BILL ANALYSIS �
SENATE COMMITTEE ON ELECTIONS
AND CONSTITUTIONAL AMENDMENTS
Senator Lou Correa, Chair
BILL NO: SB 27 HEARING DATE: 04/30/13
AUTHOR: CORREA ANALYSIS BY: Darren Chesin
AMENDED: 04/09/13
FISCAL: YES
SUBJECT
Political Reform Act: nonprofit and multipurpose
organizations; disclosure
DESCRIPTION
Existing law , pursuant to the Political Reform Act (PRA),
provides for the comprehensive regulation of campaign
financing, including requiring the reporting of campaign
contributions and expenditures, as defined, and imposing
other reporting and recordkeeping requirements on campaign
committees, as defined.
Existing law generally defines "contribution" as a payment
for political purposes for which full and adequate
consideration is not received. FPPC regulations further
define "contribution" to include certain payments to
nonprofit organizations and federal or out-of-state
political organizations active in California elections as
follows:
Any payment made to a person or organization other than a
candidate or committee, when, at the time of making the
payment, the donor knows or has reason to know that the
payment, or funds with which the payment will be
commingled, will be used to make contributions or
expenditures.
If the donor knows or has reason to know that only part
of the payment will be used to make contributions or
expenditures, the payment shall be apportioned on a
reasonable basis in order to determine the amount of the
contribution.
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.
A donor to such a person or organization shall be
identified and reported as specified.
This bill would revise the statutory definition of a
"contribution" to include payments made by a donor who, at
the time of making the payment, knows or has reason to know
that the payment, or funds with which the payment will be
commingled, may be used to make a contribution or
expenditure to support or oppose a California state or
local candidate or ballot measure.
This bill would establish a presumption that a donor to a
nonprofit or other multipurpose organization, as defined,
has reason to know that all or part of the payment may be
used to make a contribution or expenditure if any of the
following criteria are satisfied:
The nonprofit or other multipurpose organization has made
contributions or expenditures of $1,000 or more in the
aggregate during the calendar year in which the payment
occurs or during any of the immediately preceding four
calendar years.
The nonprofit or other multipurpose organization has made
payments totaling $500,000 or more for contributions or
expenditures in this state during the calendar year in
which the payment occurs.
The nonprofit or other multipurpose organization has
disclosed contributions or expenditures to support or
oppose candidates or ballot measures, or for issue
advocacy activities, in this state on any publicly
available annual or periodic report of its activities,
including Internal Revenue Service Form 990, filed with a
federal, state, or local government agency during the
calendar year in which the payment occurs or during any
of the immediately preceding four calendar years.
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The nonprofit or other multipurpose organization has a
sponsored committee registered with the Secretary of
State (SOS).
This bill provides that a nonprofit or other multipurpose
organization that qualifies as a political committee in
California shall file the campaign statements required by
the PRA and shall disclose the portion of its activities
devoted to California state and local elections. The
organization's campaign statements shall report its
contributions and expenditures to support or oppose state
and local candidates and ballot measures in California and
shall itemize the sources of funds used to make those
contributions and expenditures, including, but not limited
to, donors and dues-paying members.
This bill provides that a donor who makes a contribution to
a nonprofit or other multipurpose organization that
qualifies as a committee shall be identified and reported
by the organization that receives the contribution in
accordance with regulations adopted by the FPPC. However,
a donor need not be reported as a contributor if the
organization has evidence that clearly establishes specific
circumstances demonstrating that the donor did not know or
have reason to know that its payment would be used to fund
a contribution or expenditure.
This bill prohibits a person from using a nonprofit or
other multipurpose organization as an intermediary or agent
for the purpose of making a contribution on behalf of that
person without providing to the organization all of the
information required to be disclosed. A nonprofit or other
multipurpose organization shall disclose the identity of a
person for whom the organization is acting as an
intermediary or agent to the recipient of the contribution,
as well as all other information required by law. The
nonprofit or other multipurpose organization shall not
knowingly conceal the name of a donor for whom the
organization makes a contribution as an intermediary or
agent for the purpose of withholding information required
to be made public.
This bill also provides that a committee primarily formed
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to support or oppose a ballot measure or candidate that
raises $1 million or more for an election shall maintain an
accurate and publicly available list of the committee's top
ten contributors of $10,000 or more. The current list of
the top ten contributors shall be provided to the FPPC for
disclosure on the FPPC's Internet Web site, posted
prominently on the committee's own Internet Web site, if
any, and provided to the SOS, if requested, for purposes of
posting on the SOS's Internet Web site.
This bill also makes specified findings and declarations
regarding the use of nonprofit and other multipurpose
organizations as intermediaries for campaign contributions
to conceal the true source of the money.
BACKGROUND
Nonprofits, etc. and the One Bite Rule . In California
nonprofit and other multi-purpose organizations spending on
state and local elections must report the donors who are
the sources of their funds. Multi-purpose groups that must
disclose sources of funds if they are spending on
California elections include:
Nonprofit organizations
Federal and out-of-state political action committees
Local clubs focusing on educational and social activities
These organizations typically receive donations or other
payments (e.g., membership dues) for purposes other than
making political expenditures in California. They
nevertheless may, at times, use some of these funds to make
political expenditures to support or oppose California
state or local candidates or ballot measures.
