1
                         FEDERAL ELECTION COMMISSION
                                PUBLIC HEARING
               PUBLIC FINANCING OF PRESIDENTIAL CANDIDATES AND
                            NOMINATING CONVENTIONS
                                          Washington, D.C.
                                          Friday, June 6, 2003
                       The meeting convened, at 999 E Street,
             N.W., pursuant to notice, at 9:08 a.m.
             COMMISSION MEMBERS PRESENT:
                  ELLEN L. WEINTRAUB, Chair
                  BRADLEY A. SMITH, Vice Chairman
                  DAVID M. MASON, Commissioner
                  DANNY LEE McDONALD, Commissioner
                  SCOTT E. THOMAS, Commissioner
                  MICHAEL E. TONER, Commissioner
                  LAWRENCE H. NORTON, General Counsel
                  ROSEMARY SMITH, Acting Associate General
                    Counsel
                  JAMES A. PEHRKON, Staff Director
                  JOSEPH F. STOLTZ, Assistant Staff Director
                                                               2
                              TABLE OF CONTENTS
             Agenda Item                                   Page
                  I.  Opening Statements...................   3
                 II.  Panel No. 1..........................  14
                        - Donald McGahn, Robert Bauer, Paul
                             Sanford, Steve Weissman
                III.  Panel No. 2.......................... 145
                        - Kenneth Bross, Ki Hong, Cheryl
                             Cronin, Julie Burns
                 IV.  Panel No. 3.......................... 229
                        -  Joseph Sandler, Neil Reiff,
                             Thomas Josefiak
                  v.  Closing Comments.....................
                                                              3
          1                 P R O C E E D I N G S
          2             CHAIR WEINTRAUB:  A special session
          3  of the Federal Election Commission for Friday, June
          4  6, 2003 will please come to order.
          5             I'd like to welcome everybody to the
          6  Commission's hearing on the Notice of Proposed
          7  Rulemaking relating to public financing of
          8  Presidential candidates and nominating conventions.
          9  I'd like to offer a special welcome to a visiting
         10  journalist from the west coast, Mr. Harvey who came
         11  all the way across the country to see this hearing,
         12  and coincidentally his daughter works for me.
         13             The proposed rules we are discussing
         14  today were included in the Notice of Proposed
         15  Rulemaking published on April 15, 2003 in the
         16  Federal Register.  The Commission is considering
         17  proposals to revise several portions of
         18  the Commission's regulations governing the public
         19  financing of Presidential candidates in both
         20  primary and general election campaigns and
         21  Presidential nominating conventions.  Additionally,
         22  the proposed rules and accompanying explanation
                                                               4
          1  would apply to the Bipartisan Campaign Reform Act
          2  of 2002 and the Commission's related implementing
          3  regulations to Presidential nominating
          4  conventions.
          5             I think it's no secret the $64,000
          6  question for us to consider today is whether soft
          7  money can be used in any way, shape, or form by the
          8  municipal committees, the host committees in any
          9  way close to the conventions.  We're going to look
         10  at lot of questions in the course of this
         11  rulemaking.  That to me is the most important
         12  question and the question that I think we have an
         13  obligation to answer and to answer expeditiously.
         14  I'm particularly looking forward to all the
         15  witnesses' comments on that question.
         16             We appreciate the willingness of the
         17  commentors to assist us in this effort by giving us
         18  their views on these proposals, and we want to
         19  thank particularly the witnesses who have taken the
         20  time today to give us the benefits of their
         21  experience and expertise in this area.
         22             I'd like to briefly describe the format
                                                               5
          1  for the testimony today.  Each witness will have
          2  time to make a five-minute presentation.  We do
          3  have a light system at the witness table that will
          4  give you a yellow light at the end of four and half
          5  minutes and a red light at the end of five minutes,
          6  and we would ask you at that point to please
          7  conclude your opening statements.  Then we will
          8  have time for at least one round of questions from
          9  the Commission, the General Counsel, and Staff
         10  Director.
         11             Three panels of four witnesses each will
         12  testify today, the first panel from 9:15 to 11; the
         13  second panel from 11:15 to 12:45; and the third
         14  panel will testify from 2 to 3:30 this afternoon.
         15  Consequently, we have a full day and we will
         16  appreciate the cooperation of all witnesses in
         17  helping us to stay on schedule.  This will ensure
         18  that everyone has a fair chance to state his or her
         19  views.
         20             Our first panel this morning will
         21  consist of Robert Bauer of Perkins Coie, Donald
         22  McGhan of National Republican Congressional
                                                               6
          1  Committee, Paul Sanford of FEC Watch, and Steve
          2  Weissman of the Campaign Finance Institute.  And
          3  before we invite the witnesses up to make opening
          4  statements, I'd like to ask if any of the
          5  commissioner have, other commissioners have opening
          6  statements that they'd like to make.
          7             Commissioner Toner.
          8             COMMISSIONER TONER:  Thank you, Madam
          9  Chair.
         10             I want to thank everyone who provided
         11  comments in this rulemaking, particularly in light
         12  of the extraordinary time pressures everyone is facing
         13  with the McConnell v. FEC Supreme Court litigation.
         14  I think all the comments were very informative and
         15  were helpful to guide the Commission in issuing
         16  final rules.
         17             As the chair noted, the Commission's main
         18  task in this rulemaking is to decide what impact,
         19  if any, the new campaign finance law has in
         20  convention financing in the Presidential financing
         21  system, and the Commission is also considering
         22  several potential important rulemaking proposals
                                                               7
          1  that are not required by the new law.  I'd like to
          2  comment briefly on a couple of these issues and
          3  also some of the testimony that we received on them
          4  that I look forward to expanding upon in the
          5  hearing today.
          6             First, the question of whether after
          7  BRCA convention city host committees can continue
          8  to raise and spend soft money as they have in the
          9  past to help underwrite important aspects of
         10  hosting a successful national convention.  A
         11  related issue is whether Federal office holders and
         12  national party officials under BCRA can legally
         13  help host committees to raise soft money.  I
         14  continue to believe there's no evidence thus far
         15  that Congress when it passed BCRA intended in any
         16  way to change how national conventions are financed
         17  or how host committees operate.
         18             Several commentators point out in their
         19  comments that there's not a single reference in
         20  BCRA to the financing of national conventions or to
         21  host committees.  In addition, numerous
         22  commentators not that there was virtually no
                                                               8
          1  floor debate on these important questions when BCRA
          2  was enacted.  I think it defies common sense to
          3  conclude that Congress intended to transform the
          4  way national conventions are operated when no
          5  significant discussion of it took place on the
          6  House or Senate floor.
          7             More over, prominent members of Congress
          8  who voted for BCRA have made clear that they do
          9  believe the new law in any way restricts their
         10  legal ability to raise soft money for host
         11  committees.  Most prominently, Senator Kennedy has
         12  been involved in highly publicized efforts to raise
         13  $20 million in corporate donations for the Boston
         14  host committee.  Furthermore, the Boston Globe has
         15  reported that Senator Kerry has likewise assisted
         16  in raising host committee funds for Boston.
         17             I think it's inconceivable that Federal
         18  officer holders such as Senator Kennedy and Kerry
         19  would raise soft money for the Boston host
         20  committee if they believed it was illegal to do so.
         21  Based on everything in the record thus far, I
         22  strongly agree with them.
                                                               9
          1             Second, several of the commentors
          2  support a proposal to abolish the Commission's
          3  longstanding locality requirement for soft money
          4  donations to host committees.  Under this rule,
          5  corporations and individuals must live or do
          6  business in the convention locality to contribute
          7  to a host committee.  As the comments indicate,
          8  it's highly doubtful this rule was ever required by
          9  FECA and there appears to be nothing in BCRA that
         10  requires it be retained, but equally important, the
         11  rules made it more difficult for smaller and
         12  mid-sized cities whose corporate and business
         13  presence may not be as great as the Nation's
         14  largest cities to successfully hold national
         15  conventions.
         16             For example, for 2004, there's no
         17  question that Boston's corporate presence is not as
         18  large as New York's.  If the Commission retains
         19  this locality rule, it may be more difficult for
         20  Boston to raise sufficient host committee resources
         21  than it is for New York.  We certainly have seen
         22  that in some years past in smaller market cities
                                                              10
          1  such as when San Diego in 1996 struggled to raise
          2  sufficient funds for its host committee.  Unless
          3  the law clearly demands it, at this point I don't
          4  believe the Commission through a locality rule
          5  should make it more difficult for smaller market
          6  cities to successfully hold national conventions.
          7             Finally, after the Commission proposed
          8  new rules for leadership pacts when they are used
          9  by Presidential candidates for campaign purposes, I
         10  think the conventional wisdom was that we going to
         11  receive a torrent of negative comments here, but
         12  surprisingly as far as I can determine, this has
         13  not happened.  As I read the comments, I don't see
         14  a single commentator opposed to the proposed
         15  leadership pact rule for Presidential candidates.
         16  In fact, both the Center for Responsive Politics
         17  and the Republican National Committee indicate that
         18  they support the proposal.  I can't recall the last
         19  time these two organizations agreed on proposed
         20  regulations, but I do take it as a good sign, and
         21  I'm very pleased they support the Commission's work
         22  in this area.
                                                              11
          1             As the chair noted, the Commission is
          2  scheduled to complete this rulemaking in the next
          3  six to seven weeks.  That's obviously a very
          4  ambitious schedule, but I concur that it's critical
          5  that we finish our work on these projects as soon
          6  as possible so everyone in the political process
          7  can know what the rules are for the 2004 national
          8  convention for Presidential candidates.
          9             Thank you, Madam Chair.
         10             CHAIR WEINTRAUB:  Commissioner
         11  Thomas.
         12             COMMISSIONER THOMAS:  Thank you, Madam
         13  Chair.
         14             Just briefly, I first want to note that
         15  Commission Toner and I have been working on a
         16  suggestion that Congress or others interested in
         17  the area ought to take a close look at the existing
         18  public financing system to see if perhaps it could
         19  be strengthened or revised or revamped to better
         20  reflect some of realities that have emerged in
         21  recent election cycles.  We now have a public
         22  financing system whereby some of the candidates are
                                                              12
          1  actually thinking of opting out of getting primary
          2  matching funds.  We all know that President Bush
          3  opted out the last election, did not take matching
          4  funds during the primary phase, and so that is an
          5  area that I'm hopeful that people focusing on this
          6  topic will also address, and there are, I think,
          7  some impacts coming out of the BCRA legislation,
          8  such as increasing the contribution limit, that
          9  exacerbate that problem.  Candidates tend to be
         10  able to raise money without using public funding
         11  more easily because they can now raise twice as
         12  much from any particular potential donor.
         13             I also, just in pleasant response to
         14  what my colleague Commissioner Toner mentioned, would note
         15  that we don't have, I think, a totally clean slate
         16  in terms of legislative history, first of all.  It
         17  may have been, as I referred to it earlier,
         18  hyperbole, but Senator McConnell in the debates was
         19  suggesting that the BCRA legislation as it has been
         20  drafted would, in fact, dramatically cut back on
         21  the ability of the host committees and so on to
         22  raise money.  Now, it may have been just in the
                                                              13
          1  heat of debate that he was raising that specter,
          2  because as we all know, he didn't like this
          3  legislation.
          4             I would also note that we do have a
          5  comment from the sponsors, so-called sponsors, of
          6  the legislation in the Commission's earlier
          7  rulemaking in the soft money area which, at least
          8  as I read it, does suggest that they think that the
          9  BCRA provisions do, in fact, mandate some very
         10  significant changes.  I think we have some folks
         11  who are testifying today who are going to be making
         12  that pitch much in the same fashion, but I did want
         13  to note that there are some indications that
         14  Congress thought about this subject during the
         15  legislative history, in the legislative debates that
         16  is, and there is some indication that even
         17  afterwards we've gotten a signal from the sponsors
         18  of the legislation that they do think that some
         19  very strict restrictions come out with regard to
         20  convention financing.
         21             So we'll have to add all that into the
         22  mix.  I think it will be a great discussion and a
                                                              14
          1  great hearing today, and I'm anxious to get on with
          2  it.
          3             Thank you.
          4             CHAIR WEINTRAUB:  Let me invite the
          5  first panel to come on up.
          6                    II.  PANEL NO. 1
          7             CHAIR WEINTRAUB:  I don't much care
          8  in what order you start.  Mr. Bauer, do you want to
          9  lead us off?
         10             MR. BAUER:  I'd be pleased to without
         11  objection from my co-panelists.
         12             I will let the comments that we filed as
         13  Perkins Coie on the other matters that the
         14  Commission is considering speak for themselves, and
         15  I thought what I would do is actually join the
         16  discussion about the nominating convention
         17  financing issue.  The point of departure, because
         18  we have only five minutes, each of us, for me would
         19  be to discuss the Campaign Finance Institute study
         20  that has been put before the Commission.  This
         21  study was obviously painstakingly assembled.  It
         22  has some very interesting information, but it tends
                                                              15
          1  to suggest, or at least its authors suggest, that
          2  the data presented in associated arguments should
          3  lead this Commission to make significant revisions,
          4  restrictive revisions, in the current rules that
          5  permit a nominating convention private financing
          6  through host committees and convention committees
          7  and the like.
          8             And I would like to challenge that
          9  suggestion, because I've read the study over
         10  several times, and I believe that it does not, in
         11  fact, capture the full picture here, and in many
         12  respects, I think it somewhat contradicts itself.
         13             First of all, I would like to
         14  begin--well, as a matter of fact, the structure for
         15  my comment would be simply to go through point by
         16  point some what I believe appears there.
         17  Obviously, I'll characterize it as I see fit, and I
         18  know that will draw an objection from at least one
         19  of my co-panelists, but let me begin as follows:
         20             First of all, the suggestion is that we
         21  have seen an extraordinary increase in private
         22  financing through host committees, and a variety of
                                                              16
          1  statistics have been provided in the report to
          2  support that suggestion.  I have not re-run the
          3  numbers.  I have no reason to believe the numbers
          4  are other than generally accurate, although the CFI
          5  does note that there are some data collection
          6  issues that complicate a full statistical picture.
          7             It does not, however take, into account
          8  or control in any for the simple fact that in the
          9  last ten years, corporate sponsorship dollars generally
         10  across the board and even in non-political areas
         11  have jumped dramatically.  As a matter of fact,
         12  corporate sponsorship activity in this country
         13  right now exceeds a level of $9 billion.  In the
         14  last couple of years, it has continued to increase.
         15  Albeit not of the entirely fulsome level of the
         16  previous ten years, it has continued to increase
         17  even as spending for advertising per se has shrunk.
         18        So we're talking billions of dollars that
         19  corporations have seen fit to deploy in a variety
         20  of sponsorship contexts, and it would not be
         21  surprising to see similar activity reflected in
         22  their investments in convention marketing
                                                              17
          1  activities.  The study makes no mention of that,
          2  and I think that is a significant methodological
          3  problem.
          4        Secondly, when looking at some of the
          5  comments that they capture by means of measuring
          6  the intention of the people engaged in this
          7  activity, that is to say on the part of the
          8  sponsors, some of the quotes seem perfectly
          9  compatible--Commission Toner, you seem puzzled.
         10             COMMISSIONER TONER:  Not yet.  I'll be
         11  very soon.
         12             MR. BAUER:  Okay.  You gave me a very
         13  quizzical and therefore disturbing look.
         14             Some of comments that are capture here
         15  go to the alleged purposes of the sponsors which
         16  are characterized in this report to be
         17  predominantly political don't to my mind seem
         18  inconsistent with a broader sponsorship purpose at
         19  all.  One quote:  We want to help the host
         20  committees showcase these cities.  Another quote:
         21  For us, Philadelphia, the last convention site of
         22  the Republicans, it's our Super Bowl, our Olympics.
                                                              18
          1  We want to showcase our technological prowess.  We
          2  want to provide grand exposure in business
          3  development.
          4             I don't find those dramatic evidence of
          5  increased desire to use the convention for
          6  corruptive political conduct.  Now, it is true that
          7  there be some suggestions in some of these quotes
          8  by reference to words like "political process",
          9  that there might be some element or some type of
         10  political motivation, but as one of their witnesses
         11  states, "I can't say it is 50-50 or 60-40, but it's
         12  probably both."  Again, it seems to me not a
         13  terribly substantial basis on which this Commission
         14  would change convention financing rules at this
         15  stage.
         16             I'd also like to make that point that we
         17  have heard a lot in the course of Congressional
         18  debate and the Commission consideration of the
         19  various ramifications of the restriction of soft
         20  money, about the danger that it presents when it's
         21  raised by members for purposes that directly affect
         22  their election campaign, soft money, for example,
                                                              19
          1  raised by members in the party committees that
          2  engage in issue advertising is specifically
          3  identified in a positive context before their
          4  accurate or identify their opponents in a negative
          5  context.
          6             That interest seems to me to be
          7  dramatically attenuated.  Here, you have a lot of
          8  people raising a lot of money for a four- or five-day
          9  event, and I have a difficulty hypothesizing that
         10  someone will cash in dramatically by telling a
         11  member, By the way, I helped provide some of the
         12  money that was needed for electricity in the
         13  convention and all also for some of the
         14  transportation vans.
         15             By the way, I should not for Mr.
         16  McGahn's purpose that if you looked at the relative
         17  spending of the parties in 2000, in the year 2000,
         18  for actual parties, receptions and fun events, the
         19  Democrats spent $300,000 more that Republicans did
         20  on just parties, which goes to show they may be
         21  satisfied with their political position, but you
         22  don't want to hang out with them.  If you want to
                                                              20
          1  have fun, Boston is the place to be this coming
          2  year, certainly not New York.
          3             CHAIR WEINTRAUB:  The red light is
          4  on, Mr. Bauer.
          5             MR. BAUER:  Pardon me?
          6             CHAIR WEINTRAUB:  Your red light is
          7  one.
          8             MR. BAUER:  A final comment, and
          9  then--you've been waiting to do this for years--you
         10  can shut me off.
         11             Last point, BCRA, the Congress didn't
         12  only just review the statute.  It also reviewed
         13  regulations that it was uncomfortable with.  There
         14  is a specific regulatory issue that is raised and
         15  addressed in BCRA, which is the Christian Coalition
         16  regulations that the Commission was directed to
         17  repeal.  It had the nominating convention
         18  regulations before it as well.  It did not choose
         19  to do it, and I don't think we can rest this
         20  regulation on what Commissioner Thomas referred to
         21  as a, quote, signal afterward, unquote, by the
         22  Congressional sponsors.
                                                              21
          1             CHAIR WEINTRAUB:  Thank you, Mr.
          2  Bauer.
          3             Mr. McGahn, you're up next.  I want to
          4  particularly thank you for coming so early in the
          5  morning.  I understand you've got a gig tonight.
          6  That will probably keep you up late tonight.  I
          7  only regret that you didn't bring your guitar and
          8  give us a preview this morning.
          9             MR. McGAHN:  If I would have known.
         10             CHAIRWEINTRAUB:  Next time.
         11             MR. McGAHN:  First, I'd like to say good
         12  morning.  I'd like to thank Mr. Bauer for the
         13  invitation to the convention in Boston.  I'll be
         14  there.
         15             MR. BAUER:  With your guitar, please.
         16             MR. McGAHN:  Absolutely.  I'll show you
         17  how it's done, unless Raging Machine shows up and starts a riot.
         18  They're no longer together.  You can come and
         19  listen to country music at ours.
         20             We do have fun at our conventions, but
         21  not too much money fun, and that's part of
         22  why I'm here today.  Just to make clear, I'm not
                                                              22
          1  here on behalf of the NRCC itself.  I'm here on
          2  behalf of Tom Reynold, the Congressman from New
          3  York who represents the 26th District of New York.
          4  Being from New York, Mr. Reynolds desires to assist
          5  the New York convention to the extent he can under
          6  the law.  Under current law, he can do quite a
          7  bit.  Under possible proposed rules--actually not
          8  possible proposed rules.  They are proposed, but
          9  possible rules, that may change to a certain
         10  extent.
         11             I'm going to limit my comments here,
         12  thus, to specific issues that affect my client and
         13  not delve into, unless asked, the broader scope of
         14  the national party host committees on arrangements and
         15  the like.
         16             The first issue is the ability of
         17  members of Congress, Federal officials, and
         18  candidates to raise money for host committees.  Our
         19  view is it is clear that they can.  BCRA explicitly
         20  allows Federal officials and candidates to raise
         21  money for 501(c)s and even allows solicitation for
         22  funds for 501(c)s that engage in Federal election
                                                              23
          1  activity although host committees do not.  So it is
          2  clear that this civic fund-raising is maintained by
          3  BCRA, although I don't think it is a question in
          4  BCRA, the larger question.  One need look no
          5  further in BCRA to realize that members can raise
          6  money for the host committee.
          7             The second rule that I'd like to talk
          8  about is the locality rule.  Although our view
          9  isn't necessarily to make it national--that's an
         10  obvious consequence of one of the proposals--at
         11  least statewide.  Mr. Reynolds is not from New York
         12  City, but there are business interests throughout the
         13  State of New York, he would like to have a presence
         14  in our convention.  Mr. Reynolds would like to
         15  assist those companies as he can without running
         16  afoul of any Commission regulations.  Therefore,
         17  from his point of view, it makes sense to expand
         18  and not have a strict locality rule.
         19             That being said, we also agree with Mr.
         20  Toner's observation that dispensing with the local
         21  rule would give minor markets more of a fighting
         22  chance with conventions and hosting conventions.
                                                              24
          1  There has been a trend where certain cities tend to
          2  get the conventions time and time again, and
          3  mid-sized cities do not.  San Diego is the
          4  exception to the rule, but as we all know, funding
          5  there was not as easy as it would have been in a
          6  larger market, shall we say.
          7             The third point I'd like to make is the
          8  very brief mention in the notice regarding events
          9  being held around the time of the convention,
         10  corporate events, union events, and the like and
         11  whether they ought to be regulated.  The answer is no.
         12  There is nothing in BCRA, its history, FECA, or
         13  the like that would require events that happen to
         14  go because the convention is there that somehow
         15  come under the FEC's jurisdiction, let along anyone
         16  else's jurisdiction.  If people want to have
         17  events, they ought to be able to have events.  To
         18  the extent that there is a need to regulate Federal
         19  officials attending events and the like, I would
         20  suggest the House Ethics Committee and the Senate
         21  Ethics Committee has done a remarkable job of
22 publishing memos and giving guidance to members as to what they can
 
23 and can't do to
                                                              25
          1  avoid any appearance problems.
          2             That being said, I'm going to conclude
          3  my comments, and hopefully I can assist you with
          4  question and answers.  Thank you.
          5             CHAIR WEINTRAUB:  Thank you, Mr.
          6  McGhan for your pithy comments.
          7             Mr. Weissman, let me ask you in
          8  particular, since we just got the revised draft of
          9  your comments, if you could highlight for us what
         10  the changes are, because I don't think any of us
         11  can read fast enough to read through it before you
         12  finish your comments.
         13             MR. WEISSMAN:  There were only minor
         14  changes.  There was a figure that was slightly off
         15  in the total contributions in Atlanta, the Atlanta
         16  1988 Democratic Convention.  I guess my mike is on.
         17  In addition, there was a first name of someone that
         18  was slightly off, and the third one was there was a
         19  clause in a quotation that was drawn from a court, Case
         20  McConnolly v. FEC, where the corporation indicated
         21  that had allocated soft money for a convention
         22  purposes as part of its overall soft money
                                                              26
          1  allocation for political parties.  There was a
          2  clause left out of that on page 10, I believe, that
          3  was put in.
          4             So they're minor changes that don't
          5  affect any part of thee overall analysis, but I
          6  appreciate your asking.
          7             Well, thank you, Commissioners,
          8  Chairperson, first of all, for the opportunity to
          9  present our study here.  This was a study that was
         10  requested by the task force on financing of
         11  presidential nominations that the campaign finance
         12  has convoked that will issue a report, concluding
         13  report, on conventions; and unlike our analysis, 
         14  will also have specific recommendations regarding
         15  convention financing.  That report will not be
         16  issued, however, until July.
         17             So what you have here is a staff, CFI
         18  staff, background analysis that we felt would be
         19  helpful to the Commission.  We saw how hard the
         20  Commission is wrestling with these issues.  We felt
         21  that we had collected a lot of information and done
         22  further analysis that might be helpful to the
                                                              27
          1  Commission, and that's why we decided to present
          2  this as a staff analysis.
          3             Our Board of Trustees doesn't approve or
          4  disapprove of any of our specific research
          5  projects, and, in fact, one member of the board I
          6  know doesn't approve at all of this analysis and
          7  others have a very different view.  So please keep
          8  that in mind.
          9             Most of the comments you have before you
         10  are discussing, as you have here, in part BCRA,
         11  does it apply, the regulations, you know, how
         12  should they be formulated, how should they be
         13  adjusted.  Our focus is different.  We're trying to
         14  bring a new element here.  Our focus is how have
         15  the regulations currently been affecting political
         16  behavior of those who are regulated.  We think the
         17  Commission should have some information about the
         18  actual political reality out and how it has been
         19  shaped by the regulatory effort, not under BCRA
         20  simply, but mainly under FECA; and basically we've
         21  concluded that the major assumptions behind both
         22  existing and many of the proposed new regulations
                                                              28
          1  don't have a solid foundation.
          2             And as Mr. Bauer, who so magnanimously
          3  gave some much attention to our analysis has
          4  indicated, we don't take an either/or position here
          5  saying it's a hundred percent political motivation
          6  here instead of local commercial, but we do say
          7  that the presumption in the regulations, explicit
          8  since 1977, that the purpose of contributions to
          9  host committees, not the purpose of the host
         10  committee, the purpose of the contributions can be
         11  viewed as chiefly commercial or non-political.
         12  Those are the words that are used, and they're used
         13  in the proposal regulation as well.  It does not
         14  hold water any longer.  Maybe a mixture.
         15             Some people we've interviewed, such as
         16  we interviewed some political professionals who
         17  have been involved with conventions for years, such
         18  as Rick Davis, a Republican, Don Fowler for the
         19  Democrats.  Davis thinks it's almost all political
         20  soft money.  Fowler told us it's at least as much
         21  either way, 50-50, 60-40, you can argue.  That, it
         22  seems to us, is a big change, and we tried to look
                                                              29
          1  at statistically what has happened over the years,
          2  and the data in front of you show that what we
          3  concluded was that there has been an explosion of
          4  private financing, $8 million in 1992 of private
          5  financing for the conventions.  The amount that's
          6  projected for 2004 is 90 million, a ten times
          7  increase in three conventions.
          8             I don't know if Mr. Bauer has data on
          9  corporate sponsorship increasing ten times from
         10  1992 to 2004 or not, but it is interesting that
         11  that has occurred as the Commission itself has
         12  loosened some of its regulations about private
         13  financing and as the soft money exposure occurred.
         14             I'm not going to go over that material.
         15  I would just point to the fact that we go on from
         16  there and we look at the evidence about how parties
         17  raise this money.  This money is raised--even
         18  though it is a civic host committees which has some
         19  bipartisan representation, there is no question, as
         20  our study shows, that most of this money is raised
         21  by politicians, candidates, and Terry McCauliff,
         22  Clinton, Dole fund-raisers, and large partisan
                                                              30
          1  donors, Eli Boyd in California for the Democrats or
          2  Gerald Parsley in California for the Republicans.
          3  This is how the money is raised.
          4             CHAIR WEINTRAUB:  Mr. Weissman, your
          5  time is up.
          6             MR. WEISSMAN:  Just to conclude, and we
          7  can get into this later, we've also mentioned that
          8  the assumption that all of this is a narrow
          9  exception, the host committee expenditures, to the
         10  normal rule that the convention expenses are met by
         11  the party committee is also no longer true.  In
         12  fact, the host committee is paying for most of the
         13  convention expenses, and we have attempted to
         14  document that.
         15             So with that, we conclude.
         16             CHAIR WEINTRAUB:  Thank you.
         17             Mr. Sanford, I particularly appreciate
         18  you presence here on the panel because you were
         19  only volunteer from the Clasic Reform community
         20  to show up today, and the panel really wouldn't be
         21  complete without you.
         22             MR. SANFORD:  Well, until Steve decided
                                                              31
          1  to join me, I thought I was going to be the lone
          2  voice in the wilderness, but I am pleased to be
          3  here, Madam Chairman, Mr. Vice Chairman, Members of
          4  the Commission, General Counsel, Mr. Staff
          5  Director.
          6             The Center for Responsive Politics and
          7  its campaign finance law project and FEC Watch is
          8  pleased to have this opportunity to testify on the
          9  Commission's proposed rules on the financing of the
         10  Presidential nominating conventions.  We have
         11  submitted detailed comments, so I have only a few
         12  brief opening remarks.
         13             I begin with first principles.  Section
         14  441(b) of the Federal Election Campaign Act
         15  prohibits corporations and labor organizations from
         16  donating anything of value in connection with the
         17  Federal election.  Section 441i prohibits
         18  national party committees from receiving donations
         19  of anything of value that do not comply with the
         20  prohibitions an limitation of the Act.
         21             Section 431 defines conventions as
         22  Federal elections.  It is against this statutory
                                                              32
          1  backdrop that the Commission's convention rules
          2  must be evaluated.  Because these are broad
          3  prophylactic rules, the Commission bears the burden
          4  of justifying the creation of any exceptions that
          5  allow corporation and labor organization funds to
          6  make their way into the convention funding process.
          7             The Commission has created that allows
          8  corporations and labor organizations to donate
          9  funds to host committees for the nominating
         10  conventions.  It also allows the recipient host
         11  committees to use these receipts to pay for the
         12  cost of the convention.  The stated rationale for
         13  this exception has been that corporations and labor
         14  organizations donate money to the host committees
         15  to help promote the host city in its commerce.  For
         16  these reasons, the Commission has viewed these
         17  donations as commercially rather than politically
         18  motivated.
         19             When The Commission created this
         20  exception, it included certain safeguards to ensure
         21  that the donations made were, in fact, commercially
         22  motivated; however, in the classic example of what
                                                              33
          1  the military would call mission creed, the
          2  exception has been modified over time so that these
          3  safeguards no longer exist.  As a result, the well
          4  intentioned, quote, very narrow exception has
          5  almost completely swallowed the rule.
          6             This is particularly remarkable when
          7  you'll recall that the conventions are supposed to
          8  be publically financed.  The legislative history
          9  for the convention funding provision, Section 9008,
         10  succinctly states:  "A major party electing to
         11  receive its $2 million entitlement could not use any
         12  additional private funds."  The parties have been
         13  receiving public funds,  but these funds now
         14  represent a minority of what is spent on the
         15  conventions.  Much of the funding comes from
         16  corporation and labor organizations that are
         17  generally prohibited from making contributions to
         18  Federal elections.  They're able to give big money
         19  to the conventions because the funds pass through the
         20  hands of the host committees.
         21             We do not dispute the host committees
         22  and businesses and unions and host city to have a
                                                              34
          1  legitimate interest in promoting the host city
          2  first as a potential site for the convention and
          3  later to convention attendees.  With the exception
          4  limited to the amounts used for these purposes, it
          5  might be justified, but we are well beyond that
          6  now.  The party committees are using this exception
          7  to get corporations and labor organizations to pay
          8  for the conventions.  The plain language of the
          9  statute prohibits this.
         10             We urge the Commission to turn back the
         11  clock and either eliminate this exception or
         12  restore it to its original narrow form.  If
         13  necessary, delay the effect of it until after next
         14  year's conventions.  But Take action now so that the
         15  rules will be in place when the work on the 2008
         16  convention begins.
         17             I want to make one comment about the
         18  Commission Toner's observation about the
         19  legislative history.  I think that the Commission
         20  needs to start with the statutory language, and
         21  that's the primary guide for how to the law should
         22  be applied.  I think that the statutory language is
                                                              35
          1  broad and suggests a very different result.
          2             I also see what happened during the
          3  floor debates a little bit differently.  This is a
          4  significant change.  If the sponsors of legislation
          5  or those supporting it did not agree with Senator
          6  McConnell's statements on the impact of BCRA, I
          7  would have thought they would have said so at the
          8  time.  They did not.  It seems to me that this
          9  could be just as legitimately viewed as affirmation
         10  of that interpretation in the statute as it is
         11  viewed as the opposite.
         12             With that, I will conclude and be happy
         13  to answer any questions.
         14             CHAIR WEINTRAUB:  Thank you, Mr.
         15  Sanford, and thank you, all of you.
         16             I'd like to start by asking you all,
         17  sort of following along the line that Mr. Sanford
         18  started us on, to engage a little bit on the
         19  statute, because when I read the statute, I think
         20  that it doesn't surprise me that different
         21  commentors focused on different sections, because
         22  depending on which section of the statute you're
                                                              36
          1  looking at, you might come to entirely different
          2  conclusions on the key questions that are in front
          3  of us.
          4             I think Mr. Sanford makes a persuasive
          5  case under 441(B) and other provisions that you
          6  mentioned that there's a strong argument that soft
          7  money shouldn't be allowed anywhere near the
          8  conventions.  On the other hand, there are
          9  provisions in the statute--there's also the implied
         10  authority argument that was raised by--I can't
         11  recall whether it was you or one of the other
         12  commentors that in choosing the city, the
         13  convention committee and the party conveys implied
         14  authority to the host committee to raise funds in
         15  connection with the convention and on its behalf
         16  somehow.  And I don't think that those are all
         17  frivolous arguments.
         18             On the other hand, the statute also
         19  allows covered officials who are otherwise barred
         20  from raising or spending soft money to raise and
         21  spend--to raise money for 501(C)3s, and it's hard
         22  for me to imagine that the drafters of the statute
                                                              37
          1  didn't recognize that the host committees are
          2  501(C)3s.  There are limits on the qualifications
          3  on what kind of 501(C)3s, but I don't think that
          4  they really apply to--those limits really affect
          5  the host committees.
          6             So what I would ask is for, you know,
          7  this side of the table to address the arguments
          8  that Mr. Sanford raised about the statute and for
          9  Mr. Sanford and Mr. Weissman, if you feel so
         10  inclined, to comment on the other statutory
         11  arguments that have been raised on the other side.
         12  Rather than just promoting--you know, just picking
         13  out your statutes, your section of the statute,
         14  just tell me why I shouldn't look at the other
         15  guy's section.
         16             And I open that to whoever wants to
         17  start.
         18             Mr. McGahn.
         19             MR. McGAHN:  I don't think anyone is
         20  sitting here today saying the national party
         21  committees can take soft money for conventions,
         22  although it's a very eloquent citation to the
                                                              38
          1  statute.  It's a straw man argument.  It ignores
          2  distinction between party committee, committee on
          3  arrangements, and the host committee, which is the
          4  city's operation.
          5             So although we're citing separate
          6  sections, at the end of the day, the facts are what
          7  matter, I think, 501(c) is separate and distinct
          8  from the party committee, and unless the Commission
          9  undoes and changes the rules, so to speak, on what
         10  becomes part of the national party committee,
         11  again, although the citations are impressive, they
         12  really are beside the point.
         13             The second point that was raised was the
         14  idea the host committees are political entities and
         15  somehow it's really party committees and officials
         16  that raise funds.  That may be true, but I'm not so
         17  sure we need a study to figure out that host
         18  committees raise money and that elected officials
         19  care if the convention is run in a safe and
         20  efficient manner and that the host city has
         21  resources that it needs to make sure that the
         22  infrastructure is there for the city.
                                                              39
          1             That being said, this idea that it's
          2  become strictly partisan, I think it doesn't
          3  make--although there probably a kernel of truth in
          4  that, it's not necessarily true across the board.
          5  It's not nearly as true as represented to you.  For
          6  example, unless I've missed something, the then
          7  mayor Ed Rendell was a Democrat in Philadelphia, not a
          8  Republican, although he was one of the main
          9  champions of thee convention in 2000 to ensure that
         10  Philadelphia did a very nice job in having a very
         11  successful convention.
         12             So to say simply that the host committee
         13  becomes some partisan nonprofit oversimplifies to
         14  the point of absurdity.  Remember, the host
         15  committee is a 501(C).  The IRS looks at that.
         16  It's the IRS's rules that determine whether or not
         17  you're a non-profit, and again, I come back to the
         18  cite, the portion of BCRA that I cited earlier
         19  which allows Federal office holders and candidates
         20  to raise money for 501(C)s.  That's not a decision
         21  that we need to second guess.  That was a decision
         22  of Congress.  Congress knew the conventions were
                                                              40
          1  out there.  They knew they were 501(c)s, and as Mr.
