[Federal Register: November 23, 2004 (Volume 69, Number 225)]
[Rules and Regulations]
[Page 68056-68068]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23no04-2]
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FEDERAL ELECTION COMMISSION
11 CFR Parts 100, 102, 104, and 106
[Notice 2004-15]
Political Committee Status, Definition of Contribution, and
Allocation for Separate Segregated Funds and Nonconnected Committees
AGENCY: Federal Election Commission.
ACTION: Final rules and transmittal of regulations to Congress.
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SUMMARY: The Federal Election Commission (``Commission'') is revising
portions of its regulations regarding the definition of
``contribution'' and the allocation of certain costs and expenses by
separate segregated funds (``SSFs'') and nonconnected committees. A new
rule explains when funds received in response to certain communications
by any person must be treated as ``contributions.'' In the allocation
regulations, the final rules eliminate the previous allocation formula
under which SSFs and nonconnected committees used the ``funds
expended'' method to calculate a ratio for use of Federal and non-
Federal funds for administrative and generic voter drive expenses,
replacing it with a flat 50% minimum. These rules also spell out how
SSFs and nonconnected committees must pay for voter drives and certain
public communications. Other changes proposed previously regarding the
definitions of ``political committee'' and ``expenditure'' are not
being adopted. Further information is provided in the supplementary
information that follows.
DATES: Effective January 1, 2005.
FOR FURTHER INFORMATION CONTACT: Ms. Mai T. Dinh, Assistant General
Counsel, Mr. J. Duane Pugh Jr., Senior Attorney, Mr. Richard T. Ewell,
Attorney, Mr. Robert M. Knop, Attorney, or Ms. Margaret G. Perl,
Attorney, 999 E Street, NW., Washington, DC 20463, (202) 694-1650 or
(800) 424-9530.
SUPPLEMENTARY INFORMATION: The Commission published a Notice of
Proposed Rulemaking on March 11, 2004. See Notice of Proposed
Rulemaking on Political Committee Status, 69 FR 11736 (Mar. 11, 2004)
(``NPRM''). Written comments were due by April 5, 2004 for those
commenters who wished to testify at the Commission hearing on these
proposed rules, and by April 9, 2004 for commenters who did not wish to
testify. The NPRM addressed a number of proposed changes to 11 CFR
parts 100, 102, 104, 106 and 114. The Commission received over 100,000
comments from the public with regard to the various issues raised in
the NPRM. The comments are available at http://www.fec.gov/register.htm
under ``Political Committee Status.'' The Commission held a public
hearing on April 14 and 15, 2004, at which 31 witnesses testified. A
transcript of the public hearing is also available at http://www.fec.gov/register.htm
under ``Political Committee Status.'' For the
purposes of this document, the terms ``comment'' and ``commenter''
apply to both written comments and oral testimony at the public
hearing.
Under the Administrative Procedure Act, 5 U.S.C. 553(d), and the
Congressional Review of Agency Rulemaking Act, 5 U.S.C. 801(a)(1),
agencies must submit final rules to the Speaker of the House of
Representatives and the President of the Senate and publish them in the
Federal Register at least 30 calendar days before they take effect. The
final rules that follows were transmitted to Congress on November 18,
2004.
Explanation and Justification
Solicitations
The Commission is adopting one addition to the regulatory
definition of ``contribution'' in 11 CFR part 100, subpart B. This
addition comports with the statutory standard for ``contribution'' by
reaching payments ``made * * * for the purpose of influencing any
election for Federal office.'' 2 U.S.C. 431(8)(A)(i); 11 CFR 100.51 and
100.52. This addition has several exceptions to avoid sweeping too
broadly.
11 CFR 100.57--Funds Received in Response to Solicitations
Section 100.57 is a new rule that explains when funds received in
response to certain communications by any person must be treated as
``contributions'' under FECA. Paragraph (a) sets out the general rule,
paragraphs (b) and (c) create two specific exceptions: Paragraph (b)
addresses certain allocable solicitations, and paragraph (c) addresses
joint fundraisers. These rules in new 11 CFR 100.57 apply to all
political committees, corporations, labor organizations, partnerships,
organizations and other entities that are ``persons'' under the Federal
Election Campaign Act of 1971, as amended (``FECA''). See 2 U.S.C.
431(11). The rules apply without regard to tax status, so they reach
all FECA ``persons,'' including, for example, entities described in or
operating under section 501(c)(3), 501(c)(4), and 527 of the Internal
Revenue Code.
[[Page 68057]]
1. 11 CFR 100.57(a)--Treatment as Contributions
New section 100.57(a) classifies all funds provided in response to
a communication as contributions under the FECA if the communication
indicates that any portion of the funds received will be used to
support or oppose the election of a clearly identified Federal
candidate.
Most political committees and other organizations pay careful
attention to communications with potential donors. These communications
are commonly the cornerstone of the relationship between a group and
its donors, and their effectiveness is vital to almost all
organizations. Many groups' fundraising solicitations will say nothing
of an electoral objective regarding the use of funds (i.e., that any
funds provided in response to the solicitation will be used to support
or oppose the election of clearly identified Federal candidates).
Communications that do so, however, plainly seek funds ``for the
purpose of influencing Federal elections.'' Thus, the new rule
appropriately concludes that such funds are ``contributions'' under
FECA.
The standard in new section 100.57 draws support from a 1995
decision of the United States Court of Appeals for the Second Circuit.
FEC v. Survival Education Fund, Inc., 65 F.3d 285 (2d Cir. 1995). In
the Second Circuit case, the court found that a July 1984 letter from
two nonprofit issue advocacy groups solicited ``contributions'' under
FECA because it included a statement ``[t]hat * * * leaves no doubt
that the funds contributed would be used to advocate President Reagan's
defeat at the polls, not simply to criticize his policies during the
election year.'' Id. at 295. According to the court, the critical
statement from the mailing was: ``your special election-year
contribution today will help us communicate your views to hundreds of
thousands of members of the voting public, letting them know why Ronald
Reagan and his anti-people policies must be stopped.'' Id. at 289 and
295 (first emphasis added by court, second in original). The mailing
described in FEC v. Survival Education Fund, if used following the
effective date of these rules and modified to identify clearly a
current Federal candidate, would trigger new section 100.57(a) and
would require the group issuing the mailing to treat all the funds
received in response to the mailing as ``contributions'' under FECA.
The following are examples of solicitations based on the one that
Survival Education Fund used that illustrate how a variation in the
text of a solicitation would change the result of whether a
solicitation is subject to new section 100.57. A solicitation might
state the following:
The President wants to cut taxes again. Our group has been
fighting for lower taxes since 1960, and we will fight for the
President's tax cuts. Send us money for our important work.''
Because this solicitation does not indicate that any funds received
will be used to support or oppose the election of any candidates, any
funds received in response are not subject to new section 100.57.
In contrast, a solicitation that would trigger the new rule might
read as follows:
The President wants to cut taxes again. Our group has been
fighting for lower taxes since 1960, and we will fight to give the
President four more years to fight for lower taxes. Send us money
for our important work.''
Because this solicitation indicates that the funds received will be
used to support the election of a Federal candidate (``give the
President four more years''), any funds received in response to this
solicitation are ``contributions'' under the new rule.
The rule's focus on the planned use of funds leaves the group
issuing the communication with complete control over whether its
communications will trigger new section 100.57. After determining that
a clearly identified candidate is mentioned, new section 100.57
requires an examination of only the text of a communication. The
regulation turns on the plain meaning of the words used in the
communication and does not encompass implied meanings or
understandings. It does not depend on reference to external events,
such as the timing or targeting of a solicitation, nor is it limited to
solicitations that use specific words or phrases that are similar to a
list of illustrative phrases.
It is important to note that if a solicitation indicates that any
portion of the funds received will be used to support or oppose the
election of a clearly identified candidate, new section 100.57(a)
applies even if the solicitation states that funds received would be
used for other purposes too, subject to the exceptions in new 11 CFR
100.57(b)(2) and (c), discussed below. In addition, a disclaimer
stating that any funds received that cannot be treated as
contributions, or that cannot be accepted by a political committee or
cannot be deposited in a committee's Federal account, will be deposited
in the organization's non-Federal account does not negate the
application of new section 100.57(a). Thus, an organization that sends
out a solicitation that is subject to new section 100.57(a) or (b)(1)
with a disclaimer similar to the one described above cannot accept any
funds that are not Federal funds (funds that comply with the amount
limitations, source prohibitions and reporting requirements of FECA) in
response to that solicitation unless it satisfies one of the exceptions
in new section 100.57(b)(2) or (c), discussed below.
Further examples of communications that solicit contributions under
new section 100.57(a) are:
1. ``Electing Joe Smith is crucial to our efforts to preserve the
environment. Please send money to us so that we can be successful in
this cause.''
2. ``Our group strives to preserve Social Security, and
Representative Jones has a great plan to protect this vital program.
The Congressman needs our help to stay in Washington and implement his
plan to save Social Security. Give now to help us fight to save Social
Security.''
3. ``Senator Jane Doe voted against a tax package that would have
helped working families. Your generous gift will enable us to make sure
Californians remember in November.''
