BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 800
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          Date of Hearing:   April 23, 2013

                  ASSEMBLY COMMITTEE ON ELECTIONS AND REDISTRICTING
                                  Paul Fong, Chair
                    AB 800 (Gordon) - As Amended:  April 15, 2013
           
          SUBJECT  :   Political Reform Act of 1974.

           SUMMARY  :   Makes numerous significant changes to the Political  
          Reform Act of 1974 (PRA).  Specifically,  this bill  :  

          1)Provides that a committee is presumed to be a controlled  
            committee of a candidate if the candidate or his or her agent  
            satisfies any of the following conditions:

             a)   Is a voting member of the committee's governing body;

             b)   Is involved in the decisionmaking of the committee, or  
               the development or implementation of the committee's  
               campaign strategy;

             c)   Is involved in directing, planning, or implementing the  
               committee's fundraising activities in a greater capacity  
               than making endorsements or appearing at fundraisers; or,

             d)   Is substantially involved in directing the day-to-day  
               operations of the committee.

          2)Requires subagents and subcontractors that make expenditures  
            on behalf of or for the benefit of a candidate or committee to  
            make known to the agent or independent contractor of the  
            candidate information about those expenditures.  Requires the  
            agent or independent contractor to make this information  
            available to the candidate or committee not later than three  
            working days prior to the time that the campaign statement  
            reporting the expenditure is required to be filed.  Provides  
            that, in the case of an expenditure that is required to be  
            reported by a candidate or committee within 24 hours of the  
            time that it is made, the agent or independent contractor is  
            required to make this information available to the candidate  
            or committee within 24 hours.

          3)Extends, for a period of 90 days, the period of time before  
            campaign funds that are under the control of a former  
            candidate or elected officer become surplus campaign funds,  







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            and thus subject to additional restrictions on how those funds  
            can be spent.

          4)Repeals a provision of law that prohibits the Fair Political  
            Practices Commission (FPPC) from beginning audits or  
            investigations of certain entities prior to the election.

          5)Allows the FPPC and the Franchise Tax Board (FTB) to make  
            audits and investigations regarding any statement or report  
            that is required by any provision of the PRA, instead of  
            allowing such audits and investigations only of specified  
            statements or reports.

          6)Repeals a one year limit on the amount of time that the FTB  
            has to complete its report of any audit that it conducts under  
            specified provisions of the PRA.

          7)Prohibits a member, employee, or agent of the FPPC from  
            divulging or making known in any manner the particulars of any  
            record, documents, or information that he or she receives as  
            part of an audit or investigation conducted pursuant to the  
            PRA, except in furtherance of the work of the FPPC or in  
            connection with a court proceeding or the lawful investigation  
            of any agency.

          8)Permits the FPPC, and the FTB at the direction of the FPPC, to  
            audit any record required to be maintained under the PRA to  
            ensure compliance with the PRA prior to an election, even if  
            the record or statement has not yet been filed.  Permits the  
            FPPC, to further the purposes of this provision, to seek  
            injunctive relief in superior court to compel disclosure.   
            Permits a superior or appellate court to grant a stay of an  
            order granting relief pursuant to these provisions.  Requires  
            the court to grant expedited review to an action filed  
            pursuant to this procedure, as specified.

          9)Makes various findings and declarations about the public  
            disclosure of political contributions and expenditures.

           EXISTING LAW  :

          1)Creates the FPPC, and makes it responsible for the impartial,  
            effective administration and implementation of the PRA.

          2)Defines a "controlled committee" to mean a committee that is  







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            controlled directly or indirectly by a candidate or state  
            measure proponent or that acts jointly with a candidate,  
            controlled committee, or state measure proponent in connection  
            with the making of expenditures.  Provides that a candidate or  
            state measure proponent controls a committee if he or she has  
            a significant influence on the actions or decisions of the  
            committee.

