[Federal Register: December 20, 2005 (Volume 70, Number 243)]
[Rules and Regulations]
[Page 75379-75385]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20de05-1]
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Rules and Regulations
Federal Register
________________________________________________________________________
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The Code of Federal Regulations is sold by the Superintendent of Documents.
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[[Page 75379]]
FEDERAL ELECTION COMMISSION
11 CFR Parts 106 and 300
[Notice 2005-27]
State, District, and Local Party Committee Payment of Certain
Salaries and Wages
AGENCY: Federal Election Commission.
ACTION: Final rules.
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SUMMARY: The Federal Election Commission is amending its rules to
revise the method by which State, district and local party committees
(collectively ``State party committees'') may pay salaries and wages of
employees who spend 25 percent or less of their compensated time in a
month on Federal election activity or activity in connection with
Federal elections (``Federal-related activity'' or ``Federal-related
activities''). These final rules implement the decision of the U.S.
Court of Appeals for the District of Columbia Circuit in Shays v. FEC,
which held that the Commission had not provided an adequate explanation
for its former rules under the Administrative Procedure Act. The
Commission is also changing its requirements regarding the method State
party committees use to pay for employees' fringe benefits and
clarifying its rules regarding the use of funds raised in joint Federal
and non-Federal fundraising events. Further information is provided in
the Supplementary Information that follows.
DATES: Effective Date: These rules are effective on January 19, 2006.
FOR FURTHER INFORMATION CONTACT: Ms. Mai T. Dinh, Assistant General
Counsel, or Mr. Anthony T. Buckley, Attorney, 999 E Street NW.,
Washington, DC 20463, (202) 694-1650 or (800) 424-9530.
SUPPLEMENTARY INFORMATION: The Bipartisan Campaign Reform Act of 2002,
Public Law 107-155, 116 Stat. 81 (2002) (``BCRA''), amended the Federal
Election Campaign Act of 1971, as amended (the ``Act''), 2 U.S.C. 431
et seq., in various respects. Under BCRA, State party committees must
pay the salaries and wages of employees who spend more than 25 percent
of their compensated time per month on Federal-related activities
entirely with Federal funds.\1\ 2 U.S.C. 431(20)(A)(iv) and 441i(b)(1).
However, BCRA does not address what type of funds State party
committees must use to pay the salaries and wages of employees who
spend some, but not more than 25 percent, of their compensated time per
month on Federal-related activities (``covered employees''). In 2002,
the Commission promulgated 11 CFR 106.7(c)(1), (c)(5) and (d)(1), and
300.33(c)(2). Under these rules, State party committees were permitted
to pay the salaries or wages of covered employees entirely with funds
that comply with State law. Id.
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\1\ ``Federal funds'' are funds that are subject to the
contribution limitations, source prohibitions, and reporting
requirements of the Act. 11 CFR 300.2(g).
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In Shays v. Federal Election Commission, 337 F. Supp. 2d 28 (D.D.C.
2004) (``Shays District''), aff'd, 414 F.3d 76 (DC Cir. 2005) (``Shays
Appeal''), reh'g en banc denied (Oct. 21, 2005) (No. 04-5352), the
District Court considered a challenge to the regulations that permitted
State party committees to use all non-Federal funds to pay the salaries
and wages of covered employees. The District Court recognized that the
Commission's interpretation of 2 U.S.C. 431(20)(A)(iv) and 441i(b)(1),
did not violate the first step of Chevron U.S.A. Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837 (1984) (``Chevron''),
because Congress had not directly spoken on this issue. However, the
District Court held that the Commission's interpretation was not a
permissible reading of the statute under step two of Chevron.\2\ Shays
District at 113-114.
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\2\ The first step of the Chevron analysis, which courts use to
review agency regulations, is whether Congress has directly spoken
to the precise questions at issue. The second step is whether the
agency's resolution of an issue not addressed in the statute is
based on a permissible construction of the statute. See Shays
District at 51-52 (citing Chevron).
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On July 15, 2005, the U.S. Court of Appeals for the District of
Columbia Circuit affirmed the District Court's ruling on this
regulation, but on different grounds. The Court of Appeals held that
the regulations addressing the salaries and wages of covered employees
survived both steps of the Chevron analysis, but that the regulation
failed for lack of a sufficient explanation under the Administrative
Procedure Act. See Shays Appeal, 414 F.3d at 112.
Before the Court of Appeals decision, the Commission issued a
Notice of Proposed Rulemaking to determine the appropriate mix of
Federal and non-Federal funds that State party committees must use to
pay the salaries and wages of covered employees. Notice of Proposed
Rulemaking on State, District and Local Party Committee Payment of
Certain Salaries and Wages, 70 FR 23072 (May 4, 2005) (``NPRM''). The
comment period closed on June 3, 2005. The Commission received comments
from nine commenters in response to this NPRM. The Commission held a
hearing on this rulemaking on August 4, 2005, at which four commenters
testified.
