[Federal Register Volume 63, Number 133 (Monday, July 13, 1998)]
[Proposed Rules]
[Pages 37722-37737]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-18543]
[[Page 37721]]
_______________________________________________________________________
Part V
Federal Election Commission
_______________________________________________________________________
11 CFR Parts 102, 103, and 106
Prohibited and Excessive Contributions; ``Soft Money''; Proposed Rule
Federal Register / Vol. 63, No. 133/ Monday, July 13, 1998 / Proposed
Rules
[[Page 37722]]
FEDERAL ELECTION COMMISSION
[Notice 1998-12]
11 CFR Parts 102, 103, and 106
Prohibited and Excessive Contributions; ``Soft Money''
AGENCY: Federal Election Commission.
ACTION: Notice of Proposed Rulemaking (NPRM).
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SUMMARY: The Federal Election Commission today seeks comments on
proposed rules relating to funds received by party committees outside
the prohibitions and limitations of the Federal Election Campaign Act,
also known as ``soft money.'' This NPRM addresses issues raised in two
petitions for rulemaking, one submitted by President William J. Clinton
and the other submitted by five Members of the United States House of
Representatives. The two petitions seek limits on the use of soft money
for activities that have an impact on federal elections. The draft
rules which follow do not represent a final decision by the Commission
regarding the changes sought in the petitions. Further information is
provided in the supplementary information that follows.
DATES: Statements in support of or in opposition to the proposed rules
must be filed on or before September 11, 1998. The Commission will hold
a public hearing at 10:00 a.m. on September 23, 1998. Persons wishing
to testify must so indicate in their written comments.
ADDRESSES: All comments should be addressed to Susan E. Propper,
Assistant General Counsel, and must be submitted in either written or
electronic form. Written comments should be sent to the Federal
Election Commission, 999 E Street, N.W., Washington, DC 20463. Faxed
comments should be sent to (202) 219-3923, with printed copy follow up.
Electronic mail comments should be sent to softmoneynpr@fec.gov.
Commenters sending comments by electronic mail should include their
full name and postal service address within the text of their comments.
Electronic mail comments that do not contain the full name, electronic
mail address and postal service address of the commenter will not be
considered. The public hearing will be held in the Commission's public
hearing room, 999 E Street, N.W., 9th Floor.
FOR FURTHER INFORMATION CONTACT: Ms. Susan E. Propper, Assistant
General Counsel, or Paul Sanford, Staff Attorney, 999 E Street, N.W.,
Washington, D.C. 20463, (202) 694-1650 or (800) 424-9530.
SUPPLEMENTARY INFORMATION: With this NPRM, the Commission is publishing
and seeking comments on proposed rules relating to the receipt and use
of prohibited and excessive contributions, also known as ``soft
money,'' by national, state and local party committees. The Commission
is publishing these rules in response to two petitions for rulemaking
that seek limits on the use of soft money in activities that may
influence federal elections.
For reasons that will be explained further below, the Commission
has decided that the issues raised in the petitions warrant further
consideration. The Commission believes that changes in the regulations
relating to soft money may be necessary to give full force and effect
to the prohibitions and limitations in the Federal Election Campaign
Act, 2 U.S.C. 431 et seq. [``FECA'' or ``the Act'], and ensure that
impermissible funds are not used to influence federal elections.
Therefore, the Commission is seeking comments on proposed rules that
would limit the use of soft money by party committees. The proposed
rules are described in detail below.
However, the Commission would like to emphasize that no final
decision has been made on whether or not to promulgate new rules in
this area. At this point, the Commission is merely seeking comments on
possible approaches for limiting the impact of soft money on federal
elections. No final decision will be made until after the comment
period has concluded and a public hearing has been held.
Prior History
The Act limits the amount that individuals can give to candidates,
political committees and political parties for use in federal
elections. 2 U.S.C. 441a. The Act also prohibits corporations and labor
organizations from contributing their general treasury funds for these
purposes. 2 U.S.C. 441b. Federal contractors are also prohibited from
making these contributions. 2 U.S.C. 441c, 11 CFR 115.2(a). Note that,
under 2 U.S.C. 441b and 441e, national banks, Congressionally-chartered
corporations, and foreign nationals are prohibited from making
contributions in connection with any election to any political office.
In contrast, some state campaign finance statutes allow
corporations and labor organizations to make contributions to state and
local candidates, and also allow individuals to make contributions to
state and local candidates in amounts that would exceed the dollar
limits in 2 U.S.C. 441a. In addition, the Act's prohibition on
contributions by federal contractors does not apply to contributions
made in connection with state or local elections. 11 CFR 115.2(a).
Today, most party committees receive some contributions that are
permissible under the FECA and also receive other contributions that
are not permissible under the Act if they are to be used in connection
with federal elections. Contributions that are permissible under the
FECA are often referred to as ``hard money'' contributions.
Contributions that are not permissible, i.e., individual contributions
in excess of the section 441a dollar limits, all corporate and labor
organization general treasury contributions, and contributions from
federal contractors, are often referred to as ``soft money,'' and are
to be used exclusively for state and local campaign activity or other
party committee activities that do not influence federal elections.
Typically, party committees set up separate bank accounts into
which they deposit the hard and soft money contributions they receive.
Hard money contributions are to be deposited into a federal account,
and soft money contributions are to be deposited into a non-federal
account. Some party committees have a federal account and multiple non-
federal accounts. However, since 2 U.S.C. 441b and 441e prohibit
national banks, Congressionally-chartered corporations, and foreign
nationals from making contributions in connection with any election to
any political office, contributions from these entities to a party
committee's non-federal accounts are also prohibited.
It is usually a relatively simple matter for the party committee to
distinguish between hard and soft money contributions and segregate
them in separate bank accounts. However, it can be more difficult to
distinguish between a party committee's federal and non-federal
expenses, because many party committee activities benefit both federal
and non-federal candidates. For example, when a party committee
conducts a get-out-the-vote drive urging people to support the party's
candidates, it presumably increases the turnout of voters who favor
that party's candidates. If there are both federal and non-federal
candidates on the ballot, the drive benefits both the federal and the
non-federal candidates. Consequently, if the party committee pays the
costs of such a drive entirely with soft dollars, the committee is
using prohibited contributions to benefit federal candidates. This
would violate the contribution prohibitions and limitations in the
FECA.
[[Page 37723]]
Since early in its history, the Commission has struggled with the
fact that many party functions have an impact on both federal and non-
federal elections, and has sought to give force and effect to the
FECA's prohibitions and limitations by requiring party committees to
pay at least a portion of the cost of these ``mixed'' activities with
hard dollars. For example, in Advisory Opinion 1975-21, the Commission
required a local party committee to use hard dollars to pay for a
portion of its administrative expenses and voter registration costs.
The Commission said that even though some party functions do not relate
to any particular candidate or election, ``these functions have an
indirect effect on particular elections, and since monies contributed
to fulfill these functions free other money to be used for
contributions and expenditures in connection with Federal elections, it
is appropriate to ascribe a certain portion of the administrative
functions of a party organization to Federal elections during time
periods in which Federal elections are held.'' Id.
The Commission incorporated part of Advisory Opinion 1975-21 into
regulations promulgated in 1977. The regulations required political
committees active in both federal and non-federal elections to allocate
their administrative expenses between separate federal and non-federal
accounts ``in proportion to the amount of funds expended on federal and
non-federal elections, or on another reasonable basis.'' 11 CFR
106.1(e) (1978). Sections 106.1 and 106.5 of the current rules contain
updated versions of these regulations.
In two opinions issued after AO 1975-21, the Commission took an
even more restrictive view of the use of soft money for registration
and get-out-the-vote drive activity. In its response to Advisory
Opinion Request 1976-72, the Commission said that ``even though the
Illinois law apparently permits corporate contributions for State
elections, corporate/union treasury funds may not be used to defray any
portion of a registration or get-out-the-vote drive conducted by a
political party.'' Thus, the Commission concluded that this type of
activity would have to be paid for with hard dollars. In its response
to Advisory Opinion Request 1976-83, the Commission reached a similar
conclusion.
However, in Advisory Opinion 1978-10, the Commission modified its
position. In that opinion, the Commission concluded that the costs of
voter registration and GOTV drives should be allocated in the same
manner as party administrative expenditures. In reaching this
conclusion, the Commission superseded Re: AOR 1976-72 and 1976-83 and
said that corporate and union treasury funds could be used for the
portion of the costs allocated to the party committee's non-federal
account.
In Advisory Opinion 1979-17, the Commission recognized the ability
of a national party committee to establish a separate account to be
used ``for the deposit and disbursement of funds designated
specifically and exclusively to finance national party activity limited
to influencing the nomination or election of candidates for public
office other than elective `federal office.' '' Thus, the Commission
concluded that a national party committee could accept corporate
contributions ``for the exclusive and limited purpose of influencing
the nomination or election of candidates for nonfederal office.''
The 1979 amendments to the Federal Election Campaign Act sought to
encourage the participation of state and local party committees in
federal elections by carving out exceptions to the definitions of
contribution and expenditure for certain volunteer, voter registration
and get-out-the-vote activity conducted by these committees. Under
sections 431(8)(B)(x) and 431(9)(B)(viii), payments for the costs of
campaign materials used in connection with volunteer activities on
behalf of the party's nominee are not contributions or expenditures so
long as the payments do not finance any general public political
advertising, and are made from contributions that are permissible under
the Act but were not designated for a particular candidate. Sections
431(8)(B)(xii) and 431(9)(B)(ix) contain the same rule for voter
registration and get-out-the-vote drive costs conducted by the
committee on behalf of its presidential and vice-presidential nominees.
These provisions supplement a similar provision for slate cards and
sample ballots that existed in the Act prior to the 1979 amendments. 2
U.S.C. 431(8)(B)(v) and 431(9)(B)(iv). Since then, these activities
have collectively been referred to as ``exempt activities.'' The House
Report accompanying the 1979 amendments recognizes the ability of state
and local party committees to allocate the costs of slate card and
volunteer activities in certain circumstances. H.R. Rep. No. 96-422 at
8, 9 (1979).
In 1984, the Commission received a petition for rulemaking from
Common Cause seeking new rules relating to the use of soft money. The
petition requested that the Commission take action to address what the
petitioner alleged was the use of soft money by national party
committees to influence federal elections. The Commission published a
Notice of Availability on January 4, 1985, and subsequently published a
Notice of Inquiry on December 18, 1985. See 50 FR 477 (Jan. 4, 1985),
50 FR 51535 (Dec. 18, 1985). These two notices sought comments from the
public on the issues raised in the petition. The Commission also held a
public hearing on January 29, 1986, at which several witnesses
testified.
