Federal Register / Vol. 66, No. 45 / Wednesday, March 7, 2001 / Proposed Rules 13681

Fires means wild fires that occurred

in forests, brush, etc., and, as a result,

livestock was killed when it was caught

in these fires or in structures that

burned in these fires. It does not include

structure fires that were not the result of

a wild fire.

Livestock means beef and dairy cattle,

sheep, goats, swine, poultry (including

egg-producing poultry), equine animals

used for food or in the production of

food, and buffalo and beefalo when

maintained on the same basis and in the

same manner as beef cattle maintained

for commercial slaughter.

Livestock owner means a person who

has legal ownership of the livestock and

is a citizen of, or legal resident alien in,

the United States. A farm cooperative,

private domestic corporation,

partnership, or joint operation in which

a majority interest is held by members,

stockholders, or partners who are

citizens of, or legal resident aliens in,

the United States, if such cooperative,

corporation, partnership, or joint

operation owns or jointly owns eligible

livestock or poultry, will be considered

livestock owners. Any Native American

tribe (as defined in section 4(b) of the

Indian Self-Determination and

Education Assistance Act (Public Law

93–638, 88 Stat. 2203)); any Native

American organization or entity

chartered under the Indian

Reorganization Act; any tribal

organization under the Indian SelfDetermination and Education

Assistance Act; and any economic

enterprise under the Indian Financing

Act of 1974 will be considered livestock

owners so long as they meet the terms

of the definition.

§ 1439.204 Sign-up period.

A request for benefits under this

subpart must be submitted to the CCC

at the FSA county office serving the

county where the livestock loss

occurred. All applications must be filed

in the FSA county office prior to the

close of business on such date as

determined and announced by the

Deputy Administrator.

§ 1439.205 Proof of loss.

(a) In the case of fires or natural

disasters, livestock owners must, in

accordance with instructions issued by

the Deputy Administrator, provide

adequate proof that the death of the

eligible livestock occurred during the

recognized natural disaster period, as

provided in § 1439.201(b); or was

reasonably related to the disaster.

(b) The livestock owner shall provide

any available supporting documents

that will assist the county committee, or

is requested by the county committee, in

verifying:

(1) The quantity of eligible livestock

that perished in the natural disaster

including, but not limited to, purchase

records, veterinarian receipts, bank loan

papers, rendering truck certificates,

Federal Emergency Management Agency

and National Guard records, auction

barn receipts, and any other documents

available to confirm the presence of the

livestock and subsequent losses; and

(2) That the loss was reasonably

related to the recognized disaster in the

declaration or designation, including,

but not limited to, newspaper articles or

other media reports, photographs of

disaster damage, veterinarian records,

and any other documents available to

confirm that the disaster occurred and

was responsible for the livestock losses.

(c) Livestock owners requesting

benefits for losses due to anthrax shall

provide documentation verifying the

quantity of livestock deaths that was

caused by anthrax.

(d) Certifications by third parties or

the owner and other such

documentation as the county committee

determines to be necessary in order to

verify the information provided by the

owner must also be submitted. Thirdparty verifications may be accepted only

if the owner certifies in writing that

there is no other documentation

available. Third-party verification must

be signed by the party that is verifying

the information. Failure to provide

documentation that is satisfactory to the

county committee will result in the

disapproval of the application by the

county committee.

(e) Livestock owners shall certify the

accuracy of the information provided.

All information provided is subject to

verification and spot checks by the CCC.

A failure to provide information

requested by the county committee or

by agency officials is cause for denial of

any application filed under this part.

§ 1439.206 Indemnity benefits.

(a) Livestock indemnity payments for

losses of eligible livestock as

determined by CCC are authorized to be

made to livestock owners, based on the

owner’s share of the livestock, who file

an application for the specific livestock

category in accordance with instructions

issued by the Deputy Administrator, if:

(1) The livestock owner submits an

approved proof of loss in accordance

with § 1439.205; and

(2) The FSA county or State

committee determines that because of

an eligible disaster condition the

livestock owner had a loss in the

specific livestock category in excess of

the normal mortality rate established by

CCC, based on the number of animals in

the livestock category that were in the

owner’s inventory at the time of the

disaster.

(b) If the number of losses in the

animal category exceeds the normal

mortality rate established by CCC for

such category, the loss of livestock that

shall be used in making a payment shall

be the number of animal losses in the

animal category that exceed the normal

mortality threshold established by CCC.

(c) Payments shall be calculated by

multiplying the national payment rate

for the livestock category as determined

by CCC, by the number of qualifying

animals determined under paragraph (b)

of this section. Adjustments, if

necessary, shall apply in accordance

with § 1439.207.

§ 1439.207 Availability of funds.

(a) In the event that the total amount

of eligible claims submitted under this

subpart exceeds $10 million allocated

by the Act, then each payment shall be

reduced by a uniform national

percentage.

(b) Such payment reductions shall be

applied after the imposition of

applicable per-person payment

limitation provisions.

§ 1439.208 Limitations on payments.

(a) The provisions of §§ 1439.10 and

1439.11 apply to LIP–2000.

(b) Payments earned under other

programs contained in this part shall

not reduce the amount payable under

this subpart.

(c) Disaster benefits under this part

are not subject to administrative offset.

See § 842 of Pub. L. 106–387.

(d) No interest will be paid or accrue

on disaster benefits under this part that

are delayed or are otherwise not timely

issued unless otherwise mandated by

law.

Dated: March 1, 2001.

James R. Little,

Acting Executive Vice President, Commodity

Credit Corporation.

[FR Doc. 01–5493 Filed 3–5–01; 1:12 pm]

BILLING CODE 3410–05–P

FEDERAL ELECTION COMMISSION

11 CFR Part 100

[Notice 2001–3]

Definition of Political Committee

AGENCY: Federal Election Commission.

ACTION: Advance notice of proposed

rulemaking.

SUMMARY: The Federal Election

Campaign Act, with certain exceptions,

13682 Federal Register / Vol. 66, No. 45 / Wednesday, March 7, 2001 / Proposed Rules

defines ‘‘political committee’’ as any

group of persons that receives more than

$1,000 in contributions or makes more

than $1,000 in expenditures during a

calendar year. The Commission is

seeking comments on whether to revise

the definition of ‘‘political committee’’

contained in its regulations to include

more explicit descriptions of activities

that will result in those funds being

considered contributions or

expenditures. The Commission is also

examining whether and how to

incorporate the concept of ‘‘major

purpose’’ into the definition of

‘‘political committee.’’ The Supreme

Court has stated that the term ‘‘political

committee’’ need only encompass

organizations that are under the control

of candidates or the major purpose of

which is the nomination or election of

a candidate. Please note that the

Commission has not yet decided what,

if any, revisions it will make to its rules

in this area. Further information is

provided in the supplementary

information that follows.

