K.J. Inc.

Unlimited money from big donors, free city labor and a lot of secrecy. The mayor’s groups and nonprofits blur the line between public and private interests.

Derek Cressman, regional director with Common Cause, has also qualified as a candidate for the Sacramento Charter Review Committee.
Other council members have experimented with forming their own nonprofits. Councilman Kevin McCarty founded a 501(c)(3) to give $100 scholarships to youth athletes in his district. Councilman Rob Fong teamed up with Lutheran Social Services to launch a charity called Faith & Homeless Families. But no one has matched the scale or scope of Mayor Kevin Johnson’s operation. Although, in the two years that he’s been on the council, Jay Schenirer’s WayUp Sacramento may give the mayor a run for his money.

I ran into Kunal Merchant a couple weeks back. It was a little after 6 p.m., and Mayor Kevin Johnson’s chief of staff—sorry, make that former chief of staff—was just leaving City Hall. I was curious about that, since he didn’t work there anymore.

Merchant had left the mayor’s office back in June for a new job heading up Johnson’s Think Big Sacramento organization, whose self-appointed mission is to generate ideas for downtown-development projects.

Think Big is one of several policy initiatives created by the mayor—funded by private money but that serve as auxiliary organizations to the mayor’s office.

Sources inside City Hall told SN&R that Merchant and his colleague, the mayor’s former special assistant R.E. Graswich, were in City Hall, even though they were already employed by Think Big and no longer on the city payroll.

So, this was a lucky meeting, a chance to ask Merchant directly about the seating arrangements.

“Hey Kunal, how’s it going? Are you still working up there?”

Merchant wouldn’t bite. “I’m headed home. Which is that way. Nice to see you!” he said, not breaking stride.

So it goes.

Johnson’s colleagues on the council have long grumbled that the mayor uses City Hall as an office space—and a personnel pool—for his private organizations.

The phrase “shadow government” gets tossed around, only half-jokingly.

Sure, it sounds a little over-the-top and sinister. Still, there hasn’t been much scrutiny of the mayor’s private groups: their structure, where they get their money or how they spend it, or how they connect to City Hall.

You won’t find any newspaper or television stories about the Sacramento Public Policy Foundation, the umbrella organization that gave birth to Johnson’s policy initiatives and also controls most of the money.

But it’s worth taking a look. These organizations do seem to blur the line between the public and private interests.

They also allow Johnson to collect unlimited amounts of money from donors—many of whom have business before city council—in a way that would be illegal under regular campaign-finance regulations.

And they also benefit from free labor via the city’s internship and fellowship programs.

But even though these organizations serve as something of an adjunct to the mayor’s office, they are not required to disclose all of their donors or give a detailed account of how the money is spent.

“It’s almost like a parallel government structure has been created,” said Derek Cressman with the watchdog group Common Cause. “But one that doesn’t have the same transparency and accountability.”

Hmm. “Parallel government structure.” Is that anything like a shadow government?

Size matters

Kevin Johnson came into office promoting a vision of a city that was more world-class, more big time.

He seemed to long for the clout enjoyed by men such as Mayor Adrian Fenty in Washington, D.C., or Michael Bloomberg in New York City, and to resent that all he got when he became mayor was just four staff members and one vote on a city council of nine.

Within weeks of swearing in, he launched the first of several unsuccessful attempts to get a “strong mayor” initiative on the ballot, which would have dramatically expanded his power and budget.

But strong-mayor measures one, two and three were all blocked by city council.

Still, Johnson collected some trappings of a more important office. The black SUV and entourage, complete with off-duty police escort, for example.

And he tried to add capacity to the office in other ways. Johnson moved from City Hall’s fifth floor and took over the underused third floor, which created a physical separation, and also a political rift, between the mayor and city council.

He filled out his staff with volunteers, interns and fellows. This, in fact, is a Johnson trademark. Starting with his St. Hope charter-school organization, Johnson has always used groups of students to fill out audiences at speaking events and public meetings.

Early on, Johnson’s staff of four city employees was also supplemented by a cadre of “professional volunteers.”

These were people such as political consultants Steve Maviglio and Michelle Smira, who weren’t employees but who had access to City Hall all the same. Volunteers would sometimes sit in on staff meetings, which sometimes included confidential information, much to the dismay of other council members.

