Politics & Government

Case of campaign mystery money sheds light on high-profile donors, limits of disclosure

Jeff Miller, a fundraiser soliciting money for conservative causes in California’s initiative wars last year, had a prospective contributor lined up, but he was apprehensive.

The donor employed union members, Miller was told in an email, and feared “potential disclosure and impact with his unionized employees.”

It was a recurring problem, Miller and political consultant Tony Russo would tell investigators months later, as the state probed a network of out-of-state groups that funneled money into California through intricate channels to support Proposition 32 – a ballot initiative designed to weaken the political influence of labor unions – and oppose Proposition 30, Gov. Jerry Brown’s effort to raise taxes.

“People are afraid of the unions in a multitude of ways in California,” Miller told investigators, according to a transcript of an interview made public by the California Fair Political Practices Commission. “They’re afraid of retribution.”

When FPPC officials announced a settlement 10 days ago with political groups tied to billionaire businessmen Charles and David Koch, they touted their ability to hold the Arizona groups accountable by announcing a record $1 million fine.

Yet even as state regulators celebrated the outcome of the case – including a $1 million fine against two Arizona-based groups, the largest ever levied by the FPPC for a campaign violation – the limitations of their efforts were laid bare.

The information people wanted to know most of all had been the identities of individual donors, which remain perfectly legal for campaign organizers to conceal. Only because a document provided to the FPPC was sloppily redacted could any of them be identified.

After voters in 2000 approved Proposition 34, imposing new campaign finance limits on candidates, donors shifted contributions to independent committees. The U.S. Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission held that First Amendment free-speech protections prohibit limiting independent expenditures by corporations and labor unions, making it even harder for states to restrict independent expenditures.

“There’s just so many ways to avoid, ways to get around reporting that I just despair,” said Ross Johnson, a former state senator and former chairman of the FPPC. “Up until the decision in the Citizens United case, I really thought it would be possible to design a system that guaranteed sunlight on the process and to give average people some assurance that people weren’t buying and selling offices, and in the light of that decision, I’ve just kind of given up whatever optimism I had.”

In soliciting donations to support their ultimately unsuccessful initiative campaigns, Miller and Russo offered prospective donors a choice: They could donate money directly to the California-based Small Business Action Committee or ballot measure committees advocating explicitly for Proposition 32 and against Proposition 30, or they could donate for broader issue advocacy purposes to Americans for Job Security, a nonprofit registered in Virginia.

One advantage of donating to the nonprofit for issue advocacy is that the law does not require individual donors to be disclosed, and more than 130 contributors selected this option.

“Whenever it comes up, I prefer not to be disclosed because no matter what I do, someone’s going to be unhappy,” said Michael Tennenbaum, a Southern California investment banker who gave a relatively small amount, $3,000, to Americans for Job Security.

Gary Winuk, the FPPC’s chief of enforcement, said the document listing individual donors was provided to the FPPC, as redacted, by a lawyer representing Russo. The list includes donations that appeared to come from members of the Fisher family, which owns Gap Inc.; from billionaire casino mogul Sheldon Adelson and his wife, Miriam; and from Charles Schwab. Other apparent contributors include developer Eli Broad and Jeffrey Henley, chairman of Oracle Corp.

Henley noted he has a “relatively high profile” and declined to comment. The other donors or their representatives declined to comment or did not return calls for comment.

Tennenbaum, senior managing partner of Tennenbaum Capital Partners LLC, said “sunlight is the best disinfectant” and “I prefer to know who’s backing whom and in what way.” Like other supporters of conservative causes, however, Tennenbaum said wealthy donors are unfairly targeted for disclosure while labor unions and their members are left unmolested, a charge the FPPC denies.

“I know this, that whenever there’s a contentious issue, especially ones that are related to social policies, that there’s going to be unhappiness,” Tennenbaum said. “And, you know, I would rather not be known if I participate on one side or the other unless everybody’s known.”

Fear of threats, harassment

In interviews with state investigators, organizers of the fundraising campaign for Proposition 32 and against Proposition 30 made clear the depths of their concern for donor privacy.

Stephen DeMaura, president of Americans for Job Security, told investigators he viewed protecting against “the potential risk of membership disclosure” as his “No. 1 promise to our members.” When organizers of the fundraising effort were told one donor, Ventura County businessman Gene Haas, who owns Haas Automation, wanted assurances that money would be spent in California, they said they could not provide such a guarantee because doing so “would trigger disclosure.”

