[Federal Register Volume 68, Number 72 (Tuesday, April 15, 2003)]
[Proposed Rules]
[Pages 18484-18522]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-8761]



[[Page 18483]]

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Part IV





Federal Election Commission





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11 CFR Parts 104, et al.



Public Financing of Presidential Candidates and Nominating Conventions; 
Proposed Rule

  Federal Register / Vol. 68, No. 72 / Tuesday, April 15, 2003 / 
Proposed Rules  

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FEDERAL ELECTION COMMISSION

11 CFR Parts 104, 107, 110, 9003, 9004, 9008, 9032 through 9036, 
and 9038

[Notice 2003-8]


Public Financing of Presidential Candidates and Nominating 
Conventions

AGENCY: Federal Election Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Election Commission requests comments on proposed 
changes to its rules governing publicly financed presidential 
candidates, in both the primary and general elections, and national 
nominating conventions. These regulations implement the provisions of 
the Presidential Election Campaign Fund Act and the Presidential 
Matching Payment Account Act, which establish eligibility requirements 
for presidential candidates and convention committees 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 committees and seek repayment where appropriate. The proposed 
rules implement the Bipartisan Campaign Reform Act of 2002, as it 
applies particularly to the Presidential Election Campaign Fund Act and 
the Presidential Matching Payment Account Act. The proposed rules also 
reflect the Commission's experience in administering this program 
during the 2000 election cycle and seek to anticipate some questions 
that may arise during the 2004 presidential election cycle. No final 
decisions have been made by the Commission on any of the proposed 
revisions in this document. Further information is provided in the 
supplementary information that follows.

DATES: Comments must be received on or before May 9, 2003. If the 
Commission receives sufficient requests to testify, it will hold a 
hearing on these proposed rules on May 19, 2003, at 10 a.m. Commenters 
wishing to testify at the hearing must so indicate in their written or 
electronic comments.

ADDRESSES: All comments should be addressed to Ms. Mai T. Dinh, Acting 
Assistant General Counsel, and must be submitted in either electronic 
or written form. Electronic mail comments should be sent to 
[email protected] and must include the full name, electronic mail 
address and postal service address of the commenter. Electronic mail 
comments that do not contain the full name, electronic mail address and 
postal service address of the commenter will not be considered. If the 
electronic mail comments include an attachment, the attachment must be 
in the Adobe Acrobat (.pdf) or Microsoft Word (.doc) format. Faxed 
comments should be sent to (202) 219-3923, with printed copy follow-up 
to ensure legibility. Written comments and printed copies of faxed 
comments should be sent to the Federal Election Commission, 999 E 
Street, NW., Washington, DC 20463. Commenters are strongly encouraged 
to submit comments electronically to ensure timely receipt and 
consideration. The Commission will make every effort to post public 
comments on its Web site within ten business days of the close of the 
comment period. The hearing will be held in the Commission's ninth 
floor meeting room, 999 E Street NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Ms. Mai T. Dinh, Acting Assistant 
General Counsel, Mr. J. Duane Pugh Jr., Senior Attorney, or Mr. Robert 
M. Knop, or Ms. Delanie DeWitt Painter, Attorneys, 999 E Street NW., 
Washington, DC 20463, (202) 694-1650 or (800) 424-9530.

SUPPLEMENTARY INFORMATION: The Commission is considering revising parts 
of its regulations governing the public financing of presidential 
campaigns, 11 CFR parts 9001 through 9039, to more effectively 
administer the public financing program during the 2004 election cycle. 
These rules implement the provisions of the Presidential Election 
Campaign Fund Act, 26 U.S.C. 9001 to 9013 [``Fund Act''], and the 
Presidential Matching Payment Account Act, 26 U.S.C. 9031 to 9042 
[``Matching Payment Act'']. In addition, the Commission is considering 
how the Bipartisan Campaign Reform Act of 2002 [``BCRA''], Public Law 
107-155, 116 Stat. 81 (Mar. 27, 2002), in its amendments to the Federal 
Election Campaign Act of 1971, 2 U.S.C. 431 to 455 [``FECA''], along 
with the Commission's implementing regulations related to BCRA, may 
affect the public funding rules. The Commission publishes this Notice 
of Proposed Rulemaking [``NPRM''] to invite comments on the proposed 
amendments.
    Please note that the proposed revisions would affect primary 
elections, general elections, and national nominating conventions. The 
Commission plans to seek comment at a later date on issues that affect 
only minor and new party candidates. The Commission also plans a 
separate rulemaking on selected issues related to all Federal 
candidates, which may include issues related to publicly funded 
candidates, including questions concerning candidate travel, mailing 
lists (including list exchanges and list rentals), and allocation of 
expenses between candidates.

Presidential Candidates

I. Winding Down Costs

    The Commission is considering several changes to its rules 
governing winding down costs for both primary and general election 
candidates. Many issues that have arisen in the Commission's audits of 
publicly funded presidential candidates have involved winding down 
costs.

A. Restrictions on Winding Down Costs

    The Commission is revisiting the issue of limiting winding down 
expenses. The current regulations at 11 CFR 9034.4(a)(3) permit primary 
candidates to make disbursements for winding down costs, and to receive 
and use matching funds to make those disbursements, over an indefinite 
period of time after the candidate's Date of Ineligibility [``DOI'']. 
Similarly, under 11 CFR 9004.4(a)(4), general election candidates may 
use public funds after the end of the expenditure report period to pay 
for the costs of winding down the general election campaign. The rules 
treat both primary and general election winding down costs as qualified 
campaign expenses.
    The Commission has permitted publicly financed candidates to use 
Federal funds to pay for certain winding down expenses since 1976. See 
Informational Letter Re: Advisory Opinion Request 1976-54. In 1979, the 
Commission stated that winding down costs ``although perhaps incurred 
after a candidate's date of ineligibility may nevertheless be 
considered qualified campaign expenses if they are associated with the 
termination of the candidate's campaign.'' Explanation and 
Justification for the Rules Governing Presidential Election Campaign 
Fund and Presidential Primary Matching Fund, 44 FR 20336, 20340 (Apr. 
4, 1979). In 1983, the Commission considered a time limitation for 
winding down costs, but ultimately did not include it in the final 
rules because of concerns raised by comments opposing the change. 
Explanation and Justification for the Rules Governing Presidential 
Primary Matching Fund, 48 FR 5224, 5228 (Feb. 4, 1983).
    The Commission again contemplated restrictions on the amount of 
winding down costs in 1995. Explanation and Justification for the Rules 
Governing Public Financing of Presidential Primary

[[Page 18485]]

and General Election Candidates, 60 FR 31854, 31865-31866 (June 16, 
1995). The Commission stated that winding down costs ``can result in 
additional audit fieldwork and preparation of addenda to audit 
reports'' and that as part of an ``effort to streamline and shorten the 
audit process,'' the Commission sought comment on ways to reduce 
winding down time for campaigns. Id. The Commission considered limiting 
winding down expenses to a dollar amount or a fixed percentage of the 
candidate's total expenditures during the campaign or matching funds 
certified to a primary candidate. Id. at 31866. Alternatively, the 
Commission considered ``a cutoff date after which winding down expenses 
would no longer be considered qualified campaign expenses.'' Id. 
Commenters objected that campaigns need resources to respond during the 
audit process, to defend themselves in enforcement actions and to 
verify the proper payment of the campaign's remaining bills. Id. 
Ultimately, the Commission did not add new restrictions to the rules 
governing winding down costs, stating that it would be ``quite 
difficult to select an amount or time frame sufficient to meet 
reasonable expenses incurred in winding down the campaign.'' Id.
    In recent election cycles, the winding down period for some 
candidates has extended over several years, and the amount of winding 
down costs has increased. During the audit and repayment process, 
presidential committees and the Commission's auditors estimate future 
winding down costs, and may sometimes reach substantially disparate 
winding down estimates. Issues have arisen as to the appropriate 
amounts and types of winding down expenses and as to the length of time 
committees need to wind down. These disputes lengthen the audit and 
repayment process and can provide a basis for judicial challenges to 
the Commission's repayment determinations. Both actual and estimated 
future winding down costs are included in a primary election 
candidate's Statement of Net Outstanding Campaign Obligations 
[``NOCO''] or a general election candidate's Statement of Net 
Outstanding Qualified Campaign Expenses [``NOQCE'']. Consequently, if 
the Commission auditors' figures are lower than the committee's 
estimates, a dispute may arise in determining the candidate's NOCO or 
NOQCE and any remaining entitlement, surplus funds, or resulting 
repayment. Disallowed winding down expenses can increase the amount of 
any surplus funds and the resulting repayment determination, or they 
can reduce or eliminate a deficit and the corresponding amount of a 
primary candidate's entitlement to matching funds. Therefore, the 
Commission is again considering ways to limit winding down expenses in 
order to establish a fair and readily determined amount to ensure 
public funds are used in accordance with statutory purposes, campaigns 
are treated consistently with respect to winding down costs, and to 
provide for more expeditious completion of these matters. Thus, the 
proposed rules establish both an ending date and maximum amount for 
winding down costs.
    The Commission proposes new sections governing winding down 
expenses at 11 CFR 9004.11 and 11 CFR 9034.11 that would delineate new 
restrictions on both the amount and timing of winding down costs. 
Publicly funded campaign committees should wind down in as quick and 
efficient manner as possible. The proposed restrictions are intended to 
contain winding down costs and periods, but allow campaigns a 
reasonable amount of winding down costs and a long enough winding down 
period to respond during the audit and repayment process and verify the 
payment of bills to terminate the campaign. The proposed restrictions 
would work in concert. Thus, candidates would be unable to continue to 
use public funds to pay for winding down costs if they reach the 
monetary limit prior to the end of their winding down period or if 
their winding down period ends before they reach the monetary limit.
    The proposed rules at 11 CFR 9004.11 and 9034.11 include both a 
temporal restriction and a limitation of the total amount of winding 
down expenses. The proposed time restriction would permit a candidate 
to use public funds to pay for winding down expenses only until the end 
of the ``winding down period.'' The winding down period would begin on 
the day after the candidate's date of ineligibility, for primary 
candidates who do not participate in the general election, or the day 
after the end of the expenditure report period for publicly funded 
general election candidates, or the day following the date 30 days 
after the general election for candidates who participate in the 
general election but do not receive public funds for the general 
election. The winding down period would end no earlier than the latest 
of: (1) 30 days after the candidate's receipt of an audit report that 
does not contain any repayment determinations; (2) 60 days after 
service of notice to the candidate of the Commission's repayment 
determination, if the committee does not dispute the repayment 
determination; or (3) 30 days after service of notice of the 
Commission's repayment determination following an administrative 
review.
    The proposed winding down period would allow sufficient time for 
campaigns to seek administrative review of repayment determinations. 
The 30-day period following a candidate's receipt of an audit report 
that does not contain a repayment determination would allow sufficient 
time to complete winding down because the audit and repayment process 
would have concluded. The 60-day period allowed for winding down after 
service to a candidate of a repayment determination that the candidate 
does not dispute reflects the amount of time permitted for candidates 
to respond to repayment determinations at 11 CFR 9007.2(c)(2) and 
9038.2(c)(2). If a candidate disputes any repayment determination by 
responding and seeking administrative review, the winding down period 
would extend to 30 days after service of notice of the Commission's 
repayment determination following administrative review. This is 
consistent with 11 CFR 9007.2(d)(2) and 9038.2(d)(2), which require 
candidates to make a post-administrative review repayment within 30 
days after service of the Commission's post-administrative review 
repayment determination. The Commission notes that if it is unable by 
an affirmative vote of at least 4 of its members to make a repayment 
determination after an administrative review, the 30-day period would 
run from the date of service of notice of the Commission's final action 
concerning the administrative review.
    The proposed rules would accommodate repayment determinations 
related to Commission audit reports, addenda to audit reports and 11 
CFR 9039.3 inquiries. Thus, if a candidate did not dispute a repayment 
determination in an audit report but did subsequently dispute a 
repayment determination arising from an inquiry pursuant to 11 CFR 
9039.3, the candidate's winding down period would extend until 30 days 
after service of notice of the Commission's repayment determination 
upon administrative review related to the 11 CFR 9039.3 investigation. 
In addition, the time restriction's terms are ``no earlier than'' the 
expiration of the specified time period to permit the Commission the 
administrative flexibility of choosing a convenient end point, like the 
end of a month, and to allow for staff to estimate time for

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Commission approval and transmittal to the committee of the audit 
report or repayment determination.
    To reflect this new time restriction, the Commission also proposes 
revising 11 CFR 9004.9(a)(4) and 9034.5(b)(2) to require candidates' 
NOCO or NOQCE Statements to break down estimated winding down costs 
through the end of the winding down period, rather than the expected 
termination of the committee's political activity.
    In addition to the temporal restriction, the proposed rules at 11 
CFR 9004.4(a)(4) and 9034.4(a)(3) would limit the total amount of 
winding down expenses that may be paid for, in whole or part, with 
public funds. This ``winding down limitation'' would limit the total 
amount of publicly funded winding down expenses for primary candidates 
to the lesser of either: (1) 5% of the overall expenditure limitation; 
or (2) 5% of the total of the candidate's expenditures subject to the 
overall expenditure limitation as of the candidate's DOI, plus the 
candidate's expenses exempt from the overall expenditure limitation as 
of DOI, such as fundraising, legal and accounting compliance expenses 
and other expenses. For general election candidates, the winding down 
limitation would be the lesser of: (1) 2.5% of the expenditure 
limitation; or (2) 2.5% of the total of the candidate's expenditures 
subject to the expenditure limitation as of the end of the expenditure 
report period, plus the candidate's expenses exempt from the 
expenditure limitation, such as fundraising expenses, as of the end of 
the expenditure report period.
    The Commission notes that the fundraising exemption for general 
election candidates is applicable only to those candidates who may 
accept contributions to defray qualified campaign expenses pursuant to 
26 U.S.C. 9003(b)(2) or 9003(c)(2): minor party candidates and major 
party candidates who may solicit contributions to make up a deficiency 
in public funds received. See 11 CFR 100.152, 9003.3(b) and (c). Those 
general election candidates who may solicit contributions may also 
exempt legal and accounting compliance expenses from their expenditure 
limitations. See 11 CFR 100.146, 9003.3(b) and (c). Thus, the proposed 
rule would address the calculation of the winding down limitation for 
those general election candidates who may solicit contributions by 
calculating the total of their expenditures subject to the limit and 
their exempt expenses. The winding down limitation for fully funded 
major party general election candidates would generally be 2.5% of the 
expenditure limitation. For both primary and general candidates, 
expenses for transportation of Secret Service and national security 
staff and media transportation expenses that are reimbursed by the 
media do not count against the expenditure limitations. See 11 CFR 
9004.6(a), 9034.6(a). In addition, taxes on non-exempt function income 
such as interest, dividends and sale of property are exempt from a 
primary candidate's overall expenditure limitation. See 11 CFR 
9034.4(a)(4).
    Notwithstanding the amount determined based on these calculations, 
the proposed rule would permit all primary and general election 
candidates to spend a minimum of $100,000 on winding down costs. The 
$100,000 minimum winding down limitation is proposed to recognize that 
publicly funded committees face winding down expenses related to the 
requirements of the audit and repayment process that do not vary with 
the size of the committees. The Commission seeks comment on whether 
$100,000 is the appropriate minimum amount and whether it should be 
adjusted for inflation or replaced with a percentage of the expenditure 
limitation.
    In practice, the winding down limitation for primary candidates 
with large campaigns and for fully funded major party general election 
candidates would be the maximum winding down limitation: 5% of the 
overall expenditure limitation for primary candidates or 2.5% of the 
expenditure limitation for general election candidates. For primary 
candidates with smaller campaigns, the winding down limitation would 
equal 5% of their expenses prior to DOI. The winding down limitation 
for most minor party general election candidates and major party 
candidates who must solicit contributions to make up a deficiency in 
public funds would equal 2.5% of their expenses during the expenditure 
report period. For purposes of calculating the amount of the winding 
down limitation based on a primary or general candidate's expenses, a 
candidate's expenses would include both disbursements and accounts 
payable as of the DOI or the end of the expenditure report period for 
the following categories of expenses (as listed on page 2 of FEC Form 
3P): operating expenses (line 23), fundraising (line 25), exempt legal 
and accounting (line 26), and other disbursements (line 29). The 
following payments would not be included in the expenses used to 
calculate the winding down limitation: Transfers to other authorized 
committees (line 24), loan repayments (line 27), or contribution 
refunds (line 28). The winding down limitation would not include any 
expenditures in excess of the general election candidate's expenditure 
limitation or the primary candidate's overall expenditure limitation; 
thus, making expenditures or accepting in-kind contributions that 
exceed the expenditure limits would not provide a basis for an 
increased winding down limitation. The maximum winding down limitation 
would be calculated based upon a percentage of the primary candidate's 
overall expenditure limitation or the general election candidate's 
expenditure limitation pursuant to 26 U.S.C. 441a(b), similar to the 
calculation of the 20% fundraising exemption or the 15% compliance 
exemption. See 11 CFR 100.146, 100.152, 9002.11(b)(5) and 9035.1(c)(1) 
and (2).
    All expenses incurred and paid by a candidate during the winding 
down period, including fundraising costs, would be subject to the 
winding down limitation. Expenses for legal and accounting compliance 
costs paid for with public funds would count against the winding down 
limitation, but compliance costs paid by a General Election Legal and 
Accounting Compliance Fund [``GELAC''] would not count against the 
winding down limitation.
    The Commission reviewed the amounts spent for winding down costs by 
all publicly funded candidates during the 2000 election cycle. It 
compared their approximate winding down costs to the proposed winding 
down limitation. Of three publicly funded general election candidates, 
one would have spent less than 1% of the expenditure limitation, the 
second would have spent less than 2% of his expenditures, while the 
third would have spent only slightly more than the 2.5% winding down 
limitation. The last committee paid some of its winding down expenses 
with GELAC funds, which reduced its percentage to less than 2%. Ten 
primary candidates received matching funds in 2000. Three of these 
primary candidates' winding down limitations would have been calculated 
based on the maximum winding down limitation of 5% of the overall 
expenditure limitation. Of these, one would have exceeded the winding 
down limitation, spending more than approximately 8% of the expenditure 
limitation. Six primary candidates' winding down limitations would have 
been calculated based on their expenditures. Of these, four candidates 
would have exceeded the 5% winding down limitation, with winding down 
costs ranging between approximately

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13% and 42% of their expenditures. One candidate that would have been 
subject to the minimum winding down limitation of $100,000 spent 
substantially less than that amount. Of all 13 publicly funded 
committees in the 2000 presidential elections, five primary committees 
had winding down expenses that would have exceeded the proposed amount 
limitation. One of these committees had sufficient funds in its related 
GELAC that could have paid the excessive winding down expenses. The 
other four committees would have received fewer matching funds after 
their DOIs.\1\
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    \1\ Of course, this comparison is hypothetical because the 
committees may have behaved differently had the proposed rules been 
in effect.
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    The proposal puts forth a lower percentage for general election 
campaign committees than for primary campaigns for several reasons. 
General election candidates may pay for winding down costs with funds 
from the candidates' GELAC, an option not currently available for 
primary election campaigns. General election campaigns are also shorter 
in length than most primary campaigns and thus, may have fewer 
transactions and vendors to deal with while terminating the campaign. 
The Commission also notes that the total amount of public funds and 
expenditure limitations are larger for major party candidates who 
receive public funds; thus, a smaller percentage of their expenditures 
would result in a larger dollar figure.
    Under the proposed rules, the use of public funds to pay for 
winding down expenses in excess of these restrictions would constitute 
a non-qualified campaign expense that may be subject to repayment. 
However, these restrictions would apply to the use of public funds or a 
mixture of public and private funds for winding down costs. The 
proposed rules would not limit the payment of winding down expenses 
from a candidate's GELAC. The proposed rules would also allow a primary 
candidate who is in a deficit position at the DOI to pay for winding 
down costs in excess of the restrictions after the committee's accounts 
no longer contain any matching funds. See 11 CFR 9038.2(b)(2)(iii)(B) 
and (iv). Primary candidates who have a surplus at the DOI would be 
required to make a surplus repayment to the United States Treasury 
before they could use private funds for winding down costs in excess of 
the restrictions. See 11 CFR 9038.3(c).
    The proposal includes both temporal and amount restrictions rather 
than just one or the other so that these restrictions would work 
together to reinforce each other. The proposed rules would not permit 
the use of public funds for winding down costs after either: (1) The 
total amount of winding down expenses reach the winding down dollar 
limitation or (2) the end of the winding down period, whichever event 
occurs first. The proposed restrictions would prevent the pre-payment 
of large amounts for speculative future winding down goods and services 
prior to the end of the winding down period. They would also prevent a 
prolonged winding down period from extending and complicating the audit 
process. In addition, the proposed rules are intended to reflect 
factors that could affect the amount of winding down costs needed to 
terminate the campaign. The proposed winding down limitation is based 
on a percentage of a campaign's expenses to reflect that larger 
campaigns generally incur more expenses as they terminate their 
activities. The calculation includes exempt expenses such as 
fundraising and legal and accounting compliance costs to reflect the 
actual size of the campaign that is winding down. In addition, the 
proposed rule would restrict the expenses used to calculate the winding 
down limitation to the period prior to a primary candidate's DOI or the 
end of a general election candidate's expenditure report period to 
prevent candidates from increasing their winding down limitation by 
spending more for winding down expenses.
    One factor under consideration, but not included in the proposed 
rules that follow, is the number of complaints and other compliance 
actions filed against a presidential candidate or campaign committee. 
Winding down costs include, inter alia, the costs of ``complying with 
the post-election requirements of the Act,'' such as the audit and 
repayment process, reporting and recordkeeping. 11 CFR 9004.4(a)(4) and 
9034.4(a)(3). The compliance process is separate from the required 
audit and repayment process and its requirements are not election 
dependent, which raises the issue of whether such compliance costs 
should be considered ``post-election requirements of the Act.'' 
Compliance matters, unlike compulsory audits and repayment 
determinations, are not unique to candidates who receive public funds. 
Consequently, the proposed rule would allow a publicly funded candidate 
to pay initial expenses for compliance matters arising from the 
campaign with public funds as winding down costs, but the winding down 
period would not be prolonged until enforcement matters related to the 
campaign have closed, if the audit and repayment process has concluded. 
Private funds would be available to general election candidates through 
their GELAC and to primary candidates after their accounts no longer 
contain public funds. As discussed below, however, the proposed rules 
would also permit a GELAC to pay the primary committee's winding down 
expenses under certain conditions. The Commission seeks comment on 
whether the existence of compliance matters should be considered as a 
factor in determining a candidate's winding down period or winding down 
limitation.
    The proposed new sections at 11 CFR 9004.11 (general election) and 
9034.11 (primary election) governing winding down costs are intended to 
simplify and clarify the rules governing winding down costs. Proposed 
new 11 CFR 9004.11 and 9034.11 contain the definition of winding down 
costs, moved from current sections 9004.4(a)(4) and 9034.4(a)(3)(i), 
the proposed temporal and monetary restrictions, and proposed rules 
governing the allocation of winding down costs between a candidate's 
primary election and general election campaigns. In addition, the 
Commission proposes revisions to 11 CFR 9004.4(a)(4) and 
9034.4(a)(3)(i) and (ii) to move provisions from those sections to the 
new sections and to otherwise conform these sections to the proposed 
new rules. Proposed 11 CFR 9004.4(a)(4) would state that payments may 
be used to defray winding down costs subject to the restrictions of new 
11 CFR 9004.11. Current section 9004.4(a)(4)(ii) would be renumbered as 
9004.4(a)(5). Proposed 11 CFR 9034.4(a)(3)(i) would state that winding 
down costs subject to the restrictions in proposed 11 CFR 9034.11 are 
qualified campaign expenses. Proposed 11 CFR 9034.4(a)(3)(ii) would 
include a reference to proposed 11 CFR 9034.11.
    The Commission seeks comment on the proposed winding down 
restrictions. Are the restrictions fair to publicly funded committees? 
Should winding down expenses be limited to a fixed dollar amount or a 
combination of a dollar amount and a percentage rather than the 
proposed percentage? If so, what dollar amount would be appropriate? 
Would it be preferable to apply a percentage or dollar cap to specific 
categories of winding down expenses rather than the total of winding 
down costs? Would a shorter or longer winding down period be preferable 
to the proposed time period? Should there be a minimum winding

[[Page 18488]]

down period, and if so, how long should the minimum winding down period 
be?
    Specifically, the Commission seeks comment on whether the winding 
down period should include an additional time period or dollar 
allowance for candidates who seek judicial review of a Commission 
repayment determination and if so, how long that period should be. 
Should candidates who accept public funds for both the primary and 
general elections be allowed to combine their primary and general 
election winding down limitations into a joint monetary limit for the 
total winding down expenses of both committees, with the temporal limit 
based on the last repayment determination received by either committee? 
Would the proposed rule encourage candidates to attempt to extend the 
audit process to lengthen the winding down period?
    The Commission is also considering two alternatives to the proposed 
temporal and monetary restrictions on winding down expenses. The first 
alternative would, in effect, disallow the use of public funds to pay 
for winding down costs. Under this alternative, a primary election 
candidate would not be permitted to use public funds to pay for either: 
(1) All expenses incurred after the candidate's DOI or (2) all expenses 
for goods or services to be used after the DOI even if the expenses are 
incurred prior to the DOI. A general election candidate would not be 
permitted to use public funds to pay for either: (1) All expenses 
incurred after the end of the expenditure report period or (2) all 
expenses for goods or services to be used after the end of the 
expenditure report period even if they are incurred during the 
expenditure report period.
    This alternative would end the Commission's treatment of winding 
down costs as qualified campaign expenses. Winding down costs are a 
category of qualified campaign expenses recognized by the Commission 
that is not specifically identified in the Fund Act or the Matching 
Payment Act. This category of qualified campaign expenses is an 
exception to the rules requiring qualified campaign expenses to be 
incurred during the expenditure report period, for general election 
candidates, 26 U.S.C. 9002(11)(B), or prior to a primary candidate's 
DOI, 11 CFR 9032.9(a)(1); see also 26 U.S.C. 9032(6) and 9033(c)(2). 
Since winding down costs are incurred after the end of a candidate's 
active campaign, the question arises whether they are incurred ``to 
further'' a general election candidate's election to the office of 
President or Vice President, 26 U.S.C. 9002(11), or ``in connection 
with'' a primary candidate's campaign for the nomination, 26 U.S.C. 
9032(9). Comments are sought on whether permitting public funds to be 
used for winding down costs may be inconsistent with these provisions 
or with 26 U.S.C. 9038(b)(3), which requires candidates to retain 
matching funds ``for the liquidation of all obligations to pay 
qualified campaign expenses for a period not exceeding 6 months after 
the end of the matching payment period'' and to ``promptly'' repay a 
ratio of any surplus funds.
    Disallowing the use of public funds for winding down expenses would 
ensure that public funds are used for expenses that further a 
candidate's active campaign. Under this alternative, general election 
candidates would be able to pay for their winding down expenses with 
GELAC funds. Primary candidates would not pay for winding down costs 
with matching funds, but could use contributions or other private funds 
to pay these costs. Under this approach, a primary candidate's winding 
down costs would not count as liabilities in determining the 
candidate's net outstanding campaign obligations; thus, winding down 
costs could not increase a primary candidate's entitlement to Federal 
funds or decrease a surplus.
    Please note that this alternative is not set forth in the draft 
rules that follow. This alternative would require the deletion of the 
rules governing winding down costs as well as changes to other rules to 
delete references to winding down costs. Specifically, this alternative 
would require deletion or revisions to: 11 CFR 9002.11(c) (expenses 
after the last day of the candidate's eligibility may be qualified 
campaign expenses if they meet the provisions of 11 CFR 9004.4(a)); 
9004.4(a)(4) (winding down costs as qualified campaign expenses); 
9004.4(b)(3) (non-qualified campaign expenses do not include winding 
down expenses permitted by 11 CFR 9004.4(a)(4)); 9004.9(a)(1) and (4) 
(inclusion of estimated winding down expenses in the NOCQE statement); 
9032.9(c) (expenses after the last day of candidate's eligibility may 
be qualified campaign expenses if they meet the provisions of 11 CFR 
9034.4(a)); 9034.4(a)(3) (winding down costs as qualified campaign 
expenses); 9034.4(a)(5) (bonuses are permitted until 30 days after 
DOI); 9034.4(b)(3) (non-qualified campaign expenses do not include 
winding down expenses permitted by 11 CFR 9034.4(a)(3)); and 
9034.5(b)(1) and (2) (inclusion of estimated winding down expenses in 
the NOCO statement). Please also note that this alternative is 
inconsistent with some of the other proposals in this rulemaking, such 
as dividing winding down expenses between a candidate's primary and 
general campaigns or treating certain convention expenses of ineligible 
candidates as qualified campaign expenses, as discussed below. The 
Commission seeks comment on this alternative approach. Would 
disallowing the use of public funds for winding down costs hinder 
candidates from responding adequately during the audit and repayment 
process? Would this alternative serve as a disincentive for candidates 
to seek public funds? Is this approach nonetheless required by the Fund 
Act and the Matching Payment Act? Should primary candidates be 
permitted to establish a separate account of solely private funds, with 
separate contribution limits for contributors, to be used for winding 
down expenses? If so, may the Commission permit contributors to make 
more than one contribution of the amount specified in 2 U.S.C. 
441a(a)(1)(A) or 2 U.S.C. 441a(a)(2)(A) to the same candidate or 
authorized committee? May the Commission permit such candidates and 
authorized committees to accept such contributions consistent with 2 
U.S.C. 441a(f) and 441i(e)(1)(A)?
    The Commission is also considering a second alternative approach to 
winding down costs. This alternative, which is also not set forth in 
the draft rules that follow, would not place restrictions on the amount 
or timing of winding down costs but would more precisely delineate the 
types of winding down costs that are permissible. The Commission is 
considering various categories of permissible winding down costs 
including staff salaries, legal and accounting services, office space 
rental, utilities, computer services, other overhead expenses, 
consultants, storage, insurance, office supplies and fundraising 
expenses.
    The Commission seeks comment on this alternative. Disputes over 
winding down expenses often concern the appropriate amounts spent for 
particular expenses, the appropriate length of time a campaign should 
continue to need certain goods or services, and whether the campaign 
committee has provided sufficient documentation of expenses. Should a 
list of permissible winding down expenses provide guidance as to the 
appropriate amounts, duration, or documentation required to support 
such expenses? Should there be any dollar limits on any of the 
expenses? Would this alternative reduce the amount of winding down 
expenses? The Commission also seeks comment on any

[[Page 18489]]

other alternative proposals for limiting winding down expenses.
    The Commission proposes another change to clarify the rules on 
winding down costs at 11 CFR 9034.4(b)(3). Current paragraph (a) of 11 
CFR 9034.4 lists qualified campaign expenses, while paragraph (b) sets 
forth certain non-qualified campaign expenses. Paragraph (a)(1) states 
that, except as provided in paragraph (b)(3), all contributions 
received by an individual from the date he or she becomes a candidate 
and all matching payments received by the candidate shall be used only 
to defray qualified campaign expenses. Paragraph (b)(3) states that 
general election and post-ineligibility expenditures are not qualified 
campaign expenses, except to the extent permitted under paragraph 
(a)(3), which concerns winding down and continuing-to-campaign 
expenses. For clarity, the Commission is proposing to add a provision 
to paragraph (b)(3) to specifically state that the winding down and 
continuing-to-campaign costs addressed in paragraph (a)(3) and 11 CFR 
9034.11 are considered qualified campaign expenses. Corresponding 
changes would be made to the similar provision for the general 
election, 11 CFR 9004.4(b)(3).
    Please note that the Commission is not proposing any changes at 
this time to 11 CFR 9008.10(g)(7), governing winding down costs of 
convention committees. The Commission nonetheless welcomes comments as 
to whether similar restrictions should apply to winding down expenses 
for convention committees.

