[Federal Register Volume 64, Number 176 (Monday, September 13, 1999)]
[Rules and Regulations]
[Pages 49355-49365]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-23578]


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FEDERAL ELECTION COMMISSION

11 CFR PARTS 9003, 9004, 9008, 9032, 9033, 9034, 9035, and 9036

[Notice 1999-17]


Public Financing of Presidential Primary and General Election 
Candidates

AGENCY: Federal Election Commission.

ACTION: Final Rule and Transmittal of Regulations to Congress.

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SUMMARY: The Commission is revising its regulations 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 revised 
rules reflect the Commission's experience in administering this program 
during several previous Presidential election cycles and also seek to 
resolve some questions that may arise during the 2000 Presidential 
election cycle. Further information is provided in the supplementary 
information that follows.

DATES: Further action, including the publication of a document in the 
Federal Register announcing an effective date, will be taken after 
these regulations have been before Congress for 30 legislative days 
pursuant to 26 U.S.C. 9009(c) and 9039(c).

FOR FURTHER INFORMATION CONTACT: Ms. Rosemary C. Smith, Acting 
Assistant General Counsel, 999 E Street, NW, Washington, DC 20463, 
(202) 694-1650 or toll free (800) 424-9530.

SUPPLEMENTARY INFORMATION: The Commission is publishing today the final 
text of revisions to 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. On December 16, 1998, the Commission issued a 
Notice of Proposed Rulemaking (NPRM) in which it sought comments on 
proposed revisions to these regulations. 63 FR 69524 (Dec. 16, 1998).
    In response to the NPRM, written comments were received from 
Aristotle Publishing, Inc.; America Online, Inc.; Philadelphia 2000; 
Perot for President '96; James Madison Center for Free Speech; Common 
Cause and Democracy 21 (joint comment); Brennan Center for Justice; Lyn 
Utrecht, Eric Kleinfeld, and Patricia Fiori (joint comment); Democratic 
National Committee; Hervey W. Herron (two comments); Republican 
National Committee; the Internal Revenue Service, and Carl P. Leubsdorf 
and twenty nine executives of news organizations (joint comment). The 
Internal Revenue Service stated that it has reviewed the NPRM and finds 
no conflict with the Internal Revenue Code or regulations thereunder. 
Subsequently, the Commission reopened the comment period and held a 
public hearing on March 24, 1999, at which the following eight 
witnesses presented testimony on the issues raised in the NPRM: Kim 
Hume (Fox News), George Condon (Copley News Service), Lyn Utrecht 
(Ryan, Phillips, Utrecht & MacKinnon), Joseph E. Sandler (Democratic 
National Committee), Thomas J. Josefiak (Republican National 
Committee), David Eisner and Trevor Potter (America Online, Inc.), and 
James Bopp, Jr. (James Madison Center for Free Speech).
    Please note that the Commission has already published separately 
final rules modifying the candidate agreement provisions so that 
federally-financed Presidential committees must electronically file 
their reports. See Explanation and Justification of 11 CFR 9003.1 and 
9033.1, 63 FR 45679 (August 27, 1998). Those regulations took effect on 
November 13, 1998. See Announcement of Effective Date, 63 FR 63388 
(November 13, 1998). In addition, the Commission has issued final rules 
governing the matchability of contributions made by credit and debit 
cards, including those transmitted over the Internet. See Explanation 
and Justification of 11 CFR 9034.2 and 9034.3, 64 FR 32394 (June 17, 
1999). An effective date for the matching fund rules will be announced 
once those regulations have been before Congress for thirty legislative 
days. Final rules concerning coordinated party committee

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expenditures in the pre-nomination period and reimbursement by the news 
media for travel expenses are also pending before Congress. See 
Explanation and Justification of 11 CFR 110.7, 9004.6 and 9034.6, 64 FR 
42579 (Aug. 5, 1999).
    The NPRM discussed several other topics that are not included in 
the attached final rules. The Commission expects to address the 
following areas at a later date: (1) Coordination between candidates 
and party committees on political ads, polling, media production, 
consulting services and sharing of employees; (2) Modifications to the 
audit process; (3) Bases for primary repayment determinations; 4) The 
``bright line'' between primary expenses and general election expenses; 
and (5) Pre-nomination formation of Vice Presidential committees.
    Sections 9009(c) and 9039(c) of Title 26, United States Code, 
require that any rules or regulations prescribed by the Commission to 
carry out the provisions of Title 26 of the United States Code be 
transmitted to the Speaker of the House of Representatives and the 
President of the Senate 30 legislative days before they are finally 
promulgated. The final rules that follow were transmitted to Congress 
on September 7, 1999.

