Firms Seeking State Favor Finance Davis Foundations

Companies and individuals with interests before the state have funneled more than $2 million to tax-exempt corporations set up to pay for Gov. Gray Davis’ travel, housing and even a party for thousands of delegates at last summer’s Democratic National Convention.

Unlike the $21 million the governor has raised for his reelection, the gifts to the nonprofits can be made without public disclosure and are eligible for tax write-offs as charity.

Davis’ supporters have raised $234,000 for his Sacramento residence, which primarily goes to upkeep; $664,000 for his foreign travel and various California events; and at least $1.5 million for the bash the governor hosted at Paramount Studios for the convention delegates.

“It’s the governor’s belief that it’s more appropriate to do these activities with private funds rather than tax funds,” said Garry South, Davis’ chief campaign strategist. “People can argue with it or disagree with it, but that’s the governor’s belief.”

There is no requirement that the Davis supporters who operate the nonprofits reveal donors’ identities. The governor’s aides declined to release a list identifying them.

Interviews and documents obtained by The Times show that many large contributors, with gifts of five and six figures, belong to Davis’ stable of campaign donors. They include insurance firms, labor unions, electric companies, gambling interests, high-tech firms, retailers and others.

Darius Anderson, Davis’ chief fund-raiser during his 1998 campaign, established the nonprofit corporations for the governor since his election two years ago.

The Internal Revenue Service has granted each of the three organizations tax-exempt, nonprofit status, which generally is reserved for educational or charitable organizations, but can also be used by groups that exist to assist governments.

Jack Coffey, who oversees governmental affairs for Chevron in Sacramento, called the $50,000 his firm gave to one of the nonprofits, the Celebration of California Foundation, a political donation.

“We recognized we were getting involved in the political process,” Coffey said. “Yeah, it may not be campaign money. But it is political money. . . . In my heart, I consider it more of a political contribution than a contribution to United Way.”

The Celebration of California Foundation, which paid for the Paramount party, obtained tax-exempt status on Aug. 2, 12 days before the Democratic convention opened. Most of the money started coming in on that day.

Shield for Contributors

Many politicians use nonprofit corporations largely because they are not subject to the strict disclosure requirements that govern campaign donations; the identities of donors to nonprofits can be shielded.

“It is under the radar screen,” said Bob Stern, director of the nonprofit Center for Governmental Studies in Los Angeles.

Campaign contributions are required to be disclosed so the public can know who might be in a position to influence a lawmaker.

Previous governors have established nonprofits, but not to the extent Davis has. Gov. Pete Wilson created one to pay for his residence, as did Gov. George Deukmejian. But Davis relies more heavily on such funds than his predecessors did, and his aides are raising more money for them.

Wilson used both tax dollars and private donations to pay for his foreign travel. His private donors gave to a special state fund and could not take charitable deductions for it. Deukmejian used only tax money for his travel, although donors paid for dinners and other events when he ventured overseas.

“We always believed that if it was not legitimate state business, neither the state nor anyone else should pay for it,” said Sacramento attorney Steve Merksamer, who was Deukmejian’s chief of staff. “If it is legitimate state business, like selling California rice to the Japanese, that is a legitimate state expense.”

By law, Davis cannot assert direct control over the nonprofit corporations, although they were formed with his blessing. Spokesmen for Davis and for his campaign say they have no control over the entities. They are supposed to operate independently, and each has a board of directors, made up of some of Davis’ most loyal supporters.

“The governor doesn’t do any soliciting,” said Anderson, who has become a prominent Capitol lobbyist since Davis took office last year.

Rather, Davis’ campaign fund-raisers, including Anderson, sought the money. The governor is aware of who contributes and has thanked at least some of them for helping with the events, donors say.

The telecommunications company Pacific Telesis gave $320,000 to the Celebration of California Foundation to help pay for Davis’ functions at the Democratic National Convention. The fund received $200,000 from BP-Amoco, the British-owned oil company that took over Arco.

“It was not a political contribution, but rather a . . . charitable contribution,” said Pacific Telesis spokesman Bill Mashek.

Mashek said Pacific Telesis gave the $250,000 for the Paramount party and another $70,000 for a lunch that Davis and his chief of staff, Lynn Schenk, hosted for chiefs of staff at Warner Bros. Studios. As part of that event, guests were given a tour of the set of the television series “West Wing.”

Pacific Telesis, like many donors to the nonprofit, is a major contributor to Davis’ reelection campaign committee. The company gave $100,000 to the governor’s campaign fund this year, and $50,000 last year.

Pacific Telesis has several issues pending before state government, including a petition seeking the California Public Utilities Commission’s blessing of its request to enter the long distance telephone market. Mashek said the donation had nothing to do with any pending interests.

“Los Angeles is our largest market,” Mashek said, adding that the firm donated even more to the Los Angeles Host Committee, which raised money for convention events, and to the Democratic National Committee. “We looked at it as an opportunity to let our services and applications shine.”

Promoting California

Some of the donors intend to take a tax write-off, although accountants have not yet prepared returns. The amount they can write off depends on profits. A large and profitable corporation’s tax deduction probably would be 100% of the contribution, said San Francisco accountant Robert Mah.

Anderson said the charitable purpose of the Celebration of California Foundation was to promote California to delegates from across the country and to media representatives from around the world.

