UNITED STATES FEDERAL ELECTION COMMISSION (FEC)

PUBLIC HEARING:

PROHIBITED AND EXCESSIVE CONTRIBUTIONS

NON-FEDERAL FUNDS OR SOFT MONEY

Washington, D.C.

Tuesday, June 4, 2002

2

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 \* \* \* \* \*

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20

21

22

3

1 C O N T E N T S

2 SESSION: PAGE

3

Commissioners\' Opening Statements 4

4

5 Morning Panel 28

6

First Afternoon Panel 182

7

8 Second Afternoon Panel 303

9

10

11

12

13

14

15 \* \* \* \* \*

16

17

18

19

20

21

22

4

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

2 (9:35 a.m.)

3 CHMN. MASON: Good morning. The

4 hearing of the Federal Election Commission

5 on prohibited and excessive contributions,

6 nonfederal funds or soft money, will come to

7 order.

8 We have a busy schedule today and

9 so I will make a brief opening statement,

10 recognize any of my colleagues who wish to

11 make opening statements to do so, and then

12 go to our first panel.

13 I\'d like to welcome everybody here

14 today. The proposed rules were discussing,

15 we\'re including a notice of proposed rule

16 making that was published on May 20, 2002.

17 These rules address the changes to the

18 Federal Election Campaign Act under Title I

19 of the Bipartisan Campaign Reform Act of

20 2002, which adds new restrictions and

21 prohibitions on the receipt, solicitation,

22 and use of certain types of nonfederal funds

5

1 commonly referred to as soft money.

2 The NPRM is divided into five

3 major areas: Definitions; the effect of the

4 proposed rules on national party committees;

5 the effect of the proposed rules on state,

6 local, and district committees and

7 organizations; the effect of the proposed

8 rules on tax-exempt organizations; and the

9 effect of the proposed rules on federal

10 candidates and office holders.

11 We appreciate the willingness of

12 the commenters to assist us in this effort

13 by giving us their views on these proposals.

14 We want to thank in particular the witnesses

15 who\'ve taken the time today to give us the

16 benefit of their experience and expertise in

17 this area.

18 I will address the format for the

19 panels when we get to the panels in the

20 event that folks of the afternoon panel

21 aren\'t here yet. I\'ll probably have to do

22 that twice in any case.

6

1 Vice Chairman Sandstrom?

2 COMM. SANDSTROM: Good morning.

3 Congress has passed the Bipartisan Campaign

4 Reform Act. The President has signed it.

5 Subject to judicial review BCRA is now the

6 law of the land. The legislative debate is

7 over.

8 It is now our responsibility to

9 implement the law in the manner that is

10 faithful to its text, attentive to its

11 purposes, and fair to those who are asked to

12 comply. Our foremost obligation is to tell

13 the public how to abide by the law. To the

14 extent there are citizens who are left to

15 speculate about how to organize and

16 participate in politics without running

17 afoul of the law we have failed.

18 As James Madison recognized, the

19 people participating in elections are the

20 indispensable guardians against the inroads

21 of corruption. We would do a disservice to

22 our country if our rules choose ambiguity

7

1 and complexity over clarity and simplicity.

2 Politics cannot be reduced to a game for

3 lawyers. Our rules must strive to

4 encourage, and not deter participation.

5 Whether a citizen is registering a young

6 adult to vote, raising money for a friend to

7 run for office, or driving an elderly person

8 to the polls she needs be confident that she

9 is acting lawfully. Broad and honest

10 participation in politics is vital to the

11 health of our democracy.

12 My remarks are not intended to

13 direct attention away from the important

14 goals of this legislation. Stemming the

15 corrupting influence of money on our

16 politics and restoring the public\'s trust in

17 the integrity of our institutions on which

18 the country is dependent are laudable ends.

19 The challenge to us which was recognized by

20 both the supporters and the opponents of the

21 legislation is to implement the law with

22 those goals in mind without sacrificing

8

1 vibrancy in our elections.

2 This is not a competition between

3 narrow and expansive readings of the law.

4 Rather, the Commission\'s job is identifying

5 those legislative boundaries that remain

6 obscure and turn them into well-marked

7 borders. People on their political strolls

8 must be given a good map by the Commission

9 so that they know when they have wandered

10 into regulated territory.

11 Again, James Madison appreciated

12 our task. He once observed, \"All new laws

13 though penned with the greatest technical

14 skill and passed on the fullest and most

15 mature deliberation are considered as more

16 or less obscure and equivocal until their

17 meanings be liquidated and ascertained by a

18 series of particular discussions and

19 adjudications.\" That discussion starts here

20 today at the Commission. Thank you.

21 CHMN. MASON: Thank you, Mister

22 Vice Chairman. Commissioner Smith?

9

1 COMM. SMITH: Thank you, Mister

2 Chair. I have prepared some remarks which

3 are written out. I\'m just going to touch on

4 a few of those points and I would ask that

5 my full remarks be made part of the record

6 for this hearing.

7 CHMN. MASON: Without objection.

8 COMM. SMITH: I want to thank the

9 witnesses who have come and those who have

10 not come to testify but who prepared written

11 comments for us. They have been very

12 extensive and very helpful and we realize

13 that it had to be done in a very tight time

14 frame so I appreciate that effort.

15 I do think it\'s worth commenting

16 just on a few things that came out in the

17 past week since they were released in a

18 press release and that is that several

19 members of Congress saw those comments and

20 they noted that, \"Only if the Commission

21 adopts the recommendations we make in these

22 comments will the final regulations reflect

10

1 the will of the people of this country.\"

2 I wanted to address that because

3 it goes to the approach that I\'ll be taking

4 to this regulations and future regulations

5 and have taken in past regulations when we

6 have adopted them. I think that in many

7 cases the views of the commenters, the

8 congressmen and senators who wrote this,

9 conflict with virtually all of the other

10 comments that we\'ve received. There are

11 very talented lawyers and experts in

12 election law citing to congressional intent,

13 to the plain language, to policy concerns,

14 and so on, hopefully a broad consensus but

15 quite the opposite.

16 I want to assure all the

17 commenters there that whether they\'re here

18 in person today or not I\'m going to take

19 your comments seriously. In other words I

20 am not going to say that simply because they

21 disagree with the views of four particular

22 congressmen they should be ignored because

11

1 only the views of those congressmen can

2 possibly reflect the will of the country.

3 If that were our position there wouldn\'t be

4 too much reason to solicit comments from

5 anybody else. We could just take those

6 comments and go.

7 Congressional intent we hear a lot

8 about and congressional intent is very

9 important but it\'s not such an easy animal

10 to corral. For example, we\'re told

11 repeatedly that the intent of the bill was

12 to limit so-called soft money to the maximum

13 extent possible and yet we\'re told in

14 comments that have been submitted by the

15 NAACP and the Alliance for Justice that

16 adopting some of the formulations forwarded

17 by the sponsors of the bill will hurt voter

18 registration if it\'s in minority communities

19 while other lawful interpretations of the

20 law would not and I don\'t believe that the

21 majority of the members of Congress intended

22 to cut back on voter registration in

12

1 minority communities and I don\'t believe

2 that that would be a good policy result.

3 So congressional intent is not always quite

4 so clear.

5 I reject the view that the views

6 of the NAACP are to be discounted simply

7 because they don\'t agree with those of four

8 lawmakers. I reject the implication that

9 the views of the Alliance for Justice and

10 the Latino Coalition, of the American

11 Federation of State, County, and Municipal

12 Employees under the AFL-CIO of the state and

13 national parties that represent millions of

14 members are to be ignored every time they

15 raise concerns about these issues that are

16 different from those raised by four members

17 of Congress who claim only if we do what

18 they want can we possibly accomplish what is

19 required.

20 I also note that when we talk

21 about congressional intent that while the

22 views and clear statements of members of

13

1 Congress are very important and should be

2 considered the vast majority of issues that

3 are addressed in these regulations and in

4 particular many of those that have been

5 identified by various commenters as key

6 issues were never debated during the course

7 of the act. I don\'t recall any floor debate

8 on the definition of \"agency.\" I don\'t

9 think there was anything in the

10 Congressional Record suggesting that the

11 legislation was intended to change the

12 definition of \"office facility\" from that

13 used in the Commission\'s past advisory

14 opinions. There was no debate over what it

15 meant for a national committee to indirectly

16 establish, finance, maintain, or control of

17 an entity. So I can\'t really conclude that

18 a handful of post hoc comments are

19 definitive of congressional intent.

20 I think we should also note that

21 in signing the legislation President Bush

22 raised concerns about the constitutionality

14

1 portions of the legislation and while he

2 didn\'t specify exactly which portions he was

3 referring to I think it\'s clearly incumbent

4 on us to take the views of the President

5 into consideration in drafting these

6 regulations. It\'s imperative that we

7 attempt to draft regulations in such a way

8 as to assure that they would be upheld as

9 constitutional. BCRA is not going to

10 accomplish any of the President\'s goals and

11 it\'s not going to accomplish any of

12 Congress\'s goals if the courts refuse to

13 enforce it on constitutional grounds.

14 I also finally note that the

15 lawmakers suggest that if we do not follow

16 their suggestions, it will \"signal a lack of

17 will on the part of the Commission to

18 interpret and enforce the act,\" but on many

19 issues the commenters from across the

20 spectrum are unanimous in suggesting that

21 the regulations are too broad and strict

22 and, as I mentioned, they base these

15

1 arguments on the constitutional, on

2 legislative intent, on rules of statutory

3 construction, and on policy rules and I want

4 to point out that even these four lawmakers

5 in some areas indicate that the draft

6 regulations are overly restrictive as, for

7 example, with the regulations at 300.52 in

8 the draft regulations. So I hope that if I

9 agree with their comments on that and loosen

10 up the regulations they won\'t issue a press

11 release accusing us of opening a loophole in

12 the law.

13 I mention that just to emphasize

14 the fact that the fact that the sponsors of

15 the bill at times have found the draft

16 regulations overly restrictive would put to

17 rest any notion that the FEC lacks the will

18 to enforce the law. These hearings are not,

19 I would agree very much with the vice

20 chairman, about whether we\'re going to have

21 strict enforcement or loose enforcement.

22 They\'re about whether we\'re going to have

16

1 proper enforcement, enforcement that is

2 constitutional, enforcement based on the law

3 that Congress has passed and the President

4 has signed. To that end I will do my very

5 best and I thank the commenters for their

6 help in doing so for the detailed comments

7 they\'ve submitted and for the care which

8 they\'ve given to them I find very helpful

9 and I look forward to hearing the testimony

10 today. Thank you.

11 CHMN. MASON: Commissioner Thomas,

12 do you have an opening statement?

13 COMM. THOMAS: I just am happy to

14 be here and I can tell that we are coming at

15 this with I suppose slightly different

16 perspectives. I do appreciate all the folks

17 who are participating in helping us work our

18 way through this. I am keeping an open mind

19 and I hope all my colleagues will. I like

20 all the commenters and I like all of their

21 views and I\'m not discriminating against any

22 of them.

17

1 CHMN. MASON: Commissioner Toner?

2 COMM. TONER: Thank you, Mister

3 Chairman. I want to thank everyone who

4 provided comments under obviously a very

5 tight time frame regarding this critical

6 rule making. All the comments were very

7 informative and will aid the Commission in

8 deciding upon the final rules that we

9 publish in a couple of weeks on soft money.

10 At the outset I want to express

11 that this is an extraordinary moment in the

12 history of this agency. Congress has passed

13 the most sweeping changes to the federal

14 election laws in a generation and has

15 instructed the Commission to expedite its

16 work to ensure that all the rule makings

17 associated with the Bipartisan Campaign

18 Reform Act are completed by the end of this

19 year.

20 The Congress was wise to establish

21 this very strict deadline because it

22 recognizes that people need to know and need

18

1 to know right now what BCRA does and does

2 not allow them to do and what they have to

3 do to comply with the law. For this to

4 occur the Commission must establish clear

5 and concise guidelines that are

6 understandable to people involved in

7 politics at the grass-roots level across the

8 country.

9 As I have noted before, if we fail

10 to issue clear guidelines we will have

11 failed to perform our core duties as a

12 commission and we will have betrayed our

13 responsibility to implement BCRA in a way

14 that is meaningful and comprehensive to

15 ordinary people who are active in American

16 politics at the national, state, and local

17 levels.

18 Despite this critical imperative

19 there are some among us who argue that there

20 is no need to issue bright line rules, that

21 we should maintain broad prosecutorial

22 discretion, that legal standards are best

19

1 developed after the fact through years of

2 enforcement cases and litigation. I

3 categorically reject this approach. Such an

4 approach would deprive people now of a clear

5 sense of what they can and cannot do under

6 BCRA. Such an approach would leave affected

7 parties in the future at the mercy of the

8 Commission\'s prosecutorial discretion and

9 for the unfortunate ones who became test

10 cases could force them to endure years of

11 invasive discovery and spend hundreds of

12 thousands of dollars in legal fees.

13 But most importantly such an

14 approach would amass a frightening amount of

15 power within this agency to decide who among

16 the body politic has and has not complied

17 with the law. Such an approach in my view

18 is antithetical to our society\'s historic

19 commitment to civil liberties, due process,

20 and prior notice of what is prohibited,

21 particularly whereas here significant

22 criminal and civil penalties can be imposed

20

1 for infractions.

2 That is one reason why I am so

3 heartened by many of the comments the

4 Commission has received supporting the

5 effort to implement BCRA with clear rules

6 and understandable standards. For example,

7 the NAACP National Voter Fund urges the

8 Commission to adopt bright line tests in

9 several key statutory areas and to avoid

10 issue rules that \"unduly hinder the ability

11 of bona fide nonprofit organizations to

12 effectively achieve their nonpartisan

13 missions.\"

14 Furthermore, Nan Aron on behalf of

15 the Alliance for Justice stresses that, \"If

16 the FEC fails to clarify areas of

17 uncertainty in the regulations now it will

18 create confusion and overcautious behavior

19 that will have long-term ramifications for

20 candidates and nonprofit organizations.\" To

21 avoid this outcome the Alliance for Justice

22 calls on the Commission to create several

21

1 key safe harbor provisions to provide much

2 needed clarity to the law.

3 In addition the AFL-CIO in

4 submitting comments urges the Commission to

5 limit the concept of agency in BCRA to

6 individuals who \"have actual express oral or

7 written authority to act on behalf of an

8 individual or entity.\" The AFL-CIO believes

9 that such an interpretation is necessary to

10 \"preserve civic participation in political

11 parties and candidate campaigns\" and to

12 avoid trampling on the ability of people to

13 volunteer for campaigns at the grass-roots

14 level.

15 In light of these and other

16 comments a strong bipartisan consensus is

17 emerging across the ideological and

18 political spectrum among civil rights

19 organizations, nonprofit groups, and labor

20 organizations that it is essential that the

21 Commission issue bright line rules in

22 implementing BCRA.

22

1 Despite this broad-based support I

2 recognize it will be a major struggle to

3 finalize clear and easily understandable

4 rules. Powerful lobbyists and interest

5 groups mainly from Washington will argue

6 that any effort to provide guidance and

7 prior notice will create potential loopholes

8 as if telling people what the law is is

9 antithetical to the law itself. To hear

10 some of these people talk it is as if they

11 proposed to lower the speed limit from 65

12 miles per hour to 55 miles per hour but then

13 refuse to tell anyone what the new limit is

14 and leave it to our prosecutorial discretion

15 to decide later whether someone has broken

16 the law.

17 Given this absurdity one can only

18 conclude that these critics want to keep for

19 themselves and their allies here at the

20 Commission the awesome power to decide later

21 what is legal and illegal under BCRA and in

22 the meantime leave people involved in

23

1 politics uncertain under the threat of

2 government investigation about what they can

3 and cannot to under the law. Such a

4 coercive regime in my view has no place in

5 America, especially when the free exercise

6 of First Amendment rights are at stake.

7 Therefore this agency has no

8 higher duty right now than to issue clear

9 and understandable rules implementing BCRA

10 so that average Americans who thankfully are

11 not lawyers and lobbyists can know what

12 their obligations are under the new law.

13 Many of these people volunteer at the state

14 and local level on their own time during

15 nights, weekends, whenever else they can,

16 for the candidates, parties, and causes of

17 their choice. They are a part of

18 grass-roots American democracy. Providing

19 them with clear rules is not a loophole. It

20 is a civic duty. We will have failed as a

21 commission if we do no less. Thank you,

22 Mister Chairman.

24

1 CHMN. MASON: Thank you,

2 Commissioner Toner. I know that

3 Commissioner McDonald joins me in the

4 thanksgiving for the nonlawyers.

5 Commissioner McDonald?

6 COMM. McDONALD: Mister Chairman,

7 thank you. I deliberately don\'t have a

8 prepared statement. I\'d simply say several

9 things. One is that I think there is

10 universal agreement around the table that

11 people are interested in clear rules and I

12 think clarity ironically gets you out of the

13 system of where you have a number of

14 exceptions so we\'ll see how this evolves

15 both today and tomorrow.

16 Historically what has happened at

17 this Commission, of course, is that the

18 reason people are somewhat confused as some

19 of my colleagues have alluded to is that

20 we\'ve had a number of exceptions over time

21 that we continually carve out and, of

22 course, it makes it more and more difficult

25

1 for people to understand what they can and

2 cannot do.

3 Let me thank the individuals who

4 have not only appeared today and will appear

5 tomorrow but also all the other written

6 comments that we have received. They are

7 helpful. They\'re extremely helpful. It\'s

8 going to be a very important two days, as

9 Commissioner Toner pointed out, and I would

10 be remiss if I didn\'t thank the staff

11 because, again, they have been under an

12 incredible burden and have worked literally

13 around the clock to be prepared for the

14 sessions today and tomorrow. I\'ll publicly

15 apologize to Rosie Smith, who I called about

16 43 times looking for the documents for

17 today. So I appreciate all the hard work.

18 I look forward to the morning

19 session, Mister Chairman. I don\'t come with

20 preconceived ideas. I would say, though,

21 that I think everybody, and I mean this very

22 seriously. I don\'t know of anybody that is

26

1 not for clarity around the table. The issue

2 is what does that encompass.

3 CHMN. MASON: Thank you,

4 Commissioner McDonald. I\'d like to invite

5 our first panel to come forward. It

6 consists of people well known to all of us

7 here on the Commission, the Honorable Trevor

8 Potter, former member and former chairman of

9 the Commission. I think we\'ve got

10 microphones in front of our chairs and if

11 there are four of you get in front of those

12 if that will work. If you want to move the

13 microphone back that\'s fine but particularly

14 at least the three who are going to be

15 making opening statements should get in

16 front of a microphone.

17 Larry, why don\'t you leave that in

18 front of Don for now and then guess maybe we

19 can switch it back if Paul wants to get in

20 later on? Thank you.

21 Don Simon, representing Common

22 Cause and Democracy 21; Larry Noble, former

27

1 general counsel of the agency and now

2 executive director of the Center for

3 Responsive Politics; accompanying him, Paul

4 Sanford, director of the center\'s FEC Watch

5 program. A welcome to you all.

6 Our format, we\'ve got two hours

7 scheduled for this panel. I\'d like to

8 invite each of the three principal

9 presenters to make an opening statement of

10 five minutes. We\'ll then go to questions

11 from commissioners, from the general

12 counsel, and from the staff director if he

13 requires. On our first round of questions

14 we\'ll have a 10-minute period for asking

15 questions.

16 We do have a new light system

17 which will give you a green light for 4-1/2

18 minutes and a yellow light for 30 seconds.

19 By all means feel free to complete your

20 thoughts. At the end of that period I can

21 disable the buzzer as well as the ejection

22 seat but that will help keep us on schedule

28

1 given the busy schedule we\'ve got over the

2 next few days.

3 I\'d asked the panel to make some

4 kind of arrangement as to who would like to

5 go first and everyone is pointing at Trevor.

6 Commissioner Potter?

7 MR. POTTER: Good morning, Mister

8 Chairman, members of the Commission. It is

9 a pleasure to be here this morning to

10 comment in this rule making.

11 I would like to start personally

12 by saying that I understand and therefore

13 greatly appreciate the hard work that has

14 gone into the preparation of these first

15 draft rules. I know it\'s been an incredibly

16 concentrated task as it has been in

17 attempting to comment on the draft rules but

18 I think the Commission has done a very good

19 job in a very short time period,

20 particularly on the soft money rules with

21 their expedited schedule as mandated by

22 Congress.

29

1 As the chairman noted, I\'m here

2 testifying on behalf of the Campaign and

3 Media Legal Center, which is associated with

4 the University of Utah. I am here with Glen

5 Shore, the associate legal counsel of that

6 center. Glen has joined us recently after

7 serving on the Hill, and I wanted to

8 emphasize that he is here representing and

9 testifying as a lawyer for the center and

10 not on behalf of anyone else for whom he has

11 worked in the past.

12 What we face today in the specific

13 hard money section of the bill is an attempt

14 to ensure that the hard money/soft money

15 division created by Congress in this new

16 bill is effectively implemented, that the

17 integrity of the soft money ban is retained.

18 This is a provision that we all recognize

19 was hard fought in Congress. There is no

20 point in ignoring that. It was a matter of

21 great dispute. There were several years of

22 congressional debate in both houses.

30

1 Ultimately a bipartisan majority

2 of the House approved the bill, a

3 supermajority of the Senate voted to close

4 debate, and it was signed by President Bush,

5 who had throughout his campaign and

6 presidency supported a full ban on corporate

7 and union soft money dollars to the national

8 party committees.

9 There are dangers that the

10 Commission faces in this rule making and I

11 think those in particular include the

12 dangers of attempts to unwrite the law, to

13 evade its provisions, to recreate the

14 current system of nonfederal dollars raised

15 and spent to influence federal elections, so

16 I would urge you to ensure that the law is

17 not unraveled through the regulatory

18 process.

19 I note that there is a range of

20 comments before you, some of which in our

21 formal comments we have addressed the same

22 issues. In particular there are comments

31

1 from parties suggesting that there be a

2 narrowing of the regulation of state party

3 activity in connection with federal

4 elections.

5 There are comments from nonprofits

6 that suggest that there should be a

7 continued unlimited office holder role in

8 raising funds for voter activity, this

9 despite the fact that the bill contains very

10 specific restrictions on a range of office

11 holder and candidate fund raising for

12 nonprofits that engage in such voter

13 activity. And there are comments from a

14 national party committee suggesting allowing

15 continued nonfederal accounts in soft money

16 fund raising for what are claimed to be

17 nonelection activities.

18 I think the latter comments cite

19 statements by Senator McCain in the floor

20 debate which I thought was a nice touch. I

21 also thought Senator McCain\'s letter to the

22 Commission of yesterday did a pretty good

32

1 job of indicating that he was neither the

2 source of that nor was the act itself the

3 source of such a suggestion.

4 Congress did not act in a vacuum

5 which I think it\'s important to note given

6 that you will be hearing after this panel

7 for the next day and a half from party

8 committees and others who in many cases

9 would prefer the law had not been passed.

10 Congress was dealing with the fact that over

11 the last number of years presidential

12 campaigns have raised and spent money

13 through state parties culminating in the \'96

14 activities, that there have been joint fund

15 raising abuses in terms of federal

16 candidates raising money for state parties

17 when that money is intended and is in fact

18 spend on behalf of the federal candidates in

19 general election activities, so the issues

20 that are before you were specifically

21 considered by Congress in terms of

22 eliminating what Congress decided were

33

1 abuses of the federal election laws and of

2 the limits.

3 I do believe it is appropriate to

4 give substantial weight to the comments of

5 the principal congressional sponsors of the

6 law because they have accepted the

7 Commission invitation to comment on this and

8 they I think better than anyone else know

9 what they proposed and what they intended

10 their bill to accomplish.

11 Other commenters have opposed the

12 bill at every stage of the process through

13 congressional consideration. It is, of

14 course, their right to do so but, that being

15 the case, I respectfully suggest they may

16 not be the most sympathetic commenters to

17 the purposes the new law is intended to

18 accomplish.

19 I see my time has expired so I

20 thank you very much.

21 CHMN. MASON: Thank you,

22 Commissioner Potter. Larry Noble will be

34

1 next.

2 MR. NOBLE: Thank you, Mister

3 Chairman, Mister Vice Chairman, members of

4 the Commission, Mister General Counsel,

5 Ms. Smith. On behalf of the Center for

6 Responsive Politics and FEC Watch I\'m

7 pleased to be here today to testify on this

8 very important rule making which is the

9 first phase of the ruling making to

10 implement BCRA. I am the executive director

11 for the Center for Responsive Politics and

12 was mentioned Paul Sanford is with me and he

13 is the director of FEC Watch.

14 The FEC has embarked on a rule

15 making that is critical to the

16 implementation of the first major revision

17 of the campaign finance laws in over a

18 quarter century. The debates regarding the

19 merits of the constitutionality of BCRA have

20 been passionate and marked by widely

21 divergent opinions; however, now that

22 Congress has passed BCRA, President Bush has

35

1 signed it into law, and the issues of its

2 constitutionality are in the hands of the

3 courts the FEC\'s task is to enact

4 regulations that effectively implement the

5 law.

6 In so doing the Commission should

7 remain focused on the touchstone of the

8 legislation that the national party

9 committees shall not raise or spend soft

10 money, that is, money outside of the

11 prohibitions and limitations of the federal

12 campaign finance laws, and only money raised

13 by state and local party committees under

14 those laws can be spent to influence federal

15 elections. This is in keeping with what in

16 1957 the Supreme Court called the long

17 series of congressional efforts calculated

18 to avoid the deleterious influences on

19 federal elections resulting from the use of

20 money by those who exercise control over

21 large aggregations of capital.

22 It is clear from the comments

36

1 filed to date that the party committees and

2 others are resistant to change that will

3 limit access to large contributions or limit

4 their influence and they want the law

5 interpreted narrowly. This is

6 understandable. They like the status quo.

7 In fact the party committees appear to be of

8 the view that the appropriate response to

9 Congress tightening the campaign finance

10 rules of BCRA is for the FEC to read those

11 rules as covering as little as possible and

12 to relax the existing prohibitions and

13 limitations everywhere it can.

14 This is reflected in several of

15 their arguments, including their view on the

16 definitions of \"agent\" and the phase

17 \"promote, support, attack, or oppose\" as

18 well as in their attempt to get the FEC to

19 allow them to finance with all soft money

20 that which present law requires to be paid

21 for with at least some hard money.

22 I want to say at this point no one

37

1 opposes clear rules. An agency should work

2 for clear rules. I think that\'s a given.

3 But clarity should never become a cover for

4 going against the intent of Congress. As

5 the Supreme Court recognized a long time

6 ago, there\'s a limit in the English language

7 to what you can say to be clear and still

8 effectuate an act. I often feel that this

9 argument about clarity and about everybody

10 knowing what the law is is a way of just

11 saying we really can\'t have any law that

12 anybody can walk forward with and say I

13 don\'t understand it because, of course, they

14 are chilled. As the court once also said,

15 just because someone comes into court with

16 an overcoat doesn\'t mean they\'re chilled.

17 The FEC must resist these calls to

18 eviscerate the new law right out of the box

19 and avoid becoming an instrument by which

20 the law is narrowed, carved up, and rendered

21 ineffective. In their arguments the party

22 committees are ignoring what the Commission

38

1 cannot, the fact the purpose of the BCRA is

2 not just to reduce the impact of soft money

3 on federal elections, as one party committee

4 stated, but to eliminate the role of soft

5 money in federal elections. Whether or not

6 you agree with this goal or believe that it

7 will ever be accomplished it is the goal of

8 the law and it is the result the FEC must

9 seek.

10 With regard to the constitutional

11 issues I am in full agreement that the

12 agency can and should take constitutional

13 concerns into effect but, like with clarity,

14 there\'s a limit to that. I don\'t believe

15 this agency or any agency has the authority

16 to say that because it believes a law will

17 be unconstitutional it will go against the

18 clear intent of the Congress and the clear

19 language of the law. That is for the

20 courts, not for the agency. We urge the FEC

21 to breathe life into BCRA and give the new

22 law every chance to work as intended.

39

1 I also want to take the

2 opportunity to thank the staff for all their

3 hard work. I know very much how hard it is,

4 all the nights that they worked late, and I

5 think they\'ve done a fantastic job. With

6 that I will end and gladly answer any

7 questions you have or attempt to answer any

8 questions that you have.

9 CHMN. MASON: Thank you,

10 Mr. Noble. Mr. Simon?

11 MR. SIMON: Thank you, Mister

12 Chairman, members of the Commission. I

13 appreciate the opportunity to testify today

14 on behalf of Common Cause and Democracy 21.

15 As we noted in our written

16 comments, both organizations are

17 long-standing proponents of the reforms

18 enacted in the Bipartisan Campaign Reform

19 Act. I have great respect for the

20 magnitude, technical complexity, and

21 importance of the rule making task before

22 the Commission. None of this is made easier

40

1 by the fact that this rule making must be

2 done in an expedited fashion or by the fact

3 that there are six other tracks of BCRA rule

4 making that the Commission will

5 simultaneously pursue or by the fact that

6 the Commission is also engaged in complex

7 but expedited litigation in defense of the

8 statute. But having noted why the

9 Commission\'s job in this rule making is so

10 hard, let me suggest a way to make it easier

11 by focusing on two issues that this rule

12 making is not about.

13 First, this rule making is not

14 about revisiting the policy choices made by

15 Congress in enacting the BCRA. Many of the

16 comments filed seek to persuade the

17 Commission that Congress chose poorly and

18 that the Commission should effectively

19 rewrite the statute in a way that would

20 violate both the language and the intent of

21 the law. In this sense many of the comments

22 are best directed not to the Commission, but

41

1 to the Congress. They seek to revisit

2 political battles that were played out in

3 the halls of Congress over several years.

4 These arguments were raised in Congress and

5 Congress chose otherwise. Whether you agree

6 with the statute or not you must respect the

7 policy decisions made by the Congress.

8 Second, this rule making is not a

9 forum for the resolution of the

10 constitutional claims against the statute.

11 Many of the comments seek to persuade the

12 Commission that provisions of the statute

13 are unconstitutional. Those claims should

14 not be considered by you. As you know,

15 there is an expedited litigation in the

16 federal courts in which all of the claims

17 have been raised. We all hope to have a

18 definitive Supreme Court ruling on these

19 issues in about a year from now. Until then

20 you and your lawyers are defending the

21 constitutionality of the statute and for

22 purposes of this rule making you should

42

1 accord the law the presumption of

2 constitutionality that is afforded any duly

3 enacted law unless and until the courts and

4 in this case the Supreme Court says

5 otherwise.

6 If you properly bound your job in

7 both these ways by setting aside what are

8 just policy disagreements about the law, and

9 by setting aside constitutional objections

10 which are not properly before you you are

11 left with the more manageable task of taking

12 the language of Title I and the clear

13 congressional purpose behind that language

14 and seeking in good faith to give best

15 effect to what Congress is trying to

16 achieve. To this end we believe that the

17 comments submitted by the principal

18 cosponsors of the law should be taken as

19 authoritative and particularly instructive.

20 To properly implement the statute

21 there are several key points on which the

22 proposed regulations must be strengthened

43

1 and I want to just briefly mention three of

2 them. First, the definition of \"agent\" has

3 generated much comment. The proposed

4 regulations too narrowly limit the

5 definition of \"agent\" to only those who have

6 expressed an actual authority to act on

7 behalf of a party or candidate. A

8 definition this narrow will almost surely

9 allow parties and candidates to engage in

10 the very activities that are banned by BCRA

11 through the use of agents in fact who are

12 operating with the apparent authority but

13 who may not have been expressly authorized

14 to do so.

15 A far better approach is already

16 contained in the definition of \"agent\" in

17 the Commission\'s existing Part 109

18 regulation and the Title I definition should

19 be modeled on this. We see no good reason

20 for departing from a definition the

21 Commission has used for years and with which

22 the regulated community is familiar.

44

1 Second, the proposed definition of

2 \"promote, support, attack, or oppose\" is too

3 narrow and based on the wrong model. In

4 defining the third prong of federal election

5 activity Congress clearly drafted a

6 provision that extends beyond expressed

7 advocacy in order to address the patent

8 abuse of sham soft money issue ads by

9 parties. To collapse that definition back

10 into the confines of an expressed advocacy

11 test was clearly contrary to the language of

12 the statute and the intent of Congress.

13 Third, the proposed rules

14 incorrectly permit state parties to use

15 exclusively soft money to fund activities

16 which are currently subject to allocation

17 but which are not defined as federal

18 election activities. This turns BCRA on its

19 head by taking a law intended to strengthen

20 the protections against the use of soft

21 money in federal elections and applying that

22 law to weaken those protections. There is

45

1 nothing in the BCRA that supports the

2 position that the current allocation

3 requirements are generally repealed. The

4 current requirements form the backdrop of

5 law against which Congress legislated, and

6 those current requirements should be

7 maintained as supplemented by the additional

8 rules imposed by Title I. Thank you.

9 CHMN. MASON: Thank you,

10 Mr. Simon. I believe I have distributed to

11 my colleagues a rotation order for the

12 questions and I had unintentionally followed

13 the order for the first panel and the

14 opening statements but we\'ll stick with that

15 and first recognize Vice Chairman Sandstrom.

16 COMM. SANDSTROM: I\'d like to

17 thank the gentlemen for appearing today.

18 It\'s hard to imagine a more distinguished

19 panel of lawyers who helped with respect to

20 this legislation.

21 Let me begin by clearly stating

22 that the examples I employ this morning are

46

1 pure inventions. The conversations I posit

2 never took place. I have borrowed real

3 people only to give my fiction the feel of

4 reality and so I may use some hypotheticals

5 that I hope strike people as apposite and my

6 comments are really going to be addressed to

7 Section 323(e) and (f) of the statute

8 because I think that brings out a lot of the

9 concerns that have been expressed.

10 But to speed this along with my

11 first example would the members of the panel

12 believe that Karen Hughes is an agent of the

13 President of the United States? Mr. Potter.

14 MR. POTTER: I guess since she\'s

15 left the White House I don\'t know the answer

16 to that.

