[Federal Register Volume 68, Number 153 (Friday, August 8, 2003)]
[Rules and Regulations]
[Pages 47386-47421]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-19893]



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Part II





Federal Election Commission





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11 CFR Parts 104, 107, et al.



Public Financing of Presidential Candidates and Nominating Conventions; 
Final Rule

  Federal Register / Vol. 68, No. 153 / Friday, August 8, 2003 / Rules 
and Regulations  

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FEDERAL ELECTION COMMISSION

11 CFR Parts 104, 107, 110, 9001, 9003, 9004, 9008, 9031, 9032, 
9033, 9034, 9035, 9036, and 9038

[Notice 2003-12]


Public Financing of Presidential Candidates and Nominating 
Conventions

AGENCY: Federal Election Commission.

ACTION: Final rules and transmittal of regulations to Congress.

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SUMMARY: The Federal Election Commission is revising several portions 
of its regulations governing the public financing of Presidential 
candidates, in both primary and general election campaigns, and 
Presidential nominating conventions. These regulations implement the 
provisions of the Presidential Election Campaign Fund Act (``Fund 
Act'') and the Presidential Matching Payment Account Act (``Matching 
Payment 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. The revised rules also implement the Bipartisan 
Campaign Reform Act of 2002, as it applies particularly to the Fund Act 
and the Matching Payment Act. The revised rules reflect the 
Commission's experience in administering these programs, particularly 
during the 2000 election cycle, and anticipate some questions that may 
arise during the 2004 Presidential election cycle. Further information 
is contained in the Supplementary Information that follows.

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

FOR FURTHER INFORMATION CONTACT: Ms. Rosemary C. Smith, Acting 
Associate General Counsel, Mr. J. Duane Pugh Jr., Senior Attorney, 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 publishing today the 
final text of revisions to its regulations governing the public 
financing of Presidential campaigns, 11 CFR parts 9001 through 9039, to 
more effectively administer the public financing program during the 
2004 election cycle. These rules implement 26 U.S.C. 9001-13 and 26 
U.S.C. 9031-42. The revised rules apply certain provisions of the 
Bipartisan Campaign Reform Act of 2002, Pub. L. 107-155, 116 Stat. 81 
(2002) (``BCRA''), to Presidential nominating convention financing. The 
revised rules also: (1) Limit the use of public funds for winding down 
costs for both primary and general election Presidential candidates; 
(2) clarify rules concerning the attribution of expenses to the 
expenditure limitations for Presidential primary candidates and 
repayments based on expenditures in excess of those limitations; (3) 
modify several aspects of General Election Legal and Accounting 
Compliance Funds; (4) require Presidential committees to notify the 
Commission prior to changing their non-election year reporting 
schedules; (5) create a new ``shortfall bridge loan exemption'' from a 
primary candidate's overall expenditure limitation; (6) define 
``municipal funds'' to eliminate the former distinction between 
permissible host committee activity that was impermissible for 
municipal funds; (7) subject municipal funds to the same disclosure 
rules as host committees; (8) delete the requirements that only 
``local'' individuals and ``local'' entities may donate to host 
committees and municipal funds; and (9) make technical changes.
    The Commission published a Notice of Proposed Rulemaking on April 
15, 2003, 68 FR 18484. Written comments were due by May 23, 2003. The 
names of commenters and their comments are available at http://www.fec.gov/register.htm under ``Public Financing of Presidential 
Candidates and Nominating Conventions.'' The Commission held a public 
hearing on June 6, 2003 at which it heard testimony from 12 witnesses. 
Transcripts of the hearing are available at the Web site identified 
above. Please note that, for purposes of this document, the terms 
``commenter'' and ``comment'' apply to both written comments and oral 
testimony at the public hearing.
    Under the Administrative Procedures Act, 5 U.S.C. 553(d), and the 
Congressional Review of Agency Rulemaking Act, 5 U.S.C. 801(a)(1), 
agencies must submit final rules to the Speaker of the House of 
Representatives and the President of the Senate, and publish them in 
the Federal Register at least 30 calendar days before they take effect. 
In addition, 26 U.S.C. 9009(c) requires that any rules or regulations 
prescribed by the Commission to carry out the provisions of the Fund 
Act be transmitted to the Speaker of the House of Representatives and 
the President of the Senate 30 legislative days before they are finally 
promulgated. The final rules that follow were transmitted to Congress 
on July 31, 2003.

Explanation and Justification

11 CFR Part 104--Reports by Political Committees

11 CFR 104.5(b)(1)--Election Year Reports

    The regulation at 11 CFR 104.5(b)(1) establishes the filing dates 
for reports by principal campaign committees (``PCC''s) of Presidential 
candidates, during election years in accordance with 2 U.S.C. 
434(a)(3)(A). This rule is being revised to correct several citations 
to reflect changes to 11 CFR 104.5(a) promulgated when the Commission 
implemented BCRA's new reporting requirements. The new citations refer 
to the same pre- and post-election reports so the reporting 
requirements are not changed. Specifically, the reference in 11 CFR 
104.5(b)(1)(i)(C) is being changed from 11 CFR 104.5(a)(1)(i) to 
``paragraph (a)(2)(i) of this section'' and the reference to 11 CFR 
104.5(a)(1)(ii) is being changed to ``paragraph (a)(2)(ii) of this 
section.'' In 11 CFR 104.5(b)(1)(ii), the reference to 11 CFR 
104.5(a)(1) is being changed to ``paragraphs (a)(1) and (2) of this 
section.''
    Section 104.5(b)(1)(ii) operates with two other provisions, Sec.  
104.5(b)(1)(i) and (iii), to specify the circumstances under which a 
Presidential PCC is not required to file monthly reports during the 
Presidential election year. A Presidential PCC must report monthly 
during an election year if contribution receipts or expenditures exceed 
or are anticipated to exceed $100,000. 11 CFR 104.5(b)(1)(i) and (iii). 
In order for the three provisions to work harmoniously, all four 
conditions listed in Sec.  104.5(b)(1)(ii) must be satisfied before a 
PCC is relieved of the monthly filing requirement. Therefore, section 
104.5(b)(1)(ii) is being revised to replace the disjunctions ``or'' 
with the conjunctions ``and'' in three instances.

11 CFR 104.5(b)(2)--Non-Election Year Reports: Quarterly and Monthly 
Reporting Requirements

    Section 104.5(b)(2) provides that principal campaign committees of 
Presidential candidates may file campaign reports in non-election years 
on either a monthly or a quarterly basis. The previous rules did not 
explain how PCCs may change their reporting frequency during a non-
election year from monthly to quarterly or vice versa.
    The Commission is revising Sec.  104.5(b)(2) to set forth 
requirements for PCCs of Presidential candidates

[[Page 47387]]

seeking to change reporting frequency. One commenter stated that this 
change fills a gap in the regulations and provides a procedure for 
switching reporting similar to that for unauthorized committees, which 
will be beneficial even though Presidential candidates' PCCs will 
seldom switch reporting schedules. The revised rule at Sec.  
104.5(b)(2) allows a PCC 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 Presidential candidate's PCC is then required to 
file the next required report under its new filing frequency. In 
addition, a PCC may change its filing frequency no more than once in a 
calendar year. This rule establishes the same requirements as are found 
in 11 CFR 104.5(c) for unauthorized committees. The Commission notes 
that Presidential candidates' 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 must begin filing 
monthly reports at the next reporting period after it receives 
contributions or makes expenditures in excess of $100,000.

11 CFR Part 107--Presidential Nominating Convention, Registration and 
Reports

11 CFR 107.2--Registration and Reports by Host Committees and Municipal 
Funds

    The NPRM proposed revising the host committee and municipal fund 
registration and reporting requirements in 11 CFR 107.2 in two respects 
to reflect proposed changes to other Commission regulations. 68 FR at 
18512. First, the NPRM proposed changing the title of section 107.2 as 
well as a reference in the text of the section to reflect the new 
definition of ``municipal fund'' it had proposed for 11 CFR 9008.50(c). 
Second, the NPRM proposed adding a sentence to 11 CFR 107.2 to reflect 
a revision it proposed for 11 CFR 9008.51 to require that host 
committee and municipal fund reports contain the information specified 
in 11 CFR part 104.
    For the reasons explained in greater detail below, the Commission 
has decided to modify both 11 CFR 9008.50 and 11 CFR 9008.51 as 
proposed. See Explanation and Justification for new 11 CFR 9008.50(c) 
and 11 CFR 9008.51(b)(1), below. Accordingly, the Commission has 
decided to change the title of section 107.2 from ``Registration and 
reports by host committees and committees, organizations or other 
groups representing a state, city or other local government agency'' to 
``Registration and reports by host committees and municipal funds.'' 
See new 11 CFR 107.2. Similarly, the Commission has decided to change 
the phrase used to describe municipal funds in the text of the section 
from ``each committee or other organization or group of persons which 
represents a State, municipality, local government agency or other 
political subdivision in dealing with officials of a national political 
party with respect to matters involving a Presidential nominating 
convention'' to ``municipal fund.'' In addition, the Commission has 
decided to add the proposed sentence to Sec.  107.2 requiring that host 
committee and municipal fund reports ``shall contain the information 
specified in 11 CFR part 104.'' None of the commenters addressed these 
changes.

11 CFR Part 110--Contribution and Expenditure Limitations and 
Prohibitions

11 CFR 110.2--Contributions by Multicandidate Political Committees (2 
U.S.C. 441a(a)(2))

    For a full discussion of pre-candidacy expenditures by 
multicandidate political committees that are deemed in-kind 
contributions, see the Explanation and Justification for 11 CFR 9034.10 
below. The language in the final rules at 11 CFR 110.2(l) varies from 
the language at 11 CFR 9034.10 because the candidate involved would not 
be publicly funded and, therefore, the consequence of a reimbursement 
would be simply to convert the payment from an in-kind contribution to 
an expenditure of the candidate. The qualified campaign expense concept 
and the attendant spending limit provisions are not implicated for 
candidates who are not publicly funded.

11 CFR Part 9001--Scope

11 CFR 9001.1--Scope

    The Commission is making two technical amendments to this section 
to update the references to its other regulations.

11 CFR Part 9003--Eligibility for Payments

11 CFR 9003.1--Candidate and Committee Agreement

    The Commission is making a technical amendment to the regulations 
on candidate agreements in Sec.  9003.1 to update the reference to 
other regulations. Under revised paragraph (b)(8), candidates and their 
authorized committees must agree to comply with the Commission's rules 
through 11 CFR part 400.

11 CFR 9003.3--Allowable Contributions; General Election Legal and 
Accounting Compliance Fund

    The Commission is revising its rule governing General Election 
Legal and Accounting Compliance Funds (``GELACs'') in several respects.

11 CFR 9003.3(a)(1)--Sources

1. Solicitation of GELAC Funds
    Regulations issued in 1999 barred the solicitation and deposit of 
GELAC contributions prior to June 1 of the calendar year of a 
Presidential general election. See former 11 CFR 9003.3(a)(1)(i) and 
(a)(1)(i)(A). Deposits earlier than June 1 were permitted only for 
excessive primary contributions that had been redesignated for the 
GELAC under the previous rules. The NPRM sought comment on whether to 
change the date to either April 1 or May 1. One commenter supported the 
greater flexibility that would be provided with an earlier date, but 
nonetheless described the proposed change as a relatively insignificant 
step. The only other commenter to address this issue saw no reason to 
change the June 1 date.
    The 1999 explanation and justification stated that the June 1 rule 
was intended to address two issues. The first was that candidates who 
do not receive their party's nomination must return all GELAC 
contributions, which can be difficult if some have been used to defray 
overhead expenses or to solicit additional GELAC contributions. The 
second concern was to ensure that GELAC funds are not improperly used 
to make primary election expenditures. See Explanation and 
Justification to the Rules Governing Public Financing of Presidential 
Primary and General Election Candidates, 64 FR 49355, 49356 (Sept. 13, 
1999). The Commission 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. Because 
the effective date of these regulatory amendments was June 1, 2000, the 
pre-June 1 solicitation prohibition was not operative for the 2000 
election cycle.
    The Commission has decided to change the starting date for GELAC 
solicitations and most deposits to April 1. The earlier primary dates 
for some states in the 2004 Presidential election cycle are likely to 
lead to an earlier

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resolution of nomination contests, even though the later than usual 
dates for the Presidential nominating conventions in 2004 will mean 
that the official start of the general election campaigns will be later 
in the cycle than usual. Therefore, the June 1 date in the former 11 
CFR 9003.3(a)(1)(i) and (a)(1)(i)(A) is changed to April 1 of the 
election year as the starting date for GELAC solicitations and most 
deposits.
2. Redesignation of Excessive Contributions to the GELAC
    The Commission is revising its rules governing the sources of GELAC 
funds at 11 CFR 9003.3(a)(1) to reflect its recent changes to its rules 
concerning the redesignation of excessive contributions at 11 CFR 
110.1(b)(5)(ii)(B). See Explanation and Justification for the Rules 
Governing Contribution Limitations and Prohibitions, 67 FR 69928, 
69930-32 (Nov. 19, 2002). These changes allow authorized committees to 
redesignate excessive primary contributions to the general election 
without obtaining a signed written document from the contributor under 
certain circumstances. Section 110.1(b)(5)(ii)(B) allows the 
candidate's committee to presume that the contributor of an excessive 
primary contribution would not object to a redesignation of any 
excessive amount to that candidate's general election, without 
obtaining written agreement from the contributor for the redesignation. 
Id. at 69931. The explanation and justification for this rule 
elaborated 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.
    The NPRM proposed revisions to 11 CFR 9003.3(a)(1)(i), (a)(1)(i)(C) 
and (a)(1)(v) to permit publicly funded Presidential candidates to 
presume that those making excessive contributions for the primary 
election would consent to the redesignation of their contributions to 
the candidate's GELAC. The three commenters who addressed this issue 
supported these proposed changes.
    The Commission has decided to revise its rules to reflect the 
adoption of the presumptive redesignations for the GELAC, with several 
changes from proposed 11 CFR 9003.3(a)(1) to clarify the operation of 
the rule and presumptive redesignations. Section 9003.3(a)(1)(i) is 
being revised to delete the phrase ``by the contributor'' to permit the 
deposit of contributions redesignated by presumption into GELACs. 
Section 9003.3(a)(1)(i)(C) is not being revised because the NPRM's 
revisions for this provision incorrectly suggested that a contribution 
redesignated by presumption is considered a contribution designated in 
writing.
    Section 9003.3(a)(1)(ii)(A), which the NPRM would not have revised, 
applies by its terms to ``contributions made during the matching 
payment period that do not exceed the contributor's limit for the 
primary election.'' Because presumptive redesignations are limited to 
excessive contributions, contributions under this provision can only be 
redesignated in writing, so the reference to ``redesignations'' in 
section 9003.3(a)(1)(ii)(A)(3) is being revised to ``written 
redesignations.'' Similarly, the citation to 11 CFR 110.1(b)(5) in 
Sec.  9003.3(a)(1)(ii)(A)(4) is being revised to refer only to the 
provisions for written redesignations, which are 11 CFR 110.1(b)(5)(i) 
and (ii)(A). The recordkeeping requirements in 11 CFR 110.1(l) continue 
to be incorporated by citation into Sec.  9003.3(a)(1)(ii)(A)(4).
    Section 9003.3(a)(1)(iv) continues to require that contributions 
that are made after the beginning of the expenditure report period but 
that are not designated in writing for the GELAC must first be used to 
satisfy any primary committee debts or repayment obligations before 
they can be redesignated in writing for the GELAC. This approach 
constitutes an exception to the usual approach, which would consider 
these contributions as made with respect to the general election (i.e., 
chronologically the next election under 11 CFR 110.1(b)(2)(i)). The 
Commission believes that the priority for primary committee obligations 
should be continued for these contributions. Consequently, the 
provision is being revised to state explicitly that these contributions 
are considered made with respect to the primary election. Additionally, 
Sec.  9003.3(a)(1)(iv)(C) is being revised to state that the 
redesignation must be written; it is not presumptive. The contributions 
subject to redesignation under section 9003.3(a)(1)(iv) are those that 
do not exceed the contributor's limit for the primary election. These 
revisions were not in the NPRM, but they are consistent with the 
proposal, which would not have revised the primary preference and would 
have limited presumptive redesignation to excessive contributions.
    Revisions to Sec.  9003.3(a)(1)(v) make clear that excessive 
primary contributions can be presumptively redesignated for the GELAC 
pursuant to 11 CFR 110.1(b)(5)(ii)(B). This applies to contributions 
made during the matching payment period or, pursuant to 11 CFR 
9003.3(a)(1)(iv), during the expenditure report period. In order to do 
so, the phrase ``obtains the contributor's redesignation for the 
GELAC'' is being replaced with ``redesignates the contribution for the 
GELAC,'' and the citation to 11 CFR 110.1 is being clarified to 11 CFR 
110.1(b)(5)(i) and (ii)(A) or (ii)(B). This provision is also amended 
to note specifically that the timing requirement in the presumptive 
redesignation regulation, 11 CFR 110.1(b)(5)(ii)(B)(1), does not apply 
in this instance due to the operation of section 9003.3(a)(1)(iv).
    Contributions made during the expenditure report period that are 
considered made with respect to the primary election may not be 
submitted for matching. See 11 CFR 9034.3(i). Although one commenter 
supported the matchability of such contributions, the Commission 
continues to consider these contributions to be unmatchable. As 
presumptively redesignated contributions, they were made for a purpose 
other than influencing the results of a primary election, and section 
9034.3(i) prohibits matching such contributions.
    Thus, considered as a whole, the revised 11 CFR 9003.3(a)(1) allows 
a candidate to treat all or part of an excessive primary contribution 
as a GELAC contribution, as long as the contribution meets the 
following requirements: (1) The contribution was not designated for a 
particular election; (2) the contribution would exceed the primary 
election contribution limitations if it were treated as a primary 
contribution; (3) the redesignation would not cause the contributor to 
exceed the contribution limitations; and (4) the treasurer provides a 
written notification to the contributor within 60 days of receipt of 
the contribution of the amount that was redesignated to the GELAC and 
that the contributor may request a refund. The Commission notes that 
presumptively redesignated contributions to the GELAC must be refunded 
if the contributor requests a refund or, as with all other 
contributions accepted for the GELAC, within 60 days of a candidate's 
date of ineligibility (``DOI'') if the candidate does not become the 
nominee. See 11 CFR 9003.3(a)(1)(i)(A).
    The NPRM also sought comment on expressly allowing excessive 
contributions to a GELAC to be presumptively redesignated to a 
Presidential candidate's authorized committee for the primary election,

[[Page 47389]]

based on the conditions delineated at 11 CFR 110.1(b)(5)(ii)(C). The 
Commission's rules at 11 CFR 110.1(b)(5)(ii)(C) allow authorized 
committees to redesignate excessive contributions presumptively to the 
primary election, under certain conditions. One commenter supported the 
proposal to apply these rules to the GELAC.
    The Commission has determined that no further changes to 
Sec. 9003.3(a)(1) in this regard are necessary because there are no 
other GELAC contributions that could be presumptively redesignated for 
the primary election. Contributions that are designated in writing by 
the contributors for the GELAC would be ineligible for redesignation by 
presumption pursuant to 11 CFR 110.1(b)(5)(ii)(C)(2). Contributions 
that are not designated in writing for the GELAC will be considered 
made with respect to the primary election, except when the conditions 
for depositing them in the GELAC pursuant to 11 CFR 9003.3(a)(1)(iv) 
are satisfied. If these contributions exceed the contributor's primary 
election contribution limit, they may be presumptively redesignated 
pursuant to revised Sec. 9003.3(a)(1)(v).

11 CFR 9003.3(a)(2)--Uses

    The rule on the uses of GELAC funds is being revised to update the 
permissible uses of GELAC funds consistent with BCRA and to otherwise 
improve the rule.

11 CFR 9003.3(a)(2)(i)(D)--Primary Repayments

    The NPRM proposed amending the rule on the permissible uses of 
GELAC funds to permit Presidential candidates to use GELAC funds to 
make any repayments owed by their authorized committee for the primary 
election. GELACs are permitted to make general election repayments 
under 11 CFR 9007.2, and the proposed revisions at 11 CFR 
9003.3(a)(2)(i)(D) specified that GELACs may also make primary campaign 
repayments required under 11 CFR 9038.2 or 9038.3. One commenter stated 
the revision is justified, provided the rule does not require that 
repayments must be made before other permissible uses of GELAC funds 
under paragraphs (a)(2)(i)(A) through (H). The only other commenter 
opposed the proposed revision, based on an expressed opposition to 
GELACs in general.
    The Commission has decided to revise 11 CFR 9003.3(a)(2)(i)(D) to 
specify that the GELAC may be used to make repayments owed by the 
candidate's primary campaign committee pursuant to 11 CFR 9038.2 and 
9038.3 in addition to general election repayments under 11 CFR 9007.2. 
This amendment to the GELAC rules is 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 
statutory language is sufficiently broad to encompass primary election 
repayments. The effect of this revision, combined with the revisions to 
11 CFR 9003.3(a)(2)(iv) described below, is to require Presidential 
candidates to use their GELAC funds for their primary committee 
repayments before any funds remaining in the GELAC can be dispensed 
pursuant to 2 U.S.C. 439a. Thus, this revision imposes an obligation on 
GELACs as much as it permits such funds to be used to satisfy debts to 
the United States Treasury.

