18

Labor.'® Because lighting is listed as an example of permissible host committee
expenditures in section 9008.52(c)(1)(v), the $11,735 expenditures for a Moving Light
Operator are permissible host committee expenditures.'” Similarly, Nash spent $56,781
designated as video crew labor.'® Of this amount, $10,008 was paid to the technical
director and is discussed below. According to Nash, the remaining $46,773 ($56,781 -
$10,008) was for “a cadre of engineers and video utility persons” who operated several of
the technical systems that were part of the Convention Center’s infrastructure. Nash Line
Item Descriptions, Attachment 7, at 8. As such, the Commission determines that
payments for their services are permissible host committee expenditures.'?

Nash also spent $73,748 for satellite expenses, which served two purposes, one of
which was to provide the basic feed to news organizations that did not have facilities at
the San Diego Convention Center. See Nash affidavit, Attachment 3, at A591, { 32b.

This purpose served by the satellite expenses was the functional equivalent of laying a

" The Convention Committee allocated most of this amount, $526,610, to lighting and rigging

expenses necessary to prepare the Convention Center to host the convention, and the Commission did not
include any of that category in its Audit Report Repayment Determination. Attachment 1, at 63. However,
in its response to its Exit Conference Memorandum, the Convention Committee separated the expenses for
the Moving Light Operator and categorized those expenses as related entirely to the closed circuit television
production. See Bing affidavit, Attachment 3, at A74.

" This determination is consistent with the Commission’s evaluation of apparently similar

expenditures in the DNCC Audit Report, in which the Commission determined that host committee
expenditures for, inter alia, “lighting instruments, . . . follow spotlights, floodlights, special effects lighting,
spotlights, etc.” and related operator staff were permissible host committee expenditures. See Attachment 3,
at A1144 and A1147.

8 Also included in Video Crew Labor was an additional $5,321 which was not included in the Audit

Report Repayment Determination. It was not allocated to the closed circuit television category, but was
assigned to the miscellaneous category by the Convention Committee. See Attachment 1, at 63; Bing
affidavit, Attachment 3, at A70, 74 and 76. These expenditures were related to the satellite links for the live
video remote productions. See Nash affidavit, Attachment 3, at A591.

° This determination is consistent with the Commission’s evaluation of apparently similar

expenditures in the DNCC Audit Report, in which the Commission determined that host committee
expenditures for, inter alia, broadcast engineers, cameramen, and projectionists were permissible host
committee expenditures. See Memorandum from Audit Division to Office of General Counsel,
Attachment 8, at 3.


38

reimbursements are equal, they result in a net exchange of zero; therefore, the Convention
Committee and Host Committees are not required to transfer funds. However, both the
Convention Committee and the Host Committee must amend their reports accordingly to
reflect the transaction. Similarly, the Commission has appropriately noted the
adjustments on the Convention Committee’s Net Outstanding Convention Expenses
Statement.” Attachment 2.

The Commission examined documentation relating to $1,606,138 in expenditures
that the Convention Committee made that it argued could have been paid by the Host
Committee. The Commission has divided the expenditures into five categories: (1) office
equipment and construction of $611,800; (2) local transportation and security of
$111,017; (3) hotels of $743,924; (4) caucus and platform meeting of $25,651; and (5)
undocumented of $113,746.

With respect to the office equipment and construction expenses of $611,800, the
Commission concludes that the Convention Committee has presented documentation to
demonstrate that these expenses were permissible host committee expenditures. Host
committees may provide offices, office equipment, and construction services for the
convention center location, as well as similar convention-related facilities and services.

11 C.F.R. § 9008.52(c)(1)(v) and (xi). The $611,800 of expenses include photocopying
machines and copies, computer equipment, and repaving certain roads and walkways near

the convention center. Attachment 13, at 4.

a The revised Net Outstanding Committee Expenditure statement is dated as of September 30, 1996

with the final amount determined as of December 31, 1998. See 11 C.F.R. § 9008.10(g).


35

Commission determines that $141,010 of Overhead and Indirect Expenses related to
Nash’s expenses that were impermissible host committee expenditures plus $315,947 of
the other Nash expenses that were impermissible host committee expenditures for a total
in-kind contribution of $456,957 to the Convention Committee.
4. — Offset

Once the Commission has determined the amount of the in-kind contribution from
the Host Committee, the Commission must address the Convention Committee’s
proposed offset.*° A convention committee must agree to an expenditure limitation as
well as established parameters on how the public funds can be used as conditions to
receiving public funds. In addition, a convention committee’s entitlement to those public
funds is equal to the expenditure limitation. Exceeding the expenditure limitation, the
improper use of public funds and the receipt of excessive public funds are all bases for

repayment. 11 C.F.R. § 9008.12(b)(1), (2) and (4). Therefore, the Commission must

As a final result of this attribution process in the Audit Report, the Commission determined that a
total of $165,281 ($107,785 + $57,496) of Nash’s Indirect Costs were related to the Nash expenses that
were impermissible host committee expenditures. As such, that portion of the indirect expenses was part of
the in-kind contributions from the Host Committee to the Convention Committee and therefore subject to
the latter’s expenditure limitation.

39 The Convention Committee defines its proposal as a recoupment. A recoupment is not applicable
in this situation. Recoupment is appropriate when the defendant in a suit has a monetary claim against the
plaintiff. See 6 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure, Civil § 1401 (2d
ed. 1990). The purpose of a recoupment is to prevent the unjust enrichment of a party to a lawsuit and to
avoid wasteful multiplicity of litigation. Estate of Mueller v. Commissioner of Internal Revenue, 101 T.C.
551, 551-552 (1993). This matter does not involve an unjust enrichment of a party involved in litigation
nor does it involve any economies of litigation. Rather, this matter involves the Convention Committee's
proposal to restructure expenses that it claims could have been spent by the Host Committee without
counting towards the Convention Committee's expenditure limitation. In order for the recoupment to be
appropriate in this context, the government would have to owe the Convention Committee monetary relief
for actions arising out of its contract with the Convention Committee. See United States v. Consumer
Health Services of America, Inc., 108 F.3d 390, 395 (D.C. Cir. 1997)(stating that recoupment requires both
debts to arise out of a single integrated transaction so that it would be inequitable for the debtor to enjoy the
benefits of that transaction without also meeting its obligations).


43

in-kind contribution of $729,994 ($986,479 x 0.74) and that this amount is subject to the
Convention Committee’s expenditure limitation. Attachment 1, at 50. See also
Memorandum from Audit Division to Office of General Counsel (Feb. 16, 1999)
(diagrams of CBT Contract purposes), Attachment 15, at 2.

B. REQUEST FOR ADMINISTRATIVE REVIEW

According to the Convention Committee, CBT provided 25 cameras and related
equipment and services under a single contract to both the Convention Committee and the
RNC in exchange for payments totaling $1,819,824.47 Attachment 3, at 49-50. The
Convention Committee argues that the RNC and the Convention Committee did not share
equally in all of the equipment and services provided by CBT. The Convention
Committee claims that of the 25 cameras provided by CBT, the Convention Committee
and the RNC only shared 14. Jd., at 51. With respect to the 14 cameras used to produce
the basic feed, the Convention Committee admittedly shared with the RNC, the
Convention Committee acknowledges that the expenditures related to those cameras
should be split between the Convention Committee and the RNC. Attachment 15, at 3.

The Convention Committee argues that because it only used 14 of the 25 cameras
contracted for, 14/25 (or 56%) of the cost of the CBT contract should be allocated
between the Convention Committee and the RNC. Attachment 3, at 54-56. The

Convention Committee further states that the 14/25 should then be split equally between

“ The net amount paid to CBT by the RNC and the Convention Committee is apparently $1,819,824.
However, the Convention Committee lists the contract price as $1,758,297.64. The difference between the
amounts relates to charges that the RNC disputes. The Convention Committee’s response does not contain
documentation to show a resolution of the dispute, therefore, the Commission has adopted the amount billed
and apparently paid, or $1,819,824, as the amount of the CBT contract due from the RNC and the
Convention Committee. It does not include $22,000 that the RNC was reimbursed by a San Diego
television station for use of CBT facilities that were paid for by the RNC.


12

produce a documentary about Russell, Kansas. /d., at 40. Finally on this point, Nash
incurred $210,851 of overhead and indirect costs, and the Convention Committee argues
that because the Commission determined that over $1.2 million in Nash expenditures
were consistent with section 9008.52, some associated overhead expenditures must also
be permitted. Id., at 40-42.

In Advisory Opinion (“AO”) 1980-21, the Commission permitted a host
committee to expend funds to provide convention attendees with tickets to a professional
baseball game. The Convention Committee contends that the Host Committee’s
expenditures of $49,032 for an orchestra and $22,416 for entertainment in the Sail Area
are indistinguishable from the expenditures permitted in AO 1980-21. Attachment 3,
at 39-40.

Finally, with respect to some expenditures, the Convention Committee argues that
the Chicago Host Committee made similar expenditures in connection with the DNCC
that were not included in the DNCC’s repayment determination. The Convention
Committee maintains that the DNCC was permitted to receive services provided by the
Chicago Host Committee that were similar to the $222,522 spent by Nash for television
production services. Attachment 3, at 26-33. Additionally, the Convention Committee
argues that the Commission determined that the Chicago Host Committee’s expenditures
for fireworks, entertainment and stage hands and technicians were in accordance with
11 C.F.R. § 9008.52(c) in the DNCC’s Audit Report. Jd., at 27 n.5 and 37-38.

The Convention Committee also argues in the alternative that if the Commission
determines that the Host Committee made a contribution to the Convention Committee,

the Commission should take into consideration approximately $1.3 million of expenses


10.

11.

12.

13.

14,

15.

51
Supplemental Submission of the 1996 Committee on Arrangements for the
Republican National Convention (Mar. 3, 1999).
Nash Contracts with Convention and Host Committees.

David J. Nash Associates, Inc., Republican National Convention Host Committee
Statement, Line Item Descriptions (Feb. 14, 1997).

Memorandum from Audit Division to Office of General Counsel (Apr. 22, 1999)
(analysis of the Administrative Review Request).

Chart of Host Committee’s In-Kind Contribution to the Convention Committee.

Audit Division, Schedule of Payments for “Stagehands” and “Stage Tech Crew
Member.”

Audit Division, Schedule of Payments for “Entertainment” as Reported on the
DNC Host FEC Disclosure Reports.

Allocation Chart Host Committee and Convention Committee Expenses.

Audit Division’s Analysis of Potentially Permissible Host Committee Expenses
(Feb. 2, 2000).

RNC GOP-TV Memorandum (Mar. 10, 1997) and Invoice (Sept. 16, 1997).

Memorandum from Audit Division to Office of General Counsel (Feb. 16, 1999)
(diagrams of CBT Contract purposes).


49

The Commission determines that the cost of the 14 cameras that were used to
produce images for the basic feed that was provided to all of the networks, and viewed on
closed circuit television by convention attendees was properly divided evenly between the
Convention Committee and the RNC. The cost of the basic feed is $833,345, therefore,
the RNC and the Convention Committee should have each paid $416,672
($833,345 + 2)."!

With respect to the 11 cameras, the Commission has determined that the cost of
airing the programs are party building in nature and should be paid by the RNC rather
than the Convention Committee. The Commission determines that the related production
costs should be an RNC expense instead of a Convention Committee expense. Although
there is admittedly a fine line between convention expenses and expenses that should be
paid by the national party, the Commission concludes that the purpose of producing and
broadcasting the convention-related television programming is to promote the national
party, thus they should have been incurred by the RNC.

