Since the news came out that workers with independent expenditure group SF Neighbor Alliance for Ed Lee for Mayor 2011 may have engaged in voter fraud, including marking others’ ballots, accounts of serious voting irregularities have mounted at the feet of Ed Lee’s campaign for Mayor. Seven of Lee’s rivals have even issued a call for our election to be watched over by federal observers and state election monitors.
Less attention has been paid to another scandal: Neighbor Alliance for Ed Lee has yet to disclose the receipt of a single campaign contribution. No donors appear in any of its disclosure reports on file with the Ethics Commission.
Nevertheless, it has spent a hefty $135,000 in support Mayor Lee, exploiting an ugly loophole in campaign reporting law, one that harks back to the days of Willie Brown’s own election campaign.
One account to actually address controversy regarding Neighbor Alliance for Ed Lee’s lack of financial transparency appeared in the Fog City Journal. Luke Thomas’s article indicated that Alliance coordinator and campaign consultant Enrique Pearce was told to leave the Buck Tavern by owner and former Supervisor Chris Daly, following an argument during which Daly queried Pearce about the source of Alliance’s funding. Thomas’s account of the argument indicated that Peace said Alliance would not disclose its funding until the late October filing deadline provided by state campaign law.
Thomas further wrote: “Asked why the committee is not being forthcoming about the book’s benefactors, Pearce said, “Because we’re complying with the law.””
Whether you think Pearce’s justification for non-disclosure is reasonable or not, the detrimental nature of the non-disclosure becomes apparent when Alliance’s reporting is scrutinized and contrasted with other campaigns.
Spending money out of thin air
Funding disclosure is the cornerstone of campaign finance reporting law and a key to election transparency. Without disclosing the financial contributions to campaigns, it becomes very difficult if not impossible for the public to learn who is paying for election propaganda.
In California, campaigns involved in an election are supposed to disclose their funding as of two “Pre-election” reporting deadlines (occurring in late September and late October in 2011). Most do. Others intentionally wait until one or more disclosures deadlines pass in order to delay their disclosure and public attention to its contents.
In late September when election campaigns’ first Pre-election reports were due, Alliance reported only $7,000 in accrued expenditures, with no funding source disclosed. In other words, Alliance was in the red from the get-go. In my prior Citireport articles about the financing of this year’s election committees, I and co-author Marc Salomon referred to committee whose accrued debts exceeded their cash on hand as lacking “solvency”. In our August 8th article, we noted:
“While debt that exceeds available cash can sometimes be brief and innocuous, such as when a candidate incurs expenses when anticipating an influx of public financing, the circumstances are often indicative of troubling problems. Such problems can include financial mismanagement, gratuitous credit extended by vendors such as consultants, or the tactic of concealing expected contributors until a subsequent reporting deadline (often after an election).”
In the case of Alliance, surely the people arranging for Alliance to accrue debts had a sense of how they would pay the debts. Thus, a fair question is raised: Did Alliance intentionally avoid receipt of contributions and report only debt as of the September deadline in order to delay disclosure of its financiers?
Neighbor Alliance for Ed Lee’s insolvency has been compounded since late September. While continuing to report expenditures it made on behalf of Ed Lee, as required by local law, whatever funding Alliance received has still not been reported, despite to date spending $135,000 in support of Mayor Lee. Alliance’s next required report about all of its finances, including funding, is due this Thursday, October 27.
By delaying donor disclosure until October 27, the press, opponents of Alliance’s efforts, and the general public will only have 12 days to learn about and react to the news. Such a limited amount of time diminishes the likelihood that the disclosure will meaningfully inform the public. Moreover, Alliance is free to once again report accrued debts that exceed its cash on hand, thereby further concealing additional donors, including until possibly after the election.
