1

 FEDERAL ELECTION COMMISSION

 PUBLIC HEARING

 ON

 ELECTIONEERING COMMUNICATIONS

 - - -

 Wednesday, August 28, 2002

 9:36 a.m.

 COMMISSIONERS PRESENT:

 DAVID M. MASON, Chairman
 KARL J. SANDSTROM, Vice Chairman
 BRADLEY A. SMITH, Commissioner
 MICHAEL E. TONER, Commissioner
 SCOTT E. THOMAS, Commissioner
 DANNY LEE McDONALD, Commissioner

 ALSO PRESENT:

 LAWRENCE H. NORTON, General Counsel
 ROSEMARY SMITH, Associate General Counsel
 JAMES A. PEHRKON, Staff Director
 MARY DOVE, Commission Secretary

 9th Floor Conference Room
 999 E Street, N.W.
 Washington, D.C. 
 2

 C O N T E N T S

 WITNESSES PAGE

 Michael Malbin
 Campaign Finance Institute 6

 Donald McGahn
 National Republican Congressional Committee 12

 Glen Shor
 Campaign and Media Legal Center 16

 Heidi Abegg
 American Taxpayer Alliance 149

 Robert Alt
 Claremont Institute 155

 Lloyd Mayer
 Independent Sector 204

 Tim Mooney
 Alliance for Justice 208 
 3

 P R O C E E D I N G S

 CHAIRMAN MASON: The special meeting of

 the Federal Election Commission for Wednesday,

 August 28, 2002, will please come to order.

 We are missing one Commissioner and one

 witness, and we note in the Commissioner's case due

 to travel-related delays, and we hope the same is

 true for Mr. Shor. But we're going to go ahead and

 get started because we have a fairly busy two-day

 agenda and Mr. McDonald and Mr. Shor can join us as

 soon as they get here.

 I'd like to welcome everyone to the

 Commission's hearing on the notice for proposed

 rulemaking on electioneering communications. The

 proposed rules that we're discussing today were

 included in a Notice of Proposed Rulemaking

 published on August 2, 2002.

 These rules address certain changes to the

 Federal Election Campaign Act under Title II of the

 Bipartisan Campaign Reform Act of 2002 which

 defines a new term "electioneering communications,"

 and adds restrictions and prohibitions on the 
 4

 sources of funds that may be used to finance such

 communications, and imposes certain reporting

 requirements with respect to such communications.

 The NPRM addresses major areas: first, the

 definition of and exemptions to the definition of

 electioneering communications; second, the role of

 the Federal Communications Commission in assisting

 this Commission, the Federal Election Commission,

 in carrying out its statutory obligations with

 respect to electioneering communications; third,

 who may and who may not fund electioneering

 communications; and, finally, reporting

 requirements with respect to electioneering

 communications.

 We appreciate the willingness of the

 commenters to assist us in this effort by giving us

 their views on these proposals. We want to thank

 particularly the witnesses for taking time today,

 and will do so tomorrow, to give us the benefit of

 their experience and expertise in this area.

 For the format for today's hearing, each

 witness will have time to make a five-minute 
 5

 opening statement. We do have a light system at

 the witness table. That will give you a flashing

 green light at the end of three minutes and a

 yellow light at the end of four minutes and a red

 light at five minutes, and we would ask you at that

 point to please conclude your opening statements.

 For the first panel and other panels with

 three persons, Commissioners will have ten minutes

 initially to--Commissioners and General Counsel and

 Staff Director, to ask questions. With two-person

 panels, we'll have an initial five-minute round and

 we'll go to a second round of questions, time

 allowing.

 Our first panel--well, before introducing

 the first panel, I'd like to recognize any of my

 colleagues who wish to be recognized to make

 opening statements of their own.

 There are none. We're talked out from our

 previous hearing.

 Our first panel this morning consists of

 Michael Malbin, representing the Campaign Finance

 Institute; Donald McGahn, representing the National 
 6

 Republican Campaign Committee; and Glen Shor,

 representing the Campaign and Media Legal Center.

 We follow the alphabet. We have the

 unusual circumstance of persons whose names begin

 with "M" going first. So I'm delighted, unless

 you've worked out something else, Mr. Malbin.

 MR. MALBIN: Thank you, Mr. Chairman. I'm

 pleased to be here today.

 The Campaign Finance Institute is a non-partisan,

 non-profit institute affiliated with

 George Washington University. It takes no position

 on pending legislation and it took none on BCRA.

 However, about two years ago, the

 Institute appointed a distinguished task force on

 disclosure that wrestled with many of the same

 questions you're considering today. My comments, a

 longer version of which you have, draw from two

 aspects of the task force's work. The first part

 is about definitions and exemptions, and the second

 is about the proposed FCC database.

 First, on definitions and exemptions,

 after some months of thought and going back and 
 7

 forth, the approach of the task force ended up

 being similar to Snowe-Jeffords, but the longest

 discussions were about over-breadth and we focused

 on two types of concerns.

 The first was about speech that nobody

 wanted to regulate. Our paradigm that we kept

 going back and forth on in the task force was the

 late-night comedy monologue. Other people have

 mentioned documentaries, public service

 announcements, although there is apparently some

 disagreement about that. But all of these issues

 are still problems in BCRA.

 Our solution was not to create an endless

 list of exemptions. Rather, we defined

 electioneering in terms of paid advertising. You

 ask in your notice whether you should take a

 similar approach and this task force would have

 said yes.

 If you limit the coverage to paid

 advertising, then public service announcements,

 documentaries, and entertainment all automatically

 would be excluded. In this regard, I would note 
 8

 that the hypotheticals that were marshaled in the

 various written comments that were critical of this

 or that draft exemption almost all were examples of

 paid ads.

 You also asked, in the alternative,

 whether there should be an exemption for

 entertainment, drama, or other non-news

 programming, and the task force also recommended

 those kinds of exemptions.

 Jay Leno and Comedy Central are paid out

 of corporate funds. If BCRA were interpreted to

 regulate their monologues, I don't see how it could

 possibly survive a First Amendment challenge. The

 First Amendment requires that means be drawn to fit

 legitimate ends. It's just hard to see what

 legitimate purpose this would fit.

 Now, on the negative side of having an

 entertainment exemption, it's not clear whether

 that kind of exemption would create as bright a

 line or reach everything that you want to reach as

 well as a paid advertising rule, an affirmative

 paid advertising rule. Of all the proposed 
 9

 exemptions, one or the other of these I consider to

 be the most important.

 The task force's second concern was to

 find more protection for lobbying or issues speech.

 We considered and rejected several of your

 alternatives, such as the exemption for an ad that

 refers to the popular name of a bill or law.

 Unfortunately, there is no such thing as a popular

 name or legal popular name. By definition, it's

 popular, and the popular name may vary from place

 to place as people tack on the local districts who

 happen to be cosponsors of bills.

 Under the exemption as worded, one could

 easily imagine district-specific advertising that

 praises or attacks a Member's bills in the Member's

 home district, as, for example, Shays-Meehan-Morella, or any

 other cosponsor.

 To get at this, the task force added one

 additional criterion, which was targeting, and

 under that approach if an ad were to use a

 sponsor's name in a uniform manner in advertising

 across the country, then it would not have counted 
 10

 in its definition as electioneering because it

 would not be targeted.

 Unfortunately, although BCRA picked up the

 word "targeting," it doesn't have a real targeting

 test. The law says that a message is considered

 targeted if it is a completely untargeted national

 ad.

 We thought you should exempt uniform ad

 buys that name a bill's sponsors, not a popular

 name, but specifically sponsors, without bearing

 the names across districts. I would still argue

 that that would be good policy, but I'm not sure

 you have the legal option.

 On the next question--does there need to

 be some additional protection for lobbying along

 the lines of 303(d)--we didn't think so, and

 therefore didn't discuss anything like the

 alternatives you have.

 Two final items under the exemptions.

 First, you thought about an exemption for

 initiatives and referendums. I think that's a bad

 idea. There are lots of cases in California where 
 11

 you have candidates essentially supporting their

 own campaigns through initiatives and referendums

 campaigns.

 May I go on for a few--never mind. I

 won't.

 CHAIRMAN MASON: Go ahead and finish your

 statement.

 MR. MALBIN: Thank you.

 CHAIRMAN MASON: I'm not going to chop

 your words off.

 MR. MALBIN: Well, there are two other

 items that are left.

 CHAIRMAN MASON: Summarize.

 MR. MALBIN: Thank you.

 Now, should there be a blanket exemption

 for non-profits? We think that it's very important

 to consider the potential damage to charitable

 institutions, but the single most important way to

 protect them is through limiting coverage to paid

 advertising; that is to say if an organization does

 paid ads that target somebody in a district, then

 that organization ought to be covered. 
 12

 On FCC disclosure, we note that what you

 did was to create a database, which we think is

 fine, that is meant to protect potential spenders.

 We think you ought to take advantage of

 the opportunity here to require all information

 that is gathered under BCRA to be sent from local

 stations to the FCC and posted on the database,

 because the fundamental purpose of disclosure is to

 inform voters and having all these little slips of

 paper in individual stations simply fails to do the

 job.

 Thank you.

 CHAIRMAN MASON: Thank you.

 Mr. McGahn.

 MR. McGAHN: Good morning. I'd first like

 to thank the Commission for having us here today

 and giving us the opportunity to testify, and I'd

 also like to thank the Commission for what has been

 a daunting task, both with the first rules that

 were promulgated, as well as these rules. I have

 found it to be a very fair and open process, albeit

 expedited. 
 13

 I would also like to thank the Commission

 for doing their job in the face of what seems to be

 a relentless media barrage of articles, at least

 one day, claiming loopholes being treated and all

 sorts or things, when, in fact, your first

 regulations, in essence, tracked the language of

 the statute where you could.

 In this situation, perhaps this will be a

 little bit of an easier task because having

 reviewed the comments, it seems that many

 commenters agree on many of the main issues.

 One interesting difference, though, is

 between the so-called government groups and the

 sponsors of the legislation. I do read some

 differences in their views, which may be where the

 decisions are going to be for the Commission, but

 for the most part I see most of the issues that

 I've addressed are not out of the mainstream and

 certainly within the realm of what others have

 suggested.

 To digress a minute and talk about the

 constitutionality of the whole provision, again 
 14

 that is an issue that has to be foremost in the

 Commission's mind, although you are not a court and

 ultimately the courts will decide this.

 There is a fall-back position in the

 statute in case part of the other statute is found

 to be unconstitutional. So, obviously, to the

 extent that the sponsors want to say they are

 confident of the constitutionality, why is there a

 fall-back if they are so confident?

 Obviously, everybody knows there are some

 problems here and the courts are going to carve

 this up to a certain extent. The real question

 before the Commission is do you, in essence, give

 effect to the actual language of the statute and

 let the folks who passed this live with the results

 in court or do you try to help it along and carve

 out exceptions and do all sorts of contortions to

 try to have this be saved in court?

 To the extent you want a rule that you may

 be able to enforce, you may want to carve out some

 exceptions. On the other hand, if they intended

 exceptions, you would think they would have put 
 15

 them in the statute.

 My final point is more of an anecdotal

 point to illustrate the potential absurdity of the

 application of some of this. We are within 30 days

 of primaries in certain States with certain Members

 whose names would be in the popular title of the

 legislation which you are now promulgating

 regulations under.

 On September 10, New Hampshire is going to

 hold a primary. On September 17, Massachusetts

 holds a primary. So I will not mention the

 Congressman's name whose name is in bills, the

 popular title, because I would fear running afoul

 of the spirit of what we're doing here.

 At the risk of sounding trite, it is a

 very real concern. Mr. Meehan's primary is in

 Massachusetts soon. We are within 30 days of that

 primary, and here we are on TV mentioning his name.

 You can imagine if we were doing advertisements

 regarding regulations to try to sway you with

 grass-roots advocacy. They may run afoul of this

 law. 
 16

 I illustrated this point in my comments

 using the Presidential primary system, the idea of

 Massachusetts media markets spilling over into New

 Hampshire. But the truth is this affects everyone

 up and down the ticket. This just isn't about

 Presidential elections; this is about Congressional

 campaigns and Senatorial campaigns and State

 elections and local elections and all sorts of

 elections. And that is in large part why I'm here.

 This affects every campaign in America and

 I hope that I can assist the Commission in

 answering questions on specific proposals.

 Thank you.

 CHAIRMAN MASON: Thank you.

 Mr. Shor.

 MR. SHOR: Thank you. Can everybody hear

 me?

 I wanted to first of all thank the

 Commission for--

 CHAIRMAN MASON: If you'll pull the

 microphone that is on your left a little more?

 MR. SHOR: Is that better? 
 17

 CHAIRMAN MASON: Yes.

 MR. SHOR: First of all, I do want to

 thank the Commissioners and all the members of the

 staff for inviting me to testify today to present

 the views of the Campaign and Media Legal Center on

 the electioneering communications draft rules.

 Let me also take this opportunity to thank

 the Commissioners and their staffs for their

 considerable work on this particular rulemaking and

 on the other rulemakings.

 The draft electioneering communications

 rules clearly reveal careful and detailed thought

 and analysis by the Commissioners and by the

 Commission, and we agree with many components of

 those draft rules.

 As our comments indicate, we strongly

 support BCRA's provisions relating to

 electioneering communications. We believe they are

 a carefully drafted and targeted response to a

 coincidence of campaign finance practices and legal

 developments that have resulted in the effective

 deletion of laws long on the books and laws upheld 
 18

 by the Supreme Court restraining certain corporate

 and labor expenditures.

 We are confident that these provisions

 will pass constitutional muster. However, in

 making our organization's position known today, I'm

 not endeavoring to convince the Commissioners to

 feel likewise. Rather, I only ask the Commission

 today to understand the policy choices made by

 Congress and the circumstances which occasion those

 choices, and even if you don't agree with those

 choices, to implement these provisions faithfully

 to that legislative intent. Surely, the

 constitutional issues will get a full airing in the

 courts. There, as you know, are not shortage of

 litigants to raise every conceivable claim related

 to these issues.

 There is authority in BCRA--and Mike

 Malbin has addressed that--for the Commission to

 promulgate exceptions to the definition of what

 constitutes an electioneering communication. It's

 fair to assume that in providing that authority,

 the Congress expected that it would be used. 
 19

 However, there are considerable statutory

 constraints on the exercise of that authority, most

 significantly that it cannot be used to exempt

 communications that promote, support, attack, or

 oppose named federal candidates.

 Congressman Shays in his comments on the

 House floor--and this was fully subscribed to by

 Senator Feingold--emphasized that that was a very,

 very high bar for the exercise of this exception

 authority. And I urge the Commission to be

 cognizant of that bar and act with the utmost of

 care and judiciousness in exercising that exception

 authority.

 I note that this is not the only occasion

 upon which the Commission can exercise that

 authority, and indeed there isn't a rush, given

 that the electioneering communications provisions

 will not take effect until sometime in 2004.

 Along these lines, carving out exceptions

 based on speculation and theories about what

 communications might occur and what communications

 that might occur might constitute electioneering 
 20

 communications, absent, you know, the presence of a

 full factual record and a full understanding

 concerning the nature and extent and likelihood of

 any problem, strikes me as unnecessary.

 And let me also emphasize that it could

 indeed be quite dangerous. This weekend, I picked

 up the Washington Post on Sunday and I immediately

 saw an article about how the political parties and

 big-time party players are hard at work trying to

 figure out how to essentially recreate the soft

 money system and essentially get around BCRA's

 Title I soft money ban.

 I suspect that there will be a similar

 instinct on the part of entities that currently

 finance electioneering communications with respect

 to these particular provisions. So when I think

 about the Commission's potential exercise of the

 exception authority, I keep on thinking of this

 phrase from this movie "Field of Dreams": "If you

 build it, they will come." And I think that the

 Commission, in exercising the exception authority,

 must be very, very cognizant of this, and again act 
 21

 with extreme judiciousness and care.

 Thank you.

 CHAIRMAN MASON: Thank you.

 I've distributed a question rotation which

 I think my colleagues are aware of and we'll follow

 that with the various panels, and so we will start

 with Vice Chairman Sandstrom.

 VICE CHAIRMAN SANDSTROM: Thank you, Mr.

 Chairman. I want to thank all the witnesses for

 appearing here this morning.

 I particularly thought it was appropriate

 that Mr. Malbin lead off because from my

 perspective he has raised the threshold issue; that

 is, what communications are we going to cover and

 whether there should be an exemption for non-paid

 advertising or for non-paid programming.

 Mr. Shor, I understand, would oppose such

 an exception. Is that correct?

 MR. SHOR: We would oppose a blanket

 exemption for unpaid advertising, yes.

 VICE CHAIRMAN SANDSTROM: How about with

 respect to entertainment programming? 
 22

 MR. SHOR: I think that entertainment

 programming, such as Jay Leno, would be covered by

 the media exception, which is already provided for

 in BCRA.

 VICE CHAIRMAN SANDSTROM: Then is Jay Leno

 a news story?

 MR. SHOR: A commentary.

 VICE CHAIRMAN SANDSTROM: A commentary?

 MR. SHOR: I think it's appropriately

 characterized as commentary.

 VICE CHAIRMAN SANDSTROM: So any

 appearance during entertainment programming would

 be commentary, too?

 MR. SHOR: Any entertainment programming

 that fell within the proper scope of the media

 exception, which requires, I believe, if I

 understand it correctly, the presence of a press

 entity exercising a legitimate press function.

 VICE CHAIRMAN SANDSTROM: I'm somewhat

 confused by that because I'm not sure what that

 covers. So does a show like "The Agency," in which

 a picture of the President may appear on the walls 
 23

 of the CIA, fall within the exemption?

 MR. SHOR: I believe it does.

 VICE CHAIRMAN SANDSTROM: Because that is--

 MR. SHOR: I believe that--again, I may

 not possess sufficient expertise about the media

 exemption, but it was my understanding that that

 would fall into the media exemption.

 VICE CHAIRMAN SANDSTROM: So that the

 media exemption now covers essentially all

 entertainment programming? We should interpret the

 media exemption to cover all entertainment

 programming, but not public service announcements?

 MR. SHOR: I think the concern that we

 have expressed about a per se exception for public

 service announcements is based on trends that we

 have seen regarding public service announcements.

 And the issue there is that observers maybe a

 little less jaded than I have concluded that in

 many cases public service announcements featuring

 candidates are used by candidates to promote

 themselves.

 And it is quite conceivable that if there 
 24

 were a blanket exemption for public service

 advertisements, you would have corporations and

 unions paying potentially fairly extensive

 production costs of public service advertisements

 that case candidates in an extraordinarily

 favorable light.

 And, again, it takes me back to the nature

 of the Commission's authority to promulgate

 exceptions. It may not promulgate exceptions for

 communications that promote, support, attack, or

 oppose federal candidates. And because of the

 considerable threat of public service

 advertisements doing so insofar as they mention

 federal candidates, a blanket exemption of that

 nature would not be appropriate.

 VICE CHAIRMAN SANDSTROM: Mr. Shor, are

 you familiar with our regulations on the media

 exemption?

 MR. SHOR: I'm familiar with some, but I

 don't consider myself to be an expert on the issue.

 VICE CHAIRMAN SANDSTROM: Can I read it to 
 25

 you with respect to the qualification, what you

 need to do to qualify?

 "A news story which represents a bona fide

 news account communicating the publication of

 general circulation or on a licensed broadcasting

 facility and which is part of a general pattern of

 campaign-related news accounts."

 Do you think Jay Leno qualifies under

 that?

 MR. SHOR: My understanding is that Jay

 Leno falls under the news media exception.

 Mr. Commissioner, you asked what our

 concern was with respect to construing the

 electioneering communications provisions to cover

 only paid advertising. The examples that we

 encountered in testimony submitted by--written

 comments, you know, very well-thought-out written

 comments submitted by other organizations, focused

 on public service advertisements and documentaries.

 And, again, we perceive problems with

 limiting this solely to paid advertising so that

 you essentially have a per se exception for public 
 26

 service advertisements and certain types of

 documentaries, and that is--again, I expressed the

 concerns with respect to a blanket exception for

 public service advertisements, and that is among

 the reasons we have a concern about scaling this

 back to public--

 VICE CHAIRMAN SANDSTROM: Could I get Mr.

 Malbin's comments in this regard? Are you also of

 the mind that Jay Leno and David Letterman are news

 programs?

 MR. MALBIN: I must say the paradigm we

 had was there was Jay Leno, but I also was

 remembering sometime ago a play that ran on

 Broadway and was thinking about running on

 television called "McBird" during the Vietnam War,

 which was harshly critical of the President at the

 time.

 But it was a satire, it was a political

 satire, and what we asked was whether it was the

 intention to cover paid programming that was

 political satire, that wasn't news. And if that's

 the intention of the Act, I think it's going to 
 27

 have troubles in court. If it's not--that is, if

 it's appropriate to have an exemption--I think that

 that sort of exemption is important.

 VICE CHAIRMAN SANDSTROM: How about even

 the payment for--and I'll give you an example, a

 recent example. A movie that not too many people

 saw recently was "Master of Disguise," with Dana

 Carvey. If anybody saw the advertising, there was

 a clear reference to "W," and you saw someone, Dana

 Carvey, imitating during this advertising George W.

 Bush.

 To me, it was a clear reference, and it

 was also a form of satire. It was advertising

 satire that was to be found in the movie. So

 that's even paid advertising. Should that be

 covered?

 MR. MALBIN: Are you asking me?

 VICE CHAIRMAN SANDSTROM: Yes, and then

 I'll ask Mr. Shor. I'm doing this debate, so--

 MR. MALBIN: I think wherever you draw a

 line, you are not going to have perfect surgical

 clarity where absolutely everything on one side is 
 28

 election-related and absolutely everything on the

 other is not.

 The question is whether you can have a

 clear, bright line that, A, in your case is

 faithful to the law, and, B, that rationally

 separates objects that ought to be separated.

 VICE CHAIRMAN SANDSTROM: Mr. Shor, could

 I advertise a satire movie or play on television if

 the satire was a political satire?

 MR. SHOR: You would be advertising a

 movie that was a political satire and it mentioned

 a federal candidate during--

 VICE CHAIRMAN SANDSTROM: Yes; for

 instance, the recent advertisement of "Master of

 Disguises."

 MR. SHOR: Well, this takes me to a

 broader question, Mr. Commissioner. The question

 on the table is whether to say that anything that

 does not constitute paid advertising shall be taken

 essentially off the table. And we have identified

 in the context of--again, reading the comments that

 I've seen on this issue, there has been a focus on 
 29

 public service advertisements, and documentaries

 was mentioned.

 And we have identified that basically

 saying that anything that doesn't constitute paid

 advertising would not be covered by the

 electioneering communications provisions would

 result in significant potential for abuse because

 it would open the door for--again, the example that

 immediately comes to our mind is public service

 advertisements featuring a candidate, very, very

 deliberately designed to cast that candidate in a

 favorable light.

 As the Commission grapples with some of

 the advertisements and potential advertisements

 that you have mentioned--and I'm sure there will be

 other examples today--I think the Commission needs

 to proceed extremely carefully for this reason.

 And I am skeptical of many attempts to

 just say--because one potential advertisement

 triggers a problem, to say then we need a per se

 exception, you know, dealing broadly with a very,

 very broad category because of the potential for 
 30

 abuse.

 VICE CHAIRMAN SANDSTROM: Mr. Shor,

 because my time is about to run out, because you

 use this in other places in your testimony, we

 can't have per se, what is the alternative to

 having a per se exemption?

 Is it for the Commission to judge after

 the fact whether a particular advertising violated

 the law and is potentially a felony? Don't we need

 these exclusions to be per se in order to provide

 people with clear notice of what they can put on

 the television or radio without violating the law?

 MR. SHOR: In our testimony, what we

 expressed an opposition to was an per se exception

 for public service advertisement, for the reasons

 that I have described before in the testimony

 before the Commission.

 The Commission can certainly exercise the

 exception authority to sketch out the parameters of

 the type of communication that would not be covered

 so long as there were realistic and clear

 assurances, given the drafting of the exception, 
 31

 that it did not permit any communications that

 promote, support, attack, or oppose federal

 candidates.

 VICE CHAIRMAN SANDSTROM: I'm confused,

 Mr. Shor, how that would not be a per se exemption,

 but my time is expired.

 CHAIRMAN MASON: Commissioner Smith.

 COMMISSIONER SMITH: Thank you, Mr.

 Chairman.

 Thank you, gentlemen. I appreciate all of

 your written comments. I'll just say I think most

 of the questions I have, I'll go ahead and tell you

 in advance, will also be for Mr. Shor. So we'll

 kind of turn this into the Glen Shor Show, and I

 hope you don't mind. It's just that you've raised

 some of the most--

 MR. SHOR: I am at your disposal.

 COMMISSIONER SMITH: I just want to start

 with a few quick questions to lay some groundwork,

 I guess.

 First, it is fair to say that your group

 supported passage of this law, is it not? The 
 32

 group at least supports the general principles and

 objectives of the law?

 MR. SHOR: Yes, I think it's fair to say

 that the Campaign and Medial Legal Center supports

 BCRA and the principles embodied by the

 legislation.

 COMMISSIONER SMITH: Okay. Now, I note

 that in your written testimony you make a point of

 noting that the electioneering communication

 restrictions are not a black-out on speech, that

 there is still speech that can go on. And I think

 that's an important point to make.

 Clearly, if people are willing to give up

 a right to privacy, if they're willing to operate

 as a PAC or equivalent to a PAC, and so on, they

 can continue to speak. So I prefer to think of it

 as sort of a brown-out rather than black-out. They

 can speak; they will just be restricted and limited

 in doing so.

 But that editorial commentary aside, my

 understanding from your testimony is that you agree

 that the brown-out period in Presidential primaries 
 33

 only applies in those States where the primary is

 coming up within 30 days. In other words, it does

 not translate to a nationwide black-out simply

 because there's a primary, a Presidential primary,

 coming up in one State. Is that correct?

 MR. SHOR: I think that I still resist the

 term "black-out"--

 COMMISSIONER SMITH: I meant to say

 "brown-out."

 MR. SHOR: --"brown-out," "green-out," and

 the other color that might be employed. I do think

 that there--

 COMMISSIONER SMITH: The limitations on

 speech that are included in the Act do not apply

 nationwide?

 MR. SHOR: The limitations with respect to

 the financing of certain advertisements--I think

 the Commission correctly understood the intent

 behind the legislation and the logic of it in

 proposing alternatives there that limited the

 coverage to the primary ad within 30 days in the

 particular State. 
 34

 COMMISSIONER SMITH: You do not agree with

 the position that was very, I think, eloquently

 articulated by my colleague, Commissioner Thomas,

 at the time of the Notice of Proposed Rulemaking

 that the statute did not give us that authority to

 target in that way? You do not agree with that?

 MR. SHOR: I think that Commissioner

 Thomas raised a fair point. However, I think that

 the intent in this instance of the legislation is

 manifest. I have scanned the legislative history

 and I certainly don't see any indication whatsoever

 that Congress intended that no targeting provision

 apply with respect to the ads in the primaries.

 So, again, I think that the two

 alternatives presented by the Commission work

 correctly, though we have a preference for one

 correctly understood the legislative intent.

 COMMISSIONER SMITH: You also agree, or

 you recommend that the Commission not attempt at

 this time to include in its regulations anything

 working or implementing the fall-back provision on

 electioneering communications. Is that correct? 
 35

 MR. SHOR: That's correct. We don't think

 that would be prudential, given that it won't take

 effect until--

 COMMISSIONER SMITH: You do not share the

 concerns of Robert Alt, who I think will testify to

 this later this morning, or Commissioner Thomas

 that were voiced at our Notice of Proposed

 Rulemaking that we should address the alternative

 definition now in the interest of sort of judicial

 economy?