11 CFR 9003.3(a)(2)(i)(I)--Winding Down Expenses

    The NPRM proposed revisions to 11 CFR 9003.3(a)(2)(i) to restore a 
provision related to the use of GELACs for general election winding 
down expenses. In 1995, the Commission adopted 11 CFR 
9004.4(a)(4)(iii), which stated 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 through 2003 
editions. The Commission is reinstating this important provision, with 
certain revisions discussed below, and moving it to 11 CFR 
9003.3(a)(2)(i)(I). No commenters addressed this rule.
    In addition, the Commission has decided to add primary election 
winding down costs incurred after the end of the expenditure report 
period to the rule on permissible uses of GELAC funds at new 11 CFR 
9003.3(a)(2)(i)(I). Two commenters addressed this proposal. One 
commenter expressed opposition to GELACs in general and, by extension, 
any expansion of permissible uses of GELACs. Another commenter thought 
it unfair to permit candidates who run in both the primary and the 
general elections to use GELACs to pay primary winding down costs, 
while primary candidates who do not compete in the general election are 
required to refund GELAC contributions. This commenter also faulted the 
use of any GELAC funds for expenditures subject to the primary 
expenditure limit.
    In reaching its decision, the Commission considered that the 
primary and general election campaign committees are simultaneously 
winding down following the expenditure report period and often share 
salary, overhead, and computer expenses. In addition, the primary and 
general election committees often share winding down expenses related 
to legal and accounting compliance such as attorneys and accountants. 
The regulation at 11 CFR 9034.4(a)(3)(iii) recognizes that a 
significant amount of winding down activity during this period is 
related to compliance and allows 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. 
Similarly, former 11 CFR 9004.4(a)(4)(iii) presumed these expenses were 
for compliance and therefore exempted them from the general election 
expenditure limitation pursuant to 11 CFR 9002.11(b)(5). Permitting the 
GELAC to pay salary, overhead, and computer costs after the end of the 
expenditure report period for both the primary and general election 
committees will allow candidates who run in both the primary and 
general elections to choose to pay these costs from the GELAC. Because 
these expenses are exempt from both the primary and general election 
expenditure limits, the concerns about one publicly financed campaign 
funding another are reduced. Any primary winding down costs not 
entitled to the compliance exemption will be subject to the primary 
expenditure limit, even if paid by the GELAC. Primary winding down 
costs paid by the GELAC must be included on the Statement of Net 
Outstanding Campaign Obligations pursuant to 11 CFR 9034.5(a)(1). A 
receivable from the GELAC must also be listed for any primary winding 
down costs paid with GELAC funds. 11 CFR 9034.5(a)(2)(iii). Any winding 
down costs paid by the GELAC will not count toward either winding down 
limitations in new 11 CFR 9004.11(b) or 9034.11(b).
    The Commission acknowledges that primary candidates who do not 
compete in the general election will not have GELAC funds available for 
their winding down costs. This result is unavoidable, however, because 
FECA's contribution limits are per election. See 2 U.S.C. 441a. Thus, 
contributors to candidates who compete only in the primary are limited 
to contributing for that election only; while contributors to 
candidates who compete in both the

[[Page 47390]]

primary and general elections may contribute the full amount for both 
the primary election and the GELAC. The authorization to use GELAC 
funds to pay primary winding down expenses does not cause the different 
treatment, and it cannot justify permitting primary candidates to 
receiving contributions of twice the per-election limit.

11 CFR 9003.3(a)(2)(iv)--Funds Remaining in the GELAC

    The rule at 11 CFR 9003.3(a)(2)(iv) concerning the use of GELAC 
funds is being revised to update the permissible uses of GELAC funds 
consistent with BCRA. The previous rule at 11 CFR 9003.3(a)(2)(iv) 
stated that if there are ``excess campaign funds'' after payment of all 
expenses set forth in Sec. 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,'' and 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 rule governing the use of GELAC funds is being revised to 
replace the reference to ``excess campaign funds'' in 11 CFR 
9003.3(a)(2)(iv) with ``funds remaining in the GELAC'' 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. All of the 
commenters who addressed this proposed change supported it, provided 
the purposes permitted under 2 U.S.C. 439a and 11 CFR part 113 continue 
to be permissible uses of funds remaining in the GELAC, which they are.
    The Commission also is revising 11 CFR 9003.3(a)(2)(iv) to state 
expressly that GELAC funds must not be used for the purposes permitted 
under 2 U.S.C. 439a and 11 CFR part 113 that are beyond the uses listed 
in 11 CFR 9003.3(a)(2) until the completion of the audit and repayment 
process, which includes making any repayments owed. No commenters 
addressed this provision.

11 CFR 9003.5--Documentation of Disbursements

    Commission regulations in 11 CFR 102.9(b) describe the requirements 
for the documentation of disbursements applicable to all political 
committees. Additional documentation requirements for publicly funded 
general election committees are set forth in 11 CFR 9003.5. Section 
9003.5 is being revised to clarify that publicly funded general 
election candidates must comply with both the general rules at 
Sec. 102.9(b), as well as the specific rules applicable to publicly 
funded general election candidates governing the documentation of 
disbursements in 11 CFR 9003.5(b). No commenters addressed this 
revision.

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

11 CFR 9004.4--Use of Payments; Examples of Qualified Campaign Expenses 
and Non-Qualified Campaign Expenses

    Section 9004.4, which concerns qualified and non-qualified campaign 
expenses, is being revised in several respects. First, the section 
heading for 11 CFR 9004.4 is being modified to indicate that it 
contains examples of qualified campaign expenses and non-qualified 
campaign expenses. Previous Sec. 9004.4(a)(4)(ii) is being renumbered 
as Sec. 9004.4(a)(5) to clarify that accounts payable costs are a 
separate type of qualified campaign expense from winding down costs. 
There were no comments on these changes.
    Second, the rules on winding down costs are being moved from 
paragraph (a)(4) to new Sec. 9004.11. Revised 11 CFR 9004.4(a)(4) 
provides that payments from the Presidential Election Campaign Fund may 
be used to defray winding down costs pursuant to 11 CFR 9004.11, which 
contains new rules on winding down costs and is discussed below.

11 CFR 9004.4(a)(6)--Gifts and Bonuses

    The NPRM proposed revising the rules governing payment of gifts and 
bonuses by general election candidates at newly redesignated 11 CFR 
9004.4(a)(6). The rules allow gifts and bonuses to be treated as 
qualified campaign expenses for general election candidates if they 
meet certain conditions. Under 11 CFR 9004.4(a)(6), 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. Monetary bonuses for 
employees and consultants in recognition of campaign-related activities 
or services must be provided for pursuant to a written contract made 
prior to the general election and must be paid no later than 30 days 
after the end of the expenditure report period. Id. The NPRM sought 
comment as to whether to limit the amounts of gifts and bonuses, 
whether to retain the requirement of a written contract for monetary 
bonuses, and whether to create possible additional or different 
controls.
    The Commission has decided to narrow the requirements with respect 
to when a written contract will be required for monetary bonuses. 
Because the Commission does not require written contracts for other 
employer-employee relationships, the new rule is more narrowly tailored 
to address the purpose of the restriction. The previous regulation was 
promulgated in reaction to a publicly funded campaign paying large 
monetary bonuses after the election upon discovery of excess public 
funds. The new rule addresses that abuse more directly while not 
otherwise limiting employment arrangements, in recognition of the 
absence of an incentive to waste public funds before the date of the 
election. Therefore, the new rule requires a written contract only when 
monetary bonuses are paid after the election.

11 CFR 9004.4(b)(3)--Non-Qualified Campaign Expenses

    Section 9004.4(b) lists non-qualified campaign expenses. Paragraph 
(b)(3) previously stated that any expenditures incurred after the close 
of the expenditure report period were not qualified campaign expenses 
except to the extent permitted as winding down costs or accounts 
payable under 11 CFR 9004.4(a)(4). Section 9004.4(b)(3) is being 
clarified to state specifically that accounts payable pursuant to newly 
redesignated 11 CFR 9004.4(a)(5) and winding down costs pursuant to new 
Sec. 9004.11, discussed below, are considered qualified campaign 
expenses. There were no comments on these changes.

11 CFR 9004.11--Winding Down Costs

    During the audit and repayment process, Presidential committees and 
the Commission's auditors estimate costs associated with terminating 
the campaign and complying with the post-election requirements of the 
Fund Act and FECA, 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 have lengthened the audit 
and repayment processes for some campaigns. Both actual and estimated 
future winding down costs are included in 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

[[Page 47391]]

dispute may arise in determining the candidate's NOQCE and any surplus 
funds or resulting repayment. Disallowed winding down expenses can 
increase the amount of any surplus funds and the resulting repayment 
determination, or for primary election candidates, the disallowed 
expenses can decrease a candidate's entitlement to additional matching 
funds.
    To avoid these disputes in the future, the Commission has decided 
to place certain reasonable restrictions on the amount of public funds 
used for winding down expenses. Thus, a new rule in 11 CFR 9004.11 is 
being added regarding general election candidates' winding down 
expenses. A comparable new rule applicable to primary election 
candidates is located in new 11 CFR 9034.11, which is discussed below.

11 CFR 9004.11(a)--Definition of ``Winding Down Costs''

    New 11 CFR 9004.11(a) contains the definition of winding down costs 
previously found in 11 CFR 9004.4(a)(4). The new definition is not 
significantly changed from the previous one, except that it clarifies 
that winding down costs include post-election requirements of both FECA 
and the Fund Act.

11 CFR 9004.11(b)--Winding Down Limitation

    The NPRM proposed two restrictions for general election winding 
down costs: a temporal restriction and a monetary limitation of 2.5% of 
the general election spending limit.
    Several commenters opposed the restrictions proposed in the NPRM. 
Some believed publicly funded Presidential campaigns do not have an 
incentive to inflate their winding down expenses because primary 
candidates would prefer to repay the ratio portion of any surplus 
funds, in order to have flexibility in spending the remaining surplus, 
and because general election candidates would prefer to use limited 
public funds over the course of the election.
    The Commission disagrees. In the Commission's experience, some 
candidates might have incentives to prolong and increase their winding 
down activity, either to maximize their entitlement or to consume any 
remaining public funds while minimizing potential surplus repayments. 
Although primary candidates have more flexibility in spending surplus 
funds after making a pro rata repayment, this benefit is outweighed by 
the possibility of significantly reducing a potential repayment by 
contesting it. Similarly, although general election candidates may not 
plan to reserve much money from active campaigning for winding down 
expenses, to the extent some of them have remaining public funds after 
the election, using them for winding down costs may be preferable to 
repaying them.
    One commenter noted that the candidate's burden to demonstrate and 
document that winding down costs are qualified campaign expenses to 
avoid a repayment deters unreasonable winding down expenses. Others 
pointed out that winding down costs are not necessarily related to the 
amount of expenditures made by a campaign and that under-funded 
campaigns may have high winding down expenses because they did not have 
sufficient funds for compliance during the campaign and might need to 
spend more on post-election record reconstruction. Some noted that the 
costs of defending a campaign in enforcement matters, audits, repayment 
determinations, and other legal proceedings are unrelated to the amount 
of the candidate's expenditures, and that complaints and law suits may 
be politically motivated. Some expressed concern that winding down 
restrictions would result in numerous surplus repayments by primary 
candidates after their winding down in excess of the restrictions is 
disallowed, and candidates would have to raise private funds to defend 
themselves and defray winding down costs long after the election is 
over. Another argument against the winding down limit was that public 
funding is intended to reduce reliance on private contributions and 
that limiting winding down while allowing winding down costs to be paid 
from the GELAC would encourage candidates to rely more heavily upon 
private funds in the GELAC to meet legitimate and unavoidable campaign 
expenses.
    On the other hand, one commenter argued that the three general 
election campaigns in 2000 that wound down for less than the proposed 
limit show that the limit is unnecessary because candidates would only 
exceed the limit under extraordinary circumstances.
1. Monetary Limit
    The Commission has decided to adopt new 11 CFR 9004.11(b), which 
establishes a monetary limitation on the total amount of general 
election winding down expenses that may be paid for with public funds. 
In considering this issue, the Commission reviewed the amounts spent 
for winding down costs by publicly funded candidates during the 2000 
election cycle and 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 winding down limitation of 2.5% of the expenditure limitation. The 
last committee paid some of its winding down expenses with GELAC funds, 
which reduced its winding down costs to less than 2% of the expenditure 
limitation.
    The ``winding down limitation'' in new Sec.  9004.11(b) limits the 
total amount of publicly funded winding down expenses for general 
election candidates to the lesser of: (1) 2.5% of the expenditure 
limitation; or (2) 2.5% of the total of: (A) the candidate's 
expenditures subject to the expenditure limitation as of the end of the 
expenditure report period; plus (B) the candidate's expenses exempt 
from the expenditure limitation, such as fundraising expenses, as of 
the end of the expenditure report period. Basing the winding down 
limitation on a candidate's expenditures or on the maximum expenditure 
limitation recognizes that larger campaigns will generally have more 
winding down expenses than smaller campaigns. Notwithstanding the 
amount determined based on these calculations, the new rule permits all 
general election candidates to spend at least $100,000 on winding down 
costs. The $100,000 allowance recognizes that all publicly funded 
committees incur certain winding down expenses related to the 
requirements of the audit and repayment process that do not vary with 
the total amount of the committees' expenditures.
    Based in part on the 2000 winding down data and experience in prior 
election cycles, the Commission is satisfied that campaigns can wind 
down in compliance with the 2.5% limit without any hardship and that 
the limitation will affect only campaigns with unusually high winding 
down costs. The monetary limitation is necessary to ensure that 
publicly funded campaign committees wind down as quickly and 
efficiently as possible and do not inflate winding down costs in order 
to avoid a surplus repayment to the United States Treasury. The 
monetary limitation establishes a fair and readily determined amount to 
ensure that all campaigns are treated consistently with respect to 
winding down costs and that public funds are used in accordance with 
statutory purposes.

[[Page 47392]]

    The Commission expects that most PCCs of Presidential candidates 
will incur winding down expenses substantially below the new dollar 
limitations. Campaigns with unusually high compliance costs may use 
their GELAC or a primary candidate's private funds after no public 
funds remain in the candidate's accounts to pay for such expenses. 
Paying winding down expenses with a GELAC is justified because a large 
amount of winding down expenses are related to compliance and most 
winding down expenses are not directly related to active campaigning.
    In practice, the winding down limitation for fully funded major 
party general election candidates will be the maximum winding down 
limitation, 2.5% of the expenditure limitation for general election 
candidates under Sec.  9004.11(b)(1). This maximum winding down 
limitation is calculated based upon a percentage of the general 
election candidate's expenditure limitation pursuant to 2 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, and 
9002.11(b)(5). Currently, the general election expenditure limitation 
is equal to $72,960,000, so the 2.5% limit would equal $1,824,000.\1\
---------------------------------------------------------------------------

    \1\ Before the 2004 general election, the general election 
expenditure limit under 2 U.S.C. 441a(b)(1)(B) is subject to an 
additional annual adjustment under 2 U.S.C. 441a(c).
---------------------------------------------------------------------------

    In contrast, the winding down limitation for most minor party 
general election candidates will equal 2.5% of their expenses during 
the expenditure report period under section 9004.11(c)(2).\2\ The final 
rule addresses 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, Sec.  
9004.11(b)(2)(i), plus their exempt expenses, Sec.  9004.11(b)(2)(ii). 
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. 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), i.e., 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). 
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). Thus, the exempt expenses considered under Sec.  
9004.11(c)(2)(ii) will include all three of the types of exempt 
expenses.
---------------------------------------------------------------------------

    \2\ If major party candidates were required to solicit 
contributions to make up a deficiency in public funds, the winding 
down limitation would also equal 2.5% of their expenses during the 
expenditure report period.
---------------------------------------------------------------------------

    For purposes of calculating the amount of the winding down 
limitation under Sec. 9004.11(b)(2), a candidate's expenses will 
include both disbursements and accounts payable as of 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 should 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 calculation does not include any 
expenditures in excess of the general election candidate's 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. In addition, the new 
rule restricts the expenses used to calculate the winding down 
limitation to the period prior to 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.
2. Expenses Subject to Winding Down Limitation
    All expenses incurred and paid by a candidate during the winding 
down period, including fundraising costs, are subject to the new 
winding down limitation in new 11 CFR 9004.11. Under the new rule, the 
use of public funds to pay for winding down expenses in excess of these 
restrictions will constitute a non-qualified campaign expense that may 
be subject to repayment. However, these restrictions apply to the use 
of public funds or a mixture of public and private funds for winding 
down costs and will not limit the payment of winding down expenses from 
private contributions in a candidate's GELAC. Thus, expenses for legal 
and accounting compliance costs paid for with public funds count 
against the winding down limitation, but any winding down costs paid by 
a GELAC do not.

11 CFR 9004.11(c)--Allocation of Primary and General Winding Down Costs

    Candidates who run in both the primary and general elections must 
allocate winding down expenses between the primary and general election 
campaigns. This can be complicated during the period after the general 
election because both campaigns are winding down simultaneously, often 
using the same staff, offices, equipment, vendors and legal 
representatives. To simplify the allocation, the NPRM proposed that 
committees could 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.
    One commenter advocated allowing campaigns to use any reasonable 
method that would require expenses indisputably related to one election 
be paid as winding down expenses of that election while shared winding 
down expenses such as legal fees could be allocated on any reasonable 
basis reflecting a good-faith estimate.
    The final rules in new 11 CFR 9004.11(c) allow a candidate who runs 
in both the primary and general election to divide winding down costs 
between the primary and general campaigns using any reasonable 
allocation method. The final rule also specifies that an allocation 
method will be considered reasonable if it divides the total winding 
down costs between the primary and general election committees and 
results in no less than one third of total winding down costs allocated 
to each committee. With this provision, the Commission has created a 
range of winding down cost allocations between a candidate's primary 
and general election authorized committees that will be considered per 
se to be the result of a reasonable method and therefore in compliance 
with this requirement. If particular circumstances require a candidate 
to allocate winding down costs so that one of the two committees is 
allocated less than one third of the total costs, with the other 
necessarily being allocated more than two thirds, those committees will 
be required to

[[Page 47393]]

demonstrate that their allocation method was reasonable. This new rule 
will 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 have larger potential repayments. 
Any winding down costs paid by the GELAC can be allocated to either the 
primary or the general election committees for this purpose, although 
they will not count toward either winding down limitation in new 11 CFR 
9004.11(b) or 9034.11(b).

Temporal Limits

    The NPRM proposed a temporal restriction on winding down expenses, 
the ``winding down period,'' based on the length of a committee's audit 
and repayment process, including the administrative review of the 
repayment determination. Several commenters opposed these temporal 
limits because after the expiration of this period, campaigns may be 
involved in enforcement actions, repayment determination court 
challenges, investigations by other government entities, or other 
lawsuits.
    The Commission believes that the winding down monetary limitation 
will be sufficient to address its concerns that winding down be 
completed expeditiously. Therefore, the Commission has decided not to 
include any temporal limitation in the final rule at 11 CFR 9004.11. 
Because the Commission is not including the temporal limit in the final 
rule, it is also not making the conforming changes proposed in the NPRM 
to 11 CFR 9004.9(a)(4) and 9034.5(b)(2) that would have referred to the 
winding down period in the sections discussing NOQCE and NOCO 
statements.

Other Winding Down Proposals

    The NPRM also proposed increasing allowable winding down expenses 
to reflect the number of compliance actions involving a Presidential 
candidate's campaign committee.
    One commenter stated that the Commission should not limit the use 
of public funds for costs related to compliance actions because 
candidates do not elect these expenses, and the compliance process is 
often used for political ends. This commenter further noted that 
campaigns and the Commission regularly dispute factual and legal 
issues, and responding to a compliance matter is an unwanted diversion 
that does not advance the candidate's campaign. The commenter also 
suggested that candidates should have the option of a separate legal 
defense account similar to a GELAC. In addition, this commenter 
suggested that recent changes to the public financing rules, such as 
the limitation on the timing for creating a GELAC, limiting legal and 
compliance costs to 15% of the primary spending limit and the new 
limits on winding down costs, discourage spending money on compliance.
    As discussed above, winding down costs resulting from compliance 
actions were considered in determining the winding down limitations. 
This new rule allows candidates to classify compliance matters arising 
from the campaign as winding down costs. To the extent that such costs 
fall within the specified limitations, candidates may use public funds 
to pay for them. This rule is consistent with the Commission's prior 
practice. In addition, new 11 CFR 9004.11(a) clarifies that winding 
down costs include the costs of complying with both the FECA and the 
Fund Act (e.g., costs related to the audit and repayment processes and 
reporting and recordkeeping, as well as costs incurred in responding to 
compliance matters). If a general election candidate exceeds the 
winding down limitations, private funds will be available through their 
GELAC for compliance expenses related to enforcement matters. For 
primary candidates, private funds will be available once the public 
funds in the candidates' accounts have been exhausted.

Combining Primary and General Winding Down Limitations

    The Commission also considered whether to allow candidates who 
accept public funds for both the primary and general elections to 
combine their primary and general election winding down limitations 
into a joint monetary limit for the total winding down expenses of both 
committees. The Commission decided not to make this change because 
primary and general election winding down expenses are legally distinct 
and a candidate's primary and general election committees are generally 
treated as separate entities; thus, they should be required to adhere 
to separate winding down limitations. See new 11 CFR 9004.11(a) and 
9034.11(a).