Explanation and Justification

Part 9003--Eligibility for Payments

Section 9003.3  Allowable Contributions; General Election Legal and 
Accounting Compliance Fund

1. Pre-nomination Formation of a GELAC
    Section 9003.3 contemplates that a nominee of a major political 
party who accepts public financing for the general election 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 sought comments on several 
changes to this section to address problems that have arisen when 
primary candidates established 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 problem has been ensuring 
that the GELAC is not improperly used to make primary election 
expenditures. In particular, this may become an issue when a candidate 
secures the nomination well in advance of the convention and has almost 
completely exhausted the spending limits for the primary. To avoid a 
recurrence of these situations, the NPRM sought comments on the 
following five alternative amendments to paragraph (a)(1)(i) of section 
9003.3:
    (1) Bar GELAC fundraising prior to the candidate's nomination at 
the party's national nominating convention. Under this approach, a 
candidate may 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.
    (2) 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 may begin 
soliciting contributions for the GELAC. However, if the candidate does 
not become the nominee, all contributions accepted for the GELAC, 
including redesignated contributions, must be refunded within sixty 
(60) days of the candidate's date of ineligibility.
    (3) Allow GELAC fundraising beginning 90 days before each 
candidate's date of nomination. This approach means that the nominees 
of the two major parties will begin GELAC fundraising on different 
dates.
    (4) 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 is to allow the eventual 
nominee to form a GELAC at an earlier point, but to prohibit GELAC 
fundraising before the last Presidential primary.
    (5) 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 do 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. The NPRM asked 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. The NPRM noted that this 
alternative is significant departure from the treatment of general 
election contributions received by losing primary candidates in 
Congressional races.
    The two witnesses who addressed this topic stressed the importance 
of implementing policies that encourage candidates to spend money to 
achieve voluntary compliance with the campaign financing laws. Hence, 
they both urged the Commission to make no changes that would create a 
disincentive to spend money on compliance. They urged the Commission to 
continue to allow candidates to have the discretion to determine when 
to form a GELAC and begin GELAC solicitations. Thus, they both 
supported alternative 5, under which losing primary candidates only be 
required to refund or obtain donor redesignation for funds remaining in 
the account.
    The Commission has decided to adopt a modified version of 
alternative 2. Under this approach, paragraph (a)(1)(i) continues to 
permit GELACs to be established at any time. However, new language 
indicates that before June 1 of the Presidential election year, the 
GELAC may only be used for the deposit of primary election 
contributions that exceed the contributors' contribution limits and are 
properly redesignated under 11 CFR 110.1. Please note that overhead and 
reporting expenses incurred by the GELAC may be defrayed from interest 
received on the account. The modifications to these regulations also 
specify that the GELAC may not solicit contributions before June 1 of 
the Presidential election year. This date has been selected because, 
barring unforeseen circumstances, this is the point when a party's 
prospective nominee can be reasonably assured that he or she will need 
to raise funds for a GELAC. This time frame also gives the prospective 
nominee sufficient time to raise the funds that will be needed. Please 
note that revisions to the rules governing joint fundraising between 
the primary campaign and the GELAC are discussed below in section 
9034.4.
    Paragraph (a)(1)(i) of this section is also being revised to state 
more clearly that a GELAC may be established by an individual who is 
seeking his or her party's nomination, but who is not yet a general-
election candidate as defined in section 9002.2.
    The Commission is also amending paragraph (a)(1)(i) of section 
9003.3 to indicate that if the candidate does not become the nominee, 
all contributions accepted for the GELAC, including redesignated 
contributions, must be refunded within sixty (60) days of the 
candidate's date of ineligibility. Such refunds are consistent with the 
Commission's decision in the last

[[Page 49357]]

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 are also 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. Please note that if contributors do not 
cash the refund checks, the provisions of section 9007.6 governing 
stale dated checks will apply.
2. Transfers from the Primary Campaign Committee to the GELAC
    The regulations at 11 CFR 9003.3(a)(1)(i) through (v) place certain 
restrictions on transferring funds from a Presidential candidate's 
primary committee to a GELAC. The purpose of these limitations is 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 NPRM sought suggestions as to how these provisions 
could be strengthened, and whether it is advisable to do so. The sole 
comment that addressed this issue stated that the current regulations 
at 11 CFR 9003.3(a)(1) are more than adequate to ensure that the GELAC 
is not used to increase candidate entitlement or decrease repayments. 
The Commission has decided not to amend these transfer regulations 
because it agrees that the current rules adequately fulfill these 
objectives.

Section 9003.5  Documentation of Disbursements

    Section 9003.5(b)(1) sets forth the documentation publicly financed 
general election committees must provide for disbursements in excess of 
$200. The documentation includes a canceled check that has been 
negotiated by the payee. However, paragraph (b)(1)(iv) of this section 
refers back to this canceled check without specifically restating that 
it must be negotiated by the payee. To avoid possible confusion, the 
Commission is amending section 9003.5(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). A cross reference is also being added to assist 
the reader in locating the reporting regulations that list examples of 
acceptable and unacceptable descriptions of ``purpose.'' See 11 CFR 
104.3(b)(3)(i)(B). None of the public comments or testimony addressed 
these changes.

Part 9004--Entitlement of Eligible Candidates to Payments; Use of 
Payments

Section 9004.4

1. Winding Down Costs
    Two technical changes are being made to the winding down provisions 
found in paragraph (a)(4) of section 9004.4. First, the ``or'' at the 
end of paragraph (a)(4)(i) is being changed to ``and,'' to clarify that 
the expenses listed in both paragraphs (a)(4)(i) and (a)(4)(ii) are 
considered winding down costs. Second, paragraph (a)(4)(ii) is being 
amended to more clearly indicate that the winding down costs described 
in this paragraph are costs associated with the general election 
campaign.
2. Lost, Misplaced, or Stolen Items
    Paragraph (b)(8) of this section addresses situations where 
equipment in the possession of general election committees is lost or 
damaged. As a general matter, the cost of lost or misplaced items may 
not be defrayed with public funds. However, given that there are 
varying degrees of responsibility in this area, the rules 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; the type of equipment involved; and the number and value 
of items that were lost.
    The Commission has decided to modify this paragraph to include 
stolen items and to add as another factor whether a police report was 
filed. There were no public comments on this portion of the 
regulations.