 MR. SHOR: I'm not familiar with the

 perspectives of either on that particular issue,

 but I think that it is--the Commission would be

 proceeding judiciously only in addressing the basic

 provision. The fall-back will only take effect in

 the event that the basic 60-, 30-day bright line

 test was struck down by the courts.

 COMMISSIONER SMITH: Now, to change topics

 a little bit, the statute does not include the

 Internet in its definition of public communication,

 nor in its definition of electioneering

 communication. As I believe Mr. Alt will later 
 36

 testify, and we explained in our earlier rulemaking

 on soft money, I believe that well-settled rules of

 statutory construction suggest that the statute

 cannot be read to include the Internet.

 But, nevertheless, I note that in our

 prior rulemaking on soft money aspects of the bill

 Senator McCain and Senator Feingold and

 Representative Shays and Representative Meehan

 urged us to regulate the Internet and e-mails.

 And I note that in their written comments

 on this rulemaking, Senator McCain and his

 colleagues have again urged us to regulate the

 Internet, despite the absence of any statutory

 reference.

 Now, your testimony is silent on the issue

 and I'm curious. Do you agree with Senator McCain

 and Senator Feingold, your former employer,

 Representative Meehan, and Representative Shays

 that we should, in fact, regulate the Internet?

 MR. SHOR: Okay, let me again begin by

 emphasizing that, yes, Congressman Meehan is my

 former employer, but I obviously speak only for the 
 37

 Campaign and Media Legal Center.

 What I think is notable here is that the

 State party soft money provisions contained in

 Title I covered general public political

 advertising, which the Commission in the context of

 disclaimers had said included the Internet.

 Along those lines, we had taken the

 position in the context of the soft money

 rulemaking that because of the presence of that

 general public political advertising language that,

 you know, your State party's, you know, typical

 website and why they distributed e-mails were

 covered.

 But what's notable here is that the

 general public political advertising language is

 not present in the context of Title II. I think

 that counsels a very, very different treatment of

 the Internet in Title II, which again would not

 cover, you know, the regular website, the widely

 distributed e-mails of an organization.

 COMMISSIONER SMITH: So you would not

 agree with the comments of the bill's sponsors, 
 38

 Senator McCain, Feingold, et al?

 MR. SHOR: Well, I wouldn't say that. I

 think the sponsors recognized that fact. I think

 the sponsors basically said, if I am correct, that,

 well, you know, there is a concern about

 circumvention in the event that the Internet

 essentially becomes the functional equivalent of

 television. And I think the sponsors have put

 their finger on a thorny issue there and I don't

 disagree with their comments in that area.

 COMMISSIONER SMITH: Okay. Well, they

 argue on page 5 that they disagree with an

 exception for the Internet and the Commission

 should leave open regulating communications over

 the Internet. So I'll take that accordingly.

 Now, also, in their written comments

 Senator McCain and Feingold, and Shays and Meehan,

 approvingly cite and include a comment by

 Representative Shays made during the floor debate

 in which Representative Shays indicated that if a

 church regularly broadcast its services, the sermon

 and any other comments made during that service 
 39

 would be subject to regulation by the FEC under the

 Act.

 And I'm wondering, you know, do you,

 speaking for the Campaign and Media Legal Center,

 agree with Representative Shays that this Act gives

 us the authority regulate the content of church

 services?

 MR. SHOR: No, I don't think that this, as

 I stated in the beginning of our statement--and I'm

 sure that that is what the Congressmen were

 meaning--this is not legislation that regulates the

 content of speech. This is regulation--this is,

 excuse me, legislation which deals with the

 financing of speech and essentially attempts to

 restore life to provisions long on the books that

 said that corporate and labor treasury money could

 not be used for certain types of speech.

 COMMISSIONER SMITH: But if a church has a

 history of paying to have its services broadcast

 over the air waves, it regulates what people can

 then say in those communications. That's my

 understanding. I think Representative Shays made 
 40

 very clear in his comments that, in fact, that's

 what they say is being regulated.

 MR. SHOR: I think the mention of that

 there is--I think it's in the context of

 elaborating on the Commission's use of the

 exception authority and spelling out the parameters

 for its use of the exception authority and

 suggesting that potentially that may be one type of

 communication that the Commission may want to

 address in exercising its exception authority.

 COMMISSIONER SMITH: I think that's a good

 point because Representative Shays, in fact, did

 make that point. But here's the problem I have:

 The sponsors go on and they tell us that--and I'm

 quoting from their testimony here--"Any proposed

 exception that is subject to abuse or provides a

 potential loophole through which an organization

 can circumvent the clear intent of Congress in

 enacting Title II would be inconsistent with the

 Commission's statutory authority."

 They go on to say that they are skeptical,

 as the Vice Chairman noted, of any broad exception 
 41

 that covered a theoretical problem, in the absence

 of strong evidence that such an exception would

 present no opportunity for abuse.

 Now, don't you think this could be abused?

 Preachers could say in their comments, "We pray for

 you, President George W. Bush, in your brave and

 valiant fight in the war against terrorism. We

 pray for our Senator, Senator X, in his, you know,

 brave and valiant fight in the war against

 terrorism."

 Isn't there potential for abuse here? And

 if so, doesn't that put us right out of what the

 sponsors, and really you in your earlier comments

 in response to Commissioner Sandstrom are saying we

 can't do when you said, you know, avoid these kinds

 of things without strong evidence?

 Shays went on. He said it has to be

 wholly unrelated to an election--wholly, no mixed

 purpose--and does not in any way promote or support

 a candidate, or oppose his opponent. So this would

 go to almost all the exceptions we're talking

 about. 
 42

 Basically, what I'm hearing here is every

 time one of these alleged horror stories comes up,

 the response is, well, you can exempt that. But

 every time we propose an exemption, we're told you

 cannot propose an exemption unless there's

 absolutely no possibility for abuse. And I can't

 figure out how to write this exemption to let

 church services be unregulated by the FEC without

 opening up a possibility for abuse.

 MR. SHOR: Okay. Is there a question?

 COMMISSIONER SMITH: Well, I'll move on.

 We're short on time, so let me ask you, Professor

 Malbin, a couple of quick questions here.

 You mentioned that national advertising

 would be exempt if you were running an ad

 nationally that mentioned, for example, the McCain-Feingold

 bill or something like that nationally.

 How would that be administered if, for

 example, the ad were being run in the districts of

 10 swing votes or 20 swing votes or 5 swing votes,

 or whatever it might be?

 MR. MALBIN: You know, when the light came 
 43

 on, I'm not sure if I got to the end of a

 paragraph, but you ask a hard question and it's a

 fair question.

 The task force said that something per se

 or by definition can't be targeted if it goes to

 everybody. Then it started asking, okay, what if

 it goes broadly? Well, it ended up writing

 "national" because that's easy to identify. If it

 goes broadly, then you're into the business of

 coming up with definitions. We didn't offer one.

 We don't propose to offer one.

 The last sentence of the paragraph was

 that I'm not sure whether--although we prefer that,

 whether you have the legal authority to change the

 targeting rule, which is that is what you would be

 doing. So I think that lawyers and people of

 goodwill could figure out a way to define broad

 coverage. But, no, I don't think you can do it

 precisely and I'm not offering an idea for you.

 COMMISSIONER SMITH: Thank you.

 CHAIRMAN MASON: Commissioner Thomas.

 COMMISSIONER THOMAS: Thank you, Mr. 
 44

 Chairman.

 Gentlemen, thank you for being here. This

 is tough going in some sense because you can always

 come up with some pretty interesting hypotheticals

 that make application of any law seem, shall we

 say, difficult, and there are some odd results.

 I was just initially going to say that I

 think that what we're going to see here is another

 sort of debate about the philosophy of this law and

 whether or not it was a good idea to try to

 regulate this kind of activity.

 Obviously, there have been lots of groups

 that have done a lot of hard work and they have

 basically analyzed ads that have been used in

 recent campaigns and they have pointed out what I

 think is almost most telling, and that is that

 candidates themselves don't even use ads that

 contain the so-called magic words kinds of phrases.

 Candidates themselves don't say "Vote for

 me." They say something else much more subtle to

 make the viewer like them, but that's the whole

 point. With the express advocacy test that was 
 45

 created by the Supreme Court many years ago, we saw

 a gentle erosion of the lines that everyone thought

 existed.

 And corporations and labor organizations

 were ultimately in a posture where they could pour

 unlimited amounts into these hard-hitting ads right

 in the heart of the election season, obviously

 designed to influence the elections. As I have

 said at some point, we got to the point where we

 had--all that was left was what we could call the

 Federal Regulation of Stupid People Act.

 You would have to be pretty stupid to use

 express advocacy, when you could easily get by

 putting out ads that just trashed a candidate and

 that had the desired effect without using the magic

 words. So that's what this is about.

 And I think that all of that philosophy

 aside, what we now are confronted with is a statute

 that does have some fairly broad language. It does

 try to establish bright line tests so that the

 Supreme Court will be satisfied that this is a test

 that the average person out there will understand 
 46

 going into the campaign season and they will know

 what to put in their communications and what to

 leave out if they want to steer clear of any

 violations.

 In that regard, I think that the

 Commission has tried to put out some suggestions

 for areas where, within our statutorily authorized

 authority to create exceptions, there might be some

 leeway. And I'm most interested, I think,

 personally in the attempted exception that would

 allow for some sort of continued grass-roots

 lobbying advertising. I think that's the item of

 greatest concern.

 We were subjected several years ago to a

 massive lobbying campaign, the Harry and Louise

 ads, and, you know, for the most part that was

 really a lobbying battle back and forth and back

 and forth.

 So we have to, it seems to me, allow for

 organizations to use whatever resources that are

 permissible to undertake true, legitimate lobbying.

 And what I would like to ask the panel, each of 
 47

 you, to address is whether or not you could be

 satisfied with a test that the Commission put out

 in its various alternatives in the Notice of

 Proposed Rulemaking.

 In particular, the one that I thought was

 perhaps the best would say that we would except a

 communication where it concerns only a pending

 legislative or executive matter and the only

 reference to a federal candidate is a brief

 suggestion that he or she be contacted and urged to

 take a particular position on the matter and there

 is no reference to the candidate's record,

 position, statement, character, qualifications, or

 fitness for an office, or to an election,

 candidacy, or voting.

 In a way, it sort of turns the express

 advocacy test on its head. It says for purposes

 for building an exception, you're basically going

 to have to be involved in expressly advocating the

 passage or defeat of a particular piece of

 legislation and confine your communication to that.

 The only reference that you could have to a 
 48

 candidate would be something like "contact the

 President and urge him to support this," or

 "contact the Senator and urge him to vote for or

 against this."

 How do you on the panel react to that?

 We'll start with you, Mr. McGahn. You've been

 horribly neglected.

 MR. McGAHN: I was feeling somewhat left

 out, but I don't take it personally.

 You raise a good point. To a certain

 extent, the proposed exception does turn the

 express advocacy test on its head, and that's why

 probably the courts will right it and put it back

 on its feet, I would hope.

 I'm not so sure we're talking about

 hypotheticals and possible situations where, God

 forbid, some speech escapes that is not regulated

 by the Commission. I don't think we need to get

 into far-fetched hypotheticals. I don't really

 have to go any farther than the Campaign and Media

 Legal Center's own comments to show the problems

 with what they're proposing. 
 49

 I read their comments with great

 anticipation because I thought I would finally

 learn what a sham issue ad really is, and I'm still

 looking for a good example of one because I do not

 see one in their comments.

 COMMISSIONER SMITH: An ad run by the

 other guy.

 MR. McGAHN: Well, do you define a sham

 issue ad as one that criticizes an incumbent when

 you happen to be the incumbent and you just don't

 like that because it's near your election? That's

 the cynical view of looking at it and I was hoping

 to get more of an enlightened view, but what I see

 is an example of an ad talking about a fellow named

 Bill Yellowtail who was running for Congress, but

 we don't even mention that Mr. Yellowtail is a

 candidate. We don't mention his party, we don't

 mention the election. We mention none of that, but

 yet all of a sudden that is now a sham issue ad.

 The other example they give is on the

 Dingell-Tauzin legislation, which I thought of it

 because you mentioned the grass-roots advocacy. 
 50

 There was a massive national ad blitz on that piece

 of legislation. Simply because you run it in John

 Dingell's district, all of a sudden now you can't

 run the ad. That's silly.

 To draw the conclusion, as they do in

 their comments, that that attacks Mr. Dingell, I

 think, is an absurd proposition. It does not

 attack Mr. Dingell. I review a lot of ads, I look

 at a lot of ads. I know ads that attack people

 personally and ads that attack legislation. That

 ad attacks legislation. If you want me to write an

 ad that attacks Dingell, I can certainly do that

 for you. That's not one that does it.

 But to turn the express advocacy test on

 its ear brings up a bigger question, which is

 Commission involvement in speech. Are you going to

 expect outside groups and parties and anyone else

 out there who wants to run ads that happen to

 mention candidates and officials to come to the

 Commission and prove after the fact what they were

 doing and that their ad somehow complies with the

 speech code? I don't think that's a practical 
 51

 rule, I don't think it makes a lot of sense, and to

 me it is the worst form of regulation.

 MR. MALBIN: Could Glen go next and I'll

 go third?

 MR. SHOR: Thank you. Mr. Commissioner, I

 think that the example or the alternative that you

 were referring to is alternative 3-B among the

 alternatives that were included in the draft rules

 relating to what we'll call lobbying

 communications.

 We certainly thought that 3-B was the

 closest to a carve-out that met constitutional

 standards and also, you know, complied with the

 command that no exception permit communications

 that promote--well, you know, no exception cover

 communications that, in fact, promote, support,

 attack, or oppose.

 We did have concerns with the fact that

 the potential that it allowed for mentioning a

 party and mentioning the name of the candidate

 could, together, actually work to promote or attack

 a given candidate. And that's why we proposed a 
 52

 slightly modified form of 3-B which precluded a

 reference to political parties or party

 affiliation, and also in that instance said that

 the reference would have to--it would have to

 culminate in something to the effect of "call your

 Member of Congress," "call your Senator," rather

 than referencing a particular name in order to

 further safeguard against promotion or opposition

 to a candidate.

 But I think the Commission--I mean, I

 think that--well, I've spoken.

 MR. MALBIN: First, I want to make it

 clear that examples like this didn't exist when the

 task force was working. I'm speaking on my own and

 not referencing the task force.

 I think it would be clearly okay to run an

 ad that had no mention of a candidate that said

 "this is a lousy Democratic idea" or "a lousy

 Republican idea," or something of that nature. So

 what Mr. Shor is saying is that if you put the

 phrase at the end of that, "this is a lousy

 Democratic idea, call your Member," that that 
 53

 brings it in your ambit.

 If it did, I imagine people wouldn't

 bother because I don't think "call your Member"

 gets you very much. I think, in fact, you

 stimulate more action if you tell people where to

 write and not just "call your Member." If you tell

 people where to write and, in addition, say "it's a

 lousy Democratic idea, call Mr. Dingell," you know,

 that's a tough line-drawing. Yes, I think it can

 get pretty close to being an ad that criticizes the

 sponsor or criticizes the person.

 COMMISSIONER THOMAS: Well, I appreciate

 it. Just to finish up the thought, it's probably

 the toughest of the issues that we have to

 confront, as I see it, trying to contemplate some

 sort of allowance for true grass-roots lobbying

 efforts.

 I think the Commission is not here in the

 business of trying to demand that everyone come

 here to get permission in advance. In fact, just

 the opposite. That's why we are trying to

 articulate these tests that will be bright line 
 54

 tests that go along with the intent of the

 legislation, and yet they will allow people to know

 in advance where they cross the line and where they

 don't.

 Thank you.

 CHAIRMAN MASON: I'm delighted that

 Commissioner McDonald has safely joined us, and

 just in time for his question period, for which I

 know he's fully prepared.

 Commissioner McDonald.

 COMMISSIONER McDONALD: Mr. Chairman,

 thank you, and my apologies both to my colleagues

 and the panel. "Safely" is an accurate term as it

 turns out. I do apologize for missing your opening

 remarks.

 I guess I'll start with Mr. McGahn. One

 of the things you mentioned that I'm just kind of

 interested in in a more generic sense--you

 mentioned this Pennsylvania case some 20 years ago,

 I gather, that you referred to, and the issue, I

 gather, was one in terms of pre-censorship.

 Could you amplify a little bit on that and 
 55

 how that works? I mean, I always thought

 censorship was in relationship to not allowing

 something to go forward, and I wasn't sure in

 looking very quickly at that what the circumstances

 were there. Could you tell me a little bit more

 about it?

 MR. McGAHN: It's an old case. It's from

 1980-81, I think, from Pennsylvania, and it was, in

 essence, a person failed to report some political

 speech that they were about to engage in. And it

 was unfortunately put through the mill of--I

 believe it was criminal. Eventually, the statute

 was struck down.

 The lesson there is that the notion of a

 prior restraint on speech--and the court never did

 squarely reach the prior restraint, which is sort

 of a different series of cases.

 COMMISSIONER McDONALD: That's kind of

 what I was interested in.

 MR. McGAHN: Yes, but prior restraint

 basically says that you don't--anything the

 government does that would restrain speech prior to 
 56

 the speech being made may have constitutional

 problems. I mean, that's sort of the layperson

 describing the rule.

 Where it comes up here is the notion of

 when do you report these electioneering

 communications? Do you have to report them before

 you air them or after you air them? It seems to me

 most of the comments fell down on the side of after

 you air them makes the prior restraint issue, I

 think, moot in a lot of ways.

 To me, is the public in any different

 position the day the ad airs or the day before the

 ad airs as far as disclosure? I don't think

 they're in any different position. If the notice

 comes 24 hours after the ad is aired, to me, the

 public is still fully informed of who is paying for

 the ad.

 If, however, you require notice before the

 ad goes on the air, that gets into, I think, some

 very serious speech implications. What could

 possibly be the reason? The public really wouldn't

 be any more informed 24 hours before the ad would 
 57

 go up. The only people who would probably be

 informed would probably be the incumbent who is

 going to be mentioned in the ad and tip them off

 that it's coming. To avoid those sorts of thorny

 issues, I would suggest that the reporting be after

 the ad actually airs.

 The other issue I raised on it is the

 complexities of getting an ad on the air, and if

 you try to get someone to report before it goes up,

 since we all have a movie theme, there's a movie,

 "Minority Report," where I guess Tom Cruise is the

 star and he's being convicted of a crime he didn't

 commit yet. It seems very similar to that.

 COMMISSIONER McDONALD: Okay, I appreciate

 that. I couldn't quite follow--I understood what

 you were saying about the prior restraint piece of

 the puzzle, but I am glad you cleared it up. You

 don't really see that as kind of the cornerstone of

 this debate?

 MR. McGAHN: No, it's not a cornerstone--

 COMMISSIONER McDONALD: Okay.

 MR. McGAHN: --particularly when the 
 58

 comments almost universally said that reporting

 after the ad goes up is an acceptable way to do

 things. It moots the issue I raised.

 COMMISSIONER McDONALD: Okay, fine. I

 wanted to be sure I was following you on that.

 In relationship to your very distinguished

 task force that you have, can I ask you about the

 issue, Mr. Malbin, in terms of this fourth

 component that you talked about, kind of the new

 component in relationship to what your task force--if you've

 already commented on this, I apologize,

 but would you mind commenting a little more on that

 for me?

 MR. MALBIN: Are you referring to

 targeting?

 COMMISSIONER McDONALD: Yes.

 MR. MALBIN: Yes. Again, this was before

 the context of this debate. I think, in fact, that

 we might have--I don't know; Mr. Shor would know,

 but we might have been one of the sources of the

 concept on the Hill.

 But what the task force wanted to do would 
 59

 be to allow organizations who wanted to comment on

 issues to go ahead and do it. And how would we

 know when they're doing it for legislative as

 opposed to quasi-electoral reasons?

 We look at many, many content-based tests-- and

 they all seemed to be highly intrusive--to

 try to figure out what is really legislative versus

 what is sort of political. And then we realized

 that people don't run political ads and waste their

 money by running them across the country without

 mentioning the people who are supposed to be

 affected. They run them in the districts of the

 people whose electoral outcomes you're trying to

 influence.

 So we said, well, let's say if an ad is

 targeted at the people named--namely that a

 substantial portion of the ad buy runs in the

 district--then that's a good marker for indicating.

 And the purpose was to tailor the legislative

 response to the goal, to the purpose.

 We thought there were clearly worse

 advertisements that were influencing an election 
 60

 that were naming Members in their election

 district. Okay, so they said targeting means

 substantially in the election.

 Then they said, okay, what does that mean,

 a significant number of potential voters reached?

 And that's a significant portion of the total ad

 buy. Then we had a hard time and we said what does

 it mean, a--what if you're in 50 districts and you

 name one?

 And we said, well, the easy case is

 national, or sometimes you buy on a block of

 stations in a region, but not just a single

 broadcast area. So they said that as an easy case.

 Would that have been a sufficient one? Could we

 come up with a smaller or better definition?

 Honestly, the task force did not go through that

 technical effort.

 But somehow the logic of it is that

 something that's national by definition wouldn't be

 targeted. However, the statute does define

 national as targeted and you're stuck with the

 statute. 
 61

 COMMISSIONER McDONALD: Yes, we are.

 Thank you.

 Mr. Shor, the comments made about the

 Yellowtail ad are interesting and obviously they're

 the kind of stuff that we're trying to grapple

 with. One of our former colleagues used to have a

 list of flash cards, actually, that he would bring

 in and show to people and say, you know, does such-and-such

 beating his wife--please call him and ask

 him to stop, please stop stealing, harassing young

 children, and so on and so forth, maybe going back

 to you wouldn't run an ad unless there was a

 purpose for running that ad.

 The criticism, I gather, on the panel--you

 and one of your distinguished colleagues--is it

 doesn't mention the party, nor a particular

 campaign. Well, what about that? What about the

 criticism that your ad really does not get to some

 of the other problems that you might have? Or

 maybe conversely, what if it did mention the party

 and a campaign? Do you have any comment on that?

 MR. SHOR: Mr. Commissioner, are you--just 
 62

 so I answer the question to give you the

 information you need, are you asking about my

 opinion with respect to whether the Bill Yellowtail

 ad is a sham issue ad or what--

 COMMISSIONER McDONALD: Or what else might

 it take to make it one if it is not, or is there

 enough information there, I guess?

 MR. SHOR: I think the Bill Yellowtail ad

 is just fine on its own as a sham issue ad.

 Actually, I think I just--maybe I'll just read it.

 COMMISSIONER McDONALD: What about the

 criticism that was leveled just a moment ago that

 as a practical matter it doesn't mention a party,

 it doesn't mention--I believe you said the

 campaign. Am I correct?

 MR. McGAHN: No reference to the election

 whatsoever.

 COMMISSIONER McDONALD: I'm just wondering

 about the counter to that because it is a good

 question to bring up and the kind of thing that

 we're dealing with and Mr. Malbin talked about.

 MR. SHOR: Here's the ad: "Who is Bill 
 63

 Yellowtail? He preaches family values, but he took

 a swing at his wife. And Yellowtail's response?

 He only slapped her. But her nose was broken. He

 talks law and order, but is himself a convicted

 felon. And though he talks about protecting

 children, Yellowtail failed to make his own child

 support payments, then voted against child support

 enforcement. Call Bill Yellowtail. Tell him to

 support family values."

 Yes, I guess this doesn't mention a

 political party. I think it is a patent campaign

 ad. I think it was intended as such. It was--I

 think if you look at the origins and the nature of

 the organization that funded it, it only confirms

 that fact, and I think it illustrates the

 phenomenon probably--it's probably one of the most

 egregious examples of what's going on right now and

 the deliberate and utter evasion of 441(b).

 COMMISSIONER McDONALD: And can you tell

 me about what was the timing of the ad in

 relationship to the election?

 MR. SHOR: I think it was--I actually 
 64

 don't have that right here, but if I recall

 correctly, it was highly proximate to an election.

 I think it was in October and--

 COMMISSIONER McDONALD: Okay. I didn't

 see that, but I assume that may be the case.

 MR. SHOR: I'll confirm that for you if

 I'm incorrect.

 COMMISSIONER McDONALD: Fine, thank you.

 Thank you, Mr. Chairman.

 CHAIRMAN MASON: Thank you.

 I apologize for skipping over Commissioner

 Toner in my relief at having Commissioner McDonald

 with us.

 Commissioner Toner.

 COMMISSIONER TONER: Thank you, Mr.

 Chairman.

 Coming into this proceeding, it seemed to

 me the three biggest issues that we had to focus

 on--and you've touched on some of them--one is this

 nationwide black-out or brown-out issue in terms of

 the electioneering communications that mention

 Presidential candidates, the second being whether 
 65

 or not there was going to be a requirement of prior

 disclosure of an electioneering communication

 before an ad ever aired, and, third, what, if any,

 exemptions would exist on electioneering.

 I get a sense from this panel that

 everybody here agrees that we should not adopt a

 nationwide black-out period with regard to

 Presidential communications.

 Mr. Shor, do you agree with that?

 MR. SHOR: Again, with the sole

 qualification that I don't subscribe to the term

 "black-out," "brown-out," but I think we're in

 agreement on the basic substance of this.

 COMMISSIONER TONER: Okay. And, Mr.

 Malbin, I think you indicated earlier you agree

 that that would not be an appropriate reading of

 the statute either.

 MR. MALBIN: No. We didn't discuss that.

 The task force didn't discuss that.

 COMMISSIONER TONER: Okay. What is your--

 MR. MALBIN: I mean, actually the task

 force probably would have included Presidential, 
 66

 but I can see the argument for not.

 COMMISSIONER TONER: Well, in terms of

 reading the statute--and you made a fair point; we

 have the statute as it is given to us--would you

 think it's appropriate that there be a nationwide

 application on electioneering communications?

 MR. MALBIN: I'm certainly going to defer

 to the authors of the statute about what the words

 say, but it looks to me as if it does cover

 Presidential nationally.

 COMMISSIONER TONER: Even when a primary

 has already been held in a State and an ad is aired

 after the primary occurs?

 MR. MALBIN: The definition of targeting

 applies--no, I shouldn't say that. The definition

 of targeting applies only to House and Senate

 elections. But since that seems not to be relevant

 to this issue, so--

 COMMISSIONER TONER: Okay. And, Mr.

 McGahn, you agree?

 MR. McGAHN: I agree. I'd like to add it

 is relevant to House and Senate elections, however, 
 67

 because if you do want to mention the President or

 your party's nominee in your ad simply to either

 coat-tail or distance yourself, you are impacted.

 So it's very relevant to not only the Presidential

 election; this is about all elections. But I

 agree, yes.

 COMMISSIONER TONER: And the second major

 issue is this question of whether there is a prior

 disclosure obligation before an ad ever airs.

 Mr. Shor, what's your view on that?

 MR. SHOR: Our view is reflected in our

 comments, and actually I think we're going to have

 an issue on which we agree here. We understand the

 concerns that the Commission has raised, and

 ultimately I think it's the correct construction of

 the statute.

 You know, it is triggered by disbursements

 on electioneering communications, and the

 fundamental issue is whether you can deem something

 to be an electioneering communication prior to its

 airing as an electioneering communication. And

 there are a number of contingencies that sort of 
 68

 preclude a very solid conclusion to that effect

 prior to its airing.

 So we think that the airing of the

 electioneering communication is what is going to

 trigger the disclosure requirements, and that the

 prior spending on it for direct costs of production

 and airing and any obligated amounts under existing

 contracts would have to be disclosed at that time.

 COMMISSIONER TONER: And I take it that,

 Mr. McGahn and Mr. Malbin, you concur in that?

 MR. MALBIN: Yes. The equivalent of lust

 in your heart is not covered.

 COMMISSIONER TONER: Not covered. We can

 have an exemption for that. Okay, we'll work right

 on it.

