The San Jose City Council race between Rose Herrera and Jimmy Nguyen just got a little crazier. The Police Officers Association announced late Friday that a political action committee (PAC) supporting Herrera will need to return $100,000 to a PAC controlled by Mayor Chuck Reed. But the mayor says that has yet to be decided.

It’s just another turn in the most expensive race of this year’s local elections—and maybe the priciest battle ever for a San Jose City Council seat—which has featured hundreds of thousands of dollars spent by committees that are not controlled by the candidates. Citizens United can be thanked for that.

Gary Winuk, of the Fair Political Practices Commission (FPPC), sent a letter Monday to James Sutton, an attorney for Mayor Chuck Reed’s PAC, informing him that $100,000 transferred from the PAC to a group called San Jose Reform Committee Supporting Rose Herrera for City Council 2012 did not comply with state law. As a result, Winuk wrote, the money must be returned and any violations could be subject to $5,000 fines.

Jim Unland, POA president and the person who filed the sworn complaint with the FPPC, said he is “grateful that the FPPC moved swiftly and sternly to crack down on the illegal funneling of campaign cash by Mayor Reed and the Chamber of Commerce to help Rose Herrera.”

He added, “No one is above the law, even the Mayor and it is our hope that Ms. Herrera will now condemn this illegal effort made on her behalf.”

But a defiant Mayor Reed said late Friday that the ruling was far from final, adding that it misunderstood his role as an elected official instead of a candidate. The Political Reform Act, also known as Prop. 34, says candidates are not allowed to transfer money to other candidates’ campaigns.

“The issue is they’re alleging a violation for candidate controlled committees, and I am not a candidate,” Reed said.

But according to an internal POA email that includes advice from the firefighters union’s lawyer Ash Pirayou, “The term ‘candidate’ as defined by the Act, includes elected officials at the state and local level.”

Another POA attorney involved in the matter, Lance H. Olson, founder of Olson Hagel & Fishburn LLP, said in a press release, “As one of the drafters of Proposition 34, I know the section prohibiting independent expenditures by candidates was crafted to restrict candidates to using campaign funds for their own elections and to avoid undue influence by officeholders over other elected officials. I’m gratified that the FPPC held Mayor Reed accountable to the law.”

The mayor’s PAC transferred money into the newly formed PAC supporting Herrera in an effort to combat money being spent by labor unions—especially the POA—against the District 8 incumbent, who supported the mayor’s pension reform effort, Measure B. That ballot measure passed with 70 percent of the vote in June but has yet to be implemented, because legal challenges have it tied up in court.

In his letter, Winuk wrote: “Section 85501 (of the Act) provides that a controlled committee of a candidate may not make independent expenditures and may not contribute funds to another committee for the purpose of making independent expenditures to support or oppose other candidates.”

“The San Jose Reform Committee Supporting Rose Herrera for City Council 2012 is primarily formed to support Rose Herrera by making independent expenditures supporting her election and independent expenditures opposing her opponent.

“The San Jose Fiscal Reforms, Mayor Reed, Chamber PAC and Issues Mobilization PAC has violated Section 85501 and must immediately demand that the San Jose Reform Committee Supporting Rose Herrera return the contribution in full.”

Herrera has often voted along the same lines as Mayor Reed in the last two years, giving him a majority vote of 6-5 on some of the city’s biggest issues. Nguyen would almost certainly take away one of the mayor’s votes on the council if elected.

However, both candidates running for District 10’s seat—Johnny Khamis and Robert Braunstein—supported Measure B and could keep the mayor’s majority in place, at least on public safety issues. (Braunstein does have the POA’s endorsement in the runoff.) Nancy Pyle, who has held the D-10 seat for the last eight years, commonly sided with labor unions on pension reform efforts until the final vote to send Measure B to the ballot.