B. Candidates Who Run in Both Primary and General Elections

    The Commission seeks comment on proposed revisions to its rules to 
clarify which costs constitute primary winding down costs for 
candidates who participate in both the primary and general elections. 
The Commission's current regulations allow only candidates who do not 
run in the general election to begin to incur winding down costs and to 
treat winding down expenses for salary, overhead and computer costs as 
100% compliance costs beginning immediately after their DOI. See 11 CFR 
9034.4(a)(3)(i) and (iii). Candidates who run in the general election, 
whether or not they receive public funds for that election, must wait 
until the day following the date 30 days after the general election, 
which is the end of the expenditure report period for publicly financed 
general election candidates, 11 CFR 9002.12, before they may begin to 
incur and pay winding down expenses or allocate them as 100% compliance 
expenses. In 1999, the Commission revised 11 CFR 9034.4(a)(3)(iii) to 
allow primary candidates who do not run in the general election to 
begin to treat 100% of winding down expenses for salary, overhead and 
computer costs as 100% compliance costs beginning immediately after 
their DOI. Explanation and Justification for the Rules Governing Public 
Financing of Presidential Primary and General Election Candidates, 64 
FR 49355, 49358-59 (Sept. 13, 1999). The wording of 11 CFR 
9034.4(a)(3)(iii), however, refers to ``candidates who receive public 
funding for the general election'' but does not expressly address the 
situation of a candidate who runs in both the primary and general 
elections and does not receive public funding for the general election. 
In the 2000 election, questions arose about how to treat administrative 
expenses incurred during the general election expenditure report period 
by a publicly funded primary election candidate who also ran in the 
general election but did not receive public funds for the general 
election.
    The Commission's approach in 11 CFR 9034.4(a)(3)(iii) reflects its 
belief that candidates who are actively campaigning in the general 
election should not be considered to be terminating political activity 
and winding down their primary campaigns. The proposal seeks to extend 
this concept to apply without regard to whether their general election 
campaigns are publicly funded. Expenses incurred by such candidates 
during the expenditure report period, for publicly funded general 
election candidates, or the equivalent time period ending 30 days after 
the general election, for other general election candidates, should be 
considered general election expenses, rather than primary winding down 
costs. This approach prevents the use of primary matching funds for 
non-qualified expenses related to the general election. See 11 CFR 
9032.9(a) and 9034.4(b). Although this approach may result in general 
election campaigns incurring some administrative costs related to 
terminating the primary campaign during the general election period, 
identifying those costs would consume resources of audited committees 
and the Commission. This approach is also consistent with the 
Commission's bright line rules for allocating expenses between primary 
and general campaigns at 11 CFR 9034.4(e), which in effect allow some 
primary related expenses to be paid by the general election committee 
and vice versa.
    The Commission proposes a new paragraph at 11 CFR 9034.11(e), which 
is based on current 11 CFR 9034.4(a)(3)(i), with revisions to clarify 
this rule and to prevent any future confusion. The proposed rule at 11 
CFR 9034.11(e) would provide that a candidate who runs in the general 
election must wait until the day following the date 30 days after the 
general election before using matching funds for primary winding down 
costs, regardless of whether the candidate receives public funds for 
the general election. This rule would also clarify that no expenses 
incurred prior to 31 days after the general election by candidates who 
run in the general election may be considered primary winding down 
costs or paid with matching funds.
    The Commission also proposes revisions to 11 CFR 9035.1(c)(1) that 
would include a revised version of current 11 CFR 9034.4(a)(3)(iii) to 
provide that only candidates who do not run in the general election may 
treat 100% of salary, overhead and computer expenses as compliance 
expenses immediately after their date of ineligibility. Candidates who 
run in the general election must wait until the day following the date 
30 days after the general election to treat these expenses as exempt 
compliance costs. The Commission proposes, for greater clarity, to move 
this revised version of 11 CFR 9034.4(a)(3)(iii) into current 11 CFR 
9035.1(c)(1), which concerns the legal and compliance exemption to the 
expenditure limitations, because this paragraph concerns the treatment 
of certain winding down expenses as 100% compliance costs.
    The Commission seeks comment on these proposals. Should there be an 
exception for expenses incurred during the time period prior to 31 days 
after the general election that are solely related to winding down the 
primary campaign, and if so, what requirements should there be to 
ensure that such costs are solely related to winding down the primary 
campaign? For example, should there be an exception for fundraising 
expenses incurred during this period to retire a primary committee's 
NOCO? Would primary-related fundraising activities during this period 
also have the effect of promoting the candidate's general election 
campaign? Would a fundraising exception encourage candidates to add a 
solicitation to general election related events or communications 
during this period in order to treat expenses for those activities as 
primary winding down expenses?
    In addition, the definition of ``winding down costs'' in new 
section 9034.11(a) would include a revised

[[Page 18490]]

version of the first sentence of current 11 CFR 9034.4(a)(3)(i) to 
clarify that winding down costs are limited to costs associated with 
the termination of political activity related to seeking that 
candidate's nomination for election. This would clarify that primary 
election campaign winding down expenses are legally distinct from 
general election campaign winding down expenses.
    A related issue is how to allocate winding down expenses for 
candidates who run in both the primary and general elections. 
Allocating winding down expenses between the primary and general 
election campaigns during the period following the date 30 days after 
the general election, can be complicated because both campaigns are 
winding down simultaneously, often using the same staff, offices, 
equipment, vendors and legal representatives. The Commission proposes 
new sections 11 CFR 9004.11(d) and 9034.11(d) allowing a candidate who 
runs in both the primary and general election to divide winding down 
costs between the primary and general campaigns using any allocation 
method, including allowing either the primary or the general campaign 
to pay 100% of winding down expenses.
    This proposal would give candidates the flexibility to allocate 
their winding down expenses based on the particular circumstances of 
their campaigns. Winding down activity for some candidates may be 
largely or entirely focused on one election. For example, candidates 
who do not receive public funds for the general election might 
concentrate winding down activity on their publicly funded primary 
committee. In addition, candidates might concentrate winding down 
efforts and expenses on the committee that must address more difficult 
and complex issues in the audit and repayment process or that has a 
larger potential repayment.
    An alternative proposal for dividing winding down expenses between 
the primary and general campaigns, which was used in some 2000 election 
cycle audits, would be to divide expenses equally but allow committees 
to use an alternative allocation method if they provide sufficient 
documentation to support that allocation. Because the documentation of 
the primary and general election committees' allocation must be 
reviewed and disputes may arise about whether committees have provided 
sufficient documentation to support their proposed allocation, this 
alternative could prolong the audit process and use the resources of 
the Commission and audited committees. The draft rules that follow do 
not incorporate this alternative. The Commission seeks comment as to 
what amount or type of documentation should be considered sufficient to 
support allocations proposed by committees. What standard would be 
appropriate for evaluating alternative allocations proposed by 
committees?
    The Commission seeks comment on any other method of allocating 
winding down expenses between the primary and general election 
committees. Specifically, would either of these alternative proposals 
result in the primary or general election campaign using public funds 
to pay for non-qualified expenses related to the other election? Should 
campaigns be permitted to allocate their costs to effectually reduce 
potential repayments? Would a default allocation of 50% for each 
committee be equitable to differently situated candidates? Finally, are 
these alternative approaches inconsistent with the Fund Act or the 
Matching Payment Act?

C. Use of GELAC Funds To Pay Winding Down Costs

    The Commission's rules at 11 CFR 9003.3(a) permit publicly funded 
major party presidential candidates to establish and solicit private 
contributions to GELAC funds, if certain conditions are met. Payments 
from these accounts for exempt legal and accounting services are not 
counted against the candidate's overall expenditure limits under 2 
U.S.C. 441a(b) and 11 CFR 110.8. See 11 CFR 100.8(b)(15).
    In 1995, the Commission adopted 11 CFR 9004.4(a)(4)(iii) to address 
the use of the GELAC to pay certain winding down costs of general 
election candidates. This paragraph states that 100% of salary, 
overhead and computer expenses incurred by a campaign after the end of 
the expenditure report period may be paid from a GELAC, and that such 
expenditures will be presumed to be solely to ensure compliance with 
the FECA and the Fund Act. 60 FR 31875 (June 16, 1995). This paragraph 
was included in the 1996 through 1999 editions of the Code of Federal 
Regulations, but was inadvertently omitted from the 2000, 2001 and 2002 
editions. The Commission intends to reinstate this important provision, 
with certain revisions discussed below, but move it to the regulation 
that governs GELAC funds, proposed 11 CFR 9003.3(a)(2)(i)(I).
    The Commission is also considering whether, and to what extent, 
GELAC funds may be used to pay for primary winding down expenses 
incurred after the end of the expenditure report period. As noted 
above, the primary and general election campaigns are simultaneously 
winding down during this period and often share salary, overhead and 
computer expenses. The current regulations at 11 CFR 9034.4(a)(3)(iii) 
recognize that a significant amount of winding down activity during 
this period is related to compliance and allow primary campaigns to 
treat 100% of salary, overhead and computer costs during this period as 
legal and accounting compliance expenses exempt from the expenditure 
limitations. Permitting the GELAC to pay salary, overhead, and computer 
costs after the end of the expenditure report period for both the 
primary and general campaigns would allow candidates who run in both 
the primary and general elections to choose to pay these costs from the 
GELAC without having to allocate them between the primary and general 
campaign committees. In addition, the primary and general election 
committees often share winding down expenses related to legal and 
accounting compliance such as attorneys and accountants. Further, 
primary campaign committees may lack sufficient funds to complete 
winding down activity.
    The Commission proposes to revise the language of former 11 CFR 
9004.4(a)(4)(iii), at proposed 11 CFR 9003.3(a)(2)(i)(I), to allow 
contributions to the GELAC to be used for winding down expenses for 
legal and accounting compliance activities incurred after the end of 
the expenditure report period by either the primary or general election 
committee or by both committees. All salary, overhead, and computer 
expenses after the end of the expenditure report period would be 
considered winding down expenses for legal and accounting compliance 
activities payable by the GELAC.
    The Commission seeks comments on the proposed rule. Should the 
GELAC be allowed to pay for the primary committee's legal and 
accounting compliance expenses during the winding down period or must 
the primary committee pay all primary winding down expenses? The 
Commission also seeks comment on whether, and to what extent, GELAC 
funds may be used to pay for primary winding down expenses other than 
legal and accounting compliance expenses, salary, overhead and computer 
costs. Should the rule list in more detail the types of primary winding 
down expenses that may be paid with GELAC funds?

[[Page 18491]]

D. Convention Expenses of Ineligible Candidates

    The Commission proposes to add a new provision to the rules to 
reflect its decision in AO 2000-12 permitting certain convention 
expenses incurred by presidential primary candidates after their dates 
of ineligibility to be considered qualified campaign expenses. In AO 
2000-12, the Commission determined that certain expenses related to 
meetings and events at the national nominating conventions could be 
treated as qualified campaign expenses by ineligible candidates. First, 
the Commission determined that expenses for certain meetings and 
receptions to thank delegates and supporters could be treated as 
qualified campaign expenses under 11 CFR 9034.4(a)(5), which 
specifically includes gifts to ``committee employees, consultants and 
volunteers'' for ``campaign-related activities or services.'' The 
current rule limits this to $150 per individual and $20,000 total for 
all gifts. The Commission noted that such meetings should be restricted 
to attendees who served the campaign in the capacity of a committee 
employee, consultant or volunteer to be considered qualified campaign 
expenses, and that the current regulation does not allow the payment of 
travel expenses to attend or organize the events to be considered 
qualified campaign expenses.
    Second, the Commission permitted the ineligible candidates to incur 
qualified campaign expenses related to fundraising events at the 
conventions. The Commission stated that as long as the candidates' 
primary committees had remaining net outstanding campaign obligations, 
they may continue to receive matching funds, and may use matching funds 
to pay for fundraising expenses to retire those campaign obligations as 
qualified campaign expenses. See 11 CFR 9034.1(b). The Commission 
concluded that the candidates may incur qualified campaign expenses for 
expenses related to specific fundraising events held at the nominating 
conventions. It stated that the candidates could also use matching 
funds to pay the travel expenses for candidates to attend the 
fundraising events and for campaign staff who participate in the 
organizing and administration of the fundraising events. The Commission 
emphasized that the fundraising expenses must be for specific 
fundraising events at the convention. In addition, expenses allocable 
to participation by the candidates or their staff members in any other 
part of the conventions would constitute non-qualified campaign 
expenses. Finally, such expenses would be qualified campaign expenses 
only if, at the time of the convention, the candidates had net 
outstanding campaign obligations. See 11 CFR 9034.1(b).
    Consequently, the Commission proposes adding new 11 CFR 
9034.4(a)(6) to reflect its decision in AO 2000-12. The proposed rules 
at paragraph (a)(6)(i) provide that expenses directly related to a 
specific fundraising event at a national nominating convention to 
retire an ineligible candidate's debt owed by the candidate's primary 
committee, including travel expenses for the candidate to attend the 
fundraising event and for those campaign staff who organize and 
administer the fundraising event, may be considered qualified campaign 
expenses. This paragraph provides that covered travel expenses would 
consist of transportation, hotel or other lodging, and per diem 
subsistence for the candidates, their spouses, campaign staff, and 
volunteers who organize or administer the event. The proposed rule 
provides that expenses allocable to participation by the candidate or 
staff in the national nominating convention itself, or in any 
activities related to the convention, other than the fundraising event, 
would constitute non-qualified campaign expenses. The proposed rule 
also states that expenses for a fundraising event at the convention may 
be considered qualified campaign expenses only to the extent that, on 
the date of the fundraising event, the candidate has net outstanding 
campaign obligations pursuant to 11 CFR 9034.1(b). Proposed paragraph 
(a)(6)(ii) would also permit expenses for events to thank campaign 
employees, consultants and volunteers to be considered qualified 
campaign expenses, but would provide that travel expenses to such 
events would not constitute qualified campaign expenses.
    The Commission's decision in AO 2000-12 delineates a carefully 
circumscribed exception to the Commission's general past practice that 
convention expenses of ineligible candidates are non-qualified campaign 
expenses. As AO 2000-12 states, the Commission has generally concluded 
in its audits of presidential primary campaign committees that expenses 
associated with attending national nominating conventions incurred by 
losing primary candidates are non-qualified campaign expenses. The 
opinion discusses a number of audits of presidential campaigns in which 
the Commission determined that expenses of ineligible candidates 
related to the national nominating convention such as preparatory staff 
work, hotel, and airline tickets were non-qualified campaign expenses. 
For example, the U.S. Court of Appeals for the District of Columbia 
Circuit upheld the Commission's determination that convention-related 
expenses incurred by an unsuccessful presidential campaign committee to 
attend the convention and for activities to bolster the support and 
enthusiasm of the candidate's delegates were non-qualified campaign 
expenses where the committee claimed that the expenses were fundraising 
activities because the video and audio record of the candidate's 
attendance at the convention would be used for later fundraising 
efforts. Robertson v. FEC, 45 F.3d 486, 492 (D.C. Cir. 1995). AO 2000-
12 explains that while the Commission's general practice is that 
expenses for ineligible candidates, such as travel costs, related to 
the convention are non-qualified campaign expenses, matching funds may 
be used for such expenses in certain limited circumstances.
    Prior to the 1996 election cycle, the Commission sought comment on 
whether to expand the definition of ``qualified campaign expense'' in 
11 CFR 9032.9 to include losing candidates' convention expenses. See 
Explanation and Justification to the Rules Governing Public Financing 
of Presidential Primary and General Election Candidates, 60 FR 31854, 
31871 (June 16, 1995). In declining to do so, however, the Commission 
noted that the statutory definition of qualified campaign expense is 
limited to expenses ``incurred by a candidate, or by his authorized 
committee, in connection with his campaign for nomination for 
election.'' Id.; see 26 U.S.C. 9032(9)(A). This definition arguably 
does not apply to those no longer seeking the presidential nomination. 
However, the 1995 Explanation and Justification cited above noted that 
candidates are permitted to count fundraising expenses incurred after 
DOI, including those incurred at a national nominating convention, as 
qualified campaign expenses as part of their winding down costs, but 
only those expenses directly related to fundraising are qualified 
campaign expenses. Id.
    The Commission seeks comment on this proposed rule and on its 
previous treatment of these expenses. Should the Commission incorporate 
the exception described in AO 2000-12 into its regulations? Are there 
any possible adverse consequences of allowing ineligible candidates to 
treat these expenses as qualified campaign expenses? Should the 
Commission

[[Page 18492]]

retain its general practice that convention expenses of ineligible 
candidates are non-qualified campaign expenses? Should the definition 
of ``qualified campaign expense'' in 11 CFR 9032.9 or the rules 
governing the use of funds for qualified campaign expenses in 11 CFR 
9034.4 be expanded to include as qualified campaign expenses the 
convention expenses of ineligible primary candidates who speak, appear, 
serve as a delegate or retain delegates, or who are nominated as the 
party's vice presidential candidate, or who otherwise participate in 
the party's national nominating convention? How would such a change be 
reconciled with the requirement that qualified campaign expenses must 
be made ``in connection with [a candidate's] campaign for nomination 
for election?'' See 26 U.S.C. 9032(9). Should expenses of ineligible 
presidential primary candidates at the national convention be 
considered permissible winding down costs or some other type of 
qualified campaign expense?

II. Primary Expenditure Limitations and Repayments

A. In-Kind Contributions Count Toward the Expenditure Limits (11 CFR 
9035.1 and 9038.2)

    The Commission proposes to clarify its rules at 11 CFR 9035.1 and 
9038.2(b)(2)(ii)(A) concerning attribution of expenses to the 
expenditure limitations for presidential primary candidates and 
repayments based upon expenditures in excess of those limitations. The 
Commission's recent rulemaking on coordinated and independent 
expenditures implementing the requirements of BCRA delineates the rules 
governing coordinated expenditures, coordinated communications, party 
expenditures, coordinated party communications and the dissemination, 
distribution or republication of campaign materials prepared by a 
candidate. See Explanation and Justification for the Rules Governing 
Coordinated and Independent Expenditures, 68 FR 421 (Jan. 3, 2002). In 
that rulemaking, the Commission generally defined ``coordinated'' for 
the purpose of coordinated expenditures. 11 CFR 109.20. The final rules 
also establish particular criteria for a communication to be considered 
a ``coordinated communication.'' See, e.g., 11 CFR 109.21(c) (content 
standards) and (d) (conduct standards). In addition to these general 
rules, the particular circumstances of political party committees are 
addressed, and ``party coordinated communications'' are defined. See 11 
CFR 109.37 and 11 CFR part 109, subpart D.
    In establishing new rules governing coordinated expenditures, the 
Commission recognized that some in-kind contributions arising from 
coordinated communications made by party committees or other persons 
may not necessarily be received or accepted by the candidate. See 11 
CFR 109.21(b)(2) and 11 CFR 109.37(a)(3). The Commission believes 
guidance would be helpful regarding the application of the coordinated 
and independent expenditures final rules to situations involving the 
expenditure limitations applicable to publicly funded presidential 
candidates. Specifically, the Commission proposes to address the extent 
to which in-kind contributions, coordinated expenditures, coordinated 
communications, coordinated party expenditures, and coordinated party 
communications will count against expenditure limitations and will be 
included in the total amount of a publicly funded candidate's 
expenditures subject to the limits for purposes of repayment 
determinations.
    The current rules at 11 CFR 9035.1(a) and 11 CFR 110.8(a) set forth 
the state-by-state and overall expenditure limitations for candidates 
receiving public funds for the primary election. See 2 U.S.C. 441a(b), 
(c), and 26 U.S.C. 9035(a). The Commission has generally treated the 
receipt of in-kind contributions by presidential primary candidates as 
expenditures made by those candidates and has included in-kind 
contributions in the amount of the candidate's expenditures subject to 
the expenditure limitations and in the calculation of repayments based 
on amounts in excess of the candidate's expenditure limitations. For 
example, in a repayment determination arising from an audit of a 1988 
candidate, the Commission concluded that in-kind contributions for 
testing-the-waters expenses from a multicandidate political committee 
``leadership PAC'' associated with a presidential candidate to that 
candidate were subject to the candidate's state-by-state expenditure 
limitation and part of the total of the candidate's expenditures 
subject to pro rata repayment. In addition, the Commission concluded, 
in making that repayment determination, that Federal matching funds and 
private contributions were commingled in a committee's accounts. The 
Commission considered in-kind contributions to be part of this 
commingled pool of available funds, and thus, these expenditures were 
included in calculating the amount in excess of the limitations subject 
to pro rata repayment.
    During certain audits from the 1996 and 2000 cycles, the Commission 
considered whether some of the costs of producing and airing television 
advertisements during the presidential primary and general election 
campaigns, which were paid by the national party committees, should be 
treated as coordinated in-kind contributions to presidential primary 
candidates, and if so, whether such costs should count against 
presidential candidates' expenditure limitations and be included in the 
amount of expenditures in excess of the limitations that would be 
subject to pro rata repayment. After considering this issue, the 
Commission declined to make repayment determinations on this basis in 
these audits.
    A related issue is whether current 11 CFR 9038.2(b)(2)(ii)(A) 
represents a permissible interpretation of the Matching Payment Act. 
Section 9038.2(b)(2)(ii)(A) provides that one example of a Commission 
repayment determination for the use of funds for non-qualified campaign 
expenses is a determination that a candidate, a candidate's authorized 
committee(s), or agents have made expenditures in excess of the 
expenditure limitations set out at 11 CFR part 9035. The Commission 
considered this issue in a rulemaking proceeding prior to the 2000 
election cycle, but made no changes to the regulation at that time. 
Notice of Disposition for the Rules Governing Public Funding of 
Presidential Primary Candidates-Repayments, 65 FR 15273 (Mar. 22, 
2000). The Notice of Disposition sets forth alternative arguments 
concerning whether this rule has a statutory basis and states that the 
Commission did not change the rule because there was no consensus in 
favor of changing the regulation. Id. at 15275. Although the Commission 
recommended that Congress revise 26 U.S.C. 9038(b) to specifically 
state whether repayments must be made by publicly funded primary 
candidates who have made expenditures that exceed the spending limits, 
to date Congress has not acted to clarify this issue. See FEC, 
Legislative Recommendations 2002 (May 14, 2002). At this point, the 
Commission is considering whether to clarify that under section 
9038.2(b)(2)(ii)(A), it will continue to seek repayments from primary 
candidates who exceed the expenditure limitations, including candidates 
who have received in-kind contributions.

[[Page 18493]]

1. Revisions to 11 CFR 9035.1
    The Commission believes that additional guidance concerning the 
attribution of in-kind contributions to the expenditure limitations 
would be beneficial. The Commission proposes to revise its rules by 
adding a new paragraph at 11 CFR 9035.1(a)(3) to provide that guidance 
and to apply the Commission's recently promulgated final rules on 
Coordinated and Independent Expenditures, 68 FR 421 (Jan. 3, 2003), to 
publicly funded presidential candidates. The proposed rules that follow 
are intended to clarify that certain in-kind contributions will count 
against the presidential candidate's state-by-state and overall 
expenditure limitations under certain conditions, as explained below. 
Included are certain in-kind contributions received or accepted in the 
form of coordinated expenditures pursuant to 11 CFR 109.20, coordinated 
communications pursuant to 11 CFR 109.21, and coordinated party 
expenditures in excess of the coordinated party expenditure limitations 
at 2 U.S.C. 441a(d) and 11 CFR 109.32(a), which would include party 
coordinated communications pursuant to 11 CFR 109.37.
    The Commission notes that the rules treat some coordinated 
expenditures as made by a person or party committee, but not as 
received or accepted by a candidate. See 11 CFR 109.21(b)(2) and 
109.37(a)(3). Specifically, expenditures that meet the conduct 
standards for a common vendor at 11 CFR 109.21(d)(4) or a former 
employee or independent contractor at 11 CFR 109.21(d)(5) are not 
treated as received or accepted by a candidate unless the candidate, 
authorized committee, or their agent engages in the conduct described 
in 11 CFR 109.21(d)(1) (request or suggestion), (d)(2) (material 
involvement), or (d)(3) (substantial discussion). Thus, only certain, 
specific actions taken by the candidate or the candidate's authorized 
committee or agents, as set forth in 11 CFR 109.21 and 109.37, result 
in the receipt or acceptance of an in-kind contribution arising from 
coordinated communication or a party coordinated communication. Only 
these received or accepted in-kind contributions are treated as 
expenditures made by the candidate. See 11 CFR 109.20(b) (requiring a 
candidate to report coordinated expenditures as expenditures); 
109.21(b)(1) (requiring a candidate to report received or accepted 
coordinated communications as expenditures); 109.37(a)(3) (stating that 
candidates are not required to report as expenditures party coordinated 
communications that do not constitute received or accepted in-kind 
contributions). Coordinated communications or party coordinated 
communications that are not in-kind contributions received or accepted 
by the candidate, the candidate's authorized committee, or agents under 
11 CFR 109.21(b)(2) or 109.37(a)(3) would not be subject to the 
candidate's expenditure limitation. The proposed rule also provides 
that the value of in-kind contributions would be the usual and normal 
charge for the goods and services provided.
    Although coordinated party expenditures are made in connection with 
the general election campaign of a presidential candidate, they may be 
made prior to the date of the candidate's nomination, pursuant to 11 
CFR 109.34. The Commission notes that to the extent coordinated 
expenditures are in excess of the coordinated party expenditure 
limitation at 11 CFR 109.32(a), they may be attributable to a 
presidential primary candidate's expenditure limitations based on the 
``bright line'' rules at 11 CFR 9034.4(e) for attributing expenditures 
between the primary and general election spending limitations. For 
example, party coordinated communications broadcast prior to the date 
of the candidate's nomination may count against the presidential 
candidate's primary expenditure limitations. See 11 CFR 9034.4(e)(6). 
The Commission seeks comment on whether this is an appropriate 
conclusion.
    The Commission is not specifically listing in the proposed rule the 
dissemination, distribution or republication of campaign material 
prepared by a candidate, which is governed by 11 CFR 109.23. Section 
109.23(a) provides that the candidate who prepared the campaign 
materials does not receive or accept an in-kind contribution, and need 
not report an expenditure, unless the dissemination, distribution, or 
republication of campaign materials is a coordinated communication 
under 11 CFR 109.21 or a party coordinated communication under 11 CFR 
109.37. Thus, the cost of such campaign materials would not count 
against the candidate's expenditure limitations unless the candidate 
receives or accepts them as in-kind contributions in the form of 
coordinated communications or party coordinated communications. Since 
the proposed rules in 11 CFR 9035.1(a)(3) would specifically include 
received or accepted coordinated communications and party coordinated 
communications, a reference to the republication of campaign materials 
is unnecessary.
    The Commission also notes that 11 CFR 109.32(a)(4) provides that 
any coordinated party expenditures made under section 109.32(a), which 
specifies the limitations for coordinated party expenditures in 
presidential elections, shall not count against the candidate's 
expenditure limitations; however, any coordinated expenditures by a 
political party in excess of the limitations at section 109.32(a) would 
count against the candidate's expenditure limitations. Thus, the 
proposed rule in 11 CFR 9035.1(a)(3) would not adversely affect the 
coordinated party expenditure limitations at 2 U.S.C. 441a(d)(2) 
because the proposed rule would only apply to amounts in excess of 
those limitations. The Commission seeks comment on whether this is an 
appropriate approach.
2. Revisions to 11 CFR 9038.2
    The Commission also proposes to amend 11 CFR 9038.2(b)(2)(ii)(A) to 
clarify that repayment determinations for candidates who exceed the 
expenditure limitations will be based on expenditures made by a 
candidate, the candidate's authorized committees, or agents, either 
directly by disbursing campaign funds for expenditures, or indirectly 
by receiving or accepting in-kind contributions that are subject to the 
expenditure limitations pursuant to 11 CFR 9035.1(a)(3). The wording 
``receive or accept'' in this section and in proposed section 
9035.1(a)(3) is consistent with the terminology used in 11 CFR 
109.21(b)(2), 11 CFR 109.23(a) and 11 CFR 109.37(a)(3) to ensure that 
any coordinated expenditures or republished campaign materials that are 
not considered ``received or accepted'' by a candidate would not count 
against the expenditure limitations or be subject to repayment.

