BILL ANALYSIS Ó
AB 2318
Page 1
Date of Hearing: April 12, 2016
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
AB 2318
(Low) - As Amended March 28, 2016
PROPOSED CONSENT
SUBJECT: POLITICAL REFORM ACT OF 1974: FAIR POLITICAL
PRACTICES COMMISSION: ENFORCEMENT: USE OF PUBLIC RESOURCES
KEY ISSUE: should the fair political practices commission,
rather than the franchise tax board, be responsible for
enforcing state laws that regulate the use of public resources
for campaign activitIes by nonprofit organizations?
SYNOPSIS
Taxpayer-funded lobbying is generally considered the practice of
using funding that comes from taxpayers for political lobbying
purposes, either directly or indirectly. An example of this
occurs when local government uses said funding to pay dues to
special interest groups that in turn lobby on behalf of their
client. Research shows these lobbying efforts can range from
seeking membership into other associations, advocating for or
against a position to a legislative body, or simply building
relationships with legislators. In recent years, several states
have enacted legislation to address this issue. Specifically,
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the California Legislature passed Senate Bill 594 (Hill, Ch.
773, Stats. 2013) in an effort to curtail taxpayer-funded
lobbying and subsequently passed Senate Bill 27 (Correa, Ch. 13,
Stats. 2014) to strengthen the Political Reform Act of 1974
(PRA). The PRA established the Fair Political Practices
Commission (FPPC) and gave the FPPC jurisdiction to regulate
campaign financing, governmental ethics, lobbying, and conflicts
of interest. Despite the FPPC having this specialized
jurisdiction, SB 594 required reporting nonprofit organizations
to submit reports to the Franchise Tax Board (FTB) and granted
the FTB the power to audit said reports. Later, SB 27
strengthened the PRA but in doing so, created multiple, often
duplicative reporting requirements for nonprofit organizations.
The sponsor of this bill, the California Professional
Firefighters, contend that the FPPC promotes and fosters the
public's trust in our state's political system, and thus is the
appropriate body to conduct oversight in these matters.
Accordingly, this bill seeks to transfer the enforcement of
state laws that regulate the use of public resources for
campaign activities by nonprofit organizations from the FTB to
the FPPC. Among other things, this bill seeks to harmonize
different reporting requirements and modifies the definition of
a reporting nonprofit organization. This bill previously was
approved by the Assembly Elections Committee by a unanimous 7-0
vote, and has no known opposition.
SUMMARY: Shifts responsibility for enforcing laws regarding use
of public resources for campaign purposes from the Franchise Tax
Board (FTB) to the Fair Political Practices Commission (FPPC)
and seeks to harmonize differences between applicable reporting
and accounting mechanisms. Specifically, this bill:
1)Authorizes 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
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that are received from any local agency, as specified, for any
campaign activity not authorized by law.
2)Provides that FPPC enforcement of the above may be brought as
a civil action or through an administrative action, but
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.
3)Transfers, from the FTB to the FPPC, responsibility for
enforcing 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.
4)Changes the types of nonprofit organizations that are subject
to this law to make it applicable to multipurpose
organizations (MPOs) that are subject to other provisions of
the PRA that establish the conditions under which MPOs that
make campaign contributions or expenditures are required to
disclose the names of their donors.
5)Increases the amount of funding that a nonprofit 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.
6)Transfers additional responsibilities under this law from the
FTB to the FPPC, including: (a) receiving specified reports
filed by nonprofit organizations; (b) choosing whether to
require an audit of reports filed by nonprofit organizations;
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and (c) 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.
7)Recodifies many of these provisions so that they are
incorporated into the Political Reform Act (PRA), under the
FPPC's enforcement authority, while making other technical and
corresponding changes to ensure consistency in application.
8)Conforms the standards and procedures that are used to
determine the specific sources of funds that a reporting
nonprofit organization must publicly disclose on its reports
with the standards and procedures that are used when a
publicly funded multipurpose organization reports their donors
under the PRA.
EXISTING LAW: Pursuant to the Political Reform Act of 1974:
1)Establishes the Fair Political Practices Commission (FPPC) and
gives it jurisdiction to regulate campaign financing,
governmental ethics, lobbying, and conflicts of interest.
(Government Code Section 81000 et seq. Unless stated
otherwise, all further statutory references are to this code.)
2)Establishes conditions under which a "multipurpose
organization" that makes campaign contributions or
expenditures is required to disclose names of its donors.
Defines an "multipurpose organization" 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
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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.
(Section 84222.)
3)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,
payable to the General Fund of the state. (Section 83116.)
Pursuant to other sections of the Government Code:
4)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. (Sections 8314
and 54964.)
5)Prohibits a nonprofit organization or an officer, employee, or
agent of a nonprofit organization from using, or permitting
another to use public resources received from a local agency
for campaign activity, as defined, and not authorized by law.
(Section 54964.5.)
a) Defines "public resources," for the purposes of this
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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. (Section 54964.5 (b)(7).)
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. (Section 54964.5 (d)(1).)
6)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.
(Section 54964.6 (b)(1).)
7)Requires a reporting nonprofit organization to disclose
specified 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. The information that
must be disclosed is:
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
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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
it is required to use to pay for campaign activity; and,
c) A description of each campaign activity. (Section
54964.6(c).)
