December 18, 1998

MEMORANDUM

TO: The Commission

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THROUGH:

FROM:

BY: .

FEDERAL ELECTION COMMISSION

WASHINGTON, 0 C 20463

James A. Pehrkon

Acting StaffDirecto

Lawrence M.NOf!:l'

General Counsel7V:;

Kim Bright-Coleman \l.f't:-

Associate General Counsel

Lorenzo Holloway P(.K--- Assistant General CounselLJ 1, "

J. Duane Pugh. Jr.w.

Attorney \)~~

JamHa I. WyattlL \

Law Clerk '-fVJ

Dec IB II 25 IJi t98

SUBJECT: 1996 Committee on Arrangements for the Republican National

Convention Request for Oral Hearing (LRA #472)

On June 25, 1998, the Commission detennined that the 1996 Committee on

Arrangements for the Republican National Convention ("COA") must repay $1,772,643

to the United States Treasury. On September 24, 1998, COA submitted its written

response to the repayment determination and requested the opportunity to address the

Commission in open session to demonstrate that no repayment is required. 1t C.F.R.

§ 9007.2(cX2)(ii).1 See Attachment. The Office ofGeneral Counsel recommends that

Pursuant to 11 C.F.R. § 9OO8.12(c), the repayment determination procedures in II C.F.R

§ 9OO7.2(c)-(h) for general election fmancinl are applicable to convention committees. See also II C.F.R.

§§ 9008.11 (incorporating II C.F.R. § 9007.1) and 9008.14 (incorporating II C.F.R. § 9007.5).
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Memorandum to the Commission

1996 Committee on Arrangements for the

Republican National Convention

Oral Hearing Request (LRA #472)

Page 2

the Commission grant COA's request for an oral hearing and schedule the presentation

for February 24, 1999.

The Commission's regulations provide national committees that have received

public funds in connection with their nominating conventions the opportunity to respond

to a repayment determination by submitting written legal and factual materials to

demonstrate that no repayment, or a lesser repayment, is required. 11 C.F.R.

§ 9007.2(c)(2)(i). A committee may request an opportunity to address the Commission in

open session. 11 C.F.R. § 9007.2{c)(2)(ii). The committee should identify in its legal

and factual materials the repayment issues it wants to address at the oral hearing. Id. The

Commission may grant this request by an affirmative vote offour ofits members and

inform the committee ofthe date and time set for the oral hearing. Id

The repayment determination at issue is based on in-kind contributions to COA

from the Republican National Committee ("RNC") and the San Diego Host Committee

that, when added to COA's expenditures, result in CGA exceeding the expenditure

limitation. The response argues that the RNC's in-kind contributions to COA that related

to television production were treated differently than similar expenses incurred by the

Democratic National Convention. With respect to the San Diego Host Committee's inkind contributions to COA, the response contends that the Host Committee is permitted

to pay such expenses pursuant to 11 C.F.R. §§ 9008.52 and 9008.53. COA asserts that

the regulations permit host committees to pay for convention related facilities and

services in addition to those specifically listed in the regulation. See 11 C.F.R.

§ 9008.52(c)(I)(xi). Since COA argues that the expenses are permitted, it concludes that

the expenses should not count toward its expenditure limitation pursuant-to 11 C.F.R.

§ 9008.8(b)(I).

The Office ofGeneral Counsel believes that an oral hearing would be beneficial

due to the large volume oftransactions and types of expenditures related to the

$1,772,643 repayment determination at issue, as well as the factual complexity ofthe

issues underlying the repayment determination. An oral hearing may provide the

Commission with an opportunity to clarify these complicated issues and may assist the

Commission in reaching any post-administrative review repayment determination.

Accordingly, this Office recommends that the Commission grant the Committee"s request

for an oral hearing.

Should the Commission approve our recommendation, the Office ofGeneral

Counsel proposes that the same procedures used for previous oral hearings during the

1996 election cycle be followed. Pursuant to these procedures, the Office ofGeneral

Counsel will prepare an agenda document containing materials relevant to COA's oral

hearing. This document will be provided to the Commission and to COA prior to the

date ofthe hearing.
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Memorandum to the Commission

J996 Committee on Arrangements for the

Republican National Convention

Oral Hearing Request (LRA #472)

Page 3

At the presentatio~ the Chairman will make an opening statement. COA will

then be given 30 minutes in which to make a presentation on the issues raised in the legal

and factual materials submitted by COA. See generally 11 C.F.R. § 9007.2(cX2)(ii).

Following the presentation, individual Commissioners, the General Counsel, and the

Audit Division may ask questions. ld The letter to COA will infonn COA ofthese

procedures and also state that any additional materials COA may wish to have the

Commission consider should be submitted to the Office ofGeneral Counsel within five

(S) days following the presentation.

RECOMMENDATIONS

The Office ofGeneral Counsel recommends that the Commission:

1. Grant the request ofthe 1996 Committee on Arrangements for the

Republican National Convention for an oral bearing as provided at

11 C.F.R. § 9007.2(c)(2)(ii);

2. Schedule the oral hearing for February 24, 1999; and

3. Approve the appropriate letter.

Attachment

1996 Committee on Arrangements for the Republican National Convention

response dated September 24, 1998.
FEDERAL ELECTION COMMISSIOt~

Washington. DC 20463

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DATE & TIME OF TRANSMITTAL: Fddg. December 18. 1818 4:00

. BALLOT DEADLINE: WIdDMday. Decemblr 23. 1998 4:00

COMMISSIONER: ELLIOTT. MASON, McDONALD. SANDSTROM. THOMAS. WOLD

SUBJECT: 1996 Committee on Arrangements for the Republican

National Convention Requ.st for Ora' H••rlng (LRA #472).

Memorandum to the Commission dated December 18, 1998•

( ) I approve the recommendation{s)

( ) I object to the recommendation{s)

COMMENTS: _

DATE:------ SIGNATURE: _

A definite vote is required. All ballots must be signed and dated. Please return

ONLY THE BALLOT to the Commission Secretary. Please retum ballot no later

than date and time shown above.

FROM THE OFFICE OF THE SECRETARY OF THE COMMISSION
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BBPORE TBB PBDBRAL BLBCTION COMMI:SS:ION

RBSPONSB OF TBB COIIKITTBB ON ARRAHGBllBNTS

POR TBB 1996 RBPUBL:ICAH RATIONAL CONVENTION

'1'0 TBB AUDIT REPORT

Bobby R. Bure: field

Michael A. DaW80n

Anthony R. Picarello, Jr.

COVINGTON &: BURLING

1201 Penn8ylvania Ave., N.W• •••hington, DC 20004

(202) 662-6000

Attorneys for the Committ•• on

Arrangements for the 1996 Republican Xational Convention

Dated: September 24, 1998
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TABLE OP CONTENTS

INTRODUCTION

SUMMARY OF RESPONSE .

PERTINENT PROCEDURAL HISTORY

COA Audit

Democratic·National Convention Committee Audit .

BACKGROUND ON THE 1996 REPUBLICAN NATIONAL CONVENTION . .

The Purpose of Republican National Conventions .

Competition for Political Conventions by Cities and

Host Committees . . . . . . . . . . . . . . . .

The Decline of Convention Television Coverage

The Role of the City of San Diego and the San Diego

Host Committee in the 1996 Republican National

Convention . . . . . . . . . . .

STATUTORY AND REGULATORY FRAMEWORK

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A.

B.

C.

Neither the Statute Nor the Regulation Limits Host

Committee Expenses . . . . . . . . . .

A Stray Commission Statement from 1979 Cannot

Limit Host Committee Expenses . . . . . .

The Spending Limit Is an Unconstitutional

Condition .

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,.. THE COMMISSION SHOULD NOT ORDER COA TO REPAY ANY

AMOUNTS PAID BY THE SAN DIEGO HOST COMMITTEE TO DAVID

J. NASH & ASSOCIATES ($892,489) . 18

A.

B.

Background of David J. Nash & Associates

The Commission Should Not Order Repayment of

Any Television Production Services

($222,522) .

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1. The Commission'S Treatment of Television

Production Expenses for the Republican and

Democratic Conventions Is Inconsistent . . 22
2. The Commission's Distinction Between

Permissible and Impermissible Television

Production Costs Is Not Supported by a

Statement of Reasons . . . . . . . . . . 26

3. Allowing Host Committees to Pay for

Television Production Equipment But Not

Television Production Services Is Not

Reasonable . . . . · . . . . . . · . · . 27

Host Committee Payments for Satellite Time Were

Permissible ($73,748) .

Host Committee Payments-for Decorations and Music

Were Permissible ($153,311)

4. The Host Committee Properly Paid All $222,522

of the Disputed Nash Televisio];l Production

Expenses . . . . . · . . . . . · · . · . . . .

Host Committee Payments for Remote Video

Productions Were Permissible ($138,442) .

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Decorations ($104,279)

Music ($49,032)

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F. Host Committee Payments for Entertainment &

Announcer Expenses Were Permissible ($23,61S) . 34

G. Host Committee Payments for a Documentary About

Russell, Kansas Were Permissible ($70,000) 35

H. Host Committee Payments for Overhead & Indirect

Costs Were Permissible ($210,851) . 35

I. The Commission Should Allow COA to Exercise the

Common Law Right of "Recoupment" or "Offset" to

Reduce the Amount of Any Impermissible In-Kind

Host Committee Contributions . . . . . . 37

1. The Commission Should Permit a Recoupment 38

2 . COA Has Identified and Documented Expenses

That More Than Offset the Questioned Host

Committee Expenses . . . . . . . . . . . . 41

a. Office Equipment, Offices, and Other

Convention Center Infrastructure

($441,185) . 42

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Local Transportation and Security

($110,387) .

Hotel Rooms ($803,499)

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I I . THE COMMISSION SHOULD NOT ORDER COA TO REPAY ANY

AMOUNTS PAID BY THE REPUBLICAN NATIONAL COMMITTEE TO

CREATIVE BROADCAST TECHNIQUES ($729,994) . . . . . 44

A. Backg~ound of Creative Broadcast Techniques . . 4S

GOP-TV and Its Use of CBT Equipment and Services 46

The Commission's Allocation of the CST Costs Is

Not Reasonable . . . . . . . . . . . . . . . . . . Sl

convention Television Operations and COA's Use of

CBT Equipment & Services . . . . . . . . . . . 48

COA's Allocation of the CBT Costs Is Reasonable

and Based on Industry Practice . . . . . . . . 49

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1. The Commission's Allocation Method Is Wholly

Unsupported by Record Evidence . . . . .

a. The Commission Allocation Method Is

Unheard of in the Industry . . . .

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b. The Commission's Method Is as

Unreasonable as It Is Unprecedented S3

2. The Commission's Treatment of COA's Share of

the CBT Contract Is Inconsistent with the

Commission's Treatment of the ONce's Share of

Chicago's Cable Station . 5S

III. COA HAS NO NET OUTSTANDING CONVENTION EXPENSES

CONCLUSION

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INTRoPUCTION

The Committee on Arrangements for the 1996 Republican

National Convention (nCOA") disputes the Commission's repayment

determination and requests an administrative review and an oral

hearing. In addition, COA submits the following legal and

factual information demonstrating that no repayment is required.

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At the hearing, ·COA will make a presentation on the legal and

factual issues discussed herein.

SUMMARy or gSPONSI

This response begins by discussing the pertinent

procedural history, particularly the Commission's determination

that it may not retain any individual component of the repayment

unless four Commissioners vote for it. The response then

outlines the background of the 1996 Republican National

Convention. It next summarizes the statutory and regulatory

framework governing convention and host committee financing,

rebutting the audit report's claim that a stray Commission

statement from 1979 somehow supports the decision to disallow

nearly one million dollars in San Diego Host Committee payments.

Part I of the res~onse demonstrates why none of the

Host Committee's payments to David J. Nash & Associates should be

deemed impermissible, in-kind contributions to COA. The Host

Committee's payment for the largest component of these --

television production services -- was part of preparing the San

Diego Convention Center for use by COA. Similarly, other

expenses for such things as live video remotes, satellite time,
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decorations and music, entertainment and an announcer, a short

documentary about Russell, Kansas, and overhead were permissible.

Part II demonstrates that the Republican National

committee ("RNC") properly paid 72% of the cost for equipment and

services provided to the RNC's GOP-TV and COA by Creative

Broadcast Techniques. Ironically, COA feared that if it paid

more of these costs, it would be accused of using public funds to

subsidize GOP-TV. Instead, now that it has properly spent its

money, COA finds itself accused of not using enough public funds

to pay for GOP-TV's production of convention coverage containing

the RNC's party building messages.

Part III demonstrates that COA will not have any net

outstanding convention expenses in excess of the statutory grant.

PERTINENT PRQCEDURAL HISTORY

COA Audit. For over two years, COA has labored under

an unprecedented challenge to its operations by the audit staff.

In the Exit Conference Memorandum, the audit staff proposed a

total repayment of $4,258,054 (34% of the $12 million public

grant.) COA responded with a fifty-six page document and

thirteen sworn affidavits and declarations.:' After considering

that response, the audit staff reduced the recommended repayment

determination by over half a million dollars to $3,709,356 in a

forty-seven page initial audit report.

1· For the Commission's convenience, a copy of COA's Response

to the Exit Conference Memorandum ("COA ECM Response") and its

supporting exhibits is included in Volumes I-III of the Appendix.

(App. Vols. I-III.)

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During the Commission's consideration of the audit

report, COA submitted four letters in response to issues raised

by the audit staff in its report and questions posed by

Commissioners during the open sessions.il At the staff's

urging, however, the Commission repeatedly voted not to consider

these additional submissions. The Commission likewise declined

to order the audit staff to undertake additional fieldwork,

despite a regulation authorizing it to do so. 11 C.F.R.

§ 9007.1 (b) (3) .

Of critical importance, the Commission determined on

April 16, 1998, that any particular component of the repayment

determination would survive only if the Commission, after

considering submissions made by COA during the administrative

review, voted by a majority of four Commissioners to retain that

component of the repayment determination. 1/ Put another way,

unless four Commissioners vote to keep any particular component

of the repayment determination, that component may not be

included in the final repayment determination.

After seven months of consideration and at least

sixteen separate votes in six open sessions, the Commission

approved the audit report on June 25, 1998. The audit report

- Copies of these submissions are attached in Volume III of

the Appendix, and are incorporated herein by reference. (App.

Vol. III at A64S-A750.)

1.' Tr. of Open Session, April 16, 1998, Tape 1, pp. 2-6 (App.

Vol. IV at A930-A934); id., Tape 2, pp. 13-14 (App. Vol. IV. at

A941-A942); Agenda Document No. 97-84-C (App. Vol. V at A1113-

All16) .

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concluded that the San Diego Host Committee and the RNC made inkind contributions to COA. Because these in-kind contributions

placed COA over the spending limitation, the Commission ordered

COA to "repay" the dollar value of the contributions to the

Treasury. The total repayment ordered was $1,772,643, or 14% of

the entire public grant.

This repayment determination, if upheld, would be

unprecedented. First, it is huge, much larger in both absolute

dollars and as a percentage of the public grant than any other

convention repayment determination in history. Second, unlike

other convention repayment determinations, neither the audit

staff nor the Commission found so much as a penny of public money

to have been spent on an impermissible purpose.

The audit report was served on COA on June 26, 1998.

This submission originally was due on August 25, 1998. By letter

dated August 14, the Commission granted COA an extension through

and including September 24, 1998.

Democratic National Convention Committee Audit. As

required by statute, the staff also audited the Democratic

National Convention Committee ("DNCe") and the Chicago Host

Committee. Although the Democratic National Convention occurred

only days after the Republican National Convention, the audits of

the DNCC and Chicago Host Committee were presented to the

Commission and made publicly available 198 days (6 months and 16

days) after the COA and San Diego Host Committee audits. Indeed,

the DNCC audit report was not presented to the Commission until

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after the Commission had completed its review of the COA audit.

This delay allowed the staff to omit from the DNCC audit a number

of items similar to those challenged in the COA audit. The

effect of this delay was to subject COA and the RNC -- but not

the DNCC -- to substantial adverse publicity on these items,

including a front page story in the New York Times (attached at

App. Vol. VI atOA1612).

In contrast to the COA audit, the Commission found that

DNCC spent some of its public grant on an impermissible purpose.

(DNCC Audit Report at 16 (App. Vol. V at Al153).) DNCC does not

dispute this finding, having already repaid the $19,052 at

issue .i/

BAC1tCiROtJHl) ON TIl 1996 RlPJlBLlCAJf NATIONAL CONVENTION

The factual background of the 1996 Republican National

Convention is fundamental to this response. Some, but not all,

of this information can be found in greater detail at pp. 9-17 of

COA's ECM Response (App. Vol. I at A13-A21).

Tbe Purpose of Republican NatioDal CODveDtio12s. Every

four years, the Republican Party holds a convention for the

purpose of I~~inating the Party's candidates for President and

Vice-President, crafting a Party platform, and adopting rules

that will govern the Party until the next convention. (See Rules

of the Republican Party, Preamble, Rules 2, 9, 16 (App. Vol. II

Copies of the Reports of the Audit Division on the 1996

Democratic National Convention Committee and Chicago'S Committee

for '96, together with accompanying memoranda, are attached at

App. Vol. V at Al117-Al165.

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at A496, A498, ASOO).) In keeping with the Republican Party's

status as a national party, the Party holds its conventions in

different locations around the United States. In the last forty

years, the convention has been held in such diverse cities as San

Diego, Houston, New Orleans, Dallas, Detroit, Kansas City, Miami,

San Francisco, and Chicago.

Another important function of Republican conventions is

to create enthusiasm and support for the Party's platform and

candidates. (See COA ECM Response at 9 (App. Vol. I at A13).}

The 1996 Republican National Convention generated this enthusiasm

and support in two ways. First, the convention committee

encouraged active party members to attend. Over 40,000 people

attended the 1996 Republican Convention. This figure included

1,990 delegates; 1,990 alternates; hundreds of national and state

party officials and staff; hundreds of national, state, and local

elected officials; and approximately 25,000 spectators.

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(Id. at

Second, the convention committee facilitated media

coverage of the Convention, especially television coverage.

Several national television networks (ABC, CBS, NBC, CNN) ; nontraditional television networks (C-Span, GOP-TV, and others); and

thousands of print, radio, and local television reporters covered

the Convention. (Id.) Although gavel to gavel coverage of

political party conventions by major networks is a thing of the

past, and even the limited coverage now consists largely of

editorial commentary and interviews, this media coverage

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nevertheless allowed people across the country to watch some

portion of the convention proceedings.

CampetitioD for Political CoaveatioDs by Cities aDd

Host Comadttees. Hosting a convention is an important event for

a host city, bringing millions of dollars of business to a host

city during the convention. (See, e.g., Declaration of John

Reyes ("Reyes Dec."), , 2 (App. Vol. VI at A1952) . ) Because the

conventions. There is nothing inappropriate about this. In

Because of these benefits, cities compete to host

convention is a national, news-worthy event, hosting a convention

generates increased tourist and convention revenues for the host

(Id. )

(Id.) This exposure typically

provides a city with a unique opportunity for extensive exposure

to the rest of the country.

city long after the convention has ended.

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fact, during the 1984 debate on increasing public funding for

conventions, Congress explicitly recognized that cities compete

to attract conventions to their cities. (See 130·Cong. Rec.

20202 (House, June 29, 1984) (statement of Mr. Hartnett); ide at

20204 (statements of Mr. McEwen and Mr. Bartlett) CAppo Vol. V

at A1169, A1171).)

Cities compete by offering to make numerous

improvements to their convention facilities and to provide

numerous other convention related facilities and services. For

example, in 1996 the City of Chicago proposed a minimum $20

million commitment of city resources if the RNC would choose to

hold its convention in the brand new United Center. The United

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Center, the City of Chicago boasted, was an enormously valuable

resource "designed with television in mind." (App. Vol. II at

A214). It had "seating for 23,000, over 200 skyboxes,

exceptional acoustics, extraordinary communications capabilities,

unobstructed views, and a variety of private rooms for meetings

and gatherings off the convention floor " (App. Vol. II at

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A175). In addition, the Center offered "an eight-sided color

video scoreboard, television monitors throughout the building's

concourses, an unparalleled sound system, and the most mode~

cable and wiring systems [to] insure that people inside the

building and inside their home§ don't miss a minute of the

action. It (Id. )

Notwithstanding the outstanding capabilities of the

United Center, Chicago offered even more. It offered, for

example, "to include 16 strategically located television camera

platforms, all equipped with hard-wired electrical power and

intercom systems connected to the production facility." (App.

Vol. II at A214.) It also offered "to provide for the rental,

installation, and operation of a special lighting system to meet

the requirements of the media within the main convention area."

(App. Vol. II at A236.) The City further proposed "to pay the

cost of providing mobile television control facilities should the

need arise. II (App. Vol. II at A214.) It even offered to make

"wholly available" one of the city'S two cable stations "to the

RNC for gavel-to-gavel coverage." (App. Vol. II at A245.) In

short, the City of Chicago recognized that, even with its brand

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new United Center, considerable modifications and accommodations

needed to be made for the site to be suitable for use by a modern

political convention. Presumably, all the promised facilities,

improvements, and devices were provided to the Democratic

National Convention, which accepted Chicago's offer.

These convention related facilities and services do

more than induce a Party to hold its convention in a particular

city. They also help the host city project a favorable image to

the convention attendees and the nationwide television audience.

Without the improvements and other services, the extensive

television exposure that a convention brings might actually harm

a host city'S tourist economy. For example, if the television

coverage projected an image of an antiquated and awkward

convention center, the host city'S ability to attract future

conventions -- whether political or not -- would be seriously

damaged.

In sum, host cities and host committees have dual

incentives to help pay as many convention related facilities and

services as they can. First, the promise helps attract a

convention to the city in the first place. Second, the

improvements and sel~ices ensure that the city will reap maximum

benefit from the nationwide exposure that a convention brings.

The Decline of Convention TelevisioD Coverage. In

recent years, television coverage of conventions has declined

from full "gavel to gavel" coverage with minimal interruptions to

very scant coverage. In 1992, and again in 1996, the major

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networks devoted at most two hours an evening to convention

coverage. Much of that time was consumed by interviews and

editorial commentary, with ever decreasing time devoted to live

coverage of the convention itself. As little as 40% to 50% of

the networks' "coverage" of the convention consisted of the

broadcast of the actual proceedings.

(App • Vol. I at' A1 5) . )

(See COA ECM Response at 11

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Because of declining television coverage, convention

committees, host cities, and host committees must strive to

present a convention that induces the networks to broadcast the

proceedings. They do so by presenting an attractive, mediafriendly facility and searching for innovative means of

transmitting the proceedings to the public.

The Role of the Ci ty of SazJ Diego azJd the SazJ Diego

Host Committee in the 1996 Republican National Convention. The

transformation of the San Diego Convention Center into a viable

major party convention site was a formidable task." Unlike the

modern sports arenas that were the sites for most of the recent

national party conventions, the San Diego Convention Center was

constructed as an exhibition hall. (Affidavit of William D.

Harris ("Harris Aff."), 3a (App. Vol. III at AS66); see also

Photograph attached as Tab C.) Unlike many of the facilities

offered to the RNC, it was far from state of the art, containing

inadequate lighting, wiring, telecommunications infrastructure,

camera platforms, sound systems, and other amenities of a modern

convention hall. It had no seating -- the limited seating that

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it eventually gained had to be added. Views of the podium from

over a tenth (1/10) of the seats were obstructed by columns or

other obstacles. (Id. at 1 3c (App. Vol. III at AS67).) In

short, considerable effort, time, and expense were required to

bring the San Diego Convention Center up to parity with other

facilities.

A32S-A494.) Section S.6{a) (ii) of the Agreement provided:

The Site City Agreement among the City of San Diego,

the San Diego Convention Center, the San Diego Host Committee,

the Republican National Committee, and COA addressed these

issues. (A copy of this Agreement is attached at App. Vol. II at

"As an inducement [to the RNC and COA] to

enter into this Agreement, the City and [the

San Diego Host Committee] agree to pay for

the necessary additions and improvements to

the Convention Center and all of the other

facilities and services described herein."

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In particular, the City, Convention Center, and Host Committee

agreed to provide elevated flooring; chairs; office trailers for

management and staging personnel; camera stands; 36 skyboxes;

media space; air conditioning; lighting; sound shielding;

purchase, placement, and removal of exterior decorations;

janitorial services; increaE~d electrical power sources;

transformers; numerous other upgrades to the facility; tear-down;

and related services. (App. Vol. II at A368.)

One of the great challenges for any convention, and in

particular for the 1996 San Diego convention, was to accommodate

approximately 40,000 guests. As stated above, over one-tenth

(1/10th) of the seats in the San Diego Convention Center had

11
obstructed views of the podium. To compensace for this problem,

giant monitors were installed behind the podium, and closed

circuit television monitors were distributed throughout the

convention hall to allow persons in locations with poor views to

follow the proceedings. (Harris Aff. at 1 8 (App. Vol. III at

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AS69-AS70).) Such monitors and closed circuit television systems

are now common in major entertainment and sports arenas,

including Chicago's United Center (see COA ECM Response at 12-14

(App. Vol. I at A16-A18», so that persons in walkways or distant

seats can view the proceedings. In addition, a number of guests

could not be seated in the convention hall, but had to be seated

on the roof of the building in what was called the "Sail Area."

(App. Vol. III at AS68.) In order for these guests to see the

convention proceedings at all, two things had to be done:

hardware, including television monitors and wiring, had to be

installed on the convention center's roof and a signal had to be

produced and transmitted to those monitors.

A569. )

(App.-Vol. III at

STATQTORY AND RIGtlLATORY I'IWIIWORK

The pertinent regulation governins host committee

funding of convention activities is found in 11 C.F.R.

§ 9008.52(c) (1). As shown below, this regulation permits host

committees to pay an unlimited amount of a broad range of

convention related facilities and services.

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A. Neither the Statute Nor the Regulation Limdts Host

Committee Expense••

The statute limiting convention spending by political

parties that accept public financing states:

"the national committee of a major party may

not make expenditures with respect to a

presidential nominating convention which, in

the aggregate, exceed the amount of payments

to which such committee is entitled . "

26 U.S.C. § 9008 (d) (1) .

Significantly, the statute limits spending only by national

parties. The statute in no way limits the amount that other

persons, such as host cities or host committees, may spend.

Indeed, the Commission's regulations expressly

recognize that money spent by host cities and host committees is

subject to the statutory limit:

n(l) Host conunittee expenditures. Expenditures

made by the host committee shall not be considered

expenditures by the national committee and shall

not count against the expenditure limitations of

this section provided the funds are spent in

accordance with 11 C.F.R. 9008.52.

(2) Expenditures by government agencies and

municipal corporations. Expenditures made by

government agencies and municipal corporations

shall not be considered expenditures by the

national committee and shall not count against the

expenditure limitations of this section if the

funds are spent in accordance with the

requirements of 11 C.F.R. 9008.53." 11 C.F.R.

§ 9008.8 (b) (1), (2) (emphasis added) .

In turn, 11 C.F.R. §§ 9008.52 and 9008.53

(incorporating § 9008.52 by reference) set forth ten broad

categories of expenses that host committees and host cities may

pay without regard to the spending limit imposed on national

party committees. The list of permissible Host Committee

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expenses is illustrative, rather than exclusive. For example,

Section 9008.S2(c) (1) (v) allows host committees to pay expenses

for convention related facilities and 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:" (Emphasis added.) The regulation even

concludes with a catch-all provision allowing payment for "other

similar convention related facilities and services." 11 C.F.R.

§ 9008.S2(c) (1) (xi) (emphasis added). By its very terms,

therefore, the regulation permits host committees to pay

convention related facilities and services in addition to those

listed in the regulation.

Although the staff repeatedly describes this regulation

as an "exception" to the spending limit, that is a

mischaracterization. The statute does not limit the convention

related spending of any entity but the political party holding

the convention. So long as host cities and host committees limit

the types of their activities to those "similar" to the

activities described in 11 C.F.R. § 9008.S2(c) (1), they are not

precluded from spending any amount on those activities.

B. A Stray Commission Statem.nt from 1979 Cannot L~t

Bost Committ•• Exp.n••••

The audit report repeatedly invokes a 1979 Commission

statement to argue that several San Diego Host Committee expenses

were not permissible. (eOA Audit Report at 5 (twice), 8, 17, 26,

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33; see also Chorba Aff., Ex. A, Tr. of Open Session, Jan. 22,

1998, Tape 1 at 3 and 3S (App. Vol. IV at A7S6, A7SS).) The

statement, which accompanied a predecessor to the current

regulation, is as follows:

"The restrictions concerning who may donate funds

to defray convention expenses and the amounts

which may be donated are neces.ary to insure that

such donations are sgmmcrsially. ratbcr tbaD

politigally mgtiyated. Further, 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, Defray,al of convention

expenses by a host committee is intended to be a

very narrow exception to the statutory limitation

on convention expense... " 44 Fed .. Reg" 63036,

63038 (Nov. 1, 1979) (emphasis added),

The host committee regulations have been considerably

revised since this statement, however, The 1979 regulation

limited the amount of host committee expenses to defray

convention expenses by requiring such expenses to ~be

proportionate to the commercial return reasonably expected by the

business, corporation or agency during the life of' the

convention," 11 C.F.R. S 9008.7(d) (3) (ii) (1979), Sy contrast,

the current regulation contains no such limitation. the

Commission explained in 1994, this limitation was dropped in

recogni~ion of the fact that "local businesses and organizations

that donate to municipal funds are motivated by commercial and

civic reasons, rather than election-influencing purposes,- 59

Fed. Reg. 33606, 33615 (June 29, 1994), This explanatory

statement reflects a judgment by the commis.ion that local

15

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bu.in..... 8upport political convention. in their city for

commercial, not political, rea.on•.

Indeed, the 1979 .tatement is inconsistent with the

current language of the regulation. A. shown above, the current

r.gulation is illustrative, not exclu.ive. It contains no

overall limit on the amount of money that • host committee may

spend. Rather, 'it enumerate. ten broad categories of permissible

expenses. And it contains a catch-all provision for other

".imilar" .xp.n.... Although courts often defer to agency

interpretation. of th.ir own regulations, courts do not defer to

agency interpretations that are incon.istent with the

regulation's plain language. Stin.on v. United States, 508 U.S.

36, 4S (1993); Military Toxin. Project v. EPA, 146 F.3d 948, 954

(D.C, eire 1998).

