FEC HOME > FINANCE LAW RESOURCES > RECENT AND ONGOING RULEMAKINGS

Transcript of FEC Public Hearing: Prohibited and Excessive Contributions Non-Federal Funds or Soft Money

UNITED STATES FEDERAL ELECTION COMMISSION (FEC)

PUBLIC HEARING:
PROHIBITED AND EXCESSIVE CONTRIBUTIONS
NON-FEDERAL FUNDS OR SOFT MONEY

Washington, D.C.
Tuesday, June 4, 2002
FEC COMMISSIONERS:
DAVID M. MASON
Chairman (Republican)

KARL J. SANDSTROM
Vice Chairman (Democrat)

DANNY LEE McDONALD
Commissioner (Democrat)

BRADLEY A. SMITH
Commissioner (Republican)

SCOTT E. THOMAS
Commissioner (Democrat)

MICHAEL E. TONER
Commissioner (Republican)
FEC STAFF:
LAWRENCE H. NORTON
General Counsel

JAMES A. PEHRKON
Staff Director

* * * * *

C O N T E N T S

SESSION: PAGE

Commissioners' Opening Statements 4

Morning Panel 28

First Afternoon Panel 182

Second Afternoon Panel 303

* * * * *
P R O C E E D I N G S
(9:35 a.m.)

CHMN. MASON: Good morning. The hearing of the Federal Election Commission on prohibited and excessive contributions, nonfederal funds or soft money, will come to order.

We have a busy schedule today and so I will make a brief opening statement, recognize any of my colleagues who wish to make opening statements to do so, and then go to our first panel.

I'd like to welcome everybody here today. The proposed rules were discussing, we're including a notice of proposed rule making that was published on May 20, 2002. These rules address the changes to the Federal Election Campaign Act under Title I of the Bipartisan Campaign Reform Act of 2002, which adds new restrictions and prohibitions on the receipt, solicitation, and use of certain types of nonfederal funds commonly referred to as soft money.

The NPRM is divided into five major areas: Definitions; the effect of the proposed rules on national party committees; the effect of the proposed rules on state, local, and district committees and organizations; the effect of the proposed rules on tax-exempt organizations; and the effect of the proposed rules on federal candidates and office holders.

We appreciate the willingness of the commenters to assist us in this effort by giving us their views on these proposals. We want to thank in particular the witnesses who've taken the time today to give us the benefit of their experience and expertise in this area.

I will address the format for the panels when we get to the panels in the event that folks of the afternoon panel aren't here yet. I'll probably have to do that twice in any case.

Vice Chairman Sandstrom?

COMM. SANDSTROM: Good morning. Congress has passed the Bipartisan Campaign Reform Act. The President has signed it. Subject to judicial review BCRA is now the law of the land. The legislative debate is over.

It is now our responsibility to implement the law in the manner that is faithful to its text, attentive to its purposes, and fair to those who are asked to comply. Our foremost obligation is to tell the public how to abide by the law. To the extent there are citizens who are left to speculate about how to organize and participate in politics without running afoul of the law we have failed.

As James Madison recognized, the people participating in elections are the indispensable guardians against the inroads of corruption. We would do a disservice to our country if our rules choose ambiguity and complexity over clarity and simplicity. Politics cannot be reduced to a game for lawyers. Our rules must strive to encourage, and not deter participation. Whether a citizen is registering a young adult to vote, raising money for a friend to run for office, or driving an elderly person to the polls she needs be confident that she is acting lawfully. Broad and honest participation in politics is vital to the health of our democracy.

My remarks are not intended to direct attention away from the important goals of this legislation. Stemming the corrupting influence of money on our politics and restoring the public's trust in the integrity of our institutions on which the country is dependent are laudable ends. The challenge to us which was recognized by both the supporters and the opponents of the legislation is to implement the law with those goals in mind without sacrificing vibrancy in our elections.

This is not a competition between narrow and expansive readings of the law. Rather, the Commission's job is identifying those legislative boundaries that remain obscure and turn them into well-marked borders. People on their political strolls must be given a good map by the Commission so that they know when they have wandered into regulated territory.

Again, James Madison appreciated our task. He once observed, "All new laws though penned with the greatest technical skill and passed on the fullest and most mature deliberation are considered as more or less obscure and equivocal until their meanings be liquidated and ascertained by a series of particular discussions and adjudications." That discussion starts here today at the Commission. Thank you.

CHMN. MASON: Thank you, Mister Vice Chairman. Commissioner Smith?

COMM. SMITH: Thank you, Mister Chair. I have prepared some remarks which are written out. I'm just going to touch on a few of those points and I would ask that my full remarks be made part of the record for this hearing.

CHMN. MASON: Without objection.

COMM. SMITH: I want to thank the witnesses who have come and those who have not come to testify but who prepared written comments for us. They have been very extensive and very helpful and we realize that it had to be done in a very tight time frame so I appreciate that effort.

I do think it's worth commenting just on a few things that came out in the past week since they were released in a press release and that is that several members of Congress saw those comments and they noted that, "Only if the Commission adopts the recommendations we make in these comments will the final regulations reflect the will of the people of this country."

I wanted to address that because it goes to the approach that I'll be taking to this regulations and future regulations and have taken in past regulations when we have adopted them. I think that in many cases the views of the commenters, the congressmen and senators who wrote this, conflict with virtually all of the other comments that we've received. There are very talented lawyers and experts in election law citing to congressional intent, to the plain language, to policy concerns, and so on, hopefully a broad consensus but quite the opposite.

I want to assure all the commenters there that whether they're here in person today or not I'm going to take your comments seriously. In other words I am not going to say that simply because they disagree with the views of four particular congressmen they should be ignored because only the views of those congressmen can possibly reflect the will of the country. If that were our position there wouldn't be too much reason to solicit comments from anybody else. We could just take those comments and go.

Congressional intent we hear a lot about and congressional intent is very important but it's not such an easy animal to corral. For example, we're told repeatedly that the intent of the bill was to limit so-called soft money to the maximum extent possible and yet we're told in comments that have been submitted by the NAACP and the Alliance for Justice that adopting some of the formulations forwarded by the sponsors of the bill will hurt voter registration if it's in minority communities while other lawful interpretations of the law would not and I don't believe that the majority of the members of Congress intended to cut back on voter registration in minority communities and I don't believe that that would be a good policy result. So congressional intent is not always quite so clear.

I reject the view that the views of the NAACP are to be discounted simply because they don't agree with those of four lawmakers. I reject the implication that the views of the Alliance for Justice and the Latino Coalition, of the American Federation of State, County, and Municipal Employees under the AFL-CIO of the state and national parties that represent millions of members are to be ignored every time they raise concerns about these issues that are different from those raised by four members of Congress who claim only if we do what they want can we possibly accomplish what is required.

I also note that when we talk about congressional intent that while the views and clear statements of members of Congress are very important and should be considered the vast majority of issues that are addressed in these regulations and in particular many of those that have been identified by various commenters as key issues were never debated during the course of the act. I don't recall any floor debate on the definition of "agency." I don't think there was anything in the Congressional Record suggesting that the legislation was intended to change the definition of "office facility" from that used in the Commission's past advisory opinions. There was no debate over what it meant for a national committee to indirectly establish, finance, maintain, or control of an entity. So I can't really conclude that a handful of post hoc comments are definitive of congressional intent.

I think we should also note that in signing the legislation President Bush raised concerns about the constitutionality portions of the legislation and while he didn't specify exactly which portions he was referring to I think it's clearly incumbent on us to take the views of the President into consideration in drafting these regulations. It's imperative that we attempt to draft regulations in such a way as to assure that they would be upheld as constitutional. BCRA is not going to accomplish any of the President's goals and it's not going to accomplish any of Congress's goals if the courts refuse to enforce it on constitutional grounds.

I also finally note that the lawmakers suggest that if we do not follow their suggestions, it will "signal a lack of will on the part of the Commission to interpret and enforce the act," but on many issues the commenters from across the spectrum are unanimous in suggesting that the regulations are too broad and strict and, as I mentioned, they base these arguments on the constitutional, on legislative intent, on rules of statutory construction, and on policy rules and I want to point out that even these four lawmakers in some areas indicate that the draft regulations are overly restrictive as, for example, with the regulations at 300.52 in the draft regulations. So I hope that if I agree with their comments on that and loosen up the regulations they won't issue a press release accusing us of opening a loophole in the law.

I mention that just to emphasize the fact that the fact that the sponsors of the bill at times have found the draft regulations overly restrictive would put to rest any notion that the FEC lacks the will to enforce the law. These hearings are not, I would agree very much with the vice chairman, about whether we're going to have strict enforcement or loose enforcement. They're about whether we're going to have proper enforcement, enforcement that is constitutional, enforcement based on the law that Congress has passed and the President has signed. To that end I will do my very best and I thank the commenters for their help in doing so for the detailed comments they've submitted and for the care which they've given to them I find very helpful and I look forward to hearing the testimony today. Thank you.

CHMN. MASON: Commissioner Thomas, do you have an opening statement?

COMM. THOMAS: I just am happy to be here and I can tell that we are coming at this with I suppose slightly different perspectives. I do appreciate all the folks who are participating in helping us work our way through this. I am keeping an open mind and I hope all my colleagues will. I like all the commenters and I like all of their views and I'm not discriminating against any of them.

CHMN. MASON: Commissioner Toner?

COMM. TONER: Thank you, Mister Chairman. I want to thank everyone who provided comments under obviously a very tight time frame regarding this critical rule making. All the comments were very informative and will aid the Commission in deciding upon the final rules that we publish in a couple of weeks on soft money.

At the outset I want to express that this is an extraordinary moment in the history of this agency. Congress has passed the most sweeping changes to the federal election laws in a generation and has instructed the Commission to expedite its work to ensure that all the rule makings associated with the Bipartisan Campaign Reform Act are completed by the end of this year.

The Congress was wise to establish this very strict deadline because it recognizes that people need to know and need to know right now what BCRA does and does not allow them to do and what they have to do to comply with the law. For this to occur the Commission must establish clear and concise guidelines that are understandable to people involved in politics at the grass-roots level across the country.

As I have noted before, if we fail to issue clear guidelines we will have failed to perform our core duties as a commission and we will have betrayed our responsibility to implement BCRA in a way that is meaningful and comprehensive to ordinary people who are active in American politics at the national, state, and local levels.

Despite this critical imperative there are some among us who argue that there is no need to issue bright line rules, that we should maintain broad prosecutorial discretion, that legal standards are best developed after the fact through years of enforcement cases and litigation. I categorically reject this approach. Such an approach would deprive people now of a clear sense of what they can and cannot do under BCRA. Such an approach would leave affected parties in the future at the mercy of the Commission's prosecutorial discretion and for the unfortunate ones who became test cases could force them to endure years of invasive discovery and spend hundreds of thousands of dollars in legal fees.

But most importantly such an approach would amass a frightening amount of power within this agency to decide who among the body politic has and has not complied with the law. Such an approach in my view is antithetical to our society's historic commitment to civil liberties, due process, and prior notice of what is prohibited, particularly whereas here significant criminal and civil penalties can be imposed for infractions.

That is one reason why I am so heartened by many of the comments the Commission has received supporting the effort to implement BCRA with clear rules and understandable standards. For example, the NAACP National Voter Fund urges the Commission to adopt bright line tests in several key statutory areas and to avoid issue rules that "unduly hinder the ability of bona fide nonprofit organizations to effectively achieve their nonpartisan missions."