17 COMM. SANDSTROM: Mr. Simon.

18 MR. SIMON: Probably not since

19 she\'s no longer in the employ and as far as

20 I know is not working on behalf of the

21 President but I don\'t know the facts of what

22 she is doing.

47

1 COMM. SANDSTROM: Mr. Noble?

2 MR. NOBLE: I\'d have to give the

3 same answer. I\'ve heard that she\'s still

4 going to be working on the campaign. It

5 would depend on the specific facts of what

6 she\'s doing.

7 COMM. SANDSTROM: So she\'ll have

8 to call Ben Ginsberg, I guess, to find out

9 if she\'s an agent?

10 MR. NOBLE: No, she actually may

11 know the facts herself sufficient to let her

12 know whether she\'s an agent. I just don\'t

13 know them.

14 COMM. SANDSTROM: She may know all

15 the facts but she may not know the law.

16 Karen Hughes is in an airport, Washington

17 National. She\'s in the American Airlines

18 lounge. In walks Senator Gramm of Texas and

19 they sit down and they begin a conversation

20 and she asks the senator where he\'s going

21 and he replies he\'s going to go down and see

22 the governor and she says you ought to. You

48

1 know a number of people around the governor

2 are saying you haven\'t lifted a finger for

3 the governor\'s campaign. And he said I\'m

4 going to get that corrected.

5 And she said it\'s not just

6 correcting the impression. You\'re going to

7 need to deliver. He says yes, I\'m going to

8 deliver. Don\'t worry about that, Karen.

9 And she said the President\'s concerned about

10 that race down there.

11 Now, is she soliciting money for

12 the governor? Mr. Potter.

13 MR. POTTER: Well, first off, as

14 you know the question would be, as you\'ve

15 indicated, whether she\'s acting as an agent

16 on behalf of the President. Beyond that I

17 didn\'t hear anything that you said that

18 indicated she was soliciting money.

19 COMM. SANDSTROM: So she isn\'t

20 soliciting money but Senator Gramm is known

21 as a prolific fund-raiser. When asked in

22 the court of politics your people aren\'t

49

1 lifting a finger. A lot of people

2 understand when you\'re not lifting a finger

3 that means you\'re not raising money. That

4 doesn\'t mean he\'s not down there handing out

5 pamphlets.

6 MR. POTTER: But when I last

7 looked he was also a United States senator

8 who had great standing in Texas and might be

9 supposed in your example to be out

10 campaigning for the governor.

11 COMM. SANDSTROM: So the

12 commission shouldn\'t look behind that kind

13 of conversation. That would not be a

14 solicitation of support. Would you agree

15 with that, Mr. Simon?

16 MR. SIMON: Yes, I mean, again,

17 reserving the question of whether she\'s

18 acting as an agent and therefore whether

19 it\'s within the statute at all I think

20 that\'s fine.

21 COMM. SANDSTROM: As I understand

22 it you\'re arguing about the appearance of

50

1 agent. It\'s hard for me to imagine who

2 would appear more likely to be an agent of

3 the President of the United States in Texas

4 than Karen Hughes.

5 MR. SIMON: Well, I mean, I take

6 her comments at face value where I believe

7 she said she was returning to private life

8 because she wanted to spend time with her

9 family and \--

10 COMM. SANDSTROM: She also said

11 she\'s returning to active politics.

12 MR. SIMON: Well, again, that\'s

13 why I think the facts of the situation are

14 important.

15 COMM. SANDSTROM: If she was

16 returning to active politics generally in

17 Texas and not specifically working for the

18 President then she would be an agent of the

19 President. What does it mean specifically

20 for the President? The President is very

21 concerned about winning that gubernatorial

22 race.

51

1 So let\'s understand the law

2 because we may not be very far apart. Karen

3 Hughes can return to Texas, turn to all the

4 people who were pioneers in the Bush

5 campaign, and raise money for Governor

6 Perry\'s election. Is that correct,

7 Mr. Potter?

8 MR. POTTER: I\'m sorry, may she

9 return to Texas and raise money for the

10 governor? Of course.

11 COMM. SANDSTROM: And she can

12 raise money from pioneers for the governor\'s

13 campaign?

14 MR. POTTER: I assume under Texas

15 law she can raise money from a whole range

16 of people for the governor\'s campaign.

17 COMM. SANDSTROM: Well, with

18 respect to people learning about who\'s an

19 agent, who\'s not an agent I\'m not sure we\'re

20 that far apart if she hasn\'t been vested

21 with the authority so I think that\'s very

22 useful for us in trying to craft a

52

1 definition of \"agent\" to recognize that law

2 should open up the possibility that someone

3 like Karen Hughes is not an agent.

4 Let me move to another example

5 because I don\'t have a good deal of time

6 here. Jesse Jackson, who\'s another example,

7 goes down to the Democratic State

8 Convention, paid to go down there by the

9 Florida Democrats, goes into an African

10 American caucus and says it is critical that

11 you go out and register people to vote, all

12 leaders in your community go out and

13 register people to vote. Is that a voter

14 registration activity, Mr. Potter?

15 MR. POTTER: He\'s not, as I hear

16 your hypothetical, a party so he\'s an

17 individual.

18 COMM. SANDSTROM: But he\'s being

19 paid by the Democrats to come down and give

20 a speech.

21 MR. POTTER: I\'m sorry, what is

22 being paid for? His speech is.

53

1 COMM. SANDSTROM: He\'s paid to

2 come down and give a speech and to go around

3 and encourage African American leaders in

4 Florida to \--

5 MR. POTTER: Sure. If the state

6 party spends money to pay somebody to

7 register people to vote that is a \--

8 COMM. SANDSTROM: He doesn\'t

9 register. It\'s to encourage people in the

10 room to go back to their communities and

11 register people to vote.

12 MR. POTTER: If the state party

13 spends money to encourage people to register

14 to vote that is a registration activity of

15 the state party.

16 COMM. SANDSTROM: So they better

17 get a copy of the speech beforehand.

18 Mr. Simon, is that your understanding?

19 MR. POTTER: I\'m sorry. Why do

20 they need a copy of the speech beforehand?

21 COMM. SANDSTROM: Because they

22 don\'t know what he\'s going to say to the

54

1 African American caucus. Having worked in

2 politics, that\'s often the case. Mr. Simon.

3 MR. SIMON: If he is engaged in

4 activities promoting voter registration that

5 would be a voter registration activity.

6 COMM. SANDSTROM: Mr. Noble?

7 MR. NOBLE: I agree with that.

8 COMM. SANDSTROM: Let me give you

9 a third example. Running for attorney

10 general in the State of Nevada. Everyone in

11 Nevada cares about Yucca Mountain. It\'s

12 going to cut through every statewide

13 election, Yucca Mountain. An ad is run. It

14 says I will work with Senator Reid and

15 Senator Ensign to prevent Nevada from

16 becoming the nation\'s nuclear dump. On this

17 issue the President is horribly wrong. The

18 lives of generations of Nevadans yet to be

19 born should not be put at risk. Together we

20 can send a strong message to the President,

21 Nevadans don\'t forget.

22 Is that the type of ad that is

55

1 covered as public communication and that

2 that state candidate would have to pay for

3 those monies that were reported to the

4 Federal Election Commission and subject to

5 limitations? Mr. Potter.

6 MR. POTTER: Well, it certainly

7 mentions a federal candidate so I would say

8 yes.

9 COMM. SANDSTROM: Mr. Simon?

10 MR. SIMON: I agree.

11 MR. NOBLE: I agree.

12 COMM. SANDSTROM: Mr. Noble.

13 MR. NOBLE: Agree.

14 COMM. SANDSTROM: Let me get to

15 what a get out the vote activity is, another

16 example, because from your comments I

17 understand there shouldn\'t be any temporal

18 limits on when the get out the vote activity

19 occurs, and that it\'s a matter of contacting

20 voters to encourage them to get out to vote.

21 Is that a fair summary of how get out the

22 vote is to be understood, Mr. Potter?

56

1 MR. POTTER: I think get out the

2 vote is contacting voters and encouraging

3 them to vote, yes.

4 COMM. SANDSTROM: Mr. Simon.

5 MR. SIMON: Well, yes, I agree

6 with that but I would also add that my

7 understanding is that that term in BICRA

8 means whatever it means in the Part 106

9 regulations that the commission has been

10 applying for years. That\'s a \--

11 COMM. SANDSTROM: Is that defined

12 in those regulations?

13 MR. SIMON: It\'s not but the

14 commission has been applying that term for

15 two decades, I assume, and I assume the

16 regulated community similarly is familiar

17 with what that term means.

18 COMM. SANDSTROM: Mr. Noble.

19 MR. NOBLE: I agree with that and

20 I also agree with what Mr. Simon just said.

21 There are a lot of phrases in the statute

22 and the regulations that an agency is

57

1 required to interpret and interpret it in

2 the context of specific facts. If that

3 wasn\'t the requirement there\'d be no reason

4 for an agency. I mean, it\'s one of the

5 things an agency does. So the fact that

6 people can raise questions doesn\'t

7 necessarily mean that there is any vagueness

8 or problem with that. I think it\'s the same

9 definition that the commission\'s been using

10 for 20 years.

11 COMM. SANDSTROM: Yes, and which

12 all of us are having difficulty locating,

13 including the members of the commission.

14 Let\'s explore that for one moment, which is

15 my last question.

16 So if someone sends out in the

17 mail a piece of literature that says vote

18 for Governor Davis it\'s contacting voters,

19 encouraging them to vote. That\'s get out

20 the vote activity. That\'s contacting voters

21 with a message to vote and therefore it

22 wanders into the territory of get out the

58

1 vote?

2 MR. SIMON: Well, may I?

3 COMM. SANDSTROM: Yes.

4 MR. SIMON: My reaction to that

5 question is I think that defines the very

6 narrow line between what is considered get

7 out the vote activity and what is considered

8 candidate advocacy for a state candidate.

9 But, again, I want to emphasize the point

10 that wherever that line is it\'s not a

11 problem created by this statute. That line

12 has been in the commission regulations for

13 years and years and years and that line is a

14 question under current law between get out

15 the vote activity that must be allocated and

16 candidate advocacy for a state candidate,

17 which is not subject to allocations. So,

18 again, wherever the commission has drawn the

19 line I think Congress was just adopting the

20 same line.

21 COMM. SANDSTROM: I understand you

22 think there\'s a line in the current law but

59

1 you have to realize the current law is an

2 exemption from the definition and then it

3 doesn\'t include things that otherwise could

4 be considered get out the vote, including

5 the distribution of volunteer-type

6 pamphlets.

7 So I thank the chairman. My time

8 has expired.

9 CHMN. MASON: Commissioner Smith.

10 COMM. SMITH: Thank you,

11 Mr. Chairman. I just first want to say I

12 very much appreciate the comments of all

13 three of your organizations. Particularly

14 the comments from the Center for Responsive

15 Politics and Common Cause were among the

16 most extensive and detailed we received and

17 I found them very helpful and all three sets

18 were helpful but those two in particular for

19 their tremendous detail.

20 It\'s good to see you all again and

21 Mr. Simon in particular I haven\'t seen. I

22 think the last time I saw you we were

60

1 sitting next to one another at one of these

2 tables as witnesses, so it\'s been quite a

3 while.

4 MR. SIMON: But still disagree.

5 COMM. SMITH: That\'s right.

6 By the way, I\'ll also just add to

7 that, Mr. Simon, I agree one of the things

8 you mentioned in your opening comments is

9 this is not the place to revisit policy

10 choices of Congress where those choices are

11 clear and I think you\'ll find that people on

12 the commission would agree that there are a

13 number of times as these regulations were

14 going through drafts and so on where people

15 would say well, Congress could have intended

16 that and my response is often well, they

17 voted for it and that\'s what I intend to

18 look at is what\'s in the language of the

19 act.

20 I\'ll start briefly with a question

21 for you, Mr. Potter. You mentioned the fact

22 that you don\'t agree that national parties

61

1 could have both a nonfederal and a federal

2 account. And that suggestion, I believe,

3 came from an interpretation of the draft

4 regs. I think they were suggesting that a

5 leadership PAC should have such accounts

6 which was not really my understanding of

7 what the draft regs did. Is it your

8 understanding that the draft regs or that

9 the law should allow leadership PAC to

10 maintain and take maximum contributions for

11 both a federal and nonfederal account?

12 MR. POTTER: My understanding,

13 first off, and the reason for my comments is

14 that I think the law establishes very

15 different rules for national party

16 committees than it does for activities by

17 members of Congress. Now, members of

18 Congress under the act may solicit funds for

19 state and local election activity but they

20 are limited in that those solicitations may

21 not be more than they could solicit for a

22 federal activity. So if they are soliciting

62

1 for a political organization that engages in

2 state and local activity, not a federally

3 registered activity, they may solicit for

4 that organization but up to the amount they

5 could solicit for a similar federal so that

6 would be \$5,000.

7 COMM. SMITH: Total for the

8 organization, not 5,000 for one account and

9 5,000 for another? Could they solicit for

10 both?

11 MR. POTTER: Well, the way I read

12 the act it says 5,000 for the state and

13 local activity and I believe that Senator

14 McCain in his floor comments specifically

15 addressed that and said that that would

16 allow a member of Congress to solicit \$5,000

17 in federal money for a PAC, to raise 5,000

18 in federal money, and that would allow the

19 same member to raise up to \$5,000 in

20 nonfederal money if that was used for state

21 and local political activity.

22 COMM. SMITH: Well, there you go.

63

1 Once again I see we\'re going to have to

2 start opening up loopholes because that was

3 not what I was thinking, but thank you.

4 That\'s helpful to know.

5 Let me ask you another question

6 about transition. This was a hot issue, of

7 course, when it was debated. After November

8 6th national party committees may spend

9 remaining nonfederal funds under the act

10 only to retire debts or pay bills stemming

11 from the 2002 elections. Now, that\'s been

12 somewhat of an issue but here\'s a related

13 issue. Do you think that national parties

14 should be able to or that the commission

15 would have the authority, to restrict the

16 ability of a national party to prepay

17 expenses for future elections prior to

18 November 6th or was that something we should

19 consider and have the authority to consider

20 in the regulations? In other words should a

21 national party be able to say in late

22 October gee, we\'re going to have more soft

64

1 money left than we\'ve spent or going to have

2 to pay off in debts. Let\'s buy some ad time

3 for the Kentucky governor\'s race in 2003 or

4 for a senator race in 2004 to buy some ads

5 or should we try and limit that kind of

6 prepayment for goods and services to be used

7 later?

8 MR. POTTER: I assume that my

9 fellow testifiers may have comments on that,

10 too, but I\'ll start off by saying that I

11 think they could not do that because they

12 would therefore be using money in an

13 election past the November 6th date and the

14 only elections on which they may do that

15 under the act are runoff elections.

16 COMM. SMITH: Would that apply to

17 other goods purchased before the November

18 6th date?

19 MR. NOBLE: I would say yes. I

20 mean, I don\'t think it\'s even a question of

21 whether the commission has the authority. I

22 think especially with the campaign material

65

1 that you\'re talking about you have to read

2 it that way to effectuate the act, that

3 prepaying the material before November 6th

4 is a way to get around the law that you

5 can\'t allow. I mean, really the law focuses

6 on elections taking place after November

7 6th, not just when the expenditure is made.

8 MR. SIMON: I think there\'s a very

9 clear scheme in the transition provisions of

10 the law which is to end the use of this

11 money as of the 2002 election and that

12 provision about retiring debts is very

13 clearly for debts related to 2002.

14 COMM. SMITH: How about prepaying

15 a building?

16 MR. SIMON: Well, they were able

17 to use building fund money until November 6,

18 2002, I believe.

19 COMM. SMITH: But could they

20 prepay for goods and services for the

21 building that won\'t be delivered until after

22 that date?

66

1 MR. SIMON: You mean the building

2 won\'t be built until after? I haven\'t

3 thought about that. My reaction would be

4 yes but I\'m not sure.

5 COMM. SMITH: Let me go ahead and

6 move on. Vice Chairman Sandstrom said we

7 have tight times to ask this sort of thing.

8 You suggest, Mr. Simon, in your testimony

9 for defining voter identification, get out

10 the vote activity, and generic campaign

11 activity conducted in connection with an

12 election in which a candidate for federal

13 office appears on the ballot we should

14 consider all such activity covered at any

15 time in the usual two-year federal cycle as

16 being in connection with a federal candidate

17 appearing on the ballot.

18 MR. SIMON: With the exception of

19 those states that hold off-year elections.

20 COMM. SMITH: And you suggested

21 there were five of those states, right?

22 MR. SIMON: That\'s my

67

1 understanding, yes.

2 COMM. SMITH: Kentucky, Virginia,

3 Louisiana, New Jersey. For example, what

4 about New York City has elected their mayor

5 in an odd year and has a population bigger

6 than most of the states I just listed off?

7 Would you be able to do the things in New

8 York City and not have it count toward a

9 federal election?

10 MR. SIMON: Within that

11 jurisdiction.

12 COMM. SMITH: Los Angeles, other

13 cities could do that?

14 MR. SIMON: Within a jurisdiction

15 holding an election in an off year.

16 COMM. SMITH: What is the

17 justification for doing this generally, for

18 allowing these states and some of the

19 cities? In other words if you register a

20 voter in Kentucky in 2002 I figure it\'s

21 going to affect the federal elections as

22 much as if you register a voter in Tennessee

68

1 in 2003.

2 MR. SIMON: Well, I agree but

3 Congress had to draw lines and the line

4 they\'re trying to draw is between activities

5 that affect federal elections and activities

6 that affect nonfederal elections. Otherwise

7 I think we really would have been into the

8 world of completely federalizing all

9 political activity and I think Congress

10 wanted to avoid that and the way they drew

11 this line is in terms of this in connection

12 with test, which I think looks to the next

13 election.

14 COMM. SMITH: Well, I\'ll just

15 suggest that I think that local elections go

16 on all over the country in odd numbered

17 years in a wide variety of states. They

18 vote for mayors in my City of Columbus and

19 most small towns in Ohio. They vote for

20 school ÄÄÄÄ all around the country in odd

21 years. So what I\'m going to suggest here is

22 really that either we\'re going to have a

69

1 crazy quilt that\'s going to be very tough

2 and it\'s going to be harder for people to

3 say well, let\'s see, I can register voters

4 now in Reynoldsburg, Ohio, but I can\'t

5 register voters in Hilliard, Ohio, and that

6 sort of thing. And let me suggest as well

7 that if we\'re going to take that ÄÄÄÄ we\'re

8 not really opening that much of a loophole

9 if we just said let\'s make it a more

10 administratively easy approach that

11 everybody can understand of saying odd years

12 because most states I think are having some

13 type of election, at least in many

14 jurisdictions, in those odd years and say so

15 odd years you\'re okay. In connection with

16 the federal election appear on the ballot

17 begins at the start of an even year. That

18 would be a clear, bright line administrative

19 rule that would preserve the state and local

20 elections, which I think take place in far

21 more than these five states and in many

22 very, very populace areas, and I think that

70

1 might be a good way to go.

2 MR. SIMON: Well, again, my

3 reaction to that is that doesn\'t work and

4 it\'s not what the statute intends.

5 COMM. SMITH: Let me go to another

6 question here. We\'ve got two points.

7 Mr. Noble refers to an entity that is

8 directly or indirectly established,

9 maintained, financed, or controlled by a

10 political party. You and Mr. Simon both in

11 your comments suggested there should be no

12 temporal limit on this. In other words it\'s

13 any time forward or backwards. Is that

14 correct that it was controlled, financed, or

15 maintained by a party?

16 MR. NOBLE: Correct.

17 COMM. SMITH: \-- I\'m reading the

18 act and the act very specifically says that

19 this applies when an entity is directly or

20 indirectly established, maintained,

21 financed, or controlled, and I wonder if

22 that doesn\'t suggest that the plain language

71

1 of the statute is pretty much that we\'re

2 talking the current election cycle. I mean,

3 nobody says although my father once paid my

4 college tuition bills years ago nobody says

5 he is paying them now or he is supporting me

6 or financing me at the present time.

7 I think people focused on the

8 adjectives and looks like \"controlled,\"

9 sounds like a past tense that\'s an

10 adjective. The verb is \"is\" and that\'s

11 current tense and doesn\'t the plain language

12 of the statute suggests that it needs to be

13 the current cycle?

14 MR. POTTER: But, Commissioner

15 Smith, the language also says \"established\"

16 and I think \"established\" need not be

17 something that happens tomorrow. It can be

18 something that has occurred.

19 COMM. SMITH: I might agree with

20 you on \"established.\" This is a one-time

21 thing but I think \"financed, controlled,

22 maintained\" in the common usage that we talk

72

1 about them when we say \"somebody is

2 financed\" we don\'t think about somebody who

3 quit doing that years ago as still being

4 financed.

5 MR. NOBLE: But you can\'t leave

6 \"established\" out of that definition. I

7 think you\'ve hit on the point \"established\"

8 is one of them and \"established\" always is

9 in the past.

10 COMM. SMITH: Well, sure, but

11 certainly there are going to be

12 organizations that were not established but

13 might be financed or maintained. In other

14 words I presume those other words have

15 meanings as well that may be independent of

16 being established.

17 MR. NOBLE: But it is financed.

18 You can\'t say it has to mean is financed

19 today, the day you\'re looking at it. Well,

20 gee, they didn\'t receive a check yesterday

21 or they\'re not going to receive a check

22 tomorrow, so they can do the activity

73

1 tomorrow or they could have done it

2 yesterday and they can\'t do it today. \"Is

3 financed\" has some sort of temporal concept

4 in it that over time you are financed. And

5 so the question is do you actually have a

6 cutoff point for that? And the problem with

7 that is that it then becomes an easy way to

8 get around these things, that they start

9 establishing groups, financing them, and

10 then just stop for a period of time, let\'s

11 say right before an election or the year of

12 an election or two years before an election,

13 and they still have the group.

14 COMM. SMITH: Well, I see my time

15 has expired, but I would suggest that maybe

16 the current cycle but ÄÄÄÄ I take it your

17 position is, as you have stated it, that if

18 they financed a group, say, with \$100,000

19 twenty years ago that\'s still covered, isn\'t

20 it?

21 MR. NOBLE: Let me qualify that

22 and say the commission has previously dealt

74

1 with disaffiliation issues and there may be

2 a concept of disaffiliation you want to put

3 in there and I think there is a possibility

4 for that when you talk about certain

5 situations with a group established 20 years

6 ago and there\'s been no other contact. The

7 caution there is not to make disaffiliation

8 so easy that it becomes something that they

9 can just do, then get back again, and do and

10 get back again. I think it would have to be

11 true disaffiliation at some substantial time

12 before the activity in question.

13 MR. SIMON: Let me also just add

14 that the commission\'s proposed regulations

15 contemplate the use of the advisory opinion

16 process to basically implement that

17 disaffiliation standard.

18 MR. POTTER: If I could also note

19 in response, Commissioner Smith, that I

20 think the comments by the congressional

21 sponsors did in fact suggest that

22 organizations that initially had been

75

1 established or financed could over time grow

2 away from such a restriction and I think

3 they suggested a potential three-year cycle

4 test but, again, as Mr. Simon indicated, the

5 commission has an advisory opinion process

6 for an organization that would fit that

7 definition to obtain the certification that

8 they no longer were within the meaning of

9 that language.

10 MR. SHORE: If I may add something

11 I would just generally add that I think it

12 is apparent from the text of the legislation

13 that some detailed thought was given to when

14 provisions would take effect. There\'s a

15 pretty extensive provision at a point in the

16 bill which details when various provisions

17 take effect and so I think the members are

18 obviously capable of being quite clear when

19 they wanted something to be prospective and

20 that this obviously is not one of those

21 instances.

22 CHMN. MASON: Commissioner Thomas.

76

1 COMM. THOMAS: Thank you,

2 Mr. Chairman. First, I just wanted to give

3 you a chance to get a general reaction to

4 the concerns that have been expressed by the

5 various party committees, particularly state

6 and local party committees. Their fund-

7 raising is going to be crimped, obviously,

8 and at the same time, though, the law does

9 allow, depending on how you read the

10 statute, each state and local party

11 committee and conceivably every city-level

12 party committee to receive \$10,000 per year

13 from every corporation in America, from

14 every labor organization in America, again,

15 as long as you\'re dealing with the

16 affiliation concept, and that\'s the money we

17 can use to pay for the nonfederal share of

18 Levin activities.

19 I gather in the view of you folks

20 the party committees also would have the

21 flexibility to accept other totally

22 unrestricted soft money to pay for the

77

1 nonfederal share of other kinds of allocable

2 activity and to take totally unrestricted

3 money, soft money, to pay for communications

4 that everyone would agree are totally

5 nonfederal. I\'m just wondering if you would

6 like to comment on whether you\'ve got any of

7 a background knowledge about whether this

8 structure of the law is going to put the

9 party committees out of business as their

10 comments indirectly suggest?

11 MR. NOBLE: I don\'t believe it\'s

12 going to put the party committees out of

13 business. The party committees are very

14 resilient. It\'s clearly going to limit the

15 amount of money they can get for certain

16 types of activities. That\'s the intent of

17 the law. That\'s what Congress was trying to

18 do. That\'s what Congress did. We actually

19 noted in our comments that there is a way

20 around this proliferation problem which is

21 by affiliating at least party committees at

22 specific levels, but I understand that the

78

1 likelihood of that happening is probably

2 slim and not only then does the idea that

3 they can each receive \$10,000 from one

4 individual and that person go around and

5 give \$10,000 to each party committee, not

6 only does that give you the money, it

7 probably is going to be one of the major

8 loopholes in the law.

9 And we suspect, and this is

10 something we\'re going to be tracking over

11 time, that\'s where a lot of the money\'s

12 going to end up going. And then it becomes

13 very important that the lines be drawn in

14 terms of what that money can be used for.

15 And that\'s why it\'s very critical that the

16 commission draw that line in such a way as

17 to stop that money from doing specific

18 federal activity.

19 But I don\'t think the party

20 committees are going to be out of money, I

21 don\'t think party committees are going to

22 close, and in fact I suspect if the

79

1 interpretation is adopted that allows

2 \$10,000 to each of these state and local

3 party committees you\'re going to see a

4 proliferation of these party committees.

5 You\'re going to see a new strength in local

6 party committees in terms of the number of

7 them.

8 MR. SIMON: My reaction to your

9 question is I just don\'t think it\'s a

10 plausible position to say that Congress

11 passed a law which will put the political

12 parties out of business. I think Congress

13 was exquisitely concerned about the health

14 of the political parties in the context of

15 its overriding concern about the health of

16 our democracy and I think Congress took a

17 number of steps in the legislation to ensure

18 the health of the political parties.

19 It did raise hard money

20 contribution limits to the political parties

21 substantially. It did preserve, as you

22 pointed out, the ability of party committees

80

1 to continue to raise nonfederal money for

2 holding on federal activities and I think

3 very significantly with the Levin Amendment,

4 which came into play rather late in the

5 process.

6 I mean, the earlier iterations of

7 this legislation for years and years

8 required 100 percent hard money funding for

9 the first two prongs of federal election

10 activity, the voter registration and get out

11 the vote activity, and I think when the bill

12 was on the floor of the Senate last year

13 precisely because of the concern about the

14 health of the parties and the ability to

15 conduct these activities Senator Levin

16 introduced this amendment, which gave the

17 party committees substantially more room to

18 raise money for these activities and I think

19 it did so out of precisely the concern about

20 party committees having adequate resources.

21 So Congress, a body that I think

22 is expert here in terms of making these

81

1 judgments, thought long and hard about these

2 questions and I think struck a balance among

3 the various concerns.

4 MR. POTTER: I have three quick

5 comments, Commissioner Thomas. One is that

6 I understand certainly the reaction of state

7 parties to wake up and suddenly look at this

8 and say this is an unpleasant day, we don\'t

9 like what we see, but as I think my opening

10 comments indicated that is entirely because

11 of the activities the state parties have

12 conducted over the last couple of election

13 cycles that Congress has stepped in here and

14 changed the rules for state parties to

15 prevent them from accepting transfers and

16 using that for federal election activity.

17 Secondly, I\'m not a political

18 scientist and I think the question you\'ve

19 asked is to some extent a broader political

20 science question but I have heard and read a

21 number of political scientists who make the

22 contrary argument that this act is likely to

82

1 strengthen the state parties because they

2 rather than the national parties will have

3 the scope to engage in a great deal of this

4 activity and to do so in many cases with

5 funds raised under state law. So I\'m not

6 sure I would agree that their fund-raising

7 is in fact going to be crimped. They won\'t

8 receive transfers of money from the national

9 party committees in the same way they did

10 before and they won\'t have federal

11 candidates performing the same role but

12 between the fact they have higher hard money

13 limits than before and the fact that they

14 specifically are allowed to use the state

15 money, the Levin money activity you referred

16 to, for a range of grass-roots activities I

17 think there is a possibility that the state

18 parties will come out of this as stronger

19 engines for political activity than they

20 have going in when what they\'ve been doing

21 in many cases is simply serving as a conduit

22 for broadcasting funds transferred by the

83

1 national parties and then spent on broadcast

2 activities rather than grass-roots

3 activities.

4 COMM. THOMAS: Thank you. The

5 issue of national party committee officials

6 or federal government officials or

7 candidates being able to solicit money for

8 nonprofits comes to bear in the area of host

9 committee activity. And I see we have some

10 difference of opinion over whether the BCRA

11 provisions would in some fashion prevent

12 national party committee folks or federal

13 candidates or officials from soliciting

14 money for the host committees. I gather it

15 comes down to a debate over whether what the

16 host committees will be doing involves some

17 sort of action in connection with federal

18 elections. Do you all want to enlighten us

19 a little bit on that, please?

20 MR. POTTER: I assume you mean the

21 convention host committees?

22 COMM. THOMAS: The convention host

84

1 committees, yes.

2 MR. POTTER: I would beg off

3 slightly in saying that I\'m hoping that the

4 commission\'s going to have a whole separate

5 rule-making process on convention funding

6 and I think that\'s going to depend on

7 parsing out the different entities. I saw

8 comments from party committees on that but

9 am hoping the commission will give that due

10 scope in what I understand to be a separate

11 rule-making coming up.

12 MR. SIMON: I also will wait for

13 the commission\'s consideration and

14 subsequent round of rule-making. My initial

15 reaction is that it\'s just not a credible

16 position to treat host committees that are

17 intimately involved in political party

18 conventions as operating not in connection

19 with an election.

20 MR. POTTER: We have the same

21 view. We urge the commission, though, to

22 get to those regulations quickly because the

85

1 parties obviously are gearing up. But I

2 also approach it with the idea that they

3 were established by the party committees or

4 they are established by the party committees

5 and that they\'re not independent.

6 COMM. THOMAS: How am I doing on

7 time, Mr. Chairman?

8 CHMN. MASON: Your green light is

9 still blinking.

10 COMM. THOMAS: Your quick reaction

11 on the Internet issue. You all have made

12 reference to it but some of your comments

13 were somewhat elliptical and I\'m not quite

14 clear. Can you give us a guideline response

15 as to whether we ought to be considering

16 Internet communications to be part of the

17 general public political advertising

18 concept?

19 MR. POTTER: Let me try to reach

20 out for what is clearly now the third rail

21 of campaign finance law. My view, as I

22 tried to explain in the center\'s comments,

86

1 is that there are sections of this act,

2 specifically the electioneering

3 communications portion, that exclude the

4 Internet. There are other sections, and I

5 believe that is the party soft money in

6 particular which we\'re discussing today,

7 that do not exclude the Internet. And

8 therefore if you have a public

9 advertisement, public communication, by a

10 party committee through the Internet I

11 believe it is a form of public communication

12 and thus for the party committee it ought to

13 contain the appropriate disclaimers and be

14 paid for with the appropriate funds

15 depending on what the communication is

16 saying.

17 MR. SIMON: I think this is an

18 extremely difficult issue in this context

19 and I think it should be assessed in the

20 context of the broader rule-making about the

21 treatment of the Internet under the FCRA,

22 FECA, and now the BCRA that the commission

87

1 has ongoing. What I worry about in this

2 specific context is the following

3 hypothetical.

4 Let\'s say a party committee spends

5 \$100,000 producing a video that promotes a

6 candidate. If it broadcasts that video to a

7 million people it\'s clearly a public

8 communication that promotes a candidate and

9 would fall under the third prong of federal

10 election activity. If it just attached that

11 video as a file to an e-mail and sent that

12 e-mail to a million people you\'d want to

13 have the same result because that is a

14 public communication that would effectively

15 result in dissemination of a promotional

16 video.

17 So I don\'t think that you can on a

18 per se basis exclude the Internet from the

19 scope of public communication at least in

20 this limited context of that kind of

21 activity by a political party. But it seems

22 to me that these issues are being addressed

88

1 by the commission in the broader context of

2 its Internet rule-making and should be

3 folded into that.

4 MR. NOBLE: And I think that while

5 the Internet presents some difficult issues

6 because of the nature of valuing things on

7 the Internet I think it should be treated

8 like you treat every other types of

9 communication and fit under the general

10 rules. I know that\'s not necessarily a

11 popular position to take and we are an

12 organization that lives on the Internet but

13 the fact is I think that the Internet does

14 not have a special place in the political

15 sphere that it should be exempt from all

16 sorts of rules in order to just foster more

17 political speech. I mean, that can be said

18 of newspapers, that can be said of virtually

19 anything.

20 So I think the commission\'s

21 struggle really has to be just how you

22 define certain things, how you value certain

89

1 things, but as a general proposition I think

2 it should be part ÄÄÄÄ communication

3 otherwise it falls under that definition.

4 CHMN. MASON: Commissioner Toner.

5 COMM. TONER: Thank you,

6 Mr. Chairman. I\'d like to follow up on a

7 couple of issues that you all have talked

8 about already and then get into a couple of

9 other new areas.

10 First, ÄÄÄÄ on the Internet and I

11 do recognize that it\'s quickly becoming the

12 third rail of American politics. I

13 understand that when we had a limited

14 Internet a while back we received over a

15 thousand comments on that. I can only

16 imagine how many we\'ll get down the road.

