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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.
Wednesday, June 5, 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

First Morning Panel 357


Second Morning Panel 465




* * * * *

P R O C E E D I N G S

(9:35 a.m.)

CHMN. MASON: The hearing of the Federal Election Commission on Prohibited and Excessive Contributions, Non-Federal Funds and Soft Money will come to order.

This is the second day of our rule-making hearing on the Bipartisan Campaign Finance Reform Act, and we're going to hear from two separate panels this morning, though the two panels will consist of some overlapping witnesses.

Before we start on the panels, I want to make one general announcement that I know will be of interest to the panelists and others and that is that the Commission has revised its tentative schedule for the remaining five portions of the rule making, which will comprise the complete BCRA rule making.

The revised schedule is available outside and I think back at the press table. It will still allow us to complete all of the portions of the rule making within the 270 days provided under the act.

The principal reason for the reorganization is something that doesn't appear on that new schedule which is the Commission does have on circulation for tally vote now the proposal to reorganize the current Sections 100.7 and 100.8 of our regulations defining "contribution" and "expenditure" with the intention of making it easier to do subsequent rulemakings in which we're going to have to cross-reference those definitions.

I think you'll all appreciate that those sections have become somewhat cluttered over the years and we're going to have to be cross-referencing quite a bit and so we're going to try to get that reorganization done prior to the other rule making. So you'll see all of that forthcoming.

I see puzzlement from Mr. Bauer.

My microphone is on. We had some issues with sound yesterday for people who were trying to record and so on so I'll try to talk louder if you're not hearing me well.

So that schedule is available.

Our first panel this morning is witnesses representing the national party committees. We'll have Bob Bauer, representing the Democratic Senatorial Campaign Committee and the Democratic Congressional Campaign Committee, Tom Josefiak and Charlie Spies representing the Republican National Committee, Joe Sandler and Neil Reiff representing the Democratic National Committee, and Don McGahn representing the National Republican Congressional Committee.

I understand we're going to hear from Mr. Bauer, Mr. Josefiak and Mr. Spies are going to split their time, Mr. Sandler and Mr. McGahn in that order. You'll each have five minutes for an opening statement. We do have a light system which will give you a green light for four minutes and a yellow light for your last minute.

Please complete your thoughts. The ejection seats aren't fully wired yet. When you get to the end of your five minutes do try to finish on time, and since the first panel is 90 minutes we'll probably try to do a five-minute question period for Commissioners and the General Counsel to stick to that schedule. We may have room for a second round at that point.

Mr. Bauer?

MR. BAUER: Thank you, Mr. Chairman, and thanks to the Commission for proceeding on this expedited schedule in obviously a complicated exercise of making rules under the new statute.

I have prepared an opening statement, which I provided copies of to Ms. Smith. It is much longer than five minutes allows or than I need to go orally here so I would ask --

CHMN. MASON: It will be included.

MR. BAUER: Included in the record, I would appreciate that. But let me tell you fundamentally what I'd like to stress here today. We have made extensive comments along with the Democratic National Committee in jointly filed statements on very specific issues raised under the rules in responding to very specific questions that the Commission put to us.

I will not repeat our position there. Rather, what I would like to do briefly here and what is reflected in the statement that I prepared and asked to be distributed and inserted in the record is discuss some of the questions that have been raised about the overall approach, the regulatory theory, if you will, that the Commission would use to approach the task, to address the task, of construing and creating, implementing rules, under this statute.

These questions have been raised in part by communications to the Commission from the principal sponsors of the bill and they have advised the Commission in their comments on May 29 that this statute has what they refer to as a unique legislative history for which reason they say their views ought to carry special weight.

As I say in the hearing statement at some greater length than I will repeat here, this is a striking claim. It isn't clear what is meant by saying that the legislative history of the statute is unique. I take it to mean that there isn't actually much legislative history by some peoples' standards and because of that I think we need to address the question of whether against the background of this limited legislative history there are some commenters, particularly legislators, involved in developing and leading the enactment of the statute whose views receive more weight than other legislators or for that matter other commenters.

In my view this position, while it goes not to the merits of their views on various issues, those views are to be obviously weighed very carefully and very respectfully but in my view their views, the views of principal sponsors or of any legislators, are not entitled to weight on that basis alone; that is to say, Congress intended for this Commission to make the rules and it is well established in the federal law, citing, for example, cases like {IOn}Chrysler Corporation v. Brown{IOff}, that the remarks of legislators, even sponsors, are not controlling in analyzing the legislative history of the statute.

Certainly post-hoc declarations of intent do not carry matters of legislative or rather do not carry matters of regulatory interpretation. As a matter of fact, if you examine the statute itself it's fairly clear that Congress did not intend to involve itself except in one limited instance in specifying the criteria for the shaping of particular rules under this statute.

There is one such instance where Congress delineated the factors that this agency should taken into consideration in creating a rule on coordination. It directed the repeal of the current rule when a substitute rule was created in its place and it directed the Commission to consider certain factors in developing that rule.

That is the only instance in this statute that Congress sought specifically to involve itself in the rule making process by specifying particular criteria. It otherwise directed the agency to do what regulatory agencies do all the time which is they take the statute in applying conventional tools of statutory construction, legal analysis, consideration of the real legislative history, policy integration with the existing statute, to make a judgment about what rules most appropriately implement the statute before them.

So I think this is a critically important point I want to stress here today.

The yellow light approaches fast. The only other point I would make very quickly here is that some of the language used by some of the commenters to direct the agency to legislative history, to focus the agency on particular goals, doesn't really answer any particular questions about any of the rules under discussion.

For example, one commenter says it's clear the rules should be informed by an understanding of a goal in the statute to ban soft money completely from the federal elections process. We must ban soft money completely.

So in looking at any given rule that's the question, that's the guide, and that addresses in their view, many, many questions before the agency at this time, but that doesn't really answer the fundamental question before this agency because the statute itself does not completely eliminate soft money.

In fact it uses the term only once. It provides for exceptions for the continued raising of certain kinds of soft money under the Levin amendment for state party building funds, for leadership PACs, soliciting from charitable organizations, and so it's simply not enough. It may be rhetorically satisfying but it's not enough to say that the issue is one simply of banning all soft money because it doesn't address fundamental definitional issues and it frankly ignores how the rest of the statute is constructed.

Now, knowing that Commissioner Mason will not gavel me down instantly, let me just say one last thing. He's a very genial gentleman; he won't do that to me, I'm sure.

I'm sure the Vice Chair will not gavel me down.

COMM. SANDSTORM: I'm certainly not putting my hand over there.

MR. BAUER: If I may, and then I'm happy to lop it out it out of the Q&A. Constitutional issues, one commenter says the constitutional issues that are raised here are already in the hands of the courts. Well, the constitutional issues in the hands of the courts are constitutional issues that pertain to the statute itself. The courts will decide whether the statute itself is unconstitutional or constitutional.

The rules, however, that the Commissioner frames may raise constitutional issues and it is wrong to say that this agency should be insensitive to constitutional questions raised by options put before it for various rules.

And last but not least there are other considerations that the agency should attend to. They're set out in the hearing statement, questions of fairness, are we treating our participants fairly by in effect providing for them rules that they can reasonably be expected to follow; flexibility, are we providing them rules that make it possible for them to run their business; reasonable completeness, are we providing them rules that if they follow them will lead them fundamentally to a position of compliance or are we going to be continuously counseling them that in order to act they should seek an advisory opinion?

Last but not least, common sense. I won't give examples. Some of them will come up but it seems to me some rules are going to simply fall by the application of a standard of common sense.

I thank you for your patience and for your slow gavel.

CHMN. MASON: Commissioner Josefiak?

MR. JOSEFIAK: Thank you, Mr. Chairman, members of the Commission.

I appreciate this opportunity to have a discussion with you this morning regarding your proposed regulations to the new law.

There's no question you've got a formidable task ahead. Anything that we can do to assist, please don't hesitate because it is going to be a difficult process. But as you go through this process I would respectfully submit that you keep three overriding themes in mind: First, the Commission rely on the clear language of the statute and as best it can formulate a bright-line standard as it attempts to regulate core First Amendment rights.

Where the statute's not clear my suggestion is before you go to the legislative history go to your own experience. Go to your own regulations and see where your regulations already take care of an issue. Go to your own policies where you've already discussed this issue.

Certainly there's been a lot of discussion about legislative history and it can be helpful and Charlie's going to give you some brief overview legally as to what that all means for you but, having been where you are, from my experience I can tell you that legislative history is at best a double-edged sword.

Certainly from my experience when you're looking at the history through the eyes of one member whether they're the author or not it's very difficult to figure out where the majority was on that position. All you have is a clear statutory language so I would suggest that you not put too much weight on one particular person if there is another system to use and that system is the clear statutory language. If you don't have that you can look at it but it's not controlling.

The other point on that situation from my experience is we've had situations where most of these bills come through a legislative process with a committee report. At least when you rely on a committee report you know a majority of the committee has sanctioned what the legislative history is and I can tell you from my own experience, after the Commission the Commission has in fact ignored that history as well, and particularly those of you who've been involved with the skirmish on best efforts can realize that, where my good committee took your good agency to court and you won based on deference even though I argued until I was blue in the face that the legislative history was very clear and I could argue that because I was the author of that legislative history when I was working on the Hill. So there are times where the Commission has in fact ignored documented legislative history and has been upheld by the court in doing so based on its own experience and expertise. So that is really the first point.

The second theme of these regs should be prospective. You're looking forward so when you're looking at an organization or looking at activity it's post-November 5th.

The Commission has in fact allowed for disaffiliation so I think you've got to look at what organizations are doing, what activity is conducted post-November 5th. You cannot penalize people for doing things that were legal and probably encouraged under the old law.

The third point I'd like to make here is that the Commission should try as best it can under this new law to maintain federalism, let the local folks regulate their own elections. I'm sure that the Dems would agree with me on this point, that if this were in effect this year in California I can guarantee you that the Democratic and Republican parties of California would not be interested in any congressional race going on. They're interested in the gubernatorial races.

So if this were in effect right now the concept of all of this being viewed as federal election activity is nonsense and you have an obligation and a responsibility as best you can under this new law with your regs to clarify what that means based on these kinds of situations.

We've talked a lot about agency in our formal presentation. I just would like to say it should be a bright-line standard and you should make sure it's express, not implied, and that the committee control the actions of its agent and the agent is acting within the scope of authority.

RGA: RGA would not meet your standard of established, financed, maintained, and controlled as you have it now, and you should not change that standard. With regard to the host committees, these are 501(c)(3) and (4) organizations. They're established, unlike Mr. Noble said yesterday, by the business people within the cities, not by the party committees, and they should be able to continue as they are and office holders should be able to solicit them just like any other 501(c)(4) that's not involved in election activity.

Having said all that, I'll turn it briefly over to Charlie.

MR. SPIES: Well, I actually see the flashing light so I will defer to Tom's wisdom.

MR. JOSEFIAK: And also on this point what we'll do is submit Charlie's statement for the record. Thank you.

CHMN. MASON: Without objection the statement of Deputy Spies will be included in the record.

Mr. Sandler?

MR. SANDLER: Thank you very much, Mr. Chairman, members of the Commission. We appreciate the opportunity to appear before you today on behalf of the Democratic National Committee. We very much appreciate the extraordinary effort that has been made the Commission and its staff and particularly staff of the Office of General Counsel in developing these proposed regulations.

We just wanted to make a couple of brief points in opening. First of all, I want to associate myself with the views, of course, of Bob Bauer and Tom Josefiak and with the views of those commissioners yesterday who expressed skepticism about the assertion of some of the so-called sponsors of the legislation that their views should be given special weight in discerning legislative intent.

The interpretations of this Commission of the law will be given {IOn}Chevron{IOff} deference by the courts to the extent that the agency is relying on its own expertise, special expertise in this area of interpreting the law, and, of course, the comments of the sponsors should be taken seriously because of their stature and expertise in this area as well, but to the extent that the Commission relies on the post-hoc comments of the sponsors as a means of discerning legislative intent it would indeed be treading on shaky grade and in addition to the authority cited by Bob Bauer I would just cite such cases as {IOn}Quern v. {IOff} {IOn}Mandley{IOff}, where the U.S. Supreme Court stated that post-hoc observations by a single member of Congress carry little if any weight, and {IOn}United States v. Monsanto{IOff}, in which the court reiterated that, "as we have noted before, post-enactment views," talking about post-enactment views of individual legislators, "form a hazardous basis for inferring the intent behind a statute."

Secondly, I want to emphasize and associate myself with the views of my colleagues with respect to the need for clarity in in these regulations.

Some of those who testified before you yesterday suggested that some of these definitions, "agency", solicitation," so forth, "finance, establish, maintain, and control," some of these definitions critical to the operation of national parties should be left to examination of particular facts and circumstances, to some kind of fact-intensive case by case inquiry or possibly the advisory opinion process, and I would suggest that that approach would be extraordinarily ill-advised for two basic reasons.

First of all, were the Commission to adopt that approach it would be totally contradictory to the representations made by its own attorneys, Mr. Hershkowitz, to the three-judge court in saying that the issues aren't right for adjudication because the rule making's going to provide clarification. I don't think the Commission can on one hand make that representation to the court and then on the other fail to provide such clarification.

And secondly we have to remember that this is a criminal statute, that if you step over anybody, whether it's a local party chair, volunteer, officer, any of the tens and hundreds of thousands of people who are involved in one way or the other in Democratic Party activity at the national, state, or local level, they step over the line, it involves more than $25,000, asked the wrong person the wrong way, said the wrong thing at the wrong time, it's a felony and consequently the lack of guidance in this area is in itself constitutionally problematic and I would just throw this out possibly for later discussion without getting into it now. Just consider the issue of agency as it applies to the vice chairs of the Democratic National Committee.

We have a chairman, five vice chairs, secretary, treasurer, national finance chairs. Those are the elected national officers of the DNC. Of those five vice chairs one is a state party chair and chairman President of the Association of State Democratic Chairs. Of course, he raises soft money for state parties and state local candidates.

A second is a member of the Los Angeles County Board of Supervisors, elected state official. Obviously she has to raise money for her own campaign. She happens to be at this moment by coincidence Chairman of the Southwest Voter Project, which is an organization that engages year-round in registering members of the Latino community to vote.

And we have a third vice chair who is Executive Vice President of the AFL-CIO so, I mean, again, without getting into it I think you can see the need for clarity in this area.

One last comment as the light approaches and this is on the issue of host committees. Nothing in the BCRA refers in any way to the Fund Act or to the financing of conventions. We have noticed that some of the so-called reform groups have implied or suggested that possibly these host committees should be treated as federal committees or that possibly the scope of their spending on convention activity is somehow affected by BCRA, and in this regard we just want to note that this is not an issue that can be postponed to another rule making at least as far as the DNC is concerned. We have put out requests for proposals and received bids from all cities under consideration for the 2004 conventions. Our site visits start in three weeks and negotiation of most major terms with all the various contenders and we don't know when the decision will be made or who will be in contention but certainly most of that will be worked out over the summer among the two, three, four, whatever, who are still left in the mix and so we urge you to make clear at this juncture that this issue is off the table. Thank you very much, Mr. Chairman.

CHMN. MASON: Mr. McGahn?

MR. McGAHN: Thank you, Mr. Chairman. I'd like to thank you and the Commission, General Counsel, and the staff director for having me here today on behalf of the NRCC, which is a national party committee. We like to emphasize the word "national," not a federal party committee, because there may prove to be a distinction. One assumption that seems to have come out of the commenters yesterday is that all national parties somehow are only concerned with federal elections.

I'd like to begin briefly on the constitutional issues that are present and also echo the comments that have already been made by my colleagues. It is true that this agency is not a court. That point was made clear yesterday time and time again. That being said, however, it is well within this Commission's authority to rule on constitutional issues for really two reasons, one, it's well established that whether it's the legislative branch or the executive branch of government those branches can make independent constitutional decisions so there is nothing particularly innovative about an agency deciding that something may be unconstitutional and taking a more constitutional approach. The second reason is a practical one. You really can't avoid the constitutional issues and I'm simply not talking about the obvious First Amendment issues that you hear so much about oftentimes in the papers I file with the Commission on behalf of my clients.

There's Fifth Amendment issues, Tenth Amendment issues, even preemption is a constitutional issue at its core. That was discussed yesterday quite a bit, so the idea that the Commission can simply avoid constitutional issues at this juncture, I think, is folly.

The second reason, though, is as a practical matter I think the Commission would want to promulgate regulations that would prove to be enforceable at some point, and not only for the sake of clarity in providing the regulated community with notice but simply as a use of Commission resources and as a practical matter the regulations ought to be such that they're not going to be challenged in court time and time again and end up in litigation for the next 20 years which is unfortunately what has happened on some of the past regulations of the Commission where we've seen innovative legal theories go to court time and time again and be rejected. So I don't think this is the time to embark upon that path. I think succinct regs, clear regs, constitutional regs, make a lot more sense.

The second issue I'd like to talk about is the intent of the act, the legislative history, comments that have been filed, and the like. The fact of the matter is, and I can go into this in greater detail in a minute, there really is no legislative history with this bill.

As counsel to the NRCC I represent not only the NRCC but every member of the Republican conference. Some of them use my services more than others but by default I was intimately involved with much of the gyrations of this process, this debate, the rule that allowed the vote to occur, and the like.

The fact is the bill that actually passed the House was not produced in its full form until about 1:00 o'clock in the morning the day of the debate. I didn't see it until 2:00 a.m. the day of the debate. So the idea that there's some seamless theory that underlies this bill is folly. It was cobbled together to get votes and there's no other way to get around that when you read the news clips and you see how the bill every month seemed to change.

Almost two years ago there was supposed to be a vote and the rule did not pass. They brought the rule down because again they weren't sure if they had the votes. So we finally do get a vote and the bill comes at 2:00 o'clock in the morning and there's a debate with a King of the Hill and a Queen of the Hill and all sorts of parliamentary tactics, which were brilliant on behalf of the sponsors and I have to applaud their efforts, but at the end of the day did not provide a robust debate that was unscripted. It was very controlled.

Now sponsors want to come in with comments and say they ought to be given great weight when they wrote the bill, in theory, controlled the debate, cut off debate, and rigged the system. It simply doesn't make sense that they get, not only as Mr. Ginsberg said, the third bite of the apple. This is probably the fifth or sixth bite of the apple that they've had.

The fact is that the bill came out so early on the morning of the debate I had trouble getting through it once to read it and figure out what it meant even with the cross references, which I obviously am familiar with. The idea that every member who voted for this read the bill cover to cover and understood what they were voting for is absurd and I mean that with all respect to them.

It's the legislative process. It's the way it works. But the fact is don't assume that there's some great theory here driving this. What you do have are statements in the press, many of which don't match what the actual bill says. The two statements you hear in the press are we want to reign in issue ads. Okay, that's nice. There are really constitutional issues there. I think we all agree with that in some form but all these other details, the other 90-some pages of the bill, there really was never discussion on.

