[Federal Register Volume 65, Number 56 (Wednesday, March 22, 2000)]
[Proposed Rules]
[Pages 15273-15275]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-7108]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 65, No. 56 / Wednesday, March 22, 2000 / 
Proposed Rules  

[[Page 15273]]



FEDERAL ELECTION COMMISSION

11 CFR Part 9038

[Notice 2000-5]


Public Funding of Presidential Primary Candidates--Repayments

AGENCY: Federal Election Commission.

ACTION: Notice of disposition; Termination of rulemaking.

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SUMMARY: On December 16, 1998, the Commission issued a Notice of 
Proposed Rulemaking in which it sought public comments on deleting one 
section of its regulations governing the public financing of 
presidential primary election campaigns. These rules implement the 
Presidential Primary Matching Payment Account Act (``Matching Payment 
Act''), which indicates how funds received under the public financing 
system may be spent. In addition, the Matching Payment Act requires the 
Commission to seek repayment from publicly financed campaigns under 
certain conditions. The rule in question addresses the repayment of 
federal funds when candidates exceed the limits on either state-by-
state or overall spending. The Commission is making no changes to this 
regulation at this time. Further information is provided in the 
supplementary information that follows.

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 has been considering whether 
to revise its regulations at 11 CFR 9038.2(b) governing repayments of 
matching funds in situations where primary candidates exceed the 
spending limits set forth in section 441a(b) of the Federal Election 
Campaign Act, 2 U.S.C. 441a(b) (``FECA''). These regulations implement 
26 U.S.C. 9038. For the reasons explained below, the Commission is 
making no changes at this time to 11 CFR 9038.2(b).
    On December 16, 1998, the Commission issued a Notice of Proposed 
Rulemaking (NPRM) in which it sought comments on proposed revisions to 
these regulations, as well as 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 the repayment 
issue were received from Common Cause and Democracy 21 (joint comment); 
and Lyn Utrecht, Eric Kleinfeld, and Patricia Fiori (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 
witnesses presented testimony on the Commission's ability to seek 
repayments: 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 
several sets of final rules regarding other aspects of the public 
funding system. For a summary of these other provisions, see 
Explanation and Justification, 64 FR 49355 (Sept. 13, 1999), and 
Explanation and Justification, 64 FR 61777 (Nov. 15, 1999).

1. Alternatives Presented in the NPRM

    The NPRM raised the issue of whether to delete paragraph 
(b)(2)(ii)(A) of section 9038.2 from the Commission's regulations. 
Under this provision, the Commission has in the past required the 
repayment of primary matching funds based on a determination that a 
candidate or authorized committee has made expenditures in excess of 
the primary spending limits. The NPRM raised the argument that this 
provision is without statutory basis, and that the reading implied in 
the current regulation is effectively prohibited by the statute. The 
NPRM noted that this issue has ramifications for excessive expenditures 
made directly by the candidate's campaign committee from its own funds, 
as well as excessive expenditures stemming from the campaign 
committee's acceptance of in-kind contributions, and excessive 
expenditures arising from primary campaign activities coordinated with 
the candidate's party committee.
    Section 9038 of the Matching Payment Act (26 U.S.C. 9038) provides 
three bases for determining repayments of primary matching funds: (1) 
payments in excess of entitlement; (2) payments used for other than 
qualified campaign expenses; and (3) excess funds remaining six months 
after the end of the matching payment period. In contrast, section 9007 
of the Presidential Election Campaign Fund Act (26 U.S.C 9007) (``Fund 
Act'') provides four bases for determining repayments of general 
election funds: (1) Payments in excess of entitlement; (2) an amount 
equal to any excess qualified campaign expenses; (3) an amount equal to 
any contributions accepted; and (4) payments used for other than 
qualified campaign expenses.
    The provisions on ``payments in excess of entitlement'' and ``other 
than qualified campaign expenses'' are nearly identical between the two 
chapters. Inasmuch as Congress specified ``excess expenses'' as a 
repayment basis separate from ``other than qualified campaign 
expenditures'' in the general election statute, an argument exists that 
the nearly identical provision on ``other than qualified campaign 
expenses'' in the primary statute cannot reasonably be read to include 
excess expenses.
    The argument against treating ``excess'' campaign expenditures as 
``nonqualified'' is buttressed by the text of the ``qualified campaign 
expense limitation'' (26 U.S.C. 9035) itself, which prohibits 
candidates from ``knowingly incur[ring] qualified campaign expenses in 
excess of the expenditure limitation applicable under section 
441a(b)(1)(A) of title 2.'' First, one can argue that it is impossible 
to read this section other than as treating ``excess'' spending as 
``qualified.'' Second, this provision states that violation of the 
primary spending limits is a Title 2 violation, which would be 
addressed in the FEC's enforcement process, rather than a Title 26 
violation, which could be addressed in the audit/repayment process.
    The NPRM also set out countervailing arguments in support of 
retaining 11 CFR 9038.2(b)(2)(ii)(A). While section 9007(b)(2) of the 
Fund Act clearly states that repayments can be sought from general 
election candidates who incur

