Catch me if you can

On January 14, the state’s Fair Political Practices Commission met to consider one of the most important decisions to come before it in recent years. But it was another obscure item on the agenda that caught the attention of political attorneys who showed up to watch the proceedings.

The main event that day was the commission’s reconsideration of what’s regarded as one of its biggest mistakes: the post-election fund-raising loophole, which was created in 2001. Back then, the commission was struggling to interpret Proposition 34, a complex political reform approved by voters. In one decision, commissioners approved a regulation that allowed candidates to raise limitless amounts of cash in old committees that predated the donation caps established by Proposition 34—as long as the money wasn’t used to campaign.

This became an issue during the recall, when Lt. Governor Cruz Bustamante accepted millions of dollars’ worth of contributions in an old campaign account and then illegally used the money for his gubernatorial candidacy. In January, Fair Political Practices Commission (FPPC) attorneys filed suit against Bustamante. Then, at that January 14 meeting, the commission weighed closing that loophole—a major reversal that restored integrity to the reform approved by voters.

Jim Knox, director of California Common Cause, urged commissioners to adopt the recommendation. He handed out a packet listing page after page of over-the-limit donations that Sacramento lawmakers had accepted into old accounts. “The Bustamante case is not an isolated incident,” Knox said. “This practice is widespread, involving over 50 incumbent legislators who have taken contributions in excess of the limits, perfectly legally, and involving millions and millions of dollars.”

The change even was supported by Senate President Pro Tem John Burton and other lawmakers of both parties who had taken unlimited donations by using the same loophole they now wanted closed.

Commissioners voted to close the loophole.

The Political Reform Act—approved by California voters 30 years ago this week as part of a wave of Watergate-era reforms enacted around the country—created the FPPC and gave it the job of keeping politics and government free of corruption primarily by monitoring the flow of money. As an enforcer, the commission’s sole jurisdiction is that 1974 law.

But as a regulator, the commission is faced with an almost impossible task, especially for a tiny, overburdened agency that gets scant funding from the state. On top of that, the FPPC is faulted sometimes for focusing enforcement efforts on obvious or unintentional infractions that take up resources that could be better used to expose and punish major violations.

For their part, top FPPC officials insist that they can’t just let some activities go unwatched and unpunished. And in the last year, the agency aggressively pursued a series of high-profile cases that led to major victories.

Still, the agency often is accused of missing the big picture. That concern was shared by some of the political attorneys at the January hearing, when the commission took up another agenda item. It was something that, to some critics, was a perfect example of everything wrong with the FPPC’s enforcement priorities.

The item concerned Jim Lotter, a volunteer planning commissioner on the Municipal Advisory Council in the small, unincorporated town of Gualala on the Mendocino coast. It was an insignificant case that had dragged on for nearly three years.

Lotter was in trouble for missing a deadline to file a form. Though unelected and unpaid, he still was subject to the same conflict-of-interest disclosure rules as thousands of other public officials around the state. Lotter, who owns a small resort, had to outline his business, investment and real-estate holdings by filling out a Statement of Economic Interests (SEI). Lotter had filed properly for a decade, but it slipped his mind in 2001. A few months before the deadline, he was diagnosed with prostate cancer. Then he underwent heart-bypass surgery. In all that, he forgot to file his SEI. When an FPPC investigator phoned Lotter, he explained that he’d just forgotten. The next day, Lotter faxed his completed form to the FPPC. Still, he was fined $1,000, which he appealed. Administrative Law Judge Muriel Evans later reduced the penalty. “A fine of $500 should be sufficient to get respondent’s attention,” she wrote in a proposed decision that was forwarded to the commission for approval.

When the commission approved the fine that day in January, some of the political attorneys in the room were rolling their eyes, wondering how the FPPC could afford to spend so much time on such a minor violation by a guy who didn’t even mean to do anything wrong.

