When press reports revealed in August 2022 that Brooke Jenkins was paid a six-figure sum for consulting work in the months before the recall of District Attorney Chesa Boudin, she said the payments were legal — despite coming from an organization closely linked to the recall of the man she would be named to replace.
Whether that proves to be true — at least two agencies were asked to investigate — critics say the payments underscore the way big-money groups have sliced and diced the tax codes to evade the restrictions placed on nonprofits.
“These groups, they have an arsenal of tools that they can use. In certain strategies, it’s better to use campaign donations; in others, it’s charitable donations; in others, it’s dark money,” said Francesco Trebbi, a professor at the University of California, Berkeley’s, Haas School of Business, who specializes in campaign finance.
The organizations Trebbi is referring to include a plethora of public pressure-groups across the United States on both the left and the right. In San Francisco, a network of interrelated groups has emerged, funded by tech and real estate money from a handful of rich donors. Most are focused on fighting progressive candidates and policies — and have amassed and spent millions of dollars in local elections.
The groups include Neighbors for a Better San Francisco — which paid Jenkins $153,000 — TogetherSF, GrowSF and many others. They have the American tax system down pat, funneling funds through a variety of interrelated entities.
And it’s all legal: The tax code allows for one group to employ multiple entities in pursuit of broadly similar goals. One entity can initiate recalls, elect officials and pass ballot measures, for instance, while another can push its agenda through political advertising, voter guides and events.
Want to fund an election? Here are your options.
Let's say you are a San Franciscan with a few hundred thousand dollars to spare. Unhappy with the direction of the city, you have decided to use your cash to influence the result of the next election. What are your options?
The most straightforward place to start is with a contribution directly to a candidate or ballot measure.
There are some downsides to this approach. While there are no limits on giving to ballot measure campaigns, most candidate elections in the city have a $500 contribution limit. Second, your payment will be clearly and publicly disclosed.
You could instead give to a political action committee (PAC). PACs are organizations that pool contributions from various sources and then use that money to support or oppose candidates or ballot measures.
PACs are required to disclose their donors, so your name will still appear publicly – but one step removed from the candidate or measure you are supporting.
PACs can give to candidate committees, where they are bound by the same $500 limit as individuals. However, they can also make unlimited independent expenditures.
Independent expenditures are communications – like ads, mailers, and voter guides – that advocate for the election or defeat of a candidate or ballot measure, made without coordination with the candidate or measure’s campaign.
PACs can also give to other PACs, leading to a web of money flowing between organizations that can be hard to follow.
A third option is to give to a 501(c)(4) organization. These are nonprofits that can engage in political activity.
Their donor disclosures work a little differently. Any 501(c)(4) that spends more than $100,000 on political activity in a year — or $250,000 in four years — must create a committee and disclose its sources of cash. However, it is only required to disclose its most recent donors, until the sum disclosed is equal to the sum it has spent on elections — known as the "last-in-first-out" rule.
For example: Imagine that a 501(c)(4) gathers $1 million in donations from 10 donors, each giving $100,000. The 501(c)(4) then spends $500,000 on independent expenditures. It would be required to disclose only the names of the five most recent donors, to match the $500,000 spent.
The other five donors, who gave just as much to the 501(c)(4), would not be disclosed.
A 501(c)(4) can only spend less than half of its money on direct contributions to elections or on independent expenditures.
The other half must be spent on “social welfare” activities. This can include community organizing, issue advocacy, and training potential candidates for office. So even if a donor's money is not going directly to a candidate or measure, it can still be used to indirectly influence elections.
Donors whose money is spent on “social welfare” activities may never be disclosed.
It’s common for a 501(c)(4) to work in tandem with a PAC or PACs. Although they are legally separate entities, they can share staff, office space, and other resources — and often do.
Yet another option is to give to a 501(c)(3). These are nonprofits that are not allowed to support candidates, but can spend on ballot measures. They are subject to the same thresholds surrounding disclosures mentioned earlier.
Additionally, they can engage in activities adjacent to the political sphere. In 2022, the 501(c)(3) Neighbors for a Better San Francisco gave large sums of money to multiple media organizations, for example, and paid Jenkins for "consulting services" while she campaigned on the Chesa Boudin recall.
