1
                FEDERAL ELECTION COMMISSION
                       PUBLIC HEARING
                             ON
               ELECTIONEERING
               COMMUNICATIONS
                           - - -
                 Thursday, August 29,
                         2002 9:40 a.m.
COMMISSIONERS PRESENT:
        DAVID M. MASON, Chairman
          KARL J. SANDSTROM, Vice
          Chairman BRADLEY A. SMITH,
          Commissioner MICHAEL E. TONER,
          Commissioner SCOTT E. THOMAS,
          Commissioner DANNY LEE
          McDONALD, Commissioner
ALSO PRESENT:
          LAWRENCE H. NORTON, General Counsel
          ROSEMARY SMITH, Associate General
          Counsel JAMES A. PEHRKON, Staff
          Director
                 9th Floor Conference Room
                     999 E Street, N.W. Washington, D.C.
                                                           2
                     C O N T E N T S
WITNESSES
PAGE
Don Simon
Common Cause and Democracy 21                          3
Larry Noble
Center for Responsive Politics                         8
Paul Sanford, FEC Watch
16
Kay Guinane
  OMB Watch
111
Kristina Wilfore
Ballot Initiative Strategy Center                    118
                                                           3 P R O C E E D I N
                   G S
          CHAIRMAN MASON:  The Special Session of the
Federal Election Commission for August 29, 2002 will
come to order.  This is the second day of our
hearing on electioneering communications, and we'll be
hearing from two panels this morning.  The first panel
consisting of Don Simon representing Common Cause and
Democracy 21, and Larry Noble and Paul Sanford
representing the Center for Responsive
Politics and its FED Watch Project.  We're always happy
to be watched.
          I understand that Mr. Simon and Mr. Noble will
make some opening remarks, and so, Don, why don't you
start?
          MR. SIMON:  Thank you, Mr. Chairman.  I
appreciate the opportunity to testify today on behalf of
Common Cause and Democracy 21.  As we indicated in our
written comments, both organizations are long-standing
proponents of the
reforms enacted by Congress in the Bipartisan
Campaign Reform Act.
          Title IIA of the Reform Act is, after long
                                                           4 deliberation, a
congressional response to the
progressive erosion of the ban on corporate and union
expenditures in Section 441(b), which has been a core
provision of the FECA for decades.  A
system of cheating on that provision sprung up in the
wake of the Supreme Court's 1986 decision in the MCFL
case, and Congress and the BCRA responded to close a
very big and very obvious loophole in the statute you
administer.
          The theory of Title II is to demarcate a
bright line test to identify certain communications that
are then subject to certain federal rules.
The test is not perfect.  No one claims that it is. Any
of you can come up with a clever hypothetical
to illustrate an awkward application of that test. But I
          think that kind of exercise is
beside the point.  Congress doesn't claim perfection for
the test nor does the constitution require it, nor does
any law ever achieve it.  The
test does fairly address what has grown into an
obvious and debilitating problem in the integrity
and efficacy of Section 441(b).
                                                           5 After closely
          examining multiple options,
and after carefully considering the constitutional
constraints, Congress decided this provision was
the best way to restore some reasonable measure
of
effectiveness to Section 441(b).
          Title II is by its nature a compromise
and a balancing among competing considerations,
some policy in nature, some constitutional in
nature.
As always, your job is to respect and to implement
the difficult judgments made by Congress whether you
agree with them or not.
          I want to focus my comments on the most
difficult problem before you, which is the scope of your
authority to craft exemptions to the statute.
At the cAfter closely examining multiple options,
       and after carefully considering the constitutional
       constraints, Congress decided this provision was
       the best way to restore some reasonable measure of
       effectiveness to Section 441(b).
                 Title II is by its nature a compromise and
       a balancing among competing considerations, some
       policy in nature, some constitutional in nature.
       As always, your job is to respect and to implement
       the difficult judgments made by Congress whether
       you agree with them or not.
                 I want to focus my comments on the most
       difficult problem before you, which is the scope of
       your authority to craft exemptions to the statute.
       At the core of the approach chosen by the Congress
       in this law is the decision to draw a bight line
       test to define electioneering communications.
                 Congress then provided several statutory
       exemptions to that test in Section 434(b)(3)(b),
       and authorized the commission in Clause 4 to
       implement by regulation other appropriate
       exemptions. 
                                                                  6
                 There are two constraints on the
       commission's Clause 4 authority, which caution that
       it should be used sparingly.  First, an exemption
       should to the degree possible incorporate clear
       standards of the same nature as the underlying
       definition of electioneering communication itself.
       The whole point of Title IIA is to subject certain
       communications to regulation based on a clear-cut
       definition.  It would defeat that purpose for the
       commission to draft exemptions to that definition
       which are not equally precise and which would thus
       serve to undermine the clarity of the basic
       statutory test itself.
                 Second, an exemption should not be
       overbroad in the sense of allowing in through the
       backdoor precisely those kinds of ads which
       Congress enacted Title II to address.
                 Even though you may intend an exemption to
       eliminate from statutory coverage those
       communications that you think fairly do not have an
       electoral message, you should not underestimate the
       creativity, ingenuity and tenacity of those who 
                                                                  7
       will seize upon an exemption you write to recreate
       precisely the problem that the statute was meant to
       eliminate.
                 The proposal to write a generic exemption
       for all PSAs, for example, illustrates the problem.
       Even though one could easily imagine broadcast ads
       within such an exemption, that would not be
       problematic, it is equally easy to imagine many
       that would.
                 So you should approach the drafting of any
       exemption with an abundance of caution and ensure
       to the degree possible that the exemption is not
       only clear but narrow.  If it can't be written to
       avoid overbreadth and to minimize the potential for
       abuse, then it should not be written at all.
                 The commission's Clause 4 authority is not
       a hunting license for you to solve every problem
       real or imagined with a statutory provision, nor is
       it a congressional punt to the commission to go try
       to make the statute perfect.  It provides instead a
       circumscribed authority for the commission to issue
       narrowly crafted regulations to alleviate any 
                                                                  8
       serious misapplication of the bright line statutory
       definition if that can be done without creating new
       and clearly foreseeable problems that undermine the
       purpose of the statute.
                 The commission should not view its job as
       one to think up probably hypotheticals that need to
       be addressed.  It should not address problems that
       are speculative or will occur at best only rarely,
       nor should it assume that the law will be
       implemented in a fashion that lacks judgment or
       common sense.  Thank you.
                 CHAIRMAN MASON:  Thank you.  Mr. Noble.
                 MR. NOBLE:  Mr. Chairman, members of the
       commission, Mr. General Counsel and staff, the
       Center for Responsive Politics and its campaign
       finance law product, FEC Watch, is again pleased to
       present testimony regarding the rulemaking in the
       Bipartisan Campaign Reform Act of 2002.  With me,
       as the chairman noted, is Paul Sanford, the
       Director of FEC Watch.
                 We have submitted our written comments, so
       I only have a few brief comments to make now.  For 
                                                                  9
       this portion of the rulemaking, the focus is on the
       legislation that regulates the so-called issue ads
       or sham issue ads.  And these are the ads that
       Congress believed were thinly veiled election ads,
       paid for with soft money.
                 And that is the unregulated and often
       undisclosed large contributions from corporations,
       labor unions and wealthy individuals.  No one
       doubts that the writing of the regulations to
       implement these provisions is a difficult task, and
       there are no easy answers to some of the questions
       posed.
                 And there is no doubt that someone today
       or down the road will be able to come up with
       hypotheticals that will make a meaningful rule look
       harsh or make it look somewhat unfair an
       application.  But as the Supreme Court said in
       1973, there are limitations in the English language
       with respect to being both specific and manageably
       brief, and although a prohibition may not satisfy
       those intent on finding fault at any cost, it will
       not be considered vague if it is set out in terms 
                                                                 10
       that the ordinary person exercising ordinary common
       sense can sufficiently understand and comply with
       even though you can find marginal cases where
       doubts might arise.
                 What the Supreme Court was in effect
       saying is that there are no absolutes or ironclad
       rules that will cover ever situation.
                 I raise this in light of some of the
       hearing I watched yesterday.  There were numerous
       hypotheticals discussed, such as those dealing with
       Jay Leno, churches or a picture of the president in
       the background of the show "The Agency."
                 While it is important to discuss these
       questions, and I'm sure we'll get them, and I'll be
       pleased to give you whatever answers I can, I kept
       thinking that in my 23 years at the agency, the FEC
       rarely if ever actually had to deal with these
       questions in enforcement cases, and if they did
       come up in enforcement cases, discretion in
       judgment usually provided the correct answer.
                 In fact, when these issues did come up,
       and I've thought about this a lot, they usually 
                                                                 11
       came up in the context of those late Friday
       afternoon discussions that lawyers have sitting
       around wasting the rest of the day discussing the
       outer limits of the law, and coming up with
       hypotheticals and arguing about them, because the
       reality was they very rarely actually came up in
       real life.
                 Likewise, while concerns about criminal
       enforcement of the law are valid and should be
       discussed, I cannot think of one criminal
       prosecution brought for a FECA content-based
       violation in the last 25 years.  Now, there was all
       this talk yesterday about felonies, about people
       being dragged off to jail for content-based
       violations, and I guess since the National
       Committee for Impeachment case, I am not aware of
       one that was a criminal violation of prosecuted
       criminally.
                 In fact, that was one of the reasons the
       FEC was formed was to move those cases into the
       civil context, because Congress felt those cases
       were not appropriate for criminal prosecution.  
                                                                 12
       Now, let me make clear in light of yesterday's
       discussion that I believe that even with the best
       intentions and even with the excellent skilled
       lawyers you have working for you, you will not be
       able to write rules that are immune from all
       attempts to search for loopholes and all attempts
       for abuse.
                 That's why you have an enforcement system
       and why laws in this field or any other field are
       constantly being rewritten to deal with the
       loopholes that arise.  But this reality only makes
       it clear the FEC is presented with an important
       choice.  You can approach your task with a goal of
       implementing the law in effective and meaningful
       way, aspiring to write rules that implement the law
       as it intended and that are not subject to abuse,
       and underscore aspiring to them.  It is a goal.  It
       may be a goal you'll never be able to reach.
                 Or you can write regulations and
       exemptions that ignore the goals of Congress and
       put us right back to where we were before the
       passage of BCRA in terms of soft money and issue ads. 
                                                                 13
                 We urge the FEC to adopt rules that give
       this new law every chance to work as intended.  We
       urge you to adopt rules that really focus on what
       Congress was trying to do.  We thank you for the
       opportunity to testify and we'll be glad to answer
       any questions that you have.
                 CHAIRMAN MASON:  Thank you.  Well, I had a
       request, Mr. Noble, you were quoting from a '73
       case, and if you could give us a case citation,
       that might--
                 MR. NOBLE:  It was actually a paraphrase,
       and the citation, thinking you might ask for it, is
       U.S. Civil Service Commission v. National
       Association of Letter Carriers, 93 Supreme Court
       2880 (1973).
                 CHAIRMAN MASON:  Thank you.  The first
       questioner this morning is Commissioner Toner.
                 COMMISSIONER TONER:  Thank you, Mr.
       Chairman.  Mr. Simon, Mr. Noble, Mr. Sanford, thank
       you very much for being with us.  I look forward to
       our discussion.  Mr. Simon, we've been grappling
       over the last couple of days with this issue of 
                                                                 14
       when you have to disclose an electioneering
       communication.  Do you have to as soon as you
       contract for services over $10,000 or do you
       essentially have a trigger date only when the
       communication airs?
                 In your papers, you used this phrase of
       when an election communication ripens, this
       concept, and as I understand it your view is that
       is only when a communication airs?
                 MR. SIMON:  Yeah.  You have to disclose an
       electioneering communication in a sense when it
       becomes an electioneering communication, and part
       of that test is that it airs within a certain time
       frame.  So you can imagine a situation where
       somebody is spending money to prepare an ad
       intending to run it within the time frame, but then
       for unforeseeable occurrences, it may never air in
       that time frame.
                 In that case, it would never become an
       electioneering communication, so just as a matter
       of administrative sense, I think that the
       disclosure should be triggered by the ripening into 
                                                                 15
       a statutory electioneering communication which
       would be the airing of a certain kind of broadcast
       ad within the time frame.
                 COMMISSIONER TONER:  And is that
       fundamentally because even though you may contract
       for services with a media entity, you may have a
       contract worth more than $10,000, and they're going
       to do media for you, but until you actually air the
       spot, you don't know definitively whether it's
       going to be an electioneering communication?
                 MR. SIMON:  That's right.  Now, once it
       becomes an electioneering communication, I think
       you have to disclose all the money spent previously
       in production of the ad, and you would have to
       disclose any contractual obligations that pertain
       to the electioneering communication, but all that
       disclosure I think is triggered by the ripening of
       the communication into a statutory electioneering
       communication.
                 COMMISSIONER TONER:  Mr. Noble, I
       understand that you, sir, have a two-part proposal.
       How would that work? 
                                                                 16
                 MR. NOBLE:  Let me defer to Paul on this
       one.
                 COMMISSIONER TONER:  Okay.
                 MR. SANFORD:  We were trying to come up
       with a possible way to give some meaning to the
       provision in the statute that talks about a
       contract as far as being a disbursement.
                 And our idea was based loosely on some of
       the strategies that were used in the independent
       expenditure reporting context, where perhaps some
       costs for production of an independent expenditure
       were incurred sometime prior to when the actual
       independent expenditure was made.
                 And I think that those rules contemplate
       some sort of generalized disclosure about those
       initial disbursements, and then subsequently after
       the actual dissemination of the independent
       expenditure, the more specific disclosure of I
       think additional information as to which candidate
       was supported by the independent expenditure, when
       it actually ran, and that sort of thing.
                 So we aren't necessarily wedded to a 
                                                                 17
       particular method, a particular kind of mechanics
       for how this is done, but we thought there might be
       a way since it seems the really critical
       information about an electioneering communication
       that one might not want to disclose in advance
       might be some of the information about who's going
       to be identified in the communication, which
       candidate is going to be identified and some of the
       more specific information about it, that that could
       be deferred until a later point, and then we can
       still give some meaning to this disbursement
       contract and make a disbursement provision in the
       statute by requiring some very generalized
       disclosure earlier at the time the contract was
       made or perhaps the time some preliminary
       disbursements were made for the communication.
                 COMMISSIONER TONER:  What would be your
       thought on Mr. Simon's point that until the spot
       actually airs, you don't know if you're ever going
       to air a spot at all?  Is that a fair point?
                 MR. SANFORD:  I think that's a fair point.
       You know I think that that method of disclosing is 
                                                                 18
       certainly adequate.  I mean in terms the disclosure
       of the communication, the critical information from
       a disclosure standpoint is that information that
       gets put out right after the communication is
       aired.
                 COMMISSIONER TONER:  But that's the
       critical piece?
                 MR. SANFORD:  Yeah, that's the critical
       piece.  We were just kind of trying to see if there
       was a way that that provision that refers to
       contracts to make disbursement being disbursements
       could also be reconciled, could be incorporated in
       some way into the rules.  So I think that it would
       be worth the commission's consideration to look at
       that.
                 If there is some way to have a generalized
       disclosure at the beginning that doesn't really
       sort of show your cards, for lack of a better word,
       and remember, when you file, if you require
       somebody to do that, and then they ultimately do
       not run the electioneering communication, they can
       always amend their report, and, in fact, they 
                                                                 19
       wouldn't necessarily be required to amend reports,
       because the disbursement itself would have already
       had--that would have actually happened.  So I'm not
       sure I have all the details worked out.
                 COMMISSIONER TONER:  I appreciate it very
       much.  That's very helpful.  Mr. Simon, you also
       discuss another key issue in your paper, and that
       is this direction or control issue in terms of a
       disclosure of individuals who exercise direction or
       control over electioneering communications.  As I
       understand your papers, your view is that we should
       require disclosure beyond those individuals who
       have input into the communications, and extend it
       to individuals who exercise direction or control
       over the organization as a whole?  Is that a fair
       reading of your--
                 MR. SIMON:  Yeah, and that is based solely
       on the language of the statute.  The statute says
       direction or control over the activities of the
       organization, and I don't see how you get there
       from the statutory language to say that applies
       only to direction or control over the 
                                                                 20
       electioneering communication itself.
                 COMMISSIONER TONER:  How would you define
       the scope of that?
                 MR. SIMON:  Well, you know, I think this
       is one of the statutory terms and provisions that
       really needs to be implemented in light of the
       purpose, and I think the purpose here on this one
       is pretty clear.
                 I mean there was colloquy yesterday, I
       believe it was with you, about, gee, you know, how
       do you identify all the people who exercise
       direction or control over the Republican Party?
       That's not what this is about.  What this is about
       is to try to capture meaningful disclosure and to
       prevent the use of kind of sham front organizations
       to hide the people actually behind the activity, to
       hide the people behind the sham front, to hide the
       people controlling the money and determining the
       expenditure.
                 You could easily imagine a situation where
       you have a group that sets up another organization,
       a 527 of some sort, with some sort of generic bland 
                                                                 21
       name, and provides the money to that organization,
       and that organization makes the electioneering
       communication.
                 If the disclosure is only of the name of
       that organization, you really won't know who's
       behind this and where the money is coming from.  I
       think that's the case that the statutory provision
       is intending to address, where you have that
       organization behind the front group really
       exercising the control over that front group,
       directing the activities of that front group,
       that's the situation in which the commission should
       require disclosure of the group exercising
       direction or control.
                 COMMISSIONER TONER:  Thank you.  I don't
       know if that's a signal that we lost some of our
       light, but I found your comments very illuminating.
                 CHAIRMAN MASON:  Commissioner McDonald.
                 COMMISSIONER McDONALD:  Thank you, Mr.
       Chairman.  Good morning and welcome to all of you,
       Larry, Paul, Don.  I do want to pursue a little bit
       of yesterday's discussion, because I just think 
                                                                 22
       it's critical in terms of the public's
       understanding of what we're doing.  I hope all of
       those that are interested in this understood the
       opening remarks by Larry Noble who has dealt in
       this area for 25 years, and yesterday a number of
       the witnesses were asked their extent of their
       experience, which is certainly a fair and important
       question, I think, and one that's critical.
                 The examples given yesterday, all of them
       are important to discuss.  But I must say I thought
       I was at a different commission, because I simply
       had just never heard of any of these things nor had
       any of them come before us.  Sadly, not long ago,
       we had a tragedy in this country where an
       individual took the position that he wanted to
       fight fires, and there weren't any fires, so he
       went out and set some, and then he offered his
       services to resolve the issue.
