Nonprofits Cloak Donors to Governor

By Robert Salladay and Peter Nicholas

Aug. 24, 2005 12 AM PT

Times Staff Writers

SACRAMENTO —

Gov. Arnold Schwarzenegger is benefiting from millions of dollars raised by a network of tax-exempt groups without revealing that the money comes from major corporations with business before his office.

The groups are run by Schwarzenegger’s closest political allies, who also represent some of California’s biggest interest groups. Unlike the governor’s many campaign funds, the nonprofits are not required to disclose their contributors and can accept unlimited amounts.

One group controlled by a powerful corporate consultant pays the $6,000-a-month rent on a Sacramento hotel suite used by the governor, who is a multimillionaire. Others have funded media events and political rallies featuring Schwarzenegger and helped pay for his foreign travel. So far, five tax-exempt groups aiding Schwarzenegger have collected $3 million.

Other elected officials also raise money through nonprofit groups. But Schwarzenegger campaigned on creating an open government answerable to the public. His use of the nonprofit groups has the opposite effect, ethics watchdogs said.

State and federal laws allow groups performing a broadly defined “public benefit” to operate tax exempt. But the lack of disclosure requirements means potential conflicts of interests between the governor and his contributors remain hidden, allowing powerful donors to curry favor with Schwarzenegger behind the scenes, they said.

“This is an end run around the campaign finance laws,” said Larry Noble, executive director of the Center for Responsive Politics in Washington. “It does away with the contribution limits and it avoids disclosure, and it’s a way for the special interests who are supporting him to buy access and buy influence.”

Rob Stutzman, the governor’s communications director, said Schwarzenegger has asked the nonprofits directly helping him -- such as the foundation paying his rent -- to disclose their donors. In any case, he said the governor pays little attention to who donates to the nonprofits.

“He just never bothers himself with it,” Stutzman said.

State law requires that politicians disclose contributions to nonprofits made at their “behest,” but Schwarzenegger’s attorneys say it does not apply to the donations at issue. Democrats disagree and have filed a formal complaint.

Although the groups have not disclosed donors on their own, three of them provided information to The Times after repeated requests. Two of the organizations declined to do so.

One of the organizations, the California Commission on Jobs and Economic Growth, has raised $1 million from corporate donors and staged events in California and abroad featuring Schwarzenegger as a way to boost economic development. The governor is an honorary member of the commission.

The group is run by a San Francisco lobbyist, Mark Mosher, whose corporate clients include Motorola, Clear Channel billboard company and Verizon Wireless. The commission’s board of directors includes such business executives as Gap Inc. Chairman Donald Fisher, Edison International President and Chairman John Bryson and Fox Entertainment Group Chairman and chief executive Peter Chernin.

The $1 million came from a variety of firms affected by state actions. Wells Fargo Bank, which regularly lobbies the government on mortgage issues, student lending and identity theft, gave $100,000. This year, Wells Fargo is pushing for or actively opposing two dozen bills in the Legislature, state records show.

Catholic Healthcare West, a group of 40 hospitals in California and the Southwest, also gave $100,000 to the jobs commission. Last year, Schwarzenegger issued an emergency order to relax nurse-patient ratios at hospitals -- a move meant to reduce the financial burden on a hospital industry facing a nursing shortage.

The move set off a political maelstrom for the governor, led by a nurses union that favors more nurses in emergency rooms and certain other hospital wards. The California Nurses Assn. sued to reverse the governor’s order and won. The court ruled that Schwarzenegger had overstepped his authority as governor.

In another case, last September, Schwarzenegger’s aides said the governor would not accept contributions from Pacific Gas & Electric and other utilities -- to avoid any appearance of conflict as he drafted a state energy policy. But the jobs commission took a $100,000 donation from PG&E; a month later. The commission also received $100,000 from Southern California Edison.

The jobs organization has staged splashy events with the governor as the centerpiece. It arranged for the move of a 14-employee company from Nevada to California in an 18-wheel truck dubbed “Arnold’s Moving Co.” It commissioned a billboard campaign featuring Schwarzenegger promoting the state and helped pay for events in Japan when the governor visited.

