Appendix 2
1993 Legislative Recommendations
Related to Public Funding

Title 26 Recommendations

Presidential Election Campaign Fund (revised 1993)
26 U.S.C. Sec.6096

Recommendation. Without Congressional action, there will be a shortfall in the Presidential Election Campaign Fund in 1996. There will be no money available for primary candidates and less than a full entitlement for the general election candidates. If Congress wishes to preserve the Presidential public funding system, a legislative remedy is essential.

In addition, Congress may want to examine the priorities for distributing public funds among the party nominating conventions, the general election nominees and the primary election candidates.

Explanation. Although the Fund did not experience a shortfall during the 1992 Presidential year,1 the Commission has informed Congress that a serious public funding shortage is assured in 1996. One of the reasons for this is a structural flaw in the checkoff program. The payout to candidates and parties (for their conventions) is indexed to inflation, but the dollar checkoff is not. Spending limits are increased each election cycle to reflect the change in the cost-of-living index. In 1974, the statutory spending limit for the general election was established at $20 million. In 1992, each major party nominee received $55.2 million, representing over two and one half times the amount received by the nominees in 1976 ($21.8 million). Thus, as the consumer price index increases, the Fund needs more and more checkoff dollars to make the appropriate payments to qualified candidates and parties. If the checkoff amount had been increased at the same rate as the payments, there would be no shortfall in 1996.

Another reason for the shortfall is the shrinking participation of taxpayers in the checkoff program. After peaking at 28 percent in 1980, the percentage of tax forms on which the taxpayer checked yes has fallen to approximately 18 percent.

Without a legislative remedy, the FEC predicts that the shortfall in 1996 will be a serious problem. The law requires that priority be given first to party nominating conventions, then to general election nominees and last to primary election candidates. There will not be enough money in the Fund to cover all phases. We estimate that $124 million will have accumulated in the fund through 1996. This amount will only fully fund the two major party conventions, at about $12 million each. The two general election nominees, who will be entitled to more than $60 million each, will not be fully funded. There will be no money for the primary candidates. Consequently, the shortfall will force candidates to become more dependent on large contributions from individuals and groups and, ultimately, defeat the purpose of the public funding process.

Primary Election Audits (1993)
26 U.S.C. Sec.9032, 9033, 9035, 9038, 9039(a)(1)

Recommendation. Congress may want to eliminate the requirement under the Presidential Primary Matching Payment Account Act that matching funds be used only for "qualified campaign expenses" and substitute instead specific criteria to be used in Commission audits of publicly funded primary candidates.

Explanation. To carry out the current requirement contained in 26 U.S.C. Sec.9038(a), the Commission has had to determine, through audits, whether campaigns were using public funds to make qualified campaign expenses or unqualified campaign expenses. That determination has required considerable government resources. Additionally, the effort has resulted in prolonged audits, whose results have often not been published until four years after the election was over. One way of reducing the time and expense of these complex audits would be to eliminate the requirement that the Commission determine which disbursements were "qualified campaign expenses" and which were not. The test for whether or not a candidate used his or her public funds for legitimate campaign purposes would be based, instead, on the public's judgment. In order to make that judgment, full disclosure of campaign finance operations would be required. All disbursements, including their purpose, would be disclosed in full. With that information, the public would express its judgment, through the ballot box, on whether the candidate had spent the funds wisely and fairly.

The Commission would continue, however, to audit campaigns to ensure that they complied with the Federal Election Campaign Act and the Presidential Primary Matching Payment Account Act, including provisions on expenditure limits2 and the limits and prohibitions on contributions. Additionally, the audits would be conducted to ensure that campaigns did not use funds for any illegal purpose, that campaigns did not convert excess campaign funds to personal use, that matching funds were used only for expenses incurred during the candidate's period of eligibility, and that all contributions were properly matched. Any surplus funds would have to be repaid to the U.S. Treasury, as now required under the law. Similarly, campaigns would be required to make repayments if the Commission determined that they had not complied with the campaign laws or had used funds for illegal purposes.

