[Federal Register Volume 63, Number 241 (Wednesday, December 16, 1998)]
[Proposed Rules]
[Pages 69524-69537]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33316]



[[Page 69523]]

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Part VI





Federal Election Commission





_______________________________________________________________________



11 CFR Part 9003 et al.



Public Financing of Presidential Primary and General Election 
Candidates; Proposed Rule

  Federal Register / Vol. 63, No. 241 / Wednesday, December 16, 1998 / 
Proposed Rules  

[[Page 69524]]



FEDERAL ELECTION COMMISSION

11 CFR Parts 9003, 9004, 9007, 9008, 9032, 9033, 9034, 9035, 9036 
and 9038

[Notice 1998-18]


Public Financing of Presidential Primary and General Election 
Candidates

AGENCY: Federal Election Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Election Commission requests comments on proposed 
changes to its rules governing publicly financed Presidential primary 
and general election candidates. These regulations implement the 
provisions of the Presidential Election Campaign Fund Act (``Fund 
Act'') and the Presidential Primary Matching Payment Account Act 
(``Matching Payment Act''), which establish eligibility requirements 
for Presidential candidates seeking public financing, and indicate how 
funds received under the public financing system may be spent. They 
also require the Commission to audit publicly financed campaigns and 
seek repayment where appropriate. The proposed rules reflect the 
Commission's experience in administering this program during the 1996 
election cycle and also seek to anticipate some questions that may 
arise during the 2000 Presidential election cycle. No final decisions 
have been made by the Commission on any of the proposed revisions in 
this Notice. Further information is provided in the supplementary 
information which follows.

DATES: Comments must be received on or before February 1, 1999.

ADDRESSES: All comments should be addressed to Ms. Susan E. Propper, 
Assistant General Counsel, and must be submitted in either written or 
electronic form. Written comments should be sent to the Federal 
Election Commission, 999 E Street, N.W., Washington, D.C. 20463. Faxed 
comments should be sent to (202) 219-3923, with printed copy follow up. 
Electronic mail comments should be sent to [email protected]. 
Commenters sending comments by electronic mail should include their 
full name and postal service address within the text of their comments. 
Electronic comments that do not contain the full name, electronic mail 
address and postal service address of the commenter will not be 
considered.
FOR FURTHER INFORMATION CONTACT: Ms. Susan E. Propper, Assistant 
General Counsel, or Ms. Rosemary C. Smith, Senior Attorney, at (202) 
694-1650 or toll free (800) 424-9530.

SUPPLEMENTARY INFORMATION: The Commission is considering revising parts 
of its regulations governing the public financing of Presidential 
campaigns, 11 CFR parts 9001 through 9039, to more effectively 
administer the public financing program during the year 2000 election 
cycle. These rules implement 26 U.S.C. 9001 et seq. and 26 U.S.C. 9031 
et seq. The Commission is publishing this Notice of Proposed Rulemaking 
to invite comments on the amendments proposed.
    Please note that some revisions would affect only primary elections 
or only general elections, while other changes would affect both. The 
discussion of these proposals which follows is arranged by topic. 
However, the draft rules, themselves, are set out in numerical order.

A. Coordination Between Publicly Funded Presidential Candidates and 
Their Political Parties

    The 1996 election cycle gave rise to a number of instances in which 
national party committees conducted advertising campaigns and other 
activities focused on the party's presumptive Presidential nominee. The 
acceleration of the primary schedule makes it quite likely that parties 
will again face a situation in 2000 in which the likely nominees are 
known well in advance of the nominating conventions, and in which those 
likely nominees may have reached or nearly reached their pre-nomination 
spending limits under 2 U.S.C. 441a(b)(1)(A). In 1996, the national 
committees of the two major political parties are alleged to have made 
impermissible contributions to their Presidential candidates by 
coordinating extensive advertising campaigns, sharing polling data, and 
bearing expenses for advertising, staff, consultants, travel, polling 
and other services intended to benefit their presumptive nominees. 
Section 441a(d) of the FECA limits the amount party committees may 
spend on the general election campaigns of their Presidential nominees 
regardless of whether those nominees accept federal funds for either 
their primary or general election campaigns. In the past, the 
Commission has permitted coordinated expenditures to be made before the 
date of the primary election. While not prejudging decisions related to 
those 1996 allegations, the Commission wishes to solicit comments on 
rules to provide clearer guidance on political party activities 
coordinated with or related to their presumptive presidential nominees, 
and on proposals to provide some relief to presidential candidates who 
may have both secured the nomination and reached their spending limit 
for the primary well in advance of the party convention. Please note, 
however, that specific proposals are not reflected in the attached 
rules which follow. The effect of party committee coordinated 
activities on their publicly funded candidates' repayment obligations 
is discussed in part E, below.
    On May 5, 1997, the Commission issued a Notice of Proposed 
Rulemaking to address a wide variety of issues involving coordinated 
expenditures and independent expenditures, including those made on 
behalf of Congressional candidates. See Notice of Proposed Rulemaking, 
62 F.R. 24367 (May 5, 1997). That rulemaking, which was initiated in 
response to a petition for rulemaking, is still pending.

1. Relief for Presumptive Nominees Who Have Reached Their Spending 
Limits

    The Commission is without authority to relax or expand pre-
nomination spending limits applicable to Presidential candidates 
receiving primary or general election funding. The Commission does, 
however, offer for comment a proposal to permit national committees of 
political parties to raise and spend funds on behalf of a presumptive 
nominee when, in the party's determination, the identity of the nominee 
is clear. However, any such expenditures would count against the 
party's general election coordinated spending limit, and funds would 
have to be raised and spent in compliance with rules otherwise 
applicable to such coordinated party spending. E.g. 2 U.S.C. 441a(d) 
and 11 CFR 110.7. Even in the event that a party nominates a person 
other than a presumptive nominee in whose behalf coordinated 
expenditures were made, any pre-convention party spending in behalf of 
any presidential candidate will be counted against that party's 
coordinated expenditure limit for the general election.

2. Standards for Allocating Spending by Political Parties Related to 
the Party's Publicly-Funded Presidential Candidates

    In Colorado Republican Federal Campaign Committee v. Federal 
Election Commission, 518 U.S. 604 (1996), the Supreme Court ruled that 
party expenditures which are not coordinated with candidates cannot be 
construed to be contributions to a candidate. The plurality opinion 
noted explicitly, however, ``Since this case involves only the 
provision [limiting party expenditures] concerning congressional races, 
we do not address

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issues that might grow out of the public funding of Presidential 
campaigns.'' Id. at 612. Furthermore, the most significant 
controversies over 1996 party activities involve activities which were 
alleged to be coordinated with Presidential candidates or campaigns, 
but which, the political parties argue, may be exempt from the 
definition of expenditure under section 431(9) of the FECA.
    The public funding provisions of Title 26, United States Code, were 
intended to limit spending by publicly funded Presidential candidates, 
and by their party committees. Those provisions also provide for, and 
indeed presuppose coordination between parties and their nominees. As a 
result, the Commission wishes to obtain comment on the proposals 
described below, which are intended to clarify what activities of 
political parties will be considered expenditures on behalf of 
Presidential nominees or candidates for nomination.

3. Advertising Which Clearly Identifies a Presidential Candidate

    Under the proposal, expenses by a political party for ``general 
public political advertising'' (see 11 CFR 110.11) which clearly 
identifies a Presidential candidate who has accepted public funding 
pursuant to 11 CFR Part 9004 or Part 9034 will be considered to be 
expenditures in behalf of that candidate unless the following three 
conditions are met: (1) The advertisement is focused on a legislative 
or public policy issue; (2) The advertisement is addressed to an 
audience that would normally be affected by the legislation or proposal 
(e.g. ads on proposals in a particular state would not normally be 
addressed to residents of a different state); and (3) Mention of a 
candidate in the advertisement is incidental and related to the 
candidate's role as sponsor, proponent, or leading opponent to the 
proposal (e.g. ``the President's plan'' or ``the Smith bill''). Costs 
for advertisements which identify multiple candidates would continue to 
be allocated pursuant to 11 CFR 106.1.
    Costs for general public political advertising by a political party 
which clearly identify a Presidential candidate of another party 
(except under the incidental mention/legislative or public policy 
exemption above) would be considered to be expenditures in behalf of 
the sponsoring party's nominee or eventual nominee, whether or not such 
nominee accepts public funds for either the primary or the general 
election or both.
    The Commission also solicits comments on whether a standard other 
than ``clearly identified candidate,'' such as express advocacy or 
electioneering message, should be applied to determine when advertising 
by a political party should be treated as an expenditure in behalf of a 
publicly funded Presidential candidate.

4. Polling, Media Production and Consulting Services

    Comments are also sought as to whether the Commission should issue 
new regulations to provide that spending by a political party for 
polling, media production or consulting services shall be considered to 
be coordinated expenditures in behalf of a publicly funded Presidential 
candidate under either of the following two conditions: (1) Such 
activities are carried on jointly and/or costs are shared between the 
party and a candidate under a single contract or arrangement; or (2) 
Polling, scripts or other contract deliverables relate to a clearly 
identified candidate, and either: (a) The results of the polling or 
other services are provided to the Presidential campaign, its employees 
or agents (except for polling in which questions about a Presidential 
candidate(s) are only one of numerous issues and for which the 
Presidential candidate is not the principal focus); or,
    (b) The candidate, campaign, employees or agents are consulted in 
advance about the contract or services, including polling questions, 
scripts or other deliverables.

5. Transfer or Sharing of Employees

    In addition, the Commission requests comments on whether to 
promulgate rules providing that spending by a political party for 
salary, travel and expenses of employees who, during the same election 
cycle have been employees of a publicly funded Presidential campaign, 
shall be considered to be expenditures in behalf of the Presidential 
candidate. However, any such rules would contain two exceptions to 
cover situations where either the Presidential candidate is no longer 
an active candidate under 11 CFR 9033.5 or the employee's duties are 
substantially different than those performed for the Presidential 
candidate.