Section 9004.9  Net Outstanding Qualified Campaign Expenses

    The amendments to the provisions governing the disposition of 
capital assets in section 9004.9(d)(1) are discussed below. See the 
Explanation and Justification for 11 CFR 9034.5(c)(1).

Part 9008--Federal Financing of Presidential Nominating Conventions 
and Host Committees

Section 9008.7  Use of Funds

    New paragraph (c) is being added to section 9008.7 to address 
situations where equipment in the possession of convention committees 
is lost, misplaced, or stolen. The rule indicates that as a general 
matter, the cost of lost, misplaced, or stolen items may not be 
defrayed with public funds. However, the Commission recognizes that 
there are varying degrees of responsibility in this area. Accordingly, 
the regulation also provides 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, or stolen from, 
publicly funded candidates. See 11 CFR 9004.4(b)(8) and 9034.4(b)(8). 
None of the public comments or testimony specifically addressed this 
aspect of the convention regulations.

Section 9008.14  Petitions for Rehearings; Stays of Repayment 
Determinations

    In section 9008.14, the term ``final repayment determinations'' is 
being replaced by ``repayment determinations.'' This amendment conforms 
with the changes in terminology made when the rules setting out audit 
and repayment procedures were last revised in 1995.

Section 9008.52  Receipts and Disbursements of Host Committees

1. Local Banks and Local Individuals
    The NPRM sought comments on amending section 9008.52(c)(1), which 
addresses the receipt of donations by host committees. Specifically, 
the NPRM sought to allow local banks to donate funds and make in-kind 
donations for the limited purposes described in these rules. The two 
commenters who addressed this topic supported the proposed amendment. 
They found no rationale for the long standing distinction in the rules 
between donations from local corporations and donations from local 
branches of national banks. One of the commenters argued that local 
branches of national banks have the same interest as other local 
businesses in promoting the city and supporting commerce.
    The Commission agrees with these comments. Consequently this 
amendment is being included in the attached final rules that follow. 
Please note that the revised rules supersede, in part, Advisory Opinion 
1995-31 regarding local branches of national banks.
    The second changes to section 9008.52(c)(1) concerns the categories 
of individuals who may donate funds or

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make in-kind donations to host committees, government agencies and 
municipal corporations. The revisions restrict these donations to 
individuals who either maintain a local residence or who work for a 
business's local office, or a labor organization's local office, or 
another organization's local office. This new language is consistent 
with AO 1995-32 with respect to donations by individuals.
    Two commenters opposed restricting donations to ``local'' 
individuals on several grounds. They argued that the Commission 
misinterpreted its own regulation in AO 1995-32. In addition, one 
commenter stated that the policy concerns regarding corporate 
aggregation of wealth are not applicable to individuals. This comment 
appears to overlook the compelling governmental purposes--preventing 
corruption and the appearance of corruption--that underlie the 
statutory restrictions on individual contributions. One of the 
commenters also asserted that this change to the regulation 
impermissibly infringes upon the First Amendment's guarantee of freedom 
of speech. Given that the FECA's contribution limitations were upheld 
in Buckley v. Valeo, 424 U.S. 1 (1976), in the face of a First 
Amendment challenge, this argument is not persuasive. In addition, one 
commenter also argued that there are compelling reasons why individuals 
residing outside the metropolitan area of the convention city would 
want to support the host committee. However, the comment failed to 
indicate what such reasons might be.
    Consequently, the Commission does not find the commenters' 
arguments persuasive. Therefore, this change is being included in the 
final rules.
2. Permissible Host Committee Expenses
    During the audits of the 1996 convention and host committees, a 
number of questions were 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. Consequently, 
the NPRM sought comments on amending one or both of these provisions to 
provide greater specificity regarding 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. The NPRM noted that 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. Specific changes to these regulations were not included in the 
NPRM.
    One host committee and two national party committees urged the 
Commission to defer consideration and implementation of any significant 
changes regarding permissible host committee expenditures until after 
the year 2000 Presidential elections because the host committees and 
national party committees have already finalized their contractual 
arrangements for the year 2000 Presidential nominating conventions. One 
of these witnesses observed that the purpose and functions of host 
committees are nonpartisan, namely to maximize the economic benefit to 
the city. This party committee witness argued that the current rules 
are adequate and provide the flexibility necessary to accommodate the 
unique circumstances found in different host cities and in light of 
swiftly changing technology. Consequently, this witness opposed new 
restrictions on the goods and services that a host committee may 
provide. The other party committee witness indicated that it is 
contemplating selective use of the advisory opinion process to obtain 
clarification, as needed, of the existing regulations.
    Given that the party committees have already entered into 
contractual agreements with the sites selected, the Commission has 
decided not to modify the existing regulations at this time with regard 
to the division of expenses between convention committees and host 
committees. Please note also that the Commission's decisions regarding 
the audits of the 1996 convention and host committees serve to provide 
additional guidance for the 2000 election cycle.