After reviewing the petition, the comments and the witness'
testimony, the Commission denied the Common Cause petition, concluding
that neither the petition nor the comments ``constitute concrete
evidence demonstrating that the Commission's regulations have been
abused so that funds purportedly raised for use in nonfederal elections
have in fact been transferred to the state and local level with the
intent that they be used to influence federal elections.'' Notice of
Disposition, 51 FR 15915 (Apr. 29, 1986).
Common Cause challenged the Commission's denial of the petition in
U.S. District Court. In court, Common Cause asserted that no allocation
method is permissible under the FECA. Consequently, Common Cause
argued, the Commission's denial of the petition was arbitrary and
capricious under the Administrative Procedure Act, 5 U.S.C. Sec. 706.
Common Cause also argued that allowing committees to allocate on a
reasonable basis was contrary to law because it failed to ensure proper
allocation between federal and non-federal accounts.
The court rejected Common Cause's first argument, saying that the
Act cannot be read to prohibit allocation. Common Cause v. FEC, 692 F.
Supp. 1391, 1395 (D.D.C. 1987). However, the court then agreed that the
Commission's policy of allowing state party committees to allocate
slate card expenses on any reasonable basis was contrary to law,
``since Congress stated clearly in the FECA that all monies spent by
state committees on these activities vis-a-vis federal elections must
be paid for `from contributions subject to the limitations and
prohibitions of this Act.''' Id. (quoting 2 U.S.C. 431(8)(B)(x)(2) and
(xii)(2), 431(9)(B)(viii)(2) and (ix)(2)). The court said that
[t]he plain meaning of the FECA is that any improper allocation
of nonfederal funds by a state committee would be a violation of the
FECA. Yet, the Commission provides no guidance whatsoever on what
allocation methods a state or local committee may use; . . . Thus, a
revision of the Commission's
[[Page 37724]]
regulations to ensure that any method of allocation used by state or
local party committees is in compliance with the FECA is warranted.
Id. at 1396.
The court directed the Commission to replace the ``any reasonable
basis'' allocation method with more specific allocation formulas that
would ensure that only contributions subject to the limitations and
prohibitions of the Act are used to influence federal elections.
However, the court also acknowledged that the Commission could
``conclude that no method of allocation will effectuate the
Congressional goal that all moneys spent by state political committees
on those activities permitted in the 1979 amendments be `hard money'
under the FECA. That is an issue for the Commission to resolve on
remand.'' Id. (emphasis in original).
In a subsequent order, the same court stated that ```[s]oft money'
denotes contributions to federally regulated campaign committees in
excess of the aggregate amounts permitted for federal elections by the
FECA; these contributions, even if directed to national campaign
entities, are permissible if the money is not to be used in connection
with federal elections.'' Common Cause v. FEC, 692 F.Supp. 1397, 1398
(D.D.C. 1988).
The Commission initiated a rulemaking in response to the court's
decision in which it made several efforts to obtain input from the
regulated community. In addition to the two comment periods and public
hearing held before the court's decision, the Commission sought
comments on proposed rules through a new Notice of Proposed Rulemaking
published on September 29, 1988. 53 FR 38012. The Commission also held
another public hearing on the proposed rules on December 15, 1988, at
which a cross section of the regulated community had an opportunity to
testify. The Commission took the additional step of sending
questionnaires to the chairs of all the Democratic and Republican state
party committees, and also sought input from the chief fundraisers for
each of the major political parties during the 1988 election year.
The Commission issued final rules in 1990 and put them into effect
on January 1, 1991. Methods of Allocation Between Federal and Non-
Federal Accounts; Payments; Reporting, 55 FR 26058 (June 26, 1990).
These rules currently govern the allocation of expenses between federal
and non-federal accounts. They seek to address the issue of soft money
in two ways.
First, the current rules replace the ``any reasonable basis''
allocation method with specific allocation methods to be used to pay
the costs of activities that impact both federal and nonfederal
elections. The method to be used depends on the type of committee
incurring the expense and the type of activity for which expenses are
to be allocated.
National party committees, other than the Senate and House campaign
committees, are required to allocate a minimum of 60% of their
administrative expenses and costs of generic voter drives to their
federal accounts each year (65% in presidential election years). 11 CFR
106.5(b). In addition, national party committees must allocate the
costs of each combined federal and non-federal fundraising program or
event using the funds received method described in 11 CFR 106.5(f).
Senate and House campaign committees are required to allocate their
administrative and generic voter drive expenses using a funds expended
formula, subject to a 65% minimum federal percentage, 11 CFR 106.5(c),
and, like the national party committees, they must allocate the costs
of each combined federal and non-federal fundraising program or event
using the funds received method described in 11 CFR 106.5(f), with no
minimum federal percentage required.
State and local party committees must allocate (1) their
administrative expenses and generic voter drive costs using the ballot
composition method, described in 11 CFR 106.5(d); (2) the costs of
communications exempt from the contribution and expenditure definitions
under 11 CFR 100.7(b) (9), (15) or (17), and 100.8(b) (10), (16) or
(18), according to the proportion of time or space devoted to federal
and nonfederal candidates in the communication, 11 CFR 106.5(e); (3)
expenses incurred in joint fundraising activities using the funds
received method, 11 CFR 106.5(f); and (4) direct candidate support
activity according to the time or space devoted to each candidate in
the communication. 11 CFR 106.1. The new rules also set up procedures
to be used by all three types of committees to pay for their mixed
activities.
Second, the rules impose additional reporting requirements in order
to enhance the Commission's ability to monitor the allocation process.
All three types of party committees are required to report their
allocations of administrative expenses, voter drive costs, fundraising
costs and costs of exempt activities, and also to itemize any transfer
of funds from their non-federal to their federal or allocation
accounts. In addition, all six national party committees are now
required to disclose the financial activities of their nonfederal
accounts. Specifically, the committees are required to report all
nonfederal receipts and disbursements. The Commission believed this
additional reporting would help to ensure that impermissible funds were
not used for federal election activities.
On May 20, 1997, the Commission received a petition for rulemaking
from five Members of the United States House of Representatives urging
the Commission ``to modify its rules to help end or at least
significantly lessen the influence of soft money.'' On June 5, 1997,
the Commission received a second petition for rulemaking relating to
soft money, this one submitted by President Clinton. President
Clinton's petition asks the Commission to ``ban soft money'' and
``adopt new rules requiring that candidates for federal office and
national parties be permitted to raise and spend only `hard dollars.'''
In accordance with its usual procedures, the Commission published a
Notice of Availability in the June 18, 1997 edition of the Federal
Register announcing that it had received the petitions and inviting the
public to submit comments on them. 62 FR 33040 (June 18, 1997). The
comment period closed on July 18, 1997. The Commission received 188
comments in response to the Notice of Availability.
Summary of Comments on the Petitions for Rulemaking
Most of the comments on the Notice of Availability were directed at
the question of whether the Commission should promulgate new rules on
soft money, and if so, what those rules should be. However, a few
commenters raised threshold issues regarding the petitions that should
be addressed before examining the substantive issues raised. These
threshold issues will be discussed in subsection 1, below. The
remaining comments will be summarized in subsection 2.
1. Comments Raising Threshold Issues Regarding the Petitions
a. Sufficiency of the Petitions
One comment raised a threshold question about the sufficiency of
the petitions. This comment asserted that the petitions should be
denied because they do not set forth the factual and legal grounds
supporting the proposed change in the rules. See 11 CFR 200.2(b)(4).
The comment said that the Commission should require petitioners to put
on record ``specific, detailed and credible instances of abuse that in
terms of seriousness and scope will justify'' the rules sought in the
petition, and
[[Page 37725]]
should hold certain petitioners to a higher standard of evidence.
This comment misconstrues the purpose of the petition for
rulemaking procedures. These procedures provide the public with
guidance on how to seek changes in the Commission's rules, and should
be read in light of the Commission's long-standing practice of making
its policymaking processes as open and accessible as possible. The
rules do not place a heavy evidentiary burden on a petitioner to prove,
on the face of a petition, that policy changes are necessary.
Petitioners need only raise policy issues that are within the
Commission's jurisdiction, and request that the Commission consider
whether policy changes are warranted. If a petitioner does so, the
Commission will publish a Notice of Availability and begin its
consideration process. The Commission will use the comments received on
the petition and its own experience in interpreting and enforcing the
Act to determine whether to proceed with a rulemaking.
Furthermore, implicit in the Commission's commitment to making its
rulemaking process easily accessible to the public is a commitment to
making that process available to all members of the public on an equal
basis. Consequently, the Commission does not believe it would be
appropriate to hold certain petitioners to higher evidentiary
standards.
The Commission concludes that the letters submitted by President
Clinton and the five Members of Congress adequately explain the factual
and legal grounds upon which they rely, and demonstrate that there are
issues related to the use of soft money that are worthy of Commission
consideration. Therefore, they qualify as petitions under 11 CFR
200.2(b). The Commission also notes that even if it were to conclude
that the letters do not qualify as petitions, it has the discretionary
authority to treat them as the basis for a sua sponte rulemaking. 11
CFR 200.2(d).
b. Statutory Authority
Another threshold issue raised by the comments is whether the
Commission has the authority to regulate soft money. Several of the
comments that opposed the petitions take the position that soft money
is outside the Commission's jurisdiction, and that imposing limits on
soft money would exceed the Commission's statutory authority. They
assert that, since the Act does not restrict the use of non-federal
funds by the national party committees unless those funds are used for
federal election activity, the Commission cannot impose restrictions on
its own.
In contrast, several of the comments that support the petitions
argued that the Commission has the power to ban the use of soft money
by party committees to the extent necessary to avoid having soft money
influence federal elections. Another comment argued that, in the Common
Cause case, discussed above, the court said that when the Commission
fails to issue regulations, and the policy resulting from that failure
flatly contradicts Congress's purpose, the Commission can be held to
have acted contrary to law. Since the Act prohibits the use of soft
money in federal elections, this comment asserts that a Commission-
imposed limitation serving the same purpose would be upheld.
The Commission has reviewed this threshold question and reached the
preliminary conclusion that it has the authority to issue new rules
relating to soft money, at least insofar as it is used in connection
with Federal elections. The FECA limits the amounts that individuals
and political committees can contribute for the purpose of influencing
federal elections, and also prohibits corporations, labor organizations
and federal contractors from using their general treasury funds to make
contributions in connection with federal elections. 2 U.S.C. 441a,
441b, 441c. Section 438(a)(8) of the Act authorizes the Commission to
``prescribe rules, regulations and forms to carry out the provisions of
this Act. * * *'' The Commission believes this broad grant of
rulemaking authority includes the authority to promulgate rules to
limit the use of soft money in connection with federal elections.
