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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

Federal Highway Administration’s Roadblock of State Laws

Another obstacle is that the Obama Administration has continued a Bush Administration practice at the Department of Transportation’s Federal Highway Administration (FHWA) to withhold federal highway funds from states that enforce their pay-to-play laws. The FHWA claims the pay-to-play laws reduce the pool of potential bidders for contracts and thus restricts competition. The FHWA has enforced its prohibition in Illinois (section 50-37a) and New Jersey. This practice not only interferes with state and local campaign finance and ethics reforms, but also needlessly strips a layer of protection against corruption and contract abuse from up to $26 billion of stimulus-funded highway contracts.

Despite FHWA’s concerns, Craig Holman at Public Citizen recently showed that New Jersey’s pay-to-play law has had no discernible impact on the number of bidders for construction projects. In fact, the analysis shows that New Jersey contracts subject to the pay-to-play law enjoy more competition than FHWA-funded contracts not subject to the law, both in terms of total numbers of bidders and average numbers of bidders per contract.

There are efforts underway to overturn FHWA’s practice, including Public Citizen’s request to the Administration to change the policy, and legislation proposed by Representative Mike Quigley (D-IL) to close a loophole that allows FHWA to withhold the federal highway dollars. While this issue has not come up at House Committee on Transportation and Infrastructure oversight hearings, Committee staff say it may come up in future hearings on waste, fraud, and abuse.

States May Not Be in Position to Bolster Enforcement for Stimulus

Yet another obstacle to preventing corruption in the procurement process is that the state agencies that enforce pay-to-play rules are hampered by budget cuts and statutory limitations on their work. For example, the Ohio Elections Committee, with only a handful of staff, can only react to allegations brought to it rather than be proactive and seek out violations. Lack of effective monitoring of pay-to-play practices in Ohio resulted in one of the largest corruption scandals in the state’s history. Dubbed “coin-gate,” a major campaign contributor received a contract to invest public funds into his personal rare coin collection. The state lost millions of dollars. Following the lead of Connecticut, New Jersey, and the SEC, Ohio has since implemented new requirements that State contractors must file disclosure reports about their campaign finance activity to the contracting agencies before qualifying for State contract work.

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