1 FEDERAL ELECTION COMMISSION PUBLIC HEARING PUBLIC FINANCING OF PRESIDENTIAL CANDIDATES AND NOMINATING CONVENTIONS Washington, D.C. Friday, June 6, 2003 The meeting convened, at 999 E Street, N.W., pursuant to notice, at 9:08 a.m. COMMISSION MEMBERS PRESENT: ELLEN L. WEINTRAUB, Chair BRADLEY A. SMITH, Vice Chairman DAVID M. MASON, Commissioner DANNY LEE McDONALD, Commissioner SCOTT E. THOMAS, Commissioner MICHAEL E. TONER, Commissioner LAWRENCE H. NORTON, General Counsel ROSEMARY SMITH, Acting Associate General Counsel JAMES A. PEHRKON, Staff Director JOSEPH F. STOLTZ, Assistant Staff Director 2 TABLE OF CONTENTS Agenda Item Page I. Opening Statements................... 3 II. Panel No. 1.......................... 14 - Donald McGahn, Robert Bauer, Paul Sanford, Steve Weissman III. Panel No. 2.......................... 145 - Kenneth Bross, Ki Hong, Cheryl Cronin, Julie Burns IV. Panel No. 3.......................... 229 - Joseph Sandler, Neil Reiff, Thomas Josefiak v. Closing Comments..................... 3 1 P R O C E E D I N G S 2 CHAIR WEINTRAUB: A special session 3 of the Federal Election Commission for Friday, June 4 6, 2003 will please come to order. 5 I'd like to welcome everybody to the 6 Commission's hearing on the Notice of Proposed 7 Rulemaking relating to public financing of 8 Presidential candidates and nominating conventions. 9 I'd like to offer a special welcome to a visiting 10 journalist from the west coast, Mr. Harvey who came 11 all the way across the country to see this hearing, 12 and coincidentally his daughter works for me. 13 The proposed rules we are discussing 14 today were included in the Notice of Proposed 15 Rulemaking published on April 15, 2003 in the 16 Federal Register. The Commission is considering 17 proposals to revise several portions of 18 the Commission's regulations governing the public 19 financing of Presidential candidates in both 20 primary and general election campaigns and 21 Presidential nominating conventions. Additionally, 22 the proposed rules and accompanying explanation 4 1 would apply to the Bipartisan Campaign Reform Act 2 of 2002 and the Commission's related implementing 3 regulations to Presidential nominating 4 conventions. 5 I think it's no secret the $64,000 6 question for us to consider today is whether soft 7 money can be used in any way, shape, or form by the 8 municipal committees, the host committees in any 9 way close to the conventions. We're going to look 10 at lot of questions in the course of this 11 rulemaking. That to me is the most important 12 question and the question that I think we have an 13 obligation to answer and to answer expeditiously. 14 I'm particularly looking forward to all the 15 witnesses' comments on that question. 16 We appreciate the willingness of the 17 commentors to assist us in this effort by giving us 18 their views on these proposals, and we want to 19 thank particularly the witnesses who have taken the 20 time today to give us the benefits of their 21 experience and expertise in this area. 22 I'd like to briefly describe the format 5 1 for the testimony today. Each witness will have 2 time to make a five-minute presentation. We do 3 have a light system at the witness table that will 4 give you a yellow light at the end of four and half 5 minutes and a red light at the end of five minutes, 6 and we would ask you at that point to please 7 conclude your opening statements. Then we will 8 have time for at least one round of questions from 9 the Commission, the General Counsel, and Staff 10 Director. 11 Three panels of four witnesses each will 12 testify today, the first panel from 9:15 to 11; the 13 second panel from 11:15 to 12:45; and the third 14 panel will testify from 2 to 3:30 this afternoon. 15 Consequently, we have a full day and we will 16 appreciate the cooperation of all witnesses in 17 helping us to stay on schedule. This will ensure 18 that everyone has a fair chance to state his or her 19 views. 20 Our first panel this morning will 21 consist of Robert Bauer of Perkins Coie, Donald 22 McGhan of National Republican Congressional 6 1 Committee, Paul Sanford of FEC Watch, and Steve 2 Weissman of the Campaign Finance Institute. And 3 before we invite the witnesses up to make opening 4 statements, I'd like to ask if any of the 5 commissioner have, other commissioners have opening 6 statements that they'd like to make. 7 Commissioner Toner. 8 COMMISSIONER TONER: Thank you, Madam 9 Chair. 10 I want to thank everyone who provided 11 comments in this rulemaking, particularly in light 12 of the extraordinary time pressures everyone is facing 13 with the McConnell v. FEC Supreme Court litigation. 14 I think all the comments were very informative and 15 were helpful to guide the Commission in issuing 16 final rules. 17 As the chair noted, the Commission's main 18 task in this rulemaking is to decide what impact, 19 if any, the new campaign finance law has in 20 convention financing in the Presidential financing 21 system, and the Commission is also considering 22 several potential important rulemaking proposals 7 1 that are not required by the new law. I'd like to 2 comment briefly on a couple of these issues and 3 also some of the testimony that we received on them 4 that I look forward to expanding upon in the 5 hearing today. 6 First, the question of whether after 7 BRCA convention city host committees can continue 8 to raise and spend soft money as they have in the 9 past to help underwrite important aspects of 10 hosting a successful national convention. A 11 related issue is whether Federal office holders and 12 national party officials under BCRA can legally 13 help host committees to raise soft money. I 14 continue to believe there's no evidence thus far 15 that Congress when it passed BCRA intended in any 16 way to change how national conventions are financed 17 or how host committees operate. 18 Several commentators point out in their 19 comments that there's not a single reference in 20 BCRA to the financing of national conventions or to 21 host committees. In addition, numerous 22 commentators not that there was virtually no 8 1 floor debate on these important questions when BCRA 2 was enacted. I think it defies common sense to 3 conclude that Congress intended to transform the 4 way national conventions are operated when no 5 significant discussion of it took place on the 6 House or Senate floor. 7 More over, prominent members of Congress 8 who voted for BCRA have made clear that they do 9 believe the new law in any way restricts their 10 legal ability to raise soft money for host 11 committees. Most prominently, Senator Kennedy has 12 been involved in highly publicized efforts to raise 13 $20 million in corporate donations for the Boston 14 host committee. Furthermore, the Boston Globe has 15 reported that Senator Kerry has likewise assisted 16 in raising host committee funds for Boston. 17 I think it's inconceivable that Federal 18 officer holders such as Senator Kennedy and Kerry 19 would raise soft money for the Boston host 20 committee if they believed it was illegal to do so. 21 Based on everything in the record thus far, I 22 strongly agree with them. 9 1 Second, several of the commentors 2 support a proposal to abolish the Commission's 3 longstanding locality requirement for soft money 4 donations to host committees. Under this rule, 5 corporations and individuals must live or do 6 business in the convention locality to contribute 7 to a host committee. As the comments indicate, 8 it's highly doubtful this rule was ever required by 9 FECA and there appears to be nothing in BCRA that 10 requires it be retained, but equally important, the 11 rules made it more difficult for smaller and 12 mid-sized cities whose corporate and business 13 presence may not be as great as the Nation's 14 largest cities to successfully hold national 15 conventions. 16 For example, for 2004, there's no 17 question that Boston's corporate presence is not as 18 large as New York's. If the Commission retains 19 this locality rule, it may be more difficult for 20 Boston to raise sufficient host committee resources 21 than it is for New York. We certainly have seen 22 that in some years past in smaller market cities 10 1 such as when San Diego in 1996 struggled to raise 2 sufficient funds for its host committee. Unless 3 the law clearly demands it, at this point I don't 4 believe the Commission through a locality rule 5 should make it more difficult for smaller market 6 cities to successfully hold national conventions. 7 Finally, after the Commission proposed 8 new rules for leadership pacts when they are used 9 by Presidential candidates for campaign purposes, I 10 think the conventional wisdom was that we going to 11 receive a torrent of negative comments here, but 12 surprisingly as far as I can determine, this has 13 not happened. As I read the comments, I don't see 14 a single commentator opposed to the proposed 15 leadership pact rule for Presidential candidates. 16 In fact, both the Center for Responsive Politics 17 and the Republican National Committee indicate that 18 they support the proposal. I can't recall the last 19 time these two organizations agreed on proposed 20 regulations, but I do take it as a good sign, and 21 I'm very pleased they support the Commission's work 22 in this area. 11 1 As the chair noted, the Commission is 2 scheduled to complete this rulemaking in the next 3 six to seven weeks. That's obviously a very 4 ambitious schedule, but I concur that it's critical 5 that we finish our work on these projects as soon 6 as possible so everyone in the political process 7 can know what the rules are for the 2004 national 8 convention for Presidential candidates. 9 Thank you, Madam Chair. 10 CHAIR WEINTRAUB: Commissioner 11 Thomas. 12 COMMISSIONER THOMAS: Thank you, Madam 13 Chair. 14 Just briefly, I first want to note that 15 Commission Toner and I have been working on a 16 suggestion that Congress or others interested in 17 the area ought to take a close look at the existing 18 public financing system to see if perhaps it could 19 be strengthened or revised or revamped to better 20 reflect some of realities that have emerged in 21 recent election cycles. We now have a public 22 financing system whereby some of the candidates are 12 1 actually thinking of opting out of getting primary 2 matching funds. We all know that President Bush 3 opted out the last election, did not take matching 4 funds during the primary phase, and so that is an 5 area that I'm hopeful that people focusing on this 6 topic will also address, and there are, I think, 7 some impacts coming out of the BCRA legislation, 8 such as increasing the contribution limit, that 9 exacerbate that problem. Candidates tend to be 10 able to raise money without using public funding 11 more easily because they can now raise twice as 12 much from any particular potential donor. 13 I also, just in pleasant response to 14 what my colleague Commissioner Toner mentioned, would note 15 that we don't have, I think, a totally clean slate 16 in terms of legislative history, first of all. It 17 may have been, as I referred to it earlier, 18 hyperbole, but Senator McConnell in the debates was 19 suggesting that the BCRA legislation as it has been 20 drafted would, in fact, dramatically cut back on 21 the ability of the host committees and so on to 22 raise money. Now, it may have been just in the 13 1 heat of debate that he was raising that specter, 2 because as we all know, he didn't like this 3 legislation. 4 I would also note that we do have a 5 comment from the sponsors, so-called sponsors, of 6 the legislation in the Commission's earlier 7 rulemaking in the soft money area which, at least 8 as I read it, does suggest that they think that the 9 BCRA provisions do, in fact, mandate some very 10 significant changes. I think we have some folks 11 who are testifying today who are going to be making 12 that pitch much in the same fashion, but I did want 13 to note that there are some indications that 14 Congress thought about this subject during the 15 legislative history, in the legislative debates that 16 is, and there is some indication that even 17 afterwards we've gotten a signal from the sponsors 18 of the legislation that they do think that some 19 very strict restrictions come out with regard to 20 convention financing. 21 So we'll have to add all that into the 22 mix. I think it will be a great discussion and a 14 1 great hearing today, and I'm anxious to get on with 2 it. 3 Thank you. 4 CHAIR WEINTRAUB: Let me invite the 5 first panel to come on up. 6 II. PANEL NO. 1 7 CHAIR WEINTRAUB: I don't much care 8 in what order you start. Mr. Bauer, do you want to 9 lead us off? 10 MR. BAUER: I'd be pleased to without 11 objection from my co-panelists. 12 I will let the comments that we filed as 13 Perkins Coie on the other matters that the 14 Commission is considering speak for themselves, and 15 I thought what I would do is actually join the 16 discussion about the nominating convention 17 financing issue. The point of departure, because 18 we have only five minutes, each of us, for me would 19 be to discuss the Campaign Finance Institute study 20 that has been put before the Commission. This 21 study was obviously painstakingly assembled. It 22 has some very interesting information, but it tends 15 1 to suggest, or at least its authors suggest, that 2 the data presented in associated arguments should 3 lead this Commission to make significant revisions, 4 restrictive revisions, in the current rules that 5 permit a nominating convention private financing 6 through host committees and convention committees 7 and the like. 8 And I would like to challenge that 9 suggestion, because I've read the study over 10 several times, and I believe that it does not, in 11 fact, capture the full picture here, and in many 12 respects, I think it somewhat contradicts itself. 13 First of all, I would like to 14 begin--well, as a matter of fact, the structure for 15 my comment would be simply to go through point by 16 point some what I believe appears there. 17 Obviously, I'll characterize it as I see fit, and I 18 know that will draw an objection from at least one 19 of my co-panelists, but let me begin as follows: 20 First of all, the suggestion is that we 21 have seen an extraordinary increase in private 22 financing through host committees, and a variety of 16 1 statistics have been provided in the report to 2 support that suggestion. I have not re-run the 3 numbers. I have no reason to believe the numbers 4 are other than generally accurate, although the CFI 5 does note that there are some data collection 6 issues that complicate a full statistical picture. 7 It does not, however take, into account 8 or control in any for the simple fact that in the 9 last ten years, corporate sponsorship dollars generally 10 across the board and even in non-political areas 11 have jumped dramatically. As a matter of fact, 12 corporate sponsorship activity in this country 13 right now exceeds a level of $9 billion. In the 14 last couple of years, it has continued to increase. 15 Albeit not of the entirely fulsome level of the 16 previous ten years, it has continued to increase 17 even as spending for advertising per se has shrunk. 18 So we're talking billions of dollars that 19 corporations have seen fit to deploy in a variety 20 of sponsorship contexts, and it would not be 21 surprising to see similar activity reflected in 22 their investments in convention marketing 17 1 activities. The study makes no mention of that, 2 and I think that is a significant methodological 3 problem. 4 Secondly, when looking at some of the 5 comments that they capture by means of measuring 6 the intention of the people engaged in this 7 activity, that is to say on the part of the 8 sponsors, some of the quotes seem perfectly 9 compatible--Commission Toner, you seem puzzled. 10 COMMISSIONER TONER: Not yet. I'll be 11 very soon. 12 MR. BAUER: Okay. You gave me a very 13 quizzical and therefore disturbing look. 14 Some of comments that are capture here 15 go to the alleged purposes of the sponsors which 16 are characterized in this report to be 17 predominantly political don't to my mind seem 18 inconsistent with a broader sponsorship purpose at 19 all. One quote: We want to help the host 20 committees showcase these cities. Another quote: 21 For us, Philadelphia, the last convention site of 22 the Republicans, it's our Super Bowl, our Olympics. 18 1 We want to showcase our technological prowess. We 2 want to provide grand exposure in business 3 development. 4 I don't find those dramatic evidence of 5 increased desire to use the convention for 6 corruptive political conduct. Now, it is true that 7 there be some suggestions in some of these quotes 8 by reference to words like "political process", 9 that there might be some element or some type of 10 political motivation, but as one of their witnesses 11 states, "I can't say it is 50-50 or 60-40, but it's 12 probably both." Again, it seems to me not a 13 terribly substantial basis on which this Commission 14 would change convention financing rules at this 15 stage. 16 I'd also like to make that point that we 17 have heard a lot in the course of Congressional 18 debate and the Commission consideration of the 19 various ramifications of the restriction of soft 20 money, about the danger that it presents when it's 21 raised by members for purposes that directly affect 22 their election campaign, soft money, for example, 19 1 raised by members in the party committees that 2 engage in issue advertising is specifically 3 identified in a positive context before their 4 accurate or identify their opponents in a negative 5 context. 6 That interest seems to me to be 7 dramatically attenuated. Here, you have a lot of 8 people raising a lot of money for a four- or five-day 9 event, and I have a difficulty hypothesizing that 10 someone will cash in dramatically by telling a 11 member, By the way, I helped provide some of the 12 money that was needed for electricity in the 13 convention and all also for some of the 14 transportation vans. 15 By the way, I should not for Mr. 16 McGahn's purpose that if you looked at the relative 17 spending of the parties in 2000, in the year 2000, 18 for actual parties, receptions and fun events, the 19 Democrats spent $300,000 more that Republicans did 20 on just parties, which goes to show they may be 21 satisfied with their political position, but you 22 don't want to hang out with them. If you want to 20 1 have fun, Boston is the place to be this coming 2 year, certainly not New York. 3 CHAIR WEINTRAUB: The red light is 4 on, Mr. Bauer. 5 MR. BAUER: Pardon me? 6 CHAIR WEINTRAUB: Your red light is 7 one. 8 MR. BAUER: A final comment, and 9 then--you've been waiting to do this for years--you 10 can shut me off. 11 Last point, BCRA, the Congress didn't 12 only just review the statute. It also reviewed 13 regulations that it was uncomfortable with. There 14 is a specific regulatory issue that is raised and 15 addressed in BCRA, which is the Christian Coalition 16 regulations that the Commission was directed to 17 repeal. It had the nominating convention 18 regulations before it as well. It did not choose 19 to do it, and I don't think we can rest this 20 regulation on what Commissioner Thomas referred to 21 as a, quote, signal afterward, unquote, by the 22 Congressional sponsors. 21 1 CHAIR WEINTRAUB: Thank you, Mr. 2 Bauer. 3 Mr. McGahn, you're up next. I want to 4 particularly thank you for coming so early in the 5 morning. I understand you've got a gig tonight. 6 That will probably keep you up late tonight. I 7 only regret that you didn't bring your guitar and 8 give us a preview this morning. 9 MR. McGAHN: If I would have known. 10 CHAIRWEINTRAUB: Next time. 11 MR. McGAHN: First, I'd like to say good 12 morning. I'd like to thank Mr. Bauer for the 13 invitation to the convention in Boston. I'll be 14 there. 15 MR. BAUER: With your guitar, please. 16 MR. McGAHN: Absolutely. I'll show you 17 how it's done, unless Raging Machine shows up and starts a riot. 18 They're no longer together. You can come and 19 listen to country music at ours. 20 We do have fun at our conventions, but 21 not too much money fun, and that's part of 22 why I'm here today. Just to make clear, I'm not 22 1 here on behalf of the NRCC itself. I'm here on 2 behalf of Tom Reynold, the Congressman from New 3 York who represents the 26th District of New York. 4 Being from New York, Mr. Reynolds desires to assist 5 the New York convention to the extent he can under 6 the law. Under current law, he can do quite a 7 bit. Under possible proposed rules--actually not 8 possible proposed rules. They are proposed, but 9 possible rules, that may change to a certain 10 extent. 11 I'm going to limit my comments here, 12 thus, to specific issues that affect my client and 13 not delve into, unless asked, the broader scope of 14 the national party host committees on arrangements and 15 the like. 16 The first issue is the ability of 17 members of Congress, Federal officials, and 18 candidates to raise money for host committees. Our 19 view is it is clear that they can. BCRA explicitly 20 allows Federal officials and candidates to raise 21 money for 501(c)s and even allows solicitation for 22 funds for 501(c)s that engage in Federal election 23 1 activity although host committees do not. So it is 2 clear that this civic fund-raising is maintained by 3 BCRA, although I don't think it is a question in 4 BCRA, the larger question. One need look no 5 further in BCRA to realize that members can raise 6 money for the host committee. 7 The second rule that I'd like to talk 8 about is the locality rule. Although our view 9 isn't necessarily to make it national--that's an 10 obvious consequence of one of the proposals--at 11 least statewide. Mr. Reynolds is not from New York 12 City, but there are business interests throughout the 13 State of New York, he would like to have a presence 14 in our convention. Mr. Reynolds would like to 15 assist those companies as he can without running 16 afoul of any Commission regulations. Therefore, 17 from his point of view, it makes sense to expand 18 and not have a strict locality rule. 19 That being said, we also agree with Mr. 20 Toner's observation that dispensing with the local 21 rule would give minor markets more of a fighting 22 chance with conventions and hosting conventions. 24 1 There has been a trend where certain cities tend to 2 get the conventions time and time again, and 3 mid-sized cities do not. San Diego is the 4 exception to the rule, but as we all know, funding 5 there was not as easy as it would have been in a 6 larger market, shall we say. 7 The third point I'd like to make is the 8 very brief mention in the notice regarding events 9 being held around the time of the convention, 10 corporate events, union events, and the like and 11 whether they ought to be regulated. The answer is no. 12 There is nothing in BCRA, its history, FECA, or 13 the like that would require events that happen to 14 go because the convention is there that somehow 15 come under the FEC's jurisdiction, let along anyone 16 else's jurisdiction. If people want to have 17 events, they ought to be able to have events. To 18 the extent that there is a need to regulate Federal 19 officials attending events and the like, I would 20 suggest the House Ethics Committee and the Senate 21 Ethics Committee has done a remarkable job of 22 publishing memos and giving guidance to members as to what they can 23 and can't do to 25 1 avoid any appearance problems. 2 That being said, I'm going to conclude 3 my comments, and hopefully I can assist you with 4 question and answers. Thank you. 5 CHAIR WEINTRAUB: Thank you, Mr. 6 McGhan for your pithy comments. 7 Mr. Weissman, let me ask you in 8 particular, since we just got the revised draft of 9 your comments, if you could highlight for us what 10 the changes are, because I don't think any of us 11 can read fast enough to read through it before you 12 finish your comments. 13 MR. WEISSMAN: There were only minor 14 changes. There was a figure that was slightly off 15 in the total contributions in Atlanta, the Atlanta 16 1988 Democratic Convention. I guess my mike is on. 17 In addition, there was a first name of someone that 18 was slightly off, and the third one was there was a 19 clause in a quotation that was drawn from a court, Case 20 McConnolly v. FEC, where the corporation indicated 21 that had allocated soft money for a convention 22 purposes as part of its overall soft money 26 1 allocation for political parties. There was a 2 clause left out of that on page 10, I believe, that 3 was put in. 4 So they're minor changes that don't 5 affect any part of thee overall analysis, but I 6 appreciate your asking. 7 Well, thank you, Commissioners, 8 Chairperson, first of all, for the opportunity to 9 present our study here. This was a study that was 10 requested by the task force on financing of 11 presidential nominations that the campaign finance 12 has convoked that will issue a report, concluding 13 report, on conventions; and unlike our analysis, 14 will also have specific recommendations regarding 15 convention financing. That report will not be 16 issued, however, until July. 17 So what you have here is a staff, CFI 18 staff, background analysis that we felt would be 19 helpful to the Commission. We saw how hard the 20 Commission is wrestling with these issues. We felt 21 that we had collected a lot of information and done 22 further analysis that might be helpful to the 27 1 Commission, and that's why we decided to present 2 this as a staff analysis. 3 Our Board of Trustees doesn't approve or 4 disapprove of any of our specific research 5 projects, and, in fact, one member of the board I 6 know doesn't approve at all of this analysis and 7 others have a very different view. So please keep 8 that in mind. 9 Most of the comments you have before you 10 are discussing, as you have here, in part BCRA, 11 does it apply, the regulations, you know, how 12 should they be formulated, how should they be 13 adjusted. Our focus is different. We're trying to 14 bring a new element here. Our focus is how have 15 the regulations currently been affecting political 16 behavior of those who are regulated. We think the 17 Commission should have some information about the 18 actual political reality out and how it has been 19 shaped by the regulatory effort, not under BCRA 20 simply, but mainly under FECA; and basically we've 21 concluded that the major assumptions behind both 22 existing and many of the proposed new regulations 28 1 don't have a solid foundation. 2 And as Mr. Bauer, who so magnanimously 3 gave some much attention to our analysis has 4 indicated, we don't take an either/or position here 5 saying it's a hundred percent political motivation 6 here instead of local commercial, but we do say 7 that the presumption in the regulations, explicit 8 since 1977, that the purpose of contributions to 9 host committees, not the purpose of the host 10 committee, the purpose of the contributions can be 11 viewed as chiefly commercial or non-political. 