California Proposition 34: The "Shut Your Mouth" Initiative Aimed at Nonprofit[s]

There is a fascinating story developing over on the left coast.  It pits wealthy high-powered nonprofits against each other.  The story is told better than I can tell it in the San Francisco Chronicle.   The Chronicle link is free if you want to read the whole thing.  The Los Angeles Times also has a concise summary.  The short version is that Proposition 34 would enact a new statute applicable to just one large tax exempt health care organization.  One that talks too much.  It would require that this one organization spend at least 98% of its "net revenues" generated from participation in California's discount prescription drug program on "direct patient care."  Nothing else, not advocacy and not education.  Just shut up and pass the patient care. If the organization does not sit down and shut up (to the extent of 98% of revenues), it will forfeit state tax exemption and its right to participate in California's discount prescription drug program.  If this isn't brazen I don't know what is. 

Proposition 34 would limit how certain healthcare providers spend revenues from a federal prescription drug program. The measure is an effort by the real estate industry to limit spending by the L.A.-based AIDS Healthcare Foundation, which has bankrolled several rent control initiatives, including one on the 2024 ballot.  The measure applies to healthcare providers who have spent over $100 million in any 10-year period on things besides direct patient care and have run multifamily housing with more than 500 “high-severity health and safety violations.”  If a healthcare provider meets that standard they would be required to spend 98% of their revenues from a federal prescription drug program on direct patient care.

Pretty much everybody agrees that the Aids Healthcare Foundation (AHF) -- the largest private AIDS healthcare provider in the whole world -- is the only entity with enough non-patient spending to be covered by the initiative.  "According to its website, it serves more than 1.5 million patients in 45 nations, with more than 730 clinics providing care regardless of a patient’s ability to pay." AHF's revenues exceed $2 billion annually.  A law aimed at a single nonprofit's speech is invariably aimed at all nonprofits, by the way.  Let's just understand this thing clearly.  One of AHF's co-founders, Michael Weinstein, is a crusader for various progressive causes.  In the world of politics he is apparently the rare Democrat who plays just as rough and dirty as Republicans.  Politico describes him as "pugilistic."  Sounds like my kind of guy, bless his heart.  

For years now, AHF has advocated for rent controls amongst other populist causes tied to health.  AHF reasonably argues that lack of housing is a major cause of bad health, especially for people living with AIDS.  In fact, AHF has its own initiative on the ballot.  Proposition 33 would allow local governments to adopt rent controls.  Proposition 33 is AHF's third try at rent control in California; it has spent over $300 million towards the effort according to the LA Times.  Well, the California Apartments Association, another 501(c)(3) according to Charity Navigator, is none too happy about that. It argues that Proposition 34 is an extreme measure that would only worsen California's housing crisis.  Several "Findings" in the retaliatory measure make clear CAA's strategy of attacking AHF's tax exemption bona fides to shut it up:

Section 14124.40. Findings and declarations.

(a) In 1992, the federal government established a program giving safety net health care providers access to discounted prescription drugs. The intent of the law was for safety net health care providers to use the discounted drugs to treat patients who are "medically uninsured, on marginal incomes and have no other sources to turn to for preventive and primary care services" and to "reach[] more eligible patients and provide[] more comprehensive services" to "low income and most vulnerable patients." (H.R. Rep. No. 102-384 (Part 2), at 12 (1992)(Conf. Rep.).) The program was NOT intended to be used by safety net health care providers to accumulate massive fortunes running into the hundreds of millions of dollars or more.

(b) Unfortunately, some safety net health care providers have manipulated the program to receive enormous markups on the discounted prescription drugs they receive and then stick taxpayers with the added cost. Instead of using this massive windfall to help patients, the worst offenders have used their fortunes to purchase luxury coastal condominiums, wasted hundreds of millions of dollars on failed political campaigns, put elected politicians on their payrolls, and acquired low-income multifamily housing complexes that are operated as slums. Abusing net revenues generated through the discount prescription drug program in this manner does not result in better health care for low-income patients. Instead, it cheats low-income patients out of the care they deserve and scams taxpayers who end up footing the bill.

