'No on 17' funding questioned

JUNE 4, 2010

By LAURA SUCHESKI

Both proponents and opponents of controversial Proposition 17 are spending the eleventh hour before the June 8 primary lobbing accusations at each other from the trenches.

Prop. 17 would modify a previous law enacted by voters: Proposition 103 in 1988. According to Ballotpedia, “Under current law in California, an insurance company can offer a persistency discount to its own customers, but under the terms of Proposition 103, auto insurers can’t offer that same discount to new customers who had continuous coverage for some period of time but from a different auto insurance company. Proposition 17 would give insurance companies the right to offer persistency discounts to customers of other insurers who have not let their policies lapse for more than 90 days in the previous five year period.”

Opponents contend that discounts offered will be at the expense of those who have not maintained continuous coverage for whatever reason, including many unrelated to driving performance: time spent in college, long-term illness or the loss of a job.

Yes on 17 is bankrolled almost entirely by Mercury Insurance.  As No on Prop 17 pointedly asks, “When was the last time an insurance company spent millions to save you money?” Mercury is California’s third-largest auto insurance provider and has been sued for adding illegal surcharges for lapses in coverage. Prop. 17 would make those surcharges legal. Doug Heller, executive director of Consumer Watchdog, explains, “What you have is an insurance company to confuse voters into believing there is an initiative out there to help them.”

The No on 17 campaign had few identifiable donors. Most of the contributions have come from Consumer Watchdog’s advocacy arm, the Campaign for Consumer Rights, which doesn’t identify its donors.

As a result, Prop. 17 supporters suspect the arrangement between “Stop Prop 17” and Campaign for Consumer Rights is running afoul of campaign finance laws.

The campaign raised suspicions when it had exceeded its one ‘no questions asked’ donation to a political campaign.  CCR is a 501(c)4, the advocacy arm of Consumer Watchdog, a 501(c)3 nonprofit organization.  Donations to 501(c)4s are typically not reported to the public, but the rules change when those donations are used for political purposes. A self-admitted multipurpose 501(c)4 like CCR is permitted to make one campaign contribution to a political cause without reporting its funding sources, but may not make another such contribution for four years.

As of Wednesday, CCR had made 32 late contributions totaling more than $590,000 to “Stop Prop. 17: Sponsored by Campaign for Consumer Rights.”  These transactions are legally acceptable if CCR is spending money that it earned on its own, or if it discloses CCR as an intermediary between individual donors and No on 17, according to an attorney familiar with the case.  CCR has not disclosed the source of any of its contributions, leaving only the former as an acceptable source.

Heller reiterated the explanation he and his organization have given to the press. “The money that comes from CCR is money that doesn’t have an actual donor behind it.  It is earned by Consumer Watchdog as program service income from legal or regulatory projects.  That money does not come from any donors.  A small portion of that gets granted to CCR for lobbying.” The group says that it has not committed any violations.

But that doesn’t clear up the questionable solicitation on StopProp17.org.  As of Wednesday, if you tried to donate to No on 17, you’re directed to write checks to Campaign for Consumer Rights. “We do not know whether or not they are getting money from that solicitation.  When they get asked, they say ‘we don’t have to disclose,’” says Chip Nielsen, counsel for Yes on 17. His client believes that some of the $590,000 has been raised through this solicitation. The Web site was changed on Thursday, directing potential donors to make checks payable to “Stop Prop 17.”

“On May 10^th, we filed a complaint with the FPPC bringing all this to its attention. The FPPC takes a while to read and evaluate complaints so we haven’t heard back,” says Kathy Fairbanks, speaking on behalf of client Yes on 17.  The group suspected No on 17 would change their procedures, but it hasn’t, so Yes on 17 filed a supplement to its complaint on May 27.

Heller says the FPPC sent copies of Yes on 17’s complaints to its offices.  “It was bogus, and we’ve done nothing wrong.  They listed things that were either misunderstood or just wrong.”  His organization contends that this is just another ploy by corporate sponsor Mercury Insurance. “Mercury Insurance is desperate to draw attention away from the fact that this is a corporation funding an attack on citizens.”

However, Heller’s objections to Mercury’s intentions don’t absolve his organization from Yes on 17’s complaints. Speculation of malicious intent aside, the only way to settle the score is for the FPPC to audit Campaign for Consumer Reports, according to Prop. 17 supporters. “If they have nothing to hide, this should be a no-brainer,” said Nielsen.