12 Those are the words that are used, and they're used 13 in the proposal regulation as well. It does not 14 hold water any longer. Maybe a mixture. 15 Some people we've interviewed, such as 16 we interviewed some political professionals who 17 have been involved with conventions for years, such 18 as Rick Davis, a Republican, Don Fowler for the 19 Democrats. Davis thinks it's almost all political 20 soft money. Fowler told us it's at least as much 21 either way, 50-50, 60-40, you can argue. That, it 22 seems to us, is a big change, and we tried to look 29 1 at statistically what has happened over the years, 2 and the data in front of you show that what we 3 concluded was that there has been an explosion of 4 private financing, $8 million in 1992 of private 5 financing for the conventions. The amount that's 6 projected for 2004 is 90 million, a ten times 7 increase in three conventions. 8 I don't know if Mr. Bauer has data on 9 corporate sponsorship increasing ten times from 10 1992 to 2004 or not, but it is interesting that 11 that has occurred as the Commission itself has 12 loosened some of its regulations about private 13 financing and as the soft money exposure occurred. 14 I'm not going to go over that material. 15 I would just point to the fact that we go on from 16 there and we look at the evidence about how parties 17 raise this money. This money is raised--even 18 though it is a civic host committees which has some 19 bipartisan representation, there is no question, as 20 our study shows, that most of this money is raised 21 by politicians, candidates, and Terry McCauliff, 22 Clinton, Dole fund-raisers, and large partisan 30 1 donors, Eli Boyd in California for the Democrats or 2 Gerald Parsley in California for the Republicans. 3 This is how the money is raised. 4 CHAIR WEINTRAUB: Mr. Weissman, your 5 time is up. 6 MR. WEISSMAN: Just to conclude, and we 7 can get into this later, we've also mentioned that 8 the assumption that all of this is a narrow 9 exception, the host committee expenditures, to the 10 normal rule that the convention expenses are met by 11 the party committee is also no longer true. In 12 fact, the host committee is paying for most of the 13 convention expenses, and we have attempted to 14 document that. 15 So with that, we conclude. 16 CHAIR WEINTRAUB: Thank you. 17 Mr. Sanford, I particularly appreciate 18 you presence here on the panel because you were 19 only volunteer from the Clasic Reform community 20 to show up today, and the panel really wouldn't be 21 complete without you. 22 MR. SANFORD: Well, until Steve decided 31 1 to join me, I thought I was going to be the lone 2 voice in the wilderness, but I am pleased to be 3 here, Madam Chairman, Mr. Vice Chairman, Members of 4 the Commission, General Counsel, Mr. Staff 5 Director. 6 The Center for Responsive Politics and 7 its campaign finance law project and FEC Watch is 8 pleased to have this opportunity to testify on the 9 Commission's proposed rules on the financing of the 10 Presidential nominating conventions. We have 11 submitted detailed comments, so I have only a few 12 brief opening remarks. 13 I begin with first principles. Section 14 441(b) of the Federal Election Campaign Act 15 prohibits corporations and labor organizations from 16 donating anything of value in connection with the 17 Federal election. Section 441i prohibits 18 national party committees from receiving donations 19 of anything of value that do not comply with the 20 prohibitions an limitation of the Act. 21 Section 431 defines conventions as 22 Federal elections. It is against this statutory 32 1 backdrop that the Commission's convention rules 2 must be evaluated. Because these are broad 3 prophylactic rules, the Commission bears the burden 4 of justifying the creation of any exceptions that 5 allow corporation and labor organization funds to 6 make their way into the convention funding process. 7 The Commission has created that allows 8 corporations and labor organizations to donate 9 funds to host committees for the nominating 10 conventions. It also allows the recipient host 11 committees to use these receipts to pay for the 12 cost of the convention. The stated rationale for 13 this exception has been that corporations and labor 14 organizations donate money to the host committees 15 to help promote the host city in its commerce. For 16 these reasons, the Commission has viewed these 17 donations as commercially rather than politically 18 motivated. 19 When The Commission created this 20 exception, it included certain safeguards to ensure 21 that the donations made were, in fact, commercially 22 motivated; however, in the classic example of what 33 1 the military would call mission creed, the 2 exception has been modified over time so that these 3 safeguards no longer exist. As a result, the well 4 intentioned, quote, very narrow exception has 5 almost completely swallowed the rule. 6 This is particularly remarkable when 7 you'll recall that the conventions are supposed to 8 be publically financed. The legislative history 9 for the convention funding provision, Section 9008, 10 succinctly states: "A major party electing to 11 receive its $2 million entitlement could not use any 12 additional private funds." The parties have been 13 receiving public funds, but these funds now 14 represent a minority of what is spent on the 15 conventions. Much of the funding comes from 16 corporation and labor organizations that are 17 generally prohibited from making contributions to 18 Federal elections. They're able to give big money 19 to the conventions because the funds pass through the 20 hands of the host committees. 21 We do not dispute the host committees 22 and businesses and unions and host city to have a 34 1 legitimate interest in promoting the host city 2 first as a potential site for the convention and 3 later to convention attendees. With the exception 4 limited to the amounts used for these purposes, it 5 might be justified, but we are well beyond that 6 now. The party committees are using this exception 7 to get corporations and labor organizations to pay 8 for the conventions. The plain language of the 9 statute prohibits this. 10 We urge the Commission to turn back the 11 clock and either eliminate this exception or 12 restore it to its original narrow form. If 13 necessary, delay the effect of it until after next 14 year's conventions. But Take action now so that the 15 rules will be in place when the work on the 2008 16 convention begins. 17 I want to make one comment about the 18 Commission Toner's observation about the 19 legislative history. I think that the Commission 20 needs to start with the statutory language, and 21 that's the primary guide for how to the law should 22 be applied. I think that the statutory language is 35 1 broad and suggests a very different result. 2 I also see what happened during the 3 floor debates a little bit differently. This is a 4 significant change. If the sponsors of legislation 5 or those supporting it did not agree with Senator 6 McConnell's statements on the impact of BCRA, I 7 would have thought they would have said so at the 8 time. They did not. It seems to me that this 9 could be just as legitimately viewed as affirmation 10 of that interpretation in the statute as it is 11 viewed as the opposite. 12 With that, I will conclude and be happy 13 to answer any questions. 14 CHAIR WEINTRAUB: Thank you, Mr. 15 Sanford, and thank you, all of you. 16 I'd like to start by asking you all, 17 sort of following along the line that Mr. Sanford 18 started us on, to engage a little bit on the 19 statute, because when I read the statute, I think 20 that it doesn't surprise me that different 21 commentors focused on different sections, because 22 depending on which section of the statute you're 36 1 looking at, you might come to entirely different 2 conclusions on the key questions that are in front 3 of us. 4 I think Mr. Sanford makes a persuasive 5 case under 441(B) and other provisions that you 6 mentioned that there's a strong argument that soft 7 money shouldn't be allowed anywhere near the 8 conventions. On the other hand, there are 9 provisions in the statute--there's also the implied 10 authority argument that was raised by--I can't 11 recall whether it was you or one of the other 12 commentors that in choosing the city, the 13 convention committee and the party conveys implied 14 authority to the host committee to raise funds in 15 connection with the convention and on its behalf 16 somehow. And I don't think that those are all 17 frivolous arguments. 18 On the other hand, the statute also 19 allows covered officials who are otherwise barred 20 from raising or spending soft money to raise and 21 spend--to raise money for 501(C)3s, and it's hard 22 for me to imagine that the drafters of the statute 37 1 didn't recognize that the host committees are 2 501(C)3s. There are limits on the qualifications 3 on what kind of 501(C)3s, but I don't think that 4 they really apply to--those limits really affect 5 the host committees. 6 So what I would ask is for, you know, 7 this side of the table to address the arguments 8 that Mr. Sanford raised about the statute and for 9 Mr. Sanford and Mr. Weissman, if you feel so 10 inclined, to comment on the other statutory 11 arguments that have been raised on the other side. 12 Rather than just promoting--you know, just picking 13 out your statutes, your section of the statute, 14 just tell me why I shouldn't look at the other 15 guy's section. 16 And I open that to whoever wants to 17 start. 18 Mr. McGahn. 19 MR. McGAHN: I don't think anyone is 20 sitting here today saying the national party 21 committees can take soft money for conventions, 22 although it's a very eloquent citation to the 38 1 statute. It's a straw man argument. It ignores 2 distinction between party committee, committee on 3 arrangements, and the host committee, which is the 4 city's operation. 5 So although we're citing separate 6 sections, at the end of the day, the facts are what 7 matter, I think, 501(c) is separate and distinct 8 from the party committee, and unless the Commission 9 undoes and changes the rules, so to speak, on what 10 becomes part of the national party committee, 11 again, although the citations are impressive, they 12 really are beside the point. 13 The second point that was raised was the 14 idea the host committees are political entities and 15 somehow it's really party committees and officials 16 that raise funds. That may be true, but I'm not so 17 sure we need a study to figure out that host 18 committees raise money and that elected officials 19 care if the convention is run in a safe and 20 efficient manner and that the host city has 21 resources that it needs to make sure that the 22 infrastructure is there for the city. 39 1 That being said, this idea that it's 2 become strictly partisan, I think it doesn't 3 make--although there probably a kernel of truth in 4 that, it's not necessarily true across the board. 5 It's not nearly as true as represented to you. For 6 example, unless I've missed something, the then 7 mayor Ed Rendell was a Democrat in Philadelphia, not a 8 Republican, although he was one of the main 9 champions of thee convention in 2000 to ensure that 10 Philadelphia did a very nice job in having a very 11 successful convention. 12 So to say simply that the host committee 13 becomes some partisan nonprofit oversimplifies to 14 the point of absurdity. Remember, the host 15 committee is a 501(C). The IRS looks at that. 16 It's the IRS's rules that determine whether or not 17 you're a non-profit, and again, I come back to the 18 cite, the portion of BCRA that I cited earlier 19 which allows Federal office holders and candidates 20 to raise money for 501(C)s. That's not a decision 21 that we need to second guess. That was a decision 22 of Congress. Congress knew the conventions were 40 1 out there. They knew they were 501(c)s, and as Mr. 2 Toner alluded to early on, Senators Kennedy and 3 Kerry certainly don't seem to think that they're 4 prohibited from assisting the Boston host committee 5 with ensuring convention, which I may go to thanks 6 to Mr. Bauer's invite, is very successful. 7 CHAIR WEINTRAUB: Mr. Bauer. 8 MR. BAUER: Yes. I will be very brief, 9 because I don't disagree with anything that Don has 10 said. When Mr. Sanford talks about first 11 principles, it's fair enough to say yes, it's a 12 statute that says such and such. Well, we all know 13 that the statute on this subject as well as others 14 has been subject to exceptions crafted both by the 15 Congress and also by this agency. So then the 16 question becomes why would this agency now after a 17 thorough review of the soft money issue turn around 18 and do what Congress elected not to do. 19 And the only point I want to stress 20 here--I'm not going to repeat everything that Don 21 said--is the what I think questionable legal 22 analysis that is being brought to bear to suggest that 41 1 Congress probably did intend for the Commission to 2 do something, and I really have trouble swallowing 3 that. I now understand that if somebody doesn't 4 specifically refute something that Mitch McConnell 5 says, it becomes an expression of Congressional 6 will, and that's an axiom of legislative history 7 that I loathe to adopt. 8 Secondly--pardon me? 9 COMMISSIONER MASON: You have three votes 10 already. 11 MR. BAUER: We'll certainly elongate 12 floor debate. 13 The other thing is I heard in the 14 comments of Mr. Weissman about the views of Don 15 Fowler and Rich Davis. Well, I have no reason to 16 believe they don't hold those views. What their 17 constitutional legal significant is is completely 18 beyond me. So we have a couple of people who feel 19 this way. A member of Congress' views were not 20 rebutted, and lo and behold, Congress has intended 21 to send a signal to the Federal Election Commission 22 to do what it did not explicitly do when it 42 1 reviewed the law in this area. As I mentioned at 2 the conclusion of my remarks, Congress knew how to 3 pick out regulations it didn't like in BCRA. It 4 did it explicitly, and did not touch these. 5 CHAIR WEINTRAUB: Mr. Sanford. 6 MR. SANFORD: A couple of things: On 7 the question of whether the host committees are 8 separate from the party committees, it is true that 9 they are separate legal entities, but the rules 10 specifically allow them to pay convention expenses 11 and specifically lists things that the host 12 committees can pay that are also things that are 13 defined to be convention expenses for the party 14 committees that could be paid with public funds. 15 So I think that the distinction between these two 16 entities begins to break down pretty quickly, and 17 when you look at the data in terms of how much 18 money is being spent, and even if we assume that 19 the figures in the CFI study are soft, there seems 20 to be a significant amount of expenses for the 21 convention that are being defrayed by the host 22 committees. So the fact that they're separate IRS 43 1 entities, I don't think completely responds to the 2 question. 3 With regard to the different statutory 4 provisions, I don't think it's necessarily a 5 conflict situation between 441(I)(E) and 441(B). 6 Even if we assume that Federal office holders can 7 raise money for these separate entities, these 8 501(c) host committees, that doesn't necessarily 9 mean that they can--that that allowance trumps the 10 441(B) prohibitions on the use of corporate legal 11 funds for Federal elections. They could very well 12 raise Federal funds for these entities and have 13 allowed those entities to use Federal funds to pay 14 convention expenses. If they are raising 15 non-Federal funds, the Commission can construct a 16 rule that will allow the host committees to use 17 non-Federal funds to promote the host city, not for 18 convention expenses. 19 CHAIR WEINTRAUB: If they were only 20 going to raise Federal funds, you wouldn't need to 21 have specific permission for them to raise Federal 22 funds, because they can raise Federal funds for 44 1 anybody. 2 MR. SANFORD: Right. That's correct. 3 That's correct. 4 As for the actions of the members who 5 have been raiding money on behalf of the Boston 6 committee, I guess is the indication in particular, 7 with due respect to the Commission, I think that it 8 may very well be that they do not anticipate the 9 Commission aggressively enforcing the 441(B) 10 prohibition in this context, and I think the past 11 history of the Commission gives them good reason to 12 have that expectation, and I think that there's an 13 opportunity the Commission to decide that it's 14 past policy has not worked and that it needs to go 15 in a different direction. 16 CHAIR WEINTRAUB: Let me ask you, Mr. 17 Sanford, and you, Mr. Weissman, a question. When I 18 read your comments as well as some of the other 19 comments from people who didn't have the guts to 20 come here today, but, you know, they seem to follow 21 along the same line that you're pushing, there 22 seems to be this undercurrent of the conventions 45 1 have become too elaborate, they've become too 2 expensive, there are all these parties. There is 3 this undertone of you guys are just having too much 4 fun out and we don't approve or you guys are just a 5 couple of prudes that don't think people out to 6 have a good time. 7 Is there a problem with the degree of 8 elaborateness and expense in the conventions 9 separate and apart from where the money is coming 10 from? 11 MR. SANFORD: Well, I think that that is 12 relevant to certain considerations, but as we state 13 in our comments, we don't think the Commission 14 needs to address what I think of as third-party 15 events, parties that are hosted by--they could be 16 hosted by corporations or labor organizations near 17 the venue of the convention and allow office 18 holders even, party officials, delegates to attend 19 these events. Where the beneficiaries of those 20 events are third-parties as opposed to party 21 committees, even if that means attendees, then no, 22 I don't think that the Commission necessarily has 46 1 to address that. 2 But when the funds are being used by the 3 host committees to pay what are, in fact, the costs 4 of conducting the convention itself, not 5 necessarily ancillary events, then we think the 6 statute requires a more direct attention and more 7 attention by the Commission. 8 CHAIR WEINTRAUB: Mr. Weissman. 9 MR. WEISSMAN: If I could just comment 10 briefly on what you asked me and also on the 11 previous question. 12 CHAIR WEINTRAUB: Sure. 13 MR. WEISSMAN: We don't take a 14 particular, as I mentioned, specific policy stance. 15 We're not telling the Commission do this or do 16 that. We're trying to give you information that is 17 useful in your deliberations. 18 One of the things we say about BCRA is 19 that in the aftermath of BCRA, there is only one 20 area where candidates, and parties can benefit from 21 soft money, national candidate and national 22 parties, and that is convention financing, convention 47 1 financing that has now reached a figure of $90 2 million in private financing for 2004. We also 3 point out in our analysis that should the status 4 quo be maintained in regard to the conventions and 5 the soft money ban on everything else continues 6 after the Supreme Court rules, then according to 7 veteran politicians we have interviewed, political 8 access and political influence will become even 9 more important in convention donations because the 10 party today prefers a soft money donation that can be 11 used for anything to a contribution to a host 12 committee. 13 As we pointed out, there is access. 14 There are favors granted for contributions to host 15 committees by the parties, but they are considered 16 less than the favors granted by every year regular 17 donations to party committees. That will change 18 after BCRA if BCRA is maintained, and the further 19 reinforcement of political motivations in giving is 20 something at least the Commission can expect if it 21 decides to maintain the existing regime. In terms 22 of whether anyone is being prudish, and I'm 48 1 agnostic as to this issue, but, I mean, it is 2 notable when you have a tripling of expenses for 3 conventions, conventions that kind of gradually 4 went up in cost from 1980 to 1992, as our table 5 shows, where the convention grant was adjusted for 6 inflation, cities put up a little more money and 7 they funded a significant amount and nobody has any 8 problem with public funds by a city being used or 9 states. 10 But suddenly you have this huge jump 11 after 1992, and according to--this is at the very 12 moment when conventions are getting less and less 13 attention from the American people, regrettably, 14 and all the spending doesn't seem to have been able so 15 far to reverse that. And what we have heard and 16 what we have documented in our portrait of 17 conventions activities is that this is extra money 18 is being used to produce a more and more telegenic 19 event to get more and more getting into webcasting. 20 One of the people we interviewed said, you know, if 21 you can get more soft money, we can even start to 22 promote the convention through advertising. I 49 1 guess they could lengthen it. I guess-- 2 CHAIR WEINTRAUB: No, not that. 3 MR. WEISSMAN: I guess the could 4 lengthen the parties at least. 5 In terms of the--so I think we have a 6 tendency here--and the parties is another thing. 7 It's been constantly focused on in the press and by 8 insiders. One of the people, Don Fowler, said, 9 Look, we used to have beer and peanuts, you know, 10 at these conventions, and now it's shrimp and fine 11 wine; they used to have standard rooms, and now 12 we've got big suites with work space. Some of that 13 is paid for by host committees. They are the ones 14 who are giving the delegated parties that are 15 becoming more and more elaborate with corporate 16 sponsors getting in on them and so forth. We can say 17 yeah, maybe they can have it, but we just to be 18 aware the price currently under the existing regime 19 of having that kind of convention is going to 20 be--has been a huge expansion from eight to 21 eighty-nine million of private financing, largely 22 corporate of these conventions. 50 1 So I just think that even though we are 2 not interpreting the statute about BCRA, we are not 3 entering the argument about--in fact, our argument 4 is based more on FECA than BCRA, Look, this was the 5 rationale under FECA; everybody has believed this 6 rationale; now it no longer obtains, and if I 7 could have 20 seconds to read you the quote that 8 Mr. Bauer used from the head of Comcast, which is 9 an excellent person to choose in which he was 10 demonstrating that our portrait of motivation was 11 exaggerated. Here is a guy, the head of Comcast, 12 Philadelphia 2000 convention, who is someone who 13 would strong civic motivation and does have some 14 civic motivation for giving to promote civic 15 commerce. After all, it's his center that is being 16 paid for by the host committee to rent for the 17 convention. It's his commerce that's increasing, 18 and his headquarters is in Philadelphia. 19 So Brian Roberts, when he was asked by the 20 newspapers why are you giving all this money and so 21 forth, he blended, but in terms of placement and 22 the way he presented it made a pretty powerful case 51 1 that the local civic is not the most important 2 element. He said--and the first sentence is a 3 priceless one: 4 "These are people who have to make 5 important decisions, and they're coming to our 6 house. This exposure may enhance our own 7 credibility when we are explaining new 8 technologies." 9 Well, you can say maybe that's partly 10 political, partly commercial, but it isn't local 11 commercial, and that's what the rational of the 12 Commission has been historically. It's national 13 commercial. 14 "And it's a unique one-time opportunity 15 for elected officials to see Comcast." Not local 16 officials. "Policy makers can meet us first and 17 remember our names, our faces, and our products." 18 Here is the part that Mr. Bauer quoted: 19 "Philadelphia is our Super Bowl, our Olympics." 20 I'm sure he genuinely has all these 21 motivations, but here's a person who is not like 22 most of the contributors to the convention. He had 52 1 his headquarters there. He had his hall being used 2 for that convention, and even he put in 3 considerable non-local civil commercial motivation. 4 The Commission could maybe come out with 5 the same exact stance on convention financing it 6 has today with a different assumption. Maybe it 7 could revise its assumptions or could change its 8 stance, but we do think that this evidence suggests 9 that it is a very strong non-local commercial 10 motivation, both political and national business, 11 in a lot of the financing. 12 CHAIR WEINTRAUB: I'm glad that you 13 raise that. I'm begging everybody's indulgence 14 here because I should put the red light on myself 15 at this point, but I can't resist following up a 16 little bit on this. 17 I'm really glad that you raised the 18 issue of motivation, because another thread in the 19 comments was the access that donors get and the 20 corruption or appearance of corruption that is 21 presented by that. I think the motivations of the 22 donors is something that we have to bear in mind, 53 1 but I guess my question is I think about two 2 hypothetical donors. Let's say Donor A gives 3 $100,000, one big check to the host committee, soft 4 money to support--I don't know--telephones and 5 transportation at the convention. Donor B has a 6 lot of rich friends and collects $100,000 in $2,000 7 increments of hard money that go directly to the 8 campaign funds of a Presidential candidate. 9 I don't know people that travel in those 10 circles, but I'm told that this happens, that there 11 are people who are able to go out there and collect 12 that kind of money in real hard dollars. Now, both 13 of those guys, if they show up at the convention 14 are probably going to get invited to the best 15 parties and have--although it's hard for me to 16 imagine that that mass of people and all those 17 people moving that that's really a great 18 opportunity to get your legislative agenda 19 promoted; but my question is, and again I'm 20 directing it this side of the table, is there a 21 difference in the corruption of appearance of 22 corruption between Donor A and Donor B and the kind 54 1 of access that they? Should we care about one and 2 not the other? 3 MR. WEISSMAN: Let me just mention one 4 thing here, and let others maybe comment, the key 5 difference, it seems to me is that currently 6 organizations such as corporations and labor unions 7 can be Donor A, and they are providing--we did an 8 analysis which is not presented in this paper of 9 the 2000 private contributions to each party 10 committees, host committee, the party's host 11 committee, and it was clear that the overwhelming 12 majority of corporations are not rich individuals 13 who might give a hundred thousand and then get two 14 and get all their friend to go two. This is 15 corporations and a to a much lesser extent unions 16 and foundation and PACS like that. 17 So I think that that would be your major 18 difference. I wouldn't quarrel with what you're 19 saying about a rich individual versus a whole 20 collection of bundled contributions in some way or 21 another, the rich individual's friends, but I think 22 the key distinction is are you allowing here unlike 55 1 anywhere in politics corporate, union money into 2 the funding of these very important political 3 events that are really the first campaign ad in a 4 way of the general election where we have 5 no--actually, we have no finance at all without 6 turning to the public grant. 