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Associated Press
Nov 18, 2004 - 01:00 AM

by TOM CHORNEAU, Associated Press Writer

Nonprofits tangle Schwarzenegger's fund-raising machine

SACRAMENTO -- Despite promises to open up government and even his own calendar for public review, Gov. Arnold Schwarzenegger's efforts to reshape California benefit from millions of dollars in spending by nonprofit groups that are not required to disclose where they get or how they spend their money.

These groups have supported some of Schwarzenegger's most memorable events, including trade missions to Tokyo and Tel Aviv, bus tours up and down the state and even the wild July appearance at a shopping mall in Ontario where he called Democrats "girlie men" during the budget impasse.

But quirks in state and federal laws governing nonprofit groups and campaign spending, along with the governor's apparent failure to file required disclosure forms, have made it almost impossible to determine which of Schwarzenegger's backers paid for those events.

What it means, campaign finance and political ethics experts said, is that it's harder to pierce the secrecy surrounding much of Schwarzenegger's fund-raising machine, which has brought in more than $26 million since he took office last year.

"You can't pick and choose which things you are going to disclose and which you are not," said Raphael Sonenshein, a political scientist from California State University, Fullerton. "Some things can start out innocent enough, but conflict of interest is a real issue and sooner or later these things are going to lead to some real difficulty."

At issue are four nonprofit corporations that Schwarzenegger either directly controls or influences through friendly managers. Two of the groups were established as political entities that work directly with ballot issue committees -- the California Recovery Team and the Committee for Workers Compensation Reform.

Another group, California Commission for Jobs and Economic Growth, is engaged in economic development. The Small Business Action Committee targets economic issues and legislative lobbying.

A fifth nonprofit, the Governor's Residence Foundation, was incorporated earlier this year to raise money for an official residence for the governor and his family as well as the tab he is running up at Sacramento's downtown Hyatt hotel whenever he is in town.

Federal tax law requires nonprofit groups to release their tax returns as part of the public record, but they are not required to identify their donors. When these groups engage in political activities they are required to disclose contributions they make but not the people who give them money. And when they engage in lobbying, they must report the amount spent but not who their supporters are.

The organizations share many of the same supporters. Several members of the Jobs Commission, for instance, are also big contributors to the California Recovery Team and the workers' compensation committee -- as well to the governor's election committees.

Although Schwarzenegger appears to control directly only the California Recovery Team, a former campaign aide runs the small business and workers' compensation committees. One of Schwarzenegger's attorneys oversees the Recovery Team and the housing foundation.

State records show the nonprofits spent at least $2 million this year in support of issues also embraced by the governor.

Organizers of each group insist they are following all state and federal laws, but some critics said the network serves just one purpose -- promoting the governor.

"What Schwarzenegger has done is create a shadow government so he can bypass campaign finance disclosure laws," said Jamie Court, president of the Foundation for Taxpayer and Consumer Rights, a Santa Monica-based consumer group. "He's taking advantage of charitable welfare organizations to promote his own image."

Small Business Action Network founder Joel Fox said he started the group in July 2003, before Fox joined Schwarzenegger's campaign for governor. Schwarzenegger has no control over the committee, Fox said, and they share only the belief that California's business climate must improve.

Both focused on reforming the state's workers' compensation insurance system, which is why Fox said he established the nonprofit Committee for Workers Compensation Reform last January to work "in partnership" with Schwarzenegger.

Schwarzenegger raised money for that committee, said Fox and Marty Wilson, Schwarzenegger's main fund-raiser. They also collaborated on a petition effort to place a reform plan on the ballot if Democratic lawmakers did not agree to reform legislation.

Schwarzenegger's main political fund -- which is called Gov. Schwarzenegger's California Recovery Team and is not a nonprofit group -- gave Fox's committee $1.8 million in March to push the petition drive and urge voters to contact their legislators in support of the governor's proposed changes.

Because the workers' compensation committee spent $1.1 million on lobbying, it was required to file a lobbying report with the state. But that report included nothing about the source of the money or where it was spent.

Steven Lucas, the committee's attorney, said all reports have followed state law and while the lobbying reports include virtually no details, all of the committee's contributors have been reported elsewhere.

But Lance Olson, a Sacramento attorney and expert on campaign finance law, said if an elected official raises money for a nonprofit group, state law requires he or she to file separate disclosure reports.

The law is meant to show contributions that supporters might make to a charity at the behest of an officeholder. In the past, such contributions, often to a school or a theater company or a youth group, have been used by special interests as another vehicle to curry favor with an elected official.

Olson said if Schwarzenegger raised more than $5,000 for a nonprofit, he is required to file disclosure forms with the state. A spokeswoman for the Fair Political Practices Commission said Schwarzenegger hasn't filed any such reports.

Thomas Hiltachk, the governor's attorney who oversees the California Recovery Team and the housing foundation, said he does not believe the charitable donation report requirement applies to Schwarzenegger because all of his contributions are otherwise disclosed.
On the Net:

California Recovery Team:

California Commission for Jobs and Economic Growth:

Small Business Action Network:

Committee for Workers Compensation Reform:

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