BILL ANALYSIS                                                                                                                                                                                                    



                                                                    AB 2823


                                                                    Page  1





          Date of Hearing:  April 13, 2016 


                  ASSEMBLY COMMITTEE ON ELECTIONS AND REDISTRICTING


                                Shirley Weber, Chair


          AB 2823  
          (Gatto) - As Amended March 31, 2016


          SUBJECT:  Political Reform Act of 1974:  economic interest  
          disclosure.


          SUMMARY:  Increases various conflict of interest thresholds in  
          the Political Reform Act (PRA), and generally requires greater  
          detail on public officials' Statements of Economic Interests  
          (SEIs) about the values of those officials' investments, real  
          property interests, and income.  Specifically, this bill:  


          1)Increases the threshold at which a public official's financial  
            interest can potentially create a conflict of interest under  
            the PRA, as follows:


             a)   Raises the conflict of interest threshold for interests  
               in real property from $2,000 to $10,000; 


             b)   Raises the conflict of interest threshold for  
               investments in a business entity from $2,000 to $5,000;  
               and, 










                                                                    AB 2823


                                                                    Page  2






             c)   Raises the conflict of interest threshold for sources of  
               income, other than gifts or specified loans, from $500 to  
               $1,000. 


          2)Revises the monetary ranges that specified public officials or  
            candidates, when filing an SEI, use to describe the value of  
            their investments, interests in real property, and income. 


          3)Makes technical and corresponding changes


          EXISTING LAW:  


          1)Creates the Fair Political Practices Commission (FPPC), and  
            makes it responsible for the impartial, effective  
            administration and implementation of the PRA.

          2)Prohibits a public official from making, participating in  
            making, or in any way attempting to use his or her official  
            position to influence a governmental decision in which the  
            official knows or has reason to know he or she has a financial  
            interest, as specified. Provides that an official has a  
            financial interest in a decision, for these purposes, if it is  
            reasonably foreseeable that the decision will have a material  
            financial effect, distinguishable from its effect on the  
            public generally, on the official, a member of his or her  
            immediate family, or on any of the following:



             a)   Any business entity in which the public official has a  
               direct or indirect investment worth two thousand dollars  
               ($2,000) or more;









                                                                    AB 2823


                                                                    Page  3






             b)   Any real property in which the public official has a  
               direct or indirect interest worth two thousand dollars  
               ($2,000) or more;



             c)   Any source of income, except gifts or loans by a  
               commercial lending institution made in the regular course  
               of business on terms available to the public without regard  
               to official status, aggregating five hundred dollars ($500)  
               or more in value provided or promised to, or received by,  
               the public official within 12 months prior to the time when  
               the decision is made;



             d)   Any business entity in which the public official is a  
               director, officer, partner, trustee, or employee, or holds  
               any position of management; or,



             e)   Any donor of, or any intermediary or agent for a donor  
               of, a gift or gifts aggregating an amount that equals or  
               exceeds the gift limit (currently $460 in a year) that is  
               provided to, received by, or promised to the public  
               official within 12 months prior to the time when the  
               decision is made.



          3)Requires candidates for, and current holders of, specified  
            elected or appointed state and local offices and designated  
            employees of state and local agencies to file SEIs disclosing  
            their financial interests, including investments, real  
            property interests, and income. Requires filers to file the  









                                                                    AB 2823


                                                                    Page  4





            SEIs annually and at other periods of time, such as when  
            assuming or leaving office.

          FISCAL EFFECT:  Unknown.  State-mandated local program; contains  
          a crimes and infractions disclaimer.


          COMMENTS:  


          1)Purpose of the Bill:  According to the author:


               Transparency and disclosure are essential to  
               protecting public resources, preventing corruption,  
               and restoring public trust.  This legislation will  
               finally bring disclosure requirements into the 21st  
               century.  AB 2823 will ensure that California's public  
               officials are more transparent in their business,  
               investment, and income disclosures, which will further  
               confirm that our trusted elected officials are using  
               their positions to serve all citizens equally. 





               AB 2823 has two main components.  1) It will modernize  
               the financial interest thresholds that necessitate a  
               public official excusing him or herself from a  
               governmental decision.  These numbers have been  
               updated only once since 1974.  2) It will include  
               additional middle tiers and upper tiers in the  
               financial disclosures on the FPPC's Form 700, ensuring  
               that the public has a more accurate view of the  
               financial holdings and potential conflicts of interest  
               for their public officials.









