BILL ANALYSIS Ó SENATE COMMITTEE ON ELECTIONS AND CONSTITUTIONAL AMENDMENTS Senator Norma J. Torres, Chair BILL NO: AB 800 HEARING DATE: 7/2/13 AUTHOR: GORDON ANALYSIS BY: Darren Chesin AMENDED: 6/13/13 FISCAL: YES SUBJECT Political Reform Act DESCRIPTION Existing law provides for all of the following: 1.Creates the Fair Political Practices Commission (FPPC), and makes it responsible for the impartial, effective administration and implementation of the Political Reform Act (PRA). 2.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. 3.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: The payment of outstanding campaign debts or elected officer's expenses; The repayment of contributions; 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; 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; Contributions to support or oppose a candidate for federal office, a candidate for elective office in a state other than California, or a ballot measure; or, 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. 1.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. 2.Permits the Franchise Tax Board (FTB) and the FPPC to make investigations and audits with respect to any reports or statements required by specified provisions of the PRA. 3.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 AB 800 (GORDON) Page 2 audit is selected by the FPPC to be audited. 4.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. This bill makes numerous significant changes to the PRA. Specifically, this bill: 1.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. 2.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, and thus subject to additional restrictions on how those funds can be spent. 3.Repeals a provision of law that prohibits the FPPC from beginning audits or investigations of certain entities prior to the election. 4.Allows the FPPC and the 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. 5.Extends, from one year to two years, the 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. 6.Prohibits the FPPC and its staff from divulging or making known in any manner the particulars of any information that it 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. AB 800 (GORDON) Page 3 7.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. BACKGROUND 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 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 AB 800 (GORDON) Page 4 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. 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. Surplus Funds . Existing law provides that campaign funds that are held by a candidate or elected official become surplus AB 800 (GORDON) Page 5 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 before campaign funds become surplus funds by 90 days. COMMENTS 1.According to the Author : For Californians to have confidence in their government, they must have faith in elections. Nearly 40 years ago, California voters passed the PRA to ensure greater transparency, disclosure, and accountability in elections. The Act specifically stated as one of its purposes that "the voters may be fully informed and improper practices may be inhibited." Overall, AB 800 contains several distinct changes intended to clarify the FPPC's authority to carry out the provisions of the PRA, ensure that information is provided to the public in an expedited manner prior to elections, and provide candidates and campaigns clear guidance to comply with the law. AB 800 makes a number of concrete changes that would provide the FPPC the tools necessary to enforce the PRA, and ensure accountability and protect public trust in campaigns and elections. They are as follows: AB 800 (GORDON) Page 6 Audit Authority Under existing law, the FTB has a role in auditing accounts under the PRA, but the law provides that audits must be completed within one year. Moreover, the Commission has limited existing authority to audit and investigate a candidate or committee during the pendency of a campaign. AB 800 would extend the one year limit on FTB audits to two years so that the audits can examine more complex matters, as well as clarify and expand the Commission's existing audit authority to permit immediate review of records of a candidate or committee to enforce compliance with the PRA. The bill would also establish an expedited judicial process to ensure that parties have a chance to contest actions before the election. Audit Disclosure AB 800 would place the audits the Commission performs under the existing confidentiality provision of law that prevent the FTB from divulging particulars of audits except in furtherance of the work of the Commission or in connection with a court proceeding or agency investigation. This change would have the law regarding the Commission parallel the law applicable to the FTB. This is also consistent with current Commission policy. Injunction Authority AB 800 would make it clear that the Commission has the authority to seek an injunction to compel compliance before the election, as well as specify the civil process. In addition, the bill provides that any stay of an order granting relief would be at the discretion of the trial or appellate court. Subvendor Recordkeeping Under existing law, subvendors do not always provide timely reports or records to campaigns. When there is a failure to report this information, the campaign faces a possible AB 800 (GORDON) Page 7 penalty. To increase transparency as well as assist campaigns, AB 800 would create a clear recordkeeping requirement for vendors who provide services to campaigns. The information would need to be disclosed in time for the campaign to timely report. This requirement is consistent with existing law applicable to in-kind contributions. Surplus Campaign Funds Under existing law, a former candidate or elected official's campaign funds become surplus once the campaign ends or the official leaves office. Currently, a former candidate or official must make an immediate decision about remaining funds - such as whether to open a new campaign account or a placeholder account. AB 800 would clarify the law to provide persons leaving office or a defeated candidate after a campaign 90 days to determine the future of the funds. By doing so, former candidates or officials can better plan for the future, which will lead to more transparency for the public on future uses of the funds. 2.Related Legislation . AB 45 (Dickinson, 2013) has identical language relative to injunctions. In addition, SB 2 (Lieu, 2013) also addresses the issue of audits and injunctions, but does so in a slightly different manner. PRIOR ACTION Assembly Elections and Redistricting Committee: 5-2 Assembly Appropriations Committee: 12-5 Assembly Floor: 54-22 POSITIONS Sponsor: Author Support: California Common Cause Fair Political Practices Commission Secretary of State Oppose: None received AB 800 (GORDON) Page 8 AB 800 (GORDON) Page 9