                 And that sounded awfully close to where we
       were yesterday.  I just simply think it's extremely
       important to reiterate what was said in the opening
       remarks about content and whether someone has been 
                                                                 23
       prosecuted.  I want to remind people that this
       commission is the commission that has the ability
       to act, and under any scenario that was posed that
       I'm aware of yesterday, all of them certainly valid
       questions to bring up, not only have I not seen
       them in my 20 plus years here, but I couldn't
       conceive quite frankly of us proceeding.
                 And so I do think it's an important
       matter, and I was glad it was touched on in the
       opening statement.  Now, I think Commissioner Toner
       brought up a very interesting question that I'd
       like to pursue a little bit on direction and
       control.
                 Yesterday, it was stated that there were a
       lot of people who were in direction and control of
       the Republican Party.  And I'd like to ask the
       panelists if that would be their experience in
       following this law for over 20 years?  And the
       reason I ask is that in the headlines today in The
       Washington Post, "Fast and Loose at WorldCom, Lack
       of Controls, Pressure to Grow Set Stage for
       Financial Deceptions." 
                                                                 24
                 I don't think that anyone really believes
       that there are a number of people that run the
       DSCC, the RSCC, the DNC, the RNC.  There may be a
       lot of people with input, but I would think that
       there is some accountability in these areas, and I
       would just like to ask, particularly Larry, who's
       dealt with this for 25 years, what your experience
       was when you were here and what you've observed
       since then in terms of these kinds of questions
       that we have to grapple with?
                 MR. NOBLE:  Well, to be perfectly honest,
       while I was here I heard it both ways.  Some cases
       you hear that nobody was in control, nobody
       actually had responsibility for something.  In
       other cases, you would hear it's well controlled,
       it was so spread out, we couldn't figure out what
       was going on.  I think the reality of it is there
       is a line of control in these political committees,
       that when they want to do something, they know who
       is in control, who is making the decisions.
                 Sometimes you get into some difficult
       problems when you're going down to the lower levels 
                                                                 25
       of the staff of whether people have authority to do
       things, but in one sense I'm glad you brought up
       the WorldCom situation, in one sense that the
       normal business world can be brought to the
       political committee world.  I mean especially when
       we start dealing with the national party
       committees.
                 These are institutions that are large,
       very well financed, and I assure you when somebody
       is writing a large check, they know who has the
       authority to do that.  They know whose approval
       they have to get, and I think it becomes somewhat
       almost comical when a case comes up, and all of a
       sudden, or a hypothetical comes up, and all of a
       sudden they say, well, everybody controls the
       Republican Party.
           oll free number."  And then they provide
a chart showing that only 1.1 percent of what they
term "sham issue ads" include a toll free number.
                                                          30 They also point
          out that only 1.3 percent
of what they call "sham issue ads" reference
specific legislation.  In their 1998 study, they include
the same type of information, and it's
important to note what these studies are.  They have a
bunch of graduate students watch ads or look at story
boards for ads and then say whether they think it's an
electioneering ad or an issue ad, a genuine issue ad or
a sham issue ad.
          And then how did they determine whether the
students got it right?  Well, according to the 1998
study, they did this because they made the judgment with
little uncertainty and with a high degree of accuracy,
given the findings about toll
free phone numbers and bill mentions.
          In other words, if we wanted to know how do we
know that the college students got it right when they
coded the ads as being a sham or being genuine, well, we
know that because the ads they
coded as being shams didn't have the toll free
numbers or the bill mentioned.
          Now, alternative 3(c) in the regulations
                                                          31 as an exemption
is based on that theory then.
Well, okay, let's exempt the ads if they include a toll
free number and bill information, and both of your
comments have strongly opposed that possible
exemption, and I wonder if you would comment briefly on
that?
          MR. NOBLE:  I can begin on that.  I think
that's a little bit like saying that because someone
with pneumonia has a cough, every time we
hear a cough, we're going to say someone has pneumonia.
          What they were pointing out there is what in
their study certain issue ads have, which is the 800
number.  It doesn't mean that, and I think it
would be a very big mistake, to say that, okay, well,
now if you put an 800 number in your ad, you're an issue
ad, because that is one of the areas where the
commission, I think, would knowingly be writing a major
loophole into the law,
effectively inoculating what are these so-called
sham issue ads from any regulation by just telling
somebody put an 800 number in.
                                                          32 In fact, that's
          been the history of these
ads, is that when you give them the line of what to
do, they will hit that line, and then have the rest of
the ad be about the candidate.  I also think it
would run directly contrary to congressional intent.
          What Congress did not want to do was have this
formulaic response that would just say 800 numbers or
you mention some magic words, and you're
out of the process.  Rather what Congress did in its
wisdom is it set a bright line in terms of timing, in
terms of targeting and in terms of mentioning a
candidate.  And I think for the commission to just come
forward and say, well,
we'll inoculate these ads by saying if there's an 800
number, they're not electioneering communication would
run directly contrary to the intent in Congress and
would be misreading the Brennan study.
          MR. SIMON:  If I could just second that.
I think, Commissioner Smith, you're using the
Brennan study out of context in this regard.  I
                                                          33 don't think they
were trying to suggest the
contours of an appropriate exemption from the definition
of electioneering communication.  And as Larry said, to
craft something along those lines is
just really providing a very clear road map for
continued evasion of the statute.
          As we suggested in our comments, you know, we
think that the commission could adopt an exemption for
lobbying communications, but it has
to be very carefully drawn.  3(c) does not get there.
Some variant of 3(b) I think gets a lot closer, and we
suggested specific language in our comments.
          COMMISSIONER SMITH:  Now, we're going to
have another line of questioning, and I'm going to
continue following this line.  I'm leading to something
more generally.  Basically, you've said about what I
thought you'd say, and what I think is probably right.
          I think it indicates that the Brennan
Center study really isn't that useful in
determining what are sham issue ads or what are
                                                          34 real issue ads,
at least the sort of criteria they
set out, but even more importantly, it
indicates that people will change their
behavior.  I think this is the point that
you've been trying to make,
that people will change their behavior based
on what the law is.
          So I'll leave it there because we're
out of time and hopefully get a chance to
follow up.
          MR. SIMON:  If I could just say, we
certainly, I think everyone would hope people
change their behavior in what the law is.
That's the point of the law.
          [Laughter.]
          MR. NOBLE:  I must say we were not
involved in the Brennan study, but I read it more as
descriptive than as a road map of what you should do.
It was trying to describe a certain situation, describe
certain types of ads.
COMMISSIONER SMITH:  Well, anyway, I agree
with most of what you've said, and I do have a
broader point we're going to get to, but I'm over
for this first round.  So hopefully we'll get a
                                                          35 chance to get
back to it.
          CHAIRMAN MASON:  Commissioner Thomas.
          COMMISSIONER THOMAS:  Thank you, Mr. Chairman.
Gentlemen, thank you for coming.  It's
always fun coming back, isn't it?  I guess I'll ask a
couple questions to touch on a topic that we got to a
little bit yesterday, but you haven't had a chance to
expound upon.
          That is the definitional issue of what is
meant by excepting from the definition of electioneering
communication expenditures. Expenditures references a
term of art under the law, and I think your
organizations are taking different positions in some
respects.  I think
there is disagreement amongst your two organizations
regarding whether expenditures by political committees
that have to register and report with the FEC should in
and of themselves always, in essence, be exempt from the
electioneering communication reporting rules?
            I think, Larry, your organization
indicates that there might nonetheless have to be
                                                          36 reporting as an
electioneering commission even by
say a candidate's authorized committee or a registered
party committee or PAC, whereas, I think Don, Common
Cause, is taking the position that, in
essence, no, there shouldn't have to be any sort of
duplicative reporting.  Am I right on that understanding
of your comments?
          MR. SANFORD:  If I can answer for us.  We read
the provision in the statute referring to
electioneering communications reporting requirements as
an add-on to existing reporting requirements.
          Now, that doesn't necessarily mean an
authorized committee or a registered committee of
any kind would necessarily be required to report an
expenditure also as an electioneering communication.
The reason for that is because expenditures are exempt
from electioneering communications.
          If there were disbursements by such an
entity that were not expenditures or independent
expenditures, or within the first exemption,
                                                          37 however you
ultimately craft it, then those would potentially be subject to the
electioneering
communications reporting requirements.  Does that answer
your question?
          COMMISSIONER THOMAS:  So let me understand.
Are you saying there wouldn't be duplicative reporting
in the sense that if something qualifies as an
electioneering communication, it could be reported, in
essence,
only as the electioneering communication.  You wouldn't
have to sort of do duplicate Schedule B reporting of the
same disbursement as an expenditure.  Is that why you're
saying it would not be such a problem?
          MR. SANFORD:  Well, I guess I'm coming at it
from the opposite direction.  If it's an expenditure,
it's exempt from the electioneering communications
definition, so it wouldn't have to be reported as an
electioneering communication.
          COMMISSIONER THOMAS:  Oh, okay.  So maybe
you're more in line with what--
          MR. SIMON:  If I can just jump in here.
                                                          38 COMMISSIONER
          THOMAS:  Okay.
        MR. SIMON:  I mean the way I look at this
question is that the definition of electioneering
communication has a statutory exemption for
expenditures and independent expenditures.  It
seems to me the regulation, it makes good sense just to
make that absolutely crystal clear to say that the
exemption covers expenditures and independent
expenditures that are made from funds
subject to the contribution limit, source prohibitions
and reporting requirements of the act.
          That would ensure that only those funds,
those expenditures made from hard money and already
subject to FECA reporting are exempt from the
definition of electioneering communication, and
therefore would not be subject to duplicative Title II
reporting.
          I think, again, if you step back and look at
the purpose of the statute, it was not to impose
duplicative reporting on money that already is
within FECA.  It was to capture reporting and
regulation of a certain class of spending that was
                                                          39 outside of FECA.
          So, although, there may be some
duplicative reporting in that system, I think it makes
good sense to try to minimize the amount of
it.
          COMMISSIONER THOMAS:  Let me take you beyond
the circumstance where we have a political committee
making what would be defined as an electioneering
communication, but we have one of
these c(4) organizations, say, that isn't incorporated,
and that can therefore make an electioneering
communication, or say we have a group that is styling
itself as a 527 organization that is not reporting to
the FEC because it feels
it's not making expenditures, and its major purpose is
not to influence elections.
          In those circumstances, that kind of
disbursement wouldn't be reported to the Federal
Election Commission, and yet some organizations in
those circumstances might want to say, well,
actually, no, we think that's an expenditure, and
they would do that in order to fit within this
                                                          40 exception to the
electioneering communication
definition, in hopes that they can therefore avoid any
of the disclosure that would follow.  How do you deal
with that?
          MR. SIMON:  Well, that's precisely the reason
I would frame the exemption to include only expenditures
that are subject to reporting.  In other words, if a
group deems what it's doing is making an expenditure,
but then says that it's not
required to report that expenditure, it would not
qualify for the exemption from electioneering
communication, and therefore it would have to report
under Title II.
          COMMISSIONER THOMAS:  Okay.  That's
helpful.
          MR. NOBLE:  And we agree with that.
COMMISSIONER THOMAS:  Now let me move on a
little bit to--whoops, I'm done.  I'm done.  Thank you.
Thank you.  I'll catch you the next round.
          CHAIRMAN MASON:  This is my question time.
Mr. Simon, in your written statement, you counseled
us against a blanket exemption for citizens band
                                                          41 radio.  Do you
have any idea about what the
effective broadcast radius for a citizens band radio is?
          MR. SIMON:  I don't.  I mean that was in
the context of the commission's question about low power
broadcasting, and it seemed to us that the better way to
deal with those issues is in the--
          CHAIRMAN MASON:  Let me help you a little
bit.  High frequency ground wave has an effective
radius of about 100 kilometers.  Medium frequency, about
80 kilometers.  This is during the day.  Of course, at
night, we're all aware of the phenomenon of sky waves
and so on like that.
          I'll read you from a web page of one CB
radio broadcast station in Fort Myers, Florida. When I
first began my career in 1976, I was using a 23 channel
mobile radio, something you'd find in a truck or a car.
In those days, making contact with another base station
20 miles away was reason to
celebrate.
          I take it that today he's operating on a
much more than 20 mile basis, and, of course, if
                                                          42 you draw a 20
mile radius around Fort Myers,
Florida, you've probably got half a million or a million
people.  And this gets back to the discussion we're
having about theoretical problems.
          And the problem we would encounter is that
we'd either have something laying out there--to preempt
Commissioner McDonald, I agree, we're not interested in.
We would never go after, and if we did get a complaint
about it, we would try to find
a way to let it go.
          But if that's the case, you know, I don't know
how we would determine how many people could receive
this broadcast, because in the television and radio
context, we're sort of saying, well, gee,
everybody can receive them.  We're assuming universal
coverage, and we're substituting population for receive.
          We've got no idea how many CB sets are out
there, what the radius is, and so given your
counsel to avoid trying to deal with theoretical
problems in our exemption process, wouldn't you
take the same here and say, well, yeah, if ten
                                                          43 years from now
somebody comes up with a CB
technology that's actually effective and
actually reaches lots of people, we could revise
our regs, but for now why don't we just take
them off the
books?
          MR. SIMON:  Well, I understand the
problem you're raising, Mr. Chairman.  I mean it
still, I mean the technological questions
notwithstanding,
it still seems to me somewhat of a kind of
theoretical problem in the sense that I think as a
practical matter, it's hard to imagine somebody making
an expenditure of $10,000 in a particular broadcast over
a CB radio, so in that sense, I'm not sure it gets
caught up in the coverage of the
reporting requirements in any event.
          But, you know, your decisions on these
questions should be importantly informed by the nature
of the technology and should be flexible enough to
incorporate changes in technology over
time.
          CHAIRMAN MASON:  And my concern is
actually more acute when it comes to the internet,
                                                          44 because we have,
it seems to me, the same thing
being presented, which is right now there is
nothing out there we're worried about, but what if? And
my concern about that is that that could become
actually a technology limiting factor.
          In other words, I wouldn't want to get into a
position where we were putting out a regulation that
caused people who were exploring a new technology to
pull in the reins because they
might theoretically say, well, this would potentially
bring us under government regulation.
          Wouldn't we better off waiting and if a
problem emerges addressing it at that time?
          MR. SIMON:  Well, on that, and I'll let
Larry address that also, I mean I do think this is an
important question.  And I think the commission got it
wrong in the Title I rulemaking, and I hope you get it
right in this rulemaking, but I think you're off on the
wrong foot in the proposed rules.
          This is a somewhat different question than
the Title I context, because that wasn't a
statutory construction of the term "public
                                                          45 communications."
Here we're talking about
broadcasting.  What we're concerned about is that as the
internet evolves and as technology does change, there is
going to be a kind of merger of
broadcasting dissemination and internet dissemination so
that it will be functionally indistinguishable.
          In that event, we think these Title II
provisions should apply to the functionally
indistinguishable form of broadcasting that takes place
over the internet.  Now that is not all forms or even
perhaps most forms of the use of the internet.  It
probably does not include web pages per se.  It probably
does not include e-mail, but
it may well include simultaneous web casts, and it may
well include video streaming, because those are forms of
dissemination of information that really are
functionally indistinguishable from broadcasts.
          Our plea is that you not just take that
problem off the table by just writing the internet
out of the statute.  We think that's too preemptory
and too broad-brushed an approach to a problem that
                                                          46 requires a much
more particularized and nuanced
analysis.
         MR. NOBLE:  If I may just say, I agree
with everything Mr. Simon said.  I just wanted to
add a couple of things.  Again, keep in mind that
we're talking--I don't think this will deter any
technology because we're talking about it kicking in at
only a very narrow period of time in only very specific
situations.
          So I can't imagine somebody deciding not to
further develop a broadband broadcast element on the
internet because somebody might want to make a political
communication over it or an electioneering communication
over it.
          I also think that we're not that far away from
that situation right now.  More and more when you watch
television shows, they send you to the internet.  They
say for more information, watch the outtakes from this
newscast on the internet, and
with broadband communications, I think there is
going to be very quickly a merger.  And I think
that Mr. Simon is right.  It's just something that
                                                          47 we are suggesting
you should just not take off the
table, and it's something you're going to have
to deal with and deal with pretty quickly.
          CHAIRMAN MASON:  Vice Chairman
Sandstrom.
          VICE CHAIRMAN SANDSTROM:  Thank you,
Mr. Chairman, and I want to thank the witnesses
for appearing here today.  Your testimony will
prove very helpful.  Are you both familiar with
the testimony of the sponsors?
          MR. NOBLE:  Yes.
          VICE CHAIRMAN SANDSTROM:  Are you
familiar that they're replete with
hypotheticals?
          MR. NOBLE:  Yes.
          VICE CHAIRMAN SANDSTROM:  Okay.  You
wouldn't mind me using any of those
hypotheticals, I gather, today as being too
clever, so I will ask you, paraphrase one
found on page 11:
          Throughout my career I have opposed Nevada
being used as a nuclear waste dump.  As your
governor, I will never allow that.  I strongly
oppose the president's plan to do so.  I will fight
that plan, which will put the health of the Nevada
                                                          48 citizens at risk.
         That's on page 11, but that deals with
taxes.  I've turned it into a hypothetical to more
likely to be run by, for instance, a Nevada
Republican candidate for governor.  If that were
run when the president were a candidate, would that be
subject to 24-hour reporting?
          MR. SIMON:  Well, I think there's a very
straightforward analysis of that question, and it
really I think is important to look at that question in
the context not just of Title II but Title I, because on
this matter, where we're talking about communications
run by state candidates, the two parts of the statute
really
blend together.
          Under Title I, a state candidate must use hard
money to run a public communication that mentions a
federal candidate and that promotes, supports, attacks
or opposes that federal
candidate.  So the analysis, the question is
whether the public communication you refer falls
within the context of that standard?
                                                          49 If it does--
        VICE CHAIRMAN SANDSTROM:  That's what I'm
asking.
          MR. SIMON:  Okay.
          VICE CHAIRMAN SANDSTROM:  If it does,
under this law, is that subject to 24-hour
reporting?  I have a couple other questions, and I have
a short amount of time.
          MR. SIMON:  Okay.