          2  Toner alluded to early on, Senators Kennedy and
          3  Kerry certainly don't seem to think that they're
          4  prohibited from assisting the Boston host committee
          5  with ensuring convention, which I may go to thanks
          6  to Mr. Bauer's invite, is very successful.
          7             CHAIR WEINTRAUB:  Mr. Bauer.
          8             MR. BAUER:  Yes.  I will be very brief,
          9  because I don't disagree with anything that Don has
         10  said.  When Mr. Sanford talks about first
         11  principles, it's fair enough to say yes, it's a
         12  statute that says such and such.  Well, we all know
         13  that the statute on this subject as well as others
         14  has been subject to exceptions crafted both by the
         15  Congress and also by this agency.  So then the
         16  question becomes why would this agency now after a
         17  thorough review of the soft money issue turn around
         18  and do what Congress elected not to do.
         19             And the only point I want to stress
         20  here--I'm not going to repeat everything that Don
         21  said--is the what I think questionable legal
         22  analysis that is being brought to bear to suggest that
                                                              41
          1  Congress probably did intend for the Commission to
          2  do something, and I really have trouble swallowing
          3  that.  I now understand that if somebody doesn't
          4  specifically refute something that Mitch McConnell
          5  says, it becomes an expression of Congressional
          6  will, and that's an axiom of legislative history
          7  that I loathe to adopt.
          8             Secondly--pardon me?
          9             COMMISSIONER MASON: You have three votes
         10  already.
         11             MR. BAUER:  We'll certainly elongate
         12  floor debate.
         13             The other thing is I heard in the
         14  comments of Mr. Weissman about the views of Don
         15  Fowler and Rich Davis.  Well, I have no reason to
         16  believe they don't hold those views.  What their
         17  constitutional legal significant is is completely
         18  beyond me.  So we have a couple of people who feel
         19  this way.  A member of Congress' views were not
         20  rebutted, and lo and behold, Congress has intended
         21  to send a signal to the Federal Election Commission
         22  to do what it did not explicitly do when it
                                                              42
          1  reviewed the law in this area.  As I mentioned at
          2  the conclusion of my remarks, Congress knew how to
          3  pick out regulations it didn't like in BCRA.  It
          4  did it explicitly, and did not touch these.
          5             CHAIR WEINTRAUB:  Mr. Sanford.
          6             MR. SANFORD:  A couple of things:  On
          7  the question of whether the host committees are
          8  separate from the party committees, it is true that
          9  they are separate legal entities, but the rules
         10  specifically allow them to pay convention expenses
         11  and specifically lists things that the host
         12  committees can pay that are also things that are
         13  defined to be convention expenses for the party
         14  committees that could be paid with public funds.
         15  So I think that the distinction between these two
         16  entities begins to break down pretty quickly, and
         17  when you look at the data in terms of how much
         18  money is being spent, and even if we assume that
         19  the figures in the CFI study are soft, there seems
         20  to be a significant amount of expenses for the
         21  convention that are being defrayed by the host
         22  committees.  So the fact that they're separate IRS
                                                              43
          1  entities, I don't think completely responds to the
          2  question.
          3             With regard to the different statutory
          4  provisions, I don't think it's necessarily a
          5  conflict situation between 441(I)(E) and 441(B).
          6  Even if we assume that Federal office holders can
          7  raise money for these separate entities, these
          8  501(c) host committees, that doesn't necessarily
          9  mean that they can--that that allowance trumps the
         10  441(B) prohibitions on the use of corporate legal
         11  funds for Federal elections.  They could very well
         12  raise Federal funds for these entities and have
         13  allowed those entities to use Federal funds to pay
         14  convention expenses.  If they are raising
         15  non-Federal funds, the Commission can construct a
         16  rule that will allow the host committees to use
         17  non-Federal funds to promote the host city, not for
         18  convention expenses.
         19             CHAIR WEINTRAUB:  If they were only
         20  going to raise Federal funds, you wouldn't need to
         21  have specific permission for them to raise Federal
         22  funds, because they can raise Federal funds for
                                                              44
          1  anybody.
          2             MR. SANFORD:  Right.  That's correct.
          3  That's correct.
          4             As for the actions of the members who
          5  have been raiding money on behalf of the Boston
          6  committee, I guess is the indication in particular,
          7  with due respect to the Commission, I think that it
          8  may very well be that they do not anticipate the
          9  Commission aggressively enforcing the 441(B)
         10  prohibition in this context, and I think the past
         11  history of the Commission gives them good reason to
         12  have that expectation, and I think that there's an
         13  opportunity the Commission to decide that it's
         14  past policy has not worked and that it needs to go
         15  in a different direction.
         16             CHAIR WEINTRAUB:  Let me ask you, Mr.
         17  Sanford, and you, Mr. Weissman, a question.  When I
         18  read your comments as well as some of the other
         19  comments from people who didn't have the guts to
         20  come here today, but, you know, they seem to follow
         21  along the same line that you're pushing, there
         22  seems to be this undercurrent of the conventions
                                                              45
          1  have become too elaborate, they've become too
          2  expensive, there are all these parties.  There is
          3  this undertone of you guys are just having too much
          4  fun out and we don't approve or you guys are just a
          5  couple of prudes that don't think people out to
          6  have a good time.
          7             Is there a problem with the degree of
          8  elaborateness and expense in the conventions
          9  separate and apart from where the money is coming
         10  from?
         11             MR. SANFORD:  Well, I think that that is
         12  relevant to certain considerations, but as we state
         13  in our comments, we don't think the Commission
         14  needs to address what I think of as third-party
         15  events, parties that are hosted by--they could be
         16  hosted by corporations or labor organizations near
         17  the venue of the convention and allow office
         18  holders even, party officials, delegates to attend
         19  these events.  Where the beneficiaries of those
         20  events are third-parties as opposed to party
         21  committees, even if that means attendees, then no,
         22  I don't think that the Commission necessarily has
                                                              46
          1  to address that.
          2             But when the funds are being used by the
          3  host committees to pay what are, in fact, the costs
          4  of conducting the convention itself, not
          5  necessarily ancillary events, then we think the
          6  statute requires a more direct attention and more
          7  attention by the Commission.
          8             CHAIR WEINTRAUB:  Mr. Weissman.
          9             MR. WEISSMAN:  If I could just comment
         10  briefly on what you asked me and also on the
         11  previous question.
         12             CHAIR WEINTRAUB:  Sure.
         13             MR. WEISSMAN:  We don't take a
         14  particular, as I mentioned, specific policy stance.
         15  We're not telling the Commission do this or do
         16  that.  We're trying to give you information that is
         17  useful in your deliberations.
         18             One of the things we say about BCRA is
         19  that in the aftermath of BCRA, there is only one
         20  area where candidates, and parties can benefit from
         21  soft money, national candidate and national
         22  parties, and that is convention financing, convention
                                                              47
          1  financing that has now reached a figure of $90
          2  million in private financing for 2004.  We also
          3  point out in our analysis that should the status
          4  quo be maintained in regard to the conventions and
          5  the soft money ban on everything else continues
          6  after the Supreme Court rules, then according to
          7  veteran politicians we have interviewed, political
          8  access and political influence will become even
          9  more important in convention donations because the
         10  party today prefers a soft money donation that can be
         11  used for anything to a contribution to a host
         12  committee.
         13             As we pointed out, there is access.
         14  There are favors granted for contributions to host
         15  committees by the parties, but they are considered
         16  less than the favors granted by every year regular
         17  donations to party committees.  That will change
         18  after BCRA if BCRA is maintained, and the further
         19  reinforcement of political motivations in giving is
         20  something at least the Commission can expect if it
         21  decides to maintain the existing regime.  In terms
         22  of whether anyone is being prudish, and I'm
                                                              48
          1  agnostic as to this issue, but, I mean, it is
          2  notable when you have a tripling of expenses for
          3  conventions, conventions that kind of gradually
          4  went up in cost from 1980 to 1992, as our table
          5  shows, where the convention grant was adjusted for
          6  inflation, cities put up a little more money and
          7  they funded a significant amount and nobody has any
          8  problem with public funds by a city being used or
          9  states.
         10             But suddenly you have this huge jump
         11  after 1992, and according to--this is at the very
         12  moment when conventions are getting less and less
         13  attention from the American people, regrettably,
         14  and all the spending doesn't seem to have been able so
         15  far to reverse that.  And what we have heard and
         16  what we have documented in our portrait of
         17  conventions activities is that this is extra money
         18  is being used to produce a more and more telegenic
         19  event to get more and more getting into webcasting.
         20  One of the people we interviewed said, you know, if
         21  you can get more soft money, we can even start to
         22  promote the convention through advertising.  I
                                                              49
          1  guess they could lengthen it.  I guess--
          2             CHAIR WEINTRAUB:  No, not that.
          3             MR. WEISSMAN:  I guess the could
          4  lengthen the parties at least.
          5             In terms of the--so I think we have a
          6  tendency here--and the parties is another thing.
          7  It's been constantly focused on in the press and by
          8  insiders.  One of the people, Don Fowler, said,
          9  Look, we used to have beer and peanuts, you know,
         10  at these conventions, and now it's shrimp and fine
         11  wine; they used to have standard rooms, and now
         12  we've got big suites with work space.  Some of that
         13  is paid for by host committees.  They are the ones
         14  who are giving the delegated parties that are
         15  becoming more and more elaborate with corporate
         16  sponsors getting in on them and so forth.  We can say
         17  yeah, maybe they can have it, but we just to be
         18  aware the price currently under the existing regime
         19  of having that kind of convention is going to
         20  be--has been a huge expansion from eight to
         21  eighty-nine million of private financing, largely
         22  corporate of these conventions.
                                                              50
          1             So I just think that even though we are
          2  not interpreting the statute about BCRA, we are not
          3  entering the argument about--in fact, our argument
          4  is based more on FECA than BCRA, Look, this was the
          5  rationale under FECA; everybody has believed this
          6  rationale; now it no longer obtains, and if I
          7  could have 20 seconds to read you the quote that
          8  Mr. Bauer used from the head of Comcast, which is
          9  an excellent person to choose in which he was
         10  demonstrating that our portrait of motivation was
         11  exaggerated.  Here is a guy, the head of Comcast,
         12  Philadelphia 2000 convention, who is someone who
         13  would strong civic motivation and does have some
         14  civic motivation for giving to promote civic
         15  commerce.  After all, it's his center that is being
         16  paid for by the host committee to rent for the
         17  convention.  It's his commerce that's increasing,
         18  and his headquarters is in Philadelphia.
         19             So Brian Roberts, when he was asked by the
         20  newspapers why are you giving all this money and so
         21  forth, he blended, but in terms of placement and
         22  the way he presented it made a pretty powerful case
                                                              51
          1  that the local civic is not the most important
          2  element.  He said--and the first sentence is a
          3  priceless one:
          4             "These are people who have to make
          5  important decisions, and they're coming to our
          6  house.  This exposure may enhance our own
          7  credibility when we are explaining new
          8  technologies."
          9             Well, you can say maybe that's partly
         10  political, partly commercial, but it isn't local
         11  commercial, and that's what the rational of the
         12  Commission has been historically.  It's national
         13  commercial.
         14             "And it's a unique one-time opportunity
         15  for elected officials to see Comcast."  Not local
         16  officials.  "Policy makers can meet us first and
         17  remember our names, our faces, and our products."
         18  Here is the part that Mr. Bauer quoted:
         19  "Philadelphia is our Super Bowl, our Olympics."
         20             I'm sure he genuinely has all these
         21  motivations, but here's a person who is not like
         22  most of the contributors to the convention.  He had
                                                              52
          1  his headquarters there.  He had his hall being used
          2  for that convention, and even he put in
          3  considerable non-local civil commercial motivation.
          4             The Commission could maybe come out with
          5  the same exact stance on convention financing it
          6  has today with a different assumption.  Maybe it
          7  could revise its assumptions or could change its
          8  stance, but we do think that this evidence suggests
          9  that it is a very strong non-local commercial
         10  motivation, both political and national business,
         11  in a lot of the financing.
         12             CHAIR WEINTRAUB:  I'm glad that you
         13  raise that.  I'm begging everybody's indulgence
         14  here because I should put the red light on myself
         15  at this point, but I can't resist following up a
         16  little bit on this.
         17             I'm really glad that you raised the
         18  issue of motivation, because another thread in the
         19  comments was the access that donors get and the
         20  corruption or appearance of corruption that is
         21  presented by that.  I think the motivations of the
         22  donors is something that we have to bear in mind,
                                                              53
          1  but I guess my question is I think about two
          2  hypothetical donors.  Let's say Donor A gives
          3  $100,000, one big check to the host committee, soft
          4  money to support--I don't know--telephones and
          5  transportation at the convention.  Donor B has a
          6  lot of rich friends and collects $100,000 in $2,000
          7  increments of hard money that go directly to the
          8  campaign funds of a Presidential candidate.
          9             I don't know people that travel in those
         10  circles, but I'm told that this happens, that there
         11  are people who are able to go out there and collect
         12  that kind of money in real hard dollars.  Now, both
         13  of those guys, if they show up at the convention
         14  are probably going to get invited to the best
         15  parties and have--although it's hard for me to
         16  imagine that that mass of people and all those
         17  people moving that that's really a great
         18  opportunity to get your legislative agenda
         19  promoted; but my question is, and again I'm
         20  directing it this side of the table, is there a
         21  difference in the corruption of appearance of
         22  corruption between Donor A and Donor B and the kind
                                                              54
          1  of access that they?  Should we care about one and
          2  not the other?
          3             MR. WEISSMAN:  Let me just mention one
          4  thing here, and let others maybe comment, the key
          5  difference, it seems to me is that currently
          6  organizations such as corporations and labor unions
          7  can be Donor A, and they are providing--we did an
          8  analysis which is not presented in this paper of
          9  the 2000 private contributions to each party
         10  committees, host committee, the party's host
         11  committee, and it was clear that the overwhelming
         12  majority of corporations are not rich individuals
         13  who might give a hundred thousand and then get two
         14  and get all their friend to go two.  This is
         15  corporations and a to a much lesser extent unions
         16  and foundation and PACS like that.
         17             So I think that that would be your major
         18  difference.  I wouldn't quarrel with what you're
         19  saying about a rich individual versus a whole
         20  collection of bundled contributions in some way or
         21  another, the rich individual's friends, but I think
         22  the key distinction is are you allowing here unlike
                                                              55
          1  anywhere in politics corporate, union money into
          2  the funding of these very important political
          3  events that are really the first campaign ad in a
          4  way of the general election where we have
          5  no--actually, we have no finance at all without
          6  turning to the public grant.
          7             But I think that's the key issue.
          8             CHAIR WEINTRAUB:  Mr. Sanford.
          9             MR. SANFORD:  I'll be brief, try to be
         10  brief.
         11             I think that in terms of the corruption
         12  or appearance of corruption in those two
         13  situations, perhaps there isn't much of a
         14  difference, but the difference is statutory.  The
         15  statute allows individuals to bundle large numbers
         16  of individual contributions.  It doesn't allow
         17  corporations and labor organizations to write big
         18  checks to the host committees that the host
         19  committees turn around and use for convention
         20  expenses.
         21             So I think the statute makes a
         22  distinction that needs to be respected, and I don't think the
                                                              56
          1  Commission can say that the Donor A situation you
          2  referred to, the large corporate and labor
          3  organizations contributions to the host committee,
          4  the party organizing committee, isn't any worse
          5  than something that's allowed and therefore we
          6  should allow that too.  I really don't think the
          7  Commission has the authority to do that.  I think
          8  the statute makes a distinction and the distinction
          9  needs to be respected.
         10             CHAIR WEINTRAUB:  Mr. Bauer.
         11             MR. BAUER:  Very briefly, I just want to
         12  say one thing.  First of all, I just want to keep
         13  the hammer on my principle concern, which is the
         14  way laws are made, particular laws that affect
         15  political activity.  Factual point:  I do not know
         16  which conventions over the years Don Fowler has
         17  attended.  I attended my first in 1968, and I
         18  assure you not then, no under Truman, not under
         19  Roosevelt, were the delegates treated only to
         20  peanuts and beer.  I'm willing to stake a great
         21  deal on that.  This pastoral vision of what
         22  conventions were once all about escapes me
                                                              57
          1  completely.
          2             But secondly, listen carefully the Mr.
          3  Weissman--and again, I did myself a service in
          4  looking at the numbers.  I find the numbers very
          5  useful.  I simply draw a different conclusion than
          6  he and his colleague do, and that is he says, Well,
          7  Mr. Roberts of Comcast may not be saying precisely
          8  that his motivation is political as well as
          9  commercial in whatever proportion it is, but look at
         10  the placement.  Look at the way he presents it, the
         11  emphasis.  I don't see how that's record evidence
         12  for this agency.  I don't understand what possible
         13  validity that sort of metaphysical exegesis has for
         14  formulating Commission rules.
         15             This rule is not only based on a
         16  Northrup Fry-level interpretation of someone name
         17  Roberts said backed up by Rich Davis and Donald
         18  Fowler, and I think it's a bit more complicated
         19  than that.
         20             CHAIR WEINTRAUB:  Mr. Sanford.
         21             MR. SANFORD:  I think a lot of the
         22  comments on Mr. Bauer's side of the aisle have made
                                                              58
          1  fairly conclusory statements about the purposes of
          2  these contributions to host committees, and I think
          3  that to rely solely on these conclusory statements
          4  is no different than relying on this exegesis--I
          5  believe the word he used was--laid out in the CFI
          6  comments.  So I think that there's little bit of
          7  that going on on both sides.
          8             CHAIR WEINTRAUB:  All right.  I'm
          9  going to shift gears.  There's one more question,
         10  and then I will let somebody else ask questions.
         11  This one is for the right side of the table.  Mr.
         12  Bauer on the right.  Now, that's something that
         13  doesn't sound right.
         14             MR. McGAHN:  He's to my left though.
         15             CHAIR WEINTRAUB:  And that's
         16  important to note.
         17             I wanted to, since I have you both here,
         18  ask you about the leadership PAC provision.  I
         19  know that you didn't spend a lot of time on it in
         20  your written comments, but as you know, we have
         21  splintered off a section of our leadership PAC
         22  rulemaking and tacked it onto this one to the
                                                              59
          1  extent it's relevant to Title 26 concerning the
          2  issue of leadership pacts as stalking horses for
          3  Presidential campaigns and whether there should be
          4  a look-back provision saying, Well, you know, now
          5  we can see that these guys are really running for
          6  President and they were using their leadership
          7  money in an inappropriate way and possibly
          8  accepting excess contributions to what should have
          9  been termed the Presidential exploratory committee
         10  if they were going to be more honest about it.
         11             I would be interested in whether you,
         12  either of you, have any views on either the
         13  substance of that provision or the notion of us
         14  just splintering off that section of the leadership
         15  pact rulemaking and dealing with it here without
         16  dealing with the leadership PACS in a more holistic
         17  fashion.
         18             Mr. McGAHN, he's looking to you.
         19             MR. McGAHN:  Well, maybe I will.  I
         20  would refer the Commission back to my prior
         21  comments on leadership PAC issues where I believe
         22  I drew the distinction between, let's say rank and
                                                              60
          1  file leadership pacts, House and Senate members who
          2  are running for President.  To me, if someone is
          3  using their PAC and it's there just to adopt the
          4  shorthand that's been adopted for their own
          5  campaign, I think that's a problem.  It's a problem
          6  when I commented, and it's still a problem whether
          7  he's running for President or another office.  To
          8  the extent that we can bifurcate off the concern
          9  into people using leadership pacts to run for
         10  President, and can take care of it in this instance,
         11  I would support that and leave the other pacts to
         12  their own devices.
         13             CHAIR WEINTRAUB:  Mr. Bauer.
         14             MR. BAUER:  I am speaking only--I have
         15  not submitted comments on this.  I do not represent
         16  the client on this.  I'm speaking only for myself.
         17  I will say just in summary terms I'm not keen on
         18  this initiative.  I don't think the basis for it is
         19  well laid, and I would rather not see it addressed
         20  either here or, quite frankly, elsewhere.
         21             CHAIR WEINTRAUB:  Fair enough.
         22             I'm going to finally relinquish the
                                                              61
          1  microphone.  Commission Mason.
          2             COMMISSION MASON:  Thank you, Madam
          3  Chair.
          4             Paul, let me start with you.  First of
          5  all, let me try to characterize your position, and
          6  I think it's fair to say that most of the problems
          7  that you see in the convention financing current
          8  regulations relate to the FECA pre-BCRA.  There are
          9  some BCRA facts, but basically this is a FECA
         10  problem, not a BCRA problem.
         11             MR. SANFORD:  I think it's additionally
         12  there.
         13             COMMISSIONER MASON:  Yes.  You did bring
         14  in some points, but that was my understanding, and
         15  I think that's important.  You, however, toward the
         16  end said, well, maybe you want to delay the
         17  effective date.  Now, if your case is that the
         18  existing regulations are contrary to law, what
         19  authority do we have to not force the law for
         20  another four years?
         21             MR. SANFORD:  I can't cite the case or
         22  specific authority.  I think it's--I don't think
                                                              62
          1  the response to that is not to not change policy if
          2  the policy is wrong just because if the--if you
          3  have no flexibility in this area, then I think
          4  because abinition the statute prohibits these sorts
          5  of financial transaction, then you need to prohibit
          6  them immediately.  I think that given how deep we
          7  are into this convention cycle, that those who say
          8  it is too late to change the rules have a
          9  legitimate point.  They have relied on the
         10  Commission's existing policy, and so whether it is
         11  through prosecutorial discretion declining to take
         12  enforcement action against entities that have acted
         13  in reliance on the existing rules or prospectively
         14  making the rules effective, I think that the
         15  Commission has some equitable authority to take
         16  that into account.
         17             COMMISSIONER MASON:  Paul, I often find
         18  myself in disagreement with you, but I often very
         19  much appreciate your approach, and in asking
         20  questions to other panelists, I want to say I think
         21  you put your finger of the nub of the problem and
         22  ask Mr. McGAHN and Mr. Bauer in particular, because
                                                              63
          1  you've told us what you think, to address issue in
          2  connection with the Federal election.  In other
          3  words, is convention funding in connection with the
          4  Federal election given that normally the cost of
          5  holdings elections themselves we don't consider to
          6  be a FECA reportable expense and that it strikes me
          7  if Mr. Sanford is right, that puts it in one
          8  category, but my question is is he right and are
          9  convention expenses properly considered in
         10  connection with Federal elections in technical
         11  terms under the FECA.
         12             MR. McGAHN:  I think we're glossing over
         13  a lot of the concepts, and what we haven't
         14  mentioned is the fact that there are convention
         15  expense that are paid for with a grand or hard
         16  dollars.  So there is a distinction.  So to say
         17  that somehow host committees are picking up all the
         18  convention expenses I think gives the public at
         19  large the misimpression that somehow there's
         20  corporations buying the entire convention, that
         21  simply isn't the case.  The Commission knows that
         22  and that's a critical distinction.
                                                              64
          1             The second thing, which I take as an
          2  admission to a certain extent which I heard earlier
          3  was the concession that the host committee is a
          4  separate entity from the committee on arrangements
          5  and party committees.  Once you reach that point
          6  and you decide that they are separate entities, to
          7  me, the analysis becomes much simpler, and all these
          8  other issues fall into place, because that really
          9  is the issue that puts the point on the pencil so
         10  to speak, and even my colleague down the table
         11  concedes that they're two separate entities.
         12             COMMISSIONER MASON:  I apologize, but I
         13  didn't hear you answer my question.  I understand
         14  they're separate entities legally.  I understand
         15  your point about who pays what expenses.  Are these
         16  expenses in connection with the Federal election
         17  within the meaning of, let's say, Section 441(B)?
         18             MR. McGAHN:  The host committee expenses
         19  are not.  The point was to the extent there
         20  are--that you do view the convention as a Federal
         21  election activity, that would be what the grant and
         22  hard money takes care of.  The host committee stuff
                                                              65
          1  is not on Federal election activity.  It's not get
          2  out and vote.  It's not polling.  It's not
          3  any of those things you think of as Federal
          4  election activity.  Certainly, they're not the sort
          5  of things that the Commission has historically seen
          6  as being in connection with Federal elections.
          7             That is the distinction I'm drawing, and
          8  I apologize for sounding like I dodged the
          9  question, but I sort of skipped back a paragraph
         10  and got to the other paragraphs, and I apologize
         11  for that.
         12             COMMISSIONER MASON:  Thank you.
         13             Mr. Bauer.
         14             MR. BAUER:  In connection with the
         15  standard is a broad term.  It is subject to a
         16  variety of exceptions, some of which are
         17  longstanding and have not been challenged.
         18  Corporations under that provision can produce--it
         19  can engage in a variety of communications, all of
         20  which are accepted notwithstanding whether they're
         21  clearly in convention wit a Federal election.
         22  Political elections are a beast unto themselves,
                                                              66
          1  and there is an awful lot taking place in those
          2  conventions, but I agree with Mr. McGahn that the
          3  Commission has the complete authority and has,
          4  indeed, exercised it constantly over the years to
          5  treat it as an activity that is not in connection
          6  with an election in the prohibitive sense in which
          7  you are raising the standard; and as I mentioned,
          8  Congress had a fresh, recent, hot-off-the-presses
          9  opportunity to consider this issue, and it was
         10  certainly laid out there, and notwithstanding the
         11  lassitude of those numbers, it didn't rise any
         12  protests and side-bar comments of Senator McConnell,
         13  chose not to act.
         14             MR. SANFORD:  If I could chime in a
         15  couple of points, I might be willing to--might be
         16  willing to go along with the assertion that host
         17  committee disbursements are not for items that are
         18  in connection with an election if the rules did not
         19  specifically say they can pay convention expenses
         20  and list expenses that are also listed as
         21  permissible convention expenses for the host
22 committee to use the public grant funds to pay
23 
                                                              67
          1  for.
          2             COMMISSIONER MASON:  I guess my question
          3  would be why the convention committee spending
          4  would be in connection with a Federal election.
          5  Where there was only states where the parties pay
          6  for their primary, we don't say, Gee, there's a
          7  Federal primary going on here; it's being paid for
          8  by the party committee and that has to be paid for
          9  with Federal money.
         10             MR. SANFORD:  I think in situations, at
         11  least ones that I'm familiar with in which the
         12  Commission has now made a distinction between
         13  election administration expenses, the party
         14  committees were essentially acting as agents of the
         15  state in conducting the primary elections.  I think
         16  the AOs specifically said that.  And in this case,
         17  the conventions are not functions of the host
         18  cities.  They are, in fact, party functions.  So
         19  the parties aren't acting as the agent of any
         20  government entity in conducting the convention.  In
         21  that respect, they are their own expenses, and I
         22  think also you have to go back to the statutory
                                                              68
          1  definition of election.  It encompasses conventions
          2  generally, and it doesn't talk in terms of payments
          3  for the purpose of influencing delegates.  It talks
          4  about conventions generally and they're elections,
          5  and so the most logical interpretation of that to me
          6  is that those expenses are included.
          7             COMMISSION MASON:  I had--Mr. Bauer, go
          8  ahead.  I had one final question of you from your
          9  testimony.
         10             MR. BAUER:  I was going to say that I'm
         11  struck by that argument.  For all this period of
         12  time before BCRA, we've been told we need to make
         13  sure that we look past form to substance, what are
         14  candidates really doing with soft money.  Now in
         15  conventions, we're being told let's ignore the
         16  substance and concentrate on the form.  Everybody
         17  knows perfectly well that conventions are not and
         18  have not been in recent American history decisive
         19  electoral events.  In fact, they're typically divided
         20  for being wasteful party-going exercises which we obviously, as
         21  an expenditure level our party shows treasure deeply.
         22             So, you know, we have to decide on which
                                                              69
          1  side of the form-substance divide we're going to
          2  fall.  It seems to me it depends on the outcome we
          3  want to reach.
          4             COMMISSIONER MASON:  I wanted to ask
          5  you, Mr. Bauer, about your comments on the winding
          6  down, and take responsibility on behalf of my
          7  colleagues and staff for having suggested that we
          8  ought to abolish winding-down expenses entirely.
          9  The concern should be directed at me, and I still
         10  think that would be better, although I don't know
         11  that I can persuade any of my colleagues.
         12             But one of the things that disturbs me
         13  about the winding-down system as we have it and as
         14  you've addressed it is this aspect of treating
         15  winding-down expenses against a spending limit and
         16  at a point when it seems to make no sense to me,
         17  and you seem to encourage us to continue that.
         18  We've had this problem in audits occasionally where
         19  campaigns have winding-down expenses and
         20  campaigns--of course, this mostly comes under the
         21  successful nominees--want to move their
         22  winding-down expenses one way or the other
                                                              70
          1  depending on where their spending limit problem
          2  was.  And while I can sort of buy your argument
          3  that these winding down expenses wouldn't be here
          4  if it weren't for a public funding system, that
          5  these campaigns would be happy to go out of
          6  business, go away, and not spend any more money,
          7  and therefore it's sort of a legitimate part of the
          8  system, why should we hold that compelled spending
          9  against a campaign's spending limits after the
         10  fact?  As you put it, they have no interest
         11  whatsoever in continuing to raise and spend this
         12  money.
         13             MR. BAUER:  I'm not sure my comments
         14  specifically addressed that point.  I could be
         15  wrong.  I think generally speaking what we urged
         16  was the most flexibility and the most
         17  understanding, quite frankly, toward campaigns and
         18  the treatment of winding-down expenses and
         19  suggested that they be provided the greatest
         20  possible flexibility.  I don't know that consistent
         21  with that I would--I don't know that I've given it
         22  a huge amount of thought--worry too much about some
                                                              71
          1  additional room under the cap for those activities,
          2  because our whole view is you have to understand
          3  campaigns don't engage in long, protracted
          4  winding-down activities and the associated expenses
          5  out of choice or because they wish to.
          6             So anything this commission can do to
          7  display compassion, particularly, you know, as we
          8  all know--I'm reminded of the old saying, you know,
          9  at least half of every class has to finish in the
         10  bottom half.  Most of the candidates running for
         11  President don't win, and they're the ones who least
         12  like the idea of spending a huge amount of time in
         13  dealing with these issues, including the
         14  Commission's post-election audit.  So to the extent
         15  that we try to find a way to make that process as
         16  painless as possible, approach it constructively
         17  and not with suspicion, I'd support that.
         18             COMMISSIONER MASON:  Cnceptually
         19  can you reach a way to allow matching funds for
         20  these expenses if we don't count them as qualified
         21  campaign expense and thus subject to the limit?
         22             MR. BAUER:  I have not given any thought to
                                                              72
          1  the statutory regulatory mechanism by which you
          2  reach that result.  It doesn't trouble me in
          3  principle.  You know, one of the things that we
          4  mention in our comments was that a lot of
          5  candidates wind up having to spend resources
          6  defending themselves against, you know, frivolous
          7  and baseless complaints, obviously typically filed
          8  by the other party, and the difficulty we face is
          9  this is clearly not something we take on ourselves.
         10  It's not something we accept voluntarily, and yet
         11  we're all of a sudden hemmed in responding to
         12  that by the various financing strictures that don't
         13  take that type of problem, which is a consistent
         14  problem, into account.
         15             So we suggested maybe there ought to be
         16  an allowance for sort of a legal defense GELAC.
         17  So, you know, I'd like the most flexibility.  In
         18  fairness to you, I can't say that I've thought
         19  through the regulatory or statutory mechanisms to
         20  achieve it.
         21             COMMISSIONER MASON:  Thank you,
         22  Commission Mason.
                                                              73
          1             Commissioner Thomas.
          2             COMMISSIONER THOMAS:  Thank you, Madam
          3  Chair.
          4             Let me welcome everybody.  Thank for
          5  coming.
          6             I guess I'll ask some fairly short
          7  questions first.  First, since it's the shortest
          8  question, Mr. McGahn, poor Senator Kennedy and
          9  Senator Kerry have been alluded to as being out
         10  there raising the big bucks for the host committee.
         11             MR. McGAHN:  Or not so big.
         12             COMMISSIONER THOMAS:  Are there any
         13  Republican member on the House side that are out
         14  there raising money for the host committee yet, or
         15  is it just--do you know?
         16             MR. McGAHN:  I don't know one way or
         17  another, and there has been chatter, but nothing
         18  like this with public statements about Senator
         19  Kennedy and Kerry.
         20             CHAIR WEINTRAUB:  Mr. McGahn, can you
         21  get a little closer to your mike, please?
         22             COMMISSIONER THOMAS:  In their defense,
                                                              74
          1  I would note they have some very good lawyers.  So
          2  I'm guessing that they've gone into tedious detail
          3  with their lawyers in terms of whether they are, in
          4  fact, legally able to be out there doing it.
          5             I want to, I guess, first go to, I
          6  guess, the heart of what we're trying to get at
          7  here.  Mr. Weissman, I guess I'll give you a chance
          8  to sort of start the dialogue.  It seems to me that
          9  the pitch you're trying to make is that this kind
         10  of money that's coming into the host committee and
         11  the municipal fund is really pretty much getting to
         12  be indistinguishable to the kind of money that
         13  historically has just gone to the party in these
         14  soft money accounts, and you're pitching the
         15  argument in terms of it appears to you as if some
         16  of these set up donations for host committee
         17  purposes are really being designed to influence the
         18  political figures who are going to be there.
         19             I guess it might be helpful if we sort
         20  of appreciate that just influencing elected
         21  officials in its own--by itself is not a problem.
         22  I mean, we have the opportunity to lobby
                                                              75
          1  legislators, and that's good.  The idea is you want
          2  to be able to influence your legislators.  You want
          3  to be able to maybe set up an opportunity where you
          4  can face to face present your pitch on what piece
          5  of legislation would be good for your industry and
          6  what would not.
          7             What is the difference here?  What is it
          8  that takes this beyond in your view to the point
          9  where I gather you're asserting it's becoming sort
         10  of more of a quid pro quo, as more of an
         11  opportunity to actually I guess help these elected
         12  officials and so on who will be there and to in
         13  some fashion draw out a favor in return?  What sort
         14  of evidence are bringing to us along those lines?
         15             MR. WEISSMAN:  I don't think we're
         16  trying to say that this is any different from, say,
         17  someone who contributes to a candidate or to a PAC
         18  and isn't trying to corrupt the candidate or PAC,
         19  but is trying to show support, hope that the
         20  candidate perhaps agrees with them and would grant
         21  the lobbying meeting and realizes the contribution
         22  may, fuel access.  There may not be any quid pro
                                                              76
          1  quo corruption.  I'm saying this type of giving is
          2  really anything extraordinarily evil, but we are
          3  saying that the law established that there was a
          4  Federal grant that paid for convention expenses and
          5  that that grant would be reduced to the degree that
          6  a party decided to use private contributions, and
          7  if the party didn't want to have--the party did
          8  want to have its public grant reduced, then it
          9  could not accept such private contributions however
         10  innocently they may be intending.
         11             There was an exemption made by this
         12  commission that has endured for over 25 years on
         13  the grounds that, look, not that the political
         14  contribution is a quid pro quo corruption, but that
         15  these are not really to influence elections; these
         16  are not in any way designed politically.  They're
         17  not even national commercial.  They're not even
         18  designed to get a meeting with someone to see if
         19  they'll buy an Apple computer.  These contributions
         20  to these host committees municipal funds are exempt
         21  from any repayment obligation because they are
         22  purely done to promote what the mayor of
                                                              77
          1  Philadelphia wanted, local civic economy to have
          2  the convention there.
          3             That's why they're done, and for years,
          4  as Paul has pointed out, the Commission said, until
          5  1994, that nothing, not even that, not even a
          6  contribution that says it's for that purpose will
          7  be permitted without reducing the Federal grant
          8  unless it's by a local retail firm that can show
          9  that it's proportionate to the benefit that it's
         10  going to get during the days before and during and
         11  after the convention, and that was necessary,
         12  according to the Commission, to ensure that the
         13  private contribution would be allowed that was not,
         14  quote, political, that it was really commercial.
         15             So I don't think anyone has argued that
         16  the contributions that we have charted here are any
         17  more evil or worse than any other contribution.