AHF petitioned the California Supreme Court in an effort to strip Proposition 34 from the ballot, but yesterday the Court demurred. Apparently the Court generally prefers to hear challenges to ballot initiatives only after the vote, though in rare cases the Court has intervened before citizens vote.  Here is what a third California (c)(3), Consumer Watchdog, said in its amicus petition to the California Supreme Court:

III. Threat to Our Democracy

Under the guise of protecting patients, the California Apartment Association’s so-called Protect Patients Now Act of 2024, designated as Proposition 34 (the “Initiative”), is designed to silence AHF’s rent control advocacy once and for all. The Initiative violates our state and federal constitutions, is an abuse of the initiative process, and serves as a blueprint for corporate interests wishing to punish nonprofit organizations for their speech and advocacy.

This Court should not allow Proposition 34 to appear on the November 2024 ballot. While Proposition 34 is cleverly worded as to never explicitly name AHF, its description of entities falling under its purview is intended to target a class of one. No other individuals or corporations meet the definitions contained in the Initiative. Allowing such a deceptive and facially invalid measure to be placed on the ballot will only serve to undermine voters’ trust in the initiative process and our legal institutions. The California Constitution prevents this kind of improper initiative from ever being submitted to the voters. 

. . . 

IV. Proposition 34 Violates the United States and California Constitutions

Perhaps most glaringly, the Initiative violates the United States and California Constitutions as an illegal Bill of Attainder. (U.S. Const., art. I, §§ 9–10; Cal. Const., art. I, § 9.) Because such a law may never be enacted under either the state or federal constitutions, it thus should not be presented to the voters. (See AFL, 36 Cal.3d at pp. 697, 706 [removing initiative measure from the ballot that violated federal constitutional provisions].)

The Bill of Attainder Clause of the United States Constitution prohibits any law that singles out an entity and “legislatively determines guilt and inflicts punishment upon [it] without provision of the protections of a judicial trial.” (Selective Serv. Sys. v. Minn. Pub. Interest Research Grp. (1984) 468 U.S. 841, 846–47 [internal citations omitted].) These protections apply to corporate entities as well as individuals. (Con. Edison Co. of N.Y., Inc. v. Pataki (2d Cir. 2002) 292 F.3d 338, 349.) As noted above, the Initiative clearly applies to just one nonprofit organization, AHF. Moreover, the proponents make no secret that the Initiative is intended to punish AHF and only AHF for its past advocacy efforts. The Initiative effectuates this single-entity targeting by defining a so-called “prescription drug price manipulator” so narrowly, and with such specific criteria (some of which are entirely unrelated to the provision of prescription drugs), as to apply only to AHF.

The Initiative embodies another central hallmark of a Bill of Attainder— its retrospective focus—by defining past conduct as wrongdoing and then imposing harsh and extreme punishment on that past conduct. (Con. Edison Co. of N.Y., Inc., supra, 292 F.3d at 349 [citing Nixon v. Admin. of General Servs. (1977) 433 U.S. 425, 472–473].) Whether a statute is “punitive” is determined by three factors: “(1) whether the challenged statute falls within the historical meaning of legislative punishment; (2) whether the statute, viewed in terms of the type and severity of burdens imposed, reasonably can be said to further nonpunitive legislative purposes; and (3) whether the legislative record evinces a [legislative] intent to punish.” (Selective Serv. Sys., supra, 468 U.S. at p. 852 [internal citations omitted].) “[A] statute need not fit all three factors to be considered a bill of attainder; rather, those factors are the evidence that is weighed together in resolving a bill of attainder claim.” (Con. Edison, 292 F.3d at p. 350 [internal citations omitted].) Moreover, an initiative need not specifically use the name of the targeted entity to fall within the constitutional prohibition. (Foretich v. U.S. (2003) 351 F.3d 1198, 1217.).

. . .  

darryll k. jones