After the hearing, the Commission reopened the comment period until
September 29, 2005. In reopening the comment period, the Commission
noted that it was doing so ``to allow all interested persons to submit
information or comments that may be useful in this rulemaking in light
of the Court of Appeals opinion.'' Notice to Reopen Comment Period for
Rulemaking on State, District, and Local Party Committee Payment of
Certain Salaries and Wages, 70 FR 51302 (Aug. 30, 2005). Five
additional commenters submitted comments during this period. The names
of all commenters and their written comments, as well as a transcript
of the public hearing are available at http://www.fec.gov/law/law_
rulemakings.shtml#party--salaries under ``State Party Payment of
Salaries and Wages.''
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 follow were transmitted to Congress on December 14,
2005.
Explanation and Justification
The Court of Appeals' decision allows the Commission to attempt to
justify the
[[Page 75380]]
rules allowing State party committees to use wholly non-Federal funds
for the salaries and wages of covered employees. However, the decision
also indicates that a far more substantial record would be necessary to
support these regulations. Shays Appeal at 112. Here, the Court found
it ``quite plausible that wealthy donors would swallow costs for
increased state and local campaigning * * * [for] an army of workers
devoting more than a day a week to federal elections.'' Id.
Several commenters urged the Commission to retain the rules
allowing State party committees to pay the salaries and wages of
covered employees with 100% non-Federal funds. They argued that there
is no evidence of abuse or circumvention of BCRA by dividing Federal-
related activities among many employees who each devote no more than
25% of their time to Federal races. In fact, one commenter testified
that wealthy donors interested in Federal elections would not give a
penny if apprised that no more than 25% of their donation would be used
for these purposes. This commenter also urged the Commission to retain
these rules for party committees that have under seven employees
because it would be difficult for such small committees to engage in
the kind of evasion that concerned the District Court.
Thus, the record developed during this rulemaking, including the
comments submitted by the State and local party committees or their
representatives, suggests that, in general, State party committees may
face practical obstacles in trying to use the rule to circumvent BCRA
in the way the court feared. However, as explained below, the
Commission has an alternative to the former rules that addresses the
Court of Appeals' concerns about circumvention and has the virtues of
familiarity, relative ease of administration, and a reasonable
relationship to the State party committees' level of Federal-related
activities. Consequently, the Commission is not retaining the former
rules. Instead, it is amending 11 CFR 106.7 and 300.33 to require State
party committees to allocate the salaries and wages of covered
employees between their Federal and non-Federal accounts as
administrative costs.
I. Allocation of State Party Wages
A. Introduction
The NPRM presented three options for allocating the salaries and
wages of covered employees. The first proposal would adopt an
allocation method that would establish a fixed minimum of 25 percent
that a State party committee would be required to allocate to its
Federal account. The NPRM contained proposed rules only for this
approach. The second proposal in the NPRM would adopt an allocation
percentage directly proportional to the amount of compensated time an
employee spent on Federal-related activities in a given month in
relation to all compensated time in that same month. This proposal
would have resulted in different ratios for different employees.
The third proposal would follow the pre-BCRA rules by treating
salaries and wages of covered employees as administrative costs. This
proposal would subject the salaries and wages at issue to the
allocation ratios at 11 CFR 106.7(d)(2) that were developed as part of
the BCRA soft money rulemaking. For the reasons stated below, the
Commission is adopting this allocation method for the salaries and
wages of covered employees.
B. 11 CFR 106.7(c)(1) and 300.33(c)(2) Allocation of Salaries and Wages
as Administrative Costs
The Commission is amending 11 CFR 106.7(c)(1) and adding new 11 CFR
300.33(d)(1)-(3),\3\ to require that State party committees either: (1)
Allocate the salaries and wages of covered employees as administrative
expenses, or (2) pay these salaries and wages entirely from a Federal
account. Revised paragraph (c)(1) of section 106.7 sets forth these two
options. New section 300.33(d) addresses how State party committees
must pay the salaries, wages, and fringe benefits of their employees.
Revised section 300.33(d)(1) mirrors the language in revised 11 CFR
106.7(c)(1). Revised section 300.33(d)(2) requires that State party
committees pay the salaries, wages, and fringe benefits of employees
who spend more than 25% of their compensated time in a given month on
Federal-related activities with only Federal funds. New section
300.33(d)(3) states that State party committees may pay the salaries,
wages, and fringe benefits of employees who spend no time in a given
month on Federal-related activities entirely with funds that comply
with State law.\4\
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\3\ The Commission is redesignating current 11 CFR 300.33(d) as
11 CFR 300.33(e).
\4\ Section 300.33(c) is amended so that it addresses only
public communications.
