California Strategies walks line between lobbying and public affairs
10/06/2013 12:00 AM
10/07/2013 6:53 AM
Devon Ford, an associate in the influential public affairs firm California Strategies, sounded enthusiastic about an event his company was hosting at the Auto Club Speedway, a Southern California racetrack in Fontana that is one of its clients.
The excursion was billed as an educational opportunity for legislators and their staff to learn about what he called “the excitement of IndyCar racing,” and included a tour of the garage, face time with Speedway’s president and dinner in the private skybox during the race.
But because the firm was inviting government officials, Ford issued a warning in an email to colleagues.
“Our legal counsel reminds us that registered state lobbyists are prohibited from ‘arranging’ for the giving of a gift to a public official,” Ford wrote in a September 2012 email obtained by The Sacramento Bee.
“If you are a registered state lobbyist and would like to recommend a specific public official receive an invitation from California Strategies to attend this event, please make your recommendation to me as soon as possible.”
In other words: The firm’s lobbyists, who operate under strict disclosure rules and are prohibited from giving politicians gifts worth more than $10, couldn’t legally invite government officials to the race. But they could make sure key politicians were invited by having their non-lobbyist colleagues make the invitation.
A California Strategies spokesman said the language on the invitation had been vetted by legal counsel and was deemed appropriate. The speedway events were not mentioned in the final settlement that California’s Fair Political Practices Commission reached last month with the firm. But it was a similar incident that led the state’s political watchdog agency to audit California Strategies, said enforcement chief Gary Winuk.
“It made us think about how a firm that both lobbies and does governmental strategies could be giving gifts over the lobbying limit to legislators,” he said. “It’s very tempting to use your non-lobbyists, when you’re so close, to do the things lobbyists can’t. The potential for skirting the rules is the reason we pursued the case so aggressively.”
California Strategies is not the only firm in Sacramento that offers clients a variety of services requiring a careful dance along the line that separates lobbying from less regulated forms of advocacy. But it has been a target of competitors who say the firm’s approach creates an uneven playing field: It has a long list of partners who have deep connections inside government but do not register as lobbyists.
Three of the partners recently admitted crossing the line into lobbying in the settlement with the FPPC. The agreement last month required former gubernatorial speechwriter Jason Kinney, former legislator Rusty Areias and former Environmental Protection Agency Secretary Winston Hickox to register as lobbyists, disclose one client each and, along with their firm, pay a combined fine of $40,500.
When the firm opened its doors in 1997, it didn’t have a single lobbyist on staff. Instead, what its four founding partners had were close ties to then-Gov. Pete Wilson.
California Strategies founder Bob White had worked for Wilson for three decades. When he quit his job as the governor’s chief of staff, The Sacramento Bee described it on the front page as the end of “one of the longest political marriages in California history.” White had a strong relationship with the governor, as well as deep connections to virtually every branch of state government. As Wilson’s top adviser, he vetted many of the bureaucracy’s top appointees.
“Bob’s vision was to set up a consulting practice that would represent the interests of some of California’s major employers,” said Martin Wilson, a vice president at the California Chamber of Commerce who worked with White for many years in GOP politics. “Bob has deep ties to the California employer community. He’s the go-to person when people have problems they want to get solved.”
Today, California Strategies comprises two sister companies that share an office, a website and many of the same staff.
One company is registered to lobby, and files quarterly reports to the secretary of state detailing its clients and income. The public affairs branch, on the other hand, largely works out of the public eye. It’s made up of well-connected former government officials who offer strategic consulting that’s supposed to be more general than lobbying.
The firm touts its connections inside government to help businesses navigate the powers that regulate them. The company website promotes expertise in a spectrum of policy areas – including environment, agriculture, gambling, health care, land use, energy and technology – and partners who are former “state legislators, senior government staff, state cabinet officials (and) federal officials.”
“High-level involvement in the public and private sectors and relationships built over decades translate into the expertise and trust needed to achieve success for clients,” the site says.
A full list of the firm’s clients is not available because only those who retain its lobbying services are required to be disclosed. They include the National Football League, World Oil Corp., Halliburton, the Nature Conservancy, the California Council of Land Trusts and several real estate developers, among many other entities.
