Government Chapter 16: Combating Dark Money in California Politics

Government
Chapter 16: Combating Dark Money in California Politics
Patrick Ford
Code Sections Affected
Elections Code § 9084 (amended); Government Code §§ 84222, 84223
(new), §§ 82015, 82048.7, 84105, 88001 (amended).
SB 27 (Correa); 2014 STAT. Ch. 16. (Effective May 14, 2014).
TABLE OF CONTENTS
I.
INTRODUCTION ............................................................................................ 336 II. LEGAL BACKGROUND .................................................................................. 337 A. The Political Reform Act of 1974 .......................................................... 337 B. FPPC Regulation of Nonprofit Organizations Under the Act............... 338 C. The One-Bite Rule ................................................................................. 339 D. Fair Political Practices Commission v. Americans for Responsible
Leadership ............................................................................................. 339 III. CHAPTER 16 ................................................................................................ 342 A. Reporting Requirements for Multipurpose Organizations .................... 342 B. Reporting Requirements for Primarily Formed Committees ................ 343 C. Publication of Top Ten Lists ................................................................. 344 IV. ANALYSIS ..................................................................................................... 344 A. The Rise of Dark Money ........................................................................ 344 1. Dark Money in Federal Elections ................................................... 345 2. Dark Money in California Elections ............................................... 347 B. Dark Money: Liberty or Liability? ........................................................ 350 C. Chapter 16: Reducing Dark Money and Increasing the Availability
of Campaign Finance Information ........................................................ 351 1. Elimination of the One-Bite Rule .................................................... 351 2. Greater Availability of Campaign Finance Information ................ 352 D. Reactions to Chapter 16 ........................................................................ 353 V. CONCLUSION ................................................................................................ 353 335
2014 / Government
“Requiring people to stand up in public for their political acts fosters
1
civic courage, without which democracy is doomed.”
I. INTRODUCTION
According to the Federal Election Commission (FEC), candidates and
2
political groups spent roughly $7 billion during the 2012 general election.
Groups that were not required to disclose their donors to the federal government
3
were responsible for over $300 million of this spending. This marked a
considerable increase in the amount of dark money spent during a single election
4
cycle. Certain politicians and commentators have decried this phenomenon as
5
corrosive of the democratic process. Others have argued against expanding the
regulation of dark money, claiming that doing so would both hamper free speech
6
and serve particular partisan interests. With the enactment of Chapter 16, the
California legislature has taken a decidedly pro-disclosure approach to the issue
7
of dark money. This piece of legislation, which was introduced by Senator Lou
Correa, is intended to force groups contributing large amounts of money to
8
California political campaigns to disclose their financial backers.
1. Doe v. Reed, 130 S. Ct. 2811, 2837 (2010) (Scalia, J., concurring).
2. Tarini Parti, $7 Billion Spent on 2012 Campaign, FEC Says, POLITICO (Jan. 31, 2013, 10:26 PM),
http://www.politico.com/story/2013/01/7-billion-spent-on-2012-campaign-fec-says-87051.html (on file with the
McGeorge Law Review).
3. Political Nonprofits, Summary, OPENSECRETS.ORG, https://www.opensecrets.org/outsidespending/
nonprof_summ.php (last visited July 15, 2014) (on file with the McGeorge Law Review).
4. Id.; see also Tara Malloy, A New Transparency: How to Ensure Disclosure from “Mixed-Purpose”
Groups After Citizens United, 46 U.S.F. L. REV. 425, 432 (2011) (noting that in the 2010 election, 501(c)
groups constituted 42% of independent spending, a significant increase from virtually no independent spending
in 2006).
5. Ann M. Ravel, Viewpoints: California Shined a Spotlight on Dark Money, SACRAMENTO BEE, May 2,
2014, http://www.sacbee.com/2014/05/04/6374467/viewpoints-california-shined-a.html (on file with the
McGeorge Law Review); Amber Phillips, Harry Reid Says ‘Dark Money’ in Campaigns Threatens Democracy,
LAS VEGAS SUN, June 3, 2014, http://www.lasvegassun.com/news/2014/jun/03/harry-reid-says-dark-moneycampaigns-threatens-dem/ (on file with the McGeorge Law Review); George Skelton, ‘Dark’ Campaign Money
Needs a Little Light, L.A. TIMES, Mar. 23, 2014, http://www.latimes.com/local/la-me-cap-dark-money20140324-column.html#axzz2wtXIoHg9 (on file with the McGeorge Law Review).
6. Briefing Report: The Dark Side of Disclosure, CALIFORNIA STATE SENATE REPUBLICAN CAUCUS
(Mar. 14, 2012), http://cssrc.us/content/briefing-report-dark-side-disclosure (on file with the McGeorge Law
Review) [hereinafter Republican Caucus Report].
7. See Press Release, Fair Political Practices Comm’n, Governor Signs Legislation to Close “Dark
Money” Loopholes (May 14, 2014) (on file with the McGeorge Law Review) [hereinafter FPPC Press Release,
May 14, 2014] (describing Chapter 16’s effect on disclosure requirements for “non-profits and other MultiPurpose Organizations”); Editorial, Refreshing Developments: The Legislature Has Productive Week, FRESNO
BEE, May 17, 2014, http://www.fresnobee.com/2014/05/17/3931814/our-viewrefreshing-developments.html
(on file with the McGeorge Law Review) (stating that “California has unmasked those secretive donors” by
passing Chapter 16”).
8. See SENATE RULES COMMITTEE, COMMITTEE ANALYSIS OF SB 27, at 8 (May 7, 2014) (describing the
goals of SB 27, including preventing laundering of campaign funds through nonprofits and increasing the
accessibility of donor data).
336
McGeorge Law Review / Vol. 46
II. LEGAL BACKGROUND
The Political Reform Act of 1974 (the Act) is the cornerstone of campaign
9
finance and reporting laws in California. The Act created the Fair Political
Practices Commission (FPPC) to promulgate regulations and enforce the
10
provisions of the Act, including reporting requirements for nonprofit
11
organizations. However, these laws did not require the disclosure of certain
12
contributions by nonprofit organizations. During the 2012 general election, the
ability of groups to make anonymous contributions proved to be a serious
impediment to the enforcement of California’s campaign finance disclosure
13
laws.
A. The Political Reform Act of 1974
Voters approved the Act, known at the time as Proposition 9, with a
14
sweeping 69.8% vote, in the 1974 midterm election. One of the fundamental
tenets of the Act was that “[p]ublic officials . . . should perform their duties in an
impartial manner, free from bias caused by . . . the financial interests of persons
15
who have supported them . . . .” In furtherance of this ideal, the Act established
a wide array of reform measures affecting such fundamental aspects of California
politics as the ballot initiative process, lobbying, and campaign finance and
16
disclosure requirements. To provide for the enforcement of political reform
17
laws, the Act created the FPPC and empowered the agency to develop and
18
enforce regulations in furtherance of the Act’s purposes.
9. History of the Political Reform Act, FAIR POLITICAL PRACTICES COMM’N, http://www.fppc.ca.gov/
index.php?id=57 (last visited June 19, 2014) (on file with the McGeorge Law Review).
10. Id.; CAL. GOV’T CODE §§ 83100, 83112 (West 2005).
11. See CAL. CODE REGS. tit. 2, §§ 18215, 18412 (2014) (identifying nonprofit organizations that must
disclose their sources of funds and how the disclosure is to be carried out).
12. See infra Part II.B (discussing the ability of nonprofit organizations to make anonymous political
contributions in California).
13. See, e.g., Minute Order, Fair Political Practice Comm’n v. Americans for Responsible Leadership,
No. 34-2012-00131550-CU-PT-GDS (Cal. Super. Ct. Oct. 31, 2012), 2012 WL 5351247 [hereinafter Order
Granting Preliminary Injunction] (granting the FPPC a preliminary injunction to compel Americans for
Responsible Leadership to disclose its financial sources after the nonprofit organization claimed protection
under the one-bite rule, a feature of California disclosure law that allowed a group to make one anonymous
contribution if it had not made contributions in California in the past).
14. Roger Jon Diamond et al., California’s Political Reform Act: Greater Access to the Initiative Process,
7 SW. U. L. REV. 453, 454 (1975).
15. GOV’T § 81001(b).
16. Diamond et al., supra note 14, at 464–65.
17. GOV’T § 83100.
18. Id. § 83112.
337
2014 / Government
B. FPPC Regulation of Nonprofit Organizations Under the Act
19
Prior to Chapter 16, if a nonprofit organization made “contributions or
20
independent expenditures totaling $1,000 or more . . . to support or oppose a
candidate or ballot measure in California” the Act required the group to report
21
the source of the funds. When making such a disclosure, the group had to first
disclose donors who knew that the group would use the donations for political
22
purposes in California. If a donor had given money in response to a solicitation
that explicitly stated the organization’s intended political purpose, then the donor
23
was assumed to have known of the political use of the donation. Thus, the
24
organization had to disclose that donor’s identity.
If disclosure of all donors who knew that their payments would be used for
political purposes did not account for the full amount of the organization’s
contributions and expenditures, the organization had to broaden its disclosure by
reporting donors who “had ‘reason to know’ that all or part of their payments
25
would be used to make expenditures or contributions.” A donor was presumed
to have reason to know that his donation would be used for political purposes
only if the organization had “made expenditures or contributions of at least
$1,000 in the aggregate during the calendar year in which the payment occur[ed],
26
or any of the immediately preceding four calendar years.” The law required that
this type of disclosure be done in reverse-chronological order (beginning with the
most recent donations) until an amount equal to the organization’s contributions
27
and expenditures had been accounted for. If this method of disclosure still failed
to account for the remaining amount of contributions and expenditures, the
28
organization could list itself as the source of any remaining funds.
19. “A contribution is any payment made for political purposes for which full and adequate consideration
is not made to the donor.” 2 CAL. CODE REGS. tit. 2, § 18215(a) (2014). Political purposes include attempts to
influence voters as well as donations made in response to a request by a candidate, committee, political party, or
labor union. Id.
20. “An expenditure is any monetary or nonmonetary payment made for political purposes,” including
attempts to influence voters. Id. A payment is also made for political purposes if it is made by a candidate,
controlled committee, political party, or organization formed primarily for political purposes. Id. Further,
“‘[e]xpenditure’ includes any monetary or non-monetary payment . . . that is used for communications which
expressly advocate the nomination, election or defeat of a clearly identified candidate or candidates, or the
qualification, passage or defeat of a clearly identified ballot measure.” Id. § 18225(b).
21. Id. § 18412(a).
22. Id. § 18412(b).
23. Id.
24. Id. § 18412(a)–(b).
25. Id. § 18412(c)(1).
26. Id. § 18215(b)(1).
27. Id. § 18412(c)(1).
28. Id. § 18412(c)(2).
338
McGeorge Law Review / Vol. 46
C. The One-Bite Rule
29
One feature of this method of disclosure was the one-bite rule. Assuming
that an organization had not previously made a contribution or expenditure of
$1,000 or more in California or received money from donors who knew that their
funds would be used for political purposes, it could make a one-time contribution
30
or expenditure of any size without having to disclose any sources. This is
because a donor giving to an organization that had not spent $1,000 or more on
California politics was not presumed to have reason to know that his donation
31
would be spent on California politics. Thus, the organization would only need to
disclose donors who had either contributed in response to a politically oriented
solicitation or requested that their funds go toward political spending in
32
33
California —two criteria that are not readily apparent. Though the FPPC has
34
the ability to discover such information by conducting audits, organizations are
sometimes unwilling to divulge documents that might reveal their failure to
35
comply with FPPC regulations.
D. Fair Political Practices Commission v. Americans for Responsible
Leadership
In 2013, the FPPC brought an enforcement action against two nonprofit
36
organizations, resulting in the largest penalty in the history of the Act. This suit
stemmed from an earlier court battle in which the FPPC sought disclosure of the
sources of an $11 million payment made to influence voting on two California
37
ballot measures during the 2012 general election. The Center to Protect Patient
Rights (the Center), a nonprofit organization located in Phoenix, Arizona, made
payments totaling $18 million to Americans for Responsible Leadership (ARL),
38
another Arizona-based nonprofit organization. On the same day it received the
29. See KIM ALEXANDER, INITIATIVE DISCLOSURE REFORM: OVERVIEW AND RECOMMENDATIONS 6
(2011) (describing the one-bite rule, also known as the one-bite-at-the-apple rule).
30. FPPC Press Release, May 14, 2014, supra note 7.
31. CAL. CODE REGS. tit. 2, § 18215(b)(1).
32. See Id. § 18412(b) (describing the situations in which a committee must disclose its donors).
33. See Order Granting Preliminary Injunction, supra note 13, at 1 (describing the lengths to which the
FPPC had to go to obtain information about American’s for Responsible Leadership’s $11 million donation to
the Small Business Action Committee PAC). The FPPC had to obtain an injunction in order to ascertain
whether ARL had met the criteria that would require it to disclose its financial sources. Id.
34. CAL. GOV’T CODE § 90003 (West 2005).
35. See Order Granting Preliminary Injunction, supra note 13, at 1 (ordering Americans for Responsible
Leadership to disclose its financial sources to the FPPC after it refused to do so in response to an FPPC audit).
36. Press Release, Fair Political Practices Comm’n, FPPC Announces Record Settlement in $11 Million
Arizona Contribution Case (Oct. 24, 2013) (on file with the McGeorge Law Review) [hereinafter FPPC Press
Release, Oct. 24, 2013].
37. Order Granting Preliminary Injunction, supra note 13, at 1.
38. Stipulation for Entry of Judgment at 3, 10, Fair Political Practices Comm’n v. Americans for
Responsible Leadership, No. 34-2012-00131550-CU-PT-GDS, (Cal. Super. Ct. Oct. 24, 2013) [hereinafter
339
2014 / Government
final payment from the Center, ARL made an $11 million payment to the Small
39
Business Action Committee-PAC (SBAC-PAC), a committee formed primarily
40
to oppose Proposition 30 and support Proposition 32. Under existing FPPC
regulations prohibiting contributions made on behalf of another party, the Center
41
was required to disclose itself to SBAC-PAC as the true source of the funds;
42
however, the Center made no such disclosure.
After receiving a complaint regarding the $11 million payment from ARL to
43
SBAC-PAC, the FPPC opened an investigation into ARL’s finances. ARL
refused to disclose the true source of the funds paid to SBAC-PAC because
“[t]here [was] no record of ARL making contributions in the State of California
44
prior to the contribution in question . . . .” Since it had not contributed $1,000 in
California during the current calendar year or any of the previous four calendar
years, ARL’s donors (including the Center) were presumed not to have reason to
know that the organization would use any donations to influence California
45
politics. Thus, ARL only needed to disclose donors who requested that their
donations be used for political purposes in California or whose donations were
46
expressly solicited for that purpose. To determine whether these criteria were
met, and thus whether ARL was required to file a campaign report disclosing its
source, the FPPC obtained a preliminary injunction in Sacramento County
47
Superior Court ordering ARL to comply with the FPPC audit. After a failed
48
attempt to appeal the trial court’s order, ARL disclosed that the Center had been
Settlement Agreement].
39. Id. at 10–11.
40. Id. at 8.
41. CAL GOV’T CODE § 84302 (West 2005) (prohibiting the making of “a contribution on behalf of
another, or while acting as the intermediary or agent of another, without disclosing to the recipient of the
contribution both his own full name and street address, occupation, and the name of his employer . . . .”).
42. Settlement Agreement, supra note 38, at 10–11.
43. Id. at 11. California Common Cause filed the complaint that initiated the investigation of ARL.
Telephone Interview with Sarah Swanbeck, Policy and Legislative Affairs Advocate, California Common
Cause (July 2, 2014) (notes on file with the McGeorge Law Review).
44. Order Granting Preliminary Injunction, supra note 13, at 1.
45. Id.; see CAL. CODE REGS. tit. 2, § 18215(b)(1) (2014) (“There shall be a presumption that the donor
does not have reason to know that all or part of the payment will be used to make expenditures or contributions,
unless the person or organization has made expenditures or contributions of at least $1,000 in the aggregate
during the calendar year in which the payment occurs, or any of the immediately preceding four calendar
years.”)
46. See CAL. CODE REGS. tit. 2, § 18215(b)(1) (2014) (defining “contribution” in a way that requires
disclosure of donors if the organization has made contributions or expenditures in California totaling $1,000 in
the current calendar year or previous four calendar years); see id. § 18412(a)–(c) (requiring nonprofit
organizations and out-of-state political committees to disclose contributions from donors who “request[] or
know[] that the payment will be used by the organization to make a contribution or an independent expenditure
to support or oppose a candidate or ballot measure in California . . . .”). Since ARL was not required to disclose
donors under § 18215(b)(1), it was only required to disclose donors under § 18412. See id. § 18412(c)(2)
(allowing organizations to attribute to themselves whatever donations are not accounted for under
sections 18215(b)(1) and 18412).
47. Order Granting Preliminary Injunction, supra note 13, at 1.
48. Supreme Court Minutes, Fair Political Practice Comm’n v. Americans for Responsible Leadership,
340
McGeorge Law Review / Vol. 46
49
the true source of the funds donated to SBAC-PAC. The failure of the Center to
disclose itself to SBAC-PAC violated FPPC regulations against making political
50
contributions on another’s behalf. However, because of the protection offered
51
by the one-bite rule, this violation was difficult to bring to light. The day before
the November 6th election, ARL disclosed the Center and an organization known
52
as Americans for Job Security (AJS) as the true sources of the $11 million. The
FPPC later brought a civil action against ARL and the Center for their respective
53
violations, resulting in a record $1 million fine.
