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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 activities to devolve into the same abuses that the legislation was trying to end.

So I think the various fences and restrictions around the Levin activities are very important and the enforcement of those restrictions is very important and it seems to me that as a matter of enforcement and oversight of those accounts it will be a much, much easier job for the Commission to require separate accounts.

MR. NOBLE: Our position about requiring separate Levin accounts was one very much out of my past experience. I think you have a situation here where you can nip a potential problem in the bud from the beginning by just saying you are required to have separate Levin accounts. If you start going down the accounting rules, first of all, I think it's arguable whether that the AO process is easier than telling them to set up a separate Levin account. Each one having to come in for an AO may be more difficult.

But I think that what tends to happen when you don't have something like a Levin account is that everybody comes in with their own reasonable accounting method and what we've seen is then the Commission is faced with the question of whether something is reasonable and whether in this case we can let it go and then somebody says well, you let that one go; now you have to let this accounting method go.

And then it really starts falling into a situation where the ends start justifying whatever accounting method they want to adopt. I'm sympathetic to the local party committees talking about having to have separate Levin accounts but it's really not that difficult. It will take care of a lot of the reporting problems. As Mr. Simon said, it will avoid a lot of the problems that will come up in terms of loopholes in the act, a lot of questions that will come up, and I think if the Commission sets that standard right now everybody will adopt to it.

I think if you don't set that standard now of having the separate Levin account, if you allow them to use reasonable accounting methods of even if you put in standard accounting methods of some sort as we've seen recently with Arthur Andersen and others there maybe arguments on what a standard accounting method is. If you do that it's almost impossible to go back because they are all going to then later say to you well, we got used to doing it this way. Why are you telling us to do separate accounting? This is something I think is very important for the Commission to set the standard up early and say you need separate Levin accounts. It will avoid a lot of problems in the future and will avoid a lot of AOs and a lot of confusion.

As we saw when the Commission ten years ago adopted new allocation regulations, everybody complained about how difficult they were, everybody said they wouldn't be able to do it, and several years later they were saying to the Commission don't adjust them, we figured it out, we've got them working now, and I think you'll run into the same thing here.

MR. PEHRKON: My sense is also that when you look at the Levin accounts you consider them as absolute, that anybody who is going to participate in this activity needs to establish an account and it shouldn't be based upon any threshold of activity.

MR. NOBLE: Correct. In several places in the comments the Commission asks about de minimus activity. Our overall feeling on that is that the statute does not have any de minimus standard in there and the Commission should not adopt one. I say that recognizing that in enforcement, there is prosecutorial discretion and there may be situations in enforcement where the Commission doesn't go after something because it's de minimus amount or sends them a warning letter or puts somebody through the ADR process. But I don't think in this area or in other areas the Commission should add a de minimus standard to the regulations.

MR. PEHRKON: Changing course for a second, is there any reason why federal election activity should not be included in the threshold for electronic filing? I know I'm totally changing the topic.

The threshold for electronic filing is $50,000. Is there any reason why this activity should not be counted toward that threshold?

MR. NOBLE: I can't think of any off the top of my head.

MR. PEHRKON: Well, your comments also said that you didn't.

MR. POTTER: No, I would think it should be counted.

MR. PEHRKON: Mr. Chairman, thank you.

CHMN. MASON: Thank you. I have a request from the Vice Chairman for a follow-up question or two and several Commissioners. Do you want to informally do this or should I give us a few minutes a piece or what's our desire? We'll try two minutes apiece and go from there.

COMM. McDONALD: Two-minute warning Mr. Chairman?

CHMN. MASON: Two-minute warning. Vice Chairman Sandstrom.

COMM. SANDSTROM: I think we're just scratching the surface regarding a number of questions with respect to, like, finance maintained or control. For instance, if the Log Cabin Republicans of Miami, the one whose members on the Dade County Republic Executive Committee wanted to register voters in the gay bars of Miami, could that be activities swept into the state party?

MR. POTTER: So your question is are the Log Cabin Republicans of Miami established, maintained, financed, or controlled by the state party?

COMM. SANDSTROM: Yes.

MR. POTTER: I think that's a factual question.

COMM. SANDSTROM: I'm just saying the only connection is one of them is a member of the executive committee.

MR. POTTER: Your only connection is one of them is a member of the executive committee? I wouldn't think that qualified as established, maintained, financed, or controlled by the state party.

COMM. SANDSTROM: And so would that also be true, like, of Speaker ÄÄÄÄ New York Assembly Democrats?

MR. POTTER: My answer to this I think on all these hypotheticals, including the earlier ones, the fact that they are fact-specific indicates that you are going to have to look at them on a case by case basis depending on what the circumstances are in each of those cases.

COMM. SANDSTROM: Like Commissioner Toner, I have a problem with doing after the fact adjudications ÄÄÄÄ. Voter identification, is the purchase of any voter file for any purpose covered by that term?

MR. POTTER: I suppose if it weren't used thereafter to contact voters.

COMM. SANDSTROM: Contact voters, I mean, it's going to be used, for instance, for fundraising.

MR. POTTER: I don't know. I have two reactions, one, what's the Commission's current practice on that question, secondly, if it were used solely for fundraising then it would probably a fundraising administrative cost.

COMM. SANDSTROM: One last question as my time expires, legal defense fund. Could, like, Congressman Trafficante raise soft money to pay for his criminal defense and let's say a DNC officer was sued for sexual or age discrimination or RNC officer, could they raise soft money to defend themselves?

MR. POTTER: In the DNC officer one being sued for sexual harassment as a member of the DNC?

COMM. SANDSTROM: Yes.

MR. POTTER: I have to say I haven't given a lot of though to that. I'd have to think about whether they could. I can see arguments on both sides of it but, if I may, this goes to a broader issue.

Mr. Vice Chairman, you said that you don't believe in doing adjudications after the fact. That's the only way you're going to be able to do them is after the fact. That's by their very nature, even judgments after the fact. No matter where you set the law there are going to be factual questions. Unless you're going to come up with a 50 million page regulations you're not going to deal with every possible factual situation that's going to come before you. You can't.

COMM. SANDSTROM: That poses a danger that I think is very grave for the political system if that's the case that we cannot give people sufficiently clear guidance to engage in political activity without them running the risk that we could fine them for crossing the line. That's discouraging of political activity I personally would find very frightening. My time is up. Thank you.

MR. NOBLE: If I could just respond to that. I think you can and will give sufficient guidance. I think you are absolutely right. I agree with you. You have to give sufficient guidance. I don't believe you can answer every factual question that may come up.

CHMN. MASON: Commissioner Smith?

COMM. SMITH: Thank you Mr. Chairman. I just want to make a comment first. I think on the promote, attack, support, oppose, which I referred to by the acronym, the El Paso Clause, is much broader than you've suggested because actually it would affect many, many 501(c) organizations because of the transfer and solicitation limits on political parties. So I do think it's a much more difficult, much broader issue than party committees. But the question that I want to ask here real quick is it's clear that even sometimes when the sponsors of legislation spoke on the floor in their comments there is not an agreement on what congressional intent was and in many cases there is not that kind of speech.

So there are times when the language isn't entirely clear and we have a choice. I think we all recognize that, which way we're going to go, and I just want to ask you about the comments of the Alliance for Justice and the NAACP suggesting that some of the interpretations that your organizations have favored and that the sponsors have suggested would be good would strictly reduce voter registration efforts in minority communities and I wonder what your reaction is to that and should we, given a choice, take the road that does not restrict that kind of activity in traditionally under-represented groups.

MR. POTTER: My initial reaction to that is that obviously it's going to depend on which specific provision they're talking about. The ones that I read and think of in response to your question, Commissioner Smith, are those that involve fundraising by members of Congress and there I think Congress was pretty clear about what members could and could not do depending on whether the organization engaged in federal election activity, whether the organization's principal purpose was to engage in such activity, and it allowed fundraising in those circumstances with limits. And so I think the main effect of that because there was a great deal of discussion about it in Congress during the course of consideration of this bill was to limit the involvement by members in fundraising for outside groups if those groups were engaged in voter registration activity.

COMM. SMITH: Including in minority communities?

MR. POTTER: Any group.

COMM. SMITH: That's the impact, that's what was intended? It was specifically against voter registration in minority communities?

MR. POTTER: It was specifically intended that members of Congress would not be able to fund-raise beyond limits for that activity. It wasn't intended and it didn't restrict the ability of those groups to do it. It restricted the ability of the members to engage themselves as members in that activity.

COMM. SMITH: I suggest that their comments are different but I'm out of time.

MR. SHORE: You'd also have restricted the role of the parties as well.

CHMN. MASON: Commissioner Thomas.

COMM. THOMAS: Thank you, Mr. Chairman. Real quickly, I had started out talking about how we have to be cognizant of the many allowances that are left state and local party committees in particular and that it's premature to have the ÄÄÄÄ party for the party committees but by the same token there are some pretty tough obligations and procedures and processes that this law imposes on party committees in how to set up these various and what not.

One aspect that we need to think about is the registration and reporting responsibility. How would you all deal with the effect of the new category of federal election activity? I read the Center for Responsive Political comments to suggest that even in essence the nonfederal share of federal election activity might be considered as counting toward the political committee registration threshold. I had thought that at most we would want to consider what we would view as the federal share of that kind of activity because only the federal share would fit within what we have traditionally called an expenditure definition and you'd have to peg political committee registration as to whether a committee has raised contributions or made expenditures above certain amounts. How do you all react to that?

MR. SIMON: On my own part I agree with you that the federal part should count against the threshold but the exemptions to expenditures will still apply. Now, a lot of comments raise the point that the exemptions to expenditures should also be treated as exemptions to the definition of federal election activity. I think that's wrong, that activities that are federal election activities even if exempt as expenditures still should be treated as federal election activities under the Levin amendment.

MR. NOBLE: We do believe that you can count federal election activities overall towards reporting requirements and are now being defined as federal election activities. So they broadened the definition of what is being considered federal election activity. If not the very least is you know where you would go to is that specific federal portion of it.

I also agree with Mr. Simon that a the exempt committee exemption does not reach as far as the political committees are suggesting.

COMM. THOMAS: Thank you.

CHMN. MASON: Commissioner Toner?

COMM. TONER: Thank you Mr. Chairman. We are going to hear from the NAACP this afternoon and I do think that their comments are among the most important that we've received. In two important areas that they comment on I just want to get the thoughts of the panel on these issues. One is in terms of how we should construe the directly or indirectly finance, maintain, or control language. They urge us to basically have a temporal element on that phrase and specifically they urge us to create a safe harbor for entities that are established prior to the effective date of BCRA.

In the last page of their comments they make clear that it's their view that if they don't do this the Commission will have the unintended effect of harming nonprofit organizations like the NAACP. I just want to get a sense. Is it basically everyone's view on this panel that we should not go in that direction? Is that fair?

MR. NOBLE: Yes.

MR. SIMON: That's fair for us.

MR. POTTER: I think that there is nothing that I see in the act or the legislative history that would suggest the members of Congress were trying to exempt organizations that were established this year, this summer, funded next fall, et cetera, from these provisions. Instead, I think the members' comments indicate they think there are ways for organizations that are as a matter of fact directly and indirectly established, maintained, financed, or controlled to get out of that over time but that they did in fact intend to have these provisions govern organizations that fit that criterion.

MR. SIMON: Just to take that further, I just might add that if you did do something which I believe would be entirely extrastatutory like just impose a grandfather provision I think it would create an enormous problem of allowing these grandfathered entities to continue the very practices that the legislation is aimed at stopping.

COMM. TONER: And the NAACP raises another point which I'd like your thoughts on and that is they believe that in terms of the transition period any excess soft money the national committees have they should have the ability to donate those to 501(c)(3) organizations. Do you all support that approach or no?

MR. POTTER: My own sense, Commissioner Toner, is that they certainly couldn't donate them to 501(c)(3) organizations that engaged in federal election activities.

COMM. TONER: How about those that don't?

MR. POTTER: Beyond that I think you have a problem there with the plain wording of the statute which was you could only use it to pay off soft money debts incurred for soft money purposes.

COMM. TONER: So you would agree that if you have remaining funds once you've extinguished those debts your choices would be to return the money to the donors or return it to the Treasury?

MR. POTTER: Well that's correct. I think it may present it and put that way in starker terms and the reality is because I think party committees could donate those funds on November 4th when they are going to know what their soft money position is.

COMM. TONER: To qualified 501(c)(3)s?

MR. POTTER: Correct.

COMM. TONER: A question. I know we've talked extensively about agency and it's going to be a major issue we face. One question I have, both national committees have a structure in which state party chairs serve as members of their national committees and the question that we're going to have to confront is are those individuals agents of the national committee. What is your position on that? Mr. Noble?

MR. NOBLE: Going back to the answer I've given you all along, it's going to depend on the specific facts of the situation but I will say I don't believe that they are agents for all purposes of the national party committees. It would depend on the specific issue that you're dealing with.

COMM. TONER: Do you think they could raise bona fide funds for their state parties for nonfederal purposes?

MR. NOBLE: Yes, it's possible, yes.

MR. POTTER: I agree with that. I think it depends. I think those individuals wear in a sense wear two hats and it depends on which of the two hats they're wearing in a particular fundraising activity.

MR. POTTER: In this area I'm a big fan of hats. I think it does depend on which hat they are explicitly wearing.

COMM. SMITH: Maybe if they had two faces.

MR. POTTER: Surely you wouldn't call national party committee members two- faced.

COMM. TONER: Thank you, Mr. Chairman.

CHMN. MASON: Commissioner McDonald?

COMM. McDONALD: Thank you, Mr. Chairman. Well, let me go back to this clarity and notice issue for a minute just in a general sense. I'm assuming that our former general counsel is hardened by the clarity from everyone sitting up here because that's what he was trying to tell us, I gathered, about the Levin amendments and the reporting process. Isn't that what you were trying to explain to us?

MR. NOBLE: Yes, the goal should always be clarity but you're never going to reach perfect clarity in any part of life, I've learned.

COMM. McDONALD: Of course, if you do we'll be out of business but as a practical matter, I mean, your point I gathered earlier on, Larry, was, and I agreed with it, was that in essence if you get into all these variations that's where the problem does begin.

MR. NOBLE: That's right. My comment on the Levin account, you're right, that where you can you come up with a very clear rule but there are certain areas that given the nature, given the facts, given the changing world, that you're not going to be able to deal with every situation.

I mean, very quickly, I'd like to read a quote from the Supreme Court in 1973 in a case that dealt with First Amendment issues: "There are limitations in the English language with the respect to being both specific and manageably brief and it seems to us that although the prohibitions may not satisfy those intent on finding fault at any cost they are set out in terms that the ordinary person exercising ordinary common sense can sufficiently understand and comply with without sacrifice to the public interest."

I think those are good words to go by. What you look at is can the ordinary person using ordinary commons sense understand what's going on, not whether the regulation has deal with every possible factual situation that can arise.

COMM. McDONALD: Well, I'm confident just looking around the room that there is not a snowball's chance in hell that there'll ever be clarity because I've sized up all the lawyers in the room and I'm not of the belief that there will be much clarity. I just think that it is real important because this is a very fundamental issue around this table.

For years we've taken the position, particularly in relationship to new regs, if we incorporate a long laundry list of things people say we're burdening the process. So then you shorten the list and everybody comes back and says well, that's not covered, and that is the fundamental issue around this table.

