[Federal Register Volume 70, Number 221 (Thursday, November 17, 2005)]
[Rules and Regulations]
[Pages 69631-69633]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-22778]



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  Federal Register / Vol. 70, No. 221 / Thursday, November 17, 2005 / 
Rules and Regulations  

[[Page 69631]]



FEDERAL ELECTION COMMISSION

11 CFR Part 300

[Notice 2005-26]


$5,000 Exemption for Disbursements of Levin Funds by State, 
District, and Local Party Committees and Organizations

AGENCY: Federal Election Commission.

ACTION: Final rule.

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SUMMARY: The Federal Election Commission is eliminating from its 
regulations an exemption allowing State, district, and local committees 
and organizations of a political party to use only Levin funds to pay 
for certain types of Federal election activity aggregating $5,000 or 
less in a calendar year. In Shays v. FEC, the District Court 
invalidated the exemption and remanded the regulation to the Commission 
for further action consistent with the court's opinion. The Commission 
appealed this ruling, and the Court of Appeals for the D.C. Circuit 
affirmed the District Court's decision. The repeal of this rule means 
that State, district, and local political party committees and 
organizations must pay for these specific types of Federal election 
activity either entirely with Federal funds, or with a mix of Federal 
funds and Levin funds. Further information is provided in the 
supplementary information that follows.

DATES: The rules at 11 CFR 300.32(c)(4) are effective on December 19, 
2005.

FOR FURTHER INFORMATION CONTACT: Mr. Brad C. Deutsch, Assistant General 
Counsel, or Ms. Cheryl A.F. Hemsley, Attorney, 999 E Street, NW., 
Washington, DC 20463, (202) 694-1650 or (800) 424-9530.

SUPPLEMENTARY INFORMATION: The Commission issued a Notice of Proposed 
Rulemaking (``NPRM'') proposing to eliminate from its regulations at 11 
CFR 300.32(c)(4) an exemption that had allowed State, district, and 
local committees of a political party \1\ to pay for certain types of 
Federal election activity (``FEA'') \2\ aggregating $5,000 or less in a 
calendar year entirely with Levin funds \3\ (``$5,000 Exemption''). The 
NPRM also requested comments on the possibility of creating a new, 
restructured exemption. The NPRM was published in the Federal Register 
on February 2, 2005. 70 FR 5385 (February 2, 2005). The comment period 
closed on March 4, 2005. The Commission received five comments from ten 
commenters on the proposed rules.\4\ Eight commenters favored 
elimination of the $5,000 Exemption and one commenter favored 
maintaining the $5,000 Exemption. Additionally, the Commission received 
a comment from the Internal Revenue Service, indicating ``the proposed 
rules do not pose a conflict with the Internal Revenue Code or the 
regulations thereunder.'' The Commission is issuing final rules 
eliminating the $5,000 Exemption and is declining to adopt a 
restructured exemption.
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    \1\ In addition to political party committees, these regulations 
are equally applicable to State, district, and local party 
organizations that do not qualify as political committees. See 11 
CFR 300.33(a)(1) and (2).
    \2\ There are four types of FEA: Type 1--Voter registration 
activity during the period that begins on the date that is 120 days 
before a regularly scheduled Federal election is held and ends on 
the date of the election; Type 2--Voter identification, get-out-the-
vote activity, or generic campaign activity conducted in connection 
with an election in which a candidate for Federal office appears on 
the ballot; Type 3--A public communication that promotes or 
supports, or attacks or opposes a clearly identified candidate for 
Federal office; and Type 4--Services provided during any month by an 
employee of a State, district, or local committee of a political 
party who spends more than 25 percent of his or her compensated time 
during that month on activities in connection with a Federal 
election. See 2 U.S.C. 431(20) and 11 CFR 100.24.
    \3\ Levin funds are funds that are raised by State, district, or 
local party committees and organizations pursuant to the 
restrictions in 11 CFR 300.31 and disbursed subject to the 
restrictions in 11 CFR 300.32. See 11 CFR 300.2(i).
    \4\ All comments on the NPRM are available at http://www.fec.gov/law/law_rulemakings.shtml#levin.
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    Under the Administrative Procedure 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. The 
final rule that follows was transmitted to Congress on November 10, 
2005.

