06 November 2008

Colorado Amendment 54 Litigation Looming

Everybody under the sun, it seems, is lining up to challenge the constitutionality of Colorado Amendment 54 on constitutional First Amendment grounds (both free speech and the right to petition) and federal pre-emption grounds.

The passage of Amendment 54 casts too wide a net, legal experts say, banning political contributions by everyone from union members to prominent business leaders serving on the boards of local universities and nonprofits.

By extending the donation ban to family members, the narrowly approved initiative faces an even bigger chance of being challenged in court for violating constitutional rights to free speech. . . .

It prohibits political gifts by holders of contracts worth $100,000 or more if the government awards them without a competitive bidding process. The ban covers officers and board members of companies and nonprofits, as well as unions that represent government workers. . . .

The amendment's impact on board members has recently captured the attention of the many nonprofits that contract with the government to provide specialized research or health care, often in rural areas where no other provider exists. . . .

Among those with an interest: Oakwood Homes CEO Pat Hamill, who serves on DU's board and would be unable to make any contributions to candidates or issue campaigns until two years after DU's contracts expire.

Hamill headed the business coalition that agreed to fight Amendment 54 and two other anti-labor initiatives in a compromise that had unions pulling four other measures from the statewide ballot. . . .

Amendment 54 will forbid a wide array of Coloradans from making political contributions, raising the likelihood of a free speech challenge by opponents of the measure. Among those affected:

* Unions and union members (teachers and firefighters, for instance) if they contract with government and nonprofits providing health care and other specialized services under exclusive contract with the government.

* The state has a variety of no-bid contracts with local universities, whose trustees no longer would be able to contribute to political candidates or issue campaigns until two years after a contract's expiration.

* Prominent community members affected include a long list of University of Denver board members, such as attorney Steve Farber, developer Pat Hamill and financier Donald Sturm. Board members at Colorado State University, which is listed as a government contractor for the state in 2008, include real estate executive Doug Jones and Denver Metro Chamber President Joe Blake.

The Colorado AFL-CIO is considering a challenge. The ACLU and the Amendment 41 litigation Plaintiffs may consider action. Planned parenthood could be impacted. A single board membership in the Coors clan could bar the entire family from participation in politics. Basically, all of the leaders in Colorado's philanthropic interests, and their families, are denied the right to make contributions.

The fiscal impact statement for Amendment 54 suggests how broad a scope the measure may have, including:

• every political subdivision in Colorado would be affected;
• about 4,000 contractors would submit contract information to the DPA annually


Campaign contributions are still protected by the U.S. Constitution as political speech about matters of public concern subject to strict scrutiny by the courts to see if the measure is narrowly tailored to meeting a compelling governmental interest.

There is little doubt that Amendment 54 is overbroad. For example, there is no requirement that the contract obtained have any nexus with the campaign to which a contribution is made by the contractor. For example, a fire fighters union that has a collective bargaining agreement with a municipal government is prohibited by this measure from making a campaign contribution to a candidate for state office.

Likewise, the inclusion of "immediate family members" in the ban means that, for example, a husband, by serving as a union officer or an officer of a road company, can prevent his wife, father, grandfather, niece and sister-in-law from legally making campaign contributions. Since there are penalties for elected officials who accept contributions, as well as the contractor, this is more than merely a term of a public contract.

Of course, none of this is ripe to litigate until the measure is declared enacted, and arguably, until the measure takes effect. The ability of the government to stop entering into sole source contracts, or to declare a state of emergency exemption, also suggests that there may be "as applied" limitations to a finding of unconstitutionality. And, there is the question of a proper venue for the action, i.e. federal or state court, and regarding the proper litigants in an action. Existing contract holders are arguably grandfathered.

Still, once the morass of public law litigation issues are waded through, the bottom line choice for a judge will be whether to invalidate Amendment 54 in its entirety, or merely to sever those provisions which offend the U.S. Constitution and federal law, sometimes called "blue penciling" the measure.

