37722 Federal Register / Vol. 63, No. 133/ Monday, July 13, 1998 / Proposed Rules

FEDERAL ELECTION COMMISSION

[Notice 1998–12]

11 CFR Parts 102, 103, and 106

Prohibited and Excessive

Contributions; ‘‘Soft Money’’

AGENCY: Federal Election Commission.

ACTION: Notice of Proposed Rulemaking

(NPRM).

SUMMARY: The Federal Election

Commission today seeks comments on

proposed rules relating to funds

received by party committees outside

the prohibitions and limitations of the

Federal Election Campaign Act, also

known as ‘‘soft money.’’ This NPRM

addresses issues raised in two petitions

for rulemaking, one submitted by

President William J. Clinton and the

other submitted by five Members of the

United States House of Representatives.

The two petitions seek limits on the use

of soft money for activities that have an

impact on federal elections. The draft

rules which follow do not represent a

final decision by the Commission

regarding the changes sought in the

petitions. Further information is

provided in the supplementary

information that follows.

DATES: Statements in support of or in

opposition to the proposed rules must

be filed on or before September 11,

1998. The Commission will hold a

public hearing at 10:00 a.m. on

September 23, 1998. Persons wishing to

testify must so indicate in their written

comments.

ADDRESSES: All comments should be

addressed to Susan E. Propper,

Assistant General Counsel, and must be

submitted in either written or electronic

form. Written comments should be sent

to the Federal Election Commission, 999

E Street, N.W., Washington, DC 20463.

Faxed comments should be sent to (202)

219–3923, with printed copy follow up.

Electronic mail comments should be

sent to softmoneynpr@fec.gov.

Commenters sending comments by

electronic mail should include their full

name and postal service address within

the text of their comments. Electronic

mail comments that do not contain the

full name, electronic mail address and

postal service address of the commenter

will not be considered. The public

hearing will be held in the

Commission’s public hearing room, 999

E Street, N.W., 9th Floor.

FOR FURTHER INFORMATION CONTACT: Ms.

Susan E. Propper, Assistant General

Counsel, or Paul Sanford, Staff

Attorney, 999 E Street, N.W.,

Washington, D.C. 20463, (202) 694–1650

or (800) 424–9530.

SUPPLEMENTARY INFORMATION: With this

NPRM, the Commission is publishing

and seeking comments on proposed

rules relating to the receipt and use of

prohibited and excessive contributions,

also known as ‘‘soft money,’’ by

national, state and local party

committees. The Commission is

publishing these rules in response to

two petitions for rulemaking that seek

limits on the use of soft money in

activities that may influence federal

elections.

For reasons that will be explained

further below, the Commission has

decided that the issues raised in the

petitions warrant further consideration.

The Commission believes that changes

in the regulations relating to soft money

may be necessary to give full force and

effect to the prohibitions and limitations

in the Federal Election Campaign Act, 2

U.S.C. 431 et seq. [‘‘FECA’’ or ‘‘the Act’],

and ensure that impermissible funds are

not used to influence federal elections.

Therefore, the Commission is seeking

comments on proposed rules that would

limit the use of soft money by party

committees. The proposed rules are

described in detail below.

However, the Commission would like

to emphasize that no final decision has

been made on whether or not to

promulgate new rules in this area. At

this point, the Commission is merely

seeking comments on possible

approaches for limiting the impact of

soft money on federal elections. No final

decision will be made until after the

comment period has concluded and a

public hearing has been held.

Prior History

The Act limits the amount that

individuals can give to candidates,

political committees and political

parties for use in federal elections. 2

U.S.C. 441a. The Act also prohibits

corporations and labor organizations

from contributing their general treasury

funds for these purposes. 2 U.S.C. 441b.

Federal contractors are also prohibited

from making these contributions. 2

U.S.C. 441c, 11 CFR 115.2(a). Note that,

under 2 U.S.C. 441b and 441e, national

banks, Congressionally-chartered

corporations, and foreign nationals are

prohibited from making contributions in

connection with any election to any

political office.

In contrast, some state campaign

finance statutes allow corporations and

labor organizations to make

contributions to state and local

candidates, and also allow individuals

to make contributions to state and local

candidates in amounts that would

exceed the dollar limits in 2 U.S.C.

441a. In addition, the Act’s prohibition

on contributions by federal contractors

does not apply to contributions made in

connection with state or local elections.

11 CFR 115.2(a).

Today, most party committees receive

some contributions that are permissible

under the FECA and also receive other

contributions that are not permissible

under the Act if they are to be used in

connection with federal elections.

Contributions that are permissible under

the FECA are often referred to as ‘‘hard

money’’ contributions. Contributions

that are not permissible, i.e., individual

contributions in excess of the section

441a dollar limits, all corporate and

labor organization general treasury

contributions, and contributions from

federal contractors, are often referred to

as ‘‘soft money,’’ and are to be used

exclusively for state and local campaign

activity or other party committee

activities that do not influence federal

elections.

Typically, party committees set up

separate bank accounts into which they

deposit the hard and soft money

contributions they receive. Hard money

contributions are to be deposited into a

federal account, and soft money

contributions are to be deposited into a

non-federal account. Some party

committees have a federal account and

multiple non-federal accounts.

However, since 2 U.S.C. 441b and 441e

prohibit national banks,

Congressionally-chartered corporations,

and foreign nationals from making

contributions in connection with any

election to any political office,

contributions from these entities to a

party committee’s non-federal accounts

are also prohibited.

It is usually a relatively simple matter

for the party committee to distinguish

between hard and soft money

contributions and segregate them in

separate bank accounts. However, it can

be more difficult to distinguish between

a party committee’s federal and nonfederal expenses, because many party

committee activities benefit both federal

and non-federal candidates. For

example, when a party committee

conducts a get-out-the-vote drive urging

people to support the party’s

candidates, it presumably increases the

turnout of voters who favor that party’s

candidates. If there are both federal and

non-federal candidates on the ballot, the

drive benefits both the federal and the

non-federal candidates. Consequently, if

the party committee pays the costs of

such a drive entirely with soft dollars,

the committee is using prohibited

contributions to benefit federal

candidates. This would violate the

contribution prohibitions and

limitations in the FECA.
Federal Register / Vol. 63, No. 133/ Monday, July 13, 1998 / Proposed Rules 37723

Since early in its history, the

Commission has struggled with the fact

that many party functions have an

impact on both federal and non-federal

elections, and has sought to give force

and effect to the FECA’s prohibitions

and limitations by requiring party

committees to pay at least a portion of

the cost of these ‘‘mixed’’ activities with

hard dollars. For example, in Advisory

Opinion 1975–21, the Commission

required a local party committee to use

hard dollars to pay for a portion of its

administrative expenses and voter

registration costs. The Commission said

that even though some party functions

do not relate to any particular candidate

or election, ‘‘these functions have an

indirect effect on particular elections,

and since monies contributed to fulfill

these functions free other money to be

used for contributions and expenditures

in connection with Federal elections, it

is appropriate to ascribe a certain

portion of the administrative functions

of a party organization to Federal

elections during time periods in which

Federal elections are held.’’ Id.

The Commission incorporated part of

Advisory Opinion 1975–21 into

regulations promulgated in 1977. The

regulations required political

committees active in both federal and

non-federal elections to allocate their

administrative expenses between

separate federal and non-federal

accounts ‘‘in proportion to the amount

of funds expended on federal and nonfederal elections, or on another

reasonable basis.’’ 11 CFR 106.1(e)

(1978). Sections 106.1 and 106.5 of the

current rules contain updated versions

of these regulations.

In two opinions issued after AO

1975–21, the Commission took an even

more restrictive view of the use of soft

money for registration and get-out-thevote drive activity. In its response to

Advisory Opinion Request 1976–72, the

Commission said that ‘‘even though the

Illinois law apparently permits

corporate contributions for State

elections, corporate/union treasury

funds may not be used to defray any

portion of a registration or get-out-thevote drive conducted by a political

party.’’ Thus, the Commission

concluded that this type of activity

would have to be paid for with hard

dollars. In its response to Advisory

Opinion Request 1976–83, the

Commission reached a similar

conclusion.

However, in Advisory Opinion 1978–

10, the Commission modified its

position. In that opinion, the

Commission concluded that the costs of

voter registration and GOTV drives

should be allocated in the same manner

as party administrative expenditures. In

reaching this conclusion, the

Commission superseded Re: AOR 1976–

72 and 1976–83 and said that corporate

and union treasury funds could be used

for the portion of the costs allocated to

the party committee’s non-federal

account.

In Advisory Opinion 1979–17, the

Commission recognized the ability of a

national party committee to establish a

separate account to be used ‘‘for the

deposit and disbursement of funds

designated specifically and exclusively

to finance national party activity limited

to influencing the nomination or

election of candidates for public office

other than elective ‘federal office.’ ’’

Thus, the Commission concluded that a

national party committee could accept

corporate contributions ‘‘for the

exclusive and limited purpose of

influencing the nomination or election

of candidates for nonfederal office.’’

The 1979 amendments to the Federal

Election Campaign Act sought to

encourage the participation of state and

local party committees in federal

elections by carving out exceptions to

the definitions of contribution and

expenditure for certain volunteer, voter

registration and get-out-the-vote activity

conducted by these committees. Under

sections 431(8)(B)(x) and 431(9)(B)(viii),

payments for the costs of campaign

materials used in connection with

volunteer activities on behalf of the

party’s nominee are not contributions or

expenditures so long as the payments do

not finance any general public political

advertising, and are made from

contributions that are permissible under

the Act but were not designated for a

particular candidate. Sections

431(8)(B)(xii) and 431(9)(B)(ix) contain

the same rule for voter registration and

get-out-the-vote drive costs conducted

by the committee on behalf of its

presidential and vice-presidential

nominees. These provisions supplement

a similar provision for slate cards and

sample ballots that existed in the Act

prior to the 1979 amendments. 2 U.S.C.

431(8)(B)(v) and 431(9)(B)(iv). Since

then, these activities have collectively

been referred to as ‘‘exempt activities.’’

The House Report accompanying the

1979 amendments recognizes the ability

of state and local party committees to

allocate the costs of slate card and

volunteer activities in certain

circumstances. H.R. Rep. No. 96–422 at

8, 9 (1979).

In 1984, the Commission received a

petition for rulemaking from Common

Cause seeking new rules relating to the

use of soft money. The petition

requested that the Commission take

action to address what the petitioner

alleged was the use of soft money by

national party committees to influence

federal elections. The Commission

published a Notice of Availability on

January 4, 1985, and subsequently

published a Notice of Inquiry on

December 18, 1985. See 50 FR 477 (Jan.

4, 1985), 50 FR 51535 (Dec. 18, 1985).

These two notices sought comments

from the public on the issues raised in

the petition. The Commission also held

a public hearing on January 29, 1986, at

which several witnesses testified.

After reviewing the petition, the

comments and the witness’ testimony,

the Commission denied the Common

Cause petition, concluding that neither

the petition nor the comments

‘‘constitute concrete evidence

demonstrating that the Commission’s

regulations have been abused so that

funds purportedly raised for use in

nonfederal elections have in fact been

transferred to the state and local level

with the intent that they be used to

influence federal elections.’’ Notice of

Disposition, 51 FR 15915 (Apr. 29,

1986).