 Then I think that brings us to the third

 major issue, and that is whether we're going to

 have any exemptions which are appropriate. And,

 Mr. Shor, I thought your comments were very

 interesting. You indicated in your papers that the

 "promote, support, attack, oppose" statutory

 language, in your words, doesn't provide a bright 
 69

 line for non-candidates and non-party actors.

 Could you elaborate on what your thought

 was on that? Are you saying that it's potentially

 vague in application to those types of entities?

 MR. SHOR: What I'm saying is the Supreme

 Court has laid down an extremely exacting standard

 for the degree of guidance that must be given to

 non-party, non-candidate entities, and it is a more

 exacting degree of guidance than is required for

 the degree of guidance to be given to parties and

 candidates who are inherently electioneering

 entities, and that we have concerns that in terms

 of imparting guidance to non-party, non-candidate

 entities, "promote, support, attack, or oppose" may

 run into--with respect to those particular entities

 may just not meet the constitutional standards

 required for clarity of guidance.

 COMMISSIONER TONER: And in that vein,

 would it be your view that if we attempted to

 enforce "promote, support, attack, oppose" to those

 types of entities, non-candidate, non-party,

 without anything more, that we'd run the risk of it 
 70

 being found impermissible? Is that your view?

 MR. SHOR: I think the application to

 those entities may present constitutional

 difficulties. I do not believe that the

 application to State parties and candidates would

 present the same problems.

 COMMISSIONER TONER: And what's

 interesting about this is--and you pointed out

 earlier in your discussion of exemptions--is

 Congress has instructed us that if we provide any

 exemptions, it must not allow for any

 communications that promote, support, attack,

 oppose.

 And if, in a sense, that standard is

 potentially impermissible as applied to certain

 organizations, how would we craft any exemptions

 that satisfy this edict that we not allow a

 communication that promotes, supports, attacks,

 opposes?

 MR. SHOR: I think this is what we're

 saying: With respect to an exception applicable to

 non-party, non-candidate entities, we don't 
 71

 anticipate, and think it would be a good idea to

 reiterate the "promote, support, attack, or oppose"

 standard in such an exception, you know.

 What we anticipate in terms of exceptions

 are exceptions that don't use those terms, but

 describes types of communications in a very clear

 way that do not, in fact, promote, support, attack,

 or oppose federal candidates. Again, that's the

 standard.

 The exception itself is not going to--a

 proper exception would not reiterate those terms,

 again, insofar as applicable to the non-party, non-candidate

 entities. But it must meet that

 standard. The exception as drawn by the

 Commission, which will hopefully not employ those

 terms with respect to non-party, non-candidate

 entities, must still not, as it's written out,

 permit communications that promote, support,

 attack, or oppose named federal candidates.

 COMMISSIONER TONER: And I think you made

 a very clear argument in terms of your position in

 terms of public service announcements, the 
 72

 potential for abuse, in your words.

 MR. SHOR: With a per se exception, yes,

 sir.

 COMMISSIONER TONER: With a per se

 exception, and you made a similar comment in terms

 of, I think, 501(c)(3), blanket exceptions for

 them.

 MR. SHOR: Yes, and I think that was

 clearly rejected by Congress.

 COMMISSIONER TONER: Would you take the

 same position in terms of charitable messages? You

 know, for example, if, in the aftermath of

 September 11, a charitable message was aired in New

 York with Mayor Giuliani if he was still running

 for Senate, that would be impermissible for us to

 exclude those types of charitable messages?

 MR. SHOR: I think that in drawing any

 particular exception, the Commission, you know,

 must be very careful to comply with the statutory

 and constitutional standards. It has to provide

 sufficient clarity under the constitutional

 standards, and under the statutory standard it must 
 73

 not create an exception which applies to

 communications which promote, support, attack, or

 oppose federal candidates.

 I think that maybe there is the potential

 to do something. I guess one example that comes to

 my mind may be, well, if there was some sort of a

 charitable event that was thoroughly non-political

 and a Member of Congress was going to be among the

 many present and the communication wanted to

 potentially note the presence of the Member of

 Congress with other safeguards, well, maybe there

 is some potential there, if properly constructed,

 for an exception which did not cover a

 communication which promoted, supported, attacked,

 or opposed a federal candidate.

 I do wonder to what extent we are actually

 seeing federal candidates during that time period,

 the narrowly defined time period covered by the

 electioneering communications, appearing in

 advertisements on behalf of charity in their

 districts.

 I certainly urge the Commission, before 
 74

 moving forward on any exception of this nature, to

 take a hard look at what is actually going on out

 there, and to again proceed very carefully within

 the statutory standards.

 COMMISSIONER TONER: Let me see if I get

 this clear. If there were a charitable message

 about September 11 featuring Mayor Giuliani and he

 had been running for the U.S. Senate, which he was

 doing earlier in the cycle, would it be your view

 that that type of message to raise funds for victim

 relief in New York City would not promote, support,

 or attack his candidacy and therefore we could

 exempt it?

 MR. SHOR: I would have to know more about

 the communication. I mean, I hesitate slightly

 just to say that a charitable message involving a

 federal candidate, even if it's a very good cause,

 necessarily does not promote, support, attack, or

 oppose the federal candidate.

 I think many of the entities--I think

 there are obviously many great charitable works and

 charitable organizations. It think at the same 
 75

 time, you know, a blanket exception in this regard

 could create the possibility for abuse.

 I mean, I note that many organizations

 that do charitable work also may be engaged in

 political work and electoral work, and you can see

 a nexus that is potentially troubling. Again--

 COMMISSIONER TONER: Abuse from raising

 funds for September 11?

 MR. SHOR: No, I'm not saying that that's

 abusive at all, and that's not the example I was

 citing. What I'm saying is that I think the

 Commission, in terms of dealing with issues of

 Members soliciting funds for charity or being

 involved with charity, must proceed very carefully.

 I mean, I think per se exceptions for

 Members being involved with charity could

 potentially be problematic, but perhaps there's

 also a way for the Commission to draw this

 exception narrowly so that it does not include

 communications that promote, support, attack, or

 oppose a federal candidate.

 COMMISSIONER TONER: Thank you. 
 76

 CHAIRMAN MASON: I wanted to use some

 real-life example. I think Mr. Shor or someone

 suggested not looking at theoretical problems, but

 I'm not going to pick on Mr. Shor, at least not to

 begin with. I'll start with Mr. Malbin because I

 very much appreciate his middle-of-the-road

 approach, though I recall I have sometimes been

 admonished that there's nothing in the middle of

 the road but a yellow line and a few dead animals.

 So it's a problem sometimes, and I

 genuinely appreciate your suggestions here, but I

 want to explore how we might apply them. And one

 gets to the distinction you're suggesting as to

 paid advertising versus others, and I think I'm

 correct in recalling that you said the task force

 sort of discussed this issue of infomercials and

 how we would distinguish between a kind of Ross

 Perot style 30-minute campaign ad, 60-minute

 campaign ad, whatever it was, and something else.

 And so I want to sort of describe for you

 an actual complaint we had here at the Commission

 which is now all closed out, but I think 
 77

 illustrates a problem, and it involved Pat

 Robertson and the Christian Broadcasting Network

 long after he had been a Presidential candidate.

 So his candidacy wasn't an issue.

 But a person who had seen this program

 called in and complained, and the gravamen of his

 complaint interestingly was that he innocently

 tuned into this and only after 15 or 20 minutes did

 it dawn on him that this person had an axe to

 grind.

 Now, why it took him that long or why he

 didn't just shut the program off is not quite clear

 to me, but it turned out that this was Pat

 Robertson's regular--I can't remember the name of

 the program, but his regular talk show that he

 broadcasts on CBN. But in this particular case, he

 had paid a commercial television station to

 broadcast it for an hour, and this is a way that

 some of these sort of small stations, cable

 outlets, and so on like that, sometimes distribute

 their programming either to get their message out,

 or I suppose there may have been some profit in him 
 78

 turning around and reselling the advertising time

 in that or boosting his viewer numbers or

 something. I don't know.

 But how would you suggest we handle a

 situation such as that where you have what

 generally speaking looks to be like a very

 opinionated, but nonetheless legitimate sort of

 talk show, but the network involved paid to have it

 aired?

 MR. MALBIN: We'll start with my

 disclaimer that I'm not a specialist in

 communication law.

 CHAIRMAN MASON: Yes.

 MR. MALBIN: But I think the thrust of

 what we're saying is that if you pay to put it on,

 it should be covered. And if the station chooses

 to put it on because it chooses to--that is, it

 picks it up and syndicates it--if the station is

 running your show in the course of its ordinary

 thing and paying ordinary license fees, that would

 come under programming. And if you're paying what

 you pay to run a 30-minute ad, then you're covered. 
 79

 I believe that there is a way of distinguishing

 this.

 CHAIRMAN MASON: I understand there's a

 way of distinguished it. I'm just trying to get at

 what the offense is here, what the difference is.

 If this program is a regular part of CBN's

 broadcasting and it's carried all over the country

 on hundreds of cable networks, and yet because

 they're not carried on San Francisco cable and they

 want to reach that audience they choose to pay a

 broadcasting station to carry the identical

 programming, how do we justify in the one case

 saying, well, gee, it's fine, no problem, and in

 the other case saying, well, if you paid more than

 $10,000 to produce and air this program which

 happened to include a federal candidate, you have

 violated the law?

 MR. MALBIN: You justify it by saying that

 it doesn't matter where you draw the line. I

 guarantee you that you will find one or two

 examples that you're not going to like on one or

 the other side. And you say that the nexus is a 
 80

 corporation or a labor union paying to put on

 something that has or is about a federal candidate.

 And if it's part of the ordinary

 broadcasting or ordinary that it's not being paid,

 then you say no. It is not going to be--

 CHAIRMAN MASON: To prove this, though, if

 CBN always, every week, pays the San Francisco

 station for that time on the outlet, how do we

 then--that's part of the broadcaster's regular

 operations. How do we make that distinction?

 MR. MALBIN: The broadcaster normally buys

 time on a cable outlet?

 CHAIRMAN MASON: Every week, 52 weeks a

 year, it buys this one-hour block of time from the

 San Francisco television station.

 MR. MALBIN: Again, it probably ought not

 to be covered. That's winging it without

 discussion and without having good communications

 people with me, but it probably ought not to be

 covered.

 The kinds of things we were thinking about

 when we said infomercial were not regular 
 81

 programming events. They were special events that

 were paid for by--to put a person or a candidate

 on.

 CHAIRMAN MASON: So the issue might not be

 the payment, per se, but might be the scheduling of

 it or the episodic nature of it?

 I want to open up one other topic, unless

 my time is gone.

 MR. MALBIN: It's some definition of

 programming as opposed to advertising, and within

 advertising of paid versus non-paid.

 CHAIRMAN MASON: Mr. Shor--and the other

 panelists may want to address this as well--we've

 talked something about public service announcements

 and documentaries, other things, and so on like

 that.

 Now, the statute here is cast in terms of

 disbursements and I think all of us are kind of

 thinking about in-kind contributions or something

 like that. But let's assume for a moment that an

 organization is able to tape and distribute a

 public service announcement for less than $10,000, 
 82

 the production side of it, and they now send it out

 to hundreds of television outlets and the

 television outlets then choose to run the

 documentary or the PSA. Who has made the

 disbursement?

 MR. SHOR: Well, the corporation--is it a

 corporate or a labor entity that has made the

 production disbursement?

 CHAIRMAN MASON: Let's assume it's an

 incorporated organization which produced the public

 service announcement. They spent less than $10,000

 on it.

 MR. SHOR: Yes, sir.

 CHAIRMAN MASON: They distributed it.

 Now, a television station airs it at no cost, a

 free spot.

 MR. SHOR: Understood.

 CHAIRMAN MASON: Who has made a

 disbursement?

 MR. SHOR: There has been a corporate

 disbursement for the direct cost of the production

 of the advertisement. And the $10,000 threshold-- 
 83

 though this may be under $10,000, the $10,000

 threshold is not a 441(b) threshold. It is a

 threshold for triggering disclosure of spending on

 electioneering communications. There is no de

 minimis exception to 441(b). So in that case,

 whatever the disclosure implications, that would be

 covered by 441(b).

 CHAIRMAN MASON: And if it's never aired?

 MR. SHOR: Well, if it's never aired, then

 you get to the question of whether--and this takes

 me back to something that I was talking about with

 Commissioner Toner. If it's never aired, I mean

 you get into the question of whether it constitutes

 an electioneering communication.

 There are so many criteria for determining

 what constitutes an electioneering communication,

 such as where it's aired, when it's aired. It's a

 little bit hard to--

 CHAIRMAN MASON: So in this case you have

 an organization which created, produced, a public

 service announcement outside of a 30- or 60-day

 window. They distribute it. Someone else, a media 
 84

 organization, chooses to air it inside the 60-day

 general election window. Who has made the

 impermissible disbursement?

 MR. SHOR: There has been a corporate--the

 organization that produced this, I think, has made

 a corporate disbursement on an electioneering

 communication.

 CHAIRMAN MASON: But at the time they

 produced it, they produced it outside of the window

 and they simply distributed it to television

 stations, let's say, 90 days before a general

 election, or 120 days before a general election.

 The television station then chose to broadcast that

 PSA within the 60-day window. Who made the

 electioneering disbursement?

 MR. SHOR: The corporation did. The

 corporation made a disbursement of something that

 constituted--the corporation has spent money to--

 CHAIRMAN MASON: So we're to hold the

 corporation liable for the television station's

 decision to broadcast the PSA within the

 electioneering window? 
 85

 MR. SHOR: Well, I think if the

 corporation has significant concerns about this, it

 could reach an arrangement with the television

 stations to which it distributed the PSA and say,

 look, you know, this is a corporate disbursement,

 this can't be distributed within--this can't be

 aired within a particular window.

 CHAIRMAN MASON: I think we're--yes, we do

 have time for another round of questions. Excuse

 me. I don't want to skip the General Counsel and

 the Staff Director, so we'll go to them at this

 point.

 MR. NORTON: Thank you, Mr. Chairman.

 I think I'm correct that all three of you

 subscribe to the view that's in the proposed NPRM

 that it ought to be the airing of the communication

 that is the trigger requirement for disclosure.

 And I ask this question to all of you, but maybe

 particularly Mr. McGahn, who may be more familiar

 with these things than I am, and that is whether

 media contracts actually specify the exact date and

 time that an ad will be aired, and even when they 
 86

 do, how closely do broadcasters adhere to the

 schedule?

 And what I'm getting at is will it be

 difficult for organizations as a practical matter

 to comply with the 24-hour disclosure requirement

 if the date or time is not specified in the

 contract and if, even when it's specified, it could

 be run at a different date or time?

 MR. McGAHN: Very good point. Assuming,

 arguendo, that all this is constitutional, I agree

 with the other two on when the disclosure ought to

 occur. I don't want to disappoint anyone.

 Usually, contracts are specific, but

 sometimes they're not. It really depends on the

 nature of where you're buying. You can

 specifically buy news-adjacents, for example, which

 are, of course, the ads run up against the news.

 You could buy at two o'clock in the morning, if you

 really wanted to, to get the night owls. You could

 do the soap opera swing either in the afternoon or

 the morning, all sorts of things. And the stations

 will allow you to do that. It probably is going to 
 87

 cost you a little bit more than if you just say run

 it sometime in the morning.

 The flip side of that is cable. Cable,

 you're not nearly as precise as to when you air it.

 Cable, even the big cable like, you know, the

 Discovery Channel and Home and Garden and all

 those, they don't even--aren't necessarily sure

 what ads are running when. You buy in a block sort

 of in the afternoon and you sort of say, I want it

 between one in the afternoon and five in the

 afternoon.

 Well, you don't know if it's on at one or

 five unless you actually watch TV and catch all of

 it. So you could actually run afoul of the 24-hours because

 you just didn't realize your ad ran

 at one o'clock. You caught it at four o'clock and

 didn't realize that your buy had started before you

 thought it was going to start. So you do raise a

 very real concern.

 I had thought originally that the sort of

 rolling clock, 24 hours, would make sense. But now

 that you raise that, maybe the "close of business" 
 88

 standard or something a little more objective would

 make sense.

 But in terms of the broadcast, I guess my

 closing is when it comes to broadcast, you can be

 pretty precise; cable, you can't. But it is

 possible that you don't even realize your 24-hour

 clock is running, even though you're the one that

 made the buy.

 MR. NORTON: Is it even possible that the

 ad could run a day or two before the day you

 expected it to run or the day that was specified in

 the contract?

 MR. McGAHN: That's unlikely, but I guess

 it is possible. I have seen situations with

 advertising where a station will call and say, gee,

 we made a mistake, we ran this other ad by mistake,

 is that okay? And usually it is. I've had

 stations call and say--this was last cycle and this

 is just for anecdotal humor if nothing else--they

 called and said, gee, that Democrat ad that you're

 calling about and saying, you know, is really

 defamatory, we never aired it. 
 89

 Well, why didn't you? Well, we ran the Al

 Gore ad instead and now we have their buyer calling

 and asking what's going on. So the station had put

 the wrong ad in traffic, and everyone had thought

 that a certain ad was airing and it wasn't airing.

 They ran the other guy's ad.

 You raise a very good point. It can get

 very confusing when you're dealing with media

 buyers and station managers and the sub-culture of

 stations as to who actually green-lights an ad.

 MR. NORTON: Thank you.

 Do any of the other panelists want to take

 a run at that?

 MR. SHOR: Are there 24-hour reports

 required for independent expenditures? I'm

 correct. Wouldn't the same issue be there? And I

 think probably it has been deemed manageable in

 that context.

 MR. NORTON: Okay. I wanted to ask you,

 Mr. Shor, about your proposal concerning how the

 Commission ought to determine whether a

 communication has reached 50,000 persons, which, of 
 90

 course, is a key element of whether we have an

 electioneering communication.

 In your submission, you say the Commission

 should use--that the unit of scrutiny should be a

 discreet airing or a simultaneous airing over a

 single outlet rather than an aggregation of

 simultaneous airings over various outlets. And I

 want to present you with two examples and ask you

 whether these would be treated differently under

 the regime that you're proposing and whether they

 ought to be treated differently.

 The first is that an entity enters into

 three separate contracts with separate broadcast

 stations in a particular State and each of which of

 those stations reaches 40,000 persons.

 MR. SHOR: Forty thousand distinct

 persons?

 MR. NORTON: Forty thousand persons,

 however we decide to count them.

 In the second example, the entity enters

 into one contract with a network that includes all

 three of those stations and then runs the ad on all 
 91

 three. Should the Commission treat in the second

 case this is three separate broadcasts of 40,000

 each or one of 120,000?

 MR. SHOR: So the question is in the case

 of the network, the contract with the--I think our

 testimony indicates that if there's a contract with

 one entity and then it's distributed over the

 network's affiliates, in that instance aggregation

 would be appropriate.

 MR. NORTON: So if there's a contract with

 one cable company and the ad is shown on multiple

 channels on the cable system, CNN and MTV and A&E--

 MR. SHOR: Simultaneously?

 MR. NORTON: Simultaneously. Forty

 thousand subscribers watch each station. Should

 those be aggregated? Should we count the same

 subscriber to the cable system twice?

 MR. SHOR: I hadn't considered the example

 of the multiple stations and I would have to think

 about that.

 MR. NORTON: What is the difference to you

 whether the ad runs simultaneously or it runs 
 92

 within the same hour or the same day? Why should

 that be a distinction with any meaning?

 MR. SHOR: I think because the statute

 refers to electioneering communication and the idea

 of a discreet communication is that you're going to

 have multiple communications when they air at

 multiple times, but one communication when they air

 simultaneously.

 MR. NORTON: Mr. Shor, in your comments,

 you, and I think the sponsors in their written

 comments suggest that the lobbying exemption, the

 so-called lobbying exemption that would address

 advertisements that concern pending legislative or

 executive matters should be permitted in part if

 they don't mention the candidate's name, but you

 would references to "your Congressman."

 I would note, as I'm sure you're aware,

 that under the Commission's regulations for what

 establishes "clearly identified," those kinds of

 references would satisfy the Commission's

 regulation and indeed could constitute express

 advocacy. 
 93

 I'm trying to understand what the point of

 that suggestion is. It would seem to be based upon

 the premise that many of the viewers won't know--

 for instance, if there's a Senate candidate on the

 ballot in November or there's a single candidate in

 the State, they won't actually know who the Senate

 candidate is. Otherwise, what's the practical

 difference?

 MR. SHOR: No, I actually don't think

 that's precisely it. I mean, basically what we

 have said is that, first, insofar as the Commission

 construes the term "clearly identified candidate"

 for purposes of getting you in under the overall

 test, it should do so consistently with how it has

 done so in the past, which would include a

 reference to "your Member of Congress."

 Then we propose--once you're under a test,

 we do propose an exception that would permit,

 subject to many safeguards, a lobbying

 communication that culminated in "contact your

 Member of Congress and ask him to take a stand on a

 particular piece of legislation." 
 94

 I think the omission of the name is not

 premised so much on the idea that the viewers won't

 know who their Member of Congress is, but rather

 that it diminishes personalization and is thus an

 additional and meaningful safeguard against

 candidate promotion or opposition.

 MR. NORTON: Mr. Malbin, if I could take a

 moment to follow up on your paradigm for a

 distinction between paid and unpaid communications,

 your task force suggests use of the term

 "advertisement," which you define as any paid

 advertisement.

 MR. MALBIN: Right.

 MR. NORTON: One of the things I'm trying

 to get at is, of course, as you know, BCRA uses the

 term "communication" and it isn't clear to me

 whether use of the term "advertisement," which I

 don't think the task force really defines, and it

 isn't defined by the FEC--whether you're talking

 about something other than a communication or

 simply using another term.

 MR. MALBIN: No. It's a subset of the 
 95

 term "communication."

 MR. NORTON: And is the reason that you

 think PSA would be excluded under this definition--or your

 aim is to exclude things like entertainment

 and PSA, is that a PSA is not an advertisement, but

 rather it's a communication? Or is it that if the

 costs for production of a PSA are made by a

 corporation, that doesn't constitute paying for the

 communication? What's the reason that PSAs would

 fall outside of your definition?

 MR. MALBIN: First, I would say that the

 thrust of the discussion had to do with the

 programming and advertisement distinction, not with

 the PSA example. And the main thing that people

 wanted to do was essentially to read programming,

 read entertainment, drama, satire--read all of

 those things out. And it was trying to make sure

 that in the course of doing so, the Ross Perot half

 hour was not given an exemption.

 MR. NORTON: So are PSAs in or out?

 MR. MALBIN: No. The PSA was not a matter

 that the task force discussed, to be perfectly 
 96

 honest.

 MR. NORTON: Thank you, Mr. Chairman.

 CHAIRMAN MASON: Jim Pehrkon.

 MR. PEHRKON: Thank you, Mr. Chairman.

 Professor Malbin, Mr. McGahn, Mr. Shor, I

 want to thank you all for coming today and for your

 comments. Professor Malbin, in particular I was

 very intrigued by your comments of suggesting that

 disclosure be enhanced with 504 provisions, and I'd

 like you to sort of, if you'd like to, take that a

 little bit further and tell us what the benefits of

 that would be or what you see them to be.

 A couple of other questions, if you could

 sort of touch on that as you're going through, is

 you propose that much of the information be placed

 out on the website that is maintained by the local

 TV and radio stations, and one of the questions I

 had--under the 504 provision be reported, and is

 there a frequency of reporting you're suggesting on

 that?

 MR. MALBIN: Actually, I think our idea

 was that it should be reported to the FCC, 
 97

 centralized, and then all of this should be put

 together under the FCC and, through that, to an FEC

 outlet, not that people will have to go to

 thousands of different stations, but to their

 individual websites.

 MR. PEHRKON: No, no. If I gave that

 impression, I didn't mean to. In other words, they

 would report it to the FCC. The FCC would then

 bundle it together, but they would be required to

 report it to the FCC.

 MR. MALBIN: Yes, yes.

 MR. PEHRKON: And is there a frequency or

 timing aspect that you would want them to--or

 suggest that they should report to the FCC?

 MR. MALBIN: Our recommendation was that

 you take the information that has to be collected

 anyway and whenever--I mean, you would set

 regulations as you do now for electronic

 disclosure. You would say that within a time frame

 you deem to be reasonable--and I would hope it

 would be short--these things be transmitted and

 entered into a database and put up. 
 98

 How fast is fast? The statute doesn't

 say.

 MR. PEHRKON: The statute doesn't say and

 that's--

 MR. MALBIN: It's up to you to designate.

 MR. PEHRKON: And do you have any

 suggestions in that area?

 MR. MALBIN: I would want technical

 guidance before I said. I think I would be--when

 you're dealing with candidates who can be given

 pre-cooked software, you can expect things within

 24 hours. In order to get anything close to that

 in this kind of situation, again you'd have to have

 standardized software and distribute it to make it

 happen that quickly.

 MR. PEHRKON: You weren't looking or

 suggesting post-election report?

 MR. MALBIN: I'm not looking at post-election

 reporting.

 MR. PEHRKON: Much more timely than that?

 MR. MALBIN: I'm looking at reporting that

 is appropriate to the purpose of election 
 99

 disclosure, which is to inform the voters within a

 relevant time frame, which means quickly.

 MR. PEHRKON: As you were developing the

 suggestion, you had the opportunity to work with

 any of the stations or get any input from radio and

 television stations as to--

 MR. MALBIN: Have we had the opportunity?

 No, but should the Commission wish to pursue this,

 we would be delighted and pleased to try to get

 that kind of counsel and to report to you.

 MR. PEHRKON: Thank you.

 Mr. Shor, one of the questions that I had

 on one of your comments is you talked for a second

 about that the Commission requires under 11 CFR

 114.14(d) that a person demonstrate through a

 reasonable accounting method that no corporate or

 labor funds were used to pay for any portion of an

 electioneering communication.

 MR. SHOR: Yes.

 MR. PEHRKON: You then suggest that the

 definition of "a reasonable accounting method"

 should be more precise. Have you guys anything to 
 100

 suggest in that area?

 MR. SHOR: We didn't include a suggestion

 in our commentary. I did note in one other set of

 commentary that industry-accepted accounting

 methods be used, and that struck me as appropriate.

 MR. PEHRKON: Those are all the questions.

 Thank you.

 CHAIRMAN MASON: We are going to have time

 for a second round of questions from Commissioners.

 I think we're going to in the time do it at about

 six minutes and that should take us right until

 noon.

 Commissioner Sandstrom.

 VICE CHAIRMAN SANDSTROM: Thank you. In

 my earlier questioning, I probed the exemption that

 Professor Malbin suggested with respect to non-paid

 programming and paid advertising. The reason I'm

 probing and I had a fairly lively exchange with Mr.

 Shor is that's an area I sought comment because I

 thought the proposal was a very sensible one.

 So my questioning now will actually go to

 another exemption that I feel fairly strongly about 
 101

 and that is with respect to State and local

 candidates, and I'll give you an ad, a potential ad

 that is being run, let's say, in Nevada today.

 Let's say someone who is a candidate is

 running as a Republican for attorney general and he

 runs an ad that says, "I stand with Senator Ensign

 and Senator Reid against Nevada becoming a nuclear

 wasting dump for the country. I oppose the

 President on this issue. I will oppose him in

 court as your attorney general and I will remind

 him that the people of Nevada do not forget."

 Would that ad have to be reported within

 24 hours to the Commission, Mr. Shor?

 MR. SHOR: Commissioner Sandstrom, that's

 an ad that runs today.

 VICE CHAIRMAN SANDSTROM: Yes.

 MR. SHOR: And that's an ad that mentions

 Senators Ensign, Reid, and President Bush. Are

 Senator Ensign or Reid up in 2002?

 VICE CHAIRMAN SANDSTROM: If they have

 accepted money, they would be a candidate.