Because the italicized language in each of these solicitations
indicates that the funds received will be used to support the election
or defeat of a Federal candidate, any funds received in response to
these solicitations are ``contributions'' under the new rule.
In the NPRM, the proposed regulation text for section 100.57 took a
different approach. See NPRM at 11757. However, new section 100.57(a)
is similar to an approach that the Commission sought comment on in the
narrative of the NPRM. See NPRM at 11743. The commenters did not
address the approach discussed in the NPRM's narrative, but some
addressed the proposed regulation text for this provision. Those
commenters raised objections to proposed section 100.57 based on some
of the exemptions from the ``expenditure'' definition for certain
communications, as discussed below. The exemption from the
``expenditure'' definition for the costs of internal communications by
corporations, labor organizations and membership organizations in 2
U.S.C. 431(9)(B)(iii) and 11 CFR 100.134 is not affected by the
Commission's promulgation of new section 100.57.
New section 100.57 does not address when the costs of
communications are expenditures under FECA. Instead, it specifies when
funds received in response to certain communications must be treated as
contributions under
[[Page 68058]]
FECA. Thus, a corporation, labor organization or membership
organization that issues an internal communication of the type
described in new section 100.57 may consider the costs of the
communication to be disbursements not subject to FECA requirements
under section 100.134, but it must treat any funds received in response
as FECA contributions under new section 100.57. If the corporation,
labor organization, or membership organization maintains a separate
segregated fund (``SSF''), treating the funds received in response to
the communication as contributions to the SSF will satisfy new section
100.57.
Section 100.141 exempts from the ``expenditure'' definition any
payments made by corporations or labor organizations that are
permissible under 11 CFR part 114. Part 114 authorizes the use of non-
Federal funds for the costs of various corporate, labor organization,
and membership organization communications under certain conditions.
See, e.g., 11 CFR 114.3 to 114.8; 2 U.S.C. 441b(b)(2)(A), (b)(2)(B),
(b)(4)(B). New section 100.57 does not make the costs of these
communications expenditures; instead, it concerns the treatment of
funds received in response to certain communications without regard to
how the costs of those communications were paid.
One commenter argued that its status as an MCFL-type corporation (a
qualified nonprofit corporation allowed to make independent
expenditures pursuant to 11 CFR 114.10) means its communications that
inform potential contributors of the organization's ability to advocate
in connection with a Federal election must be immune from FECA
consequences. The Supreme Court holding in FEC v. Massachusetts
Citizens for Life, 479 U.S. 238 (1986) (``MCFL''), is not so broad.
Indeed, the Court twice has recognized that an MCFL-type corporation's
independent spending can have FECA consequences. See id. at 262
(noting: ``should MCFL's independent spending become so extensive that
the organization's major purpose may be regarded as campaign activity,
the corporation would be classified as a political committee''); see
also FEC v. Beaumont, 539 U.S. 146, 149 (2003) (holding that the ban on
corporate contributions directly to Federal candidates applies to MCFL-
type corporations). Independent expenditures were the core of the MCFL
holding, yet the opinion expressly notes that the independent
expenditures can trigger political committee status. Nonetheless, the
commenter claims that an MCFL corporation's ability to explain to
potential contributors that it will make independent expenditures on
behalf of particular Federal candidates must be immune from
consequences under new section 100.57. Just as an MCFL corporation's
independent expenditures can make it a political committee, an MCFL
corporation's solicitations can make it the recipient of contributions
under the FECA. These contributions will not transform an MCFL
corporation into a political committee unless its expenditures and
contributions become so extensive as to lead to a conclusion that the
organization's major purpose is campaign activity. Therefore, new
section 100.57 is not inconsistent with MCFL.
Some commenters addressed the interplay between this regulation and
other proposed rules that the Commission is not adopting, which renders
these comments moot.
New section 100.57 provides one example of communications that can
generate contributions; it is not an exhaustive list. The rule
addresses communications that indicate that the funds received in
response will be used to support or oppose the election of a clearly
identified Federal candidate. Other communications that do not include
such an indication may also generate contributions under FECA. A
solicitation that states that the funds received will be used to
influence Federal elections will generate FECA contributions, see 11
CFR 102.5(a)(2)(ii), even though such a communication would not be
subject to new section 100.57 because it does not mention a clearly
identified Federal candidate.
Any funds that are ``contributions'' by operation of new section
100.57 are contributions for purposes of the ``political committee''
definition in 2 U.S.C. 431(4)(A) and 11 CFR 100.5(a), which defines a
``political committee'' as any group that makes $1,000 of expenditures
or receives $1,000 of contributions during a calendar year. In Buckley
v. Valeo, 424 U.S. 1, 79 (1976), the Supreme Court narrowed the
``political committee'' definition with a ``major purpose'' test, which
is discussed further below. The ``major purpose'' test applies in the
same way to groups that make or receive $1,000 of contributions and
groups that make $1,000 of expenditures.
2. 11 CFR 100.57(b)--Certain Allocable Solicitations
a. 11 CFR 100.57(b)(1)
New section 100.57(b)(1) states that a solicitation that meets
section 100.57(a) and refers to a political party so that its costs are
allocable under 11 CFR 106.6 or 106.7 is nonetheless subject to the
rule that all of its proceeds are ``contributions'' under FECA. This
approach is consistent with the ``candidate-driven'' approach in the
revised allocation rules, discussed below. See, e.g., Explanation and
Justification for new 11 CFR 106.6(f)(1).
b. 11 CFR 100.57(b)(2)
New section 100.57(b)(2) provides that where the costs of a
solicitation are allocable under 11 CFR 106.1, 106.6 or 106.7, if the
solicitation also refers to at least one clearly identified non-Federal
candidate, at least fifty percent of the proceeds of the solicitation
must be treated as contributions under FECA. See new 11 CFR
100.57(b)(2). The funds that satisfy the requirement that fifty percent
of the funds received must be contributions under the FECA under new
section 100.57(b)(2) must also comply with FECA's amount limitations
and source prohibitions and must be reported as contributions if the
recipient is a political committee. Thus, if such a solicitation does
not yield at least fifty percent in funds that meet the FECA's amount
limitations and source prohibitions, then the organization must refund
some of the donations to comply with new section 100.57. For example, a
political committee might raise a total of $30,000 for its Federal and
non-Federal accounts with a fundraising event where the invitation
includes a solicitation that is subject to both new section 100.57 and
allocation under section 106.6(d). Under new section 100.57(b)(2), the
political committee must consider at least fifty percent of the
proceeds to be contributions. If the $30,000 total receipts include
only $12,000 that are in compliance with FECA's limitations and
prohibitions, then the committee may retain only $12,000 in non-Federal
funds. The political committee must then refund $6,000 of donations so
that fifty percent of the proceeds from this solicitation are
contributions.
New section 100.57 does not change the allocation of direct costs
of fundraising under current 11 CFR 106.6(d) or 106.7(d)(4). These
costs are subject to allocation according to the funds received method.
New section 100.57, however, does affect the nature of the funds
received from a solicitation and requires that either 100% or at least
50% of the funds received must be contributions. The amount of
contributions received, in turn, impacts how the funds received method
operates when the fundraising includes a solicitation that is subject
to new section 100.57. For example, consider again the situation
described above
[[Page 68059]]
where a political committee raised $30,000 for its Federal and non-
Federal accounts and spent $2,000 in direct costs of fundraising. After
the $6,000 refund, the funds received from that event were 50% Federal
and 50% non-Federal, so the political committee must use at least
$1,000 in Federal funds to pay for direct costs of fundraising under
section 106.6(d). In accordance with 11 CFR 106.6(d)(2), the final
allocation of the direct costs of fundraising must result in the
Committee using at least $1,000 of Federal funds to pay those costs,
and prior payments based on an estimated allocation ratio under section
106.6(d)(1) must be adjusted to match the final allocation ratio.
3. 11 CFR 100.57(c)--Joint Fundraisers
New section 100.57(c) concerns joint fundraising. It provides that
funds received in response to solicitations conducted between or among
the authorized committees of Federal and non-Federal candidates are
excepted from being treated entirely as contributions under the new
rule in section 100.57. Nevertheless, when a Federal candidate's
authorized committee participates in a joint fundraiser, all funds
solicited are subject to restrictions imposed on Federal candidates by
BCRA. See 2 U.S.C. 441i(e)(1) and either 11 CFR 300.61 or 300.62. When
a Federal candidate conducts a joint fundraiser with a State candidate,
the candidates must divide the receipts according to the written joint
fundraising agreement under 11 CFR 102.17. All funds raised for the
Federal candidate are subject to 11 CFR 300.61 and all funds raised for
the State candidate are subject to 11 CFR 300.62 because of the Federal
candidate's participation in the joint fundraiser.
All other joint fundraising pursuant to section 102.17 is subject
to new section 100.57(a) and (b). Thus, section 100.57 applies to
solicitations for joint fundraisers involving unauthorized political
committees or other organizations that are not political committees
where the solicitations indicate that any portion of the funds received
will be used to support or oppose the election of a clearly identified
Federal candidate. If the communication is subject to new section
100.57(a) or (b)(1), then the entire amount of the proceeds of the
joint fundraiser must be treated as contributions. Alternatively, if
the solicitation is subject to new section 100.57(b)(2) (includes at
least one clearly identified Federal candidate and at least one clearly
identified non-Federal candidate), then at least fifty percent of the
proceeds must be treated as FECA contributions, without regard to which
entity receives those contributions. Any joint fundraising agreement
must reflect the appropriate division of proceeds and costs in order
for the joint fundraising entities to comply with new section 100.57
and in 11 CFR 102.17.