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Allocation ratios for administrative costs in 11 CFR 106.7(d)(2)(i)
through (iv) were modified during the BCRA soft money rulemaking. Final
Rules on Prohibited and Excessive Contributions: Non-Federal Funds or
Soft Money, 67 FR 49064, 49079 (July 29, 2002) (``Soft Money E&J''). As
explained in the 2002 Soft Money E&J, the Commission derived the four
allocation ratios that range from 15% to 36% by taking the averages of
the previous ballot composition-based allocation percentages reported
by State party committees in four representative groupings of State
party committees representing states of varying sizes and geographic
locations. Id. This approach was designed ``to assure that activities
deemed allocable are not paid for with a disproportionate amount of
non-Federal funds.'' Id. This approach reflects the variability of
State party committee Federal spending from election cycle to election
cycle, depending on the types of Federal offices that are on the ballot
in one election cycle versus another. For example, State party
committees are required to use 15% Federal funds for administrative
expenses in election cycles where only Members of the U.S. House of
Representatives are on the ballot in those states, versus 36% when the
offices of the President and U.S. Senate are also on the ballot.
The Commission has concluded that the use of these ratios will
prevent circumvention of the soft money rules, even though the ratios
do not track precisely the number of hours worked by employees. In
addition, State party committees already use these allocation ratios
for a variety of administrative costs and they allocated their
employees' salaries and wages as administrative costs prior to BCRA's
effective date. Thus, their familiarity and experience with the
administrative costs allocation method will ease the transition and
implementation of the new rules regarding the salaries and wages of
covered employees.
The Commission received comments supporting partial application of
the administrative cost allocation method. These commenters favored
using the administrative costs ratios in election cycles other than
Presidential election cycles. They argued that it would be
inappropriate to apply Presidential election cycle allocation ratios of
28% and 36% because they would apply to employees who spend no more
than 25% of their compensated time in a given month on Federal-related
activities. The Commission disagrees that such an application would be
inappropriate.
Requiring a Federal allocation percentage that is higher than the
corresponding percentage of Federal-related activity is not
inconsistent with BCRA. Under 2 U.S.C. 431(20)(A)(iv), Congress
mandated that a person who
[[Page 75381]]
spends as little as 26% of his or her compensated time in a month on
Federal-related activities must be paid entirely with Federal funds.
Congress was silent on how State party committees should pay the
salaries and wages of covered employees. Congress was aware, however,
that at the time it enacted BCRA, State party committees were required
to allocate salaries and wages of their employees as administrative
costs. It is reasonable to conclude that Congress could have expected
that the Commission might continue to treat the salaries and wages of
covered employees as allocable administrative costs.
Another commenter objected to requiring allocation of covered
employees' salaries as administrative costs, maintaining that there is
no rational relationship between the time actually spent by employees
on Federal-election activities and the amount of Federal money required
to be used to fund those employees. Neither FECA nor BCRA requires that
the allocation ratios be precisely proportional to the amount of time
spent on Federal-related activities. It is sufficient that the
administrative costs allocation ratios generally reflect the overall
level of State party committees' Federal activity based on the
percentage of Federal candidates on the ballot.
Other commenters who opposed the administrative costs allocation
method were concerned that not enough Federal funds would be used to
pay employees who spend 25% of their compensated time per month on
Federal-related activities during any year in which no Presidential or
Senatorial candidate is on the ballot. They argued that the 15%
administrative costs allocation ratio for those years would allow State
party committees to pay the remaining 10% of the employees' compensated
time spent on Federal-related activities with non-Federal funds.
According to these commenters, this approach is inconsistent with
Congress' overall scheme of requiring Federal-related activities to be
paid for with Federal funds.
The Commission disagrees that using the administrative costs
allocation ratios is inconsistent with Congressional intent. The
average of the allocation ratios of 15%, 21%, 28% and 36% is 25%, and
the weighted average based on the frequency that State party committees
would use the various ratios over a number of election cycles is over
26%. Moreover, when there is a Presidential candidate on the ballot,
State party committees must pay the salaries and wages of covered
employees with at least 28% or 36% Federal funds, depending on whether
there is a Senatorial candidate on the ballot. Because the
administrative costs allocation ratios for State party committees will
average at least 25% over time, the allocation ratios will achieve one
of the goals of the fixed minimum 25% allocation ratio--ensuring that
over time, State party committees will use sufficient Federal funds to
pay for employee time that is spent on Federal-related activities--
without imposing a new allocation regime on State party committees.