The Commission determines that the RNC should have paid the entire amount
under the CBT contract related to the 11 cameras, which represent the production costs of
the television programs. Therefore, in connection with the CBT contract, the Convention
Committee was only required to pay for its share of the basic feed. Because it paid more
than that amount, the Commission concludes that the RNC did not make an in-kind

contribution to the Convention Committee in connection with the CBT contract.

5 The Convention Committee paid $482,645 or $65,973 more than its share of the cost for the basic
feed. ($482,645 - $416,672 = $65,973). The $65,973 overpayment went toward the remainder of the CBT
contract which covered television program production costs. The Commission determines that the
production costs are not a Convention Committee expense, but rather, an expense that should be paid by the


22

expenditures at issue can be categorized as belonging to two groups: the first group
consists of expenditures to vendors who produced or directed the convention proceedings,
and the second group consists of expenditures to vendors who provided content that was
used as a portion of the convention proceedings.

a. Vendors Who Produced or Directed Proceedings

While 11 C.F.R. § 9008.52(c) lists examples of permissible host committee
expenditures, the Commission’s regulations do not list impermissible host committee
expenditures. The purposes listed in section 9008.52(c)(1) and the principal objectives of
host committees of encouraging commerce and projecting a favorable image of the
convention city establish the criteria for permissible host committee expenditures. The
Commission has determined that Nash’s payments to vendors who produced or directed
the convention proceedings are not consistent with the purposes listed in
section 9008.52(c)(1) nor are they consistent with a host committee’s principal objectives.
Consequently, the Commission concludes that expenditures to vendors who produced or
directed the convention proceedings are impermissible host committee expenditures and
in-kind contributions to the Convention Committee.

These expenditures include $40,000 for the Co-Producer. According to Nash, the
Co-Producer was “responsible for all operational aspects for production and show
elements in the Main Venue and the Sail Area,” and was paid a total of $60,000. See
Attachment 7, at 3. Given the Co-Producer’s responsibilities, the Commission concludes

that the expenditures related to the Co-Producer were to create or enhance a portion of the


39

The Convention Committee also presented documentation demonstrating that
local transportation and security expenses totaling $111,017 were permissible host
committee expenses. The expenditures relate to parking lot rentals and uniforms used for
security purposes. Attachment 13, at 4. The Commission’s regulations state that host
committees may defray the costs of various local transportation services, including the
provision of buses, automobiles, and the cost of law enforcement services. 11 C.F.R.

§ 9008.52(c)(1)(vi) and (vii).

The Convention Committee’s $743,924 payment for hotel rooms is not a
permissible host committee expense, and therefore, a reimbursement of these expenses is
not included in the offset. Section 9008.52(c)(1)(ix) states that a host committee can
incur expenses “to provide hotel rooms at no charge or a reduced rate on the basis of the
number of rooms actually hooked for the convention.” Thus, section 9008.52(c)(1)(ix)
permits host committees to provide convention committees with any rooms the host
committee receives at no charge or at a reduced rate based on the number of rooms
actually booked for the convention.

Contracts obtained from the San Diego Convention & Visitors Bureau (“ConVis”)
between the Convention Committee and hotel vendors demonstrate that the Convention
Committee received one free room for every 40 rooms booked by the Host Committee.
See Attachment 8, at 8. The contracts reviewed by the Commission demonstrate that
after the hotels received full payment, the hotels gave a 5% commission to ConVis, and
ConVis forwarded this 5% commission to the Host Committee. Id., at 8.

In attempting to use the $743,924 paid for the rooms as a host committee expense

pursuant to section 9008.52(c)(1)(ix), the Convention Committee is incorrectly


Code. The Host Committee received $23,080,276 from other sources, and it spent
$22,923,061 in connection with the 1996 Republican National Convention.'

On September 24, 1998, the Convention Committee submitted legal and factual
materials disputing the repayment determination.” Attachment 3. On February 24, 1999,
the Convention Committee and the RNC appeared before the Commission at an oral
hearing on the repayment determination. Transcript, Attachment 4. As a part of their
opening statement at the oral hearing, the Convention Committee and the RNC presented
the Commission with additional documents in support of their arguments.’ Attachment 5.
I. LAW

In order to be eligible to receive public funds to finance the presidential
nominating convention, a national party committee must establish a convention
committee, which is responsible for conducting the day-to-day arrangements and
operations of that party’s presidential nominating convention and must register with and
report to the Commission as a political committee. 11 C.F.R. § 9008.3(a)(1), (a)(2)
and (b). A national party committee and its convention committee must also file a written
agreement with the Commission agreeing to conditions set forth in 11 C.F.R.

§ 9008.3(a)(4)(i) through (viii) to be eligible for public funding. 11 C.F.R.

§ 9008.3(a)(4). As part of this agreement, the national party committee and its

' Pursuant to 11 C.F.R. § 9008.54, the Commission audited the Host Committee, and the receipts
and expenditures stated above are as of October 10, 1996, the effective date of the Host Committee’s Audit
Report. The Commission approved that Audit Report on April 23, 1998.

2 The Convention Committee’s legal and factual materials were due on August 25, 1998. However,

the Commission granted the Committee an extension until September 24, 1998 to submit the materials.

> Thus, the documents were submitted within the five day period customarily allowed by the

Commission for the submission of additional documentation following an oral hearing. See generally
11 C.F.R. § 9007.2(c)(3). An additional copy of these documents was also submitted after the oral hearing.


33

and those that were not in order to reflect the Commission determinations related to the
other Nash expenditures.*° See Attachment 1, at 37-38 (describing attribution process).
The Nash indirect and overhead expenses must be reattributed to reflect the
Commission’s other determinations in this Statement of Reasons.

First, the pool of expenses subject to this attribution must be adjusted. In the
Audit Report, a total of $346,559 was considered subject to attribution. The Commission
has determined that the Production Accountant ($19,984) should be subject to attribution,
so those expenditures have been added to the pool of attributable expenses.*° Thus, the
total amount of attributable expenses revised to reflect the Commission determinations is
$366,543 ($346,559 + $19,984).

The Convention Committee also argues that hotel expenses of $105,603.94 should
not be subject to attribution as 11 C.F.R. § 9008.52(c)(1)(ix) permits host committees to
incur expenses “to provide hotel rooms at no charge or a reduced rate on the basis of the
number of rooms actually booked for the convention.” 11 C.F.R. § 9008.52(c)(1)(ix).
See Attachment 3, at 41 and Attachment 4, at 42. The Convention Committee is
incorrectly attempting to extend the regulation to include not only the complimentary
rooms the Host Committee properly provided in accordance with
section 9008.52(c)(1)(ix), but also some of the underlying rooms that the Host Committee
35 In its Administrative Review Request, the Convention Committee combined the Overhead and
Indirect Expense categories. See Attachment 3, at 26. Two types of expenses included in Overhead --
$25,000 of the Television Producer’s fee and $5,570 for a Production Coordinator — are discussed above.
The remaining expense in the Overhead category, $15,000 for a Production Accountant, was not subject to
allocation in the Audit Report Repayment Determination, but is considered with the indirect expenses in

this Statement of Reasons. Attachment 8, at 4.

36 Because the Accountant’s fee related to all of Nash’s activities, the Commission determines that

the fee should be attributed to calculate an amount related to Nash’s activities that were impermissible host
committee expenditures, rather than allowing the entire fee as a compliance cost. See Attachment 3, at 41.


19

cable to the press room at the Convention Center to provide the same material to the news
organizations that did have facilities at the San Diego Convention Center. Such a
function is consistent with the examples of permissible host committee expenditures
related to construction for the convention center that are listed in 11 C.F.R.

§ 9008.52(c)(1)(v). On this basis, the Commission determines that the expenditures for
satellite expenses that were the functional equivalent of a cable at the Convention Center
were permissible host committee expenditures.”

Nash spent $138,442 on live video productions at six sites away from the
Convention Center: two in San Diego, California; and one each in Sacramento,
California; Miami, Florida; Fond du Lac, Wisconsin; and Russell, Kansas. See Greener
affidavit, Attachment 3, at A107 and A109-12, {J 15 and 19-27; Nash affidavit,
Attachment 3, at A584 and A588-89, {J 12 and 25; see also Attachment 7, at 4. One of
the functions served by the $73,748 satellite costs that are also discussed above was
related to transmitting the signal from the site of the live videos back to the Convention
Center. Nash also spent $70,000 on another taped video of a tour of Russell, Kansas.
Attachment 3, at 40. Additionally, $6,250 of the Television Producer’s fee was related to
the remote videos. See Bing affidavit, Attachment 3, at A76. The Convention

Committee argues that the determination that these amounts are repayable is inconsistent

i Although the Convention Committee argued that one-half of the satellite costs should be allocated

to each function, Attachment 3, at 36, documentation available to the Commission supports a more refined
allocation. However, such an allocation is unnecessary because the Commission determines the other
purpose served by the satellite costs is also permissible host committee activity so the entire $73,748 has
been excluded from the Repayment Determination upon Administrative Review. The satellite time’s other
purpose was to send the signal from the sites of the live remote video productions to the convention center.
The remaining one-half of the expenditures for satellite time is discussed in this section in connection with
the live remote video productions.


25

permissible host committee expenditure, so these amounts have been included in the
Repayment Determination upon Administrative Review.

The Convention Committee argues that many of these expenditures were
necessary television production services and that such services were permissible host
committee expenditures. See Attachment 3, at 26-33.?? The Convention Committee
argues that the expenditures were similar to expenditures that the Chicago Host
Committee was permitted to provide to the DNCC. Jd., at 27-31. However, the
Commission has reviewed documentation related to the Chicago Host Committee
payments and determined that the cited payments are not similar to those included in this
Repayment Determination. See Attachment 8. Thus, the two audits are consistent.

In particular, the Convention Committee identifies certain expenditures made by
the City of Chicago or the Chicago Host Committee that the Commission determined
were permissible host committee expenditures and argues that the television production
services provided by the San Diego Host Committee should be treated the same way.”
The Convention Committee points to the Chicago Host Committee’s payment of
$615,083 to Chicago Scenic Studios and argues that Nash’s Stage Manager and Video

Crew Labor were for the same purposes. See Attachment 3, at 27. With respect to the

~ Specifically, the Convention Committee initially placed the Continuity Writer and the Stand-ins in
the miscellaneous category, see Bing affidavit, Attachment 3, at A76, but later categorized them as
television production services, id., at 26. The Convention Committee assigned the Production Coordinator
to the overhead category. /d., at 25-26 and Bing affidavit, A75. All of the remaining production staff—Co-
producer, Directors, Television Producer, Video Crew Labor, Stage Manager, Script Supervisor,
Production Assistant, Make-up, Tape Stock, Sound Operations, Tape Coordinator—were in the category
initially called closed circuit television and later deemed television production services. See Attachment 3,
at 25-26 and Bing affidavit, A74-75; see also Attachment 1, at 63-64.

30 Among these arguments was the Convention Committee’s argument that the expenditures for the

Moving Light Operator ($11,735) had a purpose similar to the payments to Chicago Scenic Studios. The
Commission determined that provision of the Moving Light Operator is a permissible host committee
expenditure, as discussed above.


21

Host Committee’s $22,629 expenditures for entertainment in the Sail Area were
permissible host committee expenditures and have been removed from the Repayment
Determination upon Administrative Review.”