In the same vein, the Amendment 41 gift ban has been resolved primarily by offering up a very weak interpretation of the constitutional provision that doesn't necessarily flow from the plain language of the Amendment in order to transform the unconstitutional gift ban into a constitutional bribery ban.

Would a court, for example, invalidate the immediate family member language, bar the application of Amendment 54 to unrelated governmental entities, and narrow the interpretation of the term "contract," while sustaining other provisions, or simply throw out as unconstitutional all of Amendment 54?

Part of the result will depend upon the stance that the Attorney General's office takes in defending the measure.


The Blue Book Analysis was as follows:

Amendment 54 proposes amending the Colorado Constitution to:

• prohibit certain government contractors from contributing to a political party or candidate for the contract's duration and two years thereafter;
• prohibit contributors to ballot issue campaigns from entering into certain government contracts relating to the ballot issue;
• apply the prohibitions on campaign contributions and ballot issue contracts to any contractor with a government contract or contracts that does not use a public and competitive bidding process soliciting at least three bids and with a total value greater than $100,000 in a single year; and
• apply the prohibitions on campaign contributions and ballot issue contracts to a labor organization holding a collective bargaining agreement with a state or local government.

Summary and Analysis

Government entities purchase goods and services from private-sector vendors for the operation of government. The awarding of state contracts for these goods and services is regulated by state law. Local governments largely determine their own practices.

How are state government contracts awarded?

State law requires, with few exceptions, that vendors for state contracts be selected through a competitive bidding process. Separate rules govern small and emergency purchases. In some cases, a state agency may determine that only one good or service can reasonably meet the agency's need, and only one vendor can provide the particular good or service.

Examples of circumstances when competitive bidding is not used include cases:

• where equipment, accessories, or replacement parts must be compatible;
• where a sole supplier's item is needed for trial use or testing; and
• where public utility services are to be purchased.

How does the measure affect government contractors and labor organizations?

Amendment 54 prohibits campaign contributions by certain government contractors. The prohibition applies to contractors with a total contract value of greater than $100,000 in a single year where fewer than three bids are solicited. It also covers labor organizations that represent public employees in a collective bargaining agreement.

Contracts covered by Amendment 54 are referred to in the measure as "sole source contracts" and include those awarded by the state, cities, counties, school districts, and other special districts. The measure requires the state to publish and maintain a database of every covered government contract issued at every level of government.

How are Amendment 54's prohibitions applied?

Under the measure, covered government contractors are prohibited from making a campaign contribution themselves, or on behalf of a family member, to any political party or any state or local candidate for the duration of the contract plus two additional years. A contractor includes:
• the contracting entity's officers, directors, or trustees;
• any individual who controls at least 10 percent of the shares of or interest in the entity; and
• in the case of a collective bargaining agreement, a labor organization and any political committees it creates to make campaign contributions.

The measure also prohibits a person who contributes to a ballot issue campaign from entering into a covered government contract relating to the ballot issue.

What penalties exist under Amendment 54?

Under Amendment 54, individuals who accept contributions from covered government contractors for the benefit of a political party or candidate must pay restitution to the contracting government. Elected or appointed officials may be removed or disqualified from office for knowingly violating Amendment 54. Further, a covered government contractor who intentionally makes a contribution in violation of the measure is barred from holding a covered government contract or public employment for three years. The governor may suspend these penalties during a declared state of emergency.

What is the scope of state contracts affected by Amendment 54?

Information is not available on the number of state contracts that meet the criteria in Amendment 54. However, a sample of state contracts indicates that last year about 6 percent of state contracts had a value greater than $100,000 and were not put out for bid. These contracts represented about 5 percent of the total value of state contracts over $100,000.

What is the scope of local government contracts affected by Amendment 54?

