CA Lobby Activity Background – we enjoy turning over rocks…we find poisonous snakes, scorpions, all kinds of vermin and lobbyists.
Our current fascination is with lobbyists, lobbying firms, trade associations, and consultants that are contracted by businesses to seeking to exert influence over elections, activity by California Legislature, activities bystate-level agencies in California the regulate and tax the legal cannabis industry [BCC, CDPH-MCSB, CFDA-CalCannabis, and CDTFA.]. [We will address the municipal and city level in a separate article.]
The California Fair Political Practices Commission [“FPPC”] has voiced concerns over the unregistered and unreported lobby activity on numerous occasions. We intend to dig into the publicly available information for the activity that impacts the California cannabis industry and shares what we find. In addition, we have put together a repository of tools for anyone that would like to investigate for themselves which can be found here. We believe that we need to provide some background information before we dive into the documents
The Political Reform Act[1] requires individuals, businesses and other organizations that make or receive payments to influence state governmental decisions – such as advocating for or against legislative bills and state agency regulations – to register as lobbyists and submit periodic reports of their lobbying activity. The Act does not regulate individuals or other entities that lobby the federal government, or city, county or other local government agencies. Let’s begin with some basic definitions that will dive deeper into as we proceed.
“A lobbyist is an individual who is compensated to communicate directly with any state, legislative or agency official to influence legislative or administrative action on behalf of his or her employer or client. An individual who receives reimbursement only for reasonable travel expenses is not a lobbyist.
A lobbying firm is a business that is compensated to communicate directly with any state, legislative or agency official to influence legislative or administrative action on behalf of a client.
A lobbyist employer is an individual, business or other organization that employs a lobbyist or hires a lobbying firm.
A lobbying coalition is a group of 10 or more individuals, businesses or other organizations that pool their funds for the purpose of hiring a lobbyist or lobbying firm.
A $5,000 filer is an individual or entity that does not make payments to a lobbyist or a lobbying firm, but still spends $5,000 or more in a calendar quarter to influence legislative or administrative action, such as placing an advertisement or sending a mailing urging others to contact their legislators concerning pending legislation.
A placement agent is any person hired, engaged, or retained by, or serving for the benefit of or on behalf of, an external manager, or on behalf of another placement agent, who acts or has acted for compensation as a finder, solicitor, marketer, consultant, broker, or other intermediary in connection with the offer or sale of the securities, assets, or services of an external manager to a board or an investment vehicle, either directly or indirectly. Individuals who serve as placement agents before an entity such as CalPERS or CalSTRS must register as lobbyists and file disclosure reports.”
Our recent experiences have caused us to focus on the provisions which govern lobbyists[2] and lobbying activities in California. California requires an individual to register as lobbyist if he or she receives (or is entitled to receive) $2,000 or more in a calendar month (other than reimbursement for reasonable travel expenses) to communicate directly with any covered official for the purpose of influencing legislative or administrative action, and to prepare for those direct communications.
In practice, a contract lobbyist might engage in a range of activities, only some of which involve direct communication with officials. Prior to the new rule, the Fair Political Practices Committee [“FPPC “] had little recourse when individuals claimed that less than $2,000 of a monthly retainer was devoted to direct communications with officials to influence legislation, The practice has been referred to as “shadow lobbying” has been talked about for a number of years and we’ve got to start figuring out a way to address it, with the rest attributable to non-lobbying activities, such as strategic planning, grassroots campaigns, or public relations.
When an individual receives or is entitled to receive more than $2,000 a month for services that include direct communications with a public official to influence government action, the FPPC will presume that the entire payment was for direct communications with covered officials and therefore requires registration – unless the individual can produce evidence to support a different allocation. Such evidence may include testimony, records, bills, and receipts establishing that less than $2,000 of any monthly payment is allocable to lobbying activity.
As a result of the new lobbying rule, it is important that consultants and others who engage in direct communications with California officials, but who do not meet the $2,000 per month threshold for lobbying registration, maintain records that substantiate their decision not to register. The FPPC has effectively proposed a reverse-record keeping requirement – mandating that individuals who do not fall under the provisions of the Act maintain records to prove they do not meet the registration/reporting thresholds under the Act,” the California Political Attorneys Association wrote in a letter to the agency.