DATES: Comments must be received on

or before May 7, 2001. The Commission

will determine at a later date whether to

hold a public hearing on this Notice. If

a hearing is held, its date and time will

be published in the Federal Register.

ADDRESSES: All comments should be

addressed to Rosemary C. Smith,

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, NW., Washington, DC 20463.

Faxed comments should be sent to (202)

219–3923, with printed copy follow-up.

Electronic mail comments should be

sent to polcomms@fec.gov and must

include the full name, electronic mail

address and postal service address of

the commenter. Electronic mail

comments that do not contain the full

name, electronic mail address and

postal service address of the commenter

will not be considered.

FOR FURTHER INFORMATION CONTACT: Ms.

Rosemary C. Smith, Assistant General

Counsel, or Ms. Rita A. Reimer,

Attorney, 999 E Street NW.,

Washington, DC 20463, (202) 694–1650

or (800) 424–9530.

SUPPLEMENTARY INFORMATION: The

Federal Election Commission is

publishing this Advance Notice of

Proposed Rulemaking (‘‘ANPRM’’)

seeking comments on whether to revise

the Commission’s rules at 11 CFR 100.5

that define the term ‘‘political

committee.’’

Section 431(4) of the Federal Election

Campaign Act, 2 U.S.C. 431 et seq.,

(‘‘FECA’’ or ‘‘the Act’’), which contains

the statutory definition of ‘‘political

committee,’’ is divided into three parts.

Paragraph (A) states that a political

committee is ‘‘any committee, club,

association, or other group of persons

which receives contributions

aggregating in excess of $1,000 during a

calendar year or which makes

expenditures aggregating in excess of

$1,000 during a calendar year.’’

Paragraphs (B) and (C) state that

separate segregated funds established

under section 441b(b) of the FECA are

political committees, and that local

committees of a political party are also

political committees for FECA purposes

under certain circumstances. This

statutory definition is incorporated into

section 100.5 of the Commission’s

regulations.

The Act defines ‘‘contribution’’ as

‘‘any gift, subscription, loan, advance, or

deposit of money or anything of value

made by any person for the purpose of

influencing any election for federal

office.’’ 2 U.S.C. 431(8)(a)(i). An

‘‘expenditure’’ is defined as ‘‘any

purchase, payment, distribution, loan,

advance, deposit, or gift of money or

anything of value, made by any person

for the purpose of influencing any

election for federal office.’’ 2 U.S.C.

431(9)(a)(i).

The Commission is seeking comment

on the scope and meaning of the ‘‘major

purpose’’ test, which first appeared in

the Supreme Court’s discussion of the

definition of ‘‘political committee’’ in

Buckley v. Valeo, 424 U.S. 1 (1976)

(‘‘Buckley’’). In Buckley, the Supreme

Court noted that section 431(4)(A) as

written could be construed to define

‘‘political committee’’ solely in terms of

the amount of annual contributions

received and expenditures made, and

thus ‘‘could be interpreted to reach

groups engaged purely in issue

discussion.’’ 424 U.S. at 79. In dicta, the

Court set forth criteria to prevent a

potentially overbroad interpretation of

‘‘political committee’’: ‘‘To fulfill the

purpose of the Act [the term ‘political

committee’’] need only encompass

organizations that are under the control

of a candidate or the major purpose of

which is the nomination or election of

a candidate.’’ Id.

The Supreme Court returned to the

Buckley Court’s ‘‘major purpose’’

concept in FEC v. Massachusetts

Citizens for Life, Inc., 479 U.S. 238

(1986) (‘‘MCFL’’). In MCFL, the Court

concluded, inter alia, that the

prohibition on expenditures by

corporations contained in another

provision of the FECA, section 441b,

had to be construed narrowly to avoid

overbreadth problems and could not

constitutionally be applied to

independent expenditures made by

incorporated issue advocacy

organizations with certain essential

features. Id. at 263–64. However, the

MCFL Court also said that ‘‘should [such

an organization’s] independent

spending become so extensive that the

organization’s major purpose may be

regarded as campaign activity, the

corporation would be classified as a

political committee.’’ Id. at 262.

While the Supreme Court has yet to

revisit the ‘‘major purpose’’ test, there

have been lower court decisions that

have done so. These decisions will be

addressed in the ‘‘major purpose’’

portion of this document. There may be

further judicial developments in this

area of the law during the course of this

rulemaking. Any such developments

will obviously have an impact on any

regulations to be promulgated by the

Commission. Ways in which a ‘‘major

purpose’’ test could be incorporated into

the regulations defining ‘‘political

committee’’ are discussed infra in Part

II.

The Commission is also seeking

comment on the extent to which the

‘‘express advocacy’’ requirement for

independent expenditures should be

incorporated into the ‘‘political

committee’’ definition. In limiting the

reach of the FECA’s corporate

independent expenditure ban at 2

U.S.C. 441b, the MCFL Court reiterated

and expanded in application what it

had held in Buckley, that the ‘‘term

‘expenditure’ encompassed ‘only funds

used for communications that expressly

advocate the election or defeat of a

clearly identified candidate.’ ’’ Id. at

248–49, quoting Buckley, 424 U.S. at 80.

Ways in which the ‘‘express advocacy’’

requirement could be incorporated into

the regulations defining ‘‘political

committee’’ are discussed infra in Part

II.

Becoming a political committee as

defined in the FECA has recordkeeping

and reporting consequences. Generally,

groups that are not political committees,

such as partnerships and other

unincorporated associations, are treated

as other persons under the Act, and are

subject to minimal reporting obligations.

See 2 U.S.C. 434(c), 11 CFR 109.2. In

contrast, political committees are

subject to a more extensive set of

recordkeeping and reporting

requirements. See 2 U.S.C. 432, 434 11

CFR parts 102, 104. In addition,

political committees are subject to

contribution limits and prohibitions.

See 2 U.S.C. 441a(a), (f) and (h).

Federal Register / Vol. 66, No. 45 / Wednesday, March 7, 2001 / Proposed Rules 13683

1 26 U.S.C. 501(c)(3) provides federal tax

exemption to a charitable organization, so long as

it ‘‘does not participate in, or intervene in

(including the publishing or distributing of

statements), any political campaign on behalf of (or

in opposition to) any candidate for public office.’’

2Paragraph 100.5(f)(1) defines ‘‘authorized

committee’’ as the principal campaign committee or

any other political committee authorized by a

candidate to receive contributions or make

expenditures on behalf of such candidate, which

has not been disavowed under 11 CFR 100.3(a)(3).

3Social welfare organizations registered with the

IRS under 26 U.S.C. 501(c)(4) may work in political

candidate elections, but only as long as that activity

remains secondary to their primary, non-political

work. They may also establish separate segregated

funds (‘‘SSF’’) that engage in political activity; and

qualify as political committees for FECA purposes

under 2 U.S.C. 441b(b)(2)(C) and 11 CFR 100.5(b).