Alternative Proposals to Winding Down Restrictions

    The NPRM sought comment on disallowing the use of public funds to 
pay any winding down costs. Under such an alternative, a primary 
election candidate would not have been permitted to use public funds to 
pay for any expenses incurred after the candidate's DOI or any expenses 
for goods or services to be used after the DOI. A general election 
candidate would not have been permitted to use public funds to pay for 
any expenses incurred after the end of the expenditure report period or 
any expenses for goods or services to be used after the end of the 
expenditure report period.
    Two commenters opposed this proposal. One commenter argued that 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 ``promptly'' to repay a ratio of any 
surplus funds, is not determinative as to whether winding down costs 
are qualified campaign expenses because the statute contemplates a 
completely different system than the current audit process administered 
by the Commission. This commenter asserted that the statute envisioned 
that all issues related to the campaign, including the audit, repayment 
and enforcement matters would conclude within six months and advocated 
a complete overhaul of the audit and related enforcement process if 
winding down costs were to be limited. Another commenter stated that 
winding down expenses are unavoidable costs of a campaign, and that 
changing the rules would make candidates spend more time raising 
private funds to pay for these unavoidable costs, which could prolong 
the life of losing campaigns that must seek contributions to pay 
winding down costs.
    The Commission is retaining its long-standing treatment of winding 
down costs as qualified campaign expenses. Although winding down costs 
are a category of qualified campaign expenses not specifically 
identified in the Fund Act or the Matching Payment Act, it is necessary 
to allow them to ensure that candidates may respond adequately during 
the audit, repayment and enforcement processes.
    The NPRM also presented a second alternative approach to winding 
down costs which would have more precisely delineated the types of 
winding down costs that are permissible, consisting of

[[Page 47394]]

staff salaries, legal and accounting services, office space rental, 
utilities, computer services, other overhead expenses, consultants, 
storage, insurance, office supplies and fundraising expenses. One 
commenter said this alternative could be useful if the list is not 
intended to be exhaustive, because of the possibility of unforeseen but 
legitimate types of winding down costs.
    The Commission has decided not to adopt this alternative approach 
because it is unlikely to resolve the issues that have arisen and could 
generate more issues. 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 rather than focusing on the type of 
expenditure. A list of permissible winding down expenses would not 
address these frequently disputed issues, nor would it reduce the 
amount of winding down expenses.
    Please note that the Commission made no changes to 11 CFR 
9008.10(g)(7), governing winding down costs of convention committees.

11 CFR Part 9008--Federal Financing of Presidential Nominating 
Conventions

11 CFR 9008.3--Eligibility for Payments; Registration and Reporting

    The Commission has decided to revise the convention committee 
reporting requirements in 11 CFR 9008.3 to require convention 
committees to submit a copy of all written contracts and agreements 
they make with the cities, counties, or States hosting the convention 
or any host committee or municipal fund. See new 11 CFR 
9008.3(b)(1)(ii). Convention committees, host committees, and municipal 
funds are also required to submit any subsequent modifications to a 
previous contract or agreement.
    The Commission believes that it is necessary to have copies of all 
such agreements in order to understand fully the obligations that each 
of those entities has agreed to assume with respect to the convention. 
Such contracts must be submitted with the report for the applicable 
reporting period. Related changes are also being made to the host 
committee and municipal fund reporting requirements. See Explanation 
and Justification for 11 CFR 9008.51, below. The wording of the final 
rule is being slightly clarified from the proposed rule, which was not 
addressed by any of the commenters.

11 CFR 9008.7(a)(4)(xii)--Use of Funds--Gifts and Bonuses

    The NPRM sought comment on revising the rules governing the payment 
of gifts and bonuses by primary and general election candidates and by 
convention committees. The Commission has decided to make changes to 11 
CFR 9008.7(a)(4)(xii), governing gifts and bonuses for convention 
committees, to make that section more consistent with the rules 
governing primary and general election committees. See newly 
redesignated 11 CFR 9004.4(a)(6) and 9034.4(a)(5). Specifically, the 
structure of the section is being changed to separate the requirements 
for gifts from those for bonuses. The new paragraph on bonuses requires 
that bonuses paid after the last date of the convention to committee 
staff and consultants in recognition of convention-related activities 
or services must be provided for pursuant to a written contract made 
prior to the date of the convention, and must be paid no later than 30 
days after the convention.

11 CFR 9008.8--Limitation of Expenditures

    The NPRM proposed two revisions to 11 CFR 9008.8. The first 
proposal was to revise references in the title and text of paragraph 
(b)(2) to reflect the proposed new definition of ``municipal fund'' in 
11 CFR 9008.50(c). 68 FR at 18508. As explained below, the Commission 
is adopting the proposed definition of ``municipal fund.'' See 
Explanation and Justification for new 11 CFR 9008.50(c). Thus, the 
Commission is revising 11 CFR 9008.8(b)(2) to change the references in 
this provision from ``municipal corporations'' to ``municipal funds.'' 
The NPRM also proposed deleting ``government agencies.'' However, 
because some State or local governments may directly make convention 
expenditures, the references to government agencies are retained.
    The second proposal in the NPRM was to revise 11 CFR 
9008.8(b)(4)(ii)(B) to permit convention committees to establish 
separate legal and accounting compliance funds (``CLAF''). 68 FR at 
18512. Under this proposal, contributions to CLAFs would only have been 
permitted to be used to pay for legal and accounting services related 
to compliance with FECA and the Fund Act. Disbursements from the CLAF 
for legal and accounting compliance services would not have been 
considered ``expenditures'' and, therefore, would not have counted 
against the convention committee's expenditure limit in 11 CFR 9008.8. 
The CLAF would have had a separate contribution limit from the national 
committee's limit.
    The NPRM also sought comment on the contribution limit that should 
apply to contributors who wish to contribute to both the CLAF and to 
the political committees established and maintained by the same 
national political party. The only commenter to address this issue 
argued that allowing convention committees to establish CLAFs would 
amount to effectively doubling the national party contribution limit in 
2 U.S.C. 441a(a)(1)(B) by allowing a donor to make two contributions up 
to the national party limit, one to the national party itself and the 
other to the CLAF. The commenter challenged the Commission's authority 
to allow convention committees to establish CLAFs because the receipt 
of public money by convention committees is conditioned on their 
abiding by set spending limits. The commenter also asserted that CLAFs 
would allow ``the infusion of private money into a system where 
Congress intended the party spending to be fully financed with public 
funds.''
    The Commission has decided that permitting the national party 
committees to pay compliance expenses of the convention committee under 
11 CFR 9008.8(b)(4)(ii) adequately addresses this issue. Therefore, the 
Commission has decided not to allow convention committees to establish 
separate legal and accounting compliance funds as proposed in the NPRM.
    In addition to the proposals in the NPRM, the Commission is 
revising 11 CFR 9008.8(b)(4)(ii)(B), which previously stated the 
contribution limits for contributions to national political party 
committees from persons and from multicandidate committees. BCRA 
amended the first of those two limits and indexed the limitation to 
inflation. Therefore, the Commission is revising the regulation to 
refer to the amounts permitted under 11 CFR 110.1(c) and 110.2(c).

11 CFR 9008.10--Documentation of Disbursements; Net Outstanding 
Convention Expenses

    The requirements for the documentation of disbursements applicable 
to all committees are described in 11 CFR 102.9(b). Additional 
documentation requirements for publicly funded convention committees 
are set forth in 11 CFR 9008.10. The introductory language in section 
9008.10 is being revised to state that the requirements in this section 
are in addition to the requirements of 11 CFR 102.9(b) governing the

[[Page 47395]]

documentation of disbursements. Adding this reference to 11 CFR 
102.9(b) will assist the reader in locating these other pertinent 
provisions.

11 CFR 9008.12--Repayments

    The Commission is revising 11 CFR 9008.12(b)(7) to reflect changes 
in other portions of the convention regulations. First, two references 
within paragraph (b)(7) are being changed to reflect the new definition 
of ``municipal fund'' in 11 CFR 9008.50(c). See Explanation and 
Justification for 11 CFR 9008.50, below.
    Second, the Commission is deleting the final clause in paragraph 
(b)(7), which had identified donations from a nonlocal businesses as 
impermissible host committee/municipal fund contributions, to reflect 
its deletion of the requirement in 11 CFR 9008.52(c) and 11 CFR 
9008.53(b) that only local entities and individuals may make donations 
to host committees and municipal funds to defray convention expenses. 
See Explanation and Justification for 11 CFR 9008.52 and 11 CFR 
9008.53, below. The final rules substantially follow the proposed 
rules, which were not addressed by any of the commenters.

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

11 CFR 9008.50--Scope and Definitions

    The NPRM noted that host committees and municipal funds have 
evolved to the point where their roles in convention financing are 
increasingly similar but the Commission's rules had treated them 
differently. 68 FR at 18507. The NPRM sought public comment on whether 
host committees and municipal funds should be treated the same.
    One discrepancy in the regulations relating to host committees and 
municipal funds was that the rules defined ``host committee,'' in 11 
CFR 9008.52(a), but did not define ``municipal fund.'' 68 FR at 18507-
08. The NPRM proposed to add a definition of ``municipal fund'' in new 
paragraph (c) of 11 CFR 9008.50, and to move the definition of ``host 
committee'' from 11 CFR 9008.52(a) to paragraph (b) of 11 CFR 9008.50. 
The proposal defined a ``municipal fund'' as ``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.''
    The NPRM stated that any municipal fund that accepted donations and 
made disbursements related to convention activities would be required, 
under the proposed definition, to use a separate account for such 
purposes. Comment was sought on whether any other restrictions should 
be imposed on municipal funds to ensure that funds received or 
disbursed by municipal funds are used solely for the purpose of 
promoting the city and its commerce, such as limiting them to accounts 
subject to audit by State or local public agencies.
    No commenters addressed this topic. The Commission believes that it 
is helpful to add a definition of ``municipal fund.'' Accordingly, the 
Commission has decided to adopt the proposed definition of ``municipal 
fund,'' which is located in paragraph (c) of 11 CFR 9008.50. This 
provision defines a municipal fund as a fund or account of a government 
agency, municipality, or municipal corporation.
    The definition distinguishes a municipal fund from a host 
committee, in part, by limiting municipal funds to those funds or 
accounts of a government agency, municipality, or municipal 
corporation, and ``whose receipt and use of funds is subject to the 
control of officials of the State or local government.'' When engaged 
in activities that promote an area and its commerce, State and local 
governments participate in a wide variety of organizations that often 
permit the private sector to participate in some role. The Commission 
intends that municipal funds will be limited to the group of such 
organizations whose funds are under the control of State or local 
government officials acting in their official capacities when they 
receive and disburse funds. Any organizational structure that includes 
public officials in some capacity but does not keep the funds under 
governmental control cannot qualify as a municipal fund, but may 
qualify as a host committee. For example, if a local civic association 
includes a city's mayor as an officer, but the association's funds are 
not maintained in a city account, the local civic association could not 
be a municipal fund, but it could be a host committee, if it met the 
requirements of new 11 CFR 9008.50(b).
    The Commission has decided to move the definition of ``host 
committee'' to paragraph (b) of 11 CFR 9008.50, so that the definitions 
are grouped together.

11 CFR 9008.51--Registration and Reports

11 CFR 9008.51(a)(1)--Registration Requirements

    The Commission has decided to make a number of changes to the host 
committee and municipal fund registration and reporting requirements. 
With respect to the registration requirements, 11 CFR 9008.51(a) is 
being revised to require host committees and municipal funds to file 
FEC Form 1 (Statement of Organization) within ten days of the date on 
which the national party chooses the convention city or ten days after 
the host committee or municipal fund is formed, whichever date occurs 
later.
    These new registration requirements differ from the former 
requirements in two respects. First, the former provision required host 
committees and municipal funds to file a ``Convention Registration 
Form,'' not a Statement of Organization. Second, the former provision 
required host committees and municipal funds to register within ten 
days of the date on which the party selected the convention city.
    The NPRM sought comment on the change in the registration deadline, 
as well as an alternative deadline that would have required host 
committees and municipal funds to register within 10 days of when they 
first solicit or accept donations or make disbursements for convention 
activities. No commenters specifically addressed the proposed changes 
to the host committee and municipal fund registration requirements in 
11 CFR 9008.51(a).
    With respect to the proposal to require host committees and 
municipal funds to register using FEC Form 1, the Commission notes that 
host committees and municipal funds typically use this form already. 
Therefore, the Commission has decided to adopt the proposed change 
requiring host committees and municipal funds to register using Form 1.
    The Commission is adopting the proposal to require host committees 
and municipal funds to file within 10 days of their formation or within 
10 days of convention city selection, whichever date occurs later. This 
change represents a more realistic timeframe, in that it accounts for 
the possibility that not all host committees or municipal funds are 
established within 10 days of when the convention city is selected. The 
Commission is not adopting the alternative that would have required 
host committees and municipal funds to register within 10 days of 
soliciting, accepting, or disbursing funds for convention activities. 
The alternative could have made it difficult to determine when 
particular host committee or municipal fund registration statements 
would actually be due.

[[Page 47396]]

11 CFR 9008.51(a)(3)--Submission of Convention Committee, Host 
Committee, and Municipal Fund Agreements

    As discussed above, the NPRM proposed to require convention 
committees, host committees, and municipal funds 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 Explanation and Justification for 11 CFR 
9008.3(b)(ii), above; see also 68 FR at 18512. For the reasons stated 
above, the Commission has decided to adopt this proposed rule.
    Accordingly, the Commission is revising 11 CFR 9008.51 to require 
host committees and municipal funds to submit any and all such written 
contracts and agreements with the report covering the reporting period 
during which the agreement is executed. See 11 CFR 9008.51(a)(3). As 
explained below, this will usually be the post-convention report. Host 
committees and municipal funds must also submit any subsequent 
modifications to a previous agreement. However, host committees and 
municipal funds need not submit contracts made with convention 
committees that have already been filed by the convention committees 
themselves. No commenters addressed these revisions.

11 CFR 9008.51(b)--Reporting Requirements

    The NPRM proposed a number of changes to the reporting requirements 
applicable to host committees and municipal funds in 11 CFR 9008.51(b) 
and (c). First, the NPRM proposed to apply the same reporting 
requirements to both host committees and municipal funds. Under 
previous Commission regulations, different reporting requirements 
applied to host committees and municipal funds. While host committees 
were required to file a post convention report on FEC Form 4, municipal 
funds were only required to file a post convention letter, which did 
not need to contain all of the information required on FEC Form 4. 
Compare former 11 CFR 9008.51(b)(1) with former 11 CFR 9008.51(c). In 
addition, host committees were required to continue filing quarterly 
reports as long as they continued to accept funds or make disbursements 
after filing the post convention report, but municipal funds were not 
subject to such a requirement. Former 11 CFR 9008.51(b)(2). 
Furthermore, host committees were required to file a final report 
within 10 days of ceasing reportable activity, but municipal funds were 
not. Former 11 CFR 9008.51(b)(3).
    One commenter contended that it was in the public interest to 
require municipal funds to file reports with the same frequency and 
containing the same level of detail regarding receipts and 
disbursements as those filed by host committees. The Commission agrees, 
especially because it is dropping the former restrictions on municipal 
fund fundraising and permitting municipal funds to accept donations 
under the same conditions as host committees. See Explanation and 
Justification for 11 CFR 9008.53. Accordingly, the Commission is 
revising 11 CFR 9008.51 to state that the reporting provisions in 
paragraphs (b)(1), (2), and (3) apply to both host committees and 
municipal funds.
    The NPRM also proposed two other changes to the host committee 
reporting requirements in 11 CFR 9008.51(b)(1). First, noting that 
paragraph (b)(1) of Sec.  9008.51 did not provide a date for the close 
of books for host committees' post-convention reports, the NPRM 
proposed revising 11 CFR 9008.51(b)(1) to set the close of books as 15 
days prior to the date of filing. No commenters specifically addressed 
this date. The Commission believes that the proposed time frame is 
reasonable, in that it should provide sufficient time for host 
committees and municipal funds to prepare their reports. In addition, 
the Commission believes that it makes sense to apply the same time 
frame to host committees and municipal fund reports that currently 
applies to convention committee reports under 11 CFR 9008.3(b)(2)(ii). 
Accordingly, the Commission is revising 11 CFR 9008.51(b)(1) to 
establish the close of books for host committee and municipal fund 
reports as 15 days prior to the due date for filing these reports.
    Second, the NPRM proposed revising 11 CFR 9008.51(b)(1) to require 
that reports filed pursuant to 2 U.S.C. 437 must contain the 
information specified in 11 CFR part 104. The statutory authority for 
11 CFR part 104 is based in 2 U.S.C. 434. Host committee and municipal 
fund reporting is required by 2 U.S.C. 437, which explicitly allows the 
Commission to require a ``full and complete financial statement, in 
such form and detail as it may prescribe.'' Requiring host committee 
and municipal fund reports to be presented in the same format as other 
reports that are filed with the Commission significantly enhances the 
public disclosure of convention-related financial activity. No 
commenters addressed this proposed change. Accordingly, the Commission 
is revising 11 CFR 9008.51(b)(1) to state that host committee and 
municipal fund post-convention reports must ``disclose all the 
information required by 11 CFR part 104.''
    The NPRM also sought comment on whether requiring host committees 
and municipal funds to file quarterly reports after the 60-day post-
convention report is required by and consistent with 2 U.S.C. 437, 
which refers to a single financial statement. No commenters addressed 
this question.
    The Commission concludes that it does have the authority to require 
further reports by municipal funds. Section 437 states that host 
committees and municipal funds must, ``within 60 days following the end 
of the convention (but not later than 20 days prior to the date on 
which presidential and vice-presidential electors are chosen), file 
with the Commission a full and complete financial statement, in such 
form and detail as [the Commission] may prescribe, of the sources from 
which it derived its funds, and the purpose for which such funds were 
expended.'' 2 U.S.C. 437. The Commission's experience with convention 
financing indicates that it is often not possible for host committees 
and municipal funds to provide a full and complete financial statement 
within the prescribed time frame because receipts and invoices 
pertaining to the convention tend to continue to arrive after the 
convention has ended and even after the November general election. The 
Commission believes that 2 U.S.C. 437 in conjunction with 26 U.S.C. 
9009, which grants the Commission the authority to require the 
submission of ``such books, records, and information, as it deems 
necessary to carry out the functions and duties imposed on it by this 
chapter,'' provides the Commission with sufficient statutory authority 
to require both host committees and municipal funds to continue filing 
reports with the Commission as long as they receive or spend funds 
relating to the conventions. Furthermore, the Commission notes that the 
reporting obligation beyond the initial report is expressly conditioned 
on further convention-related activity, which means that the obligation 
will only apply when the initial report is not a ``full and complete 
financial statement,'' as required by 2 U.S.C. 437.
    The NPRM also sought comment on the form that convention 
committees, host committees, and municipal funds should be required to 
use for their reports. Convention committees and host committees were 
required to report using FEC Form 4, while municipal funds were not 
required to use any particular form. See 11 CFR

[[Page 47397]]

9008.3(b)(2)(i) (convention committees); former 11 CFR 9008.51(b)(1) 
(host committees); and former 11 CFR 9008.51(c) (municipal funds). The 
NPRM indicated that the Commission was considering requiring convention 
committees, host committees, and municipal funds to use FEC Form 3P 
instead of FEC Form 4. FEC Form 3P is the report of receipts and 
disbursements filed by Presidential and Vice-Presidential candidates.
    No commenters specifically addressed this issue. Given the 
familiarity that convention committees already have with FEC Form 4, 
the Commission has decided that the most prudent course is to continue 
requiring convention committees and host committees to file FEC Form 4. 
Accordingly, the Commission has decided to retain the references to 
Form 4 in 11 CFR 9008.3(b)(2)(i) and revised 11 CFR 9008.51(b)(1). The 
requirement to file using FEC Form 4 will also apply to municipal 
funds. This is consistent with the Commission's other parallel 
treatment of host committees and municipal funds as similar.

11 CFR 9008.51(c)--Post Convention Statements by State and Local 
Government Agencies

    States, cities, and other local government agencies often provide 
facilities and services to Presidential nominating conventions under 11 
CFR 9008.53, which are in addition to what may be provided by a 
separate municipal fund. When States, cities and local governments 
provide such facilities and services, they generally file letters with 
the Commission identifying the categories of facilities and services 
provided for the convention and the origin of the funds used for such 
facilities and services under 11 CFR 9008.51(c). Because the NPRM 
proposed that municipal funds would be made subject to the same 
reporting requirements as host committees under 11 CFR 9008.51(b), the 
NPRM proposed deleting 11 CFR 9008.51(c). No comments were received on 
this issue.
    The Commission has decided, instead, to retain 11 CFR 9008.51(c) 
and revise it to require these letters to be filed only by those 
government agencies at the State, municipal, or local levels, or any 
other political subdivision, that use their general revenues to provide 
convention facilities or services pursuant to 11 CFR 9008.53. If a city 
directly makes convention expenditures with its own funds, it must 
report under 11 CFR 9008.51(c) but would not be required to report the 
same transactions on a municipal fund report under Sec.  9008.51(b).

11 CFR 9008.52--Receipts and Disbursements of Host Committees; Proposed 
Restructuring of 11 CFR 9008.52

    The Commission has decided to move the definition of ``host 
committee'' from 11 CFR 9008.52(a) to 11 CFR 9008.50(b). See 
Explanation and Justification for revised 11 CFR 9008.50, above. 
Accordingly, the Commission is restructuring 11 CFR 9008.52 as follows: 
Former paragraph (b) is being redesignated as paragraph (a) and former 
paragraph (c) is being redesignated as paragraph (b).

Proposed Relocation of Commercial Vendor Provisions

    The NPRM proposed moving the provisions in former 11 CFR 9008.9(b) 
and (c) to 11 CFR 9008.52(a). However, because the Commission has 
decided not to amend 11 CFR 9008.9, the corresponding changes proposed 
for 11 CFR 9008.52 are unnecessary. See Explanation and Justification 
for 11 CFR 9008.55, below.