Common Cause challenged the

Commission’s denial of the petition in

U.S. District Court. In court, Common

Cause asserted that no allocation

method is permissible under the FECA.

Consequently, Common Cause argued,

the Commission’s denial of the petition

was arbitrary and capricious under the

Administrative Procedure Act, 5 U.S.C.

§ 706. Common Cause also argued that

allowing committees to allocate on a

reasonable basis was contrary to law

because it failed to ensure proper

allocation between federal and nonfederal accounts.

The court rejected Common Cause’s

first argument, saying that the Act

cannot be read to prohibit allocation.

Common Cause v. FEC, 692 F. Supp.

1391, 1395 (D.D.C. 1987). However, the

court then agreed that the Commission’s

policy of allowing state party

committees to allocate slate card

expenses on any reasonable basis was

contrary to law, ‘‘since Congress stated

clearly in the FECA that all monies

spent by state committees on these

activities vis-a`-vis federal elections must

be paid for ‘from contributions subject

to the limitations and prohibitions of

this Act.’’’ Id. (quoting 2 U.S.C.

431(8)(B)(x)(2) and (xii)(2),

431(9)(B)(viii)(2) and (ix)(2)). The court

said that

[t]he plain meaning of the FECA is that any

improper allocation of nonfederal funds by a

state committee would be a violation of the

FECA. Yet, the Commission provides no

guidance whatsoever on what allocation

methods a state or local committee may use;

. . . Thus, a revision of the Commission’s
37724 Federal Register / Vol. 63, No. 133/ Monday, July 13, 1998 / Proposed Rules

regulations to ensure that any method of

allocation used by state or local party

committees is in compliance with the FECA

is warranted. Id. at 1396.

The court directed the Commission to

replace the ‘‘any reasonable basis’’

allocation method with more specific

allocation formulas that would ensure

that only contributions subject to the

limitations and prohibitions of the Act

are used to influence federal elections.

However, the court also acknowledged

that the Commission could ‘‘conclude

that no method of allocation will

effectuate the Congressional goal that all

moneys spent by state political

committees on those activities permitted

in the 1979 amendments be ‘hard

money’ under the FECA. That is an

issue for the Commission to resolve on

remand.’’ Id. (emphasis in original).

In a subsequent order, the same court

stated that ‘‘‘[s]oft money’ denotes

contributions to federally regulated

campaign committees in excess of the

aggregate amounts permitted for federal

elections by the FECA; these

contributions, even if directed to

national campaign entities, are

permissible if the money is not to be

used in connection with federal

elections.’’ Common Cause v. FEC, 692

F.Supp. 1397, 1398 (D.D.C. 1988).

The Commission initiated a

rulemaking in response to the court’s

decision in which it made several efforts

to obtain input from the regulated

community. In addition to the two

comment periods and public hearing

held before the court’s decision, the

Commission sought comments on

proposed rules through a new Notice of

Proposed Rulemaking published on

September 29, 1988. 53 FR 38012. The

Commission also held another public

hearing on the proposed rules on

December 15, 1988, at which a cross

section of the regulated community had

an opportunity to testify. The

Commission took the additional step of

sending questionnaires to the chairs of

all the Democratic and Republican state

party committees, and also sought input

from the chief fundraisers for each of

the major political parties during the

1988 election year.

The Commission issued final rules in

1990 and put them into effect on

January 1, 1991. Methods of Allocation

Between Federal and Non-Federal

Accounts; Payments; Reporting, 55 FR

26058 (June 26, 1990). These rules

currently govern the allocation of

expenses between federal and nonfederal accounts. They seek to address

the issue of soft money in two ways.

First, the current rules replace the

‘‘any reasonable basis’’ allocation

method with specific allocation

methods to be used to pay the costs of

activities that impact both federal and

nonfederal elections. The method to be

used depends on the type of committee

incurring the expense and the type of

activity for which expenses are to be

allocated.

National party committees, other than

the Senate and House campaign

committees, are required to allocate a

minimum of 60% of their administrative

expenses and costs of generic voter

drives to their federal accounts each

year (65% in presidential election

years). 11 CFR 106.5(b). In addition,

national party committees must allocate

the costs of each combined federal and

non-federal fundraising program or

event using the funds received method

described in 11 CFR 106.5(f).

Senate and House campaign

committees are required to allocate their

administrative and generic voter drive

expenses using a funds expended

formula, subject to a 65% minimum

federal percentage, 11 CFR 106.5(c),

and, like the national party committees,

they must allocate the costs of each

combined federal and non-federal

fundraising program or event using the

funds received method described in 11

CFR 106.5(f), with no minimum federal

percentage required.

State and local party committees must

allocate (1) their administrative

expenses and generic voter drive costs

using the ballot composition method,

described in 11 CFR 106.5(d); (2) the

costs of communications exempt from

the contribution and expenditure

definitions under 11 CFR 100.7(b) (9),

(15) or (17), and 100.8(b) (10), (16) or

(18), according to the proportion of time

or space devoted to federal and

nonfederal candidates in the

communication, 11 CFR 106.5(e); (3)

expenses incurred in joint fundraising

activities using the funds received

method, 11 CFR 106.5(f); and (4) direct

candidate support activity according to

the time or space devoted to each

candidate in the communication. 11

CFR 106.1. The new rules also set up

procedures to be used by all three types

of committees to pay for their mixed

activities.

Second, the rules impose additional

reporting requirements in order to

enhance the Commission’s ability to

monitor the allocation process. All three

types of party committees are required

to report their allocations of

administrative expenses, voter drive

costs, fundraising costs and costs of

exempt activities, and also to itemize

any transfer of funds from their nonfederal to their federal or allocation

accounts. In addition, all six national

party committees are now required to

disclose the financial activities of their

nonfederal accounts. Specifically, the

committees are required to report all

nonfederal receipts and disbursements.

The Commission believed this

additional reporting would help to

ensure that impermissible funds were

not used for federal election activities.

On May 20, 1997, the Commission

received a petition for rulemaking from

five Members of the United States

House of Representatives urging the

Commission ‘‘to modify its rules to help

end or at least significantly lessen the

influence of soft money.’’ On June 5,

1997, the Commission received a second

petition for rulemaking relating to soft

money, this one submitted by President

Clinton. President Clinton’s petition

asks the Commission to ‘‘ban soft

money’’ and ‘‘adopt new rules requiring

that candidates for federal office and

national parties be permitted to raise

and spend only ‘hard dollars.’’’

In accordance with its usual

procedures, the Commission published

a Notice of Availability in the June 18,

1997 edition of the Federal Register

announcing that it had received the

petitions and inviting the public to

submit comments on them. 62 FR 33040

(June 18, 1997). The comment period

closed on July 18, 1997. The

Commission received 188 comments in

response to the Notice of Availability.

Summary of Comments on the Petitions

for Rulemaking

Most of the comments on the Notice

of Availability were directed at the

question of whether the Commission

should promulgate new rules on soft

money, and if so, what those rules

should be. However, a few commenters

raised threshold issues regarding the

petitions that should be addressed

before examining the substantive issues

raised. These threshold issues will be

discussed in subsection 1, below. The

remaining comments will be

summarized in subsection 2.

1. Comments Raising Threshold Issues

Regarding the Petitions

a. Sufficiency of the Petitions

One comment raised a threshold

question about the sufficiency of the

petitions. This comment asserted that

the petitions should be denied because

they do not set forth the factual and

legal grounds supporting the proposed

change in the rules. See 11 CFR

200.2(b)(4). The comment said that the

Commission should require petitioners

to put on record ‘‘specific, detailed and

credible instances of abuse that in terms

of seriousness and scope will justify’’

the rules sought in the petition, and
Federal Register / Vol. 63, No. 133/ Monday, July 13, 1998 / Proposed Rules 37725

should hold certain petitioners to a

higher standard of evidence.

This comment misconstrues the

purpose of the petition for rulemaking

procedures. These procedures provide

the public with guidance on how to seek

changes in the Commission’s rules, and

should be read in light of the

Commission’s long-standing practice of

making its policymaking processes as

open and accessible as possible. The

rules do not place a heavy evidentiary

burden on a petitioner to prove, on the

face of a petition, that policy changes

are necessary. Petitioners need only

raise policy issues that are within the

Commission’s jurisdiction, and request

that the Commission consider whether

policy changes are warranted. If a

petitioner does so, the Commission will

publish a Notice of Availability and

begin its consideration process. The

Commission will use the comments

received on the petition and its own

experience in interpreting and enforcing

the Act to determine whether to proceed

with a rulemaking.

Furthermore, implicit in the

Commission’s commitment to making

its rulemaking process easily accessible

to the public is a commitment to making

that process available to all members of

the public on an equal basis.

Consequently, the Commission does not

believe it would be appropriate to hold

certain petitioners to higher evidentiary

standards.

The Commission concludes that the

letters submitted by President Clinton

and the five Members of Congress

adequately explain the factual and legal

grounds upon which they rely, and

demonstrate that there are issues related

to the use of soft money that are worthy

of Commission consideration.

Therefore, they qualify as petitions

under 11 CFR 200.2(b). The Commission

also notes that even if it were to

conclude that the letters do not qualify

as petitions, it has the discretionary

authority to treat them as the basis for

a sua sponte rulemaking. 11 CFR

200.2(d).

b. Statutory Authority

Another threshold issue raised by the

comments is whether the Commission

has the authority to regulate soft money.

Several of the comments that opposed

the petitions take the position that soft

money is outside the Commission’s

jurisdiction, and that imposing limits on

soft money would exceed the

Commission’s statutory authority. They

assert that, since the Act does not

restrict the use of non-federal funds by

the national party committees unless

those funds are used for federal election

activity, the Commission cannot impose

restrictions on its own.

In contrast, several of the comments

that support the petitions argued that

the Commission has the power to ban

the use of soft money by party

committees to the extent necessary to

avoid having soft money influence

federal elections. Another comment

argued that, in the Common Cause case,

discussed above, the court said that

when the Commission fails to issue

regulations, and the policy resulting

from that failure flatly contradicts

Congress’s purpose, the Commission

can be held to have acted contrary to

law. Since the Act prohibits the use of

soft money in federal elections, this

comment asserts that a Commissionimposed limitation serving the same

purpose would be upheld.

The Commission has reviewed this

threshold question and reached the

preliminary conclusion that it has the

authority to issue new rules relating to

soft money, at least insofar as it is used

in connection with Federal elections.

The FECA limits the amounts that

individuals and political committees

can contribute for the purpose of

influencing federal elections, and also

prohibits corporations, labor

organizations and federal contractors

from using their general treasury funds

to make contributions in connection

with federal elections. 2 U.S.C. 441a,

441b, 441c. Section 438(a)(8) of the Act

authorizes the Commission to

‘‘prescribe rules, regulations and forms

to carry out the provisions of this Act.

* * *’’ The Commission believes this

broad grant of rulemaking authority

includes the authority to promulgate

rules to limit the use of soft money in

connection with federal elections.