For example, two political committees, called A and B, each with a
Federal and non-Federal account, sign a joint fundraising agreement
stating that A will receive 75% of the proceeds and B will receive 25%
of the proceeds. In accordance with the agreement, they jointly raise
$100,000 with a solicitation subject to new section 100.57(b)(2), with
A receiving $75,000 and B receiving $25,000. The $100,00 raised by the
two committees must be distributed among their Federal and non-Federal
accounts in any way that results in at least 50% of the $100,000 total
proceeds being deposited in the Federal accounts. For example, A may
deposit one third of its $75,000 in proceeds ($25,000) in its Federal
account and the remaining two thirds ($50,000) in its non-Federal
account. B would then treat all of its $25,000 in proceeds as Federal
funds, deposit $25,000 in its Federal account, and nothing in its non-
Federal account. All funds deposited in Federal accounts must comply
with the amount limitations, source prohibitions, and reporting
requirements of the Act. Furthermore, at least 50% of the direct costs
of fundraising must be paid for with Federal funds.
Allocation
The Commission is adopting final rules at 11 CFR 106.6 to change
the allocation regime for SSFs and nonconnected committees. These final
rules establish a simpler bright-line rule providing that
administrative expenses, generic voter drives, and certain public
communications that refer to a political party must be paid for with at
least 50% Federal funds. Under the previous regulations, SSFs and
nonconnected committees applied a complex ``funds expended'' formula to
arrive at a ratio of Federal funds to total Federal and non-Federal
disbursements and then paid for these expenses with allocated amounts
from Federal and non-Federal accounts. The previous rules were a source
of confusion for some SSFs and nonconnected committees and resulted in
time-consuming reporting.
These final rules also establish candidate-driven allocation rules
for voter drives and public communications that refer to clearly
identified Federal or non-Federal candidates regardless of whether the
voter drive or public communication refers to a political party. When
the voter drive or public communication refers to clearly identified
Federal candidates, but no clearly identified non-Federal candidates,
the costs must be paid for with 100% Federal funds. Similarly, when the
voter drive or public communication refers to clearly identified non-
Federal candidates, but no clearly identified Federal candidates, the
costs may be paid 100% from a non-Federal account. Any voter drives or
public communications that refer to both clearly identified Federal and
non-Federal candidates are subject to the time/space method of
allocation under 11 CFR 106.1. The final rules do not change the
allocation methods in 11 CFR 106.1, which are based on the benefit
reasonably expected to be derived by each candidate. Minor changes are
being made in 11 CFR 102.5 and 104.10 to conform to the changes in 11
CFR 106.6.
11 CFR 102.5--Organizations Financing Political Activity in Connection
With Federal and Non-Federal Elections, Other Than Through Transfers
and Joint Fundraisers: Accounts and Accounting
Section 102.5(a)(1)(i) regulates how political committees, other
than national committees, that finance political activity in connection
with both Federal and non-Federal elections set up accounts and
transfer monies between Federal and non-Federal accounts to pay for
these activities. As explained below in the Explanation and
Justification for revised 11 CFR 106.6, the Commission is revising the
rules for SSFs and nonconnected committees regarding allocation of
administrative and generic voter drive expenses, and adding rules
regarding the payment of costs of certain voter drives and public
communications. In order to conform to revised 11 CFR 106.6, the
Commission is revising section 102.5(a)(1)(i) to add references to
sections 106.6(c) and 106.6(f), which govern transfers from non-Federal
to Federal accounts under 11 CFR 102.5(a) to pay for allocable
activities.
11 CFR 104.10--Reporting by Separate Segregated Funds and Nonconnected
Committees of Expenses Allocated Amount Candidates and Activities
Section 104.10 specifies how SSFs and nonconnected committees must
report expenses allocated among candidates and activities pursuant to
11 CFR 106.1 and 106.6. Previously, section 104.10(b)(1) established
the reporting requirements for allocation of administrative and generic
voter drive expenses under the former ``funds
[[Page 68060]]
expended'' method in section 106.6. As explained in greater detail
below (see Explanation and Justification for revised 11 CFR 106.6), the
Commission is revising the rules for SSFs and nonconnected committees
and removing the ``funds expended'' method of allocation. In order to
conform to the revised 11 CFR 106.6, the Commission is deleting the
requirements for reporting allocated expenditures and disbursements
under the ``funds expended'' method in section 104.10(b)(1). Instead,
revised paragraph (b)(1) states that in each report disclosing a
disbursement for administrative expenses, generic voter drives, or
public communications that refer to a political party, but do not refer
to any clearly identified candidates, the committee shall state the
allocation ratio used for these categories of expenses under revised 11
CFR 106.6(c). The committee must report whether it is using the 50%
minimum Federal funds required under section 106.6(c) or another
percentage of Federal funds (greater than 50%). Because of the
simplified approach under the revised allocation provisions of section
106.6 explained below, the reporting obligations for SSFs and
nonconnected committees should be easier to meet than the obligations
under former section 104.10.
11 CFR 106.6--Payment for Administrative Expenses, Voter Drives and
Certain Public Communications
This section specifies how SSFs and nonconnected committees must
pay for certain activities that are in connection with Federal
elections, non-Federal elections, or both, using Federal and non-
Federal accounts established pursuant to 11 CFR 102.5. As noted in
section 106.6(a), political committees required to allocate under this
section do not include party committees and the authorized committees
of any candidate for Federal election. The NPRM included several
proposals to amend the allocation provisions in 11 CFR 106.6, which are
discussed in greater detail below. NPRM at 11753-55 and 11759-60.
Approximately ten commenters provided substantive comments regarding
these proposals. In general, the commenters were divided as to the
impact of the U.S. Supreme Court decision in McConnell v. FEC, 540 U.S.
93 (2003), on the allocation rules for SSFs and nonconnected
committees. One commenter argued that McConnell reaffirmed that
allocation between Federal and non-Federal accounts is appropriate for
SSFs and nonconnected committees. Other commenters believed that
McConnell's statements regarding the circumvention of the FECA
permitted under the former party committee allocation rules could just
as easily be said of the allocation regime for SSFs and nonconnected
committees.
After carefully considering these public comments and examining
information regarding how the allocation system under former 11 CFR
106.6 has worked over the past ten years, the Commission adopts the
following amendments to 11 CFR 106.6: (1) Deleting the ``funds
expended'' ratio from 11 CFR 106.6(c) and replacing it with a 50% flat
minimum Federal percentage; (2) applying this new 50% Federal minimum
to administrative and generic voter drive expenses, as well as to a
newly added category of allocable expenses--public communications that
refer to a political party but do not refer to any clearly identified
Federal or non-Federal candidates; (3) providing for allocation of
certain voter drives and public communications that may refer to
political parties and do refer to clearly identified candidates, based
upon whether the candidates are Federal, non-Federal, or both; and (4)
directing SSFs and nonconnected committees to use the time/space
allocation method for certain voter drives and public communications
that refer to at least one clearly identified Federal candidate, and to
at least one clearly identified non-Federal candidate, regardless of
whether there is a reference to a political party. Through these final
rules, the Commission seeks to enhance compliance with the FECA, to
simplify the allocation system, and to make it easier for SSFs and
nonconnected committees to comprehend and for the Commission to
administer these requirements.
1. 11 CFR 106.6(b)--Payments for Administrative Expenses, Voter Drives
and Certain Public Communications
Previous 11 CFR 106.6(b)(1) listed disbursements that must be
allocated by SSFs, and previous 11 CFR 106.6(b)(2) listed disbursements
that must be allocated by nonconnected committees. Because the
allocation method is very similar for both SSFs and nonconnected
committees, it is unnecessary to create separate lists for them.
Rather, the distinction in the final rules concerning allocation is
between the types of disbursements that are subject to allocation and
the types of disbursements that are not. Thus, revised 11 CFR
106.6(b)(1) lists the disbursements that SSFs and nonconnected
committees must allocate in accordance to revised 11 CFR 106.6(c).
Revised 11 CFR 106.6(b)(2) lists the disbursements that are not subject
to allocation but must be paid for in accordance with new 11 CFR
106.6(f).
Proposed 11 CFR 106.6(b)(1) would have applied the allocation rules
to public communications that promote or support a political party or
promote, support, attack or oppose a clearly identified candidate. NPRM
at 11759. The final rules do not adopt this approach. Rather, revised
section 106.6(b) lists public communications that refer to a political
party or a clearly identified candidate. The Commission is adopting the
standard in the final rules because it is an objective standard that is
easy to administer.
