BILL ANALYSIS �
SB 27
Page 1
Date of Hearing: August 13, 2013
ASSEMBLY COMMITTEE ON ELECTIONS AND REDISTRICTING
Paul Fong, Chair
SB 27 (Correa) - As Amended: August 7, 2013
SENATE VOTE : 28-8
SUBJECT : Political Reform Act of 1974.
SUMMARY : Establishes conditions under which a multipurpose
organization (MPO) is required to disclose the names of its
donors when making campaign contributions or expenditures in the
state. Specifically, this bill :
1)Requires MPOs that make contributions or expenditures in
California campaigns to file campaign disclosure reports
pursuant to the following:
a) Defines an MPO, for the purposes of this bill, as an
organization described in Sections 501(c)(3) through
501(c)(10), inclusive, of the Internal Revenue Code and
that is exempt from taxation under Section 501(a) of the
Internal Revenue Code, a federal or out-of-state political
organization, a trade association, a professional
association, a civic organization, a religious
organization, a fraternal society, an educational
institution, or any other association or group of persons
acting in concert, that is operating for purposes other
than making contributions or expenditures. Provides that
business entities, individuals, and federal candidates'
authorized committees that are registered and filing
reports in accordance with federal law are not MPOs.
b) Provides that an MPO is a recipient committee, for the
purposes of the Political Reform Act (PRA), only under one
or more of the following circumstances:
i) The MPO is a political committee registered with the
Federal Elections Commission (FEC), except a federal
candidate's authorized committee that is registered and
filing reports in accordance with federal law, or a
political committee registered with another state, and
the MPO makes contributions or expenditures in this state
in an amount equal to or greater than the amount of
SB 27
Page 2
contributions that a committee must receive in order to
qualify as a recipient committee;
ii) The MPO solicits and receives payments from donors
for the purpose of making contributions or expenditures
in an amount equal to or greater than the amount of
contributions that a committee must receive in order to
qualify as a recipient committee;
iii) The MPO accepts payments from donors subject to a
condition, agreement, or understanding with the donor
that all or a portion of the payments may be used for
making contributions or expenditures in an amount equal
to or greater than the amount of contributions that a
committee must receive in order to qualify as a recipient
committee;
iv) The MPO has existing funds from a donor and a
subsequent agreement or understanding is reached with the
donor that all or a portion of the funds may be used for
making contributions or expenditures in an amount equal
to or greater than the amount of contributions that a
committee must receive in order to qualify as a recipient
committee; or,
v) The MPO makes contributions or expenditures totaling
more than $50,000 in the preceding 12 months, or more
than $100,000 in any consecutive four calendar year
period.
(1) Provides that an MPO does not qualify as a
recipient committee under this provision if the MPO
makes contributions and expenditures using only
available nondonor funds. Requires a MPO that makes
contributions or expenditures using nondonor funds to
identify the source or sources of the funds used for
the contribution or expenditure on its major donor or
independent expenditure report. Provides that, for
the purposes of this provision, "nondonor funds" means
investment income, including capital gains, or income
earned from providing goods, services, or facilities,
whether related or unrelated to the MPO's program,
sale of assets, or other receipts that are not derived
from donations.
SB 27
Page 3
c) Requires an MPO that qualifies as a recipient committee
pursuant to this bill to comply with the registration and
reporting requirements that apply to recipient committees
under the PRA, subject to the following:
i) If the MPO is a political committee registered with
the FEC, as specified, or with another state:
(1) The committee is not required to itemize
contributions and expenditures that are made to
influence federal or out-of-state elections; and,
(2) If the committee is registered with the FEC,
it is not required to provide detailed information
about contributors of $100 or more, but instead must
provide information about the MPO's identification
number and organization name, as registered with the
FEC.
ii) If the MPO solicits donations for the purposes of
making contributions or expenditures in California, or
has or reaches an understanding or agreement with donors
that the donations may be used for making contributions
or expenditures in California:
(1) The committee is required to provide detailed
information about donors of $100 or more where those
donations were solicited for the purposes of making
contributions or expenditures in California, or where
there was an understanding or agreement that the
donations may be used for making contributions or
expenditures in California;
(2) The total amount of contributions received
that are disclosed by the MPO on its campaign
disclosure reports must equal the total amount of
contributions and expenditures made by the MPO in
California; and,
(3) To the extent that the total amount of
contributions disclosed pursuant to (1) above is not
sufficient to account for the total amount of
contributions and expenditures made by the MPO during
the reporting period, the MPO must disclose the
identities of other donors of $1,000 or more, using a
SB 27
Page 4
last-in, first-out accounting method, until the MPO
has disclosed a total amount of contributions received
to equal the total amount of contributions and
expenditures made by the MPO in California.