[[Page 15274]]

expenses in excess of the aggregate payments to which they are 
entitled, the Matching Payment Act can be interpreted to set forth 
repayment requirements for primary candidates that are the equivalent 
of that general election provision.
    A qualified campaign expense of a primary election committee is an 
expense where ``neither the incurring nor payment * * * constitutes a 
violation of any law of the United States * * *.'' 26 U.S.C. 9032(9). A 
Presidential primary candidate who exceeds the expenditure limitations 
violates two laws, 26 U.S.C. 9035 and 2 U.S.C. 441a(b)(1)(A). Section 
9035 of the Matching Payment Act states that ``no candidate shall 
knowingly incur qualified campaign expenses in excess of the 
expenditure limitations applicable under section 441a(b)(1)(A) of title 
2 * * *.'' Section 441a(b)(1) of the FECA states that ``no candidate 
for the Office of President who is eligible'' to receive public funds 
may make expenditures in excess of the statutorily prescribed 
limitations. 2 U.S.C. 441a(b)(1). Thus, one reading of this language is 
that expenses in excess of expenditure limitations for publicly funded 
primary candidates are non-qualified because they violate the law. 
Consequently, it can be argued that they are repayable under 26 U.S.C. 
9038(b)(2). The answer to the argument that the language of section 
9035 specifically contemplates that amounts spent in excess of the 
expenditure limitations can constitute qualified campaign expenses is 
that the two statutes must be read together, and section 9035 may mean 
that candidates shall not incur expenses that would otherwise be 
qualified except for the fact that they exceed the section 441a 
expenditure limitations.
    Additionally, there is a countervailing argument that the Fund Act 
and the Matching Payment Act mandate identical results--namely, the 
repayment of expenditures exceeding the spending limits--albeit in 
slightly different ways. Arguably, there is no provision in the general 
election Fund Act corresponding to section 9035 of the Matching Payment 
Act. Consequently, it can be argued that this may be why 26 U.S.C. 
9007(b)(2) specifically mandates repayments from general election 
committees for spending amounts that exceed their entitlements. Under 
this interpretation, language corresponding to section 9007(b)(2) is 
not needed in the Matching Payment Act because repayments are already 
required when primary election committees make non-qualified campaign 
expenses by violating the law, which they do whenever they exceed the 
spending limits set forth in 2 U.S.C. 441a(b)(1) and 26 U.S.C. 9035. 
This reading of the two statutes avoids the anomalous situation that 
would result if spending limit violations involving candidates who 
accepted public funding for their primary elections were treated 
entirely differently than spending limit violations involving the very 
same candidates during their general election campaigns.
    This argument is supported by the court decision in John Glenn 
Presidential Committee v. FEC, 822 F.2d 1097 (D.C. Cir. 1987) 
(upholding the Commission's repayment determination against a publicly 
funded primary election candidate for exceeding the state-by-state 
expenditure limitations in the face of a constitutional challenge). The 
Glenn opinion stated that ``campaign expenses are not `qualified' if 
they exceed the limits Congress set, including the limits on spending 
in each state. 26 U.S.C. 9035(a).'' Id. at 1099. See also, Kennedy for 
President Committee v. FEC, 734 F.2d 1558, 1560 n. 1 (D.C. Cir. 1984) 
(holding that ``[u]nder 26 U.S.C. 9035, campaign expenditures are not 
`qualified' if they exceed certain spending limits, including 
limitations on spending in each state during the presidential 
primaries''). The state-by-state spending limits at issue in these two 
cases are in section 441a(b)(1)(A) and (g) of the FECA. These court 
decisions arguably require the Commission to order repayments of 
matching funds used for unqualified purposes. Glenn at 1099, Kennedy at 
1561.
    With regard to alleged in-kind contributions by third parties such 
as political party committees, it can be argued that the Glenn and 
Kennedy cases are not dispositive because they did not involve third 
party expenditures, and that these amounts are not necessarily in the 
same pool of funds from which a publicly funded campaign makes 
expenditures. The Glenn court indicated that it was not ruling on a 
repayment determination involving private funds. Glenn at 1098. 
However, on the other hand, in-kind contributions to candidates are 
simultaneously treated as expenditures by those candidates under 
section 431(8)(A)(i) and (9)(A)(i) of the FECA, and must be reported as 
both contributions and expenditures under 11 CFR 104.13. In the past, 
the Commission has considered in-kind contributions to be commingled 
with a publicly financed candidate's other expenditures and subject to 
the candidate's expenditure limitations.