There is ample judicial authority

supporting this conclusion. As the

United States Court of Appeals for the

District of Columbia Circuit has

recognized, courts have shown a ‘‘lack

of hesitation in construing broad grants

of rule-making power to permit

promulgation of rules with the force of

law as a means of agency regulation of

otherwise private conduct.’’ National

Petroleum Refiners Association v.

Federal Trade Commission, 482 F.2d

672, 680 (D.C. Cir. 1973) (‘‘NPRA’’). ‘‘An

agency with a general grant of

rulemaking authority has jurisdiction to

promulgate regulations reasonably

related to the purposes of its enabling

legislation.’’ Pinney v. National

Transportation Safety Board, 993 F.2d

201, 202 (10th Cir. 1993). The Supreme

Court has said that ‘‘[w]here the

empowering provision of a statute states

simply that the agency may ‘make * * *

such rules and regulations as may be

necessary to carry out the provisions of

this Act,’ we have held that the validity

of a regulation promulgated thereunder

will be sustained so long as it is

‘reasonably related to the purposes of

the enabling legislation.’ ’’ Mourning v.

Family Publications Service, Inc., 411

U.S. 356, 369 (1973) (quoting Thorpe v.

Housing Authority of City of Durham,

393 U.S. 268, 280–81 (1969). The

‘‘authority of the [Federal Power

Commission] need not be found in

explicit language. [A general rulemaking

provision] demonstrates a realization by

Congress that the Commission would be

confronted with unforeseen problems of

administration in regulating this huge

industry and should have a basis for

coping with such confrontation. While

the action of the Commission must

conform with the terms, policies and

purposes of the Act, it may use means

which are not in all respects spelled out

in detail.’’ Public Service Comm’n of

State of New York v. Federal Power

Commission, 327 F.2d 893, 897 (D.C.

Cir. 1964). Thus, the Commission

believes that it has the authority to

promulgate rules to ensure that

contributions that would violate

sections 441a, 441b or 441c are not used

to influence federal elections.

The Commission also believes that,

given the complexity of the issues

raised, this is an area in which

providing additional guidance to the

regulated community is particularly

important. ‘‘More than merely

expediting the agency’s job, use of

substantive rule-making is increasingly

felt to yield significant benefits to those

the agency regulates. Increasingly,

courts are recognizing that use of rulemaking to make innovations in agency

policy may actually be fairer to

regulated parties than total reliance on

case-by-case adjudication.’’ NPRA, 482

F.2d at 682.

However, the Commission does not

regard this as a closed issue. Therefore,

as part of its effort to explore the

question of whether new rules are

needed, commenters are invited to

further address the issue of whether the

Commission has the authority to

promulgate rules in this area.

Commenters are also encouraged to

express their views on whether the

proposed rules set out in this notice are

within the scope of that authority.

2. General Comments on the Petitions

for Rulemaking

a. Comments Supporting the Petitions

Approximately 3⁄4 of the 188

comments received in response to the

Notice of Availability expressed support

for the petitions for rulemaking. Among
37726 Federal Register / Vol. 63, No. 133/ Monday, July 13, 1998 / Proposed Rules

those supporting the petition were

twelve United States Senators, three

United States Congressmen, the

Secretaries of State of five states, and

eleven state Attorneys General.

These supporting comments

suggested a number of different

strategies for addressing the issues

raised in the petition. For example,

more than a hundred comments urged

the Commission to ban soft money

completely, while other comments

urged the Commission to limit certain

uses of soft money. A dozen comments

urged the Commission to ban soft

money contributions to the national

party committees, or to prohibit the

party committees from receiving soft

money contributions. Three other

commenters urged the Commission to

prohibit the solicitation of soft money

contributions by national party

committees, federal officeholders, and

federal candidates. Another comment

suggested that the Commission prohibit

the party committees from spending soft

money or transferring it to other

committees. Other comments were

directed at the use of soft money by

state and local party committees. These

comments suggested that the

Commission prohibit state and local

party committees from spending soft

money on any activity or event that

might influence a federal election, and

limit their use of soft money to general

overhead expenses.

Several comments suggested that the

Commission impose partial limits on

soft money. One comment suggested

that the use of soft money be reduced or

limited so that the amount will not

influence a party or candidate. Two

comments suggested that specific dollar

limits be imposed, one on the amount

that a party committee could receive,

and the other on the amount that a

contributor could give.

The comments contained a number of

arguments as to why additional limits

on the use of soft money are needed.

Four comments asserted that soft money

destroys the integrity of the political

process, and said that a ban on soft

money would help to restore public

confidence in the integrity of the

process. Eight comments said that the

widespread use of soft money alienates

voters, and creates the perception of

impropriety, thereby discouraging

involvement in the process. Five

commenters argued that soft money

increases the demand for campaign

contributions, and distracts government

officials from the responsibilities of

governance.

Many of the comments also argued

that soft money is a loophole being used

to circumvent the prohibitions and

limitations of the Act. One comment

asserted that the current system

essentially allows money laundering to

occur by allowing impermissible soft

dollars to be exchanged for hard dollars

that can be used without limitation.

Other comments said that soft money

results in actual quid pro quo

corruption, thereby frustrating the

purposes of 2 U.S.C. 441a and 441b.

Another comment expressed concern

that soft money is having a negative

impact on the public financing system

for presidential campaigns.

Several comments were directed at

the system of allocating federal and nonfederal expenses, as set out in the

current rules. Most of these comments

urged the Commission to abandon the

system and prohibit any combined use

of federal and nonfederal funds. Several

comments asserted that the soft money

problem has grown significantly worse

since the rules were promulgated,

indicating that the rules have failed to

ensure that only hard dollars are used

to influence federal elections. One of

these comments said that reporting

under the allocation rules is inadequate,

and that the Commission does not have

the resources necessary to enforce the

rules.

b. Comments Opposing the Petitions

As indicated above, about one quarter

of the comments spoke out against

limits on soft money, for a variety of

reasons. Several comments argued that

the proposals set out in the petitions

would violate the First Amendment.

Others expressed concern that the

proposals would effectively federalize

all national party activities, and could

weaken parties, which play an

important role in our political system.

Two other comments urged the

Commission to take action on soft

money only when it has addressed the

issue of compulsory union dues. Three

comments urged the Commission to

reject the petitions and devote its

resources to enforcing existing laws.

Analysis

Prior to 1991, it was difficult to

determine how much soft money the

party committees were raising and

spending, because there was no

systematic disclosure of soft money

activity, and no uniform guideline for

allocating expenses. Although some

states required party committees to

disclose their non-federal account

activity, others did not, and even in

those states where disclosure was

required, not all activity appeared on

the public record. Consequently, most of

the available information was anecdotal.

The Commission is generally

reluctant to make significant changes in

existing policy in the absence of clear

evidence that such changes are needed

to effectuate the Act’s mandate.

Consequently, the Commission

concluded that it would be

inappropriate to impose the significant

restraints on the use of soft money

sought in the 1984 petition for

rulemaking. Instead, the Commission

established specific allocation methods

and required additional disclosure by

the party committees. Based upon the

information available at the time, the

Commission believed this approach

struck the appropriate balance between

the need to effectuate the prohibitions

and limitations of the Act, and also

recognize the interests of the states in

regulating non-federal activity.

However, recent developments—

brought to light in many instances

because of the additional disclosure

requirements imposed in 1991—have

reopened the question of whether

allowing party committees to pay a

portion of their mixed activities costs

with soft dollars is consistent with the

mandate of the FECA. Concerns have

been raised that the allocation rules

have allowed party committees to use

large contributions from prohibited

sources and in excess of the hard dollar

limits in ways that, in fact, influence

federal elections, even though they are

ostensibly being used for nonfederal

election activity.

One such development is the

dramatic increase in the amount of soft

money raised and spent by the national

party committees since promulgation of

the allocation rules. According to

summaries of the reports filed with the

Commission, which do not include

transfers among the national party

committees, the national committees

raised $262.1 million during the 1995–

96 election cycle, or an average of

approximately $131.05 million per year,

up from $86 million in the 1992 election

cycle or an average of $43 million per

year. Similarly, soft money

disbursements by the committees

totaled $271.5 million in the 1996

election cycle, a significant increase

from the $79.1 million spent in the 1992

election cycle. The reports also show

that soft money receipts by the national

party committees continued to increase

in 1997. Soft money fundraising by the

Democratic committees increased 25%

during the first six months of the year,

when compared to the same period

during the previous election cycle. Soft

money fundraising by the Republican

national party committees increased

17% during this period.
Federal Register / Vol. 63, No. 133/ Monday, July 13, 1998 / Proposed Rules 37727

In addition to the increase in the total

dollar amount of soft money

contributions, there has also been an

increase in the number of contributions

made to the party committees’

nonfederal accounts that would have

been prohibited under FECA if they had

been made to a federal account. As

explained above, the Act limits

individual contributions to the national

party committees’ federal accounts to

$20,000 per calendar year, and also

limits total contributions by an

individual to $25,000 per year. 2 U.S.C.

441a(a)(1)(B) and 441a(a)(3). In addition,

the Act prohibits contributions by

corporations, labor organizations and

federal contractors. 2 U.S.C. 441b, 441c.

Entities that are prohibited from making

contributions to a federal account and

individuals wishing to make

contributions in excess of the dollar

limits have generally been permitted to

direct those contributions to a

nonfederal account, even though

contributions to nonfederal accounts are

often used for activities that have an

impact on federal elections.

The reports indicate that contributors

are doing so with increasing frequency.

The national party committees’

nonfederal accounts received at least

381 individual contributions of more

than $20,000 during the 1992

presidential election cycle, and also

received about 11,000 contributions

from sources that are prohibited from

contributing to federal accounts. In the

1996 election cycle, both numbers more

than doubled. The committees’

nonfederal accounts received nearly

1000 individual contributions in excess

of $20,000, and also received

approximately 27,000 contributions

from FECA-prohibited sources. Thus, it

appears that an increasing number of

contributors see the party committees’

nonfederal accounts as an avenue

through which they can make

contributions that would be prohibited

under sections 441b or 441c or would

exceed the $20,000 individual

contribution limit. Some individual

contributors may also be using these

accounts to make contributions that

would otherwise exceed their $25,000

overall limit.

Ironically, there are also indications

that the allocation rules themselves may

have increased the amount of soft

money raised by the national party

committees, although it may not be

possible to establish cause and effect.

Although the national party committees

were not required to report soft money

receipts in 1984, one national party

committee official submitted testimony

stating that his party raised $3.7 million

in soft money during the 1984

Presidential election year. Federal

Election Commission Hearing on the

Use of Undisclosed Funds or ‘‘Soft

Money’’ to Influence Federal Elections,

January 29, 1986 (written testimony of

Frank J. Fahrenkopf, Chairman,

Republican National Committee, at 4).

That same party committee raised $23.5

million in 1992, the first Presidential

election year in which the allocation

rules applied. This party committee

subsequently raised $66.2 million in the

1996 Presidential election year,

approximately 18 times the amount

reportedly raised in 1984. In addition,

two national party committees that did

not have a non-federal money account

before promulgation of the allocation

rules established such an account and

began raising soft money after the rules

went into effect.