Furthermore, the Court of Appeals suggested its approval of this
approach when it noted that ``the salary rule appears particularly
irrational given the FEC's recognition that costs for voter
registration, get-out-the-vote drives, and generic party advertising--
all matters, like salaries, that the FEA definition specifically
addresses--may require allocation even when the activities `do not
qualify' as FEA. See 11 CFR 106.7(c)(5).'' Shays Appeal at 112.
In addition to the changes to 11 CFR 106.7(c)(1) and 300.33(d),
corresponding changes are being made to two other regulations. Section
106.7(d)(1)(i) is being revised to state that these salaries and wages
must be paid wholly from the Federal account, or allocated as
administrative costs. Similarly, section 106.7(c)(5) is being amended
to make clear that the salaries and wages of covered employees are not
exempt from allocation but rather are subject to allocation as
administrative expenses. Conforming changes are also being made to 11
CFR 100.57(b), 106.7(e)(2) and 300.36(b)(2)(ii).
C. Alternative Allocation Methods
1. Minimum Allocation of 25 Percent
An alternative in the NPRM's proposed rule text would have required
State party committees either (1) to allocate at least 25% of salaries
and wages of covered employees to a Federal account, or (2) to pay
those salaries and wages entirely with funds from a Federal account.
See proposed 11 CFR 106.7(c)(1)(i) and (ii), 70 FR at 23074. As stated
in the NPRM, a minimum allocation percentage of 25% would ensure that
State party committees use Federal funds to pay for all the compensated
time covered employees spend on Federal-related activity. 70 FR at
23073. In this way, this proposal was one way to prevent circumvention
of the Act, which, according to the District Court and the Court of
Appeals, the challenged rules failed to ensure. See Shays District at
114; Shays Appeal at 112.
Some commenters supported this proposal. They asserted that setting
a fixed allocation ratio has the advantage of providing a clear and
readily administered rule that would minimize the burdens of compliance
on State party committees and simplify enforcement for the Commission.
Other commenters supported this proposal only for election cycles when
a Presidential candidate appears on the ballot. For election cycles in
which there is no Presidential race, these commenters believed that it
was more appropriate to use the same allocation ratio as is used for
administrative costs.
In contrast, some commenters objected to this proposal in its
entirety. One commenter argued that a fixed 25% allocation would
introduce another step into an already complex process and required
additional rules for determining how to manage payroll operations over
and above what is already required for administrative expense
allocation. Another commenter stated that the proposed 25% allocation
sweeps too broadly and unjustifiably interferes with the type of money
State and local committees may use to compensate their employees who
work substantially on non-Federal issues.
Although a fixed minimum 25% allocation ratio on its face appears
to be the simplest, most straightforward method for allocating salaries
and wages of covered employees, it is not, given the other regulations
that govern how State party committees pay for their disbursements and
experience with past allocation methods. State party committees are
already required to apply an allocation scheme to their administrative
costs if they do not use 100% Federal funds. Moreover, before BCRA's
enactment, State party committees were required to allocate their
employees' salaries and wages as administrative costs if they did not
use entirely Federal funds. By including the salaries and wages of
covered employees as administrative costs, State party committees will
use an allocation scheme with which they are familiar and have
experience applying. The fixed minimum 25% allocation method would
subject State party committees to an additional and different
allocation ratio that would apply to only one category of their
disbursements for which they would have to monitor, maintain records
and report on a different form. To avoid creating yet another
allocation method for State party committees to apply, the Commission
is not adopting a fixed allocation ratio of 25% for salaries and wages
of covered employees.
[[Page 75382]]
2. Allocation Directly Proportional to Amount of Time Worked
This proposal would adopt an allocation percentage for salaries and
wages of covered employees directly proportional to the amount of
compensated time these employees spend on Federal-related activities in
a given month in relation to all compensated time in that same month.
This proposal would probably have required State parties to use
different percentages for different employees in a given month. The
percentages would also be expected to vary for each employee from month
to month.
Most commenters agreed that a direct proportionality allocation
scheme would be complicated, would require additional recordkeeping
that could be burdensome, and would be difficult to track, report, and
enforce. The commenters who supported this method only did so to the
extent that this method would be an optional method available to State
party committees in lieu of another allocation method adopted by the
Commission.
State party committees must maintain logs of employee time spent on
Federal-related activities under current 11 CFR 106.7(d)(1). These same
logs could serve as the basis for allocating these employees salaries
and wages between Federal and non-Federal funds. While in most cases
such a method could be expected to produce an allocation that most
closely matches the proportion of employees' time spent on Federal-
related activities, it suffers from a number of practical deficiencies.
Under the current system, the logs only serve to distinguish covered
employees from those over the 25% threshold. This division has legal
consequences, while the particular percentage does not.