B. In-Kind Contributions in the Repayment Ratio (11 CFR 
9038.2(b)(2)(iii))

    A related issue is the calculation of the repayment ratio. The 
current regulations at 11 CFR 9038.2(b)(2)(iii) provide for a ratio 
repayment of amounts used for nonqualified campaign expenses, which 
includes expenditures in excess of the spending limitations. See 11 CFR 
9038.2(b)(2)(ii)(A). Paragraph (b)(2)(iii) currently states that the 
amount of a repayment shall bear the same ratio to the total amount 
determined to have been used for non-qualified campaign expenses as the 
amount of matching funds certified to the candidate bears to the 
candidate's total deposits, as of 90 days after the candidate's date of 
ineligibility. ``Total deposits'' is defined

[[Page 18494]]

as all deposits to all candidate accounts minus transfers between 
accounts, refunds, rebates, reimbursements, checks returned for 
insufficient funds, proceeds of loans and other similar amounts. 11 CFR 
9038.3(c)(2). However, the current rules do not specifically include 
the value of in-kind contributions received or accepted in the 
calculation of the repayment ratio. Including in-kind contributions 
received or accepted in the calculation of the repayment ratio would 
reduce the resulting ratio to more accurately reflect the amount of 
public funds that are spent in excess of the expenditure limitations or 
used for other non-qualified campaign expenses.
    The Commission proposes to revise 11 CFR 9038.2(b)(2)(iii) to 
include both total deposits and in-kind contributions received or 
accepted by the candidate or the candidate's authorized committee or 
agents in the calculation of the repayment ratio for non-qualified 
campaign expenses. In-kind contributions would be valued at the usual 
and normal charge for the goods and services provided to the candidate. 
The Commission requests comment on this proposed change.

C. Parallel Changes to General Election Rules (11 CFR 9004.4(b)(2) and 
9007.2(b)(2))

    The Commission is considering certain parallel changes to the rules 
governing the expenditure limitations and repayments for general 
election committees at 11 CFR 9004.4(b)(2) and 9007.2(b)(2), but is not 
including specific changes in the proposed rules at this time. The 
Commission notes that expenditures in excess of the coordinated party 
expenditure limitations at 2 U.S.C. 441a(d) and 11 CFR 109.32(a) may be 
in connection with the general election and attributable to a 
candidate's general election expenditure limitation under the ``bright 
line'' rules at 11 CFR 9034.4(e). The Commission also notes that 
general election candidates who receive the full public grant may not 
accept any contributions, including in-kind contributions, and must 
repay the entire amount of any in-kind contribution received. See 26 
U.S.C. 9007(b)(3). The Commission seeks comment on whether changes 
similar to those proposed for primary candidates would be appropriate 
for general election candidates and on any other issues related to 
including in-kind contributions in a general election candidate's total 
expenditures.

III. GELAC Funds (11 CFR 9003.3(a))

A. Funds Remaining in the GELAC

    The Commission proposes to revise its rules concerning the use of 
GELAC funds to update the permissible uses of GELAC funds consistent 
with BCRA. Currently, the rules at 11 CFR 9003.3(a)(2)(iv) state that 
if there are ``excess campaign funds'' after payment of all expenses 
set out in section 9003.3(a)(2)(i), such funds may be used for any 
purpose permitted under 2 U.S.C. 439a and 11 CFR part 113, including 
payment of primary election debts.
    BCRA amended 2 U.S.C. 439a to eliminate its reference to ``excess 
campaign funds.'' The Commission revised 11 CFR part 113 accordingly. 
See Disclaimers, Fraudulent Solicitation, Civil Penalties, and Personal 
Use of Campaign Funds, 67 FR 76962, 76978-79 (Dec. 13, 2002). The 
Commission proposes to replace the reference to ``excess campaign 
funds'' in 11 CFR 9003.3(a)(2)(iv) with ``funds remaining in the 
GELAC'' in order to clarify that only funds that are not needed for 
GELAC expenses may be used for the purposes permitted under 2 U.S.C. 
439a and 11 CFR part 113.
    The Commission also proposes revisions to 11 CFR 9003.3(a)(2)(iv) 
to more clearly state that GELAC funds must be not be used for the 
purposes permitted under 2 U.S.C. 439a and 11 CFR part 113 until the 
completion of the audit and repayment process, which includes making 
any repayments owed. The Commission requests comments on these proposed 
changes.

B. Primary Repayments

    The Commission is also considering whether candidates should be 
required to use GELAC funds to make any repayments arising from their 
primary campaigns, if the primary committee is unable to make the 
repayment, before the remaining funds in the GELAC could be used for 
the purposes permitted under 2 U.S.C. 439a and 11 CFR part 113. 
Currently, GELAC funds may be used to make general election repayments. 
11 CFR 9003.3(a)(2)(i)(D). Therefore, the Commission proposes revisions 
to 11 CFR 9003.3(a)(2)(i)(D) to specify that the GELAC may make 
repayments owed by the candidate's primary campaign committee pursuant 
to 11 CFR 9038.2 and 9038.3. Under this proposal, if a candidate's 
primary or general election committees do not have sufficient funds to 
make a repayment, the GELAC funds must be used to make the repayment 
before funds remaining in the GELAC may be used for the purposes 
permitted under 2 U.S.C. 439a and 11 CFR part 113. However, the 
proposed rule would not require that repayments must be made before 
other permissible uses of GELAC funds under paragraphs (a)(2)(i)(A) 
through (H). These proposed amendments to the GELAC rules are based on 
the Commission's interpretation of 2 U.S.C. 439a(a)(1), which permits 
contributions to be used ``for otherwise authorized expenditures in 
connection with the campaign for Federal office of the candidate or 
individual.'' This provision is sufficiently broad to encompass both 
primary repayments and the other limited purposes specified in 11 CFR 
9003.3(a)(2)(i).

C. Solicitation of GELAC Funds

    The Commission is also considering whether to revisit its rules 
regarding the solicitation and deposit of GELAC contributions prior to 
June 1 of the calendar year in which a presidential general election is 
held. The Commission is considering changing the June 1 date to an 
earlier date or abolishing the June 1 restriction. Under current 11 CFR 
9003.3(a)(1)(i), prior to June 1 of the presidential election year, 
contributions may only be deposited in a GELAC if they are made for the 
primary election, exceed the contributor's contribution limit for the 
primary and are redesignated by the contributor for the GELAC pursuant 
to 11 CFR 110.1. In addition, contributions shall not be solicited for 
the GELAC before June 1 of the calendar year in which a presidential 
general election is held. 11 CFR 9003.3(a)(1)(i)(A). As a result of 
this regulation, although candidates are permitted to establish GELAC 
accounts at any time, they are barred from soliciting or accepting any 
direct contributions to the GELAC until five months before the general 
election.
    The Commission revised this section in 1999 to establish the June 1 
time limit. See Explanation and Justification to the Rules Governing 
Public Financing of Presidential Primary and General Election 
Candidates, 64 FR 49355, 49356-57 (Sept. 13, 1999). In the 1999 
rulemaking, the Commission considered changes 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.'' Id. at 49356. One problem was that candidates who 
do not receive their party's nomination must refund contributions 
received by the GELAC, but difficulties arose if GELAC funds had been 
used to defray overhead or GELAC fundraising expenses. Id. Another 
problem was ensuring that the GELAC is not improperly used to make

[[Page 18495]]

primary election expenditures. Id. After considering several 
alternative approaches, the Commission decided to continue to permit 
GELACs to be established at any time but added the June 1 starting date 
for deposits other than excessive primary contributions and 
solicitations of contributions to the GELAC. Id. The Commission 
explained that it selected the June 1 date 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'' and the date gives prospective nominees ``sufficient time to 
raise the funds that will be needed.'' Id. The effective date of these 
regulatory amendments was June 1, 2000, which meant that the pre-June 1 
solicitation prohibition was not operative for the 2000 election cycle.
    The Commission seeks comment on whether it should delete this 
restriction or continue to use June 1 of the presidential election year 
as the starting date for GELAC solicitations and most deposits to a 
GELAC. Would an earlier date in the election year such as May 1 or 
April 1 be preferable, given that many presidential primaries have been 
moved to earlier dates? Should an earlier date be used for presidential 
candidates who run unopposed in the primaries or who have a reasonable 
certainty prior to June 1 of the election year that they will become 
their party's nominee? Should the starting date be eliminated? Are 
these restrictions required by, or consistent with, the FECA and the 
Fund Act?

D. Redesignation of Excessive Contributions and GELACs

    In addition, the Commission proposes to revise the rules at 11 CFR 
9003.3(a)(1) governing the sources of GELAC funds to reflect the 
Commission's recent changes to its rules at 11 CFR 110.1(b)(5)(ii)(B) 
concerning the redesignation of excessive contributions. See 
Explanation and Justification for the Rules Governing Contribution 
Limitations and Prohibitions, 67 FR 69928, 69930-32 (Nov. 19, 2002). 
The Commission revised 11 CFR 110.1(a)(5)(ii)(B) to allow authorized 
committees to redesignate primary contributions that would otherwise be 
excessive to the general election without obtaining a signed written 
document under certain circumstances. Id. at 69930. Specifically, the 
Commission simplified the redesignation of certain excessive 
contributions to a candidate's authorized committee made before a 
primary election, but not designated in writing for a particular 
election. Id. The Commission allowed the candidate's committee to 
presume that the contributor of such excessive contributions intended 
to contribute any excessive amount to that candidate's general 
election, without obtaining written permission from the contributor for 
the redesignation. Id. The Commission set forth several requirements 
for a committee to designate contributions by this presumption, 
including that the candidate's committee must be permitted to accept 
general election contributions. Id. The Commission explained that ``if 
a presidential candidate's authorized committee accepts public funding 
in the general election, the presumption is available to any such 
committees only to the extent they are permitted to accept 
contributions to a general election legal and accounting compliance 
fund.'' Id. at 69930-31.
    Thus, 11 CFR 110.1(b)(5)(ii)(B) now allows the treasurer of the 
recipient candidate committee to treat all or part of an excessive 
primary contribution as made with respect to the general election, as 
long as it meets the following requirements: (1) The contribution was 
made before the primary election; (2) the contribution was not 
designated for a particular election; (3) the contribution would exceed 
the primary election contribution limitations if it were treated as a 
primary contribution; (4) the redesignation would not cause the 
contributor to exceed the contribution limitations; and (5) the 
treasurer provides a written notification to the contributor within 60 
days of receipt of the contribution of the amount that was redesignated 
and that the contributor may request a refund.
    Therefore, the Commission proposes to revise 11 CFR 
9003.3(a)(1)(i), (a)(1)(i)(C) and (a)(1)(v) to permit publicly funded 
presidential candidates to presume that excessive contributors to 
primary campaigns would consent to the redesignation of their 
contributions to the candidate's GELAC. The proposed changes provide 
that excessive contributions may be placed in the GELAC if they are 
lawfully redesignated for the GELAC pursuant to 11 CFR 110.1. The rule 
at 11 CFR 9003.3(a)(1)(i)(C) would provide that a contribution that 
meets the requirements of 11 CFR 110.1(b)(5)(ii)(B) would be considered 
designated for the GELAC. The proposed reference to 11 CFR 
110.1(b)(5)(ii)(B) would incorporate the requirements of that section. 
The Commission notes that presumptively redesignated contributions to 
the GELAC, like all other contributions accepted for the GELAC, must be 
refunded within 60 days of a candidate's DOI if the candidate does not 
become the nominee. See 11 CFR 9003.3(a)(1)(i)(A). The recordkeeping 
requirements in 11 CFR 110.1(l) are separately addressed in section 
9003.3(a)(1)(ii)(A)(4).
    A related proposal, which is not included in the proposed rules 
that follow, would be to revise 11 CFR 9003.3 to expressly allow 
excessive contributions to a GELAC to be presumptively redesignated to 
a presidential candidate's authorized committee for the primary 
election, based on the conditions delineated at 11 CFR 
110.1(b)(5)(ii)(C) for redesignation of excessive general contributions 
to a candidate's primary election. The Commission's rules at 11 CFR 
110.1(b)(5)(ii)(C), like the rule for presumptive redesignations for a 
general election, allow authorized committees to redesignate general 
election contributions that would otherwise be excessive for the 
primary election without obtaining a signed written document under 
certain circumstances. See 67 FR 69931. Such presumptively redesignated 
contributions would be included in the calculation of a presidential 
primary candidate's NOCO but could not be submitted for matching 
because they are redesignated for a different election and the 
contributor lacked the donative intent to influence the primary 
election. See 11 CFR 9034.3(e) and (k).
    The Commission seeks comment on these proposals. Should a different 
rule apply for redesignation of excessive contributions to or from a 
GELAC than for redesignations to or from the general election of 
candidates who do not accept public funds? Should such presumptive 
redesignations be subject to additional restrictions than those 
delineated at 11 CFR 110.1(b)(5)(ii)?

IV. Other Presidential Candidate Issues

A. Quarterly and Monthly Reporting Requirements (11 CFR 104.5(b)(2))

    The Commission made a number of changes to its rules governing 
reporting when implementing BCRA's new reporting requirements. 
Explanation and Justification for the Rules Governing Bipartisan 
Campaign Reform Act of 2002 Reporting, 68 FR 404 (Jan. 3, 2003). One of 
these changes was revising 11 CFR 104.5(a) to set forth a new reporting 
schedule for principal campaign committees of House of Representatives 
and Senate candidates following BCRA's requirements that such 
candidates must file quarterly

[[Page 18496]]

reports in non-election years. Id. at 408 and 418. BCRA did not change 
the reporting schedule for the principal campaign committees or other 
authorized committees of presidential candidates; thus, 11 CFR 
104.5(b)(2) was not changed. Id. Currently, principal campaign 
committees of presidential candidates may file campaign reports in non-
election years on either a monthly or a quarterly basis. 2 U.S.C. 
434(a)(3)(B); 11 CFR 104.5(b)(2) and 9006.2. However, the current rules 
do not explain how presidential candidates may change their reporting 
frequency during a non-election year from monthly to quarterly or vice 
versa. The rules governing unauthorized committees at 11 CFR 104.5(c) 
set forth requirements for such committees to change their reporting 
frequency, such as notifying the Commission of the change. The 
Commission is considering similar requirements for principal campaign 
committees of presidential candidates.
    The Commission proposes to revise the rules at section 104.5(b)(2) 
to allow a principal campaign committee (``PCC'') of a presidential 
candidate to change its filing schedule in a non-election year only 
after notifying the Commission in writing of its intention at the time 
it files a required report under its current filing frequency. The PCC 
would then be required to file the next required report under its new 
filing frequency. In addition, a PCC could change its filing frequency 
no more than once in a calendar year. This approach is consistent with 
the requirements for unauthorized committees at 11 CFR 104.5(c). The 
Commission notes that presidential PCCs are not permitted to change 
their filing frequency during election years under 2 U.S.C. 
434(a)(3)(A), except that a PCC that files quarterly reports shall 
begin filing monthly reports at the next reporting period after it 
receives contributions or makes expenditures in excess of $100,000. The 
Commission requests comments on this proposal.

B. Election Cycle Reporting--Matching Fund Submissions (11 CFR 
9036.1(b)(1)(ii) and 9036.2(b)(1)(v))

    In 2000, the Commission revised its rules at 11 CFR 104.3 to 
require authorized committees to aggregate, itemize, and report all 
receipts and disbursements on an election-cycle basis rather than on a 
calendar-year-to-date basis. 65 FR 42619 (July 11, 2000). The new 
rules, which reflect a 1999 amendment to 2 U.S.C. 434(b) (Pub. L. No. 
106-58, 641, 113 Stat. 430, 477 (1999)), apply to reporting periods 
beginning on or after January 1, 2001. 65 FR 70644 (Nov. 27, 2000). 
Under these regulations, an election cycle begins on the first day 
after the date of the previous general election for the office the 
candidate seeks and ends on the date of the next general election for 
that office. The election cycle is thus four years for presidential 
candidates.
    The Commission's rules regarding threshold submissions for matching 
funds currently require candidates to submit a contributor list 
including occupation and name of employer information for contributions 
from individuals aggregating in excess of $200 per calendar year. 11 
CFR 9036.1(b)(1)(ii). Similarly, the rules for subsequent submissions 
at 11 CFR 9036.2(b)(1)(v) provide that the occupation and employer 
information need not be disclosed on the contributor list for 
contributions made by individuals aggregating in excess of $200 per 
calendar year, but such information is subject to the recordkeeping and 
reporting requirements. The Commission is proposing to revise 11 CFR 
9036.1(b)(1)(ii) and 9036.2(b)(1)(v) to specify that the matching fund 
submission and recordkeeping requirements include occupation and 
employer information for those individuals who contribute more than 
$200 in an election cycle, rather than in a calendar year, to reflect 
the statutory change.

C. Billing the Press for the Costs of Reconfiguring an Aircraft (11 CFR 
9004.6(a)(3) and 9034.6(a)(3))

    The Commission's rules at 11 CFR 9004.6 and 9034.6 establish 
procedures for authorized committees to obtain reimbursement for 
transportation and other services that are provided to the media and 
the Secret Service over the course of a campaign. The current rules 
contain a non-exhaustive listing of such services, and state at 11 CFR 
9004.6(a)(3) and 9034.6(a)(3) that presidential campaign committees may 
seek reimbursement from the media only for the billable items specified 
in the White House Press Corps Travel Policies and Procedures issued by 
the White House Travel Office, in conjunction with the White House 
Correspondents' Association [``White House Manual'']. The reference to 
the White House Manual has been in the rule since 1999. See Explanation 
and Justification for the Rules Governing Party Committee Coordinated 
Expenditures; Costs of Media Travel with Publicly Financed Presidential 
Candidates, 64 FR 42579, 42581-82 (Aug. 5, 1999). Expenses for which a 
committee receives no reimbursement are considered qualified campaign 
expenses, and, with the exception of those expenses relating to Secret 
Service personnel and national security staff, are subject to the 
overall expenditure limitation. 11 CFR 9004.6(a)(2) and 9034.6(a)(2).
    In the 1996 campaign, some committees incurred significant expenses 
to reconfigure campaign aircraft. The expenses included both interior 
work, such as equipment installation, and exterior work such as 
campaign logos. However, these expenses were not included in the White 
House Manual for 1996, which was not changed in 2000. The Commission is 
accordingly seeking comment on whether it is appropriate for campaign 
committees to obtain reimbursement for all or part of aircraft 
reconfiguration expenses from the media, and whether the rules should 
be revised accordingly. If so, which of these expenditures should be 
billed to the press? Are there other specific expenditures not included 
in the White House Manual for which reimbursement might also be 
appropriate? Given that the numbers of members of the press on each 
flight, or segment of each flight, will likely vary, comments are 
sought on the feasibility of determining the pro rata share for each 
person, where the reconfigured plane will make numerous flights, and 
that precise number is not known in advance. More broadly, the 
Commission seeks comment on whether the ability of committees to seek 
reimbursement from the media should be governed solely by what billable 
items are specified in the White House Manual, as current 11 CFR 
9004.6(a)(3) and 9034.4(a)(3) require, or whether the Commission should 
consider other criteria, or enumerate the criteria in the regulations, 
or both. Please note that the draft rules that follow do not contain 
specific changes to 11 CFR 9004.6 or 9034.6.

D. Candidate Salary (11 CFR 9004.4(b)(6), 9034.4(b)(5))

    The Commission recently revised its rules governing personal use of 
campaign funds at 11 CFR part 113 to implement BCRA's changes to 2 
U.S.C. 439a. In that rulemaking, the Commission addressed the use of 
contributions to pay salaries to candidates and decided to allow 
campaign funds to be used for candidate salaries, including privately 
funded presidential candidates, under certain conditions delineated at 
11 CFR 113.1(g)(1)(i)(I). See Explanation and Justification for the 
Rules Governing Disclaimers, Fraudulent Solicitation, Civil Penalties, 
and Personal Use of

[[Page 18497]]

Campaign Funds, 67 FR 76962, 76971-73 (Dec. 13, 2002). The Explanation 
and Justification for 11 CFR 113.1(g) stated that a salary payment to a 
candidate from campaign funds would be considered personal use if the 
salary payment is ``in excess of the salary paid to a Federal 
officeholder--U.S. House, U.S. Senate, or the Presidency.'' Id. The new 
rules, however, do not specifically state whether or not publicly 
funded presidential candidates may receive salaries from their 
campaigns. The Commission noted that a candidate's salary is a non-
qualified campaign expense under 11 CFR 9004.4(b) and 9034.4(b), see 
also 11 CFR 9002.11 and 9032.9. Id. at 76972.
    Currently, the rules at 11 CFR 9004.4(b)(6) and 9034.4(b)(5) state 
that payments made to a candidate by the candidate's committee, other 
than to reimburse funds advanced by the candidate, are non-qualified 
campaign expenses. In promulgating these rules in 1987, the Commission 
explained that ``no payments may be made to the candidate from accounts 
containing public funds'' except for reimbursements, and candidates 
``may not receive a salary for services performed for the campaign nor 
may a candidate receive compensation for lost income while 
campaigning.'' See Explanation and Justification for the Rules on 
Public Financing of Presidential Primary and General Election 
Candidates, 52 FR 20864, 20866 and 20870 (June 3, 1987).
    The Commission is considering whether to revise its rules to allow 
publicly funded general election and primary presidential candidates to 
receive salary payments paid for, in whole or part, with public funds. 
Thus, salary payments to candidates would be considered qualified 
campaign expenses. The Commission is considering allowing salary 
payments to be paid to publicly funded candidates under similar 
conditions to those for salary payments to other Federal candidates at 
11 CFR 113.1(g)(1)(i)(I). Thus, the candidate's publicly funded 
principal campaign committee would be permitted to make salary payments 
to the candidate. Salary payments to publicly funded candidates would 
be permissible beginning on January 1 of the calendar year prior to the 
presidential election year or the filing of the candidate's statement 
of candidacy, whichever is later. This earlier starting date than the 
time restrictions for other Federal candidates would recognize that the 
presidential primary campaign begins before the presidential election 
year. Salary payments paid by the candidate's primary committee would 
be permitted through the candidate's date of ineligibility and salary 
payments from a candidate's general election committee would begin on 
the date of nomination and end on the date of the general election. 
Only non-incumbent presidential candidates who are not currently 
Federal officeholders would be able to receive a salary paid with 
public funds.
    Candidates who hold office in a State would be able to receive 
salary payments only to the extent they are permitted to do so under 
the laws of that State. Salary payments would be limited to the lesser 
of the annual salary paid to the President or the earned income that 
the candidate received during the year prior to becoming a candidate. 
Any earned income the candidate would receive from salaries or wages 
from any other source would count against the salary limitation. In 
addition, the candidate would be required to provide income tax records 
for the relevant year and other evidence of earned income upon request 
by the Commission. Finally, salary payments could be made only on a pro 
rata basis.
    The Commission seeks comment on this approach, but no specific 
provision is proposed in the draft rules that follow. Should candidate 
salary be considered a qualified campaign expense payable with public 
funds or should candidate salaries for publicly funded candidates 
continue to be considered non-qualified campaign expenses? Would 
candidates avail themselves of a salary paid with public funds? Would 
the proposed change encourage candidates of modest means who depend on 
their earned income to run for the Presidency? Is this an appropriate 
use for public funds, and is there a potential for abuse? Should any 
additional restrictions on candidate salaries apply to publicly funded 
candidates?
    Should payments of salary to candidates who receive public funds be 
prohibited so that in addition to the committee being required to repay 
the public funds involved, the candidate would violate 2 U.S.C. 439a by 
accepting the salary payments? Should the candidate and committee 
agreements described in 11 CFR 9003.1 and 9033.1 contain a provision 
agreeing that no salary would be paid to the candidate?

E. Gifts and Bonuses (11 CFR 9004.4(a)(5) and 9034.4(a)(5))

    The Commission is considering revisiting its rules governing 
payment of gifts and bonuses by primary and general election candidates 
at current 11 CFR 9004.4(a)(5) and 9034.4(a)(5). The current rules 
allow gifts and bonuses to be treated as qualified campaign expenses if 
they meet certain restrictions. Gifts for committee employees, 
consultants and volunteers in recognition of campaign-related 
activities or services are limited to $150 per individual recipient and 
a total of $20,000 for all gifts. 11 CFR 9004.4(a)(5) and 9034.4(a)(5). 
Monetary bonuses for employees and consultants in recognition for 
campaign-related activities or services must be provided for pursuant 
to a written contract made prior to the general election for general 
election candidates or the DOI for primary candidates and must be paid 
no later than 30 days after the DOI for primary candidates or the end 
of the expenditure report period for general election candidates. Id.
    The Commission has not proposed any changes to these rules in the 
draft rules that follow, but seeks comment on the current rules. Should 
the Commission maintain its current rules on gifts and bonuses? Should 
the current restrictions on gifts and bonuses be strengthened, reduced, 
or eliminated? Should the permissible dollar amounts for gifts to 
individuals or the total amounts of gifts be lowered, or raised? Should 
the requirement of a written contract be clarified to delineate what 
constitutes an acceptable written agreement? Is the requirement of a 
written contract for monetary bonuses too restrictive, since written 
contracts are not required for salary payments? Should additional 
restrictions be added, such as limiting the amount of bonuses or 
requiring committees to provide other documentation of the reasons for 
the bonus such as the type and amount of work performed? What 
additional, or different, controls should be used for gifts and 
bonuses? Should candidates be required to sign any contracts that 
include employment bonus provisions? This would ensure that high-level 
campaign officials do not engage in self-dealing. If the current 
restrictions are deleted from the rules, how should the Commission 
ensure that gifts and bonuses comply with the restrictions on personal 
use of campaign funds at 2 U.S.C. 439a and 11 CFR part 113?
    In addition, should changes also be made to current 11 CFR 
9008.7(a)(4)(xii) to make the rule for convention committees more 
similar to the rules for candidates by including the same requirements 
for bonuses? Currently 11 CFR 9008.7(a)(4)(xii) limits all gifts and 
monetary bonuses to national committee or convention committee 
employees, volunteers and convention officials to $150 per individual 
or a total of $20,000 for all gifts.

