352

1

2

3

4 UNITED STATES FEDERAL ELECTION COMMISSION (FEC)

5

6

7

8

9

10

11 PUBLIC HEARING:

12 PROHIBITED AND EXCESSIVE CONTRIBUTIONS

13 NON-FEDERAL FUNDS OR SOFT MONEY

14

15

16

17

18

19

20 Washington, D.C.

21 Wednesday, June 5, 2002

22

353

1 FEC COMMISSIONERS:

2 DAVID M. MASON

Chairman (Republican)

3

KARL J. SANDSTROM

4 Vice Chairman (Democrat)

5 DANNY LEE McDONALD

Commissioner (Democrat)

6

BRADLEY A. SMITH

7 Commissioner (Republican)

8 SCOTT E. THOMAS

Commissioner (Democrat)

9

MICHAEL E. TONER

10 Commissioner (Republican)

11 FEC STAFF:

12 LAWRENCE H. NORTON

General Counsel

13

JAMES A. PEHRKON

14 Staff Director

15

16

17

18 \* \* \* \* \*

19

20

21

22

354

1 C O N T E N T S

2 SESSION: PAGE

3

First Morning Panel 357

4

5 Second Morning Panel 465

6

7

8

9

10

11

12

13 \* \* \* \* \*

14

15

16

17

18

19

20

21

22

355

1 P R O C E E D I N G S

2 (9:35 a.m.)

3 CHMN. MASON: The hearing of the

4 Federal Election Commission on Prohibited

5 and Excessive Contributions, Non-Federal

6 Funds and Soft Money will come to order.

7 This is the second day of our

8 rule-making hearing on the Bipartisan

9 Campaign Finance Reform Act, and we\'re going

10 to hear from two separate panels this

11 morning, though the two panels will consist

12 of some overlapping witnesses.

13 Before we start on the panels, I

14 want to make one general announcement that I

15 know will be of interest to the panelists

16 and others and that is that the Commission

17 has revised its tentative schedule for the

18 remaining five portions of the rule making,

19 which will comprise the complete BCRA rule

20 making.

21 The revised schedule is available

22 outside and I think back at the press table.

356

1 It will still allow us to complete all of

2 the portions of the rule making within the

3 270 days provided under the act.

4 The principal reason for the

5 reorganization is something that doesn\'t

6 appear on that new schedule which is the

7 Commission does have on circulation for

8 tally vote now the proposal to reorganize

9 the current Sections 100.7 and 100.8 of our

10 regulations defining \"contribution\" and

11 \"expenditure\" with the intention of making

12 it easier to do subsequent rulemakings in

13 which we\'re going to have to cross-reference

14 those definitions.

15 I think you\'ll all appreciate that

16 those sections have become somewhat

17 cluttered over the years and we\'re going to

18 have to be cross-referencing quite a bit and

19 so we\'re going to try to get that

20 reorganization done prior to the other rule

21 making. So you\'ll see all of that

22 forthcoming.

357

1 I see puzzlement from Mr. Bauer.

2 My microphone is on. We had some

3 issues with sound yesterday for people who

4 were trying to record and so on so I\'ll try

5 to talk louder if you\'re not hearing me

6 well.

7 So that schedule is available.

8 Our first panel this morning is

9 witnesses representing the national party

10 committees. We\'ll have Bob Bauer,

11 representing the Democratic Senatorial

12 Campaign Committee and the Democratic

13 Congressional Campaign Committee, Tom

14 Josefiak and Charlie Spies representing the

15 Republican National Committee, Joe Sandler

16 and Neil Reiff representing the Democratic

17 National Committee, and Don McGahn

18 representing the National Republican

19 Congressional Committee.

20 I understand we\'re going to hear

21 from Mr. Bauer, Mr. Josefiak and Mr. Spies

22 are going to split their time, Mr. Sandler

358

1 and Mr. McGahn in that order. You\'ll each

2 have five minutes for an opening statement.

3 We do have a light system which will give

4 you a green light for four minutes and a

5 yellow light for your last minute.

6 Please complete your thoughts.

7 The ejection seats aren\'t fully wired yet.

8 When you get to the end of your five minutes

9 do try to finish on time, and since the

10 first panel is 90 minutes we\'ll probably try

11 to do a five-minute question period for

12 Commissioners and the General Counsel to

13 stick to that schedule. We may have room

14 for a second round at that point.

15 Mr. Bauer?

16 MR. BAUER: Thank you,

17 Mr. Chairman, and thanks to the Commission

18 for proceeding on this expedited schedule in

19 obviously a complicated exercise of making

20 rules under the new statute.

21 I have prepared an opening

22 statement, which I provided copies of to

359

1 Ms. Smith. It is much longer than five

2 minutes allows or than I need to go orally

3 here so I would ask \--

4 CHMN. MASON: It will be included.

5 MR. BAUER: Included in the

6 record, I would appreciate that. But let me

7 tell you fundamentally what I\'d like to

8 stress here today. We have made extensive

9 comments along with the Democratic National

10 Committee in jointly filed statements on

11 very specific issues raised under the rules

12 in responding to very specific questions

13 that the Commission put to us.

14 I will not repeat our position

15 there. Rather, what I would like to do

16 briefly here and what is reflected in the

17 statement that I prepared and asked to be

18 distributed and inserted in the record is

19 discuss some of the questions that have been

20 raised about the overall approach, the

21 regulatory theory, if you will, that the

22 Commission would use to approach the task,

360

1 to address the task, of construing and

2 creating, implementing rules, under this

3 statute.

4 These questions have been raised

5 in part by communications to the Commission

6 from the principal sponsors of the bill and

7 they have advised the Commission in their

8 comments on May 29 that this statute has

9 what they refer to as a unique legislative

10 history for which reason they say their

11 views ought to carry special weight.

12 As I say in the hearing statement

13 at some greater length than I will repeat

14 here, this is a striking claim. It isn\'t

15 clear what is meant by saying that the

16 legislative history of the statute is

17 unique. I take it to mean that there isn\'t

18 actually much legislative history by some

19 peoples\' standards and because of that I

20 think we need to address the question of

21 whether against the background of this

22 limited legislative history there are some

361

1 commenters, particularly legislators,

2 involved in developing and leading the

3 enactment of the statute whose views receive

4 more weight than other legislators or for

5 that matter other commenters.

6 In my view this position, while it

7 goes not to the merits of their views on

8 various issues, those views are to be

9 obviously weighed very carefully and very

10 respectfully but in my view their views, the

11 views of principal sponsors or of any

12 legislators, are not entitled to weight on

13 that basis alone; that is to say, Congress

14 intended for this Commission to make the

15 rules and it is well established in the

16 federal law, citing, for example, cases like

17 Chrysler Corporation v. Brown, that the

18 remarks of legislators, even sponsors, are

19 not controlling in analyzing the legislative

20 history of the statute.

21 Certainly post-hoc declarations of

22 intent do not carry matters of legislative

362

1 or rather do not carry matters of regulatory

2 interpretation. As a matter of fact, if you

3 examine the statute itself it\'s fairly clear

4 that Congress did not intend to involve

5 itself except in one limited instance in

6 specifying the criteria for the shaping of

7 particular rules under this statute.

8 There is one such instance where

9 Congress delineated the factors that this

10 agency should taken into consideration in

11 creating a rule on coordination. It

12 directed the repeal of the current rule when

13 a substitute rule was created in its place

14 and it directed the Commission to consider

15 certain factors in developing that rule.

16 That is the only instance in this

17 statute that Congress sought specifically to

18 involve itself in the rule making process by

19 specifying particular criteria. It

20 otherwise directed the agency to do what

21 regulatory agencies do all the time which is

22 they take the statute in applying

363

1 conventional tools of statutory

2 construction, legal analysis, consideration

3 of the real legislative history, policy

4 integration with the existing statute, to

5 make a judgment about what rules most

6 appropriately implement the statute before

7 them.

8 So I think this is a critically

9 important point I want to stress here today.

10 The yellow light approaches fast.

11 The only other point I would make very

12 quickly here is that some of the language

13 used by some of the commenters to direct the

14 agency to legislative history, to focus the

15 agency on particular goals, doesn\'t really

16 answer any particular questions about any of

17 the rules under discussion.

18 For example, one commenter says

19 it\'s clear the rules should be informed by

20 an understanding of a goal in the statute to

21 ban soft money completely from the federal

22 elections process. We must ban soft money

364

1 completely.

2 So in looking at any given rule

3 that\'s the question, that\'s the guide, and

4 that addresses in their view, many, many

5 questions before the agency at this time,

6 but that doesn\'t really answer the

7 fundamental question before this agency

8 because the statute itself does not

9 completely eliminate soft money.

10 In fact it uses the term only

11 once. It provides for exceptions for the

12 continued raising of certain kinds of soft

13 money under the Levin amendment for state

14 party building funds, for leadership PACs,

15 soliciting from charitable organizations,

16 and so it\'s simply not enough. It may be

17 rhetorically satisfying but it\'s not enough

18 to say that the issue is one simply of

19 banning all soft money because it doesn\'t

20 address fundamental definitional issues and

21 it frankly ignores how the rest of the

22 statute is constructed.

365

1 Now, knowing that Commissioner

2 Mason will not gavel me down instantly, let

3 me just say one last thing. He\'s a very

4 genial gentleman; he won\'t do that to me,

5 I\'m sure.

6 I\'m sure the Vice Chair will not

7 gavel me down.

8 COMM. SANDSTORM: I\'m certainly

9 not putting my hand over there.

10 MR. BAUER: If I may, and then I\'m

11 happy to lop it out it out of the Q&A.

12 Constitutional issues, one commenter says

13 the constitutional issues that are raised

14 here are already in the hands of the courts.

15 Well, the constitutional issues in the hands

16 of the courts are constitutional issues that

17 pertain to the statute itself. The courts

18 will decide whether the statute itself is

19 unconstitutional or constitutional.

20 The rules, however, that the

21 Commissioner frames may raise constitutional

22 issues and it is wrong to say that this

366

1 agency should be insensitive to

2 constitutional questions raised by options

3 put before it for various rules.

4 And last but not least there are

5 other considerations that the agency should

6 attend to. They\'re set out in the hearing

7 statement, questions of fairness, are we

8 treating our participants fairly by in

9 effect providing for them rules that they

10 can reasonably be expected to follow;

11 flexibility, are we providing them rules

12 that make it possible for them to run their

13 business; reasonable completeness, are we

14 providing them rules that if they follow

15 them will lead them fundamentally to a

16 position of compliance or are we going to be

17 continuously counseling them that in order

18 to act they should seek an advisory opinion?

19 Last but not least, common sense.

20 I won\'t give examples. Some of them will

21 come up but it seems to me some rules are

22 going to simply fall by the application of a

367

1 standard of common sense.

2 I thank you for your patience and

3 for your slow gavel.

4 CHMN. MASON: Commissioner

5 Josefiak?

6 MR. JOSEFIAK: Thank you,

7 Mr. Chairman, members of the Commission.

8 I appreciate this opportunity to

9 have a discussion with you this morning

10 regarding your proposed regulations to the

11 new law.

12 There\'s no question you\'ve got a

13 formidable task ahead. Anything that we can

14 do to assist, please don\'t hesitate because

15 it is going to be a difficult process. But

16 as you go through this process I would

17 respectfully submit that you keep three

18 overriding themes in mind: First, the

19 Commission rely on the clear language of the

20 statute and as best it can formulate a

21 bright-line standard as it attempts to

22 regulate core First Amendment rights.

368

1 Where the statute\'s not clear my

2 suggestion is before you go to the

3 legislative history go to your own

4 experience. Go to your own regulations and

5 see where your regulations already take care

6 of an issue. Go to your own policies where

7 you\'ve already discussed this issue.

8 Certainly there\'s been a lot of

9 discussion about legislative history and it

10 can be helpful and Charlie\'s going to give

11 you some brief overview legally as to what

12 that all means for you but, having been

13 where you are, from my experience I can tell

14 you that legislative history is at best a

15 double-edged sword.

16 Certainly from my experience when

17 you\'re looking at the history through the

18 eyes of one member whether they\'re the

19 author or not it\'s very difficult to figure

20 out where the majority was on that position.

21 All you have is a clear statutory language

22 so I would suggest that you not put too much

369

1 weight on one particular person if there is

2 another system to use and that system is the

3 clear statutory language. If you don\'t have

4 that you can look at it but it\'s not

5 controlling.

6 The other point on that situation

7 from my experience is we\'ve had situations

8 where most of these bills come through a

9 legislative process with a committee report.

10 At least when you rely on a committee report

11 you know a majority of the committee has

12 sanctioned what the legislative history is

13 and I can tell you from my own experience,

14 after the Commission the Commission has in

15 fact ignored that history as well, and

16 particularly those of you who\'ve been

17 involved with the skirmish on best efforts

18 can realize that, where my good committee

19 took your good agency to court and you won

20 based on deference even though I argued

21 until I was blue in the face that the

22 legislative history was very clear and I

370

1 could argue that because I was the author of

2 that legislative history when I was working

3 on the Hill. So there are times where the

4 Commission has in fact ignored documented

5 legislative history and has been upheld by

6 the court in doing so based on its own

7 experience and expertise. So that is really

8 the first point.

9 The second theme of these regs

10 should be prospective. You\'re looking

11 forward so when you\'re looking at an

12 organization or looking at activity it\'s

13 post-November 5th.

14 The Commission has in fact allowed

15 for disaffiliation so I think you\'ve got to

16 look at what organizations are doing, what

17 activity is conducted post-November 5th.

18 You cannot penalize people for doing things

19 that were legal and probably encouraged

20 under the old law.

21 The third point I\'d like to make

22 here is that the Commission should try as

371

1 best it can under this new law to maintain

2 federalism, let the local folks regulate

3 their own elections. I\'m sure that the Dems

4 would agree with me on this point, that if

5 this were in effect this year in California

6 I can guarantee you that the Democratic and

7 Republican parties of California would not

8 be interested in any congressional race

9 going on. They\'re interested in the

10 gubernatorial races.

11 So if this were in effect right

12 now the concept of all of this being viewed

13 as federal election activity is nonsense and

14 you have an obligation and a responsibility

15 as best you can under this new law with your

16 regs to clarify what that means based on

17 these kinds of situations.

18 We\'ve talked a lot about agency in

19 our formal presentation. I just would like

20 to say it should be a bright-line standard

21 and you should make sure it\'s express, not

22 implied, and that the committee control the

372

1 actions of its agent and the agent is acting

2 within the scope of authority.

3 RGA: RGA would not meet your

4 standard of established, financed,

5 maintained, and controlled as you have it

6 now, and you should not change that

7 standard. With regard to the host

8 committees, these are 501(c)(3) and (4)

9 organizations. They\'re established, unlike

10 Mr. Noble said yesterday, by the business

11 people within the cities, not by the party

12 committees, and they should be able to

13 continue as they are and office holders

14 should be able to solicit them just like any

15 other 501(c)(4) that\'s not involved in

16 election activity.

17 Having said all that, I\'ll turn it

18 briefly over to Charlie.

19 MR. SPIES: Well, I actually see

20 the flashing light so I will defer to Tom\'s

21 wisdom.

22 MR. JOSEFIAK: And also on this

373

1 point what we\'ll do is submit Charlie\'s

2 statement for the record. Thank you.

3 CHMN. MASON: Without objection

4 the statement of Deputy Spies will be

5 included in the record.

6 Mr. Sandler?

7 MR. SANDLER: Thank you very much,

8 Mr. Chairman, members of the Commission. We

9 appreciate the opportunity to appear before

10 you today on behalf of the Democratic

11 National Committee. We very much appreciate

12 the extraordinary effort that has been made

13 the Commission and its staff and

14 particularly staff of the Office of General

15 Counsel in developing these proposed

16 regulations.

17 We just wanted to make a couple of

18 brief points in opening. First of all, I

19 want to associate myself with the views, of

20 course, of Bob Bauer and Tom Josefiak and

21 with the views of those commissioners

22 yesterday who expressed skepticism about the

374

1 assertion of some of the so-called sponsors

2 of the legislation that their views should

3 be given special weight in discerning

4 legislative intent.

5 The interpretations of this

6 Commission of the law will be given Chevron

7 deference by the courts to the extent that

8 the agency is relying on its own expertise,

9 special expertise in this area of

10 interpreting the law, and, of course, the

11 comments of the sponsors should be taken

12 seriously because of their stature and

13 expertise in this area as well, but to the

14 extent that the Commission relies on the

15 post-hoc comments of the sponsors as a means

16 of discerning legislative intent it would

17 indeed be treading on shaky grade and in

18 addition to the authority cited by Bob Bauer

19 I would just cite such cases as Quern v.

20 Mandley, where the U.S. Supreme Court stated

21 that post-hoc observations by a single

22 member of Congress carry little if any

375

1 weight, and United States v. Monsanto, in

2 which the court reiterated that, \"as we have

3 noted before, post-enactment views,\" talking

4 about post-enactment views of individual

5 legislators, \"form a hazardous basis for

6 inferring the intent behind a statute.\"

7 Secondly, I want to emphasize and

8 associate myself with the views of my

9 colleagues with respect to the need for

10 clarity in in these regulations.

11 Some of those who testified before

12 you yesterday suggested that some of these

13 definitions, \"agency\", solicitation,\" so

14 forth, \"finance, establish, maintain, and

15 control,\" some of these definitions critical

16 to the operation of national parties should

17 be left to examination of particular facts

18 and circumstances, to some kind of

19 fact-intensive case by case inquiry or

20 possibly the advisory opinion process, and I

21 would suggest that that approach would be

22 extraordinarily ill-advised for two basic

376

1 reasons.

2 First of all, were the Commission

3 to adopt that approach it would be totally

4 contradictory to the representations made by

5 its own attorneys, Mr. Hershkowitz, to the

6 three-judge court in saying that the issues

7 aren\'t right for adjudication because the

8 rule making\'s going to provide

9 clarification. I don\'t think the Commission

10 can on one hand make that representation to

11 the court and then on the other fail to

12 provide such clarification.

13 And secondly we have to remember

14 that this is a criminal statute, that if you

15 step over anybody, whether it\'s a local

16 party chair, volunteer, officer, any of the

17 tens and hundreds of thousands of people who

18 are involved in one way or the other in

19 Democratic Party activity at the national,

20 state, or local level, they step over the

21 line, it involves more than \$25,000, asked

22 the wrong person the wrong way, said the

377

1 wrong thing at the wrong time, it\'s a felony

2 and consequently the lack of guidance in

3 this area is in itself constitutionally

4 problematic and I would just throw this out

5 possibly for later discussion without

6 getting into it now. Just consider the

7 issue of agency as it applies to the vice

8 chairs of the Democratic National Committee.

9 We have a chairman, five vice

10 chairs, secretary, treasurer, national

11 finance chairs. Those are the elected

12 national officers of the DNC. Of those five

13 vice chairs one is a state party chair and

14 chairman President of the Association of

15 State Democratic Chairs. Of course, he

16 raises soft money for state parties and

17 state local candidates.

18 A second is a member of the Los

19 Angeles County Board of Supervisors, elected

20 state official. Obviously she has to raise

21 money for her own campaign. She happens to

22 be at this moment by coincidence Chairman of

378

1 the Southwest Voter Project, which is an

2 organization that engages year-round in

3 registering members of the Latino community

4 to vote.

5 And we have a third vice chair who

6 is Executive Vice President of the AFL-CIO

7 so, I mean, again, without getting into it I

8 think you can see the need for clarity in

9 this area.

10 One last comment as the light

11 approaches and this is on the issue of host

12 committees. Nothing in the BCRA refers in

13 any way to the Fund Act or to the financing

14 of conventions. We have noticed that some

15 of the so-called reform groups have implied

16 or suggested that possibly these host

17 committees should be treated as federal

18 committees or that possibly the scope of

19 their spending on convention activity is

20 somehow affected by BCRA, and in this regard

21 we just want to note that this is not an

22 issue that can be postponed to another rule

379

1 making at least as far as the DNC is

2 concerned. We have put out requests for

3 proposals and received bids from all cities

4 under consideration for the 2004

5 conventions. Our site visits start in three

6 weeks and negotiation of most major terms

7 with all the various contenders and we don\'t

8 know when the decision will be made or who

9 will be in contention but certainly most of

10 that will be worked out over the summer

11 among the two, three, four, whatever, who

12 are still left in the mix and so we urge you

13 to make clear at this juncture that this

14 issue is off the table. Thank you very

15 much, Mr. Chairman.

16 CHMN. MASON: Mr. McGahn?

17 MR. McGAHN: Thank you,

18 Mr. Chairman. I\'d like to thank you and the

19 Commission, General Counsel, and the staff

20 director for having me here today on behalf

21 of the NRCC, which is a national party

22 committee. We like to emphasize the word

380

1 \"national,\" not a federal party committee,

2 because there may prove to be a distinction.

3 One assumption that seems to have come out

4 of the commenters yesterday is that all

5 national parties somehow are only concerned

6 with federal elections.

7 I\'d like to begin briefly on the

8 constitutional issues that are present and

9 also echo the comments that have already

10 been made by my colleagues. It is true that

11 this agency is not a court. That point was

12 made clear yesterday time and time again.

13 That being said, however, it is well within

14 this Commission\'s authority to rule on

15 constitutional issues for really two

16 reasons, one, it\'s well established that

17 whether it\'s the legislative branch or the

18 executive branch of government those

19 branches can make independent constitutional

20 decisions so there is nothing particularly

21 innovative about an agency deciding that

22 something may be unconstitutional and taking

381

1 a more constitutional approach. The second

2 reason is a practical one. You really can\'t

3 avoid the constitutional issues and I\'m

4 simply not talking about the obvious First

5 Amendment issues that you hear so much about

6 oftentimes in the papers I file with the

7 Commission on behalf of my clients.

8 There\'s Fifth Amendment issues,

9 Tenth Amendment issues, even preemption is a

10 constitutional issue at its core. That was

11 discussed yesterday quite a bit, so the idea

12 that the Commission can simply avoid

13 constitutional issues at this juncture, I

14 think, is folly.

15 The second reason, though, is as a

16 practical matter I think the Commission

17 would want to promulgate regulations that

18 would prove to be enforceable at some point,

19 and not only for the sake of clarity in

20 providing the regulated community with

21 notice but simply as a use of Commission

22 resources and as a practical matter the

382

1 regulations ought to be such that they\'re

2 not going to be challenged in court time and

3 time again and end up in litigation for the

4 next 20 years which is unfortunately what

5 has happened on some of the past regulations

6 of the Commission where we\'ve seen

7 innovative legal theories go to court time

8 and time again and be rejected. So I don\'t

9 think this is the time to embark upon that

10 path. I think succinct regs, clear regs,

11 constitutional regs, make a lot more sense.

12 The second issue I\'d like to talk

13 about is the intent of the act, the

14 legislative history, comments that have been

15 filed, and the like. The fact of the matter

16 is, and I can go into this in greater detail

17 in a minute, there really is no legislative

18 history with this bill.

19 As counsel to the NRCC I represent

20 not only the NRCC but every member of the

21 Republican conference. Some of them use my

22 services more than others but by default I

383

1 was intimately involved with much of the

2 gyrations of this process, this debate, the

3 rule that allowed the vote to occur, and the

4 like.

5 The fact is the bill that actually

6 passed the House was not produced in its

7 full form until about 1:00 o\'clock in the

8 morning the day of the debate. I didn\'t see

9 it until 2:00 a.m. the day of the debate.

10 So the idea that there\'s some seamless

11 theory that underlies this bill is folly.

12 It was cobbled together to get votes and

13 there\'s no other way to get around that when

14 you read the news clips and you see how the

15 bill every month seemed to change.

16 Almost two years ago there was

17 supposed to be a vote and the rule did not

18 pass. They brought the rule down because

19 again they weren\'t sure if they had the

20 votes. So we finally do get a vote and the

21 bill comes at 2:00 o\'clock in the morning

22 and there\'s a debate with a King of the Hill

384

1 and a Queen of the Hill and all sorts of

2 parliamentary tactics, which were brilliant

3 on behalf of the sponsors and I have to

4 applaud their efforts, but at the end of the

5 day did not provide a robust debate that was

6 unscripted. It was very controlled.