Some of the volunteers came to City Hall from St. Hope—which runs local charter schools and a development company.

Among these was Dana Gonzalez, who along with Johnson was briefly banned from receiving federal funds when the government found that St. Hope used AmeriCorps money to supplement staff salaries and used young AmeriCorps volunteers to help political campaigns for local school-board candidates. And also to wash Johnson’s car.

The city attorney at the time, Eileen Teichert, put in place policies to rein in the use of professional volunteers. She laid down rules stating that such volunteers couldn’t be in on meetings where confidential information was discussed, and that they would need to register with the city manager.

This was an obstacle—but Johnson wasn’t deterred. He created several new policy organizations to tackle specific areas, such as the environment, the arts and homelessness.

You’ve probably heard of most of them by now. They all have catchy names, and it’s obvious some care was taken in branding each.

They included Greenwise Sacramento, formed to help transform Sacramento into an “Emerald Valley” of environmental sustainability and green jobs.

There’s For Arts’ Sake, initially launched to bring millions of dollars in new money for the Sacramento arts community but later scaled back to “convene and coordinate” with existing arts groups.

And Sacramento Steps Forward, which was created to work toward a solution for homelessness in Sacramento.

Then there was SacramentoFirst Citizens’ Task Force, the mayor’s initiative to vet ideas for a new Sacramento Kings arena, which was later superseded by Think Big Sacramento, launched in the scramble to try and keep the Kings in town.

This network of policy initiatives made the mayor’s office bigger, more powerful, more like what those other mayors have.

Graph by Hayley Doshay

Meet K.J. Inc.

But you may not have heard of the Sacramento Public Policy Foundation. That’s the umbrella organization through which all of the other groups were first created, and where they got their money.

SPPF is a 501(c)(3) nonprofit corporation created in 2010. More recently, Greenwise and Sacramento Steps Forward have been spun off into their own 501(c)(3) organizations. And the mayor has yet another nonprofit under his control called Stand Up Sacramento, which is focused on education issues. More on those in a bit.

All of the initiatives are routinely referred to as “the mayor’s initiatives,” by the mayor’s office and in his campaign materials and speeches—even though the mayor himself is not on the SPPF board of directors. (He is on the Stand Up board, according to the most recent documents filed with the Internal Revenue Service.)

Lately, the mayor’s office coordinates with the nonprofits through the mayor’s special adviser, Cassandra Jennings, a 26-year veteran in City Hall and the Sacramento redevelopment agency. She had recently retired as assistant city manager but returned this summer when Merchant left in order to “supervise Johnson’s policy initiatives.” That’s from a press release announcing Jennings’ hire; the mayor’s office wouldn’t elaborate further on her role.

The mayor’s office is also directly connected to the various nonprofits through its many interns and volunteers. In fact, the groups get a certain amount of free labor from the city’s internship and fellowship programs.

One mayoral fellow was placed in Johnson’s office by San Francisco-based outfit Fuse Corps, which describes itself as “a platform to connect entrepreneurial professionals with governors, mayors and community leaders.” Her bio says she’s a journalist with 16 years of experience at CNN, and she’s spending the year working for Greenwise.

Two other fellows, Ph.D. candidates from Rutgers University and the University of Illinois, have been assigned, through the mayor’s office, to Stand Up.

This summer, the mayor’s office has 16 interns and fellows. It appears some of these interns also work for the mayor’s SPPF organizations, though this is not spelled out in the documents provided by the city. At the end of the day, they work for the city of Sacramento—even if they are assigned to the mayor’s nonprofits.

SPPF bills itself as a philanthropic organization. But the organization’s paid staff member, Chris Tapio, is a political consultant with no experience running nonprofits.

He owns a company called Legislative Strategies. His address, and the address of SPPF, is 1717 I Street, the same as political consulting firm Townsend Raimundo Besler & Usher. David Townsend ran Johnson’s election campaigns in 2008 and 2012.

Tapio was Johnson’s appointee to the Sacramento Charter Review Committee in 2009 to study possible changes to the city charter, including an early version of Johnson’s strong-mayor plan. He voted in favor of strong mayor.