 MR. SHOR: Yes, but it's only a 
 102

 communication that refers to--

 VICE CHAIRMAN SANDSTROM: If either of

 them are up this year, or let's say a similar ad

 runs by a local candidate two years from now, would

 that promote, support, attack, or oppose?

 MR. SHOR: Yes, it certainly would

 promote, support, attack, or oppose the President.

 I would say that I think right now, based on my

 recollection, Senator Reid is not up, the President

 is not up, and Senator Ensign is not up. So,

 accordingly, it would not be covered right now.

 There is--as you know, it's not just a

 reference to a clearly identified--oh, excuse me.

 I'm incorrect here and I have to correct myself.

 The State party soft money provisions are not time-bounded

 and the State candidate soft money

 provisions under Title I are not time-bounded.

 So the question is basically whether these

 communications promote, support, attack, or oppose

 the mentioned federal candidate. And while I don't

 remember precisely what you said, it struck me as

 you read it that that did, because it was--it said 
 103

 "I oppose the President," and I think that that

 makes it a communication that does--

 VICE CHAIRMAN SANDSTROM: Even though he

 would support his reelection? He's running as a

 Republican. What he opposes is the President using

 Nevada as the dumping ground for nuclear waste, or

 at least proposing that to Congress.

 So even though he's a strong supporter of

 the President, he is attacking the President by

 opposing a policy and therefore is subject to 24-hour

 reporting to the Federal Election Commission.

 And if he has any corporate or labor money in his

 account, he would be violating the law. Is that

 correct?

 MR. SHOR: Whatever his motives may be, I

 think on the face of that communication it does

 oppose the President and I think that it is

 accordingly covered by Title I which--

 VICE CHAIRMAN SANDSTROM: Mr. Malbin, do

 you find that disturbing?

 MR. MALBIN: This is not the kind of

 example we discussed. We never talked about State 
 104

 elections, so I--

 VICE CHAIRMAN SANDSTROM: Mr. McGahn, do

 you find that disturbing?

 MR. McGAHN: It's outrageous.

 VICE CHAIRMAN SANDSTROM: Let's probe it.

 I have another legal question, so we'll leap from

 Mr. Malbin out of this one, because I'm just

 curious about our authority.

 What authority under the law do we have

 for punishing anyone for violation of this Act?

 Mr. Shor, do you know?

 MR. SHOR: What authority--

 VICE CHAIRMAN SANDSTROM: Yes.

 MR. SHOR: --under the law do you have for

 punishing--

 VICE CHAIRMAN SANDSTROM: Punishing anyone

 for a violation of the electioneering provisions.

 MR. SHOR: Well, I'm not a constitutional

 scholar regarding, you know, the ultimate authority

 for the Commission to punish violators.

 VICE CHAIRMAN SANDSTROM: No. This is a

 statutory question. Under the statute, what 
 105

 authority--are you aware of any authority this

 Commission has for punishing anyone for a violation

 of this Act with respect to the electioneering

 message? Are there any provisions in this law--

 MR. SHOR: Is there any inherent

 authority? I don't know, Mr. Commissioner. Is it

 437(g)?

 VICE CHAIRMAN SANDSTROM: There is no

 contribution or expenditure with respect to most

 electioneering messages. So under 437(g), there is

 no civil penalty, since they all are tied to the

 definition of contribution or expenditures.

 This is not a surprise question. It's in

 our comments and our Notice of Proposed Rulemaking

 on which we seek comments, and it's one that has

 plagued me and I'm just wondering if--Mr. Shor, I

 guess, doesn't necessarily know.

 MR. SHOR: I haven't given it any thought.

 VICE CHAIRMAN SANDSTROM: Mr. McGahn, do

 you know of any authority we have for punishing

 anyone for a violation?

 MR. McGAHN: Maybe I missed it, but I 
 106

 think I see your point if it's not there.

 VICE CHAIRMAN SANDSTROM: The point is

 that there is much discussion in here that there's

 a penalty of perjury. We don't have the ability to

 prosecute anyone for perjury here at the

 Commission. Our authority is set forth in 437(g),

 as Mr. Shor said, and that's all tied to the making

 of contributions and expenditures and reporting of

 these.

 Since most of these groups will be neither

 receiving contributions nor making expenditures--and the

 reason I bring it up now is maybe to alert

 future witnesses who may be here or may be

 listening to this that I would personally like

 someone to enlighten us if they believe there is

 such authority because I'm having trouble

 identifying where that authority resides.

 It would be nice to have it, and maybe

 this needs a technical amendment to provide it to

 us. But I don't see that the Commission currently

 has any authority to punish anyone for violation of

 any of these provisions. 
 107

 CHAIRMAN MASON: Commissioner Smith.

 COMMISSIONER SMITH: Yes. I have to come

 back, Mr. Shor, to a point you made that I honestly

 don't get. In talking with Commissioner Toner, we

 had put out as one alternative for an exemption

 under 3-A that something that would urge somebody

 to contact a public official about an issue without

 mentioning the candidate's position and without

 promoting, supporting, attacking, or opposing a

 candidate.

 And you suggested that those terms may be

 too vague to be used, but when we had a hearing a

 couple months ago on soft money rulemaking, the

 general counsel for your group, Trevor Potter, sat

 here and said those terms were not vague and they

 needed no further explanation. And the sponsors at

 that time, Senator McCain, et al, wrote "The

 meaning of these statutory terms is clear."

 Now, I understand that you might be

 arguing that there's a different constitutional

 standard under which parties operate than under

 which other groups operate. But what I don't 
 108

 understand is how can these terms be clear to party

 lawyers but not clear to other lawyers.

 It seems to me, I mean Mr. McGahn here

 represents parties, and your general counsel,

 Trevor Potter, in his private practice represents

 non-profits. And you seem to be saying that if I

 work for a political party and I go in to Don

 McGahn and I say, can we run this ad, does it

 promote, support, attack, or oppose a candidate,

 he'll know the answer. But if I go in to Trevor

 Potter and I say, I work for a non-profit, can we

 run this ad, does it promote, support, attack, or

 oppose a candidate, he won't know the answer.

 And I'm trying to square that testimony.

 The only answer I can figure is that you don't

 think that former Commissioner Potter is as smart

 as Mr. McGahn, and I don't think that's really the

 answer that we want. I mean, I don't square this,

 I don't square that.

 MR. SHOR: Commissioner, I have a very,

 very, very high estimation of Trevor Potter's

 intelligence and abilities. 
 109

 COMMISSIONER SMITH: I'm sure you do, and

 I say that facetiously, but I'm serious about how

 do you square these two bits of testimony. We're

 told this is clear language and everybody can

 understand what it means, and today you come in and

 you tell us this is possibly unconstitutionally

 vague language and people can't tell what it means.

 MR. SHOR: I feel like--I remember like a

 Presidential candidate was in the debate and he

 looked at his watch at some point. I sympathize.

 Mr. Commissioner, I didn't indicate that,

 I don't believe, and I certainly don't believe that

 promote, support, attack, or oppose are vague.

 What I said was, and just to be very clear on this,

 is that the Supreme Court has required a very, very

 highly exacting degree of guidance that must be

 given to non-party, non-candidate entities, and

 that was made clear in the Buckley decision.

 It was also made clear in the Buckley

 decision that a different standard as to the degree

 of guidance was applicable for guidance given to

 parties and candidates. And what I am solely 
 110

 saying here is that "promote, support, attack, or

 oppose" runs the risk of being deemed by the

 Supreme Court not to meet that very, very, very,

 very, very high standard set forth in Buckley with

 respect to non-party, non-candidate entities, but

 that it is--

 COMMISSIONER SMITH: I understand that,

 but the law allows parties to make ads as long as

 they don't promote, support, attack, oppose. So

 somebody has got to understand what that term

 means. And before we were told that people could

 understand that term, and now we're told that they

 can't understand that term, at least not enough to

 meet the exacting standard of the Supreme Court.

 I mean, you're trying to say it's because

 there's a different standard. I accept there's a

 different standard. What I'm trying to figure out

 is why Don McGahn can understand those terms when

 he advises a party and Trevor Potter cannot

 understand those terms when he advises a non-profit.

 MR. SHOR: I think that people who can 
 111

 advise the parties can understand those terms.

 What I am saying, however, is the Supreme Court

 seems to feel that bright-line guidance must be

 given to non-party, non-candidate entities, and

 that's why this legislation, now law, contains a

 60-, 30-day bright line test.

 COMMISSIONER SMITH: So generally when

 parties come up, then, we should be pretty lenient

 in interpreting that phrase because I mean how else

 do they now what they can run or not?

 MR. SHOR: I don't understand what you're--

 COMMISSIONER SMITH: We seem to be saying

 vagueness is okay for parties. It's constitutional

 to give parties.

 MR. SHOR: No, I didn't--

 COMMISSIONER SMITH: But then my question

 is why do we even have that in the law.

 MR. SHOR: Well, I didn't say vagueness

 was okay for parties, and I will repeat what I

 said.

 COMMISSIONER SMITH: Well, I don't think 
 112

 that's necessary, because I'm running out of time

 and I want to ask Mr. Malbin a couple questions.

 Professor Malbin, you mention that there

 is no perfect demarkation line, and I agree there's

 no perfect demarkation. Here's the issue I have:

 Isn't your experience as a political scientist that

 people alter their behavior in response to the

 legal system and to other things that happen in

 campaigns, events, in other words, around them?

 MR. MALBIN: Yes.

 COMMISSIONER SMITH: Do you believe in

 sort of a static analysis? No. You say yes.

 Well, isn't the probability that wherever we draw

 the line, people are all going to then jump over to

 the other side of it?

 MR. MALBIN: No. People will alter their

 behavior. Their behavior will be constrained by

 where the lines are and by the opportunities and

 the costs and benefits of various courses of

 behavior. Where you put a line will affect where

 people come out, but they will nevertheless try to

 achieve their interests. 
 113

 Is it permissible--may I ask if I can

 respond to your last question?

 COMMISSIONER SMITH: Yes. Well, I do have

 one other point I want to make before we close, so

 if I can have an extra 30 seconds, Mr. Chairman,

 after he's done.

 MR. MALBIN: Okay. The Commission had

 proposed a regulation that was essentially the

 reasonable person test. No reasonable person could

 see this in any other way than, and that's a

 perfectly intelligent way of looking at it

 "promote, attack, support, or oppose," but not

 constitutionally adequate for non-party groups.

 COMMISSIONER SMITH: I think both of you

 are missing the point of my question, which is that

 the words--whether it's a constitutionally viable

 standard or not, the words seem to be

 understandable to some and not to others.

 MR. MALBIN: No reasonable person could

 interpret something in any other way.

 COMMISSIONER SMITH: In any case, the

 other thing I just want to say, Mr. Shor, and I'm 
 114

 very sincere in this, it would be very helpful to

 us--you know, at the end of the last time when we

 were running out of time, I was asking about this

 regulation of churches and you sort of in the end

 shrugged your shoulders and said "so what's your

 question?"

 What my question really comes down to is

 it would be very helpful if, before the cut-off for

 written comments next week, perhaps your group

 would address do we have the authority to write

 exemptions that are subject to abuse, because I

 keep reading from the sponsors and your comments

 today that we could not write an exemption that

 creates the possibility for an abuse. That's a

 quote from you today.

 But I can't figure out how to write an

 exemption for a church that does not create the

 possibility for an abuse. I can't figure out a

 possibility to write any exception that does not

 create a possibility for abuse.

 If that is not your belief that we cannot

 write exceptions that create subject for abuse, 
 115

 then I wish you would give us an example of how one

 might write an exception for this particular

 problem, or alternatively go ahead and put in

 writing, because it would be helpful, that you

 agree that church services, the content of church

 services, should be regulated if the church has a

 tradition of broadcasting those over the air waves.

 And that would be very helpful for me to get your

 written follow-up to that because that's--I really

 don't know. I keep hearing you say, yes, there

 might be exceptions, but you're not giving us any

 basis on how we're going to write them.

 And I keep looking at what the sponsors

 say, saying any exception that's subject to abuse

 you have no authority to write. And I can't square

 all these, so I need your help on that and I would

 appreciate it.

 CHAIRMAN MASON: I believe--here we are.

 Commissioner Thomas.

 COMMISSIONER THOMAS: Thank you, Mr.

 Chairman.

 Well, I want to point out that the 
 116

 Commission is obviously facing some difficult

 decisions and line-drawing. Many of these

 hypotheticals that are being thrown at the panel

 are real-life situations.

 I think the church example is a very

 interesting one and it probably would behoove us to

 try to address something like that. I think that

 we can do it. I think that we've got enough talent

 here that we can come up with something like that.

 We at the Commission are, I think,

 exercising a fair amount of, shall we say,

 flexibility in interpreting the statute as written.

 I have expressed a lot of concern about how the

 Commission interpreted the statute at the soft

 money rulemaking phase. It seemed that we were

 reading the statute in a way that was undermining

 its application as intended by the sponsors.

 Here, I think we have to be careful of

 doing the same thing. We don't want to interpret

 the statute to carve some exceptions that will

 allow people to basically continue to do exactly

 what they have been doing, contrary to the obvious 
 117

 intent of the people who voted for this

 legislation.

 One issue we haven't talked about is one

 of the exceptions that the statute specifically

 allows for, and that's anything that qualifies as

 an expenditure under the existing Federal Election

 Campaign Act. The Commission, I think, is

 exploring whether we should basically say that any

 time a registered federal political committee pays

 for something that would otherwise qualify as an

 electioneering communication and that that payment

 would qualify as an expenditure, we aren't going to

 be treating that as an electioneering communication

 that would trigger all of the separate and distinct

 reporting requirements for an electioneering

 communication.

 That seems to work for those kinds of

 currently reporting entities that report their

 expenditures to us. There is, however, a large

 body of organizations out there that are claiming

 they are not federal political committees. They

 say sometimes "we're a registered (c)(4) tax-exempt 
 118

 organization." Sometimes, they are claiming that

 they are a 527 organization, which is a political

 organization under the tax code provisions that

 doesn't have to register and report to the Federal

 Election Commission, because in their analysis they

 haven't been putting out express advocacy

 communications.

 Well, my question is as to those kinds of

 entities that aren't reporting to the Federal

 Election Commission and aren't disclosing their

 payments for these kinds of ads as expenditures, do

 we have some problem whereby those organizations

 are now going to claim, oh, gosh, we are willing to

 treat this as an expenditure, but we still won't

 have to register and report as a federal political

 committee because our major purpose isn't

 influencing elections?

 And they're going to basically say, we'll

 be happy to treat this as an expenditure. It won't

 be the major purpose of our disbursement activity.

 Therefore, we can continue to avoid, I guess,

 disclosure of any of our activities. 
 119

 So the question have is, is there a way

 for us to reconcile these approaches so that we

 can, in fact, for those organizations that are not

 reporting anywhere under the theory they are not

 registered federal political committees--can we

 reach that kind of communication under this new

 electioneering communication law?

 Mr. Shor?

 MR. SHOR: Commissioner Thomas, I think

 you raise an excellent point, and I remember that

 you raised this when the Commission approved the

 draft rules. And there were two alternatives that

 the Commission proposed and basically I think what

 we supported was a little bit of an amalgamation of

 the two which said that, yes, it is expenditures

 and independent expenditures which are excepted

 from the definition of an electioneering

 communication, but what we are talking about here

 are expenditures, hard money expenditures and

 independent expenditures that are subject to pre-existing

 FECA reporting requirements.

 What that would do would be avoid the 
 120

 scenario where you had a 527 that is not a federal

 political committee spending money on

 electioneering communications and certainly

 avoiding disclosure requirements by characterizing

 those as expenditures, and yet at the same time

 avoiding political committee status because of the

 "major purpose" test.

 COMMISSIONER THOMAS: Did either of the

 other of you have any comment on that?

 [No response.]

 COMMISSIONER THOMAS: How am I doing on my

 time?

 CHAIRMAN MASON: You've got one minute.

 COMMISSIONER THOMAS: One minute. Well,

 I'll just leave it at that point. I want to again

 thank the panel. This has been very helpful, very

 informative. We have a lot of debate to go.

 I guess I would close. It was noted

 earlier that I had outlandishly, I guess, suggested

 that the statute didn't provide for targeting for

 Presidential candidates. I would just like to read

 into the record the language of the statute. It 
 121

 says that electioneering communications means "a

 broadcast, cable, or satellite communication which

 refers to a clearly identified candidate for

 federal office, is made within 60 days before a

 general or 30 days before a primary, and in the

 case of a communication which refers to a candidate

 for an office other than President or Vice

 President, is targeted to the relevant electorate."

 Poor, simple me. I thought that that

 meant that targeting did not apply to Presidential

 candidates. Just to show that the Commission is

 willing to sort of work with the statute and try to

 give it a more common-sense reading, we are coming

 up with some interpretation in this rulemaking

 process that probably will go down the road of

 saying that even for Presidential ads in the

 primary phase, we are going to incorporate, in

 essence, a targeting test.

 So I just want to get that out there on

 the record. It's not that it's such an outlandish

 idea. Most of the commenters are suggesting that

 indeed we should adopt a targeting concept in the 
 122

 Presidential primary area as well. I'm not saying

 it's a bad idea. All I was saying was, gee,

 reading that statute, you never would have guessed

 it.

 Thank you.

 CHAIRMAN MASON: Commissioner Toner.

 COMMISSIONER TONER: Thank you, Mr.

 Chairman.

 Following up on Commissioner Thomas'

 questions about reporting--and I want to thank

 everybody for being here. It was an excellent

 panel. And, Mr. Shor, you have certainly had a

 spirited morning here with us, and thank you, also.

 Starting with Mr. Shor--as usual--is it

 fair to say that in terms of federal candidates you

 would take the position that they should not have

 to report electioneering communications because

 they only use hard dollars and they're reporting

 already?

 MR. SHOR: I would take that--I would just

 clarify my position. The Commission in its

 commentary indicated that hard money expenditures 
 123

 from--I think they're called authorized committees

 of federal candidates, are by definition

 expenditures. And obviously they are hard money;

 they are subject to pre-existing FECA reporting

 requirements and they are, by definition,

 expenditures. And in that case, they fall squarely

 under that exception.

 COMMISSIONER TONER: So that would be yes,

 they would have to report electioneering

 communications?

 MR. SHOR: Right. They wouldn't be

 subject to the Title II reporting requirements

 because these are expenditures.

 COMMISSIONER TONER: Would you take that

 same position with regard to national parties,

 given that they no longer will be able to raise or

 spend soft money?

 MR. SHOR: If a national party undertakes

 a hard money expenditure or independent expenditure

 that is subject to pre-existing FECA reporting

 requirements, then that would fall under the

 exception. 
 124

 COMMISSIONER TONER: Would the same

 position be true with federal PACs, because again

 they would be making expenditures on the hard-dollar side?

 MR. SHOR: If a federal PAC was making a

 hard money expenditure or independent expenditure,

 and the scope of that definition, subject to pre-existing

 FECA reporting requirements, then I think

 it would fall under this exemption and it would not

 constitute an electioneering communication.

 COMMISSIONER TONER: And the same would be

 true of State parties when they ran advertisements

 within the federal election activity rubric where

 they have to use a hundred percent federal dollars

 for that?

 MR. SHOR: Well, yes. I mean, I think

 that if a State party--I don't have to repeat it

 again. I mean, I think you know my position.

 COMMISSIONER TONER: So it seems like the

 big issue is what we're going to do with other

 entities that are not otherwise reporting with us

 and are not using a hundred percent federal 
 125

 dollars. That's really the gist of it.

 Does the rest of the panel concur with

 that analysis? Mr. Malbin, do you concur?

 MR. MALBIN: I haven't worked through

 this.

 COMMISSIONER TONER: You're fortunate

 enough not to be involved in this minutia.

 Mr. McGahn, do you concur with that?

 MR. McGAHN: I understand what you're

 saying and I agree with your point that that's

 really the issue.

 COMMISSIONER TONER: Okay. I just wanted

 to follow up on two things. Mr. Shor, you noted in

 your testimony the idea of direction or control;

 you know, the statutory issue in terms of

 individuals who exercise direction or control over

 entities that make electioneering communications

 and the obligation to disclose them.

 MR. SHOR: Yes, sir.

 COMMISSIONER TONER: Is it your position

 that we should require disclosure of anyone who has

 any direction or control over the activities of the 
 126

 organization, or that we should limit that

 disclosure to individuals who have input into

 particular communications?

 MR. SHOR: Again, without subscribing to

 the "any person" issue, I think the statute, if I'm

 correct--and unfortunately I don't have it in front

 of me--seems to speak pretty clearly that what it's

 looking for is for information regarding who is

 directing or controlling the entity making the

 communication, as opposed to persons particularly

 involved in the crafting, dissemination, et cetera,

 of the electioneering communication.

 COMMISSIONER TONER: Mr. McGahn, what is

 your view on that?

 MR. McGAHN: Could you repeat the

 question? I'm sorry.

 COMMISSIONER TONER: Yes. The issue of

 direction or control, individuals who have

 direction or control over the activities of an

 organization that makes an electioneering

 communication--the statute talks about the need to

 disclose that and what we're confronting is should 
 127

 we require a disclosure of anyone who has input

 into the activities of the organization very

 generally, or should we limit it to individuals who

 have input into the communications, the

 electioneering communications, which would be a

 narrower sub-set of issues.

 MR. McGAHN: Having not thought it through

 and shooting from the hip, I would say the more

 narrow construction would make more sense, because

 merely because you may be in control in some

 broader sense, that doesn't necessarily mean you

 have anything to do with the particular

 communication.

 And what we're really getting at, to the

 extent we're getting at anything, is the actual

 communications that are being made. So I would--

 COMMISSIONER TONER: You represent a large

 organization. How difficult would it be for you to

 identify all the people who have input into the

 NRCC?

 MR. McGAHN: It would be impossible if you

 read it in the broadest sense. 
 128

 COMMISSIONER TONER: And how many people

 on a day-to-day basis believe they have direction

 or control over the NRCC?

 [Laughter.]

 CHAIRMAN MASON: Two hundred and thirteen.

 MR. McGAHN: Oh, quite a few, at least

 probably--well, every Republican member. Probably

 some of the Democrats think they have a say, as

 well. You know, I'm sure there are editorial

 boards that think they have a say in what we do,

 and don't forget the folks who call up from--who

 give us $25 and want to put in their proverbial two

 cents. So it's an infinite number of people who,

 if you would ask them, do you have any sort of say

 in what goes on at the national party--oh,

 absolutely, I'm dialed in, I know what's going on.

 COMMISSIONER TONER: And they would say so

 without hesitation?

 MR. McGAHN: Without hesitation, yes.

 COMMISSIONER TONER: And real quickly

 because I have about a minute left, Mr. Shor, we

 also have an issue in terms of contributor 
 129

 liability in terms of individuals who contribute

 funds to organizations on the understanding that

 they wouldn't be used for electioneering

 communications; their funds wouldn't be used for

 electioneering communications. And the

 organization ends up running electioneering

 communications anyway. And we actually sought

 comment on this issue, which is a fairly

 significant issue for people.

 Do you think we should not hold liable

 contributors who contribute to organizations when

 they don't intend those funds to be used for

 electioneering communications?

 MR. SHOR: I would like to have a better

 understanding of the example in which this would

 come up, you know. When I read the question about

 contributor liability in the comments, I thought it

 referred to basically under what circumstances

 would a corporation or a labor union--if it

 transferred its treasury funds to another, let's

 say, unincorporated organization and that

 unincorporated proceeded, in violation of law, to 
 130

 spend those funds on an electioneering

 communication, under what circumstances would the

 corporation or union itself incur liability.

 And, again, the Commission elaborated a

 purpose test and we weighed in on how to assess

 purpose. And I wasn't basically thinking about the

 issue of individual contributions, and so I'm not

 prepared. I would like to think that through a

 little bit.

 In many cases, I would think that in

 certain cases if an individual provided funds to an

 organization and those funds were kept separately

 and then those funds were spent on an

 electioneering communication, I don't think there

 would necessarily be a problem.

 COMMISSIONER TONER: So at the very least,

 it's an issue we should study and carefully look

 at?

 MR. SHOR: Oh, yes, absolutely, I think

 it's an issue that requires scrutiny by the

 Commission. Again, as I understood this in the

 commentary, I understood it to be a question for 
 131

 comment about what the Commission had laid out in

 terms of when a corporation or union that made a

 disbursement basically to another organization that

 ultimately uses the corporate or labor funds for

 electioneering communications--under what

 circumstances would the corporation or union be

 ultimately liable, the original one? But maybe I

 misunderstood, so I haven't really considered this.

 COMMISSIONER TONER: Thank you.

 CHAIRMAN MASON: Commissioner McDonald.

 COMMISSIONER McDONALD: Mr. Chairman,

 thank you. First of all, let me also thank the

 panel for appearing. I don't think my mother would

 ever forgive me if I didn't thank the panel

 members, and I appreciate you all being here and it

 is a very spirited discussion and one that I'm glad

 we're having.

 Mr. Shor, first of all, let me assure you

 that you have already undergone more scrutiny than

 any of us have done in our confirmation hearings

 and you've held up very well. I don't know you,

 but I'm impressed that you have held up under fire. 
 132

 MR. SHOR: Thank you.

 COMMISSIONER McDONALD: There are a couple

 of matters that I think it's just really important

 to have on the record. We just simply can't get

 away from this. Commissioner Thomas alluded to

 them in the opening round of his remarks, which is

 our responsibility as Commissioners and what our

 assignment is.

 First of all, we cannot cover every

 scenario, and we all know that. And it is popular

 to create a parade of horribles so that it looks

 like the Commission is interested in doing

 outlandish things.

 I'm a little bit like my friend, Mr.

 McGahn. He says here that they would have made

 more comments, but the NRCC has limited resources.

 We would be happy to take just a small

 percentage of those for our budget, but we're in a

 similar posture as my friend.

 Let's be clear. We're not only not going

 to be monitoring Jay Leno and the church pews. We

 have enough trouble as it is. I've been here for 
 133

 over 20 years. Our problem isn't that we have a

 great deal of staff to run around and monitor

 speech. That's just simply something that has not

 happened.

 So I think the danger is not in

 relationship to that.

 When the Chairman and I were in

 Congressman Bob Ney's office about a year ago

 discussing the budget, one of the things that he

 said to this, and I hope the Chairman recalls it--I

 not only recall it; I wrote it down as soon as I

 returned--was his concern about unidentified groups

 attacking him in his district.

 Now, the interesting thing is that this

 law is bipartisan in nature in terms of how it

 affects the public and how it affects candidates.

 And there's always this debate, as Commissioner

 Thomas, I think, alluded to earlier on, about the

 key component, whether we're using the Bill

 Yellowtail ad or whatever we are doing.

 The Commission is going to be faced with

 some difficult choices. We will not be able to 
 134

 answer all the questions today, and we've put on

 the panel pretty well and that's good. I think

 that's healthy, but everybody has neglected to

 mention we have an advisory opinion process.

 And what happened when the law was first

 constituted some years ago was there were questions

 like come before us today and people have to ask to

 determine where those lines should be drawn.

 Professor Malbin indicated that he thought line-drawing was

 helpful. History seems to indicate

 he's probably right. Whether it's in the area of

 civil rights, age discrimination, sex

 discrimination, women's right to vote, the list is

 endless in terms of what the country has done in

 relationship to areas that it felt like that there

 should be action taken.

 I have no idea, and don't under any

 circumstance pretend to know the constitutionality.

 This will all be resolved, I think, in the court

 process. But I must say I appreciate the panel. I

 thought the Vice Chairman's examples were very good

 in relationship to the kind of difficult problem we 
 135

 may have in the scenario he has outlined and the

 example in relationship to the question about

 Nevada.

 Those are questions that hopefully outside

 parties will come to us and ask about. They are

 certainly well-schooled. This panel is an example

 of people who are very well-schooled. It is not

 newsworthy that people who have spent a lot of time

 in this area have differences of opinion. That

 doesn't mean that one side or the other suddenly

 has the right answer. We don't know.