A. 11 CFR 106.6(b)(1)--Costs To Be Allocated
The four types of disbursements in revised 11 CFR 106.6(b)(1) that
are subject to allocation are: administrative expenses, direct costs of
fundraising, generic voter drives and public communications that refer
to a political party. The final rules retain the former descriptions of
administrative expenses, direct costs of fundraising, and generic voter
drives in new paragraphs (b)(1)(i), (ii) and (iii) in section 106.6,
respectively. New paragraphs (b)(1)(i) and (ii) still make clear that
SSFs may have the costs of administrative expenses and fundraising
programs paid by their connected organization. ``Generic voter drives''
is a defined term used prior to BCRA and goes beyond the limited
activities defined under ``Federal election activity.'' For example, a
television ad urging the general public to vote for candidates
associated with a particular issue, without mentioning a specific
candidate, would be considered allocable as a generic voter drive
activity under 11 CFR 106.6(b)(1)(iii). The final rules add a fourth
type of disbursement that must be allocated--public communications, as
defined in 11 CFR 100.26, that refer to a political party but do not
refer to any Federal or non-Federal candidate. See 11 CFR
106.6(b)(1)(iv). To illustrate, public communications that use phrases
such as ``the Democratic team,'' ``the Minnesota Democratic
Committee,'' ``the GOP,'' ``Democrats,'' and ``Republicans in
Congress,'' would fall under new paragraph (b)(1)(iv) of section 106.6
because they refer to a political party. See also 11 CFR
106.6.(b)(2)(iii) and (iv) discussed below.
B. 11 CFR 106.6(b)(2)--Costs Not Subject to Allocation
Revised 11 CFR 106.6(b)(2) lists the four types of disbursements
that are not
[[Page 68061]]
subject to allocation between Federal and non-Federal accounts, but are
subject to the payment requirements in new paragraph (f) of section
106.6. Two of the four types of disbursements concern voter drives and
the other two types concern public communications.
The Commission recognizes that the allocation regulation for
generic voter drives in new 11 CFR 106.6(b)(1)(iii) does not apply to
voter drives that mention a specific Federal or non-Federal candidate.
Without an additional regulatory clarification, some voter drive
activity may have fallen into the gap between the regulation of generic
voter drives in 11 CFR 106.6(b)(1)(iii) and the candidate-specific
public communications provisions in new 11 CFR 106.6(b)(2)(iii) and
(iv), discussed below. To prevent such a gap, the Commission is issuing
new rules for voter drives that refer to a clearly identified Federal
or non-Federal candidate.
New paragraph (b)(2)(i) of section 106.6 describes voter drives in
which the printed materials or scripted messages refer to one or more
clearly identified Federal candidate, or any voter drives which include
written instructions that direct the committee's employee or volunteer
to refer to a clearly identified Federal candidate (including voter
drives that also generally refer to candidates of a particular party or
those associated with a particular issue), but do not refer to any
clearly identified non-Federal candidates. New paragraph (b)(2)(ii)
also addresses voter drives that similarly refer to one or more clearly
identified non-Federal candidates, including voter drives that
generally refer to candidates of a particular party or candidates
associated with a particular issue, but do not refer to any clearly
identified Federal candidates.
In both paragraphs, the reference to the clearly identified
candidate must be contained in printed materials, scripted messages, or
written instructions. Only written instructions that direct the
employee or volunteer to refer to a clearly identified Federal or non-
Federal candidate will satisfy these paragraphs.\1\ The Commission
included these limitations to avoid converting an allocable generic
voter drive into an unallocable candidate-specific voter drive based
solely upon ``off script'' or unauthorized oral comments by an employee
or volunteer. The regulation seeks to capture only authorized
statements; an SSF or nonconnected committee is not required to treat
an otherwise generic voter drive as a candidate-specific one based on
unauthorized comments by committee employees or volunteers. SSFs and
nonconnected committees should be maintaining sufficient control over
their printed materials, scripts and written instructions to be on
notice whether or not the voter drive would qualify as a candidate-
specific voter drive in new paragraphs (b)(2)(i) or (ii) of section
106.6.
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\1\ For example, a written instruction to the employees or
volunteers that states ``do not mention or refer to Candidate Y''
would not by itself be covered by paragraphs (b)(2)(i) or (ii) of
section 106.6.
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Revised 11 CFR 106.6(b)(2) also includes two types of public
communications, as defined in 11 CFR 100.26. First, paragraph
(b)(2)(iii) describes public communications that refer to one or more
clearly identified Federal candidates, regardless of whether there is
reference to a political party, but do not refer to any clearly
identified non-Federal candidates. Second, paragraph (b)(2)(iv) of
section 106.6 describes public communications that refer to a political
party and one or more clearly identified non-Federal candidates, but do
not refer to any clearly identified Federal candidates. References to
clearly identified Federal or non-Federal candidates that come within
new 11 CFR 106.6(b)(2)(iii) and (iv) include ``the President,'' ``your
Senators,'' and ``the Republican candidate for Senate in the State of
Georgia.'' See also 11 CFR 100.17 (definition of ``clearly
identified'').
2. 11 CFR 106.6(c)--Method for Allocating Administrative Expenses,
Costs of Voter Drives and Certain Public Communications
A. Proposals in the NPRM
In the NPRM, the Commission set forth several proposals to amend
the allocation regulations in 11 CFR 106.6 that apply to SSFs and
nonconnected committees other than state and local party committees.
Those included a number of proposals where minimum Federal percentages
would be added to the funds expended method. One alternative in the
proposed rules would have required SSFs and nonconnected committees to
use the greatest percentage applicable in any of the States in which
the committee conducted its activities as the minimum Federal
percentage applied to all allocations under the funds expended method.
See NPRM at 11754. A competing alternative would have allowed
committees to choose between allocating costs on a State-by-State basis
according to the percentage applicable in each State, or using the
highest applicable percentage across the board. See id.
The NPRM also discussed other possible minimums including a ``two
tier'' system where SSFs and nonconnected committees that operate in
fewer than 10 States would have used a lower minimum Federal percentage
(such as 25%), while any committees operating in more than 10 States
would have been subject to a higher percentage (such as 50%). See id.
The NPRM also proposed the alternative of a fixed minimum Federal
percentage as a replacement for the ``funds expended'' method. Finally,
the NPRM also sought comment on eliminating the allocation scheme and
requiring SSFs and nonconnected committees to use 100% Federal funds
for partisan voter drives and public communications listed in proposed
11 CFR 106.6(b).
B. Comments on Allocation Proposals
Little attention was focused on allocation issues during the public
comment period. Fewer than 10 comments provided a substantive response
to the allocation issues raised in the NPRM. One commenter wanted to
eliminate allocation altogether and require 100% Federal funds for
almost all activities, and two commenters recommended revamping the
allocation scheme by eliminating the funds expended method.
The commenters differed regarding whether it was appropriate to add
a Federal minimum percentage into the ``funds expended'' method in
former section 106.6(c). One commenter supported revision of the
section 106.6 allocation scheme to avoid ``absurd results'' under the
former system by requiring a ``significant minimum hard money share''
for allocated expenses. Another commenter noted that the new
bookkeeping, reporting, and calculations required for the proposed
``funds expended method plus a minimum percentage'' approach in the
NPRM would be burdensome for political committees. Some commenters
supported 100% Federal funds for certain expenditures, others supported
a State-by-State approach, one supported a modified ``two tier''
approach to minimums, and others expressed concern that any number
chosen as a minimum would be arbitrary.
The commenters also differed with regard to the proposals for
allocation of public communications and voter drives. One commenter
noted that if a communication promotes, supports,
[[Page 68062]]
attacks, or opposes (``PASOs'') \2\ a Federal candidate, then it should
be paid for with 100% Federal funds. Likewise, this commenter noted
that if a communication only includes non-Federal candidates, then the
committee should be allowed to use 100% non-Federal funds to pay its
costs. Some commenters supported a minimum Federal percentage for both
PASO communications and partisan voter drives. One commenter asserted
that allocation based on the PASO standard would be vague. Another
commenter argued that adding PASO communications to the ``funds
expended'' ratio would be unenforceable, arbitrary, and unbalanced. In
addition, some commenters suggested also revising 11 CFR 106.1 to
include a minimum Federal percentage under the time/space methodology
of allocation. The Commission is not able to adopt this latter
suggestion because the NPRM did not seek public comment on amending
section 106.1.
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\2\ ``PASO'' has emerged as a convenient acronym for ``promote,
support, attack or oppose.''
---------------------------------------------------------------------------
C. Final Rules
In examining public disclosure reports filed by SSFs and
nonconnected committees over the past ten years, the Commission
discovered that very few committees chose to allocate their
administrative and generic voter drive expenses under former section
106.6(c). Anecdotal evidence suggested that many committees, including
those that allocated, were confused as to how the funds expended ratio
should be calculated and adjusted throughout the two-year election
cycle. Committees have consistently requested guidance on the proper
application of the allocation methods under former section 106.6 at
various Commission conferences, roundtables and education events. Audit
experience has also shown that some committees were not properly
allocating under the complicated funds expended method. See Final
Report of the Audit Division on Volunteer PAC (Sept. 21, 2004)
(improper application of flat state ballot composition ratio instead of
calculating ratio under funds expended method in section 106.6) and
Final Report of the Audit Division on Republicans for Choice PAC (Dec.