It would also introduce into the allocation scheme for State party
committees the problems with computing complicated allocation ratios
that the Commission sought to eliminate for SSFs and nonconnected
committees when it amended the allocation regulations in 11 CFR 106.6.
See Final Rules on Political Committee Status, Definition of
Contribution, and Allocation for Separate Segregated Funds and
Nonconnected Committees, 69 FR 68056, 68059 (Nov. 23, 2004). When the
Commission examined the allocation scheme for SSFs and nonconnected
committees, it found that it was difficult for these committees to
calculate a precise ratio because the calculation was based on
predicting accurately the amount of time spent on certain activities.
The calculation was further complicated when these committees predicted
incorrectly the amount they spent on certain activities.
Based on the comments and Commission experience with allocation
methods, an allocation method directly proportional to the amount of
time worked would be complex and likely to engender confusion, and
would be unduly burdensome to State party committees. For these
reasons, the Commission is not adopting this allocation method.
D. Employees Who Spend No Compensated Time on Federal-Related
Activities
In the NPRM, the Commission stated that it is continuing to
interpret BCRA as allowing committees to pay the salaries and wages of
employees who spend no time in a given month on Federal-related
activities entirely with non-Federal funds. All commenters who
addressed this issue supported this interpretation. Some of these
commenters recommended that the Commission incorporate this
interpretation into its regulations, as some committees might otherwise
interpret the Commission's regulations as requiring them to allocate
such salaries and wages. Consequently, the Commission is adding new 11
CFR 106.7(d)(1)(iii), which states that, notwithstanding section
106.7(d)(1)(i), salaries and wages paid for employees who spend none of
their compensated time in a given month on Federal election activities
or activities in connection with a Federal election may be paid
entirely with non-Federal funds.
II. Allocation of Fringe Benefits of Employees
The NPRM also sought comment on whether the methods for allocating
salaries and wages should be applied to fringe benefits of employees.
Specifically, the NPRM sought comment on whether the rules should be
amended to permit, but not require, State party committees to use the
same allocation rules for fringe benefits as are used for salaries and
wages, instead of allocating fringe benefits as administrative costs.
In Advisory Opinion (``AO'') 2003-11, the Commission advised a State
party committee that it may pay the costs of fringe benefits for
covered employees with non-Federal funds. Fringe benefits were
described by the State party committee as medical, dental, and
prescription drug insurance coverage; coverage for short-term
disability (wage loss) and long-term disability insurance benefits;
coverage for life insurance benefits; and employer matching
contributions to the 401(k) retirement plan. The Commission determined
in AO 2003-11 that amounts spent on fringe benefits fell into the
category of compensated time, and thus concluded that the State party
committee could use entirely non-Federal funds to pay for the fringe
benefits under the rules for payment of salaries and wages that were in
effect at that time.
Some commenters urged the Commission to give State party committees
the option of treating fringe benefits as administrative costs, while
other commenters urged the Commission to treat fringe benefits as
compensated time.
Because the salaries and wages of covered employees are treated as
administrative costs under the revised rules at 11 CFR 106.7(c)(1) and
(d)(1)(i), and fringe benefits are a form of compensation, it is
appropriate for State party committees to treat fringe benefits for
covered employees as administrative costs. Accordingly, State party
committees must now treat fringe benefits as they would salaries and
wages, depending on the time spent per month on Federal-related
activities: Either by paying for them entirely from the Federal
account, or by allocating the costs of the fringe benefits as
administrative costs. Consistent with the new rules' approach to
salaries and wages, the fringe benefits of employees who spend no time
in a month on Federal-related activity may be paid with funds that
comply with State law. Revised 11 CFR 106.7(c)(1) and 106.7(d)(1), and
new 11 CFR 300.33(d) reflect that salaries, wages, and fringe benefits
are treated the same. AO 2003-11 is hereby superseded to the extent it
stated that State party committees may pay for fringe benefits of
covered employees entirely with non-Federal funds.
III. Use of Funds Raised Through Joint Federal and Non-Federal
Fundraising Events
The NPRM sought comment on whether to amend 11 CFR 106.7(c)(4) to
clarify that Federal funds raised through a joint fundraising activity
or a joint fundraiser (collectively ``joint fundraiser'') may be used
for Federal election activity.\5\ The statutory basis for section
106.7(c)(4) is 2 U.S.C. 441i(c), which reads: ``An amount spent by a
[national committee of a political party or a State party committee] to
raise funds that are used, in whole or in part, for expenditures and
disbursements for
[[Page 75383]]
a Federal election activity shall be made from funds subject to the
limitations, prohibitions, and reporting requirements of this Act.'' In
AO 2004-12, the Commission determined that a State party committee
could pay for Federal election activity with Federal funds raised at
events where the costs of such events had been paid for with a
combination of Federal and non-Federal funds, allocated through the use
of the funds received method. See 11 CFR 106.6(d).