B. Qualified Campaign Expenses

1. ``Bright Line'' Distinction Between Primary and General Election 
Expenses

    The Fund Act, the Matching Payment Act, and the Commission's 
regulations require that publicly financed Presidential candidates use 
primary election funds only for expenses incurred in connection with 
primary elections, and that they use general election funds only for 
general election expenses. 26 U.S.C. 9002(11), 9032(9); 11 C.F.R. 
9002.11 and 9032.9. These requirements are necessary to effectuate the 
spending limits for both the primary and the general election, as set 
forth at 2 U.S.C. 441a(b) and 26 U.S.C. 9035(a). See also 11 CFR 
110.8(a) and 9035.1(a)(1).
    In 1995, the Commission promulgated 11 CFR 9034.4(e) to provide 
more specific guidance as to which expenses should be attributed to a 
candidate's primary campaign and which ones should be considered 
general election expenses. This provision specifies that the costs of 
goods or services used exclusively for the primary must be attributed 
to the primary. Similarly, any expenditures for goods or services used 
exclusively for the general election must be attributed to the general 
election. The revisions to the regulations also established a number of 
specific attribution rules for expenses such as polling, travel, media 
production and distribution costs, etc., which are largely based on the 
timing of the expenditure. One of the primary purposes of these rules 
was to eliminate much of the time-and labor-intensive work of examining 
thousands of individual expenditures, thereby helping to streamline the 
audit process. While there may be situations in which the bright line 
approach may not accurately reflect the relative impact of specific 
expenditures, these differences should balance themselves out over the 
course of a lengthy campaign. During the last Presidential election 
cycle, several questions were raised regarding the application of these 
``bright line'' rules. Accordingly, the Commission seeks comments on 
the following proposed modifications to and clarifications of these 
provisions.
    First, a sentence would be added to paragraph (e)(1) of section 
9034.4 to clarify which provisions apply to expenditures for goods and 
services that are used in both a candidate's primary and general 
election campaigns. With some exceptions, expenditures for goods or 
services that may benefit both the primary and the general election 
campaigns must be attributed on the basis of whether they were used 
before or after the candidate received the nomination.
    Second, paragraph (e)(3) of section 9034.4 would be modified to 
resolve questions that have come up regarding the cost of the use of 
campaign offices prior to the candidate's nomination. Currently, such 
expenses must be attributed to the primary election unless the office 
is used by persons working exclusively on general election

[[Page 69526]]

preparations. ``Exclusive use'' is not defined in the rules, and 
questions have been raised as to whether the term means several hours, 
or days, or weeks. The draft rules which follow would change this 
exception so that it would apply to periods when the campaign office is 
used only by persons working ``full time'' on general election campaign 
preparation. In the alternative, comments are sought on dropping this 
exclusive use exception with regard to overhead and salary expenses. 
The general rule regarding overhead and payroll expenses would also be 
reworded for purposes of clarification.
    Please note that other issues involving the transfer or sale of 
assets from a federally financed candidate's primary election committee 
to the general election committee are discussed below.

2. Winding Down Costs

    The regulations at 11 CFR 9034.4(a)(3) permit candidates to receive 
contributions and matching funds, and to make disbursements, for the 
purpose of defraying winding down costs over an extended period after 
the candidate's date of ineligibility (``DOI''). However, after the 
implementation of the ``bright line'' rules in 1995, questions have 
arisen as to whether all salary and overhead incurred after the date of 
the candidate's nomination must be attributed to the general election, 
including those associated with winding down the primary campaign. See 
11 CFR 9034.4(d)(3). Accordingly, the Commission seeks comments on 
revising section 9034.4(a)(3)(i) and (iii) to clarify that for 
candidates who win their parties' nominations, no salary and overhead 
expenses may be treated as winding down costs until after the end of 
the expenditure report period, which is thirty days after the general 
election takes place. This clarification would recognize that under the 
``bright line rules,'' the costs incurred for winding down the primary 
campaign during the general election period will be offset by pre-
convention general election expenses.

C. Compliance and Fundraising Costs

1. Legal and Accounting Costs for the Primary Election

    The rules at 11 CFR 9035.1(c)(1) currently set forth an exemption 
from the overall spending limit for legal and accounting compliance 
costs incurred by federally financed Presidential primary committees. 
To claim this exemption, campaign committees must keep detailed records 
of salary and overhead expenses, including records indicating which 
duties are considered compliance and the percentage of time each person 
spends on such activities. The Commission is considering amending this 
regulation to provide a simpler and easier method of calculating the 
compliance exemption. Proposed paragraph (c)(1) of section 9035.1 would 
state that an amount equal to 10% of all operating expenditures for 
each report period may be treated as compliance expenses not subject to 
the candidate's spending limit. This ``standard deduction'' could be 
readily derived from line 23, Operating Expenses, on the committee's 
reports. Note that the proposed rule would not permit committees to 
demonstrate that they have actually incurred a higher amount. The 
change in the regulations is intended to decrease the time it takes for 
the Commission to verify compliance costs during the audit process. It 
should also reduce the resources campaign committees must devote to 
tracking compliance costs.
    Please note that the Commission is also proposing to modify the 
title of section 9035.1 and to add subheadings for each paragraph to 
assist readers in locating the material in this section more easily.

2. Pre-nomination Formation of a General Election Legal and Accounting 
Compliance Fund (GELAC)

    Currently, section 9003.3 contemplates that a nominee of a major 
political party who accepts public financing may establish a privately 
funded General Election Legal and Accounting Compliance Fund 
(``GELAC'') for certain limited purposes. A GELAC may be set up before 
the candidate is actually nominated for the office of President or Vice 
President. The Commission is seeking comments on several changes to 
this section to address problems that have arisen when primary 
candidates have formed GELACs relatively early in the primary campaign 
but subsequently failed to win their party's nomination. One difficulty 
is that candidates who do not receive their party's nomination must 
return all private contributions received by the GELAC. However, if 
some of those funds have been used to defray overhead expenses or to 
solicit additional contributions for the GELAC, a total refund has 
presented difficulties. Another difficulty is that the GELAC could be 
improperly used to make primary election expenditures. This problem may 
also affect candidates who win their parties' nominations, particularly 
when those candidates have almost exhausted their spending limits for 
the primary.
    To avoid a recurrence of these situations, the Commission is 
considering several alternatives. Please note, however, that these 
proposals are not reflected in the attached rules which follow. One 
alternative is to amend paragraph (a)(1)(i) of section 9003.3 to 
specify that contributions shall not be solicited for a GELAC prior to 
the candidate's nomination at the party's national nominating 
convention. Under this approach, a committee could establish a GELAC 
before the date of nomination, but only for the limited purpose of 
receiving correctly redesignated contributions that would otherwise 
have to be refunded as excessive primary contributions. The Commission 
anticipates that overhead and reporting expenses incurred by the GELAC 
could be defrayed from interest received on the account.
    A second alternative is to bar GELAC fundraising before a specified 
date, such as April 15 of the Presidential election year. Under this 
alternative, starting on April 15 of the Presidential election year, 
candidates could begin soliciting contributions for the GELAC. However, 
if the candidate does not become the nominee, all contributions 
accepted for the GELAC, including redesignated contributions, would 
have to be refunded within sixty (60) days of the candidate's date of 
ineligibility. Such refunds would be consistent with the Commission's 
decision in the last Presidential election cycle to require refunds 
within 60 days of the date on which the political party of the 
unsuccessful primary candidate selects its nominee. These refunds would 
also be consistent with the policies applicable to non-publicly funded 
Congressional candidates who accept designated general election 
contributions, but who thereafter lose their parties' primaries. See 11 
CFR 102.9(e)(2), and Advisory Opinions 1992-15 and 1986-17.
    The third alternative under consideration is to allow GELAC 
fundraising beginning 90 days before each candidate's date of 
nomination. This approach would mean that the nominees of the two major 
parties would begin GELAC fundraising on different dates.
    The fourth alternative is to bar Presidential candidates from 
establishing a GELAC until the date of the last Presidential primary 
before the national nominating convention. A variation on this approach 
would be to allow the eventual nominee to form a GELAC at an earlier 
point, but to prohibit GELAC fundraising before the last Presidential 
primary.

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    The fifth alternative is to allow any Presidential primary 
candidate to establish and to raise funds for a GELAC at any time. 
Under this approach, those who do not win their party's nomination 
would not have to return all the funds they raise. Instead, they could 
offset their fundraising and administrative expenses, and would only 
need to refund the amount remaining in their account as of the date 
their party selects a nominee. Comments are sought as to whether all 
contributors should receive a proportional refund or whether a first-
in-first-out method should be used to determine which contributions 
have been spent, with refunds going to the most recent contributors. 
Please note that this alternative would be a significant departure from 
the treatment of general election contributions received by losing 
primary candidates in Congressional races.