Though the ARL case was a clear victory for the FPPC, it became apparent
that existing campaign disclosure laws created a significant window for nonprofit
54
organizations to make anonymous political contributions in California. The
fines against ARL and the Center were actually based on the violation of law
against campaign money laundering, not those requiring the disclosure of
55
donors. Because the Center and AJS had not previously contributed money to
California politics, the FPPC could not require the organizations to disclose the
56
names of their donors under the one-bite rule. Thus, on Election Day in 2012,
California voters may have been aware that a series of undisclosed transactions
had occurred, but they did not know the identities of the individual donors behind
57
the funds in question. The law’s failure to require disclosure generated wide
58
support for the strengthening of campaign finance disclosure laws.
No. S206407 (Cal. Sup. Ct. Nov. 4, 2012). The California Supreme Court vacated the Third District Court of
Appeal’s stay of the order compelling ARL to comply with the FPPC audit. Id.
49. Americans for Responsible Leadership Admits Campaign Money Laundering, Discloses $11 Million
Donor, FAIR POLITICAL PRACTICES COMM’N, http://www.fppc.ca.gov/index. php?id=346 (last visited June 17,
2014) (on file with the McGeorge Law Review); Settlement Agreement, supra note 38, at 11–12.
50. Settlement Agreement, supra note 38, at 14.
51. See id. at 11 (indicating that the FPPC opened a discretionary audit, initiated proceedings in state
court, and negotiated a settlement with ARL in order to compel the organization to disclose the Center as the
source of ARL’s political contributions).
52. FPPC Press Release, Oct. 24, 2013, supra note 36.
53. Id.
54. See Nicholas Confessore, Group Linked to Kochs Admits to Campaign Finance Violations, N.Y.
TIMES, Oct. 24, 2013, http://www.nytimes.com/2013/10/25/us/politics/group-linked-to-kochs-admits-tocampaign-finance-violations.html?_r=0 (on file with the McGeorge Law Review) (stating that the fine
negotiated by the FPPC is “one of the largest penalties ever assessed on a political group for failing to disclose
donations”); ALEXANDER, supra note 29, at 6 (“[I]f an entity is donating in a California election for the first
time, it is exempt from having to form a committee and is not required to disclose its donors.”).
55. Settlement Agreement, supra note 38, at 12–17.
56. Order Granting Preliminary Injunction, supra note 13, at 1 (stating that there was no record of ARL
previously making a political payment in California); see also note 46 supra.
57. Skelton, supra note 5 (“No one still can say with certainty who actually forked out the millions, but
the secretive network of nonprofits had ties to right-wing billionaires Charles and David Koch. So virtually
everyone assumes it was the out-of-state Koch brothers who were secretly playing in California politics.”).
58. See, e.g., Letter from Melissa Mikesell, Alliance for Justice, to Mike Gatto, Chair, California State
Assembly Committee on Appropriations (Aug. 22, 2013) (on file with the McGeorge Law Review) (urging the
passage of SB 27); Skelton, supra note 5 (encouraging lawmakers to compromise in order to pass SB 27).
341
2014 / Government
III. CHAPTER 16
59
Chapter 16 expands upon the Political Reform Act of 1974 by
implementing heightened reporting requirements for both nonprofit
60
61
organizations and primarily formed committees, as well as increasing the
62
availability of information regarding campaign finance to voters.
A. Reporting Requirements for Multipurpose Organizations
Chapter 16 defines a previously undefined type of organization: the
63
multipurpose organization (MPO). MPOs include any “association or group of
persons acting in concert, that is operating for purposes other than making
64
contributions or expenditures.” This new category encompasses both nonprofit
65
organizations and political groups based outside of California. Perhaps most
importantly, it includes “social welfare organizations” created under section
66
501(c)(4) of the Internal Revenue Code. If an MPO qualifies as a recipient
committee, a political organization that receives and distributes money for
67
68
political purposes, it will be subject to heightened reporting requirements.
Chapter 16 describes four possible situations when a multipurpose organization
69
qualifies as a recipient committee for purposes of the Act: (1) it spends $1,000
or more on political contributions and is registered out-of-state as a political
70
committee; (2) it solicits donations for the express purpose of making political
59. 2014 Cal. Stat. ch. 16, § 11 (finding that Chapter 16 “furthers the purposes of the Political Reform Act
of 1974”).
60. CAL. GOV’T CODE § 84222 (enacted by Chapter 16).
61. Id. § 84223 (enacted by Chapter 16). A primarily formed committee is “[a] committee primarily
formed to support or oppose a state ballot measure or state candidate . . .” Id.
62. Id. § 88001 (amended by Chapter 16).
63. Id. § 84222(a) (enacted by Chapter 16).
64. Id. Specific examples of multipurpose organizations include religious, trade, professional, civic, and
fraternal organizations, educational institutions, out-of-state political organizations, and nonprofit organizations
falling under sections 501(c)(3)–(10) of the Internal Revenue Code. Id. Individuals, business entities, and
authorized candidate committees are not MPOs. Id.
65. Id. (stating that “a federal or out-of-state political organization” and “an organization described in
sections 501(c)(3) to 501(c)(10), inclusive, of the Internal Revenue Code” are both MPOs under Chapter 16).
66. Id. (defining MPOs to include “an organization described in sections 501(c)(3) to 501(c)(10),
inclusive, of the Internal Revenue Code”). 501(c)(4) organizations must maintain the promotion of social
welfare as their primary purpose. 26 U.S.C. § 501(c)(4)(A) (2012). Such organizations do not need to disclose
their donors to the federal government. Donny Shaw, “Social Welfare” Groups Dominate Dark Money
Spending on Congressional Elections, MAPLIGHT, http://maplight.org/content/73410 (last visited July 13,
2014). See infra Part IV.A (discussing the role of 501(c)(4) organizations in the proliferation of anonymous
political contributions).
67. GOV’T § 84222(c) (enacted by Chapter 16).
68. Id. § 84222(d)–(e) (enacted by Chapter 16).
69. Id. § 84222(c) (enacted by Chapter 16).
70. Id. § 84222(c)(1) (enacted by Chapter 16); Id. § 82013 (West 2005) (setting a $1,000 threshold for
qualification as a recipient committee). Out-of-state political committees include those registered with the
342
McGeorge Law Review / Vol. 46
71
contributions and receives $1,000 or more; (3) it receives $1,000 or more from
72
donors who know that the funds will be used for political purposes; or (4) it
spends $50,000 during a twelve-month period or $100,000 over a period of four
73
years for political purposes.
MPOs that qualify as recipient committees must register with the California
Secretary of State and report the sources of any funds used to make political
74
contributions or expenditures in California. Qualifying MPOs must first report
75
all donors who earmark their contributions for political purposes. If this
reporting fails to account for all funds spent on contributions and expenditures in
California, then the multipurpose organization must disclose all donations of
$1,000 or more in reverse chronological order until an amount equal to its
76
contributions and expenditures is accounted for. This second method of
disclosure is carried out with no reference to whether the organization has made
77
political payments in the past. Organizations need not disclose donors who
78
affirmatively request that their donations not be used for political purposes.
B. Reporting Requirements for Primarily Formed Committees
Chapter 16 also sets new reporting requirements for committees formed
79
primarily to support or oppose a particular candidate or ballot measure. Any
such committee that raises $1 million or more must maintain a list of its ten
80
largest financial contributors and must submit the list to the FPPC for posting
81
on the FPPC web site. The committee must update the list any time there is a
Federal Election Commission (FEC) or in another state. Id. § 84222(c)(1) (enacted by Chapter 16).
71. Id. § 84222(c)(2) (enacted by Chapter 16); id. § 82013 (West 2005) (setting a $1,000 threshold for
qualification as a recipient committee).
72. Id. § 84222(c)(3) (enacted by Chapter 16). If a donor gives $1,000 or more to a multipurpose
organization and only later agrees that the funds may be used for contributions or expenditures, the
multipurpose organization will still be considered a recipient committee. Id. § 84222(c)(4) (enacted by Chapter
16); id. § 82013 (West 2005) (setting a $1,000 threshold for qualification as a recipient committee).
73. Id. § 84222(c)(5) (enacted by Chapter 16). The multipurpose organization will not be considered a
recipient committee if the contributions were made with nondonor funds, which include income from the
provision of services, sale of goods, and capital gains. Id. § 84222(c)(5)(A)–(B) (enacted by Chapter 16).
74. Id. § 84222(d)–(e) (enacted by Chapter 16). A multipurpose organization which qualifies as a
recipient committee because of its federal or out-of-state registration as a political committee is not required to
report information regarding its donors. Id. § 84222(d) (enacted by Chapter 16).
75. Id. § 84222(e)(1)(C) (enacted by Chapter 16). Only donors who have given a cumulative amount of
$100 or more must be disclosed. Id. § 84211(f) (West 2005).
76. Id. § 84222(e)(1)(C) (enacted by Chapter 16).
77. See id.§ 84222(c)(1)–(5) (enacted by Chapter 16) (making no reference to an organization’s past
contributions).
78. Id. § 84222(e)(2)(A)–(B) (enacted by Chapter 16).
79. Id. § 84223 (enacted by Chapter 16).
80. Id. § 84223(a) (enacted by Chapter 16). An organization need only include donors who have
contributed $10,000 or more. Id. § 84223(b)(4) (enacted by Chapter 16).
81. Id. § 84223(a), (c) (enacted by Chapter 16).
343
2014 / Government
82
83
change in the identity, relative ordering, or contribution level of any of the
84
committee’s ten largest donors. If one of the committee’s ten largest
contributors is itself a recipient committee, the FPPC can request that the list
85
identify that committee’s ten largest contributors as well. Committees must
86
make reasonable efforts to identify the actual sources of funds received.
C. Publication of Top Ten Lists
In addition to listing contributors to primarily formed committees, the FPPC
must “compile, maintain, and display on its Internet Web site a current list of the
87
top [ten] contributors supporting and opposing each state ballot measure . . . .”
In its official ballot pamphlet, the Secretary of State’s office must explain the
88
contributor lists and describe where voters may view the lists. All provisions of
89
Chapter 16 went into effect on July 1, 2014.
IV. ANALYSIS
Chapter 16 attempts to reduce the prevalence of anonymous political
90
payments in California elections. Part A examines the rise of dark money, both
in the State of California and in the United States generally. Part B explains the
current controversy surrounding dark money in politics. Part C discusses the
effects of Chapter 16 on dark money in California, particularly its elimination of
the one-bite rule. Part D describes some commentators’ reactions to Chapter 16.
A. The Rise of Dark Money
Anonymous contributions have regularly occurred in federal and California
91
elections. Until the passage of Chapter 16, California law permitted anonymous
contributions through the one-bite rule, a feature of the California Code of
92
Regulations; Federal law continues to allow anonymous contributions after a
82. Id. § 84223(c)(2)(A) (enacted by Chapter 16).
83. Id. § 84223(c)(2)(C) (enacted by Chapter 16).
84. Id. § 84223(c)(2)(B) (enacted by Chapter 16).
85. Id. § 84223(b)(1) (enacted by Chapter 16).
86. Id. § 84223(d) (enacted by Chapter 16).
87. Id. § 84223(e) (enacted by Chapter 16).
88. Id. § 88001(m) (amended by Chapter 16); ELEC. § 9084(m) (amended by Chapter 16).
89. 2014 Cal. Stat. ch. 16, § 10.
90. Id. § 1(e).
91. See, e.g., ALEXANDER, supra note 29, at 7 (describing several anonymous contributions in recent
California ballot measure campaigns); Malloy, supra note 4, at 433.
92. See CAL. CODE REGS. tit. 2, § 18215(b)(1) (2014) (requiring disclosure of the sources of a
contribution when the contributing entity has made political donations of $1,000 or more in the past).
344
McGeorge Law Review / Vol. 46
2007 decision by the FEC greatly expanded the ability of corporations and labor
93
unions to donate anonymously to political campaigns.
1. Dark Money in Federal Elections
Recent federal elections have seen a notable rise in anonymous political
94
spending by nonprofit organizations. This phenomenon is primarily attributable
to two recent changes in federal law: the 2007 amendment of title 11, section
104.20 of the Code of Federal Regulations and the U.S. Supreme Court’s 2010
95
ruling in Citizens United v. Federal Election Commission.
The FEC is the governmental body responsible for promulgating and
96
enforcing regulations on federal election financing. In 2007, the FEC amended
the disclosure requirements for corporations and labor organizations that make
electioneering communications, which are media communications that clearly
97
identify a candidate for office and target the candidate’s electorate. Such
organizations must file a report that discloses the identity of any contributor who
gives $1,000 or more “for the purpose of furthering electioneering
98
communications.” Essentially, the contributor must earmark the payment to be
used toward a political communication in order for the recipient to be required to
99
disclose the identity of the contributor. This shift in campaign finance reporting
significantly narrowed the scope of donations that must be disclosed and resulted
in only a small percentage of the contributions behind electioneering
100
communications being reported to the FEC.
93. See Trevor Potter & Bryson B. Morgan, The History of Undisclosed Spending in U.S. Elections &
How 2012 Became the “Dark Money” Election, 27 NOTRE DAME J.L. ETHICS & PUB. POL’Y 383, 453–54
(2013) (describing the FEC’s decision to narrow disclosure requirements for corporations and labor unions);
FED. ELECTION COMM’N, MINUTES OF AN OPEN MEETING OF THE FEDERAL ELECTION COMMISSION 4 (Nov. 20,
2007), available at http://www.fec.gov/agenda/2007/approve07-79.pdf (on file with the McGeorge Law Review)
(narrowing the scope of when a party making an electioneering communication must disclose the sources of its
funds).
94. Malloy, supra note 4, at 433. “In 2006, only about 1% of independent spending in the election was
undisclosed; by contrast, in 2010, approximately 47% of all independent electoral spending was made through
groups that did not disclose their donors.” Id.
95. Id. Citizens United v. Fed. Election Comm’n held unconstitutional a federal statute limiting the
amount that corporations may spend on independent expenditures and electioneering communications. 130 S.
Ct. 876, 896–99 (2010).
96. About the FEC, FED. ELECTION COMM’N, http://www.fec.gov/about.shtml (last visited July 12, 2014)
(on file with the McGeorge Law Review).
97. FED. ELECTION COMM’N, supra note 93; Potter & Morgan, supra note 93, at 453–54; Malloy, supra
note 4, at 437. An electioneering communication is “any broadcast, cable, or satellite communication that . . .
[r]efers to a clearly identified candidate for Federal office . . . [i]s publicly distributed within 60 days before a
general election . . . or within 30 days before a primary . . . and . . . [i]s targeted to the relevant electorate.” 11
C.F.R. § 100.29(a)(1)–(3) (2014).
98. 11 C.F.R. § 104.20(c)(9) (2014).
99. Malloy, supra note 4, at 437–48.
100. Potter & Morgan, supra note 93, at 457. “In 2010, persons (including corporations and unions)
disclosed the sources of the funds used to air electioneering communications for less than ten percent of the
345
2014 / Government
Another reason for the rise of dark money in federal elections was the 2010
101
case Citizens United v. Federal Elections Commission. The Supreme Court
ruled that the federal statute prohibiting corporations from making independent
expenditures and electioneering communications from their general treasuries
102
was unconstitutional. Accordingly, corporations no longer needed to make
political expenditures through PACs, but could make them through nonprofit
103
organizations as well. Until Citizens United, “non-profit corporations were . . .
barred from using treasury funds to make campaign-related contributions or
expenditures unless . . . they did not accept contributions from business
104
corporations or unions.” Citizens United eliminated this constraint on the
political activities of nonprofit organizations, allowing them to receive limitless
contributions from business corporations while continuing to make political
105
payments directly from their general treasuries.
The ability of corporations and nonprofit organizations to make unlimited
expenditures with limited donor disclosure requirements creates a golden
106
opportunity for donors to make anonymous contributions. By contributing to a
nonprofit organization without earmarking the donation for a specific political
107
purpose, a donor can easily evade disclosure. Under Citizens United, the
nonprofit organization is then free to use the donation to make political
108
expenditures, so long as political expenditures on behalf of candidates do not
109
become the organization’s primary purpose. There is no consensus on when
candidate-based election spending becomes an organization’s primary purpose,
but some experts argue that an organization can contribute 49.9% of its budget to
110
candidates while still maintaining its 501(c)(4) status. A nonprofit organization
can be set up with an ambiguous name that does not reveal the true identity of its
111
backers nor the organization’s actual intentions. Donors can then use the
total $79.9 million spent during that election cycle on such communications.” Id.
101. Malloy, supra note 4, at 427–29.
102. Citizens United v. Fed. Election Comm’n, 130 S. Ct. 876, 913 (2010) (invalidating 2 U.S.C. §
441(b) as an unconstitutional prohibition of speech by a particular class of speakers).
103. Malloy, supra note 4, at 428–29.
104. Id. at 430 n.22.
105. Potter & Morgan, supra note 93, at 458; Malloy, supra note 4, at 427–29.
106. Potter & Morgan, supra note 93, at 477–78.
107. Ciara Torres-Spelliscy, Safeguarding Markets from Pernicious Pay to Play: A Model Explaining
Why the SEC Regulates Money in Politics, 12 CONN. PUB. INT. L.J. 361, 394–95 (2013).
108. Malloy, supra note 4, at 430 n.22.
109. Organizations created under § 501(c)(4) must make social welfare their primary purpose. 26 U.S.C.
§ 501(c)(4)(A) (2012). Political expenses on behalf of candidates are not considered to be in furtherance of
social welfare. 26 C.F.R § 1.501(c)(4)(a)(2)(ii) (2013).
110. Paul Blumenthal, What You Need to Know About the Obama Administration’s Proposed ‘Dark
Money’ Rules, HUFFINGTON POST (Nov. 27, 2013, 4:07 PM), http://www.huffingtonpost.com/2013/11/27/darkmoney_n_4351186.html (on file with the McGeorge Law Review).