17 But, Mr. Simon, you were

18 indicating that the Internet was a difficult

19 issue but then you talked about some of the

20 policy choices that animate it. And is it

21 fair to say that from your perspective the

22 Internet was not one of the areas of abuse

90

1 that Congress focused on in passing this

2 law? Is that fair?

3 MR. SIMON: That Congress focused

4 on? I don\'t think Congress focused on it.

5 COMM. TONER: Versus television

6 and radio and other types of communication

7 activities?

8 MR. SIMON: I think in the course

9 of the floor debates there was much more

10 discussion about broadcast communications

11 than Internet communications.

12 COMM. TONER: Is that what makes

13 this area a more difficult issue?

14 MR. SIMON: What makes the

15 Internet a more difficult issue?

16 COMM. TONER: The fact that it

17 wasn\'t as much of a focus for Congress, the

18 fact that it hasn\'t been ÄÄÄÄ maybe some of

19 other types of media?

20 MR. SIMON: Well, I think what

21 makes it a difficult issue is that it\'s an

22 emerging technology and some of the

91

1 implications are not yet clear. I think the

2 reason Congress focused on broadcast ads is

3 that there is a much more fully developed

4 record of what Congress has perceived as

5 problems with broadcast ads.

6 MR. POTTER: Could I respond to

7 that as well, Commissioner Toner? Again, I

8 want to differentiate between the

9 electioneering communications and other

10 provisions of the act because I think what

11 you\'ve said applies to electioneering

12 communications where Congress exempted a

13 whole range of tools for public

14 communication from those provisions and only

15 addressed TV and radio advertising and I

16 think that is different than when we are

17 dealing with what parties spend their funds

18 on where Congress is addressing public

19 communications in general, newspapers and

20 all the rest, and that\'s where I\'m making my

21 comments where I believe the Internet is as

22 much a tool of communication if used to

92

1 address the general public as would be a

2 newspaper or a magazine or indeed radio or

3 television.

4 So in terms of why I think it\'s

5 difficult I think it\'s difficult simply

6 because having lived through a series of

7 commission attempts to address this issue it

8 is terrifically important to draw the lines

9 I\'m now drawing between commission

10 regulation of Internet activity by

11 individual private citizens using their own

12 computers on the one hand and between much

13 more organized activity or activity that is

14 a general public communication by a party.

15 And I think the risk which you see in some

16 of the comments in this soft money rule-

17 making is that commenters will misperceive

18 that the commission is proposing to address

19 Internet activity by private individuals or

20 by private groups as opposed to by the party

21 committees, which is what this rule-making

22 focuses on.

93

1 COMM. TONER: Mr. Noble.

2 MR. NOBLE: I think that is the

3 difficulty. I don\'t think the difficulty is

4 that Congress didn\'t necessarily address it,

5 though that would have helped. I think one

6 of the reasons Congress didn\'t necessarily

7 address it is because it is the third rail.

8 And the problem is that it, frankly, becomes

9 a very emotional issue for people and a very

10 hot button issue for people and I think what

11 Mr. Potter said is correct, that in

12 addressing it the commission just has to be

13 very clear on what it\'s addressing and what

14 it\'s dealing with.

15 And even though people are going

16 to read anything you say about the Internet

17 broadly and are going to say there goes the

18 FEC trying to close down the Internet I

19 think the FEC just has to be confident where

20 it draws the lines and not be swayed by that

21 because it is such an emotional issue for

22 people. And I\'m aware of that, that

94

1 probably because of the statement I made

2 I\'ll get 10,000 E-mails this afternoon

3 telling me that I\'m trying to close down the

4 Internet.

5 COMM. TONER: Better you than me.

6 I want to talk for a few minutes about a key

7 issue that I think all of you mentioned in

8 your comments and that is on the one hand

9 BCRA contains a soft money solicitation ban

10 for officeholders, candidates, and national

11 party officers but then on the other hand

12 there is a statutory phrase that allows

13 these same individuals to attend state party

14 fund-raising events as a guest and be a

15 featured guest even and speak there.

16 Mr. Noble, in your comments as I

17 understand them your view is members

18 certainly should be able to go to the

19 events. It\'s clear under the statute they

20 can do that. There could be some advance

21 publicity of the fact that they\'re going to

22 be there, but if they cross the line and do

95

1 a direct solicitation that\'d be another

2 story. Is that a fair assessment?

3 MR. NOBLE: That\'s a fair

4 assessment and we recognize that in practice

5 some of this may be difficult. This is one

6 of those areas where Congress regulated

7 where we\'ll have to see how it works out in

8 practice but I think you have to have a

9 situation where the candidate officeholder

10 is not going to be able to make the

11 solicitation. We understand that people

12 around them may be making solicitations. We

13 also don\'t think that they should be signing

14 a solicitation or be part of the

15 solicitation when it\'s mailed out, but that

16 doesn\'t mean that there aren\'t going to be

17 solicitations taking place at the event or

18 in the context of the event.

19 COMM. TONER: And again, sensitive

20 to those concerns you mentioned therefore

21 would you be of a few that it\'s permissible

22 for a party committee to include in

96

1 invitation materials the fact that a member

2 is going to be there?

3 MR. NOBLE: Yes, I think that\'s

4 going to happen. Yes, I think there\'s no

5 way to avoid that.

6 COMM. TONER: A related issue is

7 in terms of what members say at the event.

8 How would you recommend we proceed in that

9 area? Should they generally have the

10 ability to say what they wish to do so

11 politically as long as what they say isn\'t

12 constituted as solicitation or how should we

13 draw the line in that area?

14 MR. NOBLE: I think that\'s pretty

15 much where you\'re going to have to draw the

16 line, that they\'re not going to be able to

17 ask or suggest that contributions be given,

18 that they are obviously going to discuss

19 political issues, they\'re going to say why

20 the election is important, they\'re going to

21 do a variety of different things, but

22 they\'re not going to be able to solicit

97

1 contributions.

2 Again, as I said, reading the

3 statute I was very aware that what you\'re

4 going to have is the person coming up before

5 them who\'s going to talk about the

6 importance of contributing and then the

7 member is going to get up and just speak but

8 that\'s the way the statute is written.

9 COMM. TONER: The IRS obviously

10 has very detailed regulations about what

11 constitutes a solicitation, when you need to

12 have a disclaimer in terms of them not being

13 deductible for charitable purposes. Do you

14 think that\'s an appropriate framework for us

15 to evaluate in terms of when you cross that

16 line?

17 MR. NOBLE: I think it\'s something

18 to start. I have to say I haven\'t looked at

19 it in a little while but from what I

20 remember of it that is a good place to

21 start.

22 COMM. TONER: Mr. Simon, do you

98

1 concur with those views?

2 MR. SIMON: Yes, I think this is

3 another one of the tough lines in the

4 statute. Commissioner Standstrom was

5 talking about another one earlier. I think

6 that the speak, attend, and be a featured

7 guest provision is not meant to be an

8 exemption from the ban on solicitation. I

9 think it is meant to do what it says which

10 is to allow members to attend, speak, and be

11 featured guests but I still think that

12 they\'re not permitted to solicit.

13 As Mr. Noble said they can be

14 referred to on the invitation to the event:

15 Congressman Smith will be honored. But I

16 don\'t think that the invitation can be

17 framed in a way that the member is doing the

18 solicitation.

19 COMM. TONER: An issue that we\'re

20 obviously going to have to address is what

21 is the scope of an officeholder in this

22 statutory phrase. Is it your view that

99

1 officeholder requires the individual to hold

2 elective office?

3 MR. SIMON: A federal

4 officeholder, a state officeholder?

5 COMM. TONER: Correct.

6 MR. SIMON: I guess so. I hadn\'t

7 thought about that. I guess my offhand

8 reaction is that it would be an elective

9 officeholder.

10 COMM. TONER: Mr. Potter?

11 MR. POTTER: I haven\'t thought

12 about it in great detail. My offhand

13 reaction I think would be that it would be a

14 holder of federal office, including, for

15 instance, a cabinet member. That would be a

16 holder of federal office of the sort you

17 would not want soliciting soft money.

18 COMM. TONER: How about other

19 individuals who may be employed by the

20 federal government below cabinet level?

21 MR. POTTER: Absent anything in

22 the legislative history, and I\'m trying to

100

1 think of anything there, I would read that

2 phrase broadly to include somebody who holds

3 federal office.

4 COMM. TONER: Regardless of rank?

5 MR. POTTER: Correct.

6 MR. NOBLE: Commissioner Toner,

7 when we looked at it, and this may be a

8 slight disagreement with Commissioner

9 Potter, we assumed it would come under the

10 definition that now exists in the statute of

11 federal officeholder which is office of the

12 President or Vice President or senator or

13 representative in or delegate or resident

14 commissioner to the Congress which infers

15 they\'re elected officeholders. That may be

16 something that Commission needs to look at

17 but that is right now the statutory

18 definition.

19 COMM. TONER: So there may be an

20 argument that we should just track the

21 existing unless the legislative history

22 suggests otherwise?

101

1 MR. NOBLE: Correct.

2 COMM. TONER: Mr. Simon, I want to

3 follow up briefly and I\'m going to struggle

4 a little bit with this light system because

5 this is a first for me so please don\'t

6 hesitate, Mister Chairman, if I\'ve exceeded

7 my time.

8 CHMN. MASON: You\'re using your

9 time now.

10 COMM. TONER: In terms of the

11 transition period for national committee

12 building funds in response to Commissioner

13 Smith\'s earlier question I just want to make

14 sure I understood where you were coming

15 from. Is it your view that a national

16 committee could prepay for office building

17 expenses with soft dollars even if those

18 expenses are incurred after November 6th?

19 MR. SIMON: Even if the expenses

20 are incurred?

21 COMM. TONER: Even if the work is

22 performed after November 6th.

102

1 COMM. THOMAS: I\'m not sure and

2 I\'d want to check to see if there\'s any

3 legislative history. My understanding had

4 been that if the party had entered into a

5 binding contract and paid the money prior to

6 November 6th then that would be permitted

7 under the terms of the transition provision.

8 COMM. TONER: If we took that

9 provision would that cause you any concern

10 in terms of acting contrary to the spirit of

11 BCRA?

12 MR. SIMON: Again, I guess I\'d

13 want to check to see whether there\'s

14 specific discussion in the legislative

15 history on that point. I don\'t know of any

16 offhand.

17 COMM. TONER: Because what we\'d

18 essentially be endorsing is the prepayment

19 of soft dollars for activities that occurred

20 right after the enactment of BCRA.

21 MR. SIMON: I understand that

22 except the actual payment of the money would

103

1 be prior to the effective date so that it\'s

2 not that the party would be in a position of

3 disbursing soft money after the effective

4 date.

5 COMM. TONER: Would you take the

6 view that we should permit prepayment of

7 other types of expenses?

8 MR. SIMON: No, because I think

9 the building fund exemption is a specific

10 limited topic and it formed that in the

11 legislation and in the discussion about the

12 legislation.

13 COMM. TONER: Mr. Noble?

14 MR. NOBLE: When I first looked

15 this I\'d assumed it would be like if I was

16 to go out and contract for something you

17 occasionally contract for in advance, but

18 given the reality of the party committees

19 and the way the building fund is used, and

20 this is not the way I originally approached

21 it, but I could see the FEC deciding not to

22 allow prepayment, that it could be a way as

104

1 in other areas to get around the rules that

2 they all of a sudden prepay \$20 million or

3 \$100 million on a building that\'s not going

4 to be built for four years. So I think that

5 is something the FEC has within its

6 authority.

7 COMM. TONER: Mr. Potter?

8 MR. POTTER: In general I agree

9 and have already stated that I think

10 prepayment of expenses for future elections

11 is not permitted by the act. This

12 particular provision I think as we all

13 recognize has a highly unusual bit of

14 legislative history.

15 COMM. TONER: Under cover of

16 darkness.

17 MR. POTTER: Given the role it

18 played in the somewhat Byzantine maneuvering

19 definitely under the cover of darkness and

20 in the wee hours of the morning.

21 COMM. McDONALD: What\'s unusual

22 about that?

105

1 MR. POTTER: It is among other

2 things the one piece of the act, I believe,

3 that was put in by persons who otherwise

4 opposed the act. So the legislative history

5 on this provision is a little cloudier, at

6 least.

7 My recollection of that debate for

8 what it\'s worth is that one of the arguments

9 against allowing party committees to

10 continue to maintain building funds after

11 the election, which was how the act was

12 originally proposed, is that they would then

13 be able to use those funds or borrow against

14 them for federal election activity during

15 this course of this fall\'s election, pay it

16 off afterwards, and still have the money

17 sitting in the building funds thereafter to

18 pay for their building so they would be

19 using it twice.

20 I note that by way of saying that

21 if they have in fact spent the money before

22 the election for building activity they have

106

1 therefore not done what Congress feared,

2 which is borrow against it and have it

3 afterwards as well, so there would at least

4 be that argument that Congress was in favor

5 of them spending the building fund money

6 before the election for building activity

7 because it meant they were not otherwise

8 using it in some complicated form for

9 federal election activity.

10 COMM. TONER: Thank you, Mister

11 Chairman.

12 CHMN. MASON: Commissioner

13 McDonald?

14 COMM. McDONALD: Mister Chairman,

15 thank you, and again let me thank all the

16 witnesses. It\'s good to see old friends

17 here and we appreciate you coming.

18 I apologize. I\'m just about to

19 lose my voice, which I\'m sure will make no

20 one unhappy, but let me ask a couple of

21 questions and then have an observation or

22 two.

107

1 One of the things that I\'m

2 extremely interested in is the whole

3 business of congressional intent because as

4 I see my responsibility it is to try as

5 closely as I possibly can to arrive at a

6 decision based on what Congress intended.

7 Whether I agree with the Congress or

8 disagree I find almost irrelevant in one

9 sense, which is we\'re creatures of Congress.

10 This has been debated at least the 20 years

11 I\'ve been in this town and I would like for

12 any one of the panel members other than the

13 letters which we\'ve received which are

14 important, by the way, but I want to be sure

15 that I understand something that any of the

16 panel members could point to in terms of I

17 wouldn\'t call it a binding effect

18 necessarily but at least if we don\'t have

19 legislative history and a colloquy on the

20 floor of either house what do we look to?

21 Maybe I\'ll start with our former

22 general counsel. That would be the most

108

1 fair. Larry, what do we look to in that

2 sense from a legal perspective?

3 MR. NOBLE: I think it\'s the

4 problem the Commission has always faced.

5 You obviously start with the words of the

6 statute and then as you noted you go to the

7 legislative history of what is said on the

8 floor. I think what the members have

9 submitted in the context of this rule making

10 is very important and should be given

11 tremendous weight.

12 And then I also think it\'s all

13 done also in the context of what the overall

14 intent of the act is, what the purpose of

15 the act is, and that\'s the point I tried to

16 make in my opening is that it is clear from

17 the legislative history and the structure of

18 the act that their intent for the national

19 party committees was to ban them from

20 raising or spending soft money, period.

21 Then when you get to the state

22 party committees the intent was somewhat

109

1 more complicated but it\'s still pretty clear

2 in terms of limiting the use of soft money

3 and requiring the use of either federal

4 money or Levin money, which is a different

5 from of federal money for certain types of

6 activity.

7 I think you have all that you

8 throw into the mix and come out where you

9 are, always using that as a guide star of

10 where you\'re trying to go on this. So I

11 would start with the face of the statute,

12 the legislative history as it exists now,

13 the comments of the members, the comments of

14 others like ourselves, and the general goals

15 of the statute.

16 I think this is what you have

17 faced for 20-something years now, for 25 or

18 26 years now, in terms of looking at

19 legislation. Even the original FECA doesn\'t

20 have necessarily great legislative history.

21 I remember a number of times we\'d look at

22 things and just could not find something in

110

1 the legislative history of a provision and

2 you just have take it from there.

3 COMM. McDONALD: Well, I\'ve said

4 both publicly and privately that we do have

5 an advantage which is that unlike 25 years

6 ago the members are right down the street

7 and, as some of my colleagues have pointed

8 out, we\'ve had a submission by a few of the

9 members but, of course, they\'re the key

10 members, it appears to me.

11 What we have not had is people

12 that voted for the bill saying that these

13 comments by the key members aren\'t correct,

14 and I\'m surprised one of you didn\'t point

15 that out. I\'m really worried with a table

16 full of lawyers why you just didn\'t jump all

17 over that. I\'m very stunned. Trevor,

18 what\'s your sense of that?

19 MR. POTTER: I think first off,

20 there are extensive parts of the legislative

21 history that talk about the broad purposes

22 of the act so it isn\'t as if we are sitting

111

1 here wondering what Congress was trying to

2 do with the act in general; that we know.

3 So then you look at a specific provision

4 where there was not legislative floor

5 debate, and I think you attempt to figure

6 out how that provision fits into what we

7 know already of the broad purposes of

8 Congress, to get the national parties out of

9 the soft money business, to have state

10 parties spend federal funds for federal

11 elections, et cetera.

12 I think looked at that way a lot

13 of it isn\'t a particular mystery because a

14 provision that\'s not otherwise commented on

15 fits neatly within an attempt to make sure

16 that state parties are only using federal

17 funds for federal elections.

18 I do also think that the quite

19 comprehensive comments by Senators McCain,

20 Feingold, Shays, Meehan, the main sponsors

21 of the bills in the two chambers, should be

22 helpful to the Commission.

112

1 COMM. McDONALD: As a legal matter

2 can you point to something that would aid

3 and assist me in that regard? We\'ve been

4 looking and I\'m trying to find out. It

5 appears at least at first blush that I don\'t

6 find many if any circumstances where a court

7 would give an after the fact weight to

8 comments that are made. Is there something

9 specific that you could point to that would

10 help us?

11 MR. POTTER: I think the answer is

12 that you are not a court. You are an

13 administrative agency. You have requested

14 public comments. You have public comments

15 from the sponsors of the bill explaining

16 what they were doing. I think you\'re

17 entitled to take those at face value. I

18 agree, of course, with Commissioner Smith

19 that you would not be able to use the

20 comments from the four sponsors to trump the

21 clear language of the bill if the language

22 were different but I think you are entitled

113

1 to take notice of the fact that these were

2 the persons who drafted the bill and

3 therefore they are presumed to know why

4 something is in it if it\'s part of their

5 bill.

6 COMM. McDONALD: Don, let me

7 switch gears and ask you about the Levin

8 amendment if I could. What is your

9 interpretation of what it means? Does it

10 coincide with Larry\'s? I wasn\'t sure what

11 Larry\'s position was, whether he had just

12 thrown in the towel. What is your position

13 on the Levin amendment?

14 MR. NOBLE: No, I think the Levin

15 amendment is very specific. I think at this

16 point we have four different types of money

17 in elections. We have the pure hard money.

18 We have the Levin amendment money, which is

19 restricted in terms of what it can be used

20 for and the amounts that can be raised for

21 it. Then we have what I would call the

22 nonfederal hard money, which is money that

114

1 has to be raised under limitations and

2 prohibitions but can be used for nonfederal

3 purposes. Then you have the pure soft

4 money.

5 I think the act is very specific

6 on it. I wasn\'t throwing in the towel on

7 it. I just think that you have to be

8 careful as you look at these various areas

9 in terms of what Congress is trying to do.

10 I think what the Levin amendment reflects

11 was obviously a compromise but an attempt in

12 some ways to keep to the purposes of the act

13 but recognize, and I think Mr. Simon said

14 earlier, the reality of the party committees

15 feeling threatened by this.

16 So I think all provisions of the

17 law are important, and I think the job of

18 the Commission is to just to make sure it

19 puts activity in the appropriate category.

20 The Levin amendment is going to become a

21 very category of activity and is going to

22 become either for better or worse a way that

115

1 a lot of people are going to put money into

2 the process.

3 COMM. McDONALD: Don?

4 MR. SIMON: I view the Levin

5 amendment in the context I talked about

6 before, that for many years that this will

7 was considered in the House or the Senate

8 and it would pass one and would be blocked

9 in the other this part of the bill required

10 state parties to spend 100 percent hard

11 money for prongs one and two of federal

12 election activities and it was very late in

13 the process where the Levin amendment was

14 introduced.

15 It changed. It was passed

16 initially in the Senate in one form and then

17 changed when it subsequently passed the

18 House. Then when it came back to the Senate

19 the Senate adopted the House changed

20 version.

21 I think the point of Senator Levin

22 was to give state parties more leeway in

116

1 raising funds for the prong one and two

2 activities to make it easier for state

3 parties to engage in those activities and

4 therefore state committees are allowed to

5 accept up to \$10,000 from any source, even a

6 source prohibited under federal law, subject

7 to state law if state law allows it and to

8 spend that money under a system of

9 allocation to be created by the Commission

10 in this rule making.

11 That was essentially what was

12 adopted by the Senate. When it went over to

13 the House I think there was concern that

14 this opened a potentially wide loophole, and

15 on the House side a number of what I\'ve

16 always viewed as fences was put around the

17 raising and spending of Levin money by the

18 state parties.

19 I think it\'s important for the

20 Commission to give full effect to those

21 fences. For instance, the Levin activity

22 cannot refer to a federal candidate. The

117

1 Levin activity cannot be in the form of

2 broadcast. Very importantly, each

3 particular state party committee that

4 engages in Levin activity has to raise its

5 own Levin money, both the Levin part of it,

6 the contributions up to \$10,000, and also

7 the federal match for the allocation. The

8 state party committees cannot accept

9 transfers of either the Levin funds or the

10 hard money. They cannot engage in joint

11 funding activities.

12 In other words, there\'s a whole

13 series of restrictions built around the use

14 of Levin money by the state parties, and I

15 think what you end up with really is a

16 balance and I think Congress engaged in a

17 difficult and arguably somewhat cumbersome

18 balancing process of on the one hand trying

19 to open up some ability for state parties to

20 be able to raise more money for these prong

21 one and two activities but to be very

22 careful in giving state parties that

118

1 additional room not to create or replicate

2 the very soft money problems that the

3 statute as a whole is trying to solve.

4 COMM. McDONALD: Mister Chairman,

5 just one last very quick question to my old

6 friend, Mr. Potter. I\'ve read a lot of

7 things you\'ve had to say about various and

8 sundry aspects of the law and of the

9 Commission and, as you know, some of my

10 detractors say I\'ve been here much too long.

11 My question for you is just a

12 philosophical one. You were here about

13 three years, about half a term, before you

14 went back to your old firm. In reflecting

15 back do you think you should have stayed

16 longer for the battle?

17 MR. POTTER: This was such a long

18 battle, Commissioner McDonald, that even had

19 I stayed I think I would have been through

20 my second term by the time we got to this

21 point but I think the Commission has a

22 vitally important role at this point.

119

1 It\'s taken a long while to get

2 this bill through Congress. It\'s gone

3 through several sessions. I\'ve enjoyed

4 participating in the public discussion of

5 all this as Congress is looking at what to

6 do but, as I indicated in my opening

7 statements, now Congress has done it and I

8 think its successful implementation depends

9 on the people at the Commission.

10 You don\'t have a blank slate.

11 You\'ve got very clear congressional

12 purposes. But even so I think its success

13 depends on the outcome of this rule making.

14 CHMN. MASON: I had first a

15 question for Mr. Simon. On page 37 of your

16 testimony you say that fund raising which

17 even in part is directed to raise federal

18 funds must be paid for entirely with federal

19 funds. Mr. Noble and Mr. Sanford on page 13

20 and subsequent points in their testimony say

21 fund raising expenses should be allocated

22 between the party committees through

120

1 accounts using the funds received method as

2 discussed further below, which is, as both

3 of them know, generally the way we treated

4 fund raising events where you have the same

5 party committee, not joint events but the

6 same committee raising both hard and soft

7 money or now, looking in the future, hard,

8 soft, and Levin money potentially at the

9 same event or through the same mailing.

10 Could the two of you help me work

11 out which is the case?

12 MR. SIMON: Maybe you\'ve

13 demonstrated we don\'t always agree with each

14 other. I actually was basing my comment on

15 what I think is a straightforward

16 interpretation of what will be 441(i)(C),

17 which says an amount spent by a person

18 described in Subsection (a), which would be

19 the national party committee, or (b), which

20 would be a state committee, an amount spent

21 by a person to raise funds used in whole or

22 in part for expenditures and disbursements

121

1 for federal election activity shall be made

2 from funds subject to the act.

3 So I think the best reading of

4 that language is that if a party committee

5 is engaged in fund raising and the funds

6 that it\'s raising are going to be used for

7 expenditures or for any one of the federal

8 election activities it has pay for the

9 entire cost of the fund raising with federal

10 funds.

11 CHMN. MASON: Mr. Noble?

12 MR. NOBLE: I\'d like to turn this

13 over to Paul.

14 MR. SANFORD: My initial thought

15 may be that our position reflects the

16 extended time I spend with the allocation

17 rules, which I\'m sure you\'re all aware of,

18 so maybe I\'m a little too vested in the way

19 things have been done historically and

20 therefore suggest that the Commission

21 continue to use that approach.

22 But I think it also reflects a

122

1 belief that generally the federal election

2 activity definition subsumes a range of what

3 have historically been previously allocable

4 activities and fund-raising expenses is not

5 one of those. I think there\'s general

6 agreement. I don\'t want to put too many

7 words into people\'s mouths but the funds

8 received ÄÄÄÄ allocation has generally

9 worked.

10 So the fact that there\'s an

11 additional category of funds that are going

12 to be raised doesn\'t necessarily mean that

13 that method of allocation isn\'t just as

14 valid.

15 CHMN. MASON: Thank you both. I

16 just want to make the point all three of you

17 here would more or less say you are

18 representing, if you will, and I don\'t want

19 to put too much into it, the true believers,

20 the supporters version of this and while

21 you\'re obviously not formally representing

22 the sponsors of the legislation for what

123

1 reasons I don\'t know I think it illustrates

2 that, as Commissioner McDonald was pointing

3 out, Commissioner Smith said this beast of

4 congressional intent is not necessarily easy

5 to pin down and even among the three of you

6 on a fairly critical point we have at least

7 at first blush conflicting interpretations.

8 So I think it\'s just a point for

9 me to keep in mind as we move through these

10 other areas of the act, and one of the

11 things that bother me is what we are to do

12 in places where we just don\'t have any

13 guidance.

14 For instance, I want to ask

15 specifically Mr. Simon and Mr. Potter both

16 to address promote, support, attack, or

17 oppose and both refer back to the

18 electioneering message standard that at one

19 time had been used by the Commission. I

20 know Mr. Sanford is particularly familiar

21 with that and Mr. Noble, of course, too.

22 I\'m particularly interested in

124

1 whether any of you can cite to anywhere in

2 the record of debate in Congress where the

3 advisory opinions underlying that standard

4 or that standard itself was cited to or

5 addressed.

6 MR. POTTER: I have two comments

7 if I could, Mister Chairman. One is, going

8 back to the question of fund-raising costs,

9 I believe that the members of Congress in

10 their extensive written comments did address

11 that issue and said that they believed that

12 was correctly interpreted to say that

13 federal funds had to be used to raise the \--

14 CHMN. MASON: They said that in

15 their comments but not prior to passage of

16 the bill.

17 MR. POTTER: I believe that would

18 be one of the areas where they were

19 explaining their intent in their comments to

20 the Commission, yes.

21 MR. SIMON: That\'s a good

22 question. I am not familiar, although I

125

1 haven\'t specifically looked at the question,

2 offhand where either the use of the term

3 \"electioneering message\" or reference to the

4 1984-1985 series of advisory opinions was

5 cited as the underpinning of the promote,

6 support phase in the statute.

7 When I cited that in my comments I

8 was basically just arguing essentially by

9 analogy. I was trying to make the argument

10 that that\'s what I think the term should be

11 construed to mean and I was trying by

12 reference to preexisting body of Commission

13 law suggest a way for you to apply that

14 term.

15 CHMN. MASON: I appreciate all

16 that and I might want to go on to a couple

17 of other points and I think your positions

18 are well argued but in contrast to the

19 coordination provision, for instance, where

20 it specifically addressed the Commission\'s

21 regulation it was discussed in some detail

22 and we can look. Here we just didn\'t have

126

1 that and I\'m going to take your comments to

2 indicate that you\'re not aware of any such

3 discussions that we can look to in the

4 record prior to passage of the bill.

5 Mr. Shore?

6 MR. SHORE: Mister Chairman, while

7 I am not aware of an instance where the

8 members in their discussion of this issue on

9 the Senate or House floor expressly cited

10 electioneering message test I think probably

11 on March 20th in the Senate the members did

12 discuss this provision and their intent with

13 respect to this provision to require hard

14 money financing for these public

15 communications dimension federal candidates,

16 and so the members used the term \"promote,

17 support, attack, or oppose,\" and I would

18 assume that the members in using that

19 terminology intended that it be given its

20 plain meaning.

21 MR. POTTER: If I could answer

22 your question about our comments I don\'t

127

1 think they suggested and I did not mean them

2 to suggest that the Commission was required

3 by Congress to use the electioneering test

4 from its old advisory opinions. What I did

5 mean is to say that the Commission in the

6 past has had experience dealing with

7 language that was attempting to catch

8 communications broader than just express

9 advocacy. An example is clearly the

10 electioneering test in the past. I think

11 that could be a useful source of language to

12 address this.

13 But the point I was making is that

14 what Congress did intend and what I think

15 they said clearly is that this was supposed

16 to be broader than expressed advocacy and

17 therefore the Commission is going to have

18 implement that broader language.

19 CHMN. MASON: I appreciate that.

20 Let me ask quickly on reporting of Levin

21 funds at least one of you addressed it

22 specifically and I think we read the statute

128

1 as requiring pretty clearly reporting of

2 Levin funds including itemization as

3 outlined in the statute to the Commission.

4 How does that affect the reporting of those

5 same funds to the state campaign finance

6 disclosure agencies?

7 MR. POTTER: I\'m not sure I\'ve got

8 the question.

9 CHMN. MASON: In other words these

10 funds are to be reported under the act as

11 amended by BCRA. They have to be reported

12 to the FEC.

13 MR. POTTER: But they\'re also

14 state money so they\'d also be reported to

15 the state \--

16 CHMN. MASON: Well, that\'s my

17 question.

18 MR. POTTER: Well, they\'re funds

19 raised under state law.

20 CHMN. MASON: They\'re funds raised

21 under state law but normally we read the

22 preemption provision as saying that funds

129

1 raised pursuant to federal law and reported

2 to us cannot also be regulated by the

3 states.

4 Let me go one further just so you

5 can see where I\'m going. It\'s been

6 represented to us in other comments that

7 there are some state laws that conflict with

8 this provision. Some states allow political

9 parties to have only one account, and if

10 they come in and we say we require two

11 accounts what\'s going to happen?

12 MR. POTTER: I think the answer is

13 that federal law where it is specific as to

14 the obligations of state parties would

15 preempt. When it is not specific then state

16 law would govern. For instance, this says

17 that state parties may use as their portion

18 of the Levin expenses funds raised pursuant

19 to state law. Commissioner Thomas noted

20 earlier that the statute allows any person,

21 which would include a corporation or labor

22 union, to contribute to these funds but only

130

1 subject to the provisions of state law so

2 that if you have a state like Massachusetts

3 that doesn\'t allow corporations or labor

4 unions to contribute then they don\'t have

5 that money in their Levin account in the

6 first place and I think in order for the

7 states to enforce that provision of state

8 law they would also need to know what funds

9 are in that account.

10 MR. NOBLE: If I may, Mister

11 Chairman, I think obviously the agency is

12 going to have to revisit the issue of

13 preemption. I think what you were getting

14 at if you go under the theory that the

15 Commission has used very often, which is the

16 occupying the field theory, then the

17 argument would be that the states cannot

18 impose any other restrictions even if they

19 do not conflict with the Levin reporting.

20 In many instances the agency has

21 used occupying the field, especially when it

22 comes to reporting in part under the old law

131

1 because of the congressional intent that

2 members not have multiple reporting

3 obligations to both the federal agency and

4 to the states.

5 Now we\'re dealing with state party

6 committees and if you use a conflict theory,

7 which Mr. Potter I think was referring to,

8 then the question would be does the state

9 law conflict with it and requiring separate

10 reporting under the state law would not

11 necessarily conflict with it, though in the

12 instance that you pose where the state law

13 may prohibit a separate account then it

14 would conflict with the federal law and it

15 would have to give way.

16 I think that there may be good

17 policy reasons here to take a conflict

18 scenario with regard to preemption but I

19 would have to acknowledge that that runs

20 somewhat contrary to the way the Commission

21 has dealt with reporting. If the Commission

22 follows its preview views of the reporting

132

1 then you do have an occupying the field

2 situation which would then say the states

3 can\'t require separate reporting.

4 CHMN. MASON: I\'m going at this

5 time to recognize the general counsel\'s

6 office for a round of questions. I don\'t

7 know, Larry, any way you want to handle it.

8 MR. NORTON: Thank you, Mister

9 Chairman. Good morning. I wanted to go

10 back to a question that Commissioner Smith

11 asked earlier where he referred to a floor

12 statement by Senator McCain that\'s cited in

13 one of the party comments and in the letter

14 we received yesterday that suggests that

15 so-called leadership PACs may maintain a

16 separate nonfederal account for support of

17 state and local candidates and that an

18 individual who contributes \$5,000 to the

19 federal account of that leadership PAC may

20 also contribute another \$5,000 to the

21 nonfederal account.

22 I note that this statute doesn\'t

133

1 use the phrase \"leadership PAC.\" There is

2 no provision that at least clearly in my

3 view authorizes a second account and indeed

4 there is a general prohibition on federal

5 candidates raising soft money, which is at

6 least by one definition money raised above

7 the limits imposed by federal law.

8 Commissioner Potter had responded

9 to this question but I\'d be interested in

10 whether Mr. Simon or Mr. Noble has a view as

11 to whether it is in fact a fair reading of

12 the statute that leadership PACs are

13 authorized to raise not \$5,000 but in fact

14 \$10,000 by maintaining separate accounts.