Section 9008.53  Receipts and Disbursements of Government Agencies and 
Municipal Corporations

    The changes being made to 11 CFR 9008.53(b)(1), which governs the 
receipt of donations by government agencies and municipal corporations, 
generally follow the revisions to section 9008.52(c)(1). Consequently, 
a separate fund or account of a government agency or municipality may 
accept donations from local banks and individuals who either maintain a 
local residence or who work for a business's local office, or a labor 
organization's local office, or another organization's local office.

Part 9032--Definitions

Section 9032.11  State

    The definition of ``State'' in section 9032.11 is being updated by 
deleting the Canal Zone and by adding American Samoa, which holds 
Presidential primaries consisting of caucuses. There is no 
corresponding provision in the general election rules.

Part 9033--Eligibility for Payments

Section 9033.11 Documentation of Disbursements

    The revisions to section 9033.11 follow the amendments to section 
9003.5 discussed above. No public comments were received regarding 
these changes.

Part 9034--Entitlements

Section 9034.4  Use of Contributions and Matching Payments

1. 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 arose 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 NPRM sought comments on revising 
section 9034.4(a)(3)(i) and (iii) to indicate 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.
    The written comments of two witnesses opposed this change. One 
witness viewed the proposal as a ``success penalty'' for winning 
primary candidates. This witness noted that all primary candidates, 
whether they win or lose the nomination, must incur wind down costs. 
Similarly, the other witness stated that general election candidates

[[Page 49359]]

must incur primary campaign wind down costs during the general election 
period for such activities as paying debts, filing FEC reports, making 
matching fund submissions, and responding to FEC auditor requests in 
preparation for the audit. Consequently, this witness argued that the 
primary committees of the candidates who win the nomination should be 
able to pay these expenses. This comment also noted that the proposed 
rule would lower the amount of matching funds that could be received 
for these legitimate primary expenses, thereby treating winning primary 
candidates differently from those who lose their party's nomination.
    The Commission has concluded that this area needs to be clarified. 
During the general election campaign, there are significant 
distinctions between the winding down activities of candidates who win 
their parties' nominations and those who do not, particularly with 
regard to legal and accounting compliance expenses. Accordingly, the 
revised rules indicate that a publicly funded primary candidate who 
does not run in the general election may begin to treat 100% of salary 
and overhead expenses as compliance after the candidate's date of 
ineligibility. However, federally financed primary candidates who 
continue on to the general election, as well as non-federally financed 
primary candidates who accept general election funding, must wait until 
after the end of the expenditure report period for the general election 
before they may begin treating all salary and overhead expenses as 
compliance expenses. Please note that the 100% figure applies to the 
salaries of those who continue to provide substantial services to the 
committee after the end of the expenditure report period. Compliance 
expenses between the date of nomination and the end of the expenditure 
report period are covered by the revisions to section 9035.1(c)(1), 
discussed below.
2. Lost, Misplaced, or Stolen Items
    The revisions to paragraph (b)(8) of section 9034.4 follow the 
changes made to section 9004.4(b)(8). None of the public comments or 
testimony addressed this provision.
3. ``Bright Line'' Distinction Between Primary and General Election 
Expenses
    Paragraph (e) of section 9034.4 sets forth certain ``bright line'' 
distinctions as to which expenses should be attributed to a candidate's 
primary campaign and which ones should be considered general election 
expenses. Revisions are being made to this paragraph to reflect that 
not all candidates may accept public funding in both the primary and 
the general election. Nevertheless, candidates accepting federal 
financing for only the general election will also need guidance in 
attributing their expenditures between their primary election 
committees and their general election committees. Accordingly, 
paragraph (e) is being amended to indicate that it applies to 
Presidential campaign committees that accept federal funds for either 
election.
    As noted above, the Commission expects to address a variety of 
other issues involving the bright line in a separate set of final rules 
to be issued at a later date.
4. 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. Under the revised rules that took 
effect for the 1996 elections, the costs of such solicitations were 
divided equally between the two committees, regardless of how much 
money is actually raised for each. One difficulty with this, however, 
was that in some situations it enabled the GELAC to absorb a relatively 
high portion of fundraising costs while receiving a relatively low 
proportion of the funds raised. Thus, this provision was at odds with 
the joint fundraising rules applicable to other types of joint 
fundraising conducted by publicly funded Presidential primary 
committees under 11 CFR 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. Questions were also raised as to whether the rule should cover 
only the cost of a solicitation, or whether it would be more 
appropriate to include other fundraising costs, such as staff salaries, 
consulting fees, catering, facilities rental, and the candidate's 
travel to the event site. Consequently, the NPRM suggested the 
following four alternatives to paragraph (e)(6)(i):
    (1) Allocate solicitation expenses and the distribution of net 
proceeds from a fundraiser in the same manner as described in 11 CFR 
9034.8(c)(8) (i) and (iii), which are the provisions that apply to 
unaffiliated committees.
    (2) Prohibit joint fundraising between the primary and the GELAC. 
If each committee performs its own fundraising, the difficulties 
inherent in apportioning expenses do not arise. This approach 
eliminates the problem that the recipient committees may not know which 
of several solicitation letters or fundraising events generated a given 
contribution.
    (3) 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 avoids GELAC 
subsidization of the primary campaign, and is easy to work with.
    (4) Specify in Sec. 9003.3(a)(2)(i)(E) that the GELAC may only pay 
for the following solicitation costs: printing invitations and 
solicitations, mailing, postage and telemarketing expenses. This 
approach excludes GELAC payment for catering, facilities rental, 
fundraising consultants, employee salaries, and travel to the event 
site.
    Two witnesses addressed this topic in their written comments. They 
both supported the current 50/50 rule for its simplicity. One commenter 
specifically urged that this rule be expanded to cover all types of 
fundraising costs, including event and travel costs. The other witness 
indicated that it would also make sense to follow the already-
established joint fundraising rules.
    The Commission has decided to implement the first alternative, 
which treats joint primary/GELAC fundraising the same as joint 
fundraising by unaffiliated committees. The joint fundraising rules in 
Sec. 9034.8 are well-established and have proved to work well in other 
contexts. Under the revisions to 9034.4(e)(6)(i), the GELAC and the 
primary committee must apportion their fundraising costs, including 
printing invitations and solicitations, mailing, postage, telemarketing 
expenses, catering, facilities rental, fundraising consultants, and 
employee salaries, using the percentage of contributions each committee 
receives from the joint fundraising effort. 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 new provision, 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.