Furthermore, Nan Aron on behalf of the Alliance for Justice stresses that, "If the FEC fails to clarify areas of uncertainty in the regulations now it will create confusion and overcautious behavior that will have long-term ramifications for candidates and nonprofit organizations." To avoid this outcome the Alliance for Justice calls on the Commission to create several key safe harbor provisions to provide much needed clarity to the law.

In addition the AFL-CIO in submitting comments urges the Commission to limit the concept of agency in BCRA to individuals who "have actual express oral or written authority to act on behalf of an individual or entity." The AFL-CIO believes that such an interpretation is necessary to "preserve civic participation in political parties and candidate campaigns" and to avoid trampling on the ability of people to volunteer for campaigns at the grass-roots level.

In light of these and other comments a strong bipartisan consensus is emerging across the ideological and political spectrum among civil rights organizations, nonprofit groups, and labor organizations that it is essential that the Commission issue bright line rules in implementing BCRA.

Despite this broad-based support I recognize it will be a major struggle to finalize clear and easily understandable rules. Powerful lobbyists and interest groups mainly from Washington will argue that any effort to provide guidance and prior notice will create potential loopholes as if telling people what the law is is antithetical to the law itself. To hear some of these people talk it is as if they proposed to lower the speed limit from 65 miles per hour to 55 miles per hour but then refuse to tell anyone what the new limit is and leave it to our prosecutorial discretion to decide later whether someone has broken the law.

Given this absurdity one can only conclude that these critics want to keep for themselves and their allies here at the Commission the awesome power to decide later what is legal and illegal under BCRA and in the meantime leave people involved in politics uncertain under the threat of government investigation about what they can and cannot to under the law. Such a coercive regime in my view has no place in America, especially when the free exercise of First Amendment rights are at stake.

Therefore this agency has no higher duty right now than to issue clear and understandable rules implementing BCRA so that average Americans who thankfully are not lawyers and lobbyists can know what their obligations are under the new law. Many of these people volunteer at the state and local level on their own time during nights, weekends, whenever else they can, for the candidates, parties, and causes of their choice. They are a part of grass-roots American democracy. Providing them with clear rules is not a loophole. It is a civic duty. We will have failed as a commission if we do no less. Thank you, Mister Chairman.

CHMN. MASON: Thank you, Commissioner Toner. I know that Commissioner McDonald joins me in the thanksgiving for the nonlawyers. Commissioner McDonald?

COMM. McDONALD: Mister Chairman, thank you. I deliberately don't have a prepared statement. I'd simply say several things. One is that I think there is universal agreement around the table that people are interested in clear rules and I think clarity ironically gets you out of the system of where you have a number of exceptions so we'll see how this evolves both today and tomorrow.

Historically what has happened at this Commission, of course, is that the reason people are somewhat confused as some of my colleagues have alluded to is that we've had a number of exceptions over time that we continually carve out and, of course, it makes it more and more difficult for people to understand what they can and cannot do.

Let me thank the individuals who have not only appeared today and will appear tomorrow but also all the other written comments that we have received. They are helpful. They're extremely helpful. It's going to be a very important two days, as Commissioner Toner pointed out, and I would be remiss if I didn't thank the staff because, again, they have been under an incredible burden and have worked literally around the clock to be prepared for the sessions today and tomorrow. I'll publicly apologize to Rosie Smith, who I called about 43 times looking for the documents for today. So I appreciate all the hard work.

I look forward to the morning session, Mister Chairman. I don't come with preconceived ideas. I would say, though, that I think everybody, and I mean this very seriously. I don't know of anybody that is not for clarity around the table. The issue is what does that encompass.

CHMN. MASON: Thank you, Commissioner McDonald. I'd like to invite our first panel to come forward. It consists of people well known to all of us here on the Commission, the Honorable Trevor Potter, former member and former chairman of the Commission. I think we've got microphones in front of our chairs and if there are four of you get in front of those if that will work. If you want to move the microphone back that's fine but particularly at least the three who are going to be making opening statements should get in front of a microphone.

Larry, why don't you leave that in front of Don for now and then guess maybe we can switch it back if Paul wants to get in later on? Thank you.

Don Simon, representing Common Cause and Democracy 21; Larry Noble, former general counsel of the agency and now executive director of the Center for Responsive Politics; accompanying him, Paul Sanford, director of the center's FEC Watch program. A welcome to you all.

Our format, we've got two hours scheduled for this panel. I'd like to invite each of the three principal presenters to make an opening statement of five minutes. We'll then go to questions from commissioners, from the general counsel, and from the staff director if he requires. On our first round of questions we'll have a 10-minute period for asking questions.

We do have a new light system which will give you a green light for 4-1/2 minutes and a yellow light for 30 seconds. By all means feel free to complete your thoughts. At the end of that period I can disable the buzzer as well as the ejection seat but that will help keep us on schedule given the busy schedule we've got over the next few days.

I'd asked the panel to make some kind of arrangement as to who would like to go first and everyone is pointing at Trevor. Commissioner Potter?

MR. POTTER: Good morning, Mister Chairman, members of the Commission. It is a pleasure to be here this morning to comment in this rule making.

I would like to start personally by saying that I understand and therefore greatly appreciate the hard work that has gone into the preparation of these first draft rules. I know it's been an incredibly concentrated task as it has been in attempting to comment on the draft rules but I think the Commission has done a very good job in a very short time period, particularly on the soft money rules with their expedited schedule as mandated by Congress.

As the chairman noted, I'm here testifying on behalf of the Campaign and Media Legal Center, which is associated with the University of Utah. I am here with Glen Shore, the associate legal counsel of that center. Glen has joined us recently after serving on the Hill, and I wanted to emphasize that he is here representing and testifying as a lawyer for the center and not on behalf of anyone else for whom he has worked in the past.

What we face today in the specific hard money section of the bill is an attempt to ensure that the hard money/soft money division created by Congress in this new bill is effectively implemented, that the integrity of the soft money ban is retained. This is a provision that we all recognize was hard fought in Congress. There is no point in ignoring that. It was a matter of great dispute. There were several years of congressional debate in both houses.

Ultimately a bipartisan majority of the House approved the bill, a supermajority of the Senate voted to close debate, and it was signed by President Bush, who had throughout his campaign and presidency supported a full ban on corporate and union soft money dollars to the national party committees.

There are dangers that the Commission faces in this rule making and I think those in particular include the dangers of attempts to unwrite the law, to evade its provisions, to recreate the current system of nonfederal dollars raised and spent to influence federal elections, so I would urge you to ensure that the law is not unraveled through the regulatory process.

I note that there is a range of comments before you, some of which in our formal comments we have addressed the same issues. In particular there are comments from parties suggesting that there be a narrowing of the regulation of state party activity in connection with federal elections.

There are comments from nonprofits that suggest that there should be a continued unlimited office holder role in raising funds for voter activity, this despite the fact that the bill contains very specific restrictions on a range of office holder and candidate fund raising for nonprofits that engage in such voter activity. And there are comments from a national party committee suggesting allowing continued nonfederal accounts in soft money fund raising for what are claimed to be nonelection activities.

I think the latter comments cite statements by Senator McCain in the floor debate which I thought was a nice touch. I also thought Senator McCain's letter to the Commission of yesterday did a pretty good job of indicating that he was neither the source of that nor was the act itself the source of such a suggestion.

Congress did not act in a vacuum which I think it's important to note given that you will be hearing after this panel for the next day and a half from party committees and others who in many cases would prefer the law had not been passed. Congress was dealing with the fact that over the last number of years presidential campaigns have raised and spent money through state parties culminating in the '96 activities, that there have been joint fund raising abuses in terms of federal candidates raising money for state parties when that money is intended and is in fact spend on behalf of the federal candidates in general election activities, so the issues that are before you were specifically considered by Congress in terms of eliminating what Congress decided were abuses of the federal election laws and of the limits.

I do believe it is appropriate to give substantial weight to the comments of the principal congressional sponsors of the law because they have accepted the Commission invitation to comment on this and they I think better than anyone else know what they proposed and what they intended their bill to accomplish.

Other commenters have opposed the bill at every stage of the process through congressional consideration. It is, of course, their right to do so but, that being the case, I respectfully suggest they may not be the most sympathetic commenters to the purposes the new law is intended to accomplish.

I see my time has expired so I thank you very much.

CHMN. MASON: Thank you, Commissioner Potter. Larry Noble will be next.

MR. NOBLE: Thank you, Mister Chairman, Mister Vice Chairman, members of the Commission, Mister General Counsel, Ms. Smith. On behalf of the Center for Responsive Politics and FEC Watch I'm pleased to be here today to testify on this very important rule making which is the first phase of the ruling making to implement BCRA. I am the executive director for the Center for Responsive Politics and was mentioned Paul Sanford is with me and he is the director of FEC Watch.

The FEC has embarked on a rule making that is critical to the implementation of the first major revision of the campaign finance laws in over a quarter century. The debates regarding the merits of the constitutionality of BCRA have been passionate and marked by widely divergent opinions; however, now that Congress has passed BCRA, President Bush has signed it into law, and the issues of its constitutionality are in the hands of the courts the FEC's task is to enact regulations that effectively implement the law.

In so doing the Commission should remain focused on the touchstone of the legislation that the national party committees shall not raise or spend soft money, that is, money outside of the prohibitions and limitations of the federal campaign finance laws, and only money raised by state and local party committees under those laws can be spent to influence federal elections. This is in keeping with what in 1957 the Supreme Court called the long series of congressional efforts calculated to avoid the deleterious influences on federal elections resulting from the use of money by those who exercise control over large aggregations of capital.

It is clear from the comments filed to date that the party committees and others are resistant to change that will limit access to large contributions or limit their influence and they want the law interpreted narrowly. This is understandable. They like the status quo. In fact the party committees appear to be of the view that the appropriate response to Congress tightening the campaign finance rules of BCRA is for the FEC to read those rules as covering as little as possible and to relax the existing prohibitions and limitations everywhere it can.

This is reflected in several of their arguments, including their view on the definitions of "agent" and the phase "promote, support, attack, or oppose" as well as in their attempt to get the FEC to allow them to finance with all soft money that which present law requires to be paid for with at least some hard money.

I want to say at this point no one opposes clear rules. An agency should work for clear rules. I think that's a given. But clarity should never become a cover for going against the intent of Congress. As the Supreme Court recognized a long time ago, there's a limit in the English language to what you can say to be clear and still effectuate an act. I often feel that this argument about clarity and about everybody knowing what the law is is a way of just saying we really can't have any law that anybody can walk forward with and say I don't understand it because, of course, they are chilled. As the court once also said, just because someone comes into court with an overcoat doesn't mean they're chilled.

The FEC must resist these calls to eviscerate the new law right out of the box and avoid becoming an instrument by which the law is narrowed, carved up, and rendered ineffective. In their arguments the party committees are ignoring what the Commission cannot, the fact the purpose of the BCRA is not just to reduce the impact of soft money on federal elections, as one party committee stated, but to eliminate the role of soft money in federal elections. Whether or not you agree with this goal or believe that it will ever be accomplished it is the goal of the law and it is the result the FEC must seek.

With regard to the constitutional issues I am in full agreement that the agency can and should take constitutional concerns into effect but, like with clarity, there's a limit to that. I don't believe this agency or any agency has the authority to say that because it believes a law will be unconstitutional it will go against the clear intent of the Congress and the clear language of the law. That is for the courts, not for the agency. We urge the FEC to breathe life into BCRA and give the new law every chance to work as intended.