2, 1999) (apparent confusion between calculation of funds received
ratio and funds expended ratio in section 106.6). In addition,
calculating and adjusting the funds expended ratio may have posed an
administrative burden to some committees, particularly those with
limited resources, because compliance required committees to monitor
their Federal expenditures and non-Federal disbursements, compare their
current spending to the ratio reported at the start of the election
cycle, and then adjust the ratio to reflect their actual behavior. The
confusion and administrative burden associated with the funds expended
method may at least partly explain why, historically, SSFs and
nonconnected committees have not adjusted their allocation ratios
during an election cycle, or from one election cycle to the next
election cycle.
Given the complexity of former section 106.6(c), the confusion
regarding the proper application of this rule exhibited by some SSFs
and nonconnected committees, and the administrative burden of
compliance, the Commission seeks to simplify, not further complicate,
the allocation system. Thus, the Commission is not retaining the funds
expended method in any form.
A flat minimum percentage makes the allocation scheme easier to
understand and apply, while preserving the overall rationale underlying
allocation. The flat minimum percentage eliminates the requirement--
and, thus, the accompanying burdens--of calculating the ratio and
monitoring it continuously for accuracy. Furthermore, the Commission's
recent experience with State and local party allocation ratios in 11
CFR 106.7 and 300.33 indicates that flat minimum allocation ratios are
easier for committees to understand and for the Commission to
administer. A flat minimum Federal percentage will also result in less
complex, less intrusive, and speedier enforcement actions, thereby
enhancing compliance with the law. Finally, SSFs and nonconnected
committees will retain the flexibility to allocate more than the flat
minimum percentage of these expenses to their Federal account if they
wish to do so. Accordingly, the Commission has decided to replace the
funds expended method of allocation with a flat minimum allocation
percentage.
Neither FECA nor any court decision dictates how the Commission
should determine appropriate allocation ratios. In fact, at least one
court has recognized that the Commission has the discretion to
establish the Federal funds percentage it deems best for administrative
and generic voter drive expenses. See Common Cause v. FEC, 692 F. Supp.
1391, 1396 (D.D.C. 1987).
A flat 50% allocation minimum recognizes that SSFs and nonconnected
committees can be ``dual purpose'' in that they engage in both Federal
and non-Federal election activities. These committees have registered
as Federal political committees with the FEC; consistent with that
status, political committees should not be permitted to pay for
administrative expenses, generic voter drives and public communications
that refer to a political party with a greater amount of non-Federal
funds than Federal funds. However, the 50% figure also recognizes that
some Federal SSFs and nonconnected committees conduct a significant
amount of non-Federal activity in addition to their Federal spending.
The Commission has concluded that this approach is preferable to
importing percentages used in other contexts for dissimilar entities,
such as the former national party committee ratios repealed by BCRA or
the current ratios applicable to State and local party committees, as
suggested in the NPRM.
Public communications that refer to a political party without
referring to any clearly identified Federal or non-Federal candidates
are subject to the new 50% flat minimum percentage in revised 11 CFR
106.6(c). Like the administrative expenses and generic voter drives
(which may refer to a political party), which are also allocated under
section 106.6(c), these references solely to a political party
inherently influence both Federal and non-Federal elections. Therefore,
the 50% Federal funds requirement reflects the dual nature of the
communication. As with other expenses under revised section 106.6(c),
an SSF or nonconnected committee may choose to allocate more than 50%
of the costs of any such public communication to its Federal account,
if it wishes to do so.
The past decade of reports filed with the FEC indicate that most
SSFs and nonconnected committees do not allocate under section
106.6(c). In fact, fewer than 2% of all registered non-party political
committees filed H1 and H4 schedules allocating administrative and
generic voter drive expenses under former section 106.6(c) in each
election cycle since these regulations were made effective in 1991. Any
SSF or nonconnected committee that was not allocating under section
106.6 was presumably already using 100% Federal funds for these
expenses, except where those expenses were paid by other entities in
accordance with the Act and Commission regulations, such as an SSF's
connected organization paying its administrative expenses. Thus,
removing the funds expended method and replacing it with a flat minimum
percentage in section 106.6 should only affect a small fraction of all
SSFs and nonconnected committees.
Even for those SSFs and nonconnected committees that were
[[Page 68063]]
allocating, the impact of the final rules should not be substantial. A
review of past reports filed with the FEC shows that almost half of
these committees were already paying for these expenses with at least
50% Federal funds under the former system. These committees will not
need to adjust their payments under the 50% flat percentage method in
revised 11 CFR 106.6(c). Moreover, the actual dollar amounts of non-
Federal funds that were spent in past cycles on administrative and
generic voter drive expenses under former section 106.6(c), and which
will have to be partially replaced with Federal funds under the final
rules, is relatively low. With the exception of one or two committees
per election cycle whose spending was out of line with other SSFs and
nonconnected committees, the final rules affect each committee by
requiring only a minimal increase in Federal funds expended.
Additionally, these amounts were not high compared to total
disbursements from these committees' Federal accounts in an election
cycle (and would have been even smaller if disbursements from non-
Federal accounts were taken into consideration). Thus, revised 11 CFR
106.6(c) should not impose a significant fundraising burden on these
committees.
3. 11 CFR 106.6(f)--Payments for Public Communications and Voter Drives
That Refer to One or More Clearly Identified Federal or Non-Federal
Candidates
The final rules add new paragraph (f) to 11 CFR 106.6 to address
payments for voter drives that refer to clearly identified Federal or
non-Federal candidates, as described in new 11 CFR 106.6(b)(2)(i) and
(ii), and public communications that refer to clearly identified
Federal or non-Federal candidates, with or without a reference to a
political party, as described in new 11 CFR 106.6(b)(2)(iii) and (iv).
The final rules also direct SSFs and nonconnected committees to use the
time/space allocation method for voter drives and public communications
that refer to at least one clearly identified Federal candidate and to
at least one clearly identified non-Federal candidate, without regard
to any references to a political party.
The Commission views voter drives and public communications that
refer to a political party and either Federal or non-Federal
candidates, but not both, as ``candidate-driven.'' The Federal or non-
Federal nature of the political party reference is determined by
whether the clearly identified candidates in the communication are
Federal or non-Federal. Thus, voter drives and public communications
that refer to a political party and also refer only to clearly
identified Federal candidates must be paid for with 100% Federal funds
from the Federal account under new 11 CFR 106.6(f)(1). Permitting these
voter drives and communications to be paid for with some non-Federal
funds based on a cursory reference to a political party would invite
circumvention of the intent of the allocation scheme. Voter drives and
public communications that refer to clearly identified Federal
candidates, without any reference to political parties or non-Federal
candidates, similarly must be paid for with 100% Federal funds from the
Federal account.\3\
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\3\ Because section 106.6 of the Commission's regulations
applies only to separate segregated funds and non-connected
committees, the final rules do not apply to the activities of other
types of political committees, including state and local party
committees, which are subject to separate allocation rules. See 11
CFR 300.30 to 300.33 (establishing allocation rules for state and
local party committees).
---------------------------------------------------------------------------
On the other hand, voter drives and public communications that
refer to a political party and also refer only to clearly identified
non-Federal candidates may be paid for entirely by the non-Federal
account under new 11 CFR 106.6(f)(2). SSFs and nonconnected committees
may pay for these communications referring to non-Federal candidates
partly or entirely with Federal funds, but are not required to do so.
Finally, voter drives and public communications that refer to both
Federal and non-Federal candidates, regardless of whether there is also
a reference to a political party are subject to a time/space allocation
method in new 11 CFR 106.6(f)(3), which is similar to the method
outlined in 11 CFR 106.1. See new 11 CFR 106.6(f)(3).\4\ SSFs and
nonconnected committees must comply with section 106.6(f) when
allocating public communications and voter drive activities, but must
comply with 11 CFR 106.1 for allocation of any other expenditures made
on behalf of more than one clearly identified Federal candidate.
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\4\ The Commission notes that State law may also govern
communications referring to non-Federal candidates.
---------------------------------------------------------------------------
The final rules are simpler than the approach taken in Advisory
Opinion 2003-37 and proposed in the NPRM at proposed 11 CFR 106.6(f)
and (g). These required a combined application of the time/space
allocation method under 11 CFR 106.1 and the funds expended method
under former 11 CFR 106.6 for public communications that refer to a
party and to specific Federal candidates. Advisory Opinion 2003-37 is
hereby superseded. The candidate-driven approach for these voter drives
and public communications, coupled with the removal of the funds
expended method in favor of a flat percentage method, reduces the
amount of recordkeeping, tracking, and calculating that SSFs and
nonconnected committees must do to allocate properly administrative
expenses, and to pay properly for voter drives, and public
communication costs under 11 CFR 106.6.
The revised 11 CFR 106.6 allocation regulations should reduce the
burden of compliance on SSFs and nonconnected committees. Incorporation
of certain voter drives and public communications into 11 CFR 106.6
provides more specific guidance to committees that conduct such
activity. The Commission believes that these final rules best resolve
the problems with the former allocation scheme revealed through
reviewing past FEC reports and the issues raised by the commenters on
the NPRM.