I. Definitions of ‘‘Political Committee,’’

‘‘Contribution’’ and ‘‘Expenditure’’

Paragraph (a) of section 100.5 follows

the statutory definition of ‘‘political

committee’’ by providing that any

committee, club, association, or other

group of persons that receives

contributions aggregating in excess of

$1000 during a calendar year is a

political committee, except as set out in

11 CFR 100.5(b), (c), and (d). Paragraph

(b) indicates that any separate

segregated fund established under 2

U.S.C. 441b(b)(2)(C) is a political

committee without any dollar

thresholds. Paragraph (c) indicates that

local committees of a political party are

themselves political committees if they

exceed either of the $1,000 thresholds or

if they engage in $5,000 in exempt

activity during a calendar year. See 11

CFR 100.7(b)(9), (15), (17); 11 CFR

100.8(b)(10), (16), (18). Paragraph (d)

indicates that an individual’s principal

campaign committee or authorized

committee becomes a political

committee when that individual

becomes a candidate under 11 CFR

100.3.

Comments are sought on several

proposed amendments to the definitions

of ‘‘contribution’’ and ‘‘expenditure’’

that the Commission is considering

incorporating into the definition of

‘‘political committee’’ at 11 CFR 100.5.

One approach would be to establish

more objective criteria, even bright line

rules, for activities that fall within the

regulatory definitions of ‘‘contribution’’

and ‘‘expenditure,’’ respectively.

Possible criteria are described below.

This would alert organizations planning

to spend more than the statutory

thresholds on these activities that they

will have to become, or establish, a

political committee in compliance with

the FECA. Please note that, if these

objective criteria are included in the

rules, money spent on these activities

will count against the FECA’s

contribution limits and, if sufficient

amounts are contributed or expended,

they will also trigger the FECA’s

reporting requirements.

A. Contribution Definition

The Commission seeks comments on

revising paragraph 100.5(a) by adding

six new descriptions to the definition of

‘‘contribution.’’ These new descriptions

may include:

(1) Money, services or any other thing

of value received as the result of a

solicitation, the express purpose of

which was to raise money to influence

federal elections. This provision would

codify Commission precedents. Under

this provision, a solicitation that in

express terms states that money given as

a result of the solicitation will be used

to support or defeat one or more

candidates for federal office would

make moneys received as a result

‘‘contributions.’’ Political committee

status would follow regardless of how

the money received was ultimately

spent if total contributions or

expenditures exceed $1,000.

(2) Money, services or anything of

value received from a political

committee organized pursuant to 11

CFR 100.5(b), (c), or (d), except money,

services or anything of value received by

an organization qualifying for tax

exempt status pursuant to 26 U.S.C.

501(c)(3).1 This new provision would,

for example, prevent national party

committees from funneling money into

groups that may not report their

disbursements and receipts. Again, an

examination of how the money was

ultimately spent would be unnecessary

to determine political committee status.

(3) Money, services or anything of

value received by an organization that

is expressly authorized by its charter,

constitution, bylaws, articles of

incorporation or other organizational

document(s) to engage in activities for

the purpose of influencing federal

elections. This paragraph would allow

for an objective inquiry into the

purposes of an organization. Under this

element, if an organization wanted to

influence federal elections, it would

have to register as a separate political

committee to do so.

This paragraph would be limited to

groups that specifically state in their

organizational documents that they may

influence federal elections. Thus,

groups whose enabling documents

authorize them to engage in ‘‘any lawful

purpose’’ or similarly broad language

would not become political committees

solely on the basis of this provision in

the absence of a specific electioninfluencing proviso.

(4) Money, services or anything of

value received by an organization that

is controlled by a federal candidate, his

or her principal campaign committee, or

any other committee authorized by a

federal candidate pursuant to 11 CFR

100.5(f)(1),2 other than as an

organization qualifying for tax exempt

status pursuant to 26 U.S.C. 501(c)(3) or

(c)(4) 3 or an organization whose

exclusive purpose is the election or

nomination of that candidate for state

or local office. This provision would

remove the guise of independence from

groups set up by candidates, or by their

campaign staff or their agents, to assist

the candidates’ aims, and would focus

the Commission’s inquiry into the issue

of ‘‘control’’ by the candidate.

This proposal is intended to clarify

when the relationship between a

candidate or candidate’s committee and

another organization becomes so close

that funds given to the organization

become ‘‘for the purpose of influencing’’

an election. However, it would exclude

organizations that have a merely

incidental relationship to a candidate,

e.g., that share a common vendor or a

staffer, and organizations that are bona

fide charities or social welfare groups.

For purposes of this paragraph,

‘‘controlled’’ would mean substantial

participation in the organization’s

decision-making regarding the

organization’s activities or

disbursements.

(5) Money, services, or anything of

value received by an organization that

claims tax exempt status pursuant to 26

U.S.C. 527 and does not restrict its

activities to influencing or attempting to

influence elections to state or local

public office or office in a political

organization. If an organization claims

527 status and does not confine its

activities to state, local or intra-party

elections, it is acknowledging that it is

an organization that is ‘‘influencing or

attempting to influence the selection

* * * of any individual to any Federal

* * * office.’’ 26 U.S.C. 527(e)(2). This

proposal would complement Public Law

(‘‘P.L.’’) 106–230 and would subject 527

organizations that influence federal

elections to FECA’s reporting

requirements for political committees,

rather than the reporting requirements

of Public Law 106–230. See 26 U.S.C.

527(a)(i)(6), and discussion of 527

organizations, infra.

(6) Payments or costs deemed to be inkind contributions for general public

political communications, pursuant to

11 CFR 100.23. This provision would

incorporate the Commission’s recentlypromulgated coordination rules. 65 FR

76138 (Dec. 6, 2000).

13684 Federal Register / Vol. 66, No. 45 / Wednesday, March 7, 2001 / Proposed Rules

B. Expenditure Definition

The Commission also seeks comments

on revising paragraph (a) of section

100.5 by adding five new elements to

the definition of ‘‘expenditure.’’ These

new elements would include:

(1) Payments or costs associated with

the organization’s solicitation of money

or any other thing of value, where the

solicitation appeals to donors by stating

that donations will be used to influence

a federal election. This proposal would

follow the first additional element of the

revised definition of ‘‘contribution,’’

supra.

(2) Payments or costs deemed to be

coordinated expenditures for general

public political communications,

pursuant to 11 CFR 100.23. This

provision would incorporate the

Commission’s recently-promulgated

coordination rules. 65 FR 76138 (Dec. 6,

2000).

