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Why does Gavin Newsom need a backer like the California Urban Issues Project?

Wednesday, Jul 14 2004
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Actors dressed as doctors hover over a comatose patient on an ER-like set. Instead of properly curing the poor fellow, they cover him in Band-Aids. A baritone voice explains that the mocked-up operating room is analogous to current budget negotiations between Mayor Gavin Newsom and the Board of Supervisors. The politicians are supposedly patching up, rather than truly fixing, the budget.

The ad was paid for by the California Urban Issues Project, a secretive outfit whose public evidence of existence consists of these advertisements, some San Francisco Ethics Commission and IRS filings, and, most prominent by far, a Web page dominated by a signed letter from Newsom saying, "I applaud citizen organizations like the California Urban Issues Project that strive, every day, to make our city a terrific place to live. Together we can accomplish great things."

Gavin Christopher Newsom is riding extraordinarily high right now. He held a press conference last week in which he and members of the Board of Supervisors accurately touted a genial, professional, and altogether productive working relationship that the Mayor's Office forged with supervisors during budget negotiations. He's still coasting on ethereal approval ratings in the wake of his gay-marriage advocacy. And Newsom is earning astounding press these days, in which even his throwaway photo-ops are covered as front-page news.

In short, Newsom wouldn't seem to need the California Urban Issues Project, a furtive vehicle that funnels money from business interests into political campaigns that just happen to support Newsom. The project appears to tickle the frontiers of what's allowed by campaign finance law, claiming that spending seemingly aimed at benefiting the success of a particular politician is really just aimed at the general public good. The identities of the project's corporate financial backers, meanwhile, remain hidden, because the group is registered with the IRS as a "public welfare" charity that, by law, doesn't have to reveal its donors.

Just the same, Gavin Newsom plays right along with this business "project," even helping it publicly dissemble about its provenance.

Newsom's backers appear to be stretching the definition of what's allowed under federal tax rules that don't permit public-welfare groups to dedicate themselves mostly to promoting political campaigns. And the California Urban Issues Project would seem to be inviting a request for the IRS to reconsider the group's nonprofit designation.

Does anyone out there have a spare postage stamp?


The California Urban Issues Project is similar to other nonprofit groups that have been formed around the country in response to federal campaign finance reforms that outlaw large special-interest donations of so-called "soft money" to political parties and candidates. Now, the special interests give their large donations to nonprofit, tax-exempt organizations, created under an IRS category that aims to encourage funding of politically neutral work that advances the public good.

In an oft-repeated scenario, these supposedly nonpartisan nonprofits -- which, often, are vehemently Democratic or Republican, depending -- run political attack ads on TV. Campaign finance reform groups complain that the ads run afoul of soft-money laws. The ads' backers argue that they are merely trying to raise public awareness about public-welfare issues. The local newspaper carries a he-said/she-said story quoting the complainers and the defenders.

And that's about it.

But behind the chatter there's a substantial issue at hand. IRS rules say that "social welfare" -- of the sort 501(c)(4) organizations are allowed to promote -- specifically "does not include participation or intervention in political campaigns." In legal cases over the question of whether this kind of organization may "engage primarily in political campaign activities," according to an explanatory essay on the IRS Web site, "the answer has been no."

But the California Urban Issues Project spent money backing the "Care Not Cash" campaign that launched Newsom's mayoral candidacy. It's the group that bought $100,000 worth of automated phone calls, door hangers, and TV ads denouncing Newsom's mayoral opponent, Matt Gonzalez, according to San Francisco campaign finance records and interviews with people who received the calls and mailers. And it's a group that seems intent on continuing to spend large amounts of money on political ads that just happen to seem helpful to Gavin Newsom.

In filings with the San Francisco Ethics Commission, the project acknowledges paying political consultants for "opposing [an] increase in real estate transfer tax" -- without mentioning that the money went toward automated phone calls that targeted homeowners with the message that Gonzalez wished to raise taxes on their property. In those filings, the project notes that it funded mailers and phone calls "opposing [the] supervisorial pay raise" -- without mentioning that the calls ran in concert with Newsom's campaign stump speech, which attacked Gonzalez for approving a supervisorial pay raise.

Ethics Commission filings for the current ER-themed television ads that parody the supervisors' work on the budget aren't in yet. But it's pretty clear that the ads go far beyond simply advocating for the public good; they politic toward a Newsom-dominated Board of Supervisors.