3. Joint Primary/GELAC Solicitations

    Paragraph (e)(6)(i) of section 9034.4 addresses situations where a 
candidate's GELAC and his or her primary committee issue joint 
solicitations for contributions. Currently, the costs of such 
solicitations are divided equally between the two committees, 
regardless of how much money is actually raised for each. One 
difficulty with the current approach is that in some situations it 
enables the GELAC to absorb a relatively high portion of fundraising 
costs while receiving a relatively low proportion of the funds raised. 
Thus, this provision is at odds with the joint fundraising rules 
applicable to other types of joint fundraising conducted by publicly 
funded Presidential primary committees under 9034.8. In effect, section 
9034.4(e)(6)(i) could permit the GELAC to subsidize fundraising 
expenses that would otherwise be paid by the primary committee and 
subject to spending limits. Another difficulty is that under the 
current rules, questions have been raised as to whether the cost of a 
solicitation, or the cost of a fundraiser, should include staff 
salaries, consulting fees, catering, facilities rental, and the 
candidate's travel to the event site.
    Consequently, the Commission is considering several alternatives to 
paragraph (e)(6)(i). One possibility is to state that the allocation of 
solicitation expenses and the distribution of net proceeds from the 
fundraiser would be made in the same manner as described in 11 CFR 
9034.8(c)(8)(i) and (iii). These are the provisions that apply to 
unaffiliated committees. When these committees conduct a joint 
fundraiser, they apportion their costs using the percentage of 
contributions each committee receives from the event. Given the unique 
relationship between the primary campaign and the GELAC, and the fact 
that the candidate's primary committee receives public financing in 
exchange for voluntary compliance with spending limits, it is important 
to ensure that costs are correctly apportioned and net proceeds are 
properly distributed. Under this alternative, for example, if the GELAC 
receives 25% of the net proceeds, it may only pay 25% of the 
fundraising expenses, and no more than that amount.
    The second approach would be to prohibit joint fundraising between 
the primary and the GELAC. If each committee performed its own 
fundraising, the difficulties inherent in apportioning expenses would 
not arise. This approach would also recognize that there may be some 
situations in which the recipient committees do not know which of 
several solicitation letters or fundraising events generated a given 
contribution.
    The third alternative is to treat all expenses incurred by the 
GELAC prior to the candidate's date of ineligibility or date of 
nomination as qualified campaign expenses for the primary election. 
This approach would avoid GELAC subsidization of the primary campaign. 
It may also be easier for campaigns and for the Commission to work with 
than the current system.
    The fourth alternative would be to provide greater specificity in 
section 9003.3(a)(2)(i)(E) as to what types of costs may be paid for by 
the GELAC when it solicits GELAC contributions. Comments are sought as 
to whether the list of solicitation expenses should be relatively 
narrow to avoid funding campaign events. Under this approach, 
solicitation costs would cover printing invitations and solicitations, 
as well as mailing, postage and telemarketing expenses. However, 
solicitation costs would not include items such as catering, facilities 
rental, fundraising consultants, employee salaries, and travel to the 
event site.
    Please note that the draft rules which follow do not incorporate 
any of the alternative approaches to the fundraising rules discussed 
above.

4. Transfers from the Primary to the GELAC

    The regulations at 9003.3(a)(1)(i) through (v) place certain 
restrictions on transferring funds from a Presidential candidate's 
primary committee to a GELAC. These limitations have been promulgated 
to ensure that the GELAC is not used as a way to increase a candidate's 
entitlement to matching funds or to decrease a candidate's repayment 
obligations. The Commission is seeking suggestions as to how these 
provisions could be strengthened, and whether it is advisable to do so.

D. Modifying the Audit and Repayment Processes

    In 1995, the Commission revised sections 9007.2 and 9038.2 to 
reduce the amount of time it takes to audit publicly funded 
Presidential committees, to make repayment determinations and to 
complete the enforcement process for these committees. These steps were 
taken to ensure adherence to the three year time period specified in 26 
U.S.C. 9007(c) and 9038(c) for notifying publicly funded committees of 
repayment determinations. Having operated under the streamlined 
procedures during the 1996 election cycle, the Commission is examining 
further changes to ensure these processes are completed as fairly and 
expeditiously as possible.

1. Audit Procedures

    The Commission is considering two alternatives to the current audit 
procedures. Please note that neither of these is reflected in the draft 
rules which follow. One alternative would be to return to the audit 
procedures used for the 1992 Presidential candidates who received 
primary or general election funding. Under the previous system, the 
Commission's Audit Division conducted an exit conference at the close 
of audit fieldwork to discuss its preliminary findings and 
recommendations. However, no written exit conference memorandum was 
prepared or presented to the committee during the exit conference. 
Instead, an interim audit report containing a preliminary calculation 
of future repayment obligations was subsequently prepared for approval 
by the Commission. After that, the committee had an opportunity to 
submit materials disputing or commenting on matters contained in the 
initial audit report. Next, the Audit Division prepared a final audit 
report containing initial repayment determinations. The final audit 
report was considered by the Commission in an open session. Twenty four 
hours before the final audit report was released to the public, copies 
were provided to the candidate and the committee.
    The previous system had the advantage of enabling committees to see 
what matters were of concern to the Commission before responding to the 
interim audit report prepared by the Commission's staff. It also 
enabled committees to resolve these disputes

[[Page 69528]]

early in the process before they became public. However, one 
disadvantage of the previous procedure was that campaign committees did 
not have an opportunity to rebut the interim audit report until after 
the Commission approved the report. Another problem was that sometimes 
it could be difficult for the Commission to meet the statutory 
requirement that any notification of a repayment be made no later than 
three years after the end of the matching payment period or after the 
date of the general election. 26 U.S.C. 9007(c) and 9038(c). In Dukakis 
v. Federal Election Commission, 53 F.3d 361 (D.C. Cir. 1995) and Simon 
v. Federal Election Commission, 53 F.3d 356 (D.C. Cir. 1995), the court 
determined that the preliminary calculation contained in the interim 
audit report did not constitute sufficient notification of repayment 
obligations. Thus, the court concluded that the Commission's previous 
regulation at 11 CFR 9038.2(a)(2), which stated that the interim audit 
report constitutes notification, was inconsistent with the statute. 
Simon at 360.
    The second alternative would be to retain many of the current audit 
procedures, with the exception that the exit conference memorandum 
would incorporate a legal analysis and would be approved by a majority 
vote of four Commissioners in executive session before it is presented 
to the candidate's committee during the exit conference. This approach 
would have the advantage of enabling committees to see what matters are 
of concern to the Commission before responding to the exit conference 
memorandum prepared by the Commission's staff. However, the 
disadvantage is that the Commission would not have the benefit of 
considering the committee's views on the factual and legal issues at 
hand before approving the exit conference memorandum. Moreover, this 
approach may slow the audit process down, thereby jeopardizing the 
Commission's ability to notify candidates and their committees of 
repayment obligations within the three year period mandated by the law.
    In addition to these alternatives, the Commission seeks comments on 
retaining its current audit procedures. One advantage of the present 
system is that, in comparison to the above alternatives, the current 
rules may result in faster resolution of the audits, as well as more 
efficient use of Commission and committee resources. Thus, it is not as 
difficult to meet the statutory deadline for notifying candidates of 
repayment determinations as it was under the prior rules. However, one 
disadvantage of the current procedures is that committees do not have 
an opportunity to address all issues raised in the audit report until 
after the Commission has made its determination and released the report 
to the public. Another difficulty is that by publicly releasing the 
audit report before the Commission's consideration of it, the public 
and the press may mistakenly conclude that the report represents the 
views of a majority of the members of the Commission. It may be 
possible to correct this misperception through public education and by 
including in each audit report a statement that the report is a staff 
document and does not necessarily reflect the Commission's views or 
determinations before it is approved by majority vote.

2. Repayment Determination Procedures

    The current regulations in paragraphs (c) and (d) of sections 
9007.2 and 9038.2 contemplate a two step repayment process. First, the 
Commission provides the candidate with a written notice of the 
repayment determination, which has been approved by an affirmative vote 
of four of its members, and which is included in the audit report. The 
candidate has the option of making the repayment or requesting an 
administrative review. In the latter case, the candidate must submit 
legal and factual materials supporting no repayment or a lesser 
repayment. The candidate may also request an oral hearing. At the 
conclusion of the administrative review, the current rules in 
paragraphs (c)(3) of these sections indicate that the Commission may 
decide whether to revise the repayment determination.
    The question has arisen regarding the consequences of a failure to 
approve a repayment determination after the administrative review. The 
current rule could be interpreted to mean that the prior repayment 
determination remains in effect. However, that result would undermine 
the candidate's opportunity for a meaningful review of any new facts or 
arguments raised. The Commission is obligated to issue a written 
statement of reasons to justify its repayment determination. One 
purpose of the statement of reasons is to respond to the significant 
points raised by the candidate during the administrative review. If the 
Commission's repayment determination is challenged in court, the 
statement of reasons is also needed to provide a reasoned basis for the 
Commission's actions. See, Robertson v. FEC, 45 F.3d 486, 493 (D.C. 
Cir. 1995). Consequently, the Commission has recently concluded that no 
post-administrative review repayment determination may be issued absent 
an affirmative vote of four of its members following the consideration 
of the candidate's written materials and oral presentation. See Agenda 
Document #97-84-C (March 27, 1998).
    Consistent with this practice, the attached rules would amend 
paragraphs (c)(3) and (d)(2) of sections 9007.2 and 9038.2 to clearly 
indicate that post-administrative review repayment determinations must 
be approved by an affirmative vote of four members of the Commission. 
In addition, draft paragraphs (c)(3) of these sections would be changed 
to indicate that the Commission is not voting on whether to revise a 
repayment determination, but rather is deciding whether to issue a 
repayment determination.
    Also, please note that in paragraph (c)(2)(ii) of both sections, 
the references to paragraph (c)(2)(ii) would be changed to paragraph 
(c)(2)(i) to clarify the subject matter of oral hearings.