I can assure everyone in the listening audience that that's a fact and historically it has been true the 20 years I've here. The IRS has been cited here a couple of times this morning. That makes me nervous but nevertheless as a practical matter I know of no regulatory agency that doesn't write volumes of regulations, pamphlets, books to aid and assist your cause and without exception I know of not one. I would ask any of my colleagues to find one between now and 2:00 o'clock.

All these issues are always going to be up for debate. I take the Vice Chairman's point and I agree with him that we ought to always have as much notice as possible. But law does not evolve out of absolute clarity from a regulatory agency. That simply is not going to happen.

These issues are going to be debated and they are going to be debated once the regs are passed and they'll be debated right up until the Supreme Court and my guess is it will be debated after that as well. I think {IOn}Buckley{IOff} probably proved that fairly clearly.

But I think all of you have been extremely helpful this morning and I particularly want to commend the Chairman, who has done an outstanding job and figured it almost to the minute, I think. Thank you, Mr. Chairman.

CHMN. MASON: Well, I'm going to ask one follow-up and maybe counsel and staff director will be a few minutes late.

I want to get back to this agency issue because I thought I understood all of you arguing for something fairly broad, which is to say in Mr. Simon's testimony if we have an individual serving in the fundraising capacity with an honorary title let's take the Bush Pioneers and let's say one of the Bush Pioneers goes out raises money for an organization called Republicans for Clean Air.

I took it that your comments were suggesting well, gee, this person is authorized to raise money for the Bush campaign. He's now gone out and raised money for an electioneering communication and therefore that would be attributable to the Bush campaign. Is that what you meant?

MR. SIMON: I would respond to that by reference to the Commission's existing regulation which defines "agent" to include any person who's been placed in a position within the campaign organization where it would reasonably appear that in the ordinary course of campaign-related activities --

CHMN. MASON: I'm familiar with it. I asked a generic question. You say you need facts and so I'm giving you a situation where we're all pretty aware of the facts.

MR. SIMON: My reaction is that those facts fit within the scope of the definition.

CHMN. MASON: So you think that within that particular instance within the law that that activity should have been attributable to the Bush campaign?

MR. SIMON: Operating in a position where he is an agent of the federal candidate, yes.

MR. POTTER: I do think so, I thought so before, I still think so. I think the distinction I was drawing with the state party chairs is that we need to recognize that there are going to be circumstances where individuals are publicly held out wearing two hats, being in two positions simultaneously.

They are both going to be a state party chair with state responsibilities and by virtue of that position they are going to be a member of the national committee. It seems to me there you would fairly ask which role they were filling and I think that is distinct from a situation where an individual is a fundraiser for a campaign and that is the position they hold.

They then create a new organization to engage in political activity. I think there, absent other information, you would say that they were acting as an agent of the campaign in creating that new organization.

CHMN. MASON: Even if the campaign didn't know about it?

MR. POTTER: Well, they are a part of the campaign.

CHMN. MASON: Mr. Norton?

MR. NORTON: Thank you, Mr. Chairman. I don't have anything further.

CHMN. MASON: Mr. Pehrkon?

MR. PEHRKON: No further comments.

CHMN. MASON: We will be in recess until 2:00 o'clock. Thank you.

(Whereupon, at 12:12 p.m., a luncheon recess was taken.)

A F T E R N O O N S E S S I O N

(2:02 p.m.)

CHMN. MASON: The hearing of the Federal Election Commission on prohibited excessive contributions will come back to order. We have a panel this afternoon consisting of Laurence Gold from the AFL-CIO, Keith Hong representing the NAACP, and Paul Sullivan representing the Latino Coalition and the Taxpayer Network. You gentlemen are familiar to all of us. Welcome back. You'll see we have some little lights up here and those will tell you what your time is like. If you would please summarize your opening comments in about five minutes we'll then go to a round of questions from commissioners, general counsel, staff directors for about ten minutes each, and then we may come back for a second round if there is time.

We've allotted a couple of hours for this panel and the Q&A period is particularly helpful to us. I understand, Ki, you're going to go first?

MR. HONG: Yes.

CHMN. MASON: Go right ahead.

MR. HONG: Thank you, Commissioner. I'm here on behalf of the NAACP National Voter Fund, which is, just to clarify, not the NAACP but an affiliated 501(c)(4) nonprofit organization. The primary purpose for which this entity exists is to increase African American voting participating and to get African Americans out to the polls regardless of party affiliation and on a nonpartisan basis. The NAACP on behalf of the National Voter Fund is also in the business of electoral reform, to make sure that every vote is counted in succeeding elections.

I'm here today because we really have three areas of concern regarding these proposed rules on soft money. The first has to do with the definition of federal election activity, in particular the timing issue relating to GOTV. The act states that for defining federal election activity it should include GOTV activity that is in connection with an election where a federal candidate "appears on the ballot." We believe that the only way to achieve the purpose and the clear meaning of the statute to cover GOTV that is actually engaged in after a federal candidate actually qualifies, i.e., is certified to be on the ballot in a particular state. That's consistent with the plain language of the rule and we believe the intent of the statute as well.

It is also important to note that when reading this in addition to being consistent with the plain language that this provision should be and has to be read narrowly because if it is read broadly it will unduly restrict the ability of nonprofit organizations such as the National Voter Fund from engaging in bona fide and legitimate nonpartisan activity. As I mentioned before, that's the primary purpose of this organization, to get African American voters to the polls regardless of party. And if this provision of GOTV is read too broadly it will unduly restrict that ability.

The second area where we have concern has to do with defining when an entity is established, maintained, financed, or controlled by a party committee. This, too, needs to be read very narrowly and in particular we have concern regarding the financing test, the fact that the rule appears to create as a separate test for this provision whether an entity receives "significant funding" from a party committee. We have concerns there because the purpose behind the statute and what the provision of the statue was trying to get at is really the party committees using a surrogate, an entity, to get around the rule and to create significant funding in and of itself as a test for this standard. It doesn't get to the purpose.

Just because a party committee has given a certain amount of funds to an entity doesn't mean that it is controlling that entity or acting through that entity in any way. We believe that the correct approach to this is to first of all rely on the test of affiliation that's already out there on this provision and to the extent that you want to create a separate test based solely on funding it should be much more than significant funding, whatever that means. And that's the other problem we have with it, it's just too vague as to when a funding is significant and it could unduly ÄÄÄÄ legitimate activity. But if funding is going to be a test in and of itself it should be more than significant. It should be virtually all funding, something that reaches to the level of control that this statute has contemplated under this provision.

The other concern we have regarding this funding test has to do with the timing. Currently under the proposed rules when defining when an entity is significantly funded it actually says at any point, meaning a donation that may have been made by a party committee to a nonprofit organization ÄÄÄÄ could make the entity considered to be maintained or controlled by the party committee. We believe that the statute should only ÄÄÄÄ and in implementing the agency should only care about this provision after the effective date of the statute, which is November 6th, and that what was done before the effective date shouldn't really matter. It creates too much of a look-back and too much of uncertainly as to when an entity would qualify under this.

These are our main concerns. We also commented on the restrictions on the ability of the national party committee to deplete its funds and just in short we believe that they should be allowed to use their funds between November 6 to January 1 to the extent that they are allowed to use it now, which is consistent with the plain language of the statute in particular. Although the statute says that the funds should be used solely to retire debt and to pay the obligations of the soft money account or the nonfederal account it's silent as to what to do with the money after you've paid that and in fact to the extent that you can read in an intent to that silence because the statute explicitly only prohibits the use of that money for use in connection with retirement of federal account debt it strongly implies that anything else should be permitted after retiring the necessary debt of the non- federal account. Thank you.

CHMN. MASON: Thank you. I apologize I didn't go through the light system but you'll get a flashing green light after three minutes and a yellow light after four minutes and a red light after five and please, Larry and Paul, feel free as Ki did to finish your thoughts even when you get the red light. Larry Gold.

MR. GOLD: Thank you, Mr. Chairman. I appreciate the opportunity to testify here on behalf of the AFL-CIO. Our written comments are principally although not exclusively focused on several aspects of the proposed regulations that directly or indirectly implicate the interest or activities of labor organizations, their obligations, and their objectives under the new law. Today in my opening remarks I'd like to focus on just three provisions, the definitions of "agent" and the phrase "directly or indirectly established, maintained, financed, or controlled," and the treatment of the receipt of Levin funds.

The definition of "agent," is, of course, very important throughout Title I and has implications not only for the party committees but also for individuals who participate in party committees and operate principally or otherwise in different capacities. The definition of "agent" is really one of the most important things that the Commission will address and deciding in a regulatory sense what is the scope of the new law.

Principally what we're concerned with are individuals who have positions in party organizations at the national, state, and local level and are officers or agents of the party in one capacity but who principally or substantially operate in different capacities. For example, officers of labor organizations are of immediate concern to AFL-CIO but also officers of other groups and businesses and the like who as a matter of their civic participation participate in party affairs and even have positions in political parties. And it's very important that the regulations as they define "agent" in the many ways that "agent" is used in Title I not overstep what is in fact the person acting on behalf of a party rather than acting on behalf of the organization that may employ him or with respect to which he or she also performs services.

We think that the draft as written pretty well hits on the mark what a good definition of agency ought to be for these purposes. The commission has asked a series of questions and in the explanation and there is a series of questions that obviously arise. We think it is appropriate to limit the notion of agent to actual or express written or oral authority to act on behalf of in this case a party committee. We think it could be refined to say more specifically that it ought to refer to the specific activity for which that person has received actual express written or oral authority. And the Commission ought to be wary of notions of apparent or applied authority because of the multiple capacity concern that I described.

Generally the Commission we believe ought to be guided here by the fact that, of course, what it's regulating here is core First Amendment activity and it ought to be fostering civic involvement in parties by individuals who really act as volunteers even if they are officers or officials often of party groups. And it really needs to recognize that, as the act does throughout, I think, and always has, that different individuals have different capacities and the law regulates them in different ways and just because one is acting on behalf of one group or organization or party at one point does not make that person an agent for all purposes and that person has different rights and obligations as a member of a party committee, a steering committee, let's say, or as an officer of a labor organization guiding the affairs of that labor organization.

The next definition I'd like to address is that for directly or indirectly established, maintained, financed, or controlled. Now, this phrase appears in that way in multiple parts of Title I but doesn't in one spot, that is, in Rule 441ÄÄÄÄ, which describes the limitations of persons who may donate up to $10,000 a year to a state, district, or local committee. This is part of the so-called Levin amendment.

There is no explanation of the difference why the modifier "directly or indirectly" appears in some portions of the statute but not there and the phrase itself already does appear, as the Commission, knows, in 441(a)(5). We think that the effort in the regulation to define what this phrase means is really very confusing and overreaching. It starts with the current 100.5 (g) factors but then goes well beyond in several pages of new definitions or descriptions of what that relationship ought to be and some of these are real hair triggers. Ki Hong just mentioned one, at least, the fact that a significant amount of funding at any point could cause that relationship to spring to life.

The notion of providing any funds to an organization, the notion of providing consulting services, even presumably unpaid consulting services, would according to the text of the proposed regulations establish that relationship. We think it would be best for the Commission to maintain the current factors at 100.5(g)(4)(2), the circumstantial factors, and perhaps include a modifier where appropriate of "direct or indirectly" with respect to those, at least have a settled meaning or at least the regulated committee is used to it and the Commission has applied them over time.

It would be simpler to have one kind of definition that applies to the different parts of the act, especially when the operative statutory language is virtually identical to statutory language that's now there and is a familiar phrase.

My time is up. Let me just make one comment about the Levin amendment with respect to the affiliation rules. We think the Commission is right in not aggregating the state, district, and local committees with respect to who can receive Levin funds, that they are not automatically affiliated for these purposes. That is, I think, apparent from the text and from the legislative compromise that produced it but on the donor side of who can contribute to Levin committees the statute again uses that more simplified phrase "established, financed, maintained or controlled" by a person and the statute, of course, defines "person," and we think the 100.5(g)(4)(2) factors alone ought to be applied to define that kind of relationship that would harmonize it with the law as is and would reduce confusion.

CHMN. MASON: Thank you. Mr. Sullivan?

MR. SULLIVAN: Thank you Mr. Chairman. Mr. Chairman and members of the Commission, on behalf of the Latino Coalition and the Taxpayer Network, both of whom are not-for-profit corporations, it's a pleasure to appear before you today and offer some thoughts on the nonfederal funds notice of proposed rule making which the commission is presently undertaking in compliance with the Bipartisan Campaign Reform Act of 2002.

Permit me to first extent my appreciation and compliments to the Commission and the staff for the presentation you have assembled on the notice of proposed rule making. The issues here are very complex and the time frame for which you have to complete this chore is very restrictive. With that appreciation in mind I trust my comments today and my previously submitted written comments will be received by the Commission as an attempt to offer sincere points of concern which will hopefully assist you in your task of drafting clear and appropriately construed regulations.

The focus of my comments today is in three primary areas. All three of us apparently have the same general area of concern but I will assure you this was not "coordinated" before we came here. The first of these is one of a general nature, namely terminology and the corresponding definitions that will be associated with this rule making. Second is the definition and the scope in the application of the term "agent" as it is set forth at Section 300.2(b). Third is the definition, scope, and application of the term "to solicit and direct" as set forth in 300.2(m).

There are obviously scores of issues which will have a direct impact upon political party committees. I defer to the political party panels that you will hear from tomorrow on these specific issues. The three topics which I have just identified however, are those which I consider the most important to my clients and to other non- political party entities which will be impacted by these regulations. Permit me to just touch on the highlights of these three areas of concern in an attempt to lay a foundation for our dialogue today.

First, a review of the 25-plus years of the Commission's enforcement of the FECA reveals that some of those controversial and problematic areas for the Commission and the regulated community have centered on basic definition of terminology in the act and as expounded in the regulations. Whether it be an attempt to distinguish the term "contribution" under the "influence an election" standard found at Section 431 and the in-connection standard for corporate contributions at Section 441(b) the definition of a member, the definition of expressed advocacy, that standard which has impacted the issue ad controversy during the last 10 years, much of the concern and the confusion in the regulated community can be traced to the definition of those specific terms.

My point on this issue is two-fold. First, I'm a strong advocate that the Commission should consider these definitions and the terminology as used in the FECA as terms of art and correspondingly avoid what I consider the loose application or the slang jargon which has surfaced in a number of fronts during the past years and, quite frankly, has led to confusion as to the specific parameters of those definitions, for example, the terms "soft money," "leadership PACs," and even the use of the term "contribution" when used outside the scope of a federal committee.

Secondly, the regulations afford the Commission the opportunity to be quite specific in its definition, including explicit examples of persons and activities which are included or excluded from particular definitions and I would certainly encourage the Commission especially in the rule making of today to take advantage of laying out those types of examples.

This leads me to the second issue, specifically the definition of the term "agent." As noted in my written comments, I am an advocate that the scope of the agency relationship should be defined in the regulations as one that is expressive in nature, not implicit. Based upon my earlier comments I would also strongly encourage the Commission to very specifically and thoroughly set out the activities and persons it envisions as coming within that agency relationship. It should be limited in scope to an express authorization to solicit and/or direct nonfederal funds.

I also have concerns in this area regarding the impact these regulations would have on fundraising vendors and consultants, which we can discuss perhaps a little further during the question and answer.