In some situations, the national party

committees have interpreted the

allocation rules to allow transfers of

funds to state and local party

committees in order to take advantage of

more favorable allocation ratios.

Although the allocation rules prohibit

state party committees from using

transferred funds for certain volunteer

and GOTV activities, see 11 CFR

100.7(b)(15)(vii), and (b)(17)(vii),

100.8(b)(16)(vii) and (b)(18)(vii), they do

not prohibit the use of transferred funds

for voter drive or other activities, nor do

they explicitly require state parties to

apply the national party committee’s

allocation ratio when they use

transferred funds for those purposes.

Generally speaking, it is easier to raise

soft money than hard money. As a

result, the national party committees

look for ways to make their hard dollars

go farther. Transferring funds helps

them achieve this goal in a number of

ways. For example, a national party may

try to stretch its hard dollars by

transferring them to a state or local party

committee and instructing the

committee to use the funds for a

particular mixed activity. Generally, the

rules permit a state or local party

committee to pay a higher percentage of

its mixed activity costs with soft dollars

than a national party is able to when

conducting the same activity. In many

cases, the difference is significant. To

illustrate, a national party committee

conducting a $100,000 voter drive under

the current rules would be required to

pay for the drive with at least $60,000

in hard money. In contrast, a state party

committee conducting the same drive

might only be required to use $35,000

in hard money, and could pay the

remaining costs with soft money. This

creates an incentive for the national

committee to transfer hard dollars to the

state committee and have the recipient

committee conduct the activity.

There have also been allegations that

both national and state party

committees have transferred soft dollars

to nonprofit organizations for them to

use in conducting activities that

influence federal elections, such as

voter registration drives or get-out-thevote campaigns. Ordinarily, a party

committee would be required to allocate

the costs of such an activity, i.e., pay

part of the cost of the activity with hard

dollars. However, many nonprofit

organizations are not political

committees under the FECA, and thus

are generally not subject to the

allocation rules. Currently, in many

situations, nonprofit organizations that

are not political committees under the

FECA can pay the costs of voter

registration or get-out-the-vote activities

entirely with soft dollars. Thus, as with

the hard dollar transfers described

above, the party committees may believe

that transferring soft money to these

types of nonprofit organizations will

enable them to conserve hard dollars.

However, in applying the allocation

rules, one court has said that when an

organization conducts an allocable

activity with funds received from a

party committee, the recipient

organization can be required to use the

allocation rules applicable to the party

committee from which the funds were

obtained. FEC v. California Democratic

Party, No. S–97–891, (E.D.Cal. Jun. 11,

1998).

The disclosure reports show that, in

election years, the national party

committees transfer more soft money to

state and local party committees in

states that appear to have closely

contested races for federal office. For

example, reports indicate that the

national party committees transferred a

combined $14.3 million in soft money

to state and local party committees in

California during the 1995–96 election

cycle. California was an important

battleground state in the Presidential

election. Polls indicated that both major

party candidates had a chance to win

the state’s 54 electoral votes.

In contrast, polls indicated that

President Clinton had a substantial lead

in New York State. One national party

committee did not transfer any soft

money to state and local party

committees in New York during the

1995–96 election cycle, and the other

national party committee transferred

only $325,332, even though New York

represents 33 electoral votes. While this

is only one example and there are other

possible explanations for this disparity,

one likely explanation for it is that the

national party committees were
37728 Federal Register / Vol. 63, No. 133/ Monday, July 13, 1998 / Proposed Rules

directing their soft money to those states

in which it would have the most impact

on federal elections.

In addition, there have been

allegations in the press and other fora

that suggest that federal candidates and

officeholders may be more involved in

the process of raising soft money for the

parties than they have been in the past.

Federal officeholders, in particular,

appear to be directly involved in

soliciting contributions for the party

committees’ soft money accounts. In

1990, the Commission recognized that

some solicitations for soft money

contributions may lead contributors to

believe that funds contributed will be

used to benefit federal candidates,

when, in fact, soft money can only be

used for non-federal election activity. In

order to address this concern, the

Commission created a presumption that

party committee solicitations that refer

to a federal candidate or election are for

the purpose of influencing a federal

election, and thus any contributions

received in response to those

solicitations are subject to the

prohibitions and limitations of the Act.

11 CFR 102.5(a)(3). 55 FR at 26059 (June

26, 1990). The Commission now

believes it may be appropriate to seek

comments as to whether solicitations by

a federal candidate or federal

officeholder should be covered by

§ 102.5(a)(3), and thus whether the

resulting contributions should be

subject to the Act’s prohibitions and

limitations.

Of course, the discussion of the above

allegations should not be read as a

determination by the Commission that

these allegations involve violations of

the FECA. Determinations by the

Commission of violations of FECA by

specific persons in specific factual

contexts can only be made in an

enforcement proceeding.

However, the record described above

suggests that the use of soft money has

expanded far beyond what the

Commission anticipated when it

promulgated the allocation rules. This

appears to be particularly true for the

national party committees. They are

directly tied to federal officeholders in

Congress and the White House. They

also play a major role in raising funds

to elect candidates for federal office, and

in directing those funds to states in

which key elections are being held.

Thus, it is reasonable to conclude that

at least one dominant focus of the

national party committees is in electing

federal candidates. This is in contrast to

state and local party committees, who

focus more of their activities on raising

funds for and assisting in the election of

state and local candidates.

On the other hand, the Commission is

also aware that only a small percentage

of the 500,000 elected positions in this

country are federal, and that national

party committees may have an interest

in the outcome of both federal and

nonfederal elections. In some cases, the

national party committees promote

ideas, issues and agendas of importance

to their respective parties, activities

which, they assert, do not fall within the

FECA. Thus, it is reasonable to conclude

that another dominant focus of the

national party committees is advocating

issues and electing state and local

candidates, although the level of direct

involvement in non-federal elections

varies among the national party

committees. In recognition of this

interest, national party committees

have, to date, been permitted to set up

separate nonfederal accounts to raise

and spend money as allowed under

applicable state and local law.

Putting aside the question of how

much national party committee activity

is not federal-election related, it appears

that by allowing national party

committees to pay a portion of their

mixed activities costs with soft dollars,

the allocation rules appear to be

allowing the national party committees

to use large soft money contributions in

ways that unavoidably influence federal

elections, even though they are

ostensibly raised for nonfederal election

activity. This is inconsistent with the

policy goals of the FECA, which seeks

to limit corruption and the appearance

of corruption that is created when large

individual contributions and corporate,

labor organization and federal

contractor funds are used to influence

federal elections. The number and

percentage of comments expressing the

view that soft money has a corrupting

influence on the federal election process

is a strong indication that soft money is

‘‘eroding * * * public confidence in the

electoral process through the

appearance of corruption.’’ FEC v.

National Right to Work Committee, 459

U.S. 197, 209 (1982) (citing Buckley v.

Valeo, 424 U.S. 1, 26–27 (1976)).

Consequently, the Commission

believes that it may be necessary to

promulgate new rules to ensure that soft

money is not used to influence federal

elections, and give full force and effect

to the prohibitions and limitations of

the Act. The Commission has drafted

proposed rules that seek to achieve this

goal. These rules are set out below,

along with several alternative proposals.

The Commission is also interested in

receiving comments on any other issues

relating to soft money. In particular, as

discussed above, comments are invited

on the scope of the Commission’s

authority to promulgate rules in this

area. Comments are also invited on

whether the allegations discussed above

are accurate, relevant to this inquiry,

and adequate to justify changes in

Commission policy.

The Commission would like to reemphasize that the rules and

alternatives set out below are

preliminary proposals only. They do not

represent a final decision, and may be

modified by the Commission or rejected

and not adopted at all. Also note that

these proposals focus on soft money

activity conducted by party committees,

and would not directly impact issue

advocacy conducted by other entities,

which, unless it expressly advocates the

election or defeat of a clearly identified

candidate, or in certain cases is

coordinated with a candidate or party,

is outside the Commission’s

jurisdiction. Coordination is currently

being addressed in another rulemaking.

See 62 FR 24367 (May 5, 1997).

Rulemaking Proposals

In an effort to generate a full range of

views, the Commission is seeking

comment on two options for addressing

the issues raised above, and is also

seeking comment on three variations on

the second of these two options.

The first option would be to make no

changes to the current rules. Under the

first option, the national parties would

continue to be prohibited from receiving

and using soft money in connection

with federal elections. Soft money

raised for non-federal election related

purposes would be permitted. Nonfederal accounts would be permitted for

these non-federal election purposes

along with the building fund accounts

specifically authorized by the FECA.

The second option would be to make

revisions to the current rules. The

Commission has drafted proposed

revisions to the current rules that would

address these issues. The proposed

revisions are described in detail in the

next two sections. Draft rules

implementing these proposals are set

out in the proposed rule section of this

notice.

The proposed revisions consist of a

core proposal, and three variations on

the core proposal. The core proposal

would prohibit the receipt and use of

soft money by the national party

committees, and would eliminate all

national party committee nonfederal

accounts other than the building fund

accounts specifically authorized by the

FECA. This proposal also clarifies

portions of section 102.5 relating to

solicitations by federal candidates and

officeholders. However, the core

proposal would not change the
Federal Register / Vol. 63, No. 133/ Monday, July 13, 1998 / Proposed Rules 37729

allocation rules for state and local party

committees.

The first variation to the core proposal

would modify it to make a narrow

exception to the prohibition on the

receipt of soft money by national party

committees. This exception would

allow national party committees to raise

soft money for the limited purpose of

making direct or earmarked

contributions to state and local

candidates. The section of the proposed

rules titled ‘‘variation one’’ sets out

those rule provisions that would be

different from the core proposal if this

variation were adopted. All the other

provisions of the core proposal would

remain the same.

The second variation on the core

proposal would modify the core

proposal to ensure that hard money

transferred from a national to a state or

local party committee is spent using the

rules applicable to the national party

committees, rather than the state or

local party committee’s more favorable

allocation ratios. Variation two would

require the national party committee to

earmark transfers of funds for use in a

particular activity, and would require

the state or local party committee to

finance the identified activity entirely

with hard dollars. Variation two could

be implemented if either one of the two

options were adopted as is, or if the core

proposal of the second option were

adopted with variation one. As with

variation one, variation two of the

proposed rules sets out those rule

provisions that would be different from

the core proposal if variation two were

adopted.

Finally, the third variation on the

second option’s core proposal would

extend portions of the core proposal’s

treatment of national party committees

to state and local party committees.

Under variation three, state and local

party committees would be required to

finance their mixed activities entirely

with hard dollars. Like variation two,

variation three could be implemented in

conjunction with the core proposal, or

in conjunction with both the core

proposal and variation one. Those

provisions that would differ from the

core proposal of the second option are

set out in variation three of the

proposed rules, below.

The Commission invites commenters

to submit their views on the first and

second options, including the core

proposal and all three variations of the

second option.