In the looming fall supervisory elections, Newsom opponents -- including Supervisors Aaron Peskin, Jake McGoldrick, Tom Ammiano, and Gerardo Sandoval -- are up for re-election. Matt Gonzalez has announced that he will not run for re-election, and the vote in his Haight-Ashbury district stands to tip the balance of the Board of Supervisors, either for or against Newsom. In the view of Newsom's advisers, the mayor's political success during the next three years will depend in part on whether November's vote produces an amenable board.

I can't imagine that the California Urban Issues Project's not on defensible legal ground -- it's run out of the office of Jim Sutton, a skilled political attorney versed in the ways of campaign finance. Sutton's described in news accounts as the Newsom for Mayor campaign attorney, the Newsom for Mayor treasurer, and the treasurer for Newsom's mayoral transition team. But keeping the names of the financial backers of the project secret doesn't seem to square with the form of democracy in which citizens make informed choices between competing political messages based on a transparent understanding of where each message comes from.

I called Nathan Nayman, director of the business lobbying group Committee on Jobs -- by his own account a director of the California Urban Issues Project, and according to public filings, the president of the same outfit -- for his personal take.

"It's a grass-roots organization including businesspeople, people that represent the restaurant industry and the real estate industry," Nayman said helpfully, before segueing into a defense of the group's apolitical, nonprofit status. "They wanted to raise awareness on issues that affected quality of life. The first thing that it focused on was to pass Care Not Cash. It's been around for over a year now. It kind of comes together on key issues. It's not always meeting, not always active. The intent is to communicate directly with residents through TV spots and through the Internet; through banner ads. Now we're focusing on the [city] budget."

I asked him who the organization's financial backers are.

"It's a wide range of folks funding it. I'd rather not tell you because I don't need to," Nayman said.

"But in the interests of transparency, could you tell me anyway?" I asked.

"Ah, no," Nayman said.

"That doesn't sound very democratic," I said.

"It's not necessary. It's not necessary to know the folks who are funding it. That's not what the issue is. The story is the message, not who funds it," Nayman explained.

"Well, could you at least tell me who the other board members are?" I asked.

"No, I'd rather not. That's not important here. It's not about who's on the board. It's not about who's paying for it. The story is about how we're trying to create information for people who don't get information regularly," Nayman said. "We did the same thing for Care Not Cash, and we did the same thing with the aggressive panhandling ordinance. There's not a problem with it. Nobody's hiding anything."

"Then why don't you tell me who the top five funders are and who the directors are?" I asked.

"I would rather not," Nayman said.

"But you just told me you're not hiding anything," I said.

"We're not. Everything is being recorded according to the law," Nayman said.

"Then why won't you tell me who the top five funders are and who the directors are?" I said.

"Because we don't have to," Nayman said.

"But couldn't you just tell me in the spirit of transparency and openness?" I said.

"Everything is being recorded according to the law," Nayman said.

"That's a non sequitur, Nathan," I said.

"Well, that's all you're going to get from me," he concluded.


As unimportant as Nayman believes it is for the public to know who's financing the nonprofit group that behaves as the mayor's own political action committee, there are people out there who think it's inappropriate for secretive public-benefit nonprofits to be allowed to operate in this way.

In May, by way of example, the consumer group Foundation for Taxpayer and Consumer Rights asked the IRS to reconsider the tax-exempt status of a nonprofit set up to benefit Gov. Arnold Schwarzenegger, saying the entity violates federal tax law by helping the governor raise money, lobby, and conduct polls, without disclosing its sources of funding. Like the Newsom-boosting California Urban Issues Project, Schwarzenegger's California Recovery Team was organized as a social-welfare entity exempt from paying taxes under section 501(c)(4) of the federal tax code.

In its IRS complaint against Schwarzenegger's group, the foundation argued that it is illegal to use that designation for groups whose primary mission is political.

"The promotion of social welfare," the group's complaint said, "does not include partisan political activity, because such activity promotes the interests of one political faction rather than the common good of the community as a whole."

I'm sure it could be argued that financing automated phone calls and door hangers that lambaste mayoral candidate Matt Gonzalez benefits the community as a whole. And from a certain, narrow point of view, running TV commercials lampooning Newsom's opponents on the Board of Supervisors in advance of board elections promotes our common welfare.

But there's a more convincing argument to be made, and it is, simply, this: The California Urban Issues Project should register as the political action committee it obviously is, so voters will be able to follow the money that affects the government that they, after all, own.

About The Author

Matt Smith

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