and municipal securities dealers. The American Recovery and Reinvestment Act (ARRA) did not outline any specific ethics requirements on contracting, instead relying on state and local policies governing conflicts of interest, financial disclosure, and selecting responsible contractors.

Some State Laws May Not Apply to Federal Funds

One obstacle is that some states’ pay-to-play laws can’t actually apply to stimulus contracts. In South Carolina, Colorado, West Virginia, and Kentucky, the laws only apply to no-bid contracts, which are prohibited under ARRA. Connecticut’s pay-to-play law exempts exclusively federally-funded contracts. Likewise, Hawaii’s statute only applies to funds appropriated by its own legislature, but captures all mixed-funded contracts. The good news is, even these limited pay-to-play laws can have anti-corruption value for exclusively federally-funded stimulus contracts, because the contractors who comply with the laws in order to bid on the state-level contracts are likely to also bid on stimulus contracts.

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