I also want to take the opportunity to thank the staff for all their hard work. I know very much how hard it is, all the nights that they worked late, and I think they've done a fantastic job. With that I will end and gladly answer any questions you have or attempt to answer any questions that you have.

CHMN. MASON: Thank you, Mr. Noble. Mr. Simon?

MR. SIMON: Thank you, Mister Chairman, members of the Commission. I appreciate the opportunity to testify today on behalf of Common Cause and Democracy 21.

As we noted in our written comments, both organizations are long-standing proponents of the reforms enacted in the Bipartisan Campaign Reform Act. I have great respect for the magnitude, technical complexity, and importance of the rule making task before the Commission. None of this is made easier by the fact that this rule making must be done in an expedited fashion or by the fact that there are six other tracks of BCRA rule making that the Commission will simultaneously pursue or by the fact that the Commission is also engaged in complex but expedited litigation in defense of the statute. But having noted why the Commission's job in this rule making is so hard, let me suggest a way to make it easier by focusing on two issues that this rule making is not about.

First, this rule making is not about revisiting the policy choices made by Congress in enacting the BCRA. Many of the comments filed seek to persuade the Commission that Congress chose poorly and that the Commission should effectively rewrite the statute in a way that would violate both the language and the intent of the law. In this sense many of the comments are best directed not to the Commission, but to the Congress. They seek to revisit political battles that were played out in the halls of Congress over several years. These arguments were raised in Congress and Congress chose otherwise. Whether you agree with the statute or not you must respect the policy decisions made by the Congress.

Second, this rule making is not a forum for the resolution of the constitutional claims against the statute. Many of the comments seek to persuade the Commission that provisions of the statute are unconstitutional. Those claims should not be considered by you. As you know, there is an expedited litigation in the federal courts in which all of the claims have been raised. We all hope to have a definitive Supreme Court ruling on these issues in about a year from now. Until then you and your lawyers are defending the constitutionality of the statute and for purposes of this rule making you should accord the law the presumption of constitutionality that is afforded any duly enacted law unless and until the courts and in this case the Supreme Court says otherwise.

If you properly bound your job in both these ways by setting aside what are just policy disagreements about the law, and by setting aside constitutional objections which are not properly before you you are left with the more manageable task of taking the language of Title I and the clear congressional purpose behind that language and seeking in good faith to give best effect to what Congress is trying to achieve. To this end we believe that the comments submitted by the principal cosponsors of the law should be taken as authoritative and particularly instructive.

To properly implement the statute there are several key points on which the proposed regulations must be strengthened and I want to just briefly mention three of them. First, the definition of "agent" has generated much comment. The proposed regulations too narrowly limit the definition of "agent" to only those who have expressed an actual authority to act on behalf of a party or candidate. A definition this narrow will almost surely allow parties and candidates to engage in the very activities that are banned by BCRA through the use of agents in fact who are operating with the apparent authority but who may not have been expressly authorized to do so.

A far better approach is already contained in the definition of "agent" in the Commission's existing Part 109 regulation and the Title I definition should be modeled on this. We see no good reason for departing from a definition the Commission has used for years and with which the regulated community is familiar.

Second, the proposed definition of "promote, support, attack, or oppose" is too narrow and based on the wrong model. In defining the third prong of federal election activity Congress clearly drafted a provision that extends beyond expressed advocacy in order to address the patent abuse of sham soft money issue ads by parties. To collapse that definition back into the confines of an expressed advocacy test was clearly contrary to the language of the statute and the intent of Congress.

Third, the proposed rules incorrectly permit state parties to use exclusively soft money to fund activities which are currently subject to allocation but which are not defined as federal election activities. This turns BCRA on its head by taking a law intended to strengthen the protections against the use of soft money in federal elections and applying that law to weaken those protections. There is nothing in the BCRA that supports the position that the current allocation requirements are generally repealed. The current requirements form the backdrop of law against which Congress legislated, and those current requirements should be maintained as supplemented by the additional rules imposed by Title I. Thank you.

CHMN. MASON: Thank you, Mr. Simon. I believe I have distributed to my colleagues a rotation order for the questions and I had unintentionally followed the order for the first panel and the opening statements but we'll stick with that and first recognize Vice Chairman Sandstrom.

COMM. SANDSTROM: I'd like to thank the gentlemen for appearing today. It's hard to imagine a more distinguished panel of lawyers who helped with respect to this legislation.

Let me begin by clearly stating that the examples I employ this morning are pure inventions. The conversations I posit never took place. I have borrowed real people only to give my fiction the feel of reality and so I may use some hypotheticals that I hope strike people as apposite and my comments are really going to be addressed to Section 323(e) and (f) of the statute because I think that brings out a lot of the concerns that have been expressed.

But to speed this along with my first example would the members of the panel believe that Karen Hughes is an agent of the President of the United States? Mr. Potter.

MR. POTTER: I guess since she's left the White House I don't know the answer to that.

COMM. SANDSTROM: Mr. Simon.

MR. SIMON: Probably not since she's no longer in the employ and as far as I know is not working on behalf of the President but I don't know the facts of what she is doing.

COMM. SANDSTROM: Mr. Noble?

MR. NOBLE: I'd have to give the same answer. I've heard that she's still going to be working on the campaign. It would depend on the specific facts of what she's doing.

COMM. SANDSTROM: So she'll have to call Ben Ginsberg, I guess, to find out if she's an agent?

MR. NOBLE: No, she actually may know the facts herself sufficient to let her know whether she's an agent. I just don't know them.

COMM. SANDSTROM: She may know all the facts but she may not know the law. Karen Hughes is in an airport, Washington National. She's in the American Airlines lounge. In walks Senator Gramm of Texas and they sit down and they begin a conversation and she asks the senator where he's going and he replies he's going to go down and see the governor and she says you ought to. You know a number of people around the governor are saying you haven't lifted a finger for the governor's campaign. And he said I'm going to get that corrected.

And she said it's not just correcting the impression. You're going to need to deliver. He says yes, I'm going to deliver. Don't worry about that, Karen. And she said the President's concerned about that race down there.

Now, is she soliciting money for the governor? Mr. Potter.

MR. POTTER: Well, first off, as you know the question would be, as you've indicated, whether she's acting as an agent on behalf of the President. Beyond that I didn't hear anything that you said that indicated she was soliciting money.

COMM. SANDSTROM: So she isn't soliciting money but Senator Gramm is known as a prolific fund-raiser. When asked in the court of politics your people aren't lifting a finger. A lot of people understand when you're not lifting a finger that means you're not raising money. That doesn't mean he's not down there handing out pamphlets.

MR. POTTER: But when I last looked he was also a United States senator who had great standing in Texas and might be supposed in your example to be out campaigning for the governor.

COMM. SANDSTROM: So the commission shouldn't look behind that kind of conversation. That would not be a solicitation of support. Would you agree with that, Mr. Simon?

MR. SIMON: Yes, I mean, again, reserving the question of whether she's acting as an agent and therefore whether it's within the statute at all I think that's fine.

COMM. SANDSTROM: As I understand it you're arguing about the appearance of agent. It's hard for me to imagine who would appear more likely to be an agent of the President of the United States in Texas than Karen Hughes.

MR. SIMON: Well, I mean, I take her comments at face value where I believe she said she was returning to private life because she wanted to spend time with her family and --

COMM. SANDSTROM: She also said she's returning to active politics.

MR. SIMON: Well, again, that's why I think the facts of the situation are important.

COMM. SANDSTROM: If she was returning to active politics generally in Texas and not specifically working for the President then she would be an agent of the President. What does it mean specifically for the President? The President is very concerned about winning that gubernatorial race.

So let's understand the law because we may not be very far apart. Karen Hughes can return to Texas, turn to all the people who were pioneers in the Bush campaign, and raise money for Governor Perry's election. Is that correct, Mr. Potter?

MR. POTTER: I'm sorry, may she return to Texas and raise money for the governor? Of course.

COMM. SANDSTROM: And she can raise money from pioneers for the governor's campaign?

MR. POTTER: I assume under Texas law she can raise money from a whole range of people for the governor's campaign.

COMM. SANDSTROM: Well, with respect to people learning about who's an agent, who's not an agent I'm not sure we're that far apart if she hasn't been vested with the authority so I think that's very useful for us in trying to craft a definition of "agent" to recognize that law should open up the possibility that someone like Karen Hughes is not an agent.

Let me move to another example because I don't have a good deal of time here. Jesse Jackson, who's another example, goes down to the Democratic State Convention, paid to go down there by the Florida Democrats, goes into an African American caucus and says it is critical that you go out and register people to vote, all leaders in your community go out and register people to vote. Is that a voter registration activity, Mr. Potter?

MR. POTTER: He's not, as I hear your hypothetical, a party so he's an individual.

COMM. SANDSTROM: But he's being paid by the Democrats to come down and give a speech.

MR. POTTER: I'm sorry, what is being paid for? His speech is.

COMM. SANDSTROM: He's paid to come down and give a speech and to go around and encourage African American leaders in Florida to --

MR. POTTER: Sure. If the state party spends money to pay somebody to register people to vote that is a --

COMM. SANDSTROM: He doesn't register. It's to encourage people in the room to go back to their communities and register people to vote.

MR. POTTER: If the state party spends money to encourage people to register to vote that is a registration activity of the state party.

COMM. SANDSTROM: So they better get a copy of the speech beforehand. Mr. Simon, is that your understanding?

MR. POTTER: I'm sorry. Why do they need a copy of the speech beforehand?

COMM. SANDSTROM: Because they don't know what he's going to say to the African American caucus. Having worked in politics, that's often the case. Mr. Simon.

MR. SIMON: If he is engaged in activities promoting voter registration that would be a voter registration activity.

COMM. SANDSTROM: Mr. Noble?

MR. NOBLE: I agree with that.

COMM. SANDSTROM: Let me give you a third example. Running for attorney general in the State of Nevada. Everyone in Nevada cares about Yucca Mountain. It's going to cut through every statewide election, Yucca Mountain. An ad is run. It says I will work with Senator Reid and Senator Ensign to prevent Nevada from becoming the nation's nuclear dump. On this issue the President is horribly wrong. The lives of generations of Nevadans yet to be born should not be put at risk. Together we can send a strong message to the President, Nevadans don't forget.

Is that the type of ad that is covered as public communication and that that state candidate would have to pay for those monies that were reported to the Federal Election Commission and subject to limitations? Mr. Potter.

MR. POTTER: Well, it certainly mentions a federal candidate so I would say yes.

COMM. SANDSTROM: Mr. Simon?

MR. SIMON: I agree.

MR. NOBLE: I agree.

COMM. SANDSTROM: Mr. Noble.

MR. NOBLE: Agree.

COMM. SANDSTROM: Let me get to what a get out the vote activity is, another example, because from your comments I understand there shouldn't be any temporal limits on when the get out the vote activity occurs, and that it's a matter of contacting voters to encourage them to get out to vote. Is that a fair summary of how get out the vote is to be understood, Mr. Potter?

MR. POTTER: I think get out the vote is contacting voters and encouraging them to vote, yes.

COMM. SANDSTROM: Mr. Simon.

MR. SIMON: Well, yes, I agree with that but I would also add that my understanding is that that term in BICRA means whatever it means in the Part 106 regulations that the commission has been applying for years. That's a --

COMM. SANDSTROM: Is that defined in those regulations?