          3)Prohibits an expenditure of $500 or more from being made by an  
            agent or independent contractor of a candidate or committee  
            unless it is reported by the candidate or committee as if the  
            expenditure were made directly by the candidate or committee.   
            Requires the agent or independent contractor to make known to  
            the candidate or committee the information required to be  
            reported pursuant to this provision.

          4)Provides that campaign funds under the control of a former  
            candidate or elected officer shall be considered surplus  
            campaign funds at the time the person leaves office or at the  
            end of the postelection reporting period following the defeat  
            of a candidate for elective office, whichever occurs last.   
            Provides that surplus campaign funds shall be used only for  
            the following purposes:

             a)   The payment of outstanding campaign debts or elected  
               officer's expenses;

             b)   The repayment of contributions;

             c)   Donations to a bona fide charitable, educational, civic,  
               religious, or similar tax-exempt, nonprofit organization,  
               where no substantial part of the proceeds will have a  
               material financial effect on the former candidate or  
               elected officer, any member of his or her immediate family,  
               or his or her campaign treasurer;

             d)   Contributions to a political party committee, provided  
               that the campaign funds are not used to support or oppose a  
               candidate for elective office, provided, however, that the  
               campaign funds may be used by a political party committee  
               to conduct partisan voter registration, partisan  
               get-out-the-vote activities, and slate-mailers;

             e)   Contributions to support or oppose a candidate for  
               federal office, a candidate for elective office in a state  







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               other than California, or a ballot measure; or,

             f)   The payment for professional services reasonably  
               required by the committee to assist in the performance of  
               its administrative functions, including payment for  
               attorney's fees for litigation that arises directly out of  
               a candidate's or elected officer's activities, duties, or  
               status as a candidate or elected officer, including, but  
               not limited to an action to enjoin defamation, defense of  
               an action brought for a violation of state or local  
               campaign, disclosure, or election laws, and an action from  
               an election contest or recount. 

          5)Prohibits an audit or investigation of any candidate,  
            controlled committee, or committee primarily supporting or  
            opposing a candidate or measure in connection with a report or  
            statement required by specified provisions of law from  
            beginning until after the last date for filing the first  
            report or statement following the general, runoff, or special  
            election for the office for which the candidate ran, or  
            following the election at which the measure was adopted or  
            defeated, except as specified.

          6)Permits the FTB and the FPPC to make investigations and audits  
            with respect to any reports or statements required by  
            specified provisions of the PRA.

          7)Requires the FTB to complete its report of any audit conducted  
            on a random basis pursuant to specified provisions of law  
            within one year after the person or entity subject to the  
            audit is selected by the FPPC to be audited.

          8)Prohibits a member, employee, or agent of the FTB from  
            divulging or making known in any manner the particulars of any  
            record, documents, or information that he or she receives as  
            part of an audit or investigation conducted pursuant to the  
            PRA, except in furtherance of the work of the FTB or in  
            connection with a court proceeding or the lawful investigation  
            of any agency. 

           FISCAL EFFECT  :  Unknown.  State-mandated local program; contains  
          a crimes and infractions disclaimer.

           COMMENTS  :   








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           1)Purpose of the Bill  :  According to the author:

               More and more, voters receive information from or see  
               advertisements funded by entities other than the  
               candidate for office or the committee proposing a  
               ballot measure.  It is vital for a fully informed  
               electorate that the public knows, in a timely manner,  
               who if not the candidate or ballot measure committee,  
               is paying for political messaging. Moreover, there  
               must be a means of inhibiting improper practices and  
               holding entities involved with election campaigns  
               accountable.  

               The Political Reform Act governs campaign financing  
               and spending, including disclosure of political  
               campaign contributions and expenditures by candidates  
               and committees.  AB 800 contains several distinct  
               changes to the Political Reform Act intended to  
               clarify the Fair Political Practices Commission's  
               authority to carry out the provisions of the PRA in a  
               manner that ensures information is provided to the  
               public in an expedited manner prior to elections.