Section 9034.5  Net Outstanding Campaign Obligations

    In determining a Presidential primary committee's net outstanding 
campaign obligations (``NOCO''), Sec. 9034.5(c)(1) permits candidates 
to deduct 40% of the

[[Page 49360]]

original cost of capital assets for depreciation. Similarly, 
Sec. 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 federally financed Presidential campaign 
committees 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 unrealistically 
low for capital assets such as vehicles, computer systems, telephone 
systems, and other equipment that is heavily used during a Presidential 
primary campaign.
    For this reason, the NPRM sought comments on the amending 
Sec. 9034.5(c)(1) to allow primary candidates to demonstrate a higher 
depreciation figure through documentation of the fair market value. A 
similar amendment was proposed for the corresponding general election 
provision in 11 CFR 9004.9(d). Two comments addressed this proposed 
change. Both of them agreed that candidates should be allowed to 
demonstrate a higher depreciation. As the Commission concurs, this 
amendment is being included in both sections of the final rules.
    The NPRM also contemplated the establishment of a minimum fair 
market value of 60% of the purchase price in situations where a 
candidate's primary committee transfers or sells capital assets to his 
or her publicly financed general-election committee. Both comments 
argued that the price for assets transferred from primary to general 
election committee should be based on actual fair market value, which 
may be less, rather than an artificial percentage applicable to all 
types of capital assets.
    The final rules include the ``bright line'' approach, whereby the 
value of transferred assets is 60% of original purchase price. The 
Commission has concluded that it would be too complex to determine the 
fair market values of every capital asset actually transferred. The 60% 
figure is intended to reflect that while some capital assets are worth 
less, others are worth more. Sixty percent is reasonable in light of 
the fact that capital assets such as computer systems or 
telecommunications systems are customized and configured specifically 
to meet the needs of that particular campaign organization. It may also 
be of added value to the campaign staff to continue to work with 
familiar equipment, and to avoid the disruption that would occur if new 
equipment were obtained, instead. With respect to the sale of non-
capital assets from the primary to the general election committee, new 
language in paragraph (d)((1)(iii) indicates that an inventory must be 
prepared. This is needed to verify the valuation included on the 
primary committee's NOCO statement as well as the amount listed on the 
general election committee's NOQCE statement.
    The revised regulations in 11 CFR 9004.9(d) indicate that once the 
general election campaign is over, the value of assets obtained from 
the primary campaign committee shall be listed on the NOQCE statement 
as 20% of the original cost to the primary committee. Please note that 
campaigns do not have the option of demonstrating that an amount less 
than 20% is appropriate. Based on past experience, the Commission has 
concluded that a 20% residual value is a realistic figure for equipment 
that has been used throughout both the primary and general election 
campaigns.
    The commenters argued that this figure should also be based on 
actual fair market value, which may be less, rather than an artificial 
percentage applicable to all types of capital assets. Nevertheless, the 
Commission has concluded that this is another area where it would be 
too complex to determine the fair market values of every capital asset 
on hand. Some capital assets may be worth less, while others may be 
worth more. Accordingly, the revisions to 11 CFR 9004.9(d) incorporate 
the 20% residual value figure. Please note that the general election 
committee may, if it wishes, sell these capital assets to the GELAC for 
the 20% residual value.
    Another revision included in 11 CFR 9004.9 and 9034.5 is a 
clarification of the term ``capital asset.'' A new sentence is being 
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 is considered a capital 
asset. This new language conforms to the Commission's previous 
interpretation of its rules. See Explanation and Justification for 11 
CFR 9034.5, 60 FR 31868 (June 16, 1995). The NPRM sought comments on 
whether computer software should be treated as a capital asset. One 
commenter argued that software should not be considered to be a capital 
asset because the vendors' licensing agreements may bar transfer of the 
software. The Commission notes that some software programs may be sold 
as a package together with a computer system, thus making it 
impracticable to list them as separate capital assets on a NOCO 
statement.
    Lastly, please note that an incorrect reference to the date of 
ineligibility in paragraph (d)(1)(i) of section 9004.9 has been changed 
to refer to the end of the expenditure report period.