7 But I think that's the key issue. 8 CHAIR WEINTRAUB: Mr. Sanford. 9 MR. SANFORD: I'll be brief, try to be 10 brief. 11 I think that in terms of the corruption 12 or appearance of corruption in those two 13 situations, perhaps there isn't much of a 14 difference, but the difference is statutory. The 15 statute allows individuals to bundle large numbers 16 of individual contributions. It doesn't allow 17 corporations and labor organizations to write big 18 checks to the host committees that the host 19 committees turn around and use for convention 20 expenses. 21 So I think the statute makes a 22 distinction that needs to be respected, and I don't think the 56 1 Commission can say that the Donor A situation you 2 referred to, the large corporate and labor 3 organizations contributions to the host committee, 4 the party organizing committee, isn't any worse 5 than something that's allowed and therefore we 6 should allow that too. I really don't think the 7 Commission has the authority to do that. I think 8 the statute makes a distinction and the distinction 9 needs to be respected. 10 CHAIR WEINTRAUB: Mr. Bauer. 11 MR. BAUER: Very briefly, I just want to 12 say one thing. First of all, I just want to keep 13 the hammer on my principle concern, which is the 14 way laws are made, particular laws that affect 15 political activity. Factual point: I do not know 16 which conventions over the years Don Fowler has 17 attended. I attended my first in 1968, and I 18 assure you not then, no under Truman, not under 19 Roosevelt, were the delegates treated only to 20 peanuts and beer. I'm willing to stake a great 21 deal on that. This pastoral vision of what 22 conventions were once all about escapes me 57 1 completely. 2 But secondly, listen carefully the Mr. 3 Weissman--and again, I did myself a service in 4 looking at the numbers. I find the numbers very 5 useful. I simply draw a different conclusion than 6 he and his colleague do, and that is he says, Well, 7 Mr. Roberts of Comcast may not be saying precisely 8 that his motivation is political as well as 9 commercial in whatever proportion it is, but look at 10 the placement. Look at the way he presents it, the 11 emphasis. I don't see how that's record evidence 12 for this agency. I don't understand what possible 13 validity that sort of metaphysical exegesis has for 14 formulating Commission rules. 15 This rule is not only based on a 16 Northrup Fry-level interpretation of someone name 17 Roberts said backed up by Rich Davis and Donald 18 Fowler, and I think it's a bit more complicated 19 than that. 20 CHAIR WEINTRAUB: Mr. Sanford. 21 MR. SANFORD: I think a lot of the 22 comments on Mr. Bauer's side of the aisle have made 58 1 fairly conclusory statements about the purposes of 2 these contributions to host committees, and I think 3 that to rely solely on these conclusory statements 4 is no different than relying on this exegesis--I 5 believe the word he used was--laid out in the CFI 6 comments. So I think that there's little bit of 7 that going on on both sides. 8 CHAIR WEINTRAUB: All right. I'm 9 going to shift gears. There's one more question, 10 and then I will let somebody else ask questions. 11 This one is for the right side of the table. Mr. 12 Bauer on the right. Now, that's something that 13 doesn't sound right. 14 MR. McGAHN: He's to my left though. 15 CHAIR WEINTRAUB: And that's 16 important to note. 17 I wanted to, since I have you both here, 18 ask you about the leadership PAC provision. I 19 know that you didn't spend a lot of time on it in 20 your written comments, but as you know, we have 21 splintered off a section of our leadership PAC 22 rulemaking and tacked it onto this one to the 59 1 extent it's relevant to Title 26 concerning the 2 issue of leadership pacts as stalking horses for 3 Presidential campaigns and whether there should be 4 a look-back provision saying, Well, you know, now 5 we can see that these guys are really running for 6 President and they were using their leadership 7 money in an inappropriate way and possibly 8 accepting excess contributions to what should have 9 been termed the Presidential exploratory committee 10 if they were going to be more honest about it. 11 I would be interested in whether you, 12 either of you, have any views on either the 13 substance of that provision or the notion of us 14 just splintering off that section of the leadership 15 pact rulemaking and dealing with it here without 16 dealing with the leadership PACS in a more holistic 17 fashion. 18 Mr. McGAHN, he's looking to you. 19 MR. McGAHN: Well, maybe I will. I 20 would refer the Commission back to my prior 21 comments on leadership PAC issues where I believe 22 I drew the distinction between, let's say rank and 60 1 file leadership pacts, House and Senate members who 2 are running for President. To me, if someone is 3 using their PAC and it's there just to adopt the 4 shorthand that's been adopted for their own 5 campaign, I think that's a problem. It's a problem 6 when I commented, and it's still a problem whether 7 he's running for President or another office. To 8 the extent that we can bifurcate off the concern 9 into people using leadership pacts to run for 10 President, and can take care of it in this instance, 11 I would support that and leave the other pacts to 12 their own devices. 13 CHAIR WEINTRAUB: Mr. Bauer. 14 MR. BAUER: I am speaking only--I have 15 not submitted comments on this. I do not represent 16 the client on this. I'm speaking only for myself. 17 I will say just in summary terms I'm not keen on 18 this initiative. I don't think the basis for it is 19 well laid, and I would rather not see it addressed 20 either here or, quite frankly, elsewhere. 21 CHAIR WEINTRAUB: Fair enough. 22 I'm going to finally relinquish the 61 1 microphone. Commission Mason. 2 COMMISSION MASON: Thank you, Madam 3 Chair. 4 Paul, let me start with you. First of 5 all, let me try to characterize your position, and 6 I think it's fair to say that most of the problems 7 that you see in the convention financing current 8 regulations relate to the FECA pre-BCRA. There are 9 some BCRA facts, but basically this is a FECA 10 problem, not a BCRA problem. 11 MR. SANFORD: I think it's additionally 12 there. 13 COMMISSIONER MASON: Yes. You did bring 14 in some points, but that was my understanding, and 15 I think that's important. You, however, toward the 16 end said, well, maybe you want to delay the 17 effective date. Now, if your case is that the 18 existing regulations are contrary to law, what 19 authority do we have to not force the law for 20 another four years? 21 MR. SANFORD: I can't cite the case or 22 specific authority. I think it's--I don't think 62 1 the response to that is not to not change policy if 2 the policy is wrong just because if the--if you 3 have no flexibility in this area, then I think 4 because abinition the statute prohibits these sorts 5 of financial transaction, then you need to prohibit 6 them immediately. I think that given how deep we 7 are into this convention cycle, that those who say 8 it is too late to change the rules have a 9 legitimate point. They have relied on the 10 Commission's existing policy, and so whether it is 11 through prosecutorial discretion declining to take 12 enforcement action against entities that have acted 13 in reliance on the existing rules or prospectively 14 making the rules effective, I think that the 15 Commission has some equitable authority to take 16 that into account. 17 COMMISSIONER MASON: Paul, I often find 18 myself in disagreement with you, but I often very 19 much appreciate your approach, and in asking 20 questions to other panelists, I want to say I think 21 you put your finger of the nub of the problem and 22 ask Mr. McGAHN and Mr. Bauer in particular, because 63 1 you've told us what you think, to address issue in 2 connection with the Federal election. In other 3 words, is convention funding in connection with the 4 Federal election given that normally the cost of 5 holdings elections themselves we don't consider to 6 be a FECA reportable expense and that it strikes me 7 if Mr. Sanford is right, that puts it in one 8 category, but my question is is he right and are 9 convention expenses properly considered in 10 connection with Federal elections in technical 11 terms under the FECA. 12 MR. McGAHN: I think we're glossing over 13 a lot of the concepts, and what we haven't 14 mentioned is the fact that there are convention 15 expense that are paid for with a grand or hard 16 dollars. So there is a distinction. So to say 17 that somehow host committees are picking up all the 18 convention expenses I think gives the public at 19 large the misimpression that somehow there's 20 corporations buying the entire convention, that 21 simply isn't the case. The Commission knows that 22 and that's a critical distinction. 64 1 The second thing, which I take as an 2 admission to a certain extent which I heard earlier 3 was the concession that the host committee is a 4 separate entity from the committee on arrangements 5 and party committees. Once you reach that point 6 and you decide that they are separate entities, to 7 me, the analysis becomes much simpler, and all these 8 other issues fall into place, because that really 9 is the issue that puts the point on the pencil so 10 to speak, and even my colleague down the table 11 concedes that they're two separate entities. 12 COMMISSIONER MASON: I apologize, but I 13 didn't hear you answer my question. I understand 14 they're separate entities legally. I understand 15 your point about who pays what expenses. Are these 16 expenses in connection with the Federal election 17 within the meaning of, let's say, Section 441(B)? 18 MR. McGAHN: The host committee expenses 19 are not. The point was to the extent there 20 are--that you do view the convention as a Federal 21 election activity, that would be what the grant and 22 hard money takes care of. The host committee stuff 65 1 is not on Federal election activity. It's not get 2 out and vote. It's not polling. It's not 3 any of those things you think of as Federal 4 election activity. Certainly, they're not the sort 5 of things that the Commission has historically seen 6 as being in connection with Federal elections. 7 That is the distinction I'm drawing, and 8 I apologize for sounding like I dodged the 9 question, but I sort of skipped back a paragraph 10 and got to the other paragraphs, and I apologize 11 for that. 12 COMMISSIONER MASON: Thank you. 13 Mr. Bauer. 14 MR. BAUER: In connection with the 15 standard is a broad term. It is subject to a 16 variety of exceptions, some of which are 17 longstanding and have not been challenged. 18 Corporations under that provision can produce--it 19 can engage in a variety of communications, all of 20 which are accepted notwithstanding whether they're 21 clearly in convention wit a Federal election. 22 Political elections are a beast unto themselves, 66 1 and there is an awful lot taking place in those 2 conventions, but I agree with Mr. McGahn that the 3 Commission has the complete authority and has, 4 indeed, exercised it constantly over the years to 5 treat it as an activity that is not in connection 6 with an election in the prohibitive sense in which 7 you are raising the standard; and as I mentioned, 8 Congress had a fresh, recent, hot-off-the-presses 9 opportunity to consider this issue, and it was 10 certainly laid out there, and notwithstanding the 11 lassitude of those numbers, it didn't rise any 12 protests and side-bar comments of Senator McConnell, 13 chose not to act. 14 MR. SANFORD: If I could chime in a 15 couple of points, I might be willing to--might be 16 willing to go along with the assertion that host 17 committee disbursements are not for items that are 18 in connection with an election if the rules did not 19 specifically say they can pay convention expenses 20 and list expenses that are also listed as 21 permissible convention expenses for the host 22 committee to use the public grant funds to pay 23 67 1 for. 2 COMMISSIONER MASON: I guess my question 3 would be why the convention committee spending 4 would be in connection with a Federal election. 5 Where there was only states where the parties pay 6 for their primary, we don't say, Gee, there's a 7 Federal primary going on here; it's being paid for 8 by the party committee and that has to be paid for 9 with Federal money. 10 MR. SANFORD: I think in situations, at 11 least ones that I'm familiar with in which the 12 Commission has now made a distinction between 13 election administration expenses, the party 14 committees were essentially acting as agents of the 15 state in conducting the primary elections. I think 16 the AOs specifically said that. And in this case, 17 the conventions are not functions of the host 18 cities. They are, in fact, party functions. So 19 the parties aren't acting as the agent of any 20 government entity in conducting the convention. In 21 that respect, they are their own expenses, and I 22 think also you have to go back to the statutory 68 1 definition of election. It encompasses conventions 2 generally, and it doesn't talk in terms of payments 3 for the purpose of influencing delegates. It talks 4 about conventions generally and they're elections, 5 and so the most logical interpretation of that to me 6 is that those expenses are included. 7 COMMISSION MASON: I had--Mr. Bauer, go 8 ahead. I had one final question of you from your 9 testimony. 10 MR. BAUER: I was going to say that I'm 11 struck by that argument. For all this period of 12 time before BCRA, we've been told we need to make 13 sure that we look past form to substance, what are 14 candidates really doing with soft money. Now in 15 conventions, we're being told let's ignore the 16 substance and concentrate on the form. Everybody 17 knows perfectly well that conventions are not and 18 have not been in recent American history decisive 19 electoral events. In fact, they're typically divided 20 for being wasteful party-going exercises which we obviously, as 21 an expenditure level our party shows treasure deeply. 22 So, you know, we have to decide on which 69 1 side of the form-substance divide we're going to 2 fall. It seems to me it depends on the outcome we 3 want to reach. 4 COMMISSIONER MASON: I wanted to ask 5 you, Mr. Bauer, about your comments on the winding 6 down, and take responsibility on behalf of my 7 colleagues and staff for having suggested that we 8 ought to abolish winding-down expenses entirely. 9 The concern should be directed at me, and I still 10 think that would be better, although I don't know 11 that I can persuade any of my colleagues. 12 But one of the things that disturbs me 13 about the winding-down system as we have it and as 14 you've addressed it is this aspect of treating 15 winding-down expenses against a spending limit and 16 at a point when it seems to make no sense to me, 17 and you seem to encourage us to continue that. 18 We've had this problem in audits occasionally where 19 campaigns have winding-down expenses and 20 campaigns--of course, this mostly comes under the 21 successful nominees--want to move their 22 winding-down expenses one way or the other 70 1 depending on where their spending limit problem 2 was. And while I can sort of buy your argument 3 that these winding down expenses wouldn't be here 4 if it weren't for a public funding system, that 5 these campaigns would be happy to go out of 6 business, go away, and not spend any more money, 7 and therefore it's sort of a legitimate part of the 8 system, why should we hold that compelled spending 9 against a campaign's spending limits after the 10 fact? As you put it, they have no interest 11 whatsoever in continuing to raise and spend this 12 money. 13 MR. BAUER: I'm not sure my comments 14 specifically addressed that point. I could be 15 wrong. I think generally speaking what we urged 16 was the most flexibility and the most 17 understanding, quite frankly, toward campaigns and 18 the treatment of winding-down expenses and 19 suggested that they be provided the greatest 20 possible flexibility. I don't know that consistent 21 with that I would--I don't know that I've given it 22 a huge amount of thought--worry too much about some 71 1 additional room under the cap for those activities, 2 because our whole view is you have to understand 3 campaigns don't engage in long, protracted 4 winding-down activities and the associated expenses 5 out of choice or because they wish to. 6 So anything this commission can do to 7 display compassion, particularly, you know, as we 8 all know--I'm reminded of the old saying, you know, 9 at least half of every class has to finish in the 10 bottom half. Most of the candidates running for 11 President don't win, and they're the ones who least 12 like the idea of spending a huge amount of time in 13 dealing with these issues, including the 14 Commission's post-election audit. So to the extent 15 that we try to find a way to make that process as 16 painless as possible, approach it constructively 17 and not with suspicion, I'd support that. 18 COMMISSIONER MASON: Cnceptually 19 can you reach a way to allow matching funds for 20 these expenses if we don't count them as qualified 21 campaign expense and thus subject to the limit? 22 MR. BAUER: I have not given any thought to 72 1 the statutory regulatory mechanism by which you 2 reach that result. It doesn't trouble me in 3 principle. You know, one of the things that we 4 mention in our comments was that a lot of 5 candidates wind up having to spend resources 6 defending themselves against, you know, frivolous 7 and baseless complaints, obviously typically filed 8 by the other party, and the difficulty we face is 9 this is clearly not something we take on ourselves. 10 It's not something we accept voluntarily, and yet 11 we're all of a sudden hemmed in responding to 12 that by the various financing strictures that don't 13 take that type of problem, which is a consistent 14 problem, into account. 15 So we suggested maybe there ought to be 16 an allowance for sort of a legal defense GELAC. 17 So, you know, I'd like the most flexibility. In 18 fairness to you, I can't say that I've thought 19 through the regulatory or statutory mechanisms to 20 achieve it. 21 COMMISSIONER MASON: Thank you, 22 Commission Mason. 73 1 Commissioner Thomas. 2 COMMISSIONER THOMAS: Thank you, Madam 3 Chair. 4 Let me welcome everybody. Thank for 5 coming. 6 I guess I'll ask some fairly short 7 questions first. First, since it's the shortest 8 question, Mr. McGahn, poor Senator Kennedy and 9 Senator Kerry have been alluded to as being out 10 there raising the big bucks for the host committee. 11 MR. McGAHN: Or not so big. 12 COMMISSIONER THOMAS: Are there any 13 Republican member on the House side that are out 14 there raising money for the host committee yet, or 15 is it just--do you know? 16 MR. McGAHN: I don't know one way or 17 another, and there has been chatter, but nothing 18 like this with public statements about Senator 19 Kennedy and Kerry. 20 CHAIR WEINTRAUB: Mr. McGahn, can you 21 get a little closer to your mike, please? 22 COMMISSIONER THOMAS: In their defense, 74 1 I would note they have some very good lawyers. So 2 I'm guessing that they've gone into tedious detail 3 with their lawyers in terms of whether they are, in 4 fact, legally able to be out there doing it. 5 I want to, I guess, first go to, I 6 guess, the heart of what we're trying to get at 7 here. Mr. Weissman, I guess I'll give you a chance 8 to sort of start the dialogue. It seems to me that 9 the pitch you're trying to make is that this kind 10 of money that's coming into the host committee and 11 the municipal fund is really pretty much getting to 12 be indistinguishable to the kind of money that 13 historically has just gone to the party in these 14 soft money accounts, and you're pitching the 15 argument in terms of it appears to you as if some 16 of these set up donations for host committee 17 purposes are really being designed to influence the 18 political figures who are going to be there. 19 I guess it might be helpful if we sort 20 of appreciate that just influencing elected 21 officials in its own--by itself is not a problem. 22 I mean, we have the opportunity to lobby 75 1 legislators, and that's good. The idea is you want 2 to be able to influence your legislators. You want 3 to be able to maybe set up an opportunity where you 4 can face to face present your pitch on what piece 5 of legislation would be good for your industry and 6 what would not. 7 What is the difference here? What is it 8 that takes this beyond in your view to the point 9 where I gather you're asserting it's becoming sort 10 of more of a quid pro quo, as more of an 11 opportunity to actually I guess help these elected 12 officials and so on who will be there and to in 13 some fashion draw out a favor in return? What sort 14 of evidence are bringing to us along those lines? 15 MR. WEISSMAN: I don't think we're 16 trying to say that this is any different from, say, 17 someone who contributes to a candidate or to a PAC 18 and isn't trying to corrupt the candidate or PAC, 19 but is trying to show support, hope that the 20 candidate perhaps agrees with them and would grant 21 the lobbying meeting and realizes the contribution 22 may, fuel access. There may not be any quid pro 76 1 quo corruption. I'm saying this type of giving is 2 really anything extraordinarily evil, but we are 3 saying that the law established that there was a 4 Federal grant that paid for convention expenses and 5 that that grant would be reduced to the degree that 6 a party decided to use private contributions, and 7 if the party didn't want to have--the party did 8 want to have its public grant reduced, then it 9 could not accept such private contributions however 10 innocently they may be intending. 11 There was an exemption made by this 12 commission that has endured for over 25 years on 13 the grounds that, look, not that the political 14 contribution is a quid pro quo corruption, but that 15 these are not really to influence elections; these 16 are not in any way designed politically. They're 17 not even national commercial. They're not even 18 designed to get a meeting with someone to see if 19 they'll buy an Apple computer. These contributions 20 to these host committees municipal funds are exempt 21 from any repayment obligation because they are 22 purely done to promote what the mayor of 77 1 Philadelphia wanted, local civic economy to have 2 the convention there. 3 That's why they're done, and for years, 4 as Paul has pointed out, the Commission said, until 5 1994, that nothing, not even that, not even a 6 contribution that says it's for that purpose will 7 be permitted without reducing the Federal grant 8 unless it's by a local retail firm that can show 9 that it's proportionate to the benefit that it's 10 going to get during the days before and during and 11 after the convention, and that was necessary, 12 according to the Commission, to ensure that the 13 private contribution would be allowed that was not, 14 quote, political, that it was really commercial. 15 So I don't think anyone has argued that 16 the contributions that we have charted here are any 17 more evil or worse than any other contribution. 18 They maybe be purely altruistic. There may be no 19 quid pro quo. There may be no request for access, 20 but they are contributions that come in addition to 21 a Federal grant that was given on the understanding 22 that there be no expenditures beyond that Federal 78 1 grant, and they are paying for expenditures now 2 that are two to three times the amount the Federal 3 grant on direct convention expenses, as our two 4 tables show from the 2000 election. 5 So I hope I'm getting at what you were 6 saying. 7 COMMISSIONER THOMAS: Mr. Sanford, I 8 have a question for you. As you were laying it 9 out, it sounds like you're suggesting that the 10 Commission could significantly modify the current 11 structure, but the basic concept would remain, 12 which is that host committees in many respects are 13 carrying out functions that have a city promotion 14 function and that could, in fact, be paid for using 15 unlimited donations from corporations, unions, etc. 16 The promotion function, you seem to find a 17 permissible function for the host committee, and 18 you want us to identify maybe some expenses that 19 historically and traditionally allowed host 20 committees to pay for that we label convention 21 expenses and you would like see it as, say, Well, 22 the host committee can go ahead and raise that kind 79 1 of money, but it should be treated as part and 2 parcel of what the party committees are raising as 3 direct convention expenses. 4 Now, included in your batch, I guess, of 5 expenses that you would like to see the host 6 committee have to use basically hard money for are 7 things like security, all of the things we list in 8 our list of convention expenses. It's seems like 9 it might be a difficult task. Wouldn't you grant 10 that maybe there's sort of a middle ground with 11 regard to expense like that? Doesn't it seem 12 appropriate when you've got a bunch of wild and 13 crazy Democrats coming to town to build in some 14 security, and isn't that something that the host 15 committee just justify, something that entirely 16 necessary irrespective of whether it's crazy 17 Democrats or wacky Republicans coming to town? 18 MR. SANFORD: Well, I think that a guide 19 that the Commission could use is--and I have to 20 confess I don't have a lot of firsthand knowledge 21 of how this typically works, but, you know, in 22 various contexts the Commission has provided 80 1 ordinary and necessary type standard to certain 2 business transactions and said that, you know, 3 we'll treat it as a business transaction as long as 4 it's the fair market value. I think the same 5 principle can be implied in this context to try to 6 establish whether there are ancillary expenses that 7 host cities frequently pay for when they deal with 8 conventions of similar size and significance, and 9 typically they offer to the convention sponsors, 10 the organization, like the ophthalmologists or 11 podiatrist, the party committees, in order to give 12 them an incentive to get them to come. Let me put this a little 13 more simply if the 13 cities usually pay for security expenses for 14 conventions. Then the Commission might be 15 justified in allowing them to do so for political 16 conventions. I don't think that that's been 17 clearly established. 