Follow the money? It’s not always so easy
During a hotly contested race this year to replace Los Angeles City Councilman Tom LaBonge, three apartment rental companies that listed the same chief executive and same address in state records each contributed the maximum donation allowed to candidate Carolyn Ramsay.
Such a cluster of giving can trigger the suspicion of watchdog groups and city investigators, because if the money is coming from the same business owners, it can exceed legal limits on donations from one source.
Campaign finance experts say the key question is whether the money is coming from the same source. But the answer is unclear. Publicly available campaign and business records don’t spell out who owns the companies. The companies’ chief executive did not respond to repeated emails, phone calls and letters seeking information on the firms and the donations.
After a reporter inquired about the contributions, the Ramsay campaign returned two of them without determining whether the donations were proper, to eliminate questions about whether the contributions exceeded limits. The three donations amounted to a sliver of the more than $400,000 Ramsay raised for her unsuccessful runoff campaign.
But the uncertainty surrounding the contributions illustrates a far larger problem: Business entities routinely donate to city candidates, but it isn’t always clear who owns them. That makes it difficult, if not impossible, for the public to get a full picture of who is financially backing candidates.
It also makes it difficult to ensure that city campaign rules are being followed.
“We restrict the amount that any one individual or entity can give,” said California Common Cause Executive Director Kathay Feng, whose group advocates for open government. “But passing it through numerous companies can be a way of getting around the restrictions.”
City investigators have caught such violations before: The Ethics Commission, which is empowered to subpoena personal, banking and business records to enforce campaign finance laws, has repeatedly detected cases in which people exceeded campaign contribution limits by donating through one or more firms they owned or controlled.
But years can pass before the city scrutinizes donations. In the meantime, watchdog groups complain that it is hard for the public to determine who owns a company, let alone whether business donations are linked. Many business entities, especially small, privately held limited liability companies commonly used in the real estate business, do not have to publicly list their owners.
Even campaigns may struggle to ensure that such donations adhere to city rules. And the Ramsay campaign is not alone: The Times found several cases in which companies that reported the same address, CEO or both had given to a candidate. But publicly available records do not make their ownership clear.
To prevent such problems, the cities of San Diego and New York City have banned donations to local candidates from business entities. After The Times made inquiries for this report, L.A.'s Ethics Commission said it would explore whether to require more information about corporate and other organizational donors — and possibly whether to prohibit such contributions to city candidates entirely. The commission is scheduled to discuss possible changes this month.
Requiring additional information “would help citizens to see who’s actually giving the money,” said commission President Nathan Hochman. “It would help enforcement staff in trying to piece together whether the rules have been violated. And it’ll help the politicians themselves.”
This year, nearly $1.2 million — roughly 1 in 6 dollars donated to L.A. city and school board candidates — came from corporations, limited liability companies and an assortment of other groups, including industry associations, a Times analysis of information reported by the campaigns found. The total excluded contributions to candidates by political parties and political committees.
Under Los Angeles city rules, campaign donations from corporations or limited liability companies that have a majority of members or shareholders in common, or other entities sharing a majority of members on their board of directors are generally considered to be from a common source. And those single sources can only give up to $700 each per election for council members and $1,400 for citywide offices.
Business entities have sometimes been used to evade those rules: In one of the most egregious cases detected by the Ethics Commission, it fined businessman Mark Abrams $270,000 a decade ago for offenses that included funneling campaign money through various companies he controlled.
Barring such donations has reshaped campaign financing elsewhere in the country: In New York City, which has restricted campaign donations to candidates by LLCs and corporations, the share of campaign money that came from individuals, as opposed to businesses and other organizations, climbed from 61% to 92% between 1997 and 2013.
Unions and political action committees are still allowed to donate to New York City candidates. San Diego’s ban, in turn, applies to businesses, unions and all other organizations with the exception of political parties. Seven years ago, that city’s Ethics Commission reaffirmed its support for the prohibition, saying that letting such groups donate would require “complex rules” that “inevitably become a trap for the unwary.”
However, the restrictions in San Diego and New York City don’t apply to donations made to independent campaign committees not controlled by the candidates, which are permitted under court rulings to accept unlimited contributions.
Some of the state and local bans on businesses giving to candidates have been challenged in court. A federal district judge in New Mexico found that an Albuquerque prohibition violated the 1st Amendment. And the Goldwater Institute, a think tank with libertarian leanings, has taken the states of Massachusetts and Kentucky to court over similar bans prohibiting corporate contributions but allowing them from unions, arguing they violate constitutional guarantees of free speech.
At the same time, the San Diego ban survived a similar challenge. A federal judge ruled it was justified by “important anticorruption and anticircumvention interests.”
L.A.'s Ethics Commission already provides an online tool that allows campaigns, after they submit donation reports, to search for contributions with the same address or similar names.
The agency uses similar searches to detect possible excess giving. But it has only three auditors to check millions of dollars in contributions for each election cycle. As a result, it can take years before a campaign is audited and possible donations from a common source are referred to investigators. But by then, Feng said, any damage has been done.
The Times found several cases in which companies that report the same CEO, address or both have donated to a candidate: Recent California secretary of state filings indicate that Orly Maciborski, chief executive and manager of the companies that gave to Ramsay, heads more than a dozen entities that earlier donated to Mitch O’Farrell’s L.A. City Council campaign. Their combined donations to O’Farrell totaled $6,500 — more than nine times the city limit for a single source.
But former Fair Political Practices Commission Enforcement Chief Gary Winuk and other campaign finance experts said determining whether all of the companies had the same owners would require access to internal company documents that are not publicly available. O’Farrell spokesman Tony Arranaga said the councilman had not been aware of any relationship between the companies and “will work with the Ethics Commission to correct the situation if needed.”
Even if campaigns follow up and ask whether companies have overlapping ownership, the public doesn’t necessarily get the answer. During his 2013 campaign, Mayor Eric Garcetti received six contributions from real estate investment companies that reported the same chief executive, developer Matthew C. Sullivan, in their 2014 state filings. Garcetti spokesman Jeff Millman said the campaign did a thorough review of its more than 15,000 contributions — a process that “requires a substantial commitment of resources” — and asked Sullivan to provide information on his ownership interests.
Sullivan told The Times that the companies have “completely different ownership” and therefore the donations shouldn’t be counted together. He said he gave information to the Garcetti campaign about the companies but declined to provide a reporter documents showing they were owned by different people.
“They’re private companies,” Sullivan said, “so they don’t have to disclose.”
Times staff writers Maloy Moore and Anthony Pesce and Times researchers Scott Wilson and Robin Mayper contributed to this report.
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