         18  They maybe be purely altruistic.  There may be no
         19  quid pro quo.  There may be no request for access,
         20  but they are contributions that come in addition to
         21  a Federal grant that was given on the understanding
         22  that there be no expenditures beyond that Federal
                                                              78
          1  grant, and they are paying for expenditures now
          2  that are two to three times the amount the Federal
          3  grant on direct convention expenses, as our two
          4  tables show from the 2000 election.
          5             So I hope I'm getting at what you were
          6  saying.
          7             COMMISSIONER THOMAS:  Mr. Sanford, I
          8  have a question for you.  As you were laying it
          9  out, it sounds like you're suggesting that the
         10  Commission could significantly modify the current
         11  structure, but the basic concept would remain,
         12  which is that host committees in many respects are
         13  carrying out functions that have a city promotion
         14  function and that could, in fact, be paid for using
         15  unlimited donations from corporations, unions, etc.
         16  The promotion function, you seem to find a
         17  permissible function for the host committee, and
         18  you want us to identify maybe some expenses that
         19  historically and traditionally allowed host
         20  committees to pay for that we label convention
         21  expenses and you would like see it as, say, Well,
         22  the host committee can go ahead and raise that kind
                                                              79
          1  of money, but it should be treated as part and
          2  parcel of what the party committees are raising as
          3  direct convention expenses.
          4             Now, included in your batch, I guess, of
          5  expenses that you would like to see the host
          6  committee have to use basically hard money for are
          7  things like security, all of the things we list in
          8  our list of convention expenses.  It's seems like
          9  it might be a difficult task.  Wouldn't you grant
         10  that maybe there's sort of a middle ground with
         11  regard to expense like that?  Doesn't it seem
         12  appropriate when you've got a bunch of wild and
         13  crazy Democrats coming to town to build in some
         14  security, and isn't that something that the host
         15  committee just justify, something that entirely
         16  necessary irrespective of whether it's crazy
         17  Democrats or wacky Republicans coming to town?
         18             MR. SANFORD:  Well, I think that a guide
         19  that the Commission could use is--and I have to
         20  confess I don't have a lot of firsthand knowledge
         21  of how this typically works, but, you know, in
         22  various contexts the Commission has provided
                                                              80
          1  ordinary and necessary type standard to certain
          2  business transactions and said that, you know,
          3  we'll treat it as a business transaction as long as
          4  it's the fair market value.  I think the same
          5  principle can be implied in this context to try to
          6  establish whether there are ancillary expenses that
          7  host cities frequently pay for when they deal with
          8  conventions of similar size and significance, and
          9  typically they offer to the convention sponsors,
         10  the organization, like the ophthalmologists or
         11  podiatrist, the party committees, in order to give
12 them an incentive to get them to come. Let me put this a little
 
13 more simply if the
         13  cities usually pay for security expenses for
         14  conventions.  Then the Commission might be
         15  justified in allowing them to do so for political
         16  conventions.  I don't think that that's been
         17  clearly established.
         18             I think it's also true that the
         19  Commission may face some difficulty in
         20  generalizing, because in some ways, the political
         21  conventions are different.  I don't know whether
         22  they necessary involve more people, but they
                                                              81
          1  probably involve additional security concerns,
          2  particularly for the incumbent party.  So I think
          3  that that concept could be applied, and a cleaner
          4  line could be drawn between the types of expenses
          5  that typically should fall to the convention host,
          6  whether it's a party, a political party, or the
          7  ophthalmologist and those which the city inevitably
          8  picks up in order to enable entities to come to the
          9  city and hold their conventions there.
         10             And, you know, we've tried to
         11  acknowledge in the recommendations we made as to
         12  how the Commission could structure the rules, that
         13  the cities have a legitimate interest in trying to stimulate
         14  commerce and they could--they should be able to use
         15  sources from--funding sources that have a business
         16  interest in the success of the convention to
         17  promote those functions.
         18             COMMISSIONER THOMAS:  Thank you.
         19             Mr. Bauer, while I've got you here as
         20  the most experienced and perhaps the most agile
         21  legal mind on these two concepts that we'll ever
         22  have here in our presence--that's a compliment.  We
                                                              82
          1  don't always agree on things, but it's a
          2  compliment--let me ask, coming into this
          3  rulemaking, I had sort of assumed that we had a
          4  statutory construction issue that didn't give as
          5  much leeway with regard to what national party
          6  committee operatives could do in terms of perhaps
          7  maybe raising monies for the host committee as
          8  distinguished from maybe what the Federal officers
          9  and candidates can do in raising money for the host
         10  committee; and specifically what I'm getting at is
         11  in the BCRA provision you now have in 441(I)(A) a
         12  very broad proscription on national party
         13  operatives raiding or spending any money that isn't
         14  subject to the limits, prohibitions, and disclosure
         15  requirements of FECA, and I had thought that that
         16  was a very broad, all encompassing ban.
         17             There is another provision that's been
         18  alluded to which talks about how national parties
         19  as well as state parties and local parties and
         20  operatives are not to solicit monies for a 501(C)
         21  organization if that is an organization that
         22  undertakes activities in connection with Federal
                                                              83
          1  elections.  And I had assumed that since that
          2  second provision doesn't start out with a
          3  notwithstanding any other provision clause that we
          4  were bound to apply the first provision I talked
          5  about, the very broad proscription for national
          6  party operatives raising monies that aren't subject
          7  to limits, prohibitions, and disclosure
          8  requirements, we were bound to apply that provision
          9  in a way that wouldn't let national party
         10  operatives under any circumstances raise money for
         11  something like a host committee that's a 501(C)
         12  organization.
         13             That second additional provision, it
         14  seems to me took on an added meaning when, for
         15  example, it would prevent a national party
         16  committee from even raising hard dollars for a
         17  501(C) organization unless that organization didn't
         18  have its--didn't undertake activities in connection
         19  with a Federal election.  Now, I'm wondering how
         20  those two provisions relate together.  Do we still
         21  have the flexibility to allow national party
         22  committee operatives to help raise soft money for
                                                              84
          1  the host committee municipal funds?
          2             MR. BAUER:  I believe the Commission
          3  does.  I may not be able to put a fine polish on
          4  this argument at the moment simply because I don't
          5  have the provisions in front of me, and I'd
          6  probably want to think it through.  I mean, one of
          7  the reasons I'm a little bit taken aback by the
          8  debate that has developed on this is, again, the
          9  belief I may have mistakenly taken away from the
         10  BCRA debate that Congress chose to set aside
         11  convention financing and leave the Commission rules
         12  as they are currently in place, and maybe it's
         13  because our attention is so focused on the concept
         14  agreed to that we didn't foresee or anticipate
         15  there would be a subsequent regulatory debate, and
         16  so in that sense, I would probably can't put a fine
         17  polish on the argument.
         18             But it does seem to me that the type of
         19  501(C) that is implicated in the very specific
         20  prohibition on national party operatives and one
         21  that has as its principal purpose Federal
         22  election-related activity is not in my judgment
                                                              85
          1  what host committees are, that is to say there are
          2  types of election-related activities that BRCA is
          3  very concerned with.  It identifies voter
          4  registration, get out the vote, and the like, and
          5  the host committees are engaged in an enterprise, it
          6  seems to me, notwithstanding the fact it takes
          7  place in relation to the activities of the
          8  convention, but it's engaged in activities that
          9  have long been viewed as while related to an
         10  election, not in connection with or intended to
         11  influence an election.  It's an unusual animal, I
         12  suppose is the best way I could put it, but I
         13  certainly don't think it falls within the types of
         14  tax exempt organizations that the prohibition refers
         15  to as intended to reach.
         16             So again, and you raise a fair question,
         17  which is how does it all fit together tightly, and
         18  the answer is, number one, I think that may be goal
         19  that alludes us in terms of the provisions of BCRA
         20  in pari materia or however we may wish to do it,
         21  but secondly, I'd also be happy to answer your
         22  question on paper subsequent to the hearing by
                                                              86
          1  taking sort of a closer textual look and encourage
          2  you on the path I believe is the right one.
          3             COMMISSIONER THOMAS:  Thank you.  It's
          4  just baffled me whether we had any way to read the
          5  441(I)(D) provision to somehow trump the 441(I)A
          6  provision.
          7             MR. BAUER:  I should mention also, if I
          8  could Commission, that also is this additional
          9  strange development that would occur if one read it
         10  another say.  The Federal elected officials, who
         11  are the ones whose access you're most concerned
         12  with, would be free to raising the soft money, but
         13  we would be chasing Terry McCauliff and his
         14  counterparty into a dark end corner, and there's
         15  something about that that just strikes me as sort
         16  of surpassingly peculiar.
         17             COMMISSIONER THOMAS:  Okay.
         18             CHAIR WEINTRAUB:  Commission Toner.
         19             COMMISSIONER TONER:  Thank you, Madam
         20  Chair.
         21             I want to thank all of the panelists for
         22  being here today.  It's great to see you.  I want
                                                              87
          1  to follow up on a couple of items that have been
          2  discussed.  First, on the leader PAC proposal, I
          3  understand, Mr. McGahn, your position is you
          4  support the proposal for us in terms of
          5  Presidential, but make a clear distinction in terms
          6  of use of leadership pacts by Congressional
          7  officials who aren't running higher office; is that
          8  right?
          9             MR. McGAHN:  Yes, sir.
         10             COMMISSION TONER:  Mr. Sanford, I
         11  noticed in the Center for Responsive Politic
         12  comments there appear to be support for the
         13  leadership PAC proposal before us.  Do you care to
         14  elaborate on that?
         15             MR. SANFORD:  No, just to restate that I
         16  think it's incomplete and that we urge the
         17  Commission to follow through the other way and read
         18  our comments in that context, but no.  We think
         19  that within this limited context, this proposal is
         20  okay.
         21             COMMISSIONER TONER:  Following up on, I
         22  think, a key issue that we have before us today
                                                              88
          1  obviously is the raising of soft money for host
          2  committees and the role of members of Congress in
          3  doing that, and I just want to follow up on a
          4  couple of things.  We talked about how it's clear
          5  that, you know, certain members are raising soft
          6  money for host committees for 2004.
          7             And, Mr. Sanford, I'll start with you.
          8  I mean, clearly, if BCRA makes that conduct
          9  illegal, that's the case regardless of what this
         10  agency does here through regulations.  I just want to
         11  confirm two things with you and get your sense.
         12  First of all, do you think that any members of
         13  Congress who are raiding soft money for host
         14  committees are breaking the laws?
         15             MR. SANFORD:  Yes.
         16             COMMISSIONER TONER:  You do?  Do you
         17  think that's the case regardless of what this
         18  agency does through rulemaking because a statute is
         19  a statute?
         20             MR. SANFORD:  I think that's correct.
         21             COMMISSIONER TONER:  Okay.  Mr. Bauer,
         22  do you care to comment on that?
                                                              89
          1             MR. BAUER:  I couldn't, could not,
          2  disagree more, as I'm sure you would anticipate.
          3             COMMISSIONER TONER:  I figured you
          4  might.
          5             MR. BAUER:  What is it based on?  What
          6  exactly would that statement be based on?  Where is
          7  it in current regulations of the FEC that
          8  prohibits, or in BCRA, prohibits office holders
          9  from continuing to raise money for host committees?
         10  The Commission here is asking the question whether
         11  the regulations ought to be revised?  That's a
         12  question that the Commission can ask.  That's a
         13  question we're here to try to help you in some way
         14  answer, but to suggest somehow that notwithstanding
         15  all of this, notwithstanding Congress' failure to
         16  deal with it, notwithstanding it being an open
         17  issue before the agency that members in good faith on
         18  reliance of counsel who are raising money for this
         19  purpose are breaking the law strikes me as
         20  completely without foundation.
         21             COMMISSIONER TONER:  Following up, Mr.
         22  Sanford, I thought the comments that you submitted
                                                              90
          1  were interesting in pages 13 and 14, and you
          2  alluded to this in your earlier discussions.  You
          3  seem to suggest that there are some bona fide host
          4  committee activities that can be paid for with soft
          5  money, and I think in the comments you mention
          6  certain activities:  Promoting the suitability of
          7  the city as a convention site, providing
          8  accommodations and hospitality the members of the
          9  site selection committee.  I'm reading from the
         10  second paragraph on page 14.  You talk about
         11  welcoming convention attendees, security costs,
         12  things of that sort.
         13             Is that a fair reading?  Are you
         14  basically making the that point that there are
         15  definitely certain activities that host committees
         16  can pay for with soft money and that's permissible
         17  under BCRA and under FECA; is that right?
         18             MR. SANFORD:  Yeah.  I tried to base
         19  that on the existing regulatory structure the
         20  Commission has.  I mean, the list of permissible
         21  expenses in the current rulings for host committees
         22  contain some that don't fall within the definition
                                                              91
          1  of convention expenses for the convention committee
          2  and others that do, and my approach was to try to
          3  use that structure to draw a clearer line between
          4  types of expenses that the two entities might pay,
          5  and I'll concede that those are not exhaustive
          6  lists.  There may be other expenses about which
          7  judgments will have to be made, but I don't mean to
          8  minimize the challenge that presents, but I think
          9  that there's a seam in the rules, that can be drawn
         10  from the rules, that can be used to make a clearer
         11  distinction between the types of expenses that
         12  Federal funds can be used for and non-Federal funds
         13  can be used for.
         14             COMMISSION TONER:  And just to follow
         15  up, and then after BCRA, you do believe that at
         16  least that in these areas that you outline in the
         17  comments, these types of activities, it should be
         18  permissible for host committees to spend soft money
         19  on those activities?
         20             MR. SANFORD:  I think the Commission can
         21  interpret the statute that way.
         22             COMMISSION TONER:  Would you interrupt
                                                              92
          1  the statute that way?  Do you think that's
          2  something that makes sense from a policy
          3  perspective?
          4             MR. SANFORD:  I start from the view that
          5  what makes all of this a problem is that the rules
          6  allow the host committee to pay for convention
          7  expenses, and that's, in fact, what is happening.
          8  If the rules didn't allow that, then I think the
          9  role of the host committee as essentially a
         10  pass-through for non-Federal would not be nearly so
         11  acute and that we'd be looking at a very different
         12  landscape here, and then Commission's determination
         13  that donations to the host committees are
         14  commercially motivated would be standing on much
         15  firmer ground.
         16             COMMISSIONER TONER:  Mr. Weissman, I
         17  thought the study that you put together was very
         18  interesting, and I wanted to follow up on one
         19  issue.  You noted in the study that it was
         20  difficult for your researchers to get a full sense
         21  of host committee spending, and part of that was
         22  perhaps the reporting processes that we use for host
                                                              93
          1  committees don't fit as well.  Could you elaborate
          2  on that, and do you have any specific
          3  recommendations for us on how we could better deal
          4  with host committee reporting?
          5             MR. WEISSMAN:  Yes.  The difficulty is
          6  that under the--in the form, there are two place
          7  that are relevant to revealing what the host
          8  committees are actually doing.  One is the purpose
          9  of expenditure column, but this is an open-ended
         10  purpose of expenditure column in which the host
         11  committee can simply write down however it wants to
         12  categorize its expenditure.  It has no relationship
         13  to the categories that have been set out by the
         14  Commission as permissible host committee
         15  expenditures, such as, you know, for, let's say,
         16  law enforcement, transportation, for various
         17  construction in the convention and that sort of
         18  thing, office equipment, and a lot of the--many of
         19  the goods that are discussed, such as computers,
         20  you don't know was this computer used within the
         21  convention or was it just used for the office and
         22  so forth.  So it's difficult to get a bead on what
                                                              94
          1  it is that the host committees are actually doing,
          2  because there's an open-ended purpose column, and
          3  it is not a column that says chose from these
          4  purposes that are permissible for host committees
          5  and we have established in regulations.
          6             The second problem is that there's a new
          7  addition to the form this year, which has a
          8  categorization of expenditure, but the
          9  illustrations and categories are all from candidate
         10  and PAC like polling, how much did you spend on
         11  and sort of categorize this expenditure as polling
         12  and media or something.  Of course, the entire
         13  convention is a media message.  So the
         14  categorization things also not relevant.  So our
         15  recommendation, which is found toward the end of
         16  this statement is to adopt the categories and
         17  regulations that the Commission establishes or has
         18  for the host committee expenditures and to require
         19  the host committees to fit into that particular
         20  category.
         21             If I could make one quick addition on
         22  the question raised earlier for Mr. Sanford and
                                                              95
          1  that Mr. Thomas raised earlier, the question of
          2  whether security can be considered to be an
          3  expenditure that you might allow not only cities to
          4  pay, but as I understand it, perhaps private funds
          5  could be used to help security because security is
          6  a typical municipal expenditure, my understanding
          7  is that first we have to take a look back at
          8  security these days.  Boston is applying for $10
          9  million under the Homeland Security Act to protect
         10  the Democratic convention, and obviously that is
         11  inherent to the convention.  It is not a simple
         12  municipal sort of expenditure, and the fact that
         13  these are political conventions these days means
         14  they're different from other conventions and may
         15  not fit as easily into the rubric.
         16             The other problem is that these kinds of
         17  law enforcement expenditures and in the
         18  Commission proposal now have been considered
         19  convention expenses.  They have not been considered
         20  expenses that are like welcoming delegates who come
         21  into the city.  They have not been considered
         22  expenditures like paying for the committee to
                                                              96
          1  recruit the parties to adopt their city, which are
          2  very local civic and commercial in nature.  They
          3  are promoting the civic economy.  Security and
          4  transportation are expenditures that have been
          5  viewed historically by the Commission as inherent
          6  to the convention expenses.
          7             Were there to be an exemption at least
          8  for our data, the Commission should be aware that
          9  Los Angeles claims to have spent $23 million on
         10  security during the 2000 convention; Philadelphia,
         11  13 million.  And since the private financing of
         12  conventions you might say is about a 25 to 35
         13  million dollars issue, money could easily be
         14  shifted so that private money could be recruited to
         15  host committees to pay for things that cities used
         16  too pay for, and then cities could pay for things
         17  that host committees used to pay for.
         18             One of the interesting things in our table
         19  are data of how many cities and states continue to
         20  do for convention, an issue that is not fraught
         21  with any controversy at all insofar as public funds
         22  are used, which is predominantly what is used;
                                                              97
          1  however, the concept of municipal fund, even though
          2  as we can tell it's only been used a couple of
          3  times in 1984 and once in 1996, could open up this
          4  area more and more private funding as well as if
          5  host committees could do it.
          6             COMMISSIONER TONER:  Mr. Bauer, I want
          7  to briefly discuss a couple of interest policy
          8  ideas that you had in your comments, and you
          9  alluded to the first one earlier.  One, as I
         10  understand it, would be creating a primary GELAC
         11  for Presidential campaigns, and I just want to try
         12  to understand it.  That would be a fund of money
         13  that would be raised through private contributions
         14  where the spending of that money wouldn't count
         15  towards the primary spending ceiling and
         16  contributors would have a separate $2,000 per
         17  person limit for that fund; is that the concept?
         18             MR. BAUER:  Yes.
         19             COMMISSIONER TONER:  Do you believe we
         20  have a statutory basis for doing that I guess in
         21  parallel of what we've done in the GELAC, the
         22  General Election Fund?
                                                              98
          1             MR. BAUER:  Yes.
          2             COMMISSIONER TONER:  And do you think
          3  that that would reduce some of the pressures that
          4  candidates face where political dollars versus
          5  compliance dollars, eliminate that pressure?
          6             MR. BAUER:  I think it would help
          7  alleviate that pressure.  I think that's something
          8  the Commission should look at very closely.
          9             COMMISSIONER TONER:  You also outline in
         10  your comments, as I understand it, you support
         11  basically allowing candidates who are unsuccessful
         12  for the nomination in the primary to go to the
         13  national conventions and have those treated as a
         14  qualified campaign expense.  I understand that that
         15  would be building upon the advisory opinion that we
         16  issued in 2000; is that right?
14            MR. BAUER:  Right.  That's right. The Bradley 
15 McCaine Opionion  I
         18  think that we ought to be somewhat more open-fisted
         19  about how we handle those kinds of expenses, and
         20  again, there are a variety of reasons why
         21  candidates go to conventions.  The fact that they
         22  have suspended or withdrew, not only that they're
                                                              99
          1  ineligible doesn't make it less imperative for them
          2  for a variety of ways, for a variety of reasons, to
          3  be there.  And so it just doesn't to me that making
          4  that allowance, given the very unique role the
          5  conventions and attendance at conventions plays 
          6  in our process doesn't seem to me that it's necessary
          7  to put quite the range of restrictions or
          8  certainties on it that we do today.
          9             COMMISSION TONER:  And we allowed in
         10  that advisory opinion for certain activities to
         11  take place.  Is it your view that we should
         12  basically allow the spending to occur, but subject
         13  it to a certain cap?
         14             MR. BAUER:  That was our proposal, that
         15  if you were concern about it being sort of the
         16  gateway to a large amount of money, you could set
         17  it at a hundred thousand or 250,000, and you could
         18  put a limit on how much money you could spend in
         19  relation to the convention, but that would obviate
         20  the necessity to place conceptual restrictions on
         21  what they could do.  In the Bradley-McCain opinion,
         22  there are some very defined activities that were
                                                             100
          1  permitted and then it leaves the question about a
          2  whole range of other things that are typically done
          3  at conventions and raises questions about whether
          4  they're still permissible.
          5             COMMISSIONER TONER:  One final question:
          6  In the NPRM, we talk about some of the
          7  difficulties, obviously, with the shortfall in the
          8  matching fund account and candidates that don't
          9  have the money that they're entitled to because
         10  there isn't sufficient resources in the account,
         11  and proposed perhaps a five-percent exemption, and
         12  we also asked sort of more narrowly that we would
         13  be treating any bridge loan expenses, these
         14  expenses that candidates incur to get private money
         15  because they don't have the matching funds, could
         16  be exempt from the spending ceiling similar to this
         17  fund-raising exemption we've had for some time.
         18             Would you support that approach?
         19             MR. BAUER:  Yes, absolutely.  As a
         20  matter of fact, there are other expenses, it seems
         21  to me, that are associated with that shortfall that
         22  the Commission ought to account for in some way.  I
                                                             101
          1  think the objective here would be to try to find
          2  ways to help candidates get through the process
          3  without bogging them down in difficult choices
          4  between money they want to spend on politics and
          5  money they want to spend on compliance or
          6  subjecting them to clear-cut unfairness, which is
          7  to say they wind up spending money because of the
          8  shortfall that they really don't have, and it's
          9  still allocable to the limit.
         10             So yes, I would support it that
         11  instance, and there may be some other examples like
         12  other categories of expenses like that that could
         13  be included in such an effort.
         14             COMMISSIONER TONER:  Thank you.
         15             Thank you, Madam Chairman.
         16             CHAIR WEINTRAUB:  Thank you.
         17             Commissioner McDonald.
         18             COMMISSIONER McDONALD:  Madam Chair,
         19  thank you.
         20             Good morning.  It's good to see you,
         21  Don, Bob, Paul, Steve.  I'm delighted you're here.
         22             Just a little history of the process, I
                                                             102
          1  think, how things have changed, I think convention
          2  spending got some real interest in about 1972.  I'm
          3  not saying we didn't have it before or after, but I
          4  think Dea Beard, if memory serves me right, was
          5  very prominent, and we want to thank you her for
          6  being here today, because I do think that was kind
          7  of one of the first major issues in relationship to
          8  convention process and what really emanated from
          9  what later became known as the Watergate scandal,
         10  if you will.
         11             Let me refresh Don's memory.  That's
         12  where the Republican broke into the Democratic
         13  headquarters to see if he could find out what our
         14  plans.  If you lose 49 out of 50 states, you
         15  couldn't have had many plans.  We would probably
         16  given them  to you if you would have just called, if we
         17  could have found them, that is.
         18             Historically, the other thing is that of
         19  course in terms of the security 35 years ago, yesterday,
         20  Senator Kennedy was murdered in Los Angeles.  So
         21  there are things that emanate historically in
         22  relationship to the kind of discussions that we're
                                                             103
          1  having.  I've kind of taking the view about
          2  conventions that the more flexibility, the better,
          3  and I do so not unmindful of the studies, the very
          4  outstanding study that was brought to us this
          5  morning as well as the history of the process
          6  itself.  I'm interested--I want Don and Bob to
          7  refresh my memory.  I think this might be a
          8  little bit different viewpoint than they took about
          9  the Congress when I last saw them at this table.
         10  Suddenly their interest in the Congress seems to be
         11  somewhat different than I had recalled in the
         12  previous rulemaking.  Here, I gather we're saying
         13  on the one hand since Congress for the most part
         14  didn't address this issue, that we should leave
         15  well enough alone.
         16             Bob, you had indicated on this proposal
         17  about the GELAC fund that you might want to--I'm
         18  just trying to be sure I understand.  As you know,
         19  critics of ours say that we created that to begin
         20  with, it had nothing to do with what Congress had
         21  done.  But you're saying you think we have the
         22  authority even though Congress has really not
                                                             104
          1  addressed this, and I'm just trying to figure out
          2  how we kind of get the authority in this in area to
          3  do this where Congress really has not addressed the
          4  issue, and, in fact, as I say, I think critics
          5  point out to us that some of our handling of these
          6  types of arrangements that we created over time,
          7  when go to look for it statutorily, it's a little
          8  hard to find.
          9             So if you don't mind amplifying on that
         10  just a minute, because it might really help us,
         11  particularly if there's some way in the overall
         12  scheme of things it would be injurious to the
         13  process.
         14             MR. BAUER:  I'd say two things,
         15  Commissioner.  It's a fair question.  I think the
         16  first is that by and large, the Commission has not
         17  come under, in my judgment, a very significant
         18  attack for the way in which the nominating and the
         19  general election financing provisions have been
         20  implemented.  By and large, the statute as a whole,
         21  setting aside the controversy over, you know,
         22  national party collection of soft money, but the
                                                             105
          1  statutory scheme itself and its implementation
          2  generally has not been a source of criticism of the
          3  Commission.  I don't recall seeing an enormous
          4  amount of concern that, for example, GELAC activity
          5  generates the potential for significant undermining
          6  of the statute.
          7             There has been from time to time some
          8  partisan cross-fire.  I recall a little bit of that
          9  in 2000, but it's really quite incidental.  So I
         10  don't think we see a concern that somehow the
         11  Commission cannot handle the complexities of
         12  administering the Presidential campaign financing
         13  process, and a belief that over the
         14  years, particularly with its regular reviews each
         15  cycle, that it hasn't made the appropriate
         16  adjustments necessary to make it work better in the
         17  light of experience.
         18             COMMISSIONER McDONALD:  Thank you.
         19             Don, let me ask you, you had said in the
         20  last round when you and I visited that Congress
         21  basically in relationship to passing the law was
         22  signing it at two or four o'clock in the morning
                                                             106
          1  and really didn't much know what they were doing.
          2  I'm sure you didn't apply that to all members, but
          3  some members, I gather.  That being the case, the
          4  reliance this morning or what they did not do in
          5  your estimation in terms of this particular focus
          6  on the convention process, I'm just trying figure
          7  out how we kind of get to where you think we ought
          8  to be vis-a-vis your previous theory about the
          9  Congress and their activities or lack of.
         10             MR. McGAHN:  You alluded to
         11  inconsistency in your initial question, and Mr.
         12  Bauer included me in that, and I don't see any
         13  inconsistency in what I've said before and what I
         14  say now.
         15             COMMISSIONER McDONALD:  You don't think
         16  the fact that they didn't know what they were doing
         17  is something somebody can rely on now?
         18             MR. McGAHN:  That's a broad statements.
         19  We can paint on the whole statute what I was really
         20  referring to at the time, things like coordinated
         21  versus independent expenditures and the choices
         22  between the two and the minutia of the 98-pages of
                                                             107
          1  the bill.  I mean, what they thought they were
          2  doing was this concept of banning soft money, which
          3  is a term which we use in a variety of different
          4  ways and that sort of thing.
          5             So to the extent I was overly simplistic
          6  or rhetorical, in fact, overstated that they didn't
          7  know what they were doing.  I don't think it's fair
          8  to say that somehow now I'm inconsistent.  I've
          9  been very consistent in my argument here today.
         10             COMMISSIONER McDONALD:  I'm not trying
         11  to attack you.  I'm just trying to figure it out,
         12  because you're saying that the absence of Congress
         13  alluding to specifics in this area means that in
         14  essence they have kind of signed off on the status
         15  quo.
         16             MR. McGAHN:  Wait a minute.
         17  Commissioner, when did I say that?
         18             COMMISSIONER McDONALD:  Pardon me?
         19             MR. McGAHN:  When did I make that
         20  argument?
         21             COMMISSIONER McDONALD:  You made that
         22  this morning?
                                                             108
          1             MR. McGAHN:  It was Mr. Bauer.
          2             COMMISSIONER McDONALD:  So you don't
          3  agree with that?
          4             MR. McGAHN:  I didn't say I didn't agree
          5  with it, but I don't want you to put words in my
          6  mouth.
          7             COMMISSIONER McDONALD:  I don't want to.
          8  What do you think?
          9             MR. McGAHN:  Well, my comments here are
         10  limited to three areas that I outlined:  Members
         11  being able to raise money for the host committees,
         12  which are 501(c) and the statute is clear.  I
         13  didn't make reference to the intent or anything of
         14  the sort, and my argument there lies in the
         15  statute.
         16             My second point was the local rule,
         17  which is the Commission regulation, which in my
         18  view, times have changed.  Because the facts have
         19  changed, the Commission can change its regulations.
         20  And the third is the notion you can reach out and
         21  regulate events during the week of the convention
         22  or the time around the convention, and there's
                                                             109
          1  nothing in the statute itself which indicates that
          2  needs to occur because of BCRA, and I don't see any
          3  factual change which results in that.
          4             So I don't see the inconsistency, and I
          5  want to again say I'm here on behalf of a single
          6  member of Congress.  I'm not speaking for the
          7  national party, and although I've gone off those topics
          8  here to help the Commission and offer what pithy
          9  comments I can, but I'm not going to sit here and
         10  certainly try to compete with the institutional
         11  knowledge of Mr. Bauer and others on conventions.
         12             COMMISSIONER McDONALD:  Let me say
         13  you're right.  That certainly isn't in the three.
         14  I didn't realize that you were precluding yourself.
         15  You do appear to have a rather substantial amount
         16  of knowledge in your current position.  I was
         17  surprised, I guess, that you didn't know whether
         18  House members on your side of the aisle might be
         19  pursuing a goal somehow like Senator Kennedy and
         20  Senator Kerry.
         21             MR. McGAHN:  My advise has certainly
         22  been it's legal to raise.  Whether there's actually
                                                             110
          1  been solicitations, I just don't have personal
          2  knowledge of how far along the tracks members on
          3  the Republican side--to the extent it's helpful, I
          4  can kind find out and provide that information.
          5  Just sitting here today, I just can't say for
          6  certain where we are.
          7             Commissioner McDonald:  Thank you.
          8             Steve, let me go to you just real quick,
          9  if I may, Ms. Chairman.
         10             In terms of--and I realize your position
         11  is that you've done a study and that you're really
         12  not taking a position, but it's hard to read the
         13  study without concluding that you're taking a
         14  position of sorts, which is fine.  Aside from your
         15  study, your own assessment of the study or the
         16  climate in general, what conclusions would you draw
         17  outside of what you've put forward, I guess might
         18  be the best way to ask it.  It's one thing to have
         19  the study.  I think that you do draw a conclusion
         20  about the study, which is perfectly fine, but what
         21  would you want us to leave with in terms of your
         22  participation today other than the fact of the
                                                             111
          1  increased costs, which we concluded is certainly
          2  true?
          3             MR. WEISSMAN:  Well, again, I don't
          4  think--we can't really--I'm not taking a policy
          5  stance, because the institute has a task force that has read
          6  this study and will issue its findings and it
          7  specific recommendations in July.  I think that
          8  what I would like to come out of this study other
          9  than the increased cost that people take out of it
         10  is--and I think, you know, to the extent that
         11  people read it, they can assess whether Mr. Bauer's
         12  portrait or my portrait of what's in here is
         13  correct and make your own assessment of the degree
         14  to which and we have not argued a hundred percent that
         15  political motivation has become important and that
         16  convention expenses are being paid for by host
         17  committees predominantly rather than convention committees.
         18             I think what comes out of this is that
         19  whatever the Commission does, the old rationale for
         20  doing this doesn't have the power that it used to
         21  have, that there was a rationale that had some
         22  credibility, although some have argued to us that
                                                             112
          1  even in 1984 Trammel Crow was, you know, getting
          2  the Republicans to contribute to the Dallas
          3  Municipal Fund, and look at the chairpersons of
          4  1992:  Kenneth Lay for the Republican host
          5  committee and Robert Rubin for the Democratic host
          6  committee.
          7             But we've argued that that rationale for
          8  the exemption doesn't have the power that it did
          9  before, and that if the Commissioned for legal
         10  reasons and others decides it has to temporarily or
         11  permanently provide some exemption, then perhaps it
         12  has to rethink this rationale and find another
         13  rationale, or if it can't and it wants to provide
         14  the exemption, I suppose there are options the
         15  Commission has such as asking Congress what it
         16  thinks, seeing if it replies or not in any time
         17  timely way.
         18             So I think what we most would like to
         19  come out of this, and we appreciate the attention
         20  that the study has gotten, is for the Commission to
         21  reflect upon it and figure out what is--can they
         22  develop an independent rationale for whatever they
                                                             113
          1  want to do, and if not, is this an issue that has
          2  to be dealt with in part by Congress and by the
          3  President.
          4             Commissioner McDonald:  And what about the argument
          5  made by your distinguished colleagues there that
          6  the Congress has reflected on this and their
          7  position is things are fine.  What's wrong with
          8  that?
          9             MR. WEISSMAN:  Well, if I could put on
         10  one past hat, I was one of the people that before I
         11  took this job in Campaign Finance Institute who was
         12  involved in the lobbying effort with Congress on
         13  the McCain-Feingold bill.  This a purely personal
         14  impression.  My impression was no one focused
         15  particularly on this issue, that it was brought up
         16  by Senator McConnell to characterize legislation.
         17  His interpretation is plausible and so is the
         18  opposite, so that my feeling was that nobody
         19  among--I was working at the time with Public
         20  Citizen.  Nobody among those reform groups, nobody
         21  among those sponsors of the legislation were really
         22  thinking about this issue.
                                                             114
          1             COMMISSIONER McDONALD:  These poor
          2  members, they're just not shaping up well with any
          3  of you.  I'm starting to feel worse.  I feel about
          4  the members like I did about the city of San Diego
          5  some years ago.
          6             MR. WEISSMAN:  But this is complex--as
          7  everyone has pointed out here, this is a
          8  complicated issue because there is a sort of
          9  mixture of local civic thing in here, in the
         10  motivation, but there's these other motivations,
         11  and it was a level of complexity that Congress
         12  felt, look --in fact, it was a kind of decision not
         13  to get into the Presidential thing at all.  They
         14  didn't want to get into Presidential issues.  There
         15  were some concerns that what would happen in the
         16  public financing system if soft money is gone and
         17  those kinds of things.  There was a kind of
         18  tendency to shy away from the Presidential system and say,
         19  Look, it's hard enough to deal with this particular
         20  legislative issue generally.
         21             So I don't think it was totally
         22  irresponsible of Congress at that point to say,
                                                             115
          1  Look, we'll get to the Presidential thing at
          2  another time.  That was just simply a personal
          3  impression from firsthand involvement over four or
          4  five years in that particular issue.
          5             COMMISSIONER McDONALD:  Very briefly,
          6  Paul, going back to 1972 for a moment, one of the
          7  problems, of course, was that theory was that a
          8  large amount of money underwriting the convention
          9  by a particular source or a handful of sources was
         10  a serious problem.  Over time, what has happened, I
         11  think on either side of the aisle, I think you can
         12  make a very compelling case that lots of money
         13  certainly has been poured into the convention
         14  process.  But two things:  One, it's in the public
         15  domain, which is decidedly different than what
         16  triggered this to begin with, I think; and two, if
         17  you're representing Southwestern or American
         18  Airlines or Korean Air, whatever it might be, the
         19  one thing in particular in the public arena is that
         20  they may have alliances in relationship to an
         21  industry, but of course the internal fighting--the
         22  most recent, of course, is American and TWA where
                                                             116
          1  they can't agree on what vote they made jointly,
          2  clearly what has happened is that there are very
          3  competing interests, I guess is what I'm saying.