18 I think it's also true that the 19 Commission may face some difficulty in 20 generalizing, because in some ways, the political 21 conventions are different. I don't know whether 22 they necessary involve more people, but they 81 1 probably involve additional security concerns, 2 particularly for the incumbent party. So I think 3 that that concept could be applied, and a cleaner 4 line could be drawn between the types of expenses 5 that typically should fall to the convention host, 6 whether it's a party, a political party, or the 7 ophthalmologist and those which the city inevitably 8 picks up in order to enable entities to come to the 9 city and hold their conventions there. 10 And, you know, we've tried to 11 acknowledge in the recommendations we made as to 12 how the Commission could structure the rules, that 13 the cities have a legitimate interest in trying to stimulate 14 commerce and they could--they should be able to use 15 sources from--funding sources that have a business 16 interest in the success of the convention to 17 promote those functions. 18 COMMISSIONER THOMAS: Thank you. 19 Mr. Bauer, while I've got you here as 20 the most experienced and perhaps the most agile 21 legal mind on these two concepts that we'll ever 22 have here in our presence--that's a compliment. We 82 1 don't always agree on things, but it's a 2 compliment--let me ask, coming into this 3 rulemaking, I had sort of assumed that we had a 4 statutory construction issue that didn't give as 5 much leeway with regard to what national party 6 committee operatives could do in terms of perhaps 7 maybe raising monies for the host committee as 8 distinguished from maybe what the Federal officers 9 and candidates can do in raising money for the host 10 committee; and specifically what I'm getting at is 11 in the BCRA provision you now have in 441(I)(A) a 12 very broad proscription on national party 13 operatives raiding or spending any money that isn't 14 subject to the limits, prohibitions, and disclosure 15 requirements of FECA, and I had thought that that 16 was a very broad, all encompassing ban. 17 There is another provision that's been 18 alluded to which talks about how national parties 19 as well as state parties and local parties and 20 operatives are not to solicit monies for a 501(C) 21 organization if that is an organization that 22 undertakes activities in connection with Federal 83 1 elections. And I had assumed that since that 2 second provision doesn't start out with a 3 notwithstanding any other provision clause that we 4 were bound to apply the first provision I talked 5 about, the very broad proscription for national 6 party operatives raising monies that aren't subject 7 to limits, prohibitions, and disclosure 8 requirements, we were bound to apply that provision 9 in a way that wouldn't let national party 10 operatives under any circumstances raise money for 11 something like a host committee that's a 501(C) 12 organization. 13 That second additional provision, it 14 seems to me took on an added meaning when, for 15 example, it would prevent a national party 16 committee from even raising hard dollars for a 17 501(C) organization unless that organization didn't 18 have its--didn't undertake activities in connection 19 with a Federal election. Now, I'm wondering how 20 those two provisions relate together. Do we still 21 have the flexibility to allow national party 22 committee operatives to help raise soft money for 84 1 the host committee municipal funds? 2 MR. BAUER: I believe the Commission 3 does. I may not be able to put a fine polish on 4 this argument at the moment simply because I don't 5 have the provisions in front of me, and I'd 6 probably want to think it through. I mean, one of 7 the reasons I'm a little bit taken aback by the 8 debate that has developed on this is, again, the 9 belief I may have mistakenly taken away from the 10 BCRA debate that Congress chose to set aside 11 convention financing and leave the Commission rules 12 as they are currently in place, and maybe it's 13 because our attention is so focused on the concept 14 agreed to that we didn't foresee or anticipate 15 there would be a subsequent regulatory debate, and 16 so in that sense, I would probably can't put a fine 17 polish on the argument. 18 But it does seem to me that the type of 19 501(C) that is implicated in the very specific 20 prohibition on national party operatives and one 21 that has as its principal purpose Federal 22 election-related activity is not in my judgment 85 1 what host committees are, that is to say there are 2 types of election-related activities that BRCA is 3 very concerned with. It identifies voter 4 registration, get out the vote, and the like, and 5 the host committees are engaged in an enterprise, it 6 seems to me, notwithstanding the fact it takes 7 place in relation to the activities of the 8 convention, but it's engaged in activities that 9 have long been viewed as while related to an 10 election, not in connection with or intended to 11 influence an election. It's an unusual animal, I 12 suppose is the best way I could put it, but I 13 certainly don't think it falls within the types of 14 tax exempt organizations that the prohibition refers 15 to as intended to reach. 16 So again, and you raise a fair question, 17 which is how does it all fit together tightly, and 18 the answer is, number one, I think that may be goal 19 that alludes us in terms of the provisions of BCRA 20 in pari materia or however we may wish to do it, 21 but secondly, I'd also be happy to answer your 22 question on paper subsequent to the hearing by 86 1 taking sort of a closer textual look and encourage 2 you on the path I believe is the right one. 3 COMMISSIONER THOMAS: Thank you. It's 4 just baffled me whether we had any way to read the 5 441(I)(D) provision to somehow trump the 441(I)A 6 provision. 7 MR. BAUER: I should mention also, if I 8 could Commission, that also is this additional 9 strange development that would occur if one read it 10 another say. The Federal elected officials, who 11 are the ones whose access you're most concerned 12 with, would be free to raising the soft money, but 13 we would be chasing Terry McCauliff and his 14 counterparty into a dark end corner, and there's 15 something about that that just strikes me as sort 16 of surpassingly peculiar. 17 COMMISSIONER THOMAS: Okay. 18 CHAIR WEINTRAUB: Commission Toner. 19 COMMISSIONER TONER: Thank you, Madam 20 Chair. 21 I want to thank all of the panelists for 22 being here today. It's great to see you. I want 87 1 to follow up on a couple of items that have been 2 discussed. First, on the leader PAC proposal, I 3 understand, Mr. McGahn, your position is you 4 support the proposal for us in terms of 5 Presidential, but make a clear distinction in terms 6 of use of leadership pacts by Congressional 7 officials who aren't running higher office; is that 8 right? 9 MR. McGAHN: Yes, sir. 10 COMMISSION TONER: Mr. Sanford, I 11 noticed in the Center for Responsive Politic 12 comments there appear to be support for the 13 leadership PAC proposal before us. Do you care to 14 elaborate on that? 15 MR. SANFORD: No, just to restate that I 16 think it's incomplete and that we urge the 17 Commission to follow through the other way and read 18 our comments in that context, but no. We think 19 that within this limited context, this proposal is 20 okay. 21 COMMISSIONER TONER: Following up on, I 22 think, a key issue that we have before us today 88 1 obviously is the raising of soft money for host 2 committees and the role of members of Congress in 3 doing that, and I just want to follow up on a 4 couple of things. We talked about how it's clear 5 that, you know, certain members are raising soft 6 money for host committees for 2004. 7 And, Mr. Sanford, I'll start with you. 8 I mean, clearly, if BCRA makes that conduct 9 illegal, that's the case regardless of what this 10 agency does here through regulations. I just want to 11 confirm two things with you and get your sense. 12 First of all, do you think that any members of 13 Congress who are raiding soft money for host 14 committees are breaking the laws? 15 MR. SANFORD: Yes. 16 COMMISSIONER TONER: You do? Do you 17 think that's the case regardless of what this 18 agency does through rulemaking because a statute is 19 a statute? 20 MR. SANFORD: I think that's correct. 21 COMMISSIONER TONER: Okay. Mr. Bauer, 22 do you care to comment on that? 89 1 MR. BAUER: I couldn't, could not, 2 disagree more, as I'm sure you would anticipate. 3 COMMISSIONER TONER: I figured you 4 might. 5 MR. BAUER: What is it based on? What 6 exactly would that statement be based on? Where is 7 it in current regulations of the FEC that 8 prohibits, or in BCRA, prohibits office holders 9 from continuing to raise money for host committees? 10 The Commission here is asking the question whether 11 the regulations ought to be revised? That's a 12 question that the Commission can ask. That's a 13 question we're here to try to help you in some way 14 answer, but to suggest somehow that notwithstanding 15 all of this, notwithstanding Congress' failure to 16 deal with it, notwithstanding it being an open 17 issue before the agency that members in good faith on 18 reliance of counsel who are raising money for this 19 purpose are breaking the law strikes me as 20 completely without foundation. 21 COMMISSIONER TONER: Following up, Mr. 22 Sanford, I thought the comments that you submitted 90 1 were interesting in pages 13 and 14, and you 2 alluded to this in your earlier discussions. You 3 seem to suggest that there are some bona fide host 4 committee activities that can be paid for with soft 5 money, and I think in the comments you mention 6 certain activities: Promoting the suitability of 7 the city as a convention site, providing 8 accommodations and hospitality the members of the 9 site selection committee. I'm reading from the 10 second paragraph on page 14. You talk about 11 welcoming convention attendees, security costs, 12 things of that sort. 13 Is that a fair reading? Are you 14 basically making the that point that there are 15 definitely certain activities that host committees 16 can pay for with soft money and that's permissible 17 under BCRA and under FECA; is that right? 18 MR. SANFORD: Yeah. I tried to base 19 that on the existing regulatory structure the 20 Commission has. I mean, the list of permissible 21 expenses in the current rulings for host committees 22 contain some that don't fall within the definition 91 1 of convention expenses for the convention committee 2 and others that do, and my approach was to try to 3 use that structure to draw a clearer line between 4 types of expenses that the two entities might pay, 5 and I'll concede that those are not exhaustive 6 lists. There may be other expenses about which 7 judgments will have to be made, but I don't mean to 8 minimize the challenge that presents, but I think 9 that there's a seam in the rules, that can be drawn 10 from the rules, that can be used to make a clearer 11 distinction between the types of expenses that 12 Federal funds can be used for and non-Federal funds 13 can be used for. 14 COMMISSION TONER: And just to follow 15 up, and then after BCRA, you do believe that at 16 least that in these areas that you outline in the 17 comments, these types of activities, it should be 18 permissible for host committees to spend soft money 19 on those activities? 20 MR. SANFORD: I think the Commission can 21 interpret the statute that way. 22 COMMISSION TONER: Would you interrupt 92 1 the statute that way? Do you think that's 2 something that makes sense from a policy 3 perspective? 4 MR. SANFORD: I start from the view that 5 what makes all of this a problem is that the rules 6 allow the host committee to pay for convention 7 expenses, and that's, in fact, what is happening. 8 If the rules didn't allow that, then I think the 9 role of the host committee as essentially a 10 pass-through for non-Federal would not be nearly so 11 acute and that we'd be looking at a very different 12 landscape here, and then Commission's determination 13 that donations to the host committees are 14 commercially motivated would be standing on much 15 firmer ground. 16 COMMISSIONER TONER: Mr. Weissman, I 17 thought the study that you put together was very 18 interesting, and I wanted to follow up on one 19 issue. You noted in the study that it was 20 difficult for your researchers to get a full sense 21 of host committee spending, and part of that was 22 perhaps the reporting processes that we use for host 93 1 committees don't fit as well. Could you elaborate 2 on that, and do you have any specific 3 recommendations for us on how we could better deal 4 with host committee reporting? 5 MR. WEISSMAN: Yes. The difficulty is 6 that under the--in the form, there are two place 7 that are relevant to revealing what the host 8 committees are actually doing. One is the purpose 9 of expenditure column, but this is an open-ended 10 purpose of expenditure column in which the host 11 committee can simply write down however it wants to 12 categorize its expenditure. It has no relationship 13 to the categories that have been set out by the 14 Commission as permissible host committee 15 expenditures, such as, you know, for, let's say, 16 law enforcement, transportation, for various 17 construction in the convention and that sort of 18 thing, office equipment, and a lot of the--many of 19 the goods that are discussed, such as computers, 20 you don't know was this computer used within the 21 convention or was it just used for the office and 22 so forth. So it's difficult to get a bead on what 94 1 it is that the host committees are actually doing, 2 because there's an open-ended purpose column, and 3 it is not a column that says chose from these 4 purposes that are permissible for host committees 5 and we have established in regulations. 6 The second problem is that there's a new 7 addition to the form this year, which has a 8 categorization of expenditure, but the 9 illustrations and categories are all from candidate 10 and PAC like polling, how much did you spend on 11 and sort of categorize this expenditure as polling 12 and media or something. Of course, the entire 13 convention is a media message. So the 14 categorization things also not relevant. So our 15 recommendation, which is found toward the end of 16 this statement is to adopt the categories and 17 regulations that the Commission establishes or has 18 for the host committee expenditures and to require 19 the host committees to fit into that particular 20 category. 21 If I could make one quick addition on 22 the question raised earlier for Mr. Sanford and 95 1 that Mr. Thomas raised earlier, the question of 2 whether security can be considered to be an 3 expenditure that you might allow not only cities to 4 pay, but as I understand it, perhaps private funds 5 could be used to help security because security is 6 a typical municipal expenditure, my understanding 7 is that first we have to take a look back at 8 security these days. Boston is applying for $10 9 million under the Homeland Security Act to protect 10 the Democratic convention, and obviously that is 11 inherent to the convention. It is not a simple 12 municipal sort of expenditure, and the fact that 13 these are political conventions these days means 14 they're different from other conventions and may 15 not fit as easily into the rubric. 16 The other problem is that these kinds of 17 law enforcement expenditures and in the 18 Commission proposal now have been considered 19 convention expenses. They have not been considered 20 expenses that are like welcoming delegates who come 21 into the city. They have not been considered 22 expenditures like paying for the committee to 96 1 recruit the parties to adopt their city, which are 2 very local civic and commercial in nature. They 3 are promoting the civic economy. Security and 4 transportation are expenditures that have been 5 viewed historically by the Commission as inherent 6 to the convention expenses. 7 Were there to be an exemption at least 8 for our data, the Commission should be aware that 9 Los Angeles claims to have spent $23 million on 10 security during the 2000 convention; Philadelphia, 11 13 million. And since the private financing of 12 conventions you might say is about a 25 to 35 13 million dollars issue, money could easily be 14 shifted so that private money could be recruited to 15 host committees to pay for things that cities used 16 too pay for, and then cities could pay for things 17 that host committees used to pay for. 18 One of the interesting things in our table 19 are data of how many cities and states continue to 20 do for convention, an issue that is not fraught 21 with any controversy at all insofar as public funds 22 are used, which is predominantly what is used; 97 1 however, the concept of municipal fund, even though 2 as we can tell it's only been used a couple of 3 times in 1984 and once in 1996, could open up this 4 area more and more private funding as well as if 5 host committees could do it. 6 COMMISSIONER TONER: Mr. Bauer, I want 7 to briefly discuss a couple of interest policy 8 ideas that you had in your comments, and you 9 alluded to the first one earlier. One, as I 10 understand it, would be creating a primary GELAC 11 for Presidential campaigns, and I just want to try 12 to understand it. That would be a fund of money 13 that would be raised through private contributions 14 where the spending of that money wouldn't count 15 towards the primary spending ceiling and 16 contributors would have a separate $2,000 per 17 person limit for that fund; is that the concept? 18 MR. BAUER: Yes. 19 COMMISSIONER TONER: Do you believe we 20 have a statutory basis for doing that I guess in 21 parallel of what we've done in the GELAC, the 22 General Election Fund? 98 1 MR. BAUER: Yes. 2 COMMISSIONER TONER: And do you think 3 that that would reduce some of the pressures that 4 candidates face where political dollars versus 5 compliance dollars, eliminate that pressure? 6 MR. BAUER: I think it would help 7 alleviate that pressure. I think that's something 8 the Commission should look at very closely. 9 COMMISSIONER TONER: You also outline in 10 your comments, as I understand it, you support 11 basically allowing candidates who are unsuccessful 12 for the nomination in the primary to go to the 13 national conventions and have those treated as a 14 qualified campaign expense. I understand that that 15 would be building upon the advisory opinion that we 16 issued in 2000; is that right? 14 MR. BAUER: Right. That's right. The Bradley 15 McCaine Opionion I 18 think that we ought to be somewhat more open-fisted 19 about how we handle those kinds of expenses, and 20 again, there are a variety of reasons why 21 candidates go to conventions. The fact that they 22 have suspended or withdrew, not only that they're 99 1 ineligible doesn't make it less imperative for them 2 for a variety of ways, for a variety of reasons, to 3 be there. And so it just doesn't to me that making 4 that allowance, given the very unique role the 5 conventions and attendance at conventions plays 6 in our process doesn't seem to me that it's necessary 7 to put quite the range of restrictions or 8 certainties on it that we do today. 9 COMMISSION TONER: And we allowed in 10 that advisory opinion for certain activities to 11 take place. Is it your view that we should 12 basically allow the spending to occur, but subject 13 it to a certain cap? 14 MR. BAUER: That was our proposal, that 15 if you were concern about it being sort of the 16 gateway to a large amount of money, you could set 17 it at a hundred thousand or 250,000, and you could 18 put a limit on how much money you could spend in 19 relation to the convention, but that would obviate 20 the necessity to place conceptual restrictions on 21 what they could do. In the Bradley-McCain opinion, 22 there are some very defined activities that were 100 1 permitted and then it leaves the question about a 2 whole range of other things that are typically done 3 at conventions and raises questions about whether 4 they're still permissible. 5 COMMISSIONER TONER: One final question: 6 In the NPRM, we talk about some of the 7 difficulties, obviously, with the shortfall in the 8 matching fund account and candidates that don't 9 have the money that they're entitled to because 10 there isn't sufficient resources in the account, 11 and proposed perhaps a five-percent exemption, and 12 we also asked sort of more narrowly that we would 13 be treating any bridge loan expenses, these 14 expenses that candidates incur to get private money 15 because they don't have the matching funds, could 16 be exempt from the spending ceiling similar to this 17 fund-raising exemption we've had for some time. 18 Would you support that approach? 19 MR. BAUER: Yes, absolutely. As a 20 matter of fact, there are other expenses, it seems 21 to me, that are associated with that shortfall that 22 the Commission ought to account for in some way. I 101 1 think the objective here would be to try to find 2 ways to help candidates get through the process 3 without bogging them down in difficult choices 4 between money they want to spend on politics and 5 money they want to spend on compliance or 6 subjecting them to clear-cut unfairness, which is 7 to say they wind up spending money because of the 8 shortfall that they really don't have, and it's 9 still allocable to the limit. 10 So yes, I would support it that 11 instance, and there may be some other examples like 12 other categories of expenses like that that could 13 be included in such an effort. 14 COMMISSIONER TONER: Thank you. 15 Thank you, Madam Chairman. 16 CHAIR WEINTRAUB: Thank you. 17 Commissioner McDonald. 18 COMMISSIONER McDONALD: Madam Chair, 19 thank you. 20 Good morning. It's good to see you, 21 Don, Bob, Paul, Steve. I'm delighted you're here. 22 Just a little history of the process, I 102 1 think, how things have changed, I think convention 2 spending got some real interest in about 1972. I'm 3 not saying we didn't have it before or after, but I 4 think Dea Beard, if memory serves me right, was 5 very prominent, and we want to thank you her for 6 being here today, because I do think that was kind 7 of one of the first major issues in relationship to 8 convention process and what really emanated from 9 what later became known as the Watergate scandal, 10 if you will. 11 Let me refresh Don's memory. That's 12 where the Republican broke into the Democratic 13 headquarters to see if he could find out what our 14 plans. If you lose 49 out of 50 states, you 15 couldn't have had many plans. We would probably 16 given them to you if you would have just called, if we 17 could have found them, that is. 18 Historically, the other thing is that of 19 course in terms of the security 35 years ago, yesterday, 20 Senator Kennedy was murdered in Los Angeles. So 21 there are things that emanate historically in 22 relationship to the kind of discussions that we're 103 1 having. I've kind of taking the view about 2 conventions that the more flexibility, the better, 3 and I do so not unmindful of the studies, the very 4 outstanding study that was brought to us this 5 morning as well as the history of the process 6 itself. I'm interested--I want Don and Bob to 7 refresh my memory. I think this might be a 8 little bit different viewpoint than they took about 9 the Congress when I last saw them at this table. 10 Suddenly their interest in the Congress seems to be 11 somewhat different than I had recalled in the 12 previous rulemaking. Here, I gather we're saying 13 on the one hand since Congress for the most part 14 didn't address this issue, that we should leave 15 well enough alone. 16 Bob, you had indicated on this proposal 17 about the GELAC fund that you might want to--I'm 18 just trying to be sure I understand. As you know, 19 critics of ours say that we created that to begin 20 with, it had nothing to do with what Congress had 21 done. But you're saying you think we have the 22 authority even though Congress has really not 104 1 addressed this, and I'm just trying to figure out 2 how we kind of get the authority in this in area to 3 do this where Congress really has not addressed the 4 issue, and, in fact, as I say, I think critics 5 point out to us that some of our handling of these 6 types of arrangements that we created over time, 7 when go to look for it statutorily, it's a little 8 hard to find. 9 So if you don't mind amplifying on that 10 just a minute, because it might really help us, 11 particularly if there's some way in the overall 12 scheme of things it would be injurious to the 13 process. 14 MR. BAUER: I'd say two things, 15 Commissioner. It's a fair question. I think the 16 first is that by and large, the Commission has not 17 come under, in my judgment, a very significant 18 attack for the way in which the nominating and the 19 general election financing provisions have been 20 implemented. By and large, the statute as a whole, 21 setting aside the controversy over, you know, 22 national party collection of soft money, but the 105 1 statutory scheme itself and its implementation 2 generally has not been a source of criticism of the 3 Commission. I don't recall seeing an enormous 4 amount of concern that, for example, GELAC activity 5 generates the potential for significant undermining 6 of the statute. 7 There has been from time to time some 8 partisan cross-fire. I recall a little bit of that 9 in 2000, but it's really quite incidental. So I 10 don't think we see a concern that somehow the 11 Commission cannot handle the complexities of 12 administering the Presidential campaign financing 13 process, and a belief that over the 14 years, particularly with its regular reviews each 15 cycle, that it hasn't made the appropriate 16 adjustments necessary to make it work better in the 17 light of experience. 18 COMMISSIONER McDONALD: Thank you. 19 Don, let me ask you, you had said in the 20 last round when you and I visited that Congress 21 basically in relationship to passing the law was 22 signing it at two or four o'clock in the morning 106 1 and really didn't much know what they were doing. 2 I'm sure you didn't apply that to all members, but 3 some members, I gather. That being the case, the 4 reliance this morning or what they did not do in 5 your estimation in terms of this particular focus 6 on the convention process, I'm just trying figure 7 out how we kind of get to where you think we ought 8 to be vis-a-vis your previous theory about the 9 Congress and their activities or lack of. 10 MR. McGAHN: You alluded to 11 inconsistency in your initial question, and Mr. 12 Bauer included me in that, and I don't see any 13 inconsistency in what I've said before and what I 14 say now. 15 COMMISSIONER McDONALD: You don't think 16 the fact that they didn't know what they were doing 17 is something somebody can rely on now? 18 MR. McGAHN: That's a broad statements. 19 We can paint on the whole statute what I was really 20 referring to at the time, things like coordinated 21 versus independent expenditures and the choices 22 between the two and the minutia of the 98-pages of 107 1 the bill. I mean, what they thought they were 2 doing was this concept of banning soft money, which 3 is a term which we use in a variety of different 4 ways and that sort of thing. 