[[Page 18498]]

F. Shortfall Exemption (11 CFR 9035.1(c))

    During recent election cycles, the Presidential Primary Matching 
Payment Account has occasionally experienced a shortfall in that it 
contained insufficient funds to fully pay all of the matching funds to 
which primary candidates were entitled on the dates payments were due. 
See 26 U.S.C. 9037; 11 CFR 9036.4(c)(2), 9037.1, 9037.2. The delay or 
deficiency in matching fund payments has resulted in inconvenience and 
additional costs for candidates such as the costs of obtaining bridge 
loans from banks to pay for their expenses until they received their 
full entitlement of matching funds several months later. Such expenses 
currently count against a candidate's overall expenditure limitation, 
reducing the amount the candidate may spend on other campaign 
activities.
    In order to mitigate the effect of a potential shortfall on 
candidates, the Commission proposes a new ``shortfall exemption'' from 
a primary candidate's overall expenditure limitation at new paragraph 
11 CFR 9035.1(c)(3). This new exemption would equal 5% of the amount of 
any delayed or deficient payment of matching funds to which the 
candidate is entitled.
    The Commission seeks comment on this proposal. To what extent would 
the proposed exemption ameliorate the negative impact of delayed or 
deficient payments of matching funds on a primary candidate's campaign? 
Should a different percentage be used? Would this exemption be workable 
for candidates? Is this exemption a permissible interpretation of the 
statutory spending limit?

G. Expenditures by a Multicandidate Political Committee for Qualified 
Campaign Expenses of a Candidate (Proposed 11 CFR 110.2(l) and 9034.10)

    In December 2002, the Commission published an NPRM entitled 
``Leadership PACs'' seeking comment on its proposal to promulgate new 
regulations addressing this specific type of multicandidate political 
committee. The Commission conducted a public hearing on February 26, 
2003, to discuss the NPRM. During the public hearing, the issue of 
leadership PACs paying for qualified campaign expenses of potential 
Presidential candidates during the ``testing the waters'' stage was 
raised and discussed. Because this issue implicates the regulations 
addressing Presidential campaigns and elections, the Commission has 
decided to seek comment on the relationship, if any, between 
multicandidate political committees and Presidential candidates in this 
NPRM. The Commission is continuing to review the Leadership PACs NPRM 
as it applies outside Presidential campaigns and elections, and the 
comments received in connection with the NPRM, and the Commission 
intends to conclude that rulemaking at a later date.
    The proposed rules herein would create a new paragraph in 11 CFR 
110.2 and a new section in 11 CFR part 9034 that would address the 
payment by a multicandidate political committee of a qualified campaign 
expense of a Presidential candidate. Proposed section 110.2(l) would 
apply to candidates who are not accepting public funding from the 
Presidential Election Campaign Fund for the primary or general 
election. Proposed 11 CFR 9034.10 would apply to Presidential 
candidates who are accepting public funding for the primary election. 
Because Presidential candidates who accept public funding for the 
general election may not accept contributions from multicandidate 
political committees, the proposed rules would not include a parallel 
provision in 11 CFR subchapter E.
1. Scope of the Proposed Rules
    Proposed 11 CFR 110.2(l) and 9034.10 would be applicable to all 
multicandidate political committees, not just those commonly known as 
Leadership PACs. The rationale for this approach is that leadership 
PACs are not defined or specifically addressed in FECA or in the 
current Commission regulations. Rather, leadership PACs are formed as 
multicandidate political committees that are defined and addressed in 
FECA and current Commission regulations. In the Commission's 
experience, other types of multicandidate political committees do not 
make expenditures for qualified campaign expenses of potential 
Presidential candidates. Thus, including all multicandidate political 
committees within the proposed rules would not have unintended 
consequences of encompassing other types of activity.
    Nevertheless, the Commission seeks comment on whether the proposed 
rules should be limited to leadership PACs. If the Commission were to 
adopt such an approach, it would also become necessary for the 
Commission to adopt a definition for ``leadership PACs.'' Consequently, 
the Commission seeks comment as to what that definition should be.
2. Definition of ``Qualified Campaign Expense''
    Proposed 11 CFR 9034.10(a) would include a definition of 
``qualified campaign expense'' that would vary from the current 
definition in 11 CFR 9032.9 but would limit the scope of the proposed 
definition to proposed 11 CFR 9034.10. The definition in proposed 
paragraph (a) would adopt language similar to that of 11 CFR 9032.9(a) 
but would not include the timing element of section 9032.9(a)(1). The 
timing element of current section 9032.9(a)(1), which limits qualified 
campaign expenses to expenses incurred between the date a person 
becomes a candidate and the last day of the candidate's eligibility, 
should not be applied here because a major goal of the proposed rules 
is to treat qualified campaign expenses that are paid by multi-
candidate committees as in-kind contributions to Presidential 
candidates whenever such qualified campaign expenses are incurred, even 
if they are incurred prior to the date a person becomes a candidate.
    Additionally, the proposed definition would not include the 
provisions in section 9032.9(a)(3) requiring that a qualified campaign 
expense comply with all Federal, state, and local laws. The purpose of 
this provision in section 9032.9(a)(3) is to prevent the authorized 
committees from paying for items such as parking tickets. Because the 
purpose of proposed section 9034.10 is to treat the payment of 
qualified campaign expenses of a Presidential candidate by 
multicandidate political committees as in-kind contributions, it would 
be inconsistent with this purpose to exclude these items.
    Proposed 11 CFR 9034.10(a)(1) and (2) would be the operative 
definition of ``qualified campaign expense'' as it would be applied to 
proposed 11 CFR 110.2(l) and 9034.10. Under the proposed definition, 
``qualified campaign expense'' would mean purchase, payment, etc, that 
is incurred by, on behalf of, or for the benefit of a candidate or the 
candidate's authorized committee and is made in connection with that 
candidate's campaign for nomination. Proposed paragraph (a)(3) would 
provide a non-exhaustive list of examples of expenses that would be 
considered as a qualified campaign expense, such as polling expenses, 
staff salary, travel, and office space expenses. The Commission seeks 
comment on whether polling expenses in proposed paragraph (a)(3)(i) 
should be limited to polls that reference a Presidential candidate. The 
Commission notes that none of the foregoing expenses would be qualified 
campaign expenses under

[[Page 18499]]

the proposed rule unless they were made in connection with a 
Presidential candidate's campaign for nomination. The Commission seeks 
comment on whether more specific examples of qualified campaign 
expenses should be provided and whether there are other expenses that 
should be included in proposed paragraph (a)(3). The Commission also 
seeks comments on whether it should use a terminology other than 
``qualified campaign expenses'' in this proposed section to avoid 
confusion with the current definition of ``qualified campaign 
expenses.''
3. Qualified Campaign Expenses as In-Kind Contributions
    The NPRM would set forth the consequences of a multicandidate 
committee paying for qualified campaign expenses for a Presidential 
candidate in proposed 11 CFR 9034.10(b)(1) through (4). The 
introductory language of proposed paragraph (b) would limit the ``look 
back'' period of the proposed rules to January 1 of the year 
immediately following the last Presidential election year. Thus, if an 
expenditure made by a multi-candidate committee for a qualified 
campaign expense were made prior to that date, it would not be subject 
to the provisions of proposed section 9034.10. The Commission seeks 
comments on whether the ``look back'' period should start at a 
different date, such as the day after the last Presidential election or 
some other date. Additionally, the proposed rule would only apply to 
qualified campaign expenses paid by multi-candidate committees for 
individuals who actually become Presidential candidates.
    Under the proposed rule, an expenditure by a multicandidate 
political committee for a qualified campaign expense of a Presidential 
candidate would have four effects. First, the expenditure would be 
deemed as an in-kind contribution from the multicandidate political 
committee to the Presidential candidate under proposed 11 CFR 
9034.10(b)(1). Second, proposed paragraph (b)(2) would subject the 
expenditure/contribution to the contribution limitations for 
multicandidate political committees to Presidential candidates, i.e. 
$5000 per election. Third, under proposed paragraph (b)(3), the 
expenditure would count towards the expenditure limitations for 
Presidential candidates accepting public funding under 11 CFR part 
9035. Finally, proposed paragraph (b)(4) would subject the expenditure 
to the audit provision of 11 CFR 9038.1. The proposed rules would also 
amend current 11 CFR 9038.1(a)(2) to make clear that multicandidate 
political committees that make expenditures for qualified campaign 
expenses would be subject to examinations and audits as deemed 
necessary. The Commission seeks comments on whether changes to the 
audit provision of 11 CFR 9038.1 is appropriate or necessary to 
effectuate any new rule it may promulgate in this area. It is important 
to note that, under this proposed rule, coordination would not be 
relevant in determining that a multicandidate political committee has 
made an in-kind contribution when it pays for a qualified campaign 
expense of a Presidential candidate.
    As stated above, proposed 11 CFR 9034.10(b)(2) would subject a 
multicandidate political committee's expenditure for qualified campaign 
expenses to the contribution limitations that apply to Presidential 
campaign committees. Under proposed paragraph (c), any amount of the 
expenditure that exceeds the contribution limit for multicandidate 
political committees to Presidential candidate committees would be 
deemed an excessive contribution and liability would attach to both the 
multicandidate political committee for making the excessive 
contribution and the authorized committee of the Presidential candidate 
for accepting an excessive contribution. The Commission seeks comment 
on whether the proposed rules should include a provision that would 
allow the authorized committee to ``cure'' the excessive contribution 
and, therefore, avoid liability. For instance, if the authorized 
committee of the Presidential candidate reimburses the multicandidate 
political committee for any expenditure for qualified campaign expenses 
that exceed the contribution limit within thirty days of the date of 
the person becoming a candidate, should these expenditures not be 
considered as excessive contributions? The Commission seeks comment on 
this approach or suggestions on alternative ways excessive 
contributions may be ``cured.''
    While proposed 11 CFR 9034.10 would apply to Presidential 
candidates who accept public funding for their primary election 
campaigns, the proposed rules would add a new paragraph (l) to current 
section 110.2 that would apply to Presidential candidates who do not 
accept any public funds. Proposed 11 CFR 110.2(l)(1) would incorporate 
by reference the definition of ``qualified campaign expense'' in 
proposed section 9034.10(a) for purposes of proposed paragraph (l). 
Proposed paragraph (l)(2) would include the same ``look back'' period 
as proposed section 9034.10(b).
    Similar to proposed section 9034.10(b)(1) and (2), an expenditure 
by a multicandidate political committee for a qualified campaign 
expense of a Presidential candidate who is not receiving public funds 
would be deemed to be an in-kind contribution from the multicandidate 
political committee to the Presidential candidate and that contribution 
would be subject to the relevant contribution limitations. Proposed 11 
CFR 110.2(l)(1) and (2). Proposed section 110.2(l) would not have 
provisions that parallel proposed section 9034.10(b)(3) and (4) because 
Presidential candidates who do not receive public funding for their 
campaigns are not subject to the expenditure limitations in 11 CFR part 
9035 or the audit provisions of 11 CFR 9038.1. Proposed 11 CFR 
110.2(l)(3) would include similar language as proposed section 
9034.10(c) stating that expenditures exceeding the contribution limits 
for multicandidate political committees to Presidential candidates 
would be deemed as excessive contributions.
    The Commission seeks comment on this proposal to treat expenditures 
by multicandidate committees for qualified campaign expenses of 
Presidential candidates as in-kind contributions. The Commission also 
welcomes comments on the ramifications of such treatment as well as on 
the issues raised above.

H. Technical Amendments

1. Word Omitted From 11 CFR 9038.2(b)(4)
    Under 11 CFR 9038.2(b)(4), the Commission may determine that the 
net income derived from an investment or other use of surplus public 
funds after a candidate's DOI, less Federal, State and local taxes paid 
on that income, shall be paid to the Federal Treasury. However, the 
word ``taxes'' was inadvertently dropped from that paragraph and needs 
to be included.
2. Correcting Citations in 11 CFR 104.5(b)(1)
    The Commission proposes to correct several citations in 11 CFR 
104.5(b)(1) to reflect changes to 11 CFR 104.5(a) promulgated in the 
implementation of BCRA. Specifically, the Commission proposes in 11 CFR 
104.5(b)(1)(i)(C) to change the reference to 11 CFR 104.5(a)(1)(i) to 
``paragraph (a)(2)(i) of this section'' and to change the reference to 
11 CFR 104.5(a)(1)(ii) to ``paragraph (a)(2)(ii) of this section.'' In 
11 CFR 104.5(b)(1)(ii), the Commission proposes to change the reference 
to 11

[[Page 18500]]

CFR 104.5(a)(1) to ``paragraphs (a)(1) and (2) of this section''.
3. Private Contributions Received After DOI (11 CFR 9034.4(a)(3)(ii))
    The Commission proposes to revise 11 CFR 9034.4(a)(3)(ii) to 
clarify the rules governing ineligible primary election presidential 
candidates who continue to campaign after their dates of ineligibility. 
Currently, paragraph (a)(3)(ii) provides that these candidates may use 
contributions received after the DOI to campaign. However, current 11 
CFR 9034.5(a)(2)(i) provides that a candidate's cash on hand on the 
NOCO Statement should include ``all contributions dated on or before'' 
the DOI, whether or not submitted for matching. Thus, the current rules 
do not make clear how contributions should be treated that are made or 
dated before the DOI but received after the DOI by a candidate who 
continues to campaign. The proposed rules would clarify that each 
contribution made, dated, and received after a candidate's DOI may be 
used to continue to campaign.
    In addition, the Commission proposes to delete the next sentence in 
section 9034.4(a)(3)(ii), which states: ``The candidate shall be 
entitled to receive the same proportion of matching funds to defray net 
outstanding campaign obligations as the candidate received before his 
or her date of ineligibility.'' In practice, each submission for 
matching funds is reviewed individually; thus, a candidate receives a 
different proportion of matching funds for each submission. The 
Commission proposes deleting the sentence to make clear that candidates 
would continue to receive matching funds based on the Commission's 
review of each matching fund submission, rather than on the proportion 
of matching funds the candidate received for any previous submission.
4. Clarification of 11 CFR 9032.9(c)
    Current 11 CFR 9032.9(c) states that expenditures incurred ``before 
the beginning of the expenditure report period'' are qualified campaign 
expenses if they meet the requirements of 11 CFR 9034.4(a), which 
addresses, inter alia, testing the waters expenses prior to the date an 
individual becomes a candidate. This wording is the same as the 
equivalent rule for general election candidates at 11 CFR 9002.11(c), 
and appears to be an error because the term ``expenditure report 
period'' applies to general election candidates. See 11 CFR 9002.12. To 
clarify this section, the Commission proposes changing this wording to 
``prior to the date the individual becomes a candidate,'' the same 
wording used in 11 CFR 9034.4(a)(2), governing testing the waters 
expenses.
5. Documentation of Disbursements
    The current rules describe the requirements for the documentation 
of disbursements applicable to all committees in 11 CFR 102.9(b) and 
provide additional documentation requirements for publicly funded 
committees at 11 CFR 9003.5 (general election candidates), 9008.10 
(convention committees) and 9033.11 (primary candidates). The 
Commission proposes to revise 11 CFR 9003.5, 9008.10 and 9033.11 to 
clarify that publicly funded candidates must comply with both the 
general rules at section 102.9(b) and the particular rules applicable 
to publicly funded primary or general election candidates governing the 
documentation of disbursements. The proposed rules would add new 
paragraphs 11 CFR 9003.5(b)(4) and 9033.11(b)(4) stating that the 
requirements of section 102.9(b) also apply to disbursements, and would 
revise the introductory language in section 9008.10 to state that the 
requirements in that section are in addition to the requirements of 11 
CFR 102.9(b). Adding these proposed references to 11 CFR 102.9(b) would 
improve the ease of use of the rules for publicly funded committees.

National Nominating Conventions

    The Commission is proposing a number of changes to its regulations 
concerning national nominating conventions, 11 CFR part 9008. Some of 
these proposed changes are necessary in order to give effect to BCRA's 
ban on the use of non-Federal funds by national party committees. The 
rest of the proposed changes are designed to clarify certain 
requirements in light of the Commission's experience in administering 
the public financing of national nominating conventions over the past 
several presidential election cycles.

I. Current Legal Structure of Convention Financing

    Under 26 U.S.C. 9008(b), the national committees of both major and 
minor political parties are entitled to public funds to defray expenses 
incurred in connection with a presidential nominating convention. Major 
party committees receive an inflation-adjusted payment from the 
Presidential Election Campaign Fund for their national nominating 
conventions. 26 U.S.C. 9008(b)(1). Minor party committees receive a 
proportional amount of that payment based on the number of votes the 
party's candidate received in the last presidential election compared 
to the average number of votes received by the major party candidates. 
26 U.S.C. 9008(b)(2). For the 2004 conventions, the major party 
committees will be entitled to receive $14,880,000 in July 2003 and an 
additional payment in 2004 for an inflation adjustment, subject to all 
applicable requirements.\2\ A national committee of a major or minor 
party may not make expenditures related to the convention that exceed 
the expenditure limitations, which are equal to the full amount of the 
payment to major parties. 26 U.S.C. 9008(d). Thus, the major party 
convention committees may not receive any contributions, as defined in 
2 U.S.C. 431(8), that would count towards their expenditure limit if 
they accepted the full payment. Any such contributions would combine 
with the public funds to make total expenditures exceed the limit.
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    \2\ In 2000, the Democratic and Republican National Committees 
each received $13,512,000 for their national nominating convention, 
while the Reform Party received $2,522,690. No candidate received a 
sufficient number of votes in the 2000 presidential general election 
to provide his or her party with minor party status in 2004.
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    In addition to the public funds provided to the national committees 
of both major and minor political parties in connection with a 
presidential nominating convention, ``host committees'' and ``municipal 
funds'' may defray certain expenses incurred in connection with hosting 
these conventions. A host committee is defined as any local 
organization, such as a local civic association, business league, 
chamber of commerce, real estate board, board of trade, or convention 
bureau (1) which is not organized for profit; (2) whose net earnings do 
not inure to the benefit of any private shareholder or individual; and 
(3) whose principal objective is the encouragement of commerce in the 
convention city, as well as the projection of a favorable image of the 
city to convention attendees. 11 CFR 9008.52(a). Host committees may 
provide the convention committees with certain services and facilities, 
as specified in 11 CFR 9008.52(c). Any host committee expenditures that 
comply with 11 CFR 9008.52 do not constitute convention committee 
expenditures and do not count toward the convention committee's 
expenditure limit. 11 CFR 9008.8(b)(1).
    ``Municipal fund'' is the term that has come to apply to local 
government agencies and the separate funds or accounts established by 
them to receive and disburse funds in order to defray

[[Page 18501]]

certain expenses for a convention in that locality. Municipal funds may 
make expenditures for the same purposes as host committees. 11 CFR 
9008.53. As with host committees, expenditures by a municipal fund that 
are in compliance with 11 CFR 9008.53 do not constitute convention 
committee expenditures and do not count toward the convention 
committee's expenditure limit. 11 CFR 9008.8(b)(2).
    Under current regulations, host committees and municipal funds are 
allowed to accept monetary and in-kind donations from the same sources: 
local businesses, including corporations; local banks; local labor 
organizations; and local individuals. 11 CFR 9008.52 and 9008.53. 
Municipal funds, however, face more limitations on their fundraising 
than host committees. See 11 CFR 9008.53(b)(1)(i) and (ii). Municipal 
funds may not accept donations ``restricted'' for use in connection 
with a particular convention; they may not engage in fundraising 
restricted to a particular convention; and they may not themselves be 
restricted to a particular convention. 11 CFR 9008.53(b)(1)(i) and 
(ii). Host committees are not subject to any of these limitations. Once 
raised, funds received by a host committee or municipal fund may be 
used for the same purposes. See 11 CFR 9008.52(c)(1) and 9008.53. If 
the funds are raised and spent in compliance with 11 CFR 9008.52 or 
9008.53, then they are exempt from the definition of ``contribution and 
expenditure'' in the Commission's regulations concerning corporate and 
labor organization funds, 11 CFR part 114. See 11 CFR 
114.1(a)(2)(viii). On this basis, host committees and municipal funds 
accept and spend such funds, which constitute non-Federal funds.

II. Historical Basis for Current Legal Structure

    In 1977, the Commission explained the basis for permitting in-kind 
contributions to host committees from corporations and labor 
organizations, stating: ``Such in-kind contributions are presumably not 
politically motivated but are undertaken chiefly to promote economic 
activity and good will of the host city.'' Explanation and 
Justification for 1977 Amendments to the Federal Election Campaign Act 
of 1971, H.R. Doc. No. 95-44, 136 (1977). Similarly, donations of money 
were described as ``presumably commercially motivated rather than 
politically, and thus will not be considered an unlawful 
contribution.'' Id. at 137. Host committee funds were ``to be used for 
purposes designed to promote a good image of the host city to the 
convention attendees.'' Id. at 136-37.
    The Commission acknowledged that the host committee exception to 
the convention committee's expenditure limit could be considered a 
means of avoiding the expenditure limit. Id. at 137. The Commission 
explained that ``it appears from the testimony of the major parties 
before the Commission that the Congress in deciding upon a dollar 
figure for expenditure limitations, took into consideration only those 
expenses actually paid by the national party for the 1972 convention 
and ignored in its computation the value of services provided by host 
cities and committees.'' Id. The Commission described its regulation on 
the use of funds by host committees as ``represent[ing] an 
interpretation of 26 U.S.C. 9008(1) that the [expenditure] limit 
applies only to expenditures made by the national party, and that 
expenditures made by private host committees under certain restrictions 
will not be counted toward the ceiling.'' Id. (emphasis in original).
    In 1979, the Commission recodified some of its regulations, 
including those related to corporate donations to host committees. The 
Commission described again the basis for this exception to the 
prohibition on corporate and labor organization funds in 2 U.S.C. 441b, 
stating: ``While incorporated businesses are prohibited by 2 U.S.C. 
441b from making contributions or expenditures in connection with a 
Federal election, donations by such corporations to a host committee in 
accordance with restrictions set forth in [11 CFR 9008.7(d) (1979)] are 
sufficiently akin to commercial transactions to fall outside the scope 
of that prohibition.'' Explanation and Justification of Presidential 
Election Campaign Fund and Federal Financing of Presidential Nominating 
Conventions, 44 FR 63036, 63038 (Nov. 1, 1979).
    The basis for the municipal fund exception to the expenditure limit 
was also discussed, and the Commission explained that the expenditure 
limit would be ``unrealistically low'' if the value of ``certain 
facilities and services'' provided by the city ``as part of an overall 
package to attract the convention to that city'' counted toward the 
convention committee's expenditure limit. Id. at 63037. With regard to 
host committees, the Commission justified the restriction on who may 
donate funds as ``necessary to insure that such donations are 
commercially, rather than politically motivated.'' Id. at 63038.\3\ The 
Commission also observed that ``Defrayal of convention expenses by a 
host committee is intended to be a very narrow exception to the 
statutory limitation on convention expenses.'' See id. at 63038. The 
1979 document made the same point about the apparent Congressional 
intent as presented in the 1977 Explanation and Justification. Id. at 
63037.
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    \3\ At that time, the amount of donations to host committees was 
also limited. See 11 CFR 9008.7(d)(3)(ii) (1980).
---------------------------------------------------------------------------

    In 1994, the Commission again revised its regulations governing 
publicly financed presidential nominating conventions. Incorporating 
the conclusions reached in Advisory Opinions 1982-27 and 1983-29, the 
Commission promulgated its municipal fund regulation, 11 CFR 9008.53. 
Explanation and Justification of Presidential Election Campaign Fund 
and Federal Financing of Presidential Nominating Conventions, 59 FR 
33606, 33614 (June 29, 1994). Like donations to host committees, the 
Commission explained that ``the new rules recognize that local 
businesses and organizations that donate to municipal funds are 
motivated by commercial and civic reasons, rather than election-
influencing purposes.'' Id. at 33615.
    Five years later, in 1999, the Commission reiterated the presumed 
motivation of donors to host committees and municipal funds. In lifting 
the prohibition on bank donations to host committees, the Commission 
agreed with the observation that ``local branches of national banks 
have the same interest in promoting the city and supporting commerce'' 
as local corporations. Explanation and Justification for Public 
Financing of Presidential Primary and General Election Candidates, 64 
FR 49355, 49357 (Sept. 13, 1999).

III. Petition for Rulemaking

    A petition for rulemaking jointly filed by three organizations 
seeks the repeal or revision of the Commission's regulations that 
permit host committees to accept corporate and labor organization funds 
and to use these funds for expenses incurred in conducting a nominating 
convention. The petition argues that the host committee regulation, 11 
CFR 9008.52, and the exemption from the part 114 definition of 
``contribution and expenditure'' of activity permitted by the host 
committee regulation, 11 CFR 114.1(a)(2)(viii), are contrary to FECA 
and BCRA. According to the petition, 2 U.S.C. 441b of FECA is violated 
by the

[[Page 18502]]

cited regulations because corporations and labor organizations are 
permitted to contribute funds and in-kind contributions in connection 
with a nominating convention. Similarly, according to the petition, 2 
U.S.C. 441i of BCRA is violated by 11 CFR 9008.52(c) because it allows 
national party committees to receive in-kind contributions paid for 
with corporate and labor organization funds. In support of its 
position, the petition puts forth a statutory and regulatory analysis, 
and it cites and attaches many articles from various media outlets that 
purport to describe convention financing practices. The petition is 
available on the Commission's website.
    The petition's conclusion that the cited host committee regulations 
violate FECA and BCRA obviously contradicts the Commission's treatment 
of host committees since 1977. The proposed rules that follow are 
consistent with the Commission's historical treatment of host 
committees and do not reflect the position advanced by the petitioners. 
Nonetheless, the Commission seeks comment on whether corporate or labor 
organization donations to host committees under the conditions 
prescribed in current 11 CFR 9008.52(c) are contrary to FECA or BCRA. 
If the approach sought by the petition were adopted, the Commission 
also seeks comment on whether the exemption from the convention 
committee expenditure limit for host committee expenses, 11 CFR 
9008.8(b)(1), should also be repealed. Similarly, the Commission also 
seeks comment on whether corresponding changes would be required for 
the municipal fund regulations, 11 CFR 9008.8(b)(2) and 9008.53.

IV. Application of BCRA's Non-Federal Funds Provisions to Convention 
Committees, Host Committees and Municipal Funds

    Under BCRA, ``[a] national committee of a political party * * * may 
not solicit, receive, or direct to another person a contribution, 
donation, or transfer of funds or any other thing of value, or spend 
any funds, that are not subject to the limitations, prohibitions, and 
reporting requirements of [FECA].'' 2 U.S.C. 441i(a)(1). BCRA also 
prohibits officers and agents of the national party committees and 
entities that are ``directly or indirectly established, financed, 
maintained, or controlled'' by national party committees from 
soliciting, receiving, directing, or spending such non-Federal funds. 2 
U.S.C. 441i(a)(2); see also 11 CFR 300.10(c)(1) and 300.10(c)(2). BCRA 
also prohibits Federal candidates and officeholders, their agents, and 
entities directly or indirectly established, financed, maintained, or 
controlled by or acting on behalf of one or more Federal candidate or 
officeholder from soliciting, receiving, directing, transferring, or 
spending non-Federal funds in connection with an election for Federal 
office. 2 U.S.C. 441i(e)(1)(A); see also 11 CFR 300.61.\4\
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    \4\ In connection with any election other than an election for 
Federal office, BCRA also prohibits the same persons from 
soliciting, receiving, directing, transferring, spending, or 
disbursing funds in excess of the amounts permitted under 2 U.S.C. 
441a(a) or funds from sources prohibited by FECA. 2 U.S.C. 
441i(e)(1)(B).
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    The Commission has promulgated rules implementing BCRA's new 
restrictions and prohibitions on the receipt, solicitation, direction, 
and use of certain types of non-Federal funds by political party 
committees, candidates, and officeholders. See Explanation and 
Justification for Prohibited and Excessive Contributions: Non-Federal 
Funds or Soft Money, 67 FR 49064 (July 29, 2002) (hereinafter ``Non-
Federal Funds Final Rules''). In this rulemaking, the Commission 
considers the impact of these new restrictions and prohibitions in BCRA 
and the Non-Federal Funds Final Rules on national nominating 
conventions. Specifically, the Commission considers the roles filled by 
national political party committees, their convention committees, host 
committees, and municipal funds, as well as the involvement of Federal 
candidates and officeholders.