7 Now sponsors want to come in with

8 comments and say they ought to be given

9 great weight when they wrote the bill, in

10 theory, controlled the debate, cut off

11 debate, and rigged the system. It simply

12 doesn\'t make sense that they get, not only

13 as Mr. Ginsberg said, the third bite of the

14 apple. This is probably the fifth or sixth

15 bite of the apple that they\'ve had.

16 The fact is that the bill came out

17 so early on the morning of the debate I had

18 trouble getting through it once to read it

19 and figure out what it meant even with the

20 cross references, which I obviously am

21 familiar with. The idea that every member

22 who voted for this read the bill cover to

385

1 cover and understood what they were voting

2 for is absurd and I mean that with all

3 respect to them.

4 It\'s the legislative process.

5 It\'s the way it works. But the fact is

6 don\'t assume that there\'s some great theory

7 here driving this. What you do have are

8 statements in the press, many of which don\'t

9 match what the actual bill says. The two

10 statements you hear in the press are we want

11 to reign in issue ads. Okay, that\'s nice.

12 There are really constitutional issues

13 there. I think we all agree with that in

14 some form but all these other details, the

15 other 90-some pages of the bill, there

16 really was never discussion on.

17 So ultimately I\'m going to ask

18 that you don\'t give the sponsors\' comments

19 all that much deference. Obviously they

20 need to be considered. Obviously they\'re

21 very thoughtful and quite lengthy but at the

22 end of the day they\'re easily refuted.

386

1 The set I read had very little

2 citation to the actual Congressional Record.

3 I think they cited Mr. Feingold\'s statement

4 about how this bill bans soft money. As

5 Mr. Bauer said already, this bill does not

6 ban soft money. It does not get rid of all

7 soft money in federal elections. It doesn\'t

8 touch restricted-class communications, for

9 example, in either corporations or unions.

10 There are the Levin accounts, which, of

11 course, are soft money accounts. We also

12 see that Mr. McCain had a statement that we

13 can now raise non-federal hard money, as

14 Mr. Noble called it yesterday, which we used

15 to call personal softs but now all of a

16 sudden that\'s hard money, for leadership

17 PACs. This bill does not ban soft money.

18 These commenters continuously say every

19 chance you get ban soft money. The bill

20 doesn\'t do that itself.

21 I see the red light\'s on so I\'m

22 going to quit while I\'m ahead and answer any

387

1 questions you have. Thank you.

2 CHMN. MASON: If indeed you are.

3 I want to remind my colleagues the panelists

4 have actually done a pretty good job on this

5 panel of focusing on the national party

6 issues and Tom did mention the California

7 gubernatorial race and I know the list of

8 questions that I have. There are a number

9 involving Levin funds and so on like that

10 but if we are able to postpone those until

11 the next panel I think we\'ll get a better

12 focus on the national party issues the first

13 part of this morning.

14 The first questioner this morning

15 will be Commissioner Toner.

16 COMM. TONER: Thank you,

17 Mr. Chairman. Mr. Josefiak, you were

18 mentioning in terms of the directly/

19 indirectly establish, finance, maintain

20 control the need for clarity, and I take it

21 from your comments you urge us to draw upon

22 our established affiliation criteria in

388

1 fleshing out that statutory phrase?

2 MR. JOSEFIAK: That\'s correct,

3 Commissioner. We had said in our formal

4 comments that we don\'t necessarily agree

5 with some of the interpretations of that the

6 Commission\'s had in the past but the

7 Commission has a history of dealing with

8 that terminology and we think under the

9 circumstances that\'s the best way to

10 approach it and give some clarity, some

11 consistency, to this process, and I think

12 the standard that is in place now is a

13 standard that people are using pre-November

14 5th to determine whether their particular

15 organizations would fall under the rubric of

16 being considered part of some sort of other

17 entity. So I think for the purposes that we

18 say in our comments and what I said today it

19 would be best to keep the status quo.

20 COMM. TONER: And I think that

21 raises an interrelated point that you

22 touched on and that is the effective date of

389

1 BCRA is this November and obviously

2 organizations have been operating for a long

3 time under settled law and now we have a new

4 regime. We\'re going to have to come to

5 grips with whether we should create a safe

6 harbor or other type of protections for

7 organizations that are separate and apart

8 prior to the effective date of BCRA. Is it

9 essentially a situation where if we don\'t do

10 that we\'re retroactively applying this new

11 law to activities that were legal under the

12 current situation?

13 MR. JOSEFIAK: That certainly is

14 what we\'re arguing and that\'s our position,

15 that you really don\'t want to penalize

16 organizations and individuals for doing

17 certain things when they could and that

18 we\'re dealing with core First Amendment

19 right issues here and that it\'s got to be a

20 prospective analysis of what you have here.

21 So anything that transpires before November

22 6 where people try to disaffiliate if they

390

1 have been affiliated or try to set up a

2 different system and they\'re not controlled

3 or they\'re not financed or they\'re not

4 established at that point by any other

5 organization they should have the right and

6 should be free to change their organization

7 as they see fit. And I think that is what

8 we\'re proposing and I think that\'s the only

9 standard that you should be thinking about.

10 COMM. TONER: So in your view we

11 should evaluate their activities after the

12 effective date of BCRA in terms of what

13 they\'re doing at that time?

14 MR. JOSEFIAK: That\'s correct and

15 then you can look at the interrelationships

16 at that time but you cannot penalize

17 individuals and organizations for what went

18 on when it was legal to do so.

19 COMM. TONER: Mr. Sandler, in your

20 papers you write extensively about the

21 building fund and the legislative debate

22 that transpired in the Senate and House

391

1 side.

2 Is it your view, after looking at

3 that history, that essentially there\'s just

4 no indication that Congress meant to

5 restrict in any way the scope of permissible

6 building fund activities?

7 MR. SANDLER: This is with respect

8 to state parties?

9 COMM. TONER: With respect to

10 state and local committees.

11 MR. SANDLER: The building fund

12 has been eliminated by national parties for

13 all the national party committees. It\'s

14 with respect to state parties.

15 Well, first of all, let me just

16 say quickly that, like Mr. McGahn, my

17 experience with this goes back a long way.

18 In fact it goes back to 1986 in the

19 Byrd-Boren bill. Every version of campaign

20 finance reform, every version, preserved the

21 building fund exemption per se for national

22 and state parties until the McCain-Feingold

392

1 bill that passed the Senate in 2001.

2 Even then the Shays-Meehan bill,

3 that Shays-Meehan bill that passed

4 originally was in \'98 and then again it came

5 up in 2001 and was defeated when the rule

6 went down, made it clear that state parties

7 could pay for buildings and equipment, with

8 100 percent non-Federal funds because that

9 was a defined term specifically as

10 non-federal election activity, and indeed

11 when Shays and Meehan introduced the bill

12 the morning of the debate that provision was

13 still in there.

14 It wasn\'t until 2:00 o\'clock in

15 the morning that it was knocked out by the

16 Kingston amendment, which only went through

17 because the so-called reform groups, which

18 had characterized it as a poison pill,

19 secretly signaled members it was okay to

20 vote on it anyway in an act of extraordinary

21 bad faith and treachery and therefore it\'s

22 impossible to conclude other than that the

393

1 true congressional intent, and none of the

2 members realize that this state party aspect

3 was in there, is that state parties can

4 continue to pay 100 percent non-federal

5 money for buildings and equipment, as

6 provided in every version of McCain-Feingold

7 and Shays-Meehan to the bitter end.

8 COMM. TONER: In quick summation

9 then as a matter of law it would be your

10 view that the agency should preserve the

11 scope of permissible building fund

12 activities for state parties under current

13 law?

14 MR. SANDLER: Absolutely,

15 Commissioner. That is our view.

16 COMM. TONER: Thank you,

17 Mr. Chairman.

18 CHMN. MASON: Commissioner

19 McDonald.

20 COMM. McDONALD: Mr. Chairman,

21 thank you. I want to thank the panel. It\'s

22 a very distinguished panel. I was sitting

394

1 here thinking if we could use the same

2 formula in Pakistan and India we might be

3 able to resolve the dispute. I see some

4 rather divergent parties normally appearing

5 together and I find that impressive.

6 I\'ve got several questions.

7 Obviously yesterday I grappled with this

8 issue about the deference to the members and

9 so on and so forth and I\'m a little

10 surprised because all of you work intimately

11 with members. I see my old friend Tom

12 Josefiak who used to represent the Senate.

13 I\'m a little puzzled when people tell me

14 really that the members should in essence be

15 afforded very little deference in these

16 matters.

17 Let me ask about the prevailing

18 side a minute. Some of this debate is about

19 the bill and what came out of the bill and

20 the prevailing side. I\'ve not seen any

21 comments from those that were on the

22 prevailing side that raise the kind of

395

1 concerns you have. I\'m not saying they\'re

2 not legitimate and that every concern you

3 raised isn\'t legitimate but it seems like to

4 me that based on what I\'ve heard in the last

5 two days that you shouldn\'t take the authors

6 of the bill because, as was pointed out

7 yesterday, there were only four that would

8 be authors up front, as opposed to other

9 members who voted for the bill.

10 Don made the point that the bill

11 passed in the middle of the night. That\'s

12 not unusual. There are a number of bills

13 that pass in the middle of the night. There

14 are a number of deals, if you will, that are

15 made in the middle of the night.

16 So I\'m just trying to understand

17 if the theory is that the prevailing side

18 had many divergent points of view, and I

19 suspect that\'s right. I\'m just wondering

20 why we haven\'t heard from others to clarify

21 that?

22 Does anyone have any insight into

396

1 that, why we haven\'t heard \--

2 MR. BAUER: If I may I just want

3 to clear up one thing. By the way, I

4 completely agree with Mr. McGahn. I mean,

5 one has to recognize that this is a

6 complicated bill. It passed with little

7 legislative history. It passed with

8 significant changes and was produced under

9 hurried conditions, so we shouldn\'t have

10 illusions about how well digested, if you

11 will, some of the provisions of the bill

12 were but even if it had been passed at 11:00

13 o\'clock in the morning and even if it had

14 been passed after three and a half months of

15 debate the point would remain the same,

16 which is the sponsors do not have a

17 privileged position as a matter of law.

18 COMM. McDONALD: I understand

19 that.

20 MR. BAUER: Do not have a

21 privileged position and, secondly, their own

22 statute indicates an intention to commit to

397

1 you with one exception the kind of

2 discretion typically delegated to agencies

3 to make rules. This argument that we\'re

4 presenting you here today is not a

5 particularly creative or controversial

6 argument. It\'s black-letter law and it goes

7 to the heart of what agencies like this are

8 expected to do.

9 COMM. McDONALD: Bob, I appreciate

10 that and I\'ll ask you about Chrysler v.

11 Brown in just a second but let me follow up.

12 You work with the Members

13 continually. You know them all very well

14 and I\'m just wondering what your thought

15 process is. I\'m wondering why others who

16 voted for the bill and clearly did vote for

17 the bill didn\'t submit comments saying no,

18 no. We didn\'t mean this or we didn\'t really

19 mean that; this is what we meant.

20 MR. BAUER: I\'ll make two points

21 about this. First of all, I think it\'s fair

22 to say, and you\'re correct, I do work with a

398

1 lot of members and for the record I want to

2 say I love every last one of them, but,

3 secondly, they\'re busy and they\'re spreading

4 their efforts over a wide range of issues

5 and therefore one cannot count or expect

6 legitimately members to involve themselves

7 deeply in comments on technical issues under

8 this particular statute.

9 COMM. McDONALD: Even those that

10 affect them directly like the campaign

11 finance bill?

12 MR. BAUER: Even those that affect

13 them directly and, secondly, I will tell you

14 again, drawing on my own experience, much

15 like Mr. McGahn\'s, many of them in fact

16 assumed and were told that some of the

17 ambiguous and difficult issues presented by

18 the statute would indeed be addressed by

19 this agency and that\'s what they\'re assuming

20 is going to happen and they\'re going to be

21 addressed, as Mr. Sandler said, on the basis

22 of this agency\'s understanding of the

399

1 statute and expertise.

2 COMM. McDONALD: Well, I

3 appreciate that. It\'s an interesting

4 position to be in because what\'s really

5 before us, and everyone knows it\'s one of

6 the worst-kept secrets in America, is

7 whether we\'re debating the bill again in

8 lots of ways.

9 I mean, some of the comments that

10 are made, and I\'m not taking the position

11 one way or the other, I\'m anxious to see

12 what the commenters have to say, but in some

13 respects it seems that there\'s a debating of

14 the bill and the bill, quite frankly, in one

15 form or another was before the Congress for

16 seven years and I would be the first to say

17 that numerous changes have happened over the

18 course of time, as they do here whether it\'s

19 in the advisory opinion process or in the

20 regulatory process, but it puts us in an

21 interesting position.

22 I think you\'re right. I concur

400

1 with your point, Bob, as a matter of law and

2 then we get down to the practical aspects of

3 it because I just can\'t imagine members, who

4 take this very seriously and if there\'s one

5 thing I\'ve learned in 20 years they take

6 rulings by the Commission pretty seriously

7 and I think that\'s fair to say, that they

8 wouldn\'t come forward and say no, that\'s not

9 what we meant, and I\'m speaking of those on

10 the prevailing side. I\'m not critical of

11 those on the other side but obviously we\'re

12 trying to figure out what the intent was in

13 relationship to the prevailing side because

14 that\'s what our assignment is.

15 MR. SANDLER: Commissioner, just

16 briefly to follow up on that point, it is

17 not surprising to us that the Democratic

18 members on the prevailing side haven\'t come

19 forward with comments. This whole business,

20 this whole idea, that individual members of

21 Congress get to make up the legislative

22 history after everybody\'s voted on the bill

401

1 is in itself extraordinary. It is not the

2 way that business can be done under our

3 Constitution. Congress passes a bill \--

4 COMM. McDONALD: Well, I agree

5 with that but that\'s not the issue. You all

6 are coming forward after the bill to make

7 your presentation of what you think the

8 Congress meant or what we should do. I\'m

9 just trying to walk through it with you. I

10 don\'t have a position.

11 That argument I\'m fine with. I\'m

12 a little bit more unclear, however, about

13 you\'re all coming forward after the fact to

14 tell us what it means. Is that not the

15 case? I mean, we\'re all doing it now.

16 MR. SANDLER: But we\'re not

17 members of Congress purporting to represent

18 the congressional intent. That\'s the

19 critical difference.

20 MR. JOSEFIAK: Commissioner, if I

21 may, I think on that point what I was trying

22 to say early on is that where the language

402

1 in the statute is clear whether we like it

2 or not because we are in court challenging

3 the constitutionality of the language, which

4 I didn\'t even raise today, that\'s a whole

5 different ball game.

6 What you have to do where it\'s not

7 clear in the statute to devise regulations

8 to implement the statute. That\'s your

9 responsibility as a Commission and I think

10 we\'re here today to give you our best advice

11 as to what we think you should do in those

12 areas where the statute is not clear or the

13 statute gives you the flexibility to make

14 choices because, as Joe said early on, a lot

15 of these provisions got through with the

16 understanding that it would be fine-tuned

17 here at this agency and so there would be

18 some meat put on these bones before it

19 actually was implemented in November or now

20 in December.

21 COMM. McDONALD: Well, I\'m

22 heartened that the Congress understood it

403

1 that way. That\'s the first time I\'ve known

2 Congress to defer to us with such

3 enthusiasm. I\'m delighted to hear that,

4 Tom.

5 MR. JOSEFIAK: Not that they did

6 not do it reluctantly, though.

7 COMM. McDONALD: Thanks, all of

8 you. I appreciate it very much.

9 CHMN. MASON: Commissioner Smith?

10 COMM. SMITH: Thank you,

11 Mr. Chairman.

12 I just want to note, Mr. McGahn,

13 I\'m really impressed that you thought that

14 after reading the bill one time maybe you

15 should have understood it. Most people I

16 know have read it 20 or 30 times and these

17 are some of the best lawyers in the country

18 and are still wrestling with how the parts

19 fit together.

20 MR. McGAHN: Every time I read it

21 I learn something new but we do what we can

22 in a limited time allotted under the rules

404

1 of the House.

2 COMM. SMITH: Well, I appreciate

3 that. We seem to be spending all our time

4 talking about how much attention we have to

5 pay to the post-hoc comments of four

6 Congressmen. I think our time is better

7 spent getting on to some other items, but I

8 will point out that I noted yesterday that I

9 take all of the commenters seriously. I

10 give great weight to all of their views. I

11 do not believe that there\'s any one

12 commenter who can tell me if I don\'t follow

13 his views then the will of the country will

14 not be done and therefore I should just

15 ignore everybody else who appears before us.

16 So I\'m glad that you\'re here and we\'ll

17 consider your comments carefully as I will

18 with those of the NAACP and the various

19 groups that appeared before us yesterday,

20 submitted written comments, and so on, and

21 the legislators who have submitted comments.

22 Mr. Sandler, I remember last fall

405

1 Terry McCauliffe was after the fall

2 elections triumphing the Democratic

3 performance in mayoral elections. Are

4 mayoral elections important to the

5 Democratic National Committee?

6 MR. SANDLER: They have been so

7 far, absolutely, yes, that was a new and

8 particular emphasis that was put in in 2001

9 by the DNC. Our chairman made it clear that

10 it\'s not just a presidential or even

11 congressional shop any more. We\'re really

12 going to put special emphasis in supporting

13 candidates up and down the ticket and

14 without in any partisan way. We\'re

15 obviously very, very proud that the efforts,

16 together with our state parties and others

17 resulted in two of the three \--

18 COMM. SMITH: Well, I didn\'t want

19 to give you a chance to tout your success.

20 I just wanted to say yes, we will.

21 COMM. McDONALD: No reading those

22 stats.

406

1 COMM. SMITH: Because it\'s a

2 lead-in to my question, particularly given

3 this new emphasis. Do you anticipate that

4 the party may do in the future get out the

5 vote activity or voter identification

6 activity in connection with mayoral

7 elections?

8 MR. SANDLER: Well, no, of course

9 not. I mean, the national party, in other

10 words?

11 COMM. SMITH: Right.

12 MR. SANDLER: No, the national

13 party cannot directly raise any money in

14 connection with mayoral elections for any

15 purpose. I mean, it can transfer federal

16 money to its state parties. Not a single

17 penny of that, of course, can be used for

18 get out the vote under the Levin Amendment

19 we\'ll turn to at the next panel. So I think

20 the answer, thinking out loud, Commissioner,

21 is I don\'t see any way.

22 COMM. SMITH: Well, I guess we\'re

407

1 coming at it a bit differently. Well, let\'s

2 put it differently. The point I\'m raising

3 is the nation\'s 20 largest cities, I

4 believe, all elect mayors in odd-numbered

5 years and that leads me to wonder about the

6 definition put in the act about federal

7 election activity includes get out the vote

8 activity, generic campaign activity, and

9 voter identification that occur in

10 connection with any election in which a

11 federal candidate is on the ballot and it\'s

12 been suggested to us that that means the

13 full two-year cycle except in five states

14 where they elect governors in odd-numbered

15 years.

16 And I have a real question as to

17 whether that would be far too broad a

18 construct that would kill voter

19 identification activities and so on in a

20 majority of the states\' mayoral elections.

21 According to the Web site of the American

22 Conference of Mayors, more than half the

408

1 nation\'s mayors are elected in off-numbered

2 years plus there are school board elections,

3 all kinds of other local elections, county

4 elections, in off-numbered years. I\'m

5 wondering are these issues of concern to the

6 national parties? Do you care who wins

7 these elections and do other groups that you

8 know of care who wins these elections?

9 MR. JOSEFIAK: Of course, we care

10 and this becomes a very complicated issue,

11 Commissioner, because then you have to look

12 at not only the ability of using federal

13 dollars to pay for nonfederal elections but

14 whether that particular state or

15 municipality will allow that without coming

16 under their definition of soft money. There

17 are a lot of states and municipalities that

18 would view federal dollars as soft because

19 the federal dollar limits are much higher

20 than the state limits.

21 Most of the New England states we

22 couldn\'t even compete and I think you have

409

1 some comments from the State of Connecticut

2 Republican Party. We couldn\'t even compete

3 in a gubernatorial election with federal

4 dollars because it\'s against the law in the

5 State of Connecticut. And I think when I

6 talked about trying to do whatever you can

7 as a Commission to preserve federalism and

8 to allow state and local activity run by

9 state and local parties to be conducted

10 outside of the FEC jurisdiction would be the

11 direction to go because it is a complicated

12 matter and we would have to use under this

13 law federal dollars but the question is

14 could we spend it at all.

15 COMM. SMITH: Right, and it

16 strikes me that there are a lot more

17 nonfederal elections held in off-numbered

18 years than just in those five particular

19 states and I would agree with you that

20 deference to federalism would suggest that

21 if the states have stricter rules they

22 should go with those but we should not

410

1 automatically consider all those to be

2 elections in which a federal candidate is on

3 the ballot.

4 MR. JOSEFIAK: Correct.

5 COMM. SMITH: Well, I see my time

6 is up.

7 MR. SANDLER: And there are

8 special elections in four state legislative

9 races all the time, you\'re absolutely right,

10 and with respect to state parties,

11 therefore, the idea that federal election

12 activities should be defined at any point

13 before the beginning of the federal election

14 year is inappropriate for exactly the

15 reasons that you\'ve articulated,

16 Commissioner.

17 CHMN. MASON: Commissioner Thomas.

18 COMM. THOMAS: Thank you,

19 Mr. Chairman. Thank you all for being here.

20 Let me start, if I may, with one of the

21 issues that Joe Sandler raised, the host

22 committee issue. You\'re urging that we

411

1 clarify it now rather than later. What

2 would you have us do? Would you have us

3 somehow, I gather in your view, clarify by

4 rule that in essence the provisions that

5 restrict the ability to fund-raise on behalf

6 of (c)(3)s and (c)(4)s and so forth

7 explicitly would not apply to raising money

8 on behalf of the host committees because of

9 what you view is their nature?

10 MR. SANDLER: No, I think it\'s

11 possible that the provisions that relate to

12 national party fund-raising for nonprofit

13 organizations generally could apply to host

14 committees by virtue of the fact that host

15 committees are such organizations. I was

16 talking more about whether BCRA in any way

17 addresses the affiliation of these

18 committees with national parties or

19 addresses the kind of money the host

20 committee itself can accept or the way it

21 can be spent.

22 Of course, BCRA doesn\'t address

412

1 any of those, in any way restrict any

2 nonprofit organization in those respects,

3 and as to those issues, therefore, we\'re

4 asking the Commission to instruct the Office

5 of General Counsel that this issue is off

6 the table, this issue being the scope of

7 permissible expenditures by host committees,

8 what host committees can themselves raise,

9 and how they do their business under the

10 current regulations, not whether national

11 parties can raise money for host committees,

12 which, again, that may be caught up in a

13 restriction of a more general application

14 that the act does speak to.

15 COMM. THOMAS: That\'s helpful. I

16 wasn\'t quite following.

17 With regard to the comments that

18 have been made about legislative history I

19 tend to agree that it was a rather difficult

20 process to follow. I think there was a

21 comment made that there was no legislative

22 history. I think there is legislative

413

1 history. It goes way back if you want to

2 look at it one way but you\'re right, it was

3 changing fast, and it was changing late at

4 night and early in the morning. So I agree

5 with you that it was a difficult process to

6 follow.

7 But I would also make as a general

8 comment that from my own perspective if I

9 have a choice as to whether I\'m going to try

10 to figure out the intent of the legislation

11 between the comments of those who supported

12 the legislation and those who opposed the

13 legislation. I suppose on balance I\'m going

14 to tend toward the comments of those who

15 supported the legislation.

16 That\'s just me. Maybe that\'s the

17 wrong approach to take but I view what\'s

18 going on in the mind of those who were

19 involved in drafting the language that got

20 into the legislation as perhaps more

21 indicative of what was behind that language.

22 With regard to another question I

414

1 wanted to get something cleared up. Some

2 press has been made of the issue of maybe

3 the national party committees having the

4 opportunity to raise some nonfederal monies

5 like the leadership PACs apparently are

6 going to be allowed to raise. I gather what

7 you\'re talking about is a suggestion that

8 the national party committees ought to be

9 able to raise up to \$20,000 per year from

10 any individual for non-federal election

11 purposes in addition to the 20,000 per year

12 they can take from an individual for federal

13 purposes and then in addition every PAC in

14 America could give \$15,000 for a non-federal

15 account of the national party committees,

16 each one of them, the DNC, DCCC, and the

17 DSEC. So that\'s what you\'re suggesting that

18 we adopt? I want to be clear on what you\'re

19 urging.