So ultimately I'm going to ask that you don't give the sponsors' comments all that much deference. Obviously they need to be considered. Obviously they're very thoughtful and quite lengthy but at the end of the day they're easily refuted.

The set I read had very little citation to the actual Congressional Record. I think they cited Mr. Feingold's statement about how this bill bans soft money. As Mr. Bauer said already, this bill does not ban soft money. It does not get rid of all soft money in federal elections. It doesn't touch restricted-class communications, for example, in either corporations or unions. There are the Levin accounts, which, of course, are soft money accounts. We also see that Mr. McCain had a statement that we can now raise non-federal hard money, as Mr. Noble called it yesterday, which we used to call personal softs but now all of a sudden that's hard money, for leadership PACs. This bill does not ban soft money. These commenters continuously say every chance you get ban soft money. The bill doesn't do that itself.

I see the red light's on so I'm going to quit while I'm ahead and answer any questions you have. Thank you.

CHMN. MASON: If indeed you are. I want to remind my colleagues the panelists have actually done a pretty good job on this panel of focusing on the national party issues and Tom did mention the California gubernatorial race and I know the list of questions that I have. There are a number involving Levin funds and so on like that but if we are able to postpone those until the next panel I think we'll get a better focus on the national party issues the first part of this morning.

The first questioner this morning will be Commissioner Toner.

COMM. TONER: Thank you, Mr. Chairman. Mr. Josefiak, you were mentioning in terms of the directly/ indirectly establish, finance, maintain control the need for clarity, and I take it from your comments you urge us to draw upon our established affiliation criteria in fleshing out that statutory phrase?

MR. JOSEFIAK: That's correct, Commissioner. We had said in our formal comments that we don't necessarily agree with some of the interpretations of that the Commission's had in the past but the Commission has a history of dealing with that terminology and we think under the circumstances that's the best way to approach it and give some clarity, some consistency, to this process, and I think the standard that is in place now is a standard that people are using pre-November 5th to determine whether their particular organizations would fall under the rubric of being considered part of some sort of other entity. So I think for the purposes that we say in our comments and what I said today it would be best to keep the status quo.

COMM. TONER: And I think that raises an interrelated point that you touched on and that is the effective date of BCRA is this November and obviously organizations have been operating for a long time under settled law and now we have a new regime. We're going to have to come to grips with whether we should create a safe harbor or other type of protections for organizations that are separate and apart prior to the effective date of BCRA. Is it essentially a situation where if we don't do that we're retroactively applying this new law to activities that were legal under the current situation?

MR. JOSEFIAK: That certainly is what we're arguing and that's our position, that you really don't want to penalize organizations and individuals for doing certain things when they could and that we're dealing with core First Amendment right issues here and that it's got to be a prospective analysis of what you have here. So anything that transpires before November 6 where people try to disaffiliate if they have been affiliated or try to set up a different system and they're not controlled or they're not financed or they're not established at that point by any other organization they should have the right and should be free to change their organization as they see fit. And I think that is what we're proposing and I think that's the only standard that you should be thinking about.

COMM. TONER: So in your view we should evaluate their activities after the effective date of BCRA in terms of what they're doing at that time?

MR. JOSEFIAK: That's correct and then you can look at the interrelationships at that time but you cannot penalize individuals and organizations for what went on when it was legal to do so.

COMM. TONER: Mr. Sandler, in your papers you write extensively about the building fund and the legislative debate that transpired in the Senate and House side.

Is it your view, after looking at that history, that essentially there's just no indication that Congress meant to restrict in any way the scope of permissible building fund activities?

MR. SANDLER: This is with respect to state parties?

COMM. TONER: With respect to state and local committees.

MR. SANDLER: The building fund has been eliminated by national parties for all the national party committees. It's with respect to state parties.

Well, first of all, let me just say quickly that, like Mr. McGahn, my experience with this goes back a long way. In fact it goes back to 1986 in the Byrd-Boren bill. Every version of campaign finance reform, every version, preserved the building fund exemption per se for national and state parties until the McCain-Feingold bill that passed the Senate in 2001.

Even then the Shays-Meehan bill, that Shays-Meehan bill that passed originally was in '98 and then again it came up in 2001 and was defeated when the rule went down, made it clear that state parties could pay for buildings and equipment, with 100 percent non-Federal funds because that was a defined term specifically as non-federal election activity, and indeed when Shays and Meehan introduced the bill the morning of the debate that provision was still in there.

It wasn't until 2:00 o'clock in the morning that it was knocked out by the Kingston amendment, which only went through because the so-called reform groups, which had characterized it as a poison pill, secretly signaled members it was okay to vote on it anyway in an act of extraordinary bad faith and treachery and therefore it's impossible to conclude other than that the true congressional intent, and none of the members realize that this state party aspect was in there, is that state parties can continue to pay 100 percent non-federal money for buildings and equipment, as provided in every version of McCain-Feingold and Shays-Meehan to the bitter end.

COMM. TONER: In quick summation then as a matter of law it would be your view that the agency should preserve the scope of permissible building fund activities for state parties under current law?

MR. SANDLER: Absolutely, Commissioner. That is our view.

COMM. TONER: Thank you, Mr. Chairman.

CHMN. MASON: Commissioner McDonald.

COMM. McDONALD: Mr. Chairman, thank you. I want to thank the panel. It's a very distinguished panel. I was sitting here thinking if we could use the same formula in Pakistan and India we might be able to resolve the dispute. I see some rather divergent parties normally appearing together and I find that impressive.

I've got several questions. Obviously yesterday I grappled with this issue about the deference to the members and so on and so forth and I'm a little surprised because all of you work intimately with members. I see my old friend Tom Josefiak who used to represent the Senate. I'm a little puzzled when people tell me really that the members should in essence be afforded very little deference in these matters.

Let me ask about the prevailing side a minute. Some of this debate is about the bill and what came out of the bill and the prevailing side. I've not seen any comments from those that were on the prevailing side that raise the kind of concerns you have. I'm not saying they're not legitimate and that every concern you raised isn't legitimate but it seems like to me that based on what I've heard in the last two days that you shouldn't take the authors of the bill because, as was pointed out yesterday, there were only four that would be authors up front, as opposed to other members who voted for the bill.

Don made the point that the bill passed in the middle of the night. That's not unusual. There are a number of bills that pass in the middle of the night. There are a number of deals, if you will, that are made in the middle of the night.

So I'm just trying to understand if the theory is that the prevailing side had many divergent points of view, and I suspect that's right. I'm just wondering why we haven't heard from others to clarify that?

Does anyone have any insight into that, why we haven't heard --

MR. BAUER: If I may I just want to clear up one thing. By the way, I completely agree with Mr. McGahn. I mean, one has to recognize that this is a complicated bill. It passed with little legislative history. It passed with significant changes and was produced under hurried conditions, so we shouldn't have illusions about how well digested, if you will, some of the provisions of the bill were but even if it had been passed at 11:00 o'clock in the morning and even if it had been passed after three and a half months of debate the point would remain the same, which is the sponsors do not have a privileged position as a matter of law.

COMM. McDONALD: I understand that.

MR. BAUER: Do not have a privileged position and, secondly, their own statute indicates an intention to commit to you with one exception the kind of discretion typically delegated to agencies to make rules. This argument that we're presenting you here today is not a particularly creative or controversial argument. It's black-letter law and it goes to the heart of what agencies like this are expected to do.

COMM. McDONALD: Bob, I appreciate that and I'll ask you about {IOn}Chrysler v. {IOff} {IOn}Brown{IOff} in just a second but let me follow up.

You work with the Members continually. You know them all very well and I'm just wondering what your thought process is. I'm wondering why others who voted for the bill and clearly did vote for the bill didn't submit comments saying no, no. We didn't mean this or we didn't really mean that; this is what we meant.

MR. BAUER: I'll make two points about this. First of all, I think it's fair to say, and you're correct, I do work with a lot of members and for the record I want to say I love every last one of them, but, secondly, they're busy and they're spreading their efforts over a wide range of issues and therefore one cannot count or expect legitimately members to involve themselves deeply in comments on technical issues under this particular statute.

COMM. McDONALD: Even those that affect them directly like the campaign finance bill?

MR. BAUER: Even those that affect them directly and, secondly, I will tell you again, drawing on my own experience, much like Mr. McGahn's, many of them in fact assumed and were told that some of the ambiguous and difficult issues presented by the statute would indeed be addressed by this agency and that's what they're assuming is going to happen and they're going to be addressed, as Mr. Sandler said, on the basis of this agency's understanding of the statute and expertise.

COMM. McDONALD: Well, I appreciate that. It's an interesting position to be in because what's really before us, and everyone knows it's one of the worst-kept secrets in America, is whether we're debating the bill again in lots of ways.

I mean, some of the comments that are made, and I'm not taking the position one way or the other, I'm anxious to see what the commenters have to say, but in some respects it seems that there's a debating of the bill and the bill, quite frankly, in one form or another was before the Congress for seven years and I would be the first to say that numerous changes have happened over the course of time, as they do here whether it's in the advisory opinion process or in the regulatory process, but it puts us in an interesting position.

I think you're right. I concur with your point, Bob, as a matter of law and then we get down to the practical aspects of it because I just can't imagine members, who take this very seriously and if there's one thing I've learned in 20 years they take rulings by the Commission pretty seriously and I think that's fair to say, that they wouldn't come forward and say no, that's not what we meant, and I'm speaking of those on the prevailing side. I'm not critical of those on the other side but obviously we're trying to figure out what the intent was in relationship to the prevailing side because that's what our assignment is.

MR. SANDLER: Commissioner, just briefly to follow up on that point, it is not surprising to us that the Democratic members on the prevailing side haven't come forward with comments. This whole business, this whole idea, that individual members of Congress get to make up the legislative history after everybody's voted on the bill is in itself extraordinary. It is not the way that business can be done under our Constitution. Congress passes a bill --

COMM. McDONALD: Well, I agree with that but that's not the issue. You all are coming forward after the bill to make your presentation of what you think the Congress meant or what we should do. I'm just trying to walk through it with you. I don't have a position.

That argument I'm fine with. I'm a little bit more unclear, however, about you're all coming forward after the fact to tell us what it means. Is that not the case? I mean, we're all doing it now.

MR. SANDLER: But we're not members of Congress purporting to represent the congressional intent. That's the critical difference.

MR. JOSEFIAK: Commissioner, if I may, I think on that point what I was trying to say early on is that where the language in the statute is clear whether we like it or not because we are in court challenging the constitutionality of the language, which I didn't even raise today, that's a whole different ball game.

What you have to do where it's not clear in the statute to devise regulations to implement the statute. That's your responsibility as a Commission and I think we're here today to give you our best advice as to what we think you should do in those areas where the statute is not clear or the statute gives you the flexibility to make choices because, as Joe said early on, a lot of these provisions got through with the understanding that it would be fine-tuned here at this agency and so there would be some meat put on these bones before it actually was implemented in November or now in December.

COMM. McDONALD: Well, I'm heartened that the Congress understood it that way. That's the first time I've known Congress to defer to us with such enthusiasm. I'm delighted to hear that, Tom.

MR. JOSEFIAK: Not that they did not do it reluctantly, though.

COMM. McDONALD: Thanks, all of you. I appreciate it very much.

CHMN. MASON: Commissioner Smith?

COMM. SMITH: Thank you, Mr. Chairman.

I just want to note, Mr. McGahn, I'm really impressed that you thought that after reading the bill one time maybe you should have understood it. Most people I know have read it 20 or 30 times and these are some of the best lawyers in the country and are still wrestling with how the parts fit together.

MR. McGAHN: Every time I read it I learn something new but we do what we can in a limited time allotted under the rules of the House.

COMM. SMITH: Well, I appreciate that. We seem to be spending all our time talking about how much attention we have to pay to the post-hoc comments of four Congressmen. I think our time is better spent getting on to some other items, but I will point out that I noted yesterday that I take all of the commenters seriously. I give great weight to all of their views. I do not believe that there's any one commenter who can tell me if I don't follow his views then the will of the country will not be done and therefore I should just ignore everybody else who appears before us. So I'm glad that you're here and we'll consider your comments carefully as I will with those of the NAACP and the various groups that appeared before us yesterday, submitted written comments, and so on, and the legislators who have submitted comments.

Mr. Sandler, I remember last fall Terry McCauliffe was after the fall elections triumphing the Democratic performance in mayoral elections. Are mayoral elections important to the Democratic National Committee?

MR. SANDLER: They have been so far, absolutely, yes, that was a new and particular emphasis that was put in in 2001 by the DNC. Our chairman made it clear that it's not just a presidential or even congressional shop any more. We're really going to put special emphasis in supporting candidates up and down the ticket and without in any partisan way. We're obviously very, very proud that the efforts, together with our state parties and others resulted in two of the three --

COMM. SMITH: Well, I didn't want to give you a chance to tout your success. I just wanted to say yes, we will.

COMM. McDONALD: No reading those stats.

COMM. SMITH: Because it's a lead-in to my question, particularly given this new emphasis. Do you anticipate that the party may do in the future get out the vote activity or voter identification activity in connection with mayoral elections?

MR. SANDLER: Well, no, of course not. I mean, the national party, in other words?

COMM. SMITH: Right.

MR. SANDLER: No, the national party cannot directly raise any money in connection with mayoral elections for any purpose. I mean, it can transfer federal money to its state parties. Not a single penny of that, of course, can be used for get out the vote under the Levin Amendment we'll turn to at the next panel. So I think the answer, thinking out loud, Commissioner, is I don't see any way.

COMM. SMITH: Well, I guess we're coming at it a bit differently. Well, let's put it differently. The point I'm raising is the nation's 20 largest cities, I believe, all elect mayors in odd-numbered years and that leads me to wonder about the definition put in the act about federal election activity includes get out the vote activity, generic campaign activity, and voter identification that occur in connection with any election in which a federal candidate is on the ballot and it's been suggested to us that that means the full two-year cycle except in five states where they elect governors in odd-numbered years.

And I have a real question as to whether that would be far too broad a construct that would kill voter identification activities and so on in a majority of the states' mayoral elections. According to the Web site of the American Conference of Mayors, more than half the nation's mayors are elected in off-numbered years plus there are school board elections, all kinds of other local elections, county elections, in off-numbered years. I'm wondering are these issues of concern to the national parties? Do you care who wins these elections and do other groups that you know of care who wins these elections?

MR. JOSEFIAK: Of course, we care and this becomes a very complicated issue, Commissioner, because then you have to look at not only the ability of using federal dollars to pay for nonfederal elections but whether that particular state or municipality will allow that without coming under their definition of soft money. There are a lot of states and municipalities that would view federal dollars as soft because the federal dollar limits are much higher than the state limits.

Most of the New England states we couldn't even compete and I think you have some comments from the State of Connecticut Republican Party. We couldn't even compete in a gubernatorial election with federal dollars because it's against the law in the State of Connecticut. And I think when I talked about trying to do whatever you can as a Commission to preserve federalism and to allow state and local activity run by state and local parties to be conducted outside of the FEC jurisdiction would be the direction to go because it is a complicated matter and we would have to use under this law federal dollars but the question is could we spend it at all.

COMM. SMITH: Right, and it strikes me that there are a lot more nonfederal elections held in off-numbered years than just in those five particular states and I would agree with you that deference to federalism would suggest that if the states have stricter rules they should go with those but we should not automatically consider all those to be elections in which a federal candidate is on the ballot.

MR. JOSEFIAK: Correct.

COMM. SMITH: Well, I see my time is up.

MR. SANDLER: And there are special elections in four state legislative races all the time, you're absolutely right, and with respect to state parties, therefore, the idea that federal election activities should be defined at any point before the beginning of the federal election year is inappropriate for exactly the reasons that you've articulated, Commissioner.

CHMN. MASON: Commissioner Thomas.

COMM. THOMAS: Thank you, Mr. Chairman. Thank you all for being here. Let me start, if I may, with one of the issues that Joe Sandler raised, the host committee issue. You're urging that we clarify it now rather than later. What would you have us do? Would you have us somehow, I gather in your view, clarify by rule that in essence the provisions that restrict the ability to fund-raise on behalf of (c)(3)s and (c)(4)s and so forth explicitly would not apply to raising money on behalf of the host committees because of what you view is their nature?

MR. SANDLER: No, I think it's possible that the provisions that relate to national party fund-raising for nonprofit organizations generally could apply to host committees by virtue of the fact that host committees are such organizations. I was talking more about whether BCRA in any way addresses the affiliation of these committees with national parties or addresses the kind of money the host committee itself can accept or the way it can be spent.

Of course, BCRA doesn't address any of those, in any way restrict any nonprofit organization in those respects, and as to those issues, therefore, we're asking the Commission to instruct the Office of General Counsel that this issue is off the table, this issue being the scope of permissible expenditures by host committees, what host committees can themselves raise, and how they do their business under the current regulations, not whether national parties can raise money for host committees, which, again, that may be caught up in a restriction of a more general application that the act does speak to.

COMM. THOMAS: That's helpful. I wasn't quite following.

With regard to the comments that have been made about legislative history I tend to agree that it was a rather difficult process to follow. I think there was a comment made that there was no legislative history. I think there is legislative history. It goes way back if you want to look at it one way but you're right, it was changing fast, and it was changing late at night and early in the morning. So I agree with you that it was a difficult process to follow.

But I would also make as a general comment that from my own perspective if I have a choice as to whether I'm going to try to figure out the intent of the legislation between the comments of those who supported the legislation and those who opposed the legislation. I suppose on balance I'm going to tend toward the comments of those who supported the legislation.

That's just me. Maybe that's the wrong approach to take but I view what's going on in the mind of those who were involved in drafting the language that got into the legislation as perhaps more indicative of what was behind that language.

With regard to another question I wanted to get something cleared up. Some press has been made of the issue of maybe the national party committees having the opportunity to raise some nonfederal monies like the leadership PACs apparently are going to be allowed to raise. I gather what you're talking about is a suggestion that the national party committees ought to be able to raise up to $20,000 per year from any individual for non-federal election purposes in addition to the 20,000 per year they can take from an individual for federal purposes and then in addition every PAC in America could give $15,000 for a non-federal account of the national party committees, each one of them, the DNC, DCCC, and the DSEC. So that's what you're suggesting that we adopt? I want to be clear on what you're urging.

MR. BAUER: Yes. The limit, of course, goes up to 25 after November 5 for individuals but that is correct on the same, it seems to me, perfectly legitimate and supportable theory that motivates Senator McCain's statement on the floor of the Senate, that the leadership PAC that he directs and others that are directed by members of Congress or associated with members of Congress ought to continue to be able to raise a pool of money limited in amount, restricted as to source, for the support of state and local candidates. That cannot be soft money.

