Commissioner Thomas Statement of Reasons in MUR 4215

On February 24, 1998, the Federal Election Commission (“the Commission”), by a 5-0 vote, declined to adopt the recommendations of the Office of General Counsel to find probable cause to believe the Democratic National Committee and Carol Pensky, as treasurer (“the DNC”) violated the Federal Election Campaign Act of 1971, as amended, (“the Act”), and the Commission’s regulations in connection with certain transfers to state party committees. At issue was whether the DNC violated the law because the state parties used the state party allocation formulas for expenditures they made on certain generic voter drive advertisements. The Office of General Counsel contended that the funds should have been allocated under the national party allocation formula since it appeared the DNC had transferred funds to the state parties with the intention that those funds be used for the voter drive advertisements.

We voted against the General Counsel’s recommendations because there is nothing in the current regulations of the Commission that clearly prevents the activity at issue here. To the contrary, the regulations permit a national party committee to make unlimited transfers to a state party committee. 11 C.F.R. § 110.3(c). Under the Commission’s regulations, it is reasonable to view these transferred monies as if they were state party monies that can be utilized as the state party allocation rules allow.

The sole regulatory restriction on the use of transferred national party funds is they cannot be used by a state party either to pay for campaign materials which otherwise may qualify for the “volunteer exception,” see 11 C.F.R. §§ 100.7(b)(15)(vii) and 100.8(b)(16)(vii), or to pay for certain presidential get-out-the-vote activities that are exempted from treatment as a contribution or expenditure. See 11 C.F.R. §§ 100.7(b)(17)(vii) and 100.8(b)(18)(vii).[1] Significantly, there is no similar Commission regulation which addresses, much less specifically restricts, the transfer of national party funds for a state party’s generic voter activity or questions the purpose and intent of these transfers.

The statute, at 2 U.S.C. § 441a(f), prohibits political committees from accepting contributions exceeding the statutory limitations. Similarly, 2 U.S.C. § 441b prohibits political committees from accepting contributions from corporate or labor union sources.

Following the statute at 2 U.S.C. § 441a(a)(4), the Commission’s regulations, 11 C.F.R. § 110.3(c), provide that the contribution limitations set out at 11 C.F.R. §§ 110.1 and 110.2 “shall not limit . . . transfers of funds between affiliated committees or between party committees of the same political party whether or not they are affiliated . . . .”

Under 11 C.F.R. § 102.5(a)(1), political committees that make expenditures “in connection with both federal and non-federal elections” either must establish separate federal and non-federal accounts, or set up a single account “which receives only contributions subject to the limitations and prohibitions of the Act.” If separate federal and non-federal accounts are established, all expenditures made in connection with federal elections must be made from the federal account.

Under 11 C.F.R. § 106.5(a)(1), party committees that make expenditures in connection with both federal and non-federal elections either must use only permissible funds to make such expenditures or establish separate federal and non-federal accounts pursuant to 11 C.F.R. § 102.5. If separate accounts are used, expenditures for shared federal and non-federal activity must be allocated between these accounts, and the committee must pay “the entire amount of an allocable expense from its federal account and [then] transfer funds from its non-federal account to its federal account solely to cover the non-federal share of that allocable expense.” 11 C.F.R. § 106.5(g)(1)(i).

Pursuant to 11 C.F.R. § 106.1(e), party committees making disbursements for specified categories of activities in connection with both federal and non-federal elections must allocate those expenses between federal and non-federal accounts in accordance with 11 C.F.R. § 106.5. These categories include administrative expenses, fundraising costs, the costs of certain activities which are exempt from the definitions of “contribution” and “expenditure,” and the costs of generic voter drives. 11 C.F.R. § 106.5(a)(2)(i-iv). “Generic voter drives” include activities that “urge the general public to register, vote or support candidates of a particular party or associated with a particular issue, without mentioning a specific candidate.” 11 C.F.R. § 106.5(a)(2)(iv).

Generally, state party committees using separate federal and non-federal accounts must allocate the costs of the above categories of expenses, including generic voter drives, using the “ballot composition method.” 11 C.F.R. § 106.5(d). National party committees, other than Senate or House campaign committees, must allocate the costs of generic voter drives according to fixed percentages; in non-presidential election years the fixed amount for the federal account’s share is at least 60%. 11 C.F.R. § 106.5(b)(2)(ii).