Ben Davidian, a top Republican political attorney and former FPPC chair, was one of those perplexed audience members. Davidian said he would have defended Lotter for free. “It’s the most outrageous thing I’ve ever seen in my life,” Davidian said. “It’s just absolutely absurd that they went after that poor guy.”

Dan Lowenstein, who helped draft the Political Reform Act back in the early 1970s and served as the FPPC’s first chair, has been complaining about the commission’s enforcement priorities for years. Now a professor of election law at the University of California, Los Angeles, School of Law, he says the commission makes a big deal out of little things instead of focusing more on serious cases like money laundering and conflict-of-interest violations, which involve intentional violations that are tougher to prove.

“The agency should be putting its resources into serious matters,” he said. “The great majority [of violations] could be dealt with in the same manner as parking violations.”

Putting enforcement resources toward minor cases, Lowenstein said, reduces the likelihood of ever catching worse violations. Though the FPPC publicizes the number of cases it prosecutes every year, there’s no way to know what wasn’t uncovered—and it’s those cases that don’t come to light that worry Lowenstein. “If there was something done dishonestly, you can’t know that unless somebody discovers it,” he said. “We never know the bribes that don’t get caught. Same with money laundering.”

Commission Chairwoman Liane Randolph disagrees. The way she and her top staffers look at it, their job isn’t to enforce bits and pieces of the Political Reform Act; it’s to enforce the whole thing.

Lowenstein recommended the parking-ticket approach five years ago when he sat on a commission on political reform chaired by Senator Bruce McPherson, R-Santa Cruz. In its report, the McPherson Commission made the same recommendation, urging more attention to major, intentional violations. Small, unintentional violations could be handled by sending a letter and offering to close the matter if the respondent filed properly and paid a nominal fine. That kind of suggestion doesn’t go over well with political attorneys or the candidates they represent. Political opponents can and do publicize FPPC enforcement actions, even for trivial violations. But, like a lot of fixes the McPherson Commission proposed, that recommendation went nowhere.

The McPherson Commission’s 1999 report, titled “Overly Complex and Unduly Burdensome: The Critical Need to Simplify the Political Reform Act,” also stated that “experienced and inexperienced persons were asked to diligently prepare a campaign report using the instructions provided and were, without exception, unable to prepare the report accurately.” The typical campaign-finance report, Form 460, is accompanied by 15 pages of instructions that read like something published by the Internal Revenue Service. Given the complexity of political law, which is spelled out in hundreds of pages of regulations that confuse political novices and attorneys alike, it’s almost impossible not to break some kind of law in a campaign. When that happens, the FPPC dutifully spends a lot of time chasing down things like late or inaccurate reports by people who can’t decipher the regulations. “Shooting fish in a barrel” is how political attorneys deride those enforcement actions.

Davidian recalled his frustration when he took over as FPPC chair in 1991 and saw cases like Lotter’s, in which someone forgot to file an economic-interest form. “They wanted to fine them a couple hundred bucks, and I said, ‘What in the world are you doing going after this clown? Somebody’s a little late filing this, and you’re spending all your time and effort on that kind of case? There’s got to be some bad guys out there who are really doing bad stuff,’” he said. Instead, Davidian pushed staff to look for illegal campaign reimbursements: “major stuff.”

One oft-cited example of misguided enforcement is major-donor violations. Under the law, anyone who gives more than $10,000 must form a major-donor committee. Thing is, some donors run afoul of the regulation because they don’t know it exists. That happened a lot during the recall, and, as a result, FPPC enforcement actions nearly doubled from 2002 to 2003. Of 258 cases last year, 142 involved major donors. Another 30 involved SEI forms.

