New “pay to play” statute is a groundbreaking change in local ethics law

A new statute has fundamentally altered the relationship between local elected officials and regulated parties. SB 1439, California’s new “pay to play” statute, took effect on Jan. 1. It enacts a sweeping change in local ethics law.

SB 1439 breathes substantial new life into a 30-year old law known as the Levine Act. Local elected officials, such as city council members and county supervisors, may no longer participate in certain matters in which parties have given them more than $250 in campaign contributions. (Gov. Code, § 84308(c).) And when these parties apply for common approvals, officials may not accept more than $250 in contributions from them while the applications are pending and for an additional 12 months. (Id., § 84308(b).)

It is a fact of life that elected officials accept campaign contributions from regulated parties. Developers, franchisees, and those who regularly contract with local agencies are frequent campaign contributors. These parties now face the prospect of disqualifying their favored candidates by making relatively small campaign contributions.

The key features of SB 1439, as clarified by recent Fair Political Practices Commission (FPPC) regulations, are:

Non-retroactivity. The Governor signed SB 1439 a little more than a month before the November 2022 General Election. By that point, many successful candidates had surely taken in more than $250 from covered campaign contributors. Fortunately for these candidates and contributors, the FPPC has interpreted that SB 1439 applies only to contributions and proceedings on and after Jan. 1, 2023. (2 Cal. Code. Regs., § 18438(a).)

Covered matters. Matters for which disqualifications are required include applications for land use permits and entitlements, professional licenses, municipal franchises, and non-competitively bid contracts. (Gov. Code, § 84308(a)(5); 2 Cal. Code Regs., § 18348.2(a)(3)(A)-(D).) Interestingly – and some might say not surprisingly – labor contracts are not covered.

Agents. Importantly, when applying the $250 threshold, contributions from parties and their agents are included. (Gov. Code, § 84308(b)-(c).) Persons are agents when they represent parties before agencies for compensation. (2 Cal. Code Regs., § 18438.3(a).) Attorneys should note that when they represent parties and are employees of law firms, they and their firms are considered agents. (Id., § 18438.3(b).)

Participants. Disqualification is required not only when applicants have made more than $250 in contributions to local officials but also when “participants” in these matters have done the same. Participants include those who “actively support[] or oppose[]” and have financial interests of their own in the matters at issue. (Gov. Code, § 84308(a)(2).) Participants express those positions by lobbying in person, testifying, or submitting written positions to agencies. (Ibid.; 2 Cal. Code Regs., § 18438.4.)

Time periods covered. SB 1439 covers two time periods. First, before covered parties submit applications, local officers are later disqualified from participating in matters involving the parties if, within the preceding 12 months, the parties contributed more than $250 to their campaigns. (Gov. Code, § 84308(c).) Second, once applications affecting parties are “pending,” officers may not “accept, solicit, or direct” campaign contributions over $250 from the parties. (Id., § 84308(b).) The FPPC has recently enacted a regulation providing that applications are “pending” if the applications are before local officials or it is reasonably foreseeable they will come before them. For elected officials, matters are before them when they are placed on meeting agendas. (2 Cal. Code Regs., § 18438.2(b)(1)(A).)

States of mind. When applications are pending, local officials are precluded from accepting, soliciting, or directing campaign contributions over $250 from the applicants. During this time, they are also precluded from accepting, soliciting, or directing contributions from participants when they “know or have reason to know” of the participants’ financial interests. (Gov. Code, § 84308(b).) Officials possess this awareness when they have actual knowledge of the participants’ interests or the participants express “facts in written or oral statements” that make their interests apparent. (2 Cal. Code Regs., § 18438.7(a).)

If contributions were made before applications are filed, officers may not participate in a matter when they “willingly or knowingly” received contributions over $250 within the past 12 months from parties or participants whom they know or have reason to know have financial interests in the covered matters. (Gov. Code, § 84308(c).) A forthcoming FPPC regulation will provide that such awareness is not demonstrated solely by the participant’s disclosure of their contributions as required by law.

Returns of contributions. A forthcoming regulation will also allow officials to return contributions in certain circumstances, allowing them to participate in otherwise covered matters. Returns are allowed when contributions from parties were received before the officers knew or had reason to know of proceedings involving the parties. Returns involving participants may be made if the contributions were made before the officers knew or had reason to know of the participants’ financial interests in the proceedings. (2 Cal. Code Regs., § 18438.7(c).) The forthcoming regulations will also allow for officers to participate in matters before the returns are made in certain circumstances. (Id., § 18438.7(d).)

Disclosures. Officers who are disqualified under SB 1439 must disclose their disqualifying interests on the record, either orally or in writing. (2 Cal. Code Regs., § 18438.8(a).) Parties and their agents must also disclose the contributions they have made to officers under specified circumstances. (Id., § 18438.8(b).)

SB 1439 is a fundamental change in local ethics law. It is not surprising that business interests have challenged SB 1439 on constitutional grounds. Their challenge was recently dismissed but they are sure to appeal. (Fam. Bus. Assn. of Cal. v. FPPC, Sacramento Sup. Ct. No. 34-2023-00335169-CU-MC-GDS, May 25, 2023.)

In precluding the participation of officials who receive more than $250 in campaign contributions from parties or participants, SB 1439 sets an incredibly low bar for disqualification. Proponents view this as a much-needed reform. Opponents view the law as an abridgement of their rights. One thing both sides can agree upon is that the new law is groundbreaking.