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\5\ Joint fundraisers include events where a State party
committee raises both Federal and non-Federal funds on its own, or
together with another organization under 11 CFR 102.17.
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Some commenters supported amending the rule to reflect the
interpretation in AO 2004-12. These commenters argued that the current
regulation, strictly interpreted, would have required State party
committees to pay all of their fundraising expenses with Federal
dollars in order to use the Federal funds raised at a fundraiser to pay
for Federal election activities. These commenters asserted that such a
result was unduly burdensome for, and unfair to, State party
committees. Other commenters who opposed any revision argued that the
regulation ``captures one of the essential elements of BCRA: to provide
for clear separation between hard money and soft money for the funds to
be used by state parties for Federal election activities.'' They
asserted that 2 U.S.C. 441i(c) mandates such a rule and interpretation.
The Commission disagrees that 2 U.S.C. 441i(c) requires this
construction. The Commission interprets the statute to require only
that the costs of raising Federal funds to pay for Federal election
activities must be paid for with Federal funds. Allocation and the use
of the funds received method accomplish this because they ensure that
Federal funds are used to raise Federal funds. Indeed, with respect to
the funds received method, the Commission has previously noted that it
``provides the most accurate basis for division of [fundraising]
costs.'' Explanation and Justification on Methods of Allocation Between
Federal and Nonfederal Accounts; Payments; Reporting, 55 FR 26058,
26065 (June 26, 1990).
Further, interpreting 2 U.S.C. 441i(c) to mandate special
fundraising rules when raising Federal funds for Federal election
activity would result in an anomalous treatment of Federal funds raised
at joint fundraisers. Under this interpretation, State party committees
could not use Federal funds raised at a joint fundraiser to pay for
Federal election activities directly, but they could transfer the
Federal funds to the national party committee to pay for Federal
election activities in their own states; they could also transfer
Federal funds to other State party committees to pay for their Federal
election activities.
Furthermore, this interpretation of 2 U.S.C. 441i(c) would create a
new class of Federal funds that must be used to pay for Federal
election activity. This new class of Federal funds would be subject to
fundraising restrictions that would not be applicable to other Federal
funds including those used to make direct contributions to Federal
candidates. The Commission does not believe that Congress intended
these anomalous results.
In order to avoid any confusion concerning fundraising costs, the
Commission is amending 11 CFR 106.7(c)(4) to state specifically that
State party committees may allocate the direct costs of joint
fundraising between their Federal and non-Federal accounts according to
the funds received method described in 11 CFR 106.7(d)(4). All other
statements in section 106.7(c)(4) suggesting otherwise are being
deleted.
Corresponding changes are being made to other Commission
regulations. Section 106.7(e)(4) and the contents of section
300.33(c)(3) are being removed, because neither indicates that direct
costs of fundraising may be allocated. Also, section 300.32(a)(3) is
being amended to state that State party committees that raise Federal
and non-Federal funds at a joint fundraiser, where the Federal funds
raised are to be used for Federal election activity, must either pay
the direct costs of the fundraiser entirely with Federal funds, or must
allocate the costs according to the funds received method. That rule is
also being revised to state explicitly that if a State party committee
raises only Federal funds at a fundraising activity it must pay the
entire direct costs of the fundraising activity with Federal funds. The
language in amended section 300.32(a)(3) closely tracks the new
language at section 106.7(c)(4).
The Commission is also amending the description in 11 CFR
106.7(c)(4) of what is included in the direct costs of fundraising to
conform to the descriptions at 11 CFR 106.6(b)(1)(ii) and 300.32(a)(3).
This amendment is not a substantive change; rather, the Commission
seeks to avoid any potential confusion by having two different
descriptions of ``direct costs of fundraising'' in its regulations.
IV. Additional Issues
A commenter urged the Commission to address three issues not
discussed in the NPRM. These issues are: (1) Establishing a payroll
holding account into which both Federal and non-Federal funds are
deposited for the sole purpose of transmitting payroll through a
payroll company; (2) permitting allocation of fundraising costs among
Federal, non-Federal and Levin accounts; and (3) providing guidance on
how State party committees should remedy a situation in which they make
a mistake in estimating the amount of time an employee spends on
Federal-related activities. The first two issues are beyond the scope
of this rulemaking.