A. Are Host Committees and Municipal Funds ``Agents'' of National Party 
Committees Under 2 U.S.C. 441i(a) and (e) and 11 CFR 300.2(b)?

    One issue that arises from BCRA's ban on national parties 
soliciting, receiving, directing, and using non-Federal funds is 
whether host committees and municipal funds are ``agents'' of national 
party committees. In the Non-Federal Funds Final Rules, the Commission 
defined an ``agent,'' for purposes of 11 CFR part 300, as ``any person 
who has actual authority, either express or implied * * * to solicit, 
direct, or receive any contribution, donation, or transfer of funds'' 
on behalf of a national committee of a political party. 11 CFR 
300.2(b). The Commission seeks comment on whether host committees and 
municipal funds satisfy the definition of ``agents'' in 11 CFR 300.2(b) 
with respect to the national political party committees or their 
convention committees. If host committees and municipal funds are 
``agents'' of national party committees, then they, like the national 
party committees themselves, would be prohibited from soliciting, 
receiving, directing, or spending non-Federal funds by operation of 2 
U.S.C. 441i(a)(1) and (2) and 11 CFR 300.10(a) and (c)(1).
    The Commission does not propose regulatory text that would presume 
that host committees or municipal funds would necessarily qualify as 
``agents'' of the national political parties. This approach, if 
adopted, would not preclude the Commission from determining that in a 
particular case a host committee or municipal fund does, in fact, meet 
the definition of ``agent'' in 11 CFR 300.2(b) with respect to the 
pertinent national party committee. The Commission also seeks comment 
on whether host committees and municipal funds should be treated per se 
as not agents of national party committees and, therefore, as not 
subject as a matter of law to 2 U.S.C. 441i(a)(2) or 11 CFR 
300.10(c)(1) as agents acting on behalf of a national party committee, 
no matter how such host committees and municipal funds operate or 
interact with the national party committees.
    The Commission is also considering an alternative approach, whereby 
host committees and municipal funds would be treated as per se agents 
of national party committees. Such an approach would limit permissible 
funds for a host committee or municipal fund to funds subject to FECA's 
limitations, prohibitions, and reporting requirements, regardless of 
how the host committees and municipal funds functioned and related to 
the national party committees. If the Commission were to consider host 
committees and municipal funds as per se agents of convention 
committees, how should it restructure the rules relating to national 
nominating conventions in 11 CFR part 9008? Would host committees or 
municipal funds be Federal political committees? Would all their 
transactions with convention committees amount to in-kind 
contributions? If host committees and municipal funds are limited to 
funds subject to FECA's limitations, prohibitions, and reporting 
requirements, should any uses of such funds be exempt from the 
convention committee's expenditure limit? The Commission recognizes 
that host committees and municipal funds supplement the funds that are 
otherwise capped by the expenditure limit and therefore removing the 
exemption from the expenditure limit for host committees and municipal 
funds would have a profound impact on convention financing. The 
Commission seeks comment on whether such a result is mandated by BCRA.

[[Page 18503]]

    The legislative debates of BCRA suggest that BCRA would entail 
significant changes in convention financing. During the Senate's 
consideration of BCRA, Senator Mitch McConnell said the bill ``will end 
national party conventions as we have known them.'' 148 CR S2122 (daily 
ed. Mar. 20, 2002). Senator McConnell went on to state that ``[t]he 
soft money ban covers the committees that are created to host these 
grand events'' and to say that post-BCRA conventions would have to be 
put on with ``80 percent less funding.'' Id. Senator McConnell's 
conclusion that passage of BCRA would mean: ``All the soft money that 
you used to put on the convention the last time is now gone.'' Id. 
Senator Fred Thompson earlier that day described ``the nature of the 
problem'' addressed by BCRA and noted in regard to what he called the 
``big outfits'' that donate non-Federal funds ``the same entities pick 
up our expenses for the convention.'' 148 CR S2110 (daily ed. Mar. 20, 
2002). During Senate consideration of an earlier version of BCRA, 
Senator Robert Bennett stated: ``One very practical example that we can 
expect is the scaling down, if not the elimination, of party 
conventions because party conventions now are financed entirely with 
soft money which, under this bill, would become illegal. So we may see 
party conventions disappear altogether, or we may see them become very 
truncated affairs, which the media may decide is not worth covering.'' 
147 CR S3092 (daily ed. Mar. 29, 2001). Senator McConnell raised the 
issue during this earlier consideration as well. He stated: ``Host 
committees for national conventions are abolished. Last year it took 
each party $80 million to put on their national conventions. They got 
$15 million from the Treasury. All the rest of it was this odious soft 
money which is going to be abolished. In order to continue to put on 
the national conventions in hard dollars, the two committees will have 
to come up with about $60 million each in hard dollars to put on the 
national conventions.'' 147 CR S3234 (Apr. 2, 2001). The Commission 
seeks comment on how these debates or any other legislative history on 
this issue should be interpreted.
    What effect does BCRA's non-Federal funds ban have on the rules 
relating to convention financing? Can the Commission simply retain the 
pre-BCRA rules? Is there legal justification for retaining the pre-BCRA 
rules? Does BCRA have any impact on the convention committee 
expenditure limit? Would limiting host committees and municipal funds 
to Federal funds have as significant an impact on convention financing 
as eliminating the expenditure limit exemption for host committees and 
municipal funds? If so, is such a result required by BCRA?

B. Are Host Committees and Municipal Funds Entities ``Established, 
Financed, Maintained, or Controlled'' by National Party Committees 
Under 2 U.S.C. 441i(a) and 11 CFR 300.2(c)?

    Another issue that arises under BCRA is whether host committees and 
municipal funds are ``directly or indirectly established, financed, 
maintained, or controlled'' by a national party committee. If host 
committees and municipal funds are considered entities directly or 
indirectly established, financed, maintained, or controlled by the 
national party committees, then they, like the national party 
committees themselves, are prohibited from soliciting, receiving, 
directing, or spending non-Federal funds. 2 U.S.C. 441i(a)(2); 11 CFR 
300.10(c)(2). In the Non-Federal Funds Final Rules, the Commission 
provided a non-exhaustive list of factors that may be considered in 
determining whether an entity is directly or indirectly established, 
financed, maintained, or controlled by a national party committee. 11 
CFR 300.2(c). See Non-Federal Funds Final Rules, 67 FR at 49084 (``The 
Commission has concluded that the affiliation factors laid out in 11 
CFR 100.5(g) properly define `directly or indirectly established, 
financed, maintained, or controlled' for purposes of BCRA.'') The 
Commission seeks comment on whether host committees and municipal funds 
satisfy the factors listed in 11 CFR 300.2(c) and should, therefore, be 
considered per se entities that are directly or indirectly established, 
financed, maintained, or controlled by the national party committees 
holding conventions in the relevant cities. Alternatively, the 
Commission seeks comment on whether host committees and municipal funds 
do not meet the criteria listed in 11 CFR 300.2(c) and, therefore, 
should be considered per se as a matter of law as entities that are not 
directly or indirectly established, financed, maintained, or controlled 
by the national party committees. Or should this question be resolved 
on a case-by-case basis by applying section 300.2(c)?
    The Commission notes that the regulatory text relating to host 
committees and municipal funds proposed in this NPRM does not presume 
that host committees or municipal funds satisfy any of the criteria 
listed in 11 CFR 300.2(c) for determining whether entities are directly 
or indirectly established, financed, maintained, or controlled by 
national party committees. This approach, if adopted, would not 
preclude a Commission finding that a particular host committee or 
municipal fund does, in fact, satisfy one or more of the specified 
factors in 11 CFR 300.2(c) with respect to a particular national party 
committee. If the Commission were to conclude that host committees or 
municipal funds are, as a matter of law, ``directly or indirectly 
established, financed, maintained, or controlled'' by national 
political parties, many of the same questions raised in the context of 
the discussion of ``agency,'' above, would need to be addressed. 
Accordingly, the Commission seeks comments on the same issues raised 
above in connection with the agency discussion.

C. Impact of BCRA on Convention Committees

    In contrast to host committees and municipal funds, convention 
committees are, as a matter of law, entities directly established, 
financed, maintained, or controlled by national party committees. The 
Commission's regulations require national party committees to 
``establish a convention committee which shall be responsible for 
conducting the day to day arrangements and operations of that party's 
presidential nominating convention.'' 11 CFR 9008.3(a)(2). In addition, 
under 11 CFR 9008.3(a)(2), convention committees are required to 
receive the national party's entitlement to public funds and are 
responsible for making ``[a]ll expenditures on behalf of the national 
committee for convention expenses;'' as such, they clearly are 
``agents'' of the national party committees as well as ``entities 
directly or indirectly established, financed, maintained, or 
controlled'' by the national party committees, as those terms are 
defined in 11 CFR 300.2(b) and (c). Therefore, for purposes of this 
NPRM, the Commission proposes that BCRA's ban in 2 U.S.C. 441i(a)(1) on 
national parties soliciting, receiving, directing, and using non-
Federal funds shall apply to convention committees by operation of 2 
U.S.C. 441i(a)(2) and 11 CFR 300.10(c). See also 11 CFR 300.2(b) and 
(c).
    The Commission seeks comment on whether this prohibition extends to 
bar convention committees from accepting many of the in-kind donations 
typically provided by host committees and municipal funds. Commission 
regulations permit certain local businesses and organizations to donate

[[Page 18504]]

funds or make in-kind donations to a host committee to be used for the 
purposes listed in 11 CFR 9008.52(c)(1). A review of this list reveals 
that many of the contemplated transactions could not be characterized 
as in-kind donations to the convention committee, but instead relate to 
the provision of services primarily used by convention attendees. For 
example, the permitted expenses' purposes include: Welcoming convention 
attendees; facilitating commerce by distributing guides to attendees; 
providing bus transportation; and providing law enforcement services. 
See 11 CFR 9008.52(c)(1). In order to conclude that the convention 
committee received ``a contribution, donation, or transfer of funds or 
any other thing of value * * * that are not subject to the limitations, 
prohibitions, and reporting requirements of [FECA],'' the Commission 
would need to determine that the convention committee itself received 
something of value. In many of the transactions contemplated by 11 CFR 
9008.52(c)(1), host committees are providing something of value to 
convention delegates, other attendees, press, local businesses, and the 
local community; in these transactions the convention committee is a 
bystander, not a recipient of something of value. When a host committee 
provides, for example, a shopping/dining guide, to convention 
attendees, it is difficult to conclude that the convention committee 
received anything of value. The Commission seeks comment on whether 
BCRA requires that permissible host committee and municipal fund 
expenses must be limited to such activities.
    Other permissible host committee and municipal fund expenses 
certainly provide something of value to the convention committee. For 
example, host committees and municipal funds are permitted to provide 
an auditorium or convention center and construction services for that 
location. 11 CFR 9008.52(c)(1)(v). The Commission seeks comment on 
whether BCRA permits host committees and municipal funds to provide 
things of value to convention committees. Assuming that it does, in 
order to ensure that non-Federal funds raised by host committees and 
municipal funds are not spent on behalf of convention expenses beyond 
the ``very narrow'' host committee/municipal fund exception to the 
convention committee's expenditure limit, however, the Commission is 
also considering revising its regulations to more precisely 
circumscribe the permitted purposes for host committee and municipal 
fund expenses as discussed below. See Explanation and Justification for 
Regulations on Federal Financing of Presidential Nominating Conventions 
and the Presidential Election Campaign Fund, 44 FR 63036, 63038 (Nov. 
1, 1979) (stating: ``Defrayal of convention expenses by a host 
committee is intended to be a very narrow exception to the statutory 
limitation on convention expenses.'').

D. Solicitation of Funds for Host Committees and Municipal Funds Under 
BCRA

1. 2 U.S.C. 441i(a) and (e)(1)
    As explained above, BCRA prohibits national party committees, as 
well as their agents and entities they directly or indirectly 
establish, finance, maintain, or control from soliciting or directing 
non-Federal funds on behalf of, or to, others. 2 U.S.C. 441i(a). BCRA 
also prohibits Federal candidates and individuals holding Federal 
office from soliciting, receiving, directing, transferring, or spending 
funds in connection with an election for Federal office unless the 
funds are subject to the limitations, prohibitions, and reporting 
requirements of FECA. 2 U.S.C. 441i(e)(1)(A). BCRA extends these 
prohibitions to the agents of Federal candidates acting on their behalf 
and individuals holding Federal office and entities directly or 
indirectly established, financed, maintained, or controlled by either. 
2 U.S.C. 441i(e)(1).
    The foregoing restrictions on Federal candidates and officeholders 
under 2 U.S.C. 441i(e)(1), in contrast to the restrictions on national 
party committees under 2 U.S.C. 441i(a), only apply to funds ``in 
connection with an election for Federal office'' or any other election. 
2 U.S.C. 441i(e)(1)(A) and (B). The Commission seeks comment on what 
impact this statutory distinction has on any of the issues addressed in 
this rulemaking.
    Are all host committee and municipal fund activities ``in 
connection with an election for Federal office'' or any other election 
within the meaning of 2 U.S.C. 441i(e)? If not, are any such activities 
``in connection with an election for Federal office''? If none satisfy 
that statutory phrase, do the prohibitions and limitations of section 
441i(e) not apply as a matter of law to the funds solicited, raised, 
and spent by host committees and municipal funds on that basis alone? 
In the alternative, are host committee and municipal fund activities 
subject to this provision of 2 U.S.C. 441i(e) only if they are not for 
the purpose of promoting the convention city and its commerce? As 
described above, the Commission's past treatment of host committee and 
municipal fund expenses viewed those expenses as a permissible 
exception to the prohibition on corporate or labor organization funds 
because they lacked an election-influencing purpose. FECA's definitions 
of ``contribution'' and ``expenditure'' both require that such be made 
``for the purpose of influencing any election for Federal office.'' 2 
U.S.C. 431(8)(A)(i) and 431(9)(A)(i). Does the Commission's 
determination that certain permissible host committee and municipal 
fund expenses are not ``contributions'' or ``expenditures'' also 
require that the Commission determine those expenses are not ``in 
connection with an election for Federal office'' under 2 U.S.C. 
441i(e)(1)(A)?
    Are any of the costs of conducting a convention ``in connection 
with an election for Federal office''? FECA clearly defines 
``election'' to include ``a convention or caucus of a political party 
which has the authority to nominate a candidate.'' 2 U.S.C. 431(1)(B). 
However, other election administering expenses, whether incurred by 
States or privately funded in those States that require political 
parties to pay the costs of certain primary elections, are not 
considered FECA-regulated expenses. See, e.g., AO 1991-33 (noting that 
the parties act as agents of the State in performing the ministerial 
functions of administering the primaries). Are the costs of conducting 
a convention, whether incurred by a convention committee, host 
committee, or municipal fund, regulated by FECA, other than those 
provisions that expressly mention convention activities? Although the 
Fund Act provides for grants of public funds to pay these expenses and 
imposes an expenditure limitation in exchange for accepting such a 
grant, should the Commission conclude that some or all of the expenses 
of conducting a nominating convention are not subject to FECA as 
amended by BCRA? If the Commission determines that these expenses are 
not in connection with a Federal election, what changes should it make 
to its regulations?
    The Commission carefully considered the scope of BCRA's prohibition 
on solicitation and direction of non-Federal funds by national party 
committees, Federal candidates, Federal officeholders, and their agents 
in the Non-Federal Funds Final Rules. See 67 FR at 49087-93, 49106-09, 
49122-23, and 49131-32. The Commission seeks comment on whether the new 
rules implementing BCRA's ban on the solicitation of non-Federal funds 
are sufficient to resolve the question of whether national party 
committees,

[[Page 18505]]

Federal candidates, Federal officeholders, or their agents may solicit 
funds for host committees and municipal funds. See 11 CFR part 300, 
subparts A and D. Alternatively, should the Commission promulgate an 
additional regulation in its Federal Financing of Presidential 
Nominating Conventions regulations (11 CFR part 9008) that would 
specifically apply BCRA and the Non-Federal Funds Final Rules to the 
financing of national nominating conventions and explain how the 
Commission's regulations in 11 CFR part 300 work in this context?
2. 2 U.S.C. 441i(d)
    BCRA prohibits national party committees, their officers and agents 
acting on their behalf, and entities directly or indirectly 
established, financed, maintained, or controlled by them from 
soliciting any funds for, or making or directing any donations to, 
certain tax-exempt organizations. 2 U.S.C. 441i(d). BCRA's prohibition 
on this type of donor and fundraising activity extends only to tax-
exempt organizations with a political purpose or that conduct 
activities in connection with a Federal election. Specifically, this 
prohibition extends to tax-exempt organizations described in 26 U.S.C. 
501(c) that make ``expenditures or disbursements in connection with an 
election for Federal office (including expenditures or disbursements 
for Federal election activity)'' and organizations described in 26 
U.S.C. 527. Id. In considering how to implement these BCRA provisions, 
the Commission concluded that a safe harbor is an appropriate way to 
help ensure that party committees, and others to whom 11 CFR 300.11 and 
300.37 apply, comply with the Act.
    Commission regulations at 11 CFR 300.11 and 300.50 implement this 
safe harbor and set forth a process by which a section 501(c) 
organization can certify that it does not make expenditures or 
disbursements in connection with an election for Federal office. Under 
11 CFR 300.11(c) and 300.50(c), national party committees, their 
agents, and entities they directly or indirectly establish, finance, 
maintain, or control may obtain and rely upon a certification that the 
organization has not and does not intend to make expenditures or 
disbursements in connection with an election for Federal office as 
specified in 11 CFR 300.11(d).
    The Commission seeks comment on whether, as a matter of law, host 
committees and municipal funds make ``disbursements'' in connection 
with an election for Federal office, even as they adhere to the 
requirements in current 11 CFR 9008.52, which arguably would leave host 
committees and municipal funds outside the certification safe harbor 
set out in 11 CFR 300.11. A ``disbursement'' is defined, in 11 CFR 
300.2(d), as ``any purchase or payment made by: (1) a political 
committee; or (2) any other person, including an organization that is 
not a political committee, that is subject to [FECA].'' The Commission 
has historically treated host committees and municipal funds as 
organizations that are subject to FECA that make purchases or payments 
in connection with a Federal election because FECA defines presidential 
nominating conventions as Federal elections. 2 U.S.C. 431(1)(B). As is 
noted above, the Commission is seeking comment on whether this 
historical treatment of host committees and municipal funds is 
appropriate. The Commission's past treatment of permissible host 
committee and municipal fund disbursements has been that they are not 
expenditures for the purpose of influencing an election and, therefore, 
are not subject to the corporate and labor organization prohibition in 
2 U.S.C. 441b. However, BCRA reaches far beyond expenditures and 
requires only ``disbursements in connection with an election'' to make 
a 501(c) organization subject to the prohibition in 2 U.S.C. 
441i(d)(1). The Commission seeks comment on what impact this BCRA 
statutory provision has, if any, on the Commission's treatment of host 
committees and municipal funds.
    The Commission proposes a new regulation, 11 CFR 9008.55, in order 
to apply 11 CFR part 300 to the solicitation of funds for those host 
committees or municipal funds that have 26 U.S.C. 501(c) status. 
Paragraph (a) would state the general proposition that all host 
committee and municipal fund payments in compliance with 11 CFR part 
9008 are disbursements in connection with a Federal election for 
purposes of 11 CFR part 300. Paragraph (b) would state that host 
committees and municipal funds would not be eligible to make the 
certification pursuant to 11 CFR 300.11(d). The Commission seeks 
comment on the proposed new regulation and the approach embodied in it.
    In the alternative, the Commission seeks comment on whether host 
committees and municipal funds should be eligible to make the 
certification pursuant to 11 CFR 300.11(d) and, if so, under what 
circumstances? The Commission also seeks comment on whether Congress, 
in enacting BCRA, in any way intended to restrict convention financing 
practices that were legal before BCRA became law, including the 
activities of host committees and municipal funds (and any involvement 
therein by national party committees, Federal candidates, Federal 
officeholders, and their agents.) Specifically, comment is sought on 
whether permissible host committee and municipal fund expenses do not 
constitute disbursements in connection with an election.
3. 2 U.S.C. 441i(e)(4)
    In 2 U.S.C. 441i(e)(1), BCRA prohibits Federal candidates and 
officeholders \5\ from soliciting, receiving, directing, transferring, 
or spending funds in connection with an election for Federal or non-
Federal office unless the funds meet the source and amount restrictions 
of the Act. See also 11 CFR 300.61 and 11 CFR 300.62. BCRA creates two 
exceptions from that general rule in 2 U.S.C. 441i(e)(4). First, BCRA 
allows Federal candidates, individuals holding Federal office, and 
individuals who are agents acting on behalf of either to make general 
solicitations, without source or amount restrictions, for a 501(c) 
organization, other than organizations whose ``principal purpose'' is 
to conduct certain Federal election activity, specifically voter 
registration, voter identification, GOTV activities, or generic 
campaign activity, so long as the solicitation does not specify how the 
funds will be spent. Second, BCRA permits Federal candidates and 
Federal officeholders, and individuals who are agents acting on their 
behalf, to make a solicitation explicitly to obtain funds for a 501(c) 
organization whose principal purpose is to conduct Federal election 
activity as described above or for a 501(c) organization to conduct 
these activities, provided that only individuals are solicited for no 
more than $20,000 per calendar year. The final rule at 11 CFR 300.65 
implements these exceptions for Federal candidate and officeholder 
solicitations for 501(c) organizations.
---------------------------------------------------------------------------

    \5\ An ``individual holding Federal office'' is defined as ``an 
individual elected to or serving in the office of President or Vice 
President of the United States; or a Senator or a Representative in, 
or Delegate or Resident Commissioner to, the Congress of the United 
States.'' 11 CFR 300.2(o). It does not include those ``who are 
appointed to positions such as the secretaries of departments in the 
executive branch, or other positions that are not filled by 
election.'' Non-Federal Funds Final Rules, 67 FR at 49,087. This 
definition is identical to the definition of ``Federal 
officeholder'' in 11 CFR 113.2(c).
---------------------------------------------------------------------------

    As noted above in connection with national party committee 
solicitations of non-Federal funds, host committees and municipal funds 
operating in compliance with 11 CFR part 9008

[[Page 18506]]

arguably make disbursements in connection with the national nominating 
convention, which is an election under FECA. Under 11 CFR 300.52(a)(1) 
and 300.65(a)(1), Federal candidates, individuals holding Federal 
office, and agents acting on their behalf are prohibited from making 
general solicitations of non-Federal funds for 501(c) organizations 
that ``engage in activities in connection with an election.'' 
Accordingly, the exception permitting Federal candidates, Federal 
officeholders, and their agents to make general solicitations on behalf 
of 501(c) organizations would arguably not, as a matter of law, apply 
to host committees and municipal funds. In addition, the exception 
permitting Federal candidates, Federal officeholders, and their agents 
to make specific solicitations for certain 501(c) organizations may 
not, as a matter of law, apply to host committees and municipal funds 
because it is not their principal purpose to engage in certain types of 
Federal election activity described in 2 U.S.C. 431(20)(A)(i) and (ii).
    To make clear that the above-described exceptions to the general 
ban on solicitation do not apply to solicitation of non-Federal funds 
by Federal candidates, Federal officeholders, and their agents on 
behalf of host committees and municipal funds, the Commission is 
considering adding a new provision to part 9008. See new 11 CFR 
9008.55. Paragraph (c) of this section would state that host committees 
and municipal funds are ineligible for the exceptions in 11 CFR 300.65. 
The Commission seeks comment on this approach.

E. Effect of BCRA on Offsets

    The Commission has permitted convention committees to ``offset'' 
in-kind contributions received from host committees that are deemed 
impermissible in post-convention audits. Rather than require repayment 
of 100% of these receipts, the convention committee may offset them 
with convention committee expenditures that could have been paid by the 
host committee. The Commission seeks comment on whether BCRA requires 
any reevaluation of this practice.

F. Effect of BCRA on Commercial Vendor Activities Related to Nominating 
Conventions

    The current rules at 11 CFR 9008.9 permit convention committees to 
receive goods and services from commercial vendors, including 
corporations, at reduced or discounted rates, or at no charge, under 
certain circumstances. The prohibition in BCRA against the receipt of 
non-Federal funds, 2 U.S.C. 441a(a), may necessitate a change to this 
regulation.
    Current 11 CFR 9008.9(a) permits commercial vendors, including 
businesses that are incorporated, to provide reductions or discounts in 
the ordinary course of business; that is, if the vendor has an 
established practice of providing the same reductions or discounts for 
the same amount of goods or services to non-political clients, or if 
the reduction or discount is consistent with established practice in 
the commercial vendor's trade or industry. The Commission believes this 
provision is consistent with BCRA and therefore proposes to retain it 
in its current location. It would be revised to combine the 
introductory text and to make other conforming changes based on the 
other proposed changes to the rule described below.
    Current provisions (b) and (c) of 11 CFR 9008.9, however, address 
items provided for promotional consideration (which are something of 
value), such as complimentary, temporary use of automobiles, and items 
of de minimis value, such as tote bags for convention attendees. The 
rationale for the promotional consideration exception was explained in 
Advisory Opinion 1988-25, where the Commission considered whether it 
was permissible, under FECA and the Fund Act, for General Motors to 
provide complimentary use of automobiles to convention committees for 
use during the 1988 Democratic and Republican conventions in exchange 
for GM's ability to advertise the fact that its vehicles were the 
``official'' vehicles of the respective conventions. The Commission 
concluded that GM's provision of 500 automobiles to the Democratic and 
Republican convention committees in exchange for advertising rights did 
not violate the prohibition against corporate contributions in 
connection with a Federal election, in 2 U.S.C. 441b(a). The Commission 
based its conclusion primarily on evidence that GM had a practice of 
providing complimentary use of automobiles to other, non-political 
conventions of similar size and duration in exchange for such 
advertising authority and on evidence that the value of GM's donation 
was proportionate to the commercial return GM expected to receive 
during the life of the convention.
    The rationale for allowing commercial vendors to provide items of 
de minimis value at little or no charge to convention attendees was 
explained in Advisory Opinion 1980-53, where the Commission considered 
whether it was permissible, under FECA and the Fund Act, for Kelly 
Services, Inc., to provide, at no charge, tote bags to persons 
attending the 1980 Democratic and Republican conventions. The 
Commission concluded that Kelly Services' provision of 9,200 tote bags 
to the Democratic convention and 7,600 tote bags to the Republican 
convention did not violate the prohibition against corporate 
contributions in connection with a Federal election, in 2 U.S.C. 441b, 
and did not count toward the national parties' expenditure limits, in 
11 CFR 9008.7(a). The Commission based its conclusion on three factors: 
(1) The low cost of the tote bags ($2.12 each); (2) evidence that the 
tote bags were being provided solely for bona fide advertising purposes 
of a local business; and (3) evidence that the tote bags were provided 
in the ordinary course of Kelly Services' business.
    While the provision of items for promotional consideration and 
items of de minimis value were permissible under FECA and the Fund Act, 
these provisions may contravene BCRA's prohibition on national party 
committee acceptance of non-Federal funds, 2 U.S.C. 441i(a)(1), by 
authorizing national party committees to receive and accept something 
of value not paid for with Federal funds. The Commission seeks comment 
on whether these practices, which were legally permissible in the past, 
are barred by BCRA. However, as explained above, the rules proposed in 
this NPRM contemplate that it is still appropriate for host committees 
and municipal funds to accept these corporate in-kind donations, 
provided such donations are in accordance with 11 CFR 9008.52 and 
9008.53. Accordingly, the Commission is proposing to move the 
provisions of current 11 CFR 9008.9(b) and (c) (convention committees) 
to 11 CFR 9008.52(a) (host committees), with a conforming amendment to 
11 CFR 9008.53(a) (municipal funds). The introductory text would no 
longer reference the provision of goods or services at no charge as 
that reference pertained to paragraphs (b) and (c).
    Under this reorganization, current paragraph (d) of 11 CFR 9008.9, 
which states that the value of goods or services provided under this 
section do not count towards the national party's expenditure limit, 
would be retained as redesignated paragraph (b) of 11 CFR 9008.9, but 
would be limited to standard industry reductions and discounts provided 
pursuant to 11 CFR 9008.9(a). The definition of ``commercial vendor'' 
would continue to be that set out at 11 CFR 116.1(c):

[[Page 18507]]

Any person providing goods or services to a candidate or political 
committee whose usual and normal business involves the sale, rental, 
lease or provision of those goods or services.