Moreover, far from interpreting the regulation to

provide a "very narrow exception" to the spending limit, the

Commission ha. in the pa.t interpreted the regulation to allow a

very broad exception. A. the attached chart shows, host

committee spending in the year••inee the 1979 statement has

8teadily increa.ed. (Tab A; .ee also Affidavit of Christopher P.

Zubowicz ("ZuDowicz Aff. If), 1 2, and Ex•. 1 and 2 (App. Vol. VI

at A1S04, A1512 and A1S13).) The Commi••ion has approved, for

example, .pending by the Atlanta Hoat Committee for the 1988

Democratic National Convention that .ignifieantly exceeded the

public grant. Notably, the Commi••ion'. repayment determination

for the Democratic National Convention Committee in 1988 was

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minimal -- just $64,389.70, and resulted not from excessive host

committee expenses but merely from the fact that the convention

committee did not spend all of its grant. Similarly, in 1992,

the Commission approved host committee spending in Houston and

New York equal to 7S' of the public funds spent by the national

committees. Most recently, in 1996, the Commission allowed host

committees to spend a combined total of $42,615,208 (net of the

Commission's current, disputed repayment dete~inations) versus a

combined public grant of $24,728,000. These figures and the

accompanying chart completely debunk any notion that the host

committee regulation is, or should be, a "very narrow exception."

Finally, the staff's attempt to limit, retroactively,

in a less than obvious way, undefined terms like "such as" and

"similar" is unfair. The money at issue has already been spent

based upon a reasonable reading of the regulation. For years,

the Commission has permitted a very broad range and quantity of

host committee spending. (See Tab A.) At the same time, modern

political conventions have changed, presenting new technical

challenges to convention and host committee staff. We

respectfully submit that the Commission should afford the

regulated community some deference to adopt good faith,

reasonable interpretations of the regulations. At the very

least, the Commission should give the regulated community clear

prior notice of the range and quantity of permissible host

committee spending.

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C. The Spending Limit Is aD UncoDstitutional Condition.

If the Commission adheres to its repayment

determination, COA reserves the right to argue before reviewing

courts that the spending limit in an unconstitutional condition

because it forces COA to give up rights of speech and association

to receive a public benefit. E.g., FCC v. League of Women

Voters, 468 U.S. 364, 366 (1983).

I • TIlE COIDIISSIOR SBOtJLD BOT ORDBI. COA TO REPAY J\HY AKOUNTS

PAID BY TIlE SAN DIBGO BOST COJIIII'l'TEE TO DAVID J. NASB •

ASSOCXATBS ($892,489).

None of the amounts that the San Diego Host Committee

paid to David J. Nash & Associates should be included in the

repayment. All of Nash's services were necessary to render the

San Diego Convention Center suitable for use as a national

nominating convention. Without these services, for example, 10%

of Convention attendees seated in the hall could not have even

seen the proceedings. Similarly, the many convention attendees

who could not be seated in the hall at all, but had to be seated

on the roof in the "Sail Area," could not have seen the

proceedings without the installation of closed circuit television

equipment and production of the closed.circuit feed. In sh(~t,

Nash's services would have been necessary even if not one minute

of the Convention proceedings had been broadcast beyond the

convention facility.

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A. Background of David J. Rash " Associates.

David J. Nash & Associates is a theatrical production

company. (Affidavit of David J. Nash ("Nash Aff."), 1 2 (App.

Vol. III at A579).) Nash provided services to the Convention

under two separate contracts: one with COA and one with the Host

Committee. Pursuant to its contract with COA, Nash provided

various consulting services to COA. In exchange, Nash received

$117,500. (Id., 14.)

Nash also provided a much broader range of services to

the Host Committee, for which it was paid over $2 million. (Id.)

In addition to his responsibilities once the Convention

proceedings commenced, Nash played a role in supervising the

design, build-out, and other preparation of the Convention.

(Id., " 10, 13 (App. Vol. III at A583, A584-A585).)

Essentially, Nash functioned much like a general contractor for

the Host Committee with responsibilities for rendering the San

Diego Convention Center suitable for use as a national nominating

convention. (Id.," 9, 13 (App. Vol. III at A582, A584-A585).)

In many instances, Nash did not provide equipment or services

directly to the Host Committee but retained third parties who

provided equipment (ranging from lights to teleprompters) and

services (ranging from cameramen to an orchestra) to the Host

Committee. Although the staff is correct that one essential

aspect of Nash's responsibility was to coordinate the equipment

and services to insure that the overall image of the Convention

was telegenic, that was not Nash's only responsibility by any

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means. Many if not all of the services provided by Nash --

installation and production of closed circuit television,

contracting for teleprompters, contracting for construction of

the Sail Area, and many others -- would have been required even

i1: not one minute of Convention proceedings had been broadcast

beyond the four walls of the San Diego Convention Center. (Id.,

" 11, 13, 15 (App. Vol. III at AS83, A584-A585, A585).)

The audit staff recommended that the Commdssion find

almost all of the $2 million paid to Nash by the Host Committee

to be an impermissible, in-kind contribution from the Host

Committee to COA. A majority of the Commdssion refused to accept

this recommendation. Instead, the Commdssion properly allowed

the Host Committee payments to Nash for $589,900 of lighting and

rigging, $147,162 of closed circuit television expenses, $165,299

of improvements to the rooftop "Sail Area," $186,955 of expenses

associated with the production of taped video segments, and

$181,278 of indirect costs allocable to categories· that were

allowed.

On the other hand, the Commdssion determined,

improperly, we submit, that $892,489 of Nash's expenses should

have been paid by COA. These expenses consisted of $153,311 for

decorations and music, $203,581 for closed circuit television

production services, $22,416 in Sail Area entertainment expenses,

$45,570 in overhead, $302,330 in miscellaneous television

production costs (including television production services,

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remote video production, and satellite time), and $165,281 in

"indirect costs."

For convenience, we will address these expenses as

follows:

• Closed Circuit Television Production Services &

Miscellaneous Television Production Services

($222,522)

• Remote Video Productions ($138,442)

,

c; Satellite Time ($73,748) •

• • Decorations & Music ($153,311) 0

7 • Sail Area Entertainment & Announcer Expenses • ($23,615) 0

2 • A Documentary About Russell, Kansas ($70,000) 5

• • Overhead & Indirect Costs ($210,851) 2

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~. B. The COJIIIliS.iOD Should Rot Order Repayaent of

8 Any Television Production Service.

($222,522) •

Although the Commission has approved the Host

Committee's payments to Nash for $589,900 for lighting and

rigging, $147,162 for closed circuit television equipment, and

$186,955 for video crew labor and video segment production and

editing, the Commission has rejected the Host Committee's payment

to Nash for $203,581 for closed circuit television services and

$18,941 for the miscellaneous production services of a TV

producer, continuity writer, and stand-ins. None of these

expenses should be included in the repayment, however.

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1. The Cammission's Treatment of Television

Production Expense. for ehe Republican and

Democratic Conventions Zs Inconsistent.

The audit staff initially treated the television

production expenses of the Democratic and Republican conventions

identically, concluding that All such expenses were not

p~rmissible City or Host Committee expenses. Co~are DNCC Audit

Report at 8 (A1i4S) with COA Audit Report at lS. After the

Commission rejected the audit staff's reasoning with respect to

~, but not all, of the San Diego Host Committee expenses, the

audit staff reversed course completely and permitted All, not

some, of the Chicago Host Committee and City of Chicago

television production expenses (totalling at least $1,688,907) e

(ONCC Audit Report at 10 (App. Vol. V at A1146).)

As a result, the two audit reports are inconsistent.

For example, the Commission has allowed the Chicago Host

Committee to make a $615,083 payment to Chicago Scenic Studios

for "production labor" including "stagehands, riggers, teamsters,

projectionists, broadcast engineers, cameramen, carpenters, and

decorators for the convention." (DNCC Audit Report at 6-7 (App.

Vol. V at A1143 -A1144) . )1.' On the other hand, the Commission has

not allowed the San Diego Host Committee to pay for

Rigging/Staging labor ($11,785), a stage manager ($8,438), and

video crew labor ($S6,781). As another example, the Commission

has allowed the City of Chicago to pay not only for "an audio

- The Chicago Host Committee also reported spending over

$12,000 on various "stage hands" and "stage technicians." (E.g.,

App. Vol. VI at A1862, A1866, A1872.)

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system" but also for "the services of audio consultants and an

audio designer to operate the system." (DNCC Audit Report at 5

(App. Vol. V at Al142).) But the Commission has not allowed the

San Diego Host Committee to pay for sound operations ($5,250).

As still another example, while the Commission permitted the City

of Chicago to provide "grips," "script supervisors," and a

"property master," ONce Audit Report at 6 (Al143), it has

prevented San Diego from providing "stand-ins," "script

supervisors," and a "production accountant" ($24,133).

The audit staff may claim that the inconsistency is

justified by the fact that ONce paid approximately $1.2 million

to "Smith Hemion Productions to produce and design the staging of

the Democratic National Convention." (Memorandum from Robert J.

Costa to Commissioners, dated June 12, 1998; Agenda Doc., No. 98-

44 at 2 (App. Vol. V at Al137).) This observation would not

explain the inconsistent treatment. First, this argument is a

non sequitur. DNCC's payment of money to Smith Hemion does not

refute that the City of Chicago and the Chicago Host Committee

paid, with Commission approval, many of the very same categories

of costs that SDHe is not being allowed to pay. That SDHC

payments to Nash were higher than analogous payments made by the

City of Chicago and the Chicago Host Committee is hardly

surprising in view of the much greater suitability of the United

Center for a convention of this nature than the San Diego

Convention Center.

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Second, as we have earlier shown (COA's ECM Response

at 8 (App. Vol. I at A12»-- and as the staff now appears to

concede -- there is a broad range of convention related expenses

that may be paid by either the convention committee or the host

committee. For this reason, DNCC's decision to pay a greater

percentage of television production expenses than COA is

irrelevant. So'long as television production expenses are

permissible host committee expenses, and the DNCC Audit Report

clearly indicates that they are, then the San Diego Host

Committee properly paid them.

Third, the evidence indicates that Smith Hemion played

a role in developing the substantive content of the Democratic

Convention. For example, Smith Hemion was responsible for

"developing the overall creative concepts to present the Party

message to the public." (Agenda Doc. 98-44 at 2 (App. Vol. V at

Al137) (emphasis added).) Smith Hemion also was responsible for

"designing and developing" the "content of video presentations

and of the taped material." (Id. (emphasis added).) Nash, by

contrast, had "no input whatsoever into th~ political message

presented during the Convention proceedings." (Nash Aff., 1 5

(App. Vol. III at ASS1).) Nor did he "play any role in drafting

the party platform or the substantive content of the speeches

given from the Convention podium." (Id.) Nash had no input into

who would speak from the podium or what the speakers would talk

about. In addition, the agreement between Nash and the Host

Committee nowhere mentions anything having to do with the

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substantive content of the Convention. (See Nash Aff., Ex. 1

(App. Vol. III at A594-A602).) To the contrary, the contract

contains a proposed budget with zero ($0.00) dollars budgeted for

"writers." (Nash Aff., Ex. 1, Schedule A (App. Vol. III at

A600).) COA paid for whatever limited advice Nash may have

provided on the actual staging of the Convention as part of

Nash's $117,500' contract with COA.

Repeatedly, the staff misleadingly refers to a

memorandum that, it contends, fully describes Nash's role. The

memorandum states: "David Nash Associates has been engaged by

the COA to produce the television event and staging of the

Convention proceedings. David Nash and a team of professional

television production and technical associates will present and

enhance the Republican message for presentation to the television

networks and the media in general." As shown, this terselyworded statement generally described substantial services

provided by or subcontracted by Nash for major modifications to

the convention center infrastructure, lighting, enhancement,

constructing of a closed circuit television system (which already

existed in the United Center), and other plainly allowable

expenses. The staff's continuing misinterpretation of this

statement cannot transform Nash's services into something they

are not. (See, e.g., Nash Aff., 1 34 (App. Vol. III at A592).)

Throughout COA's operations, it endeavored to maintain

a distinction between "the message" and "the show." In general,

COA was responsible for the message of the Convention and the

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Host Committee and Nash were responsible for creating "the show"

-- the stage, the lights, the television production. While it is

true that the show was the vehicle through which the Convention

message was presented, packaging the message into this vehicle

had absolutely nothing to do with creating the content that the

vehicle presented. The Commdssion, we respectfully submit,

should at least 'recognize that COA's distinction was reasonable.

As Commissioner Elliott aptly observed, "if it was part of the

show, let it go." (Chorba Aff., Ex. C, Tr. of Open Session,

March 5, 1998, at 7 (App. Vol. IV at A897).)

2. The C~••ion'. nistinction Between Permissible

and ~~••ibl. Television Production Costs Is

Hot Supported by • Statement of ae.sons•

It is axiomatic that final agency action must be

accompanied by a statement of reasons that is sufficient to

enable a reviewing "court to evaluate the agency's rationale at

the time of decision." Dickson v. Secretary of Defense, 68 F.3d

1396, 1404 (D.C. Cir. 1995). The audit report's discussion of

closed circuit television expenses does not supply reason for

treating some television production expens~s differently from

others. Accordingly, the Commission's conclusion that $222,522

in television production expenses should have been paid by COA is

arbitrary and capricious. United Mine Workers v. Federal Mine

Safety and Healtb Admin., 920 F.2d 960, 964 (D.C. Cir. 1990)

(remanding agency determination that contained "no explanation at

all"); see also City of Mesa v. Federal Energy Regulatory Comm'n,

993 F.2d 888, 897 (D.C. Cir. 1993) (remanding where agency has

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"not explained its application of those principles to this

particular case sufficiently to allow a reviewing court to find

that it gave reasoned consideration to all the factors relevant

to its decision").

3. Allowing Host Cammi~~ees ~o Pay for Television

Production BquipmaD~ But Rot Television Production

Service. I. Ro~ ae••onable.

During the open sessions individual Commissioners

suggested that Nash's expenditures on equipment were permissible,

but expenditures on services were not. Even if this suggestion

were to be adopted by the Commission as a whole, the mere recital

of an interpretation is not sufficient. The statement of reasons

must explain why such an interpretation is reasonable. Motor

Vehicle MLrs. Ass'n v. State Farm Mutual Ins. Co., 463 U.S. 29,

43 (1983) ("the agency must examine the relevant data and

articulate a satisfactory explanation for its action including a

rational connection between the facts found and the choice made")

(internal quotations omitted) .

Moreover, such an interpretation would be contrary to

the plain language of the regulation. 11 C.F.R. § 9008.52(c) (1)

clearly permits host committees to defray not just the cost of

equipment and infrastructure, but also the cost of "services."

Indeed, Section 9008.52(c) (1) mentions the word "services" no

fewer than five times. The Commission cannot adopt an

interpretation of its regulation that is directly contrary to the

very language of that regulation. Stinson, 508 U.S. at 45;

Milita~ Toxins Project, 146 F.3d at 954.

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Further, adopting such an interpretation in the face of

plain regulatory language that permits host committees to pay for

"services" violates COA's rights to fair notice under the Due

Process Clause incorporated in the Fifth Amendment. "It is wellsettled in [the D.C. Circuit] that agencies must provide fair

notice of the conduct required or prohibited by a regulation

before a violation of a regulation. can occur." United States v.

Chrysler Co~., 995 F. SupP. 150, 160 (D.D.C. 1998); see also

Freeman United Coal Mining Co. v. FMSHRC, 108 F.3d 358, 362 (D.C.

eire 1997) (ltln order to satisfy constitutional due process

requirements, regulations must be sufficiently specific to give

regulated parties adequate notice of the conduct they require or

prohibit") .

Finally, there is no evidence in the record to support

a distinction between equipment and services.

4. The Bost Committee Properly Paid All $222,522 of

the Disputed Rash TelevisioD Production Expenses.

The San Diego Host Committee properly paid all of the

disputed television production expenses. The closed circuit

television expenses that have been included in the repayment

determination were necessary to render the San Diego Convent:nn

Center suitable for use by a national nominating convention.

Withouc the closed circuit television system, many guests would

have been unable to view the proceedings. (Nash Aff., " 10-11

(App. Vol. III at A583).) So long as the Host Committee could

permissibly pay for the closed circuit equipment, the Host

Committee could pay to operate the equipment.

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c. Bost Committe. Payments for Remote Video Productions

Were Pe~8.ible ($138,442).

The Host Committee also properly paid the

infrastructure related costs of video remote productions

($138,442). These costs consisted of a camera and camera crew, a

microphone, and remote production technology that brought video

images into the Convention Center live from remote locations.

(E.g., Nash Aff., 1 25 (App. Vol. III at AS88-A589).) The

Commission has allowed the Host Committee to pay for the costs of

integrating t~ed video segments featuring delegates or notable

Americans addressing the Convention. It has refused, however, to

allow the Host Committee to pay for the cost of producing

video images and presenting them in the Convention hall. There

is nothing in the regulations that would have apprised COA or the

Host Committee that the Host Committee could pay for one, but not

the other. Further, there is no statement of reasons in the

audit report explaining why the Host Committee could pay for

taped video segments but not live video remote productions.

It is true, as one Commissioner observed, that some of

the video segments "welcomed" delegates to the Convention. (App.

Vol. II at ASSl.) Other video segments, however, did not include

the magic "welcoming" words. CAppo Vol. II at ASS2.)

Nevertheless, they were allowed because their purpose was

fundamentally the same as those that did. The video segments

entertained delegates during lulls in the proceedings. (Nash

Aff., , 29 (App. Vol. III at AS89-A590).) Accordingly, they

served a purpose that was "similar" to decorations. (Id.) They

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kept attendees' attention, made them feel comfortable, and

entertained them. (Id.) Also, the video segments were an

important means of compensating for the physical limitations of

the San Diego Convention Center. (Id.) Due to these

limitations, many attendees wound up watching the Convention

proceedings on closed circuit television. (Id.) It is very

difficult to produce a signal that will hold the attention of

such viewers and give them a favorable impression of the

convention and the convention facilities. (Id.)

The video remotes were indistinguishable from the video

segments in all of these respects. They served to entertain

Convention attendees during lulls in proceedings and they created

visual diversity to hold the attention of those attendees who had

no choice but to watch the proceedings on closed circuit

television. (Id.) The video remotes, therefore, should be

allowed for the same reasons that the video segments were.

D. Bost C~tt.e Payments for Satellite Time Were Pe~issible ($73,748).

The satellite time ($73,748) was purchased by the Host

Committee for two reasons. One was to beam the signal from the

video remotes back to the Convention. (Nash Aff., 32b CAppo

Vol. III at A591).) Accordingly, if the Commission excludes the

cost of the video remotes in the repayment, it should also

exclude approximately half of the satellite costs in the

repayment.

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The other purpose of the satellite time was to make the

closed circuit television signal available to any news

organization that wanted it, but that could not afford to come to

San Diego. (Id.) In this respect, the satellite time was no

different than simply laying a cable from the closed circuit

television system to a press room at the Convention. Because the

Host Commdttee could clearly pay for such an infrastructure cost

relating to physical cable, it could pay for the modern

equivalent.

E. Bost Committe. Pa~eDts for Decorations and Music Were Pe~ssible ($153,311).

Nash incurred some $153,311 in expenses for decorations

and music. Initially, the audit staff simply treated decorations

and music as part of the overall services provided by Nash --

services that the staff argued should have been paid virtually in

toto by COA. Although the Commission rejected that blanket

recommendation, it did find that COA should have paid Nash for

decoration and music expenses. This finding, however, is

arbitrary and capricious.

1. Decorations ($104,279).

Nash spent $104,279 on balloons, confetti, fireworks,

and video graphics for the Convention. Although the regulations

expressly permit host committees to pay for "decorations" and

"other similar convention related . services," 11 C.F.R.

§ 9008.52(c) (1) (v) and (xi), the Commission held that the Host

Committee should not have paid these expenses because:

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"The regulation allowance for decorations is

provided relative to the use of an auditorium

or convention center. The use of balloons,

confetti, fireworks and video graphics by

Nash are related to his presentation of the

"picturelt or "show" to the convention

attendees and television viewers. These

items are for the conduct of the convention.

not decorations related to the use of an

auditorium." COA Audit Report at 20.

This ~nterpretation simply makes no sense. The text of

the regulation draws no distinction between decorations "relative

to the use of an auditorium or convention center" and decorations

relative to the "presentation of the 'picture' or 'show'" of the

convention. How can decorative bunting on the podium be

distinguished from a decorative balloon drop or confetti?

Dictionary definitions of the term "decoration" disclose no basis

for the distinction. See Webster's New World Dictionary (2d

Collegiate ed. 1980) (defining "decorate" as "to add something to

so as to make more attractive; adorn; ornament" and "decoration"

as "anything used for decorating") .

Moreover, the Commission has again treated the DNCC

more favorably. The Chicago Host Committee reported spending

$37,550 on "fireworks" (App. Vol. VI at A1825, A1832, A1852), and

this expense was not challenged by the Commis~ion.

Video graphics ($26,648) or, as they are described in

Attachment 2 of the Audit Report, "Main & End Titles," consisted

of such things as the convention logo displayed on giant

television screens on either side of the podium. There was no

material difference between these logos and the logo affixed to

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the lectern and hung from the ceiling behind the lectern; all are

"decorations." (See Photographs attached at Tab D.)

As for balloons, the Commission's interpretation

appears to be that a host committee can pay for balloons that are

hung from a wall or ceiling, but cannot pay for the balloons if

they are released and allowed to fall to the Convention floor.

There is no support for such a distinction in the text of the

regulation, the Commission's prior practices, or in any of the

evidence before the Commission. Also, the Commission has

approved $4,600 paid by the Chicago Host Committee to "Warbird

Airshows." (App. Vol. VI at AlaS7.) If the Chicago Host

Committee can pay for an airshow, the San Diego Host Committee

should be able to pay for a balloon drop. To hold otherwise

would, we respectfully submit, be arbitrary.

Finally, even if contrary to our submission, one could

argue that these items are not precisely "decorations," they are

at the very least "similar" to decorations. (See-Photographs

attached at Tab E.) The Audit Report does not argue to the

contrary.

2. Music ($49,032).

Nash spent $49,032 on an orchestra. The orchestra

played music while delegates and attendees gathered in the

Convention hall prior to each session. (App. Vol. II at ASSO.)

This music "welcomed" the attendees to the City of San Diego and

the Convention facility. It is therefore a permissible expense

under 11 C.F.R. § 9008.S2(c) (1) (ii). Also, the Host Committee

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certainly could have paid to provide a concert for Convention

attendees. Indeed, the Commission has previously allowed a host

committee to treat convention attendees to a baseball game.

Advisory Opinion 1980-21 (April 20, 1980). There is no material

difference between taking Convention attendees to a concert and

bringing the concert to convention attendees. Finally, the ..

The bulk of these expenses ($22,416) was to provide

Committee on "entertainment" including $5,900 on "instrument

rental," $7,827.26 for a "s}-'1t1phony performance," and thousands

Commission has approved over $68,000 spent by the Chicago Host

more on various musical groups. (E.g., App. Vol. VI at A1836,

A1931. )

F. Host Committe. Payments for Entertainment & Announcer

Expen.e. Were Permi••ibl. ($23,615).

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entertainment in the roof-top "Sail Area." As stated, due to the

limitations of the San Diego Convention Center, not all of the

attendees could be seated in the hall. Many guests had to be

seated on the roof in the "Sail Area." These attendees were

consigned to watch the Convention proceedings on large screen

television.

Understandably, 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. The entertainment

provided was local. Just as the Host Committee could have paid

to bring the Sail Area guests to a local baseball game or a local

34
be. allowed as sufficiently similar to the convention related

services enumerated at 11 C.F.R. § 9008.52(c) (1) .

concert, Advisory Opinion 1980-21 (April 20, 1980), it properly

paid to bring a local band to the Sail Area guests. As noted

above, the Commission has already approved thousands of dollars

of "entertainment" expenses by the Chicago Host Committee.

The remaining expense ($1,199) was the cost of an

announcer for the Convention's public address system. The

announcer welcomed delegates to the Convention and welcomed

speakers to the podium. (Nash Aff., 1 32c (App. Vol. III at

A591).) The announcer merely read a prepared script, exercising

no control over the content. This insignificant expense should

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G. Bost Committe. Payments for a Documentary About

Russell, Kansa. Were Pe~ssibl. ($70,000).

The documentary about Russell, Kansas, was a short film

prepared for display during the Convention. (See COA ECM

Response at 39 (App. Vol. I at A43).) The only differences

between the Russell film and the taped video segments are that

the Russell film was longer and it was never actually used.

(Id.; see also App. Vol. II at A109).) Just as the Commission

refused to include the taped video segments in the repayment, it

should refuse to include the costs of this film.

B. Bost Committee Payments for Overhead & Indirect Costs

Were Pexmds.ible ($210,851).

The Commission has permitted the Host Committee to pay

for over $1.2 million of Nash's expenses. It cannot be disputed,

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therefore, that Nash would have incurred overhead and indirect

costs even if Nash's activities had been limited to those that

the Commission has allowed. Further, even if a portion of the

overhead and indirect costs are attributable to activities that

the Commission will not allow, the Host Committee could have paid

these costs as office expenses of COA. 11 C.F.R.

§ 9008. 52 (c) (1) (v) and (xi).

Even if Nash's overhead and indirect costs are not to

be allowed in their entirety, but allocated among permissible and

impe~issible Host Committee expenses, the Commission should

first deduct expenses that are otherwise entirely payable by the

Host Committee. The costs of Nash's production accountant

($15,000) should be deducted as a necessary cost incurred by the

Host Committee to comply with the Commission's regulations

regardless of whether all or some of the Nash activities were

permissible. Also, $23,633 of the so-called indirect costs were

fees for equipment rental paid to Hawthorne Machinery for

equipment used to rig the lights. In addition, a sizeable

portion of these indirect costs relate to hotel expenses

($105,603.94) or local transportation costs ($10,643.49). Both

of these expenses are expressly permitted under the regulation.

See 11 C.F.R. § 900B.52(c) (1) (vi) and (ix).

Once the portion of Nash's indirect costs attributable

to the production accountant, Hawthorne Machinery, hotels, and

local transportation are deducted, the remaining indirect costs

($55,970.57) should be allocated between permissible and

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impermissible Host Committee expenses. This amount includes

$30,570 in overhead costs attributable to the services of the

T.V. Producer and a Production Coordinator. The Commission's

decision to deny this amount in its entirety cannot be supported

on the basis of some distinction between equipment and services.

(See Part I.B,) above.) Accordingly, this amount should be

allocated along "with the indirect costs that the Commission

previously recognized should be allocated.

I. The Commis8ion Should A110w CQA to Exerci.e the Cammon

Law Right of waecoupmeDt- or -Off.et- to .educe the

Amount of Any ~.~••ibl. In-Kind Bost Committee

Contributions.

As shown throughout this response, COA strongly

disputes that there should be repayment. If the Commission

disagrees, however, and votes to retain some or all of these Host

Committee expenses in the repayment determination, the Commission

should allow COA to reduce these expenses by the amount of

expenses that COA paid even though they could hav~ been paid by

the Host Committee. The theory behind this request is simple:

had COA known in advance that the Commission would have

disallowed the Nash expenses still at issue, it simply would have

restructured its arrangements with the Host Committee so that the

Host Committee paid other, indisputably permissible costs. The

total expenses of both COA and the Host Committee would have

remained unchanged -- they would have been merely restructured to

comply with an interpretation of 11 C.F.R. § 9008.52(c) (1) that

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was not available until the Commdssion completed its seven-monthlong review of the audit report.

During consideration of the audit report, the

Commission deferred a ruling on COA's offset argument for two

reasons: first, the Commission was uncertain whether it should

permit an offset; second, the Commission sought additional

documentation of the expenses that COA hoped to offset. (Chorba

Aff., Ex. A, Tr. of Open Session of January 22, 1998, at 91

(Aikens) (App. Vol. IV at A844); ide at 90, 91 (Stoltz) (App.

Vol. IV at A843-A844); ide at 89-90 (Bruner) (App. Vol. IV at

A842-843); Chorba Aff., Ex. E, Tr. of Open Session of April 23,

1998, at 3 (Stoltz) (App. Vol. IV at A1013).)

1. The Commission Should Pexmit a Recoupment.

Recoupment is "the setting off against asserted

liability of a counterclaim arising out of the same transaction."

Reiter v. Cooper, 507 U.S. 258, 263-64 (1993); see Beach v. Ocwen

Federal Bank, 118 S. Ct. 1408, 1411 (1998). The right of

recoupment is derived from equitable principles of common law.

Estate of Mueller v. Commissioner, 101 T.C~ 551, 551-52 (1993)

("The ancient doctrine of equitable recoupment, which developed

concurrently at common law and in equity, was judicially created

to preclude unjust enrichment of a party to a lawsuit and to

avoid wasteful multiplicity of litigation").

A recoupment claim is appropriate if the claim "(i)

arise[s] from the same transaction or occurrence as the main

claim; (ii) seek(s] relief of the same kind and nature as that

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sought by the main claim; and (iii) [is] deren8ive in nature and

seek[sl no affirmative relief." Berger v. Ci.ty of Nortb Mi.ami,

Florida, 820 F. SUPPa 989, 992 (B.D. Va. 199). Recoupment is

especially fitting where it would help accomplish substantial

justice. See, e.g., Mueller, 101 T.e. at 563-64 (Halpern J.,

concurring) ("'equal and complete justice [can]not be meted'

unless the defendant [is] permitted to set up evidence for

recoupment") .

Recoupment claims have been allowed in a broad range of

legal and administrative contexts. See, e.g., Rei.ter, 507 U.S.

at 264 (recoupment available in Interstate Commerce Act tariff

context); United States v. M/V Santa Clara I, 819 F. SUppa 507,

513 (D.S.C. 1993) (recoupment available in CERCLA context). In

Estate of Mueller, for example, the Tax Court specifically

determined that it has jurisdiction to consider recoupment, even

without specific statutory authorization to do so. Estate of

Mueller, 101 T.C. at 552. The court reasoned that it "need [ed]

no additional source of jurisdiction to render a decision with

respect to the [recoupment] defense," because it "is part of the

entire action over which (the court] ha[s] jurisdiction." {Id.

at 556; see also Estate of Bartels v. Commissioner, 106 T.e. 430,

434 (1996) (refusing to overrule Estate of Mueller regarding

jurisdiction to hear recoupment claims).)