Supplemental Funding for Publicly Funded Candidates (1993)
26 U.S.C. Sec.9003 and 9004

Recommendation. Congress may wish to consider whether publicly funded candidates should receive additional public funds when a nonpublicly funded candidate exceeds the spending limit.

Explanation. Major party Presidential candidates who participate in the general election public funding process receive a grant for campaigning. In order to receive the grant, the candidate must agree to limit expenditures to that amount. Candidates who do not request public funds may spend an unlimited amount on their campaign. Congress may want to consider whether the statute should ensure that those candidates who are bound by limits are not disadvantaged.

Compliance Fund (1993)
2 U.S.C. Sec.441a(b)(1)(B); 26 U.S.C. Sec.9002(11), 9003(b) and (c), 9004(c)

Recommendation. Congress may wish to clarify what funds Presidential Election Campaign Fund recipients may utilize to meet the accounting and compliance requirements imposed upon them by the Federal Election Campaign Act. If private funds are not to be used, Congress may wish to either raise the spending limits to accommodate such costs or establish a separate fund of the Treasury to be used for this purpose.

Explanation. Through regulation, the Commission has provided for the establishment by Presidential committees of a General Election Legal and Accounting Compliance Fund (GELAC fund) consisting of private contributions otherwise within the limits acceptable for any other federal election. The GELAC funds, which supplement funds provided out of the U.S. Treasury, may be used to pay for costs related to compliance with the campaign laws. Determining which costs may be paid is sometimes difficult and complex. Contributions to the GELAC fund are an exception to the general rule that publicly funded Presidential general election campaigns may not solicit or accept private contributions. Congress should clarify whether GELAC funds are appropriate and, if not, specify whether additional federal grants are to be used. If GELAC funds are appropriate, Congress should provide guidelines indicating which compliance costs are payable from such funds.

Applicability of Title VI to Recipients of Payments from the Presidential Election Campaign Fund (1993)
26 U.S.C. Sec.9006(b), 9008(b)(3) and 9037

Recommendation. Congress should clarify that committees receiving public financing payments from the Presidential Election Campaign Fund are exempt from the requirements of Title VI of the Civil Rights Act of 1964, as amended.

Explanation. This proposed amendment was prompted by the decision of the U.S. District Court for the District of Columbia in Freedom Republicans, Inc., and Lugenia Gordon v. Federal Election Commission, No. 92-153 (CRR) (D.D.C. April 7, 1992), appeal pending, No. 92-5214 (D.C. Cir.). The Freedom Republicans' complaint asked the district court to declare that the Commission has jurisdiction to regulate the national parties' delegate selection process under Title VI. It also requested the court to order the Commission to adopt such regulations, direct the Republican Party to spend no more of the funds already received for its 1992 national nominating convention, and seek refunds of moneys already disbursed if the Republican Party did not amend its delegate selection and apportionment process to comply with Title VI. The court found that the Commission "does have an obligation to promulgate rules and regulations to insure the enforcement of Title VI. The language of Title VI is necessarily broad, and applies on its face to the FEC as well as to both major political parties and other recipients of federal funds." Slip op. at 6. The court gave the Freedom Republicans the opportunity to reassert their other claims after the Commission promulgates rules. Slip op. at 10.

The Commission appealed this ruling on a number of procedural and substantive grounds, including that Title VI does not apply to the political parties' apportionment and selection of delegates to their conventions. However, the court of appeals might overrule the district court decision on one of the non-substantive grounds leaving the door open for other lawsuits involving the national nominating conventions or other recipients of federal funds certified by the Commission.

In the Commission's opinion, First Amendment concerns and the legislative history of the public funding campaign statutes strongly indicate that Congress did not intend Title VI to permit the Commission to dictate to the political parties how to select candidates or to regulate the campaigns of candidates for federal office. Nevertheless, the potential exists for persons immediately prior to an election to invoke Title VI in the federal courts in a manner that might interfere with the parties' nominating process and the candidates' campaigns. The recommended clarification would help forestall such a possibility.

For these reasons, Congress should consider adding the following language to the end of each public financing provision cited above: "The acceptance of such payments will not cause the recipient to be conducting a 'program or activity receiving federal financial assistance' as that term is used in Title VI of the Civil Rights Act of 1964, as amended."

