Ethics Commission
City and County of San Francisco

Advice Letter – November 30, 2004 – Jim Lazarus – Campaign Finance Reform Ordinance (contributions from member of-non-profit)

July 16, 2004                                                                         

Jim Lazarus

Executive Director

San Francisco Museum and Historical Society

P.O. Box 420569

San Francisco, CA  94142

Dear Mr. Lazarus:

You have requested a formal opinion letter from the Ethics Commission regarding the application of Campaign and Governmental Conduct Code ("C&GCC") sections 1.114(d) and 1.126 to the officers and directors of the San Francisco Museum and Historical Society ("SFMHS").

The Ethics Commission provides two kinds of advice: written formal opinions and informal advice.  S.F. Charter Section C3.699-12.  Written formal opinions are available to individuals who request advice about their responsibilities under local laws.  Formal opinions provide the requester immunity from subsequent enforcement action if the material facts are as stated in the request for advice, and if the District Attorney and City Attorney concur in the advice.  See id.  Informal advice does not provide similar protection.  See id.

Because you seek advice regarding specific actions that you and other officers or directors of SFMHS may take in the future, the Commission is treating your question as a request for a formal opinion.

Brief Statement of Facts

You informed us that SFMHS is a 501(c)(3) nonprofit organization that has an exclusive negotiating agreement with the City and County of San Francisco to lease the Old Mint Building located at Fifth and Mission Streets.  According to your request, SFMHS is currently negotiating a disposition and development agreement and lease ("lease") with the City, which you state will be finalized later this year and will require approval by the Board of Supervisors.  Finally, you informed us that candidates for the Board of Supervisors are soliciting officers and directors of SFMHS for campaign contributions.

Discussion

You inquire whether the San Francisco Campaign Finance Reform Ordinance ("CFRO") prohibits officers and directors of SFMHS from making campaign contributions to candidates for the Board of Supervisors while SFMHS is negotiating a lease with the City for the Old Mint.  For the reasons discussed below, we conclude that CFRO does not prohibit officers and directors of SFMHS from making such campaign contributions.

A.  Section 1.126 – Contractor Contribution Limits

CFRO limits the amount of campaign contributions a person may donate to candidates for City elective office.  See, e.g., C&GCC § 1.114(a) (imposing a limit of $500 per person during the general election).  Among these limitations is an absolute prohibition on any person making a campaign contribution to a City elective officer or candidate for such office when the person is negotiating certain contracts with the City, such as leases, until either the termination of negotiations or three months after the contract is approved, provided that the transaction requires approval by the City elective officer, or the board on which the officer sits.  See C&GCC § 1.126.[1]  CFRO defines the term "person" to include any "individual, partnership, corporation, association, firm, committee, club or other organization or group of persons, however organized."  C&GCC § 1.104(m).

SFMHS is a "person" subject to CFRO's regulations.  You have informed us that SFMHS is currently negotiating a lease with the City that must be approved by the Board of Supervisors.  Accordingly, by its terms, section 1.126 prohibits SFMHS from making a campaign contribution to a member of the Board of Supervisors or a candidate seeking election to the Board of Supervisors while the lease is being negotiated and until the negotiations terminate or three months after the lease is approved.

Because federal law already prohibits SFMHS, a 501(c)(3) nonprofit organization, from making any campaign contributions, section 1.126 has no actual effect on SFMHS itself.  See 26 U.S.C. § 501(c)(3).  You inquire whether section 1.126 would extend to the officers and directors of SFMHS, who are not prohibited by federal law from making campaign contributions.  To answer this question we must look to the affiliated entity rule, which requires the campaign contributions of a person to be aggregated with the contributions of certain other individuals and entities.  See C&GCC § 1.114(d).

