Post image for A Primer for Closing “Soft Money” Disclosure Loopholes in San Francisco

A Primer for Closing “Soft Money” Disclosure Loopholes in San Francisco

by Oliver Luby on 10/22/2012

in Paper Trails

How to Improve Transparency for Independent Election Spending:

Header summary:

1. Fix Supplemental “Third Party” Disclosure.

a. Limitations regarding the reach of California AB 481’s 90-day period for disclosure of independent spending.

b. Limitations regarding San Francisco’s third party disclosure                                   requirement.

i. Does not apply to ballot measures.

ii. Is dependent in non-Mayor/Supervisor races on whether the

Voluntary Expenditure Ceilings are in place or lifted.

iii. Lack of contribution reporting and vendor information.

iv. Lack of electronic disclosure.

c. Integrating state and local law for third party disclosure.

2. Stop accrued debt abuses by passing a balanced budget requirement for

campaigns.

3. Require General Purpose Committees to disclose fundraising during the 16-

day period before an election.

4. Close California’s odd-year reporting loophole for local jurisdictions.

5. Slate Mailer Organizations: Redirect filing from Elections to Ethics & study

problems.

6. Require ID #s on all campaign communications.

7. Support passage of the California DISCLOSE Act or pass a local version.

8. Extend identification disclosure statements to communications about

measures.

9. Require disclosure of major funding of voter registration drives.

We live an era where democracy has seemingly been redefined to include a professionalized industry of mass propaganda and ever growing costs.  In this environment, the loudest, most prolific voices are increasingly neither the candidates and campaigns competing for our votes nor our own communities but independent groups representing sectors of wealth.  Take San Francisco’s Board of Supervisors District 1 in this year’s election, where the total independent spending for and against incumbent Eric Mar and his opponent, David Lee, exceeds the combined amount spent by Mar and Lee’s own campaigns and is on course to break all past records since 2002 of reported independent spending on a San Francisco Supervisor contest.

Thanks to the Supreme Court’s views on the First Amendment damaging the ability of the law to create limits on independent spending, the primary tool left available to the public to ensure that elections remain more about votes than dollars is campaign finance disclosure.  In the disclosure arena, California and San Francisco have already made years of progress.  In 2008, the California Voter Foundation graded California’s campaign finance disclosure components against other states, giving our state an A for law, an A- for electronic filing, an A for disclosure content accessibility, and a B+ for online usability.  (For those of us frustrated with the vast amount of California’s electronic disclosure data that is simply not available online and the deliberate injection of legal loopholes like 2000’s Prop 34 did for political party member communications, we can shudder at how bad the jurisdictions with Fs must be.)

San Francisco directly or indirectly benefits from many of California’s disclosure components.  Moreover, San Francisco government has moved to close various disclosure loopholes remaining in state law and finance the implementation and upkeep of a campaign finance electronic filing system and online database.

While San Franciscans can count themselves lucky to have better disclosure laws and mechanisms for timely provision of public data than most other jurisdictions, the structure that is in place is full of holes.  These holes in disclosure are studied by election attorneys and often find usage in the bags of tricks plied by campaign consultants.  Money flows through them like water finding its way through cracks in a ceiling.  The end game of what San Francisco has now is a system that provides too little disclosure too late, permits obfuscation of the true sources behind public communications, and is too complicated to be easily used by most of us, including the press.

When legislators are told news like this, the solutions that are offered often take the form a blunt instrument or mixed bag.  Laws for additional disclosure sometimes consist of clunky requirements that are not only unnecessarily difficult to comply with but not entirely effective at actually providing real transparency.  Even worse, “improvements” to the law sometimes undermine existing reforms.  Real solutions to insufficient election finance transparency need to be not only unwaveringly dedicated to the public’s right to know but also efficient, precise, and reflective of a comprehensive understanding of the many moving pieces inherent in the regulatory model.