The FPPC’s enforcement division has a special streamlined process set up just to handle major-donor violations, which aren’t hard to find. (Under that process, those accused of violations may get the enforcement action over quickly by paying a smaller fine—such as pleading guilty. But it’s still a full enforcement action, not the parking-ticket approach Lowenstein has advocated.) The major-donor law dates from the pre-Internet era, when it was impossible to find out how much major donors gave without digging through hundreds of campaign-finance reports. Now, everything is online, so it’s easy to perform complex, cross-referenced searches of the campaign-finance database. And anyone can do the kind of enforcement research that the FPPC does to find out who didn’t file. In the last year, the FPPC fined dozens of major donors for making the same mistake—and more fines are expected in the coming months. All of this eats up staff time. Even Lotter’s case, for example, occupied, at one time or another, both an investigator and a staff attorney.

Former FPPC Commissioner Colleen McAndrews, a political attorney whose firm—Bell, McAndrews and Hiltachk—has represented Governor Arnold Schwarzenegger and other big-name GOP candidates, can’t believe that the agency spends so much time on cases like this, especially when all the answers are hiding in plain sight on the Internet. Why, she asks, can’t clueless donors be alerted with a warning letter before a formal enforcement action is initiated? “The resources saved from investigating and enforcing against inadvertent major-donor violators could be redirected toward true corrupt political practices,” she said.

Other political attorneys, who didn’t want to be named because they work with the commission, echoed those concerns about nickel-and-dime enforcement cases—some of which are unavoidable given the complexity of the law.

Frequently, said one political attorney, his clients face enforcement action for honest mistakes. “They pay the fine for the minor thing because it’s not worth paying attorneys to fight it, and that’s their biggest frustration,” the attorney said.

One thing everyone agrees on is that there are a lot of rules to break. The Legislature, which is the only body that can rewrite the Political Reform Act, has done so more than 200 times. The 100-plus pages of the act itself are filled with legalese impenetrable even for experienced political attorneys. But that’s just the actual statute. Throughout the years, the FPPC has interpreted and reinterpreted the statute by adding regulations that clarify its intent.

For example, Section 89001 of the Political Reform Act consists of just 12 words: “No newsletter or other mass mailing shall be sent at public expense.” But that one-liner is backed up by regulations that total more than 1,500 words.

Lowenstein said each clarification is like a wire strung across a road. “You’re setting a trap for people who are walking along, don’t see that wire, and they trip,” he said. “You start putting more and more wires out there, and the result is that the road is covered with wires, and without having a fancy attorney, you can’t walk down that road without tripping.”

Sacramento Superior Court Judge Loren McMaster, in overturning the post-election fund-raising loophole that Bustamante used to collect campaign cash, even poked fun at the complexity of the law he was trying to decipher. “I got done, and I said, ‘Huh?’” McMaster was quoted as saying. “I had to go back and read it again because I didn’t have a clue what they were trying to tell me.”

FPPC regulations might be confusing, but Randolph thinks they’re better than nothing. By contrast, she points to Government Code section 1090, which prohibits certain conflicts of interest. It’s enforced by the state attorney general because it’s not part of the act. The attorney general doesn’t write regulations to clarify the act, nor does that office take questions over the phone like the FPPC does. In addition, violating section 1090 is a felony, so penalties are much stiffer. “It’s just kind of stark statutory language, and nobody quite knows what it means,” Randolph said. “We might parse things too much, but, on balance, having that interpretive element makes the law work much better in the long run.”

A major revision to the Political Reform Act only added to the confusion. In 1996, voters passed Proposition 208, a major update to the Political Reform Act. Court challenges put that reform on hold, and before the court ruled, the Legislature quickly stuck another less-restrictive reform on the 2000 ballot. Proposition 34, also approved by voters, lowered caps on campaign contributions—but not as much as Proposition 208 would have.

For the commission, which needed to clarify Proposition 34 after it went into effect, the process was like a minefield. The commission itself had trouble figuring out how to implement the new law. One of those implementation decisions on post-election fund-raising later had unintended consequences. State legislators used it to circumvent contribution caps, and Bustamante abused it during the recall.

Amazingly, the first gubernatorial election under the new and untested Proposition 34 rules turned out to be the recall.

