CalCoast News

Nuñez used a charity to funnel donations

Donors with business in Sacramento gave nearly $300,000 to his events

By Nancy Vogel and Evan Halper
Los Angeles Times
November 2, 2007

SACRAMENTO — Assembly Speaker Fabian Nuñez used a small charity as a conduit to funnel almost $300,000 from companies and organizations with business in the Capitol to events that helped him politically.

By giving to the charity, the donors whom Nuñez solicited earned tax deductions for which they would not have qualified had they given directly to Nuñez's campaign accounts. They were also able to donate more than the $7,200 maximum allowed under California's campaign fundraising rules.

Those donors include Zenith Insurance Co., AT&T, Verizon Communications Inc., the California Hospital Assn., the state prison guards union, Pacific Gas & Electric Co. and Blue Cross of California -- all groups with high stakes in legislation.

The money was used for events including "Assembly Speaker Fabian Nuñez's Toy Drive," "Assembly Speaker Fabian Nuñez's Soccerfest 2006," "Assembly Speaker Fabian Nuñez's Inaugural Legislative Youth Conference" and airplane flights for 50 children from Nuñez's district for "Assembly Speaker Fabian Nuñez's Sacramento Student Summit," according to state documents.

That arrangement may have violated federal tax laws, according to experts. The Internal Revenue Service has a strict policy against charities serving as a pass-through for funds.

In addition, experts say, a plan under which a politician solicits a donation to a charity and then directs how it can be used may violate state ethics rules.

"It raises the question of whether these donors are making a contribution to a charity or simply currying favor with a politician -- and getting a tax deduction for it," said Jack Siegel, a lawyer and accountant who advises nonprofits nationwide through his Chicago firm, Charity Governance Consulting.

Records Nuñez filed with the state show that donations to the charity, Collective Space Inc., ranged from $2,500 to $50,000 in 2005 and 2006. The last year in which the charity served as a conduit for Nuñez was 2006.

Nuñez directed the donations to the charity, and his staff told the charity where to spend the money. No mention was made of the charity in the toy giveaway fliers posted around Nuñez's downtown district.

Indeed, the charity, based in the MacArthur Park neighborhood of Los Angeles, was not supposed to be operating at all at the time. State tax authorities suspended it two years ago -- before the donations -- for failing to file tax returns.

In a telephone interview, Nuñez, a Democrat who represents parts of Los Angeles, said he did not learn that state authorities had suspended the charity until The Times asked about it recently.

He said soliciting donations to Collective Space from those who also were seeking legislative help in Sacramento was "absolutely appropriate."

"It's appropriate to request of corporations to be good corporate citizens, especially if you can put those monies or resources in the hands of the neediest Californians, absolutely," he said.

Nuñez insisted that his solicitation of donations was not intended to benefit himself. But when asked why events featured his name, he said that "when you're doing good things like this, nothing wrong with letting people know that you worked on it or made it happen."

Donors, most of whom had already given money to his campaign accounts, got nothing in return, Nuñez said, an assertion echoed by donors interviewed by The Times.

In an e-mail to The Times, Nuñez spokesman Steve Maviglio said Collective Space "simply served as a conduit for the funds; the speaker did not raise money for Collective Space."

But experts say that may be precisely the problem under federal tax laws.

Charities can, under certain circumstances, lend their nonprofit status to projects they do not conceive themselves, but "you are not supposed to be a conduit," said Gregory Colvin, a San Francisco lawyer specializing in nonprofit organizations.

The sums requested for Collective Space are part of more than $484,000 that Nuñez has reported raising for various nonprofit groups since 2004, according to reports filed with the Fair Political Practices Commission, which collects information from lawmakers who solicit charity donations.

Nuñez is not alone in steering large donations to favored charities. In reports filed in 2006 and so far this year, Assembly members took credit for nearly $2 million in donations to such charities as domestic violence shelters and youth centers, largely given by interests seeking help in the Capitol.

Few legislators, however, appear to direct how such donations are spent by the nonprofit organizations, as Nuñez did with Collective Space. An exception is Assemblyman Lloyd Levine (D-Van Nuys), who solicited $30,000 from AT&T, Verizon and the Northridge Hospital and Medical Center to pay for "Assemblyman Lloyd Levine's Fit & Fun Challenge," a 5-kilometer event for schoolchildren organized by Levine's staff.