If you are wondering if such donor concealment could be intentional, consider this: Alliance’s predecessor, the Run Ed Run campaign (conducted via the Progress for All campaign committee) repeatedly reported insolvency. As of its mid-year report filed in July, Progress for All had less than $1,000 in the bank[i] but over $22,000 in accrued debts. By the September Pre-election deadline, Progress for All reported a negative cash balance (-$1,162), but total debts of nearly $38,000. We still don’t know who will pay for that $38,000, which is about 1/3 of the total amount spent by the committee. Such a track record may indicate that Alliance will continue to use debt reporting as means to delay donor reporting.
Which independent groups are concealing their donors
Neighbor Alliance for Ed Lee’s election activity is significant not only because it spent the second largest amount of any independent group in support of Mayor Lee’s election. Alliance also engaged in more spending without identifying funders than any other campaign in San Francisco’s 2011 election. To illustrate the problem, the other lesser independent campaign culprits are as follows[ii] (as of Monday, October 24):
1. Coalition For Sensible Government with major funding by San Francisco Association of Realtors:
With its Treasurer a known campaign loophole expert, attorney Jim Sutton, the Association of Realtors’ newest general purpose committee has yet to report any campaign contributors ($0 received), but that hasn’t stopped it from spending $85,000 on the election, including $12,000 in support of Bevan Dufty for Mayor, $12,000 in support of David Chiu for Mayor, $14,000 in support of Alioto-Pier for Mayor, and $47,000 in support of Mayor Ed Lee.
2. San Francisco Alliance for Jobs and Sustainable Growth PAC:
Another committee using Jim Sutton as Treasurer, the Growth PAC’s September Pre-election report disclosed $0 in contributions received, contrasted with over $1,000 in accrued debts. To date, the committee has spent $33,000 in support of Ed Lee for Mayor. According the SF Ethics Commission’s website, Growth PAC has also spent $34,000 in support of George Gascon for District Attorney.
3. Committee for Effective City Management–A Committee in Support of Ed Lee for Mayor 2011:
As of September 24, this Ed Lee committee had $14,000 in cash on hand. Since September 24, the committee has spent over $73,000 in support of Ed Lee for Mayor.
4. Cunnie for Sheriff 2011 sponsored by the San Francisco Police Officers Association:
As of September 24, this independent committee promoting Chris Cunnie for Sheriff had $18,000 in cash on hand. Since September 24, the committee has spent $54,000 in support of Cunnie.
5. Coalition for a Safer California:
This committee is designated as a California state committee. As of June 30 of this year, it reported having less than $5,000 in the bank. Since then, the committee has spent $25,000 in support of Ed Lee for Mayor. As state committee, a quirk of California law exempts the committee from having to file Pre-election reports in odd-numbered years (2009, 2011, etc). Thus, the public could be completely deprived of disclosure about this committee’s financial backers until after the election. This committee may be in violation of state law requiring that it amend its status to become designated as a San Francisco committee.
6. Educating Voters for Jobs Against Avalos and Adachi for Mayor 2011 a coalition of police and construction workers unions:
As of September 24, this independent committee opposed to Avalos for Mayor and Adachi for Mayor had $17,000 in cash on hand. Since September 24, the committee has spent over $18,000 against Avalos.
7. San Franciscans for Safe Streets and Sound Government – a committee for Lee Mayor 2011, Gascon District Attorney 2011 & Cunnie Sheriff 2011:
As of September 24, this independent committee supporting Ed Lee for Mayor, Gascon for DA, and Cunnie for Sheriff reported $5,000 in cash on hand but $5,219 in accrued debt.
8. City Residents Opposing Ed Lee for Mayor 2011, sponsored by American Federation of State County and Municipal Employees AFL-CIO and AFSCME CA People:
Most of the large amount spent by this committee on the election can be attributed to disclosed funding sources. However, the committee’s expenditure recently exceeded its reported funding received, so it is included in this list. As of September 24, this committee reported cash on hand of $234,000. As of October 14, the committee remained solvent, despite making large amounts of expenditures (over $200,000). As of October 18, the committee’s total expenditures made since September 24 in opposition to Lee for Mayor exceeded $260,000.
