By: Lacey Keys, Senior Associate Attorney, Olson Hagel & Fishburn LLP
Last week Governor Jerry Brown signed SB 27, which changes the reporting rules for nonprofit organizations that spend money to influence candidate and ballot measure elections in California.[1] The bill contained an urgency clause making it effective July 1, 2014; however, it limits disclosure of donor information for some donations received before July 1.
Solving the “Dark Money” Problem
This legislation was prompted by a multi-million dollar donation in 2012 opposing the Governor’s tax increase (Proposition 30) and supporting an anti-union measure (Proposition 32) that was not properly disclosed and was hidden by layers of nonprofit organizations. This large donation became known as the “dark money” problem and SB 27 was introduced to solve it.
SB 27 solves the “dark money” problem by eliminating part of a long-standing Fair Political Practices Commission (FPPC) regulation, known as the “first bite rule,” replacing it with five specific tests for when an organization spending money to influence elections in California becomes a recipient committee and is required to disclose its donors.
Raising Reporting Threshold Allows for Expanded Participation by Small Nonprofit Organizations
In addition to solving the “dark money” problem, SB 27 eases the reporting burdens on small nonprofit organizations that spend limited amounts to influence elections in California.
Under the old “first bite rule” a nonprofit organization would be required to register and report as a recipient committee after making its second contribution or expenditure of $1,000 or more in a calendar year or the prior four calendar years. Now, nonprofit organizations will not become recipient committees if they do not spend more than $50,000 in 12 months or more than a total of $100,000 over four consecutive calendar years, assuming they do not solicit or receive funds earmarked to influence elections in California.
Circumstances that May Trigger Registration and Reporting in California
SB 27 applies to multipurpose organizations that engage in certain activities to influence elections in California. A “multipurpose organization” (MPO) is any organization operating for purposes other than making political contributions or expenditures in California. Examples include 501(c)(3) and 501(c)(4) nonprofit organizations, labor unions, trade associations, out-of-state committees, and federal committees, among others.
An MPO is required to register and report as a recipient committee in any of the following circumstances:
- The MPO is a federal or out-of-state committee that spends $1,000 or more to influence elections in California
- The MPO solicits and receives $1,000 or more in donations for the purpose of influencing elections in California;
- The MPO accepts donations of $1,000 or more subject to a condition, agreement or understanding with the donor that all or a portion of the funds may be used to influence elections in California;
- The MPO has existing funds and a subsequent agreement or understanding is reached with the donor that all or a portion of the funds may be used to influence elections in California in the amount of $1,000 or more; or
- The MPO spends more than $50,000 in 12 months or a total of more than $100,000 over four consecutive calendar years to influence elections in California. This test does not apply to an MPO that uses available “nondonor funds”[2] at or above these thresholds to influence elections in California.
The first test captures out-of-state and federal committees that spend their funds to influence California elections. The second, third and fourth tests capture organizations that earmark funds to influence California elections in several ways. The final test replaces the “first bite rule” and applies to MPOs that spend a significant amount to influence California elections even if they do not solicit or receive funds intended or earmarked for this purpose.
Under the fifth test smaller MPOs that engage in more limited activity in California will be able to participate in the political process without incurring what were sometimes prohibitive compliance costs for activity that amounted to a few thousand dollars. Under the old “first bite rule” many of these small nonprofit organizations would trigger committee status by making in-kind contributions (e.g., staff time, flyers, etc.) of $1,000 or more in connection with the primary and then additional monetary or in-kind contributions in connection with the general election. This was true even if the total activity was only a couple thousand dollars. Now, under SB 27 these organizations will not become recipient committees if they do not spend more than $50,000 in 12 months or a total of more than $100,000 over four consecutive calendar years.
However, an MPO that does not meet any of these tests may still be required to report as an independent expenditure committee if it makes independent expenditures totaling $1,000 or more during the calendar year or as a major donor if it makes contributions of $10,000 or more during the calendar year. This part of the law has not changed.
What Happens to MPOs that Do Trigger Committee Status Under SB 27?
Once an MPO triggers recipient committee status it must register and file reports like all other committees, subject to a few exceptions.
Unlike other committees which disclose all receipts and expenditures, an MPO is only required to disclose its contributions or expenditures to influence elections in California. (The reporting rules for federal or out of state committees are slightly more nuanced and not discussed in detail here.)
An MPO also must disclose donors. First the MPO discloses any donations that were solicited or otherwise earmarked to influence elections in California (i.e. those that meet tests two through four, described above). The remaining donors (or all the donors for MPOs that qualify under test five) are disclosed using a last in, first out accounting method (LIFO) up to the amount the MPO spent to influence California elections during the reporting period. Any MPOs that meet test five and must report donors using LIFO are not required to disclose any donors whose donations were received prior to July 1, 2014.
MPOs are not required to disclose donors of less than $1,000, donors that earmark their donations for purposes other than influencing elections in California, donors that prohibit use of their donations to influence elections in California or donations from private foundations (which are prohibited by tax law from influencing elections).
Other Important Information About SB 27
The multipurpose organization provisions of SB 27 do not affect committees that are formed or already exist for the purpose of making contributions or expenditures in California elections. Those committees remain subject to the long-standing reporting requirements in the Political Reform Act. However, the provisions of SB 27 will apply, as discussed above, to organizations that use their general treasury funds to support or oppose ballot measures for tax reasons. For example, a 501(c)(4) organization that sponsors a 527 candidate PAC may choose to use existing c4 funds to influence a ballot measure election rather than create a separate ballot measure committee. In this scenario, the use of c4 funds will be subject to SB 27.
The multipurpose organization provisions of SB 27 also do not affect the tax laws that govern nonprofit organizations spending money to influence elections, therefore this summary does not address any tax laws that apply to nonprofit organizations that engage in electoral activity in California.
Donors identified and reported as described above may also qualify as MPOs with registration and reporting obligations. The FPPC is charged with adopting regulations establishing notice requirements and reasonable filing deadlines for donors who are reported based on LIFO.
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It still remains to be seen how the FPPC will implement and interpret the provisions of SB 27. Alliance for Justice and the attorneys at our firm will continue to monitor this new law and its impact on nonprofit organizations engaging in electoral activity in California. If you or others in your organization have questions about SB 27 or campaign finance law generally, please contact me at (916) 442-2952 or visit our website www.olsonhagel.com.
The information provided in this post is intended as a general summary of recent changes to the law and should not be treated as a substitute for individualized legal advice. If you have any questions concerning your reporting obligations under California law, please consult with an attorney.
Related Items from Bolder Advocacy: AFJ Supports California Bill SB 27
[1] As used in this summary “to influence elections in California” means any contribution or expenditure, including independent expenditures, for this purpose.
[2] “Nondonor funds” are defined as investment income, including capital gains, or income earned from providing goods, services, or facilities, whether related or unrelated to the multipurpose organization’s program, sale of assets, or other receipts that are not donations.