There is ample judicial authority supporting this conclusion. As
the United States Court of Appeals for the District of Columbia Circuit
has recognized, courts have shown a ``lack of hesitation in construing
broad grants of rule-making power to permit promulgation of rules with
the force of law as a means of agency regulation of otherwise private
conduct.'' National Petroleum Refiners Association v. Federal Trade
Commission, 482 F.2d 672, 680 (D.C. Cir. 1973) (``NPRA''). ``An agency
with a general grant of rulemaking authority has jurisdiction to
promulgate regulations reasonably related to the purposes of its
enabling legislation.'' Pinney v. National Transportation Safety Board,
993 F.2d 201, 202 (10th Cir. 1993). The Supreme Court has said that
``[w]here the empowering provision of a statute states simply that the
agency may `make * * * such rules and regulations as may be necessary
to carry out the provisions of this Act,' we have held that the
validity of a regulation promulgated thereunder will be sustained so
long as it is `reasonably related to the purposes of the enabling
legislation.' '' Mourning v. Family Publications Service, Inc., 411
U.S. 356, 369 (1973) (quoting Thorpe v. Housing Authority of City of
Durham, 393 U.S. 268, 280-81 (1969). The ``authority of the [Federal
Power Commission] need not be found in explicit language. [A general
rulemaking provision] demonstrates a realization by Congress that the
Commission would be confronted with unforeseen problems of
administration in regulating this huge industry and should have a basis
for coping with such confrontation. While the action of the Commission
must conform with the terms, policies and purposes of the Act, it may
use means which are not in all respects spelled out in detail.'' Public
Service Comm'n of State of New York v. Federal Power Commission, 327
F.2d 893, 897 (D.C. Cir. 1964). Thus, the Commission believes that it
has the authority to promulgate rules to ensure that contributions that
would violate sections 441a, 441b or 441c are not used to influence
federal elections.
The Commission also believes that, given the complexity of the
issues raised, this is an area in which providing additional guidance
to the regulated community is particularly important. ``More than
merely expediting the agency's job, use of substantive rule-making is
increasingly felt to yield significant benefits to those the agency
regulates. Increasingly, courts are recognizing that use of rule-making
to make innovations in agency policy may actually be fairer to
regulated parties than total reliance on case-by-case adjudication.''
NPRA, 482 F.2d at 682.
However, the Commission does not regard this as a closed issue.
Therefore, as part of its effort to explore the question of whether new
rules are needed, commenters are invited to further address the issue
of whether the Commission has the authority to promulgate rules in this
area. Commenters are also encouraged to express their views on whether
the proposed rules set out in this notice are within the scope of that
authority.
2. General Comments on the Petitions for Rulemaking
a. Comments Supporting the Petitions
Approximately \3/4\ of the 188 comments received in response to the
Notice of Availability expressed support for the petitions for
rulemaking. Among
[[Page 37726]]
those supporting the petition were twelve United States Senators, three
United States Congressmen, the Secretaries of State of five states, and
eleven state Attorneys General.
These supporting comments suggested a number of different
strategies for addressing the issues raised in the petition. For
example, more than a hundred comments urged the Commission to ban soft
money completely, while other comments urged the Commission to limit
certain uses of soft money. A dozen comments urged the Commission to
ban soft money contributions to the national party committees, or to
prohibit the party committees from receiving soft money contributions.
Three other commenters urged the Commission to prohibit the
solicitation of soft money contributions by national party committees,
federal officeholders, and federal candidates. Another comment
suggested that the Commission prohibit the party committees from
spending soft money or transferring it to other committees. Other
comments were directed at the use of soft money by state and local
party committees. These comments suggested that the Commission prohibit
state and local party committees from spending soft money on any
activity or event that might influence a federal election, and limit
their use of soft money to general overhead expenses.
Several comments suggested that the Commission impose partial
limits on soft money. One comment suggested that the use of soft money
be reduced or limited so that the amount will not influence a party or
candidate. Two comments suggested that specific dollar limits be
imposed, one on the amount that a party committee could receive, and
the other on the amount that a contributor could give.
The comments contained a number of arguments as to why additional
limits on the use of soft money are needed. Four comments asserted that
soft money destroys the integrity of the political process, and said
that a ban on soft money would help to restore public confidence in the
integrity of the process. Eight comments said that the widespread use
of soft money alienates voters, and creates the perception of
impropriety, thereby discouraging involvement in the process. Five
commenters argued that soft money increases the demand for campaign
contributions, and distracts government officials from the
responsibilities of governance.
Many of the comments also argued that soft money is a loophole
being used to circumvent the prohibitions and limitations of the Act.
One comment asserted that the current system essentially allows money
laundering to occur by allowing impermissible soft dollars to be
exchanged for hard dollars that can be used without limitation. Other
comments said that soft money results in actual quid pro quo
corruption, thereby frustrating the purposes of 2 U.S.C. 441a and 441b.
Another comment expressed concern that soft money is having a negative
impact on the public financing system for presidential campaigns.
Several comments were directed at the system of allocating federal
and non-federal expenses, as set out in the current rules. Most of
these comments urged the Commission to abandon the system and prohibit
any combined use of federal and nonfederal funds. Several comments
asserted that the soft money problem has grown significantly worse
since the rules were promulgated, indicating that the rules have failed
to ensure that only hard dollars are used to influence federal
elections. One of these comments said that reporting under the
allocation rules is inadequate, and that the Commission does not have
the resources necessary to enforce the rules.
b. Comments Opposing the Petitions
As indicated above, about one quarter of the comments spoke out
against limits on soft money, for a variety of reasons. Several
comments argued that the proposals set out in the petitions would
violate the First Amendment. Others expressed concern that the
proposals would effectively federalize all national party activities,
and could weaken parties, which play an important role in our political
system. Two other comments urged the Commission to take action on soft
money only when it has addressed the issue of compulsory union dues.
Three comments urged the Commission to reject the petitions and devote
its resources to enforcing existing laws.
Analysis
Prior to 1991, it was difficult to determine how much soft money
the party committees were raising and spending, because there was no
systematic disclosure of soft money activity, and no uniform guideline
for allocating expenses. Although some states required party committees
to disclose their non-federal account activity, others did not, and
even in those states where disclosure was required, not all activity
appeared on the public record. Consequently, most of the available
information was anecdotal.
The Commission is generally reluctant to make significant changes
in existing policy in the absence of clear evidence that such changes
are needed to effectuate the Act's mandate. Consequently, the
Commission concluded that it would be inappropriate to impose the
significant restraints on the use of soft money sought in the 1984
petition for rulemaking. Instead, the Commission established specific
allocation methods and required additional disclosure by the party
committees. Based upon the information available at the time, the
Commission believed this approach struck the appropriate balance
between the need to effectuate the prohibitions and limitations of the
Act, and also recognize the interests of the states in regulating non-
federal activity.
However, recent developments--brought to light in many instances
because of the additional disclosure requirements imposed in 1991--have
reopened the question of whether allowing party committees to pay a
portion of their mixed activities costs with soft dollars is consistent
with the mandate of the FECA. Concerns have been raised that the
allocation rules have allowed party committees to use large
contributions from prohibited sources and in excess of the hard dollar
limits in ways that, in fact, influence federal elections, even though
they are ostensibly being used for nonfederal election activity.
One such development is the dramatic increase in the amount of soft
money raised and spent by the national party committees since
promulgation of the allocation rules. According to summaries of the
reports filed with the Commission, which do not include transfers among
the national party committees, the national committees raised $262.1
million during the 1995-96 election cycle, or an average of
approximately $131.05 million per year, up from $86 million in the 1992
election cycle or an average of $43 million per year. Similarly, soft
money disbursements by the committees totaled $271.5 million in the
1996 election cycle, a significant increase from the $79.1 million
spent in the 1992 election cycle. The reports also show that soft money
receipts by the national party committees continued to increase in
1997. Soft money fundraising by the Democratic committees increased 25%
during the first six months of the year, when compared to the same
period during the previous election cycle. Soft money fundraising by
the Republican national party committees increased 17% during this
period.
[[Page 37727]]
In addition to the increase in the total dollar amount of soft
money contributions, there has also been an increase in the number of
contributions made to the party committees' nonfederal accounts that
would have been prohibited under FECA if they had been made to a
federal account. As explained above, the Act limits individual
contributions to the national party committees' federal accounts to
$20,000 per calendar year, and also limits total contributions by an
individual to $25,000 per year. 2 U.S.C. 441a(a)(1)(B) and 441a(a)(3).
In addition, the Act prohibits contributions by corporations, labor
organizations and federal contractors. 2 U.S.C. 441b, 441c. Entities
that are prohibited from making contributions to a federal account and
individuals wishing to make contributions in excess of the dollar
limits have generally been permitted to direct those contributions to a
nonfederal account, even though contributions to nonfederal accounts
are often used for activities that have an impact on federal elections.
The reports indicate that contributors are doing so with increasing
frequency. The national party committees' nonfederal accounts received
at least 381 individual contributions of more than $20,000 during the
1992 presidential election cycle, and also received about 11,000
contributions from sources that are prohibited from contributing to
federal accounts. In the 1996 election cycle, both numbers more than
doubled. The committees' nonfederal accounts received nearly 1000
individual contributions in excess of $20,000, and also received
approximately 27,000 contributions from FECA-prohibited sources. Thus,
it appears that an increasing number of contributors see the party
committees' nonfederal accounts as an avenue through which they can
make contributions that would be prohibited under sections 441b or 441c
or would exceed the $20,000 individual contribution limit. Some
individual contributors may also be using these accounts to make
contributions that would otherwise exceed their $25,000 overall limit.
Ironically, there are also indications that the allocation rules
themselves may have increased the amount of soft money raised by the
national party committees, although it may not be possible to establish
cause and effect. Although the national party committees were not
required to report soft money receipts in 1984, one national party
committee official submitted testimony stating that his party raised
$3.7 million in soft money during the 1984 Presidential election year.
Federal Election Commission Hearing on the Use of Undisclosed Funds or
``Soft Money'' to Influence Federal Elections, January 29, 1986
(written testimony of Frank J. Fahrenkopf, Chairman, Republican
National Committee, at 4). That same party committee raised $23.5
million in 1992, the first Presidential election year in which the
allocation rules applied. This party committee subsequently raised
$66.2 million in the 1996 Presidential election year, approximately 18
times the amount reportedly raised in 1984. In addition, two national
party committees that did not have a non-federal money account before
promulgation of the allocation rules established such an account and
began raising soft money after the rules went into effect.