111. See Interest Group Advertising Pours into Senate Races, WESLEYAN MEDIA PROJECT,
http://mediaproject.wesleyan.edu/2014/04/29/interest-group-advertising-pours-into-senate-races/ (last visited
July 13, 2014) (on file with the McGeorge Law Review) (observing that ads are effective “especially . . . when
346
McGeorge Law Review / Vol. 46
resulting “shell” organization as a vehicle for channeling political funds, while
112
remaining anonymous themselves.
Following these developments, the nonprofit organization quickly became
113
the predominant entity for the disbursement of political funds. Powerful interest
groups established 501(c) affiliates to accommodate backers who wished to
114
remain anonymous. Political contributions by 501(c) organizations grew from
115
nearly nothing in 2006 to over 40% of all independent spending in 2010. Social
welfare organizations created under 501(c)(4) “increased spending on
116
congressional elections from $84 million in 2010 to $133 million in 2012.”
Early data on the 2014 midterm election has shown that 59% of television
advertisements for U.S. Senate races are funded by outside political groups and
59% of these groups are 501(c) organizations that do not report the sources of
117
their funds. Consequently, over one-third of the advertisements currently aired
118
concerning senatorial candidates are paid for anonymously. Since 2007, an
extensive system of nonprofit organizations has come into existence, exerting an
119
unprecedented level of anonymous influence on political races in the U.S.
2. Dark Money in California Elections
Dark money has appeared in California elections in recent years, although
120
resulting from a different set of disclosure laws. Under the one-bite rule, a
nonprofit or out-of-state political organization may make political contributions
without disclosing its donors if it has not made political contributions in
people know very little about the group except that it has a nice name”). Studies show that voters are actually
more accepting of advertisements paid for by organizations than those funded by candidates. Id.
112. Potter & Morgan, supra note 93, at 461–62.
113. See Malloy, supra note 4, at 432–33 (“In the 2006 midterm election 501(c) groups conducted
virtually no independent spending, whereas in 2010, 501(c) groups accounted for approximately 42% of
independent spending. Indeed, in 2010, the largest two spenders were the U.S. Chamber of Commerce, a
501(c)(6) group, and American Action Network, a 501(c)(4) group, spending $32.9 and $26.1 million
respectively.”).
114. See, e.g., Potter & Morgan, supra note 93, at 463–64 (describing Karl Rove’s creation of Crossroads
GPS, a 501(c)(4) spin off of his American Crossroads super PAC). “Democrats took advantage of this dualentity strategy as well, forming the pro-Obama super PAC Priorities USA Action and creating a 501(c)(4)
counterpart, Priorities USA.” Id. at 464.
115. Malloy, supra note 4, at 432.
116. Shaw, supra note 66.
117. Interest Group Advertising Pours into Senate Races, supra note 111.
118. See id. (stating that 59% of current advertisements for U.S. Senate races are paid for by outside
groups, and 59% of these groups do not disclose their donors’ identities). Thus, 34.81% of advertisements in
Senate races are paid for anonymously. Id.
119. See Malloy, supra note 4, at 457–58 (“[C]itizens must now . . . contend with . . . an unprecedented
lack of transparency in federal elections . . . .”).
120. See, e.g., ALEXANDER, supra note 29, at 7 (describing several anonymous contributions in recent
California ballot measure campaigns).
347
2014 / Government
California in the past and the funds that it receives are not earmarked for political
121
purposes.
This rule has allowed for millions of dollars to be spent on anonymous
122
political contributions in the state. For example, Proposition 23, a 2010 ballot
measure, would have overturned legislation requiring a statewide reduction in
123
greenhouse gas emissions. Groups, including several 501(c) organizations,
spent over $36 million on campaigns to support and oppose Proposition 23, and
124
much of this money was contributed anonymously. This is because certain
groups that spent money for or against Proposition 23 were “first-time major
donors,” and such groups did not need to disclose their financial sources under
125
the one-bite rule. The existence of dark money in California elections received
increased public attention during the 2012 general election when the FPPC
126
brought its enforcement action against ARL.
The influence of 501(c)(4) “social welfare” organizations in California is
broadened by the fact that the IRS does not consider expenditures on ballot
127
measure campaigns to be political spending. In order to maintain its 501(c)(4)
status, an organization must be “operated exclusively for the promotion of social
128
welfare.” “[S]ocial welfare does not include direct or indirect participation or
intervention in political campaigns on behalf of or in opposition to any candidate
129
for public office.” Conspicuously absent from this limitation on the activities of
501(c)(4) organizations is the provision of funds to support ballot measure
130
campaigns. Furthermore, a 501(c)(4) organization can maintain its nonprofit
status so long as political spending on candidate races does not become the
121. See supra Part II.C (discussing the one-bite rule in depth).
122. See ALEXANDER, supra note 29, at 7 (listing contributors to Proposition 23 in 2010, including $3
million of spending by the National Wildlife Federation, for which no donors were reported).
123. CALIFORNIA ATTORNEY GENERAL, PROPOSITION 23: OFFICIAL TITLE AND SUMMARY (2010),
available at http://vig.cdn.sos.ca.gov/2010/general/pdf/english/23-title-summ-analysis.pdf (on file with the
McGeorge Law Review).
124. ALEXANDER, supra note 29, at 7.
125. Id. The Adam Smith Foundation spent $498,000 to support Proposition 23, and the group did not
need to report its donors. California Prop. 23—Campaign Contributions—Nov. 2010, MAPLIGHT,
http://maplight.org/content/california-prop-23-nov-2010 (last updated Nov. 4, 2010) (on file with the McGeorge
Law Review). The National Wildlife Federation spent $3 million opposing the measure and was not required to
report either. Id.
126. See, e.g., Kevin Yamamura, FCCP Says Arizona Nonprofit Laundered Money to CA Campaign,
SACRAMENTO BEE, Nov. 5, 2012, http://blogs.sacbee.com/capitolalertlatest/2012/11/fppc-accuses-arizonanonprofit-of-money-laundering.html (on file with the McGeorge Law Review) (describing the events of the
ARL case as they unfolded shortly before the 2012 election).
127. Ballot Measure Money Not Political Under IRS Loophole, NEWS10.NET (Nov. 11, 2013, 5:34 PM),
http://www.news10.net/ news/article/262992/2/Ballot-measure-money-not-political-under-IRS-loophole (on file
with the McGeorge Law Review).
128. 26 U.S.C. § 501(c)(4)(A) (2012).
129. 26 C.F.R § 1.501(c)(4)(a)(2)(ii) (2013).
130. See id. (referring only to contributions “on behalf of or in opposition to any candidate” when setting
limitations on what 501(c)(4) groups may do).
348
McGeorge Law Review / Vol. 46
131
organization’s primary purpose. This feature of the law allows social welfare
groups to offset their “political” spending (on races for elective office) by simply
132
spending a slightly greater amount on ballot measure races. Thus, 501(c)(4)
groups can devote all of their resources to political purposes while still
133
withholding the identities of their backers. This effect is especially pronounced
in California where ballot measures play a greater role than in any other state in
134
the nation.
The $11 million that ARL and the Center spent toward two California ballot
measures is an example of how the rise of dark money on the national stage has
135
had a direct impact on California elections. The donation originated from the
136
Center, an organization at the hub of the network of nonprofit organizations
137
tied to David and Charles Koch. The Koch Brothers’ network is comprised of
nonprofit organizations, including the Center, Americans for Job Security, and
138
America Future Fund, none of which disclose their financial backers. The Koch
network raised and spent approximately $407 million during the 2012 election
139
cycle, making it one of the largest sources of political money in the nation.
Thus, the $11 million spent to influence voting in California was inextricably tied
140
to the larger phenomenon of dark money in federal elections across the country.
The numerous 501(c)(4) organizations that were established to take advantage of
a particular feature of federal law could, by exploiting the one-bite rule, focus
141
their influence on California elections.
131. Potter & Morgan, supra note 93, at 465 (stating that the U.S Department of the Treasury has created
the primary purpose test to determine whether 501(c)(4) organizations are operating to promote social welfare).
132. Ballot Measure Money Not Political Under IRS Loophole, supra note 127.
133. See id. (explaining how an IRS loophole allows nonprofit social welfare groups to spend 100% of
their funds on politics by ensuring that slightly more is spent on ballot measures than candidates); supra Part
II.C (explaining the one-bite rule that allows nonprofits to withhold the names of their donors).
134. Ballot Measure Money Not Political Under IRS Loophole, supra note 127.
135. See supra Part II.D (explaining how ARL and the Center were able to keep the sources of the
$11million contribution secret).
136. Letter from Kirk Adams, President, Americans for Responsible Leadership, to James V. Lacy,
Treasurer, Small Business Action Committee PAC (Nov. 5, 2012) (on file with the McGeorge Law Review).
137. Viveca Novak, Americans for Responsible Leadership Wholly Funded by Koch-Linked Group,
OPENSECRETS.ORG (Dec. 13, 2013), https://www.opensecrets.org/news/2013/12/americans-for-responsibleleadership-wholly-funded-by-koch-linked-group/ (on file with the McGeorge Law Review); Confessore, supra
note 54 (including a chart of the Koch Brothers’ nonprofit network, in which the Center plays a central role).
138. Confessore, supra note 54.
139. Matea Gold, Koch-Backed Political Network, Built to Shield Donors, Raised $400 Million in 2012
Elections, WASH. POST, Jan. 5, 2014, http://www.washingtonpost.com/ politics/koch-backed-political-networkbuilt-to-shield-donors-raised-400-million-in-2012-elections/2014/01/05/9e7cfd9a-719b-11e3-938909ef9944065e_story.html (on file with the McGeorge Law Review).
140. See Letter from Kirk Adams, supra note 136 (noting that the Center was the source of the $11
million contribution to influence two California ballot measure races); Confessore, supra note 54 (stating that
the Center is an integral part of the Koch Brothers’ nationwide network of nonprofit organizations).
141. See Potter & Morgan, supra note 93, at 462–63 (describing how interest groups have formed
501(c)(4) groups to make anonymous political contributions in various U.S. elections); Laurel Rosenhall,
California FPPC Issues Record Fine for Failure to Disclose Source of Mystery Money, SACRAMENTO BEE, Oct.
24, 2013, http://www.sacbee.com/2013/10/24/5850790/california-fppc-issues-record.html (on file with the
349
2014 / Government
B. Dark Money: Liberty or Liability?
Opponents of anonymous political contributions and expenditures argue that
142
such payments are detrimental to the transparency that should exist in elections.
The disclosure of political donors has the ability to educate voters about who is
advocating a certain position, allowing voters to more fully evaluate political
143
viewpoints. Further, all campaign finance rules, even those not related to
144
disclosure itself, are more easily enforced if donations are openly reported.
The U.S. Supreme Court has expressed its support for disclosure on multiple
145
occasions. In Citizens United, Justice Kennedy displayed strong support of
disclosure requirements, stating “[t]he First Amendment protects political
speech; and disclosure permits citizens and shareholders to react to the speech of
146
corporate entities in a proper way.” Referring to the practice of disclosing the
identity of donors, Justice Brandeis famously stated that “[s]unlight is said to be
147
the best of disinfectants . . . .” In the post-Citizens United world, disclosure is
148
gaining traction as a tool to limit the influence of money in politics.
However, supporters of anonymous contributions claim that anonymity is
part of the freedoms of speech and association guaranteed by the First
149
Amendment. They argue that disclosure has a chilling effect on political
150
151
contributions, which are a form of constitutionally protected speech.
McGeorge Law Review) (explaining how the Center and ARL utilized the one-bite rule to make an anonymous
donation in California).
142. See, e.g., Ravel, supra note 5 (“Dark money undermines trust in elections and contributes to
disengagement from government.”).
143. Buckley v. Valeo, 424 U.S. 1, 66–67 (1976) (“[Disclosure] allows voters to place each candidate in
the political spectrum more precisely than is often possible solely on the basis of party labels and campaign
speeches”); Ravel, supra note 5.
144. Buckley, 424 U.S. at 67–68; see also Settlement Agreement, supra note 38, at 12 (“In general, failure
to disclose the true source of contributors deprives the public of important knowledge about who is funding
campaigns and how it impacts the campaign messages they receive.”). It was not at first apparent that ARL was
violating rules against campaign money laundering because the organization was claiming the right not to
disclose its sources under the one-bite rule. Id.. ARL’s and the Center’s violations of anti-laundering rules were
eventually uncovered, but only after a hard-fought court battle. Id. at 11–12.
145. Buckley, 424 U.S. at 67–68 (stating that disclosure “aid[s] the voters in evaluating those who seek
federal office”); Citizens United v. Fed. Election Comm’n, 130 S. Ct. 876, 916 (2010) (“[P]rompt disclosure of
expenditures can provide shareholders and citizens with the information needed to hold corporations and elected
officials accountable for their positions and supporters.”).
146. Citizens United, 130 S. Ct. at 916.
147. LOUIS D. BRANDEIS, OTHER PEOPLE’S MONEY AND HOW THE BANKERS USE IT 92 (Frederick A.
Stokes Co. 2nd prtg. 1914) (1913).
148. See Adam Liptak, A Blockbuster Case Yields an Unexpected Result, N.Y. TIMES, Sept. 19, 2011,
http://www.nytimes.com/2011/09/20/us/disclosure-may-be-real-legacy-of-citizens-unitedcase.html?module=Search&mabReward=relbias%3Ar (on file with the McGeorge Law Review) (highlighting
the disclosure requirements upheld in Citizens United).
149. MonicaYoun, Proposition 8 and the Mormon Church: A Case Study in Donor Disclosure, 81 GEO.
WASH. L. REV. 2108, 2132 (2013).
150. Id. at 2110.
151. Buckley v. Valeo, 424 U.S. 1, 16 (1976).
350
McGeorge Law Review / Vol. 46
Contributors may fear the consequences of public disapproval resulting from the
152
disclosure of their political contributions. For example, on April 3, 2014,
Brendan Eich, the CEO and cofounder of Mozilla, resigned his position with the
tech company in response to public outcry over his $1,000 contribution in
support of Proposition 8, the 2008 California ballot initiative to prohibit gay
153
marriage. Other supporters of the controversial measure have reported negative
reactions stemming from the disclosure of their donations to the “Yes on 8”
154
campaign, including boycotts and death threats. Additionally, there is concern
that the complexity of reporting forms and deadlines serves to discourage
organizations from political participation because of the possibility of
155
inadvertently violating disclosure laws.
C. Chapter 16: Reducing Dark Money and Increasing the Availability of
Campaign Finance Information
Chapter 16 will limit the amount of dark money spent in California elections
156
by eliminating anonymous contributions by MPOs under the one-bite rule and
157
requiring the publication of new types of data regarding political contributions.
1. Elimination of the One-Bite Rule
Chapter 16 adds section 84222 to the Government Code, which effectively
ends the reporting loophole that allowed one-time anonymous contributions in
158
California. Section 84222 requires that if an MPO spends a certain amount of
money on California politics, then that organization must report the sources of
159
the funds spent. The new law requires qualifying MPOs to disclose their
sources, regardless of whether the organization has made political contributions
152. See Youn, supra note 149, at 2126–28 (detailing the public backlash against supporters of
California’s Proposition 8 in 2008).
153. FAQ on CEO Resignation, MOZILLA BLOG (Apr. 5, 2014), https://blog.mozilla.org/blog/2014/04/
05/faq-on-ceo-resignation/ (on file with the McGeorge Law Review).
154. Youn, supra note 149, at 2126–28.
155. Mikesell, supra note 58; E-mail from Nayantara Mehta, Senior Counsel, Alliance for Justice, to Hyla
Wagner, Senior Staff Counsel, Fair Political Practices Comm’n (June 17, 2014, 8:50 AM), available at
http://fppc.ca.gov/IPmeetings/2014/20140617_IP_Meeting_Comment_Letters2.pdf (on file with the McGeorge
Law Review) (urging the FPPC to enact regulations that do “not unduly burden legitimate nonprofit
multipurpose organizations influencing ballot measures in California”).
156. See CAL. GOV’T CODE § 84222(c)(5), (e) (enacted by Chapter 16) (requiring MPOs to disclose their
sources after making any political contributions totaling $50,000 in one year or $100,000 in four years).
157. See id. § 84223 (enacted by Chapter 16) (requiring the FPPC to publish a list of the top ten
contributors to each committee formed primarily to support or oppose a ballot measure or candidate).
158. See id. § 84222(c)(5), (e) (enacted by Chapter 16) (requiring MPOs to report the names of donors if
the organization makes political payments totaling $50,000 in a single year, regardless of whether the
organization had made any political payments in California in the past).
159. Id. § 84222(c)(5), (e) (enacted by Chapter 16).
351
2014 / Government
160
in the past. This is a dramatic shift from prior law, which protected a donor’s
identity if the recipient organization had not made prior political contributions in
161
California. Under Chapter 16, an organization may only avoid disclosing
individual donors by affirmatively showing that a donor did not intend his
162
contribution to be used for political purposes. Thus, Chapter 16 shifts the
burden of proof from the government to MPOs: rather than the FPPC having to
compel disclosure by proving a donor’s knowledge of an organization’s political
purposes, the MPO must prove the donor’s lack of such knowledge in order to
163
avoid disclosure. Chapter 16 requires expanded disclosure by MPOs and
164
eliminates the one-bite rule.
2. Greater Availability of Campaign Finance Information
Chapter 16 also contains provisions to provide voters with more information
165
regarding the financing of campaigns in California. The top ten donor lists that
recipient committees must submit will serve as an easily digestible format
through which voters can learn which interests are supporting a given candidate
166
or ballot measure. Though campaign finance information was already available
167
to the public online, this information was voluminous and difficult for the lay
168
voter to interpret quickly. The top ten lists condense the most important
169
information into a simple list. They will be available online, and the Secretary
of State’s official ballot pamphlet will inform voters as to where the lists may be
170
accessed. This feature of Chapter 16 will ensure that the information disclosed
160. See id. (requiring the disclosure of donors once an MPO makes political payments totaling $50,000
in one year, or $100,000 in a period of four years).