With such in mind, this piece is an attempt to outline a path for San Francisco, down to the technical nitty-gritty, for achieving significantly better disclosure of the increasingly dominant independent election spending.  I offer nine suggestions for shining light on the money:

1. Fix Supplemental “Third Party” Disclosure

San Francisco has a reform that requires any independent spending of $5,000 or more regarding a candidate to be disclosed within 24 hours.  The form promulgated by the Ethics Commission for reporting such independent spending is called the Third Party Disclosure form.  The prevailing regulatory mindset with this requirement is that its purpose is to provide the Ethics Commission with information that it uses to lift the voluntary expenditure ceilings in non-Mayor/Board-of-Supervisors races and raise the individual expenditure ceilings in Mayor and Board of Supervisors races.

While the law is necessary for those programs, it would be a mistake to limit the utility of the requirement.  At a basic level, the most important benefit of the requirement is public disclosure.

Without this requirement, the public must wait until state law triggers disclosure of independent spending.  The state law comes with a variety of limitations, the biggest being a reduced rate of disclosure.  For example, prior to the 16-day period before the election, independent spending is only disclosed in local jurisdictions during two “pre-election” reporting deadlines, one usually in early October and another occurring in late October, just 12 days before the election.  During the 16-day period before the election, state law too requires 24-hour disclosure, but only for certain types of independent spending.

As a result, San Francisco $5,000+ disclosure requirement provides the critical benefit of filling in disclosure gaps of the state disclosure system.  However, it is not without its own gaps, as explained below.

Fortunately, the state recently passed Assembly Bill 481 which, among other benefits, extends the 16-day period for 24 hour reporting of independent expenditures (Form 496) to a 90-day period before the election, applicable in every jurisdiction in the state.  This new state reform will significantly improve election transparency in San Francisco, implementing improvements that have been suggested to the San Francisco Ethics Commission but never adopted locally.

In fact, the Ethics Commission proposed last year that existing 24 hour disclosure be reduced to less frequent disclosure and that existing contribution disclosure for independent spending be eliminated, via legislation sponsored by Supervisor Scott Wiener.  These proposals for reducing disclosure regarding independent spending are contrary to the direction of the new state law and, this past June, the Rules Committee of the Board of Supervisors sent the Ethics proposals back to the drawing board.

Unfortunately, the new state law does not cover all independent spending and local law will need to pick up the slack.

a. Limitations regarding the reach of California AB 481’s 90-day period for disclosure of independent spending

AB 481’s new 90-day period for 24 hour disclosure of independent expenditure is frankly awesome, applicable to spending on candidates or measures, by local or state committees spending on a election, requiring local disclosure, requiring vendor disclosure, and requiring the disclosure of previously undisclosed contributions received by the independent group.  However, as strong reforms are implemented, history has proven that those desiring less light on their activities will seek out where the loopholes are.

Two glaring problems come to mind when considering the reach of 90-day disclosure of independent expenditures.  First, some types of independent election spending fall outside the state’s technical definition of independent expenditure, including member communications and “electioneering communications” (which are communications that mention one or more candidates during the election without specifically endorsing or opposing their candidacy).  Neither will trigger local 24 hour disclosure under the state rules.  As discussed below, San Francisco has passed partial reforms for those loopholes in state law, in response to past election problems.

Second, the state only permits local electronic filing of these independent expenditures, rather than mandating it.  San Francisco’s electronic filing requirement for the supplemental independent expenditure disclosure (Form 496) applies to only local committees.  When state committees trigger the state disclosure requirement and are mandated to file Form 496 with the San Francisco Ethics Commission, they do so only in hard copy, paper format.  The result is that the data from their disclosures is not included in the Ethics Commission’s database, including being unavailable in spreadsheets and the Advanced Search tool.

b. Limitations regarding San Francisco’s third party disclosure requirement

i. Does not apply to ballot measures

San Francisco’s third party disclosure requirements only apply to independent spending on candidates.  So, if some new PAC decides to spend $100,000 from July to September promoting a ballot measure, the public would currently get absolutely no disclosure during that the period about the PAC’s spending.  Even the dollar amount of the spending would remain a mystery.  To get the disclosure, the public has to wait until the state required “First Pre-election” reporting deadline.

ii. Is dependent in non-Mayor/Supervisor races on whether the Voluntary Expenditure Ceilings are in place or lifted

To discourage excessive fundraising and support the goals of campaign finance reform, San Francisco has a voluntary expenditure ceiling system for non-Mayor/Supervisor races (Mayor and Supervisor races are covered by a different ceiling system used for election contests involving public financing eligibility).  The exact amount of the ceiling varies with the type of office in the election.  The ceiling for a particular office is in place if at least one candidate for that office has filed a form agreeing to abide by it.  The ceiling can be lifted by either aggregate independent spending or a candidate who has not agreed to abide by the spending either spending or raising funds in excess of the ceiling.