The Commission has allowed similar reallocations in

other contexts. For example, the Commission has allowed the

retroactive reallocation of fund-raising expenses between

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accountl for direct and adminiltrative COltl, and b.tw.en

accounts for federal and nonfederal COltl. Se. Advilory Opinion

1992-27 (Aug. 13, 1992); Advisory Opinion 1991-15 (June 6, 1991).

Moreover, although we r••pectfully dis.gr•• with the

ruling, the Commis.ion'. previou8 ruling regarding the Creative

Broadcast Techniques ("CST") expenses implies that the Commission

has the power to allow a post hoc reallocation. COA Audit Report

at 39-44. CST provided television production equipment and

services to COA and the Republican National Committee ("RHett) for

approximately $1.8 million. (Id. at 39.) Because COA and RNC

shared the CST system, they also shared its cost, which they

allocated based on estimated usage. (Id. at 39-40.) The

Commission ultimately determined that the CST costs should

instead be allocated based on the broadcast hours of each user.

(We contest the ruling below, in Part II.) The number of

broadcast hours, however, cannot be determined until after the

convention, well after the system was purchased and its cost

initially allocated. Thus, the Commission's ruling requires a

subsequent adjustment to the initial allocation of the CST

expenses.

Finally, the Commission permitted the ONCC to exercise

the common law right of recoupment. According to the ONce audit

report, the ONCC previously repaid $120,562 of unspent public

funds to the Treasury. ONCC Audit Report at 20. The Commission,

however, determined that the ONCC could offset this amount

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against the C~s.ion'l repayment d.t.~n.t1on of $676,218.

Id.

COA'. recoupment claim satisfi•• the three

requirements: it ari••• from the .ame transaction or occurrence

as the gov.rnment'. claim, that is, the contractual relationship

between COA and the Host Committee; it seeks monetary relief, as

does the government'. claim; and it seeks only a reduction in the

government'. recovery, not an affirmative recovery for COAl

Further, the spenc1ing limit will not be jeopardized by allowing

recoupment. Had COA foreseen the interpretations embodied in the

audit report, it simply would have restructured which of the

convention related facilities and -services the Host Committee

paid for. The net amount spent by both COA and the Host

Committee would have been unchanged. Substantial justice would

not be served by holding COA to Commission interpretations of the

regulation that even the Commission's own audit and legal staff

did not anticipate.

2. CQA ... Identified and Documented Expens•• That

MOre ThaD Off••t the Que.tioned Ho.t Committe. Exp~•••

COA has identified over $1.3 million in expenses that

COA paid, but that the Host Committee could have paid instead

under even the most literal reading of 11 C.P.R. § 9008.52(c) (1).

The Declaration of Michael Simon ("Simon Dec.") both details

these expenses and attaches all necessary supporting

documentation.

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a. Offic••quipmaDt, Offic••, aDd Other

CoaVeDtiOD CeDter %Dfr••tructure ('441,185).

A host committee clearly may pay for office equipment.

11 C.P.R. § 9008.52(c) (1) (v). Indeed, the Commission has

approved extensive payments by both the Republican and Democratic

Host Committees for such equipment including photocopying

machines and c~uters. (Simon Dec., 1 Sa (App. Vol. V at

Al17s).) Accordingly, there can be no dispute that the San Diego

Host Commdttee could have paid the almost $400,000 in expenses

for photocopying and computer equipment that COA actually paid.

(See Simon Dec., 1 2 (App. Vol. V at Al174).)

Similarly, the Host Committee could have paid $26,000

for the repaving of certain roads and walkways near the

convention center. (Simon Dec., Ex. 2 (App. Vol. V at Al177).)

The Commission has already approved over $118,000 for the

renovation of the convention center parking lot, and over $15,000

for similar work at the United Center. (Simon Dec., 1 Sc (App.

Vol. V at Al17S).)

Moreover, COA paid for part of the build-out of the

"offices" in the convention concourse, including certain "office

equipment" items, such as table microphones, qpeakers, and

lighting. (Simon Dec., 1 3 (App. Vol. V at Al17S).) That office

equipment was essential to the purpose for which those offices

were constructed: to serve as a venue for Caucus and Platform

Committee meetings. (Id.) Those COA expenditures should

therefore be treated as either "office" or "office equipment"

costs under the regulations.

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b. Local Tz'aD8portatioD aDd Security ($110,387).

Host committees may "defray the costs of various local

transportation services, including the provision of buses and

automobiles," as well as "the costs of law enfc)rcement services

necessary to assure orderly conventions." 11 C.F.R.

§ 9008.52 (c) (1) (vi); 11 C.F .R. § 9008.52 (c) (1) (vii). The

Commission has already approved $16,000 in parking lot rentals

and almost $340,000 in other parking expenses incurred by the

Host Committee. (Simon Dec., " 5c and Sd (App. Vol. V at

Al17S).) Similarly, the Commission approved $15,000 in parking

lot rentals by Chicago'S Host Committee. (Id., 1 Sd (App. Vol. V

at A1l7S).) Therefore, the San Diego Host Committee could have

paid the approximately $110,000 incurred by COA to rent parking

lots; to purchase uniforms for local transportation and security

staff; and to retain garage security services. (Id., 1 2, Ex. 1

(App. Vol. V at Al174, Al177).)

c. Botel Roa.a ($803,499).

The Commission's regulation also permits host

committees "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.S2(c) (1) (ix). When measured "on

the basis of the number of rooms actually booked for the

convention," COA's hotel expenditures were very small indeed.

According to the San Diego Convention & Visitors Bureau

("ConVis"), approximately 100,000 room-nights were "actually

booked for the convention" in the San Diego Metropolitan area.

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(Reyes Dec., 1 3 (App. Vol. VI at A1952).) At an estimated

average cost of approximately $130 per room-night, the total cost

of those rooms was approximately $13 million. (Id.) COA paid

for only 4,936 room-nights at an average cost of just under $163

per room-night, totaling $803,499. (Simon Dec., l' 2, 4 ,(App.

Vol. V at A1174-Al17S).) Thus, COA provided less than 5% of the

room-nights "actually booked for the convention," representing

less than 6.2% of the total cost. Accordingly, on any reasonable

reading of § 9008.S2(c) (1) (ix), COA's hotel expenditures must be

viewed as a permissible Host Committee expense .

During the Commission's consideration of the Audit

Report, the auditors expressed a concern that they did not have

the invoices to support the hotel expenses cited in COA's

response to the ECM. They further expressed a concern that the

hotel expenses might include items in addition to hotel rooms,

such as catering costs. In response to these concerns, COA

submits herewith all of the invoices to support the hotel

expenses. (See Simon Dec., Ex. 2 (App. Vol. V at Al178-A140S).)

COA has subtracted from the hotel expenses all costs associated

with items other than hotel rooms. (Id., 4 (App. Vol. V at

All75) . )

II. THE COMMISSION SHOULD HOT ORDO COA TO REPAY AMY AKOmnS

PAID BY THE REPUBLICAN IlATIOHAL COMMITTEE TO CRBATlVE

BROADCAST TB~QUBS ($729,994).

Creative Broadcast Techniques ("CBT") provided 25

cameras and related equipment and services under a single

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contract to both COA and RNC's GOP-TV in exchange for payments

totalling $1,758,297.64. There is no dispute that these costs

must be allocated between COA and GOP-TV. The only dispute is

over how to allocate them. After explaining the background of

this transaction, we will show that COA's allocation was both

reasonable and based on standard industry practice. We further

show that the Commission's allocation method is not only

unreasonable, but has the rather bizarre effect of requiring

future conventions to use public funds to subsidize party

building activities through party run broadcast networks.

A. .ackgroUDd of Cre.tive Broadc••t TechDiqu•••

Creative Broadcast Techniques ("CST") is a television

production company that provided facilities and services to both

GOP-TV and COA at the Convention. In anticipation of high demand

for mobile television production equipment as a result of the

Olympics and the Democratic Convention, the RNC prudently and

properly began arranging for television production equipment and

services during the latter part of 1995. Because the RNC

believed that GOP-TV and COA could share some equipment, and thus

realize econot·ies, it contracted for sufficient equipment for

both GOP-TV and COA. (Geraghty Aff., l' 12-14 (App. Vol. I at

A90-A91) . )

GOP-TV and COA did not share equally in all of the

equipment and services provided by CST. In all, CST provided 25

cameras and supporting personnel and production equipment. Of

these cameras, GOP-TV and COA shared only 14. Footage from these

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14 cameras was used to produce the "basic feed," or the televised

image of convention proceedings provided to all the networks, and

the closed circuit television program. GOP-TV, and GOP-TV alone,

used the remaining 11 cameras. These consisted of cameras in the

GOP-TV anchor booth, cameras in the GOP-TV marina set, mobile

cameras for interviews of convention attendees by Haley Barbour

and GOP-TV correspondents, and other cameras used exclusively by

GOP-TV. (Geraghty Aff., l' 14-15 CApp. Vol. I at A91-A92).) In

addition to the 25 cameras and crews, CST provided supporting

production equipment and services. (Nash Aff., " 19, 21 (App.

Vol. III at A5S7, A587-A588).) GOP-TV and COA each used the

equipment and services provided by CST for different purposes. A

diagram depicting the actual use of CST equipment and services is

attached as Tab B.

B. GOP-TV aDd. It. U.. of CST EquipaeDt aDd. Service••

The Republican National Committee formed GOP-TV in 1993

to produce media for the RNC, inclUding a television show called

"Rising Tide" that was broadcast live every Thursday night on

several cable channels. (Geraghty Aft., 1 2 (App. Vol. I at A86-

AS7).) Hosted by then RNC Ch~irman Haley Barbour, the broadcasts

were presented in a news magazine format consisting of

interviews, special segments taped ct various locations,

editorial commentary, and GO forth. (Id., 1 3 CAppo Vol. I at

AS7).) Rising Tide was usually broadcast from the RHe's in-house

television studio, but frequently it was broadcast from other

locations. (Id., 4 CAppo Vol. I at AS7).)

46
The shows were taped in advance and did not focus just on the

convention; the broadcasts also included coverage of events in

San Diego apart from the Convention proceedings, including human

interest items, such as how delegates were spending their free

morning, they obviously did not provide live coverage of the

Convention. (Id.) The RNC paid both the production costs and

the cost of broadcast time for these shows, just a~ it did for

all prior and subsequent GOP-TV news magazine broadcasts. (Id.,

" 10, 21 (App. Vol. I at A89, A9S).) The Commission agreed that

the allocation to the RNC of the morning show costs was proper.

The evening shows consisted of live coverage of

As the Republican National Convention approached, the

RNC decided that viewers of GOP-TV would enjoy an expanded format

consisting of five, half-hour morning shows during the Convention

week, plus four evening shows of live Convention coverage and one

evening recap show. (Id.," 6-11 (App. Vol. I at ASS-A90).)

CBT equipment and services were used for these GOP-TV broadcasts.

Like other GOP-TV broadcasts, the morning shows adhered

to a news magazine format, but were hosted by Laurie Clowers

rather than Mr. Barbour. (Id., 1 8 (App. Vol. I at ASS-A89).)

time. (Id.) Because the shows were broadcast in the early

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Convention proceedings, plus one "recap" show. Like the major

networks, GOP-TV had an "anchor booth" as well as mobile cameras

for conducting interviews on the floor of the convention and

behind the podium. (Geraghty Aff., 1 11 (App. Vol. I at A89-

A90).) Rather than cover the events from the podium minute by

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minute, GOP-TV exercised editorial discretion about whether to

cover particular speeches, or alternatively to provide editorial

commentary, live interviews, or taped segments. (Id.)

Because (unlike the morning shows) the evening shows

provided live convention coverage, COA paid the cost of the

broadcast time for GOP-T'V's live coverage of the convention.

(Id., 1 22 (App. Vol. I at A9S).) Neither the audit staff nor

the Commission has disputed that it was proper for COA to do so.

The only dispute is whether COA should have also paid the cost of

producing the shows.

C. Convention Television Operations and COA's Use of CST

Equipment & Service••

COA used the 14 shared cameras to produce, with the

assistance of Nash, (a) the basic feed and (b) live closed

circuit television coverage. (Geraghty Aff., 1 20 (App. Vol. I

at A94).)

As at prior conventions, COA provided a live "basic

feed" of events happening on the podium to all the networks

covering the convention. Using 14 cameras stationed around the

Convention Center, COA provided continuous sound and picture to

all networks covering the convention. (Id.)

The basic feed was made available to GOP-TV on a take

it or leave it basis. All networks other than GOP-TV employed

their own cameras to cover the podium and other convention

proceedings. (Declaration of Jack Kelly ("Kelly Dec."), , 6

(App. Vol. V at A1496).) Since these network cameras provided

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coverage similar to the basic feed, COA could not realistically

recover subscription fees from the networks. Had COA charged for

the basic feed, the networks likely would have declined to take

it. In contrast, COA insisted that GOP-TV pay for its share of

the feed because it did not want to be accused of subsidizing

GOP-TV with private funds. The Commission accepted this position

and allocated sot of what it believed to be the basic feed costs

to the RNC and sot to COA.

Nash also produced a closed circuit television program

from the basic feed that was transmitted live and without

commercials or editorial interruption to television monitors

throughout the Convention hall. (Nash Aff., 1 18 (App. Vol. III

at AS86 -ASS7) . )

D. COA's Allocation of the CST Costs Is Reasonable and

Based on Industry Practice.

As stated, the total value of the CBT contract was

$1,758,297.64. To arrive at an allocation of these costs between

GOP-TV and COA, COA used a single, simple principle: COA's and

GOP-TV's respective shares of the cost of the CST contract should

be determined by actual camera usage.

As explained above, CBT provided 25 cameras. Although

GOP-TV used all 25 of these cameras, COA only used 14. Moreover,

COA shared those 14 cameras with GOP-TV. Accordingly, COA was

allocated 50% of the costs associated with 14 cameras and GOP-TV

was allocated the remainder. In sum, COA's share of the CBT

costs was 14 x or 28\ of the total cost of the CBT contract.

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. :.SEMEN~_-..Il,--__

'S 3> of y·-S ;~
The amount ultimately paid by COA is virtually equal to

that percentage:

A11ocation of Total caT C08ta

a•••4 AD AStua1 g..ge Actual Allocation

Contract amount

Change orders

$1,136,000.00

+ 543,130.14

Initial payments $408,875.00

COA's allocation method is based on standard industry

Thus, the ultimate allocation was almost precisely the amount

allocable to COA based on camera usage.!/ Although COA did not

pay precisely 28% of every invoice, it was always the intent that

COA would pay its fair share of total production costs based upon

(Geraghty Aff., 1 19 (App. Vol. I at A94}.)

73,769.88

$482,644.88

Subsequent payment

X .28

TOTAL $ 492,323.34

. Add' 1 Pers. Expenses + 79. 167 . 50

$1,758,297.64

camera usage.

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practice. As no fewer than four professionals with extensive

experience in the television news industry have s~ated in sworn

affidavits and declarations, standard industry practice is that

the cost of shared equipment is divided equally among the

entities sharing it. (Geraghty Aff., 17 (App. Vol. I at A93);

Declaration 0_· William M. Headline ("Headline Dec. II), , 4 (App.

Vol. V at A1499) i Kelly Dec., , 4 (App. Vol. V at A1496) i

Declaration of Wayne L. Wicks, , 3 CAppo Vol. III at A644).) The

only difficulty in applying this principle to the CST contract is

± Because COA has made a subsequent payment of $73,769.88 to

the RNC, any repayment arising out of the CST contract should be

reduced to reflect that payment, at least.

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that COA and GOP-TV did not share all of the CST equipment. COA

therefore determined that it should pay 50% of the cost of the 14

cameras it did share, plus 50% of any production costs associated

with those 14 cameras. Because COA's use of the supporting

production equipment was roughly proportional to its camera

usage, (Geraghty Aff., , 17 (App. Vol. I at A93», it was

the Commission allocated what it believed to be the cost of the

reached this determination through a three step process. First,

E. The Commission's Allocation of the CBT Costs Is Not

Reasonable.

The Commission determined that COA should pay for

$1,138,869, or over 60%, of the total CBT costs. The Commission

appropriate to allocate to COA 50% of 14/25 -- 28% of the cost

of the production equipment. (Headline Dec., 1 5; Kelly Dec.,

1 7 (App. Vol. V at A1499 and A1496-A1497, respectively).)

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"basic feed" equally between the RNC and COA. Second, from the

remaining costs the Commission subtracted a $22,OOn reimbursement

from a local television station for use of equipment at GOP-TV's

marina set. Third, the Commission then divided the remaining

costs between the RNC and COA based on the ratio of television

broadcast time purchased by the RNC and COA. This method

allocated 26% of the remaining costs to the RNC and 74% to COA.

1. The Commis.ion'. Allocation Method Is Wholly

Unsupported by Record Evidence.

The Commission's method of allocating the remaining

costs is wholly unsupported by any evidence in the record. In

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particular, there is no evidence that the Commission's method is

followed by anyone in the television industry.

a. The C~••iOD Allocation Method Is Unheard

of in the 1I1dU8try.

The Commission's allocation method is completely

foreign to the television industry. (Headline Dec., 1 6, Kelly

Dec., 1 7 (App. Vol. V at A1SOO and A1497, respectively).)

Networks frequently "pool" coverage of major events including

presidential inaugurations, presidential press conferences, etc.

When they do so, the costs of the pooled coverage (net of any

income that the networks receive from selling subscriptions to

non-voting members of the pool) are divided equally among the

networks that participate in the pool. (Headline Dec., , 6,

Kelly Dec., 1 4 (App. Vol. V at Alsoa and A1496, respectively).)

As the sworn statements of industry professionals

attest, under no circumstances would the costs payable to each

network be determined by how much the networks ultimately use the

pooled coverage, or even if they use it at all. (Headline Dec.,

( 6, Kelly Dec., , 7 (App. Vol. V at A1SOO and A1496,

respectively).) That is, if two networks participate in a pool

and one network produces a one-hour show and '·he other network

produces a two-hour show from the pooled coverage, each network

still pays 50% of the cost of the pool. The commitment to have

equipment and personnel available is a sunk cost that does not go

away if one potential user uses less. Industry professionals

with experience running network pools have simply never heard of

news entities sharing the cost of equipment on the basis of

52
evidence in the record that the Commission's method is a

The Commission's allocation method rests on a faulty

reasonable means of estimating production costs.

h. The Commis.ion's Method Is as Unreasonable as

It Is Unprecedented.

(Headline Dec., 1 6 (App. Vol. V at AlSOO).) There is simply no

broadcast duration. (Headline Dec., 1 6, Kelly Dec., 1 7 (App.

Vol. V at A1SOO and Al496, respectively).) In the words of Mr.

William Headline, former Washington Bureau Chief of CNN and the

Overall Pool Producer for four presidential inaugurations, "[tlhe

theory has always been that the members of the pool pay for the

basic coverage capabilities provided by the pool and the usage of

the pool materials is the business of the individual members."

premise that merely because COA paid the broadcast time in which

GOP-TV's programs were aired, COA must also pay for the

production costs of the programs. Whether or not COA was

regyired to purchase the air time for the GOP-TV live convention

coverage, it certainly was allowed to do so. The fact that COA

was allowed to pay for the air time, however, does not suggest

that COA was required to pay GOP-TV's production costs any more

than it suggests that COA was required to pay Haley Barbour'l .

salary, the salary of GOP-TV anchor people, or any other GOP-TV

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costs.

There are additional problems with the Commission's

allocation method. It forces COA to use public funds to pay for

the bulk of GOP-TV's marina set even though that set was used

exclusively for GOP-TV's morning programs. (Geraghty Aff., 1 15

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Page S., ofu(,
(App. Vol. I at A91-A92).) Further, the method makes no economic

sense. If COA had used but one camera to produce a ten hour long

show, while GOP-TV used 25 cameras to produce a one hour long

see also Daniel Golden, "Winds of Change at WGBH," Boston Globe

at Al (June 22, 1997) (describing disparate costs of similarunreasonable, arbitrary, and at odds with industry practice to

assume that production costs are proportional to the amount of

(Geraghty Aff., 18 (App. Vol. I at A93-A94).)

of the air time. (Geraghty Aff., 1 18 (App. Vol. I at A93-A94) i

show, the Commission's method would require COA to pay 90% of the

total production costs. A television program that uses a single

camera clearly has production costs much lower than a program of

equivalent length that uses ten cameras, regardless of the cost

length television shows) (App. Vol. VI at A1602).) It is simply

air time.

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The Commission's allocation method is also unworkable.

At the time the RNC entered its contract with CBT in January

1995, it was impossible to anticipate how much air time either

the RNC or COA would eventually purchase. Indeed, up until a few

days before the Convention, it had not been expected that COA

would purchase any air time. (Helen O'Neill, "Republicans Ask

Corporate Sponsor to PullOut of Broadcasts," Associated Press

(Aug. 12, 1996) (App. Vol. VI at A1594).) As a former network

executive with extensive experience states in his attached

declaration: "the potential usage of pool materials can never be

known in advance because the use will depend on the editorial

content and future use will be determined by events that cannot

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be foreseen when the pool is established." (Headline Dec., 6

(App. Vol. V at A1SOO).) Since budgeting decisions always must

be made before money is spent, especially for political

commdttees operating under spending limitations, it would be

unreasonable to require the allocation of production costs to

await actual broadcast.

2. The Commission'. TreaCDeDt of COA's Share of the

CST Contract Is Inconsistent with the Commission's

Treatment of the DHCC's Share of Chicago's Cable

Station•

The Commission's treatment of the cost of production

equipment shared by GOP-TV and COA is inconsistent with the

Commission's treatment of the DNCC. The DNCC Audit Report states

that the City of Chicago paid for "the broadcast on one of the

City'S cable television stations [of] gavel to gavel coverage of

the Convention and special programming directly related to the

Convention." (DNCC Audit Report at 5 (App. Vol. V at Al142) .)

The DNCC Audit Report also states that the City of Chicago

further agreed to provide Ita tape of such coverage . . . without

charge for rebroadcast, display, or other rights" to ONCC. (ONCC

Audit Report at 6 (App. Vol. V at Al143).) Because ONCC shared

in the produc- of Chicago's production equipment -- the tape of

convention coverage paid for by Chicago -- it necessarily shared

a benefit from the equipment used to produce the tape.

Nevertheless, the Commission has not required ONce to repay any

costs associated with this equipment. COA was not so aggressive

as to have San Diego or the San Diego Host Committee pay for its

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share of the CST equipment, but paid for its share itself. COA

should not be punished as a result.

III. COA BAS HO RET OUTSTARDIHG CONVEHTIOH EXPBHSES.

The Audit Report concludes that COA has $1,772,643 in

net outstanding convention expenses and estimated winding down

costs in excess of the spending limitation. Once in-kind

contributions, which COA disputes, are subtracted from this

figure, the Audit Report finds that COA has $150,160 in expenses

and estimated winding down costs in excess of the spending

limitation.

Based on COA's most recent information and estimates,

COA will n2k incur expenses and winding down costs in excess of

the spending limitation. COA's actual expenditures subject to

limitation from inception to September 3, 1998, have been

$12,347,715. (Simon Dec., 1 6 (App. Vol. V at Al176).) COA

estimates legal and accounting fees and expenses from

September 4, 1998, to be $16,285. (Id.) Any legal and

accounting fees and expenses in excess of that estimate,

including the costs of litigating any final repayment

determination in the courts, \-ill be paid by the RNC directly

pursuant to 11 C.F.R. § 9008.8(b) (4) (ii). (Id.) Accordingly,

COA's total expenditures will exactly equal the spending

limitation - - $12,364, 000. (Id. )

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CQHCWS:IOH

For the reasons stated above, the Committee on

Arrangements of the 1996 Republican National Convention urges the

Commission to refuse to include any of the individual components

of the San Diego Host Committee or Republican National Committee

expenses in any final repayment determination.

Respectfully submitted,

B cy R. . rchf.le"-1d

Michael A.'Dawson

Anthony R. Picarello, Jr.

COVINGTON & BURLING

1201 Pennsylvania Ave., N.W.

Washington, DC 20004

(202) 662-6000

Attorneys for the 1996 Committee

on Arrangements for the 1996

Republican National Convention

Dated: September 24, 1998

57
Convention Committee and

Host Committee Expenses

1976 -1996

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$5 ---.-------r.~~

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1976 1980 1984 1988 1992 1996

------- -------.._--

• Democratic National Convention Committee • Republican National Convention Committee

mDemocratic Host Committee C Republican Host Committee
.

Actual Use of CST Equipment and

Services by GOP·TV and COA

•••••••••••••••••••••••••

ProductIon

EquIpment

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~~~TV .. . .~. - ~ll--····_~···_-_·····_·~n:'·~~·1VOp~-!~~ Tlped morning IhoWi .. .~ . . BIlle FIlet •

•. NIghtly ~·Conventlon. Coverage,TIPId RI-CIp Show' . '.: caalld Clrcun TV • : . ,

Cameras

O""'tl"'- .rS)r...... .~(''lJli'i .N..-tw""O






FEDERAL ELECTION COMMISSION

WASHINGTON. D.C. 204&3

July 6, 1998

9 MEMORANDIJM

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TO:

FROM:

RON M. HARRIS

PRESS OFFICER

ROBERT 1. COSTA

ASSISTANT STAFF DIRECTOR

AUDIT DIVISION

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SUBJECT: PUBLIC ISSUANCE OF THE AUDIT REPORT ON 1996 COMMIITEE

ON ARRANGEMENTS FOR THE REPUBLICAN NATIONAL

CONVENTION

Attached please find a copy ofthe final audit report and related documents on the

1996 Committee on Arrangements for the Republican National Convention which was

approved by the Commission on June 25, 1998.

Informational copies ofthe report have been received by all parties involved and

the report may be released to the public.

Attachment as stated

cc: Office ofGeneral Counsel

Office ofPublic Disclosure

Reports Analysis Division

FEe Library
:..

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........:I~
TI\BLE OF CONTENTS

1996 COMMITTEE ON ARRANGEMENTS

FOR THE REPUBLICAN NATIONAL CONVENTION

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C1 Page •07 Executive Summary 1 •0 Audit Report 3 2 Background 3 5 Findings S •2 Legal Analysis 63 1

C; Tr~ntt~toCommUtt~ 69 5

Chronology 71
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FEDERAL ELECTION COMMISSION

W"SHINCTO~. 0 C 20463

REPORT OF TIlE AUDIT DIVISION

ON

1996 COMMl1TEE ON ARRANGEMENTS

FOR TIlE REPUBLICAN NATIONAL CONVENTION

EXECUTIVE SUMMARY

1996 Committee on Ammgements for the Republican National Convention (the

Committee) registered with the Federal Election Commission on May S, 1994.. as a

National Convention Committee ofthe Republican pany.

The audit was conducted pmsuant to 26 V.S.C §9008(g) which directs the

Commission to conduct an examination and audit ofthe payments for presidential

nominating conventions no laterthan December 31 ofthe calendar year in which the

presidential nominating convention is held. The Committee received $12.364..000 in I

federal funds under 26 U.S.C. §9008(b).

The findings ofthe audit were presented to the Committees at an exit conference

held on June 25, 1997 and in the Exit Conference MemorandlL-n. The Committee

responses to those fmdings are contained in the audit report.

The following is an overview ofthe findings contained in the audit report.

IN-KIND CONTRIBUTIONS FROM "rUE HoST COMMtrrEE AND THE Crn'

OF SAN DIEGO- 11 CFR §9008.7(a)(4)(ix), 11 CFR §9008.52(c)(I).. and 11 CFR

§9008.12(b)(3). The staff concluded the San Diego Host Committee/Sail to Victory '96

(Host Committee) made in-kind contributions to the Comminee in the amount of

$2,128,122. The transactions involved three vendors: Weldon Williams and Lick for

convention badges and tickets; AT &T for an electronic voting system; and. David Nash..

Inc for the production ofthe live event and the related television coverage. The

Commission determined that amounts paid to Weldon, Williams and Lick.. and AT&T

were permissible Host Committee expenditures. In addition. amounts totaling 51.096..979

paid to David Nash, Inc. were detennined to be pennissible Host Comminee expenditures.

while amounts totaling 5892,489 were impennissible. This amount is to be repaid to the

U.S. Treasury and should be itemized as an in-kind contribution on an amended disclosure

report.

IN-KIND CONTRIBUTIONS FROM THE REPUBLICAN NATIONAL COMMrITEE

CRNC)- 11 CFR §9008.12(b)(3). The staffconcluded that the payments to

National Media, Inc. for air time on the USA Network from Monday, August 12.. 1996
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through Thmsday, August 15, 1996, represented an in-kine! contribution from the RNC of

590,000. In addition, the payments to Creative Broadcast Techniques, Inc. by the RNC

totaling 51,177,910 were questioned. The Commission decided that the broadcast costs on

the USA Network and 5424,470 paid to Creative Broadcast Techniques, Inc.~ representing

a portion ofthe cost ofproviding a basic television feed, were pennissible RNC expenses.

However, $729,994 representing an allocable portion ofthe production costs of programs

aired by the Committee were not pennissibly paid by the RNC, but were an in-kind

contribution from the RNC to the Committee. The Commission detennined the $729~994

was repayable to the U.S Treasury and should be itemized as an in-kind contribution on an

amended disclosure repone

IN-KIND CONTRIBUTION-PROMOTIONAL CONSIDI:RATIONS

MITSUBISHI CONSUMER ELECTRONICS AMERICA, INC. fMECAl - 11 CFR

§9008.9 (b)(l) and (4). The staff initially questioned whether $35,192 oflost equipment

was properly included as pan ofMECA's cost ofproviding equipment and services in

exchange for promotional considerations. The Committee submitted an affidavit from the

President ofMCEA stating that he expected some damage, loss, or theft of equipment

either at a political or non-political event. The staffrecommended no further action on this

maner and the Commission concurred. ..

DETERMINATION OF NET OUTSTANDING CONVENTION EXPENSES AND

AMOUNTS SUBJECT TO THE SPENDING LIMITATION - II CFR §9008.8(a)(1)

and §9008.l2(c) ofthe Title 11 ofthe Code ofFederal Regulation. The Net Outstanding

Convention Expenses amount of($1 ..772..643) represents convention expenses incurred in

excess ofthe spending limitation. The majority ofthis amount consists ofthe previously

mentioned in-kind contributions, while the remaining $150,160, is convention expenses

and estimated winding down costs incurred in excess ofthe limitation. The Commission

detennined that $1 50,160 is repayable to the United States Treasury.