Proposed Revisions to Permissible Expenses

    The NPRM proposed a number of substantive revisions to the list of 
permissible host committee expenses in former 11 CFR 9008.52(c)(1).\3\ 
The proposed revisions were intended to clarify and add specificity to 
the list of permissible expenses.
---------------------------------------------------------------------------

    \3\ Under both previous and revised 11 CFR 9008.53(b)(1), 
municipal funds are permitted to pay the same types of expenses as 
host committees.
---------------------------------------------------------------------------

    The NPRM proposed combining the expenses in former 11 CFR 
9008.52(c)(1)(i) and (c)(1)(x). Former Sec.  9008.52(c)(1)(i) allowed 
host committees to defray expenses incurred for the purpose of 
promoting the suitability of the city as a convention site whereas 
Sec.  9008.52(c)(1)(x) permitted host committees to provide 
accommodations and hospitality for those responsible for choosing the 
convention site. The proposed combined list would have permitted host 
committees and municipal funds to ``defray those expenses incurred for 
the purpose of promoting 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.''
    The NPRM also proposed narrowing permissible host committee 
expenses for providing convention committees with the use of an 
auditorium or convention center. Whereas the former rule at 11 CFR 
9008.52(c)(1)(v) permitted host committees and municipal funds to 
provide both construction- and convention-related services for 
convention committees, the proposal sought to limit them to providing 
only construction-related services that are clearly related to 
designing, creating, or installing the physical or technological 
infrastructure of the convention facility. The proposed rule would have 
deleted the reference to convention-related services and added a non-
exhaustive list of permissible construction-related services.
    In addition, the NPRM proposed narrowing the description of 
transportation services that may be provided by host committees and 
municipal funds in former 11 CFR 9008.52(c)(1)(vi) to permit the 
provision of only those transportation services that were made ``widely 
available to convention delegates and other individuals attending the 
convention.'' See proposed 11 CFR 9008.52(b)(6). Conversely, the 
proposed rules would have broadened the types of law enforcement 
services that host committees and municipal funds may provide to allow 
not only those necessary ``to assure orderly conventions'' but also 
other ``law enforcement and security services, facilities, and 
personnel, including tickets, badges, and passes.''
    Another proposal would have addressed the provision related to 
hotel rooms in former 11 CFR 9008.52(c)(1)(ix). Whereas the former and 
current provision states that host committees and municipal funds may 
provide hotel rooms ``at no charge or a reduced rate on the basis of 
the number of rooms actually booked for the convention,'' the proposed 
provision would have permitted the provision of hotel rooms at the rate 
paid by the host committee or municipal fund. This proposal would have 
allowed host committees and municipal funds to pass through to 
convention committees any discounts they received based on the number 
of rooms rented but would have prohibited host committees or municipal 
funds from subsidizing the actual cost of such accommodations.
    The NPRM also proposed eliminating the final, catchall expense 
category in former 11 CFR 9008.52(c)(1)(xi), which allowed host 
committees and municipal funds to provide ``other similar convention-
related facilities and services,'' and proposed adding a new list of 
impermissible host committee and municipal fund expenses. Proposed 11 
CFR 9008.52(c)(1) would have

[[Page 47398]]

prohibited host committees and municipal funds from providing 
``anything of value'' to a convention committee, national party 
committee, or other political committee, except those items that were 
expressly described in proposed 11 CFR 9008.52(b)(1) and (b)(5) through 
(b)(8). Proposed 11 CFR 9008.52(c)(2) would have prohibited host 
committees and municipal funds from defraying any expenses related to 
``creating, producing, or directing convention proceedings.''
    The NPRM also sought public comment on whether there was any need 
to continue to provide a list of permissible convention expenses, or 
whether the definition of ``convention expenses,'' standing alone, 
gives sufficient guidance to convention committees regarding what they 
may or may not pay. Comment was also sought on whether to refine the 
current list of permissible convention expenses, by deleting some 
examples and/or adding others.
    The Commission also sought comment on whether BCRA requires that 
the list of permissible host committee and municipal fund expenses in 
former 11 CFR 9008.52 must be modified to ensure that convention 
committees will not receive ``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).'' 2 
U.S.C. 441i(a)(1). In many of the transactions contemplated by 11 CFR 
9008.52(c)(1), host committees provide something of value to convention 
delegates, other attendees, press, local businesses, and the local 
community, but 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 and dining guide, to convention 
attendees, it is difficult to conclude that the convention committee 
received anything of value. One commenter advocated a variation on this 
approach.
    In addition to the proposed substantive revisions, the NPRM 
proposed two alternative locations for the revised list of permissible 
host committee and municipal fund expenses located in former 11 CFR 
9008.52(c)(1). The list of permissible convention committee expenses in 
11 CFR 9008.7(a)(4) would have been affected by the proposed 
reorganization as well. The NPRM proposed either deleting the non-
exhaustive list of thirteen permissible convention expenses that may be 
paid by convention committees, or in the alternative retaining the list 
of permissible convention expenses but moving them to a new section.
    With respect to the proposed substantive and structural changes, a 
number of commenters believed that the current regulations work well 
and are not in need of additional clarification. These commenters 
expressed concern that any changes to the list of permissible expenses 
this close to the 2004 election would be extremely disruptive, would 
invite confusion, and would interfere with the obligations that host 
committees have already agreed by contract to undertake for the 2004 
national nominating conventions. In their opinion, no deficiencies in 
the current list that warrant either of the proposed alternative 
changes had been identified. A number of the commenters also stated 
that there was no indication that Congress, in enacting BCRA, intended 
to restrict or modify the range of permissible convention committee, 
host committee, and municipal fund expenses prior to BCRA.
    After carefully considering the concerns raised by these 
commenters, the Commission has decided not to adopt any of the proposed 
substantive or structural revisions to the list of permissible 
convention committee, host committee and municipal fund expenses. The 
Commission is mindful of the potentially disruptive effect of modifying 
existing regulations regarding the expenses that may be paid by 
convention committees, host committees, and municipal funds in such 
close proximity to the 2004 conventions. See Explanation and 
Justification for Public Financing of Presidential Primary and General 
Election Candidates, 64 FR 49355, 49358 (Sept. 13, 1999) (declining to 
modify the existing list of permissible convention committee and host 
committee expenses ``given that the party committees have already 
entered into contractual agreements with the sites selected''). 
Accordingly, the list of permissible host committee and municipal fund 
expenses will remain in 11 CFR 9008.52. The list is substantively 
identical to that in current 11 CFR 9008.52(c)(1), however, as 
explained above, it will be re-designated as 11 CFR 9008.52(b) in light 
of other changes to section 9008.52.
    With respect to the reorganization of permissible convention 
expenses in 11 CFR 9008.7(a)(4), the Commission is persuaded that it 
should retain the current non-exhaustive list of permissible convention 
expenses. In addition, rather than relocating the list to two different 
paragraphs in a new section, the Commission has decided to keep the 
list intact in paragraph (a)(4) of 11 CFR 9008.7. The Commission 
concludes that the list of permissible convention expenses has worked 
reasonably well in practice. The Commission also concludes that the 
proposed changes would not add sufficient clarity or precision to 
justify the possible confusion and disruption they may engender at a 
time when preparations for the 2004 conventions are well advanced, and 
further concludes that none of the proposed changes are required by 
BCRA.

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

    The NPRM proposed to eliminate the requirement, in former 11 CFR 
9008.52(c)(1) and 11 CFR 9008.53(b)(1), that only ``local'' businesses, 
labor organizations, other organizations, and individuals are permitted 
to make donations to host committees and municipal funds.
    The NPRM sought comment on whether eliminating that restriction 
would make it more feasible for smaller or mid-sized cities to host a 
Presidential nominating convention. Comment was also sought on two 
alternative proposals. Under the first alternative proposal, the 
locality requirements in former 11 CFR 9008.52(c)(1) and (c)(2) and 
former 11 CFR 9008.53(b)(1) and (b)(2) would have been retained, but 
modified to permit only those donations made by ``individuals who 
maintain a local residence or who work for the local office of a 
business, labor organization, or other organization.'' Under the second 
alternative approach, the locality restrictions in both 11 CFR 
9008.52(c)(1) and 11 CFR 9008.53(b)(1) would have been revised to 
permit donations only from those individuals who have a local 
residence.
    Most of the commenters who addressed this issue favored deletion of 
the locality requirement. They pointed out that the physical location 
of a business is a poor indicator of the extent of a company's 
commercial interests in a particular geographic region, especially in 
light of the increasingly global nature of the economy. These 
commenters believed the restriction frustrated the ability of host 
committees to raise funds for the legitimate purpose of promoting the 
host city. They argued that deleting this restriction would make it 
easier for smaller cities, without large local business communities, to 
bid successfully for a future convention.
    These commenters also maintained that donors to host committees and 
municipal funds are motivated by legitimate commercial considerations 
or

[[Page 47399]]

by civic pride, not by political considerations. They contended that 
many businesses that do not maintain an office in or near the 
convention city nevertheless have a legitimate commercial interest in 
supporting large-scale events such as conventions in the host city, 
such as developing business in the convention city or showcasing their 
products to a prominent national audience. They pointed out that many 
corporations also make sizeable donations to host committees for other 
large-scale events such as host committees for the Super Bowl and the 
Olympics. One commenter suggested that the motive of those making 
donations to host committees is irrelevant because such donors have no 
control over how the host committee spends the funds.
    On the other hand, a different commenter opposed the Commission's 
proposal to delete the locality requirement in 11 CFR 9008.52(c)(1) and 
11 CFR 9008.53(b)(1), expressing the view that the locality restriction 
already was too permissive and should not be eliminated.
    After careful consideration of the viewpoints expressed by the 
commenters on this issue, the Commission has decided to eliminate the 
locality requirement from 11 CFR 9008.52 and 11 CFR 9008.53. The 
Commission is persuaded that this restriction no longer serves a 
meaningful purpose because the disbursements that host committees and 
municipal funds are permitted to make are consistent with the narrow 
purpose of promoting commerce in, and the suitability of, the 
convention city. The Commission notes that the requirement that donors 
be local has resulted in reliance on Metropolitan Areas to draw 
difficult and seemingly arbitrary distinctions in specific cases. 
Accordingly, under the revised rules at 11 CFR 9008.52(b) (host 
committees) and 11 CFR 9008.53(a) (municipal funds), businesses, labor 
organizations, other organizations, and individuals are permitted to 
donate funds or make in-kind donations to host committees and municipal 
funds, regardless of their geographic locations.

11 CFR 9008.53--Receipts and Disbursements of Municipal Funds

    As discussed in greater detail above, the NPRM proposed to 
eliminate many of the differences in the manner that the Commission's 
regulations treat host committees and municipal funds. (See Explanation 
and Justification for 11 CFR 5008.50, above.) One of these differences 
was that municipal funds were subject to certain fundraising 
requirements that did not apply to host committees. Former 11 CFR 
9008.53(b)(1)(i) and (ii) provided that neither the municipal fund 
itself nor the donations the municipal fund received or solicited could 
be restricted to use in connection with a particular convention. Host 
committees were not subject to these fundraising restrictions.
    These disparate requirements limited the ability of host committees 
and municipal funds to raise funds in concert with one another. The 
NPRM acknowledged that the restrictions on municipal fund fundraising 
were based on Commission decisions in Advisory Opinion (``AO'') 1982-27 
and AO 1983-29. Comment was sought on deleting these requirements on 
municipal funds. In the alternative the NPRM proposed retaining the 
restrictions and clarifying the appropriate standard for determining 
whether a municipal fund itself, or the funds it receives, are 
impermissibly restricted to the Presidential nominating convention.
    No commenters addressed this topic. The Commission has concluded 
that the former restrictions serve little or no purpose, while, at the 
same time, they unnecessarily hamper the ability of host committees and 
municipal funds to undertake joint fundraising activities. Accordingly, 
the Commission has decided to eliminate the restrictions on municipal 
fund fundraising in former 11 CFR 9008.53(b)(1)(i) and (ii).
    The NPRM also proposed eliminating the requirement, in 11 CFR 
9008.53(b)(1), that only ``local'' businesses, labor organizations, 
other organizations, and individuals are permitted to make donations to 
municipal funds. For the reasons stated above, the Commission has 
decided to eliminate this limitation on donations to municipal funds as 
well as host committees. See Explanation and Justification for 11 CFR 
9008.52.

11 CFR 9008.55--Funding for Convention Committees, Host Committees and 
Municipal Funds

    The Commission is adopting a new Sec. 9008.55 to explain the 
application of BCRA to convention committees, host committees, and 
municipal funds. This new regulation should be viewed in the overall 
context of the legal structure of public financing and the development 
of the Commission's regulatory approach regarding the role of host 
committees and municipal funds.
    The national committees of both major and minor political parties 
are entitled to receive public funds to defray their expenses incurred 
in connection with a Presidential nominating convention under 26 U.S.C. 
9008(b). Major party committees may receive an inflation-adjusted 
payment from the Presidential Election Campaign Fund for their national 
nominating conventions. 26 U.S.C. 9008(b)(1).\4\ For the 2004 
conventions, the major party committees received $14,880,000 in July 
2003 and are entitled to receive an additional payment in 2004 for an 
inflation adjustment, subject to all applicable requirements.\5\ A 
national committee of a major 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 that accept public 
funding 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 Federal payment.
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    \4\ Minor party committees may 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). No candidate (other than the major party candidates) 
received a sufficient number of votes in the 2000 presidential 
general election to provide his or her party with minor party status 
in 2004.
    \5\ In 2000, the Democratic and Republican National Committees 
each received $13,512,000 for their national nominating convention.
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Development of Commission Rules on Host Committees and Municipal Funds

    As mentioned in the discussion of 11 CFR 9008.50, above, the 
Commission has historically allowed host committees and municipal funds 
to raise and spend money for activities related to conventions. The 
NPRM provided a detailed history of the development of the Commission's 
policy in this area. Although a convention committee is precluded from 
receiving contributions, the Commission has held that host committees 
and municipal funds may solicit and receive funds because such funds 
``are 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, the Commission has allowed donations to these entities 
from sources prohibited from making contributions under 2 U.S.C. 441b, 
because such donations 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

[[Page 47400]]

Nominating Conventions, 44 FR 63036, 63037-38 (Nov. 1, 1979).
    The Commission has repeatedly endorsed the use of these funds for 
convention-related activities. Recent testimony on behalf of the 2004 
host committees amply supports the Commission's long-held view that 
``businesses and organizations that donate to municipal funds are 
motivated by commercial and civic reasons, rather than election-
influencing purposes.'' Explanation and Justification of Presidential 
Election Campaign Fund and Federal Financing of Presidential Nominating 
Conventions, 59 FR 33606, 33615 (June 29, 1994).
Application of BCRA's Non-Federal Funds Provisions to Convention 
Committees, Host Committees and Municipal Funds
    Title I of BCRA includes several provisions potentially applicable 
to Presidential nominating convention financing. 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).
    BCRA prohibits national party committees, their officers and 
agents, and entities directly or indirectly established, financed, 
maintained, or controlled by them from raising any funds for, or making 
or directing any donations to, certain tax exempt organizations. 2 
U.S.C. 441i(d). This prohibition extends only to organizations that are 
described in section 501(c) of the Internal Revenue Code of 1986 and 
that are exempt from taxation under section 501(a) of such Code (or 
that have submitted an application for determination of tax exempt 
status under such section) (``501(c) organizations'') and that make 
``expenditures or disbursements in connection with an election for 
Federal office (including expenditures or disbursements for Federal 
election activity).'' Id.
    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 funds in connection with an election for 
Federal office that do not comply with the limitations, prohibitions, 
and reporting requirements of FECA. 2 U.S.C. 441i(e)(1)(A). With 
respect to fundraising for non-profit organizations, BCRA provides two 
exceptions. Under the exception relevant here, BCRA permits Federal 
candidates and officeholders to make ``general solicitations'' of funds 
on behalf of organizations described in section 501(c) of the Internal 
Revenue Code, other than entities whose principal purpose is to conduct 
certain types of Federal election activity (including voter 
registration, voter identification, and get-out-the-vote activity), 
where the solicitations do not specify how the funds will or should be 
spent. 2 U.S.C. 441i(e)(4)(A).\6\ Convention committees, host 
committees, and municipal funds are unlikely to engage in these types 
of Federal election activity.
---------------------------------------------------------------------------

    \6\ BCRA also permits Federal candidates and officeholders to 
make ``specific solicitations'' on behalf of organizations described 
in Section 501(c) of the Internal Revenue Code, where the entities' 
principal purpose is to conduct certain Federal election activities 
or where the solicitation is ``explicitly to obtain funds'' for 
certain Federal election activities. 2 U.S.C. 441i(e)(4)(B). Such 
``specific solicitations'' may only be made to individuals in 
amounts not exceeding $20,000 per calendar year. Id.
---------------------------------------------------------------------------

11 CFR 9008.55(a)--Convention Committees Are Subject to 2 U.S.C. 
441i(a)(1)

    Convention committees are, as a matter of law, entities directly 
established, financed, maintained, or controlled by national party 
committees. The Commission's regulations at 11 CFR 9008.3(a)(2) 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.'' 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.'' Typically, convention committees 
list the national party committees as an affiliated committee on their 
Statements of Organization.
    Convention committees are also ``agents'' of the national party 
committees. Under the Commission's definition of ``agent,'' a principal 
cannot be held liable for the actions of an agent unless (1) the agent 
has actual authority, (2) the agent is acting on behalf of the 
principal, and (3), with respect to national party committees, the 
agent is soliciting, directing, or receiving any contribution, donation 
or transfer of funds on behalf of the national party committee. 11 CFR 
300.2(b). Given that a convention committee is authorized by law to 
receive the national party committee's convention funds, this aspect of 
their relationship is sufficient to make the convention committee an 
agent of the relevant national party committee under 11 CFR 300.2(b).
    The NPRM proposed that BCRA's ban in 2 U.S.C. 441i(a)(1) on 
national parties soliciting, receiving, directing, and spending funds 
that do not comply with the source prohibitions and amount limitations 
should apply to convention committees by operation of 2 U.S.C. 
441i(a)(2) and 11 CFR 300.10(c). One of the national party committees 
commenting on this proposal agreed that convention committees are 
required by law to be established by national party committees, which 
triggers 2 U.S.C. 441i(a)(2). No other commenter addressed this issue.
    The Commission concludes that as a matter of law convention 
committees are subject to 2 U.S.C. 441i(a)(1) and 11 CFR 300.10(a) by 
operation of 2 U.S.C. 441i(a)(2) and 11 CFR 300.2(b), (c) and 11 CFR 
300.10(c). Accordingly, under new 11 CFR 9008.55(a), all convention 
committees established pursuant to 11 CFR 9008.2(a)(2) are subject to 
the national party committee prohibitions in 11 CFR 300.10(a).