20 MR. BAUER: Yes. The limit, of

21 course, goes up to 25 after November 5 for

22 individuals but that is correct on the same,

415

1 it seems to me, perfectly legitimate and

2 supportable theory that motivates Senator

3 McCain\'s statement on the floor of the

4 Senate, that the leadership PAC that he

5 directs and others that are directed by

6 members of Congress or associated with

7 members of Congress ought to continue to be

8 able to raise a pool of money limited in

9 amount, restricted as to source, for the

10 support of state and local candidates. That

11 cannot be soft money.

12 Number one, it\'s not soft money

13 because Senator McCain and others in

14 contemporaneous legislative history defined

15 it as not soft money and. Secondly, because

16 it is indeed subject to federal law limits

17 and source restrictions and, thirdly,

18 because in fact it will not be used, by

19 definition, for federal election-related

20 activities. By definition it is for the

21 support of state and local candidates.

22 And the parties certainly no less

416

1 than the leadership PACs and members want to

2 continue to be involved in state and local

3 election activities for a whole host of

4 reasons that people will understand both

5 historically and from the literature. The

6 key here is that there isn\'t any rational

7 distinction to be drawn as a matter of

8 legislative history, statutory construction,

9 or policy between a member\'s leadership PAC

10 and a member\'s political party organization.

11 COMM. THOMAS: Now, as I

12 understand, the good senator\'s argument

13 based on the comment he submitted he\'s

14 saying that the language in the statute in

15 BCRA that deals with restricting what the

16 national parties can accept is governing and

17 that that would override any other allowance

18 that might be available with respect to some

19 sort of nonparty committee. You don\'t buy

20 that?

21 MR. BAUER: No, I must say I don\'t

22 because with all due respect I\'m not picking

417

1 a quarrel with any U.S. senator even of the

2 other party \--

3 COMM. THOMAS: That would be

4 wrong, of course.

5 MR. BAUER: But I don\'t believe it

6 has any merit at all. It is not rooted in

7 the statutory language. It\'s not rooted in

8 the policy of the act. If you look at the

9 legislative history, and we cite in our

10 comments a statement by Congressman Shays,

11 one of the principle sponsors, who says the

12 regulation we are directing toward national

13 parties is being directed toward them

14 because their activities are intertwined,

15 the word he uses is \"intertwined,\" with the

16 activities of federal officeholders and

17 federal candidates, and it is soft money

18 fund-raising by federal office holders and

19 federal candidates that the national party

20 prohibition is meant to address.

21 They want to break the link

22 between unregulated soft money and federal

418

1 officials and candidates whose actions may

2 reflect quid pro quo influences, if you

3 will, and they want to break that connection

4 between that soft money and the use of that

5 money to influence federal elections.

6 Senator McCain is exactly correct that when

7 the money is raised under federal law limits

8 and source restrictions for state and local

9 candidate support only none of these

10 concerns with soft money which underlie

11 Mr. Shays\' statement are implicated.

12 There\'s no reason to prohibit them from

13 doing it. None of the policy goals of the

14 statute will be frustrated by allowing them

15 to do so.

16 And it is impossible to understand

17 how it is okay for federal candidates and

18 officeholders to raise this limited state

19 and local candidate support money to a

20 leadership PAC and not into a party

21 committee. Why would that be? Why would

22 Senator McCain be able to do it and a

419

1 senator who directs the Republican

2 Senatorial Campaign Committee, Senator

3 Frist, could not do it?

4 COMM. THOMAS: Well, it may be

5 that if we can\'t buy your argument that the

6 best option is to work with all of these

7 other groups that will be out there and will

8 be technically not the party committees but

9 they might be (c)(3)s or (c)(4)s that could

10 perform roles much similar to the leadership

11 PACs.

12 MR. BAUER: Well, if I may say so,

13 and I\'ll yield to my other colleagues, I

14 don\'t know that we\'re going to be satisfied

15 by being invited potentially at great legal

16 risk to accomplishing indirectly what the

17 statute does not prohibit us from doing

18 directly.

19 COMM. THOMAS: Well, I know it may

20 be awkward but, I mean, we may have a bit of

21 a stretch going with the interpretation

22 you\'re suggesting. That\'s all I\'m

420

1 suggesting. So we may have to invite you to

2 work with whatever else is left.

3 MR. BAUER: Thank you.

4 CHMN. MASON: I just also wanted

5 to address the host committees a little bit

6 and suggest how I had understood it and if

7 that\'s not satisfactory to the national

8 committees let us know but I had understood

9 the exclusion of the host committees from

10 this rule making to in essence represent a

11 substantive conclusion that there were no

12 BCRA provisions affecting the host

13 committees with the possible exception that

14 was discussed with Commissioner Thomas that

15 the fund-raising restrictions on what

16 national party committee officers and so on

17 could do might apply in the same way that

18 those would apply to any other (c)(3) or

19 (c)(4).

20 So, I mean, if we clarify that the

21 fact that we\'re not addressing the host

22 committees here essentially means there\'s no

421

1 unique effect that that satisfies your media

2 concerns.

3 MR. JOSEFIAK: Mr. Chairman, that

4 was certainly my understanding. I think

5 what confused the situation were comments

6 yesterday about national parties

7 establishing these groups which then led to

8 the issue if you\'re getting into the

9 establish, finance, maintain, and control

10 then you have automatic affiliation and

11 therefore all these rules apply. And in the

12 proposal that the commission put out the

13 suggestion that somehow perhaps

14 solicitations by officeholders to these

15 kinds of organizations could be implicated

16 but would be taken care of at a later date

17 left us the impression that sometime in late

18 summer or early next year we would have a

19 regulation that would somehow prohibit or

20 restrict activities that were currently

21 being negotiated with the cities under the

22 understanding that we\'re operating under the

422

1 rules that had been promulgated in the past

2 with regard to conventions and host

3 committees. And I think if the statement is

4 that by not taking any action we can assume

5 that there is no BCRA connection at least

6 for this cycle I think that satisfies

7 certainly the RNC\'s position at this point.

8 CHMN. MASON: I\'d also note just

9 in terms of the way the legislation itself

10 is set up that the legislation explicitly

11 exempts a state or local political

12 convention from the definition of federal

13 election activity and so on like that. And

14 so it would be an odd result indeed to say

15 suddenly well, the national conventions are

16 now covered. National conventions weren\'t

17 exempted because they\'re generally funded,

18 at least for the major parties, through

19 public funding.

20 MR. JOSEFIAK: For the record what

21 Joe said, that we are negotiating with a

22 number of cities currently, just as Joe is,

423

1 and they run the gamut. And so to say that

2 somehow they\'re affiliated with us now when

3 they establish host committees and they may

4 never actually have a convention is another

5 issue because in order to even bid they set

6 up the structure to be able to use city

7 resources to actually fund their bidding

8 process. And to say that even if you

9 weren\'t having a convention somehow you were

10 an affiliate of a national organization or

11 people from your local district, congressmen

12 and senators, couldn\'t help raise money to

13 get the city at least in the bidding process

14 seems a little absurd. So thank you for

15 that clarification.

16 CHMN. MASON: You mentioned

17 affiliation. I particularly wanted to ask

18 Joe because he gave us a good example

19 regarding the Association of State

20 Democratic chairs. It strikes me that even

21 if we just take the current affiliation

22 rules as I understand it something like a

424

1 quarter or a third of the members of the

2 Democratic National Committee are also

3 members of the Association of State

4 Democratic Chairs, in other words all the

5 state chairmen are on whatever the governing

6 board you call of your national committee.

7 And so if we looked at a corporate

8 board or something like that and we said

9 well, gee, we have a corporation here and

10 one-quarter or one-third of the members of

11 the corporate board of directors are

12 directors of this other corporation out here

13 and nobody else, by the way, there\'s

14 complete overlap in that sense, that I think

15 there\'d be a reasonable possibility under

16 the existing affiliation approach that we\'d

17 say those two organizations are affiliated.

18 So help me out with how you\'re thinking

19 through this in terms of how you can have a

20 structure where these essentially largely

21 overlapping boards are nonetheless not

22 affiliated.

425

1 MR. SANDLER: Well, the membership

2 of the Democratic National Committee, of

3 course, is different than its board. We

4 have the nationally elected officers.

5 There\'s also an executive committee of the

6 DNC, but, of course, their members take

7 party chairs who are members of the

8 executive committee as well.

9 I think that with respect to any

10 organization, as we suggest in the comments

11 and I think also on behalf of the state

12 Democratic chairs, that any organization

13 ought to be measured by the traditional and

14 established affiliation criteria as of the

15 time after the law becomes in effect to

16 determine whether that organization is in

17 fact currently established, maintained,

18 controlled, or financed by the putative

19 sponsoring organization. And I think if we

20 have that approach that that will provide a

21 reasonable and workable analytical framework

22 for dealing with these issues in the future.

426

1 CHMN. MASON: It wasn\'t quite a

2 direct answer but my time is up. Vice

3 Chairman Sandstrom.

4 COMM. SANDSTROM: Will Rogers once

5 remarked that he wasn\'t a member of an

6 organized political party, he was a

7 Democrat, and it strikes me that talk about

8 organized political parties is almost an

9 oxymoron, that they organize essentially

10 like tropical storms over warm political

11 waters, often reaching hurricane proportions

12 in the months of July through November,

13 consisting of random elements of volunteers

14 thrown together, and that control outside of

15 your ability to navigate within the eye of

16 the storm is about the ability of a

17 meteorologist who charts and predicts the

18 course of that hurricane.

19 In testimony yesterday we had a

20 panelist suggest that vagueness and

21 overbreadth concerns with respect to the

22 rights and duties of political parties and

427

1 the reporting obligations are essentially

2 lessened by the fact that they already have

3 to report. It strikes me that maybe they\'re

4 even greater when it becomes the activities

5 of large numbers of volunteers engaging in

6 activity essentially outside the actual

7 control of officers of the party, that those

8 overbreadth and vagueness concerns are more

9 pronounced. Would any of the panelists like

10 to respond?

11 MR. SANDLER: In terms of

12 volunteers all of the officers of the

13 Democratic National Committee and all of its

14 lay leadership in the fund-raising area,

15 they\'re all volunteers, nobody\'s paid, and

16 that includes the chairman. So other than

17 the staff everyone\'s a volunteer and that

18 goes all the way down the line. There\'s a

19 handful of state party chairs who are

20 full-time, paid, but other than that the

21 tens and tens of thousands of people

22 involved with the state and local parties

428

1 are obviously also volunteers.

2 COMM. SANDSTROM: Do you have any

3 ability to control what they do on a daily

4 basis and private conversations that they

5 have? Do the people who raise money for you

6 or the Democratic National Committee raise

7 money for candidates typically?

8 MR. SANDLER: Well, absolutely,

9 and a lot of the people who raise money,

10 some of the biggest donors and raisers for

11 the Democratic National Committee are

12 extremely active in philanthropy, also, and

13 raise money for all kinds of 501(c)(3) and

14 (c)(4) organizations ranging from

15 universities, churches, and synagogues to

16 think tanks to voter registration and get

17 out the vote organizations, the advocacy

18 groups.

19 COMM. SANDSTROM: How would they

20 respond to a request from you that because

21 you\'re raising money for a national party

22 you shouldn\'t raise any money for any state

429

1 candidate or any 501 organization?

2 MR. JOSEFIAK: They\'d ignore you.

3 This is the one thing, the concept that\'s

4 missing here, that when you\'re dealing with

5 individuals who affiliate either with a

6 Democrat, Republican, or any other party

7 they\'re activists. As Joe said, they\'re

8 political activists. If they\'re raising

9 money they\'re fund-raising activists. They

10 raise money for lots of different

11 organizations and for anyone from

12 Washington, D.C., to tell them they can\'t go

13 raise money for their gubernatorial

14 candidate just like they couldn\'t raise

15 money for the Race for the Cure or any other

16 program that they may be involved in that\'s

17 why I\'m saying the term \"agency\" becomes so

18 important because it does impact on how you

19 treat these folks.

20 And party organizations by their

21 very nature are volunteer organizations

22 unlike under our rules the only paid

430

1 individuals other than employees of the

2 committee are the chairman and co-chairman.

3 Everyone else is a volunteer.

4 COMM. SANDSTROM: Thank you. How

5 about terms like \"solicit\"? Do they need to

6 have some definite boundaries? I mean, if

7 you were limiting what people go out and try

8 to garner support for somebody how about a

9 term like \"solicit\"? Do you believe it

10 needs to be defined?

11 MR. BAUER: Well, it clearly does

12 and let me say one thing that completely

13 complements what Tom Josefiak said and that

14 is it is not only that you\'re going to

15 encounter defiance. People are going to say

16 they don\'t understand what you\'re talking

17 about, you can\'t be right. But I\'ll go back

18 to my first point. They don\'t understand

19 what you\'re talking about.

20 I mean, one of the things that you

21 try to do as an attorney is you try to

22 convey to people an understanding of what is

431

1 it that you\'re telling them means, what does

2 it mean, so it can comport somehow with

3 their view of how the world works and what

4 they\'re legitimately being asked to do and

5 why it is that the law prohibits some

6 activities and permits others and we\'ve now

7 heard this distinguished group talk. These

8 are some of the best lawyers here on my

9 right in the country and know this stuff

10 better than 99.999 percent of the rest of

11 the world. And they just said they learn

12 something different every day by reading the

13 statute.

14 It\'s terribly complex. It was

15 rushed. There are parts of it that don\'t

16 fit particularly well together. The rules

17 are going to complicate it further. And now

18 we\'re going to be trying to explain all this

19 complication to people who are just trying

20 to conduct basic political activity and who

21 have to be able to grasp what it is that

22 they are supposed to do and not to do. So

432

1 along with defiance comes, frankly, fatal

2 incomprehension.

3 COMM. SANDSTROM: Thank you.

4 MR. SANDLER: In terms of just,

5 Commissioner, your reference to agency, that

6 underscores the need for the commission to

7 reflect in its regulations and be very clear

8 in defining both elements of what the

9 statute says, not only that someone is an

10 agent but that they\'re not implicated unless

11 they\'re acting on behalf of the entity in

12 question and it\'s very, very important to

13 preserve that element and define its

14 meaning.

15 CHMN. MASON: Larry Norton?

16 MR. NORTON: Thank you,

17 Mr. Chairman. Thank you, panel. To follow

18 up on the vice chairman\'s questions, the

19 suggestion was just made by Mr. Sandler and

20 is in the RNC comments that an appropriate

21 definition for \"agency\" is found in the

22 Restatement of Agency and that defines it as

433

1 a relationship which results from the

2 manifestation of consent by one person to

3 another that the other shall act on his

4 behalf and subject to control. With that

5 definition it would seem to me that it would

6 exclude this vast cadre of volunteers and

7 philanthropists we\'re talking about but that

8 there wouldn\'t be any particular reason why

9 either an express or an implied agency

10 wouldn\'t suffice.

11 In other words the reach of that

12 definition wouldn\'t encompass the volunteers

13 in the field but it could encompass those in

14 the office or who worked more directly with

15 the campaign. Is there any reason for

16 drawing a distinction between \"express\" and

17 \"implied\" so long as we build into the

18 definition the concept of control and acting

19 on behalf?

20 MR. SANDLER: Well, if there\'s

21 built into the definition the concept acting

22 on behalf of with respect to the activity in

434

1 question, whether it\'s solicitation,

2 fund-raising, whatever, yes, that would

3 work. But the problem with implied agency I

4 think is illustrated by the situations I

5 mentioned at the outset. Don\'t vice chairs

6 of the Democratic National Committee have

7 implied authority? And yet does that

8 automatically mean they\'re precluded when

9 they\'re acting on behalf of their own state

10 parties or themselves as state candidates or

11 a labor union from raising money in those

12 organizations or engaging in activities that

13 would be prohibited to an agent of a

14 national party under the act?

15 MR. JOSEFIAK: That\'s also within

16 the scope of, too, and it was brought up

17 yesterday you\'re wearing two hats. A

18 chairman of a party committee at the state

19 level has a totally different function when

20 they\'re acting as chairman of the state

21 party than when they come to the National

22 Committee meeting and they\'re voting on a

435

1 national resolution. And there\'s a conflict

2 in that same person based on what their goal

3 is for a particular election. There could

4 be a conflict with what the national

5 committee target goal is versus what that

6 particular state wants to do within its

7 election. There are two different regimes

8 there.

9 And the implied agency theory I

10 think not only do you have activists that

11 are volunteers but you have activists, and I

12 know this happens on the DNC side, too, who

13 are employees of the DNC who in their own

14 time will go out and volunteer in a race in

15 Virginia, the Virginia gubernatorial race

16 and just because they work for the RNC or

17 DNC there\'s an implied agency arrangement

18 there. And I guess that\'s where it becomes

19 important to talk about within the scope of

20 their employment because what they do on a

21 Saturday afternoon in Northern Virginia,

22 handing out leaflets for someone or raising

436

1 soft dollars for someone is totally

2 different than what they do Monday through

3 Friday working for the RNC and DNC in a

4 different capacity.

5 So our position is that if you can

6 avoid the implied, please do so because we

7 need some clarity here. But there is a

8 whole range of types of individuals like

9 that that are intertwined within the party

10 structure and the clearer you can be as to

11 what \"agency\" means the better off you are.

12 Even with people you have that have

13 authority go off on their own and do strange

14 things but they\'re not acting within the

15 scope of their authority to do so and I

16 think that becomes very important.

17 MR. NORTON: I mean, one of the

18 obvious questions this raises is who is

19 covered if the definition is limited to

20 express authority orally or in writing and

21 we talked yesterday about how this plays out

22 in the real world and how funds are

437

1 solicited and maybe you, Mr. McGahn, could

2 help on this point.

3 In a typical congressional

4 campaign how many people are expressly

5 authorized orally or in writing to raise

6 funds for the campaign? Do they hold

7 certain positions or titles with the

8 campaign?

9 MR. McGAHN: Generally yes, you\'d

10 hired probably a finance director. You\'d

11 probably hire an outside fund-raising

12 consultant, and they\'re the ones responsible

13 for raising funds. In my experience you

14 tend to have those who raise the money and

15 those who spend the money, meaning you have

16 the political operatives who control the

17 message and what not and those folks do not

18 go out and raise money and I don\'t think

19 anyone in their right mind thinks that

20 they\'re authorized to do so.

21 MR. NORTON: Of those who raise

22 the money, whether they\'re in the right mind

438

1 or not, how many of those are expressly

2 authorized either by contract or orally,

3 expressly authorized, not implied, to

4 solicit funds on behalf of the candidate?

5 MR. McGAHN: It depends on the

6 campaign, at least the two I mentioned, and

7 they probably expressly put together a

8 finance committee or a group of people who

9 can help them raise money. So I think in my

10 experience the people who are able to raise

11 money tend to know they can raise money but

12 that doesn\'t mean that there are also people

13 who raise money on their own and aren\'t

14 necessarily authorized by the committee.

15 In my experience there are many

16 times where activists will want to do events

17 or put up ads or do things on their own and

18 they may have had some contact with the

19 campaign. So you get into this very gray

20 area, this implied authority, and to me

21 that\'s very dangerous because the one thing

22 as a lawyer for campaigns I always try to

439

1 maintain some sort of control over what\'s

2 going on both for compliance matters with

3 the Commission but also dealing with outside

4 entities. If you get into implied agency,

5 to me that was a concept that was designed

6 to protect people who maybe contract with

7 the campaign.

8 Someone goes out and says I can

9 bind this campaign and enters into a deal,

10 you shouldn\'t stick somebody with an unpaid

11 bill because they thought they were

12 contracting you in faith. But to take that

13 and extend it to binding the campaign in our

14 context to me is very, very dangerous.

15 MR. NORTON: Thank you. I see my

16 time is up.

17 CHMN. MASON: Jim Pehrkon.

18 MR. PEHRKON: Mr. Chairman, since

19 you had requested the question concerning

20 the Levin provision be held for the next

21 panel that\'s exactly what I\'ll do. I\'ll

22 wait for the next panel.

440

1 CHMN. MASON: If we have an urgent

2 desire for a second round we can do that but

3 if we want to be able to take a break and

4 stay on schedule we don\'t have time for a

5 second round. Commissioner Toner, at least,

6 is anxious. It is a strong suggestion but

7 Commissioner Toner.

8 COMM. TONER: I\'ll just ask one

9 question, Mr. Chairman, and I think the

10 General Counsel raised a critical issue

11 yesterday and we\'ve talked about it a little

12 bit today. And that is \"agent\" under this

13 new statute is not defined and obviously

14 there are other agencies in this city and

15 elsewhere where that is also the case where

16 they implement statutes that contain agent

17 concepts that are not defined in their

18 organic statute and they have to come to

19 grips with that. And the question is how

20 have these agencies implemented agency and

21 whether we are dealing with different sets

22 of issues from other agencies because,

441

1 number one, we\'re dealing with First

2 Amendment interests that are acute, number

3 two, it\'s been alluded to here this morning

4 that the aspect of volunteerism that I think

5 everybody agrees is a good thing in American

6 politics and probably not enough of it. But

7 I think another element actually that the

8 RNC touched on and I don\'t think we\'ve

9 talked about at pages 8 and 9 of their

10 comments is this idea that apparent

11 authority, which other agencies may or may

12 not use within their regime whether it\'s

13 appropriate here because apparent authority

14 to a certain extent grew out of the fact

15 that innocent third parties reasonably

16 relying on representations made by agents

17 often in a commercial or monetary setting

18 suffer damages and whether that same policy

19 concern is at issue here with regulations of

20 elections.

21 And the question is is it, and I

22 take it, Mr. Josefiak, in your comments on

442

1 pages 8 and 9 what you\'re stressing is that

2 it is not?

3 MR. JOSEFIAK: That\'s correct.

4 COMM. TONER: And that\'s because

5 we\'re not dealing with commercial

6 transactions. We\'re not dealing with fraud.

7 We\'re not dealing with some of the other

8 issues that other agencies focus on where

9 maybe there is a much stronger argument for

10 apparent authority concept. Is that

11 accurate?

12 MR. JOSEFIAK: Exactly. What

13 we\'re dealing with here and the comment

14 stresses is that we\'re dealing with First

15 Amendment issues and I think that creates a

16 whole different ball game for us in that we

17 agree that the apparent authority language

18 should not apply in this case. You\'ve got

19 to be more specific to that. You\'ve got to

20 have clarity here for people to understand

21 who has authority and what\'s going on and

22 not rely on apparent authority.

443

1 COMM. TONER: And what I think is

2 interesting about this discussion is in

3 addition to the First Amendment need for

4 clarity, the fact that we have fundamental

5 rights at stake, is this idea that apparent

6 authority in other settings may have grown

7 out of the commercial settings in which

8 these agencies are regulating and the fact

9 that innocent third parties suffer monetary

10 damages through no fault of their own.

11 MR. JOSEFIAK: That or other

12 personal damages where you don\'t have that

13 kind of situation with this fundamental

14 First Amendment issue that we\'re dealing

15 with, the right to say and do what we think

16 and advocate the election of who we think

17 should win.

18 COMM. TONER: Mr. Bauer?

19 MR. BAUER: Yes, if I may,

20 Commissioner, I just wanted to emphasize the

21 national party committees on the Democratic

22 side in their comments have strongly

444

1 suggested, strongly recommended, that the

2 commission proceed off of the definition of

3 \"agency\" that it already uses in Part 109.

4 We speak here of legislative

5 intent. Congress certainly, presumably

6 those who sponsored the bill and are

7 familiar with the legislation, knew that

8 there was such a definition. It is focused

9 and this is a critical point and it relates

10 to the point you just asked of Tom Josefiak.

11 It\'s focused on raising and spending money,

12 which is, after all, what the statute is

13 concerned with, and therefore it raises less

14 the danger that this entire agency analysis

15 is now going to cause us to roam out into

16 the countryside and sweep up all sorts of

17 other people engaged in other activities

18 that ought not have to worry about whether

19 they are or are not agents and that that

20 definition coupled with the \"acting on

21 behalf of\" formulation, it seems to us,

22 provides both some clarity because it relies

445

1 on a definition already in the rules and

2 also some appropriate limitations so that it

3 is not a definition that winds up creating

4 either problems for volunteers or, frankly,

5 limiting the number of people who are

6 prepared to volunteer in political activity

7 because they\'re afraid of becoming legally

8 liable agents.