Number one, it's not soft money because Senator McCain and others in contemporaneous legislative history defined it as not soft money and. Secondly, because it is indeed subject to federal law limits and source restrictions and, thirdly, because in fact it will not be used, by definition, for federal election-related activities. By definition it is for the support of state and local candidates.

And the parties certainly no less than the leadership PACs and members want to continue to be involved in state and local election activities for a whole host of reasons that people will understand both historically and from the literature. The key here is that there isn't any rational distinction to be drawn as a matter of legislative history, statutory construction, or policy between a member's leadership PAC and a member's political party organization.

COMM. THOMAS: Now, as I understand, the good senator's argument based on the comment he submitted he's saying that the language in the statute in BCRA that deals with restricting what the national parties can accept is governing and that that would override any other allowance that might be available with respect to some sort of nonparty committee. You don't buy that?

MR. BAUER: No, I must say I don't because with all due respect I'm not picking a quarrel with any U.S. senator even of the other party --

COMM. THOMAS: That would be wrong, of course.

MR. BAUER: But I don't believe it has any merit at all. It is not rooted in the statutory language. It's not rooted in the policy of the act. If you look at the legislative history, and we cite in our comments a statement by Congressman Shays, one of the principle sponsors, who says the regulation we are directing toward national parties is being directed toward them because their activities are intertwined, the word he uses is "intertwined," with the activities of federal officeholders and federal candidates, and it is soft money fund-raising by federal office holders and federal candidates that the national party prohibition is meant to address.

They want to break the link between unregulated soft money and federal officials and candidates whose actions may reflect quid pro quo influences, if you will, and they want to break that connection between that soft money and the use of that money to influence federal elections. Senator McCain is exactly correct that when the money is raised under federal law limits and source restrictions for state and local candidate support only none of these concerns with soft money which underlie Mr. Shays' statement are implicated. There's no reason to prohibit them from doing it. None of the policy goals of the statute will be frustrated by allowing them to do so.

And it is impossible to understand how it is okay for federal candidates and officeholders to raise this limited state and local candidate support money to a leadership PAC and not into a party committee. Why would that be? Why would Senator McCain be able to do it and a senator who directs the Republican Senatorial Campaign Committee, Senator Frist, could not do it?

COMM. THOMAS: Well, it may be that if we can't buy your argument that the best option is to work with all of these other groups that will be out there and will be technically not the party committees but they might be (c)(3)s or (c)(4)s that could perform roles much similar to the leadership PACs.

MR. BAUER: Well, if I may say so, and I'll yield to my other colleagues, I don't know that we're going to be satisfied by being invited potentially at great legal risk to accomplishing indirectly what the statute does not prohibit us from doing directly.

COMM. THOMAS: Well, I know it may be awkward but, I mean, we may have a bit of a stretch going with the interpretation you're suggesting. That's all I'm suggesting. So we may have to invite you to work with whatever else is left.

MR. BAUER: Thank you.

CHMN. MASON: I just also wanted to address the host committees a little bit and suggest how I had understood it and if that's not satisfactory to the national committees let us know but I had understood the exclusion of the host committees from this rule making to in essence represent a substantive conclusion that there were no BCRA provisions affecting the host committees with the possible exception that was discussed with Commissioner Thomas that the fund-raising restrictions on what national party committee officers and so on could do might apply in the same way that those would apply to any other (c)(3) or (c)(4).

So, I mean, if we clarify that the fact that we're not addressing the host committees here essentially means there's no unique effect that that satisfies your media concerns.

MR. JOSEFIAK: Mr. Chairman, that was certainly my understanding. I think what confused the situation were comments yesterday about national parties establishing these groups which then led to the issue if you're getting into the establish, finance, maintain, and control then you have automatic affiliation and therefore all these rules apply. And in the proposal that the commission put out the suggestion that somehow perhaps solicitations by officeholders to these kinds of organizations could be implicated but would be taken care of at a later date left us the impression that sometime in late summer or early next year we would have a regulation that would somehow prohibit or restrict activities that were currently being negotiated with the cities under the understanding that we're operating under the rules that had been promulgated in the past with regard to conventions and host committees. And I think if the statement is that by not taking any action we can assume that there is no BCRA connection at least for this cycle I think that satisfies certainly the RNC's position at this point.

CHMN. MASON: I'd also note just in terms of the way the legislation itself is set up that the legislation explicitly exempts a state or local political convention from the definition of federal election activity and so on like that. And so it would be an odd result indeed to say suddenly well, the national conventions are now covered. National conventions weren't exempted because they're generally funded, at least for the major parties, through public funding.

MR. JOSEFIAK: For the record what Joe said, that we are negotiating with a number of cities currently, just as Joe is, and they run the gamut. And so to say that somehow they're affiliated with us now when they establish host committees and they may never actually have a convention is another issue because in order to even bid they set up the structure to be able to use city resources to actually fund their bidding process. And to say that even if you weren't having a convention somehow you were an affiliate of a national organization or people from your local district, congressmen and senators, couldn't help raise money to get the city at least in the bidding process seems a little absurd. So thank you for that clarification.

CHMN. MASON: You mentioned affiliation. I particularly wanted to ask Joe because he gave us a good example regarding the Association of State Democratic chairs. It strikes me that even if we just take the current affiliation rules as I understand it something like a quarter or a third of the members of the Democratic National Committee are also members of the Association of State Democratic Chairs, in other words all the state chairmen are on whatever the governing board you call of your national committee.

And so if we looked at a corporate board or something like that and we said well, gee, we have a corporation here and one-quarter or one-third of the members of the corporate board of directors are directors of this other corporation out here and nobody else, by the way, there's complete overlap in that sense, that I think there'd be a reasonable possibility under the existing affiliation approach that we'd say those two organizations are affiliated. So help me out with how you're thinking through this in terms of how you can have a structure where these essentially largely overlapping boards are nonetheless not affiliated.

MR. SANDLER: Well, the membership of the Democratic National Committee, of course, is different than its board. We have the nationally elected officers. There's also an executive committee of the DNC, but, of course, their members take party chairs who are members of the executive committee as well.

I think that with respect to any organization, as we suggest in the comments and I think also on behalf of the state Democratic chairs, that any organization ought to be measured by the traditional and established affiliation criteria as of the time after the law becomes in effect to determine whether that organization is in fact currently established, maintained, controlled, or financed by the putative sponsoring organization. And I think if we have that approach that that will provide a reasonable and workable analytical framework for dealing with these issues in the future.

CHMN. MASON: It wasn't quite a direct answer but my time is up. Vice Chairman Sandstrom.

COMM. SANDSTROM: Will Rogers once remarked that he wasn't a member of an organized political party, he was a Democrat, and it strikes me that talk about organized political parties is almost an oxymoron, that they organize essentially like tropical storms over warm political waters, often reaching hurricane proportions in the months of July through November, consisting of random elements of volunteers thrown together, and that control outside of your ability to navigate within the eye of the storm is about the ability of a meteorologist who charts and predicts the course of that hurricane.

In testimony yesterday we had a panelist suggest that vagueness and overbreadth concerns with respect to the rights and duties of political parties and the reporting obligations are essentially lessened by the fact that they already have to report. It strikes me that maybe they're even greater when it becomes the activities of large numbers of volunteers engaging in activity essentially outside the actual control of officers of the party, that those overbreadth and vagueness concerns are more pronounced. Would any of the panelists like to respond?

MR. SANDLER: In terms of volunteers all of the officers of the Democratic National Committee and all of its lay leadership in the fund-raising area, they're all volunteers, nobody's paid, and that includes the chairman. So other than the staff everyone's a volunteer and that goes all the way down the line. There's a handful of state party chairs who are full-time, paid, but other than that the tens and tens of thousands of people involved with the state and local parties are obviously also volunteers.

COMM. SANDSTROM: Do you have any ability to control what they do on a daily basis and private conversations that they have? Do the people who raise money for you or the Democratic National Committee raise money for candidates typically?

MR. SANDLER: Well, absolutely, and a lot of the people who raise money, some of the biggest donors and raisers for the Democratic National Committee are extremely active in philanthropy, also, and raise money for all kinds of 501(c)(3) and (c)(4) organizations ranging from universities, churches, and synagogues to think tanks to voter registration and get out the vote organizations, the advocacy groups.

COMM. SANDSTROM: How would they respond to a request from you that because you're raising money for a national party you shouldn't raise any money for any state candidate or any 501 organization?

MR. JOSEFIAK: They'd ignore you. This is the one thing, the concept that's missing here, that when you're dealing with individuals who affiliate either with a Democrat, Republican, or any other party they're activists. As Joe said, they're political activists. If they're raising money they're fund-raising activists. They raise money for lots of different organizations and for anyone from Washington, D.C., to tell them they can't go raise money for their gubernatorial candidate just like they couldn't raise money for the Race for the Cure or any other program that they may be involved in that's why I'm saying the term "agency" becomes so important because it does impact on how you treat these folks.

And party organizations by their very nature are volunteer organizations unlike under our rules the only paid individuals other than employees of the committee are the chairman and co-chairman. Everyone else is a volunteer.

COMM. SANDSTROM: Thank you. How about terms like "solicit"? Do they need to have some definite boundaries? I mean, if you were limiting what people go out and try to garner support for somebody how about a term like "solicit"? Do you believe it needs to be defined?

MR. BAUER: Well, it clearly does and let me say one thing that completely complements what Tom Josefiak said and that is it is not only that you're going to encounter defiance. People are going to say they don't understand what you're talking about, you can't be right. But I'll go back to my first point. They don't understand what you're talking about.

I mean, one of the things that you try to do as an attorney is you try to convey to people an understanding of what is it that you're telling them means, what does it mean, so it can comport somehow with their view of how the world works and what they're legitimately being asked to do and why it is that the law prohibits some activities and permits others and we've now heard this distinguished group talk. These are some of the best lawyers here on my right in the country and know this stuff better than 99.999 percent of the rest of the world. And they just said they learn something different every day by reading the statute.

It's terribly complex. It was rushed. There are parts of it that don't fit particularly well together. The rules are going to complicate it further. And now we're going to be trying to explain all this complication to people who are just trying to conduct basic political activity and who have to be able to grasp what it is that they are supposed to do and not to do. So along with defiance comes, frankly, fatal incomprehension.

COMM. SANDSTROM: Thank you.

MR. SANDLER: In terms of just, Commissioner, your reference to agency, that underscores the need for the commission to reflect in its regulations and be very clear in defining both elements of what the statute says, not only that someone is an agent but that they're not implicated unless they're acting on behalf of the entity in question and it's very, very important to preserve that element and define its meaning.

CHMN. MASON: Larry Norton?

MR. NORTON: Thank you, Mr. Chairman. Thank you, panel. To follow up on the vice chairman's questions, the suggestion was just made by Mr. Sandler and is in the RNC comments that an appropriate definition for "agency" is found in the Restatement of Agency and that defines it as a relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to control. With that definition it would seem to me that it would exclude this vast cadre of volunteers and philanthropists we're talking about but that there wouldn't be any particular reason why either an express or an implied agency wouldn't suffice.

In other words the reach of that definition wouldn't encompass the volunteers in the field but it could encompass those in the office or who worked more directly with the campaign. Is there any reason for drawing a distinction between "express" and "implied" so long as we build into the definition the concept of control and acting on behalf?

MR. SANDLER: Well, if there's built into the definition the concept acting on behalf of with respect to the activity in question, whether it's solicitation, fund-raising, whatever, yes, that would work. But the problem with implied agency I think is illustrated by the situations I mentioned at the outset. Don't vice chairs of the Democratic National Committee have implied authority? And yet does that automatically mean they're precluded when they're acting on behalf of their own state parties or themselves as state candidates or a labor union from raising money in those organizations or engaging in activities that would be prohibited to an agent of a national party under the act?

MR. JOSEFIAK: That's also within the scope of, too, and it was brought up yesterday you're wearing two hats. A chairman of a party committee at the state level has a totally different function when they're acting as chairman of the state party than when they come to the National Committee meeting and they're voting on a national resolution. And there's a conflict in that same person based on what their goal is for a particular election. There could be a conflict with what the national committee target goal is versus what that particular state wants to do within its election. There are two different regimes there.

And the implied agency theory I think not only do you have activists that are volunteers but you have activists, and I know this happens on the DNC side, too, who are employees of the DNC who in their own time will go out and volunteer in a race in Virginia, the Virginia gubernatorial race and just because they work for the RNC or DNC there's an implied agency arrangement there. And I guess that's where it becomes important to talk about within the scope of their employment because what they do on a Saturday afternoon in Northern Virginia, handing out leaflets for someone or raising soft dollars for someone is totally different than what they do Monday through Friday working for the RNC and DNC in a different capacity.

So our position is that if you can avoid the implied, please do so because we need some clarity here. But there is a whole range of types of individuals like that that are intertwined within the party structure and the clearer you can be as to what "agency" means the better off you are. Even with people you have that have authority go off on their own and do strange things but they're not acting within the scope of their authority to do so and I think that becomes very important.

MR. NORTON: I mean, one of the obvious questions this raises is who is covered if the definition is limited to express authority orally or in writing and we talked yesterday about how this plays out in the real world and how funds are solicited and maybe you, Mr. McGahn, could help on this point.

In a typical congressional campaign how many people are expressly authorized orally or in writing to raise funds for the campaign? Do they hold certain positions or titles with the campaign?

MR. McGAHN: Generally yes, you'd hired probably a finance director. You'd probably hire an outside fund-raising consultant, and they're the ones responsible for raising funds. In my experience you tend to have those who raise the money and those who spend the money, meaning you have the political operatives who control the message and what not and those folks do not go out and raise money and I don't think anyone in their right mind thinks that they're authorized to do so.

MR. NORTON: Of those who raise the money, whether they're in the right mind or not, how many of those are expressly authorized either by contract or orally, expressly authorized, not implied, to solicit funds on behalf of the candidate?

MR. McGAHN: It depends on the campaign, at least the two I mentioned, and they probably expressly put together a finance committee or a group of people who can help them raise money. So I think in my experience the people who are able to raise money tend to know they can raise money but that doesn't mean that there are also people who raise money on their own and aren't necessarily authorized by the committee.

In my experience there are many times where activists will want to do events or put up ads or do things on their own and they may have had some contact with the campaign. So you get into this very gray area, this implied authority, and to me that's very dangerous because the one thing as a lawyer for campaigns I always try to maintain some sort of control over what's going on both for compliance matters with the Commission but also dealing with outside entities. If you get into implied agency, to me that was a concept that was designed to protect people who maybe contract with the campaign.

Someone goes out and says I can bind this campaign and enters into a deal, you shouldn't stick somebody with an unpaid bill because they thought they were contracting you in faith. But to take that and extend it to binding the campaign in our context to me is very, very dangerous.

MR. NORTON: Thank you. I see my time is up.

CHMN. MASON: Jim Pehrkon.

MR. PEHRKON: Mr. Chairman, since you had requested the question concerning the Levin provision be held for the next panel that's exactly what I'll do. I'll wait for the next panel.

CHMN. MASON: If we have an urgent desire for a second round we can do that but if we want to be able to take a break and stay on schedule we don't have time for a second round. Commissioner Toner, at least, is anxious. It is a strong suggestion but Commissioner Toner.

COMM. TONER: I'll just ask one question, Mr. Chairman, and I think the General Counsel raised a critical issue yesterday and we've talked about it a little bit today. And that is "agent" under this new statute is not defined and obviously there are other agencies in this city and elsewhere where that is also the case where they implement statutes that contain agent concepts that are not defined in their organic statute and they have to come to grips with that. And the question is how have these agencies implemented agency and whether we are dealing with different sets of issues from other agencies because, number one, we're dealing with First Amendment interests that are acute, number two, it's been alluded to here this morning that the aspect of volunteerism that I think everybody agrees is a good thing in American politics and probably not enough of it. But I think another element actually that the RNC touched on and I don't think we've talked about at pages 8 and 9 of their comments is this idea that apparent authority, which other agencies may or may not use within their regime whether it's appropriate here because apparent authority to a certain extent grew out of the fact that innocent third parties reasonably relying on representations made by agents often in a commercial or monetary setting suffer damages and whether that same policy concern is at issue here with regulations of elections.

And the question is is it, and I take it, Mr. Josefiak, in your comments on pages 8 and 9 what you're stressing is that it is not?

MR. JOSEFIAK: That's correct.

COMM. TONER: And that's because we're not dealing with commercial transactions. We're not dealing with fraud. We're not dealing with some of the other issues that other agencies focus on where maybe there is a much stronger argument for apparent authority concept. Is that accurate?

MR. JOSEFIAK: Exactly. What we're dealing with here and the comment stresses is that we're dealing with First Amendment issues and I think that creates a whole different ball game for us in that we agree that the apparent authority language should not apply in this case. You've got to be more specific to that. You've got to have clarity here for people to understand who has authority and what's going on and not rely on apparent authority.

COMM. TONER: And what I think is interesting about this discussion is in addition to the First Amendment need for clarity, the fact that we have fundamental rights at stake, is this idea that apparent authority in other settings may have grown out of the commercial settings in which these agencies are regulating and the fact that innocent third parties suffer monetary damages through no fault of their own.

MR. JOSEFIAK: That or other personal damages where you don't have that kind of situation with this fundamental First Amendment issue that we're dealing with, the right to say and do what we think and advocate the election of who we think should win.

COMM. TONER: Mr. Bauer?

MR. BAUER: Yes, if I may, Commissioner, I just wanted to emphasize the national party committees on the Democratic side in their comments have strongly suggested, strongly recommended, that the commission proceed off of the definition of "agency" that it already uses in Part 109.

We speak here of legislative intent. Congress certainly, presumably those who sponsored the bill and are familiar with the legislation, knew that there was such a definition. It is focused and this is a critical point and it relates to the point you just asked of Tom Josefiak. It's focused on raising and spending money, which is, after all, what the statute is concerned with, and therefore it raises less the danger that this entire agency analysis is now going to cause us to roam out into the countryside and sweep up all sorts of other people engaged in other activities that ought not have to worry about whether they are or are not agents and that that definition coupled with the "acting on behalf of" formulation, it seems to us, provides both some clarity because it relies on a definition already in the rules and also some appropriate limitations so that it is not a definition that winds up creating either problems for volunteers or, frankly, limiting the number of people who are prepared to volunteer in political activity because they're afraid of becoming legally liable agents.

COMM. TONER: In your view is 109.1, our existing "agent" definition limited to individuals who hold substantive decision- making authority within an organization?

MR. BAUER: Or have been authorized. I don't have the definition in front of me, but who can authorize the making of expenditures or hold a position with the campaign organization which would suggest that indeed they have that authority.

COMM. TONER: To either raise or spend funds.

MR. BAUER: To raise or spend funds, which seems to be critical. Oh, excellent, thank you.

COMM. TONER: And I take it that in your view --

MR. BAUER: This is good agency- regulatory community cooperation. I appreciate it.

COMM. TONER: Exciting stuff. And in your view that's the appropriate way to draw the line?