The last point is a similar concern expressed to the definition of "solicit or direct." Notably, I would submit that this definition should be limited to a specific expression requesting an audience to make a donation of nonfederal funds to an entity. I would further submit that the broader term of "solicitation," which has historically been utilized by the Commission in the case of solicitations by separate segregated funds to its restricted class, is one which is far too broad in nature for the type of activities contemplated to be restricted by the provisions of these regulations.

Mr. Chairman, with those thoughts and comments I will conclude these opening comments. I would welcome the opportunity to respond to your questions pertaining to any of these matters or any other issues contained in the notice of proposed rule making. Thank you.

CHMN. MASON: Thank you, Paul. I think in this round of questions we're going to go first to Commissioner Smith.

COMM. SMITH: Thank you, Mr. Chairman. I thank all three of you for coming and for the comments you've provided us. I'll start, Mr. Hong, with a question for you. You strongly disagree with the idea of using the entire two-year run-up period for determining when a federal candidate appears on the ballot for purposes of covering get out to vote activity. Would you just explain a little bit more? In your comments you allude to it without really providing details. I wonder if you might just explain a bit more why such a broad reading of the phrase "in connection with an election in which a federal candidate appears on the ballot" would cut into the NAACP National Voter Funds programs and voter registration activity. How would this actually affect this in practice?

MR. HONG: Well, the way that the definition of federal election activity would apply and create implications not just for the National Voter Fund but for all nonprofit organizations is that if an entity is deemed to have that as its primary purpose, federal election activity federal office-holders and congressional members would be prohibited from either soliciting or directing money for that nonprofit organization. So defining federal election activity broadly would hinder the ability of nonprofits to raise money for legitimate, nonfederal election-related, nonpartisan GOTV activity and that's why it's so important for nonprofit organizations.

Now, the issue of whether the GOTV should cover the ramp-up time to an election, as I mentioned, the plain language of the statute uses the word "appears" and it doesn't say "will appear" or "is likely to appear." It says a ballot on which a federal candidate "appears" and that, I think, is a very important distinction as to the intent of the statute.

But as a practical matter for nonprofit organizations to read this broadly, especially for nonprofit organizations out there to get the vote out as a civic duty matter regardless of party, it would limit their ability to raise funds in a very legitimate, nonpolitical arena.

COMM. SMITH: Isn't it fair to know that the federal candidate is going to appear on the ballot even though nobody has specifically qualified for the ballot?

MR. HONG: Well, it's safe to assume it but then again with the interest of having to interpret this statute and this provision in a narrow fashion because of the danger that it would impose unnecessary restrictions on the ability to do real GOTV whether or not it's federal or on a nonelection basis. I think it mandates, actually, that we read this by it's very terms, which is "appears."

COMM. SMITH: Mr. Sullivan, you're representing the Latino Coalition, a nonprofit group, and would you generally agree with assessment of have anything to add to Mr. Hong's comments on that?

MR. SULLIVAN: I In my written comments concur with the position of the candidate on the ballot and would concur with Ki's comments on the particular issue. If I can just add one additional point I don't think it's been raised, the Latino Coalition being a membership organization and the question surfaces whether the partisan communication of messages under the 114.3 of the regulations would be exempt from this type of a prohibition that's presently contained in the regulations. It's our position that it would. In other words that exemption would still apply and effectively exempt the restriction as presently written here.

But I think that's a somewhat of a unique point relative to membership organizations and would I think have impact on all three of our groups. We'd like to see the Commission comment on that specifically, though, if that's your interpretation.

COMM. SMITH: Mr. Gold, what do you think about that?

MR. GOLD: Well, the statute in 20(a)(2) the definition says voter identification, get out to vote activity, or generic campaign activity and it doesn't end there. It continues, conducting in connection with an election in which a candidate for federal office appears on the ballot regardless of whether a candidate for state or local office also appears on the ballot. If this phrase ended with the definition of the three activities then you might say that this is a provision that ought to cover an entire election cycle, that is, at all times but it doesn't.

Without any helpful explanation it does say conducted in connection with an election. That has to mean something less than two years because the fact is that I think in most congressional districts an election cycle begins immediately this year after November 6th. Somebody may already be qualified to be a candidate because he or she satisfies the very minimal definition in the statute as it is to be a candidate and everything potentially could affect the next election.

So there has to be some point in between the two and the Commission needs to come up with some, I think, reasonable standard that is objective. Perhaps it need not be uniformed everywhere but ought to be tied to something objective and that's why we had suggested perhaps during the actual federal election year, that is, even numbered years or the point where in that state a particular human being does qualify to be on the ballot and there is a reference to appearing on the ballot here.

So there ought to be something there. We note that there were some comments that that this applies at all times everywhere except in those few states that hold state and local elections that odd- numbered years. I think that's creative but in nowhere faithful to the text of the statute and I'm not aware of any indication in the legislative history that there were some consensus or perhaps suggestion. I may be wrong about the suggestion but certainly consensus if that's how it would be limited.

COMM. SMITH: Well, I mean on that latter issue as I indicated in this morning's panel I also think that's somewhat inaccurate in the sense that in at least a great many states and quite likely I would say a majority of the population there are always some nonfederal elections going on in odd-numbered years. For example, most of our big cities elect their mayors in odd- numbered years. So it's not really just five states and then some of those cities, New York City alone, has a population larger than most of those states that have the odd- numbered years. So I do think that either creates a standard which is too broad or that trimming it down doesn't open up the alleged loophole that we've already heard there would be because most states in fact do that.

But let me switch a little bit and ask about the question of financed, maintained, and controlled by a party. As I read the statute it says that this applies to an entity that is established, financed, maintained, or controlled by a party and so I wonder and in particular, Mr. Hong, because you'd addressed it at some length but any of you if you focus on the verb here, "is," that would suggest that these activities which are not one-time things, like established, but would suggest established ongoing activity therefore would apply only during the current election cycle, is financed during this cycle, is maintained, or is controlled during the present cycle, and if that would alleviate many of your concerns, if that would be a satisfactory type of statutory construction here using the plain language, the verb in the statute.

MR. HONG: That would be satisfactory. There is nothing in the statute that reaches back before the effective date and that's what we are concerned about. So it's not unless you use the word "is" and that language becomes effective as of the effective date of the statute. Then I think that solves the problem.

COMM. SMITH: I'm not seeing anybody else eager to jump at that. Let me just go on and ask one other question here and I think our time will be up but the Alliance for Justice in their written comments suggested that we should include a presumption that a 501(c)(3) organization does not make disbursements for federal election activity given that doing so would appear to be a violation of their 501(c)(3) status. I just wondered if any of you would care to comment on that particular matter. Does that seem like a logical approach? Should the Commission include that kind of presumption in the rules, that sort of a safe harbor?

MR. SULLIVAN: I wouldn't think that's necessarily a safe harbor. Certainly under tax code it's an accurate statement; however, the (c)(3)s are also able to do voter registration, voter activity, which may come under the umbrella of some of the areas that you are in fact regulating with these new regulations today so I think the statement is accurate. It merely doesn't go far enough, Commissioner.

COMM. SMITH: It would be a start but it wouldn't give you the kind of protection that you're actually looking at?

MR. SULLIVAN: That's correct.

COMM. SMITH: Go ahead, Mr. Hong.

MR. HONG: I also wanted to add that it is true that 501(c)(3)s as a tax matter cannot engage in partisan activity but even 501(c)(4) organizations are required by the tax law to engage in the majority of its activities in nonpartisan activities. So just to create a safe harbor for (c)(3)s I don't think would reflect what's actually going on under the tax law.

COMM. SMITH: Mr. Gold, I'll go back to you one last question here. I wonder if you would talk a little bit about the effect of using a sweeping definition of the term "agent" would have on volunteer activity in an organization such as the one you represent?

MR. GOLD: Sure. I'm aware of many instances where officials of local unions and even national unions are active in political party organizations. They are on a steering committee, they are national committee persons, they are vice chair of this or that and it's not unique to labor organizations but I think citizens, people who are active in the political process and interested, intuitively believe that the fact that they are employed somewhere doesn't mean that they can't be involved in politics and can't participate in party committees. Obviously there can't be some artificial distinction between the two.

And these are also people generally, including very sophisticated people, who are not extremely well-versed in the arcane details of campaign finance laws. They know the general rules and they know many of them very specific rules and they are guided by counsel and the like, and by good practice and all. But if you have I think a standard that really threatens to confuse and blur the capacities that people are operating in and people have conducted their affairs over the years, knowing that they do have different capacities and the fact that they are doing something in one capacity doesn't necessarily interfere with their ability to act otherwise I think it has a potential chilling effect and the Commission it's really important that the rules be written in such a way that in this case "agency" is defined in a way that truly honors the distinct capacities that citizens operate in.

And I can tell you just from advising unions at all levels which are in themselves volunteer organizations in their own activities when members participate in union affairs they are volunteers in a very analogous way that people are who do work for political party committees and it is always the last thing they want to hear about, that what they are doing could trip them up somehow or cause them to breach standards that they don't know about and that intuitively don't make any sense to them and I think the same applies here.

COMM. SMITH: Thank you.

MR. GOLD: Can I make one comment on an earlier question?

COMM. SMITH: Do that to the Chairman.

MR. GOLD: Very briefly. You asked that something I can consider whether the word "is" in the statute might have some salience in defining establishment and finance and control. I think it's only there when it's used in the sense of is directly or indirectly established, et cetera, not where the phrase appears without the modifier, and I would just on first blush hesitate to credit that with a significant difference or distinction as far as temporally. I think "directly or indirectly" is the key difference, whatever that means, rather than the word "is." I think that bears further thought. I hadn't thought of it before but I wanted to just throw out that fact.

CHMN. MASON: Commissioner McDonald?

COMM. McDONALD: Mr. Chairman, thank you. I appreciate all the panel being here, Ki and Larry and Paul. It's good to see all of you. I can't remember, Ki, if I saw you this morning but you would have been proud of all the comments made about the NAACP and how valuable they were and I was thinking gee, I wish they had had this kind of strength in Florida that they appear to have in today's meeting. So if you missed the morning activities I hope you'd go back and listen to the praise that was heaped upon you.

I have several questions that are fairly fundamental to this discussion and maybe if I could I think I'll start with Larry if I might, simply because I appreciate your comments, Larry. I think you succinctly summarized where we have to be in terms of the process and you were kind enough to point out that you understood we had to be here even though you were suing us simultaneously and we appreciate that. That was awful good of you.

But let me ask you a very serious question, and this came up this morning and it's going to be the crux for some of us in terms of trying to arrive at a decision about some of these issues. Agency is a big matter. You've responded to the questions by Commissioner Smith and you mentioned it in your opening comments and sitting here as a regulator and someone who is trying to figure out what our responsibilities are I read carefully what you've had to say and what others have had to say and I think you raised some awfully good points.

As you may know and may have seen, on the 10th of April we received a document from the four folks who are credited with this bill. Their position is that "agency" clearly means something decidedly than what a number of people have testified to and let me just comment briefly on what they said. On the letter of the 10th of April on page 14, going to their summary. "It is therefore critical that the term 'agent' be construed to include anyone who has an agency relationship with the entity under common law understanding of that term. The proposed definition that limits agents to those who have actual or express authority to act for the principle would undermine the purpose and intent of BCRA. It will allow parties and candidates to avoid the prohibitions of the new law through the use of staff or intermediaries as long as they never expressly authorize the raising of soft money on their behalf."

And it goes on obviously to talk about other aspects of that. We are sitting here trying to implement what the Congress put forth. We all have a theory of what that is. Maybe some people already know the answer to the question before it's written on the board. I don't fit in that category.

What do you think in view of those kinds of comments from the authors of the bill? Where does that put us in relationship to what is obviously a very sensitive and ticklish area?

MR. GOLD: Well, let me make a general comment about comments by the authors of the bill. Clearly the two principal sponsors in the Senate and the House were prime movers of the legislation but I don't believe there is any deference that the Commission owes to what they say about the meaning of the statute after the statute has been enacted and signed into law.

They have full rights to participate in the rule making. They have intervened in the litigation that you referred to and that's perfectly appropriate. But if part of your question is how the Commission should react to what they say on April 10 or on May 20 or on June 4 or even the future I don't think it merits any greater deference or consideration than to any other commenter that appears before the Commission and submits comments.

On the specifics I think that the key question here on agency is again just making sure that the Commission's regulations and enforcement truly identify people who are acting on behalf of or at the behest of a party organization in this case and apply those rules to that person rather than assume that because somebody, let's say, is on the steering committee of the Republican Party in some county in Oklahoma or anywhere no matter what that person does that person is an agent at all times and for all purposes when that person may be engaged in political activity in his or her capacity whether a labor organization or a business group or a nonconnected PAC or whatever it is and that's the key here.

The common law of agency obviously sets standards across the board in a lot of very important ways. Then you have a regulation under income and expenditures that defines agents somewhat differently and there is a value in not having different definitions of "agent" in different parts of the statute, surely, but it's not clear that a regulation that preexisted the new act ought to dictate how the new act itself is interpreted.

I'm not sure if that's responsive but I do believe that taking the approach that somehow every conceivable interpretation of the statute ought to reach as broadly as possible because, after all, we had a great public purpose in mind which was to stamp out invidious influences and the like I don't think that's a very helpful guidepost when you're dealing with specific language and specific situations and real political activity.

COMM. McDONALD: On that last point, and I do think it's helpful and I do appreciate it, just on the last point a minute, I mean, I'm just trying to think from the practical side. This issue has been kicked around the Congress for seven years at least by the authors' admission. It's actually been going much longer as you and I know. But at least in the last seven years this version of it or a version of it has been kicked around. I think it's almost as ironic the other way. I'm not unmindful of what you say about the troubling aspect of the agency question but it seems strange.

I mean, I can just see us going up and testifying before the Congress about anything that has to do with the FEC and saying gee, I'm just really sorry. You just don't really understand.

I don't ever recall any member who would take that lying down. I mean, it just seems an odd conclusion to come to to say well, there shouldn't really be any more deference to the people who spent all the years on it than anybody else and it's a hard position for us to be in, to be very candid with you. I think that there is a long history, not just this floor debate in terms of final passage but over the years about this, and I'll be candid with you. I'm troubled from both sides.

I'm troubled from the other side as well and that's why I asked the question this morning can somebody point out to me specifically where they think there is that kind of authority. But I appreciate your answer.

I'd like to move because I don't think I have much time. In relationship to this question of GOTV and the appearance on the ballot, going back to something Commissioner Smith said earlier, why would you not, for example, take when a candidate registers? What would be wrong with that with this commission in terms of raising money?

MR. HONG: Well, if you mean register with the FEC, well, the statute uses the term "appears on the ballot" and ballot access is a state issue, not an FEC issue.

COMM. McDONALD: I'm an old state election official. I'm up on it.

MR. HONG: Right, and because of that we shouldn't use a test that the FEC uses for candidate registration to decide when they are "on the ballot." As I mentioned, there is an underlying concern here and a particular concern to read this narrowly and stay faithful to the exact plain meaning of the statute because to go beyond it would impact nonprofits that are engaging in bona fide nonpartisan civic activity and I know I have mentioned that a couple times before but we're talking about civic GOTV here. We're talking about getting people out to the polls not because they are Republicans, not because they are Democrats, but because in our case they are African Americans who have been disenfranchised in the past and there is a civic duty to get them out to the polls and we don't want to impact that ability in an undue fashion and especially when there is specific language used in the statute.