           VICE CHAIRMAN SANDSTROM:  I'm just
wondering, you know, since that hypothetical essentially
was used by the sponsors, would that be subject to 24-
hour reporting?
          MR. SIMON:  It depends then, going back to
the discussion we had with Commissioner Thomas, on
whether it's considered an expenditure.
          VICE CHAIRMAN SANDSTROM:  But it's not an
expenditure because it's being done by a state
candidate.
          MR. SIMON:  Well, but under Title I, the
state candidate would have to use hard money for
that communication.
                                                          50 VICE CHAIRMAN
          SANDSTROM:  Okay, but--
       MR. SIMON:  And if he uses hard money, and
it's under the reporting requirements of FECA, then
it may be treated by the commission as an
expenditure--
        VICE CHAIRMAN SANDSTROM:  Well, there may
be a whole new set of reporting requirements for
state candidates.  But either way, they're having
24 hour reporting or more extensive monthly
reporting as under the FECA.
          Another example, if I could, and I hope this
one isn't--get a quicker response, because I appreciate
the more lengthy one, and it may be necessary to explain
the position, but there's a
book out called Faith of Our Fathers, that I understand
may be turned into a movie.  The rights, I understand,
have been purchased.
          It's about John McCain and his family.  If
there is advertising run in 2004 and John McCain is
a candidate in 2004, and that advertising promotes
the movie, Faith of Our Fathers, would that be an
electioneering message?
                                                          51 MR. NOBLE:
          Probably not, and I think
there are certain situations.  We can carve out
examples, and this is a good one where I can
tell you this question has come up before.  I
remember
it came up with John Glenn, and The Right Stuff
movie, about whether or not that was going to be
considered some type of--
          VICE CHAIRMAN SANDSTROM:  Can you
describe the exemption?
          MR. NOBLE:  Well, again, this is one
of the tougher areas that goes to the Jay Leno
question of whether or--of who's putting it out, whether
or not it's going to be considered part of commentary,
of whether there is an entertainment
part of commentary, but I don't want to give a blanket
exemption to that.
          VICE CHAIRMAN SANDSTROM:  Let me understand
this.  How, if we don't give a blanket exemption to it,
are people to know how to conform
their conduct to the law?  Either that advertising,
and the showing of that movie conceivably--that was
going to be my follow-up question--the showing of
                                                          52 that movie on pay
per view or on TNT or any number
of other channels, would that entertainment
programming, the running of that movie, just like the
movie PT 109 might have benefitted John
Kennedy, that movie if Senator McCain is a candidate may
benefit him.  Would the running of that movie--is an
entertainment program exempted in some instances and not
in other instances?
          MR. NOBLE:  If the movie was produced and
advertised and broadcast through normal commercial
channels, then I think there is an area for exemption.
On the other hand, a blanket exemption that would allow
somebody to singly fund a quote "documentary" or a movie
about the wonderful life
of John McCain, and start selling it or buying time for
it right before an election, I don't think should be
exempted.
          VICE CHAIRMAN SANDSTROM:  So Disney can make
that decision if they bought the rights, but
someone else couldn't produce the movie because
they're more suspect?
          MR. NOBLE:  Right now there's a media
                                                          53 exemption that
applies to the broadcast industry.
There are cases that say that even the broadcast
industry, when acting as the broadcast industry,
gets exempted.  If they're not acting as a
broadcast industry, they don't get exempted.
          VICE CHAIRMAN SANDSTROM:  Where is
that exemption?  Where is that exemption?
        MR. NOBLE:  Reader's Digest case.
          VICE CHAIRMAN SANDSTROM:  Where is the
exemption in our regulations or the statute?
The Reader's Digest is a news magazine.  But
where is the exemption that covers all movies?
You say it covers some movies, but it doesn't
cover other movies.  Who produced them?
          MR. NOBLE:  I'm working by analogy
which I think you sometimes have to do in these
situations and the analogy is that you have
certain
exemptions.  The broadcast exemption for media. It's a
media exemption.  What is understood about
the media exemption, it applies to media which is
now becoming admittedly a more difficult question
of what is a media business.  But it only applies
                                                          54 to the media when
they're acting in their media
capacity.  It doesn't apply to them when they're acting
outside.
          So, therefore, your first question as the
Reader's Digest case said is are they--
          VICE CHAIRMAN SANDSTROM:  But isn't everything
that goes on--
          MR. NOBLE:  Sorry?
          VICE CHAIRMAN SANDSTROM:  --television
media?  I mean isn't the whole broadcast, the whole,
this regulates media.  There is a media exemption that
covers, subsumes this law, so if anything they do for
themselves.
          MR. NOBLE:  Mr. Vice Chairman, that's not
what I'm saying, if I can finish.  What I'm saying here
is that there is a media exemption, that the analysis
begins is it a media company?  Second question: are they
acting in the capacity of a media company?
          The example the Reader's Digest case used
was The New York Times would be exempt under the
media exemption for doing an editorial.  However,
                                                          55 if they took out
a billboard that said "Vote for
Bush," they would not be exempt under the media
exemption.  This is the case law in this area, and I
think by analogy, it can be applied here.
          CHAIRMAN MASON:  We obviously have a desire
for a second round of questions, at least from
commissioners.  So we will go back to Commissioner
Toner, if he desires a second round.
          COMMISSIONER TONER:  Thank you, Mr.
Chairman.  I just want to follow up.
          CHAIRMAN MASON:  Oh, I'm sorry.
COMMISSIONER TONER:  I believe the General
Counsel would be--
          CHAIRMAN MASON:  I'm skipping the General
Counsel and the Staff Director.  So let's do that first.
Mr. Norton.
          MR. NORTON:  Thank you, Mr. Chairman.  I
wanted to focus for a moment on the potential exception
for communications urging support for or
opposition to legislation, and I was thinking of a
hypothetical ad last evening, not for the purpose
of trotting out a parade of horribles but for
                                                          56 helping me and
the commission understand where that
high bar is, and to give better definition to the limits
the commission is under in crafting exceptions to the
electioneering communication.
          And the ad that came to mind, and I think is a
variation of ads that are running, is this:
          Some politicians have become too cozy with
big drug companies, and as prices of drugs are
skyrocketing, seniors are suffering.  Call Senator
Jones and tell him to support Medicare coverage for
prescription drugs.  It's time to put America's seniors
first.
          Now, I was looking last night at the
suggestion from Center for Responsive Politics, and
as I read your proposed exception, this would fall
within it.
          MR. NOBLE:  Correct.
          MR. NORTON:  It's devoted exclusively to a
pending legislative matter and the only reference
to a clearly identified federal candidate is a
statement urging the public to contact that
candidate to take a particular position.  That's
                                                          57 right?
          MR. NOBLE:  That's correct.
         MR. NORTON:  If that ad ran as it is in
the two or three weeks or month before a primary
election that involved Senator Jones, and in
Senator Jones' state, would it be your view that that ad
promotes, supports, attacks or opposes Senator Jones as
you understand that phrase?
          MR. NOBLE:  Good question.
          MR. SANFORD:  Can you read the last part of
the ad again?
          MR. NORTON:  Call Senator Jones and tell him
to support Medicare coverage for prescription drugs.
It's time to put America's seniors first.
              MR. NOBLE:  I don't think so.
          MR. SIMON:  Yeah, I mean if I could jump in to
application of their test which is a little different
than my test.
          MR. NOBLE:  Let me just finish.  Thinking
about it, I don't think that does.
          MR. SIMON:  Yeah, I--
           MR. NOBLE:  That's why we were not
                                                          58 bothered by that
particular one.  We do have
actually a minor disagreement with Common Cause
on this issue, but, no, I think that's the type
of ad that is fairly considered a lobbying ad
and does
not promote, support, attack or oppose a
          candidate. MR. NORTON:  I'll tell you
          my concern if I
could just jump in before Mr. Simon is I think
it's fair to say that some of the ads that we're
considering crafting exceptions for don't have
as
their primary purpose to promote, support, to
attack or oppose.  It may be incidental that
they have an effect on the election.
          But the difficulty that I'm having
as we go to craft exceptions that perhaps
aren't before
you today is what does that bar mean?  What
does that limitation mean?  And is that, in
fact, what it does mean, that we can craft
exceptions so long as it only incidentally
promotes or supports, or it's not its primary
purpose?
          MR. NOBLE:  No, I don't think incidentally
or primary purpose is really part of this.  I would
say listening to the ad, and that's why I was
                                                          59 hesitating, I was
trying to think of everything
that was in that ad, that there is nothing in that ad
that promotes, supports, attacks or opposes.
          Now, I do want to, by the way, for
everybody to have one disclaimer here.  I didn't say you
shouldn't use hypotheticals.  I just said you shouldn't
decide the law based on all the worst case hypotheticals
you come up with.  Of course you can use hypotheticals.
I think slight changes to
that ad would definitely make it promotes, supports,
attack or oppose.
          Where we drew the line was saying you can
mention the candidate, but you cannot talk about the
character of the candidate, you cannot talk
about previous positions.  So if that ad was changed to
say Senator Jones has long opposed Medicaid or
prescription drugs.
          MR. NORTON:  Isn't the statement some
politicians have become too cozy with drug
companies an implication that Senator Jones is one
of them?
          MR. NOBLE:  Frankly, I'm not focused on
                                                          60 the beginning
part of the ad.  Well, that brings it
closer to it.  You're going to get into a question about
whether or not that's implying that he has. Yeah.  I'm
sorry.  I missed the beginning part of
the ad.
          MR. NORTON:  I wanted to go back to a question
that Commissioner Toner asked earlier of Mr. Simon about
direction or control, and which individuals need to be
disclosed in connection with
an electioneering communication.
          I was thinking there, there are concepts in
lots of areas of the law, one in the securities area
that's at least 70 years old concerning control person
liability.  And it would define
those who have essentially day-to-day responsibility for
an organization, who can either write checks, hire and
fire personnel, bind the organization by contract.
          Would a definition along those lines be
what you're talking about in terms of who ought to
be disclosed and who need not be disclosed?
          MR. SIMON:  Yeah, I think that's a good
                                                          61 start.  I mean
again to me this provision, this
part of the statute, really has two purposes.  One, to
surface for disclosure purposes the sort of control
group of the entity that is making the
electioneering communications.  And I think the way of
getting at that part of it along the lines you suggest
sounds right.
          But then the second purpose is to ensure that
if the entity making the communication is a
front group, that the disclosure gets back to the entity
behind it that is in control, that is, in a sense,
established, financed, maintained or controlled that
front group.
          MR. NORTON:  Thank you.  I see that my
time is up.  Thank you.
              CHAIRMAN MASON:  Mr. Pehrkon.
          MR. PEHRKON:  Mr. Chairman, Mr. Simon, Mr.
Noble and Mr. Stanford, thank you all for appearing here
today and thank you for your testimony.  My
question is a little bit different than where
you've been headed earlier in the day.
          It is an implementation question, trying
                                                          62 to get a sense of
how big this whole area is, and
what I'm looking for is your sense of how many
electioneering communications that will be
reportable should be anticipated?  Does anybody
have a sense as to how big this might be?
          MR. SIMON:  Well, you know, there is a
lot of activity in the past which falls within
the definition of electioneering communication.
I
mean, you know, I think the studies show hundreds
of millions of dollars were spent on these ads. Now,
          those should not survive the
enactment of the law at least in the form they were
made, because what I'm referring to is the spending of
corporate and union treasury funds for those ads
which is prohibited by the statute.
          You know how much of those same kinds of ads
are financed out of corporate or union PACs, I think we
just don't know yet, but, you know, some of that is
certainly possible, although I would
suspect it's going to be less than the level of
this activity we've seen in the past.
          MR. PEHRKON:  Mr. Noble, Mr. Sanford, do
                                                          63 you have--
        MR. NOBLE:  I agree.  I mean this is the
$200 million question that nobody really knows at
this point of what's going to happen with a lot of
this money, whether it's going to go in other areas,
whether they're going to put into electioneering
communication.  I think you'll see a lot of activity,
probably more than some people are hoping, but we just
don't know at this point.  It's
something we're going to be tracking.
          MR. PEHRKON:  Do you sense it will rival the
amount of financial disclosure of hard money? Bigger or
less or do we have a sense of that?
          MR. NOBLE:  Well, since soft money now
rivals hard money or exceeds hard money, it's possible.
But I just really don't know.  I mean again this is
something that we're going to be watching over the next
two years to see what happens to a lot of this money.
          MR. PEHRKON:  Thank you.
          CHAIRMAN MASON:  Commissioner Toner.
          COMMISSIONER TONER:  Thank you, Mr.
                                                          64 Chairman.  I
think the General Counsel's
hypothetical is very instructive, and I just
want to get this straight.  Mr. Noble, do you
think this promotes, supports, attacks or
opposes a candidate
for office?
          MR. NOBLE:  I'm glad you raised that,
because I have to admit I am so attuned to the
tag lines in ads that what I was focusing on
and waiting for was the tag line, and I had
missed the
opening statement.
          I think that--yeah, I think with the
opening statement that--
          COMMISSIONER TONER:  I'll repeat it.
Maybe I'll do it one more time, because I think
it
is very helpful.  It says:
          Some politicians have become too cozy with big
drug companies, and as costs of drug care skyrocket,
seniors are suffering.  Call Senator Jones and tell him
to support Medicare coverage for
prescription drugs.  It's time to put America's
seniors first.
          MR. NOBLE:  Yes, given that opening
                                                          65 statement, yes.
         COMMISSIONER TONER:  Mr. Simon, do you
concur?
        MR. SIMON:  Yeah, that's obviously a hard
case.  You know I think with the implication at the
beginning of the ad, it could be read that way.
          COMMISSIONER TONER:  So that on balance, after
this extended discussion, you would conclude that this
does promote, support, attack, oppose?
            MR. NOBLE:  I think that's a fair
conclusion of it.  Again, it's not one that is without
debate, as a lot of these, but I think that's a fair
conclusion of it.
          MR. SIMON:  But let me say, Commissioner
Toner, I think that this discussion illustrates why the
commission should not promulgate as an exemption one of
the proposed alternatives which has that term,
promote/support term directly in the rule itself,
because I think that does undermine
the sort of bright line nature that should be part
of any exemption promulgated by the commission.
          COMMISSIONER TONER:  And I wanted to
                                                          66 follow up on
that, because I think it's a very
important point.  Is it your view then that the phrase
"promote, support, attack, oppose" is not sufficiently
clear to provide guidance to the
regulated community?
          MR. SIMON:  Well, that's a good question.
Here's my view.  My view is that that phrase is a clear
test by a sort of analogy to a reasonable person's
standard, but I think the Supreme Court,
as there was discussion yesterday, the Supreme Court has
distinguished in the level of precision of a test that
can be applicable to actors within the political
community, like candidates and the political committees,
on the one hand, and a higher
level of precision that's needed for a test applicable
to non-entities, outside entities, like corporations,
individuals, unions, and so forth.
And, you know, that is what the discussion
in Buckley was about.  That is what the discussion
in MCFL was about.  And although I would say that
on a kind of reasonable person analysis, the
promote/support test is clear and for that reason
                                                          67 certainly can be
applied as it is in Title I to
political party spending.  I think Congress
aware of the distinction drawn by the court
decided that a brighter line test was needed
in Title II for
direct application to non-political actors.
          COMMISSIONER TONER:  Let me see if I
understand your testimony.  The promote,
support, attack, oppose rule in your view can
definitely be constitutionally applied to
candidates and to
political parties, but in terms of other types
of actors, that's where you have question?
          MR. SIMON:  Right.  Right.  I think that's the
line Congress followed in the way it drafted
the statute, because it did apply that term
directly to political party committees in Title I, and
in Title II did not.
          COMMISSIONER TONER:  My concern is the
electioneering communication rule, as we know, applied
to a large extent primarily to
organizations other than candidates.
          MR. SIMON:  That's right.
          COMMISSIONER TONER:  And this is the area
                                                          68 where you think
the promotes, support, attack,
oppose framework may be problematic to apply to them?
          MR. SIMON:  That's right.  That's right.
And again, as I said in my opening comments, the
approach for this very reason that Congress took in
Title II was to draw a, you know, what's considered to
be a very bright line, very objective test that defines
the basic coverage of what's subject to the
Title II rules.
          And it's important in any exemption that the
commission writes to try to approach the draft of an
exemption that meets equally clear objective standards.
          COMMISSIONER TONER:  In light of our
discussion today, and the hypothetical that the General
Counsel promulgated, which I think was very helpful, Mr.
Simon, you indicate in your comments that you think that
Title II could be applied
constitutionally without any exceptions.
          Do you think on balance that's what we
should do?  No exceptions whatsoever.  You mention
                                                          69 a bright line
standard that everybody would
understand, that basically if you identify a
clearly identified federal candidate within
the time frames, within the targeting, that
would be
that.  It's an electioneering communication.
No exceptions?
          MR. SIMON:  Well, you know, I do think
the statute is constitutional as it stands.
          COMMISSIONER TONER:  Do you think we
should do that in light of these concerns?
          MR. SIMON:  Well, you know, there has
been a great hue and cry about the need for an
exemption that would allow legitimate lobbying
communications.  We support a narrowly drawn
exemption for that purpose, and we suggest specific
language.  If the commission deems that important, then
we would support your promulgating that exemption.  But
we would not go beyond that at this point.
          COMMISSIONER TONER:  Would you support if
we came out and granted no exemptions, even for
lobbying?
                                                          70 MR. SIMON:  Yeah.
        CHAIRMAN MASON:  You would support that?
          MR. SIMON:  Yes.
        COMMISSIONER TONER:  Mr. Noble, would you
also support that?  No exemptions whatsoever?
        MR. NOBLE:  Yes.  Again, I agree with Mr.
Simon, that I think the agency should make an
attempt to draw narrow exemptions for these issues, but
frankly given the choice between the agency
drawing broad exemptions that are just going to swallow
up the prohibition or not drawing exemptions at all, I
would say then don't do the exemptions.
          COMMISSIONER TONER:  That if we concluded
after wrestling with these issues, and I think this
discussion has been helpful, that it's problematic to
try to do that, that you would be comfortable with no
exemptions whatsoever?
          MR. NOBLE:  Well, I don't like saying
problematic to do that.  I mean everything you do
is problematic.  And nobody said that this is not
going to be a difficult job.  I think the agency
                                                          71 has made a good
attempt in a lot of this discussion
and the NPRM to try to address these issues.