He also ran an organization called Sacramento 2020—which produced campaign materials and a website and wrote letters to the editor on behalf of Johnson’s strong-mayor effort.

Tapio refused to be interviewed for this story and did not respond to emailed questions—other than to write, “There is a lot of additional information about SPPF available on our website.”

SPPF is required to file information with the IRS every year, in a document called Form 990. The filing lists three men as members of SPPF’s board of directors: Fred Hiestand, Tracy Stigler and Joseph Rodota.

Hiestand is a longtime friend and personal attorney to Johnson and has had his back through various legal scrapes over the years—including accusations of an inappropriate relationship with an underage girl while he was an NBA player in Phoenix. Hiestand’s son, Kevin Hiestand, was also treasurer of Johnson’s re-election campaign.

Stigler was at one time president of St. Hope development company, worked as a project manager for developer Buzz Oates and served on the board of St. Hope Public Schools.

Rodota is a political strategist who was an adviser on Johnson’s first election campaign. He also served as Arnold Schwarzenegger’s director of policy and research during the 2003 recall election and, before that, in the administrations Gov. Pete Wilson and President Ronald Reagan. (Another Schwarzenegger alumnus, GOP campaign lawyer Tom Hiltachk, would also later help craft Johnson’s strong-mayor proposal and then unsuccessfully defend it in court.)

In addition to SPPF, Johnson created another 501(c)(3) organization called Stand Up Sacramento, focused on education reform. Its executive director is Dana Gonzalez from St. Hope. The deputy director is Andie Corso.

Corso ran unsuccessfully in 2010 for Sacramento City Unified School District board with the mayor’s endorsement. More recently, Corso managed the unsuccessful city council campaign of Betty Williams, who was Johnson’s pick to topple one of his political opponents, incumbent Bonnie Pannell.

Overall, the SPPF roster is pretty heavy on personal friends and political operatives—not philanthropists. That’s a little troubling, says Jessica Levinson, an attorney with Loyola Law School Los Angeles and an expert on campaign and political-practice rules.

“If it’s created and controlled by him, and it’s run by his friends, that raises some red flags,” she said.

Show us the money

Because they are private nonprofits, none of the organizations in the mayor’s network are required to disclose their donors.

But when the mayor directly solicits donations for his organizations, his office is required to make a record of these “behested payments.”

Behests are nothing new: Council members have used them for years, and the city discloses them on its website.

Historically, city council members in Sacramento have raised respectable chunks of money via behests—$5,000 here, $10,000 there—for charitable organizations.

A good example is something like Pops in the Park. Or, for a more recent example, the Save Our Pools campaign.

In fact, there’s a nonprofit that the city runs, called Gifts to Share Inc., which predates SPPF by more than 20 years and distributes money to charitable causes. It is administered by a city employee, but Gifts to Share is fairly detailed in how all of its money is spent.

Johnson’s use of behests is different in some important respects. All of the money he raised with behests went into just his organization. And he has raised much more money via behests than his peers and predecessors—about $1.1 million since he took office (see chart, right).

For example, he received $200,000 from Kevin Nagle, the wealthy CEO of Envision Pharmaceutical Services, who gave money to Johnson to help save the Kings. Another big donor is Hollywood producer Barry Katz, who gave SPPF $100,000.

There are strict limits on campaign contributions—the money politicians use to run for election. The idea is to limit the influence of certain interest groups. But since behests aren’t campaign contributions, Johnson can raise unlimited amounts of money from companies and individuals.

The problem with such unlimited contributions becomes clear when you look further down the list of donors. For example, Waste Management gave $45,000 to SPPF last year—even while the company was angling to become the city’s new garbage hauler. (The company was successful.)

Vision Service Plan, the insurer which provides vision benefits for city employees, gave $100,000 to the fund earlier this year.

Graph by Hayley Doshay

The Kings gave a little more than $22,000 earlier this year. Developer Mark Friedman gave $7,500, and earlier this year, foundations associated with developer Buzz Oates gave $10,000.

All of those donations are far more money than is allowed under the usual campaign-finance laws. These behested payments are only part of the money that the SPPF takes in. The other contributions aren’t required to be disclosed to the public.

