[Federal Register Volume 70, Number 85 (Wednesday, May 4, 2005)]
[Proposed Rules]
[Pages 23072-23075]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-8863]


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FEDERAL ELECTION COMMISSION

11 CFR Parts 106 and 300

[NOTICE 2005-12]


State, District, and Local Party Committee Payment of Certain 
Salaries and Wages

AGENCY: Federal Election Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Election Commission is seeking comment on proposed 
changes to regulations regarding payments by State, district or local 
party committees for salaries and wages of employees who spend 25 
percent or less of their compensated time in a month on Federal 
election activity and activity in connection with Federal elections. 
Currently, these committees may use funds whose only restriction is 
that they comply with State law. The proposed changes would require 
these expenses to be paid using at least some Federal funds, consistent 
with the ruling of the United States District Court for the District of 
Columbia in Shays v. Federal Election Commission. The Commission is 
appealing this ruling to the DC Circuit. In the interim, the Commission 
is initiating this rulemaking. The Commission has not made any final 
decision on the issues presented in this rulemaking. Further 
information is provided in the supplementary information that follows.

DATES: Comments must be received on or before June 3, 2005. If the 
Commission receives sufficient requests to testify, it may hold a 
hearing on the proposed rules. Anyone wishing to testify at the hearing 
must file written comments by the due date and must include a request 
to testify in the written comments.

ADDRESSES: All comments must be in writing, addressed to Ms. Mai T. 
Dinh, and submitted in either electronic, facsimile, or hard copy form. 
Commenters are strongly encouraged to submit comments electronically to 
ensure timely receipt and consideration. Electronic comments must be 
sent to either [email protected] or submitted through the Federal 
eRegulations Portal at http://www.regulations.gov. If the electronic 
comments include an attachment, the attachment must be in the Adobe 
Acrobat (.pdf) or Microsoft Word (.doc) format. Faxed comments must be 
sent to (202) 219-3923, with hard copy follow-up. Hard copy comments 
and hard copy follow-up of faxed comments must be sent to the Federal 
Election Commission, 999 E Street, NW., Washington, DC 20463. All 
comments must include the full name and postal service address of the 
commenter or they will not be considered. The Commission will post 
comments on its Web site after the comment period ends. If the 
Commission decides a hearing is necessary, the hearing will be held in 
the Commission's ninth floor meeting room, 999 E Street NW., 
Washington, DC.

FOR FURTHER INFORMATION CONTACT: Ms. Mai T. Dinh, Assistant General 
Counsel, or Mr. Anthony T. Buckley, Attorney, 999 E Street, NW., 
Washington, DC 20463, (202) 694-1650 or (800) 424-9530.

SUPPLEMENTARY INFORMATION: The Bipartisan Campaign Reform Act of 2002 
(``BCRA''), Pub. L. 107-155, 116 Stat. 81 (March 27, 2002), contained 
extensive and detailed amendments to the Federal Election Campaign Act 
of 1971, as amended (the ``Act''), 2 U.S.C. 431 et seq. Under BCRA, 
State, district and local party committees (``State party committees'') 
must pay the salaries and wages of employees who spend more than 25 
percent of their compensated time per month on Federal election 
activity and activities in connection with a Federal election 
(collectively ``Federal-related activities'') entirely with Federal 
funds.\1\ 2 U.S.C. 431(20)(A)(iv) and 441i(b)(1). However, BCRA is 
silent on what type of funds State party committees must use to pay the 
salaries and wages of employees who spend some, but not more than 25 
percent, of their compensated time per month on Federal-related 
activities. In 2002, the Commission promulgated 11 CFR 106.7(c)(1) and 
(d)(1)(i), and 300.33(c)(2) to address salaries and wages for both 
types of employees. Under these rules, State party committees may pay 
the salaries or wages of employees who spend 25 percent or less of 
their compensated time each month on these activities