1. National Party Committees, Including

the Senate and House Campaign

Committees of the National Parties

The objective of the proposed rules is

to ensure that soft money is not used to

influence federal elections. In order to

achieve this result, the core proposal

virtually eliminates the soft money

available to the national party

committees to subsidize activities that

influence federal elections.

Both the first and second options

recognize the limited scope of the

FECA, and acknowledge that national

party committees have other purposes

besides the election of federal

candidates. The major difference

between the two options is whether

most national party committees’ federal

and nonfederal activities are

inextricably intertwined, or, as the

current rules suggest, can be separated

in a way that will ensure that soft

money is not used to influence federal

elections.

One way to attempt to reduce the

amount of soft money used to influence

federal elections would be to adjust the

allocation ratios so that national party

committees are required to use a larger

percentage of hard dollars to pay the

costs of their mixed activities. However,

adjusting the allocation ratios would

have limited impact for several reasons.

First, unless the ratios were increased

to 100%, the national party committees

could continue to pay for a portion of

their mixed activities with soft dollars.

Thus, increasing the ratios would

merely reduce, rather than eliminate,

the amount of soft money spent by the

national party committees on mixed

activities that influence federal

elections.

In addition, this approach would have

no impact on soft money spent by the

national party committees that is not

spent directly on mixed activities. Of

the $271.5 million in soft money

disbursed by the national party

committees during the 1996 election

cycle, only $90.5 million, or one third,

was spent directly on mixed activities

that were subject to the allocation ratios.

An even greater amount, $114.8 million,

or 42% of the total spent during the

cycle, was transferred to state and local

party committees. An additional

amount, which cannot be as readily

determined from the committees’

reports, was transferred to outside

groups that are not subject to the

allocation rules. Adjusting the

allocation ratios would only affect those

amounts spent on mixed activities.

Amounts transferred between party

committees would be unaffected.

The preliminary evidence described

above indicates that soft money

transferred by the national party

committees, except for money not used

in connection with federal elections, is

having a significant impact on federal

elections. If the proposed rules do not

take these transfers into account, they

will not adequately effectuate the

Congressional intent that only hard

money be used to influence the outcome

of federal elections. See Common Cause

v. FEC, 692 F. Supp. 1391 (D.D.C. 1987),

enforced, 692 F. Supp. 1397 (D.D.C.

1987).

The first option, described in the

introduction above, assumes that money

raised by national party committees to

elect candidates to state and local

offices and to promote party positions

on issues of local, regional, and national

importance can be spent in a way that

will not influence federal elections, and

thus is beyond the Commission’s

jurisdiction. The Commission invites

comments on this option. In particular,

the Commission encourages

commenters to help clarify the various

purposes of national party committees

by discussing those national party

committee activities that promote party

positions, agendas and ideas on issues

of local, regional, and national

importance.

In addition to seeking comments on

this approach, the Commission is also

seeking comments on whether Schedule

I should be revised so that transfers

between party committees can be more

accurately tracked as well as money

used to elect candidates to state and

local offices and to promote party

positions on issues of local, regional,

and national importance. This

information would greatly enhance the

available information on how soft

money is spent by national party

committees.

The second option is based on the

conclusion that the only way to limit

the amount of soft money spent by the

party committees to influence federal

elections would be to reduce the

amount of soft money raised by the

party committees, and in particular, by

the national party committees. This

option concludes that the dominant

focus of the national party committees

is on electing federal candidates, and

virtually all national party committee

activities influence federal elections.

Thus, it would be more consistent with

the purposes of the FECA and the

statute’s jurisdictional reach to require

national party committees to finance

their mixed activities entirely with hard

dollars. The most effective way of

carrying out the Act’s requirements is to

prohibit the national party committees
37730 Federal Register / Vol. 63, No. 133/ Monday, July 13, 1998 / Proposed Rules

from raising soft money for most

purposes.

The core proposal of the second

option would achieve this goal by

revising the allocation rules for national

party committees. Specifically, the core

proposal would revise section 102.5 to

prohibit all three types of national party

committees from operating non-federal

accounts and accepting soft money. The

only exception would be that

committees could continue to operate

the building fund accounts, since these

accounts are specifically permitted by

the FECA. See 2 U.S.C. 431(8)(B)(viii),

11 CFR 100.7(b)(12) and 11 CFR

100.8(b)(13).

The core proposal of the second

option would also make related changes

to Part 106. Proposed sections 106.1(a)

and 106.5(b) would require the national

party committees to defray expenses,

other than building fund expenses,

entirely with hard dollars. This would

include the costs of expenditures that

are on behalf of both federal and

nonfederal candidates, section 106.1(a),

and the costs of combined federal and

non-federal fundraising programs

currently allocated using the funds

received method in section 106.5(f). It

would also include costs incurred in

fundraising for the committees’ building

funds, in order to ensure that

fundraising for building funds does not

become an avenue for spending soft

money to influence federal elections,

such as by soliciting building fund

contributions with communications that

expressly advocate the election or defeat

of federal candidates.

Sections 106.1(a) and 106.5(b) of the

core proposal would apply to all of the

national party committees, including

the Senate and House campaign

committees. The core proposal would

also make minor structural

modifications to section 106.1.

Paragraph (a) would be broken into two

parts, and several reporting

requirements in separate paragraphs of

the current rule would be relocated to

paragraph (b). In addition, current

section 106.5(c), would be removed and

replaced with an entirely new

provision, to be discussed below. The

Commission invites comments on these

proposals.

Variation one on the second option’s

core proposal is largely the same as the

core proposal. However, variation one

would create a narrow exception to the

prohibition on the receipt of soft money

by national party committees. Under

section 102.5(c) of variation one,

national party committees other than

the Senate and House campaign

committees would be allowed to

maintain a second non-federal account

for the limited purpose of receiving

donations that are either earmarked for

and subsequently donated to clearly

identified non-federal candidates or are

raised and spent solely in the form of

donations to non-federal candidates,

either directly or through an earmarked

transfer to a state or local party

committee. This would allow national

party committees to continue raising

soft dollars for the very limited purpose

of making or passing on contributions

directly to nonfederal candidates.

However, the national party committees

would still be required to finance their

mixed activities entirely with hard

dollars. Comments are invited on this

proposal.

If the second option were to be

adopted, either with or without

variation one of the core proposal, a

modest reorganization of section 106.5

of the regulations would be necessary.

This reorganization is shown in the core

proposal section of the proposed rules.

First, the section heading would be

revised to reflect the substantive

changes in the section. Second, since

the national party committees would no

longer be allocating expenses, the list of

costs to be allocated in current section

106.5(a)(2) would be relocated to section

106.5(c)(2). Revised section 106.5(b)

would apply to all national party

committees, including the Senate and

House campaign committees, and new

section 106.5(c) would state the general

rule that state and local party

committees are required to allocate the

expenses in paragraph (c)(2) in

accordance with paragraphs (d) through

(f). Comments are invited on the

reorganization of section 106.5.

The version of section 106.5 in

variation three of the second option also

reflects this reorganization, although

variation three would also make other

changes to section 106.5 that will be

discussed further below.

2. State and Local Party Committees

The Commission is seeking comment

on whether the rules governing state

and local party committees should be

changed to address some of the issues

raised above.

As with the national party

committees, the current allocation rules

appear to be allowing state and local

party committees to use soft money to

subsidize activities that, at least in part,

influence federal elections. In addition,

as discussed above, the differences

between the allocation methods

applicable to national party committees

and those applicable to state and local

party committees create an incentive for

a national party committee that wants to

engage in a mixed activity to transfer

hard dollars to a state or local party

committee and have the recipient

committee conduct the activity using its

more favorable allocation ratios. This

problem exists under the current rules.

However, it would be made more acute

if the second option were adopted,

because the core proposal for national

party committees would eliminate the

national party committees’ non-federal

accounts and require national party

committees to use 100% hard money for

all activities.

Implementing the core proposal of the

second option could also encourage soft

money donors to redirect their

contributions to the state and local party

committees, which would then use the

funds for mixed activities that influence

federal elections. The national party

committees might assist their state and

local affiliates by employing a type of

directed donor strategy, in which the

national committee solicits soft money

contributions and instructs contributors

to send their contributions directly to

the state or local committee. Thus,

instead of reducing the amount of soft

money activity, the core proposal for

national party committees may merely

redirect that activity to the state and

local level, where reporting may be less

complete than at the federal level.

Variations two and three on the core

proposal would address these issues. If

the core proposal of the second option

were implemented with variation two,

the rules would eliminate the national

party committees’ nonfederal accounts

and would also seek to limit the

incentive for national party committees

to transfer funds to state and local party

committees in order to take advantage of

the recipient committee’s more

favorable allocation ratios. Specifically,

variation two would require a national

party committee that transfers hard

dollars to a state or local party

committee to include a written

communication identifying the state or

local party committee activity for which

the transferred funds are to be used. The

national party committee would also be

required to include a copy of the written

communication in its next regularly

scheduled disclosure report to the

Commission. See section 106.5(b) of

variation two.

The recipient state or local party

committee would then be required to

use the transferred funds for the

identified activity, and pay any

additional costs incurred in the

identified activity entirely with hard

dollars. This would ensure that funds

that originate with a national party

committee are used in accordance with

the rules that apply to national party

committees. Finally, like the national
Federal Register / Vol. 63, No. 133/ Monday, July 13, 1998 / Proposed Rules 37731

party committee, the state or local party

committee would be required to submit

a copy of the written communication

with its next regularly scheduled

disclosure report. Section

106.5(c)(1)(ii)(A) of variation two.

Comments are encouraged on these

proposals.

Paragraph (c)(1)(ii)(B) of variation two

contains an exception for transfers to

state and local party committees in

states that hold federal and non-federal

elections in different years. The transfer

requirements described above would

not apply to transfers made to these

entities if the funds transferred were

used exclusively for generic voter drive

activity conducted in a calendar year in

which no candidates for federal office

appear on any primary, general, or

special election ballot.

Variation two also contains a

conforming amendment to section

106.1. Revised section 106.1(a)(1) would

require state and local committees to

follow the transfer rules in section 106.5

if they use transferred funds to pay for

expenditures on behalf of both federal

and nonfederal candidates. The

Commission also notes that it may be

necessary to make other conforming

amendments to the reporting

requirements in Part 104 of the

regulations, should variation two be

implemented.

Variation three of the core proposal

would extend portions of the core

proposal’s treatment of national party

committees to state and local party

committees in order to ensure that state

and local committees do not use soft

money donations to influence federal

elections. The core proposal would

require national party committees to pay

their expenses entirely with hard

dollars. Similarly, variation three would

require state and local party committees

to pay the costs of their mixed activities

entirely with hard dollars, regardless of

whether the funds used were transferred

from a national party committee. Under

this approach, state and local party

committees would be required to pay all

of the costs they incur in the activities

described in current section 106.5(a)(2)

with funds that are permissible under

the FECA. This is in contrast to the

current rules, under which they allocate

the costs of all of these activities, and is

also in contrast to variation two, under

which they would allocate the costs of

any mixed activities not partially

financed with funds transferred from a

national party committee. Variation

three would also amend section 106.1 to

require state and local committees to

use hard dollars for expenditures made

on behalf of both federal and nonfederal

candidates.