B.  Application of Section 1.114(d) – Affiliated Entities

CFRO requires certain individuals and entities to aggregate their campaign contributions for the purposes of contribution limits.  Specifically, section 1.114(d) requires contributions of an entity whose contributions are directed and controlled by any individual to be aggregated with contributions made by that individual and any other entity whose contributions are directed and controlled by the same individual.  Section 1.114(d) also provides that if two or more entities make contributions that are directed and controlled by a majority of the same persons, the contributions of those entities must be aggregated; and that contributions made by entities that are majority-owned by any person shall be aggregated with the contributions of the majority owner and all other entities majority-owned by that person, unless those entities act independently in their decisions to make contributions.

The question presented by your inquiry is whether the affiliated entity rule extends the contribution limit imposed by section 1.126 to the officers and directors of SFMHS.  This inquiry presents a question of statutory construction.  Under the rules of statutory construction, we must ascertain the legislative intent in order to effectuate the law's purpose, looking to the words of the law and giving them their usual and ordinary meaning.  "The [law's] plain meaning controls [the] interpretation unless its words are ambiguous.  If the plain meaning of a [law] is unambiguous, no court need, or should, go beyond that pure expression of legislative intent."  White v. Ultramar, Inc. (1999) 21 Cal.4th 563, 572 (citations omitted).

By its terms, CFRO extends the prohibition in section 1.126 to any individual or entity affiliated with a person that is prohibited by section 1.126 from making campaign contributions.  See C&GCC § 1.114(d) (applying the affiliated entity rule to "contribution limits imposed by this section and sections 1.120 and 1.126").  Accordingly, the affiliated entity rule extends section 1.126 to any individual who directs and controls SFMHS's campaign contributions as well as any other entity whose campaign contributions are directed and controlled by that individual.  But the words of the affiliated entity rule itself make clear that the rule applies to contributions made by an individual only in situations where that individual has sole authority to direct and control an entity's contributions.  See, e.g., Fair Political Practices Commission advice letter to Robert Rossi, FPPC File No. I-93-211 (interpreting the State's affiliated entity rule on which San Francisco based section 1.114(d)).  As discussed above, SFMHS is a 501(c)(3) nonprofit organization that is prohibited by federal law from making campaign contributions.  Because SFMHS cannot make campaign contributions, no individual has the sole authority to direct the organization's contributions.  Accordingly, by its terms, the affiliated entity rule would not apply to any individual officer or director of SFMHS, and as a result the contributions of individual officers or directors need not be aggregated with those of the organization.[2]

For these reasons, we conclude that section 1.126 does not extend to the officers and directors of SFMHS.  Accordingly, CFRO does not prohibit the officers and directors of SFMHS from making campaign contributions to a member of the Board of Supervisors or a candidate seeking election to the Board of Supervisors while the lease is being negotiated and until the negotiations terminate or three months after the lease is approved.

I hope you find this letter responsive to your inquiry.  Please contact me at (415) 581-2300 if you have any additional questions.

Sincerely,

Mabel Ng

Deputy Executive Director

S:\ADVICE\cfro\04-0512 Lazarus\Lazarus 7.04.doc

[1] Section 1.126 provides, "No person who contracts with the City and County of San Francisco, for the rendition of personal services, for the furnishing of any material, supplies or equipment to the City, or for selling or leasing any land or building to or from the City, whenever such transaction would require approval by a City elective officer, or the board on which that City elective officer serves, shall make any contribution to such an officer, or candidate for such an office, or committee controlled by such officer or candidate at any time from the commencement of negotiations for such contract until (1) the termination of negotiations for such contract; or (2) three months have elapsed from the date the contract is approved by the City elective officer, or the board on which that City elective officer serves."  Ethics Commission Regulation 1.126-1 defines the commencement, completion and termination of negotiations for the purposes of this section.

[2] Likewise, because SFMHS cannot make campaign contributions, there is no other entity to whom to apply the affiliated entity rule.  Furthermore, because no person may have majority ownership of a 501(c)(3) nonprofit organization, there is no majority owner of SFMHS to whom to apply the affiliated entity rule.  See 26 U.S.C. § 501(c)(3) (requiring 501(c)(3) organizations to be operated exclusively as a charitable organization with none of its earnings able to inure to any private shareholder or individual).

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