[[Page 23073]]

entirely with funds that comply with State law. Id.
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    \1\ ``Federal funds'' are funds that are subject to the 
contribution limitations, source prohibitions, and reporting 
requirements of the Act. 11 CFR 300.2(g).
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    In Shays v. Federal Election Commission, 337 F.Supp.2d 28 (DDC 
2004), appeal docketed, No. 04-5352 (DC Cir. Sept. 28, 2004) 
(``Shays''), the district court considered a challenge to the portion 
of the regulations that permits State party committees to use all non-
Federal funds to pay the salaries and wages of employees who spend 25 
percent or less of their time each month on Federal-related activities. 
The district court recognized that the Commission's interpretation of 2 
U.S.C. 431(20)(A)(iv) and 441i(b)(1), as promulgated in 11 CFR 
300.33(c)(2), is a permissible reading of these statutory sections 
under step one of Chevron because Congress had not directly spoken on 
this issue.\2\ Shays at 113-114. The district court also determined 
that it could not conclude that the Commission's regulation was a 
facially impermissible interpretation of BCRA. Shays at 114. However, 
the district court determined that the regulation compromised BCRA's 
``purposes of preventing circumvention of its national party committee 
non-Federal money ban and stemming the flow of non-Federal money into 
activities that impact Federal elections'' by permitting State party 
committees to divide ``the Federal workload among multiple employees.'' 
Shays at 114 (citing McConnell v. Federal Election Commission, 540 U.S. 
93, 124 S.Ct. 619, 676 (2003)). The district court found that ``the 
regulation `creates the potential for gross abuse' '' and remanded 
section 300.33(c)(2) to the Commission for further action consistent 
with its opinion. Shays at 114 (citing Orloski v. Federal Election 
Commission, 795 F.2d 156, 165 (DC Cir. 1986)).\3\
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    \2\ The district court described the first step of the Chevron 
analysis, which courts use to review an agency's regulations: ``a 
court first asks `whether Congress has directly spoken to the 
precise question at issue. If the intent of Congress is clear, that 
is the end of the matter; for the court, as well as the agency, must 
give effect to the unambiguously expressed intent of Congress.' '' 
See Shays, at 51 (quoting Chevron, U.S.A., Inc. v. Natural Res. Def. 
Council, 467 U.S. 837, 842-43 (1984)).
    \3\ The Commission has filed an appeal with the U.S. Court of 
Appeals for the DC Circuit of certain aspects of the Shays decision, 
including the court's conclusion that the rules regarding payments 
by State, district or local party committees for salaries and wages 
of employees who spend 25 percent or less of their compensated time 
in a month on Federal-related activity creates the potential for 
great abuse of BCRA. The appeal is currently pending. In the event 
the Commission prevails on appeal, the Commission may terminate this 
rulemaking proceeding prior to adoption of final rules.
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    Implicit in the district court's decision is that State party 
committees are required under BCRA and FECA to use at least some 
Federal funds to pay for the salaries and wages of those employees who 
spend some of their compensated time, but not more than 25 percent per 
month, on Federal-related activity. Thus, the Commission is issuing 
this Notice of Proposed Rulemaking (``NPRM'') to determine the 
appropriate mix of Federal and non-Federal funds that State party 
committees must use to pay the salaries and wages for these employees.
    One approach would be to adopt an allocation method that would 
establish a fixed minimum percentage that a State party committee would 
be required to allocate to its Federal account. A fixed minimum 
percentage provides committees with a bright-line rule that is easy to 
understand and administer. The proposed rule below reflects this 
approach. Section 106.7(c)(1) would be amended to set forth two methods 
by which State party committees could pay the salaries and wages for 
employees who spend 25 percent or less of their compensated time in a 
month on Federal-related activity. Paragraph (c)(1)(i) would state that 
State party committees could pay for such salaries and wages with funds 
from their Federal account. Paragraph (c)(1)(ii) would state that such 
salaries and wages could also be allocated between the committee's 
Federal and non-Federal accounts under section 106.7(d)(1)(i). Section 
106.7(d)(1)(i) would be amended to require State party committees to 
allocate at least 25 percent of the salaries and wages for employees 
who spend 25 percent or less of their compensated time on Federal-
related activities to their Federal account.\4\ Non-Federal funds used 
to pay the remaining portion of salaries and wages would still be 
required to comply with State law.
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    \4\ Under the proposed rules, salaries of employees who spend no 
time in a given month on Federal-related activities could continue 
to be paid entirely with funds that comply with State law.
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    The Commission has two reasons for proposing 25 percent as the 
fixed minimum percentage. Because these employees would not spend more 
than 25 percent of their compensated time on Federal-related 
activities, a minimum allocation percentage that is 25 percent would 
ensure that State party committees would use Federal funds to pay for 
the compensated time spent on Federal-related activity. In addition, 
prior to BCRA, salaries and wages of State party committees' employees 
were considered administrative expenses that were allocated based on 
ballot composition. See former 11 CFR 106.5(d) (repealed 2002). In the 
Final Rules and Explanation and Justification for Prohibited and 
Excessive Contributions; Non-Federal Funds or Soft Money, 67 FR 49064 
(July 29, 2002), the Commission repealed 11 CFR 106.5(d) and replaced 
it with an allocation method for administrative expenses that were 
fixed percentages, depending upon whether there were Presidential or 
Senatorial candidates on the ballot for a two-year election cycle. See 
11 CFR 106.7(d)(2). However, employees' salaries and wages are no 
longer considered administrative expenses. Rather than treating them as 
administrative expenses and requiring State party committees to use 
different allocation ratios every two years, the 25 percent allocation 
ratio in the proposed rule represents the average of the four 
allocation ratios used for administrative expenses, and should roughly 
approximate the average annual allocated expenses for salaries and 
wages over the same period.
    Nevertheless, in the alternative, the Commission seeks comment on 
returning to treating salaries and wages for these employees as 
administrative expenses subject to the allocation ratios in 11 CFR 
106.7(d)(2). The Commission is also seeking suggestions for other fixed 
minimum percentages and the basis for the suggested fixed minimum 
percentages.
    Another alternative method, which is not reflected in the proposed 
rule, would be to establish an allocation percentage that is directly 
proportional to the amount of compensated time these employees spend on 
Federal-related activities in a given month. Under this approach, the 
percentage of Federal funds that a State party committee must use to 
pay for these salaries and wages would be no less than the percentage 
of compensated time these employees spend on Federal-related activities 
in relation to all compensated time in a given month. The remaining 
salaries and wages could be paid for with non-Federal funds, provided 
that the funds comply with State law. The log that each State, District 
or local party committee maintains pursuant to section 106.7(d)(1) 
would allow committees to determine the percentage of an employee's 
time that must be compensated using Federal funds.
    The proposed rules also include conforming changes to current 11 
CFR 300.33(c)(2). That paragraph would be amended to state that 
salaries and wages for employees who spend 25 percent or less of their 
compensated time per month on Federal-related activities may be 
allocated in accordance with 11 CFR 106.7(c) and (d)(1)(i).