Variation three would contain two

exceptions to the general requirement

that state and local party committees

pay the costs of their mixed activities

entirely with hard dollars. First,

national and state party committees

could continue to defray their building

fund expenses with funds in a building

fund account established in accordance

with section 102.5(c)(2). In addition,

state and local party committees in

states that do not hold federal and nonfederal elections in the same year could

continue to use funds that are not

subject to the prohibitions and

limitations of the Act to defray the costs

of generic voter drive activity conducted

in a calendar year in which no

candidates for federal office appear on

any primary, general, or special election

ballot.

Comments are invited on variation

three of the core proposal. The

Commission recognizes that this would

be a significant change for committees

that operate on the state and local level,

and would raise issues regarding the

scope of the FECA. The concept

underlying this approach is that all

mixed activity, by its very nature, affects

federal elections, and must be paid for

with hard dollars. Commenters are

encouraged to address the question of

whether the Commission has the

statutory authority to implement such a

rule.

The Commission would like to

emphasize that, under variations two

and three, state and local party

committees would be able to continue

raising soft money to pay for activities

that exclusively influence nonfederal

elections.

Finally, the core proposal and all

three variations of the core proposal

would amend current section

106.5(a)(2)(iv) to address the allegation

that party committees have transferred

funds to nonprofit organizations in

order to avoid the allocation

requirements. The revised provisions

are set out in section 106.5(c)(2)(iv) of

the core proposal, variation one and

variation two, and in section 106.5(b) of

variation three. Section 106.5(c)(2)(iv)

would indicate that the costs of generic

voter drives must be allocated if the

drive is conducted directly by a state or

local party committee or is financed by

the party committee and conducted by

another entity. Section 106.5(b) of

variation three would indicate that the

costs of generic voter drives must be

defrayed entirely with hard dollars,

whether the drive is conducted directly

by a state or local party committee or is

financed by the party committee and

conducted by another entity. The

Commission invites comments on these

proposals.

3. Other Proposed Rules

a. Party committee solicitations by

federal candidates and officeholders

The Commission is considering

changes to section 102.5(a)(3) to make it

clear that contributions solicited by a

federal candidate or officeholder are

subject to the prohibitions and

limitations of the Act. As discussed

above, when a federal candidate or

officeholder solicits a contribution, the

contributor is likely to assume that his

or her contribution will be used to

benefit a federal candidate. Proposed

revisions to section 102.5(a)(3) set out in

the core proposal would make it clear

that contributions resulting from a

solicitation made by a federal candidate

or officeholder are subject to the

prohibitions and limitations of the Act.

However, in the case of a solicitation for

a national party committee, this

presumption could be rebutted if the

donor, in writing, expressly designates

the contribution for the committee’s

building fund account, as described in

section 102.5(c)(2). In the case of a

solicitation for a state party committee,

this presumption could be rebutted if

the donor, in writing, expressly

designates the contribution for the

committee’s building fund account, or

for its non-federal account, as described

in section 102.5(a)(1)(i). Donors to a

local party committee could also

designate their contributions for a

nonfederal account. The core proposal

also contains a conforming amendment

to current section 102.5(a)(2), which

would add to the list of contributions

that may be deposited in a federal

account those contributions that, due to

the operation of proposed paragraph

(a)(3), would be presumed to be for the

purpose of influencing an election. The

Commission invites comments on these

proposals.

b. Allocating Joint Fundraising

Expenses

Section 102.17 sets out rules for

committees, other than separate

segregated funds, that engage in joint

fundraising. Generally, this provision

only applies to joint fundraising

activities conducted on behalf of more

than one federal candidate or on behalf

of multiple non-connected committees.

Fundraising activities conducted by

party committees for both their federal

and nonfederal accounts are currently

governed by 11 CFR 106.5(f), although

under the core proposal of the second

option, national party committee
37732 Federal Register / Vol. 63, No. 133/ Monday, July 13, 1998 / Proposed Rules

fundraising would be governed by

paragraph (b).

The core proposal of the second

option would insert a cross reference

into section 102.17(c)(7) directing party

committees that collect both federal and

nonfederal funds through a joint

fundraiser to allocate their expenses for

the fundraiser in accordance with

section 106.5. Even though no

comparable language appears in the

current rule, this new language would

merely make explicit the Commission’s

long-standing interpretation of these

two provisions. Thus, this proposal

would not be a change in Commission

policy. Comments are invited on this

proposed revision.

c. Curing prohibited and excessive

contributions

Under section 103.3(b) of the

Commission’s rules, committee

treasurers are responsible for examining

all contributions received to ensure that

they do not violate the prohibitions or

limitations of the Act. Contributions

that present genuine questions as to

whether they are from a prohibited

source may be deposited in the

committee’s account or returned to the

contributor within ten days of receipt.

However, if such a contribution is

deposited, the treasurer has thirty days

to determine the legality of the

contribution. If unable to confirm that

the contribution is legal, the treasurer

must refund the contribution. 11 CFR

103.3(b)(1).

Similarly, if a treasurer receives a

contribution that does not initially

appear to be from a prohibited source,

and subsequently determines that the

contribution is from a prohibited source,

the treasurer is required to refund the

contribution within 30 days. 11 CFR

103.3(b)(2).

Paragraph (b)(3) contains similar rules

for contributions that exceed the

limitations in 2 U.S.C. § 441a, either on

their face or when aggregated with other

contributions from the same contributor.

See also 11 CFR 110.1 or 110.2. The

treasurer has the option of depositing

the excessive contribution or returning

it to the contributor. However, if the

contribution is deposited, the treasurer

has sixty days to seek redesignation of

the contribution to another election, or

reattribution to another contributor. If

unable to obtain redesignation or

reattribution, the treasurer is required to

refund the contribution. 11 CFR

103.3(b)(3).

The Commission is considering the

situation where a committee has

received an excessive or prohibited

contribution and wants to cure this

problem by transferring the contribution

to a nonfederal account. Proposed

revisions to sections 103.3(b)(1), (2) and

(3), as shown in the core proposal of the

second option, would allow a treasurer

to make such a transfer to a non-federal

account established in accordance with

11 CFR 102.5(a)(1)(i) or 102.5(c), but

only after obtaining an express written

redesignation of the contribution to the

non-federal account. If a written

redesignation cannot be obtained within

thirty days of receiving the contribution,

the treasurer would be required to

return the contribution to the

contributor. The Commission invites

comments on these proposals.

The treasurer’s ability to transfer the

prohibited or excessive contribution

would also be subject to other

applicable federal laws. For example, if

a treasurer receives a contribution from

a foreign national, he or she would not

be able to cure the illegality of that

contribution by transferring it to a nonfederal account, because foreign

nationals are prohibited from making

contributions in connection with any

election to any political office.

Similarly, the transfer would be subject

to applicable state laws. The proposed

rule would not preempt, under 2 U.S.C.

453, any state-imposed contribution

prohibitions or limitations. Comments

on these limitations are welcome.

Conclusion

The Commission welcomes comments

on the issues raised by the proposed

rules, and on the general question of

whether changes to the regulations

relating to soft money are warranted at

this time. As mentioned above, the

Commission is also interested in

comments on the issue of whether it has

the authority to promulgate rules in this

area. Those interested are also welcome

to raise other issues that should be

addressed if the Commission decides to

issue final rules.

Certification of No Effect Pursuant to 5

U.S.C. 605(b) (Regulatory Flexibility

Act)

I certify that the attached proposed

rules, if promulgated, would not have a

significant economic impact on a

substantial number of small entities.

The basis of this certification is that the

national, state and local party

committees of the two major political

parties are not small entities under 5

U.S.C. § 601, and the number of other

party committees to which the rule

would apply is not substantial.

List of Subjects

11 CFR Part 102

Political committees and parties.

11 CFR Part 103

Campaign funds, Political committees

and parties.

11 CFR Part 106

Campaign funds, Political committees

and parties.

First Option

The Commission would make no

changes to the existing regulations.

Second Option

The Commission is proposing to make

the following changes to the regulations:

For the reasons set out in the

preamble, it is proposed to amend

subchapter A, chapter I of title 11 of the

Code of Federal Regulations as follows:

Core Proposal

PART 102—REGISTRATION,

ORGANIZATION, AND

RECORDKEEPING BY POLITICAL

COMMITTEES (2 U.S.C. 433)

1. The authority citation for part 102

would continue to read as follows:

Authority: 2 U.S.C. 432, 433, 438(a)(8),

441d.

2. Section 102.5 would be amended

by revising paragraph (a) and adding

paragraph (c), to read as follows:

§ 102.5 Organizations financing political

activity in connection with Federal and nonFederal elections, other than through

transfers and joint fundraisers.

(a) Organizations, other than national

party committees, that are political

committees under the Act. (1) Except as

provided in paragraph (c) of this

section, any organization that finances

political activity in connection with

both federal and non-federal elections

and that qualifies as a political

committee under 11 CFR 100.5 shall

either:

(i) Establish a separate federal account

in a depository in accordance with 11

CFR part 103. Such account shall be

treated as a separate federal political

committee which shall comply with the

requirements of the Act including the

registration and reporting requirements

of this part and 11 CFR part 104. Only

funds subject to the prohibitions and

limitations of the Act shall be deposited

in such separate federal account. All

disbursements, contributions,

expenditures and transfers by the

committee in connection with any

federal election shall be made from its

federal account. No transfers may be

made to such federal account from any

other account(s) maintained by such

organization for the purpose of

financing activity in connection with

non-federal elections, except as
Federal Register / Vol. 63, No. 133/ Monday, July 13, 1998 / Proposed Rules 37733

provided in 11 CFR 106.5(g) and

106.6(e). Administrative expenses shall

be allocated pursuant to 11 CFR part

106 between such federal account and

any other account maintained by such

committee for the purpose of financing

activity in connection with non-federal

elections; or

(ii) Establish one account, which shall

receive only contributions subject to the

prohibitions and limitations of the Act,

regardless of whether such

contributions are for use in connection

with federal or non-federal elections.

Such organization shall register as a

political committee and comply with

the requirements of the Act.

(2) Only contributions described in

paragraphs (a)(2)(i), (ii), (iii) or (iv) of

this section may be deposited in a

federal account established under

paragraph (a)(1)(i) of this section or may

be received by a political committee

established under paragraph (a)(1)(ii) of

this section:

(i) Contributions designated for the

federal account;

(ii) Contributions that result from a

solicitation which expressly states that

the contribution will be used in

connection with a federal election;

(iii) Contributions from contributors

who are informed that all contributions

are subject to the prohibitions and

limitations of the Act; or

(iv) Contributions that, due to the

operation of paragraph (a)(3) of this

section, are presumed to be for the

purpose of influencing an election.