Deposit of Repayments
26 U.S.C. Sec.9007(d)

Recommendation. Congress should revise the law to state that: All payments received by the Secretary of the Treasury under subsection (b) shall be deposited by him or her in the Presidential Election Campaign Fund established by section 9006(a).

Explanation. This change would allow the Fund to recapture moneys repaid by convention-related committees of national major and minor parties, as well as by general election grant recipients. Currently the Fund recaptures only repayments made by primary matching fund recipients.

Enforcement of Nonwillful Violations
26 U.S.C. Sec.9012 and 9042

Recommendation. Congress should consider amending the Presidential Election Campaign Fund Act and the Presidential Primary Matching Payment Account Act to clarify that the Commission has authority for civil enforcement of nonwillful violations (as well as willful violations) of the public funding provisions.

Explanation. Section 9012 of the Presidential Election Campaign Fund Act and section 9042 of the Presidential Primary Matching Payment Account Act provide only for "criminal penalties" for knowing and willful violations of the spending and contribution provisions and the failure of publicly funded candidates to furnish all records requested by the Commission. The lack of a specific reference to nonwillful violations of these provisions has raised questions regarding the Commission's ability to enforce these provisions through the civil enforcement process.

In some limited areas, the Commission has invoked other statutes and other provisions in Title 26 to carry out its civil enforcement of the public funding provisions. It has relied, for example, on 2 U.S.C. Sec.441a(b) to enforce the Presidential spending limits. Similarly, the Commission has used the candidate agreement and certification processes provided in 26 U.S.C. Sec.9003 and 9033 to enforce the spending limits, the ban on private contributions, and the requirement to furnish records. Congress may wish to consider revising the public financing statutes to provide explicit authority for civil enforcement of these provisions.

Eligibility Requirements for Public Financing (revised 1993)
26 U.S.C. Sec.9002, 9003, 9032 and 9033

Recommendation. Congress should amend the eligibility requirements for publicly funded Presidential candidates to make clear that candidates who have been convicted of a willful violation of the laws related to the public funding process or who are not eligible to serve as President will not be eligible for public funding.

Explanation. Neither of the Presidential public financing statutes expressly restricts eligibility for funding because of a candidate's prior violations of law, no matter how severe. And yet public confidence in the integrity of the public financing system would risk serious erosion if the U.S. Government were to provide public funds to candidates who had been convicted of felonies related to the public funding process. Congress should therefore amend the eligibility requirements to ensure that such candidates do not receive public financing for their Presidential campaigns. The amendments should make clear that a candidate would be ineligible for public funds if he or she had been convicted of fraud with respect to raising funds for a campaign that was publicly financed, or if he or she had failed to make repayments in connection with a past publicly funded campaign or had willfully disregarded the statute or regulations. In addition, Congress should make it clear that eligibility to serve in the office sought is a prerequisite for eligibility for public funding.

Eligibility Threshold for Public Financing
26 U.S.C. Sec.9003 and 9033

Recommendation. Congress should raise the eligibility threshold for publicly funded Presidential candidates.

Explanation. The Federal Election Commission has administered the public funding provisions in four Presidential elections, and is in the midst of doing so for the fifth time. The statute provides for a cost-of-living adjustment (COLA) of the overall primary spending limitation. There is, however, no corresponding adjustment to the threshold requirement. It remains exactly the same as it was in 1974. An adjustment to the threshold requirement would ensure that funds continue to be given only to candidates who demonstrate broad national support. To reach this higher threshold, Congress could increase the number of states in which the candidate had to raise the qualifying amount of matchable contributions; and/or increase the total amount of qualifying matchable contributions that had to be raised in each of the states.

Contributions to Presidential Nominees Who Receive Public Funds in the General Election (revised 1993)
26 U.S.C. Sec.9003

Recommendation. Congress may wish to clarify that the public financing statutes prohibit the making and acceptance of contributions (either direct or in-kind) to Presidential candidates who receive full public funding in the general election.