2. Public Comments

    Two written comments addressing the Commission's statutory 
authority to seek repayment from Presidential primary committees that 
exceed the spending limits were received from Common Cause and 
Democracy 21 (joint comment); and Lyn Utrecht, Eric Kleinfeld, and 
Patricia Fiori (joint comment). The witnesses who presented testimony 
on this issue were Lyn Utrecht (Ryan, Phillips, Utrecht & MacKinnon), 
Joseph E. Sandler (DNC), and Thomas J. Josefiak (RNC).
    The bipartisan comments and testimony supported the Commission's 
authority to obtain repayments for excessive spending by primary 
candidates' campaign committees using their own funds to exceed the 
limits. However, two witnesses indicated that they did not believe the 
Commission has the authority to require a repayment from a Presidential 
campaign committee based on expenditures made by a party committee, or 
based on contributors' in-kind contributions, where these expenses were 
not incurred or accepted by the candidate's campaign committee. One of 
these witnesses observed that both sections 9002(11) and 9032(9) of 
Title 26 define ``qualified campaign expense'' to mean an expense 
``incurred'' by the candidate or the candidate's authorized committee. 
Thus, the witness' comment argued that expenditures made by other 
individuals or entities are not ``qualified campaign expenses'' and 
cannot form the basis for a repayment determination.

3. Additional Alternative--Repayment of Funds Exceeding Entitlement

    After the close of the comment period and the hearing, the 
Commission considered whether repayments can be required under 
paragraph (b)(1) of 26 U.S.C. 9038, which addresses the repayment of 
funds received in excess of the aggregate amount of payments to which 
the candidate is entitled. The rationale for this approach would be 
that, since presidential primary candidates and their committees do not 
receive these matching funds until after they meet or exceed either the 
state-by-state or the overall spending limits, the campaigns were not 
entitled to receive these funds in the first place, and therefore must 
repay these amounts to the Treasury. None of the public comments or 
testimony addressed the payments-in-excess-of-entitlement theory for 
repayments under 26 U.S.C. 9038(b)(1) because this approach was not 
specifically included in the December 1998 NPRM.

[[Page 15275]]

4. Conclusion

    The Commission has decided to make no changes to the regulation at 
11 CFR 9038.2(b), which currently requires publicly funded Presidential 
primary campaigns to make repayments on the basis of exceeding the 
Congressionally-mandated spending limits. The current rule is not being 
changed at this time because there is no consensus in favor of changing 
the regulation.

    Dated: March 17, 2000.
Darryl R. Wold,
Chairman, Federal Election Commission.
[FR Doc. 00-7108 Filed 3-21-00; 8:45 am]
BILLING CODE 6715-01-P