Three well-connected partners in the prominent California Strategies public affairs firm have agreed to pay fines to California's political watchdog agency for trying to influence state government decisions without registering as lobbyists.
Jason Kinney, Rusty Areias and Winston Hickox violated state law when they "crossed over the line which separates policy consultants from lobbyists," says a proposed settlement the Fair Political Practices Commission released today.
It's just the second time in recent history that the FPPC has prosecuted anyone for failing to register as a lobbyist, the settlement says. But it reveals a practice many Sacramento lobbyists say has become pervasive at the Capitol: "shadow lobbying" by former politicians and high-level staff members who leave government to consult for private industry without disclosing themselves as lobbyists.
California Strategies released a statement saying the business "has already put stronger internal reporting controls in place."
"The firm takes full responsibility for this matter and all of our principals are committed
to ensuring it never happens again," said a prepared statement emailed by managing partner Camden S. McEfee.
The settlement follows an investigation by The Bee earlier this year that documented a severe lack of detail in California's lobbying reports. Interest groups that spend the most money to influence policy in the Capitol spend the bulk of it in secret, The Bee found, including hiring former politicians as consultants and launching ad campaigns to push their agenda with virtually no financial disclosure.
Areias was a state legislator for 12 years who then headed the state Parks Department; Hickox was an adviser during Gov. Jerry Brown's prior administration and secretary of the California Environmental Protection Agency under Gov. Gray Davis; Kinney was communications director for Senate leader Don Perata, then Davis' speechwriter and is now a political consultant to Senate President Pro Tem Darrell Steinberg.
In settling with the FPPC, the three acknowledge that over the last two years they lobbied the Legislature and Air Resources Board without publicly reporting their clients and income, as state law requires of lobbyists.
"This activity violates one of the (Political Reform) Act's central purposes - the activities of lobbyists should be regulated and their finances disclosed in order that improper influences will not be directed at public officials," the FPPC settlement says.
"The public harm inherent in these violations is that the public is deprived of important and timely information... such as the identity of the person ultimately seeking to influence legislative or administrative action and the amount of money expended by that person to influence such action."
Kinney, Areias and Hickox will register as lobbyists and pay a combined fine of $40,500, according to the proposed settlement, which is scheduled for a vote by the Commission on Sept. 19.
FPPC investigators said they are recommending a fine at the steeper end of the range because the three men likely knew their work constituted lobbying under California law. The state's Political Reform Act says lobbyists must register with the Secretary of State if they spend more than a third of their time or are paid at least $2,000 a month to influence state government decisions. Once registered, lobbyists must file quarterly reports disclosing who's paying them and how much.
"Respondents are sophisticated parties who have extensive experience working with appointed and elected officials," the FPPC wrote in its settlement.
"They are a former Legislator, Cabinet-level official and senior Gubernatorial staffer. Additionally, the firm itself contains numerous former high-ranking government officials. As a result, the firm clearly should have known that such lobbying activity needed to be reported and the firm was required to be registered as a lobbying firm."
California Strategies, founded by former Gov. Pete Wilson's chief of staff, Bob White, is made up of two sister companies - one for lobbying, the other for public affairs. Its lobbying branch reported bringing in $1,099,204 during the first half of this year, making it California's 19th highest-earning lobbying firm.
But most of the former government officials who work for the firm - including former lawmaker Jim Brulte, who now chairs the California Republican Party - are part of its public affairs branch, which doesn't disclose its clients or its income.
Some of that will change with the FPPC settlement. The public affairs branch of the business will have to register as a lobbying firm for 2012 and retroactively file all associated disclosure reports. For this year, the lobbying branch of the company will amend its disclosure reports to include work by Kinney and Hickox. The 2012 and 2013 disclosures are required by Sept. 19.
The FPPC's prosecution of a prominent public affairs firm has the potential to shake up the lobbying business in Sacramento, said Phillip Ung, an advocate with California Common Cause, which promotes government transparency.
"We hope it send s a message that you can't be in the shadow lobbying business anymore without the threat of being caught," Ung said.
"For a long time I think the consultants thought the FPPC enforcement on this issue was rare. This shows the FPPC is taking this issue seriously and those who wish to break the rules should take this issue seriously, too."
The Bee's examination of lobbying disclosures earlier this year found that state law allows lobbying groups to report spending on scores of activities that are related to lobbying - but do not meet the legal definition of lobbying - as a single lump sum. In this category, listed as "other payments to influence" on disclosure forms, groups report how much they are spending, but not what they're spending it on. The "other" category can cover myriad expenditures, from the phone bill in a lobbyist's office to hiring former politicians not formally registered as lobbyists to pull strings inside the Capitol. Former Assembly Speakers Willie Brown and Fabian Núñez now work as consultants who are not registered lobbyists.
At the time, Kinney told The Bee that he and his colleagues in California Strategies' public affairs branch do not engage in lobbying. Their practice involves a big-picture approach to policy issues, Kinney said then, not attempts to sway votes on specific votes on specific bills.
"Our differentiator is that we attempt to offer expertise about how to navigate the entire chess board, not just looking at one piece of it," Kinney said in January.
The FPPC settlement offers a different view of their work. It says that Kinney, Areias and Hickox were paid at least $2,000 a month by their clients to contact government officials in an attempt to shape their decisions:
• Kinney communicated directly with state lawmakers about bills that affect a real estate client, Focil-MB, which has developed a huge portion of Bay-front property in San Francisco.
• Areias communicated directly with a lawmaker about legislation impacting his client, Kaiser Ventures, a mining company trying to sell its land at Eagle Mountain in Riverside County.
• Hickox attempted to influence administrative action by communicating with members of the Air Resources Board on behalf of his client, CE2 - Carbon Capital, which had hired him to advise on projects to reduce carbon emissions.
In total, the three men failed to disclose $84,000 of lobbying payments over the last two years, the FPPC settlement says, "depriving the public of information regarding a significant amount of lobbying activity."
The settlement calls for fining Kinney and Hickox each $12,000 for four counts of violating California's Political Reform Act; Areias $6,000 for two violations; and the California Strategies firm $10,500 for three violations.
An FPPC working group is still reviewing whether the state should require more detail on payments in the "other" category of lobbying reports.
PHOTO: Rusty Areias, right, and his wife Julie, left, wait for California gubernatorial candidate Jerry Brown to arrive for a fundraiser that he had in his old apartment that he now uses on N street in Sacramento. Photo taken March 24, 2010. The Sacramento Bee/Renee C. Byer
Editor's note: This post was updated at 2:20 p.m. to remove a reference to former Senate President Pro Tem Don Perata. Perata registered as a California lobbyist in February. The post was updated at 2:45 p.m. to include a response from California Strategies. The post was updated at 3:15 to include a response from California Common Cause.