MR. SIMON: It's not but the commission has been applying that term for two decades, I assume, and I assume the regulated community similarly is familiar with what that term means.

COMM. SANDSTROM: Mr. Noble.

MR. NOBLE: I agree with that and I also agree with what Mr. Simon just said. There are a lot of phrases in the statute and the regulations that an agency is required to interpret and interpret it in the context of specific facts. If that wasn't the requirement there'd be no reason for an agency. I mean, it's one of the things an agency does. So the fact that people can raise questions doesn't necessarily mean that there is any vagueness or problem with that. I think it's the same definition that the commission's been using for 20 years.

COMM. SANDSTROM: Yes, and which all of us are having difficulty locating, including the members of the commission. Let's explore that for one moment, which is my last question.

So if someone sends out in the mail a piece of literature that says vote for Governor Davis it's contacting voters, encouraging them to vote. That's get out the vote activity. That's contacting voters with a message to vote and therefore it wanders into the territory of get out the vote?

MR. SIMON: Well, may I?

COMM. SANDSTROM: Yes.

MR. SIMON: My reaction to that question is I think that defines the very narrow line between what is considered get out the vote activity and what is considered candidate advocacy for a state candidate. But, again, I want to emphasize the point that wherever that line is it's not a problem created by this statute. That line has been in the commission regulations for years and years and years and that line is a question under current law between get out the vote activity that must be allocated and candidate advocacy for a state candidate, which is not subject to allocations. So, again, wherever the commission has drawn the line I think Congress was just adopting the same line.

COMM. SANDSTROM: I understand you think there's a line in the current law but you have to realize the current law is an exemption from the definition and then it doesn't include things that otherwise could be considered get out the vote, including the distribution of volunteer-type pamphlets.

So I thank the chairman. My time has expired.

CHMN. MASON: Commissioner Smith.

COMM. SMITH: Thank you, Mr. Chairman. I just first want to say I very much appreciate the comments of all three of your organizations. Particularly the comments from the Center for Responsive Politics and Common Cause were among the most extensive and detailed we received and I found them very helpful and all three sets were helpful but those two in particular for their tremendous detail.

It's good to see you all again and Mr. Simon in particular I haven't seen. I think the last time I saw you we were sitting next to one another at one of these tables as witnesses, so it's been quite a while.

MR. SIMON: But still disagree.

COMM. SMITH: That's right.

By the way, I'll also just add to that, Mr. Simon, I agree one of the things you mentioned in your opening comments is this is not the place to revisit policy choices of Congress where those choices are clear and I think you'll find that people on the commission would agree that there are a number of times as these regulations were going through drafts and so on where people would say well, Congress could have intended that and my response is often well, they voted for it and that's what I intend to look at is what's in the language of the act.

I'll start briefly with a question for you, Mr. Potter. You mentioned the fact that you don't agree that national parties could have both a nonfederal and a federal account. And that suggestion, I believe, came from an interpretation of the draft regs. I think they were suggesting that a leadership PAC should have such accounts which was not really my understanding of what the draft regs did. Is it your understanding that the draft regs or that the law should allow leadership PAC to maintain and take maximum contributions for both a federal and nonfederal account?

MR. POTTER: My understanding, first off, and the reason for my comments is that I think the law establishes very different rules for national party committees than it does for activities by members of Congress. Now, members of Congress under the act may solicit funds for state and local election activity but they are limited in that those solicitations may not be more than they could solicit for a federal activity. So if they are soliciting for a political organization that engages in state and local activity, not a federally registered activity, they may solicit for that organization but up to the amount they could solicit for a similar federal so that would be $5,000.

COMM. SMITH: Total for the organization, not 5,000 for one account and 5,000 for another? Could they solicit for both?

MR. POTTER: Well, the way I read the act it says 5,000 for the state and local activity and I believe that Senator McCain in his floor comments specifically addressed that and said that that would allow a member of Congress to solicit $5,000 in federal money for a PAC, to raise 5,000 in federal money, and that would allow the same member to raise up to $5,000 in nonfederal money if that was used for state and local political activity.

COMM. SMITH: Well, there you go. Once again I see we're going to have to start opening up loopholes because that was not what I was thinking, but thank you. That's helpful to know.

Let me ask you another question about transition. This was a hot issue, of course, when it was debated. After November 6th national party committees may spend remaining nonfederal funds under the act only to retire debts or pay bills stemming from the 2002 elections. Now, that's been somewhat of an issue but here's a related issue. Do you think that national parties should be able to or that the commission would have the authority, to restrict the ability of a national party to prepay expenses for future elections prior to November 6th or was that something we should consider and have the authority to consider in the regulations? In other words should a national party be able to say in late October gee, we're going to have more soft money left than we've spent or going to have to pay off in debts. Let's buy some ad time for the Kentucky governor's race in 2003 or for a senator race in 2004 to buy some ads or should we try and limit that kind of prepayment for goods and services to be used later?

MR. POTTER: I assume that my fellow testifiers may have comments on that, too, but I'll start off by saying that I think they could not do that because they would therefore be using money in an election past the November 6th date and the only elections on which they may do that under the act are runoff elections.

COMM. SMITH: Would that apply to other goods purchased before the November 6th date?

MR. NOBLE: I would say yes. I mean, I don't think it's even a question of whether the commission has the authority. I think especially with the campaign material that you're talking about you have to read it that way to effectuate the act, that prepaying the material before November 6th is a way to get around the law that you can't allow. I mean, really the law focuses on elections taking place after November 6th, not just when the expenditure is made.

MR. SIMON: I think there's a very clear scheme in the transition provisions of the law which is to end the use of this money as of the 2002 election and that provision about retiring debts is very clearly for debts related to 2002.

COMM. SMITH: How about prepaying a building?

MR. SIMON: Well, they were able to use building fund money until November 6, 2002, I believe.

COMM. SMITH: But could they prepay for goods and services for the building that won't be delivered until after that date?

MR. SIMON: You mean the building won't be built until after? I haven't thought about that. My reaction would be yes but I'm not sure.

COMM. SMITH: Let me go ahead and move on. Vice Chairman Sandstrom said we have tight times to ask this sort of thing. You suggest, Mr. Simon, in your testimony for defining voter identification, get out the vote activity, and generic campaign activity conducted in connection with an election in which a candidate for federal office appears on the ballot we should consider all such activity covered at any time in the usual two-year federal cycle as being in connection with a federal candidate appearing on the ballot.

MR. SIMON: With the exception of those states that hold off-year elections.

COMM. SMITH: And you suggested there were five of those states, right?

MR. SIMON: That's my understanding, yes.

COMM. SMITH: Kentucky, Virginia, Louisiana, New Jersey. For example, what about New York City has elected their mayor in an odd year and has a population bigger than most of the states I just listed off? Would you be able to do the things in New York City and not have it count toward a federal election?

MR. SIMON: Within that jurisdiction.

COMM. SMITH: Los Angeles, other cities could do that?

MR. SIMON: Within a jurisdiction holding an election in an off year.

COMM. SMITH: What is the justification for doing this generally, for allowing these states and some of the cities? In other words if you register a voter in Kentucky in 2002 I figure it's going to affect the federal elections as much as if you register a voter in Tennessee in 2003.

MR. SIMON: Well, I agree but Congress had to draw lines and the line they're trying to draw is between activities that affect federal elections and activities that affect nonfederal elections. Otherwise I think we really would have been into the world of completely federalizing all political activity and I think Congress wanted to avoid that and the way they drew this line is in terms of this in connection with test, which I think looks to the next election.

COMM. SMITH: Well, I'll just suggest that I think that local elections go on all over the country in odd numbered years in a wide variety of states. They vote for mayors in my City of Columbus and most small towns in Ohio. They vote for school ÄÄÄÄ all around the country in odd years. So what I'm going to suggest here is really that either we're going to have a crazy quilt that's going to be very tough and it's going to be harder for people to say well, let's see, I can register voters now in Reynoldsburg, Ohio, but I can't register voters in Hilliard, Ohio, and that sort of thing. And let me suggest as well that if we're going to take that ÄÄÄÄ we're not really opening that much of a loophole if we just said let's make it a more administratively easy approach that everybody can understand of saying odd years because most states I think are having some type of election, at least in many jurisdictions, in those odd years and say so odd years you're okay. In connection with the federal election appear on the ballot begins at the start of an even year. That would be a clear, bright line administrative rule that would preserve the state and local elections, which I think take place in far more than these five states and in many very, very populace areas, and I think that might be a good way to go.

MR. SIMON: Well, again, my reaction to that is that doesn't work and it's not what the statute intends.

COMM. SMITH: Let me go to another question here. We've got two points. Mr. Noble refers to an entity that is directly or indirectly established, maintained, financed, or controlled by a political party. You and Mr. Simon both in your comments suggested there should be no temporal limit on this. In other words it's any time forward or backwards. Is that correct that it was controlled, financed, or maintained by a party?

MR. NOBLE: Correct.

COMM. SMITH: -- I'm reading the act and the act very specifically says that this applies when an entity is directly or indirectly established, maintained, financed, or controlled, and I wonder if that doesn't suggest that the plain language of the statute is pretty much that we're talking the current election cycle. I mean, nobody says although my father once paid my college tuition bills years ago nobody says he is paying them now or he is supporting me or financing me at the present time.

I think people focused on the adjectives and looks like "controlled," sounds like a past tense that's an adjective. The verb is "is" and that's current tense and doesn't the plain language of the statute suggests that it needs to be the current cycle?

MR. POTTER: But, Commissioner Smith, the language also says "established" and I think "established" need not be something that happens tomorrow. It can be something that has occurred.

COMM. SMITH: I might agree with you on "established." This is a one-time thing but I think "financed, controlled, maintained" in the common usage that we talk about them when we say "somebody is financed" we don't think about somebody who quit doing that years ago as still being financed.

MR. NOBLE: But you can't leave "established" out of that definition. I think you've hit on the point "established" is one of them and "established" always is in the past.

COMM. SMITH: Well, sure, but certainly there are going to be organizations that were not established but might be financed or maintained. In other words I presume those other words have meanings as well that may be independent of being established.

MR. NOBLE: But it is financed. You can't say it has to mean is financed today, the day you're looking at it. Well, gee, they didn't receive a check yesterday or they're not going to receive a check tomorrow, so they can do the activity tomorrow or they could have done it yesterday and they can't do it today. "Is financed" has some sort of temporal concept in it that over time you are financed. And so the question is do you actually have a cutoff point for that? And the problem with that is that it then becomes an easy way to get around these things, that they start establishing groups, financing them, and then just stop for a period of time, let's say right before an election or the year of an election or two years before an election, and they still have the group.

COMM. SMITH: Well, I see my time has expired, but I would suggest that maybe the current cycle but ÄÄÄÄ I take it your position is, as you have stated it, that if they financed a group, say, with $100,000 twenty years ago that's still covered, isn't it?

MR. NOBLE: Let me qualify that and say the commission has previously dealt with disaffiliation issues and there may be a concept of disaffiliation you want to put in there and I think there is a possibility for that when you talk about certain situations with a group established 20 years ago and there's been no other contact. The caution there is not to make disaffiliation so easy that it becomes something that they can just do, then get back again, and do and get back again. I think it would have to be true disaffiliation at some substantial time before the activity in question.

MR. SIMON: Let me also just add that the commission's proposed regulations contemplate the use of the advisory opinion process to basically implement that disaffiliation standard.