15 MR. NOBLE: Even being fully aware

16 of the statement that Senator McCain stated

17 and believing that you could read the

18 statute consistent with Senator McCain\'s

19 statement I also think you can read the

20 statute to say that leadership PACs cannot

21 have separate nonfederal accounts. They

22 cannot double their contribution limits. So

134

1 I think it\'s obviously an arguable point.

2 Without Senator McCain\'s statement

3 I would say without a doubt that the statute

4 does not allow what we\'re calling leadership

5 PACs to have separate, in effect, nonfederal

6 hard money accounts, which is what they are.

7 I think the main point that we\'re

8 trying to make here or I would like to make

9 here is that regardless of how the

10 Commission comes out on that there is no

11 indication at all that the national party

12 committees should be allowed to double their

13 contribution limits, which some of the

14 national party committees are suggesting.

15 So the leadership PACs present one

16 problem, applying that to every situation

17 presents a wholly different problem, but I

18 think the Commission could decide that the

19 face of the statute does not allow

20 leadership PACs to have separate accounts.

21 MR. SIMON: I agree. This

22 question comes up under Subsection (e) which

135

1 is intended to allow federal candidates to

2 raise not only hard money, money in

3 connection with federal elections, but also

4 raise money in connection with nonfederal

5 elections but subject to federal rules.

6 Now, that\'s a clear statutory

7 grant of authority to candidates. I think

8 it\'s a reach to say well, that means a

9 leadership PAC can maintain this sort of

10 hard money nonfederal account. So I come at

11 this with the approach that the better

12 reading is that such accounts will not be

13 permitted but in any event that whole

14 discussion is very clearly a function of

15 Subsection (e) and not of Subsection (a),

16 which is the provision related to national

17 party committees, and there\'s just no

18 support whatsoever in the statute for the

19 notion that national party committees can

20 maintain this sort of account.

21 MR. POTTER: Mr. Norton, if I

22 could also add to the earlier comments on

136

1 that I think Senator McCain in his floor

2 comments was responding to an outcome, a

3 fact of the law. As Don Simon has

4 indicated, the law does contain a provision,

5 I believe put there for other purposes, that

6 enables a federal candidate to solicit funds

7 for state and local activity within federal

8 limits. But I think what Senator McCain was

9 recognizing is that the effect of that

10 provision is that a federal candidate could

11 solicit funds for the state and local

12 account of a political organization even if

13 it were a so-called leadership PAC.

14 So I have two comments. One is

15 that I think the state and local provision

16 in the solicitation language is narrower

17 than the more generic nonfederal account

18 language and I would draw that to your

19 attention because it specifically says you

20 can solicit the funds for the state and

21 local activities, elections, not for a whole

22 grab bag of activity that is simply not

137

1 federal. I think those funds under this

2 statute under that provision would actually

3 have to be used for state and local

4 elections. That would be point one.

5 Point two is a personal point that

6 I have made over the years. I\'ve been

7 unsuccessful but I\'ll try again. As you

8 correctly note, there is nothing in the

9 statute that establishes leadership PACs. I

10 have long thought that the affiliation

11 provision actually would have made such

12 organizations if under the control of the

13 candidate affiliated with the candidate\'s

14 principal campaign committee and subject to

15 common limits the Commission could always

16 take that approach.

17 MR. NORTON: Thank you. I wanted

18 to come back to I think the spirit behind

19 some questions that Commissioner Sandstrom

20 was asking earlier in an attempt to

21 distinguish GOTV from campaign activity.

22 His example involved the distribution by

138

1 volunteers of pamphlets.

2 Mr. Simon, you said that whatever

3 the problem is it\'s not a problem created by

4 the statute, the concept of GOTV has been

5 around a long time, and I certainly agree

6 with that although I think what we\'re

7 struggling with is that the stakes of

8 failing to define it here are to federalize

9 all kinds of activity under BCRA, all kinds

10 of campaign activity that might not be

11 something that should fall under the

12 category.

13 For example, under the definition

14 of federal election activity there\'s an

15 exception for excluded activity and that\'s a

16 public communication paid for by a state or

17 local party that mentions only a state or

18 local candidate, although that presumably

19 could be a federal election activity if it

20 constituted GOTV or voter registration.

21 What I\'m interested in is whether you can

22 help us understand how to distinguish

139

1 candidate advocacy from GOTV in this

2 context. In other words what attributes

3 might a public communication have that could

4 turn it into GOTV?

5 MR. SIMON: As I said before,

6 that\'s one of the two or three toughest

7 lines in the statute and I think it is a

8 hard question. My view of it is that the

9 Commission should be significantly informed

10 by best practice and by its application of

11 law over the last two decades on what I

12 think is the virtually identical line that

13 has been in the Part 106 regulations since

14 their adoption.

15 In a broader sense I think what

16 Congress is doing in the statute is looking

17 at the way the soft money system has

18 operated under the Commission\'s allocation

19 regulations and seeing there are categories

20 of activity by state parties which were not

21 subject to allocation because they were just

22 pure nonfederal state candidate sorts of

140

1 advocacy, seeing another set of activities

2 which were subject to allocation as federal

3 registration or GOTV activities, and

4 essentially in the statute saying that

5 bundle, that collection, of activities which

6 under long-standing Commission regulations

7 has been subject to allocation we now want

8 treated a different way.

9 The first sense in which they want

10 it treated for many iterations of the bill

11 was that those activities were going to be

12 paid for 100 percent with hard money. As

13 the law ended up those become Levin

14 activities but, again, I think the best

15 frame of reference here is not that Congress

16 was thinking about some new definition of

17 get out the vote activities created for

18 purposes of the statute but merely taking

19 the bundle of activities that have long been

20 demarcated by the Commission\'s regulations

21 and requiring a different treatment for

22 those same activities.

141

1 MR. NORTON: Let me finish with a

2 question about promote, support, attack or

3 oppose. I agree the all the comments were

4 particularly helpful and illuminating. Here

5 I feel the commission is left a bit more to

6 its own devices. The suggestion was made, I

7 think in your comments, Mr. Simon, and it

8 may be in the others that the words,

9 \"promote, support, attack or oppose\" speak

10 for themselves and do not need to be defined

11 by the regulations. I think the same

12 language appears in the submission by the

13 sponsors. My question is whether if the

14 commission were to decide not to issue any

15 regulations that attempt to define those

16 terms any further is it your view, any of

17 the witnesses, that that will provide

18 sufficient notice or guidance to political

19 actors?

20 MR. SIMON: It certainly is my

21 view that it would. At some point the

22 exercise becomes merely one of going to the

142

1 thesaurus and looking up synonyms for words

2 in the statute and, I mean, that\'s a doable

3 activity. I\'m not sure how much actual

4 guidance it would provide.

5 I think two things are important

6 here. First, I think there is a very clear

7 intent in this part of the statute that this

8 provision extend beyond express advocacy and

9 this is an area where Congress was

10 absolutely explicit in saying that the third

11 prong of the federal election activity,

12 public communications that promote or

13 support a candidate, notwithstanding whether

14 they continue to express advocacy I think

15 the problem with the proposed definition is

16 that it is based on the model of an express

17 advocacy definition and inherently is to

18 limit it and I think Congress was intending

19 to capture something broader here.

20 The second point, and this may

21 cause Commissioner Smith to levitate, but I

22 think it\'s clear in the Supreme Court\'s

143

1 decision in Buckley that the kind of

2 precise, clear line drawing that the court

3 required in creating the express advocacy

4 gloss on the original FECA is not required

5 in the case of spending by political

6 committees and candidates and I think the

7 court was quite explicit in saying that when

8 you\'re dealing with political committees and

9 candidates, political committees who have a

10 major purpose or influence in federal

11 elections, that their activities by

12 definition are campaign-related and it\'s

13 only when you\'re dealing with nonpolitical

14 committees, noncandidates, entities whose

15 major purpose is not to engage in federal

16 election activity, that there is a need for

17 the kind of bright line test which the court

18 in Buckley created the express advocacy

19 standard for and which this statute creates

20 a different but I believe equally bright

21 line testing in Title II.

22 So even though there is some

144

1 argument that the promote, support standard

2 doesn\'t create the kind of crystal clarity,

3 sharp line-drawing that the express advocacy

4 standard does I certainly don\'t think it\'s

5 necessary in this context.

6 MR. POTTER: If I could add to

7 that, I think additionally, Mr. Norton, that

8 it\'s important to emphasize that what we are

9 talking about here is speech by party

10 committees. I agree with Mr. Simon\'s

11 comments on Buckley. They can engage in

12 this speech. This is not a prohibition on

13 speech. This is a question of how that

14 speech is funded and which account is used.

15 The commission over a number of

16 years has entertained advisory opinions from

17 political committees that have similar

18 questions both in the electioneering

19 communication history of advisory opinions

20 and in terms of a number of other advisory

21 opinions under the allocation regulations

22 and therefore I think you have the

145

1 flexibility here if you chose to to go with

2 the statutory words knowing that you might

3 get specific advisory opinions about

4 accounting issues and indeed the commission

5 has in the past allowed committees after the

6 fact to revise their accounting based on

7 advisory opinions so I think it doesn\'t in

8 the same sense require an absolute line up

9 front.

10 MR. NOBLE: Mr. Norton, I\'ll make

11 it very brief because I fully agree with

12 Mr. Potter and Mr. Simon about the idea that

13 we\'re talking about party committees here so

14 it\'s a very different constitutional issue.

15 My experience in this area has been that

16 occasionally there is a tendency to get into

17 a game that young children play which is the

18 \"why\" game that no matter what you say to

19 them they say \"why\" and you give them an

20 answer and they say \"why\" and then

21 eventually you have to say because and I

22 think that sometimes happens with language

146

1 which is that well, what do you mean. What

2 do you mean? And what we said in our

3 comments is that we think it\'s specific

4 enough. Go forward with it.

5 You\'re always going to be able to

6 play a game or somebody on the other side is

7 always going to be able to play the game of

8 what does that mean. What does that mean?

9 And the English language is limited to a

10 certain extent in terms of being able to

11 define things and you just have to move

12 forward and here in the context of actors

13 who are only undertaking political activity

14 it\'s a much easier game just to say at some

15 point this is the definition and this is

16 what we\'re going with.

17 COMM. SANDSTROM: Would the

18 general counsel just yield just for one

19 minor point?

20 CHMN. MASON: His time is up and I

21 am going to recognize the staff director but

22 go ahead, Commissioner.

147

1 COMM. SANDSTROM: This applies to

2 tens of thousands of state and local

3 candidates and not just the political

4 parties.

5 MR. NOBLE: Right, well, all

6 political actors. I\'m sorry. I used the

7 shorthand. But people who are involved in

8 politics, who are doing something that is by

9 definition political.

10 CHMN. MASON: Jim Pehrkon.

11 MR. PEHRKON: Mr. Chairman, thank

12 you. Commissioner Potter, Mr. Simon,

13 Mr. Noble, Mr. Sanford and Mr. Shore, thank

14 you for appearing before the Commission and

15 for the detailed comments you\'ve submitted

16 for the record. I\'m going to follow up on

17 an earlier question by the Chairman and both

18 the sponsors of this legislation and the

19 Center for Responsive Politics indicated in

20 their comments that they endorse the

21 establishment of separate Levin accounts.

22 On the other hand we have received

148

1 any one of a number of other comments which

2 suggest that that may not be necessary.

3 There may be good reasons for them and some

4 of the comments said they are wise, they are

5 prudent, good business practice, but the

6 option should still be available in order

7 for the state parties to make that decision.

8 One of the explanations for having

9 this has already been indicated by the

10 Chairman which you\'ve responded to and that

11 it\'s in the area of there may be a conflict

12 with state law. But some of the other

13 explanations that they gave is this is an

14 onerous and burdensome activity for some of

15 the smaller committees and that in addition

16 to that just the mere size and magnitude

17 differs from various state and local parties

18 so you may want to consider other options.

19 In view of these comments do you

20 see any other alternatives to the

21 requirement to establish separate Levin

22 accounts, for example, consideration, using

149

1 the advisory opinion process where a state

2 or local party could come forward with a

3 specific accounting practice which the

4 commission could then decide on, something

5 that may lay out a daily ledger of activity?

6 I\'ll give you another example and

7 then you can go from there. Or whether we

8 just establish standards that these would

9 have to adhere to. But is there any other

10 alternative that may be available?

11 MR. SIMON: Well, I think one

12 alternative is for the state parties to

13 spend just federal money on these

14 activities. In other words, the Levin

15 amendment is an amendment that was put into

16 the law for the benefit of the state party

17 committees to give them more flexibility.

18 They are not bound to avail themselves of

19 that flexibility but if they do and they

20 want to engage in the more permissive rules

21 of the Levin amendment I actually think it

22 is important that they create separate Levin

150

1 accounts because I think it\'s an enforcement

2 matter. As I said before, the Levin

3 amendment as it ultimately emerged was a

4 compromise between competing considerations

5 on the one hand allowing this greater

6 flexibility to the state and local parties

7 on the other hand not wanting to run the

8 risk of allowing those activities to devolve

9 into the same abuses that the legislation

10 was trying to end.

11 So I think the various fences and

12 restrictions around the Levin activities are

13 very important and the enforcement of those

14 restrictions is very important and it seems

15 to me that as a matter of enforcement and

16 oversight of those accounts it will be a

17 much, much easier job for the Commission to

18 require separate accounts.

19 MR. NOBLE: Our position about

20 requiring separate Levin accounts was one

21 very much out of my past experience. I

22 think you have a situation here where you

151

1 can nip a potential problem in the bud from

2 the beginning by just saying you are

3 required to have separate Levin accounts.

4 If you start going down the accounting

5 rules, first of all, I think it\'s arguable

6 whether that the AO process is easier than

7 telling them to set up a separate Levin

8 account. Each one having to come in for an

9 AO may be more difficult.

10 But I think that what tends to

11 happen when you don\'t have something like a

12 Levin account is that everybody comes in

13 with their own reasonable accounting method

14 and what we\'ve seen is then the Commission

15 is faced with the question of whether

16 something is reasonable and whether in this

17 case we can let it go and then somebody says

18 well, you let that one go; now you have to

19 let this accounting method go.

20 And then it really starts falling

21 into a situation where the ends start

22 justifying whatever accounting method they

152

1 want to adopt. I\'m sympathetic to the local

2 party committees talking about having to

3 have separate Levin accounts but it\'s really

4 not that difficult. It will take care of a

5 lot of the reporting problems. As Mr. Simon

6 said, it will avoid a lot of the problems

7 that will come up in terms of loopholes in

8 the act, a lot of questions that will come

9 up, and I think if the Commission sets that

10 standard right now everybody will adopt to

11 it.

12 I think if you don\'t set that

13 standard now of having the separate Levin

14 account, if you allow them to use reasonable

15 accounting methods of even if you put in

16 standard accounting methods of some sort as

17 we\'ve seen recently with Arthur Andersen and

18 others there maybe arguments on what a

19 standard accounting method is. If you do

20 that it\'s almost impossible to go back

21 because they are all going to then later say

22 to you well, we got used to doing it this

153

1 way. Why are you telling us to do separate

2 accounting? This is something I think is

3 very important for the Commission to set the

4 standard up early and say you need separate

5 Levin accounts. It will avoid a lot of

6 problems in the future and will avoid a lot

7 of AOs and a lot of confusion.

8 As we saw when the Commission ten

9 years ago adopted new allocation

10 regulations, everybody complained about how

11 difficult they were, everybody said they

12 wouldn\'t be able to do it, and several years

13 later they were saying to the Commission

14 don\'t adjust them, we figured it out, we\'ve

15 got them working now, and I think you\'ll run

16 into the same thing here.

17 MR. PEHRKON: My sense is also

18 that when you look at the Levin accounts you

19 consider them as absolute, that anybody who

20 is going to participate in this activity

21 needs to establish an account and it

22 shouldn\'t be based upon any threshold of

154

1 activity.

2 MR. NOBLE: Correct. In several

3 places in the comments the Commission asks

4 about de minimus activity. Our overall

5 feeling on that is that the statute does not

6 have any de minimus standard in there and

7 the Commission should not adopt one. I say

8 that recognizing that in enforcement, there

9 is prosecutorial discretion and there may be

10 situations in enforcement where the

11 Commission doesn\'t go after something

12 because it\'s de minimus amount or sends them

13 a warning letter or puts somebody through

14 the ADR process. But I don\'t think in this

15 area or in other areas the Commission should

16 add a de minimus standard to the

17 regulations.

18 MR. PEHRKON: Changing course for

19 a second, is there any reason why federal

20 election activity should not be included in

21 the threshold for electronic filing? I know

22 I\'m totally changing the topic.

155

1 The threshold for electronic

2 filing is \$50,000. Is there any reason why

3 this activity should not be counted toward

4 that threshold?

5 MR. NOBLE: I can\'t think of any

6 off the top of my head.

7 MR. PEHRKON: Well, your comments

8 also said that you didn\'t.

9 MR. POTTER: No, I would think it

10 should be counted.

11 MR. PEHRKON: Mr. Chairman, thank

12 you.

13 CHMN. MASON: Thank you. I have a

14 request from the Vice Chairman for a

15 follow-up question or two and several

16 Commissioners. Do you want to informally do

17 this or should I give us a few minutes a

18 piece or what\'s our desire? We\'ll try two

19 minutes apiece and go from there.

20 COMM. McDONALD: Two-minute

21 warning Mr. Chairman?

22 CHMN. MASON: Two-minute warning.

156

1 Vice Chairman Sandstrom.

2 COMM. SANDSTROM: I think we\'re

3 just scratching the surface regarding a

4 number of questions with respect to, like,

5 finance maintained or control. For

6 instance, if the Log Cabin Republicans of

7 Miami, the one whose members on the Dade

8 County Republic Executive Committee wanted

9 to register voters in the gay bars of Miami,

10 could that be activities swept into the

11 state party?

12 MR. POTTER: So your question is

13 are the Log Cabin Republicans of Miami

14 established, maintained, financed, or

15 controlled by the state party?

16 COMM. SANDSTROM: Yes.

17 MR. POTTER: I think that\'s a

18 factual question.

19 COMM. SANDSTROM: I\'m just saying

20 the only connection is one of them is a

21 member of the executive committee.

22 MR. POTTER: Your only connection

157

1 is one of them is a member of the executive

2 committee? I wouldn\'t think that qualified

3 as established, maintained, financed, or

4 controlled by the state party.

5 COMM. SANDSTROM: And so would

6 that also be true, like, of Speaker ÄÄÄÄ New

7 York Assembly Democrats?

8 MR. POTTER: My answer to this I

9 think on all these hypotheticals, including

10 the earlier ones, the fact that they are

11 fact-specific indicates that you are going

12 to have to look at them on a case by case

13 basis depending on what the circumstances

14 are in each of those cases.

15 COMM. SANDSTROM: Like

16 Commissioner Toner, I have a problem with

17 doing after the fact adjudications ÄÄÄÄ.

18 Voter identification, is the purchase of any

19 voter file for any purpose covered by that

20 term?

21 MR. POTTER: I suppose if it

22 weren\'t used thereafter to contact voters.

158

1 COMM. SANDSTROM: Contact voters,

2 I mean, it\'s going to be used, for instance,

3 for fundraising.

4 MR. POTTER: I don\'t know. I have

5 two reactions, one, what\'s the Commission\'s

6 current practice on that question, secondly,

7 if it were used solely for fundraising then

8 it would probably a fundraising

9 administrative cost.

10 COMM. SANDSTROM: One last

11 question as my time expires, legal defense

12 fund. Could, like, Congressman Trafficante

13 raise soft money to pay for his criminal

14 defense and let\'s say a DNC officer was sued

15 for sexual or age discrimination or RNC

16 officer, could they raise soft money to

17 defend themselves?

18 MR. POTTER: In the DNC officer

19 one being sued for sexual harassment as a

20 member of the DNC?

21 COMM. SANDSTROM: Yes.

22 MR. POTTER: I have to say I

159

1 haven\'t given a lot of though to that. I\'d

2 have to think about whether they could. I

3 can see arguments on both sides of it but,

4 if I may, this goes to a broader issue.

5 Mr. Vice Chairman, you said that

6 you don\'t believe in doing adjudications

7 after the fact. That\'s the only way you\'re

8 going to be able to do them is after the

9 fact. That\'s by their very nature, even

10 judgments after the fact. No matter where

11 you set the law there are going to be

12 factual questions. Unless you\'re going to

13 come up with a 50 million page regulations

14 you\'re not going to deal with every possible

15 factual situation that\'s going to come

16 before you. You can\'t.

17 COMM. SANDSTROM: That poses a

18 danger that I think is very grave for the

19 political system if that\'s the case that we

20 cannot give people sufficiently clear

21 guidance to engage in political activity

22 without them running the risk that we could

160

1 fine them for crossing the line. That\'s

2 discouraging of political activity I

3 personally would find very frightening. My

4 time is up. Thank you.

5 MR. NOBLE: If I could just

6 respond to that. I think you can and will

7 give sufficient guidance. I think you are

8 absolutely right. I agree with you. You

9 have to give sufficient guidance. I don\'t

10 believe you can answer every factual

11 question that may come up.

12 CHMN. MASON: Commissioner Smith?

13 COMM. SMITH: Thank you

14 Mr. Chairman. I just want to make a comment

15 first. I think on the promote, attack,

16 support, oppose, which I referred to by the

17 acronym, the El Paso Clause, is much broader

18 than you\'ve suggested because actually it

19 would affect many, many 501(c) organizations

20 because of the transfer and solicitation

21 limits on political parties. So I do think

22 it\'s a much more difficult, much broader

161

1 issue than party committees. But the

2 question that I want to ask here real quick

3 is it\'s clear that even sometimes when the

4 sponsors of legislation spoke on the floor

5 in their comments there is not an agreement

6 on what congressional intent was and in many

7 cases there is not that kind of speech.

8 So there are times when the

9 language isn\'t entirely clear and we have a

10 choice. I think we all recognize that,

11 which way we\'re going to go, and I just want

12 to ask you about the comments of the

13 Alliance for Justice and the NAACP

14 suggesting that some of the interpretations

15 that your organizations have favored and

16 that the sponsors have suggested would be

17 good would strictly reduce voter

18 registration efforts in minority communities

19 and I wonder what your reaction is to that

20 and should we, given a choice, take the road

21 that does not restrict that kind of activity

22 in traditionally under-represented groups.

162

1 MR. POTTER: My initial reaction

2 to that is that obviously it\'s going to

3 depend on which specific provision they\'re

4 talking about. The ones that I read and

5 think of in response to your question,

6 Commissioner Smith, are those that involve

7 fundraising by members of Congress and there

8 I think Congress was pretty clear about what

9 members could and could not do depending on

10 whether the organization engaged in federal

11 election activity, whether the

12 organization\'s principal purpose was to

13 engage in such activity, and it allowed

14 fundraising in those circumstances with

15 limits. And so I think the main effect of

16 that because there was a great deal of

17 discussion about it in Congress during the

18 course of consideration of this bill was to

19 limit the involvement by members in

20 fundraising for outside groups if those

21 groups were engaged in voter registration

22 activity.

163

1 COMM. SMITH: Including in

2 minority communities?

3 MR. POTTER: Any group.

4 COMM. SMITH: That\'s the impact,

5 that\'s what was intended? It was

6 specifically against voter registration in

7 minority communities?

8 MR. POTTER: It was specifically

9 intended that members of Congress would not

10 be able to fund-raise beyond limits for that

11 activity. It wasn\'t intended and it didn\'t

12 restrict the ability of those groups to do

13 it. It restricted the ability of the

14 members to engage themselves as members in

15 that activity.

16 COMM. SMITH: I suggest that their

17 comments are different but I\'m out of time.

18 MR. SHORE: You\'d also have

19 restricted the role of the parties as well.

20 CHMN. MASON: Commissioner Thomas.

21 COMM. THOMAS: Thank you,

22 Mr. Chairman. Real quickly, I had started

164

1 out talking about how we have to be

2 cognizant of the many allowances that are

3 left state and local party committees in

4 particular and that it\'s premature to have

5 the ÄÄÄÄ party for the party committees but

6 by the same token there are some pretty

7 tough obligations and procedures and

8 processes that this law imposes on party

9 committees in how to set up these various

10 and what not.

11 One aspect that we need to think

12 about is the registration and reporting

13 responsibility. How would you all deal with

14 the effect of the new category of federal

15 election activity? I read the Center for

16 Responsive Political comments to suggest

17 that even in essence the nonfederal share of

18 federal election activity might be

19 considered as counting toward the political

20 committee registration threshold. I had

21 thought that at most we would want to

22 consider what we would view as the federal

165

1 share of that kind of activity because only

2 the federal share would fit within what we

3 have traditionally called an expenditure

4 definition and you\'d have to peg political

5 committee registration as to whether a

6 committee has raised contributions or made

7 expenditures above certain amounts. How do

8 you all react to that?

9 MR. SIMON: On my own part I agree

10 with you that the federal part should count

11 against the threshold but the exemptions to

12 expenditures will still apply. Now, a lot

13 of comments raise the point that the

14 exemptions to expenditures should also be

15 treated as exemptions to the definition of

16 federal election activity. I think that\'s

17 wrong, that activities that are federal

18 election activities even if exempt as

19 expenditures still should be treated as

20 federal election activities under the Levin

21 amendment.

22 MR. NOBLE: We do believe that you

166

1 can count federal election activities

2 overall towards reporting requirements and

3 are now being defined as federal election

4 activities. So they broadened the

5 definition of what is being considered

6 federal election activity. If not the very

7 least is you know where you would go to is

8 that specific federal portion of it.

9 I also agree with Mr. Simon that a

10 the exempt committee exemption does not

11 reach as far as the political committees are

12 suggesting.

13 COMM. THOMAS: Thank you.

14 CHMN. MASON: Commissioner Toner?

15 COMM. TONER: Thank you

16 Mr. Chairman. We are going to hear from the

17 NAACP this afternoon and I do think that

18 their comments are among the most important

19 that we\'ve received. In two important areas

20 that they comment on I just want to get the

21 thoughts of the panel on these issues. One

22 is in terms of how we should construe the

167

1 directly or indirectly finance, maintain, or

2 control language. They urge us to basically

3 have a temporal element on that phrase and

4 specifically they urge us to create a safe

5 harbor for entities that are established

6 prior to the effective date of BCRA.

7 In the last page of their comments

8 they make clear that it\'s their view that if

9 they don\'t do this the Commission will have

10 the unintended effect of harming nonprofit

11 organizations like the NAACP. I just want

12 to get a sense. Is it basically everyone\'s

13 view on this panel that we should not go in

14 that direction? Is that fair?

15 MR. NOBLE: Yes.

16 MR. SIMON: That\'s fair for us.

17 MR. POTTER: I think that there is

18 nothing that I see in the act or the

19 legislative history that would suggest the

20 members of Congress were trying to exempt

21 organizations that were established this

22 year, this summer, funded next fall, et

168

1 cetera, from these provisions. Instead, I

2 think the members\' comments indicate they

3 think there are ways for organizations that

4 are as a matter of fact directly and

5 indirectly established, maintained,

6 financed, or controlled to get out of that

7 over time but that they did in fact intend

8 to have these provisions govern

9 organizations that fit that criterion.

10 MR. SIMON: Just to take that

11 further, I just might add that if you did do

12 something which I believe would be entirely

13 extrastatutory like just impose a

14 grandfather provision I think it would

15 create an enormous problem of allowing these

16 grandfathered entities to continue the very

17 practices that the legislation is aimed at

18 stopping.

19 COMM. TONER: And the NAACP raises

20 another point which I\'d like your thoughts

21 on and that is they believe that in terms of

22 the transition period any excess soft money

169

1 the national committees have they should

2 have the ability to donate those to

3 501(c)(3) organizations. Do you all support

4 that approach or no?

5 MR. POTTER: My own sense,

6 Commissioner Toner, is that they certainly

7 couldn\'t donate them to 501(c)(3)

8 organizations that engaged in federal

9 election activities.

10 COMM. TONER: How about those that

11 don\'t?

12 MR. POTTER: Beyond that I think

13 you have a problem there with the plain

14 wording of the statute which was you could

15 only use it to pay off soft money debts

16 incurred for soft money purposes.

17 COMM. TONER: So you would agree

18 that if you have remaining funds once you\'ve

19 extinguished those debts your choices would

20 be to return the money to the donors or

21 return it to the Treasury?

22 MR. POTTER: Well that\'s correct.

170

1 I think it may present it and put that way

2 in starker terms and the reality is because

3 I think party committees could donate those

4 funds on November 4th when they are going to

5 know what their soft money position is.

6 COMM. TONER: To qualified

7 501(c)(3)s?

8 MR. POTTER: Correct.

9 COMM. TONER: A question. I know

10 we\'ve talked extensively about agency and

11 it\'s going to be a major issue we face. One

12 question I have, both national committees

13 have a structure in which state party chairs

14 serve as members of their national

15 committees and the question that we\'re going

16 to have to confront is are those individuals

17 agents of the national committee. What is

18 your position on that? Mr. Noble?

19 MR. NOBLE: Going back to the

20 answer I\'ve given you all along, it\'s going

21 to depend on the specific facts of the

22 situation but I will say I don\'t believe

171

1 that they are agents for all purposes of the

2 national party committees. It would depend

3 on the specific issue that you\'re dealing

4 with.

5 COMM. TONER: Do you think they

6 could raise bona fide funds for their state

7 parties for nonfederal purposes?

8 MR. NOBLE: Yes, it\'s possible,

9 yes.

10 MR. POTTER: I agree with that. I

11 think it depends. I think those individuals

12 wear in a sense wear two hats and it depends

13 on which of the two hats they\'re wearing in

14 a particular fundraising activity.

15 MR. POTTER: In this area I\'m a

16 big fan of hats. I think it does depend on

17 which hat they are explicitly wearing.

18 COMM. SMITH: Maybe if they had

19 two faces.

20 MR. POTTER: Surely you wouldn\'t

21 call national party committee members two-

22 faced.

172

1 COMM. TONER: Thank you,

2 Mr. Chairman.

3 CHMN. MASON: Commissioner

4 McDonald?

5 COMM. McDONALD: Thank you,

6 Mr. Chairman. Well, let me go back to this

7 clarity and notice issue for a minute just

8 in a general sense. I\'m assuming that our

9 former general counsel is hardened by the

10 clarity from everyone sitting up here

11 because that\'s what he was trying to tell

12 us, I gathered, about the Levin amendments

13 and the reporting process. Isn\'t that what

14 you were trying to explain to us?

15 MR. NOBLE: Yes, the goal should

16 always be clarity but you\'re never going to

17 reach perfect clarity in any part of life,

18 I\'ve learned.

19 COMM. McDONALD: Of course, if you

20 do we\'ll be out of business but as a

21 practical matter, I mean, your point I

22 gathered earlier on, Larry, was, and I

173

1 agreed with it, was that in essence if you

2 get into all these variations that\'s where

3 the problem does begin.

4 MR. NOBLE: That\'s right. My

5 comment on the Levin account, you\'re right,

6 that where you can you come up with a very

7 clear rule but there are certain areas that

8 given the nature, given the facts, given the

9 changing world, that you\'re not going to be

10 able to deal with every situation.

11 I mean, very quickly, I\'d like to

12 read a quote from the Supreme Court in 1973

13 in a case that dealt with First Amendment

14 issues: \"There are limitations in the

15 English language with the respect to being

16 both specific and manageably brief and it

17 seems to us that although the prohibitions

18 may not satisfy those intent on finding

19 fault at any cost they are set out in terms

20 that the ordinary person exercising ordinary

21 common sense can sufficiently understand and

22 comply with without sacrifice to the public

174

1 interest.\"

2 I think those are good words to go

3 by. What you look at is can the ordinary

4 person using ordinary commons sense

5 understand what\'s going on, not whether the

6 regulation has deal with every possible

7 factual situation that can arise.

8 COMM. McDONALD: Well, I\'m

9 confident just looking around the room that

10 there is not a snowball\'s chance in hell

11 that there\'ll ever be clarity because I\'ve

12 sized up all the lawyers in the room and I\'m

13 not of the belief that there will be much

14 clarity. I just think that it is real

15 important because this is a very fundamental

16 issue around this table.

17 For years we\'ve taken the

18 position, particularly in relationship to

19 new regs, if we incorporate a long laundry

20 list of things people say we\'re burdening

21 the process. So then you shorten the list

22 and everybody comes back and says well,

175

1 that\'s not covered, and that is the

2 fundamental issue around this table.

3 I can assure everyone in the

4 listening audience that that\'s a fact and

5 historically it has been true the 20 years

6 I\'ve here. The IRS has been cited here a

7 couple of times this morning. That makes me

8 nervous but nevertheless as a practical

9 matter I know of no regulatory agency that

10 doesn\'t write volumes of regulations,

11 pamphlets, books to aid and assist your

12 cause and without exception I know of not

13 one. I would ask any of my colleagues to

14 find one between now and 2:00 o\'clock.

15 All these issues are always going

16 to be up for debate. I take the Vice

17 Chairman\'s point and I agree with him that

18 we ought to always have as much notice as

19 possible. But law does not evolve out of

20 absolute clarity from a regulatory agency.

21 That simply is not going to happen.

22 These issues are going to be

176

1 debated and they are going to be debated

2 once the regs are passed and they\'ll be

3 debated right up until the Supreme Court and

4 my guess is it will be debated after that as

5 well. I think Buckley probably proved that

6 fairly clearly.

7 But I think all of you have been

8 extremely helpful this morning and I

9 particularly want to commend the Chairman,

10 who has done an outstanding job and figured

11 it almost to the minute, I think. Thank

12 you, Mr. Chairman.

13 CHMN. MASON: Well, I\'m going to

14 ask one follow-up and maybe counsel and

15 staff director will be a few minutes late.

16 I want to get back to this agency

17 issue because I thought I understood all of

18 you arguing for something fairly broad,

19 which is to say in Mr. Simon\'s testimony if

20 we have an individual serving in the

21 fundraising capacity with an honorary title

22 let\'s take the Bush Pioneers and let\'s say

177

1 one of the Bush Pioneers goes out raises

2 money for an organization called Republicans

3 for Clean Air.