9 COMM. TONER: In your view is

10 109.1, our existing \"agent\" definition

11 limited to individuals who hold substantive

12 decision- making authority within an

13 organization?

14 MR. BAUER: Or have been

15 authorized. I don\'t have the definition in

16 front of me, but who can authorize the

17 making of expenditures or hold a position

18 with the campaign organization which would

19 suggest that indeed they have that

20 authority.

21 COMM. TONER: To either raise or

22 spend funds.

446

1 MR. BAUER: To raise or spend

2 funds, which seems to be critical. Oh,

3 excellent, thank you.

4 COMM. TONER: And I take it that

5 in your view \--

6 MR. BAUER: This is good agency-

7 regulatory community cooperation. I

8 appreciate it.

9 COMM. TONER: Exciting stuff. And

10 in your view that\'s the appropriate way to

11 draw the line?

12 MR. BAUER: It is, absolutely.

13 COMM. TONER: Thank you,

14 Mr. Chairman.

15 MR. JOSEFIAK: Mr. Chairman, as

16 long as you define that to exclude the

17 commercial relationship because these regs

18 that we\'re referring to with independent

19 expenditures automatically taint the

20 independent expenditure if you\'re using a

21 common vendor and I think that we talked

22 about yesterday in some of these situations

447

1 where we\'re not dealing with independent

2 expenditures just by using a common vendor

3 isn\'t going to make you an agent thereof for

4 all practical purposes and that\'s when you

5 got into the discussion of it\'s within the

6 scope of your authority and I think you\'ve

7 got to be very careful about using that

8 without some sort of a clarification or

9 modification as a difference between a

10 commercial operation versus so-called

11 political operations.

12 CHMN. MASON: I have requests for

13 a second round from Commissioner Thomas and

14 Commissioner Sandstrom. Commissioner

15 Thomas.

16 COMM. THOMAS: I just want to be

17 clear. Are you all here today telling us

18 that we should use January 1 as the start

19 date for defining most of the activity as

20 federal election activity, for example, in

21 the areas of voter ID efforts, GOTV efforts,

22 and generic campaign activity, and that in

448

1 essence everything that the party

2 committees, the state party committees, do

3 in the off-year, the odd year, in those

4 areas could be paid for 100 percent with

5 whatever soft money the state party allows

6 and that likewise all administrative

7 expenses should be paid for 100 percent with

8 totally unregulated soft money? Do you all

9 take that position?

10 MR. BAUER: First of all, I should

11 mention, by the way, state law does regulate

12 campaign funds. When you say totally

13 unregulated you\'re talking about the reach

14 of federal law.

15 The position of the national party

16 committees on the Democratic side has been

17 that January 1 of the even-numbered year

18 ought to be the starting point. And we also

19 believe that parties while they might have

20 the option of allocating administrative

21 expenses, for example, ought to have also

22 the option of paying for them under state

449

1 law with 100 percent state-regulated money.

2 COMM. THOMAS: This would be even

3 in the even-numbered years as to

4 administrative expenses?

5 MR. BAUER: That\'s correct.

6 Correct, for those that fall outside of

7 those that are expressly made subject as

8 federal election activity to allocation.

9 MR. JOSEFIAK: We looked at the

10 definition of \"federal election activity,\"

11 and what we argued for, that if it doesn\'t

12 meet the definition of federal election

13 activity therefore it is not regulated by

14 federal law and therefore you could use 100

15 percent non-federal funds, and that would go

16 for administrative expenses and then I

17 believe we did not take the position that

18 the federal election activity automatically

19 starts on January 1st of an election year

20 for anything. We left that open.

21 We looked at the actual conduct of

22 the activity as to whether it would qualify

450

1 as federal election, and I believe

2 Mr. Sandler in his comments when we talked

3 about the difference between voter

4 registration and voter identification

5 programs and basically referred to the fact

6 it\'s only when you\'re actually contacting

7 the voters that that should even be viewed

8 as federal election activity raised a whole

9 other issue on how you deal with those

10 within the election year process.

11 So I think what we suggested is

12 that we take the position it\'s not federal

13 election activity, it\'s not regulated, but

14 in the alternative at the very least if the

15 Commission didn\'t accept that theory then

16 you could still allocate like you could now

17 but not have to use Levin funds to do so.

18 But our position was that if it\'s not

19 federal election activity then it\'s not

20 regulated by this law or by the Commission.

21 MR. SANDLER: This issue was

22 raised by the Commission itself in the

451

1 notice of proposed rule making which states

2 the NPRM that was approved unanimously by

3 the Commission, \"BCRA requires certain

4 federal election activities, fund-raising

5 costs, and certain salaries to be paid with

6 federal funds. As a result, significant

7 amounts of activity that were once allocable

8 will have to be paid for exclusively with

9 federal funds.

10 \"BCRA also delineates which

11 federal election activities may be allocated

12 between federal funds and Levin funds. The

13 Commission seeks comments on whether

14 administrative expenses that are not

15 identified in BCRA have a significant enough

16 impact on industry elections to require

17 continued allocation.\"

18 It was the Commission that posed

19 the question and the answer is no and

20 therefore that is our position.

21 COMM. THOMAS: Thank you.

22 CHMN. MASON: Vice Chairman

452

1 Sandstrom?

2 COMM. SANDSTROM: It\'s unfortunate

3 but I think it\'s true that political parties

4 have been subject to lawsuits,

5 investigations, investigations by this

6 agency, and the cost of responding to those

7 can be very, very significant. In the

8 notice the Commission sought comment on

9 whether those they should be able to pay for

10 funds raised outside the act. What are your

11 views on that issue?

12 MR. BAUER: We gave examples of

13 some contingencies parties face like, for

14 example, expenses for redistricting that we

15 believe we ought to be able to pay for, as

16 existing law provides and indeed the

17 legislative history does not suggest

18 Congress intended to change, exclusively

19 with non-federal funds.

20 I\'m not certain, Commissioner

21 Sandstrom, I understood the specific case

22 that you\'re asking us to address.

453

1 COMM. SANDSTROM: I can imagine a

2 congressional investigation that might cause

3 a political party and did cost millions of

4 dollars. I can imagine people filing

5 complaints knowing that parties have limited

6 hard dollars to deplete the resources so

7 that complaints and litigations become part

8 of a political strategy because an advantage

9 can be gained by the filing of a suit no

10 matter how frivolous because lawyers cost

11 money, and I\'m sure it\'s all well earned,

12 and other resources, the use of accountants

13 and bookkeepers, to respond to a suit.

14 You could have some being sued for

15 age discrimination. As parties have to

16 downsize you\'re going to have to come up

17 with who stays there and who doesn\'t. It\'s

18 not uncommon in this country for disgruntled

19 employees who believe that an improper

20 standard was used to let them go and they

21 might sue.

22 Again, if it had to be paid out of

454

1 hard dollars it would deplete what everyone

2 would recognize as limited sums. I\'m just

3 wondering even though as some have suggested

4 the sponsors wanted to completely eliminate

5 national parties raising soft money whether

6 the examples I\'ve used and those that have

7 been recognized by the Commission as

8 exemptions through the advisory opinion

9 process and such should continue.

10 MR. JOSEFIAK: Commissioner,

11 you\'re raising a very good point and it\'s

12 not only that issue. I mean, members of

13 Congress are allowed to have legal defense

14 funds that are outside the limitations and

15 prohibitions of the act. That\'s a very good

16 point and you have to look at it from two

17 issues, one from the state party situation

18 which I think is a lot easier, and then also

19 the national committee perspective.

20 You touched on it at the very end.

21 It goes beyond just that example of paying

22 lawyers and accountants because some people

455

1 don\'t like to pay lawyers and accountants.

2 But there are a number of situations in the

3 advisory opinion process where the

4 Commission viewed various activities as

5 noncontribution activities, for example, the

6 purchase of a mailing list, whereas in the

7 past as long as you\'re paying fair-market

8 value you can go and purchase a political

9 committee mailing list and it can even be

10 from a corporate entity and as long as it\'s

11 viewed as a fair-market value that\'s not

12 viewed as a corporation contribution and

13 therefore you can put it in a federal

14 account. You have those kinds of examples

15 all over the place.

16 Are these kinds of receipts now

17 are they banned under the law if they\'re

18 legitimate actions that are not viewed as

19 contributions and it\'s not the raising of

20 soft money? Or are you going to take the

21 position that this is a total ban of

22 accepting any non-federal funds into a

456

1 federal account, and are those classified

2 under this law as non-federal funds? Or are

3 they federally regulated non-federal funds?

4 I think those are the kinds of issues that

5 are going to confront you as you go through

6 this process.

7 COMM. SANDSTROM: Is there a

8 serious due process concern when the

9 government is limiting the funds available

10 to someone to defend itself from the

11 government?

12 MR. JOSEFIAK: We certainly think

13 so.

14 MR. McGAHN: We certainly think

15 so. If I could cut in, Tom makes a good

16 point about the members being able to have

17 defense funds, the idea that an individual

18 member could set up a defense fund but as

19 soon as the members get together and form,

20 say, the NRCC they couldn\'t have a common

21 defense fund to defend that entity simply

22 doesn\'t make sense.

457

1 It\'s not funds that are ever going

2 to be used for federal elections, state

3 elections, or any elections, so to me it\'s

4 completely outside of the purview of what

5 we\'re talking about here today. But the due

6 process concern is very much there,

7 associational rights are there, and that\'s

8 why I agree with my colleagues that those

9 funds are really not what the so-called ban

10 is all about.

11 CHMN. MASON: I have requests from

12 Commissioner and Commissioner McDonald.

13 Commissioner Smith?

14 COMM. SMITH: Mr. Bauer, I want to

15 direct one question at you because I know

16 you won\'t be here for the afternoon panel.

17 Along the lines of what we\'re talking about

18 there are certain other things that the

19 parties have spent money for in the past

20 such as redistricting, recount funds, and

21 things like that which don\'t seem to be

22 directly related to federal elections.

458

1 On the other hand the statute

2 seems to be pretty clear in saying parties

3 may not accept contributions outside the

4 limits of the act despite the due process

5 concerns that we\'ve just heard raised. I

6 just wonder if you would address that and

7 would it be your sense that parties ought to

8 have the ability to raise money for those

9 types of activities as well as the types of

10 legal defense funds we were just talking

11 about and if so is that something that this

12 Commission has the power to do?

13 MR. BAUER: I believe it does.

14 Again, here is where you would look normally

15 to legislative history for the clear intent

16 by Congress to take a position very, very

17 different than for years it took and the

18 Commission enforced.

19 A good example of that is

20 redistricting activity. That\'s a very

21 expensive activity. It\'s constitutionally

22 mandated that the parties address it. And

459

1 the Commission has taken the position that

2 as a matter of law it is not activity for

3 the purpose of influencing a federal

4 election; it\'s something different.

5 There is nothing in the statute

6 that passed the Congress in BCRA that

7 suggests that that ought to be treated now

8 as prohibited to the national parties. In

9 fact there was some attempt to have language

10 to that effect in an earlier version of

11 McCain-Feingold and it was stripped out.

12 So I believe the Commission

13 absolutely does have the authority to

14 maintain in place absent congressional

15 intent to repeal it specific types of

16 allowances and exemptions that were meant to

17 support activity that the Congress believed

18 promoted a variety of political values.

19 We take that position, for

20 example, with respect to the maintenance of

21 the exempt activities in 100.8 and 100.7,

22 and we make an argument there that there is

460

1 no reason to believe Congress intended to

2 repeal them because they were introduced for

3 a reason, they\'ve been implemented for a

4 reason, and they remain just as valid today

5 as when Congress first enacted them and the

6 Commission began enforcing them.

7 COMM. SMITH: Thank you.

8 CHMN. MASON: Commissioner

9 McDonald?

10 COMM. McDONALD: Mister Chairman,

11 thank you. Just very briefly on the point

12 about a date certain, and the more popular

13 date appears to be January 1 of the

14 even-numbered year, but me just ask Bob or

15 any of you who want to respond. In

16 relationship to that we have been told

17 repeatedly that we should be for clarity,

18 which I think is an admirable goal. At the

19 same time the issue of fairness has been

20 raised this morning and out of fairness and

21 clarity might come consistency.

22 The question is obviously states

461

1 have different days for their primary

2 process, very different. Some are very

3 early in the season. I think Illinois is

4 one of the first if memory serves me right.

5 Maryland, on the other hand, is decidedly

6 down the road, about September. I believe

7 that\'s right.

8 Would another option be, and what

9 would you think about it based on your

10 experience, that we use not necessarily a

11 date certain but a time frame certain,

12 whatever that might be? I don\'t know the

13 answer to that, six months prior to or

14 whatever. Yesterday the question whether

15 the candidate was actually on the ballot, as

16 an example, was one of the discussions.

17 Obviously, again, the problem

18 there is the ballots take different shape at

19 different times. I\'m wondering on the

20 consistency side if we should have, which is

21 a normal regulatory tool, a time certain

22 that might aid and assist all states equally

462

1 at least in relationship to this kind of

2 question.

3 MR. BAUER: I\'ll let my colleagues

4 respond, too. My response is that I think

5 you\'re going to wind up with obviously a lot

6 of difficulties, anomalies, inconsistencies,

7 in pegging, for example, dates to the

8 variable primary season. For that reason I

9 believe the one choice that you can make

10 that presents the least complication and

11 produces the fewest inconsistencies and

12 anomalies is the date of January 1st of the

13 even-numbered year.

14 MR. JOSEFIAK: Commissioner, the

15 proponents yesterday took the position that

16 it should be a two-year cycle. My

17 colleagues on the Democratic side said a

18 year and it shouldn\'t be less than that for

19 sure, the year before the election, January

20 1st of election year.

21 But you have other options as well

22 and one of them is if you look at the law

463

1 itself when they try to take a project that

2 would normally be viewed as a party-building

3 project, a voter registration program that

4 parties constantly do for a whole two-year

5 cycle, four-year cycle, whatever it is,

6 constantly registering people to vote, BCRA

7 took the position that that becomes a

8 party-building operation up until 120 days

9 before an election.

10 The reason they looked at that

11 versus everything else is because that was

12 always going on. But the other kinds of

13 activities, voter identification, get out

14 the vote activities, you\'re not going to be

15 doing that necessarily in an off-election

16 year. So one other approach that you could

17 take is say well, there is a clear

18 indication of what they meant to take

19 something that was normally a party-building

20 operation and put it into an election

21 setting. You could use the 120-day period.

22 Again, I\'m not necessarily

464

1 promoting that but there are those kinds of

2 options where you can come up with a date

3 certain based on other kinds of criteria

4 that certainly indicate to the world that

5 this now becomes a federal election

6 activity.

7 So the proponents are saying two

8 years, my colleagues are saying January 1st,

9 and there may be other options like the 120

10 days where you could say the get out the

11 vote activity at 120 days is definitely

12 going to be 100 percent federal versus

13 before that or whatever and deal with it

14 that way.

15 Again, I\'m not proposing that.

16 It\'s just a matter of coming up with

17 something across the board, and that\'s just

18 another option for you to consider if you\'re

19 not going to look at the activity itself as

20 generating the problem.

21 CHMN. MASON: Thank you. We will

22 take a 10-minute recess and I would beg the

465

1 indulgence of my colleagues and the

2 panelists to be back at 11:20 to start round

3 two.

4 (Recess)

5 CHMN. MASON: The hearing of the

6 Federal Election Commission on prohibiting

7 excessive contributions will reconvene.

8 This is our last panel in this portion of

9 the meeting, and this panel represents state

10 party committees so that we have several of

11 the same members of the panel, a little

12 different topical focus, Joe Sandler and

13 Neal Reiff representing the Association of

14 State Democratic Chairs, Mark Brewer,

15 welcome, from the Michigan Democratic Party,

16 and Tom Josefiak and Charlie Spies

17 representing the Republican state parties.

18 We\'ll have the same format roughly

19 as this morning though we may extend the

20 Commissioners\' question periods a little

21 bit. We\'ll first hear from Joe Sandler.

22 MR. SANDLER: Thank you, Mister

466

1 Chairman. I\'ll be extremely brief because I

2 want to turn it over to Chairman Brewer,

3 just to say that there\'s a couple of issues

4 that affect the state and local party

5 committees that particularly require

6 clarification in this rule making.

7 First of all, as you\'ve discussed

8 and touched on in the earlier panel, federal

9 election activity, the question of voter

10 identification, what constitutes voter

11 identification particularly as it applies to

12 voter files and voter lists, the question of

13 timing and nature of generic activity, clear

14 lines as to what constitutes get out the

15 vote activity, and also clarification of get

16 out the vote that takes place in proximity

17 to an election mentioning only state and

18 local candidates.

19 If the law went into effect this

20 fall and in Maryland in an area where we

21 have in most of the state there are no

22 contested congressional elections and the

467

1 Maryland Democratic Party spends from its

2 state account as required to do under

3 Maryland law the day before an election for

4 a communication or whatever get out and vote

5 tomorrow for Kathleen Kennedy Townsend for

6 governor are we to understand that that is

7 federal election activity? That is an issue

8 we need to know the answer to, yes or no.

9 I mean, obviously if the answer is

10 yes then it will be up to the courts to take

11 it from there. But I would point in that

12 regard that Maryland has lower limits than

13 the federal but different sources, and if

14 there\'s any deference to be given whatsoever

15 to the views in the Maryland General

16 Assembly and the people of the State of

17 Maryland as to what constitutes an

18 appropriate regulation of funds that get

19 spent directly specifically promoting their

20 candidates for governor.

21 Secondly, the issue of local party

22 committees, the issue of whether federal

468

1 election activity counts towards the \$1,000

2 threshold in the statutory definition of

3 local parties is critical because even

4 assuming that a local party uses and has on

5 hand permissible funds for any generic

6 activity, voter identification, or

7 registration that it undertakes if it\'s the

8 case that if it spends \$1,001 on just get

9 out and vote Democrat or registering

10 Democratic voters in a year that has to

11 register and report with this Commission

12 that would sweep in thousands and thousands

13 and thousands of local party committees into

14 the ambit of registration and reporting with

15 the FEC that aren\'t currently covered which

16 is obviously a step that requires a lot of

17 deliberation. We think the statute does not

18 require that, it\'s clearly not the case, but

19 it needs to be answered.

20 Thirdly, we\'ve talked about the

21 allocation ratio. We very much support the

22 proposed idea of a unified federal, non-

469

1 federal ratio for anything that remains

2 subject to allocation and we also would

3 point out that the regulations do not

4 specify what allocation ratio applies to

5 local parties. That\'s probably an

6 oversight. It may be that the same one was

7 intended but it doesn\'t address those.

8 And finally with respect to state

9 party building funds, as we noted, there is

10 nothing in the legislative history of this

11 act in any way that suggests that the scope

12 of permissible building fund activity for

13 state parties is to be narrowed if they

14 spend funds permissible under state law.

15 Secondly, the Commission should allow a

16 state party to spend 100 percent federal

17 money without being preempted by state law

18 if it so chooses on a party facility.

19 Finally, the Commission should

20 provide a transition rule so that state

21 parties can spend funds on hand under the

22 current rule even raised under the federal

470

1 preemption going forward. Thank you, Mister

2 Chairman.

3 CHMN. MASON: Thank you. Mister

4 Brewer?

5 MR. BREWER: Thank you, Mister

6 Chairman. My name is Mark Brewer. I\'m the

7 chairman of the Michigan Democratic Party,

8 and I\'ve spent over seven years in that

9 position, and I think in the eye of

10 Commissioner Sandstrom\'s hurricane. That is

11 one way of looking at it.

12 Prior to that I was president of

13 my local Democratic club. I have been the

14 treasurer of my county party committee.

15 I\'ve been chair of a congressional district

16 party committee and active in many caucuses

17 in the Michigan Democratic Party. I have

18 been a volunteer prior to my current job in

19 Michigan for over 20 years.

20 I want to thank the Commission for

21 the opportunity to testify. The Michigan

22 Democratic Party previously submitted

471

1 written comments, and I simply would like to

2 supplement those comments in my opening

3 statement and then I look forward to taking

4 questions.

5 My comments are divided into

6 several parts. First let me talk about our

7 local party structure in Michigan and the

8 impact of the Commission\'s current

9 regulations as well as what will be the

10 impact of the regulations we\'re

11 anticipating.

12 In Michigan we have 82 county

13 parties, 16 congressional district parties,

14 40 to 50 local Democratic clubs organized on

15 a city and township basis, and 30 caucuses

16 representing various constitutes in the

17 Michigan Democratic Party, all of which are

18 affiliated with the party.

19 All of the officers and members of

20 these various organizations are volunteers

21 and they do this work because they believe

22 in the party, they believe in its

472

1 principles, and they believe in our

2 candidates. Of these 160 to 180

3 organizations only three of them have paid

4 part-time staff, and I indicate and stress

5 that those staff are not responsible for

6 compliance matters, nor are they qualified

7 to deal with compliance matters. So the

8 overwhelming bulk of the work done by these

9 local party committees is done by

10 volunteers.

11 Very few of these local party

12 committees have federal committees. As a

13 matter of fact not even all of our

14 congressional district committees, which

15 would be where any federal activity would

16 likely occur, have federal committees. One

17 of the chief reasons for that is the

18 complexity of the current law.

19 I am told frequently by local

20 party officials that they will not engage in

21 federal activity because of the complex

22 regulations that they already have to comply

473

1 with. We have great difficulty recruiting

2 people particularly to serve as local party

3 treasurers when they look at the daunting

4 regulations and complexities that they face.

5 We have tried to cope with this by

6 doing training with local party officials,

7 and I can tell you that not a day goes by

8 that I don\'t get at least one phone call and

9 my staff does not get similar phone calls

10 from local party people asking about and

11 trying to figure out how to comply with

12 these complex regulations.

13 The materials that the Commission

14 has produced over the years are excellent.

15 You produce a wonderful set of manuals that

16 are close to plain English as I think is

17 possible. But you\'ll have to understand I

18 think that from a lay person\'s perspective,

19 somebody who is a volunteer in party

20 activity, if I hand them a manual, as well

21 written as it is and as easily read as it

22 is, it\'s simply intimidating to them to even

474

1 comprehend the prospect of having to deal

2 with those kinds of regulations.

3 There is no question in my mind

4 that as a result the current regulations and

5 the current law are deterring local party

6 activity in the State of Michigan, and based

7 on my conversations with other state party

8 chairs they\'re deterring and chilling local

9 party activity all over the country.

10 Therefore we strongly urge the Commission to

11 add as little as possible to this

12 complexity, to this burden, and to the

13 chilling effect that is already occurring at

14 the local party organizations. We also urge

15 you that the regulations be as clear and

16 simple as possible and be used to encourage

17 and not discourage state and local party

18 activity.

19 Let me now turn to a brief

20 discussion of grass-roots activity in

21 general. We\'ve heard a lot of testimony, a

22 lot of comments, about concerns about

475

1 corruption and the appearance of corruption

2 but I think there are other important

3 considerations for the Commission in

4 considering these regs.

5 For example, educating voters and

6 increasing voter turnout are certainly

7 compelling government interests which are

8 deserving of consideration by the Commission

9 as it looks at these regulations. There are

10 many studies which have indicated that door

11 to door canvassing, direct mail, phone

12 contact, and all the traditional types of

13 party activities that we normally associate

14 with political parties fulfill these

15 compelling government interests. They

16 educate the voters and they encourage

17 turnout.

18 Such activities and funding them

19 pose no actual or threat of corruption

20 because funding them takes far less money

21 than the infamous issue ads about which

22 there has been so much publicity. But

476

1 ultimately these activities do require

2 resources so we urge the Commission to

3 encourage local parties, state parties, to

4 be able to do voter education and turnout by

5 encouraging these activities.

6 We ask that you make the rules as

7 simple and clear as possible, avoid

8 unnecessary or excessive registration and

9 reporting requirements, make fund raising

10 for these activities as simple as possible.

11 Please don\'t choke off this important

12 activity by making fund raising for that

13 difficult.

14 These principles apply

15 particularly to the Levin Amendment. Carl

16 Levin, a Michigan senator, practices and is

17 knowledgeable in grass-roots politics. He

18 believes in it. Based on my discussions

19 with him his amendment is intended to

20 encourage these activities and should not be

21 interpreted to hinder them.