Thus, the Nash expenses described above totaling $396,261 ($26,684 + $11,735+
$46,773 + $73,748 + $138,442 + $70,000 + $6,250 + $18,935 + $3,481 + $213) were
permissible host committee expenditures. As such, they do not represent in-kind
contributions that are subject to the Convention Committee’s expenditure limitation.
Consequently, they are not included in the Repayment Determination upon

Administrative Review.

2. Impermissible Host Committee Expenditures

The Commission determines that $456,957 of Nash’s expenses were not
permissible host committee expenditures and, therefore, are in-kind contributions that are
subject to the Convention Committee’s expenditure limit. Given the Convention
Committee’s role in supervising Nash, and because the Convention Committee received
public funds equal to its expenditure limit, the Commission determines that the
Convention Committee exceeded it expenditure limit and must therefore repay these in-

kind contributions to the United States Treasury. The impermissible host committee

23 The Convention Committee also argued that these expenditures were permissible as entertainment

expenditures. See Attachment 3, at 39. However, 11 C.F.R. § 9008.52(c) does not list entertainment as an
example of a permissible host committee expenditure. Pursuant to section 9008.52(c)(1)(ii), host
committees are permitted to provide “information booths, receptions, and tours” as part of “welcoming the
convention attendees to the city,” and entertainment could be provided at such receptions. The principal
objective of host committees and the context of the regulation makes clear that receptions must be to
welcome attendees to the city and as such must be events that are clearly separate from the convention
itself. The regulation’s reference to “receptions” for this expressed and particular purpose cannot be fairly
read to permit host committees to provide entertainment that is part of the convention’s proceedings.

4 In addition to the following discussion, the attached chart shows the amounts associated with each

of the repayable expenditures. Attachment 9.


34

would have been required to book in order to receive the complimentary rooms.

Section 9008.52(c)(1)(ix) is not so broad, but is instead limited to any rooms received by
a host committee from hotels at a reduced rate or no charge in return for a specified
number of other rooms booked. Therefore, the $105,603.94 remain subject to attribution.

The Convention Committee also argues that transportation expenses of
$10,643.49 should not be subject to attribution as 11 C.F.R. § 9008.52(c)(1)(vi) permits
local transportation. Attachment 3, at 41. However, the Convention Committee has not
shown those expenses to have been exclusively local, so they remain subject to
attribution.

Once the pool of Overhead and Indirect Expenses subject to attribution was
identified, that pool was attributed between those related to impermissible host committee
expenditures and those related to permissible host committee expenditures.°” This
resulted in an attribution of $141,010 of Overhead and Indirect Expenses related to
Nash’s expenses that were impermissible host committee expenditures, and $225,533 to

Nash’s expenses that were permissible host committee expenditures.** Thus, the

2 In addition to the following discussion, the attached chart identifies the allocation pools and the

amount by which each pool was allocated. Attachment 12.

38 In the Audit Report, the Commission approved a two-step process for attribution of Nash’s

indirect expenses. First, indirect expenses that could be associated with other particular Nash expenditures
were attributed based on whether the associated Nash expense was determined to be an impermissible host
committee expenditure. These indirect expenses were primarily travel and living expenses that could be
associated with particular persons. Of the $346,559 total Indirect Expenses, $107,785 were attributed to the
Convention Committee, $102,695 were attributed to the Host Committee, and $136,078 could not be
associated with other Nash expenses, so this $136,078 of indirect expenses were subject to the second step
of the attribution process. (Included in the permitted $102,695 were $23,633 for equipment rental cited by
the Convention Committee. Attachment 3, at 41.) In the context of the Audit Report, the $136,078 was
divided into three groups: Travel and Living Expense—Producers and Directors ($9,702); Travel and
Living Expenses—Others ($32,886); and Overhead ($93,491). The two travel and living expense groups
were attributed to either the Convention Committee or the Host Committee based on the distribution of
associated direct costs. The overhead expenses were attributed based on the distribution of all non-
overhead expenses. See Attachment 1, at 38. Of the $136,078 subject to the second step of the attribution,
$57,496 was attributed to the Convention Committee, and $78,583 was attributed to the Host Committee.


16

convention expenses under these limited circumstances, i.e., 11 C.F.R. § 9008.7(d)(3)
(1994), was “intended to be a narrow exception to the statutory limitation on convention
expenses.” 44 Fed. Reg. 63038 (1979).

In 1994, the Commission revised its regulation to the current structure, but the
regulation permitting host committees to make expenditures in connection with
conventions continues to be an exception to convention committees’ expenditure limits.
11 C.F.R. § 9008.8(b)(1). Therefore, it still must be narrowly construed in order to
preserve the statutory expenditure limit. Similarly, because host committees may accept
funds from local corporations and local labor organizations that would otherwise be
prohibited from use in connection with conventions, the regulatory exception must be
construed narrowly. 2 U.S.C. § 441b. Host committee expenditures are not, however,
limited in amount.'* Instead, host committee expenditures are limited in purpose, which
reflects the Commission’s determination that expenditures for purposes such as those
listed in 11 C.F.R. § 9008.52(c)(1)(i) through (xi) are consistent with the host
committees’ principal objectives: the encouragement of commerce in the convention city
and the projection of a favorable image of the city to convention attendees, 11 C.F.R.

§ 9008.52(a), rather than election-influencing purposes.
As a threshold matter, the Commission determines that the Convention

Committee knowingly helped, assisted, and participated in Nash’s activities. As required

s The focus on permissible purposes, instead of amounts, permits a wider variety of cities to

compete to host conventions as host committees are permitted to provide construction services in order to
provide a suitable convention center or auditorium. 11 C.F.R. § 9008.52(c)(1)(v). The Convention
Committee points to the amounts of expenditures in connection with previous conventions, arguing they
indicate the Commission has interpreted section 9008.52(c) as “a very broad exception.” Attachment 3,
at 21; see Attachment 5, at 4. However, the breadth of permitted host committee purposes cannot be
evaluated by an examination of expenditure amounts.


III. IN-KIND CONTRIBUTION FROM SAN DIEGO HOST COMMITTEE

A. AUDIT REPORT REPAYMENT DETERMINATION

The Convention Committee contracted with David J. Nash and Associates, Inc.
(“Nash”) for Nash’s services. According to its contract with the Convention Committee,
Nash’s duties included producing the television broadcast and the “theatrical production”
of the convention and supervising production consultants and vendors. Nash Contracts
with Convention and Host Committees, Attachment 6, at 1. Subsequently, Nash also
agreed to a separate contract with the Host Committee, which required Nash to “render
such television production and related services consistent with the specifications and
requirements for the Convention established by the [Convention Committee.]” Jd., at 11.
Mr. Nash states that “the design, installation, operation and maintenance of the
Convention’s closed circuit television system” were among Nash’s responsibilities under
these contracts.® Nash affidavit, Attachment 3, at A583, 410. The closed circuit
television system broadcast the Convention proceedings within the Convention Center to
the following areas: (1) the Sail Area, which was an overflow seating area on the
Convention Center’s roof.” (2) the media areas; (3) areas within the Convention Center
that had obstructed or limited views of the podium; and (4) the large television screens

located behind the podium. Jd. Pursuant to these two contracts, Nash was paid net

8 Although Mr. Nash states that these responsibilities were “[f]oremost” among Nash’s
responsibilities under the contracts, neither contract mentions closed circuit television system per se. See
Attachment 6.

° Expenditures of $164,234 related to the construction of the Sail Area were not included in the
Audit Report Repayment Determination. See Attachment 1, at 64. Host committees may provide use of a
convention center and construction and convention related services for that location. 11 C.F.R.

§ 9008.52(c)(1)(v).


31

Nash spent $77,595 on Special Effects, which consisted of indoor fireworks for
the San Diego Convention Center, a confetti cannon, and a balloon drop. The
Convention Committee contends these services are permitted by section 9008.52(c)(1)(v),
which permits decorations. However, the services provided are not decorations as
contemplated by section 9008.52(c)(1)(v). Rather, they are events that are part of the
convention proceedings. As Mr. Nash explained in his affidavit, “the moment of the
candidate’s nomination is one of the climactic moments of the Convention. It is
traditionally accompanied by huge balloon drops, confetti, music, and fireworks.” Nash
affidavit, Attachment 3, at A584, 4 12. Mr. Nash describes a moment of the convention,
indeed, the climactic moment, and as such the balloon drops, confetti cannon, and
fireworks are explained as accompanying that moment; thus, even Mr. Nash’s description
of the services portrays them as events, not as a decorative backdrop that would be
permitted. As events that occur at particular points in the convention proceedings, the
balloon drops, confetti cannon, and fireworks are more analogous to entertainment than to
decorations, and as stated above, expenditures for entertainment are permissible host
committee expenditures only to the extent they are part of efforts to welcome convention
attendees to the city pursuant to section 9008.52(c)(1)(ii).> * Therefore, the $77,595
expenditures were not permissible host committee expenditures and are included in the

Repayment Determination upon Administrative Review.

a The Commission’s inclusion of “decorations” in section 9008.52(c)(1)(v) requires that the

Commission determine the scope of that term. While the Commission has determined that decorations as
used in the regulation may include the use of newer technologies, the Commission has also determined that
decorations as used in the regulation does not include events merely because the events have a visual
element.


28

See Attachment 8, at 3-4. Section 9008.52(c)(1)(v) specifically lists loudspeaker systems
as an example of permitted host committee expenditures. Consequently, despite the
Convention Committee’s suggestion to the contrary, the Sound Operations included in its
repayment determination are not similar to the audio system operations addressed in the
DNCC audit. Thus, the Audit Reports for the DNCC and the Convention Committee are
consistent in this regard as well.

The Convention Committee’s final example of inconsistency is the City of
Chicago’s provision of grips, chyron operators,*” and a property master. See
Attachment 3, at 28. The Convention Committee claims that Nash’s stand-ins, script
supervisors and a production accountant should be treated the same as the cited services
for the Chicago convention. According to Nash’s Line Item Descriptions, the purposes
served by the stand-ins, script supervisors, and production accountant were just as their
titles suggest. See Attachment 7, at 3, 4 and 7. The Commission does not have a
description of the services provided by the grips, chyron operators, and property masters.
However, the Convention Committee has not shown any basis to conclude that grips,
chyron operators, and property masters are equivalent to stand-ins, script supervisors and
a production accountant. Consequently, this aspect of the Convention Committee’s
argument of inconsistent treatment fails for a lack of supporting information.

The Convention Committee argues that the Commission has not stated a reason

for treating some television production expenditures differently from others.