MR. BAUER: It is, absolutely.

COMM. TONER: Thank you, Mr. Chairman.

MR. JOSEFIAK: Mr. Chairman, as long as you define that to exclude the commercial relationship because these regs that we're referring to with independent expenditures automatically taint the independent expenditure if you're using a common vendor and I think that we talked about yesterday in some of these situations where we're not dealing with independent expenditures just by using a common vendor isn't going to make you an agent thereof for all practical purposes and that's when you got into the discussion of it's within the scope of your authority and I think you've got to be very careful about using that without some sort of a clarification or modification as a difference between a commercial operation versus so-called political operations.

CHMN. MASON: I have requests for a second round from Commissioner Thomas and Commissioner Sandstrom. Commissioner Thomas.

COMM. THOMAS: I just want to be clear. Are you all here today telling us that we should use January 1 as the start date for defining most of the activity as federal election activity, for example, in the areas of voter ID efforts, GOTV efforts, and generic campaign activity, and that in essence everything that the party committees, the state party committees, do in the off-year, the odd year, in those areas could be paid for 100 percent with whatever soft money the state party allows and that likewise all administrative expenses should be paid for 100 percent with totally unregulated soft money? Do you all take that position?

MR. BAUER: First of all, I should mention, by the way, state law does regulate campaign funds. When you say totally unregulated you're talking about the reach of federal law.

The position of the national party committees on the Democratic side has been that January 1 of the even-numbered year ought to be the starting point. And we also believe that parties while they might have the option of allocating administrative expenses, for example, ought to have also the option of paying for them under state law with 100 percent state-regulated money.

COMM. THOMAS: This would be even in the even-numbered years as to administrative expenses?

MR. BAUER: That's correct. Correct, for those that fall outside of those that are expressly made subject as federal election activity to allocation.

MR. JOSEFIAK: We looked at the definition of "federal election activity," and what we argued for, that if it doesn't meet the definition of federal election activity therefore it is not regulated by federal law and therefore you could use 100 percent non-federal funds, and that would go for administrative expenses and then I believe we did not take the position that the federal election activity automatically starts on January 1st of an election year for anything. We left that open.

We looked at the actual conduct of the activity as to whether it would qualify as federal election, and I believe Mr. Sandler in his comments when we talked about the difference between voter registration and voter identification programs and basically referred to the fact it's only when you're actually contacting the voters that that should even be viewed as federal election activity raised a whole other issue on how you deal with those within the election year process.

So I think what we suggested is that we take the position it's not federal election activity, it's not regulated, but in the alternative at the very least if the Commission didn't accept that theory then you could still allocate like you could now but not have to use Levin funds to do so. But our position was that if it's not federal election activity then it's not regulated by this law or by the Commission.

MR. SANDLER: This issue was raised by the Commission itself in the notice of proposed rule making which states the NPRM that was approved unanimously by the Commission, "BCRA requires certain federal election activities, fund-raising costs, and certain salaries to be paid with federal funds. As a result, significant amounts of activity that were once allocable will have to be paid for exclusively with federal funds.

"BCRA also delineates which federal election activities may be allocated between federal funds and Levin funds. The Commission seeks comments on whether administrative expenses that are not identified in BCRA have a significant enough impact on industry elections to require continued allocation."

It was the Commission that posed the question and the answer is no and therefore that is our position.

COMM. THOMAS: Thank you.

CHMN. MASON: Vice Chairman Sandstrom?

COMM. SANDSTROM: It's unfortunate but I think it's true that political parties have been subject to lawsuits, investigations, investigations by this agency, and the cost of responding to those can be very, very significant. In the notice the Commission sought comment on whether those they should be able to pay for funds raised outside the act. What are your views on that issue?

MR. BAUER: We gave examples of some contingencies parties face like, for example, expenses for redistricting that we believe we ought to be able to pay for, as existing law provides and indeed the legislative history does not suggest Congress intended to change, exclusively with non-federal funds.

I'm not certain, Commissioner Sandstrom, I understood the specific case that you're asking us to address.

COMM. SANDSTROM: I can imagine a congressional investigation that might cause a political party and did cost millions of dollars. I can imagine people filing complaints knowing that parties have limited hard dollars to deplete the resources so that complaints and litigations become part of a political strategy because an advantage can be gained by the filing of a suit no matter how frivolous because lawyers cost money, and I'm sure it's all well earned, and other resources, the use of accountants and bookkeepers, to respond to a suit.

You could have some being sued for age discrimination. As parties have to downsize you're going to have to come up with who stays there and who doesn't. It's not uncommon in this country for disgruntled employees who believe that an improper standard was used to let them go and they might sue.

Again, if it had to be paid out of hard dollars it would deplete what everyone would recognize as limited sums. I'm just wondering even though as some have suggested the sponsors wanted to completely eliminate national parties raising soft money whether the examples I've used and those that have been recognized by the Commission as exemptions through the advisory opinion process and such should continue.

MR. JOSEFIAK: Commissioner, you're raising a very good point and it's not only that issue. I mean, members of Congress are allowed to have legal defense funds that are outside the limitations and prohibitions of the act. That's a very good point and you have to look at it from two issues, one from the state party situation which I think is a lot easier, and then also the national committee perspective.

You touched on it at the very end. It goes beyond just that example of paying lawyers and accountants because some people don't like to pay lawyers and accountants. But there are a number of situations in the advisory opinion process where the Commission viewed various activities as noncontribution activities, for example, the purchase of a mailing list, whereas in the past as long as you're paying fair-market value you can go and purchase a political committee mailing list and it can even be from a corporate entity and as long as it's viewed as a fair-market value that's not viewed as a corporation contribution and therefore you can put it in a federal account. You have those kinds of examples all over the place.

Are these kinds of receipts now are they banned under the law if they're legitimate actions that are not viewed as contributions and it's not the raising of soft money? Or are you going to take the position that this is a total ban of accepting any non-federal funds into a federal account, and are those classified under this law as non-federal funds? Or are they federally regulated non-federal funds? I think those are the kinds of issues that are going to confront you as you go through this process.

COMM. SANDSTROM: Is there a serious due process concern when the government is limiting the funds available to someone to defend itself from the government?

MR. JOSEFIAK: We certainly think so.

MR. McGAHN: We certainly think so. If I could cut in, Tom makes a good point about the members being able to have defense funds, the idea that an individual member could set up a defense fund but as soon as the members get together and form, say, the NRCC they couldn't have a common defense fund to defend that entity simply doesn't make sense.

It's not funds that are ever going to be used for federal elections, state elections, or any elections, so to me it's completely outside of the purview of what we're talking about here today. But the due process concern is very much there, associational rights are there, and that's why I agree with my colleagues that those funds are really not what the so-called ban is all about.

CHMN. MASON: I have requests from Commissioner and Commissioner McDonald. Commissioner Smith?

COMM. SMITH: Mr. Bauer, I want to direct one question at you because I know you won't be here for the afternoon panel. Along the lines of what we're talking about there are certain other things that the parties have spent money for in the past such as redistricting, recount funds, and things like that which don't seem to be directly related to federal elections.

On the other hand the statute seems to be pretty clear in saying parties may not accept contributions outside the limits of the act despite the due process concerns that we've just heard raised. I just wonder if you would address that and would it be your sense that parties ought to have the ability to raise money for those types of activities as well as the types of legal defense funds we were just talking about and if so is that something that this Commission has the power to do?

MR. BAUER: I believe it does. Again, here is where you would look normally to legislative history for the clear intent by Congress to take a position very, very different than for years it took and the Commission enforced.

A good example of that is redistricting activity. That's a very expensive activity. It's constitutionally mandated that the parties address it. And the Commission has taken the position that as a matter of law it is not activity for the purpose of influencing a federal election; it's something different.

There is nothing in the statute that passed the Congress in BCRA that suggests that that ought to be treated now as prohibited to the national parties. In fact there was some attempt to have language to that effect in an earlier version of McCain-Feingold and it was stripped out.

So I believe the Commission absolutely does have the authority to maintain in place absent congressional intent to repeal it specific types of allowances and exemptions that were meant to support activity that the Congress believed promoted a variety of political values.

We take that position, for example, with respect to the maintenance of the exempt activities in 100.8 and 100.7, and we make an argument there that there is no reason to believe Congress intended to repeal them because they were introduced for a reason, they've been implemented for a reason, and they remain just as valid today as when Congress first enacted them and the Commission began enforcing them.

COMM. SMITH: Thank you.

CHMN. MASON: Commissioner McDonald?

COMM. McDONALD: Mister Chairman, thank you. Just very briefly on the point about a date certain, and the more popular date appears to be January 1 of the even-numbered year, but me just ask Bob or any of you who want to respond. In relationship to that we have been told repeatedly that we should be for clarity, which I think is an admirable goal. At the same time the issue of fairness has been raised this morning and out of fairness and clarity might come consistency.

The question is obviously states have different days for their primary process, very different. Some are very early in the season. I think Illinois is one of the first if memory serves me right. Maryland, on the other hand, is decidedly down the road, about September. I believe that's right.

Would another option be, and what would you think about it based on your experience, that we use not necessarily a date certain but a time frame certain, whatever that might be? I don't know the answer to that, six months prior to or whatever. Yesterday the question whether the candidate was actually on the ballot, as an example, was one of the discussions.

Obviously, again, the problem there is the ballots take different shape at different times. I'm wondering on the consistency side if we should have, which is a normal regulatory tool, a time certain that might aid and assist all states equally at least in relationship to this kind of question.

MR. BAUER: I'll let my colleagues respond, too. My response is that I think you're going to wind up with obviously a lot of difficulties, anomalies, inconsistencies, in pegging, for example, dates to the variable primary season. For that reason I believe the one choice that you can make that presents the least complication and produces the fewest inconsistencies and anomalies is the date of January 1st of the even-numbered year.

MR. JOSEFIAK: Commissioner, the proponents yesterday took the position that it should be a two-year cycle. My colleagues on the Democratic side said a year and it shouldn't be less than that for sure, the year before the election, January 1st of election year.

But you have other options as well and one of them is if you look at the law itself when they try to take a project that would normally be viewed as a party-building project, a voter registration program that parties constantly do for a whole two-year cycle, four-year cycle, whatever it is, constantly registering people to vote, BCRA took the position that that becomes a party-building operation up until 120 days before an election.

The reason they looked at that versus everything else is because that was always going on. But the other kinds of activities, voter identification, get out the vote activities, you're not going to be doing that necessarily in an off-election year. So one other approach that you could take is say well, there is a clear indication of what they meant to take something that was normally a party-building operation and put it into an election setting. You could use the 120-day period.

Again, I'm not necessarily promoting that but there are those kinds of options where you can come up with a date certain based on other kinds of criteria that certainly indicate to the world that this now becomes a federal election activity.

So the proponents are saying two years, my colleagues are saying January 1st, and there may be other options like the 120 days where you could say the get out the vote activity at 120 days is definitely going to be 100 percent federal versus before that or whatever and deal with it that way.

Again, I'm not proposing that. It's just a matter of coming up with something across the board, and that's just another option for you to consider if you're not going to look at the activity itself as generating the problem.

CHMN. MASON: Thank you. We will take a 10-minute recess and I would beg the indulgence of my colleagues and the panelists to be back at 11:20 to start round two.

(Recess)

CHMN. MASON: The hearing of the Federal Election Commission on prohibiting excessive contributions will reconvene. This is our last panel in this portion of the meeting, and this panel represents state party committees so that we have several of the same members of the panel, a little different topical focus, Joe Sandler and Neal Reiff representing the Association of State Democratic Chairs, Mark Brewer, welcome, from the Michigan Democratic Party, and Tom Josefiak and Charlie Spies representing the Republican state parties.

We'll have the same format roughly as this morning though we may extend the Commissioners' question periods a little bit. We'll first hear from Joe Sandler.

MR. SANDLER: Thank you, Mister Chairman. I'll be extremely brief because I want to turn it over to Chairman Brewer, just to say that there's a couple of issues that affect the state and local party committees that particularly require clarification in this rule making.

First of all, as you've discussed and touched on in the earlier panel, federal election activity, the question of voter identification, what constitutes voter identification particularly as it applies to voter files and voter lists, the question of timing and nature of generic activity, clear lines as to what constitutes get out the vote activity, and also clarification of get out the vote that takes place in proximity to an election mentioning only state and local candidates.

If the law went into effect this fall and in Maryland in an area where we have in most of the state there are no contested congressional elections and the Maryland Democratic Party spends from its state account as required to do under Maryland law the day before an election for a communication or whatever get out and vote tomorrow for Kathleen Kennedy Townsend for governor are we to understand that that is federal election activity? That is an issue we need to know the answer to, yes or no.

I mean, obviously if the answer is yes then it will be up to the courts to take it from there. But I would point in that regard that Maryland has lower limits than the federal but different sources, and if there's any deference to be given whatsoever to the views in the Maryland General Assembly and the people of the State of Maryland as to what constitutes an appropriate regulation of funds that get spent directly specifically promoting their candidates for governor.

Secondly, the issue of local party committees, the issue of whether federal election activity counts towards the $1,000 threshold in the statutory definition of local parties is critical because even assuming that a local party uses and has on hand permissible funds for any generic activity, voter identification, or registration that it undertakes if it's the case that if it spends $1,001 on just get out and vote Democrat or registering Democratic voters in a year that has to register and report with this Commission that would sweep in thousands and thousands and thousands of local party committees into the ambit of registration and reporting with the FEC that aren't currently covered which is obviously a step that requires a lot of deliberation. We think the statute does not require that, it's clearly not the case, but it needs to be answered.

Thirdly, we've talked about the allocation ratio. We very much support the proposed idea of a unified federal, non- federal ratio for anything that remains subject to allocation and we also would point out that the regulations do not specify what allocation ratio applies to local parties. That's probably an oversight. It may be that the same one was intended but it doesn't address those.

And finally with respect to state party building funds, as we noted, there is nothing in the legislative history of this act in any way that suggests that the scope of permissible building fund activity for state parties is to be narrowed if they spend funds permissible under state law. Secondly, the Commission should allow a state party to spend 100 percent federal money without being preempted by state law if it so chooses on a party facility.

Finally, the Commission should provide a transition rule so that state parties can spend funds on hand under the current rule even raised under the federal preemption going forward. Thank you, Mister Chairman.

CHMN. MASON: Thank you. Mister Brewer?

MR. BREWER: Thank you, Mister Chairman. My name is Mark Brewer. I'm the chairman of the Michigan Democratic Party, and I've spent over seven years in that position, and I think in the eye of Commissioner Sandstrom's hurricane. That is one way of looking at it.

Prior to that I was president of my local Democratic club. I have been the treasurer of my county party committee. I've been chair of a congressional district party committee and active in many caucuses in the Michigan Democratic Party. I have been a volunteer prior to my current job in Michigan for over 20 years.

I want to thank the Commission for the opportunity to testify. The Michigan Democratic Party previously submitted written comments, and I simply would like to supplement those comments in my opening statement and then I look forward to taking questions.

My comments are divided into several parts. First let me talk about our local party structure in Michigan and the impact of the Commission's current regulations as well as what will be the impact of the regulations we're anticipating.

In Michigan we have 82 county parties, 16 congressional district parties, 40 to 50 local Democratic clubs organized on a city and township basis, and 30 caucuses representing various constitutes in the Michigan Democratic Party, all of which are affiliated with the party.

All of the officers and members of these various organizations are volunteers and they do this work because they believe in the party, they believe in its principles, and they believe in our candidates. Of these 160 to 180 organizations only three of them have paid part-time staff, and I indicate and stress that those staff are not responsible for compliance matters, nor are they qualified to deal with compliance matters. So the overwhelming bulk of the work done by these local party committees is done by volunteers.

Very few of these local party committees have federal committees. As a matter of fact not even all of our congressional district committees, which would be where any federal activity would likely occur, have federal committees. One of the chief reasons for that is the complexity of the current law.

I am told frequently by local party officials that they will not engage in federal activity because of the complex regulations that they already have to comply with. We have great difficulty recruiting people particularly to serve as local party treasurers when they look at the daunting regulations and complexities that they face.

We have tried to cope with this by doing training with local party officials, and I can tell you that not a day goes by that I don't get at least one phone call and my staff does not get similar phone calls from local party people asking about and trying to figure out how to comply with these complex regulations.

The materials that the Commission has produced over the years are excellent. You produce a wonderful set of manuals that are close to plain English as I think is possible. But you'll have to understand I think that from a lay person's perspective, somebody who is a volunteer in party activity, if I hand them a manual, as well written as it is and as easily read as it is, it's simply intimidating to them to even comprehend the prospect of having to deal with those kinds of regulations.

There is no question in my mind that as a result the current regulations and the current law are deterring local party activity in the State of Michigan, and based on my conversations with other state party chairs they're deterring and chilling local party activity all over the country. Therefore we strongly urge the Commission to add as little as possible to this complexity, to this burden, and to the chilling effect that is already occurring at the local party organizations. We also urge you that the regulations be as clear and simple as possible and be used to encourage and not discourage state and local party activity.

Let me now turn to a brief discussion of grass-roots activity in general. We've heard a lot of testimony, a lot of comments, about concerns about corruption and the appearance of corruption but I think there are other important considerations for the Commission in considering these regs.

For example, educating voters and increasing voter turnout are certainly compelling government interests which are deserving of consideration by the Commission as it looks at these regulations. There are many studies which have indicated that door to door canvassing, direct mail, phone contact, and all the traditional types of party activities that we normally associate with political parties fulfill these compelling government interests. They educate the voters and they encourage turnout.

Such activities and funding them pose no actual or threat of corruption because funding them takes far less money than the infamous issue ads about which there has been so much publicity. But ultimately these activities do require resources so we urge the Commission to encourage local parties, state parties, to be able to do voter education and turnout by encouraging these activities.

We ask that you make the rules as simple and clear as possible, avoid unnecessary or excessive registration and reporting requirements, make fund raising for these activities as simple as possible. Please don't choke off this important activity by making fund raising for that difficult.

These principles apply particularly to the Levin Amendment. Carl Levin, a Michigan senator, practices and is knowledgeable in grass-roots politics. He believes in it. Based on my discussions with him his amendment is intended to encourage these activities and should not be interpreted to hinder them.

With that I see the red light is on and I'll stop, but I'm eager to talk with the Commission and answer your questions. Thank you.

CHMN. MASON: Thank you. Commissioner Josefiak?

MR. JOSEFIAK: Thank you, Mister Chairman. In addition to the comments we've already presented regarding state parties I'd like to make just two quick points. First, the Commission's regulations should allow for flexibility and to the extent possible under this new law federalism. I want to address the flexibility issue briefly and then turn the federalism issue over to Charlie Spies.