G. Effect of BCRA on Private Events in the Convention City

    Private events are often held in the city hosting a nominating 
convention during the convention. Corporations, labor organizations, 
and other groups can hold these events, which are frequently described 
as hospitality events, and often invite convention attendees including 
delegates, Federal candidates and officeholders, and party officials. 
These events are typically held in locations outside the convention 
venue, but often in close proximity to it. The temporal and geographic 
proximity of these events to nominating conventions has not previously 
subjected the events to regulation under FECA solely because of that 
proximity. Of course, FECA regulation could be triggered by such events 
if, for example, a Federal political committee holds a fundraising 
event. The Commission seeks comment on whether BCRA requires that 
private hospitality events held by corporations, labor unions, and 
other organizations in the convention city during the convention are 
subject to regulation and, if so, on what basis? Does it make any 
difference whether Federal candidates or officeholders or party 
officials or their agents (acting on their behalf) are invited to, 
appear, are recognized, or speak at such events?

V. Definition of ``Municipal Fund''

    Over time, host committees and municipal funds have come to play 
increasingly similar roles in convention funding. The Commission 
therefore seeks comment on whether these entities should be treated 
similarly under the Commission's rules. Under this approach, which is 
reflected in the proposed rules that follow, host committees and 
municipal funds would continue to be permitted to spend money for 
identical purposes. The rules would change, however, to make municipal 
funds subject to the same disclosure requirements that apply to host 
committees under 11 CFR 9008.51 and 9008.52. Current host committee 
disclosure rules would also be revised as described below and would 
apply to both host committees and municipal funds. More importantly, 
the Commission's description of ``municipal funds'' would be revised to 
remove provisions that operate as barriers to municipal funds raising 
money in conjunction with host committees.
    While the Commission's rules define ``host committee,'' see 11 CFR 
9008.52(a), they do not currently define ``municipal fund.'' The 
Commission is proposing to add the following definition, at new 11 CFR 
9008.50(c): ``A municipal fund is any separate fund or account of a 
government agency, municipality, or municipal corporation whose 
principal purpose is the encouragement of commerce in the municipality 
and whose receipt and use of funds is subject to control of officials 
of the State or local government.'' Under this definition, any 
organization operating under 11 CFR 9008.53 would be required to use a 
separate account for receipts and payments related to convention 
activities. Should the Commission adopt additional requirements for 
municipal fund status? Should municipal funds be limited to accounts 
subject to audit by State or local public agencies? Are there any other 
arrangements that would assure the funds received and disbursed by a 
municipal fund would be used for the promotion of the city and its 
commerce?
    The proposed definition would eliminate the current provision in 11 
CFR 9008.53(b)(1)(i) and (ii), requiring municipal funds to comply with 
two conditions: (1) The fund or account is not permitted to be 
restricted to use in connection with any particular convention; and (2) 
Donations to the fund or account must be unrestricted and shall not be 
solicited or designated for use in connection with any particular 
convention, event or activity. 11 CFR 9008.53(b)(1)(i) and (ii).
    Host committees do not operate under similar limitations on 
fundraising. See 11 CFR 9008.52. These limitations complicate joint 
fundraising by a municipal fund and a host committee, and their utility 
has diminished as municipal funds have become functionally similar to 
host committees. Moreover, because hosting a national nominating 
convention is a significant undertaking even for large communities, 
organizations like municipal funds will necessarily devote substantial 
efforts toward their roles in hosting a convention. In these 
circumstances, little purpose is served by prohibiting municipal funds 
from engaging in fundraising devoted to a particular nominating 
convention or accepting donations accompanied by correspondence that 
refers to such a convention.
    In the advisory opinions that formed the basis for this current 
rule, Advisory Opinions 1982-27 and 1983-29, the requesters assured the 
Commission that the undesignated nature of the donations received 
demonstrated the civic, not political, motives of the municipal funds 
and their donors. Subsequently, the Commission promulgated the 
regulation with these same restrictions on municipal funds in an effort 
to ensure that both the donations and use of the donations arose from 
civic, not political, motives. The Commission seeks comment on whether 
this requirement is unnecessary. A municipal fund's references to the 
political party that intends to hold its national nominating convention 
in the host city may not necessarily betray a partisan political 
motivation, and insisting on no such reference in the solicitation 
materials and in the responses from donors may serve little or no 
purpose.
    Consequently, the Commission proposes deleting from its definition 
of municipal funds the requirements that the fund itself, solicitations 
for donations to the fund, and the donations to the fund not be 
restricted to a particular convention. The Commission also proposes to 
restructure the municipal fund regulation, 11 CFR 9008.53, to follow 
the structure of the host committee regulation, 11 CFR 9008.52, and to 
use the name by which these funds have come to be known, ``municipal 
funds.'' Alternatively, the Commission also seeks comment on whether it 
should retain the current distinction between municipal funds and host 
committees. Under the alternative approach, should the Commission 
clarify the prohibitions of 11 CFR 9008.53, namely that a municipal 
fund may not be restricted or accept or solicit restricted donations? 
What standard should the Commission adopt for when a municipal fund is 
``restricted to use in connection with any particular convention'' 
contrary to 11 CFR 9008.53(b)(1)(i)? Under what circumstances is it 
appropriate to conclude that donations or solicitations restricted or 
designated for use in connection with a particular convention contrary 
to 11 CFR 9008.53(b)(1)(ii)?
    The Commission seeks comment on whether the examination and audit 
authority of the Commission outlined in 11 CFR 9008.54, which mandates 
audits of convention host committees without cause, has an adequate 
statutory basis under FECA. In promulgating the predecessor to the 
current 11 CFR 9008.54, the Commission explained that: ``This section 
provides for an examination and audit of each host committee. Such 
committees are permitted to receive donations to defray convention 
expenses. It is hence necessary for the Commission to audit them in 
order to insure that those donations were properly raised and

[[Page 18508]]

spent.'' Explanation and Justification for Presidential Election 
Campaign Fund and Federal Financing of Presidential Nominating 
Conventions, 44 FR 63036, 63038 (Nov. 1, 1979). The Fund Act 
specifically authorizes the Commission ``to conduct such examinations 
and audits (in addition to the examinations and audits required by 
section 9007(a)), . . . as it deems necessary to carry out the 
functions and duties imposed on it by this chapter.'' 26 U.S.C. 
9009(b). In addition, as authority for this requirement, the Commission 
currently cites 2 U.S.C. 437, which includes the statutory provisions 
requiring host committee reporting; 2 U.S.C. 438(a)(8), the 
Commission's general regulation authority; 26 U.S.C. 9008, which 
provides for payments for presidential nominating conventions; and 26 
U.S.C. 9009, which includes further regulation authority in addition to 
the provision cited above concerning audits additional to those 
required by 26 U.S.C. 9007.
    Host committees are the only non-publicly funded committees that 
are subject to an automatic audit by the Commission. Convention 
committees are also subject to automatic audits under 11 CFR 9008.11 no 
later than December 31 of the year the convention was held and may, at 
any time, be subject to other examinations and audits as the Commission 
deems necessary. However, convention committees receive millions of 
dollars of public funds and the Commission's audit authority helps 
insure that those public funds are lawfully spent. The audit authority 
provided to the Commission under 11 CFR 9008.11 is also statutorily 
based in 26 U.S.C. 9008 and 9009.
    The Commission seeks comment on whether the host committees should 
be subject to automatic audits under 11 CFR 9008.54.
    While the Commission is proposing to treat host committees and 
municipal funds the same in most respects (i.e., permitted expenses, 
registration and reporting requirements), it does not propose to audit 
municipal funds as it currently audits host committees. Under the 
current rules, host committees are subject to a Commission audit 
pursuant to 11 CFR 9008.54, while municipal funds are not routinely 
subject to a Commission audit. The Commission, however, has conducted 
financial transaction examinations of municipal fund accounts, and it 
expects to continue to do so in the appropriate circumstances. The 
Commission believes that the governmental controls over municipal funds 
obviate the need to subject municipal funds to a routine audit like 
host committees are subject to pursuant to 11 CFR 9008.54. Because 
municipal funds necessarily are separate accounts of a government 
agency or municipality, the municipal funds are subject to financial 
controls by the local authorities. Under these circumstances, the 
Commission does not believe routine audits are necessary. The 
Commission seeks comment on this approach and specifically whether the 
comity required between agencies of the Federal government and agencies 
at the State or local level counsels against routine audits of 
municipal funds.
    The absence of routine audits should not be misconstrued to limit 
the Commission's authority to examine municipal fund transactions 
related to conventions. Because municipal funds provide substantial in-
kind donations to publicly funded convention committees, the 
Commission's audit of convention committees under 11 CFR 9008.11 may 
require a detailed and thorough review of municipal fund transactions. 
Additionally, municipal funds are subject to Commission audit pursuant 
to 11 CFR 111.10.
    Current 11 CFR 9008.50, entitled ``Scope,'' sets out the scope of 
subpart B of part 9008, ``Host Committees Representing a Convention 
City; Convention Expenditures by Government Agencies and Municipal 
Corporations.'' The Commission is proposing to change the title of this 
Subpart to ``Host Committees and Municipal Funds Representing a 
Convention City.'' The title of 11 CFR 9008.50 would be changed to 
``Scope and Definitions,'' and the current provisions of this section 
would be revised with conforming changes and placed in new paragraph 
(a). The definition of ``host committee'' would be moved from 11 CFR 
9008.52(a) to new 11 CFR 9008.50(b), and the new definition of 
``municipal fund'' would appear at new 11 CFR 9008.50(c). Conforming 
changes using the newly defined term ``municipal fund'' would be made 
to 11 CFR 9008.8(b)(2) and 9008.12(b)(7).

VI. Permissible Expenditures by Convention Committees, Host Committees 
and Municipal Funds

    Permissible expenditures by convention committees are currently set 
forth at 11 CFR 9008.7(a), while those by host committees and municipal 
funds are found at current 11 CFR 9008.52(c). See also 11 CFR 
9008.53(b). As described above, these rules are intended to require 
convention committees to pay expenditures that are ``political'' in 
nature, while permitting host committees and municipal funds to pay 
commercially motivated expenses. The intent of the existing rules is 
for the convention committee to pay expenses incurred in connection 
with nominating its party's candidates, while the host committee and 
the municipal fund pay expenses incurred to make the convention city 
attractive to potential visitors and those seeking a site to hold 
future conventions or similar events. Some expenditures fit into both 
categories, which has caused confusion. Furthermore, the current rules 
do not state the types of expenditures that a host committee or 
municipal fund may not incur on behalf of a convention committee.
    After the last several election cycles, some observers have raised 
questions about whether host committees and municipal funds continue to 
operate in the manner contemplated by the regulations. The Commission 
has encountered host committees and municipal funds that paid for 
expenses that the Commission determined were not for permissible host 
committee or municipal fund purposes. In an effort to provide 
additional guidance on the scope of expenses that may be paid by a host 
committee or municipal fund, the Commission noted that its ``decisions 
regarding the audits of the 1996 convention and host committees serve 
to provide additional guidance for the 2000 election cycle.'' 
Explanation and Justification for Public Financing of Presidential 
Primary and General Election Candidates, 64 FR 49355, 49358 (Sept. 13, 
1999). The Commission therefore seeks comment on whether donations to 
host committees and municipal funds should be considered to stem from 
political motivations, at least in part. If so, what changes to the 
Commission's rules should be made? Comment is also sought on whether 
the Commission should seek to limit the exception for host committee 
and municipal fund expenses to ensure that impermissible funds are not 
used in connection with the national nominating convention. If so, what 
measures should the Commission adopt? Is the total amount of expenses 
the appropriate measure, or should the Commission continue to focus on 
the purpose of the expenses?
    Given the evolution in the operation of host committees and 
municipal funds, as well as the need to ensure, in light of BCRA, that 
a host committee or municipal fund's non-Federal funds are not used to 
provide facilities or services that constitute an impermissible 
contribution to convention committees, the Commission is proposing to 
reorganize the types of permissible expenses listed in current 11 CFR 
9008.7(a)(4) and 9008.52(c). The current

[[Page 18509]]

regulations provide a definition of ``convention expenses'' in 11 CFR 
9008.7(a)(4), which explains that convention expenses ``include all 
expenses incurred by or on behalf of a political party's national 
committee or convention committee with respect to and for the purpose 
of conducting a presidential nominating convention or convention-
related activities.'' 11 CFR 9008.7(a)(4). The current regulation 
includes a non-exhaustive list of 13 examples of particular types of 
convention expenses. See 11 CFR 9008.7(a)(4)(i) to (xiii).

A. Revisions to Convention Expenses, 11 CFR 9008.7(a)(4).

    The Commission is considering two alternatives for revising 11 CFR 
9008.7(a)(4), both of which are set out in the regulatory text portion 
of this NPRM. The alternatives are intended to reach the same result as 
to what expenses may be paid by convention committees, host committees, 
and municipal funds. They differ as to the location of various 
provisions regarding permissible and impermissible expenses. 
Alternative A would involve removing the list of thirteen examples of 
particular types of convention expenses in 11 CFR 9008.7(a)(4). The 
Commission's experience with national nominating conventions indicates 
that, generally speaking, the public funds provided for conventions are 
carefully conserved, given the convention committees' limited 
resources. Thus, the Commission is considering, under Alternative A, 
whether the convention committees' use of funds can be adequately 
addressed with the general and generic definition of ``convention 
expenses'' in section 9008.7(a)(4). Additionally, using a broad and 
generic definition is consistent with the approach in the Commission's 
regulations concerning qualified campaign expenses for presidential 
primary and general elections. See 11 CFR 9002.11 (general election 
definition of qualified campaign expense); 11 CFR 9004.4 (general 
election use of payments); 11 CFR 9032.9 (primary election definition 
of qualified campaign expense); and 11 CFR 9034.4 (primary election use 
of contributions and matching payments).
    Moreover, a number of the examples qualify as ``convention 
expenses'' in such an unambiguous way, the value of stating them as an 
example is questionable. For example, one states that ``salaries and 
expenses of convention committee employees * * * and similar personnel, 
whose responsibilities involve planning, management or otherwise 
conducting the convention.'' Could such expenses fail to meet the 
general definition of ``convention expenses'' in section 9008.7(a)(4) 
under any interpretation? A few of the examples impose some limitations 
that may not otherwise be obvious. Entertainment activity expenses is 
one such provision, 11 CFR 9008.7(a)(4)(viii). While provisions such as 
this one focus on preventing the convention committee from subsidizing 
other organizations, the Commission is considering whether the opposite 
arrangement is more frequently encountered. The Commission also seeks 
comment on two other particular provisions: 11 CFR 9008.7(a)(4)(iii) 
and (iv), which permit convention committees to reimburse national 
party committees for a portion of certain employees' compensation. Do 
convention committees typically make the arrangements contemplated by 
these provisions? Or do some employees temporarily leave the employ of 
the national party committees and become employees of the convention 
committees?
    The Commission seeks comment on its proposed simplification of the 
definition of convention expenses under Alternative A. Particularly, 
are any of the thirteen examples necessary to include in the codified 
regulation? Are there any drawbacks to deleting the thirteen examples? 
Does the proposed definition of ``convention expense'' standing alone 
provide sufficient guidance?
    Alternatively, the Commission seeks comment on whether it should 
refine the current list of examples. Under this alternative, the 
Commission would retain the general definition of ``convention 
expenses'' in 11 CFR 9008.7(a)(4). What changes should be made to the 
list of examples? Should any be deleted? Should other examples be 
added?
    In contrast, Alternative B would retain the list of thirteen 
permissible convention expenses currently located in section 
9008.7(a)(4), but move them to a new section, 11 CFR 9008.17. Under 
this alternative, new section 9008.17 would contain lists of 
permissible expenses for convention committees (paragraphs (a) and 
(b)), and host committees and municipal funds (paragraphs (b) and (c)). 
See proposed 11 CFR 9008.17. Paragraph (a) of section 9008.17 would 
define ``convention expenses'' generally in the same manner as it is 
currently defined in section 9008.7(a)(4). See proposed 11 CFR 
9008.17(a). The thirteen specific permissible convention expenses that 
may be paid by convention committees currently listed in section 
9008.7(a)(4) would be moved to new section 9008.17(a) and (b).
    Please note that under Alternative B, section 9008.7(a)(4) would be 
revised to cross reference 11 CFR 9008.17(a) and (b). Alternative B's 
version of section 9008.7(a)(4) is not set out in the regulation text 
that follows. Neither alternative would amend the prohibited uses of a 
convention committee's public funds listed in 11 CFR 9008.7(b).

B. Substantive Changes to Permissible Host Committee and Municipal Fund 
Expenses.

    The Commission also proposes under both alternatives to revise the 
list of permissible expense purposes for host committees and municipal 
funds listed in current 11 CFR 9008.52(c)(1). The proposed revised 
listed would appear in paragraph (b) of section 9008.52, and would be 
based substantially on the current list in section 9008.52(c)(1). 
However, the Commission proposes a number of changes intended to 
clarify and add specificity as to the range of permissible expenses.
    The Commission proposes to combine current 11 CFR 9008.52(c)(1)(i) 
and (c)(1)(x) to state that host committees and municipal funds may pay 
expenses incurred for the purpose of promoting the suitability of the 
city as a convention site including those related to the selection 
committee's accommodations. See 11 CFR 9008.52(b)(1). The Commission 
seeks comment on this proposed revision, particularly whether the rule 
should be limited to such costs incurred prior to signing the site 
selection agreement.
    The Commission proposes to narrow the focus of the provision 
concerning the use of an auditorium or convention center and 
construction-related services in current section 9008.52(c)(1)(v). See 
proposed 11 CFR 9008.52(b)(5). To that end, the revised purpose would 
contain a non-exhaustive list of permissible construction-related 
services and would make it clear that only construction-related 
services for the purpose of designing, creating, or installing the 
physical or technological infrastructure for the conduct of the 
convention are permissible. Id. It would also codify in the regulations 
some of the Commission's decisions made in connection with the 1996 
conventions. Specifically, the Commission considered a number of 
television production expenses and determined that some were 
permissible host committee expenses and others were not. Many of the 
distinctions the Commission made were based on whether the particular 
expense was related to the infrastructure of the

[[Page 18510]]

convention center. Another of the Commission's decisions related to 
1996 reflected in the proposed section 9008.52(b)(5) was to permit host 
committees to pay telephone charges incurred by the convention 
committee.
    The proposal would narrow the rule in current section 
9008.52(c)(1)(vi) allowing for the provision of local transportation 
services. Whereas the current section allows for the provision of local 
transportation services without restriction, the Commission proposes to 
narrow this purpose to the host committee to provide such services only 
if they are made available to convention delegates and other 
individuals attending the convention. See proposed 11 CFR 
9008.52(b)(6).
    The rule in current section 9008.52(c)(1)(vii) allowing for the 
provision of law enforcement services would be expanded. In light of 
heightened security concerns involving high-profile events attended by 
large numbers of people, such as presidential conventions, the 
Commission proposes to broaden this purpose to permit the provision of 
``security services'' as well as law enforcement services. See proposed 
11 CFR 9008.52(b)(7). The Commission also proposes to delete the 
current requirement that only law enforcement services ``necessary to 
assure orderly conventions'' may be provided, in recognition of the 
fact that maintenance of orderly conventions is only one of many 
legitimate security concerns. Id. To codify another of the Commission's 
decisions in connection with the 1996 conventions, tickets, badges, and 
passes would be specifically mentioned as part of permitted security.
    The provision related to hotel rooms in current 11 CFR 
9008.52(c)(1)(ix) would also be clarified. This would codify another of 
the Commission's 1996 decisions. The provision would be clarified to 
permit host committees and municipal funds to provide hotel rooms to 
convention committees for whatever rate the host committee paid for the 
rooms, including at no charge or at a reduced rate based on the number 
of other rooms rented. See proposed 11 CFR 9008.52(c)(9).
    The Commission proposes to eliminate the final purpose of ``other 
similar convention related facilities and services,'' in current 
section 9008.52(c)(1)(xi), which has created confusion and could be 
improperly read to include a broad array of expenses that is 
inconsistent with a specific list of permitted expenses. The Commission 
seeks comment on this change.
    The Commission seeks comment on the proposed changes to the list of 
permissible host committee and municipal fund expense purposes. 
Specifically, does the proposed regulation provide sufficient guidance 
to inform convention committees, host committees, and municipal funds 
of what is permitted? Are other restrictions necessary to ensure that 
the permitted expenses are appropriate for host committees and 
municipal funds? Should other expense purposes be added to list? Are 
there any other aspects of the Commission's 1996 decisions that should 
be incorporated into the rules?
    The Commission also proposes to add a new provision defining 
impermissible host committee and municipal fund expense purposes. This 
provision is proposed as paragraph (c) of section 9008.52 under 
Alternative A. It would include a general prohibition on providing 
anything of value to a convention committee, national political party 
committee, or any other political committee, except as expressly 
permitted under 11 CFR 9008.52(b)(1) and (5) through (8). See proposed 
11 CFR 9008.52(c)(1). These purposes listed in paragraph (b) of 
proposed section 9008.52 are included in the exception because 
appropriate host committee and municipal fund expenses under these 
sections would involve the provision of something of value to the 
convention committee. The purposes listed in section 9008.52(b)(2) 
through (4) are not included in the exception because a host committee 
or municipal fund must not provide anything of value to the convention 
committee as it welcomes attendees to the convention city, facilitates 
commerce, or pays its own administrative expenses, which are the 
purposes listed in the cited provisions. The list of prohibited expense 
purposes includes another provision to prohibit the use of donations to 
host committee or municipal funds for expenses related to creating, 
producing, or directing the convention proceedings. See proposed 11 CFR 
9008.52(c)(2). The proposal is intended to limit any of the permissible 
purposes so that if the expense would be prohibited by 11 CFR 
9008.52(c)(2), then it would not be permitted even if it might also 
satisfy one of the permissible expense purposes in 11 CFR 9008.52(b). 
This proposal would codify one of the more significant of the 
Commission's decisions in connection with the 1996 conventions that the 
Commission cited as guidance in the 1999 rulemaking. See Explanation 
and Justification for Public Financing of Presidential Primary and 
General Election Candidates, 64 FR 49355, 49358 (Sept. 13, 1999). The 
Commission seeks comment on whether this proposal is sufficient to 
contain the non-Federal funds of host committees and municipal funds to 
uses consistent with the prohibitions and limitations imposed on the 
use of such funds by BCRA. Should additional expense purposes be added 
to the prohibited list? Do the listed prohibitions provide adequate 
guidance?

C. Regulatory Structure of Permissible Host Committee and Municipal 
Fund Expenses.

    Again, the Commission is considering two alternatives that differ 
as to the location for the provisions regarding permissible host 
committee and municipal fund expenses. Both reflect the proposed 
substantive changes to the host committee and municipal fund permitted 
expenses described above in the section entitled ``Substantive Changes 
to Permissible Host Committee and Municipal Fund Expenses.'' 
Alternative A would involve providing a revised list of permissible 
host committee/municipal fund expenses in paragraph (b) of section 
9008.52. See proposed 11 CFR 9008.52. Alternative B would involve 
providing substantially the same revised list of permissible host 
committee and municipal fund expenses, but would locate them in 
paragraphs (b) and (c) of new section 9008.17, rather than in 11 CFR 
9008.52(b). Paragraph (b) of new section 9008.17 would list expenses 
that may be paid by convention committees, host committees, or 
municipal funds and paragraph (c) of 9008.17 would list expenses that 
may be paid by host committees or municipal funds, but shall not be 
paid by convention committees. Finally, the new provisions expressly 
prohibiting certain expenses to host committees and municipal funds 
would appear in 11 CFR 9008.52(c) under Alternative A and in 11 CFR 
9008.17(d) under Alternative B.
    Please note that under Alternative B, 11 CFR 9008.52 and 9008.53 
would be revised to cross reference to the appropriate provisions of 
the new section 9008.17; the Alternative B version of sections 9008.52 
and 9008.53 is not set out in the proposed regulations that follow. The 
Commission seeks comment on the two different organization schemes for 
permissible host committee and municipal fund expenses.

VII. Definition of ``Local'' Businesses, Labor Organizations, Other 
Organizations, and Individuals

    Commission regulations currently permit host committees and 
municipal

[[Page 18511]]

funds to receive donations from local businesses, 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. 11 CFR 9008.52(c)(1) and 
9008.53(b)(1). Frequently, the Commission has been called upon to 
determine whether a particular individual, corporation, labor 
organization, or other organization qualifies as ``local'' within the 
meaning of 11 CFR 9008.52(c)(1) and 9009.53(b). These often entail 
difficult and seemingly arbitrary distinctions. For example, does the 
presence of a single employee working from a home-based office 
constitute a business's local office under section 9008.52 and section 
9008.53?
    Given the Commission's proposal to tighten the restrictions that 
prohibit host committees and municipal funds from paying expenses that 
have primarily a political, rather than commercial, purpose, the 
Commission is considering whether it remains necessary to focus on the 
source of host committee and municipal fund donations. Accordingly, the 
Commission proposes to delete the requirements in 11 CFR 9008.52(c)(1) 
(host committees) and 11 CFR 9008.53(b)(1) (municipal funds) that only 
``local'' businesses, labor organizations, other organizations, and 
individuals may make donations to host committees and municipal funds. 
A conforming change would also be made to 11 CFR 9008.12(b)(7). Under 
the Commission's proposal, any business, labor organization, other 
organization, or individual, no matter where they are located, reside, 
or do business, would be permitted to make donations or in-kind 
contributions to host committees and municipal funds, provided those 
donations and in-kind contributions comply with the restrictions 
prescribed in the regulations. Regardless of what it does on the 
categories of expenses that host committees and municipal funds may pay 
for, should the Commission abolish the locality requirement with 
respect to donations to host committees and municipal funds? If the 
Commission adopted this proposal, would it make it more feasible for 
smaller and mid-size cities, whose corporate and business presence may 
not be as great as the nation's largest cities, to successfully stage a 
national convention? The Commission seeks public comment on this 
approach.
    As an alternative to deleting these ``local'' requirements, the 
Commission is considering an alternative approach that would retain the 
requirement that only ``local'' businesses, labor organizations, and 
other organizations may make donations and in-kind contributions to 
host committees and municipal funds. Under this alternative, the 
Commission would clarify its 1999 amendment to these regulations. The 
accompanying Explanation and Justification explained that this language 
was intended to cover ``individuals who work for a business's local 
office, or a labor organization's local office, or another 
organization's local office.'' Explanation and Justification of Rules 
Governing Public Financing of Presidential Primary and General Election 
Candidates, 64 FR 49355, 49358 (Sept. 13, 1999). However, the 
regulatory text did not require that the individuals work in the local 
office of the local organization; it only required that the individuals 
work for an organization that had a local office, which suggested that 
employees of a nationwide organization could donate to a host committee 
for any area where the organization maintained a facility. Thus, under 
this alternative, the Commission would revise the provision so that it 
would read ``individuals * * * who work for the local office of a 
business, labor organization, or other organization.'' A third 
alternative approach the Commission is considering is to rely 
exclusively on an individual's residence to determine whether the 
individual is local, instead of looking to an individual's employment 
as well. The Commission seeks comment on each of these alternatives.