 But we're under the obligation, it seems

 like to me, to issue advisory opinions. The law

 grows each and every day, and because we have a

 new, massive change in the law, I'm hopeful that

 people will avail themselves of the advisory

 opinion process.

 But it's important to state--and I just

 couldn't let it pass because there's too much at

 stake in a hearing like this to infer that the

 Commission is going to either want to or ever has

 gone out and rampantly charged out to dissuade free 
 136

 speech.

 One of the ways you get people to speak in

 our country is tell them they can't. I'm telling

 you, you talk about a backlash. It would be

 something that would be unprecedented. So we have

 some difficult lines here that we're going to have

 to come to grips with, our panel members, all of

 them very, very distinguished, one of them poorer

 than I had anticipated, but nevertheless very

 distinguished.

 And I am of the opinion that we've had a

 real good exchange this morning and I appreciate it

 very much. I do again very seriously want to

 apologize to the panel because in going over their

 remarks, they were all very thoughtful and they

 represent the kinds of problems that we're going to

 have to come to grips with.

 But I thank you again. I do hope people

 understand that we're not going to be able to

 resolve all these issues. We're not going to

 resolve them when we issue the final rules. The

 Commission make-up will change over time. The 
 137

 theory about what constitutes the law will change,

 and the courts, of course, may change all of it as

 well.

 But, again, I thank all of you for coming.

 And picking up on a point Commissioner Smith made,

 certainly any other comments you'd like to make we

 would like to have.

 Thank you.

 CHAIRMAN MASON: Thank you.

 Don and/or Michael, if you want to

 respond, I wanted to go back to this PSA question

 that I was bothering Glen about before, but it

 really has a purpose to it, and that is try and

 explore--I think the concept of distinguishing

 between paid advertising and regular programming is

 perhaps a useful one.

 One of the problems we have is that's not

 quite the way the statute is set up. The statute

 talks about certain news programming, and so on.

 And interestingly it says "distributed through the

 facilities of the broadcasting station," you know,

 and we actually have at least one court opinion 
 138

 that comments on that.

 But the sort of question I was getting at

 is whether it would be reasonable on our part to

 make a distinction based on whose decision it is to

 broadcast or air the ad, so that, in essence, if

 it's the broadcasting station's decision to

 broadcast, let's say, a documentary, then we're not

 really concerned about who made the documentary,

 who may have paid for it and the fact that a

 candidate appears, or likewise with a PSA.

 In other words, might that be a way to

 sort of, if you will, put into appropriate

 regulatory language this distinction between paid

 and unpaid?

 Bob, Michael, any thoughts?

 MR. McGAHN: I'm trying to recall the

 example--I'm just trying to think the example you

 used was the public service announcement that was

 produced outside of the 30 or 60--

 CHAIRMAN MASON: Which was made by a non-profit

 corporation and distributed.

 MR. McGAHN: Right, and the station airs 
 139

 it.

 CHAIRMAN MASON: And the station airs it,

 and my question really was who has made the

 disbursement when the station decides to air it,

 and what I was suggesting is--

 MR. McGAHN: You certainly couldn't come

 back and blame the people who produced the ad for

 the fact that the station aired it within the

 brown-out, black-out, no-fly zone time of 30 or 60

 days.

 So to the extent that we're going down

 that road of exceptions and exemptions and what

 not, I think it would be perfectly reasonable to

 concern yourself with who actually is in the

 decisionmaking seat.

 MR. MALBIN: I don't think that works,

 with all due respect, Mr. Chairman, because--

 CHAIRMAN MASON: I'm sorry, Michael. I'm

 not hearing you.

 MR. MALBIN: I don't think that works

 because I think--again, I may be wrong, but I think

 that stations in general have the discretion to 
 140

 accept or reject ads.

 CHAIRMAN MASON: Except for campaign ads,

 yes, actually.

 MR. MALBIN: Right, right, but we're not

 talking about campaign ads. So that distinction

 won't cut it, I don't think; that is, who has the

 decision authority ultimately--I mean, it really is

 first we're going to get who pays. The decision

 authority is the station's, except in certain rare

 cases.

 CHAIRMAN MASON: But if no one pays or, in

 essence, the station takes it, you know, for free,

 what I was suggesting is there's no disbursement

 being made and therefore nothing to regulate,

 unlike the main statute where we're working with

 the concept of anything of value being a

 contribution. Here, we have a different legal

 term; we have "disbursement." And if there's no

 money changing hands, I'm suggesting there may be

 no disbursement to regulate.

 MR. MALBIN: Then your definition is

 turning on the disbursement, really, which is what 
 141

 I was suggesting earlier.

 I do want to say in terms of what is in

 the statute, if you were to grow an exemption out,

 which means you're looking at programming--that is

 to say the law covers everything except the

 following--that is a different logical status than

 from saying we add a new definition on or a new

 requirement on, which is the law will only cover

 paid ads.

 So the exemption in some way is easier if

 you're doing a negative than a double negative.

 I'm sorry. Having said that--I'm sorry.

 I'm going to pass. If I can come back to this

 again, I had another--

 CHAIRMAN MASON: That's fine. I want to

 make a comment myself on another subject, and it

 goes back to something that Commissioner Smith was

 asking about and that's this vagueness question.

 Just to make a note, my concern--and,

 Glen, it goes somewhat to the Supreme Court in

 Buckley saying, well, gee, campaigns and parties

 are inherently campaign-related. And I understand 
 142

 that, and clearly there are some different

 standards that can be applied.

 The problem we face is that when we take

 that logic which applies fairly easily to, say, a

 federal campaign and we transfer it to a State

 campaign, as the Vice Chairman was suggesting, we

 start to have some problems.

 Yesterday, we were sitting with an

 enforcement matter involving county political

 parties and one of the problems we were, you know,

 dealing with was, well, you know, these county

 parties have part-time leadership, no legal advice,

 you know, not to speak of, the fancy Washington

 attorneys.

 And so, you know, in the world as we apply

 this that is simply sort of saying, well, gee, the

 court has said if you're a political party, you

 kind of fall into a different analytical category,

 doesn't quite get us there when we're moving out of

 the federal arena and the national party arena, and

 even the State party arena, down to local

 candidates. 
 143

 We've also had cases with, for instance,

 the coat-tail exemption, where local candidates are

 very anxious to identify themselves with their

 party's Presidential nominee, and the Act sets up

 ways they can do that. But we're now entering a

 new regulatory regime where we're saying, well,

 they still may be able to do that, but they might

 have to pay for it with hard money. And getting

 the local candidate for the State legislature to

 comprehend that and understand what the rules are

 may be somewhat difficult.

 I'm not asking any of you for a response,

 but just an observation about our--

 MR. SHOR: I hope you're not suggesting

 that I'm a fancy Washington attorney. My mother

 would like me to be one, but I know I've

 disappointed her.

 CHAIRMAN MASON: Commissioner McDonald.

 COMMISSIONER McDONALD: Now, does that

 help them or hurt them to have this kind of

 representation?

 CHAIRMAN MASON: Well, I don't know. 
 144

 Larry Norton.

 MR. NORTON: Thank you, Mr. Chairman. I

 just wanted to briefly touch on one point that

 follows up a bit on a point that Commissioner Smith

 was making earlier.

 As you know, when we were promulgating

 soft money regulations, we were faced with the

 question in connection with defining federal

 election activity whether we should attempt to

 define "promote, support, attack, or oppose," and

 we were advised by, I think, the Campaign and Media

 Legal Center and others, including the sponsors,

 that we shouldn't do that then.

 Now, of course, we've got the same term

 cropping up in the alternative definition and the

 advice we're getting is the same. And we have even

 a third shot at it if we want to try to define it,

 and that is with respect to crafting exceptions.

 And I ask you about how we should handle

 that, in part, based upon the suggestion

 Commissioner McDonald made that we're likely to get

 advisory opinion requests, regardless of what 
 145

 exceptions we craft that will come to us either

 through an advisory opinion or in the enforcement

 process.

 And the question we'll be faced with is,

 well, we have a real-world example that seems to

 satisfy the exception we've crafted, but one could

 argue that at the same time it promotes, supports,

 attacks, or opposes a candidate for office.

 And so my question is, with this third

 opportunity, should we still defer from attempting

 to define for ourselves and define for purposes of

 the regulation what the term "promote, support,

 attack, or oppose" means so we can apply these

 exceptions to real-world examples that come before

 us.

 MR. SHOR: I don't think we're calling

 here for an overall definition of "promote,

 support, attack, oppose." What we anticipate and

 may be acceptable in certain circumstances are

 exceptions which don't necessarily contain an

 overall definition of "promote, support, attack, or

 oppose," but apply those terms in particular 
 146

 contexts to permit certain--to exempt from the

 definition of electioneering communications certain

 types of communications that do not, in fact,

 promote, support, attack, or oppose a federal

 candidate.

 MR. NORTON: That's all I have, Mr.

 Chairman. I want to thank the panel, too.

 CHAIRMAN MASON: Jim Pehrkon.

 MR. PEHRKON: Mr. Chairman, I have no

 additional questions. Thank you.

 CHAIRMAN MASON: That leaves us finishing

 a whole minute early.

 [Laughter.]

 CHAIRMAN MASON: I also want to thank the

 panel, and in particular Mr. Shor. Having moved

 from a staff job into other positions myself,

 welcome to the club. And as Commissioner McDonald

 noted, you've held up quite well and we do

 appreciate your views and the views of all the

 panelists.

 We will be in recess until 1:30.

 [Whereupon, at 12:00 p.m., the proceedings 
 147

 were recessed, to reconvene at 1:30 p.m., this same

 day.] 
 148

 AFTERNOON SESSION

 CHAIRMAN MASON: The special meeting of

 the Federal Election Commission for August 28, 2002

 will reconvene. This is our public hearing on

 electioneering communications, round two here in

 the afternoon.

 And we're going to have two panels this

 afternoon, each of which is going to have two

 panelists, and so we're going to run them at an

 hour each. We will give the panelists five minutes

 to make an opening statement and then turn to

 questions from Commissioners, General Counsel, and

 Staff Director for approximately five minutes each.

 My two panelists this afternoon are

 probably familiar with our light system. What my

 card tells me is different than what appears to be

 happening, but I think you'll get a yellow light at

 a minimum when you have about one minute left to

 go. And if you would attempt to stay with us on

 the time, that will help keep us on schedule.

 This panel is a particular delight for me.

 I have Robert Alt, from the Claremont Institute, 
 149

 and Robert, I believe, is the only person who has

 ever worked for me more than one time. Robert

 worked for me at the Heritage Foundation and then I

 prevailed upon him last year to come back and work

 for me here at the Commission during the summer,

 and so welcome, Robert. We're delighted to have

 you.

 Heidi Abegg, many of my colleagues know,

 is the spouse of my former executive assistant and

 I'm particularly delighted to have her, too. And

 so Heidi is here today representing the American

 Taxpayer Alliance.

 And we've set up the panel in alphabetical

 order. So, Mr. Alt, you will go second--unusual

 circumstance for you, I'm sure.

 Heidi, the floor is yours.

 MS. ABEGG: Thank you, Mr. Chairman, and

 Mr. Vice Chairman and Members of the Commission.

 Is this picking up?

 CHAIRMAN MASON: You pull that microphone,

 the long-necked one, closer--there you go.

 MS. ABEGG: I appreciate the opportunity 
 150

 to testify today on behalf of the American Taxpayer

 Alliance. As noted in ATA's written comments, ATA

 is a Section 501(c)(4) organization dedicated to

 government reform through grass-roots organization

 and public education and discussion of the issues.

 One way in which ATA lobbies, educates,

 and discusses issues is through the use of

 television and radio ads. ATA frequently takes

 positions on issues that generate strong and often

 controversial and adverse reactions from the

 government and the public.

 Indeed, ATA is currently being sued in

 California state court to force disclosure of its

 donors solely because of its critical views on

 Governor Davis' handling of the energy problem in

 California.

 ATA and its donors highly value the

 ability to contribute to an organization that

 espouses positions and advocates change on

 controversial issues, while remaining free from

 disclosure and the attendant risk of threats,

 harassment, and reprisal from those who disagree 
 151

 with its position.

 ATA strongly believes that because the

 majority of the Bipartisan Campaign Reform Act is

 unconstitutional, regulations cannot be adopted

 that will not be destructive of citizens' right to

 participate in the political process and therefore

 able to survive constitutional scrutiny.

 Nevertheless, if the Commission believes

 that it has the responsibility, irrespective of the

 constitutionality of the Act, to adopt regulations,

 ATA would urge the Commission to adopt regulations

 that minimize infringements upon, and respects and

 protects the rights or privacy, freedom

 association, and freedom of speech to the greatest

 extent possible.

 To attempt to implement regulations that

 are as consistent with the First Amendment as

 possible is not, as some have argued, to create

 loopholes. The First Amendment is not a loophole.

 Furthermore, the legislative history

 clearly demonstrates that Congress itself did not

 intend to limit non-profits' First Amendment rights 
 152

 to lobby, both direct and grass-roots, on

 legislation, or more generally to change public

 opinion on an issue.

 Therefore, to the extent possible, the

 Commission must craft exceptions which clearly and

 unambiguously permit this type of speech. In

 implementing regulations, the Commission should not

 err on the side of over-breadth and consequently

 restrict First Amendment rights in an attempt to

 avoid being labeled a hostile FEC that undermines

 the law.

 Therefore, first and foremost, the

 Commission needs to exercise the discretion given

 to it by Congress in Section 434 and adopt

 constructions and exceptions which permit the

 greatest amount of speech. In doing so, the

 Commission should use clear and unambiguous

 language that avoids placing the power in the hands

 of government bureaucrats to arbitrarily decide

 what an ad's true purpose is.

 Is it an issue ad or it is a so-called

 sham issue ad because it promotes, supports, 
 153

 attacks, or opposes a candidate? To avoid

 rendering any exceptions useless, the Commission

 must also define the vague terms used in Section

 431, namely "promote, support, attack, or oppose."

 ATA submits that there are at least three

 principles that the Commission should have in mind

 when promulgating final regulations.

 One, non-profit issue advocacy

 organizations strongly and vehemently disagree with

 allegations that the majority of issue ads

 broadcast 30 and 60 days before an election are so-called

 sham issue ads.

 As elucidated in other comments, the

 studies cited in support of this allegation have

 serious methodology problems. Therefore, ATA

 cautions the Commission not to accept these studies

 as definitive proof that there is no over-breadth

 problem.

 Two: ATA would like to stress that

 commenting or attacking ideas or issues is not the

 same thing as promoting or attacking a candidate.

 Issues and candidates are not so intertwined that 
 154

 an attack on one, per se, becomes an attack on the

 other. The Commission should draft exceptions that

 permit non-profits to comment or lobby on the

 issues of the day.

 Three: Although the task of creating

 exceptions that are least hostile to the First

 Amendment while remaining consistent with the Act

 is admittedly a difficult, and ATA submits an

 impossible one, the Commission should not fail to

 exercise its discretion and instead simply say

 "form a PAC." This would put many (c)(4)'s between

 a rock and a hard place.

 From a tax standpoint, it is not

 necessarily easy for a (c)(4) to form a 527 PAC

 that will be exempt from tax to engage in the type

 of communications that the organization could

 ordinarily do were it not for the 30- or 60-day

 ban.

 For example, under the Internal Revenue

 Code, a PAC that lobbies substantially can fail to

 qualify as a 527 political organization, and a PAC

 that lobbies to any extent can have taxable income 
 155

 as a result of failing the segregated fund

 requirement that the fund be used solely for an

 exempt function.

 I see my time is up.

 CHAIRMAN MASON: Mr. Alt.

 MR. ALT: Thank you, Mr. Chairman and

 Members of the Commission. I'd like to begin by

 thanking the Commission for its hard work in

 passing these--putting out this proposed rulemaking

 and enacting the former regulations. Anyone who

 was here during the last set when you all went to,

 what was it, midnight, I recall, on one evening,

 couldn't question the dedication.

 Notwithstanding this, of course, those

 regulations were met by the press and by the

 sponsors with all the warmth of an SEC investigator

 at Martha Stewart's door. So I would like to begin

 with just a few words with regard to the process of

 putting this out and how the Commission should view

 the external comments that they're receiving.

 First of all, there have been a lot of

 statements made about the spirit of BCRA, or the 
 156

 McCain-Feingold bill, and what impact that should

 have on the issuing of exceptions or regulations.

 I would put forward that the guiding principle in

 terms of issuing regulations should be to follow

 the plain language of the text.

 If the plain language permits an

 exception, that should be done. If not, it

 shouldn't. Simply stating, for instance, that a

 particular exception might permit more soft money

 or more money generally into the political process

 should not be sufficient to answer the question,

 particularly where that exception expands free

 speech rights.

 I would move that in such a case where

 it's consistent with the language of the statute to

 permit more money into a particular area or, more

 accurately, to permit speech, that that should be

 done.

 Second, with regard to the comments that

 have been made by sponsors and proponents to the

 regulations, I would put forward that it's a

 general theory of legislative history and of 
 157

 legislative intent and interpretation that

 sponsors' statements or statements of legislators

 that are issued after the enactment of legislation

 are given very little probative weight.

 They are essentially given no more weight

 than any other expert that might come before this

 Commission and testify. So to say that Mr. McCain,

 Mr. Feingold, or any of the other sponsors have

 said that they believe that the statute says thus

 and such is simply to say that that is their

 personal belief and carries no more weight.

 Obviously, they're not able to speak for the entire

 Congress.

 A case in point is a recent press story

 about closed-session meetings with Hilary Clinton

 and other Democrats about what to do about the last

 set of regulations, in which she objected to a

 particular interpretation of Mr. Feingold. It's

 quite obvious that Members of Congress voted for

 this Act for different reasons and had different

 interpretations of what it means. So no one should

 be given exclusive weight on that particular 
 158

 question.

 Getting to the particular regulations at

 hand, I would like to suggest a couple of things.

 First of all, you have suggested that you would

 like to pass on the alternative definition of

 electioneering communication at this time.

 I would suggest that to the extent that

 it's practical that you should actually go ahead

 and issue a regulation on that at this time, in

 part because of the litigation posture of those who

 are seeking to uphold the law. They have alleged

 mootness and some other issues which might

 potentially be involved.

 It's possible that a court could look to

 the fact that regulations haven't been issued and

 that could delay some of the judicial proceedings,

 as well as it might create undue administrative

 expense and another hearing on that particular

 matter. So I would say, for administrative and

 judicial efficiency, it would be good to issue a

 regulation on that at this time, as well.

 Second of all, while I certainly do 
 159

 commend you for the exceptions that you've made

 particularly for MCFL-type corporations, I fear

 that the Wellstone amendment seems to cover these

 fairly plainly, and to the extent that it does,

 this Commission cannot issue a regulation which

 contradicts the plain language of the statute.

 Nonetheless, of course, that regulation or

 that particular provision clearly violates MCFL. I

 would recommend that, due to that, this Commission

 should exercise its duty to interpret the

 Constitution by not enforcing that provision

 against MCFL-type corporations.

 I see my time is quickly expiring. I just

 wanted to make one last point with regard to

 several pieces of the legislation mention ads which

 attack, oppose, or support particular individuals.

 I'd like to just bring the Commission's attention

 to some statements that were made by Senator McCain

 when an amendment was offered by Senator Bingaman

 to offer free air time for those who--for

 candidates who had ads opposing or attacking them

 aired. 
 160

 He said, "First of all, who would

 determine if an ad was indeed a negative ad? Is

 there going to be a censorship board? Is there

 going to be a group of Americans who say, okay,

 watch all of these ads and see which one is

 negative and which one is not? Is an ad that says

 'call your Senator,' which I have seen many times,

 'and ask him or her to save Social Security' a

 negative ad or a positive ad?" I couldn't say it

 better myself. The term is vague, the term is

 over-broad, and the term should not be used to

 limit speech.

 Thank you.

 CHAIRMAN MASON: Commissioner Smith is

 first in the question order this afternoon.

 COMMISSIONER SMITH: We're going to begin

 with five minutes, Mr. Chairman?

 CHAIRMAN MASON: Five minutes.

 COMMISSIONER SMITH: That's not a lot of

 time, so we have to get right down to work and skip

 the pleasantries.

 By the way, Mr. Chairman, I think you have 
 161

 to recuse yourself from this panel, don't you?

 [Laughter.]

 COMMISSIONER SMITH: I'll try to be quick.

 It's not a lot of time.

 Ms. Abegg, I wanted your opinion. I don't

 know if you've had a chance to read the other

 testimony that has been submitted. Of course, it's

 fairly voluminous, but let me--I don't know if

 you've seen it. One proposed exemption to us that

 was suggested wrote, "None of the exemptions we've

 proposed would work, but this would work." And I

 want to know what you think, if this would allow

 the kind of groups you work with to do what they

 need to do.

 An ad would not be an electioneering

 communication if it met all of the following

 criteria: the communication concerns only a

 Legislative or Executive Branch matter; the

 communication's only reference to a clearly

 identified federal candidate is a statement urging

 the public to contact the candidate and ask that he

 or she take a particular position on the 
 162

 Legislative or Executive Branch matter; the

 communication refers to the candidate only by the

 use of the term "your Congressman," "your Senator,"

 "your Member of Congress," or similar reference,

 and does not include the name or likeness of the

 candidate in any form, including as part of an

 Internet address; and the communication contains no

 reference to any political party; and, further, the

 communication cannot contain any reference to the

 candidate's record or position on any issue, or the

 candidate's character, qualifications, or fitness

 for office, or the candidate's election or

 candidacy.

 If we were to draft an exemption that

 narrow, do you think that that would accomplish the

 kinds of things that you've indicated to us we

 should be looking to do?

 MS. ABEGG: It's a start, but I don't

 think it totally gets us there. For one, just by

 stating "your Congressman," sometimes non-profits

 lobby on bills that are pending before a committee.

 So if you just say "your Congressman," that doesn't 
 163

 tell you which Congressman is on that committee

 that's considering the bill.

 Secondly, not being able to comment on the

 Member's position--part of the definition of

 lobbying under the Internal Revenue Code requires

 you to encourage the recipient to take action, and

 part of that is identifying the legislator who is

 opposing the bill or is undecided, or the

 Representative that will consider the bill. So

 it's difficult to encourage the recipient to take

 action without identifying the legislator who's

 going to be taking action on that bill.

 COMMISSIONER SMITH: Mr. Alt, I want to

 ask you a quick question. The sponsors of the bill

 have urged us in the prior rulemaking to include in

 our regulations the Internet. They want us to

 regulate the Internet. And again in this

 rulemaking, they have urged us to regulate the

 Internet, even though the statute makes no

 reference to the Internet either as a form of

 public communication or as a form of electioneering

 communication. 
 164

 I take it from your written comments your

 view is that it would be wise for the Commission to

 exempt the Internet.

 MR. ALT: I would, although I would

 generally say that even if you didn't, the plain

 language of the statute just simply doesn't cover

 it. Congress, when they wanted to include issues

 about the Internet, did so in this bill. The

 Internet appears with regard to posting of

 information, requirements upon the Federal Election

 Commission.

 And yet when it comes to the list of

 broadcasting, and so forth, they used a list--

 broadcasting, cable, satellite. They were quite

 clearly capable of putting forward what they meant

 with some detail and specificity, and yet they

 excluded Internet.

 I think it would be going perhaps beyond

 the statute. The duty of this Commission is to

 carry out the statute. It would be perhaps beyond

 the authority of this Commission, pursuant to the

 statute, to issue a regulation which would include 
 165

 the Internet.

 COMMISSIONER SMITH: So you would say even

 if we did not specifically exempt the Internet,

 what Senator McCain and Senator Feingold and

 Congressman Shays and Congressman Meehan want to do

 is prohibited by the statute. They didn't put it

 in and we don't have the authority to regulate

 that.

 MR. ALT: I would say that standard canons

 of interpretation would say that it's not covered

 and this would be an expansion of the bill. This

 would be essentially trying to use this Commission

 to enact something which is not in BCRA, and that

 would be arguably beyond the scope of this

 Commission's authority under BCRA, yes.

 COMMISSIONER SMITH: Thank you. I see my

 time is up, so I'll waive my last few sentences.

 CHAIRMAN MASON: Commissioner McDonald.

 COMMISSIONER McDONALD: Mr. Chairman,

 thank you.

 I welcome both of you. Heidi, I'll take

 back the things I've said about John. Now, has he 
 166

 taken you to the rock? That's the first thing I

 want to know.

 MS. ABEGG: We've been there once.

 COMMISSIONER McDONALD: All right. I just

 want to be sure I've cleared this up before we go

 any further.

 Welcome to both of you. Well, Mr. Alt,

 let me just ask you first, maybe to follow up on

 that last point by Commissioner Smith, a couple of

 things that come to mind.

 I'm not sure. Am I to take the McCain

 remarks as something I should follow or I shouldn't

 follow?

 MR. ALT: I simply offer them as

 illustration that even the proponents of the

 statute--as I said, you know, there are statements.

 In this case, it was a floor statement. So,

 generally speaking, if you're going to look to

 legislative intent, it's accorded some weight, more

 so than, for instance, a post-enactment statement

 would be given.

 But it certainly does point out, I think, 
 167

 in vivid detail the problems associated with what

 does it mean to oppose. The term is quite frankly

 so broad, it would seem to capture everything. I

 think it's quite a problem for the Commission in

 terms of trying to come up--BCRA permits exceptions

 so long as they're compliant with another provision

 of the Code which details, you know, the ads can't

 oppose or support a particular candidate. What

 precisely does that mean?

 To be quite frank, as he said, you know,

 the non-sham issue ads, even those that would seem

 to be covered under the Buying Time 2000, arguably

 could be said to promote or oppose. It's clear

 that this would have a chilling effect on speech.

 I mean, it basically goes back to the

 standard sort of rule standards debate that you

 have in law schools across the country as to how it

 is that you enforce a particular provision. It's

 clear that they've tried to implement sort of a

 broad, vague standard.

 The problem is where you've got a First

 Amendment right at issue, the effect of having a 
 168

 broad, vague standard is that unless you want to

 potentially violate the law, you need to take a

 giant step backwards and make sure that you don't

 sort of do anything that might--

 COMMISSIONER McDONALD: Let me comment on

 a couple of observations you've made both here and

 in relationship to another aspect of the process

 for just a second.

 You know, the Constitution, according to a

 number of constitutional scholars--the strength is

 that it is vague in its most important places. And

 I was thinking when you were commenting on the

 Internet as an example not set out in the law--and

 you've quoted on several occasions other

 substantial Americans involved in the

 constitutional process which I think everyone would

 admire, but I don't think they--if the foundation

 is the Constitution, which it certainly should be,

 as a practical matter there are numerous things, as

 you indicate, that you can't always anticipate that

 we may have a responsibility over. And I think

 maybe that's where the issue will finally be worked 
 169

 out in terms of what this Commission can or can't

 do.

 I don't want to sit there and not get down

 to--one other quick thing in relationship to that.

 Are you of the opinion that--you cite one example

 where there is not a definition and you cite

 another example in relationship to the Internet not

 being mentioned.

 Because all of these matters are going to

 be utilized and taken up in the political process,

 and because it is our responsibility to regulate in

 these areas, how would you kind of differentiate

 there? Again, would you want a particular cite for

 the Internet itself, as an example?

 MR. ALT: In terms of, if I understand

 your question--

 COMMISSIONER McDONALD: We know it's going

 to be in the political process and used on a fairly

 substantial basis. According to every report I've

 read, it's the fastest growing medium there is,

 other than maybe the telephone, which is part and

 parcel of it in some respects. 
 170

 Do you think that we should ignore it on

 the basis that it was not cited in the statute,

 given your other propensity about the statute in

 general?