Explanation. The Presidential Election Campaign Fund Act prohibits a publicly financed general election candidate from accepting private contributions to defray qualified campaign expenses. 26 U.S.C. Sec.9003(b)(2). The Act does not, however, contain a parallel prohibition against the making of these contributions. Congress should consider adding a section to 2 U.S.C. Sec.441a to clarify that individuals and committees are prohibited from making these contributions.

Relevant Title 2 Recommendations

Candidate Leadership PACs (1993)
2 U.S.C. Sec.441a(a)

Recommendation. Congress should consider whether leadership PACs should be deemed affiliated with the candidate's principal campaign committee.

Explanation. A number of candidates for federal office and incumbent federal officeholders have established leadership PACs in addition to their principal campaign committees. Under current law, the leadership PACs generally are not considered authorized committees. Therefore, they may accept funds from individuals of up to the $5,000 limit permitted for unauthorized committees in a calendar year and may make contributions of up to $5,000 per election to other federal candidates once they achieve multicandidate status. In contrast, authorized committees may not accept more than $1,000 per election from individuals and may not make contributions in excess of $1,000 to other candidates.

The existence of leadership PACs can present difficult issues for the Commission, such as when contributions are jointly solicited with the candidate's principal campaign committee or when the resources of the leadership PAC are used to permit the candidate to gain exposure by traveling to appearances on behalf of other candidates. At times the operations of the two committees can be difficult to distinguish.

If Congress concludes that there is an appearance that the limits of the Act are being evaded through the use of leadership PACs, it may wish to consider whether such committees are affiliated with the candidate's principal campaign committee. As such, contributions received by the committees would be aggregated under a single contribution limit and would be subject to the limitations on contributions to authorized committees. The same treatment would be accorded to contributions made by them to other candidates.

Fundraising Limitation for Publicly Financed Presidential Primary Campaigns
2 U.S.C. Sec.431(9)(B)(vi) and 441a

Recommendation. The Commission recommends that the separate fundraising limitation provided to publicly financed Presidential primary campaigns be combined with the overall limit. Thus, instead of a candidate's having a $10 million (plus COLA3) limit for campaign expenditures and a $2 million (plus COLA) limit for fundraising (20 percent of overall limit), each candidate would have one $12 million (plus COLA) limit for all campaign expenditures.

Explanation. Campaigns that have sufficient funds to spend up to the overall limit usually allocate some of their expenditures to the fundraising category. These campaigns come close to spending the maximum permitted under both their overall limit and their special fundraising limit. Hence, by combining the two limits, Congress would not substantially alter spending amounts or patterns. For those campaigns which do not spend up to the overall expenditure limit, the separate fundraising limit is meaningless. Many smaller campaigns do not even bother to use it, except in one or two states where the expenditure limit is low, e.g., Iowa and New Hampshire. Assuming that the state limitations were eliminated or appropriately adjusted, this recommendation would have little impact on the election process.

The advantages of the recommendation, however, are substantial. They include a reduction in accounting burdens and a simplification in reporting requirements for campaigns, and a reduction in the Commission's auditing task. For example, the Commission would no longer have to ensure compliance with the 28-day rule, i.e., the rule prohibiting committees from allocating expenditures as exempt fundraising expenditures within 28 days of the primary held within the state where the expenditure was made.

Contributions and Expenditures to Influence Federal and Nonfederal Elections (revised 1993)
2 U.S.C. Sec.441 and 434

Recommendation. Congress may wish to consider whether new legislation is needed to regulate the use of "soft money" in federal elections.

Explanation. The law requires that all funds spent to influence federal elections come from sources that are permissible under the limitations and prohibitions of the Act. Problems arise with the application of this provision to committees that engage in activities that support both federal and nonfederal candidates. The Commission attempted to deal with this problem by promulgating regulations that required such committees to allocate disbursements between federal and nonfederal election activity. The focus of these regulations was on how the funds were spent. The public, however, has been equally concerned about the source of money that directly or indirectly influences federal politics. Much discussion has centered on the perception that soft money is being used to gain access to federal candidates. ("Soft money" is generally understood to mean funds that do not comply with the federal prohibitions and limits on contributions.) Even if soft money is technically used to pay for the nonfederal portion of shared activities (federal and nonfederal), the public may perceive that the contributors of soft money have undue influence on federal candidates and federally elected officials. In light of this public concern, Congress should consider amending the law in this area as it affects the raising of soft money. Such changes could include any or all of the following: (1) more disclosure of nonfederal account receipts (as well as "building fund" proceeds exempted under 2 U.S.C. Sec.431(8)(B)(viii)); (2) limits on nonfederal account donations coupled with tighter affiliation rules regarding party committees; (3) prohibiting nonfederal accounts for certain types of committees; (4) prohibiting the use of a federal candidate's name or appearance to raise soft money; and (5) confining soft money fundraising to nonfederal election years.