‘Skirting the spirit of the law’
California Strategies has grown over the years, incorporating prominent Democrats as power shifted inside the Capitol.
Areias, Kinney and Hickox worked for the Democratic administration of Gov. Gray Davis and maintain close ties with Democrats now in office. Areias is a friend and financial supporter of Gov. Jerry Brown; Hickox worked for Brown during his earlier terms as governor; Kinney is a consultant to Senate President Pro Tem Darrell Steinberg and a volunteer strategist for Lt. Gov. Gavin Newsom.
The roster of partners also includes Garry South, who served as political adviser to Davis, and California Republican Party Chairman Jim Brulte, who is a former GOP legislative leader.
After a review that lasted more than a year, the FPPC determined that the line between the two branches of the firm had been blurred in a handful of cases where companies who were registered clients of the lobbying business also paid for services from partners in the public affairs operation.
State law says anyone who is paid at least $2,000 a month to influence government decisions must register as a lobbyist and report who’s paying them.
Any problems revealed by the case concern the behavior of three specific partners on behalf of three clients, not the structure of a firm that offers lobbying and strategy under one roof, said Karen Getman, the lawyer who represented California Strategies in its negotiations with the FPPC.
“Those individuals who were providing non-lobbying services, when we looked back on it, in fact engaged in communications that should have been characterized as lobbying. The reports have now been amended to reflect that,” said Getman, who chaired the FPPC during the Davis administration. “There is nothing about the business model that has changed or needs to change.”
Although it emerged out of the Wilson years, California Strategies enjoyed an extra boost during Arnold Schwarzenegger’s time in the Governor’s Office. White and fellow partner Camden McEfee had worked on Schwarzenegger’s Proposition 49 ballot initiative as well as the campaign to recall Davis and replace him with the former body builder.
The firm’s partners were received warmly by the Schwarzenegger administration when they wanted to talk about their clients’ issues.
“They would set the meetings, then have a lobbyist on the staff show up to do the advocacy work. Technically that probably was legal, but it’s certainly skirting the spirit of the law,” said a former Schwarzenegger administration official who didn’t want to be identified publicly disparaging an influential firm.
By 2005, California Strategies had grown to 10 partners and was influencing the governor’s decisions on land deals, Medi-Cal and timber policy, according to media reports at the time. The same year, California Strategies opened its in-house lobbying firm.
“They made the decision to create (the lobbying arm) specifically to make sure that there was a distinct difference between the public affairs side of the firm, where we are helping businesses navigate, and the lobbying that could occur from any potential or future clients,” said Michael Bustamante, a California Strategies partner who spoke on behalf of the firm for this story.
Now, California Strategies has 27 partners who work from offices in nine cities around the state. Its business structure is decentralized, with each partner maintaining a separate account of clients. Bustamante and Getman declined to answer questions about how money flows among the partners.
But an email that one partner wrote earlier this year shows that tension over money erupted after partners were asked to pay an additional $250 a month to cover the substantial legal costs of responding to the FPPC audit. Partners already were paying a share of their income into an account that was supposed to cover legal expenses, wrote Brulte – an account from which an upper tier of partners draw income.
“I was unbelievably perturbed when I got the email regarding the additional assessment for our legal costs. In fact, I have had a couple of sleepless nights trying to figure out how I wanted to respond. Sleeping on it did not make my anger go away. In fact, with each passing moment I have been getting angrier and angrier,” Brulte wrote in a Feb. 3 email.
With the FPPC audit focused on the Sacramento office, resentment developed in some other cities. “As our family grew, some principals seem to be a part of the immediate family while others are relegated to distant cousin status,” Brulte wrote.
He wrote that it was appropriate for the firm to pay legal costs associated with the FPPC audit, but questioned why the firm didn’t help him when he recently needed a lawyer. In 2011, federal agents searched Brulte’s home and office in Fontana as part of their investigation of a developer that had been one of his clients.
“With the current audit, we have been told that they believe someone in the firm made a mistake,” Brulte wrote. “In my case, I made no mistakes, did nothing wrong, was never a target of any investigation and have never been accused of anything inappropriate. I had to pay legal fees simply because a former California Strategies client may or may not have made a mistake.”