“Whenever you have an elected official collecting large sums of money, there’s a concern that donors want something in return,” Common Cause’s Derek Cressman said. “If you’ve got Waste Management or the Kings writing a five-figure check—yeah, that’s concerning.”

To be sure, other council members raise money via behests, from interest groups that want to influence city policy. Councilman Steve Cohn, for example, received $5,000 each from Winn Communities and David S. Taylor Interests Inc. and Sutter Health to help the Save Our Pools campaign earlier this year.

But again, those checks are always for particular causes; you can’t tell from city records what SPPF is spending its money on.

Check the math

Likewise, even though SPPF is a sort of appendix to the mayor’s office, its books aren’t open in the way public agencies must be.

The one set of tax documents available for SPPF—from 2010—are pretty vague. It seems that SPPF spent $120,000 on behalf of Greenwise that year, mostly to put on a series of eight public meetings, which included guest speakers such as Robert F. Kennedy Jr. and Thomas L. Friedman.

That year, it appears SPPF spent $27,870 on Sacramento Steps Forward. But there are no specifics about how the money was spent. Likewise, it seems that $16,000 was allocated to For Arts’ Sake, though it’s not made clear.

Nowhere in SPPF documents is there any information about salaries or compensation, though, presumably, each of the policy initiatives paid their staff for their time. Nowhere is Tapio’s compensation recorded.

Of course, salary information is not legally required unless an employee makes more than $100,000. But the vagueness of the SPPF’s documents makes it impossible to tell how much of the money raised—$249,000 in that first year—went to pay employees and how much was spent doing projects.

Stand Up did report salaries in 2010. According to the 990 form filed with the IRS, Corso made a little more than $60,000 in 2010. Gonzalez from the St. Hope schools also made just more than $60,000.

It’s not that unusual for a nonprofit organization to keep private the salaries of its employees or the identities of its donors.

The difference here is that Johnson is a public official, using his office to raise money for these organizations.

Indeed, SPPF and the other organizations likely wouldn’t exist at all, and certainly wouldn’t benefit from the city’s internship and fellowship programs, if Johnson were not mayor.

“The disclosure issue is definitely a big one. These are elected officials who are raising all this money,” said Levinson. “There’s a strong argument for the public’s right to know.”

Johnson lists the policy initiatives as accomplishments during his time in office. And they help keep the K.J. brand out there.

They have also, on occasion, been used in overtly political ways. During a particularly nasty fight over redistricting of council seats, Johnson enlisted the help of his nonprofits. Jeremiah Jackson, then-director at Think Big, and Deborah Edward, then-director of For Arts’ Sake, both used their organizations’ address books to send out an email blast encouraging people to support the mayor’s redistricting objectives.

Further blurring the line between the political and philanthropic: Earlier this year, Johnson found that he had raised far more than he would ever need to get re-elected in June. He started shoveling campaign funds from his re-election campaign into SPPF. About $180,000 was transferred in all.

Other California politicians, such as Schwarzenegger, have in the past been accused of misusing nonprofits and the behest system. Schwarzenegger was criticized for using behests to create a slush fund run by his political chums.

Cressman’s group Common Cause has for years argued for contribution limits and tougher disclosure rules on behested payments. “Allowing unlimited contributions made at the behest of an elected official creates an avenue for powerful interests to curry favor with elected officials and to bypass the limits on candidate contributions,” he said.

Levinson said she doesn’t necessarily see anything wrong with politicians behesting money for worthy charities and philanthropic organizations. After all, local government doesn’t have a lot of money. But she warns that, “If it’s not a charity that’s very effective, if it’s just a platform for the politician, that becomes more problematic.”

“At some point, you have to ask if it’s an end run around campaign contribution limits.”

Convene. Coordinate. Connect.

Is the benefit the mayor gets from his nonprofits—in power and influence and additional staff—outweighed by the good that those organizations do in the community? Are the mayor’s nonprofits effective?

“For me, the objective is to convene and coordinate and to amplify all the work that’s going on in the arts community. … That is where our niche is,” Johnson told The Sacramento Bee earlier this summer regarding his arts initiative.

Early on, there was grumbling from the arts community and concern that For Arts’ Sake was going to duplicate—or worse, undermine—the Sacramento Metropolitan Arts Commission. SMAC is a partnership between the city and county of Sacramento and, as you might imagine, it struggles for funding.