Part 9035--Expenditure Limitations

Section 9035.1 Campaign Expenditure Limitation; Compliance and 
Fundraising Exemptions

    The rules at 11 CFR 9035.1(c)(1) set forth an exemption from the 
overall spending limit for legal and accounting compliance costs 
incurred by federally financed Presidential primary committees. In the 
past, to claim this exemption, campaign committees have had to 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 NPRM sought to amend 
this regulation to provide a simpler and easier method of calculating 
the compliance exemption. Accordingly, comments were sought on revising 
this paragraph to state that an amount equal to 10% of all operating 
expenditures for each reporting period may be treated as compliance 
expenses not subject to the candidate's spending limit. The NPRM noted 
that this amount could be readily derived from line 23, Operating 
Expenses, on the committee's reports.
    Several commenters and witnesses stressed the importance of 
implementing policies that encourage candidates to spend money to 
achieve voluntary compliance with the campaign financing laws. 
Consequently, some of these opposed establishing an upper limit of 10% 
of operating costs that could be spent for compliance costs, arguing 
that the Commission should not discourage spending more money on 
compliance. They also pointed out that compliance costs may be 
unrelated to the overall amount of operating costs, and that committees

[[Page 49361]]

having low operating costs could be disadvantaged. One witness urged 
the Commission to let committees demonstrate that their actual legal 
and accounting costs are higher than the standard percentage.
    The Commission agrees that it is not sound policy to artificially 
limit or discourage compliance spending. Nevertheless, establishing a 
``standard deduction'' for compliance has the advantage of simplicity 
and ease of application. Consequently, the Commission has decided to 
modify the initial proposal so that an amount equal to 15% of the 
candidate's overall expenditure limit may be excluded as exempt legal 
and accounting compliance costs under 11 CFR 100.8(b)(15). A review of 
previous Presidential campaigns indicates that this figure approximates 
the upper amount publicly funded primary committees have spent in 
previous election cycles. Unlike the initial proposal, this approach is 
not tied to monthly operating expenditures. Thus, it allows for greater 
flexibility in earlier reporting periods when committees may be setting 
up their legal and accounting systems. A similar approach has worked 
well with respect to fundraising expenses. See 11 CFR 100.8(b)(21) and 
9035.1(c)(2). Note that the final rule does not permit committees to 
demonstrate that they have actually incurred a higher amount because 
the Commission is seeking to move away from its previous resource-
intensive system that required the creation, maintenance, and review of 
considerable paperwork to document compliance costs. However, as 
explained above, in addition to the 15% of the overall spending limits, 
publicly funded primary candidates may also treat 100% of their 
overhead and salary expenses as exempt compliance costs after their 
date of ineligibility or after the end of the expenditure report 
period. These changes to the regulations are intended to decrease the 
time it takes for the Commission to verify compliance costs during the 
audit process. They should also reduce the resources campaign 
committees must devote to tracking compliance costs.
    Please note that the title of section 9035.1 is also being revised 
and subheadings for each paragraph are being added to assist readers in 
locating the material in this section more easily.

Part 9036--Review of Matching Fund Submissions and Certification of 
Payments by Commission

Section 9036.1  Threshold Submission

    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. For the 2000 election 
cycle, the Commission is expanding this program to permit the use of 
digital imaging for primary committees' threshold submissions. See new 
language in paragraph (b)(3) of section 9036.1. Please note that 
committees wishing to submit paper records and documentation, instead 
of digital images, may do so. The only written set of comments to 
address this topic supported the submission of this documentation via 
CD ROM.

Section 9036.2  Additional Submissions for Matching Fund Payments

    Paragraph (b)(1)(vi) of this section is being revised to enable 
primary committees to submit digital images of contributor 
redesignations, reattributions and supporting statements and materials 
needed to establish the matchability of contributions. The single set 
of written comments to address this topic indicated that it would be 
burdensome for committees to maintain paper copies of original 
documentation other than contributor cards and affidavits. The 
Commission notes that the amendment to the regulations is only intended 
to give Presidential primary committees the option, in lieu of paper 
submissions, of electronically submitting digital images of contributor 
redesignations, contributor reattributions and the types of supporting 
statements commonly found on contributor cards. The requirements of 11 
CFR 110.1(l) for maintaining the original documents are not being 
changed. Hence, revised section 9036.2 does not impose additional 
recordkeeping burdens on Presidential committees.

Additional Issues

    During the course of this rulemaking, the Commission considered 
other possible changes to the regulations that it did not ultimately 
incorporate into the final rules. A summary of these proposals follows.