Anyone communicating with public officials should be keeping records anyway to determine whether they trigger lobbying registration requirements. The presumption is eliminated if they provide evidence showing the payment in question was not made for lobbying activities. The provisions are among a series of actions the commission has taken recently to increase lobbying transparency.
Once a contract lobbyist registers, his/her firm is also required to register, and the lobbyist, firm, and employer are required to file quarterly disclosure reports. Lobbyists, lobbying firms, and employers are also subject to strict gift rules and campaign contribution restrictions.
The FPPC has produced a number of materials and created several channels for individuals and business entities that might have need to seek advice on the application of these laws and regulations. They have created:
- Publications – Numerous pamphlets, publications and guides that provide explanations and best practices.
- Informal Advice – Informal advice can provide guidance if you have questions such as where to file campaign statements, filing schedules, or your basic responsibilities under the Act. Unlike formal advice, informal advice does not provide immunity from prosecutions by the FPPC and does notqualify as legal advice[3].
- Formal Advice – If the request for advice contains sufficient information and the question is within the FPPC’s jurisdiction, the FPPC must provide formal written advice within 21 working days. The response will be provided in the form of an “advice letter.”
A formal advice letter can provide the requestor immunity from enforcement actions by the FPPC. It also provides evidence of good faith conduct in any relevant civil or criminal proceeding brought by another party, so long as the facts presented in the request for advice are accurate and the requestor follows the guidance provided in the FPPC’s advice letter. Formal advice does not provide immunity to any person other than the requestor.
The FPPC saves and posts all advice letters which you can click here to search. The letters may be searched and used for guidance only – they will not provide immunity to any person other than the original requestor[4].
- Commission Opinions – Another form of formal advice is a Commission Opinion. Any individual or entity (or their authorized representative) may request a formal opinion from the Commission concerning their duties under the Act. The Commission’s Executive Director must accept or reject a request for a formal opinion within 14 days.
A request will normally be rejected if the question can be answered under existing statutes or regulations, or does not otherwise present a significant policy issue. In addition, since the process requires formal action by the full Commission, it normally takes several months after the question is submitted and accepted before a formal opinion may be issued. Due to the topic restrictions and the processing time, Commission Opinions are infrequent.
A Commission Opinion provides the requestor with immunity from civil or criminal prosecution under the Act so long as the facts presented by the requestor are accurate and the requestor acts within the confines of the opinion. More details about the formal opinion process can be found in sections 18320 through 18326 of Title 2 of the California Code of Regulations.
Application to the California Cannabis Industry [Next Installment]
- Grower’s Associations
- Government Relations Consultants
- Attorneys, Certified Public Accountants [“CPA’s] and Other Licensed Professionals
[1] The Fair Political Practices Commission website provides links to a number of resources that are very helpful in understanding the process.
- Lobbying Manual
- Lobbying FAQs
- Reporting Other Payments to Influence Legislative or Administrative Action
- Chart – Registration/Termination Forms Required for Lobbyists and Lobbying Entities
- Chart – Quarterly Reports Required for Lobbyists and Lobbying Entities
[2] § 18239. Definition of Lobbyist.
(1) If an individual engages in direct communication, other than administrative testimony, with a qualifying official for the purpose of influencing legislative or administrative action on behalf of any person other than his or her employer, apply Section 82039 and subdivision (b) of this regulation to determine if the individual is a lobbyist.
(2) If an individual engages in direct communication, other than administrative testimony, with a qualifying official for the purpose of influencing legislative or administrative action on behalf of his or her employer only, apply Section 82039 and subdivision (c) of this regulation to determine if the individual is a lobbyist.
(3) Except as provided in Section 86300, if an individual is a “placement agent” as defined in Section 82047.3, the individual is a lobbyist for purposes of the Act, regardless of the definitions in subdivisions (b) through (d), below.