4 I took it that your comments were

5 suggesting well, gee, this person is

6 authorized to raise money for the Bush

7 campaign. He\'s now gone out and raised

8 money for an electioneering communication

9 and therefore that would be attributable to

10 the Bush campaign. Is that what you meant?

11 MR. SIMON: I would respond to

12 that by reference to the Commission\'s

13 existing regulation which defines \"agent\" to

14 include any person who\'s been placed in a

15 position within the campaign organization

16 where it would reasonably appear that in the

17 ordinary course of campaign-related

18 activities \--

19 CHMN. MASON: I\'m familiar with

20 it. I asked a generic question. You say

21 you need facts and so I\'m giving you a

22 situation where we\'re all pretty aware of

178

1 the facts.

2 MR. SIMON: My reaction is that

3 those facts fit within the scope of the

4 definition.

5 CHMN. MASON: So you think that

6 within that particular instance within the

7 law that that activity should have been

8 attributable to the Bush campaign?

9 MR. SIMON: Operating in a

10 position where he is an agent of the federal

11 candidate, yes.

12 MR. POTTER: I do think so, I

13 thought so before, I still think so. I

14 think the distinction I was drawing with the

15 state party chairs is that we need to

16 recognize that there are going to be

17 circumstances where individuals are publicly

18 held out wearing two hats, being in two

19 positions simultaneously.

20 They are both going to be a state

21 party chair with state responsibilities and

22 by virtue of that position they are going to

179

1 be a member of the national committee. It

2 seems to me there you would fairly ask which

3 role they were filling and I think that is

4 distinct from a situation where an

5 individual is a fundraiser for a campaign

6 and that is the position they hold.

7 They then create a new

8 organization to engage in political

9 activity. I think there, absent other

10 information, you would say that they were

11 acting as an agent of the campaign in

12 creating that new organization.

13 CHMN. MASON: Even if the campaign

14 didn\'t know about it?

15 MR. POTTER: Well, they are a part

16 of the campaign.

17 CHMN. MASON: Mr. Norton?

18 MR. NORTON: Thank you,

19 Mr. Chairman. I don\'t have anything

20 further.

21 CHMN. MASON: Mr. Pehrkon?

22 MR. PEHRKON: No further comments.

180

1 CHMN. MASON: We will be in recess

2 until 2:00 o\'clock. Thank you.

3 (Whereupon, at 12:12 p.m., a

4 luncheon recess was taken.)

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181

1 A F T E R N O O N S E S S I O N

2 (2:02 p.m.)

3 CHMN. MASON: The hearing of the

4 Federal Election Commission on prohibited

5 excessive contributions will come back to

6 order. We have a panel this afternoon

7 consisting of Laurence Gold from the

8 AFL-CIO, Keith Hong representing the NAACP,

9 and Paul Sullivan representing the Latino

10 Coalition and the Taxpayer Network. You

11 gentlemen are familiar to all of us.

12 Welcome back. You\'ll see we have some

13 little lights up here and those will tell

14 you what your time is like. If you would

15 please summarize your opening comments in

16 about five minutes we\'ll then go to a round

17 of questions from commissioners, general

18 counsel, staff directors for about ten

19 minutes each, and then we may come back for

20 a second round if there is time.

21 We\'ve allotted a couple of hours

22 for this panel and the Q&A period is

182

1 particularly helpful to us. I understand,

2 Ki, you\'re going to go first?

3 MR. HONG: Yes.

4 CHMN. MASON: Go right ahead.

5 MR. HONG: Thank you,

6 Commissioner. I\'m here on behalf of the

7 NAACP National Voter Fund, which is, just to

8 clarify, not the NAACP but an affiliated

9 501(c)(4) nonprofit organization. The

10 primary purpose for which this entity exists

11 is to increase African American voting

12 participating and to get African Americans

13 out to the polls regardless of party

14 affiliation and on a nonpartisan basis. The

15 NAACP on behalf of the National Voter Fund

16 is also in the business of electoral reform,

17 to make sure that every vote is counted in

18 succeeding elections.

19 I\'m here today because we really

20 have three areas of concern regarding these

21 proposed rules on soft money. The first has

22 to do with the definition of federal

183

1 election activity, in particular the timing

2 issue relating to GOTV. The act states that

3 for defining federal election activity it

4 should include GOTV activity that is in

5 connection with an election where a federal

6 candidate \"appears on the ballot.\" We

7 believe that the only way to achieve the

8 purpose and the clear meaning of the statute

9 to cover GOTV that is actually engaged in

10 after a federal candidate actually

11 qualifies, i.e., is certified to be on the

12 ballot in a particular state. That\'s

13 consistent with the plain language of the

14 rule and we believe the intent of the

15 statute as well.

16 It is also important to note that

17 when reading this in addition to being

18 consistent with the plain language that this

19 provision should be and has to be read

20 narrowly because if it is read broadly it

21 will unduly restrict the ability of

22 nonprofit organizations such as the National

184

1 Voter Fund from engaging in bona fide and

2 legitimate nonpartisan activity. As I

3 mentioned before, that\'s the primary purpose

4 of this organization, to get African

5 American voters to the polls regardless of

6 party. And if this provision of GOTV is

7 read too broadly it will unduly restrict

8 that ability.

9 The second area where we have

10 concern has to do with defining when an

11 entity is established, maintained, financed,

12 or controlled by a party committee. This,

13 too, needs to be read very narrowly and in

14 particular we have concern regarding the

15 financing test, the fact that the rule

16 appears to create as a separate test for

17 this provision whether an entity receives

18 \"significant funding\" from a party

19 committee. We have concerns there because

20 the purpose behind the statute and what the

21 provision of the statue was trying to get at

22 is really the party committees using a

185

1 surrogate, an entity, to get around the rule

2 and to create significant funding in and of

3 itself as a test for this standard. It

4 doesn\'t get to the purpose.

5 Just because a party committee has

6 given a certain amount of funds to an entity

7 doesn\'t mean that it is controlling that

8 entity or acting through that entity in any

9 way. We believe that the correct approach

10 to this is to first of all rely on the test

11 of affiliation that\'s already out there on

12 this provision and to the extent that you

13 want to create a separate test based solely

14 on funding it should be much more than

15 significant funding, whatever that means.

16 And that\'s the other problem we have with

17 it, it\'s just too vague as to when a funding

18 is significant and it could unduly ÄÄÄÄ

19 legitimate activity. But if funding is

20 going to be a test in and of itself it

21 should be more than significant. It should

22 be virtually all funding, something that

186

1 reaches to the level of control that this

2 statute has contemplated under this

3 provision.

4 The other concern we have

5 regarding this funding test has to do with

6 the timing. Currently under the proposed

7 rules when defining when an entity is

8 significantly funded it actually says at any

9 point, meaning a donation that may have been

10 made by a party committee to a nonprofit

11 organization ÄÄÄÄ could make the entity

12 considered to be maintained or controlled by

13 the party committee. We believe that the

14 statute should only ÄÄÄÄ and in implementing

15 the agency should only care about this

16 provision after the effective date of the

17 statute, which is November 6th, and that

18 what was done before the effective date

19 shouldn\'t really matter. It creates too

20 much of a look-back and too much of

21 uncertainly as to when an entity would

22 qualify under this.

187

1 These are our main concerns. We

2 also commented on the restrictions on the

3 ability of the national party committee to

4 deplete its funds and just in short we

5 believe that they should be allowed to use

6 their funds between November 6 to January 1

7 to the extent that they are allowed to use

8 it now, which is consistent with the plain

9 language of the statute in particular.

10 Although the statute says that the funds

11 should be used solely to retire debt and to

12 pay the obligations of the soft money

13 account or the nonfederal account it\'s

14 silent as to what to do with the money after

15 you\'ve paid that and in fact to the extent

16 that you can read in an intent to that

17 silence because the statute explicitly only

18 prohibits the use of that money for use in

19 connection with retirement of federal

20 account debt it strongly implies that

21 anything else should be permitted after

22 retiring the necessary debt of the non-

188

1 federal account. Thank you.

2 CHMN. MASON: Thank you. I

3 apologize I didn\'t go through the light

4 system but you\'ll get a flashing green light

5 after three minutes and a yellow light after

6 four minutes and a red light after five and

7 please, Larry and Paul, feel free as Ki did

8 to finish your thoughts even when you get

9 the red light. Larry Gold.

10 MR. GOLD: Thank you,

11 Mr. Chairman. I appreciate the opportunity

12 to testify here on behalf of the AFL-CIO.

13 Our written comments are principally

14 although not exclusively focused on several

15 aspects of the proposed regulations that

16 directly or indirectly implicate the

17 interest or activities of labor

18 organizations, their obligations, and their

19 objectives under the new law. Today in my

20 opening remarks I\'d like to focus on just

21 three provisions, the definitions of \"agent\"

22 and the phrase \"directly or indirectly

189

1 established, maintained, financed, or

2 controlled,\" and the treatment of the

3 receipt of Levin funds.

4 The definition of \"agent,\" is, of

5 course, very important throughout Title I

6 and has implications not only for the party

7 committees but also for individuals who

8 participate in party committees and operate

9 principally or otherwise in different

10 capacities. The definition of \"agent\" is

11 really one of the most important things that

12 the Commission will address and deciding in

13 a regulatory sense what is the scope of the

14 new law.

15 Principally what we\'re concerned

16 with are individuals who have positions in

17 party organizations at the national, state,

18 and local level and are officers or agents

19 of the party in one capacity but who

20 principally or substantially operate in

21 different capacities. For example, officers

22 of labor organizations are of immediate

190

1 concern to AFL-CIO but also officers of

2 other groups and businesses and the like who

3 as a matter of their civic participation

4 participate in party affairs and even have

5 positions in political parties. And it\'s

6 very important that the regulations as they

7 define \"agent\" in the many ways that \"agent\"

8 is used in Title I not overstep what is in

9 fact the person acting on behalf of a party

10 rather than acting on behalf of the

11 organization that may employ him or with

12 respect to which he or she also performs

13 services.

14 We think that the draft as written

15 pretty well hits on the mark what a good

16 definition of agency ought to be for these

17 purposes. The commission has asked a series

18 of questions and in the explanation and

19 there is a series of questions that

20 obviously arise. We think it is appropriate

21 to limit the notion of agent to actual or

22 express written or oral authority to act on

191

1 behalf of in this case a party committee.

2 We think it could be refined to say more

3 specifically that it ought to refer to the

4 specific activity for which that person has

5 received actual express written or oral

6 authority. And the Commission ought to be

7 wary of notions of apparent or applied

8 authority because of the multiple capacity

9 concern that I described.

10 Generally the Commission we

11 believe ought to be guided here by the fact

12 that, of course, what it\'s regulating here

13 is core First Amendment activity and it

14 ought to be fostering civic involvement in

15 parties by individuals who really act as

16 volunteers even if they are officers or

17 officials often of party groups. And it

18 really needs to recognize that, as the act

19 does throughout, I think, and always has,

20 that different individuals have different

21 capacities and the law regulates them in

22 different ways and just because one is

192

1 acting on behalf of one group or

2 organization or party at one point does not

3 make that person an agent for all purposes

4 and that person has different rights and

5 obligations as a member of a party

6 committee, a steering committee, let\'s say,

7 or as an officer of a labor organization

8 guiding the affairs of that labor

9 organization.

10 The next definition I\'d like to

11 address is that for directly or indirectly

12 established, maintained, financed, or

13 controlled. Now, this phrase appears in

14 that way in multiple parts of Title I but

15 doesn\'t in one spot, that is, in Rule

16 441ÄÄÄÄ, which describes the limitations of

17 persons who may donate up to \$10,000 a year

18 to a state, district, or local committee.

19 This is part of the so-called Levin

20 amendment.

21 There is no explanation of the

22 difference why the modifier \"directly or

193

1 indirectly\" appears in some portions of the

2 statute but not there and the phrase itself

3 already does appear, as the Commission,

4 knows, in 441(a)(5). We think that the

5 effort in the regulation to define what this

6 phrase means is really very confusing and

7 overreaching. It starts with the current

8 100.5 (g) factors but then goes well beyond

9 in several pages of new definitions or

10 descriptions of what that relationship ought

11 to be and some of these are real hair

12 triggers. Ki Hong just mentioned one, at

13 least, the fact that a significant amount of

14 funding at any point could cause that

15 relationship to spring to life.

16 The notion of providing any funds

17 to an organization, the notion of providing

18 consulting services, even presumably unpaid

19 consulting services, would according to the

20 text of the proposed regulations establish

21 that relationship. We think it would be

22 best for the Commission to maintain the

194

1 current factors at 100.5(g)(4)(2), the

2 circumstantial factors, and perhaps include

3 a modifier where appropriate of \"direct or

4 indirectly\" with respect to those, at least

5 have a settled meaning or at least the

6 regulated committee is used to it and the

7 Commission has applied them over time.

8 It would be simpler to have one

9 kind of definition that applies to the

10 different parts of the act, especially when

11 the operative statutory language is

12 virtually identical to statutory language

13 that\'s now there and is a familiar phrase.

14 My time is up. Let me just make

15 one comment about the Levin amendment with

16 respect to the affiliation rules. We think

17 the Commission is right in not aggregating

18 the state, district, and local committees

19 with respect to who can receive Levin funds,

20 that they are not automatically affiliated

21 for these purposes. That is, I think,

22 apparent from the text and from the

195

1 legislative compromise that produced it but

2 on the donor side of who can contribute to

3 Levin committees the statute again uses that

4 more simplified phrase \"established,

5 financed, maintained or controlled\" by a

6 person and the statute, of course, defines

7 \"person,\" and we think the 100.5(g)(4)(2)

8 factors alone ought to be applied to define

9 that kind of relationship that would

10 harmonize it with the law as is and would

11 reduce confusion.

12 CHMN. MASON: Thank you.

13 Mr. Sullivan?

14 MR. SULLIVAN: Thank you

15 Mr. Chairman. Mr. Chairman and members of

16 the Commission, on behalf of the Latino

17 Coalition and the Taxpayer Network, both of

18 whom are not-for-profit corporations, it\'s a

19 pleasure to appear before you today and

20 offer some thoughts on the nonfederal funds

21 notice of proposed rule making which the

22 commission is presently undertaking in

196

1 compliance with the Bipartisan Campaign

2 Reform Act of 2002.

3 Permit me to first extent my

4 appreciation and compliments to the

5 Commission and the staff for the

6 presentation you have assembled on the

7 notice of proposed rule making. The issues

8 here are very complex and the time frame for

9 which you have to complete this chore is

10 very restrictive. With that appreciation in

11 mind I trust my comments today and my

12 previously submitted written comments will

13 be received by the Commission as an attempt

14 to offer sincere points of concern which

15 will hopefully assist you in your task of

16 drafting clear and appropriately construed

17 regulations.

18 The focus of my comments today is

19 in three primary areas. All three of us

20 apparently have the same general area of

21 concern but I will assure you this was not

22 \"coordinated\" before we came here. The

197

1 first of these is one of a general nature,

2 namely terminology and the corresponding

3 definitions that will be associated with

4 this rule making. Second is the definition

5 and the scope in the application of the term

6 \"agent\" as it is set forth at Section

7 300.2(b). Third is the definition, scope,

8 and application of the term \"to solicit and

9 direct\" as set forth in 300.2(m).

10 There are obviously scores of

11 issues which will have a direct impact upon

12 political party committees. I defer to the

13 political party panels that you will hear

14 from tomorrow on these specific issues. The

15 three topics which I have just identified

16 however, are those which I consider the most

17 important to my clients and to other non-

18 political party entities which will be

19 impacted by these regulations. Permit me to

20 just touch on the highlights of these three

21 areas of concern in an attempt to lay a

22 foundation for our dialogue today.

198

1 First, a review of the 25-plus

2 years of the Commission\'s enforcement of the

3 FECA reveals that some of those

4 controversial and problematic areas for the

5 Commission and the regulated community have

6 centered on basic definition of terminology

7 in the act and as expounded in the

8 regulations. Whether it be an attempt to

9 distinguish the term \"contribution\" under

10 the \"influence an election\" standard found

11 at Section 431 and the in-connection

12 standard for corporate contributions at

13 Section 441(b) the definition of a member,

14 the definition of expressed advocacy, that

15 standard which has impacted the issue ad

16 controversy during the last 10 years, much

17 of the concern and the confusion in the

18 regulated community can be traced to the

19 definition of those specific terms.

20 My point on this issue is

21 two-fold. First, I\'m a strong advocate that

22 the Commission should consider these

199

1 definitions and the terminology as used in

2 the FECA as terms of art and correspondingly

3 avoid what I consider the loose application

4 or the slang jargon which has surfaced in a

5 number of fronts during the past years and,

6 quite frankly, has led to confusion as to

7 the specific parameters of those

8 definitions, for example, the terms \"soft

9 money,\" \"leadership PACs,\" and even the use

10 of the term \"contribution\" when used outside

11 the scope of a federal committee.

12 Secondly, the regulations afford

13 the Commission the opportunity to be quite

14 specific in its definition, including

15 explicit examples of persons and activities

16 which are included or excluded from

17 particular definitions and I would certainly

18 encourage the Commission especially in the

19 rule making of today to take advantage of

20 laying out those types of examples.

21 This leads me to the second issue,

22 specifically the definition of the term

200

1 \"agent.\" As noted in my written comments, I

2 am an advocate that the scope of the agency

3 relationship should be defined in the

4 regulations as one that is expressive in

5 nature, not implicit. Based upon my earlier

6 comments I would also strongly encourage the

7 Commission to very specifically and

8 thoroughly set out the activities and

9 persons it envisions as coming within that

10 agency relationship. It should be limited

11 in scope to an express authorization to

12 solicit and/or direct nonfederal funds.

13 I also have concerns in this area

14 regarding the impact these regulations would

15 have on fundraising vendors and consultants,

16 which we can discuss perhaps a little

17 further during the question and answer.

18 The last point is a similar

19 concern expressed to the definition of

20 \"solicit or direct.\" Notably, I would

21 submit that this definition should be

22 limited to a specific expression requesting

201

1 an audience to make a donation of nonfederal

2 funds to an entity. I would further submit

3 that the broader term of \"solicitation,\"

4 which has historically been utilized by the

5 Commission in the case of solicitations by

6 separate segregated funds to its restricted

7 class, is one which is far too broad in

8 nature for the type of activities

9 contemplated to be restricted by the

10 provisions of these regulations.

11 Mr. Chairman, with those thoughts

12 and comments I will conclude these opening

13 comments. I would welcome the opportunity

14 to respond to your questions pertaining to

15 any of these matters or any other issues

16 contained in the notice of proposed rule

17 making. Thank you.

18 CHMN. MASON: Thank you, Paul. I

19 think in this round of questions we\'re going

20 to go first to Commissioner Smith.

21 COMM. SMITH: Thank you,

22 Mr. Chairman. I thank all three of you for

202

1 coming and for the comments you\'ve provided

2 us. I\'ll start, Mr. Hong, with a question

3 for you. You strongly disagree with the idea

4 of using the entire two-year run-up period

5 for determining when a federal candidate

6 appears on the ballot for purposes of

7 covering get out to vote activity. Would

8 you just explain a little bit more? In your

9 comments you allude to it without really

10 providing details. I wonder if you might

11 just explain a bit more why such a broad

12 reading of the phrase \"in connection with an

13 election in which a federal candidate

14 appears on the ballot\" would cut into the

15 NAACP National Voter Funds programs and

16 voter registration activity. How would this

17 actually affect this in practice?

18 MR. HONG: Well, the way that the

19 definition of federal election activity

20 would apply and create implications not just

21 for the National Voter Fund but for all

22 nonprofit organizations is that if an entity

203

1 is deemed to have that as its primary

2 purpose, federal election activity federal

3 office-holders and congressional members

4 would be prohibited from either soliciting

5 or directing money for that nonprofit

6 organization. So defining federal election

7 activity broadly would hinder the ability of

8 nonprofits to raise money for legitimate,

9 nonfederal election-related, nonpartisan

10 GOTV activity and that\'s why it\'s so

11 important for nonprofit organizations.

12 Now, the issue of whether the GOTV

13 should cover the ramp-up time to an

14 election, as I mentioned, the plain language

15 of the statute uses the word \"appears\" and

16 it doesn\'t say \"will appear\" or \"is likely

17 to appear.\" It says a ballot on which a

18 federal candidate \"appears\" and that, I

19 think, is a very important distinction as to

20 the intent of the statute.

21 But as a practical matter for

22 nonprofit organizations to read this

204

1 broadly, especially for nonprofit

2 organizations out there to get the vote out

3 as a civic duty matter regardless of party,

4 it would limit their ability to raise funds

5 in a very legitimate, nonpolitical arena.

6 COMM. SMITH: Isn\'t it fair to

7 know that the federal candidate is going to

8 appear on the ballot even though nobody has

9 specifically qualified for the ballot?

10 MR. HONG: Well, it\'s safe to

11 assume it but then again with the interest

12 of having to interpret this statute and this

13 provision in a narrow fashion because of the

14 danger that it would impose unnecessary

15 restrictions on the ability to do real GOTV

16 whether or not it\'s federal or on a

17 nonelection basis. I think it mandates,

18 actually, that we read this by it\'s very

19 terms, which is \"appears.\"

20 COMM. SMITH: Mr. Sullivan, you\'re

21 representing the Latino Coalition, a

22 nonprofit group, and would you generally

205

1 agree with assessment of have anything to

2 add to Mr. Hong\'s comments on that?

3 MR. SULLIVAN: I In my written

4 comments concur with the position of the

5 candidate on the ballot and would concur

6 with Ki\'s comments on the particular issue.

7 If I can just add one additional point I

8 don\'t think it\'s been raised, the Latino

9 Coalition being a membership organization

10 and the question surfaces whether the

11 partisan communication of messages under the

12 114.3 of the regulations would be exempt

13 from this type of a prohibition that\'s

14 presently contained in the regulations.

15 It\'s our position that it would. In other

16 words that exemption would still apply and

17 effectively exempt the restriction as

18 presently written here.

19 But I think that\'s a somewhat of a

20 unique point relative to membership

21 organizations and would I think have impact

22 on all three of our groups. We\'d like to

206

1 see the Commission comment on that

2 specifically, though, if that\'s your

3 interpretation.

4 COMM. SMITH: Mr. Gold, what do

5 you think about that?

6 MR. GOLD: Well, the statute in

7 20(a)(2) the definition says voter

8 identification, get out to vote activity, or

9 generic campaign activity and it doesn\'t end

10 there. It continues, conducting in

11 connection with an election in which a

12 candidate for federal office appears on the

13 ballot regardless of whether a candidate for

14 state or local office also appears on the

15 ballot. If this phrase ended with the

16 definition of the three activities then you

17 might say that this is a provision that

18 ought to cover an entire election cycle,

19 that is, at all times but it doesn\'t.

20 Without any helpful explanation it

21 does say conducted in connection with an

22 election. That has to mean something less

207

1 than two years because the fact is that I

2 think in most congressional districts an

3 election cycle begins immediately this year

4 after November 6th. Somebody may already be

5 qualified to be a candidate because he or

6 she satisfies the very minimal definition in

7 the statute as it is to be a candidate and

8 everything potentially could affect the next

9 election.

10 So there has to be some point in

11 between the two and the Commission needs to

12 come up with some, I think, reasonable

13 standard that is objective. Perhaps it need

14 not be uniformed everywhere but ought to be

15 tied to something objective and that\'s why

16 we had suggested perhaps during the actual

17 federal election year, that is, even

18 numbered years or the point where in that

19 state a particular human being does qualify

20 to be on the ballot and there is a reference

21 to appearing on the ballot here.

22 So there ought to be something

208

1 there. We note that there were some

2 comments that that this applies at all times

3 everywhere except in those few states that

4 hold state and local elections that odd-

5 numbered years. I think that\'s creative but

6 in nowhere faithful to the text of the

7 statute and I\'m not aware of any indication

8 in the legislative history that there were

9 some consensus or perhaps suggestion. I may

10 be wrong about the suggestion but certainly

11 consensus if that\'s how it would be limited.

12 COMM. SMITH: Well, I mean on that

13 latter issue as I indicated in this

14 morning\'s panel I also think that\'s somewhat

15 inaccurate in the sense that in at least a

16 great many states and quite likely I would

17 say a majority of the population there are

18 always some nonfederal elections going on in

19 odd-numbered years. For example, most of

20 our big cities elect their mayors in odd-

21 numbered years. So it\'s not really just

22 five states and then some of those cities,

209

1 New York City alone, has a population larger

2 than most of those states that have the odd-

3 numbered years. So I do think that either

4 creates a standard which is too broad or

5 that trimming it down doesn\'t open up the

6 alleged loophole that we\'ve already heard

7 there would be because most states in fact

8 do that.

9 But let me switch a little bit and

10 ask about the question of financed,

11 maintained, and controlled by a party. As I

12 read the statute it says that this applies

13 to an entity that is established, financed,

14 maintained, or controlled by a party and so

15 I wonder and in particular, Mr. Hong,

16 because you\'d addressed it at some length

17 but any of you if you focus on the verb

18 here, \"is,\" that would suggest that these

19 activities which are not one-time things,

20 like established, but would suggest

21 established ongoing activity therefore would

22 apply only during the current election

210

1 cycle, is financed during this cycle, is

2 maintained, or is controlled during the

3 present cycle, and if that would alleviate

4 many of your concerns, if that would be a

5 satisfactory type of statutory construction

6 here using the plain language, the verb in

7 the statute.

8 MR. HONG: That would be

9 satisfactory. There is nothing in the

10 statute that reaches back before the

11 effective date and that\'s what we are

12 concerned about. So it\'s not unless you use

13 the word \"is\" and that language becomes

14 effective as of the effective date of the

15 statute. Then I think that solves the

16 problem.

17 COMM. SMITH: I\'m not seeing

18 anybody else eager to jump at that. Let me

19 just go on and ask one other question here

20 and I think our time will be up but the

21 Alliance for Justice in their written

22 comments suggested that we should include a

211

1 presumption that a 501(c)(3) organization

2 does not make disbursements for federal

3 election activity given that doing so would

4 appear to be a violation of their 501(c)(3)

5 status. I just wondered if any of you would

6 care to comment on that particular matter.

7 Does that seem like a logical approach?

8 Should the Commission include that kind of

9 presumption in the rules, that sort of a

10 safe harbor?

11 MR. SULLIVAN: I wouldn\'t think

12 that\'s necessarily a safe harbor. Certainly

13 under tax code it\'s an accurate statement;

14 however, the (c)(3)s are also able to do

15 voter registration, voter activity, which

16 may come under the umbrella of some of the

17 areas that you are in fact regulating with

18 these new regulations today so I think the

19 statement is accurate. It merely doesn\'t go

20 far enough, Commissioner.

21 COMM. SMITH: It would be a start

22 but it wouldn\'t give you the kind of

212

1 protection that you\'re actually looking at?

2 MR. SULLIVAN: That\'s correct.

3 COMM. SMITH: Go ahead, Mr. Hong.

4 MR. HONG: I also wanted to add

5 that it is true that 501(c)(3)s as a tax

6 matter cannot engage in partisan activity

7 but even 501(c)(4) organizations are

8 required by the tax law to engage in the

9 majority of its activities in nonpartisan

10 activities. So just to create a safe harbor

11 for (c)(3)s I don\'t think would reflect

12 what\'s actually going on under the tax law.

13 COMM. SMITH: Mr. Gold, I\'ll go

14 back to you one last question here. I

15 wonder if you would talk a little bit about

16 the effect of using a sweeping definition of

17 the term \"agent\" would have on volunteer

18 activity in an organization such as the one

19 you represent?

20 MR. GOLD: Sure. I\'m aware of

21 many instances where officials of local

22 unions and even national unions are active

213

1 in political party organizations. They are

2 on a steering committee, they are national

3 committee persons, they are vice chair of

4 this or that and it\'s not unique to labor

5 organizations but I think citizens, people

6 who are active in the political process and

7 interested, intuitively believe that the

8 fact that they are employed somewhere

9 doesn\'t mean that they can\'t be involved in

10 politics and can\'t participate in party

11 committees. Obviously there can\'t be some

12 artificial distinction between the two.

13 And these are also people

14 generally, including very sophisticated

15 people, who are not extremely well-versed in

16 the arcane details of campaign finance laws.

17 They know the general rules and they know

18 many of them very specific rules and they

19 are guided by counsel and the like, and by

20 good practice and all. But if you have I

21 think a standard that really threatens to

22 confuse and blur the capacities that people

214

1 are operating in and people have conducted

2 their affairs over the years, knowing that

3 they do have different capacities and the

4 fact that they are doing something in one

5 capacity doesn\'t necessarily interfere with

6 their ability to act otherwise I think it

7 has a potential chilling effect and the

8 Commission it\'s really important that the

9 rules be written in such a way that in this

10 case \"agency\" is defined in a way that truly

11 honors the distinct capacities that citizens

12 operate in.

13 And I can tell you just from

14 advising unions at all levels which are in

15 themselves volunteer organizations in their

16 own activities when members participate in

17 union affairs they are volunteers in a very

18 analogous way that people are who do work

19 for political party committees and it is

20 always the last thing they want to hear

21 about, that what they are doing could trip

22 them up somehow or cause them to breach

215

1 standards that they don\'t know about and

2 that intuitively don\'t make any sense to

3 them and I think the same applies here.

4 COMM. SMITH: Thank you.

5 MR. GOLD: Can I make one comment

6 on an earlier question?

7 COMM. SMITH: Do that to the

8 Chairman.

9 MR. GOLD: Very briefly. You

10 asked that something I can consider whether

11 the word \"is\" in the statute might have some

12 salience in defining establishment and

13 finance and control. I think it\'s only

14 there when it\'s used in the sense of is

15 directly or indirectly established, et

16 cetera, not where the phrase appears without

17 the modifier, and I would just on first

18 blush hesitate to credit that with a

19 significant difference or distinction as far

20 as temporally. I think \"directly or

21 indirectly\" is the key difference, whatever

22 that means, rather than the word \"is.\" I

216

1 think that bears further thought. I hadn\'t

2 thought of it before but I wanted to just

3 throw out that fact.

4 CHMN. MASON: Commissioner

5 McDonald?

6 COMM. McDONALD: Mr. Chairman,

7 thank you. I appreciate all the panel being

8 here, Ki and Larry and Paul. It\'s good to

9 see all of you. I can\'t remember, Ki, if I

10 saw you this morning but you would have been

11 proud of all the comments made about the

12 NAACP and how valuable they were and I was

13 thinking gee, I wish they had had this kind

14 of strength in Florida that they appear to

15 have in today\'s meeting. So if you missed

16 the morning activities I hope you\'d go back

17 and listen to the praise that was heaped

18 upon you.

19 I have several questions that are

20 fairly fundamental to this discussion and

21 maybe if I could I think I\'ll start with

22 Larry if I might, simply because I

217

1 appreciate your comments, Larry. I think

2 you succinctly summarized where we have to

3 be in terms of the process and you were kind

4 enough to point out that you understood we

5 had to be here even though you were suing us

6 simultaneously and we appreciate that. That

7 was awful good of you.

8 But let me ask you a very serious

9 question, and this came up this morning and

10 it\'s going to be the crux for some of us in

11 terms of trying to arrive at a decision

12 about some of these issues. Agency is a big

13 matter. You\'ve responded to the questions

14 by Commissioner Smith and you mentioned it

15 in your opening comments and sitting here as

16 a regulator and someone who is trying to

17 figure out what our responsibilities are I

18 read carefully what you\'ve had to say and

19 what others have had to say and I think you

20 raised some awfully good points.

21 As you may know and may have seen,

22 on the 10th of April we received a document

218

1 from the four folks who are credited with

2 this bill. Their position is that \"agency\"

3 clearly means something decidedly than what

4 a number of people have testified to and let

5 me just comment briefly on what they said.

6 On the letter of the 10th of April on page

7 14, going to their summary. \"It is

8 therefore critical that the term \'agent\' be

9 construed to include anyone who has an

10 agency relationship with the entity under

11 common law understanding of that term. The

12 proposed definition that limits agents to

13 those who have actual or express authority

14 to act for the principle would undermine the

15 purpose and intent of BCRA. It will allow

16 parties and candidates to avoid the

17 prohibitions of the new law through the use

18 of staff or intermediaries as long as they

19 never expressly authorize the raising of

20 soft money on their behalf.\"

21 And it goes on obviously to talk

22 about other aspects of that. We are sitting

219

1 here trying to implement what the Congress

2 put forth. We all have a theory of what

3 that is. Maybe some people already know the

4 answer to the question before it\'s written

5 on the board. I don\'t fit in that category.

6 What do you think in view of those

7 kinds of comments from the authors of the

8 bill? Where does that put us in

9 relationship to what is obviously a very

10 sensitive and ticklish area?

11 MR. GOLD: Well, let me make a

12 general comment about comments by the

13 authors of the bill. Clearly the two

14 principal sponsors in the Senate and the

15 House were prime movers of the legislation

16 but I don\'t believe there is any deference

17 that the Commission owes to what they say

18 about the meaning of the statute after the

19 statute has been enacted and signed into

20 law.

21 They have full rights to

22 participate in the rule making. They have

220

1 intervened in the litigation that you

2 referred to and that\'s perfectly

3 appropriate. But if part of your question

4 is how the Commission should react to what

5 they say on April 10 or on May 20 or on June

6 4 or even the future I don\'t think it merits

7 any greater deference or consideration than

8 to any other commenter that appears before

9 the Commission and submits comments.

10 On the specifics I think that the

11 key question here on agency is again just

12 making sure that the Commission\'s

13 regulations and enforcement truly identify

14 people who are acting on behalf of or at the

15 behest of a party organization in this case

16 and apply those rules to that person rather

17 than assume that because somebody, let\'s

18 say, is on the steering committee of the

19 Republican Party in some county in Oklahoma

20 or anywhere no matter what that person does

21 that person is an agent at all times and for

22 all purposes when that person may be engaged

221

1 in political activity in his or her capacity

2 whether a labor organization or a business

3 group or a nonconnected PAC or whatever it

4 is and that\'s the key here.