22 With that I see the red light is

477

1 on and I\'ll stop, but I\'m eager to talk with

2 the Commission and answer your questions.

3 Thank you.

4 CHMN. MASON: Thank you.

5 Commissioner Josefiak?

6 MR. JOSEFIAK: Thank you, Mister

7 Chairman. In addition to the comments we\'ve

8 already presented regarding state parties

9 I\'d like to make just two quick points.

10 First, the Commission\'s regulations should

11 allow for flexibility and to the extent

12 possible under this new law federalism. I

13 want to address the flexibility issue

14 briefly and then turn the federalism issue

15 over to Charlie Spies.

16 There are a couple places in here

17 where the Commission is asking whether the

18 Commission should establish specific fixed

19 rules and percentages, for example, in the

20 allocation. I think that is a fine idea but

21 I don\'t think it should be mandatory. I

22 think that a party committee at the

478

1 beginning of a cycle should be allowed the

2 opportunity to continue the ballot

3 composition formula because it may more

4 reflect the activity within its state or if

5 it desires to go for the fixed percentage

6 but I don\'t think it should be one or the

7 other. I think it should be at the

8 beginning of the cycle the party committee,

9 just like it does now, submits its form and

10 could decide to submit a form that says

11 we\'re going to go with the fix or we\'re

12 going to go with our ballot composition

13 formula and here is what it is.

14 The second point on flexibility is

15 a mandatory Levin account. I don\'t think it

16 should be mandatory; however, just like I

17 strongly advise state parties now dealing

18 with the exempt activities to segregate

19 funds, I would strongly advise them to do so

20 but there are some states, for example,

21 where state law may prohibit a dual

22 accounting system at the non-federal level.

479

1 I think it should be left up to the state

2 party to decide whether it wants to take the

3 responsibility or whether it has to take the

4 responsibility of having just one account.

5 Again, those briefly, Mister

6 Chairman, are some of the points where the

7 more flexibility you can build into the

8 state and local party level I think the

9 better the state and local parties will be.

10 Just like the good chairman from Michigan

11 said, it\'s difficult enough to deal with

12 these issues, and the more flexibility they

13 have based on their own situation

14 politically and legally within their state

15 they should have that opportunity and we

16 shouldn\'t try to hamstring them any more

17 than this new law already does.

18 So thank you, Mister Chairman. I

19 will now turn it over to Charlie.

20 MR. SPIES: Thank you, Tom.

21 Mister Chairman, the Commission has been put

22 in the strange position of having the

480

1 obligation to promulgate regulations that

2 stem from statutory language the Commission

3 knows in many places is almost certainly

4 unconstitutional while at the same time that

5 language does not in its plain language do

6 exactly what the congressional sponsors of

7 that legislation now claim that they wish or

8 intended or now wish that they had intended

9 that it would do. This reality places a

10 statutory interpretation burden on all

11 commissioners whether you\'re supported,

12 opposed, or claimed to remain silent under

13 the underlying merits of the BCRA.

14 As you look at the statute, if the

15 language is plain, if the meaning is clear,

16 then the question doesn\'t arise; however, if

17 even arguably the language of the statute is

18 not clear then I urge you to turn to

19 federalism. A key canon of statutory

20 interpretation is the Supreme Court\'s

21 super-strong rule against federal invasion

22 of a core state function. As the court

481

1 explained in BFP v. Resolution Trust,

2 \"Federal statutes impinging upon important

3 state interests cannot be construed without

4 regard to the implications of our dual

5 system of government. When the federal

6 government radically readjusts the balance

7 of state and national authority those

8 charged with the duty of legislating must be

9 reasonable explicit.\"

10 In other words the Commission has

11 an obligation to be respectful of the

12 federalism issues inherent in our American

13 system of federal regulation of federal

14 campaigns and state and local regulation of

15 state and local campaigns. For over 200

16 years states and localities have regulated

17 their own elections; therefore, when there

18 is a close call of statutory interpretation

19 the Commission has an obligation to

20 promulgate regulations that respect this

21 federalist division of power and allow

22 continued state and local regulation of

482

1 their respective elections. Thank you.

2 CHMN. MASON: Thank you.

3 Commissioner McDonald?

4 COMM. McDONALD: Mister Chairman,

5 thank you, and again let me thank the panel

6 members, Mark, you in particular because you

7 were quite extensive in your comments, and I

8 thought they were extremely helpful because

9 you\'re at the local level and you\'re having

10 to deal with the day to day activities.

11 Your description of the Michigan

12 Democratic Party, by the way, sounds a great

13 deal like the Oklahoma Democratic Party

14 except I think maybe we had one person last

15 I checked that was on somebody\'s payroll.

16 Before I ask a question or two I

17 do want to say that the comments that Joe

18 made at the outset I thought were

19 outstanding in terms of some of the things

20 we are going to have to grapple with here

21 fairly soon because it is right that there\'s

22 not much time in some of these areas, and

483

1 some of these are very, very fundamental

2 questions that it will be imperative that we

3 try to resolve as quickly as we can.

4 Mark, let me just ask a couple of

5 questions. I suppose if I wanted to be the

6 devil\'s advocate, which I always want to be,

7 by the way, because otherwise it makes it a

8 rather boring meeting, let me start with

9 would you dismiss out of hand Senator

10 Levin\'s comment since he didn\'t have any

11 legislative history in terms of what he

12 conveyed to you about the intent of the

13 amendment that he put forward or should we

14 give a little more weight to what he had to

15 say since it is the Levin Amendment?

16 MR. BREWER: Well, I\'m not here to

17 testify here as a lawyer, first of all, in

18 terms of what the legal standards are.

19 COMM. McDONALD: I\'m not a lawyer.

20 You and I will get along fine.

21 MR. BREWER: And I certainly would

22 never be one to say that anything Senator

484

1 Levin should be discounted.

2 COMM. McDONALD: I see why you\'re

3 the head of the party.

4 MR. BREWER: But, as I indicated,

5 Commissioner, in all seriousness, I mean, I

6 have spoken with Senator Levin and his

7 brother Sandy was a former chair of the

8 Michigan Democratic Party. They are

9 practitioners of grass-roots activity in

10 every election cycle. There is no finer

11 practitioner than Carl as he travels the

12 state and works with local party

13 organizations.

14 And it\'s my understanding from

15 talking to him that the purpose of his

16 amendment was to preserve and encourage,

17 protect, the ability of state and local

18 party organizations to perform these

19 grass-roots activities. He is as much an

20 enemy of issue ads and that kind of

21 corrupting influence as anybody who voted

22 for this bill but he was very clear with me

485

1 in numerous discussions that he wants to be

2 sure that state and local parties are able

3 to do these traditional grass-roots

4 activities.

5 COMM. McDONALD: How do you see

6 breaking out in terms of the organizations

7 you mentioned at the outset, Mark? I think

8 you said are there what, between 160 to 180

9 different organizations in the state?

10 MR. BREWER: Yes, from time to

11 time. Obviously, we have clubs that come

12 and go, caucuses that come and go, but at

13 any given time 160 to 180 local party

14 organizations.

15 COMM. McDONALD: In relationship

16 to the Levin Amendment what does that mean

17 in terms of from your perspective or what

18 should it mean, maybe, in terms of which

19 ones can accept the Levin money and can they

20 all accept it? Do you see a difference

21 between state and local, or is there some

22 criteria that you would look at?

486

1 MR. BREWER: I believe that they

2 all should be able to accept the Levin money

3 under the restrictions that are set out

4 there, \$10,000 per donor per year, because,

5 again, going back to the hurricane analogy,

6 there\'s an enormous amount of party activity

7 in any state that\'s not controlled or

8 directed by the state party. I constantly

9 learn after an election about the local

10 pamphlets or the newspaper ads or whatever

11 it was that the local party folks did

12 without any prompting, encouragement, or

13 direction from me, and I think that\'s to be

14 commended and encouraged, not discouraged.

15 Again, I think being able to

16 finance that and have each of these parties

17 raise that kind of money or obtain that kind

18 of money would be very helpful in that

19 regard.

20 COMM. McDONALD: So under your

21 example, just roughly, how much money would

22 that be for the state then that an

487

1 individual could give?

2 MR. BREWER: Well, if every one of

3 those local party organizations receives

4 that it would be 150 or 160 times \$10,000, I

5 suppose, in that particular instance. It\'s

6 inconceivable to me that that would happen,

7 Commissioner, but it\'s theoretically

8 possible.

9 COMM. McDONALD: One of the things

10 that have interested me from the outset in

11 terms of thoughts that the commenters have

12 and I appreciate very much is we want to be

13 clear and we want to be concise but at the

14 same time we want a lot of flexibility. And

15 it\'s a little bit confusing for people I

16 think who are trying to follow this, at

17 least it\'s confusing for me, and let me give

18 you the classic example, the Levin funds, if

19 you will. Is it your position, and I gather

20 that it\'s Joe\'s, that the various states and

21 I assume these organizations within the

22 state could all handle the Levin Amendments

488

1 in a flexible manner in terms of

2 accountability?

3 MR. BREWER: They certainly could

4 but that would also depend on the

5 regulations. The regulations can make it

6 more or less difficult.

7 COMM. McDONALD: No, no, I

8 understand but I gather one of the things

9 that strike me is that because the issue

10 relates to at least partial federal funds

11 whether you would be uncomfortable taking a

12 different position, say, than the State of

13 Illinois in terms of how they handle their

14 business in terms of reporting requirements,

15 et cetera.

16 MR. BREWER: I think in general

17 the regulations should be sufficiently

18 flexible so that that is done. I mean, I\'ll

19 point to one example now where I believe,

20 and my lawyer can correct me, local party

21 organizations can engage into about \$1,000

22 worth of activity before they have to

489

1 register and report. That\'s a terrific kind

2 of safe harbor provision for these local

3 folks, and many of them don\'t spend beyond

4 that and so they\'re okay.

5 But if you start to say that all

6 these activities add up and all of a sudden

7 you\'re over the \$1,000 threshold we\'re going

8 to have less and less federal election

9 activity and less and less party activity in

10 general as a result.

11 COMM. McDONALD: On the voter I.D.

12 matter for just a moment, do you have a

13 position on whether there ought to be a date

14 certain? I\'m just looking here at Michigan

15 real quickly. I gather you have actually a

16 fairly maybe kind of standard. It\'s a

17 little more than, say, in Oklahoma, but you

18 have a filing deadline of May 14th, I

19 gather, for the primary?

20 MR. BREWER: Yes.

21 COMM. McDONALD: Then on the 6th

22 of August you would have your primary date.

490

1 What\'s your feeling about the date certain

2 as opposed to months out from the primary

3 itself or out from the filing date?

4 MR. BREWER: I support the

5 position that\'s been taken by the state

6 chairs association and the DNC about using

7 January 1 of the election year as a cut- off

8 and I would particularly add in response to

9 this that in Michigan we have no party

10 registration, so as an ongoing effort which

11 we think should be regarded as

12 administrative and not have to be paid for

13 with 100 federal funds we have an ongoing

14 effort to try to identify party adherents

15 and we think it would be very unfair to us

16 as a state which does not have party

17 identification to all of a sudden federalize

18 and require us to pay for that kind of work

19 with 100 percent federal funds when other

20 states which have party identification would

21 not have to do so.

22 COMM. McDONALD: You have an open

491

1 primary system?

2 MR. BREWER: Open in the sense of

3 that when you go into the booth you can

4 choose which party to participate. Once you

5 make the choice you cannot cross over.

6 COMM. McDONALD: Thank you. It\'s

7 very helpful and thanks for coming.

8 MR. BREWER: Thank you,

9 Commissioner.

10 CHMN. MASON: I am next in the

11 question order. I wanted to ask first about

12 the issue of federal election activity and

13 voter I.D. and get out the vote because this

14 discussion of dates in my mind is a little

15 off the point and I had said yesterday in

16 looking at the sorts of activities involved

17 there\'s 120 days on the voter register.

18 That\'s easy but voter identification and get

19 out the vote in my mind as I had actually

20 practiced it in the past had focused on

21 particular elections and getting people to

22 vote for a particular candidate or for the

492

1 candidates of a party at a particular

2 election.

3 So it seemed to me those phrases

4 had a natural meaning as they were laid out.

5 In other words this would involve typically

6 in my experience a local party conducting a

7 phone bank and calling people and saying if

8 the election were held today would you vote

9 for and going through the list and sometimes

10 it varied as to whether they would ask two

11 names or five names. In other words they

12 might not always ask all the names on the

13 ballot and then they would have a list. So

14 that was voter identification. And then the

15 get out the vote was the people who gave the

16 desired answers would get a postcard the

17 week before and a phone call the day before

18 and so on like that.

19 It strikes me that that might be a

20 more appropriate way to try to regulate this

21 activity, to focus on the activity and not

22 on the date. Commissioner Smith\'s staff has

493

1 come up with a nice list of municipal

2 election dates and so we were told well,

3 there are just these five states that have

4 odd-year elections. Well, it turns out that

5 all of the big cities, virtually all of the

6 big cities, elect mayors in odd-numbered

7 years and even some that elect mayors in

8 even-numbered years have spring municipal

9 elections.

10 I can\'t imagine a situation in

11 which Congress intended that efforts focused

12 on a municipal election in March of an even-

13 numbered year would all of a sudden get

14 roped in. So I\'d like the counsels to

15 address the concept of focusing a definition

16 of voter identification and get out the vote

17 on particular activities, asking particular

18 voters to vote in a particular election, and

19 whether that would perhaps work better than

20 trying to establish dates.

21 MR. SANDLER: Yes, that\'s exactly

22 the approach we think makes sense, Mister

494

1 Chairman. The definition definitely should

2 focus in a clear and objective way on the

3 activity and not the date on which it\'s

4 conducted subject to anything before January

5 1st should not be regarded as federal

6 election activity.

7 It\'s true absolutely that there

8 are elections happening all the time and it

9 is not just a matter of these five states.

10 In 2001 I believe there were three special

11 elections for state legislative races where

12 control of a chamber was at stake. Two of

13 those states very tightly regulate the funds

14 that can be spent on promoting candidates

15 for state office. I believe one was Maine

16 and one was Wisconsin.

17 I think you might want to consider

18 what those states would think about saying

19 guess what, you can\'t spend 500 it now, you

20 can 1,000, not from this source but that

21 source, and the federal government gets to

22 say what kind of money you spend in those

495

1 races. That\'s extremely problematic.

2 MR. JOSEFIAK: I think there are

3 really two points and they\'re overlapping.

4 One is when automatically are you going to

5 think of things as federal election

6 activity, and that\'s when Joe was talking

7 about January 1st of the election year, and

8 then looking at the activity of it itself to

9 see whether it qualifies under the

10 definition of federal election activity.

11 Even in the voter I.D. program

12 there may be situations like you\'ve

13 discussed where you\'re saying if the

14 election were held today who would you vote

15 for but, more problematically, the further

16 away you are from the election it\'s probably

17 just identifying who is a Republican and who

18 is a Democrat.

19 Then you get into this situation

20 of are you talking only about the general

21 election in November or are you talking

22 about the primary election where that\'s more

496

1 apt to be the case, where if you\'re a

2 registered Republican or Democrat you\'re

3 going to be encouraged to get out and vote

4 for a Republican or Democrat in that

5 primary. So there are those kinds of issues

6 even within that election year as to what

7 election you\'re talking about.

8 And I think that there are two

9 different considerations. One is when does

10 this automatic date of everything being per

11 se federal election activity, and the other

12 is when by definition is the activity itself

13 federal election activity and that\'s where I

14 think there\'s a lot of confusion.

15 MR. BREWER: Mr. Chairman, if I

16 may? Your characterization of this process

17 and the data is absolutely accurate.

18 Increasingly voter identification is very

19 candidate-specific, very election-specific,

20 so much so that much of the data isn\'t

21 really even useful after that election

22 passes for subsequent elections in which the

497

1 issues are different, the candidates are

2 different, and so forth.

3 So I just want to indicate to you

4 that from a practical perspective what you

5 have described is absolutely accurate.

6 CHMN. MASON: Well, I\'m glad

7 things are still done the same way. I

8 wanted to go to this question about a vote

9 for Kathleen Kennedy Townsend or whoever it

10 might happen to be because my reading of the

11 plain language of the statute is not what

12 you want to hear and so I\'ll posit it and

13 let you tell me if there\'s some way out.

14 In most states in the off-

15 presidential years such as the elections

16 coming up the gubernatorial candidates are

17 the top of the ticket and very typically

18 parties focus on the top of the ticket.

19 Now, as I read the new statute it says get

20 out the vote efforts in connection with an

21 election at which a federal candidate is on

22 the ballot. And so in a lot of states this

498

1 year we have hot gubernatorial races and, of

2 course, we have House candidates and in some

3 states Senate candidates.

4 As I read it, what Congress

5 apparently intended was that if a state

6 party makes a phone call and says we urge

7 you to come out Tuesday and vote to reelect

8 Governor Jones that that would be covered as

9 federal election activity because there are

10 also federal candidates on the ballot.

11 Tell me how I\'m wrong there. I

12 understand there may be constitutional

13 issues, federalism issues, so on, but focus

14 on the statute and tell me if that reading

15 is incorrect?

16 MR. JOSEFIAK: Well, I think it\'s

17 incorrect because I think there\'s an

18 exemption for 100 percent non-federal

19 election activity and we would urge the

20 Commission to accept that concept that if

21 you\'re putting out anything that is saying

22 Vote for X for Governor and that\'s all

499

1 you\'re saying that that would be viewed as a

2 non-federal election activity.

3 Now, if you said something like

4 not only vote for her but for the rest of

5 the Republican team then there\'s a generic

6 message there that I think would be covered

7 under the statute. But if you strictly

8 relate it to vote for the governor and maybe

9 the state legislative candidates it\'s my

10 view, anyway, the Commission could take the

11 position in the regulations that that would

12 be exempt and that would not be viewed as

13 federal election activity.

14 CHMN. MASON: So what\'s the

15 meaning of the focus as to when a federal

16 candidate is on the ballot? I\'m concerned

17 not about vote-for messages but about get

18 out the vote.

19 MR. JOSEFIAK: It\'s in the generic

20 sense. When you say vote Republican or vote

21 Democrat in a federal election \--

22 CHMN. MASON: I understand that.

500

1 I\'m concerned about the call, though, that

2 says come out Tuesday and vote to reelect

3 Governor Jones. So it\'s not a generic

4 campaign message. It is a get out the vote

5 appeal \--

6 MR. JOSEFIAK: For a non-federal

7 candidate.

8 CHMN. MASON: For a non-federal

9 candidate but there\'s a federal candidate on

10 the ballot.

11 MR. JOSEFIAK: Right, but, again,

12 we would urge you to look at the exemption

13 and come to the conclusion \--

14 CHMN. MASON: What exemption?

15 MR. JOSEFIAK: That something

16 that\'s 100 percent geared toward a non-

17 federal candidate is exempt from being

18 viewed as a federal election activity.

19 CHMN. MASON: Mr. Reiff, please.

20 I mean, if you\'ve got \--

21 MR. REIFF: The federal election

22 activity definition, Section (b)(1) of the

501

1 definition of federal election activity, \"a

2 public communication that refers solely to a

3 clearly identified candidate for state or

4 local office if the communication is not a

5 Federal Election Activity described in

6 subsection (a)(1) or (2).\"

7 CHMN. MASON: But it is a federal

8 election activity if it is an appeal to get

9 out the vote for an election in which a

10 federal candidate is on the ballot.

11 MR. JOSEFIAK: But the vote is for

12 a particular candidate and I think that

13 gives you the option to make a distinction

14 there.

15 MR. SANDLER: I think the

16 Commission could and should interpret it the

17 way that Mr. Josefiak is suggesting;

18 however, if you should conclude that the

19 statutory language does in fact leave you no

20 choice I think what we\'re asking is please

21 make that clear now.

22 We want the answer on June 25th.

502

1 We don\'t want to run into Mr. Hershkowitz in

2 court saying well, maybe it means something

3 else. Let\'s have the issue joined in the

4 consolidated litigation right now.

5 CHMN. MASON: Commissioner Thomas.

6 COMM. THOMAS: Thank you,

7 Mr. Chairman. Thank you all again for being

8 here. I had the opportunity to prevent

9 Mr. Sandler and Mr. Brewer from making it

10 here by not letting them in the building

11 early this morning but I was very

12 magnanimous and let them come so I hope they

13 appreciate that if I don\'t agree with them

14 on everything I\'m still basically a nice

15 guy, let them in the building.

16 I want to touch a little bit on

17 the issue of how the party committees will

18 live under the Levin Amendment and,

19 Mr. Brewer, you\'re obviously the best

20 person, I think, here to give us some

21 insight.

22 The Levin Amendment is designed to

503

1 restrict the ability of state and local

2 party committees to use traditional soft

3 money for a lot of party-building activity;

4 however, it does build in this opportunity

5 to take in whatever kind of money the state

6 happens to allow up to \$10,000 worth from a

7 donor.

8 In your state how will that kind

9 of \$10,000 limit really affect the proceeds

10 of the state party committee? Can you give

11 me a rough sense of how much the state party

12 committee traditionally has raised from

13 whatever permissible source has been allowed

14 above the 10,000 per donor amount? Do you

15 have any rough idea?

16 MR. BREWER: Well, it certainly

17 varies considerably from cycle to cycle,

18 I\'ll acknowledge that, depending on the

19 races that are on the ballot and so forth

20 but we do have a number of donors. It\'s not

21 a large number, it\'s not more than 100,

22 certainly, who might be willing to donate

504

1 those kinds of funds in order to fund the

2 kind of activity that the Levin Amendment

3 anticipates.

4 But I\'ll also indicate a number of

5 our local party committees. I think

6 particularly of the City of Detroit. We

7 have two very active and strong local party

8 committees in the City of Detroit who work

9 very hard, volunteer as well as paid

10 efforts, to get out the vote. And so there

11 might be other donors and other folks that

12 they would look to and other local party

13 organizations would look to locally to

14 supplement their efforts under the

15 provisions of the Levin Amendment.

16 COMM. THOMAS: Under the Levin

17 Amendment I gather a resourceful party

18 official will probably work quickly to try

19 to in essence establish a communication

20 amongst wealthy donors, if you will, whereby

21 those wealthy donors are encouraged to

22 spread whatever amounts above 10,000 they

505

1 might have given directly to the state party

2 to various lower-level units. Am I wrong

3 there? Is that not a practical reality of a

4 way that a party official might address that

5 restriction?

6 MR. BREWER: I think it is but I

7 see no harm in that, either. I mean, my

8 local party committees, as I indicated, are

9 all volunteers and they would look to me and

10 to others in the state party structure to

11 help them with that and I see nothing wrong

12 with that.

13 Again, I see these activities as

14 fulfilling compelling government interests.

15 I don\'t see a threat of corruption at this

16 very low level, the \$10,000 threshold,

17 that\'s been enacted into the Levin

18 Amendment, and I think that we should allow

19 and encourage this kind of activity to

20 flourish.

21 COMM. THOMAS: But I hope that

22 you\'ll agree that at a certain level, I

506

1 mean, if you have a wealthy donor or a

2 wealthy organization that has a couple of

3 hundred thousand dollars that it\'s willing

4 to try to move into a state to try to help

5 the party structure that it may well be that

6 there\'s still going to be a way for that to

7 happen if the party committees find out a

8 way to pass the word to a wealthy

9 organization or donor that they can send

10 \$10,000 chunks to various components within

11 the state\'s party structure. I mean, isn\'t

12 that a reality that that might happen?

13 MR. BREWER: Certainly, but,

14 again, I\'m not ashamed of that. I\'m proud

15 of it because what we\'re going to use that

16 money for is traditional grass-roots

17 activity, the kinds of things parties have

18 been about for centuries and they should

19 continue to be about. It does take

20 resources to do these activities.

21 COMM. THOMAS: Now, where that

22 leaves me is it takes me to a point of

507

1 saying that because a wealthy organization

2 or donor is as a practical matter most

3 likely going to be able to find a way to

4 move money into a state\'s party structure we

5 at the Commission have to have a little bit

6 more sensitivity to trying to prevent the

7 wholesale evasion, if you will, of the

8 spirit, if you will, of this new

9 legislation.

10 I\'m therefore worried somewhat

11 about the interpretations that would suggest

12 that party committees ought to be able to

13 spend 100 percent traditional soft money to

14 pay for voter registration activity outside

15 the 120-day time frame or voter ID or GOTV

16 activity that takes place outside of, say, a

17 January 1 cutoff period of the even-numbered

18 years.