Randolph said it brought out some of the kinks in Proposition 34 that would have come out over time. “Some of the problems of Proposition 34 started popping out because it was so quick and so intense,” she said. “It sped up and intensified some of the issues that would have come up anyway.”

Bustamante’s recall campaign took advantage of the loophole—illegally, the FPPC later charged—by using an old committee to accept contributions from tribal gaming interests. That set the stage for the commission’s January reversal of its earlier decision, closing the loophole. The FPPC also filed suit against Bustamante, winning a $263,000 civil settlement, the largest paid by a candidate in the agency’s history.

During the recall, however, some of Bustamante’s Republican rivals criticized the FPPC for being slow to act. To some FPPC officials, who are notoriously reluctant to jump into political campaigns and risk having their motivations questioned and their actions used by one side against another, it only showed how misunderstood the agency can be. The FPPC’s enforcement staff—which regularly fields calls for it to investigate potential violations of public-records or open-meeting laws that fall outside of the Public Record Act’s scope and the agency’s purview—doesn’t like to jump into anything.

The FPPC occupies most of the top three floors in the old Travelers Hotel building at Fifth and J streets. Some of the old floor plan remains, with the small guest rooms now converted to individual offices where attorneys and investigators sit at desks covered with stacks of campaign-finance documents and legal briefs.

Except for the nice views of downtown, it’s drab like any other office building. One might expect the state’s political watchdog agency to have a nicer doghouse, something classical, maybe, or art deco—at least more in keeping with the weight of its mission: to keep California politics clean. The commission’s small, windowless hearing room on the eight-story building’s top floor feels a lot like a courtroom.

At the last meeting, on May 13, the five commissioners sat atop the dais as the hum of the ventilation system and the impenetrable legalese of the discussion gave the scene an airless atmosphere.

“I’m having a hard time understanding B-2 sub A,” Commissioner Tom Knox (no relation to Jim Knox) said at the meeting. The panel was debating proposed changes to the conflict-of-interest rules for local government officials. It wasn’t anything major. A final decision was months away.

“This has got to be clear enough that someone can understand,” said Commissioner Phil Blair, the panel’s only non-lawyer.

The commission was created when California voters approved Proposition 9, also known as the Political Reform Act, on June 4, 1974. That same day, then-Secretary of State Jerry Brown won the Democratic gubernatorial primary, after campaigning in support of the act, which was one of the most ambitious political reforms enacted by any state at the time. The act was a response to Watergate, which was playing out at the same time—then-President Richard Nixon would resign two months later.

The act was written by Lowenstein and Bob Stern, attorneys who worked for Brown in the secretary of state’s office. Brown appointed Lowenstein as the FPPC’s first chair when the agency opened its doors in January 1975, and Stern became general counsel.

It’s set up like this: The governor appoints the commission chair, who serves full time and plays the biggest role in charting the agency’s course. The current chairwoman, named last year by then-Governor Gray Davis, seems to be well-regarded by some of the reformers and political attorneys who watch her every move. Randolph, 38, is the first chair to have worked at the FPPC. A decade ago, Randolph did a brief stint as a staff attorney at the agency. “She didn’t have to learn on the job, like some chairs,” said longtime FPPC watcher Darren Chesin, chief consultant to the Senate Elections and Redistricting Committee.

The other four commissioners work part time for small stipends and are appointed by the governor, secretary of state, attorney general and controller. Commissioners serve single, staggered, four-year terms, and no more than three may belong to the same party. The commission picks its own executive director, who oversees the agency’s day-to-day operations.

The current director, Mark Krausse, doubles as the agency’s lobbyist over at the Capitol. Often, that means working to support bills that the commission has endorsed. These days, it also means fighting to keep his agency’s funding.