COMM. McDONALD: Would a uniform whatever the uniform date might be prior to either primary or general election satisfy? I mean, I'm thinking in a lot of state obviously you're in the ballot early in the year. Lots of states it's the other way around. When you get to Maryland are you still late in the year for a primary? Out in Illinois, of course, it's much earlier in the year. Is there some method that we can utilize that would apply across the board?

MR. HONG: Well, to use a uniform date across the country would as --

COMM. McDONALD: What about a time frame as opposed to a date?

MR. HONG: Either a date or a time frame to apply across the country, as we mentioned in our comments, would undo the narrow reading of the statute and we understand the FEC's concern and, to tell you the truth, it's a very legitimate concern about dealing with these ballot access issues on a state by state basis and to try to limit the administrative burdens that it would impose on the FEC. But unfortunately that will come at a cost of the ability of nonprofits to do nonpartisan GOTV activity and in that context I think this is one area that's worth the extra administrative burden.

COMM. McDONALD: On that last point, Mr. Chairman, just as a point of clarification, I registered voters for years. I mean, maybe even some of my colleagues have done it, too. We tried everything in the world with every group that would even show up breathing. We simply couldn't get people until the election year. Has your experience been otherwise? Have you been able to get lots of folks through the organization to register in a nonpresidential year, even, or non federal year?

MR. HONG: Well, I can't speak to the very specifics of it because I don't know what my client's data has been on that but even in nonelection years you do have state elections to get people registered on and so there is definitely a voter registration that happens during nonelection years as well.

COMM. McDONALD: Thank you, Mr. Chairman.

CHMN. MASON: Commissioner Toner?

COMM. TONER: Thank you, Mr. Chairman. I share the praise that Commissioner McDonald had for the commentators on this panel. I think this is an extraordinary panel and a very important one particularly because in my view we have not heard enough in the past from grassroots organizations in terms of the real world impact of the regulations that we're proposing and looking at and I think panels like this and the practical considerations that you're talking about we critically need to learn more about.

Mr. Hong, you mentioned in your opening statement and also in your written testimony your view of how we should construe the directly and indirectly finance, maintain, control statutory language and in your words that we should avoid a look-back approach. I'd like you to elaborate if you could. If we were to take a look-back approach, in other words if we were not to create a safe harbor for organizations that are separate upon the effective date of BCRA, what impact would that have on your client's organization?

MR. HONG: Well, as far as the impact on our organization I don't think it's going to have much at all but the thing is when we're trying to look at our past activity and trying to figure out our activity going forward we want a clear line of demarcation as well as all other non- profits that at this point we can look at our activity. Now, to ÄÄÄÄ that what's been going on for years in the past in trying to decide all right, did we get funding at this point or did we not, was it enough as a significant funding, that is an unreasonable burden and something that I don't think can be done, especially by nonprofit organizations that have been around a very long time.

COMM. TONER: So is it fair to say that you are in your view the focus out to be how would the organizations conduct themselves and their affairs once BCRA is in effect?

MR. HONG: That's correct and it's very important especially with a standard like significant funding that is inherently vague, I think, even with some of your indicia that have been set forth in the proposed rules like timing and the amount. There has to be a clean cut-off line that any entity can look at and say all right, now we need to focus on this starting now. And because until these rules came out this has been a nonissue for all nonprofits.

COMM. TONER: Well, in terms of providing clarity for grass-roots organizations such as the NAACP do you think if the Commission drew upon our existing affiliation criteria in construing this statutory phrase that that would be a positive development in terms of providing clarity?

MR. HONG: We strongly agree with that using the affiliation standards that are there right now regarding affiliated PACs gets to the purpose of the rule and also gets to the practical implementation standard that is doable.

COMM. TONER: Mr. Gold, I was strong struck in both your written testimony and also in your comments here today. Your emphasis in terms of the agency issue on the statutory phrase "acting on behalf of." Is it your view that for us to be faithful to the statutory phrase "acting on behalf of" we essentially have to construe the concept of agency to express actual authority?

MR. HONG: I think the statute itself I think requires. The first regulation does so explicitly and I think that's the appropriate course. Again, "acting on behalf of" is a key phrase to tie in the actor to the organization and to the capacity that ought to be of concern to the Commission and that the statute is addressing and I draw back and keep in mind that the new law is extending the Federal Election Campaign Act in areas that it's never been before and is regulating state and local organizations in a way utterly unprecedented at the federal level. So a lot of the concerns that I'm raising and that arise here haven't been there before or they've been there in an attenuated manner.

We've always had the concern, I suppose, with national party committees and people participate in party committees, but for the most part those are ongoing organizations that have a lot of money and staff and the like and rely less on volunteers, although they do have national steering committees and I know of people who don't work for the national committees but have positions with them so the concept's been there.

But now you're into 50 states and potentially thousands of party organizations and it's a whole new world and you're not dealing for the most part with paid employees. So "acting of behalf of," I think somebody who was mindful of the fact that there had to be that kind of link and you can't just say well, somebody who does services or is on a steering committee for a party, ergo everything that person does is going to be considered to be in the capacity of agent. That is an unworkable and dangerous standard.

COMM. TONER: Given all of that is it your view as a matter of law that we should reject apparent authority as a concept in construing this statutory provision?

MR. GOLD: I'd say that there are applications of apparent authority that would clearly be improper. If the principal were to manifest to some third party that so and so is acting on its behalf in doing a particular act and that was wrong then perhaps the principal would be liable for something, not the agent. So I'm not prepared with the precise language or formulation but I think notions of apparent authority do have their place in agency law and standards but they have to be carefully circumscribed consistently with the notion of "acting on behalf of" here.

COMM. TONER: At the very least are you concerned potentially about apparent authority having an impact on your organization at the grass-roots level?

MR. GOLD: Well, yes, and I think that's the point here. Just looking at apparent authority, absent some express manifestation by a principal that a person who is not employed by that party committee is acting on its behalf in performing a particular function, absent that you could leave people at the mercy of all sorts of misunderstood perceptions as to who was doing what for whom and, again, we're dealing with people at the local level who are not employed by the party organization but who want to participate and there is a common good in civic participation like that and anything that would deter or chill that are confuse it or waste the Commission's time and resources in chasing these things down I think is counterproductive and unnecessary given the text of the statute.

COMM. TONER: Mr. Sullivan, I was struck in your written comments and also in your statement your focus again on this agency issue in terms of its potential application to vendors, fundraising consultants, volunteers. Would you like to elaborate on your thoughts on that?

MR. SULLIVAN: In an actual situation if I could lay out in hypothetical for you, an example, Commissioner, the Latino Coalition has as one of its founders and therefore under this regulation would be a sponsor of the organization, also sits on the board of directors, is a member of the executive committee of his state political party. By virtue of that agency relationship if you take the current drafting and the scope of the agency relationship and take a look at what that individual is now precluded from undertaking it's rather astounding.

For example, he could not solicit under my reading of this new members to the organization and pay dues. That individual could not solicit contributions for a statewide initiative or ballot committee. Ballot committees are exempt under 527, which is not part of the exemption that is included in subsection (c)(1) of 300.2. That is one area clearly to take a look at.

They are prohibited from soliciting and participating in state local elections which I think if we're going back to what Commissioner McDonald was alluding to earlier in the struggle the Commission has here, was that truly the intent of the drafters, I'm not second-guessing them but to preclude an individual from that type of activity, whether it's ballot activity, membership organization, support of state and local ballot initiatives, there is a plethora of those types of activity where the reach of these regulations is going to not only chill but I think shut down that activity.

And it's also going to mandate that I think all three of the organizations that you're hearing from on this panel are going to have to take a very conservative approach to this. They are going to make the election of not permitting those people to be a position of authority, an officer, a director, for fear of the potential problem that's drawn here.

On the last point, the vendor issue, I raise it simply because I think we all deal with fundraising consultants, obviously, in these activities and the question being if they are even given the expressed authorization by a federal candidate, by a party organization, to raise funds for that entity are we then claiming under the agency rule that that individual, that company, would be precluded from soliciting contributions of what is deemed to be the nonfederal dollars?

I'd submit to you that there should be some type of a business exemption, an arm's-length transaction exemption, similar to what's in the regulation right now relative to vendors providing lines of credit, et cetera. I just can't imagine that that was, again, the intent of the founders here of the statute to preclude an entire industry from participating in their profession.

COMM. TONER: Thank you.

CHMN. MASON: Vice Chairman Sandstrom?

COMM. SANDSTROM: Thank you. Mr. Hong, it's November. The effective date of the act has passed. You get a call from your headquarters saying we have a check here for $1 million from Oprah Winfrey. Can we cash it? Is there any basis for you to know? You ask where did it come from and they said in the mail. Is there any basis for the organization to understand who may have solicited that?

MR. HONG: Well, the answer is no. Obviously from our point of view from the recipient side as a nonprofit organization there is no way for us to know who is soliciting, exactly how much was solicited, and all we know is what comes in through the mail and that's perfectly correct.

COMM. SANDSTROM: So there would be no problem under this act with depositing that and using it for voter registration and nonpartisan get out to vote activities. Is that your understanding of the law?

MR. HONG: Well, it would be if the solicitation didn't happen correctly and the thing is it prohibit --

COMM. SANDSTROM: Do you know where in the statute there is any restriction on the organization itself?

MR. HONG: Well, that's correct. The direct prohibition is on the federal officeholder soliciting the contributions; however, if we are to participate or to work with a congressional member who is interested in get out the vote for African Americans then we would be participating in a violation so there could be some indirect liability on the organization.

More importantly, we would not be able to work with or have federal members solicit for us. I mean, in a situation where a check comes in and we don't know who solicited it it's probably the minority of what actually happens out there. I mean, there are fundraising events, there are solicitation drives --

COMM. SANDSTROM: Aren't many of your contributions a result of multiple solicitations? I mean, don't you generally have to work a donor from as many angles as you can?

MR. HONG: Yes, but you'd essentially be cutting off a lot of those angles. That's the problem.

COMM. SANDSTROM: I mean, I'm just talking about you're faced with a decision whether to deposit it and since it could have been multiple solicitations and you're not sure where it comes from I gather there is no penalty on you for depositing and spending it except if somehow we came up with a new theory that would apply penalties that may be somewhat unclear in the current law since I think if one explores the current law, as I have, it's rather difficult to identify what penalties would apply to you.

MR. SULLIVAN: I'd submit, Commissioner, by the way, getting back to the agency theory if that individual is acting as an agent for the organization you could tie the liability back to the organization.

COMM. SANDSTROM: The panels this morning actually may have been fairly helpful with regard to this agents question because they refer to the definition in 109.1 and the agent there is one who has actual authority or one who has been placed in a position within a campaign organization where it would reasonably appear that in the ordinary course of campaign-related activities he or she may authorize expenditures.

Usually that's the campaign manager and nobody else. How many people are typically authorized in a campaign to make expenditures? Wouldn't that be an exceedingly small number of people?

MR. SULLIVAN: I would tend to agree given on a campaign and a candidate but you take a look at the definition of "agent" as set out in the regulations the actual expressed oral or written authority to act on behalf of the candidate, officeholder, national committee, et cetera, you take that position and any national committee man of the Democrat National Committee, Republican National Committee is authorized inherently by virtue of their office and their position.

COMM. SANDSTROM: To make expenditures?

MR. GOLD: Not to make expenditures but that's not what the regulation as drafted proposes. I think that what you're describing is --

COMM. SANDSTROM: No, I'm talking about what the current regulation is. The panelist this morning suggest we should look to 109.1 and 109.1 seem to me a very narrow definition of "agent," only one who is authorized to make expenditures. So if we actually chose that definition --

MR. GOLD: If you chose that definition, yes.

COMM. SANDSTROM: It would probably answer all of your concerns because it actually would capture an exceedingly small number of people. Now, with respect to the many hats that those in labor organizations wear, I mean, wouldn't it be true that you probably on a lot of state and local party committees there would be officers of the unions or union members on those executive committees and county committees? Well certainly I think it's very common.

COMM. SANDSTROM: Can you help us with something we were struggling with this morning, terms that seem to require a little bit more explication? What do you take voter identification to be?

MR. GOLD: Well, we've suggested that this phrase, which is not defined in the statute, for purposes of the statute that voter identification only include efforts to identify how individuals are going to actually vote for a candidate or party, party preferences and not the amassing of information, voter files, and that sort of thing and in reviewing the comments I think a lot of the commenters coming from different perspectives agree that this phrase has to be construed in a way that has a partisan element to it in order not to just be overreaching, just as extending the time when the definition 20(a)(2) applies to the entire election cycle I think defeats the purpose of it and can't possibly be squared with the language of the statute itself.

So we've suggested a line be drawn between activities to identify voters that really have only a partisan purpose and activities that are preparatory to all sort of purposes, including partisan, nonpartisan and other purposes.

COMM. SANDSTROM: And similarly with respect to get out to vote activities?

MR. GOLD: I'm not sure that we've commented really on where the line ought to be drawn on get out the vote activities. I guess I would say only here that you can certainly come up with situations where the difference between voter identification even as I describe it and get out the vote activity where the lines are somewhat blurred but they are distinct concepts, certainly.

I'm not sure where to drawn the line on get out the vote activity, what is get out the vote activity, what isn't, what is that versus voter identification. We haven't commented on that and I would defer to others for the moment on that but except for a general caution that we can over-define things and federalize everything and that can't possible by what this statue does.

COMM. SANDSTROM: Because it struck me that with any activity designed by any candidate running for any office at any level the end of that activity is designed to get that person out to vote because if they don't vote having persuaded them that you are the best candidate is useless. So if I were to give a definition of contacting voters with the desire to encourage them to vote that would comprehend to me essentially every element of the campaign by any candidate at any level. Is that the understanding you bring?

MR. GOLD: I think that would be reading too broad a concept on this. Our problem is that the statute in this very critical place is using terms that have some currency. Those are not novel phrases, voter identification, get out the vote activity, and the like, and people are used to using those phrases but when you're dealing with the legislation now that is trying to make distinctions for purposes of criminal and civil enforcement, what particular groups can do and what particular money can be used on it, you can't rely on common parlance notions that are very different. Your idea of get out the vote it might be something different than somebody else's. It's important that the Commission nail this down.

COMM. SANDSTROM: There is one more context that applies. The panelists this morning unanimously agreed that Reverend Jackson giving a speech to the African American caucus urging them to go back and register to vote would be voter registration activity. Could I ask you how you would respond to that?

MR. GOLD: Well, as far as voter registration goes there is a long history at least at the state level as to what voter registration is. It's getting people registered and when dealing with this issue of voter registration or GOTV I think we have to stay away from an intent-based test. And I think that's where these questions are starting to veer toward is a test where you would get the intent, which could be viewed in so many different ways. It's just like express advocacy and because these are dealing with such constitutionally core First Amendment issues we have to state a very bright line test where the intent of the speaker or the intent of the nonprofit can not be in question in any way and I think that's the way it has to be defined and we support the examples of GOTV that the FEC has already proposed such as taking people out to vote, taking them to the polls, and the like. But we just urge that it be done in a very bright line fashion that does not create an issue of vagueness. Thank you very much.

CHMN. MASON: Commissioner McDonald?

COMM. McDONALD: Mr. Chairman, thank you. This is a point of clarification. I want to be sure I understood because I think this is a very important question. I thought the example this morning was that the Florida party was paying for the trip. Am I not correct about that?