“Initially, I think there was some confusion over what the relationship between the commission and this new thing,” said Shelly Willis, interim executive director at SMAC. Willis said that concern eased when it became clear that For Arts’ Sake was not a competing organization.

“Basically, what they’ve become is an advocacy group and a convener of people,” said Willis.

As such, it’s hard to put your finger on any particular project conceived and executed by For Arts’ Sake. Or to identify any dollars that For Arts’ Sake raised for Sacramento artists or arts groups. The projects it highlights on its website were thought up by someone else.

Which is not to say that For Arts’ Sake hasn’t been helpful in other ways. “I think they’ve really broadened the conversation about art to different sections of the community,” said Willis.

And connecting and convening can lead to good things, too. Willis said that Johnson introduced SMAC to The John F. Kennedy Center for the Performing Arts. One thing led to another and, pretty soon, SMAC was getting help from the Kennedy Center’s Any Given Child program.

It’s SMAC’s program. “But the mayor made that initial connection,” said Willis. (Incidentally, when SN&R asked For Arts’ Sake executive director Michelle Alexander for more details regarding the funding and spending for the initiative, she referred questions to Jennings in the mayor’s office. Jennings didn’t return SN&R’s calls.)

Similarly, the main work product of Greenwise Sacramento—recently renamed the Greenwise Joint Venture—is convening and connecting and coordinating.

For example, Greenwise lists as one of its signature projects for 2012 a partnership with the Sacramento Tree Foundation to plant 30,000 trees.

According to Greenwise executive director Julia Burrows, the money for the project comes from a $25,000 grant from Pacific Gas and Electric Company. Greenwise wrote the grant and then kept $8,000 of it to help pay the salary of the Burrow’s one employee, Liz Salmi. The other $17,000 went to the Tree Foundation to plant the trees.

Also listed is an item called facilitating green building retrofits. The website says, “We’re matchmaking existing commercial building retrofits with $100 million in private financing.”

But Ygrene doesn’t mention Greenwise at all on its website. In fact, the Ygrene Energy Fund has a contract with the city of Sacramento. But Ygrene spokesperson Beth Ross said it has little to do with Greenwise. Some Ygrene employees do share office space with Greenwise. “But that’s it,” said Ross.

Burrows explained that her organization helps promote good ideas, like the Ygrene project, or President Barack Obama’s Better Buildings Challenge, which is also listed by Greenwise as a signature project.

“My job is to speak at different events and to tell the story of why this is a great thing,” she said.

SN&R asked if Greenwise has conceived and implemented any of its own projects, and Burrows said that her organization is working on a program to finance green school retrofits in area districts. “That’s a project that will be owned by Greenwise.”

As it happens, voters who live in the Sacramento City Unified School District will vote this fall on a bond measure to raise $300 million and upgrade school facilities.

Burrows added that her organization is not just a middleman: “There are projects and programs that would not happen without us.”

Greenwise was spun off into a separate nonprofit organization earlier this year, with Burrows as the paid executive director.

As a new not-for-profit, Greenwise is not required to file its form 990 until next year. Burrows was willing to disclose her salary: She makes $130,000 a year. Greenwise’s other full-time employee, Liz Salmi makes $66,000.

Greenwise rents a space at 431 I Street. And Burrows said she doesn’t work in City Hall at all, other than for the occasional meeting.

Perhaps the most difficult to peg of all the mayor’s nonprofits is Think Big, which, at one time, had the most straightforward goal: to get a new Kings arena built.

But it was never clear exactly what role Think Big was playing in the process. Think Big held meetings and put out position papers on the possible benefits of an arena. It acted as a cheerleader and a convener and coordinator. And also as a sort of political organization.

But the financing proposal—the idea of privatizing the city’s parking and using the money to build an arena—came from city staff. All the vetting and negotiations—or lack thereof—were entirely done by city employees.

When the arena deal fell apart, Think Big no longer had a purpose. But the mayor didn’t dissolve the organization; he rebranded it.

Now Think Big is presented as a sort of think tank on economic development and downtown projects in general.

