Three well-connected partners in the prominent California Strategies public affairs firm have agreed to pay fines to California’s political watchdog agency for trying to influence state government decisions without registering as lobbyists.
Democrats Jason Kinney, Rusty Areias and Winston Hickox violated state law when they “crossed over the line which separates policy consultants from lobbyists,” says a proposed settlement that the Fair Political Practices Commission released Monday. The settlement requires all three to register as lobbyists and, along with their firm, pay a combined fine of $40,500.
It’s just the second time in recent history that the FPPC has prosecuted anyone for failing to register as a lobbyist, the settlement says. But it reveals a practice many Sacramento lobbyists say has become pervasive at the Capitol: “shadow lobbying” by former politicians and high-level staff members who leave government to consult for private industry without disclosing themselves as lobbyists.
The practice creates an unfair playing field that registered lobbyists have complained about in recent years. Lobbyists who register with the state must file quarterly reports stating who’s paying them and how much. They must take annual ethics classes, post their pictures on the scretary of state’s website and are banned from giving campaign contributions to anyone running for state office. Consultants who don’t register as lobbyists operate with virtually no rules.
The FPPC’s prosecution of the case has the potential to shake up the lobbying business in Sacramento, said Phillip Ung, an advocate with California Common Cause, which promotes government transparency.
“We hope it sends a message that you can’t be in the shadow lobbying business anymore without the threat of being caught,” Ung said. “For a long time I think the consultants thought the FPPC enforcement on this issue was rare. This shows the FPPC is taking this issue seriously, and those who wish to break the rules should take this issue seriously, too.”
California Strategies released a statement saying the business “has already put stronger internal reporting controls in place.”
“The firm takes full responsibility for this matter and all of our principals are committed to ensuring it never happens again,” said a prepared statement emailed by managing partner Camden S. McEfee.
The FPPC’s review of the firm was already underway when The Sacramento Bee published an investigation in January documenting a severe lack of detail in California’s lobbying reports. Interest groups that spend the most money to influence policy in the Capitol spend the bulk of it in secret, The Bee found, including hiring former politicians as consultants and launching ad campaigns to push their agenda with virtually no financial disclosure.
Areias was a state legislator for 12 years who then headed the state Parks Department; Hickox was an adviser during Gov. Jerry Brown’s prior administration and secretary of the California Environmental Protection Agency under Gov. Gray Davis; Kinney was communications director for Senate leader Don Perata, then Davis’ speechwriter and is now a political consultant to Senate President Pro Tem Darrell Steinberg.
In settling with the FPPC, the three acknowledge that over the last two years they lobbied the Legislature and Air Resources Board without registering and publicly reporting their clients and income, as state law requires of lobbyists.
“This activity violates one of the (Political Reform) Act’s central purposes – the activities of lobbyists should be regulated and their finances disclosed in order that improper influences will not be directed at public officials,” the FPPC settlement says.
“The public harm inherent in these violations is that the public is deprived of important and timely information ... such as the identity of the person ultimately seeking to influence legislative or administrative action and the amount of money expended by that person to influence such action.”
FPPC investigators said they are recommending a fine at the steeper end of the range because the three men likely knew their work constituted lobbying under California law. The state’s Political Reform Act says lobbyists must register with the secretary of state if they spend more than a third of their time or are paid at least $2,000 a month to influence state government decisions.
“Respondents are sophisticated parties who have extensive experience working with appointed and elected officials,” the FPPC wrote in its settlement.
“They are a former legislator, Cabinet-level official and senior gubernatorial staffer. Additionally, the firm itself contains numerous former high-ranking government officials. As a result, the firm clearly should have known that such lobbying activity needed to be reported and the firm was required to be registered as a lobbying firm.”
California Strategies, founded by former Gov. Pete Wilson’s chief of staff, Bob White, is made up of two sister companies – one for lobbying, the other for public affairs. Its lobbying branch reported bringing in $1,099,204 during the first half of this year, making it California’s 19th highest-earning lobbying firm.
But most of the former government officials who work for the firm – including former lawmaker Jim Brulte, who now chairs the California Republican Party – are part of its public affairs branch, which doesn’t disclose its clients or its income.
Some of that will change with the FPPC settlement. The public affairs branch of the business will have to register as a lobbying firm for 2012 and retroactively file all associated disclosure reports for the three named in the settlement. For this year, the lobbying branch of the company will amend its disclosure reports to include work by Kinney and Hickox. The 2012 and 2013 disclosures are required by Sept. 19, when the proposed settlement is scheduled for a vote by the commission.
The Bee’s examination of lobbying disclosures earlier this year found that state law allows lobbying groups to report spending on scores of activities that are related to lobbying – but do not meet the legal definition of lobbying – as a single lump sum. In this category, listed as “other payments to influence” on disclosure forms, groups report how much they are spending, but not what they’re spending it on. The “other” category can cover myriad expenditures, from the phone bill in a lobbyist’s office to hiring former politicians not formally registered as lobbyists to pull strings inside the Capitol.
The Bee reported in January that former Senate leader Perata as well as former Assembly speakers Willie Brown and Fabian Núñez work as consultants who are not registered lobbyists. Shortly thereafter, Perata registered as a lobbyist and the FPPC formed a working group to examine whether the state should require more detail on payments in the “other” category of lobbying reports. That review is still underway.
Perata said Monday that he decided to register as a lobbyist “so there’s no confusion when I’m talking with government officials about the nature of my business with them.”
“If my lawyer says register, I register,” Perata said by email.
California Strategies did not make its partners available for an interview following the FPPC settlement. In January, Kinney told The Bee that he and his colleagues in the firm’s public affairs branch do not engage in lobbying. Their practice involves a big-picture approach to policy issues, Kinney said then, not attempts to sway votes on specific votes on specific bills.
“Our differentiator is that we attempt to offer expertise about how to navigate the entire chess board, not just looking at one piece of it,” Kinney said.
The FPPC settlement offers a different view of their work. It says that Kinney, Areias and Hickox were paid at least $2,000 a month by their clients to contact government officials in an attempt to shape their decisions:
• Kinney communicated directly with state lawmakers about bills that affect a real estate client, Focil-MB, which has developed a huge portion of Bay-front property in San Francisco.
• Areias communicated directly with a lawmaker about legislation impacting his client, Kaiser Ventures, a mining company trying to sell its land at Eagle Mountain in Riverside County.
• Hickox attempted to influence administrative action by communicating with members of the Air Resources Board on behalf of his client, CE2 Carbon Capital, which had hired him to advise on projects to reduce carbon emissions.
In total, the three men failed to disclose $84,000 of lobbying payments over the last two years, the FPPC settlement says, “depriving the public of information regarding a significant amount of lobbying activity.”