5 So to the extent I was overly simplistic 6 or rhetorical, in fact, overstated that they didn't 7 know what they were doing. I don't think it's fair 8 to say that somehow now I'm inconsistent. I've 9 been very consistent in my argument here today. 10 COMMISSIONER McDONALD: I'm not trying 11 to attack you. I'm just trying to figure it out, 12 because you're saying that the absence of Congress 13 alluding to specifics in this area means that in 14 essence they have kind of signed off on the status 15 quo. 16 MR. McGAHN: Wait a minute. 17 Commissioner, when did I say that? 18 COMMISSIONER McDONALD: Pardon me? 19 MR. McGAHN: When did I make that 20 argument? 21 COMMISSIONER McDONALD: You made that 22 this morning? 108 1 MR. McGAHN: It was Mr. Bauer. 2 COMMISSIONER McDONALD: So you don't 3 agree with that? 4 MR. McGAHN: I didn't say I didn't agree 5 with it, but I don't want you to put words in my 6 mouth. 7 COMMISSIONER McDONALD: I don't want to. 8 What do you think? 9 MR. McGAHN: Well, my comments here are 10 limited to three areas that I outlined: Members 11 being able to raise money for the host committees, 12 which are 501(c) and the statute is clear. I 13 didn't make reference to the intent or anything of 14 the sort, and my argument there lies in the 15 statute. 16 My second point was the local rule, 17 which is the Commission regulation, which in my 18 view, times have changed. Because the facts have 19 changed, the Commission can change its regulations. 20 And the third is the notion you can reach out and 21 regulate events during the week of the convention 22 or the time around the convention, and there's 109 1 nothing in the statute itself which indicates that 2 needs to occur because of BCRA, and I don't see any 3 factual change which results in that. 4 So I don't see the inconsistency, and I 5 want to again say I'm here on behalf of a single 6 member of Congress. I'm not speaking for the 7 national party, and although I've gone off those topics 8 here to help the Commission and offer what pithy 9 comments I can, but I'm not going to sit here and 10 certainly try to compete with the institutional 11 knowledge of Mr. Bauer and others on conventions. 12 COMMISSIONER McDONALD: Let me say 13 you're right. That certainly isn't in the three. 14 I didn't realize that you were precluding yourself. 15 You do appear to have a rather substantial amount 16 of knowledge in your current position. I was 17 surprised, I guess, that you didn't know whether 18 House members on your side of the aisle might be 19 pursuing a goal somehow like Senator Kennedy and 20 Senator Kerry. 21 MR. McGAHN: My advise has certainly 22 been it's legal to raise. Whether there's actually 110 1 been solicitations, I just don't have personal 2 knowledge of how far along the tracks members on 3 the Republican side--to the extent it's helpful, I 4 can kind find out and provide that information. 5 Just sitting here today, I just can't say for 6 certain where we are. 7 Commissioner McDonald: Thank you. 8 Steve, let me go to you just real quick, 9 if I may, Ms. Chairman. 10 In terms of--and I realize your position 11 is that you've done a study and that you're really 12 not taking a position, but it's hard to read the 13 study without concluding that you're taking a 14 position of sorts, which is fine. Aside from your 15 study, your own assessment of the study or the 16 climate in general, what conclusions would you draw 17 outside of what you've put forward, I guess might 18 be the best way to ask it. It's one thing to have 19 the study. I think that you do draw a conclusion 20 about the study, which is perfectly fine, but what 21 would you want us to leave with in terms of your 22 participation today other than the fact of the 111 1 increased costs, which we concluded is certainly 2 true? 3 MR. WEISSMAN: Well, again, I don't 4 think--we can't really--I'm not taking a policy 5 stance, because the institute has a task force that has read 6 this study and will issue its findings and it 7 specific recommendations in July. I think that 8 what I would like to come out of this study other 9 than the increased cost that people take out of it 10 is--and I think, you know, to the extent that 11 people read it, they can assess whether Mr. Bauer's 12 portrait or my portrait of what's in here is 13 correct and make your own assessment of the degree 14 to which and we have not argued a hundred percent that 15 political motivation has become important and that 16 convention expenses are being paid for by host 17 committees predominantly rather than convention committees. 18 I think what comes out of this is that 19 whatever the Commission does, the old rationale for 20 doing this doesn't have the power that it used to 21 have, that there was a rationale that had some 22 credibility, although some have argued to us that 112 1 even in 1984 Trammel Crow was, you know, getting 2 the Republicans to contribute to the Dallas 3 Municipal Fund, and look at the chairpersons of 4 1992: Kenneth Lay for the Republican host 5 committee and Robert Rubin for the Democratic host 6 committee. 7 But we've argued that that rationale for 8 the exemption doesn't have the power that it did 9 before, and that if the Commissioned for legal 10 reasons and others decides it has to temporarily or 11 permanently provide some exemption, then perhaps it 12 has to rethink this rationale and find another 13 rationale, or if it can't and it wants to provide 14 the exemption, I suppose there are options the 15 Commission has such as asking Congress what it 16 thinks, seeing if it replies or not in any time 17 timely way. 18 So I think what we most would like to 19 come out of this, and we appreciate the attention 20 that the study has gotten, is for the Commission to 21 reflect upon it and figure out what is--can they 22 develop an independent rationale for whatever they 113 1 want to do, and if not, is this an issue that has 2 to be dealt with in part by Congress and by the 3 President. 4 Commissioner McDonald: And what about the argument 5 made by your distinguished colleagues there that 6 the Congress has reflected on this and their 7 position is things are fine. What's wrong with 8 that? 9 MR. WEISSMAN: Well, if I could put on 10 one past hat, I was one of the people that before I 11 took this job in Campaign Finance Institute who was 12 involved in the lobbying effort with Congress on 13 the McCain-Feingold bill. This a purely personal 14 impression. My impression was no one focused 15 particularly on this issue, that it was brought up 16 by Senator McConnell to characterize legislation. 17 His interpretation is plausible and so is the 18 opposite, so that my feeling was that nobody 19 among--I was working at the time with Public 20 Citizen. Nobody among those reform groups, nobody 21 among those sponsors of the legislation were really 22 thinking about this issue. 114 1 COMMISSIONER McDONALD: These poor 2 members, they're just not shaping up well with any 3 of you. I'm starting to feel worse. I feel about 4 the members like I did about the city of San Diego 5 some years ago. 6 MR. WEISSMAN: But this is complex--as 7 everyone has pointed out here, this is a 8 complicated issue because there is a sort of 9 mixture of local civic thing in here, in the 10 motivation, but there's these other motivations, 11 and it was a level of complexity that Congress 12 felt, look --in fact, it was a kind of decision not 13 to get into the Presidential thing at all. They 14 didn't want to get into Presidential issues. There 15 were some concerns that what would happen in the 16 public financing system if soft money is gone and 17 those kinds of things. There was a kind of 18 tendency to shy away from the Presidential system and say, 19 Look, it's hard enough to deal with this particular 20 legislative issue generally. 21 So I don't think it was totally 22 irresponsible of Congress at that point to say, 115 1 Look, we'll get to the Presidential thing at 2 another time. That was just simply a personal 3 impression from firsthand involvement over four or 4 five years in that particular issue. 5 COMMISSIONER McDONALD: Very briefly, 6 Paul, going back to 1972 for a moment, one of the 7 problems, of course, was that theory was that a 8 large amount of money underwriting the convention 9 by a particular source or a handful of sources was 10 a serious problem. Over time, what has happened, I 11 think on either side of the aisle, I think you can 12 make a very compelling case that lots of money 13 certainly has been poured into the convention 14 process. But two things: One, it's in the public 15 domain, which is decidedly different than what 16 triggered this to begin with, I think; and two, if 17 you're representing Southwestern or American 18 Airlines or Korean Air, whatever it might be, the 19 one thing in particular in the public arena is that 20 they may have alliances in relationship to an 21 industry, but of course the internal fighting--the 22 most recent, of course, is American and TWA where 116 1 they can't agree on what vote they made jointly, 2 clearly what has happened is that there are very 3 competing interests, I guess is what I'm saying. 4 The issue when this first began to take 5 center stage was clearly that a few folks would 6 have unlimited access and that a national party 7 would be beholden to those folks. Now, lots of 8 things have changed, first and foremost, the 9 publics ability to know what has transpired. I 10 guess I'm asking you what the problem with that is 11 in view of the fact that even though people may 12 give substantial amounts of money, it is not in the 13 context--I don't think any of us think that the 14 convention per se determines who the Presidential 15 nominee is. Everybody knows when they get to the 16 convention. 17 So where does that leave us in terms of 18 a practical aspect? What really started out in 19 terms of the law? Don't you think we have come a 20 long way in relationship to how things used to be? 21 MR. SANFORD: Well, I think that 22 certainly it's true that the outcomes seem to be 117 1 rarely in doubt, if they are at all, although they 2 could be. They could in any particular cycle be. 3 MR. McGAHN: Agreed. 4 MR. SANFORD: So, you know, it can be 5 said that the money that's--making it's way the 6 soft money--let's just use that model for a 7 moment--that's making its way to the benefit of the 8 parties committees. I mean, this isn't really influencing the 9 outcome of the election. But I guess I interpret 10 Congress' decision to prohibit soft money for the 11 national party committees to sort of transcend 12 that--I mean, they said that these entities aren't 13 supposed to collect these funds, and, you know, 14 part of the reason that it was allowed before was 15 because the money was being used for generic 16 purposes that was necessarily tied to a 17 particular election, and Congress decided even 18 though that wasn't the case, new limits were 19 needed. 20 And so I don't think that the way the 21 money is making its way into the convention process 22 is very different than what Congress banned, 118 1 explicitly banned, you know, and making its way 2 into the hands of the party committees and other 3 processes. 4 COMMISSIONER McDONALD: I thank all of 5 you, and I appreciate it very much. 6 CHAIRWEINTRAUB: Thank you, 7 Commissioner McDonald. 8 Vice Chairman. 9 VICE CHAIRSMITH: Thank you, Madam 10 Chair. I'm going to direct most of my questions to 11 Mr. Sanford and Mr. Weissman, primarily because 12 most of our commentators and the other panelists 13 today share views that would be more similar to 14 those expressed by Mr. McGahn and Mr. Bauer. So I 15 want to give you a chance to be heard. 16 I'll start, Mr. Weissman, with some 17 things for you and your study, and I guess Mr. 18 Bauer noted that the corporate sponsorship was way 19 up in the last decade or so. In fact, I even look 20 forward to probably 2008--I don't think we'll get 21 there in 2004--where Americans can turn on their 22 television sets to CNN and watch the Nokia 119 1 Democratic Convention or the AT & T Republican 2 National Convention, but you note the explosion in 3 the corporate contributions to host committees and 4 so on, and yet it strikes me that in addition to 5 the point that Mr. Bauer makes, which we don't have 6 the exact numbers on right now, but you cite in the 7 study another factor that would be very 8 determinative of why there was this growth, which 9 was the Commission's change in 1994 to do away with 10 the local retail rule; and of course then we see a 11 big explosion beginning in 1996, and you note 12 specifically or you cite some examples of companies 13 that, gee, looks really motivate and why are they 14 suddenly contributing so much. You note Motorola, 15 GM, Ameritech, Microsoft. 16 It's not that there are a lot of 17 companies like that that would have been able to 18 contribute prior to 1994 Commission regulations. 19 So isn't that coupled with the fact that Mr. Bauer 20 has raised something that equally explains the 21 sudden rise in corporate funding for the host 22 committees? 120 1 MR. WEISSMAN: To focus on what we do 2 say in our a statement is, yes, I think in part the 3 change in regulations which one could argue the old 4 regulations were too inflexible. People said, 5 Well, what if we get a benefit to our business in this city that 6 last beyond the life of the convention. What if 7 we're not a retail business but we have a lot of 8 economic stake from the city; we get benefits, but 9 now that there is no particular measure of benefit 10 that is restricting someone from giving donations, 11 you're absolutely correct. I think that has 12 encouraged the process. 13 The thing I don't think we can ignore, 14 though, is that when you take a look at--but that 15 may not involve someone saying, Oh, well, my real 16 commercial interests in the city or the metropolitan area is 17 really $1 million instead of 30,000, to take what 18 Amway is doing from one year to another. It may 19 mean that they're saying in response to pleadings 20 by the parties which were at this very moment 21 developing the whole soft money boom, Okay, we'll 22 give you a million dollars. The fact is you can 121 1 see so many of the contributions are exactly the 2 same, a million dollars and often to both parties, 3 that one can look at the data which the Center for 4 Responsive Politics and other organizations have 5 put in compact form, which are available from the 6 Federal Election Commission, and look at the data 7 and say this is just as a much a part of the soft 8 money explosion as of the Commission's rules 9 change. 10 So I think probably both factors are 11 involved in this, and what's notable is that the 12 very same companies that gave a hundred thousand 13 dollars, Coca-Cola Bottling in Atlanta or AT & T in 14 1988, both conventions give a hundred thousand and 15 something. Suddenly, some of these companies are 16 up to the million-plus mark, and then of course if 17 it doesn't have to be local retail, you have all 18 these new companies coming in that have very little 19 special stake in the local economy, the Ameritechs, 20 the Motorolas, and so forth, Microsoft, many of 21 them cited in the statement in the presentation, 22 and they are also giving huge amounts of money. 122 1 VICE CHAIRMAN SMITH: Now, let me take 2 you up on that. We were looking just at one other 3 host committee, which is the host committee for the 4 2002 Super Bowl in New Orleans, and the host 5 committee does all kinds of things. They finalized 6 locations for all the events being held, 7 including the Annual Commissioner's Party, a Taste 8 of the NFL feature including top chefs from all 9 over the country, the international media reception of 10 the task force party, kinds of events that are 11 directly related to their business. They also 12 note, and this is interesting in terms of thinking 13 about the growing extravaganza of conventions, they 14 note, for example, that for the people who show up 15 for the event, events and attractions leading up to 16 the game that continue to grow in size and 17 complexity, for instance, an event that comprised 18 of little more than a sport car trading show under 19 outdoor tents in the Super Bowl town in 1990 grew 20 into a temporary theme park called NFL experience 21 by 1997. 22 So that what we're witnessing is again 123 1 not unique to political conventions, and 2 who are the sponsors for the New Orleans's Super 3 Bowl Host Committee? Well, they're also companies 4 that seem to have only an attenuated local interest 5 or whose futures don't seem to hang on the local 6 economy: RCA, Cox Communications, the Home Depot, 7 Coca-Cola, Miller Lite. Most of these companies if 8 they have any presence in the city, have a present 9 that is, you know, there's a Home Depot store in 10 the New Orleans area. I think it's tough to argue 11 that this is just a major--you know, the connection 12 you try to argue should only be what's motivating 13 people who are funding the political conventions. 14 And so I look at it, and I wonder if 15 you're not using a paradigm that's incorrect as to 16 why companies give to these kinds of host 17 committees. 18 MR. WEISSMAN: Well, of course we have 19 the--I don't know exactly what the Super Bowl 20 sponsorship delivers to the company, but we have situation 21 with the political convention, as you know, where 22 the average television viewership is 13 percent of 124 1 the convention. They're only on for a brief period 2 of time. The exposure is declining very 3 substantially, yet the passion to contribute to 4 these host committees is increasing. We also have 5 the other thing that I don't know who asks for the 6 money for the Atlanta Super Bowl whatever 7 committee, the New Orleans Super Bowl, but the 8 people asking for the money to a predominant extent 9 are partisans asking partisan donors or donors who 10 give to both parties to provide financing for what 11 is really the first major--it's not a primary 12 election or choice of the candidate, but it is the 13 first major event. It's a four-day testimonial to 14 the quality of general election candidate, and 15 they're being asked by partisan fund-raisers and 16 party officials and politicians. 17 Then when they get there, they're 18 greeted by those same politicians. They are 19 privileged to help co-sponsor a delegate receptions 20 which politicians will appear because of the 21 contributions to host committees, and I think 22 there's a whole different syndrome occurring at 125 1 these conventions. 2 VICE CHAIRMAN SMITH: Well, I'm going to 3 venture a guess that the same types of people who 4 raise money for the political conventions to a 5 large extent raise them for these other kinds of 6 host committees, and I don't know, but I wouldn't 7 be surprised if you don't actually have politicians 8 I think there are certain types of wealthy 9 individuals who are maybe prominent in communities 10 generally in political fund-raising and other 11 events. 12 But that leads me to a question for Mr. 13 McGAHN. You have mentioned a couple of times that 14 the statute specifically permits raising funds for 15 501(C) by office holders and candidates and party 16 officials. The statute permits that where such 17 solicitation does not specify how the funds will or 18 should be spent. If you're raising funds for a 19 host committee to spend to put on a convention, 20 doesn't that bring that into play? 21 MR. McGAHN: No. I don't think so. I 22 think any 501(C) has some sort of mission, but 126 1 whether it's the Red Cross or a host committee, you 2 do have a broad idea of how the money is going to 3 be spent. I don't think that section applies in 4 that situation. Now, perhaps if it's a specific 5 earmark, but even then it's still not a Federal 6 election activity. I don't think that limitation 7 is applicable. 8 VICE CHAIRMAN SMITH: And Mr. Bauer, do 9 you want to comment on that? 10 MR. BAUER: I don't disagree with 11 what Don has said. 12 VICE CHAIRMAN SMITH: The other aspect 13 Commissioner Toner touched on a little bit, but 14 let's go back to it again. Of course, those 15 entities also cannot have its principal purpose to 16 conduct Federal election activity, and Federal 17 election activity includes generic campaign 18 activity conducted in connection with the election 19 in which a candidate for office appears on the 20 ballot. You don't think that comes into play? 21 MR. McGAHN: My own view is no. 22 VICE CHAIRMAN SMITH: Why not? 127 1 MR. McGAHN: Pardon? 2 VICE CHAIRMAN SMITH: Why not? 3 MR. McGAHN: Historically, the host 4 committee is not seen as doing--notwithstanding a 5 slight overlap, it's a separate entity that 6 provides the infrastructure for the convention. 7 Again, I don't want to get too far out on the 8 proverbial limb here, because I'm here just for a 9 handful of issues. I'll defer to others. 10 MR. BAUER: I would only make the 11 comment that I think it's analytically confusing 12 and ultimate a mistake to try to neatly divide up 13 everything we see in the political world into 14 those things that are election related and those 15 things that are not election related and Whatever. This 16 happens to be, and again I'd insist on this point, 17 a it's a unique event, and the Host Committee plays a unique 18 role and a unique set of circumstances and takes 19 place over a short span of days, albeit very 20 expensive. People can debate the wisdom of the 21 investments that are made and the wisdom of 22 certainly expenses like the expense of security and 128 1 transportation that have to be made; but one way or 2 the other, I don't believe that the host committee 3 engage in anything that anybody would think 4 rationally related to the sorts of concerns we view 5 as at core election related. 6 VICE CHAIRMAN SMITH: Mr. Sanford, one 7 thing I appreciated about the Center on this 8 rulemaking is that they were--in an effort to 9 firmly ground the position in the statutory 10 language of the agency and establish finance, 11 maintain or control. You did not address the two 12 clauses I just mentioned, the 441(I) and (E)1. Do 13 you want to address it at all? Do you think those 14 come into play, or do you think that is not proper? 15 MR. SANFORD: Well, I think that--I 16 guess I view that as a bit of a side issue, because 17 I believe that 441(B) prohibition really constrain 18 the conduct of the host committee, so 19 that-constrain the fund-raising for the host 20 committee. I mean, we talk about the host 21 committee not engaging in Federal election 22 activities, and this is one of the ways in which I 129 1 think back to an analogy that my boss used in a 2 previous hearing, was we're looking through 3 telescope from opposite directions. 4 I think the host committees are set up 5 to facilitate the convention and we can quibble about how 6 closely related they think their expense are, but 7 that's what these entities are for. So to say that 8 they're not connected in the 441(B) sense to a 9 Federal election, when conventions are by 10 definitions elections under the statute. That 11 seems to me to overlook a pretty apparent 12 relationship. 13 Now, and so the direct response to your 14 question about the impact of the solicitation 15 prohibitions is I think that even as those 16 provisions are interpreted in such a way that they 17 would allow Federal office holders to raise soft 18 money for the host committee, that would not mean 19 that the 441(B) prohibition are therefore lifted for 20 the host committee and they can use these funds for 21 convention expenses. 22 VICE CHAIRMAN SMITH: Let me ask you 130 1 another question. I gather from your earlier 2 comments that you're suggesting that regardless of 3 BCRA, in your view, the law properly interpreted 4 would prevent many of these host committee 5 activities under 441(B). 6 MR. SANFORD: It wouldn't prevent them. 7 They should be used--they should be paid for with 8 Federal dollars. 9 VICE CHAIRMAN SMITH: Okay. Right. The 10 means used to pay for them. 11 MR. SANFORD: Right. 12 VICE CHAIRMAN SMITH: Now, here is the 13 issue I have, I, guess with that a bit. It seems 14 that you're kind of hinging your argument, then, on 15 this statute as existed by prior to BCRA. I think 16 it's a pretty strong argument that BCRA doesn't 17 seem to address it, and I wonder if we were on a 18 blank slate it might be a different scenario, but 19 where we've had those rules in place for a lengthy 20 period of time without Congressional action to 21 overturn them, including in repeated introductions 22 of versions of what ultimately became BCRA, and 131 1 then finally in the bill that passed as BCRA, this 2 issue has never been raised. Isn't there generally 3 a presumption when you have that kind of activity 4 going on that, in fact, the interpretation of the 5 Commission is giving to the statute is correct or 6 at least that which is desired by Congress and what 7 they see? 8 MR. SANFORD: Well, I go back to the 9 language of--I guess in this case, I would say the 10 language of BCRA, and I think the 441(I)A 11 prohibitions are pretty broadly written and that, 12 you know, it's a little bit speculative to guess 13 either way what the Congress meant, and in that 14 context, the courts would typically go to the 15 specific language in the statute. 16 On sort of the history question, I 17 ground my arguments, as you correctly state, on the 18 way the Commission has allowed the rules to evolve, 19 and I see those problems as being real, and I think 20 that those are Commission created and that 21 notwithstanding what the Congress did, the basis of 22 this assumption, the assumptions as Mr. Weissman 132 1 refers to, the basis of the exception that the 2 Commission has created has become shaky and should 3 be re-evaluated. 4 So I will concede that Congress' 5 inaction could be interpreted as assent. I think 6 that the Commission has an ongoing responsibility 7 to re-evaluate the assumptions it's made in the 8 past and decide whether those are still valid. 9 VICE CHAIRMAN SMITH: I think, and I 10 said this throughout the hearings on BCRA last 11 year, that I think that sort of intent is less 12 important than what Congress actually did or did 13 not do. I want to make one comment that you 14 mentioned about Senator McConnell's comments on 15 conventions earlier. I would just note, whether 16 they were correct or not or refuted, that there's 17 really no opportunity to refute them. If I 18 remember correctly, he made those comments on the 19 very last floor statement that was made before it 20 was voted. 21 But I have a couple of quick questions 22 for you, Mr. Sanford. Have you read Mr. Gross's 133 1 testimony? 2 MR. SANFORD: I have, written comments, 3 yes. 4 VICE CHAIRMAN SMITH: Yes, his written 5 comments. I wonder if you would be able to 6 respond--I know you don't have it right in front of 7 you, but since he's going to go on later and you're 8 not, he makes comments suggesting that the 9 agreements between the host committees and the 10 parties are arms length and between very distinct 11 entities. I wonder if you have any response to the 12 arguments that me makes there. 