iii) If the MPO makes contributions or expenditures
totaling more than $50,000 in the preceding 12 months or
more than $100,000 in any consecutive four calendar year
period:
(1) The committee is required to provide detailed
information about donors of $100 or more where those
donations were solicited for the purposes of making
contributions or expenditures in California, or where
there was an understanding or agreement that the
donations may be used for making contributions or
expenditures in California;
(2) The total amount of contributions received
that are disclosed by the MPO on its campaign
disclosure reports must equal the total amount of
contributions and expenditures made by the MPO in
California;
(3) To the extent that the total amount of
contributions disclosed pursuant to (1) above is not
sufficient to account for the total amount of
contributions and expenditures made by the MPO during
the reporting period, the MPO must disclose the
identities of donors of $1,000 or more, using a
last-in, first-out accounting method, until the MPO
has disclosed a total amount of contributions received
to equal the total amount of contributions and
expenditures made by the MPO in California;
(4) The MPO is not required to report
contributions or expenditures made by the MPO, or to
disclose donors for contributions and expenditures
made by the MPO, in a prior calendar year in which the
MPO did not qualify as a committee; and,
(5) The MPO's status as a committee automatically
terminates at the end of the calendar year, and the
MPO is not required to file a semiannual campaign
disclosure report covering activity through the end of
SB 27
Page 5
the year unless the MPO has additional contributions
or expenditures that it is required to report and
which have not yet been disclosed.
d) Provides that an MPO is not required to disclose the
identity of a donor on any campaign report when using the
last-in, first-out accounting method if the donor
conditions his or her donation in a manner that prohibits
the MPO from using the donation for contributions or
expenditures, or if the donation is a grant from a private
foundation that does not constitute a taxable expenditure
pursuant to specified provisions of federal law.
e) Provides that an MPO that does not qualify as a
recipient committee may qualify as an independent
expenditure committee or a major donor committee if it
meets the relevant thresholds for qualifying as those types
of committees, as specified.
f) Provides that a sponsor of a sponsored committee that is
subject to the MPO reporting requirements in this bill and
that makes contributions or expenditures from the sponsor's
treasury funds may report those contributions or
expenditures either on the campaign statements of the
sponsored committee or on the sponsor's own campaign
statements.
g) Provides that an MPO that is the sponsor of a committee,
as specified, that is a membership organization, and that
makes all of its contributions and expenditures from funds
derived from dues, assessments, fees, and similar payments
that do not exceed $10,000 per calendar year from a single
source, may report its contributions and expenditures on
its sponsored committee's campaign statement pursuant to
the following:
i) Requires the sponsored committee to report all
contributions and expenditures made from the sponsor's
treasury funds on statements and reports filed by the
committee. Requires the sponsor to use a last-in,
first-out accounting method, and to disclose detailed
information about any person who pays dues, assessments,
fees, or other similar payments of $1,000 or more to the
sponsor's treasury funds in a calendar year and to
disclose all contributions and expenditures made, as
SB 27
Page 6
specified, on the sponsored committee's campaign
statements;
ii) Requires the sponsored committee to report all other
contributions and expenditures in support of the
committee by the sponsor, its intermediate units, and the
members of those intermediate units. Provides that a
sponsoring organization makes contributions and
expenditures in support of its sponsored committee when
it provides the committee with money from treasury funds,
with the exception of establishment or administrative
costs. Provides that with respect to dues, assessments,
fees, and similar payments channeled through the sponsor
or an intermediate unit to a sponsored committee, the
original source of the dues, assessments, fees, and
similar payments is the contributor; and,
iii) Requires a responsible officer of the sponsor, as
well as the treasurer of the sponsored committee, to
verify the committee's campaign statement, as specified.
h) Provides that if an MPO is a contributor to another MPO
that is a recipient committee pursuant to this bill, and if
the MPO making the contribution receives contributions that
would qualify it for reporting requirements under the
provisions of this bill, then the MPO making the
contribution must also comply with the reporting
requirements in this bill.
2)Requires a candidate or committee, when notifying a
contributor of $5,000 or more that the contributor may be
required to file campaign reports, to include a reference to
the filing requirements for MPOs under this bill. Requires a
candidate or committee that receives a contribution of $10,000
or more from any person during any period in which late
contribution reports are required to be filed, as specified,
to provide information to the contributor about his or her
potential obligation to file campaign reports within one week,
instead of within two weeks.