 MR. ALT: I would offer a couple of

 reasons. One, it's not cited in the statute. Two,

 rather than simply comparing the statute to the

 Constitution in terms of vagueness, on this

 particular point it's relatively precise. The

 enumeration of a list would tend to bring in canons

 such as the inclusion of one thing excludes

 another--sort of a common way that judges look at

 issues such as this which I think is actually

 useful when examining that particular question.

 But, finally, I think, you know, if you

 take a step back and think, you know, under what

 authority does Congress have the ability to

 regulate political speech, under Buckley it's only

 in cases where there's corruption or the appearance

 of corruption. And this generally deals with the

 expenditures or the aggregation of funds.

 With the Internet, it's quite clear that 
 171

 Congress may not have intended to actually reach it

 simply because a lot of Internet communication is,

 quite frankly, cheap. A mass mailing in real space

 may cost thousands of dollars. A mass mailing in

 cyberspace may cost almost nothing. At that point,

 regulating the second is actually far more simply a

 regulation of speech without any particular basis,

 you know, in recognized law for doing so.

 So I think in addition to the fact that

 the statute seems pretty clear in excluding it in a

 way that would seem to actually even perhaps excise

 this Commission's authority to pass upon it, as a

 matter of legal policy it's questionable whether or

 not this is something that should be regulated,

 given the First Amendment concerns.

 COMMISSIONER McDONALD: One real quick

 question of Heidi because I think my time is up.

 Heidi, let me just ask, on page 4, under

 the reach and the definition of electioneering

 communication, you talk about the 30-day and 60-day

 proviso. You say, "Assuming funds are available,

 ATA's issue advertisements are driven by whether 
 172

 the issue is being debated, about to be debated, or

 should be debated by Congress."

 Is there anything left? "Should be, about

 to be, or is being"--pretty well covers the

 waterfront, doesn't it?

 MS. ABEGG: Well, "should be debated"

 would just involve issues that the organization is

 concerned about, so there would be other issues

 that they don't think should be debated which they

 would remain silent on.

 COMMISSIONER McDONALD: Thank you. Thank

 you very much.

 CHAIRMAN MASON: Commissioner Toner.

 COMMISSIONER TONER: Thank you, Mr.

 Chairman.

 It seems from our discussions thus far

 today a number of Commissioners are very interested

 in possible lobbying activities. And, you know,

 we're struggling with if we're going to have an

 exemption for lobbying activities, how would it

 work and what the exact language is.

 Ms. Abegg, I'm impressed by the fact that 
 173

 you represent an organization that actually engages

 in grass-roots lobbying activities. You know,

 everyone here can talk about what that means, but

 it seems to me the folks you work with actually do

 this stuff everyday, and so I'm interested in your

 view in terms of your organization's history in

 doing this.

 Do you think that in terms of using public

 communications as part of your lobbying activities--and you

 make, I think, a very strong argument that

 the Internal Revenue Code not only contemplates

 that, but provides rules for doing that--do you

 think that you can effectively engage in grass-roots

 lobbying through public communications if you

 can't discuss the legislative record of government

 officials?

 MS. ABEGG: I don't think so. I think

 part of the grass-roots lobbying is telling the

 public what the Members' positions on the bill is.

 And if you can't talk about that, it's difficult to

 tell the public how they should lobby and how they

 should vote. 
 174

 COMMISSIONER TONER: Do you take the same

 position in terms of would you be able to

 effectively lobby at the grass-roots level if you

 couldn't refer in your communication to the name of

 the legislation by its actual name, bill name?

 MS. ABEGG: I think you could do some, but

 I think for some types of legislation it would be

 very difficult.

 COMMISSIONER TONER: Would it be fair to

 say that it would seriously undermine your ability

 to lobby effectively?

 MS. ABEGG: Yes, yes.

 COMMISSIONER TONER: You sort of have to

 play hide the ball. You know, I'm talking about a

 certain piece of legislation, but, of course, I'm

 prohibited from actually naming it.

 MS. ABEGG: Right. I think it would

 result in confusion, as well.

 COMMISSIONER TONER: And would it make it

 more difficult to lobby at the grass-roots level if

 you couldn't actually air certain communications in

 those parts of the country where the officials 
 175

 actually live?

 MS. ABEGG: Definitely.

 COMMISSIONER TONER: And air those

 communications in the areas of the citizens whom

 they represent?

 MS. ABEGG: Definitely.

 COMMISSIONER TONER: And we've heard--

 MS. ABEGG: That's the whole purpose of

 doing it.

 COMMISSIONER TONER: We've heard some

 discussions about proposals where you could, of

 course, run public communications and discuss

 issues, but you couldn't run them in the States

 where the public officials actually resided.

 Would you recommend that your organization

 engage in that kind of lobbying?

 MS. ABEGG: I wouldn't legally or from a

 business standpoint. I think they would be

 throwing their money away.

 COMMISSIONER TONER: It might not make

 much sense?

 MS. ABEGG: Right. 
 176

 COMMISSIONER TONER: Right. Similarly,

 how difficult would it be to lobby at the grass-roots level

 if you couldn't refer to or reference

 any initiatives or referenda?

 MS. ABEGG: Extremely difficult,

 particularly in States that are very active and

 frequently have many issues on their ballot. It

 would definitely hamstring those organizations that

 are active in ballot initiatives and referendums.

 COMMISSIONER TONER: Well, in terms of

 your background, if we're serious about having an

 exemption for legislative lobbying that actually

 could be used by groups that are trying to do this

 at the grass-roots level, do you think that we've

 got to include the types of activities we've

 discussed, or if we don't include them, it's not

 just not going to be effective?

 MS. ABEGG: No. I think we definitely

 have to include these types of organizations--or

 these types of activities.

 COMMISSIONER TONER: These types of

 activities. I was struck by the point you were 
 177

 making and I just wanted to have you elaborate on

 it. It seemed to be the point that the Internal

 Revenue Code strictly regulates grass-roots

 lobbying and it requires certain things to be done,

 namely that when you're doing public communications

 to lobby, you actually have to seek action, you

 have to seek government action, and that you were

 making the argument that it's difficult to do that

 if you can't identify an official.

 Is your point that there's a danger that

 we could place organizations in the cross-hairs, as

 it were, between our regulations and the Internal

 Revenue Code and that we should avoid that kind of

 thing? Is that one of the arguments you're making?

 MS. ABEGG: Definitely, because the

 organization would be--I mean, be between a rock

 and a hard place. You know, if the communication

 meets the definition of grass-roots lobbying, but

 it's prohibited under the Bipartisan Campaign

 Reform Act, then they're not going to be able to do

 it.

 COMMISSIONER TONER: And in terms of your 
 178

 professional judgment, representing a grass-roots

 organization, do you think it's possible that if we

 didn't provide certain exemptions like we've talked

 about for grass-roots lobbying that an organization

 such as yours could violate our regulations and

 satisfy the IRS Code? Or in the alternative, if

 they met our regulations, they could be violating

 the Internal Revenue Code and could have issues

 with the Internal Revenue Service?

 MS. ABEGG: Definitely.

 COMMISSIONER TONER: Thank you, Mr.

 Chairman.

 CHAIRMAN MASON: Vice Chairman Sandstrom.

 VICE CHAIRMAN SANDSTROM: Thank you.

 As you probably know, sort of sitting

 under the hot lights, we're being covered here by

 C-SPAN. Later tonight, probably around 10:30 or

 11:00, we may have a show on "Booknotes" that will

 be covering essentially a book promotion that's

 occurring out at Borders or Barnes and Noble--"Politics and

 Prose."

 Anne Coulter may be the person who has the 
 179

 podium there. She might mention candidates during

 the course of that. It could be James Carville,

 who has also written books. He could be on talking

 about, from a different political perspective, his

 view of certain candidates. They both are known

 for being rather bold in their statements.

 Without an exemption for such programming--or do

 you see that the statute would cover such

 programming and the provision of that sort of

 programming over C-SPAN would be covered by this

 statute?

 MS. ABEGG: I'm not completely familiar

 with the media exemption, but I--

 VICE CHAIRMAN SANDSTROM: It deals with a

 news story. The media exemption deals with news

 stories. These are book promotions. I mean,

 they're run by the various presses. They pay for

 their authors to go out. They hope C-SPAN covers

 it. They hope other people give them an

 opportunity to go on their programming to promote

 their books.

 But the one on C-SPAN is essentially the 
 180

 author themselves being given a period of time, an

 hour, to just discuss their book and their views.

 And I can assure you they wonder onto a lot of

 political subjects and a lot of political

 candidates are discussed. And I was just wondering

 if that sort of programming would be covered under

 the statute.

 MS. ABEGG: I think it's a stretch to read

 the media exception, news or commentary, to

 encompass that, or even entertainment shows such as

 Jay Leno or "Saturday Night Live" skits.

 VICE CHAIRMAN SANDSTROM: Mr. Alt, do you

 have a vote?

 MR. ALT: Similarly, I fear that it could

 be interpreted to be that broad as to cover that

 and many other things, I mean, be it, you know, ads

 that have nothing to do, for instance, with

 campaigns at all, the infamous post-September 11 ad

 with George Bush talking about travel being a key

 example that would be something completely non-political.

 VICE CHAIRMAN SANDSTROM: I understand the 
 181

 constitutional concerns, but we're drafting

 exemptions here. I'm just trying to first

 determine whether that sort of programming under

 your understanding of the statute would be covered

 and whether an exemption would be appropriate, and

 I will ask some other witnesses similar questions.

 With respect to constitutionality, because

 I am somewhat limited in whether we should deal--how we

 could deal with areas in which there seems

 to be a constitutional problem. I want to take a

 moment to talk about the 501(c)(4)'s and 527's when

 they're incorporated. Of course, you can be a 527

 organization or a 501(c)(4) and not be

 incorporated.

 Is there a constitutional basis for

 distinguishing the two if the sources of their

 funds are identical?

 MR. ALT: There wouldn't seem to be, no,

 and it would seem to be sort of quite bizarre to

 treat two similarly situated organizations which

 receive funds from the same sources differently.

 Of course, it would also seem to be quite odd, as 
 182

 the statute appears to do, to permit independent

 expenditures by MCFL corporations, but not

 electioneering communications.

 VICE CHAIRMAN SANDSTROM: That was going

 to be my follow-up question. Doesn't this really

 require us to come up with an exemption for an MCFL

 type of corporation, since it's just a matter of

 incorporation that distinguishes it from an

 identical organization and the incorporation is

 just to insulate them from liability?

 MR. ALT: I agree with you that the

 distinction is illogical, that it is contrary to

 law as it has been interpreted by the Supreme

 Court. But, unfortunately, it appears to be fairly

 plain that that's what Congress intended to do by

 the plain language of the statute, I should say.

 I mean, the Wellstone amendment actually

 seeks to specifically cordon in 501(c)(4) and 527

 organizations. Previous to the Wellstone

 amendment, you know, there was an exception for

 those organizations. It's very difficult, I think,

 to read the statute any other way than to say that 
 183

 those are captured by that exception.

 I believe that it's contrary to law, and I

 would urge this Commission not to enforce the

 provision against MCFL-type corporations. But I

 think it's beyond the authority of this Commission

 to issue an exception where Congress has plainly

 spoken to say that they want to capture it.

 Why did Congress do this? I mean, perhaps

 they want to try and challenge the MCFL ruling. I

 don't know. The capturing of it is so plainly

 contrary to law, it's difficult to fathom what

 meaning they could have had.

 That said, this Commission has limited

 authority in carrying out the statute, and by

 issuing the exception I fear that this Commission

 would actually be saying that "x" is not "x" for

 the purposes of the statute, which I fear that they

 cannot do.

 VICE CHAIRMAN SANDSTROM: Thank you very

 much.

 CHAIRMAN MASON: It's now my turn for

 questions. 
 184

 Robert, I wanted to follow up on that last

 point because, as you know, I'm, of course, with

 you on the coordinate branch construction theory.

 But I'm not sure I can follow you through in terms

 of what we do when we conclude there's a

 constitutional problem.

 And let's start with the easy case, which

 is when the Supreme Court has already enunciated.

 Take the MCFL decision itself which was never

 codified by Congress. It was codified by this

 Commission in regulation, though I personally think

 too narrowly, but we have a regulation on the

 books.

 And assuming that that was appropriate--that is,

 we've got the Supreme Court decision that

 says, well, there is a class of corporations which

 should be permitted to make expenditures, at least,

 in federal elections--arguably, contributions--even

 though Congress never got around to amending the

 law, what's wrong with our putting that in

 regulations?

 Or even to put it a different way, 
 185

 wouldn't we be left with giving people a rather

 uncertain guide to follow if we failed to issue

 regulations, because we issued the regulations, of

 course, to the exact scope and extent of the

 Supreme Court's ruling or holding in MCFL and how

 that might apply in other factual situations is

 unclear, is still being debated?

 By putting out regulations, we allowed

 people to, if they wanted to be safe and comply

 with the regulations, or if they didn't like them,

 to challenge them, and so on. So it seems to me in

 that particular case we would have been doing

 everyone involved a disservice by saying, well, of

 course, we will comply with the Supreme Court

 ruling, but we're not going to exactly tell you how

 we interpret it.

 MR. ALT: I think it was appropriate to do

 it in that situation. The distinction I would draw

 here--and I think that was under sort of your

 general regulatory power to issue regulations, to

 enforce the election law.

 In this particular situation, my 
 186

 understanding is that the regulatory proceeding is

 pursuant to BCRA itself to carry out the provisions

 of BCRA. And so that's where I think that there's--you

 know, if the question sort of raises the

 potential issue of, you know, why would it be sort

 of permissible to issue a regulation that

 corresponds to MCFL there and not here, I fear that

 it might be simply because here--there, you're

 carrying out sort of general election law and the

 interpretation of the Supreme Court.

 Here, you have what appears to be a plain

 statement by Congress that they intend to capture

 these organizations which is issued after the

 Supreme Court has issued its opinion. And so

 therefore they're fully cognizant of the Supreme

 Court's interpretation of this, and so I think that

 adds a layer of difficulty and questions the

 authority to actually issue a regulation exempting

 those at this time.

 CHAIRMAN MASON: So it has less to do with

 our authority per se than with your reading of the

 intent of Congress, and that where, in essence, 
 187

 Congress intends to make a challenge, as it were,

 we ought to stand aside and allow them to do it?

 MR. ALT: Either that or also just, I

 think, the sort of general powers of the regulatory

 proceeding under which you're acting, which is

 specifically to carry out BCRA and to the extent

 that BCRA is plain.

 I mean, also I think it is sort of worth

 note that in this particular case it's post-MCFL.

 So they're clearly aware of it, whereas previously

 you could make the assumption--I mean, the general

 assumption is that Congress doesn't enact

 unconstitutional laws. I don't know how exactly

 that works, given the number of proponents who have

 said that this is an unconstitutional law, but it's

 an assumption which we generally hold to.

 CHAIRMAN MASON: Heidi, I wanted to go

 back to your point--and if the witnesses for the

 next panel are in the audience, I may well ask them

 the same--about the mix between IRS regs and our

 regs.

 And let me preface it by saying that I'm 
 188

 not persuaded that it's necessarily a good thing

 for us to just sort of adopt the IRS standards, for

 a number of different reasons, one of which is I

 don't know how we enforce them.

 In other words, if we say we're going to

 follow the IRS standards and then somebody files a

 complaint with us, how are we then to construe the

 IRS regs and determine whether somebody has

 violated our regs that copy IRS?

 However, I do very much agree that we

 shouldn't put organizations in a crack, as it were,

 and I think you've described one that if we require

 (c)(4)'s to form PACs, 527's, but then the 527's

 are doing what the IRS characterizes as lobbying

 expenditures and therefore they fail their major

 purpose test, that becomes a problem. I don't know

 if you've got any suggestions for how we work our

 way out of that, but I think that's something we

 need to pay attention to.

 And the other thing I wanted to ask--I

 don't know a whole lot about your organization, but

 it was recommended to us that we look at real-world 
 189

 examples of ads and this issue of sham issue ads,

 and so on. And if there are other ads that your

 organization has run other than the ones you

 mentioned concerning Governor Davis that you could

 share with us, I think it would be helpful for us

 to see some real-world examples out there and stack

 them up against the potential exemptions we're

 considering.

 MS. ABEGG: I would be happy to provide

 those.

 CHAIRMAN MASON: Thank you.

 Commissioner Thomas.

 COMMISSIONER THOMAS: Thank you, Mr.

 Chairman.

 Thank you both for coming. First, I can't

 resist, Mr. Alt. Your plain-meaning suggestion

 that we go with the plain meaning of a statute in

 the first instance--help me with this example that

 I referred to in the earlier session where the

 definition of electioneering communication says

 "Any broadcast, cable, or satellite communication

 which refers to a clearly identified candidate for 
 190

 federal office is made within 60 days of a general

 or 30 days of a primary, and in the case of a

 communication which refers to a candidate for an

 office other than President or Vice President is

 targeted to the relevant electorate."

 How can we at the Commission come up with

 a targeting concept for Presidential candidates

 under that approach?

 MR. ALT: Yes, Godspeed to you. No. I

 mean, generally speaking, you know, I suggest to

 you what is the prevailing mode of statutory

 interpretation before the Supreme Court at this

 point, which is that you don't necessarily have to

 completely disavow any sense of legislative intent.

 However, you should always look to the text first,

 and the intent can't trump the text.

 If, for instance, as happened in the last

 rulemaking, an exception is carved out to permit

 federal candidates to appear at State functions,

 then the FEC issuing a regulation pursuant to that--even if

 the spirit of the law is seen as limiting

 soft money fundraising, the plain text of the law 
 191

 permits it. So you shouldn't allow the spirit of

 the law to trump the plain text. That's

 essentially where I would be going in terms of

 that.

 COMMISSIONER THOMAS: Well, thank you.

 You know how I came in on the other one. I say the

 plain text of the language prohibited us from

 allowing folks to solicit contributions at

 fundraising events, but my colleagues went just the

 opposite direction of that.

 The questions I have for you, Ms. Abegg,

 center more around this issue of what to do about

 501(c)(4) organizations. Again, I guess sort of

 all alone, I had interpreted the statute,

 specifically what's referred to as the Wellstone

 amendment, as suggesting that only communications

 which are targeted would be prohibited under 441(b)

 if done by a (c)(4) or a 527 that would otherwise

 be restricted under 441(b), the corporate

 prohibition.

 And I should think that (c)(4)

 organizations in the situation of yours would jump 
 192

 at the chance to have us interpret the law that way

 because that means, at least with regard to non-targeted

 electioneering communications in the

 Presidential area in particular, that's going to

 allow them to put out communications that although

 they are electioneering communications, they are

 not prohibited.

 And your organization would be able to do

 that. You would have to basically be able to show

 that you were only using money that came in from

 individuals to pay for that portion of your

 organization's expenses, but you don't seem to want

 to go that way. Tell me why.

 MS. ABEGG: Well, I think part of the

 problem with it is targeted. A lot of what they do

 is on TV and radio and is going to fall under the

 definition of targeted because it's going to reach

 more than 50,000 people. So they're precluded, I

 mean--

 COMMISSIONER THOMAS: You're saying you'd

 still have the problem with regard to, say, House

 and Senate situations where targeting is 
 193

 applicable, clearly?

 MS. ABEGG: Correct.

 COMMISSIONER THOMAS: Why would our

 allowance that we've put out for comment that would

 allow grass-roots lobbying ads as long as the

 reference to the federal candidate is simply that

 that candidate be contacted and urged to vote for

 or against the legislation not be an adequate

 allowance for your organization's needs?

 Our draft regulation wouldn't have

 required that there be some amorphous reference to

 "your Congressman" or "your Senator." It could be

 an actual reference to the name of that person,

 again as long as these other cautions were taken.

 Would that not be enough to help your organization?

 Isn't that better than the example, say, that

 Commissioner Smith was reading which was more

 confined?

 MS. ABEGG: It's a good start, but it

 still doesn't permit them to do all the types of

 communications that they're currently allowed to

 do. 
 194

 COMMISSIONER THOMAS: It's not perfect

 from your organization's perspective?

 MS. ABEGG: No, it's not.

 COMMISSIONER THOMAS: But it's a good

 start. I'll take that as--

 MS. ABEGG: It's a good start.

 COMMISSIONER THOMAS: I see I have just a

 little time left. Could I just inquire, in your

 own organization's situation, would it be an option

 to maybe form an unincorporated entity that would

 not be subject to 441(b)'s restraints and that

 would allow you to work with this approach whereby

 you could undertake electioneering communications

 as long as you used monies from individuals? Does

 that seem a viable option?

 MS. ABEGG: I think they would certainly

 consider it, but I don't know whether it would be

 feasible.

 COMMISSIONER THOMAS: Your organization, I

 gather, does take in some money from individuals

 and it's not all money from corporations or unions.

 MS. ABEGG: Correct, it's a combination. 
 195

 COMMISSIONER THOMAS: Thank you.

 CHAIRMAN MASON: Larry Norton.

 MR. NORTON: Thank you, Mr. Chairman.

 Mr. Alt, I just want to make sure I

 understand the proposition you've advanced about

 the limiting plain language of the statute. You

 said, I think, early on that the guiding principle

 ought to be the plain language of the statute and

 we ought to particularly look at that with respect

 to crafting of exceptions.

 And yet we have this language in the

 statute that specifically authorizes the Commission

 to promulgate any exceptions that cover any other

 communication so long as the exception meets the

 requirements of this paragraph and doesn't promote,

 support, attack, or oppose.

 Doesn't that give the Commission some

 license here to craft exceptions even where the

 exceptions aren't specifically provided for in the

 statute?

 MR. ALT: It certainly does. However, the

 devil is in the details; I mean, the "promote, 
 196

 support, attack, or oppose." I mean, quite

 frankly, if you look at the Wellstone amendment, it

 seems to look at what potential exception that has

 been offered.

 In that particular area, I think first of

 all you run into an interesting problem because

 there an amendment is offered to specifically

 address the type of communications that you're

 seeking to exempt, which is to say previously a

 (c)(4) organization could have issued an

 electioneering ad and there was an amendment made

 to eliminate that exception. That's a fairly

 strong indication and it would seem to suggest that

 any action would be potentially inconsistent with

 the Act.

 But, furthermore, how are we to determine

 that these ads aren't going to promote, support,

 oppose, or attack? It seems that would be very,

 very difficult if you use a standard MCFL-type

 exception to say that it would comply with that

 particular requirement. And so that's why I say I

 think because of that requirement that's added as 
 197

 an addendum to any exception must meet makes it

 very difficult, if almost impossible, to craft

 appropriate exceptions.

 MR. NORTON: I think the approach the

 Commission is proposing with respect to MCFL is not

 so much through that authority, but as the Chairman

 suggested, through the dictates of existing Supreme

 Court case law.

 And if I'm understanding your position

 correctly with respect to MCFL, the law itself

 would have had to specifically refer to MCFL and

 its progeny or expressly state that it was subject

 to MCFL and its progeny for MCFL to apply to this

 statute?

 MR. ALT: No. I mean, obviously--or not

 exactly. I mean, obviously MCFL applies to the

 communications irrespective of whether or not

 Congress made mention of it. My point was simply

 that unlike the prior rulemaking which was made in

 a Congressional vacuum--Congress had not spoken--here you're

 dealing in an area where presumptively

 your executive power is somewhat ebbed insofar as 
 198

 Congress has specifically spoken post the MCFL

 decision, one, and, two, has given you a directive

 that you're acting pursuant to to issue regulations

 pursuant to that specific piece of legislation

 which seems to flatly contradict MCFL.

 Quite frankly, I think they've put you in

 a very bad spot, and the only way I can see to get

 out of it legitimately is, once again, you

 certainly have the Article II power not to enforce

 the provision. But I fear that you may not have

 the power, given the limitations of Congress, to

 issue this exception.

 MR. NORTON: Mr. Alt, you mentioned early

 on the impact of the Commission's declining to try

 to promulgate a regulation for the alternative

 electioneering communication on the litigation. I

 think what you said was there were mootness

 arguments at play, and I suspect what you may have

 meant was ripeness arguments.

 MR. ALT: I apologize. Yes, that's

 correct.

 MR. NORTON: Okay. Isn't it possible that 
 199

 in the event the court were to strike down the

 principal definition of electioneering

 communication and that were to be upheld by the

 Supreme Court that the Commission might get some

 guidance in the course of those rulings that would

 inform its effort to promulgate a regulation for

 the alternative definition?

 MR. ALT: Certainly, it would be possible.

 However, the alternative is possible as well, which

 is to say by promulgating a rule at this particular

 time, the Commission could grant to the courts the

 Executive's view, this Commission's view, on the

 proper application of the secondary definition.

 So I mean there are obviously reciprocal

 benefits. If you wait, then you get to know what

 the court has to say. My recommendation is just

 the flip, that if you do it now, the courts may get

 to know what you have to say.

 MR. NORTON: I presume the court would get

 to an issue that it doesn't need to get to, but I

 want to just ask one question at the close of Ms.

 Abegg to make sure I am reading your written 
 200

 comments correctly.

 You had written on page 10, towards the

 bottom in your conclusion, that "Although the

 Commission is constrained to implement the BCRA,

 there exist opportunities for the Commission to

 exercise its discretion and remove some of the

 constitutional deficiencies of the Act."

 I wanted to clarify that. Were there

 particular proposals that you have made here that,

 in your view, would render some portions of the Act

 constitutional?

 MS. ABEGG: I think by including

 exceptions it would remove some of the problems

 because then the Act would not apply to lobbying

 communications and other issue ads.

 MR. NORTON: And therefore render the Act

 constitutional?

 MS. ABEGG: Not totally constitutional,

 but would remove that problem.

 MR. NORTON: Thank you. Thank you, Mr.

 Chairman.

 CHAIRMAN MASON: Mr. Pehrkon. 
 201

 MR. PEHRKON: Mr. Chairman, thank you.

 Mr. Alt, Ms. Abegg, thank you for coming

 before the Commission today. I have a quick

 question for Ms. Abegg and it's in part because I'm

 not familiar with your organization. And I was

 wondering if you could sort of elaborate a little

 bit more on what your organization does, and what

 I'm looking for is in terms of how do you see--in

 terms of number, how many election communication

 messages would you anticipate sort of having to

 report during an election period? Have you had a

 sense of that or have you looked at it from that

 perspective yet?

 MS. ABEGG: I haven't, but I mean part of

 it would depend upon what was going on in Congress

 at the time. If Congress was in recess for the

 entire 60 days before the election, then there may

 not be much to report. But if Congress was in

 session up until the election, then there probably

 would be quite a bit.

 MR. PEHRKON: In terms of "quite a bit,"

 are we talking about hundreds of reports or tens, 
 202

 twenties? Do you have a sense for that? I'm not

 just familiar with your organization.

 MS. ABEGG: Well, part of it would also

 depend on whether they would have to report for

 each ad or whether those would be aggregated on

 different networks. So I don't know. I would hate

 to hazard a guess, but I would say maybe at least

 close to 50.

 MR. PEHRKON: Part of my dilemma is trying

 to figure out what we're going to have to plan for

 here.

 Thank you very much. Thank you, Mr.

 Chairman.

 CHAIRMAN MASON: Thank you.

 Unless we have a burning desire for

 follow-up questions, I think we'll probably be best

 advised to take a 5- to 10-minute recess before the

 next panel. Does that suit my colleagues?

 We'll be in recess for ten minutes. Thank

 you very much.

 [Recess.]

 CHAIRMAN MASON: The special session of 
 203

 the Federal Election Commission for Wednesday,

 August 28, 2002, will reconvene. This is our

 public hearing on electioneering communications,

 and our third and final panel for today--we have

 with us Lloyd Mayer from Independent Sector, and

 Tim Mooney from Alliance for Justice, both

 organizations umbrella organizations for a number

 of non-profit advocacy and education organizations.