161. Compare CAL. CODE REGS. tit. 2, § 18215(b)(1) (2014) (requiring organizations to disclose donors
only if the organization had made prior political payments in California or the donor had earmarked the
contribution) with GOV’T § 84222(c)(5), (e) (enacted by Chapter 16) (requiring the disclosure of donors to any
MPO that spends $50,000 in a single year on California politics).
162. GOV’T § 84222(e)(2)(A)–(B) (enacted by Chapter 16) (creating an exception that MPOs need not
disclose donors who specifically request that their contributions not be used for making political expenditures or
contributions).
163. See id. § 84222(c)(5), (e) (enacted by Chapter 16) (requiring the disclosure of donors to any MPO
that spends $50,000 in a single year on California politics but creating an exception for donors who specifically
request that their contributions not be used for making political expenditures or contributions).
164. See id. (enacted by Chapter 16) (creating a presumption that will no longer allow MPOs to resist
disclosure by arguing that it had not made political payments in California in the past).
165. See Id. § 84223 (enacted by Chapter 16) (requiring primarily formed committees to report their top
ten donors for publication by the FPPC); id. § 88001(m) (amended by Chapter 16) (requiring the California
Secretary of State to publish information on the top ten lists in the official state ballot pamphlet).
166. Telephone Interview with Kim Alexander, President and Founder, California Voter Foundation (July
1, 2014) (notes on file with the McGeorge Law Review).
167. Raw Data for Campaign Finance and Lobbying Activity, CAL. SEC’Y OF STATE, http://www.sos.
ca.gov/prd/cal-access/ (last visited July 13, 2014) (on file with the McGeorge Law Review).
168. Interview with Kim Alexander, supra note 166.
169. Id.
170. GOV’T § 84223 (enacted by Chapter 16); id. § 88001(m) (amended by Chapter 16).
352
McGeorge Law Review / Vol. 46
will be available and comprehensible to voters who want to learn about a
171
campaign’s financial supporters.
D. Reactions to Chapter 16
Various groups active in California politics have expressed that the
172
elimination of the one-bite rule will be beneficial for California elections.
Supporters believe that the law closes a loophole in California’s disclosure
requirements and will prevent organizations from making anonymous
173
contributions in the state. Supporters of Chapter 16 see the abandonment of the
174
one-bite rule as a move toward greater transparency in elections.
Opponents of Chapter 16 claim that it is unnecessary in a state that already
175
has an “expansive and onerous” system of campaign finance rules. A report by
the California Senate Republican Caucus also claims that political operatives can
use the information that comes from disclosure for the purpose of harassing
176
donors. The specter of retribution has and continues to be one of the primary
177
rationales for political anonymity. However the Senate Republican Caucus
offers a more pragmatic basis for opposing the requirements of Chapter 16: it is
more likely to have an adverse effect on business interests than on labor unions
178
and other typically left-leaning groups.
V. CONCLUSION
Chapter 16 marks a significant shift in campaign finance disclosure
179
requirements in the State of California. Groups making large contributions to
171. Interview with Kim Alexander, supra note 166.
172. See ALEXANDER, supra note 29, at 6 (stating that the one-bite rule is “[t]he primary obstacle to full
disclosure of all funders in initiative campaigns . . . .”); interview with Sarah Swanbeck, supra note 43.
173. FPPC Press Release, May 14, 2014, supra note 7; Interview with Sarah Swanbeck, supra note 43;
Refreshing Developments: The Legislature Has Productive Week, supra note 7 (“With SB 27, California has
unmasked those secretive donors.”).
174. Chris Carson, California League Wins Fight Against Dark Money in California, SAN DIEGO FREE
PRESS, June 14, 2014, http://sandiegofreepress.org/2014/06/california-league-wins-fight-against-dark-moneyin-california/#.U8O98_ldWSq (on file with the McGeorge Law Review); Interview with Sarah Swanbeck, supra
note 43.
175. Republican Caucus Report, supra note 6.
176. Id.
177. See NAACP v Alabama, 357 U.S. 449, 462 (1958) (holding that the NAACP was not required to
disclose lists of its members, for fear of retribution by segregationists); Thomas B. Edsall, In Defense of
Anonymous Political Giving, N.Y. TIMES, Mar. 18, 2014, http://www.nytimes.com/2014/03/19/opinion/edsallin-defense-of-anonymous-political-giving.html?_r=0 (on file with the McGeorge Law Review) (quoting Koch
Industries spokesman Rob Tappan: “The rationale behind donor anonymity, which is a form of First
Amendment speech, is to protect against the threat of retaliation when someone or some group takes a stand,
espouses their point of view or articulates a position on issues that may (or may not) be popular with the general
public or the political party in majority power.”).
178. Republican Caucus Report, supra note 6.
179. Compare CAL. CODE REGS. tit. 2, § 18215(b)(1) (2014) (requiring organizations to disclose donors
353
2014 / Government
California politics will no longer be able to utilize the one-bite rule to avoid
180
disclosing their financial sources. While there are currently no signs that the
181
FEC intends to restrict the availability of dark money in federal elections, the
California legislature has taken a markedly different position toward the presence
182
of dark money in the State of California. Given the ever-increasing prevalence
of dark money in the United States, the success or failure of the policies enacted
by Chapter 16 could help to inform the larger debate on anonymous political
183
contributions.
only if the organization had made prior political payments in California or the donor had earmarked the
contribution) with CAL. GOV’T CODE § 84222(c)(5), (e) (enacted by Chapter 16) (requiring the disclosure of
donors to any MPO that spends $50,000 in a single year on California politics).
180. See GOV’T § 84222(c)(5), (e) (enacted by Chapter 16) (requiring the disclosure of donors if the
recipient organization makes political payments totaling $50,000 in one year or $100,000 in four years).
181. Potter & Morgan, supra note 93, at 478–79.
182. Id. at 453–54; compare FED. ELECTION COMM’N, supra note 93 (enacting regulations that allow
501(c)(4) groups to not disclose their donors) with GOV’T § 84222(c)(5), (e) (requiring the disclosure of donors
under specified circumstances).
183. Malloy, supra note 4, at 432 (describing the present increase in dark money contributions); Potter &
Morgan, supra note 93, at 479 (exploring various methods by which dark money could be restricted).
354
The CAPS Act: Enacting New Barriers Between Elected
Officials and Interest Groups
Elizabeth Kim
Code Sections Affected
Government Code § 82015 (amended).
SB 1441 (Lara); 2014 STAT. Ch. 930.
SB 1442 (Lara) (enrolled but not enacted).
SB 1443 (De León) (enrolled but not enacted).
TABLE OF CONTENTS
I.
INTRODUCTION ............................................................................................ 355 II. LEGAL BACKGROUND .................................................................................. 358 III. CHAPTER 930, SB 1442, AND SB 1443 ........................................................ 359 IV. ANALYSIS ..................................................................................................... 360 A. Closing the Fundraiser Loophole.......................................................... 361 B. Increased Reporting: Burden or Benefit? ............................................. 362 C. Does the Disclosure of Gifts Mitigate their Corrupting Influence? ...... 364 D. Shortcomings of the CAPS Act .............................................................. 365 V. CONCLUSION ................................................................................................ 366
“Elected officials must owe their allegiance to the people, not to their
own wealth or to the wealth of interest groups who speak only for the
1
selfish fringes of the whole community.”
I. INTRODUCTION
Over four decades ago, the people of California, through the initiative
process, enacted the Political Reform Act (the PRA) in support of the proposition
that “[p]ublic officials, whether elected or appointed, should perform their duties
in an impartial manner, free from bias caused by their own financial interests or
2
the financial interests of persons who have supported them.” California’s Office
of the Attorney General referred to the PRA as the single most important conflict
1. Fred Wertheimer & Susan Weiss Manes, Campaign Finance Reform: A Key to Restoring the Health of
Our Democracy, 94 COLUM. L. REV. 1126, 1127 (1994) (quoting Senator Barry Goldwater).
2. CAL. GOV’T CODE § 81001(b) (West 2005).
355
2014 / Government
3
of interest law in the state. Under the PRA, “[n]o public official at any level of
state or local government shall make, participate in making, or in any way
attempt to use his official position to influence a governmental decision in which
4
he knows or has reason to know he has a financial interest.”
Although the Legislature has made many substantive amendments to the
PRA, a report conducted by the Fair Political Practices Commission (FPPC)
showed that in 2013, conflict of interest violations involving political campaigns
and lobbying were at the “highest level ever” and that “conflict of interest
5
prosecutions continued at record high levels.” In January 2014, a jury found
Senator Ron Wright guilty of eight felony counts of perjury and voter fraud for
6
fraudulently claiming that he lived in his district. In February, Senator Ron
Calderon and former Assemblymember Tom Calderon, his brother, were indicted
on federal public corruption charges including allegations of mail and wire fraud,
7
bribery, money laundering, and tax fraud. In March, Senator Leland Yee was
arrested for firearm trafficking and accepting a bribe from undercover FBI
8
agents. In April, the FPPC fined Senator Tom Berryhill $40,000 for “serious and
9
deliberate violations” of campaign-finance rules.
In the midst of these corruption scandals, the FPPC issued two record setting
10
fines for violations of the PRA’s lobbying regulations. First, in September 2013
the lobbying firm California Strategies and three of its partners agreed to pay a
11
$40,500 fine for failing to register as lobbyists. Then, in early 2014, lobbyist
Kevin Sloat paid a $133,500 fine, the highest fine ever issued for a violation of
12
the PRA’s lobbying regulations. Sloat violated the PRA by making campaign
3. See GOV’T LAW SECTION CIVIL DIV., OFFICE OF THE ATTORNEY GEN., CONFLICTS OF INTEREST 6
(2010), available at http://oag.ca.gov/sites/all/files/agweb/pdfs/publications/coi.pdf (on file with the McGeorge
Law Review) (discussing the PRA as “the starting point in any consideration of conflict-of-interest laws in
California”).
4. GOV’T § 87100.
5. John Howard, FPPC: ‘Worst Ever’ Violations in 2013, CAPITOL WEEKLY (Feb. 5, 2014),
http://capitolweekly.net/fppc-worst-ever-violations-2013/ (on file with the McGeorge Law Review).
6. Jean Merl, Wright is Guilty of Voter Fraud, L.A. TIMES (Jan. 29, 2014), http://articles.latimes.
com/2014/jan/29/local/la-me-rod-wright-verdict-20140129 (on file with the McGeorge Law Review).
7. Melody Gutierrez, State Sen. Ron Calderon, Brother Indicted, S.F. GATE (Feb. 22, 2014),
http://www.sfgate.com/crime/article/State-Sen-Ron-Calderon-brother-indicted-5256860.php (on file with the
McGeorge Law Review).
8. Marisa Lagos et al., California State Sen. Yee Arrested in Corruption Case, S.F. GATE (Mar. 28, 2014),
http://www.sfgate.com/politics/article/California-state-Sen-Yee-arrested-in-corruption-5350602.php (on file
with the McGeorge Law Review).
9. Jim Miller, FPPC Upholds $40,000 Penalty Against Sen. Tom Berryhill, SACRAMENTO BEE (Apr. 24,
2014), http://blogs.sacbee.com/capitolalertlatest/fair-political-1/ (on file with the McGeorge Law Review).
10. See Laurel Rosenhall, California Senate Democrats Propose New Limits on Gifts, Fundraising,
MERCED SUN-STAR (Mar. 7, 2014), http://www.mercedsunstar.com/2014/03/07/ 3533744/california-senatedemocrats-propose.html (on file with the McGeorge Law Review) (reporting the criminal charges filed against
Senator Rod Wright for lying about living inside his district and the federal corruption charges filed against
Senators Ron Calderon and Leland Yee).
11. Id.
12. Id.
356
McGeorge Law Review / Vol. 46
13
contributions to candidates and arranging gifts for candidates. Furthermore, the
FPPC sent warning letters to nearly forty elected officials who had decadent
14
fundraisers at Sloat’s home. The FPPC found that the alcohol and cigars
supplied by Sloat at these events were gifts and that their value exceeded the
15
PRA’s gift limit.
In the aftermath of these scandals, Senate President pro Tempore Steinberg
and Senators Lara, De León, Corbett, Hill, Monning, Roth, and Torres
established the Senate Working Group on Ethics and introduced the California
Accountability in Public Service Act (the CAPS Act) to increase transparency
16
and accountability. The bill package proposed to end the free use of the homes
and offices of registered lobbyists and lobbying firms for campaign fundraisers,
increase the frequency of lobbying report filing, improve electronic access to
17
campaign and lobbying reports, and ban gifts from lobbyists to public officials.
Non-partisan groups supporting greater political transparency applauded the
Senators for taking action to regulate themselves and earn back the public’s
18
trust. Anthony Williams, Policy Director and Special Counsel to Senator
Steinberg, noted, “The American and California system of governance is a model
for the world yet any system needs a periodic review to ensure we are
19
maintaining, achieving, and enhancing our goals.” The Senators who worked on
these bills worked closely with the FPPC for the first time in more than two
decades to identify conflict of interest loopholes in the PRA and sought to close
20
them in order to regain the public’s trust.
Dan Schnur, director of the Jesse M. Unruh Institute of Politics at USC,
former Chairperson of the FPPC, and recent candidate for California Secretary of
State (SOS), expressed that while the CAPS Act represented progress, it did not
21
accomplish what he considered “broader, more necessary steps.” Sarah
Swanbeck, Policy and Legislative Affairs Advocate for Common Cause, stated,
13. Stipulation, Decision, and Order at 2, Kevin Sloat v. FPPC, No. 13/1201 (Cal. 2014) (on file with the
McGeorge Law Review).
14. Rosenhall, supra, note 10.
15. Id.
16. Senate Elections Committee Advances CA Accountability in Public Service Act (CAPS) Bills, OFFICE
OF SENATOR RICARDO LARA (Apr. 22, 2014), http://sd33.senate.ca.gov/news/2014-04-22-senate-electionscommittee-advances-ca-accountability-public-service-act-caps-bills (on file with the McGeorge Law Review).
17. Id.
18. See Christopher Nelson & Alexandra Bjerg, California Legislators Regulating Themselves with New
Transparency Bills, CAFWD.ORG REPORTING (Mar. 12, 2014), http://www.cafwd.org/reporting/entry/
california-legislators-regulating-themselves-with-new-transparency-bills (on file with the McGeorge Law
Review) (explaining that organizations such as California Fwd and other non-partisan groups supporting greater
transparency and improving government trust have endorsed the Senators’ efforts).
19. E-mail from Anthony Williams, Policy Director and Special Counsel to the Senate President pro
Tempore, to Elizabeth Kim, Greensheets Staff Writer, McGeorge Law Review (July 16, 2014, 11:19 PST) (on
file with the McGeorge Law Review).
20. Telephone Interview with Dan Schnur, Director, Jesse M. Unruh Institute of Politics, USC (July 10,
2014) (notes on file with the McGeorge Law Review).
21. Id.
357
2014 / Government
“Oftentimes what we’ll see is sort of reactionary legislation to a particular
22
scandal of the day.”
Despite the collaboration and compromises that went into constructing the
CAPS Act, Governor Brown vetoed Senate Bills 1442 and 1443, two of the three
23
bills in the ethics package.
II. LEGAL BACKGROUND
24
Existing law heavily regulates campaign finances. The PRA requires public
25
officials to disclose the contributions they receive. Current law defines a
contribution, subject to some specified exceptions, as payments, loans, or the
26
forgiveness of loans to candidates. Under a prior exception, if the cost of a
fundraising event, including the market value of the use of the property, to the
occupant of the home or office where the fundraising event occurred was less
than $500, those costs incurred by the occupant were not considered a
27
contribution. Although registered lobbyists are prohibited from making
28
contributions, this exception enabled lobbyists to, in effect, contribute up to
$500 per fundraising event to elected officials by hosting the event in their homes
29
or offices.
The PRA also imposes comprehensive reporting requirements on political
30
entities. During the ninety days preceding an election, candidates and
22. Fenit Nirappil, California Lawmakers Propose Reforms to Regain Public Trust After Series of
Scandals, L.A. DAILY NEWS (Apr. 6, 2014), http://www.dailynews.com/government-and-politics/20140406/
california-lawmakers-propose-reforms-to-regain-public-trust-after-series-of-scandals (on file with the
McGeorge Law Review) (raising the concern that legislators are not placing a high priority on political reform
as a long-term goal, but rather treating it as an immediate problem that needs to be addressed in order to move
on to other issue areas so that the public is not disgruntled).
23. Letter from Governor Edmund G. Brown Jr. to Members of the Cal. State Senate (Sept. 30, 2014)
[hereinafter SB 1442 Veto Message], available at http://gov.ca.gov/docs/SB_1442_Veto_Message.pdf; Letter
from Governor Edmund G. Brown Jr. to Members of the Cal. State Senate (Sept. 30, 2014) [hereinafter SB
1443 Veto Message], available at http://gov.ca.gov/docs/SB_1443_Veto_Message.pdf.
24. CAL. GOV’T CODE §§ 84100–85802 (West 2005).
25. GOV’T § 81002.
26. Id. § 82015(a) (“‘Contribution’ means a payment, a forgiveness of a loan, a payment of a loan by a
third party, or an enforceable promise to make a payment except to the extent that full and adequate
consideration is received, unless it is clear from the surrounding circumstances that it is not made for political
purposes.”).
27. Id. § 82015(f) (“‘Contribution’ does not include a payment made by an occupant of a home or office
for costs related to any meeting or fundraising event held in the occupant’s home or office if the costs for the
meeting or fundraising event are five hundred dollars ($500) or less.”).
28. Id. § 85702 (“An elected state officer or candidate for elected state office may not accept a
contribution from a lobbyist, and a lobbyist may not make a contribution to an elected state officer or candidate
for elected state office, if that lobbyist is registered to lobby the governmental agency for which the candidate is
seeking election or the governmental agency of the elected state officer.”).