          4             The issue when this first began to take
          5  center stage was clearly that a few folks would
          6  have unlimited access and that a national party
          7  would be beholden to those folks.  Now, lots of
          8  things have changed, first and foremost, the
          9  publics ability to know what has transpired.  I
         10  guess I'm asking you what the problem with that is
         11  in view of the fact that even though people may
         12  give substantial amounts of money, it is not in the
         13  context--I don't think any of us think that the
         14  convention per se determines who the Presidential
         15  nominee is.  Everybody knows when they get to the
         16  convention.
         17             So where does that leave us in terms of
         18  a practical aspect?  What really started out in
         19  terms of the law?  Don't you think we have come a
         20  long way in relationship to how things used to be?
         21             MR. SANFORD:  Well, I think that
         22  certainly it's true that the outcomes seem to be
                                                             117
          1  rarely in doubt, if they are at all, although they
          2  could be.  They could in any particular cycle be.
          3             MR. McGAHN:  Agreed.
          4             MR. SANFORD:  So, you know, it can be
          5  said that the money that's--making it's way the
          6  soft money--let's just use that model for a
          7  moment--that's making its way to the benefit of the
          8  parties committees.  I mean, this isn't really influencing the
          9  outcome of the election.  But I guess I interpret
         10  Congress' decision to prohibit soft money for the
         11  national party committees to sort of transcend
         12  that--I mean, they said that these entities aren't
         13  supposed to collect these funds, and, you know,
         14  part of the reason that it was allowed before was
         15  because the money was being used for generic
         16  purposes that was necessarily tied to a
         17  particular election, and Congress decided even
         18  though that wasn't the case, new limits were
         19  needed.
         20             And so I don't think that the way the
         21  money is making its way into the convention process
         22  is very different than what Congress banned,
                                                             118
          1  explicitly banned, you know, and making its way
          2  into the hands of the party committees and other
          3  processes.
          4             COMMISSIONER McDONALD:  I thank all of
          5  you, and I appreciate it very much.
          6             CHAIRWEINTRAUB:  Thank you,
          7  Commissioner McDonald.
          8             Vice Chairman.
          9             VICE CHAIRSMITH:  Thank you, Madam
         10  Chair.  I'm going to direct most of my questions to
         11  Mr. Sanford and Mr. Weissman, primarily because
         12  most of our commentators and the other panelists
         13  today share views that would be more similar to
         14  those expressed by Mr. McGahn and Mr. Bauer.  So I
         15  want to give you a chance to be heard.
         16             I'll start, Mr. Weissman, with some
         17  things for you and your study, and I guess Mr.
         18  Bauer noted that the corporate sponsorship was way
         19  up in the last decade or so.  In fact, I even look
         20  forward to probably 2008--I don't think we'll get
         21  there in 2004--where Americans can turn on their
         22  television sets to CNN and watch the Nokia
                                                             119
          1  Democratic Convention or the AT & T Republican
          2  National Convention, but you note the explosion in
          3  the corporate contributions to host committees and
          4  so on, and yet it strikes me that in addition to
          5  the point that Mr. Bauer makes, which we don't have
          6  the exact numbers on right now, but you cite in the
          7  study another factor that would be very
          8  determinative of why there was this growth, which
          9  was the Commission's change in 1994 to do away with
         10  the local retail rule; and of course then we see a
         11  big explosion beginning in 1996, and you note
         12  specifically or you cite some examples of companies
         13  that, gee, looks really motivate and why are they
         14  suddenly contributing so much.  You note Motorola,
         15  GM, Ameritech, Microsoft.
         16             It's not that there are a lot of
         17  companies like that that would have been able to
         18  contribute prior to 1994 Commission regulations.
         19  So isn't that coupled with the fact that Mr. Bauer
         20  has raised something that equally explains the
         21  sudden rise in corporate funding for the host
         22  committees?
                                                             120
          1             MR. WEISSMAN:  To focus on what we do
          2  say in our a statement is, yes, I think in part the
          3  change in regulations which one could argue the old
          4  regulations were too inflexible.  People said,
          5  Well, what if we get a benefit to our business in this city that
          6  last beyond the life of the convention.  What if
          7  we're not a retail business but we have a lot of
          8  economic stake from the city; we get benefits, but
          9  now that there is no particular measure of benefit
         10  that is restricting someone from giving donations,
         11  you're absolutely correct.  I think that has
         12  encouraged the process.
         13             The thing I don't think we can ignore,
         14  though, is that when you take a look at--but that
         15  may not involve someone saying, Oh, well, my real
         16  commercial interests in the city or the metropolitan area is
         17  really $1 million instead of 30,000, to take what
         18  Amway is doing from one year to another.  It may
         19  mean that they're saying in response to pleadings
         20  by the parties which were at this very moment
         21  developing the whole soft money boom, Okay, we'll
         22  give you a million dollars.  The fact is you can
                                                             121
          1  see so many of the contributions are exactly the
          2  same, a million dollars and often to both parties,
          3  that one can look at the data which the Center for
          4  Responsive Politics and other organizations have
          5  put in compact form, which are available from the
          6  Federal Election Commission, and look at the data
          7  and say this is just as a much a part of the soft
          8  money explosion as of the Commission's rules 
          9  change.
         10             So I think probably both factors are
         11  involved in this, and what's notable is that the
         12  very same companies that gave a hundred thousand
         13  dollars, Coca-Cola Bottling in Atlanta or AT & T in
         14  1988, both conventions give a hundred thousand and
         15  something.  Suddenly, some of these companies are
         16  up to the million-plus mark, and then of course if
         17  it doesn't have to be local retail, you have all
         18  these new companies coming in that have very little
         19  special stake in the local economy, the Ameritechs,
         20  the Motorolas, and so forth, Microsoft, many of
         21  them cited in the statement in the presentation,
         22  and they are also giving huge amounts of money.
                                                             122
          1             VICE CHAIRMAN SMITH:  Now, let me take
          2  you up on that.  We were looking just at one other
          3  host committee, which is the host committee for the
          4  2002 Super Bowl in New Orleans, and the host
          5  committee does all kinds of things.  They finalized
          6  locations for all the events being held,
          7  including the Annual Commissioner's Party, a Taste
          8  of the NFL feature including top chefs from all
          9  over the country, the international media reception of
         10  the task force party, kinds of events that are
         11  directly related to their business.  They also
         12  note, and this is interesting in terms of thinking
         13  about the growing extravaganza of conventions, they
         14  note, for example, that for the people who show up
         15  for the event, events and attractions leading up to
         16  the game that continue to grow in size and
         17  complexity, for instance, an event that comprised
         18  of little more than a sport car trading show under
         19  outdoor tents in the Super Bowl town in 1990 grew
         20  into a temporary theme park called NFL experience
         21  by 1997.
         22             So that what we're witnessing is again
                                                             123
          1  not unique to political conventions, and
          2  who are the sponsors for the New Orleans's Super
          3  Bowl Host Committee?  Well, they're also companies
          4  that seem to have only an attenuated local interest
          5  or whose futures don't seem to hang on the local
          6  economy:  RCA, Cox Communications, the Home Depot,
          7  Coca-Cola, Miller Lite.  Most of these companies if
          8  they have any presence in the city, have a present
          9  that is, you know, there's a Home Depot store in
         10  the New Orleans area.  I think it's tough to argue
         11  that this is just a major--you know, the connection
         12  you try to argue should only be what's motivating
         13  people who are funding the political conventions.
         14             And so I look at it, and I wonder if
         15  you're not using a paradigm that's incorrect as to
         16  why companies give to these kinds of host
         17  committees.
         18             MR. WEISSMAN:  Well, of course we have
         19  the--I don't know exactly what the Super Bowl
         20  sponsorship delivers to the company, but we have situation
         21  with the political convention, as you know, where
         22  the average television viewership is 13 percent of
                                                             124
          1  the convention.  They're only on for a brief period
          2  of time.  The exposure is declining very
          3  substantially, yet the passion to contribute to
          4  these host committees is increasing.  We also have
          5  the other thing that I don't know who asks for the
          6  money for the Atlanta Super Bowl whatever
          7  committee, the New Orleans Super Bowl, but the
          8  people asking for the money to a predominant extent
          9  are partisans asking partisan donors or donors who
         10  give to both parties to provide financing for what
         11  is really the first major--it's not a primary
         12  election or choice of the candidate, but it is the
         13  first major event.  It's a four-day testimonial to
         14  the quality of general election candidate, and
         15  they're being asked by partisan fund-raisers and
         16  party officials and politicians.
         17             Then when they get there, they're
         18  greeted by those same politicians.  They are
         19  privileged to help co-sponsor a delegate receptions
         20  which politicians will appear because of the
         21  contributions to host committees, and I think
         22  there's a whole different syndrome occurring at
                                                             125
          1  these conventions.
          2             VICE CHAIRMAN SMITH:  Well, I'm going to
          3  venture a guess that the same types of people who
          4  raise money for the political conventions to a
          5  large extent raise them for these other kinds of
          6  host committees, and I don't know, but I wouldn't
          7  be surprised if you don't actually have politicians
          8  I think there are certain types of wealthy
          9  individuals who are maybe prominent in communities
         10  generally in political fund-raising and other
         11  events.
         12             But that leads me to a question for Mr.
         13  McGAHN.  You have mentioned a couple of times that
         14  the statute specifically permits raising funds for
         15  501(C) by office holders and candidates and party
         16  officials.  The statute permits that where such
         17  solicitation does not specify how the funds will or
         18  should be spent.  If you're raising funds for a
         19  host committee to spend to put on a convention,
         20  doesn't that bring that into play?
         21             MR. McGAHN:  No.  I don't think so.  I
         22  think any 501(C) has some sort of mission, but
                                                             126
          1  whether it's the Red Cross or a host committee, you
          2  do have a broad idea of how the money is going to
          3  be spent.  I don't think that section applies in
          4  that situation.  Now, perhaps if it's a specific
          5  earmark, but even then it's still not a Federal
          6  election activity.  I don't think that limitation
          7  is applicable.
          8             VICE CHAIRMAN SMITH:  And Mr. Bauer, do
          9  you want to comment on that?
         10             MR. BAUER:  I don't disagree with 
         11  what Don has said.
         12             VICE CHAIRMAN SMITH:  The other aspect
         13  Commissioner Toner touched on a little bit, but
         14  let's go back to it again.  Of course, those
         15  entities also cannot have its principal purpose to
         16  conduct Federal election activity, and Federal
         17  election activity includes generic campaign
         18  activity conducted in connection with the election
         19  in which a candidate for office appears on the
         20  ballot.  You don't think that comes into play?
         21             MR. McGAHN:  My own view is no.
         22             VICE CHAIRMAN SMITH:  Why not?
                                                             127
          1             MR. McGAHN:  Pardon?
          2             VICE CHAIRMAN SMITH:  Why not?
          3             MR. McGAHN:  Historically, the host
          4  committee is not seen as doing--notwithstanding a
          5  slight overlap, it's a separate entity that
          6  provides the infrastructure for the convention.
          7  Again, I don't want to get too far out on the
          8  proverbial limb here, because I'm here just for a
          9  handful of issues.  I'll defer to others.
         10             MR. BAUER:  I would only make the
         11  comment that I think it's analytically confusing
         12  and ultimate a mistake to try to neatly divide up
         13  everything we see in the political world into
         14  those things that are election related and those
         15  things that are not election related and Whatever. This
         16  happens to be, and again I'd insist on this point,
         17  a it's a unique event, and the Host Committee plays a unique
         18  role and a unique set of circumstances and takes
         19  place over a short span of days, albeit very
         20  expensive. People can debate the wisdom of the
         21  investments that are made and the wisdom of
         22  certainly expenses like the expense of security and
                                                             128
          1  transportation that have to be made; but one way or
          2  the other, I don't believe that the host committee
          3  engage in anything that anybody would think
          4  rationally related to the sorts of concerns we view
          5  as at core election related.
          6             VICE CHAIRMAN SMITH:  Mr. Sanford, one
          7  thing I appreciated about the Center on this
          8  rulemaking is that they were--in an effort to
          9  firmly ground the position in the statutory
         10  language of the agency and establish finance,
         11  maintain or control.  You did not address the two
         12  clauses I just mentioned, the 441(I) and (E)1.  Do
         13  you want to address it at all?  Do you think those
         14  come into play, or do you think that is not proper?
         15             MR. SANFORD:  Well, I think that--I
         16  guess I view that as a bit of a side issue, because
         17  I believe that 441(B) prohibition really constrain
         18  the conduct of the host committee, so
         19  that-constrain the fund-raising for the host
         20  committee.  I mean, we talk about the host
         21  committee not engaging in Federal election
         22  activities, and this is one of the ways in which I
                                                             129
          1  think back to an analogy that my boss used in a
          2  previous hearing, was we're looking through
          3  telescope from opposite directions.
          4             I think the host committees are set up
          5  to facilitate the convention and we can quibble about how
          6  closely related they think their expense are, but
          7  that's what these entities are for.  So to say that
          8  they're not connected in the 441(B) sense to a
          9  Federal election, when conventions are by
         10  definitions elections under the statute.  That
         11  seems to me to overlook a pretty apparent
         12  relationship.
         13             Now, and so the direct response to your
         14  question about the impact of the solicitation
         15  prohibitions is I think that even as those
         16  provisions are interpreted in such a way that they
         17  would allow Federal office holders to raise soft
         18  money for the host committee, that would not mean
         19  that the 441(B) prohibition are therefore lifted for
         20  the host committee and they can use these funds for
         21  convention expenses.
         22             VICE CHAIRMAN SMITH:  Let me ask you
                                                             130
          1  another question.  I gather from your earlier
          2  comments that you're suggesting that regardless of
          3  BCRA, in your view, the law properly interpreted
          4  would prevent many of these host committee
          5  activities under 441(B).
          6             MR. SANFORD:  It wouldn't prevent them.
          7  They should be used--they should be paid for with
          8  Federal dollars.
          9             VICE CHAIRMAN SMITH:  Okay.  Right.  The
         10  means used to pay for them.
         11             MR. SANFORD:  Right.
         12             VICE CHAIRMAN SMITH:  Now, here is the
         13  issue I have, I, guess with that a bit.  It seems
         14  that you're kind of hinging your argument, then, on
         15  this statute as existed by prior to BCRA.  I think
         16  it's a pretty strong argument that BCRA doesn't
         17  seem to address it, and I wonder if we were on a
         18  blank slate it might be a different scenario, but
         19  where we've had those rules in place for a lengthy
         20  period of time without Congressional action to
         21  overturn them, including in repeated introductions
         22  of versions of what ultimately became BCRA, and
                                                             131
          1  then finally in the bill that passed as BCRA, this
          2  issue has never been raised.  Isn't there generally
          3  a presumption when you have that kind of activity
          4  going on that, in fact, the interpretation of the
          5  Commission is giving to the statute is correct or
          6  at least that which is desired by Congress and what
          7  they see?
          8             MR. SANFORD:  Well, I go back to the
          9  language of--I guess in this case, I would say the
         10  language of BCRA, and I think the 441(I)A
         11  prohibitions are pretty broadly written and that,
         12  you know, it's a little bit speculative to guess
         13  either way what the Congress meant, and in that
         14  context, the courts would typically go to the
         15  specific language in the statute.
         16             On sort of the history question, I
         17  ground my arguments, as you correctly state, on the
         18  way the Commission has allowed the rules to evolve,
         19  and I see those problems as being real, and I think
         20  that those are Commission created and that
         21  notwithstanding what the Congress did, the basis of
         22  this assumption, the assumptions as Mr. Weissman
                                                             132
          1  refers to, the basis of the exception that the
          2  Commission has created has become shaky and should
          3  be re-evaluated.
          4             So I will concede that Congress'
          5  inaction could be interpreted as assent.  I think
          6  that the Commission has an ongoing responsibility
          7  to re-evaluate the assumptions it's made in the
          8  past and decide whether those are still valid.
          9             VICE CHAIRMAN SMITH:  I think, and I
         10  said this throughout the hearings on BCRA last
         11  year, that I think that sort of intent is less
         12  important than what Congress actually did or did
         13  not do.  I want to make one comment that you
         14  mentioned about Senator McConnell's comments on
         15  conventions earlier.  I would just note, whether
         16  they were correct or not or refuted, that there's
         17  really no opportunity to refute them.  If I
         18  remember correctly, he made those comments on the
         19  very last floor statement that was made before it
         20  was voted.
         21             But I have a couple of quick questions
         22  for you, Mr. Sanford.  Have you read Mr. Gross's
                                                             133
          1  testimony?
          2             MR. SANFORD:  I have, written comments,
          3  yes.
          4             VICE CHAIRMAN SMITH:  Yes, his written
          5  comments.  I wonder if you would be able to
          6  respond--I know you don't have it right in front of
          7  you, but since he's going to go on later and you're
          8  not, he makes comments suggesting that the
          9  agreements between the host committees and the
         10  parties are arms length and between very distinct
         11  entities.  I wonder if you have any response to the
         12  arguments that me makes there.
         13             MR. SANFORD:  First of all, I think that
         14  the comparisons to other type of transactions,
         15  other corporate sponsorships are a little bit
         16  beside the point, because corporate sponsorships of
         17  political activity are different than corporate
         18  sponsorships of other--of the Super Bowl or other
         19  events, and to some extent, I think some of those
         20  same principle apply to the notion that what we
         21  have is this giant arms-length transaction between
         22  the party committees, their deliverable being the
                                                             134
          1  convention, providing it to the city in exchange
          2  for substantial subsidies.
          3             The statute says that, at least
          4  initially, that that transaction, because this is
          5  an election within the statute, has to be treated
          6  differently.  I think that the Commission has sort
          7  of dealt with a smaller version of this issue
          8  recently in the Libertarian Party Advisory
          9  Opinion where it recognized that a party could
         10  essentially sell an asset in certain contexts under
         11  certain conditions, and it was not willing to
         12  accede to the Libertarian party's decision to sell
         13  advertising space in its newsletter because it
         14  didn't believer there was an
         15  objectively-ascertainable fair market value.
         16             VICE CHAIRMAN SMITH:  This is akin to
         17  that; there was just no objectively--
         18             MR. SANFORD:  Well, I think it's
         19  difficult, and think that the Commission initially
         20  tried to get at that when it conditioned on
         21  reasonable expectation of commercial return, but
         22  it's limited to that requirement.
                                                             135
          1             So now there is no standard for whether
          2  that's the case, and so I'm not sure where we are.
          3             VICE CHAIRMAN SMITH:  I want to ask one
          4  final question, and I'd ask you to be brief because
          5  we're way over and the general counsel hasn't had a
          6  shot yet.
          7             MR. SANFORD:  I apologize.
          8             VICE CHAIRMAN SMITH:  No.  It's not your
          9  fault.  I think it's more ours than the panel, and
         10  it's good.  I think we're getting some good info.
         11             But, similarly, have you read the
         12  comments submitted by the Democratic National
         13  Committee?
         14             MR. SANFORD:  Yes.
         15             VICE CHAIRMAN SMITH:  And if so, can you
         16  comment if there's anything you think merits
         17  comment that's not in the written submission?  You
         18  argue--and, frankly, I think this is some of the
         19  weaker arguments and I think the agency argument is
         20  a bit stronger, that there's still a possibility
         21  that they shouldn't even be affiliated, in other
         22  words, establish, finance, maintained or control,
                                                             136
          1  the host committee establish, finance, maintain
          2  control by the party.  The DNC addresses the
          3  affiliation questions, comments, and says host
          4  committees don't meet that criteria.  Where are
          5  they wrong?
          6             MR. SANFORD:  Well, I think that our
          7  comments don't absolutely say that they do meet
          8  those criteria.  I think that there are a couple of
          9  the ten criteria which will often exist.  At least
         10  one element will almost always exist, and that the
         11  Commission shouldn't promulgate rules that say one
         12  way or another that they are or they aren't.  It
         13  should leave open the issue.
         14             VICE CHAIRMAN SMITH:  By at least in
         15  some cases, the host committee will meet them?
         16             MR. SANFORD:  Yeah.  I think it's
         17  possible.  I mean, it may be that as a practical
         18  matter, they would never structure themselves in
         19  such a way that that would happen.  I don't really
         20  know the dynamics of that, but I think that the
         21  rule should be leave open that possibility.
         22             VICE CHAIRMAN SMITH:  Thank you very
                                                             137
          1  much.
          2             CHAIR WEINTRAUB:   Thank you, Mr.
          3  Vice Chairman.
          4             Mr. Norton.
          5             MR. NORTON:  Thank you, Madam Chair. I
          6  realize we're running way over, and I'll try to
          7  keep this very brief and maybe just try to clarify
          8  a couple of points that have come up in the earlier
          9  questioning.
         10             And I want to circle back for a moment
         11  to Senators Kennedy and Kerry and what inference,
         12  if any, can be drawn about whether they think BCRA applies to
         13  convention financing.  Mr. Sanford, I have to admit
         14  that I'm struggling a bit to understand to your
         15  statutory argument.  There have been a number of
         16  arguments made, but a couple central ones made by
         17  Mr. McGahn, but the one that I'm focused is
         18  441(I)E(4), and it concerns general solicitations;
         19  and essentially what it says is that a Federal
         20  candidate can make a general solicitation of funds
         21  on behalf of an organization that is a 501(c), and
         22  that's a host committee, other than an entity whose
                                                             138
          1  principal purpose is to conduct activities
          2  described as certain kinds of Federal election
          3  activity--it seems pretty clear to me that that's
          4  not what host committees do as those terms are
          5  defined by the Commission--so long as the
          6  solicitation does not specify how the funds will or
          7  should be spent.
          8             So why is it if Senators Kennedy and
          9  Kerry are raising funds and not making a
         10  specification about how the funds are being used,
         11  what sort or expenses the host committee uses the
         12  funds for, why doesn't that fall squarely in that
         13  exception?
         14             MR. SANFORD:  I have one additional--let me
         15  start with a threshold thought.  Some of those
         16  funds may very well have been solicited before the
         17  effective date of the statute.  That, of course,
         18  would be the additional reason.
         19             I have to concede that--and perhaps I
         20  should amend my previous comment that if the fund
         21  were solicited under these conditions, then they
         22  may very well fall within this exception.  I think
                                                             139
          1  that there's no question about that.  It's a fact
          2  question.
          3             MR. NORTON:  What's a fact question?
          4             MR. SANFORD:  Well, the question whether
          5  they were solicited for a particular--whether they
          6  were given with an earmarked solicitation.  That's
          7  potentially a fact question.
          8             I also think that these cases should be
          9  analyzed with the recognition that the rules
         10  specifically allow the host committees to pay
         11  convention expenses.  So, you know, the Commission
         12  has set up rules that say that they can pay these
         13  type--pay convention expenses using funds they
         14  solicited.  So that's always in play.
         15             MR. NORTON:  Okay.  Let me just raise
         16  one other point, and that's with respect to the
         17  other side of the table.  I want to circle back to
         18  this argument again of the legislative history and
         19  what Congress was doing, because I think there are
         20  serious arguments to made on both sides.  Commissioner
         21  Toner, I think, kicked off the discussion by noting
         22  the dirth of discussion and a very voluminous
                                                             140
          1  legislation history about convention financing, and
          2  I think Mr. Bauer made a very good point that BRCA
          3  itself repealed certain regulations, and so the
          4  regulations were very much before Congress and they
          5  certainly could have repealed some of these too.
          6             On the other hand, we have 441(I)A of
          7  BRCA which very flatly and categorically prohibits
          8  national parties from receiving contributions,
          9  donations, and transfer of funds or anything of
16  value, and unlike the provisions for Federal
         11  candidates and state committees where Congress
         12  created another exception.  We were just talking
         13  about one.  There's no such exception created with
         14  respect to the parties.
         15             The concern I have on the other side is
         16  that the silence of the legislative history doesn't
         17  change the language of the statute.  It may mean that
         18  there's an unintended consequence, and that, in
         19  fact, has been I think a common complaint and
         20  concern about BCRA all along, that some of the
         21  legislators and members of Congress may not have
         22  understood not so much what they were voting for,
                                                             141
          1  but the impact of some of these provisions.  And so
          2  if the plain language of the statute prohibits
          3  parties or party operatives from raising soft money
          4  in all contexts, and that seems to be the plain
          5  language, doesn't the Commission have to apply
          6  language in this context if the party operative is
          7  raising funds for the host committee?
          8             MR. BAUER:  That is the reason
          9  why--while I fully agree with you that Senator
         10  Kennedy and Kerry and the unnamed members of the
         11  Republican Congressional Caucus were raising for
         12  these conventions, the reason that they're not
         13  violating even BCRA, if they were raising money for
         14  the host committee as a (C)3.  All the same, I'm
         15  uneasy about the analysis that seems to assume that
         16  Congress to help all convention-related issues like
         17  the one we discussed here and somehow these would
         18  filtered through the provisions of BCRA, and the trouble
         19  I have with that is that this was a piece of
         20  legislation that was put together with the
         21  understanding that it was going to address some
         22  issues and it not going to address other issues,
                                                             142
          1  and in response to the question that Commissioner
          2  McDonald asked of Don McGahn, which is--I thought
          3  you said at some point members of Congress didn't
          4  know what they were doing here, which may be his
          5  sort of empirical judgment, the law calls upon us
          6  to assume that Congress knew what it was doing, and
          7  that's a legal doctrine.
          8             And if Congress knew what it was doing,
          9  it is quite striking to me that with all this talk
         10  about soft money, and not only soft money, soft
         11  money in connection with Presidential elections,
         12  somehow the slip of paper that said let's deal with the
         13  convention slipped off somebody's desk or out of
         14  their agenda, I don't think that's a credible view.
         15  So I think that this Commission with all the rest
         16  that it has to do and certainly not in this cycle
         17  ought not to assume somehow a mandate to take on
         18  something Congress quite deliberately itself did
         19  not take on, and I think that the agency has full
         20  authority to take the position that this is not a
         21  matter it's taking up right now, there's no reflection in
         22  legislative history of any intention of Congress to
                                                             143
17 take it up, and the only comment we've heard cited here is of an 
18 opponent of the legislation and this sponsor comment is an
          2  after-the-fact sponsor comment about which this
          3  commission, has heard probably more than it cares to hear.
          4             So with that view, I think that is a
          5  serious problem.
          6             MR. NORTON:  Mr. McGahn, did you want to
          7  add anything?
          8             MR. McGAHN:  No.  I don't disagree with
          9  anything Bob said.
         10             MR. NORTON:  Thanks very much, nd thank
         11  you, Madam Chair.
         12             CHAIR WEINTRAUB:  Thank you, Mr.
         13  Norton, for your brief and very cognent questions.
         14             Mr. Pehrkon.
         15             MR. PEHRKON:  Madam Chair, thank you
         16  very much, and welcome to the panel.  I too will
         17  attempt to make comments and questioning very
         18  brief.
         19             First of all, I would really like to
         20  address my comment to--it's going to be Mr.
         21  Sanford, and one of the areas where the Commission sought
         22  comment on regulations was whether or not it was
                                                             144
          1  believed that we had statutory authority to
          2  undertake audits of host committees, and I was
          3  wondering if you could elaborate on that for me.
          4             MR. SANFORD:  Well, I think that given
          5  the system, at least as a statutory matter, was
          6  really designed to be closed system where the money
          7  was coming from the public grant.  It has been
          8  opened up to disbursements by host committees for
          9  convention expenses, that the Commission has the
         10  authority to undertake audits of these entities and
         11  particularly since the Commission essentially
         12  decided that it wasn't going to count host
         13  committee--wasn't going to allow host committees to
         14  get involved in the process that was originally
         15  designed as a closed one, that it should be able to
         16  take a look at the way they spend their money.
         17             MR. PEHRKON:  Is there anyone else who
         18  would like to either add to or disagree with that?
         19             (Pause.)
         20             MR. PEHRKON:  Madam Chair, thank you
         21  very much.
         22             CHAIR WEINTRAUB:  You win the prize,
                                                             145
          1  Mr. Pehrkon.
          2             I want to again thank very much everyone
          3  on the panel.  We kept you for a long time, and I
          4  thought it was extremely helpful and an informative
          5  discussion.  I thank you very much and I appreciate
          6  your indulgence in answering all your questions.
          7             Let's take a ten-minute recess and then
          8  come back and attempt to get back a little on track
          9  here.  Ten of twelve, we'll be back.
         10             (Recess.)
         11                    II.  PANEL NO. 2
         12             CHAIR WEINTRAUB:  Let's try to get a
         13  little bit close on the schedule.  I understand our
         14  visitors from Boston were hoping to catch a 2:30
         15  flight.
         16             COMMISSION McDONALD:  Is that today?
         17             CHAIR WEINTRAUB:  So I was going to
         18  do age before beauty and start with Mr. Gross, but
         19  given that you have a plane to catch, maybe I'll go
         20  to Ms. Cronin first.
         21             And let me welcome you all and apologize
         22  for running late, and we'll try to get through this
                                                             146
          1  a little bit more efficiently.
          2             MS. CRONIN:  Thank you, Madam Chair.
          3             Good morning.  My name is Cheryl Cronin,
          4  and I represent the Boston Host Committee, and with
          5  me is Julie Burns.  Ms. Burns is the executive
          6  director of the Boston Host Committee and recently
          7  served as Deputy Chief of Staff to the mayor of
          8  Boston and was actually quite instrumental in our
          9  successful efforts to lure the Democratic National
         10  Committee to Boston for the 2004 convention.
         11             Let me begin BY noting that the City of
         12  Boston and the region of Massachusetts is
         13  absolutely thrilled to be welcoming thousands, as
         14  Commissioner Thomas put it, wild and crazy Democrats
         15  to Boston next summer, not because they're
         16  Democrats, of course, but because they are going to
         17  sleep in our hotels and eat in our restaurants and
         18  shop in our stores, go to Fenway Park and do all
         19  the things that our local economy really wants
         20  visitors to do.
         21             We've heard serveral assertions made this morning
         22  about what the, quote, beat might be, I think one
                                                             147
          1  witness put it on what host committees are all
          2  about.  We're here to tell you all the way from
          3  Boston what this host committee is all about, and I
          4  think we're quite typical of host committees for
          5  national conventions.
          6             There was and is tremendous community
          7  support in Boston for our efforts in hosting its
          8  first national political convention.  We would have
          9  been happy to host the Democrats or Republicans, and
         10  indeed last summer, many of us were quite active in
         11  courting the Republican site selection committee as
         12  well, and we are doing this because we have been
         13  organized and our purposes is not to enhance or
         14  support any branch or any entity affiliated with
         15  partisan politics or any candidate, but to support
         16  our great city in reaching commercial and civic
         17  growth.
         18             Members or our board as well as our
         19  donors are independents, Republicans, Democrats, or
         20  simply have very little political interest.  Many
         21  of our most generous donors would never consider
         22  providing funds to an entity designed to support
                                                             148
          1  any type of political activity, even indirectly.
          2  Rather, the participation of individuals and
          3  companies in activities related to hosting the
          4  Democratic National Convention in Boston next
          5  summer is based solely on our commitment to our
          6  city and region and a recognition that such a
          7  significant convention in our city is an invaluable
          8  flagship event to develop Boston into an even
          9  greater convention and tourist destination, which
         10  is, frankly, a tremendous and important boom for
         11  our local economy.
         12             And as you can see, in short, these
         13  purposes of a host committee are contrary to the
         14  assertions made by the Campaign Finance Institute
         15  in its report, and it only underscores the fact that
         16  the conclusions reached in that report are not
         17  based on any rational facts.
         18             The host committee, as I indicated, does
         19  not support any candidate for public office or any
         20  political party.  We do not nor would we ever, of
         21  course, make expenditures or disbursements in
         22  connection with any election for Federal office.
                                                             149
          1  There is nothing in our contract with the DNCC, nor
          2  is there anything contained in any budget or
          3  planning arrangement that suggests, contemplates,
          4  or permits that we expend funds in connection with
          5  any election for Federal office.
          6             The host committee is not an agent of a
          7  national political party.  We are not established,
          8  financed, maintained, or controlled by any national
          9  political party, and any suggestion to the
         10  contrary, some of which we heard this morning, is a
         11  quite clear misrepresentation of the relationship
         12  between us and the DNC, the DNCC, or any other of
         13  its affiliates.
         14             Contrary to what was stated this
         15  morning, I can assure you that Terry McCauliff has
         16  not raised one dime for the host committee for the
         17  Boston convention next year.  No member of the
         18  board of the host committee was selected or
         19  recruited by any officer, employee, or agent of the
         20  DNC.  The DNC has no authority to participate in
         21  the governance of the host committee and does not.
         22  The host committee has not engaged in fund-raising
                                                             150
          1  activities on behalf the DNC or DNCC, nor are those
          2  entities involved in any fund-raising activities on
          3  behalf of the host committee.
          4             The host committee takes its own votes,
          5  hires its own staff, and engages in its own
          6  commercial activities.  The contract between the
          7  DNCC, the host committee, and other entities
          8  clearly expresses that they are separate and
          9  distinct parties with no agency relationship, and
         10  that one does control the other in any way.
         11             Because the host committee's activities
         12  are community and civic based, not political and
19 not an extension in any of the DNC, the 
20 Commission should not limit any way fund-raising
         16  activities by Federal candidates or office holders.
         17  Our political leaders such as Senator Kennedy and
         18  Kerry--and I might note that while there has been a
         19  fair amount of publicity on the terrific efforts of
         20  those two revered gentlemen from Massachusetts in
         21  their efforts to obtain the national convention in
         22  Boston as well as, of course, the wonderful efforts
         23  our Mayor Menino, there has as well been very
                                                             151
          1  significant efforts by very prominent members of our
          2  corporate community, including many Republicans.
          3  So we are very grateful for that.
          4             But we would not that there is nothing
          5  in BCRA that would suggest the Commission should
          6  make any changes to the rules related to the
          7  participation by Federal office holders in raising
          8  money for 501(C) organizations such as the host
          9  committee.
         10             One other point to address before I
         11  close is that the current--
         12             CHAIR WEINTRAUB:  I hope you're
         13  right, because your red light is on.
         14             MS. CRONIN:  Oh, it is.  Okay.  Thank
         15  you.
         16             In conclusion, the activities of the
         17  Boston committee, the host committee are well under
         18  way.  We have already taken significant planning
         19  efforts.  We've signed contracts.  We've raised
         20  money.  We are spending money as well.  No matter
         21  what your views might be on any of these
         22  substantive issues, we urge that the Commission not
                                                             152
          1  implement any adverse changes at this late date.
          2  For all of the discussion about the BCRA, at the
          3  end of the day, one this is clear:  Under any fair
          4  rules of statutory construction and interpretation,
          5  Congress being well aware of your host committee
          6  regulations, declined to include in BCRA any change
          7  to the rules related to host committees, and we
          8  would respectfully suggest that you follow the same
          9  course.
         10             Thank you very much.
         11             CHAIR WEINTRAUB:  Thank you, Ms.
         12  Cronin.
         13             Ms. Burns, do you have opening comments?
         14             MS. BURNS:  No.  Thank you.
         15             CHAIR WEINTRAUB:  Well, then over to
         16  you, Mr. Gross.
         17             MR. GROSS:  Thank you, Madam Chair.
         18  Chairman--Chair.
         19             CHAIR WEINTRAUB:  Chair.
         20             MR. GROSS:  Ki and I are going to go
         21  over comments related to the New York City host
         22  committee.  The New York City host committee is a
                                                             153
          1  501(C)3 organization.  It's directors are the mayor
          2  of New York, Mayor Bloomberg, the Deputy Mayor for
          3  Economic Development, and myself and is really part
          4  of a broader effort in New York to host many
          5  events.  Of course, it's separate because of FEC
          6  regulations regarding host committees, but there is
          7  broader permanent--we call it a permanent host
          8  committee in New York to get Olympics, and, in
          9  fact, New York is the U.S. representative for the
         10  Olympics for 2012 in the international competition, and the
         11  Grammy Awards, the Super Bowl, and is really
         12  is part of the continuing recovery effort of
         13  September 11th.  New York City has sought to
         14  feature itself in many capacities in a hosting way
         15  in other public events, demonstrating it is as a
         16  great city, a safe city to have large gatherings of
         17  people.  That's why it was so critically important
         18  right after September 11th that the World Series,
         19  which some New Yorkers consider as an annual event
         20  in New York, and the Macy's Day Parade and other
         21  prominent activities went on, as always, and it is
         22  part of the commitment of Mayor Bloomberg to bring
                                                             154
          1  these events to New York City, and that is the
          2  reason why we actively and equally bid on both
          3  these conventions.