          COMMISSIONER TONER:  But you would agree
that no exemptions would be a bright line
standard?
Everybody would know where they stand?
          MR. NOBLE:  No exemptions would be a
bright line, absolutely.
          COMMISSIONER TONER:  And you would
support that?
          MR. NOBLE:  It's not my first choice,
but, yes, if that's where the agency went, yeah,
I think--if you decided and you made a record
that
you could not figure out any other way to do it, then I
think then you go ahead with no exemptions.
          COMMISSIONER TONER:  Thank you, Mr. Chairman.
          CHAIRMAN MASON:  Commissioner McDonald.
          COMMISSIONER McDONALD:  Mr. Chairman,
thank you.  Let me go back to a few things that
have been raised.  I will try to be very careful.
I do not intend to ask and badger, because I don't
think it's very constructive.
                                                          72 Let me ask you,
          there was an example given
of John Kennedy in 1960.  And then in 1984, there
was John Glenn.  And we might have Senator McCain in
2004 in the example that was given.  That's a 24
year period and a 20 year period, but these issues come
up.
          Am I misunderstanding here?  I mean wouldn't
the first course of action be the goal of the commission
is not to entrap players in the
process.  That's simply not our goal.  Anyone who infers
it is is simply not stating the facts correctly.
Wouldn't they first avail themselves of the advisory
opinion process?  Couldn't you resolve this before our
distinguished commission who seem
to have very fervent views about this?  Wouldn't that be
the first thing you would do?
          MR. NOBLE:  Sure.  That is available to
anybody out there.  Courts have in the past acknowledged
that the advisory opinion process is
out there.  The commission has an excellent record
of getting those advisory opinions out and has
dealt with some tough issues in advisory opinions
                                                          73 and has in some
advisory opinions stretched to let
something go on that even though it didn't fit
exactly under the statute, it felt that it did not want
to stop.
          So, yeah, that's one avenue that's out there
for people to get an explanation, the advisory opinion
process.
          COMMISSIONER McDONALD:  Well, refresh my
memory on the John Glenn matter.  I was here, and I
want to be sure I'm stating this correctly.  I mean it
wasn't actually a very difficult issue.  The issue was
whether or not some individuals or political parties or
someone active in the political process would have been
underwriting.  I
guess maybe you could send videos to everyone's home,
for example.
          Somebody could have done that.  This was just
a commercial venture--straightforward, as I recall.
          MR. NOBLE:  The Right Stuff is a movie,
maybe 20 years old about now.  The Right Stuff--
          COMMISSIONER McDONALD:  '83 I think is
                                                          74 when it came out.
         MR. NOBLE:  The Right Stuff is a movie
that was commercially produced based on a book, and
there was some talk at the time about whether it
would help his campaign, and the FEC did not seem to
launch any investigation or do any major, undertake any
major effort to stop it.  I think the FEC recognized it
as a normal commercial undertaking.
          COMMISSIONER McDONALD:  Well, it was certainly
very helpful to Senator Glenn, as we all recall.
          [Laughter.]
          COMMISSIONER McDONALD:  Let me press on a
minute.  You know normally around this table, my
colleagues, rightfully so, by the way, point out that
this law is difficult in some areas, and that's
theoretically what we're hired to do.  We're not hired
to try to figure out how to figure out
how to fool the panel.  I made a special point
yesterday of not trying to do that with people that
I don't agree with, and I won't do that again
                                                          75 today.
        I just want to be clear.  The issue, and
it's a good issue, because everybody has addressed
it on this broadcasting business, and I thought the
chairman made a good point.  He lost me on this business
about, and we all understand--what did you say--sky--
what was that?
          CHAIRMAN MASON:  Sky waves.  Have you ever
listened to KMOX at night?
             COMMISSIONER McDONALD:  I have
continually.
          CHAIRMAN MASON:  You understand sky waves.
          COMMISSIONER McDONALD:  All right.  Thank
goodness.  When you reduce it to baseball, I've got
it.  I wanted to be sure I was following you on that.
The chairman is a little more technically oriented than
I am.  But he raised an interesting point, and it's one
that everybody has addressed, and I want to be clear
about this.
          The question was raised yesterday, and I
think rightfully so, because we're always trying to
strike a balance, and I don't think my colleagues
                                                          76 are unreasonable,
and I hope people don't think I'm unreasonable, the issue was raised about
somebody
trying to start something new.  Now forget the
fact, as was pointed out earlier--I believe,
Mr.
Noble, this was your comment--let's keep in
mind that this is within a very narrow time
frame.  I must say that if people that are on,
and I'd like to ask any of you your experience
about this, but anybody with a CB or anything
else, if the American
public is so attuned to these new rules that my
friends are on CBs, then we've accomplished a
great deal.
          We are truly, we have truly done
something that I'm unaware of, because normally
the concern
is the other way around, is that people don't
have
a clue what's going on.  Has that been your
experience or am I just way off base here?
          MR. NOBLE:  That's been my experience.  I have
to say I had a CB license at one time, and my
experience was that the range was, even though they
said up to 30 miles, at least in a city, was about
three or four blocks even with a roof antenna.
                                                          77 I think that's
          one of those peripheral
issues, the CB issue, and we did not say that it
should be included.  I understand Mr. Simon's position
on it.  I really do think that's a
peripheral issue.  I don't think CBs are going to
present a major problem one way or the other for the
agency.
          COMMISSIONER McDONALD:  I'm not saying we
shouldn't consider that as an issue, but I just
wanted to be clear, because, again, I do, and one of my
colleagues is fond of this technique, and I agree with
him, you have had a lot of experience in this area.  I
think all of you have had a lot of experience in this
area, maybe more so than most of
us on this panel, maybe than all of us on this panel.
          And it is the kind of thing that when you
infer to people who are watching these proceedings that
there is some effort to cap people's ability
to get into a new area, this is just simply not
true.  It is just not a fact.  In the 21 years I've
been here, that is just not something that I've
                                                          78 ever seen anybody
stand up for the principle
whether I agreed with their philosophy or not.
It's just something that has not happened, and I think
it's real important in these kind of
proceedings, and unless you can refresh my memory to
something that I'm not familiar with, I'll accept your
years of experience at the commission, because I just
don't recall that sort of thing and wouldn't be a part
of it.
          Thank you, Mr. Chairman.
          CHAIRMAN MASON:  Commissioner Smith.
          COMMISSIONER SMITH:  Thank you, Mr.
Chairman.  Okay.  Let me try to pick up here where I
left off.  Some of where I was going, I think
you've answered some of the questions.  But let me,
again, unfortunately, I've got to do a little more of a
speech here to cover some ground.
          But going back to these Brennan Center studies
where they had these college students
determine which people's speech is real speech and
which people's speech is sham speech, and they note
in these studies that about 80 percent of genuine,
                                                          79 what they call
genuine issue ads, were run outside
of the 60 day brownout period.
        Now, the 60-day brownout period is about
16 percent of the year, so basically genuine issue
ads are being run more often close to an election
than they are being away from an election--about 20
percent versus about 16 percent.  But they didn't get
the 30 day brownout period at all.  At least they don't
mention that in their report.
          So we can probably figure that some of the
genuine ads were running during that time.  So I think
overall we can probably figure that somewhere between a
minimum of 30 percent or 25 percent, may be up as high
as 35 percent, of genuine issue ads
under the empirical basis on which Congress is acting
are being run within the brownout period.
          Now, that's a pretty high percentage it
strikes me.  You know we talk about how you can't have a
perfect demarcation, but a 35 percent error
rate on speech that almost everybody would agree
under the precedents cannot be regulated
constitutionally is I think a real potential
                                                          80 problem.  And I
think that suggests that some kind
of exemptions are necessary.
        Now, as you mentioned, Mr. Simon, you've
crafted a very narrow one here, but I note a number
of things about it.  For example, you would say it
has to refer to legislative or executive branch
matter, but you've also gone against any
popular title exemption like the McCain-
Feingold bill or something like that.
          According to the Brennan Center
study, 42 percent of the ads they coded were
genuine issue ads, and yet only one percent
mentioned a bill number.  So obviously the vast
majority of genuine issue ads aren't using bill
numbers.  And it's been
suggested--Mr. Noble makes this case convincingly--that
there is only a very--this McCain-Feingold,
for example, that would only be two states, a
couple times in six year periods.
          Well, but it is pretty broad, because, for
example, if you had something that became popularly
known as the Clinton-Feinstein bill, well, in 2006,
that would blackout the congressional districts or
                                                          81 brownout the
congressional districts of 82
congressmen in those two states, plus it would brownout
potentially other congressional districts in Connecticut
and New Jersey and so on that rely
on New York media markets.
          Or even to take a real world example, McCain-
Feingold would brownout 16 congressional districts just
in their two states, moderately sized states, plus at
least 14 congressional
districts in Chicago, where you couldn't run broadcast
ads because you'd hit 50,000 people in Wisconsin.  So
we'd be browning out at least 30 congressional districts
and probably a few more in Illinois and Indiana that
I've counted.
          Now, all of this suggests to me, you also
suggested, Mr. Simon, in your thing that the only
reference to a candidate should be your congressman,
your senator, and we know from polling data that even
during the peak of the campaign
season, fewer than half of Americans can identify
either one of their U.S. senators or their
congressmen.
                                                          82 So it strikes me
          in all of these things,
we need to be fairly conscious of drawing a
somewhat broad type of exemption or something that
covers this.
          Now, getting finally to the punch here. What
would be wrong with simply drafting as the exception any
ad that does not promote, support, attack or oppose a
candidate as exempt, and that will cover the public
service announcements, and
the church ads that Representative Shays said were
covered, and all of these kinds of things?
          It would seem to me that this would meet the
language, the plain language of the statute, which
allows appropriate exemptions that don't
promote, support, attack or oppose a candidate.  It
would meet the intent of Congress because it wouldn't
allow any sham issue ads to go forward, since by
definition, sham issue ads, I think, are trying to
promote or support or attack or oppose a
candidate.
           It would, it seems to me, meet the
constitutional bright line, because you've
                                                          83 suggested that we
could have no exemptions, no exemptions--right--which means there would be
none
of that speech.  Well, now, people would have a bright
line, and it's sort of a safe harbor.  More
than 60 days out, they can say what they want.
          In the last 60 days, they can say more. If
it's not a violation of the constitution to limit that
speech in the last 60 days, how can it be a violation to
let some of it go forward?  So
wouldn't this be a nice simple solution that would
handle all the problems?
          MR. SIMON:  No.  You put a lot out on the
table.  I am not going to be able to get to all of it,
but let me try to--
          COMMISSIONER SMITH:  That was my plan.
          [Laughter.]
          MR. SIMON:  Maybe I'll write a follow-up
letter.  Let me try to cherrypick a few points. Look, I
haven't read, reread the Brennan Center
report in awhile.  You did a lot of kind of fancy
dancing with the numbers.  Part of the analysis of
the Brennan Center report that I think shows a very
                                                          84 high correlation,
in the upper 90s, between the ads
that would be subject to this bright line test
and time frame test, and what their research
deemed to be electioneering ads or campaign ads.
          So I think there just may be a
conflict in the analysis of the data between the
conclusions of the report and the--
          COMMISSIONER SMITH:  The 90 percent
ratios come from what they said the sham issue
ads would
be cut out, but we're talking about the genuine
issue ad percentages.  So you'd still have a lot
of genuine issue ads.
          But the key point I want to get at is
why can't we just adopt an exception that takes
the
statutory language and as long as it doesn't
promote, support, attack or oppose--
          MR. SIMON:  Well, let me just make one other
prefatory point.  I mean I thought you mixed apples and
oranges when you were talking about the
popular names issue where you referred to a bill by
the names of the senators and then applied it to
the coverage of house races.
                                                          85 If you're trying
          to lobby a member of the
House, you're likely to refer to a bill by the
House name of the bill, not by the Senate name of the
bill.  And if you mentioned Shays-Meehan in an
ad run in Arizona, you would not be excluded during the
blackout period.
          COMMISSIONER SMITH:  I would strongly disagree
with you on that.  I think most people know that bill,
for example, as McCain-Feingold,
and they would say urge your representative to vote.
          MR. SIMON:  But to your underlying point, you
know, basically my response is based on what I said
before, that the approach Congress took in
this part of the statute was to impose an objective
bright line test.  In earlier versions of the statute,
two or three years ago, there was a Furgatch-like test
about a reasonable person, and it doesn't, you know, it
cannot be construed to
promote, support a candidate, an unambiguous
reference.
          That was dropped and it was dropped for a
                                                          86 reason, and the
reason it was dropped is because
Congress ultimately decided that the approach
with the highest chance of surviving judicial
scrutiny was to adhere to the Supreme Court's
admonition
that when you apply this kind of standard to non-
candidate, non-political committee entities, you
need a bright line test, and I think if you draft
an exemption based on a promote/support standard, that
undermines our congressional purpose, and you
should not do so.
          COMMISSIONER SMITH:  Exemptions are one way
ratchet.  It only allows more speech while still giving
people the same certainty and protection if they want it
by not running the ads
outside of 60 days.
          I mean you're kind of saying it's okay to tell
them they can't run these ads at all within 60 days, but
it's not constitutionally okay to tell them, well, you
don't have to.  If you want to be
safe, don't run them then, but if you want to run
them then, you can take your chances.  You can ask
for an advisory period in advance or something.
                                                          87 MR. SIMON:  But,
          again, you know, I
understand your point, but you're demarcating what
you consider to be a safe harbor that arguably has very
fuzzy waters around it, and I think that's a
problem.
          COMMISSIONER SMITH:  Now, if we have to have a
bright line like this, Mr. Noble, then how can the
advisory opinion standard serve as a substitute for
that?
          MR. NOBLE:  There are a lot of areas in the
law where we have bright lines, and then there are
questions that come up.  I don't think a bright line
means that every possible situation you know the answer.
I think that's what the Supreme Court
was referring to in the earlier case I cited.
          I think that we've seen this in all the years
of the commission.  You think you know all the
situations that come up, and somebody comes up with a
new one, sometimes very innocently comes up
with a new one, and you need an advisory opinion
answer.
          If you look at what may be some of the
                                                          88 brightest lines
the commission has in the reporting requirements, the FEC gets tons of
questions in the
advisory opinions, in the 800 lines, about reporting
requirements that people have.  So I
think that even though it's a bright line test, it
doesn't mean that somebody cannot use the advisory
opinion process to find out the actual parameters given
a specific factual situation.
          COMMISSIONER SMITH:  Okay.  Thank you.
          CHAIRMAN MASON:  Commissioner Thomas.
          COMMISSIONER THOMAS:  Thank you, Mr.
Chairman.  Let me go first to the hypothetical that our
General Counsel posed.  I just want to get
clarification.  If we were to use the standard
that's being proposed by Common Cause for legislative
communications or lobbying communications, I gather that
communication would not be an electioneering
communication under that standard because there is no--
          MR. SIMON:  That's right.
          COMMISSIONER THOMAS:  There would have to
be no reference to the particular name of the
                                                          89 individual
candidate.
         MR. SIMON:  That's right.  To the name.
That's right.
        COMMISSIONER THOMAS:  So there would be a
way to basically do that kind of an ad with that
very simple adjustment and everybody would have a very
clear understanding of how to do that; is that right?
          MR. SIMON:  That's right.
          COMMISSIONER THOMAS:  With regard to the
references to McCain-Feingold legislation, again,
assuming the hypothetical is that there is some
legislation of that name that's pending and yet to be
decided, and someone wants to make reference to
that, the questions come up about, well, what about a
situation where it's put out where Senator McCain or
Senator Feingold is running or where Congressman Shays
or Congressman Meehan is running?  It seems to me that
there are several fairly easy ways to
deal with that.
          If you want to put out an ad where you're
attacking that legislation and urging people to
                                                          90 contact the
respective member to urge them to vote
against it or for it, you could first of all
refer to it as, if you like it, campaign
finance reform legislation.  If you don't like
it, I suppose you
can refer to it as so-called campaign finance
reform legislation.
          If you wanted to run it in a place
where Senator McCain or Feingold was up for
election, I guess you could call it the Shays-
Meehan
legislation.  Conversely, if you want to run
it where they're not running, you could call
it the McCain-Feingold legislation.
          MR. SIMON:  Absolutely.
          COMMISSIONER THOMAS:  There are some
fairly easy ways to get around the clear
bright line test that the statute sets up; is
that correct?
           MR. SIMON:  That's right.
          MR. SANFORD:  It's all based on
clearly
identified candidates so--
          COMMISSIONER THOMAS:  Now, I wanted to get
back to the issue of what about an organization
                                                          91 that otherwise is
prohibited from making
electioneering communications maybe having an affiliated
organization, if you will, that's unincorporated and
that wants to work with the
rules on paying for electioneering communications. I
gather both of your organizations, Center for Responsive
Politics and Common Cause, are urging that an
incorporated entity not be allowed to work through a non-
federal PAC.
          It could, of course, work through a federal
PAC, which is working with hard money as a result.  I
just wanted to get some clarification along those lines.
Is there any opportunity for them to set up some sort of
unincorporated entity
that would be taking in only money from individuals and
that would not necessarily be a federal account of a
PAC?
          MR. SIMON:  For a corporation or union to do
that?
              COMMISSIONER THOMAS:  Right.
          MR. SIMON:  I would say no, because the
statute prohibits a corporation or union directly
                                                          92 or indirectly
paying for electioneering
communications, and I think establishing a non-
federal account, even if takes only individual
money, is the indirect financing of an
electioneering communication.  The
corporation, as you indicate, can operate
through its federal PAC to make electioneering
communications.
          COMMISSIONER THOMAS:  I gather from
          your
testimony, when it comes to a non-connected
PAC,
you don't have the same kind of concerns?
          MR. SIMON:  That's right.  Because if it's a
non-connected PAC, it's not tied to corporate financing.
          COMMISSIONER THOMAS:  You're aware we've
allowed in some instances people associated with an
organization to go over and nonetheless set up a non-
connected PAC.  It doesn't take any subsidization for
purposes of the establishment, administration, and
solicitation costs from the
corporation or union that is setting it up?
          MR. SIMON:  Well, again, that line and how
far you go down that road is going to be a function
                                                          93 of your
interpretation of the term "directly" or "indirectly" in that provision of the
statute.
          MR. NOBLE:  And I agree with that, and that's
what I was thinking about when Commissioner
Thomas was raising that issue, is that we have seen
situations where the same people set up an organization,
and there is absolutely no connection, no financing, no
subsidization, and no connection between the two
organizations.