           2)Audits and Investigations  :  This bill makes a number of  
            significant changes to state law governing audits and  
            investigations that are conducted under the PRA.  Some of  
            these provisions appear to be in response, in part, to an $11  
            million campaign contribution made to the Small Business  
            Action Committee PAC (SBAC PAC) three weeks prior to the  
            November 2012 statewide general election.

          The SBAC PAC, which was a primarily formed committee that was  
            opposing Proposition 30 and supporting Proposition 32 at the  
            time the contribution was received, reported that the $11  
            million contribution was made by Americans for Responsible  
            Leadership (ARL), an Arizona-based non-profit organization.   
            ARL, in turn, initially refused to disclose the names of its  
            contributors, arguing that it was not required to do so under  
            California law because it had not "solicited earmarked  
            contributions for any particular project" and because "[n]o  
            contributors to ARL at any time specified where any of their  
            donations 'must go.'" 

          After receiving a complaint regarding the $11 million  
            contribution, the FPPC requested to review certain records  







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            held by ARL to ensure compliance with state campaign  
            disclosure laws, and subsequently commenced a discretionary  
            audit of ARL.  When ARL did not produce records as requested  
            by the FPPC, the FPPC sued ARL in Sacramento Superior Court  
            seeking an order to compel ARL to produce those records.  ARL  
            opposed that request on a variety of grounds, including  
            arguing that the FPPC was prohibited from conducting an audit  
            or an investigation prior to the election.  The Court  
            ultimately granted the FPPC's request for an order for ARL to  
            produce the requested records, finding that the statutory  
            prohibition against pre-election audits and investigations  
            applied only to candidates and certain types of committees,  
            and was not applicable to ARL.  After an unsuccessful appeal,  
            ARL and the FPPC reached a settlement in which ARL revealed  
            that it was not the true source of the $11 million  
            contribution, but instead was an intermediary for that  
            contribution.  ARL disclosed that the actual source of the $11  
            million was another nonprofit organization, Americans for Job  
            Security (AJS), and that the contribution was then passed  
            through a second intermediary (and another nonprofit  
            organization), the Center to Protect Patient Rights (CPPR).   
            CPPR, in turn, made the contribution to ARL.  AJS has not  
            disclosed its donors.

          This bill seeks to give the FPPC additional tools to ensure  
            compliance with the PRA by permitting the FPPC to seek  
            injunctive relief to compel disclosure that is required by the  
            PRA, and by requiring the court to grant expedited review to  
            any such action in order to ensure that campaign contributions  
            and expenditures are disclosed prior to the election.  This  
            bill additionally gives the FPPC the authority to audit any  
            record that is required to be maintained prior to an election  
            in order to ensure compliance with the PRA, and permits the  
            FPPC to make investigations and audits with respect to any  
            report or statement that is required to be filed pursuant to  
            the PRA.  Finally, this bill repeals a prohibition against an  
            audit or investigation of a candidate, controlled committee,  
            or committee primarily supporting or opposing a candidate or  
            measure in connection with a report or statement required by  
            certain provisions of the PRA from being commenced prior to  
            the election.  
           
           3)Controlled Committees & Suggested Amendment  :  Under the PRA, a  
            committee is considered a "controlled committee" if it is  
            controlled directly or indirectly by a candidate or state  







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            measure proponent, or it acts jointly with a candidate,  
            controlled committee, or state measure proponent in connection  
            with the making of expenditures.  A candidate or state measure  
            proponent controls a committee if he or she, or his or her  
            agent or any other committee he or she controls, has a  
            significant influence on the actions or decisions of the  
            committee.  Controlled committees are subject to certain  
            reporting requirements and restrictions that do not apply to  
            other types of committees, including, in the case of a  
            committee that is controlled by a candidate, a prohibition  
            against making independent expenditures and against  
            contributing funds to another committee for the purpose of  
            making independent expenditures to support or oppose other  
            candidates.

