Follow the money: Shining a light on political nonprofits

Spawned by a midnight  burglary 3,000 miles away, California’s campaign ethics law propelled a young politician to the governorship and tapped into voters’ desire to rid political campaigns of secret cash.

That voter-approved law, the Political Reform Act of 1974, has been largely untouchable for more than 40 years.

The proposal would create, for the first time, a constitutional right to regulate political money and force disclosure.

But now it may get a rewrite.

The PRA, which was a direct result of the 1972 Watergate break-in and its aftermath, was passed “the year I went to my first junior high school dance,” noted Dan Schnur, the former chair of the watchdog Fair Political Practices Commission, which the law created. “It’s been quite a while.”

California is awash in political money, not only in the form of donations to candidates or ballot initiative campaigns, but in payments to independent committees that spend on behalf of candidates without coordinating with their campaigns.

The tab was nearly $1 billion during the 2013-14 election cycle, with a relatively small amount routed through nonprofits. The figure does not include local races, nor does it include payments to candidates’ favorite charities, the so-called “behested payments” that for years received scant attention.

This time, however, the inspiration comes not from the infamous break-in, but from an event closer to home – a tangled trail of some $15 million in so-called “dark money,” the source of which was initially unknown, which flowed via nonprofits into California’s 2012 elections during the final weeks of the general election. Ultimately, the money trail resulted in state investigations and a $1 million fine.

Backers of the new rewrite include Bob Stern, the author of the original Proposition 9 in 1974, and attorney Gary Winuk, the former enforcement chief at the FPPC who left this year to go into private practice.

“It would strengthen the law and make sure the ‘dark money’ is disclosed. It would make it clear who is funding the ads,” Winuk said.

The proposal would create, for the first time, a constitutional right to regulate political money and force disclosure, in the same way that Californians currently have a right to privacy.

“They are trying to put their finger on the right level of disclosure and the ability of voters to know who is behind the big money,” said Kathy Feng, executive director of California Common Cause.

It would require the disclosure of the source of donations of $10,000 or more to nonprofits, when the money is used for political purposes. It would provide $13 million to the state’s election officer – the same job Brown had before he became governor — to upgrade the official web sites that list spending and fundraising. It would make explicit who is paying for political ads and it would double the “revolving door” period to two years, governing how soon a former legislator can work the Capitol as a lobbyist.

It outlaws lobbyists’ gifts to elected officials, and cuts the maximum value of a gift from a member of the public, now $460 annually, to $200 a year.

Skeptics aren’t convinced that this or any other law will succeed in curbing money in politics. “It all sounds good, but will it really have an impact? I don’t know,” said one political strategist who has handled numerous campaigns.

But others note that the proposed initiative doesn’t limit contributions or spending. Rather, it forces disclosure of the sources of the money.

“They are trying to put their finger on the right level of disclosure and the ability of voters to know who is behind the big money,” said Kathy Feng, executive director of California Common Cause, which has not officially taken a position on the proposed initiative. “It does try to stay away from campaign limits. It leaves open a range of solutions.”

Others agree.

“The one thing all people ought to be able to agree on is disclosure,” Schnur said. “It’s required on direct contributions to candidates, and closing this loophole is simply consistent with the overall goal of disclosure.”

Jerry Brown, who pegged his first campaign for governor to political reform and change, isn’t saying what he thinks about the latest draft initiative. Neither is the state Chamber of Commerce, which through its Jobs PAC is deeply involved in political campaigns, nor are any number of other major advocacy groups contacted by Capitol Weekly, although all said they are studying the measure.

“We are doing an analysis of what is being proposed,” Chamber spokeswoman Denise Davis noted in an email.

Some $15 million in stealth dollars were funneled into the state from two Arizona nonprofits seeking to influence the most hotly contested propositions on the ballot.

The core of the plan is the $10,000 disclosure threshold, but a key feature is the $13 million that would flow to the secretary of state’s office to modernize and reorganize and overhaul the online disclosure web sites – something that the public, consultants, reporters, advocacy groups and some elected officials have long urged.

The proposed initiative, awaiting title and summary from the attorney general’s office, was prompted by a ferocious ballot fight in California’s 2012 general election involving nonprofit donations.

Some $15 million in stealth dollars were funneled into the state from two Arizona nonprofits seeking to influence the most hotly contested propositions on the ballot – one to temporarily raise taxes, the other to curb union clout. The nonprofits, the Center to Protect Patient Rights and the Americans for Responsible Leadership, were part of a national conservative political network, according to state authorities. The CCPR, although little known in California, was a major political player nationally: It routed some $165 million to politically active nonprofits across the country between 2009 and 2012, more than any other nonprofit donor, according to opensecrets.org, which tracks political donations.

It is not certain how much nonprofit money played a role in the 2013-14 elections in California.