 We're delighted to have you both here. In

 case you weren't here at the beginning of the

 previous panel, I'll just briefly say that you'll

 have five minutes to make an opening statement. We

 do have the light system in front of you. You get

 a green flashing light after four minutes and a

 yellow light--excuse me--green flashing light after

 three minutes, a yellow light after four minutes,

 and a red light at five minutes. We will then go

 to a five-minute round of questioning from each of

 the Commissioners, the General Counsel, and the

 Staff Director.

 We very much appreciate you being here

 this afternoon and appreciate the testimony that 
 204

 you've already submitted in writing. And, of

 course, your complete statements will be a part of

 our hearing record.

 We've been going in alphabetical order,

 and so by a nose, as it were, that would make Mr.

 Mayer first today.

 Mr. Mayer.

 MR. MAYER: Good afternoon, Mr. Chairman,

 Members of the Commission. Thank you for the

 opportunity to testify today on behalf of

 Independent Sector. I serve as outside counsel to

 Independent Sector.

 The comments we have submitted are also

 submitted on behalf of the following members of

 Independent Sector: the Alliance for Children and

 Families, the American Cancer Society, the American

 Foundation for AIDS Research, the American Heart

 Association, the National Council of La Raza, the

 National Council of Non-Profit Associations, the

 Otto Bremer Foundation, and the Peter C. Cornell

 Trust.

 Independent Sector is a non-profit, non-partisan 
 205

 coalition of more than 700 national

 organizations, foundations, and corporate

 philanthropy programs collectively representing

 tens of thousands of charitable groups in every

 State across the nation.

 Its mission is to promote, strengthen, and

 advance the non-profit and philanthropic community

 to foster private initiative for the public good.

 Independent Sector's comments are designed to

 promote the principles of the Bipartisan Campaign

 Reform Act that aim to bring greater integrity to

 the electoral and democratic processes, while also

 preserving non-profit advocacy rights.

 Independent Sector believes the rules on

 electioneering communications need to meet two

 important goals. First, they should be as clear as

 possible to ensure that the many non-profit

 organizations which cannot afford legal counsel can

 comply with them easily. Second, they should

 contain appropriate exceptions to avoid

 unnecessarily restricting non-profit advocacy and

 education. 
 206

 Achieving these two goals is not only in

 the best interests of the organizations Independent

 Sector represents, but is also needed to avoid

 vagueness and over-breadth. All of our comments

 are shaped by these goals, but there are several

 specific points in our written comments that I

 would like to emphasize.

 Independent Sector believes that the rules

 need to include an exception that would cover

 public service announcements, documentaries,

 entertainment shows, and other kinds of non-political, non-

 partisan communications that happen

 to refer to a person who is a federal candidate.

 The best way to address this concern is to

 provide an exception for unpaid communications.

 Failure to provide such an exception would force

 every organization that engages in such

 communications, including every public television

 and radio station in the country, to review all

 materials scheduled to be shown within the

 electioneering communication time frames for even

 the slightest mention or picture of a current 
 207

 federal candidate--an enormous and unnecessary

 task.

 Independent Sector also believes that an

 exception is needed for communications designed to

 encourage the public to contact their elected

 officials about pending legislative and executive

 matters. For example, many critical issues are

 considered by Congress in the days leading up to

 primary and general elections.

 Of the proposed alternatives, Independent

 Sector supports alternative 3-B, modified as

 detailed in our written comments, as the

 alternative best addressing this concern and for

 also being consistent with BCRA.

 There has been much discussion in the

 comments filed to date relating to the proposed

 exception referring to the popular name of a bill

 or law. Independent Sector believes that such an

 exception is necessary to allow non-profit

 organizations and others to engage in effective

 advocacy and education about such bills or laws.

 We agree with the critics of this exception, 
 208

 however, that a clear definition of "popular name"

 is needed both to prevent abuse and to provide

 clear guidance.

 Finally, Independent Sector supports the

 clarification of the proposed rules that print and

 certain other types of communications are not

 electioneering communications. We particularly

 support the clarification that communications over

 the Internet are not electioneering communications

 as long as they are not also distributed by

 broadcast, cable, or satellite stations.

 Many non-profit organizations use the

 Internet as a means of providing access to large

 volumes of information, and to require all these

 organizations to vet all of their online

 information to ensure there's not a single

 reference to a person who is a federal candidate

 would be unnecessarily onerous.

 Thank you for your consideration.

 CHAIRMAN MASON: Thank you.

 Mr. Mooney.

 MR. MOONEY: Thank you, Mr. Chairman. 
 209

 Thank you to Members of the Commission.

 The Alliance of Justice is an association

 of about 50 different non-profits that focus on

 advocacy work. The two things I'm going to talk

 about today are found within our written comments.

 I'm going to focus in on two, however. The first

 is a broad exemption for 501(c)(3) organizations,

 and the second is an exemption regarding lobbying

 and other types of matters.

 Before I get into those two, I'd like to

 make an aside about the constitutionality of the

 statute. A lot has been talked about today about

 the constitutionality and we know that obviously

 the Commission is not the ultimate arbiter of the

 constitutionality. That's up to the courts.

 However, the court that is going to be at

 least the preliminary arbiter of this, the D.C.

 Circuit, in a recent order has said that it's

 looking to the Commission in its determination as

 to the constitutionality, because presumably the

 Chevron doctrine will be at issue here and the

 expertise of the Commission is going to be weighed 
 210

 heavily by the court.

 Electioneering communications, as we've

 talked about, are intended to stop the sham issue

 ads, the so-called sham issue ads, and I think the

 framers have been pretty up front about that they

 intended to draw a bright line rule to avoid

 vagueness problems.

 Unfortunately, they've gone a little bit

 too far in a lot of instances, some of which the

 Commission noted in the NPRM. It's over-broad, it

 covers too much. The Commission can save the law

 in these areas by using their exemption authority

 in Section 434 that is explicitly granted by

 Congress to pull it back into the constitutional

 realm in those areas where there are

 interpretations both constitutional and

 unconstitutional.

 So let me start by going to the two areas

 that I'd like to talk about today, the first being

 the 501(c)(3) exemption that the Alliance suggests

 that the Commission undertake.

 Any statute that purports to regulate 
 211

 speech, particularly political speech, has to have

 some kind of a compelling interest involved of the

 government, and any regulation has to be narrowly

 tailored to only fit within that compelling

 interest.

 Here, the electioneering communications

 provisions fail the second prong in a number of

 different areas. It even covers the activities of

 501(c)(3) organizations in many instances.

 501(c)(3) organizations are absolutely prohibited

 by definition from engaging in any activity that

 gives any indication, explicitly or implicitly,

 that it is for or against any candidate for office,

 federal or otherwise.

 There are a host of different ways that

 501(c)(3)'s are regulated in this manner all

 through the tax code. First and foremost, any

 violation of this standard creates a revocation of

 the tax test. It's the death penalty for these

 organizations. But it does even further than that,

 down to personal liability to the managers of the

 organizations that are found to violate this 
 212

 standard, which I'd like to note for the record is

 broader than what the electioneering communications

 standard is. So it goes further than that.

 At an earlier panel this morning, there

 was the suggestion that 501(c)(3)s are acting in

 this area, getting into political areas. The

 Alliance would dispute that; the Alliance would

 dispute that completely. There are no examples

 that we are aware of of 501(c)(3) organizations

 that are engaging in sham issue ads. They simply

 are not existing, to the best of our knowledge.

 Yet, BCRA, in the electioneering

 communications section, goes further than all that.

 It actually prohibits, in a sense, lobbying,

 educational, and public service broadcasts that are

 captured within the regulation. So BCRA's

 application to 501(c)(3)'s, in particular,

 prohibits activity that is already forbidden, plus

 it goes into activity that should not, and indeed

 cannot be banned by the Constitution.

 The second area that I'd like to address

 here in the testimony is regarding the lobbying 
 213

 exception, the so-called lobbying exception that

 we've been discussing through most of the panels

 today.

 Again, this is an area where BCRA is over-broad.

 It includes lobbying activity which falls

 outside of what the compelling interest of

 government is, and we've talked about what that

 compelling interest is. It's to ensure that

 elections are free from the appearance of

 corruption. Lobbying falls outside of that.

 Sham issue ads, yes, are absolutely

 captured in BCRA. However, it also captures

 legitimate, protected lobbying activity. As a

 result, there are a host of problems that

 disenfranchise non-profits which I'll go through

 really briefly as my time is going out here.

 Legislative issues often peak during the

 60-day window that BCRA becomes effective, right

 before elections. That's when a lot of laws are

 going to be at their most compelling point.

 Indeed, there might be room for abuse by certain

 Members of Congress who would like to push laws 
 214

 during that 60-day window to avoid having non-profit

 organizations or other organizations to do

 some lobbying during that time, to shut down that

 kind of aspect of the debate.

 Mentioning office-holders is critically

 important to focus in on key swing votes, and

 that's why the exception is extremely important to

 be able to mention office-holders. Organizations

 face a choice, in a sense, under this, if this goes

 through. They either don't lobby or they lobby in

 an ineffective way.

 And I see that my time is up. If you

 don't mind, I could continue going. Thank you very

 much.

 The Alliance would like to push for

 alternative 3-C, which is a different one that

 Independent Sector is asking for, most importantly

 to talk about historical votes of office-holders.

 It is critically important to be able to tell the

 general public, when engaged in a grass-roots

 lobbying effort, what the past history is of an

 elected official. It shows what the propensity for 
 215

 that elected official will be to vote on the

 pending legislation at hand. That's absolutely

 critical to lobbying and it's something that the

 Alliance is absolutely intent on pushing for.

 Just to conclude, Professor Malbin this

 morning in an earlier panel suggested that we

 somehow need to save the non-profit sector from

 itself, that we need to make sure that we kind of

 pull back so that the non-profit sector is not

 smeared, in a sense, by having the ability to lobby

 in this area. I'd suggest that's counter-intuitive

 to protect the non-profit sector by taking away

 some of their lobbying rights.

 And with that, I'm happy to take any of

 your questions.

 CHAIRMAN MASON: Commissioner Thomas is

 first in the questioning order this afternoon.

 Commissioner Thomas.

 COMMISSIONER THOMAS: Thank you. Thank

 you both for coming. I first have to note that the

 Alliance for Justice has recently retained the

 services of an exceptional individual and I will 
 216

 not name her. Her last name is Flynn, but I wanted

 to pass word on to her that she is a superstar.

 Your comments--I'll start with comments of

 the Alliance for Justice--suggest that we ought to

 allow for an exception for (c)(3) organizations,

 and you allude to the fact that the Internal

 Revenue standards are tougher. So just to be

 clear, what you're saying is although we have an

 electioneering communication standard, you would,

 for (c)(3)'s, want to defer to the Internal Revenue

 Code standard, which is tougher. Is that where

 we're going?

 MR. MOONEY: In a sense, yes,

 Commissioner. It's just to note the fact that

 501(c)(3)'s are already subject to stricter

 definitions.

 The issue that we have regarding the

 (c)(3) exemption is the fact that the

 electioneering communications standard actually

 goes beyond certain areas. It goes into areas that

 (c)(3) organizations are able to do right now that

 are protected--educational activities, things along 
 217

 those lines that frankly are not electoral in

 nature. There is an absolute prohibition to engage

 in any electoral activity whatsoever, and that is

 what is stricter about the tax code compared to

 what BCRA actually ends up regulating.

 COMMISSIONER THOMAS: How about lobbying,

 though? (c)(3)'s are not absolutely prohibited

 from lobbying, are they?

 MR. MOONEY: That's correct. They're able

 to engage in a limited amount of lobbying under the

 tax code, which is separate and distinct from the

 absolute prohibition on electoral activity which is

 found in section 501(c)(3).

 COMMISSIONER THOMAS: So what would the

 Internal Revenue Service do with an ad that in

 essence says the--let's say we're getting close to

 the 2004 Presidential election and the Alliance for

 Justice runs an ad that says something like

 "President Bush consistently has appointed judges

 who do not reflect America's values. President

 Bush has consistently acted against the interests,

 if you will, of people who support a moderate 
 218

 approach to judicial construction of the law.

 Contact President Bush and tell him to stop his

 judicial activism," if you will, something like

 that.

 Would a (c)(3) be in a posture of doing

 something like that as a lobbying effort and would

 it be something where the Internal Revenue Service

 would say that crosses their line?

 MR. MOONEY: The way that the Service

 analyzes such a situation is based on a facts and

 circumstances analysis. The prohibition is

 absolute. So on a facts and circumstances

 analysis, if the Service determines that there is

 some sense of electioneering that is coming about

 on that, in the unlikely instance where the

 Alliance would take out an ad like that, the

 Internal Revenue Service would actually enforce

 that as an electioneering statement.

 However, that being said, the Service

 looks to all of the facts that are involved there.

 If there is, in fact, a judicial nomination that's

 going on at the time, that's actually considered 
 219

 lobbying, dealing with judicial nominations. If

 there is a nominee that's active right there, the

 IRS takes that into account and it would look at it

 as much of a lobbying communication. So, indeed,

 the Service actually does take a look at all the

 facts in making the determination.

 COMMISSIONER THOMAS: So you're more

 comfortable with that approach?

 MR. MOONEY: I think that, in fact, since

 it's more restrictive, in a sense, than anything

 that the Federal Election Commission would be

 considering in any of the regulations here, it's

 certainly going to stop any (c)(3)'s from engaging

 in sham issue ads. For instance, if that ad as you

 described is a sham issue ad, yes, the IRS will

 come in, will intervene and make sure that the

 organization is held accountable for it.

 COMMISSIONER THOMAS: I have very little

 time. I'm not going to ask a question of you only

 because I think your comments are very helpful and

 you mentioned you promote recommendation or

 proposal number 3-B, which is my favorite of the 
 220

 ones we've put out. So I'm not going to question

 you about that.

 I did want to ask a question, though,

 about again Mr. Mooney's testimony, written

 testimony, on page 7. You talk about how you would

 suggest BCRA's electioneering communications ban

 does not apply to unincorporated (c)(4)

 organizations.

 I just want to be clear there. What

 you're talking about is just the ban. You concede

 that the other parts of the electioneering

 communications rules--i.e. the disclosure

 provisions--would still apply to unincorporated

 (c)(4)'s.

 MR. MOONEY: I believe that is the case,

 but I will supplement if, upon further analysis, I

 disagree with that.

 COMMISSIONER THOMAS: I have a little time

 left. If anything I've asked gives you a chance to

 comment, feel free.

 MR. MAYER: No, I have no comment on this.

 COMMISSIONER THOMAS: I will finish by 
 221

 noting we've heard a lot about how people have to

 make reference to a candidate. Keep in mind when

 you're attacking the administration, you can say

 "the administration" without saying "the Bush

 administration." You can, I think, use a lot of

 creative techniques to make clear, very clear, that

 you are opposed to a particular piece of

 legislation and why, and you can lay out all the

 arguments as to why it's a miserable piece of work

 and then follow up with just a pitch to contact

 Member of Congress X. And you can still, I think,

 have a very effective lobbying piece.

 So I think this idea we're working toward

 is developing a set of bright line rules so people

 will know, in essence, what they can and cannot put

 in a communication. And then I think what we have

 in mind is people can go on about their business in

 a constitutionally fair and open way.

 Thank you.

 CHAIRMAN MASON: I'm second in the order

 this round and I also wanted to ask questions of

 Mr. Mooney. And I agree with a lot of what you 
 222

 have to say, but as I suggested in the first panel,

 I'm not quite there on a blanket, follow-the-IRS

 policy for a couple of reasons.

 One is that we've got an independent

 responsibility to enforce the law and if we were

 just to defer and say, well, gee, whatever is fine

 with the IRS is fine with us, and then as you

 described, the IRS applies the facts and

 circumstances test, we get a complaint that someone

 has violated the law. The Vice Chairman isn't sure

 that we can penalize anybody about that. That's

 another issue.

 But how are we then to determine--in other

 words, the IRS applies a very fact-specific--and

 I'm somewhat familiar with it, less so than you

 are. Are we to render our own judgment about what

 the IRS might conclude based on those facts and

 circumstances?

 You can see how that gives us a problem

 when we have our own separate enforcement

 mechanism. So my reaction is that the better

 course is to try to harmonize or de-conflict, if 
 223

 you will, but--and I'd invite you to try to

 convince me otherwise if you think you have

 something to say, but I don't see us--and let me

 give you an additional reason that I think in this

 particular case that a simple deferral is

 insufficient, and that is that we have a law that

 clearly sets out a different standard.

 The law just says if you mention a

 candidate within the, you know, relevant periods,

 you're caught and then there's some exemption

 authority. But it looks hard to me to construe

 that exemption authority to be just a total default

 to the IRS.

 MR. MOONEY: You raise a lot of points,

 Mr. Chairman, so I'll try to address them all here.

 The suggestion that the Alliance would have first

 and foremost would be that in an instance where the

 IRS is acting or not acting that the Federal

 Election Commission would actually defer to the

 decisionmaking of the IRS in that instance.

 Understandably--

 CHAIRMAN MASON: Why, why? 
 224

 MR. MOONEY: Because the IRS has the

 expertise in that particular area. However, that

 being said--

 CHAIRMAN MASON: The IRS is more expert in

 elections than the Federal Election Commission?

 MR. MOONEY: Oh, no, I'm sorry. I clearly

 was not being lucid there. Pardon me. My

 suggestion is that regarding that particular

 standard, with the facts and circumstances

 analysis, I would say that the IRS does have

 expertise in the area, that it's possible that the

 Commission could choose to defer to that.

 That being said, the Commission can draft

 the regulation however it wishes. There is a

 possibility that the Commission could choose to

 draft a regulation that uses the same language and

 just use its own independent authority in its

 enforcement activities to follow that particular

 standard. The world is your oyster, as it were, in

 terms of creating regulations for that. Our

 suggestion would be to, first and foremost, defer

 to the Service on that. 
 225

 The second aspect, I think, was one of

 authority, whether or not the Commission has

 authority to promulgate such a regulation. I think

 it's pretty clear that Section 434 does give you

 that authority.

 First and foremost, it says "to ensure

 proper implementation of the law." That's some

 aspect of Section 434's authority that you have

 that I haven't heard expressed today. "To ensure

 proper implementation" to me and to the Alliance

 means to ensure that there's a constitutional

 application of the statute, in addition to the

 other section of 434 that says that no exemption

 that's created under that section can have anything

 that supports, attacks, or opposes candidates.

 Here, Section 501(c)(3) organizations, as

 I've already talked about--and I go into more

 detail in the written comments--they simply just

 cannot do it by definition, support, oppose, or

 attack candidates for public office, any public

 office, much less federal. So I think that the

 authority for the Commission to promulgate this 
 226

 regulation is clearly there in Section 434.

 CHAIRMAN MASON: I also wanted to ask you,

 in suggesting, if you will, this 501(c)(3)

 exemption, help me try to understand the basis for

 that and if there's any--I mean, you've given me a

 pretty good argument based on the substance, but

 there seemed to be a suggestion in your testimony

 that there was some different constitutional status

 or other status of 501(c)(3) organizations that

 required or favored their separate treatment.

 MR. MOONEY: I don't think that there's

 any--I think it's more of a general constitutional

 analysis. In any situation where government is

 intending to limit or curtail speech in any

 instance, you have to go through the compelling

 interest, narrow tailoring analysis.

 And here there's already regulation. In

 fact, there's more regulation of 501(c)(3)'s in

 this area through the tax code. They are already

 prohibited from engaging in the types of activity

 that BCRA's electioneering communication sections

 contemplate--the sham issue ads, the so-called sham 
 227

 issue ads.

 The BCRA sections go further than that,

 however, and that's I think where there's some

 possibility for some constitutional problems

 related to 501(c)(3)'s in terms of application of

 BCRA, which is why the Alliance suggests that the

 exemption has a constitutional basis as well as a

 policy basis.

 CHAIRMAN MASON: Thank you.

 Commissioner McDonald.

 COMMISSIONER McDONALD: Mr. Chairman,

 thank you.

 Welcome, both of you. You've hung in

 there throughout the day and that's quite an

 accomplishment. Let me ask each of you if you

 wouldn't mind giving us an example of what--since

 you've looked at it from various perspectives, what

 you see as a so-called sham ad.

 Mr. Mooney, would you like to be first?

 You had indicated earlier that you didn't know of

 anyone that did such a thing, but if you could

 figure one out, what would it be? 
 228

 MR. MOONEY: When I said that I wasn't

 aware, I wasn't aware of any 501(c)(3)

 organizations that have engaged in that.

 What is a sham issue ad to me? I think

 we've heard earlier in testimony some examples.

 Questions about the Bill Yellowtail one, I believe,

 was one example that was used in a prior

 commentary. It's clear--

 COMMISSIONER McDONALD: Now, would you see

 that as one on that particular matter? I think

 that was Mr. Shor's testimony.

 MR. MOONEY: I believe you're right.

 COMMISSIONER McDONALD: And from your

 vantage point, would you see that as a sham ad?

 MR. MOONEY: I think it's difficult to

 make the determinations, which is I think one of

 the problems with the statute as written. There is

 an attempt to make this a bright line test,

 absolutely. However, I think in some circumstances

 there is a bit of vagueness involved and I think it

 is difficult. As I recall--and, of course, this is

 going back several hours and my memory fades, of 
 229

 course--I think that that would be one that might

 be considered.

 COMMISSIONER McDONALD: Let me refresh

 your memory.

 MR. MOONEY: Thank you.

 COMMISSIONER McDONALD: It's "Who is Bill

 Yellowtail? He preaches family values, but he took

 a swing at his wife. And Yellowtail's response?

 He only slapped her. But her nose was broken. He

 talks law and order, but is himself a convicted

 felon. And though he talks about protecting

 children, Yellowtail failed to make his own child

 support payments, then voted against child support

 enforcement. Call Bill Yellowtail. Tell him to

 support family values."

 MR. MOONEY: It seems to me that that does

 appear to be much more of a sham issue ad. Now,

 that being said, the reasoning is because it

 doesn't mention policy matters to any real great

 sense, which is I think one of the difficulties

 with this particular area.

 It's possible that with a few different 
 230

 changes, that actually might end up being a

 lobbying communication. That being said, this one

 clearly seems to cross that line. The lobbying

 communication exemption that the Alliance favors

 would clearly not cover that kind of an ad, and I

 think that that's one of the areas that I suspect

 that you're asking about.

 COMMISSIONER McDONALD: I have no doubt

 that the Alliance wouldn't do such a thing.

 MR. MOONEY: Indeed, no, and thank you.

 COMMISSIONER McDONALD: Mr. Mayer, do you

 want to comment on that ad?

 MR. MAYER: Well, I think we would take

 the position that an ad along those lines broadcast

 shortly before an election where Bill Yellowtail

 was running would constitute what has been referred

 to as a sham issue ad.

 I think it's the combination of the timing

 of the ad, as well as the fact that the ad clearly,

 you know, applauds or denigrates a particular

 candidate who is running that makes it a sham issue

 ad. 
 231

 Having said that, we do support, as

 already has been noted, alternative 3-B for the

 lobbying communication which would allow an

 organization to mention public policy issues that

 are pending, mention by name the name of a

 candidate, and our modification to 3-B, provide

 contact information for that candidate, assuming

 that they were already in a policy position to

 influence that issue.

 But we actually chose, after looking at

 all the alternatives, 3-B because it did not allow

 what the Alliance for Justice and other

 commentators support, what's called a bad vote ad,

 laying out the position of the candidate on that

 issue, having already promoted or explained why

 that issue is, you know, terrible.

 And we think that in the time frame

 shortly before an election, the combination of

 promoting or opposing a particular issue with

 laying out the candidate's position on the issue

 could become a shame issue ad and create a problem.

 COMMISSIONER McDONALD: I believe--and I 
 232

 don't know if this was dispositive--I believe they

 did indicate this was in October of an election

 year.

 Heidi Abegg had mentioned a point that

 always interested me and I was sorry I didn't have

 an opportunity to follow up with her. In

 relationship to lobbying, for either of you, one of

 the things that we see happen, of course, is that a

 number of Members are cited or there is an

 implication concerning a number of Members who may

 not, in fact, be even remotely close to the

 legislation at that point. And let me give you an

 example.

 If you take up a health care matter and

 are lobbying on a health care matter and you cite

 an individual shortly before an election, and maybe

 there's not even a pending piece of legislation or

 maybe it's going to be in committee or whatever, we

 always have difficulty trying to come to grips with

 these kinds of matters, as well, where the

 individual might be on a committee or it's just

 universal across the Congress because ultimately if 
 233

 the bill comes out of committee, obviously that

 Member would have an opportunity to vote on it.

 Do either of you have any thoughts about

 that?

 MR. MAYER: Our thinking on that is that

 when a broadcast, cable, or satellite

 communication--that's what's relevant here--is done

 shortly before an election, the way to ensure that

 a communication directed at a Member of Congress or

 to encourage the public to contact that Member is

 not a sham issue ad, is not a veiled attempt to

 affect the upcoming election, is to ensure that as

 much as you can say about the issue, that

 particular health care issue in the ad, you do not

 characterize that Member of Congress' position on

 that issue.

 We think once you've done that, the only

 reason to make a communication like that is because

 you're concerned about the issue, not about the

 election of that particular Member.

 COMMISSIONER McDONALD: Thank you. Thank

 both of you for coming. 
 234

 CHAIRMAN MASON: Commissioner Smith.

 COMMISSIONER SMITH: Thank you, Mr.

 Chairman. Thank you, gentlemen.

 I want to ask you about a question that

 hasn't gotten too much attention today, and that

 pertains to the reporting requirements for

 organizations. I wondered if both of you, or at

 least either of you, if you don't care to, but I'd

 like to get your thoughts on how burdensome some of

 these reporting requirements can be, particularly

 for some of your smaller members, perhaps, if they

 are burdensome, if there's anything that we can do

 or should do to lessen them in terms of

 interpreting the statute and that we can do.

 And I'd ask one more somewhat specific

 question within that. Several groups have

 suggested that under the provision of the Act that

 requires the reporting of any person making the

 disbursement or any person sharing or exercising

 direction or control over the activities of such

 person, we should include--you know, so you don't

 just list the name of the group, but some broad 
 235

 list of all the people who might have sort of had

 anything to say or do with that.

 And I wonder how that strikes you, if that

 creates other reporting problems or other types of

 problems in terms of preferred anonymity for

 certain groups or people, or just the difficulty of

 figuring out who exactly you would call,

 particularly if one of your umbrella groups

 themselves were, for example, to run ads. If the

 Alliance for Justice's 50 members were to run ads,

 who would you decide was a person sharing direction

 or control of your books?

 So that's an issue I wonder if each of you

 could comment on a bit, whether that's a problem or

 not, and if it is a problem, how it might be

 addressed.

 MR. MOONEY: The Alliance didn't

 specifically make too many comments on the

 reporting requirements. However, as a general

 rule, clearly the Alliance would want to make it so

 that the reporting is done in as least burdensome

 manner as possible. 
 236

 When it comes to some of the rolling

 requirements versus every $10,000 disbursement

 question, I'll defer to our written comments on

 that, where we have said that there should be a

 one-time requirement for reporting after the

 electioneering communication is made.

 When it comes to your question regarding

 the extent to which, I suspect, donors and other

 organizations are regarding umbrella organizations,

 there's already some Supreme Court precedent

 regarding releasing names of membership

 organizations in situations where those

 organizations are in, shall we say, a little bit

 more controversial subject matter areas.

 I believe the case that I'm thinking of

 off the top of my head has to do regarding

 affiliation with the Communist Party, also with

 some civil rights groups, as well. There are many

 instances of several organizations and subject

 matters which I won't get into where there are

 threats of violence, threats of violence against

 individual members or organizations themselves. 
 237

 And I'd suggest that any reporting

 requirements reflect that Supreme Court precedent

 to ensure that organizations that are in that kind

 of subject matter area do not have to reveal the

 identities of people when that could put them at

 risk.