In some situations, the national party committees have interpreted
the allocation rules to allow transfers of funds to state and local
party committees in order to take advantage of more favorable
allocation ratios. Although the allocation rules prohibit state party
committees from using transferred funds for certain volunteer and GOTV
activities, see 11 CFR 100.7(b)(15)(vii), and (b)(17)(vii),
100.8(b)(16)(vii) and (b)(18)(vii), they do not prohibit the use of
transferred funds for voter drive or other activities, nor do they
explicitly require state parties to apply the national party
committee's allocation ratio when they use transferred funds for those
purposes.
Generally speaking, it is easier to raise soft money than hard
money. As a result, the national party committees look for ways to make
their hard dollars go farther. Transferring funds helps them achieve
this goal in a number of ways. For example, a national party may try to
stretch its hard dollars by transferring them to a state or local party
committee and instructing the committee to use the funds for a
particular mixed activity. Generally, the rules permit a state or local
party committee to pay a higher percentage of its mixed activity costs
with soft dollars than a national party is able to when conducting the
same activity. In many cases, the difference is significant. To
illustrate, a national party committee conducting a $100,000 voter
drive under the current rules would be required to pay for the drive
with at least $60,000 in hard money. In contrast, a state party
committee conducting the same drive might only be required to use
$35,000 in hard money, and could pay the remaining costs with soft
money. This creates an incentive for the national committee to transfer
hard dollars to the state committee and have the recipient committee
conduct the activity.
There have also been allegations that both national and state party
committees have transferred soft dollars to nonprofit organizations for
them to use in conducting activities that influence federal elections,
such as voter registration drives or get-out-the-vote campaigns.
Ordinarily, a party committee would be required to allocate the costs
of such an activity, i.e., pay part of the cost of the activity with
hard dollars. However, many nonprofit organizations are not political
committees under the FECA, and thus are generally not subject to the
allocation rules. Currently, in many situations, nonprofit
organizations that are not political committees under the FECA can pay
the costs of voter registration or get-out-the-vote activities entirely
with soft dollars. Thus, as with the hard dollar transfers described
above, the party committees may believe that transferring soft money to
these types of nonprofit organizations will enable them to conserve
hard dollars. However, in applying the allocation rules, one court has
said that when an organization conducts an allocable activity with
funds received from a party committee, the recipient organization can
be required to use the allocation rules applicable to the party
committee from which the funds were obtained. FEC v. California
Democratic Party, No. S-97-891, (E.D.Cal. Jun. 11, 1998).
The disclosure reports show that, in election years, the national
party committees transfer more soft money to state and local party
committees in states that appear to have closely contested races for
federal office. For example, reports indicate that the national party
committees transferred a combined $14.3 million in soft money to state
and local party committees in California during the 1995-96 election
cycle. California was an important battleground state in the
Presidential election. Polls indicated that both major party candidates
had a chance to win the state's 54 electoral votes.
In contrast, polls indicated that President Clinton had a
substantial lead in New York State. One national party committee did
not transfer any soft money to state and local party committees in New
York during the 1995-96 election cycle, and the other national party
committee transferred only $325,332, even though New York represents 33
electoral votes. While this is only one example and there are other
possible explanations for this disparity, one likely explanation for it
is that the national party committees were
[[Page 37728]]
directing their soft money to those states in which it would have the
most impact on federal elections.
In addition, there have been allegations in the press and other
fora that suggest that federal candidates and officeholders may be more
involved in the process of raising soft money for the parties than they
have been in the past. Federal officeholders, in particular, appear to
be directly involved in soliciting contributions for the party
committees' soft money accounts. In 1990, the Commission recognized
that some solicitations for soft money contributions may lead
contributors to believe that funds contributed will be used to benefit
federal candidates, when, in fact, soft money can only be used for non-
federal election activity. In order to address this concern, the
Commission created a presumption that party committee solicitations
that refer to a federal candidate or election are for the purpose of
influencing a federal election, and thus any contributions received in
response to those solicitations are subject to the prohibitions and
limitations of the Act. 11 CFR 102.5(a)(3). 55 FR at 26059 (June 26,
1990). The Commission now believes it may be appropriate to seek
comments as to whether solicitations by a federal candidate or federal
officeholder should be covered by Sec. 102.5(a)(3), and thus whether
the resulting contributions should be subject to the Act's prohibitions
and limitations.
Of course, the discussion of the above allegations should not be
read as a determination by the Commission that these allegations
involve violations of the FECA. Determinations by the Commission of
violations of FECA by specific persons in specific factual contexts can
only be made in an enforcement proceeding.
However, the record described above suggests that the use of soft
money has expanded far beyond what the Commission anticipated when it
promulgated the allocation rules. This appears to be particularly true
for the national party committees. They are directly tied to federal
officeholders in Congress and the White House. They also play a major
role in raising funds to elect candidates for federal office, and in
directing those funds to states in which key elections are being held.
Thus, it is reasonable to conclude that at least one dominant focus of
the national party committees is in electing federal candidates. This
is in contrast to state and local party committees, who focus more of
their activities on raising funds for and assisting in the election of
state and local candidates.
On the other hand, the Commission is also aware that only a small
percentage of the 500,000 elected positions in this country are
federal, and that national party committees may have an interest in the
outcome of both federal and nonfederal elections. In some cases, the
national party committees promote ideas, issues and agendas of
importance to their respective parties, activities which, they assert,
do not fall within the FECA. Thus, it is reasonable to conclude that
another dominant focus of the national party committees is advocating
issues and electing state and local candidates, although the level of
direct involvement in non-federal elections varies among the national
party committees. In recognition of this interest, national party
committees have, to date, been permitted to set up separate nonfederal
accounts to raise and spend money as allowed under applicable state and
local law.
Putting aside the question of how much national party committee
activity is not federal-election related, it appears that by allowing
national party committees to pay a portion of their mixed activities
costs with soft dollars, the allocation rules appear to be allowing the
national party committees to use large soft money contributions in ways
that unavoidably influence federal elections, even though they are
ostensibly raised for nonfederal election activity. This is
inconsistent with the policy goals of the FECA, which seeks to limit
corruption and the appearance of corruption that is created when large
individual contributions and corporate, labor organization and federal
contractor funds are used to influence federal elections. The number
and percentage of comments expressing the view that soft money has a
corrupting influence on the federal election process is a strong
indication that soft money is ``eroding * * * public confidence in the
electoral process through the appearance of corruption.'' FEC v.
National Right to Work Committee, 459 U.S. 197, 209 (1982) (citing
Buckley v. Valeo, 424 U.S. 1, 26-27 (1976)).
Consequently, the Commission believes that it may be necessary to
promulgate new rules to ensure that soft money is not used to influence
federal elections, and give full force and effect to the prohibitions
and limitations of the Act. The Commission has drafted proposed rules
that seek to achieve this goal. These rules are set out below, along
with several alternative proposals.
The Commission is also interested in receiving comments on any
other issues relating to soft money. In particular, as discussed above,
comments are invited on the scope of the Commission's authority to
promulgate rules in this area. Comments are also invited on whether the
allegations discussed above are accurate, relevant to this inquiry, and
adequate to justify changes in Commission policy.
The Commission would like to re-emphasize that the rules and
alternatives set out below are preliminary proposals only. They do not
represent a final decision, and may be modified by the Commission or
rejected and not adopted at all. Also note that these proposals focus
on soft money activity conducted by party committees, and would not
directly impact issue advocacy conducted by other entities, which,
unless it expressly advocates the election or defeat of a clearly
identified candidate, or in certain cases is coordinated with a
candidate or party, is outside the Commission's jurisdiction.
Coordination is currently being addressed in another rulemaking. See 62
FR 24367 (May 5, 1997).
Rulemaking Proposals
In an effort to generate a full range of views, the Commission is
seeking comment on two options for addressing the issues raised above,
and is also seeking comment on three variations on the second of these
two options.
The first option would be to make no changes to the current rules.
Under the first option, the national parties would continue to be
prohibited from receiving and using soft money in connection with
federal elections. Soft money raised for non-federal election related
purposes would be permitted. Non-federal accounts would be permitted
for these non-federal election purposes along with the building fund
accounts specifically authorized by the FECA.
The second option would be to make revisions to the current rules.
The Commission has drafted proposed revisions to the current rules that
would address these issues. The proposed revisions are described in
detail in the next two sections. Draft rules implementing these
proposals are set out in the proposed rule section of this notice.
The proposed revisions consist of a core proposal, and three
variations on the core proposal. The core proposal would prohibit the
receipt and use of soft money by the national party committees, and
would eliminate all national party committee nonfederal accounts other
than the building fund accounts specifically authorized by the FECA.
This proposal also clarifies portions of section 102.5 relating to
solicitations by federal candidates and officeholders. However, the
core proposal would not change the
[[Page 37729]]
allocation rules for state and local party committees.
The first variation to the core proposal would modify it to make a
narrow exception to the prohibition on the receipt of soft money by
national party committees. This exception would allow national party
committees to raise soft money for the limited purpose of making direct
or earmarked contributions to state and local candidates. The section
of the proposed rules titled ``variation one'' sets out those rule
provisions that would be different from the core proposal if this
variation were adopted. All the other provisions of the core proposal
would remain the same.
The second variation on the core proposal would modify the core
proposal to ensure that hard money transferred from a national to a
state or local party committee is spent using the rules applicable to
the national party committees, rather than the state or local party
committee's more favorable allocation ratios. Variation two would
require the national party committee to earmark transfers of funds for
use in a particular activity, and would require the state or local
party committee to finance the identified activity entirely with hard
dollars. Variation two could be implemented if either one of the two
options were adopted as is, or if the core proposal of the second
option were adopted with variation one. As with variation one,
variation two of the proposed rules sets out those rule provisions that
would be different from the core proposal if variation two were
adopted.
Finally, the third variation on the second option's core proposal
would extend portions of the core proposal's treatment of national
party committees to state and local party committees. Under variation
three, state and local party committees would be required to finance
their mixed activities entirely with hard dollars. Like variation two,
variation three could be implemented in conjunction with the core
proposal, or in conjunction with both the core proposal and variation
one. Those provisions that would differ from the core proposal of the
second option are set out in variation three of the proposed rules,
below.
The Commission invites commenters to submit their views on the
first and second options, including the core proposal and all three
variations of the second option.