COMM. SANDSTROM: The Florida party paid Reverend Jackson to come down and give speeches at the convention.

COMM. McDONALD: Yes, I just wanted to make sure we're talking about the same thing. Thank you.

CHMN. MASON: Paul, you said something I didn't quite get and I don't understand whether it was particularly important so let me ask you about it.

MR. SULLIVAN: Obviously my fault.

CHMN. MASON: I hope it will be quick. You said, I thought, that the solicitation regulation that we now apply to separate segregated funds was broader than you thought we ought to apply to nonprofits. So what sort of distinction are you suggesting? In other words what would be the problem in simply taking our advisory opinions and so on, of which we have several of what constitutes a solicitation to a separate segregated fund, and applying it to nonprofits?

MR. SULLIVAN: I think you heard me correctly. The point that I was making in my testimony and I believe my written comments was that given the concern that I think we've all expressed here on agency and the scope of that the corollary there is after you've established an agent what communication would constitute a solicitation? If a member of Congress were to attend an event that the Latino Coalition was sponsoring for its members and I think the example used in the notice of proposed rule making was featured as the guest there that gave the dinner speech, encouraged Latinos to participate in the political system, to support "The Latino Coalition," does that get to the point of a solicitation? I think that under my definition and what I would submit the Commission ought to get to is a specific solicitation where that member of Congress requested that those people actually make a donation to the Latino Coalition on federal fund.

Contrast that with the history of the concept of solicitation used for separate segregated funds and the concern of going beyond the restricted class. Many of those advisory opinions indicate that merely providing any type of information that would permit a person outside the restricted class to facilitate or make a contribution would constitute a solicitation. My point is that that is far too broad of a standard for the type of restricted activity that I think these regulations are geared towards and would advocate that that standard not be utilized in these regulations.

CHMN. MASON: Thank you. Ki and Larry, I wanted to get back and both organizations may have similar though the specifics may be different in terms of local election activity and, Larry, in particular I recall that there is a union-funded organization that does minority get out the vote and registration and so on. I can't recall the name of it but I see it in the news from time to time.

MR. GOLD: There is an organization called the A. Phillip Randolph Institute that that has received substantial funds from labor organizations.

CHMN. MASON: And that organization, I assume, might be interested in having federal officeholders appear at fundraising events or something like that, perhaps. I don't know. But I'm first trying to think through how this might affect you but as to your voter registration and get out the vote efforts my impression is that both for various union organizations and for the NAACP Fund there are frequent instances of voter registration, get out the vote activities, that are carried on in connection with local elections, the Street election in Philadelphia, I recall, not long ago and others. Is that correct?

MR. GOLD: I think for labor organizations most of our voter registration get out the vote efforts are directed at a restricted class that are members and their households and we're never satisfied with the level of registration among our members. There is always turnover as there is in any organization. That's enough to keep us pretty well occupied.

When labor organizations engage in voter registration outside of the restricted class it has to be and it is on a nonpartisan basis and I'm not sure that we engage, although it may happen at the local level, I don't know, federal office holders to assist in that or in coordination with that but I think that begins to trench on areas where we've had concerns and coordination rules come into play.

In the A. Phillip Randolph Institute, I think, itself I'm not aware it does but I don't speak on its behalf. I'm not aware that they have worked with federal office holders to engage in that kind of activity.

CHMN. MASON: But they do carry on significant activities in connection with the state and local elections?

MR. GOLD: They do and I'm not versed enough in everything they do to speak authoritatively even as an observer but they do voter registration, get out the vote, I know in connection with state and local elections, yes, as distinct from federal elections and at times that you mentioned and as Commissioner Smith observed those local elections happen in many states all the time. That's for sure.

CHMN. MASON: Ki?

MR. HONG: And that is true with the National Voter Fund as well. They engage in voter registration and GOTV, odd- numbered years, even-numbered years, and specifically in state and local elections as well.

CHMN. MASON: Commissioner Smith had helpfully noted that the odd-numbered year elections for certain big city mayors and so on. He's not familiar with the Virginia electoral system which in fact doesn't merely have odd-numbered elections for state officers but for municipal elections has general elections in the spring of even-numbered years. So if someone were interested in who is going to be the Mayor of Norfolk, the Mayor of Richmond, or something like that they might be carrying on a lot of activity in April and May of an even-numbered year with little contemplation of what effect that might have in the fall.

It strikes me that if we want to try to deal with that it may not be particularly satisfactory. I understand, Ki, you've ÄÄÄÄ somebody is on the ballot but Commissioner McDonald mentioned that's one thing in Illinois and something very different in other states and Massachusetts, I think, has one of the latest primaries, in September. Not only would it be difficult for us but it strikes me it would be difficult for you and your clients if somebody calls and asks you for advice and you've got to then go look up the Massachusetts election code to determine when is the theoretical first time that somebody could get on the ballot or whatever rule is laid down. I wonder whether we might be better advised to think about a fairly specific amount of time in advance of a general election simply for ease of administration.

MR. HONG: Just to clarify, what you are proposing is not the first time they can be on the ballot but when they actually are on the ballot, the first time a federal candidate is placed on the ballot or is certified to be on it. To the extent that this becomes an administrative burden that's too much to impose. If that's the conclusion the Federal Election Commission comes at we strongly urge the Commission to pick a date that is as short as possible, given the ballot deadlines that are out there and not to go broadly.

I mean, to the extent that the Commission should be erring it should be erring on the side of reading the statute narrowly and that's what we propose.

CHMN. MASON: I just want to offer an observation for question in terms of voter identification and get out the vote. Back to my own campaign experiences, those were things that were timed down to the election. In other words that actually had a fairly specific meaning in the sense that the campaign or party would call people. So if the election was held today who would you vote for, and then they'd get the name of the person and that becomes a list that people call back on election day or the day before, and so while we do have the problem of a generic term being put into the statute and how we interpret it, at least in my experience it isn't even possible to do voter identification more than a month or two out from the election because people just aren't focused. You can't ask them in the spring what they are going to do in the fall and get a reliable answer.

I wanted to ask about you all worried about the possible application of agency rules to people who may serve on the boards of state political parties and that sort of thing and it strikes me that perhaps we're a little over-worried here, at least in terms of what could be the most expansive interpretation because clearly Congress intended for state political parties, for instance, to be able to engage in state ballot initiative activities with state funds. And so I don't think under any interpretation we could reasonably say that because someone is on the board of a state political committee or a local political committee that they couldn't go out and solicit for nonfederal funds for those types of activities.

I agree there are lots of other problems but again, just by way of noting, I want to say that perhaps the most extreme examples that we're putting out of what could be effective would be unreasonable given the organization of the statute itself and that there would be no reason to prohibit the agent of an organization from doing something which the organization itself would be permitted to do.

Commissioner Thomas?

COMM. THOMAS: Thank you, Mr. Chairman. Let me see if I can zero in a little bit on what is perceived as a problem for the nonprofit organizations. The main concern is that under the solicitation restrictions those organizations are going to face restraints on who can help to raise money in the upcoming election cycles.

And I gather with respect to the restraint that's put on for party officials, and that's in Subsection (d) of Section 323, that basically is going to prohibit those folks working for a party from raising money for a (c)(4) organization, or even a (c)(3) organization if that latter organization makes expenditures or disbursements in connection with an election for federal office, including expenditures or disbursements for federal election activity.

Even if we come up with a fairly restricted definition of federal election activity I'm not quite sure you're ever going to be able to get to a point where you won't fit that kind of definition and face that restriction on party people helping you raise money.

I gather your primary concern then becomes well, what about the federal candidates and federal officeholders helping us raise money and there I see the language in the statute saying in essence that notwithstanding any of the other provisions a federal candidate or office holder can help one of these (c)(3) or (c)(4) type organizations raise money unless in essence, it's an entity whose principal purpose is to conduct activities describing clauses (1) and (2) and that picks up a lot.

That picks up your voter registration activity within 120 days. It also picks up in essence everything we would characterize as voter ID work or GOTV work or generic campaign activity. So what you're really struggling against is that apparent broad restriction. So if we characterize a lot of activity as falling within those categories of voter ID and GOTV and generic campaign activity that's going to make your organization's purpose primarily doing those kinds of things and accordingly the federal candidates will be restrained from helping you.

I add, however, that the statute then goes on and says a candidate can help an organization even whose primary purpose is those kinds of activities to raise money as long as the candidate or office holder is just going to individuals and is just asking for no more than $20,000, I guess, per year. It's not quite clear.

So you're saying that that's the constraint. You would like in essence to be able to raise money maybe from corporations and you'd like the federal officeholders to be able to help you bring in that money from corporations or unions or other prohibited source-type entities or even from individuals in amounts larger than $20,000. Is that the heart of the problem?

MR. HONG: That's correct and we are not concerned at this point about the ability of national party committees to raise money for nonprofit organizations and I think that gets to the agency issue that's been discussed by the other members of this panel.

But by ÄÄÄÄ a GOTV activity or voter identification activities in connection with an election law a candidate appears on the ballot. Now, if that's read too broadly members of Congress and candidates would be prohibited from raising money or soliciting money for an entity such as ours even though it's for nonpartisan purposes.

COMM. THOMAS: Except they could raise money from individuals in the amounts of $20,000.

MR. HONG: That's correct. Yes.

COMM. THOMAS: It's a nice piece of change, still.

MR. HONG: It still is but the thing is the nonpartisan GOTV activity that entities such as the National Voter Fund engages in there shouldn't be any limit whatsoever on who can give or who should be solicited.

COMM. THOMAS: Well, of course, it depends on who you talk to. Now, about that concept of defining it as something as, what's the phrase? Conduct in connection with activity where a federal candidate appears on the ballot. Devil's advocate for the moment, why is activity in an odd- numbered year something that consider to be, say, more in connection with nonfederal election activity than, say, in connection with the federal election activity?

I mean, if you're ÄÄÄÄ in a state where for the most part they hold most of the state elections in an odd-numbered year I can see an argument that look, it's every bit as much for federal candidates support as it is for nonfederal candidates support.

MR. HONG: If I understand your question correctly you're asking whether in states where there's odd-numbered state elections in those cases you should --

COMM. THOMAS: Actually, I'm thinking of the other situations where we're talking about the standard state arrangement where almost all the elections are done in an even year and we're looking at well, what is the party doing in the odd year? Why would we say or assume that well, gee, most of that kind of voter ID or GOTV or generic party activity is designed for nonfederal election support as opposed to federal?

You certainly wouldn't go so far as to say it's exclusively for nonfederal election-related activity, would you?

MR. HONG: Right, that's a valid concern but if we are to take that approach regarding this provision, everything, odd-numbered, even-numbered, all activity would be covered under this provision. And that is clearly not the intent of this statute.

The statute clearly intended to limit the GOTV that's going to be covered and the words that the Congress chose was for activity in connection with an election where a federal candidate appears on the ballot.

And if we are to take that to the extreme and say all activity, odd- numbered, even-numbered years, could help impact a federal election somewhere down the road that provision would be meaningless under the statute and that is not where neither Congress nor I think the common reading of what nonprofits do, such as the National Voter Fund, and would be not a correct application.

COMM. THOMAS: Well again, I come back to it depends on who you talk to. I gather in reading the comments of the sponsors that's exactly what they intend and I guess it's a hard rule. They're saying what you're left with is letting federal candidates and office holders help you raise money from individuals in chunks of $20,000 or smaller.

MR. HONG: Well, that would be the wrong conclusion because what you would be encompassing under this rule is essentially overincluding legitimate state activity. And it could be in states where they have even-numbered elections that maybe all GOTV could benefit that election. But the thing is there are also local elections that could be done on odd-umbered years.

Now, I don't know what the statistics are as to where all cities and counties are up for election in all the 50 states but my point is that I don't think we should be in the business of deciding that.

I think the Commission should be in the business of creating a bright line, clear standard as to when activity is intended by this statute, and when activity is such a clear activity, that is, in connection with a federal election that there's no question about that period itself, that that is the standard that the Commission should come up with.

COMM. THOMAS: I mean, just again, in those states where they don't have the elections for nonfederal offices in odd years and virtually everything's done in the even years I can still see a pretty good argument that the party folks in those states, anybody, undertaking voter registration or voter ID work and so on aren't separating out saying well, this part of our generic campaign function is just for the nonfederal candidates and tomorrow we'll start doing the generic campaign activity for the federal candidate work. I just don't see working here as a practical matter.

So I can see how Congress might have had as a rationale that indeed virtually every situation even in the odd years should be viewed as at least in part in connection with federal elections.

MR. GOLD: We suggest in our comments that for subsection 2, get out the vote activity and generic campaign activity that there be some objective point and generally one of election year is one. It's not perfect but it's understandable. It's uniform. Or perhaps when somebody actually qualifies for the ballot. But another way to look at this might be, as the chairman indicated, look at the kinds of activity you're talking about.

It's not necessarily a fair assumption that the time for these activities has to be greater than the 120 days that is separately established for voter registration activity and I don't know that there is a clear explanation by anybody as to why the distinction was made. But voter ID I think goes to the definition of voter ID. We have one that we've suggested, I think others have, too, is that that be limited to truly partisan voter ID and not massing of lists but actually communicating with voters and trying to ascertain how they're going to vote in a particular election either for a candidate or a party which ordinarily, as the chairman suggests, is something that happens closer to an election than not.

It could be that there ought to be a cutoff of that that is less than 120 days. Get out the vote activity is an even more obviously example of that. Generic campaign activity is something that may happen, I suppose, at any time.

I'm not suggesting a definite answer here but it's not at all self-evident that the time line for these ought to be broader notwithstanding the fact that you will have in many states elections that are both state and federal only in even-numbered years and operate on the same primary calendar.

Again, I think that taking the view that you suggest when you ÄÄÄÄ it is making some of the language here I think superfluous and the Commission will have to try not to do that.

COMM. THOMAS: If I could just briefly follow up with a comment. Of course, one concern we have is if we went the way you are suggesting to aid, if you will, the nonprofit groups' ability to have people help them raise money, we are then opening up on the other end. We're dealing with that situation where a lot less activity is deemed federal election activity.

And that leads us to the unclear, big issue we've got, which is are we going to at that point say that that stuff still has to be allocated so that at least the nonfederal share could be paid for with regular soft money but the federal share would still have to be paid for with hard money.

And if we took the position that well, gosh, no, if it's not federal election activity can we pay for 100 percent with soft money we're really blowing away, at least in my view, the underlying concept of the soft money prohibition.

So I'll just finish with one last thought with you. It's not a question but ÄÄÄÄ would remember fondly Commissioner Harris and at one point the issue of what is a solicitation came up and you'll recall where the FEC's offices used to be down on 14th Street? And we said if we don't know what solicitation is around this part of town we all should be kicked out of our seats.

CHMN. MASON: Thank you all for coming. Ray Norton.

MR. NORTON: Thank you, Mr. Chairman. Good afternoon, Mr. Hong, Mr. Gold, and Mr. Sullivan. I wanted to start with the agency issue if I could. Really, there isn't anything unusual about trying to determine what the appropriate circumstances are to impute liability to a principal for an agent's conduct. Where you're dealing with a federal statute as we are here it doesn't define "agency" as we have here. Nor are the questions of multiple capacity unique. These issues have been addressed in the context of Title VII, anti-trust, False Claims Act, a whole lot of areas.