2 The Convention Committee included script supervisors, instead of chyron operators, in the text of

its Administrative Review Request, citing the DNCC Audit Report at 6 (Attachment 3, at A1143).
Attachment 3, at 28. However, that page of the DNCC Audit Report does not refer to script supervisors.
Convention Committee counsel stated that the reference should have been to chyron operators, as reflected
in the text above. Attachment 8, at 4.


individuals.> 11 C.F.R. § 9008.52(c)(1). The purposes for which a host committee may
uses funds in connection with a nominating convention are specified in 11 C.F.R.
§ 9008.52(c)(1)(i) through (xi) and include: (i) “promoting the suitability of the city as a
convention site;” (ii) “welcoming the convention attendees to the city;” (iii) “facilitating
commerce;” (vi) “local transportation services;” (vii) “law enforcement;” (viii)
“convention bureau personnel to provide central housing and reservation services;” (ix)
“hotel rooms at no charge or at a reduced rate on the basis of the number of rooms
actually booked for the convention;” and (x) “accommodations and hospitality for
committees of the parties responsible for choosing the site of the conventions.”
See 11 C.F.R. § 9008.52(c)(1)(i)-(iii) and (vi)-(x). Host committees may also provide
“use of an auditorium or convention center” and “construction and convention related
services,” such as “construction of podiums, press tables, false floors, camera platforms,
additional seating, lighting, electrical, air conditioning and loud speaker systems, offices,
office equipment, and decorations.” 11 C.F.R. § 9008.52(c)(1)(v). Finally, in addition to
those facilities and services specifically enumerated in 11 C.F.R. § 9008.52(c)(1)(i)
through (x), a host committee or a municipal fund is permitted to provide “other similar
convention-related facilities services” under 11 C.F.R. § 9008.52(c)(1)(xi).

A convention committee may use its public funds only for the purposes set forth
at 11 C.F.R. § 9008.7. See 26 U.S.C. § 9008(c). Convention expenses include all
expenses incurred by or on behalf of a political party’s national committee or convention

committee with respect to and for the purpose of conducting a presidential nominating

5 Host committees may also accept goods or services from commercial vendors under the terms and

conditions set forth at 11 C.F.R. § 9008.9, which also apply to convention committees. 11 C.F.R.
§ 9008.52(b).


convention committee must agree to comply with 2 U.S.C. §§ 431 through 451,
26 U.S.C. § 9008, and applicable Commission regulations. 11 C.F.R. § 9008.3(a)(4)(vii).
Thus, the committees must agree to abide by 2 U.S.C. § 441b, which prohibits, inter alia,
corporate and labor organization contributions or expenditures in connection with
conventions, and they must agree to comply with the applicable expenditure limitation set
forth at 26 U.S.C. § 9008(d) and 11 C.F.R. § 9008.8. 11 C.F.R. § 9008.3(a)(4)(vii)
and (i), respectively. The national committee of a major party may not make
expenditures with respect to a publicly-financed presidential nominating convention
which, in the aggregate, exceed the amount of payments to which such committee is
entitled under 26 U.S.C. § 9008(b)(1). 26 U.S.C. § 9008(d)(1). Thus, the expenditure
limitation is equal to the convention committee’s entitlement to public funds. 26 U.S.C.
§ 9008(d).

A host committee may be created to represent a city hosting a nominating
convention in matters involving a presidential nominating convention. 11 C.F.R.
§ 9008.51. Any local organization that is not organized for profit, whose net earnings do
not inure to the benefit of any private shareholder or individual and whose principal
objective is the encouragement of commerce in the convention city, as well as the
projection of a favorable image of the city to convention attendees, may serve as a host
committee. 11 C.F.R. § 9008.52(a).*

Host committees may receive funds or in-kind donations from local businesses

(excluding banks), local labor organizations, and other local organizations and

‘ Section 9008.52(a) gives the following examples of local organizations that may serve as host
committees: a local civic association, business league, chamber of commerce, real estate board, board of
trade, or convention bureau.


17

under Nash’s contracts with the Convention Committee and the Host Committee, Nash
performed his services to the Convention Committee’s specifications and under the
direction of the Convention Manager, a Convention Committee employee. Attachment 6,
at 1 and 11: Consequently, to the extent that any of Nash’s expenses were not
permissible host committee expenditures, the Commission may seek a repayment for such
disbursements from the Convention Committee pursuant to 11 C.F.R. § 9008.12(b)(7).
1. Permissible Host Committee Expenditures

The Commission concludes that the Convention Committee has demonstrated that
a number of the Nash expenses that compose the $892,489 Audit Report Repayment
Determination were, in fact, permissible host committee expenditures. The Host
Committee may expend funds for decorations, which are listed as an example of
permissible host committee expenditures in 11 C.F.R. § 9008.52(c)(1)(v). Nash spent
$26,684 on “main and end titles” that were computer-generated graphics projected onto
the television screens that were part of the podium; as such, the graphics were
decorations. See Attachment 1, at 63, and Attachment 3, at 36-37. Similarly, still
photographs displayed in the same locations would be within decorations as listed in
section 9008.52(c)(1)(v). The additional technology in the computer-generated graphics
does not deprive those graphics of their decorative character. Therefore, the Commission
determines that the main and end titles were decorations of the Convention Center and as
such were permissible host committee expenditures.

Section 9008.52(c)(1)(v) specifically lists lighting among the examples of
infrastructure-related permissible host committees expenditures. Nash paid $11,735 fora

Moving Light Operator, as part of $540,345 spent on lighting Rigging and Staging


pay the amount specified to the United States Treasury. 11 C.F.R. § 9008.12(b)(3); see
also 26 U.S.C. §§ 9007(b)(3), 9008(h); and 11 C.F.R. § 9008.12(a).” A convention
committee’s entitlement to public funds shall be adjusted so as not to exceed the
difference between the expenditure limitation and the amount of private contributions
received to defray convention expenses. 11 C.F.R. § 9008.5(b). If the Commission
determines that any portion of the payments to the national committee or convention
committee was in excess of the aggregate payments to which the national committee was
entitled under 11 C.F.R. §§ 9008.4 and 9008.5, it shall so notify the national committee
and the national committee shall pay an amount equal to such portion to the United States
Treasury. 11 C.F.R. § 9008.12(b)(1); see also 26 U.S.C. § 9007(b)(1). If the
Commission determines that the national committee or convention committee incurred
convention expenses in excess of the limitation, it shall so notify the national committee
and the national committee shall pay an amount equal to such excessive expenditures to
the United States Treasury. 11 C.F.R. § 9008.12(b)(2); see also 26 U.S.C. § 9007(b)(2).
In the case of in-kind contributions from a host committee that cause the convention
committee to exceed the expenditure limitation, the Commission may seek repayment if a
convention committee knowingly helps, assists or participates in the making of a
convention expenditure by a host committee that is not in accordance with 11 C.F.R.

§ 9008.52. 11 C.F.R. § 9008.12(b)(7).

7 The statute authorizes the Commission to require repayment of public funds equal to any

contributions, 26 U.S.C. § 9007(b)(3), while the regulation requires a repayment equal to those
contributions that, when added to the amount of public funds received, exceed the expenditure limit,

11 C.F.R. § 9008.12(b)(3). In these circumstances, the full amount of any contributions is subject to
repayment under either the statute or the regulation because the Convention Committee received public
funds equal to its expenditure limit.


23

convention proceedings and were impermissible host committee expenditures.”°
Therefore, the $40,000 payment to the Co-Producer is included in the Repayment
Determination upon Administrative Review.

The Directors were paid $39,016. Nash’s description of the Directors’ functions
stated that they:

[d]irected television coverage of the convention that was
distributed as a basic feed via satellite throughout the United States, as
well as to monitors throughout the convention center. Also directed the
video mix of the program material that was displayed on the giant
projection screens in the Main Venue and the sail area.

Attachment 7, at 3. Directing the television coverage of the Convention that was
distributed for broadcast throughout the United States is a necessary part of creating and
enhancing the convention proceedings. Expenditures for directors are not a permissible
host committee expenditure.° Consequently, the entire amount paid to the Directors is
included in the Repayment Determination upon Administrative Review.

Nash paid $50,000 to the Television Producer. Nash’s description of the

Television Producer’s functions stated that the Producer was “[r]esponsible for television

2s The Host Committee paid the Co-Producer a total of $60,000. One-third, or $20,000, was not
included in the Audit Report Repayment Determination to recognize that some of the Co-Producer’s
services were related to the Sail Area. The Convention Committee allocated the Co-Producer’s fee with
$40,000 for closed circuit television and $20,000 for the Sail Area. See Bing affidavit, Attachment 3,
at A74-76.

26 Although the Nash Line Item Descriptions mentions the Directors’ duties in connection with the

Sail Area, the Convention Committee did not allocate any of the Directors’ fees to the Sail Area category of
expenses. Instead, the Convention Committee allocated the entire fee paid to the Directors to closed circuit
television. See Bing affidavit, Attachment 3, at A74-75; Attachment 7, at 3. Such an allocation is
unreasonable in that it fails to recognize the most significant aspect of the Directors’ duties, namely
directing the television coverage that was distributed throughout the United States. The Convention
Committee admits that a Convention Committee function was to “facilitate[] media coverage, especially
television coverage.” Attachment 3, at 11. Other Convention Committee affiants emphasized the
importance of this coverage to the success of the convention. See Greener affidavit, Attachment 3, at A106-
08, {{] 10-16; see also Geraghty affidavit, Attachment 3, at A87-88, {| 5, and Nash supplemental affidavit,
Attachment 3, at A744-45, 3. The Convention Committee did not provide the Commission with
documentation to support a more refined allocation of these costs.


FEDERAL ELECTION COMMISSION 2000 APR 27 P 3:23
WASHINGTON, D.C. 20463

April 27, 2000

MEMORANDUM
TO: The Commission
THROUGH: James A. Pehrkon

Staff Director
FROM: Lawrence M. nob 4th
General Counsel

Kim Leslie Bright YA
Associate General Counsel

Lorenzo Holloway Z K
Assistant General Counsel

J. Duane Pugh Jr. )
Attorney

\
Jamila I. Wyatt Cp
Attorney

SUBJECT: 1996 Committee on Arrangements for the Republican National
Convention — Alternative Draft Statement of Reasons (LRA 472)

On April 13, 2000, the Commission determined that the 1996 Committee on
Arrangements for the Republican National Convention (the “Convention Committee”)
and the Republican National Committee (the “RNC”) do not owe a repayment to the
United States Treasury for the in-kind contribution from the San Diego Host Committee.
This was designated Alternative B in the Office of General Counsel’s memorandum of
April 7, 2000. The Commission also determined that the Convention Committee and the
RNC do not owe a repayment to the United States Treasury for payments by the RNC to
Creative Broadcast Techniques, Inc. This was designated Alternative C in this Office’s
memorandum of April 7, 2000. This Office has prepared the attached Statement of
Reasons which compiles the analysis from the alternatives approved by the Commission.
Our April 7, 2000 memorandum indicated that we would circulate the Statement of
Reasons for the Commission’s approval on a tally vote; however, the Commission has
made all the necessary determinations, so the attached Statement of Reasons is being


45

those 11 cameras, “the Convention Committee should not use taxpayer funds to pay any
of [the cost of the 11 cameras].” Attachment 4, at 21.

The Convention Committee further contends that its method of allocating the
CBT contract based on camera usage is reasonable and based on industry practice.
Attachment 3, at 54-56. According to affidavits of various industry officials submitted by
the Convention Committee, it is unreasonable to assume that production costs are
proportional to the amount of airtime a show uses. Furthermore, the officials state that a
Commission determination to allocate the cost of the CBT contract based on airtime
“would not have been reasonable,” and contrary to industry practice. Jd., Geraghty
affidavit, at A93.

Cc. REPAYMENT DETERMINATION UPON ADMINISTRATIVE
REVIEW

The Commission determines that the RNC did not make an in-kind contribution to
the Convention Committee when it paid the production costs for various television
programs. The Commission concludes that the costs associated with producing and
airing the programs relate to party building and are therefore a national party committee
expense, rather than a convention expense. Therefore the production and airtime costs of
the convention programming should have been paid by the RNC.