 COMMISSIONER SMITH: Mr. Mayer, any

 thoughts?

 MR. MAYER: Independent Sector chose not

 to comment on the reporting requirements because we

 believe that most of our members, the vast majority

 of them, regardless of what the financial

 definition is of electioneering communications,

 will not engage in whatever those communications

 are, in part because of the burden of the reporting

 requirements and in part because of the comment

 that Mr. Mooney just made that the reporting

 requirements, of course, require reporting about

 donor information. And that is considered a very

 sensitive issue for many of our members and that

 alone might cause some concern, some reason to

 avoid engaging in electioneering communications 
 238

 even if they were otherwise permitted to do so.

 COMMISSIONER SMITH: So I would read your

 comment as saying that that makes it all the more

 important that we craft careful exemptions so that

 your members can engage in certain types of

 activity that are not so-called sham

 electioneering, but in fact is lobbying activity.

 MR. MAYER: That is correct. I mean, one

 major concern we have with the regulations and with

 BCRA in general is the potential chilling effect on

 our members. As I noted earlier, many of our

 members, many non-profit organizations cannot

 afford legal counsel to advise them on the details

 of these rules, cannot afford to hire legal counsel

 to seek advisory opinions from the Commission.

 So they are forced to get a very plain

 understanding of the rules either from publications

 or groups like Independent Sector or Alliance for

 Justice produce, or from information available on

 the Commission's website. And unless the rules are

 very clear, they are going to steer as far away as

 possible from anything that could get them into 
 239

 trouble with the Commission.

 COMMISSIONER SMITH: Okay, and just real

 briefly, I believe both of your groups, if you

 would just confirm this--and I believe this is

 contrary to what Senator McCain and others are

 urging on us--both of your groups favor an

 exception for unpaid ads and for public service

 announcements. Is that correct?

 MR. MOONEY: That's correct, Commissioner.

 MR. MAYER: That is correct.

 COMMISSIONER SMITH: Thank you very much.

 CHAIRMAN MASON: Vice Chairman Sandstrom.

 VICE CHAIRMAN SANDSTROM: Thank you. Let

 me follow up briefly on Commissioner Smith's

 questions. You both represent a number of

 organizations that fall under the umbrella of the

 Alliance and Independent Sector. Are a number of

 those democratic in structure?

 MR. MOONEY: As in for voting rights for

 the organization?

 VICE CHAIRMAN SANDSTROM: The members. Do

 members have a right to participate in who gets 
 240

 elected to be the officers and make the final

 decisions? These organizations, do they start at

 some level where someone is determined to be a

 member and they then have voting rights in

 determining who gets elected to the next level or

 who gets to be the chief operating officer or

 chairman or president? Do they have a democratic

 structure in that way?

 MR. MOONEY: Not exactly. Speaking for

 the Alliance, not exactly the way that you

 describe. There is representation on our board of

 directors.

 VICE CHAIRMAN SANDSTROM: No, I'm not

 asking about--just more a familiarity with the

 organizations that make up yours. Do they have--not your

 organization, but the organizations that

 make up the membership, do they have democratic

 structures?

 MR. MOONEY: I think generally speaking,

 yes, but it would be hard to speak for all of them.

 There are over 50 members for the Alliance.

 MR. MAYER: I'm not familiar with the 
 241

 governing structure of most of the members. I can

 think of one off the top of my head that does have

 a democratic structure in that some members of the

 board are selected by the members, and I suspect

 there are many others.

 VICE CHAIRMAN SANDSTROM: The reason I ask

 is it was urged on us earlier today that if someone

 exerts direction or control, then they are to be

 listed as part of the report. But if you have a

 democratic structure, essentially every member

 exerts direction or control and so they all would

 have to be listed.

 If you had a labor PAC, since most labor

 unions have a democratic structure, everyone who is

 a member of the union who has voting rights would

 conceivably have some direction or control. And we

 need to narrow that in some way.

 In looking at the statute--and I don't

 want to surprise you here because you may not have

 looked at this particular issue--did you see where

 there was any personal liability on the part of any

 officer of your organization if they engage in 
 242

 electioneering communications and failed to comply

 with the Act, or is the liability only on the part

 of the organization?

 MR. MOONEY: Actually, I don't know the

 answer to that, Mr. Vice Chairman. I'm unaware of

 any personal liability, but that doesn't mean it's

 not there.

 MR. MAYER: I am also unaware of any

 personal liability, but I have not thoroughly

 researched the issue.

 VICE CHAIRMAN SANDSTROM: Now, it isn't

 clear under the statute who's required to file

 these reports, other than often an abstract entity,

 a person, such as Alliance for Justice which--who

 do you believe, for instance, in the Alliance for

 Justice or in Independent Sector is responsible for

 filing these reports? What person, individual,

 live natural person?

 MR. MOONEY: Well, I would suspect that it

 would be whoever is in charge of the recordkeeping

 for the organization on any of a variety of

 different issues. Speaking for the Alliance, I 
 243

 mean we report to the IRS in any number of

 different ways.

 But to the Federal Election Commission in

 this instance, I would suspect it would be the same

 person. However, that would change from

 organization to organization, unless the statute or

 the regulations specifically dictate a particular

 person. But I'm unaware of anything--

 VICE CHAIRMAN SANDSTROM: But someone is

 supposed to, under the penalty of perjury, attest

 to the accuracy of the reports. I'm just curious

 who assumes that responsibility in organizations

 for doing so.

 It's sometimes hard for me to get around

 the concept of how does a non-natural person, an

 entity, commit perjury.

 MR. MAYER: We would assume that each

 organization in its own structure would determine

 who would be responsible for that, as well as many

 other legal filings that the organization needs to

 make. I don't know off the top of my head who that

 person would be at Independent Sector. 
 244

 VICE CHAIRMAN SANDSTROM: That person

 would only have a part of the information, right?

 He may not know who was all involved in the

 direction or control. Could that person

 conceivably, on incomplete knowledge, be held

 guilty of perjury?

 MR. MAYER: I believe perjury statements,

 though I'm not familiar with the Commission's forms

 that would be used in this case, generally say "to

 the best of my knowledge." So they would only be

 held liable to the degree that their knowledge was

 contrary to what they said in the statement.

 MR. MOONEY: That's my understanding as

 well. I think you raise a very interesting point,

 though, regarding the perjury issue.

 VICE CHAIRMAN SANDSTROM: Well, if the

 person who signs it is just the designated dunce in

 the organization, they could never be held liable

 for perjury.

 CHAIRMAN MASON: Or if it were Enron, it

 could be the CEO.

 [Laughter.] 
 245

 COMMISSIONER SMITH: The first Enron

 reference of the day.

 CHAIRMAN MASON: Commissioner Toner.

 COMMISSIONER TONER: Thank you, Mr.

 Chairman. "Designated dunce." Perhaps that could

 be a new term of art in our agency. It might have

 broad application.

 I wanted to follow up on a discussion that

 Commissioner Thomas developed earlier and that

 deals with this tough issue of electioneering

 communications that mention Presidential

 candidates. And he quoted at length from the

 statute in terms of the targeting requirements as

 applied to Presidential and Vice Presidential

 candidates, namely that there isn't a targeting

 requirement in the statute.

 And, of course, there's another statutory

 phrase that talks about how an electioneering

 communication isn't an electioneering communication

 unless it is made within 30 days of a primary. And

 some people believe that that would be the

 statutory phrase that we would rely upon to 
 246

 conclude that there isn't a nationwide black-out

 period for communications that discuss Presidential

 candidates, and specifically that there isn't a

 prohibition or restriction in those States after a

 primary has taken place, unlike a nationwide black-out

 period approach.

 I just wanted to confirm, Mr. Mooney, do

 you agree with that view that we should not adopt a

 nationwide restriction on Presidential

 communications?

 MR. MOONEY: That's correct, Commissioner.

 We do believe that there are two proper

 interpretations of the law and the Commission at

 least in the Notice of Proposed Rulemaking, in

 adopting the one that avoided the nationwide black-out, was

 the preference choice. And both were

 reasonable to make.

 COMMISSIONER TONER: Do you think that's

 well-grounded in the statutory language?

 MR. MOONEY: That's the Alliance's

 position, yes.

 COMMISSIONER TONER: Mr. Mayer, your view? 
 247

 MR. MAYER: We agree with that position,

 also.

 COMMISSIONER TONER: I'm impressed, Mr.

 Mooney, that, you know, you represent the Alliance

 and also Sierra Club, joined in joint comments, and

 obviously these organizations do an awful lot of

 grass-roots lobbying. And we seem to be struggling

 with, if we're going to craft an exemption for

 lobbying, what do we have to do for it to actually

 be effective so that people could actually lobby.

 I understand that you support alternative

 3-C in the NPRM. What is about 3-C that causes you

 to support that particular proposal?

 MR. MOONEY: The thing that distinguishes--and

 just for purposes of the record, I'm here

 today representing just the Alliance for purposes

 of the testimony.

 The one segment of alternative 3-C that

 distinguishes it from the others is the ability of

 organizations to mention past voting records.

 This, we deem to be critically important for grass-roots

 lobbying communications, for reasons that 
 248

 have already been articulated earlier today on

 other panels as well, that mentioning the past

 records of office-holders is critically important

 to show their propensity to be voting in a

 particular way on the pending legislation that's

 the subject of the grass-roots lobbying.

 To avoid having that, to go with one of

 the other alternatives, would essentially tie one

 arm around the First Amendment's back. It would

 stop organizations from being as effective as they

 can be, and that's why the Alliance chooses

 alternative 3-C in its support.

 COMMISSIONER TONER: Given that you

 represent an organization that does an awful lot of

 grass-roots lobbying, is it your professional view

 that if we adopted an exemption that did not allow

 such groups to mention the voting and legislative

 records of officials, that that would hamstrung any

 effective grass-roots lobbying they could do?

 MR. MOONEY: I think that it certainly

 would take away a tool, a very important tool of

 most grass-roots lobbying efforts. In the vast 
 249

 majority of cases that I've at least taken a look

 at regarding grass-roots lobbying, mentioning the

 past voting record of a particular office-holder is

 a critical piece of that. So, yes, I think it

 would hamstring them.

 COMMISSIONER TONER: Do you feel the same

 way if we were to adopt a rule that restricted the

 ability of organizations such as yours to actually

 air the spots where the officials reside that would

 prohibit that, namely that you wouldn't be able to

 air it in the areas of the country where they

 actually live?

 MR. MOONEY: Yes. I think that goes

 toward the targeting analysis, and again I think

 that would create additional problems. I mean,

 just as a general rule regarding the Alliance's

 comments, we'd like the Commission to come up with

 an alternative that makes sure that they restrict

 the least amount of speech possible. And I think

 any of the variety of different comments that come

 from the Commissioners today, I think, should

 reflect our point of view on that. 
 250

 COMMISSIONER TONER: I'm interested in--and in the

 NPRM, we haven't really touched on this.

 We talk about the FEC website and the information

 that is there in terms of whether or not a

 communication reaches 50,000 people or not. And

 I'm wondering whether not, in both of your views,

 it should be an absolute defense if a group such as

 yours relies on that FEC website and indicates that

 a certain communication does not reach 50,000

 people, whether that should be an absolute defense

 for liability under this statute.

 Mr. Mayer, do you have a view on that?

 MR. MAYER: Yes. We definitely believe it

 should be an absolute defense. We believe that

 many non-profit organizations, the only source of

 information they will have that's reliable on

 whether they're reaching 50,000 people with their

 particular communication will be the FEC website.

 And to require them to seek out some sort

 of other source of information to confirm that the

 FCC information is correct and reliable, we

 believe, would be unnecessary and prohibitively 
 251

 expensive for many of our members and other non-profit

 organizations. So, yes, we believe you

 should be able to rely on it absolutely.

 COMMISSIONER TONER: Mr. Mooney, do you

 share that view?

 MR. MOONEY: We concur with that.

 COMMISSIONER TONER: Thank you, Mr.

 Chairman.

 CHAIRMAN MASON: Larry Norton.

 MR. NORTON: Thank you, Mr. Chairman. And

 thank you for coming this afternoon.

 I wanted to follow up on, I think, the

 last question Commissioner Smith asked and that is

 with respect to the view that I think both of you

 proposed today, which is that unpaid ads and PSAs

 should be exempted.

 That's a correct characterization of both

 of your positions?

 MR. MOONEY: Yes, that is.

 MR. MAYER: That's correct.

 MR. NORTON: Okay. I'd like to understand

 a little bit more about what that's about. It's an 
 252

 interesting concept. It has come up earlier in the

 afternoon, and I guess what I want to be clear on

 is that when you say exempt unpaid ads, what you

 are talking about are communications where you

 don't actually pay for the airing. So you might

 pay for the production, but if you're not involved

 in paying for the airing, then that's what we would

 consider to be unpaid.

 MR. MOONEY: That's correct.

 MR. NORTON: That's right?

 MR. MAYER: That's our position as well.

 MR. NORTON: So if a third party were to

 pay for the advertisement or communication that you

 produced, would the third party then be making the

 electioneering communication if the third party

 paid $10,000 or more?

 MR. MAYER: I think our position would be--well,

 first, our position in our comments is that

 the air time is unpaid for by any person. It

 wouldn't be simply the person that paid for the

 production of the ad. So I think our view would be

 that if an organization paid for the production of 
 253

 the ad or the particular piece of communication and

 then a third party purchased the air time that

 allowed the communication to be aired, both the

 third party and the organization that paid for the

 initial production costs would be making an

 electioneering communication.

 Now, I think we would also agree that if

 this was a situation where the original production

 piece was paid for and produced and was just

 available on the shelf and there was no

 communication between the third party that

 purchased the air time and no agreement between

 them and the person that produced it and it was

 simply taken off the shelf and then put on the air

 that only the person that was responsible for

 paying for the air time would be making an

 electioneering communication, since they had the

 only control over the timing of the communication,

 which would bring it within the scope of the

 electioneering communications definition.

 MR. NORTON: Would you agree with that?

 MR. MOONEY: Our analysis didn't really 
 254

 extend it to that level of detail on this

 particular subject. Our point of view is that

 production costs--whoever takes on the production

 costs, that shouldn't matter in this analysis. If

 the air time is free, then this exemption should

 apply, but beyond that we haven't taken any other

 position.

 MR. NORTON: So both of you would agree,

 then, that if you took care of the--you had an

 arrangement with the public service channel and the

 arrangement was that your organization would handle

 all of the production costs and that the public

 access cable channel, let's say, would then run the

 communication. That shouldn't constitute an

 electioneering communication. That should be

 exempt under this unpaid/paid distinction?

 MR. MAYER: Yes.

 MR. MOONEY: That's correct.

 MR. NORTON: You also mentioned that PSAs

 ought to be included as part of the exemption. And

 I confess as I sit here I'm not entirely sure

 what's a PSA and what distinguishes a PSA from an 
 255

 issue ad. Is it something that we should try to

 define? Is a PSA distinguished by the subject

 matter if it concerns giving blood or reading to

 your children? Is that the difference between a

 PSA and an issue ad? How would we flesh that one

 out?

 MR. MAYER: I think that if an exception

 is adopted for unpaid communications along the

 lines we've just discussed, that would encompass

 PSAs, since the air time for PSAs generally is

 granted free.

 Beyond that, as we stated in our comments,

 we support an exception for PSAs and we agree that

 some definition of PSAs would be required, but our

 comments didn't extend to providing a specific

 definition.

 MR. NORTON: Do you want to add anything,

 Mr. Mooney?

 MR. MOONEY: No. I think that's pretty

 much our position as well.

 MR. NORTON: A last question for you, Mr.

 Mayer, and again I'm curious more than anything 
 256

 else about this. You've talked about the IRS'--or

 you both have actually talked about the IRS'

 prohibition on 501(c)(3)'s promoting or supporting

 or opposed candidates. And one of the penalties

 for that is revocation of an organization's tax-exempt

 status.

 Is that something that occurs very often?

 MR. MAYER: My understanding is--and I

 should note that revocations are public

 information, but penalties short of them generally

 are not made publicly available. Unlike the

 Commission proceedings, IRS proceedings are

 generally confidential.

 The revocations are relatively rare, but

 that's because violations are relatively rare. The

 threat to a 501(c)(3) organization of losing its

 tax-exempt status is, as I believe Mr. Mooney

 already noted, a death knell for that organization.

 That makes the organization no longer eligible for

 tax-deductible contributions. It may cause

 problems with the organization with the State

 attorney general. It basically ends the 
 257

 organization's existence.

 And so most organizations that I know of--

 virtually all of them that are 501(c)(3)

 organizations do everything they can to stay about

 ten feet away from the prohibition on engaging in

 political activity under the Internal Revenue Code.

 MR. NORTON: Well, thank you very much,

 and thank you, Mr. Chairman.

 CHAIRMAN MASON: Jim Pehrkon.

 MR. PEHRKON: Mr. Chairman, thank you.

 Mr. Mayer, Mr. Mooney, thank you for appearing

 today.

 Mr. Mayer, you started off and you

 initially said you represent a rather large number

 of organizations and I wasn't sure if you said 700

 or 7,000.

 MR. MAYER: It's 700.

 MR. PEHRKON: Seven hundred. I was trying

 to increase that by ten-fold right off the bat.

 MR. MAYER: But I should note that many of

 these organizations are national organizations with

 local and State chapters. So, collectively, 
 258

 Independent Sector does represent tens of thousands

 of actual entities.

 MR. PEHRKON: Thank you for that.

 Part of the question I had was I wasn't

 sure whether or not all of these organizations

 would, in fact, be engaging in electioneering

 communications. And did you give some indication

 during your testimony as to how pervasive these

 organizations were?

 MR. MAYER: I did not, and we have not

 attempted to survey our members to determine how

 many of them engage in electioneering

 communications as it's defined under BCRA.

 MR. PEHRKON: So you would have no sense

 as to how many communications might actually take

 place during an election period?

 MR. MAYER: I do not have any definite

 figures, no.

 MR. PEHRKON: Mr. Mooney, your group

 represents not quite as many organizations--

 MR. MOONEY: That's correct.

 MR. PEHRKON: --but many of which are 
 259

 rather large. Do you have a sense?

 MR. MOONEY: Unfortunately, no.

 Similarly, we did not poll our membership to find

 out to what extent they engage in what would be

 covered as electioneering communications.

 MR. PEHRKON: Thank you.

 MR. MAYER: I would note that I believe

 another organization, OMB Watch, cites in its

 comments a study by Tufts University on

 communications by 501(c)(3) organizations that I

 believe constituted lobbying that might fall under

 the definition of electioneering communications.

 You might want to ask them about that in their

 testimony tomorrow.

 MR. PEHRKON: I think we'll try to do

 that. Thank you.

 CHAIRMAN MASON: I do have one follow-up

 question I wanted to ask. I don't know if other

 Commissioners do. I certainly want to recognize

 Commissioner Thomas first if he has any.

 COMMISSIONER THOMAS: No. My limited

 opportunity would be to just say for the record 
 260

 poor Bill Yellowtail. If nothing else, though, he

 should serve as an example of someone who brought

 the entire world together for the proposition that

 those ads were run in that race as sham issue ads.

 He did serve a helpful purpose there, so that's my

 only comment.

 Thank you.

 CHAIRMAN MASON: Commissioner Smith.

 COMMISSIONER SMITH: I just have one quick

 follow-up here, and actually you may not want to

 comment on it or you might just want to submit

 written comments. But I just want to make a few

 quick comments now for you, Mr. Mooney.

 You suggest in your written testimony two

 things that I like as policy matters, but I'm not

 sure that the authority is there under the statute

 and I'm curious as to whether you could address

 either now or in written comments, or both, where

 that authority might come from.

 The first is your preference for exemption

 3-C in talking about a lobbying exemption, and I

 wonder if that doesn't run afoul, however, of the 
 261

 admonition in the statute that the ads cannot

 promote, support, attack, or oppose a candidate,

 since at least I think it's a pretty good argument

 that that exception would allow that. So I'm

 curious if you think that can be made to work.

 Your other suggestion was that

 organizations would only have to report one time.

 In other words, they would cross that $10,000

 threshold, they'd run the ad, they'd report once

 and that was it. But I wonder if that can be

 squared with 434(f)(4), the definition of

 disclosure date, which I think seems to suggest

 that you have disclose again each time you make

 more communications since the last disclosure

 report each time you cross $10,000 aggregating,

 although I suppose maybe if someone defined it as a

 different electioneering communication or

 something, that might work.

 That's something I wonder if you have

 time, like I say, either now or in the next week to

 put them in written comments, if you could perhaps

 address those because as a policy matter I like 
 262

 them, but it's a matter of what is our authority at

 this point. I'm much less sure.

 MR. MOONEY: As far as the first question

 you had regarding the authority to adopt that

 particular exemption, yes, there is a possible

 interpretation that talking about an office-holder's past

 record could be construed as

 supporting, attacking, or opposing.

 I think in that context, however, it's

 going to be regarding legislation only and any kind

 of criticism in that vein would not be supporting,

 attacking, or opposing regarding a candidacy. It

 would be supporting, attacking, or opposing

 regarding legislation. I think that is a

 distinction with a difference that allows the

 Commission to promulgate that regulation as is.

 Regarding the second point you raised, I

 would have to supplement that with written remarks

 further on down the road.

 COMMISSIONER SMITH: Thank you.

 CHAIRMAN MASON: I wanted to ask Mr. Mayer

 about affiliation, because you raised it and it's 
 263

 important. And I know a lot of non-profit groups

 are structured in such a way they have a (c)(4) and

 a (c)(3), and sometimes now a 527, and so on.

 And I just wanted to raise the concern

 that I see that and I'm certainly sympathetic, but

 it strikes me it runs somewhat counter to some of

 the language we see from the sponsors, including

 some pre-enactment statements, regarding the

 absolute corporate ban where, you know, the

 argument has been put forward, for instance, that,

 no, corporations can't spin off non-federal PACs to

 take unlimited individual contributions for

 electioneering communications because that would be

 indirectly controlling the activities of these

 organizations.

 And so I don't--this is an area where

 again the IRS structures say, in essence, as long

 as business affairs are separate, we're not really

 worried about the fact that the same group of

 people may be running two organizations sometimes

 with very similar names for almost identical

 purposes. 
 264

 We have an affiliation rule that works

 quite differently and if you have overlapping

 boards of directors, and so on like that, you may

 be lumped together for certain purposes. And so I

 just want to sort of flag that for you and offer

 you the opportunity to comment further if you wish

 on this affiliation concept and what you view as

 the necessity for allowing organizations to have,

 as it were, lobbying arms, education arms, and

 continue to perform all of these functions under

 rules appropriate to each.

 MR. MAYER: I believe this is another

 area, and there have been several that have been

 touched on today, where the constitutional

 requirements would obligate the Commission to

 create an exception or create rules that would

 acknowledge those constitutional limitations in

 interpreting BCRA.

 In this particular area, as I believe is

 detailed more in some other comments that have been

 filed, the Supreme Court has acknowledged the

 limitations under the federal tax code on speech 
 265

 done by Section 501(c)(3) organizations as

 permissible, but only because those organizations

 are free to create 501(c)(4) affiliates, and those

 (c)(4)'s in turn are allowed to create 527

 affiliates.

 And the key requirement is, as I believe

 would be consistent with our comments, that the

 money flows be such that the monies are kept

 separate, so that the (c)(3) funds, which in the

 tax context are pre-tax dollars, do not go to fund

 the activities of the (c)(4) which the (c)(3)

 couldn't conduct itself, and the same way relations

 between the (c)(4) and the 527.

 So I believe that that constitutional

 analysis would also apply in this context. Again,

 we're talking about speech restrictions such that

 if you have two entities, one permitted to engage

 in electioneering communications subject to

 disclosure rules and one not, that as long as the

 monies are accounted for appropriately such that

 the non-permitted organization's funds are not used

 by the permitted organization for electioneering 
 266

 communications, that you have to allow the

 affiliation to exist if the money is kept straight.

 CHAIRMAN MASON: Thank you.

 Vice Chairman Sandstrom.

 VICE CHAIRMAN SANDSTROM: Much of the

 discussion today seems to me to suggest a false

 dichotomy. There are these sham issue ads, or

 issue ads, and then there are true candidate ads.

 Isn't it true your organizations spend a

 good portion of your time trying to force office-holders and

 candidates to take a position on an

 issue? There may not even be a pending vote, but

 you want them to take an issue and one of the times

 they're most vulnerable is just before an election.

 And if they take an issue favoring your

 organization, you will applaud them. If they fail

 to take a position or they take a position against

 you on this, you want that generally to be known to

 the electorate so that can factor into the

 electorate's decision within that 60 days, at the

 end of that 60 days, on who is going to return.

 I mean, if someone is strongly opposed to 
 267

 your position on the issues, you're not indifferent

 to whether they're going to be elected or not. In

 fact, the reason you try to force them to take a

 position on the issue is because you're deeply

 interested in what position they're going to take,

 and particularly if they're elected.

 MR. MOONEY: I think under the fact

 pattern that you just described, if a 501(c)(3)

 organization engaged in that activity, it would be

 at risk for losing its tax status.

 VICE CHAIRMAN SANDSTROM: No. Remember,

 this is the activity. I'm not talking about your

 501(c)(3). I'm just saying with respect to your

 elections, if you are doing lobbying, you would

 like the candidate to publicly announce whether

 they embrace the issues that you are in favor of or

 not, and that you're often trying to force people

 to take that position, one, because you're trying

 to build some legislative momentum, build votes in

 the legislative body.

 And if they're going to be for you, you

 want to know it. If they're going to be opposed to 
 268

 you, you want your members to know that. And you

 expect, with that knowledge, your members will

 either, you know, vote for the person or vote

 against them, depending on what public position

 they've taken on the issue on which you're

 lobbying.

 It seems to me that the world isn't

 divided into issues and candidates. From your

 position, it seems to me that you're fairly

 indifferent to who the personality in that office

 is and you're most interested in how they're going

 to vote on issues and not, you know, whether

 they're good people or have a good family, whether

 they're interested in issues that you care about.

 MR. MAYER: We agree, though, with the

 principle underlying BCRA that there is a spectrum

 of communications from the ads designed to cause a

 policyholder to change their positions through

 getting the public to call their office and

 complain or applaud them for taking a certain

 position, to ads that are designed to influence

 whether the public, when it goes into the polls, 
 269

 into the election booth, votes for that particular

 person or not when they're running for reelection.

 And we support the principle underlying

 BCRA that it is possible to at some point

 distinguish when you're in the election side of

 that communication as opposed to the lobbying side.

 VICE CHAIRMAN SANDSTROM: And I would

 submit that wherever we draw that line, it's

 somewhat artificial and it has nothing to do with

 what you want to be the outcome, you know, from

 your ads. Where you want the outcome is whether

 it's achieved by having a person elected who will

 promote your views when they're in the legislative

 body or having their opponent elected.

 You know, that's instrumental in getting

 your views passed. I mean, just the airing of your

 views is not what you're after. You're after

 having members in that legislative body who share

 your views, either through persuasion or by

 rejection at the polls for your opponents.

 And, yes, there is a spectrum, but

 wherever we draw the line, it has to be remembered 
 270

 it's an artificial line because there is no, in the

 real world, sharp distinction between issue ads and

 candidate ads. And so the line we draw, I hope,

 will be reasonable, but I don't think it comes

 from, you know, you have one purpose while a 527

 organization has another. You know, you both

 probably share the same purpose; that is, getting

 people elected who will implement the views that

 you promote.

 And that's a little speech at the end. I

 appreciate it.

 CHAIRMAN MASON: Other Commissioners or

 the General Counsel?

 If not, we will adjourn for today and

 reconvene at 9:30 tomorrow. Thank you.

 [Whereupon, at 3:50 p.m., the proceedings

 were adjourned, to reconvene at 9:30 a.m.,

 Thursday, August 29, 2002.] 