Explanation and Justification

11 CFR 300.32(c)--Conditions and Restrictions on Spending Levin Funds

    The Bipartisan Campaign Reform Act of 2002 (``BCRA''), Pub. L. 107-
155, 116 Stat. 81 (2002), amended the Federal Election Campaign Act of 
1971 (the ``Act''), 2 U.S.C. 431 et seq., in many respects. Section 
441i(b)(1) of the Act, as added by BCRA, provides that State, district, 
and local political party committees generally must use Federal funds 
\5\ to pay for FEA. However, the Levin Amendment (2 U.S.C. 441i(b)(2)) 
provides an exception for two types of FEA, for which State, district, 
and local political party committees may allocate disbursements between 
Federal funds and Levin funds in accordance with allocation ratios 
determined by the Commission. 2 U.S.C. 441i(b)(2); see also 11 CFR 
300.2(i), 300.32, and 300.33. Types 1 and 2 FEA, which involve certain 
voter registration, get-out-the-vote, voter identification, and generic 
campaign activity, are allocable between Federal and Levin funds, so 
long as the activities do not refer to a clearly identified Federal 
candidate (``allocable Type 1&2 FEA''). See 2 U.S.C. 441i(b)(2)(B)(i) 
and 11 CFR 300.32(c).
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    \5\ ``Federal funds'' are funds that comply with the limits, 
prohibitions, and reporting requirements of the Act. See 11 CFR 
300.2(g).
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    In 2002, the Commission promulgated regulations at 11 CFR Part 300 
implementing BCRA. See Final Rules and Explanation and Justification 
for Prohibited and Excessive Contributions; Non-Federal Funds or Soft 
Money, 67 FR 49064 (July 29, 2002). Specifically, 11 CFR 300.32(c)(4) 
required any State, district, or local committee or organization of a 
political party that disburses more than $5,000 for allocable Type 1&2 
FEA in a calendar year either to pay for such allocable FEA entirely 
with Federal funds or to allocate the disbursements between Federal 
funds and Levin funds. The same provision also created a ``de minimis 
exemption'' for any State, district, or local party committee or 
organization whose disbursements for allocable Type 1&2 FEA aggregate 
$5,000 or less in a

[[Page 69632]]