In addition, further restrictions on the spending of soft money should be considered such as: (1) requiring all party committees to disclose all nonfederal activity that is not exclusively related to nonfederal candidate support and expressly preempting duplicative state reporting requirements; (2) requiring that all party activity which is not exclusively on behalf of nonfederal candidates be paid for with federally permissible funds; and (3) limiting the use of soft money to nonfederal election year activity.

State Filing for Presidential Candidate Committees
2 U.S.C. Sec.439

Recommendation. Congress should consider clarifying the state filing provisions for Presidential candidate committees to specify which particular parts of the reports filed by such committees with the FEC should also be filed with states in which the committees make expenditures. Consideration should be given to both the benefits and the costs of state disclosure.

Explanation. Both states and committees have inquired about the specific requirements for Presidential candidate committees when filing reports with the states. The statute requires that a copy of the FEC reports shall be filed with all states in which a Presidential candidate committee makes expenditures. The question has arisen as to whether the full report should be filed with the state, or only those portions that disclose financial transactions in the state where the report is filed.

The Commission has considered two alternative solutions. The first alternative is to have Presidential candidate committees file, with each state in which they have made expenditures, a copy of the entire report filed with the FEC. This alternative enables local citizens to examine complete reports filed by candidates campaigning in a state. It also avoids reporting dilemmas for candidates whose expenditures in one state might influence a primary election in another.

The second alternative is to require that reports filed with the states contain all summary pages and only those receipts and disbursements schedules that show transactions pertaining to the state in which a report is filed. This alternative would reduce filing and storage burdens on Presidential candidate committees and states. It would also make state filing requirements for Presidential candidate committees similar to those for unauthorized political committees. Under this approach, any person still interested in obtaining copies of a full report could do so by contacting the Public Disclosure Division of the FEC.

State Expenditure Limits for Publicly Financed Presidential Primary Campaigns (revised 1993)
2 U.S.C. Sec.441a

Recommendation. The Commission recommends that the state-by-state limitations on expenditures for publicly financed Presidential primary candidates be eliminated.

Explanation. The Commission has now administered the public funding program in five Presidential elections. Based on our experience, we believe that the limitations could be removed with no material impact on the process.

Our experience has shown that, in past years, the limitations have had little impact on campaign spending in a given state, with the exception of Iowa and New Hampshire. In most other states, campaigns have been unable or have not wished to expend an amount equal to the limitation. In effect, then, the administration of the entire program has resulted in limiting disbursements in these two primaries alone.

If the limitations were removed, the level of disbursements in these states would obviously increase. With an increasing number of primaries vying for a campaign's limited resources, however, it would not be possible to spend very large amounts in these early primaries and still have adequate funds available for the later primaries. Thus, the overall national limit would serve as a constraint on state spending, even in the early primaries. At the same time, candidates would have broader discretion in the running of their campaigns.

Our experience has also shown that the limitations have been only partially successful in limiting expenditures in the early primary states. The use of the fundraising limitation, the compliance cost exemption, the volunteer service provisions, the unreimbursed personal travel expense provisions, the use of a personal residence in volunteer activity exemption, and a complex series of allocation schemes have developed into an art which, when skillfully practiced, can partially circumvent the state limitations.