Page 2
to ,

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FEDERAL ELECTION COMMISSION

WASHINGTON, 0 C 20463

REPORTOF TlfE AUDITDIVISION

ONTHE

1996 COMMl1TEE ONARllANGEMENTS

FOR THE REPUBLICANNATIONAL CONVENTION

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I. BACKGROUND

A. AUDIT AUTHORITY

This repon is based on an audit ofthe 1996 Committee on ArranBements

for the Republican National Convention (the Committee), to detennine whether there has

been compliance with the provisions ofthe Federal Election Campaign Act of 1971. as

amended (the Act). The audit was conducted pursuant to Section 9008(&) ofTitle 26 of

the United States Code which directs the Commission to conduct an examination andiludit

ofthe payments for presidential nominating conventions no later than December 31 ofthe

calendar year in which the presidential nominating convention is held.

In addition to examining the receipt and use ofFederal funds. the audit

seeks to detennine ifthe committee bas materially complietl with the limitations,

prohibitions and disclosW'e requirements ofthe Federal Election Campaign Act of 1971,

as amended.

B. AUDIT COVERAGE

The audit covered the period from May 12. 1994. the date the Committee

executed a loan agreement. through September 30, 1996. In addition, certain financial

activity was reviewed through August 26, 1997, to detennine any amounts due to the

United States Treasury. The Committee reponed an opening cash balance ofS-o-. total

receipts ofS13,703,064, total disbursements ofSl1,96S.637, and a closing cash balance on

September 30, 1996 ofS1,737,427.I

C. COMMI1TEE ORGANIZATION

The Committee registered with the Federal Election Commission on May

S, 1994, as a National Committee oCthe Republican Pany. The Treasurers for the period

audited were William McManus from May S, 1994 to April 3, 1996, and Alec Poitevint

All figures in this repon haye been rounded to the nearest dollar.

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from April 3, 1996 to the present. During various portions ofthe period audited, the

Committee maintained offices in Washington, D.C., Alexandria., VA and San Diego. CA.

The Committee records are maintained in Alexandria, VA.

The Committee used four bank accounts to handle its fmancial activity.

From these accounts it made approximately 2,510 disbursements. The

Committee received 512,364,000 in federal funds which represents the full entitlement

established at 26 U.S.C. §9008(b).

D. AUDIT SCOPE AND PROCEDURES

The audit ofthe Committee covered the following general categories as

appropriate:

1. The receipt ofcontributions from prohibited sources;

2. the receipt of contributions or loans in excess ofthe statutory limitations

(Finding II.A);

3. proper disclosure ofreceipts, including the itemization ofreceipts when

required, as well as the completeness and accuracy ofthe infonnation

disclosed (Finding II.A);

4. proper disclosure ofdisbW'Sements, including the itemization of

disbursements when required, as well as the c~mpleteness and accuracy of

the infonnation disclosed;

5. proper disclosure ofCommittee debts and obligations;

6. the accuracy oftotal reponed receipts. disbursements and cash balances as

compared to Committee bank records;

7. adequate record keeping for Committee transactions;

8. accuracy ofthe Statement ofNet Outstanding Convention Expenses filed

by the Committee to disclose its financial condition (Finding II.B.);

9. compliance with requirements concerning expenditures for convention

expenses;

10. the Committee's compliance with spending limitations (Finding 11.8.); and

11. other audit procedures that were deemed necessary in the situation.

Page 4
As part ofthe Commission's standard audit process, an inventory of

Committee records was conducted prior to the audit fieldwork. This inventory is

conducted to determine ifthe auditee's records are materially complete and in an auditable

state. Based on the review ofrecords presented, fieldwork began immediately. However..

on March 4, 1997, fieldwork on the audit was suspended because cenain items necessary

to complete the audit were not present in 1M Committee's files. During a meeting on

April 9, 1997, the Audit staffprovided the Committee with a written request for the

missing items. Not all ofthe requested records were provided. As a result, the

Commission issued subpoenas to the Committee and New Century Media, Inc..

Unless specifically discussed below, no material non-compliance was

detected. It should be noted that the Commission may pursue further any ofthe matters

discussed in this audit repon in an enforcement action.

Section 9008(h) ofTitle 26 ofthe United States Codes states, in part, that

the Commission shall have the same authority to require repayments from the national

committee of a political party as it has with respect to repayments from any eligible

candidate under section 9007(b).

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II. AUDIT FINDINGS AND RECOMMENDATIONS - AMOUNTS

DUE TO IRE u.s. TREASURY

A. IN-KIND CONTRIBUTIONS

Section 9008.3(a)(4)(vii) ofTitJe 11 ofthe Code ofFederal Regulations

states, the convention committee shall agree to comply with the applicable requirements of

2 U.S.C. 431 et seq., 26 U.S.C. 9008, and the Commission's regulations at 11 CFR Parts

100-116 and 9008.

In addition, Section 104.3(a) ofTitJe II ofthe Code ofFederal Regulations

states, in pan, that each report filed under 104.1. shall disclose the total amount ofreceipts

for the reponing period and for the calendar year and shall disclose the infonnation set

forth at 11 CFR §104.3(a)(I) through (4).

Section 9008.12(b)(3) ofTitle 11 ofthe Code ofFederaJ Regulations states,

in pan., ifthe Commission detennines that contributions accepted to defray convention

expenses which, when added to the amount ofpayments received. exceeds the expenditure

limitation ofsuch party, it shall notify the national committee ofthe amount ofthe

contributions so accepted, and the national committee shall pay to the Secretary an amount

equal to the amount specified.

Section 9008.12(b)(7) ofTitJe 11 ofthe Code ofFederal Regulations states,

in pan, that the Commission may seek repayment, or may initiate an enforcement action..

ifthe convention committee knowingly helps. assists or participates in the making of a

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convention expenditure by the host committee, government agency or municipal

corporation which is not in accordance with 11 CFR §§9008.52 or 9008.53.

Section 9008.52(c) ofTitle 11 ofthe Code ofFederal Regulations states.. in

part, that contributions received by Host Committees may be used to defray those

expenses incurred for the pmpose ofpromoting the suitabili~' ofthe city as a convention

site; to defray those expenses incurred for welcoming the convention attendees to the city..

such as expenses for infonnation booths, receptions, and tours; to defray those expenses

incurred in facilitating commerce, such as providing the convention and attendees with

shopping and entertainment guides and distributing the samples and promotional material

specified under 11 CFR §9008.9(c); to defray the administrative expenses incurred by the

host committee, such as salaries, rent, travel, and liability inslL~ce; and to provide the

national committee use ofan auditorium or convention center and to provide construction

and convention related services for that location such as: construction ofpodiums; press

tables; false floors; camera platforms; additional seating; lighting; electrical.. air

conditioning, and loudspeaker systems; offices; office equipment; and decorations.

Further, contributions may be used to defray the cost of various local

transportation services, including the provision ofbuses and automobiles; to defray the

cost oflaw enforcement services necessary to assure orderly conventions; to defray the

cost of using convention bureau personnel to provide central housing and reservation

services; to provide hotel rooms at no charge or a reduced rate on the basis ofthe number

ofrooms actually booked for the convention; to provide accomInodations and hospitality

for committees ofthe parties responsible for choosing the sites ofthe conventions; and to

provide other similar convention facilities and services.

1. In-Kind Contributions From the Host Committee and The City

ofSan Diego

In the Exit Conference Memorandum (ECM).. the Audit staff

identified payments from the San Diego Host Committee/Sail to Victory '96 (the Host

Committee) and the City ofSan Diego to three vendors totaling $2,478.551, which

appeared to be for convention-related expenditures and not for items noted at 11 CFR

§9008.S2(c). Most ofthe information penaining to these vendors was obtained from the

Host Committee audit. Naturally, these in-kind contributions were discussed in the ECMs

of both the Committee and the Host Committee and both committees responded. The

explanations provided and the arguments presented by both are discussed herein.

Both committees make the general observation that the convention

expenses that the Host Committee may make and those that may be paid by the

Committee are overlapping. The Committee's response goes on to state that the ECMs are

based on the premise that any '·convention expense" paid by the Host Committee or the

City ofSan Diego are in-kind contributions to the Committee. It is cenainly true that the

allowable expenses ofthe City, the Host Committee, and the Committee overlap.

However.. the Committee misinterprets the premise ofthe ECMs. The ECMs conclude

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that the expenses at issue are "convention expenses" _ tltey do not fit within the

categories of"convention expenses" that may be paid by the City orthe Host Committee .

The ExplaDation and Justification supponing the original host committee regulation

<Federal Register notice: 44FR 63036; November 1 1979) is very clear. It states that the

"defrayal ofconvention expenses by a host committee is intended to be a very narrow

exception to the statutory limitation on convention expenses." The challenge ofthe

expenses discussed below is consistent with that stated purpose.

In their responses to the respective Exit Conference Memoranda,

both the Committee and the Host Committee argue that most or all ofthe expenses

discussed below are covered by one ofthe categories ofpermissible host committee

expenses at 11 CFR §9008.S2(cXI) or, referring to II CFR §9008.52(c)(1)(xi), are

"similar" to expenses covered by one ofthe permissible expense categories. To read 11

CFR §9008.S2(cXI) as broadly as both committees propose, would effectively negate the

limitation on convention expenses at 26 U.S.C. §9008(d); the prohibition on contributions

to a convention committee that has received the full federal payment (II CFR §9008.6(a»;

the prohibition on the use ofcorporate contributions in connection with federal elections at

2 U.S.C. §44lb; and the Commission's clearstatement in the Explanation and Justification

supporting the provisions contained in II CPR §9008.S2(cXI) that allowing the host

conunittec: to pay selected convention expenses is "intended to be a very narrow exception

to the statutory limitation on convention expenses".

Each ofthe three vendors is discussed below.

a. Weldo~ Williams" Lick, Inc.

Section 9008.7(a)(4Xix) ofTitle 11 ofthe Code ofFederal

Regulations states that "Convention expenses" include all expenses incurred by or on

behalfofa political party's natioDal committee or convention committee with respect to

and for the purpose ofconducting a presidential nominating convention or conventionrelated activities. Such expenses include expenses for printing.convention programs. a

joumal ofproceedings, agendas, tickets, badges, passes, and othersimilar publications.

Section 9008.53(8) ofTitle 11 oftbe Code ofFederal

Regulations states, in government agencies and municipal corporations may accept

goods orservices from commercial vendors for convention uses under the same terms and

conditions set forth at 11 CFR §9OO8.9.

In the ECM, the Audit staffidentified two payments to

Weldon, Williams &. Lick, Inc. for the production ofcredentials related to the convention.

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The agreement between the Host Committee2 and Weldon, Williams, & Lic~ Inc.

established that the Host Committee would purchase up to 325,000 "tickets for admission

to the 1996 Republican National Convention." These credentials were ofdifferent colors

and used for access to the convention ball. According to the Host Committee.. any ofthese

credentials would gain a person entry into the convention hall and the different colors

limited the areas ofthe convention hall to which a person would have access. For

example, one color would grant access to the hospitality suite area, one color would be

used by delegates for floor access, one color would be for the alternate delegates.. and one

color would be for individuals who had access to the entire convention hall. The Host

Committee paid a total of$106,645 for production ofthese items. It further appears that

the City ofSan Diego paid an additional 538,638. Given that these credentials were

distributed for access within the convention hall, the staffconcluded that they were tickets

or passes as described at 11 CFR §9008.7(a)(4)(ix), and the cost ofthese tickets was a

convention expense and not a pennissible Host Committee, or City ofSan Diego

expenditure as defmed under 11 CFR §§9008.52(c) and 9008.53. As a result, the ECM

concluded the Host Committee and the City ofSan Diego made in-kind contributions of

$106,645 and 538,638, respectively, to the Committee.

The Audit staffrecommended that the Committee provide

evidence documenting that the above expenditures were pennissible Host Committee and

City ofSan Diego expenses. It was stated that absent such a demonstration, the Audit

staffwould recommend that the Commission detennine that 5145,283 is repayable to the

United States Treasury and the Committee would be required to itemize this in-kind

contribution on an amended disclosure repone

In response to the ECM, the Committee argues that these

badges were critical for law enforcement and security and explains in detail the various

mechanisms built into badges to assure that they could not be reproduced. The Committee

also submitted copies ofvarious badges and correctly notes that the ECMs did not

challenge payments for parking passes. As part ofthe response, the Committee explains

that two ofthe invoices, totaling $12,058. were for badges that allowed access to events

outside the convention and for work crews who were responsible for "breaking down the

convention center" after the convention.

The staffdoes not dispute that the credentials have a security

component. However, in our opinion. the security aspect was not the primary reason for

the issuance of credentials. Credentials were the means by which the Pany hosting the

convention not only decided who could attend its convention. but also managed those

authorized attendees once inside the building so that it could conduct the proceedings as it

desired. Ifsecurity was the only purpose ofthese credentials.. then once a person was in

the convention hall there would be no need for the different colors to restrict where the

person might go. All that would be needed would be an irjti~~ security checkpoint.

Although the contract was between the Host Committee and the vendor. attached to the contract are

Committee approval sheets containing the signatures offive Committee offiCials.

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Further, the Committee argues that since the credentials

have a security aspect, they fall underthe host committee ~-gulatiODS at 11 CFR

§900I.S2(cXIXvii). This regulation allows a host committee to pay for law enforcement

services necessary to insure orderly conventions. Therefore, services provided by either

the City ofSan Diego Police or private security finDs could have been paid for by the City

ofSan Diego orthe Committee. However, the staffconcluded that there is a distinct

difference between law enforcement services and the production ofcredentials for limiting

accessto the Party's convention and managing those authorized attendees once inside the

convention hall.

The Committee also makes the point that the need for

secmity was magnified as a result ofthe Atlanta Olympic bombing. It is noted that the

Host Committee entered into its agreement with Weldon, William$, and Lick on July 17,

1996, and the Atlanta bombing did Dot occur until July 27, j 996.

In response to its Exit Conference Memorandum.. the Host

Committee stated that:

While it is true that the replatiODS specifically authorize

committees such asthe Committee on Arrangements (the

"COAti) to make expenditures for "tickets, badges, passes

..." (11 C.F.R. § 9008.7(aX4Xix», this is irrelevant.

Nowhere do the regulations make a distinction between

pennissible host committee expenses and permissible COA

expenditures. In fact, the list ofpermissible COA and

committee expenditures overlap. For example, either

committee may pay for: convention hall rental (11 C.F.R.

§§ 9008.7(aX4Xi); 9008.S2(c)(IXv»; platfonns, seating,

decorations and utilities ad.); transportation system (11

C.F.R. §§ 9008.7(a)(4)(YJi); 9008.S2(cXIXvi»; and security

or law enforcement (II C.F.R. §§ 9008.7(aX4Xi);

9008.S2(c)(l)(vii». Had the Commission intended to

restrict host committeesto making only those expenditures

which the COA could not make. it could have. and

presumably would have. done so.

The Host Committee further states that "since the

regulations governing pennissible expenditures by the COA and the Host Committee are

not mutually exclusive. the only germane question is whether or not the cost ofthe

credentials are permissible host committee expenditures." The Host Committee believes

that 11 eFR §9008.S2(c)(IXvii). which covers law enfo~expressly permits a host

committee to make these types ofexpenditures. In suppon ofthis position. the Host

Committee provided a declaration from the Assistant ChiefofPolice for the City ofSan

Diego to confirm ''the imponance ofthe convention credentials and badges to convention

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security." The Host Committee also stated that "the concerns for security were especially

hi~ not only because ofthe number offederal, state and local officials attending the

convention, but also because ofthe bombing at the Oiympic Games in Atlanta which

occurred only a short time before."

The declaration provided by the Host Committee states that:

The City ofSan Diego Police Department worked very

closely with the San Diego Host Committee's security

consultants to develop and authorize the use ofsecurity

access badges for the 1996 Republican National Convention.

During the convention last August, all San Diego law

enforcement officers assigned to the Convention Center and

the auxiliary Republican National Committee sites

recognized and pennitted access to the bearers ofthese

badges. These badges served as viable law enforcement and

secwity devices because they had a special design that made

unauthorized duplication virtually impossible.

As a result ofthe above, "it i~ the [Host] Committee's :

position that payments made for convention credentials and badges by both the [Host]

Committee and the City are pennissible payments expressly permitted by 11 C.F.R. §

9008.52(c)(I)(vii) and generally permitted by 11 C.F.R. § 9008.S2(c)(I)(xi)."

The staffmaintained that these badges were for the

management and conduct ofthe convention as well as security. Given the expressed

intention ofthe Commission that convention expenses paid by the Host Committee and

the City are to be very narrow exceptions to the limitation on convention expenses, the

staff concluded that these costs did not qualify as law enforcement costs or costs similar

thereto. However, the Committee~s response did establish that ponions ofthe badges were

used outside the convention facility and after the convention was over. The related costs,

totaling $12,058, are not convention expenses. Therefore.. the Audit staff and Office of

General Counsel concluded that the amount ofthe in-kind contribution from the Host

Committee and the City ofSan Diego was $133.225.

The Commission discussed this matter at its meeting of April 16,

1998. It decided that this amount was a permissible Host expense. (See Attachment 1.

page 2. item 1for a copy ofthe vote certification.)

b. AT&. T

In addition, the Audit staff identified two payments to

AT &. T for invoices totaling $251,982. which appeared to be for convention-related

expenses. These payments were for delegate multi-media stations that were described as

pan ofa voter tabulation system. According to Host Comminee officjals~ the computer

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system was designed so that each state delegation had a computer terminal in its section of

the convention hall. These terminals would allow each delegation to record its votes on

different issues in the event that results needed to be tabulated quickly. In addition to the

actual cost ofthe system, the payments were for setup, operation and tear down ofthe

system. Thus, this system was Dot installed in the convention hall to be used permanently

for any convention held in San Diego, but rather was installed specifically for the

Republican National Convention. The Host Committee believed that this system was

never actually used during the convention. Als09 when the ECMs were prepared. it was

not known whether any information was included or accessible from this system. or ifit

·was strictly to be used to tabulate the votes ofthe delegates.

Although 11 CFR §9008.S2(c)(1)(v) allows a host

committee to pay for office equipment, a computer system which allows votes by

delegates to a national convention to be tabulated is not office equipment and instead is an

expense related to conducting the convention. It is irrelevant that the system may never

have been used; rather, the purpose ofthe system governs whether it is a conventionrelated expense. Therefore, we concluded in the ECMs, that these payments represented

an in-kind contribution ofS2S1,982 by the Host Committee to the Committee.

In the Exit Conference Memoranda, the Audit staff

recommended that the committees provide documentation and infonnation which

demonstrated that the above payments represented allowable Host Committee expenses

pursuant to 11 CFR §9008.S2(c) and were not a contribution to the Committee.

In response to its ECM, the Host Committee makes

numerous arguments as to why this computer system should be an allowable Host

Committee expense. It argues that the installation was part ofthe constnlction necessary

for preparing the convention site; that the computersystem falls under the category of

"'office equipment;n that the Host Committee was assured that it was a pennissible

expense by the Committee; that its functions other than voter tabulation qualify the system

for treatment as an "infonnation boothn that is specifically allowed under Commission

regulations; and, that it is simply a modem version ofthe past voter tabulation systems

that utilized a microphone and loudspeakers and were allowable expenditures under 11

CFR §9008.52(c)(1 )(v).

In addition the Host Committee noted that more detail on

the functions and capabilities ofthis computer system would be supplied by the

Committee in its response to the ECM issued as a result ofour audit ofthe Committee.

The Host Committee states that it ......incorporates those factual materials by reference. 9' In

the Committee's document9 many ofthe same arguments are put forward. more detailed

infonnation about the computersystem's capabilities is provided9 and the fact that the

voting system was not used is confinned. Material was provided from AT & T and a

subcontractor that allocated the cost ofthe system between the vote tabulation function

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and the system's other capabilities. A single invoice in the amount of$44,067 covers the

vote tabulation function!.

The computer system's non-vote tabulation capabilities are

described in a affidavit from an ATciT representative. They include an electronic bulletin

board that could be used to leave messages for other delegates as well as receive

information about convention scheduling; limited internet service that allowed delegates

access to maps ofthe convention center and the city; infonnation on local points of

interest; and, infonnation on local restaurants.

Given the computer system's multiple purposes and the cost

allocation provided, the staffconcludes that the costs associated with the non-vote

tabulation functions were permissibly paid by the Host Committee as an "information

booth" or a "shopping and entertainment guide." The amount attributed to these functions

in the response is $207,916.

. However the staff concluded that the balance, 544.067, was

not a permissible Host Committee expense. but rather a cost ofconducting the convention.

Contrary to arguments put forth by the Host Committee, the system can not be considered

"office equipment." No evidence was provided that this amount related in any way t~ any

office provided by the Host Committee. Though it is true that office equipment often

includes computer equipment. it does not follow that all computer services and equipment

are office equipment. Further, the staffconcluded that the provision ofthe voting software

is not construction ofthe site. Rather, it is an expense incurred by the Committee for the

conduct of a critical pan ofthe convention. The fact that the Committee assured the Host

Committee that the expense was pennissible is ofno significance. Finally, the staff

concluded that it could not be likened to the registering ofvotes by voice .via a Host

Committee provided sound system. The sound system in a convention hall serves many

functions, both in the past and in present day facilities, with announcing votes being only

one.4 Finally, the vote tabulation system clearly is not any son ofshopping or

entenainment guide.

Therefore, the Audit staff and the Office ofGeneral

Counsel concluded that the Host Committee made a contribution to the Committee of at

least 544,,067.

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It appears that the allocation of cost is an incremental analysis. The invoice that references the vote

tabulation system covers only labor. There is no apparent charge for software or hardware.

No infonnation is provided in either response on how voting records were kept or documented in

the past. For example, it seems likely that some rrcord ofthe vOles cast by members of delegations

would be kept and collected centrally to avoid any Iller disputes. Such records would not be

collected via the host committee provided sound system in the convention haJJ. In contrast. had the

electronic voting system been used. a computer record would be ~enerated for Comminee records.

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During its meeting ofJanuary 22, 1998" while discussing the

same mauer in the audit repon on the Host Committee, the Commission decided that this

expease was properly paid by the Host Committee. (See Attachment 1, page 1 for a copy

ofthe vote certifieation.)

c. David J. Nash Associates, Inc.

On July 24, 1996, an agreement was signed between the

Committee and David J. Nash and Associates, Inc. (Nash).5 Under the agreement, Nash's

duties included:

(1) Providing orsecuring all production space and requirements

necessary for producing the television broadcasting and the

theatrical production ofthe Convention;

(2) Securing written agreements with certain personnel,

equipment, vendors orsubcontractors for technical

equipment, subject to the prior approval ofthe Convention

MaDager, or his designees; •.

(3) Supervising and coordinating the activities ofthe Creative

Producer, Art Director~ Lighting Director and other

production consultants hired by the COA.; and

(4) Perfonning other duties as assigned by the Convention

Manager or his designee.

Between May 6, 1996, and July 12, 1996, the Committee

made four payments to Nash totaling 5250,000. As ofAugust 16, 1996, Nash had

refunded to the Committee a total of5132,5oo, which leaves a total net payment of

5117,500.

Between July 1, 1996, and August 9, 1996, the Host

Committee made four payments to Nash totaling 52,64S,520. Invoices indicating they

were for television production supponed each ofthese payments. TIuee ofthe four

invoices stated that they were from David J. Nash. MExecutiy~ Producer COA-TV."

On July 2S, 1996, the Host Committee entered into a

contract with Nash that states Nash was to "rendersuch television production and related

services consistent with the specifications and requirements for the Convention established

by the COA." The payments due under this contract were baed on a production budget

that totaled S2,421,714. Line items in the budget include producers, directors, production

Although the connct was siped July 24. 1996, it went into effect in March of 1996.

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staff, music/orchestra, rigging, staging labor, special eff'~ makeup and hairdressing,

video OperatioDS, sound operations, video segments, editing, and graphics. The contract

further states that "[T]he Consultantshall arrange to timely obtain the services and

equipment specified in the Production Budget, provided, however. that the Consultant

shall be required to obtain the approval ofthe Convention Manager orthe ChiefFinancial

Officer ofthe COA, prior to incurring, or committing to incur, any amount stated in

Production Budget line items greater than S5,000." In addition to these items. on August

2, 1996, Michael E. Simo~ ChiefFinancial Officer for the Committee. submitted to the

Host Committee for approval a change order to add 5223.806 to the original budgeted

amount. This addendum included items such as "Film Shoot - Russell" for S75,000, ~'Sail

Area" for 5127,500, and "Sail Area Entenainment" for 512,000.

The Host Committee paid for all ofthese budgeted amounts.

After all services were provided, Nash was to provide a final accounting ofhis services

and refund any unused moneys. The contract between Nash and the Host Committee

specified that "[T]he Consultant shall maintain separate bank accounts for all monies

relating to the television production ofthe Republican National Convention. Said funds

shall be subject to audit and shall not be commingled with funds from other productions or

projects. The Consultant shall provide the COA with a full and complete accounting of

the Consultant's services including such copies ofall checks, receipts, disbursements and

othersuch documentation as may relate to such services.·'

Prior to entering the contract with Nash, the Host

Committee received a memorandum from the Committee that stated, in part, "David Nash

Associates bas been engaged by the COA to produce the teievision event and staging of

the Convention proceedings. David Nash and a staffofprofessional television production

and technical associates will present and enhance the Republican message-for presentation

to the television networks and the media in general.'" The Host Committee created a line

item in its budget called "RNC Television Production Services" to which it charged the

payments to Nash.

As ofFebruary 22, 1997, Nash had refunded to the Host

Committee a total of $400,000, which leaves a total net payment ofS2.245,S20. After

conclusion ofaudit fieldwork, the Host Committee provided a summary from Nash that

gave the r~tus offunds expended through February 22, 1997 for the general ledger codes

corresponding to the line items in the original budget. This summary showed 5110.214

remaining unspent, ofwhich 588.456 was allocated for change orders to Creative

Broadcasting Techniques. Inc./Repub!icall Nationa! COIru-nittee ("~l\1cn) aeoreement

(Firading Ii.A.2.b.) and S13.)32 was allocated for wind down and audit expenses. In

• The memorandum also staleS that one ofthe reasons Nash wa.~ lelected was based on his

performance ofsimilarservices for the 1992 convention. It appears that the television production

services for that convention were paid by the Committee on Amngements nther than by the

Houston Host Committee. The Houston Host Committee reponed paying Nash only $46.000 for

consulting and insurance. The 1992 Committee On Arrangements paid Nash SI.125.025.

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addition, the Host Committee provided bank statements ftom Nash and representative

copies ofinvoices from vendors that contracted with Nash. These invoices document a

total 0(5933,241 oftbe amount shown by Nash as having been spent to date.

According to the Host Committee, the payments to Nash

covered two specific areas: (1) infrastructure, facilities, and etherservices for television

production and (2) improvements to and entertainment at the Sail Area ofthe San Diego

Convention Center. With respect to the television productiun, the Host Committee stated:

[t]be audience for modem presidential nominating

conventions includes delegates, other convention attendees

and television viewers. Therefore, the San Diego Convention

Center bad to be prepared for television cameras, crews and

facilities. Nash hired the professionals who coordina~ the

installation ofthe television facilities as well as the laborers

who did the actual installatioDS. In addition. Nub hired the

professioDals who implemented the production ofthe

convention show from the perspedive ofthe television

audience. This included producers, directors and technicians.

These individuals were responsible for impiementing the

'picture' or 'show' that was seen by convention attendees (on

screens throughout the Convention Center. including the Sail

Area), as wen as television viewers. However. Nash services

to the SDHC bad nothing to do with convention content; the

speakers, the message and the sequencing ofthe convention

were all determined by officials ofthe Committee on

Arrangements. Nor did Nash provide any commentary or -

explanation ofconvention proceedings for convention

attendees or television viewers.

Ofthe total spent by Nash for production. 5264.022'

represented payments to producers, directo~ and production staff. These individuals

include the television producer who was "responsible for television coverage. including

live remotes and creation ofvideo segments for big screens", and directors who "directed

television coverage ofthe convention that was distributed as a basic feed via satellite

throughout the United States, as well as to monitors throughout the convention center" and

"also directed the video mix ofmaterial that was displayed on the giant projection

screens.·tProduction staffincluded the stage manager, who was ··responsible for running

the operation ofthe podium dming the convention. including cueing the talent (speakers)

and stage effects. Coordinates podium activities with the executive producer (in the

Convention Control Room), and the television director (in the television facilities truck)"

and the script supervisor who "fonnats the television script after assembling all the written

, Nash wu paid 1ft additioaal SI00,000 u Executive Producer. The Committee provided the funds

for these payments.

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materials and technical information" and "generates a daily work schedule to the

television and production staffs, the talent, and all convention program personnel."

Other categories of expenditures included music and

orchestra; special effects such as confetti, balloons and fireworks; makeup and

hairdressing; closed captioning; stand-ins for convention participants during television

technical rehearsals; various categories oftravel; and, other expenses for personnel or

minor expenses which were incurred. Major categories ofexpenditures included $540..345

for rigging and staging labor that included "labor costs for stage hands, electricians..

riggers for instaIlation and operation during the convention sessions." It appears this

category covered electricians who rigged lighting and camera~ and that some ofthe

expenses for camera rigging were reimbW'Sed by ABC, NBC, CBS and CNN.

Another major category ofexpenditure was $421 ..652" spent

for video operations. This includes payments for "television crew labor, television mobile

unit for screen control, satellite time, TelePrompTer, other television equipment.. and the

remote productions." Expenses related to the technical director were included under this

category. The technical director had the overall responsibility for "the coordination of all

aspects ofthe video engineering, including the timing and gen-Iock synchronization of

cameras, the design and routing ofthe intercom systems, and signal path and test designs

for both incoming and outgoing satellite signals." The remote production costs

represented $138,,442 ofthe above amount and were originally to be for live television

transmissions during the convention from six different locations. Two ofthe locations

were later canceled and live transmissions occurred from Miami, FL; Russell. KS;

Sacramento, CA; and San Diego, CA. According to the description provided by Nash. the

Russell remote was a gathering ofseveral thousand

citizens ofRussell, Kansas who witnessed and participated

in the nomination ofDole on the second to last night ofthe

convention (included fireworks). Two high school students

spoke on behalf ofRussell. The Miami shoot highlighted a

woman's work in health care. The San Diego shoot was of

Bob Dole watching Liddy Dole give her speech. The

Sacramento shoot was with Steve Young and high school

students concerning the students' dreams for the future.