29. Telephone Interview with Dan Schnur, supra note 20.
30. GOV’T §§ 84100–84511. The PRA specifies a large number of political entities including elected
officers, candidates, candidate controlled committees, committees formed primarily to oppose or support
candidates or ballot measures and general purpose committees. See id. §§ 82007, 82013, 82016, 82021, 82027.5,
358
McGeorge Law Review / Vol. 46
committees must report contributions of at least $1,000 within twenty-four hours
31
of receiving them. Similarly, committees making independent expenditures of at
least $1,000 within ninety days of an election are also required to report that
32
expenditure within twenty-four hours. Additionally, elected officers, candidates,
and committees receiving at least $1,000 in a calendar year must report the
33
contributions they receive on semi-annual statements. Failure to report
contributions properly may subject political entities to administrative, civil, or
34
criminal penalties.
Furthermore, the PRA establishes rules regulating the lobbying industry and
35
lobbyist interactions with public officials. It prohibits a lobbyist from making
36
gifts in aggregate of more than ten dollars per month to any single person.
Public officials, including state and local elected officials or candidates, may not
37
accept gifts worth more than $440 from any source per year.
III. CHAPTER 930, SB 1442, AND SB 1443
With the enactment of three Senate bills, the CAPS Act would have barred
lobbyists from paying for public officials’ fundraising events, increased the
frequency of committee reporting, expanded online reporting and disclosure, and
38
prohibited lobbyists from giving public officials gifts.
Chapter 930 amended the definition of a “contribution” to close a loophole
that allowed lobbyists to host fundraising events and bear up to $500 of the cost
39
of the event. A contribution now “includes a payment made by a lobbyist or a
cohabitant of a lobbyist for costs related to a fundraising event held at the home
[or office] of the lobbyist, including the value of the use of the home [or office]
40
as a fundraising event venue.” Lobbyists remain entirely barred from making
41
contributions to elected state officials or candidates for state office.
82047.5, 82047.7 (defining the enumerated entities).
31. Id. §§ 82036, 84203.
32. Id. §§ 82036.5, 84203.5. “Independent expenditure” is “an expenditure made by any person . . . in
connection with a communication which expressly advocates the election or defeat of a clearly identified
candidate or the qualification, passage or defeat of a clearly identified measure, or taken as a whole and in
context, unambiguously urges a particular result in an election but which is not made to or at the behest of the
affected candidate or committee.” Id. § 82031.
33. Id. § 84200.
34. Id. §§ 91000, 91001.
35. Id. §§ 86100–86300. “‘Public official’ means every member, officer, employee or consultant of a
state or local government agency.” Id. § 82048(a).
36. Id. § 86203. A notable exception allows lobbyists to make gifts to family members. Id. § 82028(b)(3).
37. Id. § 89503. The FPPC adjusts this amount in accordance with the Consumer Price Index. Id.
38. Id. § 82015(f) (amended by Chapter 930); SB 1442, 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on
Sept. 5, 2014, but not enacted); SB 1443, 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sept. 3, 2014, but
not enacted).
39. GOV’T § 82015(f) (amended by Chapter 930).
40. Id. § 82015(f)(2), (3) (amended by Chapter 930).
41. Id. § 85702 (West 2005).
359
2014 / Government
SB 1442, if Governor Brown had not vetoed it, would have required elected
officers and candidates for state office and committees receiving at least $1,000
in a calendar year to file campaign finance reports quarterly, twice as often as
42
previously required. It would have also subjected contributions or independent
43
expenditures over $1,000 to a twenty-four hour reporting requirement.
Furthermore, SB 1442 required the SOS to work with the FPPC to develop a
statewide electronic filing system that would have provided the public with all
44
records filed by specified entities with the SOS. The other changes offered by
SB 1442, including the switch to quarterly reporting requirements, would not
have become operative until after the SOS implemented this electronic filing
45
system.
If Governor Brown had not vetoed SB 1443 it would have prohibited
46
lobbyists from giving any gifts to elected officials. Additionally, the bill would
have reduced the aggregate value of gifts the PRA allowed public officials to
47
receive from a single source from $440 to $200. The bill also prohibited elected
officials, candidates, and legislative officials from accepting enumerated gifts,
including spa services, green fees, recreational trips, gift cards, and tickets to
48
concerts, sporting events, and theme parks.
IV. ANALYSIS
Robert Stern, the coauthor of the PRA, praised the CAPS Act as “the most
49
meaningful [group of] reform bills in two decades.” He also stated that he was
“extremely impressed that the Legislature had passed far-reaching legislation . . .
[and t]hat these bills would have vaulted California into the leadership of state
50
and federal lobbyist regulation.” However, Governor Brown vetoed two of the
three CAPS Act bills, citing, respectively, the technological infeasibility of SB
42. SB 1442 § 7, 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sept. 5, 2014, but not enacted).
43. Id. at §§ 1, 2.
44. Id. at § 19. Specified entities include committees, candidates, slate mailer organizations, multipurpose
organizations, and lobbyists. Id.
45. Id. at § 21.
46. SB 1443 § 1, 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sept. 3, 2014, but not enacted).
47. Id. Four-hundred-forty dollars is the adjusted gift value based on changes to the Consumer Price
Index. CAL. GOV’T CODE § 89503(f) (West 2005); Gift Limits and Honoraria, CAL. FAIR POLITICAL PRACTICES
COMM’N, http://www.fppc.ca.gov/index.php?id=31 (last visited Nov. 18, 2014). Under both current law and the
amendments proposed by SB 1443, gift restrictions only apply to local officials if they made a decision having a
“material financial effect” on the donor of the gift within twelve months of receiving the gift. GOV’T § 87103;
SB 1443 § 2, 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sept. 3, 2014, but not enacted).
48. Id. at § 3(g), (h), 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sept. 3, 2014, but not enacted).
49. Robert M. Stern, What Happened to Jerry Brown, the Reformer We Once Knew?, S.F. GATE (Oct. 9,
2014, 8:32 AM), www.sfgate.com/opinion/openforum/article/What-happened-toJerry-Brown-the-reformer-we5810178.php?cmpid=email-desktop#photo-6970668 (on file with the McGeorge Law Review).
50. Id.
360
McGeorge Law Review / Vol. 46
1442 and an imbalance between the “complexity” and the “commensurate
51
benefit” of SB 1443.
Part A discusses the impact of the closure of the fundraiser loophole, which
previously allowed a lobbyist to incur up to $500 in expenses for each fundraiser
52
held for an elected official if it occurred at the lobbyist’s home or office. Part B
analyzes the prospective consequences of more frequent reporting and upgrading
53
the current electronic database available to the public. Part C examines the
54
potential effect of a complete ban on lobbyist gifts to legislators. Part D offers
potential similar expansions to the PRA that were not addressed by the CAPS
55
Act.
A. Closing the Fundraiser Loophole
Scholars have long concerned themselves with the potential corrupting
influence of the lobbying process, especially when the exchange of money as a
56
gift or contribution occurs. Chapter 930 targeted the potential corrupting
influence of a monetary exchange between lobbyists and elected officials by
closing the loophole that allowed lobbyists who hosted fundraisers to donate up
57
to $500 of the cost of the fundraiser to the candidate. Speaking on behalf of her
own similar bill, Assemblymember Cristina Garcia explained, “It really makes no
sense that a lobbyist can’t buy lunch for a legislator for over $10, but can provide
elaborate, exclusive dinner parties simply by stating that it is under the $500 limit
58
. . . , [a]s we’ve seen these in-home lobbyist events fly under the legal radar.”
As a result, the FPPC and Common Cause, a political reform watchdog
organization, applauded these changes to the PRA as much-needed and long
59
overdue reforms. Additionally, Chapter 930 simplifies the law, enabling elected
officials and lobbyists alike to avoid inadvertent violations of the PRA caused by
60
lobbyist hosts failing to notify legislators when the $500 threshold was crossed.
51. SB 1442 Veto Message, supra note 23; SB 1443 Veto Message, supra note 23.
52. Infra Part VI.A.
53. Infra Part VI.B.
54. Infra Part VI.C.
55. Infra Part VI.D.
56. Werthheimer, supra note 1, at 1127. Former Senator Paul Douglas observed, “What happens is a
gradual shifting of a man’s loyalties from the community to those who have been doing his favors. His final
decisions are, therefore, made in response to his private friendships and loyalties rather than the public good.”
PAUL H. DOUGLAS, ETHICS IN GOVERNMENT 44 (1952).
57. CAL. GOV’T CODE § 82015(f) (amended by Chapter 930).
58. Press Release, Office of Assemblymember Cristina Garcia, Assemblymember Garcia Introduces Bill
to Ban In-Home Lobbyist Fundraisers (Feb. 12, 2014) (on file with the McGeorge Law Review), available at
http://asmdc.org/members/a58/news-room/press-releases/assemblymember-garcia-introduces-bill-to-ban-inhome-lobbyist-fundraisers.
59. See Rosenhall, supra note 10 (noting that supporters such as Common Cause and the FPPC have
issued statements applauding the Legislators for enacting substantive changes to the PRA and explaining that
Chapter 930 will clarify for elected officials and lobbyists what is allowed by the law).
60. E-mail from Anthony Williams, supra note 19 (explaining that the warning letters sent by the FPPC
361
2014 / Government
While Chapter 930 may be a common-sense clarification of the law, it is not
61
clear that it addresses a significant problem. While the loophole allowed
lobbyists to effectively give candidates or elected officials the equivalent of
$500, individuals, businesses, and committees may give each candidate for the
State Assembly or Senate $4,100 per election, each candidate for a statewide
elected office $6,800 per election, and candidates for governor $27,200 per
62
election. As such, even if money does extoll a corrupting influence on politics,
$500 from a lobbyist is unlikely to have a significant impact compared to
63
contributors.
Rather than directly addressing the potential corrupting influence of money
in politics, Chapter 930 may be the type of legislation that is “aimed at restoring
the public’s confidence in the political system and ending the coverage of the
64
story in the media.” Thus, as public distrust of the government discourages civic
participation and creates a negative view of the democratic system, Chapter 930
may serve an important democratic purpose by restoring, in part, the public’s
65
faith in state government.
B. Increased Reporting: Burden or Benefit?
Senate Bill 1442 would have increased access to timely campaign
information by increasing the frequency of mandated reporting and improving
66
electronic access to reports. Currently, California’s campaign and lobbying
disclosure system, known as “Cal-Access,” is severely outdated and considered
67
one of the most antiquated transparency systems in the country. In a May 2014
to Legislators and the Governor were the result of a lobbyist failing to notify the elected officials that the $500
threshold was crossed).
61. Telephone Interview with Dan Schnur, supra note 20.
62. CAL. GOV’T CODE § 85301 (West 2005); CAL. FAIR POLITICAL PRACTICES COMM’N, CALIFORNIA
STATE CONTRIBUTION LIMITS 1 (2012), available at http://www.fppc.ca.gov/bulletin/007-Dec-2012State
ContributionLimitsChart.pdf.
63. NAT’L INST. OF MONEY IN STATE POLITICS, http://www.followthemoney.org/election-overview?s=
CA&y=2014, (last updated Nov. 20, 2014) (finding that “[i]n the California 2014 elections, candidates and
committees raised a total of $401,911,756,” or the equivalent of 803,823 $500 exploitations of the fundraiser
loophole).
64. E-mail from Alex Barrios, Communications Director in the State Senate, to Elizabeth Kim,
Greensheets Staff Writer, McGeorge Law Review (July 18, 2014, 5:17 PST) (on file with the McGeorge Law
Review).
65. Wertheimer, supra note 1, at 1130; see E-mail from Alex Barrios, supra note 64 (noting that the
attention of the public and the media dissipates once legislation is passed that purports to address a problem,
regardless of the efficacy of that legislation).
66. SB 1442 §§ 7, 19, 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sept. 5, 2014, but not enacted);
Dominic Munoz, Several Bills Aim to Improve Transparency and Confidence in CA Elections, CAFWD.ORG (June
25, 2014), http://www.cafwd.org/reporting/entry/several-bills-aim-to-improve-transparency-and-confidence-in-caelections (on file with the McGeorge Law Review).
67. Letter from The Cal. Forward Action Fund et al. to the Governor and Legislature of California (May
20, 2014) (on file with the McGeorge Law Review), available at http://www.scribd.com/doc/225669250/CalAccess-FPPC-Joint-Letter. Because increased filing requirements would not become operative until after the
362
McGeorge Law Review / Vol. 46
letter to Governor Brown and the State Legislature, the California Forward
Action Fund, California Common Cause, the Institute of Governmental
Advocates, the California Newspaper Publishers Association, the Sunlight
Foundation, and the League of Women Voters of California requested the
68
Governor and SOS prioritize the modernizing of the inefficient system. Critics
complain the system is difficult to navigate, lessening the public’s access to
important campaign information and, in effect, reducing the efficacy of
69
disclosure requirements. In 2013, Governor Brown said, “There is no doubt the
current system—widely viewed as outdated and cumbersome—needs
70
upgrading.”
In September 2014, the SOS urged Governor Brown to sign SB 1442,
emphasizing the need to improve the “obsolete operating and database
management systems that are no longer supported by the information technology
71
community.” Further, the SOS acknowledged that the current system, at times,
72
has acted as “an obstacle to enhanced campaign disclosure.”
Despite the widely recognized need for this system upgrade, Governor
73
Brown vetoed SB 1442. The Governor’s veto message initially states, “While
the goal of reducing reports is laudable, until we have the technology in place, it
74
is premature to make adjustments to the reporting schedule.” Although SB 1442
would eliminate some supplemental reporting requirements, SB 1442 would
likely increase aggregate reporting by moving from semiannual to quarterly
75
reporting requirements. Additionally, as SB 1442 would require that SOS
complete the technology upgrade prior to the reporting changes becoming
operative, it is unclear why SB 1442 would make premature adjustments to
76
reporting requirements.
electronic reporting system is improved, those requirements will not further harm the already outdated system.
SB 1442 § 21, 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sept. 5, 2014, but not enacted).
68. Letter from The Cal. Forward Action Fund et al. to the Governor and Legislature of California, supra
note 67.
69. Alisha Green, It’s Time to Improve Access to Influence Data in California, SUNLIGHT FOUNDATION
(May 22, 2014), http://sunlightfoundation.com/blog/2014/05/22/its-time-to-improve-access-to-influence-datain-california/ (on file with the McGeorge Law Review).
70. Alexandra Bjerg, Cal-Access Upgrades Shelved with Governor Brown’s Veto of Campaign Finance
Bill, CAL. FORWARD ACTION FUND (OCT. 9, 2013), http://www.cafwd.org/reporting/entry/cal-access-upgradeshelved-with-governor-browns-veto-of-campaign-finan.
71. Letter from Debra Bowen, California Secretary of State, to Governor Edmund G. Brown (Sept. 3,
2014) (on file with the McGeorge Law Review).
72. Id.
73. SB 1442 Veto Message, supra note 23.
74. Id.
75. See SB 1442 §§ 3–18, 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sept. 5, 2014, but not
enacted) (removing less used used supplemental reports while mandating that most entities currently reporting
semiannually begin reporting quarterly).
76. See id. (The new reporting requirements “shall become operative on January 1 of the year following
the year in which the statewide Internet-based system established [by section 19 of SB 1442] becomes
operational, as certified by the Secretary of State.”).
363
2014 / Government
The veto message also explains, “Before an additional information
technology project is authorized, the SOS should complete the two substantial
77
projects currently underway.” The first of these projects is a $98,000,000
project to create a centralized voter registration database, projected for
78
completion in 2016. The second project is a $26,000,000 project to develop and
consolidate automated systems currently used by the SOS and is also projected
79
for completion in 2016. As the SOS urged Governor Brown to sign SB 1442,
80
they likely believed that the assignment of a third project would be manageable.
C. Does the Disclosure of Gifts Mitigate their Corrupting Influence?
SB 1443, if enacted, would have completely barred lobbyists from giving
Legislators gifts and significantly reduced the value of gifts each legislator could
81
have received from a single source. However, SB 1443 was also vetoed by the
Governor, who stated, “Proper disclosure, as already provided by law, should be
82
sufficient to guard against undue influence.” However, this relies on the premise
that gift disclosure reports are readily available to the public—a premise
83
challenged by the currently poor state of Cal-Access.
The Governor’s veto message also ignores the importance of promoting the
84
public’s trust in its government. Even if Governor Brown’s premise that
disclosure is a sufficient tool with which to deter undue influence is true, the
common practice of giving elected officials tickets to sold-out shows and
85
sporting events has raised significant concerns from the public. In 2013, state
86
elected officials received over $32,000 in entertainment and sports tickets.
While Governor Brown believed that SB 1443 would add unnecessary
77. SB 1442 Veto Message, supra note 23.
78. Reportable IT Projects—Project Number 0890-046, CAL. DEP’T OF TECH., http://www.ocio.ca.gov/
Government/IT_Policy/IT_Projects/ProjectDetails.html?work_guid=0x999BB70A3653B74CBC94B0666A2EB
758&WorkItem=0x999BB70A3653B74CBC94B0666A2EB758 (last visited Nov. 25, 2014).
79. Reportable IT Projects—Project Number 0890-047, CAL. DEP’T OF TECH., http://www.ocio.ca.gov/
Government/IT_Policy/IT_Projects/ProjectDetails.html?work_guid=0xAD5FD8A19BE15440A03EE53C7226
CCA7&WorkItem=0xAD5FD8A19BE15440A03EE53C7226CCA7 (last visited Nov. 25, 2014).
80. Letter from Debra Bowen to Governor Edmund G. Brown, supra note 71.
81. SB 1443 § 1, 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sept. 3, 2014, but not enacted).
82. SB 1443 Veto Message, supra note 23. In support of this argument, Governor Brown referenced The
Purity Potlatch: An Essay on Conflicts of Interest, American Government, and Moral Escalation, by Bayless
Manning, written in 1964. Id.
