March 10, 2005

U.S. House of Representatives
Washington, D.C. 20515

RE: H.R. 3 and the Pascrell/Menendez/LoBiondo pay-to-play amendment

Dear Members of Congress:

This afternoon you will be considering H.R. 3, the federal highway authorization bill. Public Citizen, Common Cause, Public Campaign and the Center for Civic Responsibility urge the House of Representatives to include the Pascrell/Menendez/LoBiondo amendment to the bill respecting states' rights to address the pernicious problem of corruption in government contracting procedures.

Known as "pay-to-play," many state and local governments are being burdened by the all-too-common practice of a business entity making campaign contributions to a public official with the hope of gaining a lucrative government contract. Pay-to-play practices have the potential for corrupting, or at least creating the appearance of corrupting, the government contracting process by influencing the awarding of contracts based on campaign contributions rather than merit.

Several state and local governments have suffered a crisis in public confidence recently as pay-to-play scandals continue to wind up on front page news and, sometimes, in the courts. New Jersey, Connecticut, Los Angeles, Chicago and Philadelphia are just beginning to emerge from the devastating political and legal consequences of pay-to-play scandals, with some government officials at least in Connecticut and Philadelphia facing criminal prosecutions.

Unfortunately, the Federal Highway Administration (FHWA) has decided to make it difficult, if not impossible, for states to address this serious problem. For example, the FWHA has decided to punish New Jersey for reforming its contracting system by withholding federal highway funds from this state. We believe you will agree with us that this federal intervention is unjustified and counterproductive. That is why we urge you to support language that makes clear that states have the right to ensure that their contracting procedures conform to the highest ethical standards and offer the best value for taxpayers.

New Jersey has been embroiled in pay-to-play scandals for several years now and has decided to address the problem head-on. Last year, the state of New Jersey joined four other states and several local and non-governmental jurisdictions in prohibiting government contractors from making campaign contributions to those ultimately responsible for the awarding of government contracts (Executive Order #134). New Jersey followed the lead of Securities and Exchange Commission (SEC) chair Arthur Leavitt and adopted a pay-to-play policy similar to that of SEC's Rule G-37, which has worked admirably in the bond trading sector since its implementation in 1994 and which has been upheld by the courts as "narrowly tailored to effectively advance [a] genuinely substantial governmental interest."

However, in a stunning setback to the three-year effort to clean up New Jersey's contracting procedures, Dennis Merida, Division Administrator of the Federal Highway Administration, decided that the federal government will intervene in the state's contracting law. According to FHWA, New Jersey's pay-to-play policy of divorcing campaign money from government contracts is neither "cost effective" nor an "emergency circumstance" and thus, the FHWA contends, fails to conform to federal contracting standards. As a result, Division Administrator Merida this year withheld federal highway funds from the state of New Jersey.

New Jersey Gov. Richard Codey reluctantly suspended the state's pay-to-play rules for competitive bid contracts pending the outcome of a court challenge to the FHWA decision. [New Jersey v. Mineta] "This is a temporary measure forced on us by the federal government," Codey said. "I am not happy about it. In making this necessary, the federal government is dead wrong, but I cannot jeopardize nearly $1 billion in federal transportation funds."

The FHWA has placed itself in the odd position of imposing its preference for a disclosure-only regime on states and localities that have decided a stronger pay-to-play policy is necessary to address their problems of corruption in government contracting. As the FHWA memorandum opines: "...the disclosure of lobbying and political contribution efforts for the year preceding a contract bid is a reasonable means to meet the DOT's Common Rule requirement that the city assure that its contract award system performs without conflict of interest. This is distinct from a provision that actually excludes those making otherwise legal contributions from competing for a contract."

Many state, local and non-governmental jurisdictions strongly disagree with the FHWA: disclosure has not proven sufficient to end actual or apparent corruption in government contracting. Instead, New Jersey and more than a dozen other jurisdictions have opted for a narrowly-tailored system of contribution restrictions on government contractors, in addition to disclosure requirements, as a more effective means to curtail pay-to-play abuses.

When a very specific problem of potential corruption arises with a regulated industry, states have addressed this problem with narrowly-tailored restrictions - and the courts have generally upheld these restrictions. Louisiana has recently joined seven other states in restricting campaign contributions from gambling interests, where the potential for corruption is highly feared, an action supported by the courts. Four states prohibit campaign contributions from the insurance industry to their elected insurance commissioners. Georgia prohibits campaign contributions from a regulated industry to an officeholder who is responsible for regulating that industry.

The business of government contracting in many state and local jurisdictions similarly has become the focal point of actual and perceived corruption. The unseemly transaction of money exchanging hands between business interests seeking government contracts and officeholders responsible for awarding those contracts has placed the regulation of the government contracting process on the same par as the regulation of the gambling industry.

Congress has the opportunity to put a halt to what is likely to be costly and protracted - and wholly unnecessary - litigation. In an effort to rationalize its action, the FHWA suggests that it is merely applying the requirements of federal law. Even if this rationalization were the case, which it is not, we strongly recommend that Congress draw this unfortunate case to a close by adding a provision to H.R. 3 explicitly authorizing the right of states to clean up their government contracting procedures through reasonable pay-to-play policies.

Reps. Bill Pascrell, Robert Menendez and Frank LoBiondo, representing both the Republican and Democratic parties from New Jersey, have introduced the "pay-to-play protection amendment" before you this afternoon, which would add a single sentence to H.R. 3: "Nothing in this section may be construed to prohibit a state from enacting a law or issuing an order that limits the amount of money an individual, who is doing business with a state agency for a federal-aid highway project, may contribute to a political campaign."

Pay-to-play restrictions are far from draconian measures. They are a narrow remedy that focus exclusively on a specific problem. Pay-to-play restrictions are easy for the business community to live with - the SEC's Rule G-37 has not resulted in draining the pool of bond bidders - and pay-to-play restrictions are limited in scope and constitutional.

The Federal Highway Administration may believe it knows better than the states how to address their problems of actual and perceived corruption in government contracting, but the FHWA has not yet had to suffer the consequences of corruption scandals that the states have had to face. Congress should include this amendment to H.R. 3 allowing the states the authority to assure their citizens that contracts are awarded on merit rather than on campaign contributions.

Respectfully Submitted,

Joan Claybrook
President
Public Citizen

Chellie Pingree
President
Common Cause

Nick Nyhart
Executive Director
Public Campaign

Harry Pozycki
Chairman of the Board
Center for Civic Responsibility