Effective Date
Many commenters on the NPRM argued that any changes made effective
before the general election on November 2, 2004 would cause great
disruption to political committees and other organizations. Taking into
account the statutorily mandated waiting period before a regulation may
be effective under the Administrative Procedure Act, these regulations
could not be effective until after the November 2, 2004 general
election. To provide an orderly phase-in of the new rules and
transition from one election cycle to the next election cycle, the
Commission is establishing January 1, 2005 as the effective date for
all amendments and additions to 11 CFR parts 100, 102, 104 and 106.
This effective date allows affected political committees to ``close
out'' the 2003-2004 election cycle by making final adjustments to their
section 106.6(c) ratios and any final transfers of money between
Federal, non-Federal, and allocation accounts. It also provides
sufficient time for all those affected to make whatever internal
changes necessary to comply with the new rules.
Other Proposals
The NPRM proposed several additional new and revised rules,
including changes to the definitions of ``political committee'' and
``expenditure.'' Other than the Final Rules that follow, the Commission
is not promulgating any of the proposed rules. The NPRM also raised
many issues in the narrative describing the proposed rules. The
Commission cautions that no
[[Page 68064]]
inferences should be made as to the Commission's position on any of the
issues that are not discussed in this document or on any of the
proposed rules that are not adopted as final rules. Discussed below are
some of the proposals from the NPRM that the Commission did not adopt.
As noted above, the Commission received many comments on the NPRM. The
comments related to proposed rules that the Commission did not adopt
are not specifically described and addressed in this document.
Proposed 11 CFR 100.5--Political Committee (2 U.S.C. 431(4), (5), (6))
Under current law, any committee, club, association, or other group
of persons that receives contributions aggregating in excess of $1,000
or which makes expenditures aggregating in excess of $1,000 during a
calendar year is a political committee. See 2 U.S.C. 431(4)(A); 11 CFR
100.5(a). Nearly three decades ago, the Supreme Court narrowed the
Act's references to ``political committee'' in order to prevent their
``reach [to] groups engaged purely in issue discussion.'' Buckley v.
Valeo, 424 U.S. 1, 79 (1976). The Court concluded that ``[t]o fulfill
the purpose of the Act [the words ``political committee'] need only
encompass organizations that are under the control of a candidate or
the major purpose of which is the nomination or election of a
candidate.'' Id.
The NPRM proposed four alternatives for revisions to the definition
of a ``political committee'' in 11 CFR 100.5(a). NPRM at 11743-49 and
11756-57. The proposed alternatives differed mainly in whether, and if
so, how, the definition of ``political committee'' should include a
test to determine an organization's ``major purpose.''
The Commission received tens of thousands of comments addressing
these proposals and the various individual components of the proposed
``major purpose'' tests. Many commenters supported the idea of
incorporating a major purpose test into the definition of ``political
committee'' and offered a variety of alternatives for what the test
should be. In contrast, many other commenters opposed all of the
proposals set forth in the NPRM and expressed concerns about the
potential impact of the proposed rules on non-electoral speech. Several
provisions in BCRA, such as those barring the use of corporate funds
for electioneering communications but permitting the use of unlimited
individual funds for that purpose, were cited for the proposition that
an overly broad rule defining ``political committee'' would conflict
with the structure Congress established in BCRA.
Many commenters questioned whether new rules were necessary or
appropriate at this time and suggested that Buckley's ``major purpose''
language might be better addressed by Congress or the Supreme Court. A
joint comment from hundreds of 501(c) organizations contended that the
Commission has not obtained access to the types of comprehensive
reports that Congress has at its disposal, and the Commission is
therefore poorly positioned at this time to assess properly the
operations of the variety of organizations that might be affected by
new regulations.
Some observed that Congress did not address political committee
status in BCRA even though Congress appeared to be fully aware that
some groups were operating outside FECA's registration and reporting
requirements as well as its limitations and prohibitions. These
commenters found it significant that Congress had recently focused on
527 organizations in 2000 and 2002 when it added and revised IRS-based
reporting requirements for many of these organizations. According to
the commenters, Congress consciously did not require 527 organizations
to register with the Commission as political committees.
There were additional concerns raised about the constitutional and
practical issues relating to the ``major purpose'' test. Some
commenters noted that the ``major purpose'' test is not a statutory
trigger for political committee status, but rather a court-created
protection to avoid over-reach of the triggers for political committee
status actually contained in the FECA. Many commenters argued that a
``major purpose'' test would chill constitutionally protected speech,
some expressing the view that the boundaries of the test would be
inherently vague and thus force organizations to curtail permissible
activities. Other commenters expressed concern about the practical
difficulties they perceived in implementing a test intended to
ascertain a group's ``purpose.'' For instance, a number of commenters
similarly expressed concern that the ``major purpose'' test set out in
the NPRM might unfairly categorize organizations as political
committees based on a few statements or organizational documents where
those statements and documents might not accurately convey the actual
purpose of the organization. Other commenters also asserted that the
Commission's determinations of an organization's purpose would often
result in intrusive investigations into the private internal workings
of an organization. Another commenter feared that any definition of
``political committee'' potentially encompassing nonprofit
organizations would force them to choose between accepting foundation
funds or corporate donations and advocating ballot questions as a part
of the organization's overall activity.
In addition, arguments were made that the Commission would be in a
better position to address the issue of political committee status
after monitoring the behavior of various organizations during at least
one election cycle following the enactment of BCRA. A number of
commenters asserted that it would be improper for the Commission to add
a new ``major purpose'' test without sufficient data demonstrating the
existence of corruption or the appearance of corruption to justify the
new regulations.
After evaluating these comments, the Commission considered two
separate draft Final Rule approaches that would have revised the
definition of ``political committee.'' Each of these approaches
incorporated modified portions of the rules proposed in the NPRM. Each
approach included a ``major purpose'' test, but the tests were
different in purpose and operation. See draft 11 CFR 100.5(a), Agenda
Document 04-75, at 37-41, and draft 11 CFR 100.5(a), Agenda Document
04-75-A, at 2-3 (Aug. 19, 2004 meeting).
The draft Final Rules in Agenda Document 04-75 would have
incorporated one construction of the Buckley test into the definition
of ``political committee'' in 11 CFR 100.5(a) by requiring an
organization to have ``as its major purpose the nomination or election
of one or more candidates for Federal office.'' See draft 11 CFR
100.5(a)(1)(ii) of Agenda Document 04-75 (emphasis added); see also
Buckley, 424 U.S. at 79. Draft paragraph (a)(2) presented three ways in
which any organization could have satisfied that test: (1) By publicly
declaring that the purpose of the group is to influence Federal
elections; (2) by spending more than 50% of its funds on certain
specified activities; or (3) by receiving more than 50% of its funding
through ``contributions,'' as defined in 2 U.S.C. 431(8) and 11 CFR
Part 100, Subpart B. These draft Final Rules would have also
established an additional test whereby 527 organizations could satisfy
the ``major purpose'' test through the application of a broader 50%
disbursements test.
The other set of draft Final Rules that the Commission considered,
but did not
[[Page 68065]]
adopt, would have incorporated a different construction of Buckley's
major purpose test into the definition of ``political committee'' in 11
CFR 100.5(a). This test would have focused on whether an organization's
major purpose was the ``election of one or more Federal or non-Federal
candidates.'' See draft 11 CFR 100.5(a)(1)(ii) of Agenda Document 04-
75-A (emphasis added). Coupled with the Commission rule allowing a
political committee to report only its Federal activity, this was
designed to prevent groups from avoiding political committee status
altogether because a majority of the campaign activity is non-Federal.
The major purpose test would have been satisfied in one of two ways.
Under draft 11 CFR 100.5(a)(2), an organization described in section
527 of the Internal Revenue Code (a ``527 organization'') would have
satisfied the ``major purpose'' test just by virtue of its having
registered with the Internal Revenue Service under 26 U.S.C. 527,
unless covered by one of five enumerated exceptions. All other
organizations would have been subject to the previously existing
standards for determining their major purpose. See draft 11 CFR
100.5(a)(4) of Agenda Document 04-75-A.
The comments raise valid concerns that lead the Commission to
conclude that incorporating a ``major purpose'' test into the
definition of ``political committee'' may be inadvisable. Thus, the
Commission has decided not to adopt any of the foregoing proposals to
revise the definition of ``political committee.'' As a number of
commenters noted, the proposed rules might have affected hundreds or
thousands of groups engaged in non-profit activity in ways that were
both far-reaching and difficult to predict, and would have entailed a
degree of regulation that Congress did not elect to undertake itself
when it increased the reporting obligations of 527 groups in 2000 and
2002 and when it substantially transformed campaign finance laws
through BCRA. Furthermore, no change through regulation of the
definition of ``political committee'' is mandated by BCRA or the
Supreme Court's decision in McConnell. The ``major purpose'' test is a
judicial construct that limits the reach of the statutory triggers in
FECA for political committee status. The Commission has been applying
this construct for many years without additional regulatory
definitions, and it will continue to do so in the future.
Proposed 11 CFR 100.34, 100.115, 100.133, 100.149, 114.4--Voter Drive
Provisions
The NPRM proposed to define a new term, ``partisan voter drive,''
in proposed 11 CFR 100.34, to revise the exemption from the
``expenditure'' definition for nonpartisan voter drives in proposed 11
CFR 100.133, and to specify that the costs for partisan voter drives
are ``expenditures'' in proposed 11 CFR 100.115. Corresponding changes
were also proposed for 11 CFR 100.149 and 114.4. See NPRM at 11740-41,
11757, and 11760.