83. See Letter from Debra Bowen to Governor Edmund G. Brown, supra note 71 (explaining that CalAccess in its current state has acted as an obstacle to disclosure); see also supra Part VI.B.
84. Wertheimer, supra note 1, at 1131 (“[P]ublic mistrust of government discourages citizen participation
and leads individuals to believe they have no voice in government.”).
85. See David Zahniser, Most L.A. Ethics Commissioners Say City Officials Should Report the Value of
Gift Tickets, L.A. TIMES (July 14, 2010), http://articles.latimes.com/2010/jul/14/local/la-me-gifts-20100714 (on
file with the McGeorge Law Review) (noting that in 2010 the Los Angeles Ethics Commission began requiring
local officials to disclose the value of the free tickets they receive).
86. PHILLIP UNG, CAL. COMMON CAUSE, GIFTS, INFLUENCE, & POWER 6 (Dec. 2013).
364
McGeorge Law Review / Vol. 46
complexity to reporting requirements that would fail to justify the minimal, if
any, gained protection against undue influence, it is unclear what impact SB 1443
87
would have had on the public’s trust in their government. Ultimately, the veto
of SB 1443 disappointed many who believed the gift ban was a necessary step in
combating undue influence from interest groups and increasing public trust in
88
government.
D. Shortcomings of the CAPS Act
Even before Governor Brown’s vetoes, commentators criticized the CAPS
Act for failing to impose a limit on gifts of travel given to legislators, gifts those
89
commentators argue create significant conflicts of interest.
Foreign
governments, nonprofits, and interest groups gave California lawmakers more
90
than $550,000 in free travel in 2013. Payments for a legislator’s travel expenses
91
are not considered gifts if they meet two requirements. First, the travel must be
“reasonably related to a legislative or governmental purpose, or to an issue of
92
state, national, or international public policy.” Secondly, the travel expenses
must be associated with a speech given by the public official and limited to
expenses incurred the day before, day of, and day after the speech, or, if a
federally recognized nonprofit organization or an equivalent party pays the travel
93
expenses. Exempt travel expenses include airfare, hotels, meals, and cultural
94
excursions that may last for weeks. Critics claim that interest groups fund
95
nonprofits who then sponsor events and trips that meet the requirements above.
96
Additionally, these trips provide lobbyists with full access to public officials.
However, Robert Stern, a coauthor of the PRA, explained that if the trips are
important, the state should pay for them because conflicts of interest may arise
when interest groups give money to nonprofits who pay for legislator travel costs
97
without disclosure.
87. SB 1443 Veto Message, supra note 23.
88. See Stern, supra note 49 (noting the public’s overwhelming support for political reform and sharing
his own disappointment in the bills’ vetoes).
89. Jeremy White, Lawmakers Enjoyed $550,000 Worth of Paid Travel in 2013, SACRAMENTO BEE (Mar.
5, 2014), http://www.sacbee.com/2014/03/04/6209174/California-lawmakers-enjoyed-550000.html (on file with
the McGeorge Law Review) (raising concerns over other types of unregulated gifts); Telephone Interview with
Dan Schnur, supra note 20 (stating that the CAPS Act did not fully address gifts that may give rise to conflict of
interests problems and often times this kind of legislation is used to placate the press and the public).
90. White, supra note 89.
91. CAL. GOV’T CODE § 89506(a) (West 2005).
92. Id.
93. Id.
94. UNG, supra note 86, at 9; see Rosenhall, supra, note 10 (noting that lawmakers visited Hawaii,
Switzerland, Brazil, Poland, Norway, Taiwan, Israel, China, Armenia, Sweden, and South Korea).
95. UNG, supra note 86, at 9.
96. Id.
97. White, supra note 89 (“If the trip is important, the state should pay for it. But I have a problem with
the travel if it’s not disclosed where money is coming from, and that special interests that are giving to
365
2014 / Government
However, lawmakers have justified the trips as educational ventures that help
them serve their constituencies better and enrich their understandings of public
98
policies. Senator Lara, who introduced two of the CAPS Act bills, explained,
“As we conduct business as the eighth largest economy in the world, we have to
see what other countries are doing, especially in the issues of energy and
99
environmental innovation.” At the press conference to announce the
introduction of the CAPS Act, reporters asked the members of the Senate
Working Group on Ethics to distinguish between what gifts are appropriate and
100
what are not. Senator De León responded, “We do not live in a world of
absolutes. The reality is that we have to participate in community activities as a
State Senator. No one should have to pay for meals out of pocket, just to
101
participate in their work duties that they have to perform, day in and day out.”
Senator De León further stated that he and his fellow Legislators worked closely
with the FPPC to identify the gifts that are the “most egregious and indefensible”
102
and to target those gifts with the CAPS Act.
V. CONCLUSION
In the wake of the scandals that rocked the Senate in 2014, the state
Legislature passed meaningful political reform bills that could have reestablished
103
some of the public’s trust in government. However, in July 2014 an editorial in
the San Jose Mercury News noted that public interest in political reform had
104
already faded. Alex Barrios, a Communications Director in the State Senate,
explained, “From the perspective of the media, a problem was uncovered and a
solution was passed into law . . . . From the perspective of the [L]egislature,
105
resolution was achieved and the press will then focus on covering other issues.”
With little remaining interest from the public, the media, or the Legislature,
106
Governor Brown vetoed two of the three bills comprising the CAPS Act.
Legal misconduct by public officials erodes the trust the public has in its
107
108
government. Public trust is vital for good governance. Chapter 930 should
nonprofits are paying for travel.”).
98. Ricardo Lara, Press Conference Announcing CAPS Act (Mar. 6, 2014), https://www.youtube.com/
watch?v=MUP2rT7DNvo (transcript on file with the McGeorge Law Review).
99. Id.
100. Id.
101. Id.
102. Id.
103. Stern, supra note 49.
104. Editorial, California Legislature Financial Reforms Fall Way Short, SAN JOSE MERCURY NEWS (July 7,
2014), http://www.mercurynews.com/opinion/ci_26102969/mercury-news-editorial-california-legislature-financialreforms-fall (on file with the McGeorge Law Review).
105. Email from Alex Barrios, supra note 64.
106. SB 1442 Veto Message, supra note 23; SB 1443 Veto Message, supra note 23.
107. Ed Coghlan, CA Fwd to Legislators: Act Now to Restore Public Trust in Government, CAL
FORWARD (April 8, 2014), http://www.cafwd.org/reporting/entry/ca-fwd-to-legislators-act-now-to-restore-
366
McGeorge Law Review / Vol. 46
increase the public’s trust in government as it closes a loophole exploited by
109
lobbyists. However, Governor Brown’s vetoes, if noticed by the public, would
110
only serve to erode the public’s trust further. Barrios observed, “Until the
public pays closer attention to what goes on in the Capitol and whether bills that
are passed into law actually solve real problems, this is the type of governance
111
we can expect in these kinds of situations.” Therefore, increasing the public’s
trust of government may first require increasing public scrutiny of the legislative
112
process to ensure reform bills both are effective and eventually become law.
public-trust-in-government (on file with the McGeorge Law Review).
108. See id. (discussing the critical importance of trust in effective governance).
109. E-mail from Alex Barrios, supra note 64.
110. See Coghlan, supra note 107 (explaining the importance of reform to establishing public trust in
government).
111. Id.
112. Id.
367
SB 831: Bringing Political Reform into the Twenty-First
Century
Ryan Matthews
Code Sections Affected
Government Code §§ 87106, 89515.5 (new); Government Code
§§ 89506, 89513, 89515, 89516, 89517 (amended).
SB 831 (Hill) (enrolled but not enacted).
TABLE OF CONTENTS
I.
INTRODUCTION ............................................................................................ 368 II. LEGAL BACKGROUND .................................................................................. 370 A. The History of Political Reform in California ....................................... 370 B. The Political Reform Act of 1974 .......................................................... 370 1. What is a Contribution Under the PRA? ........................................ 370 2. How Does the PRA Treat Gifts of Travel?...................................... 371 3. How Does the PRA Treat Charitable Donations? .......................... 372 4. What Types of Campaign Fund Expenditures Does the PRA
Restrict?...................................................................................... 372 III. SB 831 .......................................................................................................... 374 A. Travel-Related Gifts .............................................................................. 374 B. Behested Donations to Nonprofits ......................................................... 374 C. Limits on the Use of Campaign Funds .................................................. 375 IV. ANALYSIS ..................................................................................................... 375 A. Gifts of Travel........................................................................................ 376 B. Donations to Nonprofits ........................................................................ 379 C. Campaign Fund Expenditures ............................................................... 383 D. The Anatomy of a Veto: Brown’s Refusal to Sign SB 831 ..................... 384 V. CONCLUSION ................................................................................................ 385
I. INTRODUCTION
The specter of political corruption has loomed over democracy since its
1
inception in Ancient Athens. To prevent corruption, political reform in Athens
1. See John Camp, Ostracized in Athens: Ancient Greeks Knew How to Dump Bad Pols, N.Y. TIMES, Jul.
24, 2003, http://www.nytimes.com/2003/07/24/opinion/24iht-edcamp_ed3_html (on file with the McGeorge
Law Review) (describing the Athenian practice of ostracizing politicians who threatened the democracy).
368
McGeorge Law Review / Vol. 46
2
took a simpler form than it does today. The people would first vote on whether
3
they felt there was a person that posed a threat to democracy. If the people
decided that there was, then every citizen of Athens voted for the person they
4
perceived as the greatest threat. The Athenian that received the most votes was
5
then exiled from Athens for a decade. The process was called ostracism, named
for the ostracon, or shards of pottery, on which Athenians would write the name
6
of the man he deemed worthy of exile. It is an institution that California
lawmakers may have wished was still available to them following the indictment
7
of three California Senators in 2014.
While California has traditionally eschewed the practice of ostracism, the
state has proactively regulated politics, with the most prominent example being
8
the Political Reform Act of 1974. However, the indictment of three of their own
9
spurred California lawmakers to realize that California needed new regulations.
The importance of the moment was not lost on Senator Darrel Steinberg, who
10
declared that “[s]ometimes it takes a crisis” to pass new ethics reform bills.
Among the pieces of legislation spawned by this crisis was SB 831, which
11
addressed gifts of travel to legislators, behested payments to nonprofit
organizations, and campaign fund expenditures, each of which played a role in
12
the Senatorial indictments that began the process.
Part II of this Article will address the legal history of political reform efforts
in California. Part III will discuss the proposed effects of SB 831. Part IV will
analyze what the impact of SB 831 would have been on California.
2. See id. (comparing the California recall process to Athenian ostracism).
3. Id.
4. Id.
5. Id.
6. Id.
7. See Norimitsu Onishi, California Democrats Await Fallout After 3 Are Caught Up in Scandals, N.Y.
TIMES, Apr. 3, 2014, http://www.nytimes.com/2014/04/04/us/california-democrats-await-fallout-after-3-arecaught-up-in-scandals.html?_r=0 (on file with the McGeorge Law Review) (discussing the indictments of the
California Senators).
8. See About the Political Reform Act, CAL. FAIR POLITICAL PRACTICES COMM’N, http://www.fppc.ca.
gov/index.php?id=221 (last visited June 18, 2014) (on file with the McGeorge Law Review) (describing the
Political Reform Act).
9. Jessica Calefati, Support Wanes in Sacramento for Tough Ethics Reform Following Scandal, SAN JOSE
MERCURY NEWS, July 6, 2014, http://www.mercurynews.com/california/ci_26095376/support-wanes-toughethics-reform-following-scandal (on file with the McGeorge Law Review).
10. Id.
11. Senate Bill 831 does not define “behested,” but Merriam-Webster defines “behest” as “an
authoritative order” or “an urgent prompting.” Behest, MERRIAM-WEBSTER DICTIONARY, http://www.merriamwebster.com/dictionary/behest?show=0&t=1417208066, (last visited Dec. 15, 2014) (on file with the
McGeorge Law Review).
12. SB 831 §§ 1(a), 3(a), 8(a) 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sep. 9, 2014, but not enacted);
see Patrick McGreevy, Nonprofits Tied to Legislators Collect Cash out of Public View, L.A. TIMES, Nov. 16, 2013,
http://www.latimes.com/local/la-me-legislature-nonprofits-20131117-story.html#axzz2kwqVHG7x&page=1 (on file
with the McGeorge Law Review) (describing Senator Calderon’s use of his brother’s nonprofit to hide contributions
from special interest groups).
369
2014 / Government
II. LEGAL BACKGROUND
This section will first address the history of political reform in California
prior to the Political Reform Act of 1974 (PRA). It will then discuss the PRA in
general and describe the areas of law affected by SB 831 in greater depth.
A. The History of Political Reform in California
Regulating the conduct of politicians and the multitude of special interests
surrounding them has been an area of concern for the California legislature for
over half a century; the legislature has passed over eighty distinct statutes in an
13
ongoing effort to police itself. Efforts to consolidate the various regulations into
a more comprehensive piece of legislation began in 1969 with an overbroad
disclosure statute that the California Supreme Court deemed unconstitutionally
14
restrictive in City of Carmel-by-the-Sea v. Young in 1970 and continued with
the Moscone Governmental Conflicts of Interest and Disclosure Act (Moscone
15
Act) in 1973. The Moscone Act, while not found unconstitutional, was
16
subsumed by the PRA just a year after its passage.
B. The Political Reform Act of 1974
A landmark piece of political legislation was passed in 1974 when voters
17
approved Proposition 9 by a large majority. “The [PRA] was . . .
18
comprehensive, covering all areas of political reform.” In addition, the PRA
created the Fair Political Practices Commission (FPPC) and empowered it both to
enforce the title’s provisions and to create new regulations in order to further the
19
PRA’s goals.
1. What is a Contribution Under the PRA?
Section 82015 of the California Government Code, enacted by the PRA,
20
defines the types of payments that qualify as contributions. The statute defines a
contribution as “a payment, a forgiveness of a loan, a payment of a loan by a
13. City of Carmel-by-the-Sea v. Young, 2 Cal. 3d 259, 262, 466 P.2d 225, 227 (1970).
14. 2 Cal. 3d at 272, 466 P.2d 235.
15. Jeri McKeand, The Political Reform Act of 1974: A Critical Look at Conflict of Interest and
Disclosure Requirements, 5 W. ST. U. L. REV. 269, 269–70 (1978).
16. Id. at 270.
17. About the Political Reform Act, supra note 8.
18. McKeand, supra note 15, at 271 (“Besides the conflict of interest and disclosure provisions, the Act
regulates Campaign Disclosures, Lobbyists, Ballot Pamphlets, Incumbency, Auditing of Statements,
Enforcement, and sets up the Fair Political Practices Commission to administer the Act.”) (citations omitted).
19. CAL. GOV’T CODE §§ 83100, 83111, 83112 (West 2005).
20. Id. § 82015.
370
McGeorge Law Review / Vol. 46
third party, or an enforceable promise to make a payment except to the extent
that full and adequate consideration is received, unless it is clear from the
21
surrounding circumstances that it is not made for political purposes.” The
section goes on to specify that any payment of this kind made “at the behest” of a
22
committee or candidate also qualifies as a contribution. The statute lists specific
circumstances in which payments are “unrelated” to political purposes and
23
includes payments made by nonprofit organizations. Thus, under section 82015,
payments made by nonprofit organizations, even when at the behest of a
24
candidate or elected officer, are not contributions.
Contributions are a small part of a broader concern about lobbying that was a
25
major motivation for passing the PRA. The desire for stricter and broader
regulation over lobbying activities likely contributed to the overwhelming
26
passage of Proposition 9 in 1974. Inhibiting lobbying activities perceived as
27
improper was the driving force behind the PRA.
2. How Does the PRA Treat Gifts of Travel?
California Government Code section 89506 deals with payments made for
travel expenses that are “reasonably related to a legislative or governmental
28
purpose.” The statute lays out two exceptions to the normal limitations placed
29
on gifts by Government Code section 89503. The first exception is narrowly
restricted to payment of travel expenses incurred for speeches given by
30
candidates and elected officials. The second, however, is much broader: it
provides that travel payments made by “a government, a governmental agency, a
foreign government, a governmental authority, a bona fide public or private
educational institution, . . . [or] a nonprofit organization” are not subject to
31
normal gift limitations. This exception was created to allow charitable and
32
educational entities to pay public officials to speak at their events. However, in
21. Id. § 82015(a).
22. Id. § 82015(b).
23. Id. § 82015(b)(2)(B)(ii).
24. Id.
25. See Stephen Landuyt, Disclosure and Individual Rights: Influencing the Legislative Process Under
the Political Form Act of 1974, 8 PAC. L.J. 939, 955–56 (1977) (“By passing the Political Reform Act of 1974,
the people of California expressed their desire to have stricter controls and additional disclosure requirements
placed on lobbying activities to inhibit and uncover improper influences directed at the legislative process.”).
26. Id.
27. Id.
28. GOV’T § 89506(a).
29. Id. § 89506.
30. Id. § 89506(a)(1).
31. Id. § 89506(a)(2).
32. PHILLIP UNG, CAL. COMMON CAUSE, GIFTS, INFLUENCE, AND POWER: A REPORT ON GIFTS GIVEN TO
CALIFORNIA’S ELECTED OFFICIALS 9 (2013), available at http://www.commoncause.org/research-reports/CA_
122013_Report_Gifts_Given_to_California-s_Elected_Officials_1.pdf (on file with the McGeorge Law
Review).
371
2014 / Government
2013 nonprofit organizations used the loophole to reimburse public officials for
33
over $500,000 in travel payments. Concerns about gifts, including those
34
disguised as travel expenses, were reflected in the PRA. Indeed, some
academics expressed concerns that interest groups would use these types of gifts
35
to unduly influence legislators.
