As the days get shorter and those of us here at the Pay to Play Law Blog look gleefully ahead to the Thanksgiving holiday later this month, we are thankful for the good folks at the California Fair Political Practices Commission (“FPPC”) and their dedication to providing us with an ever-growing smorgasbord of regulations on which our readership can feast. Whether you enjoy your pay-to-play turkey oven roasted, smoked, fried or part of the ever-puzzling, but delicious, turducken, the Golden State always stands ready to pile your plate high.
In its latest regulatory endeavor in the pay to play space, the FPPC recently adopted a new set of regulatory requirements focused on increasing transparency regarding various types of directed contributions made to third-party individuals or entities (typically charitable nonprofit organizations) on behalf, or at the request, of politicians. Under existing California law, elected officials in the state are required to disclose to the public when they encourage individuals to make “behested payments” valued at $5,000 or more to third-party legislative, governmental or charitable organizations they support or with which they have an affiliation or interest.
While this statutory disclosure obligation has been in existence for some time, recent years have seen a number of wealthy donors (in conjunction with the politicians they support) circumvent the spirit of the disclosure law by utilizing donor-advised funds or for-profit investment firm accounts to make behested payments to charitable entities in an anonymous fashion. Rather than reporting the behested payment donations as being made on behalf of the particular individuals directing the funds, elected officials have often opted to report the contributions as being made on behalf of the donor-advised fund entities themselves. This practice, while technically legal, has drawn criticism from a host a transparency advocacy groups across California because the fund organizations are under no obligation to disclose the ultimate individual donation source.
With this concern in mind, the FPPC recently approved new regulations mandating more fulsome disclosure requirements for behested payments made through donor-advised fund vehicles. Under the new rules, which are scheduled to go into effect later this year after the mandatory public notice period under state law, elected officials can no longer automatically hide the identity of their behested payment donors behind the name of the donor-advised fund itself. In situations where the ultimate donor identity is known to the elected official himself or herself, such information must be now be publicly reported. The state’s new rules also increase the applicable disclosure requirements for state public officials who solicit behested payments to charities with which they have organizational ties.
Just as with past California state transparency efforts involving charitable giving, it’s likely that these new regulatory disclosure obligations will be the subject of ongoing debate and legal scrutiny in the months to come. As this holiday squabble over the utility and legality of these new rules continues, we here at the Pay to Play Law Blog pledge to keep our readership informed and up to date on the latest. In the meantime, we’re awfully thankful you made it to the end of this post before the tryptophan kicked in.