1. Airtime Costs

The RNC paid for the airtime for the morning programs that were similar in
format to GOP-TV’s regular program, “Rising Tide.” These programs included an
anchor person in a booth at the Convention Center and presented the previous night’s

convention highlights (not a comprehensive summary); interviews of convention


10

indistinguishable from other host committee expenditures previously permitted by the
Commission, either in its consideration of the Convention Committee’s Audit Report, in
its issuance of Advisory Opinion 1980-21, or in its consideration of the Audit Report
related to the 1996 Democratic National Convention Committee (“DNCC”).'° Finally,
the Convention Committee argues in the alternative that it should be permitted to offset
any Host Committee expenditures that were not in accordance with section 9008.52(c) by
expenditures the Convention Committee made that the Host Committee could have made
in accordance with section 9008.52(c).

The Convention Committee argues that many of the Nash expenditures were for
purposes expressly listed in 11 C.F.R. § 9008.52(c). For example,
section 9008.52(c)(1)(ii) permits expenses incurred welcoming the convention attendees
to the city, and the Convention Committee claims that expenditures of $49,032 for an
orchestra, $22,416 for Sail Area entertainment and $1,199 for an announcer should be
permitted as welcoming expenses. Attachment 3, at 38-40. Section 9008.52(c)(1)(v) lists
decorations as a permitted expenditure purpose, and the Convention Committee maintains
that the live video remote productions constitute decorations so that the $138,442 related
expenditures should be permitted. Jd., at 34-35. The Convention Committee also argues
that the $104,279 spent for a balloon drop, a confetti cannon, fireworks and video
graphics should also be permitted as decorations. Jd., at 36-38. With respect to

approximately one-half of the $73,748 satellite time expenditures, the Convention

” The Audit Reports for the DNCC and the related Chicago Host Committee were approved on

June 25, 1998 and are included in the Convention Committee’s Exhibits at Attachment 3, at A1136 and
A1117, respectively. In the DNCC Audit Report, the Commission determined that the DNCC must repay
$695,270 to the United States Treasury. Attachment 3, at A1159. On April 13, 2000, the Commission


amounts of $117,500 from the Convention Committee and $2,245,520 from the Host
Committee. Attachment 1, at 15-16.

In its Audit Report Repayment Determination, the Commission determined that
$892,489 of the Host Committee’s $2,245,520 payments to Nash were not expended for
purposes in accordance with 11 C.F.R. § 9008.52. Pursuant to 11 C.F.R. § 9008.12(b)(7),
the Commission also determined that the Convention Committee knowingly helped,
assisted or participated in these Host Committee’s expenditures based on the Convention
Committee’s control over Nash’s performance. As a result, $892,489 of the Nash
expenditures were not subject to the exemption in 11 C.F.R. § 9008.8(b)(1) and were
therefore expenditures that must count toward the Convention Committee’s expenditure
limitation. As provided in 11 C.F.R. § 9008.12(b)(3), the Commission determined that
the Convention Committee accepted contributions of $892,489 that, when added to the
amount of public funds the Convention Committee received, results in the Convention
Committee’s exceeding its expenditure limitation; the Commission therefore determined
that the amount in excess of the expenditure limitation is repayable to the United States
Treasury. See Attachment 1, at 37-38.

B. REQUEST FOR ADMINISTRATIVE REVIEW

The Convention Committee maintains that all of the funds provided to Nash by
the Host Committee were expended for purposes permitted by 11 C.F.R. § 9008.52(c)
and therefore the $892,489 at issue should not be subject to a repayment determination.
Attachment 3, at 23. The Convention Committee disputes the repayment determination
with two primary arguments: (1) some of the expenditures were for purposes that are

expressly listed in section 9008.52(c); and (2) some of the expenditures are


41

sufficient to offset the $456,957 in-kind contribution from the Host Committee to the
Convention Committee. Therefore, the Commission concludes that the Convention
Committee does not owe a repayment for exceeding the expenditure limit.

IV. IN-KIND CONTRIBUTION FROM REPUBLICAN NATIONAL
COMMITTEE

A. AUDIT REPORT REPAYMENT DETERMINATION

The Convention Committee and the RNC contracted with Creative Broadcast
Techniques (“CBT”) for 25 cameras, supporting personnel, and production equipment
that was to be used by the RNC and the Convention Committee. The purpose of the
contract was to provide cameras and supporting personnel to produce the televised
images of the convention proceedings. These images were provided to all the networks,
to the closed circuit television program viewed by convention attendees, and to the RNC
and the Convention Committee for their television broadcasts.“ Attachment 3, at 51.
The Commission identified payments in a net total of $1,819,824 from the Convention
Committee and the RNC to Creative Broadcast Techniques (“CBT”) that were for 25
television cameras, crews, and some of the related television production and editing
expenses. Attachment 1, at 49. According to the Convention Committee, the cameras
were used for two major purposes: (1) producing the basic feed; and (2) producing the
television programs broadcast by the Convention Committee and the RNC. Of the 25
cameras, 14 were used to produce the images for the basic feed. Attachment 1, at 47.5

Following audit fieldwork, the RNC submitted two documents to the Commission dated

“ In 1993 GOP-TV was formed to produce media for the RNC, including a television show called

“Rising Tide” that was broadcast live every Thursday night on several cable channels. Attachment 3, at 51.

“6 Production and editing of these images were provided by Nash and were not part of the CBT

contract. Attachment 1, at 47.


30

b. Vendors Who Provided Content

The Host Committee made expenditures to vendors who provided content that
was used as a portion of the convention proceedings.*? None of these expenditures is
similar to the purposes listed in 11 C.F.R. § 9008.52(c), nor is any consistent with a host
committee’s principal purpose of promoting its city. Consequently, the following
expenditures are impermissible host committee expenditures and in-kind contributions to
the Convention Committee.

The travel expense for the Convention Announcer ($986) is part of the expenses
necessary to create the content of convention proceedings, based on the Announcer’s
apparent function. As such, it is not a permissible host committee expenditure. The
Convention Committee notes that the announcer may have welcomed speakers to the
podium; however, section 9008.52(c)(1)(ii) use of welcoming is expressly limited to
welcoming attendees to the city, which reflects the permitted role of host committees,
rather than assisting the creation of convention proceedings.

Similarly, $49,032 were spent to bring an orchestra to perform before and during
the convention. While a host committee might be permitted to provide an orchestra at a
welcoming reception pursuant to 11 C.F.R. § 9008.52(c)(1)(ii), or even to provide tickets
to an orchestra concert analogous to the baseball game tickets in Advisory Opinion 1980-

21, providing entertainment as part of the convention’s proceedings is not a permissible

host committee expenditure.

a With such a purpose, these expenditures fail even the Convention Committee’s simplified test for

distinguishing permissible host committee expenditures from impermissible. They are not for the
“microphone,” or the permitted host committee expenditures, but rather are for the “message,” which the
host committee may not provide. See Attachment 4, at 48.


46

speakers; and other articles and “human-interest” segments, according to an affidavit
submitted by Patrice Geraghty, the Director of Broadcast and the Executive Producer for
GOP-TV. See Geraghty affidavit, Attachment 3, at A93-94 and A92. The interviews
were conducted backstage at the Convention Center and at a separate location known as
the Marina Set. Jd., at A92. The segments were “‘on such topics as community efforts to
move welfare recipients into the workforce and the impact of tax relief on ordinary
American families.” The “human-interest segments” were about “events in San Diego
apart from the Convention such as a visit by Convention attendees to Sea World, work
performed by several Convention attendees with Habitat for Humanity in San Diego, and
a carnival hosted by Mr. & Mrs. Barbour for San Diego foster children.” Jd., at A89. The
programs were broadcast from 7:00 to 7:30 AM EST on Monday, August 12 through
Friday, August 16, 1996. Additionally, the RNC paid the airtime costs for a one-hour
evening program that aired the day after the conclusion of the convention. The
Commission determines that the airtime costs were not a contribution to the Convention
Committee because the costs of distributing this programming is a national party expense,
not a convention expense.

The Convention Committee paid National Media, Inc. $1,170,000 in airtime costs
associated with evening programs that were aired on the Family Channel and NewsTalk
Television.” Attachment 1, at 42. The programs carried “live, prime-time coverage of
the Convention proceedings.” Jd., A89. These programs were broadcast from 9:00 to

11:00 PM EST from Monday, August 12 through Wednesday, August 14, 1996, and from

° On August 16, 1996 the Convention Committee wired $1,188,000 to National Media, Inc. On
March 31, 1997, the Convention Committee was refunded $18,000, which leaves a net payment of
$1,170,000 to National Media, Inc. for the airtime costs. Attachment 1, at 42.


29

Attachment 3, at 31-33. However, the television production expenditures that are
repayable are those with specific purposes that were not for permissible host committee
expenditures such as the examples listed in 11 C.F.R. § 9008.52(c), but were instead to
create or enhance the convention proceedings. The specific purpose of the expenditures,
rather than a broad, categorical purpose such as television production, determines whether
the expenditures are permissible host committee expenditures similar to those listed in
section 9008.52(c). Thus, some of the expenditures that fall under the Convention
Committee’s broad category of television production were permissible host committee
expenditures; this does not mean, however, that all of the expenditures in the same broad
category were permissible.

Finally, the Convention Committee claims that all of the television production
expenses were required in order to provide the closed circuit television system with
programming. Jd., at 33. As the Convention Committee’s own affiants clearly state,
facilitating nationwide television coverage of the convention is a significant focus of the
convention’s efforts, yet allocating all of television production expenses to the closed
circuit television system makes that significant effort merely a by-product of the closed
circuit system. See Greener affidavit, Attachment 3, at A106-09, J] 10-16, and 18; see
also Geraghty affidavit, Attachment 3, at A87-88, 5, and Nash supplemental affidavit,
Attachment 3, at A744-45, | 3. The Convention Committee’s affiants make clear that its
efforts to facilitate the nationwide television broadcast cannot be ignored. Thus, the
Commission concludes that allocation of all the television production expenditures to the

closed circuit television system is clearly unreasonable.


convention or convention-related activities. 11 C.F.R. § 9008.7(a)(4). Some examples of
convention expenses include administrative and office expenses for conducting the
convention including stationery, office supplies, office machines, and telephone charges,
but exclude the cost of any services supplied by the national committee at its headquarters
or principal office if such services are incidental to the convention and not utilized
primarily for the convention. 11 C.F.R. § 9008.7(a)(4)(x). Generally, convention
expenses incurred with respect to a presidential nominating convention are subject to the
expenditure limitation. See 11 C.F.R. § 9008.8(a). Nevertheless, certain expenditures
related to a convention are not subject to the expenditure limitation. For example,
permissible host committee expenditures like those examples listed in 11 C.F.R.
§ 9008.52 shall not be considered convention committee expenditures and shall not count
against the convention committee’s expenditure limit. 11 C.F.R. § 9008.8(b)(1).° Host
committee expenditures that are not in accordance with section 9008.52 are in-kind
contributions to the convention committee that may be considered convention committee
expenditures and count against its expenditure limit. See id.

If the Commission determines that a national party committee accepted
contributions to defray convention expenses which, when added to the amount of
payments received, exceeds the expenditure limitation, it shall notify the national

committee of the amount of contributions so accepted, and the national committee shall

6 Additionally, host committee expenditures that are permitted under section 9008.52 are exempt
from the prohibition of corporate and labor organization contributions or expenditures. 11 C.F.R.
§ 114.1(a)(2)(viii).