There are a couple places in here where the Commission is asking whether the Commission should establish specific fixed rules and percentages, for example, in the allocation. I think that is a fine idea but I don't think it should be mandatory. I think that a party committee at the beginning of a cycle should be allowed the opportunity to continue the ballot composition formula because it may more reflect the activity within its state or if it desires to go for the fixed percentage but I don't think it should be one or the other. I think it should be at the beginning of the cycle the party committee, just like it does now, submits its form and could decide to submit a form that says we're going to go with the fix or we're going to go with our ballot composition formula and here is what it is.

The second point on flexibility is a mandatory Levin account. I don't think it should be mandatory; however, just like I strongly advise state parties now dealing with the exempt activities to segregate funds, I would strongly advise them to do so but there are some states, for example, where state law may prohibit a dual accounting system at the non-federal level. I think it should be left up to the state party to decide whether it wants to take the responsibility or whether it has to take the responsibility of having just one account.

Again, those briefly, Mister Chairman, are some of the points where the more flexibility you can build into the state and local party level I think the better the state and local parties will be. Just like the good chairman from Michigan said, it's difficult enough to deal with these issues, and the more flexibility they have based on their own situation politically and legally within their state they should have that opportunity and we shouldn't try to hamstring them any more than this new law already does.

So thank you, Mister Chairman. I will now turn it over to Charlie.

MR. SPIES: Thank you, Tom. Mister Chairman, the Commission has been put in the strange position of having the obligation to promulgate regulations that stem from statutory language the Commission knows in many places is almost certainly unconstitutional while at the same time that language does not in its plain language do exactly what the congressional sponsors of that legislation now claim that they wish or intended or now wish that they had intended that it would do. This reality places a statutory interpretation burden on all commissioners whether you're supported, opposed, or claimed to remain silent under the underlying merits of the BCRA.

As you look at the statute, if the language is plain, if the meaning is clear, then the question doesn't arise; however, if even arguably the language of the statute is not clear then I urge you to turn to federalism. A key canon of statutory interpretation is the Supreme Court's super-strong rule against federal invasion of a core state function. As the court explained in {IOn}BFP v. Resolution Trust{IOff}, "Federal statutes impinging upon important state interests cannot be construed without regard to the implications of our dual system of government. When the federal government radically readjusts the balance of state and national authority those charged with the duty of legislating must be reasonable explicit."

In other words the Commission has an obligation to be respectful of the federalism issues inherent in our American system of federal regulation of federal campaigns and state and local regulation of state and local campaigns. For over 200 years states and localities have regulated their own elections; therefore, when there is a close call of statutory interpretation the Commission has an obligation to promulgate regulations that respect this federalist division of power and allow continued state and local regulation of their respective elections. Thank you.

CHMN. MASON: Thank you. Commissioner McDonald?

COMM. McDONALD: Mister Chairman, thank you, and again let me thank the panel members, Mark, you in particular because you were quite extensive in your comments, and I thought they were extremely helpful because you're at the local level and you're having to deal with the day to day activities.

Your description of the Michigan Democratic Party, by the way, sounds a great deal like the Oklahoma Democratic Party except I think maybe we had one person last I checked that was on somebody's payroll.

Before I ask a question or two I do want to say that the comments that Joe made at the outset I thought were outstanding in terms of some of the things we are going to have to grapple with here fairly soon because it is right that there's not much time in some of these areas, and some of these are very, very fundamental questions that it will be imperative that we try to resolve as quickly as we can.

Mark, let me just ask a couple of questions. I suppose if I wanted to be the devil's advocate, which I always want to be, by the way, because otherwise it makes it a rather boring meeting, let me start with would you dismiss out of hand Senator Levin's comment since he didn't have any legislative history in terms of what he conveyed to you about the intent of the amendment that he put forward or should we give a little more weight to what he had to say since it is the Levin Amendment?

MR. BREWER: Well, I'm not here to testify here as a lawyer, first of all, in terms of what the legal standards are.

COMM. McDONALD: I'm not a lawyer. You and I will get along fine.

MR. BREWER: And I certainly would never be one to say that anything Senator Levin should be discounted.

COMM. McDONALD: I see why you're the head of the party.

MR. BREWER: But, as I indicated, Commissioner, in all seriousness, I mean, I have spoken with Senator Levin and his brother Sandy was a former chair of the Michigan Democratic Party. They are practitioners of grass-roots activity in every election cycle. There is no finer practitioner than Carl as he travels the state and works with local party organizations.

And it's my understanding from talking to him that the purpose of his amendment was to preserve and encourage, protect, the ability of state and local party organizations to perform these grass-roots activities. He is as much an enemy of issue ads and that kind of corrupting influence as anybody who voted for this bill but he was very clear with me in numerous discussions that he wants to be sure that state and local parties are able to do these traditional grass-roots activities.

COMM. McDONALD: How do you see breaking out in terms of the organizations you mentioned at the outset, Mark? I think you said are there what, between 160 to 180 different organizations in the state?

MR. BREWER: Yes, from time to time. Obviously, we have clubs that come and go, caucuses that come and go, but at any given time 160 to 180 local party organizations.

COMM. McDONALD: In relationship to the Levin Amendment what does that mean in terms of from your perspective or what should it mean, maybe, in terms of which ones can accept the Levin money and can they all accept it? Do you see a difference between state and local, or is there some criteria that you would look at?

MR. BREWER: I believe that they all should be able to accept the Levin money under the restrictions that are set out there, $10,000 per donor per year, because, again, going back to the hurricane analogy, there's an enormous amount of party activity in any state that's not controlled or directed by the state party. I constantly learn after an election about the local pamphlets or the newspaper ads or whatever it was that the local party folks did without any prompting, encouragement, or direction from me, and I think that's to be commended and encouraged, not discouraged.

Again, I think being able to finance that and have each of these parties raise that kind of money or obtain that kind of money would be very helpful in that regard.

COMM. McDONALD: So under your example, just roughly, how much money would that be for the state then that an individual could give?

MR. BREWER: Well, if every one of those local party organizations receives that it would be 150 or 160 times $10,000, I suppose, in that particular instance. It's inconceivable to me that that would happen, Commissioner, but it's theoretically possible.

COMM. McDONALD: One of the things that have interested me from the outset in terms of thoughts that the commenters have and I appreciate very much is we want to be clear and we want to be concise but at the same time we want a lot of flexibility. And it's a little bit confusing for people I think who are trying to follow this, at least it's confusing for me, and let me give you the classic example, the Levin funds, if you will. Is it your position, and I gather that it's Joe's, that the various states and I assume these organizations within the state could all handle the Levin Amendments in a flexible manner in terms of accountability?

MR. BREWER: They certainly could but that would also depend on the regulations. The regulations can make it more or less difficult.

COMM. McDONALD: No, no, I understand but I gather one of the things that strike me is that because the issue relates to at least partial federal funds whether you would be uncomfortable taking a different position, say, than the State of Illinois in terms of how they handle their business in terms of reporting requirements, et cetera.

MR. BREWER: I think in general the regulations should be sufficiently flexible so that that is done. I mean, I'll point to one example now where I believe, and my lawyer can correct me, local party organizations can engage into about $1,000 worth of activity before they have to register and report. That's a terrific kind of safe harbor provision for these local folks, and many of them don't spend beyond that and so they're okay.

But if you start to say that all these activities add up and all of a sudden you're over the $1,000 threshold we're going to have less and less federal election activity and less and less party activity in general as a result.

COMM. McDONALD: On the voter I.D. matter for just a moment, do you have a position on whether there ought to be a date certain? I'm just looking here at Michigan real quickly. I gather you have actually a fairly maybe kind of standard. It's a little more than, say, in Oklahoma, but you have a filing deadline of May 14th, I gather, for the primary?

MR. BREWER: Yes.

COMM. McDONALD: Then on the 6th of August you would have your primary date. What's your feeling about the date certain as opposed to months out from the primary itself or out from the filing date?

MR. BREWER: I support the position that's been taken by the state chairs association and the DNC about using January 1 of the election year as a cut- off and I would particularly add in response to this that in Michigan we have no party registration, so as an ongoing effort which we think should be regarded as administrative and not have to be paid for with 100 federal funds we have an ongoing effort to try to identify party adherents and we think it would be very unfair to us as a state which does not have party identification to all of a sudden federalize and require us to pay for that kind of work with 100 percent federal funds when other states which have party identification would not have to do so.

COMM. McDONALD: You have an open primary system?

MR. BREWER: Open in the sense of that when you go into the booth you can choose which party to participate. Once you make the choice you cannot cross over.

COMM. McDONALD: Thank you. It's very helpful and thanks for coming.

MR. BREWER: Thank you, Commissioner.

CHMN. MASON: I am next in the question order. I wanted to ask first about the issue of federal election activity and voter I.D. and get out the vote because this discussion of dates in my mind is a little off the point and I had said yesterday in looking at the sorts of activities involved there's 120 days on the voter register. That's easy but voter identification and get out the vote in my mind as I had actually practiced it in the past had focused on particular elections and getting people to vote for a particular candidate or for the candidates of a party at a particular election.

So it seemed to me those phrases had a natural meaning as they were laid out. In other words this would involve typically in my experience a local party conducting a phone bank and calling people and saying if the election were held today would you vote for and going through the list and sometimes it varied as to whether they would ask two names or five names. In other words they might not always ask all the names on the ballot and then they would have a list. So that was voter identification. And then the get out the vote was the people who gave the desired answers would get a postcard the week before and a phone call the day before and so on like that.

It strikes me that that might be a more appropriate way to try to regulate this activity, to focus on the activity and not on the date. Commissioner Smith's staff has come up with a nice list of municipal election dates and so we were told well, there are just these five states that have odd-year elections. Well, it turns out that all of the big cities, virtually all of the big cities, elect mayors in odd-numbered years and even some that elect mayors in even-numbered years have spring municipal elections.

I can't imagine a situation in which Congress intended that efforts focused on a municipal election in March of an even- numbered year would all of a sudden get roped in. So I'd like the counsels to address the concept of focusing a definition of voter identification and get out the vote on particular activities, asking particular voters to vote in a particular election, and whether that would perhaps work better than trying to establish dates.

MR. SANDLER: Yes, that's exactly the approach we think makes sense, Mister Chairman. The definition definitely should focus in a clear and objective way on the activity and not the date on which it's conducted subject to anything before January 1st should not be regarded as federal election activity.

It's true absolutely that there are elections happening all the time and it is not just a matter of these five states. In 2001 I believe there were three special elections for state legislative races where control of a chamber was at stake. Two of those states very tightly regulate the funds that can be spent on promoting candidates for state office. I believe one was Maine and one was Wisconsin.

I think you might want to consider what those states would think about saying guess what, you can't spend 500 it now, you can 1,000, not from this source but that source, and the federal government gets to say what kind of money you spend in those races. That's extremely problematic.

MR. JOSEFIAK: I think there are really two points and they're overlapping. One is when automatically are you going to think of things as federal election activity, and that's when Joe was talking about January 1st of the election year, and then looking at the activity of it itself to see whether it qualifies under the definition of federal election activity.

Even in the voter I.D. program there may be situations like you've discussed where you're saying if the election were held today who would you vote for but, more problematically, the further away you are from the election it's probably just identifying who is a Republican and who is a Democrat.

Then you get into this situation of are you talking only about the general election in November or are you talking about the primary election where that's more apt to be the case, where if you're a registered Republican or Democrat you're going to be encouraged to get out and vote for a Republican or Democrat in that primary. So there are those kinds of issues even within that election year as to what election you're talking about.

And I think that there are two different considerations. One is when does this automatic date of everything being per se federal election activity, and the other is when by definition is the activity itself federal election activity and that's where I think there's a lot of confusion.

MR. BREWER: Mr. Chairman, if I may? Your characterization of this process and the data is absolutely accurate. Increasingly voter identification is very candidate-specific, very election-specific, so much so that much of the data isn't really even useful after that election passes for subsequent elections in which the issues are different, the candidates are different, and so forth.

So I just want to indicate to you that from a practical perspective what you have described is absolutely accurate.

CHMN. MASON: Well, I'm glad things are still done the same way. I wanted to go to this question about a vote for Kathleen Kennedy Townsend or whoever it might happen to be because my reading of the plain language of the statute is not what you want to hear and so I'll posit it and let you tell me if there's some way out.

In most states in the off- presidential years such as the elections coming up the gubernatorial candidates are the top of the ticket and very typically parties focus on the top of the ticket. Now, as I read the new statute it says get out the vote efforts in connection with an election at which a federal candidate is on the ballot. And so in a lot of states this year we have hot gubernatorial races and, of course, we have House candidates and in some states Senate candidates.

As I read it, what Congress apparently intended was that if a state party makes a phone call and says we urge you to come out Tuesday and vote to reelect Governor Jones that that would be covered as federal election activity because there are also federal candidates on the ballot.

Tell me how I'm wrong there. I understand there may be constitutional issues, federalism issues, so on, but focus on the statute and tell me if that reading is incorrect?

MR. JOSEFIAK: Well, I think it's incorrect because I think there's an exemption for 100 percent non-federal election activity and we would urge the Commission to accept that concept that if you're putting out anything that is saying Vote for X for Governor and that's all you're saying that that would be viewed as a non-federal election activity.

Now, if you said something like not only vote for her but for the rest of the Republican team then there's a generic message there that I think would be covered under the statute. But if you strictly relate it to vote for the governor and maybe the state legislative candidates it's my view, anyway, the Commission could take the position in the regulations that that would be exempt and that would not be viewed as federal election activity.

CHMN. MASON: So what's the meaning of the focus as to when a federal candidate is on the ballot? I'm concerned not about vote-for messages but about get out the vote.

MR. JOSEFIAK: It's in the generic sense. When you say vote Republican or vote Democrat in a federal election --

CHMN. MASON: I understand that. I'm concerned about the call, though, that says come out Tuesday and vote to reelect Governor Jones. So it's not a generic campaign message. It is a get out the vote appeal --

MR. JOSEFIAK: For a non-federal candidate.

CHMN. MASON: For a non-federal candidate but there's a federal candidate on the ballot.

MR. JOSEFIAK: Right, but, again, we would urge you to look at the exemption and come to the conclusion --

CHMN. MASON: What exemption?

MR. JOSEFIAK: That something that's 100 percent geared toward a non- federal candidate is exempt from being viewed as a federal election activity.

CHMN. MASON: Mr. Reiff, please. I mean, if you've got --

MR. REIFF: The federal election activity definition, Section (b)(1) of the definition of federal election activity, "a public communication that refers solely to a clearly identified candidate for state or local office if the communication is not a Federal Election Activity described in subsection (a)(1) or (2)."

CHMN. MASON: But it is a federal election activity if it is an appeal to get out the vote for an election in which a federal candidate is on the ballot.

MR. JOSEFIAK: But the vote is for a particular candidate and I think that gives you the option to make a distinction there.

MR. SANDLER: I think the Commission could and should interpret it the way that Mr. Josefiak is suggesting; however, if you should conclude that the statutory language does in fact leave you no choice I think what we're asking is please make that clear now.

We want the answer on June 25th. We don't want to run into Mr. Hershkowitz in court saying well, maybe it means something else. Let's have the issue joined in the consolidated litigation right now.

CHMN. MASON: Commissioner Thomas.

COMM. THOMAS: Thank you, Mr. Chairman. Thank you all again for being here. I had the opportunity to prevent Mr. Sandler and Mr. Brewer from making it here by not letting them in the building early this morning but I was very magnanimous and let them come so I hope they appreciate that if I don't agree with them on everything I'm still basically a nice guy, let them in the building.

I want to touch a little bit on the issue of how the party committees will live under the Levin Amendment and, Mr. Brewer, you're obviously the best person, I think, here to give us some insight.

The Levin Amendment is designed to restrict the ability of state and local party committees to use traditional soft money for a lot of party-building activity; however, it does build in this opportunity to take in whatever kind of money the state happens to allow up to $10,000 worth from a donor.

In your state how will that kind of $10,000 limit really affect the proceeds of the state party committee? Can you give me a rough sense of how much the state party committee traditionally has raised from whatever permissible source has been allowed above the 10,000 per donor amount? Do you have any rough idea?

MR. BREWER: Well, it certainly varies considerably from cycle to cycle, I'll acknowledge that, depending on the races that are on the ballot and so forth but we do have a number of donors. It's not a large number, it's not more than 100, certainly, who might be willing to donate those kinds of funds in order to fund the kind of activity that the Levin Amendment anticipates.

But I'll also indicate a number of our local party committees. I think particularly of the City of Detroit. We have two very active and strong local party committees in the City of Detroit who work very hard, volunteer as well as paid efforts, to get out the vote. And so there might be other donors and other folks that they would look to and other local party organizations would look to locally to supplement their efforts under the provisions of the Levin Amendment.

COMM. THOMAS: Under the Levin Amendment I gather a resourceful party official will probably work quickly to try to in essence establish a communication amongst wealthy donors, if you will, whereby those wealthy donors are encouraged to spread whatever amounts above 10,000 they might have given directly to the state party to various lower-level units. Am I wrong there? Is that not a practical reality of a way that a party official might address that restriction?

MR. BREWER: I think it is but I see no harm in that, either. I mean, my local party committees, as I indicated, are all volunteers and they would look to me and to others in the state party structure to help them with that and I see nothing wrong with that.

Again, I see these activities as fulfilling compelling government interests. I don't see a threat of corruption at this very low level, the $10,000 threshold, that's been enacted into the Levin Amendment, and I think that we should allow and encourage this kind of activity to flourish.

COMM. THOMAS: But I hope that you'll agree that at a certain level, I mean, if you have a wealthy donor or a wealthy organization that has a couple of hundred thousand dollars that it's willing to try to move into a state to try to help the party structure that it may well be that there's still going to be a way for that to happen if the party committees find out a way to pass the word to a wealthy organization or donor that they can send $10,000 chunks to various components within the state's party structure. I mean, isn't that a reality that that might happen?

MR. BREWER: Certainly, but, again, I'm not ashamed of that. I'm proud of it because what we're going to use that money for is traditional grass-roots activity, the kinds of things parties have been about for centuries and they should continue to be about. It does take resources to do these activities.

COMM. THOMAS: Now, where that leaves me is it takes me to a point of saying that because a wealthy organization or donor is as a practical matter most likely going to be able to find a way to move money into a state's party structure we at the Commission have to have a little bit more sensitivity to trying to prevent the wholesale evasion, if you will, of the spirit, if you will, of this new legislation.

I'm therefore worried somewhat about the interpretations that would suggest that party committees ought to be able to spend 100 percent traditional soft money to pay for voter registration activity outside the 120-day time frame or voter ID or GOTV activity that takes place outside of, say, a January 1 cutoff period of the even-numbered years.

Do you envision that there's some sort of movement away from the spirit of the legislation if the party committees are allowed to spend 100 percent traditional soft money for those kinds of activities?

MR. BREWER: No, not at all. Let me try to allay your concerns, Commissioner. The Michigan Democratic Party is very active in local partisan and non-partisan elections and even ballot questions in Michigan. I mean, we have thousands and thousands of state and local elections throughout the state in even-numbered years as well as odd-numbered years.

