At its regular meeting of August 30, 2001, the PEC directed staff to research and report back with specific recommendations on the issue of what a person who makes independent expenditures must do to satisfy the so-called "separate accounting" requirement of OCRA section 3.12.050(E) and 3.12.060(E). The PEC Rules Committee reviewed this issue at its meeting of November 19, 2001, and recommended that the following version be adopted as the PEC's policy for purposes of interpreting compliance with the above-referenced sections.

The Oakland Campaign Reform Act (OCRA) regulates campaign contributions and expenditures in connection with local elections. OCRA sections 3.12.050 and 3.12.060 regulate both the amount of money a local candidate may receive from contributors, as well as the amount a person who makes "independent expenditures" may receive to influence elections for City office.

An "independent expenditure" is an expenditure made in connection with a communication which expressly advocates the election or defeat of a candidate or measure but which is not made: 1) to or at the behest of the candidate, or 2) in cooperation, coordination or consultation with the candidate or his or her agent. [See Gov. §85500; 2 Cal. Reg. §18225.7] The critical distinction between an independent expenditure in support of a candidate and a campaign contribution, is that an independent expenditure, with few exceptions, must be made without the involvement of the candidate for whose benefit the expenditure is made. Campaign contributions are made to, and are frequently made at the request of, the candidate.

OCRA section 3.12.050.C states that any person who makes independent expenditures supporting or opposing a candidate for City office shall not accept any contribution in excess of $100. OCRA section 3.12.060.C states that any "broad based political committee" that makes independent expenditures supporting or opposing a candidate for city office shall not accept any contribution in excess of $300. A "broad based political committee" is defined under OCRA as a committee of persons that has: 1) been in existence for more than six months, 2) received contributions from one hundred or more persons, and 3) acting in concert makes contributions to five or more candidates. [OCRA §3.12.040.] If a person or broad based committee makes independent expenditures supporting or opposing a local candidate, they are required to "separately account" for contributions received and for contributions and expenditures made to influence an election for city office. [OCRA §3.12.050.E and §3.12.060.E]. Where a person or a broad based committee has separately accounted for such contributions and expenditures, contributors to that committee may contribute more than $100 or $300 "so long as no portion of the contribution. . .[in excess of $100 or $300] is used to influence elections for city office."

B. Issue Presented

The questions presented by the above language are: 1) what must a person or broad based committee do to "separately account" for the contributions they receive and the contributions and expenditures they make, and 2) whether and how the City should verify that no portion in excess of the contribution limit is used to influence elections for City office.

OCRA Sections 3.12.050.E and 3.12.060.E are apparently focused towards regulating persons or broad based committees which receive contributions as the source of the funds used to make independent expenditures. Persons or entities which use their own money to make independent expenditures appear to be outside the scope of section .050.E and .060.E. (These persons or entities would generally include so-called "independent expenditure committees," as defined under the California Political Reform Act.)

California law currently regulates persons or entities which receive contributions in excess of $1,000 to support or oppose state or local candidates or ballot measures. Such persons or entities are generally classified as "recipient committees," of which there are several types. All recipient committees are required to disclose contributions and expenditures on an FPPC Form 460. The Form 460 generally requires recipient committees to identify the source of all contributions greater than $100, to identify the candidate for or against whom an independent expenditures is made, and to provide a description of the expense. California law does not, however, require contributors or the recipient committees to allocate or direct specific contributions towards a particular expenditure.

For example, many labor unions maintain so-called "sponsored" committees which receive substantial sums of money in the form of small contributions from their members. These contributions are pooled and frequently used to support or oppose a number of state and local candidates, usually in the form of direct contributions and sometimes as independent expenditures. The individual union member, (who may live in a completely different part of the state from where the money is expended), does not specify which particular candidate or measure his or her contribution will be used to support or oppose, nor is there any practical way for the committee to contact the contributors to have them specify how, or in what form (i.e., contribution or independent expenditure), their contribution should be allocated.

Because state law does not require contributors or committees to allocate specific contributions towards specific expenditures, OCRA's requirement that recipient committees "separately account" for contributions and expenditures used to influence a City election could be interpreted as imposing a substantial recordkeeping or reporting requirement on recipient committees. Such an interpretation would, in PEC staff's opinion, create significant practical problems for most recipient committees, especially those which receive numerous contributions from different sources.

Rather than requiring recipient committees to separately account for individual contributions and independent expenditures, PEC staff believes that it would be more efficient and less burdensome to interpret OCRA's separate accounting requirement in the aggregate; that is, a recipient committee would be required to demonstrate that it has received at least enough contributions at or below the $100 or $300 OCRA levels to equal the total amount of independent expenditures used to influence a City election. This approach requires a determination of: 1) the method for demonstrating such contributions and expenditures, and 2) whether the contributions should be received before or after the independent expenditure is made.

Under state law, all recipient committees must file a semi-annual campaign statement. Some recipient committees may also have to file additional "pre-election" statements depending on the amount of contributions or expenditures made in connection with a local election. These statements already require disclosure of contributions and independent expenditures of $100 or more. Thus is arguable that existing FPPC filing requirements already constitute an adequate "accounting" method for disclosing relevant contributions of $100 or more and any significant independent expenditures. Relying upon existing FPPC financial statements as the method by which contributions and expenditures are separately accounted would avoid having to require additional statements or disclosures from the committees.

The second issue of when the contributions should be received could be addressed in several ways: 1) by requiring the qualifying contributions (i.e., those contributions of $100/$300 or less) to be received before the independent expenditures are made, or 2) by permitting the contributions to be received after the independent expenditure but before the reporting deadline for a subsequent campaign statement. The principal argument for the latter approach is that committees may legally make expenditures during a campaign and raise the money to pay for them later. The principal argument for the former approach is to limit independent contributions to the amount of qualifying contributions on hand at the time the independent expenditure is made.

PEC staff notes that the City Council's express intent in adopting the current language of Sections 3.12.050.E and 3.12.060.E was to "discourage unfettered soft money expenditures in local campaigns." Requiring recipient committees to raise the qualifying contributions before, rather than after, an independent expenditure is made would be more financially restrictive and arguably more consistent with the expressed intent of OCRA Sections 3.12.050.E and 3.12.060.E. On the other hand, since contributions totaling less than $100 are not separately itemized on FPPC filings, there is no way to determine whether the qualifying contributions of $100 or less were received before or after the date the independent expenditure was made. As a practical resolution of this issue, the PEC could deem the independent expenditure(s) to have been made from contributions of $100 or less so long as the committee has received such contributions before or during the reporting period in which the independent expenditure is disclosed.

PEC staff recommends that the PEC adopt as its policy for interpreting OCRA Section 3.12.050.E and 3.12.060.E the following principles:

1. A person making independent expenditures to influence an election for local office may satisfy the "separate accounting" provisions of OCRA Sections 3.12.050.E and 3.12.060.E by timely filing a properly completed FPPC Form 460 with the appropriate filing officer.

2. An independent expenditure will be deemed to have been made from "qualifying contributions" (i.e., contributions of $100/$300 or less) if the person making the independent expenditure has received an amount of qualifying contributions at least equal to the amount of the independent expenditure before or during the reporting period in which the independent expenditure is disclosed.

Respectfully submitted,

Daniel Purnell

Executive Director