E. Bases for Repayment Determinations

    The Commission is considering whether to delete paragraph 
(b)(2)(ii)(A) of section 9038.2 from its regulations. This is the 
provision which permits the Commission to order a repayment of primary 
matching funds based on a determination that the candidate or 
authorized committee has made expenditures in excess of the primary 
spending limits. The argument has been raised that this provision is 
without statutory basis, and that the reading implied in the current 
regulation is effectively prohibited by the statute. This argument is 
discussed below, as well as several countervailing considerations. As 
noted above in part A, this issue has arisen in the context of whether 
certain coordinated expenditures made by party committees should be 
treated as in-kind contributions to the party's presumptive nominee, 
and thus count against that publicly funded primary candidate's 
spending limits.
    Section 9038 of the Matching Payment Act (26 U.S.C. 9038) provides 
three bases for determining repayments of primary matching funds: (1) 
Payments in excess of entitlement; (2) payments used for other than 
qualified campaign expenses; and (3) excess funds remaining six months 
after the end of the matching payment period. In contrast, section 9007 
of the Fund Act (26 U.S.C 9007) provides four bases for determining 
repayments of general election funds: (1) Payments in excess of 
entitlement; (2) an amount equal to any excess qualified campaign 
expenses; (3) an amount equal to any contributions

[[Page 69529]]

accepted; and (4) payments used for other than qualified campaign 
expenses.
    The provisions on ``payments in excess of entitlement'' and ``other 
than qualified campaign expenses'' are nearly identical between the two 
chapters. Inasmuch as Congress specified ``excess expenses'' as a 
repayment basis separate from ``other than qualified campaign 
expenditures'' in the general election statute, an argument exists that 
the nearly identical provision on ``other than qualified campaign 
expenses'' in the primary statute cannot reasonably be read to include 
excess expenses.
    The argument against treating ``excess'' campaign expenditures as 
``non qualified'' is buttressed by the text of the ``Qualified campaign 
expense limitation'' (Sec. 9035) itself, which prohibits candidates 
from ``knowingly incur[ing] qualified campaign expenses in excess of 
the expenditure limitation applicable under section 441a(b)(1)(A) of 
title 2.'' First, one can argue that it is impossible to read this 
section other than as treating ``excess'' spending as ``qualified.'' 
Second, this provision states clearly that violation of the primary 
spending limits is a Title 2 violation, which would be addressed in the 
FEC's enforcement process, rather than a Title 26 violation, which 
could be addressed in the audit/repayment process.
    Alternatively, it can be argued that there is statutory support for 
11 CFR 9038.2(b)(2)(ii)(A) and that this provision should not be 
deleted. While section 9007(b)(2) of the Fund Act clearly states that 
repayments can be sought from general election candidates who incur 
expenses in excess of the aggregate payments to which they are 
entitled, the Matching Payment Act can be interpreted to set forth 
repayment requirements for primary candidates that are the equivalent 
of that general election provision.
    A qualified campaign expense of a primary election committee is an 
expense where ``neither the incurring nor payment * * * constitutes a 
violation of any law of the United States * * *.'' 26 U.S.C. 9032(9). A 
Presidential primary candidate who exceeds the expenditure limitations 
violates two laws, 26 U.S.C. 9035 and 2 U.S.C. 441a(b)(1)(A). Section 
9035 of the Matching Payment Act states that ``no candidate shall 
knowingly incur qualified campaign expenses in excess of the 
expenditure limitations applicable under section 441a(b)(1)(A) of title 
2 * * *.'' Section 441a(b)(1) of the FECA states that ``no candidate 
for the Office of President who is eligible'' to receive public funds 
may make expenditures in excess of the statutorily prescribed 
limitations. 2 U.S.C. 441a(b)(1). Thus, one reading of this language is 
that expenses in excess of expenditure limitations for publicly funded 
primary candidates are non-qualified because they violate the law. 
Consequently, it can be argued that they are repayable under 26 U.S.C. 
9038(b)(2). On the other hand, the counter-argument is that this 
interpretation of 26 U.S.C. 9035 must be incorrect because the language 
of this provision specifically contemplates that amounts spent in 
excess of the expenditure limitations can constitute qualified campaign 
expenses. However, in attempting to read the two statutes together, 
section 9035 may mean that candidates shall not incur expenses that 
would otherwise be qualified except for the fact that they exceed the 
section 441a expenditure limitations.
    Additionally, it can be argued that the Fund Act and the Matching 
Payment Act mandate identical results--namely, the repayment of 
expenditures exceeding the spending limits--albeit in slightly 
different ways. Arguably, there is no provision in the general election 
Fund Act corresponding to section 9035 of the Matching Payment Act. 
Consequently, it can be argued that this may be the reason why 26 
U.S.C. 9007(b)(2) specifically mandates repayments from general 
election committees for spending amounts that exceed their 
entitlements. Under this interpretation, language corresponding to 
section 9007(b)(2) is not needed in the Matching Payment Act because 
repayments are already required when primary election committees make 
non-qualified campaign expenses by violating the law, which they do 
whenever they exceed the spending limits set forth in 2 U.S.C. 
441a(b)(1) and 26 U.S.C. 9035.
    This argument is supported by the court decision in John Glenn 
Presidential Committee v. FEC, 822 F.2d 1097 (D.C. Cir. 1987) 
(upholding the Commission's repayment determination against a publicly 
funded primary election candidate for exceeding the state-by-state 
expenditure limitations in the face of a constitutional challenge). The 
Glenn opinion stated that ``campaign expenses are not ``qualified'' if 
they exceed the limits Congress set, including the limits on spending 
in each state. 26 U.S.C. 9035(a).'' Id. at 1099. See also, Kennedy for 
President Committee v. FEC, 734 F.2d 1558, 1560 n. 1 (D.C. Cir. 1984) 
(holding that ``[u]nder 26 U.S.C. 9035, campaign expenditures are not 
``qualified'' if they exceed certain spending limits, including 
limitations on spending in each state during the presidential 
primaries''). The state-by-state spending limits at issue in these two 
cases are in section 441a(b)(1)(A) and (g) of the FECA. As discussed 
below, these court decisions arguably require the Commission to order 
repayments of matching funds used for unqualified purposes. Glenn at 
1099, Kennedy at 1561.
    The counter-argument is that the Glenn and Kennedy cases are not 
dispositive because they did not involve alleged in-kind contributions 
by third parties such as political party committees, and that such 
contributions are not necessarily in the same pool of funds from which 
a publicly funded campaign makes expenditures. The Glenn court 
indicated that it was not ruling on a repayment determination involving 
private funds. Glenn at 1098. However, on the other hand, in-kind 
contributions to candidates are simultaneously treated as expenditures 
by those candidates under section 431(8)(A)(i) and (9)(A)(i) of the 
FECA, and must be reported as both contributions and expenditures under 
11 CFR 104.13. In the past, the Commission has considered in-kind 
contributions to be commingled with a publicly financed candidate's 
other expenditures and subject to the candidate's expenditure 
limitations.

F. Net Outstanding Campaign Obligations--Capital Assets

    In determining a Presidential primary committee's net outstanding 
campaign obligations (``NOCO''), section 9034.5(c)(1) permits 
candidates to deduct 40% of the original cost of capital assets for 
depreciation. Similarly, section 9004.9(d)(1) provides for a straight 
40% depreciation figure for capital assets purchased by general 
election campaign committees for purposes of the general election 
committee's statement of net outstanding qualified campaign expenses 
(``NOQCE''). At one time, the Commission had permitted all Presidential 
candidates to demonstrate that a higher depreciation was appropriate 
for capital assets. In 1995, as part of an effort to streamline the 
audit process and to establish ``bright lines'' between primary 
expenses and general election expenses, the Commission adopted the 
straight 40% depreciation figure for all assets purchased after the 
change in the regulations took effect. It was believed that situations 
where the 40% figure was too low would be counterbalanced by situations 
where the figure was too high. Experience during the 1996 Presidential 
audits has shown that the 40% depreciation figure is

[[Page 69530]]

unrealistically low for capital assets such as vehicles, computer 
systems, telephone systems, and other equipment that is heavily used 
during a Presidential primary campaign.
    Accordingly, the Commission seeks comments on the attached changes 
to section 9034.5(c)(1), which would allow primary candidates to 
demonstrate a higher depreciation figure through documentation of the 
fair market value. However, the proposed amendment to this rule would 
not permit a fair market value below 60% of the purchase price to be 
claimed by the primary committee of a candidate that transfers or sells 
capital assets to his or her publicly financed general-election 
committee. This proposal recognizes that capital assets such as 
computer systems or telecommunications systems are customized or 
configured specifically to meet the needs of that particular campaign 
organization. It also takes into account the added value to the 
campaign staff of continuing to work with familiar equipment, and 
avoiding the disruption that would occur if new equipment were 
obtained, instead.
    Under a parallel change proposed for 11 CFR 9004.9(d), when the 
general election campaign is over, the general election committee may 
demonstrate that its capital assets have depreciated by more than 40% 
of the original cost. However, in the case of assets transferred or 
sold to it by the candidate's primary committee, the proposed rules 
indicate that the purchase price must be 60% of the original cost of 
such assets to the candidate's primary committee. Once the campaign is 
over, the draft regulations would indicate that the fair market value 
listed on the NOQCE statement must be 20% of the original cost to the 
primary committee. Under this approach, campaigns would not have the 
option of demonstrating that an amount less than 20% is appropriate. 
Based on past experience, the Commission believes that a 20% residual 
value is a realistic figure for equipment that has been used throughout 
both the primary and general election campaigns.
    The second change included in these sections is a clarification of 
the term ``capital asset.'' A new sentence would be added to sections 
9004.9(d) and 9034.5(c)(1) to indicate that when the components of a 
system such as a computer system or a telecommunications system are 
used together and the total cost of the components exceeds $2000, the 
entire system will be considered a capital asset. This proposal 
conforms with the Commission's previous interpretation of its rules. 
See Explanation and Justification for 11 CFR 9034.5, 60 F.R. 31868 
(June 16, 1995). In addition, comments are sought on whether computer 
software should be treated as a capital asset. In this regard, a 
primary committee may lawfully transfer its computer programs to its 
general election counterpart, but software licensing agreements may 
restrict the resale of the software to third parties.