          4             This same host committee was the host
          5  committee for the bid process for the Democratic
          6  and Republican conventions, and we went through the
          7  entire formal bid process, and of course was
          8  selected by the Republicans, but we were prepared
          9  to host both conventions, as a matter of fact, for
         10  2004.
         11             Once we were selected, we did enter into
         12  an arms-length agreement with the Republican
         13  National Committee, and if anybody has any doubts
         14  about that, they could have sat in on these
         15  negotiations.  They were not always friendly as we
         16  were working our way through what they wanted and
         17  what we felt like we were able to provide to the
         18  city.  So it was definitely an arms-length
         19  arrangement, a vendor relationship.  You could
         20  characterize it in a number of different ways.
         21             We are not established, certainly
         22  financed, maintained or controlled, to coin a
                                                             155
          1  phrase, by the Republican National Committee, nor
          2  do we act in any kind of agency capacity.  Our
          3  fund-raising is done on our own by our own
          4  fund-raising people and people for the City of New
          5  York.  No Republican official or member of Congress
          6  has raised any money for the Republican host
          7  committee, and we do note that to a footnote in our
          8  prepared comments.  I'm not saying it's
          9  impermissible, but we have not used members of
         10  Congress or Senators nor any party people to raise
         11  money at this juncture that I am aware of.  I'm
         12  fairly close to the fund-raising process of the New
         13  York host committee.
         14             So those are the critical points that I
         15  wanted to make regarding the structure and the
         16  issue of separateness and how we're operating under
         17  our own authority.  There are other points in our
         18  paper that we think are important, and they relate
         19  to the delayed effect of the regulations.  We
         20  believe that it is within the authority of the
         21  Commission to delay the effect, because BCRA has no
         22  effect on the host committee.  It is not an
                                                             156
          1  activity in connection with Federal elections;
          2  therefore, the 441(E) provisions do not
          3  prohibit--the 441(I) provision--prohibit the
          4  activities of the host committee, and therefore you
          5  can delay its effect.
          6             Even if it did have an effect, which we
          7  don't think it does, there is case law in that
          8  district, the case Sweet v. Sheehan, that did allow
          9  the EPA to delay the effective date of a statute
         10  that mandated a specific statutory date for
         11  implementation, and in that case, they said so to
         12  give the regulated community the time and not to
         13  bring surprise upon the regulated community with a
         14  late rulemaking.  Despite the statutory mandate of
         15  a specific effective date, the agency, the EPA in
         16  that case had the authority to make the provisions
         17  effective later.
         18             And, finally, as far as my comments go,
         19  we support the proposed regulation regarding the
         20  local restriction, lifting of the local restriction of
         21  donors.  We don't really think there's logical
         22  basis for restricting the donor base to just this
                                                             157
          1  metropolitan area which itself is subject to some
          2  reconfiguration depending on when the census
          3  bureau--we run across a number of people who, first
          4  of all, are interested in New York and certainly
          5  part of the recovery of New York; secondly, they
          6  have business interests in New York that may not
          7  meet the formal definitions as individuals, and we
          8  think it draws an unnecessary and illogical line on
          9  restricting a base of donors that wish to support
         10  the convention.
         11             CHAIR WEINTRAUB:  Thank you, Mr.
         12  Gross.
         13             Mr. Hong, do you have an opening
         14  statement?
         15             MR. HONG:  Yes.  Thank you, Madam Chair.
         16             Ken just spoke about the ability of the
         17  host committee to--for the permissibility of the
         18  host committee to accept funds.  I want to address
         19  the expenditure of funds by host committees, in
         20  particular the NOPER (phonetic) attempts to limit
         21  the funds that are permissible for a host committee
         22  to expend.
                                                             158
          1             The first thing that the NOPER does is
          2  it tries to create a comprehensive list of
          3  activities.  Given that the Commission has
          4  recognized and will recognize, hopefully after
          5  these hearings, the ability of host committees to
          6  pay for expenses to promote the city and for
          7  commercial purposes.  The Commission should not at
          8  this point create artificial limits on those
          9  expenses.
         10             So if the Commission recognizes the
         11  ability of the host committee to make its expenses,
         12  no artificial limit should be imposed.  The biggest
         13  artificial limit in the NOPER, as I mentioned is
         14  the creating of the comprehensive list.  It would
         15  be unreasonable for the Commission to think that
         16  that it could anticipate all of the variety of
         17  permissible promotional activity that a host
         18  committee could do.
         19             For example, just off the top of my
         20  head, this list does not contain simple things as
         21  trash pickup outside of the convention hall.
         22  Another thing to whet the appetite is toilet
                                                             159
          1  facilities outside the convention hall, which are
          2  clearly promotional city commercially-related
          3  activity, but would be outside of this list.
          4             Which brings me to my second point,
          5  which is that the inherent question of asking is
          6  this expenditure made for the purpose of promoting
          7  the city involves an analysis of the entire
          8  totality of the circumstances, and the
          9  comprehensive list as proposed, any comprehensive
         10  list in my view, would take that necessary analysis
         11  out of the process.
         12             The second way that the NOPER tries to
         13  limit expenditures by host committees is that the l
         14  list that's already there that are expressly laid
         15  out in the FEC rules, those items are limited, are
         16  narrow even further, for example, transportation.
         17  Now, the permissible transportation expenses under
         18  the NOPER rules are limited to widely available
         19  transportation for--and by the way, I really don't
         20  know what that means.  I know what widely attended
         21  means under Congressional gift rules.  I know what
         22  widely attended means under certain other rules,
                                                             160
          1  but I have no idea what widely available means for
          2  transportation purposes.
          3             VICE CHAIRMAN SMITH:  How people get to
          4  the widely attended event.
          5             MR. HONG:  Now I know what it means.
          6             But limiting the items that are already
          7  in the rules, the NOPER claims that it was based on
          8  the results of the 1996 audits.  I contend that
          9  result, because to tell you the truth, during an
         10  audit phase, the Commission does not opine on every
         11  single expense that it's made during the audit, and
         12  so many expenses than an auditor would go through
         13  and say it's okay never really make it to
         14  deliberation by the Commission.  For example, in
         15  the 1996 audits and in the 1996 conventions and
         16  other conventions, office facilities for the COA
         17  were allowed.  They went through the audit, and it
         18  is our understanding from the discussions with the
         19  RNC that they made it through the audits, but the
         20  list here does not contain those items, and I don't
         21  think that this list contains all of the items that
         22  were permitted in 1996 audits because many of those
                                                             161
          1  issue were never officially decided by the
          2  Commission, by the commissioners.
          3             Also, the decision that were made in the
          4  1996 audits were based on the totality of the
          5  circumstances.  Again, there's no way to create a
          6  rule of thumb or a bright-line test on these
          7  issues.
          8             The final item I would like to address
          9  has to do with the audit authority.  We believe
         10  that the statute--there is no statutory authority
         11  for the Commission to automatically audit host
         12  committees.  The purpose of the automatic audit
         13  provisions is based on accounting for public funds.
         14  As we discussed, host committees are purely
         15  privately funded, and there's no way--there's no
         16  reason to audit host committees on an automatic
         17  basis; rather audits should be limited to audits
         18  that are done for cause when it comes to host
         19  committees.
         20             Thank you.
         21             CHAIR WEINTRAUB:  Thank you, Mr.
         22  Hong, and let me say that I think that both of the
                                                             162
          1  party committees made really terrific choices, New
          2  York and Boston being two of my favorite cities,
          3  and just for the benefit of our Bostonian, I want
          4  to point out to you in case you didn't know that we
          5  recently held one of our FEC conferences in Boston
          6  and stayed in your hotels, and I personally went to
          7  Fenway Park and had a terrific time.  The Red Sox
          8  even won for me.
          9             Commissioner Thomas.
         10             COMMISSIONER THOMAS:  Thank you, Madam
         11  Chair.
         12             Thank you all for coming, and it's
         13  always very good when we can get people who really
         14  know what's going on to come in and talk to us.
         15             Now, first of all--well, I guess before
         16  I get into the substance, Mr. Hong, you're calling
         17  it a NOPER, whereas most of us for years refer to
         18  these things as NPRMs.  You've got to help me.
         19  Should I be switching over to NOPER?
         20             MR. HONG:  No.
         21             MR. GROSS:  Notice of proposed
         22  rulemaking.
                                                             163
          1             COMMISSION THOMAS:  It's more accurate.
          2             I'll start with you.  We have now
          3  started getting this bit about maybe to better
          4  distinguish the kind of expenses that the host
          5  committee ought to be precluded from paying.  I
          6  guess, theoretically, are you laying out the
          7  argument that there, indeed, are some kinds of
          8  expenses which the host committee could and should
          9  be precluded from paying, but in essence for the
         10  time being you don't want us to tinker with the
         11  lines such as they are right now?
         12             MR. HONG:  Well, I think the test should
         13  based on why--based on the foundation of why host
         14  committees are permitted to accept and make
         15  expenditures, which is is the expenditure that's
         16  being done being done for the commercial purpose of
         17  promoting the city, and that should be the test,
         18  and I think that's laid out in the current rules,
         19  and that's what a lot of these items go toward:
         20  Transportation, convention hall expenses.  Those
         21  are all expenses that clearly relate to the
         22  commercial purpose of the city.
                                                             164
          1             So that should be the test, and the only
          2  way to implement that test is to have a flexible
          3  list of expenditures, including a catchall that's
          4  in the rules currently.
          5             COMMISSIONER THOMAS:  But you do
          6  concede, again, that there are some expenses we
          7  should not allow the host committee to pay for; is
          8  that correct?
          9             MR. HONG:  Yes.  I think there are some
         10  expenses that would not be properly characterized
         11  as commercial promotional expenses for the city,
         12  you know, such as transporting the Presidential
         13  candidate, things like that.
         14             COMMISSIONER THOMAS:  Mr. Gross, can you
         15  help me with an issue I raised with the last panel?
         16  You've noted that you're not involving Federal
         17  office holders and candidates, in raising money for
         18  the host committee, but you've characterized it as
         19  a matter of choice, if you will.  You're saying
         20  that legally you think there's a way to get there
         21  and let them do that kind of thing, and there are
         22  some people who would love to hear you say that;
                                                             165
          1  but what about this legal wrinkle that I raised?
          2  You can look at the broad proscription on the
          3  national party in 441i(a)I to suggest that they
          4  simply can't be involved in raising any monies
          5  except those that are subject to the limits,
          6  prohibition, standard and reporting requirements under
          7  FECA, and then you have this later provision that
          8  talks about national party operatives or state
          9  party operatives or local party operatives can get
         10  involved with raising for some 150(C) organization
         11  under some circumstances as long as those
         12  organization in essence aren't undertaking
         13  activities in connection with the Federal election.
         14             So I guess my question is that latter
         15  provision sort of there only to make sure that
         16  national party committees, for example, to the
         17  extent they have hard money or could raise hard
         18  money, they can't get it past--can't undertake that
         19  kind of hard money fund-raising for a 501(C)3
         20  unless it happens to be for one that doesn't
         21  undertake activity in connection with a Federal
         22  election, or is there some sort of-are we supposed
                                                             166
          1  to be reading the latter provision to say
          2  disregard the broader prohibition of 441i(a).
          3             MR. GROSS:  Well, you're struggling with
          4  it, and I think I can understand the struggle that
          5  you're having, because you can read 441(I)A and
          6  441(I)D, the two provisions that I think we're
          7  wrestling with here, to make a distinction between
          8  the restrictions on national party operatives as
          9  opposed to members of Congress, you know, Mark
         10  Rashner returning a call versus Senator Kennedy or
         11  Senator McConnell or whatever, and, you know, I
         12  think that you could read it that way.  The second
         13  provision of the 441(I)D provision certainly can
         14  support the proposition that the only real
         15  restriction on raising money on a 501(C)
         16  organization is if the 501(C) organization is, in
         17  fact, engaged in Federal election activities, which
         18  the host committee is not.  It's particularly true
         19  in the case of a 501(C)3 which may not.
         20             So I think that there is latitude for
         21  the Commission to read the restriction on the two,
         22  imply the political party operative and the member
                                                             167
          1  of Congress being the same, saying that the D
          2  provisions, 441(I)D, limits the breadth of the
          3  prohibition of 441(A), or, frankly, you probably
          4  have the latitude to interpret some distinction and
          5  a greater restriction on the national party people
          6  because you do have that provision standing alone
          7  in its plain way.  I would opt--although it really
          8  makes no difference to the national--to the New
          9  York City host committee since we're not using
         10  those people, but I think I'd probably just as well
         11  opt for the broader interpretation and allow the
         12  national party people to do it and say that the
         13  441(I)D is, in fact, the operative of the two to
         14  the extent there is some ambiguity.
         15             COMMISSIONER THOMAS:  Okay.  Ms. Cronin,
         16  what is your sense of what is actually being
         17  planned for letting the big donors schmooze
         18  with the pols--I'm trying to get back to the issue that's
         19  been brought to our attention that maybe we need to
         20  retrench here and go back to a tougher standard
         21  when it comes to raising--letting the host
         22  committee raise this kind of money.  You're here.
                                                             168
          1  You know what's going on.  Can you give us a candid
          2  assessment to what extent that kind of schmoozing
          3  is being contemplate and why it's not a problem if
          4  it is being contemplated?
          5             MS. CRONIN:  Well, I can tell you,
          6  frankly, that at the present time, there has been
          7  virtually discussion about schmoozing
          8  opportunities.  My expectation is that some big
          9  donors that have relationships on their own with
         10  politicians or other corporate CEOs who might be
         11  visiting Boston at that time will do some
         12  schmoozing, and there are many of our corporate donor
         13  who will have little if no interest in schmoozing
         14  with some of the politicians that will be visiting
         15  Boston.
         16             So in terms of any organized effort to
         17  provide schmoozing opportunities, I think there
         18  will be very little of those, and I think it would
         19  be fair to say that there will be some--as folks
         20  alluded to this morning, there will some great
         21  parties and wonderful opportunities for people who
         22  know each other and like each other to socialize.
                                                             169
          1             COMMISSIONER THOMAS:  And also just from
          2  the practical perspective, do you agree with the
          3  basic assessment that's being presented to us by
          4  folks at the Campaign Finance Institute and Center
          5  for Responsive Politics that the basic reason the
          6  party committees are so anxious to have a really
          7  big successful convention that gets a lot of
          8  attention is because it does allow a focus on the
          9  putative nominating the person that's basically
         10  understood to be party's nominee heading into the
         11  general election, and it really is a very important
         12  election-related function to try to give a spin,
         13  positive spin, into the general election, so that
         14  it really is a very crucial component of national
         15  party conventions?
         16             MS. CRONIN:  Well, let me respond in a
         17  couple of ways:  Number one, I know Mr. Sandler
         18  will be testifying this afternoon and can certainly
         19  speak much better that I can to the motivations and
         20  purposes of the national party, although I could
         21  note, as I'm sure we would all have to, that over
         22  the past several years, the viewership of national
                                                             170
          1  conventions on television has steadily declined,
          2  which would suggest that the convention itself in
          3  terms of an electoral role is very insignificant,
          4  if non-existent, in the process.
          5             With respect to the host committee, I'll
          6  come back to the points I made in our written
          7  submission and in my earlier statement, which is
          8  that we do not view this activity as partisan in
          9  any way or supporting any kind of political party,
10 and, indeed, as you might expect, given 
         11  demographics, many of our most generous corporate
         12  donors are not Democrats and would not be choosing
         13  to participate in this event, financially or
         14  otherwise, if they viewed it as a partisan activity
         15  that might support the Democratic candidate.
         16             COMMISSIONER THOMAS:  Your point about
         17  TV viewership makes me--I just have to imagine that
         18  right now probably going through the minds of some
         19  of the party planner is given the success of
         20  reality TV, we've got to find a way to work in
         21  having someone wrestle with a snake or something in
         22  or a bug at the convention in order to draw the
                                                             171
          1  audience.
          2             MR. CRONIN:  We're writing that down.
          3             COMMISSIONER THOMAS:  Thank you.
          4             COMMISSIONER McDONALD:  As a Democrat,
          5  I'm not interested in us having reality TV.
          6             CHAIR WEINTRAUB:  Thank you,
          7  Commissioner Thomas, I think.
          8             Commission Toner.
          9             COMMISSIONER TONER:  That would be one
         10  realty program I would watch.
         11             Thank you, all of you, for being here.
         12  I really appreciate it.
         13             I wanted to start, Ms. Cronin, with you.
         14  There was a panelist earlier today who basically
         15  said that for Federal office holders like Senators
         16  Kennedy and Kerry who raised soft money for the
         17  Boston host committee, that that is breaking the
         18  law.  I have to say that based on what I've heard
         19  thus far, I don't agree with that analysis, but I
         20  take it you don't either.
         21             MS. CRONIN:  No.  No, we don't.  We
         22  think that--I mean, the testimony was just simply
                                                             172
          1  incorrect, incorrect as a matter of law, number
          2  one.  There's nothing in--certainly FECA doesn't
          3  compel that conclusion.  There's nothing in BCRA
          4  that compels that conclusion, and I do want to make
          5  a point, particularly with respect to Senator
          6  Kennedy who has been so active, and the host
          7  committee is so grateful for his efforts.  As you
          8  can well imagine Senator Kennedy, having been our
          9  United States Senator for close to 40 years, has
         10  been very active in raising money for so many
         11  community activities in the Commonwealth, and this
         12  is another one of those activities, and he was
         13  a--you know, as I recall, several of our Democratic
         14  politicians were very committed with the mayor in
         15  attempts to recruit the Republicans to come to
         16  Boston as well.
         17             So it was really viewed as a real
         18  effort, as a boost to local economy.
         19             COMMISSIONER TONER:  And there's been
         20  some discussion here about the various statutory
         21  provisions, and just following up, would it be fair
         22  to say that you don't even view this as a close
                                                             173
          1  question about the ability of these officer holders
          2  to raise money?  It's clear in your view that it's
          3  not a problem?
          4             MS. CRONIN:  It's absolutely clear, and
          5  I might add much of this discussion is, of course,
          6  very interesting and valuable from an academic
          7  perspective.
          8             COMMISSIONER TONER:  You're very
          9  generous.
         10             MS. CRONIN:  Thank you.  But with all
         11  due respect to all of us, both on that issue and on
         12  the issue of corporate contributions to host
         13  committees, BCRA is unambiguous.  It could not be
         14  more clear in the language, in the express language
         15  of BCRA, that there is no change contemplated by
         16  the--should be no change contemplated by the
         17  Commission on these issues.  Congress engaged in
         18  significant debate and legislative consideration of
         19  these issues, and for all the talk about intentions
         20  of certain individuals within Congress, as we all
         21  know as a matter of law, intent is only an issue if
         22  the statute is ambiguous, and of course the statute
                                                             174
          1  is not ambiguous in any way.  It couldn't be more
          2  clear.
          3             COMMISSIONER TONER:  Mr. Gross, do you
          4  concur on that analysis.
          5             MR. GROSS:  Yes, I concur.  In fact, I
          6  think that really what the proponents of that
          7  interpretation or the proponent of that
          8  interpretation almost concedes that BCRA has no
          9  effect on this.  They really are retreating to
         10  441(B) and the in-connection prohibition of 441(B)
         11  and trying to basically re-interpret what has been
         12  the law since 1976, because there's just nothing in
         13  BCRA to now support that prohibition on officer
         14  holders raising money.
         15             COMMISSIONER TONER:  Mr. Hong, you
         16  indicated in your opening statement that you oppose
         17  mandatory audits of the host committee, and I just
         18  wanted to explore that with you.  Is that because,
         19  in your view, the Commission's statutory authority
         20  to do mandatory audits is limited to entities that
         21  use public funds?
         22             MR. HONG:  Yes, it is.  I know there is an
                                                             175
          1  argument that whatever--if the host committee
          2  inappropriately uses funds, that that could be an
          3  improper expenditure on the public money side, but
          4  to tell you the truth, that's true with any
          5  corporation that engages--even corporate vendors to
          6  Presidential campaign.  If they make improper
          7  expenditures, that can be viewed as an improper
          8  expenditure for public money purposes, but you
          9  don't see the FEC auditing these third-party
         10  corporations for that.
         11             So the audit should be limited to the entity
         12  that actually accepts the public money.
         13             COMMISSION TONER:  Is it then, likewise,
         14  your view that we wouldn't have a statutory basis
         15  to be doing automatic audits of municipal funds?
         16             MR. HONG:  That's correct, because it
         17  does not have public monies.
         18             COMMISSION TONER:  Public money from the
         19  Federal Treasury, and given that that is not--they
         20  don't spend that money, we wouldn't have statutory
         21  authority to audit them automatically?
         22             MR. HONG:  Well, it would have to be
                                                             176
          1  from--that's correct--funds that are provided for
          2  this purpose.  I mean, obviously cities need
          3  Federal grants to build highways and the like, but
          4  that would not be enough to audit them.
          5             COMMISSIONER TONER:  Mr. Gross, in terms
          6  of the locality requirement that's been on the
          7  books for a long time here for contributions to
          8  host committees, as I understand your argument,
          9  your view is that it no longer has a rational
         10  basis, and one of the arguments on the other side
         11  in the debate is saying, Well, basically the
         12  Commission has relaxed this over the last 10 or 15
         13  years; there's been a lot of exceptions to this
         14  general rule, and then basically you get to the
         15  same point, basically people can freely contribute
         16  even if they don't live or do business right in the
         17  convention city.
         18             First of all, I wanted to get your
         19  thoughts on whether that's true in your viewpoint
         20  or whether actually there are still meaningful
         21  restrictions in this locality requirement.
         22             MR. GROSS:  I don't think it's entirely
                                                             177
          1  true, and some of those liberal interpretations are
          2  not readily available.  Again, they're is sort of
          3  made as part of an audit process, but they're not
          4  memorialized or made in part of a rulemaking or
          5  advisory opinion, and we have to vet every
          6  contribution that comes through the door, corporate
          7  or individual.  You know, there are presumptions
          8  that apply to certain types of contributions, but
          9  there are individuals who simply don't work or have
         10  business interests in a particular area or live in
         11  the particular metropolitan area, whether it's New
         12  Haven, Northern Pennsylvania, or whatever it may be
         13  that don't live there or have business interest or
         14  work there, and they want to participate, and
         15  you've got a problem.
         16             So I don't--I mean, I wish I could say
         17  that the rule has fallen apart and there's nothing
         18  there, but as far as we're concerned, we're dealing
         19  with restrictions.
         20             COMMISSIONER TONER:  Is your bottom line
         21  that you just don't see any rational reason for us
         22  to retain this rule?
                                                             178
          1             MR. GROSS:  That's right.  At this
          2  point, I just don't see any rational reason.  I
          3  mean, I understand why people from that area would
          4  be the main contributors, and that's what's going
          5  to happen as a practical matter.  We're raising our
          6  money naturally from people who are in New York, in
          7  the New York area who have interests in New York,
          8  but there are people, and, frankly, since September
          9  11th, who have a greater interest in New York from
         10  outside of the area and the rebuilding and recovery
         11  of what has become a national symbol in many ways
         12  to help and participate in the host committee in
         13  this effort.
         14             COMMISSIONER TONER:  Ms. Cronin, do you
         15  agree with that?
         16             MS. CRONIN:  I do, and I want to pick up
         17  on a statement someone made this morning about the
         18  enhanced difficulty for a city like Boston that's a
         19  bit smaller than New York.  In the current age we
         20  live in, and we addressed this a little bit in our
         21  written comments, this local requirement, which I
         22  should note I don't think is really supported in
                                                             179
          1  any way by language in the statute.  So if we start
          2  there--it was obviously compelled by statutory
          3  language--the issue would be quite different.
          4  Assuming for the moment it's not, which is what we
          5  believe, the local requirement is just not
          6  realistic in the global economy that we are
          7  experiencing today, and we all know that with
          8  technology being what it is, it's very conceivable
          9  for--this is a great example of a financial company
         10  that really has principal offices--that has offices
         11  in California, no offices in Boston at all, is
         12  servicing a lot of activity in the Boston area, as
         13  one example.  And given technology being what it
         14  is, it is no longer the case that companies have
         15  physical offices located in areas that they have
         16  business interests.
         17             And we would suggest for that reason,
         18  that kind of requirement is just not--we would urge
         19  the Commission to expand it.
         20             COMMISSION TONER:  Thank you, Madam
         21  Chair.
         22             CHAIR WEINTRAUB:  Thank you,
                                                             180
          1  Commission Toner.
          2             Commissioner McDonald.
          3             COMMISSIONER McDONALD:  Madam Chair,
          4  thank you.
          5             Welcome.  It's good to see you all.  Let
          6  me ask just a couple of fundamental questions that
          7  at the end of the day it appears to we we're going to have to
          8  address.  I'd like to start, Cheryl, with a notice
          9  question, because I thought you cited at the outset
         10  that it was very important.  It's ironic that the
         11  first panel really didn't touch on it much, which
         12  kind of surprised me in a way, because it is the
         13  most disconcerting aspect of this process.  It's
         14  very difficult at this juncture, it seems like to
         15  me to change much of anything at this stage.  It's
         16  just too far down the road.  I don't know who is
         17  responsible for this.  I do know who is
         18  responsibile.  It's ours, and we're not there,
         19  and so it's a very uncomfortable position for the
         20  Commission I think to be in.
         21             But I am interested, because you cited
         22  at the outset what you were and were not doing in
                                                             181
          1  relation to the party itself, and obviously what
          2  people are asking, I mean what brings us here, is
          3  what that relationship is.  Have you participated
          4  in other host committee activities for other events
          5  in Boston, or is this your first round?
          6             MS. CRONIN:  You mean for--
          7             COMMISSIONER McDONALD:  You yourself.
          8             MS. CRONIN:  I have participated.  I
          9  actually happen to serve--I am a member of the
         10  Massachusetts Convention Center Authority, and as
         11  you may know, Boston is building a convention
         12  center which is scheduled to open in the summer of
         13  2004.  So in addition to being counsel to this host
         14  committee, I have a very significant interest, as
         15  do many other people in creating Boston as more of
         16  a niche for national and international tourism.  So
         17  I'm quite familiar with the notion of hosting
         18  entities and luring tourists to Boston.
         19             COMMISSIONER McDONALD:  And how long
         20  have you been doing such a thing?
         21             MS. CRONIN:  Well, on this particular
         22  convention center, I've been serving since
                                                             182
          1  December, but have been, you know, an active member
          2  of lots of other community activities for many
          3  years.
          4             COMMISSIONER McDONALD:  Have you
          5  resolved the big dig yet?
          6             MS. CRONIN:  The big dig is an
          7  engineering marvel.
          8             COMMISSIONER McDONALD:  Marvel?
          9             MS. CRONIN:  An engineering marvel.
         10             COMMISSIONER McDONALD:  I thought maybe
         11  I misunderstood.
         12             MR. CRONIN:  No.  An engineering marvel,
         13  and I think that the delegates who come to Boston
         14  next summer will just be fascinated by it, and it
         15  will not obstruct any activity whatsoever.
         16             COMMISSIONER McDONALD:  Well, in
         17  relationship to public funding, you would have to
         18  admit it cost a lot less to run the
         19  convention.
         20             MS. CRONIN:  That would be our goal.
         21             COMMISSIONER McDONALD:  And a laudable
         22  goal, it is.
                                                             183
          1             It does bring up the question, though,
          2  in relationship to kind of what we're confronted
          3  with.  Let's go to the locality issue for just a
          4  second, and any of you are free to participate as
          5  you see fit.  If we're saying on the one hand that
          6  notice is a problem, and I happen to think
          7  it's a monumental problem that we just cannot get
          8  over, then in relationship to other matters,
          9  locality being one of them, whether it's practical
         10  or not practical, it seems like it would be odd for us
         11  to say, Well, we're not really changing the rules
         12  this time because it's too late to process, but,
         13  Oh, yeah, locality is something that we ought to go
         14  ahead and change.  And I happen to think at this
         15  juncture, quite frankly, after having been here a
         16  while, that it probably is time to change that,
         17  because it is a, quote, national convention, and
         18  the world is changing pretty dramatically.
         19             But I'm just wondering in those areas
         20  that any of you have advocated that we ought to
         21  take another look at, are you of the same opinion
         22  that as a practical matter, we can't change those
                                                             184
          1  either because that's where we are?  It seems like
          2  we ought to do it one way or the other.
          3             MS. CRONIN:  Well, actually, here's the
          4  difference.  Here's why we argue to you that
          5  changing the local rule now would be appropriate,
          6  and again, getting back to the fact that there's no
          7  statutory language which compels the limitation,
          8  and I think if you look straight at the facts
          9  related to us, we have a hundred-plus page contract
         10  with the DNCC and the Fleet Center as well is included in
         11  the contract because that's where the convention is
         12  being hosted.  That contract has attached to it a
         13  budget, and the budget, which is a part of our
         14  contractual obligations, requires us to pay for
         15  certain expenses.  The expense changes that are
         16  included in the notice undercuts our contractual
         17  obligations.
         18             On the other hand, it does require us to
         19  raise contributions consistent with the law.  So
         20  the reality is you could change the local
         21  requirement, make no change on the expense side or
         22  other activities, and it would leave all the
                                                             185
          1  parties in the position they should be for the 2004
          2  cycle, which is you haven't engaged in any
          3  rulemaking  effort that undercuts in any way
          4  anybody's legal or contractual obligations, which,
          5  frankly, is the position I'd expect you would want
          6  to be in as well.
          7             MR. GROSS:  Well, a relaxation of the
          8  rule doesn't present the notice problems that a
          9  tightening of the rule does.  So for that reason, I
         10  think you have the leeway to do that.
         11             COMMISSIONER McDONALD:  I see one or
         12  both of you have been hired.  And I do think that's
         13  a good point too.
         14             Let me just ask Ki real quickly, and I
         15  know he did kind of wrap up with what I think is
         16  the answer myself.  In relationship to the ability
         17  of this commission to proceed against a host
         18  committee for something it might have done in terms
         19  of enforcement matters, you're not of the opinion
         20  that we couldn't proceed, are you?
         21             MR. HONG:  No.
         22             COMMISSIONER McDONALD:  I just wanted to
                                                             186
          1  be sure.  I thought you said that kind of in
          2  conclusion, but obviously I would think there would
          3  be scenarios and things, as you indicated, where
          4  things were not permissible and the Commission would
          5  have the authority to do that.
          6             MR. HONG:  That's correct.
          7             MR. GROSS:  And conduct a for cause
          8  audit.
          9             COMMISSIONER McDONALD:  Ken, for you
         10  just a second, because I'm just interested in it,
         11  why is it, do you think, or you'll know, and what
         12  is the thought in relationship not asking office
         13  holders to participate in the New York project?
         14             MR. GROSS:  Why hasn't the New York--we
         15  haven't really seen the need to do it in terms of
         16  how we structured our financing and request for
         17  money.  That does not mean that the mayor is not
         18  involved, although actually his involvement has
         19  been somewhat limited because we recently had to
         20  get an opinion from the conflict of interest board
         21  in New York City regarding the ability of the mayor
         22  to raise money, a rule that Mayor Menino doesn't
                                                             187
          1  have to deal with.
          2             So we have been pretty circumspect about
          3  the involvement of public officials, and I think
          4  it's just been a dynamic of our structure for
          5  fund-raising.
          6             COMMISSIONER McDONALD:  In these
          7  sensitive times in terms of money and the
          8  difficulties everyone is having, couldn't Mayor
          9  Bloomberg just underwrite the convention?
         10             MR. GROSS:  People have suggested that
         11  for the deficit.  So I don't think he's inclined to
         12  do that.
         13             COMMISSIONER McDONALD:  Just a thought.
         14             Thank you all for coming.  I appreciate
         15  it very much.
         16             CHAIR WEINTRAUB:  Thank you,
         17  Commission McDonald.
         18             Mr. Vice Chairman.
         19             VICE CHAIRMAN SMITH:  Thank you, Madam
         20  Chair.
         21             Mr. McDonald already asked my question
         22  about the big dig.  I think it's interesting you
                                                             188
          1  call it an engineering marvel.  I understand it's
          2  actually it's like God.  It's eternal, all
          3  encompassing, and complex beyond human imagination.
          4             But I do have some questions, actually,
          5  for Ms. Cronin here.  You mention in your testimony
          6  without specific examples of companies that many
          7  events in the past are supported by companies and
          8  individuals from diverse locations who are
          9  recognized in participating in such grand events,
         10  etc.  Okay.  You heard Mr. Weissman this morning,
         11  and you've talked very generally about this civic
         12  motivation, but why would companies without a
         13  significant local presence, why do they make these
         14  contributions to these host committees?
         15             MS. BURNS:  If I could go ahead and
         16  answer that.
         17             VICE CHAIRMAN SMITH:  I was thinking
         18  about suggesting that you should get in here.
         19             MS. BURNS:  I beg the Commission's
         20  indulgence.  I am neither a lawyer nor an FEC
         21  expert, so you'll have to bear with me.
         22             COMMISSIONER McDONALD:  That's a
                                                             189
          1  criticism of me, by the way.
          2             MS. BURNS:  In terms of the fund-raising
          3  we've done, a lot of companies have come to us,
          4  approached us about getting involved with the host
          5  committee.  We've had to either hold off or say no
          6  because of their geographic location.
          7             As Ms. Cronin mentioned, a lot of
          8  companies who might not have a physical presence in
          9  Massachusetts do a lot of business in Massachusetts
         10  and would like to participate.  Certainly, a lot of
         11  CEO attended our great colleges and universities.
         12  They might have a hometown tie to the state.  There
         13  are several CEOs of companies that are located in
         14  other parts of the country who grew up in
         15  Massachusetts who are interested in supporting our
         16  convention because it's going to take Boston to
         17  sort of a different level on the playing field in
         18  terms of becoming a bigger, better city, a world
         19  class city, and enabling us to compete with the
         20  Atlantas, the Chicagos, the DCS for future events.
         21             VICE CHAIRMAN SMITH:  What if they don't
12 meet those criteria; they don't have a tie, they didn't go to 
13 school in
                                                             190
          1  Boston or Cambridge.
          2             MS. BURNS:  I'm sorry?
          3             VICE CHAIRMAN SMITH:  What if the donor
          4  doesn't meet those criteria, doesn't have a
          5  personal tie to Boston?
          6             MS. BURNS:  Well, again, it's with the
          7  physical location of an office, and just because,
          8  as you mentioned, they don't have a physical office
          9  there doesn't mean a large portion of their
         10  clients, their customer base might be in
         11  Massachusetts.
         12             MS. CRONIN:  Frankly, we think that
         13  there are very few companies that don't have some
         14  tie or some interest in developing business
         15  activities in the Boston area.  And I also want to
         16  make one observation.
         17             VICE CHAIRMAN SMITH:  Does the
         18  convention help more than just taking out a million
         19  dollars in advertising?
         20             MS. CRONIN:  My experience with
         21  corporate clients is that corporations look for all
         22  kinds of ways to be members of the community in
                                                             191
          1  which they want to transact business, and some of
          2  it is advertising.  As we all know, they have
          3  advertising budgets.  They have foundation budgets.
          4  They have community participation budgets, and I
          5  also think--this is a point that was raised this
          6  morning:  Now more than ever, it is important that
          7  host committees can enjoy the support of corporate
          8  funds, unlike--and, frankly, this may be somewhat
          9  of unique times.  As you know, many states are
         10  facing very difficult fiscal situations.
         11  Massachusetts has a $3 billion fiscal deficit this
         12  year.  We know that--the host committee knows that
         13  there for the most part will be little, if any,
         14  state or city funds available to us to host this
         15  great convention, and for that reason, it is all
         16  the more important that corporate funds and
         17  corporate entities have stepped up to the plate to
         18  support things like this convention, support other
         19  activities, support after-school programs, all the
         20  kinds of things the private sector generously steps
         21  up and does at times when fiscally the state of
         22  municipalities cannot do so.