1. National Party Committees, Including the Senate and House Campaign
Committees of the National Parties
The objective of the proposed rules is to ensure that soft money is
not used to influence federal elections. In order to achieve this
result, the core proposal virtually eliminates the soft money available
to the national party committees to subsidize activities that influence
federal elections.
Both the first and second options recognize the limited scope of
the FECA, and acknowledge that national party committees have other
purposes besides the election of federal candidates. The major
difference between the two options is whether most national party
committees' federal and nonfederal activities are inextricably
intertwined, or, as the current rules suggest, can be separated in a
way that will ensure that soft money is not used to influence federal
elections.
One way to attempt to reduce the amount of soft money used to
influence federal elections would be to adjust the allocation ratios so
that national party committees are required to use a larger percentage
of hard dollars to pay the costs of their mixed activities. However,
adjusting the allocation ratios would have limited impact for several
reasons.
First, unless the ratios were increased to 100%, the national party
committees could continue to pay for a portion of their mixed
activities with soft dollars. Thus, increasing the ratios would merely
reduce, rather than eliminate, the amount of soft money spent by the
national party committees on mixed activities that influence federal
elections.
In addition, this approach would have no impact on soft money spent
by the national party committees that is not spent directly on mixed
activities. Of the $271.5 million in soft money disbursed by the
national party committees during the 1996 election cycle, only $90.5
million, or one third, was spent directly on mixed activities that were
subject to the allocation ratios. An even greater amount, $114.8
million, or 42% of the total spent during the cycle, was transferred to
state and local party committees. An additional amount, which cannot be
as readily determined from the committees' reports, was transferred to
outside groups that are not subject to the allocation rules. Adjusting
the allocation ratios would only affect those amounts spent on mixed
activities. Amounts transferred between party committees would be
unaffected.
The preliminary evidence described above indicates that soft money
transferred by the national party committees, except for money not used
in connection with federal elections, is having a significant impact on
federal elections. If the proposed rules do not take these transfers
into account, they will not adequately effectuate the Congressional
intent that only hard money be used to influence the outcome of federal
elections. See Common Cause v. FEC, 692 F. Supp. 1391 (D.D.C. 1987),
enforced, 692 F. Supp. 1397 (D.D.C. 1987).
The first option, described in the introduction above, assumes that
money raised by national party committees to elect candidates to state
and local offices and to promote party positions on issues of local,
regional, and national importance can be spent in a way that will not
influence federal elections, and thus is beyond the Commission's
jurisdiction. The Commission invites comments on this option. In
particular, the Commission encourages commenters to help clarify the
various purposes of national party committees by discussing those
national party committee activities that promote party positions,
agendas and ideas on issues of local, regional, and national
importance.
In addition to seeking comments on this approach, the Commission is
also seeking comments on whether Schedule I should be revised so that
transfers between party committees can be more accurately tracked as
well as money used to elect candidates to state and local offices and
to promote party positions on issues of local, regional, and national
importance. This information would greatly enhance the available
information on how soft money is spent by national party committees.
The second option is based on the conclusion that the only way to
limit the amount of soft money spent by the party committees to
influence federal elections would be to reduce the amount of soft money
raised by the party committees, and in particular, by the national
party committees. This option concludes that the dominant focus of the
national party committees is on electing federal candidates, and
virtually all national party committee activities influence federal
elections. Thus, it would be more consistent with the purposes of the
FECA and the statute's jurisdictional reach to require national party
committees to finance their mixed activities entirely with hard
dollars. The most effective way of carrying out the Act's requirements
is to prohibit the national party committees
[[Page 37730]]
from raising soft money for most purposes.
The core proposal of the second option would achieve this goal by
revising the allocation rules for national party committees.
Specifically, the core proposal would revise section 102.5 to prohibit
all three types of national party committees from operating non-federal
accounts and accepting soft money. The only exception would be that
committees could continue to operate the building fund accounts, since
these accounts are specifically permitted by the FECA. See 2 U.S.C.
431(8)(B)(viii), 11 CFR 100.7(b)(12) and 11 CFR 100.8(b)(13).
The core proposal of the second option would also make related
changes to Part 106. Proposed sections 106.1(a) and 106.5(b) would
require the national party committees to defray expenses, other than
building fund expenses, entirely with hard dollars. This would include
the costs of expenditures that are on behalf of both federal and
nonfederal candidates, section 106.1(a), and the costs of combined
federal and non-federal fundraising programs currently allocated using
the funds received method in section 106.5(f). It would also include
costs incurred in fundraising for the committees' building funds, in
order to ensure that fundraising for building funds does not become an
avenue for spending soft money to influence federal elections, such as
by soliciting building fund contributions with communications that
expressly advocate the election or defeat of federal candidates.
Sections 106.1(a) and 106.5(b) of the core proposal would apply to
all of the national party committees, including the Senate and House
campaign committees. The core proposal would also make minor structural
modifications to section 106.1. Paragraph (a) would be broken into two
parts, and several reporting requirements in separate paragraphs of the
current rule would be relocated to paragraph (b). In addition, current
section 106.5(c), would be removed and replaced with an entirely new
provision, to be discussed below. The Commission invites comments on
these proposals.
Variation one on the second option's core proposal is largely the
same as the core proposal. However, variation one would create a narrow
exception to the prohibition on the receipt of soft money by national
party committees. Under section 102.5(c) of variation one, national
party committees other than the Senate and House campaign committees
would be allowed to maintain a second non-federal account for the
limited purpose of receiving donations that are either earmarked for
and subsequently donated to clearly identified non-federal candidates
or are raised and spent solely in the form of donations to non-federal
candidates, either directly or through an earmarked transfer to a state
or local party committee. This would allow national party committees to
continue raising soft dollars for the very limited purpose of making or
passing on contributions directly to nonfederal candidates. However,
the national party committees would still be required to finance their
mixed activities entirely with hard dollars. Comments are invited on
this proposal.
If the second option were to be adopted, either with or without
variation one of the core proposal, a modest reorganization of section
106.5 of the regulations would be necessary. This reorganization is
shown in the core proposal section of the proposed rules. First, the
section heading would be revised to reflect the substantive changes in
the section. Second, since the national party committees would no
longer be allocating expenses, the list of costs to be allocated in
current section 106.5(a)(2) would be relocated to section 106.5(c)(2).
Revised section 106.5(b) would apply to all national party committees,
including the Senate and House campaign committees, and new section
106.5(c) would state the general rule that state and local party
committees are required to allocate the expenses in paragraph (c)(2) in
accordance with paragraphs (d) through (f). Comments are invited on the
reorganization of section 106.5.
The version of section 106.5 in variation three of the second
option also reflects this reorganization, although variation three
would also make other changes to section 106.5 that will be discussed
further below.
2. State and Local Party Committees
The Commission is seeking comment on whether the rules governing
state and local party committees should be changed to address some of
the issues raised above.
As with the national party committees, the current allocation rules
appear to be allowing state and local party committees to use soft
money to subsidize activities that, at least in part, influence federal
elections. In addition, as discussed above, the differences between the
allocation methods applicable to national party committees and those
applicable to state and local party committees create an incentive for
a national party committee that wants to engage in a mixed activity to
transfer hard dollars to a state or local party committee and have the
recipient committee conduct the activity using its more favorable
allocation ratios. This problem exists under the current rules.
However, it would be made more acute if the second option were adopted,
because the core proposal for national party committees would eliminate
the national party committees' non-federal accounts and require
national party committees to use 100% hard money for all activities.
Implementing the core proposal of the second option could also
encourage soft money donors to redirect their contributions to the
state and local party committees, which would then use the funds for
mixed activities that influence federal elections. The national party
committees might assist their state and local affiliates by employing a
type of directed donor strategy, in which the national committee
solicits soft money contributions and instructs contributors to send
their contributions directly to the state or local committee. Thus,
instead of reducing the amount of soft money activity, the core
proposal for national party committees may merely redirect that
activity to the state and local level, where reporting may be less
complete than at the federal level.
Variations two and three on the core proposal would address these
issues. If the core proposal of the second option were implemented with
variation two, the rules would eliminate the national party committees'
nonfederal accounts and would also seek to limit the incentive for
national party committees to transfer funds to state and local party
committees in order to take advantage of the recipient committee's more
favorable allocation ratios. Specifically, variation two would require
a national party committee that transfers hard dollars to a state or
local party committee to include a written communication identifying
the state or local party committee activity for which the transferred
funds are to be used. The national party committee would also be
required to include a copy of the written communication in its next
regularly scheduled disclosure report to the Commission. See section
106.5(b) of variation two.
The recipient state or local party committee would then be required
to use the transferred funds for the identified activity, and pay any
additional costs incurred in the identified activity entirely with hard
dollars. This would ensure that funds that originate with a national
party committee are used in accordance with the rules that apply to
national party committees. Finally, like the national
[[Page 37731]]
party committee, the state or local party committee would be required
to submit a copy of the written communication with its next regularly
scheduled disclosure report. Section 106.5(c)(1)(ii)(A) of variation
two. Comments are encouraged on these proposals.
Paragraph (c)(1)(ii)(B) of variation two contains an exception for
transfers to state and local party committees in states that hold
federal and non-federal elections in different years. The transfer
requirements described above would not apply to transfers made to these
entities if the funds transferred were used exclusively for generic
voter drive activity conducted in a calendar year in which no
candidates for federal office appear on any primary, general, or
special election ballot.
Variation two also contains a conforming amendment to section
106.1. Revised section 106.1(a)(1) would require state and local
committees to follow the transfer rules in section 106.5 if they use
transferred funds to pay for expenditures on behalf of both federal and
nonfederal candidates. The Commission also notes that it may be
necessary to make other conforming amendments to the reporting
requirements in Part 104 of the regulations, should variation two be
implemented.
Variation three of the core proposal would extend portions of the
core proposal's treatment of national party committees to state and
local party committees in order to ensure that state and local
committees do not use soft money donations to influence federal
elections. The core proposal would require national party committees to
pay their expenses entirely with hard dollars. Similarly, variation
three would require state and local party committees to pay the costs
of their mixed activities entirely with hard dollars, regardless of
whether the funds used were transferred from a national party
committee. Under this approach, state and local party committees would
be required to pay all of the costs they incur in the activities
described in current section 106.5(a)(2) with funds that are
permissible under the FECA. This is in contrast to the current rules,
under which they allocate the costs of all of these activities, and is
also in contrast to variation two, under which they would allocate the
costs of any mixed activities not partially financed with funds
transferred from a national party committee. Variation three would also
amend section 106.1 to require state and local committees to use hard
dollars for expenditures made on behalf of both federal and nonfederal
candidates.