By comparison, the following other independent committees made expenditures that did not exceed their reported sources of funding[iii]:
1. San Franciscans for Jobs and Good Government, Supporting Ed Lee for Mayor 2011: Supporting Ed Lee for Mayor.
2. Committee for a Safer San Francisco, Sharmin Bock for District Attorney 2011:
Supporting Sharmin Bock for District Attorney.
3. SEIU Local 1021 Candidate PAC:
Supporting John Avalos for Mayor, Bevan Dufty for Mayor, & Leland Yee for Mayor.
4. SEIU Local 1021 Independent Expenditure PAC:
Supporting John Avalos for Mayor, Bevan Dufty for Mayor, & Leland Yee for Mayor.
5. California Nurses Association PAC:
Supporting John Avalos for Mayor, David Chiu for Mayor, & Leland Yee for Mayor.
6. SEIU United Healthcare Workers West:
Supporting Ed Lee for Mayor.
7. Support Drafting Ed Lee for Mayor 2011:
Supporting Ed Lee for Mayor.
Comparison of those independent committees that were insolvent to those that were not potentially suggests a political trend. Those taking advantage of loopholes to make expenditures without reporting funding sources supported Lee for Mayor, Gascon for DA, and/or Cunnie for Sheriff, or opposed Avalos for Mayor (or Lee for Mayor), while those who did not take advantage of the loophole supported Avalos, Chiu, Dufty, Yee and/or Lee for Mayor or supported Bock for DA.
Familiar loophole signals a pattern
Under California law, a campaign “contribution” can take various forms: money; donated nonmonetary items of value; payments made by third parties for communications; loans; enforceable promises to pay. That last one is telling. Only enforceable promises to pay count as campaign contributions that must be reported.
One way a donor’s promise to make a contribution becomes enforceable is if the promise is in writing and the campaign relies on that expectation of funds by entering into a contract with a vendor. If the promise is not in writing (if the donor merely verbally tells the campaign that they can count on their support), the promise is not enforceable and, therefore, the promise is not a legal contribution that the campaign must disclose to the public. Within that legal architecture is the key to a loophole. If a campaign has reliable donors that it does not want the public to know about, it can get verbal commitments from the donors, rack up debts, and delay disclosure of the donors used to pay the debts until a later date.
That campaigns are able to exploit this loophole of reporting total expenditures greater than total contribution receipts, thereby concealing donors, is not a new phenomenon. Various articles have exposed examples of this campaign trick.
However, this trick is not just something used in recent years; it is vintage. For example, in 2000, an independent expenditure committee called the Willie Brown Leadership PAC (Treasurer, Jim Sutton) reported debts that exceeded available cash, including by June 30 ($4,037 in debt with just $642 cash on hand) and September 30 ($8,570 in debt with just $108 cash on hand) of that year.
Similarly, the original real estate-backed San Franciscans for Sensible Government PAC spent nearly $400,000 advocating for Mayor Willie Brown in the 1999 general and run-off elections, but disclosed none of its 7/1/99-12/31/99 period activity until after the election, exploiting the antiquated California rule that allows state committees to be exempt from Pre-election reporting in odd-numbered years such 1999 and 2011.
A variety of other committees over the years, often those backed by wealthy business interests, follow the same pattern. The key is always concealment of the source of funding, a frequent embarrassment for interests backed by big money trying to convince the general citizenry about how to vote.
How we get out of the problem
In 2006, the Board of Supervisors in office at that time passed a law designed to address one form of abuse by campaigns reporting accrued debt. Following the 2003 election, Mayor Newsom’s campaign was effectively bankrupt, with massive accrued debt which took until 2005 to pay down. Thus, the debt effectively functioned as a loan (primarily from Newsom’s campaign consultant), circumventing the $500 contribution limit. However, the 2006 reform made it illegal for San Francisco candidate campaigns to not pay their debts after 6 months. Unfortunately, campaigns such Neighbor Alliance for Ed Lee may still use debt reporting as disclosure concealment, as discussed above.