          And I'm sure the advisory opinion process will
be used to address that situation, and you may have one
where you say that they are not connected in any way,
directed or controlled or indirectly controlled.
          COMMISSIONER THOMAS:  We had some 501(c)(3)
and (c)(4) organizations or their representatives
yesterday, and we'll have some more today who are
urging, in essence, that there be some opportunity for
them to undertake
electioneering communications through some sort of
separate adjunct.
          MR. NOBLE:  The only caution I have there
                                                          94 is that to make
sure when you start examining those
that you use a very strict line about what is
considered control or direct or indirect control. This
whole thing will fall apart if the commission
starts going down the line that it has, and frankly an
affiliation about that you need to have written
documents maybe or explicit agreements on such.
          I think you have to be very careful about the
use of the word "indirect control," and
Congress was very concerned to get at indirect
financing, indirect establishment.  And I think you have
to keep that in mind in addressing all these.
          MR. SIMON:  Let me just add one point to
that which I think is important is that although
there is a kind of understandable sympathy towards the
accommodating (c)(3) and (c)(4) entities as nonprofits,
I think the statute really doesn't permit you to do
that.  The statute doesn't treat (c)(3) and (c)(4)
corporations differently than
for-profit corporations.
          Indeed, there was, for a long period of
time, there was an explicit separation of treatment
                                                          95 for (c)(4)
corporations, and that was ultimately
taken out of the statute by the Wellstone
amendment, and so whatever line you draw about
indirect corporate financing for purposes of for-
profit
corporations, I think has to be applied to
nonprofits as well.
          MR. NOBLE:  And I may just make clear
what
I said, the bottom line is you cannot have a profit
corporation establishing one of these.  The
question was could you have an individual who
happened to work for one of those establish one of
these?  And that, I think, is the question that the
commission will deal with in advisory opinions.  In
certain factual circumstances, the answer may be
yes.  Under no circumstance could you have a corporation
establish one of these.
          COMMISSIONER THOMAS:  Thank you.  I just have
to close by asking Larry Noble with your CB experience,
I got to know, good buddy, what was
your handle?
            MR. NOBLE:  I prefer not to say.
          [Laughter.]
                                                          96 MR. NOBLE:  It
          was a long time ago.
          COMMISSIONER McDONALD:  What happened to full
disclosure?
          COMMISSIONER TONER:  This sounds highly
relevant.
          MR. NOBLE:  It was Cancer, and I don't
remember why.
          COMMISSIONER TONER:  A highly relevant piece
of information.
          CHAIRMAN MASON:  All right.  I hope Mr. Simon
doesn't feel like I picked on him.  I think Commissioner
McDonald may feel like I do, but just as a matter of
disclosure, Mr. Alt, my former employer, yesterday,
after I questioned him, came
back and said you really went for the jugular, and he
was serious.
          [Laughter.]
          CHAIRMAN MASON:  So I sometimes try to ask
difficult questions, but I know our witnesses don't
take anything amiss about that.  I want to ask
about just one thing that is a real problem out
there.  It's perhaps not a big one, but it's
                                                          97 certainly been
brought up and it certainly happens
and that is the church broadcast issue.  And this comes
into play in what I think is a legitimate and
understandable effort to distinguish if we have
some kind of an exemption between the half hour
infomercial and some other kind of programming which may
be paid.
          And religious broadcast would be really a
typical example of that, where a lot of churches do
take an hour of time every week, 52 weeks a year, to
broadcast their services, and a lot of the larger
churches that do that--I grew up in Lynchburg, Virginia.
          Jerry Falwell's church, every fall,
political candidates would show up.  They may not ever
go to church any other time, but you can be sure one of
the last weekends in October, they would be there front
and center, and of course the funny thing about it is
they're there to
electioneer.  They don't say anything, but the
pastor recognizes their presence, and so on.
          And I just want to ask how should we
                                                          98 handle that sort
of situation?  Should we take the
position that a pastor/preacher in that situation who
recognizes the presence of a political candidate in the
congregation right before the
election falls under coverage of this or is there some
way we could address it otherwise to make it exempt or
permissible?
          MR. SIMON:  I'll start first.  That, as you
know, Mr. Chairman, is an example that
Congressman Shays specifically referred to in the
context of your Clause 4 authority.  So I think it's
fair to say that at least some sort of exemption along
these lines is within the commission's authority.
            I was actually surprised that the
commission did not propose specific language in the
NPRM.  Frankly, at this point, my preference would be
for you not to promulgate an exemption as part of this
rulemaking, but to kind of step back,
propose language, get comment on a specific
proposal, get more information about the nature of
the problem, and then in a subsequent round of
                                                          99 rulemaking
address this.
           I think the touchstone for any such
regulation should be along the lines that
Congressman Shays talked about, that it is a
reference in passing as part of the service,
sort of where there's perhaps a routine and
incidental mention.
          I think those are the kinds of
safeguards that need to be built into the rule,
but I do think
the commission has some authority in this area,
and as with any other exemption, it should be
narrowly and carefully crafted.
          CHAIRMAN MASON:  And we had several
people yesterday encourage us to kind of mimic
the IRS
rules or to give a pass to (c)(3)s on the
presumption that--by the way, I told them I
didn't think we could do that--but in this area-
-and I understand your concern about not doing
something
on the fly--but with this particular example, might
that be a useful concept to work with?
           MR. SIMON:  You know I am just not
familiar with the--if there are particular IRS
                                                         100 rules relating
to churches.  If it's the general
language about, you know, intervention in
political campaigns, you know, I'm not sure
that's enough.  I would think that the
commission would need to add
additional safeguards to that.
          MR. NOBLE:  Also I think that the IRS
is dealing in a slightly different situation
because what they can do in terms of tax exempt
status, which is really what they're dealing
with, is
different than what the FEC may be able to do.
          I would also agree that it's not
something that you should just do glibly.  And
it is an example of an issue, by the way, that
did come up, at least in late afternoon
discussions, over the
last 25 years, about what you do about churches,
and there are examples of churches move beyond
electioneering communications.  There are examples of
churches where ministers in the pulpit have used express
advocacy, and this is an issue that I think
the commission has been concerned about.
          I'd be very concerned about any broad
exemption without very carefully looking at--I mean
                                                         101 certainly we
need broad exemption.  I think before
the commission does anything, it needs to carefully look
at all the ramifications, carefully look at the
definition of a church, and there may very well
be something open for a reference in passing, but you
have to be very careful that this doesn't become a half-
hour paid commercial for a candidate.
          CHAIRMAN MASON:  Vice Chairman Sandstrom. VICE
          CHAIRMAN SANDSTROM:  Thank you.  I
thought the use of the John Glenn movie about The Right
Stuff was a very good example of the problems the
commission faces if we don't come up with any
exemptions.  The question for the commission in '83-84
was whether the distribution of that movie,
The Right Stuff, was for the purpose of influencing an
election.  There would have been no doubt that John
Glenn was a clearly identified candidate. That's a
bright line test.
          And that's why this legislation I gather
was passed because the test for the purpose of
influencing was too vague, and now we have a bright
line test.  We do not have an exemption for
                                                         102 entertainment
programming.  And so if we go
forward, as some suggest would be acceptable, without
any exemptions, it would seem to me that the advertising
a new movie about John McCain would
be prohibited, because if it occurred during the time
that John McCain was a candidate and was close to a
primary or a general election.
          So I do think that is a very apt analogy, and
precisely identifies why there is a problem in
this area.  But we can continue that debate later, but
what I also found very remarkable in the beginning of
the testimony here is that even though Congress chose to
make certain spending a felony, prosecutable by a term
up to five years in jail,
people should take solace in that no one has ever been
prosecuted before.
            Now, prior when these things were
misdemeanors, and the Justice Department was looking for
aggravating circumstances, I can
understand why the Justice Department didn't pursue
misdemeanors, but Congress having made a choice to
make these felonies and very serious offenses, I
                                                         103 find it quite
surprising that there be a suggestion
that people--that really wasn't what was
intended, because we don't have any
enforcement history in those situations.  Why
would anybody expect us to
actually prosecute people and refer things to
Justice because we have no history of doing
that?
          MR. NOBLE:  If I may respond to
          that?  I
said in my opening statement that I think it
is fair and necessary to talk about criminal
prosecution because it is potentially out
there. What I was responding to is the sense I
got yesterday from the questions that
everybody was expecting the Department of
Justice to swoop down as soon as this law went
into effect and start
arresting people and start doing content
analysis of all these ads.
          And what I was suggesting there is that is not
the history.  The reason the Department of Justice did
not prosecute under FECA before in the
cases you're talking about was because they were
misdemeanors, but even going after felonies, they
went after reporting type violations.  They did not
                                                         104 go after content-
based violations.
        But again I think it's fair to talk about
the criminal prosecutions.  I just don't want to
leave the public with the impression that what
we're talking about is an area of the law that there has
been this intense criminal prosecution or that there
will be this intense criminal prosecution, and you can't
deny that one of the reasons the Federal Election
Commission was set up
in the first place, one of the reasons the law has civil
sanctions, which by the way we do believe can be
enforced under BCRA, that the law has civil sanctions
was to avoid some of these criminal prosecutions.  But
again it's fair to discuss.
          MR. SIMON:  If I could just add to that,
nothing in BCRA, even the increase in the penalties,
nothing changes what has been true for 30 years, which
is that the primary enforcement mechanism for this law
is civil enforcement.  There
are criminal penalties which I think clearly have
always been and will remain reserved for the most
serious and egregious and willful examples.  And it
                                                         105 will be for
civil enforcement that the statute will
be enforced.
        VICE CHAIRMAN SANDSTROM:  And so without
these exemptions, someone should not feel chilled
that there may be a felony prosecution by now by a
U.S. attorney, political appointees across the
country, that they should look at the experience
over the past 15 years in this country and take
solace that offenses of the campaign laws, for
instance, like the Pendleton Act, would not be
pursued?
          MR. NOBLE:  No.  Anytime Congress
passes a law with criminal penalties, people are
going to be concerned about it, but I think one
of the things
they should be aware of is that it only applies,
as Mr. Simon said, to egregious violations,
knowing
and willful violations.  So where somebody inadvertently
steps over the line, somebody doesn't understand where
the line is--
          VICE CHAIRMAN SANDSTROM:  The line is
quite clear, isn't it, that if you clearly identify
a candidate and you spend more than $10,000, and if
                                                         106 you spend more
than $25,000, it's a felony.
          MR. NOBLE:  The line is clear in the
present law in an awful lot of areas.  And there
are very few knowing and willful prosecutions, even
by this agency, even civil knowing willful prosecutions.
The line is very clear about contribution limits.  The
line is very clear about 441(b) corporate violations.
They are very rarely prosecuted as knowing and willful
violations.
          VICE CHAIRMAN SANDSTROM:  If I were a member
of the public, I guess I wouldn't take as much comfort
from that state of affairs.  Thank you.
              CHAIRMAN MASON:  Mr. Norton.
          MR. NORTON:  Thank you, Mr. Chairman.  I
notice we're running a little bit behind so I will make
my question brief.  I think in both comments from Center
for Responsive Politics and from Common Cause, you've
opposed an exception for public
service announcements.  And frankly I don't know
and haven't yet checked whether the FCC defines
public service announcements, which may help us
                                                         107 here.
          MR. SIMON:  No.
          MR. NORTON:  They don't?
          MR. SIMON:  They do not.
          MR. NORTON:  Okay.  My question really picks
up on some of the testimony yesterday, and that is if we
were to make a distinction between paid and unpaid
advertisements, is that an exception that would satisfy
you?  In other words,
if a so-called public service announcement, if there was
no payment made for the airing of that communication,
would that be an acceptable exception?
          MR. SIMON:  No, not only does that not
solve the problem, it exacerbates the problem.  I mean I
view public service announcements as a sort of subset of
a general category, broader category of unpaid
advertising.  But I think it would be a great mistake to
make an exemption for public
service announcements for several reasons.
          One, because there is no clear definition
of what constitutes a PSA, and you're really
                                                         108 leaving it to
the discretion of the local
broadcaster to decide what he wants to run as a
PSA.  And in a sense, it gives, I think, too much
authority and too much discretion to that
broadcaster and is subject to abuse.
          Secondly, I think there already is a track
record of PSAs being used for electorally related
purposes where by the nature of a PSA, you're putting a
candidate in the position of speaking on
a popular issue in a way that will be favorable to the
candidate, and if you run those ads close to an
election, I think it's just at the very heart of what
the statute is trying to get to.
          MR. NORTON:  One of the issues that we
have to consider is the certification process for
qualified nonprofit corporations or MCFL corporations,
and one of the questions that we put out for comment is
whether the certification ought to be based on the
regulation, the commission's
regulation, or whether the certification could be
based on prevailing case law?
          And I wonder, I think, Mr. Noble, you
                                                         109 addressed this
in your comments, if you could
address your view on this?
          MR. NOBLE:  We believe that the
certification should be made based on
commission
regulations, that it will be uniform, apply
across the board.  Obviously, those regulations
will have to take into account court cases in
this area, though the area is somewhat still in
my view unsettled about certification and what
type of
corporations should we certified as qualified
nonprofit corporations.
          I think you run into a lot of
problems with just having people doing it based
on case law, because you'll get a lot of
different factual
situations.  Organizations may start treating
themselves differently from other
organizations, and I think there is just a lot
more vagueness in the whole situation if you
allow that to happen.
          So I would urge the commission to come up
with a specific certification process.
          MR. NORTON:  Thank you.  That's all I had.
Thank you, Mr. Chairman.
                                                         110 CHAIRMAN MASON:
          Mr. Pehrkon.
          MR. PEHRKON:  Mr. Chairman, I have no
further questions.
         CHAIRMAN MASON:  For the convenience of
the chairman, at least, we're going to need to take
a brief recess.  If we could keep it to five
minutes, that will help us stay close to on schedule.
We'll be in recess for five minutes.
          [Recess.]
          CHAIRMAN MASON:  The Special Session of the
Federal Election Commission for August 29, 2002 will
come to order.  This is our public hearing on
electioneering communications, and we are down to our
last panel, which consists of Kay Guinane of
OMB Watch and Kristina Wilfore from the Ballot
Initiative Strategy Center.
          I think you saw the previous panel, but I'll
briefly explain that we do have this light system which
is off now again--there we go--which
will give you that green light for four minutes,
and a yellow light for one minute.  We'll give each
of you five minutes to make an opening statement
                                                         111 and then go to a
round of questions from
commissioners and the General Counsel.
          Ms. Guinane has indicated that she's
not listening to NPR but has a hearing problem
which is
assisted by a microphone which is here on the
table.  And so, Ms. Guinane, if you'd like to
begin.
          MS. GUINANE:  Thank you.  And during
that question and answer session, if I
misunderstand one
of your questions, please feel free to
interrupt, or I may have to ask you to
rephrase.  One of my hearing aids broke two
days ago.  So I'm on special assistance here.
          OMB Watch is about a 20 year old
nonprofit
501(c)(3) organization that advocates for
greater civic participation in our democratic
society and also for greater public
accountability, both for government and for the
nonprofit sector.  During
the presidential election in 2000, we conducted an
on-line survey of nonprofits all around the country
to find out what priorities they had for the next
president, what things the next administration
                                                         112 could do to
strengthen the nonprofit sector.
        And we had questions on there relating to
the non-itemizer deduction, increasing
volunteering, those sorts of infrastructure
questions, and we were surprised to see that when the
results came in from a very enthusiastic response,
campaign finance reform was far and away the top
priority that nonprofits identified as something that
would strengthen the sector.
          This is obviously to us a statement about how
unlevel the playing field in public policy had become.
So we have been enthusiastic supporters of campaign
finance reform and trying to represent the views of the
small state and local-based nonprofits
that we have tried to encourage to be more involved in
public policy debates.
          But the flip side of decreasing the influence
of money and politics is increasing the influence of the
citizen voice, and citizens act
primarily through nonprofit organizations, and
strengthening the ability of nonprofits to
participate, I think is a key element in campaign
                                                         113 finance report,
which is why we are so concerned
about the potential impact of the issue advocacy
restrictions.
          And in looking at the Brennan Center
study, noted that a full 42 percent of the ads that were
identified by that study, they called genuine issue
advocacy ads, and any rule or law that would criminalize
42 percent of ads by nonprofits during a campaign season
I think would be outrageous and
clearly go against the goals that campaign finance
reform sets to achieve.
          I think more study is needed to identify what
distinguishes the genuine issue ads and the genuine
nonprofits from the front groups and the
sham ads, but for now, there are some things that we do
know.  I think if a study went back and looked at the
sponsors of genuine ads, you would find that a large
number of them are 501(c)(3) organizations, and I know
that the complexities of
tax law and the restrictions it places on 501(c)(3)
public charities are not something that is the
commission's job to figure out or that is
                                                         114 necessarily
familiar to campaign finance reform
advocates, but it is a huge fact in the daily life of
nonprofits that are involved in public advocacy,
especially charities.
          And we did a study to try to determine what
factors motivate nonprofits to be more involved and what
barriers they find in the Strengthening Nonprofit
Advocacy Project referred to in our testimony.  And we
found that the
complexity of the tax rules is a major barrier to
participation, that groups just say it's too much to try
and figure all this out.  We're safer just not to do
anything.
          But at the same time we found in a study
that the vast majority of public charities understand
that they can't support or oppose directly or even
indirectly candidates for office, whether it's federal,
state or local, but they also understand that they have
the right to speak out on
public issues, and we tell them constantly you are
never ever required to be silent on an issue.
            Silence on the qualifications of
                                                         115 candidates, yes,
but silence on their stands on
issues or on what you think is right or wrong
about an issue, no.  And we think that whatever
exemptions the commission comes up with should
reflect that difference.
          There are a couple of overlooked issues, I
think, in the proposed exemptions that I'd like to
highlight and ask you to consider carefully.  One
is challenges.  Some of the proposed exemptions
just would allow reference to a member of Congress or
the president, but in federal elections you have mayors,
community leaders, state legislators, governors, a lot
of different people are federal candidates who aren't in
any position to vote on
federal legislation.
          So the rule needs to take that into account
and make sure it's possible that a group working on a
state or local issue doesn't inadvertently find
themselves in violation of
federal campaign finance law because they ask the
mayor to do something in a broadcast.
          The other is non-legislative advocacy.
