Calif. Begins Dismantling Political Donor Secrecy

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June 8, 2012; Source: Political Law Briefing (Venable LLP)

501(c) organizations are finding lots of state-level efforts to get them to disclose their donors, even if federal law allows them to keep their donors’ names and amounts secret. This is certainly true of (c)(4)s and (c)(6)s, and it may increasingly be true for (c)(3)s as well. California is the latest state to decide that the confidentiality rules that apply at the federal level might not be so sacrosanct in the state Capitol.

According to Venable’s new Political Law Briefing, the California Fair Political Practices Commission (FPPC) issued a new rule in May requiring “501(c)(6) trade associations, 501(c)(4) social welfare organizations, and 501(c)(3) charities, to disclose certain contributors or members if those organizations are involved either in independent expenditures supporting or opposing candidates or an effort to support or oppose ballot measures.”

There are some definitional twists in the FPPC rules on this. The donors to be disclosed are defined as those who either knew they were being solicited for a political expenditure or those who should have had “constructive knowledge” that that was the purpose of the nonprofit’s fundraising request or the donor’s contribution. Nonetheless, this is a major step forward.

The implications for public charities are important. While 501(c)(3)s can’t engage in partisan political activity, they certainly do support or oppose ballot measures, which consume a large part of Election Day activities in California. Venable is a little dismissive of the importance of some of the intended disclosures, such as business donations to a business trade association, but the individual and institutional donations to (c)(4)s (and, regarding ballot measures, (c)(3)s) should not be understated.

Interestingly, California has had some of the better campaign finance laws and regulations in the nation, but political donors have still been able to circumvent the intent of the laws to flood the state with political money. However, the distinctive element of ballot measures puts the disclosure question straight to nonprofits. For example, at this moment, $2.2 million has been raised for or against Prop 28 (on the state’s term limits law), including $50,000 from philanthropist and real estate investor Eli Broad and $100,000 from former Univision CEO and chairman Jerry Perenchio. The San Francisco Chronicle reports that two big tobacco companies have put in $30 million, just since January, to defeat Prop 29, which would raise the state’s cigarette tax. Those are big corporate numbers, but think about the nearly $50 million that Hollywood producer Stephen Bing put toward Proposition 87 in 2006 in favor of an alternative energy oil tax—which the voters turned down.

Corporate donors such as Philip Morris and R.J. Reynolds and individual donors such as Bing, Broad, and Perenchio are relatively difficult to ignore and may not be particularly interested in—or capable of—hiding their financial roles all that much. But for many other ballot initiative donors, running their money through 501(c)(3)s gives them the anonymity they think they need in order to camouflage their political influence. The FPPC regs represent a step toward undercutting the anonymity for all-but-political donations to and through 501(c)(4) social welfare organizations that the Supreme Court’s Citizens United decision opened up. The FPPC regs also represent a new move to open some of the books of 501(c)(3) public charities that might be seen as nearing the boundaries of electoral politics.—Rick Cohen