But by Capitol Weekly’s own estimate, about $23.7 million was given to political nonprofits in 2014. The largest single receiver, the political action committee of the American Beverage Association of California, received about $12.3 million and spent about $9.6 million on local measures. The American Civil Liberties Union received about $2 million and spent $2 million in favor of Proposition 47, a sentencing reform initiative that ultimately was approved by voters. The American Progressive Bag Alliance, seeking to overturn a ban on plastic bags in California, received and spent $2.7 million.

Nationally, about $300 million was routed through nonprofits.

In the end, the flood of unsourced money through Arizona into the California election counted for naught – the outcomes of both propositions were not what the donors hoped for. The money trail also prompted an investigation by the state attorney general and FPPC that resulted in a settlement and a $1 million fine.

“What this will allow you to do is know how much money they are giving anywhere at any time and at any level.”

But the Arizona episode prompted four people to go back to the ballot in November 2016 to force the disclosure of nonprofits’ money trails.

Los Gatos software businessman Jim Heerwagen is helping to finance the measure to qualify for the ballot and went through dozens of proposals before settling on the plan now before the attorney general.

Heerwagen says the existing system is flawed and needs to be fixed.

“They (young people) have a view that the system is rigged in such a way that their participation in democracy doesn’t matter,” Heerwagen told the Sacramento Bee editorial board. “And that’s an entire swath of citizens that are disengaged, and they are not re-engaging as they get older.”

Bob Stern, former president of the Center for Governmental Studies, served as the first general counsel of the FPPC during Brown’s first two terms in office, from 1975 to 1983. It was Stern who crafted the original Political Reform Act and who with Winuk drafted the latest plan.

Stern was a top aide to Brown when the latter served as secretary of state, Brown’s first statewide office during the period when the Watergate scandals, including the forced resignation of the president, reached their zenith.

Mike Madrid, former public affairs director of the League of California Cities, a Republican and an expert on Latino politics, is offering strategic advice to the campaign.

“What this will allow you to do is know how much money they are giving anywhere at any time and at any level,” Madrid said.

For the 2013-14 election cycle alone, about $80 million in independent expenditures was spent on candidate races, according to money tracker Maplight.org — fully a third of the $220 million that was reported for IEs during the previous 12 years.

For the same cycle, a total of nearly $600 million in campaign-linked funding was spent for statewide offices, legislative seats, statewide ballot measures, special elections and independent committees. More than half the amount, $315 million, was spent on ballot measures alone. The figure does not include the money spent on federal races – about $330 million during the same period – nor does it include funds that out-of-state candidates raised in California. In all, the price tag, state and federal, hovered around a billion dollars.

Political money in California has a long history.

“Forty-two years ago, (Jerry) Brown asked me to draft the best campaign finance reform I measure I could. He said, ‘I’d like to have it because I’m running for governor,’” Stern said. The goal was to go to the ballot, in part because Brown did not think political reform could emerge from the Legislature. “He said, ‘Don’t worry if it passes the Legislature – it won’t.’”

During his tenure as FPPC chair, Schnur urged upgrading the Political Reform Act and named Stern and Chuck Bell, a veteran political attorney whose firm specializes in Republican causes, to come up with reform ideas. The project was not completed, however, in part because of the change of administrations, Schnur said.

At the time the original initiative was put together, the state was reeling from political scandals – the 1972 break-in at the Democratic Party headquarters in the Watergate office complex, the obstructions of justice stemming from the break-in and subsequent cover-up, assorted illegal activities and the worst constitutional crisis since the civil war. The turmoil forced President Nixon’s departure in August 1974. California players figured in the Watergate scandals, too, from Nixon on down.

In California, Brown was then secretary of state and he successfully ran a gubernatorial campaign pegged to political reform. The PRA was approved the same day Brown won the Democratic primary and Brown was elected governor three months after Nixon stepped down.

“That’s how the PRA came out in 1974 and passed,” Stern added. “I thought then that ‘This is going to be the highlight of my professional career,” he said. “Now I have a chance for a second highlight.”

How much impact will the proposed initiative really have if it’s approved? Experts aren’t sure. The constitutional right to regulate campaign spending sounds good, but does it have any practical effect? The answer is a definitive maybe.

On the surface, the provisions are worthy.

“More transparency, more accountability, and hammering down on the dark money is great – yes, that loophole should be closed. There are enough bells and whistles here to make it appeal to most people. You’re sticking it to the legislators when it comes to gifts, you’re punishing people who do bad stuff. It’s all good,” said veteran political consultant Andrew Acosta.

But what is the practical impact?

“The measure amends rules on the books, whether good or bad,” said one communications specialist who has worked on reform proposals in the past. “And ballot measures are mostly where nonprofits spend their money. But the IRS has campaign finance laws and it (the proposed initiative) creates a compliance hurdle that I suspect some nonprofits just won’t be able to comply with.”

Feng agrees, in part.

“In an effort to close a real loophole, you can end up hurting the nonprofits. We want to be sure we are addressing the problem without inadvertently creating another problem,” she said.
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Ed’s Note: Corrects by deleting reference in 31st graf to UCLA.