Third party disclosure of expenditures regarding non-Mayor/Supervisor candidates is only required while the ceiling is in place.  If no candidate for a particular office ever agrees to the ceiling, the third party disclosure requirement does not apply to spending regarding candidates for that office in that election.  Likewise, once an applicable ceiling is lifted, the requirement to further disclosure third party spending for the rest of the election is eliminated.

For example, in June of this year, the Ethics Commission lifted the $104,000 spending ceiling for the City College Board of Trustees race because a candidate, Rodrigo Santos, reported raising contributions in excess of the ceiling.  Thus, the third party disclosure requirement’s application to Board of Trustees candidates ceased in June, for the rest of this election.

Another example involves the District Attorney race of 2011, for which none of the candidates accepted the $243,000 spending ceiling.  Since the ceiling was never in place, third party disclosures were not required at all for last year’s DA’s race.

Subordinating the public’s right to know about third party spending to whether candidates abide by the expenditure ceilings is bad public policy.  Supplemental disclosure of independent spending should apply throughout the election cycle in every election contest, regardless of the status of the ceilings.

iii. Lack of contribution reporting & vendor information

A huge problem with San Francisco’s third party disclosure requirement is that, with the exception of “electioneering communications” and persuasion polls, the public receives no disclosure about the funding of the expenditures that are disclosed.  Disclosure of the vendors who were paid for the communications is similarly limited.  Thus, San Francisco’s 24 hour reports of independent spending require less real disclosure than the state’s Form 496 or the supplemental independent spending reports locally required in Los Angeles.

If a group spends $100,000 in July to attack a San Francisco candidate with independent spending, the law requires public disclosure of the expenditures, including the name of the group, its contact information, and how much it spent.  However, the public is currently not informed about which vendor or vendors the group paid, unless the spending is for persuasion polls and/or mass mailings (or electioneering communication).  No vendor disclosure is provided if the independent spending was for newspaper ads, TV, radio, robo-calls, billboards, etc.

More importantly, the public does not learn about who funded the thing.  To get the missing information, we have to wait until the next Pre-election filing deadline months away.

This lack of funding and vendor disclosure is particularly bad in the month of October, when independent spending increases.  To find out about who funds most October spending, the public usually has to wait until the Second Pre-election filing deadline that occurs 12 days before the election, providing little time for campaigns and the press to react to the news.

AB 481’s new 90-day period for 24 hour disclosure of independent expenditure will vastly improve these gaps in San Francisco’s 24 hour disclosure, subject to the limitations described above in # 1.a.

iv. Lack of electronic disclosure

San Francisco’s third party disclosures are currently required to be filed in only hardcopy paper format.  The paper format is antiquated, non-tech-savvy, and bad for the environment.  While the Ethics Commission posts .PDF file scans of the paper disclosures and manually enters the expenditure totals in an online table (which became downloadable into a spreadsheet beginning in 2012), these actions require staff time.  They are not done over the weekend and there are sometimes delays.  Lack of immediate public access is simply not adequate when it comes ensuring election transparency.

Similarly, having to manually look up contributors on persuasion poll disclosures, which are themselves scattered amongst the filing histories of individual committees in the Ethics database, does not facilitate public awareness of who is funding the polls.  All of the data contained in these disclosures should be downloadable in a spreadsheet.

E-filing is automated and e-filed disclosures are instantaneously available online, including on weekends.  As much as possible, supplemental local disclosure requirements should be electronic instead of paper.

c. Integrating state and local law for third party disclosure

In 2013, AB 481’s 90-day period for 24 hour reporting of independent expenditures and San Francisco’s third party disclosure requirements will create some degree of duplicative reporting overlap for independent groups.  A greater concern is that the interaction between state and local law still leaves gaps, including for member communications concerning ballot measures and incomplete electronic data for all independent spending.

