Two new bills recently introduced in the California State Legislature would increase the disclosure requirements applicable to certain nonprofit organizations participating in California political campaigns and would strengthen the enforcement authority of the California Fair Political Practices Commission. Under current California regulations that went into effect this past May, nonprofit organizations such as Section 501(c)(6) trade associations, Section 501(c)(4) social welfare organizations and Section 501(c)(3) charities are already required to disclose the identity of any donor making a contribution of $100 or more within the reporting period who requests or knows that the organization will use the donor’s payment to make a contribution or independent expenditure to support or oppose a candidate or ballot measure in California. If the donor knows or has reason to know that only a portion of the donor’s payment will be used to make such contribution or independent expenditure, the payment is apportioned on a reasonable basis in order to determine the amount of the contribution. Both of the two recently introduced bills, Senate Bill 3 and Assembly Bill 45, would codify this relatively new regulation.
Additionally, Senate Bill 3, which was introduced by Senators Leland Yee and Ted Lieu, would establish a presumption that a donor has reason to know that the organization will use the donor’s payment to make a contribution or independent expenditure in California for such purposes if either (1) the organization makes its first contribution or independent expenditure in California at a time when it has been in existence for less than six months or (2) the organization’s first contribution or expenditure in California is $100,000 or more. Senate Bill 3 would also include a presumption that a donor does not have reason to know that the organization will use the donor’s payment to make a contribution or independent expenditure in California for such purposes if the organization has been in existence for six months or more prior to making its first contribution or expenditure in California and the organization’s first contribution or expenditure in California is less than $100,000 unless the organization has made contributions or expenditures of $1,000 or more in the aggregate during the calendar year in which the donor’s payment is made, or in any of the immediately preceding four calendar years. Assembly Bill 45, which was introduced by Assemblyman Roger Dickinson, would instead establish a presumption that a donor has reason to know that the organization will use the donor’s payment to make a contribution or independent expenditure to support or oppose a candidate or ballot measure in California if either (1) the donor makes a contribution of $50,000 or more to the organization within the six month period prior to the election and the organization, in turn, makes a contribution or independent expenditure of $50,000 or more in California for such purposes within the same six month period or (2) the organization has made aggregate contributions or independent expenditures of $2,000 or more in California for such purposes in the calendar year of the donor’s payment or in any of the immediately preceding four calendar years. Assembly Bill 45 would also change current law to provide that the recipient organization is only required to disclose the identity of donors making aggregate contributions of $250 or more during the reporting period, rather than the current $100 threshold amount.
Under current California law, information about the contributions made by a nonprofit organization in an aggregate amount of $100 or more or independent expenditures in an aggregate amount of $1,000 or more for the support or opposition of a candidate or ballot measure in California generally must be reported and publicly disclosed. It is not clear whether, under either of the proposed bills, the presumption that a donor had reason to know that an organization would use its contributions for these purposes would still apply where these disclosure requirements had not actually been complied with (i.e., such that this information was not, in fact, publicly available when the donor made its contribution). Donors should keep in mind that even a Section 501(c)(3) organization, which generally is prohibited from intervening in an election, may make expenditures influencing public opinion on a ballot initiative. Donors who want to avoid disclosure of their identities under these rules may want to consider making a contemporaneous written designation at the time of the donation specifying that the donation is not to be used by the nonprofit organization to make a contribution or independent expenditure relating to a California ballot measure. While not specifically addressed in the proposed legislation, it appears that such a designation may overcome the presumption that the donor had reason to know that the organization would use its contribution for political purposes in California.
Both bills are legislative responses to a controversial $11,000,000 donation made by Americans for Responsible Leadership (an Arizona based Section 501(c)(4) organization) this past fall to the California based organization Small Business Action Committee PAC. The $11,000,000 donation was made to support the California organization’s efforts to defeat California Proposition 30 (a tax-increase initiative) and support California Proposition 32 (which would have prohibited labor unions from raising political money through payroll deductions). Initially, the identity of the donors behind the Arizona organization’s $11,000,000 donation was unknown. However, Americans for Responsible Leadership was forced to disclose the donors’ identities (two other out-of-state organizations) after the California Fair Political Practices Commission obtained a court order requiring the disclosure.
As we recently reported, New York Attorney General Eric T. Schneiderman recently issued proposed regulations that would require many nonprofit organizations to annually disclose certain information about their political spending and their donors’ identities. Given the influential nature of both of these states, these groups and their donors may find themselves faced with increased disclosure requirements in other states as well in the next few years.