c;

•

o

7

•

(1

Z

5

•

2

3

5

b

'. ..

REPORT OF THE AUDIT DIVISION

ON

SAN DIEGO HOST COMMITTEE/SAIL

TO VICTORY '96

.- Approved April 23, 1998

FEDERAL ELECI10N COMMISSION

999 E STREET, N.W.

WASBINGTON, D.C.

,

~.,

..
Q

I

<7

•

o

7

•

o

2

5

..

2

3

5

7

- --.~- - -- ------------

REPORT OF THE AUDIT DIVISION

ON

SAN DIEGO HOST COMMITTEE/SAIL

TO VICTORY '96

Approved April 23, 1998

FEDERAL ELEC110N COl\fMlSSION

999 E STREET, N.W.

WASHINGTON, D.C.
TABLE OF CONTENTS

SAN DIEGO HOST COMMITTEE/SAIL TO VICTORY ·96

c; Page Q

F

.. Executive Summary e

7

• Audit Report

(} Background 3

2 Findings 6

5 Attachment 1 5S

• Attachment 2 63 2

3

5 Legal Analysis 6S

8

Transmittal to Committee 71

Chronology 73
..

U

7

..

Q

l

5

FEDERAL ELECTION CO,\1~1ISSI0~

REPORT OF THE AUDIT DIVISION

ON

SAN DIEGO HOST COMMITTEE/SAIL TO VICTORY '96

EXECUTIVE SUMMARY

The San Diego Host Committee/Sail to Victory 496 (the Host Committee)

registered with the Federal Election Commission on September 8~ 1995. as a host

committee in connection with the City of San Diego's responsibilities as host city for the

1996 Republican National Convention.

The audit was conducted pursuant to 11 CFR §9008.S4 which states that the

Commission will conduct an examination and audit of each host committee registered

under 11 CFR §9008.S1. The Host Committee received and disbursed approximately $:!3

million.

The findings ofthe audit were presented to the Host Committee at an exit

conference held on May 20. 1997 and in the Exit Conference Memorandum. The Host

Committee s responses to those findings. as well as those ofthe 1996 Committee On

Arrangements for the Republican National Committee (Committee On Arrangements).

are contained in the audit report.

The following is an overviev; of the findings.

CONVENTION RELATED EXPENDITURES - 11 CFR §9008.52(c)( 1) The Staff

concluded the Host Committee made in-kind contributions to the Committee On

Arrangements in the amount ofS2.128.122. 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 detennined that amounts paid to Weldon~

Williams and Lick~ and AT&T were permissible Host Committee expenditures. In

addition. amounts totaling $1,096.979 paid to David Nash. Inc. were determined to be

pennissible Host Committee expenditures. while amounts totaling $892~489 were

impennissible. These amowlts are in-kind contributions to the Comminee On

Arrangements.

CIT" OF SAN DIEGO EVENTS FlT~D 11 CFR §9008.53(b). The Staff concluded

that the City of San Diego Events Fund (Events Fund) failed to comply ,,'ith the

restrictions placed on municipal funds. Specifically the Events Fund accepted donations

from persons outside the San Diego Metropolitan Area. during the period through the
q

•

o

7

...

o

2

5

...

2

3

b

o

convention its activities were restricted to the Republican National Convention.. and it

both solicited and accepted donations designated for use in connection with the

Republican National Convention. The Events Fund received donations totaling $6.7

million all ofwhich was transferred to the Host Committee. At least $3.5 million ofthat

amount was initially received by the Host Committee, forwarded to the Events Fund for

deposi~ and subsequently transferred back to the Host Committee.

Page::!
FEDERAL ELECTION COMMISSIO~

Q

l

9

•

o

7

•

G

2

t;

...".

..

2

3

b

1

REPORTOF THE AUDITDIVISION

ON THE

SAN DIEGO HOST COMMI1TEEISAIL TO fJ7CTORY SAN DIEGO '96

I. BACKGROUND

A. AUDIT AUTHORlTI'

This report is based on an audit ofthe San Diego Host Committee/Sail to

Victory San Diego '96 (the Host Committee). The audit sought to detennine whether

th,ere has been compliance with the provisions ofthe Federal Election Campaign Act of

1971, as amended (the Act). The audit was conducted pmsuant to 11 CFR §9008.54

which states that the Commission shall conduct an examination and audit of each host

committee registered under 11 CFR §9008.51.

B. AUDIT COVERAGE

The audit covered the period from July 1. 1994 through October 10. 1996.

During this period, the Host Committee's repons reflect an opening cash balance of $-0-.

total receipts of $23,080.276. total disbursements of 522.923.061, and a closing cash

balance of $157.215. In addition. a limited reviev; ofthe Host Commine~'s activity

through December 31, 1996 was also conducted.

c. COMMITTEE ORGANIZATION

The Host Committee registered with the Federal Election Commission on

September 8. 1995. The Treasurer ofthe Host Committee is Patrick Shea. The Host

Comminee established and maintains its headquaners in San Diego.

The Host Committee used three bank accounts to handle its financial

activity. From these accounts, it made approximately 1.570 disbursements. The Host

Committee received approximately 204 contributions from individuals and local

businesse~, totaling about 513.244.000. including the tran~fers from the City of San

Diego Events Fund discussed at Section III belo"'. In addition. the it reported receiving

111 in-kind contributions totaling $4.404.916. The Host Comminee also received 14

payments from the City of San Diego totaling 5:!.539.636. 6 payments from the San

Diego Convention and Visitor's Bureau totaling 5750.000. and a payment from the San

Diego Convention Center Corporation. Inc. of5585.000. The remainder ofthe receipts
were offsets to expenditures and items such as the proceeds from the sale of merchandise

and transportation passes.

D. AUDIT SCOPE AND PROCEDURES

The audit ofthe San Diego Host Committee/Sail to Victory San Diego -96

included testing ofthe following general categories:

1. The receipt of contributions from prohibited sources. those from outside of

the San Diego Metropolitan Area (see Section III.B.);

CJ

'1

...

o

7

•

o

2

5

•

2

3

b

2

2.

3.

4.

5.

proper disclosure ofcontributions from individuals to include the

itemization of contributions when required. as well as, the completeness

and accuracy ofthe information disclosed;

proper disclosure ofdisbursements including the itemization of

disbursements when required. as well as, the completeness and accuracy of

the information disclosed;

review ofthe disbursements to determine compliance with the

requirements of 11 CFR §9008.52(c) (see Sections I1.A.• B.. & C.)~

proper disclosure ofHost Committee debts and obligations;

6. the accuracy oftotal reponed receipts. disbursements and cash balances as

compared to Host Comminee bank records;

7. adequate recordkeeping for Host Committee transactions: and.

8. other audit procedures that ,,'ere deemed necessary in the situation.

As pan ofthe Commission's standard audit process. a records inventory is

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 our revie\\'

ofrecords presented, it was concluded that the records were materially complete and

fieldwork began immediately. In addition to the above procedures. the Audit staff also

reviewed the records for receipts deposited in the City ofSan Diego's City Civic Events

Fund • Account No. 90501 (Events Fund). The Commission detennined that if a host

committee receives money from a Fund of a government agency or municipality as

described at 11 CFR §9008.S3. the committee receiving the money or the entity

transferring the funds is required to provide records \\'hich demonstrate the original

source ofsuch funds. The Audit staff contacted the responsible City ofSan Diego

officials and were provided with the records of the Events Fund, The results of our

review ofthose records is discussed at Section III.

Pag~
q

4

•

{}

7

•

"

2

5

it

2

3

b

3

The Host Committee received payments totaling S850.000 from the San

Diego Convention & Visitors Bureau (Convis).l Convis is a nonprofit corporation and

not a fund ofthe City ofSan Diego. Convis apparently receives its funding.. in pan. from

entities such as the City ofSan Diego, the local hotel and motel association.. the Pon

Authority. and local businesses. The Audit staffdoes not know ifConvis receives any of

its funding from outside the Metropolitan Area ofSan Diego. Therefore, we were unable

to verify that the all offunds received by the Host Committee from Convis originated

from local sources. The Audit stafffurther notes that Convis received a SI.3 million

contribution from Amway Corporation which originally was to be used to defray the

costs ofGOP-TV'S2 broadcast ofthe Republican National Convention. However. Convis

apparently detennined that this transaction would not be appropriate and the money \vas

returned to Amway. Amway later made a $ 1.3 million dollar contribution to the Host

Committee although the Host Committee did not use those funds for the costs of airing

GOP-TV. Those costs were paid by the 1996 Committee On Amngements for the

Republican National Convention (Committee On Amngements). Convis also sent a

letter to the Commission on September 4, 1996 stating that it was registering as a host

committee. Convis filed a disclosure report on January 14, 1997 which disclosed

S500.000 in payments to the Host Committee for specific purposes. This activity \\'as all

that was included on the disclosure report although the cover letter to the report noted an

additional 5350,000 in hotel commissions which were forwarded to the Host Committee.)

The Audit staffhas verified that these are the amounts received by the Host Comminee

from Convis. However, no audit ofConvis \\'85 conducted.

Unless specifically discussed belo\\-, no material non-compliance was

detected. It should be noted that the Commission may pursue further any ofthe maners

discussed in this memorandum in an enforcement action.

According to a repon from Dun &. Bradstreet Inc.. the San Diego Convention &: Tourists Bureau

is a non-profit enterprise whose objective is to promote the San Diego County area as a

convention and visitor destination. The bureau has 1.500 members whose dues are based on size

and involvement ofthe business. The bureau staned in 1954. has its headquaners in San Diego.

and currently has branch offices in Washinlton, DC and Chicaao. IL,

According to GOp.n'(visited April 17, 1997) http://www.mc.orgImovie/what.hanl. GOP-TV is a

news and entertainment television netWork established by the Republian Pany to provide the

latest news-breaking infonnation on the Republican Pany's leaders. ideas. issues and concerns.

Its programming is available direct via satellite. cable systems and television stations nationwide

J The cover lener also noted that Convis administered a "Youth Fund Accounf' on behalf ofthe

Comminee on Amnaements which received 5368.000 from approximatel)' I,Soo students and

sponsors. These funds were distributed to vendors as pan ofme "Young Voter Program:' which

provided youths with an opportunity to panicipate in convention activities while serving as

convention pages and delegation aides.

Page 5
..

o"'j'

/

if

o

2

5

•

2

3

b·

If

II. AUDIT FINDINGS AND RECOMMENDATIONS - CONVENTION·

RELATED EXPENDITURES

Section 9008.52(c) ofTitle 11 ofthe Code ofFederal Regulations states. in pan.

that contributions received by host committees may be used for the following: to defray

those expenses incurred for the pwpose ofpromoting the suitability ofthe city as a

convention site; to defray those expenses incurred for welcoming the convention

attendees to the city such as expenses for information booths, receptions, and tours; to

defray these expenses incurred in facilitating commerce, such as providing the

convention and attendees with s.hopping and entenainment guides and distributing the

samples and promotional material specified in 11 CFR §9008.9(c); to defray the

administrative expenses incurred by the host committee" such as salaries, rent, travel. and

liability insurance; 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: constroction of podiums; 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 of buses 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 accommodations and hospitality

for committees ofthe panies responsible for choosing the sites ofthe conventions; and to

provide other similar convention-related facilities and services.

During a revie,,' ofthe Host Comminee"s disbursen.ent records. the Audit staff

identified payments to three vendors. totaling 52,,439.913, ,,'hich appeared to be for

convention-related expenditures and not for items noted at II CFR §9008.52(c). The

issue ofthe permissibility of these payments ,,·as addressed in the Exit Conference

Memoranda resulting from the audits of both the Host Committee and the Committee On

Arrangements. Information provided by both comminees is incorporated in the

discussions belo"·.

In their responses to the respective Exit Conference Memoranda" both the Host

Committee and the Comminee On Arrangements argue that most or all ofthe expenses

discussed below are covered by one ofthe categories of permissible host committee

expenses at II CPR §9008.52(c)(I) or. referring to 11 CFR §9008.52(c)(1 )(xi)" are

··similar"· to expenses covered by one ofthe permissible expense categories. To read 11

CFR §9008.52(c)( 1) as broadly as both committees propose. "'ould effectively negate the

limitation on convention expenses at 26 U.S.C. ~9008(d): the prohibition on contributions

to a convention comminee that has received the full federal payment (11 CFR

§9008.6(a)}; the prohibition on the use of corporate contributions in connection with

federal elections at 2 U.S.C. §441 b: and the Commission·s clt:ar statement in the

Page 6
it

n

U

2

5

...

2'

~:

J

b

5

Explanation and Justification supponing the provisions contained in 11 CFR

§9008.52(c)(I) that allowing the host committee to pay selected convention expenses is

"intended to be a very narrow exception to the statutory limitation on convention

expenses".

Each ofthe three vendors are discussed below.

A. WELDON, WILLIAMS & LICK, INC.

Section 9008.7(a)(4)(ix) ofTitle 11 ofthe Code of Federal Regulations

states that "Convention expenses" include all expenses incurred by or on behalf of a

political party"s national committee or convention committee with respect to and for the

purpose of conducting a presidential nominating convention or convention-related

activities. Such expenses include expenses for printing convention programs. a journal of

proceedings, agendas, tickets, badges, passes. and other similar publications.

The Audit staffidentified one payment to Weldon, Williams &, Lick. Inc.

for the production of credentials and badges related to the convention. The agreement

between the Host Committee and Weldon.. Williams. & Lick established that the Host

Committee would purchase up to 325.000 '-•••tickets for admission to the 1996

Republican National Convention." These credentials contained the Convention session

number and were ofdifferent colors that were used for access to the convention hall.

According to the Host Committee. any ofthese credentials would gain a person entry into

the convention hall and the different colors v..ere used to limit the areas ofthe convention

hall to which a person would have access. For example. one color would only 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 the individuals

who had access to the entire convention hall. The Host COlnnlittee paid a total of

$106.645 for production ofthese items. It funher appeared that the City of San Diego

paid an additional $38.638.4 In the Exit Conference Memoranda. the audit staff

concluded that, given these credentials were distributed for access within the convention

hall and \\'ere considered a ticket or pass as envisioned at 11 CFR §9008.7(a)(4)(ix). this

disbursement was a convention-related expense and was not a permis~ible host committee

expenditure as defined at 11 CFR §9008.52(c). It was concluded that the Host

Committee had made an apparent in-kind contribution of 51 06.645 to the Committee On

Arrangements.

In the Exit Conference Memoranda. the Audit staffrecommended that

both committees provide documentation and information which demonstrated that this

disbursement was allowed by 11 CFR §9008.52(c) and should not be considered a

contribution to the Committee On Arrangements.

This disbursement is outside ofthe scope ofthis audit repon~ however. we do note that

expendirures made by a municipality or government agency should also meet the requirement of

11 CFR §9008.S2(c).

Page 7
•

n

tJ

7

In response to its Exit Conference Memorandum. the Host Comminee

stated that:

While it is true that the regulations specifically authorize committees such as

the Committee on Arrangements (the "COA")S to make expenditures for "tickets.

badges, passes ... n (II C.F.R. §9008.7(a)(4)(ix». this is irrelevant. Nowhere do

the regulations make a distinction between permissible host committee expenses

and pennissible COA expenditures. In fact. the list of pennissible COA and host

committee expenditures overlap. For example. either committee may pay for:

convention hall rental (II C.F.R. §§9008.7(a)(4)(i); 9008.S2(c)(I)(v»; platforms.

seating, decorations and utilities ag.); transportation sy~t..m (11 C.F.R.

§§9008.7(a)(4)(vii); 9008.S2(c)(I)(vi»; and security or law enforcement (11

C.F.R. §§ 9008.7(a)(4)(i); 9008.S2(c)(l)(vii». Had the Commission intended to

restrict host committees to making only those expenditures ~hich the COA could

not make, it could have, and presumably would have. done so.

The Host Committee further states that"•••since the regulations governing

permissible expenditures by the COA and the Host Committee are not mutually

exclusive, the only gennane question is whether or not the cost ofthe credentials are

permissible host committee expenditures." The Host Committee believes that 11 CFR

§9008.52(c)(1)(vii) which covers law enforcement expressly pennits a host committee!o

make these types of expenditures. In suppon ofthis position.. the Host Committee

provided a declaration from the Assistant Chief of Police for the City of San Diego to

confinn "the importance ofthe convention credentials and bauges to convention

security." The Host Committee also stated that ~'[t]he concerns for security were

especially high.. not only because ofthe number offederal.. state and local officials

attending the convention.. but also because ofthe bombing at the Olympic Games in

Atlanta which occurred only a short time before.....

The declaration provided by the Host Comminee states that:

The City of San Diego Police Depamnent worked very closely with the San

Diego Host Committee's security consultants to develop and authorize the use of

security access badges for the 1996 Republican National Convention. During the

convention last August.. all San Diego law enforcement officers a.~igned to the

Convention Center and the auxiliary Republican National Committee sites recognized

and permitted access to the bearers ofthese badges. These badges served as viable law

enforcement and security devices because they had a special design that made

unauthorized duplication vinually impossible

As a result ofthe above....... it is the Comminee"s position that payments

made for convention credentials and badges by both the Committee and the City are

pennissible payments expressly pennined hy 11 C.F.R. §9008.52(c)( 1)(vii) and generally

pennined by 11 C.F.R. §9008.52(c)(1 )(xi L·· In response to it~ Exit Conference

COA refers to the 1996 Committee on Arrangemenb for the Republican National Convention.

The Host Committee. the Committee on Arran~cments. and the City of San Diego use this

abbreViation several times in their respectl\~ r~sron~es to the Exit Conference Memorandum.
-If

fj,

7

..

2

3

b

7

Memorandum, the Committee On Arrangements also argues that these badges were

critical for law enforcement and security and explains that the badges were designed so

they could not be reproduced.

The Audit staffdoes not dispute that the credentials might have a security

component or that there are many expenses that are pennissibly paid by either a host

committee or a convention committee. However, in our opinion, the security aspect \\"as

not the primary reason for the issuance ofcredentials. Credentials were the means by

which the Party 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 o11ly purpose ofthese

credentials, then once a person was within 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 initial security checkpoint.

Further, the Host Committee argues that since credentials have a security

aspect.. they fall under the host committee regulations at 11 CFR §9008.S2(c)(1 )(vii).

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 firms could be paid for by the City ofSan Diego or the Host

Committee. However, the staff concluded that there is a di~tinct difference bet\\'een la\\'

enforcement services and the production ofcredentials for limiting access to the pany"s

Convention and managing those authorized attendees once inside the convention hall.

The Host Committee also makes the point that the need for security was

magnified as a result ofthe Atlanta Olympic Games bombing. It is noted that the Host

Committee entered into its agreement with Weldon. Williams. and Lick on July 17. 1996.

and the Atlanta bombing did not occur until July 27, 1996.

While it is agreed that the regulations regarding host committees and

convention committees are not mutually exclusive. the staff concluded that allowing a

host committee to pay for the production ofitems that control the persons who may

anend the convention. and where those persons might go. '.\'as not the type of

disbursement envisioned for a host committee. The Host Comminee believes that ifthe

Commission had intended to place any restrictions on a host committee, then it would

have done so. In the opinion ofthe staffthe Commission clearly did. As noted above,

the Explanation & Justification for the original host comminee regulations (Federal

Register, Vol. 44 No. 213; November L 1979) states that U[d]efrayal of convention

expenses by a host committee is intended to be a very narrow exception to the statutory

limitation on convention expenses."

