The Public Eye

The Public Eye: Big business channels money to California’s moderate Democrats

They are Democrats, yet their votes in the Capitol have helped big business continue fracking in California and defeat a bill dictating pay and benefit levels for Wal-Mart workers.

As California’s Republican Party shrinks, the influence of moderate Democrats in the Capitol is growing. But pinning down exactly who belongs to the group is not easy.

Unlike caucuses organized around political parties or ethnic identity, the so-called moderate caucus has no government-paid staff, and the group is not officially recognized by the Legislature.

“The question I always get when I go give speeches about the mods is, ‘Who are you guys? Is there a website? A roster?’ ” said Assemblyman Henry Perea, the Fresno Democrat who leads the loosely defined caucus. “The answer is ‘no.’ ”

Instead, the center of operations is an art-filled office in midtown Sacramento, where two political entrepreneurs have created a hub that fosters ties among major corporations – including energy companies, drugmakers and insurers – and lawmakers who cast swing votes affecting the industries’ bottom lines. These business-friendly Democrats can serve as a balancing influence against the liberal wing of their party and its historic ties to environmentalists, trial lawyers and unions.

The two consultants – David Townsend and Chris Tapio – have created a multifaceted operation in their I Street office to build the moderate caucus. They work behind the scenes to raise money from corporate interests, pour it into political campaigns and run an industry-funded nonprofit group that pays for “policy retreats” on business issues. Together, they serve as the fundraising and policy arms of the Legislature’s moderate caucus.

The setup has never been challenged by California’s political watchdog. Few lawmakers or lobbyists are willing to discuss it publicly. Yet the operation has triggered hushed complaints from those left out of the loop that outside interests have found an influential path around the traditional legislative system.

“What you don’t want to have is a situation where private interests are underwriting de facto staff or the political operation of elected officials. The whole idea for elected officials is that they are beholden to taxpayers, not special interests,” said Meredith McGehee, policy director at the Campaign Legal Center in Washington, D.C.

“When you have these caucuses and special groups, the problem crops up that the lines become very murky.”

Townsend and Tapio are not registered as lobbyists. They say they don’t urge any action on specific bills. But they have used money from businesses that do lobby the Legislature to build a political infrastructure that puts the two consultants close to key decision-makers. Through campaign donations and gifts of meals and travel, their operation has touched about half the Democrats in the state Assembly and about one-fifth of Senate Democrats.

Townsend is a veteran political consultant who was a strategist on Gov. Jerry Brown’s election four years ago and managed both of Kevin Johnson’s successful campaigns for Sacramento mayor. He helped run the campaign for the 2010 measure – placed on the ballot by the Legislature – that created nonpartisan legislative primaries with the goal of attracting more moderate candidates of both parties.

Success of that measure likely will grow the bloc of Democrats that make up the moderate caucus, for which Townsend serves as a political consultant. He manages its political action committee, which works to elect moderate Democrats by both giving directly to candidates and mounting independent campaigns.

“We want people up here who are thoughtful, who can work together and find a way to compromise,” Townsend said. “All we’re about is trying to cook a better product.”

‘The chance to come in’

Since 2009, Townsend’s Californians for Jobs and a Strong Economy PAC has spent $5.7 million, campaign finance filings show. Roughly a quarter of that has gone toward fundraising events at golf resorts and fine restaurants, where corporate donors and their lobbyists mingle with a handful of Democratic legislators. The PAC pays a fundraising company owned by Tapio’s wife, Carrie McKinley, to put on the events.

Tapio runs a nonprofit called the California Issues Forum, which further connects moderate Democrats with business representatives over meals, panel discussions and industry tours. Last year, state legislators reported receiving nearly $17,200 worth of hospitality from the California Issues Forum on their statements of economic interest. The group took lawmakers to San Francisco to meet with drugmakers and tour biopharmaceutical companies, and to San Diego for a discussion with oil industry leaders and air quality regulators on transportation infrastructure and California’s law to reduce pollution.

An overlapping list of donors support Tapio’s nonprofit as well as Townsend’s PAC and his public affairs firm, Townsend Raimundo Besler & Usher. Townsend does not get paid by the PAC he operates, but a few of its contributors, including PG&E and the California Hospital Association, are paying clients of his firm.

The California Issues Forum takes in roughly $500,000 a year in donations, annual tax filings show, and pays six-figure salaries to both Townsend and Tapio. While the law doesn’t require nonprofit groups to disclose their donors, Tapio provided a list at The Bee’s request. It shows that real estate interests, oil companies and health care businesses that provide the bulk of the funding for Townsend’s PAC also contribute to Tapio’s nonprofit.