5 The common law of agency obviously

6 sets standards across the board in a lot of

7 very important ways. Then you have a

8 regulation under income and expenditures

9 that defines agents somewhat differently and

10 there is a value in not having different

11 definitions of \"agent\" in different parts of

12 the statute, surely, but it\'s not clear that

13 a regulation that preexisted the new act

14 ought to dictate how the new act itself is

15 interpreted.

16 I\'m not sure if that\'s responsive

17 but I do believe that taking the approach

18 that somehow every conceivable

19 interpretation of the statute ought to reach

20 as broadly as possible because, after all,

21 we had a great public purpose in mind which

22 was to stamp out invidious influences and

222

1 the like I don\'t think that\'s a very helpful

2 guidepost when you\'re dealing with specific

3 language and specific situations and real

4 political activity.

5 COMM. McDONALD: On that last

6 point, and I do think it\'s helpful and I do

7 appreciate it, just on the last point a

8 minute, I mean, I\'m just trying to think

9 from the practical side. This issue has

10 been kicked around the Congress for seven

11 years at least by the authors\' admission.

12 It\'s actually been going much longer as you

13 and I know. But at least in the last seven

14 years this version of it or a version of it

15 has been kicked around. I think it\'s almost

16 as ironic the other way. I\'m not unmindful

17 of what you say about the troubling aspect

18 of the agency question but it seems strange.

19 I mean, I can just see us going up

20 and testifying before the Congress about

21 anything that has to do with the FEC and

22 saying gee, I\'m just really sorry. You just

223

1 don\'t really understand.

2 I don\'t ever recall any member who

3 would take that lying down. I mean, it just

4 seems an odd conclusion to come to to say

5 well, there shouldn\'t really be any more

6 deference to the people who spent all the

7 years on it than anybody else and it\'s a

8 hard position for us to be in, to be very

9 candid with you. I think that there is a

10 long history, not just this floor debate in

11 terms of final passage but over the years

12 about this, and I\'ll be candid with you.

13 I\'m troubled from both sides.

14 I\'m troubled from the other side

15 as well and that\'s why I asked the question

16 this morning can somebody point out to me

17 specifically where they think there is that

18 kind of authority. But I appreciate your

19 answer.

20 I\'d like to move because I don\'t

21 think I have much time. In relationship to

22 this question of GOTV and the appearance on

224

1 the ballot, going back to something

2 Commissioner Smith said earlier, why would

3 you not, for example, take when a candidate

4 registers? What would be wrong with that

5 with this commission in terms of raising

6 money?

7 MR. HONG: Well, if you mean

8 register with the FEC, well, the statute

9 uses the term \"appears on the ballot\" and

10 ballot access is a state issue, not an FEC

11 issue.

12 COMM. McDONALD: I\'m an old state

13 election official. I\'m up on it.

14 MR. HONG: Right, and because of

15 that we shouldn\'t use a test that the FEC

16 uses for candidate registration to decide

17 when they are \"on the ballot.\" As I

18 mentioned, there is an underlying concern

19 here and a particular concern to read this

20 narrowly and stay faithful to the exact

21 plain meaning of the statute because to go

22 beyond it would impact nonprofits that are

225

1 engaging in bona fide nonpartisan civic

2 activity and I know I have mentioned that a

3 couple times before but we\'re talking about

4 civic GOTV here. We\'re talking about

5 getting people out to the polls not because

6 they are Republicans, not because they are

7 Democrats, but because in our case they are

8 African Americans who have been

9 disenfranchised in the past and there is a

10 civic duty to get them out to the polls and

11 we don\'t want to impact that ability in an

12 undue fashion and especially when there is

13 specific language used in the statute.

14 COMM. McDONALD: Would a uniform

15 whatever the uniform date might be prior to

16 either primary or general election satisfy?

17 I mean, I\'m thinking in a lot of state

18 obviously you\'re in the ballot early in the

19 year. Lots of states it\'s the other way

20 around. When you get to Maryland are you

21 still late in the year for a primary? Out

22 in Illinois, of course, it\'s much earlier in

226

1 the year. Is there some method that we can

2 utilize that would apply across the board?

3 MR. HONG: Well, to use a uniform

4 date across the country would as \--

5 COMM. McDONALD: What about a time

6 frame as opposed to a date?

7 MR. HONG: Either a date or a time

8 frame to apply across the country, as we

9 mentioned in our comments, would undo the

10 narrow reading of the statute and we

11 understand the FEC\'s concern and, to tell

12 you the truth, it\'s a very legitimate

13 concern about dealing with these ballot

14 access issues on a state by state basis and

15 to try to limit the administrative burdens

16 that it would impose on the FEC. But

17 unfortunately that will come at a cost of

18 the ability of nonprofits to do nonpartisan

19 GOTV activity and in that context I think

20 this is one area that\'s worth the extra

21 administrative burden.

22 COMM. McDONALD: On that last

227

1 point, Mr. Chairman, just as a point of

2 clarification, I registered voters for

3 years. I mean, maybe even some of my

4 colleagues have done it, too. We tried

5 everything in the world with every group

6 that would even show up breathing. We

7 simply couldn\'t get people until the

8 election year. Has your experience been

9 otherwise? Have you been able to get lots

10 of folks through the organization to

11 register in a nonpresidential year, even, or

12 non federal year?

13 MR. HONG: Well, I can\'t speak to

14 the very specifics of it because I don\'t

15 know what my client\'s data has been on that

16 but even in nonelection years you do have

17 state elections to get people registered on

18 and so there is definitely a voter

19 registration that happens during nonelection

20 years as well.

21 COMM. McDONALD: Thank you,

22 Mr. Chairman.

228

1 CHMN. MASON: Commissioner Toner?

2 COMM. TONER: Thank you,

3 Mr. Chairman. I share the praise that

4 Commissioner McDonald had for the

5 commentators on this panel. I think this is

6 an extraordinary panel and a very important

7 one particularly because in my view we have

8 not heard enough in the past from grassroots

9 organizations in terms of the real world

10 impact of the regulations that we\'re

11 proposing and looking at and I think panels

12 like this and the practical considerations

13 that you\'re talking about we critically need

14 to learn more about.

15 Mr. Hong, you mentioned in your

16 opening statement and also in your written

17 testimony your view of how we should

18 construe the directly and indirectly

19 finance, maintain, control statutory

20 language and in your words that we should

21 avoid a look-back approach. I\'d like you to

22 elaborate if you could. If we were to take

229

1 a look-back approach, in other words if we

2 were not to create a safe harbor for

3 organizations that are separate upon the

4 effective date of BCRA, what impact would

5 that have on your client\'s organization?

6 MR. HONG: Well, as far as the

7 impact on our organization I don\'t think

8 it\'s going to have much at all but the thing

9 is when we\'re trying to look at our past

10 activity and trying to figure out our

11 activity going forward we want a clear line

12 of demarcation as well as all other non-

13 profits that at this point we can look at

14 our activity. Now, to ÄÄÄÄ that what\'s been

15 going on for years in the past in trying to

16 decide all right, did we get funding at this

17 point or did we not, was it enough as a

18 significant funding, that is an unreasonable

19 burden and something that I don\'t think can

20 be done, especially by nonprofit

21 organizations that have been around a very

22 long time.

230

1 COMM. TONER: So is it fair to say

2 that you are in your view the focus out to

3 be how would the organizations conduct

4 themselves and their affairs once BCRA is in

5 effect?

6 MR. HONG: That\'s correct and it\'s

7 very important especially with a standard

8 like significant funding that is inherently

9 vague, I think, even with some of your

10 indicia that have been set forth in the

11 proposed rules like timing and the amount.

12 There has to be a clean cut-off line that

13 any entity can look at and say all right,

14 now we need to focus on this starting now.

15 And because until these rules came out this

16 has been a nonissue for all nonprofits.

17 COMM. TONER: Well, in terms of

18 providing clarity for grass-roots

19 organizations such as the NAACP do you think

20 if the Commission drew upon our existing

21 affiliation criteria in construing this

22 statutory phrase that that would be a

231

1 positive development in terms of providing

2 clarity?

3 MR. HONG: We strongly agree with

4 that using the affiliation standards that

5 are there right now regarding affiliated

6 PACs gets to the purpose of the rule and

7 also gets to the practical implementation

8 standard that is doable.

9 COMM. TONER: Mr. Gold, I was

10 strong struck in both your written testimony

11 and also in your comments here today. Your

12 emphasis in terms of the agency issue on the

13 statutory phrase \"acting on behalf of.\" Is

14 it your view that for us to be faithful to

15 the statutory phrase \"acting on behalf of\"

16 we essentially have to construe the concept

17 of agency to express actual authority?

18 MR. HONG: I think the statute

19 itself I think requires. The first

20 regulation does so explicitly and I think

21 that\'s the appropriate course. Again,

22 \"acting on behalf of\" is a key phrase to tie

232

1 in the actor to the organization and to the

2 capacity that ought to be of concern to the

3 Commission and that the statute is

4 addressing and I draw back and keep in mind

5 that the new law is extending the Federal

6 Election Campaign Act in areas that it\'s

7 never been before and is regulating state

8 and local organizations in a way utterly

9 unprecedented at the federal level. So a

10 lot of the concerns that I\'m raising and

11 that arise here haven\'t been there before or

12 they\'ve been there in an attenuated manner.

13 We\'ve always had the concern, I

14 suppose, with national party committees and

15 people participate in party committees, but

16 for the most part those are ongoing

17 organizations that have a lot of money and

18 staff and the like and rely less on

19 volunteers, although they do have national

20 steering committees and I know of people who

21 don\'t work for the national committees but

22 have positions with them so the concept\'s

233

1 been there.

2 But now you\'re into 50 states and

3 potentially thousands of party organizations

4 and it\'s a whole new world and you\'re not

5 dealing for the most part with paid

6 employees. So \"acting of behalf of,\" I

7 think somebody who was mindful of the fact

8 that there had to be that kind of link and

9 you can\'t just say well, somebody who does

10 services or is on a steering committee for a

11 party, ergo everything that person does is

12 going to be considered to be in the capacity

13 of agent. That is an unworkable and

14 dangerous standard.

15 COMM. TONER: Given all of that is

16 it your view as a matter of law that we

17 should reject apparent authority as a

18 concept in construing this statutory

19 provision?

20 MR. GOLD: I\'d say that there are

21 applications of apparent authority that

22 would clearly be improper. If the principal

234

1 were to manifest to some third party that so

2 and so is acting on its behalf in doing a

3 particular act and that was wrong then

4 perhaps the principal would be liable for

5 something, not the agent. So I\'m not

6 prepared with the precise language or

7 formulation but I think notions of apparent

8 authority do have their place in agency law

9 and standards but they have to be carefully

10 circumscribed consistently with the notion

11 of \"acting on behalf of\" here.

12 COMM. TONER: At the very least

13 are you concerned potentially about apparent

14 authority having an impact on your

15 organization at the grass-roots level?

16 MR. GOLD: Well, yes, and I think

17 that\'s the point here. Just looking at

18 apparent authority, absent some express

19 manifestation by a principal that a person

20 who is not employed by that party committee

21 is acting on its behalf in performing a

22 particular function, absent that you could

235

1 leave people at the mercy of all sorts of

2 misunderstood perceptions as to who was

3 doing what for whom and, again, we\'re

4 dealing with people at the local level who

5 are not employed by the party organization

6 but who want to participate and there is a

7 common good in civic participation like that

8 and anything that would deter or chill that

9 are confuse it or waste the Commission\'s

10 time and resources in chasing these things

11 down I think is counterproductive and

12 unnecessary given the text of the statute.

13 COMM. TONER: Mr. Sullivan, I was

14 struck in your written comments and also in

15 your statement your focus again on this

16 agency issue in terms of its potential

17 application to vendors, fundraising

18 consultants, volunteers. Would you like to

19 elaborate on your thoughts on that?

20 MR. SULLIVAN: In an actual

21 situation if I could lay out in hypothetical

22 for you, an example, Commissioner, the

236

1 Latino Coalition has as one of its founders

2 and therefore under this regulation would be

3 a sponsor of the organization, also sits on

4 the board of directors, is a member of the

5 executive committee of his state political

6 party. By virtue of that agency

7 relationship if you take the current

8 drafting and the scope of the agency

9 relationship and take a look at what that

10 individual is now precluded from undertaking

11 it\'s rather astounding.

12 For example, he could not solicit

13 under my reading of this new members to the

14 organization and pay dues. That individual

15 could not solicit contributions for a

16 statewide initiative or ballot committee.

17 Ballot committees are exempt under 527,

18 which is not part of the exemption that is

19 included in subsection (c)(1) of 300.2.

20 That is one area clearly to take a look at.

21 They are prohibited from

22 soliciting and participating in state local

237

1 elections which I think if we\'re going back

2 to what Commissioner McDonald was alluding

3 to earlier in the struggle the Commission

4 has here, was that truly the intent of the

5 drafters, I\'m not second-guessing them but

6 to preclude an individual from that type of

7 activity, whether it\'s ballot activity,

8 membership organization, support of state

9 and local ballot initiatives, there is a

10 plethora of those types of activity where

11 the reach of these regulations is going to

12 not only chill but I think shut down that

13 activity.

14 And it\'s also going to mandate

15 that I think all three of the organizations

16 that you\'re hearing from on this panel are

17 going to have to take a very conservative

18 approach to this. They are going to make

19 the election of not permitting those people

20 to be a position of authority, an officer, a

21 director, for fear of the potential problem

22 that\'s drawn here.

238

1 On the last point, the vendor

2 issue, I raise it simply because I think we

3 all deal with fundraising consultants,

4 obviously, in these activities and the

5 question being if they are even given the

6 expressed authorization by a federal

7 candidate, by a party organization, to raise

8 funds for that entity are we then claiming

9 under the agency rule that that individual,

10 that company, would be precluded from

11 soliciting contributions of what is deemed

12 to be the nonfederal dollars?

13 I\'d submit to you that there

14 should be some type of a business exemption,

15 an arm\'s-length transaction exemption,

16 similar to what\'s in the regulation right

17 now relative to vendors providing lines of

18 credit, et cetera. I just can\'t imagine

19 that that was, again, the intent of the

20 founders here of the statute to preclude an

21 entire industry from participating in their

22 profession.

239

1 COMM. TONER: Thank you.

2 CHMN. MASON: Vice Chairman

3 Sandstrom?

4 COMM. SANDSTROM: Thank you.

5 Mr. Hong, it\'s November. The effective date

6 of the act has passed. You get a call from

7 your headquarters saying we have a check

8 here for \$1 million from Oprah Winfrey. Can

9 we cash it? Is there any basis for you to

10 know? You ask where did it come from and

11 they said in the mail. Is there any basis

12 for the organization to understand who may

13 have solicited that?

14 MR. HONG: Well, the answer is no.

15 Obviously from our point of view from the

16 recipient side as a nonprofit organization

17 there is no way for us to know who is

18 soliciting, exactly how much was solicited,

19 and all we know is what comes in through the

20 mail and that\'s perfectly correct.

21 COMM. SANDSTROM: So there would

22 be no problem under this act with depositing

240

1 that and using it for voter registration and

2 nonpartisan get out to vote activities. Is

3 that your understanding of the law?

4 MR. HONG: Well, it would be if

5 the solicitation didn\'t happen correctly and

6 the thing is it prohibit \--

7 COMM. SANDSTROM: Do you know

8 where in the statute there is any

9 restriction on the organization itself?

10 MR. HONG: Well, that\'s correct.

11 The direct prohibition is on the federal

12 officeholder soliciting the contributions;

13 however, if we are to participate or to work

14 with a congressional member who is

15 interested in get out the vote for African

16 Americans then we would be participating in

17 a violation so there could be some indirect

18 liability on the organization.

19 More importantly, we would not be

20 able to work with or have federal members

21 solicit for us. I mean, in a situation

22 where a check comes in and we don\'t know who

241

1 solicited it it\'s probably the minority of

2 what actually happens out there. I mean,

3 there are fundraising events, there are

4 solicitation drives \--

5 COMM. SANDSTROM: Aren\'t many of

6 your contributions a result of multiple

7 solicitations? I mean, don\'t you generally

8 have to work a donor from as many angles as

9 you can?

10 MR. HONG: Yes, but you\'d

11 essentially be cutting off a lot of those

12 angles. That\'s the problem.

13 COMM. SANDSTROM: I mean, I\'m just

14 talking about you\'re faced with a decision

15 whether to deposit it and since it could

16 have been multiple solicitations and you\'re

17 not sure where it comes from I gather there

18 is no penalty on you for depositing and

19 spending it except if somehow we came up

20 with a new theory that would apply penalties

21 that may be somewhat unclear in the current

22 law since I think if one explores the

242

1 current law, as I have, it\'s rather

2 difficult to identify what penalties would

3 apply to you.

4 MR. SULLIVAN: I\'d submit,

5 Commissioner, by the way, getting back to

6 the agency theory if that individual is

7 acting as an agent for the organization you

8 could tie the liability back to the

9 organization.

10 COMM. SANDSTROM: The panels this

11 morning actually may have been fairly

12 helpful with regard to this agents question

13 because they refer to the definition in

14 109.1 and the agent there is one who has

15 actual authority or one who has been placed

16 in a position within a campaign organization

17 where it would reasonably appear that in the

18 ordinary course of campaign-related

19 activities he or she may authorize

20 expenditures.

21 Usually that\'s the campaign

22 manager and nobody else. How many people

243

1 are typically authorized in a campaign to

2 make expenditures? Wouldn\'t that be an

3 exceedingly small number of people?

4 MR. SULLIVAN: I would tend to

5 agree given on a campaign and a candidate

6 but you take a look at the definition of

7 \"agent\" as set out in the regulations the

8 actual expressed oral or written authority

9 to act on behalf of the candidate,

10 officeholder, national committee, et cetera,

11 you take that position and any national

12 committee man of the Democrat National

13 Committee, Republican National Committee is

14 authorized inherently by virtue of their

15 office and their position.

16 COMM. SANDSTROM: To make

17 expenditures?

18 MR. GOLD: Not to make

19 expenditures but that\'s not what the

20 regulation as drafted proposes. I think

21 that what you\'re describing is \--

22 COMM. SANDSTROM: No, I\'m talking

244

1 about what the current regulation is. The

2 panelist this morning suggest we should look

3 to 109.1 and 109.1 seem to me a very narrow

4 definition of \"agent,\" only one who is

5 authorized to make expenditures. So if we

6 actually chose that definition \--

7 MR. GOLD: If you chose that

8 definition, yes.

9 COMM. SANDSTROM: It would

10 probably answer all of your concerns because

11 it actually would capture an exceedingly

12 small number of people. Now, with respect

13 to the many hats that those in labor

14 organizations wear, I mean, wouldn\'t it be

15 true that you probably on a lot of state and

16 local party committees there would be

17 officers of the unions or union members on

18 those executive committees and county

19 committees? Well certainly I think it\'s

20 very common.

21 COMM. SANDSTROM: Can you help us

22 with something we were struggling with this

245

1 morning, terms that seem to require a little

2 bit more explication? What do you take

3 voter identification to be?

4 MR. GOLD: Well, we\'ve suggested

5 that this phrase, which is not defined in

6 the statute, for purposes of the statute

7 that voter identification only include

8 efforts to identify how individuals are

9 going to actually vote for a candidate or

10 party, party preferences and not the

11 amassing of information, voter files, and

12 that sort of thing and in reviewing the

13 comments I think a lot of the commenters

14 coming from different perspectives agree

15 that this phrase has to be construed in a

16 way that has a partisan element to it in

17 order not to just be overreaching, just as

18 extending the time when the definition

19 20(a)(2) applies to the entire election

20 cycle I think defeats the purpose of it and

21 can\'t possibly be squared with the language

22 of the statute itself.

246

1 So we\'ve suggested a line be drawn

2 between activities to identify voters that

3 really have only a partisan purpose and

4 activities that are preparatory to all sort

5 of purposes, including partisan, nonpartisan

6 and other purposes.

7 COMM. SANDSTROM: And similarly

8 with respect to get out to vote activities?

9 MR. GOLD: I\'m not sure that we\'ve

10 commented really on where the line ought to

11 be drawn on get out the vote activities. I

12 guess I would say only here that you can

13 certainly come up with situations where the

14 difference between voter identification even

15 as I describe it and get out the vote

16 activity where the lines are somewhat

17 blurred but they are distinct concepts,

18 certainly.

19 I\'m not sure where to drawn the

20 line on get out the vote activity, what is

21 get out the vote activity, what isn\'t, what

22 is that versus voter identification. We

247

1 haven\'t commented on that and I would defer

2 to others for the moment on that but except

3 for a general caution that we can

4 over-define things and federalize everything

5 and that can\'t possible by what this statue

6 does.

7 COMM. SANDSTROM: Because it

8 struck me that with any activity designed by

9 any candidate running for any office at any

10 level the end of that activity is designed

11 to get that person out to vote because if

12 they don\'t vote having persuaded them that

13 you are the best candidate is useless. So

14 if I were to give a definition of contacting

15 voters with the desire to encourage them to

16 vote that would comprehend to me essentially

17 every element of the campaign by any

18 candidate at any level. Is that the

19 understanding you bring?

20 MR. GOLD: I think that would be

21 reading too broad a concept on this. Our

22 problem is that the statute in this very

248

1 critical place is using terms that have some

2 currency. Those are not novel phrases,

3 voter identification, get out the vote

4 activity, and the like, and people are used

5 to using those phrases but when you\'re

6 dealing with the legislation now that is

7 trying to make distinctions for purposes of

8 criminal and civil enforcement, what

9 particular groups can do and what particular

10 money can be used on it, you can\'t rely on

11 common parlance notions that are very

12 different. Your idea of get out the vote it

13 might be something different than somebody

14 else\'s. It\'s important that the Commission

15 nail this down.

16 COMM. SANDSTROM: There is one

17 more context that applies. The panelists

18 this morning unanimously agreed that

19 Reverend Jackson giving a speech to the

20 African American caucus urging them to go

21 back and register to vote would be voter

22 registration activity. Could I ask you how

249

1 you would respond to that?

2 MR. GOLD: Well, as far as voter

3 registration goes there is a long history at

4 least at the state level as to what voter

5 registration is. It\'s getting people

6 registered and when dealing with this issue

7 of voter registration or GOTV I think we

8 have to stay away from an intent-based test.

9 And I think that\'s where these questions are

10 starting to veer toward is a test where you

11 would get the intent, which could be viewed

12 in so many different ways. It\'s just like

13 express advocacy and because these are

14 dealing with such constitutionally core

15 First Amendment issues we have to state a

16 very bright line test where the intent of

17 the speaker or the intent of the nonprofit

18 can not be in question in any way and I

19 think that\'s the way it has to be defined

20 and we support the examples of GOTV that the

21 FEC has already proposed such as taking

22 people out to vote, taking them to the

250

1 polls, and the like. But we just urge that

2 it be done in a very bright line fashion

3 that does not create an issue of vagueness.

4 Thank you very much.

5 CHMN. MASON: Commissioner

6 McDonald?

7 COMM. McDONALD: Mr. Chairman,

8 thank you. This is a point of

9 clarification. I want to be sure I

10 understood because I think this is a very

11 important question. I thought the example

12 this morning was that the Florida party was

13 paying for the trip. Am I not correct about

14 that?

15 COMM. SANDSTROM: The Florida

16 party paid Reverend Jackson to come down and

17 give speeches at the convention.

18 COMM. McDONALD: Yes, I just

19 wanted to make sure we\'re talking about the

20 same thing. Thank you.

21 CHMN. MASON: Paul, you said

22 something I didn\'t quite get and I don\'t

251

1 understand whether it was particularly

2 important so let me ask you about it.

3 MR. SULLIVAN: Obviously my fault.

4 CHMN. MASON: I hope it will be

5 quick. You said, I thought, that the

6 solicitation regulation that we now apply to

7 separate segregated funds was broader than

8 you thought we ought to apply to nonprofits.

9 So what sort of distinction are you

10 suggesting? In other words what would be

11 the problem in simply taking our advisory

12 opinions and so on, of which we have several

13 of what constitutes a solicitation to a

14 separate segregated fund, and applying it to

15 nonprofits?

16 MR. SULLIVAN: I think you heard

17 me correctly. The point that I was making

18 in my testimony and I believe my written

19 comments was that given the concern that I

20 think we\'ve all expressed here on agency and

21 the scope of that the corollary there is

22 after you\'ve established an agent what

252

1 communication would constitute a

2 solicitation? If a member of Congress were

3 to attend an event that the Latino Coalition

4 was sponsoring for its members and I think

5 the example used in the notice of proposed

6 rule making was featured as the guest there

7 that gave the dinner speech, encouraged

8 Latinos to participate in the political

9 system, to support \"The Latino Coalition,\"

10 does that get to the point of a

11 solicitation? I think that under my

12 definition and what I would submit the

13 Commission ought to get to is a specific

14 solicitation where that member of Congress

15 requested that those people actually make a

16 donation to the Latino Coalition on federal

17 fund.

18 Contrast that with the history of

19 the concept of solicitation used for

20 separate segregated funds and the concern of

21 going beyond the restricted class. Many of

22 those advisory opinions indicate that merely

253

1 providing any type of information that would

2 permit a person outside the restricted class

3 to facilitate or make a contribution would

4 constitute a solicitation. My point is that

5 that is far too broad of a standard for the

6 type of restricted activity that I think

7 these regulations are geared towards and

8 would advocate that that standard not be

9 utilized in these regulations.

10 CHMN. MASON: Thank you. Ki and

11 Larry, I wanted to get back and both

12 organizations may have similar though the

13 specifics may be different in terms of local

14 election activity and, Larry, in particular

15 I recall that there is a union-funded

16 organization that does minority get out the

17 vote and registration and so on. I can\'t

18 recall the name of it but I see it in the

19 news from time to time.

20 MR. GOLD: There is an

21 organization called the A. Phillip Randolph

22 Institute that that has received substantial

254

1 funds from labor organizations.

2 CHMN. MASON: And that

3 organization, I assume, might be interested

4 in having federal officeholders appear at

5 fundraising events or something like that,

6 perhaps. I don\'t know. But I\'m first

7 trying to think through how this might

8 affect you but as to your voter registration

9 and get out the vote efforts my impression

10 is that both for various union organizations

11 and for the NAACP Fund there are frequent

12 instances of voter registration, get out the

13 vote activities, that are carried on in

14 connection with local elections, the Street

15 election in Philadelphia, I recall, not long

16 ago and others. Is that correct?

17 MR. GOLD: I think for labor

18 organizations most of our voter registration

19 get out the vote efforts are directed at a

20 restricted class that are members and their

21 households and we\'re never satisfied with

22 the level of registration among our members.

255

1 There is always turnover as there is in any

2 organization. That\'s enough to keep us

3 pretty well occupied.

4 When labor organizations engage in

5 voter registration outside of the restricted

6 class it has to be and it is on a

7 nonpartisan basis and I\'m not sure that we

8 engage, although it may happen at the local

9 level, I don\'t know, federal office holders

10 to assist in that or in coordination with

11 that but I think that begins to trench on

12 areas where we\'ve had concerns and

13 coordination rules come into play.

14 In the A. Phillip Randolph

15 Institute, I think, itself I\'m not aware it

16 does but I don\'t speak on its behalf. I\'m

17 not aware that they have worked with federal

18 office holders to engage in that kind of

19 activity.

20 CHMN. MASON: But they do carry on

21 significant activities in connection with

22 the state and local elections?

256

1 MR. GOLD: They do and I\'m not

2 versed enough in everything they do to speak

3 authoritatively even as an observer but they

4 do voter registration, get out the vote, I

5 know in connection with state and local

6 elections, yes, as distinct from federal

7 elections and at times that you mentioned

8 and as Commissioner Smith observed those

9 local elections happen in many states all

10 the time. That\'s for sure.

11 CHMN. MASON: Ki?

12 MR. HONG: And that is true with

13 the National Voter Fund as well. They

14 engage in voter registration and GOTV, odd-

15 numbered years, even-numbered years, and

16 specifically in state and local elections as

17 well.

18 CHMN. MASON: Commissioner Smith

19 had helpfully noted that the odd-numbered

20 year elections for certain big city mayors

21 and so on. He\'s not familiar with the

22 Virginia electoral system which in fact

257

1 doesn\'t merely have odd-numbered elections

2 for state officers but for municipal

3 elections has general elections in the

4 spring of even-numbered years. So if

5 someone were interested in who is going to

6 be the Mayor of Norfolk, the Mayor of

7 Richmond, or something like that they might

8 be carrying on a lot of activity in April

9 and May of an even-numbered year with little

10 contemplation of what effect that might have

11 in the fall.

12 It strikes me that if we want to

13 try to deal with that it may not be

14 particularly satisfactory. I understand,

15 Ki, you\'ve ÄÄÄÄ somebody is on the ballot

16 but Commissioner McDonald mentioned that\'s

17 one thing in Illinois and something very

18 different in other states and Massachusetts,

19 I think, has one of the latest primaries, in

20 September. Not only would it be difficult

21 for us but it strikes me it would be

22 difficult for you and your clients if

258

1 somebody calls and asks you for advice and

2 you\'ve got to then go look up the

3 Massachusetts election code to determine

4 when is the theoretical first time that

5 somebody could get on the ballot or whatever

6 rule is laid down. I wonder whether we

7 might be better advised to think about a

8 fairly specific amount of time in advance of

9 a general election simply for ease of

10 administration.

11 MR. HONG: Just to clarify, what

12 you are proposing is not the first time they

13 can be on the ballot but when they actually

14 are on the ballot, the first time a federal

15 candidate is placed on the ballot or is

16 certified to be on it. To the extent that

17 this becomes an administrative burden that\'s

18 too much to impose. If that\'s the

19 conclusion the Federal Election Commission

20 comes at we strongly urge the Commission to

21 pick a date that is as short as possible,

22 given the ballot deadlines that are out

259

1 there and not to go broadly.

2 I mean, to the extent that the

3 Commission should be erring it should be

4 erring on the side of reading the statute

5 narrowly and that\'s what we propose.

6 CHMN. MASON: I just want to offer

7 an observation for question in terms of

8 voter identification and get out the vote.

9 Back to my own campaign experiences, those

10 were things that were timed down to the

11 election. In other words that actually had

12 a fairly specific meaning in the sense that

13 the campaign or party would call people. So

14 if the election was held today who would you

15 vote for, and then they\'d get the name of

16 the person and that becomes a list that

17 people call back on election day or the day

18 before, and so while we do have the problem

19 of a generic term being put into the statute

20 and how we interpret it, at least in my

21 experience it isn\'t even possible to do

22 voter identification more than a month or

260

1 two out from the election because people

2 just aren\'t focused. You can\'t ask them in

3 the spring what they are going to do in the

4 fall and get a reliable answer.

5 I wanted to ask about you all

6 worried about the possible application of

7 agency rules to people who may serve on the

8 boards of state political parties and that

9 sort of thing and it strikes me that perhaps

10 we\'re a little over-worried here, at least

11 in terms of what could be the most expansive

12 interpretation because clearly Congress

13 intended for state political parties, for

14 instance, to be able to engage in state

15 ballot initiative activities with state

16 funds. And so I don\'t think under any

17 interpretation we could reasonably say that

18 because someone is on the board of a state

19 political committee or a local political

20 committee that they couldn\'t go out and

21 solicit for nonfederal funds for those types

22 of activities.

261

1 I agree there are lots of other

2 problems but again, just by way of noting, I

3 want to say that perhaps the most extreme

4 examples that we\'re putting out of what

5 could be effective would be unreasonable

6 given the organization of the statute itself

7 and that there would be no reason to

8 prohibit the agent of an organization from

9 doing something which the organization

10 itself would be permitted to do.

11 Commissioner Thomas?

12 COMM. THOMAS: Thank you,

13 Mr. Chairman. Let me see if I can zero in a

14 little bit on what is perceived as a problem

15 for the nonprofit organizations. The main

16 concern is that under the solicitation

17 restrictions those organizations are going

18 to face restraints on who can help to raise

19 money in the upcoming election cycles.

20 And I gather with respect to the

21 restraint that\'s put on for party officials,

22 and that\'s in Subsection (d) of Section 323,

262

1 that basically is going to prohibit those

2 folks working for a party from raising money

3 for a (c)(4) organization, or even a (c)(3)

4 organization if that latter organization

5 makes expenditures or disbursements in

6 connection with an election for federal

7 office, including expenditures or

8 disbursements for federal election activity.

9 Even if we come up with a fairly

10 restricted definition of federal election

11 activity I\'m not quite sure you\'re ever

12 going to be able to get to a point where you

13 won\'t fit that kind of definition and face

14 that restriction on party people helping you

15 raise money.

16 I gather your primary concern then

17 becomes well, what about the federal

18 candidates and federal officeholders helping

19 us raise money and there I see the language

20 in the statute saying in essence that

21 notwithstanding any of the other provisions

22 a federal candidate or office holder can

263

1 help one of these (c)(3) or (c)(4) type

2 organizations raise money unless in essence,

3 it\'s an entity whose principal purpose is to

4 conduct activities describing clauses (1)

5 and (2) and that picks up a lot.

6 That picks up your voter

7 registration activity within 120 days. It

8 also picks up in essence everything we would

9 characterize as voter ID work or GOTV work

10 or generic campaign activity. So what

11 you\'re really struggling against is that

12 apparent broad restriction. So if we

13 characterize a lot of activity as falling

14 within those categories of voter ID and GOTV

15 and generic campaign activity that\'s going

16 to make your organization\'s purpose

17 primarily doing those kinds of things and

18 accordingly the federal candidates will be

19 restrained from helping you.

20 I add, however, that the statute

21 then goes on and says a candidate can help

22 an organization even whose primary purpose

264

1 is those kinds of activities to raise money

2 as long as the candidate or office holder is

3 just going to individuals and is just asking

4 for no more than \$20,000, I guess, per year.