The Committee on Arrangements' response does establish that ponions of

the badges were used outside the convention facility and after the Convention was over.

The related costs. totaling SI2.058, are expenditures permissibly paid by the Host

Pag~ 9
..

{1-

2

5

•

2

3

b

8

Committee. The staff concluded that the Host Committee made an in-kind contribution

to the Committee On Arrangements in the amount of$94.587 [$106.645 - $12.058].

The Commission discussed this maner at its meeting of April 16. 1998. in

the context ofthe audit repon on the Committee On Arrangements. It decided that the

594.587 was a permissible Host Committee expense. (See Attachment 1, page 2. item 1~

for a copy ofthe vote cenification.)

B. AT & T

In addition, the Audit staffidentified 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 which were described as a voter

tabulation system. According to Host Committee officials, the computer system was

designed so that each state delegation had a computer terminal in its section ofthe

convention hall. These tenninals 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 not installed in the convention hall to be used permanently

for any convention held in San Diego, but rather was instalJed specifically for the

Republican National Convention. The Host Committee believed that this system was

never actually used during the Convention. Also., when the Exit Conference Memoranda

were prepared, it was not known whether any other information was included or

accessible from this system or ifit was strictly to be used to tabulate votes of the

delegates.

Although 11 CFR §9008.52(c)(l )(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 convention-related expense.

Therefore, in the Exit Conference Memoranda it was concluded that these payments

represented an in-kind contribution of$25 1.982 by the Host Committee to the Committee

On Arrangements.

In the Exit Conference Memoranda. the Audit staffrecommended that the

Host Committee 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 contributions to the Committee On Arrangements.

Anachment I references 5133.225. The Commission vote or. t!i;j maner occulTed in connection

with the audit repon on the Comminee On Arrangements that addressed an additional amount paid by the

City of San Diego. That payment is not addressed herem.

Page 10
•

o

7

•

o

2

5

•

2

3

b

9

Documentation \\'as to include a description ofthe specific infonnation contained on the

computer system and precisely ho\\" it was designed to be used.

In response its Exit Conference Memorandum, the Host Committee makes

numerous arguments as to why this computer system should be an allowable Host

Committee expense. It argues that the installation is part ofthe construction necessary

for preparing the convention site; that the computer system falls under the category of

"40office equipment"; that the Host Committee was assured that it was a permissible

expense by the Committee On Arrangements; that its functions other than voter

tabulation qualify the system for treatment as an "'information booth" that is specifically

allowed under Commission regulations; and, that it is simply a modem version of past

voter tabulation systems that utilized a microphone and loudspeakers and were an

allowable expenditure under 11 CFR §9008.52(c)(I)(v).

In addition, the Host Committee noted that more detail on the functions

and capabilities ofthis computer system would be supplied by the Committee On

Arrangements in its response to the Exit Conference Memorandum issued as a result of

our audit ofthat committee. The Host Committee states that it .....incorporates those

factual materials by reference."· In the Committee On Arrangements" document many of

the same arguments are put fOJ"\\"ard. more detailed information about the computer

system·s capabilities is provided.. and the fact that the voting ~ystem was not used is

confirmed. Material was provided from AT &. T and a subcontractor that allocated the

cost oftht: system between the vote tabulation function and the system·s other

capabilities. The vote tabulation function is covered by a single invoice in the amount of

$44..067".

The computer system·s non-vote tabulation capabilities are described in a

affidavit from an AT & T representative. They include an electronic bulletin board that

could be used to leave messages for other delegates as \\'ell as receive information about

convention scheduling. limited internet service that allowed delegates access to maps of

the convention center and the city. information on local points of interest. and

infonnation on local restaurants.

Given the computer system"s multiple purposes and the cost allocation

provided. the Audit staff concluded that the costs associated ...ith the non-vote tabulation

functions were permissibly paid by the Host Comminee as an "information booth'" or a

"'shopping and entenainment guide". The amount attributable to these functions in the

response is 5207.916.

However. the staff concluded that the balance~ 544"067,, \\'as not a

permissible Host Committee expense. This system is not "'office equipmen"·. No

evidence is provided that this amount related in any \\'ay to any office provided by the

" It appears that the allocation of cost is an incremental analysis. Tne invoice that references the

vote tabulation system covers only labor. There is no apparent charge for software or hardware

Page 11
q

f

Qj

... ?:

'-

3

7

{}

Host Committee. Though it is true that office equipment often includes computer

equipment. it does not follo\\' that all computer services and equipment are office

equipment. Also, the provision ofthe voting software is not construction ofthe site.

Rather, it is an expense incurred by the Committee On Arrangements for the conduct of a

critical part ofthe Convention. The fact that the Committee 011 Arrangements assured

the Host Comminee that the expense was permissible is of no significance. Finally. it can

not be likened to the registering of votes by voice via a host committee provided sound

system. The sound system in a convention hall serves many functions, both in past and in

present day facilities, with announcing votes being only one.' Finally. the vote tabulation

system clearly is not any sort ofshopping or entertainment guide.

Therefore, the staff concluded that the Host Comminee made a

contribution to the Committee On Arrangements of at least $44.067.

During its meeting ofJanuary 22, 1998, the Commission decided that this

expense was properly paid by the Host Committee. (See Attachment 1, page 1 for a copy

ofthe vote certification.)

c. DAVID J. NASH ASSOCIATES, INC.

Between July 1, 1996, and August 9, 1996, the Host Committee made four

payments to David J. Nash Associates, Inc. (Nash) totaling $2,645..520. Each ofthese

payments was supported by invoices indicating that they were for television production.

Invoices related to three ofthe four payments stated that they were from David J. Nash..

"Executive Producer COA-TV."

On July 25, 1996.. the Host Committee entered into a contract with Nash

which stated that Nash was to "'render such television production and related services

consistent with the specifications and requirements for the Convention established by the

eOA.'· The payments due under this contract were based on a production budget which

totaled $2.421 ..714. Line items in the budget included producers, directors, production

staff, music/orchestra, rigging staging labor. special effects.. makeup & hairdressing.

video operations.. sound operations, video segments. editing. and graphics. The contract

further stated that U[t]he Consultant shall 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 or the Chief Financial

Officer ofthe COA, prior to incurring.. or commining to incur, any amount stated in

• No information is provided in either response on how voting records were kept or documented in

the past. For example it seems likely that some record ofthe 'totes cast by members of

delegations would be kept and collected centrally to 3\uld any later disputes. Such records would

not be collected via the host comminee provided sound system in the convention hall. In contrast.

had the electronic voting system been used. a computer record would be generated for Comminee

On Arrangements records.

Page 1
9

cr-

•

e

?

•

o

2

5

•

2

3

?

1

Production Budget line items greater than $5..000...· In addition to these items. Michael E.

Simon.. Chief Financial Officer for the Committee On Arrangements.. submitted to the

Host Committee for approval on August 2.. 1996, a change order to add S223,,806 to the

original budgeted amount. This addendum included items such as "Film Shoot • Russell""

for S75,000, "Sail Area" for SI27..500, and "Sail Area Entertainment" for $12..000.

The Host Committee paid for·all ofthese budgeted amounts. After all

services were provided, Nash was to provide a final accounting of his 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 ofthe

Consultant's services including such copies of all checks, receipts, disbursements and

other such documentation as may relate to such services."

Prior to entering into the contract with Nash.. the Host Committee received

a memorandum from the Committee On Arrangements which stated.. in pan.. that ....David

Nash Associates has been engaged by the COA to produce the television event and

staging ofthe Convention proceedings. David Nash and a staffof professional television

production and technical associates will present and enhance the Republican message -Cor

presentation to the television networks and the media in generaL"" In addition.. 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 5400,000. which left a total net payment of S2..245..520. After conclusion of audit

fieldwork, the Host Committee provided a summary from Nash \\'hich stated how much

had been spent as of February 22.. 1997 for the general ledger codes which correspond to

the line items in the original budget. This summary showed that SII 0..214 remained to be

spent. The Host Committee also provided a detailed description of each major general

ledger category indicating the types of expenses included under that category. This

document stated that ofthe SI 10.214 remaining.. an additional S88.456 was to be paid for

the Nash share ofthe camera package, including labor. used to film the Convention.. and

513..332 to be paid for wind down and audit. In addition. the Host Committee provided

bank statements from Nash and representative copies ofinvoices from vendors that

provided services to Nash. These invoices documented a totai of 5933,,241 ofthe amount

shown by Nash as having been spent to date.

The memorandum also states that one of the reasons Nash was selected was based on his

perfonnance ofsimilar services for the Iq9~ con\ entlan. It ap~a:.:d that the televiSion

production services for that convention" ere paid b~ the Comminee on Arrangements rather than

by the Houston Host Comminee. The Houston Host Committee reponed paying Nash only

546.000 for consulting and insurance. The IQQ~ Committee On Arrangements paid Nash

51 .. 125.000.

Pag~ 1
q

I

Q;

it

n

u

7

According to the Host Committee. the payments to Nash covered t\\'O

specific areas: (1) infrastructure. facilities. and other services for television production:

and (2) improvements to and entertainment at the Sail Area ofthe San Diego Convention

Center. With respect to the tele~ision production. the Host Committee stated:

the audience for modem presidential nominating conventions includes delegates.

other convention attendees and television viewers. Therefore. the San Diego

Convention Center had to be prepared for television cameras. crews and facilities.

Nash hired the professionals who coordinated the installation ofthe television

facilities as well as the laborers who did the actual installations. In addition. Nash

hired the professionals who implemented the production ofthe convention show from

the perspective ofthe television audience. This included producers. directors and

technicians. These individuals were responsible for implementing the 'picture' or

'show' that was seen by convention attendees (on screens throughout the Convention

Center, including the Sail Area), as well as television viewers. However. Nash

services to the SDHC had nothing to do with convention content; the speakers. the

message and the sequencing ofthe convention were all detennined by officials ofthe

Committee on Arrangements. Nor did Nash provide any commentary or explanation

of convention proceedings for convention attendees or teleVision viewers.

Ofthe total spent by Nash for production, $264.02210 represented

payments to producers, directors. and production staff. These individuals included the

television producer who was "[r]esponsible for television coverage.. including live

remotes and creation of video segments for big screens" and directors who hdirected

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 U[allso directed the video mix ofmaterial that \\'as displayed on the giant projection

screens." Production staff included the stage manager. who was H[r]esponsible for

running the operation ofthe podium during 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 "'[f]onnats the television script after assembling all

the written materials and technical infonnation" and U[g]enerates 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 of expenditures included $540,345 for rigging and

staging labor which included U[I)abor costs for stage hands. electricians, riggers for

installation and operation during the convention sessions,''' It appeared this category

covered electricians who rigged lighting and cameras and that some of the expenses for

camera rigging were reimbursed by ABC. ~BC. CBS. and CNN.

10 Nash actually was paid an additional SIOO.O()(J a~ E\ecuttve Producer. The funds for these

payments were provided by the Commmee on Arrangements.

Page 14
9

q

I

it

o

7

Another major category of expenditure \\'as $421 ..652 spent for video

operations. This includes payments for "television cre\\' 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 uthe coordination of all

aspects ofthe video engineering, including the timing and gen-Iock synchronization of

cameras, the design and routing ofthe intercom systems, acd signal path and test designs

for both incoming and outgoing satellite signals." The remote production costs

represented $138,442 ofthe above amount and was 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 fll'eworks). Two high school students spoke on behalf of

Russell. The Miami shoot highlighted a woman's work in health care. The San

Diego shoot was ofBob 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 5263.205 classified as for video

segments which were U[e]xpenses associated with producing video clips highlighting

profiles of delegates panicipating in the process" and $10,000 for a continuity \\riter \\'ho

was a U[s]peech coach and transition writer [who] helped to reword speeches to help them

flo\\' better.. added jokes.. and in general punched up the spe~ches. He \\'as not involved in

any content decisions or writing ofspeeches." Also.. $70.000 was spent for a Russell.. KS

shoot which contained "footage on the history ofRussell. KS and the current Russell. KS

(small to"n America)." According to the Host Committee, this footage was not used in

the convention and was not the same as the "Dole film."'"

A final item of note with respect to the production was contained on a

vendor invoice related to makeup_ An item on the invoice stated that "[alir travel, [h]oteL

and ground transportation to be covered by RNC.'" The Audit staff had been told that

these items were not paid by the Committee On Arrangements; thus, it was assumed that

the invoice meant the Republican National Committee.

In the Exit Conference Memoranda. the Audit staff concluded that the

disbursements related to television production were not expenses properly paid by a host

II AIthough this footage was apparently not used during the convention. the Audit staff had no

record ofthe disposition ofthe footage. For example. we did not know ifthe footage may have

been transferred to either the Republican National Comminee or the Dole for President

Comminee.

Page 15
it

o

7

*

{}

2

1:;:

-i'

...

2

"""" 7

4

committee pursuant to 11 CFR §9008.52(c). Rather.. they were convention expenses that

should have been paid by the Committee On Arrangements 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 of

camera platfonns and lighting, the Audit staff believed that the expenses paid by Nash

related to rigging cameras and lighting were not host committee expenses. Rigging

cameras and lighting for the purpose of providing a television picture that meets the

television producer's requirements is not the same as building a platform 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 platforms. The

disbursements in this case appear to be related to the overall process oftelevision

production which should have been paid by the Committee On Arrangements.

The categories of disbursements at 11 CFR §9008.S2(c) deal with

disbursements 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 I.·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.. thus implying that they should be legitimate Host

Committee disbursements. However.. as noted previously, the Committee On

Arrangements wrote that Nash h •••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 of disbursement 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 !,urpose of conducting the

Presidential Nominating Convention and should have been paid by the Committee On

Arrangements. This is not preparing the convention center or site for the convention or

promoting the City of San Diego. Instead.. these disbursements are related to putting on a

hsho\\'''' to be seen by the country in hope of influencing the public to support the political

party hosting the convention and its Candidate for President, in this case. the Republican

Party and Senator Robert Dole.

Aside from overseeing television production, Nash was also responsible

for the improvements to and entenainment at the Sail Area. The Sail Area \\'as an area

outside ofthe main convention hall but within the San Diego Convention Center.

According to a Host Comminee officiaL U[b]ecause the main hall \\'as too small to

accommodate all guests and anendees. SDHC provided additional space in the Sail Area.

Nash \\'as hired by SDHC to improve the Sail Area so that convention attendees could

\\'atch convention proceedings on large television screens. in addition.. Nash arranged for

the entertainment \\'hich \\'as provided in the Sail Area'" According to Nash.....[t]he Sail

Page 16
6

o

7

Area is an outside open air patio on top ofthe convention center. Food and drink \\'as

also available in the sail area, The cost ofthe stage.. sound.. lights and labor associated

with the equipment installation made up these expenditures.'· Nash also stated that the

entenainnlent used in the Sail Area were local San Diego groups and that some ofthese

groups were also used before the Convention in the convention hall.

The amount spent by Nash for improving the Sail Area was $145.299 and

the amount spent for entertainment was $18,935 for a total of$I64,234. The

expenditures for setting up the stage, sound, and lighting equipment related to the Sail

Area were not related to the television production and are an allowable expenditure under

11 CFR §9008.52(c). The Exit Conference Memorandum also concluded that the

entertainment featuring San Diego groups could be considered promoting the City of San

Diego. Thus, ofthe $2,245,520 net paid to Nash, the Exit Conference Memorandum

concluded that $164,234 represented allowable Host Committee disbursements and the

remaining $2,081,286 should have been paid by the Committee On Arrangements and

resulted in an in-kind contribution by the Host Committee.

Given the infonnation available at the time, in the Exit Conference

Memoranda the Audit staffrecommended the committees provide documentation to

demonstrate that the payments to Nash were allowable Host Committee expenses

pursuant to 11 CFR §9008.52(c) and did not result in prohibited in-kind contributions to

the Committee On Arrangements for the 1996 Republican National Convention. This

documentation was to include copies of any checks issued by Nash related to the

Republican Convention.. along with copies ofthe invoices from the vendors which the

Host Committee believed were specifically covered by 11 CFR §9008.52(c). Also.. for

these specific items, the committees were to address whether these disbursements would

have been necessary for the convention hall if not for the television production

requirements. Finally, the committees were to provide information and documentation

which showed the disposition ofthe footage for the film shoot which occurred in Russell.

KS. ..

As noted above, the permissibility ofthe Host Committee"s payments to

Nash were addressed in the Exit Conference Memoranda resulting from the audits of both

the Host Committee and the Committee On Arrangements. Although both responses

reach the same conclusion, they are different in approach. In the interest of a full

discussion ofthe issue, the responses are addressed individually.

1. The San Diego Host Committee Response

In response to its Exit Conference Memorandum.. 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 ne\\'s media compared to only 3.980 delegates and

alternates. The Host Committee further noted that this is not surprising since modem

conventions are media-intensive presentations. The Host Comminee then explained that

Page 17
Q

;-

if.I

it

{1-

7

..

o

2

5

It

2

3

7

b:

a facility· c; level of broadcast readiness or the \villingness ofthe city or host comminee to

make it broadcast ready are important factors in the site selection process. It \\'as also

stated that because ofthe shape and small size ofthe San Diego facility it \\'as necessary

to provide closed circuit television inside the facility even if no extell1al broadcast had

been contemplated and that the Audit staff made no distinction between the t\\'o.

In its response the Host Comminee goes on to say:

The regulations specifically provide that host committees may expend monies

for preparation ofthe auditorium or convention center in a wide variety of ways.

including. but not limited to. construction of camera platforms and the provision of

lighting. electrical and loudspeaker systems (11 C.F.R. § 9008.52(c)(I)(v». As

previously stated. the regulations also provide that hother similar convention-related

facilities and services" are permissible host committee expenditures (II C.F.R. §

9008.S2(c)(l)(xi». In light ofthe fact that the host committee regulations were rewritten.

effective in 1994, and that the National Nomin~ing Conventions have become

increasingly media intensive. it is difficult to conclude that the host committee

regulations, absent language to the contrary, prohibit all expenses directly or indirectly

connected with television infrastructure. closed circuit or otherwise.

It seems clear that the regulations specifically contemplate such expenditures.

Had the Commission wished to prohibit host committees from paying for television

infrastructure. it could have, and presumably would have. so provided:'; Had the

Commission intended to specifically prohibit entire classes of expenditures by host

committees, it might have included a provision similar to 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 activities [text offoomote omined].

The Host Committee then contendea that the Nash contract

\\'as the result ofthe Committee On Arrangements 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 Comminee argues that

if it can pay for the "build out''' ofthe shell that \\'as the convention center. then it

can pay for the .•...costs associated with the facilitation of broCidcasting.'· The

response stated that ··[t]o conclude otherwise is to deny the realities of modem

conventions.,,,

There can be no dispute that modem Presidential Nominating

Conventions have become major media events. In most case~ it is a near certainty who

the nominee will be before the convention stans. As a result. media coverage is the best

way to project a favorable image ofthe Part~ and the Candidate. The issue here is

whether or not the expenses related to that media coverage should be paid by the host

committee or the convention comminee. As prc\·iously noted. the regulations for host

comminees were wrinen \\'ith the primary purpose of allowing such committees to

promote the city·s commerce and image. and to pa~ for certain convention-related

expenses. primarily infrastructure related tn preparing the convention hall to host the

convention. The cost of producing the tele'·lsion hroadcast ofthe convention proceedings.

Pagt.: 1
•

(1

7"

..

o

2

5

..

2

3

7

7

including setting up the producer" s equipment. is an expense of conducting the

convention and should have been paid for by the convention committee. The

preparations related to television are not associated \\ith promoting a city's commerce

and image, nor are they expenses to prepare the convention hall to host the convention.