San Francisco should move to integrate the disclosure systems as much as possible and ensure that no disclosure loopholes are left unaddressed.  In particular, the following are needed:

(i)  Ensure that the 24 hour independent expenditure reporting of non-San Francisco committees spending on San Francisco elections is filed electronically, such as via a local requirement that mirrors that state paper filing requirement;

(ii)   Ensure that member communications (regarding candidates or measures) and electioneering communications related to San Francisco elections trigger 24 hour electronic reporting throughout the 90-day period, including disclosure of both vendors and previously unreported contributions or funds received.

2. Stop accrued debt abuses by passing a balanced budget requirement for campaigns

Entering into debt provides a mechanism for campaign committees to delay disclosure of their contributors while still spending to influence the voters.  Independent groups sometimes take advantage of this mechanism to delay reporting most or even all of their contributors until a subsequent pre-election reporting deadline or even after the election.  The problem stems for committees being able to enter into debt before they have the funds available sufficient for them to afford to pay for the services they have ordered.

The solution to this problem is to require San Francisco election campaigns to be financially solvent by prohibiting local committees from accruing debt that exceeds their available cash on hand.  In addition, San Francisco officials should lobby the state to pass a similar reform, in order to prevent state-level committees spending on San Francisco elections from abusing accrued debt reporting rules.

3. Require General Purpose Committees to disclose fundraising during the 16-day period before an election

During the 16-day period before an election (which follows the Second Pre-election reporting period), state law mandates that independent expenditures of $1,000 or more regarding any candidate or measure must be disclosed with 24 hours.  Similarly, when a candidate or primary ballot measure committee receives $1,000 or more during the 16-day period, it must be reported within 24 hours.  However, no such contribution disclosure is required of general purpose committees, the main type of group engaged in independent spending.

When regulators at the state level became aware that general purpose groups were taking advantage of this loophole by delaying their fundraising until the 16-day period began, they eventually created a partial fix to the problem.  When independent expenditures of $1,000 or more are disclosed during the 16-day period, state law now requires that the spender also disclose any previously undisclosed contributions.  However, a loophole remains, one that will continue even after AB 481’s extension of the 16-day period into a 90-day period takes effect next year.

Consider this example.  To get around the state reform, a general purpose committee, Secrecy PAC, need only limit its spending to donations made to another general purpose committee, Shell Game PAC.  When Shell Game PAC uses the funds for independent spending on communications to the voters, it will of course have to disclose the source of its funding as Secrecy PAC.  However, no disclosure will be required from Secrecy PAC about the original source of the funding, until months after the election.

This shell game scenario can and does occur in San Francisco elections.  The easy solution to the problem is to extend contribution reporting during the 16-day period (the Form 497 requirement) to San Francisco’s general purpose committees.

4. Close California’s odd-year reporting loophole for local jurisdictions

A disclosure problem similar to that in #3 above exists as a result of California’s odd-year reporting loophole for state-level general purpose committees.  Such state committees, many of which are domiciled in San Francisco, do not trigger pre-election disclosure requirements in odd-numbered years, such as last year.  When such independent committees engage in independent spending or make contributions to other independent committees during the months before the election, no disclosure is provided about the original source of their funding until after the election.

The reform provided by the passage of AB 481 will substantially solve this funding source disclosure problem beginning in 2013.  However, even once that reform is in place, state committees may skirt disclosure by using a shell game similar to that described in #3 above.

Example: In the year 2013, an SF-based, state-level general purpose committee, PAC of the Mysterious Obnoxious Billionaire, gives $500,000 to the another general purpose committee organized at the local level, Pretty Committee for GoodGood spends the goods on independent communications to the voters and dutifully discloses the expenditures and the source of its funding.  However, the public is left in the dark about from whom and where the state-level PAC funder originally received its own funds.

Ultimately, the best fix for this loophole requires amending state law to provide for uniform, robust pre-election reporting laws applicable to every year and every type of committee.  San Francisco officials should alert the state about the problem.

In the meantime before state reform occurs, San Francisco should pass a supplemental disclosure requirement applicable to non-local committees that spend $500 or more in contributions to any San Francisco committee, requiring that such committees disclose their own previously unreported contributions.  While state independent committees will still be able to skirt disclosure in odd-numbered years by donating to other state independent committees that spend on San Francisco elections, closing the loophole as much as San Francisco legally can will be a step in the right direction.