          While the PRA provides that a candidate or state measure  
            proponent controls a committee if he or she has a significant  
            influence on the actions or decisions of the committee, it  
            does not include greater detail about what types of actions  
            would constitute having a "significant influence" on the  
            actions or decisions of the committee.  Furthermore, the FPPC  
            has not adopted regulations to clarify what constitutes having  
            "significant influence" over the actions or decisions of a  
            committee.  Instead, the FPPC has provided guidance about what  
            constitutes "significant influence" through a series of advice  
            letters. Among other things, the FPPC has advised that a  
            candidate is presumed to be controlling a committee if the  
            candidate is a voting member of the committee's leadership,  
            and can be considered to be controlling a committee if the  
            candidate has extensive involvement in the committee's  
            fundraising activities.

          This bill establishes a presumption that a committee is  
            significantly influenced by a candidate, and thus is a  
            "controlled committee," if the candidate is a voting member of  
            the
          committee's governing body, the candidate or his or her agent is  
            involved in the decision-making of the committee or the  
            development or implementation of the committee's campaign  
            strategy, the candidate or his or her agent is involved in  
            directing, planning, or implementing the committee's  
            fundraising activities in a greater capacity than making  
            endorsements or appearing at fundraisers, or the candidate, or  
            his or her agent, is substantially involved in directing the  
            day to day operations of the committee.  These provisions are  







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            intended to codify advice that the FPPC has given regarding  
            what constitutes having "significant influence" over the  
            actions or decisions of a committee.

          It is not clear, however, that the current language of this bill  
            accomplishes that goal.  Under the provisions of this bill, a  
            committee is deemed to be a controlled committee if a  
            candidate is involved in "directing, planning, or implementing  
            the committee's fundraising activities in a greater capacity  
            than making endorsements or appearing at fundraisers."  This  
            appears to differ from the standard that the FPPC established  
            through advice letters, where it has advised that an elected  
            official's participation in fundraising activities for a  
            committee can result in that committee being considered a  
            controlled committee of the official, but has also advised  
            that an official's participation in fundraising activities for  
            a committee that go beyond making endorsements or appearing at  
            fundraisers will not necessarily result in that committee  
            being deemed a controlled committee of the official.  For  
            instance, the FPPC has previously advised that, under certain  
            circumstances, a candidate could provide access to a committee  
            to his or her contributor list, solicit funds for the  
            committee in writing over the telephone, be featured on  
            invitations to fundraising events for the committee, speak at  
            such events, and distribute a committee's funds in person or  
            by mail, and still not be considered to control that committee  
            (Erenbaum Advice Letter, No. I-01-242).  This conduct appears  
            to be more extensive than making endorsements or appearing at  
            fundraisers, and thus under this bill would result in the  
            committee being presumed to be a controlled committee of the  
            candidate.

          Because the intent of this portion of the bill is to codify FPPC  
            advice, committee staff recommends removing the provisions of  
            this bill that presume that a committee is significantly  
            influenced by a candidate if the candidate or his or her agent  
            is involved in certain fundraising activities.  By removing  
            this provision of the bill, longstanding FPPC advice about the  
            extent that a candidate may be involved in fundraising  
            activities for a committee without that committee being  
            considered to be controlled by the candidate will remain  
            unaffected, while other, objective criteria that the FPPC has  
            used to determine that when a candidate is deemed to be  
            controlling a committee will be codified. 








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           4)Subcontractor Reporting  :  As noted above, the PRA requires a  
            candidate or committee to report payments of $500 or more that  
            are made by an agent or independent contractor as if the  
            candidate or committee had made the payment directly.  For  
            example, if a candidate pays a media buying company $50,000 to  
            pay for advertisements supporting that candidate, and the  
            company arranges for the placement of individual  
            advertisements with numerous television and radio stations,  
            the candidate would be required to report the identity of and  
            the amount paid to any television or radio station that  
            received $500 or more from the media buying company for the  
            purpose of broadcasting those advertisements.  In order that  
            the candidate can comply with this requirement, existing law  
            also requires the agent (in this case, the media buying  
            company) to provide the candidate with details about the  
            payments that it made sufficient for the candidate to report  
            those payments.  However, if a subagent or subcontractor makes  
            a subsequent payment of $500 or more on behalf of the  
            candidate, there is no explicit requirement for that subagent  
            or subcontractor to provide the relevant information to the  
            agent or independent contractor on a timely basis so that the  
            agent or independent contractor, and the candidate or  
            committee, can comply with their obligations under the law.   
            This bill imposes such a requirement, which should help  
            candidates and committees comply with their disclosure  
            obligations under the law.