While San Francisco law passed to supplement loopholes in state law requires that independent election advocacy spending of $5,000 or more on San Francisco candidates must be disclosed within 24 hours, the independent group responsible for such spending need only disclose its sources of funding in that 24 hour report if it takes the form of “electioneering communications,” an obscure form of election advocacy that is itself a plug to a loophole in the definition for typical “independent expenditures” (the latter are what most voters think of when they see election mail or ads from independent sources telling them how to vote). As result, most election advocacy communications by independent groups involved in San Francisco elections do not trigger any supplemental reporting about who is the source of funds used to pay for the communications
If you hope that the San Francisco Ethics Commission may be swift to take action on such loopholes and require funding disclosure for all independent spending of $5,000, I am afraid I have some bad news for you.
Recent amendments passed by the Ethics Commission, which, in the words of its Executive Director John St. Croix, were “designed to clarify, strengthen and simplify the [Campaign Finance Reform Ordinance],” have entirely eliminated the requirement of donor disclosure from the third party reports, even regarding “electioneering communications.” In addition, the amendments replaced 24 hour reporting with a rate of less frequent reporting, thereby reducing the amount of public disclosure.
To address accrued debt and donor reporting loopholes, the following is needed:
(1) The California Fair Political Practices Commission should propose and the state should pass an amendment to the Political Reform Act, providing that the Pre-election reporting threshold applicable to state General Purpose Committees applies not only in even-number years but also in odd-numbered years.
(2) In San Francisco, local committees should be banned from accruing expenditures that exceed the committee’s available funds.
(3) In San Francisco, the reporting requirement regarding $5,000 independent spending should include a provision mandating disclosure of all previously undisclosed sources of funding, as is currently required by the state’s independent expenditure disclosure requirement applicable during the 16-day period right before elections.
(4) For all independent campaigns such Neighbor Alliance for Ed Lee that have been spending on our election without disclosure of the complete sources of their funding, the public should demand both immediate public disclosure of the funding sources and that independent campaigns conduct no further spending without concurrent disclosure of sufficient funding sources.
Disclosure: Oliver Luby has contributed $25 to the John Avalos mayoral campaign and $15 to the Ross Mirkarimi for Sheriff campaign. Mr. Luby has also done some volunteer work for the Avalos campaign. Mr. Luby has endorsed David Onek for District Attorney, Ross Mirkarimi for Sheriff, and John Avalos for Mayor, and continues to weigh the options for 2nd and 3rd choices out of the mayoral candidates who are not Ed Lee. Mr. Luby is friends with Enrique Pearce but cannot abide donor concealment. This article was written in the author’s capacity as a longtime advocate for campaign finance disclosure, and the work was independent of any election campaign.
[i] Progress for All later filed an amendment to correct its mid-year reporting, raising its reported cash on hand balance to over $11,000, still less than what was needed to pay its accrued debts.
[ii] One committee that technically spent more than it disclosed receiving was excluded from the results noted above. Despite reporting a $0 cash balance as of June 30th of this year, Unite Here Local 2 PAC has since then spent $120,000 in support of Dennis Herrera for Mayor, $8,500 in support David Chiu for Mayor, and $28,000 against Ed Lee for Mayor. However, Unite Here Local 2 PAC’s lack of funding disclosure is less significant than that of committees such as SF Neighbor Alliance for Ed Lee, given that Local 2’s contributions received are regularly reported to be unitemized lump sums (amounts of less than $100 per contribution) received from its union members. By contrast, independent groups not supported by labor union dues tend to disclose large figures from deep-pocketed interests.
[iii] For the relative amounts spent by these committees, please see Section 1 of the October 20 article in Citireport [http://www.citireport.com/total-contributions-public-financing-and-independent-expenditures-by-candidate-and-ballot-measure/].