[[Page 23074]]

    The Commission also seeks comment on whether the methods for 
allocating salaries and wages should be applied to fringe benefits of 
employees. In Advisory Opinion 2003-11, a State party committee sought 
guidance on paying the costs of fringe benefits (medical, dental, and 
prescription drug insurance coverage; coverage for short-term 
disability (wage loss) and long-term disability insurance benefits; 
coverage for life insurance benefit; and employer matching 
contributions to the 401(k) retirement plan) for employees who spent 25 
percent or less of their compensated time per month on Federal-related 
activity. The committee had allocated such costs based on the 
allocation method used for administrative expenses, which required a 
mixture of Federal and non-Federal funds, rather than based on the 
allocation method used for salaries and wages, which would have allowed 
for the use of all non-Federal funds. The Commission concluded amounts 
spent on fringe benefits fall into the category of compensated time, 
and thus concluded that the State party committee could use all non-
Federal funds to pay for the fringe benefits.
    The Commission now seeks comment on whether the rules should be 
amended to permit, but not require, State, district and local party 
committees to use the same allocation rules for fringe benefits as are 
used for salaries and wages, instead of allocating fringe benefits as 
administrative costs. See also Advisory Opinion 2004-12.
    In Advisory Opinion 2004-12, the Commission determined that a State 
party committee may pay for Federal election activity with Federal 
funds raised at events where the costs of such events had been paid for 
with a combination of Federal and non-Federal funds through the use of 
the ``funds received'' method under 11 CFR 106.7(d)(4). See 11 CFR 
106.7(c)(4). A narrow interpretation of current section 106.7(c)(4) may 
suggest that when there is an event at which Federal and non-Federal 
funds are being raised, and the costs of the event are properly 
allocated between the Federal and non-Federal accounts according to the 
funds received method, the Federal money raised at the event cannot be 
used to pay for any Federal election activity. This interpretation 
would require a State party committee to differentiate its Federal 
funds depending on their intended use, a requirement that the 
Commission has not historically adopted. Because the Commission wishes 
to make clear that it has not adopted this interpretation, it is 
seeking comment on whether current 11 CFR 106.7(c)(4) should be 
revised, consistent with AO 2004-12, to clarify that Federal funds 
raised at an event where both non-Federal and Federal funds are raised, 
and the costs of the event are allocated according to the funds 
received method, may be used for Federal election activity. The 
Commission also seeks comment as to whether this approach is consistent 
with BCRA.
    The Commission seeks comment on all the issues identified in this 
NPRM as well as the proposed rule.