The staff agrees that media coverage is intensive and that in this case the Republican

Party required that the convention hall be made ready for television so that a favorable

image ofthe Party and its nominee could be broadcast around the country. However. the

staffdoes not agree 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 panies \\ill

. only select a site that can be adequately prepared for television broadcast. Once again the

staffdoes not dispute that this is the case, but we concluded that it is an expense of

conducting the Convention and should have been paid for by the Committee On

Arrangements. To borrow the Host 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 part ofthe cost of producing the movie.

The Host Committee once again states that the Commission

regulations are permissive and ifthe Commission had wished to bar host committees

from paying for expenses related to the media. then it would have done so. The Audit

staff notes that the host committee regulations were created with the intention of

providing a "very narrow exception" to the limitation on convention expenses.

The Host Committee also provided a declaration from the

production accountant for Nash for the 1996 Republican National Convention \\'hich

takes exception with a number ofstatements made in the Exit Conference Memorandum

as presented above. They are as follows:

o The Exit Conference Memorandum noted that one category of expense \\'as

$540.345 for rigging and staging labor including labor costs for stage hands

electricians. riggers for installation and operation during the Convention. It

was noted that the category appears to cover electricians who rigged cameras

and lighting and that some ofthe costs of camera rigging were reimbursed by

the television networks. Nash states that all camera labor in this category was

for rigging network cameras and it \\'as all reimbursed by the television

networks. No documentation \\'as submined but there is no effect on the

conclusions reached by the Audit staff,

o The declaration makes note of the Audit staffs conclusion that the expenses

paid by Nash for rigging cameras and lighting \\'ere not Host Committee

expenses. and the related recommendation in the Exit Conference

Memorandum that invites the Host Comminee to demonstrate otherwise and

requests detailed documentation for specific expenses that the Host

Committee believes are allo\\'ahlc under 11 CFR §9008.52(c). As pan ofthat

documentation the Host Committee \\'as to demonstrate that the expenses

\\'ould have been necessary in the ahsence oftelevision. It is again pointed out

Page 14
The declaration makes note ofthe concern raised by certain invoices that

suggested that some expenses had been paid by the "RNC" which the Exit

Conference Memorandum assumed meant the Republican National

Committee. Nash explains that vendors used those initials to refer to the

"Republican National Convention" and states that "Nash has made no

payments to the RNC nor has any ofits vendors been paid partially or fully by

the RNC for Nash work."

Finally the declaration references the statement in the Exit Conference

Memorandum that "it appears television production services for the 1992

Republican Convention were paid by the eOA rather than by the Houston

Host Committee." It states that in 1992 equipment and labor for lighting was

paid for by the Houston Host Committee.

that it \\'15 necessary to provide closed circuit television in various pans of the

facHit)· because ofobstructed views or locations outside the main hall "'here

the proceedings could not otherwise be seen. It is then concluded that all

lighting would have been needed even if broadcast ofthe proceedings had not

occurred. The Audit staff does 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 over shadows the overall purpose ofthe Nash expenditure. As

stated previously, Nash's primary function was to "present and enhance the

Republican message for presentation to the television networks and the media

in general" and to produce the '-picture" or hsho\\'" that was seen by the

Convention attendees and television viewers. Expenses associated with this

function are related to conducting the Convention and not the preparation of

the convention hall.

9

i:t

f

..

0

7

.. 0

e

2:

-:;:

oJ

"t:•

l..

3

7

8 0

Disclosure repons for 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 labor and equipment for television lighting was paid by the Houston

Host Committee. the payments were apparently made to vendors other than Nash. A

revie\\' ofthe production budget for the Comminee 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 indicate that there were two change

orders to this production budget and the 1992 Committee On Arrangements paid a total

ofSI.125.000 as of September 30. 1992 to Nash for \\'ork done on the 1992 Republican

National Convention held in Houston,

Page 20
..

{}

7

.-

2'

3

7

Qi;"

The Host Comminee also objects to the Exit Conference

Memorandum·s reliance on a June 19. 1996 memorandum from the Comminee On

Ammgements to the Host Committee which states that Nash had been hengaged by the

COA to produce the television event and staging ofthe Convention proceeding. David

Nash and a staff of professional television production and technical associates \\'ill

present and enhance the Republican message for presentation to the television net\\'orks

and the media in general ...• The Host Committee argued that this memorandum is

irrelevant because the same language does not appear in the contract bet\\~een it and Nash.

That contract was signed some weeks later. Rather, the Host Committee characterizes

that language as written by a Committee On Arrangements· representative and probably

expressed the " ...hopes and aspirations ofthe COA at that time"". The Host Comminee

goes on to note that the panies agreed that Host Committee funds would be spent only for

permissible expenses as evidenced by the Committee On Arrangements" separate contract

\\ith Nash and the Host Committee's unwillingness to pay expenses related to GOP T\'.

With respect to the June 19, 1996 memorandum.. there is no

question that it does not constitute a contract ofany sort. Rather.. as suggested in the Exit

Conference Memorandum.. it makes clear what the Committee On Arrangements

expected Nash to do, This, taken together with the contract provision that requires the

Committee On Arrangements to approve significant expenses incurred by Nash.. and

another that requires Nash to do its work according to Committee On Arrangements"

requirements, clearly establishes Nash" s function, In addition to the language previously

cited.. the June 19, 1996 memorandum states that uDavid 1. 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 \\'as 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 On Arrangements appears to confirm this. Finally, although the contract \\'ith

the Host Committee was not signed until late July.. the term ofthe contract ""jth the

Committee On Arrangements began on March 1.. 1996 and the tenn ofthe contract \"ith

the Host Committee began on May I.. 1996. As a result, it would appear that Nash had

already been perfonning services for both entities at the titl'e ofthe June 19, 1996

memorandum. The goal ofthe Nash contract \\'as well established when the June 19..

1996 memorandum was written. Funherevidence of Nash"s role in enhancing and

presenting the Republican message can he seen in some ofthe expense categories that the

records document. These include:

o

o

payments for directors \\'ho. in pan.. h ...directed the video mix ofthe program

materi~l that \\'as displayed on the giant projection screens in the Main Venue

and the sail area.'"

payments for the script supervisor \\'ho "[fJormats the television script after

assembling all the "Tinen materials and technical infonnation.,..

Page:! 1
o

o

o

expenses associated with producing video clips highlighting profiles of

delegates panicipating in the process.'"

expenses for a tape coordinator who U[0 ]rganized and edited all master tape

footage for use on the big screens dwing the cOl!vention."

expenses for a continuity writer who was a "[s]peech coach and transition

writer. He helped to reword speeches to help them flow better. added jokes.

and in general punched up the speeches."

C]

Q

f

•

o

7

•

"

2

5

•

2

3

8

()

The staff concluded that the cost of presenting and enhancing the

Republican message to the media, and "implementing the ·picture' or 'show'" that v.·as

seen by Convention attendees as well as television viev.'ers. and all ofthe associated

costs, including the vendor's equipment setup, are convention expenses that are not

pennissibly paid by the Host Committee.

The memorandum discussed above alsc 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 equipment, services and creative talent are in high demand due to the Olympic

Games in Atlanta." This statement supports the Audit staffs contention that Nash"s

services and the installation 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 parties

that its money was only to be used for pennissible purposes. thus implying that the

money Nash spent must have been pennissible. A contract stating that the money spent

can only be spent for pennissible purposes does not mean that it was.

With respect to its separate contract with Nash. the Commin~e On

Arrangements paid only $117..500 as compared to the $2.245..520 paid by the Host

Comminee. The payments by the Committee On Arrangements were SI 00.000 for David

Nash as Executive Producer, S12,500 for producer expenses. and an additional S5.000 for

accounting. Thus.. it appears that there was no attempt to divide the payment ofthe actual

costs oftelevision production services between the Committee On Arrangements and the

Host Committee. The Committee On Arrangements paid tlte iudividual who was

responsible for overseeing the whole project. Ifthe whole project was a legitimate Host

Comminee expense. it would seem that the Host Comminee could have paid the fees for

the person overseeing it. However, in the opinion ofthe staff. ifthe Committee On

Arrangements felt that the services ofthe person overseeing the project were not host

comminee expenses. then it would seem that most ofthe costs ofthe project were not host

committee expenses and thus should have been paid by the Committee On Arrangements.

The Host Comminee further contends that:

Page ~~
9

a

f

..

2:

8

1

The Nash Contract can be divided into different categories and during the audit

process. the Committee. working \\'ith the Audit Staff. made some progress in doing this

for analytical purposes 1.. The Committee believes that its expenditures in connection

with the Nash contract were permissible under sections 9008.~2(c)( I)(ii), (v) and (xi).

By letter dated April 23. 1997. the Committee provided the Audit Staff with copies of

invoices for approximately 5876.000 related to items which it believes are specifically

permissible expenses under II C.F.R. § 900S.S2(c)(l)(v). Since that time. the committt~e

has received a detailed analysis ofthe Nash contract which indicates the true number is

almost twice that amount [text offoomote omitted].

Using the analysis of expenditures provided by the production

accountant for Nash, the Host Committee funher notes that:

It is the Committee's position that lighting/rigging. decorations/music. alliabar

and equipment for the convention closed circuit TV, the Sail Area (not at issue here) and

general overhead are authorized expenditures under regulation II C.F.R. §

9008.S2(c)( I)(ii) and (v). Such expenses are also pennissible under II C.F.R. §

9008.S2(c)(l)(xi). This accounts for SI,644.50S.

It is the position ofthe Committee that the expenditures listed under

'Miscellaneous' which deal specifically with television broadcast infrastructure expenses

in the amount ofSS 12.560 are authorized by II C.F.R. § 9008.S2(c)(l )(xi). This is

consistent with the intent ofthe host committee regulations which are clearly written to

be pennissive and not prohibitive. Any doubt about this intent is dispelled by the

language of 11 C.F.R. 900S.52(c)( l)(xi), a catchall provision which allows host

committees ··to provide other similar convention-related fac:ii;,ic=s and services." The

Host Committee is expressly authorized to provide for infrastructure costs under 11

C.F.R. § 9008.S2(c)(v) and "other similar convention-related facilities and services."

The fact that a class of expenditures is not specifically listed does not mean it is

prohibited.

The Committee asked the COA to review all ofthe c=,,~nditures und~r the Nash

Contract in light ofthe COA ~s role in supervismg such expenditures. The Committee has

been advised by the COA that the 570.000 expended in connection with the 'Russell

Shoot' may have been an oversight and outside the scope of its contract with Nash. On

July 29, 1997, the Committee asked the COA to reimburse it for the costs associated with

the Russell Shoot. The Committee notes that the film. a documentary about small-town

America, was never shown at the convention and understands theit the ownership ofthe

film rests with New Century Media Group which produced it. The Committee believes

thal the film was never released to or used by anyone.

Finally. it is the Committee's understandmg that Nash is holding about 5S8.OOO

(less cenain audit expenses) of unexpended CommlUee funds which the Committee has

asked Nash to refund.

The Host Comminee pro\'ided an analysis prepared by Nash's

production accountant to identify the payments it included in the totals for the categories

noted above. The Audit stafTrevie\\'ed the Host Comminee~s classifications and noted

that included in the $1.644,505 are items such as a Graphic Package ($26~684). CoProducer ($40.000).. TV Producer ($18..750,. Directors ($39..016).. Moving Light Operator

($11 ..735).. Video ere\\' Labor ($56.. 781). Scn:en Control Mobile ($90.511). and
Q

F

q

i

it

{1

7

•

o"."

t..

5

•

2

3

8

2

TelePrompTer ($56..651). Smaller items in the total include Stage Manager.. Script

Supervisor.. Tape Coordinator.. and a Makeup Supervisor. Line items included in the

"Miscellaneous'" total are Satellite costs ($73.748). Remote Productions for the live

television transmissions ($138,442), FilmlVideo Segments ($174,749).. Russell Film

Shoot ($70..000), and a Continuity Writer ($10,000). 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 clase. In our opinion. all ofthese

ex~nses are primarily related tt? and for the purpose of, presenting the television image

ofthe Convention to the attendees and to the American public. They.. as well as the

associated equipment set up, are expenses ofNash"s work to present and enhance the

Republican message at the Convention. The staff concluded that contrary to the

suggestion ofthe Host Committee, these expenses are not costs of welcoming the

attendees to the city, convention hall construction costs, or things similar thereto but

instead are partisan in nature and expenses of conducting the Convention.

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 contract. the h •••entire right. title and interest throughout

the world, including the copyright. in and to the film "Tour ofRussell. Kansas'.... would

remain with the media company. The Host Committee stated that it believes that the film

was never released to anyone. No documentation was provided from the media company

which states whether or not these rights were ever subsequently sold or given to another

entity. Thus. the final distribution ofthis film still cannot be verified.

Response ofthe Committee On Arrangements

The Committee On Arrangements begins its response on this

matter with a general discussion of the Nash expenses and then addresses a number of

specific expense categories. These categories are not as presented in the Exit Conference

Memoranda because Nash" s production accountant has provided a more detailed analysis

than was available at the time ofthe Exit Conference Memoranda. and has allocated pans

ofthe various miscellaneous and overhead categories to the direct cost categories. Each

ofthese categories will be discussed bel0\\',

In its general comments. the Committee On Arrangements again

states that Nash provided similar services to the )99:! convention and those expenses

were not challenged. As noted above. the 199: Committee On Arrangements paid Nash

$1 .. 125..000 while the host committee paid only $46.000 for consulting and insurance.

Unless the 199::! host comminee's paymenb \\'ere: made to subcontractors.. the 199::!

Committee On Arrangements paid for most (lf the services Nash provided. No

documentation "'as submitted to demonstrate othcr\\'ise.
..

o

7

..2:

3

8';Co

~o

The Committee On Arrangements also observes that there is

nothing in the statute or regulations that states that a host committee may not pay costs

associated with 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 a host committee may pay was meant to be a "·very

narro\\· exception" to the limitation on convention expenses. Paying for the television

broadcast ofthe Convention to the Americanpublic is, in the staffs opinion.. a

convention expense not provided for at 11 CFR §9008.S2(c). An overly broad reading of

the 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 open-ended. The

regulations include what expenses may be defrayed by a host committee.. and television is

not included.

The Committee On Arrangements also notes that the selection of a

convention site relies heavily on the "'telegenicity" ofthe site and that it is important 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 platfonn, choose nominees for the office of President and Vice-President ofthe

United States, and aniculate 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.

An important component ofthe Convention's purpose is to pr"vide a sening that allows

the Republican Pany to generate enthusiasm and suppon for the Pany's candid.ates and

platform. This is done. in pan. by encouraging party activists to panicipate in the

Convention. The Convention also seeks to generate enthusiasm and suppon among

Americans in general. In modem American politics, television coverage of conventions

is the primary, if not exclusive. filter through which Americans receive the infonnation

that determines success or failure in generating such enthusiasm and suppon.

This affidavit recognizes that one of:h~ primary purposes of

television coverage is to generate enthusiasm and support for the Republican Party·s

candidates and platfonn. Expenses that are necessary for the Republican Party to use its

convention site as han arena from which its proceedings could be broadcast to the

American public" is. in our opinion.. clearly a convention expense for the purpose of

obtaining political advantage and should have been paid by th~ Committee On

Arrangements.

The final general comment concerning payments to Nash notes that

some expenses would be necessary even \\'ithout the proceedings being broadcast outside

ofthe hall. The need for closed circuit television and the analysis ofthat argument \vas

discussed above (see pages 19·20). The Committee On Arrangements response adds that

Page :!5
QI

C]

it

o

7

•

o

2

5

•

2

3

8

4

the closed circuit television signal "'as also made available to the networks.. GOp·T\'.

and other media entities.

The first specific category ofexpenses addressed is related to the

Sail Area which was considered an allowable category in the Exit Conference

Memorandum. The Committee On Arrangements notes that the updated total is $196..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 entenainment in the Sail Area and the $3,481 spent for an entenainment coordinator

should have been paid for by the Committee On Arrangements. The host committee

regulations at 11 CFR §9008.52(c) do not contain a provision that allows for host

committees to pay for entenainment. Thus, the revised amount for pennissible Sail Area

expenditures is 5173,616 ($196,032 - $18,935 - $3,481).

The next category addressed is Lighting and Rigging, totaling

$689,535. The Committee On Arrangements 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-theart and that as an inducement for the convention to come to San Diego, the Host

Committee committed to bring the lighting up to the standard necessary.

Three specific arguments related to the lighting and rigging are

presented. First, the response notes that all parties 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 ··for the purpose of promoting the

suitability ofthe city as a convention site." Second. lighting is specified as one ofthe

"construction and construction related services" that host committees may provide

pursuant to 11 CFR §9008.S2(c)(1 )(v). and over $1 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

challenge by the Commission.

The response includes an affidavit from David Nash which

discusses his respbnsibilities 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.. the equipment was provided by Bash Lighting (Bash). A re\'ie\\' of

Host Committee expenditures indicated that it paid Bash approximately $906,000 \\'hich

included a $60.000 payment for 20010 ofthe rigging contract, a $147,500 payment

described as rigging. and a $272..000 payment for lighting and rigging. Given the

substantial payments to Bash and other vendors for lighting equipment.. design and

Page 26
it

o

7

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 were not questioned by the Audit staffsince

they are specifically permitted host committee expenses.

The question of payments to Nash it' connection with the 1992

convention was discussed at page 20 above.

The Committee On Arrangements next discusses expenses

classified as closed circuit television totaling $423~762. The response states that since

Nash's work on the Sail Area was allowed, the Exit Conference Memorandum implicitly

conceded the appropriateness ofthe Host Committee paying for closed circuit television.

The Committee On Arrangements 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.

tIle respoc.se states that the Exit Conference Memorandum did not directly question the

costs ofinstalling the closed circuit television system but suggested that the ponioD

attributable to labor, such as producers and directors, was an inappropriate Host

Committee expense. The Committee On Arrangements states that the closed circuit

television system was essential to make the convention center usable and the video feed

was clearly an integral part ofthat system. The response also states that the Exit

Conference Memorandum statement that the closed circuit television production was

"clearly convention related"

...provides more. not less, justification for the costs being permissible SDHC expenses.

After all. 11 C.F.R. § 9008.S2(c)(xi) expressly pennits host committee to pay the costs of

'convention-related facilities and services' that are 'similar' to lighting and other

enhancements that allow effective presentation efthe convention. Thus, the expenditures

were payable by SDHC pursuant to § 9008.S2(c)( 1)(i) ("promoting the suitability ofthe

city'), 9008.S2(c)( 1)(v) ('construction and convention-related services' for 'convention

center'). and 9008.S2(c)(1)(xi) ('similar ... convention-related facilities and services').

The Committee On Arrangements 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 Host

Committee when the Exit Conference Memoranda were drafted, Nash"s work in the Sail

Area was for improvements in the Sail Area and was not related to television production.

The conclusions reached in the memoranda state" in pan. that hthe expenditures related to

the Sail Area were not related to the television production and are an allowable

expenditure.'· If that conclusion regarding the SaiI 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 On Arrangements.