11 CFR 9008.55(a)--Donations From Host Committees and Municipal Funds 
to Convention Committees

    The Commission sought comment on whether BCRA bars convention 
committees from accepting many of the in-kind donations typically 
provided by host committees and municipal funds. The current rules on 
permitted expenditures of host committees and convention committees 
overlap, which reflects the fact that some host committee disbursements 
are for goods or services related to the conduct of a convention, and 
not merely the promotion of their cities. See, e.g., revised 11 CFR 
9008.52(b)(5), discussed above. There was no consensus among the 
commenters on this issue.
    Several commenters argued that there is no language in BCRA that 
compels or even anticipates changes to the long-standing regulations 
regarding convention financing. Some commenters also emphasized the 
non-political nature of host committee activities and that nothing in 
BCRA

[[Page 47401]]

requires or justifies the Commission to alter its conclusion that 
donations to host committees are commercially, not politically, 
motivated. According to some commenters, the provision of goods and 
services by a host committee has never been considered an in-kind 
contribution, and BCRA did not amend the statutory definition of in-
kind contribution in 2 U.S.C. 431(8)(A)(i). A commenter also pointed 
out that another provision of BCRA repealed certain Commission 
regulations. Because Congress did not similarly address the convention 
financing regulations, its silence is ``a conclusive indication that 
there was no Congressional intent that the Commission modify these 
regulations in any way,'' according to this commenter. One commenter 
argued that BCRA's prohibitions in 2 U.S.C. 441i(a) are limited to 
national party committees, their agents, and any entity that is 
established, financed, maintained, or controlled by the national party 
committees. In this commenter's view, host committees do not constitute 
any of these covered persons, so host committees should be permitted to 
continue accepting and using non-Federal funds to pay for certain 
convention related costs.
    Other commenters advocated for the exact opposite position, citing 
BCRA's unqualified prohibition on the national party committees' 
accepting any non-Federal funds. These commenters construed both FECA 
and BCRA to prohibit a convention committee from accepting in-kind 
contributions from a host committee funded by corporate donations. 
These commenters also contended that conventions have become vehicles 
for the infusion of massive amounts of non-Federal funds into both 
political parties and to their candidates and officeholders. Another 
commenter argued that the changes to the Commission's host committee 
regulations in 1977, 1979, 1994, and 1999 make continued reliance on 
the original justification unwarranted. More than 1,100 timely, 
essentially identical, comments that the Commission received by e-mail 
expressed support for the use of tax dollars to fund party conventions 
``precisely so that parties may turn away other sources of 
inappropriate funds.''
    For many of these same reasons, a petition for rulemaking sought 
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.
    One commenter presented data that it claimed challenged some of the 
assumptions upon which the Commission's host committee rules are based. 
This commenter argued that the tremendous escalation of private 
contributions to finance host committees, traced over the course of 
several conventions, is inconsistent with the assumptions that the host 
committee and municipal fund exception to the expenditure limit is a 
``very narrow exception'' and that such donations are not politically 
motivated. However, the commenter also documented that party leaders at 
the State and local level have been active in raising funds for 
conventions held in their cities to nominate candidates of the opposing 
party.
    Other commenters challenged the data and conclusions drawn by this 
commenter. They argued that the increase in corporate funding reflects 
a general trend of increasing corporate sponsorship for large-scale 
civic events. A decreased willingness or ability of State and local 
governments to assist endeavors of this scale was also cited as a 
potential explanation for rising private donations.
    The Commission's consideration of these issues begins with 
consideration of BCRA's language. Nothing in the text of BCRA, however, 
expressly addresses convention financing.
    The Commission then looked to BCRA's legislative history on these 
issues. In light of the sparse and inconclusive legislative history, 
the NPRM sought comment as to whether Congress intended BCRA to change 
the rules for convention financing, and it cited the very few 
statements on this topic made during the Senate's consideration of 
BCRA. For example, Senator Mitch McConnell said the bill ``will end 
national party conventions as we have known them.'' 148 Cong. Rec. 
S2122 (daily ed. Mar. 20, 2002).
    Only two commenters addressed these remarks. One noted that the 
Supreme Court and other courts have found the views of legislative 
opponents to be an unreliable guide to the construction of a statute, 
citing National Labor Relations Board v. Fruit & Vegetable Packers, 
Local 760, 377 U.S. 58, 66 (1964); Bryan v. United States, 525 U.S. 
384, 196 (1998) (quoting Schwegman Bros. v. Calvert Distillers Corp., 
341 U.S. 384, 394-95 (1951)); and Illinois Commerce Comm'n v. 
Interstate Commerce Comm'n, 879 F.2d 917, 923 n. 47 (D.C. Cir. 1989). 
The only other commenter to address these remarks stated that they show 
that Congress understood that BCRA's national party and Federal 
candidate provisions would prohibit non-Federal funds in relation to 
Presidential nominating conventions.
    Because of the scarcity of comment indicating the pre-enactment 
intent of those who wrote or voted for the bill, the Commission affords 
little weight to the single passing comment made in the waning hours of 
floor debate. See NLRB v. Fruit & Vegetable Packers, Local 760, 377 
U.S. 58, 66 (1964) (noting that legislative opponents, ``[i]n their 
zeal to defeat a bill, * * * understandably tend to overstate its 
reach'').
    BCRA's principal sponsors in Congress did not file comments in 
response to the NPRM in this rulemaking. However, in comments filed in 
the Non-Federal Funds rulemaking, the sponsors did address convention 
financing. The Commission declines to rely on a single post-enactment 
statement in a separate rulemaking that unspecified ``tight 
restrictions'' exist as a basis to determine that BCRA effectively 
prohibits a major source of funding for the Presidential nominating 
conventions.
    In considering whether BCRA bars convention committees from 
accepting in-kind donations from host committees and municipal funds, 
the Commission considered several other factors as well. Title I of 
BCRA, entitled ``Reduction of Special Interest Influence'' and the 
cornerstone of BCRA, begins with the prohibition on national party 
committees. BCRA, sec. 101(a), 116 Stat. at 82. Presidential nominating 
conventions are the only publicly funded endeavors of a national party 
committee. Underlying the convention public funding program is an 
elaborate statutory regime, 26 U.S.C. 9008, which Congress created. 
Moreover, Members of Congress often play substantial roles in 
Presidential nominating conventions. In fact, since 1996, all 
Democratic Members of Congress have served as automatic delegates to 
their party's convention, according to one of the commenters.
    The Commission's regulations on host committees have been in effect 
since the earliest days of the Commission. Despite other changes to the 
host committee regulations, the Commission has consistently maintained 
that donations of funds to host committees are, as a matter of law, 
distinct from other donations by prohibited sources in that they are 
motivated by a desire to promote the convention city and hence are not 
subject to the absolute ban on corporate contributions in 2 U.S.C. 
441b. This conclusion is buttressed by the fact that frequently members 
of the opposite political party have played prominent and active roles 
in convention host committees. For example, in 2000 David L. Cohen, a

[[Page 47402]]

longtime aide to Ed Rendell (who was then mayor of Philadelphia, and 
now is the Democratic Governor of Pennsylvania), chaired the host 
committee for the Republican National Convention. Mr. Rendell was also 
actively involved in the 2000 Philadelphia host committee's activities. 
In addition, Noelia Rodriguez, former Deputy Mayor to Mayor Richard 
Riordan, and now Press Secretary for First Lady Laura Bush, served as 
Executive Director of the Los Angeles host committee for the 2000 
Democratic National Convention. Furthermore, the co-chair of the host 
committee for the 1996 Democratic National Convention in Chicago was 
Richard Notebaert, who has been a major contributor to Republican 
candidates and to the Republican Party. The fact that historically 
members of the opposite political party have played key roles in 
convention host committees strongly supports the Commission's 
conclusion that host committee activity is motivated by a desire to 
promote the convention city and not by political considerations. While 
it is always difficult to interpret Congressional silence, the 
Commission does note that BCRA specifically repealed another of the 
Commission's regulations, BCRA, sec. 214(b), 116 Stat. at 94, and yet 
did not similarly repeal or otherwise address the Commission 
regulations on convention financing. Congress has also declined other 
opportunities to disapprove of the Commission's regulations regarding 
host committees. These regulations were submitted to Congress in 1977, 
1994, and 1999, and Congress has not taken action to invalidate the 
regulations. In those regulations, one of only two subparts is devoted 
to host committees and municipal funds, 11 CFR part 9008, subpart B, 
which provides host committees a legal prominence in the regulatory 
structure as well.
    Courts have recognized that when it is not clear whether statutory 
amendments affect past agency interpretations, agencies are left with 
their ordinary ability to interpret the law as amended, subject to 
deferential judicial review. See, e.g., Chisholm v. FCC, 538 F.2d 349, 
366 (D.C. Cir. 1976) (noting court's obligation to defer to agency's 
interpretation even if it is not the only interpretation permissible). 
Thus, the Commission must decide whether to maintain its interpretation 
of 2 U.S.C. 441b and 26 U.S.C. 9008(d) and extend it to 2 U.S.C. 
441i(a) or to overturn the regulatory system governing convention 
financing.
    In light of all of these specific circumstances described above--
the absence in BCRA of an express reference to conventions, the dearth 
of legislative history on the subject of convention financing, the 
prominence of conventions for the parties, the role of Members of 
Congress in convention activities, the extensive, existing regulations 
for convention financing, and the Commission's long-standing regulatory 
position regarding host committee funds, which has never been 
repudiated by Congress--the Commission declines to interpret the 
general prohibitions in 2 U.S.C. 441i(a) to eliminate the Commission's 
discretion to interpret 2 U.S.C. 441b, 441i(a), and 26 U.S.C. 9008(d) 
to permit the financing regime established by its rules in 11 CFR part 
9008.
    In considering whether to maintain the current convention financing 
system, the Commission evaluated the relationship between the 
convention committee and the localities hosting the convention. This 
relationship is established by an arms-length agreement negotiated by 
independent actors. There is keen competition among cities to host 
conventions, and on more than one occasion, cities have sought the 
conventions of both major national parties. The highly detailed 
contract underlying this relationship calls for the city, its host 
committee, its municipal fund, or some combination of the three to 
provide very specific facilities and services to the convention 
committee in exchange for the convention committee agreement to bring 
the Presidential convention to that city instead of any other. In turn, 
the city and region receive a significant economic benefit from the 
commerce that directly results from the convention.
    For these reasons, the Commission concludes that convention 
committees may continue to receive in-kind donations from host 
committees and municipal funds of the convention expenses described in 
11 CFR 9008.52. The Commission is adopting new 11 CFR 9008.55(a), 
stating in part that convention committees may accept in-kind donations 
that are in compliance with 11 CFR 9008.52 or 9008.53 from host 
committees or municipal funds. The Commission emphasizes that this 
interpretation is limited to the unique circumstances of Presidential 
nominating convention financing.

11 CFR 9008.55(b)--Historically, Host Committees and Municipal Funds 
Are Not ``Agents'' of National Party Committees

    BCRA's ban on national parties soliciting, receiving, directing, 
transferring and spending non-Federal funds also applies to ``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)(1)(i). Section 300.2(b)(1) therefore requires a fact-
specific determination of the nature of any authority conferred by a 
national party committee.
    The NPRM sought comment on whether host committees and municipal 
funds satisfy the definition of ``agents'' under 11 CFR 300.2(b)(1) 
with respect to the national political party committees or their 
convention committees. Comment was also sought on whether host 
committees and municipal funds should be treated as per se agents of 
national party committees. Such an approach would have limited 
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 
function in practice, and regardless of their actual relationship with 
the national party committees. An alternative approach would have 
treated host committees and municipal funds as per se not agents of 
national party committees and, therefore, not subject as a matter of 
law to 2 U.S.C. 441i(a)(2) or 11 CFR 300.10(c)(1), no matter how such 
host committees and municipal funds actually operate or interact with 
the national party committees. The commenters were divided on these 
issues.
    Some commenters argued that host committees are independent from 
convention committees and should therefore not be considered agents of 
convention committees. Both host committees for the 2004 Presidential 
nominating conventions for the two major parties assured the Commission 
that their sole purpose was to encourage commerce in their cities and 
project a favorable image of their cities to the convention attendees. 
Counsel to one host committee explained that the committee conducts its 
own fundraising by its own staff and consultants, without national 
party committee participation. Counsel to the other host committee 
stated that the committee does not raise funds on behalf of the 
national party committee holding its convention in that city. 
Conversely, other commenters would treat host committees as agents. One 
commenter reasoned that because host committees raise funds to pay for 
convention

[[Page 47403]]

expenses, they are in essence raising funds for the convention 
committee, which would make host committees agents under 11 CFR 
300.2(b)(1)(i).
    The Commission has decided that the regulatory definition of 
``agent'' of a national committee of a political party in 11 CFR 
300.2(b)(1) sufficiently addresses the issue of when a host committee 
will be considered an agent of a national committee of a political 
party. It provides for a fact-specific determination, rather than a per 
se rule applicable to all host committees and municipal funds. 
Accordingly, the Commission has decided to adopt a new provision, 11 
CFR 9008.55(b), simply stating that host committees and municipal funds 
are not agents of national party committees, except as provided in 11 
CFR 300.2(b)(1).
    The Commission's experience is that host committees typically do 
not have authority to solicit, direct, or receive any contribution, 
donation, or transfer of funds on behalf of the national committees of 
political parties. Thus, as long as host committees and convention 
committees conduct their affairs as they have in the past, host 
committees will not be considered agents of convention committees. 
National party committees, convention committees, and host committees 
should look to 11 CFR 300.2(b)(1) for guidance on under what 
circumstances a host committee would be an agent of a national party 
committee or convention committee. In effect, this approach amounts to 
a presumption that host committees and municipal funds are not agents 
of the national party committee. Such a presumption could be rebutted 
by a showing that the conditions of Sec. 300.2(b)(1)(i) or (ii) are 
satisfied by the relationship of a particular host committee and 
convention committee. If a particular host committee or municipal fund 
were to become an ``agent'' of a national party committee, then it, 
like the national party committee itself, 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).

11 CFR 9008.55(c)--Historically, Host Committees and Municipal Funds 
Are Not Entities ``Directly or Indirectly Established, Financed, 
Maintained, or Controlled'' by National Party Committees

    The prohibitions on national party committees under BCRA also apply 
to entities that are ``directly or indirectly established, financed, 
maintained, or controlled'' by a national party committee. 2 U.S.C. 
441i(a)(2); 11 CFR 300.10(c)(2). As noted above, 11 CFR 300.2(c) 
provides 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 
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 resolution of this issue 
requires a fact-specific evaluation of the circumstances.
    The NPRM sought comment on whether host committees and municipal 
funds satisfy the factors listed in 11 CFR 300.2(c) and should, 
therefore, be considered entities that are directly or indirectly 
established, financed, maintained, or controlled by the national party 
committees holding conventions in the relevant cities. The NPRM posed 
the corresponding per se alternatives on this question as it did on the 
agency issue, discussed above.
    The commenters divided on this issue as well. Some commenters 
contended that the party committees control or coordinate with host 
committees so closely that host committees are affiliates of the 
national party committees. One commenter argued that the rules should 
not presume the organizations affiliated, but should instead rely on 
the factors listed in 11 CFR 300.2(c). This commenter also noted that 
two of those factors nearly always exist between the host committee and 
the convention committee. The two factors are that the party committees 
provide funds in a significant amount to host committees by virtue of 
selecting their cities to host the conventions, 11 CFR 
300.2(c)(1)(vii), and that the party committees and host committees 
have a similar pattern of receipts that indicate a formal or ongoing 
relationship under 11 CFR 300.2(c)(1)(x). Other commenters disagreed; 
they argued that host committees are not directly or indirectly 
established, financed, maintained, or controlled under 11 CFR 
300.2(c)(1). Both host committees cited detailed facts about their 
organizations to show that their organizations' relationship with the 
respective national party committees do not satisfy the factors listed 
in the definition of ``directly or indirectly establish, finance, 
maintain, or control.'' 11 CFR 300.2(c)(2)(i) through (x).
    The Commission has decided that the regulatory definition of 
``directly or indirectly establish, finance, maintain or control'' by a 
national committee of a political party in 11 CFR 300.2(c)(1) 
sufficiently addresses the issue. Section 300.2(c)(1) provides for a 
fact-specific evaluation of particular circumstances, rather than a per 
se rule applicable to all host committees and municipal funds. The 
Commission has decided therefore to adopt a new provision, 11 CFR 
9008.55(c), stating that host committees and municipal funds are not 
directly or indirectly established, financed, maintained, or controlled 
by a national political party, except as provided in 11 CFR 300.2(c).
    The Commission's experience is that host committees typically would 
not meet the affiliation test established in 11 CFR 300.2(c)(1). Thus, 
so long as host committees and convention committees conduct their 
affairs as they have in the past, host committees will not be 
considered directly or indirectly established, financed, maintained, or 
controlled by a national party committee. In effect, this approach 
amounts to a presumption that host committees are not directly or 
indirectly established, financed, maintained, or controlled by a 
national party committee. Such a presumption could be rebutted by a 
showing that the conditions of 11 CFR 300.2(c) are satisfied by the 
relationship of a particular host committee or municipal fund and a 
national party committee.

11 CFR 9008.55(d)--National Party Solicitations of Funds for Host 
Committees and Municipal Funds

    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). These prohibitions 
extend to funds solicited or directed for only certain 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.; 11 CFR 
300.2(a).
    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).'' FECA defines ``election'' to 
include nominating conventions. 2 U.S.C. 431(1)(B). The Commission's 
previous treatment of permissible host committee and municipal fund 
disbursements has been that they are not ``contributions or 
expenditures''

[[Page 47404]]

under 2 U.S.C. 441b because they are not made ``in connection with'' an 
election. However, BCRA reaches 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). In 
light of these definitions and the previous treatment of host 
committees and municipal funds, the Commission sought 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.
    Two commenters stated that because host committees have not been 
considered political committees, host committees cannot be considered 
to make ``disbursements in connection with an election.'' However, the 
Commission notes that FECA defines ``political committee,'' in part, as 
any committee that receives contributions or makes expenditures 
aggregating in excess of $1,000 during a calendar year. 2 U.S.C. 
431(4). The definitions of ``contribution,'' 2 U.S.C. 431(8)(A)(i), and 
``expenditure,'' 2 U.S.C. 431(9)(A)(i), both include the requirement 
that the transaction be ``for the purpose of influencing any election 
for Federal office.'' Thus, the determination that host committees are 
not political committees does not resolve the question of whether they 
make ``disbursements in connection with a Federal election.''
    One commenter also asserted that, in litigation challenging BCRA, 
the Commission explained that 2 U.S.C. 441i(d) reflected Congressional 
recognition that some tax-exempt organizations engage in campaign 
activities to benefit Federal candidates. The commenter suggested that 
because this purpose is not relevant to host committees, the Commission 
should not consider solicitations for host committees subject to 2 
U.S.C. 441i(d). The Commission disagrees. The passage of the 
government's brief quoted by this commenter did not purport to be an 
exhaustive list of activities prohibited by 2 U.S.C. 441i(d). Indeed, 
later in the same brief, the wider effect of the provision was made 
clear: ``Moreover, donations solicited or directed by national party 
committees to benefit tax-exempt organizations that conduct political 
activities create the same potential problems of corruption that other 
unregulated fund-raising by the national party engenders. * * *'' Brief 
of Defendants, at 118, McConnell v. FEC, 251 F. Supp. 2d 176 (D.D.C. 
2003); prob. juris. noted, 123 S.Ct. 2268 (U.S. 2003).
    The Commission has determined that host committee and municipal 
fund disbursements related to convention activities are not 
``disbursements in connection with an election'' sufficient to trigger 
the prohibition in 2 U.S.C. 441i(d) with respect to those host 
committee and municipal funds that are 501(c) organizations. Therefore, 
the Commission is not promulgating a new rule at 11 CFR 9008.55(d) 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. 
Further, host committees and municipal funds therefore will not be 
required to make any certification pursuant to 11 CFR 300.11(d) or 
300.50(d).
    The Commission concluded that consistent with the longstanding 
rationale for not treating host committee and municipal fund activity 
``in connection with'' an election for purposes of 2 U.S.C. 441b, it 
should similarly apply the ``in connection with'' language at 2 U.S.C. 
441i(d). As noted earlier, the overriding purpose of permissible host 
committee and municipal fund activity is commercial or civic in nature.
    Even though the restrictions of 441i(d) may not apply, national 
party agents will still be bound by the broad proscription at 2 U.S.C. 
441i(a). This will mean that such agents may not solicit any funds not 
subject to the limits, prohibitions, and reporting requirements of the 
statute. In effect, such agents will be able to solicit funds that 
would be subject to the contribution limit for ``any other political 
committee'' (i.e., $5,000 per year pursuant to 2 U.S.C. 441a(a)(1)(C), 
(2)(C)), but no donations from prohibited sources could be solicited, 
and the funds would have to be reported by the recipient host committee 
or municipal fund.

11 CFR 9008.55(e)--Candidate Solicitations for Host Committee and 
Municipal Funds

    BCRA also prohibits Federal candidates and individuals holding 
Federal office \7\ 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 agents acting on their behalf of either Federal 
candidates or individuals holding Federal office, as well as to 
entities directly or indirectly established, financed, maintained, or 
controlled by such candidates or officeholders. 2 U.S.C. 441i(e)(1).
---------------------------------------------------------------------------

    \7\ 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).
---------------------------------------------------------------------------

    BCRA creates two exceptions from that general rule in 2 U.S.C. 
441i(e)(4), only one of which is relevant to Presidential nominating 
conventions. 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, 
so long as the solicitation does not specify how the funds will or 
should be spent. 2 U.S.C. 441i(e)(4)(A). The ``Federal election 
activity'' referenced in this exception is voter registration within 
120 days of a Federal election and voter identification, GOTV 
activities, or generic campaign activity conducted in connection with 
an election in which a candidate for Federal office appears on the 
ballot. 2 U.S.C. 441i(e)(4)(A) (citing 2 U.S.C. 431(20)(A)(i) and 
(ii)).
    The principal purpose of a host committee or municipal fund is to 
promote and generate commerce in the host city; its principal purpose 
is not to conduct the specified types of Federal election activity that 
would trigger the exception to the rule permitting general 
solicitations for 501(c) organizations. Therefore, under 2 U.S.C. 
441i(e)(4)(A), Federal candidates and officeholders may make general 
solicitations of funds on behalf of any host committee or municipal 
fund that is a 501(c) organization where such solicitations do not 
specify how the funds will or should be spent and where the Federal 
candidates and officeholders do not establish, finance, maintain, or 
control these organizations.\8\
---------------------------------------------------------------------------

    \8\ In AO 2003-12, the Commission determined that the exceptions 
in 2 U.S.C. 441i(e)(4) do not apply to a section 501(c) organization 
established, financed, maintained, or controlled by a Federal 
candidate or officeholder, or agent of either.
---------------------------------------------------------------------------

    The final rule at 11 CFR 9008.55(e) is modified from the proposed 
rule to state that Federal candidates and officeholders and their 
agents may make

[[Page 47405]]

general solicitations on behalf of host committees or municipal funds 
that are section 501(c) organizations, provided the solicitations do 
not specify how the funds will or should be spent and provided that the 
solicitations are otherwise permitted by 2 U.S.C. 441i(e)(4)(A).\9\
---------------------------------------------------------------------------

    \9\ The new regulations at 11 CFR 300.52 and 300.65 could be 
read to restrict a broader range of general solicitations made on 
behalf of 501(c) organizations than does the related provision of 
BCRA, 2 U.S.C. 441(e)(4)(A). Specifically, the regulations appear to 
bar general solicitations on behalf of 501(c) organizations for any 
election activity, including certain types of Federal election 
activity; section 441(e)(4)(A), however, bars only those general 
solicitations on behalf of 501(c) organizations whose principal 
purpose is to conduct these specified types of Federal election 
activity. The regulations should be read as barring only those 
solicitations covered by the statute.
---------------------------------------------------------------------------

Other Convention-Related Issues

A. Goods and Services Provided to Convention Committees by Commercial 
Vendors

    The NPRM also sought comment on proposed changes to the rule on 
convention committees receiving goods and services from commercial 
vendors, 11 CFR 9008.9. Some commenters argued that nothing in BCRA 
should change the conclusion that the provision of these goods and 
services is permissible. In contrast, a different commenter argued that 
this exception violates both FECA and BCRA, citing many of the same 
reasons some commenters used to argue that the Commission's current 
host committee and municipal regulations are contrary to FECA and BCRA. 
For the same reasons stated above regarding the host committee and 
municipal fund exception, the Commission has determined that no change 
to 11 CFR 9008.9 is required by BCRA.