G. Transportation and Services Provided to the Media

    Sections 9004.6 and 9034.6 contain provisions governing 
expenditures by federally financed committees for transportation and 
other services provided to representatives of the news media covering 
the Presidential primary and general election campaigns. These rules 
indicate that expenditures for these purposes will, in most cases, be 
treated as qualified campaign expenses subject to the overall spending 
limitations of sections 9003.2 and 9035.1.
    However, sections 9004.6 and 9034.6 also allow committees to accept 
limited reimbursement for these expenses from the media, and to deduct 
any reimbursements received from the amount of expenditures subject to 
the overall expenditure limitation. These rules set limits on the 
amount of reimbursement that a committee can accept, and require 
committees to repay a portion of any reimbursement that exceeds those 
limits to the U.S. Treasury. Paragraphs (b) of these sections limit the 
reimbursements to 110% of the media representative's pro rata share of 
the actual cost of the transportation and services made available. The 
regulations specify that the pro rata share is calculated by dividing 
the total actual cost of the transportation and services provided by 
the total number of individuals to whom such transportation and 
services are made available. Under these provisions, the total number 
of individuals includes committee staff, media personnel, Secret 
Service and others.
    During the last Presidential election cycle, questions arose 
regarding both the types of ground services that could be charged to 
the press and the reasonableness of the amounts billed to them. 
Consequently, comments are sought as to whether these rules should be 
revised to include lists of allowable and nonallowable expenses for 
ground costs. Disputed items have included security services for the 
press, sound and lighting equipment, press risers and camera platforms, 
carpeting, bunting, skirts, railings, flags, and electrical service for 
the press platforms. Also, comments are sought as to whether further 
clarifications are needed to convey that Presidential campaign 
committees may only charge a media representative for his or her own 
pro rata share for meals, chairs on the press platform, seats on buses 
and vans, and telephone lines in filing centers, and that media 
representatives must not be expected to pay for services made available 
to other members of the press or to campaign staff, volunteers, local 
elected officials or others. The Commission recognizes that it may not 
be as easy for campaigns to charge members of the press who do not 
travel on the press plane because a local reporter, or other media 
representative who is not traveling with the campaign, would not have 
provided the campaign committee with a credit card number for billing 
purposes. Please note that specific changes are not included in the 
proposed rules which follow.

H. Documentation of Disbursements

    Sections 9003.5(b)(1) and 9033.11(b)(1) set forth the documentation 
publicly financed committees must provide for disbursements in excess 
of $200. The documentation includes a canceled check that has been 
negotiated by the payee. However, paragraphs (b)(1)(iv) of these 
sections refer back to this canceled check without specifically 
restating that it must be negotiated by the payee. To avoid possible 
confusion, the attached rules which follow would change sections 
9003.5(b)(1)(iv) and 9033.11(b)(1)(iv) by adding the words ``negotiated 
by the payee.'' This change is consistent with the recent judicial 
decision in Fulani v. Federal Election Commission, 147 F.3d 924 (D.C. 
Cir. 1998).
    Comments are also sought on revising sections 9003.5(b)(3)(ii) and 
9033.11(b)(3(ii) to include a cross reference to the reporting 
provisions that list examples of acceptable and unacceptable 
descriptions of ``purpose.'' See 11 CFR 104.3(b)(3)(i)(B).

I. Matching Fund Documentation

    During the 1996 Presidential election cycle, the Commission 
instituted a new program whereby primary campaign committees may submit 
contributions for matching fund payments through the use of digital 
imaging technology such as computer CD ROMs, instead of submitting 
paper photocopies of checks and deposit slips. The Commission is 
considering expanding this program in several respects. First, new 
language would be added to section 9036.1(b)(3) permitting the use of 
digital imaging for committees' threshold submissions.

[[Page 69531]]

Second, proposed changes to section 9036.2(b)(1)(vi) would enable 
primary committees to submit digital images of contributor 
redesignations, reattributions and supporting statements and materials 
to establish the matchability of contributions.
    A corresponding change to 11 CFR 9038.1(b)(1) would add a 
requirement that the primary committees maintain the original 
documentation for possible Commission inspection during either the 
matching fund stage or the subsequent audit. Campaign committees should 
already have this documentation on hand. Consequently, maintaining and 
producing this documentation upon request should not be burdensome.

J. Pre-Nomination Vice Presidential Committees

    The Commission is seeking comments on a possible new rule to 
clarify the status of expenditures made by political committees formed 
by Vice Presidential candidates prior to their official nomination at 
their parties' conventions. It has been the Commission's policy in the 
past to permit such committees to make expenditures for the purpose of 
defraying the travel, lodging and subsistence expenses of the eventual 
Vice Presidential nominee and his or her entourage during the 
nominating convention. However, in the most recent Presidential 
election cycle, concerns have been raised that such committees have 
raised substantially more money than what is needed for those purposes. 
The Commission is concerned that Vice Presidential committees could be 
used prior to the date of their nomination to supplement the limited 
amounts that publicly funded Presidential candidates may spend on their 
primary campaigns. Another concern is that some of those who have made 
the maximum contribution permitted by the FECA to a Presidential 
primary candidate may seek to evade these statutory limits by making 
additional contributions to the campaign committee of the person chosen 
to be that candidate's Vice Presidential running mate.
    For this reason, the Commission is proposing to add new section 
9035.3 to specify when the expenditures of Vice Presidential committees 
should be treated as expenditures by the primary campaign of their 
party's eventual nominee. Paragraph (a) of this new section would 
provide that the payment of expenses incurred in connection with 
seeking the nomination of a political party for the office of Vice 
President of the United States shall be considered expenditures by the 
candidate who obtains that political party's nomination for the office 
of President of the United States. This new rule would apply only to 
the campaign expenditures made by a candidate who becomes the Vice 
Presidential nominee of his or her party, and not to others who lose 
the Vice Presidential nomination. Comments are sought as to whether the 
proposed regulation should be further restricted only to those 
situations where the Vice Presidential candidate or that candidate's 
campaign committee has acted in concert with the eventual Presidential 
nominee or the Presidential nominee's primary committee.
    Paragraph (b) of the new section would contain an exception to 
permit a Vice Presidential candidate and his or her family and staff to 
attend their party's nominating convention without having the cost of 
their transportation, lodging, and subsistence attributed to the 
party's Presidential candidate. The costs of raising funds for these 
limited travel and subsistence expenses would also be excluded from the 
definition of expenditure. Please note, if a Vice Presidential 
committee has excess funds after the nomination, 11 CFR 113.2 would 
govern the use of these funds.
    Comments on alternative approaches are also sought. The Commission 
notes that 2 U.S.C. 441a(b)(2) treats expenditures made on behalf of 
Vice Presidential candidates as expenditures on behalf of their party's 
Presidential nominee. See, also 11 CFR 110.8(f). However, this 
provision is not applicable prior to the nomination of the Vice 
Presidential candidate. At the time the FECA was enacted, Congress may 
not have anticipated that both the Presidential candidates and their 
running mates may be known well before the actual date of nomination. 
In recent years the primaries in many states have been moved to earlier 
dates in the election year. This means that Presidential candidates may 
reach their primary spending limits earlier in the election year, which 
may encourage the creation of Vice Presidential campaign committees at 
an earlier stage of the process.

K. Nominating Conventions and Host Committees

1. Lost or Misplaced Items

    Comments are sought on adding new paragraph (c) to section 9008.7 
to address situations where equipment in the possession of convention 
committees is lost or damaged. The proposed rule indicates that as a 
general matter, the cost of lost or misplaced items may not be defrayed 
with public funds. However, the Commission recognizes that there are 
varying degrees of responsibility in this area. Accordingly, the 
proposed rules would also provide that certain factors should be 
considered, such as whether the committee demonstrates that it made 
conscientious efforts to safeguard the missing equipment; whether the 
committee sought or obtained insurance on the items; whether the 
committee filed a police report; the type of equipment involved; and 
the number and value of items that were lost. This approach is 
consistent with the Commission's treatment of items lost or misplaced 
by publicly funded candidates. See 11 CFR 9004.4(b)(8) and 
9034.4(b)(8). Consequently, these provisions applicable to candidate 
committees for the primary and general elections also contain similar 
language to take into consideration whether a police report was filed.

2. Donations to Host Committees, Government Agencies, and 
Municipalities

    The Commission seeks comments on parallel amendments to section 
9008.52(c)(1), which addresses the receipt of donations by host 
committees, and section 9008.53(b)(1), which addresses the receipt of 
donations by government agencies and municipal corporations. One change 
would be to specifically allow local banks to donate funds and make in-
kind donations for the limited purposes described in these rules. These 
amendments would supersede, in part, Advisory Opinions 1995-31 and 
1995-32.
    The second set of parallel changes to sections 9008.52(c)(1) and 
9008.53(b)(1) would be to add the word ``local'' prior to 
``individual,'' to clarify that only those who reside in the 
metropolitan area of the convention city may donate funds or make in-
kind donations to host committees, government agencies and municipal 
corporations. Please note that the new language is consistent with AO 
1995-32 with respect to donations by individuals.

3. Permissible Host Committee Expenses

    During the audits of the 1996 convention and host committees, 
questions have been raised as to the scope of expenses that may be paid 
by a host committee instead of a convention committee. Section 
9008.52(c)(1) enumerates the types of expenses that host committees may 
defray with donated funds. Section 9008.7(a) lists the types of 
convention expenses that may be paid for using public funds. These two 
sections of the regulations are not mutually exclusive. Nor do they 
cover every conceivable type of expense that may arise.

[[Page 69532]]

Consequently, comments are sought as to whether one or both of these 
provisions should be revised to provide greater specificity as to 
allowable or nonallowable expenses for convention or host committees. 
Disputed items have included: (1) Badges, passes or other types of 
credentials used to gain entry to the convention hall or specific 
locations within the hall; (2) electronic vote tabulation systems; and 
(3) lighting and rigging costs, including paying stagehands, riggers, 
projectionists, electricians, and producers. With respect to lighting 
and rigging expenses, in particular, it can be difficult to distinguish 
between the costs associated with improving the infrastructure of the 
convention hall and the costs of producing and broadcasting the 
convention proceedings to the general public or to those within the 
convention hall.
    The Commission is aware that the major political parties are 
currently in the process of selecting the locations for their next 
presidential nominating conventions, and that the party committees are 
expected to enter into contractual agreements with the sites selected 
before this rulemaking is completed. Thus, comments are sought as to 
whether it would be preferable to defer consideration of this topic 
until after the 2000 Presidential elections. Please note that specific 
changes are not included in the proposed rules which follow.