Other categories ofinterest included $263,205 for video

segments that were "expenses associated with producing video clips highlighting profiles

of delegates panicipating in the process..'· and SI 0.000 for a continuity writer who was a

··speech coach and transition writer (who] helped to reword speeches to help them flow

bener, added jokes, and in general punched up the speeches. He was not involved in any

content decisions or writing ofspeeches.,. Also. 570,,000 was spent for a Russell.. KS shoot

that contained Ufootage on the history ofRussell, KS and the current Russell. KS (small

town America).'" According to the Committee. this footage was not used in the convention

and was not the same as the "Dole Film:'

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A final item ofnote with respect to the production was

contained on a vendor invoice related to makeup. An item on the invoice stated that "air

travel, hotel, and ground transponation to be covered by RNC." The Audit staffwas told

that the Committee did not pay these items; thus, it was assumed that the invoice meant

the Republican National Committee.

In the ECMs, the staffconcluded that disbursements related

to television production were not expenses properly paid by a host committee pursuant to

. 11 CFR §9008.S2(c). Rather, they were convention expenses that should have been paid

by the Committee pursuant to 11 CFR §9008.7(a). The Host Committee argued that at

least some ofthe payments should be considered pennissible Host Committee expenses.

As noted previously, some ofthese disbursements appeared to relate to salaries for

electricians and other individuals for labor such as rigging cameras and lighting. Although

11 CFR §9008.S2(c) allows a host committee to defray salaries and convention related

expenses such as construction ofcamera platfonns and lighting, the expenses paid by

Nash related to rigging cameras and lighting were not host committee expenses. Rigging

Cameras and lighting for the purpose ofproviding a television picture that meets the

television producer's requirements is not the same as building a platfonn from which

cameras can be used for the television production. The Host Committee made numerous

other disbursements, separate from the Nash expenditures, which related to construction at

the convention center, lighting, sound systems, podiums and platfonns. The

disbursements in this case appear to be related to the overall process oftelevision

production and should have been paid by the Committee.

The categories ofdisbursements at 11 CFR §9008.S2(c) deal

with expenses for preparing the convention site to host the convention and to promote the

convention city. The Host Committee noted that the Nash disbursements related to

implementing the "picture" or "show" that was seen by convention attendees, as well as

the television viewers. but provided no commentary to the proceedings and was not

involved with convention content, implying that it should be a legitimate Host Committee

disbursement. However, as noted previously, the Committee wrote that Nash "will

present and enhance the Republican message for presentation to the television networks

and media in general." Presenting the Republican message is clearly convention-related

and not the type ofdisbW'Sell1ent envisioned under the host committee regulations.

Further, preparing the convention site for television broadcast across the country and

providing satellite uplinks and producing the "picture" and "show" ofthe convention as

seen on television, is for the purpose of conducting the presidential nominating convention

and should have been paid by the Committee. This is not preparing the convention center

or site for the convention or promoting the City ofSan Dit.fO Instead. these

disbursements are related to putting on a "show" to be seen by the country in hope of

influencing the public to suppan the political pany hosting the convention and its

Candidate for President, in this case. the Republican Party and Senator Raben Dole.

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Aside from overseeing television production, Nash was also

responsible for the improvementsto IDd entertainment at the Sail Area. The Sail Area

WU III area outside ofthe main convention ball but within the San Diego Convention

Center. According to a Holt Commiaee official, "because the main hall was too small to

accommodate all pests and attendees, SDHC provided additional space in the Sail Area.

Nub wu hired by SDHe to improve the Sail Area so that convention attendees could

watch convention proceedinp on larse television screens. In addition, Nash amnged for

the entertainment which wu provided in the Sail Area." According to Nash, the "Sail

Area is an outside open air patio on top ofthe convention center." Food and drink were

also available in the Sail Area. Nub also stated that the entertainers used in the Sail Area

were local San Die,o Jl'oups and that some ofthese groups also were used before the

convention in the convention ball.

Bued on available infonnation, the ECMs stated that the

amount spent by Nuh for improving die Sail Area was 5145,299, and the amoWlt spent

for entertainment wu 518,935, for a total of5164.234. The expenditures for setting up the

~e, sound, and liJhtina equipment related to the Sail Area were not related to the

television production and are an allowable expenditure under 11 CPR §9008.S2(c). The

BeMa also concluded that entertainment featurin, San Diego lI'Oups could be considered

u promotina the City ofSan Dieso. Thus, oftile 52,245,520 net paid to Nash. the EOMs

concluded that 5164,234 represented allowable Holt Committee disbursements and the

remaining 52,081,286 should have been paid by the Committee and results in an in-kind

contribution by the Holt CommiUee.

Given the infonnation available at the time, the ECMs

recommended that the Committees provide documentation to demonstrate that the

payments to Nuh were allowable Host Committee expenses pursuant to II CFR

§9008.52(c) and did not result in a prohibited in-kind contribution to the Committee. This

documentation was to include copies ofany checks issued by Nash related to the

Republican Convention with copies ofthe invoices from the vendors which the Committee

believed were specifically covered by J1CFR §9008.52(c). Also. for these specific items.

the Host Committee was to address whether these disbursements would have been

necessary for the convention hall if not for the television production requirements.

Finally, the Host Committee was to provide infonnation and documentation that showed

the disposition ofthe footqe for the film shoot which OCCUIT~ in Russell. KS.

As noted above. the pennissibility ofthe Committee's

payments to Nuh wu Iddreued ill the £eMs resulting from the audits ofboth the

committees. Altho. both raponses reach the same conclusion and for similar reasons.

they are different in approach. In 1hc interest ofa fuJI discussion ofthe issue. the

respoDJes are addreued individually.

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1) Response ofthe Committec

The Committee begins its response on this matter

with a general discussion ofthe Nash expenses and then addresses a number ofspecific

categories of expenses. These categories are not as presented m the ECM because Nash·s

production accountant has provided a more detailed analysis than was available at the time

ofthe ECM and has allocated parts ofthe various miscellaneous and overhead categories

to the direct cost categories. Each ofthese categories will be discussed below.

In its general comments, the Committee states that

Nash provided similar services to the 1992 convention and the expenses were not

challenged. As noted above, the 1992 Committee On Arrangements paid Nash 51.125,000

while the host committee paid only 546,000 for consulting and insurance. Unless the 1992

host committee's payments were made to subcontractors, the 1992 Committee On

Arrangements paid for most ofthe Nash contract. No documentation was submitted to

demonstrate otherwise.

The Committee also cbserves that there is nothing in

the statute or regulations that states that a host committee may not pay costs associated

with the television broadcast ofthe convention or preparing their sites for television :

broadcasts. Conversely, there is nothing that says it may pay those costs. As noted above.

the list of expenses that the host committee may pay was meant to be a "very narrow

exception" to the limit on convention expenses. Paying for th,= television broadcast ofthe

convention to the American public in the hope of generating support for the Republican

Pany and its candidates is, in the staff's opinion, a convention expense not provided for at

11 CFR §9008.S2(c). Also, as noted earlier, an overly broad reading ofthe provision that

allows the host committee to pay some convention expenses has the effect of negating the

limitation on such expenses and the limitations and prohibitions on contributions

contained in the Act. Given the way the host committee regulations were fonnulated. it

appears that the Commission did not intend that they be oJA.""11-ended. The regulations

include what expenses may be defrayed by a host committee and television is not included.

The Committee also notes that the selection of a

convention site relies heavily on the "telegenicity" ofthe site and that it is imponant in

promoting the suitability of a city as a convention site. An affidavit from the convention

manager is provided that states in pan:

Like any other national nominating convention, the 1996

Republican National Convention used its convention site as

an arena in which the Republican pany would adopt a

platform. choose nominees for the office ofPresident and

Vice-President ofthe United States. and ani\;ulate its

common principles. ideas. and positions. The Convention

also used its site as an arena from which the proceedings

could be broadcast to the American public.

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An imporrIDt component ofthe Convention's purpose is to provide

• seuina that allowsthe Republican Party to lenerate enthusiasm and

support Cor the PIny's candidates and platform. This is done, in pan. by

encouraamc pany ICtivist to participate in the Convention. The

Convention also seeks to generate enthusiasm and suppon among

Americans in aeneral. In modem American politics. television coverage

ofconventions is the primary, ifDOt exclusive. filter through which

Americans receive the information that determines success or failure in

lenerating such enthusiasm and suppon.

This affidavit recognizes that one ofthe primary

purposes oftelevision coverage is to generate enthusiasm and support for the Republican

Party's candidates and platform. Expenses that are necessary for the Republican pany to

use its convention site as "an arena from which its proceedings could be broadcast to the

American public" is, in our opinion, clearly a convention expmse. It is for the purpose of

obtaining political advantage and should have been paid by the Committee.

The final general comment concerning payments to

Nash. notes that some expenses would be necessary even without the proceedings being

broadcast outside ofthe hall. The need for closed circuit television aDd the analysis ofthat

argument will be discussed below in relation to the Host Committee's response. The:

Committee response adds that the closed circuit television signal was also made available

to the media networks, GOP-TV, and other media entities.

The flJ'St specific category of expenses addressed is

related to the Sail Area which was considered an allowable category in the Exit

Conference Memorandmn. The Committee on Arrangements notes that the updated total

is 5196,032 as opposed to the $164.234 noted in the Memoranda. The updated analysis

was reviewed and the revised figure was accepted as the total related to the Sail Area.

However. based on our review ofinfonnation provided in the responses. we believe that

the $18,935 spent for entertainment in the Sail Area and the $3,481 spent for an

entertaimnent coordinatorshould have been paid by the Committee. The host committee

regulations at 11 CFR §9008.S2(c) do not contain a provision that allows for host

committeesto pay for entertainment. Thus. the amount for Ul': Sail was $173.616

(5196.032 - $18,935· $3,481).

The next category addressed is Lighting and

Riggina, totaling 5689,535. The Committee notes that modem convention centers. such

as the United Center in Chicago, have state-of-the-art lighting that can accommodate live

network television broadcasts and that even so, the Chicago host committee reponed

spending an additional $458,848 to enhance the United Center's lighting. The response

further notes that the San Diego Convention Center's lighting was far from state-of-the-an

and that as an inducement for the convention to come to San Diego. the Committee

committed to bring the lighting up to the standard necessary.

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Three specific argumalts presented related to the

lighting and rigging. First, the response notes that all panies to the Site City Agreement

recognized that the lighting in the convention center was inadequate. Thus. because the

lighting equipment and labor costs would have been lower ifthe RNC had selected

another site, these costs were incurred by the Host Committee -Cor the purpose of

promoting the suitability ofthe city as a convention site." S~ond, lighting is specified as

one ofthe "construction and construction related services" that host committees may

provide, and over S1 million that the Host Committee spent on lighting equipment with

vendors other than Nash is not questioned. while the installation cost paid to Nash is

disallowed. Third, the Houston Host Committee paid the labor costs of upgrading lighting

at the Astrodome for the 1992 convention with no cballenge by the Commission.

The response includes an affidavit from David Nash

that discusses his responsibilities during the convention. He notes that they included the

installation and operation ofa lighting system, but that he did not provide the actual

equipment. Rather, Bash Lighting (Bash) provided the equipment. Our review ofthe

Host Committee expenditures indicated that the Host Committee paid Bash approximately

5906,000 that included a $60,000 payment for 20010 ofthe rigging contract; a $147.500

payment described as rigging; and, a 5272.000 payment for lighting and rigging. Given

substantial payments to Bash and other vendors for lighting equipment, design and :

installation, the costs that are questioned appear to be those Nash incurred as the television

Executive Producer rather than the general lighting improvements to the hall. The costs of

general lighting improvements are not questioned by the staffsince they are specifically

permitted host committee expenses. The question ofpayments to Nash in connection \\ith

the 1992 Convention was discussed above.

The Committee next discusses $423~762. classified

as closed circuit television expenses. The response states that since Nash's work on the

Sail Area was allowed, the ECM implicitly conceded the appropriateness ofthe

Committee paying for closed circuit television. The Comminee argues that without closed

circuit television, persons in the Sail Area. and in numerous other areas with restricted

lines ofsight, would have been unable to observe the convention proceedings. Also. since

the networks did not provide gavel to gavel coverage, providing network coverage to the

Sail Area would have provided the attendees with the same coverage they could have seen

at home. Further, the response states that the ECM did not directly question the costs of

installing the closed circuit television system but suggested that the ponion attributable to

labor. such as producers and directors. was an inappropriate Host Committee expense.

The Committee states that the closed circuit television system was essentiaJ to make the

Convention Center usable and the video feed was clearly an integral part ofthat system.

The response also argues that the ECM statement that the closed circuit television

production was '·clearly convention related·'

[p]rovides more. not less, justification for the costs being

permissible SDHC expenses. After all, 1] C.F.R. §

9008.S2(c)(xi) expressly permits host committee to pay the

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costs of"convention-related facilities and services" that are

"similar" to lighting and other enhancements that allow

effective presentation ofthe convention. Thus, the

expenditures were payable by SDHC pursuant to §

9008.S2(c)(1)(i) e'promoting the suitability ofthe city9'),

9008.S2(c)(1)(v) ("construction and convention-related

services" for "convention center99)9 and 9008.S2(c)(I )(xi)

("similar ... convention-related facilities and services9').

The Committee is incorrect in stating that because

improvements to the Sail Area were pennitted the costs ofthe closed circuit television

system are conceded. Based on the infonnation available from the Committee when the

ECMs were drafted, Nash's work in the Sail Area was for improvements and

entenainment in the Sail Area and was not related to television production. The

conclusion reached in the ECM states, in Part that "the expenditures related to the Sail

Area were not related to the television production and are an allowable expenditure." If

that conclusion regarding the Sail Area is incorrect and these expenditures were actually

related to the television production, then the costs associated with the Sail Area should be

added to the in-kind contribution from the Host Committee to the Committee.

The Committee also believes that the ECM did not

challenge the costs ofthe closed circuit television system but instead questioned labor

costs such as producers and directors. The ECM drew no such distinction. It did state that

television production was clearly a convention related expense that was not considered an

allowable Host Committee expense.

The response also misinterprets and misstates the

language of 11 CFR §9008.S2(c)(I)(xi). That portion ofthe regulations says that a host

committee may "provide for other similar convention-related facilities and services".

referring back to the categories in sections (i) through (x). While lighting related to the

use of an auditorium is one ofthose categories.. the regulation never mentions ··other

enhancements that allow effective presentation ofthe convention.''I As noted before.

reading allowances at 11 CFR §9008.S2 as broadly as the Committee suggests has the

effect of negating the spending limitations. Television production is not similar to the

categories of expenditures allowed for the host committee~ but is a cost ofpresenting the

Republican Pany's message and candidates to the viewing public.

The response discusses $156..399 that is categorized

as "DecorationsIMusic.9' The Committee states that the $104..279 spent for balloons.

confetti.. fireworks and video graphics were allowable host committee expenditures for

·'decorations9' and '·similar convention-related facilities and services." Funher" 549..031

was incurred for a musical director and orchestra and the n:lnaining 539088 was for

transponation and hotel expenses for the orchestra. The response also says that the

orchestra welcomed and entenained the delegates and attendees as they gathered in the

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convention hall prior to each session ofthe Convention and that providing music in the

convention hall was a convention-related service "similar" to the provision ofdecorations.

The regulatory allowance for decorations is provided

relative to the use ofan auditorium or convention center. The use ofballoons., confetti..

fireWOrks and video graphics by Nash are related to his presentation ofthe "picture': or

"show" to the convention attendees and television viewers. These items are for the '

conduct ofthe convention, not decorations related to the use oran auditorium. With

respect to music and the orchestra, the Nash affidavit statesthat the orchestra was used to

. entertain the attendees when the convention ran ahead ofschedule or ifa speaker was not

quite ready. The payment for an orchestra to entertain the delegates is pan ofthe

convention proceedings and is not a decoration. The regulations allow for a host

committee to pay costs ofwelcoming convention attendees to the city, such as the use of

information booths, receptions and tours, and to promote cwmmerce by providing

shopping and entertainment guides. Welcoming attendees to the convention proceedings

and providing entertainment during lulls in the proceedings is pan ofthose proceedings

and is a convention expense which should have been paid by the Committee. With respect

to the hotel and transportation costs, no documentation was provided to show that the

requirements of 11 CFR §§9008.S2(c)(1)(vi) and 9008.S2(c)(1»(ix) had been complied

with and accordingly, no adjustment has been made to the total contribution with re~

to these costs.

Nash's analysis categorizes $512,560 as

Miscellaneous. Included in that amount is 5217.S11 spent on video crew labor" satellite

time and remote productions. These costs were for the production and transmission of

interviews and broadcasts from remote locations such as Miami, Sacramento, San Diego,

and Russell, Kansas. The response states that these productions were shQWI1 on large

television monitors throughout the convention hall as part ofthe overall imagery for the

convention. According to the Committee, each remote production served the same

purpose as decorating the convention hall with standard political paraphernalia. For the

Kansas remote production, the response says that the convention center's ceilings were too

low for the traditional fireworks display when the Kansas delegation cast its votes to

secure Senator Dole's nomination. As a result, a fireworks display was held in Russell

and transmitted to the convention hall via satellite. The San Diego production was

apparently used to transmit Senator Dole's live video image onto the screens in the

convention hall during Elizabeth Dole"s speech. The Committee argues that this is no

different than the Committee paying for one or more large photographs ofSenator Dole

and hanging them in the convention ball as decorations. The response also argues that it

can not be reasonably disputed that the Host Committee could pay for video graphics used

as decorations. The Committee submits that these expenses are 6tosimilar" to standard

decorations and are allowable host committee expenses. The response also states that the

remote broadcasts featuring Steve YOWlg interviewing students in Sacramento and Jason

Poblet interviewing an elderly woman in Miami were to entertain the attendees during

lulls in the proceedings and served to make the convention more interactive and inclusive.

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The staffconcluded that these productions were a

part ofthe convention proceedings. The Nash affidavit, in part, notes that "the live

remotes and video segments were necessary to create a convention signal for broadcast on

the Convention's closed circuit television that would hold the attention ofviewers. 99 Later,

Nash writes with respect to satellite time, the expenses were to transmit the remote shots

and 6'50 that the Convention could make the closed circuit ~levision signal available to

television media across the counuy who chose not to send their own production personnel

to the Convention and who did not want to rely completely on the major television

netWorks for coverage." The live video ofSenator Dole watching his wife's speech is not

the same as a postershowing his image. This live shot was provided to the television

netWOrks for use during the speech and showed Senator Dole's reactions to different parts

ofhis wife's speech. This feed was part ofthe convention's content on that evening and is

not a decoration. The Russell feed offireworks was used to show the excitement ofthe

people ofRusseU at the moment Senator Dole seemed the nomination. This was also used

as a part ofthe convention's proceedings, not a decoration. Similarly, the other remote

productions are not decorations, even ifthe television networks did not show them. As

Nash stated, these productions were used to hold the attention ofthe viewers; not decorate

the convention hall. In the staff's opinio~ these expenses \¥CJe political in nature. They

were for the conduct oftile convention and to create enthusiasm and suppon for the

Republican Party and its candidates, not to decorate the hall. In the opinion ofthe staff

they were convention expenses not permissibly paid by the Host Committee.

The Committee also states that the host committee in

Chicago reponed a payment for satellite time, presumably to demonstrate that the

Democratic host committee also believed that expenditures for satellite time were

legitimate host committee expenses. However, that committee's records show that the

payment was made to the City ofChicago. The City ofChicago had initially made this

payment for satellite time. The assistant treasurer for the host committee infonned the

Audit staffthat the City ofChicago and the host committee detennined thzt this was not

an appropriate host committee or city expense and consequently requested a refund from

the vendor. The vendor then refunded the payment to the host committee instead ofthe

city. The host committee made a refund payment to the city which apparently is the item

on the disclosure repon noted by the Committee. Thus, neither the host committee or the

city paid for satellite time.

Another pan ofthe Miscellaneous category is

S180,414 for FilmNideo Segments and Editing. The Committee believes that these were

pennissible Host Committee expenses for a number ofreasons. First, some ofthe

segments consisted ofinterviews with delegates and celebrities that were complimentary

to the City ofSan Diego and, according to the response, served the purpose of promoting

the City as a convention site or welcoming the convention attendees to the City. The

Committee argues that other video segments served the purpose of welcoming or

introducing speakers to the podium. or welcoming and acknowledging other attendees, and

are pennissible as welcoming orsimilar expenses. The response goes on to say that other

video segments had already been produced and were provided to Nash for fonnaning for

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use with the equipment in the convention center. The Committee believes that since the

Committee could provide a sound and video presentation system, it could calibrate taped

video segments for presentation on that system. Finally, the response states that all the

segments were used as entenainment for the audience present at the convention center and

since there was no expectation that the netWorks would air the segments they were

"similar" to welcoming and entenainment expenses. The affidavit ofthe Convention

Manager notes that 6'the video segments were taped presentations displayed during lulls in

the Convention proceedings or, sometimes, during a speaker's presentation. Many ofthe

segments were profiles ofdelegates or interviews with Americans about important issues...

The primary purpose ofthe video segments was to entertain the delegates and the other

attendees."

The staffconcluded that the Committee had again

applied an overly broad reading ofthe regulatory allowances. Allowable expenses include

welcoming attendees to the city by providing infonnation booths, receptions and tours.

Allowable expenses include costs ofpromoting the suitability ofthe city as a convention

site and the cost offacilitating commerce by providing shopping and entertainment guides~

samples and promotional materials. These video segments are not expenses for

welcoming the delegates to the city or promoting the city as a convention site. The City of

San Diego had already been selected. The segments were used during lulls in the

proceedings to hold the attention ofthe delegates and thus became a part ofthe convention

proceedings. The response notes in several places that many ofthe items paid by Nash

were used as entenainment and are somehow a permissible:: hU~1 committee expense. As

noted. entertaining attendees is not included as an allowable expense. Given the above, in

the opinion ofthe staff, the expenses for FilmNideo Segments and Editing were

convention expenses.

Two minor items included in the Miscellaneous

category, are approximately $1,200 for an Entenainer and Announcer and $1,220 for the

Convention Manager Shoot. With respect to the entenainer and announcer. the

Committee states that 'lhese insignificant costs are justifiable as promotional

expenditures, welcoming expenditures, administrative expenditures. or convention center

expenditures." "[TJhe convention manager shoot was a shon video segment welcoming

the delegates to San Diego and showing the modifications being made to the Convention

Center. Without question, it was payable by the host cOMnlittee as a promotional,

welcoming, or 'similar' expense." The response seems to indicate that the entenainer and

announcer expenses must fall into one ofthe categories that a host committee may pay.

Once again, it is the staffopinion, that these expenditures are for items that are pan ofthe

convention proceedings and not covered by one ofthe expense categories that the Host

Committee may pay. Nash stated that the announcer, "quite literally, welcomed speakers

to the Convention podium." This is not welcoming the convention attendees to the City of

San Diego. The same can be said ofthe convention manager shoot. This shoot apparently

showed all the modifications made to the Convention Center prior to the actual convention

and welcomed the attendees to the Convention. The staff concluded that this is not the

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same as expenditures for welooming attendees to the city £esuch as infonnation booths,

receptioDSt and toutS."

The Miscellaneous category also includes $70,000

for the Russell Film Shoot and DOtes that New Century Media Group, Inc. was paid this

amount "to desiPt create and produce" a filmed walking tour ofRussell, Kansas hosted

by Senator Nancy Kassebaum. The response states that although considerable efTon was

expended on this film, it was ultimately decided not to be usable at the convention. The

purpose ofthis film was to entertain the delegates dming a planned lull in the convention

proceedings. The Committee believes that this expenditure was an allowable Host

Committee expense because it was intended to entertain the delegates and was pennissible

under II CFR §§9008.S2(c)(1Xii) and (xi).

The regulations cited by the Committee deal with

"those expenses incurred for welcoming the convention attendees to the city, such as

expenses for information booths, receptio~ and tours" and '~to provide othersimilar

convention-related facilities and services." For the same reasons the staff concluded that

the video segments discussed above are not an allowable Host Committee expense, this

film is not an allowable Host Committee expense. The Host Committee's response states

that it has requested that it be reimbursed by the Committee, acknowledging that it should

not have paid this expense.

The final items classified as Miscellaneous include a

510,000 payment for a Continuity Writer, 52,691 for Stand-ins, and 529,524 for

"Allocated Items." According to the Committee, the stand-ins were used dming dress

rehearsal in order to calibrate lights and sound systems and the continuity \Witer was

charged with reading and editing the various convention speeches and &6punching them up"

without altering their substance or content. The Committee feels that these expenses were

necessary components ofproducing the Convention's closed circuit television signal and

were therefore appropriate Host Committee expenses for reasons previously stated.

Although the continuity writer may not have made any substantive content changes in the

speeches, the work was related to the speeches that are part ofthe convention proceedings

and pan ofpresenting the Republican message. The speeches were also pan of both the

closed circuit broadcast and the feed seen by the viewing public. As noted earlier, Nash

also states that the closed circuit feed was also available to the media. In our opinion these

are convention expenses that are not permissible for host committees to pay pursuant to 11

CFR §9008.S2(c).

The allocated items represent expenses such as

travel, hotel, vehicle rental, mileage, parking, transponation. motels. catering and per diem

for Nash employees, many ofwhom worked on more than one project. The Committee

contends that they should be distributed proponionately to the identified projects. The

Audit staff agrees. However, since the staff concluded that the various categories

discussed above were convention expenses, no allocation was required.

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The final major expense category addressed is

Overhead ofapproximately S185,000. The Commiuee feels that to the degree that all

categories ofexpenses were properly allowable Host Committee expenses, then these

overhead expenses were properly payable by the Host Committee. However, the response

DOtes that to whatever degree the Commission ultinutely decides that one or more ofthe

project categories was not properly paid by the Host Comminee, then only those costs

which are attributable to those categories would be repayable. As explained above.. the

staff concluded that none ofthe expenses associated with the Nash contract were

allowable Host Committee expenses.

Finally, the Committee believes that even ifthe

Commission rejects the argument that each ofthe general categories ofNash expenses

were permissible Host Committee expenditures, it should not challenge expenses such as

those for hotels and local transportation, which are expressly denominated as allowable

host committee expenses pursuant to II CFR §§9008.S2(c)(IXvi) and (ix). The regulatory

provision for local transportation concerns defraying "the COr&! ofvarious local

transportation services, including the provision ofbuses and automobiles" and the hotel

provision concerns providing "hotel rooms at no charge or a reduced rate on the basis of

the number ofrooms actually booked for the convention." To the extent that Nash's

employees took advantage ofservices provided by the Host Committee or the city under

these provisions, Nash's costsavings are presumably passed along to the Host Committee.

The remaining expenses are business expenses ofa vendor hired to perfonn a specific

convention-related task.

2) The San Diego Host Committee Response

In response to its ECM, the Host Committee noted .

that approximately 30,000 people came to San Diego during the Republican National

Convention and that inside the convention hall there were approximately 15.000 members

ofthe news media compared to only 3.980 delegates and alternates. The Host Committee

funher notes that this is not surprisilll since modem conventions are media-intensive

presentations. The Host Committee goes on to explain that a facility's level ofbroadcast

readiness or the willingness ofthe city or host committee to rnake it broadcast ready are

imponant factors in the site selection process. The Host Committee also states that

because ofthe shape and small size ofthe San Diego facility, it was necessary to provide

closed circuit television inside the facility even ifno external broadcast had been

contemplated and that the Audit staffmade no distinction between the two.

In its response, the Host Committee goes on

to say:

The regulations specifically provide that host

committees may expend moneys for preparation ofthe

auditorium or convention center in a wide variety ofways,

including, but not limited to. construction ofcamera

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platforms and the provision oflighting, electrical and

loudspeaker systemS (11 C.F.R. § 9008.S2(cXl)(v». As

previously stated, the regulations also provide that "other

similar convention-related facilities and services" are

permissible host committee expenditures (11 C.f.R. §

9008.S2(c)(1)(xi». In light ofthe fact that the host

committee regulations were rewritten, effective in 1994. and

that the National Nominating Conventions have become

increasingly media intensive, it is difficult to conclude tbat

the host committee regulations, absent bmguage to the

contrary, prohibit all expenses directly or indirectly

connected with television inftas1ructure. closed circuit or

otherwise.

Itseems clearthat the regulations specifically

coDtemplate such expenditures. Had the Commission

wished to prohibit host committees from paying for

television infrastructure, it could have, and presumably

would have, so provided.z! Had the Commission intended to

specifically prohibit entire cluses ofexpenditures by host

committees, it might have included a provision similarto

that found in the Convention Committee regulations listing

specific prohibitions (11 C.F.R. § 9008.7(b) "Prohibited

Uses"). Such a provision does not exist, presumably,

because no federal money is spent by host committees and

host committees are to be afforded a broad spectrum of

permissible aetivities.[Text offootnote omitted]

The Host Committee then contends that the Nash

contract was the result ofthe Committee requiring a broadcast ready facility and was

analogous to a production studio providing a facility and a motion picture company

providing the script and actors. The Host Committee argues that ifit can pay for the

·'build out" ofthe shell that was the convention center. then it can pay for the "·costs

associated with facilitation ofbroadcasting:' The response states that to "conclude

otherwise is to deny the realities ofmodem conventions."

There can be no dispute that modem Presidential

nomiDatina conventions have become major media events. In most cases it is a near

certainty who the nominee will be before the convention starts. As a result. media

coverage is the best way to project a favorable image oftile P..rty and the Candidate. The

issue here is whether or not the expenses related to that media coverage should be paid by

a host committee orthe convention committee. As previously DOted, the regulations for

host committees were wriuen with the primary purpose ofallowing such committeesto

promote the city's commerce and image and to pay for cenain convention-related

expenses, primarily infrasttucture related to preparing the convention haJl to host the

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CODventiOD. The cost ofproducing the television broadcast ofthe convention

proceedings, includiDg setting up the producer's equipment, is an expense ofconducting

the convention and should have been paid by the Committee. The preparations related to

television are DOt usociated with promoq acity's commerce and image. or expenses to

prepare the convention hall to host the convention. The staffagrees that media coverage

is inteDSive and that in this case the Republican pany required that the convention hall be

made ready for television so that a favorable image ofthe pany and its nominee could be

broadcast around the country. However, we disagree that a host committee should be

allowed to make these payments under 11 CFR §9008.S2(c). The Host Committee also

notes that the political parties will only select a site that can be adequately prepared for

television broadcast. Once again, the Audit staffand the Office ofGeneral Counsel do

not dispute that this is the case, but we concluded that it was an expense ofconducting the

convention and should have been paid by the Committee. To borrow the Committee·s

analogy,. the situation is like a production company preparing a site selected by the movie

company for filming, and then arguing that the cost is not pan ofthe cost ofproducing the

movie.