Under existing law, when a multipurpose organization makes
contributions or independent expenditures of specified
amounts in connection with an election in California, that
organization must file a report disclosing that it made the
contributions or independent expenditures. In some cases,
the organization is required to report only the fact that
it made a contribution or independent expenditure, while in
other cases, the report must also disclose certain donors
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to the organization. One of the key rules in determining
whether or not a multipurpose organization is required to
disclose its donors when it makes contributions or
independent expenditures in connection with California
elections is commonly referred to as the "one bite at the
apple" rule. This rule is particularly relevant to
entities that are organized under Section 501 of the
Internal Revenue Code, since those entities typically are
not otherwise required to publicly disclose their donors.
Pursuant to FPPC regulations, the "one bite" rule is
intended to ensure that a multipurpose organization is
required to reveal the name of a donor to that organization
only if the donor knew, or had reason to know, that his or
her donation could be used for political purposes in
California. Under the "one bite" rule, a multipurpose
organization is not necessarily required to disclose any
information about donors to that organization unless that
organization has previously made expenditures or
contributions of at least $1,000 during the calendar year,
or at any time in the prior four calendar years. Once a
multipurpose organization takes its first "bite" by making
contributions or expenditures of $1,000 or more, donors to
that organization are presumed to know that the
organization is involved in making contributions or
expenditures in connection with California elections, and
thus are presumed to know that their donations may be used
for political purposes.
Even if a multipurpose organization has not taken its "one
bite at the apple," that organization nonetheless may still
be required to disclose the names of donors when it makes a
contribution or expenditure if those donors knew or had
reason to know that their donations would be used for
political purposes. For instance, if a multipurpose
organization sent a solicitation for donations, and that
solicitation specified that the donations were being sought
for the purpose of making contributions or expenditures in
a California election, individuals who donated to the
organization in response to that solicitation would know
that their donations would be used for political purposes,
and as a result their names may be subject to disclosure
notwithstanding the fact that the organization did not
previously take its "one bite at the apple." However, it
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can be difficult to enforce this reporting requirement,
since an enforcement agency needs to have access to the
organization's solicitations or other communications with
donors in order to determine whether those donors had
reason to know that their donations would be used for
political purposes.
Without adequate enforcement of these reporting
requirements, there is a concern that individuals who wish
to conceal their involvement in making contributions or
expenditures in connection with California elections can do
so by moving their money through multipurpose organizations
that have not yet taken their "one bite at the apple."
This frustrates one of the key purposes of the PRA: to
ensure that receipts and expenditures in election campaigns
are fully and truthfully disclosed so that the voters may
be fully informed and improper practices may be inhibited.
The $11 million ARL contribution . The Small Business
Action Committee PAC, which was a primarily formed
committee that was opposing Proposition 30 and supporting
Proposition 32 on the November, 2012 General Election
ballot, reported receiving an $11 million contribution 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
for an order for ARL to produce the requested records,
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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 matter is still the subject of an ongoing FPPC
investigation.
COMMENTS
1.According to the FPPC , the PRA provides for the
comprehensive regulation of campaign financing, including
requiring the reporting of campaign contributions and
expenditures. Regulations previously adopted by the FPPC
require nonprofit organizations to disclose the sources
of funds behind their campaign expenditures when donors
have made donations to the organization in response to a
solicitation that indicates the organization's intent to
use such funds to make contributions or expenditures, or
when such organizations have previously made
contributions or independent expenditures from their
general treasuries of $1,000 or more during the calendar
year, or the previous four years.
This bill revises the definition of contribution to include
payments by a donor who, at the time of making the
payment, knows or has reason to know that the payment
will be used to make contributions or expenditures in
California. The bill would implement presumptions as to
when a donor would have reason to know their donation
will be used to make contributions or expenditures.
The first presumption would apply when a multipurpose
organization receives donations and uses them to make
contributions or expenditures of $1,000 or more in the
calendar year or preceding four years. The second
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presumption would apply when a multipurpose organization
has made contributions or expenditures of $500,000 or
more in the calendar year in California. The third
presumption would apply when a multipurpose organization
has disclosed contributions or expenditures to support or
oppose candidates or ballot measures, or for issue
advocacy activities, in this state on any publicly
available annual or periodic report of its activities.
The last presumption would apply when a multipurpose
organization has a sponsored committee registered with
the SOS.
Once a presumption attaches, disclosure of the donor
information is required unless the organization can
affirmatively rebut the presumption. For example, the
presumption could be rebutted by evidence that the donor
gave money to the organization in response to a
solicitation that affirmatively stated that no money from
the donation would be used for political purposes.
This bill would also require ballot measure committees and
candidate committees that raise $1,000,000 or more for an
election to maintain an accurate list of the committee's
top ten contributors, which would be posted on the FPPC's
Internet website and the Committee's Internet website.
SB 27 will result in more timely and accurate disclosure of
the identity of the actual source of funds being spent on
California elections, rather than just the name of a
multipurpose organization which often provides little,
and sometimes misleading, information about the interest
behind the expenditure. This bill is important because
it would increase accountability for those who attempt to
avoid disclosure of their identities by channeling funds
used to influence California elections through other
committees or nonprofits. By establishing specific
rebuttable presumptions that donors have reason to know
their donations may be used for contributions or
expenditures in California elections, this bill would
increase disclosure of important information regarding
the true source of the money and the true interest behind
it.
The Supreme Court has repeatedly held that the identity of
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the source of funds spent on elections provides valuable
information to voters, and the FPPC believes that timely
pre-election disclosure of such information increases its
value to voters when it matters most.
POSITIONS
Sponsor: Fair Political Practices Commission
Support: California Clean Money Campaign
Common Cause
League of Women Voters of California
Oppose: None received
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