An individual does not become a placement agent under Section 82047.3 solely as a result of communicating with a state public retirement system representative provided that the individual accompanies a registered placement agent who represents that individual or that individual’s organization, is present only to provide additional substantive information, and would not otherwise qualify as a placement agent under Section 82047.3
(b) A lobbyist is an individual who receives or becomes entitled to receive $2,000 or more in compensation in a calendar month for engaging in direct communication, other than administrative testimony, with one or more qualifying officials for the purpose of influencing legislative or administrative action.
(c) A lobbyist is an individual who spends one-third or more of the time, in a calendar month, for which the individual receives compensation from his or her employer, engaging in direct communication, other than administrative testimony, with one or more qualifying officials for the purpose of influencing legislative or administrative action.
(d) Definitions.
- “Administrative testimony” means either of the following:
- Influencing or attempting to influence administrative action by acting as counsel in, appearing as a witness in, or providing written submissions, including answers to inquiries, that become part of the record of any regulatory or administrative agency proceeding:
(i)That is conducted as an open public hearing for which public notice is given
(ii) Of which a record is created in a manner that makes possible the creation of a transcript; and
(iii) Where full public access is provided to the record or transcript and to all written material that is submitted as part of the record.
(B) Any communication made at a public hearing, public workshop, public forum, or included in the official record of any proceeding, as defined in Section 82002(b) or (c), before the California Public Utilities Commission.
(2) “Compensation” means any economic consideration, other than reimbursement for reasonable travel expenses (i.e., expenses for transportation plus a reasonable sum for food and lodging). Under subdivision (b), if it is established in an administrative or civil action that an individual received or is entitled to receive compensation of $2,000 or more in a calendar month 3 from a person for services that include direct communication, other than administrative testimony, with a qualifying official for the purpose of influencing legislative or administrative action, there is a rebuttable presumption affecting the burden of producing evidence that all compensation from that person to the individual during that calendar month is for direct communication. This presumption can be rebutted by evidence that may include testimony, records, bills, and receipts establishing the allocation of the individual’s compensation for all other goods and services provided.
(3) “Direct communication” means appearing as a witness before, talking to (either by telephone or in person), corresponding with, or answering inquiries from, any qualifying official, either personally or through an agent who acts under the individual’s direct supervision, control, or direction.
(A) Direct communication does not include any request for or provision of purely technical data or analysis to an administrative agency by a person who does not otherwise engage in direct communication for the purpose of influencing legislative or administrative action.
(B) For the purpose of determining whether an individual qualifies as a lobbyist pursuant to subdivision (c), an individual does not engage in “direct communication” when the individual is an employee of a lobbyist employer, meets or speaks with a qualifying official in the company of a registered lobbyist retained by the individual’s lobbyist employer, and participates as a subject matter expert regarding a legislative or administrative action at issue. For purposes of this exception, an employee includes a member of a bona fide trade association or membership organization.
(4) “Influencing legislative or administrative action” means communicating directly or taking any other action for the principal purpose of supporting, promoting, influencing, modifying, opposing, delaying, or advancing any legislative or administrative action.
(5) “Qualifying official” means:
- Any elected state official;
- Any legislative official;
- Any appointed, elected, or statutory member or director of any state agency;
(D) Any staff member of any state agency who makes direct recommendations to the persons listed in subdivision (5)(C) of this subdivision, or who has decision-making authority concerning such recommendations.
[3] The information that must be provided when seeking “Informal Advice” includes:
- State your name, telephone number, and position.
- List the public official, agency, candidate or committee that is related to your question.
- If asking a question on behalf of another, state the capacity in which you are authorized to represent the official, agency, committee or other organization (e.g., city attorney, candidate’s attorney, committee officer, campaign consultant).
- Articulate your question with as much specificity as possible.
- If you have a question about Form 700 disclosure, include your disclosure category.
[4] The request must:
- Be in writing,
- Provide specific information about the requestor, and
- Contain sufficient information for the FPPC’s staff attorneys to conduct a complete legal analysis.
- If a request does not meet these criteria, the FPPC may provide an informal written reply with general guidance. This type of advice does not provide the requestor with immunity from enforcement actions.