Some donors to Townsend’s PAC, including Chevron and Wal-Mart Stores Inc., also support another nonprofit Tapio runs to advance Johnson’s efforts as Sacramento mayor to create a “strong mayor” system, build a new arena and promote the arts.

Many of the businesses that contribute to the moderate caucus PAC also give campaign donations directly to candidates. But giving to the PAC provides additional political benefits to corporate donors, allowing them to give more than the law allows them to contribute to individual candidates, while simultaneously currying favor with multiple lawmakers. About two dozen sitting lawmakers have received campaign support from the PAC, either through direct contributions or independent campaigns to help them.

PG&E, for example, gave the PAC $35,000 on a single day last June – far more than the $4,100 it is permitted to give an individual lawmaker’s campaign.

In 2013, six senators and 26 Assembly members reported gifts from the California Issues Forum, ranging from a $9.77 breakfast for Sen. Marty Block of San Diego to more than $1,900 worth of meals and trips for Perea, the assemblyman who heads the moderate caucus.

“It’s not that the money corrupts people. The money finds people that agree with whoever has the money,” Townsend said. “You’re not using the money to convince somebody.”

But the money does help get your argument heard, said Alex Creel, chief lobbyist for the California Association of Realtors, which has been the biggest donor to the moderate caucus PAC since 2009, contributing more than $800,000.

“You can support somebody (financially) and then they can be with you or against you,” Creel said. “But you’re hoping that if you start off in a cooperative relationship with somebody, you can at least have the chance to come in and make your case. Supporting people creates an environment where you can make your case.”

Creel effectively made his case to members of the moderate caucus when his organization set out to kill Assembly Bill 976 last year. The bill by Assemblywoman Toni Atkins, D-San Diego, would have authorized the California Coastal Commission to fine people who knowingly violate the Coastal Act by despoiling beaches or building structures that block access to them. It was backed by the Sierra Club and numerous other environmental groups.

The Realtors association opposed the bill, arguing that the power to impose fines for coastal violations should remain with the courts. Three other donors to the moderate caucus PAC also opposed the bill: the California Apartment Association, the California Building Industry Association and the American Council of Engineering Companies of California.

It ultimately died on the Assembly floor when a dozen Democrats withheld their votes, and another handful voted no. They included Perea, as well as several who received campaign support from Townsend’s PAC and gifts from Tapio’s nonprofit. Among them: Assemblymen Adam Gray, Rudy Salas and Raul Bocanegra and Assemblywoman Susan Talamantes Eggman.

“It’s a pretty big hurdle to get over if you are a public interest group challenging a big industry,” said Sierra Club lobbyist Kathryn Phillips.

How business money flows to moderate Democrats

‘Bills of concern’

Perea said the moderates are a self-defined and shifting group of lawmakers who generally represent districts where voters are closely split between Democrats and Republicans. Their communities are largely blue-collar, he said, and face both high unemployment and environmental problems that include poor air and water quality.

“We understand that we need industries to create more jobs,” Perea said. “But we want to do it in a way where we’re recognizing the environmental issues that may result from those jobs.”

He touted the moderate caucus’s role last year in shaping legislation concerning the oil extraction method known as hydraulic fracturing, or fracking. Environmentalists originally sought to ban fracking altogether, but Perea’s caucus objected, saying the jobs were too important for California. Moderate Democrats successfully negotiated a bill that regulated fracking but didn’t ban the process, causing the environmentalists who originally supported the bill to oppose it.

As the “convener” of the moderate caucus, Perea puts together monthly lunch meetings where advocates can talk to legislators about their issues. Recent meetings have featured private college leaders asking lawmakers to restore cuts in Cal Grant scholarship funding, Perea said, and an association for apartment building owners discussing new bills that would restrict their ability to evict tenants. That group, the California Apartment Association, has contributed $97,500 to the moderate caucus PAC since 2009.

Perea also manages a list of bills – one he will not make public – that the moderate caucus is working to amend or kill.

“We really look at each piece of legislation and we think, ‘OK, what does this mean for jobs and what does this mean on the regulatory environment?’ ” Perea said. “Then we get input from everybody – from the industries that are affected, from the advocates that are pushing the measure.”

Perea’s list – “bills of concern,” he calls it – is distributed electronically, only to lawmakers he considers part of the moderate caucus. Its secretive nature is a source of annoyance to legislators and lobbyists who suspect their measures are on the list.

Sen. Loni Hancock, a liberal Democrat from Berkeley, said she thinks many of her bills have been targeted. She’s currently trying to revive one from last year that she put on hold when it ran into opposition from moderate Democrats in the Assembly.