B. Offsets

    The NPRM sought comment on whether BCRA required any reevaluation 
of the practice of permitting convention committees to ``offset'' in-
kind contributions received from host committees that are deemed 
impermissible in post-convention audits. Under this practice, rather 
than require repayment of 100% of these receipts, the convention 
committee is permitted to offset the impermissible in-kind 
contributions with convention committee expenditures that could have 
been paid by the host committee. The Commission has concluded that 
under BCRA convention committees may continue to receive in-kind 
donations from host committees and municipal funds provided the in-kind 
donations are in accordance with 11 CFR 9008.52 and 9008.53. See new 11 
CFR 9008.55(a). Therefore, the Commission has also determined that 
convention committees may offset host committee or municipal fund 
impermissible in-kind contributions. Accordingly, no revisions need be 
made in the final rules.

C. Private Hospitality Events

    The NPRM also sought comment on whether BCRA requires regulation of 
private hospitality events held by corporations, labor organizations, 
and other groups in the convention city during the convention. Such 
events are typically held in locations outside the convention venue, 
but often in close proximity to it. Convention attendees including 
delegates, Federal candidates and officeholders, and political party 
officials are often invited to these events, and such individuals 
frequently speak or are recognized at such events.
    Four commenters addressed this issue, and they all agreed that BCRA 
does not require regulatory language regarding these hospitality 
events. One of the commenters noted that these events could be subject 
to regulation on some other basis, if, for example, the events were 
also fundraisers for a political committee under the Act.
    The Commission has concluded that BCRA does not change the 
determination that the temporal and geographic proximity of these 
events to Presidential nominating conventions does not subject the 
events to regulation under FECA solely because of that proximity. The 
Commission notes that FECA regulation could be triggered nonetheless by 
such events if, for example, a Federal political committee holds a 
fundraising event.

D. Host Committee Audits

    The NPRM sought comment on whether the examination and audit 
authority set forth in current 11 CFR 9008.54 has an adequate statutory 
basis under FECA or the Fund Act. This section mandates audits of all 
host committees. The Fund Act gives the Commission the authority ``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 (the Commission) by this 
chapter.'' 26 U.S.C. 9009(b).
    When the predecessor to the current version of 11 CFR 9008.54 was 
promulgated in 1979, the Commission determined it was necessary to 
audit host committees because host committees are allowed to accept 
donations to defray convention expenses and, therefore, the Commission 
had a responsibility to insure that such donations ``were properly 
raised and spent.'' Explanation and Justification for Presidential 
Election Campaign Fund and Federal Financing of Presidential Nominating 
Conventions, 44 FR 63036, 63038 (Nov. 1, 1979).
    Two commenters argued that the Commission does not have statutory 
authority to conduct routine audits of host committees. In their view, 
the Commission's routine audit authority is limited to candidates and 
committees that receive public funds, and is meant to ensure that such 
candidates and committees do not misspend those public funds. One 
commenter stated that routine audits of host committees are unwarranted 
because host committees do not receive public funds. Both commenters 
favored repealing 11 CFR 9008.54.
    After considering the comments, the Commission has concluded that 
it possesses authority to audit host committees on a routine basis. The 
Commission notes that the audit authority in 26 U.S.C. 9009(b) is 
broad. That section grants the Commission the power ``to conduct such 
examinations and audits'' as it deems necessary to carry out the 
responsibilities with which the Commission has been charged. Unlike 26 
U.S.C. 9007(a), which requires the Commission to conduct routine audits 
of publicly-financed candidates and convention committees, section 
9009(b) does not require the Commission to audit host committees. It 
does, however, grant the Commission the discretion to do so. Given the 
increasingly vital role that host committees play in financing the 
national nominating conventions, the Commission continues to find it 
necessary to conduct routine host committee audits to ensure that such 
entities do not provide ``anything of value'' to convention committees, 
except as expressly permitted in 11 CFR 9008.52(b).

E. Municipal Fund Audits

    While the NPRM proposed to eliminate many of the discrepancies in 
the manner that the Commission's regulations applied to host committees 
and municipal funds, it did not propose extending the routine audit 
provision applicable to host committees, 11 CFR 9008.54, to municipal 
funds as well.
    While the NPRM did not propose to conduct routine audits of 
municipal funds, it indicated that the Commission retains the authority 
to conduct a detailed and thorough review of municipal fund 
transactions if such an

[[Page 47406]]

examination is necessary in particular circumstances. Comment was 
sought on whether, because municipal funds are already subject to 
government oversight, as well as for the sake of comity between Federal 
and State or local agencies, the Commission should decline to revise 11 
CFR 9008.54 to extend its audit authority to cover municipal funds. One 
commenter opposed subjecting municipal funds to automatic audits.
    The Commission has decided not to extend the audit authority set 
forth in 11 CFR 9008.54 to municipal funds because routine, full-scale 
audits of municipal funds are unnecessary, given that municipal funds' 
financial transactions are already subject to careful scrutiny by local 
authorities. The Commission does, however, retain the authority to 
conduct detailed and thorough examinations of municipal fund 
transactions and accounts related to the convention when warranted.

11 CFR Part 9031--Scope

11 CFR 9031.1--Scope

    The Commission is making two technical amendments to this section 
to update the references to its other regulations.

11 CFR Part 9032--Definitions

11 CFR 9032.9--Qualified Campaign Expenses

    Section 9032.9 defines qualified campaign expenses. One technical 
correction is being made in Sec.  9032.9(c). Previously, this rule 
stated 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. The reference to ``expenditure report period'' was an error 
because that term applies to general election candidates. See 11 CFR 
9002.12. This reference is being changed 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. No commenters 
addressed this topic.

11 CFR Part 9033--Eligibility for Payments

11 CFR 9033.1--Candidate and Committee Agreements

    Similar to the technical amendment to 11 CFR 9003.1(b)(8) discussed 
above, the Commission is revising Sec.  9033.1. The reference to 11 CFR 
parts 100-116 in paragraph (b)(10) is amended to encompass all the 
regulations up to and including 11 CFR part 400 among the regulations 
with which candidates and their authorized committees agree to comply.

11 CFR 9033.11--Documentation of Disbursements

    The changes to Sec.  9033.11 follow the changes to 11 CFR 9003.5 
discussed above.

11 CFR Part 9034--Entitlements

11 CFR 9034.4--Use of Contributions and Matching Payments; Examples of 
Qualified Campaign Expenses and Non-Qualified Campaign Expenses

    Section 9034.4, which concerns the use of contributions and 
matching payments for qualified and non-qualified campaign expenses, is 
being amended in several respects. First, the heading for this section 
is being modified by adding the words ``examples of qualified campaign 
expenses and nonqualified campaign expenses'' to assist the reader in 
locating these examples.

11 CFR 9034.4(a)(3)(i)--Definition of ``Winding Down Costs''

    The Commission is revising 11 CFR 9034.4 to move provisions from 
paragraph (a)(3)(i) to the new rule on winding down costs in 11 CFR 
9034.11, discussed below. Revised Sec.  9034.4(a)(3)(i) indicates that 
winding down costs that satisfy new 11 CFR 9034.11 are qualified 
campaign expenses.

11 CFR 9034.4(a)(3)(ii)--Private Contributions Received After DOI

    The Commission is also revising 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. 
Previously, paragraph (a)(3)(ii) provided that these candidates may use 
``contributions received after'' the DOI to continue to campaign. 
However, 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, 
contributions that were dated on or before the DOI but received after 
the DOI were subject to both rules, and the previous rules did not make 
clear how they should be treated. Section 9034.4(a)(3)(ii) is being 
revised to eliminate the overlap by stating that only a contribution 
that is dated after a candidate's DOI may be used to continue to 
campaign.
    In addition, the Commission is deleting the sentence in former 
Sec.  9034.4(a)(3)(ii) that stated: ``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. Deleting 
this sentence makes clear that candidates will 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. Revised 11 CFR 
9034.4(a)(3)(ii) also includes a new reference to 11 CFR 9034.11. No 
comments were received regarding these changes to Sec.  
9034.4(a)(3)(ii).

11 CFR 9034.4(a)(3)(iii)

    As discussed below in the explanation and justification of 11 CFR 
9035.1(c)(1), paragraph (a)(3)(iii) is being moved from Sec.  9034.4 to 
Sec.  9035.1(c)(1).

11 CFR 9034.4(a)(5)--Gifts and Bonuses

    The NPRM sought comment on revising 11 CFR 9034.3(a)(5) regarding 
gifts and bonuses paid to campaign employees, consultants, and 
volunteers. For the reasons explained above in the explanation and 
justification for newly redesignated 11 CFR 9004.4(a)(6), the 
Commission has decided to make a similar change to 11 CFR 9034.4(a)(5).

11 CFR 9034.4(a)(6)--Convention Expenses of Ineligible Candidates

    The NPRM proposed adding a new section 11 CFR 9034.4(a)(6) 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 permitted ineligible candidates to treat as 
qualified campaign expenses certain costs related to meetings and 
events at the national nominating conventions subject to some 
restrictions. Specifically, the Commission allowed costs related to 
meetings and receptions to thank delegates and supporters to be treated 
as qualified campaign expenses, but did not also allow travel costs 
related to such events to be considered qualified campaign expenses. 
The Commission also permitted ineligible candidates to incur qualified 
campaign expenses related to specific fundraising events at

[[Page 47407]]

the national nominating conventions, as well as travel expenses to 
attend such events.
    One commenter agreed that the expenses in AO 2000-12 should be 
treated as qualified campaign expenses, and suggested that the rule 
should be extended to cover most convention expenses of primary 
candidates incurred after DOI. This commenter asserted that reasonable 
convention expenses are in connection with a candidate's campaign for 
nomination both for candidates who continue to campaign past their 
eligibility date and those who withdraw or suspend their campaigns. 
Candidates who withdraw or suspend their campaigns might restart their 
campaigns depending on changed circumstances. The commenter suggested a 
ceiling of $100,000 to $250,000 for such expenses.
    The Commission is adding new 11 CFR 9034.4(a)(6) to provide a 
simpler approach in which a candidate may treat expenses related to the 
national nominating convention of up to $50,000 as qualified campaign 
expenses. This rule recognizes that ineligible candidates have 
interests in participating in their parties' national nominating 
convention related to their candidacy for the nomination. Thus, it is 
reasonable to allow candidates to use public funds to participate in 
their party's national nominating convention. This bright line rule 
avoids the necessity of considering whether convention expenses are in 
fact necessary for fundraising activities or are genuinely to thank 
those who assisted the campaign as required by AO 2002-12.
    The new rule in 11 CFR 9034.4(a)(6) provides that an ineligible 
candidate may treat up to $50,000 in expenses related to the national 
nominating convention as qualified campaign expenses. Any costs 
reasonably related to the candidate's attendance, participation or 
activities at the Presidential nominating convention would be a 
qualified campaign expense under the new rule, including travel and 
lodging costs of the candidate, his or her family, and campaign staff, 
consultants and volunteers to attend the convention, the costs of 
hosting receptions and events, and other convention-related costs. Any 
amount in excess of $50,000 will not be considered a qualified campaign 
expense and may be subject to repayment. The $50,000 cap is based on 
the Commission's experience as to how much is reasonably necessary for 
this purpose. Apart from the $50,000 cap, any candidate who is in a 
deficit position after DOI may incur additional qualified campaign 
expenses related to fundraising events at the national nominating 
conventions to retire campaign debt.

11 CFR 9034.4(b)(3)--Non-Qualified Campaign Expenses

    Revisions are being made to 11 CFR 9034.4(b)(3) to more clearly 
state that winding down costs addressed in paragraph (a)(3) of this 
section are qualified campaign expenses. The revised rules also 
indicate that certain convention expenses permitted under paragraph 
(a)(6) of this section are qualified campaign expenses. As proposed in 
the NPRM, Sec.  9034.4(b)(3) would have also referred to continuing to 
campaign costs; however, in the final rules, it does not refer to 
continuing to campaign costs because those costs are not qualified 
campaign expenses.

11 CFR 9034.10--Pre-Candidacy Payments by Multicandidate Political 
Committees Deemed In-kind Contributions and Qualified Campaign 
Expenses; Effect of Reimbursement

    In the NPRM, the Commission proposed adding language at 11 CFR 
9034.10 to treat certain expenses incurred by multicandidate committees 
as in-kind contributions benefiting publicly funded Presidential 
candidates. Similar language was proposed at 11 CFR 110.2(l) to reach a 
similar result where multicandidate committees incur such expenses 
benefiting Presidential candidates who are not publicly funded. These 
provisions were designed to address situations where unauthorized 
political committees closely associated with a particular individual 
planning to run for President defray costs that are properly treated as 
in-kind contributions unless reimbursed by the Presidential campaign.
    Two commenters addressed this topic. One commenter generally 
supported the proposed rule, but noted that it did not address similar 
issues in Congressional campaigns. The other commenter suggested that 
in this context even polling that did not mention a particular 
Presidential candidate should be covered.
    The Commission is adopting final rules that use much of the 
approach set forth in the proposed rules. The final rules, though, 
narrow their focus so they are clearer in application and better 
targeted to the situations that truly present the potential for evasion 
of the contribution and spending limits. The final rules also provide a 
mechanism for a Presidential campaign to achieve compliance with the 
law by promptly reimbursing the multicandidate committee. If there is 
full and timely reimbursement, the multicandidate political committee's 
payment is not to be treated as an in-kind contribution for either 
entity, but rather the reimbursement is an expenditure of the 
candidate's campaign and is a qualified campaign expense of the 
candidate's campaign (in the case of a publicly funded candidate).
    One distinction built into the final rules is that they cover only 
payments by multicandidate political committees before the individual 
benefiting actually becomes a candidate within the meaning of 2 U.S.C. 
431(2) and 26 U.S.C. 9032(2). The Commission's experience is that after 
an individual becomes a candidate for the Presidency by virtue of 
receiving more than $5,000 in contributions or making more than $5,000 
in expenditures, and taking into account the ``testing the waters'' 
allowances at 11 CFR 100.72 and 100.131, the candidate's principal 
campaign committee or other authorized committee would pay the types of 
expenses involved here. The focus of the final rules, therefore, is 
those expenses paid by multicandidate political committees prior to 
actual candidacy under the law, i.e., during the ``testing the waters'' 
phase and before. For other situations not addressed in new Sec.  
110.2(l) or Sec.  9034.10, including when expenditures are paid for by 
multicandidate committees after candidacy, the general provisions 
describing in-kind contributions at 11 CFR 100.52(a) and (d), 109.20, 
109.21, 109.23, and 109.37 would apply. The covered expenses in the new 
rules at 11 CFR 110.2(l) and 9034.10 would not trigger candidacy 
themselves, but would count as contributions in-kind and/or qualified 
campaign expenses if and when the individual benefiting becomes a 
candidate, including by operation of 11 CFR 100.72(b) and 100.131(b).
    Both final rules narrow the types of expenses covered in the 
proposed rules by qualifying each. For example, only polling expenses 
that involve measuring the favorability, name recognition, or relative 
support of the person who becomes a Presidential candidate are subject 
to the rules. General polling solely regarding issues would not be 
covered. Compensation and office expenses would be covered only to the 
extent they relate to activities in states where Presidential 
primaries, caucuses, or preference polls are yet to be conducted.
    Both final rules also narrow the coverage to situations where there 
is some involvement of the benefiting candidate. It became apparent 
that there may be some multicandidate political committee payments of 
the type described that are undertaken without

[[Page 47408]]

any involvement of the individual who becomes a Presidential candidate. 
For example, some multicandidate committees might independently 
undertake polling to test the relative support of various potential 
candidates for President in order to make decisions about which 
candidate to support with contributions or independent expenditures. 
Other committees might be setting up staffed offices in States that 
will be conducting Presidential primaries, but have no involvement 
whatsoever with a person who becomes a Presidential candidate.
    The Commission decided to refer to standards already in the 
regulations to reach only those expenditures that properly should be 
treated as in-kind contributions and/or qualified campaign expenses. 
Thus, the final rules cover only those situations where the benefiting 
candidate ``accepted or received'' the goods or services, ``requested 
or suggested'' the goods or services, had ``material involvement'' in 
the decision to provide the goods or services, or was involved in 
``substantial discussions'' about providing the goods or services. See 
11 CFR 106.4(b); 109.21(b)(2), (d)(1), (d)(2), (d)(3). This approach 
was driven, in part, by the fact that the Commission did not in these 
rules want to try to differentiate between various types of 
multicandidate committees, such as those commonly referred to as 
``leadership PACs.'' However, without some nexus with a particular 
benefiting candidate, the rules would reach too broadly. As a practical 
matter, the final rules probably will have the most impact on so called 
``leadership PACs,'' but other types of multicandidate political 
committees will be covered as well.
    If reimbursement is made by the Presidential campaign within 30 
days after the benefiting candidate becomes a candidate, the 
multicandidate political committee's payment will not be deemed an in-
kind contribution. Because some such payments may fall within the last 
30 days of a multicandidate committee's and a Presidential candidate's 
reporting period, and before the reimbursement has been made, the 
question of whether to initially report the payment as a contribution 
in-kind arises. Because of the nature of these expenses, and the fact 
that treatment as an in-kind contribution does not arise unless and 
until the benefiting Presidential aspirant legally becomes a candidate, 
the Commission will not require the payment to be treated as an in-kind 
contribution under these circumstances. After the reimbursement 
opportunity has passed, though (30 days after candidacy), the payment 
must be treated as an in-kind contribution, and any such payments not 
previously reported as such would have to be so reported through the 
amendment process.
    Please note that nothing in these final rules alters the 
application of 11 CFR 109.21(b)(2) or 109.37(a)(3) or (b). The 
Commission also notes that these final rules in no way address 
situations where the Commission determines that the multicandidate 
political committee and the candidate's principal campaign committee 
are affiliated under 11 CFR 100.5(g)(4).

11 CFR 9034.11--Winding Down Costs

    This new section addresses winding down costs for primary election 
candidates. For the reasons stated in the explanation and justification 
for new 11 CFR 9004.11, which addresses winding down costs for general 
election candidates, the Commission is adopting a similar approach to 
winding down costs of primary candidates in new Sec.  9034.11, with 
some differences described below.

11 CFR 9034.11(a)--Definition of ``Winding Down Costs''

    The definition of ``winding down costs'' in new Sec.  9034.11(a) is 
similar to the definition in Sec.  9004.11(a) except that the costs are 
related to the candidate's campaign for nomination rather than the 
candidate's general election campaign. New Sec.  9034.11(a) includes a 
revised version of the first sentence of previous 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 change helps to 
clarify that primary election campaign winding down expenses are 
legally distinct from general election campaign winding down expenses.

11 CFR 9034.11(b)--Winding Down Limitation

    In the NPRM the Commission proposed placing a 5% amount limitation 
on winding down costs for primary election candidates similar to the 
limit proposed for general election candidates. One commenter opposed 
the 5% limit, noting that in the 2000 election cycle a number of 
candidates would have exceeded this limitation. The commenter viewed 
winding down costs as fixed costs. The commenter stated that media 
costs become an increasingly larger percentage of a campaign's 
expenditures as money becomes available, while the percentage of 
expenditures for accounting, legal services, office space and supplies 
diminishes because such costs are often provided at a fixed price for 
the anticipated duration of the service and are not directly dependent 
upon whether the campaign is active or closing down.
    As it did with the 2000 general election candidates, the Commission 
compared the approximate winding down costs of the primary election 
candidates to the proposed winding down limitations. 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 these, only one would have 
exceeded the proposed winding down limitation, having spent 
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 proposed in the NPRM, with winding down costs 
ranging between approximately 13% and 42% of their expenditures. One 
candidate who would have been subject to the minimum winding down 
limitation of $100,000 spent substantially less than that amount. Thus, 
of the ten publicly funded primary committees in the 2000 Presidential 
elections, five committees had winding down expenses that would have 
exceeded the proposed limitation. One of these had sufficient funds in 
its related GELAC that could have paid the excessive winding down 
expenses. The other four committees would have received less matching 
funds after their DOIs.\10\
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    \10\ Of course, this comparison is hypothetical, and the 
committees might have curbed certain expenses had the new rules been 
in effect.
---------------------------------------------------------------------------

    The Commission also considered the results of the hypothetical 
application to the 2000 candidates of a 10% winding down limitation for 
primary election candidates. This percentage would allow most 
campaigns, particularly small campaigns of unsuccessful candidates, to 
pay necessary winding down costs without exceeding the winding down 
limitation, and ensure that only campaigns with extraordinarily high 
winding down expenses exceed the winding down limitation. Although four 
of the ten 2000 election cycle primary candidates would have spent more 
than a 10% limitation, two of those candidates spent close to that 
amount (13% and 14%) and might have been able to adjust their 
expenditures to fall within the new

[[Page 47409]]

limitation; only two candidates spent far in excess of a 10% 
limitation.
    Accordingly the Commission is adopting a winding down limitation 
for primary election candidates in new Sec.  9034.11(b). Specifically, 
the new primary election winding down limitation is (1) 10% of the 
overall expenditure limitation; or (2) 10% 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. Like 
general election candidates, all primary candidates may spend a minimum 
of $100,000 on winding down costs.
    This limitation only applies to the use of public funds or a 
mixture of public and private funds for winding down costs. The final 
rule allows a primary candidate who is in a deficit position at the DOI 
to pay for winding down costs in excess of the limitation 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 will be required to make a surplus repayment to the United 
States Treasury before they may use private funds for winding down 
costs in excess of the limitation. See 11 CFR 9038.3(c). The rule 
restricts the expenses used to calculate the winding down limitation to 
the period prior to a primary candidate's DOI to prevent candidates 
from increasing their winding down limitation by spending more for 
winding down expenses.
    In practice, the winding down limitation for primary candidates 
with large campaigns would be the maximum winding down limitation: 10% 
of the overall expenditure limitation. Currently, the primary election 
expenditure limitation is equal to $36,480,000, so the 10% limit would 
equal $3,648,000.\11\ For primary candidates with smaller campaigns, 
the winding down limitation would equal 10% of their expenses prior to 
DOI. For purposes of calculating the amount of the winding down 
limitation based on a primary candidate's expenses, a candidate's 
expenses include both disbursements and accounts payable as of the DOI 
for the same categories of expenses that are listed above in the 
discussion of the general election candidate limitation at 11 CFR 
9004.11(b). 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).
---------------------------------------------------------------------------

    \11\ Before the 2004 primary elections, the primary election 
expenditure limit under 2 U.S.C. 441a(b)(1)(A) is subject to an 
additional annual adjustment under 2 U.S.C. 441a(c).
---------------------------------------------------------------------------

    After a primary candidate's accounts no longer contain public 
funds, including after making any required surplus repayments, private 
funds may be used to pay for expenses in excess of the winding down 
limitation without resulting in non-qualified campaign expenses. In 
addition, as discussed above, the new rule will permit a candidate's 
GELAC to pay the primary committee's winding down expenses under 
certain conditions.
    One commenter argued that the Commission has the authority to 
create a fund for primary candidates like the GELAC and could provide 
clear guidance as to the permissible expenses from the fund, which 
would create an incentive for candidates to adopt strong compliance 
procedures. The Commission disagrees. Fully funded general election 
candidates may not accept private contributions; thus, the GELAC allows 
such candidates to accept contributions, but only for limited legal and 
compliance costs. See 11 CFR 9003.3. General election candidates are 
also permitted some expenses that do not count toward the expenditure 
limitations and the GELAC is a source of funds for these exempt 
expenditures. Primary candidates may accept private contributions. To 
the extent that primary candidates are not in a surplus position and no 
longer retain any matching funds in their accounts, they may use 
private contributions for winding down expenses in excess of the new 
restrictions without having to make a repayment for non-qualified 
campaign expenses. Thus, a separate compliance fund is not necessary 
for primary candidates. In addition, there is no basis for permitting 
primary candidates to have more than one contribution limitation for 
the same election by allowing a separate contribution limitation for a 
legal defense fund or legal and accounting compliance fund.
    For these reasons, the Commission does not believe that a new 
primary legal defense fund for enforcement matters and other legal 
proceedings or a primary legal and compliance fund similar to a GELAC 
is necessary or appropriate for primary election candidates.