                                                             192
          1             VICE CHAIRMAN SMITH:  Thank you.
          2             Let me go direct to you, and then I'll
          3  got to Mr. Gross.  How do you respond to the
          4  argument of the Center of Responsive Politics in
          5  its written comments and from Mr. Sanford this
          6  morning that host committees are agents of the
          7  party from the moment the party selects the city as
          8  the convention site?  Let me add a wrinkle to that.
          9             To some extent, Mr. Gross, you addressed
         10  that a bit in your opening comments, but you
         11  suggested there was tough negotiations going on.
         12  Aren't they tough negotiations over the terms of an
         13  agency contract?
         14             MR. GROSS:  Well, we are operating as
         15  our own entity with our own director, our own officers.
         16  We are raising money in our own capacity, and these
         17  provisions were bargained for, certainly, over a
         18  contract, and I think--I don't think that does
         19  create an agency relationship necessarily unless
         20  there is an actual agency authority that's being conferred
         21  in contractual terms or implied; and here, there
         22  really is no indicia of it in the way it operates, the
                                                             193
          1  way the city operates.
          2             I think it's fair--the host--and one of
          3  things we're struggling with here is that the host
          4  committee and the Republican National Committee
          5  have divergent interest in this convention, but
          6  more or less common goals.  We both want a great
          7  convention because it will serve New York City well
          8  to have a great convention, whether it was the
          9  ophthalmologist or whether it was the Democrats,
         10  the Republicans or anybody else, and we very much
         11  want that.
         12             Our divergent interests are that we have
         13  a commercial interest in this convention and
         14  attracting business and a certain amount of revenue
         15  that it brings in displaying the city in a way that
         16  we want it to be displayed where their interests
         17  are political.  And I think all those facts
         18  supported by the way the committees operate, the
         19  way they're structured, the way they're governed,
         20  support factually that we are not acting in an
         21  agency capacity.
         22             VICE CHAIRMAN SMITH:  Ms. Cronin.
                                                             194
          1             MS. CRONIN:  I would just echo that,
          2  that there's nothing factually.  For all the
          3  suppositions this morning about what host
          4  committees really are about, our host committee is
          5  not an agent in any of the DNC, and, you know, I
          6  think if you participated in some of our
          7  discussions, it would be abundantly clear to you
          8  that we see things differently sometimes; we have
          9  some different interests; and this is--it's by no
         10  means an adverse relationship, although in certain
         11  small issues, it could be.  You can imagine some
         12  areas of disagreement, but it is not in any way an
         13  agent relationship.
         14             VICE CHAIRMAN SMITH:  When you aid that,
         15  Mr. Gross kind of started to say what the heck are
         16  you talking about, when you said it's no way an
         17  adverse relationship.
         18             MS. GROSS:  Oh, no.
         19             VICE CHAIRMAN SMITH:  That made me
         20  forget the follow-up I wanted to ask on that.  I'll
         21  take that.
         22             Let me ask a couple quick questions,
                                                             195
          1  then, to Mr. Hong who was talking about audits.  So
          2  you would agree, though, I take it that--or would
          3  you not agree that the Commission could do a for
          4  cause audit of host committees?
          5             MR. HONG:  Yes, I would agree.  Even
          6  there, it's not quite clear, because if you look at
          7  FECA, even for cause audits, it's to political
          8  committees, and we're not a political committee,
          9  but we would concede that for cause audits would at
         10  least come close to that section, and we would
         11  accept the for cause audit.  It's these automatic
         12  audit which we really can't find a basis for.
         13             VICE CHAIRMA SMITH:  Can you--assuming
         14  we can do the for cause audits--so you generally
         15  agree while hedging your bet, but reserving the
         16  right to rescind later, it sounds like.  I mean,
         17  what would be a situation where there would not be
         18  justification for a for cause audit of a host
         19  committee?  Would there always be justification for
         20  a for cause audit, and that being the case, does
         21  this issue really matter, or am I wrong on my
         22  supposition?
                                                             196
          1             MR. HONG:  Well, a for cause audit would
          2  be triggered if the commission had some information
          3  that a violation was going on or that we were
          4  accepting contributions outside of the metropolitan
          5  area or we were making part impermissible
          6  convention expenditures, and without that
          7  information, a for cause would not be justified.
          8             MR. GROSS:  I may have started us down
          9  this for cause audit, and I'm starting to regret
         10  it, but the way the Commission conducts for cause
         11  audits under the statute, the random audits were
         12  be eliminated as a possibility.  Based on the
         13  reports filed and the reason why I thought there
         14  might be some intersection even though the host
         15  committee is not a political committee, is because
         16  we file reports.  We're disclosing.  And if the
         17  reports themselves trigger through some point
         18  system, if you will, a basis for a for cause audit,
         19  then it would be a basis--then that's how it would
         20  get triggered.  If there was an issue regarding an
         21  isolated contribution, whether it was inside or
         22  outside the metropolitan area, if that was the
                                                             197
          1  rule, or some other possible violation, that would
          2  presumably get handled as part of enforcement if
          3  there was an illegal contribution made or something
          4  like that.
          5             But I think as an audit matter, it would
          6  be based on the reports filed with the FEC.
          7             VICE CHAIRMAN SMITH:  Okay.  And the
          8  last question if either you want to respond to a comment Mr.
          9  Sanford made this morning when I asked him about the
         10  agency relationship.  In fact, he responded to your
         11  testimony, Mr. Gross, which he said, Well, this is
         12  a totally unique relationship that can't be
         13  analyzed like a sort of contract or agency
         14  relationship.  I just wondered if you had any
         15  response to that, if you caught that part of his
         16  testimony.
         17             MR. GROSS:  I may want to at some
         18  point--I mean, I don't know.  I mean, agency is
         19  an established area of law.  Some of us took it in
         20  law school, and you create an agency through either
         21  an implied or apparent authority or actual
         22  authority.  So I don't know really where he's
                                                             198
          1  getting that in that respect.
          2             VICE CHAIRMAN SMITH:  Mr. Hong.
          3             MR. HONG:  And if I can add to that, the
          4  agency has--we're throwing around this word
          5  "agency" like we were in law school, but the
          6  Commission has already decided that agency means
          7  anyone who is acting with the authority to solicit
          8  funds on behalf of the RNC or a party committee.
          9             Now, first of all, these vendors--I'd
         10  like to call it a vendor relationship, because
         11  these really work like that.  You know, there's
         12  exchange of consideration.  This would survive any
         13  contract class, and vendors are not agents, and
         14  they're at most independent contractors; and, in
         15  fact, if you were to say that we're vendors, I
         16  think you would have to say that for any kind of
         17  vendor that an RNC--that a party uses, including
         18  computer companies, and you would have to regulate
         19  and make sure they don't take in soft money, you
         20  know.  You've have to worry about how they're
         21  making their money, and I think we have to narrow
         22  this down to what we're looking at.
                                                             199
          1             We're looking at do we have the
          2  authority, implied or otherwise, to raise funds on
          3  behalf of the party committee, and there's nothing
          4  here showing that.  We're raising money for
          5  ourselves.  We have divergent interests, as Ken
          6  mentioned earlier, and there's just no indication
          7  of it.
          8             MS. CRONIN:  If I could just add to
          9  that, both with respect to the narrow question of
         10  the agency between--agency issues is between host
         11  committees and national political parties, but also
         12  as a very general matter, the notion of agency
         13  in some ways is an extraordinary one because what
         14  it does is serve to hold an entity or individual
         15  responsible for the conduct of another entity or
         16  individual, and it's a very slippery slope to get
         17  on to begin to--you know, without some established
         18  facts to begin to suggest that someone is
         19  responsible for somebody else's conduct or some
         20  entity is responsible for somebody else's conduct.
         21             The facts--we would urge you not to go
         22  near that slippery slope at all, and in particular,
                                                             200
          1  we would say to you that our experience is that
          2  host committees are simply not agents of national
          3  political parties.  They just as a matter of fact
          4  do not operate in that way.
          5             VICE CHAIRMA SMITH:  Thank you.
          6             CHAIR WEINTRAUB:  Thank you, Mr. Vice
          7  Chairman.
          8             I just have a couple questions.  Let me
          9  state at the outset that I think Boston is already
         10  a world class city.
         11             MS. CRONIN:  We do too.
         12             CHAIR WEINTRAUB:  I'm sure you do.
         13  And I also wanted to clarify something that
         14  Commissioner Toner said earlier.  You had asked
         15  about whether they agreed, and they didn't, with
         16  Paul Sanford's conclusion that Senators Kerry and
         17  Kennedy have already violated the law in soliciting
         18  Soft Money for the host committees, and a conclusion
         19  that both of you disagreed with, as well as you,
         20  but I think that by the end of the testimony this
         21  morning, even Mr. Sanford had retracted that
         22  conclusion under penetrating questioning by our
                                                             201
          1  general counsel.  So I didn't want to leave that
          2  impression out there, because I also agree that I
          3  don't think they violated any law.
          4             I was struck when I was reading your
          5  comments, your testimony, your written testimony,
          6  all of you, with the repeated use of the word sole,
          7  S-O-L-E.  "The host committee's sole purpose is the
          8  well-being of the city."  And, Mr. Gross, you
          9  talked about the divergent interests which, while
         10  I'm always reluctant to get into mathematical terms
         11  as a humanities major, I think perhaps congruent
         12  interest might be a more accurate description or
         13  parallel interests.  Perhaps the motivations aren't
         14  entirety the same for the host committee as they
         15  are for the party committees or for the donors, but
         16  do all sort of lead in the same direction.
         17             MR. GROSS:  That's what I meant by
         18  divergent interest, but common goals, and I think
         19  that's where that--you know, where that overlap
         20  comes in.
         21             CHAIR WEINTRAUB:  You don't need to
         22  apologize.  I just wonder if you're sort of
                                                             202
          1  overselling your case a little bit.  It sort of
          2  reminds me a little bit of Casa Blanca where
          3  Captain Renois is saying, I'm shocked to discover
          4  politicking going on at a national convention.  I
          5  mean, don't you think--with all due respect to
          6  everything you've said about the separate entities
          7  involved, don't you think that a lot of your donors
          8  really are motivated by helping out political
          9  parties?  Maybe not every single one of them, but
         10  are you really prepared to sit here and say that
         11  none of them are motivated by political interests?
         12             MS. CRONIN:  Well, let me answer that in
         13  a couple of ways.  Number one, with respect to our
         14  corporate donors, I actually believe that we are
         15  not overselling our case, that the truth is that
         16  they would have been just as generous if the
         17  Republicans were coming to town, that and certainly
         18  for most of these corporations, they have senior
         19  executive teams.  The contribution would not have
         20  gotten through that team were this viewed as
         21  partisan in any way.
         22             Here is what I think is occurring, which
                                                             203
          1  may satisfy you.  I hope it might.  It is certainly
          2  the case that in Massachusetts, as in most other
          3  places, there are individuals and companies who are
          4  working closely with the host committee whose
          5  activities we would say are not partisan.  There
          6  are also other individuals who are not so active,
          7  who are not active with the host committee, who
          8  have long been active with the national political
          9  party committee on the Republican side or the
         10  Democratic side, and I anticipate that they will be
         11  focusing their activities over the next few years
         12  on national political party activity, and they are
         13  not--they don't work with the host committee, which
         14  is a separate entity.
         15             There are also issues, as you can well
         16  imagine--because we do happen to have in
         17  Massachusetts a presidential candidate--there are
         18  individuals who reside in Massachusetts who are
         19  wonderful and have elected instead of dedicating
         20  their efforts to the host committee or some other
         21  community effort, they're spending their time over
         22  the next months supporting a Presidential
                                                             204
          1  candidate.  So certainly it is the case that there
          2  are--and as you well know, Massachusetts is a very
          3  politically active state.  There's no denying that.
          4  There are many individuals there who--who made
          5  choices as to how they're going to spend the next
          6  year or two in terms of their time.  Some folks,
          7  some have decided to participate in host committee
          8  activity.  Some have decided to participate in
          9  local party activity.  Some have decided to work on
         10  Mac world, which is coming to town at some point, and
         11  some have decided to support Senator Kerry's
         12  efforts, and some have decided, my goodness, to
         13  support the efforts of other Presidential
         14  candidates.
         15             So despite living in Massachusetts, we
         16  have a range of activities going on, but the host
         17  committee activity, I believe is truly non-partisan
         18  and not dedicated to any particular candidate.
         19             CHAIR WEINTRAUB:  But surely there's
         20  some--and I'll give you a chance in a second.
         21  Surely there's some overlap in those categories .
         22             MS. CRONIN:  Absolutely.
                                                             205
          1             MR. GROSS:  I think trying to dissect a
          2  motivation of every donor is a little bit of a red
          3  herring.  I think the point that I wouldn't concede is
          4  that the activities of the host committee are
          5  activities in connection with Federal elections.
          6  They are not.
          7             The fact that some donor may be
          8  motivated to give because he's thinking of the
          9  convention or the Republican party that happens to
         10  be doing its convention is really not the problem.
         11  It wouldn't be a violation anyhow, and I don't
         12  think it's the issue.  I can't speak for the
         13  motivation of every donor or who Mr. Weissman may
         14  be interviewing in 2004 or '5 for his next study
         15  and what they may almost flippantly say about why a
         16  particular donation was made, but we are
         17  circumscribing the activities of the host committee
         18  in a way that do not characterize it as Federal
         19  election activity, and I think that does withstand
         20  the scrutiny.
         21             MR. HONG:  Just to add to that, when we
         22  use the word "sole", what we're talking about is
                                                             206
          1  the purpose that the host committee has, and that
          2  we can tell you.  The sole purpose for doing this
          3  is to promote the city, and I think you raise a
          4  great question, because this underlies the
          5  local--the metropolitan area question as well.  As
          6  Ken mentioned, the purpose of the donors is a red
          7  herring here, because the purpose of the donor
          8  shouldn't matter.  What should matter is what the
          9  purpose the host committee is, and I can tell you
         10  factually when we do deal with donors, a lot of
         11  them is truly civic purpose.  That's their purpose.
         12             MR. GROSS:  Our donors have soul,
         13  S-O-U-L .
         14             MR. HONG:  That's right.
         15             CHAIR WEINTRAUB:  I was waiting for
         16  somebody to say something about that, or in the
         17  case of Massachusetts, they eat sole.  Right?
         18             I'm sorry.  That was really bad.
         19             Let me ask you, all of you, for
         20  comment--and I don't know.  I'm sure you don't have
         21  it in front of you, but the CFI study proposed
         22  several ideas that you may want to opine on.  They
                                                             207
          1  have suggested that local and state governments
          2  should report in more detail about their direct
          3  expenditures, and those reports should be
          4  publically available.  This is on page 16 and 17 of
          5  the CFI study, the CFI testimony.  They suggested
          6  that privately sponsored municipal funds file
          7  disclosure reports similar to host committees.
          8  They suggested that host committees include in
          9  their disclosure reports summary information
         10  distinguishing between private and local or state
         11  government contributions, and that host committees
         12  municipal funds and local and state governments
         13  disclose their itemized expenditures in terms of
         14  categories of municipal spending found in
         15  Commission regulations.
         16             And I was wondering if any of you would
         17  like to comment on the advisability of any of those
         18  suggestions.
         19             MR. GROSS:  I saw those recommendations.
         20  I was a little curious about them, because you do,
         21  in fact, report.  I mean, if the City of New York
         22  provides police, transportation, security, that
                                                             208
          1  gets disclosed as an in-kind contribution, and it
          2  is from the City of New York or from the State of
          3  New York if we're putting tags on cars donated or
          4  something like that.  So it is disclosed, and it
          5  is--and you can tell whether the source is private
          6  or private by looking at the report.
          7             I mean, if you look at the Philadelphia
          8  reports, for example, they had all the in-kind
          9  donations between the City of Philadelphia and the
         10  State of Pennsylvania.  Then they had the direct.
         11  In that case, they were direct payments which I
         12  think both of our cities are, you know, not dealing
         13  with right now.
         14             And so I'm not really sure what is not
         15  in the FEC report currently that is concerning
         16  them.  It seems to me almost all of the points that
         17  they raise, if not all of them, are in some fashion
         18  addressed under the current law.
         19             MS. CRONIN:  I agree.
         20             MR. GROSS:  That's the advantage of
         21  going second.
         22             CHAIR WEINTRAUB:  That's right.  She
                                                             209
          1  can just say I agree.
          2             I'd like to ask you, Mr. Gross and Mr.
          3  Hong, about sort of a fine legal point.  The issue
          4  of the timing, probably the strongest argument for
          5  our delaying implementation of any regulations that
          6  we might issue is that they're not mandated by
          7  BCRA, but put that aside for a moment and assume
          8  that we come to the conclusion that they are
          9  mandated by BCRA or by FECA or by something that we
         10  are operating under a statutory constraint.
         11  Confirming what I would have assumed from the
         12  outset, that if you put the resources of Skadden Arps to work, you
         13  can probably find a precedent for almost any
         14  proposition out there.
         15             I was fascinated by this case that you
         16  came up with, Sweet v. Sheehan, which, you know,
         17  came out and said that the failure to promulgate
         18  final regulations before the date specified by Congress did
         19  contravene the Congressional intent, but basically
         20  said, you know, But we're okay with that in this
         21  case.
         22             I'm wondering, because I'm sure that you
                                                             210
          1  did more research on the subject, is this just an
          2  outlier case?  Are there other cases out there that
          3  say we can go around contravening Congressional
          4  intent, and under what circumstances should we do
          5  that?
          6             COMMISSIONER MASON:  Where were you last
          7  year?
          8             MR. GROSS:  Ki found that case.
          9             MR. HONG:  Well, there aren't that many
         10  cases.
         11             CHAIR WEINTRAUB:  I suspected not.
         12             MR. HONG:  But there wasn't--there
         13  aren't that many cases that says this.  There
         14  aren't that may cases where this question was
         15  addressed, and that's really what we found, that
         16  there aren't any real cases that expressly say
         17  every agency has the authority to pick whatever
         18  effective date you want, but what is important in
         19  that case was that this case involved both--a
         20  statute that both said--that gave a deadline for
         21  issuing rules as well as a deadline for the
         22  effective date of the rules.
                                                             211
          1             So that in this case, the law in that
          2  case involving the EPA was even clearer as to the
          3  effective date of the rule; whereas, in our case,
          4  the BCRA, although it gives a schedule for issuing
          5  rules, it doesn't give a schedule for the effective
          6  date of those rules.
          7             CHAIR WEINTRAUB:  I have one more
          8  question.  I was surprised to read--again, this is
          9  for the New York team:  I was surprised to read in
         10  your testimony and to hear you say today that you
         11  actually haven't been using Federal officer holders
         12  or party officials to solicit for the host committee;
         13  and while I'm not asking you to name any names, I
         14  was wondering what sort of people are raising money
         15  for you, and are they state and local politicians?
         16  Are they business leaders?
         17             MR. GROSS:  They are business leaders,
         18  and the honorary chair of our committee is Mayor
         19  Guilliani, and Lou Eisenberg has joined the
         20  committee.  He was the Chairof the Port
         21  Authority of New York and New Jersey Port
         22  Authority, has been involved in fund-raising
                                                             212
          1  efforts along with many, many business leaders and
          2  investment banking firms and others who are
          3  typically involved in this effort, in effort of
          4  supporting city activities, large investment
          5  banking, insurance companies, and ones that you
          6  would imagine.
          7             CHAIR WEINTRAUB:  Thank you.
          8             Commissioner Mason.
          9             COMMISSIONER MASON:  I wanted to go back
         10  a little bit to Commissioner Smith's questions
         11  about agency and co-purpose.  We covered it quite a
         12  bit, but I thought it was actually Paul's strongest
         13  argument, and just ask again, for you attorneys, it
         14  seemed to me he was describing--you suggested vendor
         15  relationship.  Another argument might be a joint
         16  venture, and we've seen a few of those at the
         17  Commission, not really making agency
         18  determinations, making other determinations; and I
         19  just wondered as a legal matter is that fact that
         20  you're engaged in a joint venture make the two
         21  co-parties to the venture agents of one or the
         22  other?
                                                             213
          1             MR. HONG:  Well, the Federal Election
          2  Commission has addressed this in another context,
          3  which are affiliated PACS or joint ventures, and
          4  the FEC had made it clear that although the joint
          5  venturer may be affiliated in this case, the event,
          6  the convention itself, may be affiliated with the
          7  host committee and the party committee.  As Ken
          8  said, it's the same goal with divergent interests.
          9             But the FEC has made clear that the two
         10  joint venturers would not be affiliated and
         11  rightfully so, because they are not agents of each
         12  other.  They have divergent interests and they are
         13  acting on their own behalf.
         14             COMMISSIONER MASON:  Is that consist
         15  with the general principles of agency in a legal
         16  term, this joint ventureship?
         17             MR. HONG:  It is.  The joint venturers
         18  in a business relationship do not become agents of
         19  each other, and in the context of a vendor
         20  relationship as well, when you enter into these
         21  contracts, you--every contract you see involving a
         22  vendor has a provision that says we're not agents
                                                             214
          1  of each other; we can't obligate each other, and
          2  that's the same situation here as well.
          3             MR. GROSS:  The fact that they're
          4  competitors, none of that creates issues for this
          5  specific purposes.
          6             MR. CRONIN:  I'd like to add one thing
          7  to that.  The reason why I actually don't believe
          8  that this is a joint venture, normally in a joint
          9  venture, two separate parties come together, really
         10  driving towards the exact same goal.  In this case,
         11  while it is true that the host committee's
         12  activities are driven in some way by the fact that
         13  there's a national convention coming, of course the
         14  focus of the convention committee is very much
         15  those activities directly related to the
         16  convention, and the focus of host committee is very
         17  much all those he external activities that are much
         18  more related to marketing the City of Boston and
         19  the kinds of issues we've been talking about this
         20  morning.
         21             So I don't even think these are--this
         22  could be fairly characterized as a joint venture.
                                                             215
          1             COMMISSIONER MASON:  I'll accept your
          2  argument.  I just thought Paul had a good case
          3  there to the extent that, for instance, host
          4  committees sometimes pay for things that are
          5  integral to the convention, and you couldn't argue
          6  that paying for the voting system in the convention
          7  call, which is allowed, contributes directly to
          8  commerce in the city other than, you know,
9  generally other than putting up the event.  
	   10	 But you've given me a sufficient
         11  response on that.
         12             I want to go also to the audit question,
         13  because I agree there's some questions about the
         14  audit, starting with Section 437 which requires
         15  reports on convention financing for host committees
         16  which says you have to report.  It doesn't say
         17  anything about audits.  So there's no audit
         18  authority there.  438 addresses political
         19  committees, as has been suggested.  So I don't
         20  see--by analogy, I don't really see audit
         21  authority, particularly when the reports are
         22  required in a separate section, 437.  I don't see
         23  how we take 438 authority.
                                                             216
          1             We have 9008 audit authority as to the
          2  convention committees themselves, and then what I
          3  think we may have overlooked is 9009(B), which is
          4  the part of the overall section that provides for
          5  general election and convention financing, which
          6  says the Commission is authorized to conduct such
          7  examinations and audits in addition to the
          8  examinations and audits required by 9007, to
          9  conduct such investigations and require the keeping
         10  and submission of such books, records, and
         11  information as it deems necessary to carry out the
         12  functions and duties imposed on it by this chapter.
         13             Fairly broad authority.  If we can
         14  construe it as related, and I assume, and I'll put
         15  this in the context of myself having some questions
         16  and doubts about it, that the argument has to have
         17  been that there are this close relationships
         18  between the host committee and the convention
         19  committee.  There are overlapping categories of
         20  expenditures and that in order to assure ourselves
         21  that the convention committee hasn't violated the
         22  spending limit for impermissible contributions by
                                                             217
          1  the host committee, that we need to conduct this
          2  examination and audit under Section 9009.
          3             Am I wrong?
          4             MR. HONG:  We would view this section as
          5  providing--as relating back to 9008, the audit on
          6  the Presidential campaigns and on the convention
          7  committees, because the statute lays out specific
          8  requirements for these automatic audits, and what
          9  9009 does is essentially says, Well, you can go
         10  outside of the stricture regarding Presidential campaigns and
         11  the national parties, but we don't believe this
         12  gives authority to audit third parties
         13  just because there's a relationship to the event in
         14  question.
         15             COMMISSIONER MASON:  I would agree with
         16  you except that it specifically says in addition to
         17  the examinations and audits required under 9007.
         18  It doesn't mention 9008, but this expressly
         19  advertises itself as an additional audit authority
         20  beyond the audit authority which is specified as to
         21  the recipients of public funding.  I don't know who
         22  else it could have been if it doesn't mean your
                                                             218
          1  clients, because we're already auditing all the
          2  candidates who receive public funding.  We're
          3  already auditing by statute the host
          4  committee--excuse me--the convention committees who
          5  receive public grants, and we have to do that.
          6  We're mandated to do that.
          7             Then, all of a sudden, here's this other
          8  authority out there that say you can go out and do
          9  whatever else you need to do--it's a pretty broad
         10  grant--in order to assure compliance, and one of
         11  the fundamental issues there is compliance with the
         12  spending limits.
         13             MR. GROSS:  Well, we're not contesting
         14  the authority of the Commission to conduct an audit
         15  of the host committee.  What we're saying is that
         16  it is not mandated as the audit authority mandates
         17  under 9008, and you have a corollary in the primary
         18  regs and in, a public
         19  funding statute in the general election public
         20  funding statute, which I think has probably
         21  theoretically been used to audit GELAC along with,
         22  you know, the public fund funds; but the
                                                             219
          1  Commission's audit authority, I would concede under
          2  the circumstance.  It's just not a mandate, and the
          3  Commission has treated the host committee as part
          4  of the public finance mandated audit program; and
          5  in every other case where the Commission has the
          6  authority to conduct audits in the Title II realm
          7  and other non-publically financed campaigns, it's
          8  been done on a for cause basis.
          9             COMMISSIONER MASON:  Well, it's done on
         10  a for cause basis in Title II because we're
         11  required to it on a for cause.
         12             MR. GROSS:  Well, this gives you the
         13  authority--this is under the subheading
         14  regulations, etc., which will also give you--if you
         15  find a violation in the context of an enforcement
         16  action or other such authority, it is your broad
         17  authority to operate under that, but it's seems to
         18  me it would be done in the fashion that you would
         19  trigger other non-mandated audits.
         20             COMMISSIONER MASON:  Again, I don't see
         21  that as necessarily following, because our
         22  authority there is restricted by statute.
                                                             220
          1             MR. GROSS:  Perhaps you're right, but in
          2  any event, it would be under some procedure other
          3  than mandated procedure, and we don't--again, what
          4  we're saying is you do have the authority under the
          5  mandate audit provision.  It would be under some
          6  other construct under this provision.
          7             COMMISSIONER MASON:  If we conclude
          8  either that we don't authority to do audits of
          9  every host committee or that we don't need to and
         10  shouldn't, how would we determine cause audits?
         11  Because we have, as you know, well, this fairly
         12  elaborate structure under Title II which doesn't
         13  fit very well for the single reporting concept that
         14  you have with the host committees, and I agree with
         15  you that we have to distinguish this from, let's say a
         16  particularly reported transactions or a particular
         17  accusation that says this is an enforcement matter.
         18             MR. GROSS:  I don't know why you say it
         19  doesn't fit well.  What happens is 60 days after
         20  the convention, the host committee reports--that's
         21  the first disclosure to the Commission--it
         22  encompasses all the activity.  So instead of having
                                                             221
          1  seriatim reports every six months or every quarter,
          2  as you would with a normal political committee or a
          3  candidates committee, you have, actually, a very
          4  comprehensive report, and then the committee would
          5  report periodically after that.  The big kahuna
          6  is that 60-day report, and if it is based on--if
          7  that report, through criteria established by the
          8  Commission, has an indication of systemic problems
          9  through the disclosure process, that to me would a
         10  rational basis to proceeding, and beyond that, it
         11  seems to me if there's evidence of a violation or a
         12  complaint filed, it would be handled in the
         13  enforcement process.
         14             MR. HONG:  Also, 9009 is in--the
         15  provision you cite from 9009 is in the context of
         16  reporting to Congress the use of public moneys,
         17  whether they were--the audit of the Presidential
         18  campaigns, and so again, it ties back to those
         19  committees in my view.  It does not broaden it up
         20  to the third parties.
         21             COMMISSIONER MASON:  I read it
         22  differently.
                                                             222
          1             CHAIR WEINTRAUB:  Thank you,
          2  Commissioner Mason.
          3             Mr. General Counsel.
          4             MR. NORTON:  Thank you, Madam Chair.
          5  I'll try to be brief again.
          6             Mr. Hong, I wanted to follow up with you on
          7  your opening remarks about expenditures the host
          8  committees can make, and I think, as you know, in
          9  the notice of proposed rulemaking, one of the
         10  suggestions is, Well, let's do away with the
         11  locality requirement, but the way we'll ensure that
         12  the expenses are commercially motivated is we'll
         13  tighten up the list and be a little bit more
         14  specific about the dos and don'ts.
         15             You have said that, no, what you really
         16  ought to be doing is looking at totality of the
         17  circumstances, and that's the way you determine
         18  whether they've commercially motivated.  And I'm
         19  struggling as I was listening to you with some of
         20  the examples.  You argue in your submission that
         21  it's appropriate to supply hotel rooms for
         22  visitors, but in response, I think, to one of the
                                                             223
          1  questions of the Vice Chairman, you said one
          2  example of an expenditure that--or maybe
          3  Commissioner Thomas--one example of an expenditure
          4  that wouldn't commercially motivated is
          5  transportation of the Federal candidate, you know,
          6  of a Presidential candidate to the convention site.
          7             And I'm wondering how we frame this test
          8  in a way that makes it clear in terms of notice and
          9  workable.  If the test is is it going to make for a
         10  successful convention, hotel rooms as much as the
         11  transportation of the Presidential candidate would
         12  help with that.  If the test is offering to do what will
         13  assist in attracting the convention to the city, it
         14  seems to meet that test too.
         15             So what is it in practice that
         16  distinguishes the ability of the host committee pay
         17  for one and not the other?
         18             MR. HONG:  First of all, I'd like to
         19  separate the intake and the expense part, because I
         20  don't want to confuse the two.  When we're talking
         21  about--what I'm talking about, that the expense
         22  issue be allowed if they are for a commercial to
                                                             224
          1  promote the city.  We're talking about expenses, and
          2  I don't think it really relates to the purpose of
          3  the donors in giving to us, the whole locality
          4  issue.
          5             But setting that aside, the test is
          6  whether the activity that is being paid for in any
          7  way promotes the city, has a direct affect on
          8  promoting the city.  I think providing good hotels
          9  is promoting the city, because as you all know,
         10  it's not the convention.  It's where you stay.  You
         11  know, if you have lousy hotels, you'll have an
         12  awful experience and everybody, all the delegates
         13  throughout the country goes back and says New York
         14  is an awful place to go, which it is not; whereas,
         15  if you're transporting the Presidential to the
         16  convention itself, I just--there is no direct
         17  promotional purpose that could be tied to that.
         18             MR. NORTON:  You talk about TV and
         19  internet production would not be appropriate for
         20  the host committee.
         21             MR. HONG:  Yeah, the TV, subsidizing the
         22  actual production of the convention, you know,
                                                             225
          1  paying for the script writers and the like, that's
          2  part of the political message, and I don't think we
          3  can--
          4             MR. NORTON:  I'm not talking about the
          5  script writers, but the production, the internet
          6  production, the television production, those kinds
          7  of expenses.  Is that appropriate?
          8             MR. HONG:  I think that's a close call.
          9  I think that's close call.  I think an argument
         10  could be made that it does promote the city, but I
         11  think the traditional, the historical view has been
         12  that that's not a proper expense of the host
         13  committee.
         14             MR. GROSS:  The truth is that there's
         15  been almost complete permissibility on the
         16  expenditure side, other than the actual show
         17  itself, if you will, you know, the production of
         18  show itself during the convention itself; but as
         19  far as office space for the convention, employees,
         20  local transportation for convention people in
         21  preparation for the convention in the city, in the
         22  host committee, all that activity has been
                                                             226
          1  permitted as host committee activities.
          2             MR. NORTON:  Well, I know.  I'm asking
          3  you whether analytically if it passes the test.
          4             MR. GROSS:  Where to draw the line.
          5             MR. NORTON:  Where to draw the line.
          6             MR. HONG:  And, again, it's not a bright
          7  line.  I think that's why you're asking the
          8  question.  You have to look at what the purpose of
          9  that expenditure was.
         10             MR. NORTON:  Given that it's not a
         11  bright line, if we have kind of an open-ended list
         12  of permissible host committee expenses, and we're
         13  not permitted to audit host committees as a matter
         14  of course, how is it that the Commission is to have
         15  any confidence that the expenditures of the host
         16  committee are commercially motivated or not politically motivated?
         17             MR. HONG:  Well, to the same extent, any
         18  violation of the Federal election laws--you're
         19  essentially arguing that we should--that the
         20  Commission should audit every possible violator of
         21  the election law, and I know we are in a unique
         22  situation, but not legally.  That's the point we're
                                                             227
          1  trying to make.  Legally, we are a third party from
          2  the national party and from the Presidential
          3  campaign, and I know it's tempting to say, Well, how
          4  come we can't audit you, how are we sure you're
          5  going to be in compliance with the law.  That's a
          6  good question, because that's the same question you
          7  can ask of the IBMs of the world or the GMs of the
          8  world.  How are we sure they're in compliance with
          9  the law?  Well, the answer is in the enforcement
         10  process.  You have to bring it through an
         11  enforcement procedure.
         12             MR. NORTON:  Thank you.
         13             Thank you, Madam Chair.
         14             CHAIR WEINTRAUB:  Thank you, Mr.
         15  General Counsel.
         16             And Mr. Staff Director.
         17             MR. PEHRKON:  Madam Chair, thank you
         18  very much.  The beauty of going last is that my
         19  area of concern, which was the audit authority, has
         20  been thoroughly explored, and I want to thank
         21  everyone for attending.
         22             CHAIRWEINTRAUB:  Well, excellent.
                                                             228
          1             I want to add my thanks to the panel,
          2  both for waiting around all morning, and I believe
          3  that you can still make your 2:30 flight.
          4             I'm going to ask those of us who are
          5  coming back to take a quick lunch and come back at
          6  2:15.
          7             COMMISSIONER THOMAS:  Madam Chair, the
          8  only question I didn't get in, I should ask
          9  Ms. Burns in light of the fact that you sat here
         10  and listened to all these lawyers, are you pretty
         11  comfortable that you made the right decision not to
         12  become a lawyer?
         13             MS. BURNS:  Yes.
         14             CHAIR WEINTRAUB:  The hearing is
         15  recessed.
         16             (Whereupon, at 1:24 p.m., a lunch recess
         17  was taken, to reconvene at 2:15 p.m. this same
         18  day.)
         19
         20
         21
         22
                                                             229
          1           A F T E R N O O N    S E S S I O N
          2                                      (2:20 p.m.)
          3             CHAIR WEINTRAUB:   Okay.  We're back
          4  in session.
          5                   III.  PANEL NO. 3
          6             CHAIR WEINTRAUB:  I am especially
          7  appreciative and somewhat amazed that having walked
          8  outside on this beautiful day, anybody decided to
          9  come back, but we're glad to have you here.
         10             We have the National--the main event,
         11  the RNC and the Democrat National Convention
         12  Committee.
         13             Who would like to start, Mr. Sandler or
         14  Mr. Josefiak?
         15             MR. SANDLER:  I'll be happy to start.
         16             Madam Chair and Members of the
         17  Commission, we very much appreciate the opportunity
         18  to appear been the Commission this afternoon with
         19  respect to the notice of proposed rulemaking on
         20  national convention financing.  Rather than repeat
         21  our written comments, I did want to address some of
         22  the points that have been raised in the comments of
                                                             230
          1  others and in the discussion earlier today.
          2             It appeared that even representatives of
          3  the reform community here this morning conceded
          4  that BCRA really does not apply to this situation
          5  and it doesn't mandate or require the Commission to
          6  revisit its rules in any way.  In Mr. Weissman's
          7  words, reflecting his experience lobbying on behalf
          8  of McCain-Feingold, Congress made a decision to
          9  get into it.  I think that's a very well-put
         10  accurate statement of the fact that BCRA has
         11  absolutely nothing to with do with convention
         12  financing, which raises the question, in Admiral
         13  Stockton's words, why are we here; what is the
         14  occasion for the Commission to revisit these
         15  regulations after 25 years?