Hancock’s SB 691 calls for increasing the penalties from $10,000 to $100,000 on companies that emit toxic air pollution in a catastrophic incident. She introduced it in response to the 2012 fire at the Chevron refinery in Richmond that sent thousands of people to seek medical care for problems including eye, throat and respiratory irritation.

Hancock said Chevron never came to her to lobby against the bill, and the company does not report SB 691 as a bill it lobbied last year. But Chevron is a big political donor, and has given the moderate caucus $505,000 since 2009, making it the second-largest contributor to Townsend’s PAC. It also donates to Tapio’s nonprofit group.

“I think it’s like ‘follow the money,’ ” Hancock said. “Most of the money for campaigns comes from PACs and corporations. Does it have an influence in what is possible in terms of legislation? I think the public needs to look and judge for itself.”

‘Sitting in the middle’

The moderate caucus was launched in 1998, Townsend said, in response to a battle between a liberal Assembly speaker and a handful of more moderate Democrats. That year, a half-dozen Democrats in the Assembly wanted to vote against a bill by then-Speaker Antonio Villaraigosa that would have increased the amount of pain-and-suffering damages courts can award victims of medical malpractice.

Their opposition was enough to doom the bill, Townsend said, prompting the lawyer lobby pushing for it to threaten campaigns to run the six Assembly members out of office.

“The decision was made by the six – we better raise some money to protect ourselves from the trial lawyers,” Townsend said.

And the moderate caucus was born, he said, using PAC money from business groups to elect Democrats who would counter the liberal arm of the party.

“People in San Francisco are not like people in Fresno,” Townsend said. “This is a diverse state. If the leadership is all from the Bay Area, or leadership is all from L.A., sometimes they are not hip to what’s going on in the rest of the state, not even a clue.”

In the early days, moderate caucus legislators would gather in Townsend’s midtown office to talk about their political strategy, he said. After a few years, Townsend said, lawmakers told him the group needed a staff member. Townsend didn’t want it to be a government employee who would be beholden to the liberal leaders of the Legislature. So he formed the California Issues Forum nonprofit and recruited Tapio to run it by coordinating meetings with industry leaders when legislators ask for more information on a topic.

Tapio said he is not required to register as a lobbyist, because his group is not working to sway votes on specific bills. Registered lobbyists are required to file quarterly disclosure reports listing legislation they are working to affect.

“The issues forum doesn’t take positions on bills,” Tapio said. “We provide legislators with opportunities to hear from experts and learn about topics, to become educated on major industries, major issues that are before the state.”

One of the biggest recent displays of the moderate Democrats’ power was last year’s defeat of a bill that sought to bar Wal-Mart and other large employers from providing wages and hours low enough that their workers qualify for Medi-Cal.

Assembly Bill 880 was backed by labor unions and opposed by retailers, restaurants and other employers. It was widely seen as the first big test of the Democrats’ supermajority, and it failed when eight moderate Democrats in the Assembly voted against it or withheld their votes.

Wal-Mart Stores Inc. is a significant contributor to the moderate caucus PAC, having given $185,000 since 2009.

Barry Broad, a labor lobbyist who supported the bill, said he sees the moderate caucus as a bloc that is gaining power as California increasingly runs as a one-party state.

“They hold themselves out and say, ‘Talk to me. I can be moved on anything,’ ” Broad said.

Perea sees it another way. He says moderates of both parties have the opportunity to become the problem-solvers in a Capitol that once was gripped by partisan gridlock. He pointed to the role of his caucus last year in supporting a compromise bill that reconfigures electricity rates across the state. Initially, utility companies – including PG&E, a significant donor to the moderate caucus PAC – were pushing for one version of the proposal.

But Perea brought the utilities together with consumer advocates who initially were opposed and they negotiated a compromise that pleased all sides.

“My hope is that that will be the legacy of the moderate Democrats, that we’re able not only to reach across party lines but to bring diverse constituencies together,” Perea said. “Otherwise, it’s very easy for us to get stuck in old arguments that the extremes of each party allow to take place.”

Business lobbyists such as Richard Costigan are hoping it works. He recently attended a fundraiser for the moderate caucus PAC where donors enjoyed dinner with four Democratic legislators at The Kitchen, a Sacramento restaurant known for seven-course meals prepared with theatrical flare.

“They are the most perfectly positioned people, because they are sitting right in the middle,” Costigan said. “They have a lot of influence because it’s a sizable voting bloc.”

Money in the Middle: Corporate Interests Turn to Moderate California Democrats