Page ~7
q

o

1

it

o

7

it

i1t:J

2

5

The Committee On Arrangements also believes that the Exit

Conference Memoranda did not directly challenge the costs ofthe closed circuit

television system but instead questioned labor costs such as producers and directors. The

Exit Conference Memoranda drew no such distinction. The memoranda did note that the

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 §9008.52(c)(1)(xi). That portion ofthe regulations says that a host committee may

h •••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

auditoriwn is one ofthose categories, the regulation never mentions "other enhancements

that allow effective presentation ofthe convention." As noted before, reading the

allowances at 11 CFR §9008.52 as broadly as the Committee On Arrangements suggests

has the effect of negating the spending limitations. Television production is not similar

to the categories of expenditures allowed for host committees but is a cost ofpresenting

the Republican Pany'ls message and candidates to the viewing public.

The response discusses $156,399, which is categorized as

"DecorationslMusic." The Committee On Arrangements states that the $104..279 spent

for balloons, confetti, fireworks and video graphics were allowable host committee

expenditures for "decorations" and "'similar convention-related facilities and,services.'"

Further, $49..032 was incurred for a musical director and orchestra and the remaining

$3.088 was for transportation and hotel expenses for the orchestra. The response also

says that the orchestra welcomed and entertained the delegates and attendees as they

gathered in the convention hall prior to each session ofthe Convention and that providing

music in the convention hall was a convention-related service hsimilar'" to the provision

of decorations.

The regulatory allowance for decorations is provided relative to

convention-related services for 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 ....picture U or hsho"'-' to the Convention attendees and television viewers. These items

are for the conduct ofthe Convention. not decorations related to the use of an auditorium.

With respect to music and the orchestra. the Nash affidavit states that the orchestra was

used to entertain the attendees when the Convention ran ahead ofschedule or if a speaker

was not quite ready. The payment for an orchestra to entertain the delegates is part ofthe

Convention proceedings and is not a decoration. The regulations allow for a host

committee to pay costs of welcoming Convention attendees to the city.. such as the use of

information booths. receptions.. and tours. and to promote commerce by providing

shopping and entertainment guides. \Velcoming attendees to the Convention proceedings

and providing entertainment during lulls in the proceedings is pan ofthose proceedings

and is a convention expense which should ha\'c heen paid by the Committee On

Arrangements. With respect to the hotel and transportation costs. no documentation "'as

provided to sho"' that the requirements of 11 eFR ~~9008.52(c)(1)(\'i) (local
..

o

7'

tO

2

5

it

2

3

8

7

I

transportation services) and 9008.52(c)(I)(ix) (hotel rooms) had been complied \\·ith and

accordingly.. no adjustment has been made to the total contribution \\'ith respect to these

costs.

Nash" s analysis categorizes $512..560 as Miscellaneous. Included

in that amount is $217,511 spent on video crew labor, satellite time.. and remote

productions. These costs were for the production and transmission ofinterviews and

broadcasts from remote locations such as Miami.. Sacramento.. San Diego.. and Russell..

Kansas. The response states that these productions were sho\\n on large television

monitors throughout the convention hall as pan ofthe overall imagery for the

Conventi\ln. According to the Committee On Arrangements. ~ach 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 di~;>lay when the Kansas

delegation cast its votes to secure Senator Dole's nomination, and 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 On

Arrangements argues that this is no different than the Host Committee paying for one or

more large photographs of Senator Dole and hanging them in the convention hall as

decorations. The response also argues that it can not be rta.;onably disputed that the Host

Committee could pay for video graphics used as decorations. The Committee On

Arrangements submits that these expenses are ··similar" to standard decorations. and are

allowable host committee expenses. The response also states that the remote broadcasts

featuring Steve Young interviewing students in SaCrCL'llento and Jason Poblete

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.

The staff concluded that these productions were pan 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 of viewers.,.. Later

Nash \\Tites with respect to satellite time.. the expenses were to transmit the remote shots

and '''so that the Convention could make the closed circuit television signal available to

television media across the country who chose not to send their own production personnel

to the Convention and who did not want to rely completely on the major television

net\\'orks for coverage." The live video of Senator Dole watching his wife's speech is not

the same as a poster showing 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

of his wife's speech. This feed was pan of the Convention's content on that evening and

is not a decoration. The Russell feed offire\\'orks \vas used to sho\\' the excitement ofthe

people of Russell at the moment Senator Doh: s~cured the nonlination. This \\'as also

used as a pan ofthe Convention·s proceedings. not as a decoration. Similarly. the other

remote productions are not decorations.. even if the television networks did not sho\\'
it

2....

~: -.$'

8

8

them. As Nash stated. these productions were used to hold the attention ofthe \'ie\\'ers -

not decorate the convention hall. In the Audit staffs opinion. these expenses are political

in nature. They are for the conduct ofthe 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 are convention expenses not pennissibly paid by the Host

Committee.

The Committee On Arrangements also states that the host

committee in Chicago reponed a payment for satellite time, presumably to demonstrate

that the Democratic host commi~ee also believed that expenditures for satellite time \\'ere

a legitimate host committee expense. 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 Democratic host comminee

infonned the Audit staffthat the City ofChicago and the host committee detennined that

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 On Arrangements.

Thus. neither the host committee or the city paid for satellite time.

Another part ofthe Miscellaneous category is $180,,414 for

Film/video Segments and Editing. The Committee On Arrangements believes that these

were pennissible Host Committee expenses for a number ofreasons. First" some ofthe

segments consisted ofinterviews with delegates and celebrities that \\'ere complimentary

to the City of San 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

Com.nlittee On Arrangements argues other video segments served the purpose of

welcoming or introducing speakers to the podium or welcoming and ackno\\'ledging other

attendees and are permissible as welcoming or similar expenses. The response goes on to

say that other video segments had already been produced and were provided to Nash for

fonnatting for use with the equipment in the convention center. The Committee On

Arrangements believes that since the Host 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 entertainment

expenses. The affidavit ofthe Convention Manager notes that "[t]he video segments

were taped presentations displayed during lulls in the Con...:ntion proceedings or.

sometimes. during a speaker·s presentation. Many ofthe segments were profiles of

delegates or interviews with Americans about imponant issues...The primary purpose of

the video s(~gments \\'as to entenain the delegates and other attendees.'·

The staff concluded that the Committe.- On Arrangements had

again applied an overly broad reading ofthe regulatory allowances. Allowable expenses

Page 30
QI'

q

I

!.

L

3

8

q

I

include \\/elcoming attendees to the city by providing infonnation booths. receptions and

tours~ allowable expenses include the costs of promoting the ~uitability ofthe city as a

convention site; and. allowable expenses include 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 suitability ofthe City as a convention site. 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 entertainment and are somehow a permissible host committee

·expense. As noted, entertainment of attendees is not included as an allo\vable expense.

Two minor items included in the Miscellaneous category are

approximately $1,200 for an Entertainer and Announcer and $1,220 for the Convention

Manager Shoot. For the entertainer and announcer, the Committee On Arrangements

states that "[t]hese insignificant costs are justifiable as promotional expenditures,

welcoming expenditures, administrative expenditures, or convention center expenditures'"

and "[t]he convention manager shoot was a short 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 committee as a promotional, welcoming. or

~similar' expense."u The response seems to indicate that the entertainer and announcer

expenses must fall into one ofthose categories which a host committee may pay. Once

again, it is the staffs opinion.. that these expenditures are for items that are part 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 same as expenditures for welcoming attendees to the city hsuch as information

booths, receptions. and tours.'"

The Miscellaneous category also includes $70.000 for the Russell

Film Shoot and notes that New Century Media Group.. Inc. was paid this amount hto

design.. create and produce" a filmed walking tour of Russell, Kansas which was hosted

by Senator Nancy Kassebaum. Although considerable eftort was expended on this film.

it was ultimately decided not to be usable at the Convention. The purpose ofthis film

\\'35 to entenain the delegates during a planned lull in the Convention proceedings. The

Committee On Arrangements believes that this expenditure \\<"as an allowable Host

Committee expen~e because it was intended as entenainment for the delegates and \\'as

permissible under 11 CFR §§9008.S2(c)( 1)(ii) and (xi).

u The Comminee on Arrangements' response adds that Similar payments were made by the Houston

Host Commlnee in 1992 and were not challenged ~o funher details were included.

Page 31
•

o

7

•

{}

2

--

The regulations cited by the Committee On Arrangements deal

with··...those expenses incurred for welcoming the convention attendees to the city. such

as expenses for information booths" receptions, and tours'" and "[t]o provide other similar

convention-related facilities and services." For the same reasons the staff concluded that

the video segments discussed above are not allowable Host Committee expenses. 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 On Arrangements

acknowledging that it should not have paid this expense.

The final items classified as Miscellaneous include a $10.000

payment for a Continuity Writer, $2,,691 for Stand-ins, and $29.524 for hAllocated

Items". According to the Committee On Arrangements.. the stand-ins "'ere used during

rehearsals in order to calibrate lights and sound systems and the continuity writer \vas

charged with reading and editing the various convention speeches and hpunching them

up" without altering their substance or content. The Committee On Arrangements feels

that these expenses were necessary components of producing the Convention"s closed

c~rcuit 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 part of presenting the Republican message. The

speeches were also part ofboth the closed circuit broadcast and the feed seen by the

vie\\ing public. As noted earlier, Nash states that the closed circuit feed was also

available to the media. The staff concluded that these are convention expenses that are

not permissible for host committees to pay pursuant to 11 CFR §9008.52(c).

The allocated items represent expenses such as travel. hotel..

vehicle rental, mileage, parking. transportation" motels. catering.. and per diem for Nash

employees many of whom worked on more than one project. The Committee On

Arrangements contends that they should be disttibuted 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.

The final major expense category addressed is Overhead of

approximately $185,,000. The Committee On Arrangements feels that to the degree that

all categories of expenses were properly payable by the Host Committee~ these overhead

expenses were allowable Host Committee expenses. However. the response notes that to

y:hatever degree the Commission ultimately decides that one or more ofthe project

categories was not properly paid by the Host Committee. 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 Nr..;h contract were allowable

Host Committee expenses.

Finally. the Committee On Arrangements believes that even ifthe

Commission rejects the argument that each ofthe general categories ofNash expenses

"'ere permissible Host Committee expenditures. the Commis~ion should not challenge

Page 3:;
•

o

7

it

2

.J

q

I

1...

expenses such as those for hotels and local transportation.. \\'hich are expressly

denominated as allowable host committee expenses pursuant to 11 CFR

§§9008.52(c)(I)(vi) and (ix). The regulatory provision for local transportation concerns

defraying '·...the costs of various local transportation serviceso_ including the provision of

buses and automobiles'" and the hotel provision concerns providing "'...hotel rooms at no

charge or a reduced rate on the basis ofthe 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 cost savings \\'ere

presumably passed along to the Host Committee. The remaining expenses are business

expenses of a vendor hired to perform a specific convention-related task.. and those

expenses are not pennissible pursuant to II CFR §9008.52(c).

As stated several times in this discussion, the staff concluded that

the payments to Nash.. with the exception ofthe Sail Area.. do not represent legitimate

host committee expenses pursuant to 11 CFR §9008.52(c) and thus should have been paid

by the Committee On Arrangements. In the Exit Conference Memoranda, it was

determined that the Committee On Arrangements should have paid a total of $2,081.286

that was paid to Nash by the Host Committee. In the docunlt:l1tation provided by Nash"s

production accountant, it appeared that $31,798 in expenditures related to the Sail Area

were not excluded from the Committee On Arrangements total in the Exit Conference

Memorandum. However, entertainment costs of $22.416 associated with the Sail Area .

were mistakenly excluded from that total. In addition. on July 31. 1997. Nash refunded

the $82..436 that had not been spent. Thus.. the staff calculated the amount in question to

be $1..989,468 ($2..081.286 - $31,798 + $22,416 - 582..436). Also, ifthe Host Committee

receives a $70,000 reimbursement from the Comminee On Arrangements for the Russell

shoot, the amount will be reduced accordingly.

In a series of meetings between December 4.. 1997

and April 23~ 1998. the Commission considered the staffrecommendation with respect to

the Nash contract. along with the Committee On Arrangements· and Host Comminee"s

responses to the Exit Conference Memoranda. The Commission"s deliberations were in

relation to the audit reports of both the Host Committee and the Comminee On

Arrangements. A motion to approve the staffs recommendation that $1.989..468 be

considered a Host Committee contribution to the Comminee On Arrangements failed by

a 3-2 vote. See Attachment 1, page 2, item :!.

In Exhibit A to the Committee On Arrangements·

response to the Exit Conference Memorandum. all ofthe Nash expenses were grouped

into six categories: Lighting and Rigging - $689.535: Decorations and Music - 5156..399:

Labor and Equipment for Convention Closed Circuit TV - $423.762; Sail Area-

$196.03:!: Overhead - $184.796: and.. Miscellaneous - S51 ..560. Using these categories

as a basis.. the Commission discussed and voted on individual expense categories and line

itemsD • Not included in the Commission's determinations were a number ofindirect

Attachment I. page 3. items 3 and 4. and pages tl through 8. Items I through 6. contain the
q

it

o

7

•

(1

2

5

.I""l: •

t..

3

c;

2

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 On Arrangements' response to the Exit Conference Memorandum.. and the

Commission's detenninations, 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 panicular personsl4• Second.. the

remaining indirect costs, those that could not be associated with panicular persons or

func~ions, were divided into three groups: Travel and Living Expenses-Producers and

Directors ($9..702); Travel and Living Expenses-Others ($32,8~6) .. and, Overhead

($93,491). The two travel and living expense groups were allocated between the

Committee On Arrangements and the Host Committee based on the distribution of

associated direct costs. The overhead expenses were allocated based on the distribution

of all non-overhead expenses.

Following the above procedure, 5892..489 is

attributable to the Committee On Arrangements and SI,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 \\'hole

or in part, are shown in the uIndirect Cost" category. The Committee On Arrangement·s

response to the Exit Conference Memorandum showed these expense items distributed to

the various other categories.

The Commission therefore detennined that the Host

Committee made contributions to the Committee On Arrangements related to the Nash

contract in the amount of $892.489.

III. CITY OF SAN DIEGO EVENTS FUND

Section 9008.53(b) ofTitle II ofthe Code of Federal Regulations states that local

businesses (excluding banks).. local labor organizations. and other local organizations or

individuals may donate funds or make in-kind donations to a ~eparate fund or account of

a government agency or municipality to pay for expenses listed in 11 CFR §9008.52(c)..

provided that: (i) The fund or account is not restricted to use in connection with any

panicular convention; and (ii) Donations to the fund or account are unrestricted and are

not solicited or designated for use in cOMection \\"ith any panicular convention, event or

activity.

Cenifications ofthe Commission's votes on thc:~c: maners.

,.. For example. Directors were determined to be attributable 10 the Comminee On Arrangements. If

travel and living expenses for a person identlfic:d a~ a Director were noted. those expenses would

be attributed to the Comminee On Arrangement~

Page 34
...

2.

3

q.0

~;..¥

A. BACKGROUND

During our review ofthe Host Committee s receipts. \\'e identified a total

of$9~237,812 that was transferred to the Host Comminee from the City of San Diego

(City). According to Host Committee records, ofthis amount, $2.539.636 \\'as

transferred from general City funds and appears to have been designated for specific

expenditures made by the Host Committee. These funds represented a ponion ofthe

proceeds ofthe Transit Occupancy Tax that is imposed by the City. The remaining

$6,698,176 was transferred from the City Civic Events Fund - Account No. 9050 t

(Events Fund).

The Events Fund was created as a separate trust fund pursuant to a

resolution by the San Diego City Council. This fund was required by a Memorandum of

Agreement between the City of San Diego and the Host Committee. This agreement \\'as

part ofthe overall plan by the City to meet the obligations Imposed on it by the Host

Committee and the Committee On Arrangements in the Site City Agreement executed to

secure the Republican National Convention. The memorandum stated:

The City agrees to modify if necessary on or before June 6, 1995, the San Diego

Festival Fund so that it is similar in all material ways to the Ccr.vention Fund created

by the City of San Francisco prior to the 1984 Democratic Nominating Convention

and so that it is in fonn and substance reasonably acceptable to the SDHC [San Diego

Host Committee] and the SDCCC [San Diego Convention Center Corporation). This

Fund shall be a separate fund or account as referred to in 11 C.F.R. § 9008.53(b). On

the first business day of each week after the execution ofthis agreement, through and

including September 30, 1996. the City may transfer to the SDMC, to such account as

the SDHC shall direct. all funds deposited in the City Fund as ofthe opening of

basiness on such day. The SDHC shall expend the funds rtreived from the City Fund

solely in connection with the perfonnance of obligations under the Site Cit),.

Agreement and for those purposes reasonably related thereto.

The City authorized the Events Fund to be established on January 9. 1995

instead ofmodifying the San Diego Festival Fund. I~ As of December 30. 1996" all

moneys deposited and interest earned by the Events Fund were forwarded to the Host

Comminee. Thus. rather than using a fund already in existence" the City established a

ney; fund which appeared to have been set up and used exclusively in connection with the

t996 Republican National Convention.

The documentation that was available indicated that both the City of San

Diego and the Host Comminee raised the money deposited in the Events Fund. The

contract between the City and the Host Comminee states that uSDHC shall solicit funds

for and other donations to the City Fund. All fundraising shall be conducted in

According to an attorney for the City. the Festival Fund was a dormant fund of the Cit)' that had

previously been used in connection with an event held in the City. Subsequent correspondenc(

establishes that the fund was created in 1988 to host the San Diego Arts Festival: Treasures of the

So'.'iet Union.

Page 35
Q;-

q

I

•

"

7

•

o

2

c;

oM

•

2

3

9

4

compliance \\'ith the Federal Election Campaign Act and all Federal Election

Commission regulations. The City agrees to actively assist and cooperate \\"ith the SDHC

in this task in all ways permitted under applicable la\\·.,..

Three individuals had primary responsibility for the Host Committee's

fundraising. According to Host Committee officials, potential business donors \\'ere

infonned that they could contribute to the Host Committee or the Events Fund but that

they must have a business presence in San Diego County to contribute to either entity.

With respect to the Events Fund. Host Committee officials stated that individual donors

were infonned that donations w~uld qualify as charitable contributions but were also

infonned that they could not eannark those donations for the Republican National

Convention and that the don:ations could be used for any convention. However, as noted

earlier, the Events Fund was apparently created for the Republican National Convention

and all proceeds were transferred to the Host Committee.

During a review ofthe Host Comrnittee"s disbursement files.. the Audit

staff viewed a copy ofa solicitation that was apparently used by the Host Committee.

This solicitation states, in pan, that "Contributions to the City of San Diego are

deductible as charitable contributions under Section 170(c)(1) ofthe Internal Revenue

Code. Appropriate written confinnation will be provided to all donors ofsuch charitable

contributions. The City ofSan Diego has established the City Convention Fund to defray

City expenses incurred in connection with attracting conventions to the City. If you

would like to contribute to the City of San Diego, you should make your check payable to

the ·City of San Diego." Mail to the San Diego Host Committee ... and the Committee

will forward it to City Hall." The solicitation also included response cards for both the

Host Committee and the City. Host Committee officials stated that this solicit~tion \vas

generated early in the process and were unsure ifit had ever been used. However, it does

appear that at least $3..507..450 that was deposited in the Events Fund \\'a5 received by the

Host Committee and then forwarded to the City.