         16             The Campaign Finance Institute in its
         17  so-called study suggests that the reason is a
         18  change in the factual circumstances, that the
         19  Commission's--the assumptions underlying the
         20  original rules that donors were politically
         21  motivated, rather than--that the donors were not
         22  politically motivated; rather, the donations were
                                                             231
          1  civically and commercially motivated to promote the
          2  image and commerce of the city, that that
          3  assumption is no longer valid.
          4             There's two separate points that the
          5  institute made on behalf of that.  First of all,
          6  they point to the--on page 3 and I guess also on
          7  page 2 of their report, the great increase in the
          8  amount of private funding, private contributions to
          9  the host committee as a proportion of the overall
         10  funding, and in particular, as a percentage, their
         11  chart on page 3, by comparison to the Federal
         12  grant.
         13             And I have a chart relating to the
         14  discussion this morning.  If we take a look at the
         15  contributions overall in connection with the last
         16  three Olympic games held in the United States since
         17  1980, roughly the same period that the convention
         18  regulations have been in effect, but not--excluding
         19  Salt Lake because of their unusual circumstance of
         20  9-11, increasing the Federal grant, we see as, in
         21  fact, whereas the--according to this CFI chart, the
         22  private contributions as a percent of the Federal
                                                             232
          1  grant went from 13 percent to 297 percent in 1980
          2  to 2000.  If I use the comparable numbers, I guess
          3  it should be 13 percent to 155 percent.  It went
          4  from 67 percent in Lake Placid in 1980 to 1,036
          5  percent for the 1996 summer games in Atlanta.
          6             So the institute draws from its
          7  conclusions that these increases were not based on
          8  the company's change in calculations and benefits,
          9  but on the evaluation of what would appeal to or
         10  satisfy national and other political parties and
         11  elected officials.  Well, if these were politically
         12  motivated, why wouldn't we draw exactly the same
         13  inference from this data ?  The fact of the matter
         14  is that the reason behind the CFI data is that the
         15  costs of putting on these events have gone up
         16  dramatically and the willingness in the age of
         17  privatization and tight public funding and so forth
         18  of government entities to pay for it has gone down.
         19  That's the most logical hypothesis that they didn't
         20  even consider in this so-called study.
         21             Now, the second point that they make in
         22  terms of the alleged change in factual
                                                             233
          1  circumstances is to suggest that--and, again,
          2  turning to page 7, 6 and 7 of their study, that
          3  most host committee fund-raising is conduct by
          4  partisans associated with the convention party.
          5  Mr. Weissman went over and over this, talked about
          6  let's look at who raises it, let's look at who
          7  raises it.  Well, let's look at who raises it.
          8             In their report, they suggest that, for
          9  example, in Philadelphia in 2000, they talk about
         10  David Gerard Dicarlo, former advisor to
         11  Pennsylvanian Republican Governor Tom Ridge,
         12  co-chair of the Philadelphia host committee.  What
         13  they conveniently leave out is the fact that the
         14  host committee was chaired and all of the heavy
         15  fund raising lifting was done for the Republican
         16  convention by David L. Cohen, chief aide to now
         17  Governor, then Mayor Rendell, one of the top
         18  Democratic fund-raisers and activists in
         19  Pennsylvania, if not in America, former Chairof
         20  the Ballard, Farr law firm, and as a matter of
         21  fact, he's the one who actually is the Chairof
         22  Comcast now.
                                                             234
          1             COMMISSIONER McDONALD:  Wait a minute,
          2  Joe.  No wonder we lost that election.
          3             MR. SANDLER:  Yeah.
          4             CHAIR WEINTRAUB:  The red light is
          5  on.
          6             MR. SANDLER:  And I'm not just talking
          7  about co-chairing the host committee.  This is
          8  someone who actually raised a substantial amount of
          9  money.  Let me just finish by talking about Los
         10  Angeles.  You know, they talk about Eli Grove.  CFI
         11  talks about Eli Grove.  Fails, conveniently fails
         12  to mention the fact that the fund-raising effort
         13  was largely led by Mayor Riordan, put a million
         14  dollars of his own money into the host committee.
         15  Because he liked Democrats?  I mean, he runs the
         16  next year for Governor of California and raised
         17  money, of course, for many of his Republican
         18  friends.  It makes no sense.
         19             The conclusions in the CFI study are
         20  baseless, baseless, and I urge the Commission to
         21  reach that the only logical conclusion is there's
         22  no change in the factual circumstances and no basis
                                                             235
          1  for revisiting its regulations.
          2             Thank you, Madam Chairman, and I
          3  apologize for going over.
          4             CHAIR WEINTRAUB:  I appreciate your
          5  enthusiasm.  The next time you bring a chart,
          6  you're going to have to make the numbers a little
          7  bit bigger.  Maybe my younger colleague to my left
          8  can read it, but I don't think I can even with my
          9  glasses on.
         10             COMMISSIONER McDONALD:  Oh.  Did he have
         11  a chart?
         12             CHAIR WEINTRAUB:  Do you want to
         13  submit your chart for the record in smaller form?
         14             MR. SANDLER:  Yes.
         15             CHAIRWEINTRAUB:  Hopefully in a
         16  smaller format.
         17             Mr. Josefiak.
         18             MR. JOSEFIAK:  Thank you, Madam
         19  Chairman.  Again, thank you for allowing me to be
         20  here with Joe to hear his remarks, and for the
         21  record, I would happy to yield some of my time to
         22  Joe.
                                                             236
          1             First of all, I think I should say for
          2  the record that I'm here representing the
          3  Republican National Committee and not any candidate
          4  or office holder.  So the remarks I have and the
          5  questions that I answer today are from the
          6  Republican National Committee and no one else.
          7             As Joe alluded to, we're here today
          8  based on some notion that BCRA somehow affected the
          9  Commission's convention regulations, and I also
         10  agree with my counterpart that it does not, that we
         11  are dealing with a situation that is not regulated
         12  under BCRA.  It's regulated under the current
         13  Federal Election Commission regulations, and then
         14  the question becomes what sorts of regulation are
         15  even authorized under the current statute as
         16  amended by the BCRA, and if BCRA should fall, as we
         17  are challenging in the courts today, what would be the
         18  impact on the convention regulations.
         19             And so even though I do not feel that
         20  BCRA applies currently, even if it didn't apply, I
         21  strongly believe that the Commission should leave
         22  the regulations that are currently in place in
                                                             237
          1  place.
          2             And how does this affect the host
          3  committee's status both pre-BCRA and post-BRCA?
          4  Well, first of all, under this whole scheme in the
          5  Commission's regulations, the host committees have
          6  been some sort of a 501(C) entity.  Some of them
          7  started off as 501(C)4s.  For example, the 1996 San
          8  Diego Republican host committee was a 501(C)4.  In
          9  Chicago and also in Philadelphia, the Republicans
         10  were a 501(C)3.  Currently, the New York host
         11  committee, as I'm sure they testified this morning,
         12  you understand they're a 501(C)3, a charity under
         13  IRS terms.
         14             BCRA does not regulate 501(C)3
         15  charities.  It regulates only 501(C) only to the
         16  point of whether Federal office holders contribute
         17  or can solicit monies from those organizations
         18  subject to a specific activity, Federal election
         19  activity, basically get-out-the-vote activity by
         20  these groups.
         21             So I don't think any of this is
         22  affected, because the IRS has already given, for
                                                             238
          1  example, the New York host committee its status as
          2  a 501(C) charity.  So then the question is if it is
          3  a charity, are any of its funds restricted; can the
          4  Commission restrict the funding of a 501(C)3 that
          5  that is not involved electioneering activity, and I
          6  strongly suggest the answer to that question is no and
          7  that the current rules should be in place that they
          8  can get unlimited corporate and individual monies
          9  from the appropriate sources.
         10             Now, the question before the Commission
         11  is what is the appropriate source.  Under the
         12  current regulations, you have for businesses an MSA
         13  qualification that you have to be in a the MSA in
         14  order to be presumed to be benefitting or promoting
         15  the city as opposed to promoting a party, and that
         16  has been the rule for a long time; but quite
         17  honestly, since 1996, 2000, those conventions, if
         18  you were a corporation, there is going to be some
         19  sort of a nexus within that city to allow most
         20  corporations to be able to contribute, even though
         21  there is not a natural presence in that city.  Over
         22  the years, that has been the case.
                                                             239
          1             What really is, I guess, my gripe in
          2  this area is how the individual are treated,
          3  because prior to the 1996 convention, individuals
          4  from wherever could contribute to the host
          5  committee.  It is going to be a 501(C) organization
          6  of some sort.  They always have been, and so there
          7  had never been a restriction on what individuals
          8  could do; however, post the 1996 convention in San
          9  Diego, the Commission changed its policy and said
         10  an individual had to be a resident within that MSA
         11  to contribute.  And so right now the Commission has
         12  under consideration whether that MSA should be
         13  eliminated, and I think from in practical terms, it
         14  should be.
         15             So the raising of the money should be
         16  left alone.  Who can solicit, again, can Federal
         17  office holders solicit?  The answer to that
         18  question is yes.  It's a charity.  It doesn't
         19  involve an election activity.  I don't think BCRA
         20  implicates that.  Should national committee members
         21  be able to solicit for a host committee?  I don't
         22  know where I got this notion, but ever since I have
                                                             240
          1  been around, and in goes back quite a while, that
          2  we have not from a Republican National Committee
          3  standpoint as a practical matter been involved in
          4  fund-raising for host committees, because it was
          5  the Commission position, whether formally or
          6  informally, that you couldn't do that.
          7             Having said that and having no intention
          8  for national committee officers to raise money for
          9  a host committee, I would like to say for the
         10  record on principle that when an organization is a
         11  501(C)3 charity organization, whether it's the
         12  American Red Cross or a host committee that doesn't
         13  get involved in election activity, that there
         14  should be no restriction on an officer of the
         15  Republican National Committee or the Democratic
         16  National Committee from raising money from those
         17  organizations, and hopefully the Commission will
         18  take that into consideration.
         19             On the spending side, however, it's
         20  always been a qualified campaign
         21  expense.  The Commission has gone into deep detail,
         22  and I just want to say for the record that this
                                                             241
          1  notion that somehow the '96 audits changed the lay
          2  of the land is not true.  The Commission had a
          3  wonderful debate at that time that lasted for days
          4  and months and years as to what would be considered
          5  a convention expenditure.  Whether it was something
          6  the host committee could pay for or whether it's
          7  something that the COA had to pay for, the bottom
          8  line and the message I'd like to leave you with
          9  this afternoon, if it's the message, it's the COA;
         10  if it's the ability to deliver the message, it the
         11  host committee.  In other words, the message is the
         12  political side of the equation.  How that message
         13  gets across should be allowed to be paid for by the
         14  host committee, providing the screen, the
         15  convention hall, the podium, the sound, the lights,
         16  but not the script, not the show, so we won't get
         17  into this nuance of coming up with a list that's
         18  restricted.  The list that's there now is a list to
         19  be considered, but there's a catchall provision
         20  right now that allows other kinds of similar
         21  activities by the host  committee to be paid for by
         22  the host committee if it's convention related.
                                                             242
          1             I would strongly urge the Commission to
          2  take that position and have a clean line that if
          3  it's the message, is a COA; if it's the structure
          4  or the ability to put out that message to the
          5  American people, it should be an expense that can
          6  be absorbed, if desired, by the host committee.
          7             Thank you, Madam Chair.
          8             CHAIR WEINTRAUB:  Thank you, Mr.
          9  Josefiak.  I guess we'll assume that Mr. Spies gave
         10  you some of his minutes since he's not even sitting
         11  at the table, and we expected him there.  We were
         12  looking forward to it.
         13             Mr. Reiff, do you have an opening
         14  statement?
         15             MR. REIFF:  No.
         16             CHAIR WEINTRAUB:  We going to just
         17  rocket through here.
         18             Commission McDonald.
         19             COMMISSIONER McDONALD:  Am I first?
         20  This says Commissioner Toner.  I'm ready to go.  I
         21  can go.
         22             COMMISSIONER TONER:  I impersonate you.
                                                             243
          1  You can do the same.
          2             CHAIR WEINTRAUB:  I may have misread
          3  my list.
          4             COMMISSIONER McDONALD:  I don't want to
          5  hurt your career.
          6             Who is up?  Is it me?
          7             CHAIR WEINTRAUB:  No.  Actually, I'm
          8  wrong.  Toner was first on the list.  I apologize.
          9  I misread.
         10             COMMISSIONER TONER:  Thank you, Madam
         11  Chairman.
         12             I first want to thank all of the
         13  panelists for being here today.  I appreciate your
         14  comments very much, and I want to begin, Mr.
         15  Sandler, with you.
         16             In the CFI study, it sort of laid out
         17  this argument that there's been an explosion of
         18  host committee spending, and I guess they really
         19  viewed it as beginning in 1988 and in each of the
         20  successive years.  As I understand your testimony,
         21  you're basically making the point that we have to
         22  look at what states and municipalities are
                                                             244
          1  spending, the resources they're bringing to bear.
          2  Is it your view and your experience that states and
          3  municipalities are, for whatever reason, not
          4  providing as much resources for convention
          5  infrastructure, convention security, other
          6  activities, and therefore one reason the host
          7  committees may be spending more is sort of they're
          8  filling the void there?  Is that basically your
          9  point?
         10             MR. SANDLER:  Yes.  It's a combination
         11  of the fact that the expenses they're putting on
         12  these events have increased and, of course, they're
         13  now going to increase dramatically because of
         14  security considerations even more, and the
         15  willingness and ability of state and local
         16  governments to put resources into these events has
         17  effectively decreased, and it is not that
         18  dissimilar, I think as Mr. Bauer pointed out and I
         19  think Commissioner Smith mentioned, to other
         20  events, the trend that we've see with the Super Bowl
         21  host committees, with the Olympics, of course, as I
         22  think is demonstrated by this chart and similar
                                                             245
          1  events.
          2             COMMISSIONER TONER:  Mr. Josefiak.
          3             MR. JOSEFIAK:  I agree with that, but
          4  also when I looked at the study and the breakdown
          5  of the Philadelphia convention and the big chunk of
          6  money of that money, $24 million, and what was
          7  lumped into that category, some of that was a
          8  decision made by the City of Philadelphia and the
          9  host committee to promote the city for its
         10  citizens.  There was a big chunk of money for
         11  something called Political Fest, which was
         12  basically an attempt to bring into a convention
         13  center, not where we were holding our convention,
         14  but the Philadelphia Convention Center downtown, a
         15  massive display of Presidential memorabilia from
         16  all of the Presidents, including a mock-up of the
         17  fuselage of Air Force One where people could go in
         18  and walk through this, and it was a selling point
         19  for the city, and they would charge people to go to
         20  that event, and it was a big thing they were
         21  promoting in the city.
         22             They had a boat parade that was there
                                                             246
          1  for not only the delegates, but for people who
          2  lived in the area to come out and be part of the
          3  whole process of a political event.  It was
          4  non-partisan event.  They had a Mummers Day Parade.
          5  It was an attempt to show what the city has to
          6  offer.  That happens in all of the cities, and
          7  Philadelphia under David Cohen, were really pushing
          8  this as something they wanted to do to promote the
          9  City of Philadelphia as a major convention city.
         10  And so they did things that were not part of
         11  anything that we required from a convention
         12  standpoint, but what they wanted to do to promote
         13  their city to show what kind of a city Philadelphia
         14  was for other conventions as well.
         15             And so it's a combination of things, and
         16  those decisions are going to be made on a
         17  city-by-city basis, based on the uniqueness of the
         18  city and based also on the financial structure of
         19  those cities.  There are some cities where it would
         20  be an issue legally for a city to pay for certain
         21  things, so the host committee has to come up to the
         22  plate and reimburse the city for typical city
                                                             247
          1  services.
          2             So every city and every state is going
          3  to be unique, and I think the biggest concern I
          4  have, there are only right now a very limited
          5  number of cities that can really host a convention,
          6  and anything that the Commission does to lessen the
          7  ability of other kinds of cities to be
          8  participants, I think would be detrimental to the
          9  political process in the country.  It would be
         10  nice, for example, to get an up and coming city to
         11  be able to compete with some of these other cities,
         12  and I think that's one of the reasons an MSA
         13  concept of elimination would be helpful to some of
         14  those cities as well.
         15             COMMISSIONER TONER:  In your judgment,
         16  if the Commission were to interpret BCRA to bar
         17  host committees from raising and spending soft
         18  money, what impact would that have, in your view,
         19  on the convention process?
         20             MR. JOSEFIAK:  I think it would
         21  seriously undermine the ability of both parties,
         22  major parties, to have the kinds of conventions
                                                             248
          1  that they had in the past.  When you look at the
          2  public funding and you look at the cost of a
          3  convention based on Joe's chart, it would be
          4  virtually impossible to do that same kind of
          5  convention in my mind.  And, you know, the
          6  philosophical question of whether or not there
          7  should be those types of conventions is another
          8  issue, but from the party perspective of how they
          9  nominate and the party's right to associate and to
         10  deal with their own processes, I think is a
         11  fundamental right of the parties that the courts
         12  have been very accommodating on, and hopefully they
         13  will continue to be accommodating on in the future.
         14             COMMISSION TONER:  Mr. Sandler?  Mr.
         15  Reiff?
         16             MR. SANDLER:  I think that, if anything,
         17  it's characteristically understated in Tom's usual
         18  very dignified and calm way.  The fact of the
         19  matter is what we are talking about is shutting
         20  down the national conventions after, you know, 150
         21  or 180 years.  That's all there is to it.  There's
         22  no possibility, none, that a national convention
                                                             249
          1  could be put on in the amount of a Federal grant.
          2  The Boston budget, which Ms. Cronin alluded, the
          3  grant is, what, $15 million give or take, $10
          4  million just for security this time, and that's
          5  just the city's share.  I mean the committee's
          6  share.  It's not even--there's not a remote possibility
          7  that the conventions could be given if the
          8  Commission changes its rules, period, end of story
          9  from my perspective.
         10             MR. JOSEFIAK:  And you look at, again,
         11  the city perspective.  Would the RNC even consider
         12  a city like New York if it couldn't be assured that
         13  a host committee was available to be able to absorb
         14  the cost like the Democrats had when there were
         15  there in 1992, for a lot of cost, because New York
         16  City is an expensive city.  Other cities are
         17  different.  Everybody has got their uniqueness, and
         18  so you look at a host committee to give you that
         19  comfort level that you can bring people there, have
         20  your convention, because they are willing from a
         21  city perspective to promote their city and to be
         22  good hosts and good sponsors of those kinds of
                                                             250
          1  events.
          2             COMMISSIONER TONER:  Mr. Reiff, there's
          3  been, as you know, for a long time the ability of
          4  corporations to provide items for promotional
          5  consideration, and as I understand it, the theory
          6  in the regulations has been that there's no
          7  in-kind contribution flowing to the convention
          8  committee because the corporations are getting
          9  promotional value out of that sort of bargain for
         10  exchange.  The issue, obviously, is whether BCRA
         11  changes the equation in the that regard.  I just
         12  wanted to get our thought on that.
         13             MR. REIFF:  We don't believe it does at
         14  all.  We believe that these items were provided for
         15  promotional consideration and they will continue to be.
         16             COMMISSIONER TONER:  Do you think that
         17  it's a fair reading of FECA of even setting aside
         18  BCRA, that the rationale the Commission used for
         19  permitting promotional items, do you think it's a
         20  sound one?
         21             MR. REIFF:  We do believe it was a sound
         22  assessment by the Commission to permit such items
                                                             251
          1  to be provided, and we believe that they should
          2  still be, continue to be provided.
          3             COMMISSIONER TONER:  There's another
          4  item mentioned in the NPRM, and that's--it was
          5  discussed a little bit this morning.  I just wanted
          6  to get your thoughts.  Corporate hospitality events
          7  and events put on by labor organizations and
          8  corporation that are in the convention city and
          9  clearly members of Congress have historically gone
         10  to them.  Do you see any issue under BCRA in terms
         11  of those kinds of events?
         12             MR. REIFF:  We don't believe so.  The
         13  FEC has an advisory opinion that has regulated
         14  these types of events for 20 years, not just for
         15  conventions, but all types of corporate events, and
         16  believe that the advisory committee has a lot of
         17  safeguards built into it.
         18             COMMISSIONER TONER:  Is sort of the
         19  dividing line those kinds of events versus events
         20  that have a fund-raising element for a political
         21  committee?  Is that sort of how you would demarcate
         22  our jurisdiction?
                                                             252
          1             MR. REIFF:  Well, that's one way of
          2  demarcating it, but there's even more elements to
          3  that advisory thing in terms of the control events,
          4  way persons are invited to those events, that
          5  provide even further safeguards, not just the
          6  fund-raising concept.
          7             COMMISSIONER TONER:  Thank you.
          8             Thank you, Madam Chair.
          9             CHAIR WEINTRAUB:  Thank you,
10  Commission Toner.  I'm sorry that I mistook 
11  you for Commissioner McDOnald
	    12             Commissioner McDonald, now it really is
          13  your turn.
          14             COMMISSIONER McDONALD:  Madam Chair,
          15  thank you.  I bet you're not nearly as sorry as
          16  Michael is.
          17             Well, first of all, let me just say it's
          18  great to see three long-time friends.  I won't say
          19  old friends, because I've reached that point in
          20  life that I'm a little sensitive to that term
          21  "old", as you might imagine.
          22             The issues are actually pretty straight forward,
          23  I think.  In Joe's case, it appears to me if he just
                                                             253
          1  had more enthusiasm.  Mr. Josefiak, I think it's
          2  far to say he's always both extremely well prepared
          3  and understated.  In Neil's terms, not only--first
          4  of all, I didn't recognize him.  He had on a tie.
          5  Secondly, he may be the greatest sign holder that
          6  I've seen.
          7             MR. REIFF:  I've been practicing that
          8  for a week now.
          9             COMMISSIONER McDONALD:  In recent memory
         10  or as good as anybody I've seen here today.
         11             I think, really, that we've kind of
         12  covered a great deal of the ground in terms of the
         13  debates, and I suppose, going back to Joe's opening
         14  remarks for just a minute, I couldn't help but
         15  think--I thought, and I apologize for coming in a
         16  couple minutes late, but I was fully briefed. It is
         17  interesting.  I was thinking about this lady from
         18  Boston this morning in terms of her experience.
         19             What has happened in some of these
         20  conventions, whether they're political conventions
         21  or maybe they're sporting events?  I think the City
         22  of Montreal can explain to you just how much it
                                                             254
          1  really did cost them to succeed.  You know, they
          2  basically just went broke in terms of landing the
          3  Olympics.  I think Atlanta's experience wasn't
          4  decidedly better, although I think it was better than
          5  maybe Montreal's was.
          6             What I really want to ask is not the
          7  argument about, you know, which position people
          8  ought to take.  The one thing that's irrefutable is
          9  that it costs more.  Everything costs more, and the
         10  real issue, I gather, before us is what sort of
         11  impact does it really have on the decision-making
         12  and the ability to be elected process.
         13             This morning, we were told that--and I
         14  have no reason to doubt it--that about 13 percent
         15  of the American public watches the conventions,
         16  which is both an interesting and alarming figure to
         17  me.  Maybe that's good news.  I don't know.  It
         18  depends on one's perspective, but any of
         19  the three of you, because you've been through it
         20  all, you know how it works--I think Joe's
         21  assessment is right if we, as a practical matter,
         22  shut off the ability to raise soft money in these
                                                             255
          1  matters, it's going to have an unbelievable impact
          2  in the process.
          3             But my question is so why have
          4  conventions at this point?  Somebody tell me.
          5  We've heard why the--and I ask because I think it
          6  will ultimately come back to what Congress thinks
          7  or doesn't think, but if you're getting 13 percent,
          8  I mean, is the rest of America right that those of
          9  us that are in the political arena are out of touch
         10  with reality?  I don't think we are, by the way.
         11  Let's just say you get 13 percent of the American
         12  public watching the convention at one time or another.
         13             It's just a general philosophical
         14  question, Joe.  I'm just trying to get--if we're
         15  sitting around saying to the people, you know, we
         16  need to got to Boston or to New York or wherever,
         17  and I said to you so why; we're going to spend all
         18  this time raising money; we may run afoul of the
         19  law; the American public is not going to watch the
         20  process anyhow; what would be the best answer for
         21  that?  I mean, how could we have better experts
         22  than you guys, for gosh sakes.  What would you say?
                                                             256
          1             MR. SANDLER:  It's basically the
          2  in-gathering of party activists from all levels
          3  from all over the country to, first of all,
          4  deal with governing business of the national party
          5  since the convention is the ultimate governing
          6  authority of the party, adopt the party's platform,
          7  to basically energize the party as a whole for the
          8  general election, as well as obviously do the
          9  business of formally nominating and showcasing to
         10  not necessarily the elected, but to the party
         11  itself, of course also the elector to the extent
         12  that they choose.
         13             And 13 percent, I don't know where that
         14  13 percent comes from.
         15             COMMISSIONER McDONALD:  I don't know
         16  either, but they alluded to that this morning.
         17             MR. SANDLER:  It's a lot more
         18  complicated than that, but even assuming that the
         19  coverage is down, it just serves as an absolutely
         20  critical function for the party.  There are young
         21  people who are 18 and 19 years old that work their
         22  hearts out to go to the convention.  They work for
                                                             257
          1  the delegate or work for the state party or maybe
          2  go and volunteer, and it is a hugely important
          3  central defining event for our party activists, workers,
          4  volunteers, and elected officials.
          5             MR. JOSEFIAK:  I think, Mr.
          6  Commissioner, I think Joe has laid what actually
          7  goes on there, but the reason for having it, the
          8  reason that we have it is that the collective
          9  wisdom of the delegates from the  last convention
         10  adopt rules that create the convening of the
         11  convention in four years as the best mechanism to
         12  deal with party issues and to select their nominees
         13  after the primary and convention system to be in one
         14  place at one time, to have that kind of grass roots
         15  enthusiasm, and that's a decision that the
         16  delegates make at the convention.
         17             That is from the party side of it.
         18  While a city would bid for it, in my experience has
         19  been not at all a political decision.  It has
         20  always been, whether it's San Diego, whether it's
         21  New York this time, whether it's Philadelphia, it
         22  was attempt by San Diego and Philadelphia in
                                                             258
          1  particular to show that they now could be a Class A
          2  convention city that could host an event this
          3  large, and they reaped the economic benefits, or
          4  they tell you that at least publically, to persuade
          5  others over a period of time to, in fact, come to
          6  that city for conventions.
          7             There are a lot of conventions that are
          8  bigger than these national conventions, but they're
          9  much shorter.  They don't take the same kind of
         10  drama and enthusiasm, and quite frankly, resources
         11  of a city like a national nominating convention
         12  does.  This is much more like an Olympics rather
         13  than a major convention with a hundred thousand
         14  people that are representing some association.
         15             So that is the first thing I think most
         16  of these cities recognize.  They think in those
         17  terms, but realize it's a lot more complicated than
         18  that.  And so there's always that kind of city
         19  motivation.  New York want to prove it's back.  It
         20  really was for this.  It really was pushing for
         21  this from a city perspective because this is
         22  another step for them towards perhaps the Olympic
                                                             259
          1  world.
          2             So it is an attempt and it's totally
          3  motivated by a business economic community
          4  standpoint, and so when you couple those things
          5  together, I think the Commission should be
          6  sensitive to the fact that really this does not in
          7  the sense of other kinds of election influencing
          8  activities do the same kinds of things that other
          9  kinds of organization and meetings do with regard
         10  to campaigns.  This is a very different animal and
         11  a very small part of what goes on in these cities
         12  during convention week.
         13             COMMISSIONER McDONALD:  Let me just ask
         14  one more question, and that's--Mr. Josefiak knows
         15  that's the thing about being able to ask questions
         16  off the wall like this if you want to.  When I got
         17  here, I was the youngest commission at the time, as
         18  Tom knows and now as he also knows, I'm the oldest,
         19  I'm sorry to report.
         20             The Dea Beard matter is really--I'm not
         21  saying the conventions weren't criticized before,
         22  and certainly there are some stories throughout
                                                             260
          1  history about conventions and back room politics,
          2  and so on, but the issue there was the ability of
          3  particular a group to have a great deal of
          4  influence because of the large amount of money that
          5  was given.  In the generic sense about the
          6  criticism and why we're here having the discussion
          7  at all, quite frankly, is that, is whether or
          8  not--I mean, you know, we can cite all the
          9  regulations and if we find somebody said something,
         10  we'll prove that.  That's great too, but why we are here
         11  and what it all kind of emanated from was that.
         12             MS. SANDLER:  I think that is it reaches
         13  part of the heart of the matter here.  What
         14  evidence of abuse in the 25 years of the
         15  Commission's current convention regulations for the
         16  host committees take place, what evidence of abuse
         17  like in 1972 and so forth or anything relating to
         18  all the other evidence that's come out in that
         19  supposed justifies the enactment of BCRA?  What of
         20  that relates to contributions to host committees?
         21  Where is any reference to that in the record of
         22  McConnell, in the Thompson report?  It's not there.
                                                             261
          1             If it's not broke, don't fix it, as we
          2  said in our written comments.  That's precisely the
          3  point.
          4             COMMISSIONER McDONALD:  Well, I think it
          5  is a good point, and that's why I asked it this
          6  morning, and I asked the gentleman this, or I guess
          7  I asked Paul, another gentleman I should say, the
          8  same thing.  I mean, the question is since it's,
          9  you know, on the one side, not on the host side, but on
         10  the other side.  Matters have been fully disclosed.  We
         11  have to accept at some level that these matters are an
         12  arms-length transaction; if not, we can obviously
         13  pursue it.
         14             I wanted just wanted to get your sense
         15  of it.  That's what the issue really is.  The issue
         16  is about whether or not somebody is going to be
         17  able to give enough money to have a policy impact, if you
         18  will, on government, and I think that's front and
         19  center.
         20             Does anybody else have anything?
         21             Neil, it's your turn.  I should have
         22  called on you first.
                                                             262
          1             MR. REIFF:  Thanks.  Well, it's hard to
          2  add to such incredibly scholarly comments of the
          3  two gentleman to my right, but I guess I would just
          4  close out by saying that national conventions are a
          5  great part of American politics and American
          6  political history, and as everyone here has said,
          7  if we do re-interpret these rules, we'd be stuck
          8  with a small enough pot of money that the conventions
          9  would go away and it would be a real shame that
         10  conventions would go away only because there is a
         11  reinterpretation of the way they've been financed.
         12  That would be a real sad comment in history.
         13             COMMISSIONER McDONALD:  Well, I thank,
         14  the there of you, it's great to see you.  I think
         15  we have said, not only me, but a number of my
         16  colleagues have said or implied otherwise, but I
         17  think first and foremost, of course, we have a
         18  staggering notice problem.  I mean, it is June, I
         19  think.  It's a bit of stretch to reach out and get
         20  into these matters in 2003.
         21             Thank you all.
         22             CHAIR WEINTRAUB:  Thank you,
                                                             263
          1  Commissioner McDonald.
          2             Mr. Vice Chairman.
          3             VICE CHAIRMAN SMITH:  I have a few
          4  comments, I guess first.  I appreciated, Mr.
          5  Sandler, your comments on the CFI study.  I was thinking
          6  about it at the lunch break a bit, and it struck me
          7  that it's a classic sort of situation.  Looking at
          8  how much spending has grown is sort of an
          9  interesting thing, and there's just a sort of leap
         10  to a conclusion, Well, what other reason could
         11  there be for this than corruption.  This is sort of
         12  the standard guilt by innuendo that we hear far too
         13  much, why else could they do it, and I think the
         14  kind of information you point out or that my staff
         15  brought up earlier on the New Orleans host
         16  committee, the comments of that host committee
         17  relating back to, gee, how things were a few years
         18  before when they were much smaller are indicative,
         19  I think, of the failure and that sort of guilt by
         20  innuendo, and then you quote one guy or two
         21  guys, and he thinks that's the case, and there you
         22  go.  That's your proof.
                                                             264
          1             It's an interesting hypothesis.  I think
          2  they've laid out the data that would give us a
          3  working hypothesis that maybe the assumptions no
          4  longer apply, but it's no more than that, and we
          5  just kind of from there jump to a conclusion.
          6             In defense of the study, so far as we
          7  know, they were not standing on a cell phone in the
          8  airport in Miami changing data in order to make it
          9  fit their conclusions so they would have it to
         10  present to us today.  So in that respect, it's
         11  better than some of the studies that we've seen
         12  from that side.
         13             So I appreciate your comments.  I did,
         14  though, have a question about one thing in your
         15  testimony, Mr. Sandler.  You suggest that a host
         16  committee should be declared to be per se, not
         17  affiliates of the party committees.  I wonder if
         18  that's no a bit strong.  Are you suggesting that in
         19  your experience, there's no case where a host
         20  committee could be deemed affiliated with a
         21  national party?
         22             MR. SANDLER:  I'm not saying that there
                                                             265
          1  can't be a situation where there's a violation of
          2  law to be investigated in an Commission
          3  enforcement proceeding, you know, that would
          4  implicate those kinds of issues, but the idea that
          5  there is some kind of--I mean, I don't think that
          6  in order to apply the regulation to know whether
          7  the host committee can exist and function, there
          8  has to be some kind of factual analysis or advisory
          9  opinion or pre-investigation by OGC or something to
         10  determine whether all these factors are met, I
         11  think that there should be a--maybe per se isn't right.
         12  Presumption.  There's no need to--in general,
         13  they're not remotely affiliated, that is host
         14  committees are not remotely affiliated with the
         15  national party committee.  Clearly if there was
         16  some kind of abusive situation in a particular
         17  case, an enforcement proceeding would be in order.
         18             VICE CHAIRMAN SMITH:  I guess you're
         19  saying that, yes, per se, the host committee is not
         20  affiliated; if it is affiliated, then it's not a
         21  legally operating host committee.
         22             MR. SANDLER:  That's true.
                                                             266
          1             VICE CHAIRMAN SMITH:  That would be the
          2  way to look at it.  So it would be a question of
          3  simply looking at it as a violation of the
          4  act rather than saying the host committee is
          5  affiliated so it's simply not actually a host
          6  committee.
          7             MR. SANDLER:  Exactly.
          8             VICE CHAIRMAN SMITH:  Okay.  It gets us
          9  to about where I think it does clarify how far we
         10  go, what we mean.
         11             A couple other questions, I guess.  Mr.
         12  Josefiak, I don't know if you wanted to speak a
         13  little bit about something I don't think we touched
         14  on today that was in your testimony regarding funds
         15  that remain in a GELAC, in particular a primary
         16  candidate with funds in a GELAC stored away for the
         17  general election but is then unsuccessful, and
         18  what would your preferred course of action with
         19  primary GELAC funds, whether one wins or whether
         20  one doesn't win?
         21             MR. JOSEFIAK:  When you have GELAC
         22  funds--again, I'm speaking on behalf of the
                                                             267
          1  Republican National Committee, not any candidate or
          2  candidate's committee or office holder.  With
          3  regard to GELAC funds, our position is that if they
          4  were raised in accordance with the rules of the
          5  Commission, that once they were excess GELAC funds,
          6  they should be treated like any other excess
          7  campaign fund that can be used for any other lawful
          8  purpose under the statute, whether that be for
          9  another campaign, whether that be to pay for debts from a
         10  primary, whether that would be to give to a
         11  charity; but I think that that was the position
         12  that we were talking about.
         13             VICE CHAIRMAN SMITH:  If you're a
         14  primary candidate and you have GELAC funds sitting
         15  out and you're out in primaries, would you allow
         16  those to be used to for winding-costs or
         17  administrative costs, or would you say those should
         18  be otherwise disposed of?
         19             MR. JOSEFIAK:  It goes back, I think to
         20  a number of issues.  It's tough to answer to that
         21  question, Commissioner, without knowing what the
         22  scheme of the Commission will be.  Right now, for
                                                             268
          1  example, you cannot raise money for GELAC until
          2  June 1st of the election year, and by that time,
          3  the historical process the way it is in the
          4  primaries, you already know who it is.  What you're
          5  talking about, however, is the ability for under
          6  current regs to take--to have a GELAC fund in a
          7  primary, and if you get excess campaign funds for
          8  the primary--well, under either scheme, you can
          9  either get it redesignated under the current regs,
         10  or under the proposal, you could make the same
         11  presumption that you can with a normal contribution
         12  in excess and attribute that to the GELAC fund.