Variation three would contain two exceptions to the general
requirement that state and local party committees pay the costs of
their mixed activities entirely with hard dollars. First, national and
state party committees could continue to defray their building fund
expenses with funds in a building fund account established in
accordance with section 102.5(c)(2). In addition, state and local party
committees in states that do not hold federal and non-federal elections
in the same year could continue to use funds that are not subject to
the prohibitions and limitations of the Act to defray the costs of
generic voter drive activity conducted in a calendar year in which no
candidates for federal office appear on any primary, general, or
special election ballot.
Comments are invited on variation three of the core proposal. The
Commission recognizes that this would be a significant change for
committees that operate on the state and local level, and would raise
issues regarding the scope of the FECA. The concept underlying this
approach is that all mixed activity, by its very nature, affects
federal elections, and must be paid for with hard dollars. Commenters
are encouraged to address the question of whether the Commission has
the statutory authority to implement such a rule.
The Commission would like to emphasize that, under variations two
and three, state and local party committees would be able to continue
raising soft money to pay for activities that exclusively influence
nonfederal elections.
Finally, the core proposal and all three variations of the core
proposal would amend current section 106.5(a)(2)(iv) to address the
allegation that party committees have transferred funds to nonprofit
organizations in order to avoid the allocation requirements. The
revised provisions are set out in section 106.5(c)(2)(iv) of the core
proposal, variation one and variation two, and in section 106.5(b) of
variation three. Section 106.5(c)(2)(iv) would indicate that the costs
of generic voter drives must be allocated if the drive is conducted
directly by a state or local party committee or is financed by the
party committee and conducted by another entity. Section 106.5(b) of
variation three would indicate that the costs of generic voter drives
must be defrayed entirely with hard dollars, whether the drive is
conducted directly by a state or local party committee or is financed
by the party committee and conducted by another entity. The Commission
invites comments on these proposals.
3. Other Proposed Rules
a. Party committee solicitations by federal candidates and
officeholders
The Commission is considering changes to section 102.5(a)(3) to
make it clear that contributions solicited by a federal candidate or
officeholder are subject to the prohibitions and limitations of the
Act. As discussed above, when a federal candidate or officeholder
solicits a contribution, the contributor is likely to assume that his
or her contribution will be used to benefit a federal candidate.
Proposed revisions to section 102.5(a)(3) set out in the core proposal
would make it clear that contributions resulting from a solicitation
made by a federal candidate or officeholder are subject to the
prohibitions and limitations of the Act. However, in the case of a
solicitation for a national party committee, this presumption could be
rebutted if the donor, in writing, expressly designates the
contribution for the committee's building fund account, as described in
section 102.5(c)(2). In the case of a solicitation for a state party
committee, this presumption could be rebutted if the donor, in writing,
expressly designates the contribution for the committee's building fund
account, or for its non-federal account, as described in section
102.5(a)(1)(i). Donors to a local party committee could also designate
their contributions for a nonfederal account. The core proposal also
contains a conforming amendment to current section 102.5(a)(2), which
would add to the list of contributions that may be deposited in a
federal account those contributions that, due to the operation of
proposed paragraph (a)(3), would be presumed to be for the purpose of
influencing an election. The Commission invites comments on these
proposals.
b. Allocating Joint Fundraising Expenses
Section 102.17 sets out rules for committees, other than separate
segregated funds, that engage in joint fundraising. Generally, this
provision only applies to joint fundraising activities conducted on
behalf of more than one federal candidate or on behalf of multiple non-
connected committees. Fundraising activities conducted by party
committees for both their federal and nonfederal accounts are currently
governed by 11 CFR 106.5(f), although under the core proposal of the
second option, national party committee
[[Page 37732]]
fundraising would be governed by paragraph (b).
The core proposal of the second option would insert a cross
reference into section 102.17(c)(7) directing party committees that
collect both federal and nonfederal funds through a joint fundraiser to
allocate their expenses for the fundraiser in accordance with section
106.5. Even though no comparable language appears in the current rule,
this new language would merely make explicit the Commission's long-
standing interpretation of these two provisions. Thus, this proposal
would not be a change in Commission policy. Comments are invited on
this proposed revision.
c. Curing prohibited and excessive contributions
Under section 103.3(b) of the Commission's rules, committee
treasurers are responsible for examining all contributions received to
ensure that they do not violate the prohibitions or limitations of the
Act. Contributions that present genuine questions as to whether they
are from a prohibited source may be deposited in the committee's
account or returned to the contributor within ten days of receipt.
However, if such a contribution is deposited, the treasurer has thirty
days to determine the legality of the contribution. If unable to
confirm that the contribution is legal, the treasurer must refund the
contribution. 11 CFR 103.3(b)(1).
Similarly, if a treasurer receives a contribution that does not
initially appear to be from a prohibited source, and subsequently
determines that the contribution is from a prohibited source, the
treasurer is required to refund the contribution within 30 days. 11 CFR
103.3(b)(2).
Paragraph (b)(3) contains similar rules for contributions that
exceed the limitations in 2 U.S.C. Sec. 441a, either on their face or
when aggregated with other contributions from the same contributor. See
also 11 CFR 110.1 or 110.2. The treasurer has the option of depositing
the excessive contribution or returning it to the contributor. However,
if the contribution is deposited, the treasurer has sixty days to seek
redesignation of the contribution to another election, or reattribution
to another contributor. If unable to obtain redesignation or
reattribution, the treasurer is required to refund the contribution. 11
CFR 103.3(b)(3).
The Commission is considering the situation where a committee has
received an excessive or prohibited contribution and wants to cure this
problem by transferring the contribution to a nonfederal account.
Proposed revisions to sections 103.3(b)(1), (2) and (3), as shown in
the core proposal of the second option, would allow a treasurer to make
such a transfer to a non-federal account established in accordance with
11 CFR 102.5(a)(1)(i) or 102.5(c), but only after obtaining an express
written redesignation of the contribution to the non-federal account.
If a written redesignation cannot be obtained within thirty days of
receiving the contribution, the treasurer would be required to return
the contribution to the contributor. The Commission invites comments on
these proposals.
The treasurer's ability to transfer the prohibited or excessive
contribution would also be subject to other applicable federal laws.
For example, if a treasurer receives a contribution from a foreign
national, he or she would not be able to cure the illegality of that
contribution by transferring it to a non-federal account, because
foreign nationals are prohibited from making contributions in
connection with any election to any political office. Similarly, the
transfer would be subject to applicable state laws. The proposed rule
would not preempt, under 2 U.S.C. 453, any state-imposed contribution
prohibitions or limitations. Comments on these limitations are welcome.
Conclusion
The Commission welcomes comments on the issues raised by the
proposed rules, and on the general question of whether changes to the
regulations relating to soft money are warranted at this time. As
mentioned above, the Commission is also interested in comments on the
issue of whether it has the authority to promulgate rules in this area.
Those interested are also welcome to raise other issues that should be
addressed if the Commission decides to issue final rules.
Certification of No Effect Pursuant to 5 U.S.C. 605(b) (Regulatory
Flexibility Act)
I certify that the attached proposed rules, if promulgated, would
not have a significant economic impact on a substantial number of small
entities. The basis of this certification is that the national, state
and local party committees of the two major political parties are not
small entities under 5 U.S.C. Sec. 601, and the number of other party
committees to which the rule would apply is not substantial.
List of Subjects
11 CFR Part 102
Political committees and parties.
11 CFR Part 103
Campaign funds, Political committees and parties.
11 CFR Part 106
Campaign funds, Political committees and parties.
First Option
The Commission would make no changes to the existing regulations.
Second Option
The Commission is proposing to make the following changes to the
regulations:
For the reasons set out in the preamble, it is proposed to amend
subchapter A, chapter I of title 11 of the Code of Federal Regulations
as follows:
Core Proposal
PART 102--REGISTRATION, ORGANIZATION, AND RECORDKEEPING BY
POLITICAL COMMITTEES (2 U.S.C. 433)
1. The authority citation for part 102 would continue to read as
follows:
Authority: 2 U.S.C. 432, 433, 438(a)(8), 441d.
2. Section 102.5 would be amended by revising paragraph (a) and
adding paragraph (c), to read as follows:
Sec. 102.5 Organizations financing political activity in connection
with Federal and non-Federal elections, other than through transfers
and joint fundraisers.
(a) Organizations, other than national party committees, that are
political committees under the Act. (1) Except as provided in paragraph
(c) of this section, any organization that finances political activity
in connection with both federal and non-federal elections and that
qualifies as a political committee under 11 CFR 100.5 shall either:
(i) Establish a separate federal account in a depository in
accordance with 11 CFR part 103. Such account shall be treated as a
separate federal political committee which shall comply with the
requirements of the Act including the registration and reporting
requirements of this part and 11 CFR part 104. Only funds subject to
the prohibitions and limitations of the Act shall be deposited in such
separate federal account. All disbursements, contributions,
expenditures and transfers by the committee in connection with any
federal election shall be made from its federal account. No transfers
may be made to such federal account from any other account(s)
maintained by such organization for the purpose of financing activity
in connection with non-federal elections, except as
[[Page 37733]]
provided in 11 CFR 106.5(g) and 106.6(e). Administrative expenses shall
be allocated pursuant to 11 CFR part 106 between such federal account
and any other account maintained by such committee for the purpose of
financing activity in connection with non-federal elections; or
(ii) Establish one account, which shall receive only contributions
subject to the prohibitions and limitations of the Act, regardless of
whether such contributions are for use in connection with federal or
non-federal elections. Such organization shall register as a political
committee and comply with the requirements of the Act.
(2) Only contributions described in paragraphs (a)(2)(i), (ii),
(iii) or (iv) of this section may be deposited in a federal account
established under paragraph (a)(1)(i) of this section or may be
received by a political committee established under paragraph
(a)(1)(ii) of this section:
(i) Contributions designated for the federal account;
(ii) Contributions that result from a solicitation which expressly
states that the contribution will be used in connection with a federal
election;
(iii) Contributions from contributors who are informed that all
contributions are subject to the prohibitions and limitations of the
Act; or
(iv) Contributions that, due to the operation of paragraph (a)(3)
of this section, are presumed to be for the purpose of influencing an
election.
(3) Any party committee solicitation that is made by a federal
candidate or federal officeholder or that makes reference to a federal
candidate or a federal election shall be presumed to be for the purpose
of influencing a federal election. The full amount of any funds
received as a result of that solicitation shall be presumed to be a
contribution under 11 CFR 100.7(a) that is subject to the prohibitions
and limitations in 11 CFR parts 110 and 114. However, this paragraph
does not apply to a donation that is made payable to or is accompanied
by a writing, signed by the donor, which clearly indicates that the
donation is for a non-federal account or building fund account
described in paragraphs (a)(1)(i) or (c) of this section.
