California regulators approved new transparency requirements Thursday for charitable contributions made on behalf of politicians with whom the donors may be trying to curry favor, an attempt to reveal wealthy donors who hide behind anonymous accounts.
The change comes after the Los Angeles Times revealed the little-known practice of unidentified donors routing charitable contributions through accounts that shield their identity, including $1 million given last year on behalf of Gov. Gavin Newsom and a $3-million donation requested by Los Angeles Mayor Eric Garcetti.
California law requires that charitable donations of $5,000 or more requested by elected officials or their representatives — a practice known as "behested payments" — be disclosed to limit undue influence in government. However, the identities of those who use so-called donor-advised funds to make those payments are often shielded in state and local disclosure filings. The contributions are instead attributed to the nonprofit foundations and for-profit investment firms where the accounts were held.
That practice alarmed ethics watchdogs who said the maneuver allows the actual donors to skirt state laws intended to make their identities public.
Though behested payments are often earmarked for noble causes, companies donating on behalf of elected officials may have multimillion-dollar contracts or other business before the state, creating the appearance of a pay-to-play system.
"It was certainly concerning when we read in the news that there were these anonymous donations being used for behested payments that has a serious implication for transparency," Fair Political Practices Commission Chair Richard C. Miadich said.
Under the changes approved Thursday, an elected official must report, when known, the name of the person directing a behested payment through a donor-advised fund. When the contribution is made anonymously, the elected official must note that in disclosure filings. State officials said reporting when behested payments are from anonymous funders with donor-advised accounts will help determine the prevalence of the practice, which to date has largely been unknown.
The increased scrutiny comes as the use of donor-advised funds for charitable giving has surged in popularity across the country. Charitable accounts are the fastest-growing vehicle for philanthropic giving, prompting calls for reform. That's because those who use donor-advised funds receive immediate tax deductions, while assets in the accounts are allowed to accrue indefinitely.
When funds are used to make a charitable contribution on behalf of a politician, a donor could remain anonymous, with only the name of the organization where the account is held disclosed. Critics argued this is akin to the name of a banking institution being released, not the name of the person who wrote the check.
That was clearly inadequate, said Jonathan Mehta Stein, executive director of watchdog group California Common Cause.
"I think the way they are trying to handle donor-advised funds is a step in the right direction," Stein said. "This was the Wild West until the FPPC decided to do something about it."
The FPPC also voted Thursday to increase disclosure requirements when elected officials solicit donations for charities to which they have financial ties, following reporting by CalMatters.
"A lot of behested payments are useful and serve a valid social purpose," Stein said. "But the reality is they can be used by an elected official to enrich their family. It's a way to curry favor with public officials that would be illegal under our campaign finance laws."
In the case of the $1-million donation made in April 2020 on behalf of Newsom, the name of the donor was listed as the Silicon Valley Community Foundation. The foundation confirmed to The Times that the donation was made at the request of a person or company with a donor-advised fund at the organization.
Fidelity Charitable and Vanguard Charitable declined to identify the account holders of donor-advised funds who made behested payments last year on behalf of Newsom, which were directed toward helping students in the state with remote learning during the pandemic. The Fidelity Charitable donor gave $250,000 on behalf of Newsom, while the Vanguard Charitable account gave $100,000.
In required filings with the Los Angeles Ethics Commission, Garcetti’s office reported a $3-million donation in December 2020 from Bessemer Trust, a wealth management firm, to the nonprofit Mayor’s Fund for Los Angeles. That donation was from an undisclosed account holder with a donor-advised fund at Bessemer Trust.
A spokesman for Garcetti declined to reveal the individual or company behind that donation or any others given through donor-advised funds that went to the nonprofit Mayor’s Fund for Los Angeles.
The new rules approved by the FPPC will go into effect later this year after a public notice period.
"It’s a start, but we will have to see how many of these things end up being reported as anonymous," said Bob Stern, a co-author of the state’s Fair Political Practices Act, approved by voters in 1974 and updated in 1997 through legislation to include behested payments. "We have to wait and see [the impact]."
This story originally appeared in Los Angeles Times.