MR. POTTER: If I could also note in response, Commissioner Smith, that I think the comments by the congressional sponsors did in fact suggest that organizations that initially had been established or financed could over time grow away from such a restriction and I think they suggested a potential three-year cycle test but, again, as Mr. Simon indicated, the commission has an advisory opinion process for an organization that would fit that definition to obtain the certification that they no longer were within the meaning of that language.

MR. SHORE: If I may add something I would just generally add that I think it is apparent from the text of the legislation that some detailed thought was given to when provisions would take effect. There's a pretty extensive provision at a point in the bill which details when various provisions take effect and so I think the members are obviously capable of being quite clear when they wanted something to be prospective and that this obviously is not one of those instances.

CHMN. MASON: Commissioner Thomas.

COMM. THOMAS: Thank you, Mr. Chairman. First, I just wanted to give you a chance to get a general reaction to the concerns that have been expressed by the various party committees, particularly state and local party committees. Their fund- raising is going to be crimped, obviously, and at the same time, though, the law does allow, depending on how you read the statute, each state and local party committee and conceivably every city-level party committee to receive $10,000 per year from every corporation in America, from every labor organization in America, again, as long as you're dealing with the affiliation concept, and that's the money we can use to pay for the nonfederal share of Levin activities.

I gather in the view of you folks the party committees also would have the flexibility to accept other totally unrestricted soft money to pay for the nonfederal share of other kinds of allocable activity and to take totally unrestricted money, soft money, to pay for communications that everyone would agree are totally nonfederal. I'm just wondering if you would like to comment on whether you've got any of a background knowledge about whether this structure of the law is going to put the party committees out of business as their comments indirectly suggest?

MR. NOBLE: I don't believe it's going to put the party committees out of business. The party committees are very resilient. It's clearly going to limit the amount of money they can get for certain types of activities. That's the intent of the law. That's what Congress was trying to do. That's what Congress did. We actually noted in our comments that there is a way around this proliferation problem which is by affiliating at least party committees at specific levels, but I understand that the likelihood of that happening is probably slim and not only then does the idea that they can each receive $10,000 from one individual and that person go around and give $10,000 to each party committee, not only does that give you the money, it probably is going to be one of the major loopholes in the law.

And we suspect, and this is something we're going to be tracking over time, that's where a lot of the money's going to end up going. And then it becomes very important that the lines be drawn in terms of what that money can be used for. And that's why it's very critical that the commission draw that line in such a way as to stop that money from doing specific federal activity.

But I don't think the party committees are going to be out of money, I don't think party committees are going to close, and in fact I suspect if the interpretation is adopted that allows $10,000 to each of these state and local party committees you're going to see a proliferation of these party committees. You're going to see a new strength in local party committees in terms of the number of them.

MR. SIMON: My reaction to your question is I just don't think it's a plausible position to say that Congress passed a law which will put the political parties out of business. I think Congress was exquisitely concerned about the health of the political parties in the context of its overriding concern about the health of our democracy and I think Congress took a number of steps in the legislation to ensure the health of the political parties.

It did raise hard money contribution limits to the political parties substantially. It did preserve, as you pointed out, the ability of party committees to continue to raise nonfederal money for holding on federal activities and I think very significantly with the Levin Amendment, which came into play rather late in the process.

I mean, the earlier iterations of this legislation for years and years required 100 percent hard money funding for the first two prongs of federal election activity, the voter registration and get out the vote activity, and I think when the bill was on the floor of the Senate last year precisely because of the concern about the health of the parties and the ability to conduct these activities Senator Levin introduced this amendment, which gave the party committees substantially more room to raise money for these activities and I think it did so out of precisely the concern about party committees having adequate resources.

So Congress, a body that I think is expert here in terms of making these judgments, thought long and hard about these questions and I think struck a balance among the various concerns.

MR. POTTER: I have three quick comments, Commissioner Thomas. One is that I understand certainly the reaction of state parties to wake up and suddenly look at this and say this is an unpleasant day, we don't like what we see, but as I think my opening comments indicated that is entirely because of the activities the state parties have conducted over the last couple of election cycles that Congress has stepped in here and changed the rules for state parties to prevent them from accepting transfers and using that for federal election activity.

Secondly, I'm not a political scientist and I think the question you've asked is to some extent a broader political science question but I have heard and read a number of political scientists who make the contrary argument that this act is likely to strengthen the state parties because they rather than the national parties will have the scope to engage in a great deal of this activity and to do so in many cases with funds raised under state law. So I'm not sure I would agree that their fund-raising is in fact going to be crimped. They won't receive transfers of money from the national party committees in the same way they did before and they won't have federal candidates performing the same role but between the fact they have higher hard money limits than before and the fact that they specifically are allowed to use the state money, the Levin money activity you referred to, for a range of grass-roots activities I think there is a possibility that the state parties will come out of this as stronger engines for political activity than they have going in when what they've been doing in many cases is simply serving as a conduit for broadcasting funds transferred by the national parties and then spent on broadcast activities rather than grass-roots activities.

COMM. THOMAS: Thank you. The issue of national party committee officials or federal government officials or candidates being able to solicit money for nonprofits comes to bear in the area of host committee activity. And I see we have some difference of opinion over whether the BCRA provisions would in some fashion prevent national party committee folks or federal candidates or officials from soliciting money for the host committees. I gather it comes down to a debate over whether what the host committees will be doing involves some sort of action in connection with federal elections. Do you all want to enlighten us a little bit on that, please?

MR. POTTER: I assume you mean the convention host committees?

COMM. THOMAS: The convention host committees, yes.

MR. POTTER: I would beg off slightly in saying that I'm hoping that the commission's going to have a whole separate rule-making process on convention funding and I think that's going to depend on parsing out the different entities. I saw comments from party committees on that but am hoping the commission will give that due scope in what I understand to be a separate rule-making coming up.

MR. SIMON: I also will wait for the commission's consideration and subsequent round of rule-making. My initial reaction is that it's just not a credible position to treat host committees that are intimately involved in political party conventions as operating not in connection with an election.

MR. POTTER: We have the same view. We urge the commission, though, to get to those regulations quickly because the parties obviously are gearing up. But I also approach it with the idea that they were established by the party committees or they are established by the party committees and that they're not independent.

COMM. THOMAS: How am I doing on time, Mr. Chairman?

CHMN. MASON: Your green light is still blinking.

COMM. THOMAS: Your quick reaction on the Internet issue. You all have made reference to it but some of your comments were somewhat elliptical and I'm not quite clear. Can you give us a guideline response as to whether we ought to be considering Internet communications to be part of the general public political advertising concept?

MR. POTTER: Let me try to reach out for what is clearly now the third rail of campaign finance law. My view, as I tried to explain in the center's comments, is that there are sections of this act, specifically the electioneering communications portion, that exclude the Internet. There are other sections, and I believe that is the party soft money in particular which we're discussing today, that do not exclude the Internet. And therefore if you have a public advertisement, public communication, by a party committee through the Internet I believe it is a form of public communication and thus for the party committee it ought to contain the appropriate disclaimers and be paid for with the appropriate funds depending on what the communication is saying.

MR. SIMON: I think this is an extremely difficult issue in this context and I think it should be assessed in the context of the broader rule-making about the treatment of the Internet under the FCRA, FECA, and now the BCRA that the commission has ongoing. What I worry about in this specific context is the following hypothetical.

Let's say a party committee spends $100,000 producing a video that promotes a candidate. If it broadcasts that video to a million people it's clearly a public communication that promotes a candidate and would fall under the third prong of federal election activity. If it just attached that video as a file to an e-mail and sent that e-mail to a million people you'd want to have the same result because that is a public communication that would effectively result in dissemination of a promotional video.

So I don't think that you can on a per se basis exclude the Internet from the scope of public communication at least in this limited context of that kind of activity by a political party. But it seems to me that these issues are being addressed by the commission in the broader context of its Internet rule-making and should be folded into that.

MR. NOBLE: And I think that while the Internet presents some difficult issues because of the nature of valuing things on the Internet I think it should be treated like you treat every other types of communication and fit under the general rules. I know that's not necessarily a popular position to take and we are an organization that lives on the Internet but the fact is I think that the Internet does not have a special place in the political sphere that it should be exempt from all sorts of rules in order to just foster more political speech. I mean, that can be said of newspapers, that can be said of virtually anything.

So I think the commission's struggle really has to be just how you define certain things, how you value certain things, but as a general proposition I think it should be part ÄÄÄÄ communication otherwise it falls under that definition.

CHMN. MASON: Commissioner Toner.

COMM. TONER: Thank you, Mr. Chairman. I'd like to follow up on a couple of issues that you all have talked about already and then get into a couple of other new areas.

First, ÄÄÄÄ on the Internet and I do recognize that it's quickly becoming the third rail of American politics. I understand that when we had a limited Internet a while back we received over a thousand comments on that. I can only imagine how many we'll get down the road.

But, Mr. Simon, you were indicating that the Internet was a difficult issue but then you talked about some of the policy choices that animate it. And is it fair to say that from your perspective the Internet was not one of the areas of abuse that Congress focused on in passing this law? Is that fair?

MR. SIMON: That Congress focused on? I don't think Congress focused on it.

COMM. TONER: Versus television and radio and other types of communication activities?

MR. SIMON: I think in the course of the floor debates there was much more discussion about broadcast communications than Internet communications.

COMM. TONER: Is that what makes this area a more difficult issue?

MR. SIMON: What makes the Internet a more difficult issue?

COMM. TONER: The fact that it wasn't as much of a focus for Congress, the fact that it hasn't been ÄÄÄÄ maybe some of other types of media?

MR. SIMON: Well, I think what makes it a difficult issue is that it's an emerging technology and some of the implications are not yet clear. I think the reason Congress focused on broadcast ads is that there is a much more fully developed record of what Congress has perceived as problems with broadcast ads.

MR. POTTER: Could I respond to that as well, Commissioner Toner? Again, I want to differentiate between the electioneering communications and other provisions of the act because I think what you've said applies to electioneering communications where Congress exempted a whole range of tools for public communication from those provisions and only addressed TV and radio advertising and I think that is different than when we are dealing with what parties spend their funds on where Congress is addressing public communications in general, newspapers and all the rest, and that's where I'm making my comments where I believe the Internet is as much a tool of communication if used to address the general public as would be a newspaper or a magazine or indeed radio or television.

So in terms of why I think it's difficult I think it's difficult simply because having lived through a series of commission attempts to address this issue it is terrifically important to draw the lines I'm now drawing between commission regulation of Internet activity by individual private citizens using their own computers on the one hand and between much more organized activity or activity that is a general public communication by a party. And I think the risk which you see in some of the comments in this soft money rule- making is that commenters will misperceive that the commission is proposing to address Internet activity by private individuals or by private groups as opposed to by the party committees, which is what this rule-making focuses on.

COMM. TONER: Mr. Noble.

MR. NOBLE: I think that is the difficulty. I don't think the difficulty is that Congress didn't necessarily address it, though that would have helped. I think one of the reasons Congress didn't necessarily address it is because it is the third rail. And the problem is that it, frankly, becomes a very emotional issue for people and a very hot button issue for people and I think what Mr. Potter said is correct, that in addressing it the commission just has to be very clear on what it's addressing and what it's dealing with.

And even though people are going to read anything you say about the Internet broadly and are going to say there goes the FEC trying to close down the Internet I think the FEC just has to be confident where it draws the lines and not be swayed by that because it is such an emotional issue for people. And I'm aware of that, that probably because of the statement I made I'll get 10,000 E-mails this afternoon telling me that I'm trying to close down the Internet.