20

with the Commission’s treatment of certain taped remote video productions.”! The
Commission has concluded that the taped and live videos at issue should be treated
consistently; consequently, the Nash expenditures for the live videos, related satellite
costs and the Russell tour have been excluded from the Repayment Determination upon
Administrative Review.

Nash provided entertainment in the Sail Area, which was the overflow seating
area on the roof of the Convention Center. The expenses related to the sail area include
Sail Area entertainment ($18,935), Sail Area entertainment coordinator ($3,481),2 and
entertainment incidentals ($213). The Convention Committee defends all of the expenses
listed above as necessary parts of the Sail Area. See Attachment 3, at 39-40.
Specifically, the Convention Committee explains that “the Host Committee was
concerned that attendees relegated to the Sail Area would not be happy. It therefore
strove to make the Sail Area as pleasant as possible by providing, among other things,
entertainment.” Jd., at 39. On this basis, the Commission has concluded the expenses
identified above that total $22,629 ($18,935 + $3,481 + $213) were sufficiently related to
the use of the Sail Area as an auxiliary area to the Convention Center that incurring these
expenses was part of the Host Committee’s provision of the “use of an auditorium or
convention center and . . convention related services for that location.” 11 C.F.R.

§ 9008.52(c)(1)(v). Therefore, pursuant to 11 C.F.R. § 9008.52(c)(1)(v) and (xi), the

a The taped videos consisted of “video clips highlighting profiles of delegates . . . [and] Maury
Taylor, Joe Paterno, Mrs. Laura Bush (never used), Connie Mack, and Steve McDonald.” See
Attachment 7, at 5.

2 The Sail Area entertainment coordinator could also be considered a “producer” or “director” of

that portion of the convention proceedings, but is considered here to reflect the Convention Committee’s
argument that the Sail Area entertainment coordinator was part of the Sail Area.


37

Convention Committee when the Host Committee reimbursement is for permissible host
committee expenditures.“

Therefore, the Commission concludes that the Convention Committee may offset
the $456,957 in-kind contribution it received from the Host Committee by expenses that
were incurred by the Convention Committee, but that were also permissible host
committee expenditures. Of such expenses put forth by the Convention Committee, the
Commission determines that expenses totaling $722,817 would have been permissible
host committee expenditures had the Host Committee incurred those expenses. See
Attachment 13.41 The Commission will take administrative notice of a reimbursement
from the Convention Committee to the Host Committee of the Nash expenses that were
impermissible host committee expenditures, which eliminates the contribution for
repayment purposes. In exchange, a reimbursement in the same amount from the Host
Committee to the Convention Committee for Convention Committee expenditures that
were permissible host committee expenditures will also be noted. Because the

reimbursements are equal, they result in a net exchange of zero; therefore, the Convention

“0 The Commission permits such offsets in other similar circumstances where there is no adverse

effect on the expenditure limitation or the entitlement. In the context of general election financing, a
general election candidate committee may receive a reimbursement from its legal and accounting
compliance fund for expenses that could have been paid by the legal and accounting compliance fund.

11 C.F.R. § 9003.3(a)(2)(ii)(A), (D) and (G). Such reimbursed expenditures are not subject to the general
election expenditure limitation. 11 C.F.R. § 9003.3(a)(2)(iii). Unlike convention committees, general
election committees are usually not permitted to accept private contributions. However, in the limited
situation where the general election committee can accept private contributions (i.e. when there is a shortage
in the Presidential Election Campaign Fund), the general election committee’s entitlement will be adjusted
to reflect these additional funds. 11 C.F.R. § 9004.3(b)(2). The adjustment of the general election
committee’s entitlement is similar to convention committee financing. See Explanation and Justification
for 11 C.F.R. § 9008.3, 44 Fed. Reg. 63036 (Nov. 1, 1979); see also 11 C.F.R. § 9008.5.

“ The Audit Division’s analysis states that the Convention Committee paid permissible host
committee expenses of $718,334. The Commission concludes that an additional $4,433 paid to Red Sun
Custom Screening was also a permissible host committee expense, for a total of $722,817 ($718,334 +
$4,433). See Attachment 13, at 6.


37

Convention Committee when the Host Committee reimbursement is for permissible host
committee expenditures.*°

Therefore, the Commission concludes that the Convention Committee may offset
the $456,957 in-kind contribution it received from the Host Committee by expenses that
were incurred by the Convention Committee, but that were also permissible host
committee expenditures. Of such expenses put forth by the Convention Committee, the
Commission determines that expenses totaling $722,817 would have been permissible
host committee expenditures had the Host Committee incurred those expenses. See Audit
Division’s Analysis of Potentially Permissible Host Committee Expenses (Feb. 2, 2000),
Attachment 13.‘! The Commission will take administrative notice of a reimbursement
from the Convention Committee to the Host Committee of the Nash expenses that were
impermissible host committee expenditures, which eliminates the contribution for
repayment purposes. In exchange, a reimbursement in the same amount from the Host
Committee to the Convention Committee for Convention Committee expenditures that

were permissible host committee expenditures will also be noted. Because the

“ The Commission permits such offsets in other similar circumstances where there is no adverse

effect on the expenditure limitation or the entitlement. In the context of general election financing, a
general election candidate committee may receive a reimbursement from its legal and accounting
compliance fund for expenses that could have been paid by the legal and accounting compliance fund.

11 C.F.R. § 9003.3(a)(2)(ii)(A), (D) and (G). Such reimbursed expenditures are not subject to the general
election expenditure limitation. 11 C.F.R. § 9003.3(a)(2)(iii). Unlike convention committees, general
election committees are usually not permitted to accept private contributions. However, in the limited
situation where the general election committee can accept private contributions (i.e. when there is a shortage
in the Presidential Election Campaign Fund), the general election committee’s entitlement will be adjusted
to reflect these additional funds. 11 C.F.R. § 9004.3(b)(2). The adjustment of the general election
committee’s entitlement is similar to convention committee financing. See Explanation and Justification
for 11 CFR. § 9008.3, 44 Fed. Reg. 63036 (Nov. 1, 1979); see also 11 C.F.R. § 9008.5.

“ The Audit Division’s analysis states that the Convention Committee paid permissible host

committee expenses of $718,334. The Commission concludes that an additional $4,433 paid to Red Sun
Custom Screening was also a permissible host committee expense, for a total of $722,817 ($718,334 +
$4,433). See Attachment 13, at 6.


26

Video Crew Labor, the Commission has already determined that $46,773 of the $56,781
is a permissible host committee expenditure, which leaves the Technical Director’s fee,
$10,008, in dispute.

The payments to Chicago Scenic Studios were for broadcast engineers, stagehands
and riggers for the lighting, sound, Teleprompter, and Scenic systems, teamsters,
cameramen and projectionists. Attachment 8, at 3. Such services are closely linked to
the infrastructure of the convention center. Additionally, section 9008.52(c)(1)(v)
specifically lists decorations, lighting and loudspeaker systems. In contrast, the
remaining challenged payments to Nash were for vendors who produced or directed the
convention proceedings. According to Nash, the Stage Manager was: “Responsible for
running the operation of the podium during the convention, including cueing the talent
(speakers) and stage effects. Coordinates podium activities with the executive producer .
. ., and the television director ....” See Attachment 7, at 3. As described by Nash, the
Technical Director’s “overall responsibility . . . was the coordination of all aspects of the
video engineering.” Jd., at 8. Thus, because the services provided by Chicago Scenic
Studios are different from the services provided by Nash’s Stage Manager and Technical
Director, the Convention Committee’s claim of inconsistent treatment fails.

The Convention Committee also states that the Chicago Host Committee reported

a9

“spending over $12,000 on various ‘stage hands’ and ‘stage technicians,” and it cites a
few examples of such reporting entries, claiming that this is another inconsistency
between the DNCC audit report and the Convention Committee’s audit report.
Attachment 3, at n.5, 27. Although the Convention Committee does not precisely identify

the disbursements that make up the “over $12,000,” the attached schedule displays 35


conducting the national nominating convention, according to a revised Statement of Net
Outstanding Committee Expenses. Attachment 2.

The Convention Committee was audited pursuant to 11 C.F.R. § 9008.11. On
June 23, 1997, the Commission’s Audit staff held an exit conference with the Convention
Committee to discuss preliminary findings and recommendations that the Audit staff
anticipated presenting to the Commission for its approval. 11 C.F.R. §§ 9008.11,
9007.1(b)(2)(iii), and 9038.1(b)(2)(iii). The Audit Division’s preliminary findings and
recommendations were contained in an Exit Conference Memorandum (“ECM”). Jd. On
September 9, 1997, the Convention Committee filed its written response to the ECM,
which is included in its exhibits to its Administrative Review Request. See Attachment 3,
at Al through A644.

On June 25, 1998, the Commission approved the Audit Report and determined
that the RNC and the Convention Committee exceeded the expenditure limitation by
$1,772,643 and therefore must repay that amount to the United States Treasury. The
repayment amount included in-kind contributions from the San Diego Host Committee
(“Host Committee”) in the amount of $892,489 and from the RNC in the amount of
$729,994. Attachment 1, at 54.

The Host Committee was established to serve as a host committee for the
Republican National Convention pursuant to 11 C.F.R. §§ 9008.50 to 9008.54. The Host

Committee did not receive any public funds pursuant to Title 26 of the United States


44

the RNC and the Convention Committee because both were using the direct feed that
came from those 14 cameras. Jd. The cost of half of the 14 cameras is equal to 7/25

(or 28%) of the cost of the entire CBT contract. Using the Convention Committee’s total
contract price of $1,758,298, the Convention Committee claims it was obligated to pay
$492,323 ($1,758,298 x 7/25) on the CBT contract. Because the Convention Committee
paid $482,645** and the RNC paid $492,323 for the use of the 14 cameras, the
Convention Committee contends that the RNC did not make a contribution to the
Convention Committee.

The Convention Committee disputes that the remaining 11 cameras were used to
broadcast GOP-TV and Convention Committee programming. The Convention
Committee further asserts that the RNC alone used the remaining 11 cameras for GOP-
TV broadcasts and that the Convention Committee should not be required to help pay for
them. Attachment 15, at 3. The Convention Committee acknowledges that it paid the
airtime costs associated with the programs created with the 11 cameras; however, the
Convention Committee asserts that it was not required to pay the airtime costs so it
should not be required to pay the related production costs. Attachment 3, at 58.

The Convention Committee claims that the RNC used the remaining 11 cameras
to broadcast five, half-hour morning shows during the Convention week, four evening
shows of live Convention coverage, and one evening recap show. Jd., at 52.

The Convention Committee argues that because the 11 cameras were “exclusively under

the [control of the] RNC,” and the Convention Committee did not use the feed from

« The Convention Committee acknowledges that this amount is $9,678 ($492,323 - $482,645) less
than what it believes to be its portion of the CBT contract. Attachment 3, at 55.


42

March 10, 1997 and September 16, 1997 in which the RNC stated that the revised figure
for the cost of the CBT contract that was related to the 14 cameras used for the basic feed
was $833,345. See RNC GOP-TV Memorandum (Mar. 10, 1997) and Invoice (Sept. 16,
1997), Attachment 14. The RNC and the Convention Committee agreed to allocate these
costs equally between the RNC and the Convention Committee.“* Id.