The City Attomey"s Office was afforded an opponunity to respond to the

relevant facts contained in this Audit Report since II CFR §9008.53 deals with

municipalities and government agencies. This response to the Exit Conference

Memorandum is separate from the Host Committee·s which is discussed later in this

repon and deals with the Host Committee"s responsibility with respect to the Events

Fund. The City·s response begins \\'ith the following statement:

We are happy to clarify the City of San Diego·s procedures and methodology

which we believe strictly conform to all relevant restrictions on host cities contained in

JI C.F.R. 9008.53. We do so. however. with the express notation and reservation that

the Commission has no audit authority or jurisdiction over the City of San Diego.

because th~ City fully complied by filing its post-convention statement of expenditures

(I J C.F.R. 9008.5 Hc». The post-convention audit IS expressly authorized only for 'each

host comminee registered under II C.F.R. 9008.5 I.' II C.F.R. 9008.54. Whether the

Commission has any authority to issue regulations which antulplto regulale the

financing of a municipality's activities as permlned by the State ofCalifornia IS subject

Page 36
it

0'

7

to serious question. The City ofSan Diego is not a political comminee or a host

comminee as described in the Commission's regulations. This response is not an

acceptance ofthe validity ofthe Commission·s regulation ofthe City of San Diego's

fmancial or fund raising activities.

Although it is correct that the Commission"s regulations contain no

specific requirement for the audit of a municipal fund, they also do not limit the

Commission's authority to do so. The relevant section ofthe regulations requires

municipalities and government agencies that have spent money pursuant to 11 CFR

§9008.53 to file a report with the Commission. The Act grants the Commission a broad

.audit authority to conduct audits with respect to reports that are filed with it. As noted

previously, the Commission decided that, in order to complete a thorough revie\\' ofthe

activities ofthe Host Committee, a review ofrecords associated with the Events Fund

should be conducted. The review was intended to verify that the money received by the

Host Committee and raised by the City met the requirements of 11 CFR §9008.53.

During the course ofthis review, it was preliminarily detennined that the requirements of

11 CFR §9008.53 had not been adhered to and thus the City, through the City Attorney"s

Office, was provided an opportunity to respond to the preliminary conclusions that were

reached.

The City also provided a declaration from the Deputy City Manager that

attempts to clarify some ofthe facts regarding the creation ofthe Events Fund. This

declaration notes that City Council Resolution Number R-285176, adopted on January 9.

1995" authorized the Site City Agreement with the Republican National Comminee. The

resolution also authorized the City Manager "'...to negotiate and execute an agreement

with the San Diego Host Comminee under which the Committee agrees to assist the City

in defraying the monetary costs of hosting the 1996 Republican National Convention and

providing cenain 'in-kind' services..."~. He also notes that the Memorand.um of

Agreement ofJune 1995 was entered into to allocate respo~sibilities ofthe various San

Diego entities. He funher states that U[t]he 'San Diego Festival Fund' referenced in the

Memorandum of Agreement was created in 1988 to host the San Diego Arts Festival:

Treasures ofthe Soviet Union., ... In hosting the Ans Festival. the City created ·San

Diego Festivals, Inc. with the City as the sole member ofthe corporation and the City

obtained an IRS Exempt Organization letter as a 501 (c)(3) corporation. This facilitated

raising private donations to defray the expenses ofthe Soviet Arts Festival and

contributed to the overall success ofthe festivaL..·

The Deputy Cit)' Manager also notes that the same plan was contemplated

to assist the City with expenses for the 1996 Republican National Convention and as a

result.

...the City Council amended the Anicles of Incorporation of 'San Diego Festivals. Inc.'

to change the name ofthe corporation to 'San Diego Civic Events Fund' and to expand

the purposes ofthe corporation to include the hosting of civic events that enrich the

quality of life in the Cit)' of San Diego. This resolution also directed the City Auditor to

create a special account to receive and disburse contributions for the purposes specified

Page 37
..

n

u

7

•

ntj

2

5

in the new Anicles ofthe San Diego Civic Events Fund. However, Special Tax Counsel

for the City had reservations that a similar IRS Exempt Organization letter could be

obtained for the Amended Anicles ofIncorporation within sufficient time to receive

private donations and have them qualify as a charitable contribution.

B. DONATIONS FROM OUTSIDE THE SAN DIEGO l\IETROPOLITAN AREA

Donations to a separate fund or account of a government agency or

municipality to be used to defray expenses related to a national convention are required to

be from donors within the Metropolitan Area ofthe Convention City. During our revie\\'

ofthe receipts ofthe Events Fund, we identified $1..827,350 in donations that did not

appear to be from donors in the San Diego Metropolitan Area. This included $:!52..500

from apparent corporate sources and $1.574..850 from individuals and other entities.

Well after the Convention.. in a memo dated October 3. 1996. to the

Deputy City Manager concerning contributions from non-local individuals. an attorney

for the City wrote that, with respect to the contributions from individuals from outside of

the local area.. 11 CFR §9008.53(b)

...provides that each donor listed, except for' individuals,' is preceded by the word

'iocal,' leading to the interpretation that aU organizational dunors must be 'local,'

while individuals need not, since this adjective does not qualify individuals. 'Local'

is funher defined in subsection (2) but only in the context of any business, labor

organization, or other organizations. This definition of 'local' only in this context

lends further suppon to the analysis that 'local' does not apply to individuals.

This distinction between organizational donors and individuals is not without

confusion. The February 1996 Record of the Federal Election Commission noted

'any individual' could make donations to defray convention-related expense~ and

then in the same publication in September 1996 Issued a correction assening .any

local individual.'

The federal regulation quoted above. however. does not include the adJective

'local' for individual donors. Thus a fair reading of II CFR 9008.S3(b)( I) does not

restrict individual contributions to only those from local indivi~uals. Given the

ambiguity ofthe section and the .correction. ofthe Federal Election Commission.

acceptance ofdonations from non-local individuals is not without the risk of

subsequent audit and disallowment ofthe contribution. However, this office believes

a fair reading of 11 CFR 9008.53(b)( 1) does not restrict individual contributions to

only those from local individuals. In light ofthiS. the checks from individuals may be

accepted with the risk noted above while organizational contributions must be local

as defined in subsection 9008.S3(b)(2l.

Contrary to the opinion expressed above. no confusion should have existed

about whether individual donors needed to h~ "local." The Commission specifically

addressed contributions to host comminees hy individuals in Advisory Opinion 1995-3~

issued to Chicago"s Committee for ·96 on September :!:!.. 1995. That Opinion stated. in

pan.. that ....Commission regulations at 11 CFR ~q008.52(c) permit local individuals to

donate funds and make in-kind donations h) a host committee to be used for a variety of
it

e

7

purposes such as promoting the city, facilitating commerce. defraying construction costs

in the convention center, and defraying the city·s additional costs for transponation or

la\\' enforcement. Local individuals are individuals who reside in the Metropolitan Area

ofthe convention city.,.

With the exception of one $250,000 contribution made on July 31. 1995.

all contributions from non-local individuals were deposited in the Events Fund in 1996.

Thus, even ifthe perceived ambiguity caused the City to originally accept contributions

from non-local individuals, it accepted $1,324,850 from such individuals well after

Advisory Opinion 1995-32 clarified the issue. Further, given the plain meaning of 11

CFR" §§9008.52 and 9008.53 as well as the Commission·s prier detenninations.. it is clear

that all contributions must be local, whether individual or corporate. and that the entire

$1,574,850 from non-local individuals and other entities should not have been accepted.

In the Exit Conference Memorandum, the Audit staff recommended that

the City of San Diego provide a written description ofthe solicitation procedures used for

contributions raised directly by the City. In addition. the City was to provide any

documentation and relevant comments that it felt demonstrated that the moneys raised

and deposited were from local businesses, local labor organizations.. local individuals. or

other local organizations.

With respect to the $252..500 in donations that were questioned as not

being from local corporations.. the City·s response to the Exit Conference Memorandum

states that documentation establishing that the businesses were local has been submitted

for all but one. Information was expected from the remaining company and was to be

submitted as soon as it v,as provided. The 5252..500 is comprised of donations from four

corporations. However. the infonnation received from the City contained documentation

for only one.. and that documentation does not establish that the corporation is "local.....

The City provided a letter from the corporation"s Associate General Counsel that states.

in pan.. that its chemical segment supplies ra\\' materials to a plant in San Diego for one

ofits customers. The fact that a corporation makes sales to one customer in the

Metropolitan Area neither establishes that it has offices or facilities located within the

Metropolitan Area.. nor establishes that the volume of business or activity in an area lying

outside the Metropolitan Area \\'as directly affected by the presence ofthe Convention.

With respect to the $1..547..350 in donations from individuals and noncorporate entities.. the City states that documentation has been submitted for all ofthe

non-individuals. Included in this amount are donations from two pannerships and from

two foundations. The City provided documentation for only one ofthe pannerships. A

lener from the pannership·s Managing Director ofthe Municipal Finance Department

states. in part. that the partnership·s business in California "'ould be directly affected by

the convention being in San Diego. It further states that it has offices in Los Angeles and

San Francisco and conducts business throughout the State ofCalifornia including several

major clients in San Diego. Finally.. the lener states that the partnership was asked to

make the donations by the Chairman of the Host Comminee \\'ho was also the Chairman

Pag~ 39
OJ:

Q

i

..

t1

=;

it

2:

-f

Q

f

E

of a potential client ofthe finn. Ho\\'ever. as stated above \\ith respect to corporations.

having clients in a Metropolitan Area does not meet the definition of local and thus the

donations from this partnership are still considered to be non-local.

With regard to donations from non-local individuals. the City's response

notes that:

...the City's February 6, 1997, letter to the staffmade clear that the express language of

11 C.F.R. 9008.S3(b)( 1) simply does not restrict individual donations to only those that

are 'local.' First, the regulation itself has no restrictions on individuals since it has no

qualifying adjective preceding the noun 'individual.' Second. the FEC's own

publication, Record, February 1996, advised: "Anv individual ... may donate funds or

make in-kind contributions to a host committee...." While the September 1996 Record

assens this was a mistake. all the individual contributions in question were dated before

receipt ofthe September 1996 publication. Audit staWs list of 32 individual donors with

non-San Diego addresses shows check dates ranging from 7/1195 to 9/9/96, with the

majority being received and accepted in July 1996 -- well before any ·correction.' Third.

the receipt of unrestricted individual contributions was sanctioned by two legal opinions:

the opinion ofthe San Diego City Attorney to the City Manager and the opinion of

private legal counsel Covington &. Burling to the Host Committee. Both opinions point

out, Inter alia, that the absence of a qualifying adjective preceding 'individual' and the

absence of any reference to individuals in defining what qualifies as local are meaningful

in arriving at this distinction.

Curiously, staff quotes from the City Attorney's opinion but makes absolutely

no mention of why the above two distinctions are in error. Rather. the staffflatly states

that .no confusion exists' without even mentioning the FEe R~cord statement of

February 1996. Moreover, the staffrelies solely on AO 1995-32 - an opinion dealing

with the propriety of contributions from financial entities controlled by a federally

chanered bank and contributions toby indl\ iduals who are officers. directors. or

employees of a state or federally chanered bank.' AO 1995-32. Federal Electi~n

Campaign Financing Guide. '6166. Given the nature ofthe question and corresponding

analysis. AO 1995-32 does not analyze the distinction between local businesses. local

labor organizations. local organizations. and individuals. Rather. it simply answers the

question asked about individuals who were presidents ofthe donor companies who

resided in the metropolitan area ofChicago. Hence AO 1995-32 simply does not contain

any analysis ofthe distinction between organizations and individuals which is in the

regulation itself. Moreover the staff completely fails to mention the February 1996

Record. with a contrary statement pennitting 'any individual' contribution that post-dates

and hence arguably supersedes AO 1995-32.

Thus given 11 C.F.R. 9008.53(b)( 1rs absence of a restriction on individual

contributions. the concurring statement in the February 1996 Record. the September 12.

1996. opinion of Covington &. Burling. and the October 3. 1996. opinion of the San

Diego City Attorney's office. the Civic Events Fund quite properly accepted unrestricted

individual contributions.

First. \\'ith respect to the record articles that the City references. the Exit

Conference ~1emorandum did ackno\\'ledge them by quoting from the City Attorney's

opinion that clearly states \\'hat the 1\\'0 articles say. The Commission's newsletter does

not supersede the actions ofthe Commission in its regulations or Advisory Opinions.

Page 40
Q

4

•

o

7

•

o

2

5

•

2

3

9

Cj

Second" with respect to the regulations. the fact that "locar" does not

precede individual does not mean that donations to municipalities can be from any

individual. The Explanation & Justification for 11 CFR §9008.53 notes that these

donations are expected to be made out ofa sense ofcivic pride or for commercial reasons..

not political motivations. Thus, a 6'fair reading of 11 CFR §9008.53(b)(1r" would require

that the local requirement applies equally to individuals as well as businesses and other

organizations. Also, as mentioned earlier, the after the fact legal opinion ofthe City

Attomey"s office notes that accepting donations from non-local individuals is not without

the risk ofsubsequent audit and disallowment by the Commission. Thus" the City

understood that it was risking Commission disallowance ofdonations from non-local

individuals; however, we are not aware of any attempt by the City or outside counsel to

contact the Commission to resolve a perceived uncertainty in the Commission"s

regulations. Rather, the City apparently decided to proceed and take its chances.

Third, the City is correct concerning the overall facts ofAdvisory Opinion

1995-32. However, the fact that donations may be accepted only from local individuals is

specifically addressed. Although the question related to officers ofa bank, the opinion

stated that the individuals must be local to contribute and defined what is considered

local. We do not believe that the Commission wished to draw a distinction between

individuals who were officers of a bank and other individuals. This Advisory Opinion is

not mentioned in the legal opinions obtained by the City.

The Audit staffconcludes that the City Events Fund accepted $252..500

from corporations and $1,,574,,850 from individuals, partnerships" and foundations" which

are not local and thus should not have been accepted.

c. FUND RESTRICTED TO REpUBLICAN CONVENTION

As stated previously, the Events Fund was not established until January 9.

1995 and was used only in connection with the 1996 Republican National Convention.

We revie\\'ed the activity in this fund from its inception through 1996 and determined that

all funds deposited in the account were transferred to the Host Committee for its use in

connection with the Convention. There was no indication that this fund had been used

for any other purpose or that any donations had been solicited or received for any other

event.

The City provided the Audit staff with documentation to support a listing

of 235 donations totaling 56,686.237. The column headinG for the donor names was

"RNC DONORS'" and pages two and three stated that the list was "RNC contributions

(coned):" The City also provided copies ofthe fund statements for the Events Fund. The

fund statement for the period ending June 30.. 1995 was titled "'San Diego Host

Committee.,.. The subsequent statements identified the title as the "City Convention

Fund." Thus. it appeared that the Cit)' in its 0\\11 internal doctunents recognized that this

fund and its donations were for the 1996 Republican National Convention.

Page 41
q

I

it

o

7

it

o

•

2

4

{;

o

Further.. donations to the Events Fund that were fOI'\\'arded by the Host

Committee had a memorandum to the City attached that stated, in pan.. that the enclosed

checks were"'...for deposit to the City Convention Fund for "public" purposes in

furtherance ofthe City's efforts to attract visitors by providing appropriate facility and

support selVices to fulfill the City's obligation as 1996 RNC Host City. Please ensure

that these funds are properly deposited and accounted for to facilitate transfer to the San

Diego Host Committee."

In addition, in a I.ener accompanying a check sent from the Host

Committee to an official ofthe City.. the Executive Assistant to the Chairman ofthe Host

Committee \\Tote. in part, uPW'Suant to our telephone conversation this morning.. I am

herewith enclosing the ... check in the amount ofS100..000 for deposit to the "Convention

Fund Account.' I understand that these funds will be transferred to our San Diego Host

Committee account. Please let us know when the transfer has been completed.'"

Also.. as noted previously, the contract betweera the Host Comminee and

the City required the City to establish the Events Fund and to transfer moneys from that

fund from time to time as the Host Committee directed. Given this contract.. the

memorandum from the Host Committee asking for contributions sent to the City to be

transferred back. and the fact that all activity to date with respect to the Events Fund has

been solely to support the 1996 Republican National Convention.. it appears that this fund

was in fact set up and restricted to use for the Republican National Convention.

In the Exit Conference Memorandum.. the Audit staffrecommended that

the City provide any documentation and relevant comments which it felt demonstrated

that the Events Fund was not restricted to use for the 1996 Republican National

Convention and that the funds received were not restricted.

In response.. the Cit)' states.. in pan.. that:

U(w)hile the audit staff accurately assesses that the Civic Events Fund was set up in

connection with the 1996 Republican National convention. this statement is also accurate

in regard to every single city convention fund set up by a city hosting a con-vention[sic]

pursuant to the original 1982-27 and 1983-20 Advisory Opinions ofthe Commission.

Under these advisory opinions. it was recognized by the Commission that convention

cities were pennined to establish a municipal fund to receive donations and make

disbursements in connection with a nominating convention.'"

Advisory Opinion t982-27 was an answer to the City ofDallas. Texas

with respect to the t984 Republican National Convention. The issue was whether the

City of Dallas. in light ofthe method by which it traditionally raised governmental

revenue for promotional. cultural.. and commercial activities ofthe Cit)'.. \\'as barred from

using the same method to establish a pennanent. city-conuolled Convention Fund. which

would make payments for facilities and services \\ith respect to a Presidential

Nominating Convention and other kinds of conventions. The Commission concluded that

Page 41
..

o

7'

..

o

2

t;:

-f

•

2

4·

o

1

there \\'as nothing in the Act or Commission regulations that would preclude the City of

Dallas from creating and utilizing such a fund. However.. 11 CFR §9008.53 \\'as

promulgated after that Advisory Opinion. Although there is still nothing to preclude a

municipality from creating a similar type offund.. the regulations are specific on ho\\' the

money to be used in connection with a Presidential Nominating Convention is to be

raised and how the fund is to be operated.

The City also makes reference to AO 1983-20. That opinion dealt \\'ith

Independent Expenditures which advocated the defeat of a presidential candidate. V/e

. assume that the City meant to make reference to AO 1983-29 that dealt with the use of

the San Francisco Convention Promotion and Services Fund to provide facilities and

services for the 1984 Democratic National Convention. The Commission concluded in

this instance that the facts were indistinguishable from AO 1982-27 and thus would be

allowed.

Further, the response notes that while the Audit staffquotes the

Memorandum of Agreement between the City and the Host Committee,

...it fails to include key elements ofthis provision when it sunnises the fund 'appears' to

be restricted. Directly rebutting this 'appearance' are the provisions ofits creation. First.

the express language mandates 'This Fund shall be a separate fund or account as referred

to in 11 C.F.R. 9008.53(b).' Both the City and the Host Committee recognized and

agreed to the account being created and administered within the restrictions of 11 C.F.R.

9008.53 which mandates an unrestricted account. Second. the City expressly provided

that the City 'may transfer' to the Host Committee funds 'solely in connection with the

performance of obligations under the Site City Agreement ... ' The words 'rna\' transfer'

reserve all authority to the City and directly contradict the staffs assenion, without

substantiation. that the City was 'required' to transfer all funds. [emphasis in original]

The Audit staff is fully ay;are ofthe wording contained in the

Memorandum of Agreement between the City and the Host Committee and quoted it in

the Exit Conference Memorandum. Our conclusions regarding the Events Fund and the

fact that it appears to have been restricted to the Republican National Convention are

based on the information referred to previously in this report. We do not dispute that the

agreement refers to 11 CFR §9008.53 or that it says the City ....may transfer'" funds. but

the inclusion ofthis wording in the agreement does not establish that the fund was

unrestricted.

The City further believes U[t]hat an unrestricted account as expressly

provided for in the Memorandum of Agreement and as observed in practice by the City

could 'appear" to be restricted from the letters of third parties is just not credible.... [t]he

City of San Diego sent each donor a confinning letter that expressly acknowledged the

donation and expressly provided 'your funds "'ill help the City of San Diego defray its

financial obligations as the Host City for national conventions.,...
...