COMM. TONER: Better you than me. I want to talk for a few minutes about a key issue that I think all of you mentioned in your comments and that is on the one hand BCRA contains a soft money solicitation ban for officeholders, candidates, and national party officers but then on the other hand there is a statutory phrase that allows these same individuals to attend state party fund-raising events as a guest and be a featured guest even and speak there.

Mr. Noble, in your comments as I understand them your view is members certainly should be able to go to the events. It's clear under the statute they can do that. There could be some advance publicity of the fact that they're going to be there, but if they cross the line and do a direct solicitation that'd be another story. Is that a fair assessment?

MR. NOBLE: That's a fair assessment and we recognize that in practice some of this may be difficult. This is one of those areas where Congress regulated where we'll have to see how it works out in practice but I think you have to have a situation where the candidate officeholder is not going to be able to make the solicitation. We understand that people around them may be making solicitations. We also don't think that they should be signing a solicitation or be part of the solicitation when it's mailed out, but that doesn't mean that there aren't going to be solicitations taking place at the event or in the context of the event.

COMM. TONER: And again, sensitive to those concerns you mentioned therefore would you be of a few that it's permissible for a party committee to include in invitation materials the fact that a member is going to be there?

MR. NOBLE: Yes, I think that's going to happen. Yes, I think there's no way to avoid that.

COMM. TONER: A related issue is in terms of what members say at the event. How would you recommend we proceed in that area? Should they generally have the ability to say what they wish to do so politically as long as what they say isn't constituted as solicitation or how should we draw the line in that area?

MR. NOBLE: I think that's pretty much where you're going to have to draw the line, that they're not going to be able to ask or suggest that contributions be given, that they are obviously going to discuss political issues, they're going to say why the election is important, they're going to do a variety of different things, but they're not going to be able to solicit contributions.

Again, as I said, reading the statute I was very aware that what you're going to have is the person coming up before them who's going to talk about the importance of contributing and then the member is going to get up and just speak but that's the way the statute is written.

COMM. TONER: The IRS obviously has very detailed regulations about what constitutes a solicitation, when you need to have a disclaimer in terms of them not being deductible for charitable purposes. Do you think that's an appropriate framework for us to evaluate in terms of when you cross that line?

MR. NOBLE: I think it's something to start. I have to say I haven't looked at it in a little while but from what I remember of it that is a good place to start.

COMM. TONER: Mr. Simon, do you concur with those views?

MR. SIMON: Yes, I think this is another one of the tough lines in the statute. Commissioner Standstrom was talking about another one earlier. I think that the speak, attend, and be a featured guest provision is not meant to be an exemption from the ban on solicitation. I think it is meant to do what it says which is to allow members to attend, speak, and be featured guests but I still think that they're not permitted to solicit.

As Mr. Noble said they can be referred to on the invitation to the event: Congressman Smith will be honored. But I don't think that the invitation can be framed in a way that the member is doing the solicitation.

COMM. TONER: An issue that we're obviously going to have to address is what is the scope of an officeholder in this statutory phrase. Is it your view that officeholder requires the individual to hold elective office?

MR. SIMON: A federal officeholder, a state officeholder?

COMM. TONER: Correct.

MR. SIMON: I guess so. I hadn't thought about that. I guess my offhand reaction is that it would be an elective officeholder.

COMM. TONER: Mr. Potter?

MR. POTTER: I haven't thought about it in great detail. My offhand reaction I think would be that it would be a holder of federal office, including, for instance, a cabinet member. That would be a holder of federal office of the sort you would not want soliciting soft money.

COMM. TONER: How about other individuals who may be employed by the federal government below cabinet level?

MR. POTTER: Absent anything in the legislative history, and I'm trying to think of anything there, I would read that phrase broadly to include somebody who holds federal office.

COMM. TONER: Regardless of rank?

MR. POTTER: Correct.

MR. NOBLE: Commissioner Toner, when we looked at it, and this may be a slight disagreement with Commissioner Potter, we assumed it would come under the definition that now exists in the statute of federal officeholder which is office of the President or Vice President or senator or representative in or delegate or resident commissioner to the Congress which infers they're elected officeholders. That may be something that Commission needs to look at but that is right now the statutory definition.

COMM. TONER: So there may be an argument that we should just track the existing unless the legislative history suggests otherwise?

MR. NOBLE: Correct.

COMM. TONER: Mr. Simon, I want to follow up briefly and I'm going to struggle a little bit with this light system because this is a first for me so please don't hesitate, Mister Chairman, if I've exceeded my time.

CHMN. MASON: You're using your time now.

COMM. TONER: In terms of the transition period for national committee building funds in response to Commissioner Smith's earlier question I just want to make sure I understood where you were coming from. Is it your view that a national committee could prepay for office building expenses with soft dollars even if those expenses are incurred after November 6th?

MR. SIMON: Even if the expenses are incurred?

COMM. TONER: Even if the work is performed after November 6th.

COMM. THOMAS: I'm not sure and I'd want to check to see if there's any legislative history. My understanding had been that if the party had entered into a binding contract and paid the money prior to November 6th then that would be permitted under the terms of the transition provision.

COMM. TONER: If we took that provision would that cause you any concern in terms of acting contrary to the spirit of BCRA?

MR. SIMON: Again, I guess I'd want to check to see whether there's specific discussion in the legislative history on that point. I don't know of any offhand.

COMM. TONER: Because what we'd essentially be endorsing is the prepayment of soft dollars for activities that occurred right after the enactment of BCRA.

MR. SIMON: I understand that except the actual payment of the money would be prior to the effective date so that it's not that the party would be in a position of disbursing soft money after the effective date.

COMM. TONER: Would you take the view that we should permit prepayment of other types of expenses?

MR. SIMON: No, because I think the building fund exemption is a specific limited topic and it formed that in the legislation and in the discussion about the legislation.

COMM. TONER: Mr. Noble?

MR. NOBLE: When I first looked this I'd assumed it would be like if I was to go out and contract for something you occasionally contract for in advance, but given the reality of the party committees and the way the building fund is used, and this is not the way I originally approached it, but I could see the FEC deciding not to allow prepayment, that it could be a way as in other areas to get around the rules that they all of a sudden prepay $20 million or $100 million on a building that's not going to be built for four years. So I think that is something the FEC has within its authority.

COMM. TONER: Mr. Potter?

MR. POTTER: In general I agree and have already stated that I think prepayment of expenses for future elections is not permitted by the act. This particular provision I think as we all recognize has a highly unusual bit of legislative history.

COMM. TONER: Under cover of darkness.

MR. POTTER: Given the role it played in the somewhat Byzantine maneuvering definitely under the cover of darkness and in the wee hours of the morning.

COMM. McDONALD: What's unusual about that?

MR. POTTER: It is among other things the one piece of the act, I believe, that was put in by persons who otherwise opposed the act. So the legislative history on this provision is a little cloudier, at least.

My recollection of that debate for what it's worth is that one of the arguments against allowing party committees to continue to maintain building funds after the election, which was how the act was originally proposed, is that they would then be able to use those funds or borrow against them for federal election activity during this course of this fall's election, pay it off afterwards, and still have the money sitting in the building funds thereafter to pay for their building so they would be using it twice.

I note that by way of saying that if they have in fact spent the money before the election for building activity they have therefore not done what Congress feared, which is borrow against it and have it afterwards as well, so there would at least be that argument that Congress was in favor of them spending the building fund money before the election for building activity because it meant they were not otherwise using it in some complicated form for federal election activity.

COMM. TONER: Thank you, Mister Chairman.

CHMN. MASON: Commissioner McDonald?

COMM. McDONALD: Mister Chairman, thank you, and again let me thank all the witnesses. It's good to see old friends here and we appreciate you coming.

I apologize. I'm just about to lose my voice, which I'm sure will make no one unhappy, but let me ask a couple of questions and then have an observation or two.

One of the things that I'm extremely interested in is the whole business of congressional intent because as I see my responsibility it is to try as closely as I possibly can to arrive at a decision based on what Congress intended. Whether I agree with the Congress or disagree I find almost irrelevant in one sense, which is we're creatures of Congress. This has been debated at least the 20 years I've been in this town and I would like for any one of the panel members other than the letters which we've received which are important, by the way, but I want to be sure that I understand something that any of the panel members could point to in terms of I wouldn't call it a binding effect necessarily but at least if we don't have legislative history and a colloquy on the floor of either house what do we look to?

Maybe I'll start with our former general counsel. That would be the most fair. Larry, what do we look to in that sense from a legal perspective?

MR. NOBLE: I think it's the problem the Commission has always faced. You obviously start with the words of the statute and then as you noted you go to the legislative history of what is said on the floor. I think what the members have submitted in the context of this rule making is very important and should be given tremendous weight.

And then I also think it's all done also in the context of what the overall intent of the act is, what the purpose of the act is, and that's the point I tried to make in my opening is that it is clear from the legislative history and the structure of the act that their intent for the national party committees was to ban them from raising or spending soft money, period.

Then when you get to the state party committees the intent was somewhat more complicated but it's still pretty clear in terms of limiting the use of soft money and requiring the use of either federal money or Levin money, which is a different from of federal money for certain types of activity.

I think you have all that you throw into the mix and come out where you are, always using that as a guide star of where you're trying to go on this. So I would start with the face of the statute, the legislative history as it exists now, the comments of the members, the comments of others like ourselves, and the general goals of the statute.

I think this is what you have faced for 20-something years now, for 25 or 26 years now, in terms of looking at legislation. Even the original FECA doesn't have necessarily great legislative history. I remember a number of times we'd look at things and just could not find something in the legislative history of a provision and you just have take it from there.

COMM. McDONALD: Well, I've said both publicly and privately that we do have an advantage which is that unlike 25 years ago the members are right down the street and, as some of my colleagues have pointed out, we've had a submission by a few of the members but, of course, they're the key members, it appears to me.

What we have not had is people that voted for the bill saying that these comments by the key members aren't correct, and I'm surprised one of you didn't point that out. I'm really worried with a table full of lawyers why you just didn't jump all over that. I'm very stunned. Trevor, what's your sense of that?

MR. POTTER: I think first off, there are extensive parts of the legislative history that talk about the broad purposes of the act so it isn't as if we are sitting here wondering what Congress was trying to do with the act in general; that we know. So then you look at a specific provision where there was not legislative floor debate, and I think you attempt to figure out how that provision fits into what we know already of the broad purposes of Congress, to get the national parties out of the soft money business, to have state parties spend federal funds for federal elections, et cetera.

I think looked at that way a lot of it isn't a particular mystery because a provision that's not otherwise commented on fits neatly within an attempt to make sure that state parties are only using federal funds for federal elections.

I do also think that the quite comprehensive comments by Senators McCain, Feingold, Shays, Meehan, the main sponsors of the bills in the two chambers, should be helpful to the Commission.

COMM. McDONALD: As a legal matter can you point to something that would aid and assist me in that regard? We've been looking and I'm trying to find out. It appears at least at first blush that I don't find many if any circumstances where a court would give an after the fact weight to comments that are made. Is there something specific that you could point to that would help us?