                                                                    AB 2823


                                                                    Page  5







          2)Previous Legislation: AB 10 (Gatto) of 2015, was similar to  
            this bill, but it contained additional provisions that would  
            have required SEIs to contain more detailed information about  
            a public official's business partners and about the business  
            activity of business entities disclosed on the SEI, and would  
            have required the SEI of specified public officials to include  
            a disclosure of governmental decisions on which the public  
            official was required to recuse himself or herself from  
            participating due to a conflict of interest.  AB 10 was vetoed  
            by Governor Brown.  In his veto message, the Governor wrote  
            "The Political Reform Act already requires public officials to  
            disclose their income, investments and business activities  
            with enough particularity so that conflicts of interest can be  
            identified. This bill adds yet more complexity to existing  
            reporting requirements without commensurate benefit, and I am  
            not convinced that this bill will provide more useful  
            information to the public."



          AB 2162 (Portantino) of 2012, would have revised the dollar  
            thresholds that are used to report the value of investments,  
            real property interests, and income, when a public official  
            files a SEI, thereby providing greater specificity about the  
            value of those investments, property interests, and income. AB  
            2162 was vetoed by Governor Brown. In his veto message, the  
            Governor argued that "The law already requires public  
            officials to disclose their income and investments with enough  
            particularity so that conflicts of interest can be  
            identified," and indicated that he was "not convinced that  
            this bill will provide more useful information to the public."

          Given the fact that the Governor has vetoed legislation that is  
            similar to this bill twice in the last four years, it is  
            unclear whether there is reason to believe that this bill will  









                                                                    AB 2823


                                                                    Page  6





            receive more favorable consideration from the Governor.  
            Although this bill does not include certain provisions that  
            were in AB 10, as detailed above, this bill is fairly similar  
            to AB 2162.  In light of that fact, it is not clear that the  
            differences between this bill and AB 10 are sufficient to  
            address the Governor's stated reason for vetoing AB 10.  
          3)Statements of Economic Interests: As part of the PRA's  
            comprehensive scheme to prevent conflicts of interest by state  
            and local public officials, existing law identifies certain  
            elected and other high-level state and local officials who  
            must file SEIs. Similarly, candidates for those positions must  
            file SEIs. Other state and local public officials and  
            employees are required to file SEIs if the position they hold  
            is designated in an agency's conflict of interest code. A  
            position is designated in an agency's conflict of interest  
            code when the position entails the making or participation in  
            the making of governmental decisions that may foreseeably have  
            a material financial effect on the decision maker's financial  
            interests.  The information that must be disclosed on an SEI,  
            and the location at which an SEI is filed, varies depending on  
            the position held by the individual who is required to file an  
            SEI. Although there are some exceptions, individuals who are  
            required to file an SEI typically must file that document with  
            the agency of which they are an elected official or by which  
            they are employed.


          4)Financial Interests: Under existing law, when a public  
            official or a candidate for public office is required to  
            disclose a financial interest on his or her SEI, the filer is  
            not required to disclose the exact value of the interest, but  
            instead must select a monetary range that describes the value  
            of the interest. As noted above, this bill revises the  
            monetary ranges that public officials use to describe the  
            values of their financial interests on SEIs. In general, the  
            revised disclosure categories in this bill would provide  
            greater specificity about the values of financial interests  









                                                                    AB 2823


                                                                    Page  7





            held by public officials. Additionally, this bill increases  
            the thresholds at which certain financial interests of a  
            public official can give rise to a conflict of interest that  
            requires the official to recuse himself or herself from  
            participating in a governmental decision. The changes to the  
            conflict of interest thresholds and disclosure categories that  
            are proposed by this bill are detailed below: 