VIII. Host Committee and Municipal Fund Registration and Reporting 
Requirements

    Under 11 CFR 9008.51(a)(1), host committees must register with the 
Commission within 10 days of the date on which the party chooses the 
convention city. Host committees must also report using FEC Form 4 to 
disclose all receipts and disbursements, including in-kind 
contributions, made with respect to a national nominating convention. 
11 CFR 9008.51(b). The initial reports are not due until the earlier of 
60 days after the convention or 20 days prior to the presidential 
general election. Id. Subsequent reports are due quarterly, on the 
fifteenth day after the end of the quarter. 11 CFR 9008.51(b)(2). A 
final host committee report is due ten days after it ceases reportable 
activity. 11 CFR 9008.51(b)(3). Municipal funds, in contrast, are 
required to file only one report, which is due on the same day as the 
initial host committee report. 11 CFR 9008.51(c). This report need list 
only categories of facilities and services provided for the convention 
for disbursements and the total amounts of general revenues and private 
donations received to defray the expenses. Id. This municipal fund 
reporting regime was intended to strike a balance between two competing 
concerns: ensuring adequate public disclosure, on the one hand, and 
avoiding the imposition of unduly burdensome requirements on 
municipalities and other governmental entities, on the other. See 
Explanation and Justification for Regulations on Presidential Election 
Campaign Fund and Financing of Presidential Nominating Conventions, 59 
FR 33606, 33614 (June 29, 1994).
    The Commission seeks comment on several proposed revisions to these 
registration and reporting requirements for host committees and 
municipal funds, as described below. First, the Commission's experience 
has been that not all host committees are established within the ten 
days of the date on which the party chooses the convention, which is 
the current registration deadline. Accordingly, the Commission is 
proposing to revise the registration deadline in 11 CFR 9008.51(a) to 
require registration within ten days of the date on which the party 
chooses the convention city or ten days after the host committee is 
formed, whichever occurs later. Revised paragraph (a) would require 
that such registration be made by filing a Statement of Organization on 
FEC Form 1. The Commission is proposing that municipal funds be 
similarly treated as host committees, so they would be required to 
register with the Commission within ten days of the date on which the 
party chooses the convention city or ten days after the municipal fund 
is formed, whichever occurs later. Alternatively, the Commission seeks 
comment on whether either of the host committee or municipal fund 
registration deadlines should be ten days after they first solicit or 
accept donations for convention activities, or make disbursements for 
this purpose.
    Second, the Commission proposes to apply the same reporting 
requirements that currently apply to host committees to municipal 
funds. Currently, paragraph (b)(1) of 11 CFR 9008.51 requires host 
committees to file a post convention report with the Commission on FEC 
Form 4. This report must be filed either 60 days following the last day 
that the convention is officially in session or 20 days prior to the 
presidential general election, whichever date is earlier. Currently, 
paragraph (b)(1) does not, however, provide a date for the close of 
books for host

[[Page 18512]]

committees' post-convention reports. The Commission proposes to revise 
paragraph (b)(1) to establish this date as of 15 days prior to the date 
of filing. This timeframe is consistent with the timeframes employed 
for post-convention reports filed by convention committees, see 11 CFR 
9008.3(b)(2)(ii), and the Commission believes it should also provide 
sufficient time for host committees and municipal funds to prepare 
their reports. The Commission seeks comment on this approach.
    Under current paragraph (b)(2) of 11 CFR 9008.51, host committees 
are required to file quarterly reports if they continue to accept 
receipts or make disbursements after the completion date of the post 
convention report. Host committees must continue to file such reports 
until they cease all activity. 11 CFR 9008.51(b)(2).
    By contrast, under current paragraph (c) of 11 CFR 9008.51, 
municipal funds are required to file a post convention letter only 
rather than a post convention report on FEC Form 4. The timeframe 
within which municipal funds have to file this letter is the same as 
the timeframe applicable to host committees' post convention reports. 
Unlike host committees, however, municipal funds are not required to 
continue filing information with the Commission regarding their post 
convention activities, even if they accept receipts or make 
disbursements after the completion date of the post convention letter.
    Given that the Commission is proposing to permit municipal funds to 
accept donations and make disbursements on the same terms as host 
committees, the Commission believes that it is necessary to apply the 
same reporting requirements to municipal funds that currently apply to 
host committees. Moreover, the Commission proposes to require 
continuing reporting in order to ensure that the reported information 
is ``complete'' as required by 2 U.S.C. 437(1). Accordingly, the 
Commission proposes to change paragraph (b) of 11 CFR 9008.51 to make 
the same reporting requirements apply to municipal funds as apply to 
host committees. As a conforming amendment, the Commission proposes to 
delete paragraph (c) of 11 CFR 9008.51, which sets forth the current 
municipal fund reporting requirements. The Commission seeks public 
comment on this approach, particularly on the issue of whether 
continuing reports are required in FECA to ensure completeness or are 
inconsistent with FECA's reference to a singular financial statement. 2 
U.S.C. 437.
    The Commission also proposes to revise paragraph (b)(1) of 11 CFR 
5008.51 to clarify that reports filed pursuant to the requirements of 2 
U.S.C. 437 contain the information specified in part 104, 
notwithstanding part 104's references to 2 U.S.C. 434. Although host 
committees and municipal funds are required to report by 2 U.S.C. 
437(1), and 11 CFR part 104 refers to 2 U.S.C. 434, the Commission 
believes that having the information presented in the same format as 
that of other required reports would greatly aid the public disclosure 
of this financial activity. The Commission also proposes to revise 11 
CFR 107.2 to reflect the revisions made to the registration and 
reporting requirements for host committees and municipal funds.
    Finally, the Commission is proposing that convention committees, 
host committees, and municipal funds be required to submit a copy of 
all agreements that any one of those organizations makes with the city, 
county or State hosting the convention or any of the other convention-
related organizations. See new 11 CFR 9008.3(b)(ii) (convention 
committees) and new 11 CFR 9008.51(a)(3) (host committees/municipal 
funds). Under the Commission's proposal, any such agreements would be 
required to be submitted along with the first required report due after 
the execution of the agreement. Id. This would include subsequent 
agreements to a previous agreement. Host committees and municipal funds 
would not be required to submit agreements made with convention 
committees if such agreements were already submitted to the Commission 
by the convention committee. See new 11 CFR 9008.51(a)(3).
    The Commission is also seeking comment on which form convention 
committees, host committees, and municipal funds should use to report 
to the Commission. Current regulations require convention committees 
and host committees to use FEC Form 4 when reporting to the Commission. 
See 11 CFR 9008.3(b)(2)(i) and 9008.51(b)(1). The proposed rules that 
follow would maintain this requirement, in addition to requiring that 
municipal funds also use FEC Form 4 under new 11 CFR 9008.51(b)(1). The 
Commission is also considering eliminating this form and requiring 
convention committees, host committees, and municipal funds to file FEC 
Form 3P instead. FEC Form 3P is for reports of receipts and 
disbursements by authorized committees of candidates for the Office of 
President or Vice President. Use of FEC Form 3P would require some 
adaptation for the convention scenarios. The Commission seeks comment 
on whether it should maintain its requirement of FEC Form 4, or if it 
should adopt FEC Form 3P for convention committees, host committees, 
and municipal funds.

IX. Convention Legal and Accounting Fund (``CLAF'')

    The Commission is proposing that convention committees be permitted 
to establish separate legal and accounting funds (``CLAF'') to pay for 
the legal and accounting services related solely to compliance with the 
Federal Election Campaign Act and the Presidential Election Campaign 
Fund Act. See proposed 11 CFR 9008.8(b)(4)(ii)(B). Under this proposal, 
the funds raised by the CLAF would be required to be deposited in a 
separate account and would have to comply with the limitations and 
prohibitions of 11 CFR parts 110, 114 and 115. Contributions to the 
CLAF could not exceed $25,000 per person, and $15,000 per multi-
candidate political committee in any calendar year.
    If proposed section 9008.8(b)(4)(ii)(B) were adopted, the payment 
by the CLAF of compensation to any individual or entity for legal and 
accounting services to ensure compliance with the FECA and the Fund Act 
and rendered to or on behalf of the convention committee in connection 
with the presidential nominating convention or convention-related 
activities would not be considered an expenditure and would not count 
against the expenditure limitations of this section. The convention 
committee would report contributions received to pay for legal and 
accounting services on a separate Schedule A, and would report payments 
for legal and accounting services on a separate Schedule B.
    The Commission notes that its current regulations permit convention 
committees some flexibility in this area. National party committees, 
under 11 CFR 9008.8(b)(4), may raise contributions for convention 
related legal and accounting costs subject to national party committee 
limits for individuals and multi-candidate committees and otherwise in 
compliance with 11 CFR parts 110, 114 and 115. Furthermore, the 
regulations do not require that a separate account be established for 
legal and accounting receipts and expenditures. The current regulations 
also exempt payments made for legal and accounting expenditures from 
the expenditure limitations of section 9008.8.
    Nevertheless, the establishment of a separate convention legal and

[[Page 18513]]

accounting fund would provide several beneficial aspects for the 
convention committee. The CLAF would have a separate contribution limit 
from the National committee's limit but subject to the same limitations 
and restrictions of the National committee. May the Commission permit 
contributors to make one contribution of the amount specified in 2 
U.S.C. 441a(a)(1)(B) or 2 U.S.C. 441a(a)(2)(B) to the political 
committees established and maintained by the same national political 
party and a second contribution up to that same amount to a CLAF? May 
the Commission permit such committees to accept such contributions 
consistent with 2 U.S.C. 441a(f) and 441i(a)(1) and (2)? Contributions 
raised for the CLAF and spent for the convention related legal and 
accounting costs would free up convention grant funds to cover 
political activities rather than being used to pay lawyers and 
accountants. And finally, funds raised for the CLAF would help ensure 
that sufficient resources were available to the convention committee 
for legal and compliance obligations. The Commission seeks comment on 
all issues raised by this proposal.

X. Effective Date

    The Commission invites comment on what the effective date should be 
for any regulations it adopts relating to financing of the national 
nominating conventions. Specifically, considering that efforts related 
to the 2004 conventions are underway, should any or all changes to the 
Commission's regulations not become effective until the 2008 
conventions? If certain changes are required by BCRA, which became 
effective on November 5, 2002, does the Commission have the legal 
authority under the Administrative Procedures Act or otherwise to 
postpone the effective date until after the 2004 conventions have been 
held? Can the Commission have final regulations effective, but not 
enforce them until the 2008 conventions? If the Commission took either 
of these actions, would the Commission be essentially suspending BCRA 
as it applies to convention financing until 2008 and, if so, does the 
Commission have the power legally to do so? Alternatively, should any 
arrangements that were memorialized in a written contract by a 
convention committee, host committee or municipal fund prior to the 
effective date of the regulatory changes be subject to the regulations 
in effect at the contract's execution? For example, in September 1999, 
the Commission declined to modify existing regulations regarding the 
division of expenses between convention committees and host committees 
and stated it was doing so ``given that the party committees have 
already entered into contractual agreements with the sites selected.'' 
Explanation and Justification for Public Financing of Presidential 
Primary and General Election Candidates, 64 FR 49355, 49358 (Sept. 13, 
1999). If the Commission concludes that BCRA as a matter of law 
requires certain regulatory changes, and that therefore its existing 
regulations are no longer consistent with the statutory law, does the 
Commission nevertheless have the legal authority to decline to modify 
existing regulations or to postpone the effective date of new 
regulations? The Commission also seeks comments on alternative 
approaches to the effective date issue.

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

    The attached proposed rules, if promulgated, would not have a 
significant economic impact on a substantial number of small entities. 
The basis for this certification is that few, if any, small entities 
would be affected by these proposals, which apply only to presidential 
candidates and their campaign committees. Presidential candidates, 
their committees and national party committees are not small entities. 
Most of these presidential campaigns receive full or partial funding 
from the Federal Government, and are subsequently audited by the 
Commission. The Commission reviews these rules every four years to 
reflect its experience in the previous presidential campaign. These 
rules propose no sweeping changes, and are largely intended to simplify 
this process. Many expand committee options; several are technical; and 
others codify past Commission practice. Those few proposals that might 
increase the cost of compliance by small entities would not do so in 
such an amount as to cause a significant economic impact.

List of Subjects

11 CFR Part 104

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

11 CFR Part 107

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

11 CFR Part 110

    Campaign funds, Political committees and parties.

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 Part 9033

    Campaign funds, Reporting and recordkeeping requirements.

11 CFR Part 9034

    Campaign funds.

11 CFR Part 9035

    Campaign funds.

11 CFR Part 9036

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

11 CFR Part 9038

    Administrative practice and procedure, Campaign funds.

    For the reasons set out in the preamble, it is proposed to amend 
Subchapters A, E and F of Chapter I of title 11 of the Code of Federal 
Regulations as follows:

PART 104--REPORTS BY POLITICAL COMMITTEES (2 U.S.C. 434)

    1. The authority citation for Part 104 would continue to read as 
follows:

    Authority: 2 U.S.C. 431(1), 431(8), 431(9), 432(i), 434, 
438(a)(8) and (b), 439a, and 441a.

    2. Section 104.5 would be amended by:
    a. Revising paragraph (b)(1)(i)(C);
    b. Revising paragraph (b)(1)(ii); and
    c. Revising paragraph (b)(2).
    Revisions are to read as follows:


Sec.  104.5  Filing dates (2 U.S.C. 434(a)(2)).

* * * * *
    (b) * * *
    (1) * * *
    (i) * * *
    (C) In lieu of the monthly reports due in November and December, a 
pre-election report shall be filed as prescribed at paragraph (a)(2)(i) 
of this section, a post-general election report shall be filed as 
prescribed at paragraph (a)(2)(ii) of this section, and a year-end 
report shall be filed no later than January 31 of the following 
calendar year.
    (ii) If on January 1 of the election year, the committee does not 
anticipate

[[Page 18514]]

receiving and has not received contributions aggregating $100,000 and 
does not anticipate making and has not made expenditures aggregating 
$100,000, the committee shall file a preelection report or reports, a 
post general election report and, quarterly reports, as prescribed in 
paragraphs (a)(1) and (2) of this section.
* * * * *
    (2) Non-election year reports. During a non-election year, the 
treasurer shall file either monthly reports as prescribed by paragraph 
(b)(1)(i) of this section; or quarterly reports as prescribed by 
paragraph (a)(1) of this section. A principal campaign committee of a 
presidential candidate reporting under paragraph (b)(2) of this section 
may elect to change the frequency of its reporting from monthly to 
quarterly or vice versa during a non-election year only after notifying 
the Commission in writing of its intention at the time it files a 
required report under its current filing frequency. The committee will 
then be required to file the next required report under its new filing 
frequency. The committee may change its filing frequency no more than 
once per calendar year.
* * * * *

PART 107--PRESIDENTIAL NOMINATING CONVENTION, REGISTRATION AND 
REPORTS

    3. The authority citation for part 107 would continue to read as 
follows:

    Authority: 2 U.S.C. 437, 438(a)(8).

    4. Section 107.2 would be revised to read as follows:


Sec.  107.2  Registration and reports by host committees and municipal 
funds.

    Each host committee and municipal fund shall register and report in 
accordance with 11 CFR 9008.51. The reports shall contain the 
information specified in 11 CFR part 104.

PART 110--CONTRIBUTION AND EXPENDITURE LIMITATIONS AND PROHIBITIONS

    5. The authority citation for part 110 would continue to read as 
follows:

    Authority: 2 U.S.C. 431(8), 431(9), 432(c)(2), 437d, 438(a)(8), 
441a, 441b, 441d, 441e, 441f, 441g, 441h, and 441k.

    6. Section 110.2 would be amended by adding paragraph (l) to read 
as follows:


Sec.  110.2  Contributions by multicandidate political committees (2 
U.S.C. 441a(a)(2)).

* * * * *
    (l) Expenditures for qualified campaign expenses of a Presidential 
candidate. (1) For purposes of this paragraph (l), qualified campaign 
expense has the same meaning as 11 CFR 9034.10(a).
    (2) If a multicandidate political committee makes an expenditure 
for any qualified campaign expense of a candidate for President, who is 
not accepting public funding under 11 CFR subchapter E or F, on or 
after January 1 of the year immediately following the last Presidential 
election year, the expenditure shall be:
    (i) Deemed to be an in-kind contribution by that multicandidate 
political committee to the authorized committee of the candidate for 
President; and
    (ii) Subject to the contribution limitations set forth in paragraph 
(b) of this section.
    (3) Any expenditure described in paragraph (l)(2) of this section, 
when aggregated with other contributions to the same candidate for 
President, that exceed the contribution limitation in paragraph (b) of 
this section shall be deemed to be an excessive contribution.

PART 9003--ELIGIBILITY FOR PAYMENTS

    7. The authority for part 9003 would continue to read as follows:

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

    8. Section 9003.3 would be amended by:
    a. Revising the introductory language in paragraph (a)(1)(i);
    b. Revising paragraph (a)(1)(i)(C);
    c. Revising paragraph (a)(1)(v);
    d. Revising paragraph (a)(2)(i)(D);
    e. Revising paragraph (a)(2)(i)(G);
    f. Revising paragraph (a)(2)(i)(H);
    g. Adding new paragraph (a)(2)(i)(I);
    h. Revising paragraph (a)(2)(iii); and
    i. Revising paragraph (a)(2)(iv).
    Revisions and additions are to read as follows:


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

    (a) * * *
    (1) * * *
    (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 for the GELAC pursuant to 11 CFR 110.1.
* * * * *
    (C) Contributions shall be deposited in the GELAC only if they are 
designated in writing for the GELAC, or transferred pursuant to 
paragraph (a)(1)(ii), (iii), (iv) or (v) of this section. Any 
contribution which otherwise could be matched pursuant to 11 CFR 9034.2 
shall not be considered designated in writing for the GELAC unless the 
contributor specifically redesignates it for the GELAC , it is 
accompanied by a proper designation for the GELAC, or it meets the 
requirements of 11 CFR 110.1(b)(5)(ii)(B). Any contribution that is 
designated in writing or redesignated for the GELAC shall not be 
matched pursuant to 11 CFR 9034.2.
* * * * *
    (v) Contributions made with respect to the primary election that 
exceed the contributor's limit for the primary election may be 
redesignated for the GELAC and transferred to the GELAC if the 
candidate redesignates the contribution for the GELAC in accordance 
with 11 CFR 110.1.
* * * * *
    (2) * * *
    (i) * * *
    (D) To make repayments under 11 CFR 9007.2, 9038.2, or 9038.3;
* * * * *
    (G) To make a loan to an account established pursuant to 11 CFR 
9003.4 to defray qualified campaign expenses incurred prior to the 
expenditure report period or prior to receipt of Federal funds, 
provided that the amounts so loaned are restored to the GELAC;
    (H) To defray unreimbursed costs incurred in providing 
transportation and services for the Secret Service and national 
security staff pursuant to 11 CFR 9004.6; and
    (I) To defray winding down expenses for legal and accounting 
compliance activities incurred after the end of the expenditure report 
period by either the candidate's primary election committee, general 
election committee, or both committees. For purposes of this section, 
100% of salary, overhead and computer expenses incurred after the end 
of the expenditure report period shall be considered winding down 
expenses for legal and accounting compliance activities payable from 
GELAC funds, and will be presumed to

[[Page 18515]]

be solely to ensure compliance with 2 U.S.C. 431 et seq. and 26 U.S.C. 
9001 et seq.
* * * * *
    (iii) Amounts paid from the GELAC for the purposes permitted by 
paragraphs (a)(2)(i) (A) through (F), (H) and (I) of this section shall 
not be subject to the expenditure limits of 2 U.S.C. 441a(b) and 11 CFR 
110.8. (See also 11 CFR 100.146.) When the proceeds of loans made in 
accordance with paragraph (a)(2)(i)(G) of this section are expended on 
qualified campaign expenses, such expenditures shall count against the 
candidate's expenditure limit.
    (iv) Contributions to and funds deposited in the GELAC may not be 
used to retire debts remaining from the presidential primaries, except 
that, after payment of all expenses set out in paragraph (a)(2)(i) of 
this section, and the completion of the audit and repayment process, 
including the making of all repayments owed to the United States 
Treasury by both the candidate's primary and general election 
committees, funds remaining in the GELAC may be used for any purpose 
permitted under 2 U.S.C. 439a and 11 CFR part 113, including payment of 
primary election debts.
* * * * *
    9. Section 9003.5 would be amended by adding new paragraph (b)(4), 
to read as follows:


Sec.  9003.5  Documentation of disbursements.

* * * * *
    (b) * * *
    (4) The documentation requirements of 11 CFR 102.9(b) shall also 
apply to disbursements.
* * * * *

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

    10. The authority citation for part 9004 would continue to read as 
follows:

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

    11. Section 9004.4 would be amended by:
    a. Revising the section heading;
    b. Revising paragraph (a)(3);
    c. Revising paragraph (a)(4) introductory text;
    d. Removing paragraph (a)(4)(i);
    e. Redesignating paragraph (a)(5) as paragraph (a)(6) and 
redesignating paragraph (a)(4)(ii) as paragraph (a)(5) and revising 
newly-designated (a)(5); and
    f. Revising paragraph (b)(3).
    Revisions, removals, and redesignations are to read as follows:


Sec.  9004.4  Use of payments; examples of qualified campaign expenses 
and non-qualified campaign expenses.

    (a) * * *
    (3) To restore funds expended in accordance with 11 CFR 9003.4 for 
qualified campaign expenses incurred by the candidate prior to the 
beginning of the expenditure report period;
    (4) To defray winding down costs pursuant to 11 CFR 9004.11; and
    (5) To defray costs associated with the candidate's general 
election campaign paid after the end of the expenditure report period, 
but 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) * * *
    (3) Expenditures incurred after the close of the expenditure report 
period. Except for accounts payable costs pursuant to paragraph (a)(5) 
of this section and winding down cost pursuant to 11 CFR 9004.11, any 
expenditures incurred after the close of the expenditure report period, 
as defined in 11 CFR 9002.12, are not qualified campaign expenses.
* * * * *
    12. Section 9004.9 would be amended by revising paragraph (a)(4) to 
read as follows:


Sec.  9004.9  Net outstanding qualified campaign expenses.

    (a) * * *
    (4) The amount submitted as an estimate of necessary winding down 
costs under paragraph (a)(1)(iii) of this section shall be broken down 
by expense category and quarterly or monthly time period. This 
breakdown shall include estimated costs for office space rental, staff 
salaries, legal expenses, accounting expenses, office supplies, 
equipment rental, telephone expenses, postage and other mailing costs, 
printing and storage. The breakdown shall estimate the costs that will 
be incurred in each category from the time the statement is submitted 
until the expected end of the winding down period.
* * * * *
    13. New section 9004.11 would be added, to read as follows:


Sec.  9004.11  Winding down costs.

    (a) Winding down costs. Winding down costs are 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. Winding down costs shall be considered qualified campaign 
expenses.
    (b) Winding down period. The candidate may use public funds to pay 
for winding down costs only until the end of the winding down period. 
The winding down period begins on the day following the last day of the 
expenditure report period and continues until no earlier than:
    (1) 30 days after the candidate's receipt of a Commission audit 
report that does not contain a repayment determination;
    (2) 60 days after service of notice to the candidate of a 
Commission repayment determination if the candidate does not file a 
request for an administrative review of the repayment determination; or
    (3) 30 days after service of notice to the candidate of the 
Commission's post-administrative review repayment determination or 30 
days after service of notice of other final action concerning the 
administrative review.
    (c) Winding down limitation. The total amount of winding down costs 
that may be paid for with public funds shall not exceed the lesser of:
    (1) 2.5% of the expenditure limitation pursuant to 11 CFR 
110.8(a)(2); or
    (2) 2.5% of the total of:
    (i) The candidate's expenditures subject to the expenditure 
limitation as of the end of the expenditure report period; plus
    (ii) The candidate's expenses exempt from the expenditure 
limitation as of the end of the expenditure report period; except that
    (iii) The winding down limitation shall be no less than $100,000.
    (d) Allocation of primary and general election winding down costs. 
A candidate who runs in both the primary and general election may 
divide winding down expenses between his or her primary and general 
election committees using any allocation method, including payment of 
100% of these expenses by the primary or general election committee.

PART 9008--FEDERAL FINANCING OF PRESIDENTIAL NOMINATING CONVENTIONS

    14. The authority citation for Part 9008 would be revised to read 
as follows:

    Authority: 2 U.S.C. 437, 438(a)(8), 441i; 26 U.S.C. 9008, 
9009(b).

    15. Section 9008.3 would be amended by redesignating paragraph 
(b)(1)(ii) as paragraph (b)(1)(iii) and adding new paragraph 
(b)(1)(ii), to read as follows:

[[Page 18516]]

Sec.  9008.3  Eligibility for payments; registration and reporting.

* * * * *
    (b) * * *
    (1) * * *
    (ii) Each convention committee established by a national committee 
under paragraph (a)(2) of this section shall submit to the Commission a 
copy of any and all signed agreements that the convention committee has 
entered into with the city, county, or State hosting the convention, a 
host committee, or a municipal fund, including subsequent modifications 
to previous agreements. Each such agreement or modification shall be 
filed along with the first report due under paragraph (b)(2) of this 
section after the agreement or modification is executed.
* * * * *
    16. In section 9008.7, paragraph (a)(4) would be revised to read as 
follows:


Sec.  9008.7  Use of funds.

    (a) * * *
    (4) ``Convention expenses'' include all expenses incurred by or on 
behalf of a political party's national committee or convention 
committee with respect to and for the purpose of conducting a 
presidential nominating convention or convention-related activities.
* * * * *
    17. Section 9008.8 would be amended by revising the paragraph 
heading for paragraph (b)(2), revising paragraph (b)(2), and revising 
paragraph (b)(4)(ii)(B) to read as follows:


Sec.  9008.8  Limitation of expenditures.

* * * * *
    (b) * * *
    (2) Expenditures by municipal funds. Expenditures made by municipal 
funds shall not be considered expenditures by the national committee 
and shall not count against the expenditure limitations of this section 
if the funds are spent in accordance with the requirements of 11 CFR 
9008.53.
* * * * *
    (4) * * *
    (ii) * * *
    (B) The contributions raised by a Convention Legal and Accounting 
Fund to pay for legal and accounting services must comply with the 
limitations and prohibitions of 11 CFR parts 110, 114 and 115 and shall 
be deposited in a separate account. These contributions shall not 
exceed $25,000 per person, and $15,000 per multi-candidate political 
committee in any calendar year.
* * * * *
    18. Section 9008.9 would be revised to read as follows:


Sec.  9008.9  Receipt of goods and services from commercial vendors.

    (a) Standard reductions or discounts. A commercial vendor may sell, 
lease, rent or provide goods or services to the national committee with 
respect to a Presidential nominating convention at reduced or 
discounted rates, provided that it does so in the ordinary course of 
business. A reduction or discount shall be considered in the ordinary 
course of business if the commercial vendor has an established practice 
of providing the same reductions or discounts for the same amount of 
its goods or services to non-political clients, or if the reduction or 
discount is consistent with established practice in the commercial 
vendor's trade or industry. Examples of reductions or discounts made in 
the ordinary course of business include standard volume discounts and 
reduced rates for corporate, governmental or preferred customers. 
Reductions or discounts provided under this section need not be 
reported. For purposes of this section, commercial vendor has the same 
meaning as provided in 11 CFR 116.1(c).
    (b) Expenditure Limits. The value of goods or services provided 
pursuant to this section will not count toward the national party's 
expenditure limitation under 11 CFR 9008.8(a).
    19. Section 9008.10 would be amended by revising the introductory 
language to read as follows:


Sec.  9008.10  Documentation of disbursements; net outstanding 
convention expenses.

    In addition to the requirements set forth at 11 CFR 102.9(b), the 
convention committee must include as part of the evidence of convention 
expenses the following documentation:
* * * * *
    20. Section 9008.12 would be amended by revising paragraph (b)(7) 
to read as follows:


Sec.  9008.12  Repayments.

* * * * *
    (b) * * *
    (7) The Commission may seek repayment, or may initiate an 
enforcement action, if the convention committee knowingly helps, 
assists or participates in the making of a convention expenditure by 
the host committee or municipal fund that is not in accordance with 11 
CFR 9008.52 or 9008.53, or the acceptance of a contribution by the host 
committee or municipal fund from an impermissible source.
* * * * *
    21. Part 9008 would be amended by adding new Sec.  9008.17, to read 
as follows:


Sec.  9008.17  Payment for Convention and Host Committee or Municipal 
Fund Expenses.