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

[Regulatory Flexibility Act]
    The Commission certifies that the attached proposed rule, if 
promulgated, would not have a significant economic impact on a 
substantial number of small entities. The basis for this certification 
is that the organizations affected by this proposed rule are State, 
district, and local party committees, which are not ``small entities'' 
under 5 U.S.C. 601. These not-for-profit committees do not meet the 
definition of ``small organization'' which requires that the enterprise 
be independently owned and operated and not dominant in its field. 5 
U.S.C. 601(4). State political party committees are not independently 
owned and operated because they are not financed and controlled by a 
small identifiable group of individuals, and they are affiliated with 
the larger national political party organizations. In addition, the 
State political party committees representing the Democratic and 
Republican parties have a major controlling influence within the 
political arena of their State and are thus dominant in their field. 
District and local party committees are generally considered affiliated 
with the State committees and need not be considered separately. To the 
extent that any State party committees representing minor political 
parties might be considered ``small organizations,'' the number 
affected by this proposed rule is not substantial.

List of Subjects

11 CFR Part 106

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

11 CFR Part 300

    Campaign funds, Nonprofit organizations, Political committees and 
parties, Political candidates, Reporting and recordkeeping 
requirements.

    For reasons set out in the preamble, subchapters A and C of chapter 
1 of title 11 of the Code of Federal Regulations would be amended to 
read as follows:

PART 106--ALLOCATIONS OF CANDIDATE AND COMMITTEE ACTIVITIES

    1. The authority citation for part 106 would continue to read as 
follows:

    Authority: 2 U.S.C. 438(a)(8), 441a(b), 441a(g).

    2. Paragraphs (c)(1) and (d)(1) introductory text and (d)(1)(i) of 
Sec.  106.7 would be revised to read as follows:


Sec.  106.7  Allocation of expenses between Federal and non-Federal 
accounts by party committees, other than for Federal election 
activities.

* * * * *
    (c) Costs allocable by State, district, and local party committees 
between Federal and non-Federal accounts.
    (1) Salaries and wages. For the salaries and wages for employees 
who spend 25% or less of their compensated time in any given month on 
Federal election activity or activity in connection with a Federal 
election, State, district, and local party committees must either:
    (i) Pay for such salaries and wages with funds from their Federal 
account; or
    (ii) Allocate such salaries and wages between their Federal and 
non-Federal accounts in accordance with paragraph (d)(1)(i) of this 
section.
* * * * *
    (d) Allocation percentages, ratios, and record-keeping.
    (1) Salaries and wages. Committees must keep a monthly log of the 
percentage of time each employee spends in connection with a Federal 
election. Allocations of salaries and wages shall be undertaken as 
follows:
    (i) For salaries and wages for employees who spend 25% or less of 
their compensated time in a given month on Federal election activities 
or on activities in connection with a Federal election, the committee 
shall allocate at least 25% of such salaries and wages to a Federal 
account. Any portion of salaries and wages not allocated to a Federal 
account must be paid from funds that comply with State law.
* * * * *

PART 300--NON-FEDERAL FUNDS

    1. The authority citation for part 300 would continue to read as 
follows:

    Authority: 2 U.S.C. 434(e), 438(a)(8), 441a(a), 441i, 453.

    2. Paragraph (c)(2) of Sec.  300.33 would be revised to read as 
follows:

[[Page 23075]]

Sec.  300.33  Allocation of costs of Federal election activity.

* * * * *
    (c) * * *
    (2) Salaries and wages. Salaries and wages for employees who spend 
more than 25% of their compensated time in a given month on Federal 
election activity or activities in connection with a Federal election 
must not be allocated between or among Federal, non-Federal, and Levin 
accounts. Only Federal funds may be used. (Salaries and wages for 
employees who spend 25% or less of their compensated time in a given 
month on Federal election activity or activities in connection with a 
Federal election may be allocated in accordance with 11 CFR 106.7(c) 
and (d)(1)(i)).
* * * * *

    Dated: April 29, 2005.
Scott E. Thomas,
Chairman, Federal Election Commission.
[FR Doc. 05-8863 Filed 5-3-05; 8:45 am]
BILLING CODE 6715-01-P