13 MR. SANFORD: First of all, I think that 14 the comparisons to other type of transactions, 15 other corporate sponsorships are a little bit 16 beside the point, because corporate sponsorships of 17 political activity are different than corporate 18 sponsorships of other--of the Super Bowl or other 19 events, and to some extent, I think some of those 20 same principle apply to the notion that what we 21 have is this giant arms-length transaction between 22 the party committees, their deliverable being the 134 1 convention, providing it to the city in exchange 2 for substantial subsidies. 3 The statute says that, at least 4 initially, that that transaction, because this is 5 an election within the statute, has to be treated 6 differently. I think that the Commission has sort 7 of dealt with a smaller version of this issue 8 recently in the Libertarian Party Advisory 9 Opinion where it recognized that a party could 10 essentially sell an asset in certain contexts under 11 certain conditions, and it was not willing to 12 accede to the Libertarian party's decision to sell 13 advertising space in its newsletter because it 14 didn't believer there was an 15 objectively-ascertainable fair market value. 16 VICE CHAIRMAN SMITH: This is akin to 17 that; there was just no objectively-- 18 MR. SANFORD: Well, I think it's 19 difficult, and think that the Commission initially 20 tried to get at that when it conditioned on 21 reasonable expectation of commercial return, but 22 it's limited to that requirement. 135 1 So now there is no standard for whether 2 that's the case, and so I'm not sure where we are. 3 VICE CHAIRMAN SMITH: I want to ask one 4 final question, and I'd ask you to be brief because 5 we're way over and the general counsel hasn't had a 6 shot yet. 7 MR. SANFORD: I apologize. 8 VICE CHAIRMAN SMITH: No. It's not your 9 fault. I think it's more ours than the panel, and 10 it's good. I think we're getting some good info. 11 But, similarly, have you read the 12 comments submitted by the Democratic National 13 Committee? 14 MR. SANFORD: Yes. 15 VICE CHAIRMAN SMITH: And if so, can you 16 comment if there's anything you think merits 17 comment that's not in the written submission? You 18 argue--and, frankly, I think this is some of the 19 weaker arguments and I think the agency argument is 20 a bit stronger, that there's still a possibility 21 that they shouldn't even be affiliated, in other 22 words, establish, finance, maintained or control, 136 1 the host committee establish, finance, maintain 2 control by the party. The DNC addresses the 3 affiliation questions, comments, and says host 4 committees don't meet that criteria. Where are 5 they wrong? 6 MR. SANFORD: Well, I think that our 7 comments don't absolutely say that they do meet 8 those criteria. I think that there are a couple of 9 the ten criteria which will often exist. At least 10 one element will almost always exist, and that the 11 Commission shouldn't promulgate rules that say one 12 way or another that they are or they aren't. It 13 should leave open the issue. 14 VICE CHAIRMAN SMITH: By at least in 15 some cases, the host committee will meet them? 16 MR. SANFORD: Yeah. I think it's 17 possible. I mean, it may be that as a practical 18 matter, they would never structure themselves in 19 such a way that that would happen. I don't really 20 know the dynamics of that, but I think that the 21 rule should be leave open that possibility. 22 VICE CHAIRMAN SMITH: Thank you very 137 1 much. 2 CHAIR WEINTRAUB: Thank you, Mr. 3 Vice Chairman. 4 Mr. Norton. 5 MR. NORTON: Thank you, Madam Chair. I 6 realize we're running way over, and I'll try to 7 keep this very brief and maybe just try to clarify 8 a couple of points that have come up in the earlier 9 questioning. 10 And I want to circle back for a moment 11 to Senators Kennedy and Kerry and what inference, 12 if any, can be drawn about whether they think BCRA applies to 13 convention financing. Mr. Sanford, I have to admit 14 that I'm struggling a bit to understand to your 15 statutory argument. There have been a number of 16 arguments made, but a couple central ones made by 17 Mr. McGahn, but the one that I'm focused is 18 441(I)E(4), and it concerns general solicitations; 19 and essentially what it says is that a Federal 20 candidate can make a general solicitation of funds 21 on behalf of an organization that is a 501(c), and 22 that's a host committee, other than an entity whose 138 1 principal purpose is to conduct activities 2 described as certain kinds of Federal election 3 activity--it seems pretty clear to me that that's 4 not what host committees do as those terms are 5 defined by the Commission--so long as the 6 solicitation does not specify how the funds will or 7 should be spent. 8 So why is it if Senators Kennedy and 9 Kerry are raising funds and not making a 10 specification about how the funds are being used, 11 what sort or expenses the host committee uses the 12 funds for, why doesn't that fall squarely in that 13 exception? 14 MR. SANFORD: I have one additional--let me 15 start with a threshold thought. Some of those 16 funds may very well have been solicited before the 17 effective date of the statute. That, of course, 18 would be the additional reason. 19 I have to concede that--and perhaps I 20 should amend my previous comment that if the fund 21 were solicited under these conditions, then they 22 may very well fall within this exception. I think 139 1 that there's no question about that. It's a fact 2 question. 3 MR. NORTON: What's a fact question? 4 MR. SANFORD: Well, the question whether 5 they were solicited for a particular--whether they 6 were given with an earmarked solicitation. That's 7 potentially a fact question. 8 I also think that these cases should be 9 analyzed with the recognition that the rules 10 specifically allow the host committees to pay 11 convention expenses. So, you know, the Commission 12 has set up rules that say that they can pay these 13 type--pay convention expenses using funds they 14 solicited. So that's always in play. 15 MR. NORTON: Okay. Let me just raise 16 one other point, and that's with respect to the 17 other side of the table. I want to circle back to 18 this argument again of the legislative history and 19 what Congress was doing, because I think there are 20 serious arguments to made on both sides. Commissioner 21 Toner, I think, kicked off the discussion by noting 22 the dirth of discussion and a very voluminous 140 1 legislation history about convention financing, and 2 I think Mr. Bauer made a very good point that BRCA 3 itself repealed certain regulations, and so the 4 regulations were very much before Congress and they 5 certainly could have repealed some of these too. 6 On the other hand, we have 441(I)A of 7 BRCA which very flatly and categorically prohibits 8 national parties from receiving contributions, 9 donations, and transfer of funds or anything of 16 value, and unlike the provisions for Federal 11 candidates and state committees where Congress 12 created another exception. We were just talking 13 about one. There's no such exception created with 14 respect to the parties. 15 The concern I have on the other side is 16 that the silence of the legislative history doesn't 17 change the language of the statute. It may mean that 18 there's an unintended consequence, and that, in 19 fact, has been I think a common complaint and 20 concern about BCRA all along, that some of the 21 legislators and members of Congress may not have 22 understood not so much what they were voting for, 141 1 but the impact of some of these provisions. And so 2 if the plain language of the statute prohibits 3 parties or party operatives from raising soft money 4 in all contexts, and that seems to be the plain 5 language, doesn't the Commission have to apply 6 language in this context if the party operative is 7 raising funds for the host committee? 8 MR. BAUER: That is the reason 9 why--while I fully agree with you that Senator 10 Kennedy and Kerry and the unnamed members of the 11 Republican Congressional Caucus were raising for 12 these conventions, the reason that they're not 13 violating even BCRA, if they were raising money for 14 the host committee as a (C)3. All the same, I'm 15 uneasy about the analysis that seems to assume that 16 Congress to help all convention-related issues like 17 the one we discussed here and somehow these would 18 filtered through the provisions of BCRA, and the trouble 19 I have with that is that this was a piece of 20 legislation that was put together with the 21 understanding that it was going to address some 22 issues and it not going to address other issues, 142 1 and in response to the question that Commissioner 2 McDonald asked of Don McGahn, which is--I thought 3 you said at some point members of Congress didn't 4 know what they were doing here, which may be his 5 sort of empirical judgment, the law calls upon us 6 to assume that Congress knew what it was doing, and 7 that's a legal doctrine. 8 And if Congress knew what it was doing, 9 it is quite striking to me that with all this talk 10 about soft money, and not only soft money, soft 11 money in connection with Presidential elections, 12 somehow the slip of paper that said let's deal with the 13 convention slipped off somebody's desk or out of 14 their agenda, I don't think that's a credible view. 15 So I think that this Commission with all the rest 16 that it has to do and certainly not in this cycle 17 ought not to assume somehow a mandate to take on 18 something Congress quite deliberately itself did 19 not take on, and I think that the agency has full 20 authority to take the position that this is not a 21 matter it's taking up right now, there's no reflection in 22 legislative history of any intention of Congress to 143 17 take it up, and the only comment we've heard cited here is of an 18 opponent of the legislation and this sponsor comment is an 2 after-the-fact sponsor comment about which this 3 commission, has heard probably more than it cares to hear. 4 So with that view, I think that is a 5 serious problem. 6 MR. NORTON: Mr. McGahn, did you want to 7 add anything? 8 MR. McGAHN: No. I don't disagree with 9 anything Bob said. 10 MR. NORTON: Thanks very much, nd thank 11 you, Madam Chair. 12 CHAIR WEINTRAUB: Thank you, Mr. 13 Norton, for your brief and very cognent questions. 14 Mr. Pehrkon. 15 MR. PEHRKON: Madam Chair, thank you 16 very much, and welcome to the panel. I too will 17 attempt to make comments and questioning very 18 brief. 19 First of all, I would really like to 20 address my comment to--it's going to be Mr. 21 Sanford, and one of the areas where the Commission sought 22 comment on regulations was whether or not it was 144 1 believed that we had statutory authority to 2 undertake audits of host committees, and I was 3 wondering if you could elaborate on that for me. 4 MR. SANFORD: Well, I think that given 5 the system, at least as a statutory matter, was 6 really designed to be closed system where the money 7 was coming from the public grant. It has been 8 opened up to disbursements by host committees for 9 convention expenses, that the Commission has the 10 authority to undertake audits of these entities and 11 particularly since the Commission essentially 12 decided that it wasn't going to count host 13 committee--wasn't going to allow host committees to 14 get involved in the process that was originally 15 designed as a closed one, that it should be able to 16 take a look at the way they spend their money. 17 MR. PEHRKON: Is there anyone else who 18 would like to either add to or disagree with that? 19 (Pause.) 20 MR. PEHRKON: Madam Chair, thank you 21 very much. 22 CHAIR WEINTRAUB: You win the prize, 145 1 Mr. Pehrkon. 2 I want to again thank very much everyone 3 on the panel. We kept you for a long time, and I 4 thought it was extremely helpful and an informative 5 discussion. I thank you very much and I appreciate 6 your indulgence in answering all your questions. 7 Let's take a ten-minute recess and then 8 come back and attempt to get back a little on track 9 here. Ten of twelve, we'll be back. 10 (Recess.) 11 II. PANEL NO. 2 12 CHAIR WEINTRAUB: Let's try to get a 13 little bit close on the schedule. I understand our 14 visitors from Boston were hoping to catch a 2:30 15 flight. 16 COMMISSION McDONALD: Is that today? 17 CHAIR WEINTRAUB: So I was going to 18 do age before beauty and start with Mr. Gross, but 19 given that you have a plane to catch, maybe I'll go 20 to Ms. Cronin first. 21 And let me welcome you all and apologize 22 for running late, and we'll try to get through this 146 1 a little bit more efficiently. 2 MS. CRONIN: Thank you, Madam Chair. 3 Good morning. My name is Cheryl Cronin, 4 and I represent the Boston Host Committee, and with 5 me is Julie Burns. Ms. Burns is the executive 6 director of the Boston Host Committee and recently 7 served as Deputy Chief of Staff to the mayor of 8 Boston and was actually quite instrumental in our 9 successful efforts to lure the Democratic National 10 Committee to Boston for the 2004 convention. 11 Let me begin BY noting that the City of 12 Boston and the region of Massachusetts is 13 absolutely thrilled to be welcoming thousands, as 14 Commissioner Thomas put it, wild and crazy Democrats 15 to Boston next summer, not because they're 16 Democrats, of course, but because they are going to 17 sleep in our hotels and eat in our restaurants and 18 shop in our stores, go to Fenway Park and do all 19 the things that our local economy really wants 20 visitors to do. 21 We've heard serveral assertions made this morning 22 about what the, quote, beat might be, I think one 147 1 witness put it on what host committees are all 2 about. We're here to tell you all the way from 3 Boston what this host committee is all about, and I 4 think we're quite typical of host committees for 5 national conventions. 6 There was and is tremendous community 7 support in Boston for our efforts in hosting its 8 first national political convention. We would have 9 been happy to host the Democrats or Republicans, and 10 indeed last summer, many of us were quite active in 11 courting the Republican site selection committee as 12 well, and we are doing this because we have been 13 organized and our purposes is not to enhance or 14 support any branch or any entity affiliated with 15 partisan politics or any candidate, but to support 16 our great city in reaching commercial and civic 17 growth. 18 Members or our board as well as our 19 donors are independents, Republicans, Democrats, or 20 simply have very little political interest. Many 21 of our most generous donors would never consider 22 providing funds to an entity designed to support 148 1 any type of political activity, even indirectly. 2 Rather, the participation of individuals and 3 companies in activities related to hosting the 4 Democratic National Convention in Boston next 5 summer is based solely on our commitment to our 6 city and region and a recognition that such a 7 significant convention in our city is an invaluable 8 flagship event to develop Boston into an even 9 greater convention and tourist destination, which 10 is, frankly, a tremendous and important boom for 11 our local economy. 12 And as you can see, in short, these 13 purposes of a host committee are contrary to the 14 assertions made by the Campaign Finance Institute 15 in its report, and it only underscores the fact that 16 the conclusions reached in that report are not 17 based on any rational facts. 18 The host committee, as I indicated, does 19 not support any candidate for public office or any 20 political party. We do not nor would we ever, of 21 course, make expenditures or disbursements in 22 connection with any election for Federal office. 149 1 There is nothing in our contract with the DNCC, nor 2 is there anything contained in any budget or 3 planning arrangement that suggests, contemplates, 4 or permits that we expend funds in connection with 5 any election for Federal office. 6 The host committee is not an agent of a 7 national political party. We are not established, 8 financed, maintained, or controlled by any national 9 political party, and any suggestion to the 10 contrary, some of which we heard this morning, is a 11 quite clear misrepresentation of the relationship 12 between us and the DNC, the DNCC, or any other of 13 its affiliates. 14 Contrary to what was stated this 15 morning, I can assure you that Terry McCauliff has 16 not raised one dime for the host committee for the 17 Boston convention next year. No member of the 18 board of the host committee was selected or 19 recruited by any officer, employee, or agent of the 20 DNC. The DNC has no authority to participate in 21 the governance of the host committee and does not. 22 The host committee has not engaged in fund-raising 150 1 activities on behalf the DNC or DNCC, nor are those 2 entities involved in any fund-raising activities on 3 behalf of the host committee. 4 The host committee takes its own votes, 5 hires its own staff, and engages in its own 6 commercial activities. The contract between the 7 DNCC, the host committee, and other entities 8 clearly expresses that they are separate and 9 distinct parties with no agency relationship, and 10 that one does control the other in any way. 11 Because the host committee's activities 12 are community and civic based, not political and 19 not an extension in any of the DNC, the 20 Commission should not limit any way fund-raising 16 activities by Federal candidates or office holders. 17 Our political leaders such as Senator Kennedy and 18 Kerry--and I might note that while there has been a 19 fair amount of publicity on the terrific efforts of 20 those two revered gentlemen from Massachusetts in 21 their efforts to obtain the national convention in 22 Boston as well as, of course, the wonderful efforts 23 our Mayor Menino, there has as well been very 151 1 significant efforts by very prominent members of our 2 corporate community, including many Republicans. 3 So we are very grateful for that. 4 But we would not that there is nothing 5 in BCRA that would suggest the Commission should 6 make any changes to the rules related to the 7 participation by Federal office holders in raising 8 money for 501(C) organizations such as the host 9 committee. 10 One other point to address before I 11 close is that the current-- 12 CHAIR WEINTRAUB: I hope you're 13 right, because your red light is on. 14 MS. CRONIN: Oh, it is. Okay. Thank 15 you. 16 In conclusion, the activities of the 17 Boston committee, the host committee are well under 18 way. We have already taken significant planning 19 efforts. We've signed contracts. We've raised 20 money. We are spending money as well. No matter 21 what your views might be on any of these 22 substantive issues, we urge that the Commission not 152 1 implement any adverse changes at this late date. 2 For all of the discussion about the BCRA, at the 3 end of the day, one this is clear: Under any fair 4 rules of statutory construction and interpretation, 5 Congress being well aware of your host committee 6 regulations, declined to include in BCRA any change 7 to the rules related to host committees, and we 8 would respectfully suggest that you follow the same 9 course. 10 Thank you very much. 11 CHAIR WEINTRAUB: Thank you, Ms. 12 Cronin. 13 Ms. Burns, do you have opening comments? 14 MS. BURNS: No. Thank you. 15 CHAIR WEINTRAUB: Well, then over to 16 you, Mr. Gross. 17 MR. GROSS: Thank you, Madam Chair. 18 Chairman--Chair. 19 CHAIR WEINTRAUB: Chair. 20 MR. GROSS: Ki and I are going to go 21 over comments related to the New York City host 22 committee. The New York City host committee is a 153 1 501(C)3 organization. It's directors are the mayor 2 of New York, Mayor Bloomberg, the Deputy Mayor for 3 Economic Development, and myself and is really part 4 of a broader effort in New York to host many 5 events. Of course, it's separate because of FEC 6 regulations regarding host committees, but there is 7 broader permanent--we call it a permanent host 8 committee in New York to get Olympics, and, in 9 fact, New York is the U.S. representative for the 10 Olympics for 2012 in the international competition, and the 11 Grammy Awards, the Super Bowl, and is really 12 is part of the continuing recovery effort of 13 September 11th. New York City has sought to 14 feature itself in many capacities in a hosting way 15 in other public events, demonstrating it is as a 16 great city, a safe city to have large gatherings of 17 people. That's why it was so critically important 18 right after September 11th that the World Series, 19 which some New Yorkers consider as an annual event 20 in New York, and the Macy's Day Parade and other 21 prominent activities went on, as always, and it is 22 part of the commitment of Mayor Bloomberg to bring 154 1 these events to New York City, and that is the 2 reason why we actively and equally bid on both 3 these conventions. 4 This same host committee was the host 5 committee for the bid process for the Democratic 6 and Republican conventions, and we went through the 7 entire formal bid process, and of course was 8 selected by the Republicans, but we were prepared 9 to host both conventions, as a matter of fact, for 10 2004. 11 Once we were selected, we did enter into 12 an arms-length agreement with the Republican 13 National Committee, and if anybody has any doubts 14 about that, they could have sat in on these 15 negotiations. They were not always friendly as we 16 were working our way through what they wanted and 17 what we felt like we were able to provide to the 18 city. So it was definitely an arms-length 19 arrangement, a vendor relationship. You could 20 characterize it in a number of different ways. 21 We are not established, certainly 22 financed, maintained or controlled, to coin a 155 1 phrase, by the Republican National Committee, nor 2 do we act in any kind of agency capacity. Our 3 fund-raising is done on our own by our own 4 fund-raising people and people for the City of New 5 York. No Republican official or member of Congress 6 has raised any money for the Republican host 7 committee, and we do note that to a footnote in our 8 prepared comments. I'm not saying it's 9 impermissible, but we have not used members of 10 Congress or Senators nor any party people to raise 11 money at this juncture that I am aware of. I'm 12 fairly close to the fund-raising process of the New 13 York host committee. 14 So those are the critical points that I 15 wanted to make regarding the structure and the 16 issue of separateness and how we're operating under 17 our own authority. There are other points in our 18 paper that we think are important, and they relate 19 to the delayed effect of the regulations. We 20 believe that it is within the authority of the 21 Commission to delay the effect, because BCRA has no 22 effect on the host committee. It is not an 156 1 activity in connection with Federal elections; 2 therefore, the 441(E) provisions do not 3 prohibit--the 441(I) provision--prohibit the 4 activities of the host committee, and therefore you 5 can delay its effect. 6 Even if it did have an effect, which we 7 don't think it does, there is case law in that 8 district, the case Sweet v. Sheehan, that did allow 9 the EPA to delay the effective date of a statute 10 that mandated a specific statutory date for 11 implementation, and in that case, they said so to 12 give the regulated community the time and not to 13 bring surprise upon the regulated community with a 14 late rulemaking. Despite the statutory mandate of 15 a specific effective date, the agency, the EPA in 16 that case had the authority to make the provisions 17 effective later. 18 And, finally, as far as my comments go, 19 we support the proposed regulation regarding the 20 local restriction, lifting of the local restriction of 21 donors. We don't really think there's logical 22 basis for restricting the donor base to just this 157 1 metropolitan area which itself is subject to some 2 reconfiguration depending on when the census 3 bureau--we run across a number of people who, first 4 of all, are interested in New York and certainly 5 part of the recovery of New York; secondly, they 6 have business interests in New York that may not 7 meet the formal definitions as individuals, and we 8 think it draws an unnecessary and illogical line on 9 restricting a base of donors that wish to support 10 the convention. 11 CHAIR WEINTRAUB: Thank you, Mr. 12 Gross. 13 Mr. Hong, do you have an opening 14 statement? 15 MR. HONG: Yes. Thank you, Madam Chair. 16 Ken just spoke about the ability of the 17 host committee to--for the permissibility of the 18 host committee to accept funds. I want to address 19 the expenditure of funds by host committees, in 20 particular the NOPER (phonetic) attempts to limit 21 the funds that are permissible for a host committee 22 to expend. 158 1 The first thing that the NOPER does is 2 it tries to create a comprehensive list of 3 activities. Given that the Commission has 4 recognized and will recognize, hopefully after 5 these hearings, the ability of host committees to 6 pay for expenses to promote the city and for 7 commercial purposes. The Commission should not at 8 this point create artificial limits on those 9 expenses. 10 So if the Commission recognizes the 11 ability of the host committee to make its expenses, 12 no artificial limit should be imposed. The biggest 13 artificial limit in the NOPER, as I mentioned is 14 the creating of the comprehensive list. It would 15 be unreasonable for the Commission to think that 16 that it could anticipate all of the variety of 17 permissible promotional activity that a host 18 committee could do. 19 For example, just off the top of my 20 head, this list does not contain simple things as 21 trash pickup outside of the convention hall. 22 Another thing to whet the appetite is toilet 159 1 facilities outside the convention hall, which are 2 clearly promotional city commercially-related 3 activity, but would be outside of this list. 4 Which brings me to my second point, 5 which is that the inherent question of asking is 6 this expenditure made for the purpose of promoting 7 the city involves an analysis of the entire 8 totality of the circumstances, and the 9 comprehensive list as proposed, any comprehensive 10 list in my view, would take that necessary analysis 11 out of the process. 12 The second way that the NOPER tries to 13 limit expenditures by host committees is that the l 14 list that's already there that are expressly laid 15 out in the FEC rules, those items are limited, are 16 narrow even further, for example, transportation. 17 Now, the permissible transportation expenses under 18 the NOPER rules are limited to widely available 19 transportation for--and by the way, I really don't 20 know what that means. I know what widely attended 21 means under Congressional gift rules. I know what 22 widely attended means under certain other rules, 160 1 but I have no idea what widely available means for 2 transportation purposes. 