The Host Committee once qain states that the

Commission regulations are permissive and ifthe Commiuion had wished to bar host

committees from paying for expenses related to the media, then it would have done sa.

The staffonce again notes that the host committee reaulations were created with the

intention ofproviding a "very narrow exception" to the limitation on convention expenses.

The Host Committee also provided a declaration

from the production accountant for Nuh for the 1996 Republican National Convention

which takes exception with a number ofstatements made in the ECM and presented

above. The points made in the declaration are as follows:

o The ECM noted that one category ofexpense was 5540.245 for rigging and

staging labor, including labor costs for stagehands, electricians. riggers for

installation and operation during the convention. It was noted that the category

appears to cover electricians who rilled cameras and lighting and notes that

the television networks reimbursed some ofthe costs ofcamera rigging. Nash

states that all camera labor in this eateaory was for rigging network cameras

and it was all reimbursed by the television networks. No documentation was

submitted to suppon this statement; however, since the 5540.245 is the net

amount paid, there is DO effect on the conclusions reached by the Audit staff.

o The declaration takes note ofthe Audit staff's conclusion that the expenses paid

by Nash for rillina cameras and liptina are not Host COIIlD1iuee expenses. the

section in the related ECM recommendation that invites the Host Committee to

demonstrate otherwise, and the request for detailed documentation for specific

expenses that the Host Committee believes are allowable under 1J eFR

§9008.S2(c). As pan ofthat documentation. the Host Committee was to

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demonstrate that the expenses would have been necasary in the absence of

television. It is again pointed out that it was necessary to provide closed circuit

television in various parts ofthe facility because ofobstructed views or

locations outside the main ball where the proceedL~ could not otherwise be

seen. It is then concluded that all lighting would have been needed even if

broadcast ofthe proceedings bad not occurred. The Audit staffdoes not doubt

that closed circuit television was used within the convention hall. as it probably

has been in past conventions. However, we do not believe that the use of

closed circuit television within the convention hall overshadows the overall

purpose ofthe Nash expenditures. As stated previously, Nash's primary

ftmetiOD was to "present and enhance the Republican message for presentation

to the television networks and the media in general" and to produce the

"pieture~' or "show" that was seen by the convention attendees and television

viewers. Expenses associated with this ftmction are related to conducting the

convention and not the preparation ofthe convention hall.

o The declaration took note ofthe concern raised by certain invoices that

suggested that some expenses bad been paid by the "RNC" which the ECM

assumed meant the Republican National Committee. Nash explains that

vendors used those initials to refer to the "Republican National Convention"

and states that "Nash bas made no payments to the RNC, nor has any ofits

vendors been paid pania11y or fully by the RNC for Nash work."

o Finally, the declaration references the statement in the ECM that it appears

television production services for the 1992 Republican Convention were paid

by the COA rather than by the Houston Host COlrdDittee." It states that in

1992, equipment and labor for lighting was paid for by the Houston Host

Committee.

Disclosure reports filed by the 1992 Houston Host Committee were reviewed

and three payments to Nash totaling $46,000 were identified. Two ofthese

payments were described as consulting and one was for a reimbursement of

production insurance. Ifthe Houston Host Committee paid for the labor and

equipment for television lighting, the payments were apparently made to

vendors other than Nash. A review ofthe production budget for the Committee

on Arrangements for the 1992 Republican National Convention shows a total of

$892.566, including music, producer and director expenses, TV transmission.

TV production facility, TelePrompTer, closed caption. and balloon drops. This

amount was paid by the 1992 Committee On Arrangements. Further. work

papers from that audit indicated that there were two change orders to this

production budget. The 1992 Committee on Arrangements paid a total of

51,125.000 as ofSeptember 30, 1992 to Nash for work done on the 1992

Republican National Convention held in Houston.

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The Host Committee also objects to the ECMs

reliance on a J1D1e 19, 1996 memorandum from the Committee to the Host Committee

which states that Nash had been "engaged by the COA to produce the television event and

staging ofthe Convention proceeding. David Nash and a staffofprofessional television

production and technical associates will present and enhance the Republican message for

presentation to the television netWorks and the media in general." The Host Committee

argues that this memorandum is irrelevant because the same language does not appear in

the contract between Nash and the Host Committee. That contract was signed some weeks

later. Rather the Host Committee characterizes that language as written by a Committee's

representative and probably expressing the "...hopes and aspirations ofthe COA at that

time". The Host Committee goes on to note that the partie~ agreed that Host Committee

funds would be spent only for pennissible expenses as evidenced by the Committee's

separate contract with Nash and the Host Committee's unwillingness to pay expenses

related to GOP TV.

With respect to the June 19, 1996 memorandum,

there is no question that it does not constitute a contract ofany son. Rather, as suggested

in the ECM, it makes clear what the Committee expected Nash to do. This, taken together

with the contract provision that requires the Committee to approve significant expenses

incurred by Nash and another that requires Nash to do its work according to Committee

requirements, clearly establishes Nash's function. In addition to the language previously

cited, the June 19, 1996 memorandum states that "David J. Nash Associates is a

television/theatrical company that produces major television events and theatrical

productions. You should also have their contract." Thus, although the contract was not

signed for another month, it appears that the Host Committee already had a copy. A

memo dated June 21, 1996 from the Host Committee controller to a representative ofthe

Committee appears to confinn this. Finally, although the contract with the Host

Committee was not signed until late July, the tenns ofthe contract with the Committee

began on March 1, 1996 and the terms ofthe contract with the Host Committee began on

May 1, 1996. As a result, it would appear that Nash had already been perfonning services

for both entities at the time ofthe June 19, 1996 memorandum. The goal ofthe Nash

contract was well established when the Jwte 19. 1996 memorandum was written. Further

evidence ofNash's role in enhancing and presenting the Republican message can be seen

in some ofthe expense categories that the records document. These include:

o Payments for directors who, in part, hdirected the video mix ofthe program

material that was displayed on the giant projection screens in the Main Venue

and the sail area.9'

o Payments for the script supervisor who "fonnats the television script after

assembling all the written materials and technical infonnation."

o Amounts associated with producing video clips highlighting profiles of

delegates participating in the process."

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o Expenses for a tape coordinator who "organized and edited all master tape

footage for use on the big screens during the convention."

o Expenses for a continuity writer who was a "speech coach and transition writer.

He helped to reword speeches to help them flow better, added jokes. and in

general punched up the speeches."

The staff concluded that the cost ofpresenting and

. enhancing the Republican message to the media, and "implementing the 'picture' or

'show'" that was seen by convention attendees as well as television viewers, and all ofthe

associated costs, including the vendor's equipment setup, are convention expenses that are

not permissibly paid by the Host Committee.

The memorandum discussed above also states that

Nash needs to receive payment "in order for the producer to provide initial payments and

deposits to vendors and contracted creative talent to be engaged for this project.

Currently, TV production equipmen~ services and creative talent are in high demand due

to the Olympic Games in Atlanta." lbis statement supports the Audit staff's contention

that Nash's services and the iDstallation ofits equipment were, for the most part directly

related to television production rather than site preparation.

The Host Committee also contends that it was clear

to all panies that the Host Committee's money was only to be used for pennissibJe

purposes, thus implying that the money Nash spent must have been pennissible. A

contract stating that the money spent can only be spent for permissible purposes does not

mean that it was.

With respect to its separate contract with Nash. the

Committee paid only S117,500 as compared to the S2.245,520 paid by the Host

Comminee. The payments by the Committee were SI00.000 for David Nash as Executive

Producer, $12,500 for producer expenses and an additional S5.ooo for accoUDting. Thus. it

appears that there was no attempt to divide the actual costs oftelevision production

services between the Committee and the Host Committee. The Committee paid the

individual who was responsible for overseeing the whole project. Ifthe cost ofthe project

was a legitimate Host Committee expense, it would seem that the Host Committee could

have paid the fees for the person overseeing the project. However, in the opinion ofthe

staff, ifthe Committee felt that the services ofthe person overseeing the project were not

host committee expenses, then it would seem that all the c-osts ofthe project were not host

committee expenses and should have been paid in its entirety by the Committee.

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The Host Committee further contendsthat:

The Nash ContrlCt can be divided into different

categories and during the audit process, tb~ [Host]

Committee, working with the Audit Staff, made some

progressin doing this for analytical purposes. 1be [Host]

Committee believesthat its expenditures in connection with

the Nash contract were permissible undersections

9008.52(c)(lXii), (v) and (xi). By letter dated April 23,

1997, the [Host] Committee provided the Audit Staffwith

copies ofinvoices for approximately 5876,000 related to

items which it believes are specifically permissible expenses

under 11 C.F.R. § 9008.S2(c)(1)(v). Since that time, the

[Host] committee has received a detailed analysis ofthe

Nash conttaet which indicates the true number is almost

twice that amolDll

Using the analysis ofexpenditures provided by the

production accountant forN.the Host Committee further notes that:

..

It is the [Host] Committee's position that

lighting/rigging, decorations/music, all labor and equipment

for the convention closed circuit TV, the Sail Area (not at

issue here) and general overhead are authorized expenditures

under regulation 11 C.F.R. § 9008.52(c)(l)(ii) and (v). Such

expenses are also permissible under II C.F.R. §

9008.S2(c)(l)(xi). This accounts for SI,644,505.

It is the position ofthe [Host] Committee that the

expenditures listed under "Miscellaneous" which deal

specifically with television broadcast infrastructure expenses

in the amount ofS512.560 are authorized by 11 C.F.R. §

9008.S2(c)(l)(xi). This is consistent with the intent ofthe

host committee regulations which are clearly written to be

permissive and not prohibitive. Any doubt about this intent

is dispelled by the language of II C.F.R. §

9008.52(cXIXxi), a catchall provision which allows host

committees "to provide othersimilar convention-related

facilities and services." The Host Committee is expressly

authorized to provide for infrastructure costs under 11

C.F.R. § 9008.S2(c)(v) and ··othersimilar convention-related

facilities and services." The fact that a class of expenditures

is DOt specifically listed does not mean it is prohibited.

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The [Host] Committee asked the eOA to review all of

the expenditures mtder the Nash Contract in light ofthe

COA's role in supervising such expenditures. The [Host]

Committee has been advised by the COA that the $70,000

expended in connection with the ·'Russell Shoot" may have

been an oversight and outside the scope ofits contract with

Nash. On July 29, 1997, the [Host] Committee asked the

COA to reimburse it for the costs associated with the

Russell Shoot. The [Host] Committee notes that the film, a

documentary about small town America, was never shown

at the convention and understands that the ownership ofthe

film rests with New Century Media Group which produced

it. The [Host] Committee believes that the film was never

released to or used by anyone.

Finally, it is the [Host] Committee's understanding that

Nash is holding about $88,000 (less cenain audit expenses)

of unexpended [Host] Committee funds which the [Host]

Committee has asked Nash to refund.

The Host Committee provided an analysis prepared

by Nash"s production accountant to identify the payments it included in the totals for the

first two categories above. The Audit staffreviewed the Host Committee's classifications

and noted that included in the SI,644,505 are items such as a Graphic Package ($26,684),

Co-Producer ($40,000), TV Producer (518.750), Directors (539.016).. Moving Light

Operator ($11.735), Video Crew Labor ($56,781), Screen Con.trol Mobile (590,511), and

TelePrompTer ($56,651). Smaller items in the total include Stage Manager, Script

Supervisor, Tape Coordinator, and Makeup Supervisor. Line items included in the

Miscellaneous total are Satellite costs (573,748), Remote Productions for the live

television transmissions (SI38,442), FilmNideo segments (5174,749), Russell Film Shoot

($70,000), and a Continuity Writer (SI 0,000). Smaller items included Editing, Stand-ins,

Announcer, and Video Crew Labor.

As thoroughly discussed previously, the staff does

not believe that the categorization of expenses is at issue in this case. In our opinion.. all of

these expenses are primarily related to, and for the purpose of, preparing for and

presenting the television image ofthe convention to the attendees and to the American

public. In the opinion ofthe staffthese expenses.. as well as the associated equipment set

up, are expenses ofNash's work to present and enhance the Republican message at the

convention. The staffconcluded that contrary to the suggestion ofthe Host Committee..

these expenses are not costs ofwelcoming the attendees to the city, convention hall

construction.. or things similar thereto, but are and instead panisan in nature and are

expenses of conducting the convention.

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With respect to the disposition ofthe film footage,

the Host Committee provided a copy ofthe contract with the media company that

produced the Russell shoot According to that co~ the "entire right, title and interest

throughout the world, including the copyright, in and to the film 'ToW' ofRussell,

Kansas'" would remain with the media company. The Host Committee stated that it

believes that the film was never released to .yone. No documentation was provided from

the media company Which states whether or DOt these rights were eversubsequently sold

or given to another entity. Thus, we still are unable to verify the final distribution ofthis

film.

As stated several times in this discussion, the staff

concluded that the payments to Nash, with the exception ofthe Sail Area costs~ do not

represent legitimate host committee expenses pursuant to 11 CFR §9008.52(c) and thus,

should have been paid by the Committee. In the ECMs it was determined that the

Committee should have paid a total of52,081,286 that was paid to Nash by the Host

Committee. In the documentation provided by Nash's production accountant, it appeared

that an additional 531,798 in expenditures were related to the Sail Area. However.

entertainment costs of522,416 associated with the Sail Area were mistakenly excluded

from the total. In addition, on July 31, 1997t Nash refunded the 582,436 that had not been

spent. Thus, the staffca1cu1ated the amount in question to be 51,989,468 (52,081.286:-

531,798 + 522,416 - 582,436). Also, ifthe Host Committee receives a 570.000

reimbursement from the Committee for the Russell shoot, the amount will be reduced

accordingly.

In a series ofmeetings between December 4~ 1997

and April 23, 1998, the Commission considered the staffrecommendation with respect to

the Nash contract, along with the Committee's and Host Committee's responses to the

Exit Conference Memoranda. A motion to approve the statrs recommendation that

51,989,468 be considered a Host Committee contribution and hence repayable to the U.S.

Treasury failed by a 3-2 vote. See Attachment 1, page 2, item 2. In Exhibit A ofthe

Committee's response to the Exit Conference Memorandum. it had distributed all ofthe

Nash expenses into six categories: Lighting and Rigging - 5689,535; Decorations and

Music - 5156.399; Labor and Equipment for Convention Closed Circuit TV - $423.762;

Sail Area - 5196,032; Overhead· 5184.796; aneL Miscellaneous - S512.56O. Using these

categories as a basis the Commission discussed and voted on individual expense

categories and line items·. Not included in the Commission's determinations were a

number ofindirect expense line items, primarily travel and living expenses and overhead

items. These expenses were left to be distributed based on the votes on the direct cost line

items. Using the guidance provided, the Audit staffdistributed the indirect costs in a two

step process. First, using infonnation in the general ledger printout provided by Nash. the

Committee's response to the Exit Conference Memorandum. and the Commission's

Attachment J, pile 3, items 3 and 4. and paces 6 throuah I, items Jthrough 6. contain the

Certifications ofthe Commission's votes on these mat1erS.

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determinatioDS, some costs were specifically associated with persons and expense

categories that were covered by Commission votes. These were primarily travel and

living expenses that could be associated with particular persons'. Second. the remaining

indirect costs, those that could Dot be associated with particular persons or functions. were

divided into three groups: Travel and Living Expenses-Producers and Directors ($9,702);

Travel and Living Expenses-Others ($32,886), and, Overhead (593,491). The two travel

and living expense groups were allocated between the Committee and the Host Committee

based on the distribution ofassociated direct costs. The overhead expenses were allocated

based on the distribution ofall non-overhead expenses.

Following the above procedure, $S92,489 is

attributable to the Committee and $ 1.270,595 is attributable to the Host Committee.

Attachment 2 is a chart that presents the amounts by category and line item. On

Attachment 2 all line items that include indirect costs that require allocation, in whole or

in pan, are shown in the "Indirect Cost" category. The Committee's response to the Exit

Conference Memorandwn showed these expense items di&1ributed to the various other

categories.

Under 11 CFR §900S.12(b)(7) the Commission may

seek a repayment from the Committee ifit knowingly helps, assists, or participates in the

making ofa convention expenditure by the host committee, government agency or

municipal corporation. As the discussion above establishes, the Committee played a

significant role in the Host Committee's actions since Nash's services were rendered to the

specifications and requirements established by the Committee.

The Commission therefore determined that the Host

Committee made contributions in the amount of5892,489, and that this amount is

repayable to the United States Treasury. In addition, the Con1l11ittee is required to file an

amended disclosure report and itemize the in-kind contribution.

d. Additional Expenses to Consider

The Committee raised an additional issue that was not

addressed in the ECM. Ifthe Commission concludes that cenain expenses should not

have been paid by Host Committee, the Committ~e requests the Commission take into

consideration approximately 51.6 million ofexpenses paid by the Committee that could

have also been payable by the Host Committee under the regulations. The Committee

submitted a list ofdisbursements with the purpose ofthe disbursements and a list ofthe

vendors that received the money. They did not supply any additional information on how

specifically these disbursements would have qualified as Host expenditures under 11 CFR

§9008.52.

9 For example, Directors were determined to be attributable to the Comminee. Iftravel and liVing

expenses for a person identified as a Director were noted. those expenses would be attributed to the

Comminee.

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As part ofthis total, the Committee is claiming $749.254 for

hotel rooms for volunteers and convention staff. Under 11 CFR §9008.52(c)(ix) the host

committee can provide hotel rooms at no charge or at a reduced rate based on the number

ofrooms actually booked at the convention. As previously noted, the list of expenses that

the Host Committee may pay was meant to be a "'very narrow exception" to the limit on

convention expenses. Clearly, this regulation was to include a small number ofrooms not

the entire cost ofthe hotel rooms for the volunteers and convention staff. Also, the

Committee included S186,407 for two way radios that were used by people working for

Nash which we previously stated were Dot expenditures pennissible by the Host

Committee. There was also $399,393 in disputed debts between the Host Committee and

the Committee. These debts were paid by the Committee after the Host Committee said it

was not liable for them. As previously stated, the Committee has provided no additional

infonnation on how the remaining $271,084 would specifically qualify as pennissible

Host Committee expenditures under the Regulations.

e. City ofSan Diego Convention & Visitors Bureau

The Host Committee received payments totaling $850,000

from the San Diego Convention &, Visitors Bureau (Convis). Convis is a nonprofit :

corporation that is not a fund ofthe City ofSan Diego. The Audit staffdoes not know if

Convis receives any ofits funding from outside the Metropolitan Area ofSan Diego

because the Commission has not audited Convis. However, Convis apparently receives its

funding in part from entities such as the City ofSan Diego, the local hotel and motel

association, the Pon Authority and businesses.

A letter registering Convis as a 'Host Committee' was filed

with the Commission on September 4, 1996. The letter described the activities it

conducted in connection with the convention. One ofthe activities was ucoordinated

contributions and expenditures for program providing for youths to panicipate in

convention activities." In addition, a separate letter filed with the Commission on January

14, 1997, stated that "pursuant to the agreement between Convis and COA. Convis

administered a 'Youth Fund Account' on behalfofthe CO/\. The account received

$368,000 from approximately 1..500 students and sponsors, which were distributed to a

variety of vendors." These youths attended the Convention to serve as convention pages

and delegation aides. Convis did not disclose on their repons the source ofthese funds,

nor did they disclose any expenditure made with this money. The Audit staffrequested a

copy ofthe agreement between Convis and the Committee. The Committee had not

supplied this agreement.

At the time ofthe ECM, it was the opinion ofthe Audit

staff. that absent the production ofthe agreement between Convis and the Committee,

funds totaling 5368,,000 should be considered convention expenses. Section

9008.7(a)(4)(ii) ofTitle 11 ofthe Code ofFederal Regulation states. the salaries and

expenses of convention committee employees, volunteers a.-,d similar personnel. whose

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respoDSibilities involve planning, JDaDageDleDt or otherwise conducting the convention are

convention expenses. As noted above, the 5368,000 was used for youths to attend the

Convention to serve as convention pages and delegation aides. Therefore, these funds

were considered an in-kind coDoibution from Convis.

The Audit staffrecommended in the ECM that the

Committee provide evidence dOC1DDenting that the above expenditures were not

convention expenses and were permissibly paid by Convis. This evidence was to include..

but Dot be limited to, a copy ofany agreement between the Committee and Convis, copies

. ofany checks issued by Convis in connection with the "Youth Fund Account." copies of

the invoices from the vendors and deposit slips with copies ofdeposit items and credit

memos. Absent such information, the Audit staffstated that it would recommend that the

C.ommission determine 5368,000 is n:payable to the United States Treasury. In addition.

the Committee would be required to itemize this in-kind contribution on an amended

disclosure report.

In response to the ECM, the Committee did not supply any

ofthe requested infOnnatiOD. According to the Committee, there was DO written

agreement between Convis and the Committee. The Committee did submit an affidavit

from Jack Saniga. the ChiefFinaDcial Officer ofConvis. He supported the Committee's

response that there was no fonnal written agreement between Convis and the Committee.

The affidavit also explained the purpose ofConvis.

Convis is a nonprofit mutual benefit corporation

organized to advance, promote, encourage, and foster the

growth and development ofthe tourist and convention

industries ofthe County ofSan Diego. To fulfill that

purpose with respect to the 1996 Republican National

Convention San Diego ("the Convention"), Convis served as

a registered host committee to the Convention. As a host

committee Convis agreed to establish a checking account on

behalfofthe Convention's Youth Program built and

equipped a "Youth Pavilion,t in Embarcadero South that

served as a gathering place, auditorium, and entertainment

center for youths participating in the Convention. The

youths gathered at the Pavilion for entertainment events

J'lDging from speeches by party luminaries to music.

According to Mr. Saniga, contributions totaling 5366,730

came from individual youths. their parents and businesses. The affidavit also gave a

breakdown ofhow the 5366..730 was disbursed.

Ofthe S366,730 in total Youth Program contributions,

5260,445.97 was spent on the construetio~ equipping,

decorating, supplying, and tear down ofthe Youth Pavilion.

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The Youth Fund account disbursed a total ofS162,266.40 to

Kleege Industriesto coDS1l'UCt and tear down the Pavilion.

Another S53,136.63 was disbursed for Youth Pavilion

decoratioDS and graphics. S3,69O was spent on security for

the Pavilion. SI3,686.40 was spent on entertaiDment,

including local San Diego bands and a videotape of

President Nixon certifying the 26th Amendment to the

Constitution. $6,466.45 was spent on seating. The account

also disbursed S31 ,032.46 for catering services for the

Youth Pavilion. In addition, the account disbursed

S51,369.86 to Laidlaw Transit for local transportation

services.

Mr. Saniga continued that Convis paid SI5,104 for program

staffhotel rooms; bank costs and fees totaling S2,627; reimbursements ofS3,341 for key

deposits and program fees for youths Dot attending all or part ofthe program; 5860 for a

tour ofthe Steven Birch Aquarium; S923 for office expenses, and S445 for an electric cart

for stafftransponation between the Pavilion and the Convention. According to the

Committee these "functions were perfectly appropriate for a government agency pursuant

to 11 C.F.R. § 9008.53(bXl), or as a bost committee pursuant to § 9008.S2(c)(1Xi).. (ij).

(iii), (vi), (vii), (viii), (ix), and (xi)." The Committee concludes that this type ofactivity

should not be counted against the overall expenditure limitation.

CODvis registered as a host committee and filed reports that

did not comply with 11 eFR §9OO8.51. The Committee also failed to provide the records

requested in the ECM, such as copies ofany checks issued by Convis in connection with

the "'Youth Fund Account," copies ofthe invoices from the vendors and deposit slips with

copies ofdeposit items and credit memos. Also, an audit ofConvis as required by 11 CFR

§9008.S4 has not been perfonned. The Audit staffcannot state an opinion on the accuracy

ofthe information supplied by the Comminee until the completion ofthis audit. After the

audit, additional recommendations may be appropriate.

2. In-kind Contributions from the Republican National Committee

GOP-TV - Background

According to a RNC memorandum provided to the Audit staff,

GOP-TV is the entertaimnent television netWork arm ofthe RNC, which produces and

broadcasts programs "ofinterest to Republicans" via satellite, cable systems and television

stations nationwide.It The RNC paid National Media. Inc. COl air time for convention

programs on The Family Channel (August 16. 1996), NewsTaik Television (August 16.

1996), WWOR and USA Network (August 12, through August 16, 1996). In addition.. the

.. Some ofthis infonnation was obcained from the RNC's Website:

(http://www.mc.orgImovielwhaLhanl).

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RNC contracted with Creative Broadcast Techniques (CBT) to use their facilities and

personnel for the production oftelevision shows in conjunction with the 1996 Republican

National Convention. The Committee paid for broadcasts on the Family Channel and

NewsTalk Television from August 12, to August 15, 1996.

a National M~ Inc.

On August 16, 1996, the Committee wired funds to National

Media, Inc. totaling SI,188,000 for shows aired on The Family Channel and NewsTalk

Television. These shows broadcast coverage ofthe convention on August 12 through

August IS, 1996. The shows were aired for three (2) hour periods and one (4) hour period.

On March 31, 1997, the Committee was refunded S18,000, which leaves a net payment of

SI,170,000.

On July 18, 1996, and August 1, 1996, the RNC wired funds

to National Media, Inc. totaling S230,130. Later, the RNC sent the vendor an additional

518,000, for a total of5248,130. These amounts represented payments for air time on

USA Network, WWOR, NewsTalk Television and The Family Channel. The broadcasts

on NewsTalk Television and The Family Channel were on Friday, August 16, 1996, the

day after the convention ended and are considered an RNC expense. The WWOR

broadcast was aired August 18, 1996, and is also considered an RNC expense.

The USA Network program cost 5112.500 and aired from

7:00 a.m. to 7:30 a.m., Monday, August 12, 1996, through Friday, August 16, 1.996. The

RNC provided the Audit staff copies ofthese programs on videotape. After viewing aU

USA Network programs, it is the opinion ofthe Audit staffthat, except for the August 16

broadcast, the costs ofthese broadcasts are convention expenses under 11. CFR

§9008.7(a)(4). Each program covered convention highlights as well as segments about

individuals appearing at the Convention. The programs aired on USA Network used the

same title ("The Unconventional Convention") and the same fonnat as those programs

paid for by the Committee. The August 16th program was aired after the convention

ended and is considered to be an RNC expense. The staff concluded that the payments to

National Media, Inc. for the airtime on USA Network front Monday. August 12. 1996

through Thursday, August IS, 1996. represent an in-kind contribution from the RNC of

$90,000 (5112,500 x 4/5).

The Audit staffrecommended in the ECM that the

Committ~ demonstrate that payments for the USA Network broadcasts between August

12 and IS, 1996, were not convention expenses. Absent such a demonstration, the Audit

staffnoted that it would recommend that the Commission determine 590.000 is repayable

to the United States Treasury and the Committee would be required to itemize this in-kind

contribution on an amended disclosure repon.

In response to the ECM. the Committee did not agree that

the Comminee should have paid for the morning shows on the USA network. The

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Committee submitted an affidavit from Patrice Geraghty, the Director ofBroadcast and

Executive Producer for GOP-TV. The affidavit explains how GOP-TV was fonned in

1993 as part ofthe RNC's commlD'lieations division to provide news and editorials in

weekly television broadcasts. GOP-TV began broadcasting Pising Tide in January~ 1994.

Up until the time ofthe convention this program was broadcast every Thursday night on

several cable channels and on Sunday night on WWOR. The show was produced in a

magazine format and hosted by Haley Barbour, the RNC Chairman. The RNC decided

that GOP·TV would broadcast from San Diego during a three week period before the

Convention and expand the broadcast fonnat during the 1996 Convention.

Because GOP-TV broadcast live coverage ofthe

convention proceedings dwing the Convention week, GOp·

TV did not broadcast its regularly scheduled, regularly

fonnatted show on Thursday, August 15, 1996. Instead,

GOP-TV opted to broadcast five half-hour programs

beginning at 7:00 a.m. E.S.T. from Monday August 12,

1996 through August 16, 1996.

The programs included material from the previous night's

convention proceedings but also included coverage ofother topics such as how delegates

were spending their free time, human interest segments on community effons to move

welfare recipients to the work force, work performed by several Convention attendees for

Habitat for Humanity, and a delegation's trip to Sea World. They retained the news

magazine format but were hosted by Laurie Clowers rather than Mr. Barbour. The

Committee goes on to note that because these shows were broadcast in the early morning,

they did not provide live coverage ofthe convention, nor did they concentrate on

summarizing the events ofthe convention.

The Committee response continued,

COA reimbursed the RNC for air time that was

purchased through National Media. Inc. on The Family

Channel and NewsTalk Television for each ofthe four

nights ofthe conventionII. Unlike the news magazine

fonnat ofthe GOP-TV morning shows, these evening

broadcasts were live broadcasts from the convention. Thus,

for the broadcasts that occurred during and provided live

coverage ofthe convention. COA paid the air time. For

broadcasts that did not provide live coverage ofthe

convention, RNC paid the air time.

II Committee records indicate that rather than reimbursing the RNC for the broadcast costs, the

Committee paid the Family Channel and NewsTalk Television directly through National Media.

Inc.

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In the opinion oCtbe stiff, the filet that the USA Network

broadcasts were in the IDOI'IIiDg mel DOt live coverage is DOt a material distiDetion. The

broadcasts were paid coverage duriDa the convention IDd me therefore a convention

expense. The Committee also aques that the Friday Aupst 16, 1996 broadcast was no

different in format than those ofAugust 12th to the 1Stb. Since there is no difference. the

Committee concludes that the Friday broadcast is no more or less a convention expense

than the other days broadcasts. The ECM allowed the RNC to pay for the Friday

broadcast. However, allowing the Friday broadcast to be paid for by the RNC is

consistent with the way the broadcasts OD the other networks were allocated. The Frida)'.

August 16, 1996 broadcasts on the Family Channel and NewsTalk Television, and the

August 18, 1996 WWOR broadcast were also paid for by tile RNC and not challenged in

the ECM. The staffconcluded that the Committee bas Dot demonstrated that the cost of

the USA Network broadcasts between Monday August 12, and Thursday August IS. 1996

are not convention expenses.