1. Allocation of Presidential Travel Costs

    The Commission's regulations at 11 CFR 9004.7 and 9034.7 govern the 
allocation of travel expenses when other candidates or elected 
officials accompany a publicly funded Presidential candidate, or such 
candidate's staff, on campaign-related trips. One commenter addressed 
several differences between these rules and the provisions of 11 CFR 
106.3 governing travel expenses for Congressional candidates and for 
Presidential candidates who don't accept federal funds for their 
campaigns.
    The Commission has concluded that these proposals are beyond the 
scope of this rulemaking. At a later date, however, they may be 
included in a new rulemaking addressing possible revisions to 11 CFR 
106.3. Changes in this area would impact all federal candidates, not 
just those who have or are running for President and have accepted 
federal funding for their campaigns. Thus, the Commission would want to 
have the benefit of obtaining comments from non-Presidential candidates 
before promulgating new rules that would affect them. In addition, to 
the extent possible, the Commission would need to closely consider 
consistency with Congressional guidelines regarding travel.

2. Aircraft Owned by Individuals and Charter Rates

    The Commission's regulations at 11 CFR 114.9(e) create exceptions 
to the definitions of contribution and expenditure to allow candidates 
and their campaign staff to travel on aircraft owned by corporations or 
labor organizations if they provide reimbursement within specified time 
periods. Similarly, 11 CFR 9004.7 and 9034.7 provide for reimbursement 
for campaign-related travel on government aircraft such as Air Force 
One or Air Force Two. However, no comparable provisions cover travel on 
aircraft owned by individuals, partnerships or other unincorporated 
entities. One commenter urged the Commission to amend its regulations 
to apply the same first-class reimbursement requirement to travel on 
private aircraft regardless of the nature of the owner of the aircraft. 
With regard to travel between cities not having first class service, 
the comment urged the Commission to let authorized committees use the 
``lowest available'' charter rate instead of the ``usual'' charter 
rate.
    For some of the reasons mentioned above, the Commission has 
concluded

[[Page 49362]]

that these proposals are beyond the scope of this rulemaking. They 
could, however, be included in a new Notice of Proposed Rulemaking at a 
later date. Changes of this nature would impact all federal candidates, 
not just those who have are running for President and have accepted 
federal funding for their campaigns. Thus, the Commission would want to 
have the benefit of obtaining comments from non-Presidential candidates 
before promulgating new rules that would affect them. In addition, this 
complex area is also subject to regulation by the Federal Aviation 
Administration, and consultation with that agency would be advisable 
before issuing final rules. Similarly, the Commission would need to 
carefully consider the consistency of its rules with Congressional 
guidelines regarding travel.

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

    The attached final 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 9008

    Campaign funds, Political committees and parties, Reporting and 
recordkeeping requirements
    11 CFR Part 9032.
    Campaign funds.
    11 CFR Parts 9033--9035
    Campaign funds, Reporting and recordkeeping requirements.
    11 CFR Part 9036
    Administrative practice and procedure, Campaign funds, Reporting 
and recordkeeping requirements.

    For the reasons set out in the preamble, Subchapters E and F of 
Chapter I of Title 11 of the Code of Federal Regulations are amended as 
follows:

PART 9003--ELIGIBILITY FOR PAYMENTS

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

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

    2. In Sec. 9003.3, the headings for paragraphs (a) and (a)(1) are 
republished, and the section heading, the introductory text of 
paragraph (a)(1)(i), and paragraph (a)(1)(i)(A) are revised to read as 
follows:


Sec. 9003.3  Allowable contributions; General election legal and 
accounting compliance fund.

    (a) Legal and accounting compliance fund--major party candidates.
    (1) Sources.
    (i) A major party candidate, or an individual who is seeking the 
nomination of a major party, may accept contributions to a legal and 
accounting compliance fund if such contributions are received and 
disbursed in accordance with this section. A general election legal and 
accounting compliance fund (``GELAC'') may be established by such 
individual prior to being nominated or selected as the candidate of a 
political party for the office of President or Vice President of the 
United States. Before June 1 of the calendar year in which a 
Presidential general election is held, contributions may only be 
deposited in the GELAC if they are made for the primary and exceed the 
contributor's contribution limits for the primary and are lawfully 
redesignated by the contributor for the GELAC pursuant to 11 CFR 110.1.
    (A) All solicitations for contributions to the GELAC shall clearly 
state that Federal law prohibits private contributions from being used 
for the candidate's election and that contributions will be used solely 
for legal and accounting services to ensure compliance with Federal 
law, and shall clearly state how contribution checks should be made 
payable. Contributions shall not be solicited for the GELAC before June 
1 of the calendar year in which a Presidential general election is 
held. If the candidate does not become the nominee, all contributions 
accepted for the GELAC, including redesignated contributions, shall be 
refunded within sixty (60) days after the candidate's date of 
ineligibility.
* * * * *
    3. Section 9003.5 is amended by revising paragraphs (b)(1)(iv) and 
(b)(3)(ii) to read as follows:


Sec. 9003.5  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 9004--ENTITLEMENT OF ELIGIBLE CANDIDATES TO PAYMENTS; USE OF 
PAYMENTS

    4. The authority citation for part 9004 continues to read as 
follows:

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

    5. Section 9004.4 is amended by revising paragraphs (a)(4) and 
(b)(8) to read as follows:


Sec. 9004.4  Use of payments.