3 VICE CHAIRMAN SMITH: How people get to 4 the widely attended event. 5 MR. HONG: Now I know what it means. 6 But limiting the items that are already 7 in the rules, the NOPER claims that it was based on 8 the results of the 1996 audits. I contend that 9 result, because to tell you the truth, during an 10 audit phase, the Commission does not opine on every 11 single expense that it's made during the audit, and 12 so many expenses than an auditor would go through 13 and say it's okay never really make it to 14 deliberation by the Commission. For example, in 15 the 1996 audits and in the 1996 conventions and 16 other conventions, office facilities for the COA 17 were allowed. They went through the audit, and it 18 is our understanding from the discussions with the 19 RNC that they made it through the audits, but the 20 list here does not contain those items, and I don't 21 think that this list contains all of the items that 22 were permitted in 1996 audits because many of those 161 1 issue were never officially decided by the 2 Commission, by the commissioners. 3 Also, the decision that were made in the 4 1996 audits were based on the totality of the 5 circumstances. Again, there's no way to create a 6 rule of thumb or a bright-line test on these 7 issues. 8 The final item I would like to address 9 has to do with the audit authority. We believe 10 that the statute--there is no statutory authority 11 for the Commission to automatically audit host 12 committees. The purpose of the automatic audit 13 provisions is based on accounting for public funds. 14 As we discussed, host committees are purely 15 privately funded, and there's no way--there's no 16 reason to audit host committees on an automatic 17 basis; rather audits should be limited to audits 18 that are done for cause when it comes to host 19 committees. 20 Thank you. 21 CHAIR WEINTRAUB: Thank you, Mr. 22 Hong, and let me say that I think that both of the 162 1 party committees made really terrific choices, New 2 York and Boston being two of my favorite cities, 3 and just for the benefit of our Bostonian, I want 4 to point out to you in case you didn't know that we 5 recently held one of our FEC conferences in Boston 6 and stayed in your hotels, and I personally went to 7 Fenway Park and had a terrific time. The Red Sox 8 even won for me. 9 Commissioner Thomas. 10 COMMISSIONER THOMAS: Thank you, Madam 11 Chair. 12 Thank you all for coming, and it's 13 always very good when we can get people who really 14 know what's going on to come in and talk to us. 15 Now, first of all--well, I guess before 16 I get into the substance, Mr. Hong, you're calling 17 it a NOPER, whereas most of us for years refer to 18 these things as NPRMs. You've got to help me. 19 Should I be switching over to NOPER? 20 MR. HONG: No. 21 MR. GROSS: Notice of proposed 22 rulemaking. 163 1 COMMISSION THOMAS: It's more accurate. 2 I'll start with you. We have now 3 started getting this bit about maybe to better 4 distinguish the kind of expenses that the host 5 committee ought to be precluded from paying. I 6 guess, theoretically, are you laying out the 7 argument that there, indeed, are some kinds of 8 expenses which the host committee could and should 9 be precluded from paying, but in essence for the 10 time being you don't want us to tinker with the 11 lines such as they are right now? 12 MR. HONG: Well, I think the test should 13 based on why--based on the foundation of why host 14 committees are permitted to accept and make 15 expenditures, which is is the expenditure that's 16 being done being done for the commercial purpose of 17 promoting the city, and that should be the test, 18 and I think that's laid out in the current rules, 19 and that's what a lot of these items go toward: 20 Transportation, convention hall expenses. Those 21 are all expenses that clearly relate to the 22 commercial purpose of the city. 164 1 So that should be the test, and the only 2 way to implement that test is to have a flexible 3 list of expenditures, including a catchall that's 4 in the rules currently. 5 COMMISSIONER THOMAS: But you do 6 concede, again, that there are some expenses we 7 should not allow the host committee to pay for; is 8 that correct? 9 MR. HONG: Yes. I think there are some 10 expenses that would not be properly characterized 11 as commercial promotional expenses for the city, 12 you know, such as transporting the Presidential 13 candidate, things like that. 14 COMMISSIONER THOMAS: Mr. Gross, can you 15 help me with an issue I raised with the last panel? 16 You've noted that you're not involving Federal 17 office holders and candidates, in raising money for 18 the host committee, but you've characterized it as 19 a matter of choice, if you will. You're saying 20 that legally you think there's a way to get there 21 and let them do that kind of thing, and there are 22 some people who would love to hear you say that; 165 1 but what about this legal wrinkle that I raised? 2 You can look at the broad proscription on the 3 national party in 441i(a)I to suggest that they 4 simply can't be involved in raising any monies 5 except those that are subject to the limits, 6 prohibition, standard and reporting requirements under 7 FECA, and then you have this later provision that 8 talks about national party operatives or state 9 party operatives or local party operatives can get 10 involved with raising for some 150(C) organization 11 under some circumstances as long as those 12 organization in essence aren't undertaking 13 activities in connection with the Federal election. 14 So I guess my question is that latter 15 provision sort of there only to make sure that 16 national party committees, for example, to the 17 extent they have hard money or could raise hard 18 money, they can't get it past--can't undertake that 19 kind of hard money fund-raising for a 501(C)3 20 unless it happens to be for one that doesn't 21 undertake activity in connection with a Federal 22 election, or is there some sort of-are we supposed 166 1 to be reading the latter provision to say 2 disregard the broader prohibition of 441i(a). 3 MR. GROSS: Well, you're struggling with 4 it, and I think I can understand the struggle that 5 you're having, because you can read 441(I)A and 6 441(I)D, the two provisions that I think we're 7 wrestling with here, to make a distinction between 8 the restrictions on national party operatives as 9 opposed to members of Congress, you know, Mark 10 Rashner returning a call versus Senator Kennedy or 11 Senator McConnell or whatever, and, you know, I 12 think that you could read it that way. The second 13 provision of the 441(I)D provision certainly can 14 support the proposition that the only real 15 restriction on raising money on a 501(C) 16 organization is if the 501(C) organization is, in 17 fact, engaged in Federal election activities, which 18 the host committee is not. It's particularly true 19 in the case of a 501(C)3 which may not. 20 So I think that there is latitude for 21 the Commission to read the restriction on the two, 22 imply the political party operative and the member 167 1 of Congress being the same, saying that the D 2 provisions, 441(I)D, limits the breadth of the 3 prohibition of 441(A), or, frankly, you probably 4 have the latitude to interpret some distinction and 5 a greater restriction on the national party people 6 because you do have that provision standing alone 7 in its plain way. I would opt--although it really 8 makes no difference to the national--to the New 9 York City host committee since we're not using 10 those people, but I think I'd probably just as well 11 opt for the broader interpretation and allow the 12 national party people to do it and say that the 13 441(I)D is, in fact, the operative of the two to 14 the extent there is some ambiguity. 15 COMMISSIONER THOMAS: Okay. Ms. Cronin, 16 what is your sense of what is actually being 17 planned for letting the big donors schmooze 18 with the pols--I'm trying to get back to the issue that's 19 been brought to our attention that maybe we need to 20 retrench here and go back to a tougher standard 21 when it comes to raising--letting the host 22 committee raise this kind of money. You're here. 168 1 You know what's going on. Can you give us a candid 2 assessment to what extent that kind of schmoozing 3 is being contemplate and why it's not a problem if 4 it is being contemplated? 5 MS. CRONIN: Well, I can tell you, 6 frankly, that at the present time, there has been 7 virtually discussion about schmoozing 8 opportunities. My expectation is that some big 9 donors that have relationships on their own with 10 politicians or other corporate CEOs who might be 11 visiting Boston at that time will do some 12 schmoozing, and there are many of our corporate donor 13 who will have little if no interest in schmoozing 14 with some of the politicians that will be visiting 15 Boston. 16 So in terms of any organized effort to 17 provide schmoozing opportunities, I think there 18 will be very little of those, and I think it would 19 be fair to say that there will be some--as folks 20 alluded to this morning, there will some great 21 parties and wonderful opportunities for people who 22 know each other and like each other to socialize. 169 1 COMMISSIONER THOMAS: And also just from 2 the practical perspective, do you agree with the 3 basic assessment that's being presented to us by 4 folks at the Campaign Finance Institute and Center 5 for Responsive Politics that the basic reason the 6 party committees are so anxious to have a really 7 big successful convention that gets a lot of 8 attention is because it does allow a focus on the 9 putative nominating the person that's basically 10 understood to be party's nominee heading into the 11 general election, and it really is a very important 12 election-related function to try to give a spin, 13 positive spin, into the general election, so that 14 it really is a very crucial component of national 15 party conventions? 16 MS. CRONIN: Well, let me respond in a 17 couple of ways: Number one, I know Mr. Sandler 18 will be testifying this afternoon and can certainly 19 speak much better that I can to the motivations and 20 purposes of the national party, although I could 21 note, as I'm sure we would all have to, that over 22 the past several years, the viewership of national 170 1 conventions on television has steadily declined, 2 which would suggest that the convention itself in 3 terms of an electoral role is very insignificant, 4 if non-existent, in the process. 5 With respect to the host committee, I'll 6 come back to the points I made in our written 7 submission and in my earlier statement, which is 8 that we do not view this activity as partisan in 9 any way or supporting any kind of political party, 10 and, indeed, as you might expect, given 11 demographics, many of our most generous corporate 12 donors are not Democrats and would not be choosing 13 to participate in this event, financially or 14 otherwise, if they viewed it as a partisan activity 15 that might support the Democratic candidate. 16 COMMISSIONER THOMAS: Your point about 17 TV viewership makes me--I just have to imagine that 18 right now probably going through the minds of some 19 of the party planner is given the success of 20 reality TV, we've got to find a way to work in 21 having someone wrestle with a snake or something in 22 or a bug at the convention in order to draw the 171 1 audience. 2 MR. CRONIN: We're writing that down. 3 COMMISSIONER THOMAS: Thank you. 4 COMMISSIONER McDONALD: As a Democrat, 5 I'm not interested in us having reality TV. 6 CHAIR WEINTRAUB: Thank you, 7 Commissioner Thomas, I think. 8 Commission Toner. 9 COMMISSIONER TONER: That would be one 10 realty program I would watch. 11 Thank you, all of you, for being here. 12 I really appreciate it. 13 I wanted to start, Ms. Cronin, with you. 14 There was a panelist earlier today who basically 15 said that for Federal office holders like Senators 16 Kennedy and Kerry who raised soft money for the 17 Boston host committee, that that is breaking the 18 law. I have to say that based on what I've heard 19 thus far, I don't agree with that analysis, but I 20 take it you don't either. 21 MS. CRONIN: No. No, we don't. We 22 think that--I mean, the testimony was just simply 172 1 incorrect, incorrect as a matter of law, number 2 one. There's nothing in--certainly FECA doesn't 3 compel that conclusion. There's nothing in BCRA 4 that compels that conclusion, and I do want to make 5 a point, particularly with respect to Senator 6 Kennedy who has been so active, and the host 7 committee is so grateful for his efforts. As you 8 can well imagine Senator Kennedy, having been our 9 United States Senator for close to 40 years, has 10 been very active in raising money for so many 11 community activities in the Commonwealth, and this 12 is another one of those activities, and he was 13 a--you know, as I recall, several of our Democratic 14 politicians were very committed with the mayor in 15 attempts to recruit the Republicans to come to 16 Boston as well. 17 So it was really viewed as a real 18 effort, as a boost to local economy. 19 COMMISSIONER TONER: And there's been 20 some discussion here about the various statutory 21 provisions, and just following up, would it be fair 22 to say that you don't even view this as a close 173 1 question about the ability of these officer holders 2 to raise money? It's clear in your view that it's 3 not a problem? 4 MS. CRONIN: It's absolutely clear, and 5 I might add much of this discussion is, of course, 6 very interesting and valuable from an academic 7 perspective. 8 COMMISSIONER TONER: You're very 9 generous. 10 MS. CRONIN: Thank you. But with all 11 due respect to all of us, both on that issue and on 12 the issue of corporate contributions to host 13 committees, BCRA is unambiguous. It could not be 14 more clear in the language, in the express language 15 of BCRA, that there is no change contemplated by 16 the--should be no change contemplated by the 17 Commission on these issues. Congress engaged in 18 significant debate and legislative consideration of 19 these issues, and for all the talk about intentions 20 of certain individuals within Congress, as we all 21 know as a matter of law, intent is only an issue if 22 the statute is ambiguous, and of course the statute 174 1 is not ambiguous in any way. It couldn't be more 2 clear. 3 COMMISSIONER TONER: Mr. Gross, do you 4 concur on that analysis. 5 MR. GROSS: Yes, I concur. In fact, I 6 think that really what the proponents of that 7 interpretation or the proponent of that 8 interpretation almost concedes that BCRA has no 9 effect on this. They really are retreating to 10 441(B) and the in-connection prohibition of 441(B) 11 and trying to basically re-interpret what has been 12 the law since 1976, because there's just nothing in 13 BCRA to now support that prohibition on officer 14 holders raising money. 15 COMMISSIONER TONER: Mr. Hong, you 16 indicated in your opening statement that you oppose 17 mandatory audits of the host committee, and I just 18 wanted to explore that with you. Is that because, 19 in your view, the Commission's statutory authority 20 to do mandatory audits is limited to entities that 21 use public funds? 22 MR. HONG: Yes, it is. I know there is an 175 1 argument that whatever--if the host committee 2 inappropriately uses funds, that that could be an 3 improper expenditure on the public money side, but 4 to tell you the truth, that's true with any 5 corporation that engages--even corporate vendors to 6 Presidential campaign. If they make improper 7 expenditures, that can be viewed as an improper 8 expenditure for public money purposes, but you 9 don't see the FEC auditing these third-party 10 corporations for that. 11 So the audit should be limited to the entity 12 that actually accepts the public money. 13 COMMISSION TONER: Is it then, likewise, 14 your view that we wouldn't have a statutory basis 15 to be doing automatic audits of municipal funds? 16 MR. HONG: That's correct, because it 17 does not have public monies. 18 COMMISSION TONER: Public money from the 19 Federal Treasury, and given that that is not--they 20 don't spend that money, we wouldn't have statutory 21 authority to audit them automatically? 22 MR. HONG: Well, it would have to be 176 1 from--that's correct--funds that are provided for 2 this purpose. I mean, obviously cities need 3 Federal grants to build highways and the like, but 4 that would not be enough to audit them. 5 COMMISSIONER TONER: Mr. Gross, in terms 6 of the locality requirement that's been on the 7 books for a long time here for contributions to 8 host committees, as I understand your argument, 9 your view is that it no longer has a rational 10 basis, and one of the arguments on the other side 11 in the debate is saying, Well, basically the 12 Commission has relaxed this over the last 10 or 15 13 years; there's been a lot of exceptions to this 14 general rule, and then basically you get to the 15 same point, basically people can freely contribute 16 even if they don't live or do business right in the 17 convention city. 18 First of all, I wanted to get your 19 thoughts on whether that's true in your viewpoint 20 or whether actually there are still meaningful 21 restrictions in this locality requirement. 22 MR. GROSS: I don't think it's entirely 177 1 true, and some of those liberal interpretations are 2 not readily available. Again, they're is sort of 3 made as part of an audit process, but they're not 4 memorialized or made in part of a rulemaking or 5 advisory opinion, and we have to vet every 6 contribution that comes through the door, corporate 7 or individual. You know, there are presumptions 8 that apply to certain types of contributions, but 9 there are individuals who simply don't work or have 10 business interests in a particular area or live in 11 the particular metropolitan area, whether it's New 12 Haven, Northern Pennsylvania, or whatever it may be 13 that don't live there or have business interest or 14 work there, and they want to participate, and 15 you've got a problem. 16 So I don't--I mean, I wish I could say 17 that the rule has fallen apart and there's nothing 18 there, but as far as we're concerned, we're dealing 19 with restrictions. 20 COMMISSIONER TONER: Is your bottom line 21 that you just don't see any rational reason for us 22 to retain this rule? 178 1 MR. GROSS: That's right. At this 2 point, I just don't see any rational reason. I 3 mean, I understand why people from that area would 4 be the main contributors, and that's what's going 5 to happen as a practical matter. We're raising our 6 money naturally from people who are in New York, in 7 the New York area who have interests in New York, 8 but there are people, and, frankly, since September 9 11th, who have a greater interest in New York from 10 outside of the area and the rebuilding and recovery 11 of what has become a national symbol in many ways 12 to help and participate in the host committee in 13 this effort. 14 COMMISSIONER TONER: Ms. Cronin, do you 15 agree with that? 16 MS. CRONIN: I do, and I want to pick up 17 on a statement someone made this morning about the 18 enhanced difficulty for a city like Boston that's a 19 bit smaller than New York. In the current age we 20 live in, and we addressed this a little bit in our 21 written comments, this local requirement, which I 22 should note I don't think is really supported in 179 1 any way by language in the statute. So if we start 2 there--it was obviously compelled by statutory 3 language--the issue would be quite different. 4 Assuming for the moment it's not, which is what we 5 believe, the local requirement is just not 6 realistic in the global economy that we are 7 experiencing today, and we all know that with 8 technology being what it is, it's very conceivable 9 for--this is a great example of a financial company 10 that really has principal offices--that has offices 11 in California, no offices in Boston at all, is 12 servicing a lot of activity in the Boston area, as 13 one example. And given technology being what it 14 is, it is no longer the case that companies have 15 physical offices located in areas that they have 16 business interests. 17 And we would suggest for that reason, 18 that kind of requirement is just not--we would urge 19 the Commission to expand it. 20 COMMISSION TONER: Thank you, Madam 21 Chair. 22 CHAIR WEINTRAUB: Thank you, 180 1 Commission Toner. 2 Commissioner McDonald. 3 COMMISSIONER McDONALD: Madam Chair, 4 thank you. 5 Welcome. It's good to see you all. Let 6 me ask just a couple of fundamental questions that 7 at the end of the day it appears to we we're going to have to 8 address. I'd like to start, Cheryl, with a notice 9 question, because I thought you cited at the outset 10 that it was very important. It's ironic that the 11 first panel really didn't touch on it much, which 12 kind of surprised me in a way, because it is the 13 most disconcerting aspect of this process. It's 14 very difficult at this juncture, it seems like to 15 me to change much of anything at this stage. It's 16 just too far down the road. I don't know who is 17 responsible for this. I do know who is 18 responsibile. It's ours, and we're not there, 19 and so it's a very uncomfortable position for the 20 Commission I think to be in. 21 But I am interested, because you cited 22 at the outset what you were and were not doing in 181 1 relation to the party itself, and obviously what 2 people are asking, I mean what brings us here, is 3 what that relationship is. Have you participated 4 in other host committee activities for other events 5 in Boston, or is this your first round? 6 MS. CRONIN: You mean for-- 7 COMMISSIONER McDONALD: You yourself. 8 MS. CRONIN: I have participated. I 9 actually happen to serve--I am a member of the 10 Massachusetts Convention Center Authority, and as 11 you may know, Boston is building a convention 12 center which is scheduled to open in the summer of 13 2004. So in addition to being counsel to this host 14 committee, I have a very significant interest, as 15 do many other people in creating Boston as more of 16 a niche for national and international tourism. So 17 I'm quite familiar with the notion of hosting 18 entities and luring tourists to Boston. 19 COMMISSIONER McDONALD: And how long 20 have you been doing such a thing? 21 MS. CRONIN: Well, on this particular 22 convention center, I've been serving since 182 1 December, but have been, you know, an active member 2 of lots of other community activities for many 3 years. 4 COMMISSIONER McDONALD: Have you 5 resolved the big dig yet? 6 MS. CRONIN: The big dig is an 7 engineering marvel. 8 COMMISSIONER McDONALD: Marvel? 9 MS. CRONIN: An engineering marvel. 10 COMMISSIONER McDONALD: I thought maybe 11 I misunderstood. 12 MR. CRONIN: No. An engineering marvel, 13 and I think that the delegates who come to Boston 14 next summer will just be fascinated by it, and it 15 will not obstruct any activity whatsoever. 16 COMMISSIONER McDONALD: Well, in 17 relationship to public funding, you would have to 18 admit it cost a lot less to run the 19 convention. 20 MS. CRONIN: That would be our goal. 21 COMMISSIONER McDONALD: And a laudable 22 goal, it is. 183 1 It does bring up the question, though, 2 in relationship to kind of what we're confronted 3 with. Let's go to the locality issue for just a 4 second, and any of you are free to participate as 5 you see fit. If we're saying on the one hand that 6 notice is a problem, and I happen to think 7 it's a monumental problem that we just cannot get 8 over, then in relationship to other matters, 9 locality being one of them, whether it's practical 10 or not practical, it seems like it would be odd for us 11 to say, Well, we're not really changing the rules 12 this time because it's too late to process, but, 13 Oh, yeah, locality is something that we ought to go 14 ahead and change. And I happen to think at this 15 juncture, quite frankly, after having been here a 16 while, that it probably is time to change that, 17 because it is a, quote, national convention, and 18 the world is changing pretty dramatically. 19 But I'm just wondering in those areas 20 that any of you have advocated that we ought to 21 take another look at, are you of the same opinion 22 that as a practical matter, we can't change those 184 1 either because that's where we are? It seems like 2 we ought to do it one way or the other. 3 MS. CRONIN: Well, actually, here's the 4 difference. Here's why we argue to you that 5 changing the local rule now would be appropriate, 6 and again, getting back to the fact that there's no 7 statutory language which compels the limitation, 8 and I think if you look straight at the facts 9 related to us, we have a hundred-plus page contract 10 with the DNCC and the Fleet Center as well is included in 11 the contract because that's where the convention is 12 being hosted. That contract has attached to it a 13 budget, and the budget, which is a part of our 14 contractual obligations, requires us to pay for 15 certain expenses. The expense changes that are 16 included in the notice undercuts our contractual 17 obligations. 18 On the other hand, it does require us to 19 raise contributions consistent with the law. So 20 the reality is you could change the local 21 requirement, make no change on the expense side or 22 other activities, and it would leave all the 185 1 parties in the position they should be for the 2004 2 cycle, which is you haven't engaged in any 3 rulemaking effort that undercuts in any way 4 anybody's legal or contractual obligations, which, 5 frankly, is the position I'd expect you would want 6 to be in as well. 7 MR. GROSS: Well, a relaxation of the 8 rule doesn't present the notice problems that a 9 tightening of the rule does. So for that reason, I 10 think you have the leeway to do that. 11 COMMISSIONER McDONALD: I see one or 12 both of you have been hired. And I do think that's 13 a good point too. 14 Let me just ask Ki real quickly, and I 15 know he did kind of wrap up with what I think is 16 the answer myself. In relationship to the ability 17 of this commission to proceed against a host 18 committee for something it might have done in terms 19 of enforcement matters, you're not of the opinion 20 that we couldn't proceed, are you? 21 MR. HONG: No. 22 COMMISSIONER McDONALD: I just wanted to 186 1 be sure. I thought you said that kind of in 2 conclusion, but obviously I would think there would 3 be scenarios and things, as you indicated, where 4 things were not permissible and the Commission would 5 have the authority to do that. 6 MR. HONG: That's correct. 7 MR. GROSS: And conduct a for cause 8 audit. 9 COMMISSIONER McDONALD: Ken, for you 10 just a second, because I'm just interested in it, 11 why is it, do you think, or you'll know, and what 12 is the thought in relationship not asking office 13 holders to participate in the New York project? 