(3) Any party committee solicitation

that is made by a federal candidate or

federal officeholder or that makes

reference to a federal candidate or a

federal election shall be presumed to be

for the purpose of influencing a federal

election. The full amount of any funds

received as a result of that solicitation

shall be presumed to be a contribution

under 11 CFR 100.7(a) that is subject to

the prohibitions and limitations in 11

CFR parts 110 and 114. However, this

paragraph does not apply to a donation

that is made payable to or is

accompanied by a writing, signed by the

donor, which clearly indicates that the

donation is for a non-federal account or

building fund account described in

paragraphs (a)(1)(i) or (c) of this section.

* * * * *

(c) National party committees. (1)

National party committees, including

the Senate and House campaign

committees of a national party, shall

establish one or more federal account(s)

in accordance with 11 CFR part 103.

The federal account(s) shall receive only

contributions subject to the prohibitions

and limitations of the Act. Except as

provided in paragraph (c)(2) of this

section, national party committees shall

not establish any nonfederal account or

receive any contribution or donation of

anything of value that is not subject to

the prohibitions and limitations of the

Act.

(2) National party committees,

including the Senate and House

campaign committees of a national

party, may establish a building fund

account to be used solely for the

purpose of receiving gifts, subscriptions,

loans, advances or deposits of money or

anything of value described in 11 CFR

100.7(b)(12) or 11 CFR 100.8(b)(13).

3. Section 102.17 would be amended

by revising paragraph (c)(7)(ii),

redesignating current paragraph

(c)(7)(iii) as paragraph (c)(7)(iv), and

adding new paragraph (c)(7)(iii), to read

as follows:

§ 102.17 Joint fundraising by committees

other than separate segregated funds.

* * * * *

(c) * * *

(7) * * *

(ii) If participating committees are

affiliated as defined in 11 CFR 110.3

prior to the joint fundraising activity,

expenses need not be allocated among

those participants. Payment of such

expenses by an unregistered committee

or organization on behalf of an affiliated

political committee may cause the

unregistered organization to become a

political committee.

(iii) If the participants are party

committees of the same political party,

expenses need not be allocated among

those participants, unless the

committees collect both federal and

non-federal funds, in which case,

expenses must be allocated in

accordance with 11 CFR 106.5. Payment

of such expenses by an unregistered

committee or organization on behalf of

an affiliated political committee may

cause the unregistered organization to

become a political committee.

* * * * *

PART 103—CAMPAIGN

DEPOSITORIES (2 U.S.C. 432(h))

4. The authority citation for part 103

would continue to read as follows:

Authority: 2 U.S.C. 432(h), 438(a)(8)

5. Section 103.3 would be amended

by adding a new sentence at the end of

paragraphs (b)(1), (b)(2) and (b)(3), to

read as follows:

§ 103.3 Deposit of receipts and

disbursements (2 U.S.C. 432(h)(1)).

* * * * *

(b) * * *

(1) * * * Treasurers of committees

that are not authorized by any candidate

may also transfer the contribution to a

non-federal account established in

accordance with 11 CFR 102.5(a)(1) (i)

or (c) and treat the funds as a

contribution to the non-federal account,

so long as the donor provides an express

written redesignation of the

contribution to the non-federal account

within thirty days of the treasurer’s

receipt of the contribution.

(2) * * * Treasurers of committees

that are not authorized by any candidate

may also transfer the contribution to a

non-federal account established in

accordance with 11 CFR 102.5(a)(1) (i)

or (c) and treat the funds as a

contribution to the non-federal account,

so long as the donor provides an express

written redesignation of the

contribution to the non-federal account

within thirty days of the treasurer’s

receipt of the contribution.

(3) * * * Treasurers of committees

that are not authorized by any candidate

may also transfer the contribution to a

non-federal account established in

accordance with 11 CFR 102.5(a)(1)(i) or

(c) and treat the funds as a contribution

to the non-federal account, so long as

the donor provides an express written

redesignation of the contribution to the

non-federal account within thirty days

of the treasurer’s receipt of the

contribution.

* * * * *

PART 106—ALLOCATIONS OF

CANDIDATE AND COMMITTEE

ACTIVITIES

6. The authority citation for part 106

would continue to read as follows:

Authority: 2 U.S.C. 438(a)(8), 441a(b),

441a(g)

7. Section 106.1 would be amended

by revising paragraphs (a) and (b) to

read as follows:

§ 106.1 Allocation of expenses between

candidates.

(a) General rule. (1) Expenditures,

including in-kind contributions,

independent expenditures, and

coordinated expenditures made on

behalf of more than one clearly

identified federal candidate shall be

attributed to each such candidate

according to the benefit reasonably

expected to be derived. For example, in

the case of a publication or broadcast

communication, the attribution shall be

determined by the proportion of space

or time devoted to each candidate as

compared to the total space or time

devoted to all candidates. In the case of

a fundraising program or event where

funds are collected by one committee
37734 Federal Register / Vol. 63, No. 133/ Monday, July 13, 1998 / Proposed Rules

for more than one clearly identified

candidate, the attribution shall be

determined by the proportion of funds

received by each candidate as compared

to the total receipts by all candidates.

(2) (i) Except as provided in paragraph

(a)(2)(ii) of this section, the methods

described in paragraph (a)(1) of this

section shall also be used to allocate

payments involving both expenditures

on behalf of one or more clearly

identified federal candidates and

disbursements on behalf of one or more

clearly identified non-federal

candidates. When such a payment is

made by a political committee with

separate federal and non-federal

accounts, the payment shall be made

according to the procedures set forth in

11 CFR 106.5(g) or 106.6(e), as

appropriate.

(ii) When a national party committee,

including a Senate or House campaign

committee of a national party, makes a

payment involving both expenditures

on behalf of one or more clearly

identified federal candidates and

disbursements on behalf of one or more

clearly identified non-federal

candidates, the payment shall be made

entirely from the committee’s federal

account(s), i.e., with funds subject to the

prohibitions and limitations of the Act.

(b) Reporting. An expenditure made

on behalf of more than one clearly

identified federal candidate shall be

reported pursuant to 11 CFR 104.10(a).

A payment that includes amounts

attributable to one or more non-federal

candidates, and that is made by a

political committee with separate

federal and non-federal accounts, shall

also be reported pursuant to 11 CFR

104.10(a). An authorized expenditure

made by a candidate or political

committee on behalf of another

candidate shall be reported as a

contribution in-kind to the candidate on

whose behalf the expenditure was

made, except that expenditures made by

party committees pursuant to 11 CFR

110.7 need only be reported as an

expenditure.

* * * * *

8. In § 106.5, the section heading and

paragraphs (a), (b), (c), (d)(1)

introductory text, (d)(2) heading, the

first sentence of paragraph (e), and

paragraph (f) heading, would be revised

to read as follows:

§ 106.5 Party committee federal and nonfederal activities; payments by national

party committees; allocation by state and

local party committees.

(a) Scope and general rule. This

section covers payment of expenses by

national party committees, general rules

regarding federal and non-federal

expenses incurred by state and local

party committees, methods for

allocation of administrative expenses,

costs of generic voter drives, exempt

activities, and fundraising costs by state

and local party committees, and

procedures for payment of allocable

expenses. Requirements for reporting of

allocated disbursements are set forth in

11 CFR 104.10. Party committees that

make disbursements in connection with

federal and non-federal elections shall

make those disbursements entirely from

funds subject to the prohibitions and

limitations of the Act, or from accounts

established pursuant to 11 CFR 102.5.

Political committees that have

established separate federal and nonfederal accounts under 11 CFR

102.5(a)(1)(i) shall allocate expenses

between those accounts according to

this section. Organizations that are not

political committees but have

established separate federal and nonfederal accounts under 11 CFR

102.5(b)(1)(i), or that make federal and

non-federal disbursements from a single

account under 11 CFR 102.5(b)(1)(ii)

shall also allocate their federal and nonfederal expenses according to this

section.

(b) National party committees. (1)

Except as provided in paragraph (b)(2)

of this section, national party

committees, including the Senate and

House campaign committees of a

national party, shall defray their

expenses entirely from funds subject to

the prohibitions and limitations of the

Act.

(2) National party committees may

defray the expenses described in 11 CFR

100.7(b)(12) and 11 CFR 100.8(b)(13)

with funds from an account established

in accordance with 11 CFR 102.5(c)(2).

(c) State and local party committees.

(1) General rule. State and local party

committees shall allocate the costs

described in paragraph (c)(2) of this

section in accordance with paragraphs

(d) through (f) of this section.

(2) Costs to be allocated. Committees

that make disbursements in connection

with federal and non-federal elections

shall allocate expenses according to this

section for the following categories of

activity:

(i) Administrative expenses including

rent, utilities, office supplies, and

salaries, except for such expenses

directly attributable to a clearly

identified candidate;

(ii) The direct costs of a fundraising

program or event, including

disbursements for solicitation of funds

and for planning and administration of

actual fundraising events, through

which a committee collects both federal

and non-federal funds, whether the

committee conducts the program or

event individually or in conjunction

with another committee;

(iii) State and local party activities

exempt from the definitions of

contribution and expenditure under 11

CFR 100.7(b) (9), (15) or (17), and

100.8(b) (10), (16) or (18) (exempt

activities) including the production and

distribution of slate cards and sample

ballots, campaign materials distributed

by volunteers, and voter registration and

get-out-the-vote drives on behalf of the

party’s presidential and vicepresidential nominees, where such

activities are conducted in conjunction

with non-federal election activities; and

(iv) Generic voter drives either

conducted by the committee itself or

paid for by the committee and

conducted by another entity, including

voter identification, voter registration,

and get-out-the-vote drives, or any other

activities that urge the general public to

register, vote or support candidates of a

particular party or associated with a

particular issue, without mentioning a

specific candidate.

(d) State and local party committees;

method for allocating administrative

expenses and costs of generic voter

drives—(1) General rule. Except as

provided in paragraph (d)(2) of this

section, all state and local party

committees shall allocate their

administrative expenses and costs of

generic voter drives, as described in

paragraph (c)(2) of this section,

according to the ballot composition

method, described in paragraphs

(d)(1)(i) and (ii) of this section as

follows:

* * * * *

(2) State and local party committees

in states that do not hold federal and

non-federal elections in the same year.

* * *

(e) State and local party committees;

method for allocating costs of exempt

activities. Each state or local party

committee shall allocate its expenses for

activities exempt from the definitions of

contribution and expenditure under 11

CFR 100.7(b) (9), (15) or (17), and

100.8(b) (10), (16) or (18), when

conducted in conjunction with nonfederal election activities, as described

in paragraph (c)(2) of this section,

according to the proportion of time or

space devoted in a communication.

* * *

(f) State and local party committees;

method for allocating direct costs of

fundraising. * * *

* * * * *
Federal Register / Vol. 63, No. 133/ Monday, July 13, 1998 / Proposed Rules 37735

Variation One

PART 102—REGISTRATION,

ORGANIZATION AND

RECORDKEEPING BY POLITICAL

COMMITTEES (2 U.S.C. 433)

1. The authority citation for part 102

would continue to read as follows:

Authority: 2 U.S.C. 432, 433, 438(a)(8),

441d.

2. Section 102.5 would be amended

by revising paragraph (a) and adding

paragraph (c), to read as follows:

§ 102.5 Organizations financing political

activity in connection with Federal and nonFederal elections, other than through

transfers and joint fundraisers.