3. How Does the PRA Treat Charitable Donations?
Section 89515 of the California Government Code declares that the donation
of campaign funds to “bona fide charitable, educational, civic, religious, or
similar tax-exempt nonprofit organizations” is permissible, provided that “no
substantial part” of the donation will confer a financial benefit on “the candidate,
elected officer, campaign treasurer, or any individual or individuals with
authority to approve the expenditure of campaign funds held by a committee, or
36
member of his or her immediate family.” It also requires that the donation
“bear[] a reasonable relation to a political, legislative, or governmental
37
purpose.” The statute provides no definition of what constitutes a financial
benefit, nor does it provide any clarity on what it means by a “substantial part of
38
the proceeds.” However, FPPC regulations state that a “financial effect” is
39
material “if it is at least $250 in any 12-month period.” Large donations to the
favorite charities of politicians are exempt from regulation as long as the
40
donation confers no direct material benefit on the public official or his family.
41
However, the growing prevalence of these donations suggests a new trend. Gifts
to legislators, whether directly or indirectly, were a major concern to legal
42
commentators during the passage of the PRA.
4. What Types of Campaign Fund Expenditures Does the PRA Restrict?
California Government Code Section 89513 prohibits specific types of
43
campaign fund expenditures. The beginning of the statute deals directly with
33. Jeremy B. White, California Lawmakers Enjoyed $550,000 Worth of Paid Travel in 2013,
SACRAMENTO BEE, Mar. 4, 2014, http://www.sacbee.com/2014/03/04/6209174/ california-lawmakers-enjoyed550000.html (on file with the McGeorge Law Review).
34. See Landuyt, supra note 25, at 945–46 (discussing concerns about direct and indirect gifts).
35. See id. at 955–56 (noting wariness about undue influence being exerted on legislators).
36. Id. § 89515.
37. Id.
38. Id.
39. CAL. CODE REGS. tit. 2, § 18705.5 (2014).
40. GOV’T §89515.
41. See Anthony York, Jerry Brown’s Charter Schools in Oakland Reap Big Donations, L.A. TIMES,
Aug. 8, 2011, http://articles.latimes.com/print/2011/aug/08/local/la-me-brown-charities-20110808 (on file with
the McGeorge Law Review) (noting the increasing popularity of such donations).
42. Landuyt, supra note 25, at 955–56.
43. GOV’T § 89513.
372
McGeorge Law Review / Vol. 46
44
travel expenses incurred by candidates, their staff members, and their families.
It specifies that campaign funds may not be used to pay or reimburse a candidate
or staffer for travel expenses unless those expenses are “directly related to a
45
political, legislative, or governmental purpose” and provides that the standard
for determining whether travel expenses are sufficiently related will be similar to
46
the federal income tax law standards.
In addition to regulating travel expenditures, this section of the PRA also
47
prohibits a number of other specific expenditures of campaign funds. Section
48
89513 prohibits the use of campaign funds to pay for professional services,
49
health-related expenses (including medical appointments and health club dues),
or clothing for the candidate (unless it is “specialty clothing . . . not suitable for
everyday use . . . [that] is directly related to a political, legislative, or
50
governmental purpose”).
51
The PRA also regulates the use of campaign funds on vehicles. Government
Code section 89516 outlines two requirements for the permissible purchase or
52
lease of a vehicle with campaign funds. The first requirement mandates that title
to the vehicle be held by the committee, rather than by the “candidate, elected
officer, campaign treasurer, or any other individual or individuals with authority
to approve the expenditure of campaign funds held by a committee, or a member
53
of his or her immediate family.” The second requires that the vehicle’s use
54
“directly relate[] to a political, legislative, or governmental purpose.”
California Government Code section 89517 governs the use of campaign
55
funds for the purchase and lease of real property. It completely bans the use of
56
campaign funds to purchase real property. However, it permits the use of
campaign funds for the lease of real property, as well as the lease and
refurbishment of appliances so long as the lessor or sublessor is not “a candidate,
elected officer, campaign treasurer, or any individual or individuals with
authority to approve the expenditure of campaign funds, or member of his or her
immediate family” and the property or appliance is “directly related to a political,
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
Id. § 89513(a).
Id.
Id. § 89513(a)(1).
Id. § 89513(b)–(g).
Id. § 89513(b)(1).
Id. § 89513(b)(2).
Id. § 89513(d).
Id. § 89516.
Id. § 89516 (a).
Id. § 89516(a)(1).
Id. § 89516(a)(2).
Id. § 89517.
Id. § 89517(b).
373
2014 / Government
legislative, or governmental purpose” such that any other use is “only incidental”
57
to that purpose.
III. SB 831
SB 831 would have changed campaign finance rules regarding gifts of
58
59
travel, behested donations to nonprofit organizations, and expenditures of
60
campaign funds. All restrictions placed on nonprofit organizations by SB 831
61
would have applied only to 501(c)(4) organizations.
A. Travel-Related Gifts
SB 831 would have increased disclosure from nonprofit organizations when
62
they give gifts of travel. The bill would have required these groups to disclose
the names of all donors who “knew or had reason to know that the donation
63
would be used for a payment, advance, or reimbursement for travel.” These
rules would only have applied to groups who provide more than $10,000 of total
travel donations in a single year or who give more than $5,000 in gifts of travel
64
to a single individual.
B. Behested Donations to Nonprofits
SB 831 outlines new restrictions regarding the solicitation of payments to
nonprofit organizations owned or controlled by the elected officer, any other
elected officer serving on the same elective body, or a family member of any
65
elected officer on that body. SB 831 would have prohibited making these
behested payments to nonprofit organizations “owned or controlled” by a public
66
official or a member of his family.” This prohibition would have stopped these
types of donations from being exempted from normal restrictions on campaign
67
contributions. It also would have prohibited elected officers from soliciting
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
374
Id. § 89517.
SB 831 § 3(a), 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sep. 5, 2014, but not enacted).
Id. at § 1(a).
Id. at § 4.
Id. at § 1(a).
Id. at § 3(a).
Id.
Id.
Id. at § 6.
Id. at § 1(a).
Id. at § 6.
McGeorge Law Review / Vol. 46
68
these payments to charities from nonprofit organizations. The only nonprofit
69
groups to which these restrictions would have applied are 501(c)(4) groups.
C. Limits on the Use of Campaign Funds
Senate Bill 831 would have required that the use of any vehicle purchased
70
with campaign funds be “related to an election campaign,” a subtle change from
the previous requirement that it be “related to a political, legislative, or
71
governmental purpose.” It also would have forbade the use of campaign funds
to make payments for personal vacations for candidates, elected officers, and
72
their employees. In addition, SB 831 sought to prohibit the use of campaign
funds to purchase or lease real property or appliances when the lessee or owner
of the item in question is a candidate, elected officer, or another individual
73
authorized to approve campaign spending. Along the same lines, campaign
funds would no longer have been allowed to be used to pay membership dues at
any kind of recreational facility, including country clubs or health clubs, or to
74
pay tuition. SB 831 also would have disallowed the use of campaign funds for
75
any clothing for a candidate or elected officer.
IV. ANALYSIS
This section discusses the benefits and potential insufficiencies contributing
76
to the hypothetical impact of the passage of SB 831. Part A considers the
proposed restrictions and disclosure requirements for gifts of travel expenses.
Part B examines the proposed changes to donations to nonprofits at the behest of
an elected official. Part C explores the proposed restrictions on the use of
campaign funds for what might be considered personal expenses of a candidate
or elected official. Finally, Part D discusses competing rationale for Governor
Brown’s veto of SB 831.
68. Id. at § 1(a).
69. Id.
70. Id. at § 7.
71. Id.
72. Id. at § 4.
73. Id. at § 8.
74. Id. at § 4.
75. Id.
76. See UNG, supra note 32 (discussing loopholes in the PRA that have been used by politicians); see also
Calefati, supra note 9 (discussing the aims and potential failings of SB 831).
375
2014 / Government
A. Gifts of Travel
77
One of the primary foci of SB 831 centers on gifts of travel. These gifts,
when made by educational institutions or nonprofit organizations are not subject
78
to normal gift restrictions. In other words, after the veto of SB 831, nonprofit
organizations can still subsidize unlimited travel costs for public officials and
79
avoid the limitations ordinarily placed on campaign contributions. Watchdog
groups like Common Cause have viewed gifts of travel as a potentially
underhanded way for organizations to curry favor with politicians outside the
80
confines of political regulation.
The Sacramento Bee reported that in 2013, politicians in California received
81
over $550,000 in free travel. That number represents a significant increase from
82
the 2012 level of $329,000. According to the study, these trips were funded by a
variety of sources, including “foreign governments, foundations fueled by
83
corporate and labor money[,] and nonprofits tied to specific industries.” The
84
trips included excursions to countries including Switzerland, Taiwan, and Israel.
85
Multiple lawmakers received over $30,000 in gifts of travel.
While these isolated numbers may seem troubling, Robert Stern, a co-author
of the PRA, has said that “[t]here is no inherent issue with [Legislators]
86
travel[ing]. . . .” Lawmakers can benefit in a variety of ways from seeing how
87
other governments function. However, the underlying concern is that special
interests use these unlimited gifts of travel to garner undue influence over the
88
legislators whose excursions they subsidize. According to Common Cause,
many special interests use, or even establish, nonprofit organizations for the
89
specific purpose of exploiting the travel exception to normal political gift limits.
The report states that while the purpose of the loophole is to allow public
officials to speak at legitimate philanthropic events, the reality is that the
exception may afford special interests an opportunity to influence California
90
lawmakers.
77. SB 831 § 3, 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sep. 5, 2014, but not enacted).
78. Id.
79. Id.
80. UNG, supra note 32, at 13.
81. White, supra note 33.
82. Id.
83. Id.
84. Id.
85. Id.
86. Id.
87. Id.
88. See UNG, supra note 32, at 9 (describing how “a number of special interest groups take advantage of
the travel loophole by setting up or using non-profits” to skirt the $440 gift limit).
89. Id.
90. Id. (“The purpose of this non-profit travel exemption was to allow 501(c)(3) charities providing
public services or philanthropy to invite officials to speak. The reality is the exact opposite.”).
376
McGeorge Law Review / Vol. 46
One major trip reported by the Los Angeles Times was a conference in Maui
91
attended by a number of California legislators. This annual Maui retreat is
sponsored by nonprofit organizations that are funded by interest groups including
the cigarette maker Altria, Southern California Edison, a pharmaceutical
92
manufacturing association, and the California Beer and Beverage Distributors.
One of the event’s organizers said that the event was held to “give[] the
sponsoring companies an opportunity to talk about what their business is like in
93
California.” While these trips may create the appearance of impropriety, it is
94
important to remember that they serve valuable purposes for legislators.
95
Despite concern regarding these travel gifts, SB 831 stopped short of
96
banning or even limiting these gifts of travel. Instead, it would have only
97
imposed disclosure requirements. SB 831 would have required that nonprofits
and other organizations that subsidize travel over a certain amount disclose not
just the gift, but the specific donors who knew or had reason to know about it as
98
well.
Senator Jerry Hill, the sponsor of SB 831, stated that this would further the
99
goal of “increas[ing] the transparency of these travel-related gifts.” Indeed,
requiring these nonprofits to disclose the names of the donors who made the
travel gifts possible would reveal the types of special interests that Common
Cause suggests are using nonprofit groups as a shield behind which they can
100
donate to politicians anonymously. The Supreme Court has made the state’s
interest in requiring political disclosure clear by indicating that disclosure is
critically important to help voters better grasp the political beliefs and intentions
101
of candidates. In Citizens United v. Federal Elections Commission, the court
held that allowing donors to avoid disclosure was not necessary in order to
protect free speech and noted the importance of transparency in helping citizens
102
“make informed choices in the political marketplace.”
Robert Stern, a co-author of the original Political Reform Act, addressed the
same concern in the context of gifts of travel, stating that he had “a problem with
91. Patrick McGreevy, California Lawmakers Head to Maui for Annual Retreats, L.A. TIMES, Nov. 8,
2013, http://www.latimes.com/local/political/la-me-pc-california-lawmakers-head-to-maui-for-annual-retreats20131108-story.html#axzz2mA2uiUF7 [hereinafter Maui] (on file with the McGeorge Law Review).
92. Id.
93. Id.
94. See White, supra note 33 (discussing the value of legislative travel).
95. Id.
96. SB 831 § 3, 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sep. 5, 2014, but not enacted).
97. Id.
98. Id.
99. Maui, supra note 91.
100. See UNG, supra note 32, at 9 (describing the special-interest group practice of setting up 501(c)(3)s
for the purpose of exploiting the travel-expense loophole).
101. Citizens United v. Fed. Elections Comm’n, 130 S. Ct. 876, 914 (2010).
102. Id. (quoting McConnell v. Fed. Election Comm’n, 540 U.S. 93, 197 (2003), overruled by Citizens
United v. Fed. Elections Comm’n, 130 S. Ct. 876, 914 (2010)).
377
2014 / Government
103
the travel in the sense of it’s not disclosed where money is coming from . . . .”
However, there is a sense that the failure to provide any actual limitation on these
payments represents a failure on the part of the legislation and that it is “watered104
down.” As originally written, the bill would have instituted a $7,000 limit on
105
gifts of travel from a single source. However, that provision was removed as
106
SB 831 underwent the inevitable trimming of the legislative process. Some
commentators suggested that with the passage of time since political scandal
rocked California early in 2014, support for giving real teeth to political reform
107
has ebbed significantly.
This diminished legislative ardor has allowed
108
amendments limiting the reach of SB 831 to take effect.
Despite these concerns, there are indications that the bill’s lack of a
limitation on the amount of gifts of travel that politicians can accept represents a
compromise of legitimate interests as opposed to a waning desire to implement
109
real reform. Legislative travel, as mentioned earlier, does serve a legitimate
purpose and has real value to both the legislators themselves and the constituency
110
they serve. The travel costs can be significant, however, and various
commentators have at times expressed outrage over the supposed waste of
taxpayer dollars used to subsidize traveling politicians, including, most
111
prominently, the President of the United States. While there are valid concerns
regarding the subsidization of legislative travel by interest groups, one author
from Watchdog Wire noted that these gifts of travel prevent taxpayers from
having to provide funding for legitimate travel-related expenses incurred by
112
California lawmakers.
With the travel donations to legislators rising dramatically between 2012 and
2013, the sentiment that somewhere amongst the vast needs of the state may lay a
103. White, supra note 33. While Stern agreed that lack of disclosure surrounding gifts of travel were part
of the problem, he advocated going farther and requiring the state to pay for the travel expenses rather than
simply increasing disclosure requirements. Id.
104. Patrick McGreevy, Calif. Senate Adopts New Ethics Standards, Rejects Others, L.A.TIMES, June 9, 2014,
http://www.latimes.com/local/political/la-me-pc-calif-senate-adopts-new-ethics-standards-20140609-story.html
[hereinafter Senate Adopts New Ethics Standards] (on file with the McGeorge Law Review).
105. Id.
106. Id.
107. Calefati, supra note 9.
108. Id.
109. See id. (indicating that amendments by the Appropriations Committee are typically made when a bill
would be unworkable or too costly to implement).
110. White, supra note 33.
111. See, e.g., Obama’s Pricey Vacations: Air Force One Operating Cost for 3 Trips. . . A Whopping $16
Million, GLENN BECK, Mar. 28, 2014, http://www.glennbeck.com/2014/03/28/obamas-pricey-vacations-airforce-one-operating-cost-for-3-trips-a-whopping-16-million/ (on file with the McGeorge Law Review)
(criticizing the cost of President Obama’s recent trips to Africa and Honolulu).
112. Josh Kaib, California Lawmakers Travel on Special Interest Groups’ Dime, Rack Up $550,000 Bill,
WATCHDOGWIRE, Mar. 5, 2014, http://watchdogwire.com/California/2014/03/05/California-lawmakers-travelon-special-interest-groups-dime-rack-up-550000-bill/ (on file with the McGeorge Law Review).
378
McGeorge Law Review / Vol. 46
113
nobler purpose for taxpayer dollars appears tenable. Still, the sponsor of the
legislation, Senator Hill, indicated his displeasure with the softening of travel gift
restrictions in SB 831, saying that “[w]hat works for the committee may not
114
work for you, but if you want the bill to move forward, that’s how it goes.”
Senator Kevin de León is the chair of the Senate Appropriations Committee,
115
which is the group responsible for the changes made to SB 831. Senator De
León’s Chief of Staff described the changes as “improvements” to the bill that
116
SB 831 would have represented a
would make it “more workable.”
117
compromise: allowing the donations that make legislative travel possible, while
118
preventing special-interests groups from hiding behind a shield of anonymity.
B. Donations to Nonprofits
While the PRA revolutionized political regulation in California in an
unprecedentedly broad manner, the decades that followed revealed a need for
119
additional legislation. As part of a broader package of legislation relating to
120
ethics, SB 831 sought to further the underlying purposes of the PRA. One of
the concerns SB 831 would have addressed is the substantial flow of money
121
donated to nonprofit organizations at the behest of California politicians. These
122
payments are legal and monitored by the FPPC.
However, some observers have suggested that donations to the favorite
charities of various elected officials by lobbyists and special-interest groups
could have the effect of currying favor with those officials while evading
123
traditional campaign finance regulation. A Common Cause report estimates
that public officials in California have solicited $105.5 million for a multitude of
124
projects or charities since 2000, including a record $33 million in 2008. Phillip
Ung, a Common Cause spokesperson, stated unequivocally in an interview with
113. Id.
114. Calefati, supra note 9.
115. Id.
116. Id.
117. See White, supra note 33 (describing the benefits and importance of travel for lawmakers).
118. See UNG, supra note 32, at 9 (describing the lack of public disclosure required prior to SB 831).
119. About the Political Reform Act, supra note 8; see Calefati, supra note 9 (describing legislative
attempts at political reform).
