A federal district court judge last month ruled that New Jersey’s ban on political spending by certain regulated industries was unconstitutional with respect to independent spending. At the same time, the decision confirmed the ban on direct contributions to candidates and political parties. The ruling, which was issued in response to a challenge from the New Jersey Bankers Association (NJBA), raises two important questions: one for similar bans (including so-called “pay-to-play” laws) in d ‘other jurisdictions, and one for corporate PACs in New Jersey in particular.
As News from electoral law previously reported, a number of states claim to ban political spending by people and entities involved in certain regulated industries, such as marijuana and gambling. Since 1911, New Jersey has prohibited companies involved in banking, insurance, railroads, telephone service, utilities, and other functions from “paying.[ing] or contribute[ing] money ”in state elections. The state attorney general’s office interpreted the provision very broadly to cover, for example, a car manufacturer with an auto finance division as a “bank”. The office also enforced the ban on parent companies and affiliates of regulated entities.
In response to the NJBA’s challenge to the law, U.S. District Court Judge Brian Martinotti ruled that the New Jersey ban is unconstitutional with respect to regulated industries with independent spending (i.e. say independent political spending that is not awarded or coordinated with candidates or political parties). The decision included relatively little analysis on this issue, suggesting the point was obvious. Martinotti cited in the United States Supreme Court decision in United citizens and the decision of a related lower court in SpeechNow.org that because “independent spending does not corrupt or give the appearance of corruption in law … the government cannot have any anti-corruption interest in limiting” independent spending.
This position regarding the application of New Jersey’s ban to independent political spending by regulated industries raises questions for similar bans in other jurisdictions. Specifically, if independent spending does not corrupt in law, then how can a court’s ban on political spending by regulated industries or government contractors (so-called “pay-to-play” law) be constitutional in terms of about independent expenses? Indeed, the United States Court of Appeals for the Second Circuit, for example, overturned Connecticut’s paid gaming law regarding independent spending in 2010, soon after. United citizens.
However, not all jurisdictions have followed this approach. For example, under the federal law’s ban on political contributions by federal contractors, the Federal Election Commission (FEC) continued to maintain that the ban applies to contributions to federal super PACs that only do independent expenses.
As for the part of Justice Martinotti’s ruling upholding New Jersey’s ban on regulated industries from making direct contributions, the ruling raises questions that could potentially favor the PACs of the covered companies. Under federal law, corporations are prohibited from making contributions to federal elections, but they are permitted to pay the costs of establishing, administering and soliciting their PACs. In contrast, the New Jersey attorney general’s office has long argued that state law prohibits covered companies from paying the costs of their PACs. Instead, if the employees of the covered companies wish to form a PAC, they must pay the costs of their PAC themselves.
In upholding New Jersey’s regulated industries ban on direct contributions, Justice Martinotti ruled that the covered companies still had an outlet for political participation in New Jersey through PACs. He appeared to draw an analogy between the federal law’s treatment of corporate PACs and the law of the state of New Jersey. However, as explained above, and as the NJBA pointed out in its brief, federal law and New Jersey law (as interpreted by the state attorney general’s office) are not comparable. Martinotti’s reasoning raises the question of whether the attorney general’s office should reassess how it applies the state’s ban to corporate PACs. Alternatively, Martinotti’s decision on the question of contributions may be based on error.
At the time of publication of this article, the decision of NJBA was not appealed.