Last month, Schwarzenegger’s revised budget plan proposed that the FPPC take one of the largest percentage cuts of any state agency. The commission would lose an eighth of its $6.5 million budget, or nearly $1 million, and would have to shrink the number of staff members from 66 to 57. Layoff notices have gone out already. Throughout the last few weeks, Krausse has been busy trying to convince lawmakers to let him off the hook with a mere $500,000 cut.

Knox of Common Cause doesn’t see much chance of that happening. “Why would anyone in the Legislature want an adequately funded political watchdog?” he said. “For the most part, it’s the elected officials that are going to be the victims of that enforcement.”

One of the most prominent of those elected officials is Schwarzenegger. The FPPC is investigating whether the governor illegally used campaign cash. A Santa Monica-based activist group, the Foundation for Taxpayer and Consumer Rights, filed the complaint in February, alleging that the governor laundered money by moving it between different committees set up to support Propositions 57 and 58 on the March ballot.

Under the law that created it, the FPPC is funded by statute, which means that every year, it must get a certain amount of money, adjusted for inflation. In other words, the politicians can’t take its money away. But over the years, the agency has been handed more and more work to do and not much additional money to pay for it. For years, the agency has been given extra funding, but even the good years weren’t that good. As time went by, the Legislature piled a lot of unfunded mandates on the agency, including publishing an updated version of the Political Reform Act and several campaign-disclosure-related oversight responsibilities.

Even though it’s a tiny outpost in the state’s sprawling bureaucracy, the FPPC must patrol an enormous landscape. Tens of thousands of state and local government officials are under the agency’s jurisdiction.

More than 100,000 SEI forms are filled out every year, and 22,000 of those are on file in the FPPC’s Sacramento office. They’re kept in a small room on the sixth floor, where crammed shelves hold copies of forms going back seven years. The governor’s thick filing is here, outlining his real-estate, investment and showbiz holdings, as are forms for lowly legislative aides who don’t have much to disclose and forms for thousands of other obscure officials from all over the state.

In addition, the FPPC runs a help line, fielding about 50,000 calls a year from public officials, candidates and campaign treasurers looking for answers about everything from how to report campaign contributions to what constitutes a conflict of interest for a school-board member. The agency also fires off about 400 letters of legal advice for those who request it and puts on dozens of seminars around the state for local candidates and officials who must comply with FPPC regulations.

These efforts would be hard-hit by the proposed budget cuts. But not as much as enforcement would.

Steven Russo’s office looks toward the Capitol dome, which rises in the distance over an expanse of downtown rooftops. As the FPPC’s chief of enforcement, it’s his job to keep an eye on the politicians and lobbyists who work under that dome, as well as tens of thousands of other state and local candidates and officials statewide. (Federal officials, such as members of Congress, fall under the jurisdiction of the Federal Elections Commission.) Russo is the one who oversees investigations into violations of the Political Reform Act and, if there’s evidence of wrongdoing, prosecutes. To do this, he oversees attorneys, investigators, accountants, consultants and an analyst that make up his staff of 20—down from 26 two years ago.

Even with a shrinking staff, the enforcement division opened 892 cases last year, prosecuting 258 of those and netting $800,000 in fines. That set a new record for prosecutions, which previously topped out at 174 in 2000. Because half of last year’s prosecutions involved minor violations, it lent new credibility to the “shooting fish in a barrel” accusations.

In spite of the record-setting number of prosecutions, the governor’s proposed budget cuts would force the enforcement division to trim employees, including an enforcement attorney and a senior investigator. According to an FPPC report, the staff cuts would add to the division’s backlog of cases and reduce its ability to prosecute.

Most of what the enforcement division does is driven by the hundreds of complaints that pour in annually. Many come from political campaigns ratting on a rival. Other cases are prompted by campaign audits, proactive investigations or even newspaper articles.

“The system is policed mostly by opponents and the media,” said Knox of Common Cause.

But whether there’s an investigation under way or not, enforcement matters are strictly confidential. When reporters call, the FPPC won’t confirm or deny anything about taking a complaint or starting an investigation. Enforcement is a black box.