         13             Under those circumstances, I think that
         14  that becomes the fundamental issue, and then the
         15  question there becomes, I think, just like if
         16  you're in a primary in general, you can raise
         17  general funds.  I would take the position that in
         18  that situation, you should be able--you should have
         19  to return those funds, because you are accepting money
         20  for a process that is not going to occur, and you
         21  don't have the ability to take additional funds because
         22  you're not in the general election.
                                                             269
          1             VICE CHAIRMAN SMITH:  You anticipated my
          2  next question.  That's great.  It saves us bit of
          3  time, but you said something that raised in my mind
          4  another thought, and bear with me on this.
          5             You mentioned that now the nominations
          6  are usually sewed up long before June 1st.  So if as
          7  the Commission we said we think Paul Sanford is
          8  right; for the past 25 years, we've been violating
          9  the law, and Congress really wanted to change that;
         10  they just were a little too busy during 2002, but
         11  we should go ahead and do it on our own and dried
         12  up host committees funding.  Is there anything in
         13  the law that would prevent the parties, for
         14  example, from having a very small little
         15  convention.  The platform committee might show up
         16  on Monday, have a quick meeting.  The delegates come
         17  in Tuesday morning, nominate the candidate then
         18  Tuesday afternoon or something like that, or
         19  actually do it at the end of the week, and then you
         20  could attach either before or after this small
         21  little gathering another group that would come in
                                                             270
          1  that would be unaffiliated with the party but as soon as
          2  the party had made its arrangements in a particular
          3  city, say New York or Boston.  They would
          4  immediately go to the convention bureau there and
          5  say we want to have a big gathering for the
          6  Republic Majority Committee or the Democratic
          7  Majority.  In other words--and say we're going to
          8  have all kinds of people invited to speak, and
          9  we're going to have lots of parties surrounding it
         10  and receptions and big affairs and stuff like that.
         11  Nothing in the act would prohibit that, would it?
         12             MR. JOSEFIAK:  I think that you probably
         13  would that an affiliated with a national committee
         14  would say we're raising soft monies for that
         15  purpose and we're committing a felony.
         16             VICE CHAIRMAN SMITH:  Would we be
         17  correct in making that determination?
         18             MR. JOSEFIAK:  Well, I think--
         19             CHAIR WEINTRAUB:  I hear at least one
         20  vote against that.
         21             MR. JOSEFIAK:  For one thing, you're
         22  trying to assume the role of making that
                                                             271
          1  determination, which in my mind is the right of a
          2  political party to decide if they're going to have
          3  a convention.  You're talking about the gather of
          4  at least 5,000 delegates and alternates.  You're
          5  talking about the ability to have subcommittee
          6  meetings that you're talking about beforehand where
          7  then the subcommittee reports are given to the full
          8  committee and a full convention.  The convention
          9  has an opportunity to deal with those issues.
         10             But your raising points that there's a
         11  lot of the activities that occur at a convention
         12  where you certainly wouldn't want the taxpayers to pay
         13  for, and that is another way I think the Commission
         14  has reached where it is today with all these other
         15  events, because it is really not involving the
         16  process, but it is something that is part and
         17  parcel of political scheme of things where the
         18  parties have these events and people come, and
         19  there is an activism going on.  There's a
         20  nomination that goes on.  There is a process that
         21  goes on for a rulemaking to somehow control and to
         22  administer a political party, both the Democrats
                                                             272
          1  and the Republicans, for the next four years.
          2             You can take the position maybe they
          3  should have more of these.  Maybe we shouldn't wait
          4  every years for these kinds of events to bring
          5  everybody together and deal with these issues.
          6  And, you know, when I made the presumption that
          7  everything was done by June 1st, that's under the
          8  current scheme.  If Joe and I and our principals
          9  can get together and come up with a different
         10  system that doesn't so much front-load the process,
         11  we may have it much later, but, you know, that is
         12  something that's always in the back of everyone's
         13  mind, are we doing this too early; should we do it
         14  much later.
         15             VICE CHAIRMAN SMITH:  I think those are
         16  helpful comments.  I guess my sort of thought was
         17  there are certain people now who are just livid
         18  that people who are prominent Republicans or
         19  prominent Democrats are saying parties no longer
         20  can do the get-out-to vote stuff they used to do in
         21  quite the same way because they don't have soft
         22  money; I really want Republicans to win or I want
                                                             273
          1  Democrats to win; I think I'll start a committee
          2  that will do that stuff.  And, of course, they're
          3  prominent people who have been active in their
          4  party in the past, but now they're operating
          5  independently of the party.  They don't ask for the
          6  party's okay or clearance.  The go out.  They know
          7  who the big donors are.  They start contacting
          8  them.  They now who the activist are from their
          9  prior experience, and they do that, and then, of
         10  course, that has some people livid, but I don't see
         11  anything in the law that prohibits that.
         12             I just wonder if we wouldn't end up in
         13  the same situation on the convention side of
         14  things.  In other words, I'm kind suggesting that
         15  maybe, you know, the sort of effort that was
         16  suggested by some of the people this morning that
         17  we should try to limit this activity is just kind
         18  of chasing a tail here, you know, that if it's a
         19  valuable activity, someone will do it, and it may,
         20  then, not be done under party auspices, but people
         21  who have been active and who want to bring party
         22  activists together, as Mr. Sandler said, that hear
                                                             274
          1  party speakers and get to see one another and get
          2  fired up to start the campaign will do that anyway.
          3             There might be certain logistical problems
          4  that kind of raise the transaction costs, perhaps,
          5  but something just tells me that that would be the
          6  likely end result.
          7             Well, I thank all you for coming.  It's
          8  always a pleasure to have a former Chairof the
          9  Commission here with us, and I appreciate all your
         10  time.  Thank you.
         11             CHAIR WEINTRAUB:  Thank you, Mr. Vice
         12  Chairman.
         13             Commissioner Thomas.
         14             COMMISSIONER THOMAS:  Thank you, Madam
         15  Chair.
         16             Welcome.  Could I try the same question
         17  I have worked the other panelists with?  As a
         18  matter of legal interpretation, I'm trying to
         19  figure out whether the Commission has any wiggle
         20  room, if you will, to interpret the statute in a
         21  way that would allow national party operatives to
         22  be involved in soliciting funds for a 501(C)
                                                             275
          1  organization, say a host committee, because this
          2  goes back to my concern that the very broad
          3  language in 441(I)A seems to contemplate that national
          4  party operatives are only to be involved in
          5  soliciting money up to the limits, prohibitions,
          6  and reporting requirements of the law.  Later you
          7  get to 441(I)D, and it seems to contemplate that the
          8  national party operatives are not to raise money
          9  for the 501(C) organization unless it's an
         10  organization that does not undertake activity in
         11  connection with the Federal election.
         12             I wonder if the only plausible
         13  interpretation is that not only can the national
         14  party operatives not be involved in raising any
         15  soft money for such an entity, but they perhaps
         16  can't even raise--make donations of hard money to
         17  those kinds of entities, or are we to read the
         18  statute, that latter provisions to simply say as if
         19  read notwithstanding the broad prohibition in 441(I)A,
         20  national party operatives can go into some
         21  fund-raising for 501(C) organizations.
         22             MR. SANDLER:  I think, Commissioner--I
                                                             276
          1  do not think it is a permissible interpretation to
          2  read 441(I)A to mean that national party officers,
          3  employees, agents cannot raise funds outside the
          4  limits and prohibitions in the act on behalf of
          5  their parties for entities that do not engage in
          6  Federal election activities, for two reasons.  Well,
          7  the principal reason is that it would read 441(I)D
          8  out of the act.  I have heard this argument made
          9  that 441(I)A is so broad, it just prohibits
         10  national party operatives from raising money
         11  outside of the limits of the act regardless of the
         12  nature of the entity that they're raising it for.
         13             That is not the position that this
         14  Commission took before the three-judge court.  In
         15  the--if I may cite from the reply brief of the
         16  defendant submitted on behalf of the United States
         17  and the FEC and the intervening defendants, the
         18  government, meaning you, said that--
         19             CHAIRWEINTRAUB:  Thanks for the
         20  clarification.
         21             COMMISSIONER McDONALD:  You mean Scott
         22  Thomas.
                                                             277
          1             COMMISSIONER THOMAS:  We take that as a
          2  compliment.
          3             MR. SANDLER:  On page 26 of the redacted
          4  reply brief, contrary to Plaintiff's
          5  characterization, BCRA's restriction on
          6  solicitation are narrowly targeted, and I'll go
          7  down later in the page: "BCRA does not apply to all
          8  Section 501(C) organizations", talking about the
          9  restrictions specifically on party, national party
         10  soliciting funds.  "BCRA does not apply to all
         11  501(C) organizations.  It applies only if the
         12  organizations make expenditures or disbursements in
         13  connection with a Federal election."
         14             So, and again, with respect to Federal
         15  office holders, and we talk a lot about Senator
         16  Kerry, Kennedy, and so forth as if there's some
         17  doubt about their ability to do this, but with
         18  respect to Federal officer holders, the Government
         19  in its opening brief for the defendants stated
         20  specifically that--let me just--that 441(I)E was
         21  specifically intended to permit, quote, Federal
         22  candidates and office holders to continue to
                                                             278
          1  engage in civic fund-raising activities for
          2  non-profit organizations, but restricts the
          3  solicitations that can be made support certain
          4  types of Federal election activities.
          5             I do not believe that the Commission,
          6  with all due respect, can take a position
          7  inconsistent with its representations to the court.
          8             COMMISSIONER THOMAS:  Thank you.  That's
          9  helpful.  You could still take the construction
         10  that what we said there was consistent with some
         11  stricter constructions as I've sort of hypothesized
         12  in that even to the extent we're talking just about
         13  441(I)D and the ability to in essence solicit or
         14  send money to a 501(C)3, organization, for example,
         15  it would have to be hard money, but it would only
         16  be permissible if it's a certain kind of 501(C)
         17  organization.  You could sort take that
         18  construction.  All you're talking about in 441(I)D
         19  is all that's left for the national party
         20  operatives, which is the ability to solicit
         21  hard money.
         22             I'm trying to explore with you in terms
                                                             279
          1  of the construction of this statute if you think we
          2  had the leeway to go the way you were suggesting,
          3  and obviously.
          4             MR. SANDLER:  No.  I don't think the
          5  statute provision can be interpreted that way, and
          6  I think it's apparent that the United States and
          7  the FEC have not, in fact, interpreted it that way.
          8             COMMISSIONER THOMAS:  The next area
          9  concerns the items for promotional consideration.
         10  This have been a very controversial issue at the agency over the
         11  years, but the proposed rulemaking was heading down
         12  the road of suggesting that we were going to, in
         13  essence, take away the ability of the convention
         14  committees to be the ones, in essence, receiving
         15  items of promotional consideration, but we would
         16  leave the host committees free to get themselves 
         17  involved in receiving items of promotional
         18  consideration.
         19             I thought maybe you could help us with
         20  the background on the concept of organizations
         21  offering up items or services for promotional
         22  consideration.  It's my vague understanding that
                                                             280
          1  this is something that the party committee itself
          2  pretty much has to control.  That is what these
          3  folks are trying to gain, if you will, is the
          4  promotional consideration benefit derived from
          5  being labeled as the official provider for the
          6  Democratic National Convention as opposed to being
          7  the official provider of the host committee.
          8             Is there some logic?  Am I on the right
          9  track there?
         10             MR. SANDLER:  You are, Commissioner.
         11  That's exactly why I strongly, strongly proposed
         12  precluding, changing the ability of the convention
         13  committees themselves to accept items, goods and
         14  services in exchange for promotional consideration,
         15  usually official provider status, and again, for 25
         16  years this has been considered not to be
         17  in--properly considered not be an in-kind to these
         18  Federal political committees, and nothing has
         19  changed in our view, that  should lead to any
         20  other conclusion.  That would greatly complicate,
         21  again, the ability and disrupt the ability to put
         22  on conventions.
                                                             281
          1             MR. JOSEFIAK:  It basically boils down,
          2  as the Commissioner knows, as the genesis of all
          3  this when there were some very difficult debates on
          4  this, you know, whether it was golf tournament
          5  where GM provides the cars.  It's the same kind of
          6  concept, or whether it's the airline--one airline
          7  wanted to get both just to be able to show that
          8  they had both conventions and plus everyone else in
          9  the western world that year.
         10             So it is really, for some reason, a
         11  benefit that they want to have, and it is customary
         12  in their business to do so.  That was the key in
         13  all of this, that they do provide these kinds of
         14  things to other types of organizations, whether
         15  they're political, especially non political.
         16             MR. REIFF:  Exactly.  The existing FEC
         17  regulations already have sufficient safeguards to
         18  ensure that these types of deals are in the
         19  ordinary course of business and they are provided
         20  to their non-political clients.
         21             COMMISSIONER THOMAS:  Last question--oh.
         22  You have pointed out, I guess, Joe, in your
                                                             282
          1  comments the somewhat confused state of affairs
          2  regarding office equipment, slash, office expenses.
          3  Do you want to give us some sense as to where you
          4  think the lines actually ought to be if they are not
          5  clear right now?
          6             MR. SANDLER:  We thought that the--and
          7  again coming under the category of if it's not
          8  broke, don't fix it, the issue was thoroughly
          9  addressed and analyzed by the Commission in
         10  connection with the audits of 1996 conventions, or
         11  at least our convention in Chicago where the issue
         12  of telephone charges had come up.  It was the
         13  conclusion of the Commission that it was proper for
         14  host committees to pay for that as part of the
         15  infrastructure and the office space and so forth
         16  for the convention, and we believe that's where it
         17  should be left.  The NPRM indeed indicates that it
         18  the was intent of the NPRM to codify the results of
         19  those audits, but the language of the rules at the end
         20  of notice in one part, not another, that's actually
         21  contradicted, and that's what we are pointing out in our comments.
         22             The audit which we
                                                             283
          1  assume were codified in the
          2  Commission's current regulation.  It should simply
          3  be left in place in our view.
          4             MR. JOSEFIAK:  You're looking at the
          5  people who have to interpret that, and
          6  unfortunately I can probably regurgitate to you
          7  verbatim the discussion that took place between
          8  paper clips and office equipment and paper that
          9  came with the Xerox machine and paper that didn't
         10  come with the Xerox machine.  I think we have a
         11  pretty good idea of what the rules of the game are,
         12  and to codify something, I think would be dangerous
         13  because of the exceptions that you're going find to
         14  the general rules as you go through these audits,
         15  but so you don't get into the nuances of, yes, if
         16  the balloons are on the walls, they're decorations,
         17  but if they're coming from the ceiling, they're
         18  part of the show and it's COA versus a host
         19  committee expenditure.  I think you want to avoid
         20  codifying that, for all due respect, in regulations
         21  and actually have maybe a session where no one is
         22  paying attention to it and you get into those kinds
                                                             284
          1  of nuances.
          2             But you're looking at the people who
          3  have gone through that process and who will
          4  probably be going through that process again, and I
          5  would support Joe's position that you don't codify
          6  those kinds of nitty-gritty things in regulations.
          7             MR. REIFF:  I can speak for the DNC and
          8  Tom can speak for the RNC, but the 2000 convention
          9  process, and the audits of the 2000 convention went rather
         10  smoothly.  We took the lessons from '96 and we
         11  applied them, and I think they went very well.
         12             MR. JOSEFIAK:  By the way, they did, but
         13  the host committees had no idea what we were
         14  talking about when you say yes, you can do this,
         15  but you can't do this, and they just were baffled
         16  by this sort of line of demarcation whether it's
         17  balloons or paper clips or whatever; but, you know,
         18  we do stand by these host committees to try to walk
         19  them through because it is such an arcane process
         20  that a host committee has no clue of what we're
         21  talking about.
         22             COMMISSIONER THOMAS:   Thanks.  Maybe
                                                             285
          1  some day you can explain the message versus
          2  delivery system.
          3             MR. JOSEFIAK:  Maybe the best word is
          4  message versus the means.  The host committee can
          5  provide the microphone, but what comes out of the
          6  microphone, the speaker, the show has to be paid
          7  for by the COA.
          8             COMMISSIONER THOMAS:  Help me with the
          9  balloons.
         10             MR. JOSEFIAK:  Well, the balloons is
         11  something that you came up with, Commissioner.
         12  I'll be happy to go through it and get the
         13  transcript.
         14             COMMISSIONER THOMAS:  I can safely say
         15  I've forgotten that.
         16             MR. JOSEFIAK:  Balloons on the wall are
         17  decorations and the host committee can pay, but
         18  balloons hanging from the ceiling are part of the show
         19  and, therefore, the host committee has to pay.
         20             COMMISSIONER THOMAS:  If I came up with
         21  it, I think it's brilliant
         22             CHAIR WEINTRAUB:  I'm glad somebody
                                                             286
          1  understands that.
          2             COMMISSIONER McDONALD:  No hot air jokes
          3             CHAIR WEINTRAUB:  Commission Mason.
          4             COMMISSIONER MASON:  I wanted to explore
          5  a little bit the issue of what we say about the
          6  affiliation issue of the host committees and
          7  convention committees and/or national parties,
          8  because it seems to me if we are agreeing, and I
          9  think that the Commission may be there or get
         10  there, that no, they're not affiliated per se, that
         11  BCRA doesn't really change that, but under one
         12  construct, or another we all agree yes, an
         13  ill-advised host committee along with an
         14  ill-advised national committee could conduct their
         15  business in such a way that they did become
         16  affiliated.  In other words, that's not impossible
         17  as a structure.  It would be a mistake, but so I'm
         18  just sort of wondering how we express that.
         19             One of the things I would like to come
         20  out of this is not leaving things in a confused
         21  state.  If the Commission concludes that the way
         22  arrangements have been in the past is not
                                                             287
          1  affiliation, and so if host committees and
          2  convention committees in 2004 and on in the future
          3  conduct their business pretty much as they have in
          4  the past, relationships are set in the way they
          5  have been in the past, those committees are not at
          6  risk that the Commission is going to come in
          7  and find that they're affiliated.
          8             Do you understand what I'm reaching for?
          9  Because now that the issue has been raised, I'm
         10  afraid if we just drop it and don't change our
         11  affiliation rules and don't say anything about the
         12  status, that we would still have some people
         13  running around out there saying, Oh, the Commission
         14  didn't say they per se weren't and so, you know,
         15  they're left in this possibility, and then we get a
         16  complaint filed or something and at least have some
         17  people unsure about how to proceed.
         18             So I'm just wondering if you have
         19  thoughts about how we express that as a regulatory
         20  conclusion, that arrangements that we've seen in
         21  prior audits in '92, '96, 2000, haven't constituted
         22  affiliation, and so while we might find affiliation
                                                             288
          1  in the future if someone conducts themselves
          2  differently, those past arrangements don't raise
          3  concerns.  How do we say that?
          4             MR. JOSEFIAK:  I guess I am sort of
          5  baffled why you would say anything, because I think
          6  the facts would speak for themselves.  You have a
          7  definition that says when you are affiliated with a
          8  political organization, established, financed,
          9  maintained, or controlled, and that is the criteria
         10  you would put into place if you were going to be
         11  examining the relationship between a host committee
         12  and a national party committee, and from my
         13  experiences in trying to negotiate with host
         14  committees and cities, and I am sure Joe would feel
         15  the same way, it is virtually impossible in the
         16  scheme of things with legitimate host committees
         17  and cities to be able to do this, because even in a
         18  city--I mean, to be a part of the negotiating
         19  process, it is the city and host committee versus
         20  the national committee.  It is a real negotiating.
         21  This isn't some sort of a light-hearted thing.  This
         22  a real negotiation that goes on and is very difficult,
                                                             289
          1  very complex.
          2             There are rules cities where if the city
          3  is going to be involved in anything similar to this
          4  or establish a host committee, there are rules
          5  there.  There may be even requirements for
          6  disclosure, and there are rules and ethics rules a
          7  mayor, for example, has to go through before they
          8  can get involved in something like this, and they
          9  get approval by city councils.  The host committee
         10  itself, the way they've been established as
         11  501(C)3s have to meet a certain standard.  They
         12  have boards.
         13             It is almost impossible, and they have a
         14  view and a very strong view.
         15             COMMISSIONER MASON:  I understand all
         16  that, and I don't disagree, and I don't think the
         17  Commission collectively is likely to come to a
         18  different judgment, but let me express the reason
         19  that I think it may be important for us to express
         20  that in some fashion, because the specter has now
         21  been raised, rightly or wrongly, with the passage
         22  of BCRA and a lot of attention that, gee, these may
                                                             290
          1  be affiliated, and we have all acknowledged that as
          2  a theoretical prospect yes, that it may be
          3  difficult to get there with city procurement
          4  rules and ethics rules and a lot of other reasons,
          5  but yes, it could happen.
          6             And so for that very reason, to
          7  avoid--you know, we've seen too many examples of people
          8  running off with what BCRA means and creating a lot
          9  of smoke and problems that I just think we don't
         10  need.  And so if we're pretty sure that prior
         11  arrangements don't amount to affiliation, I think
         12  we need to say that, and I think it might help in
         13  this environment, not for your understanding, but
         14  for the understanding of people who might be contemplating filing
         15  litigation or complaints or petitions.  We have not
         16  only our own rulemaking, but a petition for
         17  rulemaking, you know, that we have to respond to
         18  here, and presumably we need to annunciate a
         19  reason, and if one of our conclusions is, Well, we
         20  don't see a reason for a new rule here because in the
         21  past, we've never seen affiliation, then we have
         22  now 20 years of experience or whatever.
                                                             291
          1             For those reasons, I think we need to
          2  say something about it that gives people some
          3  assurance that nothing has changed, if, in fact,
          4  that's what we believe.
          5             MR. REIFF:  I would just point out to
          6  the Commission that in our written comments on page
          7  5 and 6, we attempted to apply the Commission's
          8  definition of affiliation at 300.2, and it wasn't
          9  even a close call in terms of Joe's and my
         10  experience in the last two conventions.
         11             MR. SANDLER:  I do think--I mean, our
         12  position is that just that there's no
         13  misunderstanding that this rulemaking should be
         14  terminated, and the petition for rulemaking should
         15  be denied outright, and if in a preamble to a
         16  notice denying the petition for rulemaking there
         17  were obviously reasons given and one of the reasons
         18  are as you articulated, that certainly would be
         19  useful and constructive to the regulated community.
         20             MR. JOSEFIAK:  Simply a statement that
         21  the host committees as they're constituted, if
         22  they're legitimate organizations, established as
                                                             292
          1  501(C) anythings, because there are multiple
          2  versions of that, that they are not considered to
          3  be under this rule unless they meet the standards of
          4  affiliation under the regs or something if you have
          5  to go that way, but I don't--my concern is that
          6  you're raising the specter and that there is that
          7  potential--you know, I know Joe and I have had just
          8  the opposite experience.  It's just contrary to
          9  that.
         10             COMMISSIONER MASON:  Thank you.
         11             CHAIR WEINTRAUB:   Thank you,
         12  Commission Mason.
         13             Well, I just have a couple questions.
         14             Mr. Josefiak, you've alluded a couple of
         15  times to the right of the local parties to run
         16  their conventions and to choose how they're going
         17  to run their conventions, and you've suggested that
         18  you can't do it the way you want to do it unless
         19  you can have host committees help you out by
         20  raising gobs of soft money.  Aren't you sort of
         21  undercutting the argument that the host committees
         22  were making earlier that they're not acting as your
                                                             293
          1  agents; their doing it for their own reasons.  I
          2  mean, you're sort of suggesting that they are
          3  acting as your agents.
          4             MR. JOSEFIAK:  No.  What we're saying is
          5  that we're going to the city because the city is
          6  interested in promoting their city.  That is the
          7  primary purpose under the regulations.  The host
          8  committee is allowed to, obviously, use that money
          9  to promote the city and then to provide certain
         10  kinds of services for the convention like the hall,
         11  like the podium, and that sort of thing to entice
         12  the convention to come there in the first place in
         13  order to have this.
         14             I don't think I'm undercutting the
         15  argument.  I think I'm just indicating the
         16  practical realities of the cost of the convention,
         17  and the host committees now are the main sponsor of
         18  being able to host a convention in the city that
         19  they negotiate with.  Having an event, whether it's
         20  one day or four days, in Madison Square Garden, to
         21  rent Madison Square Garden, the public fund just
         22  wouldn't be able to come close just to pay the rent
                                                             294
          1  for that.
          2             So if that's what we're talking about,
          3  the ability to even function, not the message--the
          4  message still has to be the party message--the
          5  ability to even have a venue where you get 5,000
          6  people for four days to come in an atmosphere
          7  that--and, quite frankly, the 15,000 media
          8  representatives that come it and their requirements
          9  that have nothing to do with the stuff that you
         10  like to spend the money on, but what you need to do
         11  to make them comfortable and be able to do whatever
         12  they're going do is very awesome process that
         13  unless you go through it, most people have no idea
         14  what goes into this kind of an operation to be able
         15  to pull this off in this short period of time with the
         16  kinds of infrastructure that goes into place.
         17             CHAIR WEINTRAUB:  Did you want to
         18  comment on that, Mr. Sandler.
         19             MR. SANDLER:  Just I'm very troubled in
         20  this whole discussion throughout the day in the use
         21  of the term "soft money" in this context.  If I--if
         22  a corporation, you, the individual gives a hundred
                                                             295
          1  thousand dollar check to a church, synagogue,
          2  American Red Cross, Amnesty International, it's not
          3  subject to the limitations and reporting
          4  requirements of the act.  Is everything in the
          5  world now soft money?  These are contributions to a
          6  501(C)3 or 501(C)6 organization, which is in the
          7  case of a C(3) has to win recognition of the
          8  exemption, as you know, from the IRS and is subject
          9  to scrutiny not only from the service, but also
         10  from the city authorities because of use of public
         11  and funds and sometimes state funds as well; and
         12  the idea that contributions to a 501(C) that
         13  engages in legitimate 501(C) functions is soft
         14  money because it has something to do--we're really
         15  not sure what and how or how we're going to
         16  characterize it--with a political convention is not
         17  really logical to us.  It is not the question.  We
         18  are not talking about soft money.
         19             We're talking about donations to host
         20  committees that are set up for certain purposes
         21  entirely apart from the Commission's regulations,
         22  although, you know, were the Commission to change
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          1  its regulation, of course all of this would be
          2  implicated and have to be fought out in the courts,
          3  but the fact of matter is these are 501(C)
          4  organizations that as far as the FECA is concerned
          5  and BCRA, are no different than Amnesty
          6  International or the American Red Cross, or the
          7  United Jewish Federation.  I don't think the use of
          8  the term "soft money" to describe these
          9  contributions is appropriate.
         10              MR. JOSEFIAK:  Madam Chair, and only in
         11  the context that they are non-Federally regulated
         12  monies.
         13             CHAIR WEINTRAUB:  You guys are good.
         14  We'll have to come up new words.
         15             Let me ask another devil's
         16  advocates-type question, because I asked the guys
         17  this.  I gave them a hard time and suggested they
         18  were prudes because they just didn't want people to
         19  have a good time.
         20             MR. JOSEFIAK:  Which is true.
         21             CHAIRWEINTRAUB:  Well, maybe it is,
         22  but let me sort of ask the flip side of that
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          1  question, because there are people like them out
          2  there who think that the conventions have become
          3  much too elaborate and much too expensive and much
          4  too much fun, and it;s not just the two folks that
          5  showed up here this morning.  We got 1100 identical
          6  E-mails.
          7             MR. JOSEFIAK:  I wonder where they came
          8  from.
          9             CHAIR WEINTRAUB:  I can't imagine,
         10  but, you know, there are 1100 people out there who
         11  cared enough.  I mean, you couldn't muster up 1100
         12  E-mails on your side of the issue.  They mustered
         13  up 1100 E-mails on their side of the issue.
         14             COMMISSIONER McDONALD:  Oh, yes, they
         15  could.
         16             MR. SANDLER:  We'll make this a bit of
         17  an occasion to span the Federal Election
         18  Commission.  We'll be happy to beat that part of
         19  1100.
         20             CHAIR WEINTRAUB:  That's right.  I'll
         21  have to look into that with the FCC.  No.  Maybe
         22  not.  We've got enough problems with the FCC these
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          1  days.
          2             In any event, there is some sentiment
          3  out there, perhaps a majority view, perhaps a
          4  minority view, but there are people who care about this
          5  who think that for us to allow the host committees
          6  and the municipal funds to continue to raise
          7  non-Federally regulated funds that may be used in
          8  some way in connection with or in or around
          9  convention is a huge loophole in the new soft money
         10  regulations--I'm quoting here from the E-mail--that
         11  were explicitly intended to break the link between
         12  office holders and large contributions.  And this
         13  person as well as the other 1099 says:  "I support
         14  the use of my tax dollars to fund party conventions
         15  precisely so that parties may turn away other
         16  sources of inappropriate funds."
         17             That's sort of conclusory, but suppose
         18  we were to say no more--host committees--I'm trying
         19  to avoid using "soft money"--host committees and
         20  municipal funds can only use hard dollars in
         21  connection with anything that's remotely close to
         22  these conventions, putting aside the security issues,
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          1  because you're going to get some help for the
          2  Homeland Defense--I forget what we call this new
          3  agency.
          4             What would happen is you would have to
          5  run a much simpler, much less elaborate convention.
          6  There would fewer balloons and fewer parties, and I
          7  guess--and some would say it would be cleaner and
          8  it look better and it would eliminate the
          9  appearance of corruption and impropriety, and even
         10  if there isn't any actual corruption, just
         11  eliminating the appearance of impropriety would be a
         12  step in the right direction.
         13             I guess my question is tell me why we
         14  should care if you have to run a cheaper
         15  convention?
         16             MR. SANDLER:  First of all, it is not
         17  the question of running a cheaper convention.  The
         18  idea that host committees could exist and raise
         19  hard monies subject to the two-year aggregate
         20  57,500 cycle, i frankly just makes no sense.  Host
         21  committees would disappear and conventions would
         22  disappear.  There's no possibility of putting on a
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          1  convention with the amount of the Federal grant
          2  anyway and get 5,000 delegates in a facility with
          3  every, you know, office holder, Federal, state, and
          4  local from every party gathered in one place and
          5  move them around and so forth with in the amount
          6  of this Federal grant.
          7             Now, what puzzles me about the analysis
          8  you just put forth, if the host committee is to be
          9  limited to Federal money on the theory that it's a
         10  Federal political committee and everything it does
         11  is an in-kind, then why shouldn't its net expenses
         12  be limited to $5,000, the back to back limit?  I
         13  mean, after all, an in-kind contribution is an
         14  in-kind of contribution.  The fact that it's all
         15  hard money makes no difference.  It would exceed
         16  the limitation of the act to hold a convention for
         17  more than $5,000 above the amount of the Federal
         18  grant under that analysis.
         19             MR. JOSEFIAK:  Joe is exactly right.  It
         20  doesn't fit into the scheme of any sort of,
         21  quote-unquote, Federally-regulated money, because of
         22  the aggregate because of the individual limits because
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          1  of if you're not affiliated PAC-to-PAC limits.
          2  If you are affiliated, then you're still subject to
          3  one limit anyway, and again, because this whole
          4  thing is based on a concept of businesses in the
          5  MSA, at least at this point in time, to be able to
          6  promote their city within that, it makes all of the
          7  business money go away.  You'd have individual
          8  money which is not necessarily a large part of the
          9  whole operation to begin with.
         10             And so under that kind of theory, you
         11  only have two options, I think.  One is that the
         12  Federal Government is going to give the 50 million
         13  or R60 million to do this, or you take the taxpayer
         14  dollar out of it altogether, and you say, Okay,
         15  this is an entire host committee operation because
         16  it's not Federal election activity.  You only have
         17  those two choices, I think, if you go under that
         18  scheme, because under that scheme, a hard dollar
         19  host committee doesn't exist.  What you're saying
         20  there is if the committees aren't going to do it at
         21  all, it's the Republican National Committee and
         22  Democratic National Committee taking its share of
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          1  the $25,000 per person per year under the 57
          2  aggregate and spending that money to put on a
          3  convention versus giving it to the Presidential
          4  candidate and coordinate it versus giving it to
          5  state and Federal candidate versus having an
          6  institution at all, because under BCRA, everything
          7  is Federal money, whether it's rent, utilities, or
          8  building.
          9             So you're basically forcing, I think,
         10  under that scheme the elimination of the national
         11  party structure and organization, because you can't
         12  do it all with 25,000 per year.
         13             CHAIR WEINTRAUB:  So just to push
         14  this devil's advocate argument one step further,
         15  why shouldn't we do that?  Why shouldn't we then
         16  just submit a legislation recommendation to
         17  Congress saying we think you ought to either give a
         18  whole lot more money to the convention committees
         19  so that they can run it all on public funds and
         20  eliminate this unseemingly chase for dollar of
         21  whatever hardness or softness, or just, you know,
         22  keep your money and let them do it all privately?
                                                             303
          1             MR. SANDLER:  The question, either of
          2  those options have a lot to recommend, and the real
          3  question is whether the Congress continues to take
          4  out of the system the private contributions, the
          5  funds that go directly to communicate, as Tom says,
          6  the political message, the actual costs of
          7  showcasing the nominee, putting on the program
          8  and so forth, that they are directly related to a
          9  Federal election and that, therefore, the
         10  disbursements for which have to be made at least
         11  under the Commission's current rules a Federal
         12  political committee, namely the committee on
         13  arrangements or in our case, the Democratic
         14  National Convention Committee, and whether they
         15  want to replace that with private contributions, we
         16  can visit the judgment made in the post-Watergate
         17  legislation.
         18             MR. JOSEFIAK:  And to be honest, Madam
         19  Chairman, I would have a real philosophical problem
         20  with taking 100 percent of taxpayer dollars, $50
         21  million to put on a convention like this.  I think
         22  that is a benefit of the host committee where there
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          1  is a motivation by a city, not for political
          2  reasons, but to promote their city to want this
          3  kind of event taking place because of it's historic
          4  value and the economic impact on that particular
          5  city and state.  So I think that's the incentive
          6  that these cities have to do it, and why should the
          7  taxpayer have to be burdened with that?  I would
          8  rather go the other way and say this really does
          9  not have that--it's in connection.  If it's a
         10  501(C)3, it's a charity, and if they raise the
         11  money and it's motivated by what these cities have
         12  been motivated by in my experience, then that's the
         13  way I would go rather than the other.
         14             CHAIR WEINTRAUB:  I thank you
         15  engaging with me on this.  I actually agree with
         16  you that there are, gee, a whole lot of things I
         17  would rather see $50 million in taxpayer dollars
         18  going to support rather than giving more money for
         19  the balloons.
         20             COMMISSIONER McDONALD:  The FEC budget?
         21             CHAIR WEINTRAUB:   Yeah.
         22             MR. JOSEFIAK:  Especially if they're one
                                                             305
          1  that are falling down.
          2             CHAIR WEINTRAUB:  That's right.
          3  Well, maybe we could ask the Congress to send some
          4  of the money over here.  We could do a roof deck so
          5  that we could have our next hearing outside in this
          6  gorgeous nice weather.
          7             Mr. General Counsel, do you have any
          8  questions?
          9             MR. NORTON:  Thank you, Madam Chair.  I
         10  think the testimony has been very helpful.  The
         11  subject has been thoroughly addressed.  So, no, I
         12  don't have any questions.
         13             CHAIR WEINTRAUB:  You just get
         14  pithier and pithier, and I like that about you, Mr.
         15  General Counsel.
         16             Mr. Staff Director.
         17             MR. PEHRKON:  Madam Chair, I have
         18  nothing.
         19             CHAIR WEINTRAUB:  I think that's just
         20  wonderful.  Let me thank you, yet again, for
         21  coming, and--it's Friday afternoon and the weather is
         22  nice--and for waiting around while this morning's
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          1  ran late and for submitting both your written
          2  comments and testimony, and you will be hearing
          3  what we do with this.
          4             Thanks very much.  This meeting is
          5  adjourned.
          6             (Whereupon, at 3:42 p.m., the hearing
          7  was adjourned.)
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