3)Requires any campaign disclosure report or statement that is
filed by an independent expenditure committee or a major donor
committee to be signed and verified by a responsible officer
of the committee.
SB 27
Page 7
4)Requires a committee that is primarily formed to support or
oppose a state ballot measure or a state candidate, and that
raises $1 million or more for an election, to maintain an
accurate list of the committee's top 10 contributors, as
specified by regulations adopted by the Fair Political
Practices Commission (FPPC). Requires a current list of the
top 10 contributors to be provided to the FPPC for disclosure
on the FPPC's Web site, as specified.
a) Requires the list of top 10 contributors to identify the
names of the 10 persons who have made the largest
cumulative contributions to the committee, the total amount
of each person's contributions, the city and state of the
person, the person's committee identification number, if
any, and any other information deemed necessary by the
FPPC. Permits the FPPC to require by regulation that any
of the top 10 contributors that is a recipient committee,
as specified, to identify the top 10 contributors to that
contributing committee.
b) Requires a committee primarily formed to support or
oppose a state ballot measure to count the cumulative
amount of contributions received by the committee from a
person for the period beginning 12 months prior to the date
that the committee made its first expenditure to qualify,
support, or oppose the measure, and ending with the current
date.
c) Requires a committee primarily formed to support or
oppose a state candidate to count the cumulative amount of
contributions received by the committee from a person for
the primary and general elections combined.
d) Provides that a person who makes contributions to a
committee in a cumulative amount of less than $10,000 shall
not be identified or disclosed as a top 10 contributor
pursuant to these provisions.
e) Requires the FPPC to adopt regulations to govern the
manner in which it will display the top 10 contributor
lists, and requires the FPPC to provide the top 10
contributor lists to the Secretary of State (SOS) upon
request in order to allow the SOS to post the contributor
list on the SOS's Web site.
SB 27
Page 8
f) Requires a committee to provide an updated top 10
contributor list to the FPPC whenever a new person
qualifies as a top 10 contributor, a person who is an
existing top 10 contributor makes additional contributions
to the committee, or a change occurs that alters the
relative ranking order of the top 10 contributors.
g) Requires the top 10 contributors to be listed in
descending order based upon the amount of cumulative
contributions made to the committee.
h) Requires the FPPC to post or update the top 10
contributor list within five business days, except during
the last 16 days before the election, when it must post or
update the list within 48 hours.
i) Requires a committee to use reasonable efforts to
identify and state the actual individuals or corporations
that are the true source of the contributions made to the
committee when listing the top 10 contributors.
5)Requires the FPPC to compile, maintain, and display on its Web
site a current list of the top 10 contributors supporting and
opposing each state ballot measure, as specified by FPPC
regulations.
6)Requires the state ballot pamphlet to contain a written
explanation of the top 10 contributor lists described above,
including a description of the Internet Web sites where the
lists are available to the public.
7)Makes various findings and declarations about the political
activities of MPOs, and the importance of clarifying how
campaign disclosure requirements apply to MPOs.
8)Makes corresponding changes.
EXISTING LAW :
1)Creates the FPPC, and makes it responsible for the impartial,
effective administration and implementation of the PRA.
2)Requires MPOs 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
SB 27
Page 9
organization's intent to use such funds to make campaign
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, in California.
3)Requires a candidate or committee that receives contributions
of $5,000 or more from any person to notify that person within
two weeks of receipt of the contributions that he or she may
be required to file campaign reports. Provides that this
notification need not be sent to any contributor who has an
identification number assigned by the SOS.
FISCAL EFFECT : Unknown. State-mandated local program;
contains a crimes and infractions disclaimer.
COMMENTS :
1)Purpose of the Bill : According to the author:
Everyone is aware of the now-infamous $11 million
contribution from an Arizona non-profit organization
to a committee that was opposing Proposition 30 and
supporting Proposition 32 last November.
After a court battle with the FPPC, this nonprofit
group revealed that it was not the true source of the
$11 million contribution but merely an intermediary.
They disclosed that the actual source of the $11
million was another nonprofit organization who had
received it from yet another nonprofit organization.
The true, original source of this campaign money is
still unknown to the public and the matter is still
the subject of an ongoing FPPC investigation.
In light of this, I introduced SB 27 which is a simple
measure that will accomplish two important goals.
First, it will enact a series of tests and
presumptions in the law so that campaign funds can no
longer be laundered through nonprofit corporations
without them disclosing the true source of the money.