120. See Senate Adopts New Ethics Standards, supra note 104 (describing other proposed laws and
resolutions aimed at preventing unethical behavior by elected officials).
121. See SB 831 § 1(a), 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sep. 5, 2014 but not enacted)
(prohibiting the request and payment of such donations).
122. Summer Parkerperry, Brown’s Fund-raising Prowess Targets His Favorite Charities, CAPITOL
WEEKLY, Oct. 10, 2013, http://capitolweekly.net/browns-fund-raising-prowess-targets-favorite-charities/ (on
file with the McGeorge Law Review).
123. Id.
124. UNG, supra note 32, at 13.
379
2014 / Government
Capitol Weekly that “absolutely there is a hidden motive” and suggested that
125
companies often “use behested payments to get a favor.”
126
Given the events preceding SB 831, this concern makes sense. Senator
Ronald Calderon, one of the California Senators whose indictment preceded the
drafting of SB 831, used these behested payments to conceal bribes from film
127
executives. Calderon “accepted $60,000 from an undercover FBI operative
128
masquerading as a film executive.” $25,000 of that bribe was to be hidden as a
129
donation to a nonprofit owned by his brother, Tom Calderon. These types of
transactions are exactly what SB 831 would have addressed, prohibiting
payments to nonprofit organizations run by elected officials or their family
130
members, such as the one operated by Senator Calderon’s brother.
While most behested payments to nonprofit groups will not have the criminal
character of those made on behalf of Senator Calderon, the idea of unlimited
payments acting as pseudo-contributions from special interest groups to public
officials and evading the traditional restrictions placed upon political
131
contributions is troubling to political watchdog groups like Common Cause. At
the top of the list of politicians who have solicited charitable donations from
special interests without facing an indictment is the governor of California, Jerry
132
Brown. According to a Common Cause study, Brown has accumulated $3.5
133
million in behested payments since taking office in 2010. These payments
consisted primarily of charitable contributions to a pair of charter schools
134
founded by Brown in the Bay Area, and the largest donors form some of the
135
largest special-interest groups in the state. The combined participation of highlevel politicians and major special interests in the behested payment process has
136
led Common Cause to call it “the new fad in influence peddling.”
While Common Cause has expressed concern about all behested payments,
Common Cause spokesperson Ung states that donations to charities run by a
137
public official’s family member are especially concerning. SB 831 would have
responded directly to that particular concern, prohibiting payments to those types
138
of organizations. Still, SB 831 would have only expanded the definition of a
125.
126.
127.
128.
129.
130.
131.
132.
133.
134.
135.
136.
137.
138.
380
Parkerperry, supra note 122.
See Onishi, supra note 7 (describing recent bribery allegations against California politicians).
McGreevy, supra note 12.
Id.
Id.
SB 831 § 1(a), 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sep. 5, 2014, but not enacted).
UNG, supra note 32, at 13–14.
Id. at 13.
Id.
Id.
York, supra note 41.
Id.
Parkerperry, supra note 122.
SB 831 § 1(a), 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sep. 5, 2014, but not enacted).
McGeorge Law Review / Vol. 46
contribution to include those that confer a material financial benefit on a public
official or are made to a nonprofit controlled by a public official or a member of
his family, an expansion that would not address all of the concerns of Common
139
Cause.
There are those, however, who support behested payments to nonprofit
140
organizations. Dan Schnur, a former FPPC Chairman, emphasized the
difficulty in legally separating legitimate philanthropic donations from those that
141
are motivated by the potential for political gain. There is real concern that the
proscription of such payments would create a chilling effect on charitable
142
donations as a whole.
Because SB 831 would only have banned behested payments to
organizations owned or controlled by elected officials and their families, groups
143
like Brown’s schools would likely fall outside of the legislation’s purview.
Still, the concern regarding potential improprieties stemming from these
144
payments is clearly reflected in SB 831. The bill would have defined an
organization as “owned or controlled” by a person if that person “is a director,
officer, partner, or trustee of, or holds any position of management with, the
145
nonprofit organization, and is paid for his or her services.” While Brown
founded the schools when he was the mayor of Oakland, his only role with them
146
now is as a fundraiser and supporter. Even Ung admits that Brown “has no day147
to-day management of the schools.” As a result, the new legislation would have
148
left the payments to Brown’s schools unaffected.
Despite concern about the motives behind these gifts from groups like
149
Common Cause, there is a countervailing interest in avoiding discouraging
150
charitable donations as well. In the case of Brown in particular, the governor
139. Compare UNG, supra note 32, at 13–14 (“One example is the common practice of interest groups
underwriting charitable food kitchens donations, school supply drives, book fairs, and other high profile
community events while promoting the elected official as the headliner. This arrangement could provide a
significant level of influence over an elected official’s decision making that may benefit special interest
over public interest.”), and Parkerperry, supra note 122 (“There is influence that can occur with the public
officials, especially when the behested payments are made to close friends of legislators . . . .”), with SB 831 §
1(a), 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sep. 5, 2014, but not enacted). (limiting new regulations
on behested payments to organizations run by an official’s family member).
140. Parkerperry, supra note 122.
141. Id.
142. Id.
143. SB 831 § 1(a), 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sep. 5, 2014, but not enacted).
144. See UNG, supra note 32, at 13–14 (describing the concerns of watchdog group Common Cause).
145. SB 831 § 1(a), 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sep. 5, 2014, but not enacted).
146. Parkerperry, supra note 122.
147. Id.
148. SB 831 § 1(a), 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sep. 5, 2014, but not enacted)
(limiting restrictions on behested payments to those organizations controlled or owned by elected officers or
their family members).
149. UNG, supra note 32, at 13–14.
150. Parkerperry, supra note 122.
381
2014 / Government
has defended his fundraising efforts with the schools, calling it “the Lord’s work”
and dismissing the scrutiny applied to the donations in question as “journalistic
151
games.”
Senate Bill 831 would have avoided discouraging charitable donations of this
kind due to a stipulation that would have limited the restrictions on behested
152
payments to 501(c)(4) groups. The stipulation thus would have exempted all
charities and schools from its new regulations, subjecting only a single, narrower
153
class of nonprofit organization to increased scrutiny. 501(c)(4) groups include
“social welfare” groups and include organizations such as civic leagues, that are
allowed to participate in the political arena through financial contributions in
154
order to pursue their respective agendas.
By failing to include 501(c)(3) organizations under the purview of the bill,
legislators would have excluded all organizations acting “exclusively for
155
religious, charitable, and educational purposes.” These groups include schools
and charities, including Brown’s charter schools and the organization set up by
156
Tom Calderon. However, while this stipulation would have significantly
limited the scope and effectiveness of SB 831, it is often necessary to amend
157
legislation and compromise in order to get legislation passed.
Despite the limited scope of the new restrictions, SB 831 would have
prohibited the type of payment that Common Cause indicated was of the gravest
concern: those payments made to nonprofit organizations owned or controlled by
158
public officials and their families. Supporters of the legislation contend that
taken as a whole, SB 831 would have “improve[d] and modernize[d] California’s
159
Political Reform Act,” and struck a balance between limiting behested
payments to groups owned or controlled by elected officials and their families
160
while continuing to allow genuine charitable donations.
151. York, supra note 41.
152. SB 831 § 1(a), 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sep. 5, 2014, but not enacted).
153. Id.; see 26 U.S.C. § 501(c)(3-4); Sean Sullivan, What Is a 501(c)(4), Anyway?, WASH. POST, May
13, 2013, http://www.washingtonpost.com/blogs/the-fix/wp/2013/05/13/what-is-a-501c4-anyway/ (on file with
the McGeorge Law Review); Peter J. Reilly, Org Tries Exempt Status Multiple Choice—IRS Answers None of
the Above, FORBES, Aug. 8, 2014, http://www.forbes.com/sites/peterjreilly/2014/08/08/org-tries-exempt-statusmultiple-choice-irs-answers-none-of-the-above/ (on file with the McGeorge Law Review).
154. Sullivan, supra note 153.
155. Reilly, supra note 153.
156. See Sullivan, supra note 153 and accompanying text (discussing the types of organizations eligible
for 501(c)(3) status); Parkerperry, supra note 122; McGreevy, supra note 12.
157. See Calefati, supra note 9 (noting that amendments are often made to make bills “more workable”).
158. SB 831 § 1(a), 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sep. 5, 2014, but not enacted);
Parkerperry, supra note 122.
159. Senate Adopts New Ethics Standards, supra note 104.
160. See Parkerperry, supra note 122.
382
McGeorge Law Review / Vol. 46
C. Campaign Fund Expenditures
The new restrictions SB 831 would have implemented on campaign fund
161
162
expenditures could hardly be described as controversial. The treatment
commentators afforded to these provisions of SB 831 can charitably be described
163
as cursory. New rules that would have forbidden the use of campaign funds on
items including vehicles, real property, clothing, tuition, and country club dues
164
form the bulk of SB 831’s campaign fund expenditure provisions. None of
these, however, are the subject of the bulk of the discussion of SB 831’s
165
campaign fund expenditure restrictions. Instead, the main topic of conversation
when it comes to the campaign fund expenditure side of SB 831 revolves around
a provision that was removed from the final version of the bill: a new restriction
that would have forbidden the use of campaign funds for the legal defense of
166
indicted legislators.
SB 831 and other ethics bills drafted around the same time were preceded by
167
the indictment of three California Legislators early in 2014. The provision to
stop indicted lawmakers from using their campaign funds to subsidize their legal
168
defense was removed “at the request of Senate leaders.” However, the sponsor
of SB 831, Senator Hill, has indicated that he is unaware of the reasons behind
169
the alteration. While the changes SB 831 would have implemented are
significant, they may not fully realize the vision of the lawmakers who sought
170
this legislation in the aftermath of stunning scandal. Those who see the changes
that would have been implemented by SB 831 as underwhelming suggest that as
the embarrassment of the scandal has faded, the motivation to accomplish real
171
reform has faded with it. Dan Schnur, former FPPC Chair, put it this way: “[a]s
soon as the headlines faded, so did the interest in the Capitol for any meaningful
172
effort to clean up the system.” The implicit suggestion is that the motive for SB
831 and other political reform bills was to avoid embarrassment in the wake of
173
the senatorial indictments rather than to implement lasting reforms. Defenders
161. SB 831 § 4, 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sep. 5, 2014, but not enacted).
162. See Senate Adopts New Ethics Standards, supra note 104 (offering a mere one sentence discussion
of SB 831’s campaign fund expenditure provisions); Calefati, supra note 9 (offering little discussion of new
restrictions on campaign spending).
163. Id.
164. SB 831 § 4, 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sep. 5, 2014, but not enacted).
165. See, e.g., Senate Adopts New Ethics Standards, supra note 104 (giving only cursory treatment to new
rules on campaign expenditures).
166. Calefati, supra note 9; Senate Adopts New Ethics Standards, supra note 104.
167. Calefati, supra note 9.
168. Senate Adopts New Ethics Standards, supra note 104.
169. Calefati, supra note 9.
170. See id. (describing overall political reform efforts as “lukewarm”).
171. Id.
172. Id.
173. Id.
383
2014 / Government
of the amendments made to the legislation have characterized them as necessary
174
changes for the passage of the bill. Despite this characterization, the sentiment
that it represents a “watered-down” attempt at political reform may stem at least
in part from the fact that such an emblematic provision was removed from SB
175
831. An amendment so favorable to indicted Senators to legislation created in
176
response to the indictment of Senators could feel counter-intuitive. After all,
the amendment would ensure that these Senators would not be forbidden from
177
using their campaign war chests to fund their legal defense.
Still, the fact remains that the new rules that would have been implemented
178
by SB 831 represent the next step in pursuing the goals espoused by the PRA.
While Schnur and others may feel let down by the final result, the legislation has
179
been endorsed by Common Cause, a watchdog organization. While what SB
831 failed to include has garnered criticism, what it did include would have
180
“help[ed] improve and modernize the Political Reform Act of 1974.”
D. The Anatomy of a Veto: Brown’s Refusal to Sign SB 831
Governor Brown vetoed SB 831 despite the legislature’s overwhelming
181
support. He explained his decision to veto the bill as a way to block additional
182
complicated regulatory requirements. Governor Brown further stated that the
areas covered by SB 831 were already subject to extensive regulation that,
183
presumably in his view, was sufficient.
Common Cause executive director Kathay Feng expressed disappointment
that SB 831, along with other ethics bills passed by the Legislature, were vetoed
184
by Brown. She indicated that Governor Brown’s vetoes came as a surprise to
174. Id.
175. See Senate Adopts New Ethics Standards, supra note 104 (describing the bill as “watered-down”);
Calefati, supra note 9 (noting a decline in support for the bill as the embarrassment of the scandals fades).
176. See id. (noting that the provision’s removal was requested by senate leaders).
177. See id. (discussing the removal of the provision regarding the use of campaign funds for legal
defense purposes).
178. See id. (indicating that SB 831seeks to “improve and modernize” the PRA).
179. Leila Pedersen, Defending Democracy and Delivering Disclosure, COMMON CAUSE, July 2, 2014,
http://www.commoncause.org/states/California/news/defending-democracy-and.html (on file with the
McGeorge Law Review).
180. Senate Adopts New Ethics Standards, supra note 104.
181. SB 831 Senate Bill–History, OFFICIAL CALIFORNIA LEGISLATIVE INFORMATION, Nov. 29, 2014,
http://www.leginfo.ca.gov/pub/13-14/bill/sen/sb_0801-0850/sb_831_bill_20140930_history.html (on file with
the McGeorge Law Review).
182. Letter from Edmund G. Brown, Governor of California, to the Members of the California State
Senate (Sept. 30, 2014) (on file with the McGeorge Law Review), available at http://gov.ca.gov/docs/
SB_831_Veto_Message.pdf [hereinafter Veto Letter].
183. Id.
184. David Siders, Jerry Brown Vetoes California Political Ethics Bills, SACRAMENTO BEE, Sept. 30,
2014, http://www.sacbee.com/news/politics-government/capitol-alert/article2616394.html (on file with the
McGeorge Law Review).
384
McGeorge Law Review / Vol. 46
the organization “just in terms of restoring public confidence and creating the
185
optics that our state government cares about ethics and takes it seriously.”
Despite Feng’s concerns about the perception created by the veto, the
effectiveness of the proposed legislation was questioned by political ethics expert
Jessica Levinson, who indicated that the bill would fail to “change the way
186
business is done in Sacramento.” Governor Brown’s reasoning reflects the
same line of thought; his veto message indicated that he refused to sign the bill
187
because he felt it would not meaningfully “reduc[e] undue influence.”
Governor Brown’s suggestion that SB 831’s impact would have been less
than meaningful may stem from the sense that the bill was diluted during its
188
legislative journey. Between curtailing the impact of the restrictions on
189
190
behested payments to 501(c)(4) groups, eliminating caps on gifts of travel,
and excising provisions like the one restricting politicians from using their
191
campaign funds for legal defense, Governor Brown had a litany of examples to
point to justify his assertion that the bill would fail to effectively eliminate
192
improper influence. One state official noted that bills like these are often made
as a response to a public relations disaster like the Senatorial indictments rather
than for legitimate policy reasons; Governor Brown’s veto makes more sense in
193
light of sentiments like that one.
V. CONCLUSION
194
Governor Brown is foremost among those who have criticized SB 831. The
bill’s amendments have led some to suggest that it is a product of waning
195
ambition and desire. This ambition that led to the bill’s drafting has faded along
196
with the embarrassment of the scandal that gave birth to it. However, criticisms
of the magnitude of the bill’s potential impact cannot erase the fact that it would
185. Id.
186. Id.
187. Veto Letter, supra note 182.
188. See Calefati, supra note 9 (discussing amendments that diluted the strength of the bill).
189. See SB 831 § 1(a), 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sep. 5, 2014, but not enacted)
(excluding 501(c)(3) and other types of nonprofits from the bill’s scope).
190. See id. at § 3 (failing to put a limit on gifts of travel).
191. See Senate Adopts New Ethics Standards, supra note 104 (discussing the provision that eliminated
the restriction on using campaign funds for legal defense).
192. Veto Letter, supra note 182.
193. See Email from Alex Barrios, Communications Director, California State Senate, to Elizabeth Kim,
Greensheets Staff Writer, McGeorge Law Review (July 18, 2014, 17:17 PST) (on file with the McGeorge Law
Review) (discussing responsive legislation in the context of SB 1441, another political ethics bill from this
legislative session that Governor Brown vetoed).
194. Veto Letter, supra note 182.
195. Calefati, supra note 9.
196. Id.
385
2014 / Government
197
have been impactful on some level. The bill would have addressed concerns
regarding lax disclosure requirements surrounding gifts of travel—a concern
198
which has been echoed by one of the original drafters of the PRA. Additionally,
SB 831 would have addressed payments to nonprofits owned or operated by
elected officials and their family members, like those made to the organization
199
operated by Senator Calderon’s brother.
The legislation was intended to “improve and modernize” the PRA, and
200
according to its sponsor, it would have done so. Indeed, Common Cause, a
watchdog organization that prides itself on advocating for this sort of change,
201
endorsed the bill. “Sometimes it takes a crisis,” Senator Steinberg said, and
what began with significant embarrassment for California’s democratic process
202
resulted in an attempt by the legislature to strengthen that democratic process.
SB 831 would have represented a compromise, to be sure, but its veto nullifies
what appeared to many to be a step in the right direction.
197. See Pedersen, supra note 179.
198. White, supra note 33; SB 831 § 3, 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sep. 5, 2014,
but not enacted).
199. UNG, supra note 32, at 13; SB 831 § 1, 2013–2014 Leg. Sess. (Cal. 2014) (as enrolled on Sep. 5,
2014, but not enacted).
200. Senate Adopts New Ethics Standards, supra note 104 (quoting Senator Jerry Hill).
201. Pedersen, supra note 179.
202. Calefati, supra note 9.
386