8)Requires each reporting nonprofit organization that engages in
campaign activity to display the information required to be
disclosed on its Web site and to provide that information to
the Franchise Tax Board (FTB), as specified. (Section
54964.6(e).)
9)Permits the FTB to audit a reporting nonprofit organization
required to provide records to the FTB, 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. (Section 54964.6(f).)
10)Provides that if an audit by the FTB of a nonprofit
organization determines that the organization violated
specified state laws, the Attorney General 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. (Section 54964.6(g).)
FISCAL EFFECT: As currently in print this bill is keyed fiscal.
COMMENTS: This bill, sponsored by the California Professional
Firefighters, seeks to transfer the enforcement of state laws
that regulate the use of public resources for campaign
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activities by nonprofit organizations from the FTB to the FPPC.
This bill further seeks to harmonize the reporting requirements
and modifies the definition of a reporting nonprofit
organization. According to the author:
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.
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 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." 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
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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.
Background on the Fair Political Practices Commission. The
Political Reform Act of 1974 was designed to protect the public
from biased decisions by requiring public officials and others
to disclose campaign contributions, expenditures and reporting
and recordkeeping requirements on campaign committees. The PRA
established the FPPC and granted to it the primary
responsibility for interpreting and enforcing the PRA. Since
1974, the FPPC has regulated campaign contributions and
activities generally. The FPPC also provides free legal and
technical assistance to the regulated community by offering
guides, fact sheets, and other educational material to help
ensure compliance. Proponents state that the FPPC is the
appropriate oversight body to promote and foster the public's
trust in our state's political system, and accordingly this bill
seeks to grant enforcement authority to the FPPC, instead of the
FTB, where it now lies. In doing so, the bill also recodifies
much of the existing law and incorporates it into the PRA.
This bill seeks to harmonize existing laws in this area and
reduce redundancies. In an effort to curtail taxpayer-funded
lobbying, the Legislature passed Senate Bill 594 (Hill, Ch. 773,
Stats. 2013) and passed Senate Bill 27 (Correa, Ch. 13, Stats.
2014) to strengthen the PRA. SB 594 sought to "eliminate
existing loopholes utilized by taxpayer-financed nonprofit
organizations and curb their practice of 'co-mingling' public
and private resources and ultimately using the co-mingled funds
for campaign activity," while SB 27 sought to amend the PRA in
an effort to enhance the transparency and accountability of
campaign activity. Though both bills had similar goals, they
amended different parts of the Government Code, thereby creating
ambiguity and redundant reporting requirements for the regulated
community.
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In amending the PRA to shift enforcement powers to the FPPC,
this bill reorganizes existing law in two ways. First, it
replicates Government Code Section 54964.5 as Section 84311,
squarely within the PRA (Gov. Code Sections 81000 to 91014), but
does not repeal the current statute from its current location.
Second, Government Code Section 54964.6 is recodified as Section
84312, also within the PRA, but then repealed from Division 2 of
Title 5. In short, Government Code Section 54964.5 remains
current law and two new sections of the PRA, Sections 84311 and
84312, are created.
According to the author, it was necessary to retain Section
54964.5 of the Government Code (pertaining to Powers and Duties
common to Cities and Counties) in order to ensure overall
consistency for dealing with the "use of public resources."
Because similar language will now be in both Sections 54964.5
and 84311, there is a potential for violating Section 84311 and
54964.5 simultaneously. To address this liability issue, the
author recently amended the bill to clarify that only one
judgment on the merits may be obtained with respect to a single
violation; that is, a single act in violation may give rise only
to a single judgment, not two separate judgments. Recent
amendments to the bill further clarify that the FPPC has
jurisdiction to investigate violations and prohibits a civil
action to be filed if the FPPC has already issued an order
against that person for the same violation.
In addition to harmonizing liability issues, this bill
harmonizes the dual reporting requirements that some regulated
nonprofit organizations must comply with under both SB 593 and
SB 27. The bill modifies the reporting requirements established
by SB 594 to encompass the same rules and standards that
generally apply to reports filed pursuant to SB 27. According
to the author, by establishing greater consistency in the
reporting rules for nonprofit organizations, this bill should
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help streamline compliance and enforcement of these two laws.
In addition to harmonizing these reporting and separate bank
account rules to achieve consistency, the bill locates them into
a new section of the PRA (Section 84312), thus giving the FPPC
authority to enforce and administer the new rules.
Additionally, the bill raises certain reporting thresholds from
$250 to $1,000. According to the author, this is because many
of the same entities will be required to file reports under this
bill and SB 27, which has a reporting threshold of $1,000; thus,
harmonizing the reporting requirement at $1000 simply creates a
more consistent reporting threshold. Finally, Section 84312
contains harmonizing language to reflect the same accounting
mechanisms described in SB 27, and clarifies the definition of
"specific source or sources of funds" to correspond to language
utilized in SB 594.
REGISTERED SUPPORT / OPPOSITION:
Support
California Professional Firefighters (sponsor)
California School Employees Association
Opposition
None on file
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Analysis Prepared by:Anthony Lew and Amanda Hall / JUD. / (916)
319-2334