A 6-year-old nonprofit called the San Fernando Valley Community Foundation collected the donations and wrote checks to finance Levine's event.

"It looked like a perfect fit," said foundation Executive Director Bruce Ackerman. "We're all about promoting healthy families."

Levine said the nonprofit leaders don't legally have to spend the money on his event, but they see the value of getting thousands of children, parents and teachers out to run, walk, skate and bicycle.

"This is what public service should be about," Levine said. "Creating events for the community."

Nuñez began directing donations to Collective Space in 2005, the year after he became speaker, and continued in 2006, according to state reports.

Charity Director Evelin Montes said her group was approached by Nuñez to serve as a "fiscal sponsor" and cooperated because both were, in many cases, trying to help the same families.

Founded and incorporated in 2002 by community leaders in Los Angeles' MacArthur Park and Westlake neighborhoods, the organization works for improved housing, affordable child care and other issues. It operates out of a bare-bones storefront office facing the park. On a recent day, stacks of advice pamphlets, in Spanish, covered folding tables. The door was left open for those needing assistance, including a couple asking for relief from bed bugs.

For its trouble in paying for events arranged by Nuñez's staff, Montes said, Collective Space took 10% to 15% of the money solicited by Nuñez. Julia Juarez, a Nuñez staffer who organized the events, said the nonprofit took "no more than 10%."

The rest of the money went to the event, Montes said.

"I just cut out the checks to the vendors," she said. "We did not initiate those projects."

Collective Space has never filed the annual federal tax returns required of nonprofits that receive more than $25,000 a year in donations, according to state officials. Those returns, which must also be submitted to the state attorney general and should be available for public inspection, would show how much employees are paid and how, in broad terms, the organization spends the money it collects.

Such returns should have been filed after the California Endowment Foundation gave the fledgling group $50,000 in 2004.

In February 2005, the California secretary of state suspended the charity for failing to file certain information, including a list of officers. In November 2005, the Franchise Tax Board suspended Collective Space for failure to file federal tax returns. A month later, the Nuñez-directed donations began to arrive.

"They are not supposed to be operating," said state tax board spokeswoman Denise Azimi.

Once a charity's corporate rights and privileges have been suspended by the state, any contract it enters is subject to cancellation, according to state law. A charity that failed to file tax returns could face fines from the IRS of up to $10,000.

Montes said she is aware that her organization has failed to meet legal requirements. She said she is working to fill out the paperwork.

"We will file with the appropriate channels," she said.

Siegel, the expert on laws governing tax-exempt status, questioned why the charity failed to file the required disclosures.

"You have to wonder what is going on here," he said. "There can't be much of an excuse when you have that kind of money coming in."

The donors whose money funded Nuñez's endeavors said their contributions were not meant to influence the speaker on legislative business.

A spokesman for AT&T, which stands to profit from 2006 Nuñez legislation that opens the cable TV industry to phone company competition, said it occasionally looks to people like the speaker for advice on charitable giving.

"AT&T makes contributions to organizations across the state routinely, many suggested by public officials, business organizations, community leaders and others," company spokesman H. Gordon Diamond said in an e-mail. "Our contributions to Collective Space were simply three of more than several hundred we made in the Los Angeles area last year that totaled close to $3 million."

AT&T also been a generous donor to the various campaign and ballot measure committees for which Nuñez has raised nearly $11 million since becoming speaker.

Another donor, Zenith Insurance Co., is the state's biggest private sector workers' compensation carrier. Since the landmark overhaul of the workers' comp system that Nuñez helped broker in 2004, insurers, including Zenith, are earning their fattest profits in three decades.

Stanley Zax, chairman of the board of Zenith Insurance Co., gave Collective Space $25,000 in 2005 and another $25,000 the next year. Nuñez asked him to contribute for a toy drive, he said.

He said he appreciates philanthropic guidance from politicians because they often know of small charities.

"I'd rather give to local things where there's not a lot of overhead involved," Zax said.

nancy.vogel@latimes.com

evan.halper@latimes.com.

Staff writer Molly Hennessy- Fiske contributed to this report.