Mr. Gold said earlier that we ought to make sure that the agent is truly acting on behalf of a party organization but in those other contexts that guiding principle has been applied where agents are acting in a capacity where they have implied authority and even where they have apparent authority, where, to paraphrase the language of Reg 109.1, they've been placed in the position within the organization where it would reasonably appear that they are authorized to raise or solicit funds.

To take perhaps a different approach to Commissioner McDonald's question is there any basis in the text of the statute, or in the legislative history for departing from the approach taken in the context of other federal statutes where the term "agency" is not defined and where the question of what conduct ought to be imputed to a principal at issue?

MR. GOLD: I don't think there's anything in the statute or the legislative history here that suggests that the mission of the agency ought to be more expansive if that's the question and I think that --

MR. NORTON: The question is why shouldn't it be coextensive? Why should it be interpreted more narrowly here absent anything in the text of the statute or in the legislative history than it has been by courts in a variety of contexts where the issue is penalties and fines imposed under federal statute on principals violations of their agent activity where the term agent isn't defined in the statute? Absent any indication from Congress why shouldn't we approach it the same way here?

MR. GOLD: I think generally, it ought to be approached in a similar manner as other statutes that don't have their own definitions of "agent." But, again, the similarity includes the fact that every statute is unique and every statute implicates different values and concerns. And here we're dealing with First Amendment activity, we're dealing with a dramatic expansion of the scope of the Federal Election Campaign Act into state and local activities, into the behavior of thousands of people involving state and local party organizations who have never really been directly regulated in the same manner here and I think the Commission needs to be mindful of it. It's not a rejection of general agency law.

Agency law has to be drawn on here but it has to be drawn on given the specific context and concerns here. And that's why when we look at what this does and what the implications are for officials of local organizations at all levels, many of whom are volunteers. Even in their capacities as officers of labor organizations they are volunteers. They're not paid. They are the president, the business manager, whatever but actually they work on the job.

These are the people I'm thinking about. They work at the trade, whatever it is, whether it's a nurse or an operating engineer or whatever it is. They may also be the business manager of their small local union and a vice chair of the Democratic Party in their county.

And that's who I'm concerned with here and I think generally, at a general level, you're absolutely right, that the Commission ought to be applying the concept consistently with how the law has to wrestle with it in different contexts but there are special concerns here that ought to inform how it actually defines it and carries it out.

MR. NORTON: Anyone else want to comment on that?

MR. SULLIVAN: Yes, I would. I would not disagree with you, Mr. Norton, that general rules of agency should be applied here. I've got two concerns and I think one of them was expressed by Mr. Gold. The groups and the people that participate both as volunteers for our organizations at the board and the officer level are going to be those people that are oftentimes active in the political environment.

For that reason the regulation as presently drafted I think is sufficiently ambiguous on its face to give concern to our organizations. What your ultimate parameters are for that agency regulation, whatever it may come down on, I think needs to be spelled out, number one, far more clearly.

Otherwise, if it had been clearer on its face I don't think that there would have been the type of concern that's been expressed here today and the ambiguity that goes with it.

But second of all, again, I know for years we keep coming back to this principle but we are dealing with the concept of political speech and political participation and the right of association here. In other words we're not political organizations. We're not here today representing "political organizations."

It is membership, it's trade associations, and with the definition that is I think sufficiently ambiguous at this point, as I've mentioned earlier, I think what you were doing is chilling the ability of some of those people to serve two capacities both as an "agent" of a political party system and perhaps other activities that they might support from a philosophical perspective.

MR. NORTON: Thank you. I would just make the observation that even outside of Regulation 109.1 the Commission has applied agency concepts with respect to any number of investigations that it's been confronted with and to my understanding has applied the definition more broadly.

I was wondering whether you had a reaction to the concern of the sponsors that a definition that is limited to actual express oral or written authority to act on behalf of is susceptible to mischief, that in the real world you can put someone in a position of authority in connection with the campaign such that the authority to raise funds is implied. You don't need to actually put it in writing or be explicit orally. Is that a legitimate concern?

MR. SULLIVAN: From my client's standpoint I think that most of the people at the director, officer level are constantly looking and recruiting both for new members and soliciting for funds to have that and it's implicit in their particular role.

If you were to segregate that to one or two individuals I think that that would be unrealistic simply because part of especially a growing organization you want to encourage not only the officers and the directors of an organization but the members themselves to go out and solicit new membership, solicit funds, and I would think that having the restriction in place where it would have to be a written restriction would be unenforceable at that point.

MR. NORTON: Let me turn to the provisions we were discussing just a moment ago permitting certain solicitations by federal candidates. And I wanted to focus first on 4(a) that concerns general solicitations. That's the provision that allows candidates or office holders to make general solicitations on behalf of 501(c) organizations as long as the principal purpose of the organization is not to engage in federal activity and the solicitation doesn't specify how the funds will or should be used.

Under your reading of this provision of the statute would it permit an officeholder to solicit unlimited funds from any source for a 501(c), again, whose principal purpose is not federal election activity if that organization makes disbursements for federal election activity so long as the office holder doesn't say in the solicitation that it's going to be used for that purpose?

In other words should it make any difference if the office holder knows that the funds are going to be used for a particular purpose and that is for federal election activity so long as the solicitation doesn't say so?

MR. HONG: Well, we agree with that conclusion, that an office holder, a federal office holder, would be able to raise money in an unlimited fashion, as long as the entity's primary purpose is not to engage in federal election activity.

But to impose a knowledge test as to whether the federal office holder knows or doesn't know where the money's going to go, well, first of all, I would have a concern regarding the coordination rules out there. So generally speaking the office holders won't know exactly where the money's going to be used or in what way the money will be used.

But I hesitate in supporting a standard that involves knowledge of the office holders and exactly how that would proven or how that would be administered. When it comes to knowledge or intent, it opens up a large, large area for the law to subsume a lot of legitimate activity and I'm concerned about that.

MR. NORTON: Let me just quickly in the remaining moment ask about Part B, which prohibits federal candidates from raising unlimited funds from any source for 501(c) organizations whose principal purpose is to conduct voter registration, voter ID, and GOTV.

Do you have any suggestions for the Commission as to how a federal office holder or candidate should determine an organization's principal purpose and whether, for example, that principal purpose should be defined as a certain percentage of an organization's expenditures over a period of time?

MR. HONG: Well, we believe that in trying to define what a primary purpose is we believe at the very least it should be a majority of their activity over at least an election cycle if not more and that the idea of principal purpose or primary purpose has already been established to a large degree under the tax law and that, I think, would give some indication of what that would mean.

CHMN. MASON: Mr. Pehrkon?

MR. PEHRKOM: Mr. Chairman, I have no questions.

CHMN. MASON: Follow-up questions from members of the Commission? I'm getting three down here, and we are going to take a break. Vice Chairman Sandstrom.

COMM. SANDSTROM: Are we sticking to the two minutes?

MR. NORTON: We'll do the two minute.

COMM. SANDSTROM: This concept of agency echoes throughout today's hearing. Usually, you don't authorize people to make gifts to you. I mean, it's an odd concept that you're actually authorizing people to make gifts.

It seems to me most money is raised by vast voluntary volunteer networks for campaigns and that you want to authorize people to do that. You'd look at their checks when they came in and say thank you. And it seems to me that in any particular community there is a limited number of people who actually raise money, are very good at it, are willing to do it, and if you're running a federal campaign you probably call upon it, look at the people in the state who are pretty good at doing that for state races.

So aren't usually these people if there is such a thing as being authorized to raise money raising money from multiple people and multiple charities because that's how they're known in the community and that's why you called upon them in the first place? Would that correspond to your experience?

MR. GOLD: I think that's correct. I mean, clearly that you're talking about private individuals who are interested politically and will raise funds from a number of sources routinely. I mean, that's what they'd like to do.

COMM. SANDSTROM: How is this different from other activity? We're talking here just essentially about private conversation that takes place that itself is not inherently bad. Some actually may be quite good, maybe the necessary conversation in politics to have people ask other people for money and that limitations on that have to be looked at very closely.

MR. GOLD: I think that the person who in his private capacity raises money because he or she supports particular candidates ought not to be deemed necessarily an agent of the candidate for doing that. A lot of what comes in is not solicited directly or it's in response to general knowledge or a general solicitation over the web site.

So one problem of going down the road of defining "agency" is that once you get into that thicket there's no other way that you need to try to encounter and define.

You know, there is an argument for not defining at all in the regulations but enforcing it wisely, I'm not sure how comfortable I am with that. But clearly the Commission does that in other contexts, as I think the General Counsel suggested.

COMM. SANDSTROM: We're not regulating pollution or unfair trade practices here. We're regulating private conversations in politics.

MR. GOLD: I agree and I think bright lines and clear guidance are absolutely paramount for people out there. And in so far as that can be done here it ought to be done.

CHMN. MASON: Commissioner Smith.

COMM. SMITH: Well, along the lines of bright lines and so on I just want to touch on a subject we haven't talked about. But a number of restrictions on 501(c)s come into place if you're engaged in federal election activity which can include ads that promote, attack, support, or oppose a candidate. They are usually called by their acronym, PASO ads.

I'll ask generally how comfortable are you that you can advise your clients as to whether an ad they're running or thinking about running, promotes, supports, includes the PASO criteria, and would you have any suggestions for how we might define that if a definition is necessary? Who wants to take that on? Easy question.

MR. GOLD: In a sense it is. And what we said in our comments in ÄÄÄÄ here is I think I missed one. The Commission has a constitutionally impossible task that is not of its own making and so I don't have a specific suggestion of what to do because I think what Congress has done on the face of it it can't do.

I note, how can we advise somebody with this standard? We can't. One of the commenters, I think the Center for Responsive Politics, I wrote it down, says that that phrase means anything that "speaks positively or negatively about a clearly identified federal candidate."

Well, beyond name, rank, and serial number what doesn't qualify for that kind of a description? That's not what the Commission ought to be about. I don't have a specific suggestion. I think this is clearly something that you'll do the best you can with and by June of 2003 hopefully the Supreme Court will make a decision.

COMM. SMITH: Thank you.

CHMN. MASON: I recall some people I worked with on term limits even considered "incumbent" to be a dirty word.

Commissioner McDonald.

COMM. McDONALD: Mr. Chairman, thank you. Well, I'll just close by thanking the panel and saying again that one of the things happening around the table that's a little hard for me to get a grasp on is this very discussion about agency, for example. I mean, some of us are arguing about what is not very advantageous from a particular point of view and I can appreciate that and I'm glad to have those kinds of comments.

But I won't try to kid anyone. I'm troubled by the fact that clearly albeit only some, as was pointed out, we could take that position with any piece of legislation and just say to members well, not all of you came forward after the passage of the act.

But I am troubled that members and in particular authors certainly have a different view of agency than the witnesses do and it concerns me because as a practical matter there's a fairly thin line between arguing about what the law ought to be as opposed to what Congress thinks it should be. I'm almost agnostic on these matters in relationship to where I philosophically come out because I don't really see that as my responsibility.

I think my responsibility is to try as closely as I can possibly to get some grasp of where the Congress was going whether I agree with or disagree with and the discussion has been extremely helpful but I must say I'm still troubled by what I consider certainly worthwhile comments by the authors as well and it's making it very difficult for me to reach a conclusion but I appreciate very much the comments of this panel.

MR. GOLD: If I can respond. The authors of the legislation, we talked about this a bit before but the Commission isn't writing on a clean slate in that regard and the Commission has to interpret it by statute, and there are established standards that the courts have laid down.

They looked at the plain meaning of the statute. I'm paraphrasing now this a little bit. We looked to the he plain meaning in so far as we can't glean ÄÄÄÄ we have to resort to other aids, the legislative history and the like.

I don't know of any principle statutory construction that says that whoever the principal sponsors are have to have some kind of continuing role of interpreting, advising, instructing, or requiring the Commission to decide anything, let alone the courts and, as I said before, the fact that ÄÄÄÄ sponsors who are not the sole sponsors, for that matter, of the legislation are participating in this rule making is fine. But I think the Commission should not be unduly influenced whatsoever by that view alone as authoritative. It's not.

I'm mindful that there's some political context here that the Commission has been severely criticized generally and there are suggestions from some of the same sources to overhaul the structure which I think is not fair to how the Commission has had to operate over years and years.

And I think Commissioners ought to do what I know they're trying to do, which is a job that's faithful to the statute, and I think the Commission will succeed as much as it can by applying established legal principles on how to interpret statutes and not give I think undue regard to post- enactment statements, interpretations, and the like by the sponsors, particularly where none of those views, interpretations, and the like, were ever put in the legislative history.

COMM. McDONALD: You'd more closely, I gather, embrace the points raised by Larry Norton earlier then about agency? He reflected on how agency has been seen over the years by a number of agencies like ours on the regulatory side?

MR. GOLD: Well, without knowing exactly ÄÄÄÄ in mind I think is a basic principle where the Commission can draw on established legal experience it should but, again, there are unique considerations here and the Commission has to deal with the ÄÄÄÄ of the federal election campaign ÄÄÄÄ First Amendment but yes, certainly more so, again, than post-enactment statements that don't find any echoes in the legislative record.

I mean, there was plenty of time to create a legislative history here leaving aside how much deference you can give to a legislative history. If it's not there at all why is it somehow authoritative now?

COMM. McDONALD: Do you think the FECA itself is a violation of the First Amendment?

MR. GOLD: I think certain aspects, the FECA as amended? Yes.

COMM. McDONALD: That's very good. I know where you stand. I believe I read that a little earlier. How about before it was amended?

MR. GOLD: I think that requires more consideration than an off the cuff response.

CHMN. MASON: Commissioner Toner.

COMM. TONER: Thank you, Mr. Chairman. I just want to follow up on a couple of points that were raised earlier. Mr. Gold, in an earlier discussion, as you noticed, BCRA has a 120-day, bright line standard for voter registration activities, in terms of if you conduct that within the 120-day window then it will be deemed to be federal election activity.

But GOTV activities and generic campaign activities and voter ID activities do not have that standard in the statute but instead there's a reference to when they're conducted in connection with an election in which a federal candidate is on the ballot.

I thought I heard you suggest that we shouldn't dismiss out of hand the possibility of applying the same 120-day standard for those activities that we're going to apply for voter registration?

MR. GOLD: No. If I did I misstated it. What I suggested was that one shouldn't assume that the period of time that would be applicable to those would be more than 120 days. It might be less and we might have to look at each activity and it might be that the best way to look at it is to try to define these terms in such a way that it isn't temporally bound per se and the Commission doesn't come up with an arbitrary date but defines activity in such a way that when it happens it happens.

COMM. TONER: Activity by activity based on how they are really operating?

MR. GOLD: No, I don't have an easy way to do it here because I think it's a hard task because I think these terms mean different things to different people and I'm not sure how much guidance there is in the legislative history but I did not suggest earlier or mean to that the 120 days ought to be applied there. There is an argument that it wasn't because Congress could have and chose not to.

Commissioner McDonald asked me a very big question and I don't mean to suggest that I believe that the statute even before amended is unconstitutional. I don't. I think that there may be aspects of it that arguably are which would require considered thought but I certainly believe that it is within this Constitution to regulate in the campaign finance field.

COMM. McDONALD: I was just writing down that quote because I'm writing everything you guys say that really the authors of the bill really don't have any import. I'm just trying to get that down. I want to be sure that members of Congress follow that through.