           5)Surplus Funds  :  Existing law provides that campaign funds that  
            are held by a candidate or elected official become surplus  
            campaign funds once the person leaves elective office or at  
            the end of the postelection campaign reporting period  
            following the defeat of the candidate for elective office,  
            whichever occurs last.  Once funds are considered surplus  
            campaign funds, they are subject to additional restrictions on  
            how the funds may be used, including a prohibition against the  
            candidate using the funds for a future election.  Because of  
            the short period of time that a candidate or officeholder has  
            to determine what to do with these campaign funds before they  
            become surplus funds, FPPC staff indicates that many  
            candidates simply create new committees as placeholders until  
            they can decide whether they want to run for another office in  
            the future, and the tight timelines under which those new  
            committees must be created and money must be transferred  
            generates additional workload for the FPPC in the form of  
            requests for advice.  This bill increases the period of time  







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            before campaign funds become surplus funds by 90 days, thereby  
            allowing candidates and officials to make decisions about the  
            use of those funds in a more deliberate manner.

           6)Repeal of Time Limit on FTB Audits and Possible Amendment  :   
            This bill repeals an existing requirement for the FTB to  
            complete certain audits within a one year period from the time  
                                                                      that the person or entity subject to the audit is selected to  
            be audited by the FPPC.  According to FPPC staff, this  
            provision will give the FTB the ability to adjust their  
            workload to work more rapidly on major audits, rather than  
            rushing to complete lower-priority audits within the one year  
            time limit.  By repealing the time limit entirely, however,  
            candidates and committees that are being audited could be  
            stuck in a state of uncertainty for long periods of time even  
            in situations where those candidates and committees have fully  
            complied with the law.  In order to provide the FPPC and the  
            FTB with greater flexibility to prioritize audits, while  
            providing greater certainty to candidates and committees about  
            the potential duration of those audits, the committee may wish  
            to consider amending this bill to extend the time limit for  
            the FTB to complete these audits from one year to two years,  
            rather than repealing the time limit altogether.

           7)Arguments in Support  :  In support of this bill, California  
            Common Cause writes:

               As the complainant in the ongoing investigation  
               against Americans for Responsible Leadership, the  
               Arizona-based 501(c)4 that attempted to launder $11  
               million into two ballot campaigns, we are in strong  
               support of AB 800 that will give the Fair Political  
               Practices Commission the tools it needs to further  
               investigate money laundering and other dark money  
               schemes. Since the United States Supreme Court  
               decision in Citizens United v. FEC, we have seen an  
               explosion of deceptive and shadowy tactics developed  
               by political operatives to sneak money into campaigns  
               while avoiding public disclosure. California should  
               adopt common sense measures like AB 800 that will  
               further shine a light on money in politics.

           8)Related Legislation  :  AB 45 (Dickinson), which is also being  
            heard in this committee today, permits the FPPC to seek  
            injunctive relief to compel disclosure, among other  







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            provisions.   
           
           9)Political Reform Act of 1974  :  California voters passed an  
            initiative, Proposition 9, in 1974 that created the FPPC and  
            codified significant restrictions and prohibitions on  
            candidates, officeholders and lobbyists. That initiative is  
            commonly known as the PRA.  Amendments to the PRA that are not  
            submitted to the voters, such as those contained in this bill,  
            must further the purposes of the initiative and require a  
            two-thirds vote of both houses of the Legislature.

           REGISTERED SUPPORT / OPPOSITION  :   

           Support                              Opposition
           
          California Common Cause                 None on file.
          Fair Political Practices Commission
           
          Analysis Prepared by  :    Ethan Jones / E. & R. / (916) 319-2094