(3) Payments or costs associated with

any general public political

communication that refers to a

candidate for federal office and has

been tested to determine its probable

impact on the candidate preference of

voters. This proposal would provide an

objective basis for determining if an

otherwise independent ‘‘issue ad’’ was

in reality undertaken for the purpose of

influencing voters’ preferences with

respect to one or more federal

candidates. The term ‘‘general public

political communication’’ would have

the same meaning as in 11 CFR 100.23:

it will include communication ‘‘made

through a broadcasting station

(including a cable television operator),

newspaper, magazine, outdoor

advertising facility, mailing or any

electronic medium, including the

Internet or on a web site, with an

intended audience of over one hundred

people.’’ 11 CFR 100.23(e)(1).

(4) Payments or costs associated with

any general public political

communication that refers to a

candidate for federal office, where the

intended audience has been selected

based on its voting behavior. Like the

previous element, this would provide an

objective basis for determining that a

communication to a targeted group of

people, such as those residing in a

specific area, had the purpose of

influencing voters’ preferences with

respect to a particular candidate. Under

this scenario, a link would have been

established between the communication

and the selection of the intended

audience.

(5) Payments made to a commercial

vendor for a service or product with the

express understanding that the service

or product be designed to influence one

or more federal elections. This provision

would rely on an organization’s

objective representations of purpose in

the acquisition of goods or services to

establish political committee status.

The Commission also seeks comments

on adding new paragraph (a)(3) to

section 100.5. This paragraph would

provide that, notwithstanding any other

provision of 11 CFR 100.5, a business

organized for profit that provides goods

or services to others at their usual and

normal charge would not be considered

a political committee. This savings

clause would prevent political

consultants and commercial vendors

operating at the direction of their clients

from becoming political committees if,

for example, a vendor or consultant

provides money up front to another

vendor as an agent of a political

committee with the express instruction

that the service provided be for the

purpose of influencing a federal

election. Also, since vendors receive

money from political committees

organized under 11 CFR 100.5(b), (c),

and (d) and are for-profit organizations,

without this exemption they would be

considered political committees under

proposed paragraph 100.5(a)(1)(ii).

If these new descriptions of

‘‘contribution’’ and ‘‘expenditure’’ are

adopted, the Commission could add

cross references in 11 CFR 100.7 and

100.8 to the new language in 11 CFR

100.5(a), to alert readers that they need

to also consult section 100.5.

Alternatively, the Commission could

limit the impact of the proposed

amendments to 11 CFR 100.5 to

political committees, thus leaving the

current definitions of ‘‘contribution’’

and ‘‘expenditure’’ in 11 CFR 100.7 and

100.8 unchanged.

An alternative approach would be to

locate the proposed new objective

criteria in the generally applicable

definitions of ‘‘contribution’’ and

‘‘expenditure’’ found at 11 CFR 100.7

and 100.8, respectively. The

Commission invites comments on

which of these approaches is

appropriate, as well as whether they

comport with constitutional safeguards

and the Commission’s statutory

authority. No decision on whether to

proceed further will be made until after

the comment period has concluded.

II. The ‘‘Major Purpose’’ Test

A. Case Law

As explained above, the Buckley

Court stated that the overbreadth of the

general definition of ‘‘political

committee’’ at 2 U.S.C. 431(4)(A) could

be avoided if the definition were limited

to ‘‘those organizations that are under

the control of a candidate or the major

purpose of which is the nomination or

election of a candidate.’’ 424 U.S. at 79.

Similarly, in MCFL, the Supreme Court

noted that an organization that would

otherwise be exempt from FECA’s

requirements would be classified as a

political committee if its ‘‘independent

spending becomes so extensive that the

organization’s major purpose may be

regarded as campaign activity.’’ 479 U.S.

at 262. Several lower court decisions

have also addressed the ‘‘major

purpose’’ test.

In FEC v. GOPAC, 917 F.Supp. 851,

859, 862 (D.D.C. 1996), a federal district

court interpreted the FECA to reach

only groups that ‘‘received and/or

expended $1,000 or more and had as

their major purpose the election of a

particular candidate or candidates for

federal office.’’ The court held that an

‘‘organization’s purpose may be

evidenced by its public statements of its

purpose or by other means, such as its

expenditures in cash or in kind to or for

the benefit of a particular candidate or

candidates.’’ The Commission did not

appeal the district court’s opinion.

Other courts have endorsed a different

approach.

In Akins v. FEC, 101 F.3d 731 (D.C.

Cir. 1997) (en banc) (‘‘Akins’’), a group

of former ambassadors, congressmen,

and government officials argued that the

American Israel Public Affairs

Committee (‘‘AIPAC’’), an organization

they considered to be a political

committee, had failed to register with

the Commission or file campaign

disclosure reports. In 1989, the year in

which the challenged activity took

place, AIPAC had a budget of about $10

million. The Commission determined

that AIPAC likely had made campaign

contributions exceeding the $1,000

FECA threshold, but concluded that

there was not probable cause to believe

AIPAC was a political committee

because its campaign-related activities

were only a small portion of its overall

activities and, therefore, not its major

purpose.

The Court of Appeals for the District

of Columbia Circuit concluded that an

organization should be considered a

political committee once it exceeds the

$1,000 contribution level, even though

its major purpose is not campaignrelated activity. Id. at 741–42. The court

reasoned that the major purpose test

becomes relevant only where

independent expenditures are involved.

While the Supreme Court granted

certiorari in the Akins case, it avoided

ruling on this issue. Finding that ‘‘a

considered determination of the scope

of the statutory exemption that Congress

enacted to address membership

Federal Register / Vol. 66, No. 45 / Wednesday, March 7, 2001 / Proposed Rules 13685

4Prior to Bartlett, North Carolina defined

‘‘political committee’’ as ‘‘a combination of two or

more individuals, or any person, committee,

association, or organization, the primary purpose of

which is to support or oppose any candidate or

political party or to influence or to attempt to

influence the result of an election.’’

5 It should be noted that the court also held that

an ‘‘express advocacy’’ component was not

constitutionally required of North Carolina’s

‘‘political committee’’ definition.

6Florida Stat. section 106.11(1) defined ‘‘political

committee’’ as a ‘‘combination of two or more

individual, or a person other than an individual, the

primary or incidental purpose of which is to

support or oppose any candidate, issue or political

party, which accepts contributions or makes

expenditures during a calendar year in an aggregate

amount in excess of $500.’’

communication would helpfully inform

our consideration of the ‘major purpose’

test,’’ the Court declined to rule on the

test’s scope or meaning. 524 U.S. 1, 29

(1998). The Court suggested that a

broader interpretation of the

‘‘membership exception’’ could affect its

evaluation of whether Buckley’s

narrowing interpretation of what

constitutes a political committee is

necessary in all contexts. Id. at 28. In

light of the Commission adopting

membership communication regulations

that substantially expanded the number

of organizations that could take

advantage of the membership exception

without triggering political committee

status, see 11 CFR 100.8(b)(4)(iv),

114.1(e), the Commission seeks

comments on whether a less restrictive

reading of Buckley is appropriate and

necessary to promote fuller disclosure of

campaign activity.