We have term limits in our state so it's particularly important for the state party to develop the farm team that everybody talks about so that people can move up into the legislative ranks and so forth. But our activity, as extensive as it is, pales by comparison to what the local party organizations do.

I adverted a couple of moments ago to the two Detroit political organizations. Lawyers are very active in even-numbered election years in both state and federal elections but I'll tell you it paled by comparison to what they did last year in the Detroit mayoral election, which is a non-partisan election. Those people care about who's going to be mayor and city council and so forth in the City of Detroit.

So I'm trying to convey a sense to you that in the scheme of things there is an overwhelming amount of state and local party activity to which I think a lot of this money would be devoted. We would not attempt to evade the limits and sneak it somehow into federal elections.

There are lots of local races in which all these party people are concerned and I can see these local party organizations going to donors and saying give me this money because I want to endorse in this school board race, give me this money because I want to endorse in the Detroit mayor's race, something over which I have no control, and even if I tried to control it couldn't stop it.

Again, I'm just trying to convey a sense of the scope of the local activity that would go on for which this money could legitimately be used.

COMM. THOMAS: Thank you. I have a little time, I see. Any of you that can help me with this I'd appreciate.

This issue of how this new legislation will affect the registration issue, when particularly local party committees are going to have to be registered now. My understanding of the proposed language we put out was that we were saying that to the extent something does qualify as federal election activity we would treat the federal share of that as an expenditure under the law that would count toward the registration threshold.

I see in comments submitted by the ASDC that you interpret Advisory Opinion 1999-4 as suggesting that the Commission historically has taken the position that it only counts toward the $1,000 threshold of expenditures candidate-specific outlays and that the generic party-building types of activities, voter registration, voter ID, and so on, that the federal share of those kinds of things wouldn't necessarily count toward that $1,000 threshold.

We may have a disagreement there as to what that opinion has established as a matter of law but what is your construction of what should count toward the registration threshold for local party committees?

MR. SANDLER: Our construction is only when it's basically candidate-specific activity for a federal candidate and possibly even expressly advocating a federal candidate but, leaving that aside, it has to be on behalf of a federal candidate in order to count towards the $1,000 threshold. I mean, I think that given the state of the law on political committees generally, the Commission's advisory opinions, that that's where you are.

If it's the Commission's view that 10-, 15-, 20,000 local party committees in this country are currently in violation of the law because they've exceeded the federal share of just general vote Democratic, vote Republican, has exceeded $1,000, again, I think the Commission owes it to the regulated committee and to the two courts that have to decide this thing to say so.

MR. JOSEFIAK: There are going to be different scenarios in different states and I think that's part of the problem, that we that deal with all these state laws on a day-to-day basis realize that there are not two states that are the same in how they operate.

I think a lot of local committees have avoided this issue because under their own by-law system with the state party they transfer non-federal funds to the state party and the state party does their get out the vote effort and they're just transferring non-federal funds based on state law so they avoid all of this because it's the state party that actually does the effort.

And so now what we're encouraging through this Levin Amendment if in fact you are a State like Michigan that has no limits as opposed to a Massachusetts, where you're very limited in what you can give to anybody that a $10,000 threshold is meaningless, then you're going to get into a situation of okay, when does the individual county or local organization that uses a Levin Account automatically now trigger registration and reporting under the federal election law.

And I think that's the real difference because what you can do now under the Levin Amendment is take the money from a local organization and send it up to the state party for the get out the vote effort. You can't do that any more.

So if the local committee wants to if you're not a Detroit committee that's a big operation any local committee that wants to do any sort of get out the vote effort now during a federal election year is going to have to go through this Levin scenario. And unless you set some sort of a de minimis threshold in there you're going to have a lot of people, I believe, in violation of that provision.

We have the $5,000 threshold for exempt activity. You may at least at a minimum have some sort of a threshold like that for this kind of activity before the locals would have to register and report. I'm not sure you can do that under the new law but I think you've got to look at what you can do to solve this problem that the only way these local organizations will be allowed to get involved is through a Levin Account if it's going to be a get out the vote effort.

MR. BREWER: Commissioner, the practical effect of that will be to kill off the activity. We're simply not going to go through all the registration and reporting and the threats and everything else if that's the end result so that the Levin Amendment then will become a dead letter. It will not be useful to anybody because of that interpretation.

COMM. THOMAS: Thank you. I certainly appreciate that this law is very encompassing and it requires an awful lot of hard thinking. I recall fondly now years ago going to an ASDC gathering in Miami and I was there with some of the FEC staff. And we were trying to explain the new allocation rules.

And then state chairman Jerry Brown at one point got up and he said basically, let's get a rope. And there were many there, like Bob Slagle (?) from Texas, that were ready to join him and hang all of us because they thought these rules were outrageous.

I think the state parties have learned to live under these restraints. We're here today under a new regime. This new legislation is there and we might take many of your suggestions and try to interpret them in a way that alleviates a lot of the concern. But I just hope that everyone will understand that this is a new day and this is an effort by Congress to change the way that money has been raised and we're all going to have to live with it.

And I appreciate all of you coming here to help us. It's certainly something I think that your input is very helpful in leading us along the way. Thank you.

CHMN. MASON: Commissioner Smith.

COMM. SMITH: Thank you, Mr. Chairman. I'm going to address most of my questions to you, Mr. Brewer, and there's a couple of very good reasons for that. The first is that I'm a Michigan native so I have a bias there.

And the second is also a good one. You're the only witness to appear before us in these two days who lives more than 20 miles from a coast. I sometimes like to gently chide my colleagues. I think I am the only person who has served on this Commission any time in the last 20 years who has lived at any time in the last 20 years more than 100 miles beyond a coast. So it's a pleasure to have you with us and get some of that solid perspective.

CHMN. MASON: That's not true.

COMM. McDONALD: That's very shaky, to be honest.

COMM. SMITH: But I do actually want to focus on questions pertaining to state parties and the effects of some of our potential choices on grass-roots activity and so on.

First, on the Levin accounts my understanding of our regs but apparently not that of all of our commenters, of the draft regs, was that to raise Levin funds you could use either Levin funds or other traditionally federal funds under the act. But at least some commenters have understood our regulation to suggest that you could only use funds subject to the other portions of the act to raise Levin funds.

Do you have any thought on that or opinion? Do you know what I'm getting at? It's my sense that you can use Levin funds to raise more Levin funds. Some people do not read the draft regulations that way.

MR. BREWER: I don't think that's a correct reading and it seems to me it creates a tremendous chicken and egg problem. I mean, if you can only use Levin funds to raise Levin funds you start with no Levin funds. I mean, it makes no sense.

COMM. SMITH: No, they were trying to say that you could not use Levin funds to raise Levin funds, in other words that the only money you could use to raise Levin funds would that be subject to the other restrictions of the act.

MR. REIFF: I'll just say it was our assumption when we prepared our comments, that Subsection (c) in Section 323 assumed that you can only use federal funds to raise any funds that would be used for federal election activity. That was our assumption when we prepared our comments.

COMM. SMITH: Well, I wonder if that is correct. I mean, the law states, I believe, that you can raise your Levin funds from funds subject to the limitations, prohibitions, and reporting requirements of the act and since Levin funds are subject to the limitations, prohibitions, and reporting requirements of the act once you've raised some Levin funds you can use those to raise more Levin funds.

MR. BREWER: Yes, I would hope so.

COMM. SMITH: Well, all right, let's go on a little bit and talk about the question of having separate Levin accounts. You were talking about the burden especially on small local committees earlier and I'm always interested in that and certainly I think there's a strong sense that from the regulatory end, from our end, it would be easier to keep track by requiring separate accounts. On the other hand I'm not sure that the ease of the government necessarily offsets the important interest of the American citizenry.

And so my question really is how big a burden would it be on these smaller committees to have to keep separate Levin accounts? I think in your testimony you suggested that should not be a requirement?

MR. BREWER: Yes, I think it should be optional. Opening up banking accounts and checking accounts may seem very simple but we've got local party committees and state parties as well in Michigan who have to comply with the federal regulations in terms of funds and how many accounts you can have. There are state rules and you have to have a separate bank account for that. There are even arguably some funds under Michigan law which are subject to neither of those sets of rules and so there's yet a third bank account.

I mean, this quickly gets out of hand for any volunteer officer, particularly a treasurer, who's trying to keep track of all this. I do believe they should have some kind of system where they're able to account for the Levin funds but we should let them have the option of whether they want to open up a separate special bank account for this very narrow purpose which will occur only for a few months during a particular election cycle.

COMM. SMITH: And the vast majority of these treasurers are volunteers for these?

MR. BREWER: All of them are volunteers, Mr. Smith.

COMM. SMITH: And they face personal liability if they slip up and forget to open the right number of accounts?

MR. BREWER: Yes, not only personal liability under federal law but also under state law and that is one of the reasons I indicated earlier so many of them are reluctant to undertake these responsibilities.

COMM. SMITH: You also suggest that funds solicited and deposited in Levin accounts should not have to be specifically designed for such accounts. Here's the question I would have.

Since there's a limit on how much people can give to a party committee for Levin activities how do we know if people have crossed that limits if we don't have to have some sort of designation? How does the donor himself know if he's crossed the limit if he doesn't know what you're going to use the money for when he contributes it to you?

MR. BREWER: Well, it seems to me it would be the responsibility of the party organization if asked by the Commission what portion of this was Levin funds and if there were more than 10,000 that came from a particular donor what did you use the balance for. Was it put in your state elections account? Was it put in some non-election account to use for other activity? I mean, I think the responsibility should lie with the local party folks to make that accounting if they're asked.

COMM. SMITH: You think that's less burdensome than requiring them to do the solicitation in a way that makes clearer where the funds are going to be used and spent?

MR. BREWER: Yes, because then they risk running afoul is the disclaimer proper and all these other kinds of requirements and people do play "gotcha" with these kinds of rules.

MR. SANDLER: Commissioner, the $10,000 limitation isn't what the party can accept. It's not a limit on the donor, nor do the federal aggregate limits apply. Consequently, there is no policy basis whatsoever, not to mention no basis in the history or language of the statute, for requiring that Levin funds be solicited with respect to particular language and that would in itself, not to mention the hundreds of lines and pages of other restrictions, kill the ability of state parties collectively to use Levin funds as intended.

MR. JOSEFIAK: And that's particularly true in a state like Michigan or Ohio where it's individual money but no limits. And it's difficult enough to get individuals to contribute but then if you have to go through this whole malarkey of saying well, half your money's going to this account, half of this money is going to this account, and this is going to be reported here, and this has got to be put in -- it's already difficult enough to convince people to give you the money. And then if you're going to put all these restrictions and there's a possible legal ramification on top of all of that and the so-called Levin funds there are maybe people who wouldn't give to a Levin fund as opposed to giving to the party in general because they don't know what a Levin fund is.

And I think that the ability of a state like Michigan to be able to take Tom Josefiak's money and then take 10,000 of that and put it into that account and segregate it to be used for this effort is the way it should be.

COMM. SMITH: Do you want to add a bit more, Mr. Sandler?

MR. SANDLER: Again, just to use the example of Maryland, the limits are $4,000 from any one donor. That's in their regular state account. Why can't they use that as their Levin Account? What policy purpose would be served by requiring them to have yet another account?

COMM. SMITH: One final question as we're starting to run out of time. Mr. Brewer, do you have any estimate of how much of the state party activity would qualify? Let me just get to the crux of the question. Allocation, how big of a burden is that, particularly for local committees that might be doing things, some of these local outfits?

In other words, the question that Mr. Sandler addressed earlier in the day, the new law says a lot of the stuff that used to be allocated is now strictly federal election activity. How much is left that's not federal election activity and how much of that would you spend anyway? In other words I assume that you would have some office space anyway whether there was ever a federal election in Michigan or not. I assume that you would have some copiers and computers whether there was ever a federal election in Michigan or not. So how much is the incremental value of what's not counted as federal election activity?

MR. BREWER: Well, as I indicated in our written comments, frankly, if there were no federal elections I think the structure of the Michigan Democratic Party would not change very much. I mean, we would still have county parties, we'd still have these local clubs, the state party would still exist.

I really regard the federal portion of all of this as incremental. It's in addition to the vast bulk of our activity, which is state and local activity. I would add with all due respect that the existing allocations rules are one of the reasons why local party groups in Michigan do not open federal committees because then they know that these administrative expenses and so forth are going to have to be allocated, they're going to have to raise federal hard money and report and register, so that's already a disincentive and I can foresee further disincentives the way these regulations are shaping up.

COMM. SMITH: Yes, and thank you for your comments on the existing rules. I mean, I have often commented on the ways in which I think the existing regulations already tend to stifle a lot of true, low- level grass-roots activities.

Thank you. My time is up.

CHMN. MASON: Vice Chairman Sandstrom.

COMM. SANDSTROM: What I find rather unfortunate about the abbreviated time schedule in which we're having to conduct these hearings is that we are not able to hear from witnesses like Chairman Brewer. I've noticed that almost all of the comments and questions have been addressed to you and that's because you're at the grass-roots level trying to do politics.

As you indicated, a number of the people who are also at the grass roots of politics couldn't afford to Washington to talk. They're volunteers. Many of them are totally unaware that this change is occurring and we're not able to go out into the country and ask the very questions we're asking of you to get the local flavor, the state law flavors, on how these issues affect them in their various states and I find that most unfortunate.

Some of the commenters yesterday indicated that with respect to, for instance, the exemption or the hoarding of state conventions we shouldn't extend it to meetings so that you couldn't be able to use 100 percent of state dollars to pay for those expenses. I'm just very curious because this is used as an argument because it helps prevent soft money. Have you ever turned away a check which was otherwise legal and doesn't come from someone who you'd like to avoid as a contributor from your state account? Is it generally the case that if someone is willing to contribute money to you that you can effectively spend it?

MR. BREWER: Yes, subject to our vetting procedures.

COMM. SANDSTROM: You have vetting procedures? So in fact these allocation rules that are touted from your perspective don't prevent a single soft dollar from being raised. You'll raise and spend effectively as you can every non-federal dollar that is offered to you?

MR. BREWER: Yes. We don't have enough non-federal dollars to be active in the state and local elections we'd like to be active in.

COMM. SANDSTROM: So this focus on allocation focuses on the expenditure, and if there's any corruption it's on the contribution side, I would gather. The allocation rules seem to have no impact on preventing corruption if there were corruption because of your limits that people thought were too lax in the State of Michigan?

MR. BREWER: I'm not aware of any, Commissioner. I mean, when people give to the party in my experience they give because they believe in our principles and in our candidates. I'm not a legislator. I'm in no position to dispense any favors to anybody.

COMM. SANDSTROM: So if somebody holding a local meeting to organize for the mayoral race to force those people to allocate that seems to serve no corruption prevention rationale?

MR. BREWER: I agree and in addition it will be a disincentive to them performing that activity. If I tell them that that's what they have to do they'll simply stop doing it, in my experience.

COMM. SANDSTROM: Mr. Josefiak, in your experience do you know of any of your state parties that having properly vented a contribution are going to turn them away because of allocation rules?

MR. JOSEFIAK: Not allocation rules but, I mean, the problem is right now they're able to spend them based on what they can raise under the new law they are going to be able to spend them based on what they're used for.

COMM. SANDSTROM: Now, a question occurs because there's this focus on if it's get out the vote and the questions that were raised by the chairman earlier saying that has to come out of these Levin funds and such. Essentially are we just going to allocate activities within a state? If you can't get out the vote solely for the governor that you'll just say okay, what I'll use our money for is advertising on behalf of the governor and we'll just leave the actual grassroots, get out the vote activity, to the gubernatorial candidates themselves if we get too strict just allocating activities between different players in the state?

MR. BREWER: Commissioner, I think there is a substantial risk with the law and the regulations that traditional party functions will start to disappear and the parties will fragment and others will take up where the parties are unable to perform any more. And I think that's a bad thing for American democracy.

Parties are not single-issue groups. They're places where compromise and issues and things are worked out. And I think election activity, GOTV and so forth, should flow through and be a major function of the state parties. I don't think it serves us well to have that dispersed among other actors in the political system.

COMM. SANDSTROM: Talking about other actors in the political system, we haven't had anybody who's a state and local candidate testify over the past couple of days so maybe I'll ask since you work with so many of them.

There's a provision of the law that suggests that they are subject to the reporting requirements act, the limitations and prohibitions of the act, if they engage in public communication and that includes anything that promotes or supports a local candidate.

And I'll use an example yesterday from Nevada. I imagine there's examples you could devise for Michigan. In Nevada I said if someone running for attorney general indicated in their ads that they support Senator Ensign and Senator Reid's position on Yucca Mountain and think the President is wrong that they indicated that that candidate would have to register and report to the Federal Election Commission. What is your reaction to that hypothetical?

MR. BREWER: I think if that happens it's dreadful. I mean, what I'm very concerned about is that this law and particularly the regulations which are in front of you will drive wedges between the state party and state and local candidates and drive wedges between the state party and federal candidates. I don't think that as a society or as a democracy we're served by having that happen.

COMM. SANDSTROM: Is state government regularly impacted by decisions being made in Washington?

MR. BREWER: Certainly, absolutely.

COMM. SANDSTROM: And those candidates, be it on education policy or clean air or in Michigan issues such as the CAFE standards, they all have direct impact on the voters of Michigan and on how elected officials of Michigan, their non-federal officials, go about doing their job?

MR. BREWER: Yes, Commissioner, in our current governor's race, for example, every major issue in the race, be it the environment, education, the importation of foreign garbage into Michigan, every one of those has a federal component.

COMM. SANDSTROM: And should then the tens of thousands of candidates nationally who are similarly impacted by decisions being made here in Washington on which elected officials here in Washington are taking positions now be subject to the reporting requirements of the campaign? Do you have any idea how those reporting requirements would actually operate?

Since they're not federal candidates how would they go about deciding when they have to register and report and what they would report?

MR. BREWER: I'll simply tell you no matter how they operate you will simply see a cessation of such activity. If I tell people that they start mentioning federal issues or mentioning Senator Levin or Senator Stabenow as they do their state business they'll simply stop doing it. I mean, it will be like a gag rule.

COMM. SANDSTROM: It was a gag rule. So we're essentially turning the framers' vision on its head where the restraints on the federal government were supposed to come because they originally elected all senators, for instance, through state legislatures, from the local people and the local candidates and elected officials in the community. We're essentially saying with those restraints the public discussion of issues will essentially dry up.

MR. BREWER: There no question I think it will deter and chill the ability of folks to do that.

COMM. SANDSTROM: So I would say then that probably looking at that language a proper constitutional construction should definitely be explored before imposing such a limitation too broadly and undefined on the regulated community.

MR. BREWER: I agree. I mean, under the 10th Amendment and principles of federalism we should not be federalizing these local matters, these state and local elections.