Donor disclosures are not required.
Several groups in San Francisco are composed of a 501(c)(3), a 501(c)(4), and one or more PACs. This allows them to engage in a wide range of political activities while giving donors a variety of options for how to give — depending, in part, on how comfortable they are with public disclosure.
Giving to a 501(c)(3) is the most private option. Giving directly to a candidate or measure is the most public. Giving to a PAC or 501(c)(4) is somewhere in between.
Graphics and text by Will Jarrett. Illustration by Neil Ballard.
The daisy chain of funding politics
Often, nonprofits involved in campaign finance fund other nonprofits or PACs that themselves fund other nonprofits or PACs, and so on, creating a “daisy chain” of political giving.
Take Neighbors for a Better San Francisco, for example. The group, which has quickly become the top-spending organization in San Francisco politics, has multiple entities. These include a 501(c)(3), the IRS designation for a nonprofit or a charitable organization that allows for tax-deductible donations, but is prohibited from certain political donations.
The rules are complicated, but essentially: 501(c)(3) nonprofits cannot fund any candidates for office, but may fund ballot measures, as long as that spending remains an “insubstantial percentage” of the group’s budget; about 10 to 15 percent, according to Jim Sutton, a longtime campaign finance lawyer in San Francisco. In most cases, donors remain hidden and the spending need not be disclosed.
And a 501(c)(3) can fund other nonprofits that engage in broad political aims. Neighbors’ 501(c)(3) has done this many times: It gave $100,000 to Stop Crime SF, another 501(c)(3) that put together report cards on incumbent judges ahead of their re-election campaigns in the March election.
Its sister organization, the 501(c)(4) Stop Crime Action, in turn used those report cards in seeking to defeat the judges. A 501(c)(4) “social welfare” organization is subject to the same threshold limits regarding disclosure, but can fund candidates for office directly.
Neighbors also gave another $100,000 each to Gotham by the Bay and Mr. Badly Productions, two small media outfits that highlighted instances of crime during the recall of Chesa Boudin, often collaborating. The head of Gotham by the Bay, in fact, also took money from a tech investor to write stories that would “hold the DA of San Francisco … accountable to the people of San Francisco.”
Finally, Neighbors gave $20,000 each to two nonprofits that then went on to pay Jenkins for her consulting work during the recall. All of the money that Jenkins made during her time as a volunteer spokesperson, in other words, was paid by Neighbors or nonprofits funded by Neighbors.
Because nonprofits have various limits on their political activity, most groups employ a third entity for campaigning: Political action committees.
PACs can be set up for the explicit purpose of soliciting and spending unlimited sums on candidates or measures. PACs, too, are enmeshed in the back-and-forth giving, often taking money from nonprofits and then spending on candidates.
A 501(c)(4) like GrowSF, for instance, which funds moderate candidates, has given thousands of dollars’ worth of staff time for fundraising and ads to its sister political action committee, also named GrowSF. Other nonprofits, like Neighbors for a Better San Francisco Advocacy, have also paid the PAC tens of thousands.
“We call it the daisy-chain effect,” said the business professor Trebbi, referring to a structure whereby one entity will give money to another, which will give money to a third or fourth, making it difficult to see the original source of the funds. When combing through tax filings, he said, you can see a “geometric series” of nonprofits funding other nonprofits.
The prohibition against playing politics would seem to have prevented any payments to Jenkins, as the tax code is meant to keep funds strictly siloed. But Jenkins said the payments were for analyses of California crime policy, which would have been above-the-board spending. Neither Jenkins nor Neighbors for a Better San Francisco provided any proof of her analytical work, saying it was “privileged.”
Such questionable giving, argued Trebbi, destroys voter confidence. “If you look at surveys of voters, it’s really, really bad,” he said. “It erodes trust, that is something that I can tell you. I don’t know the policy distortions, but I can tell you the damage to the democratic process is there.”