COMM. TONER: Mr. Hong, you in your testimony have stressed the need for safe harbors and clarity and I take it that given your organization's mission that would apply to the concept of voter registration kinds of activities that constitute that.

In that regard I think the vice chairman's hypothetical was very instructive which as I understand was essentially what if a state party paid for a national figure such as Reverend Jesse Jackson to go to an event at which he urged people there to register to vote?

In your view if we issue a regulation that treated that type of activity as voter registration would that be consistent with a bright line approach?

MR. HONG: To answer that question I would like to know exactly what was the regulatory provision that would have covered that because if the regulatory provision that would have covered that activity stated something to the effect of any activity where the purpose is to ultimately get people registered or where there's any ÄÄÄÄ voter registration mentioned at an event I think that would be overly broad.

But if you were to create bright line examples of what voter registration is as I think the proposed rules already have in the context of GOTV, give examples of going out and signing people up for voter registration, that that would be covered I think if the Commission were to give discrete example like that then maybe that activity ÄÄÄÄ acceptable. But I think it's the way you cover it that's more important than whether that specific example would be covered because if Jesse Jackson is there speaking about the civic duties of African Americans to go out and vote in general and happens to say by the way, you have to register to vote I'd hate to say that that's voter registration activity.

COMM. TONER: I agree.

Thank you, Mr. Chairman.

CHMN. MASON: I don't have any follow-ups at this time.

Commissioner Thomas?

COMM. THOMAS: No, I'm fine. Thanks.

CHMN. MASON: Larry Norton?

MR. NORTON: I have a request for a five-minute recess and again thank all the members of this panel and we'll be back with Mr. Ginsberg in about five minutes. Thank you.

(Recess)

CHMN. MASON: The Federal Election Commission's public hearing on prohibited and excessive contributions will reconvene after our five-minute recess. We're delighted to have this afternoon Dan Ginsberg, who, as with members of the panel this morning, is representing no one.

His knowledge of federal election law is legion. He's former counsel to a national party committee, inside counsel to at least one presidential campaign. Ben, we're delighted to have you here. He has, just as a matter of formal testimony, associated himself with the views of his client, the Republican National Committee, but is testifying on his own behalf.

We'll give Ben five minutes for an opening statement, and then five minutes each for a round of questions from Commissioners and staff. Go ahead, Ben.

MR. GINSBERG: Thank you, Mr. Chairman, and it's a pleasure to be here. I appreciate it. Being up here by myself was not exactly my intent, and I don't know how many of you play Guacamole down at the boardwalk but I think the game just broke and my bald little head is the only thing sitting up there for all of you.

But this is important and I do appreciate being able to address you. Your staff has obviously done a Herculean job in preparing the regulations, the draft of the regulations. It is no easy task but it certainly does provide an excellent starting point.

I am appearing as an attorney who represents political parties, special interest groups, and candidates, although my comments are my own and not those of any of the groups or individuals who I work with.

You do face a difficult challenge in devising regulations that are true to the statute but which are still constitutional. Today you've been urged to draft regulations which in several instances would render that already daunting task impossible.

What I'd like to do is focus on some of the Fifth Amendment equal protection issues raised by the draft regulations and the suggestions to them that you've heard today. I'd like to address them from the perspective of two of the groups with which I'm most familiar, the political parties, whose activities are most circumscribed by the proposed regulations, and special interest groups all across the political spectrum whose activities are not in the least circumscribed and in fact will thrive under the new law especially if you adopt some of the proposals that you heard this morning. In particular I'd like to focus on voter identification, voter registration, voter contact, and voter turnout programs, really the heart of what parties do now.

What you've been urged to do today is in effect draft regulations that eviscerate the political party's ability to conduct these programs while still allowing special interest groups to carry on the very same activities with the very same soft money that the parties could no longer use under the way the sponsors in the first panel this morning would have you construct the law.

That's where the equal protection concerns come into play. The sponsors' letters and the members of the first panel today asked you to end the soft money system but, and I say this on the basis of really the practical aspect of the practice in which I've been engaged, what they've urged you to do in drafting the regulations will have precisely the opposite effect of ending the soft money system.

Nothing in the regulations as the sponsors propose them will end the soft money system in federal elections. Rather their suggestions will lead to a massive redistribution of soft money in federal elections from parties raising money that's legal under state law and reporting it fully on the federal and state level to special interest groups spending unreported soft money on precisely the same activities that the parties are now prohibited from doing. The special interest groups will not have to report any of this activity.

The notion that the Commission owes a special deference to the sponsors was I think a bit overstated this morning. Courts correctly, for example, look to the actual language of the statute and if it's not in the statute, if it's not there, they're reluctant to look even at the legislative history because if it's not in the statute itself the legislative body didn't agree to it.

In this instance the sponsors didn't get what they asked you to put in the regs. They did not get that in the statute itself nor is it even in the legislative history in several instances. So they're trying here before the Commission to get a third bite at the apple. If what they asked you to do was indeed part of the statute and indeed had been approved by the legislative body itself then why ask you for it because it plainly would have been in the statute and it's not.

Here are some specific examples. On page 3 of their letter to the Commission the sponsors state the new law's definition of federal election activity covers all get out the vote, voter identification, voter contact, and generic campaign activity during the entirety of a two-year cycle no matter what the actual words used in the communication itself that they're trying to regulate. The result of adopting their construction would mean that state parties could conduct almost none of the traditional party-building activities that they do now with money that's legal under state law contrary to the notion that when a federal candidate appears on the ballot, indeed as part of that, and no candidate two years out could possibly have qualified for the ballot so the notion of entering into a two-year cycle is perhaps wrong.

The sponsors also tell you that these activities should be paid for only by allocating between the party's federal account and the new Levin account without any share being paid from what is now legal under state law in the party's state account. The point is the law is ambiguous now. In discussing this provision the RNC comments are I think correct that under the plain words of the statute the activity should expressly advocate the election or defeat to fall under the federal and Levin account allocations.

In reality compiling voter lists, generic issue identification, internal polling, or even planning Republican victory programs or Democratic Party coordinated campaigns should be viewed as the party's administrative overhead allocable between the federal accounts and the state accounts since they support both groups of candidates. This should not be considered federal election activity.

The best way to look at this, and I see that my time is up, but I hope in the questions we can discuss specifically the ways that the parties do conduct some of these party-building programs and the way that special interest groups would be able to conduct those programs under the new law.

In conclusion, Congress wanted to cut off soft money to state parties but in writing the regulations I would hope that you would not fall into the trap of overextending what is in the law, in other words interpreting in the way that you've been urged to do in such a matter that would create constitutional infirmities for all those who do engage in the federal election process, the state election process, and the local election process. Thank you.

CHMN. MASON: Commissioner Thomas?

COMM. THOMAS: Thank you, Mr. Chairman. First, I want to follow on what you were talking about in terms of allowing for allocation. If something doesn't fit within the definition of federal election activity however we end up defining that how much are you contemplating would therefore fall into in essence the traditional FEC allocation concept such that they would still have to pay for a portion of it using hard money?

MR. GINSBERG: I think that a proportion would still have to be paid before using hard money. I don't personally share the view that somehow this could all become soft money. But again I think under the vagueness that's in the statute and the job you have before you in defining federal election activity you could come out that way.

COMM. THOMAS: With regard to this issue of party committees, national party committees, state party committees, and so on being able to basically operate through what you might call rump groups to do indirectly what they otherwise couldn't do directly the statute includes some language to the effect that any organization that is established or financed or maintained or controlled by the party entity would be subject to the same sort of rules as applied to the party unit in question.

I'm curious. Just in terms of practical realities within, say, the party structure you're familiar with what do you think is going to happen with regard to groups like the Republican Governors Association or the National Republican State Elections Committee or maybe the Republican state election chairs group? I've forgotten the proper name. Do you see some sort of effort to have those groups reorganizing so that by November 6th they would be able to in essence claim they are not established, financed, maintained, or controlled by the national party?

MR. GINSBERG: I think that's an inevitable result. I don't read anything in the statute that would indicate some sort of a notion that a group of state officials can't get together and make contributions to their fellow state officials or raise money for state officials under money that's legal under the laws of that particular state.

If anything that raises one of the equal protection notions that I alluded to in my opening comments. In other words there are plenty of groups that will be able to band together to raise money that's legal under state law to help state officials get elected.

It is not, I don't believe, stated anywhere in the law that would stop governors themselves from having the same right as those other groups will clearly enjoy.

COMM. THOMAS: But just based on your familiarity with the current structures do you see entities like the Republican Governors Association and those other that I've mentioned having to perhaps actually go through some by-laws changes or some other structural changes to get out of the language that's in BCRA now, the language about established, financed, maintained or controlled?

MR. GINSBERG: I don't read that language in BCRA in any way, shape, manner or form to prohibit a group like the Democratic Governors Association or the Republican Governors Association or the state caucus legislators from forming their own groups so that they can act under the laws that their own states have passed.

I mean, after all, the difficulty here is that you've got members of the legislature who have taken votes in their legislature to make certain contributions legal and all of a sudden the notion that Senators and Representatives in Washington, wonderful people though they may be, can somehow supersede the judgment of those elected state officials on how elections in their states should be conducted is I think not the intent of the law nor the language of the law nor should you be put in the position of having to construct the law that way.

COMM. THOMAS: What I'm getting at, there was an article the other day talking about the Association of State Democratic Chairs and what might happen to it. It might go through some metamorphosis so that it can perhaps function in a way that it would be raising and spending what had heretofore been referred to as soft money and that it would be able to do so through some sort of reorganization to be free of the national party structure and I was just trying to get some sense as to your familiarity with those types of organizations and whether in fact we at the Commission are going to have to worry about some sort of change in these organizations' longstanding structure or relationship with the national parties that's taking place on or before November 6th and that we'll have to somehow further track those distinctions and differences.

MR. GINSBERG: I mean, I don't. I think it is outside of your purview to regulate even under this new law what happens in state elections involving state candidates operating under laws passed by their duly elected legislators.

COMM. THOMAS: Are you raising a pure Constitutional federalism concern?

MR. GINSBERG: Well, I think that's certainly the root of it but I think it has practical implications as well when you raised the point of do we have to worry about that. And I think the answer is you don't have to worry about it. I think if you try and stop the Association of State Democratic Chairs from being involved in elections in their state under the laws passed by their state legislators and if you somehow manage to clamp down on them, which I think would be constitutionally impermissible, I think that there will be plenty of other groups who will do precisely the same thing and you won't be able to touch them under any scenario.

COMM. THOMAS: Thank you.

CHMN. MASON: Thank you. But I want to follow up on that same issue that Commissioner Thomas was talking about and I do want to note that in the statute itself there was an explicit reference to groups of state office holders and to conditions under which it appears to be an effort to limit their activities to what the sponsors might have called genuine state activities, in other words that if the state office holders got into federal election activity it's fine by the statute. They'd have to raise hard money for it but if they were somehow able to restrict their activities to things other than federal election activity the statute appears to give them license.

If you will, help me, because I understand your constitutional arguments, put on the mind of the sponsors a little bit, perhaps go where Commissioner McDonald would like to go. We've got in the statute the contemplation of the state office holders doing state activity but on an interstate basis, if you will, but, given the party structure of the two national parties, where I understand the state party chairmen are all members of the national committees of their respective parties, how can we say that an organization consisting solely of the state party chairmen would somehow be separate from the national party such that it wasn't within the intended reach at least of the legislation?

MR. GINSBERG: Well, let's put it this way. If you don't say that what will happen is that you will have a complete and utter bifurcation of what passes for political parties if political parties survive. So that I think that given the lack of clarity in the new law it's up to you how you interpret those phrases and the activities of those groups.

Again, as a practical matter I did not hear those who have close ties to the sponsors this morning, although I understand they weren't representing the sponsors, saying categorically that state chairmen were somehow precluded from some state activities while still being on the national committee.

I mean, I think there was an element of the practicality of politics here and one of the most surprising things to me that I've seen in representing both state and local parties is the role of state legislative caucus leaders. Believe it or not, and in Washington we have a great deal of difficulty believing it, their primary concern is not members of Congress. They really care much more about their state legislators and governors and the I think inevitable result is that if you say that state chairs are precluded from carrying on pretty much their normal activities, and I don't think you're put in that position by the plain wording of the statute, but if you do say that you will have either one of two results.

Either you will have completely different party structures or you'll have those state legislators over the course of the decade enacting new laws so they're not called state parties. They're called something else. And in essence what you'll have is far more soft money in the system not reported centrally to the Federal Election Commission in Washington that in fact is responsible for contacting voters and turning out voters. So in a sense, you're keeping the toothpaste in the tube, which it seems you are urged to do, is just not practical.

CHMN. MASON: Well, I share some of your concerns but I'm still not sure, given the apparent intended reach of the statute, how these persons who are officers of a national political party could then jointly turn around and conduct soft money fundraising prohibited by the party and I'm not talking about somebody who is a volunteer, who did it part-time, but somebody who's on the governing board and roughly a third of the members of the governing board of the national party establishing a satellite organization. I understand the practical arguments but I'm trying to understand the statutory scheme where we could say that was okay.

MR. GINSBERG: Well, I think the answer to that may lie in the definition you choose for agency, in effect, and the precise rules that you permit various officials to undertake in their capacities. Now, I think in looking at this law, there may have been any number of things that the sponsors and drafters of the law didn't realize they were doing in the law and perhaps the role of state chairs is one of those.

In a sense those of us who are both litigating the case and in this position face a conflict because if you want to try and stop state chairs from engaging in the activity they're allowed to do as state chairs it's probably not a bad fact for the case.

CHMN. MASON: I appreciate that as well. Commissioner McDonald.

COMM. McDONALD: Mr. Chairman, thank you, and, Ben, thank you for coming. I think this will probably do more to damage your career than anything I can think of. I intend to agree with Ben. I did spend a good deal of time with the Oklahoma legislature and I must say that most times that they ever talked about the Congress or the United States Senators happened to be in the reapportionment years in which I was involved on several occasions and he's not wrong, at least from my experience, that the primary interest, at least at the legislative level, is their very activities and I think that's the norm.

Now, it may beg the question about what the overall impact is. We had one of our previous witnesses on the 501(c) question talking about the impact in terms of registration and I know the chairman indicated that he felt like having any voter identification more than a month or two out, I believe he said, was inconsequential because people wouldn't focus.

And I think he's probably right about that and my experience has been, having been a local election official for a number of years, that you also couldn't get people to register to vote. I mean, it's very hard in a nonelection year or even in a gubernatorial year we found it was still extremely difficult.

Let me just ask, if I could, because I know you've had lots of experience. Can you just give us your take on the Levin Amendment and how you see it playing out? I know you're incorporated in part but I'd just like to get your take on that and how you see it as a practical matter from where you stand.

MR. GINSBERG: I think despite some of the predictions that were made this morning my guess is that the Levin accounts will not be terribly heavily utilized by the state party, that there's a false hope that will prove to be more trouble than they're worth and more expensive than they're worth.

And let me tell you what I mean by that. In essence a political party committee will only be able to use Levin money for a generic message and I think that most parties will tell you that in almost all circumstances a generic message is the singularly least effective message that you can put out. It is not as effective as naming a federal candidate and urging people to vote for him.

I mean, we have a problem in this country about many people not knowing the names of their candidates and in many states party labels get a little bit blurred, and you have a growing number of people who are independents and not registered by party who do vote for individuals.