MR. POTTER: I think the answer is that you are not a court. You are an administrative agency. You have requested public comments. You have public comments from the sponsors of the bill explaining what they were doing. I think you're entitled to take those at face value. I agree, of course, with Commissioner Smith that you would not be able to use the comments from the four sponsors to trump the clear language of the bill if the language were different but I think you are entitled to take notice of the fact that these were the persons who drafted the bill and therefore they are presumed to know why something is in it if it's part of their bill.

COMM. McDONALD: Don, let me switch gears and ask you about the Levin amendment if I could. What is your interpretation of what it means? Does it coincide with Larry's? I wasn't sure what Larry's position was, whether he had just thrown in the towel. What is your position on the Levin amendment?

MR. NOBLE: No, I think the Levin amendment is very specific. I think at this point we have four different types of money in elections. We have the pure hard money. We have the Levin amendment money, which is restricted in terms of what it can be used for and the amounts that can be raised for it. Then we have what I would call the nonfederal hard money, which is money that has to be raised under limitations and prohibitions but can be used for nonfederal purposes. Then you have the pure soft money.

I think the act is very specific on it. I wasn't throwing in the towel on it. I just think that you have to be careful as you look at these various areas in terms of what Congress is trying to do. I think what the Levin amendment reflects was obviously a compromise but an attempt in some ways to keep to the purposes of the act but recognize, and I think Mr. Simon said earlier, the reality of the party committees feeling threatened by this.

So I think all provisions of the law are important, and I think the job of the Commission is to just to make sure it puts activity in the appropriate category. The Levin amendment is going to become a very category of activity and is going to become either for better or worse a way that a lot of people are going to put money into the process.

COMM. McDONALD: Don?

MR. SIMON: I view the Levin amendment in the context I talked about before, that for many years that this will was considered in the House or the Senate and it would pass one and would be blocked in the other this part of the bill required state parties to spend 100 percent hard money for prongs one and two of federal election activities and it was very late in the process where the Levin amendment was introduced.

It changed. It was passed initially in the Senate in one form and then changed when it subsequently passed the House. Then when it came back to the Senate the Senate adopted the House changed version.

I think the point of Senator Levin was to give state parties more leeway in raising funds for the prong one and two activities to make it easier for state parties to engage in those activities and therefore state committees are allowed to accept up to $10,000 from any source, even a source prohibited under federal law, subject to state law if state law allows it and to spend that money under a system of allocation to be created by the Commission in this rule making.

That was essentially what was adopted by the Senate. When it went over to the House I think there was concern that this opened a potentially wide loophole, and on the House side a number of what I've always viewed as fences was put around the raising and spending of Levin money by the state parties.

I think it's important for the Commission to give full effect to those fences. For instance, the Levin activity cannot refer to a federal candidate. The Levin activity cannot be in the form of broadcast. Very importantly, each particular state party committee that engages in Levin activity has to raise its own Levin money, both the Levin part of it, the contributions up to $10,000, and also the federal match for the allocation. The state party committees cannot accept transfers of either the Levin funds or the hard money. They cannot engage in joint funding activities.

In other words, there's a whole series of restrictions built around the use of Levin money by the state parties, and I think what you end up with really is a balance and I think Congress engaged in a difficult and arguably somewhat cumbersome balancing process of on the one hand trying to open up some ability for state parties to be able to raise more money for these prong one and two activities but to be very careful in giving state parties that additional room not to create or replicate the very soft money problems that the statute as a whole is trying to solve.

COMM. McDONALD: Mister Chairman, just one last very quick question to my old friend, Mr. Potter. I've read a lot of things you've had to say about various and sundry aspects of the law and of the Commission and, as you know, some of my detractors say I've been here much too long.

My question for you is just a philosophical one. You were here about three years, about half a term, before you went back to your old firm. In reflecting back do you think you should have stayed longer for the battle?

MR. POTTER: This was such a long battle, Commissioner McDonald, that even had I stayed I think I would have been through my second term by the time we got to this point but I think the Commission has a vitally important role at this point.

It's taken a long while to get this bill through Congress. It's gone through several sessions. I've enjoyed participating in the public discussion of all this as Congress is looking at what to do but, as I indicated in my opening statements, now Congress has done it and I think its successful implementation depends on the people at the Commission.

You don't have a blank slate. You've got very clear congressional purposes. But even so I think its success depends on the outcome of this rule making.

CHMN. MASON: I had first a question for Mr. Simon. On page 37 of your testimony you say that fund raising which even in part is directed to raise federal funds must be paid for entirely with federal funds. Mr. Noble and Mr. Sanford on page 13 and subsequent points in their testimony say fund raising expenses should be allocated between the party committees through accounts using the funds received method as discussed further below, which is, as both of them know, generally the way we treated fund raising events where you have the same party committee, not joint events but the same committee raising both hard and soft money or now, looking in the future, hard, soft, and Levin money potentially at the same event or through the same mailing.

Could the two of you help me work out which is the case?

MR. SIMON: Maybe you've demonstrated we don't always agree with each other. I actually was basing my comment on what I think is a straightforward interpretation of what will be 441(i)(C), which says an amount spent by a person described in Subsection (a), which would be the national party committee, or (b), which would be a state committee, an amount spent by a person to raise funds used in whole or in part for expenditures and disbursements for federal election activity shall be made from funds subject to the act.

So I think the best reading of that language is that if a party committee is engaged in fund raising and the funds that it's raising are going to be used for expenditures or for any one of the federal election activities it has pay for the entire cost of the fund raising with federal funds.

CHMN. MASON: Mr. Noble?

MR. NOBLE: I'd like to turn this over to Paul.

MR. SANFORD: My initial thought may be that our position reflects the extended time I spend with the allocation rules, which I'm sure you're all aware of, so maybe I'm a little too vested in the way things have been done historically and therefore suggest that the Commission continue to use that approach.

But I think it also reflects a belief that generally the federal election activity definition subsumes a range of what have historically been previously allocable activities and fund-raising expenses is not one of those. I think there's general agreement. I don't want to put too many words into people's mouths but the funds received ÄÄÄÄ allocation has generally worked.

So the fact that there's an additional category of funds that are going to be raised doesn't necessarily mean that that method of allocation isn't just as valid.

CHMN. MASON: Thank you both. I just want to make the point all three of you here would more or less say you are representing, if you will, and I don't want to put too much into it, the true believers, the supporters version of this and while you're obviously not formally representing the sponsors of the legislation for what reasons I don't know I think it illustrates that, as Commissioner McDonald was pointing out, Commissioner Smith said this beast of congressional intent is not necessarily easy to pin down and even among the three of you on a fairly critical point we have at least at first blush conflicting interpretations.

So I think it's just a point for me to keep in mind as we move through these other areas of the act, and one of the things that bother me is what we are to do in places where we just don't have any guidance.

For instance, I want to ask specifically Mr. Simon and Mr. Potter both to address promote, support, attack, or oppose and both refer back to the electioneering message standard that at one time had been used by the Commission. I know Mr. Sanford is particularly familiar with that and Mr. Noble, of course, too.

I'm particularly interested in whether any of you can cite to anywhere in the record of debate in Congress where the advisory opinions underlying that standard or that standard itself was cited to or addressed.

MR. POTTER: I have two comments if I could, Mister Chairman. One is, going back to the question of fund-raising costs, I believe that the members of Congress in their extensive written comments did address that issue and said that they believed that was correctly interpreted to say that federal funds had to be used to raise the --

CHMN. MASON: They said that in their comments but not prior to passage of the bill.

MR. POTTER: I believe that would be one of the areas where they were explaining their intent in their comments to the Commission, yes.

MR. SIMON: That's a good question. I am not familiar, although I haven't specifically looked at the question, offhand where either the use of the term "electioneering message" or reference to the 1984-1985 series of advisory opinions was cited as the underpinning of the promote, support phase in the statute.

When I cited that in my comments I was basically just arguing essentially by analogy. I was trying to make the argument that that's what I think the term should be construed to mean and I was trying by reference to preexisting body of Commission law suggest a way for you to apply that term.

CHMN. MASON: I appreciate all that and I might want to go on to a couple of other points and I think your positions are well argued but in contrast to the coordination provision, for instance, where it specifically addressed the Commission's regulation it was discussed in some detail and we can look. Here we just didn't have that and I'm going to take your comments to indicate that you're not aware of any such discussions that we can look to in the record prior to passage of the bill. Mr. Shore?

MR. SHORE: Mister Chairman, while I am not aware of an instance where the members in their discussion of this issue on the Senate or House floor expressly cited electioneering message test I think probably on March 20th in the Senate the members did discuss this provision and their intent with respect to this provision to require hard money financing for these public communications dimension federal candidates, and so the members used the term "promote, support, attack, or oppose," and I would assume that the members in using that terminology intended that it be given its plain meaning.

MR. POTTER: If I could answer your question about our comments I don't think they suggested and I did not mean them to suggest that the Commission was required by Congress to use the electioneering test from its old advisory opinions. What I did mean is to say that the Commission in the past has had experience dealing with language that was attempting to catch communications broader than just express advocacy. An example is clearly the electioneering test in the past. I think that could be a useful source of language to address this.

But the point I was making is that what Congress did intend and what I think they said clearly is that this was supposed to be broader than expressed advocacy and therefore the Commission is going to have implement that broader language.

CHMN. MASON: I appreciate that. Let me ask quickly on reporting of Levin funds at least one of you addressed it specifically and I think we read the statute as requiring pretty clearly reporting of Levin funds including itemization as outlined in the statute to the Commission. How does that affect the reporting of those same funds to the state campaign finance disclosure agencies?

MR. POTTER: I'm not sure I've got the question.

CHMN. MASON: In other words these funds are to be reported under the act as amended by BCRA. They have to be reported to the FEC.

MR. POTTER: But they're also state money so they'd also be reported to the state --

CHMN. MASON: Well, that's my question.

MR. POTTER: Well, they're funds raised under state law.

CHMN. MASON: They're funds raised under state law but normally we read the preemption provision as saying that funds raised pursuant to federal law and reported to us cannot also be regulated by the states.

Let me go one further just so you can see where I'm going. It's been represented to us in other comments that there are some state laws that conflict with this provision. Some states allow political parties to have only one account, and if they come in and we say we require two accounts what's going to happen?

MR. POTTER: I think the answer is that federal law where it is specific as to the obligations of state parties would preempt. When it is not specific then state law would govern. For instance, this says that state parties may use as their portion of the Levin expenses funds raised pursuant to state law. Commissioner Thomas noted earlier that the statute allows any person, which would include a corporation or labor union, to contribute to these funds but only subject to the provisions of state law so that if you have a state like Massachusetts that doesn't allow corporations or labor unions to contribute then they don't have that money in their Levin account in the first place and I think in order for the states to enforce that provision of state law they would also need to know what funds are in that account.

MR. NOBLE: If I may, Mister Chairman, I think obviously the agency is going to have to revisit the issue of preemption. I think what you were getting at if you go under the theory that the Commission has used very often, which is the occupying the field theory, then the argument would be that the states cannot impose any other restrictions even if they do not conflict with the Levin reporting.

In many instances the agency has used occupying the field, especially when it comes to reporting in part under the old law because of the congressional intent that members not have multiple reporting obligations to both the federal agency and to the states.

Now we're dealing with state party committees and if you use a conflict theory, which Mr. Potter I think was referring to, then the question would be does the state law conflict with it and requiring separate reporting under the state law would not necessarily conflict with it, though in the instance that you pose where the state law may prohibit a separate account then it would conflict with the federal law and it would have to give way.