In its consideration of Final Rules, the Commission considered a
different version of these rules. Under this proposal, draft 11 CFR
100.115 would have specified that costs for certain Federal election
activities would have been ``expenditures'' when incurred by political
committees or a 527 organization. See draft 11 CFR 100.115, Agenda
Document No. 04-75-A, at 4 (Aug. 19, 2004 meeting). The exemption from
the ``expenditure'' definition for nonpartisan voter drives also would
have been revised to state that voter drives that PASO a Federal
candidate, a non-Federal candidate, or a political party can not be
considered ``nonpartisan'' exempt voter drives. See draft 11 CFR
100.133, Agenda Document No. 04-75-A, at 4-5 (Aug. 19, 2004 meeting).
The Commission rejected a motion to approve draft 11 CFR 100.115 and
revisions to current 11 CFR 100.133. The Commission determined that the
changes and additions to the allocation rules in 11 CFR 106.6 related
to voter drives that are described above sufficiently address these
issues at this time, and therefore the new and revised voter drive
rules in proposed sections 100.34, 100.115, 100.133, 100.149, and 114.4
are not needed.
Proposed 11 CFR 100.116--Certain Public Communications
FECA defines ``expenditure'' to include a payment for a
communication that is ``made * * * for the purpose of influencing any
election for Federal office.'' 2 U.S.C. 431(9)(A)(i). The NPRM proposed
to include in the definition of ``expenditure'' payments for
communications that PASO any candidate for Federal office or that
promote or oppose any political party. See proposed 11 CFR 100.116,
NPRM at 11741-42 and 11757.
In its consideration of Final Rules, the Commission considered and
rejected two different versions of this rule. One version of this rule
would have applied to public communications that PASO a clearly
identified candidate for Federal office or that PASO a political party,
but only when made by a political committee or 527 organizations. See
draft 11 CFR 100.116, Agenda Document No. 04-75-A, at 4 (Aug. 19, 2004
meeting). The second version of this rule would have been limited to
communications that PASO a clearly identified candidate, but only when
made by Federal political committees and unregistered groups that meet
Buckley's ``major purpose'' test, which was the subject of another
draft rule discussed above. See draft 11 CFR 100.115, Agenda Document
No. 04-75, at 19-23 and 42 (Aug. 19, 2004 meeting).
The Commission did not adopt a rule addressing this subject.
Without the ``major purpose'' rules, the rules addressing PASO
communications could not have been adopted in the forms considered by
the Commission.
Proposed 11 CFR 100.155--Allocated Amounts
The NPRM proposed a new regulation that would have specifically
stated that when costs are properly allocable between a Federal account
and a non-Federal account, the costs that must be paid by a Federal
account are ``expenditures'' under FECA, and the costs that may and in
fact are paid by a non-Federal account are not ``expenditures'' under
FECA. The proposed regulation was linked to proposed 11 CFR 100.115 and
100.116 regarding PASO communications and voter drives. See NPRM at
11757. The Commission considered a version of this regulation that was
broader than the version in the NPRM, in that it would have extended
this principle to any non-Federal funds disbursed pursuant to
allocation rules at 11 CFR 106.1, 106.6, 106.7, or 300.33. See draft 11
CFR 100.155, Agenda Document No. 04-75-A, at 5 (Aug. 19, 2004 meeting).
For the reasons that the Commission did not adopt draft 11 CFR 100.115
and 100.116 in Agenda Document No. 04-75-A, it also did not adopt draft
11 CFR 100.155.
Proposed 11 CFR Part 102, Subpart A--Conversion Rules
The NPRM included proposed rules to address how organizations that
become political committees after operating for some time as non-
political committee organizations would demonstrate that they used
Federally permissible funds to pay for expenditures made before
becoming political committees. The proposed rules would have included a
new subpart A in 11 CFR part 102. See NPRM at 11749-53, 11757-59. The
[[Page 68066]]
proposed rules would have required a new political committee to convert
funds received during the two years prior to the time the organization
became a political committee into Federal funds in an amount equal to
the amount of its expenditures during the same time period. To do so,
the new political committee would have been required to contact recent
donors, make certain disclosures, and seek the donors' consent to use
the funds for the purpose of influencing Federal elections. See NPRM at
11757-59.
The Commission received numerous comments in response to these
proposed changes. Although one commenter supported the proposed rules,
most commenters who addressed this topic expressed broad opposition to
the proposals. Several commenters especially disagreed with the
proposed rules that would have required political committees to look
back at past activity and repay debts of Federal money for activities
completed up to two years before the organizations became political
committees. Some commenters also opposed the specific two-step
conversion process in the proposed rules, including the requirement to
contact and obtain permission from past donors and the 60-day deadline
for converting funds to Federal funds.
In response to these comments and the Commission's further
consideration of the issued raised by the proposed rules, the
Commission has decided not to promulgate final rules establishing
subpart A of 11 CFR part 102.
Certification of No Effect Pursuant to 5 U.S.C. 605(b) (Regulatory
Flexibility Act)
The Commission certifies that the final rules do not have a
significant economic impact on a substantial number of small entities.
The final rules amend the Commission's definition of
``contribution'' to include funds received in response to certain
communications that are not expressly included in the Commission's
prior definition of ``contribution.'' For political committees, whether
a receipt qualifies as a ``contribution'' determines whether it is
subject to amount limitations and source prohibitions for Federal funds
imposed by FECA. For organizations that are not political committees,
whether a receipt is a ``contribution'' may affect whether the
organization is a political committee. New section 100.57 does not,
however, limit the overall amount of money that may be raised or spent
on electoral activity. The rule in new section 100.57 is carefully
tailored to reach communications that seek funds ``for the purpose of
influencing Federal elections,'' and includes a limited exception for
communications that refer to a non-Federal candidate, and a complete
exception for joint fundraising efforts between or among authorized
committees of Federal and non-Federal candidates. Therefore, any
economic impact on Federal and non-Federal candidate committees, some
of which might qualify as small entities, is not significant.
The final rules also revise the Commission's rules regarding the
allocation of certain disbursements between a political committee's
Federal account and non-Federal account. Thus, these revisions affect
only some political committees. As discussed in the Explanation and
Justification for revised 11 CFR 106.6(c), a review of the past ten
years of public disclosure reports filed with the FEC revealed that few
current political committees allocate their administrative expenses and
generic voter drives under former 11 CFR 106.6, and among those
political committees, many already use 50% or more as their Federal
allocation ratio. Although the new section 106.6(f) requires Federal
funds be used for certain public communications and voter drive
activities by political committees, the final rule does not limit the
overall amount of money that political committees may raise and spend
on such activity. Consequently, the final rules' changes are unlikely
to have a significant economic impact on substantial number of small
entities.
List of Subjects
11 CFR Part 100
Elections.
11 CFR Part 102
Political committees and parties, Reporting and recordkeeping
requirements.
11 CFR Part 104
Campaign funds, Political committees and parties, Reporting and
recordkeeping requirements.
11 CFR Part 106
Campaign funds, Political committees and parties, Reporting and
recordkeeping requirements.
0
For the reasons set out in the preamble, the Federal Election
Commission amends subchapter A of chapter 1 of title 11 of the Code of
Federal Regulations as follows:
PART 100--SCOPE AND DEFINITIONS (2 U.S.C. 431)
0
1. The authority citation for part 100 continues to read as follows:
Authority: 2 U.S.C. 431, 434, and 438(a)(8).
0
2. Section 100.57 is added to subpart B to read as follows:
Sec. 100.57 Funds received in response to solicitations.
(a) Treatment as contributions. A gift, subscription, loan,
advance, or deposit of money or anything of value made by any person in
response to any communication is a contribution to the person making
the communication if the communication indicates that any portion of
the funds received will be used to support or oppose the election of a
clearly identified Federal candidate.
(b) Certain allocable solicitations. If the costs of a solicitation
described in paragraph (a) of this section are allocable under 11 CFR
106.1, 106.6 or 106.7 (consistent with 11 CFR 300.33(c)(3)) as a direct
cost of fundraising, the funds received in response to the solicitation
shall be contributions as follows:
(1) If the solicitation does not refer to any clearly identified
non-Federal candidates, but does refer to a political party, in
addition to the clearly identified Federal candidate described in
paragraph (a) of this section, one hundred percent (100%) of the total
funds received are contributions.
(2) If the solicitation refers to one or more clearly identified
non-Federal candidates, in addition to the clearly identified Federal
candidate described in paragraph (a) of this section, at least fifty
percent (50%) of the total funds received are contributions, whether or
not the solicitation refers to a political party.
(c) Joint fundraisers. Joint fundraising conducted under 11 CFR
102.17 shall comply with the requirements of paragraphs (a) and (b) of
this section except that joint fundraising between or among authorized
committees of Federal candidates and campaign organizations of non-
Federal candidates is not subject to paragraph (a) or (b) of this
section.