L. Technical and Conforming Amendments

    Three technical changes are also proposed. First, the definition of 
``State'' in section 9032.11 would be updated by deleting the Canal 
Zone and by adding American Samoa, which holds Presidential primaries 
consisting of caucuses. Please note there is no corresponding provision 
in the general election rules.
    In section 9008.14, the term ``final repayment determinations'' 
would be replaced by ``repayment determinations.'' In paragraph (f)(3) 
of section 9038.1, the phrase ``publicly released audit report'' would 
be used instead of ``final audit report.'' These amendments would 
conform with the changes in terminology made when the rules setting out 
audit and repayment procedures were last revised in 1995.
    Please note that the Commission has also initiated a rulemaking to 
revise and reorganize the recordkeeping and reporting rules currently 
located in 11 CFR 102.9, 104.3, and part 108. See Notice of Proposed 
Rulemaking, 62 F.R. 50708 (Sept. 27, 1997). Accordingly, it may be 
necessary to amend the citations found throughout the public funding 
rules in subchapters E and F of Title 11, Code of Federal Regulations, 
that refer back to these recordkeeping and reporting regulations.
    In addition, the Commission has published separately final rules 
modifying the candidate agreement provisions so that federally-financed 
Presidential committees must electronically file their reports. See 
Explanation and Justification, 63 F.R. 45679 (August 27, 1998). The 
effective date for those regulations is November 13, 1998.
    The Commission welcomes comments on the foregoing proposed 
amendments to the public financing regulations, the issues raised in 
this notice, and other aspects of the public financing process that 
could be addressed in these regulations. No final decision has been 
made by the Commission concerning any of the proposals contained in 
this notice.

Certification of No Effect Pursuant to 5 U.S.C. 605(b) (Regulatory 
Flexibility Act)

    These proposed rules will not, if promulgated, have a significant 
economic impact on a substantial number of small entities. The basis 
for this certification is that very few small entities will be affected 
by these proposed rules, and the cost is not expected to be 
significant. Further, any small entities affected have voluntarily 
chosen to receive public funding and to comply with the requirements of 
the Presidential Election Campaign Fund Act or the Presidential Primary 
Matching Payment Account Act in these areas.

List of Subjects

11 CFR part 9003

    Campaign funds, Reporting and recordkeeping requirements.

11 CFR part 9004

    Campaign funds.

11 CFR part 9007

    Administrative practice and procedure, Campaign funds.

11 CFR part 9008

    Campaign funds, Political committees and parties, Reporting and 
recordkeeping requirements.

11 CFR part 9032

    Campaign funds.

11 CFR parts 9033, 9034 and 9035

    Campaign funds, Reporting and recordkeeping requirements.

11 CFR part 9036

    Administrative practice and procedure, Campaign funds, Reporting 
and recordkeeping requirements.

11 CFR part 9038

    Administrative practice and procedure, Campaign funds.
    For the reasons set out in the preamble, it is proposed to amend 
Subchapters E and F of Chapter I of Title 11 of the Code of Federal 
Regulations as follows:

PART 9003--ELIGIBILITY FOR PAYMENTS

    1. The authority citation for Part 9003 would continue to read as 
follows:

    Authority: 26 U.S.C. 9003 and 9009(b).

    2. In Sec. 9003.5, paragraphs (b)(1)(iv) and (b)(3)(ii) would be 
revised to read as follows:


Sec. 9003.5  Documentation of disbursements.

* * * * *
    * * *
    (1) * * *
    (iv) If the purpose of the disbursement is not stated in the 
accompanying documentation, it must be indicated on the canceled check 
negotiated by the payee.
* * * * *
    (3) * * *
    (ii) Purpose means the full name and mailing address of the payee, 
the date and amount of the disbursement, and a brief description of the 
goods or services purchased. Examples of acceptable and unacceptable 
descriptions of goods and services purchased are listed at 11 CFR 
104.3(b)(3)(i)(B).
* * * * *

PART 9004-- ENTITLEMENT OF ELIGIBLE CANDIDATES TO PAYMENTS; USE OF 
PAYMENTS

    3. The authority citation for Part 9004 would continue to read as 
follows:

    Authority: 26 U.S.C. 9004 and 9009(b).

    4. In Sec. 9004.4, paragraph (b)(8) would be revised to read as 
follows:


Sec. 9004.4  Use of payments.

* * * * *
    (b) * * *
    (8) Lost or misplaced items. The cost of lost or misplaced items 
may be considered a nonqualified campaign expense. Factors considered 
by the Commission in making this determination shall include, but not 
be limited to, whether the committee demonstrates that it made 
conscientious efforts to safeguard the missing equipment; whether the 
committee

[[Page 69533]]

sought or obtained insurance on the items; whether the committee filed 
a police report; the type of equipment involved; and the number and 
value of items that were lost.
    5. In Sec. 9004.9, paragraph (d)(1) would be revised to read as 
follows:


Sec. 9004.9  Net outstanding qualified campaign expenses.

* * * * *
    (d)(1) Capital assets.
    (i) For purposes of this section, the term capital asset means any 
property used in the operation of the campaign whose purchase price 
exceeded $2000 when acquired by the committee. Property that must be 
valued as capital assets under this section includes, but is not 
limited to, office equipment, furniture, vehicles and fixtures acquired 
for use in the operation of the candidate's campaign, but does not 
include property defined as ``other assets'' under paragraph (d)(2) of 
this section. Capital assets include items such as computer systems and 
telecommunications systems, if the equipment is used together and if 
the total cost of all components that are used together exceeds $2000. 
A list of all capital assets shall be maintained by the committee in 
accordance with 11 CFR 9003.5(d)(1). The fair market value of capital 
assets shall be considered to be 60% of the total original cost of such 
items when acquired, except that items received after the date of 
ineligibility must be valued at their fair market value on the date 
acquired. A candidate may claim a lower fair market value for a capital 
asset by listing that capital asset on the statement separately and 
demonstrating, through documentation, the lower fair market value.
    (ii) If capital assets are obtained from the candidate's primary 
election committee, the purchase price shall be 60% of the original 
cost of such assets to the candidate's primary election committee. For 
purposes of the statement of net outstanding campaign expenses filed 
after the end of the expenditure report period, the fair market value 
of capital assets obtained from the candidate's primary election 
committee shall be considered to be 20% of the original cost of such 
assets to the candidate's primary election committee.
* * * * *

PART 9007--EXAMINATIONS AND AUDITS; REPAYMENTS

    6. The authority citation for Part 9007 would continue to read as 
follows:

    Authority: 26 U.S.C. 9007 and 9009(b).

    7. In Sec. 9007.2, the introductory material to paragraph (c), and 
paragraphs (c)(1), (c)(2), (c)(2)(i), (d)(1) and (d)(3) would be 
republished, and paragraphs (c)(2)(ii), (c)(3) and (d)(2) would be 
revised to read as follows:


Sec. 9007.2  Repayments.

* * * * *
    (c) Repayment determination procedures. The Commission's repayment 
determination will be made in accordance with the procedures set forth 
at paragraphs (c)(1) through (c)(4) of this section.
    (1) Repayment determination. The Commission will provide the 
candidate with a written notice of its repayment determination(s). This 
notice will be included in the Commission's audit report prepared 
pursuant to 11 CFR 9007.1(d) and will set forth the legal and factual 
reasons for such determination(s), as well as the evidence upon which 
any such determination is based. The candidate shall repay to the 
United States Treasury in accordance with paragraph (d) of this 
section, the amount which the Commission has determined to be 
repayable.
    (2) Administrative review of repayment determination. If a 
candidate disputes the Commission's repayment determination(s), he or 
she may request an administrative review of the determination(s) as set 
forth in paragraph (c)(2)(i) of this section.
    (i) Submission of written materials. A candidate who disputes the 
Commission's repayment determination(s) shall submit in writing, within 
60 calendar days after service of the Commission's notice, legal and 
factual materials demonstrating that no repayment, or a lesser 
repayment, is required. Such materials may be submitted by counsel if 
the candidate so desires. The candidate's failure to timely raise an 
issue in written materials presented pursuant to this paragraph will be 
deemed a waiver of the candidate's right to raise the issue at any 
future stage of proceedings including any petition for review filed 
under 26 U.S.C. 9011(a).
    (ii) Oral hearing. A candidate who submits written materials 
pursuant to paragraph (c)(2)(i) of this section may at the same time 
request in writing that the Commission provide such candidate with an 
opportunity to address the Commission in open session to demonstrate 
that no repayment, or a lesser repayment, is required. The candidate 
should identify in this request the repayment issues he or she wants to 
address at the oral hearing. If the Commission decides by an 
affirmative vote of four (4) of its members to grant the candidate's 
request, it will inform the candidate of the date and time set for the 
oral hearing. At the date and time set by the Commission, the candidate 
or candidate's designated representative will be allotted an amount of 
time in which to make an oral presentation to the Commission based upon 
the legal and factual materials submitted under paragraph (c)(2)(i) of 
this section. The candidate or representative will also have the 
opportunity to answer any questions from individual members of the 
Commission.
    (3) Repayment determination upon review. Before voting on whether 
to issue any repayment determination(s) following an administrative 
review pursuant to paragraph (c)(2) of this section, the Commission 
will consider any submission made under paragraph (c)(2)(i) of this 
section and any oral hearing conducted under paragraph (c)(2)(ii) of 
this section, and may also consider any new or additional information 
from other sources. A determination following an administrative review 
that a candidate must repay a certain amount must be approved by an 
affirmative vote of four (4) members of the Commission. The 
determination will be accompanied by a written statement of reasons 
supporting the Commission's determination(s). This statement will 
explain the legal and factual reasons underlying the Commission's 
determination(s) and will summarize the results of any investigation(s) 
upon which the determination(s) are based.
    (d) Repayment period. (1) Within 90 calendar days of service of the 
notice of the Commission's repayment determination(s), the candidate 
shall repay to the United States Treasury the amounts which the 
Commission has determined to be repayable. Upon application by the 
candidate, the Commission may grant an extension of up to 90 calendar 
days in which to make repayment.
    (2) If the candidate requests an administrative review of the 
Commission's repayment determination(s) under paragraph (c)(2) of this 
section, the time for repayment will be suspended until the Commission 
has concluded its administrative review of the repayment 
determination(s) and has approved by an affirmative vote of four (4) of 
its members a post-administrative review repayment determination. 
Within 30 calendar days after service of the notice of the Commission's 
post-administrative review repayment determination(s), the candidate 
shall repay to the United

[[Page 69534]]

States Treasury the amounts which the Commission has determined to be 
repayable. Upon application by the candidate, the Commission may grant 
an extension of up to 90 calendar days in which to make repayment.
    (3) Interest shall be assessed on all repayments made after the 
initial 90-day repayment period established at paragraph (d)(1) of this 
section or the 30-day repayment period established at paragraph (d)(2) 
of this section. The amount of interest due shall be the greater of:
    (i) An amount calculated in accordance with 28 U.S.C. 1961(a) and 
(b); or
    (ii) The amount actually earned on the funds set aside or to be 
repaid under this section.
* * * * *

PART 9008--FEDERAL FINANCING OF PRESIDENTIAL NOMINATING CONVENTIONS

    8. The authority citation for Part 9008 would continue to read as 
follows:

    Authority: 2 U.S.C. 437, 438(a)(8); 26 U.S.C. 9008 and 9009(b).