5 It\'s not quite clear.

6 So you\'re saying that that\'s the

7 constraint. You would like in essence to be

8 able to raise money maybe from corporations

9 and you\'d like the federal officeholders to

10 be able to help you bring in that money from

11 corporations or unions or other prohibited

12 source-type entities or even from

13 individuals in amounts larger than \$20,000.

14 Is that the heart of the problem?

15 MR. HONG: That\'s correct and we

16 are not concerned at this point about the

17 ability of national party committees to

18 raise money for nonprofit organizations and

19 I think that gets to the agency issue that\'s

20 been discussed by the other members of this

21 panel.

22 But by ÄÄÄÄ a GOTV activity or

265

1 voter identification activities in

2 connection with an election law a candidate

3 appears on the ballot. Now, if that\'s read

4 too broadly members of Congress and

5 candidates would be prohibited from raising

6 money or soliciting money for an entity such

7 as ours even though it\'s for nonpartisan

8 purposes.

9 COMM. THOMAS: Except they could

10 raise money from individuals in the amounts

11 of \$20,000.

12 MR. HONG: That\'s correct. Yes.

13 COMM. THOMAS: It\'s a nice piece

14 of change, still.

15 MR. HONG: It still is but the

16 thing is the nonpartisan GOTV activity that

17 entities such as the National Voter Fund

18 engages in there shouldn\'t be any limit

19 whatsoever on who can give or who should be

20 solicited.

21 COMM. THOMAS: Well, of course, it

22 depends on who you talk to. Now, about that

266

1 concept of defining it as something as,

2 what\'s the phrase? Conduct in connection

3 with activity where a federal candidate

4 appears on the ballot. Devil\'s advocate for

5 the moment, why is activity in an odd-

6 numbered year something that consider to be,

7 say, more in connection with nonfederal

8 election activity than, say, in connection

9 with the federal election activity?

10 I mean, if you\'re ÄÄÄÄ in a state

11 where for the most part they hold most of

12 the state elections in an odd-numbered year

13 I can see an argument that look, it\'s every

14 bit as much for federal candidates support

15 as it is for nonfederal candidates support.

16 MR. HONG: If I understand your

17 question correctly you\'re asking whether in

18 states where there\'s odd-numbered state

19 elections in those cases you should \--

20 COMM. THOMAS: Actually, I\'m

21 thinking of the other situations where we\'re

22 talking about the standard state arrangement

267

1 where almost all the elections are done in

2 an even year and we\'re looking at well, what

3 is the party doing in the odd year? Why

4 would we say or assume that well, gee, most

5 of that kind of voter ID or GOTV or generic

6 party activity is designed for nonfederal

7 election support as opposed to federal?

8 You certainly wouldn\'t go so far

9 as to say it\'s exclusively for nonfederal

10 election-related activity, would you?

11 MR. HONG: Right, that\'s a valid

12 concern but if we are to take that approach

13 regarding this provision, everything,

14 odd-numbered, even-numbered, all activity

15 would be covered under this provision. And

16 that is clearly not the intent of this

17 statute.

18 The statute clearly intended to

19 limit the GOTV that\'s going to be covered

20 and the words that the Congress chose was

21 for activity in connection with an election

22 where a federal candidate appears on the

268

1 ballot.

2 And if we are to take that to the

3 extreme and say all activity, odd- numbered,

4 even-numbered years, could help impact a

5 federal election somewhere down the road

6 that provision would be meaningless under

7 the statute and that is not where neither

8 Congress nor I think the common reading of

9 what nonprofits do, such as the National

10 Voter Fund, and would be not a correct

11 application.

12 COMM. THOMAS: Well again, I come

13 back to it depends on who you talk to. I

14 gather in reading the comments of the

15 sponsors that\'s exactly what they intend and

16 I guess it\'s a hard rule. They\'re saying

17 what you\'re left with is letting federal

18 candidates and office holders help you raise

19 money from individuals in chunks of \$20,000

20 or smaller.

21 MR. HONG: Well, that would be the

22 wrong conclusion because what you would be

269

1 encompassing under this rule is essentially

2 overincluding legitimate state activity.

3 And it could be in states where they have

4 even-numbered elections that maybe all GOTV

5 could benefit that election. But the thing

6 is there are also local elections that could

7 be done on odd-umbered years.

8 Now, I don\'t know what the

9 statistics are as to where all cities and

10 counties are up for election in all the 50

11 states but my point is that I don\'t think we

12 should be in the business of deciding that.

13 I think the Commission should be

14 in the business of creating a bright line,

15 clear standard as to when activity is

16 intended by this statute, and when activity

17 is such a clear activity, that is, in

18 connection with a federal election that

19 there\'s no question about that period

20 itself, that that is the standard that the

21 Commission should come up with.

22 COMM. THOMAS: I mean, just again,

270

1 in those states where they don\'t have the

2 elections for nonfederal offices in odd

3 years and virtually everything\'s done in the

4 even years I can still see a pretty good

5 argument that the party folks in those

6 states, anybody, undertaking voter

7 registration or voter ID work and so on

8 aren\'t separating out saying well, this part

9 of our generic campaign function is just for

10 the nonfederal candidates and tomorrow we\'ll

11 start doing the generic campaign activity

12 for the federal candidate work. I just

13 don\'t see working here as a practical

14 matter.

15 So I can see how Congress might

16 have had as a rationale that indeed

17 virtually every situation even in the odd

18 years should be viewed as at least in part

19 in connection with federal elections.

20 MR. GOLD: We suggest in our

21 comments that for subsection 2, get out the

22 vote activity and generic campaign activity

271

1 that there be some objective point and

2 generally one of election year is one. It\'s

3 not perfect but it\'s understandable. It\'s

4 uniform. Or perhaps when somebody actually

5 qualifies for the ballot. But another way

6 to look at this might be, as the chairman

7 indicated, look at the kinds of activity

8 you\'re talking about.

9 It\'s not necessarily a fair

10 assumption that the time for these

11 activities has to be greater than the 120

12 days that is separately established for

13 voter registration activity and I don\'t know

14 that there is a clear explanation by anybody

15 as to why the distinction was made. But

16 voter ID I think goes to the definition of

17 voter ID. We have one that we\'ve suggested,

18 I think others have, too, is that that be

19 limited to truly partisan voter ID and not

20 massing of lists but actually communicating

21 with voters and trying to ascertain how

22 they\'re going to vote in a particular

272

1 election either for a candidate or a party

2 which ordinarily, as the chairman suggests,

3 is something that happens closer to an

4 election than not.

5 It could be that there ought to be

6 a cutoff of that that is less than 120 days.

7 Get out the vote activity is an even more

8 obviously example of that. Generic campaign

9 activity is something that may happen, I

10 suppose, at any time.

11 I\'m not suggesting a definite

12 answer here but it\'s not at all self-evident

13 that the time line for these ought to be

14 broader notwithstanding the fact that you

15 will have in many states elections that are

16 both state and federal only in even-numbered

17 years and operate on the same primary

18 calendar.

19 Again, I think that taking the

20 view that you suggest when you ÄÄÄÄ it is

21 making some of the language here I think

22 superfluous and the Commission will have to

273

1 try not to do that.

2 COMM. THOMAS: If I could just

3 briefly follow up with a comment. Of

4 course, one concern we have is if we went

5 the way you are suggesting to aid, if you

6 will, the nonprofit groups\' ability to have

7 people help them raise money, we are then

8 opening up on the other end. We\'re dealing

9 with that situation where a lot less

10 activity is deemed federal election

11 activity.

12 And that leads us to the unclear,

13 big issue we\'ve got, which is are we going

14 to at that point say that that stuff still

15 has to be allocated so that at least the

16 nonfederal share could be paid for with

17 regular soft money but the federal share

18 would still have to be paid for with hard

19 money.

20 And if we took the position that

21 well, gosh, no, if it\'s not federal election

22 activity can we pay for 100 percent with

274

1 soft money we\'re really blowing away, at

2 least in my view, the underlying concept of

3 the soft money prohibition.

4 So I\'ll just finish with one last

5 thought with you. It\'s not a question but

6 ÄÄÄÄ would remember fondly Commissioner

7 Harris and at one point the issue of what is

8 a solicitation came up and you\'ll recall

9 where the FEC\'s offices used to be down on

10 14th Street? And we said if we don\'t know

11 what solicitation is around this part of

12 town we all should be kicked out of our

13 seats.

14 CHMN. MASON: Thank you all for

15 coming. Ray Norton.

16 MR. NORTON: Thank you,

17 Mr. Chairman. Good afternoon, Mr. Hong,

18 Mr. Gold, and Mr. Sullivan. I wanted to

19 start with the agency issue if I could.

20 Really, there isn\'t anything unusual about

21 trying to determine what the appropriate

22 circumstances are to impute liability to a

275

1 principal for an agent\'s conduct. Where

2 you\'re dealing with a federal statute as we

3 are here it doesn\'t define \"agency\" as we

4 have here. Nor are the questions of

5 multiple capacity unique. These issues have

6 been addressed in the context of Title VII,

7 anti-trust, False Claims Act, a whole lot of

8 areas.

9 Mr. Gold said earlier that we

10 ought to make sure that the agent is truly

11 acting on behalf of a party organization but

12 in those other contexts that guiding

13 principle has been applied where agents are

14 acting in a capacity where they have implied

15 authority and even where they have apparent

16 authority, where, to paraphrase the language

17 of Reg 109.1, they\'ve been placed in the

18 position within the organization where it

19 would reasonably appear that they are

20 authorized to raise or solicit funds.

21 To take perhaps a different

22 approach to Commissioner McDonald\'s question

276

1 is there any basis in the text of the

2 statute, or in the legislative history for

3 departing from the approach taken in the

4 context of other federal statutes where the

5 term \"agency\" is not defined and where the

6 question of what conduct ought to be imputed

7 to a principal at issue?

8 MR. GOLD: I don\'t think there\'s

9 anything in the statute or the legislative

10 history here that suggests that the mission

11 of the agency ought to be more expansive if

12 that\'s the question and I think that \--

13 MR. NORTON: The question is why

14 shouldn\'t it be coextensive? Why should it

15 be interpreted more narrowly here absent

16 anything in the text of the statute or in

17 the legislative history than it has been by

18 courts in a variety of contexts where the

19 issue is penalties and fines imposed under

20 federal statute on principals violations of

21 their agent activity where the term agent

22 isn\'t defined in the statute? Absent any

277

1 indication from Congress why shouldn\'t we

2 approach it the same way here?

3 MR. GOLD: I think generally, it

4 ought to be approached in a similar manner

5 as other statutes that don\'t have their own

6 definitions of \"agent.\" But, again, the

7 similarity includes the fact that every

8 statute is unique and every statute

9 implicates different values and concerns.

10 And here we\'re dealing with First Amendment

11 activity, we\'re dealing with a dramatic

12 expansion of the scope of the Federal

13 Election Campaign Act into state and local

14 activities, into the behavior of thousands

15 of people involving state and local party

16 organizations who have never really been

17 directly regulated in the same manner here

18 and I think the Commission needs to be

19 mindful of it. It\'s not a rejection of

20 general agency law.

21 Agency law has to be drawn on here

22 but it has to be drawn on given the specific

278

1 context and concerns here. And that\'s why

2 when we look at what this does and what the

3 implications are for officials of local

4 organizations at all levels, many of whom

5 are volunteers. Even in their capacities as

6 officers of labor organizations they are

7 volunteers. They\'re not paid. They are the

8 president, the business manager, whatever

9 but actually they work on the job.

10 These are the people I\'m thinking

11 about. They work at the trade, whatever it

12 is, whether it\'s a nurse or an operating

13 engineer or whatever it is. They may also

14 be the business manager of their small local

15 union and a vice chair of the Democratic

16 Party in their county.

17 And that\'s who I\'m concerned with

18 here and I think generally, at a general

19 level, you\'re absolutely right, that the

20 Commission ought to be applying the concept

21 consistently with how the law has to wrestle

22 with it in different contexts but there are

279

1 special concerns here that ought to inform

2 how it actually defines it and carries it

3 out.

4 MR. NORTON: Anyone else want to

5 comment on that?

6 MR. SULLIVAN: Yes, I would. I

7 would not disagree with you, Mr. Norton,

8 that general rules of agency should be

9 applied here. I\'ve got two concerns and I

10 think one of them was expressed by Mr. Gold.

11 The groups and the people that participate

12 both as volunteers for our organizations at

13 the board and the officer level are going to

14 be those people that are oftentimes active

15 in the political environment.

16 For that reason the regulation as

17 presently drafted I think is sufficiently

18 ambiguous on its face to give concern to our

19 organizations. What your ultimate

20 parameters are for that agency regulation,

21 whatever it may come down on, I think needs

22 to be spelled out, number one, far more

280

1 clearly.

2 Otherwise, if it had been clearer

3 on its face I don\'t think that there would

4 have been the type of concern that\'s been

5 expressed here today and the ambiguity that

6 goes with it.

7 But second of all, again, I know

8 for years we keep coming back to this

9 principle but we are dealing with the

10 concept of political speech and political

11 participation and the right of association

12 here. In other words we\'re not political

13 organizations. We\'re not here today

14 representing \"political organizations.\"

15 It is membership, it\'s trade

16 associations, and with the definition that

17 is I think sufficiently ambiguous at this

18 point, as I\'ve mentioned earlier, I think

19 what you were doing is chilling the ability

20 of some of those people to serve two

21 capacities both as an \"agent\" of a political

22 party system and perhaps other activities

281

1 that they might support from a philosophical

2 perspective.

3 MR. NORTON: Thank you. I would

4 just make the observation that even outside

5 of Regulation 109.1 the Commission has

6 applied agency concepts with respect to any

7 number of investigations that it\'s been

8 confronted with and to my understanding has

9 applied the definition more broadly.

10 I was wondering whether you had a

11 reaction to the concern of the sponsors that

12 a definition that is limited to actual

13 express oral or written authority to act on

14 behalf of is susceptible to mischief, that

15 in the real world you can put someone in a

16 position of authority in connection with the

17 campaign such that the authority to raise

18 funds is implied. You don\'t need to

19 actually put it in writing or be explicit

20 orally. Is that a legitimate concern?

21 MR. SULLIVAN: From my client\'s

22 standpoint I think that most of the people

282

1 at the director, officer level are

2 constantly looking and recruiting both for

3 new members and soliciting for funds to have

4 that and it\'s implicit in their particular

5 role.

6 If you were to segregate that to

7 one or two individuals I think that that

8 would be unrealistic simply because part of

9 especially a growing organization you want

10 to encourage not only the officers and the

11 directors of an organization but the members

12 themselves to go out and solicit new

13 membership, solicit funds, and I would think

14 that having the restriction in place where

15 it would have to be a written restriction

16 would be unenforceable at that point.

17 MR. NORTON: Let me turn to the

18 provisions we were discussing just a moment

19 ago permitting certain solicitations by

20 federal candidates. And I wanted to focus

21 first on 4(a) that concerns general

22 solicitations. That\'s the provision that

283

1 allows candidates or office holders to make

2 general solicitations on behalf of 501(c)

3 organizations as long as the principal

4 purpose of the organization is not to engage

5 in federal activity and the solicitation

6 doesn\'t specify how the funds will or should

7 be used.

8 Under your reading of this

9 provision of the statute would it permit an

10 officeholder to solicit unlimited funds from

11 any source for a 501(c), again, whose

12 principal purpose is not federal election

13 activity if that organization makes

14 disbursements for federal election activity

15 so long as the office holder doesn\'t say in

16 the solicitation that it\'s going to be used

17 for that purpose?

18 In other words should it make any

19 difference if the office holder knows that

20 the funds are going to be used for a

21 particular purpose and that is for federal

22 election activity so long as the

284

1 solicitation doesn\'t say so?

2 MR. HONG: Well, we agree with

3 that conclusion, that an office holder, a

4 federal office holder, would be able to

5 raise money in an unlimited fashion, as long

6 as the entity\'s primary purpose is not to

7 engage in federal election activity.

8 But to impose a knowledge test as

9 to whether the federal office holder knows

10 or doesn\'t know where the money\'s going to

11 go, well, first of all, I would have a

12 concern regarding the coordination rules out

13 there. So generally speaking the office

14 holders won\'t know exactly where the money\'s

15 going to be used or in what way the money

16 will be used.

17 But I hesitate in supporting a

18 standard that involves knowledge of the

19 office holders and exactly how that would

20 proven or how that would be administered.

21 When it comes to knowledge or intent, it

22 opens up a large, large area for the law to

285

1 subsume a lot of legitimate activity and I\'m

2 concerned about that.

3 MR. NORTON: Let me just quickly

4 in the remaining moment ask about Part B,

5 which prohibits federal candidates from

6 raising unlimited funds from any source for

7 501(c) organizations whose principal purpose

8 is to conduct voter registration, voter ID,

9 and GOTV.

10 Do you have any suggestions for

11 the Commission as to how a federal office

12 holder or candidate should determine an

13 organization\'s principal purpose and

14 whether, for example, that principal purpose

15 should be defined as a certain percentage of

16 an organization\'s expenditures over a period

17 of time?

18 MR. HONG: Well, we believe that

19 in trying to define what a primary purpose

20 is we believe at the very least it should be

21 a majority of their activity over at least

22 an election cycle if not more and that the

286

1 idea of principal purpose or primary purpose

2 has already been established to a large

3 degree under the tax law and that, I think,

4 would give some indication of what that

5 would mean.

6 CHMN. MASON: Mr. Pehrkon?

7 MR. PEHRKOM: Mr. Chairman, I have

8 no questions.

9 CHMN. MASON: Follow-up questions

10 from members of the Commission? I\'m getting

11 three down here, and we are going to take a

12 break. Vice Chairman Sandstrom.

13 COMM. SANDSTROM: Are we sticking

14 to the two minutes?

15 MR. NORTON: We\'ll do the two

16 minute.

17 COMM. SANDSTROM: This concept of

18 agency echoes throughout today\'s hearing.

19 Usually, you don\'t authorize people to make

20 gifts to you. I mean, it\'s an odd concept

21 that you\'re actually authorizing people to

22 make gifts.

287

1 It seems to me most money is

2 raised by vast voluntary volunteer networks

3 for campaigns and that you want to authorize

4 people to do that. You\'d look at their

5 checks when they came in and say thank you.

6 And it seems to me that in any particular

7 community there is a limited number of

8 people who actually raise money, are very

9 good at it, are willing to do it, and if

10 you\'re running a federal campaign you

11 probably call upon it, look at the people in

12 the state who are pretty good at doing that

13 for state races.

14 So aren\'t usually these people if

15 there is such a thing as being authorized to

16 raise money raising money from multiple

17 people and multiple charities because that\'s

18 how they\'re known in the community and

19 that\'s why you called upon them in the first

20 place? Would that correspond to your

21 experience?

22 MR. GOLD: I think that\'s correct.

288

1 I mean, clearly that you\'re talking about

2 private individuals who are interested

3 politically and will raise funds from a

4 number of sources routinely. I mean, that\'s

5 what they\'d like to do.

6 COMM. SANDSTROM: How is this

7 different from other activity? We\'re

8 talking here just essentially about private

9 conversation that takes place that itself is

10 not inherently bad. Some actually may be

11 quite good, maybe the necessary conversation

12 in politics to have people ask other people

13 for money and that limitations on that have

14 to be looked at very closely.

15 MR. GOLD: I think that the person

16 who in his private capacity raises money

17 because he or she supports particular

18 candidates ought not to be deemed

19 necessarily an agent of the candidate for

20 doing that. A lot of what comes in is not

21 solicited directly or it\'s in response to

22 general knowledge or a general solicitation

289

1 over the web site.

2 So one problem of going down the

3 road of defining \"agency\" is that once you

4 get into that thicket there\'s no other way

5 that you need to try to encounter and

6 define.

7 You know, there is an argument for

8 not defining at all in the regulations but

9 enforcing it wisely, I\'m not sure how

10 comfortable I am with that. But clearly the

11 Commission does that in other contexts, as I

12 think the General Counsel suggested.

13 COMM. SANDSTROM: We\'re not

14 regulating pollution or unfair trade

15 practices here. We\'re regulating private

16 conversations in politics.

17 MR. GOLD: I agree and I think

18 bright lines and clear guidance are

19 absolutely paramount for people out there.

20 And in so far as that can be done here it

21 ought to be done.

22 CHMN. MASON: Commissioner Smith.

290

1 COMM. SMITH: Well, along the

2 lines of bright lines and so on I just want

3 to touch on a subject we haven\'t talked

4 about. But a number of restrictions on

5 501(c)s come into place if you\'re engaged in

6 federal election activity which can include

7 ads that promote, attack, support, or oppose

8 a candidate. They are usually called by

9 their acronym, PASO ads.

10 I\'ll ask generally how comfortable

11 are you that you can advise your clients as

12 to whether an ad they\'re running or thinking

13 about running, promotes, supports, includes

14 the PASO criteria, and would you have any

15 suggestions for how we might define that if

16 a definition is necessary? Who wants to

17 take that on? Easy question.

18 MR. GOLD: In a sense it is. And

19 what we said in our comments in ÄÄÄÄ here is

20 I think I missed one. The Commission has a

21 constitutionally impossible task that is not

22 of its own making and so I don\'t have a

291

1 specific suggestion of what to do because I

2 think what Congress has done on the face of

3 it it can\'t do.

4 I note, how can we advise somebody

5 with this standard? We can\'t. One of the

6 commenters, I think the Center for

7 Responsive Politics, I wrote it down, says

8 that that phrase means anything that \"speaks

9 positively or negatively about a clearly

10 identified federal candidate.\"

11 Well, beyond name, rank, and

12 serial number what doesn\'t qualify for that

13 kind of a description? That\'s not what the

14 Commission ought to be about. I don\'t have

15 a specific suggestion. I think this is

16 clearly something that you\'ll do the best

17 you can with and by June of 2003 hopefully

18 the Supreme Court will make a decision.

19 COMM. SMITH: Thank you.

20 CHMN. MASON: I recall some people

21 I worked with on term limits even considered

22 \"incumbent\" to be a dirty word.

292

1 Commissioner McDonald.

2 COMM. McDONALD: Mr. Chairman,

3 thank you. Well, I\'ll just close by

4 thanking the panel and saying again that one

5 of the things happening around the table

6 that\'s a little hard for me to get a grasp

7 on is this very discussion about agency, for

8 example. I mean, some of us are arguing

9 about what is not very advantageous from a

10 particular point of view and I can

11 appreciate that and I\'m glad to have those

12 kinds of comments.

13 But I won\'t try to kid anyone.

14 I\'m troubled by the fact that clearly albeit

15 only some, as was pointed out, we could take

16 that position with any piece of legislation

17 and just say to members well, not all of you

18 came forward after the passage of the act.

19 But I am troubled that members and

20 in particular authors certainly have a

21 different view of agency than the witnesses

22 do and it concerns me because as a practical

293

1 matter there\'s a fairly thin line between

2 arguing about what the law ought to be as

3 opposed to what Congress thinks it should

4 be. I\'m almost agnostic on these matters in

5 relationship to where I philosophically come

6 out because I don\'t really see that as my

7 responsibility.

8 I think my responsibility is to

9 try as closely as I can possibly to get some

10 grasp of where the Congress was going

11 whether I agree with or disagree with and

12 the discussion has been extremely helpful

13 but I must say I\'m still troubled by what I

14 consider certainly worthwhile comments by

15 the authors as well and it\'s making it very

16 difficult for me to reach a conclusion but I

17 appreciate very much the comments of this

18 panel.

19 MR. GOLD: If I can respond. The

20 authors of the legislation, we talked about

21 this a bit before but the Commission isn\'t

22 writing on a clean slate in that regard and

294

1 the Commission has to interpret it by

2 statute, and there are established standards

3 that the courts have laid down.

4 They looked at the plain meaning

5 of the statute. I\'m paraphrasing now this a

6 little bit. We looked to the he plain

7 meaning in so far as we can\'t glean ÄÄÄÄ we

8 have to resort to other aids, the

9 legislative history and the like.

10 I don\'t know of any principle

11 statutory construction that says that

12 whoever the principal sponsors are have to

13 have some kind of continuing role of

14 interpreting, advising, instructing, or

15 requiring the Commission to decide anything,

16 let alone the courts and, as I said before,

17 the fact that ÄÄÄÄ sponsors who are not the

18 sole sponsors, for that matter, of the

19 legislation are participating in this rule

20 making is fine. But I think the Commission

21 should not be unduly influenced whatsoever

22 by that view alone as authoritative. It\'s

295

1 not.

2 I\'m mindful that there\'s some

3 political context here that the Commission

4 has been severely criticized generally and

5 there are suggestions from some of the same

6 sources to overhaul the structure which I

7 think is not fair to how the Commission has

8 had to operate over years and years.

9 And I think Commissioners ought to

10 do what I know they\'re trying to do, which

11 is a job that\'s faithful to the statute, and

12 I think the Commission will succeed as much

13 as it can by applying established legal

14 principles on how to interpret statutes and

15 not give I think undue regard to post-

16 enactment statements, interpretations, and

17 the like by the sponsors, particularly where

18 none of those views, interpretations, and

19 the like, were ever put in the legislative

20 history.

21 COMM. McDONALD: You\'d more

22 closely, I gather, embrace the points raised

296

1 by Larry Norton earlier then about agency?

2 He reflected on how agency has been seen

3 over the years by a number of agencies like

4 ours on the regulatory side?

5 MR. GOLD: Well, without knowing

6 exactly ÄÄÄÄ in mind I think is a basic

7 principle where the Commission can draw on

8 established legal experience it should but,

9 again, there are unique considerations here

10 and the Commission has to deal with the ÄÄÄÄ

11 of the federal election campaign ÄÄÄÄ First

12 Amendment but yes, certainly more so, again,

13 than post-enactment statements that don\'t

14 find any echoes in the legislative record.

15 I mean, there was plenty of time

16 to create a legislative history here leaving

17 aside how much deference you can give to a

18 legislative history. If it\'s not there at

19 all why is it somehow authoritative now?

20 COMM. McDONALD: Do you think the

21 FECA itself is a violation of the First

22 Amendment?

297

1 MR. GOLD: I think certain

2 aspects, the FECA as amended? Yes.

3 COMM. McDONALD: That\'s very good.

4 I know where you stand. I believe I read

5 that a little earlier. How about before it

6 was amended?

7 MR. GOLD: I think that requires

8 more consideration than an off the cuff

9 response.

10 CHMN. MASON: Commissioner Toner.

11 COMM. TONER: Thank you,

12 Mr. Chairman. I just want to follow up on a

13 couple of points that were raised earlier.

14 Mr. Gold, in an earlier discussion, as you

15 noticed, BCRA has a 120-day, bright line

16 standard for voter registration activities,

17 in terms of if you conduct that within the

18 120-day window then it will be deemed to be

19 federal election activity.

20 But GOTV activities and generic

21 campaign activities and voter ID activities

22 do not have that standard in the statute but

298

1 instead there\'s a reference to when they\'re

2 conducted in connection with an election in

3 which a federal candidate is on the ballot.

4 I thought I heard you suggest that

5 we shouldn\'t dismiss out of hand the

6 possibility of applying the same 120-day

7 standard for those activities that we\'re

8 going to apply for voter registration?

9 MR. GOLD: No. If I did I

10 misstated it. What I suggested was that one

11 shouldn\'t assume that the period of time

12 that would be applicable to those would be

13 more than 120 days. It might be less and we

14 might have to look at each activity and it

15 might be that the best way to look at it is

16 to try to define these terms in such a way

17 that it isn\'t temporally bound per se and

18 the Commission doesn\'t come up with an

19 arbitrary date but defines activity in such

20 a way that when it happens it happens.

21 COMM. TONER: Activity by activity

22 based on how they are really operating?

299

1 MR. GOLD: No, I don\'t have an

2 easy way to do it here because I think it\'s

3 a hard task because I think these terms mean

4 different things to different people and I\'m

5 not sure how much guidance there is in the

6 legislative history but I did not suggest

7 earlier or mean to that the 120 days ought

8 to be applied there. There is an argument

9 that it wasn\'t because Congress could have

10 and chose not to.

11 Commissioner McDonald asked me a

12 very big question and I don\'t mean to

13 suggest that I believe that the statute even

14 before amended is unconstitutional. I

15 don\'t. I think that there may be aspects of

16 it that arguably are which would require

17 considered thought but I certainly believe

18 that it is within this Constitution to

19 regulate in the campaign finance field.

20 COMM. McDONALD: I was just

21 writing down that quote because I\'m writing

22 everything you guys say that really the

300

1 authors of the bill really don\'t have any

2 import. I\'m just trying to get that down.

3 I want to be sure that members of Congress

4 follow that through.

5 COMM. TONER: Mr. Hong, you in

6 your testimony have stressed the need for

7 safe harbors and clarity and I take it that

8 given your organization\'s mission that would

9 apply to the concept of voter registration

10 kinds of activities that constitute that.

11 In that regard I think the vice

12 chairman\'s hypothetical was very instructive

13 which as I understand was essentially what

14 if a state party paid for a national figure

15 such as Reverend Jesse Jackson to go to an

16 event at which he urged people there to

17 register to vote?

18 In your view if we issue a

19 regulation that treated that type of

20 activity as voter registration would that be

21 consistent with a bright line approach?

22 MR. HONG: To answer that question

301

1 I would like to know exactly what was the

2 regulatory provision that would have covered

3 that because if the regulatory provision

4 that would have covered that activity stated

5 something to the effect of any activity

6 where the purpose is to ultimately get

7 people registered or where there\'s any ÄÄÄÄ

8 voter registration mentioned at an event I

9 think that would be overly broad.

10 But if you were to create bright

11 line examples of what voter registration is

12 as I think the proposed rules already have

13 in the context of GOTV, give examples of

14 going out and signing people up for voter

15 registration, that that would be covered I

16 think if the Commission were to give

17 discrete example like that then maybe that

18 activity ÄÄÄÄ acceptable. But I think it\'s

19 the way you cover it that\'s more important

20 than whether that specific example would be

21 covered because if Jesse Jackson is there

22 speaking about the civic duties of African

302

1 Americans to go out and vote in general and

2 happens to say by the way, you have to

3 register to vote I\'d hate to say that that\'s

4 voter registration activity.

5 COMM. TONER: I agree.

6 Thank you, Mr. Chairman.

7 CHMN. MASON: I don\'t have any

8 follow-ups at this time.

9 Commissioner Thomas?

10 COMM. THOMAS: No, I\'m fine.

11 Thanks.

12 CHMN. MASON: Larry Norton?

13 MR. NORTON: I have a request for

14 a five-minute recess and again thank all the

15 members of this panel and we\'ll be back with

16 Mr. Ginsberg in about five minutes. Thank

17 you.

18 (Recess)

19 CHMN. MASON: The Federal Election

20 Commission\'s public hearing on prohibited

21 and excessive contributions will reconvene

22 after our five-minute recess. We\'re

303

1 delighted to have this afternoon Dan

2 Ginsberg, who, as with members of the panel

3 this morning, is representing no one.

4 His knowledge of federal election

5 law is legion. He\'s former counsel to a

6 national party committee, inside counsel to

7 at least one presidential campaign. Ben,

8 we\'re delighted to have you here. He has,

9 just as a matter of formal testimony,

10 associated himself with the views of his

11 client, the Republican National Committee,

12 but is testifying on his own behalf.

13 We\'ll give Ben five minutes for an

14 opening statement, and then five minutes

15 each for a round of questions from

16 Commissioners and staff. Go ahead, Ben.

17 MR. GINSBERG: Thank you,

18 Mr. Chairman, and it\'s a pleasure to be

19 here. I appreciate it. Being up here by

20 myself was not exactly my intent, and I

21 don\'t know how many of you play Guacamole

22 down at the boardwalk but I think the game

304

1 just broke and my bald little head is the

2 only thing sitting up there for all of you.

3 But this is important and I do

4 appreciate being able to address you. Your

5 staff has obviously done a Herculean job in

6 preparing the regulations, the draft of the

7 regulations. It is no easy task but it

8 certainly does provide an excellent starting

9 point.

10 I am appearing as an attorney who

11 represents political parties, special

12 interest groups, and candidates, although my

13 comments are my own and not those of any of

14 the groups or individuals who I work with.

15 You do face a difficult challenge

16 in devising regulations that are true to the

17 statute but which are still constitutional.

18 Today you\'ve been urged to draft regulations

19 which in several instances would render that

20 already daunting task impossible.

21 What I\'d like to do is focus on

22 some of the Fifth Amendment equal protection

305

1 issues raised by the draft regulations and

2 the suggestions to them that you\'ve heard

3 today. I\'d like to address them from the

4 perspective of two of the groups with which

5 I\'m most familiar, the political parties,

6 whose activities are most circumscribed by

7 the proposed regulations, and special

8 interest groups all across the political

9 spectrum whose activities are not in the

10 least circumscribed and in fact will thrive

11 under the new law especially if you adopt

12 some of the proposals that you heard this

13 morning. In particular I\'d like to focus on

14 voter identification, voter registration,

15 voter contact, and voter turnout programs,

16 really the heart of what parties do now.

17 What you\'ve been urged to do today

18 is in effect draft regulations that

19 eviscerate the political party\'s ability to

20 conduct these programs while still allowing

21 special interest groups to carry on the very

22 same activities with the very same soft

306

1 money that the parties could no longer use

2 under the way the sponsors in the first

3 panel this morning would have you construct

4 the law.

5 That\'s where the equal protection

6 concerns come into play. The sponsors\'

7 letters and the members of the first panel

8 today asked you to end the soft money system

9 but, and I say this on the basis of really

10 the practical aspect of the practice in

11 which I\'ve been engaged, what they\'ve urged

12 you to do in drafting the regulations will

13 have precisely the opposite effect of ending

14 the soft money system.

15 Nothing in the regulations as the

16 sponsors propose them will end the soft

17 money system in federal elections. Rather

18 their suggestions will lead to a massive

19 redistribution of soft money in federal

20 elections from parties raising money that\'s

21 legal under state law and reporting it fully

22 on the federal and state level to special

307

1 interest groups spending unreported soft

2 money on precisely the same activities that

3 the parties are now prohibited from doing.