11 CFR 9034.11(c)--Allocation of Primary and General Election Winding 
Down Costs

    The rules in new 11 CFR 9034.11(c) on the allocation of primary and 
general election winding down costs follow the new rules in 11 CFR 
9004.11(c).

11 CFR 9034.11(d)--Candidates Who Run in Both Primary and General 
Elections

    The Commission is revising 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 rules in 
former 11 CFR 9034.4(a)(3)(i) and (iii) allowed only candidates who do 
not accept public funding 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. The former rule, however, did 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 believes 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. Candidates who run in the general election, whether or not 
they receive public funds for that election, must wait until 31 days 
after the general election, which is the first day after the end of the 
expenditure report period for publicly financed general election 
candidates, before they may begin to incur and pay winding down 
expenses or allocate them as 100% compliance expenses. Consequently, 
the new rule at 11 CFR 9034.11(d) expressly applies without regard to 
whether candidates' general election campaigns are publicly funded. 
Expenses incurred 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, are general election expenses, rather than primary winding 
down costs. This rule prevents the use of primary matching funds for 
non-qualified expenses related to the

[[Page 47410]]

general election. See 11 CFR 9032.9(a) and 9034.4(b). Although this 
revised rule may result in general election campaigns incurring a small 
amount of administrative costs related to terminating the primary 
campaign during the general election period, in practice, these 
expenses are offset by general election start up costs that are 
incurred and paid by the primary committee prior to the candidate's 
DOI. 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 allow some primary related expenses to be paid 
by the general election committee and vice versa.
    One commenter believed that this approach addresses the danger of 
primary funds paying for general election activity but fails to address 
the situation where a candidate only receives public funds in the 
general election and could use primary campaign funds to defray general 
election expenses. The Commission does not agree that this is a problem 
because a candidate is not permitted to supplement the general election 
grant by paying general election expenses with primary funds.
    New paragraph 11 CFR 9034.11(d) is based on former 11 CFR 
9034.4(a)(3)(i) with certain revisions. The new rule at 11 CFR 
9034.11(d) states 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 also clarifies 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. Other portions of former Sec.  
9034.4(a)(3)(i) are discussed below in the explanation and 
justification for 11 CFR 9035.1(c)(i).

11 CFR Part 9035--Expenditure Limitations

11 CFR 9035.1--Campaign Expenditure Limitation; Compliance and 
Fundraising Exemptions

    Section 9035.1(a)(1) of the Commission's regulations implements the 
spending limit for primary election candidates and their authorized 
committees in 2 U.S.C. 441a(b)(1)(A). Section 9035.1(a)(2) prescribes 
how the amounts of expenditures attributed to the spending limits will 
be calculated. The NPRM proposed to clarify 11 CFR 9035.1(a) to provide 
guidance on the extent to which coordinated expenditures, coordinated 
communications, coordinated party expenditures, party coordinated 
communications and other in-kind contributions will count against the 
spending limits in Sec.  9035.1(a)(1). The Commission has decided to 
adopt the proposed additions to the rules at 11 CFR 9035.1.
    The Commission has generally treated the receipt of in-kind 
contributions by Presidential primary candidates as expenditures made 
by those candidates subject to the expenditure limitations and has 
included such in-kind contributions in the total amount of a 
candidate's expenditures subject to the limits in calculating 
repayments based on excessive expenditures. In one 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 associated with that 
candidate, which was considered his ``leadership PAC,'' were subject to 
the candidate's state-by-state spending limits. The Commission 
considered in-kind contributions to be part of the mixed pool of public 
and private funds, and thus, these expenditures were included in 
calculating the amount in excess of the limitations subject to 
repayment. The final rules amend 11 CFR 9035.1(a) and 9038.2(b)(2) 
(discussed below) to reflect this approach.
    In the BCRA rulemaking on coordinated and independent expenditures, 
the Commission defined the terms ``coordinated,'' ``coordinated 
communication,'' and ``party coordinated communications'' in 11 CFR 
109.20, 109.21, and 109.37, respectively. See Explanation and 
Justification for Final Rules on Coordinated and Independent 
Expenditures, 68 FR 421 (Jan. 3, 2003). These rules also describe 
circumstances in which coordinated expenditures and coordinated 
communications are treated as in-kind contributions.
    Under 11 CFR 109.21(b)(2) and 11 CFR 109.37(a)(3), some coordinated 
expenditures are made by a person or party committee, but are not 
received or accepted by a candidate. 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), 11 CFR 
109.21(d)(2) (material involvement), or 11 CFR 109.21(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 11 CFR 109.37, result in the receipt or 
acceptance of an in-kind contribution arising from a coordinated 
communication or a party coordinated communication. Only in-kind 
contributions received or accepted by the candidate or authorized 
committee or agent are treated as expenditures made by the candidate. 
See 11 CFR 109.20(b) (requiring a candidate to report coordinated 
expenditures as expenditures); 11 CFR 109.21(b)(1) (requiring a 
candidate to report received or accepted coordinated communications as 
expenditures); 11 CFR 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).
    The final rules add new paragraph (a)(3) to Sec.  9035.1 to specify 
that coordinated expenditures pursuant to 11 CFR 109.20, coordinated 
communications pursuant to section 109.21, coordinated party 
expenditures, party coordinated communications pursuant to section 
109.37, and in-kind contributions count against the expenditure 
limitations and are included in the total amount of a publicly funded 
candidate's expenditures subject to the limits. New 11 CFR 9035.1(a)(3) 
states that the Commission will attribute to a candidate's overall and 
state-by-state expenditure limitations the total of all: (1) 
Coordinated expenditures under 11 CFR 109.20; (2) coordinated 
communications under 11 CFR 109.21 that are in-kind contributions 
received or accepted by the candidate, authorized committee or agent; 
(3) coordinated party expenditures, including party coordinated 
communications under 11 CFR 109.37 that are in-kind contributions 
received or accepted by the candidate, authorized committee or agent 
and that exceed the coordinated party expenditure limitation at 11 CFR 
109.32(a); and (4) other in-kind contributions received or accepted by 
the candidate, authorized committee or agent. This new paragraph is 
consistent with the Commission's general past practice in audits of 
treating in-kind contributions as expenditures by the recipient 
Presidential candidates and their authorized committees.
    The phrase ``receive or accept'' in 11 CFR 9035.1 is consistent 
with the

[[Page 47411]]

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 that are not 
``received or accepted'' by a candidate do not count against that 
candidate's expenditure limitations. One commenter stated that limiting 
the rule to in-kind contributions that the candidate has received or 
accepted under 11 CFR part 109 is a common sense extension of the 
existing rules, which provide that a person may make an excessive in-
kind contribution but the intended beneficiary will not violate the law 
unless the candidate or committee accepts or receives the contribution. 
This commenter stated that it is appropriate to apply the legal 
principle that liability is the consequence of one's own acts and not 
the acts of others to regulations governing whether a candidate has 
made expenditures in excess of the limitations. The Commission is 
limiting the new rule to in-kind contributions received or accepted by 
the candidate, authorized committee or agents to be consistent with the 
rules in 11 CFR part 109.
    Additionally, new paragraph (a)(4) provides that the value of an 
in-kind contribution is the usual and normal charge for the goods and 
services provided.
    The revised rule in 11 CFR 9035.1 does not specifically list 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, as 
provided in 11 CFR 109.21 and 11 CFR 109.37, respectively. Because the 
revised rule at 11 CFR 9035.1(a)(3) specifically includes coordinated 
communications and party coordinated communications that are received 
or accepted, 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 Sec.  109.32(a), which 
specifies the limitations for coordinated party expenditures in 
Presidential elections, do not count against the candidate's 
expenditure limitations. However, any party coordinated expenditures 
exceeding the 2 U.S.C. 441a(d)(2) party expenditure limitations would 
count against the candidate's expenditure limitations. Thus, the new 
rule in 11 CFR 9035.1(a)(3) does not adversely affect coordinated party 
expenditures because Sec.  9035.1(a)(3) applies only to amounts in 
excess of the statutory limitations in 2 U.S.C. 441a(d)(2).
    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. Any coordinated party expenditures that are in excess of 
the coordinated party expenditure limitation at 11 CFR 109.32(a) 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.

11 CFR 9035.1(c)(1)--Compliance Exemption

    Section 11 CFR 9035.1(c)(1) addresses the legal and accounting 
compliance exemption to the expenditure limitations. For greater 
clarity, the Commission is revising the rule to include a revised 
version of former 11 CFR 9034.4(a)(3)(iii), related to the treatment of 
certain winding down expenses as 100% compliance costs. The revised 
regulation provides that only candidates who do not run in the general 
election may treat 100% of salary, overhead and computer expenses as 
exempt compliance expenses immediately after their date of 
ineligibility. Candidates who run in the general election must wait 
until 31 days after the general election to treat these expenses as 
exempt compliance costs. For further discussion of the treatment of 
winding down costs for candidates who run in both the primary and 
general elections, see the explanation and justification for 11 CFR 
9034.11(d) above.

11 CFR 9035.1(c)(3)--Shortfall Bridge Loan Exemption

    During recent election cycles, the Presidential Primary Matching 
Payment Account has occasionally contained insufficient funds to fully 
pay all of the matching funds to which primary candidates were entitled 
on the dates payments were due. See generally 26 U.S.C. 9037(b); 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 additional costs for ``bridge loans'' 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.
    To mitigate the effect of a potential shortfall on candidates, the 
Commission is creating a new ``shortfall bridge loan exemption'' from a 
primary candidate's overall expenditure limitation at new 11 CFR 
9035.1(c)(3). The NPRM proposed a flat exemption of 5% of the amount of 
all delayed or deficient payments of matching funds to which the 
candidate is entitled. One commenter supported this concept but noted 
the difficulty in choosing a fair formula that would not favor 
candidates whose payments are delayed over those who are less dependent 
on public funds. The commenter argued that a candidate's expenditure 
limitation should not be raised significantly over that applicable to 
other candidates unless the amount accurately reflects costs actually 
incurred by the candidate.
    Rather than the flat percentage proposed in the NPRM, the 
Commission has decided to base the new exemption on the amount of 
interest charges accrued during a shortfall period on all bridge loans 
obtained by a candidate if the candidate experiences any delay or 
deficiency in matching fund payments due to a shortfall. Under new 11 
CFR 9035.1(c)(3), only loans secured or guaranteed by matching funds 
will be eligible for this exemption. The interest charges that are 
exempt from the expenditure limit are those that accrued during a 
shortfall period, which the new rule defines as beginning when the 
shortfall first impacts the candidate--the first payment date on which 
the candidate does not receive the entire amount of matching funds 
certified by the Commission. The shortfall period ends on the date the 
candidate receives the last of the matching funds to which the 
candidate is entitled or becomes ineligible to receive them because the 
Commission revises the amount it previously certified.
    If a candidate experiences a delay or deficiency in matching fund 
payments, the candidate need not demonstrate that any bridge loan was 
necessitated by the deficiency in matching fund payments to claim this 
exemption. In practice, it is difficult to distinguish between the

[[Page 47412]]

costs of bridge loans that are a direct result of a shortfall in 
matching funds and other loan expenses because a shortfall in public 
funds may be only one of several reasons a candidate needs to obtain a 
bridge loan. The new rule also requires that the candidate must provide 
documentation demonstrating the amount of interest charged on all loans 
guaranteed or secured by matching funds.
    Finally, the Commission is not creating a similar exemption for 
general election candidates because payments of public funds to general 
election candidates and conventions receive priority over matching 
funds payments. While there has been a shortfall in matching fund 
payments in previous election cycles, there has never been a shortfall 
in payments to general election candidates.

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

11 CFR 9036.1--Matching Fund Submission

    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. See Explanation and Justification for the 
Rules Governing Election Cycle Reporting by Authorized Committees, 65 
FR 42619 (July 11, 2000). The new rules, which reflect a 1999 amendment 
to 2 U.S.C. 434(b), apply to reporting periods beginning on or after 
January 1, 2001. See Pub. L. 106-58, section 641, 113 Stat. 430, 477 
(1999); Announcement of Effective Date for the Rules Governing Election 
Cycle Reporting by Authorized Committees, 65 FR 70644 (Nov. 27, 2000). 
Under 11 CFR 100.3(b), an election cycle begins on the first day after 
the date of the previous general election for the office the candidate 
seeks or on the date an individual becomes a candidate and ends on the 
date of the next general election for that office. The election cycle 
is thus four years or less for Presidential candidates.
    The Commission's rules regarding threshold submissions for matching 
funds in 11 CFR 9036.1(b)(1)(ii) previously required 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. Section 9036.1(b)(1)(ii) is being revised 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. One commenter 
noted that these changes are not controversial and aim to reconcile the 
statute and regulations.

11 CFR 9036.2--Additional Submissions for Matching Fund Payments

    The changes to the rules on additional submissions for matching 
funds at 11 CFR 9036.2(b)(1)(v) follow the changes made to 11 CFR 
9036.1 regarding threshold submissions.

11 CFR Part 9038--Examination and Audits

11 CFR 9038.2(b)(4)--Technical Correction

    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 in the 
previous regulations. This word is being restored in the final rule.

Other Candidate Issues

A. Candidate Salary

    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 decided to allow 
certain 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 Campaign Funds, 67 
FR 76962, 76971-73 (Dec. 13, 2002). The Explanation and Justification 
for 11 CFR 113.1(g) indicated that a salary payment to a candidate from 
campaign funds is 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.'' 67 FR at 76972. The Commission noted that a 
candidate's salary does not constitute a qualified campaign expense 
under 11 CFR 9002.11 and 9032.9. Id.
    Sections 9004.4(b)(6) and 9034.4(b)(5) state that payments made to 
a publicly funded candidate by the candidate's general election or 
primary campaign 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 NPRM for these Final Rules indicated that the Commission was 
considering whether to revise 11 CFR 9004.4 and 9034.4 to allow 
publicly funded primary and general election Presidential candidates to 
receive salaries paid, in whole or part, with Federal funds, and to 
treat salary payments to candidates as qualified campaign expenses 
under similar conditions as those for salary payments to other Federal 
candidates at 11 CFR 113.1(g)(1)(i)(I).
    There was no consensus among the commenters on this issue. One 
commenter cautioned that this is a policy issue best left to Congress, 
and it could have an adverse effect on the public financing system by 
depressing public participation in the tax check-off system. In 
addition, this commenter observed that it may not be logical to allow 
public funds to be used to pay for candidate salary but not for 
household expenses, mortgages and tuition for the candidate's family. 
Conversely, other commenters agreed with the proposal, noting that 
currently, incumbent Members of Congress, Presidents and Vice 
Presidents maintain their salaries while they are Presidential 
candidates, but some challengers might be unable to do so. Some 
commenters believed the proposal had sufficient safeguards and 
disclosure to prevent Presidential candidates from receiving a windfall 
from a campaign, while others saw a potential for abuse.
    The Commission has decided to maintain its longstanding rule that 
payments out of public funds to a Presidential candidate, except for 
campaign expense reimbursements, are not qualified campaign expenses. 
Because public funds are involved, the Commission believes that this 
issue is a policy question that is best addressed by Congress. 
Therefore, the rules in 11 CFR 9004.4(b) and 9034.4(b) will continue to 
treat salaries paid out of public funds to

[[Page 47413]]

publicly funded candidates as non-qualified campaign expenses.

B. Media Travel Expenses

    The Commission's rules at 11 CFR 9004.6 and 9034.6 establish 
procedures for authorized committees of Presidential primary and 
general election candidates to obtain reimbursement for transportation 
and other services that are provided to the news media and the Secret 
Service over the course of a campaign. These rules contain a non-
exhaustive list of such services. Sections 9004.6(a)(3) and 
9034.6(a)(3) state that Presidential campaign committees may seek 
reimbursement from the news 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 Travel Manual''). Expenses 
for which a publicly-funded 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 under 
11 CFR 9004.6(a)(2) and 9034.6(a)(2).
    In the 1996 campaign, some Presidential campaign 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 Travel Manual for 1996, which has not 
changed to date. The NPRM in this rulemaking sought comment on whether 
the Commission should revise the rules to permit Presidential campaign 
committees to obtain reimbursement for aircraft reconfiguration 
expenses from the news media.
    One joint comment submitted by 23 news organizations supported 
continued use of the White House Travel Manual. It also argued that 
most previous aircraft reconfigurations have been minor and for the 
convenience for the campaign, so that any cost sharing should be 
negotiated by the campaign and the press organizations. Another 
commenter stated that the White House Travel Manual does not address 
aircraft reconfiguration because the needs of the press have been taken 
into consideration when government aircraft are originally designed or 
reconfigured, but candidates who do not travel on government aircraft 
should be able to make the necessary changes to an aircraft and seek 
press reimbursement. This commenter stated that the use of the White 
House Travel Manual to determine reimbursable expenses is generally a 
wise policy, but advocated a mechanism for candidates to seek 
exceptions to the general rule if the candidate can demonstrate that an 
expense was incurred at the request of and to accommodate the press.
    The Commission has determined that the aircraft reconfiguration 
expenses are not suitable for a rule of general applicability 
particularly because any reconfiguration will likely involve an 
airplane to be used by many members of the press on many different 
flights over the life of the campaign. Accordingly, it would be quite 
difficult to determine the appropriate amount of any monetary payment 
at a point when neither the press corps nor the campaign staff can 
predict the number of flights or their costs. The advisory opinion 
process, however, might serve as the appropriate means for the 
Commission to consider any particular arrangement for the sharing of 
these one-time expenses. Consequently, 11 CFR 9004.6 and 9034.6 are not 
being revised.

C. In-Kind Contributions and Repayments

    The NPRM proposed amending 11 CFR 9038.2(b)(2)(ii)(A), which 
concerns repayments based on expenditures in excess of a Presidential 
primary candidate's expenditure limitations. Section 9038.2(b) would 
have provided that in-kind contributions, coordinated expenditures, 
coordinated communications, coordinated party expenditures and party 
coordinated communications that count against a candidate's expenditure 
limitations must be included in the total amount of expenditures for 
purposes of calculating repayment determinations for expenditures in 
excess of the limitations.
    One commenter urged the Commission to state whether it will seek 
repayment for primary expenditures in excess of the expenditure 
limitations.
    On a related issue, the NPRM also proposed revisions to 11 CFR 
9038.2(b)(2)(iii) that would have included both total deposits and in-
kind contributions received or accepted by the candidate in the 
calculation of the repayment ratio for non-qualified campaign expenses. 
One commenter stated that this change is consistent with the statute 
and regulations and that the change would reduce repayment amounts.
    The Commission has decided to make no changes to the regulation at 
11 CFR 9038.2(b)(2), which currently requires publicly funded 
Presidential primary campaigns to make repayments on the basis of 
exceeding the Congressionally-mandated spending limits. The current 
rule is not being changed at this time because there is no consensus in 
favor of changing the regulation. See also Notice of Disposition for 
the Rules Governing Public Funding of Presidential Primary Candidates--
Repayments, 65 FR 15273 (Mar. 22, 2000).

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

    The Commission certifies that the attached final rules will not 
have a significant economic impact on a substantial number of small 
entities. The basis for this certification is that few small entities 
will be affected by these rules, which apply only to Presidential 
candidates, their campaign committees, national party committees, host 
committees, and municipal funds. Most of these are not small entities. 
Most of the Presidential campaigns and convention committees receive 
full or partial funding from the Federal Government, and are 
subsequently audited by the Commission. The Commission amends 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 9001

    Campaign funds.