* * * * *
(c) National party committees. (1) National party committees,
including the Senate and House campaign committees of a national party,
shall establish one or more federal account(s) in accordance with 11
CFR part 103. The federal account(s) shall receive only contributions
subject to the prohibitions and limitations of the Act. Except as
provided in paragraph (c)(2) of this section, national party committees
shall not establish any nonfederal account or receive any contribution
or donation of anything of value that is not subject to the
prohibitions and limitations of the Act.
(2) National party committees, including the Senate and House
campaign committees of a national party, may establish a building fund
account to be used solely for the purpose of receiving gifts,
subscriptions, loans, advances or deposits of money or anything of
value described in 11 CFR 100.7(b)(12) or 11 CFR 100.8(b)(13).
3. Section 102.17 would be amended by revising paragraph
(c)(7)(ii), redesignating current paragraph (c)(7)(iii) as paragraph
(c)(7)(iv), and adding new paragraph (c)(7)(iii), to read as follows:
Sec. 102.17 Joint fundraising by committees other than separate
segregated funds.
* * * * *
(c) * * *
(7) * * *
(ii) If participating committees are affiliated as defined in 11
CFR 110.3 prior to the joint fundraising activity, expenses need not be
allocated among those participants. Payment of such expenses by an
unregistered committee or organization on behalf of an affiliated
political committee may cause the unregistered organization to become a
political committee.
(iii) If the participants are party committees of the same
political party, expenses need not be allocated among those
participants, unless the committees collect both federal and non-
federal funds, in which case, expenses must be allocated in accordance
with 11 CFR 106.5. Payment of such expenses by an unregistered
committee or organization on behalf of an affiliated political
committee may cause the unregistered organization to become a political
committee.
* * * * *
PART 103--CAMPAIGN DEPOSITORIES (2 U.S.C. 432(h))
4. The authority citation for part 103 would continue to read as
follows:
Authority: 2 U.S.C. 432(h), 438(a)(8)
5. Section 103.3 would be amended by adding a new sentence at the
end of paragraphs (b)(1), (b)(2) and (b)(3), to read as follows:
Sec. 103.3 Deposit of receipts and disbursements (2 U.S.C. 432(h)(1)).
* * * * *
(b) * * *
(1) * * * Treasurers of committees that are not authorized by any
candidate may also transfer the contribution to a non-federal account
established in accordance with 11 CFR 102.5(a)(1) (i) or (c) and treat
the funds as a contribution to the non-federal account, so long as the
donor provides an express written redesignation of the contribution to
the non-federal account within thirty days of the treasurer's receipt
of the contribution.
(2) * * * Treasurers of committees that are not authorized by any
candidate may also transfer the contribution to a non-federal account
established in accordance with 11 CFR 102.5(a)(1) (i) or (c) and treat
the funds as a contribution to the non-federal account, so long as the
donor provides an express written redesignation of the contribution to
the non-federal account within thirty days of the treasurer's receipt
of the contribution.
(3) * * * Treasurers of committees that are not authorized by any
candidate may also transfer the contribution to a non-federal account
established in accordance with 11 CFR 102.5(a)(1)(i) or (c) and treat
the funds as a contribution to the non-federal account, so long as the
donor provides an express written redesignation of the contribution to
the non-federal account within thirty days of the treasurer's receipt
of the contribution.
* * * * *
PART 106--ALLOCATIONS OF CANDIDATE AND COMMITTEE ACTIVITIES
6. The authority citation for part 106 would continue to read as
follows:
Authority: 2 U.S.C. 438(a)(8), 441a(b), 441a(g)
7. Section 106.1 would be amended by revising paragraphs (a) and
(b) to read as follows:
Sec. 106.1 Allocation of expenses between candidates.
(a) General rule. (1) Expenditures, including in-kind
contributions, independent expenditures, and coordinated expenditures
made on behalf of more than one clearly identified federal candidate
shall be attributed to each such candidate according to the benefit
reasonably expected to be derived. For example, in the case of a
publication or broadcast communication, the attribution shall be
determined by the proportion of space or time devoted to each candidate
as compared to the total space or time devoted to all candidates. In
the case of a fundraising program or event where funds are collected by
one committee
[[Page 37734]]
for more than one clearly identified candidate, the attribution shall
be determined by the proportion of funds received by each candidate as
compared to the total receipts by all candidates.
(2) (i) Except as provided in paragraph (a)(2)(ii) of this section,
the methods described in paragraph (a)(1) of this section shall also be
used to allocate payments involving both expenditures on behalf of one
or more clearly identified federal candidates and disbursements on
behalf of one or more clearly identified non-federal candidates. When
such a payment is made by a political committee with separate federal
and non-federal accounts, the payment shall be made according to the
procedures set forth in 11 CFR 106.5(g) or 106.6(e), as appropriate.
(ii) When a national party committee, including a Senate or House
campaign committee of a national party, makes a payment involving both
expenditures on behalf of one or more clearly identified federal
candidates and disbursements on behalf of one or more clearly
identified non-federal candidates, the payment shall be made entirely
from the committee's federal account(s), i.e., with funds subject to
the prohibitions and limitations of the Act.
(b) Reporting. An expenditure made on behalf of more than one
clearly identified federal candidate shall be reported pursuant to 11
CFR 104.10(a). A payment that includes amounts attributable to one or
more non-federal candidates, and that is made by a political committee
with separate federal and non-federal accounts, shall also be reported
pursuant to 11 CFR 104.10(a). An authorized expenditure made by a
candidate or political committee on behalf of another candidate shall
be reported as a contribution in-kind to the candidate on whose behalf
the expenditure was made, except that expenditures made by party
committees pursuant to 11 CFR 110.7 need only be reported as an
expenditure.
* * * * *
8. In Sec. 106.5, the section heading and paragraphs (a), (b), (c),
(d)(1) introductory text, (d)(2) heading, the first sentence of
paragraph (e), and paragraph (f) heading, would be revised to read as
follows:
Sec. 106.5 Party committee federal and non-federal activities;
payments by national party committees; allocation by state and local
party committees.
(a) Scope and general rule. This section covers payment of expenses
by national party committees, general rules regarding federal and non-
federal expenses incurred by state and local party committees, methods
for allocation of administrative expenses, costs of generic voter
drives, exempt activities, and fundraising costs by state and local
party committees, and procedures for payment of allocable expenses.
Requirements for reporting of allocated disbursements are set forth in
11 CFR 104.10. Party committees that make disbursements in connection
with federal and non-federal elections shall make those disbursements
entirely from funds subject to the prohibitions and limitations of the
Act, or from accounts established pursuant to 11 CFR 102.5. Political
committees that have established separate federal and non-federal
accounts under 11 CFR 102.5(a)(1)(i) shall allocate expenses between
those accounts according to this section. Organizations that are not
political committees but have established separate federal and non-
federal accounts under 11 CFR 102.5(b)(1)(i), or that make federal and
non-federal disbursements from a single account under 11 CFR
102.5(b)(1)(ii) shall also allocate their federal and non-federal
expenses according to this section.
(b) National party committees. (1) Except as provided in paragraph
(b)(2) of this section, national party committees, including the Senate
and House campaign committees of a national party, shall defray their
expenses entirely from funds subject to the prohibitions and
limitations of the Act.
(2) National party committees may defray the expenses described in
11 CFR 100.7(b)(12) and 11 CFR 100.8(b)(13) with funds from an account
established in accordance with 11 CFR 102.5(c)(2).
(c) State and local party committees. (1) General rule. State and
local party committees shall allocate the costs described in paragraph
(c)(2) of this section in accordance with paragraphs (d) through (f) of
this section.
(2) Costs to be allocated. Committees that make disbursements in
connection with federal and non-federal elections shall allocate
expenses according to this section for the following categories of
activity:
(i) Administrative expenses including rent, utilities, office
supplies, and salaries, except for such expenses directly attributable
to a clearly identified candidate;
(ii) The direct costs of a fundraising program or event, including
disbursements for solicitation of funds and for planning and
administration of actual fundraising events, through which a committee
collects both federal and non-federal funds, whether the committee
conducts the program or event individually or in conjunction with
another committee;
(iii) State and local party activities exempt from the definitions
of contribution and expenditure under 11 CFR 100.7(b) (9), (15) or
(17), and 100.8(b) (10), (16) or (18) (exempt activities) including the
production and distribution of slate cards and sample ballots, campaign
materials distributed by volunteers, and voter registration and get-
out-the-vote drives on behalf of the party's presidential and vice-
presidential nominees, where such activities are conducted in
conjunction with non-federal election activities; and
(iv) Generic voter drives either conducted by the committee itself
or paid for by the committee and conducted by another entity, including
voter identification, voter registration, and get-out-the-vote drives,
or any other activities that urge the general public to register, vote
or support candidates of a particular party or associated with a
particular issue, without mentioning a specific candidate.
(d) State and local party committees; method for allocating
administrative expenses and costs of generic voter drives--(1) General
rule. Except as provided in paragraph (d)(2) of this section, all state
and local party committees shall allocate their administrative expenses
and costs of generic voter drives, as described in paragraph (c)(2) of
this section, according to the ballot composition method, described in
paragraphs (d)(1)(i) and (ii) of this section as follows:
* * * * *
(2) State and local party committees in states that do not hold
federal and non-federal elections in the same year. * * *
(e) State and local party committees; method for allocating costs
of exempt activities. Each state or local party committee shall
allocate its expenses for activities exempt from the definitions of
contribution and expenditure under 11 CFR 100.7(b) (9), (15) or (17),
and 100.8(b) (10), (16) or (18), when conducted in conjunction with
non-federal election activities, as described in paragraph (c)(2) of
this section, according to the proportion of time or space devoted in a
communication. * * *
(f) State and local party committees; method for allocating direct
costs of fundraising. * * *
* * * * *
[[Page 37735]]
Variation One
PART 102--REGISTRATION, ORGANIZATION AND RECORDKEEPING BY POLITICAL
COMMITTEES (2 U.S.C. 433)
1. The authority citation for part 102 would continue to read as
follows:
Authority: 2 U.S.C. 432, 433, 438(a)(8), 441d.
2. Section 102.5 would be amended by revising paragraph (a) and
adding paragraph (c), to read as follows:
Sec. 102.5 Organizations financing political activity in connection
with Federal and non-Federal elections, other than through transfers
and joint fundraisers.
(a) [Same as core proposal of second option.]