While the Convention Committee determined the cost of the 14 basic feed
cameras by calculating 14/25 of the 25 camera contract price, the Commission utilized
the actual price of $833,345 provided by the RNC to establish the cost of the basic feed.
Attachment 1, at 49. The Commission determined that because the RNC has provided an
actual cost for the basic feed in the amount of $833,345, that amount represents the cost
of the 14 cameras that were used for the basic feed.

The remaining 11 cameras were used to create television programs broadcast by
the Convention Committee and other programs broadcast by the RNC. Because the
cameras were used for only two major purposes, the Commission determined in the Audit
Report Repayment Determination that the remaining amounts in the CBT contract,
$986,479 ($1,819,824 - $833,345), were related to the other 11 cameras. In the absence
of a precise allocation of the production expenses between RNC and Convention
Committee programs, the Commission determined in the Audit Report Repayment
Determination that the basis for allocating these production costs should be broadcast
hours, which results in an allocation of 74% of the costs to the Convention Committee

and 26% to the RNC. On that basis, the Commission determined that the RNC made an

“ The Commission did not approve a motion recommending that the RNC’s portion of these

expenses were a contribution to the Convention Committee by a vote of 3 to 2. Attachment 1, at 49-50.


13

paid by the Convention Committee that it maintains could have been paid by the Host
Committee in accordance with 11 C.F.R. § 9008.52. Id., at 47-54. The Convention
Committee uses the common law equitable theory of recoupment to support its argument
that the Commission should permit the Convention Committee to offset the contribution
by expenditures that the Convention Committee paid, but that could have been paid by
the Host Committee. '? Id., at 42

The Convention Committee presents three primary arguments in support of
allowing arecoupment. First, the Convention Committee asserts that recoupment claims
have been allowed in a broad range of legal and administrative contexts and the
Commission has allowed similar post hoc reallocations in other contexts.'?
Attachment 3, at 44. Second, the Convention Committee argues that permitting a
recoupment is appropriate because there is a substantial overlap between expenses that a
convention committee may pay and those that may be paid by a host committee without

counting toward the convention committee’s expenditure limitation. Attachment 4, at 38.

2 Recoupment is a common law, equitable doctrine that permits a defendant to have a plaintiff's

monetary claim reduced by reason of some claim that the defendant has against the plaintiff arising out of
the same transaction or occurrence giving rise to the plaintiff's claim. 6 Charles Alan Wright & Arthur R.
Miller, Federal Practice and Procedure, Civil § 1401 (2d ed. 1990). A recoupment against the government
must meet three criteria: (1) it must arise from the same transaction or occurrence that is the subject of the
government’s suit; (2) it must seek relief of the same kind or nature as that sought by the government; and
(3) it must be purely a defensive setoff, and not seek affirmative recovery from the government. United
States v. M/V Santa Clara I, 819 F. Supp. 507, 513 (D.S.C. 1993); see also Reiter v. Cooper, 507 U.S. 258,
264 (1993); United States v. Dalm, 494 U.S. 596, 611 (1990).

8 At the Oral Hearing, the Convention Committee utilized a section of the Office of General

Counsel’s Briefing Memorandum arguing that Commission’s Counsel agreed that offset should be
permitted. However, the Briefing Memorandum did not take a definitive position on the issue, stating
instead, “[i]t is unclear whether the Convention Committee should be allowed to offset a portion of its
expenditures by an amount that represents expenditures the Convention Committee paid but that the Host
Committee could have paid in accordance with 11 C.F.R. § 9008.52.” Office of General Counsel Briefing
Memorandum, at 10. The Memorandum also stated: “[i]f the Commission allows the offset, the Convention
Committee must be able to demonstrate that the expenditures offered in the offset are host committee
expenditures in accordance with 11 C.F.R. § 9008.52 in fact and law.” Jd. Furthermore, staff memoranda


15

Commission’s recognition of an exception to the convention committee expenditure
limitation for host committee activity is in the context of public funds that are provided to
convention committees only upon the recipients’ agreement to an expenditure limitation.
As the Commission previously noted, “the national committee of a political party is
entitled to receive public money to pay for its convention and is in turn limited in the
amount which it may spend on that convention.” 44 Fed. Reg. 63038 (1979).

Section 9008.52(c) is based on previous 11 C.F.R. § 9008.7(b) and (d), which
permitted government agencies to make certain expenditures for facilities and services
with respect to a convention without the value of the facilities and services counting
toward the party’s expenditure limitation, 11 C.F.R. § 9008.7(b) (1994), permitted host
committees to promote the convention city and its commerce, 11 C.F.R. § 9008.7(d)(2)
(1994), and permitted host committees to make expenditures similar to government
agencies, 11 C.F.R. § 9008.7(d)(3) (1994). See 11 C.F.R. § 9008.7(b), (d) (1994);
Explanation and Justification for 11 C.F.R. § 9008.52, 59 Fed. Reg. 33614 (1994) and
Explanation and Justification for 11 C.F.R. § 9008.7, 44 Fed. Reg. 63037 (1979). While
the provisions related to host committees permitted unlimited donations from individuals,
local businesses, local government agencies, and union locals to the host committee for
use in promoting the city and its commerce, “far greater restrictions [were] placed on
funds received and expended to defray convention expenses.” 44 Fed. Reg. 63037
(1979). Specifically, only local retail businesses were permitted to donate funds to defray
convention expenses and such donations were “limited to an amount proportionate to the
commercial return reasonably expected during the life of the convention by the particular

business.” 44 Fed. Reg. 63037 (1979). This provision for the host committee to defray


BEFORE THE FEDERAL ELECTION COMMISSION

In the Matter of )
) LRA 472
1996 Committee on Arrangements for )
The Republican National Convention )
STATEMENT OF REASONS

On April 13, 2000, the Federal Election Commission (the “Commission”
determined that the 1996 Committee on Arrangements for the Republican National
Convention (the “Convention Committee”) and the Republican National Committee (the
“RNC’”) do not owe a repayment to the United States Treasury in connection with the
1996 Republican National Convention. This Statement of Reasons sets forth the legal
and factual basis for this determination.

I. FACTS

The Republican National Committee established the 1996 Committee on
Arrangements for the Republican National Convention to conduct the operations of the
Republican national nominating convention. The convention was held at the San Diego
Convention Center in San Diego, California from Monday, August 12, 1996 through
Thursday, August 15, 1996.

The Convention Committee and the RNC received $12,364,000 in public funds
for the purpose of conducting the national nominating convention. See Report of the
Audit Division on the 1996 Committee on Arrangements for the Republican National
Convention, Attachment 1, at 6. This amount represented the Convention Committee’s
full entitlement to public funds and its expenditure limitation for the convention. The

Convention Committee expended its full public grant plus the contributions it received in


36

examine the impact of the offset transaction on the expenditure limitation, the use of
public funds, and the Convention Committee’s entitlement.

Allowing the Convention Committee to offset the in-kind contribution received
from the Host Committee by its expenses that could have been paid by the Host
Committee does not have an impact on the Convention Committee’s expenditure
limitation. If the expenditures at issue were permissible host committee expenditures and
are ultimately paid for with Host Committee funds, they can not be subject to the
Convention Committee’s expenditure limitation. 11 C.F.R. § 9008.8(b)(1). There is no
requirement in section 9008.52(c)(1) that the funds must be initially expended from the
Host Committee’s accounts, nor is there a prohibition against the initial use of the
Convention Committee’s public funds for the purposes set forth in section 9008.52(c).
See 11 C.E.R. § 9008.7(b)(1).

The proposed offset does not have an impact on the Convention Committee’s
entitlement to public funds. Private funds can be used for the purpose of paying
convention expenses. 11 C.F.R. § 9008.6(a)(1). However, if private funds are spent on
convention expenses, the convention committee’s entitlement to public funds may be
reduced by the same amount. See 26 U.S.C. § 9008(b)(3). The sum of a convention
committee’s entitlement and the private contributions cannot exceed a convention
committee’s expenditure limitation. 11 C.F.R. § 9008.5(b). However, if the Host
Committee expenses were permissible host committee expenditures, they are not
contributions to the Convention Committee. 11 C.F.R. §§ 114.1(a)(2)(viii)

and 9008.8(b)(1). Therefore, there are no additional private contributions provided to the


24

coverage, including live remotes and creation of video segments for the big screens.
Also responsible for supervision of entire production budget.” Attachment 7, at 3. Like
the Directors, the Television Producer created or enhanced the convention’s proceedings.
Therefore, the Producer’s fee is not a permissible host committee expenditure. The
Convention Committee allocated $6,250 of the $50,000 fee paid to the Television
Producer to the remote video productions. See Bing affidavit, Attachment 3, at A74-76.
Because the Commission has determined that expenditures related to the remote video
productions are permissible host committee expenditures, the $6,250 of the Television
Producer’s fee is not included in the Repayment Determination upon Administrative
Review. The remaining $43,750 ($50,000 - $6,250) paid to the Television Producer is
included in the Repayment Determination upon Administrative Review.

Fees associated with additional production staff have also been included in the
Repayment Determination upon Administrative Review because their purpose was to
create or enhance the convention proceedings. The job titles and related fees are as
follows: Technical Director ($10,008);”” Production Coordinator ($5,570); Stage
Manager ($8,438); Script Supervisor ($6,442); Production Assistant ($6,163); Make up
($3,000); Tape stock ($200); Sound Operations ($5,250); Tape Coordinator ($7,806);

Continuity Writer ($10,000); and Stand-ins ($2,691).® None of these expenses was a

7 See Attachment 8, at 3 (specifying that the Technical Director was paid $10,008 as part of $56,781
for Video Crew Labor).
8 In addition to the production staff listed above, Nash also expended $38,500 for the Staging (or

Production) Supervisor and $22,790 for the Production Manager. The Convention Committee categorized
these expenses as part of the lighting and rigging expenses that were necessary to prepare the Convention
Center. See Bing affidavit, Attachment 3, at A74. The Commission did not include any of these amounts in
the Audit Report Repayment Determination.


Memorandum to the Commission

Statement of Reasons

1996 Committee on Arrangements for the Republican National Convention
LRA 472

Page 2

circulated on an informational basis. Due to the length of the attachments, we have not
included them with this circulation.

Attachment
1. Draft Statement of Reasons


47

8:00 PM to Midnight EST on Thursday, August 15, 1996, the last night of the
convention.

In the Audit Report Repayment Determination, the Commission did not challenge
the Convention Committee’s payment of the airtime costs associated with the evening
programs as a convention expense in accordance with 11 C.F.R. § 9008.7(a)(4).
However, after further consideration of the facts, the Commission concludes that payment
of the distribution costs of this programming does not qualify as a convention expense
because it is a national party expense. Section 9008.7(a)(4) of the Commission’s
regulations defines “convention expenses” to include “all expenses incurred by or on
behalf of a political party’s national committee or convention committee with respect to
and for the purpose of conducting a presidential nominating convention or convention-
related activities.” The Explanation and Justification for 11 C.F.R. § 9008.7 recognizes
that “[g]iven that the convention not only serves as the vehicle for nominating the party’s
Presidential candidate, but is also used to conduct ongoing party business, the line
between convention expenses and party expenses can be a fine one.” Explanation and
Justification for 11 C.F.R. § 9008.7, 59 Fed. Reg. 33,608 (1994). The Commission
determines that the costs related to airing or producing the television programming were
not for the purpose of conducting a presidential nominating convention, but were instead
to promote the party. As such, they were for national party committee activities.
Consequently, the Convention Committee was not required to pay any of those costs, and

the RNC’s payment of those costs is not a contribution to the Convention Committee.”