PART 102--REGISTRATION, ORGANIZATION AND RECORDKEEPING BY POLITICAL
COMMITEES (2 U.S.C. 433)
0
3. The authority citation for part 102 continues to read as follows:
Authority: 2 U.S.C. 432, 433, 434(a)(11), 438(a)(8), 441d.
[[Page 68067]]
0
4. Section 102.5 is amended by revising paragraph (a)(1)(i) to read as
follows:
Sec. 102.5 Organizations financing political activity in connection
with Federal and non-Federal elections, other than through transfers
and joint fundraisers: Accounts and Accounting.
(a) * * *
(1) * * *
(i) Establish a separate Federal account in a depository in
accordance with 11 CFR part 103. Such account shall be treated as a
separate Federal political committee that must comply with the
requirements of the Act including the registration and reporting
requirements of 11 CFR parts 102 and 104. Only funds subject to the
prohibitions and limitations of the Act shall be deposited in such
separate Federal account. See 11 CFR 103.3. All disbursements,
contributions, expenditures, and transfers by the committee in
connection with any Federal election shall be made from its Federal
account, except as otherwise permitted for State, district and local
party committees by 11 CFR part 300 and paragraph (a)(5) of this
section. No transfers may be made to such Federal account from any
other account(s) maintained by such organization for the purpose of
financing activity in connection with non-Federal elections, except as
provided by 11 CFR 300.33, 300.34, 106.6(c), 106.6(f), and 106.7(f).
Administrative expenses for political committees other than party
committees shall be allocated pursuant to 11 CFR 106.6(c) between such
Federal account and any other account maintained by such committee for
the purpose for financing activity in connection with non-Federal
elections. Administrative expenses for State, district, and local party
committees are subject to 11 CFR 106.7 and 11 CFR part 300; or
* * * * *
PART 104--REPORTS BY POLITICAL COMMITTEES AND OTHER PERSONS (2
U.S.C. 434)
0
5. The authority citation for part 104 continues to read as follows:
Authority: 2 U.S.C. 431(1), 431(8), 431(9), 432(i), 434,
438(a)(8) and (b), 439a, 441a, and 36 U.S.C. 510.
0
6. Section 104.10 is amended by revising the introductory text in
paragraph (b) and paragraph (b)(1) to read as follows:
Sec. 104.10 Reporting by separate segregated funds and nonconnected
committees of expenses allocated among candidates and activities.
* * * * *
(b) Expenses allocated among activities. A political committee that
is a separate segregated fund or a nonconnected committee and that has
established separate Federal and non-Federal accounts under 11 CFR
102.5(a)(1)(i) shall allocate between those accounts its administrative
expenses and its costs for fundraising, generic voter drives, and
certain public communications according to 11 CFR 106.6, and shall
report those allocations according to paragraphs (b)(1) through (5) of
this section, as follows:
(1) Reporting of allocation of administrative expenses and costs of
generic voter drives and public communications that refer to any
political party. In each report disclosing a disbursement for
administrative expenses, generic voter drives, or public communications
that refer to any political party, but do not refer to any clearly
identified candidates, as described in 11 CFR 106.6(b)(1)(i),
(b)(1)(iii) and (b)(1)(iv), as applicable, the committee shall state
the allocation ratio to be applied to each category of activity
according to 11 CFR 106.6(c).
* * * * *
PART 106--ALLOCATIONS OF CANDIDATE AND COMMITTEE ACTIVITIES
0
7. The authority citation for part 106 continues to read as follows:
Authority: 2 U.S.C. 438(a)(8), 441a(b), 441a(g).
0
8. Section 106.6 is amended by:
0
a. Removing the words ``(c) and (d)'' from paragraph (a) and adding in
their place the words ``(c), (d), and (f)'';
0
b. Removing the words ``or (b)(1)(i)'' from paragraphs (a) and (e)
introductory text;
0
c. Removing the citation ``102.5(b)(1)(ii)'' from paragraph (a) and
adding in its place the citation ``102.5(a)(1)(ii)''; and
0
d. Revising paragraphs (b) and (c) and adding paragraph (f) to read as
follows:
Sec. 106.6 Allocation of expenses between federal and non-federal
activities by separate segregated funds and nonconnected committees.
* * * * *
(b) Payments for administrative expenses, voter drives and certain
public communications.
(1) Costs to be allocated. Separate segregated funds and
nonconnected committees that make disbursements in connection with
Federal and non-Federal elections shall allocate expenses for the
following categories of activity in accordance with paragraphs (c) or
(d) of this section:
(i) Administrative expenses including rent, utilities, office
supplies, and salaries not attributable to a clearly identified
candidate, except that for a separate segregated fund such expenses may
be paid instead by its connected organization;
(ii) The direct costs of a fundraising program or event including
disbursements for solicitation of funds and for planning and
administration of actual fundraising events, where Federal and non-
Federal funds are collected through such program or event, except that
for a separate segregated fund such expenses may be paid instead by its
connected organization;
(iii) Generic voter drives including voter identification, voter
registration, and get-out-the-vote drives, or any other activities that
urge the general public to register, vote or support candidates of a
particular party or associated with a particular issue, without
mentioning a specific candidate; and
(iv) Public communications that refer to a political party, but do
not refer to any clearly identified Federal or non-Federal candidate;
(2) Costs not subject to allocation. Separate segregated funds and
nonconnected committees that make disbursements for the following
categories of activity shall pay for those activities in accordance
with paragraph (f) of this section:
(i) Voter drives, including voter identification, voter
registration, and get-out-the-vote drives, in which the printed
materials or scripted messages refer to, or the written instructions
direct the separate segregated fund's or nonconnected committee's
employee or volunteer to refer to:
(A) One or more clearly identified Federal candidates, but do not
refer to any clearly identified non-Federal candidates; or
(B) One or more clearly identified Federal candidates and also
refer to candidates of a particular party or associated with a
particular issue, but do not refer to any clearly identified non-
Federal candidates;
(ii) Voter drives, including voter identification, voter
registration, and get-out-the-vote drives, in which the printed
materials or scripted messages refer to, or the written instructions
direct the separate segregated fund's or nonconnected committee's
employee or volunteer to refer to:
(A) One or more clearly identified non-Federal candidates, but do
not refer
[[Page 68068]]
to any clearly identified Federal candidates; or
(B) One or more clearly identified non-Federal candidates and also
refer to candidates of a particular party or associated with a
particular issue, but do not refer to any clearly identified Federal
candidates;
(iii) Public communications that refer to one or more clearly
identified Federal candidates, regardless of whether there is reference
to a political party, but do not refer to any clearly identified non-
Federal candidates; and
(iv) Public communications that refer to a political party, and
refer to one or more clearly identified non-Federal candidates, but do
not refer to any clearly identified Federal candidates.
(c) Method for allocating administrative expenses, costs of generic
voter drives, and certain public communications. Nonconnected
committees and separate segregated funds shall pay their administrative
expenses, costs of generic voter drives, and costs of public
communications that refer to any political party, as described in
paragraphs (b)(1)(i), (b)(1)(iii) or (b)(1)(iv) of this section, with
at least 50 percent Federal funds, as defined in 11 CFR 300.2(g).
* * * * *
(f) Payments for public communications and voter drives that refer
to one or more clearly identified Federal or non-Federal candidates.
Nonconnected committees and separate segregated funds shall pay for the
costs of all public communications that refer to one or more clearly
identified candidates, and voter drives that refer to one or more
clearly identified candidates, as described in paragraphs (b)(2)(i) and
(b)(2)(ii) of this section, as follows:
(1) The following shall be paid 100 percent from the Federal
account of the nonconnected committee or separate segregated fund:
(i) Public communications that refer to one or more clearly
identified Federal candidates, regardless of whether there is reference
to a political party, but do not refer to any clearly identified non-
Federal candidates, as described in paragraph (b)(2)(iii) of this
section; and
(ii) Voter drives described in paragraph (b)(2)(i) of this section.
(2) The following may be paid 100 percent from the non-Federal
account of the nonconnected committee or separate segregated fund:
(i) Public communications that refer to a political party and one
or more clearly identified non-Federal candidates, but do not refer to
any clearly identified Federal candidates, as described in paragraph
(b)(2)(iv) of this section; and
(ii) Voter drives described in paragraph (b)(2)(ii) of this
section.
(3) Notwithstanding 11 CFR 106.1(a)(i), public communications and
voter drives that refer to one or more clearly identified Federal
candidates and one or more clearly identified non-Federal candidates,
regardless of whether there is a reference to a political party,
including those that are expenditures, independent expenditures or in-
kind contributions, shall be allocated as follows:
(i) Public communications and voter drives, other than phone banks,
shall be allocated based on the proportion of space or time devoted to
each clearly identified Federal candidate as compared to the total
space or time devoted to all clearly identified candidates, or
(ii) Public communications and voter drives that are conducted
through phone banks shall be allocated based on the number of questions
or statements devoted to each clearly identified Federal candidate as
compared to the total number of questions or statements devoted to all
clearly identified candidates.
Dated: November 18, 2004.
Bradley A. Smith,
Chairman, Federal Election Commission.
[FR Doc. 04-25946 Filed 11-22-04; 8:45 am]
BILLING CODE 6715-01-P