* * * * *
(c) National party committees. (1) National party committees,
including the Senate and House campaign committees of a national party,
shall establish one or more federal account(s) in accordance with 11
CFR part 103. The federal account(s) shall receive only contributions
subject to the prohibitions and limitations of the Act. Except as
provided in paragraphs (c)(2) and (3) of this section, national party
committees shall not establish any nonfederal account or receive any
contribution or donation of anything of value that is not subject to
the prohibitions and limitations of the Act.
(2) National party committees, including the Senate and House
campaign committees of a national party, may establish a building fund
account to be used solely for the purpose of receiving gifts,
subscriptions, loans, advances or deposits of money or anything of
value described in 11 CFR 100.7(b)(12) or 11 CFR 100.8(b)(13).
(3) National party committees, other than the Senate and House
campaign committees of a national party, may establish one or more
accounts for receiving donations that are:
(i) Earmarked for and subsequently donated to a clearly identified
non-federal candidate; or
(ii) Raised and spent solely in the form of donations to non-
federal candidates, either directly or through an earmarked transfer to
a state or local party committee.
3. Proposed Sec. 102.17 would be the same as the core proposal of
the second option.
PART 103--[AMENDED]
4. Proposed Sec. 103.3 would be the same as the core proposal of
the second option.
PART 106--[AMENDED]
5. Proposed Secs. 106.1 and 106.5 would be the same as the core
proposal of the second option.
Variation Two
PART 102--[AMENDED]
1. Proposed Secs. 102.5 and 102.17 would be the same as the core
proposal of the second option.
PART 103--[AMENDED]
2. Proposed Sec. 103.3 would be the same as the core proposal of
the second option.
PART 106--ALLOCATIONS OF CANDIDATE AND COMMITTEE ACTIVITIES
3. The authority citation for part 106 would continue to read as
follows:
Authority: 2 U.S.C. 438(a)(8), 441a(b), 441a(g).
4. Section 106.1 would be amended by revising paragraphs (a) and
(b) to read as follows:
Sec. 106.1 Allocation of expenses between candidates.
(a) General rule. (1) [same as core proposal of second option.]
(2) (i) Except as provided in paragraph (a)(2)(ii) of this section
and in 11 CFR 106.5(c)(1)(ii)(A), the methods described in paragraph
(a)(1) of this section shall also be used to allocate payments
involving both expenditures on behalf of one or more clearly identified
federal candidates and disbursements on behalf of one or more clearly
identified non-federal candidates. When such a payment is made by a
political committee with separate federal and non-federal accounts, the
payment shall be made according to the procedures set forth in 11 CFR
106.5(g) or 106.6(e), as appropriate.
(ii) [Same as core proposal of second option.]
(b) [Same as core proposal of second option.]
* * * * *
5. In Sec. 106.5, the section heading and paragraphs (a), (b), (c),
(d)(1) introductory text, (d)(2) heading, the first sentence of
paragraph (e), and paragraph (f) heading, would be revised to read as
follows:
Sec. 106.5 Party committee federal and non-federal activities;
payments and transfers by national party committees; allocation by
state and local party committees.
(a) Scope and general rule. This section covers general rules
regarding federal and non-federal expenses incurred by party
committees, payment of expenses by national party committees and
transfers of funds from national party committees to state and local
party committees, methods for allocation of administrative expenses,
costs of generic voter drives, exempt activities, and fundraising costs
by state and local party committees, and procedures for payment of
allocable expenses. Requirements for reporting of allocated
disbursements are set forth in 11 CFR 104.10. Party committees that
make disbursements in connection with federal and non-federal elections
shall make those disbursements entirely from funds subject to the
prohibitions and limitations of the Act, or from accounts established
pursuant to 11 CFR 102.5. Political committees that have established
separate federal and non-federal accounts under 11 CFR 102.5(a)(1)(i)
shall allocate expenses between those accounts according to this
section. Organizations that are not political committees but have
established separate federal and non-federal accounts under 11 CFR
102.5(b)(1)(i), or that make federal and non-federal disbursements from
a single account under 11 CFR 102.5(b)(1)(ii) shall also allocate their
federal and non-federal expenses according to this section.
(b) National party committees--(1) Disbursements for mixed
activities. (i) Except as provided in paragraph (b)(1)(ii) of this
section, national party committees, including the Senate and House
campaign committees of a national party, shall defray their expenses
entirely from funds subject to the prohibitions and limitations of the
Act.
(ii) National party committees may defray the expenses described in
11 CFR 100.7(b)(12) and 11 CFR 100.8(b)(13) with funds from an account
established in accordance with 11 CFR 102.5(c)(2).
(2) Transfers to state or local party committees. Whenever a
national party committee, including the Senate and House campaign
committees of a national party, transfers funds from any account of the
national party committee to any account of a state or local party
committee, the transfer shall be accompanied by a written communication
specifically identifying the state or local party committee activity or
expense for which the transferred funds are to be used. The national
party committee shall attach a copy of the written communication to the
schedule of itemized disbursements submitted with its next regularly
scheduled report.
(c) State and local party committees. (1)(i) General rule. Except
as provided
[[Page 37736]]
in paragraph (c)(1)(ii) of this section, state and local party
committees shall allocate the costs described in paragraph (c)(2) of
this section in accordance with paragraphs (d) through (f) of this
section.
(ii) State and local party committees defraying expenses with funds
transferred from a national party committee--(A) General rule. A state
or local party committee that receives a transfer from a national party
committee shall:
(1) Use the funds transferred exclusively for the activity
specifically identified by the national party committee in the written
communication accompanying the transfer, except that no funds
transferred from a non-federal account shall be used for any portion of
the costs of any activity described in paragraph (c)(2) of this
section;
(2) Defray 100% of the remaining costs of the specifically
identified activity with funds drawn from the state or local party
committee's federal account, i.e., with funds that are subject to the
prohibitions and limitations of the Act; and
(3) Attach a copy of the written communication to the schedule of
itemized receipts submitted with its next regularly scheduled report.
(B) Exception for transfers to state and local party committees in
states that do not hold federal and non-federal elections in the same
year. The requirements of paragraph (c)(1)(ii)(A) of this section shall
apply to transfers made to state and local party committees in states
that do not hold federal and non-federal elections in the same year,
unless the funds transferred are used exclusively for generic voter
drive activity conducted in a calendar year in which no candidates for
federal office appear on any primary, general, or special election
ballot.
(2) [Same as core proposal of second option.]
(d) [Same as core proposal of second option.]
(e) [Same as core proposal of second option.]
(f) [Same as core proposal of second option.]
* * * * *
Variation Three
PART 102--[AMENDED]
1. Proposed Secs. 102.5 and 102.17 would be the same as the core
proposal of the second option.
PART 103--[AMENDED]
2. Proposed Sec. 103.3 would be the same as the core proposal of
the second option.
PART 106--ALLOCATIONS OF CANDIDATE AND COMMITTEE ACTIVITIES
3. The authority citation for part 106 would continue to read as
follows:
Authority: 2 U.S.C. 438(a)(8), 441a(b), 441a(g)
4. Section 106.1 would be amended by revising paragraphs (a) and
(b) to read as follows:
Sec. 106.1 Allocation of expenses between candidates.
(a) General rule. (1) [same as core proposal of second option.]
(2) Payments that involve both expenditures, in-kind contributions,
independent expenditures, or coordinated expenditures on behalf of one
or more clearly identified federal candidates and disbursements on
behalf of one or more clearly identified non-federal candidates shall
be made entirely from the committee's federal account(s), i.e., with
funds subject to the prohibitions and limitations of the Act.
[[Page 37737]]
(b) [Same as core proposal of second option.]
* * * * *
5. Section 106.5 would be revised to read as follows:
Sec. 106.5 Federal and non-federal activities by party committees and
use of party committee funds by other organizations.
(a) National party committees. (1) Except as provided in paragraph
(a)(2) of this section, national party committees, including the Senate
and House campaign committees of a national party, shall defray their
expenses entirely from funds subject to the prohibitions and
limitations of the Act.
(2) National party committees may defray the expenses described in
11 CFR 100.7(b)(12) and 11 CFR 100.8(b)(13) with funds from an account
established in accordance with 11 CFR 102.5(c)(2).
(b) State and local party committees--(1) General rule. Except as
provided in paragraph (b)(3) of this section, state and local party
committees, and other party committees that are not national party
committees but that have established separate federal and non-federal
accounts under 11 CFR 102.5(a)(1)(i), shall defray the following
expenses entirely from funds subject to the prohibitions and
limitations of the Act:
(i) Administrative expenses including rent, utilities, office
supplies, and salaries, except for such expenses directly attributable
to a clearly identified candidate;
(ii) The direct costs of a fundraising program or event, including
disbursements for solicitation of funds and for planning and
administration of actual fundraising events, through which a committee
collects federal funds or a combination of federal and non-federal
funds, whether the committee conducts the program or event individually
or in conjunction with another committee;
(iii) State and local party activities exempt from the definitions
of contribution and expenditure under 11 CFR 100.7(b) (9), (15) or
(17), and 100.8(b) (10), (16) or (18) (exempt activities) including the
production and distribution of slate cards and sample ballots, campaign
materials distributed by volunteers, and voter registration and get-
out-the-vote drives on behalf of the party's presidential and vice-
presidential nominees, whether or not such activities are conducted in
conjunction with non-federal election activities; and
(iv) Generic voter drives either conducted by the committee itself
or paid for by the committee and conducted by another entity, including
voter identification, voter registration, and get-out-the-vote drives,
or any other activities that urge the general public to register, vote
or support candidates of a particular party or associated with a
particular issue, without mentioning a specific candidate.
(2) Use of party committee funds by other organizations. When a
state or local party committee pays for a generic voter drive conducted
by another entity, such as a voter identification, voter registration,
get-out-the-vote drive, or any other activity that urges the general
public to register, vote or support candidates of a particular party or
associated with a particular issue without mentioning a specific
candidate, the costs of the voter drive shall be defrayed entirely from
funds subject to the prohibitions and limitations of the Act.
(3) Generic voter drives in exclusively non-federal elections.
State and local party committees in states that do not hold federal and
non-federal elections in the same year may use funds that are not
subject to the prohibitions and limitations of the Act to defray the
costs of generic voter drive activity conducted in a calendar year in
which no candidates for federal office appear on any primary, general,
or special election ballot.
Dated: July 8, 1998.
Lee Ann Elliott,
Commissioner, Federal Election Commission.
[FR Doc. 98-18543 Filed 7-10-98; 8:45 am]
BILLING CODE 6715-01-P
