BILL ANALYSIS Ó
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THIRD READING
Bill No: SB 27
Author: Correa (D)
Amended: 5/6/13
Vote: 27
SENATE ELECTIONS & CONST. AMENDMENTS COMM. : 4-1, 4/30/13
AYES: Correa, Hancock, Padilla, Yee
NOES: Anderson
SENATE APPROPRIATIONS COMMITTEE : 5-2, 5/23/13
AYES: De León, Hill, Lara, Padilla, Steinberg
NOES: Walters, Gaines
SUBJECT : Political Reform Act of 1974
SOURCE : Fair Political Practices Commission
DIGEST : This bill revises the definition of campaign
contribution to include payments made by a donor who has reason
to know that the payment may be used to make a contribution to
support or oppose a California state or local candidate or
ballot measure; and requires ballot measure committees and
candidate committees that raise $1 million or more for an
election to maintain an accurate list of the committee's top 10
contributors to be posted on the Fair Political Practices
Commission's (FPPC) Internet Web site and the committee's
Internet Web site.
ANALYSIS :
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Existing law:
1.Provides, under the Political Reform Act of 1974 (Act), 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.
2.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 specified.
This bill:
1.Revises 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.
2.Establishes 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, as specified.
3.Provides that a nonprofit or other multipurpose organization
that qualifies as a political committee in California shall
file the campaign statements required by the Act 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.
4.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
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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.
5.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.
6.Provides that a committee primarily formed 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 10 contributors of
$10,000 or more. The current list of the top 10 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 Secretary of
State (SOS), if requested, for purposes of posting on the
SOS's Internet Web site.
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
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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 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 Internal Revenue Code Section 501,
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/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
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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
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.
The $11 million Americans for Responsible Leadership (ARL)
contribution . The Small Business Action Committee Political
Action Committee, 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 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, 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
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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, and that the contribution was then passed through a
second intermediary (and another nonprofit organization), the
Center to Protect Patient Rights. The Center, in turn, made the
contribution to ARL. Americans for Job Security has not
disclosed its donors. This matter is still the subject of an
ongoing FPPC investigation.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee:
The FPPC indicates costs of approximately $10,000 annually
(General).
The SOS indicates costs of about $55,000 (General).
The FPPC indicates only minor costs to modify regulations.
Costs to the SOS result from providing the Top 10 Contributor
List in the Voter Information Guide.
SUPPORT : (Verified 5/23/13)
Fair Political Practices Commission (source)
California Clean Money Campaign
Common Cause
League of Women Voters of California
ARGUMENTS IN SUPPORT : According to the FPPC, the Act 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.
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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. This bill
implements 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 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 also requires 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 10
contributors, which would be posted on the FPPC's Internet Web
site and the Committee's Internet Web site.
This bill 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 increases
accountability for those who attempt to avoid disclosure of
their identities by channeling funds used to influence
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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 increases
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 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.
RM:nk 5/23/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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