“You have 20,000 reporters, and delegates from all over,” Anderson said. “Everyone was invited. . . . Had we had a problem with the IRS [approval], we probably would have gone a different way.”

Bylaws for the Celebration of California Foundation are brief, reading in part:

“Except as permitted by law, no substantial part of the activities of this corporation shall consist of the carrying on of propaganda or otherwise attempting to influence legislation, nor shall this corporation participate in, or intervene in, including the publication or distribution of statements, any political campaign on behalf of or in opposition to any candidate for public office.”

The Paramount party highlighted California themes and industries, such as high technology and entertainment, as well as the state’s ethnic diversity. Mariachi bands, singer Michael Bolton, the First AME Church choir and actor Laurence Fishburne were among those who entertained guests, and, in Fishburne’s case, praised Davis’ policies as governor.

Wine, poured for free, came from California vintners. Asian, Mexican and other food offered buffet-style was intended to reflect the state’s cultural influences. Anderson said steps were taken to ensure that the event was not overtly partisan, though the two most prominent Democrats in attendance, Davis and President Clinton, both addressed the crowd.

Some experts questioned use of a tax-exempt entity for the undertaking. “That would be pretty borderline, if not over the line,” said Sacramento attorney Charles Bell.

In 1996, Bell created a nonprofit corporation that Wilson, a Republican, used for parties and other events for delegates during the Republican National Convention in San Diego--Wilson’s hometown. But the type of nonprofit corporation that Bell created did not allow donors to take charity tax write-offs. And Wilson’s corporation permitted the governor to carry on at least some political activities.

“I’m trying to figure out how [Davis’ aides] would have described their activities to get a charitable status,” Bell said, “and how they would justify conducting parties at a political convention as a tax-exempt function expense.”

South, Davis’ campaign strategist, likened Davis’ use of a tax-exempt entity to events put on by the Los Angeles Host Committee, and similar committees established in other cities that host national political conventions.

“The IRS has for as long as I can remember blessed that as a totally appropriate way to deal with convention-related activities outside the hall,” South said. “We decided to undertake the Paramount party because the host committee was having financial problems.”

Cigarette Maker’s Donation Returned

Although for the most part donors to Davis’ nonprofits are those who have given to his campaign committee, there was an exception. Philip Morris Inc., the world’s largest cigarette maker, gave $10,000 to help put on the Paramount party, although Davis repeatedly has said he declines donations from tobacco companies.

“We were asked to contribute, and we did,” said Peggy Roberts, spokeswoman for Philip Morris, adding she was unaware that Davis had a policy against taking money from tobacco companies.

Anderson returned the uncashed check last week, after The Times inquired about it. He said that a fund-raiser who was unfamiliar with Davis’ policy solicited Philip Morris, and that there was no connection between questions raised about it and the return of the money.

At Davis’ behest, Anderson established the foundation for his Sacramento residence, and one to cover travel and protocol expenses. The governor believes he should not use tax money for such costs.

Anderson established a fourth nonprofit to help improve schools in May, but said he disbanded it before it raised any money.

The stated purposes of the California Residence Foundation, set up in December 1998, and the Golden State Host Committee, formed in May 1999, is to “lessen the burden on government.” IRS grants nonprofit status to entities that promote that goal.

When he is in Sacramento, Davis lives in the home that Wilson and Deukmejian occupied during their tenures. Deukmejian’s supporters raised money to buy the ranch-style house east of downtown.

Los Angeles lawyer Karl Samuelian, who was Deukmejian’s fund-raising chairman and heads a tax-exempt foundation that owns the home, said it leases the residence to the state for $1 a year. The state is expected to pay for upkeep, insurance and property taxes.

The bulk of the $234,000 raised for Davis’ residence came from money left over from his 1999 inauguration. About $55,000 came from other donors, Anderson said.

A 1999 tax statement for the residence foundation filed with the IRS shows that Davis spent $41,397 from the fund last year, primarily on repairs and maintenance. Other expenses included $448 for cable television and $8,200 for events. The residence foundation ended the year with $180,000 in the bank.

The Golden State Host Committee received $384,000 in 1999, and $280,000 so far this year. The largest single expense was a dinner for Mexican President Ernesto Zedillo, at $161,000. Donors to the foundation paid $64,000 for Davis’ two-week trade mission last year to Europe and the Middle East, and another $58,500 for an aerospace summit he held.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Davis Donors

Many donors to Gov. Gray Davis’ campaign committee also have contributed to tax-exempt nonprofit corporations established since he was elected two years ago. Here is a sampling:

Pacific Telesis

Nonprofit*: $320,000

Campaign**: $100,000

*

BP Amoco

Nonprofit*: $200,000

Campaign**: $20,000-x

*

Cadiz Inc.

Nonprofit*: $50,000

Campaign**: $25,000

*

Chevron Oil

Campaign**: $50,000

Campaign**: $120,000

*

Metabolife International

Nonprofit: $50,000

Campaign**: $100,000

State Farm Insurance

Nonprofit*: $50,000

Campaign** $0:

*

State Farm* Donations, compiled from various sources, to the Celebration of California Foundation, which paid for Davis’ party at Paramount Studios for delegates to the Democratic National Convention in August.

** Publicly disclosed campaign contributions to Davis for the first half of this year, as shown in the governor’s most recent campaign finance report filed with the state.