In declaring North Carolina’s

‘‘political committee’’ definition

unconstitutional, the Fourth Circuit in

North Carolina Right to Life, Inc. v.

Bartlett, 168 F.3d 705, 712 (4th Cir.

1999) read Buckley to limit narrowly the

FECA’s definition of ‘‘political

committee’’ to ‘‘includ[e] only those

entities that have as a major purpose

engaging in express advocacy in support

of a candidate * * * by using words

such as ‘vote for,’ ‘elect,’ ‘support,’ ‘vote

against,’ ‘defeat,’ or ‘reject.’ ’’

Consequently, North Carolina’s

definition of ‘‘political committee,’’ 4

which, like the FECA definition,

included organizations that ‘‘influence

or attempt to influence the result of an

election’’ (a ‘‘classic form of issue

advocacy’’), was ‘‘unconstitutionally

vague and overbroad.’’ Id. at 713.

In North Carolina Right to Life, Inc. v.

Leake, 108 F.Supp.2d 498 (E.D. N.C.

2000) (‘‘NCRL’’), a federal district court

upheld a North Carolina statute revised

in light of Bartlett that, in contrast to the

FECA, defines ‘‘political committee’’ as,

inter alia, a group that has ‘‘a major

purpose to support or oppose the

nomination or election of one or more

candidates.’’ N.C.G.S. § 163–

278.6(14)(d). The state law further

provides that a group is presumed to

have a ‘‘major purpose’’ of supporting or

opposing one or more candidates if its

contributions and expenditures total

over $3,000 during an election cycle.

However, the state statute further

provides that the presumption can be

rebutted ‘‘by showing that the

contributions and expenditures giving

rise to the presumption were not a major

part of activities of the organization

during the election cycle.’’ Id.5 The

Commission is seeking comments on

whether a similar approach should be

employed at the federal level. Should

the Commission amend the definition of

‘‘political committee’’ at 11 CFR 100.5

to contain a rebuttable presumption that

groups that have a major purpose of

supporting or opposing one or more

federal candidates are presumed to be

political committees for purposes of

these rules?

In Florida Right to Life, Inc. v.

Mortham, No. 98–770–CIV–ORL–19A,

1999 WL 33204523, at *4, 5 (M.D. Fla.,

Dec. 15, 1999), a federal district court

declared Florida’s ‘‘political committee’’

definition 6 ‘‘unconstitutionally

overbroad’’ because its reach was not

limited to ‘‘organizations whose major

purpose is engaging in ‘express

advocacy,’ as that term is defined in

Buckley v. Valeo, 424 U.S. 1, 42–44

(1976).’’ The Eleventh Circuit affirmed

the district court, holding the definition

to be ‘‘unconstitutionally overbroad

under the First Amendment,’’ in Florida

Right to Life, Inc. v. Lamar, 238 F.3d

1288 (11th Cir. 2001).

In South Carolina Citizens for Life,

Inc. v. Davis, C.A. No. 3:00–124–19 (D.

S.C. Sept. 11, 2000), the federal district

court in South Carolina declared

(without analysis) South Carolina’s

‘‘political committee’’ definition (i.e.,

group of persons that spends more than

$500 to ‘‘influence the outcome of an

elective office’’) unconstitutional as

applied to the plaintiff and permanently

enjoined the defendants from enforcing

it against the plaintiff’s ‘‘issue and

express advocacy activities.’’ The

court’s order preliminarily enjoining the

statute at issue did so because of its

application to issue advocacy and

because of the seriousness of the

plaintiff’s claim that its proposed

express advocacy was so insignificant

(less than 20 percent of its

disbursements) that the ‘‘major

purpose’’ test would exempt it from the

requirements of the statute.

B. Alternatives That Would Incorporate

‘‘Major Purpose’’ Into the Text of the

Rules

Comments are sought as to several

ways, which are described below, the

major purpose test for political

committee status could be applied to

these entities. Please note that specific

regulatory language that could be used

to implement the various alternatives is

not attached.

Alternative 1: Percentage of

Disbursements

One way to define ‘‘major purpose’’

would consider an organization to be a

political committee if at least 50% of

that organization’s disbursements are

made for the purpose of influencing

federal and non-federal elections.

Comments are sought on whether a

higher or lower percentage might be

more appropriate in particular

circumstances. For example, an

organization may spend 30% or 40% of

its total disbursements on electionrelated activity, while its other

disbursements are used for a wide range

of purposes. Under these circumstances,

election-related activity could still be

considered that organization’s major

purpose, even though most of its

spending went for other purposes. This

could also be true if, for example, an

organization made 30% of its

disbursements for electoral activity, and

no more than 25% for any other

purpose.

Alternative 2: Percentage of Time and

Disbursements

Another approach would evaluate not

only an organization’s receipts and

disbursements, but also the amount of

time spent by its paid and unpaid staff.

Both time and money would be divided

among certain broad groupings, such as

electoral, lobbying and educational

activity. The organization’s possible

status as a political committee could be

determined in several different ways.

For example, a determination could be

made as to whether the group devoted

over 50% of either its time or its

monetary resources to electoral activity

and thus became a political committee.

Alternatively, once these ratios are

determined, if the combined share of

time and money spent on elections is

larger than that for either lobbying or

education, the organization’s major

purpose could be considered to

influence elections. The Commission

seeks comments on these alternatives, as

well.

1. Volunteer Activity. Under

Alternative 2, the Commission also

seeks comments on how, if at all,

13686 Federal Register / Vol. 66, No. 45 / Wednesday, March 7, 2001 / Proposed Rules

7Numerous other courts, while not addressing

the constitutionality of ‘‘poltical committee’’

definitions, have addressed the application of the

express advocacy requirement. See Perry v. Bartlett,

231 F.3d 155, 160 (4th Cir. 2000); Vermont Right

to Life, Inc. v. Sorrell, 221 F.3d 376, 386 (2nd Cir.

2000); Iowa Right to Life Comm., Inc. v. Williams,

187 F.3d 963, 968–70 (8th Cir. 1999); FEC v.

Christian Action Network, Inc., 110 F.3d 1049, 1051

(4th Cir. 1997); Maine Right To Life Comm., Inc. v.

FEC, 98 F.3d 1 (1st Cir. 1996); Faucher v. FEC, 928

F.2d 468, 472 (1st Cir. 1991); FEC v. Central Long

Island Tax Reform Immediately Comm., 616 F.2d

45, 53 (2d Cir. 1980) (en banc); Kansans for Life,

Inc. v. Gaede, 38 F. Supp.2d 928 (D. Kan. 1999);

Right to Life of Mich., Inc. v. Miller, 23 F. Supp.2d

766 (W.D. Mich. 1998); Planned Parenthood

Affiliates of Mich., Inc. v. Miller, 21 F. Supp.2d 740

(E.D. Mich. 1998); Right To Life of Dutchess County,

Inc. v. FEC, 6 F. Supp.2d 248 (S.D. N.Y. 1998);

Clifton v. FEC, 927 F. Supp. 493, 496 (D. Me. 1996),

aff’d on other grounds, 114 F.3d 1309 (1st Cir.