calendar year, thereby permitting such party committees and 
organizations to pay for these expenses entirely with Levin funds.
    The $5,000 Exemption was one of several regulations at issue in 
Shays v. FEC, 337 F.Supp.2d 28 (D.D.C. 2004) (``Shays District''), 
aff'd, 414 F.3d 76 (D.C. Cir. July 15, 2005) (``Shays Appeal''), reh'g 
en banc denied (October 21, 2005) (No. 04-5352). The District Court in 
Shays District held that the $5,000 Exemption in 11 CFR 300.32(c)(4) 
was inconsistent with Congress's intent, as expressed in BCRA, to 
require State, district, and local party committees to pay for 
allocable Type 1&2 FEA either solely with Federal funds or with an 
allocated mix of Federal funds and Levin funds. Shays District at 114-
17.
    The Commission appealed the District Court's ruling regarding 
several of its regulations, including 11 CFR 300.32(c)(4). On July 15, 
2005, the Court of Appeals for the D.C. Circuit affirmed the District 
Court's invalidation of the $5,000 Exemption. Shays Appeal at 115. In 
affirming the District Court's invalidation of the $5,000 Exemption, 
the Court of Appeals concluded that the Commission had failed to 
establish that the $5,000 Exemption was ``in fact de minimis.'' Shays 
Appeal at 114. The Court of Appeals also concluded that because 
Congress had exercised its judgment in enacting the Levin Amendment, 
``Congress's rationale for including activities in the Levin Amendment 
obviously affords no justification for excluding them from Levin 
allocation, the very form of regulation Congress chose.'' Id. (emphasis 
in original).
    The NPRM proposed to eliminate entirely the $5,000 Exemption in 11 
CFR 300.32(c)(4). In response to the NPRM, eight commenters urged the 
Commission to eliminate the $5,000 Exemption altogether. These 
commenters stated that BCRA was clear on its face and argued that the 
Levin Amendment itself reflected Congress's narrowly-drawn exception 
allowing State, district, and local party committees to use only 
Federal funds or to allocate between Federal and Levin funds for 
allocable Type 1&2 FEA. Four of the commenters noted that the Levin 
Amendment was, itself, a compromise reached during Congressional 
deliberation. These commenters asserted that Congress had contemplated 
that Levin funds always would be used in combination with Federal funds 
for allocable Type 1&2 FEA, recognizing that FEA activities influence 
Federal elections.
    On the other hand, one commenter favored retaining the $5,000 
Exemption, stating that the exemption did not undermine Congressional 
intent. Specifically, this commenter asserted that absent the $5,000 
Exemption, a strict application of the Levin Amendment would lead to 
suppression of ``local grassroots activity in favor of non-party or 
large institutional party activity'' and that this was ``an unlikely 
objective'' for Congress.
    1. Elimination of the Current $5,000 Exemption. In light of the 
conclusions reached by the Court of Appeals in Shays Appeal, which 
precluded retaining the current rule, the Commission has decided to 
eliminate the $5,000 Exemption from paragraph (c)(4) of section 300.32. 
Thus, revised paragraph (c)(4) requires State, district, and local 
committees and organizations of political parties to pay for all 
allocable Type 1&2 FEA either entirely with Federal funds or with an 
allocated mix of Federal funds and Levin funds, without regard to the 
total amount of their annual disbursements. The wording of revised 11 
CFR 300.32(c)(4) also includes a conforming revision that replaces the 
word ``may'' with ``must'' to reflect unambiguously that State, 
district, and local party committees and organizations must choose 
between paying for such expenditures either entirely with Federal funds 
or with an allocated mix of Federal funds and Levin funds.
    2. Rejection of a Restructured Exemption. As noted above, the NPRM 
also requested comments on a possible restructuring of the exemption in 
section 300.32(c)(4) to mirror the reporting exception contained in 
section 434(e)(2)(A) of the Act, which exempts State, district, and 
local party committees from reporting FEA if they have combined 
receipts and disbursements for FEA (whether allocable or not) that 
together aggregate to less than $5,000 in a calendar year. Seven 
commenters addressed the restructuring proposal, all of them asserting 
that any restructured exemption would be contrary to Congressional 
intent.
    As discussed above, the Court of Appeals held that the careful 
balance already reflected in the Levin Amendment represents Congress's 
exercise of its judgment, and effectively precludes the Commission from 
promulgating a further exemption unless such an exemption were ``truly 
de minimis.'' Shays Appeal at 114. In light of the comments received in 
this rulemaking and the decision of the Court of Appeals, the 
Commission has decided not to adopt the restructuring proposal 
contained in the NPRM.

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

    The Commission certifies that the attached final rule does 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 final rule are State, district, and local party 
committees and organizations, 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 final rule is not substantial.

List of Subjects in 11 CFR Part 300

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


0
For the reasons set out in the preamble, the Federal Election 
Commission is amending Subchapter C of Chapter I of Title 11 of the 
Code of Federal Regulations as follows:

PART 300--NON-FEDERAL FUNDS

0
1. The authority citation for Part 300 continues to read as follows:

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


0
2. Section 300.32 is amended by revising paragraph (c)(4) to read as 
follows:


Sec.  300.32  Expenditures and disbursements.

* * * * *
    (c) Conditions and restrictions on spending Levin funds. * * *

[[Page 69633]]

    (4) The disbursements for allocable Federal election activity must 
be paid for either entirely with Federal funds or by allocating between 
Federal funds and Levin funds according to 11 CFR 300.33.
* * * * *

    Dated: November 10, 2005.
Scott E. Thomas,
Chairman, Federal Election Commission.
[FR Doc. 05-22778 Filed 11-16-05; 8:45 am]
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