Regarding the third issue, the commenters noted that some State
party committees are required to pay their salaries, wages, and fringe
benefits in advance because of their vendor contracts or payroll
systems. Thus, these State party committees must estimate whether
particular employees will spend more or less than 25 percent of their
compensated time on Federal-related activity, and that these estimates
are sometimes wrong. As a result, salaries, wages, and fringe benefits
for employees may sometimes be prepaid with an allocable mix of Federal
and non-Federal funds (under the new rule), when they should be prepaid
entirely with Federal funds. Conversely, the salaries, wages, and
fringe benefits for other employees might be prepaid entirely with
Federal funds when they could have been paid with an allocable mix of
Federal and non-Federal funds. The commenter sought guidance on how a
State party committee could remedy these situations after the fact.
Commission regulations at 11 CFR 106.7(f) govern transfers from a
non-Federal to a Federal account, or from Federal and non-Federal
accounts to an allocation account, to cover allocable expenses. When a
State party committee uses a Federal or allocation account to prepay
salaries, wages, and fringe benefits and later determines that these
amounts could have been paid from a non-Federal account, i.e. the
salaries, wages, and fringe benefits for covered employees, the non-
Federal account may reimburse the Federal account or the allocation
account within the 70-day time window in that rule. In contrast, the
salaries, wages, and fringe benefits of employees who spend more than
25 percent of their compensated time per month on Federal-related
activity are not allocable expenses and must be paid for entirely out
of the Federal account. When a State party committee uses a non-Federal
or allocation account to prepay salaries, wages, and fringe benefits
and later determines that these amounts must have been paid for from a
Federal account, current regulations do not contemplate that the
Federal account can reimburse the non-Federal account or allocation
account within the 70-day time window. While the Commission may
consider such a
[[Page 75384]]
transfer a mitigating factor, the use of non-Federal funds to prepay
salaries, wages, and fringe benefits that are required to be paid for
with Federal funds is impermissible under Commission regulations.
Certification of No Effect Pursuant to 5 U.S.C. 605(b) [Regulatory
Flexibility Act]
The Commission certifies that the attached final rules will not
have a significant economic impact on a substantial number of small
entities. The basis for this certification is that the organizations
affected by these final rules are State, district, and local party
committees, which are not ``small entities'' under 5 U.S.C. 601. These
not-for-profit committees do not meet the definition of ``small
organization,'' which requires that the enterprise be independently
owned and operated and not dominant in its field. 5 U.S.C. 601(4).
State party committees are not independently owned and operated because
they are not financed and controlled by a small identifiable group of
individuals, and they are affiliated with the larger national political
party organizations. In addition, the State party committees of the
Democratic and Republican parties have a major controlling influence
within the political arena of their State and are thus dominant in
their field. District and local party committees are generally
considered affiliated with the State party committees and need not be
considered separately. To the extent that any State party committees
representing minor political parties might be considered ``small
organizations,'' the number affected by these final rules is not
substantial.
List of Subjects
11 CFR Part 106
Campaign funds, political committees and parties, reporting and
recordkeeping requirements.
11 CFR Part 300
Campaign funds, nonprofit organizations, political committees and
parties, political candidates, reporting and recordkeeping
requirements.
0
For the reasons set out in the preamble, Subchapters A and C of Chapter
1 of title 11 of the Code of Federal Regulations are amended as
follows:
PART 100--SCOPE AND DEFINITIONS
0
1. The authority citation for part 100 continues to read as follows:
Authority: 2 U.S.C. 431, 434, and 438(a)(8).
Sec. 100.57 [Amended]
0
2. In Sec. 100.57, amend paragraph (b) introductory text by removing
``(consistent with 11 CFR 300.33(c)(3))''.
PART 106--ALLOCATIONS OF CANDIDATE AND COMMITTEE ACTIVITIES
0
3. The authority citation for part 106 continues to read as follows:
Authority: 2 U.S.C. 438(a)(8), 441a(b), 441a(g).
0
4. Section 106.7 is amended by:
0
a. Revising paragraphs (c)(1), (c)(4), (c)(5), (d)(1)(i), and
(d)(1)(ii):
0
b. Adding paragraph (d)(1)(iii);
0
c. Removing ``300.33(c)(2)'' in paragraph (e)(2) and adding in its
place ``300.33(d)(2)'; and
0
d. Removing paragraph (e)(4).
Revisions and additions read as follows:
Sec. 106.7 Allocation of expenses between Federal and non-Federal
accounts by party committees, other than for Federal election
activities.
* * * * *
(c) Costs allocable by State, district, and local party committees
between Federal and non-Federal accounts.
(1) Salaries, wages, and fringe benefits. State, district, and
local party committees must either pay salaries, wages, and fringe
benefits for employees who spend 25% or less of their time in a given
month on Federal election activity or activity in connection with a
Federal election with funds from their Federal account, or with a
combination of funds from their Federal and non-Federal accounts, in
accordance with paragraph (d)(2) of this section. See 11 CFR
300.33(d)(1).
