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Nonprofits Cloak Donors to Governor

Tax-exempt groups provide millions from sources not made public. Ethics watchdogs say the practice avoids state disclosure laws.

August 24, 2005|Robert Salladay and Peter Nicholas | Times Staff Writers

Schwarzenegger's use of nonprofit groups has brought complaints from Democrats and raised questions about how involved the governor has been in soliciting the donations. Under California law, if Schwarzenegger is raising money for the nonprofits himself, it must be reported to the public.

Hiltachk said the governor is not required to disclose the donations to all the nonprofits because the people controlling the groups, not the governor, are raising the money.

"If he is not raising the money, he doesn't have to report it," Hiltachk said.

The California Political Reform Act requires charitable donations over $5,000 made at the "behest" of elected officials to be publicly disclosed within 30 days. Schwarzenegger has filed no such reports, according to the state Fair Political Practices Commission.

Former Gov. Davis filed so-called behest reports at the Fair Political Practices Commission, including one that listed multiple donors to his inaugural committee. Lt. Gov. Cruz Bustamante, Atty. Gen. Bill Lockyer, state Treasurer Phil Angelides and schools chief Jack O'Connell all have filed such reports.

Angelides, for example, reported soliciting $35,000 from two unions in March to support the Foundation for Taxpayer and Consumer Rights, a prominent Schwarzenegger critic.

Ethics attorneys and other campaign finance experts said they believe Schwarzenegger is violating the Fair Political Practices Commission rules. Lance Olson, general counsel for the state Democratic Party and a principal author of California's fund-raising law, said the rule is meant to keep donors from funneling money to politicians through nonprofits to avoid disclosure.

"He definitely has to disclose," Olson said. He added the law "was intended to get at what otherwise might be a campaign contribution." The California Democratic Party has filed a complaint with the commission over the issue.

In some cases, Schwarzenegger's attorneys and financial advisors have directed money to nonprofits on his behalf.

In November 2003, the governor formalized a deal with American Media to edit Muscle & Fitness and Flex magazines. In addition to paying his salary of at least $5 million over five years, the magazine publisher agreed to pay a total of $1.25 million over five years to the Governor's Council on Physical Fitness and Sports.

Schwarzenegger announced the donation to the fitness organization in a press release last year, but has not reported to the commission the first $250,000 payment to the council. Olson said that in signing an agreement with American Media, the governor clearly solicited the contribution to the charity and it should be reported.

"How can he say he didn't know or he didn't solicit it?" Olson said. "It's right in the contract."

Schwarzenegger canceled the contract with American Media last month, when The Times and the Sacramento Bee revealed the deal, though the governor remains a columnist for Muscle & Fitness and Flex and the payments to the council will continue.

Hiltachk said the donations to the council do not have to be reported because they were part of Schwarzenegger's compensation package. In other words, it was Schwarzenegger's money being donated to the council, not a donation from American Media being solicited by Schwarzenegger.

The nonprofit, which Schwarzenegger launched at Disneyland in June and has a website featuring the governor's official seal, has also received $150,000 from Pfizer, a pharmaceuticals company. The council lists major sponsors, including Pfizer, on its website but does not list the amounts given.

Drug companies are negotiating with the Schwarzenegger administration over offering discounted prices for prescription drugs through the MediCal program.

They also would like Schwarzenegger to endorse a November ballot initiative they are promoting that would create a drug discount program for low- and medium-income Californians. The measure provides smaller discounts than a competing measure promoted by consumer groups.

The Blue Cross of California Foundation ran a booth at the launch of the physical fitness council. The foundation, a charitable giving arm of WellPoint, is contributing $300,000 over two years. Last year, the Schwarzenegger administration approved WellPoint's merger with another health insurance company.

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(BEGIN TEXT OF INFOBOX)

Schwarzenegger and nonprofits

A network of tax-exempt groups has aided Gov. Arnold Schwarzenegger since his election, staging rallies, paying for foreign trips and even picking up his Sacramento rent. Use of these nonprofits allows contributors to remain hidden from the public. Some -- but not all -- of the donors were revealed to The Times. Major contributors include:

* Governor's Council on Physical Fitness and Sports

Supports health programs.

Amount raised: $2 million

American Media (National Enquirer, Muscle & Fitness) $1.25 million over five years

Blue Cross of California Foundation (healthcare) $300,000 over two years

Pfizer (pharmaceuticals) $150,000

Applied Materials (technology firm) $100,000

* California Commission on Jobs and Economic Growth

Promotes California economy.

Amount raised: $1 million

Southern California Edison $100,000

TBWAChiatDay (advertising) $100,000

Catholic Healthcare West $100,000

Pacific Gas & Electric $100,000

F. Warren Hellman (venture capitalist) $100,000

Wells Fargo $100,000

David Booth (money market funds) $75,000

Grimmway Farms (carrots) $50,000

KB Homes $50,000

Frank Baxter (investment banking) $50,000

* Small Business Action Committee

Promotes business growth.

Amount raised: $50,000 for mall rallies

Donors not disclosed.

* Governor's Residence Foundation

Pays Schwarzenegger's Sacramento rent.

Amount raised: $35,000

Lewis Investments (real estate)

Tejon Ranch (developer)

Western Growers Assn. (agribusiness)

Amounts not disclosed.

* California Protocol Foundation

Reduces government costs

Amount raised: $1 million ($32,000 for Japan trip)

Donors not disclosed.

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Source: Times reporting

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