Previous governors also used nonprofits for political and personal support. Gov. Gray Davis used them to collect at least $2 million from corporate donors for his housing, travel and a lavish party for Democrats during the 2000 national convention in Los Angeles.

Former Govs. George Deukmejian, Pete Wilson and Davis benefited from a tax-exempt nonprofit that helped defray the cost of their Sacramento housing. All three lived in a home purchased by supporters of Deukmejian; the state paid the $1 annual rent. Davis’ fund paid tens of thousands of dollars for repairs, maintenance, cable television and parties. Schwarzenegger’s residence fund pays for an 1,800-square-foot Hyatt Regency Hotel suite.

One of the directors of the Governor’s Residence Foundation is Bob White, who runs a Sacramento consulting firm that has substantial business before the state through his firm, California Strategies. White, a former chief of staff to Wilson, is one of the most powerful figures in Sacramento.

White’s firm has represented the Hearst Corp. in its sale of coastal property to the state and the California Hospital Assn. on seismic safety and overturning state regulations requiring more nurses on duty.

Schwarzenegger’s campaign committees paid his rent until Jan. 1, after which the residence foundation picked up the tab. So far, the residence foundation has raised $35,000 from three entities, said attorney George Kieffer, another director. The donors are: Lewis Investment, one of the country’s largest private developers; the Western Growers Assn., which represents big farms in California; and developer Tejon Ranch -- also a White client.

Tejon Ranch lobbies in the Capitol on issues such as fish and game regulations, cultural preservation and water quality rules. The Western Growers Assn. is also lobbying on a host of regulations and potential new laws, including environmental controls and the governor’s effort to curb childhood obesity.

Kieffer would not reveal the individual amounts donated. But he said the governor has never solicited money for the funds and doesn’t know the names of the three donors paying his rent. He noted that other states have official residences for their governors but California does not.

“The irony is,” Kieffer said, “your desire to print this is the only way the governor will learn who the contributors are.”

Last year, the California Protocol Foundation, which is affiliated with the California Chamber of Commerce and raised more than $1 million in 2004, picked up about $32,000 of the cost of Schwarzenegger’s four-day trade mission to Tokyo.

The trip created widespread media coverage for the governor as he judged a cooking contest, toured a supermarket and appeared before an oversized video showing images of his movies and California food products.

Allan Zaremberg, president of the California Chamber of Commerce and a member of the foundation’s board, said the group’s aim is to help reduce government costs. He would not release the names of the donors, and said Schwarzenegger doesn’t know who they are.

“There are a lot of people who want to be anonymous about this,” Zaremberg said. “It’s a charity.”

He added: “There may be people who want to support the governor’s mission of international trade,” Zaremberg said. “But to expect something in return would require the governor to be aware that they’re a participant. And he’s not aware unless someone tells him, and he may or may not remember.”

A similar group created before the 2003 recall election spent about $50,000 on three rallies featuring Schwarzenegger early in his administration. The Small Business Action Committee organized rallies at shopping malls in San Diego, Tracy and Bakersfield soon after the governor took office, as he was putting pressure on the Legislature to pass a state budget.

Joel Fox, a close Schwarzenegger ally who formed the committee, said the governor never solicited contributions and never asked who gave. He would not reveal the names of the donors, but said they are California businesses, small and large.

“It’s really not so much to be involved politically but to support the idea of improving the economy and that organizing small business is a good idea,” Fox said.

Schwarzenegger rallies and political events have also been staged by the California Recovery Team, a tax-exempt entity formed by the governor that received several hundred thousand dollars from two other Schwarzenegger funds that do disclose their donors. Tom Hiltachk, the governor’s attorney, said every donor to the California Recovery Team has been reported to the public by the two original funds.

The Recovery Team helped pay expenses for an Ontario mall rally where the governor made his now-famous “girlie man” remark and for a staged media event in which the governor filled in a pothole in San Jose.

Schwarzenegger’s use of nonprofit groups has brought complaints from Democrats and raised questions about how involved the governor has been in soliciting the donations. Under California law, if Schwarzenegger is raising money for the nonprofits himself, it must be reported to the public.