* * * * *
(4) Certain fundraising costs. State, district, and local party
committees may allocate the direct costs of joint fundraising programs
or events between their Federal and non-Federal accounts according to
the funds received method described in paragraph (d)(4) of this
section. The direct costs of a fundraising program or event include
expenses for the solicitation of funds and for the planning and
administration of actual fundraising programs and events.
(5) Voter-drive activities that do not qualify as Federal election
activities and that are not party exempt activities. Expenses for voter
identification, voter registration, and get-out-the-vote drives, and
any other activities that urge the general public to register or vote,
or that promote or oppose a political party, without promoting or
opposing a candidate or non-Federal candidate, that do not qualify as
Federal election activities and that are not exempt party activities,
must be paid with Federal funds or may be allocated between the
committee's Federal and non-Federal accounts.
(d) Allocation percentages, ratios, and record-keeping.
(1) * * *
(i) Except as provided in paragraph (d)(1)(iii) of this section,
salaries, wages, and fringe benefits paid for employees who spend 25%
or less of their compensated time in a given month on Federal election
activities or on activities in connection with a Federal election must
either be paid only from the Federal account or be allocated as
administrative costs under paragraph (d)(2) of this section.
(ii) Salaries, wages, and fringe benefits paid for employees who
spend more than 25% of their compensated time in a given month on
Federal election activities or on activities in connection with a
Federal election must be paid only from a Federal account. See 11 CFR
300.33(d)(1), and paragraph (e)(2) of this section.
(iii) Salaries, wages, and fringe benefits paid for employees who
spend none of their compensated time in a given month on Federal
election activities or on activities in connection with a Federal
election may be paid entirely with funds that comply with State law.
* * * * *
PART 300--NON-FEDERAL FUNDS
0
5. The authority citation for part 300 continues to read as follows:
Authority: 2 U.S.C. 434(e), 438(a)(8), 441a(a), 441i, 453.
0
6. Section 300.32 is amended by revising paragraph (a)(3) to read as
follows:
Sec. 300.32 Expenditures and disbursements.
(a) Federal funds. * * *
(3) State, district, and local party committees that raise Federal
funds through an activity where only Federal funds are raised, must pay
the direct costs of such fundraising only with Federal funds. State,
district, and local party committees that raise Federal funds and non-
Federal funds through a joint fundraising activity under 11 CFR
106.7(d)(4) or a joint fundraiser under 11 CFR 102.17, where the
Federal funds are to be used, in whole or in part, for Federal election
activities, must either pay the direct costs of such fundraising only
with Federal funds or allocate the direct costs in accordance with the
funds received method described in 11 CFR 106.7(d)(4). The direct costs
of a
[[Page 75385]]
fundraising program or event include expenses for the solicitation of
funds and for the planning and administration of actual fundraising
programs and events.
* * * * *
0
7. Section 300.33 is amended by:
0
a. Revising paragraph (c);
0
b. Redesignating paragraph (d) as paragraph (e) and removing
``(d)(2)(i)'' and adding ``(e)(2)(i)'' in its place in newly designated
paragraph (e)(2)(ii); and
0
c. Adding new paragraph (d).
Revisions and additions read as follows:
Sec. 300.33 Allocation of costs of Federal election activity.
* * * * *
(c) Costs of public communications. Expenditures for public
communications as defined in 11 CFR 100.26 by State, district, and
local party committees and organizations that refer to a clearly
identified candidate for Federal office and that promote, support,
attack, or oppose any such candidate for Federal office must not be
allocated between or among Federal, non-Federal, and Levin accounts.
Only Federal funds may be used.
(d) Costs of salaries, wages, and fringe benefits.
(1) Except as provided in paragraph (d)(3) of this section,
salaries, wages, and fringe benefits paid for employees who spend 25%
or less of their compensated time in a given month on Federal election
activities or on activities in connection with a Federal election must
either be paid only from the Federal account or be allocated as
administrative costs under 11 CFR 106.7(d)(2).
(2) Salaries, wages, and fringe benefits paid for employees who
spend more than 25% of their compensated time in a given month on
Federal election activities or on activities in connection with a
Federal election must be paid only from a Federal account.
(3) Salaries, wages, and fringe benefits paid for employees who
spend none of their compensated time in a given month on Federal
election activities or on activities in connection with a Federal
election may be paid entirely with funds that comply with State law.
See 11 CFR 106.7(c)(1) and (d)(1).
* * * * *
Sec. 300.36 [Amended]
0
8. In Sec. 300.36, amend paragraph (b)(2)(ii) by removing ``(d)'' and
adding in its place ``(e)''.
Dated: December 14, 2005.
Scott E. Thomas,
Chairman, Federal Election Commission.
[FR Doc. 05-24249 Filed 12-19-05; 8:45 am]
BILLING CODE 6715-01-P