CHMN. MASON: Commissioner Toner.

COMM. TONER: Well, Mr. Brewer, welcome to Washington.

MR. BREWER: Thank you.

COMM. TONER: I think the fact that you've gotten a lot of questions here today is a reflection that you work in the real world outside of Washington, the grass-roots level, and I really appreciate you taking the time to come here and share your thoughts with us.

As the chairman of the Michigan Democratic Party you obviously have a long and close relationship with Senator Levin, and we've talked extensively about the Levin accounts. I just wanted to follow up on a couple of things.

Do you think that it's an evasion in any way for state and local committees to accept Levin funds up to $10,000 per recipient?

MR. BREWER: No, not at all. I think that's a recognition of what currently goes on which is not corrupting or threatening corruption at all.

COMM. TONER: Do you think that it's not an evasion of the Levin Amendment for that to happen no matter how many state and local committees accept those donations?

MR. BREWER: Again, I don't think that's a problem at all. I mean, in Michigan we have nearly 10 million people, we have nearly 7 million voters, and I described to you less than 200 party organizations. They have a lot of work to do and it takes a lot of resources to get that done.

COMM. TONER: Do you say that in part because Levin funds by definition are used for get out the vote activities, grass-roots party committee activities?

MR. BREWER: Yes. I mean, the express intention, and I've commended Carl internally in Michigan to all of our party leaders in terms of his recognition of the importance of these activities, absolutely. The issue ads are gone, no problem, but the traditional functions of the party are vital and Carl Levin's amendment gives us one way to continue them.

COMM. TONER: And do you think Senator Levin in offering this proposal which has become law that his real goal was to preserve the ability of local committees, grass-roots committees, state committees, to continue to be able to do these kinds of activities?

MR. BREWER: Absolutely, based on my discussions with Senator Levin, absolutely.

COMM. TONER: Mr. Sandler?

MR. SANDLER: Commissioner, this issue about the question of whether each entity, party committee, state, local, other, in the state can accept its own contribution up to $10,000 is not a matter of interpretation. Here there is legislative history, not after the bill was passed but before the bill.

Congressman Shays' statement makes it absolutely clear beyond peradventure that that is the case, that is the intent of the law, and that it was precisely because of that that Congressman Shays felt it necessary to insert, and he explains this, on the floor, not five months after the bill is passed, that that's why it was necessary to insert all these other restrictions about how Levin Amendment funds are raised.

We do not believe the Commission has any discretion whatsoever to interpret the law in that respect than any other way.

COMM. TONER: So for that reason it would be absolutely inappropriate for us to require any special solicitation disclaimer rules for the raising of bona fide Levin funds?

MR. SANDLER: Definitely there's no reason for that. Again, there's nothing in the statute or legislative history in any way, manner, or form that suggests that, and there's no policy reason for it because there's no way a donor can get into trouble from the donor side for violating it, only the party committee.

COMM. TONER: Mr. Brewer, in terms of your practical experience at the state nd local level if we were to impose special solicitation and disclaimer rules for Levin funds would that have a dramatic impact on your ability to raise them?

MR. BREWER: Yes. I think you just can tell from my body language as I slumped as I heard you say that, yes. I mean, it's this game of "gotcha" where we're going to have to have special disclaimers on special documents that will have to be handed out. It's just practically impossible and with the criminal penalties in the act the end result is people are not going to solicit the money at all.

COMM. TONER: And that would be antithetical to what Senator Levin was trying to accomplish?

MR. BREWER: Absolutely.

COMM. TONER: Another issue we've obviously had to come to grips with is the Internet and we've dealt with it in the past and we had some extended discussion yesterday about should we take the position that the Internet is a public communication that is subject to regulation under BCRA and other provisions. Mr. Sandler, do you have a view on what we should do with respect to the Internet here?

MR. SANDLER: Well, my under- standing was that it was, again, before the act was passed the intent of the sponsors that Internet communications are neither public communications for purposes of the definition of "federal election activity," nor are they electioneering communications, which applies to non-party groups that we are not as concerned about, obviously, the subject of another rule making.

I must say that the morning of the day that the Commission approved these rules I appeared on a panel about the use of the Internet in politics with Trevor Potter and he indicated to this group publicly that that was the intent of the sponsors and that if the Commission indicated it was going to go the other way that the sponsors were going to submit comments to make that clear and now the reform groups come in the other way so go figure but that's clearly what our understanding is of the intent of the sponsors from the history.

COMM. TONER: Another issue we're obviously having to come to grips with is there's a general ban on members of Congress, federal office holders, and national party officials from raising soft dollars for state and local committees and yet BCRA also contains a provision that allows these same individuals to attend, be guests, and be featured guests at state and local committee fundraising events at which soft dollars are raised.

So we're having to come to grips with how to approach those two provisions and particularly will they allow state parties and local committees to publicize the fact that members and office holders will be there?

Mr. Josefiak, do you have a view on that?

MR. JOSEFIAK: Yes, Mr. Chairman. I think both of our comments share the same view that we feel strongly that in order to have an event and invite these people you certainly can publicize the fact that Senator So-and-So is going to be at your event and we also feel very strongly that you don't muzzle the person at the event. The monies basically have already been raised, the people are already at the event, and if a person wants to say at the event thank you for coming and supporting the Michigan Democratic Party and your efforts are well appreciated they should be able to do that without someone raising the specter is that really considered to be somehow a solicitation directly or indirectly that would be a violation of these provisions.

So I believe very strongly that we should allow the publication of the fact that Senator Levin was going to be at the Democratic party event and that when Senator Levin's there he should be free to speak his mind no matter what he wants to say and we are not going to have a speech policeman there to decide when he goes over the line. I think that the Commission, and I said this in my comment, learned its lesson even dealing with travel allocations and what is the nature of the event when someone is there and they are not particularly the candidate, him or herself, but someone else and they are speaking on behalf of someone and the machinations the Commission has had to go through based on its own regulations, travel regulations, as to when something qualifies as a campaign-related event or non-campaign related event. I think you could avoid that whole issue by just exempting the actual speech of that individual office holder at the event.

COMM. TONER: You make a point which I just want to explore. In terms of the fact that when party committees hold fundraising events and the people attend them is it your experience with party committees that individuals who go to those events have already contributed?

MR. JOSEFIAK: Well, certainly I'm not familiar with every party event but in most cases the money is either pledged to get in the door or you have paid your dues. But I think that's irrelevant. I don't think that necessarily matters if you have an event where someone is actually paying. Some of these events are not even fund-raising events and then the question is is it even qualifying as a fundraiser because it's some sort of a fulfillment event where the Senator is speaking but they are party events and somehow they are involving a donor of some sort. The question is whether the donor pays at the door or pays ahead of time or pledges to pay later I don't think makes any difference as far as what the rules should be. I think that it really is something where if he or she can attend the event what they say at the event should not be regulated.

COMM. TONER: Mr. Brewer, is it your experience as chair of the Michigan Democratic Party when you hold a fundraising event most people have paid by the time that they would hear a speaker at an event?

MR. BREWER: Yes, Commissioner. I would also like to add for local party organizations these events that they hold, be they a dinner, a pig roast, a picnic, whatever it is, is often more than just fundraising. It's party building. It may be the major event of the year for that party organization.

So this is not simply fundraising. This is about party building. This is about morale building. It is about the right of these people to assemble and they do a lot of other things at these functions.

I just think it's a Constitutional morass for the Commission to attempt to be the speech police, as has been indicated.

COMM. TONER: Given all this, do you think it's a fair reading then for us to take the position that when members are speaking at these events they really are not soliciting because the money has already been acquired or it's another kind of event and therefore we should refrain from regulating what these members are saying at these events?

MR. BREWER: Yes.

MR. SANDLER: Actually, you raise an interesting point, Commissioner. I mean, I would like to ask the Commission, maybe, in the --

CHMN. MASON: No, no, no.

MR. SANDLER: Is it permissible for the national party chair to attend a State party event, like a J-J dinner in our case, Jefferson-Jackson, in which non- federal or Levin funds are raised and is it permissible if he doesn't solicit but is it a solicitation if he praises the work the state party is doing and donors are present? I think it would be very, very helpful if those kinds of questions were addressed again here and now in this rule making by the commission.

COMM. TONER: In your view if we don't address those with very clear standards is that going to have an adverse impact on the ability of state parties to have these kinds of events?

MR. SANDLER: Oh, absolutely. I think people would be very surprised if the national party chair couldn't attend state party annual dinners. We would have to worry about what they say or that we should assume that the Commission is going to request the FBI to expand its new domestic surveillance powers to state and local party dinners which is effectively what would be required to police such a requirement.

COMM. TONER: And in your experience you think it would have an adverse impact on the ability of members to appear at these kinds of events?

MR. SANDLER: Of course, yes.

CHMN. MASON: Larry Norton.

MR. NORTON: Thank you, Mr. Chairman. I wanted to go back to a point Commissioner Smith raised earlier. It relates to our consideration about whether to acquire separate Levin accounts. One consideration that I think Commissioner Smith identified is the balance between greater transparency, the ability to investigate without conducting an audit in every case, perhaps, and one point on the other hand was that the burden on state and local committees in establishing a separate account. I just wondered whether either Mr. Sandler or Mr. Josefiak knows how many States restrict the number of non-federal accounts. I know it appears in your written testimony that certain states do and I'm wondering how many states we are talking about here.

MR. REIFF: Just off the top of my head because I've had dealings with this with one of our clients, we know for a fact that Wisconsin explicitly. I can't tell you any other specific examples but I know for a fact that Wisconsin law limits the political committees from having only one depository account. I can't give you any other specific examples for that particular issue.

MR. NORTON: Mr. Brewer?

MR. BREWER: Michigan does as well.

MR. NORTON: Really?

MR. JOSEFIAK: I think there would be a number. I think Connecticut may. I can understand the Commission's concern about how you regulate this but we have those situations now with the exempt activity. It's the responsibility of the party organization that conducts the activity to set up a system that they are comfortable with to make sure that they are not violating the provisions of the law or the Commission's regulations and it's our responsibility to do whatever we can to assist in that effort but it should be something that is decided by the party organization based on its own situation rather than having some specific account mandated under the regulations. That's where the problem is going to come in.

MR. REIFF: I don't think that the requirement that a single account be maintained in the state law is the biggest problem because clearly the Commission could preempt that state law in that scenario. The bigger problem happens where there are states where you have multiple accounts under state law where each account has its own limit and its own requirements about how you can spend that money. Then you try to overlay the Levin activity over that. I think that's where you have the big practical problem.

MR. NORTON: It's a practical problem of proliferating accounts more than it is a legal problem. It strikes me that one reading of the statute is that because Levin funds are subject to the prohibitions of the act that it is not another non- federal account and it's not even a matter of preemption but that it wouldn't really run afoul of state law. But you are raising a separate point, I think, which is that there already are in some cases quite a number of accounts and this would mean another.

MR. JOSEFIAK: Well, from your perspective when you say they are under the prohibitions of the act how do you interpret that?

MR. NORTON: Well, I'm asking you.

MR. JOSEFIAK: That's a vague question because if something is either limited or prohibited by the act the normal consequences of that would be it's subject to a contribution limit and there are certain prohibitions in the act, corporate, banks. Then we have the foreign national issue that goes beyond the federal activity.

Those are prohibitions of the act. The term, I think, that is being used for prohibitions of the act now are not necessarily the source of the money other than the foreign national issue because it is still going to be subject to state law. The real prohibition is what you do with the money in having to segregate that into a segregated account and I think that's where it's going to get confusing, to try to figure out those terms.

I think it will be important in the regulations that when you use those terms you define what you mean for that particular account because it could be very confusing to people like me who look at it as it means corporate and union and non- federal and foreign national activity as opposed to something else that is allowed under Michigan law, unlimited individual money as opposed to the prohibition under Michigan law of corporate money.

So it really needs to be clarified and that's why it is difficult to answer your question.

MR. NORTON: Nothing else, Mr. Chairman, thank you.

CHMN. MASON: Mr. Pehrkon.

MR. PEHRKON: Thank you, Mr. Chairman. Chairman Brewer, Mr. Sandler, Mr. Reiff, Commissioner Josefiak, Mr. Spies, I want to thank you for taking the time to appear before the Commission and for your comments.

I am going to go back to the issue of the Levin accounts and the establishment of them. We had any one of a number of comments from the party organizations that the establishment of a Levin account would be wise, prudent, or a good practice; however, each of those plus any one of another comments then caveated and said that, of course, options for alternative 컴컴 become available.

One of the organizations that submitted comments, I believe it was the California Republican Committee, offered some alternatives and some options for those committees rather than having to establish a separate Levin account. One of their suggestions was that for small committees, state and local entities, that they be given the option of establishing a reasonable accounting practice. They also indirectly suggested that a reasonable accounting practice may be an alternative in those states where the establishment of state accounts impedes the ability to proceed.

My question is do you have any comments on establishing a threshold? I think Commissioner Josefiak mentioned it earlier, which was a de minimus standard. Is there such a thing that could be used?

The second part of that is what is a reasonable accounting standard and how would that be determined? I mean, how would you establish a reasonable accounting standard in order to comply with provisions of a Levin account?

MR. JOSEFIAK: Well, the Commission already requires that to some degree when it comes to exempt activity. You have the option of setting up a separate account or if you add one federal account to demonstrate that if you are using your money to put out a campaign bumper sticker for a candidate that you have to use state-raised funds.

We certainly would encourage our folks to set up a segregated account to have the state-raised money segregated from nationally transferred money but that's their option. That's what we are encouraging in this. It's up to them to decide that. So when there's an issue or when there's a question you have to under a reasonable accounting methods that the Commission allows, and usually the Commission does a first-in, first-out scenarios, prove that.

Would we encourage people to set up a separate account? Probably so, but it shouldn't be a mandatory situation for lots of different reasons.

MR. PEHRKON: To make sure I understand, are you suggesting the possible use of a daily ledger for accounting?

MR. JOSEFIAK: I'm not an accountant. My point is that that's a reasonable accounting method and I think it's up the Commission to decide what they would determine to be reasonable and state what a reasonable accounting method was, like in other situations, first-in, first-out, what your normal 컴컴 people and audit people look to when they are trying to decide whether an RNC or DNC transfer is being used for an exempt party activity that only is allowed to use state-raised federal funds.

So To me it's no different than what's already on the books and it shouldn't cause anybody that's familiar with the process any more angst than having to set up a segregated, separate account.

MR. PEHRKON: Let me follow up on that. So what you are suggesting is the Commission might consider establishing a standard for accounting that could be used as an alternative to a separate account?

MR. JOSEFIAK: If it felt the need but I would think you would want to rely on reasonable accounting practices and, again, not in the accounting business, I can't tell you what that is but either you say you follow reasonable accounting practices or you set up what that standard is so that people know what they have to deal with, certainly.

MR. SANDLER: Is the Commission contemplating requiring the establishment of separate Levin accounts by local party committees that are not otherwise political committees? I mean, are they acquired to establish the account, register, and report it even if they don't have a federal account that's registered and reported?

COMM. SANDSTROM: I think the limits of our contemplation are endless.

MR. PEHRKON: Changing topics now for a second, the Commission has an administrative fine program and the basis for that is that fines are based upon the level of activity of the committee and that is based upon total receipts and total disbursements and they're calculated on that basis.

My question is is there any reason not to include federal election activity in the total receipts and total disbursements as far as calculating an administrative fine should a committee file its report either late or not at all?

I'm not sure you are familiar with our administrative fine print. The fines are based on a combination of total receipts and total disbursements. The question is with respect to federal election activity should it be included within total receipts and total disbursements for the calculation of that purpose?

MR. REIFF: I think it should be broken up into two parts because I think for purposes of the regularly filed, say, quarterly reports, assuming the state party still files quarterly, they are still going to have federal disbursements and non- federal disbursements and to the extent I argued in a recent rule making that only federal activity should be considered I think you still have that distinction for regular filed reports. I don't see there being a distinction for purposes of federal election activity that would be necessarily inclusive to that analysis.

The second question is what will be the Commission's approach to committees that don't file these monthly reports that are now required. There is no discussion of that in the context of this rule making. I guess that would be more appropriate to your question. That is the disclosure of the federal election activity, yes, so they are probably apples and oranges.

The administrative filing system as it is currently developed is for the regular filed reports and there we have federal activity, non-federal activity, irrespective of whether it is federal election activity. So I think it is irrelevant for purposes of irregularly filed reports.

MR. PEHRKON: I think it's interesting that you are not anticipating that these would be included with regularly filed reports for a registered committee. That's an interesting take.

MR. REIFF: It's either federal dollars or Levin dollars or non-federal dollars, I guess. For purposes of the current system for regularly filed reports I would submit that only federal funds, federal activity from the federal account, should be considered for the level of the fine considering that Levin funds and non- federal funds only come in in allocation transfers under the current system. Obviously we have yet to see how the Commission is going to approach allocation under the new regulations, so it's really premature to try to figure out how that's going to play.

MR. PEHRKON: Interesting.

CHMN. MASON: If Commissioners wish a second round we have some time for that.

Commissioner McDonald.

COMM. McDONALD: Yes, just briefly, thank you, Mr. Chairman. Mark, if I could go back to the practical aspects of your experience in Michigan and maybe just drawing a little bit off of a question that Commissioner Thomas asked earlier.

Clearly one of the things that everyone has told us what not to do, I mean, I thought about yesterday opening up my questions by saying well, what do you think the law permits because most everyone has indicated what it doesn't permit in their interpretation.

The issue is about money and politics and the issue is about where it comes from and how it gets there. In the State of Michigan what does your party budget run? Do you have any idea currently in an election year? What do you raise in a year's time?

MR. BREWER: It varies considerably from cycle to cycle. Let me try to answer the question this way, Commissioner, to be responsive. Our operating budget for my staff and all the other things that we do in elections is about $1.5 million a year.

In an election year we have spent as much as $30 million on elections and have spent as few as 3 or 4 million depending on what's on the ballot, et cetera, et cetera.

COMM. McDONALD: Sure, what's at stake. In Michigan, and I apologize for not knowing the answer to this, but I gather just from the exchanges around the table. I as, we'll say, as a citizen of Detroit, for example, could give $5 million to the party without any problem, I gather, is that right?

MR. BREWER: That would be legal under Michigan law. With all due respect, Commissioner, the earth is not going to fall into the sun. I mean that's not going to happen but yes, it's legal.

COMM. McDONALD: Yes, I can certainly vouch for my own position. You can rest assured of that. I could give you $5 if I was hard pressed. Obviously, the whole debate, as we all know, is the goal, at least, and I think this is applicable of the six of us, I hope, I think we universally agree on this, is not to punish people that are not familiar with the law. The goal is certainly not to make life unbearable.