11 CFR Part 9003

    Campaign funds, Reporting and recordkeeping requirements.

[[Page 47414]]

11 CFR Part 9004

    Campaign funds.

11 CFR Part 9008

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

11 CFR Part 9031

    Campaign funds.

11 CFR Part 9032

    Campaign funds.

11 CFR Part 9033--9035

    Campaign funds, Reporting and recordkeeping requirements.

11 CFR Part 9036

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

11 CFR Part 9038

    Administrative practice and procedure, Campaign funds.

0
For the reasons set out in the preamble, subchapters A, E and F of 
Chapter I of Title 11 of the Code of Federal Regulations are amended as 
follows:

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

0
1. The authority citation for part 104 continues 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.

0
2. Section 104.5 is amended by:
0
a. Revising paragraph (b)(1)(i)(C);
0
b. Revising paragraph (b)(1)(ii); and
0
c. Revising paragraph (b)(2).
0
Revisions 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 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 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 pre-existing 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

0
3. The authority citation for part 107 continues to read as follows:

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

0
4. Section 107.2 is 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

0
5. The authority citation for part 110 continues 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.


0
6. Section 110.2 is amended by adding new paragraph (l) to read as 
follows:


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

    (l) Pre-candidacy expenditures by multicandidate political 
committees deemed in-kind contributions; effect of reimbursement. (1) A 
payment by a multicandidate political committee is deemed an in-kind 
contribution to and an expenditure by a Presidential candidate, even 
though made before the individual becomes a candidate under 11 CFR 
100.3, if--
    (i) The expenditure is made on or after January 1 of the year 
immediately following the last Presidential election year;
    (ii) With respect to the goods or services involved, the candidate 
accepted or received them, requested or suggested their provision, was 
materially involved in the decision to provide them, or was involved in 
substantial discussions about their provision; and
    (iii) The goods or services are--
    (A) Polling expenses for determining the favorability, name 
recognition, or relative support level of the candidate involved;
    (B) Compensation paid to employees, consultants, or vendors for 
services rendered in connection with establishing and staffing offices 
in States where Presidential primaries, caucuses, or preference polls 
are to be held, other than offices in the candidate's home state and in 
or near the District of Columbia;
    (C) Administrative expenses, including rent, utilities, office 
supplies and equipment, in connection with establishing and staffing 
offices in States where Presidential primaries, caucuses, or preference 
polls are to be held, other than offices in the candidate's home state 
and in or near the District of Columbia; or
    (D) Expenses of individuals seeking to become delegates in the 
Presidential nomination process.
    (2) Notwithstanding paragraph (l)(1) of this section, if the 
candidate, through an authorized committee, reimburses the 
multicandidate political committee within 30 days of becoming a 
candidate, the payment shall not be deemed an in-kind contribution for 
either entity, and the reimbursement shall be an expenditure of the 
candidate.

PART 9001--SCOPE

0
7. The authority citation for part 9001 continues to read as follows:

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


0
8. Section 9001.1 is amended by removing the number ``116'' and adding 
in its place the number ``400'' in both instances in which ``116'' 
appears.

PART 9003--ELIGIBILITY FOR PAYMENTS

0
9. The authority citation for part 9003 continues to read as follows:

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


0
10. In Sec.  9003.1, paragraph (b)(8) is amended by removing the number 
``116'' and adding in its place the number ``400''.

0
11. Section 9003.3 is amended by:

[[Page 47415]]

0
a. Revising the introductory text of paragraph (a)(1)(i);
0
b. Revising paragraph (a)(1)(i)(A);
0
c. Revising paragraph (a)(1)(ii)(A)(3);
0
d. Revising paragraph (a)(1)(ii)(A)(4);
0
e. Revising the introductory text of paragraph (a)(1)(iv);
0
f. Revising paragraph (a)(1)(iv)(C);
0
g. Revising paragraph (a)(1)(v);
0
h. Revising paragraph (a)(2)(i)(D);
0
i. Revising paragraph (a)(2)(i)(G);
0
j. Revising paragraph (a)(2)(i)(H);
0
k. Adding new paragraph (a)(2)(i)(I);
0
l. Revising paragraph (a)(2)(iii); and
0
m. Revising paragraph (a)(2)(iv).
    Revisions and additions 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 April 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.
    (A) All solicitations for contributions to the GELAC shall clearly 
state that Federal law prohibits private contributions from being used 
for the candidate's election and that contributions will be used solely 
for legal and accounting services to ensure compliance with Federal 
law, and shall clearly state how contribution checks should be made 
payable. Contributions shall not be solicited for the GELAC before 
April 1 of the calendar year in which a Presidential general election 
is held. If the candidate does not become the nominee, all 
contributions accepted for the GELAC, including redesignated 
contributions, shall be refunded within sixty (60) days after the 
candidate's date of ineligibility.
* * * * *
    (ii) * * *
    (A) * * *
    (3) The written redesignations are received within 60 days of the 
Treasurer's receipt of the contributions; and
    (4) The requirements of 11 CFR 110.1(b)(5)(i) and (ii)(A) and 
110.1(l) regarding redesignation are satisfied.
* * * * *
    (iv) Contributions that are made after the beginning of the 
expenditure report period but that are not designated in writing for 
the GELAC are considered made with respect to the primary election and 
may be redesignated for the GELAC and transferred to the GELAC only 
if--
* * * * *
    (C) The candidate obtains the contributor's written redesignation 
in accordance with 11 CFR 110.1.
    (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(b)(5)(i) and (ii)(A) or (ii)(B). For purposes of this 
section only, 11 CFR 110.1(b)(5)(ii)(B)(1) shall not apply.
* * * * *
    (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 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, which shall remain subject to the primary 
expenditure limit under 11 CFR 9035.1.
* * * * *

0
12. Section 9003.5 is 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

0
13. The authority citation for part 9004 continues to read as follows:

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


0
14. Section 9004.4 is amended by:
0
a. Revising the section heading;
0
b. Revising paragraph (a)(3);
0
c. Revising paragraph (a)(4), introductory text;
0
d. Removing paragraph (a)(4)(i);
0
e. Redesignating paragraph (a)(5) as paragraph (a)(6), redesignating 
paragraph (a)(4)(ii) as paragraph (a)(5) and revising newly designated 
(a)(5) and revising newly designated (a)(6); and
0
f. Revising paragraph (b)(3).
    Revisions 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

[[Page 47416]]

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;
    (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 for goods and 
services received during the expenditure reporting period; and
    (6) Monetary bonuses paid after the date of the election and gifts 
shall be considered qualified campaign expenses, provided that:
    (i) All monetary bonuses paid after the date of the election for 
committee employees and consultants in recognition of campaign-related 
activities or services:
    (A) Are provided for pursuant to a written contract made prior to 
the date of the election; and
    (B) Are paid during the expenditure report period; and
    (ii) Gifts for committee employees, consultants and volunteers in 
recognition of campaign-related activities or services do not exceed 
$150 total per individual and the total of all gifts does not exceed 
$20,000.
    (b) * * *
    (3) Expenditures incurred after the close of the expenditure report 
period. Except for accounts payable pursuant to paragraph (a)(5) of 
this section and winding down costs 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.
* * * * *

0
15. New section 9004.11 is 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 Federal 
Election Campaign Act and the Presidential Election Campaign Fund Act, 
and other necessary administrative costs associated with ending the 
campaign, including office space rental, staff salaries, and office 
supplies. Winding down costs are qualified campaign expenses.
    (b) 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.
    (c) 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 reasonable allocation method. An 
allocation method is reasonable if it divides the total winding down 
costs between the primary and general election committees and results 
in no less than one third of total winding down costs allocated to each 
committee. A candidate may demonstrate that an allocation method is 
reasonable even if either the primary or the general election committee 
is allocated less than one third of total winding down costs.

PART 9008--FEDERAL FINANCING OF PRESIDENTIAL NOMINATING CONVENTIONS

0
16. The authority citation for part 9008 is revised to read as follows:

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


0
17. Section 9008.3 is amended by redesignating paragraph (b)(1)(ii) as 
paragraph (b)(1)(iii) and adding new paragraph (b)(1)(ii) to read as 
follows:


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 written contracts or 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 
written modifications to previous contracts or agreements. Each such 
contract, agreement or modification shall be filed with the report 
covering the reporting period in which the contract or agreement or 
modification is executed.
* * * * *

0
18. Section 9008.7 is amended by revising paragraph (a)(4)(xii) to read 
as follows:


Sec.  9008.7  Use of funds.

    (a) * * *
    (4) * * *
    (xii) Expenses for monetary bonuses paid after the last date of the 
convention or gifts for national committee or convention committee 
employees, consultants, volunteers and convention officials in 
recognition of convention-related activities or services, provided 
that:
    (A) Gifts for committee employees, consultants, volunteers and 
convention officials in recognition of convention-related activities or 
services do not exceed $150 total per individual and the total of all 
gifts does not exceed $20,000; and
    (B) All monetary bonuses paid after the last date of the convention 
for committee employees and consultants in recognition of convention-
related activities or services are provided for pursuant to a written 
contract made prior to the date of the convention and are paid no later 
than 30 days after the convention; and
* * * * *

0
19. Section 9008.8 is amended by revising paragraph (b)(2) and 
paragraph (b)(4)(ii)(B) to read as follows:


Sec.  9008.8  Limitation of expenditures.

* * * * *
    (b) * * *
    (2) Expenditures by government agencies and municipal funds. 
Expenditures made by government agencies and 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 to pay for the legal and accounting 
services comply with the limitations and prohibitions of 11 CFR parts 
110, 114 and 115. These contributions, when aggregated with other 
contributions from the same contributor to the political committees 
established and maintained by the national political party, shall not 
exceed the amounts permitted under 11 CFR 110.1(c) and 110.2(c), as 
applicable.
* * * * *

0
20. Section 9008.10 is amended by revising the introductory text to 
read as follows:

[[Page 47417]]

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:
* * * * *

0
21. Section 9008.12 is 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, government agency 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 government agency or municipal 
fund from an impermissible source.
* * * * *

0
22. The heading of subpart B of part 9008 is revised to read as 
follows:

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

0
23. Section 9008.50 is 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 is any local 
organization, such as a local civic 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 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 the 
control of officials of the State or local government.

0
24. Section 9008.51 is amended by:
0
a. Revising the paragraph heading for paragraph (a);
0
b. Revising paragraph (a)(1);
0
c. Adding paragraph (a)(3);
0
d. Revising paragraph (b); and
0
e. Revising paragraph (c).
    The revisions and additions read as follows:


Sec.  9008.51  Registration and reports.

    (a) Registration by host committees and municipal funds.
    (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 written contracts or agreements 
that it has entered into with the city, county, or State hosting the 
convention, a host committee, a municipal fund, or a convention 
committee, including subsequent written modifications to previous 
contracts or agreements, unless such contracts, agreements or 
modifications have already been submitted to the Commission by the 
convention committee. Each such contract or agreement or modification 
shall be filed with the first report due under paragraph (b) of this 
section after the contract or 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.
    (c) Post-convention statements by State and local government 
agencies. Each government agency of a State, municipality, or other 
political subdivision that provides facilities or services related to a 
Presidential nominating convention shall file, by letter, a statement 
with the Commission reporting the total amount spent to provide 
facilities and services for the convention under 11 CFR 9008.52(b), a 
list of the categories of facilities and services the government agency 
provided for the convention, the total amount spent for each category 
of facilities and services provided, and the total amount defrayed from 
general revenues. This statement 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. Categories of 
facilities and services may include construction, security, 
communications, transportation, utilities, clean up, meeting rooms and 
accommodations. This paragraph (c) does not apply to any activities of 
a State or local government agency through a municipal fund that are 
reported pursuant to paragraph (b) of this section.

[[Page 47418]]


0
25. Section 9008.52 is revised to read as follows:


Sec.  9008.52  Receipts and disbursements of host committees.

    (a) Receipt of goods or services from commercial vendors. Host 
committees may accept goods or services from commercial vendors under 
the same terms and conditions (including reporting requirements) set 
forth at 11 CFR 9008.9 for convention committees.
    (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 for the following purposes:
    (1) To defray those expenses incurred for the purpose of promoting 
the suitability of the city as a convention site;
    (2) To defray those expenses incurred for welcoming the convention 
attendees to the city, such as expenses for information booths, 
receptions, and tours;
    (3) To defray those expenses incurred in facilitating commerce, 
such as providing the convention and attendees with shopping and 
entertainment guides and distributing the samples and promotional 
material specified in 11 CFR 9008.9(c);
    (4) To defray the administrative expenses incurred by the host 
committee, such as salaries, rent, travel, and liability insurance;
    (5) To provide the national committee use of an auditorium or 
convention center and to provide construction and convention related 
services for that location such as: construction of podiums; press 
tables; false floors; camera platforms; additional seating; lighting, 
electrical, air conditioning and loudspeaker systems; offices; office 
equipment; and decorations;
    (6) To defray the costs of various local transportation services, 
including the provision of buses and automobiles;
    (7) To defray the costs of law enforcement services necessary to 
assure orderly conventions;
    (8) To defray the cost of using convention bureau personnel to 
provide central housing and reservation services;
    (9) To provide hotel rooms at no charge or a reduced rate on the 
basis of the number of rooms actually booked for the convention;
    (10) To provide accommodations and hospitality for committees of 
the parties responsible for choosing the sites of the conventions; and
    (11) To provide other similar convention-related facilities and 
services.
0
26. Section 9008.53 is 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 9008.9 for convention 
committees.
    (b) Receipt and use of donations to a municipal fund. Businesses 
(including banks), labor organizations, and other organizations and 
individuals may donate funds or make in-kind donations to a municipal 
fund to pay for expenses listed in 11 CFR 9008.52(b).

0
27. Section 9008.55 is added to read as follows:


Sec.  9008.55  Funding for Convention Committees, Host Committees and 
Municipal Funds.

    (a) Convention committees, including any established pursuant to 11 
CFR 9008.3(a)(2), are subject to 11 CFR 300.10, except that convention 
committees may accept in-kind donations from host committees and 
municipal funds provided that the in-kind donations are in accordance 
with the requirements of 11 CFR 9008.52 and 9008.53.
    (b) Host committees and municipal funds are not ``agents'' of 
national committees of political parties or convention committees, 
unless they satisfy the prerequisites of 11 CFR 300.2(b)(1).
    (c) Host committees and municipal funds are not ``directly or 
indirectly established, financed, maintained, or controlled'' by 
national committees of political parties or convention committees, 
unless they satisfy the prerequisites of 11 CFR 300.2(c).
    (d) In accordance with 2 U.S.C. 441i(e)(4)(A), a person described 
in 11 CFR 300.60 may make a general solicitation of funds, without 
regard to source or amount limitation, for or on behalf of any host 
committee or municipal fund that is described in 26 U.S.C. 501(c) and 
exempt from taxation under 26 U.S.C. 501(a) (or has submitted an 
application for determination of tax exempt status under such section) 
where such solicitation does not specify how the funds will or should 
be spent.

PART 9031--SCOPE

0
28. The authority citation for part 9031 continues to read as follows:

    Authority: 26 U.S.C. 9031 and 9039(b).


0
29. Section 9003.1 is amended by removing the number ``116'' and adding 
in its place the number ``400'' in both instances in which ``116'' 
appears.

PART 9032--DEFINITIONS

0
30. The authority citation for part 9032 continues to read as follows:

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


0
31. Section 9032.9 is 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

0
32. Authority: The authority citation for part 9033 continues to read 
as follows:

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


0
33. In Sec.  9033.1, paragraph (b)(10) is amended by removing the 
number ``116'' and adding in its place the number ``400''.

0
34. Section 9033.11 is 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

0
35. The authority citation for part 9034 continues to read as follows:

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


0
36. Section 9034.4 is amended by:
0
a. Revising the section heading;
0
b. Revising paragraph (a)(3)(i);
0
c. Revising paragraph (a)(3)(ii);
0
d. Removing paragraph (a)(3)(iii);
0
e. Revising paragraph (a)(5);
0
f. Adding paragraph (a)(6); and
0
g. Revising paragraph (b)(3).
    Revisions and additions read as follows:

[[Page 47419]]

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 that is dated 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.
* * * * *
    (5) Monetary bonuses paid after the date of ineligibility and 
gifts. Monetary bonuses paid after the date of ineligibility and gifts 
shall be considered qualified campaign expenses, provided that:
    (i) All monetary bonuses paid after the date of ineligibility for 
committee employees and consultants in recognition of campaign-related 
activities or services:
    (A) Are provided for pursuant to a written contract made prior to 
the date of ineligibility; and
    (B) Are paid no later than thirty days after the date of 
ineligibility; and
    (ii) Gifts for committee employees, consultants and volunteers in 
recognition of campaign-related activities or services do not exceed 
$150 total per individual and the total of all gifts does not exceed 
$20,000.
    (6) Expenses incurred by ineligible candidates attending national 
nominating conventions. Expenses incurred by an ineligible candidate to 
attend, participate in, or conduct activities at a national nominating 
convention may be treated as qualified campaign expenses, but such 
convention-related expenses shall not exceed a total of $50,000.
    (b) * * *
    (3) General election and post-ineligibility expenditures. Except 
for 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.
* * * * *

0
37. New Sec. 9034.10 is added to read as follows:


Sec.  9034.10  Pre-candidacy payments by multicandidate political 
committees deemed in-kind contributions and qualified campaign 
expenses; effect of reimbursement.

    (a) A payment by a multicandidate political committee is an in-kind 
contribution to, and qualified campaign expense by, a Presidential 
candidate, even though made before the individual becomes a candidate 
under 11 CFR 100.3 and 9032.2, if--
    (1) The expenditure is made on or after January 1 of the year 
immediately following the last Presidential election year;
    (2) With respect to the goods or services involved, the candidate 
accepted or received them, requested or suggested their provision, was 
materially involved in the decision to provide them, or was involved in 
substantial discussions about their provision; and
    (3) The goods or services are--
    (i) Polling expenses for determining the favorability, name 
recognition, or relative support level of the candidate involved;
    (ii) Compensation paid to employees, consultants, or vendors for 
services rendered in connection with establishing and staffing offices 
in States where Presidential primaries, caucuses, or preference polls 
are to be held, other than offices in the candidate's home state and in 
or near the District of Columbia;
    (iii) Administrative expenses, including rent, utilities, office 
supplies and equipment, in connection with establishing and staffing 
offices in States where Presidential primaries, caucuses, or preference 
polls are to be held, other than offices in the candidate's home state 
and in or near the District of Columbia; or
    (iv) Expenses of individuals seeking to become delegates in the 
Presidential nomination process.
    (b) Notwithstanding paragraph (a) of this section, if the 
candidate, through an authorized committee, reimburses the 
multicandidate political committee within 30 days of becoming a 
candidate, the payment shall not be deemed an in-kind contribution for 
either entity, and the reimbursement shall be an expenditure and a 
qualified campaign expense of the candidate.

0
38. New section 9034.11 is 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 Federal Election 
Campaign Act and the Presidential Primary Matching Payment Account Act, 
and other necessary administrative costs associated with winding down 
the campaign, including office space rental, staff salaries, and office 
supplies. Winding down costs are qualified campaign expenses.
    (b) 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) 10% of the overall expenditure limitation pursuant to 11 CFR 
9035.1; or
    (2) 10% of the total of:
    (i) The candidate's expenditures subject to the overall expenditure 
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.
    (c) 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 reasonable allocation method. An 
allocation method is reasonable if it divides the total winding down 
costs between the primary and general election committees and results 
in no less than

[[Page 47420]]

one third of total winding down costs allocated to each committee. A 
candidate may demonstrate than an allocation method is reasonable even 
if either the primary or the general election committee is allocated 
less than one third of total winding down costs.
    (d) 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

0
39. The authority citation for part 9035 continues to read as follows:

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



0
40. Section 9035.1 is amended by;
0
a. Adding new paragraph (a)(3);
0
b. Adding new paragraph (a)(4);
0
c. Revising the paragraph heading in paragraph (c);
0
d. Revising paragraph (c)(1); and
0
e. Adding new paragraph (c)(3).
    Additions and revisions 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 bridge loan 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 31 days after the general election before they may treat 
100% of salary, overhead and computer expenses as exempt legal and 
accounting compliance expenses.
* * * * *
    (3) If any matching funds to which the candidate is entitled are 
not paid to the candidate, or are paid after the date on which payment 
is due, the candidate may exclude from the overall expenditure 
limitation in paragraph (a) of this section the amount of all interest 
charges that accrued during the shortfall period on all loans obtained 
by the candidate or authorized committee that are guaranteed or secured 
with matching funds, provided the candidate submits documentation as to 
the amount of all interest charges on such loans. The shortfall period 
begins on the first regularly scheduled payment date on which the 
candidate does not receive the entire amount of matching funds and ends 
on the payment date when the candidate receives the previously 
certified matching funds or the date on which the Commission revises 
the amount previously certified to eliminate the entitlement to the 
previously certified matching funds.
* * * * *

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

0
41. The authority citation for part 9036 continues to read as follows:

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


0
42. Section 9036.1 is 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;
* * * * *


0
43. Section 9036.2 is amended by 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

0
44. The authority citation for part 9038 continues to read as follows:

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


[[Page 47421]]


0
45. Section 9038.2 is amended by revising paragraph (b)(4) to read as 
follows:


Sec.  9038.2  Repayments.

* * * * *
    (b) * * *
    (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: July 31, 2003.
Ellen L. Weintraub,
Chair, Federal Election Commission.
[FR Doc. 03-19893 Filed 8-7-03; 8:45 am]
BILLING CODE 67154-01-P