                                                         116 The SNAP
research results showed us that generally
charities use the colloquial definition of lobbying when
they say that they're involved in public policy.  Over
80 percent say that they're involved
in some kind of lobbying and nearly 78 percent with
reaching out to the public with grassroots lobbying.
          But this didn't just concern legislation. This
concerned regulatory actions, public
education, things the school board may be doing, or the
state public service commission or a federal agency.
One example, Save Our Cumberland Mountains in Tennessee
had a campaign to save some falls in a national forest
from strip mining.  And this was
asking the Office of Surface Mining not to issue a
permit for mining in a certain area.
          Legislation is already passed. Regulations
have already passed, but it was a federal agency action,
and they were running this
campaign asking people to call Al Gore and ask him
to urge that this land be protected.
          So there you had a federal candidate and
                                                         117 an issue that
involved no legislation.  I think
going with an exemption for unpaid broadcast would be
one way to have a very clear bright line that would be
easily understood.  The vast majority of
public charities can't afford paid advertising anyway.
          And that would create a bright line and focus
the attention of the law on the problem the law was
meant to solve which is the sham
advertising.
          In terms of advisory opinions, most nonprofits
do not have the resources to come to the commission and
ask for advisory opinions.  They barely have the
resources to get incorporated.
They need to find volunteer lawyers to do their taxes
and status applications.  It's just not something that
they have the resources to do, so that's for the vast
majority not a viable option.
          In conclusion, I'd just like to ask that
you try to picture the small state and local groups
outside the Beltway.  I spent yesterday in Kentucky
with 25 groups going over the SNAP research
                                                         118 results, which
in some ways I missed the testimony,
but is probably the best preparation I could
have had for this hearing, because when I
asked do any of you do paid advertising?  No.
          These are human service and
environmental, small groups, but they do do a
lot of public advocacy.  They do do public
service announcements and take advantage of free
cable broadcast time in their public education
efforts.
          These are things that are important to
strengthen our democracy and that we hope that
you will devise exemptions that will allow them
to continue.  Thank you.
          CHAIRMAN MASON:  Thank you.  Ms.
Wilfore.
          MS. WILFORE:  Good morning.  My name
is Kristina Wilfore.  I'm the Executive Director
of
the Ballot Initiative Strategy Center, otherwise known
as BISC.  BISC is a (c)(4) organization, a nonprofit
advocacy group.  We educate the public
about ballot initiatives.  We promote the use of
the ballot initiative process.  We train
individuals and organizations to sponsor
                                                         119 initiatives and
campaign on them, and we monitor
the use and success of the various ballot
initiatives in the states.
          And I'm here to testify in support
of a
very narrow issue as it relates to the
exemption, communication that clearly refers
to identified candidates that promote ballot
initiatives or referendums.  We strongly
support the inclusion of such an exemption in
the regulations and believe
that an exemption should be expanded to
include communications that oppose as well as
those that promote ballot initiatives.
          And there's four points I want to
make around this issue.  One is that
communication on
ballot initiatives as state legislation is
protected speech and should remain that way.
As the Supreme Court has recognized,
disbursements made for the purpose of
promoting or opposing the ballot initiative or
referendum represent, quote,
"the type of speech indispensable to decision-making in
democracy and therefore entitled to the
highest degree of First Amendment protection."
                                                         120 Therefore, any
          limitation placed on the
content of communication by a ballot initiative
committee should be defined as narrowly as possible.
Without this exemption, we believe that
there is a limitation of free speech as it relates to
broadcasting around initiatives.
          The second point is that voters have a right
to hear from elected leaders or potential elected
leaders as it relates to their stand on
ballot initiatives.  Federal office holders are the very
people who have the prominence and credibility and can
use their clout to advocate for or against a policy
change.
          Debates over ballot initiatives currently
do not occur nor should they in a vacuum.  Some of the
most important and controversial public policies of our
day have been established through ballot initiatives,
such as allowing physician
assisted suicide, medicinal marijuana, ban on so-called
partial birth abortion, public financing of
elections at the state level, issues that many
would argue would not have become law if it were
                                                         121 not for the
initiative process and tend to get
little play in state legislatures or in Congress. Ballot
          initiatives by their nature often
spur contentious debate, which is a very healthy
aspect in our opinion of this form of direct democracy.
Given the significance of some of the policy changes
proposed through initiatives, voters often need cues,
often from public leaders, to help determine their
position.
          A federal office holder who is a candidate in
some cases for reelection may be a significant sponsor
and a significant figure in sponsoring a ballot
initiative or referendum, and may be closely linked in
the mind of the electorate.
          Just to give some specific examples.
We've talked about John McCain a lot, so I'll throw in
this example.  The Arizona clean elections law that was
established through the ballot initiative has been under
attack this year.  A ballot
initiative to overturn this law was expected.
Senator John McCain had agreed to cut ads opposing
the initiative and supporting the clean elections
                                                         122 law.
          This would clearly have been a very
important campaign strategy given McCain's national
prominence on the issue.  However, if he were
running for reelection in this case, he would not be
allowed to do this when it has really nothing to do with
McCain as a candidate, but it has to do with his
prominence and leadership on this particular issue.
          Other examples.  Congresswoman Maxine Waters
did radio ads for the Simple Majority Campaign in 2000
when she was up for election in California.  Speaker Tom
Foley was featured in ads against term limits in
Washington state in 1991,
and here's an issue that directly affected his job
specifically, and under this law, if he were a
candidate, he wouldn't have been able to speak on this.
          Olympia Snow was featured in TV ads in
1995 for the Maine Won't Discriminate Campaign, and
her comments were critical to winning the issue.
Congressman Ted Strickland and Senator John Glenn
                                                         123 were also
featured in ads against Measure 2 in Ohio
which would have cut workers compensation.
         And Congressman J.C. Watts also did ads
last year in support of Oklahoma's initiative to
establish right to work.  Clearly, there's evidence
here that elected leaders play a significant role in
communicating their support or opposition to important
legislative matters in the states.
          The third point is that ballot initiative
ads don't currently nor can they in the future promote,
support, attack or oppose candidates.  Any reference to
federal candidates in a broadcast communication is
incidental to the promotion of or opposition to the
ballot measure.
          Thus, an organization supporting or opposing
the ballot measure should be able to run a broadcast
communication referring to a federal candidate as long
as the communication does not support or oppose that
candidate.
          There has been no history of abuses in
this area as it relates to ballot initiative
committee activity, and there is no indication that
                                                         124 it would be a
problem in the future.
        The last point is that we think there is
an issue of federalism potentially here.  Ballot
initiative committees are already subject to the
full extent of state campaign disclosure.  Any attempt
to limit communication does create concern in our minds
over issues of federalism.
          Initiative campaigns are subjected to very
burdensome laws that regulate their filing
requirements, the time frame in which they need to
report donors, voter access to donor information, even a
format of the reporting.
          So we already believe that there is regulation
appropriate to committee activities.
So, again, I support you.  I encourage you to support
this exemption so that we can allow and encourage more
debate on ballot initiatives, not less.  Thank you.
          CHAIRMAN MASON:  Thank you.  Commissioner
McDonald is first in the questioning order of this
panel.
          COMMISSIONER McDONALD:  Mr. Chairman,
                                                         125 thank you and
thank you all for coming this
morning.  Could I go back to the groups that you were
with yesterday and just ask you, you had indicated that
in numerous cases these groups
really wouldn't have much money to spend at all. Can you
give us some assessment of whether you think they meet
the threshold of the groups that you met with yesterday?
          MS. GUINANE:  I'm not familiar with the
groups that were discussed yesterday, because I didn't
hear them.
          COMMISSIONER McDONALD:  That you were talking
to.  I'm sorry.  That you were with yesterday.  You said
that they gave you good
preparation for today.  Maybe I misunderstood.
          MS. GUINANE:  What I meant was in seeing clear
examples of how nonpartisan issue advocacy can involve
broadcasts, either paid or unpaid, that involve federal
candidates where the groups have no
intention of intervening in an election or
influencing the election in any way.
          These organizations are all 501(c)(3)
                                                         126 groups that
understand they can't support or oppose candidates for office, but they're
very involved in
public issues.  Most of them provided some kind of
social service.  A few of them were environmental
groups seeking greater protection in the environment in
Kentucky mainly through regulatory action.
          But they do a lot of public education that's
involved with their fund-raising activities
and also in trying to get support for changes in laws or
regulations or in implementation of programs that they
think would benefit the people that they serve.  And so
they're very involved in the public arena even though
they're primarily
service organizations.
          But they were very clear they understand they
can't support or oppose candidates.  We even had a
discussion on whether or not they think the law should
be changed to allow them to do that.
          One of the comments that was made, well,
then we just have to give money to both sides, and
we can't afford that.
                                                         127 [Laughter.]
          COMMISSIONER McDONALD:  That's a
phenomenon that is not unheard of actually, as I suspect
you're well aware of here in Washington,
D.C.
          Just the size of the groups.  I mean in terms
of the amount of money they raised, do you have a range
of that?
          MS. GUINANE:  The smallest one was a
faith-based community organization with a budget of
about $2,500 that works with troubled youth, and they're
neighborhood based, and they serve a limited geographic
area within the city of Louisville.  The largest was
county-wide social
service organization that runs a wide array of programs
with a budget over a million dollars.
          COMMISSIONER McDONALD:  Over a million
dollars.
          MS. GUINANE:  But the vast majority of
them, I would say, have budgets of $500,000 or
less, and none of them have had any paid
advertising.
                                                         128 COMMISSIONER
          McDONALD:  I was trying to
very quickly, and I apologize for not being
better prepared on this, I was trying to get
through your study, very, very quickly.  Is it
your sense, at
least in some of the comments that I read
here, that most people indicate that they
don't think they're lobbyists, but it sounds a
great deal like lobbying of the type of
activities they do?
              MS. GUINANE:  In terms of the
Strengthening Nonprofit Advocacy study, yeah, lobbying
is a dirty word in some sense.  It carries a connotation
of undue influence, and they see themselves as educating
lawmakers and promoting their issues, and whether it be
for legislative or
regulatory or other kinds of changes.  Often charities
tend to not think of themselves as lobbyists or lobbying
because they see the lobbyists as the professionals with
the briefcases full of money that go around the Capitol
all day
long which is not something that they do.
          Most of them don't even have staff that
are based in the state capital, and the lobbying
                                                         129 that gets done
is either by volunteer board members
or by staff as they're able to make time for it.
          COMMISSIONER McDONALD:  Thank you.
          Just
real quickly on the ballot initiative.  You
mentioned J.C. Watts which is from my home in
Oklahoma.  And clearly, this was a state issue.
Are there circumstances where you would envision
a ballot initiative however that should be
encompassed in this sort of activity in terms of
trying to bring it under the rubric of the law?
MS. WILFORE:  I'm not sure if I understand
the question.
          COMMISSIONER McDONALD:  Well, you're
seeking exemptions.  And my question to you is
do
you foresee in relation to a ballot initiative
anywhere in your experience around the country
areas that should be applicable in terms of the law
itself or would you just say by the very nature of the
ballot initiatives, they really shouldn't be?
          MS. WILFORE:  Yes.
          COMMISSIONER McDONALD:  Okay.  Across the
board?
                                                         130 MS. WILFORE:
          Yeah, across the board.
          COMMISSIONER McDONALD:  All right.  Fine.
Thank you very much.
           CHAIRMAN MASON:  I'm second in the
question order and will go ahead.  Ms. Wilfore, I'm sort
of generally sympathetic to ballot initiatives.  But you
seem in your own testimony to have sort of drawn out
some of the problems that we've got.  I'm sure you're
familiar with Campaigns
and Elections magazine, and about every year or two we
encounter an article by Clint Riley, noted political
consultant in California, or someone else about how he
has used a ballot initiative to get his candidate
elected.
          And you mentioned Senator McCain, of course,
voted for this rather blanket exemption and Senator Snow
as having participated in these, and as sympathetic as I
am, I'm having a little bit of a hard time squaring the
language of the statute
with your argument for a blanket exemption, because
somebody could well sponsor the apple pie
referendum, though the cherry lobby might be upset.
                                                         131 But some issue
          that they knew would either
be very popular in the state or in a somewhat more
complicated strategy might produce certain dynamics
among the electorate in terms of turnout and cross
pressures and so on like that.  And I just don't frankly
see how we can square that sort of activity and the sort
of knowing description of using that to influence
elections and say, well, therefore just because it's a
ballot initiative, we ought to
let the federal candidate off the hook.
          MS. WILFORE:  Well, my response would be to
that I think it's a fairly subjective analysis that
there is a direct correlation between a given candidate
and his or her success and the
initiative, and that the articles in coverage in
Campaign and Elections on that draw those conclusions in
some instances, but to actually prove that I think is
questionable.
          I mean I think that these are, as I
mentioned before, really important and highly
controversial public policy issues, and to say that
it's just about that particular candidate's stand
                                                         132 on an issue and
that it has little to do with the
policy issue at hand or how the state--
       CHAIRMAN MASON:  Let me clarify.  I didn't
say either of those things.
         MS. WILFORE:  Okay.  Well, I think that
it's still a state legislation.  We need more
discussion and debate around it.  We need the kinds of
leaders who are either in office or have a chance to be
in office to speak out on these
things, and I think that ultimately justifies this
exemption and the ability for candidates to continue to
speak.
          CHAIRMAN MASON:  And what would be the problem
in that circumstance if the sponsors of the
ballot initiative thought that a federal officeholder
was key to their ballot initiative strategy of telling
them that they could do this through a federal PAC?
          MS. WILFORE:  Well, I mean I think that
stepping back a little bit, in the ads that have
currently been aired, there is no attacking or
actually opposing or supporting particular
                                                         133 candidates.  I
mean that would continue.  I mean so
I'm not sure what leads you to believe that it would be
continued use in the future that people would use this
from purely an electoral standpoint
and not from a policy.
          So I mean there are regulations in the ability
of the ads that are aired on initiatives and a
limitation of the referring to candidates specifically
in there, and whether someone should
vote for a particular candidate or vote against them
because of that particular position.
          So that currently doesn't happen in ads that
are aired, and I don't see where PACs would be able to
do that if that's what you're--
          CHAIRMAN MASON:  No.  What I was getting at is
that the solution or remedy that sometimes is offered by
the supporters of the legislation when people say, well,
this is restricting our speech rights, the answer that
is sometimes given, well,
you can just form a federal PAC and do it that way.
          And I was asking whether that would be a
viable alternative for the ballot initiative
                                                         134 committees that
you represent if they wanted to run advertisements featuring federal
candidates?
             MS. WILFORE:  I don't know the
technicalities of that.  I do know that either
ballot committees are formed as (c)(4)s or as a
political committee, and that there really is no
communication around initiatives that is done through a
PAC.
          MS. GUINANE:  I'd like to comment on that
question.  Based on some of my experience with the
(c)(4)s and ballot initiatives, that the people who join
these organizations and work on the ballot initiatives
unite around the issue and they agree around the issue.
They don't necessarily agree
about who should be elected to office, and if they had
to create a PAC, not only would there be an additional
administrative burden on them in creating a separate
organization and all of that, but it would just open up
a can of worms that the
organization doesn't need and it's not necessary
for them to focus in on their issue.
          And this is an example of whether it's a
                                                         135 ballot
initiative or a piece of legislation or
something else where a distinction needs to be made
between comments on the qualifications or character of a
candidate and comments about positions on
issues, because there's a very important distinction.
          Free speech rights about public issues, when
people assemble together in nonprofit organizations are
what needs that high degree of
constitutional protection.  That's very different from
getting out there and saying I support this ballot
initiative or this piece of legislation because I'm a
better person or because I'm more qualified.  The focus
then becomes on the
candidate, whereas in the kinds of ads that you're
talking about, the focus is on the issue.
          CHAIRMAN MASON:  Thank you.  Commissioner
Thomas.
            COMMISSIONER THOMAS:  Thanks, Mr.
Chairman.  Thank you both for being here.  Let me
first try to get some better understanding of the
suggestion that maybe we could carve an exception
                                                         136 for (c)(3)
organizations of some sort, and the
suggestion that there is some Internal Revenue
code law that would perhaps adequately cover
these kinds of concerns.
          We had a witness yesterday who more
directly made that suggestion, but I want to
borrow on your experience and expertise in this
area. Could you give me a little bit of a
better understanding as to how our deferring,
if you will,
to the IRS and perhaps building in some sort of
exception for (c)(3) organizations or maybe
even for (c)(4) organizations that undertake
lobbying as defined by the IRS regulations, how
that might work out?
          MS. GUINANE:  For 501(c)(3) organizations,
public charities, that are recognized by the IRS, the
restrictions they operate under in terms of
electioneering and supporting or opposing
candidates are the exact opposite of express
advocacy.  They can't do anything that would even
indirectly imply support or opposition to a
candidate for office.
                                                         137 And under the
          tax code, this is done
through a facts and circumstances test.  It's even
more vague than the Furgatch rule.  There are
no specific IRS regulations that define it, but
it's
been a fairly workable set of standards that
(c)(3)s understand that because it is so, I
think, so strict, that there cannot even be
indirect implication of support.
          So that means that, for example, a
(c)(3)
that may want to do nonpartisan get out the
vote and voter registration activity would not
set up a table that would combine voter
registration materials with issue advocacy
materials when there is a strong difference
between the candidates on
that issue and anybody who walked up to the
table could then say, well, I imagine that your
organization would support or oppose a certain
candidate based on your stand on the issues.
          So (c)(3)s don't even mix their issue
advocacy with their voter education, get out the
vote activities, because that prohibition is so
strict.  So by exempting advocacy activities, both
                                                         138 legislative and
regulatory and other kinds of
advocacy activities by public charities, the commission
would be basically, I think, strengthening the campaign
finance law by allowing
this kind of activity to go on, and there would not be
electioneering communications with federal candidates.
          There would not be the kind of communications
that would support or oppose federal
candidates that would result, because they're not
happening now.
          COMMISSIONER THOMAS:  How about in the (c)(4)
area though?  That's where most of the action has taken
place as we understand it.
          MS. GUINANE:  Right.
          COMMISSIONER THOMAS:  And there I gather those
organizations are permitted to undertake what's called
lobbying and grassroots lobbying is included, and the
IRS does have some rules that
seem to define lobbying, and what's your sense of
what the commission ought to do there in terms of
working with IRS rules?