So stand alone generic messages are not terribly effective and as federal dollars become scarcer amongst the party committees you probably will husband your federal dollars to actually spend on express messages on behalf of candidates. And once you name a federal candidate, of course, the money has to be all federal and the Levin money does you no good. Plus if you take the construction that to raise Levin money you have to use federal money to raise that Levin money that to me makes it I think a marginal benefit and an extremely high cost and I would be very surprised if many state parties spent a whole lot of time raising Levin money.

COMM. McDONALD: Thank you.

CHMN. MASON: Commissioner Smith?

COMM. SMITH: Thank you, Mr. Chairman. Mr. Ginsberg, in your opening you suggested that you hoped that in the question period you would have some time to compare how parties take on these voter identification and get out the vote activities and so on with how other groups do it.

Nobody's asked you that yet so give us some real world examples and explain what are the real world effects of this, and what are some of those differences that you're alluding to there?

MR. GINSBERG: I'd be happy to. Let me provide a couple of examples. Identifying voters is something that parties do just to be able to get some sense of who is likely to support their issues or their candidates and they do that now largely through telephone scripts and those scripts are allocated between the federal and the state accounts depending on who is mentioned in the script.

Under the new law if they did that the entire script would have to be paid for with all federal dollars if it mentioned a specific federal candidate. Special interest groups, be it the National Rifle Association or handgun control, would be able to raise money that is unlimited, unreported, soft money to conduct the same activity.

Or voter list development work, in which you basically have your state parties go around to all the counties and states that compile lists by counties or take the state list on those few states that have statewide computer lists. The state parties gather it, give it to the national parties. The national parties do enhancements to those lists, various demographic, voter pattern history.

It is a cost that is split as an overhead cost between the federal account and the state account usually based on the ballot composition in that state as set by your current regulations. Under the new law that would probably have to be all federal. At least, that's certainly the way you were urged to interpret it this morning.

Special interest groups, on the other hand, will be able to get a hold of that publicly available information and prepare voter lists with all soft money. The parties can't raise it. The special interest groups won't have to report it.

Voter registration is a little bit different because of both motor voter and because of the 120-day rule but in essence the parties allocate between federal and state dollars when they prepare those and special interest groups will be able to use all unreported soft dollars to do it.

In addition that's a fertile ground for new, broad-based membership organizations to start up such as the New Democratic Network that I think was also mentioned in that article Saturday you referred to.

Absentee ballot programs are much the same way. Parties will now send out absentee ballots and allocate between the federal and state account depending on the candidates mentioned on the actual piece they send out. Under the new law because you undoubtedly would want to mention at least one federal candidate in there it would have to be paid for entirely by federal, none of the dollars that are legal under state law.

Special interest groups, on the other hand, would be able to send out communications to their members using entirely soft dollars. The same would be true for sample ballots, slate cards, palm cards, get out the vote programs, which are now allocated according to who is mentioned in a script, what candidates between a federal and state account by parties. The new law would federalize the money that's spent by the parties.

Special interest groups, again the broader the membership the better, would be able to go out and do that all with unreported soft money that the parties can no longer use.

COMM. SMITH: Let me cut in here as our time is wrapping up. How much of this is something that we can address in the regs because how much of it is simply these are the outcomes dictated by the statute? Can you give us some examples of where we might look to the regs to address these types of concerns?

MR. GINSBERG: Well, I think the notion of when a federal candidate is on the ballot and in connection with federal election activity are terms that you will be defining in this rule making process. And I think the temporal restrictions you put on those terms will have a lot to do with the way the parties are able to either pay or not pay for those programs.

And again I'd urge you to keep in mind the fundamental equal protection issues here, that if you draw these definitions so tight that all these activities fall within a two-year cycle in which parties have to use all federal dollars to pay for it and a whole bunch of special interest groups are out there being able to use all unreported soft money to conduct the very same activities with the very same money the parties can no longer use I think you're with the regulations creating an equal protection problem.

CHMN. MASON: Vice Chairman Sandstrom.

COMM. SANDSTROM: Good afternoon, Dan.

MR. GINSBERG: Carl.

COMM. SANDSTROM: How many individuals contributed to the Bush campaign? Do you have any idea?

MR. GINSBERG: I don't recall the exact number, several hundred thousand.

COMM. SANDSTROM: How many people probably asked those various people to contribute to the Bush campaign?

MR. GINSBERG: I have no idea. Lots, the Bush campaign had a large number of very enthusiastic volunteers.

COMM. SANDSTROM: Were some of those volunteers also volunteers for the large stable of Republican governors that Governor Bush was friendly with?

MR. GINSBERG: I think there were a number of individual who were interested in politics who I'm sure helped federal candidates, state candidates. They got involved in politics and wanted to participate in the process. Surely we wouldn't want to stop that, would we?

COMM. SANDSTROM: For instance, let's take the State of New York. Some people say that there are a few people up there with the ability to give and there's a governor's race up there now. Would you be surprised to find out that some of the people who raised money for the Bush campaign a couple of years ago are now raising money for the Pataki campaign?

MR. GINSBERG: Well, I would hope that people who are interested in politics and who their elected officials are participate as often as possible and don't make arbitrary distinctions between federal and state races in whom they're going to support because ideas actually transcend federal and state elections.

COMM. SANDSTROM: I'm not sure if you're representing the president now but I imagine that the president hasn't sent out any notice to these people withdrawing any authorization that they did have, declaring they're no longer an agent.

MR. GINSBERG: I suppose that's a nonissue, actually.

COMM. SANDSTROM: Even though they had been at one time authorized to raise money on behalf of the president?

MR. GINSBERG: Well, I'm not here representing the President. He's not a candidate for office right now.

COMM. SANDSTROM: Yes. I said this morning. All mine were just purely fictional.

MR. GINSBERG: You give it the feel of reality.

COMM. SANDSTROM: I have invoked that to our people who have means in New York who would see fit to give to Pataki who had raised money for Governor Bush and they had been authorized to raise money and, I mean, in fact, you don't have an authorization program for raising money, do you?

MR. GINSBERG: Who does?

COMM. SANDSTROM: Any candidates?

MR. GINSBERG: Me personally?

COMM. SANDSTROM: Are you an agent?

MR. GINSBERG: No, I'm not an agent, no.

COMM. SANDSTROM: You haven't authorized but if someone gave you a check would you turn it in?

MR. GINSBERG: I don't know. I suppose I would.

COMM. SANDSTROM: Yes, you would so maybe you're authorized to receive them. Earlier it had been asked about the Republican Governors Association. I'm somewhat familiar with at least the way the Democratic Governors Association used to operate and they were not financed, maintained, or controlled except for maybe some administrative expenses. Are you familiar enough with the Republican Governors Association to indicate whether they are financed or maintained or controlled by the Republican National Committee?

MR. GINSBERG: Well, I have a great deal of difficulty knowing precisely what that term means, first of all, so I think that may be part of it. I do believe that the Republican Governors Association raises its own funds. And I do believe it works closely with the Republican National Committee state elections account.

COMM. SANDSTROM: And with respect to raising of those funds it probably does so under bylaws that were passed by Republican Governors or a charter of the Republican Governors Association?

MR. GINSBERG: I'm afraid I don't know the answer to that question.

COMM. SANDSTROM: On the Democratic side that --

MR. GINSBERG: It's not inconceivable but I just don't know.

COMM. SANDSTROM: And you mentioned state legislators. You're familiar with that. Is it your experience that on a lot of states you'll find a Speakers or Minority Leaders Fund which a lot of people contribute to.

MR. GINSBERG: Yes, I mean, I think the real growth in the political system over the last decade has been legislative caucuses and the growth of legislative accounts in one form or another depending on the state and no two states are precisely the same is there and real.

COMM. SANDSTROM: And generally, as best as you can understand those terms financed, maintained, or controlled, those organization would not be financed, maintained, or controlled by a political party. They'd be by a political caucus?

MR. GINSBERG: I think that varies. Again, without knowing what the term is I think it varies a great deal from state to state. I think a number of those legislative chambers on both sides because of the laws of their state will raise their own money but deposit it in the accounts of the state party.

I think in other states that is not always the case and they operate as political committees on their own. I think what you will find if you define this in a certain way that circumscribes their activities that you'll have a lot of changes in state law that will allow those fiercely independent and powerful state legislative caucuses to go do what they need to do to win elections as they feel fit under the laws of the state that they've passed as legislators.

COMM. SANDSTROM: Thank you very much.

CHMN. MASON: Commissioner Toner?

COMM. TONER: Thank you, Mr. Chairman. Mr. Ginsberg, great to see you.

MR. GINSBERG: Commissioner Toner.

COMM. TONER: You've stressed the need for us to focus on practical considerations as we deal with this tough task of implementing the law and I just wanted to explore a couple of aspects of that.

One is we've got the general ban on office holders, members, and elected officials raising soft money but at the same time these same individuals are permitted to attend, be featured guests, and speak at state party fundraising events. And the issue that we explored at some length this morning was how should we construe that latter statutory phrase and specifically does the term "featured guest" necessarily require us to allow some degree of prior publicity that a member's going to be at these events? Do you agree you should take that type of approach?

MR. GINSBERG: I think as a practical matter you have to especially in light of which I suppose it's a legislative irony at this point that those very same members are allowed to raise funds and in some cases those terrible soft dollars for 501(c) groups.

But in terms of what happens at state party events when federal officials come I think there's got to be some degree of a definition such as you suggest, yes.

COMM. TONER: And it would be pretty difficult to be a feature guest if the state party were barred from ever publicizing the fact that a member's going to be there?

MR. GINSBERG: Yes, the fact that they're going to be there as well as trying to put some sort of restrictions on what they're allowed to say at the events which, again, if you drafted that in terms of the regs would seem to me to be inviting a constitutional challenge in terms of overbroad regulations of the speech of public officials at a political event.

COMM. TONER: In terms of practical considerations do you urge us to take the position that we shouldn't regulate what members say at these events as long as they stop short of a formal solicitation?

MR. GINSBERG: Yes. I mean, I think it would be an awful experience to have opposition researchers from both parties combing the clip files and the Internet, looking for a phrase in a speech by a member somewhere, especially given that some of our favorite members and elected officials can get involved in stemwinders from time to time.

COMM. TONER: It's been known to occur from what I understand.

MR. GINSBERG: It has been known to occur even amongst their lawyers from time to time.

COMM. TONER: Absolutely and we discussed this issue this morning and the statutory phrase "office holder," which is obviously part of this set of issues, again, from a practical perspective do you believe that we should construe that term to be limited to persons who hold elective office, or should we go beyond that to individuals like Cabinet members or sub-Cabinet members who don't hold elective office?

MR. GINSBERG: Well, I don't see that in the statute itself. It seems to me to be something of an overreach to get down that far and, again, it puts you in the position of being a cop for all sorts of what would in the past have been known permissible speech activities.

COMM. TONER: Again, in this focus on practical considerations an issue that I was going to have to come to grips with is the status of the Internet and whether we're going to take the position that it's a public communication or whether we're going to take a more nuanced position.

Do you have some advice for us on how we should approach that?

MR. GINSBERG: Well, I have had some experience in which we were allegedly not providing the full freedoms to members of the Internet community. Look, the Internet is a new, inexpensive way to communicate and I think any regulation of it at this point in the context of these regulations is something you're not required to do by the plain wording of the statute and I would hope that the Commission would not jump into that.

COMM. TONER: You talked at some length earlier about the issue of how we construed, directly or indirectly, "establish, finance, maintain or control," and I think there were some questions about what if organizations are separate from each other prior to the effective date of BCRA and how should that play out.

Do you believe we should create a safe harbor that if organizations are separate prior to the effective date of BCRA that that's something that they can look to in the regulations to provide a safe harbor?

MR. GINSBERG: I think a safe harbor is the single best way to ensure that there is not an inadvertent tripping over overbroad regs and interpretations in the statute. I mean, at the end of the day there are still permissible activities that are allowed under the statute and the safe harbor I think is the easiest way to provide notice of what the rules of the game are going forward. I would think that would be an excellent idea.

COMM. TONER: In terms of interpreting the statutory phrase do you urge us to basically draw upon our existing affiliation regulations that obviously share some of the same phraseology?

MR. GINSBERG: Yes, and there have been problematic enforcement matters over those but as a general rule those involved in politics have a pretty fair idea of what it all means and so I think that clarity, although I think you were urged not to seek clarity at one point this morning, but that clarity would be awfully helpful.

COMM. TONER: Thank you.

CHMN. MASON: Larry Norton.

MR. NORTON: I don't have any questions, Mr. Chairman, thank you.

CHMN. MASON: Jim Pehrkon?

Any Commissioners wish to ask follow-up questions? Commissioner Thomas.

COMM. THOMAS: The concept of agency raised a lot of discussion today. The RNC comments indicate that perhaps the nub of it is to identify agency situations where the principal could be said to exercise some degree of control over the actions of the agent and also, and perhaps even more importantly from my perspective, try to focus on situations where the person is acting within the scope of the agency. With regard to some of the concerns expressed by other commenters today, the immediately preceding panel, for example, don't those concepts pretty much solve the kinds of concerns we've had?

For example, people who wear two hats, wouldn't you solve the problem of agency regardless of whether it's express or implied or apparent if you make sure that the Commission would only be pursuing some sort of liability for someone who's acting within the scope of the agency? And you'd have to find that when the person was soliciting money they were acting within the scope of their authority for the national party committee or for the state party committee or --

MR. GINSBERG: I think, again, the devil is in the details on something like this but I think that is a helpful way to start off. I mean, I think what you don't want to do is fall into any of the practical traps that can occur, the state chairman being one. I suppose the second is political consultants.

There are plenty of consultants on both sides of the aisle who work on a regular basis in both federal and state races at the same time. I don't think you want to be going to any of our political media pollsters and say sorry, you're going to have to make a choice between working only in federal races and state races.

And I think as a practical matter that's maybe even more troublesome than dealing with the state chairs. I don't know what you do if you have a large campaign like a presidential campaign with many, many volunteers who engage in the process, and one of those volunteers who raise money for you happens to feel very deeply about a cause and goes out and raises money for that cause and then that cause ends up running an issue ad because party committees can't run those things any more.

I don't think you can put a degree of knowledge on the campaign itself to police all those volunteers. I think you'd just end up in an enforcement morass from which you can never pull out and I don't think that's where the law really wants you to go and it's certainly not in the plain language of the statute now, I don't believe.

COMM. THOMAS: Thank you.

CHMN. MASON: Vice Chairman Sandstrom.

COMM. SANDSTROM: Just your practical perspective on the obligations of state candidates. It was suggested this morning if a state candidate were to run an ad criticizing the President's position on Yucca Mountain, praising the two Senators, that would be considered public communication and therefore the state candidate would be required to report and abide by contribution limitations and prohibitions of the act.

Since this might happen in the middle of a campaign do you see any practical way that a state candidate could comply with such a requirement?

MR. GINSBERG: I suppose that the state candidate would have to consider himself a federal candidate as well and raise federal money but, I mean, that's not going to happen because you can't appear twice on most ballots so in essence you've put your finger on a really nettlesome practical problem.

COMM. SANDSTROM: No practical solution from you?

MR. GINSBERG: No. I mean, I think you've got to write the reg so that that person isn't squelched from some notion of free speech. It's up to you.

CHMN. MASON: There being no further questions, we are in recess until tomorrow morning at 9:30.

(Whereupon, at 5:03 p.m., the PROCEEDINGS were continued.)

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