A secretive East Coast nonprofit funded by anonymous donors has funneled $200,000 to a Republican-controlled, statewide political action committee that is using most of the money to defeat longtime Irvine City Councilman Larry Agran and other Democratic candidates in the race for mayor and two open council seats.
The mission of the Virginia-based nonprofit, called Citizens in Charge, is to protect the initiative process, a grassroots method of placing legislation on the ballot through gathering voter signatures, according to organization's acting executive director, Paul Jacob.
But the $200,000 grant — which went to a statewide political action committee (PAC) called California Term Limits organized by Republican Jon Fleischman — has been used primarily to finance mailers that attack Agran and other Democrats and support his opponents, most notably Steven Choi, who is also a councilman and Agran's rival for the mayoral seat.
Agran has criticized the attack mailers, saying they have no relation to the nonprofit’s declared mission. Agran has also accused Choi of being involved in deciding how the grant funds are spent, although Agran admits he has no evidence.
“It’s secret money,” Agran said. “Steven Choi — who is running for mayor on a platform of honesty, integrity and transparency — and of course, he is engaged in absolutely the most secretive transactions politically to benefit him in the history of the city.”
Choi denied being involved or even knowing about the mailers until being told about them by Voice of OC. “How come someone in Virginia would be interested in Irvine politics? … I don’t know,” Choi said.
Agran has for years been criticized for taking part in the shadowy financing of slate mailers. News reports have shown that slate mailers supporting the city’s Democratic council majority were financed with hundreds of thousands of dollars by the Great Park’s no-bid contractors, among others.
The contractors funneled money to the slate mailer campaign through different PACs, thus circumventing the city’s $440 campaign contribution limit, according to The Orange County Register.
PACs that fund slate mailers, however, are required by law to disclose their donors, thus informing the public of who is supporting the slate.
Jacob, however, refused to identify his PAC's contributors. Because Citizens in Charge is a nonprofit organized under the 501(c)(4) federal tax code, the organization is not required to disclose the source of its funds, Jacob said.
Defending Anonymous Donors
Fleischman defended the anonymous campaign contributions as free speech espoused by the nation’s Founding Fathers. He said Benjamin Franklin used a pseudonym in his revolutionary writings.
“If you’re not able to protect the names of your donors, soon you won’t have any donors,” Fleischman said. “People like Larry Agran can be very intimidating to people. And that becomes chilling.”
Jacob said the grant to Fleischman’s California Term Limits PAC was made because he believes the PAC will use the money to support the initiative process. And he denied that any contributions received were “earmarked to any race in California.”
“Our goal is to protect and expand the initiative process. Anyone who wants to contribute and help us do that, we’re thrilled and very grateful. Anyone who wants to contribute to do something else, we would say thanks, but no thanks,” Jacob said.
Jacob also emphasized that the group has no interest in Irvine. “Other than that Irvine has the best city council people and we wish the Democratic process works well, we have no specific interest at all,” he said.
Yet current campaign filings show that the PAC does have a specific interest in the outcome of Irvine's City Council race.
Of the $124,596.95 spent by the PAC on mailers, $48,376.17 went toward mail pieces attacking Agran, according to the records. Another $41,445.07 was spent promoting Choi.
Thousands of dollars were also spent on mailers opposing Agran’s council slate candidates, P.K. Wong and Beth Krom, and on supporting Choi’s Republican council slate candidates Lynn Schott and Christina Shea.
The only reported mailer expenditures not related to the Irvine City Council race has so far been $5,600 spent promoting a West Hollywood City Council term limits measure, according to the filings.
Fleischman, also a member of the Voice of OC Community Editorial Board, said when he applied for the grant he did not specify how he would spend the money. He defended the expenditures on the council race as being in line with the goals of Citizens in Charge, because Agran is a term limits “offender.” Agran has switched back and forth between councilman and mayor since 1998.
Fighting Term Limits
Jacob has said one of the primary concerns of his group is a state measure that appeared to place term limits on state legislators when it actually loosened already existing term limits.
Fleischman pointed to both Agran and Santa Ana Mayor Miguel Pulido as examples of politicians who have been in office too long. He said some of the grant money will be spent in support of Santa Ana's Measure GG, which limits the mayor's terms. Pulido is running for his 10th term.
“Miguel Pulido is a postcard example of someone who needs to go back to private life,” Fleischman said.
Financing from the California Term Limits PAC is similar to an anonymous $11-million contribution by the Arizona nonprofit Americans for Responsible Leadership to a statewide PAC aiming to defeat Proposition 30 and adopt Proposition 32 — the former Gov. Jerry Brown’s temporary sales tax increase and the latter a measure to blunt unions’ political spending.
Influence of Citizens United
The Fair Political Practices Commission is seeking a court order to force Americans for Responsible Leadership to disclose its contributors, arguing that the public has the right to know who is backing the campaign against the propositions.
The method of using 501(c)(4) nonprofits for political campaigns has always been legal in California, according to Paul Ryan, senior counsel at the Washington, D.C.-based Campaign Legal Center.
But the tactic has become increasingly popular after the United States Supreme Court Citizens United decision essentially found that corporations and unions can spend unlimited amounts of money on political activities, Ryan said.
“Citizens United encouraged political players at all levels to use longstanding or new rules to bring corporate money into the political process,” Ryan said.
There are limits, however.
Under the federal tax code, Citizens in Charge can’t “primarily” use its funds to interfere in candidate races, according to Ryan.
Paul Jacob said the total budget this year for Citizens in Charge is between $500,000 and $600,000. The nonprofit’s $200,000 grant to California Term Limits PAC would therefore be between one-third and 40 percent of the nonprofit’s budget.
Ryan said the problem under the federal tax code is that the word “primarily” isn’t clearly defined. Some tax lawyers have interpreted it to mean that groups like Citizens in Charge can’t spend more than 40 percent of its budget specifically on candidates races without violating the tax code. Other attorneys have set the bar at just over 50 percent.
Then there’s the problem of enforcement. The nonprofit isn't required to file its tax returns until April, five months after the November election. If it turns out that the group violated the law, the damage would already be done.
“There’s a whole lot of opportunity for bending — or even breaking — the law, but very little disincentive for not doing so. And very little effective law enforcement to prevent it,” Ryan said.