Merchant and Graswich’s first efforts in this regard were something of a flop. The new big thought was that Sacramento should try to attract a Major League Baseball team. West Sacramento Mayor Christopher Cabaldon flipped out a little bit and called the proposal “offensive” and “reckless.” A MLB team in Sacramento would almost certainly mean the end of the Sacramento River Cats, who play their games in a nice little stadium in West Sacramento. (Merchant did not return calls or emails for this story.)

Like Greenwise, Sacramento Steps Forward, the homeless initiative, also took on something of a life of its own this year, when it too was spun off into a separate 501(c)(3). Steps Forward hasn’t filed its own 990 forms yet, either.

Steps Forward is about to take over the administration of most of Sacramento County’s programs for the homeless. It has a budget of about $900,000, and will control up to $15 million in federal grants.

Its board includes members of several established charities and nonprofits, including Loaves & Fishes and WEAVE and El Hogar Community Services, along with representatives of government agencies. In many ways, Steps Forward is now quite independent of the mayor—although its executive director, Ben Burton, said Johnson stays “very much involved” through Jennings.

Sister Libby Fernandez, head of Loaves & Fishes, says she thinks Steps Forward will be a big improvement over the county’s current administration of homeless services.

Since Steps Forward is a private nonprofit, some important information about its operations and private contributors may remain out of reach for the public. But Burton notes that with such large amounts of public money flowing through, Steps Forward is obliged to follow certain public-records rules.

“There’s no secrecy here. We want people to feel secure that these are public dollars. Our goal is to be transparent,” said Burton.

He’s paid $110,000 a year.

So, are the mayor’s charities effective? There are at least five different answers to that question, and they’re all some variation of “depends on what your idea of effective is.”

Graph by Hayley Doshay

Shining a light on the shadow government

Earlier this summer, the mayor’s friend, assistant and former St. Hope employee Lisa Serna-Mayorga resigned suddenly after it was reported that she had accumulated at least $9,000 of personal charges, including a trip to Disneyland, on her city-issued credit card.

For Johnson’s critics, this was more smoke, pointing toward some sort of fire, even if they weren’t sure what sort. And it renewed suspicions about the mayor’s quasi-public, quasi-private-policy apparatus.

In early August, Kerri Asbury, chairwoman of the Democratic Party of Sacramento County, wrote to City Manager John Shirey asking for an investigation: Are the mayor’s nonprofit organizations being run out of City Hall, and is that an improper use of city resources?

“By allowing individuals or organizations, no matter how well-meaning, to use City Hall as their office, without a rent or lease agreement, the City runs the danger of having gifted tax dollars without receiving public benefit,” she wrote.

Cressman with Common Cause agrees, saying City Hall shouldn’t donate office space to a private organization unless it’s a publicly available space, like a library or community center made available on a “first come, first served” basis.

He said the appropriation of city interns was suspect, too. “I don’t think it’s appropriate for city staff, including city interns or fellows, to be working for a private organization, whether it’s nonprofit or for profit.”

So far, the city manager hasn’t responded to the DPSC’s calls for an investigation into the city’s alleged “gift of funds” to the mayor’s nonprofits.

The issue got a little attention in the media—reports in The Sacramento Bee and Sacramento Press mostly focused on Johnson ally and political consultant Steve Maviglio, who scolded Asbury for harassing a fellow democrat when she should be out raising more money for Obama.

Think Big is now officially sharing office space with Greenwise at 431 I Street. According to Burrows, Merchant and Graswich moved in during the beginning of August.

The mayor’s office has said in the past that none of the nonprofits or their employees have a “permanent office” at City Hall. When SN&R asked for further information, the mayor’s aide Joaquin McPeek did reply that, “The city manager is reviewing a query about these issues. … The mayor’s office is cooperating fully with his review.”

This month, Tapio and Johnson and SPPF will be required to release a little more information in its public filing with the IRS. But they have a long way to go to achieve the kind of transparency you would expect from public officials and public agencies.

“I think it is wonderful that there are people and organizations who are willing to commit time and resources toward improving Sacramento and our local government,” said Cressman.

But he said that overall lack of transparency in funding and spending and refusal to be open with the public about the group’s activities, “should be troubling to all Sacramentans.”

“Philanthropists should have nothing to hide,” he said.