    9. In Sec. 9008.7, new paragraph (c) would be added, to read as 
follows:


Sec. 9008.7  Use of funds.

* * * * *
    (c) Lost or misplaced items. The cost of lost or misplaced items 
may not be defrayed with public funds under certain circumstances. 
Factors considered by the Commission in making this determination shall 
include, but not be limited to, whether the committee demonstrates that 
it made conscientious efforts to safeguard the missing equipment; 
whether the committee sought or obtained insurance on the items; 
whether the committee filed a police report; the type of equipment 
involved; and the number and value of items that were lost.
    10. Section 9008.14 would be revised to read as follows:


Sec. 9008.14  Petitions for rehearing; stays of repayment 
determinations.

    Petitions for rehearing following the Commission's repayment 
determination and requests for stays of repayment determinations will 
be governed by the procedures set forth at 11 CFR 9007.5 and 9038.5. 
The Commission will afford convention committees the same rights as are 
provided to publicly funded candidates under 11 CFR 9007.5 and 9038.5.
    11. In Sec. 9008.52, the heading of paragraph (c) would be 
republished and the introductory language of paragraph (c)(1) would be 
revised to read as follows:


Sec. 9008.52  Receipts and disbursements of host committees.

* * * * *
    (c) Receipt of donations from local businesses and organizations.
    (1) Local businesses (including banks), local labor organizations, 
and other local organizations or local individuals may donate funds or 
make in-kind donations to a host committee to be used for the following 
purposes:
* * * * *
    12. In Sec. 9008.53, the heading of paragraph (b) would be 
republished and the introductory language of paragraph (b)(1) would be 
revised to read as follows:


Sec. 9008.53  Receipts and disbursements of government agencies and 
municipal corporations.

* * * * *
    (b) Receipt of donations to a separate fund or account.
    (1) Local businesses (including banks), local labor organizations, 
and other local organizations or local individuals may donate funds or 
make in-kind donations to a separate fund or account of a government 
agency or municipality to pay for expenses listed in 11 CFR 9008.52(c), 
provided that:
* * * * *

PART 9032--DEFINITIONS

    13. The authority citation for Part 9032 would continue to read as 
follows:

    Authority: 26 U.S.C. 9032 and 9039(b).

    14. Section 9032.11 would be revised to read as follows:


Sec. 9032.11  State.

    State means each State of the United States, Puerto Rico, American 
Samoa, the Virgin Islands, the District of Columbia, and Guam.

PART 9033--ELIGIBILITY FOR PAYMENTS

    15. The authority citation for Part 9033 would continue to read as 
follows:

    Authority: 26 U.S.C. 9003(e), 9033 and 9039(b).

    16. In Sec. 9033.11, paragraphs (b)(1)(iv) and (b)(3)(ii) would be 
revised to read as follows:


Sec. 9033.11  Documentation of disbursements.

* * * * *
    (b) * * *
    (1) * * *
    (iv) If the purpose of the disbursement is not stated in the 
accompanying documentation, it must be indicated on the canceled check 
negotiated by the payee.
* * * * *
    (3) * * *
    (ii) Purpose means the full name and mailing address of the payee, 
the date and amount of the disbursement, and a brief description of the 
goods or services purchased. Examples of acceptable and unacceptable 
descriptions of goods and services purchased are listed at 11 CFR 
104.3(b)(3)(i)(B).
* * * * *

PART 9034--ENTITLEMENTS

    17. The authority citation for Part 9034 would continue to read as 
follows:

    Authority: 26 U.S.C. 9034 and 9039(b).

    18. In Sec. 9034.4, paragraphs (a)(3)(i), (a)(3)(iii), (b)(8), 
(e)(1), and (e)(3) would be revised to read as follows:


Sec. 9034.4  Use of contributions and matching payments.

    (a) * * *
    (3) * * *
    (i) Costs associated with the termination of political activity, 
such as the costs of complying with the post election requirements of 
the Act and other necessary administrative costs associated with 
winding down the campaign, including office space rental, staff 
salaries, and office supplies, shall be considered qualified campaign 
expenses. A candidate may receive and use matching funds for these 
purposes either after he or she has notified the Commission in writing 
of his or her withdrawal from the campaign for nomination, or after the 
date of the party's nominating convention, if he or she has not 
withdrawn before the convention, or after the end of the expenditure 
report period, if the candidate wins the nomination, whichever is 
later.
* * * * *
    (iii) For purposes of the expenditure limitations set forth in 11 
CFR 9035.1, 100% of salary, overhead and computer expenses incurred 
after a candidate's date of ineligibility, or after the end of the 
expenditure report period, if the candidate wins the nomination, 
whichever is later, may be treated as exempt legal and accounting 
compliance expenses beginning with the first full reporting period 
after the candidate's date of ineligibility or after the end of the 
expenditure report period, whichever is later. For candidates who 
continue to campaign or re-establish eligibility, this paragraph shall 
not apply to expenses incurred during the period between the date of

[[Page 69535]]

ineligibility and the date on which the candidate either re-establishes 
eligibility or ceases to continue to campaign.
* * * * *
    (b) * * *
    (8) Lost or misplaced items. The cost of lost or misplaced items 
may be considered a nonqualified campaign expense. Factors considered 
by the Commission in making this determination shall include, but not 
be limited to, whether the committee demonstrates that it made 
conscientious efforts to safeguard the missing equipment; whether the 
committee sought or obtained insurance on the items; whether the 
committee filed a police report; the type of equipment involved; and 
the number and value of items that were lost.
* * * * *
    (e) * * *
    (1) General rule. Any expenditure for goods or services that are 
used exclusively for the primary election campaign shall be attributed 
to the limits set forth at 11 CFR 9035.1. Any expenditure for goods or 
services that are used exclusively for the general election campaign 
shall be attributed to the limits set forth at 11 CFR 110.8(a)(2), as 
adjusted under 11 CFR 110.9(c). All expenditures for goods and services 
that are used for both the primary and the general election campaigns 
shall be attributed in accordance with paragraphs (e)(2) through (e)(7) 
of this section.
* * * * *
    (3) State or national campaign offices. Overhead expenditures 
incurred in connection with state or national campaign offices shall be 
attributed according to when the usage of the office occurs. Payroll 
costs shall be attributed according to when the work is performed. For 
purposes of this section, overhead expenditures shall have the same 
meaning as set forth in 11 CFR 106.2(b)(2)(iii)(D). Expenses for usage 
of offices or work performed on or before the date of the candidate's 
nomination shall be attributed to the primary election, except for 
periods when the office is used only by persons working full time on 
general election campaign preparations.
* * * * *
    19. In Sec. 9034.5, paragraph (c)(1) would be revised to read as 
follows:


Sec. 9034.5  Net outstanding campaign obligations.

* * * * *
    (c)(1) Capital assets. For purposes of this section, the term 
capital asset means any property used in the operation of the campaign 
whose purchase price exceeded $2000 when received by the committee. 
Property that must be valued as capital assets under this section 
includes, but is not limited to, office equipment, furniture, vehicles 
and fixtures acquired for use in the operation of the candidate's 
campaign, but does not include property defined as ``other assets'' 
under paragraph (c)(2) of this section. Capital assets include items 
such as computer systems and telecommunications systems, if the 
equipment is used together and if the total cost of all components that 
are used together exceeds $2000. A list of all capital assets shall be 
maintained by the committee in accordance with 11 CFR 9033.11(d). The 
fair market value of capital assets shall be considered to be 60% of 
the total original cost of such items when acquired, except that items 
received after the date of ineligibility must be valued at their fair 
market value on the date received. A candidate may claim a lower fair 
market value for a capital asset by listing that capital asset on the 
statement separately and demonstrating, through documentation, the 
lower fair market value. If the candidate receives public funding for 
the general election, a lower fair market value shall not be claimed 
under this section for any capital assets transferred or sold to the 
candidate's general election committee.
* * * * *

PART 9035--EXPENDITURE LIMITATIONS

    20. The authority citation for Part 9035 would continue to read as 
follows:

    Authority: 26 U.S.C. 9035 and 9039(b).

    21. Section 9035.1, is revised to read as follows:


Sec. 9035.1  Campaign expenditure limitation; compliance and 
fundraising exemptions.