While the FPPC was preparing to announce its settlement in the case involving Propositions 30 and 32, a variant of Miller’s argument about donor intimidation was being tested in a courtroom in San Francisco. Supporters of Proposition 8, California’s 2008 gay marriage ban, argued before the 9th U.S. Circuit Court of Appeals last month that the names of their donors should be concealed because they had been threatened and harassed.

The appeal followed the overturning of Proposition 8 and a ruling by U.S. District Court Judge Morrison England Jr. in 2011 that proponents of the measure – who already had been identified – were subjected to relatively few and mild incidences of harassment. He said they did not qualify for the same exception to campaign disclosure laws once granted to the Socialist Workers Party and National Association for the Advancement of Colored People.

James Bopp, a lawyer for Proposition 8’s supporters who worked previously on the Citizens United case, said the reason for limiting disclosure in certain cases is not only to protect against retribution but also to guard against misinformation.

“When somebody makes a general contribution, an un-earmarked contribution to a group, it’s no longer their money and really can’t be attributed to any of the activities the group is conducting,” Bopp said.

He said disclosing the identities of donors to political candidates is necessary, but less so when an initiative is involved because “a donor isn’t currying favor with somebody who in the future will be providing favors. It’s just a Yes/No on a law that’s going to be passed.”

In initiative campaigns, Bopp said, political groups advocate for disclosure because “they know that providing public disclosure will lead, in enough cases, to warrant concern, that the group or donor will be harassed, will be punished in some way or another.”

In 2006, the Service Employees International Union and the American Federation of State, County and Municipal Employees objected to a donation made by John Fisher, a son of the founders of Gap Inc., to a group opposing director Rob Reiner’s preschool initiative, Proposition 82. The unions threatened to boycott the company’s stores if the Fisher family donated more.

John Fisher responded by pouring $400,000 more into the campaign.

“What it really did was increase people’s resolve,” Rick Claussen, the No on 82 campaign manager, said at the time. “They felt they had civil rights to express their views.”

Donation likely backfired

In the initiative campaigns last year, Claussen was copied on an email in which Jon Coupal, president of the Howard Jarvis Taxpayers Association, asked for “talking points” on out-of-state money in case the subject came up in a spate of radio interviews he was preparing to give about Brown’s tax initiative on the morning before Election Day.

Coupal suggested mentioning First Amendment protections for “associational membership secrecy” and that “given the tactics and strength of public employee unions in CA this is not a small concern.”

But Claussen urged caution. “I don’t think we have anything to gain by getting ourselves into this,” he wrote.

Gale Kaufman, the strategist for the No on 32 campaign, called the suggestion that unions would intimidate donors “just silly.”

“People always have excuses for bad behavior,” she said. “That doesn’t make it any better.”

The network of out-of-state groups involved in the initiative campaigns last year became the subject of scrutiny when one of the groups, the Arizona-based Americans for Responsible Leadership, gave $11 million to the combined effort on Propositions 30 and 32 weeks before the election. Brown made the donation a major issue in the final days of the campaign, and the publicity it attracted likely helped his effort as much, if not more, than the contribution hurt.

One of the original donors to Americans for Job Security, Margaret Bloomfield, contributed $500,000 to the nonprofit, in addition to $500,000 she gave directly to the Small Business Action Committee, a donation that was disclosed. Bloomfield, of Pacific Palisades, died earlier this year. Her son, William Bloomfield Jr., said disclosing his mother’s donation to Americans for Job Security would have made no difference to his mother.

As a “huge fan of full disclosure,” he said, she probably would have preferred it.

“The last couple of elections, it’s really proven that some of the money ... when it’s disclosed, who it came from, is really toxic,” Bloomfield said. “I’m quite sure that that money from Arizona ... was counterproductive.”

Lawmakers responded to the out-of-state donations by introducing legislation designed to tighten disclosure rules, but three measures stalled in the Legislature this year. Rhys Williams, a spokesman for Senate President Pro Tem Darrell Steinberg, D-Sacramento, said: “There will be action on the issue in the next legislative session. We’re just deciding what would be the most effective course of action.”

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