1997); FEC v. Survival Educ. Fund, Inc., 1994 WL

9658, at *3 (S.D. N.Y. Jan. 12, 1994), aff’d in part

and rev’d in part on other grounds, 65 F.3d 285 (2d

Cir. 1995); FEC v. Colorado Republican Fed.

Campaign Comm., 839 F.Supp. 1448, 1456 (D. Colo.

1993), rev’d on other grounds, 59 F.3d 1015 (10th

Cir. 1995), vacated on other grounds, 519 U.S. 604

(1996); West Virginians For Life, Inc. v. Smith, 919

F.Supp. 954, 959 (S.D. W.Va. 1996); FEC v. NOW,

713 F.Supp. 428 (1989); FEC v. AFSCME, 471 F.

Supp. 315, 317 (D. D.C. 1969); Washington State

Republican Party v. State Public Disclosure

Comm’n, 141 Wash.2d 245, 4 P.3d 888 (2000);

Elections Bd. Of Wisconsin v. Wisconsin Mfrs. &

Commerce, 227 Wis.2d 650, 597 N.W.3d 721 (1999);

Osterberg v. Peca, 12 S.W.3d 31, 50–52 (Tex. 2000);

Brownsburg Area Patrons Affecting Change v.

Baldwin, 714 N.E.2d 135 (Ind. 1999); State v. Proto,

526 A.2d 1297, 1310–11 (Conn. 1987); Richey v.

Tyson, 120 F.Supp.2d 1298, 1310–12 (S.D. Ala.

2000); Chamber of Commerce of the United States

v. Moore, No. 00–228ws (S.D. Miss. Nov. 2, 2000).

organizations should value volunteer

activity in making this calculation.

Volunteer activity may become

significant in situations where, for

example, an organization spends only a

small amount of money on electionrelated activity, but uses the money to

recruit and train groups of volunteers to

canvass neighborhoods, run phone

banks, or sponsor other volunteer

activity that has a substantial impact on

the campaign. On the other hand,

volunteer activity is exempt from the

FECA’s definition of ‘‘contribution.’’ 2

U.S.C. 431(8)(B)(i), 11 CFR 100.7(b)(3);

but see 11 CFR 100.7(a) for

qualifications and exceptions. Thus, it

can be argued that the value of such

activity should not be included in any

‘‘major purpose’’ computation.

2. Time for the Computation. A

related issue is, what period of time

should be used in assessing major

purpose? Should it be an election cycle,

a calendar year, a calendar quarter, or

some other period?

Using a quarterly basis would cover

those situations where an organization

engaged in substantial lobbying and

educational efforts and only nominal

campaign activity during the first three

quarters of an election year, but put

massive resources into a campaign

during the last quarter in which the

election was held. However, the

statutory framework of the Act is such

that it may be necessary to use a

calendar year in computing this activity.

Please note that once an organization

qualifies as a political committee, it

retains that status until it terminates.

See 11 CFR 102.3 (termination of

registration) and 11 CFR 102.4

(administrative termination).

Alternative 3: Percentage of

Disbursements Spent on

Communications Containing Express

Advocacy

In contrast to Alternatives 1 and 2, the

Commission is considering a

substantially narrower approach to

determining an organization’s major

purpose. Under Alternative 3, the

organization would compare its total

disbursements to only the amount it

spends on general public political

communications that expressly advocate

the election or defeat of clearly

identified candidates (i.e., ‘‘independent

expenditures,’’ 2 USC 431(17)) and any

contributions, 2 USC 431(8). This

approach is consistent with MCFL,

which reiterated and expanded the

scope of the express advocacy

requirement to section 441b of the Act:

‘‘[In Buckley], the Court held that the

term ‘expenditure’ encompassed ‘only

funds used for communications that

expressly advocate the election or defeat

of a clearly identified candidate.’ ***

We therefore hold that an expenditure

must constitute ‘express advocacy’ in

order to be subject to the prohibition of

§ 441b.’’ 479 U.S. at 248–49, quoting

Buckley, 424 U.S. at 80.

This approach also follows Fourth

Circuit’s reading of Buckley in Bartlett,

Mortham and Davis, supra, and other

cases.

In Colorado Right to Life, Inc. v.

Davidson, No. 99–1414, 2000 WL

1902427, at *14 (10th Cir., Dec. 26,

2000), the Tenth Circuit declared a state

statute defining ‘‘political committee’’

unconstitutional as applied to plaintiffs.

The definition encompassed groups that

‘‘associated themselves for the purpose

of making independent expenditures,’’

i.e., on communications unambiguously

referring to candidates. The court read

Buckley and its progeny for the rule that

‘‘communications that do not contain

express words advocating the election

or defeat of a particular candidate are

deemed issue advocacy, which the First

Amendment shields from regulation.’’

Id. at *7.

In Iowa Right to Life Committee, Inc.

v . Williams, No. 4–98–CV–10399, slip

op. at 17 (S.D. Iowa, Oct. 23, 1998), a

federal district court preliminarily

enjoined Iowa’s definition of ‘‘political

committee,’’ which encompassed

committees that spend in excess of $500

for the ‘‘purpose of supporting or

opposing a candidate for public office,’’

because the ‘‘plain meaning of the

phrase can be interpreted to include

issue advocacy.’’ The court had read

Buckley as holding that the

‘‘government may not regulate funds

spent to publish communications that

contain what is generally referred to as

‘issue advocacy.’ ’’ Id. at 8 n.3.

In Virginia Soc’y for Human Life, Inc.

v. Caldwell, 152 F.3d 268 (4th Cir.

1998), the Fourth Circuit held that a

constitutionally narrow construction of

Virginia’s ‘‘political committee’’

definition was not readily apparent

because the statutory language

encompassed groups that spend money

‘‘for the purpose of influencing the

outcome of any election’’ and thus

necessarily applied to ‘‘materials which

simply describe a candidate’s voting

record in the hopes of influencing

people’s votes, that is, issue

discussion.’’ 7

The Commission invites comment on

other possible content standards that

could be used for communications.

Alternative 4: Dollar Amount of

Campaign Activity

As discussed above, the Akins case

illustrated that it is possible for a group

to spend millions of dollars in direct

candidate support that nevertheless

represents only a small percentage of its

overall financial activity. Thus, under

any of the alternatives set out above, its

‘‘major purpose’’ might not be the

election of candidates and it would

therefore not be a political committee.

Consequently, the Commission seeks

comments on establishing a $50,000

threshold for political committee status.

