Growing Nonprofit Participation + Stopping Dark Money = SB 27 is a Win-Win for Nonprofits

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The influx of “dark money” into California ballot measure campaigns during the 2012 election season, where outside groups illegally laundered money through sham nonprofits, hurt not only the voters, but also cast a negative light on all nonprofits involved in ballot measure activities in California. The reaction from clean money groups and legislators was understandably swift, and I feared it would result in legislation that provided more transparency at the expense of legitimate nonprofit speech. Thankfully, the legislature found a compromise with SB 27, which will not only stop the bad guys, but will help the good guys as well.

How Will SB 27 Help the Good Guys?

In closing the loopholes that allowed some sham nonprofits to be used for money-laundering, SB 27 also allows legitimate nonprofit organizations that rely on donor gifts that are not earmarked for ballot measure or candidate advocacy to file simplified campaign disclosure reports, and in some cases no disclosure reports at all, when they spend money to influence California candidate or ballot measure elections. California’s extremely low campaign reporting thresholds had, historically, acted as something of a barrier, keeping many nonprofit organizations from sharing their voice during ballot measure and candidate campaigns.

In past election cycles, a nonprofit that spent a mere $1,000 to support or oppose a California ballot measure(s) or candidate(s) from general support grants, bequests, rainy day funds, gifts from annual fundraising events, or any other funds received as gifts from donors, were required to file complicated campaign finance reports. By comparison, a for-profit business that spent the same amount of money might not have to file any reports, or would file very simple “major donor” reports. Sen. Correa’s SB 27 increases the filing threshold for legitimate nonprofits that have not raised money to support or oppose candidates or ballot measures.

Under SB 27, an eligible nonprofit can now spend up to $50,000 in a year, or up to $100,000 over 4 consecutive years, before the organization triggers more complicated campaign finance compliance, called “recipient committee” reporting.

Under this simplified reporting, eligible organizations do not need to file any campaign disclosure reports if they spend less than $10,000 in a calendar year in contributions to candidates or ballot measure committees. Once the organization spends $10,000 in a calendar year, it will need to file a fairly simple “major donor” report – much like the organization’s for-profit contemporaries would. Similarly, organizations making independent expenditures, may also have reporting obligations when the organization spends $1,000.

This change in the law will give organizations that need to speak up on an issue of importance to their clients, members, or constituents the flexibility to weigh in on occasional ballot measures or candidate campaigns without needing to establish the complex compliance systems necessary for full campaign finance disclosure.

Does SB 27 Change the Amount You Can Spend on Ballot Measure or Candidate Activities?

SB 27 does not change the amount nonprofits can spend on ballot measures or candidates. Only federal tax law limits how much a public charity can spend on lobbying activities, including ballot measures. It, likewise, does not impact the ban on partisan political activities by 501(c)(3)s or the limitations on partisan political activities by other 501(c) organizations. Additionally, non-501(c)(3)s must still comply with the state’s candidate contribution limits. That said, many eligible organizations may consider the reporting thresholds set out in SB 27 when making strategic decisions about how much the organization plans to spend to influence candidate or ballot measure campaigns.

Will Your Organization Benefit?

This new law applies to a variety of groups, including for example, Federal PACs. But, the organizations that benefit most from SB 27 meet the following criteria:

  1. A nonprofit organizations, including 501(c)(3), (c)(4), trade association, labor union or other 501(c) organization, or a 527 that conducts some non-campaign activities that further the organization’s exempt purpose;
  2. Spends $50,000 or less in a single year or $100,000 or less over 4 consecutive years;
  3. Spends funds from donors (e.g., general support grants, bequests, rainy day funds, gifts raised during an annual fundraising appeal or event, or other gifts);
  4. Is working in partnership with a ballot measure campaign committee – e.g., by serving on the committee’s steering committee, or makes contributions directly to ballot measure campaign committees or candidate campaigns; and
  5. Although not a requisite of SB 27, the organization should also comply with its annual tax law lobbying limit (if any) and the limitations on partisan political activities, including the ban on partisan political activities by 501(c)(3)s.

What If Your Organization Doesn’t Meet the Criteria?

While the focus of SB 27 is on making it more difficult for sham nonprofit organizations to spring up solely for the purpose of funneling money into California elections, there are a number of other legitimate nonprofits that will not fall into the more limited disclosure discussed above. The fact that an organization does not qualify for this reduced reporting should not in any way deter the organization from doing this work. Many nonprofit organizations, including organizations that raise funds earmarked for ballot measure or candidate activities, organizations that rely on non-donor funds, including from the proceeds of the sale of goods or services, will fall outside the scope of this new law. For these organizations, SB 27 addresses how the organization will file the required disclosure reports. W

ill SB 27 Apply to 2014 Elections?

SB 27 by Sen. Correa is an urgency bill, meaning it applies immediately, including to activities in connection with the November 2014 election.

RELATED POSTS: Explainer on Disclose Donors under SB 27 2014 Planning: Ballot Box Strategies 

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