Hiltachk said the governor is not required to disclose the donations to all the nonprofits because the people controlling the groups, not the governor, are raising the money.

“If he is not raising the money, he doesn’t have to report it,” Hiltachk said.

The California Political Reform Act requires charitable donations over $5,000 made at the “behest” of elected officials to be publicly disclosed within 30 days. Schwarzenegger has filed no such reports, according to the state Fair Political Practices Commission.

Former Gov. Davis filed so-called behest reports at the Fair Political Practices Commission, including one that listed multiple donors to his inaugural committee. Lt. Gov. Cruz Bustamante, Atty. Gen. Bill Lockyer, state Treasurer Phil Angelides and schools chief Jack O’Connell all have filed such reports.

Angelides, for example, reported soliciting $35,000 from two unions in March to support the Foundation for Taxpayer and Consumer Rights, a prominent Schwarzenegger critic.

Ethics attorneys and other campaign finance experts said they believe Schwarzenegger is violating the Fair Political Practices Commission rules. Lance Olson, general counsel for the state Democratic Party and a principal author of California’s fund-raising law, said the rule is meant to keep donors from funneling money to politicians through nonprofits to avoid disclosure.

“He definitely has to disclose,” Olson said. He added the law “was intended to get at what otherwise might be a campaign contribution.” The California Democratic Party has filed a complaint with the commission over the issue.

In some cases, Schwarzenegger’s attorneys and financial advisors have directed money to nonprofits on his behalf.

In November 2003, the governor formalized a deal with American Media to edit Muscle & Fitness and Flex magazines. In addition to paying his salary of at least $5 million over five years, the magazine publisher agreed to pay a total of $1.25 million over five years to the Governor’s Council on Physical Fitness and Sports.

Schwarzenegger announced the donation to the fitness organization in a press release last year, but has not reported to the commission the first $250,000 payment to the council. Olson said that in signing an agreement with American Media, the governor clearly solicited the contribution to the charity and it should be reported.

“How can he say he didn’t know or he didn’t solicit it?” Olson said. “It’s right in the contract.”

Schwarzenegger canceled the contract with American Media last month, when The Times and the Sacramento Bee revealed the deal, though the governor remains a columnist for Muscle & Fitness and Flex and the payments to the council will continue.

Hiltachk said the donations to the council do not have to be reported because they were part of Schwarzenegger’s compensation package. In other words, it was Schwarzenegger’s money being donated to the council, not a donation from American Media being solicited by Schwarzenegger.

The nonprofit, which Schwarzenegger launched at Disneyland in June and has a website featuring the governor’s official seal, has also received $150,000 from Pfizer, a pharmaceuticals company. The council lists major sponsors, including Pfizer, on its website but does not list the amounts given.

Drug companies are negotiating with the Schwarzenegger administration over offering discounted prices for prescription drugs through the MediCal program.

They also would like Schwarzenegger to endorse a November ballot initiative they are promoting that would create a drug discount program for low- and medium-income Californians. The measure provides smaller discounts than a competing measure promoted by consumer groups.

The Blue Cross of California Foundation ran a booth at the launch of the physical fitness council. The foundation, a charitable giving arm of WellPoint, is contributing $300,000 over two years. Last year, the Schwarzenegger administration approved WellPoint’s merger with another health insurance company.

(BEGIN TEXT OF INFOBOX)

Schwarzenegger and nonprofits

A network of tax-exempt groups has aided Gov. Arnold Schwarzenegger since his election, staging rallies, paying for foreign trips and even picking up his Sacramento rent. Use of these nonprofits allows contributors to remain hidden from the public. Some -- but not all -- of the donors were revealed to The Times. Major contributors include:

* Governor’s Council on Physical Fitness and Sports

Supports health programs.

Amount raised: $2 million

American Media (National Enquirer, Muscle & Fitness) $1.25 million over five years

Blue Cross of California Foundation (healthcare) $300,000 over two years

Pfizer (pharmaceuticals) $150,000

Applied Materials (technology firm) $100,000

* California Commission on Jobs and Economic Growth

Promotes California economy.

Amount raised: $1 million

Southern California Edison $100,000

TBWAChiatDay (advertising) $100,000