Information is not available on the number and value of local contracts that meet the criteria in Amendment 54. Some local governments, including the cities of Boulder and Fort Collins, have enacted laws restricting campaign contributions by individuals holding any type of contract with the local government and would integrate Amendment 54's provisions into existing practice. Local governments also enter into collective bargaining agreements. For example, 45 school districts, representing 80 percent of teachers in the state, and four city police departments, representing 33 percent of the state's police officers, are covered under collective bargaining agreements.

Arguments For

1) Amendment 54 promotes civic trust and government transparency. By prohibiting campaign contributions, Amendment 54 ensures that business interests, labor, and other covered government contractors do not influence policy decisions through campaign contributions. In addition, by requiring state officials to publish information on covered government contracts, the measure makes information on vendors that receive such contracts easier to obtain by ordinary citizens. Registered voters can hold both public officials and contractors to a high ethical standard and seek remedies when violations occur.

2) Amendment 54 furthers the efficient use of taxpayer dollars by promoting competitive bidding for government contracts. It makes contracts where fewer than three bids are solicited less attractive by prohibiting political contributions from entities that receive such contracts. Amendment 54 thus encourages taxpayer value in contracting, and discourages instances where it may be easy to rely on entities with existing contracts.

Arguments Against

1) The broad scope of the measure could have far-reaching consequences for contractors, political candidates, and elected officials. For example, an individual holding a covered contract with one local government could be penalized for making a contribution to a candidate in a separate jurisdiction. To avoid violations and penalties, candidates and political parties will have to monitor each contribution to ensure that it is not made by a sole-source government contractor, or by the contractor on behalf of a relative. Furthermore, Amendment 54 establishes penalties that are severe relative to the offenses, including loss or disqualification from office for elected or appointed officials.

2) Amendment 54 proposes an inflexible approach to government contracting. Different regions and levels of government throughout the state have varying contracting needs and access to providers of goods and services.

Because rural cities and counties typically have fewer contracting options than urban communities or state government, the measure presents unique challenges for small communities and their service providers. For example, if one organization in a small community is the only available contractor for community services, the organization would have to choose between accepting a contract and participating financially in the political process.

The text of the measure is as follows:

Ballot Title: Shall there be an amendment to the Colorado constitution concerning restrictions on campaign contributions, and, in connection therewith, prohibiting the holder of contracts totaling $100,000 or more, as indexed for inflation, awarded by state or local governments without competitive bidding ("sole source government contracts"), including certain collective bargaining agreements, from making a contribution for the benefit of a political party or candidate for elective office during the term of the contracts and for 2 years thereafter; disqualifying a person who makes a contribution in a ballot issue election from entering into a sole source government contract related to the ballot issue; and imposing liability and penalties on contract holders, certain of their owners, officers and directors, and government officials for violations of the amendment?

Text of Measure: Be it enacted by the people of the state of Colorado an amendment to the Colorado constitution article XXVIII by the addition of the following new sections:

Section 15: Because of a presumption of impropriety between contributions to any campaign and sole source government contracts, contract holders shall contractually agree, for the duration of the contract and for two years thereafter, to cease making, causing to be made, or inducing by any means, a contribution, directly or indirectly, on behalf of the contract holder or on behalf of his or her immediate family member and for the benefit of any political party or for the benefit of any candidate for any elected office of the state or any of its political subdivisions.

Section 16: To aid in enforcement of this measure concerning sole source contracts, the executive director of the department of personnel shall promptly publish and maintain a summary of each sole source government contract issued. Any contract holder of a sole source government contract shall promptly prepare and deliver to the executive director of the department of personnel a true and correct "Government Contract Summary," in digital format as prescribed by that office, which shall identify the names and addresses of the contract holders and all other parties to the government contract, briefly describe the nature of the contract and goods or services performed, disclose the start and end date of the contract, disclose the contract's estimated amount or rate of payment, disclose the sources of payment, and disclose other information as determined by the executive director of the department of personnel which is not in violation of federal law, trade secrets or intellectual property rights. The executive director of the department of personnel is hereby given authority to promulgate rules to facilitate this section.