If an organization exceeds this amount

in election activity, or alternatively in

express advocacy communications, it

will automatically be deemed to have a

major purpose of influencing federal

elections. Thus, it will be a political

committee, even if $50,000 represents a

small percentage of its total

disbursements for all activities.

Comments are also sought on a higher

or lower threshold amount than

$50,000.

III. Section 527 Organizations and

Recent Statutory Changes

Section 527 of the Internal Revenue

Code (‘‘I.R.C.’’) grants beneficial tax

treatment to political organizations,

commonly called ‘‘527 organizations,’’

that meet the qualifications set forth

Federal Register / Vol. 66, No. 45 / Wednesday, March 7, 2001 / Proposed Rules 13687

8Section 527 organizations are taxed only on

their investment income. 26 U.S.C. 527(f).

below. Organizations that qualify as

FECA political committees qualify as

527 organizations, and thus are able to

take advantage of this beneficial tax

treatment.8 Other 527 organizations,

however, are alleged to have engaged in

substantial political activity that fails to

trigger the FECA registration and

reporting requirements, and

contribution restrictions.

The I.R.C. at section 527(e)(1) defines

‘‘political organization’’ as ‘‘a party,

committee, association, fund, or other

organization (whether or not

incorporated) organized and operated

primarily for the purpose of directly or

indirectly accepting contributions or

making expenditures, or both, for an

exempt function.’’ ‘‘Exempt function’’ is

defined at I.R.C. section 527(e)(2) to

include ‘‘the function of influencing or

attempting to influence the selection,

nomination, election, or appointment of

any individual to any Federal, State, or

local public office or office in a political

organization, or the election of

Presidential or Vice-Presidential

electors, whether or not such individual

or electors are selected, nominated,

elected or appointed.’’

This definition is on its face

substantially broader than the FECA

definition of ‘‘political committee.’’

Moreover, beginning in 1996, the

Internal Revenue Service (‘‘IRS’’) has

issued a series of private revenue

rulings holding that activities such as

circulating voting records, voter guides,

and ‘‘issue advocacy’’

communications—those that do not

expressly advocate the election or defeat

of a clearly identified candidate—fall

within the ‘‘exempt function’’ category

under I.R.C. section 527(e)(2). Private

Rulings 9652026 (Oct. 1, 1996), 9808037

(Nov. 21, 1997), and 199925051 (March

29, 1999). As knowledge of these rulings

became more widespread, the number of

527 organizations is thought to have

increased substantially, with a

concomitant increase in their spending

on federal elections. See Hill, ‘‘Probing

the Limits of Section 527 to Design a

New Campaign Finance Vehicle,’’ Tax

Notes, Jan. 17, 2000, at 387–88.

Until recently, section 527

organizations that did not qualify as

political committees under the FECA

filed no registration statements or

informational material with the

Commission or the IRS. Moreover, since

section 527 taxes only investment

income earned by these organizations,

see 26 U.S.C. 527(f), and many earn no

such income, they are not required to

file tax returns with the IRS. Thus,

unless they qualified as FECA

committees, or voluntarily disclosed

this information, little was known about

their funding or activities.

When the Commission first

considered the possibility of a

rulemaking in this area, it anticipated

that one of the issues such a rulemaking

might address would be treatment of

section 527 organizations. Since that

time, however, P.L. 106–230, 114 Stat.

477, was signed into law on July 1,

2000. That law requires 527

organizations to notify the Secretary of

the Treasury of their status and provide

certain identifying information within

24 hours of the date on which the

organization is established, 26 U.S.C.

527(a)(i)(1), or 30 days after the date of

enactment of the law, for those

organizations in existence on July 1,

2000. 26 U.S.C. 527(d)(2). They must

also disclose information on

expenditures that aggregate over $500 in

a calendar year to a single person, and

contributions from persons that

aggregate $200 or more during a

calendar year. For additional

information on this new law, see

Revenue Ruling 2000–49 (Oct. 30,

2000). Please note that these statutory

requirements do not apply to

organizations that qualify as political

committees under the FECA. 26 U.S.C.

527(a)(6), 527(j)(5)(A).

Despite enactment of Public Law 106–

230, concern remains that Commission

action is needed to clarify when an

organization becomes a political

committee under the FECA. While many

527 organizations are complying with

the new tax law and IRS requirements,

others may have changed their tax status

in order to avoid having to do so. The

Commission is seeking comment as to

how this rulemaking should address 527

organizations and organizations that are

not organized under 26 U.S.C. 527.

The Commission also welcomes

comments on any other aspect of the

issues addressed in this Notice.

List of Subjects in 11 CFR Part 100

Elections.

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 to read as

follows:

PART 100—SCOPE AND DEFINITIONS

(2 U.S.C. 431)

1. The authority citation for Part 100

would continue to read as follows:

Authority: 2 U.S.C. 431, 434(a)(11), and

438(a)(8).

2. Paragraph (a) of section 100.5

would be revised to read as follows:

11 CFR 100.5 Political committee (2 U.S.C.

431(4), (5), (6)).

* * * * *

(a) Except as provided in paragraphs

(b), (c) and (d) of this section, any

committee, club, association, or other

group of persons that receives

contributions aggregating in excess of

$1,000, or that makes expenditures

aggregating in excess of $1,000 during a

calendar year is a political committee.

(1) The following are examples of

‘‘contributions’’ within the meaning of

11 CFR 100.7(a):

(i) Money, services or any other thing

of value received as the result of a

solicitation, the express purpose of

which was to raise money to influence

federal elections;

(ii) Money, services or anything of

value received from a political

committee organized pursuant to

paragraphs (b), (c), or (d) of this section,

except money, services or anything of

value received by an organization

qualifying for tax exempt status

pursuant to 26 U.S.C. 501(c)(3);

(iii) Money, services or anything of

value received by an organization that is

expressly authorized by its charter,

constitution, bylaws, articles of

incorporation or other organizational

document to engage in activities for the

purpose of influencing federal elections;

(iv) Money, services or anything of

value received by an organization that is

controlled by a federal candidate, his or

her principal campaign committee, or

any other committee authorized by a

federal candidate pursuant to paragraph

(f)(1) of this section. This provision

shall not encompass an organization

qualifying for tax exempt status

pursuant to 26 U.S.C. 501(c)(3) or (c)(4)

or an organization whose exclusive

purpose is the election or nomination of

that candidate for state or local office;

(v) Money, services, or anything of

value received by an organization that

claims tax exempt status pursuant to 26

U.S.C. 527 and does not restrict its

activities to influencing or attempting to

influence elections to state or local

public office or office in a political

organization; or

(vi) Payments or costs deemed to be

in-kind contributions for general public

political communications, pursuant to

11 CFR 100.23.

(2) The following are examples of

‘‘expenditures’’ within the meaning of

11 CFR 100.8:

(i) Payments or costs associated with

the organization’s solicitation of money

or any other thing of value, where the

solicitation appeals to donors by stating

that donations will be used to influence

a federal election;

13688 Federal Register / Vol. 66, No. 45 / Wednesday, March 7, 2001 / Proposed Rules

1The Chairman of the Bank Presidents’

Conference requested an extension of the March 1,

2001 effective date for complying with the new

unsecured credit limits. In response, the Finance

Board has waived the March 1, 2001 date by

Resolution, dated February 28, 2001, and has

extended the date for compliance with § 932.9 by

120 days until July 2, 2001.