50 The Commission further determines that the Convention Committee’s $1,170,000 payment to
National Media, Inc. for costs associated with airing the convention proceedings on the Family Channel and
NewsTalk Television is an impermissible convention committee expense. Although the Convention


32

The Convention Committee referred to a number of expenditures reported by the
Chicago Host Committee that were not included in the DNCC Audit Report Repayment
Determination and argued that the Commission must exclude certain expenditures from
the Convention Committee’s repayment determination on this basis. Specifically, the
Convention Committee refers to expenditures for production labor, fireworks, an air
show, and entertainment. Attachment 3, at 27, 37, 38, and 39. The Commission has
reviewed documentation related to these disbursements and concluded that all of the
disbursements referenced by the Convention Committee were associated with events held
by the Chicago Host Committee that were to welcome convention attendees to the City of
Chicago and were therefore consistent with 11 C.F.R. § 9008.52(c)(1)(ii). All of these
events were held at locations away from the location of the Chicago convention, and all
but one of these events occurred prior to the first day of the convention. Attachment 8,
at 5-6, and Audit Division, Schedule of Payments for “Entertainment” as Reported on the
DNC Host FEC Disclosure Reports, Attachment 11. It is therefore clear that the events
were similar to the baseball game in Advisory Opinion 1980-21 and were not part of the
convention proceedings. Consequently, the referenced expenditures are not similar to any
of the expenditures included in the Convention Committee’s repayment determination.

Thus, the Commission determines that $315,947 of the Nash expenses were not
permissible host committee expenditures and as such represent in-kind contributions to
the Convention Committee.

3. Overhead and Indirect Expenses
In the Audit Report Repayment Determination, Nash’s indirect expenses were

attributed between Nash’s functions that were permissible host committee expenditures


40

attempting to extend the regulation to include not just the complimentary rooms the Host
Committee properly provided in accordance with section 9008.52(c)(1)(ix), but also some
of the underlying 40 rooms the Host Committee would have been required to book in
order to receive the complimentary rooms. Section 9008.52(c)(1)(ix) is not so broad
because it is limited to any rooms received by a host committee from hotels at a reduced
rate or no charge, in return for a specified number of other rooms booked. Therefore, the
$743,924 would not be a permissible host committee expenditure pursuant to

section 9008.52(c)(1)(ix).

The fourth category, caucus and platform meeting, relates to payments totaling
$25,651 made to a single vendor. According to documents reviewed by the Commission,
the purpose of the payments was to provide facilities, sound, and lighting for Caucus and
Platform Committee meetings on August 5, 1996 through August 9, 1996, before the start
of the convention. See Attachment 3, at 47 and Attachment 13, at 5. The Commission
concludes that this meeting was for the purpose of conducting national party business,
and is therefore not a permissible host committee expense.

The last category of expenses labeled undocumented totals $113,746. No
documentation was submitted to determine the nature of these expenses. Attachment 13,
at 5. Therefore the Commission does not include these expenses among those that have
been determined to be permissible host committee expenses.

The Commission determines that $722,817 in expenses paid by the Convention

Committee are permissible Host Committee expenses. This amount is more than

“6 The Convention Committee made a similar argument related to $105,603.94 of hotel expenses in

the overhead and indirect costs category. Attachment 3, at 41. For the same reasons cited above, that
argument is rejected and the costs remain subject to attribution.


27

Chicago Host Committee disbursements that were reported for stagehands or stage tech
crew and total $13,930. See Audit Division, Schedule of Payments for “Stagehands” and
“Stage Tech Crew Member,” Attachment 10. (The particular disbursements cited as
examples by the Convention Committee are included on Attachment 10.) As shown on
that schedule, all of the disbursements were in connection with events that were held
outside of the convention hall and occurred prior to the convention. Jd. As such, they
were permissible host committee expenditures for receptions welcoming the convention
attendees to the city, which is listed as an example in 11 C.F.R. § 9008.52(c)(1)(ii).
Thus, the cited Chicago Host Committee expenditures were fundamentally different from
the Nash expenditures that are included in the Convention Committee’s Repayment
Determination.

The Convention Committee cites the audio system and related services provided
by the City of Chicago to DNCC as another example of an inconsistency between the
DNCC audit and the Convention Committee audit. Attachment 3, at 27-28. It argues that
the $5,250 for Sound Operations is the same as Sound Operations in the DNCC’s audit,
which were not included in the DNCC’s Repayment Determination. Jd. However,
Nash’s Sound Operations were described as closed captioning for Convention Committee
television programming on Nash’s general ledger, Attachment 8, at 3-4, while the Sound
Operations in the DNCC audit were for an audio system and the services of audio
consultants and an audio designer to operate the system, Attachment 3, at 27-28.3! Thus,

although the expenditures bear a similar label, the functions served were quite different.

3 Both the Chicago Host Committee and the San Diego Host Committee made substantial payments

to the same vendor for such services. See Attachment 8, at 3.


Committee argues that because the satellite time was used to deliver the television signal
known as the “basic feed” to various broadcasters, it was the functional equivalent of a
cable delivering the same signal to the broadcasters at the convention site. See id., at 36,
and Nash affidavit, Attachment 3, at A586, J 18c. The Convention Committee apparently
maintains that such a cable would be in accordance with section 9008.52(c)(1)(v) as
construction services. Finally, the Convention Committee argues that the reference to
offices in section 9008.52(c)(1)(v) provides authority for the Host Committee to provide
the Convention Committee with overhead expenses of $210,851. Attachment 3, at 40-42.
The Convention Committee argues that some of the expenditures at issue are
indistinguishable from other Host Committee expenditures that the Commission did not
include in the repayment determination. With respect to the $222,522 spent for closed
circuit television services, the Convention Committee maintains that the Commission has
not stated a sufficient reason to distinguish the expenditures included in the repayment
determination from those that were not. Jd., at 26-33. The Convention Committee also
states that the live remote video productions are indistinguishable from the taped remote
video productions that the Commission did not include in its repayment determination.
Thus, the Convention Committee argues that the $138,442 related to live remote video
productions should not be included in any repayment determination. Jd., at 34-35.!! The
Convention Committee again cites the expenditures for taped remote video productions

and claims those expenditures are indistinguishable from the $70,000 expended to

issued a Statement of Reasons for this audit which determined that the DNCC did not receive any
contribution and therefore no repayment was due.

" The Convention Committee also maintains that approximately one-half of the $73,748 spent for

satellite time was related to the live remote video productions and should be permitted in connection with
the remote video productions. Attachment 3, at 36.


48

2. Production Costs

In order to properly allocate the expenses related to all 25 of the cameras under
the CBT contract, the cost of the basic feed which used the 14 cameras must be separated
from the production costs related to the television programs which used the 11 cameras.

Although the Convention Committee allocates the expenses between the two
categories based solely on the numbers of cameras used for each purpose, the RNC has
provided an actual cost of $833,345 for the basic feed’s 14 cameras. The Convention
Committee agrees that the RNC stated the cost of the basic feed as $833,345; however,
the Convention Committee asserts that the amount was merely an interim figure and was
stated before all of the charges related to the basic feed were fully assimilated.
Attachment 4, at 92-93. However, the RNC submitted documents to the Commission
dated as late as March 10, 1997, and September 16, 1997 which lists the actual price for
the 14 cameras as $833,345. Attachment 14. Although the Convention Committee
claims that it is unable to reconstruct the exact cost, the Commission has adopted the
figure provided by the RNC to represent the cost of the basic feed, instead of using an
allocation. Such an approach is consistent with a sworn statement submitted by Michael
Simon on behalf of the Convention Committee, in which he states that before an expense
is “allocated using assumptions, an effort should be made to reduce the amount of
expenses that must be allocated;” this is done by first identifying any actual costs and

only allocating the remaining unascertainable amounts. See Michael Simon affidavit,

Attachment 3, at A682.

Committee improperly used convention funds of $1,170,000, because the Commission is required to notify
the Convention Committee of all repayment determinations by August 15, 1999, or 3 years after the last day
of the convention, the Commission cannot seek a repayment of those funds. 11 C.F.R. § 9008.12(a)(2).


50

Vv. CONCLUSION

For the foregoing reasons, the Commission determines that the 1996 Committee
on Arrangements for the Republican National Convention received in-kind contributions
from the San Diego Host Committee in the amount of $456,957. The Commission
further determines that the 1996 Committee on Arrangements for the Republican
National Convention may offset this contribution with expenditures it made that were
permissible host committee expenditures. The Commission also determines that the 1996
Committee on Arrangements for the Republican National Convention did not receive an
in-kind contribution from the Republican National Committee in connection with its
payments to Creative Broadcast Techniques, Inc. Therefore, the Commission determines
that the 1996 Committee on Arrangements for the Republican National Convention and
the Republican National Committee do not owe a repayment to the United States

Treasury.

Attachments

1. Report of the Audit Division on the 1996 Committee on Arrangements for the
Republican National Convention (June 25, 1998).

2. Statement of Net Outstanding Committee Expenses.

3. Request of the 1996 Committee on Arrangements for the Republican National
Convention for an Administrative Review of the Repayment Determination
(Sept. 24, 1998) (including Appendix).

4, Transcript of the 1996 Committee on Arrangements for the Republican National
Convention Oral Hearing before the Federal Election Commission on
February 24, 1999.

RNC. Therefore, the $65,973 overpayment by the Convention Committee represents improperly used
convention funds.


14

Finally, the Convention Committee states that the Commission allowed the Democratic
National Convention Committee (“DNCC”) to exercise the right of recoupment.
Attachment 3, at 45.

According to the Convention Committee, it has documented numerous expenses
totaling $1,355,071 that were paid by the Convention Committee but that could have
been paid by the Host Committee in accordance with section 9008.52(c). Attachment 3,
at 46-49. The Convention Committee divides these expenses into three major categories:
(1) $441,185 of office equipment and other convention infrastructure-related expenses;
(2) $110,387 of local transportation and security expenses; and (3) $803,499 of hotel
rooms for volunteers, speakers and convention staff. Id.'*

c. REPAYMENT DETERMINATION UPON ADMINISTRATIVE
REVIEW

The Convention Committee’s administrative review request presents the
Commission with several issues related to whether certain Nash expenses were
permissible host committee expenditures. Because permissible host committee
expenditures that are made in accordance with 11 C.F.R. § 9008.52 are not subject to the
convention committee’s expenditure limitation, these issues require an interpretation of

the breadth of host committee activity permitted under section 9008.52(c). The

do not set forth the Commission’s position. See Fulani v. Federal Election Commission, 147 F.3d 924, 928
(D.C. Cir. 1998).

“ The Convention Committee asserts that its first category of expenses are in accordance with

section 9008.52 because the regulations expressly state that host committees may pay for office expenses,
office equipment, and local transportation services. Attachment 3, at 47. With respect to the second
category of expenses, the Convention Committee contends that uniforms worn by security volunteers and
local transportation staff were not only decorative tee-shirts, but also uniforms that were a necessary
component of the Convention Committee’s security system, and therefore, a permissible host committee
expense in accordance with section 9008.52(c)(1)(vii). Jd., at 48. Finally, the Convention Committee cites
section 9008.52(c)(1)(ix) of the Commission’s regulations as a basis for permitting $803,499 in hotel costs
for volunteers, speakers, and convention staff. Id., at 48-49.