The email concludes with a request that the firm reimburse him for $100,000 in legal costs: “I think fairness dictates that this is more than appropriate.”
Bustamante said the proposed assessment was dropped after Brulte objected.
“It was a non-issue. The firm (paid) the legal expenses just like we pay for pencils or phones and faxes,” Bustamante said. “This was part of the course of doing business.”
He said the company remains a strong “collection of friends and colleagues.”
Access to lawmakers yields results
The Auto Club Speedway is not listed as a California Strategies lobbying client, though Kinney mentions it in his online biography as a client of his non-lobbying communications practice.
Early last year, he helped plan an event at the racetrack and urged fellow California Strategies partners to invite their clients. They’d get to feel the excitement as famous drivers pushed their cars to 185 mph, Kinney wrote in an email, and mingle in a private skybox with a select group of elected officials.
“This is a special opportunity to provide extra value to our clients and friends and we’d encourage all of you to consider attending,” Kinney wrote in a March 2012 email obtained by The Bee.
State Sen. Mimi Walters, R-Irvine, reported attending the event, disclosing a gift of $270 from California Strategies for tickets to the NASCAR Sprint Cup Series.
Just a few weeks earlier, she had introduced a bill that was sponsored by the racing industry. Senate Bill 1174 allows extra-long trucks on California roads – if they are carrying race cars. The bill breezed through the Legislature last year and was signed by the governor.
Walters’ spokesman said the senator was curious to see what a NASCAR race was like because she was carrying the legislation.
This year, Kinney arranged another sporting excursion that allowed interest groups to mingle with an elected official in an exciting milieu. In his capacity as a consultant to the Senate Democrats, Kinney helped plan a fundraiser for the California Democratic Party at the Super Bowl in New Orleans.
Interest groups spent thousands to send their representatives across the country to see the San Francisco 49ers play in the biggest game of the year – and spend a weekend with Sen. Kevin De Leon, D-Los Angeles, who chairs the powerful appropriations committee and is seen as a possible successor to Steinberg as head of the Senate.
The NFL is a client of Kinney’s through California Strategies, though he has said his relationship with the league “had no connection to the event whatsoever.”
“We secured the tickets the same way that anybody would, except I called,” Kinney said in an interview with The Bee earlier this year.
At the time of the Super Bowl, the NFL and other pro sports leagues were pushing for a bill that would reduce he ability of some injured players to file for workers’ compensation benefits in California. Kinney was a spokesman in the effort, which was formally introduced in an Assembly bill three weeks after the Super Bowl.
Assembly Bill 1309 was opposed by players unions as well as larger labor groups that have clout in the Capitol. Despite Kinney’s close relationship with Steinberg, the Senate amended it to apply to a smaller universe of players.
“We made that bill a lot more reasonable and fair,” Steinberg said in August. “We did not do what the owners wanted.”
The FPPC’s settlement with California Strategies ultimately required Kinney to register as a lobbyist for real estate developer Focil-MB, which is managed by the Mission Bay Development Group in San Francisco; Areias to register as a lobbyist for Kaiser Ventures, a mining company trying to sell its land at Eagle Mountain in Riverside County; and Hickox to register as a lobbyist for investment company CE2 Carbon Capital.
But it was an unrelated issue that touched off the review in the first place. While making a routine check of state reports, Winuk said his staff noticed that in 2010 California Strategies gave a state lawmaker NASCAR tickets worth $220 and a $50 meal, amounts higher than the $10 limit on gifts lobbyists can give.
Winuk said he also had received several tips alleging that some California Strategies consultants crossed the line and engaged in lobbying, even though they weren’t registered.
The two arms of the business “share a lot of the same employees, the same address, and a lot of people wear (multiple) hats,” Winuk said. “So our audit … was to determine whether any of that would constitute lobbying. And surprise, it did.”
He said he expects the case to spur more reports of shadow lobbying in Sacramento.
“Once people know you’re working in an area, you get a lot more information,” he said. “We are anticipating receiving more complaints and tips in this area.”
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