5. Slate Mailer Organizations: Redirect filing from Elections to Ethics & study problems

Slate Mailer Organizations (SMOs) are a special type of vehicle created by state law that, in short, allow groups of different campaigns to coordinate their disproportionate spending on campaign mail (only mail) without worrying about contribution limits and reporting in-kind contributions from each other.  SMOs are a problem for disclosure, not to mention candidate contribution limits, because they permit a legal fiction to supplant who actually benefits from the production of the mailer.

For example, say you have an SMO that wants to produce a mailer endorsing two candidates and a ballot measure.  The better funded candidate gives $500 to the SMO, the less well funded candidate gives nothing, and an independent group backing the measure gives $50,000.  The result for disclosure: The first candidate’s reporting reflects the $500 payment as an expenditure on the candidate’s own behalf, the second candidate reports nothing about the SMO mailer, and the independent group reports a $50,000 independent expenditure in support of just the measure.  Neither candidate is required to report receiving anything of value related to the mailer.  All of that is legally permitted, even if the mailer in question overwhelmingly features the candidates, with its endorsement of the measure in smaller print at the bottom of the page.  The reality of an independent group running a $50,000 mailer to promote two candidates and a measure becomes obscured.

To stitch together how all of the financing of an SMO fits together, you have to examine the SMO’s own special campaign reports.  Unfortunately, finding the reports is not always easy to do.  Moreover, no one is tracking whether San Francisco SMOs are actually filing as they are supposed to.

The Ethics Commission and Department of Elections (DOE) rely on an outdated interpretation of a quirk in state law to conclude that the City & County has no choice but to require San Francisco’s local SMOs to file with DOE, not Ethics.  This results in SMO reports being filed in a different location from where all of San Francisco’s other local campaign finance disclosure reports are filed.

The Ethics/DOE posture on SMOs conflicts with the legal architecture provided by a 2010 Advice Letter  that I received from the California Fair Political Practices Commission.  Despite deferring to the bald interpretation relied upon by Ethics/DOE, the FPPC letter makes clear that local jurisdictions have the authority to determine the agency within their jurisdiction that both local committees and SMOs must file with.  For San Francisco, the law clearly identifies Ethics as the ultimate filing officer of local campaign reports.  Amongst the Ethics Commission’s duties prescribed by the Charter is the following:

“To act as the filing officer and to otherwise receive documents in any instance where the clerk of the board of supervisors, the registrar of voters and, with respect to members of the boards and commissions, department heads would otherwise be authorized to do so pursuant to Chapters 4 and 7 of the California Political Reform Act of 1974 (Government Code sections 81000, et seq.), as amended.”

The difference between filing with DOE and Ethics is significant.  In addition to its critical business of administering San Francisco’s elections, DOE is mandated by law as the northern regional filing official for the state.  Every state-level campaign finance filer submits copies of its reports to DOE, which are maintained in huge stacks.  Thus, DOE has been described as a morgue for campaign reports.

DOE does not prioritize logging what is filing or tracking down delinquent filers, nor should it.  That’s the job of the Secretary of State’s office, at the state level, and Ethics, at the local level.  Moreover, DOE does not distinguish the reports filed by San Francisco SMOs, which exist in no other agency on Earth, from the duplicates it receives from state filers.  In fact, the state and local SMO filings are mixed up with the vast amount of filings from state level general purpose committees.  Simply locating the SMO reports is a chore.

In contrast, Ethics provides a number of excellent public services with regard to its duty as a filing officer, including trainings, organized files, online accessibility, e-filing, and monitoring and enforcement regarding erroneous, late, and delinquent filing.  Simply put, campaign reports filed with Ethics are more findable, usable, and scrutinized that those filed with DOE.

Another problem with the Ethics/DOE arrangement for local SMOs is that DOE’s current retention procedures for campaign reports run afoul state law’s retention requirements for original local SMO reports.  DOE recycles its paper campaign finance report stacks after they are more than four years old.  Government Code Section 81009(c) of the Political Reform Act requires the original SMO paper campaign statements, such as those filed by local SMOs with DOE, to be retained for a period of not less than seven years.  Thus, the foisting of local SMO duties onto DOE is resulting in their staffers unwittingly violating state law every year as they clear out their oldest campaign finance stacks.