Enforcement is lax, and consequences can be slim — to nonexistent
Critics said enforcement of campaign finance is largely absent, as it rests in the hands of the Internal Revenue Service, not federal elections bodies. “It is not an agency designed to monitor elections,” said Trebbi. “They don’t track the electoral effects of these things.”
Added Ann Ravel, the former chair of the Federal Election Commission and a professor at the University of California, Berkeley, School of Law: “The IRS does a really terrible job.”
Ravel said the tax agency seldom enforces against even “clear transgressions of the law,” and that enforcement against more complicated instances is effectively out of its purview. A proper investigation would look into whether Jenkins actually did consulting work for Neighbors, for instance.
But the IRS, according to Ravel and others, is not up to the task. A 2022 report by Citizens for Responsibility and Ethics in Washington, a government ethics nonprofit, similarly found that the tax agency was “notably lenient in enforcing the basic rules on disclosure and transparency,” and that it took “little, if any, serious action to take on … straightforward violations.”
And even when there are consequences, the penalties are so minor they can be written off as the cost of doing business.
Last year, in the San Francisco Ethics Commission’s largest penalty in several years, the city fined the group Progress San Francisco $29,300 because it misreported about $1.1 million in spending for Mayor London Breed and her preferred candidates in 2018.
The group was a major player in the city’s big money network: It received hundreds of thousands of dollars from donors who have funded several other groups and candidates in the network, like Ripple chairman Chris Larsen, San Francisco heiress Diane “Dede” Wilsey, and ex-Twilio CEO Jeff Lawson.
In 2018, Progress San Francisco was almost entirely funding local candidates and measures: 98.5 percent of its spending was within San Francisco, the commission found, which should have triggered a requirement that it disclose donors to the city.
Instead, it switched back and forth between disclosing donors at the state and city level, changing its designation five times in less than a year. Its contributions did not show up on city sites, depriving residents of “ready access” to the disclosures, the commission found.
The committee was shut down but, besides the $29,300 fine, there were no repercussions for those involved.
“It’s sort of useless for the local entity to get involved in this,” said Bob Dockendorff, a member of the San Francisco Ethics Commission from 1996 to 2000, who called the city’s focus on fines “nitpicky.”
He said enforcement from cities is largely ineffective at rooting out big money in politics, because the most problematic behavior is technically legal. And all the while, Dockendorff said, “the hidden money is getting worse and worse.”
Erosion of confidence
The effect of these largely opaque networks of political influence groups, experts say, is corrosive: A huge decline in voter confidence, spurred by anger at big money in politics and the inability of citizens to see behind the curtain.
Marina Pino, an attorney at New York University’s Brennan Center for Justice focused on money in politics, said that the ideal system would be one in which “folks can go into the ballot box and know exactly where spending is coming from, where these special interests are playing a role.”
Pino pointed to public financing as a possible solution, but the Supreme Court’s 2010 Citizens United ruling — which expanded the spending power of PACs — means any reforms will have limited impact “short of having a new Supreme Court.”
Dockendorff, for his part, agreed: “I just wish there were some way to get rid of the local PACs, but I don’t think there is.”
And with dozens of billionaires living in San Francisco — and spending vast sums to influence its leadership — the antidote to money in politics, for some, may simply be talking about it.
“Will there be a billionaire backlash? I’m wondering if people are starting to feel like their world is being run by these billionaires,” asked Jim Ross, a local political consultant, of campaign strategies going into the November election. “Are we moving towards a plutocracy?”
Thank you for shedding a bit more light on this, Joe. Even if there were a backlash against billionaires, as you have illustrated it would be nigh impossible to know who their puppets are before the election. When we hear “citizens united” we should hear “plutocrats united”.
“Most are focused on fighting progressive candidates and policies” is an interesting take. It seems more like they are focused on supporting housing and public safety, and opposing candidates who are blocking that is one tactic to achieve that.
I keep wondering where all these allegedly pro public safety people were when I was mugged. It was during a time when SF had over two thousand police officers, yet they still refused to investigate my case. And, no, it didn’t happen when Boudin was DA.
Think how much fodder Susan Dyer Reynolds would have if she went after herself. The writer of “hypocrite hill” sits atop a hypocrite mountain.