2 If extension of credit to GSEs are not included,

at year-end 2000, the Banks in aggregate had only

just over $4.4 billion in unsecured extensions of

credit that would be in excess of the limits set forth

in 12 CFR § 932.9 compared with a total unsecured

extensions of credit to private counterparties of just

over $84 billion.

(ii) Payments or costs deemed to be

coordinated expenditures for general

public political communications,

pursuant to 11 CFR 100.23;

(iii) Payments or costs associated with

any general public political

communication that refers to a

candidate for federal office and has been

tested to determine its probable impact

on the candidate preference of voters;

(iv) Payments or costs associated with

any general public political

communication that refers to a

candidate for federal office, where the

intended audience has been selected

based on its voting behavior; or

(v) Payments made to a commercial

vendor for a service or product, with the

express understanding that the service

or product be designed to influence one

or more federal elections.

(3) Notwithstanding any other

provision of this section, a business

entity organized for profit that provides

goods or services to others at the usual

and normal charge for such goods or

services shall not be considered a

political committee. Discounts may be

provided as set forth in 11 CFR

9008.9(a).

* * * * *

Dated: March 1, 2001.

Danny L. McDonald,

Chairman, Federal Election Commission.

[FR Doc. 01–5473 Filed 3–6–01; 8:45 am]

BILLING CODE 6715–01–P

FEDERAL HOUSING FINANCE BOARD

12 CFR Part 932

[No. 2001–03]

RIN 3069–AB11

Unsecured Credit Limits for Federal

Home Loan Banks

AGENCY: Federal Housing Finance

Board.

ACTION: Proposed rule.

SUMMARY: On December 20, 2000, as

part of its new capital rule, the Federal

Housing Finance Board (Finance Board)

approved new limits on the amounts of

unsecured credit that a Federal Home

Loan Bank (Bank) may extend to a

single counterparty or group of affiliated

counterparties. These new unsecured

limits revised and codified the

unsecured credit guidelines set forth in

the Finance Board’s Financial

Management Policy (FMP). The Finance

Board is, hereby, proposing

amendments to the unsecured credit

provisions of the capital rule to increase

the limit on a Bank’s unsecured credit

exposure to government-sponsored

enterprises (GSEs).

DATES: The Finance Board will consider

written comments on the proposed

rulemaking that are received on or

before April 23, 2001.

ADDRESSES: Send comments to: Elaine

L. Baker, Secretary to the Board, by

electronic mail at bakere@fhfb.gov, or by

regular mail to the Board, at the Federal

Housing Finance Board, 1777 F Street,

N.W., Washington, D.C. 20006.

Comments will be available for

inspection at this address.

FOR FURTHER INFORMATION CONTACT:

James L. Bothwell, Managing Director,

(202) 408–2821; Scott L. Smith, Acting

Director, (202) 408–2991; or Julie Paller,

Senior Financial Analyst, (202) 408–

2842, Office of Policy, Research and

Analysis; or Thomas E. Joseph,

Attorney-Advisor, (202) 408–2512,

Office of General Counsel, Federal

Housing Finance Board, 1777 F Street,

N.W., Washington, D.C. 20006.

SUPPLEMENTARY INFORMATION:

I. Background

On December 20, 2000, in accordance

with the Gramm-Leach-Bliley Act, Pub.

Law No. 106–102, 133 Stat. 1338 (Nov.

12, 1999) (GLB Act), the Finance Board

adopted a final rule to implement the

new capital structure that the GLB Act

established for the Banks. See 66 FR

8262 (Jan. 30, 2001). As part of the final

capital rule, the Finance Board adopted

new limits on the permitted amounts of

a Bank’s unsecured credit exposures to

a single counterparty or a group of

affiliated counterparties. Id. at 8318–19

(to be codified at 12 CFR 932.9). These

new limits represent a revision and

codification of the unsecured credit

guidelines of Section VI of the FMP,

Finance Board Res. No. 96–45 (July 3,

1996), as amended by Finance Board

Res. No. 96–90 (Dec. 6, 1996), Finance

Board Res. No. 97–05 (Jan. 14, 1997),

and Finance Board Res. 97–86 (Dec. 17,

1997), which will remain in effect until

these new limits take effect on July 2,

2001.1 During the comment period for

the proposed capital rule, many

commenters generally opposed the

implementation of the unsecured credit

guidelines in § 932.9, but did not

comment on the specific limits set in

the rule, which are designed to address

safety and soundness concerns related

to the risk created by credit

concentrations in a single counterparty

or group of affiliated counterparties. See

66 FR 8301–02.

The new unsecured credit limits in 12

CFR 932.9 are more restrictive than

those that are applied under the FMP.

They allow the Banks, however, to

extend unsecured credit to lower-rated

counterparties than is now allowed

under the FMP and will remove

maturity constraints on extensions of

unsecured credit that are contained in

Section VI of the FMP. Before a Bank

may extend unsecured credit to any

counterparty (or affiliated

counterparties) to which a Bank could

not previously lend because of the

credit rating restrictions or maturity

limits in the FMP, the Bank must obtain

the Finance Board’s approval for the

lending activity as a new business

activity pursuant to 12 CFR Part 980.

The new limits do not apply to

obligations backed by the full faith and

credit of the United States government,

which is the case under the unsecured

credit guidelines of the FMP. Section

932.9 also does not require a Bank to

unwind positions that do not conform to

the new requirements provided the

credit was extended in accordance with

the FMP before the effective date of the

new rule.

II. Proposed Rule

As discussed in the SUPPLEMENTARY

INFORMATION section of the adopting

release of the final capital rule, the

Finance Board believes that the

diversification of risk, particularly with

regard to unsecured credit, promotes the

safety and soundness of the Banks and

that the specific limits adopted in 12

CFR 932.9 are necessary to address the

increase in credit risk associated with

concentrations of credit exposures. The

limits are not unduly onerous 2 and

generally are consistent with those

applicable to commercial banks. See 12

CFR Part 32.

It has been suggested, however, that

as applied to debt issued by the GSEs,

the new limits may present problems for

some Banks. Under the FMP, the Banks

could maintain unsecured credit

exposures with a single GSE in an

amount equal to 100 percent of the

Bank’s capital. The new unsecured

credit limits would treat GSEs like other

private counterparties and base the

unsecured credit limit on the long- or