19 Do you envision that there\'s some

20 sort of movement away from the spirit of the

21 legislation if the party committees are

22 allowed to spend 100 percent traditional

508

1 soft money for those kinds of activities?

2 MR. BREWER: No, not at all. Let

3 me try to allay your concerns, Commissioner.

4 The Michigan Democratic Party is very active

5 in local partisan and non-partisan elections

6 and even ballot questions in Michigan. I

7 mean, we have thousands and thousands of

8 state and local elections throughout the

9 state in even-numbered years as well as

10 odd-numbered years.

11 We have term limits in our state

12 so it\'s particularly important for the state

13 party to develop the farm team that

14 everybody talks about so that people can

15 move up into the legislative ranks and so

16 forth. But our activity, as extensive as it

17 is, pales by comparison to what the local

18 party organizations do.

19 I adverted a couple of moments ago

20 to the two Detroit political organizations.

21 Lawyers are very active in even-numbered

22 election years in both state and federal

509

1 elections but I\'ll tell you it paled by

2 comparison to what they did last year in the

3 Detroit mayoral election, which is a

4 non-partisan election. Those people care

5 about who\'s going to be mayor and city

6 council and so forth in the City of Detroit.

7 So I\'m trying to convey a sense to

8 you that in the scheme of things there is an

9 overwhelming amount of state and local party

10 activity to which I think a lot of this

11 money would be devoted. We would not

12 attempt to evade the limits and sneak it

13 somehow into federal elections.

14 There are lots of local races in

15 which all these party people are concerned

16 and I can see these local party

17 organizations going to donors and saying

18 give me this money because I want to endorse

19 in this school board race, give me this

20 money because I want to endorse in the

21 Detroit mayor\'s race, something over which I

22 have no control, and even if I tried to

510

1 control it couldn\'t stop it.

2 Again, I\'m just trying to convey a

3 sense of the scope of the local activity

4 that would go on for which this money could

5 legitimately be used.

6 COMM. THOMAS: Thank you. I have

7 a little time, I see. Any of you that can

8 help me with this I\'d appreciate.

9 This issue of how this new

10 legislation will affect the registration

11 issue, when particularly local party

12 committees are going to have to be

13 registered now. My understanding of the

14 proposed language we put out was that we

15 were saying that to the extent something

16 does qualify as federal election activity we

17 would treat the federal share of that as an

18 expenditure under the law that would count

19 toward the registration threshold.

20 I see in comments submitted by the

21 ASDC that you interpret Advisory Opinion

22 1999-4 as suggesting that the Commission

511

1 historically has taken the position that it

2 only counts toward the \$1,000 threshold of

3 expenditures candidate-specific outlays and

4 that the generic party-building types of

5 activities, voter registration, voter ID,

6 and so on, that the federal share of those

7 kinds of things wouldn\'t necessarily count

8 toward that \$1,000 threshold.

9 We may have a disagreement there

10 as to what that opinion has established as a

11 matter of law but what is your construction

12 of what should count toward the registration

13 threshold for local party committees?

14 MR. SANDLER: Our construction is

15 only when it\'s basically candidate-specific

16 activity for a federal candidate and

17 possibly even expressly advocating a federal

18 candidate but, leaving that aside, it has to

19 be on behalf of a federal candidate in order

20 to count towards the \$1,000 threshold. I

21 mean, I think that given the state of the

22 law on political committees generally, the

512

1 Commission\'s advisory opinions, that that\'s

2 where you are.

3 If it\'s the Commission\'s view that

4 10-, 15-, 20,000 local party committees in

5 this country are currently in violation of

6 the law because they\'ve exceeded the federal

7 share of just general vote Democratic, vote

8 Republican, has exceeded \$1,000, again, I

9 think the Commission owes it to the

10 regulated committee and to the two courts

11 that have to decide this thing to say so.

12 MR. JOSEFIAK: There are going to

13 be different scenarios in different states

14 and I think that\'s part of the problem, that

15 we that deal with all these state laws on a

16 day-to-day basis realize that there are not

17 two states that are the same in how they

18 operate.

19 I think a lot of local committees

20 have avoided this issue because under their

21 own by-law system with the state party they

22 transfer non-federal funds to the state

513

1 party and the state party does their get out

2 the vote effort and they\'re just

3 transferring non-federal funds based on

4 state law so they avoid all of this because

5 it\'s the state party that actually does the

6 effort.

7 And so now what we\'re encouraging

8 through this Levin Amendment if in fact you

9 are a State like Michigan that has no limits

10 as opposed to a Massachusetts, where you\'re

11 very limited in what you can give to anybody

12 that a \$10,000 threshold is meaningless,

13 then you\'re going to get into a situation of

14 okay, when does the individual county or

15 local organization that uses a Levin Account

16 automatically now trigger registration and

17 reporting under the federal election law.

18 And I think that\'s the real

19 difference because what you can do now under

20 the Levin Amendment is take the money from a

21 local organization and send it up to the

22 state party for the get out the vote effort.

514

1 You can\'t do that any more.

2 So if the local committee wants to

3 if you\'re not a Detroit committee that\'s a

4 big operation any local committee that wants

5 to do any sort of get out the vote effort

6 now during a federal election year is going

7 to have to go through this Levin scenario.

8 And unless you set some sort of a de minimis

9 threshold in there you\'re going to have a

10 lot of people, I believe, in violation of

11 that provision.

12 We have the \$5,000 threshold for

13 exempt activity. You may at least at a

14 minimum have some sort of a threshold like

15 that for this kind of activity before the

16 locals would have to register and report.

17 I\'m not sure you can do that under the new

18 law but I think you\'ve got to look at what

19 you can do to solve this problem that the

20 only way these local organizations will be

21 allowed to get involved is through a Levin

22 Account if it\'s going to be a get out the

515

1 vote effort.

2 MR. BREWER: Commissioner, the

3 practical effect of that will be to kill off

4 the activity. We\'re simply not going to go

5 through all the registration and reporting

6 and the threats and everything else if

7 that\'s the end result so that the Levin

8 Amendment then will become a dead letter.

9 It will not be useful to anybody because of

10 that interpretation.

11 COMM. THOMAS: Thank you. I

12 certainly appreciate that this law is very

13 encompassing and it requires an awful lot of

14 hard thinking. I recall fondly now years

15 ago going to an ASDC gathering in Miami and

16 I was there with some of the FEC staff. And

17 we were trying to explain the new allocation

18 rules.

19 And then state chairman Jerry

20 Brown at one point got up and he said

21 basically, let\'s get a rope. And there were

22 many there, like Bob Slagle (?) from Texas,

516

1 that were ready to join him and hang all of

2 us because they thought these rules were

3 outrageous.

4 I think the state parties have

5 learned to live under these restraints.

6 We\'re here today under a new regime. This

7 new legislation is there and we might take

8 many of your suggestions and try to

9 interpret them in a way that alleviates a

10 lot of the concern. But I just hope that

11 everyone will understand that this is a new

12 day and this is an effort by Congress to

13 change the way that money has been raised

14 and we\'re all going to have to live with it.

15 And I appreciate all of you coming

16 here to help us. It\'s certainly something I

17 think that your input is very helpful in

18 leading us along the way. Thank you.

19 CHMN. MASON: Commissioner Smith.

20 COMM. SMITH: Thank you,

21 Mr. Chairman. I\'m going to address most of

22 my questions to you, Mr. Brewer, and there\'s

517

1 a couple of very good reasons for that. The

2 first is that I\'m a Michigan native so I

3 have a bias there.

4 And the second is also a good one.

5 You\'re the only witness to appear before us

6 in these two days who lives more than 20

7 miles from a coast. I sometimes like to

8 gently chide my colleagues. I think I am

9 the only person who has served on this

10 Commission any time in the last 20 years who

11 has lived at any time in the last 20 years

12 more than 100 miles beyond a coast. So it\'s

13 a pleasure to have you with us and get some

14 of that solid perspective.

15 CHMN. MASON: That\'s not true.

16 COMM. McDONALD: That\'s very

17 shaky, to be honest.

18 COMM. SMITH: But I do actually

19 want to focus on questions pertaining to

20 state parties and the effects of some of our

21 potential choices on grass-roots activity

22 and so on.

518

1 First, on the Levin accounts my

2 understanding of our regs but apparently not

3 that of all of our commenters, of the draft

4 regs, was that to raise Levin funds you

5 could use either Levin funds or other

6 traditionally federal funds under the act.

7 But at least some commenters have understood

8 our regulation to suggest that you could

9 only use funds subject to the other portions

10 of the act to raise Levin funds.

11 Do you have any thought on that or

12 opinion? Do you know what I\'m getting at?

13 It\'s my sense that you can use Levin funds

14 to raise more Levin funds. Some people do

15 not read the draft regulations that way.

16 MR. BREWER: I don\'t think that\'s

17 a correct reading and it seems to me it

18 creates a tremendous chicken and egg

19 problem. I mean, if you can only use Levin

20 funds to raise Levin funds you start with no

21 Levin funds. I mean, it makes no sense.

22 COMM. SMITH: No, they were trying

519

1 to say that you could not use Levin funds to

2 raise Levin funds, in other words that the

3 only money you could use to raise Levin

4 funds would that be subject to the other

5 restrictions of the act.

6 MR. REIFF: I\'ll just say it was

7 our assumption when we prepared our

8 comments, that Subsection (c) in Section 323

9 assumed that you can only use federal funds

10 to raise any funds that would be used for

11 federal election activity. That was our

12 assumption when we prepared our comments.

13 COMM. SMITH: Well, I wonder if

14 that is correct. I mean, the law states, I

15 believe, that you can raise your Levin funds

16 from funds subject to the limitations,

17 prohibitions, and reporting requirements of

18 the act and since Levin funds are subject to

19 the limitations, prohibitions, and reporting

20 requirements of the act once you\'ve raised

21 some Levin funds you can use those to raise

22 more Levin funds.

520

1 MR. BREWER: Yes, I would hope so.

2 COMM. SMITH: Well, all right,

3 let\'s go on a little bit and talk about the

4 question of having separate Levin accounts.

5 You were talking about the burden especially

6 on small local committees earlier and I\'m

7 always interested in that and certainly I

8 think there\'s a strong sense that from the

9 regulatory end, from our end, it would be

10 easier to keep track by requiring separate

11 accounts. On the other hand I\'m not sure

12 that the ease of the government necessarily

13 offsets the important interest of the

14 American citizenry.

15 And so my question really is how

16 big a burden would it be on these smaller

17 committees to have to keep separate Levin

18 accounts? I think in your testimony you

19 suggested that should not be a requirement?

20 MR. BREWER: Yes, I think it

21 should be optional. Opening up banking

22 accounts and checking accounts may seem very

521

1 simple but we\'ve got local party committees

2 and state parties as well in Michigan who

3 have to comply with the federal regulations

4 in terms of funds and how many accounts you

5 can have. There are state rules and you

6 have to have a separate bank account for

7 that. There are even arguably some funds

8 under Michigan law which are subject to

9 neither of those sets of rules and so

10 there\'s yet a third bank account.

11 I mean, this quickly gets out of

12 hand for any volunteer officer, particularly

13 a treasurer, who\'s trying to keep track of

14 all this. I do believe they should have

15 some kind of system where they\'re able to

16 account for the Levin funds but we should

17 let them have the option of whether they

18 want to open up a separate special bank

19 account for this very narrow purpose which

20 will occur only for a few months during a

21 particular election cycle.

22 COMM. SMITH: And the vast

522

1 majority of these treasurers are volunteers

2 for these?

3 MR. BREWER: All of them are

4 volunteers, Mr. Smith.

5 COMM. SMITH: And they face

6 personal liability if they slip up and

7 forget to open the right number of accounts?

8 MR. BREWER: Yes, not only

9 personal liability under federal law but

10 also under state law and that is one of the

11 reasons I indicated earlier so many of them

12 are reluctant to undertake these

13 responsibilities.

14 COMM. SMITH: You also suggest

15 that funds solicited and deposited in Levin

16 accounts should not have to be specifically

17 designed for such accounts. Here\'s the

18 question I would have.

19 Since there\'s a limit on how much

20 people can give to a party committee for

21 Levin activities how do we know if people

22 have crossed that limits if we don\'t have to

523

1 have some sort of designation? How does the

2 donor himself know if he\'s crossed the limit

3 if he doesn\'t know what you\'re going to use

4 the money for when he contributes it to you?

5 MR. BREWER: Well, it seems to me

6 it would be the responsibility of the party

7 organization if asked by the Commission what

8 portion of this was Levin funds and if there

9 were more than 10,000 that came from a

10 particular donor what did you use the

11 balance for. Was it put in your state

12 elections account? Was it put in some

13 non-election account to use for other

14 activity? I mean, I think the

15 responsibility should lie with the local

16 party folks to make that accounting if

17 they\'re asked.

18 COMM. SMITH: You think that\'s

19 less burdensome than requiring them to do

20 the solicitation in a way that makes clearer

21 where the funds are going to be used and

22 spent?

524

1 MR. BREWER: Yes, because then

2 they risk running afoul is the disclaimer

3 proper and all these other kinds of

4 requirements and people do play \"gotcha\"

5 with these kinds of rules.

6 MR. SANDLER: Commissioner, the

7 \$10,000 limitation isn\'t what the party can

8 accept. It\'s not a limit on the donor, nor

9 do the federal aggregate limits apply.

10 Consequently, there is no policy basis

11 whatsoever, not to mention no basis in the

12 history or language of the statute, for

13 requiring that Levin funds be solicited with

14 respect to particular language and that

15 would in itself, not to mention the hundreds

16 of lines and pages of other restrictions,

17 kill the ability of state parties

18 collectively to use Levin funds as intended.

19 MR. JOSEFIAK: And that\'s

20 particularly true in a state like Michigan

21 or Ohio where it\'s individual money but no

22 limits. And it\'s difficult enough to get

525

1 individuals to contribute but then if you

2 have to go through this whole malarkey of

3 saying well, half your money\'s going to this

4 account, half of this money is going to this

5 account, and this is going to be reported

6 here, and this has got to be put in \-- it\'s

7 already difficult enough to convince people

8 to give you the money. And then if you\'re

9 going to put all these restrictions and

10 there\'s a possible legal ramification on top

11 of all of that and the so-called Levin funds

12 there are maybe people who wouldn\'t give to

13 a Levin fund as opposed to giving to the

14 party in general because they don\'t know

15 what a Levin fund is.

16 And I think that the ability of a

17 state like Michigan to be able to take Tom

18 Josefiak\'s money and then take 10,000 of

19 that and put it into that account and

20 segregate it to be used for this effort is

21 the way it should be.

22 COMM. SMITH: Do you want to add a

526

1 bit more, Mr. Sandler?

2 MR. SANDLER: Again, just to use

3 the example of Maryland, the limits are

4 \$4,000 from any one donor. That\'s in their

5 regular state account. Why can\'t they use

6 that as their Levin Account? What policy

7 purpose would be served by requiring them to

8 have yet another account?

9 COMM. SMITH: One final question

10 as we\'re starting to run out of time.

11 Mr. Brewer, do you have any estimate of how

12 much of the state party activity would

13 qualify? Let me just get to the crux of the

14 question. Allocation, how big of a burden

15 is that, particularly for local committees

16 that might be doing things, some of these

17 local outfits?

18 In other words, the question that

19 Mr. Sandler addressed earlier in the day,

20 the new law says a lot of the stuff that

21 used to be allocated is now strictly federal

22 election activity. How much is left that\'s

527

1 not federal election activity and how much

2 of that would you spend anyway? In other

3 words I assume that you would have some

4 office space anyway whether there was ever a

5 federal election in Michigan or not. I

6 assume that you would have some copiers and

7 computers whether there was ever a federal

8 election in Michigan or not. So how much is

9 the incremental value of what\'s not counted

10 as federal election activity?

11 MR. BREWER: Well, as I indicated

12 in our written comments, frankly, if there

13 were no federal elections I think the

14 structure of the Michigan Democratic Party

15 would not change very much. I mean, we

16 would still have county parties, we\'d still

17 have these local clubs, the state party

18 would still exist.

19 I really regard the federal

20 portion of all of this as incremental. It\'s

21 in addition to the vast bulk of our

22 activity, which is state and local activity.

528

1 I would add with all due respect that the

2 existing allocations rules are one of the

3 reasons why local party groups in Michigan

4 do not open federal committees because then

5 they know that these administrative expenses

6 and so forth are going to have to be

7 allocated, they\'re going to have to raise

8 federal hard money and report and register,

9 so that\'s already a disincentive and I can

10 foresee further disincentives the way these

11 regulations are shaping up.

12 COMM. SMITH: Yes, and thank you

13 for your comments on the existing rules. I

14 mean, I have often commented on the ways in

15 which I think the existing regulations

16 already tend to stifle a lot of true, low-

17 level grass-roots activities.

18 Thank you. My time is up.

19 CHMN. MASON: Vice Chairman

20 Sandstrom.

21 COMM. SANDSTROM: What I find

22 rather unfortunate about the abbreviated

529

1 time schedule in which we\'re having to

2 conduct these hearings is that we are not

3 able to hear from witnesses like Chairman

4 Brewer. I\'ve noticed that almost all of the

5 comments and questions have been addressed

6 to you and that\'s because you\'re at the

7 grass-roots level trying to do politics.

8 As you indicated, a number of the

9 people who are also at the grass roots of

10 politics couldn\'t afford to Washington to

11 talk. They\'re volunteers. Many of them are

12 totally unaware that this change is

13 occurring and we\'re not able to go out into

14 the country and ask the very questions we\'re

15 asking of you to get the local flavor, the

16 state law flavors, on how these issues

17 affect them in their various states and I

18 find that most unfortunate.

19 Some of the commenters yesterday

20 indicated that with respect to, for

21 instance, the exemption or the hoarding of

22 state conventions we shouldn\'t extend it to

530

1 meetings so that you couldn\'t be able to use

2 100 percent of state dollars to pay for

3 those expenses. I\'m just very curious

4 because this is used as an argument because

5 it helps prevent soft money. Have you ever

6 turned away a check which was otherwise

7 legal and doesn\'t come from someone who

8 you\'d like to avoid as a contributor from

9 your state account? Is it generally the

10 case that if someone is willing to

11 contribute money to you that you can

12 effectively spend it?

13 MR. BREWER: Yes, subject to our

14 vetting procedures.

15 COMM. SANDSTROM: You have vetting

16 procedures? So in fact these allocation

17 rules that are touted from your perspective

18 don\'t prevent a single soft dollar from

19 being raised. You\'ll raise and spend

20 effectively as you can every non-federal

21 dollar that is offered to you?

22 MR. BREWER: Yes. We don\'t have

531

1 enough non-federal dollars to be active in

2 the state and local elections we\'d like to

3 be active in.

4 COMM. SANDSTROM: So this focus on

5 allocation focuses on the expenditure, and

6 if there\'s any corruption it\'s on the

7 contribution side, I would gather. The

8 allocation rules seem to have no impact on

9 preventing corruption if there were

10 corruption because of your limits that

11 people thought were too lax in the State of

12 Michigan?

13 MR. BREWER: I\'m not aware of any,

14 Commissioner. I mean, when people give to

15 the party in my experience they give because

16 they believe in our principles and in our

17 candidates. I\'m not a legislator. I\'m in

18 no position to dispense any favors to

19 anybody.

20 COMM. SANDSTROM: So if somebody

21 holding a local meeting to organize for the

22 mayoral race to force those people to

532

1 allocate that seems to serve no corruption

2 prevention rationale?

3 MR. BREWER: I agree and in

4 addition it will be a disincentive to them

5 performing that activity. If I tell them

6 that that\'s what they have to do they\'ll

7 simply stop doing it, in my experience.

8 COMM. SANDSTROM: Mr. Josefiak, in

9 your experience do you know of any of your

10 state parties that having properly vented a

11 contribution are going to turn them away

12 because of allocation rules?

13 MR. JOSEFIAK: Not allocation

14 rules but, I mean, the problem is right now

15 they\'re able to spend them based on what

16 they can raise under the new law they are

17 going to be able to spend them based on what

18 they\'re used for.

19 COMM. SANDSTROM: Now, a question

20 occurs because there\'s this focus on if it\'s

21 get out the vote and the questions that were

22 raised by the chairman earlier saying that

533

1 has to come out of these Levin funds and

2 such. Essentially are we just going to

3 allocate activities within a state? If you

4 can\'t get out the vote solely for the

5 governor that you\'ll just say okay, what

6 I\'ll use our money for is advertising on

7 behalf of the governor and we\'ll just leave

8 the actual grassroots, get out the vote

9 activity, to the gubernatorial candidates

10 themselves if we get too strict just

11 allocating activities between different

12 players in the state?

13 MR. BREWER: Commissioner, I think

14 there is a substantial risk with the law and

15 the regulations that traditional party

16 functions will start to disappear and the

17 parties will fragment and others will take

18 up where the parties are unable to perform

19 any more. And I think that\'s a bad thing

20 for American democracy.

21 Parties are not single-issue

22 groups. They\'re places where compromise and

534

1 issues and things are worked out. And I

2 think election activity, GOTV and so forth,

3 should flow through and be a major function

4 of the state parties. I don\'t think it

5 serves us well to have that dispersed among

6 other actors in the political system.

7 COMM. SANDSTROM: Talking about

8 other actors in the political system, we

9 haven\'t had anybody who\'s a state and local

10 candidate testify over the past couple of

11 days so maybe I\'ll ask since you work with

12 so many of them.

13 There\'s a provision of the law

14 that suggests that they are subject to the

15 reporting requirements act, the limitations

16 and prohibitions of the act, if they engage

17 in public communication and that includes

18 anything that promotes or supports a local

19 candidate.

20 And I\'ll use an example yesterday

21 from Nevada. I imagine there\'s examples you

22 could devise for Michigan. In Nevada I said

535

1 if someone running for attorney general

2 indicated in their ads that they support

3 Senator Ensign and Senator Reid\'s position

4 on Yucca Mountain and think the President is

5 wrong that they indicated that that

6 candidate would have to register and report

7 to the Federal Election Commission. What is

8 your reaction to that hypothetical?

9 MR. BREWER: I think if that

10 happens it\'s dreadful. I mean, what I\'m

11 very concerned about is that this law and

12 particularly the regulations which are in

13 front of you will drive wedges between the

14 state party and state and local candidates

15 and drive wedges between the state party and

16 federal candidates. I don\'t think that as a

17 society or as a democracy we\'re served by

18 having that happen.

19 COMM. SANDSTROM: Is state

20 government regularly impacted by decisions

21 being made in Washington?

22 MR. BREWER: Certainly,

536

1 absolutely.

2 COMM. SANDSTROM: And those

3 candidates, be it on education policy or

4 clean air or in Michigan issues such as the

5 CAFE standards, they all have direct impact

6 on the voters of Michigan and on how elected

7 officials of Michigan, their non-federal

8 officials, go about doing their job?

9 MR. BREWER: Yes, Commissioner, in

10 our current governor\'s race, for example,

11 every major issue in the race, be it the

12 environment, education, the importation of

13 foreign garbage into Michigan, every one of

14 those has a federal component.

15 COMM. SANDSTROM: And should then

16 the tens of thousands of candidates

17 nationally who are similarly impacted by

18 decisions being made here in Washington on

19 which elected officials here in Washington

20 are taking positions now be subject to the

21 reporting requirements of the campaign? Do

22 you have any idea how those reporting

537

1 requirements would actually operate?

2 Since they\'re not federal

3 candidates how would they go about deciding

4 when they have to register and report and

5 what they would report?

6 MR. BREWER: I\'ll simply tell you

7 no matter how they operate you will simply

8 see a cessation of such activity. If I tell

9 people that they start mentioning federal

10 issues or mentioning Senator Levin or

11 Senator Stabenow as they do their state

12 business they\'ll simply stop doing it. I

13 mean, it will be like a gag rule.

14 COMM. SANDSTROM: It was a gag

15 rule. So we\'re essentially turning the

16 framers\' vision on its head where the

17 restraints on the federal government were

18 supposed to come because they originally

19 elected all senators, for instance, through

20 state legislatures, from the local people

21 and the local candidates and elected

22 officials in the community. We\'re

538

1 essentially saying with those restraints the

2 public discussion of issues will essentially

3 dry up.