    (a) Convention expenses include all expenses incurred by or on 
behalf of a political party's national committee or convention 
committee with respect to and for the purpose of conducting a 
presidential nominating convention or convention-related activities. 
The following convention expenses may be paid by the convention 
committee, but shall not be paid by the host committee or municipal 
fund:
    (1) Salaries and expenses of convention committee employees, 
volunteers and similar personnel, whose responsibilities involve 
planning, management or otherwise conducting the convention;
    (2) Salary or portion of the salary of any national committee 
employee for any period of time during which, as a major 
responsibility, that employee performs services related to the 
convention;
    (3) Expenses of national committee employees, volunteers or other 
similar personnel if those expenses were incurred in the performance of 
services for the convention in addition to the services normally 
rendered to the national committee by such personnel;
    (4) Expenses for conducting meetings of or related to committees 
dealing with the conduct and operation of the convention, such as 
rules, credentials, platform, site, contests, call, arrangements and 
permanent organization committees, including printing materials and 
rental costs for meeting space;
    (5) Expenses for entertainment activities which are part of the 
official convention activity sponsored by the national committee, 
including but not limited to dinners, concerts, and receptions; except 
that expenses for the following activities are excluded:
    (i) Entertainment activities sponsored by or on behalf of 
candidates for nomination to the office of President or Vice President, 
or State delegations;
    (ii) Entertainment activities sponsored by the national committee 
if the purpose of the activity is primarily for national committee 
business, such as fund-raising events, or selection of new national 
committee officers;
    (iii) Entertainment activities sponsored by persons other than the 
national committee; and
    (iv) Entertainment activities prohibited by law;

[[Page 18517]]

    (6) Expenses for printing convention programs, a journal of 
proceedings, agendas, and other similar publications;
    (7) Administrative and office expenses for conducting the 
convention, including stationery, office supplies, office machines, and 
telephone charges; but excluded from these expenses are the cost of any 
services supplied by the national committee at its headquarters or 
principal office if such services are incidental to the convention and 
not utilized primarily for the convention;
    (8) Payment of the principal and interest, at a commercially 
reasonable rate, on loans the proceeds of which were used to defray 
convention expenses;
    (9) Expenses for gifts or monetary bonuses for national committee 
or convention committee employees, volunteers and convention officials 
in recognition for convention-related activities or services, provided 
that the gifts and bonuses do not exceed $150 total per individual, and 
the total for all gifts and bonuses does not exceed $20,000;
    (10) Expenses for producing biographical films, or similar 
materials, for use at the convention, about candidates for nomination 
or election to the office of President or Vice President, but any other 
political committee(s) that use part or all of the biographical films 
or materials shall pay the convention committee for the reasonably 
allocated cost of the biographical films or materials used; and
    (11) To defray any expenses related to creating, producing, or 
directing convention proceedings, such as directors, producers, and 
writers.
    (b) The following expenses may be paid by the convention committee, 
host committee, or municipal fund. Convention committees, host 
committees, and municipal funds may use donated funds and in-kind 
donations they have received for the following purposes:
    (1) To defray those expenses incurred for the purpose of promoting 
or evaluating the suitability of the city as a convention site, 
including accommodations and hospitality for officials and employees of 
the convention and national party committees who are responsible for 
choosing the sites of the conventions;
    (2) To provide the convention committee use of an auditorium or 
convention center and to provide construction and related services for 
that location to design, create, or install the physical or 
technological infrastructure for the conduct of the convention, such 
as: construction of podiums; press facilities; seating; lighting 
equipment; electrical systems; air conditioning systems; loudspeaker 
and other communication systems; computer networks; office facilities; 
office equipment; and other expenses for preparing, maintaining, or 
dismantling the physical site of the convention, including convention 
hall utilities;
    (3) To defray the costs of various local transportation services 
that are widely available to convention delegates and other individuals 
attending the convention, including the provision of buses and 
automobiles;
    (4) To defray the costs of law enforcement and other security 
services, facilities, and personnel, including tickets, badges, and 
passes;
    (5) To defray the cost of using convention bureau personnel to 
provide central housing and reservation services; and
    (6) To provide hotel rooms at no charge or a reduced rate on the 
basis of the number of rooms actually booked for the convention.
    (c) The following expenses may be paid by the host committee or 
municipal fund, but shall not be paid by the convention committee. 
Convention committees are also prohibited from using public funds as 
specified in 11 CFR 9008.7(b). Host committees and municipal funds may 
use donated funds and in-kind donations they have received for the 
following purposes:
    (1) To defray those expenses incurred in facilitating commerce, 
such as providing the convention attendees with shopping and 
entertainment guides and distributing the samples and promotional 
material specified in 11 CFR 9008.52(a);
    (2) To defray those expenses incurred for welcoming the convention 
attendees to the city, such as expenses for information booths, 
receptions, and tours; and
    (3) To defray the host committee's administrative expenses incurred 
by the host committee, such as host committee employee compensation and 
expense reimbursement, host committee office rent, and host committee 
liability insurance.
    (d) Prohibited uses of donations received by host committees and 
municipal funds. Host committees and municipal funds shall not use 
donated funds or in-kind donations in connection with a national 
nominating convention for the following purposes:
    (1) To provide anything of value to a convention committee, a 
national political party committee, or any other political committee, 
except as expressly permitted by paragraphs (b) and (c) of this 
section; or
    (2) To defray any expenses related to creating, producing, or 
directing convention proceedings, such as directors, producers, and 
writers.
    22. The title of Subpart B of Part 9008 would be revised to read as 
follows:

Subpart B--Host Committees and Municipal Funds Representing a 
Convention City

    23. Section 9008.50 would be revised to read as follows:


Sec.  9008.50  Scope and definitions.

    (a) Scope. This subpart B governs registration and reporting by 
host committees and municipal funds representing convention cities. 
Unsuccessful efforts to attract a convention need not be reported by 
any city, committee or other organization. Subpart B also describes 
permissible sources of funds and other permissible donations to host 
committees and municipal funds. In addition, subpart B describes 
permissible disbursements by host committees and municipal funds to 
defray convention expenses and to promote the convention city and its 
commerce.
    (b) Definition of host committee. A host committee includes any 
local organization, such as a local civil association, business league, 
chamber of commerce, real estate board, board of trade, or convention 
bureau that satisfies all of the following conditions:
    (1) It is not organized for profit;
    (2) Its net earnings do not inure to the benefit of any private 
shareholder or individual; and
    (3) Its principal purpose is the encouragement of commerce in the 
convention city, as well as the projection of a favorable image of the 
city to convention attendees.
    (c) Definition of municipal fund. A municipal fund is any separate 
fund or account of a government agency, municipality, or municipal 
corporation whose principal purpose is the encouragement of commerce in 
the municipality and whose receipt and use of funds is subject to 
control of officials of the State or local government.
    24. Section 9008.51 would be amended by:
    a. Revising the paragraph heading for paragraph (a);
    b. Revising paragraph (a)(1);
    c. Adding paragraph (a)(3);
    d. Revising paragraph (b); and
    e. Deleting paragraph (c).
    The revisions, additions, and deletions are to read as follows:


Sec.  9008.51  Registration and reports.

    (a) Registration by host committees and municipal funds.

[[Page 18518]]

    (1) Each host committee and municipal fund shall register with the 
Commission by filing a Statement of Organization on FEC Form 1 within 
10 days of the date on which such party chooses the convention city, or 
within 10 days after the formation of the host committee or municipal 
fund, whichever is later. In addition to the information already 
required to be provided on FEC Form 1, the following information shall 
be disclosed by the registering entity on FEC Form 1: The name and 
address; the name and address of its officers; and a list of the 
activities that the registering entity plans to undertake in connection 
with the convention.
* * * * *
    (3) Each host committee and municipal fund required to register 
with the Commission under paragraph (a) of this section, shall submit 
to the Commission a copy of any and all signed agreements that they 
have entered into with the city, county, or State hosting the 
convention, a host committee, a municipal fund, or a convention 
committee, including subsequent modifications to previous agreements, 
unless such agreements or modifications have already been submitted to 
the Commission by the convention committee. Each such agreement or 
modification shall be filed along with the first report due under 
paragraph (b) of this section after the agreement or modification is 
executed.
    (b) Post-convention and quarterly reports by host committees and 
municipal funds; content and time of filing. (1) Each host committee or 
municipal fund required to register with the Commission pursuant to 
paragraph (a) of this section shall file a post convention report on 
FEC Form 4. The report shall be filed on the earlier of: 60 days 
following the last day the convention is officially in session; or 20 
days prior to the presidential general election. This report shall be 
complete as of 15 days prior to the date on which the report must be 
filed and shall disclose all the information required by 11 CFR part 
104 with respect to all activities related to a presidential nominating 
convention.
    (2) If such host committee or municipal fund has receipts or makes 
disbursements after the completion date of the post convention report, 
it shall begin to file quarterly reports no later than 15 days after 
the end of the following calendar quarter. This report shall disclose 
all transactions completed as of the close of that calendar quarter. 
Quarterly reports shall be filed thereafter until the host committee or 
municipal fund ceases all activity that must be reported under this 
section.
    (3) Such host committee or municipal fund shall file a final report 
with the Commission not later than 10 days after it ceases activity 
that must be reported under this section, unless such status is 
reflected in either the post-convention report or a quarterly report.

Alternative to Sec.  9008.17

    25. Section 9008.52 would be revised to read as follows:


Sec.  9008.52  Receipts and disbursements of host committees.

    (a) Receipt of goods or services from commercial vendors. (1) 
Definition of ``commercial vendor.'' For purposes of this section, 
commercial vendor has the same meaning as provided in 11 CFR 116.1(c).
    (2) Standard reductions or discounts. Commercial vendors may sell, 
lease, rent or provide their goods or services to the host committee at 
reduced or discounted rates, or at no charge, provided that they do so 
in the ordinary course of business. A reduction or discount shall be 
considered in the ordinary course of business if the commercial vendor 
has an established practice of providing the same reductions of 
discounts for the same amount of its goods or services to non-political 
clients, or if the reduction or discount is consistent with established 
practice in the commercial vendor's trade or industry. Examples of 
reductions or discounts made in the ordinary course of business include 
standard volume discounts and reduced rates for corporate, governmental 
or preferred customers. Reductions or discounts provided under this 
section need not be reported.
    (3) Items provided for promotional consideration. (i) A commercial 
vendor may provide goods or services to a host committee in exchange 
for promotional consideration provided that doing so is in the ordinary 
course of business.
    (ii) The provision of goods or services shall be considered in the 
ordinary course of business under this paragraph:
    (A) If the commercial vendor has an established practice of 
providing goods or services on a similar scale and on similar terms to 
non-political clients, or
    (B) If the terms and conditions under which the goods or services 
are provided are consistent with established practice in the commercial 
vendor's trade or industry in similar circumstances.
    (iii) In all cases, the value of the goods or services provided 
shall not exceed the commercial benefit reasonably expected to be 
derived from the unique promotional opportunity presented by the 
national nominating convention.
    (iv) The host committee shall maintain documentation showing: the 
goods or services provided; the date(s) on which the goods or services 
were provided; the terms and conditions of the arrangement; and what 
promotional consideration was provided. In addition, the host committee 
shall disclose in its report covering the period the goods or services 
are received in a memo entry, a description of the goods or services 
provided for promotional consideration, the name and address of the 
commercial vendor, and the dates on which the goods or services was 
provided (e.g., ``Generic Motor Co., Detroit, Michigan--ten automobiles 
for use 7/15-7/20, received on 7/14'', or ``Workers Inc., New York, New 
York--five temporary secretarial assistants to work 8/1-8/30, received 
on 8/1'').
    (4) Items of de minimis value. Commercial vendors (including banks) 
may sell at nominal cost, or provide at no charge, items of de minimis 
value, such as samples, discount coupons, maps, pens, pencils, or other 
items included in tote bags for those attending the convention. The 
items of de minimis value may be distributed by or with the help of 
persons employed by the commercial vendor, or employed by or 
volunteering for a host committee. The value of the items of de minimis 
value provided under this paragraph need not be reported.
    (b) Receipt of donations from businesses, organizations, and 
individuals. Businesses (including banks), labor organizations, and 
other organizations or individuals may donate funds or make in-kind 
donations to a host committee to be used only for the following 
purposes:
    (1) To defray those expenses incurred for the purpose of promoting 
the suitability of the city as a convention site, including 
accommodations and hospitality for officials and employees of the 
convention and national party committees who are responsible for 
choosing the sites of the conventions;
    (2) To defray those expenses incurred in facilitating commerce, 
such as providing the convention attendees with shopping and 
entertainment guides and distributing the samples and promotional 
material specified in paragraph (a) of this section;
    (3) To defray those expenses incurred for welcoming the convention 
attendees to the city, such as expenses for information booths, 
receptions, and tours;
    (4) To defray the host committee's administrative expenses incurred 
by the host committee, such as host committee

[[Page 18519]]

employee compensation and expense reimbursement, host committee office 
rent, and host committee liability insurance;
    (5) To provide the convention committee use of an auditorium or 
convention center and to provide construction and related services for 
that location to design, create, or install the physical or 
technological infrastructure for the conduct of the convention, such 
as: construction of podiums; press facilities; seating; lighting 
equipment; electrical systems; air conditioning systems; loudspeaker 
and other communication systems; computer networks; office facilities; 
office equipment; and other expenses for preparing, maintaining, or 
dismantling the physical site of the convention, including convention 
hall utilities;
    (6) To defray the costs of various local transportation services 
that are widely available to convention delegates and other individuals 
attending the convention, including the provision of buses and 
automobiles;
    (7) To defray the costs of law enforcement and other security 
services, facilities, and personnel, including tickets, badges, and 
passes;
    (8) To defray the cost of using convention bureau personnel to 
provide central housing and reservation services; and
    (9) To provide hotel rooms for the rate paid by the host committee, 
including either at no charge or at a reduced rate on the basis of the 
number of rooms actually booked for the convention.
    (c) Prohibited uses of donations received by host committees. Host 
committees shall not use donated funds or in-kind donations in 
connection with a national nominating convention for the following 
purposes:
    (1) To provide anything of value to a convention committee, a 
national political party committee, or any other political committee, 
except as expressly permitted by paragraphs (b)(1) and (b)(5) through 
(8) of this section; or
    (2) To defray any expenses related to creating, producing, or 
directing convention proceedings, such as directors, producers, and 
writers.
    26. Section 9008.53 would be revised to read as follows:


Sec.  9008.53  Receipts and disbursements of municipal funds.

    (a) Receipt of goods and services provided by commercial vendors. 
Municipal funds may accept goods or services from commercial vendors 
for convention uses under the same terms and conditions (including 
reporting requirements) set forth at 11 CFR 9008.52 for host 
committees.
    (b) Receipt and use of donations to a municipal fund. Businesses 
(including banks), labor organizations, and other organizations or 
individuals may donate funds or make in-kind donations to a municipal 
fund to pay for expenses listed in 11 CFR 9008.52(b), provided that 
such funds or in-kind donations shall not be used for the expenses 
listed in 11 CFR 9008.52(c).
    27. Section 9008.55 would be added to read as follows:


Sec.  9008.55  Solicitation of non-Federal funds for host committees 
and municipal funds.

    (a) Host committee and municipal fund payments made in compliance 
with this part shall be deemed disbursements in connection with a 
Federal election for purposes of 11 CFR part 300.
    (b) Host committees and municipal funds shall not be eligible to 
make the certification pursuant to 11 CFR 300.11(d).
    (c) Host committees and municipal funds shall not be eligible for 
the exception in 11 CFR 300.65.

PART 9032--DEFINITIONS

    28. The authority for part 9032 would continue to read as follows:

    Authority: 26 U.S.C. 9032 and 9039(b).
    29. Section 9032.9 would be amended by revising paragraph (c) to 
read as follows:


Sec.  9032.9  Qualified campaign expense.

* * * * *
    (c) Except as provided in 11 CFR 9034.4(e), expenditures incurred 
either prior to the date the individual becomes a candidate or after 
the last day of a candidate's eligibility will be considered qualified 
campaign expenses if they meet the provisions of 11 CFR 9034.4(a). 
Expenditures described under 11 CFR 9034.4(b) will not be considered 
qualified campaign expenses.

PART 9033--ELIGIBILITY FOR PAYMENTS

    30. The authority citation for part 9033 would continue to read as 
follows:

    Authority: 26 U.S.C. 9003(e), 9033 and 9039(b).
    31. Section 9033.11 would be amended by adding new paragraph 
(b)(4), to read as follows:


Sec.  9033.11  Documentation of disbursements.

* * * * *
    (b) * * *
    (4) The documentation requirements of 11 CFR 102.9(b) shall also 
apply to disbursements.
* * * * *

PART 9034--ENTITLEMENTS

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

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

    33. Section 9034.4 would be amended by:
    a. Revising the section heading;
    b. Revising paragraph (a)(3)(i);
    c. Revising paragraph (a)(3)(ii);
    d. Removing paragraph (a)(3)(iii);
    e. Adding paragraph (a)(6); and
    f. Revising paragraph (b)(3).
    Revisions and additions are to read as follows:


Sec.  9034.4  Use of contributions and matching payments; examples of 
qualified campaign expenses and non-qualified campaign expenses.

    (a) * * *
    (3) * * *
    (i) Winding down costs subject to the restrictions in 11 CFR 
9034.11 shall be considered qualified campaign expenses.
    (ii) If the candidate continues to campaign after becoming 
ineligible due to the operation of 11 CFR 9033.5(b), the candidate may 
only receive matching funds based on net outstanding campaign 
obligations as of the candidate's date of ineligibility. The statement 
of net outstanding campaign obligations shall only include costs 
incurred before the candidate's date of ineligibility for goods and 
services to be received before the date of ineligibility and for which 
written arrangement or commitment was made on or before the candidate's 
date of ineligibility, and shall not include winding down costs until 
the date on which the candidate qualifies to receive winding down costs 
under 11 CFR 9034.11. Each contribution made, dated and received after 
the candidate's date of ineligibility may be used to continue to 
campaign, and may be submitted for matching fund payments. Payments 
from the matching payment account that are received after the 
candidate's date of ineligibility may be used to defray the candidate's 
net outstanding campaign obligations, but shall not be used to defray 
any costs associated with continuing to campaign unless the candidate 
reestablishes eligibility under 11 CFR 9033.8.
* * * * *
    (6) Certain expenses incurred by ineligible candidates attending 
national nominating conventions.

[[Page 18520]]

    (i) Expenses incurred by a candidate after the candidate's date of 
ineligibility to conduct a specific fundraising event at a national 
nominating convention needed to retire the candidate's net outstanding 
campaign obligations may be treated as qualified campaign expenses. The 
costs of the candidate's travel to attend such fundraising events, as 
well as the travel expenses of campaign staff who participate in the 
organization and administration of such events, may be treated as 
qualified campaign expenses. Travel costs consist of transportation, 
hotel or other lodging, and per diem subsistence for the candidate, the 
candidate's spouse, and campaign staff and volunteers who organize or 
administer the fundraising event. Expenses allocable to participation 
by the candidate or campaign staff in the national nominating 
convention, any other activities related to the convention, or any 
other activities conducted by the political party, other than such 
candidate fundraising events, are non-qualified campaign expenses. 
Expenses related to such a fundraising event may be treated as 
qualified campaign expenses only to the extent that, on the date of the 
fundraising event, the candidate has net outstanding campaign 
obligations pursuant to 11 CFR 9034.1(b).
    (ii) Expenses incurred by a candidate after the candidate's date of 
ineligibility attributable to a meeting, reception, or other event at a 
national nominating convention to thank campaign employees, consultants 
and volunteers pursuant to paragraph (a)(5) of this section, may be 
treated as qualified campaign expenses so long as such a meeting, 
reception or event is restricted to attendees who served the 
candidate's primary campaign as employees, consultants, or volunteers. 
Travel expenses for the candidate to attend such events or for campaign 
staff who organize such events at the national nominating convention 
are not qualified campaign expenses.
    (b) * * *
    (3) General election and post-ineligibility expenditures. Except 
for continuing to campaign costs and winding down costs pursuant to 
paragraph (a)(3) of this section and certain convention expenses 
described in paragraph (a)(6) of this section, any expenses incurred 
after a candidate's date of ineligibility, as determined under 11 CFR 
9033.5, are not qualified campaign expenses. In addition, any expenses 
incurred before the candidate's date of ineligibility for goods and 
services to be received after the candidate's date of ineligibility, or 
for property, services, or facilities used to benefit the candidate's 
general election campaign, are not qualified campaign expenses.
* * * * *
    34. Section 9034.5 would be amended by revising paragraph (b)(2) to 
read as follows:


Sec.  9034.5  Net outstanding campaign obligations.

* * * * *
    (b) * * *
    (2) The amount submitted as estimated necessary winding down costs 
under paragraph (a)(1) of this section shall be broken down by expense 
category and quarterly or monthly time period. This breakdown shall 
include estimated costs for office space rental, staff salaries, legal 
expenses, accounting expenses, office supplies, equipment rental, 
telephone expenses, postage and other mailing costs, printing and 
storage. The breakdown shall estimate the costs that will be incurred 
in each category from the time the statement is submitted until the 
expected end of the winding down period.
* * * * *
    35. Section 9034.10 would be added to read as follows:


Sec.  9034.10  Expenditures for qualified campaign expenses by 
multicandidate political committees.

    (a) Definition. For purposes of this section, qualified campaign 
expense means a purchase, payment, distribution, loan, advance, 
deposit, or gift of money or anything of value--
    (1) Incurred by, on behalf of, or for the benefit of a candidate or 
the candidate's authorized committee; and
    (2) Made in connection with a candidate's campaign for nomination.
    (3) Examples of a qualified campaign expense include, but are not 
limited to:
    (i) Polling expenses;
    (ii) Travel expenses;
    (iii) Staff salaries; and
    (iv) Office space expenses.
    (b) If a multicandidate political committee makes an expenditure 
for any qualified campaign expense of a candidate on or after January 1 
of the year immediately following the last Presidential election year, 
the expenditure shall be:
    (1) Deemed to be an in-kind contribution by that multicandidate 
political committee to the authorized committee of the candidate and 
subject to the provision of 11 CFR 9035.1(a)(3)(iv);
    (2) Subject to the contribution limitations set forth in 11 CFR 
110.2(b);
    (3) Included in the expenditures subject to the expenditure 
limitations in 11 CFR part 9035; and
    (4) Subject to the provisions of 11 CFR 9038.1.
    (c) Any expenditure described in paragraph (b) of this section, 
when aggregated with other contributions to the same candidate, that 
exceed the contribution limitation in 11 CFR 110.2(b) shall be deemed 
to be an excessive contribution.
    36. New section 9034.11 would be added, to read as follows:


Sec.  9034.11  Winding down costs.

    (a) Winding down costs. Winding down costs are costs associated 
with the termination of political activity related to a candidate's 
seeking his or her nomination for election, such as the costs of 
complying with the post election requirements of the Act and other 
necessary administrative costs associated with winding down the 
campaign, including office space rental, staff salaries, and office 
supplies. Winding down costs shall be considered qualified campaign 
expenses.
    (b) Winding down period. The candidate may use matching funds to 
pay for winding down costs only until the end of the winding down 
period. The winding down period begins on the day following the 
candidate's date of ineligibility for candidates who do not run in the 
general election, or on the day following the date 30 days after the 
general election for candidates who run in the general election, and 
continues until no earlier than:
    (1) 30 days after the candidate's receipt of a Commission audit 
report that does not contain a repayment determination;
    (2) 60 days after service of notice to the candidate of a 
Commission repayment determination if the candidate does not file a 
request for an administrative review of the repayment determination; or
    (3) 30 days after service of notice to the candidate of the 
Commission's post-administrative review repayment determination or 30 
days after service of notice of the Commission's determination that no 
repayment is owed.
    (c) Winding down limitation. The total amount of winding down costs 
that may be paid for, in whole or part, with matching funds shall not 
exceed the lesser of:
    (1) 5% of the overall expenditure limitation pursuant to 11 CFR 
9035.1; or
    (2) 5% of the total of:
    (i) The candidate's expenditures subject to the overall expenditure

[[Page 18521]]

limitation as of the candidate's date of ineligibility; plus
    (ii) The candidate's expenses exempt from the expenditure 
limitations as of the candidate's date of ineligibility; except that
    (iii) The winding down limitation shall be no less than $100,000.
    (d) Allocation of primary and general election winding down costs. 
A candidate who runs in both the primary and general election may 
divide winding down expenses between his or her primary and general 
election committees using any allocation method, including payment of 
100% of these expenses by the primary or general election committee.
    (e) Primary winding down costs during the general election period. 
A primary election candidate who does not run in the general election 
may receive and use matching funds for these purposes either after he 
or she has notified the Commission in writing of his or her withdrawal 
from the campaign for nomination or after the date of the party's 
nominating convention, if he or she has not withdrawn before the 
convention. A primary election candidate who runs in the general 
election, regardless of whether the candidate receives public funds for 
the general election, must wait until 31 days after the general 
election before using any matching funds for winding down costs related 
to the primary election. No expenses incurred by a primary election 
candidate who runs in the general election prior to 31 days after the 
general election shall be considered primary winding down costs.

PART 9035--EXPENDITURE LIMITATIONS

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

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

    38. Section 9035.1 would be amended by:
    a. Adding new paragraph (a)(3);
    b. Adding new paragraph (a)(4);
    c. Revising the paragraph heading in paragraph (c);
    d. Revising paragraph (c)(1); and
    e. Adding new paragraph (c)(3).
    Additions and revisions are to read as follows:


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

    (a) * * *
    (3) In addition to expenditures made by a candidate or the 
candidate's authorized committee(s) using campaign funds, the 
Commission will attribute to the candidate's overall expenditure 
limitation and to the expenditure limitations of particular states 
under 11 CFR 110.8 the total amount of all:
    (i) Coordinated expenditures under 11 CFR 109.20;
    (ii) Coordinated communications under 11 CFR 109.21 that are in-
kind contributions received or accepted by the candidate, the 
candidate's authorized committee(s), or agents, under 11 CFR 109.21(b);
    (iii) Coordinated party expenditures, including party coordinated 
communications pursuant to 11 CFR 109.37 that are in-kind contributions 
received or accepted by the candidate, the candidate's authorized 
committee(s), or agents under 11 CFR 109.37(a)(3), and that exceed the 
coordinated party expenditure limitation for the presidential general 
election at 11 CFR 109.32(a); and
    (iv) Other in-kind contributions received or accepted by the 
candidate or the candidate's authorized committee(s) or agents.
    (4) The amount of each in-kind contribution attributed to the 
expenditure limitations under this section is the usual and normal 
charge for the goods or services provided to the candidate or the 
candidate's authorized committee(s) as an in-kind contribution.
* * * * *
    (c) Compliance, fundraising and shortfall 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 100.146. In the case of a candidate who 
does not run in the general election, for purposes of the expenditure 
limitations set forth in this section, 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. Candidates who continue to campaign or re-
establish eligibility may not treat 100% of salary, overhead and 
computer 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 as exempt legal and 
accounting compliance expenses. For purposes of the expenditure 
limitations set forth in this section, candidates who run in the 
general election, regardless of whether they receive public funds, must 
wait until the day following the date 30 days after the general 
election before they may treat 100% of salary, overhead and computer 
expenses as exempt legal and accounting compliance expenses.
* * * * *
    (3) A candidate may exclude from the overall expenditure limitation 
of this section 5% of the amount of any matching funds to which the 
candidate was entitled that were not paid to the candidate, or were 
paid on a date subsequent to the date on which payment of such matching 
funds was due to the candidate, because of a shortfall in the matching 
payment account.
* * * * *

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

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

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

    40. Section 9036.1 would be amended by revising paragraph 
(b)(1)(ii) to read as follows:


Sec.  9036.1  Threshold submission.

* * * * *
    (b) * * *
    (1) * * *
    (ii) The occupation and name of employer for individuals whose 
aggregate contributions exceed $200 in an election cycle;
* * * * *
    41. Section 9036.2 would be amended revising paragraph (b)(1)(v) to 
read as follows:


Sec.  9036.2  Additional submissions for matching fund payments.

* * * * *
    (b) * * *
    (1) * * *
    (v) The occupation and employer's name need not be disclosed on the 
contributor list for individuals whose aggregate contributions exceed 
$200 in the election cycle, but such information is subject to the 
recordkeeping and reporting requirements of 2 U.S.C. 432(c)(3), 
434(b)(3)(A) and 11 CFR 102.9(a)(2), 104.3(a)(4)(i); and
* * * * *

PART 9038--EXAMINATIONS AND AUDITS

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

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

    43. Section 9038.1 would be amended by revising paragraph (a)(2) to 
read as follows:

[[Page 18522]]

Sec.  9038.1  Audit.

    (a) * * *
    (2) In addition, the Commission may conduct other examinations and 
audits from time to time as it deems necessary to carry out the 
provisions of this subchapter, including examinations and audits of 
multicandidate political committees operating under 11 CFR 9034.10.
* * * * *
    44. Section 9038.2 would be amended by:
    a. Revising paragraph (b)(2)(ii)(A);
    b. Revising the introductory text of paragraph (b)(2)(iii); and
    c. Revising paragraph (b)(4).
    Revisions are to read as follows:


Sec.  9038.2  Repayments.

* * * * *
    (b) * * *
    (2) * * *
    (ii) * * *
    (A) Determinations that a candidate, a candidate's authorized 
committee(s) or agents have made expenditures in excess of the 
limitations set forth in 11 CFR part 9035, by either making 
disbursements that are expenditures or by receiving or accepting in-
kind contributions that are subject to the expenditure limitations 
pursuant to 11 CFR 9035.1(a)(3);
* * * * *
    (iii) The amount of any repayment sought under this section shall 
bear the same ratio to the total amount determined to have been used 
for non-qualified campaign expenses as the amount of matching funds 
certified to the candidate bears to: the candidate's total deposits, as 
of 90 days after the candidate's date of ineligibility plus the usual 
and normal charge for all goods or services provided as in-kind 
contributions. For the purposes of this paragraph (b)(2)(iii)--
* * * * *
    (4) The Commission may determine that the candidate's net 
outstanding campaign obligations, as defined in 11 CFR 9034.5, reflect 
a surplus. The Commission may determine that the net income derived 
from an investment or other use of surplus public funds after the 
candidate's date of ineligibility, less Federal, State and local taxes 
paid on such income, shall be paid to the Treasury.
* * * * *


    Dated: April 7, 2003.
Ellen L. Weintraub,
Chair, Federal Election Commission.
[FR Doc. 03-8761 Filed 4-14-03; 8:45 am]
BILLING CODE 6715-01-P