G

7

...

o

2

5

oft

2

4·

'1:

o

t..

The Audit staff does not believe that a letter sent to a donor after the fact

alters the donor"s designation ofho\\' funds were to be used. The City states that the

notion that an unrestricted account as expressly provided for could appear to be restricted

from the letters ofthird panies is just not credible. Rather, the City appears to sugge~t

that the Audit staffshould rely solely on the language ofthe thmtk you letters and the

Memorandum. The Audit staffnotes that the Government Auditing Standards state in

part that [e]vidence obtained from a credible third party is more competent than that

secured from the auditee." The donors' designations accompanying the donations are a

credible source. The Commission's regulations place great imponance on contributor

designations of contributions to specific elections.

The City also states that:

To the extent third party donors believed their contributions would be used for the

Republican National Convention. they were logical but mistaken. as shown by the

sample acknowledgment letter. The critical element is the activity ofthe City of San

Diego and not the beliefof donors. 11 C.F.R. 9008.53(b)(1Xi) mandates that the

separate account be hnot restricted." but this limitation can only be assessed by the

activities ofthe City. which are clear from both paper and practice.

As will be discussed below.. many ofthe donations were accompanied by

correspondence that contained not just an indication ofthe donors beliefthat the funds

would be used for the 1996 Republican National Convention, but a designation ofthe

funds for that purpose. Further, the facts suggest that the City in fact carried out their

belief or instruction in that all moneys ofthe Events Fund were transferred to the Host

Committee for use in connection with Convention.

The City also argues that:

The staff makes much ofthe fact that all funds in the account were transferred to the Host

Committee and that a list of235 donors has a column head of 'RNC Donors' and

notations of 'RNC contributions.' Significantly. this list is dated October 22, 1996. long

after the August 12·15, 1996. convention. and as the declaration ofthe Deputy City

Manager confirms. it is simply a list generated by staff and does nothing to diminish the

complete control the City retained over the Civic Events Fund and the funds it contained.

In our opinion. a list dated approximately two months after the Convention

is an indication that these contributions were intended for and were in fact used for the

Republican National Convention, That the list \\'as titled "RNC Donors" and "RNC

contributions" suggests that the staffperson(s) ,,'ho prepared this list was aware that the

fund had been used for the benefit ofthe Convention.

The City also attempts to dO\\llplay the letter from the Executive Assistant

to the Chainnan ofthe Host Comminee to a Cit~ official by saying that it

...expresses his understanding oftransfers. agam. does nothing to diminish the City's

control over the account. II C.F.R. 9008.53fbH 1. does not in any way limit transfers to

Page ~4
Qr

q

I

if

o

7

..

o

2

J

*

2

4

{1

"(

....I'

a Host Committee. rather it mandates that control be maintained by the City. Hence the

staff's conclusion that the Host Committee could "direct· a transfer is simply erroneous.

Indeed. the contract calling for such transfers was purposefully framed in the Permissive

("may ttansfer') and the transfers were withheld when questions arose over use ofthe

expenditure or legality ofthe contribution. All documentation connnns that the City

niamtained unrestricted control over the account. as acknow),-:!ged in Memorandum of

Agreement Section 4, conflltmed by the August 9, 1995, letter ofthe City Manager to the

Executive Director ofthe Host Committee. In practice the City would hold up cenain

transfers pending clarification of purpose or advise from counsel on the legality ofthe

donation.

The Audit staffdoes not argue that the City controlled the moneys

deposited in the Events Fund. Control is not a factor in the regulation. Rather the

regulation simply states that the fund cannot be restricted to use in connection \\ith any

particular convention. However, we do believe that the docu..mentation available

demonstrates that the parties involved, as well as the donors, were aware that the moneys

being deposited in the Events Fund were to be uSied in connection with the 1996

Republican National Convention. We also acknowledge that in two instances.. the City

delayed transferring donations to the Host Committee..~s noted by the City, one ofthe

delays was due to uncertainty about the acceptability ofthe donations. There is no

indication ofthe City ever withholding moneys from the Host Committee because some

use ofthe funds other than the 1996 Republican National Convention was being

contemplated.

The letter to the Host Committee which is referenced states, in relevant

part, that "'As you are aware, the funds transferred to the San Diego Host Comminee in

accordance with Section 4 ofthe Memorandum are to be used exclusively for the public

purpose ofdefraying costs for public facilities and related support services necessary for

the conduct ofthe 1996 Republican National Convention. They are not to be expended

on budget items that are not for exclusively public purposes, such as a contribution to or

expenditures for any candidate or political committee." Aithough this does not establish

that all funds in the Events Fund were required to be transferred to the Host Comminee. it

does make it clear that funds that were transferred were to be used exclusively for the

Convention. This, in conjunction with the fact that all funds collected were so

transferred. leaves little doubt that the Events Fund was.. in fact, restricted for use in the

Convention.

The declaration from the Deputy City Manager also addresses the issue of

whether the Events Fund was restricted to the 1996 Republican National Convention. He

addresses many ofthe same issues that are discussed above and adds that:

The Civic Events Fund, Account No. 9050 I. is still an active account and the City

Manager plans to use it for receipts and disbursements necessary to host the 1998 Super

Bowl. which is another civic event for which the City of San Diego has specified

obligation~

Page 45
The fact that the Events Fund exists today.. albeit donnant.. fails to

establish that it was not restricted for use in connection with the 1996 Republican

National Convention during the period before.. during and some time after the

Convention. This clearly does not outweigh the substantial evidence presented above.

The Events Fund was established for the Convention.. all funds received by the Events

Fund were dedicated to the Convention, and as will be explained belo\\'.. funds were

solicited for and many oCthe donations were designated by the donor for the Convention.

The staff concludes that, taken together, these facts establish that the Civic Events Fund

Account 90501 was in practice restricted to use in connection with the 1996 Republican

National Convention.

D. DONATIONS SOLICITED AND DESIGNATED FOR USE

IN CONNECTION TO A PARTICULAR CONVENTION

With respect to solicitations associated with the receipt of donations to the

Events Fund, it seemed clear that the Host Committee perfonned some solicitation and

representatives ofthe City performed some. Other than the \\Titten solicitation mentioned

in the background discussion, there was no documentation provided to establish \\'hat

potentia) donors were told concerning their donations to the Events Fund. It does appear

that they were told that the donations could qualify as a charitable deduction if made to

the Events Fund rather than to the Host Committee16• Further, the Audit staff assumed

that if a donor was approached by the Host Committee for the 1996 Republiaan National

Convention.. the donor would reasonably believe that any donation made, whether to the

City or the Host Committee. would be related to the Convention.

Although the Audit staff has no record ofthe solicitation methods used by

officials ofthe City, some documentation \\'as available \\'hich established that these

donors also expected their funds to be used for the 1996 Republican National

Convention, For example.. the lener accompanying one check stated.. h[a]s \\'e discussed"

enclosed is our check in the amount of $10..000 payable to the City of San Diego Host

Committee Fund to assist in meeting the city"s obligation to the Republican Natuonal

Convention, As I understand the situation. we will also receive two tickets for the City of

San Diego Gala in July, I am in receipt ofthe letter.. signed by you and others.. relative to

the July 2 meeting in the Mayor"s office, In that \\'e have made this contribution.. I see no

need to attend the meeting. Please use our invitation for another likely prospect.... Thus.

this individual appears to have been solicited by the City for a donation to aid with the

Convention.

There were also two letters addressed to th~ M~yor which indicated that

the donor "'as aware that., or instructed that.. the donation be used to benefit the

Convention, One stated.. in part....[c]ongratulations on your successful efforts to ha\'e the

1996 Republican National Convention held in San Diego. As promised" enclosed is my

.6 The tax consequences of donations to the Events Fund are not w;thin the Commission's

jurisdiction.

Page 46
4J

a

f

..,.

i1:

toE

7

•

(1

2

5

•

2

4

o

5

personal check, made payable to the San Diego City's Municipal Fund in the amount of

$500.000. It is to be used for improvements to the convention Center in connection \\ith

the 1996 Republican National Convention." The other stated, in part. h[a]nached is a

check for San Diego and the Host Committee for the Republican convention. It is a

pleasure for us to be of assistance to you in your efforts to produce a gTeat convention."

One piece of correspondence accompanying a check stated that hI am

pleased to enclose a check for $100,000 indicating support for the August 1996

Republican National Convention to be held in San Diego. We look forward to an

interesting convention this year." Another letter stated "'[e]nclosed please find a check in

the amount of $75,000 as a contribution to City of San Diego Convention fund to offset

panially the City's expenses in hosting the 1996 Republican ~!ational Convention:' Still

another piece of correspondence stated U[e]nclosed is a ... check in the amount of

$100,000 payable to the City of San Diego to help support the Host Comminee Fund ...

for the 1996 Republican National Convention." Finally, one letter stated that h[a]s a

sponsor ofthe 1996 Republican National Convention, I am pleased to forward to you the

enclosed check ... for fifty thousand dollars."

Correspondence or notations on donor checks accompanied donations

totaling $2,601,000 to the Events Fund which designated the donation for the benefit of

the 1996 Republican National Convention. As stated previously, although there was no

record of what donors were told, the correspondence described above indicated that the

Host Committee was involved in raising funds for the Events Fund, and that the money

was solicited for. and donations were designated for, the 1996 Republican National

Convention.

As noted earlier, for all donations deposited in the Events Fund. the donor

was sent a form lener which stated, in part, h[t]hank you for your check :.. payable to the

City of San Diego. Although no goods or services were (or will be) provided in

consideration for your payment to the City, your funds will help the City of San Diego

defray its financial obligations as the Host City for national conventions." An official of

the City told the Audit staffthat regardless of what a donor believed the donation to be

for, this letter was sent to the donors to make it clear to them that the funds were not

restricted and could be used for any convention. In response to a conference with a

member ofthe Audit staff, an anorney for the City wrote that h •••to ensure that each donor

understood that each donation to the City's fund was unrestricted, the City sent each

donor an acknowledgment letter. This letter expressly confinns that the funds are

unrestricted and will be used to defray financial obligations for ·national conventions. '

While the Republican National Convention had contracted for certain public services

under the Site City Agreement, to the extent that public facilities and services were

provided in an efficient and attractive manner. such provisions clearly benefit the City in

attracting other national conventions. Moreover. the City fund remains open and viable

for use in providing other public events."

Page 47
0:1

9

•

o

7'

..

o

2

..;

..

2

4·

(}

t·

However. this after the fact letter did not expressly confirm that the funds

were not designated by the donor and did not alter \\'hat appeared to have been the

donor's clear understanding and intent at the time ofthe donation. Further. regardless of

the representation in the acknowledgment letter, the record Indicated that the Events Fund

was dedicated to the Republican National Convention.

In the Exit Conference Memorandum, the Audit staffrecommended that

the City provide any documentation and relevant comments which it felt demonstrated

that the funds received were not solicited or designated for use in connection with the

1996 Republican National Con~ention.

In response to this section ofthe Exit Conference Memorandum. the City

begins by stating that:

The staff candidly concedes there is no documentation to establish what contributors

were told concerning their contributions. yet from the statements ofthe donors. not the

City or the Host Committee. the staffspeculates from the mere impressions of donors

that the 'contributions were restricted to the 1996 Republican National Convention.'

Such a statement is incomplete at best and misleading at worst. First. there clearly is

documentation on what all contributors to the Civic Events Fund were told.

received the same letter... The letter expressly states that the contributions would go to

fulfill obligations incurred for 'national conventions.'

The City·s response places great emphasis Oil t:le letter that each donor

received which informed them that their donations would be used to help defray the

City·s obligations "for national conventions"'. Ho\vever.. as explained above. the

notations on many ofthe donations make clear the donors" intent. and the City later in its

response acknowledges that "[o]f course, given the fact that San Diego is the Host City

and the fact that there is only one national convention being hosted, it is naive to think

that contributors would not assume that their contributions to the Civic Events Fund

would not indirectlv benefit the Republican National Convention. [emphasis in originalr·

As established above. 100% ofthe funds raised for the Events Fund were for the direct

benefit ofthe Convention effort. Further. this letter does not contain language that \vould

dispel any confusion that a donor may have experienced, and does not negate the specific

designations that accompanied many ofthe donations.

With regard to how funds "'ere solicited for the Events Fund and what

contributors were told. the City notes:

While the bulk ofthe contributions were raised through the activities ofthe Host

Committee. the solicitations that the City of San Diego panicipated in were directed at its

role as host city and not any panicular convention. Attached as Exhibit 0 is a form letter

used to sohcit panicipation for a luncheon an the Mayor's Office. The letter states the

basic fact of San Diego being the Host Clt~ hut solicits panicipation "to showcase our

great ci~ •. and not to channel contributions to J panlcular convention.
•

o

7'

...

"..,.

o

L

5

..

2

4·

o

7

The letter referenced by the City \\'as on the Host Committee's lenerhead

and was fi'om the Mayor.. the Chair ofthe Host Committee.:.. and four members of

Congress. The solicitation states.. in part.. that:

As a distinguished member of San Diego's business and community leadership. we want

you tojoin all of us fora luncheon in the Mayor's office on Tuesda\'. Jul\' 2.1996.

As you know, San Diego has the honor of ~ing the host city for the 1996 Republican

National Convention this August. Three U.S. cities will shine in the glow ofthe national

and international spotlight this summer - Atlanta, hosting the Olympics; Chicago. hosting

the Democratic convention, and our home town of San Diego, serving as host to the 1996

Republican National Convention.

We want you to be a pan ofthis rare opponunity to showcase our great city. Our goal is

to involve San Diego's key leaders at the highest level in this effon. The Host

Committee is already 7S~o toward its goal ofraising S12 miliion dollars to host this

spectacular event. Your panicipation. as a leading member ofthe San Diego com.munity.

is vital to our overall success.

The letter was from the Mayor of San Diego, but the solicitation was on

behalf ofthe Host Committee. The text leaves no doubt for which convention effort

funds are being solicited. The City did.. not provide any response devices or other pages

accompanying the letter, if any. Therefore, \\'e do not kncv.' what donors were told

concerning donations to the City of San Diego. However, the record does sho"' that

donations to the Events Fund were received as a result ofthis solicitation. It is safe to

assume that, absent other materials.. if a person made a donation to the Events Fund in

response to such a solicitation.. there would be little doubt that the funds would be used to

support the City's role in the 1996 Republican National Convention.

There are two requirements placed on a municipal fund at .11 CFR

§9008.53(b)(1). First.. that the fund may not be restricted to use with any particular

convention, and second.. donations to the fund may not be solicited or designated for use

in connection with any particular convention. event or activity. The first ofthe

requirements is discussed in the previous section. the second here. As for solicitation..

only t,,·o wrinen solicitations were made available. The letter discussed above clearly

solicits funds to be used in connection "'jth the Convention. The other is a Host

Comminee package that is submitted "'ith t\\·o sheets that explain that individuals may be

able to take a charitable donation tax deduction iftheir donatjon is made to the City"s

Events Fund. Again. this package leaves no doubt that funds are being solicited for use

in connection with the 1996 Republican National Convention. To the extent that these

solicitations were used to solicit donations for the Events Fund. the donations were

solicited for use in connection \\,'ith the Convention.

The donor. not the Events fund. nlakes the designation of donations for

use in connection with a panicular convention. cvent. or activity. As noted in the Exit

Conference Memorandum. donations to the E\'cots Fund totaling $2.6 million include

Page 44
9

Q

f

it

11l¥

2

5

some notation from the donor designating the funds for use in connection the 1996

Republican National Convention.

Given the above. the staff concludes that donations \\'ere both solicited

specifically for use in connection with the Convention and donations were received that

the donor designated for that purpose. The vague wording in the Events Fund"s

acknowledgment letter does not alter either ofthese facts.

In a final comment the City contends that:

While the Civic Events Fund remains unrestricted. the allowances and restrictions of II

C.F.R. 9008.53 are internally inconsistent. At Subsection (b)(I) ofthe regulation. a city

is t:xpressly allowed to create a separate fund to pay for all '~~penses listed in II C.F.R.

9008.S2(c).' which includes providing 'the national committee use of an auditorium'

(emphasis in original). Obviously this means only one national committee unless the

host city were the host city of all nominating conventions. Section 9008.S3(b)( I)(ii) then

prohibits the fund's use to 'any panicular convention.' Hence the regulation authorizes

both a fund and expenditures for hosting a 'national committee' conducting a nominating

convention while at the same time it prohibits expenditures for a 'panicular convention.'

This ignores the reality that a 'national committee' conducting a convention and a

'panicular convention' are one and the same in the eyes of both host cities and donors

who wish to showcase their city.

The February 1996 issue ofthe Record which the City referred to earlier

notes that ifsuch a fund is established, then it .....must be intended to promote the city and

attract political and nonpolitical conventions to the city generally, and not established

solely to provide services to the nominating convention. In acidition. donations to the

municipal fund cannot be eannarked in any way or intended for any panicular

convention. event. or activity."" In addition. the Explanation and Justification for 11 CFR

§9008.53 explains that h[f]irst, the fund must have been created to attract conventions and

events to the locality on a broad scale, and cannot have been established for the sole

purpose of providing services and facilities to the nominating convention. Second"

donations to the fund must be unrestricted and may not be designated for any panicular

use. including the nominating convention." These two publications make clear that any

participation of a municipal fund in financing convention expenses must be part of a

specific effon that the city makes to attract events and functions of various types; not as

was done in the instant case, an effort to raise funds for a particular convention. The

event specific activities ofthe community are to be handled by the host committee which

insures that those activities, and donations to support them. will be disclosed. Using a

non-reponing municipal fund to solicit convention specific donations thwarts the

disclosure ofthe source of convention funding. When the requirements of 11 CFR

§9008.53 are viewed as described above.. they are limiting.. but not contradictory.

E. HOST COf\II\IITTEE RELATIONSHIP

The Regulations at 11 CFR §9008.53(b) regarding donations to

municipalities and government agencies do not directly apply to host committees. The

Page 50
'It

o

7

..

2

4

o

Q

r

primary requirement for host committees regarding the receipt of donations is that the

donors must be from the Metropolitan Area ofthe Host City. As discussed above. the

Audit staff believes that donations received by the Events Fund did not comply \\ith 11

CFR §90<J8.S3(b). The Host Committee believes that it haJ no responsibility to insure

that funds forwarded by the Events Fund complied with these regulations and it was the

City's obligation to screen those donations, and all the Host Committee needed to be

concerned with was that the City was local.

However, given the Host Committee's involvement in raising donations

for the Events Fund, the Audit staff does not believe it can insulate itself from the Events

Fund's activity. The documentation available for the Events Fund shows that the Host

Committee originally received at least $3,507,450 in donations for the Events Fund that it

then forwarded to the City for deposit. As noted above, as of December 30. 1996 all

funds deposited by the Events Fund were transferred to the Host Committee. Ofthis

amount, $343,600 appeared to be from outside ofthe San Diego Metropolitan Area. The

Host Committee should have been aware that at least this amount was not from local

sources.

Further, there is little doubt that the Host Committee was aware that all

funds deposited in the Events Fund were to be sent to it. For all the donations received

by the Host Committee and sent to the City, a memorandum was sent which asked that

the amount be transferred back as soon as possible. It appears that the City was using the

Events Fund as a depository for donations that were routed through the City of San

Diego. Therefore, the Host Committee was aware that the Events Fund was being

restricted for use in connection with the 1996 Republican National Convention.