The DNC confirmed it transferred federal and non-federal funds to the Michigan Democratic State Central Committee (“MDP”) in 1994 so the MDP could place certain television advertisements entitled “Deal.” The DNC deemed this buying of air time to have been state party generic voter activity. Rather than apply the 60% federal / 40% non-federal formula set forth in the Commission’s regulations for national party expenditures for its transfers, the DNC appears to have transferred such amounts as the MDP requested under its own own allocation formula which permitted 78% of the payment to the media buyer to be made with non-federal funds. The DNC’s federal transfers were made to MDP federal account(s) and the DNC’s non-federal transfers were made from non-federal account(s) to MDP non-federal account(s). The DNC also confirmed it transferred funds from its federal and non-federal accounts to ten additional Democratic state party committees for similar purposes in 1994, again working with the state party committees’ allocation ratios. The total amounts transferred to the eleven state party committees were $613,041 from the DNC’s federal account(s) and $1,402,885 from its non-federal account(s).

We voted against the General Counsel’s recommendations of probable cause to believe determinations for several reasons. First, the state party committees clearly retained ultimate control over their disbursements, not the DNC. The funds at issue actually had been transferred to the state parties. In transferring these funds, the DNC relinquished, and the state parties had gained, control over those funds.[2] Moreover, each state party decided whether to accept and spend the funds transferred by the DNC. See Exhibit A to May 23, 1995 complaint (According to the DNC, “the ads are being made available to Democratic candidates and state parties across the country.”) (emphasis added). The state party committees could have rejected the funds offered by the DNC. Additionally, in transferring the funds, the DNC expressly recognized the state parties’ control over the funds when it indicated the transferred funds could be used for “generic get-out-the-vote drives, general overhead or administrative expenses of the State Party.” See, e.g., October 17, 1994 letter from DNC to Michigan Democratic Party at 1.

Second, the Commission’s regulations ( as well as the statute at 2 U.S.C. § 441a(a)(4)) state there are no limits on the amounts a national party committee may transfer to a state committee of the same party. This reflects a judgment that party committee units are to be relatively free to fund each other’s efforts. See FEC v. DSCC, 454 U.S. 27 (1981).

Third, the Commission’s regulations clearly regulate the direct payment by national party committees of generic voter drive activity, by requiring that a stated minimum of such payments come from the committees’ federal accounts and that the federal accounts be used to make all such payments with subsequent reimbursement by the non-federal accounts. The regulations do not address instances, such as those at issue in this enforcement matter, in which the national party committee transfers federal and non-federal funds to state party committees directly from the national party committee’s federal and non-federal accounts, and the state party committees later make expenditures to vendors for generic voter drive activity pursuant to their own allocation ratios.

Finally, these same regulations clearly do not address the issue of intent with regard to such transfers by national party committees to state party committees. Therefore, we believe the DNC was not on notice that its acknowledged intent that the transfers at issue be used for particular generic voter drive activity could require application of its own allocation ratio rather than the ratios of the state party committees which made the related expenditures to the vendors from their own accounts.[3]

For all of the reasons set forth above, we did not approve the General Counsel’s recommendations with regard to the alleged violations of the Act and the regulations by the DNC. We believe the DNC’s actions were entirely consistent with a fair interpretation of the Act and of the regulations.

[1] The rationale for such “exempt” activity rules --to encourage the use of volunteers by state or local parties-- has no application to the case at hand where televised advertisements are involved. See H.R. Rep. No. 96-422, 96th Cong., 1st Sess. (1979), p.9, reprinted in Legislative History of Federal Election Campaign Act Amendments of 1979, GPO (1983), p.193.

[2] See FEC v. Democratic Senatorial Campaign Committee (“DSCC”), 454 U.S. 27, 40-41 (1981) (“Money transferred to the state committee presumably would be spent as the state committee decided.”) On the other hand, the Supreme Court also recognized that the national party “easily could insist that funds transferred to a state committee could be utilized in a certain manner.” 454 U.S. at 41.

[3] Indeed, if it was the task of the Commission to look behind the transfers of and subsequent uses of such transferred funds, the Commission would be not only very busy reviewing this activity but, in all likelihood, would be unable to accomplish little else. In the 1995-96 cycle, the RNC transferred over $18 million from its federal account and over $48 million from its non-federal account to Republican state party committees. Similarly, the DNC transferred over $20 million from its federal account and over $54 million from its non-federal account to state party committees. See FEC Press Release, March 19, 1997 at 10.

If the Commission chooses to restrict in some fashion transfers made under circumstances like those present in this case, it should do so through a deliberative rulemaking proceeding. Such an approach would allow a proper and thorough analysis of the Commission’s legal authority and the practical difficulties of enforcing any restriction considered.