Section 17: (1) Every sole source government contract by the state or any of its political subdivisions shall incorporate article XXVIII, section 15, into the contract. Any person who intentionally accepts contributions on behalf of a candidate committee, political committee, small donor committee, political party, or other entity, in violation of section 15 has engaged in corrupt misconduct and shall pay restitution to the general treasury of the contracting governmental entity to compensate the governmental entity for all costs and expenses associated with the breach, including costs and losses involved in securing a new contract if that becomes necessary. If a person responsible for the bookkeeping of an entity that has a sole source contract with a governmental entity, or if a person acting on behalf of the governmental entity, obtains knowledge of a contribution made or accepted in violation of section 15, and that person intentionally fails to notify the secretary of state or appropriate government officer about the violation in writing within ten business days of learning of such contribution, then that person may be contractually liable in an amount up to the above restitution.

(2) Any person who makes or causes to be made any contribution intended to promote or influence the result of an election on a ballot issue shall not be qualified to enter into a sole source government contract relating to that particular ballot issue.

(3) The parties shall agree that if a contract holder intentionally violates section 15 or section 17 (2), as contractual damages that contract holder shall be ineligible to hold any sole source government contract, or public employment with the state or any of its political subdivisions, for three years. The governor may temporarily suspend any remedy under this section during a declared state of emergency.

(4) Knowing violation of section 15 or section 17 (2) by an elected or appointed official is grounds for removal from office and disqualification to hold any office of honor, trust or profit in the state, and shall constitute misconduct or malfeasance.

(5) A registered voter of the state may enforce section 15 or section 17 (2) by filing a complaint for injunctive or declaratory relief or for civil damages and remedies, if appropriate, in the district court.

[The following to replace article XXVIII, section 13]

Section 13: APPLICABILITY AND EFFECTIVE DATE. The provisions of this article shall take effect on December 6, 2002, and be applicable for all elections thereafter, EXCEPT THAT THE PROVISIONS OF THIS ARTICLE CONCERNING SOLE SOURCE GOVERNMENT CONTRACTS SHALL TAKE EFFECT ON DECEMBER 31, 2008. Legislation may be enacted to facilitate its operation, but in no way limiting or restricting the provisions of this article or the powers herein granted.

Section 2 of article XXVIII of the constitution of the state of Colorado is amended BY THE ADDITION OF THE FOLLOWING NEW SUBSECTIONS to read:

(4.5) "Contract holder" means any non-governmental party to a sole source government contract, including persons that control ten percent or more shares or interest in that party; or that party's officers, directors or trustees; or, in the case of collective bargaining agreements, the labor organization and any political committees created or controlled by the labor organization;

(8.5) "Immediate family member" means any spouse, child, spouse's child, son-in-law, daughter-in-law, parent, sibling, grandparent, grandchild, stepbrother, stepsister, stepparent, parent-in-law, brother-in-law, sister-in-law, aunt, niece, nephew, guardian, or domestic partner;

(14.4) "Sole source government contract" means any government contract that does not use a public and competitive bidding process soliciting at least three bids prior to awarding the contract. This provision applies only to government contracts awarded by the state or any of its political subdivisions for amounts greater than one hundred thousand dollars indexed for inflation per the United States bureau of labor statistics consumer price index for Denver-Boulder-Greeley after the year 2012, adjusted every four years, beginning January 1, 2012, to the nearest lowest twenty five dollars. This amount is cumulative and includes all sole source government contracts with any and all governmental entities involving the contract holder during a calendar year. A sole source government contract includes collective bargaining agreements with a labor organization representing employees, but not employment contracts with individual employees. Collective bargaining agreements qualify as sole source government contracts if the contract confers an exclusive representative status to bind all employees to accept the terms and conditions of the contract;

(14.6) "State or any of its political subdivisions" means the state of Colorado and its agencies or departments, as well as the political subdivisions within this state including counties, municipalities, school districts, special districts, and any public or quasi-public body that receives a majority of its funding from the taxpayers of the state of Colorado.

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