The Host Committee stated that with respect to the donations it solicited.

its chief fundraiser was careful to infonn donors that although they could"donate to the

City, the donations could not be earmarked for the Republican National Convention.

Although the Audit staff was unable to verify what donors were told at the time ofthe

solicitation, a total of $1 ,606,I00 ofthe donations forwarded by the Host Committee

were accompanied by correspondence or notations indicating that the donation was for

the benefit ofthe 1996 Republican National Convention.

Therefore~ although 11 CFR §9008.53(b) applies to municipalities and

government agencies. it appears that the Host Committee was involved with officials of

the City in raising money for the Events Fund~ was aware of how money was raised for

the account, and was aware ofthe donor designations. The Audit staff believes that for

the above reasons.. the Host Committee was. or should have been, aware that funds

forwarded to it from the Events Fund were not raised in accordance with the regulation

and shoulrl not have been accepted.

In the Exit Conference Memorandum. the Audit staffrecommended that

the Host Committee provide any relevant comments and documentation that it feels

Page 51
c;

'-1

•

o

7

•

o

2

5

•

2

If

1

o

demonstrated that the it had no accountability for the donations deposited in the Events

Fund and later transferred.

In response, the Host Committee states that it received about $24.000.000

from all sources and that the Audit staffwas unable to find any instances \\'here it

received any contributions deemed to be impennissible under the host committee

regulations. Instead. it states that our focus is on certain contributions received by the

City and that the Host Committee is being held h •••vicariously responsible for some ofthe

funds that are alleged to have been improperly raised. collected and accounted for by the

City." The Host Committee states that:

For the reasons stated below, the Committee assumes no responsibility for the activities

ofthe City.... For the record, however, the Committee does not believe that the City

violated FEC rules applicable to municipalities II C.F.R. § 9008.53).... The

Committee strongly disagrees with the Audit Staff's theory ot' vicarious responsibility.

First, the Committee, the City and the COA all retained separate legal counsel and

accountants. The City orSan Diego was represented by the San Diego City Attomey's

office and outside Washington. D.C. election law counsel at a very early stage. While it

is true that all three entities were engaged in a common enterprise _. the financing ofthe

1996 Republican National Convention in San Diego -- the three groups were independent

and at arm's lengths as is evidenced by the lengthy negotiations ofthe Site City

Agreement. the Memorandum Agreement between the Committee and the City, and the

often touchy negotiations with respect to responsibility for raising and spending funds.

Moreover, since the City answered directly to the San Diego City Council, it was .

vinually impossible for the Comminee to use the City's Events Fund 'as a Comminee

depository.'

A contributor"s decision as to whether or not to contribute to the Committee or the City

was primarily based on tax considerations. Individuals tended te contribute to the City

while businesses tended to contribute to the Comminee. Some contributors. moreover,

chose to contribute to the City as a matter of civic pride. Checks naming the City as

payee, but received by the Committee. were sent to the City for handling. The fact that

the Committee forwarded checks to their proper,destination dots not make the

Cotnminee responsible for them. Only checks deposited in the Committee's account

were fully screened by the Committee.

The issue of donations from non-local individuals has already been

addressed and the legally distinct nature ofthe three entities involved is not at issue.

According to the Host Committee. the primary consideration for most ofthe donors when

deciding which entity to donate to was whether or not the donation would be tax

deductible. Solicitation material states that donations from individuals would only be tax

deductible ifmade to the City of San Diego. Ifthis were an accurate statement, it would

suggest that the two entities. although legally distinct. were two sides ofthe same coin. It

has already been shown that some donations to each organization were generated by the

same solicitations. and that many ofthe donations to the Events Fund \\'ere routed

through the Host Committee. some containing distinct donor designations for the

Convention. before being deposited by the Events Fund and transferred back to the Host

Committee. In such a situation it is apparent that the Host Committee was aware ofthe

source ofthe donations it \\'as receiving from the Events Fund. Therefore. the Host

Page 5~
c;

Cj

it

o

7

•

o

2

5

•

2

If

1

1

Comminee should be responsible for accepting those donations that do not meet the

regulatory standards.

The Host Committee further states that:

Th.: Audit Staff alludes to solicitation materials which instruet:d contributors to the City

to send their contributions to the Committee. However, the Committee's undentanding

is that those materials were early drafts and were never used. The Committee's fmal

solicitation materials that were used are attached as Exhibit Shereto.

The additional solicitation material provided by the Host Committee is

different from that obtained during audit fieldwork. The solicitation material provided

contains seven pages ofinfonnation about the San Diego area and its role in hosting the

1996 Republican National Convention. There is an additional page entitled "Tax Exempt

Status" which deals with contributions to the Host Committee and states that those

contributions are not tax deductible as charitable contributions. The final page is titled

"Charitable Contributions" and states, in part, that "Charitable contributions may be made

to the City ofSan Diego with respect to its role as host to the 1996 Republican National

Convention. Contributions to the City ofSan Diego for this exclusive public purpose are

deductible as charitable contributions... The checks orseparate transmittal.. should

designate that the gift to the city is for the 'Host Committee Fund', Account No. 90501."

Unlike the earlier version, the mailing address for the City is then provided. Although the

instruction on this example is different" it is still clear that many ofthe donations to the

Events Fund were routed through the Host Committee.

Pag~ 5~
•o7•o25•2

If12

Page 5~
A't'ta~.ment. ..

Page 1 n: 8

BEFORE TilE FEDERAL ELECTION COf.tNl~SlOIJ

In the Matler or )

}

San Diego Host Con~lLtee/Sal1 )

to Victory San Diego '96. )

Agenda Docwneu L "Y '/ - UJ

•

o

7

..

o

2

5

•

2

I.f

1

3

CERTIFICATION

I, Mary W. Dove, recording secret..ary lor Lhe Feueral

Election Commission open meeting on Thursday, Januar}r ~2,

1998, do hereby certify that the Commission deciueu Uj' a

vote of 5-0 to take the following action on lhe aLovecaptioned matt~r:

Allow the amount of $44,067, under Lhe

category of II. D. AT&.'I:, as set forLh 011

pages 9 and 10 of Agenda Document flC)7-tJ3,

as an expense of the San Diego lIosl

Cownittee/Sail to Victory San Dieyo 'c)6.

Conunissioners Aikens, Elliott, McDonald, ~JcGarry, anu Thumas

voted affirmatively for the decision.

Attest:

~_::u /918 /- .. tlte I

Page 55

i../]t, ~) / /( J

-?L-:~-~~~~ -M-f(ry W. Dove

AdminisL:J.-aLive AssioLaaal

I
c;

c;

•

o

7

•

"

2

5

2

If

1

If

Attact1nent 1

Page 2 of B

BEFORE THE FEDERAL ELECTION COMMISSION

In the Matter of )

) Agenda Documents No. 97-84

Committee on Arrangements for ) and No. 97-84-A

the 1996 Republican National )

Convention. )

AMENDED CERTIFICATION

I, Mary W. Dove, recording secretary for the Federal

'Election Commission open meeting on Thursday, April 16,

1998, do hereby certify that the Commis.ion took the following actions on the above-captioned matter:

1. Decided by a vote of 4-1 to allow the amount

of $133,225 for security accees badges and

that this amount be deducted from the total

repayment to the United Stat.s Treasury by

the Committee on Arrangements,· as set forth

in Recommendation #1 of Agenda Document

No. 97-84.

Commissioners Aikens, Elliott, McDonald,

and McGarry voted affi~atively for the

decision; Commissioner Thomas dissented.

2. Failed in a vote of 3-2 to pas. a motion

to approve Recommendation .1, a. set forth

in Agenda Document No. 97-84, as amended.

Commissioners McDonald, McGarry, and

Thomae voted affirmatively for the

motion; Commissioners Aikens and

Elliott dissented.

(continued)

Page 56
Federal Election Commi8.ion

Certification for Committee on

Arrangements for the 1996

Republican National Convention

Thursday, April 16, 1998

Attachment

Page 3 n~ 8

Page 2

c;

..

o

7

..

o

2

5

•

2

Lf

1

5

3 •

4.

Decided by a vote of S-O to determine that

the amount of $70,000 for the Russell Film

Shoot was an in-kind contribution by the

Host Committee to the Committee on Arrangements and is repayable to the United States

Treasury. In addition, the Committee should

file an amended disclosure report and itemize

this in-kind contribution •

Commissioners Aikens, Elliott, McDonald,

McGarry, and Thomas voted affirmatively

for the decision .

Decided by a vote of 5-0 to determine that

the amount of $138,442 for remote shoots

was an in-kind contribution by the Host

Committee to the Committee on Arrangements

and is repayable to the United State.

Treasury. In addition, the Committee should

file an amended disclosure report and itemize

this in-kind contribution.

Commissioners Aikens, Elliott, Mc~onald,

McGarry, and Thomas voted affirmatively

for the decision~

s. Decided by a vote of 5-0 to reject Recommendation '2, a. 8et forth in Agenda Document

No. 97-84.

Commissioners Aikens, Elliott, McDonald,

McGarry, and Thoma. voted affirmatively

for the decision.

(continued)

Page 57
Federal Election Commission

Certification for Committee on

Arrangements for the 1996

Republican National Convention

Thursday, April 16, 1998

Attachrner,~ 1

Page 4 of 8

Page 3

<1

CJ

..

o

7

•

{1

2

5

•

2

It

1

b

6.

7 •

Failed in a vote of 3·2 to pass a

motion to approve Recommendation 13,

as set forth in Agenda Document

No. 97-84, as amended to reflect

the amount of $1,154,464 i8 repayable

to the United Stat•• Tr.asury .

Commissioners McDonald, McGarry, and

Thomas vot.d affirmatively for the

motion; Commi••ioners Aikens and

Elliott diss.nt.d.

Failed in a vote of 3-2 to pass a

motion to dete~in. that $424,470

(amount for NS••ic Feed- Paid by the

RNe) i8 repayable to the United

State8 Trea8ury, and that the

Committee should file an amended

disclo8ure report to itemize this as

an in-kind contribution.

Commissioners McDonald, McGarry, and

Thomas voted affirmatively for this

motion; Commissionera Aikens and

Elliott dissented.

8. Decided by a vote of 4-1 to pass a

motion to approve a repayment

determination by the Committee on

Arrangements of $729,994, based on

a 74\ cost ratio, for production costs.

Commissioners Elliott, McDonald, McGarry,

and Thomas voted affirmatively for this

deci.ion; Commissioner Aikens di••ented.

(continued)

Page 5X
Federal Election Commission

Certification for Committee on

Arrangement. for the 1996

Republican National Convention

Thursday, April"16, 1998

Att:achment. 1

Page 5 of S

Page 4

c;

C;

•

o

7

•

o

•

Z

If

1

7

9. Decided by • vote of Seq to pas. a motion

to approve Reco...ndation .4, a. set forth

in Agenda Document No. 97-84.

Commi.sioners Aikens, Elliott, McDonald,

McGarry, and Tho..s voted affi~atively

for this decision •

Att••t:

Page 59
Attachment 1

Page 6 of 8

BEFORE THE FEDERAL ELECTION COMMISSION

In the Matter of )

)

Committee on Arrangements for )

the 1996 Republican National )

Convention. )

Agenda Documents No. 97-84,

No. 97-84-A, No. 97-84-C,

and No. 97-84-D.

9

C;

•

o

7

•

o

2

5

".•

{,.

If

1

8

AMENDED CERTIFICATION

I, Mary W. Dove, recording .ecretary for the Federal

Election Commission open meeting on Thursday, April 23, 1998

do hereby certify that the Commi••ion took the following

actions on the above-captioned matter:

1. pecided by • vote of 5-0 to dete~in. that

the amount of $156,399, categorized a.

"Decorations/Music", was an in-kind

contribution by the Host Committee to the

Committee on Arrangements and is repayable

to the United States Treasury. In addition,

the Committee should file an amended disclosure report and itemize this in-kind

contribution.

Commissioners Aikens, Elliott, McDonald,

McGarry, and Thomas voted affirmatively

for the decision.

2. Failed by • vote of 3-2 to pa•• a motion

to dete~ne that the amount of $528,610

for lighting and rigging was an in-kind

contribution by the Host Committee to the

Committee on Arrangements and i. repayable

to the United Stat•• Trea8ury. In addition,

the Co.-itte••hould file an ..ended dieclosure report and itemize this in-kind

contribution.

Commissioners McDonald, McG.r~, and Thomas

voted .ffi~tiv.ly for the .etion; Commi••ioners Aikens and Elliott dis.ented.

(continued)

Page 60
Federal Election Commission

Certification for Committee on

Arrangements for the 1996

Republican National Convention

Thursday, April 23, 1998

Attachment 1

Page 7 of 8

Page 2

*1

c;

•

"

7

•

o

2

5

•

&

1

C1

3 •

4 •

Decided by a vote of 4-1 to determine that

the amount of $141,907 for closed circuit

television expenses was an in-kind contribution by the Host Committee to the

Committe. on Arrangements and is repayable

to the Unites States Treasury. In addition,

the Committe. should file an amended disclosure report and itemize this in-kind

contribution•

Commissioners Aikens, McDonald, McGarry,

and Thomas voted affirmatively for the

decision; Commissioner Elliott dissented .

Decided by a vote of 4-1 to determine that

the amount of $22,416 relating to entertainment expenses in the Sail Area was an

in-kind contribution by the Host Committee

to the Committe. on Arrangements and is

repayable to the United Stat.s Treasury.

In addition, the Committ.e should file an

amended disclosure report and itemize this

in-kind contribution.

Commissioners Aikens, McDonald, McGarry, and

Thomas voted affirmatively for the decision;

Commissioner Elliott dissented.

s. Decided by a vote of 4-1 to dete~ine that the

amount of $177,732 representing payment. to

producers, directors, and production staff was

an in-kind contribution by the Host Committee

to the Committ•• on Arrangements and is repayable to the United States Treasury. In addition,

the Committee should file an amended disclosure

report and itemize this in-kind contribution.

Commissioners Aikens, McDonald, McGarry, and

Thomas voted affirmatively for the decision;

Commissioner Elliott diss.ntede

(continued)

Page 61
Federal Election Commission

Certification for Committee on

Arrangements for the 1996

Republican National Convention

Thursday, April 23,· 1998

Attachment 1

Page 8 of 8

Page 3

c;

47

•

•

o

2

5

•

2

4

2

(;

6 •

7 •

Decided by a vote of 4-1 to determine that the

amount of $87,638 for miscellaneous expenses

associated with television production was an

in-kind contribution by the Host Committee to

the Committee on Arrangements and is repayable

to the United States Treasury. In addition,

the Committee should file an amended disclosure

report and itemize this in-kind contribution.

Commissioners Aikens, McDonald, McGarry, and

Thomas voted affi~atively for the decision;

Commissioner Elliott dissented.

Decided by a vote of 4-1 to approve Recommendation IS, as set forth on Page 47 of Agenda

Document No. 97-84.

Commissioners Aikens, McDonald, McGarry, and

Thomas voted affi~atively for the decision;

Commissioner Elliott dis.ented.

Attest:

44 :JtJ / ~9 S:

Date'

Page 61

--.4-~~~--e.v?L~ yo: ~hJ-L y W. Dove

tive Assistant
.....N-4=N·V1NQ.'A(S).~~

ALLOCATION OF NASH CONTRACT

Based On Commission Votes of April 1& and 23. 1998

Attachment 2

--0

I:J

rr:

r"

0-

'JJ

Acct. Nalhline ...... Nash lightinglRigging DecorationsIMusic: l8borlEqu....nt WAle. Overhead Miscellaneous Indirect Cost

No. - Total Closed Circuit TV

Host II COA Host I COA I Host I COA I Host I COA I Host I COA I Host I COA I Host I COA 2002 1- .-- $60.000 $40.000 7/ $20.000

2003 tvProduclr 150.000 $18,750 7/ $25.000 / 16,250 7/

2100 DintcDI $31.01& $39.01& 7/

2JJIl TnNeIAnd Living 134._ $5,112 $29.85! ProducIIon SI8If

3001 Plod. Coord. . $5.570 $5,570 /

3002 Prod.Acd. S15,OOO $15,000 I

3003 StlgeMngr ••438 18,438 7/

3004 ....Super. $38.500 $38.500

3005 Plod. Mngr $22.790 $22,790

JOO6 Script Super. ••442 $6,442 71

3001 Prod. Assist. 18.183 $6,163 7/

3'00 Musir:IOIdIestr 149.032 549,032 1

3200 RiggingISlaging labor $540.345 5528,610 I $11,735 51

3600 SpecialElfects 177.595 517.595 I

4000 MakeuplHawdressing $3.000 53,000 5/

4~1 Video Crew labor 162.102 556.781 5/ $5.321

4208 TapeStode $200 5200 5/

4109 San. Cont. MbI. $90.511 $90.511

4210 Sa.... 173.748 $73,748 81

4211 RemoIe~.· 1138.442 $138,442 21

42'5 T",." 156.&51 556,651

4300 Sound 0peraIJ0na $5.250 $5,250 5/

4400 T_1IPOftaIion 110.844 $5.084 55.55' Loc::ation

4501 t .... F..... 121.718 $6.858 514.93 4502 ......... $73." $39.204 $34.65' 4503 catering $23.810 $14.174 $9.431

4506 OIIceExp. ••819 14,504 $4.31' 4507 T.JTelegraph 12.241 $902 $1 '33'

4521 Per Diems $61,055 531,633 S29.4~. 4100 Video Segment $174.749 $174.749 4900 Editing $5.665 55.665

5300 Main & End Titles $28.684 526.684 ,

7500 F_ $3.709 $2.163 " '14' 1001 Enteftai.., EJIp. $213 5213 81

Page 1
-0

t.:l

fro:

rt

NN-r:N·U1N'S).""-tt~.~..,Q

Attachment 2

ALLOCATION OF NASH CONTRACT

Based On Commission Votes of April 18 and 23. 1998

Acct. Nahline .... Nash llghtinglRigging OecorationslMusic laborlEquipment 5aitArea Overhead Miscellaneous Indirect Cost

No. - Total Closed CircuillV

Host I' COA Host I COA I Host I COA I Holt I COA I Host I COA I Host I COA I Host I COA

1002 158.354 142.773 $'3,58'

1003 RunnM ....7 $5.054 $3,613

1004 SIIAN. 1145.211 $145.299

1009 WE...........nt "1.135 $18.935 I

1010 EntIrtIin. Coord. 13.411 13.481 I

1011 .. ..... '10.000 $10.000 81

1005 SIll $986 81

1006 Conv...... Shoot $1.220 ".220

1007 RuaelShoot 170.000 S70.ooo 11

I0OI Tape CoonInator S7.108 S7,I06 5/

1012 S...IM 12.181 S2,691 81

1999 .- .- lAd 140.142 $23.817 S17,025

ToIIII 12.183.014 S589.900 SO SO $153.311 $147.162 $203.581 $165.299 122.416 SO 145,570 SI86.955 S302.33O $181.278 $165.281 ................... .........aA

Total Host $1 270 595

Grand Total S2 163 011

• Also Includes I9OOO-Russel. "000G-Saerarnento.•,'ooo-San Diego. "200G-00te live, "3000-Fon Du lac.and "4000-Miami.