Second, it will require ballot measure committees that
SB 27
Page 10
raise one million dollars or more to give the FPPC a
current list of the committee's top ten contributors
of ten thousand dollars or more. The FPPC and the
committee will be required to post the list on their
Internet web sites.
2)Multipurpose Organizations, Campaign Disclosure, & the "One
Bite" Rule : Many MPOs receive donations or other payments
(e.g., membership dues) for purposes other than making
campaign contributions and expenditures in California. These
MPOs nevertheless may, at times, use some of these funds to
make contributions or expenditures to support or oppose
California state or local candidates or ballot measures.
Under existing law, when an MPO makes contributions or
independent expenditures of specified amounts in connection
with an election in California, that MPO must file a report
disclosing that it made the contributions or independent
expenditures. In some cases, the MPO 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 MPO. One of the key rules in
determining whether a MPO 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 (c) of the Internal Revenue Code, since those
entities typically are not otherwise required to publicly
disclose their donors.
The "one bite" rule is intended to ensure that an MPO is
required to reveal the name of a donor 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, an MPO is not necessarily required to disclose any
information about its donors unless it 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 MPO takes its first "bite" by making
contributions or expenditures of $1,000 or more, its donors
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.
SB 27
Page 11
Even if an MPO has not taken its "one bite at the apple," it
nonetheless may 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 an MPO 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 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 MPO 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 MPO'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 MPOs 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.
This bill is intended to address some of the challenges with
ensuring thorough and appropriate campaign disclosure by
specifying circumstances in which an MPO is required to
disclose its donors when it makes contributions or
expenditures. Some of these provisions are similar to
regulations adopted by the FPPC. For instance, this bill
provides that a donor to an MPO must be disclosed when that
MPO makes contributions or expenditures if the donation was
received in response to a solicitation in which the MPO
indicated that the money would be used to make contributions
or expenditures, or if there was an agreement or understanding
between the MPO and the donor that the money would be used for
those purposes.
SB 27
Page 12
This bill also establishes, however, a new situation in which an
MPO would be required to disclose the identities of donors
when that MPO makes contributions or expenditures. Under this
provision, if an MPO makes contributions or expenditures of
$50,000 or more in a 12 month period, or $100,000 or more in a
four year period, the MPO would be required to account for the
source of the money that was used to make those contributions
or expenditures, even if the MPO had not yet taken its "one
bite at the apple." To the extent that the MPO used only
nondonor funds to make the contributions or expenditures, as
specified, the MPO would not be required to disclose the
identities of any of its donors. Furthermore, an MPO would
not be required to disclose the identity of any donor who
specified that his or her donation was not to be used for
political purposes. An MPO could be required, however, to
disclose the identities of certain donors who had given $1,000
or more to the MPO, pursuant to a formula under which the
donors that are identified would be those whose donations were
received closest in time prior to the contribution or
expenditure being made by the MPO.
3)$11 Million Donation : This bill appears to be a response, at
least 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 initially refused to disclose the names of its donors,
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.'"
ARL had not made contributions or independent expenditures in
California in the four years preceding the $11 million
contribution, so it had not taken its "one bite," as described
above.
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
SB 27
Page 13
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. The
Court ultimately granted the FPPC's request for an order for
ARL to produce the requested records. 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), which made a contribution to 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 the subject of an ongoing FPPC investigation.
Certain provisions of this bill are designed to ensure that even
if a campaign contribution or expenditure moves through
multiple MPOs, as in the case described above, the true source
of the money used to make the contribution or expenditure is
required to be disclosed.
4)Arguments in Support : The sponsor of this bill, the FPPC,
writes in support:
The amendments proposed by 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 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?
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.
5)Related Legislation : AB 45 (Dickinson), which is pending in
SB 27
Page 14
the Senate Elections & Constitutional Amendments Committee,
revises the disclosure rules that apply to MPOs that make
contributions and expenditures in California elections, among
other provisions. AB 45 was approved by this committee on a
5-2 vote, and was approved by the Assembly on a 54-22 vote.
AB 914 (Gordon), which is pending in the Senate Appropriations
Committee, requires specified nonprofit organizations that
make campaign contributions, expenditures, or independent
expenditures in California elections to file reports
disclosing the donors to the nonprofit organization, as
specified. AB 914 was approved by this committee on a 5-2
vote, and was approved by the Assembly on a 55-18 vote.
6)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
Fair Political Practices Commission (sponsor)
California Clean Money Campaign
California Common Cause
Communication Workers of America AFL-CIO, CLC Local 9003
League of Women Voters of California
Opposition
None on file.
Analysis Prepared by : Ethan Jones / E. & R. / (916) 319-2094