Amendment 54 – Contracting with the Government Takes on a New Dimension

Amendment 54 was passed by the voters on November 4, 2008 and adds provisions to Article XXVIII of the Colorado Constitution (Campaign and Political Finance). Amendment 54 is founded upon the general presumption that an impropriety exists when recipients of no-bid "sole source government contracts" make financial contributions to political campaigns. To resolve any such impropriety, Amendment 54 places certain campaign and political finance restrictions on those that enter into sole source government contracts, or may want to enter into sole source government contracts in the future.

In January 2009, two different groups of plaintiffs filed lawsuits in Denver District Court seeking an injunction barring the enforcement of Amendment 54 ("Amendment 54 lawsuits"). These plaintiffs groups have challenged Amendment 54 on numerous grounds, including that it violates the First Amendment of the United States Constitution. This week, a preliminary injunction hearing will take place in Denver District Court to test the constitutionality and breadth of Amendment 54.

What does this mean to my organization?

As the 2010 election cycle starts to warm up and government contracts are being renewed, nonprofit organizations should be aware of and understand Amendment 54. Officers and directors of nonprofit organizations throughout Colorado are politically active and engaged. Historically, many officers and directors have contributed their time and money to their preferred political parties, candidates and issues. While this has not been a problem in the past, Amendment 54 may present new challenges for nonprofits and tough choices for officers and directors. Many organizations are currently trying to navigate the awkward provisions of Amendment 54, the speculation concerning its scope and effect, and the impact of the lawsuits that seek to block its enforcement.

How does Amendment 54 work?

Amendment 54 requires that all "sole source government contracts" entered into on or after December 31, 2008, contain a contractual term that prohibits the non-government contracting party from making campaign contributions 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. In addition, Amendment 54 disqualifies any person who makes a contribution intended to promote or influence the result of an election on a ballot issue from entering into "sole source government contracts" relating to that particular ballot issue.

What is a "sole source government contract" covered by Amendment 54?

Only those contracts that meet the following four requirements are covered by Amendment 54:

1. A government contract entered into (or modified) on or after December 31, 2008;

?2. that does not use a public and competitive bidding process soliciting at least three bids prior to awarding the contract;

?3. awarded by the State or any of its political subdivisions; and

?4. for cumulative amounts greater than $100,000 in a calendar year.

Government contracts covered by Amendment 54 include those awarded by the state of Colorado, its agencies or departments, as well as the political subdivisions within this state, including cities, counties, 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. The $100,000 threshold includes the sum total of all of the non-governmental party's sole source government contracts with any and all governmental entities during a calendar year.

How does Amendment 54 impact nonprofit organizations?

Amendment 54 can have significant impacts on nonprofits organizations. First, if a nonprofit organization has contracts covered by Amendment 54, the organization and its officers and directors are prohibited from making campaign contributions for the benefit any political party or for the benefit of any candidate for any elected office in Colorado. These restrictions apply during the contract term and continue for two years after the contract term ends. These restrictions apply even if campaign contributions are made from the personal funds of the officers and directors. These restrictions do not apply to contributions to candidates for federal office.

Second, if a nonprofit organization has contracts covered by Amendment 54, the organization and its officers and directors are also prohibited from "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." What exactly this provision means is the source of much debate: Does this provision prohibit directors and officers from soliciting contributions or fundraising on behalf of candidates? Do these restrictions extend to officers' and directors' family members? Not surprisingly, these are significant issues raised by the plaintiffs in the current Amendment 54 lawsuits. Although it will require the courts to fully resolve these questions, the Colorado Attorney General has defended Amendment 54 by arguing that this restriction is narrow in scope. Specifically, the Attorney General contends that merely asking a person to donate is not a violation of Amendment 54 and that immediate family members may make contributions on their own behalf, as long as they are not acting as conduits for contract holders.

Third, Amendment 54 impacts those nonprofit organizations that make contributions intended to promote or influence a ballot issue, or hope to benefit from the ballot issue. Unlike candidate contributions, nonprofit organizations are far more likely to advocate for or against ballot issues and, in turn, the organization may be impacted by Amendment 54. If a nonprofit organization does make such a contribution intended to promote or influence the result of ballot issue, it will be disqualified from entering into "sole source government contracts" relating to that particular ballot issue.

What penalties apply to nonprofit organizations for Amendment 54 violations?

Any registered voter in Colorado can file a lawsuit to enforce Amendment 54 and penalties may be imposed for violations. For example, if a nonprofit organization or its directors or officers intentionally violate Amendment 54, the organization may be deemed ineligible to hold any sole source government contract or public employment with the state or any of its political subdivisions for three years. In addition, if the organization's bookkeeper intentionally fails to report political contributions in violation of Amendment 54 to the Secretary of State within 10 business days of discovering the violation, the bookkeeper may be contractually liable to the governmental contracting party for costs and losses involved in securing a new contract.

What's next?

Given that a decision in the Amendment 54 lawsuits is imminent, many organizations are taking a wait-and-see approach. If the Amendment 54 lawsuits prove unsuccessful, or if Amendment 54 is applied in the narrow fashion urged by the Attorney General, it will be important for all Colorado nonprofits to understand Amendment 54—regardless of whether the organization is currently contracting with the government. As organizations look to the future and try to plan for and acquire new funding sources, it will be critical that the organization understands the effect of entering into sole source government contracts to avoid unknowingly stumbling into the campaign finance restrictions imposed on the organization and its officer and directors. While some organizations may find it easy to comply with these restrictions, others may find it difficult to retain and recruit directors and officers. Worse yet, failing to properly communicate Amendment 54 restrictions to directors or officers, or ensuring their compliance, could result in the loss of critical funding or programs. With a little guidance and the implementation of few good governance practices, these pitfalls can be avoided.

The outcome of these lawsuits will have a dramatic impact upon how nonprofit organizations and their respective officers and directors approach their political involvement. As the lawsuits and the interpretation of Amendment 54 continue to transform, we will provide you with additional updates.

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