BILL ANALYSIS Ó SB 594 Page 1 SENATE THIRD READING SB 594 (Hill) As Amended September 4, 2013 Majority vote SENATE VOTE :Vote not relevant ELECTIONS 5-0 JUDICIARY 9-0 ----------------------------------------------------------------- |Ayes:|Fong, Bocanegra, Bonta, |Ayes:|Wieckowski, Wagner, | | |Hall, Perea | |Alejo, Chau, Dickinson, | | | | |Garcia, Gorell, | | | | |Maienschein, Stone | |-----+--------------------------+-----+--------------------------| | | | | | ----------------------------------------------------------------- APPROPRIATIONS 12-1 ----------------------------------------------------------------- |Ayes:|Gatto, Bocanegra, | | | | |Bradford, | | | | |Ian Calderon, Campos, | | | | |Eggman, Gomez, Hall, | | | | |Holden, Pan, Quirk, Weber | | | | | | | | |-----+--------------------------+-----+--------------------------| |Nays:|Bigelow | | | | | | | | ----------------------------------------------------------------- SUMMARY : Prohibits nonprofit organizations and their employees from using funds received from local agencies in connection with conduit bond financing for campaign purposes, as specified. Requires a nonprofit organization that receives significant amounts of money from local agencies in connection with conduit bond financing to maintain a separate bank account for campaign activities and to disclose the sources of the funds it receives for campaign activities, as specified. Specifically, this bill : 1)Defines "public resources," for the purposes of this bill, to include funds received by a nonprofit organization which have been generated from any activities related to conduit bond financing by conduit financing providers, as specified. SB 594 Page 2 Provides that these funds are public resources even if they are received in exchange for consideration. 2)Makes it unlawful for a nonprofit organization or an officer, employee, or agent of a nonprofit organization to use or permit others to use public resources, as defined above, that are from any local agency for any campaign activity not authorized by law. 3)Provides that the following are not considered to be "campaign activity" for the purposes of this bill: a) The costs of a resolution supporting or opposing a clearly identified ballot measure or candidate, as specified; b) Incidental or minimal use of public resources; or, c) Incidental costs related to the establishment or administration of a sponsored committee, as specified. 4)Provides that this bill does not apply to nonprofit organizations that are organized under Section 501(c)(3), of the Internal Revenue Code. 5)Provides that for the purposes of this bill, the term "local agency" includes a public entity created pursuant to the Joint Exercise of Powers Act, but does not include a county superintendent of schools, a school district, or a community college district. 6)Provides that the prohibitions on the use of public resources described above do not prohibit the use of public resources for providing impartial information to the public about the possible effects of a state or local ballot measure, as specified. 7)Provides that an unauthorized use of public resources pursuant to this bill is punishable by civil penalties of up to $1,000 for each day on which a violation occurs, plus three times the value of the unlawful use of public resources, as specified. 8)Requires a "reporting nonprofit organization," defined as a nonprofit organization for which public resources from local SB 594 Page 3 agencies, as defined, account for more than 20% of the organization's gross revenues in the current fiscal year or either of the previous two fiscal years, to deposit funds designated for campaign use into a separate account and to prepare quarterly reports disclosing their campaign activities. 9)Requires a reporting nonprofit organization that engages in campaign activity to deposit all funds that are designated or used for campaign activity into a separate bank account, and to pay for all campaign activity from that separate bank account. 10)Requires a reporting nonprofit organization to disclose the following information if it engages in campaign activity of $50,000 or more related to statewide candidates or ballot measures, or $2,500 or more related to local candidates or ballot measures at any point during a calendar quarter; or if it engages in campaign activity of $100,000 or more related to statewide candidates or ballot measures, or $10,000 or more related to local candidates or ballot measures, at any point during a two-year period, as specified: a) The name and amount of the sources of funds used for campaign activity, provided that the aggregate amount of funds received since January 1 of the most recent odd year by the nonprofit organization from that specific source or sources of funds is at least $250; b) The name of the payee and amount of all payments aggregating $250 or more made from the single bank account required pursuant to this bill; and, c) A description of each campaign activity. 11)Requires each reporting nonprofit organization that engages in campaign activity to display the information required to be disclosed by this bill on its Web site and provide that information to the Franchise Tax Board (FTB), as specified. 12)Permits the FTB to audit a reporting nonprofit organization that provides records to the FTB pursuant to this bill, and requires the FTB to audit any reporting nonprofit organization that engages in campaign activity in excess of $500,000 in a SB 594 Page 4 calendar year. Requires a nonprofit organization that is being audited to provide records to the FTB that substantiate the information required to be disclosed under this bill. 13)Provides that if an audit by the FTB of a nonprofit organization determines that the organization violated the provisions of this bill, the Attorney General (AG) or the district attorney for the county in which organization is domiciled may impose a civil fine on the organization in an amount up to $10,000 for each violation. EXISTING LAW makes it unlawful for an elected state or local officer, appointee, employee, or consultant to use, or permit others to use, public resources for a campaign activity. FISCAL EFFECT : According to the Assembly Appropriations Committee: 1) The AG estimates that around 40,000 non-profits would be subject to the prohibitions on campaign spending proposed in this bill. The number of these organizations whose campaign activity and spending levels would be reportable and subject to FTB audits is unknown, but would likely be a small subset of all the nonprofits and would be at FTB's discretion except for those reporting entities with campaign spending exceeding $500,000. The FTB's costs will be determined by this workload. Each additional audit position would cost about $110,000 annually. These costs could be partially offset by revenues from fines. 2) The AG and local prosecutors may incur unknown costs to prosecute violations of the bill's spending prohibitions, which would be partially offset by penalty revenues. COMMENTS : In background materials in support of this bill, the author indicates that there is "credible reason to believe" that nonprofit organizations are making campaign expenditures from accounts that are "financed in whole or in part by public dollars." In particular, the author points to millions of dollars spent on ballot measure campaigns by the League of California Cities and the California State Association of Counties (CSAC) in the past decade. The author notes that the League of California Cities and CSAC receive millions of dollars in promotion and marketing fees from the California Statewide SB 594 Page 5 Communities Development Authority (CSCDA), a Joint Powers Authority created by the League of California Cities and CSAC that provides tax-exempt bond financing. The author argues that because CSCDA is a public entity, and because the bonds it issues are tax exempt, any profits earned as a result of bond sales belong to the taxpayers, and should not be used for campaign purposes. The author further argues that it is impossible to determine whether these organizations are using public resources for campaign purposes impermissibly since these nonprofit organizations are not currently required to publicly disclose the source of revenue that is used for campaign purposes. Analysis Prepared by : Ethan Jones / E. & R. / (916) 319-2094 FN: 0002194