             ------------------------------------------------------------- 
            |Financial Interest     |Existing Law     |This Bill          |
            |                       |                 |                   |
            |                       |                 |                   |
            |-----------------------+-----------------+-------------------|
            |Interest in Real       |                 |                   |
            |Property               |                 |                   |
            |                       |                 |                   |
            |                       |                 |                   |
            |-----------------------+-----------------+-------------------|
            |  Conflict of Interest |$2,000           |$10,000            |
            |  Threshold:           |                 |                   |
            |                       |                 |                   |
            |-----------------------+-----------------+-------------------|
            |  SEI Disclosure      |$2,000 - $10,000 |$10,000 - $100,000 |
            |  Ranges:              |                 |                   |
            |                       |                 |                   |
            |                       |$10,000.01 -     |$100,000.01 -      |
            |                       |$100,000         |$250,000           |
            |                       |$100,000.01 - $1 |$250,000.01 -      |
            |                       |million          |$500,000           |
            |                       |Over $1 million  |$500,000.01 -      |
            |                       |                 |$750,000           |
            |                       |                 |$750,000.01 - $1   |
            |                       |                 |million            |
            |                       |                 |$1,000,000.01 - $2 |
            |                       |                 |million            |
            |                       |                 |Over $2 million    |









                                                                    AB 2823


                                                                    Page  8





            |-----------------------+-----------------+-------------------|
            |Investment             |                 |                   |
            |                       |                 |                   |
            |                       |                 |                   |
            |-----------------------+-----------------+-------------------|
            |  Conflict of Interest |$2,000           |$5,000             |
            |  Threshold:           |                 |                   |
            |                       |                 |                   |
            |-----------------------+-----------------+-------------------|
            |  SEI Disclosure      |$2,000 - $10,000 |$5,000 - $10,000   |
            |  Ranges:              |                 |                   |
            |                       |                 |                   |
            |                       |$10,000.01 -     |$10,000.01 -       |
            |                       |$100,000         |$50,000            |
            |                       |$100,000.01 - $1 |$50,000.01 -       |
            |                       |million          |$100,000           |
            |                       |Over $1 million  |$100,000.01 -      |
            |                       |                 |$250,000           |
            |                       |                 |$250,000.01 -      |
            |                       |                 |$500,000           |
            |                       |                 |$500,000.01 - $1   |
            |                       |                 |million            |
            |                       |                 |$1,000,000.01 - $2 |
            |                       |                 |million            |
            |                       |                 |Over $2 million    |
            |-----------------------+-----------------+-------------------|
            |Income                 |                 |                   |
            |                       |                 |                   |
            |                       |                 |                   |
            |-----------------------+-----------------+-------------------|
            |  Conflict of Interest |$500             |$1,000             |
            |  Threshold:           |                 |                   |
            |                       |                 |                   |
            |-----------------------+-----------------+-------------------|
            |  SEI Disclosure      |$500 - $1,000    |$1,000 - $10,000   |
            |  Ranges:              |                 |                   |
            |                       |                 |                   |









                                                                    AB 2823


                                                                    Page  9





            |                       |$1,000.01 -      |$10,000.01 -       |
            |                       |$10,000          |$50,000            |
            |                       |$10,000.01 -     |$50,000.01 -       |
            |                       |$100,000         |$100,000           |
            |                       |Over $100,000    |$100,000.01 -      |
            |                       |                 |$250,000           |
            |                       |                 |$250,000.01 -      |
            |                       |                 |$500,000           |
            |                       |                 |Over $500,000      |
             ------------------------------------------------------------- 



          1)More Detailed Disclosures on SEIs: One of the original  
            purposes of the PRA was to ensure that public officials  
            disclose income and assets that could be affected by official  
            actions and disqualify themselves from participating in  
            decisions when they have conflicts of interest. In background  
            material provided by the author's office, the author argues  
            that revising the disclosure categories for public officials'  
            financial interests is warranted in order to ensure that the  
            public has more accurate information about the financial  
            holdings and potential conflicts of interest for public  
            officials. If a public official or a candidate reports that he  
            or she receives income of over $100,000 from one source, isn't  
            that sufficient information to determine whether there could  
            be a possible conflict of interest regarding related public  
            policy issues? On the other hand, if a public official or  
            candidate's net worth exceeds tens or hundreds of millions of  
            dollars, disclosure of that information may seem reasonable.  
            Determining appropriate financial disclosure rules is a  
            subjective task, and the committee may wish to consider  
            whether the benefit of the increased specificity proposed by  
            this bill outweighs the additional burdens that such increased  
            specificity imposes for those who are required to file  
            financial disclosure reports. 










                                                                    AB 2823


                                                                    Page  10






          2)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


          None on file.




          Opposition


          None on file.




          Analysis Prepared by:Ethan Jones / E. & R. / (916) 319-2094













                                                                    AB 2823


                                                                    Page  11