4 MR. BREWER: There no question I

5 think it will deter and chill the ability of

6 folks to do that.

7 COMM. SANDSTROM: So I would say

8 then that probably looking at that language

9 a proper constitutional construction should

10 definitely be explored before imposing such

11 a limitation too broadly and undefined on

12 the regulated community.

13 MR. BREWER: I agree. I mean,

14 under the 10th Amendment and principles of

15 federalism we should not be federalizing

16 these local matters, these state and local

17 elections.

18 CHMN. MASON: Commissioner Toner.

19 COMM. TONER: Well, Mr. Brewer,

20 welcome to Washington.

21 MR. BREWER: Thank you.

22 COMM. TONER: I think the fact

539

1 that you\'ve gotten a lot of questions here

2 today is a reflection that you work in the

3 real world outside of Washington, the

4 grass-roots level, and I really appreciate

5 you taking the time to come here and share

6 your thoughts with us.

7 As the chairman of the Michigan

8 Democratic Party you obviously have a long

9 and close relationship with Senator Levin,

10 and we\'ve talked extensively about the Levin

11 accounts. I just wanted to follow up on a

12 couple of things.

13 Do you think that it\'s an evasion

14 in any way for state and local committees to

15 accept Levin funds up to \$10,000 per

16 recipient?

17 MR. BREWER: No, not at all. I

18 think that\'s a recognition of what currently

19 goes on which is not corrupting or

20 threatening corruption at all.

21 COMM. TONER: Do you think that

22 it\'s not an evasion of the Levin Amendment

540

1 for that to happen no matter how many state

2 and local committees accept those donations?

3 MR. BREWER: Again, I don\'t think

4 that\'s a problem at all. I mean, in

5 Michigan we have nearly 10 million people,

6 we have nearly 7 million voters, and I

7 described to you less than 200 party

8 organizations. They have a lot of work to

9 do and it takes a lot of resources to get

10 that done.

11 COMM. TONER: Do you say that in

12 part because Levin funds by definition are

13 used for get out the vote activities,

14 grass-roots party committee activities?

15 MR. BREWER: Yes. I mean, the

16 express intention, and I\'ve commended Carl

17 internally in Michigan to all of our party

18 leaders in terms of his recognition of the

19 importance of these activities, absolutely.

20 The issue ads are gone, no problem, but the

21 traditional functions of the party are vital

22 and Carl Levin\'s amendment gives us one way

541

1 to continue them.

2 COMM. TONER: And do you think

3 Senator Levin in offering this proposal

4 which has become law that his real goal was

5 to preserve the ability of local committees,

6 grass-roots committees, state committees, to

7 continue to be able to do these kinds of

8 activities?

9 MR. BREWER: Absolutely, based on

10 my discussions with Senator Levin,

11 absolutely.

12 COMM. TONER: Mr. Sandler?

13 MR. SANDLER: Commissioner, this

14 issue about the question of whether each

15 entity, party committee, state, local,

16 other, in the state can accept its own

17 contribution up to \$10,000 is not a matter

18 of interpretation. Here there is

19 legislative history, not after the bill was

20 passed but before the bill.

21 Congressman Shays\' statement makes

22 it absolutely clear beyond peradventure that

542

1 that is the case, that is the intent of the

2 law, and that it was precisely because of

3 that that Congressman Shays felt it

4 necessary to insert, and he explains this,

5 on the floor, not five months after the bill

6 is passed, that that\'s why it was necessary

7 to insert all these other restrictions about

8 how Levin Amendment funds are raised.

9 We do not believe the Commission

10 has any discretion whatsoever to interpret

11 the law in that respect than any other way.

12 COMM. TONER: So for that reason

13 it would be absolutely inappropriate for us

14 to require any special solicitation

15 disclaimer rules for the raising of bona

16 fide Levin funds?

17 MR. SANDLER: Definitely there\'s

18 no reason for that. Again, there\'s nothing

19 in the statute or legislative history in any

20 way, manner, or form that suggests that, and

21 there\'s no policy reason for it because

22 there\'s no way a donor can get into trouble

543

1 from the donor side for violating it, only

2 the party committee.

3 COMM. TONER: Mr. Brewer, in terms

4 of your practical experience at the state nd

5 local level if we were to impose special

6 solicitation and disclaimer rules for Levin

7 funds would that have a dramatic impact on

8 your ability to raise them?

9 MR. BREWER: Yes. I think you

10 just can tell from my body language as I

11 slumped as I heard you say that, yes. I

12 mean, it\'s this game of \"gotcha\" where we\'re

13 going to have to have special disclaimers on

14 special documents that will have to be

15 handed out. It\'s just practically

16 impossible and with the criminal penalties

17 in the act the end result is people are not

18 going to solicit the money at all.

19 COMM. TONER: And that would be

20 antithetical to what Senator Levin was

21 trying to accomplish?

22 MR. BREWER: Absolutely.

544

1 COMM. TONER: Another issue we\'ve

2 obviously had to come to grips with is the

3 Internet and we\'ve dealt with it in the past

4 and we had some extended discussion

5 yesterday about should we take the position

6 that the Internet is a public communication

7 that is subject to regulation under BCRA and

8 other provisions. Mr. Sandler, do you have

9 a view on what we should do with respect to

10 the Internet here?

11 MR. SANDLER: Well, my under-

12 standing was that it was, again, before the

13 act was passed the intent of the sponsors

14 that Internet communications are neither

15 public communications for purposes of the

16 definition of \"federal election activity,\"

17 nor are they electioneering communications,

18 which applies to non-party groups that we

19 are not as concerned about, obviously, the

20 subject of another rule making.

21 I must say that the morning of the

22 day that the Commission approved these rules

545

1 I appeared on a panel about the use of the

2 Internet in politics with Trevor Potter and

3 he indicated to this group publicly that

4 that was the intent of the sponsors and that

5 if the Commission indicated it was going to

6 go the other way that the sponsors were

7 going to submit comments to make that clear

8 and now the reform groups come in the other

9 way so go figure but that\'s clearly what our

10 understanding is of the intent of the

11 sponsors from the history.

12 COMM. TONER: Another issue we\'re

13 obviously having to come to grips with is

14 there\'s a general ban on members of

15 Congress, federal office holders, and

16 national party officials from raising soft

17 dollars for state and local committees and

18 yet BCRA also contains a provision that

19 allows these same individuals to attend, be

20 guests, and be featured guests at state and

21 local committee fundraising events at which

22 soft dollars are raised.

546

1 So we\'re having to come to grips

2 with how to approach those two provisions

3 and particularly will they allow state

4 parties and local committees to publicize

5 the fact that members and office holders

6 will be there?

7 Mr. Josefiak, do you have a view

8 on that?

9 MR. JOSEFIAK: Yes, Mr. Chairman.

10 I think both of our comments share the same

11 view that we feel strongly that in order to

12 have an event and invite these people you

13 certainly can publicize the fact that

14 Senator So-and-So is going to be at your

15 event and we also feel very strongly that

16 you don\'t muzzle the person at the event.

17 The monies basically have already been

18 raised, the people are already at the event,

19 and if a person wants to say at the event

20 thank you for coming and supporting the

21 Michigan Democratic Party and your efforts

22 are well appreciated they should be able to

547

1 do that without someone raising the specter

2 is that really considered to be somehow a

3 solicitation directly or indirectly that

4 would be a violation of these provisions.

5 So I believe very strongly that we

6 should allow the publication of the fact

7 that Senator Levin was going to be at the

8 Democratic party event and that when Senator

9 Levin\'s there he should be free to speak his

10 mind no matter what he wants to say and we

11 are not going to have a speech policeman

12 there to decide when he goes over the line.

13 I think that the Commission, and I said this

14 in my comment, learned its lesson even

15 dealing with travel allocations and what is

16 the nature of the event when someone is

17 there and they are not particularly the

18 candidate, him or herself, but someone else

19 and they are speaking on behalf of someone

20 and the machinations the Commission has had

21 to go through based on its own regulations,

22 travel regulations, as to when something

548

1 qualifies as a campaign-related event or

2 non-campaign related event. I think you

3 could avoid that whole issue by just

4 exempting the actual speech of that

5 individual office holder at the event.

6 COMM. TONER: You make a point

7 which I just want to explore. In terms of

8 the fact that when party committees hold

9 fundraising events and the people attend

10 them is it your experience with party

11 committees that individuals who go to those

12 events have already contributed?

13 MR. JOSEFIAK: Well, certainly I\'m

14 not familiar with every party event but in

15 most cases the money is either pledged to

16 get in the door or you have paid your dues.

17 But I think that\'s irrelevant. I don\'t

18 think that necessarily matters if you have

19 an event where someone is actually paying.

20 Some of these events are not even

21 fund-raising events and then the question is

22 is it even qualifying as a fundraiser

549

1 because it\'s some sort of a fulfillment

2 event where the Senator is speaking but they

3 are party events and somehow they are

4 involving a donor of some sort. The

5 question is whether the donor pays at the

6 door or pays ahead of time or pledges to pay

7 later I don\'t think makes any difference as

8 far as what the rules should be. I think

9 that it really is something where if he or

10 she can attend the event what they say at

11 the event should not be regulated.

12 COMM. TONER: Mr. Brewer, is it

13 your experience as chair of the Michigan

14 Democratic Party when you hold a fundraising

15 event most people have paid by the time that

16 they would hear a speaker at an event?

17 MR. BREWER: Yes, Commissioner. I

18 would also like to add for local party

19 organizations these events that they hold,

20 be they a dinner, a pig roast, a picnic,

21 whatever it is, is often more than just

22 fundraising. It\'s party building. It may

550

1 be the major event of the year for that

2 party organization.

3 So this is not simply fundraising.

4 This is about party building. This is about

5 morale building. It is about the right of

6 these people to assemble and they do a lot

7 of other things at these functions.

8 I just think it\'s a Constitutional

9 morass for the Commission to attempt to be

10 the speech police, as has been indicated.

11 COMM. TONER: Given all this, do

12 you think it\'s a fair reading then for us to

13 take the position that when members are

14 speaking at these events they really are not

15 soliciting because the money has already

16 been acquired or it\'s another kind of event

17 and therefore we should refrain from

18 regulating what these members are saying at

19 these events?

20 MR. BREWER: Yes.

21 MR. SANDLER: Actually, you raise

22 an interesting point, Commissioner. I mean,

551

1 I would like to ask the Commission, maybe,

2 in the \--

3 CHMN. MASON: No, no, no.

4 MR. SANDLER: Is it permissible

5 for the national party chair to attend a

6 State party event, like a J-J dinner in our

7 case, Jefferson-Jackson, in which non-

8 federal or Levin funds are raised and is it

9 permissible if he doesn\'t solicit but is it

10 a solicitation if he praises the work the

11 state party is doing and donors are present?

12 I think it would be very, very helpful if

13 those kinds of questions were addressed

14 again here and now in this rule making by

15 the commission.

16 COMM. TONER: In your view if we

17 don\'t address those with very clear

18 standards is that going to have an adverse

19 impact on the ability of state parties to

20 have these kinds of events?

21 MR. SANDLER: Oh, absolutely. I

22 think people would be very surprised if the

552

1 national party chair couldn\'t attend state

2 party annual dinners. We would have to

3 worry about what they say or that we should

4 assume that the Commission is going to

5 request the FBI to expand its new domestic

6 surveillance powers to state and local party

7 dinners which is effectively what would be

8 required to police such a requirement.

9 COMM. TONER: And in your

10 experience you think it would have an

11 adverse impact on the ability of members to

12 appear at these kinds of events?

13 MR. SANDLER: Of course, yes.

14 CHMN. MASON: Larry Norton.

15 MR. NORTON: Thank you,

16 Mr. Chairman. I wanted to go back to a

17 point Commissioner Smith raised earlier. It

18 relates to our consideration about whether

19 to acquire separate Levin accounts. One

20 consideration that I think Commissioner

21 Smith identified is the balance between

22 greater transparency, the ability to

553

1 investigate without conducting an audit in

2 every case, perhaps, and one point on the

3 other hand was that the burden on state and

4 local committees in establishing a separate

5 account. I just wondered whether either

6 Mr. Sandler or Mr. Josefiak knows how many

7 States restrict the number of non-federal

8 accounts. I know it appears in your written

9 testimony that certain states do and I\'m

10 wondering how many states we are talking

11 about here.

12 MR. REIFF: Just off the top of my

13 head because I\'ve had dealings with this

14 with one of our clients, we know for a fact

15 that Wisconsin explicitly. I can\'t tell you

16 any other specific examples but I know for a

17 fact that Wisconsin law limits the political

18 committees from having only one depository

19 account. I can\'t give you any other

20 specific examples for that particular issue.

21 MR. NORTON: Mr. Brewer?

22 MR. BREWER: Michigan does as

554

1 well.

2 MR. NORTON: Really?

3 MR. JOSEFIAK: I think there would

4 be a number. I think Connecticut may. I

5 can understand the Commission\'s concern

6 about how you regulate this but we have

7 those situations now with the exempt

8 activity. It\'s the responsibility of the

9 party organization that conducts the

10 activity to set up a system that they are

11 comfortable with to make sure that they are

12 not violating the provisions of the law or

13 the Commission\'s regulations and it\'s our

14 responsibility to do whatever we can to

15 assist in that effort but it should be

16 something that is decided by the party

17 organization based on its own situation

18 rather than having some specific account

19 mandated under the regulations. That\'s

20 where the problem is going to come in.

21 MR. REIFF: I don\'t think that the

22 requirement that a single account be

555

1 maintained in the state law is the biggest

2 problem because clearly the Commission could

3 preempt that state law in that scenario.

4 The bigger problem happens where there are

5 states where you have multiple accounts

6 under state law where each account has its

7 own limit and its own requirements about how

8 you can spend that money. Then you try to

9 overlay the Levin activity over that. I

10 think that\'s where you have the big

11 practical problem.

12 MR. NORTON: It\'s a practical

13 problem of proliferating accounts more than

14 it is a legal problem. It strikes me that

15 one reading of the statute is that because

16 Levin funds are subject to the prohibitions

17 of the act that it is not another non-

18 federal account and it\'s not even a matter

19 of preemption but that it wouldn\'t really

20 run afoul of state law. But you are raising

21 a separate point, I think, which is that

22 there already are in some cases quite a

556

1 number of accounts and this would mean

2 another.

3 MR. JOSEFIAK: Well, from your

4 perspective when you say they are under the

5 prohibitions of the act how do you interpret

6 that?

7 MR. NORTON: Well, I\'m asking you.

8 MR. JOSEFIAK: That\'s a vague

9 question because if something is either

10 limited or prohibited by the act the normal

11 consequences of that would be it\'s subject

12 to a contribution limit and there are

13 certain prohibitions in the act, corporate,

14 banks. Then we have the foreign national

15 issue that goes beyond the federal activity.

16 Those are prohibitions of the act.

17 The term, I think, that is being used for

18 prohibitions of the act now are not

19 necessarily the source of the money other

20 than the foreign national issue because it

21 is still going to be subject to state law.

22 The real prohibition is what you do with the

557

1 money in having to segregate that into a

2 segregated account and I think that\'s where

3 it\'s going to get confusing, to try to

4 figure out those terms.

5 I think it will be important in

6 the regulations that when you use those

7 terms you define what you mean for that

8 particular account because it could be very

9 confusing to people like me who look at it

10 as it means corporate and union and non-

11 federal and foreign national activity as

12 opposed to something else that is allowed

13 under Michigan law, unlimited individual

14 money as opposed to the prohibition under

15 Michigan law of corporate money.

16 So it really needs to be clarified

17 and that\'s why it is difficult to answer

18 your question.

19 MR. NORTON: Nothing else,

20 Mr. Chairman, thank you.

21 CHMN. MASON: Mr. Pehrkon.

22 MR. PEHRKON: Thank you,

558

1 Mr. Chairman. Chairman Brewer, Mr. Sandler,

2 Mr. Reiff, Commissioner Josefiak, Mr. Spies,

3 I want to thank you for taking the time to

4 appear before the Commission and for your

5 comments.

6 I am going to go back to the issue

7 of the Levin accounts and the establishment

8 of them. We had any one of a number of

9 comments from the party organizations that

10 the establishment of a Levin account would

11 be wise, prudent, or a good practice;

12 however, each of those plus any one of

13 another comments then caveated and said

14 that, of course, options for alternative

15 ÄÄÄÄ become available.

16 One of the organizations that

17 submitted comments, I believe it was the

18 California Republican Committee, offered

19 some alternatives and some options for those

20 committees rather than having to establish a

21 separate Levin account. One of their

22 suggestions was that for small committees,

559

1 state and local entities, that they be given

2 the option of establishing a reasonable

3 accounting practice. They also indirectly

4 suggested that a reasonable accounting

5 practice may be an alternative in those

6 states where the establishment of state

7 accounts impedes the ability to proceed.

8 My question is do you have any

9 comments on establishing a threshold? I

10 think Commissioner Josefiak mentioned it

11 earlier, which was a de minimus standard.

12 Is there such a thing that could be used?

13 The second part of that is what is

14 a reasonable accounting standard and how

15 would that be determined? I mean, how would

16 you establish a reasonable accounting

17 standard in order to comply with provisions

18 of a Levin account?

19 MR. JOSEFIAK: Well, the

20 Commission already requires that to some

21 degree when it comes to exempt activity.

22 You have the option of setting up a separate

560

1 account or if you add one federal account to

2 demonstrate that if you are using your money

3 to put out a campaign bumper sticker for a

4 candidate that you have to use state-raised

5 funds.

6 We certainly would encourage our

7 folks to set up a segregated account to have

8 the state-raised money segregated from

9 nationally transferred money but that\'s

10 their option. That\'s what we are

11 encouraging in this. It\'s up to them to

12 decide that. So when there\'s an issue or

13 when there\'s a question you have to under a

14 reasonable accounting methods that the

15 Commission allows, and usually the

16 Commission does a first-in, first-out

17 scenarios, prove that.

18 Would we encourage people to set

19 up a separate account? Probably so, but it

20 shouldn\'t be a mandatory situation for lots

21 of different reasons.

22 MR. PEHRKON: To make sure I

561

1 understand, are you suggesting the possible

2 use of a daily ledger for accounting?

3 MR. JOSEFIAK: I\'m not an

4 accountant. My point is that that\'s a

5 reasonable accounting method and I think

6 it\'s up the Commission to decide what they

7 would determine to be reasonable and state

8 what a reasonable accounting method was,

9 like in other situations, first-in,

10 first-out, what your normal ÄÄÄÄ people and

11 audit people look to when they are trying to

12 decide whether an RNC or DNC transfer is

13 being used for an exempt party activity that

14 only is allowed to use state-raised federal

15 funds.

16 So To me it\'s no different than

17 what\'s already on the books and it shouldn\'t

18 cause anybody that\'s familiar with the

19 process any more angst than having to set up

20 a segregated, separate account.

21 MR. PEHRKON: Let me follow up on

22 that. So what you are suggesting is the

562

1 Commission might consider establishing a

2 standard for accounting that could be used

3 as an alternative to a separate account?

4 MR. JOSEFIAK: If it felt the need

5 but I would think you would want to rely on

6 reasonable accounting practices and, again,

7 not in the accounting business, I can\'t tell

8 you what that is but either you say you

9 follow reasonable accounting practices or

10 you set up what that standard is so that

11 people know what they have to deal with,

12 certainly.

13 MR. SANDLER: Is the Commission

14 contemplating requiring the establishment of

15 separate Levin accounts by local party

16 committees that are not otherwise political

17 committees? I mean, are they acquired to

18 establish the account, register, and report

19 it even if they don\'t have a federal account

20 that\'s registered and reported?

21 COMM. SANDSTROM: I think the

22 limits of our contemplation are endless.

563

1 MR. PEHRKON: Changing topics now

2 for a second, the Commission has an

3 administrative fine program and the basis

4 for that is that fines are based upon the

5 level of activity of the committee and that

6 is based upon total receipts and total

7 disbursements and they\'re calculated on that

8 basis.

9 My question is is there any reason

10 not to include federal election activity in

11 the total receipts and total disbursements

12 as far as calculating an administrative fine

13 should a committee file its report either

14 late or not at all?

15 I\'m not sure you are familiar with

16 our administrative fine print. The fines

17 are based on a combination of total receipts

18 and total disbursements. The question is

19 with respect to federal election activity

20 should it be included within total receipts

21 and total disbursements for the calculation

22 of that purpose?

564

1 MR. REIFF: I think it should be

2 broken up into two parts because I think for

3 purposes of the regularly filed, say,

4 quarterly reports, assuming the state party

5 still files quarterly, they are still going

6 to have federal disbursements and non-

7 federal disbursements and to the extent I

8 argued in a recent rule making that only

9 federal activity should be considered I

10 think you still have that distinction for

11 regular filed reports. I don\'t see there

12 being a distinction for purposes of federal

13 election activity that would be necessarily

14 inclusive to that analysis.

15 The second question is what will

16 be the Commission\'s approach to committees

17 that don\'t file these monthly reports that

18 are now required. There is no discussion of

19 that in the context of this rule making. I

20 guess that would be more appropriate to your

21 question. That is the disclosure of the

22 federal election activity, yes, so they are

565

1 probably apples and oranges.

2 The administrative filing system

3 as it is currently developed is for the

4 regular filed reports and there we have

5 federal activity, non-federal activity,

6 irrespective of whether it is federal

7 election activity. So I think it is

8 irrelevant for purposes of irregularly filed

9 reports.

10 MR. PEHRKON: I think it\'s

11 interesting that you are not anticipating

12 that these would be included with regularly

13 filed reports for a registered committee.

14 That\'s an interesting take.

15 MR. REIFF: It\'s either federal

16 dollars or Levin dollars or non-federal

17 dollars, I guess. For purposes of the

18 current system for regularly filed reports I

19 would submit that only federal funds,

20 federal activity from the federal account,

21 should be considered for the level of the

22 fine considering that Levin funds and non-

566

1 federal funds only come in in allocation

2 transfers under the current system.

3 Obviously we have yet to see how the

4 Commission is going to approach allocation

5 under the new regulations, so it\'s really

6 premature to try to figure out how that\'s

7 going to play.

8 MR. PEHRKON: Interesting.

9 CHMN. MASON: If Commissioners

10 wish a second round we have some time for

11 that.

12 Commissioner McDonald.

13 COMM. McDONALD: Yes, just

14 briefly, thank you, Mr. Chairman. Mark, if

15 I could go back to the practical aspects of

16 your experience in Michigan and maybe just

17 drawing a little bit off of a question that

18 Commissioner Thomas asked earlier.

19 Clearly one of the things that

20 everyone has told us what not to do, I mean,

21 I thought about yesterday opening up my

22 questions by saying well, what do you think

567

1 the law permits because most everyone has

2 indicated what it doesn\'t permit in their

3 interpretation.

4 The issue is about money and

5 politics and the issue is about where it

6 comes from and how it gets there. In the

7 State of Michigan what does your party

8 budget run? Do you have any idea currently

9 in an election year? What do you raise in a

10 year\'s time?

11 MR. BREWER: It varies

12 considerably from cycle to cycle. Let me

13 try to answer the question this way,

14 Commissioner, to be responsive. Our

15 operating budget for my staff and all the

16 other things that we do in elections is

17 about \$1.5 million a year.

18 In an election year we have spent

19 as much as \$30 million on elections and have

20 spent as few as 3 or 4 million depending on

21 what\'s on the ballot, et cetera, et cetera.

22 COMM. McDONALD: Sure, what\'s at

568

1 stake. In Michigan, and I apologize for not

2 knowing the answer to this, but I gather

3 just from the exchanges around the table. I

4 as, we\'ll say, as a citizen of Detroit, for

5 example, could give \$5 million to the party

6 without any problem, I gather, is that

7 right?

8 MR. BREWER: That would be legal

9 under Michigan law. With all due respect,

10 Commissioner, the earth is not going to fall

11 into the sun. I mean that\'s not going to

12 happen but yes, it\'s legal.

13 COMM. McDONALD: Yes, I can

14 certainly vouch for my own position. You

15 can rest assured of that. I could give you

16 \$5 if I was hard pressed. Obviously, the

17 whole debate, as we all know, is the goal,

18 at least, and I think this is applicable of

19 the six of us, I hope, I think we

20 universally agree on this, is not to punish

21 people that are not familiar with the law.