The Audit staffand Office ofGeneral Counsel

recommended that the Commission determine tbat the costs (590,000) ofthe August 12th

to August 1Sth broadcasts on the USA Network are convention expenses and are in-kind

contributions to the Committee by the RNC. Further, it was recommended that the

Commission determine that an equal amount is repayable to the U.S. Treasury pursuast to

11 CFR §9008.l2(b)(3).

The Commission considered the staffrecommendation and

the Committee's response to the Exit Conference Memorandum and decided the costs

($90,000) ofthe August 12th to August 15th broadcasts on the USA Network were

permissible RNC expenses. (See Attachment 1, page 3, item 5, for a copy ofthe

cenification ofthe Commission's vote)

b. Creative Broadcast Techniques (CBT)

On January 10. 1996. CST entered into an agreement with

the RNC.. on behalfofGOP·TV. to design.. engineer.. manufacture.. install and operate a

customized television broadcast system. As noted above. thi~ system was to be used for

television production in conjunction with the Republican National Convention. The

amount billed under the contraett including change orders and revised change orders. was

S1.841,824.

On ApriI2S. 1996. the Committee entered into an agreement

with CBT that provided for an allocation ofthe RNC contract services and costs between

the Committee and the RNC. According to the Committee. they felt it would be redundant

to obtain a separate contract. since it would be using the same equipment and services as

the RNC. Under the contracts CBT was to provide: infrastructure; cameras, camera

control and personnel; labor; videotape; and suppon systems. An invoice dated October

16. 1996, for $408.875 represented the Committee's ponion ofthe cost. The amount was

a "SOISO'" split with GOP-TV.. ofcharges totaling 5817,750. According to the Committee,

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the split was based on chirps for equipment and perIOIIDel used by N_ in cooperation

with the Committee, to produce, edit and air the Convention Within the Convention. and

to supply local feeds accessible to news services coverina the convention. The Committee

wired CST S408,87S, on October 18, J996. The RNC paid the remaining amount between

January 9, 1996, and September 29, 1996. The Committee could not provide the Audit

staffwith information to clemoDStrate why the remaining S1,024,074 ($1,841.824-

5817,750) did not require allocation between the Committee and the RNC. Rather. the

Committee referred us to Counsel for the RNC.

On March 10, 1997, the Audit staffreceived documentation

from the RNC containing a revised cost analysis for the 5817,750 that was allocated. This

revised cost analysis itemized an additional S8,1 0I in services and equipment allocated to

the Committee but paid by the RNC. Counsel from the RNC stated they were billing the

Committee for this additional amount. To date, the Committee's FEC repons have not

acknowledged this liability to the RNC.

In addition, COWlSel from the RNC supplied documentation

for $88,456 ofthe unallocated $1,024.074 showing that the costs had been incurred by

Nash. These costs included such items as: COA Speaker Rehearsals, COA Parliamentary

Session, Fiber Optic Cable for COA, and COA Youth Rehearsal. As stated above, CST

has been paid in full, and therefore the RNC is currently seeking reimbursement from

Nash through the Host Committee.(Finding II.A.I.c.) Finally, KUSI. a local San Diego

television station, reimbursed the RNC 522,000 for utilization ofCBT broadcast facilities

and personnel. In the opinion ofthe Audit staff, this amount represents a reduction in the

unallocated costs. According to Counsel from the RNC, the remaining CBT amount.

5913,618 ($1,024,074 - ($88,456+ 522,000» represents the editing and production costs

associated with programs aired during the convention. These programs included those

paid for by the Comminee. No documentation to support that contention has been

provided.

In SummaJ')', with the exception ofthe costs allocated to

Nash, the RNC paid all the production and editing costs associated with the convention

television programs. As noted above. however. the Committee paid for the air time to

broadcast most ofthese programs. It is the opinion ofthe Audit staffthat the total cost of

these programs includes not only the air time cost. but the associated production and

editing costs as well. Under the Commission's regulations, a convention expense is any

expense incurred by or on behalfof a convention committee with respect to and for the

purpose ofcondueting a convention (11 CFR §9008.7(a)(4». Since the programs at issue

were about the convention and its related activities, and in large part broadcast by the

Committee, the associated editing and production costs for the programs are convention

expenses. Thus, the Committee should have paid for a portion ofthe production and

editing costs for the convention television programs. The Audit staff notes that the actual

costs for producing and editing each ofthe convention related segments is not

ascertainable from the records reviewed. Absent such information. the Audit staff believes

that a reasonable allocation may be based upon the air time costs allocated to the RNC and

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the Commiaee. This allocatiOD formula reOects not only the fact that there were

production IIId eclitiDa COItIIIIOCiated with each oftbe shows. but it is also reflective of

the potential impIct that the RNC ad the Committee hoped to pin from their respective

propilDS. U'iDa this method ofallocation, the ECM concluded dlat the Comminee

should have paid 89% ofthe production and editing costs It issue, or $1.169.809

($1,314,392 x 89%), and that the amoUDt wu a in-kind contribution from the RNC. This

allocation assumed the broadcast on the USA NetWOrk should have been paid by the

Committee.

The Audit staffrecommended in the ECM that the

Committee demonstrate that payments to Creative Broadcat Techniques. Inc. by the RNC

were not convention expenses. Absent such a demonstration, the Audit staffstated that it

would recommend that the Commission detennine $1.177,910 ($1,169,809+58.101 12 ) is

repayable to the United States Treasury and that the Committee would be required to

itemize this in-kind contribution on an amended disclosure repone

In response to the ECM, the Committee did not agree with

the Audit staffs allocation ofproduction costs.

The Committee submitted an affidavit from Patrice

Geraghty, the Director ofBroadcast and Executive Producer for GOP·TV. The affidavit

details how it was detennined that the Committee would need 14 cameras and crews to

televise the basic feed for the convention. These cameras and crews were used by Nash to

provide the "basic feed" on a take it or leave it basis to GOP·TV as well as other

commercial and cable television networks. Nash provided the necessary technical

persoMel to produce the images captured by the 14 cameras and crews (see finding

II.A.I.c. above). Ms. Geraghty also states that it was estimated that GOp..TV would need

2S cameras to produce the same feed as well as other segments. interviews. and coverage

in its anchor booth. similar to other television networks.

With respect to the allocation ofthe cost ofthe CBr

contract, Ms. Geraghty states that:

It is standard in the industry to allocate equally the

production costs ofjointly used services and facilities. In a

situation such as the 1996 Republican National Convention

in which GOP-1V and COA were sharing some, but not all.

cameras. it is acceptable to allocate costs based on camera

usage. Because only J4 ofthe 25 cameras and crews

provided by csr were shared with the COAt the COA was

allocated SOOA. ofthe costs ofthe 14 cameras and crews.

u The ECM noted that ifthe SI,I01was paid to the RNC, the amount would not be considered an inkind contribution. The Committee's response to the ECM makes no mention ofthis transaction.

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That is COA wu aIlocaaed 50tt of 14125tb1- or 21% - of

!be total COlt ofthe CST COIIInICt.

As Itprior conveD1iODl. COA wu rapoDIible for

provicIiDa the live blsic feed ofevents bIppeDina on the

podiIDD. UIiDa 14 CllDel8llIIlioaed arouDd the Convention

Centef. COA provided CODtiDuous sound IIId picture 10 all

the netWOrks coveriq the convention.. Unlike any netWOrk.

however, COA exercised no editorial judgments about

which ofthe 14 cameras would be used for a particular shot;

nor did it exercise amy discretion 10 interrupt the continuous

coverage at the podium. In short. COA provided the

continuous picture and IOUDd feed &om 14 cameras

operating in the convention ball to the netWorks on atake it

or leave it basis. It was up to each netWork to determine

which events &om the podium it WIIlted to cover, which

camera angles it would use, and when to interrupt the basic

feed for interviews. editorial commentary. or commercial

messqes.

When the 210/0 allocation rati!) is applied to the Committee's

S1.758 million cost figure.U the resulting allocation is only $73.770 less than the amount

that the Committee paid. The Committee concedes that 573,nO is owed to the RNC.

The Audit staffdoes not dispute that under the CST

contract, that 25 cameras and crews were provided or that 14 nfthose 25 were used to

provide the take it or leave it feed to all broadcasters that were airilll convention coverap.

including GOP·TV. However. the Committee's allocation ofall production costs using

those cameras as the allocator is seriously flawed.

First, Ms. Geraghty'sstatement that this is a standard

industry practice is not supported with any example ofa situation where the practice was

followed. Rather. she states that she has been involved witb projects where joint

production costs have been allocated but not how the specific allocation was done.

Further. the 2S cameras fall h1to two distinct 1fOUPS. First. the 14 used to produce the

unedited buic feed that consisted ofcontinuous imaaes from some or all ofthe cameras.

The production and direction ofthe imqes covered by those cameras was provided by

Nash. Seccmd, the remaiDiJIa 11 camerasthat were used 10 produce the finished prop8llJS

aired by the Committee and the RNC. The production costs ofthose prop8llJS included

II Thistotal costr..........in the ComIII...·sresponse but differs from the S1.141 million

IIIIOUIIt provided by die Connniaee • die lillie ofthe ECM. The response indiclla .... Ihe

difference is cta.ps which OOP·TV disputes. The response does DOl eontain enoulh informacion

to evalUlle die disputed -.oun1S.

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die .mea ofproducers, directon, ectitors ad other paid profeaiODlls. Therefore. it is

DOt ..aDDIble to allocate the CST COIl1rICt equally CM!r the 25 cameras.

Second, there is DO expllDation why it is reasonable to

allocate the cost that the Committee basIIIOCiated with the 14 basic feed cameras

between the Committee 8Dd the RNC, but DOt lIlY oltbe other users oftile feed. Ms.

GerIIbIy DOteS tbat "COA used the 14 cameras that itsbIred with GOP·TV to produce a

'b8Iic feed' ofconvention coverage. This basic feed .amade available to the networks.

IDd to ooP·TV, on a 'take it or leave it basis. t This basic feed consisted ofcontinuous

imales generated &om up to all fourteen oftbe cameras COA used. It is my

_ that COA made available all fourteen camera feeds for the netWorks· own

editorial decision makiDa." Therefore, GOP·TV wujust one ofmany users ofthe basic

feed. but the oaIy one to pay for a ponion ofthe COlt. NatuJalIy ifthe Committee had not

provided the basic feed. GOP·TV would have needed to place its own cameras. but so

would ach oftbe netWorks that covered the convention. This was apparently not

acceptable to the Commi1Iee 10, IS it bu done in tile pat, tbe basic feed was provided.

The staffconcluded that the cost ofthe basic feed is. convention expense to be bome by

the Committee, DOt the Commi1Iee and only one ofthe DIlDY users. In a memorandum

&om Toni Tury, Manqing Director ofGOP·1V, 10 RNC counsel, dated March 10, 1997,

the cost ofthe basic feed is shown at 5833,345. The Committee paid $408,87S. In the

opinion ofthe staff'the remaining 5424,470 is a COIIIribution &om the RNC to the

Committee.

Third, the Committee bas not established why none ofthe

cost ofthe remainina 11 cameras was 8 convention expense. The main purpose ofusing

the 11 remainq camera wu to televise IJ hours ofconvention ICtivity over the Family

Channel. DuriDa the fieldwork the Committee provided one two hour videotape ofwhat

was broadcast on the Family Channel on Aupst12. 1996. For this one propam. the

Committee appeared to be using the basic feed and all II ofthe other cameras. A large

majority ofthe convention coverage the Committee usociates with the cost ofthe 1J

cameras wu broadcast by the Committee. This is uue whether viewed in tenns ofair time

cost or in terms ofbroadcast hours. The most .ipificant project in both cost and total

hours of coverqe was the JJ hours ofcoverqe on the Family Channel. Ofthose hours.

10 were paid for by the Commiuee as a convention expense, yet the Committee does not

recopize any ofthe production costs as a convention expense. Ifthe Committee's

allocation method were to be used to divide the production cost between the two entities. it

would be done on a SO/SO biles ,ince the cameras were shared. The result would be to

allocate the lime COlt to the one hour broadcast by the RNC u to the 10 hours broadcast

by the Commiaee. This would clearly not be a reasonable allocation.

Finally. there were • number ofitems that would have

requirecllldditionaJ Clmeas and crews that ..e not in the Commi11ee'. allocation or in the

Audit COlt fil1ft. For example, there were tapa ofthe AtJ.Ctin Street Shelter in Dalla.

Texas. tapa ofcleJepteS Rosario Mmin and Frank Taylor.1Dd Governor Bush with

school children. apparently filmed in TexIS. On the August 13 Sunrise program there was

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PennsylYlftia IDd Rural Retreat, ViqiDia. On the AupIt 14 Sunrile PJ'OIfIID there wu a

sepnent OIl tIX reform from Douerweicb, New Jeney. The Committee did not pmem

any information on who paid for the production ofdIae reportS. However. it would have

involved more then the 25 cameras used in SID Dieao.

The Committee's calculation, althoulh supponil1l the

amount ofthe CST contract it paid, is not a reasonable allocation. Further. information 10

allow the Audit staffto perfonn a more preciJe allocation has not been provided. The

calculation shown below was recommended by the staffto determine die Committee's

share ofthe CST contract cost. First, the cost ofthe basic feed produced by Nash usina 14

ofthe CBT camera and crews was considered 1:0 be a Committee expense. That cost is

5833,345, ofwhich the Committee paid $408.875. The remainina amount (5986.479) jJ

the cost ofproducina the propams aired by the CommiUee and the RNC. and was

allocated by the staffbased on the air lime COlt • wu done in the ECM. In our opinion,

this reflects that Dot all broadcast outlets_ similarly priced IIId that prices for time on

the same outlet vary depencling upon the time ofday. This priciD.lUUCtUre, in tum.

presumably is reflective ofthe anticipated audience 10 be reached. The calculation is IS

follows:

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Total Amount Silled By CST

Less:

Reimbursement from KUSJ-TV

51.841.824

22.000

Cost ofthe "Basic Feed" 133J4S

Net Contract Price 986,479 .

Times Cost Ratio 1m

Committee Cost Allocation 877.966

Plus:

Amount for "Basic Feed" Paid by the RNC 424.470

In-Kind Contribution From RNC as S~

as recommended by staff

The staffrecommended that the Commillion determine

$1.302,436 was repayable to the United SI8teS Treasury met that the Committee was

required 10 itemize this in-kind contribution on an amended disclosure report.

The Comminion considered 1hiJ recommendation on April

J6, J998. A motion to determine that S1.J54,464 was repayable (the staff

recommendation adjusted to use a 74% cost ratio illl1ad of'89'~) failed 3-2. Similarly, a

motion to determine that 5424,470 representing a ponion ofthe cost of providing the

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."..feed" was 1ft impermissible RNC expeDIe failed 3·2, See AtIIIdInIaII J, ,.,.4.

iteml6ad 7. Furtherf the Commission determined dill die bIsis for alJoacinI the

feII'IWs1J production COlIS JbouJd be brOldcut boun I'IdJer littime COlIS, That abo

is 74% IlJoc:abJe to the Committee ad 26'~ allocable to die RNC afIer considerinJ die

delerminltion on the USA NetWork in NCtion JI.A.2.. lbove'4, Applyina thi. alJoeaciGa

ratio to the Net Contr8Ct Price shown above produces• iD-kind contribulion ....0(

5729f994, The Commission determined thac die Commiaee is requimf to repay dial

amount to the United States Treasury. (Sec Auachment J p81e 4, items 6 tbroup •., for.

copy ofdle ceni(JC8tion ofthe Commiuion'. votes)

1n-Kig4 CgmribmimtPr9Ql9ljgnal Cqrwj4mIiqna

Migubi.bj Cqnaymcr Elcctrqpjg AnMn'i£I Inc,

Sections 9008.9 (bXJ ) IIId (.4) otTJtJe JJ ofdie Code of

Federal Reguladons stare, in part. a commercial vendor may provide Joods orservJca in

exchanle for promotional consideration provided that doiftI so is in die ordiftlry coune 0(

business, Also the COftVemion committee .haIl maintain _ JhowinS; die

goods orservices provided: tile date(.) on which the Joods orservices were provided., die

terms and conditions ofthe~:and what promocionaJ COJIIidmlion was

provided,

On July JO. 1996, Miuubishi Consumer Electronics

America. Inc,(MCEA) entered an qreement with the Committee to provide services and

equipment worth S660.ooo in excblnp for bein, desipated die HOIf'teiaJ Supplier of

Video Monitors," MCEA provided the Committee with eJeccronic viewina screens •

projection televisions, tube televisions, video casJeUe recorders and laser ditk players,

Accordina to the aareemem, dJeJe services are consilient .....d pnldica for MCEA

and are provided in the ordinary course ofbusiness puI'1IIMt to Seaion 9008,',

On December J7. J996, the Audit staffrequeaed

infonnation penainillJ 10 any Jost or JIOJen equipment IUOCWed with MCEA. After

repeated requests. on February 7. J997. the Committee supplied a Jener from MCEA

ilemizin, 535,J92 ofUIIICCOumed {or equipment, The Corllmiuee tilled MCEA was JIOI

pursuinl reimbunement for the lost equipment The Audit Jfatrrcquared die Commiftee

to obtain a Jetter from MCEA explaininllhat the waiver ofclaimsfor Jost equipmem was

in the normal course of business, A similar letter was supplied by anocher vendor trid1

JOlt equipment,

Had Ihe Commission accepred die Ita"rICOImnendMion conccmiltl ..., USA Ntnrcn ."..._.

bod11be air Umt dol..alloaIcion medIod ....mended by lUff......."....howl

meIbod JdopWd by die Commission would haw produced the W;. Ca••••" J~. RNC

,.10, Howewr. after Commitlion'._ilion on the USA Ntnrm, ...

would hive been '3% eomm.....,.,.~INC•• oppoNd to die 1~4 c..~/. INC ,.. (or die br....houri medlod,

Page 48
Commiaee ofticialsstated MCEA bad complete control

...die 6J1IipIDaII, dI&Rfo.re MJe rapoasible for the security ofthe equipment.

......_"..Ii.,. to die.........1iJDed by both partiesJ the Committee was to "use

.....ea.r.to pnwicIe for die N.,DIIIbIe security ofthe above referenced equipment."

Baled on tbis qreement, the 535,192 oflost equipment was

file CG..i..•••';CIIIIibiJiIy.. Tberefore, it was the opinion ofthe Audit staff, that

....die ,..,...Jeacr 60m MCEA. die amount was an in-kind contribution.

The Audit staffrecommended in the ECM that the

CcNnmiUer pnwicIe.Jeaer 60m MCEA demoDsttating the 535,192 oflost equipment, was

...oldie......... eoJIIWe.1boD provided.

Ja Iapoase to the £eM, the Committee submiued an

6DJD.Mck 0Jb0m who was the Praident ofMCEA at the time MCEA entered

iafo wida die 1996 RepubIicaD NatioDaJ Convention 10 provide television

~. 'J ach-. for. COIIIidaaIioD. He states that he expected some

Is .; ordidofcqaipIDrDf_ad-. with that large ofan amount ofequipment

eidIa'••poIiriai OI.....,o1i1ica1 ewaL The losses ofapproximately 535,000 would not

."IpC£fed

TIle staffrecommended DO further action on this matter and

die eon....,'.. COJICIIIJCCl (See Aa.bmeJIt 1, pap Sfor a copy ofthe certification ofthe C"'O',ri.·.vore,

1t'W'W'Ypf'n.kjpd Cogqibutions

HoJr C4mmiaee (ItA.I.e.)

Itcpublican NaIionaI CommiUee (l1.A.2.b.)

ToraJ

5892,489

729.994

$1.622.483

8, DEi•..,..TIONOF NET0UrsTANDiNC CONVENTION EXPENSES AND

AIIOUWD Iulul:cTTOTB£ SPENDING LIMITAnoN

Sa 9OOI(bXJ) ofTdie 26 ofdie UDited States Codes states, subject to

fire ,..,..,..01 ---.die .-ioaaJ COIIIIDiace ofa IDIjor party shall be entitled to

,.,~ (3). widI 10 any presidential nominating convention. in

.. 111,,""'.* 1not exceed S4.000,OOO.

.....9OOI.5(b)oCTJde 11 oftbe Code offcdcral Rqulations. states the

..........ltfillrrd byl1 CFR f9OOI.4 JbaJI be adjusted 10 as not 10 exceed the

..fill III..... D die CqadialR limit8tions ofJI CFR 19008.8(8) and the amoW1t of

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private contributions received under 11 CPR §9OO8.6(a) by the national committee ofa

political pany. Except as provided in 11 CFR §9008.12(b)(7), in calculating these

adjustments, amounts expended by Government and municipal corporations in accordance

with 11 CFR §9008.53, in-kind donations by businesses to the national committee or

convention committee in accordance with 11 CFR §9OO8.9; expenditures by host

committees in accordance with 11 CFR §9OO8.52; expenditures to participate in or attend

the convention under 11 CFR §9008.8(bX2); and legal and accounting services rendered in

accordance with 11 CFR §9008.8(b)(4) will not be considered private contributions or

expenditures counting against the limitation.

Section 9008.8(a)(I) ofTitle 11 ofthe Code ofFederal Regulations, in pan.

states the national party committee ofa major party may not incur convention expenses

with respect to a Presidential nominating convention which, in the aggregate, exceed the

amount to which such committee is entitled under 11 CPR §§9008.4 and 9008.5.

Section 9008.8(b)(1) ofTitJe 11 ofthe Code ofFederal Regulations states

expenditures made by the Host Committee shall not be considered expenditures by the

national committee and shall not count against the expenditure limitations ofthis section

provided the funds are spent in accordance with 11 CFR §9OO8.52.

In addition, 11 CFR §9008.8(b)(2) states e~pellditures made by government

agencies and municipal corporations shall not be considered expenditures by the national

committee and shall not count against the expenditure limitations ofthis section ifthe

funds are spent in accordance with the requirements of 11 CFR §9008.53.

Section 9008.1 O(g) ofTitle 11 ofthe Code ofFederal Regulations states, in

pan, a convention committee shall file, no later than sixty days after the last day ofthe

convention, a statement ofthat committee's net outstanding convention expenses.

Section 9008.12(c) ofthe Title 11 ofthe Code ofFederal Regulation states

the Commission will follow the same repayment detennination procedures. and the

committee has the same rights and obligations as are provided for repayment

determinations involving publicly funded candidates under 11 CFR §9007.2(c) through

(h).

The 1996 Republican Convention ended on August 15, 1996. The

Committee filed a Statement orNet Outstanding Convention Expenses (NOCE), as of

September 30, 1996. The Audit staffreviewed the Committee's financial activity through

April 31, 1998, analyzed winding down costs. and prepared the statement shown below.

Page SO
1996 COMMlIIEE ON ARRANGEMENTS

FOR

11IEREPUBUCAN NA1t10NAL C0NVEN110N

STATEMENTOF NETOU1STANDING COMMITIEE EXPENSES

As ofSep.....30. 1996

As D•••A..-st 26.1997

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ASSETS

Cash on Hand

Cash in Bank

Aeeexns Receivable:

Capital Assets

Total Assets

OBLIGATIONS

AccCUltS Payable fer ComemiJn

Expenm

Wi1ding Down Costs

8116196-3131198: Acnal

4/1/98 and later: Estinated

In-Kind CodriJutions

Total Obligations

NET OUTSTANDING CONVENTION EXPENSES

FOOTNOTES TO NOCE

$3,919

1,736,881

93,750

o

51,054.655

417,226

512J2? <8>

SI.622..483

SIJ34.5SO

S3.607.193

(SI.m.643)

CI) Eat....were used in "'--'tbis-.aunt. The Audit stafrwill review the C........diIcIosIft

NPOIU and ....to ......tile cUllr..... with the est...ed r..-1IIdP"Pnld;usu...ts

......,..

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The Net Outstanding Convention Expenses amoWlt of(Sl,772..643)

represents convention expenses incurred in excess ofthe spending limitation. The

majority ofthis amount consists ofthe in-kind contributions discussed in Section II.A.

above ($1,622,483). The remaining S150,160 is convention expenses and estimated

winding down costs incurred in excess ofthe limitation. The winding down cost estimate

was provided by the Committee. The Committee asserts that ifthe winding down costs

exceed the Federal grant, it will raise funds for the 1996 Conunittee on Arrangements For

The Republican National Convention Compliance FWld (Compliance Fund). Sections

9008.8(b)(4)(i) and 9008.8(b)(4)(ii)(B) ofTitle 11 ofthe Code ofFederal Regulations

state, in pan, that the payment ofcompensation for legal and accounting services rendered

to or on behalfofthe national committee shall not be considered an expenditure and shall

not count against the expenditure limitation~ Contributions may be raised to pay for the

legal and accounting services, however they must comply with the limitation and

prohibitions of 11 CFR Parts 110, 114, and 115 and are subject to the national pany's

annual S20,000 contribution limitation from individuals and $15,000 limitation from

multi-candidate political committees. As ofMay 1, 1997, the Compliance Fund.. had

reported no receipts, or disbursements. Until such time as funds are raised and the

Committee is reimbursed for compliance costs, those costs are included among convention

expenses and subject to the spending limitation.

On Apri123, 1998, the Commission detennined that 5150,160 is repayable

to the United States Treasury. (See Attachment 1, page 8, item 7, for a copy ofthe

cenification ofthe Commission's vote)

c. SUMMARV OF AMOUNTS DUE To THE U.S. TREASURVl5

Expenditures In Excess ofthe Spending Limitation

Finding II.A. In-kind Contributions

Finding II.B. Estimated Winding Down Costs

Tota)

$1 ..622.483

150.160

51.772,643

In the Audit Repon on the Host Committee there was a findinR that included a discussion as 10

whether the City ofSan Diqo·s City Evenu Fund enPled in transactions that did not comply with

the Commission's rqulation at II CFR 19008.53. The Audit Division does not have any

information that shows that the Commit1ee knowinlly panicipated or usisted the City of San

Diego's City Evenu Fund in these nnsactions such that the Comminee would owe a repayment to

the United Swes Treuury. I J CFR. §9008.J2(bX7).

Page 52
Attacbaent 1

hge 1 nf 8

BEFORE TIlE FEDERAL ELECTION COMMISSION

%n the Matter of- )

)

San Diego Bo.t Ca.mitt.e/Sa11 )

to Victory San Diego 1'6. )

Agenda Document '97-83

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k,IB'l'*rICATJQN

I, Mary W. Dove, recording ••cretary for the Federal

Election Ca.mi••ion opeD ..etins aD Thur.day, January 22,

1998, do hereby certify ~.t the Ca.mi••iOD decided by a

vote of 5-0 to take the following action on the abovecaptioned matter:

Allow the amount of $44,06', under the

category of II. I. ATiT, a ••et forth on

pag.s J and 10 of Agenda Doc,..ent '97-83, .

•• an expen.. of the San Diego Bost

CoDaUtt.e/Sail to Victory San Diego 196.

Co~.sioD.r. Aiken., Elliott, McDonald, McGarry, and Thomas

voted affi~tiv.ly for the deci.ion.

Att••t:

ja s • .,~ 19ft " te '

Page 53
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Attaehnent 1

%D ~e Matter-of )

) Doc~t. No. 97-84

C:~tt.. em Az'ruagtaaeDt8 for ) Uld Ito. 97 - 84-A

the 1'" R~licaD .atiOD&l )

Conventi.cm. )

%, IIaZy If. Dov., recordiDg .ecret:ary for the Pederal

Election C~••iOD ...tiDg OD ~ur.day, April 16,

1998, do hereby c.r~ify that the C~••iOD took the foll~wing action. on the above-captioned matter:

1. p.eid.d by • vpt. pf 4-1 to allow the amount

of $133,225 for ••curity ace••• badg•• and

that thi. IIaOUDt b. d.duct..d fraa th. total

r.payatmt to the United State. 'l'z'.a.UZ'Y by

the C~tt•• on Arranv..enta,. ••••t forth

in aecam-endatioD .1 of AgeDda Docuaent

No. 97-84.

C~••iOD.r. Aikens, Elliott, McDonald,

and McGarry voted affi:mativ.ly for the

a.ci.ion; C~••ioD.r Thoma. di••ent.d.

2. railed ip • vote of 3-2 to pa••• motion

to approve R,cOllDeDdatioD 11, ••••t forth

in Agencia J)ocWHnt No. 97-84, •• &aeDeS.d.

Ca-i••iOD.r. McDonald, McGarry, and

Thoma. vot.d aff1~tiy.ly for the

aotion; C~••ioD.r. Aiken. and

Elliott di••ent.d.

(continued)

Page S4
p~ Klecucm C~••:101l

CuU.fiaaUOD _ufor C~t:t.. aD

far t:be 1116

IlepablicaD Rat1ODa1 CaD'Y8Dtion

ftuz1Iday, Apri}_ 16, 1,.8

Pag. 2

Att;aebDent 1

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3. PW;i4td l;py • YO;. At 5-0 to d.t.raiDe that

the -.ount of $70,000 for the Ru•••ll Pi~

Slaoot va. aD iD-kiIld ccmtributiOD by the

ao8t C.-..itt•• to th. C~tt.e 011 ArrlUlge-

-.nt. aDd 1. r~yabl. to tb. UDit.d Stat•• Tr...ury. :tD ad41tiOD, th. C~tt:.e .hould

file aD amaDd.d diaclo8ur. r~ort and itemize

thi. ill-kind ccmuibuticm•

C~••iOD.r. Aikea., Elliott, MCDonald,

McGarry, aDd ~. vot.d aff1:mativ.ly

for ~. d.ciaiOD. .. 4. p.ei4.4 by • ypt. pf 5-0 to d.t.:miD. that

the amount of $138,442 for r.-ct. ahoots

va. aD iD-kiIld contributicm by the Boat C~tt•• to th. C~tt•• on Arrangements

aDd i. r.payabl. to th. Unit.d Stat••

Tr••aury. Xn addition, th. C~tt•••hould

file an ...nd.d diacloaur. r.port and it-.iz.

thi. in-kind contribution.

C~a.ion.r. Aikena, Elliott, McDonald,

McGarry, and Thoma. vot.d .ffi~tively

for the d.ciaion.

s. Decided by • vote of 5-0 to rej.ct R.commendation .2, a. ..t forth in Agenda J)OClmlflDt

Ho. 97-84.

C~••ioD.r. AikIn., Elliott, McDonald,

McGarry, and Tha.a. vot.d affi~tiv.ly

for the d.ciaion.