    (a) Spending limit. (1) No candidate or his or her authorized 
committee(s) shall knowingly incur expenditures in connection with the 
candidate's campaign for nomination, which expenditures, in the 
aggregate, exceed $10,000,000 (as adjusted under 2 U.S.C. 441a(c)), 
except that the aggregate expenditures by a candidate in any one State 
shall not exceed the greater of: 16 cents (as adjusted under 2 U.S.C. 
441a(c)) multiplied by the voting age population of the State (as 
certified under 2 U.S.C. 441a(e)); or $200,000 (as adjusted under 2 
U.S.C. 441a(c)).
    (2) The Commission will calculate the amount of expenditures 
attributable to the overall expenditure limit or to a particular state 
using the full amounts originally charged for goods and services 
rendered to the committee and not the amounts for which such 
obligations were settled and paid, unless the committee can demonstrate 
that the lower amount paid reflects a reasonable settlement of a bona 
fide dispute with the creditor.
    (b) Allocation. Each candidate receiving or expecting to receive 
matching funds under this subchapter shall also allocate his or her 
expenditures in accordance with the provisions of 11 CFR 106.2.
    (c) Compliance and fundraising exemptions. (1) A candidate may 
exclude from the overall expenditure limitation of this section an 
amount equal to 10% of all operating-expenditures for each report 
period as an exempt legal and accounting compliance cost under 11 CFR 
100.8(b)(15).
    (2) A candidate may exclude from the overall expenditure limitation 
of this section the amount of exempt fundraising costs specified in 11 
CFR 100.8(b)(21)(iii).
    (d) Candidates not receiving matching funds. The expenditure 
limitations of this section shall not apply to a candidate who does not 
receive matching funds at any time during the matching payment period.
    22. Section 9035.3 would be added to read as follows:


Sec. 9035.3  Expenditures by Vice Presidential candidates.

    (a) In the case of a candidate who obtains a political party's 
nomination for the office of Vice President of the United States, any 
expenditures made in connection with seeking that Vice Presidential 
nomination shall be considered expenditures by the publicly funded 
candidate who obtains that political party's nomination for the office 
of President of the United States, except as provided in paragraph (b) 
of this section.
    (b) The payment of expenses incurred by a Vice Presidential 
candidate, the candidate's family, and the candidate's authorized 
committee's staff to attend a political party's national nominating 
convention, including the cost of transportation, lodging, and 
subsistence, and the costs of raising funds for these expenses, will 
not be considered an expenditure by the candidate who obtains that 
political party's nomination for the office of President of the United 
States.
    23. The title of part 9036 would be revised to read as follows:

[[Page 69536]]

PART 9036--REVIEW OF MATCHING FUND SUBMISSIONS AND CERTIFICATION OF 
PAYMENTS BY COMMISSION

    24. The authority citation for Part 9036 would continue to read as 
follows:

    Authority: 26 U.S.C. 9036 and 9039(b).

    25. In Sec. 9036.1, paragraph (b)(3) would be revised to read as 
follows:


Sec. 9036.1  Threshold submission.

* * * * *
    (b) * * *
    (3) The candidate shall submit a full-size photocopy of each check 
or written instrument and of supporting documentation in accordance 
with 11 CFR 9034.2 for each contribution that the candidate submits to 
establish eligibility for matching funds. For purposes of the threshold 
submission, the photocopies shall be segregated alphabetically by 
contributor within each State, and shall be accompanied by and 
referenced to copies of the relevant deposit slips. In lieu of 
submitting photocopies, the candidate may submit digital images of 
checks and other materials in accordance with the procedures specified 
in 11 CFR 9036.2(b)(1)(vi). Digital images of contributions do not need 
to be segregated alphabetically by contributor within each State.
* * * * *
    26. In Sec. 9036.2, paragraph (b)(1)(vi) would be revised to read 
as follows:


Sec. 9036.2  Additional submissions for matching fund payments.

* * * * *
    (b) * * *
    (1) * * *
    (vi) The photocopies of each check or written instrument and of 
supporting documentation shall either be alphabetized and referenced to 
copies of the relevant deposit slip, but not segregated by State as 
required in the threshold submission; or such photocopies may be 
batched in deposits of 50 contributions or less and cross-referenced by 
deposit number and sequence number within each deposit on the 
contributor list. In lieu of submitting photocopies, the candidate may 
submit digital images of checks, written instruments and deposit slips 
as specified in the Computerized Magnetic Media Requirements. The 
candidate may also submit digital images of contributor redesignations, 
reattributions and supporting statements and materials needed to verify 
the matchability of contributions. The candidate shall provide the 
computer equipment and software needed to retrieve and read the digital 
images, if necessary, at no cost to the Commission, and shall include 
digital images of every contribution received and imaged on or after 
the date of the previous matching fund request. Contributions and other 
documentation not imaged shall be submitted in photocopy form. The 
candidate shall maintain the originals of all contributor 
redesignations, reattributions and supporting statements and materials 
that are submitted for matching as digital images.
* * * * *

PART 9038--EXAMINATIONS AND AUDITS

    27. The authority citation for Part 9038 would continue to read as 
follows:

    Authority: 26 U.S.C. 9038 and 9039(b).

    28. In Sec. 9038.1, a new sentence would be added to the end of 
paragraph (b)(1) introductory text, and paragraph (f)(3) would be 
revised, to read as follows:


Sec. 9038.1  Audit.

* * * * *
    (b) * * *
    (1) * * * Upon request, the committee shall produce the originals 
of all contributor redesignations, reattributions and supporting 
statements and materials that were submitted for matching as digital 
images under 11 CFR 9036.2(b), in addition to the materials required 
under 11 CFR 110.1(l).
* * * * *
    (f) * * *
    (3) Within 30 days of service of the publicly released Audit 
Report, the committee shall submit a check to the United States 
Treasury for the total amount of any excessive or prohibited 
contributions not refunded, reattributed or redesignated in a timely 
manner in accordance with 11 CFR 103.3(b)(1), (2) or (3); or take any 
other action required by the Commission with respect to sample-based 
findings.
    29. In Sec. 9038.2, the introductory material to paragraph (c), and 
paragraphs (c)(1), (c)(2), (c)(2)(i), (d)(1), and (d)(3) would be 
republished, and paragraphs (c)(2)(ii), (c)(3) and (d)(2) would be 
revised, to read as follows:


Sec. 9038.2  Repayments.

* * * * *
    (c) Repayment determination procedures. The Commission's repayment 
determination will be made in accordance with the procedures set forth 
at paragraphs (c)(1) through (c)(3) of this section.
    (1) Repayment determination. The Commission will provide the 
candidate with a written notice of its repayment determination(s). This 
notice will be included in the Commission's audit report prepared 
pursuant to 11 CFR 9038.1(d), or inquiry report pursuant to 11 CFR 
9039.3, and will set forth the legal and factual reasons for such 
determination(s), as well as the evidence upon which any such 
determination is based. The candidate shall repay to the United States 
Treasury in accordance with paragraph (d) of this section, the amount 
which the Commission has determined to be repayable.
    (2) Administrative review of repayment determination. If a 
candidate disputes the Commission's repayment determination(s), he or 
she may request an administrative review of the determination(s) as set 
forth in paragraph (c)(2)(i) of this section.
    (i) Submission of written materials. A candidate who disputes the 
Commission's repayment determination(s) shall submit in writing, within 
60 calendar days after service of the Commission's notice, legal and 
factual materials demonstrating that no repayment, or a lesser 
repayment, is required. Such materials may be submitted by counsel if 
the candidate so desires. The candidate's failure to timely raise an 
issue in written materials presented pursuant to this paragraph will be 
deemed a waiver of the candidate's right to raise the issue at any 
future stage of proceedings including any petition for review filed 
under 26 U.S.C. 9041(a).
    (ii) Oral hearing. A candidate who submits written materials 
pursuant to paragraph (c)(2)(i) of this section may at the same time 
request in writing that the Commission provide such candidate with an 
opportunity to address the Commission in open session to demonstrate 
that no repayment, or a lesser repayment, is required. The candidate 
should identify in this request the repayment issues he or she wants to 
address at the oral hearing. If the Commission decides by an 
affirmative vote of four (4) of its members to grant the candidate's 
request, it will inform the candidate of the date and time set for the 
oral hearing. At the date and time set by the Commission, the candidate 
or candidate's designated representative will be allotted an amount of 
time in which to make an oral presentation to the Commission based upon 
the legal and factual materials submitted under paragraph (c)(2)(i) of 
this section. The candidate or representative will also have the 
opportunity to answer any questions from individual members of the 
Commission.
    (3) Repayment determination upon review. Before voting on whether 
to

[[Page 69537]]

issue any repayment determination(s) following an administrative review 
pursuant to paragraph (c)(2) of this section, the Commission will 
consider any submission made under paragraph (c)(2)(i) of this section 
and any oral hearing conducted under paragraph (c)(2)(ii), and may also 
consider any new or additional information from other sources. A 
determination following an administrative review that a candidate must 
repay a certain amount must be approved by an affirmative vote of four 
(4) members of the Commission. The determination will be accompanied by 
a written statement of reasons supporting the Commission's 
determination(s). This statement will explain the legal and factual 
reasons underlying the Commission's determination(s) and will summarize 
the results of any investigation(s) upon which the determination(s) are 
based.
    (d) Repayment period. (1) Within 90 calendar days of service of the 
notice of the Commission's repayment determination(s), the candidate 
shall repay to the United States Treasury the amounts which the 
Commission has determined to be repayable. Upon application by the 
candidate, the Commission may grant an extension of up to 90 calendar 
days in which to make repayment.
    (2) If the candidate requests an administrative review of the 
Commission's repayment determination(s) under paragraph (c)(2) of this 
section, the time for repayment will be suspended until the Commission 
has concluded its administrative review of the repayment 
determination(s) and has approved by an affirmative vote of four (4) of 
its members a post-administrative review repayment determination. 
Within 30 calendar days after service of the notice of the Commission's 
post-administrative review repayment determination(s), the candidate 
shall repay to the United States Treasury the amounts which the 
Commission has determined to be repayable. Upon application by the 
candidate, the Commission may grant an extension of up to 90 calendar 
days in which to make repayment.
    (3) Interest shall be assessed on all repayments made after the 
initial 90-day repayment period established at paragraph (d)(1) of this 
section or the 30-day repayment period established at paragraph (d)(2) 
of this section. The amount of interest due shall be the greater of:
    (i) An amount calculated in accordance with 28 U.S.C. 1961(a) and 
(b); or
    (ii) The amount actually earned on the funds set aside under this 
section.
* * * * *
    Dated: December 11, 1998.
Scott E. Thomas,
Acting Chairman, Federal Election Commission.
[FR Doc. 98-33316 Filed 12-15-98; 8:45 am]
BILLING CODE 6715-01-P