BILL ANALYSIS Ó
AB 2318
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Date of Hearing: March 30, 2016
ASSEMBLY COMMITTEE ON ELECTIONS AND REDISTRICTING
Shirley Weber, Chair
AB 2318
(Low) - As Amended March 28, 2016
SUBJECT: Political Reform Act of 1974: Fair Political Practices
Commission: enforcement: use of public resources.
SUMMARY: Gives the Fair Political Practices Commission (FPPC)
jurisdiction over specified state laws that restrict nonprofit
organizations from using certain resources for campaign purposes
and that require specified nonprofit organizations to disclose
the sources of funds used for campaign activity. Specifically,
this bill:
1)Allows the FPPC to enforce a state law that prohibits a
nonprofit organization, as defined, or an officer, employee,
or agent of such an organization, from using public resources
that are received from any local agency, as specified, for any
campaign activity not authorized by law. Provides that
enforcement by the FPPC pursuant to this provision may be
brought as a civil action or through an administrative action.
Prohibits more than one judgment on the merits from being
reached with respect to any violation of state law limiting
the use of public resources received from local agencies for
campaign activity. Recodifies this law so that it is part of
the Political Reform Act (PRA).
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2)Allows the FPPC to enforce a state law that requires a
nonprofit organization that receives more than 20 percent of
its revenues from one or more local agencies to use a separate
bank account for all campaign activity and to publicly report
any campaign activity, including disclosing the sources of
funds used for campaign activity, if certain thresholds are
met. Transfers the responsibility for administering this law
from the Franchise Tax Board (FTB) to the FPPC. Conforms this
law to another law within the PRA that regulates political
spending by specified nonprofit organizations. Recodifies
this law so that it is part of the PRA.
a) Changes the types of nonprofit organizations that are
subject to this law such that it is applicable to
multipurpose organizations (MPOs) that are subject to
another provision of the PRA that establishes the
conditions under which MPOs that make campaign
contributions or expenditures are required to disclose the
names of their donors. The primary effect of this change
is that it would require nonprofits that are organized
under Section 501(c)(3) of the Internal Revenue Code to
comply with this law, while exempting nonprofits that are
organized under Sections 501(c)(11) through 501(c)(29) of
the Internal Revenue Code from the law.
b) Conforms the standards and procedures that are used to
determine the specific sources of funds that a nonprofit
organization must publicly disclose on its reports with the
standards and procedures that are used when MPOs report
their donors under the PRA.
c) Increases the amount of funding that a nonprofit
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organization can receive from a single source, from $250 to
$1,000, before the nonprofit may be required to disclose
the identity of that source on reports filed pursuant to
this law.
d) Transfers the following responsibilities under this law
from the FTB to the FPPC:
i) Receiving reports filed by nonprofit organizations
pursuant to this law;
ii) Deciding whether to require an audit of reports
filed by nonprofit organizations pursuant to this law;
and,
iii) Determining, as part of an audit or at the
conclusion of an audit, whether a nonprofit organization
has complied with specified provisions of state law.
3)Makes minor, technical, and corresponding changes.
EXISTING LAW:
1)Creates the FPPC, and makes it responsible for the impartial,
effective administration and implementation of the PRA.
2)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.
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3)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 that are from any local
agency for any campaign activity not authorized by law, as
specified.
a) Defines "public resources," for the purposes of this
restriction, 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. Provides that these funds are
public resources even if they are received in exchange for
consideration.
b) Provides that an unauthorized use of public resources
pursuant to this provision 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.
4)Requires a "reporting nonprofit organization," defined as a
nonprofit organization for which public resources from local
agencies (including funds generated from activities related to
conduit bond financing) 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 periodic reports disclosing their campaign activities.
a) Provides that the term nonprofit organization, for the
purposes of these requirements, means any entity
incorporated under the Nonprofit Corporation Law or a
nonprofit organization that qualifies for exempt status
under Section 115 or 501(c) of the Internal Revenue Code,
except for organizations that qualify for tax-exempt status
under Section 501(c)(3) of the Internal Revenue Code.
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b) 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:
i) 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;
ii) The name of the payee and amount of all payments
aggregating $250 or more made from the single bank
account it is required to use to pay for campaign
activity; and,
iii) A description of each campaign activity.
c) Requires each reporting nonprofit organization that
engages in campaign activity to display the information
required to be disclosed pursuant to b) on its Web site and
provide that information to the FTB, as specified.
d) Permits the FTB to audit a reporting nonprofit
organization that provides records to the FTB pursuant b),
and requires the FTB to audit any reporting nonprofit
organization that engages in campaign activity in excess of
$500,000 in a calendar year. Requires a nonprofit
organization that is being audited to provide records to
the FTB that substantiate the information required to be
disclosed.
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e) Provides that if an audit by the FTB of a nonprofit
organization determines that the organization violated
specified state laws, the Attorney General (AG) or the
district attorney for the county in which the organization
is domiciled may impose a civil fine on the organization in
an amount up to $10,000 for each violation.
5)Establishes conditions under which an MPO that makes campaign
contributions or expenditures is required to disclose names of
its donors. Defines an MPO, for the purposes of this
provision, as an organization described in Sections 501(c)(3)
through (10) of the Internal Revenue Code that is exempt from
taxation under Section 501(a) of the Internal Revenue Code; a
federal or out-of-state political organization, as specified;
a trade or professional association; a civic or 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.
6)Permits the FPPC to impose administrative penalties in
situations where it determines that a violation of the PRA has
occurred. Permits the FPPC, through this administrative
enforcement procedure, to require the person who violated the
PRA to do any of the following:
a) Cease and desist violation of the PRA;
b) File any reports, statements, or other documents or
information required by the PRA; and,
c) Pay a monetary penalty of up to $5,000 per violation,
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payable to the General Fund of the state.