When an FPPC investigation turns up something, the next problem for Russo is to figure out if he can spare the staff to build a case. “We try to direct our resources,” Russo said. “We look at what we can prove.”

One of the FPPC’s biggest cases in recent years involves the Agua Caliente Band of Cahuilla Indians, a Southern California tribe that owns two casinos and insists that it has sovereign status that makes it exempt from FPPC regulations. The commission, which disagrees, sued the tribe in 2002 for failing to report, among other things, more than $7.5 million in campaign contributions. The Agua Caliente Band is appealing to the state Supreme Court.

Before the FPPC announced that it would go after the tribe, Knox of Common Cause and other outside critics had been pushing the FPPC to take action.

During that time, Russo said, enforcement staff members were trying to figure out if they could make a solid case before going public—and Common Cause had overstated the violations.

“The most important thing is that we not act hastily,” Russo said. First, Russo’s staff needed to find out if violations had occurred; if tribes, which claimed sovereignty, were subject to the Political Reform Act; and if the FPPC even had the resources to proceed with the case. After deciding that the FPPC could make a case but could not prosecute it with the agency’s small staff, the commission asked for and received a special one-time appropriation from the Department of Finance in order to hire outside counsel.

Though they’ve often been critical of the agency, Stern and Common Cause’s Knox say they’re more impressed these days with what they see as a more aggressive commission—and with the job Randolph is doing as chairwoman.

Stern, who now runs the Los Angeles-based Center for Governmental Studies, gives the FPPC and the new chairwoman credit for focusing on important cases. He cites the Agua Caliente Band lawsuit and the Bustamante settlement. “It’s hard to go after the big guys, and that’s what they’ve been doing.”

In addition to the big fine won against Bustamante, the commission reached a $135,000 settlement in March with oil heiress and philanthropist Caroline Getty for anonymously funneling $1 million into ballot-measure campaigns. And in a move that FPPC observers say was one of its most aggressive in recent years, the commission sued University of California Regent Ward Connerly last year for not disclosing contributors to his committee supporting Proposition 54, the racial-privacy initiative.

In addition to those actions, the agency also has racked up dozens of fines against violators for less-serious offenses, like filing late SEI forms and not forming major-donor committees.

But, after all those headline-grabbing exploits, Russo and Randolph say the streamlined programs handle violations with a minimum of fuss and that their enforcement priorities can’t focus only on big names and major violations. They reject the idea that infractions ought to be handled like parking violations. Instead, they say, there must be enforcement of all regulations and at all levels of government. If the FPPC just concentrated on one type of office or violation, it wouldn’t be doing its job as the sole enforcer of the Political Reform Act. In some smaller communities where political action may fly under the radar, Randolph said, locals need to know what kind of financial relationships political players have with one another. And it’s the FPPC’s responsibility to vigorously enforce the disclosure of everyone’s interests. “You’ve got to do it,” she said.

But that doesn’t mean everyone’s happy, especially those who’ve been nailed for what they see as rinky-dink violations—people like Lotter, the volunteer planning commissioner from Gualala. He’s still steamed about getting stuck with a fine for missing the filing deadline. But what really bugs him, he said, is that he didn’t get the usual notification from Mendocino County, the government agency he served. He thinks the county ought to be in trouble, not him. He said as much to both the commission and the administrative-law judge, to no avail. And now, months after the commission fined him in January, Lotter refuses to pay his $500 fine. “If they come and threaten to seize my bank accounts, I’ll probably end up paying, but I’m not going to do a darn thing,” Lotter said. “I’ll just hold off and see what happens.”

Enforcement priorities, it seems, are in the eye of the beholder. And now, there’s an odd irony in the budget cuts that would reduce the already small number of staffers who interpret the regulations for people and prosecute those who don’t obey the Political Reform Act: Soon, it could be easier to break the law and harder to get caught.