(a) [Same as core proposal of second

option.]

* * * * *

(c) National party committees. (1)

National party committees, including

the Senate and House campaign

committees of a national party, shall

establish one or more federal account(s)

in accordance with 11 CFR part 103.

The federal account(s) shall receive only

contributions subject to the prohibitions

and limitations of the Act. Except as

provided in paragraphs (c)(2) and (3) of

this section, national party committees

shall not establish any nonfederal

account or receive any contribution or

donation of anything of value that is not

subject to the prohibitions and

limitations of the Act.

(2) National party committees,

including the Senate and House

campaign committees of a national

party, may establish a building fund

account to be used solely for the

purpose of receiving gifts, subscriptions,

loans, advances or deposits of money or

anything of value described in 11 CFR

100.7(b)(12) or 11 CFR 100.8(b)(13).

(3) National party committees, other

than the Senate and House campaign

committees of a national party, may

establish one or more accounts for

receiving donations that are:

(i) Earmarked for and subsequently

donated to a clearly identified nonfederal candidate; or

(ii) Raised and spent solely in the

form of donations to non-federal

candidates, either directly or through an

earmarked transfer to a state or local

party committee.

3. Proposed § 102.17 would be the

same as the core proposal of the second

option.

PART 103—[AMENDED]

4. Proposed § 103.3 would be the

same as the core proposal of the second

option.

PART 106—[AMENDED]

5. Proposed §§ 106.1 and 106.5 would

be the same as the core proposal of the

second option.

Variation Two

PART 102—[AMENDED]

1. Proposed §§ 102.5 and 102.17

would be the same as the core proposal

of the second option.

PART 103—[AMENDED]

2. Proposed § 103.3 would be the

same as the core proposal of the second

option.

PART 106—ALLOCATIONS OF

CANDIDATE AND COMMITTEE

ACTIVITIES

3. The authority citation for part 106

would continue to read as follows:

Authority: 2 U.S.C. 438(a)(8), 441a(b),

441a(g).

4. Section 106.1 would be amended

by revising paragraphs (a) and (b) to

read as follows:

§ 106.1 Allocation of expenses between

candidates.

(a) General rule. (1) [same as core

proposal of second option.]

(2) (i) Except as provided in paragraph

(a)(2)(ii) of this section and in 11 CFR

106.5(c)(1)(ii)(A), the methods described

in paragraph (a)(1) of this section shall

also be used to allocate payments

involving both expenditures on behalf

of one or more clearly identified federal

candidates and disbursements on behalf

of one or more clearly identified nonfederal candidates. When such a

payment is made by a political

committee with separate federal and

non-federal accounts, the payment shall

be made according to the procedures set

forth in 11 CFR 106.5(g) or 106.6(e), as

appropriate.

(ii) [Same as core proposal of second

option.]

(b) [Same as core proposal of second

option.]

* * * * *

5. In § 106.5, the section heading and

paragraphs (a), (b), (c), (d)(1)

introductory text, (d)(2) heading, the

first sentence of paragraph (e), and

paragraph (f) heading, would be revised

to read as follows:

§ 106.5 Party committee federal and nonfederal activities; payments and transfers

by national party committees; allocation by

state and local party committees.

(a) Scope and general rule. This

section covers general rules regarding

federal and non-federal expenses

incurred by party committees, payment

of expenses by national party

committees and transfers of funds from

national party committees to state and

local party committees, methods for

allocation of administrative expenses,

costs of generic voter drives, exempt

activities, and fundraising costs by state

and local party committees, and

procedures for payment of allocable

expenses. Requirements for reporting of

allocated disbursements are set forth in

11 CFR 104.10. Party committees that

make disbursements in connection with

federal and non-federal elections shall

make those disbursements entirely from

funds subject to the prohibitions and

limitations of the Act, or from accounts

established pursuant to 11 CFR 102.5.

Political committees that have

established separate federal and nonfederal accounts under 11 CFR

102.5(a)(1)(i) shall allocate expenses

between those accounts according to

this section. Organizations that are not

political committees but have

established separate federal and nonfederal accounts under 11 CFR

102.5(b)(1)(i), or that make federal and

non-federal disbursements from a single

account under 11 CFR 102.5(b)(1)(ii)

shall also allocate their federal and nonfederal expenses according to this

section.

(b) National party committees—(1)

Disbursements for mixed activities. (i)

Except as provided in paragraph

(b)(1)(ii) of this section, national party

committees, including the Senate and

House campaign committees of a

national party, shall defray their

expenses entirely from funds subject to

the prohibitions and limitations of the

Act.

(ii) National party committees may

defray the expenses described in 11 CFR

100.7(b)(12) and 11 CFR 100.8(b)(13)

with funds from an account established

in accordance with 11 CFR 102.5(c)(2).

(2) Transfers to state or local party

committees. Whenever a national party

committee, including the Senate and

House campaign committees of a

national party, transfers funds from any

account of the national party committee

to any account of a state or local party

committee, the transfer shall be

accompanied by a written

communication specifically identifying

the state or local party committee

activity or expense for which the

transferred funds are to be used. The

national party committee shall attach a

copy of the written communication to

the schedule of itemized disbursements

submitted with its next regularly

scheduled report.

(c) State and local party committees.

(1)(i) General rule. Except as provided
37736 Federal Register / Vol. 63, No. 133/ Monday, July 13, 1998 / Proposed Rules

in paragraph (c)(1)(ii) of this section,

state and local party committees shall

allocate the costs described in paragraph

(c)(2) of this section in accordance with

paragraphs (d) through (f) of this

section.

(ii) State and local party committees

defraying expenses with funds

transferred from a national party

committee—(A) General rule. A state or

local party committee that receives a

transfer from a national party committee

shall:

(1) Use the funds transferred

exclusively for the activity specifically

identified by the national party

committee in the written

communication accompanying the

transfer, except that no funds

transferred from a non-federal account

shall be used for any portion of the costs

of any activity described in paragraph

(c)(2) of this section;

(2) Defray 100% of the remaining

costs of the specifically identified

activity with funds drawn from the state

or local party committee’s federal

account, i.e., with funds that are subject

to the prohibitions and limitations of

the Act; and

(3) Attach a copy of the written

communication to the schedule of

itemized receipts submitted with its

next regularly scheduled report.

(B) Exception for transfers to state

and local party committees in states

that do not hold federal and non-federal

elections in the same year. The

requirements of paragraph (c)(1)(ii)(A)

of this section shall apply to transfers

made to state and local party

committees in states that do not hold

federal and non-federal elections in the

same year, unless the funds transferred

are used exclusively for generic voter

drive activity conducted in a calendar

year in which no candidates for federal

office appear on any primary, general, or

special election ballot.

(2) [Same as core proposal of second

option.]

(d) [Same as core proposal of second

option.]

(e) [Same as core proposal of second

option.]

(f) [Same as core proposal of second

option.]

* * * * *

Variation Three

PART 102—[AMENDED]

1. Proposed §§ 102.5 and 102.17

would be the same as the core proposal

of the second option.

PART 103—[AMENDED]

2. Proposed § 103.3 would be the

same as the core proposal of the second

option.

PART 106—ALLOCATIONS OF

CANDIDATE AND COMMITTEE

ACTIVITIES

3. The authority citation for part 106

would continue to read as follows:

Authority: 2 U.S.C. 438(a)(8), 441a(b),

441a(g)

4. Section 106.1 would be amended

by revising paragraphs (a) and (b) to

read as follows:

§ 106.1 Allocation of expenses between

candidates.

(a) General rule. (1) [same as core

proposal of second option.]

(2) Payments that involve both

expenditures, in-kind contributions,

independent expenditures, or

coordinated expenditures on behalf of

one or more clearly identified federal

candidates and disbursements on behalf

of one or more clearly identified nonfederal candidates shall be made

entirely from the committee’s federal

account(s), i.e., with funds subject to the

prohibitions and limitations of the Act.
Federal Register / Vol. 63, No. 133/ Monday, July 13, 1998 / Proposed Rules 37737

(b) [Same as core proposal of second

option.]

* * * * *

5. Section 106.5 would be revised to

read as follows:

§ 106.5 Federal and non-federal activities

by party committees and use of party

committee funds by other organizations.

(a) National party committees. (1)

Except as provided in paragraph (a)(2)

of this section, national party

committees, including the Senate and

House campaign committees of a

national party, shall defray their

expenses entirely from funds subject to

the prohibitions and limitations of the

Act.

(2) National party committees may

defray the expenses described in 11 CFR

100.7(b)(12) and 11 CFR 100.8(b)(13)

with funds from an account established

in accordance with 11 CFR 102.5(c)(2).

(b) State and local party committees—

(1) General rule. Except as provided in

paragraph (b)(3) of this section, state

and local party committees, and other

party committees that are not national

party committees but that have

established separate federal and nonfederal accounts under 11 CFR

102.5(a)(1)(i), shall defray the following

expenses entirely from funds subject to

the prohibitions and limitations of the

Act:

(i) Administrative expenses including

rent, utilities, office supplies, and

salaries, except for such expenses

directly attributable to a clearly

identified candidate;

(ii) The direct costs of a fundraising

program or event, including

disbursements for solicitation of funds

and for planning and administration of

actual fundraising events, through

which a committee collects federal

funds or a combination of federal and

non-federal funds, whether the

committee conducts the program or

event individually or in conjunction

with another committee;

(iii) State and local party activities

exempt from the definitions of

contribution and expenditure under 11

CFR 100.7(b) (9), (15) or (17), and

100.8(b) (10), (16) or (18) (exempt

activities) including the production and

distribution of slate cards and sample

ballots, campaign materials distributed

by volunteers, and voter registration and

get-out-the-vote drives on behalf of the

party’s presidential and vicepresidential nominees, whether or not

such activities are conducted in

conjunction with non-federal election

activities; and

(iv) Generic voter drives either

conducted by the committee itself or

paid for by the committee and

conducted by another entity, including

voter identification, voter registration,

and get-out-the-vote drives, or any other

activities that urge the general public to

register, vote or support candidates of a

particular party or associated with a

particular issue, without mentioning a

specific candidate.

(2) Use of party committee funds by

other organizations. When a state or

local party committee pays for a generic

voter drive conducted by another entity,

such as a voter identification, voter

registration, get-out-the-vote drive, or

any other activity that urges the general

public to register, vote or support

candidates of a particular party or

associated with a particular issue

without mentioning a specific

candidate, the costs of the voter drive

shall be defrayed entirely from funds

subject to the prohibitions and

limitations of the Act.

(3) Generic voter drives in exclusively

non-federal elections. State and local

party committees in states that do not

hold federal and non-federal elections

in the same year may use funds that are

not subject to the prohibitions and

limitations of the Act to defray the costs

of generic voter drive activity conducted

in a calendar year in which no

candidates for federal office appear on

any primary, general, or special election

ballot.

Dated: July 8, 1998.

Lee Ann Elliott,

Commissioner, Federal Election Commission.

[FR Doc. 98–18543 Filed 7–10–98; 8:45 am]

BILLING CODE 6715–01–P