I think that there may be good policy reasons here to take a conflict scenario with regard to preemption but I would have to acknowledge that that runs somewhat contrary to the way the Commission has dealt with reporting. If the Commission follows its preview views of the reporting then you do have an occupying the field situation which would then say the states can't require separate reporting.

CHMN. MASON: I'm going at this time to recognize the general counsel's office for a round of questions. I don't know, Larry, any way you want to handle it.

MR. NORTON: Thank you, Mister Chairman. Good morning. I wanted to go back to a question that Commissioner Smith asked earlier where he referred to a floor statement by Senator McCain that's cited in one of the party comments and in the letter we received yesterday that suggests that so-called leadership PACs may maintain a separate nonfederal account for support of state and local candidates and that an individual who contributes $5,000 to the federal account of that leadership PAC may also contribute another $5,000 to the nonfederal account.

I note that this statute doesn't use the phrase "leadership PAC." There is no provision that at least clearly in my view authorizes a second account and indeed there is a general prohibition on federal candidates raising soft money, which is at least by one definition money raised above the limits imposed by federal law.

Commissioner Potter had responded to this question but I'd be interested in whether Mr. Simon or Mr. Noble has a view as to whether it is in fact a fair reading of the statute that leadership PACs are authorized to raise not $5,000 but in fact $10,000 by maintaining separate accounts.

MR. NOBLE: Even being fully aware of the statement that Senator McCain stated and believing that you could read the statute consistent with Senator McCain's statement I also think you can read the statute to say that leadership PACs cannot have separate nonfederal accounts. They cannot double their contribution limits. So I think it's obviously an arguable point.

Without Senator McCain's statement I would say without a doubt that the statute does not allow what we're calling leadership PACs to have separate, in effect, nonfederal hard money accounts, which is what they are.

I think the main point that we're trying to make here or I would like to make here is that regardless of how the Commission comes out on that there is no indication at all that the national party committees should be allowed to double their contribution limits, which some of the national party committees are suggesting.

So the leadership PACs present one problem, applying that to every situation presents a wholly different problem, but I think the Commission could decide that the face of the statute does not allow leadership PACs to have separate accounts.

MR. SIMON: I agree. This question comes up under Subsection (e) which is intended to allow federal candidates to raise not only hard money, money in connection with federal elections, but also raise money in connection with nonfederal elections but subject to federal rules.

Now, that's a clear statutory grant of authority to candidates. I think it's a reach to say well, that means a leadership PAC can maintain this sort of hard money nonfederal account. So I come at this with the approach that the better reading is that such accounts will not be permitted but in any event that whole discussion is very clearly a function of Subsection (e) and not of Subsection (a), which is the provision related to national party committees, and there's just no support whatsoever in the statute for the notion that national party committees can maintain this sort of account.

MR. POTTER: Mr. Norton, if I could also add to the earlier comments on that I think Senator McCain in his floor comments was responding to an outcome, a fact of the law. As Don Simon has indicated, the law does contain a provision, I believe put there for other purposes, that enables a federal candidate to solicit funds for state and local activity within federal limits. But I think what Senator McCain was recognizing is that the effect of that provision is that a federal candidate could solicit funds for the state and local account of a political organization even if it were a so-called leadership PAC.

So I have two comments. One is that I think the state and local provision in the solicitation language is narrower than the more generic nonfederal account language and I would draw that to your attention because it specifically says you can solicit the funds for the state and local activities, elections, not for a whole grab bag of activity that is simply not federal. I think those funds under this statute under that provision would actually have to be used for state and local elections. That would be point one.

Point two is a personal point that I have made over the years. I've been unsuccessful but I'll try again. As you correctly note, there is nothing in the statute that establishes leadership PACs. I have long thought that the affiliation provision actually would have made such organizations if under the control of the candidate affiliated with the candidate's principal campaign committee and subject to common limits the Commission could always take that approach.

MR. NORTON: Thank you. I wanted to come back to I think the spirit behind some questions that Commissioner Sandstrom was asking earlier in an attempt to distinguish GOTV from campaign activity. His example involved the distribution by volunteers of pamphlets.

Mr. Simon, you said that whatever the problem is it's not a problem created by the statute, the concept of GOTV has been around a long time, and I certainly agree with that although I think what we're struggling with is that the stakes of failing to define it here are to federalize all kinds of activity under BCRA, all kinds of campaign activity that might not be something that should fall under the category.

For example, under the definition of federal election activity there's an exception for excluded activity and that's a public communication paid for by a state or local party that mentions only a state or local candidate, although that presumably could be a federal election activity if it constituted GOTV or voter registration. What I'm interested in is whether you can help us understand how to distinguish candidate advocacy from GOTV in this context. In other words what attributes might a public communication have that could turn it into GOTV?

MR. SIMON: As I said before, that's one of the two or three toughest lines in the statute and I think it is a hard question. My view of it is that the Commission should be significantly informed by best practice and by its application of law over the last two decades on what I think is the virtually identical line that has been in the Part 106 regulations since their adoption.

In a broader sense I think what Congress is doing in the statute is looking at the way the soft money system has operated under the Commission's allocation regulations and seeing there are categories of activity by state parties which were not subject to allocation because they were just pure nonfederal state candidate sorts of advocacy, seeing another set of activities which were subject to allocation as federal registration or GOTV activities, and essentially in the statute saying that bundle, that collection, of activities which under long-standing Commission regulations has been subject to allocation we now want treated a different way.

The first sense in which they want it treated for many iterations of the bill was that those activities were going to be paid for 100 percent with hard money. As the law ended up those become Levin activities but, again, I think the best frame of reference here is not that Congress was thinking about some new definition of get out the vote activities created for purposes of the statute but merely taking the bundle of activities that have long been demarcated by the Commission's regulations and requiring a different treatment for those same activities.

MR. NORTON: Let me finish with a question about promote, support, attack or oppose. I agree the all the comments were particularly helpful and illuminating. Here I feel the commission is left a bit more to its own devices. The suggestion was made, I think in your comments, Mr. Simon, and it may be in the others that the words, "promote, support, attack or oppose" speak for themselves and do not need to be defined by the regulations. I think the same language appears in the submission by the sponsors. My question is whether if the commission were to decide not to issue any regulations that attempt to define those terms any further is it your view, any of the witnesses, that that will provide sufficient notice or guidance to political actors?

MR. SIMON: It certainly is my view that it would. At some point the exercise becomes merely one of going to the thesaurus and looking up synonyms for words in the statute and, I mean, that's a doable activity. I'm not sure how much actual guidance it would provide.

I think two things are important here. First, I think there is a very clear intent in this part of the statute that this provision extend beyond express advocacy and this is an area where Congress was absolutely explicit in saying that the third prong of the federal election activity, public communications that promote or support a candidate, notwithstanding whether they continue to express advocacy I think the problem with the proposed definition is that it is based on the model of an express advocacy definition and inherently is to limit it and I think Congress was intending to capture something broader here.

The second point, and this may cause Commissioner Smith to levitate, but I think it's clear in the Supreme Court's decision in {IOn}Buckley{IOff} that the kind of precise, clear line drawing that the court required in creating the express advocacy gloss on the original FECA is not required in the case of spending by political committees and candidates and I think the court was quite explicit in saying that when you're dealing with political committees and candidates, political committees who have a major purpose or influence in federal elections, that their activities by definition are campaign-related and it's only when you're dealing with nonpolitical committees, noncandidates, entities whose major purpose is not to engage in federal election activity, that there is a need for the kind of bright line test which the court in {IOn}Buckley{IOff} created the express advocacy standard for and which this statute creates a different but I believe equally bright line testing in Title II.

So even though there is some argument that the promote, support standard doesn't create the kind of crystal clarity, sharp line-drawing that the express advocacy standard does I certainly don't think it's necessary in this context.

MR. POTTER: If I could add to that, I think additionally, Mr. Norton, that it's important to emphasize that what we are talking about here is speech by party committees. I agree with Mr. Simon's comments on {IOn}Buckley{IOff}. They can engage in this speech. This is not a prohibition on speech. This is a question of how that speech is funded and which account is used.

The commission over a number of years has entertained advisory opinions from political committees that have similar questions both in the electioneering communication history of advisory opinions and in terms of a number of other advisory opinions under the allocation regulations and therefore I think you have the flexibility here if you chose to to go with the statutory words knowing that you might get specific advisory opinions about accounting issues and indeed the commission has in the past allowed committees after the fact to revise their accounting based on advisory opinions so I think it doesn't in the same sense require an absolute line up front.

MR. NOBLE: Mr. Norton, I'll make it very brief because I fully agree with Mr. Potter and Mr. Simon about the idea that we're talking about party committees here so it's a very different constitutional issue. My experience in this area has been that occasionally there is a tendency to get into a game that young children play which is the "why" game that no matter what you say to them they say "why" and you give them an answer and they say "why" and then eventually you have to say because and I think that sometimes happens with language which is that well, what do you mean. What do you mean? And what we said in our comments is that we think it's specific enough. Go forward with it.

You're always going to be able to play a game or somebody on the other side is always going to be able to play the game of what does that mean. What does that mean? And the English language is limited to a certain extent in terms of being able to define things and you just have to move forward and here in the context of actors who are only undertaking political activity it's a much easier game just to say at some point this is the definition and this is what we're going with.

COMM. SANDSTROM: Would the general counsel just yield just for one minor point?

CHMN. MASON: His time is up and I am going to recognize the staff director but go ahead, Commissioner.

COMM. SANDSTROM: This applies to tens of thousands of state and local candidates and not just the political parties.

MR. NOBLE: Right, well, all political actors. I'm sorry. I used the shorthand. But people who are involved in politics, who are doing something that is by definition political.

CHMN. MASON: Jim Pehrkon.

MR. PEHRKON: Mr. Chairman, thank you. Commissioner Potter, Mr. Simon, Mr. Noble, Mr. Sanford and Mr. Shore, thank you for appearing before the Commission and for the detailed comments you've submitted for the record. I'm going to follow up on an earlier question by the Chairman and both the sponsors of this legislation and the Center for Responsive Politics indicated in their comments that they endorse the establishment of separate Levin accounts.

On the other hand we have received any one of a number of other comments which suggest that that may not be necessary. There may be good reasons for them and some of the comments said they are wise, they are prudent, good business practice, but the option should still be available in order for the state parties to make that decision.

One of the explanations for having this has already been indicated by the Chairman which you've responded to and that it's in the area of there may be a conflict with state law. But some of the other explanations that they gave is this is an onerous and burdensome activity for some of the smaller committees and that in addition to that just the mere size and magnitude differs from various state and local parties so you may want to consider other options.

In view of these comments do you see any other alternatives to the requirement to establish separate Levin accounts, for example, consideration, using the advisory opinion process where a state or local party could come forward with a specific accounting practice which the commission could then decide on, something that may lay out a daily ledger of activity?

I'll give you another example and then you can go from there. Or whether we just establish standards that these would have to adhere to. But is there any other alternative that may be available?

MR. SIMON: Well, I think one alternative is for the state parties to spend just federal money on these activities. In other words, the Levin amendment is an amendment that was put into the law for the benefit of the state party committees to give them more flexibility. They are not bound to avail themselves of that flexibility but if they do and they want to engage in the more permissive rules of the Levin amendment I actually think it is important that they create separate Levin accounts because I think it's an enforcement matter. As I said before, the Levin amendment as it ultimately emerged was a compromise between competing considerations on the one hand allowing this greater flexibility to the state and local parties on the other hand not wanting to run the risk of allowing those activ