    (a) * * *
    (4) Winding down costs. The following costs shall be considered 
qualified campaign expenses:
    (i) Costs associated with the termination of the candidate's 
general election campaign such as 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; and
    (ii) Costs associated with the candidate's general election 
campaign and incurred by the candidate prior to the end of the 
expenditure report period for which written arrangement or commitment 
was made on or before the close of the expenditure report period.
* * * * *
    (b) * * *
    (8) Lost, misplaced, or stolen items. The cost of lost, misplaced, 
or stolen 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.
    6. Section 9004.9 is amended by revising paragraph (d)(1) to read 
as follows:

[[Page 49363]]

Sec. 9004.9  Net outstanding qualified campaign expenses.

* * * * *
    (d) (1) Capital assets and assets purchased from the primary 
election committee.
    (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 end of the 
expenditure report period 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 considered to be 60% of 
the original cost of such assets to the candidate's primary election 
committee. For purposes of the statement of net outstanding qualified 
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.
    (iii) Items purchased from the primary election committee that are 
not capital assets, and also are not other assets under paragraph 
(d)(2) of this section, shall be listed on an inventory that states 
their valuation.
* * * * *

PART 9008--FEDERAL FINANCING OF PRESIDENTIAL NOMINATING CONVENTIONS

    7. The authority citation for part 9008 continues to read as 
follows:

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

    8. Section 9008.7 is amended by adding new paragraph (c) to read as 
follows:


Sec. 9008.7  Use of funds.

* * * * *
    (c) Lost, misplaced, or stolen items. The cost of lost, misplaced, 
or stolen 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.
    9. Section 9008.14 is 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.
    10. Section 9008.52 is amended by republishing the heading of 
paragraph (c), and by revising the introductory text of paragraph 
(c)(1) 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 individuals who maintain a local residence 
or who work for a local business, local labor organization, or local 
organization may donate funds or make in-kind donations to a host 
committee to be used for the following purposes:
* * * * *
    11. Section 9008.53 is amended by republishing the heading of 
paragraph (b), and by revising the introductory language of paragraph 
(b)(1) 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 individuals who maintain a local residence or 
who work for a local business, local labor organization, or local 
organization 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

    12. The authority citation for part 9032 continues to read as 
follows:

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

    13. Section 9032.11 is 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

    14. The authority citation for Part 9033 continues to read as 
follows:

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

    15. Section 9033.11 is amended by revising paragraphs (b)(1)(iv) 
and (b)(3)(ii) 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

    16. The authority citation for Part 9034 continues to read as 
follows:


[[Page 49364]]


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

    17. Section 9034.4 is amended by revising paragraph (a)(3)(iii), 
paragraph (b)(8), the heading and introductory text of paragraph (e), 
and paragraph (e)(6)(i) to read as follows:


Sec. 9034.4  Use of contributions and matching payments.

    (a) * * *
    (3) * * *
    (iii) In the case of a candidate who does not receive public 
funding for the general election, 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 
may be treated as exempt legal and accounting compliance expenses 
beginning with the first full reporting period after the candidate's 
date of ineligibility. 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 ineligibility and the 
date on which the candidate either re-establishes eligibility or ceases 
to continue to campaign. For purposes of the expenditure limitations 
set forth in 11 CFR 9035.1, candidates who receive public funding for 
the general election must wait until the end of the expenditure report 
period described in 11 CFR 9002.12 before they may treat 100% of 
salary, overhead and computer expenses as exempt legal and accounting 
compliance expenses.
* * * * *
    (b) * * *
    (8) Lost, misplaced, or stolen items. The cost of lost, misplaced, 
or stolen 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) Attribution of expenditures between the primary and the general 
election spending limits. The following rules apply to candidates who 
receive public funding in either the primary or the general election, 
or both.
* * * * *
    (6) * * *
    (i) Solicitations and fundraising costs. The costs of fundraising, 
including that of events and solicitation costs, shall be attributed to 
the primary election or to the GELAC, depending on the purposes of the 
fundraising. If a candidate raises funds for both the primary election 
and for the GELAC in a single communication or through a single 
fundraising event, the allocation of fundraising costs and the 
distribution of net proceeds will be made in the same manner as 
described in 11 CFR 9034.8(c)(8)(i) and (ii).
* * * * *
    18. Section 9034.5 is amended by revising paragraph (c)(1) 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

    19. The authority citation for part 9035 continues to read as 
follows:

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

    20. 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 of expenditures. 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 set forth in paragraph 
(a) of this section an amount equal to 15% of the overall expenditure 
limitation as exempt legal and accounting compliance costs under 11 CFR 
100.8(b)(15).
    (2) A candidate may exclude from the overall expenditure limitation 
of 11 CFR 9035.1 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 11 CFR 9035.1 shall not apply to a candidate who does 
not receive matching funds at any time during the matching payment 
period.
    21. The title of Part 9036 is revised to read as follows:

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

    22. The authority citation for Part 9036 continues to read as 
follows:

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

    23. Section 9036.1 is amended by revising paragraph (b)(3) to read 
as follows:

[[Page 49365]]

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.
* * * * *
    24. Section 9036.2 is amended by revising paragraph (b)(1)(vi) 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.
* * * * *
    Dated: September 7, 1999.
Scott E. Thomas,
Chairman, Federal Election Commission.
[FR Doc. 99-23578 Filed 9-10-99; 8:45 am]
BILLING CODE 6715-01-P