,

1/

2J

31

4/

51

61

71

81

Aprll'6. 1998 Vote Item 3 on the Vote CertifICation

April 16. 1998 Vote Item 4 on the Vote Certification

April 23. 1998 Vole The lum of these amounts (SI53.311) ~s $3.088 the Indired Cost column ($2.795 Trans. Fares. and S293 HntelslMotels) equat $156.399. Item 1. on the Vote Cert,flCation

April 23. 1991 Vote Item 2 on ..... Vote Certification

April 23. 1991 Vote The sum of these amounts ($84.772) plus $57.136 in the Indirect Cost column ($2.652 in TrlftSPOrtation. S7.989 in Tran4J Fares. 129.644 in HotelslMotefs. and $16.851 in Per P

equal $141.901 Item 3 on the Vote Certification

AprI23. 1998 vote The sum of these amounts is $22.416 Item 4 on the Vote Certification

April 23. 1998 Voa. The sum of these figures is $170.629 This amount is $177.732"sl a correction documented by the Committee after the Commission·s vole This vote is item 5 on the

Vole Certification

April 23. t998 Vole The sum of these amounts is $87.638 Item 6 on'the Vote Certification.

Page 2
FEDERAL ELECTION COMMISSION

W.\SHtNG TON 0 C 204b'

November 19, 1997

MEMORANDUM

9

q

I

i1:

•

ti

7

•

e

2

5

•

2

4·

2

-i

TO:

THROUGH:

FROM:

Robert J. Costa

Assistant Staff Director

Audit Divis' .,

John C. SU a

StatTDir cto , j I It..

Lawrence M.,Noble;:!

General Cou~sel

Kim L. Brig~.COleman \~ Associate General Counsel

Lorenzo Holloway 7.aI) . Assistant General Counsel

J. Duane Pugh Jr. .rt-O

Attorney ~.

SUBJECT: Proposed Audit Report of the San Diego Host COlnnlittee/Saii to Victory

San Diego '96 (LRA 504)

The Office ofGeneral Counsel has reviewed the proposed Audit Report on the

San Diego Host Committee/Sail to Victory San Diego '96 (the "Host Committee").

\\'hich was submitted to this Office on September 30, 1997 for review on an expedited

basis. I This memorandum presents our comments on the proposed Audit Report.2 Some

ofthe issues discussed in the proposed Audit Report and herein overlap with issues in the

proposed Audit Report for the 1996 Committee on Arrangements for the Republican

The proposed Audit Report provided IS an unreferenced repon. As the: Audit DiviSIon nOled.

chan¥es nlay be made as the proposed AudIt Rcpon IS referenced.

1 Because the proposed Audit Report concerns the audIt of a host comnunee. we recommend lhat

the CommiSSion consider this documenc in open sesSIon In accordance with II C.F.R. If 9OO1.S4.

Ci001.I(e)( I) and 9OJI.l(e)( I).

Page 65
c;

C;

•

o

7

•

o

2

5

•

2

4

2

4

Memorandum co Roben J. Costa

Proposed Audit Repon ofthe San Dielo Host Committee

Pale 2

National Convention (the "Committee on Arrangements").) To the extent our comments

impact the proposed Audit Report on the Committee on Arrangements, that repo" should

be changed accordingly.· •

We concur with the findings in the proposed Audit Report that are 110t addressed

in this memorandum. If you have any questions concerning our comments, please

contact Duane Pugh, the attomey assigned to this review.

I. HOST COMMITJ'EE PAYMENT TO DAVID J. NASH ASSOCIATES.

INC. FOR VARJOVS SERVICES (II. C)5

The proposed Audit Rfpon raises the issue ofwhether host cenain Host

Committee expenditures constitute in-kind contributions to the Committee on

Arrangements that are subject to the convention expenditure limitation. The regulations

promulgated under the Presidential Election Campaip Fund Act (the "Fund Acf')

provide that expenditures made by a host committee shall not be considered expenditures

by a publicly financed national committee conductina the related convention and shall

not count apinst the convention's expenditure limitation "provided the funds are spent

in accordance with J/ C.F.R. § 9008.$2" 11 C.F.R. § 9008.8(b)(1) (emphasis added).

Thus, the paramount issue in evaluating a host committee expenditure is determining if

the expenditure is in accordance with 11 C.F.R. § 9OO8.S2(c).

Generally, host committee expenditures are aimed at two purposes: promoting the

city (hosting the convention) and its commerce and defrayina convention expenses. 44

Fed. Reg. 63,038 (Nov. I. 1979). For example, the host committee can iJ)cur expenses to

promote the suitability ofthe city as a convention site and it can incur expenses for

construction at the convention location. 11 C.F.R. § 9OO8.5(c)(1 )(i) and (v). However.

since the national committee receives public funds for convention expenses and.

therefore, is limited in the amount it can expend for the convention. the "[d]efrayal of

convention expenses by a holt committee is intended to be a very norro,v exception to the

statutory limitation on convention expenses." 44 Fed. Reg. 63.038 (Nov. 1.

1979)(emphasis added). Therefore. the list ofpennitted host committee expenses in I I

C.F.R. § 9008.52«(;)(1) must be interpreted narrowly.

Althouah not stated explicitly in the regulations, the Exp/anation and Justification

for the convention rules distinauishes between expenditures by a host committee and

those by a convention commiuee. 44 Fed. Reg. 63.038 (Nov. I. 1979). In its 1994

The proposed Audit RIpon for die Commiuee on Arraapmcnu WIS iUbmiued &0 &his Office on

Oclober 17f 1991 and is also beinl reviewed on an npedilCd basis. I •

.. BecauIe .... raoIuUon or...ordie iuua in die audit ofdie Hose CommiUce may relUlI .n

repayments (rom Commiaee on AtrMpmentSpursuIIIl CO JI C.F.R. f 9OOI.l2.1he response of both

Commiuccs arc considered herem.

S ParenlhelicaJ ,eferences are 10 Ibc relevana ",aion ofthe proposed Audit Rcpon.

Page 66
9

CJ.

•

o

7

•

o

2;

5

•

2

4

2

5

Memorandum to Roben J. Costa

Proposed Audit Report ofthc San DiclO Host Committee

Page 3

revisions, the Commission intended to continue this distinction. See S9 Fed. Reg. 33,614

(June 29, 1994). This Office concurs in the proposed Audit Report's approach of

interpreting the exception permitted for host committee expenditures narrowly.

The Host Committee paid 52,163,0846 to David J. Nash Associates. Inc. ("Nash")

pursuant to a contract between the Host Committee and Nash for television production

and related services. The proposed Audit Report permits only one category of

expenditures, the construction ofthe Convention Center's Sail Area, an outdoor patio on

the roof ofthe Convention Center designed to accommodate Convention attendees who

could not be accommodated within the Convention Center due to its limited space. The

Sail Area expenditures total $196,032.'

A. Payments for Sail Area Entertainment •

Among the Sail Area expenditures permitted by the proposed Audit Report are

expenditures related to entertainment for the Sail Area. With regard to the entertainment

provided in the Sail Area, the Committee on Arrangements explains that the

entertainment was designed to fill in periods ofinactivity during the convention

proceedings. The Host Committee's response maintains that all ofthe Sail Area

expenditures are permitted by 11 C.F.R. § 9008.S2(c)(1)(ii), (v) and (xi).

The Office of General Counsel believes that entertainment expenses are pennitted

only under 11 C.F.R. § 9008.52(c)( 1)(ii) and only to the extent the entertairunent is part

of a reception to welcome convention attendees to the city. See II C.F.R.

§ 9008.52(c)(1 )(ii). Because the expenses for the entertainment at the Sail Area were part

ofthe convention proceedings designed to fill in the ululls" in activity at the podium and

were not part ofreceptions to welcome convention attendees to San Diego, the expenses

are not host committee expenditures pennitted under 11 C.F.R. § 9008.52(c)( 1).

Consequently, this Office recommends that the proposed Audit Report be revised to deem

the $18,935 expended for Sail Area entertaiMlent plus the 53,481 for an entertainment

coordinator for the Sail Area entertaiMlent to be a $22,416 contribution to the Committee

on Arrangements. 8

6 This figure is from an affidavit submitted by David J. Nash with the Comminee on Arrangement's

response.

1 The Office ofGeneral Counsel agrees with the proposed Audit Repon that II C.F.R.

§ 9008.S2(c)( IXv) pennits the Host Committee expenditures thaI were relAtcd to the construction ofthe

Sail Area and the various audio-visual systems necessary to broadcast thc convention proceedinas to those

anendees in the Sail Area. These expenditures constitute the provision of full use of the Convention Center

and the provision of constNction for that location. as expressly permitted by II C.F.R. § 9008.S2(c)( I)(v).

• The Exit Conference Memorandum did not conclude that the enlenammenl expenditures related

to the Sail Area were impermissible under II C.F.R. § 9008.52(c)( I). Howevcr. the Audit Repon may

include issues not raised in the Exit Conference Memorandum. II C.F.R. §t 9008.1 I. 9007.1 (d)( I )

and 9038.1 (d)( 1). The Committee on AlTaftgements will be provided with an opponunity to address this

issue if it is disputed in the repayment process. II C.F.R. §§ 9008.12(c) and 9007.2(0.

Page 67
•

2"

If

2

b

Memorandum to Roben J. Costa

Proposed Audit Repon ofthe San Diego Host Committee

Page 4

B. Pa}'ments for "DecorationslMusic"

The Committee on Arrangements identifies $3.088 ofthe expenditures attributed

to decorations/music as specifically related to the hotel and transportation costs for the

orchestra. However, the Committees have made no showing that these costs comply \\'ith

the requirements in 11 C.F.R. § 9008.S2(c)(I)(vi) (local transportation services) and 11

C.F.R. § 9008.S2(c)(1)(ix) (hotel rooms). Thus, this Office concurs with the proposed

Audit Report's conclusion with respect to this category of expenditures. However. with

respect to $3,088 for hotel and transportation costs, we recommend that the proposed

Audit Report be revised to incorporate the relevant regulations.

II. RECEIPTS AND DISBURSEMENTS OF CITY OF SAN DIEGO EVENTS

FUND (III, C and D)

The proposed Audit Report concludes that the City of San Diego's City Civic

Events Fund (the "Events Fund,,)9 was "in practice restricted to use in cOlUlection with

the 1996 Republican National Convention:' contrary to 11 C.F.R. § 9008.S3(b)( 1)(i)

because: (1) the Events Fund was established for the 1996 Republican National

Convention; (2) there was no indication that the Events Fund had been used for any other

purpose or that any donations had been solicited or received for any other event;

(3) Events Fund documents that suggest it was restricted to the 1996 Republican National

Convention; (4) designations from donors to the Events Fund that their donations were to

be used in cOMection with the 1996 Republican National Convention; and (5) thee

contractual arrangement between the Host Committee and the Events Fund pursuant to

which all donations forwarded to the Events Fund by the Host Committee ~ere in tum

donated to the Host Committee.

The City's response states that Uthe audit staff accurately assesses that the Civic

Events Funds was set up in cOMection with the 1996 Republican National Convention:"

but it argues that such an approach is permitted by Advisory Opinions 1982-27 and 1983-

29. With respect to the Events Fund donations fOf\\'arded to it by the Host Committee.

the City contends that the contract between it and the host committee was pennissive in

allowing the transfer of donations to the Host Conlmittee. Finally. the City states that it

sent each of the Events Fund donors a letter stating that the Events Fund would be used in

connection with "national conventions."

This Office concurs with the proposed Audit Report's conclusion that the Events

Fund \\'as not operated in compliance with 11 C.F.R. § 9008.53. The joint fundraising

appeals signed b)' the Mayor ofthe City of San Diego and the Chair ofthe Host

The Commission's January 7, 1997 deciSIOn \\Ith rcgaru 10 Agenda Document No. X97·03

authorized the Audit Divisiun to examine records thaI demonstrated the origanal sources ofthe Events

Fund's moneys. The proposed Audit Repon identifies ~o.6lJM.176 that the Host Committee received from

the Events Fund.
10

q:

I

Q;

[

...

0;

t.!'

7

•

2

4·

.-,.

t...

7

Memorandum to Robert J. Costa

Proposed Audit Report of the San Diego Host Comminee

Page 5

Committee constitute solicitations designated for use in connection with the 1996

Republican National Convention contrary to 11 C.F.R. § 9008.53(b)(I)(ii). The June 1,

1996 fonn solicitation letter that is Exhibit D to the City's response asks recipients "to be

a part ofthis rare opportunity to showcase our great city." Two previous references to the

1996 Republican National Convention make clear that "this rare opportunity" is that

particular convention, and not efforts to attract any convention, event or activity to San

Diego.

This Office also concurs with the proposed Audit Report's conclusion that the

Events Fund operated contrary to 11 C.F.R. § 9008.53(b)(1 )(ii) by accepting restricted

donations. The proposed Audit Report states that Events Fund donations totaling

$2,601,000 were accompanied by correspondence from the donors or notations made by

the donors on their checks that designated the donation for use in connection with the

1996 Republican National Convention. The City's response argues that it cured this

apparent noncompliance with its acknowledgment letters sent to all donors that stated

"your funds will help the City ofSan Diego defray its financial obligations as the Host

City for national conventions." The City states that plural "conventions" was intended to

signify that the funds were not restricted to the 1996 Republican NationrJil Convention.

The Events Fund could have requested written redesignations from the donors that

specify their donations are not restricted to a particular convention, event or activity.

Nonetheless, this Office believes that the City's letters are not sufficiently clear to infonn

the donors that the City did not accept any restrictions the donors had placed on their

donations. Consequently, this Office believes that the City's letters failed to cure any

noncompliance related to any restricted donations.

Finally, there is some question whether the Events Fund was restricted for use in

connection with 1996 Republican National Convention and therefore not in compliance

with II C.F.R. § 9008.53(b)( Ilei). On the one hand, the document record before us

suppons the City's position that the Events Fund was not restricted as that term is used in

11 C.F.R. § 9008.53(b)( I)(i), 10 despite the City's statement that the Events Fund was "'set

up" in connection with the 1996 Republican National Convention. I I However, on the

The Resolution attached to the City's response establishes that the name of a corporation known

as San Diego Festivals, Inc. was changed to the San Diego Civic Events Fund, and its Anicles of

Incorporation were also amended to expand the Events Fund's purpose to include supponing a broad array

of community events that enrich the quality of life in the City of San Diego. Additionally, the Events Fund

previously supported an an exhibition when it was known as San Diego Festivals, Inc., and the Deputy

City Manager states in his affidavit that the Events Fund will be used again in connection with the 1998

Super Bowl. The City is correct when it emphasizes that the pennissive language in its contract with the

Host Comminee pennitted, but did not require, the Events Fund to transfer the funds forwarded by the Host

Comminee back to the Host Committee. Because the Events Fund was under no contractual obligation to

provide all ofthe funds to the Host Comminee, the contract does not impose a restnction on the Events

Fund.

I! The City's response does not correctly characterize the requirement in II C.F.R. § 9008.S3(b)( I)

that the municipal fund be a separate fund. That provIsion requires that the monies in a municipal fund be

Page 64
f\.ternorandum to Robert J. Costa

Proposed Audit Report ofthe San Diego Host Comminee

Page 6

n

•

u

2

5

•

Z

4

2

8

other hand, the Events Fund's actions in the election year were apparently devoted

exclusively to the 1996 Republican National Convention and therefore support the

conclusion that the Events Fund was improperly restricted to the 1996 Republican

National Convention. 12 Thus, although the Events Fund can point to long past events it

supported and to future events that it may support, it appears that the only event it

supported in 1996 was the Republican National Convention. The Commission's ·

regulations are unclear as to the duration ofthe period that should be examined to

determine if a municipal fund's activity were restricted to a particular convention

contrary to 11 C.F.R. § 9008.53(b)(1 )(i). Nonetheless, the Events Fund's practices

support a conclusion that the Events Fund was improperly restricted contrary to II C.F.R.

§ 9008.S3(b)(1lei).

This Office recommends that the proposed Audit Report be revised to include an

additional discussion ofthe consequence:· ofthe Events Fund's actions. 13 A municipal

fund's expenditures in compliance with 11 C.F.R. § 9008.53 do not count toward the

convention committee's expenditure limit. i 1 C.F.R. § 9008.8(b)(2). However, pursuant

to 11 C.F.R. § 9008.l2(b)(7), ifthe municipal fund failed to comply with 11 C.F.R.

§ 9008.53 in its expenditures or its acceptance of contributions, and ifthe convention

committee knowingly helped, assisted or participated in the municipal fund's actions.

then the Commission may seek a repayment from the convention committee ofthe

municipal fund's expenditures.

We recommend that the Audit Division review the current information to

determine if the Committee on Arrangements knowingly panicipated in this activity. If

the Audit Division believes that the Committee on Arrangements nlust make a

repayments as a result ofthis activity, then the proposed Audit Report on the Committee

on Arrangements should be revised accordingly. .

kept separate from the sponsoring municipality's general funds. The City's apparent misunderstandmg is

that the requirement in II C.F.R. § 9008.53(b)( I) requires municipal funds to segregate monies related to

political conventions from other municipal fund monies.

12 In addition to its solicitations designated for this convention and its receipt of designated

contributions, the Events Fund apparently provided all of its funds to the Host Committee as they were

raised.

u Because ofthe Events Fund's actions contrary to the requirements applicable to a municipal fund

pursuant to II C.F.R. § 9008.53, it may be determined to have been a host committee under II C.F.R.

§ 9008.52. Although the definition ofa host committee found in II C.F.R. § 9008.52 is not entirely

distinct from the definition of a municipal fund in II C.F.R. § 9008.5 l(c), the reponing requirements for a

host comminee are more detailed than those for a municipal fund. Compare II C.F.R. § 9008.5 I(b) (host

committee) with II C.F.R. § 9008.5 I(c) (municipal fund). However, the Events Fund does receive tax

funds and it existed prior and subsequent to the 1996 convention; both are characteristics that are closer to

a municipal fund than a host committee. See II C.F.R. § 9008.S3(b)( I). Under these facts, we believe the

bener approach is to consider Events Fund to be a municipal fund.

Page 70
FEDERAL ELECTION COMMiSSIO~

af

q

I

•

A

=;

..

Q

v

2

5

•

2

4

2

July 27.. 1998

Mr. Patrick She~ Treasurer

San Diego Host Committee/

Sail to Victory '96

750 B Street

Suite 1400

San Diego, CA 92102

Dear Mr. Shea:

Attached please find the Audit Report on San Diego Host Committee/Sail to

Victory '96. The Commission approved this report on April 23, 1998. As noted in the

Background section ofthe report. the Commission may pursue any ofthe matters

discussed in an enforcement action.

The Commission approved Audit Report will be placed on the public record on

July 31. 1998. Should you have any questions regarding the public release ofthis report.

please contact Ron Harris ofthe Commission·s Press Office~! (202) 694-1220.

Any questions you may have related to matters covered during the audit or in the

audit report should be directed to Joe Stoltz ofthe Audit Division at (202) 694-1200 or

toll free at (800) 424·9530.

Sincerely..

Assistant Staff Director

Audit Division

cc: Frederick K. Lowell. Esquire

Ted Broomfield. Esquire

Attachment as stated

Page 71
..o25•243o

Page 7'2
CHRONOLOGY

SAN DIEGO HOST COMMIITEEISAIL TO VICTORY '96

c;

•

9

•

o

2

5

it

2

If

3

1

Audit Fieldwork

Exit Conference Memorandum to

the Committee

Response to the Exit Conference

Memorandum Received

Audit Report Approved

Page -.~

January 6, 1997 to January 22. 1997

May 20.1997

August 8, 1997

April 23, 1998
'1

C1

..67

ito25•2

If32
•

2

~.

3

':(

-¥