In addition, experience has shown that one of the Congressional concerns motivating the adoption of state expenditure limits is no longer an issue. Congress adopted the state limits, in part, as a way of discouraging candidates from relying heavily on the outcome of big state primaries. The concern was that candidates might wish to spend heavily in such states as a way of securing their party's nomination. In fact, however, under the public funding system, this has not proven to be an issue. Rather than spending heavily in large states, candidates have spent large amounts in the early primaries, for example, in Iowa and New Hampshire.

Finally, the allocation of expenditures to the states has proven a significant accounting burden for campaigns and an equally difficult audit and enforcement task for the Commission.

For all these reasons, the Commission decided to revise its state allocation regulations for the 1992 Presidential election. Many of the requirements, such as those requiring distinctions between fundraising and other types of expenditures, were eliminated. Since the Commission has not yet completed its administration of this Presidential cycle, the full impact of these changes is not yet clear. However, the rules could not undo the basic requirement to demonstrate the amount of expenditures relating to a particular state. Given our experience to date, we believe that this change to the Act would still be of substantial benefit to all parties concerned.

Draft Committees
2 U.S.C. Sec.431(8)(A)(i) and (9)(A)(i), 441a(a)(1) and 441b(b)

Recommendation. Congress should consider the following amendments to the Act in order to prevent a proliferation of "draft" committees and to reaffirm Congressional intent that draft committees are "political committees" subject to the Act's provisions.

1. Bring Funds Raised and Spent for Undeclared but Clearly Identified Candidates Within the Act's Purview. Section 431(8)(A)(i) should be amended to include in the definition of "contribution" funds contributed by persons "for the purpose of influencing a clearly identified individual to seek nomination for election or election to Federal office. . . ." Section 431(9)(A)(i) should be similarly amended to include within the definition of "expenditure" funds expended by persons on behalf of such "a clearly identified individual."

2. Restrict Corporate and Labor Organization Support for Undeclared but Clearly Identified Candidates. Section 441b(b) should be revised to expressly state that corporations, labor organizations and national banks are prohibited from making contributions or expenditures "for the purpose of influencing a clearly identified individual to seek nomination for election or election. . . " to federal office.

3. Limit Contributions to Draft Committees. The law should include explicit language stating that no person shall make contributions to any committee (including a draft committee) established to influence the nomination or election of a clearly identified individual for any federal office which, in the aggregate, exceed that person's contribution limit, per candidate, per election.

Explanation. These proposed amendments were prompted by the decisions of the U.S. Court of Appeals for the District of Columbia Circuit in FEC v. Machinists Non-Partisan Political League and FEC v. Citizens for Democratic Alternatives in 1980 and the U.S. Court of Appeals for the Eleventh Circuit in FEC v. Florida for Kennedy Committee. The District of Columbia Circuit held that the Act, as amended in 1979, regulated only the reporting requirements of draft committees. The Commission sought review of this decision by the Supreme Court, but the Court declined to hear the case. Similarly, the Eleventh Circuit found that "committees organized to 'draft' a person for federal office" are not "political committees" within the Commission's investigative authority. The Commission believes that the appeals court rulings create a serious imbalance in the election law and the political process because a nonauthorized group organized to support someone who has not yet become a candidate may operate completely outside the strictures of the Federal Election Campaign Act. However, any group organized to support someone who has in fact become a candidate is subject to the Act's registration and reporting requirements and contribution limitations. Therefore, the potential exists for funneling large aggregations of money, both corporate and private, into the federal electoral process through unlimited contributions made to nonauthorized draft committees that support a person who has not yet become a candidate. These recommendations seek to avert that possibility.

1. The Commission's projection that a shortfall would occur in 1992 did not materialize because the assumptions on which that projection was based changed. First, matching fund requests were considerably smaller than had been expected, based on the experience of previous years. Second, total checkoff receipts deposited into the Fund in 1991 declined much less than had been anticipated. The FEC had expected a decline of $2 million. In fact, the checkoff dollars to the Fund declined by approximately $140,000. Third, the inflation rate was lower than had been expected, which decreased the expected demand on the Fund.

2. This proposal assumes that Congress would also repeal the state-by-state expenditure limits, leaving only a national expenditure limit for the Commission to enforce.

3. Spending limits are increased by the cost-of-living adjustment (COLA), which the Department of Labor calculates annually.