The Story Of How The Central City East Association Evidently Violated City Ethics Laws Restricting Campaign Contributions, Gave Illegally To Mitch O’Farrell and Marqueece Harris-Dawson In 2015, Lied About It On Their Tax Form, And I Turned Them In To The IRS And The Ethics Commission

CCEA: The truth may be out there but it’s not out there on our tax forms.
This story begins with the fact that the Central City East Association, which runs the infamous Downtown Industrial District BID, contributed $700 each to two City Council candidate campaigns in 2015. The money was given to Mitch O’Farrell of CD13 and Marqueece Harris-Dawson of CD8. You can see the record at the City Ethics Commission and also if it’s more convenient, here is a PDF of the same information.

This turns out to be a huge problem for a number of unrelated reasons. First and most simply, the CCEA is a nonprofit 501(c)(6) organization. Unlike the more famous 501(c)(3) organizations, 501(c)(6) groups are allowed to engage in lobbying, but it’s unclear whether they’re allowed to support candidates for office.1 However, irrespective of any restrictions on donations, there are very clear reporting requirements.

Take a look at the CCEA’s 2015 tax form. In particular, take a look at question 3 of part IV, found on page 3 of the form. It asks unambiguously:

Did the organization engage in direct or indirect political campaign activities on behalf of or in opposition to candidates for public office?

And, as you can see in the image that appears somewhere near this paragraph, the CCEA unambiguously stated that they did not. It’s hard to imagine a less ambiguous form of direct political campaign activities than giving actual money, amirite? Hence I turned them in to the IRS and also to the Franchise Tax Board for this lacuna. Stay tuned in case anything happens!

And it turns out that there are some more subtle, but potentially equally serious, problems with these two donations involving various municipal laws. Turn the page for the highly sordid but highly technical details!2

The Downtown Industrial District BID renewed in 2014. The details are found in Council File 12-0931. Of course, a BID renewal leads to a new contract with the City, and this one led to contract number 124929, signed by CCEA chair and vice-chair Larry Rauch and Mark Shinbane on October 1, 2014, and by City Clerk Holly Wolcott on November 25, 2014. Here is a PDF of the signature page if you’re loath to download the whole damned contract.

Now, the Los Angeles City Charter at §470(12)(A)(i) states:

(12)(A) The following persons shall not make a campaign contribution to any elected City official, candidate for elected City office, or City committee controlled by an elected City official or candidate: A person who bids on or submits a proposal or other response to a contract solicitation that has an anticipated value of at least $100,000 and requires approval by the City Council

I know it’s popular to express disbelief and disgust about the idea that a corporation is a person, but it’s actually a completely standard notion in American law. In particular, the CCEA is unambiguously a person under the meaning of this Charter section.3 Now, the anticipated value of the contract is more than $2 million.4

And the Charter at §470(12)(E) says:

(E) The prohibitions in paragraphs (A) and (B) shall apply from the time the bid or proposal is submitted until the contract is signed, the bid or proposal is withdrawn by the bidder or proposer, or the City rejects all proposals for the contract, whichever is earlier. The prohibitions shall continue for 12 months after the contract is signed for the successful bidder or proposer, its principals, its subcontractors of at least $100,000, and the principals of those subcontractors.

Well, look at the dates again. Holly Wolcott signed for the City on November 24, 2014. The CCEA gave money to Mr. Mitch and Mr. Marqueece on October 30, 2015 and August 20, 2015 respectively, both within 12 months of the signing of the contract. How can this not be a violation? So naturally I turned them in to the City Ethics Commission for this misstep.5

And finally, it seems to be the accepted wisdom that BIDs are not allowed to use their money for stuff outside their districts. I have not identified any language in the Property and Business Improvement District Law of 1994 that explicitly requires this, but Miranda Paster, famed City of LA BID-Boss-Honcho-ette once told me that it was in there somewhere. This is definitely the City’s position, as can be seen in this BID facts FAQ published by the City Clerk,6 which says unambiguously that the BID’s

services, activities and programs are paid for through a special assessment which is charged to all members within the district in order to equitably distribute the benefits received and the costs incurred to provide the agreed-upon services, activities and programs. The assessment money is collected by the City or by the County through a special contractual arrangement with the City. Because the assessment funds collected in a given district cannot legally be spent outside of that BID, the City creates a trust fund for each BID, with funds periodically released to support operations.

So it’s not so clear what this means, and it’s not so clear if it’s right, but if it’s right, no matter what it means, it’s pretty hard to see how giving campaign contributions to City Council candidates is allowed under it. It would be just as wrong if they’d given money to Huizar, but at least their BID is in CD14. What they’re doing spending the hard-earned assessments of their property owners on freaking Mitch and Marqueece is anyone’s guess.

Finally, therefore, I also turned them in to Miranda Paster on this beef, and that was almost a year ago now. I can’t tell if she’s done anything about it or not, so I’m not writing on that aspect of the story at length but really, if she had done anything, why would they have neglected to report the contributions on their tax form, which seems pretty surely to have remained unamended until Estela Lopez sent me a copy last month. Perhaps we’ll never know, but if we do find out, you’ll read about it here!

Image of Estela Lopez used to be a copyright-free public record, and then I messed with it and messed with it and messed with it and now (a) I can’t remember exactly where I got it but (b) it hardly matters due to the transformative use I’ve made of it, leaving it not only eligible but actually having attained the exalted state of being subject to ©2017

  1. Actually it turns out that the whole theory of nonprofits and political activity is too complicated for anyone to understand. Given that perhaps we ought to cut the CCEA a break for not understanding… nah!
  2. Which is yet another reason to love municipal ethics policy and enforcement. Where else in this world do the highly sordid and the highly technical overlap with such clockwork regularity? And to such dazzling effect? Wait till you see what’s coming next week, friends! Ah, I love this job!
  3. I’m not citing an authority for that because it’s too much work for various reasons, but it’s still true.
  4. It’s possible that the argument will be made that this section doesn’t apply because of the widely used but nevertheless deeply wrong “zero valuation theory,” which the City applies to exempt BIDs from very many requirements, e.g. the Contractor Performance Evaluation Ordinance. The theory says that since the City is only collecting the money from private property owners and paying it back to their owners association, it’s not City money (that is, the value to the City is zero), so the $100,000 requirement isn’t met. We’ll see if it applies in this case. My feeling is that it probably does, since regardless of who pays the money, the CCEA gets it, and the language of the law certainly is consistent with the $100,000 value being the value to the contractor rather than the value from the City.
  5. A couple things. First, I turned them in last June, but am only writing about it now because I wanted to give the Clerk’s office a chance to deal with it, which they have not done. Ignore the fact that that report is dated in 2017, that’s an artifact of the typesetting program which I don’t want to take the time to correct. Also, I just found out recently that they lied about these contributions on their tax form as outlined above, and that discovery catalyzed this post. Also note that I reported CCEA chairman Larry Rauch for his own illegal campaign contributions in that same report. Early drafts of this post included a description of Rauch’s transgressions, but ended up being overcomplicated, so I decided to write only about the CCEA. I may come back to Rauch at some point, and if the CEC finds merit in the complaint (of course it’s still pending; I only submitted it nine months ago!) you will definitely hear about it here!
  6. If you’re skeptical you can get this document directly from the City.

Leave a Reply

Your email address will not be published. Required fields are marked *