22 The goal is certainly not to make life

569

1 unbearable.

2 At the same time we are not

3 unmindful that the Congress obviously had

4 some concerns. I mean, I\'m interested when

5 we talk around the table about court cases.

6 Detractors of the Commission always like to

7 bring up cases that the Commission has lost.

8 Others don\'t cite other cases where not only

9 has the Commission prevailed but going to

10 like a case like Shrink Pac, for example,

11 where \$1,000 was at issue.

12 So when you are talking about

13 money and the influence of money overall and

14 where it stands in the process that\'s the

15 over-reaching concern I\'m assuming that the

16 Congress has been trying to get at and they

17 have been debating on the floor for years.

18 Their concern, I gather, is whether in the

19 process the appearance or the influence of

20 money is substantial and may have a

21 disproportionate effect on the political

22 process.

570

1 If I give \$5 million to the

2 Michigan Democratic Party and I have

3 substantial legislation pending before the

4 legislature in Lansing or whatever I may

5 be \--

6 MR. SANDLER: You might have made

7 a very bad mistake in that case.

8 COMM. McDONALD: Well, that\'s

9 possible. That\'s possible but it doesn\'t

10 address the issue. The issue is much more

11 straightforward. One of the things that I

12 have always been concerned about because I

13 take it very seriously, as do all my

14 colleagues, I\'m not for anything that

15 operates in a vein that has a chilling

16 effect.

17 On the other hand I have been told

18 about the chilling effect for 20 years and I

19 have seen money raised in politics just go

20 up exponentially. I mean, if it has been

21 chilling it hasn\'t been here. Now, that\'s

22 different than at the state level, by the

571

1 way. I want to be clear about that. But at

2 the national level, of course, there are

3 record amounts of money raised in each and

4 every cycle and it\'s quite impressive.

5 It is hard to get a balance. I

6 don\'t think I know the answer to the

7 question. I am just trying to come to grips

8 with what the congressional intent is. I

9 think your conversations with Senator Levin,

10 quite frankly, are important. There is this

11 goal of when they were said and so on and so

12 forth. I think that\'s admirable, too, but

13 at the end of the day we have to try to

14 figure it out in terms of what the Congress

15 was trying to do.

16 If you had a \$30 million race

17 where did most of that money go? Did it go

18 the head of the ticket?

19 MR. BREWER: Commissioner, that

20 \$30 million, that was the days of issue ads

21 over the last several cycles. The vast

22 majority of that money was spent on issue

572

1 ads. Make no bones about it. It\'s

2 disclosed in our reports. It\'s no secret.

3 So that\'s what that was for. Those issue

4 ads were up and down the ticket, I might

5 add, not just the top of the ticket.

6 COMM. McDONALD: Thank you.

7 CHMN. MASON: This isn\'t getting

8 any more clear for me but Tom, you offered

9 an analogy for exempt activities in talking

10 about accounting rules and so on. The

11 problem that I see with that is that the

12 funds that a state or local party spends on

13 exempt activities are either reported if

14 they are registered and so on like that or

15 not reported if they otherwise fall under

16 the thresholds.

17 Funds for Levin activities have to

18 be reported and they have to be itemized.

19 Now, if we are going to go in and say well,

20 we will let you have your regular state

21 account or accounts but you just have to be

22 able to show by reasonable accounting method

573

1 that you had enough receipts essentially in

2 amounts under \$10,000 that shouldn\'t be too

3 difficult, I suspect, from most state

4 parties.

5 But how does a party then know

6 when it has gotten a receipt which is

7 covered by the reporting requirements and

8 how they are going to attribute? In other

9 words if we say well, there are no special

10 disclosure requirements or anything like

11 that. They can just go out and generally

12 solicit what would otherwise be non-federal

13 funds and just use them for Levin purposes

14 when they want to and yet they have to

15 itemize receipts down to the \$200 level how

16 will they know which receipts to itemize?

17 MR. JOSEFIAK: Again, that\'s the

18 responsibility of the party to come up with

19 a system that allows them to comply with the

20 law. In that scenario would I encourage

21 them to set up an account? Certainly I

22 would, just like I do for exempt activity.

574

1 But I certainly wouldn\'t want to say it\'s

2 mandatory if the party committee based on

3 its own legal counsel and a system of

4 accounting can determine and report

5 accurately that information that it\'s

6 required to report.

7 I don\'t think you need to take the

8 position that if a party decides to do it

9 that way that it doesn\'t have the capability

10 of making sure that it\'s doing it correctly.

11 CHMN. MASON: You might run into a

12 little problem, though, if you have a

13 quarterly report and you don\'t report any

14 Levin receipts and then suddenly on your

15 post-election report you report a whole boat

16 load of Levin expenditures and suddenly then

17 what do you report for receipts?

18 You may have raised no Levin funds

19 during the few days there before the

20 election that would have been covered. You

21 may have spent a lot. Are you now going to

22 have to go back and amend your report and

575

1 say well, gee, there was a lot of

2 permissible Levin funds that we raised back

3 in September and the early part of October

4 and we didn\'t report them on our quarterly

5 report and we didn\'t report them on our

6 pre-election report but we now want to go

7 back and call them Levin funds because we

8 ended up spending the money that way.

9 MR. JOSEFIAK: I think you are

10 raising hypotheticals. Again, if you

11 weren\'t going to set up a segregated account

12 I would encourage the party as the money is

13 coming in the door to designate as what is

14 Levin money and what is not. I don\'t think

15 you can look at the case of horribles down

16 the line to determine whether you are going

17 to require something. I think you allow

18 that with the understanding that if the

19 person decides to go down that road it\'s

20 their responsibility to make sure that they

21 are complying with every provision that the

22 act would require.

576

1 CHMN. MASON: And if they fail to

2 do that and they have not reported the funds

3 to us as Levin funds when they came in the

4 door would we later permit them to

5 recharacterize them and expend them for

6 Levin expenditures when they failed to

7 comply with the reporting requirements in

8 the first instance?

9 MR. JOSEFIAK: I think that\'s a

10 call you are going to have to make.

11 Whatever you decide you should set down in

12 the rule. I think people have to know what

13 the alternatives are and if they do not set

14 up an account what they are going to have to

15 do and if they don\'t report them in a timely

16 fashion that they may not or may. Those are

17 the kinds of issues that you are going to

18 have to decide but, quite frankly, if they

19 have the money and they are legal under the

20 Levin scenario I don\'t see any reason why

21 you wouldn\'t allow them. They may have a

22 reporting problem, but I don\'t see why you

577

1 wouldn\'t allow them to go back and

2 redesignate if they have the Levin money in

3 their account.

4 CHMN. MASON: Mr. Reiff, please.

5 MR. REIFF: In the alternative you

6 could just require that if a committee fails

7 to establish a separate Levin account they

8 should just have to disclose within the

9 reporting period all funds received that are

10 eligible for use as Levin funds. This way

11 you would get around any problem of evasion

12 of disclosure and it would also give them

13 flexibility to decide whether they would

14 want to do the extra reporting or set up the

15 separate account.

16 But if you used the word \"eligible

17 for\" I think you would get around that

18 problem.

19 MR. JOSEFIAK: Reporting

20 everything.

21 CHMN. MASON: That what I don\'t

22 know, how they would avoid reporting

578

1 everything then and what we would do about

2 that.

3 Commissioner Thomas.

4 COMM. THOMAS: First a couple of

5 observations and then a question. I want to

6 be clear that we all understand that the

7 allocation regulations are the

8 responsibility of Tom Josefiak. I was only

9 a token member of the Regulations Committee

10 back in those years when you passed the

11 allocation regulations.

12 Second, I\'m glad to hear, Mark

13 Brewer, that you are helping Senator Levin

14 by explaining that what he was trying to do

15 was help the various party committees.

16 There was a wonderful TV program, Frasier,

17 where at one point Frasier, who was a real

18 sad sack, had gone over the Europe and he

19 had gone to some soccer games and somehow

20 his name got associated with every failure

21 or missed goal in every soccer game he

22 attended. The whole crowd would chant

579

1 \"Frasier\" every time there was a missed goal

2 and it was totally undeserved and he got a

3 bad reputation.

4 I have this fear that Senator

5 Levin is probably going to have his name

6 taken in vain wrongly. I\'m suggesting we

7 have a gentleman on our staff named Levin

8 and I\'m offering to send him around the

9 country to try to explain our regulations to

10 try to take some heat off Senator Levin.

11 Building fund, let me just ask

12 there is a specific concern expressed in

13 comments about building fund not being a

14 permissible way to build an office building

15 that then rents out space to candidates.

16 There was a story not too long ago about

17 some party official who said we\'ve got to

18 kick all of our candidates out of our office

19 building; we have been renting space to

20 them. Tell me how you think we can allow

21 the party committees to use whatever funds

22 are permissible under state law to set up a

580

1 building and at the same time then to turn

2 around and rent space to the candidates.

3 CHMN. MASON: It was the Indiana

4 Democratic Party, by the way, that made this

5 announcement.

6 COMM. THOMAS: Yes, the Indiana

7 Democratic Party, apparently, one of the

8 State party chairs basically said we\'ve got

9 to kick all the candidates out. We can no

10 longer rent to federal candidates.

11 In the draft regulation we have

12 some language suggesting that a building

13 which is constructed with these building

14 fund allowance monies cannot rent space to a

15 candidate.

16 MR. SANDLER: A federal candidate?

17 COMM. THOMAS: Yes, and the

18 comments we are getting from you say you

19 shouldn\'t be so restrictive. You should let

20 the building fund be used in that regard.

21 Tell me how you get there because the

22 building fund allowance in theory is a very

581

1 discrete, confined allowance to use

2 unregulated money.

3 MR. REIFF: Well, at least with

4 respect to federal candidates I think it\'s a

5 moot point because when the BCRA was amended

6 they took out the requirement that you have

7 to have excess campaign funds to make

8 transfers to state party committees. So

9 presumably under the new law there is

10 unlimited transferability of federal dollars

11 to the federal accounts of state party

12 committees.

13 In that scenario it doesn\'t seem

14 that for a federal candidate it would be

15 problematic. When you come down to state

16 and local candidates it\'s a whole other

17 issue whether you can require it to only go

18 into state and local accounts and whether

19 that is only subject to state law or whether

20 that could be deposited into a federal

21 account as some type of offset.

22 COMM. THOMAS: Maybe depositing

582

1 the money into a different account is a way

2 to allow for something like that to happen?

3 Thank you. It\'s a very technical,

4 difficult issue.

5 MR. JOSEFIAK: Well, I think it

6 goes to the issue that I raised earlier

7 about what kind of receipts are you going to

8 allow a federal committee to accept that

9 would normally be viewed as non-donations or

10 non-contributions because you are paying

11 fair market value for something. You are

12 renting space now. In order to vote the

13 contribution limits, even for a federal

14 account, you are going to have to charge

15 what would be viewed as a fair market value

16 or treated as part of your coordinated or

17 your contribution limits.

18 So there may be some analogies

19 there. If it\'s not going to be viewed as a

20 contribution but other income of a party

21 there maybe tax ramifications but not

22 necessarily FEC-type ramifications.

583

1 COMM. THOMAS: Well, I have

2 comfort knowing that this same fellow,

3 Levin, is responsible for that area. So

4 I\'ll go to him and find out the answer.

5 CHMN. MASON: Commissioner Smith

6 is next.

7 COMM. SMITH: Thank you,

8 Mr. Chairman. Mr. Brewer, I wonder if you

9 just wanted to address any other areas that

10 we have not touched on in terms of their

11 potential effects on state and local parties

12 and, of course, others are welcome to

13 comment.

14 Just a couple of things. Let me

15 start with this one. You note in your

16 comments that only joint fund-raising events

17 would be limited for raising Levin funds,

18 but there would be other types of joint

19 fund-raising activities in terms of parties

20 assisting one another in raising Levin funds

21 that would be allowed.

22 What kind of activities would that

584

1 include, would they be doing, other than

2 joint fund-raising events?

3 MR. BREWER: I\'m sorry. Other

4 than joint fundraising events?

5 COMM. SMITH: Joint fund-raising

6 events, you agree, are prohibited by the act

7 but you suggest that the proposed regulation

8 goes too far to talk just about joint fund

9 raising and you suggest there are other

10 activities that would not be joint

11 fund-raising events that they might be

12 doing.

13 MR. BREWER: Well, all the other

14 methods are used to raise money, a telephone

15 contact, a direct person-to-person contact.

16 COMM. SMITH: Is it done with some

17 regularity? Is that a regular occurrence?

18 Is that a regular way of raising funds?

19 MR. BREWER: Oh, certainly. I

20 raise money on the phone and in direct

21 person-to-person solicitation. That money

22 could go to a local party committee in

585

1 Michigan or perhaps even go to another

2 state. I don\'t see the harm in that because

3 what is being funded here are these grass-

4 roots activities that we\'ve traditionally

5 engaged in.

6 COMM. SMITH: Any other

7 activities? For example, we now know that

8 if you have a staffer who spends more than

9 25 percent of his time doing federal

10 election activity he has to be paid entirely

11 from the federal account. If we\'re going to

12 keep allocation that leaves the time

13 allocation issue for those who are spending

14 less than 25 percent of their time on

15 federal election activity. How big a burden

16 is that on local parties to have to comply

17 with a specific way for accounting for that

18 type of time?

19 Another issue might be it has been

20 proposed in the draft regs that certain

21 types of activities should be coded for

22 reporting purposes. Are these kinds of

586

1 things burdensome to small parties? Have we

2 considered them adequately in that respect?

3 MR. BREWER: Absolutely they\'re

4 burdensome. They\'re burdensome on us as a

5 state party and I have a staff, at least,

6 but, as I indicated in my written comments,

7 fully one-sixth of my staff all they do is

8 compliance and I\'m sure that number is going

9 to increase with these regulations.

10 In an election year I bring on

11 usually at least two more full-time

12 compliance people in order to keep track of

13 this. So, again, at the local level there

14 is just no way people can hire or afford to

15 hire attorneys and accountants and others to

16 do this kind of work nor are volunteers

17 capable or prepared to do it. They simply

18 won\'t do it and they\'ll avoid the activity

19 that\'s associated with it.

20 COMM. SMITH: One other question,

21 perhaps for Mr. Sandler. On building funds

22 is there a reason why or are we limited to

587

1 describing building funds as being available

2 for state organizations that own their

3 building but not those that lease their

4 building? Presumably what that\'s going to

5 mean is that state and local parties which

6 lease a building, which might likely be the

7 poorer parties, parties with less cash, are

8 having to allocate those expenses between

9 hard money and non-federal funds whereas the

10 parties that own their building and in many

11 cases, at least, might be wealthier, better-

12 off parties, are going to be able to pay for

13 their building entirely with non-federal

14 funds. Is there a reason for that

15 distinction?

16 MR. SANDLER: Well, I think yes,

17 as I said, traditionally there was that

18 distinction with the actual building fund

19 exemption in the law. It applied to funds

20 used in connection with the construction or

21 purchase of a building and related fixtures

22 and equipment but not to the leasing.

588

1 Again, I think the key thing to remember is

2 that that\'s where this whole process

3 started.

4 COMM. SMITH: And your

5 understanding is that nothing in the act was

6 intended to change the old building fund

7 exemption for state and local parties or to

8 change the Commission\'s advisory opinions in

9 interpreting that?

10 MR. SANDLER: That\'s exactly

11 right. To the contrary, again, at midnight

12 when all was passed and the Shays-Meehan

13 bill specifically permitted 100 percent

14 non-federal for purchase, even in that case

15 probably lease as well, of equipment by

16 state parties.

17 COMM. SMITH: Thank you.

18 CHMN. MASON: Vice Chairman

19 Sandstrom.

20 COMM. SANDSTORM: It seems to me

21 that with respect to Levin accounts that if

22 a committee wanted to go ahead and if we

589

1 provided them software and they wanted to

2 report all of their receipts and put in the

3 timing of them we could actually do the

4 accounting method with part of our software

5 where you could indicate the software will

6 identify funds that are not eligible. So

7 with respect to whether you have one account

8 or two accounts it seems to me solvable by

9 this Commission by the software we give you.

10 Does that sound correct?

11 MR. BREWER: Commissioner

12 Sandstrom, let me do this delicately. There

13 are places in Michigan where you don\'t have

14 hard line phone service. You\'re talking

15 about software and those kinds of things. I

16 have to communicate with my local party

17 people by phone, by fax, by e-mail, and by

18 snail mail because that\'s simply the world

19 is out there and I don\'t think Michigan is

20 unique.

21 So I appreciate your offer of

22 software but I would say for the vast

590

1 majority of party organizations it makes no

2 difference.

3 COMM. SANDSTORM: I already joined

4 in your view of this. For the vast majority

5 of state and local committees they\'re opting

6 out. I\'m just saying for the more

7 sophisticated players who may want to not

8 have a separate account those larger

9 committees could handle it through software.

10 But most of these local committees are not

11 going to get near Levin funds. That\'s a

12 point that one of our witnesses yesterday,

13 Ben Ginsberg, made, that we\'re holding out a

14 promise of something that will never be

15 realized.

16 One of the interesting questions

17 that came up yesterday, the responses were

18 very intriguing. I asked the first panel

19 yesterday if the Florida Democrats state

20 convention had invited Jesse Jackson down to

21 give a speech and he had gone in and given a

22 speech to the African American caucus of the

591

1 Democrats and he had said you are all

2 leaders in your communities. It\'s important

3 that you go back to your communities and

4 register people to vote. The witnesses

5 yesterday said that would be voter

6 registration activity and the costs of his

7 travel would have to be paid for out of the

8 allocated Levin funds. What\'s your response

9 to that?

10 MR. SANDLER: I mean, assuming it

11 was when the Florida convention did take

12 place, which is within four months \--

13 COMM. SANDSTORM: Within 120 days.

14 The witnesses yesterday were very expansive,

15 too, with respect to what is a two-year

16 cycle they were looking at but let\'s say

17 this takes place within the 120 days. Would

18 there be any way for you even to know what

19 Reverend Jackson would be saying when you

20 invited him?

21 MR. BREWER: No, I mean, frankly,

22 it makes an impossible situation. We\'re now

592

1 going to say that a simple exhortation for

2 people to do their citizens, which is to

3 register to vote and to turn out the vote,

4 is going to become an activity subject to

5 these regulations. There\'s no way to vet a

6 speech in advance. It would just be a

7 nightmare.

8 COMM. SANDSTORM: So you would

9 urge, unlike the witnesses yesterday, that

10 we do define these terms and we define them

11 in a way that really gets not to mere

12 exhortation when it comes to voter

13 registration but to the actual activity of

14 registering people to vote. In this regard

15 a related question is can you please tell me

16 what generic campaign activity is? I have

17 some idea of voter identification, get out

18 the vote, voter registration, and I

19 understand there is a generic message but

20 what is generic campaign activity?

21 MR. BREWER: I don\'t believe

22 there\'s any one accepted definition. We\'ve

593

1 seen a variety of definitions between the

2 regulations and the political science

3 studies and everything else. I don\'t have a

4 simple definition for you here this morning.

5 COMM. SANDSTORM: I imagine you

6 have a lot of unacceptable definitions?

7 MR. BREWER: Yes.

8 CHMN. MASON: Commissioner Toner.

9 COMM. TONER: Mr. Sandler, there

10 has been some controversy over the last

11 couple of days. In fact we received a fax

12 letter from Senator McCain last evening on

13 this issue of leadership PACs, federal and

14 non-federal accounts and national

15 committees. In looking at your comments,

16 particularly pages 5 and 6, I take it that

17 the upshot of the analysis is if we are

18 going to take the position that BCRA permits

19 members to have leadership PACs and raise

20 federal funds in a federal account and then

21 essentially take a second bite at the apple

22 and raise federal funds in a non-federal

594

1 account and basically double the

2 contribution limits for leadership PACs that

3 there is no reason that that same approach

4 shouldn\'t be taken with regard to national

5 committees.

6 Is that a fair reading of your

7 analysis?

8 MR. SANDLER: It is a fair

9 reading. I think the obverse is true, too.

10 I think it would be completely fair for the

11 commission to conclude that notwithstanding

12 Senator McCain\'s efforts to take care of his

13 own leadership PAC and this one floor

14 statement by a single member that it\'s not

15 permitted for leadership PACs or for

16 national parties, either.

17 That would be a completely

18 permissible and appropriate interpretation

19 in our view. Then I think you have to worry

20 about what floor statements of Shays and

21 Meehan, McCain and Feingold. Once you pick

22 and choose I think you come back to where

595

1 the Commission should be which is what is

2 really on the record, what is the real

3 legislative intent, what does the language

4 say, and how do we use our expertise the way

5 the courts expect us to shape these

6 regulations.

7 COMM. TONER: Is it fair then to

8 say that in terms of the plain wording of

9 the statute and the legislative history the

10 one outcome that would be totally

11 inappropriate would be to allow members

12 through leadership PACs to have separate

13 federal and non-federal fundraising but not

14 allow the national parties to do that?

15 MR. SANDLER: If the purpose of

16 this law is to get at the problem of

17 contributions currying favor with federal

18 office holders how could it possibly be a

19 justifiable outcome that this Commission

20 allows Senator McCain to raise soft money

21 but not party committees?

22 COMM. TONER: I have to say I

596

1 think you raise a very critical point. I

2 think it would be ironic at best to allow

3 members to engage in soft money fund raising

4 for their own leadership PACs and then bar

5 that very same activity for national

6 committees that after all are involved in

7 broad-based activities. It would be ironic

8 at best.

9 COMM. SMITH: Commissioner Toner,

10 can I ask you to yield for about ten

11 seconds?

12 COMM. TONER: Yes.

13 COMM. SMITH: I would just point

14 out that I reread today the section which

15 deals with leadership PACs for all those who

16 are really keeping track, and 441(i)(A)(1)

17 for parties and I can see how you might read

18 them either way but I don\'t see any way that

19 you can read them differently, although the

20 language varies in some tiny ÄÄÄÄ.

21 MR. SANDLER: That is exactly the

22 point, Commissioner.

597

1 COMM. SMITH: Thank you.

2 COMM. TONER: Mr. Josefiak, I just

3 wanted to follow up on one thing in your

4 comments. You were talking about the

5 practical challenges for party committees in

6 terms of relationships with certain tax-

7 exempt groups and there are obviously

8 restrictions in BCRA in terms of those

9 relationships if tax-exempt group are

10 involved in federal election activities or

11 federal activities. Is it your view that

12 it\'s critical that we provide a safe harbor

13 in the regulations so that national

14 committees and their officials can

15 reasonably rely on Form 990 filings and

16 other public filings that these non-profit

17 organizations file so that they can make

18 that determination?

19 MR. JOSEFIAK: Definitely, the

20 990, any sort of government form that is

21 publicly available that indicates what they

22 are doing coupled, perhaps, with a memo from

598

1 that particular organization of what their

2 intent is. I think that we would have a

3 responsibility to make sure but any guidance

4 that the Commission could give to give us a

5 safe harbor as to what would automatically

6 qualify as a safe harbor to be able to do

7 that kind of activity would be very helpful

8 and beneficial.

9 COMM. TONER: And is it your

10 judgment based on your experience that if we

11 don\'t do that, if essentially we require

12 national committees to look behind the

13 activities of non-profit groups, that that\'s

14 going to be very impractical?

15 MR. JOSEFIAK: I think it\'s

16 impractical. It also is a negative on the

17 side of the non-profit group as well. I

18 mean, do they want to get involved? It

19 works both ways. There\'s got to be some

20 sort of a mechanism that if you\'re going to

21 be able to do something on behalf of a

22 non-profit that everyone is comfortable both

599

1 from the party perspective and from the

2 non-profit perspective that there is not

3 going to be a legal issue involved here.

4 CHMN. MASON: Mr. Norton?

5 Mr. Pehrkon?

6 Did Commissioner McDonald wish a

7 third bite at the apple?

8 COMM. McDONALD: I just wanted to

9 be sure that I understood what the panel is

10 saying. They are not inferring that members

11 would write a statute that would advantage

12 them over others, are they? Is that an

13 unheard proposition? Is that what people

14 are saying?

15 MR. JOSEFIAK: One way is to

16 define \"leadership PAC.\"

17 CHMN. MASON: This hearing is

18 adjourned.

19 (Whereupon, at 1:23 p.m., the

20 PROCEEDINGS were adjourned.)

21 \* \* \* \* \*

22