To start addressing disclosure abuses with SMOs, the first thing that needs to happen is for Ethics and DOE to update their procedures and alert local SMOs to file with Ethics, as required by law.  As long as San Francisco delineates responsibilities between Ethics and Elections in the current manner, all local election campaign finance disclosures should go to Ethics.  With the FPPC clearly indicating that San Francisco may choose where its local SMOs file, no public policy basis exists to justify further burdening DOE with processing such filings.

In addition, San Francisco officials should undertake a study of SMO activity and its implications for campaign finance reform, with the goal of approaching the state about making changes to California law to prevent abuses.

6. Require ID #s on all campaign communications

One of the most frequent complaints I hear from people following elections is when campaign communications fail to include the committee’s Identification Number provided by the Secretary of State’s office.  While campaigns frequently list their ID # on public communications in furtherance of transparency, they are not required to do so.

Since the names of independent committees are sometimes similar to one another and committees may legally change their name, committee ID #s provide a useful way for making sure you are researching the right committee.  Given the public interest in mandating provision of the ID #, the various communication disclaimer requirements provided by San Francisco law, all of which include disclosure of the name of the committee, could easily be updated to also require disclosure of the ID #.

7. Support passage of the California DISCLOSE Act or pass a local version

Despite continued delays, support for a California DISCLOSE Act remains widespread.  Amongst its provisions designed to identify the true sources behind election propaganda are proposals for requiring campaign ads to contain the names of the campaign committee’s top three funders.  If the state legislature continues to fail to approve DISCLOSE, San Francisco should pass a local version, with the goal of both supporting statewide adoption and revealing the ultimate forces behind spending by independent committees.

8. Extend identification disclosure statements to communications about measures

San Francisco law requires ads, mailings, and robo-calls paid for by independent groups to contain disclosure statements which identify the person or entity paying for the communication.  Unfortunately, San Francisco law does not require disclosure statements on independent communications regarding ballot measures.  San Francisco law should require the disclosure statements on any election communications.

9. Require disclosure of major funding of voter registration drives

Funding of voter registration is presumptively non-partisan, in furtherance of democracy, and not aimed at influencing the decisions of voters.  Thus, the need for disclosure about this funding may not seem important, at first brush.  However, reality is not always so noble.

Partisan groups spend big bucks on voter registration drives, often aimed at populations deemed to be sympathetic to their cause.  Independent campaign committees themselves are major funders of voter registration organizations in San Francisco, as exemplified by the Building Owner and Managers Association’s regular funding over the years of the Chinese American Voter Education Committee (CAVEC) run by current District 1 Supervisor candidate David Lee.  When a non-San Francisco committee such as the Los Angeles Casinos PAC gives $10,000 to a San Francisco voter registration effort like CAVEC, as it did in 2006, one might have important questions about why that happened and whether the Casinos PAC hoped to gain something from the gamble.  The refusal of voter registration organization such as CAVEC to release a complete list of its funders, even while its Director campaigns for office, further raises eyebrows.  Add to those anecdotes the scandal of last year’s allegations of independent voter registration efforts being used to fill in people’s ballots for them, in support of Mayor Ed Lee, and the need for transparency about funding of voter registration drives becomes all the more serious.

Every one of us, except perhaps voter roll purging Republican politicians in Florida, supports increasing voter registration as much as possible.  However, that does not mean that we the public should turn a blind eye to who funds private voter registration efforts.

For the sake of ensuring the integrity of voter registration efforts, San Francisco should consider adopting a disclosure requirement applicable to groups engaged in voter registration efforts.  For example, a modest requirement could be created of quarterly reporting of all amounts received of $1,000 or more.

Oliver Luby is a former employee of the San Francisco Ethics Commission and has long been an advocate for campaign finance reform.  Though the author periodically volunteers for political campaigns and has endorsed Eric Mar for District 1 Supervisor, this article was written independent of any election campaign and in the interest of improving campaign finance disclosure.

{ 1 comment… read it below or add one }

Rob Risto March 13, 2013 at 4:40 am

Very interesting details you have noted, regards for putting up.

Reply

Leave a Comment

Previous post:

Next post: