[Federal Register Volume 64, Number 219 (Monday, November 15, 1999)]
[Rules and Regulations]
[Pages 61777-61782]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-29694]


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FEDERAL ELECTION COMMISSION

11 CFR Parts 9007, 9034, 9035 and 9038

[Notice 1999-26]


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 several portions of its regulations 
governing the public financing of Presidential primary and general 
election campaigns. 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 indicate how funds received under the public financing 
system may be spent. In addition, these statutes require the Commission 
to audit publicly financed campaigns and seek repayment where 
appropriate. The revised rules modify the Commission's audit 
procedures. They also address the ``bright line'' between primary and 
general election expenses, and the formation of Vice Presidential 
committees prior to nomination. 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, 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 audits of public 
financing of Presidential campaigns, 11 CFR 9007.1 and 9038.1. In 
addition, the final rules at 11 CFR 9034.4(e)(1) and (3) govern the 
division of expenditures between primary and general election campaign 
committees. New rules set out in 11 CFR 9035.3 address situations where 
a Vice Presidential campaign committee is formed prior to the date on 
which that candidate's political party selects its Presidential and 
Vice Presidential nominees. The new and revised regulations implement 
26 U.S.C. 9007, 9034, 9035, and 9038.
    On December 16, 1998, the Commission issued a Notice of Proposed 
Rulemaking (NPRM) in which it sought comments on proposed revisions to 
these regulations and on a number of other aspects of the Commission's 
public funding regulations. 63 FR 69524 (Dec. 16, 1998). In response to 
the NPRM, written comments addressing these topics were received from 
Perot for President '96; Common Cause and Democracy 21 (joint comment); 
Lyn Utrecht, Eric Kleinfeld, and Patricia Fiori (joint comment); the 
Democratic National Committee; and the Republican National Committee. 
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 
witnesses presented testimony on these issues: Lyn Utrecht (Ryan, 
Phillips, Utrecht & MacKinnon), Joseph E. Sandler (Democratic National 
Committee), and Thomas J. Josefiak (Republican National Committee).
    Please note that the Commission has already published separately 
final rules regarding other aspects of the public funding system. For 
example, revised candidate agreement regulations require federally 
financed Presidential committees to file their reports electronically. 
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 two sets of 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); Explanation and Justification of 11 CFR 9036.1 and 9036.2, 64 FR 
42584 (Aug. 5, 1999). The effective date for the new matching fund 
rules was January 1, 1999. See Announcements of Effective Date, 64 FR 
51422 (Sept. 23, 1999) and 64 FR 59607, (Nov. 3, 1999). Final rules 
concerning coordinated party committee expenditures in the pre-
nomination period and reimbursement by the news media for travel 
expenses have also been issued. See Explanation and Justification of 11 
CFR 110.7, 9004.6 and 9034.6, 64 FR 42579 (Aug. 5, 1999) and 
Announcement of Effective Date, 64 FR 59606 (Nov. 3, 1999). In 
addition, final rules concerning GELAC funds, capital assets, primary 
compliance and winding down costs, documentation of disbursements, 
digital images of matching fund documentation, convention committees 
and host committees have also been issued. See Explanation and 
Justification, 64 FR 49355 (Sept. 13, 1999).
    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 Nov. 9, 1999.

Explanation and Justification

Section 9007.1  Audits

    In 1995, the Commission amended 11 CFR 9007.1, 9007.2, 9038.1, 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. One change was 
the elimination of a Commission-approved Interim Audit Report, which 
was replaced by a staff-produced Exit Conference Memorandum that is 
provided to the audited committee at the exit conference. 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 the Commission's repayment determinations. After 
operating under the streamlined procedures during the 1996 election 
cycle, the Commission began to consider further changes to ensure the 
audit and repayment processes are completed as fairly and expeditiously 
as possible.
    The narrative portion of the 1998 NPRM presented two alternatives 
to the current audit procedures. The first approach is 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

[[Page 61778]]

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 consideration and approval by the Commission in executive session. 
After that, the audited committee had an opportunity to submit 
materials disputing or commenting on matters contained in the Interim 
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 second alternative set out in the NPRM is to retain many of the 
current audit procedures, with the exception that the Exit Conference 
Memorandum would be approved by a majority vote of four Commissioners 
before it is presented to the candidate's committee during the exit 
conference. In addition to these alternatives, the NPRM sought comments 
on making no changes to the audit procedures used for the 1996 
Presidential campaign committees.
    Several written comments and witnesses at the public hearing 
addressed the Commission's audit procedures. Three written comments 
urged the Commission to retain the current procedures for conducting 
post-election audits. One of these stated that the interest of the 
public in a rapid resolution of each audit is paramount, particularly 
given that the public funds for the program come from voluntary tax 
check-offs by individual taxpayers. This commenter praised the 
streamlined process put in place for the 1996 audits for enabling the 
agency's audit staff to work efficiently, with no waste of time. The 
commenter believed that the experience with certain well-publicized 
1996 audits showed that both the press and the American public 
understand that audit reports are staff documents until expressly 
approved by the Commission. Two commenters opposed any change that 
would cloak more of the audit process in secrecy as contrary to the 
spirit of the Government in the Sunshine Act. They felt there was great 
public benefit in seeing the staff recommendations and the Commission's 
disposition of them.
    In contrast, two of the witnesses at the hearing urged the 
Commission to return to the previous system or to find a way to produce 
greater interaction between the Commissioners and the audited 
committees earlier in the process. It was suggested that at a minimum, 
the Commission should change the procedure so that the Exit Conference 
Memorandum is approved by the Commission in closed session. These 
witnesses indicated that the goal of the new system, which was to 
expedite the audit process, has not been achieved. One of them argued 
that it is harmful to the regulated community and the credibility of 
the Commission when staff exit conference findings are publicly 
disclosed without prior input from the Commissioners, and are later 
substantially modified by the Commission. Another concern expressed is 
that the current system forces committees to devote substantial 
resources to responding to Audit Division conclusions and legal 
theories that are not necessarily supported by the Commission. One of 
these witnesses also maintained that the current system does not 
adequately protect confidentiality, and does not produce a fair and 
balanced presentation of a committee's financial picture.
    After carefully considering the comments and testimony on the 
various alternatives, the Commission has decided to retain certain 
elements of the current procedures, such as the exit conference, while 
also returning to some of the previous procedures. Thus, the Exit 
Conference Memorandum is being dropped in favor of a Preliminary Audit 
Report that will be approved by the Commission before it is provided to 
the audited committee after the exit conference. The Commission 
anticipates that a written legal analysis will be prepared to assist 
the Commission in its consideration of the Preliminary Audit Report. 
This step will ensure that before audited committees are asked for a 
response to the Audit staff's findings, they are apprised of the 
Commission's preliminary views on various financial aspects of their 
campaign operations as well as the legal issues raised by those 
activities. These changes are incorporated into revised paragraphs 
(b)(2)(iii), (c) and (d)(1) of section 9007.1. These portions of the 
regulations have also been reorganized so that the Preliminary Audit 
Report is addressed in paragraph (c).
    Please note that Commission consideration of draft Preliminary 
Audit Reports will usually be done either by using its tally voting 
procedures or in executive session. Closure of these discussions to the 
general public is generally appropriate under the Government in the 
Sunshine Act because the premature disclosure of this information would 
be likely to have a considerable adverse effect on future Commission 
actions. See 5 U.S.C. 552b(c) and 11 CFR 2.4(b). Closing the discussion 
is also appropriate for those situations where the Commission 
reasonably contemplates that the discussion may lead to an enforcement 
action, the issuance of a subpoena, or litigation.
    The new procedure has the advantage that when the staff-prepared 
final Audit Report is subsequently released, the public and the press 
may be assured that this document reflects the views expressed by the 
Commission at the time the Preliminary Audit Report was approved, as 
well as the committee's response to the Preliminary Audit Report.
    A significant consideration in changing these procedures is the 
length of time it takes to complete the entire process in light of 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 constituted notification, was inconsistent with 
the statute. Simon at 360.
    The Commission notes that the time involved in obtaining Commission 
approval of the Preliminary Audit Report may, in some instances, make 
it more difficult to notify committees of their repayment requirements 
within the three year time frame established by 26 U.S.C. 9007(c) and 
9038(c). Nevertheless, this initial investment of time may be balanced 
by significant time savings during the later stages of the process if a 
number of issues have been resolved earlier.
    Please note that the amendments to section 9007.1 of the 
regulations also apply to the audits of the federally financed 
convention committees under 11 CFR 9008.11.

Section 9034.4  Use of Contributions and Matching Payments

    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

[[Page 61779]]

election funds only for general election expenses. 26 U.S.C. 9002(11), 
9032(9); 11 CFR 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 sought 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. 
Consequently, paragraph (e)(1) of section 9034.4 was promulgated at 
that time to specify 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 had to be attributed to the general election. 
Paragraphs (e)(2) through (e)(7) established a number of specific 
attribution rules for polling expenses, campaign offices, staff costs, 
campaign materials, media production and distribution costs, campaign 
communications and travel costs, which were largely based on the timing 
of the expenditure. One of the 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.
    During the last Presidential election cycle, several questions were 
raised regarding the application of the ``bright line'' rules, 
including the application of the specific provisions in paragraphs 
(e)(2) through (e)(7) instead of the general rule set out in former 
paragraph (e)(1). The NPRM proposed adding an additional sentence to 
paragraph (e)(1) to indicate that the specific rules were intended to 
apply to ``mixed'' expenditures that are used in both the primary and 
the general election campaigns. One witness opposed what was perceived 
to be a new ``benefit derived'' standard. This witness argued for 
preserving the original bright line standard in the 1995 regulations in 
lieu of any of the changes proposed. Please note, the NPRM did not 
intend to suggest that the bright line rules were to be replaced by a 
new ``benefit derived'' standard. However, given the confusion 
generated by the proposed amendatory language, it is not being included 
in the final rules that follow. Instead, paragraph (e)(1) is being 
modified to more clearly state that the general rule applies only to 
goods or services not covered by the more specific provisions of 
paragraphs (e)(2) through (e)(7) of section 9034.4.
    The Commission has also decided, that certain additional revisions 
to these rules are warranted. For example, paragraph (e)(3) of section 
9034.4 is being amended to resolve questions that have come up 
regarding payroll and overhead costs for the use of campaign offices 
prior to the candidate's nomination. The previous rules had specified 
that such expenses must be attributed to the primary election unless 
the office is used by persons working exclusively on general election 
preparations. ``Exclusive use'' was not defined in the rules, and 
questions arose as to whether the term meant several hours, or days, or 
weeks. The NPRM suggested changing this exception to apply to periods 
when the campaign office is used only by persons working ``full time'' 
on general election campaign preparation, or in the alternative, 
dropping the exclusive use exception with regard to overhead and salary 
expenses. The public comments indicated that a ``full time'' standard 
would not be clearer that ``exclusive use.''
    To resolve these difficulties, the Commission has decided to remove 
the ``exclusive use'' exception from paragraph (e)(3) governing office 
overhead and salaries, and also from the general rule in paragraph 
(e)(1). Instead, under the revised rule, salary and overhead costs 
incurred between June 1 of the Presidential election year and the date 
of the nomination are treated as primary expenses. However, 
Presidential campaign committees have the option of attributing to the 
general election an amount of salary and overhead expenses incurred 
during this period up to 15% of the primary election spending limit, 
which is set forth at 11 CFR 110.8(a)(1). This approach recognizes that 
during this period, some campaign staff and a portion of the 
committee's state and national office space must necessarily be devoted 
to general election activities. The 15% figure has the advantage of 
simplicity and ease of application. It is intended to give campaigns a 
reasonable amount of flexibility, and is based on an estimate of the 
highest amount that similarly situated campaigns have spent on salary 
and overhead costs during a comparable three-month period in the 1996 
election cycle. The revised regulation does not permit committees to 
demonstrate that they have actually incurred a higher amount because 
the ``bright line'' rules are intended to avoid a resource-intensive 
system that requires the creation, maintenance, and review of 
considerable paperwork to document these types of costs.
    Please note that other revisions have already been made to 
paragraph (e) of section 9034.4 to reflect that not all candidates may 
accept public funding in both the primary and the general election. See 
final rules at 64 FR 49355 (Sept. 13, 1999). At that time paragraph (e) 
was amended to indicate that it applies to Presidential campaign 
committees that accept federal funds for either election. Thus, the 15% 
limitation specified in paragraph (e)(3) applies to those committees 
that accept federal funding for the general election but not the 
primary. In addition, a new sentence is also being added to paragraph 
(e)(3) to clarify that overhead and payroll expenses for winding down 
and compliance activities are covered by paragraph (a)(3) of section 
9034.4.
    Another concern expressed by the commenters is the manner in which 
the 1995 bright line rules were interpreted and applied during the 
audits of the 1996 campaigns. Some comments opposed extending the 
bright line rules for candidate committees to party committees. The 
Commission notes that a variety of issues involving party committee 
coordinated expenditures may be addressed in a new rulemaking.

Section 9035.3  Contributions to and Expenditures by Vice Presidential 
Committees

    The NPRM sought 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 raise contributions and 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, during the 1996 
Presidential election cycle, concerns were raised that these committees 
have the ability to raise and spend substantially more money than what 
is needed to cover convention costs. Consequently, this situation 
presented an opportunity for Vice Presidential committees to be used 
prior to the date of nomination to supplement the limited amounts that 
publicly funded Presidential candidates may spend on their primary 
campaigns. Another concern is that some 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

[[Page 61780]]

chosen to be that candidate's Vice Presidential running mate.
    For these reasons, the Commission is adding new section 9035.3 to 
specify when contributions to, and expenditures by, Vice Presidential 
committees shall be aggregated with contributions to and expenditures 
by the primary campaign of that party's eventual Presidential nominee 
for purposes of the contribution and expenditure limitations. Paragraph 
(a) of this new section provides for such aggregation beginning on the 
date that either the future Presidential or Vice Presidential nominee 
publicly indicates that the two candidates intend to run on the same 
ticket. Aggregation of contributions and expenditures will also begin 
when the Vice Presidential candidate accepts an offer to be the running 
mate, or when the committees of these two candidates become affiliated 
under 11 CFR 100.5(g)(4). Please note that with regard to expenditures, 
paragraph (b) limits the application of new section 9035.3 to the 
campaign expenditures made by a candidate who becomes the Vice 
Presidential nominee of his or her party, thus excluding others who 
lose the Vice Presidential nomination.
    Both of the comments addressing new section 9035.3 opposed certain 
aspects of the proposed rule. One comment argued that Vice Presidential 
committees are entirely separate from any Presidential committee until 
the Vice Presidential candidate is nominated at the convention. This 
commenter also expressed concerns that by aggregating expenses, the 
presidential campaign committee could inadvertently exceed the spending 
limits. The Commission agrees that Presidential committees must monitor 
this spending, just as state party committees must track expenditures 
by subordinate party committees to ensure compliance with the 
coordinated spending limits of 2 U.S.C. 441a(d). The commenter also 
noted that those who contribute to both the Presidential candidate and 
the Vice Presidential candidate risk exceeding the primary contribution 
limits. The Commission agrees that the recipient committees need to 
aggregate contributions from the same contributor to prevent the making 
or acceptance of excessive contributions. This is no different than the 
requirement to aggregate contributions made to affiliated committees.
    Paragraph (b) of the new section also contains an exception 
permitting a Vice Presidential candidate and his or her family and 
staff to attend the party's nominating convention without having the 
cost of their transportation, lodging, and subsistence attributed to 
the party's Presidential candidate. One commenter agreed that Vice 
Presidential candidates should be able to raise money to pay these 
expenses. It was also suggested that the Vice Presidential committee 
should be able to pay legal and accounting expenses incurred during the 
background checks of the prospective Vice Presidential nominee. The 
Commission agrees with this suggestion and is promulgating new language 
to cover these legal and accounting costs. In addition, the costs of 
raising funds for these limited travel, subsistence, legal and 
accounting expenses also do not need to be treated as expenditures of 
the Presidential primary candidate. Please note, if a Vice Presidential 
committee has excess funds after the nomination, 11 CFR 113.2 governs 
the use of these funds.
    A commenter questioned the Commission's statutory authority for the 
new regulation and noted that 2 U.S.C. 441a(b)(2) treats expenditures 
made on behalf of a Vice Presidential nominee as expenditures on behalf 
of the party's Presidential nominee. See also 11 CFR 110.8(f). This 
provision of the FECA, however, is not applicable prior to the 
nomination of the Vice Presidential candidate. The Commission notes 
that at the time section 441a(b)(2) of 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. Nevertheless, the Commission disagrees with the commenter's 
assumption that attribution under any other situation is contrary to 
the statute. 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 
than Congress anticipated when enacting the FECA. The Commission's new 
regulations merely make explicit that once a Vice Presidential running 
mate is chosen, the authorized committees of the two candidates would 
ordinarily be considered affiliated. See 2 U.S.C. 441a(a)(5) and 11 CFR 
100.5(g)(4) and 110.3. Moreover, nothing in the FECA or the Matching 
Payment Act specifically bars pre-nomination aggregation of 
contributions or expenditures under these circumstances.

Section 9038.1  Audit

    This section sets forth procedures for auditing the campaign 
committees of primary election candidates who receive federal funds. 
The changes to paragraphs (b)(2)(iii), (c) and (d)(1) of this section 
follow the revisions to 11 CFR 9007.1(b)(2)(iii), (c) and (d)(1), as 
discussed above.

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 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 9007

    Administrative practice and procedure, Campaign funds.

11 CFR Parts 9034 and 9035

    Campaign funds, Reporting and recordkeeping requirements.

11 CFR Part 9038

    Administrative practice and procedure, Campaign funds.

    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 9007--EXAMINATIONS AND AUDITS; REPAYMENTS

    1. The authority citation for part 9007 continues to read as 
follows:

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

    2. In Sec. 9007.1, paragraphs (b)(2)(iii) and (c) and the second 
sentence of paragraph (d)(1) are revised to read as follows:


Sec. 9007.1  Audits.

* * * * *
    (b) * * *
    (2) * * *
    (iii) Exit conference. At the conclusion of the fieldwork, 
Commission staff will hold an exit conference to discuss with committee 
representatives the staff's preliminary findings and recommendations 
that the

[[Page 61781]]

staff anticipates it will present to the Commission for approval. 
Commission staff will advise committee representatives at this 
conference of the committee's opportunity to respond to these 
preliminary findings; the projected timetables regarding the issuance 
of the Preliminary Audit Report, the Audit Report, and any repayment 
determination; the committee's opportunity for an administrative review 
of any repayment determination; and the procedures involved in 
Commission repayment determinations under 11 CFR 9007.2.
* * * * *
    (c) Preliminary Audit Report: Issuance by Commission and committee 
response.
    (1) Commission staff will prepare a written Preliminary Audit 
Report, which will be provided to the committee after it is approved by 
an affirmative vote of four (4) members of the Commission. The 
Preliminary Audit Report may include--
    (i) An evaluation of procedures and systems employed by the 
candidate and committee to comply with applicable provisions of the 
Federal Election Campaign Act, the Presidential Election Campaign Fund 
Act and Commission regulations;
    (ii) The accuracy of statements and reports filed with the 
Commission by the candidate and committee; and
    (iii) Preliminary calculations regarding future repayments to the 
United States Treasury.
    (2) The candidate and his or her authorized committee may submit in 
writing within 60 calendar days after receipt of the Preliminary Audit 
Report, legal and factual materials disputing or commenting on the 
proposed findings contained in the Preliminary Audit Report. In 
addition, the committee shall submit any additional documentation 
requested by the Commission. Such materials may be submitted by counsel 
if the candidate so desires.
    (d) * * *
    (1) * * * The Commission-approved audit report may address issues 
other than those contained in the Preliminary Audit Report. * * *
* * * * *

PART 9034--ENTITLEMENTS

    3. The authority citation for part 9034 continues to read as 
follows:

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

    4. Section 9034.4 is amended by revising paragraphs (e)(1) and 
(e)(3) to read as follows:


Sec. 9034.4  Use of contributions and matching payments.

* * * * *
    (e) * * *
    (1) General rule. Any expenditure for goods or services that are 
used for the primary election campaign, other than those listed in 
paragraphs (e)(2) through (e)(7) of this section, shall be attributed 
to the limits set forth at 11 CFR 9035.1. Any expenditure for goods or 
services that are used for the general election campaign, other than 
those listed in paragraphs (e)(2) through (e)(7) of this section, shall 
be attributed to the limits set forth at 11 CFR 110.8(a)(2), as 
adjusted under 11 CFR 110.9(c).
* * * * *
    (3) State or national campaign offices. Prior to the date of the 
last primary election in a Presidential election year, overhead and 
salary costs incurred in connection with state or national campaign 
offices shall be attributed to the primary election. With regard to 
overhead and salary costs incurred on or after June 1 of the 
Presidential election year, but before or on the date of nomination, 
the committee may attribute to the general election an amount not to 
exceed 15% of the limitation on primary-election expenditures set forth 
at 11 CFR 110.8(a)(1). Overhead and payroll costs associated with 
winding down the campaign and compliance activities shall be governed 
by paragraph (a)(3) of this section.
* * * * *

PART 9035--EXPENDITURE LIMITATIONS

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

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

    6. Section 9035.3 is added to read as follows:


Sec. 9035.3  Contributions to and expenditures by Vice Presidential 
candidates.

    (a) Aggregation of contributions and expenditures. For purposes of 
the limitations on contributions and expenditures of this part and part 
110, contributions to, and expenditures by, the authorized committee of 
a candidate who becomes the nominee of a political party for the office 
of Vice President of the United States shall be aggregated with 
contributions to and expenditures by the publicly funded primary 
candidate who obtains that political party's nomination for the office 
of President of the United States, provided that the contributions to 
or expenditures by the authorized committee of the Vice Presidential 
candidate were made on or after the date on which--
    (1) The Presidential or Vice Presidential candidate publicly 
indicates that the two candidates intend to run on the same ticket;
    (2) The candidate for the office of Vice President accepts an offer 
by the publicly funded primary candidate for the office of President, 
or by the Presidential candidate's agent(s), to run on the same ticket; 
or
    (3) The Presidential and Vice Presidential committees become 
affiliated pursuant to 11 CFR 100.5(g)(4)(i) or (ii).
    (b) Exceptions. The following expenditures, if incurred by the 
authorized committee of a candidate who subsequently becomes the 
nominee of a political party for the office of Vice President of the 
United States, will not be aggregated under paragraph (a) of this 
section:
    (1) The cost of attendance by the candidate, the candidate's 
family, and the candidate's authorized committee's staff at a political 
party's national nominating convention, including the cost of 
transportation, lodging, and subsistence;
    (2) The cost of legal and accounting services associated with 
background checks during the Vice Presidential selection process; and
    (3) The cost of raising funds for the expenses listed in paragraphs 
(b)(1) and (b)(2) of this section.

PART 9038--EXAMINATIONS AND AUDITS

    7. The authority citation for part 9038 continues to read as 
follows:

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

    8. In Sec. 9038.1, paragraphs (b)(2)(iii) and (c) and the second 
sentence of paragraph (d)(1) are revised to read as follows:


Sec. 9038.1  Audit.

* * * * *
    (b) * * *
    (2) * * *
    (iii) Exit conference. At the conclusion of the fieldwork, 
Commission staff will hold an exit conference to discuss with committee 
representatives the staff's preliminary findings and recommendations 
that the staff anticipates it will present to the Commission for 
approval. Commission staff will advise committee representatives at 
this conference of the committee's opportunity to respond to these 
preliminary findings; the projected timetables regarding the issuance 
of the Preliminary Audit Report, the Audit Report, and any

[[Page 61782]]

repayment determination; the committee's opportunity for an 
administrative review of any repayment determination; and the 
procedures involved in Commission repayment determinations under 11 CFR 
9038.2.
* * * * *
    (c) Preliminary Audit Report: Issuance by Commission and committee 
response.
    (1) Commission staff will prepare a written Preliminary Audit 
Report, which will be provided to the committee after it is approved by 
an affirmative vote of four (4) members of the Commission. The 
Preliminary Audit Report may include--
    (i) An evaluation of procedures and systems employed by the 
candidate and committee to comply with applicable provisions of the 
Federal Election Campaign Act, the Presidential Election Campaign Fund 
Act and Commission regulations;
    (ii) The accuracy of statements and reports filed with the 
Commission by the candidate and committee; and
    (iii) Preliminary calculations regarding future repayments to the 
United States Treasury.
    (2) The candidate and his or her authorized committee may submit in 
writing within 60 calendar days after receipt of the Preliminary Audit 
Report, legal and factual materials disputing or commenting on the 
proposed findings contained in the Preliminary Audit Report. In 
addition, the committee shall submit any additional documentation 
requested by the Commission. Such materials may be submitted by counsel 
if the candidate so desires.
    (d) * * *
    (1) * * * The Commission-approved audit report may address issues 
other than those contained in the Preliminary Audit Report. * * *
* * * * *
    Dated: November 9, 1999.
Scott E. Thomas,
Chairman, Federal Election Commission.
[FR Doc. 99-29694 Filed 11-12-99; 8:45 am]
BILLING CODE 6715-01-U