                                                         139 MS. GUINANE:  In
          terms of (c)(4)s, the IRS
rules that define lobbying only strictly apply to
(c)(3)s.  (c)(4)s are allowed to do as much
lobbying as they want.  (c)(3)s have expenditure
limits under lobbying activities.
          (c)(4)s also do not have this absolute
prohibition on supporting or opposing candidates for
office, so they have more flexibility, but when you have
a grassroots lobbying ad that addresses
the issue and addresses the candidate's stand on or the
legislator or public official's stand on an issue and
asks people to contact them, that's encouraging civic
participation, and that's informing the electorate.
             If it doesn't comment on their
qualifications for office, then I don't see why there
needs to be a distinction between what would be
allowable for a (c)(4) or a (c)(3).  I think the key
distinction there is whether or not there's
comment on their qualifications for office.
           COMMISSIONER THOMAS:  Well, that's
helpful.  Just to finish it up, let's go then with
                                                         140 a (c)(4) that
puts out the ad that says Senator
Dinglethorpe has voted to allow strip mining of our
beautiful state time and time again.  It's time to put a
stop to it.  Call him and tell him to vote
against Senate bill 35 next month when the issue comes
up again.
          MS. GUINANE:  I think that should be
absolutely permissible, and the senator should not be
able to hide behind campaign finance laws and
have his position on an issue hidden from the public.
The public needs to know those kinds of things to make
informed decisions, and if nonprofits are not able to
tell the public what public officials have done or what
their positions
have been, then campaign finance law will have basically
become a screen for members of Congress to hide behind
at election time.
            I would imagine that we would see
controversial votes being scheduled only within 60
days of election or 30 days of primaries.
           COMMISSIONER THOMAS:  I gather you
appreciate that the folks who press this
                                                         141 legislation
forward were fully willing to allow
that particular kind of communication to be
subject to the new law's restrictions.
          MS. GUINANE:  I understand that they
are,
but I think this is--we have to be careful not
to throw out the baby with the bath water kind
of situation.  There will always be, as Mr.
Noble said, we shouldn't make law based on
worst case scenarios.  And there may always be
somebody who
will figure out some loophole somewhere, but we
don't deny people constitutional protection
because some bad actor may get away with
something.
          We don't do that in terms of the
Miranda rule and the right to be informed of
your right to
counsel.  So why would we do that with issue
advocacy?
          COMMISSIONER THOMAS:  Thank you.  I didn't get
any questions to you, Ms. Wilfore, but I don't know if
time will permit later on.  Thank you.
          CHAIRMAN MASON:  Commissioner Smith.
          COMMISSIONER SMITH:  Thank you.  And thank
the two of you for coming today.  Ms. Guinane,
                                                         142 well, let me,
I'll just go ahead, do you think that
the kind of groups that you work with can
function under this test and accomplish what
you think they need to accomplish through the
kind of exemption
that you're seeking here or suggesting we need?
          This would allow them to communicate
          and
not having it be an electioneering
communication if it concerned only a
legislative or executive branch matter.  It's
not clear whether that's limited to
federal legislative and executive branch
matters or not.  But the communications only
reference to a clearly identified candidate is
a statement urging the public to contact the
candidate and that he take a particular
position on the legislative or
executive branch matter.
          The communication refers to the
candidate only by the use of the term "your
congressman," "your senator," "your member of
congress," or similar reference, and does not
include the name or
likeness of the candidate in any form including
as
part of any internet address.
          The communication contains no reference to
                                                         143 any political
party.  The communication does not
state the candidate's record or position on any
issue.  It does not mention the candidate's
character, qualifications or fitness for office,
and it does not mention the candidate's election
or candidacy.
          Do you think if we adopted that
exemption, that would give the groups you work
with sufficient leadway to carry on the kind of
public education
that they do?
          MS. GUINANE:  No.  I think the only
elements in there that I think would be
justifiable from campaign finance standpoint
would be a prohibition on mentioning a
candidacy, the fact
that a person is running for reelection or a
challenger in an election, reference to a
political party or their qualifications as
candidate.
          The rest of those things all relate to
substance on the issues, and I don't think that
nonprofits should be restricted from communicating
with the public about the substance of issues.
          COMMISSIONER SMITH:  I think you made two
                                                         144 good points here
that I just want to emphasize.
One is that it's not just the actors out there doing
activity that will have to change their behavior, but
politicians will change their
behavior and move perhaps when certain votes might be
scheduled and how they do such things in order to create
the screen and make a higher percentage of ads become
problematic.
          As I already noted, even according to the
Brennan Center's own material, about 30 percent of
genuine issue ads, what they thought were genuine issue
ads, would be screened out by the brownout period in the
law, but we presume that would probably go higher
because politicians would have
an incentive to schedule votes in that time.
          Ms. Wilfore, one quick question.  Most of the,
in ballot initiatives, most of the ads are done in the
last 60 days before the election; aren't they?
          MS. WILFORE:  Yes.
          COMMISSIONER SMITH:  It seems like a
pretty easy one; doesn't it?  So not having some
                                                         145 kind of
exemption for ballot initiatives would
really undercut what folks are trying to do there? MS.
          WILFORE:  Absolutely.
          COMMISSIONER SMITH:  Now, do you think
that it's open to abuse that some people who want to do
it to boost their popularity might do that nonetheless?
          MS. WILFORE:  I think that there's enough
regulation in general of the initiative process and
the role that people who are petitioners or the
financial backers of initiatives or federal elected
officials or candidates play in communicating about
initiatives that we haven't seen any high profile cases
where there is abuse currently, and it
really, in essence, comes down to the policy decision at
hand and the importance of that public policy rather
than politicians.
          COMMISSIONER SMITH:  Let me ask you about that
policy decision.  We've been repeatedly told
that the provision in the act allowing us to
promulgate exceptions as are, let's see, necessary
to ensure the appropriate implementation of this
                                                         146 paragraph,
requires us to not do anything that
would have any possibility in the worst case
hypothetical for abuse.
          Do you agree with that, or do you think
our job rather is to do a balancing between the
purposes of the statute and the other purposes for
which Congress gave us some authority?  I mean why
else would they give us authority?  Which of those--do
you think we have a balancing approach or do we
just have to say if there's any possibility for
abuse, no exception?
        MS. WILFORE:  Well, I think balance is
always good, but in this case, what is it that what
type of regulation are you talking about that would
allow in certain circumstances federal elected
candidates to continue to communicate and in certain
circumstances not?  I think that the process of making
those distinctions is extremely complicated and wouldn't
necessarily achieve what
it is I think this legislation is trying to achieve
and would limit again the free speech ability to
communicate effectively about these policy issues.
                                                         147 COMMISSIONER
          SMITH:  Thank you.  Thank
you, Mr. Chairman.
          CHAIRMAN MASON:  Vice Chairman Sandstrom.
          VICE CHAIRMAN SANDSTROM:  Thank you.  The
questions regarding the ballot initiative are I think
very interesting to me.  Aren't many ballot initiatives
either in a reaction to either federal action or
inaction on any issue?  Would it be fair to characterize
a lot of ballot initiatives?
          MS. WILFORE:  Well, yes, I mean certainly from
the public financing of elections and that has been
achieved through the ballot initiative.
          VICE CHAIRMAN SANDSTROM:  Let me give you a
couple of examples and maybe you can respond.  I
understand Nevada has a ballot initiative, and Utah
does, and Florida has a constitutional initiative on
constitutional issues.  I've visited in many of my
questions Nevada and about the very controversial
decisions regarding Yucca Mountain.
Wouldn't it be very difficult in Utah to have a
ballot initiative resisting the federal action
without indicating in your ads the president has
                                                         148 taken this
action?
         MS. WILFORE:  For the issue that you're
referring to is that--
        VICE CHAIRMAN SANDSTROM:  Here we have an
initiative in Nevada that essentially opposing the
use of Nevada as a nuclear waste dump.
          MS. WILFORE:  Right.
          VICE CHAIRMAN SANDSTROM:  And you want to
convince people that this is a real threat.  One of
the ways you probably convince them is the president has
proposed and intends to carry out actions to make Nevada
the dumping ground.
Wouldn't it be very hard to craft an ad that didn't
refer--
          MS. WILFORE:  Absolutely.
           VICE CHAIRMAN SANDSTROM:  --to the
president's actions?
              MS. WILFORE:  Yes, it would.
          VICE CHAIRMAN SANDSTROM:  And if he were
in Utah, and you opposed the creating of the
monument, and you wanted to assert the property
rights of Utah citizens as you understood them,
                                                         149 when Bill
Clinton or Al Gore were candidates,
wouldn't it be difficult to convince people
that this was a threat without referring to the
actions taken by the president and his
administration?
          MS. WILFORE:  Absolutely.
          VICE CHAIRMAN SANDSTROM:  And if in
Florida, I don't know how I've crafted the
constitutional amendment.  If I wanted to
oppose any actions for drilling off the coast,
or be it in
California, and an administration or a senator
has proposed that, wouldn't it be difficult to
convince people that's a threat unless you
identify where the threat was coming from?
          MS. WILFORE:  Yes.
          VICE CHAIRMAN SANDSTROM:  Okay.  There has
been a lot of talk about record of abuse.  It
didn't seem to me that looking around here that any of
us were playing the role of Moses, and then as we're
coming down with things etched in stone, that
any rules that we pass, we can change.  If there
isn't a record of abuse and a record of abuse
should develop, this commission is completely able
                                                         150 to start a new
rulemaking to address that abuse.
        Do you see any limit on our authority to
do that?
          MS. WILFORE:  No.
        VICE CHAIRMAN SANDSTROM:  So if we don't
have demonstrated abuse like in the ballot
initiative area, and we all of a sudden see,
you know, it being abuse, even though we know
federal candidates are limited and they can't
raise soft
money for any entity, but somehow some other
way it's abuse, and I don't think mere speech
is a form of abuse, and the mere fact that
people can speak about a candidate is not abuse
to me, will it be the corruption that might
come from it?  But we
don't have any evidence that candidates are
using initiative campaigns to promote their own
elections.
          Then there probably would be no need
to regulate, so wouldn't the prudent thing to
do is
refrain from capturing those speculative abuses
until they actually occur?
          MS. WILFORE:  Are you saying then that the
                                                         151 exemption
shouldn't go forward because of the--
       VICE CHAIRMAN SANDSTROM:  Oh, there should
be an exemption because there's no record of abuse.
       MS. WILFORE:  Right, which is the position
we definitely support.
         VICE CHAIRMAN SANDSTROM:  Yeah.  Rather
than turning it on its head and speculate about
potential abuse that hasn't occurred historically,
according to you, and say but because there's a
potential here, we're going to bar, you know, what
everyone would recognize is important speech in trying
to convince people to take important governmental
actions.  And this is direct democracy, the initiative.
          I'm from Washington state and I know how much
about the debate over on term limits, and one of the
reasons I'm here is because that debate got overturned.
          [Laughter.]
          MS. WILFORE:  Absolutely.  I mean I think
that's exactly what we've been saying.  There's not
a record that there is a harm here that justifies
                                                         152 making a change,
and we should continue to allow
candidates to speak, as they have, on
initiatives, and readdress it if there comes a
point in which this looks like it's a problem.
          VICE CHAIRMAN SANDSTROM:  And so would
you have any comments on--
          MS. GUINANE:  I think the same logic
can be applied to 501(c)(3) organizations.
There's no demonstrated record of abuse by
public charities in
terms of electioneering.  That's not the group
that the campaign finance laws were meant to
address,
and so I think the same logic can apply.
          VICE CHAIRMAN SANDSTROM:  So we get
church ceremonies out.  If we have coverage of
the sermon
at Mr. Falwell's institution, until we see that
it's being abused, we could essentially let them attend
whatever service they would care to even if that was
covered on television would be your position?  Is that
correct?
          MS. GUINANE:  I'm sorry.  I don't think I
heard the whole thing.
          VICE CHAIRMAN SANDSTROM:  I gave a little
                                                         153 speech.  You
don't have to respond to it.  Let me
turn it into a question at the very end when the
conclusion was obvious.  So I thank you both very much.
          MS. GUINANE:  Okay.
          CHAIRMAN MASON:  Commissioner Toner.
          COMMISSIONER TONER:  Thank you, Mr.
Chairman.  I want to thank both of you very much for
being here and I'm struck particularly, Ms.
Guinane, with the fact that you work outside the
Beltway, and the groups you mentioned who don't live
here don't probably, if they're lucky, follow all the
details of this commission.  Certainly if they're lucky,
they don't have to review hundreds
of pages of regulations.
          You indicate they don't have a lot of
resources oftentimes.  These folks are focusing on
their activities.  You know you mentioned faith-based
community groups, environmental groups,
social service organizations and the budgets that
they operate on.
          And I was particularly struck by your
                                                         154 discussion in
your opening remarks that the
difference between sham issue ads and genuine
issue ads.  You indicated that at least from
your perspective that that's something you have
to study
pretty carefully.  Is it fair to say that it's
your view that that's not an easy distinction
sometimes to make?
          MS. GUINANE:  I don't think it's
always an easy distinction to make, but one that
has not been
adequately studied.  There's been some good
beginnings, including the Brennan Center study,
but I think much more needs to be done to
determine
what really are the factors that distinguish sham issue
advocacy from genuine issue advocacy,
especially in terms of the broad array of activities,
not just in federal elections, but in communications
that are focused on state or local issues where you may
have challengers involved.  I think that's one major
area that's been left out.
          And that's one of the areas where small
nonprofit organizations are most likely to run into
trouble because it would never occur to them that
                                                         155 federal election
laws are anything they would need
to worry about.
          COMMISSIONER TONER:  And that might be a
reasonable assumption for them to make when they're
in Nashville, Tennessee or somewhere comfortably
outside the Beltway, actually working on state and local
issues.  Is that fair?
          MS. GUINANE:  They're pretty shocked to hear
that it might be a federal crime to mention
the name of your governor on a public service
announcement.
           COMMISSIONER TONER:  And given the
complexity that you mentioned between distinguishing
between these different types of
issue ads, are you concerned that if we don't have
exemptions for groups such as those that you work with,
that some of the communications they've done could be
viewed by somebody as a sham issue ad that could be
prosecuted?  Is that something that
concerns you?
          MS. GUINANE:  I'm primarily concerned
about the chilling effect the level of confusion
                                                         156 would be the
result.
           COMMISSIONER TONER:  Are you afraid
they'll pull back?
        MS. GUINANE:  Yeah, that already the tax
rules are complicated enough.  If you throw in
election law on top of that, there are many
groups that will just throw up their hands and
say we're not going to get involved, it's just
too risky, it's too much to take on, but I
then also would be
concerned about retaliatory actions on people
on the other side of issues.
          We've already seen some evidence of
people on different sides of issues reporting
the groups that have opposed them on the issues
to various
authorities looking for investigation, and even
if
a nonprofit had in no way violated campaign finance
laws, especially if it were a public charity, just being
investigated by the FEC would have a devastating effect
on the organization.
          COMMISSIONER TONER:  And this is where I
think your outside the Beltway perspective can be
helpful.  We hear a lot about that we have this
                                                         157 advisory opinion
process, and you know people can
just avail themselves of that and get an
opinion from the federal government about
whether they can do something.
          In your professional judgment, given
the organizations you represent in the real
world, is that a realistic pathway?
          MS. GUINANE:  Absolutely not.
          COMMISSIONER TONER:  Why not?
          MS. GUINANE:  (A) very few of them
are going to know that it's available, and then
even if they know it's available, just
inquiring to the Federal Election Commission,
bringing themselves to your attention is a very
frightening thing.  You
may not think of yourselves as ogres, but it's
something that can be very frightening because
their tax-exempt status, especially for public
charities, is what keeps them alive.  The
ability to raise tax-deductible donations and
get
foundation grants is what makes it possible for
them to operate.
          Anything that might hint at electioneering
                                                         158 as the IRS sees
it, and bring the IRS down on their
heads to threaten the very existence of their
organization, and that would be a very frightening and
have a very chilling effect.
          And the third thing would just be the
technical resources in terms of drafting a letter of
inquiry for an advisory opinion that would be useful,
meaningful, and something that you could respond to.
          COMMISSIONER TONER:  And Ms. Wilfore, do you
share that concern?  How likely is it that referenda and
initiative groups that you represent would be in a
position to go through an advisory opinion process here?
          MS. WILFORE:  Very unlikely. COMMISSIONER
          TONER:  Why is that?
          MS. WILFORE:  Well, I think the types of
coalitions that often come together are very grassroots.
Our individuals from different
interest areas have sort of enough on their plate
just to get even qualified signatures to get
something on the ballot.  And build, you know,
                                                         159 raise all the
money and do everything that is
involved in what actually turns out to be fairly
complicated in just how initiative and
referendum campaigns are organized and run.
          So I think there would be an issue of
just communicating about this as an option that
would be out there and that there would be the
structure and the organizational entities,
because often it is individuals rather than
organizations who are
pushing initiatives.
          COMMISSIONER TONER:  And one last
quick question.  Is it your view that therefore
if we're going to provide clear standards for
charitable groups, for ballot and initiative
groups, that
we've got to do it now in this rulemaking, and
if
we fail to do that, is it your view that we will not be
giving them the guidance they need?
          MS. WILFORE:  Yes.
          COMMISSIONER TONER:  Is that your view
also, Mr. Guinane?
               MS. GUINANE:  Yes, I agree.
          COMMISSIONER TONER:  Thank you, Mr.
                                                         160 Chairman.
          CHAIRMAN MASON:  Larry Norton.
          MR. NORTON:  Thank you very much, Mr.
Chairman, and thank you both for coming.  I wanted
to start with a couple of questions for you, Ms.
Wilfore.  We've had some discussion this
morning about the issue of abuse or
manipulation of ballot initiatives.  There is
someone who apparently writes on an annual
basis about how ballot
initiatives have been used to manipulate
          elections. But I would assume, and
          it's been a long
time since I studied political science, that
regardless of whether you're intending to
manipulate the election or your motive is
abuse,
that ballot initiatives do have an impact or
can in some instances have an impact on voter
turnout and can have a carryover effect on
elections concerning candidates.  That I assume
is consistent with your experience?
          MS. WILFORE:  Yeah, the research has shown
that there is three to eight percent increased
voting in initiative states, the 24 traditional
                                                         161 initiative
states compared to non-initiative
states.  And that there is a direct correlation between
an issue being on the ballot and increasing voter
participation.