At the same time we are not unmindful that the Congress obviously had some concerns. I mean, I'm interested when we talk around the table about court cases. Detractors of the Commission always like to bring up cases that the Commission has lost. Others don't cite other cases where not only has the Commission prevailed but going to like a case like Shrink Pac, for example, where $1,000 was at issue.

So when you are talking about money and the influence of money overall and where it stands in the process that's the over-reaching concern I'm assuming that the Congress has been trying to get at and they have been debating on the floor for years. Their concern, I gather, is whether in the process the appearance or the influence of money is substantial and may have a disproportionate effect on the political process.

If I give $5 million to the Michigan Democratic Party and I have substantial legislation pending before the legislature in Lansing or whatever I may be --

MR. SANDLER: You might have made a very bad mistake in that case.

COMM. McDONALD: Well, that's possible. That's possible but it doesn't address the issue. The issue is much more straightforward. One of the things that I have always been concerned about because I take it very seriously, as do all my colleagues, I'm not for anything that operates in a vein that has a chilling effect.

On the other hand I have been told about the chilling effect for 20 years and I have seen money raised in politics just go up exponentially. I mean, if it has been chilling it hasn't been here. Now, that's different than at the state level, by the way. I want to be clear about that. But at the national level, of course, there are record amounts of money raised in each and every cycle and it's quite impressive.

It is hard to get a balance. I don't think I know the answer to the question. I am just trying to come to grips with what the congressional intent is. I think your conversations with Senator Levin, quite frankly, are important. There is this goal of when they were said and so on and so forth. I think that's admirable, too, but at the end of the day we have to try to figure it out in terms of what the Congress was trying to do.

If you had a $30 million race where did most of that money go? Did it go the head of the ticket?

MR. BREWER: Commissioner, that $30 million, that was the days of issue ads over the last several cycles. The vast majority of that money was spent on issue ads. Make no bones about it. It's disclosed in our reports. It's no secret. So that's what that was for. Those issue ads were up and down the ticket, I might add, not just the top of the ticket.

COMM. McDONALD: Thank you.

CHMN. MASON: This isn't getting any more clear for me but Tom, you offered an analogy for exempt activities in talking about accounting rules and so on. The problem that I see with that is that the funds that a state or local party spends on exempt activities are either reported if they are registered and so on like that or not reported if they otherwise fall under the thresholds.

Funds for Levin activities have to be reported and they have to be itemized. Now, if we are going to go in and say well, we will let you have your regular state account or accounts but you just have to be able to show by reasonable accounting method that you had enough receipts essentially in amounts under $10,000 that shouldn't be too difficult, I suspect, from most state parties.

But how does a party then know when it has gotten a receipt which is covered by the reporting requirements and how they are going to attribute? In other words if we say well, there are no special disclosure requirements or anything like that. They can just go out and generally solicit what would otherwise be non-federal funds and just use them for Levin purposes when they want to and yet they have to itemize receipts down to the $200 level how will they know which receipts to itemize?

MR. JOSEFIAK: Again, that's the responsibility of the party to come up with a system that allows them to comply with the law. In that scenario would I encourage them to set up an account? Certainly I would, just like I do for exempt activity. But I certainly wouldn't want to say it's mandatory if the party committee based on its own legal counsel and a system of accounting can determine and report accurately that information that it's required to report.

I don't think you need to take the position that if a party decides to do it that way that it doesn't have the capability of making sure that it's doing it correctly.

CHMN. MASON: You might run into a little problem, though, if you have a quarterly report and you don't report any Levin receipts and then suddenly on your post-election report you report a whole boat load of Levin expenditures and suddenly then what do you report for receipts?

You may have raised no Levin funds during the few days there before the election that would have been covered. You may have spent a lot. Are you now going to have to go back and amend your report and say well, gee, there was a lot of permissible Levin funds that we raised back in September and the early part of October and we didn't report them on our quarterly report and we didn't report them on our pre-election report but we now want to go back and call them Levin funds because we ended up spending the money that way.

MR. JOSEFIAK: I think you are raising hypotheticals. Again, if you weren't going to set up a segregated account I would encourage the party as the money is coming in the door to designate as what is Levin money and what is not. I don't think you can look at the case of horribles down the line to determine whether you are going to require something. I think you allow that with the understanding that if the person decides to go down that road it's their responsibility to make sure that they are complying with every provision that the act would require.

CHMN. MASON: And if they fail to do that and they have not reported the funds to us as Levin funds when they came in the door would we later permit them to recharacterize them and expend them for Levin expenditures when they failed to comply with the reporting requirements in the first instance?

MR. JOSEFIAK: I think that's a call you are going to have to make. Whatever you decide you should set down in the rule. I think people have to know what the alternatives are and if they do not set up an account what they are going to have to do and if they don't report them in a timely fashion that they may not or may. Those are the kinds of issues that you are going to have to decide but, quite frankly, if they have the money and they are legal under the Levin scenario I don't see any reason why you wouldn't allow them. They may have a reporting problem, but I don't see why you wouldn't allow them to go back and redesignate if they have the Levin money in their account.

CHMN. MASON: Mr. Reiff, please.

MR. REIFF: In the alternative you could just require that if a committee fails to establish a separate Levin account they should just have to disclose within the reporting period all funds received that are eligible for use as Levin funds. This way you would get around any problem of evasion of disclosure and it would also give them flexibility to decide whether they would want to do the extra reporting or set up the separate account.

But if you used the word "eligible for" I think you would get around that problem.

MR. JOSEFIAK: Reporting everything.

CHMN. MASON: That what I don't know, how they would avoid reporting everything then and what we would do about that.

Commissioner Thomas.

COMM. THOMAS: First a couple of observations and then a question. I want to be clear that we all understand that the allocation regulations are the responsibility of Tom Josefiak. I was only a token member of the Regulations Committee back in those years when you passed the allocation regulations.

Second, I'm glad to hear, Mark Brewer, that you are helping Senator Levin by explaining that what he was trying to do was help the various party committees. There was a wonderful TV program, Frasier, where at one point Frasier, who was a real sad sack, had gone over the Europe and he had gone to some soccer games and somehow his name got associated with every failure or missed goal in every soccer game he attended. The whole crowd would chant "Frasier" every time there was a missed goal and it was totally undeserved and he got a bad reputation.

I have this fear that Senator Levin is probably going to have his name taken in vain wrongly. I'm suggesting we have a gentleman on our staff named Levin and I'm offering to send him around the country to try to explain our regulations to try to take some heat off Senator Levin.

Building fund, let me just ask there is a specific concern expressed in comments about building fund not being a permissible way to build an office building that then rents out space to candidates. There was a story not too long ago about some party official who said we've got to kick all of our candidates out of our office building; we have been renting space to them. Tell me how you think we can allow the party committees to use whatever funds are permissible under state law to set up a building and at the same time then to turn around and rent space to the candidates.

CHMN. MASON: It was the Indiana Democratic Party, by the way, that made this announcement.

COMM. THOMAS: Yes, the Indiana Democratic Party, apparently, one of the State party chairs basically said we've got to kick all the candidates out. We can no longer rent to federal candidates.

In the draft regulation we have some language suggesting that a building which is constructed with these building fund allowance monies cannot rent space to a candidate.

MR. SANDLER: A federal candidate?

COMM. THOMAS: Yes, and the comments we are getting from you say you shouldn't be so restrictive. You should let the building fund be used in that regard. Tell me how you get there because the building fund allowance in theory is a very discrete, confined allowance to use unregulated money.

MR. REIFF: Well, at least with respect to federal candidates I think it's a moot point because when the BCRA was amended they took out the requirement that you have to have excess campaign funds to make transfers to state party committees. So presumably under the new law there is unlimited transferability of federal dollars to the federal accounts of state party committees.

In that scenario it doesn't seem that for a federal candidate it would be problematic. When you come down to state and local candidates it's a whole other issue whether you can require it to only go into state and local accounts and whether that is only subject to state law or whether that could be deposited into a federal account as some type of offset.

COMM. THOMAS: Maybe depositing the money into a different account is a way to allow for something like that to happen?

Thank you. It's a very technical, difficult issue.

MR. JOSEFIAK: Well, I think it goes to the issue that I raised earlier about what kind of receipts are you going to allow a federal committee to accept that would normally be viewed as non-donations or non-contributions because you are paying fair market value for something. You are renting space now. In order to vote the contribution limits, even for a federal account, you are going to have to charge what would be viewed as a fair market value or treated as part of your coordinated or your contribution limits.

So there may be some analogies there. If it's not going to be viewed as a contribution but other income of a party there maybe tax ramifications but not necessarily FEC-type ramifications.

COMM. THOMAS: Well, I have comfort knowing that this same fellow, Levin, is responsible for that area. So I'll go to him and find out the answer.

CHMN. MASON: Commissioner Smith is next.

COMM. SMITH: Thank you, Mr. Chairman. Mr. Brewer, I wonder if you just wanted to address any other areas that we have not touched on in terms of their potential effects on state and local parties and, of course, others are welcome to comment.

Just a couple of things. Let me start with this one. You note in your comments that only joint fund-raising events would be limited for raising Levin funds, but there would be other types of joint fund-raising activities in terms of parties assisting one another in raising Levin funds that would be allowed.

What kind of activities would that include, would they be doing, other than joint fund-raising events?

MR. BREWER: I'm sorry. Other than joint fundraising events?

COMM. SMITH: Joint fund-raising events, you agree, are prohibited by the act but you suggest that the proposed regulation goes too far to talk just about joint fund raising and you suggest there are other activities that would not be joint fund-raising events that they might be doing.

MR. BREWER: Well, all the other methods are used to raise money, a telephone contact, a direct person-to-person contact.

COMM. SMITH: Is it done with some regularity? Is that a regular occurrence? Is that a regular way of raising funds?

MR. BREWER: Oh, certainly. I raise money on the phone and in direct person-to-person solicitation. That money could go to a local party committee in Michigan or perhaps even go to another state. I don't see the harm in that because what is being funded here are these grass- roots activities that we've traditionally engaged in.

COMM. SMITH: Any other activities? For example, we now know that if you have a staffer who spends more than 25 percent of his time doing federal election activity he has to be paid entirely from the federal account. If we're going to keep allocation that leaves the time allocation issue for those who are spending less than 25 percent of their time on federal election activity. How big a burden is that on local parties to have to comply with a specific way for accounting for that type of time?

Another issue might be it has been proposed in the draft regs that certain types of activities should be coded for reporting purposes. Are these kinds of things burdensome to small parties? Have we considered them adequately in that respect?

MR. BREWER: Absolutely they're burdensome. They're burdensome on us as a state party and I have a staff, at least, but, as I indicated in my written comments, fully one-sixth of my staff all they do is compliance and I'm sure that number is going to increase with these regulations.

In an election year I bring on usually at least two more full-time compliance people in order to keep track of this. So, again, at the local level there is just no way people can hire or afford to hire attorneys and accountants and others to do this kind of work nor are volunteers capable or prepared to do it. They simply won't do it and they'll avoid the activity that's associated with it.

COMM. SMITH: One other question, perhaps for Mr. Sandler. On building funds is there a reason why or are we limited to describing building funds as being available for state organizations that own their building but not those that lease their building? Presumably what that's going to mean is that state and local parties which lease a building, which might likely be the poorer parties, parties with less cash, are having to allocate those expenses between hard money and non-federal funds whereas the parties that own their building and in many cases, at least, might be wealthier, better- off parties, are going to be able to pay for their building entirely with non-federal funds. Is there a reason for that distinction?

MR. SANDLER: Well, I think yes, as I said, traditionally there was that distinction with the actual building fund exemption in the law. It applied to funds used in connection with the construction or purchase of a building and related fixtures and equipment but not to the leasing. Again, I think the key thing to remember is that that's where this whole process started.

COMM. SMITH: And your understanding is that nothing in the act was intended to change the old building fund exemption for state and local parties or to change the Commission's advisory opinions in interpreting that?

MR. SANDLER: That's exactly right. To the contrary, again, at midnight when all was passed and the Shays-Meehan bill specifically permitted 100 percent non-federal for purchase, even in that case probably lease as well, of equipment by state parties.

COMM. SMITH: Thank you.

CHMN. MASON: Vice Chairman Sandstrom.

COMM. SANDSTORM: It seems to me that with respect to Levin accounts that if a committee wanted to go ahead and if we provided them software and they wanted to report all of their receipts and put in the timing of them we could actually do the accounting method with part of our software where you could indicate the software will identify funds that are not eligible. So with respect to whether you have one account or two accounts it seems to me solvable by this Commission by the software we give you. Does that sound correct?

MR. BREWER: Commissioner Sandstrom, let me do this delicately. There are places in Michigan where you don't have hard line phone service. You're talking about software and those kinds of things. I have to communicate with my local party people by phone, by fax, by e-mail, and by snail mail because that's simply the world is out there and I don't think Michigan is unique.

So I appreciate your offer of software but I would say for the vast majority of party organizations it makes no difference.

COMM. SANDSTORM: I already joined in your view of this. For the vast majority of state and local committees they're opting out. I'm just saying for the more sophisticated players who may want to not have a separate account those larger committees could handle it through software. But most of these local committees are not going to get near Levin funds. That's a point that one of our witnesses yesterday, Ben Ginsberg, made, that we're holding out a promise of something that will never be realized.

One of the interesting questions that came up yesterday, the responses were very intriguing. I asked the first panel yesterday if the Florida Democrats state convention had invited Jesse Jackson down to give a speech and he had gone in and given a speech to the African American caucus of the Democrats and he had said you are all leaders in your communities. It's important that you go back to your communities and register people to vote. The witnesses yesterday said that would be voter registration activity and the costs of his travel would have to be paid for out of the allocated Levin funds. What's your response to that?

MR. SANDLER: I mean, assuming it was when the Florida convention did take place, which is within four months --

COMM. SANDSTORM: Within 120 days. The witnesses yesterday were very expansive, too, with respect to what is a two-year cycle they were looking at but let's say this takes place within the 120 days. Would there be any way for you even to know what Reverend Jackson would be saying when you invited him?

MR. BREWER: No, I mean, frankly, it makes an impossible situation. We're now going to say that a simple exhortation for people to do their citizens, which is to register to vote and to turn out the vote, is going to become an activity subject to these regulations. There's no way to vet a speech in advance. It would just be a nightmare.

COMM. SANDSTORM: So you would urge, unlike the witnesses yesterday, that we do define these terms and we define them in a way that really gets not to mere exhortation when it comes to voter registration but to the actual activity of registering people to vote. In this regard a related question is can you please tell me what generic campaign activity is? I have some idea of voter identification, get out the vote, voter registration, and I understand there is a generic message but what is generic campaign activity?

MR. BREWER: I don't believe there's any one accepted definition. We've seen a variety of definitions between the regulations and the political science studies and everything else. I don't have a simple definition for you here this morning.

COMM. SANDSTORM: I imagine you have a lot of unacceptable definitions?

MR. BREWER: Yes.

CHMN. MASON: Commissioner Toner.

COMM. TONER: Mr. Sandler, there has been some controversy over the last couple of days. In fact we received a fax letter from Senator McCain last evening on this issue of leadership PACs, federal and non-federal accounts and national committees. In looking at your comments, particularly pages 5 and 6, I take it that the upshot of the analysis is if we are going to take the position that BCRA permits members to have leadership PACs and raise federal funds in a federal account and then essentially take a second bite at the apple and raise federal funds in a non-federal account and basically double the contribution limits for leadership PACs that there is no reason that that same approach shouldn't be taken with regard to national committees.

Is that a fair reading of your analysis?

MR. SANDLER: It is a fair reading. I think the obverse is true, too. I think it would be completely fair for the commission to conclude that notwithstanding Senator McCain's efforts to take care of his own leadership PAC and this one floor statement by a single member that it's not permitted for leadership PACs or for national parties, either.

That would be a completely permissible and appropriate interpretation in our view. Then I think you have to worry about what floor statements of Shays and Meehan, McCain and Feingold. Once you pick and choose I think you come back to where the Commission should be which is what is really on the record, what is the real legislative intent, what does the language say, and how do we use our expertise the way the courts expect us to shape these regulations.

COMM. TONER: Is it fair then to say that in terms of the plain wording of the statute and the legislative history the one outcome that would be totally inappropriate would be to allow members through leadership PACs to have separate federal and non-federal fundraising but not allow the national parties to do that?

MR. SANDLER: If the purpose of this law is to get at the problem of contributions currying favor with federal office holders how could it possibly be a justifiable outcome that this Commission allows Senator McCain to raise soft money but not party committees?

COMM. TONER: I have to say I think you raise a very critical point. I think it would be ironic at best to allow members to engage in soft money fund raising for their own leadership PACs and then bar that very same activity for national committees that after all are involved in broad-based activities. It would be ironic at best.

COMM. SMITH: Commissioner Toner, can I ask you to yield for about ten seconds?

COMM. TONER: Yes.

COMM. SMITH: I would just point out that I reread today the section which deals with leadership PACs for all those who are really keeping track, and 441(i)(A)(1) for parties and I can see how you might read them either way but I don't see any way that you can read them differently, although the language varies in some tiny 컴컴.

MR. SANDLER: That is exactly the point, Commissioner.

COMM. SMITH: Thank you.

COMM. TONER: Mr. Josefiak, I just wanted to follow up on one thing in your comments. You were talking about the practical challenges for party committees in terms of relationships with certain tax- exempt groups and there are obviously restrictions in BCRA in terms of those relationships if tax-exempt group are involved in federal election activities or federal activities. Is it your view that it's critical that we provide a safe harbor in the regulations so that national committees and their officials can reasonably rely on Form 990 filings and other public filings that these non-profit organizations file so that they can make that determination?

MR. JOSEFIAK: Definitely, the 990, any sort of government form that is publicly available that indicates what they are doing coupled, perhaps, with a memo from that particular organization of what their intent is. I think that we would have a responsibility to make sure but any guidance that the Commission could give to give us a safe harbor as to what would automatically qualify as a safe harbor to be able to do that kind of activity would be very helpful and beneficial.

COMM. TONER: And is it your judgment based on your experience that if we don't do that, if essentially we require national committees to look behind the activities of non-profit groups, that that's going to be very impractical?

MR. JOSEFIAK: I think it's impractical. It also is a negative on the side of the non-profit group as well. I mean, do they want to get involved? It works both ways. There's got to be some sort of a mechanism that if you're going to be able to do something on behalf of a non-profit that everyone is comfortable both from the party perspective and from the non-profit perspective that there is not going to be a legal issue involved here.

CHMN. MASON: Mr. Norton?

Mr. Pehrkon?

Did Commissioner McDonald wish a third bite at the apple?

COMM. McDONALD: I just wanted to be sure that I understood what the panel is saying. They are not inferring that members would write a statute that would advantage them over others, are they? Is that an unheard proposition? Is that what people are saying?

MR. JOSEFIAK: One way is to define "leadership PAC."

CHMN. MASON: This hearing is adjourned.

(Whereupon, at 1:23 p.m., the PROCEEDINGS were adjourned.)

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