(contaued)

Page 5S
.edaral ElectiOD Ca.a1••iOD Ce~tific.tiOD for Ca.a1tte. aD

Arz'tmgGMlllta for the 19"

R.publicaD .at:icmal COIWeDtJ.cm

Tbur.day, April 16, 1"8

Page 3

Attachment 1

Page 4 of 8

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6.

7.

Pailld ip • vote 9f 3-2 to p•••• motion to approv. aee tmdatiOD'3, a. ..t forth in Agtmda J)OC1.Utmt

Ho. 97-84, a • .-.aded to reflect

the -.oUDt of $1,154,464 ia repayable

to the ~1t.d 8tat•• Tr...ury •

C=-i••ioner. IIcJ)cmalcl, McGarry, and

Thaaa. voted affi~ti..ly for the

aot1OD; C:a.ai••ioner. AlkeDa and

Elliott di••.ated.

P,11.d 4ft • TAt. Af 3-2 to p••• a

.et1on to d.t.~. that $424,4'0

(.-ount for -•••ic P••d- .aid by the

MC) i. r.payabl. to the United

Stat•• Tr.a.ury, aDd that the

Committ•••hould fil. aD ..ended

disclosure r.port to it~z. this •• an in-kind cODtr~utioD.

C=-i••ion.r. McDonald, McGarry, and

Thoma. vot.d affi~tiv.ly for this

motion; Commi••ion.rs Aiken. and

Elliott disaent.d.

:

8. Desided by • vote of 4-1 to pa•••

motion to approve a repayment d.t'~Dation by the Cammit:t•• on

Arrang..enta of $729,'94, b •••d OD

a 14\ coat ratio, for production c08ta.

C=-is.ion.ra Elliott, MCDonald, McGarry,

and Thoma. vot.d .ffi~t1v.ly for thi.

d.cision; Cammi••ioner Aikens di••ented.

(continued)

page S6
Pederal ElectiOD C~••iOD

Certificat1aD for C~tt.e aD

~aDg..-Dt. for the 1"6

JlepUblicUl Jlaticmal CcmVtIDt:1.cm

Tbur.day, April 16, 1998

Att:ac:bnent 1

Pac.;re 5 of S

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pwgidwd by • TAte 9 t 5-0 to p... a motion

to approve aec, lIDdatiOD.4, a. ..t forth

Agenda DocumeDt Ho. "-84.

C~••:1.ODer. &ikeDa, Elliott, McDonald,

McGarry, aDd ~a-a. voted .ff:1.~tiv.ly

for th1. decia:1.OD.

it

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i ~il 'D 1'19 l 2 Date

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Page 57
Attachment 1

Page60fS

action. OD the above-captiODed ..tter:

I, Mary W. Dove, recordiDg ••cr.~ for the Federal

Election Cc:mDi••iOll opeD ...tag em '1'Jaur.clay, April 23, 1998

do hereby certify that the C~••iOD took tbe following

1. p.qid,d hy • ypt. Af Seq to dete:aiD. that

th• .-ouat of $156,399, categoris.d a.

-Decoration./HU8ie-, va. aD ill-kind

cODcribution by the 80.t C~tt•• to the C~tt•• OD Arrang..-nt. aDd i. repayable

to the Unit.d State. Tr•••ury. ID additioD,

the C~tt•••hould file aD ..ended dieclo.ur. report and it-.iae tbi. in-kind

ccmtribution.

Ag.ada Docuaents ~o. 97-84,

Ro. "-14-A, Ho. 97-84-C,

aDd 110. "-84-1).

%D the Hatter -of )

)

c~et•• aD ArraDg..-nt. for )

tbe 19'6 RepublicaD HatioDAl )

CODventicm. ) <1

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C~••ian.r. ~k'D., E11iott, McDonald,

McGarry, and Thomae voted .ffi~tiv.1y

for the deci.ioD.

2. Failed by • vot, of 3-2 to pa••• aot.ion

to d.t.~. that th• .-DUDt of $528,610

for lighting aDd riggug va. aD iD-kiDd

ccm~ibut.icm by the ao8t C~tt•• t.o the

C~tt•• Oft Arrangeaent. Uld i. repayable

to t:.be Unit.ed Stat•• Tr•••ury. 1D addition,

the c: i t.t•••houlcl file aD -...aded eli.·

clo8UJ:' report and it~.. thi. ~-~

cOIltrUtution.

C~8.iOD.r. IIcDoDald, IIc:Garry. aDd filaaa.

voted affi~tiv.ly for tb. .at.ion; eoa- ••iOD.r. ~kCD. aDd Elliott ••eDt.d.

(coDtiDued)

paqe 58

..
Federal Zl.ctiOD C~.8iOD

Cer~fic.~OD for C~CC" OD

An-.......u !or t.bAt 1'" . atapublicu .at1OD&1 c:emvcaticm

'1'huzo.day, April__23 , :LJ18

AttactDent 1

PIIge 7 of B

.age 2

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p.si4.d by • ypt;, 9f '-1 to detenaiDe that

the .-oUDt of $14~,JO' for clo••d c~rcuit

televi.ion expeD••• wa. aD ~·~d cODtri-

»uticm !:»y Cbe Bo.t C~t~.e to the C~t~.. em Az'rllDgtlaeDt. aDd i. repayable

to the UDJ.t•• sue•• 'tnta8uzy. III addit.ion,

tb. ca.m!te.e .bou1d file aD ..-aded di.·

clo.ure report uad it-m.•• tbi. iD-~d

cODtr~uticm•

C~.8iOD.r. A1k4lD8, JlaDcmalcl, Jlc:Garry,

aDd 'l'hoaa. voted .!f1naa~iv.ly foZ' the :

deci.iOD; Ca-mi••iOD.r Elliott di••ented •

R.eid.4 by • yet' 9: 4-1 to dete~D. that

the .-DUDt of $22,416 relattDg Co eDtertaiDatIDt expeD.e•.ill the Sail Ar.a was aD

iD-~d contributicm by t:1le Bo.t Co=U.tt•• to the C~tt•• OD Az'raDgtlaeDt. uad i.

repayable to the United Stat•• Tre••ury.

Xc additiOD, the C~t.t.e .hould file aD

amended di.clo.ure report uad it.-ize this

iJ1-kiDd cODtr!»ution.

Co=U.••ionera Aiken., McDcmald., McGarry, aDd

Tha.aa voted affi~tiv.ly for the decision; C~.sioD.r Elliott di••ented.

5. P.eid.d by • VAt. 9£ 4-1 to d.t.~e that the

aaount of $117, 732 repr••tmtiDg payaent. to

producer., director., aDd production .taff v•• aD iD-kiDd cODtr.i.butiOD by th. B08t C~t:tee

to the C~tt•• em Az'raDgeaeJlt.8 and i. repayebl. t.o the UDJ.ted Stat•• Tr•••uzy. 1D addition,

tbe C~tt.e .hou~d file aD aneaded di.cloaure

report aDd itaa.ise t.A:i.. iD-JciDd cODtributicm.

Cc:.ai••icmer. Aiken., IIcDoDald, McGarry, aDd

T~. voted affi~tively for tbe deci8iOD: C~••iOD.r Elliott di••ent.ed.

(contiDued)

Page 59 ,
Pederal Bleceioa Ca-mi••iOD

CartificaeiOD for Ca-mitt•• aD

AzTaDg..-nt. for the 1996

aepublicaD .atiOD&l CaaventicD ~ur.day, April 23, 1'98

Page 3

Attachment 1

page 8 of 8

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6 • plcid.d by • v0ti. af 4 -1 to determin. that the

amount of $87,638 for ~.cell&D'ou. axpen••• •••oci.ted with t.l~i.1QD production wa. an

in-kind contribution by the Boat Committee to

th. Ca-mitt•• OD A%raDg..-nt. aDd i. repayable

to th. Unit.d Stat•• '1T•••w:y. %D acldition,

th. Committe. ahould fila aD amended di8clo.ure

report and 1t.-1•• tb1. iD-~ contribution.

Commi••iODer. Aiktma, 1IcDoDa14, McGarry, and

Thoma. voted affi:.ati••ly for the decision;

Commi••iODer Elliott diaaeDte4.

7. p.cid.4 by • vAte pf 4-1 to approve R.camm.hdation IS, a •••t forth on Page 47 of Agenda

Documcot No. 97-84.

Commi••ioDer8 Aiken., McDonald, McGarry, and

Thomas voted .ff~~tiv.ly for ~e decision;

Commi••ioner Elliott ••eDted.

Page 60
tT-'U1N,f'\.l. Y1NtSl* '4~• ..LJ~

ALLOCATION OF NASH CONTRACT ......,...

B.sed on Commluion Vol.. of '1"23 ,... Acet N............... N.... lW69R1ggIng DecorationslMulic leborlEquipmeni S"Are. Ovedte.d MiIceIenIouI IncIr_COlt No - - TotII Closed Circ:ul TV

HoII I I COA Holt I COA I Hoell COA I HOII I COA I Holt I COA I HoII I CGA I HIlI J CGA 2002 Co- ,_ _,GOO S40,000 71 120.000

2003 TVProcMer 150.GOO S".75O 71 125.000 7/ .,250 71 2'. 1»... 13'.0'1 S39.0'1 71

230G T,evtI And l.MnI 134'- IS.tt2 121,1. Producton .... , .

.,

, Prod. Coord. 11.570 15.570 71

Prod. Acct. 115.000 S'S.OOO 7~ -....... ".4. S'.431 71

.. ............ 1••_ S•.IOO

3005 Prod.... 122.710 122,710

-

.

...... ".442 ".442 71

, Prod. AIIIII. ".113 SI.t13 71

3. MuIIcIOt... 14'.032 141,032 31

.................. 1540.MS 1521.1'0 41 1",735 51

-SptdIIEIIcII '77•• S77.5" 31

4000 MIll...,......... '3.GOO '3.000 5/

GO' VIdeoCrewl" 112.102 151.78' 5/ 15.32' -

'...... aoo 1200 51

.. Ian.CM..... '10.1" 110,5" ate .... '73.74' S73.748 1/ au It....."....· 't3l.442 St38,442 21 GIS

'......... •....51 158.15t

......0pIt.... 'S.HO 15.250 51

..' ....uk. n "0"'4 15.014 15.55'

.

leceton

, "".F... .2t7. ....,. It4.'3' 82 ,............. '73," 13'.204 134.15' 83 CIlIaIInI S23.110 It4.174 1•.4. -Ofba.. ....t.

., 14.504 14.315 '.n........ 12.24t 1102 ".33' :I: PetDIIMI "'.051 '31.133 '21,422 VIdeo ........ It74.7.'

..E-. 1'74.749 15,115 ... 15,.5 53DO MaIn • End TIIeI 121.114 S2I,114 31

,. Fen 13.701

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ALLOCATION OF NASH CONTRACT

S...d On CommiIsIon Volts of Aawi ...... 23....

Acd ............ ...... LIftIir9R.. DecordonllMulk llborlEquipment SIIAr•• Ovetheld MlecelllIIOUI lncIrectColI

No - .. ToIII CIoIed Clrcul TV

Holt I I COA COA ( Host I COA I Holt I COA I Host I COA I HOII I COAl HoItICOA

lOa Oper.... ".3M 142.ff3 1'3.11'

IDOl....... ..., 1'.054 '3."3 .. WAl.. ...... 1145.211

IDOl ................ "'.ns 11•••35 II

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-Announcer

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IDOl Cenv......... Itno ".220

.,............ .".. '70.000 "

-'..co..... ,f.• 1'.101 51 .'2 ...... II.•' 12.1" .,

-.......&AIdI .....2 123.1'7 "7.021

,.... l2.tlS." .....IOG 10 so St53.31t ".7.'82 1203.51' St85.211 122.4'1 SO 145.570 1'•.151 1302.3. S'" J7. 'tll.2lt .'--_ ...... .- ..a...

TotII HoII It.lm• GrenelT.. U ",.

• Nto Indu*s tIOOD·....... "OOOO-8acramenlo.•t 'OOO·Sen DIego. "2000·00II Uve. "3000·Fon Du lac.end .,.000·...mI.

V -,,1 ,•. ,..vote 3 on III vote CetIk.tion

'II Aprl ,•. 'III Vole on" Vote CerIIceIon

31 Apr123. I.Vole the 01 .... amounts (S153.3'I) .... $3.011 In the indirect COlt cobnn ($2.795 Tr...F......S2t3 HoteIIIMoI.)....1'58.311. lIem'. on" Vote C"'aIon.

•, Apr123. ''''Vole 1em2,on..VoteC 1on

51 Apr123. ,ttlVote the IUm of ( 772) plus $57,138 In IItlndrtd COlt coUnn (12.852 In TI........... '7.'" In T,... F....12t."4 InHotelllMottll, end 1'8.15' In Per Olema)

....It.t..... lem 3 on Itt vote Certlcalon

81 AprI23, 'IIIvote 1ht IUm Or lmotI11IiI 122.418 lem 4 on" Vote Cetllc8lon.

71 Apr' 23. '1M Vote. The tum or 1"0,121 This .mount ..It17.732 .... correction documenIed by h Commilee .fter..Comn""·. vote. This vote II Item S. on"

VoteC.........

., Apr123. tftl Vole. The sum of'"em"'.18'.•3. Item I on the Vole CetIIc8Ion

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neCE1VED

FEDERAL ELECTION

COMMISSION

I,UDIT DIVISION

FEDERAL ELECTION c<HutJassUJJ~7 AM '91

WASHINGTON. 0 C. 204b3

November 19, 1997

MEMORANDUM

TO: Robert J. Costa

Assistant StaffDirector

Audit Divis'

THROUGH: John C. ~u in

StaffDi'ec

FROM: Lawrence. NOble//J·

General C unsel r v

Kim L. Bhght-Coleman

Associate\Oeneral Counsel

Lorenzo Holloway ·

Assistant General Counsel

J. Duane Pugh Jr.

Attorney

SUBJECT: Proposed Audit Report on the Committee on Arrangements for

the 1996 Republican National Convention (LRA 472)

The Office ofGeneral Ccunsel has reviewed the proposed Audit Report on the

Committee on Arrangements for the 1996 Republican National Convention (the

'·Committee on Arranyements"), which was submitted to this Office on October 17, 1997

on an expedited basis. This nlemorandum presents our cOlnnlcnls on the proposed Audit

Report.2 Some ofthe issues discussed in the proposed Audit Rcporl and herein overlap

with issues in the proposed Audit Report on the San Diego Host Committee/Sail to

The proposed Audit Report provided is an unreferenced report. As the Audit Division noted.

changes may be made as the proposed Audit Report is referenced.

2 Uccuusc the proposed Audit RCl>Ort concents the audit ofit convention couuniUc:c. wc rcc.;ommcnd

that the Commission consider this document in open session in accordance with 11 C.f.R. §§ 9008.11.

9007.I(e)( I) and 9038.1(e)( I).

Page 63
Memorandum to Robert J. Costa

Proposed Audit Report on the Committee on Arrangements

for the 1996 Republican National Convention

Page 2

Victory San Diego '96 (the "Host Committee")? Some of our comments on the Host

Committee proposed Audit Report have an impact on the Committee on Arrangements

proposed Audit Report, but those comments will not be repeated here.4 Nonetheless, the

Committee on Arrangements proposed Audit Report should be changed to reflect the

applicable comments on the Host Committee proposed Audit Report.

We concur with the findings in the proposed Audit Report that are not addressed

in this memorandum. If you have any questions concerning our comments, please

contact Duane Pugh, the attorney assigned to this review.

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I . IN-KIND CONTRIBUTIONS FROM THE HOST COMMI'ITEE AND THE

CITY OF SAN DIEGO (II, A, 1, a through cr

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The proposed Audit Report concludes that the Host Committee expended a total

ofS2,226,700 for purposes not permitted under 11 C.F.R. § 9008.52(c).6 Except as noted

in Part I ofthis Office's comments on the Host Committee proposed Audit Report, this

Office concurs with the conclusion that the Host Committee expenditures at issue were

not among those permitted by 11 C.F.R. § 9008.52(c)(I).

Pursuant to 11 C.F.R. § 9008.8(b)(1), host committee expenditures that are made

in accordance with 11 C.F.R. § 9008.52 shall not be considered convention committee

expenditures and shall not count against the convention committee's expenditure limit of

11 C.F.R. § 9008.8(a)(I). Conversely, host committee expenditures that are not

permitted by 11 C.F.R. § 9008.52 may be considered convention committee expenditures

subject to the expenditure limitation in 11 C.F.R. § 9008.8(a)(I). Pursuant t9 11 C.F.R.

§ 9008.12(b)(3), the Commission may seek a repayment from a convention committee if

it determines that the convention committee accepted contributions to defray convention

expenses which, when added to the amount of payments received, exceeds its expenditure

limitation. However, the Commission may seek a repayment only ifthe convention

committee knowingly helped or participated in the host committee's expenditure that is

not in accordance vrith 11 C.F.R. § 9008.52 or its acceptance of a contribution from an

illlpermissible source. See II C.F.R. § 9008.12(b)(7). The Explana/ion and JustificQ/ion

for 11 C.F.R. § 9008. 12(b)(7) confirms that a convention committee must be shown to

Because ofthis overlap and because the resolution ofsome ofthe issues in the audit ofthe Host

Committee may result in repayments from Committee on Arrangements pursuant to 11 C.F.R. § 9008.12,

the responses of both Committees are considered herein.

4 The proposed Audit Report for the Host Committee was submitted to this Office on September 30,

1997 and is also being reviewed on an expedited basis.

S Parenthetical references are to the relevant section ofthe proposed Audit Report.

b TIle $2,226,700 total comprises three major expenditures: S133,225 for badges, $44,067 for a

voter tabulation system and $2,049,408 for television production services.

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Memorandum to Robert J. Costa

Proposed Audit Report on the Committee on Arrangements

for the 1996 Republican National Convention

Page 3

have played a significant role in the host committee or municipal fund's actions before a

repayment from the convention committee may be sought, by stating:

In response to the concerns raised, the Commission notes that

neither the current nor the revised rules in § 9008.12(b)(7) impose strict or

vicarious liability on convention committees for the actions taken by cities

or host committees. Instead, convention committees are accountable for

the actions of cities or host committees when they knowingly help or assist

or participate in conducting impermissible activities, including initiating

or instigating the activity.

59 Fed. Reg. 33,613 (June 29, 1994).7 Thus, convention committees are subject to

neither strict nor vicarious liability for host committee or municipal fund actions, but

must have knowingly participated in the actions in order for the Conlmission to seek a

repayment from the convention committee.

The proposed Audit Report indicates that evidence exists to sho\v that the

Committee on Arrangements knowingly participated in the Host Committee's actions. so

we concur in the proposed Audit Report's conclusion that the Committee on

Arrangements owes a repayment ofthese amounts, as modified by our comments on the

Host Committee proposed Audit Report. Therefore, this Office recommends that the

proposed Audit Report be revised to include a discussion of 11 C.F.R. § 9008.12(b)(7),

stating briefly the basis for the conclusion that the Committee on Arrangements

knowingly helped, assisted or participated in each ofthe Host Committee's expenditures

that was not in compliance with 11 C.F.R. § 9008.52.8 The proposed Audit Report on the

Committee on Arrangements includes many ofthe elements for such a sho\\'ing. For

example, the proposed Audit Report states: that the badges were procured pursuant to a

contract between the Committee on Arrangements and Weldon, Williams & Lick, Inc. (p.

5); that the Committee on Arrangements assured the Host Committee ofthe voter

tabulation system expenditure's legality (p. 9); and that the services rendered by David J.

Nash and Associates, Inc. ("Nash") were pursuant to a contract between the Host

-, Committee and Nash that provided the services would be rendered to the specifications

and requirements established by the Committee on Arrangenlents (p. 11). Additionally,

the Audit Division should review available materials for additional information re.1ated to

the Committee on Arrangements' role in the Host Comnlittees expenditures.

One ofthe "concerns raised" is described as: "it would be unfair to impose accountability on

convention committees when they are unaware of, or do not consent to. the unlawful actions ora host

committee or city." 59 Fed. Reg. 33,613 (June 29, 1994).

• Since the Host Committee does not owe a repayment, a similar discussion in that Audit Report is

not necessary.

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Memorandum to Roben J. Costa

Proposed Audit Repon on the Committee on Arrangements

for the 1996 Republican National Convention

Page 4

II. ADDITIONAl., EXPENSES TO CONSIDER (II, A, I, d)

The Committee on Arrangements argues that the Commission should offset any

impennissible Host Committee expenditures by the approximately $1.6 million that the

Committee on Arrangements expended for purposes that 11 C.F.R. § 9008.52(c) permits

the Host Committee to expend funds. The proposed Audit Report rejects this argument,

citing the Committee on Arrangements' failure to establish that the expenditures comply

\vith 11 C.F.R. § 9008.S2(c).

The Committee on Arrangements' argument raises the question of whether it may

be reimbursed by the Host Committee for expenses pennitted under 11 C.F.R.

§ 9008.52(c). Section 9008.8(b)(I) states that "[e]xpenditures made by the host

committee" in accordance with 11 C.F.R. § 9008.52 shall not count against the

convention committee's expenditure limit. Thus, the regulation clearly exempts

expenditures both permitted by 11 C.F.R. § 9008.52 and paid, in fact, by the host

committee. However, no regulatory basis exists for exempting expenditures paid by the

convention committee from the expenditure limitation in 11 C.F.R. § 9008.8(a)(I), other

than expenditures for legal and accounting services pursuant to 11 C.F.R. § 9008.8(b)(4)

and for certain computerized infomlation pursuant to 11 C.F.R. § 9008.8(b)(5). The

regulations are silent on whether a convention committee may offset its expenditures for

expenses a host committee could properly pay for if it receives a reimbursement. Thus,

the Committee on Arrangements may not be able to offset the amount subject to the

expenditure limitation by the amount ofits expenditures for purposes set forth in 11

C.F.R. § 9008.52(c).

III. SAN DIEGO CONVENTION & VISITORS BUREAU (II, A, 1, e)

The San Diego Convention & Visitors Bureau ('~ConVis"), which registered as a

host committee,9 provided the Host Committee with payments totaling $850,000, and

appears to have expended more than $360,000 in connection with the convention's

Young Voter Program. The proposed Audit Report states that the Audit Division h~ not

yet audited ConVis, and the Committee on Arrangements has not provided documents

related to ConVis that were requested in its Exit Conference Memorandum. On this

basis, the proposed Audit Report declines to state an opinion on the accuracy ofthe

information supplied by the Committee on Arrangements related to ConVis and reserves

the right to make "additional recommendations" after ConVis has been audited.

Although ConVis appears to satisfy the criteria for being a "host committee," as

defined at 11 C.F.R. § 9008.52(a), it may be that ConVis is actually a government agency

The faclthat ConVis stated that it was registering and reponing with the Commission as a Host

Committee is not controlling in determining the actual role that ConVis may have had in the 1996

Republican National Convention.

Page 66
Memorandum to Robert J. Costa

Proposed Audit Report on the Committee on Arrangements

for the 1996 Republican National Convention

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or a municipal corporation that is subject to the provisions of 11 C.F.R. § 9008.53. The

available information shows that ConVis was founded in 1954 and is funded, in part, by

city and county taxes for the limited purpose ofpromoting the city ofSan Diego as a

convention and tourist center. In addition to its receipt oftax funds, ConVis's prior and

continued existence is a characteristic that is closer to a municipal fund than a host

committee. See 11 C.F.R. § 9008.S3(b)(I) (prohibiting municipal funds from being

restricted to provide services for a particular convention and prohibiting donations to the

municipal fund that are restricted for use with a particular convention, event or activity);

see also 59 Fed. Reg. 33,614 (June 29, 1994). Cf 11 C.F.R. § 9008.52 (the absence of

such a requirement reflects the single-purpose nature of host conunittees). Accordingly,

ifConVis is a municipal fund, it is not automatically subject to an audit conducted

pursuant to 11 C.F.R. § 9008.54 (authorizing audits of host committees only). In any

event, this Office recommends that the Audit Division seek the Commission's

authorization to review ConVis's receipt and use of funds. Such a review ofConVis may

also provide evidence to determine whether it was actually a nlunicipal fund or a host

committee. 10

IV. IN-KIND CONTRIBUTIONS FROM THE REPUBLICAN NATIONAL

COMMITTEE (II, A, 2, a and b)

The proposed Audit Report concludes that expenses paid by the Republican

National Committee (the "RNC") for GOP·TV television programs aired on the USA

Network during the conventionII constitute in-kind contributions to the Committee on

Arrangements. This conclusion is based on the proposed Audit Report's analysis that the

broadcasts were paid coverage during the convention consisting of conv~ntion highlights

and segments about individuals appearing at the convention and therefore were

convention expenses pursuant to 11 C.F.R. § 9008.7(a)(4).12

~.

In the event the Audit Division concludes that any ofConVis's expenditures or acceptance of

contributions is not in accordance with II C.F.R. § 9008.52 or II C.F.R. § 9008.53 and that the Committee

on Arrangements participated in ConVis's actions, then the Audit Division may make any appropriate

additional recommendations seeking repayment from the Committee on Arrangements pursuant to 11

C.f.R. §§ 9008.12(c) and 9007.2(f). •

Based on the explanation of expenditures provided by Mr. Jack Saniga, the Chief Financial

Officer ofConVis, which has not been verified by the Audit Division, it appears that some ofConVis's

expenditures are for purposes outside those authorized by II C.F.R. § 9008.52(c)(I). For example, Mr.

Saniga states that ConVis spent S13,686 for entertainment, $31,032 for catering services and $860 for a

tour ofthe Steven Birch Aquarium, none of which appear to comply with 11 C.F.R. § 9008.52(c)( I).

II The proposed Audit Report allocates four-fifths oftile RNC's $112,500 expenditure to the four

r:rograms that were broadcast during the convention ofthe five total progrmns, or $90,000.

2 Similarly, the proposed Audit Report concludes that the SI,418,130 spent by the Committee on

Arrangements for television coverage is a convention expense within II C.F.R. § 9008.7(a)(4).

Page 67
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Proposed Audit Report on the Committee on Arrangements

for the 1996 Republican National Convention

Page 6

The Office ofGenernl Counsel concurs with the proposed Audit Report's

conclusion. The Explanation andJustification 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 candid~'tc, but is also lIsed to conduct ongoing party business, the line

between convention expenses and party expenses can be a fine one." 59 Fed. Reg. 33,608

(June 29, 1994). Nonetheless, convention-related activity "includes all national

cOllullittee activity in the convention city except for events clearly separate from the

convention, such as fund raising events for the party committees, and meetings of·the

national committee unrelated to the convention." Id. Thus, because the television

broadcasts are neither "clearly separate from the convention" nor are they "unrelated to

the convention," the broadcasts are convention-related activity under 11 C.F.R.

§ 9008.7(a)(4).

Furthermore, the Committee on Arrangements describes the television programs

with terms associated with ne\vs programs. However, the GOP-TV programs do not

qualify for the news coverage exemption from the definition of contribution established

in II C.F.R. § 100.7(b)(2). Section 100.7(b)(2) requires that for news coverage provided

by a cable television programmer or producer that is owned or controlled by a political

party, the coverage must be, inter alia, part of a general pattern of campaign-related news

accounts which give reasonably equal coverage to all opposing candidates. Because

GOP-TV has not been shown to have given reasonably equal coverage to the 1996

Democratic National Convention, its coverage ofthe 1996 Republican National

Convention constitutes a contribution to the Committee on Arrangements. 13 Therefore,

pursuant to II C.F.R. § 9008.12(b)(3), the Commission may seek a repayment from the

Committee on Arrangements.

The proposed Audit Report should also note because the GOP-TV coverage failed II C.F.R.

§ IOO.7(b)(2)(ii), the proposed Audit Report has not considered whether the GOP-TV coverage complies

with 11 C.F.R. § IOO.7{b)(2)(i).

Page 68
FEDERAL ELECTION COMMISSION

WASHJNCTOllot. 0 C 204&3

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June 26.. 1998

Mr. Alec Poitevint, Treasurer

1996 Committee on Arrangements for

the Republican National Convention

228 South Washing'ton Street

Suite 200

Alexandria, VA 22314

Dear Mr. Poitevant:

Attached please find the Audit Report on the 1996 Committee on Arrangements

for the Republican National Convention. The Commission approved this report on June

25, 1998. As noted on page 3 ofthis report, the Commission may pursue any ofthe .-

matters discussed in an enforcement action.

In accordance with 11 CFR 9008.12(a)(I) and (c), the Commission has made a

determination that a repayment to the Secretary ofthe Treasury in the amount of

$1 ..772..643 is required within 90 calendar days after service ofthis report (September 28,

1998).

Should the Committee dispute the Commission's determination that a repayment is

required, Commission regulations at 11 CFR §9008.12(c) provide the Committee with an

opportunity to submit in writing.. within 60 calendar days after service ofthe

Commission's notice (August 28, 1998). legal and factual materials to demonstrate that no

repayment.. or a lesser repayment, is required. In addition to the submission ofwritten

materials the Committee may request an opportunity to address the Commission in open

session. The request for an oral hearing should identify the repayment matters that will be

addressed and the Committee's presentation must be based on the legal and factual

materials submitted.

The Commission will consider any vnitten legal and factual materials submitted

within the 60 day period when deciding whether to revise the repayment determination.

Such materials may be submitted by counsel. Ifthe Committee decides to file a response

to the repayment detennination, please contact Kim L. Bright-Coleman ofthe Office of

General Counsel at (202) 219-3690 or toll free at (800) 42A-9530. Ifthe Committee does

not dispute this detennination within the 60 day period provided, it will be considered

fmal.

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The Commission approved Audit Report will be placed on the public record on

July 6, 1998. Should you have aDY questions regarding the public release ofthis repon,

please contact Ron Harris ofthe Commission's Press Office at (202) 694-1220.

Any questions you may have related to matters covered during the audit or in the

audit repon should be directed to Joe Stoltz or Russ Bruner ofthe Audit Division at (202)

694-1200 or toll free at (800) 424-9530.

Assistant StaffDirector

Audit Division

cc: Bobby R. Burchfield

Attachment as stated

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CHRONOLOGY

1996 COMMITI'EE ON ARRANGEMENTS

FOR. THE REPUBLICAN NATIONAL CONVENTION

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Audit Fieldwork

Exit Conference Memorandum

to the Committee

Response Received to the

Exit Conference Memorandum

Audit Report Approved

Page 71

12/09/96 - 06125/97

06125197

09/09/97

6125198
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