          What we don't know, and there really hasn't
been research that links it specifically to how, then if
people vote for a particular candidates.
          MR. NORTON:  So the carryover effect is
something you're saying there hasn't really been-- MS.
          WILFORE:  Right.
          MR. NORTON:  --a study about?  You note that
in your comments that an organization supporting or
opposing a ballot measure should be
able to run a broadcast communication referring to a
federal candidate as long as the communication does not
promote, support, attack or oppose that candidate or any
other federal candidate.
          We've had some commenters suggest that
that standard provides sufficient guidance to
political parties or those in a candidate setting,
but really is inadequate standard to provide
                                                         162 guidance to
those who are outside of that setting.
        If that were the only exemption that the
commission were to promulgate, the only additional
exception, would that provide sufficient guidance
to those who operate in your realm, and that is
ballot initiatives?
          MS. WILFORE:  The guidance being the
existing standard?
          MR. NORTON:  That's right.
         MS. WILFORE:  Yeah.  I think that's--I
mean what people have been operating with and
ballot initiatives have been doing in the status quo
seems to be sufficient in terms of regulating the type
of communication in ads and the role of
federal candidates.
          MR. NORTON:  What I'm asking really is if the
commission were to promulgate a regulation that said
that one exception from electioneering communications,
and I think this is consistent with
the statute, is that the communication is
appropriate, is not an electioneering communication
so long as it does not promote, support, attack or
                                                         163 oppose a federal
candidate, my question is would
that standard, would that regulation
provide sufficient guidance to your
constituents?
          MS. WILFORE:  Yes.
          MR. NORTON:  It would.  Similarly you
have supported or maybe proposed an expanded
version of one of the proposed exceptions that
would permit references to federal candidates
that are merely incidental to their candidacy.
That standard has
also been criticized by some commenters as
providing insufficient guidance.  Is that a standard
that you regard as workable and clear to your
constituent members?
                MS. WILFORE:  It's clear.
          MR. NORTON:  Mr. Guinane, I think I just had
one question that really covers ground that hasn't been
covered with respect to your comments, and that was with
respect to the potential exception for communications
that refer to the
popular name of the bill.
          You propose that the standard, that that
exception ought to be limited to the original
                                                         164 sponsors of the
bill, and my question for you is
what should the standard be for who is considered
an original sponsor and would a distinction between
sponsors and cosponsors be appropriate?  How do we
flesh out the line there?
          MS. GUINANE:  What we had in mind there was
the sponsors of the bill when it's originally
introduced.  And so as time goes on and more and more
members of Congress may sign on to a bill,
they would be cosponsors but not original sponsors. So,
I guess on the date of filing, the day it goes up on,
gets a bill number, and has cosponsors--I'm sorry--has
sponsors listed.  And Thomas at least makes a
distinction between the original sponsors
and cosponsors.
          And the intent of that was to avoid a
situation where you would have legislation referred to
as McCain-Feingold, Morella in Maryland and then
referred to as McCain-Feingold-Lewis in Georgia, so
that ads couldn't be tailor made that way.
          MR. NORTON:  Well, thank you both.  That's
been very helpful.  Thank you, Mr. Chairman.
                                                         165 CHAIRMAN MASON:
          Jim Pehrkon.
         MR. PEHRKON:  Ms. Wilfore, Ms. Guinane,
thank you for appearing before the commission
today, and I've sort of been waiting for this
opportunity for two days now because I am particularly
interested in the OMB Watch SNAP report, because it
actually gives me some sense of what may be out there.
          And when I was looking at that report, if
I understood it properly, there are 501(c)(3)
organizations was the focus of the study, and there were
something like 220,000 of these organizations that were
identified by their IRS 990 files in 1998.  Did I get
that right?  Am I reading that
report correctly?
          MS. GUINANE:  The total number that filed 990,
I don't know that number.
          MR. PEHRKON:  Well, that's sort of what I saw
here.  But of that number, I only saw like a
thousand who reported any lobbying expenditures.
Can you explain why only a thousand report lobbying
expenditures and 219,000?
                                                         166 MS. GUINANE:
          The first reason is that
much of the advocacy that charities do doesn't
address specific legislation, has to do with
public education, regulatory change or the way
that public
programs are implemented, laws have already
been passed, and so none of those things would
count as lobbying under the IRS rules.
          Another is that a lot of legislative
advocacy doesn't meet the definition of
lobbying
under IRS rules if it addresses nonpartisan
research and analysis or if an organization is
responding to a request for technical
assistance from a legislative body.  So, if
you're invited to testify, for example, and
give your opinion on a
bill, those expenditures don't count as
lobbying, because you're coming at the written
request of the body.  So that's one reason.
          MR. PEHRKON:  What I was trying to do, and you
can correct me on this, is can I use those
numbers to get an idea of how many 501(c)(3)
organizations might be filing electioneering
communication reports?  Does this give me any sense
                                                         167 from the
information that was presented in that
report?
       MS. GUINANE:  Probably not for a couple of
reasons.  One is that the overall extent of
advocacy is much broader than what the lobbying
expenditures indicates, I think, and the SNAP research
bears that out.  And the other is that not that many
nonprofits can afford issue advertising, so the main
areas where public charities would be
impacted I think are--and things that would come below
that $25,000 threshold--either low cost ads or free
broadcast time.  I think that's all.
          MR. PEHRKON:  Thank you very much.  Ms.
Wilfore, one of the things that I'm not sure about
ballot initiative groups is how many are there and how
much money do they spend?  Do you have a sense that you
could let us know on that?
          MS. WILFORE:  Well, most of the issues on the
2002 ballot, there's about 55 that have
qualified for this year.  But at any given point
during the year, for example, after the election,
let's say we look at this in February, there could
                                                         168 be as many as
600 initiatives that are circulating,
so they are somewhere in the process.
         They're either filed for certification.
They're either collecting signatures.  They've
either qualified and waiting for the election.  So
those are the general statistics.
        In terms of money spent, I mean the best
figures we have are from 1998 showing that there
was about in that election 400 million that was
spent collectively on the initiatives that were
qualified that year, which I believe were around 70 that
were on the ballot.
          MR. PEHRKON:  The other question I had is what
is the life expectancy of these ballot
initiative organizations?
          MS. WILFORE:  Well, there's a whole range of
folks who are involved in putting petitions forward.  It
tends to be coalitions of citizen groups, labor
organizations, concerned citizens,
and some nonprofit organizations who do a piece of
this type of work, but limited depending on whether
they're a (c)(3) or a (c)(4) organization.
                                                         169 So their life
          span just depends.  I mean
if it's a coalition that has come together just for
a particular petition and an issue, usually after the
election they disband in some way.  But if
they're representing organizations, their organizations,
you know, continue to operate in the states in the
capacity that they did prior to the petition.
          MR. PEHRKON:  Okay.  Thank you both very
much for appearing today.
          CHAIRMAN MASON:  One request for a second
round, two requests, three requests.  I hope no one is
hungry.  Vice Chairman Sandstrom.
          VICE CHAIRMAN SANDSTROM:  An exemption, if
we limit it to qualified ballot initiatives, that means
rather than a ballot initiative that hasn't been
qualified yet, would that be sufficient to address your
concern?
          MS. WILFORE:  Most of the ads that are run
are on qualified measures, but I would not, we
would not support necessarily putting a limitation
on prequalification initiatives.
                                                         170 VICE CHAIRMAN
          SANDSTROM:  Why?
       MS. WILFORE:  Well, I think that depending
on the issue and depending on the change that's
being proposed.  I mean there could be instances
where early communication about it, just to educate
voters, to--
          VICE CHAIRMAN SANDSTROM:  But it would be
outside the windows when--the 30 and 60 days.
          MS. WILFORE:  Oh, that's correct.  Yeah, I
mean you're right.
          VICE CHAIRMAN SANDSTROM:  So it would be very
few that would not yet qualify?
          MS. WILFORE:  That's true.
          VICE CHAIRMAN SANDSTROM:  As soon as you
qualify, you're exempted.  So it's only a very
short period of time.
          MS. WILFORE:  That's true.
          VICE CHAIRMAN SANDSTROM:  Even where--okay.
          MS. WILFORE:  That might be reasonable.
          CHAIRMAN MASON:  Commissioner McDonald.
          COMMISSIONER McDONALD:  Mr. Chairman,
                                                         171 thank you, and I
appreciate you giving us a brief
second round.  I had lunch the other day with two of my
very best friends in life.  One is from Morrison,
Oklahoma.  The other one is from Pond
Creek, Oklahoma, and I am from Sand Springs, Oklahoma.
          So I was interested and fascinated by the
question of Commissioner Toner, who is much more adroit
at this because he's a lawyer and I am not,
asking these kinds of questions, but I'm fascinated by
this business about suddenly the advisory opinion
process seems to be somewhat scary.
          I was a local election administrator for seven
years.  First of all, in terms of
initiatives, I can truthfully say that people felt very
strongly and they had no problem coming to see me.  My
problem was trying to keep them out so I could get
things on the ballot.
          But I do want to ask you about this
because it concerns me a lot.  It's kind of
dismissing the process that is set out by law,
suggesting I gather that, well, people really
                                                         172 shouldn't avail
themselves of it because it's, you
know, it's too mysterious, it's in Washington
and
so on and so forth.  It is a federal law.  Both
of you are here today, so I don't, I don't get
the
impression you're very intimidated.  I hope
you're not.  I don't think you are.
          In fact, I think to the contrary.  I
think you're quite adequately prepared, maybe
more so
than we are.  And I suppose what we could do is
take the position that, well, if anything is
uncomfortable, whether it deals with the IRS, the FEC,
Medicare, Medicaid, then it shouldn't be part and parcel
of the law of the land.
          But I'd like to just get a little more
input, and I'd rather not lead you in the answer. I'm
just puzzled by this.  The one thing that this agency
routinely, and we've been studied more times than your
studies by Congress, a number of oversight committees,
we get unbelievably high
marks in working with the public.
             Now, that's different than the
commissioners.  I'm not holding out that the
                                                         173 commissioners
get high marks.  And I'd start with
myself, so I don't want to be confused.  But we
have toll free lines.  We have advisory opinion
processes.  We send out bulletins continually
and
which people seem to enjoy.  You don't seem to
be very mystified by the process.  I'm assuming
that you talk to folks not only about their
issues, but about the federal election campaign
law.  I assume that's why you're here.
          Is there other things that we ought
to be doing besides just saying, well, gee,
it's too tough?  Because Congress did pass the
law.  Are there other things that we could do
in conjunction with this, saying, well, gee,
you know, we don't
want to put anybody on the spot?  Is there
other things you could think of that we could
be doing to reach out and be more effective
with the groups that you're concerned about,
because we are too?
          No one has a corner on that market on this
panel.  All of us are concerned about that.  And
we've always been concerned.  I've been concerned
about it for 20 years so I cede that to no one.
                                                         174 But what are the
things do you think we could be
doing that would be helpful, because you are
out there?  As is indicated, you are
practitioners. Are there other things that you
think of that we
could be doing in this area that would be
          helpful?
MS. GUINANE:  The kinds of things that we
hear local groups want from us in terms of the
materials we produce are clear answers, one
page informational sheets that explain how to
do things,
procedures that can be done by filling in
forms, hopefully on-line, because that makes it
much more accessible when you're trying to
bridge the gap between national institutions
and state and local based institutions and
groups.
          I think your web site, which already
has excellent accessibility to the data and
information, to have some clear easy to get to
space for groups that generally have not been
regulated by the commission before and that
don't
engage in partisan activities to find out how
could
federal election law apply to me.  Written from
that perspective, I think would be very, very useful.
                                                         175 It's one thing
          for an organization like
mine and for the Alliance for Justice to go out and
do trainings and say this is what the IRS or the FEC
rules say, trust me, get out there and
advocate, but it provides groups and their board members
a much greater level of comfort to see that same message
come clearly from the government agency itself.
          Within the last few years, the IRS issued
letter, a public letter, just stating and affirming that
charities have the right to lobby on legislative matters
and explaining how they can use the expenditure test to
define the limits that they have on their lobbying,
allowable lobbying
resources, and just having that on IRS letterhead was
extremely useful in clarifying these rules to the
nonprofit community.
          I think similar kinds of communications from
the commission would be very useful.  In
addition, outreach efforts at the state and local
level through nonprofit networks meetings of groups
like independent sector that have national
                                                         176 conferences but
also state-based associations of
nonprofits that have state or regional meetings,
and often have workshops on legal rules and to send a
public education person out into the field to
share information with groups also I think would be very
useful for them.
          COMMISSIONER McDONALD:  Are you intimidated or
would you suggest to those that work with you, would you
be intimidated to call either
the 800 line or to ask for an advisory opinion?
Did we intimidate you today?
          MS. GUINANE:  No, I'm not, but I know those
that would be, and even--
             COMMISSIONER McDONALD:  Well, I
understand.
          MS. GUINANE:  --individual staff directors
that may not be intimidated may still be highly
concerned about public perception of any review of their
activities.
          COMMISSIONER McDONALD:  We all go through
that.  I understand.  Thank you.  I appreciate it.
          CHAIRMAN MASON:  Commissioner Toner.
                                                         177 COMMISSIONER
          TONER:  Thank you, Mr.
Chairman.  I think Commissioner McDonald has hit on one
of the biggest issues that we've dealt with throughout
this rulemaking and also the prior one.
          And that is, you know, what obligation we have
to issue clear rules now so that people know what their
obligations are, or whether there are other processes
like the advisory opinion process where we should really
sort that out?  And, you
know, no one who works on this panel lives in the real
world, if you define the real world as being outside of
Washington.
          I think most people believe that is the real
world, and Ms. Guinane, I just want to return
again to your representation, because as I understand
it, you represent groups that work out there,
environmental groups, nonprofit groups, charitable
organizations, and you're going to know more than we're
ever going to know about whether
these folks in the real world can come into this
agency, after the fact, get advisory opinions, and
in your professional judgment how likely is that?
                                                         178 MS. GUINANE:  I
          think it's unlikely.  What
they're going to want from us when the regulations
come out is clear question and answer description and
summary of what the regulations are and how
they're impacted so they can go forward with their
activities and in planning their advocacy activities.
          One of the problems, even if they had the
resources to engage in the advisory opinion
process, is it's like common law, you have a situation
in California maybe similar to but not exactly the same
as a situation in Massachusetts, and the group in
Massachusetts may wonder, well, this may or may not
apply to us.  And you have to
read four or five advisory opinions to try to piece
together what might cover your exact situation.
          So having regulations to rely on provides a
lot more guidance in going forward and planning and
carrying on activities.
          COMMISSIONER TONER:  In light of the
budget reality that you mentioned, how likely is it
that you think these organizations will be able to
                                                         179 hire Washington
lawyers to go in here and deal with
these nuances?  Do you think that's very
          likely? MS. GUINANE:  Very
          unlikely. COMMISSIONER TONER:  Not
          realistic.  In
light of the discussion in an earlier panel about a
proposed communication of the General Counsel, his
hypothetical, which I thought was very on point, how
likely do you think these people would be able to follow
that argument and understand or know for
themselves whether or not that proposed communication
would be subject to these rules or not?  How likely do
you think that would be?
          MS. GUINANE:  I think it's unlikely especially
in that it assumes prospective ability
to anticipate when a broadcast might mention a federal
candidate, especially if unpaid broadcasts are covered.
If you're paying expenditures, it's much easier to
anticipate when something like that might occur.  If
unpaid broadcasts occurred, it
could be inadvertent, it could be a sudden
opportunity where you don't stop to think about it.
So that by its nature, it may be after the fact
                                                         180 kind of
situation.
          COMMISSIONER TONER:  Well, I appreciate
very much both of your testimony.  I think you've
brought a critical real world perspective to these
issues.  Thank you, Mr. Chairman.
          CHAIRMAN MASON:  Commissioner Thomas.
          COMMISSIONER THOMAS:  Thank you, Mr.
Chairman.  It's an interesting dialogue.  I would just
note that one of the proposals for allowing
for lobbying communications fits on about a third of a
page, and as I see it, it tells you precisely what you
could put in a lobbying communication, and it tells you
what you should not put in.  So I think the commission
could formulate a bright line
test and put it on a third of a piece of paper, and we
could maybe be very helpful, as Commissioner McDonald
has suggested, in getting that test out in the form of a
regulation, and that would alleviate I think the concern
that you've expressed about
some folks who might be concerned about seeking an
advisory opinion.
          With regard to the ballot initiative
                                                         181 issue, I just
wanted to inquire.  You mentioned the
Oklahoma situation.  I'm just curious.  This is where
Congressman J.C. Watts was in the ad.  Can you describe
it?  Was he sort of front and center
in the spokesman for the cause throughout the course of
the ad?
          MS. WILFORE:  There were two radio ads in
particular there in support of what was the right to
work legislation ballot initiative.
          COMMISSIONER THOMAS:  Do you recall like what
was the--
           MS. WILFORE:  I don't remember the
specifics of it, but it was speaking favorably.
          COMMISSIONER THOMAS:  There he was, his
image.
          MS. WILFORE:  Well, it was a radio.
          COMMISSIONER THOMAS:  Okay.  So there his
voice was, and it identified him clearly as Congressman
J.C. Watts?
          MS. WILFORE:  Exactly.
          COMMISSIONER THOMAS:  I'm just curious.
Do you happen to know was he involved in helping to
                                                         182 raise any money
for that ballot initiative effort?
          MS. WILFORE:  I don't know that for sure.
          COMMISSIONER THOMAS:  Just curious.  Do
you happen to know did he put out any ads out of
his own campaign apparatus where he was using the right
to work issue?
          MS. WILFORE:  I don't know for sure.  I would
think it would be very unlikely, but it's certainly
something that I could find out.
          COMMISSIONER THOMAS:  Okay.  I'm just curious.
Those might be kind of relevant considerations because
there might be some situations where folks tied to a
ballot issue and involved in the ad really are using
that issue also
in their campaign, so it would be much to their
advantage to be in an ad like that that deals with the
ballot initiative.  So that sort of underlies our
concern at this point.
          All right.  Thank you both again very much
for coming, and it was very helpful.
          CHAIRMAN MASON:  Mr. Norton, Mr. Pehrkon?
That brings us to the conclusion of this panel and
                                                         183 the hearing.  We
are scheduled for a regular open
session at two o'clock, and we should be able to
make that.  So this session is adjourned.
          [Whereupon, at 12:45 p.m., the hearing
          was
adjourned.]