FISCAL EFFECT: Unknown. State-mandated local program; contains
a crimes and infractions disclaimer.
COMMENTS:
1)Purpose of the Bill: According to the author:
AB 2318 modifies the definition of a reporting
nonprofit organization and shifts the current
enforcement authority from the [FTB] to the California
[FPPC].
This bill improves upon the existing accountability
and transparency provisions by providing enforcement
authority to the FPPC. The FPPC is the appropriate
oversight body to promote and foster the public's
trust in our state's political system. As such, AB
2318 is necessary to streamline the disclosure and
reporting rules, while also synchronizing their
reporting threshold requirements in an effort to
reduce redundancy and maximize transparency.
2)Previous Legislation & Conflicting Reporting Requirements for
Nonprofits: SB 594 (Hill), Chapter 773, Statutes of 2013, was
enacted in response to concerns that public resources were
being used indirectly for campaign purposes. In particular,
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the author of SB 594 indicated that the bill was necessary
because there was "credible reason to believe" that nonprofit
organizations were making campaign expenditures from accounts
that were "financed in whole or in part by public dollars."
Specifically, the author of SB 594 expressed concern about the
possibility that revenues from a Joint Powers Authority (JPA)
that provides tax-exempt bond financing were being used for
campaign purposes. The author of SB 594 argued that because
the JPA 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.
SB 594 contained three key provisions. First, even though
California law already contained strict prohibitions against
the use of public resources for campaign activity, SB 594
expanded those provisions by providing that funds received by
a nonprofit organization that were generated from activities
related to conduit bond financing were considered public
resources "whether or not those funds [were] received by the
nonprofit in exchange for consideration for goods or
services." Accordingly, SB 594 prohibited funds generated
from conduit bond financing from being used for campaign
purposes. This bill gives the FPPC the authority to enforce
that provision and codifies it within the PRA, but otherwise
generally does not change the restriction on the use of
resources derived from conduit bond financing.
SB 594 also contained two provisions that were targeted at
nonprofit organizations that receive more than 20 percent of
their revenues from local agencies. One provision required
those organizations-to the extent that they engage in campaign
activity-to have a separate bank account for all campaign
activities. The other provision required the nonprofit
organizations to publicly report their campaign activities and
the sources of their campaign funds if certain thresholds were
met.
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Subsequent to the passage of SB 594, SB 27 (Correa), Chapter 16,
Statutes of 2014, established conditions under which an MPO
that makes campaign contributions or expenditures is required
to disclose names of its donors. SB 27 was enacted in
response to situations where nonprofit organizations made
significant campaign contributions and expenditures, but were
not required to disclose the source of their donors. Although
SB 594 and SB 27 were intended to address two different
situations, both bills regulate political activity by certain
nonprofit organizations and, as a result, nonprofit
organizations can be required to comply with the requirements
of both bills under certain circumstances.
This bill changes the reporting requirements of SB 594 so that
the same rules and standards generally apply as to reports
filed pursuant to SB 27. By establishing greater consistency
in the reporting rules for nonprofit organizations, this bill
should help streamline compliance and enforcement of these two
laws. Additionally, this bill moves the reporting and
separate bank account rules from SB 594 into the PRA and gives
the FPPC the authority to enforce and the responsibility to
administer those rules.
According to the FTB, since SB 594 went into effect on January
1, 2014, only two nonprofit organizations have filed reports
in accordance with that bill, though it appears that those
reports may have been filed in error, since neither
organization reached the reporting thresholds. As a result,
the FTB has not conducted any audits pursuant to SB 594. The
low number of reports filed pursuant to SB 594 does not
necessarily mean that nonprofit organizations are failing to
comply with the provisions of the law, but instead may reflect
the very narrow circumstances under which an organization is
required to file a report, as detailed above.
3)Arguments in Support: The sponsor of this bill, California
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Professional Firefighters, writes in support:
In 2013, the Legislature enacted several important
reforms related to the prohibition on the use of
public funds for campaign activities, as well as
additional accountability and transparency measures
applicable to specified reporting nonprofit
organizations. Most importantly, those reforms
clarified that a nonprofit organization is prohibited
from using, or permitting another to use, public
resources received from a local agency for campaign
activity and included in the definition of "public
resources" any property or asset owned by a local
agency and funds received by a nonprofit organization,
which have been generated from any activities related
to conduit bond financing by those entities.
AB 2318 improves upon these existing accountability
and transparency provisions by providing enforcement
authority to the [FPPC], as well as makes conforming
changes to the reporting thresholds in order to
provide consistency with more recent enactments
related to "multipurpose organizations."?
Recent election cycles have spawned an explosion in
the number of "advocacy" organizations organized as
nonprofits in order to circumvent reporting and
transparency rules and the Legislature and Governor
have responded by imposing clear and consistent
reporting requirements and meaningful oversight. AB
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2318 simply continues that goal with respect to the
use of public resources?.
The FPPC is the appropriate oversight body to promote
and foster the public's trust in our state's political
system. It is also a diligent prosecutorial arm for
pursuing serious violations of California's campaign
finance law. As such, AB 2318 is necessary to
streamline the disclosure and reporting rules
applicable to the organizations subject to the bill's
provisions, while also synchronizing their reporting
threshold requirements in an effort to reduce
redundancy and maximize transparency.
4)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.
5)Double Referral: This bill has been double-referred to the
Assembly Judiciary Committee.
REGISTERED SUPPORT / OPPOSITION:
Support
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California Professional Firefighters (sponsor) (prior version)
California Labor Federation (prior version)
Opposition
None on file.
Analysis Prepared by:Ethan Jones / E. & R. / (916) 319-2094