4 The special interest groups will not have to

5 report any of this activity.

6 The notion that the Commission

7 owes a special deference to the sponsors was

8 I think a bit overstated this morning.

9 Courts correctly, for example, look to the

10 actual language of the statute and if it\'s

11 not in the statute, if it\'s not there,

12 they\'re reluctant to look even at the

13 legislative history because if it\'s not in

14 the statute itself the legislative body

15 didn\'t agree to it.

16 In this instance the sponsors

17 didn\'t get what they asked you to put in the

18 regs. They did not get that in the statute

19 itself nor is it even in the legislative

20 history in several instances. So they\'re

21 trying here before the Commission to get a

22 third bite at the apple. If what they asked

308

1 you to do was indeed part of the statute and

2 indeed had been approved by the legislative

3 body itself then why ask you for it because

4 it plainly would have been in the statute

5 and it\'s not.

6 Here are some specific examples.

7 On page 3 of their letter to the Commission

8 the sponsors state the new law\'s definition

9 of federal election activity covers all get

10 out the vote, voter identification, voter

11 contact, and generic campaign activity

12 during the entirety of a two-year cycle no

13 matter what the actual words used in the

14 communication itself that they\'re trying to

15 regulate. The result of adopting their

16 construction would mean that state parties

17 could conduct almost none of the traditional

18 party-building activities that they do now

19 with money that\'s legal under state law

20 contrary to the notion that when a federal

21 candidate appears on the ballot, indeed as

22 part of that, and no candidate two years out

309

1 could possibly have qualified for the ballot

2 so the notion of entering into a two-year

3 cycle is perhaps wrong.

4 The sponsors also tell you that

5 these activities should be paid for only by

6 allocating between the party\'s federal

7 account and the new Levin account without

8 any share being paid from what is now legal

9 under state law in the party\'s state

10 account. The point is the law is ambiguous

11 now. In discussing this provision the RNC

12 comments are I think correct that under the

13 plain words of the statute the activity

14 should expressly advocate the election or

15 defeat to fall under the federal and Levin

16 account allocations.

17 In reality compiling voter lists,

18 generic issue identification, internal

19 polling, or even planning Republican victory

20 programs or Democratic Party coordinated

21 campaigns should be viewed as the party\'s

22 administrative overhead allocable between

310

1 the federal accounts and the state accounts

2 since they support both groups of

3 candidates. This should not be considered

4 federal election activity.

5 The best way to look at this, and

6 I see that my time is up, but I hope in the

7 questions we can discuss specifically the

8 ways that the parties do conduct some of

9 these party-building programs and the way

10 that special interest groups would be able

11 to conduct those programs under the new law.

12 In conclusion, Congress wanted to

13 cut off soft money to state parties but in

14 writing the regulations I would hope that

15 you would not fall into the trap of

16 overextending what is in the law, in other

17 words interpreting in the way that you\'ve

18 been urged to do in such a matter that would

19 create constitutional infirmities for all

20 those who do engage in the federal election

21 process, the state election process, and the

22 local election process. Thank you.

311

1 CHMN. MASON: Commissioner Thomas?

2 COMM. THOMAS: Thank you,

3 Mr. Chairman. First, I want to follow on

4 what you were talking about in terms of

5 allowing for allocation. If something

6 doesn\'t fit within the definition of federal

7 election activity however we end up defining

8 that how much are you contemplating would

9 therefore fall into in essence the

10 traditional FEC allocation concept such that

11 they would still have to pay for a portion

12 of it using hard money?

13 MR. GINSBERG: I think that a

14 proportion would still have to be paid

15 before using hard money. I don\'t personally

16 share the view that somehow this could all

17 become soft money. But again I think under

18 the vagueness that\'s in the statute and the

19 job you have before you in defining federal

20 election activity you could come out that

21 way.

22 COMM. THOMAS: With regard to this

312

1 issue of party committees, national party

2 committees, state party committees, and so

3 on being able to basically operate through

4 what you might call rump groups to do

5 indirectly what they otherwise couldn\'t do

6 directly the statute includes some language

7 to the effect that any organization that is

8 established or financed or maintained or

9 controlled by the party entity would be

10 subject to the same sort of rules as applied

11 to the party unit in question.

12 I\'m curious. Just in terms of

13 practical realities within, say, the party

14 structure you\'re familiar with what do you

15 think is going to happen with regard to

16 groups like the Republican Governors

17 Association or the National Republican State

18 Elections Committee or maybe the Republican

19 state election chairs group? I\'ve forgotten

20 the proper name. Do you see some sort of

21 effort to have those groups reorganizing so

22 that by November 6th they would be able to

313

1 in essence claim they are not established,

2 financed, maintained, or controlled by the

3 national party?

4 MR. GINSBERG: I think that\'s an

5 inevitable result. I don\'t read anything in

6 the statute that would indicate some sort of

7 a notion that a group of state officials

8 can\'t get together and make contributions to

9 their fellow state officials or raise money

10 for state officials under money that\'s legal

11 under the laws of that particular state.

12 If anything that raises one of the

13 equal protection notions that I alluded to

14 in my opening comments. In other words

15 there are plenty of groups that will be able

16 to band together to raise money that\'s legal

17 under state law to help state officials get

18 elected.

19 It is not, I don\'t believe, stated

20 anywhere in the law that would stop

21 governors themselves from having the same

22 right as those other groups will clearly

314

1 enjoy.

2 COMM. THOMAS: But just based on

3 your familiarity with the current structures

4 do you see entities like the Republican

5 Governors Association and those other that

6 I\'ve mentioned having to perhaps actually go

7 through some by-laws changes or some other

8 structural changes to get out of the

9 language that\'s in BCRA now, the language

10 about established, financed, maintained or

11 controlled?

12 MR. GINSBERG: I don\'t read that

13 language in BCRA in any way, shape, manner

14 or form to prohibit a group like the

15 Democratic Governors Association or the

16 Republican Governors Association or the

17 state caucus legislators from forming their

18 own groups so that they can act under the

19 laws that their own states have passed.

20 I mean, after all, the difficulty

21 here is that you\'ve got members of the

22 legislature who have taken votes in their

315

1 legislature to make certain contributions

2 legal and all of a sudden the notion that

3 Senators and Representatives in Washington,

4 wonderful people though they may be, can

5 somehow supersede the judgment of those

6 elected state officials on how elections in

7 their states should be conducted is I think

8 not the intent of the law nor the language

9 of the law nor should you be put in the

10 position of having to construct the law that

11 way.

12 COMM. THOMAS: What I\'m getting

13 at, there was an article the other day

14 talking about the Association of State

15 Democratic Chairs and what might happen to

16 it. It might go through some metamorphosis

17 so that it can perhaps function in a way

18 that it would be raising and spending what

19 had heretofore been referred to as soft

20 money and that it would be able to do so

21 through some sort of reorganization to be

22 free of the national party structure and I

316

1 was just trying to get some sense as to your

2 familiarity with those types of

3 organizations and whether in fact we at the

4 Commission are going to have to worry about

5 some sort of change in these organizations\'

6 longstanding structure or relationship with

7 the national parties that\'s taking place on

8 or before November 6th and that we\'ll have

9 to somehow further track those distinctions

10 and differences.

11 MR. GINSBERG: I mean, I don\'t. I

12 think it is outside of your purview to

13 regulate even under this new law what

14 happens in state elections involving state

15 candidates operating under laws passed by

16 their duly elected legislators.

17 COMM. THOMAS: Are you raising a

18 pure Constitutional federalism concern?

19 MR. GINSBERG: Well, I think

20 that\'s certainly the root of it but I think

21 it has practical implications as well when

22 you raised the point of do we have to worry

317

1 about that. And I think the answer is you

2 don\'t have to worry about it. I think if

3 you try and stop the Association of State

4 Democratic Chairs from being involved in

5 elections in their state under the laws

6 passed by their state legislators and if you

7 somehow manage to clamp down on them, which

8 I think would be constitutionally

9 impermissible, I think that there will be

10 plenty of other groups who will do precisely

11 the same thing and you won\'t be able to

12 touch them under any scenario.

13 COMM. THOMAS: Thank you.

14 CHMN. MASON: Thank you. But I

15 want to follow up on that same issue that

16 Commissioner Thomas was talking about and I

17 do want to note that in the statute itself

18 there was an explicit reference to groups of

19 state office holders and to conditions under

20 which it appears to be an effort to limit

21 their activities to what the sponsors might

22 have called genuine state activities, in

318

1 other words that if the state office holders

2 got into federal election activity it\'s fine

3 by the statute. They\'d have to raise hard

4 money for it but if they were somehow able

5 to restrict their activities to things other

6 than federal election activity the statute

7 appears to give them license.

8 If you will, help me, because I

9 understand your constitutional arguments,

10 put on the mind of the sponsors a little

11 bit, perhaps go where Commissioner McDonald

12 would like to go. We\'ve got in the statute

13 the contemplation of the state office

14 holders doing state activity but on an

15 interstate basis, if you will, but, given

16 the party structure of the two national

17 parties, where I understand the state party

18 chairmen are all members of the national

19 committees of their respective parties, how

20 can we say that an organization consisting

21 solely of the state party chairmen would

22 somehow be separate from the national party

319

1 such that it wasn\'t within the intended

2 reach at least of the legislation?

3 MR. GINSBERG: Well, let\'s put it

4 this way. If you don\'t say that what will

5 happen is that you will have a complete and

6 utter bifurcation of what passes for

7 political parties if political parties

8 survive. So that I think that given the

9 lack of clarity in the new law it\'s up to

10 you how you interpret those phrases and the

11 activities of those groups.

12 Again, as a practical matter I did

13 not hear those who have close ties to the

14 sponsors this morning, although I understand

15 they weren\'t representing the sponsors,

16 saying categorically that state chairmen

17 were somehow precluded from some state

18 activities while still being on the national

19 committee.

20 I mean, I think there was an

21 element of the practicality of politics here

22 and one of the most surprising things to me

320

1 that I\'ve seen in representing both state

2 and local parties is the role of state

3 legislative caucus leaders. Believe it or

4 not, and in Washington we have a great deal

5 of difficulty believing it, their primary

6 concern is not members of Congress. They

7 really care much more about their state

8 legislators and governors and the I think

9 inevitable result is that if you say that

10 state chairs are precluded from carrying on

11 pretty much their normal activities, and I

12 don\'t think you\'re put in that position by

13 the plain wording of the statute, but if you

14 do say that you will have either one of two

15 results.

16 Either you will have completely

17 different party structures or you\'ll have

18 those state legislators over the course of

19 the decade enacting new laws so they\'re not

20 called state parties. They\'re called

21 something else. And in essence what you\'ll

22 have is far more soft money in the system

321

1 not reported centrally to the Federal

2 Election Commission in Washington that in

3 fact is responsible for contacting voters

4 and turning out voters. So in a sense,

5 you\'re keeping the toothpaste in the tube,

6 which it seems you are urged to do, is just

7 not practical.

8 CHMN. MASON: Well, I share some

9 of your concerns but I\'m still not sure,

10 given the apparent intended reach of the

11 statute, how these persons who are officers

12 of a national political party could then

13 jointly turn around and conduct soft money

14 fundraising prohibited by the party and I\'m

15 not talking about somebody who is a

16 volunteer, who did it part-time, but

17 somebody who\'s on the governing board and

18 roughly a third of the members of the

19 governing board of the national party

20 establishing a satellite organization. I

21 understand the practical arguments but I\'m

22 trying to understand the statutory scheme

322

1 where we could say that was okay.

2 MR. GINSBERG: Well, I think the

3 answer to that may lie in the definition you

4 choose for agency, in effect, and the

5 precise rules that you permit various

6 officials to undertake in their capacities.

7 Now, I think in looking at this law, there

8 may have been any number of things that the

9 sponsors and drafters of the law didn\'t

10 realize they were doing in the law and

11 perhaps the role of state chairs is one of

12 those.

13 In a sense those of us who are

14 both litigating the case and in this

15 position face a conflict because if you want

16 to try and stop state chairs from engaging

17 in the activity they\'re allowed to do as

18 state chairs it\'s probably not a bad fact

19 for the case.

20 CHMN. MASON: I appreciate that as

21 well. Commissioner McDonald.

22 COMM. McDONALD: Mr. Chairman,

323

1 thank you, and, Ben, thank you for coming.

2 I think this will probably do more to damage

3 your career than anything I can think of. I

4 intend to agree with Ben. I did spend a

5 good deal of time with the Oklahoma

6 legislature and I must say that most times

7 that they ever talked about the Congress or

8 the United States Senators happened to be in

9 the reapportionment years in which I was

10 involved on several occasions and he\'s not

11 wrong, at least from my experience, that the

12 primary interest, at least at the

13 legislative level, is their very activities

14 and I think that\'s the norm.

15 Now, it may beg the question about

16 what the overall impact is. We had one of

17 our previous witnesses on the 501(c)

18 question talking about the impact in terms

19 of registration and I know the chairman

20 indicated that he felt like having any voter

21 identification more than a month or two out,

22 I believe he said, was inconsequential

324

1 because people wouldn\'t focus.

2 And I think he\'s probably right

3 about that and my experience has been,

4 having been a local election official for a

5 number of years, that you also couldn\'t get

6 people to register to vote. I mean, it\'s

7 very hard in a nonelection year or even in a

8 gubernatorial year we found it was still

9 extremely difficult.

10 Let me just ask, if I could,

11 because I know you\'ve had lots of

12 experience. Can you just give us your take

13 on the Levin Amendment and how you see it

14 playing out? I know you\'re incorporated in

15 part but I\'d just like to get your take on

16 that and how you see it as a practical

17 matter from where you stand.

18 MR. GINSBERG: I think despite

19 some of the predictions that were made this

20 morning my guess is that the Levin accounts

21 will not be terribly heavily utilized by the

22 state party, that there\'s a false hope that

325

1 will prove to be more trouble than they\'re

2 worth and more expensive than they\'re worth.

3 And let me tell you what I mean by

4 that. In essence a political party

5 committee will only be able to use Levin

6 money for a generic message and I think that

7 most parties will tell you that in almost

8 all circumstances a generic message is the

9 singularly least effective message that you

10 can put out. It is not as effective as

11 naming a federal candidate and urging people

12 to vote for him.

13 I mean, we have a problem in this

14 country about many people not knowing the

15 names of their candidates and in many states

16 party labels get a little bit blurred, and

17 you have a growing number of people who are

18 independents and not registered by party who

19 do vote for individuals.

20 So stand alone generic messages

21 are not terribly effective and as federal

22 dollars become scarcer amongst the party

326

1 committees you probably will husband your

2 federal dollars to actually spend on express

3 messages on behalf of candidates. And once

4 you name a federal candidate, of course, the

5 money has to be all federal and the Levin

6 money does you no good. Plus if you take

7 the construction that to raise Levin money

8 you have to use federal money to raise that

9 Levin money that to me makes it I think a

10 marginal benefit and an extremely high cost

11 and I would be very surprised if many state

12 parties spent a whole lot of time raising

13 Levin money.

14 COMM. McDONALD: Thank you.

15 CHMN. MASON: Commissioner Smith?

16 COMM. SMITH: Thank you,

17 Mr. Chairman. Mr. Ginsberg, in your opening

18 you suggested that you hoped that in the

19 question period you would have some time to

20 compare how parties take on these voter

21 identification and get out the vote

22 activities and so on with how other groups

327

1 do it.

2 Nobody\'s asked you that yet so

3 give us some real world examples and explain

4 what are the real world effects of this, and

5 what are some of those differences that

6 you\'re alluding to there?

7 MR. GINSBERG: I\'d be happy to.

8 Let me provide a couple of examples.

9 Identifying voters is something that parties

10 do just to be able to get some sense of who

11 is likely to support their issues or their

12 candidates and they do that now largely

13 through telephone scripts and those scripts

14 are allocated between the federal and the

15 state accounts depending on who is mentioned

16 in the script.

17 Under the new law if they did that

18 the entire script would have to be paid for

19 with all federal dollars if it mentioned a

20 specific federal candidate. Special

21 interest groups, be it the National Rifle

22 Association or handgun control, would be

328

1 able to raise money that is unlimited,

2 unreported, soft money to conduct the same

3 activity.

4 Or voter list development work, in

5 which you basically have your state parties

6 go around to all the counties and states

7 that compile lists by counties or take the

8 state list on those few states that have

9 statewide computer lists. The state parties

10 gather it, give it to the national parties.

11 The national parties do enhancements to

12 those lists, various demographic, voter

13 pattern history.

14 It is a cost that is split as an

15 overhead cost between the federal account

16 and the state account usually based on the

17 ballot composition in that state as set by

18 your current regulations. Under the new law

19 that would probably have to be all federal.

20 At least, that\'s certainly the way you were

21 urged to interpret it this morning.

22 Special interest groups, on the

329

1 other hand, will be able to get a hold of

2 that publicly available information and

3 prepare voter lists with all soft money.

4 The parties can\'t raise it. The special

5 interest groups won\'t have to report it.

6 Voter registration is a little bit

7 different because of both motor voter and

8 because of the 120-day rule but in essence

9 the parties allocate between federal and

10 state dollars when they prepare those and

11 special interest groups will be able to use

12 all unreported soft dollars to do it.

13 In addition that\'s a fertile

14 ground for new, broad-based membership

15 organizations to start up such as the New

16 Democratic Network that I think was also

17 mentioned in that article Saturday you

18 referred to.

19 Absentee ballot programs are much

20 the same way. Parties will now send out

21 absentee ballots and allocate between the

22 federal and state account depending on the

330

1 candidates mentioned on the actual piece

2 they send out. Under the new law because

3 you undoubtedly would want to mention at

4 least one federal candidate in there it

5 would have to be paid for entirely by

6 federal, none of the dollars that are legal

7 under state law.

8 Special interest groups, on the

9 other hand, would be able to send out

10 communications to their members using

11 entirely soft dollars. The same would be

12 true for sample ballots, slate cards, palm

13 cards, get out the vote programs, which are

14 now allocated according to who is mentioned

15 in a script, what candidates between a

16 federal and state account by parties. The

17 new law would federalize the money that\'s

18 spent by the parties.

19 Special interest groups, again the

20 broader the membership the better, would be

21 able to go out and do that all with

22 unreported soft money that the parties can

331

1 no longer use.

2 COMM. SMITH: Let me cut in here

3 as our time is wrapping up. How much of

4 this is something that we can address in the

5 regs because how much of it is simply these

6 are the outcomes dictated by the statute?

7 Can you give us some examples of where we

8 might look to the regs to address these

9 types of concerns?

10 MR. GINSBERG: Well, I think the

11 notion of when a federal candidate is on the

12 ballot and in connection with federal

13 election activity are terms that you will be

14 defining in this rule making process. And I

15 think the temporal restrictions you put on

16 those terms will have a lot to do with the

17 way the parties are able to either pay or

18 not pay for those programs.

19 And again I\'d urge you to keep in

20 mind the fundamental equal protection issues

21 here, that if you draw these definitions so

22 tight that all these activities fall within

332

1 a two-year cycle in which parties have to

2 use all federal dollars to pay for it and a

3 whole bunch of special interest groups are

4 out there being able to use all unreported

5 soft money to conduct the very same

6 activities with the very same money the

7 parties can no longer use I think you\'re

8 with the regulations creating an equal

9 protection problem.

10 CHMN. MASON: Vice Chairman

11 Sandstrom.

12 COMM. SANDSTROM: Good afternoon,

13 Dan.

14 MR. GINSBERG: Carl.

15 COMM. SANDSTROM: How many

16 individuals contributed to the Bush

17 campaign? Do you have any idea?

18 MR. GINSBERG: I don\'t recall the

19 exact number, several hundred thousand.

20 COMM. SANDSTROM: How many people

21 probably asked those various people to

22 contribute to the Bush campaign?

333

1 MR. GINSBERG: I have no idea.

2 Lots, the Bush campaign had a large number

3 of very enthusiastic volunteers.

4 COMM. SANDSTROM: Were some of

5 those volunteers also volunteers for the

6 large stable of Republican governors that

7 Governor Bush was friendly with?

8 MR. GINSBERG: I think there were

9 a number of individual who were interested

10 in politics who I\'m sure helped federal

11 candidates, state candidates. They got

12 involved in politics and wanted to

13 participate in the process. Surely we

14 wouldn\'t want to stop that, would we?

15 COMM. SANDSTROM: For instance,

16 let\'s take the State of New York. Some

17 people say that there are a few people up

18 there with the ability to give and there\'s a

19 governor\'s race up there now. Would you be

20 surprised to find out that some of the

21 people who raised money for the Bush

22 campaign a couple of years ago are now

334

1 raising money for the Pataki campaign?

2 MR. GINSBERG: Well, I would hope

3 that people who are interested in politics

4 and who their elected officials are

5 participate as often as possible and don\'t

6 make arbitrary distinctions between federal

7 and state races in whom they\'re going to

8 support because ideas actually transcend

9 federal and state elections.

10 COMM. SANDSTROM: I\'m not sure if

11 you\'re representing the president now but I

12 imagine that the president hasn\'t sent out

13 any notice to these people withdrawing any

14 authorization that they did have, declaring

15 they\'re no longer an agent.

16 MR. GINSBERG: I suppose that\'s a

17 nonissue, actually.

18 COMM. SANDSTROM: Even though they

19 had been at one time authorized to raise

20 money on behalf of the president?

21 MR. GINSBERG: Well, I\'m not here

22 representing the President. He\'s not a

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1 candidate for office right now.

2 COMM. SANDSTROM: Yes. I said

3 this morning. All mine were just purely

4 fictional.

5 MR. GINSBERG: You give it the

6 feel of reality.

7 COMM. SANDSTROM: I have invoked

8 that to our people who have means in New

9 York who would see fit to give to Pataki who

10 had raised money for Governor Bush and they

11 had been authorized to raise money and, I

12 mean, in fact, you don\'t have an

13 authorization program for raising money, do

14 you?

15 MR. GINSBERG: Who does?

16 COMM. SANDSTROM: Any candidates?

17 MR. GINSBERG: Me personally?

18 COMM. SANDSTROM: Are you an

19 agent?

20 MR. GINSBERG: No, I\'m not an

21 agent, no.

22 COMM. SANDSTROM: You haven\'t

336

1 authorized but if someone gave you a check

2 would you turn it in?

3 MR. GINSBERG: I don\'t know. I

4 suppose I would.

5 COMM. SANDSTROM: Yes, you would

6 so maybe you\'re authorized to receive them.

7 Earlier it had been asked about the

8 Republican Governors Association. I\'m

9 somewhat familiar with at least the way the

10 Democratic Governors Association used to

11 operate and they were not financed,

12 maintained, or controlled except for maybe

13 some administrative expenses. Are you

14 familiar enough with the Republican

15 Governors Association to indicate whether

16 they are financed or maintained or

17 controlled by the Republican National

18 Committee?

19 MR. GINSBERG: Well, I have a

20 great deal of difficulty knowing precisely

21 what that term means, first of all, so I

22 think that may be part of it. I do believe

337

1 that the Republican Governors Association

2 raises its own funds. And I do believe it

3 works closely with the Republican National

4 Committee state elections account.

5 COMM. SANDSTROM: And with respect

6 to raising of those funds it probably does

7 so under bylaws that were passed by

8 Republican Governors or a charter of the

9 Republican Governors Association?

10 MR. GINSBERG: I\'m afraid I don\'t

11 know the answer to that question.

12 COMM. SANDSTROM: On the

13 Democratic side that \--

14 MR. GINSBERG: It\'s not

15 inconceivable but I just don\'t know.

16 COMM. SANDSTROM: And you

17 mentioned state legislators. You\'re

18 familiar with that. Is it your experience

19 that on a lot of states you\'ll find a

20 Speakers or Minority Leaders Fund which a

21 lot of people contribute to.

22 MR. GINSBERG: Yes, I mean, I

338

1 think the real growth in the political

2 system over the last decade has been

3 legislative caucuses and the growth of

4 legislative accounts in one form or another

5 depending on the state and no two states are

6 precisely the same is there and real.

7 COMM. SANDSTROM: And generally,

8 as best as you can understand those terms

9 financed, maintained, or controlled, those

10 organization would not be financed,

11 maintained, or controlled by a political

12 party. They\'d be by a political caucus?

13 MR. GINSBERG: I think that

14 varies. Again, without knowing what the

15 term is I think it varies a great deal from

16 state to state. I think a number of those

17 legislative chambers on both sides because

18 of the laws of their state will raise their

19 own money but deposit it in the accounts of

20 the state party.

21 I think in other states that is

22 not always the case and they operate as

339

1 political committees on their own. I think

2 what you will find if you define this in a

3 certain way that circumscribes their

4 activities that you\'ll have a lot of changes

5 in state law that will allow those fiercely

6 independent and powerful state legislative

7 caucuses to go do what they need to do to

8 win elections as they feel fit under the

9 laws of the state that they\'ve passed as

10 legislators.

11 COMM. SANDSTROM: Thank you very

12 much.

13 CHMN. MASON: Commissioner Toner?

14 COMM. TONER: Thank you,

15 Mr. Chairman. Mr. Ginsberg, great to see

16 you.

17 MR. GINSBERG: Commissioner Toner.

18 COMM. TONER: You\'ve stressed the

19 need for us to focus on practical

20 considerations as we deal with this tough

21 task of implementing the law and I just

22 wanted to explore a couple of aspects of

340

1 that.

2 One is we\'ve got the general ban

3 on office holders, members, and elected

4 officials raising soft money but at the same

5 time these same individuals are permitted to

6 attend, be featured guests, and speak at

7 state party fundraising events. And the

8 issue that we explored at some length this

9 morning was how should we construe that

10 latter statutory phrase and specifically

11 does the term \"featured guest\" necessarily

12 require us to allow some degree of prior

13 publicity that a member\'s going to be at

14 these events? Do you agree you should take

15 that type of approach?

16 MR. GINSBERG: I think as a

17 practical matter you have to especially in

18 light of which I suppose it\'s a legislative

19 irony at this point that those very same

20 members are allowed to raise funds and in

21 some cases those terrible soft dollars for

22 501(c) groups.

341

1 But in terms of what happens at

2 state party events when federal officials

3 come I think there\'s got to be some degree

4 of a definition such as you suggest, yes.

5 COMM. TONER: And it would be

6 pretty difficult to be a feature guest if

7 the state party were barred from ever

8 publicizing the fact that a member\'s going

9 to be there?

10 MR. GINSBERG: Yes, the fact that

11 they\'re going to be there as well as trying

12 to put some sort of restrictions on what

13 they\'re allowed to say at the events which,

14 again, if you drafted that in terms of the

15 regs would seem to me to be inviting a

16 constitutional challenge in terms of

17 overbroad regulations of the speech of

18 public officials at a political event.

19 COMM. TONER: In terms of

20 practical considerations do you urge us to

21 take the position that we shouldn\'t regulate

22 what members say at these events as long as

342

1 they stop short of a formal solicitation?

2 MR. GINSBERG: Yes. I mean, I

3 think it would be an awful experience to

4 have opposition researchers from both

5 parties combing the clip files and the

6 Internet, looking for a phrase in a speech

7 by a member somewhere, especially given that

8 some of our favorite members and elected

9 officials can get involved in stemwinders

10 from time to time.

11 COMM. TONER: It\'s been known to

12 occur from what I understand.

13 MR. GINSBERG: It has been known

14 to occur even amongst their lawyers from

15 time to time.

16 COMM. TONER: Absolutely and we

17 discussed this issue this morning and the

18 statutory phrase \"office holder,\" which is

19 obviously part of this set of issues, again,

20 from a practical perspective do you believe

21 that we should construe that term to be

22 limited to persons who hold elective office,

343

1 or should we go beyond that to individuals

2 like Cabinet members or sub-Cabinet members

3 who don\'t hold elective office?

4 MR. GINSBERG: Well, I don\'t see

5 that in the statute itself. It seems to me

6 to be something of an overreach to get down

7 that far and, again, it puts you in the

8 position of being a cop for all sorts of

9 what would in the past have been known

10 permissible speech activities.

11 COMM. TONER: Again, in this focus

12 on practical considerations an issue that I

13 was going to have to come to grips with is

14 the status of the Internet and whether we\'re

15 going to take the position that it\'s a

16 public communication or whether we\'re going

17 to take a more nuanced position.

18 Do you have some advice for us on

19 how we should approach that?

20 MR. GINSBERG: Well, I have had

21 some experience in which we were allegedly

22 not providing the full freedoms to members

344

1 of the Internet community. Look, the

2 Internet is a new, inexpensive way to

3 communicate and I think any regulation of it

4 at this point in the context of these

5 regulations is something you\'re not required

6 to do by the plain wording of the statute

7 and I would hope that the Commission would

8 not jump into that.

9 COMM. TONER: You talked at some

10 length earlier about the issue of how we

11 construed, directly or indirectly,

12 \"establish, finance, maintain or control,\"

13 and I think there were some questions about

14 what if organizations are separate from each

15 other prior to the effective date of BCRA

16 and how should that play out.

17 Do you believe we should create a

18 safe harbor that if organizations are

19 separate prior to the effective date of BCRA

20 that that\'s something that they can look to

21 in the regulations to provide a safe harbor?

22 MR. GINSBERG: I think a safe

345

1 harbor is the single best way to ensure that

2 there is not an inadvertent tripping over

3 overbroad regs and interpretations in the

4 statute. I mean, at the end of the day

5 there are still permissible activities that

6 are allowed under the statute and the safe

7 harbor I think is the easiest way to provide

8 notice of what the rules of the game are

9 going forward. I would think that would be

10 an excellent idea.

11 COMM. TONER: In terms of

12 interpreting the statutory phrase do you

13 urge us to basically draw upon our existing

14 affiliation regulations that obviously share

15 some of the same phraseology?

16 MR. GINSBERG: Yes, and there have

17 been problematic enforcement matters over

18 those but as a general rule those involved

19 in politics have a pretty fair idea of what

20 it all means and so I think that clarity,

21 although I think you were urged not to seek

22 clarity at one point this morning, but that

346

1 clarity would be awfully helpful.

2 COMM. TONER: Thank you.

3 CHMN. MASON: Larry Norton.

4 MR. NORTON: I don\'t have any

5 questions, Mr. Chairman, thank you.

6 CHMN. MASON: Jim Pehrkon?

7 Any Commissioners wish to ask

8 follow-up questions? Commissioner Thomas.

9 COMM. THOMAS: The concept of

10 agency raised a lot of discussion today.

11 The RNC comments indicate that perhaps the

12 nub of it is to identify agency situations

13 where the principal could be said to

14 exercise some degree of control over the

15 actions of the agent and also, and perhaps

16 even more importantly from my perspective,

17 try to focus on situations where the person

18 is acting within the scope of the agency.

19 With regard to some of the concerns

20 expressed by other commenters today, the

21 immediately preceding panel, for example,

22 don\'t those concepts pretty much solve the

347

1 kinds of concerns we\'ve had?

2 For example, people who wear two

3 hats, wouldn\'t you solve the problem of

4 agency regardless of whether it\'s express or

5 implied or apparent if you make sure that

6 the Commission would only be pursuing some

7 sort of liability for someone who\'s acting

8 within the scope of the agency? And you\'d

9 have to find that when the person was

10 soliciting money they were acting within the

11 scope of their authority for the national

12 party committee or for the state party

13 committee or \--

14 MR. GINSBERG: I think, again, the

15 devil is in the details on something like

16 this but I think that is a helpful way to

17 start off. I mean, I think what you don\'t

18 want to do is fall into any of the practical

19 traps that can occur, the state chairman

20 being one. I suppose the second is

21 political consultants.

22 There are plenty of consultants on

348

1 both sides of the aisle who work on a

2 regular basis in both federal and state

3 races at the same time. I don\'t think you

4 want to be going to any of our political

5 media pollsters and say sorry, you\'re going

6 to have to make a choice between working

7 only in federal races and state races.

8 And I think as a practical matter

9 that\'s maybe even more troublesome than

10 dealing with the state chairs. I don\'t know

11 what you do if you have a large campaign

12 like a presidential campaign with many, many

13 volunteers who engage in the process, and

14 one of those volunteers who raise money for

15 you happens to feel very deeply about a

16 cause and goes out and raises money for that

17 cause and then that cause ends up running an

18 issue ad because party committees can\'t run

19 those things any more.

20 I don\'t think you can put a degree

21 of knowledge on the campaign itself to

22 police all those volunteers. I think you\'d

349

1 just end up in an enforcement morass from

2 which you can never pull out and I don\'t

3 think that\'s where the law really wants you

4 to go and it\'s certainly not in the plain

5 language of the statute now, I don\'t

6 believe.

7 COMM. THOMAS: Thank you.

8 CHMN. MASON: Vice Chairman

9 Sandstrom.

10 COMM. SANDSTROM: Just your

11 practical perspective on the obligations of

12 state candidates. It was suggested this

13 morning if a state candidate were to run an

14 ad criticizing the President\'s position on

15 Yucca Mountain, praising the two Senators,

16 that would be considered public

17 communication and therefore the state

18 candidate would be required to report and

19 abide by contribution limitations and

20 prohibitions of the act.

21 Since this might happen in the

22 middle of a campaign do you see any

350

1 practical way that a state candidate could

2 comply with such a requirement?

3 MR. GINSBERG: I suppose that the

4 state candidate would have to consider

5 himself a federal candidate as well and

6 raise federal money but, I mean, that\'s not

7 going to happen because you can\'t appear

8 twice on most ballots so in essence you\'ve

9 put your finger on a really nettlesome

10 practical problem.

11 COMM. SANDSTROM: No practical

12 solution from you?

13 MR. GINSBERG: No. I mean, I

14 think you\'ve got to write the reg so that

15 that person isn\'t squelched from some notion

16 of free speech. It\'s up to you.

17 CHMN. MASON: There being no

18 further questions, we are in recess until

19 tomorrow morning at 9:30.

20 (Whereupon, at 5:03 p.m., the

21 PROCEEDINGS were continued.)

22 \* \* \* \* \*