14 MR. GROSS: Why hasn't the New York--we 15 haven't really seen the need to do it in terms of 16 how we structured our financing and request for 17 money. That does not mean that the mayor is not 18 involved, although actually his involvement has 19 been somewhat limited because we recently had to 20 get an opinion from the conflict of interest board 21 in New York City regarding the ability of the mayor 22 to raise money, a rule that Mayor Menino doesn't 187 1 have to deal with. 2 So we have been pretty circumspect about 3 the involvement of public officials, and I think 4 it's just been a dynamic of our structure for 5 fund-raising. 6 COMMISSIONER McDONALD: In these 7 sensitive times in terms of money and the 8 difficulties everyone is having, couldn't Mayor 9 Bloomberg just underwrite the convention? 10 MR. GROSS: People have suggested that 11 for the deficit. So I don't think he's inclined to 12 do that. 13 COMMISSIONER McDONALD: Just a thought. 14 Thank you all for coming. I appreciate 15 it very much. 16 CHAIR WEINTRAUB: Thank you, 17 Commission McDonald. 18 Mr. Vice Chairman. 19 VICE CHAIRMAN SMITH: Thank you, Madam 20 Chair. 21 Mr. McDonald already asked my question 22 about the big dig. I think it's interesting you 188 1 call it an engineering marvel. I understand it's 2 actually it's like God. It's eternal, all 3 encompassing, and complex beyond human imagination. 4 But I do have some questions, actually, 5 for Ms. Cronin here. You mention in your testimony 6 without specific examples of companies that many 7 events in the past are supported by companies and 8 individuals from diverse locations who are 9 recognized in participating in such grand events, 10 etc. Okay. You heard Mr. Weissman this morning, 11 and you've talked very generally about this civic 12 motivation, but why would companies without a 13 significant local presence, why do they make these 14 contributions to these host committees? 15 MS. BURNS: If I could go ahead and 16 answer that. 17 VICE CHAIRMAN SMITH: I was thinking 18 about suggesting that you should get in here. 19 MS. BURNS: I beg the Commission's 20 indulgence. I am neither a lawyer nor an FEC 21 expert, so you'll have to bear with me. 22 COMMISSIONER McDONALD: That's a 189 1 criticism of me, by the way. 2 MS. BURNS: In terms of the fund-raising 3 we've done, a lot of companies have come to us, 4 approached us about getting involved with the host 5 committee. We've had to either hold off or say no 6 because of their geographic location. 7 As Ms. Cronin mentioned, a lot of 8 companies who might not have a physical presence in 9 Massachusetts do a lot of business in Massachusetts 10 and would like to participate. Certainly, a lot of 11 CEO attended our great colleges and universities. 12 They might have a hometown tie to the state. There 13 are several CEOs of companies that are located in 14 other parts of the country who grew up in 15 Massachusetts who are interested in supporting our 16 convention because it's going to take Boston to 17 sort of a different level on the playing field in 18 terms of becoming a bigger, better city, a world 19 class city, and enabling us to compete with the 20 Atlantas, the Chicagos, the DCS for future events. 21 VICE CHAIRMAN SMITH: What if they don't 12 meet those criteria; they don't have a tie, they didn't go to 13 school in 190 1 Boston or Cambridge. 2 MS. BURNS: I'm sorry? 3 VICE CHAIRMAN SMITH: What if the donor 4 doesn't meet those criteria, doesn't have a 5 personal tie to Boston? 6 MS. BURNS: Well, again, it's with the 7 physical location of an office, and just because, 8 as you mentioned, they don't have a physical office 9 there doesn't mean a large portion of their 10 clients, their customer base might be in 11 Massachusetts. 12 MS. CRONIN: Frankly, we think that 13 there are very few companies that don't have some 14 tie or some interest in developing business 15 activities in the Boston area. And I also want to 16 make one observation. 17 VICE CHAIRMAN SMITH: Does the 18 convention help more than just taking out a million 19 dollars in advertising? 20 MS. CRONIN: My experience with 21 corporate clients is that corporations look for all 22 kinds of ways to be members of the community in 191 1 which they want to transact business, and some of 2 it is advertising. As we all know, they have 3 advertising budgets. They have foundation budgets. 4 They have community participation budgets, and I 5 also think--this is a point that was raised this 6 morning: Now more than ever, it is important that 7 host committees can enjoy the support of corporate 8 funds, unlike--and, frankly, this may be somewhat 9 of unique times. As you know, many states are 10 facing very difficult fiscal situations. 11 Massachusetts has a $3 billion fiscal deficit this 12 year. We know that--the host committee knows that 13 there for the most part will be little, if any, 14 state or city funds available to us to host this 15 great convention, and for that reason, it is all 16 the more important that corporate funds and 17 corporate entities have stepped up to the plate to 18 support things like this convention, support other 19 activities, support after-school programs, all the 20 kinds of things the private sector generously steps 21 up and does at times when fiscally the state of 22 municipalities cannot do so. 192 1 VICE CHAIRMAN SMITH: Thank you. 2 Let me go direct to you, and then I'll 3 got to Mr. Gross. How do you respond to the 4 argument of the Center of Responsive Politics in 5 its written comments and from Mr. Sanford this 6 morning that host committees are agents of the 7 party from the moment the party selects the city as 8 the convention site? Let me add a wrinkle to that. 9 To some extent, Mr. Gross, you addressed 10 that a bit in your opening comments, but you 11 suggested there was tough negotiations going on. 12 Aren't they tough negotiations over the terms of an 13 agency contract? 14 MR. GROSS: Well, we are operating as 15 our own entity with our own director, our own officers. 16 We are raising money in our own capacity, and these 17 provisions were bargained for, certainly, over a 18 contract, and I think--I don't think that does 19 create an agency relationship necessarily unless 20 there is an actual agency authority that's being conferred 21 in contractual terms or implied; and here, there 22 really is no indicia of it in the way it operates, the 193 1 way the city operates. 2 I think it's fair--the host--and one of 3 things we're struggling with here is that the host 4 committee and the Republican National Committee 5 have divergent interest in this convention, but 6 more or less common goals. We both want a great 7 convention because it will serve New York City well 8 to have a great convention, whether it was the 9 ophthalmologist or whether it was the Democrats, 10 the Republicans or anybody else, and we very much 11 want that. 12 Our divergent interests are that we have 13 a commercial interest in this convention and 14 attracting business and a certain amount of revenue 15 that it brings in displaying the city in a way that 16 we want it to be displayed where their interests 17 are political. And I think all those facts 18 supported by the way the committees operate, the 19 way they're structured, the way they're governed, 20 support factually that we are not acting in an 21 agency capacity. 22 VICE CHAIRMAN SMITH: Ms. Cronin. 194 1 MS. CRONIN: I would just echo that, 2 that there's nothing factually. For all the 3 suppositions this morning about what host 4 committees really are about, our host committee is 5 not an agent in any of the DNC, and, you know, I 6 think if you participated in some of our 7 discussions, it would be abundantly clear to you 8 that we see things differently sometimes; we have 9 some different interests; and this is--it's by no 10 means an adverse relationship, although in certain 11 small issues, it could be. You can imagine some 12 areas of disagreement, but it is not in any way an 13 agent relationship. 14 VICE CHAIRMAN SMITH: When you aid that, 15 Mr. Gross kind of started to say what the heck are 16 you talking about, when you said it's no way an 17 adverse relationship. 18 MS. GROSS: Oh, no. 19 VICE CHAIRMAN SMITH: That made me 20 forget the follow-up I wanted to ask on that. I'll 21 take that. 22 Let me ask a couple quick questions, 195 1 then, to Mr. Hong who was talking about audits. So 2 you would agree, though, I take it that--or would 3 you not agree that the Commission could do a for 4 cause audit of host committees? 5 MR. HONG: Yes, I would agree. Even 6 there, it's not quite clear, because if you look at 7 FECA, even for cause audits, it's to political 8 committees, and we're not a political committee, 9 but we would concede that for cause audits would at 10 least come close to that section, and we would 11 accept the for cause audit. It's these automatic 12 audit which we really can't find a basis for. 13 VICE CHAIRMA SMITH: Can you--assuming 14 we can do the for cause audits--so you generally 15 agree while hedging your bet, but reserving the 16 right to rescind later, it sounds like. I mean, 17 what would be a situation where there would not be 18 justification for a for cause audit of a host 19 committee? Would there always be justification for 20 a for cause audit, and that being the case, does 21 this issue really matter, or am I wrong on my 22 supposition? 196 1 MR. HONG: Well, a for cause audit would 2 be triggered if the commission had some information 3 that a violation was going on or that we were 4 accepting contributions outside of the metropolitan 5 area or we were making part impermissible 6 convention expenditures, and without that 7 information, a for cause would not be justified. 8 MR. GROSS: I may have started us down 9 this for cause audit, and I'm starting to regret 10 it, but the way the Commission conducts for cause 11 audits under the statute, the random audits were 12 be eliminated as a possibility. Based on the 13 reports filed and the reason why I thought there 14 might be some intersection even though the host 15 committee is not a political committee, is because 16 we file reports. We're disclosing. And if the 17 reports themselves trigger through some point 18 system, if you will, a basis for a for cause audit, 19 then it would be a basis--then that's how it would 20 get triggered. If there was an issue regarding an 21 isolated contribution, whether it was inside or 22 outside the metropolitan area, if that was the 197 1 rule, or some other possible violation, that would 2 presumably get handled as part of enforcement if 3 there was an illegal contribution made or something 4 like that. 5 But I think as an audit matter, it would 6 be based on the reports filed with the FEC. 7 VICE CHAIRMAN SMITH: Okay. And the 8 last question if either you want to respond to a comment Mr. 9 Sanford made this morning when I asked him about the 10 agency relationship. In fact, he responded to your 11 testimony, Mr. Gross, which he said, Well, this is 12 a totally unique relationship that can't be 13 analyzed like a sort of contract or agency 14 relationship. I just wondered if you had any 15 response to that, if you caught that part of his 16 testimony. 17 MR. GROSS: I may want to at some 18 point--I mean, I don't know. I mean, agency is 19 an established area of law. Some of us took it in 20 law school, and you create an agency through either 21 an implied or apparent authority or actual 22 authority. So I don't know really where he's 198 1 getting that in that respect. 2 VICE CHAIRMAN SMITH: Mr. Hong. 3 MR. HONG: And if I can add to that, the 4 agency has--we're throwing around this word 5 "agency" like we were in law school, but the 6 Commission has already decided that agency means 7 anyone who is acting with the authority to solicit 8 funds on behalf of the RNC or a party committee. 9 Now, first of all, these vendors--I'd 10 like to call it a vendor relationship, because 11 these really work like that. You know, there's 12 exchange of consideration. This would survive any 13 contract class, and vendors are not agents, and 14 they're at most independent contractors; and, in 15 fact, if you were to say that we're vendors, I 16 think you would have to say that for any kind of 17 vendor that an RNC--that a party uses, including 18 computer companies, and you would have to regulate 19 and make sure they don't take in soft money, you 20 know. You've have to worry about how they're 21 making their money, and I think we have to narrow 22 this down to what we're looking at. 199 1 We're looking at do we have the 2 authority, implied or otherwise, to raise funds on 3 behalf of the party committee, and there's nothing 4 here showing that. We're raising money for 5 ourselves. We have divergent interests, as Ken 6 mentioned earlier, and there's just no indication 7 of it. 8 MS. CRONIN: If I could just add to 9 that, both with respect to the narrow question of 10 the agency between--agency issues is between host 11 committees and national political parties, but also 12 as a very general matter, the notion of agency 13 in some ways is an extraordinary one because what 14 it does is serve to hold an entity or individual 15 responsible for the conduct of another entity or 16 individual, and it's a very slippery slope to get 17 on to begin to--you know, without some established 18 facts to begin to suggest that someone is 19 responsible for somebody else's conduct or some 20 entity is responsible for somebody else's conduct. 21 The facts--we would urge you not to go 22 near that slippery slope at all, and in particular, 200 1 we would say to you that our experience is that 2 host committees are simply not agents of national 3 political parties. They just as a matter of fact 4 do not operate in that way. 5 VICE CHAIRMA SMITH: Thank you. 6 CHAIR WEINTRAUB: Thank you, Mr. Vice 7 Chairman. 8 I just have a couple questions. Let me 9 state at the outset that I think Boston is already 10 a world class city. 11 MS. CRONIN: We do too. 12 CHAIR WEINTRAUB: I'm sure you do. 13 And I also wanted to clarify something that 14 Commissioner Toner said earlier. You had asked 15 about whether they agreed, and they didn't, with 16 Paul Sanford's conclusion that Senators Kerry and 17 Kennedy have already violated the law in soliciting 18 Soft Money for the host committees, and a conclusion 19 that both of you disagreed with, as well as you, 20 but I think that by the end of the testimony this 21 morning, even Mr. Sanford had retracted that 22 conclusion under penetrating questioning by our 201 1 general counsel. So I didn't want to leave that 2 impression out there, because I also agree that I 3 don't think they violated any law. 4 I was struck when I was reading your 5 comments, your testimony, your written testimony, 6 all of you, with the repeated use of the word sole, 7 S-O-L-E. "The host committee's sole purpose is the 8 well-being of the city." And, Mr. Gross, you 9 talked about the divergent interests which, while 10 I'm always reluctant to get into mathematical terms 11 as a humanities major, I think perhaps congruent 12 interest might be a more accurate description or 13 parallel interests. Perhaps the motivations aren't 14 entirety the same for the host committee as they 15 are for the party committees or for the donors, but 16 do all sort of lead in the same direction. 17 MR. GROSS: That's what I meant by 18 divergent interest, but common goals, and I think 19 that's where that--you know, where that overlap 20 comes in. 21 CHAIR WEINTRAUB: You don't need to 22 apologize. I just wonder if you're sort of 202 1 overselling your case a little bit. It sort of 2 reminds me a little bit of Casa Blanca where 3 Captain Renois is saying, I'm shocked to discover 4 politicking going on at a national convention. I 5 mean, don't you think--with all due respect to 6 everything you've said about the separate entities 7 involved, don't you think that a lot of your donors 8 really are motivated by helping out political 9 parties? Maybe not every single one of them, but 10 are you really prepared to sit here and say that 11 none of them are motivated by political interests? 12 MS. CRONIN: Well, let me answer that in 13 a couple of ways. Number one, with respect to our 14 corporate donors, I actually believe that we are 15 not overselling our case, that the truth is that 16 they would have been just as generous if the 17 Republicans were coming to town, that and certainly 18 for most of these corporations, they have senior 19 executive teams. The contribution would not have 20 gotten through that team were this viewed as 21 partisan in any way. 22 Here is what I think is occurring, which 203 1 may satisfy you. I hope it might. It is certainly 2 the case that in Massachusetts, as in most other 3 places, there are individuals and companies who are 4 working closely with the host committee whose 5 activities we would say are not partisan. There 6 are also other individuals who are not so active, 7 who are not active with the host committee, who 8 have long been active with the national political 9 party committee on the Republican side or the 10 Democratic side, and I anticipate that they will be 11 focusing their activities over the next few years 12 on national political party activity, and they are 13 not--they don't work with the host committee, which 14 is a separate entity. 15 There are also issues, as you can well 16 imagine--because we do happen to have in 17 Massachusetts a presidential candidate--there are 18 individuals who reside in Massachusetts who are 19 wonderful and have elected instead of dedicating 20 their efforts to the host committee or some other 21 community effort, they're spending their time over 22 the next months supporting a Presidential 204 1 candidate. So certainly it is the case that there 2 are--and as you well know, Massachusetts is a very 3 politically active state. There's no denying that. 4 There are many individuals there who--who made 5 choices as to how they're going to spend the next 6 year or two in terms of their time. Some folks, 7 some have decided to participate in host committee 8 activity. Some have decided to participate in 9 local party activity. Some have decided to work on 10 Mac world, which is coming to town at some point, and 11 some have decided to support Senator Kerry's 12 efforts, and some have decided, my goodness, to 13 support the efforts of other Presidential 14 candidates. 15 So despite living in Massachusetts, we 16 have a range of activities going on, but the host 17 committee activity, I believe is truly non-partisan 18 and not dedicated to any particular candidate. 19 CHAIR WEINTRAUB: But surely there's 20 some--and I'll give you a chance in a second. 21 Surely there's some overlap in those categories . 22 MS. CRONIN: Absolutely. 205 1 MR. GROSS: I think trying to dissect a 2 motivation of every donor is a little bit of a red 3 herring. I think the point that I wouldn't concede is 4 that the activities of the host committee are 5 activities in connection with Federal elections. 6 They are not. 7 The fact that some donor may be 8 motivated to give because he's thinking of the 9 convention or the Republican party that happens to 10 be doing its convention is really not the problem. 11 It wouldn't be a violation anyhow, and I don't 12 think it's the issue. I can't speak for the 13 motivation of every donor or who Mr. Weissman may 14 be interviewing in 2004 or '5 for his next study 15 and what they may almost flippantly say about why a 16 particular donation was made, but we are 17 circumscribing the activities of the host committee 18 in a way that do not characterize it as Federal 19 election activity, and I think that does withstand 20 the scrutiny. 21 MR. HONG: Just to add to that, when we 22 use the word "sole", what we're talking about is 206 1 the purpose that the host committee has, and that 2 we can tell you. The sole purpose for doing this 3 is to promote the city, and I think you raise a 4 great question, because this underlies the 5 local--the metropolitan area question as well. As 6 Ken mentioned, the purpose of the donors is a red 7 herring here, because the purpose of the donor 8 shouldn't matter. What should matter is what the 9 purpose the host committee is, and I can tell you 10 factually when we do deal with donors, a lot of 11 them is truly civic purpose. That's their purpose. 12 MR. GROSS: Our donors have soul, 13 S-O-U-L . 14 MR. HONG: That's right. 15 CHAIR WEINTRAUB: I was waiting for 16 somebody to say something about that, or in the 17 case of Massachusetts, they eat sole. Right? 18 I'm sorry. That was really bad. 19 Let me ask you, all of you, for 20 comment--and I don't know. I'm sure you don't have 21 it in front of you, but the CFI study proposed 22 several ideas that you may want to opine on. They 207 1 have suggested that local and state governments 2 should report in more detail about their direct 3 expenditures, and those reports should be 4 publically available. This is on page 16 and 17 of 5 the CFI study, the CFI testimony. They suggested 6 that privately sponsored municipal funds file 7 disclosure reports similar to host committees. 8 They suggested that host committees include in 9 their disclosure reports summary information 10 distinguishing between private and local or state 11 government contributions, and that host committees 12 municipal funds and local and state governments 13 disclose their itemized expenditures in terms of 14 categories of municipal spending found in 15 Commission regulations. 16 And I was wondering if any of you would 17 like to comment on the advisability of any of those 18 suggestions. 19 MR. GROSS: I saw those recommendations. 20 I was a little curious about them, because you do, 21 in fact, report. I mean, if the City of New York 22 provides police, transportation, security, that 208 1 gets disclosed as an in-kind contribution, and it 2 is from the City of New York or from the State of 3 New York if we're putting tags on cars donated or 4 something like that. So it is disclosed, and it 5 is--and you can tell whether the source is private 6 or private by looking at the report. 7 I mean, if you look at the Philadelphia 8 reports, for example, they had all the in-kind 9 donations between the City of Philadelphia and the 10 State of Pennsylvania. Then they had the direct. 11 In that case, they were direct payments which I 12 think both of our cities are, you know, not dealing 13 with right now. 14 And so I'm not really sure what is not 15 in the FEC report currently that is concerning 16 them. It seems to me almost all of the points that 17 they raise, if not all of them, are in some fashion 18 addressed under the current law. 19 MS. CRONIN: I agree. 20 MR. GROSS: That's the advantage of 21 going second. 22 CHAIR WEINTRAUB: That's right. She 209 1 can just say I agree. 2 I'd like to ask you, Mr. Gross and Mr. 3 Hong, about sort of a fine legal point. The issue 4 of the timing, probably the strongest argument for 5 our delaying implementation of any regulations that 6 we might issue is that they're not mandated by 7 BCRA, but put that aside for a moment and assume 8 that we come to the conclusion that they are 9 mandated by BCRA or by FECA or by something that we 10 are operating under a statutory constraint. 11 Confirming what I would have assumed from the 12 outset, that if you put the resources of Skadden Arps to work, you 13 can probably find a precedent for almost any 14 proposition out there. 15 I was fascinated by this case that you 16 came up with, Sweet v. Sheehan, which, you know, 17 came out and said that the failure to promulgate 18 final regulations before the date specified by Congress did 19 contravene the Congressional intent, but basically 20 said, you know, But we're okay with that in this 21 case. 22 I'm wondering, because I'm sure that you 210 1 did more research on the subject, is this just an 2 outlier case? Are there other cases out there that 3 say we can go around contravening Congressional 4 intent, and under what circumstances should we do 5 that? 6 COMMISSIONER MASON: Where were you last 7 year? 8 MR. GROSS: Ki found that case. 9 MR. HONG: Well, there aren't that many 10 cases. 11 CHAIR WEINTRAUB: I suspected not. 12 MR. HONG: But there wasn't--there 13 aren't that many cases that says this. There 14 aren't that may cases where this question was 15 addressed, and that's really what we found, that 16 there aren't any real cases that expressly say 17 every agency has the authority to pick whatever 18 effective date you want, but what is important in 19 that case was that this case involved both--a 20 statute that both said--that gave a deadline for 21 issuing rules as well as a deadline for the 22 effective date of the rules. 211 1 So that in this case, the law in that 2 case involving the EPA was even clearer as to the 3 effective date of the rule; whereas, in our case, 4 the BCRA, although it gives a schedule for issuing 5 rules, it doesn't give a schedule for the effective 6 date of those rules. 7 CHAIR WEINTRAUB: I have one more 8 question. I was surprised to read--again, this is 9 for the New York team: I was surprised to read in 10 your testimony and to hear you say today that you 11 actually haven't been using Federal officer holders 12 or party officials to solicit for the host committee; 13 and while I'm not asking you to name any names, I 14 was wondering what sort of people are raising money 15 for you, and are they state and local politicians? 16 Are they business leaders? 17 MR. GROSS: They are business leaders, 18 and the honorary chair of our committee is Mayor 19 Guilliani, and Lou Eisenberg has joined the 20 committee. He was the Chairof the Port 21 Authority of New York and New Jersey Port 22 Authority, has been involved in fund-raising 212 1 efforts along with many, many business leaders and 2 investment banking firms and others who are 3 typically involved in this effort, in effort of 4 supporting city activities, large investment 5 banking, insurance companies, and ones that you 6 would imagine. 7 CHAIR WEINTRAUB: Thank you. 8 Commissioner Mason. 9 COMMISSIONER MASON: I wanted to go back 10 a little bit to Commissioner Smith's questions 11 about agency and co-purpose. We covered it quite a 12 bit, but I thought it was actually Paul's strongest 13 argument, and just ask again, for you attorneys, it 14 seemed to me he was describing--you suggested vendor 15 relationship. Another argument might be a joint 16 venture, and we've seen a few of those at the 17 Commission, not really making agency 18 determinations, making other determinations; and I 19 just wondered as a legal matter is that fact that 20 you're engaged in a joint venture make the two 21 co-parties to the venture agents of one or the 22 other? 213 1 MR. HONG: Well, the Federal Election 2 Commission has addressed this in another context, 3 which are affiliated PACS or joint ventures, and 4 the FEC had made it clear that although the joint 5 venturer may be affiliated in this case, the event, 6 the convention itself, may be affiliated with the 7 host committee and the party committee. As Ken 8 said, it's the same goal with divergent interests. 9 But the FEC has made clear that the two 10 joint venturers would not be affiliated and 11 rightfully so, because they are not agents of each 12 other. They have divergent interests and they are 13 acting on their own behalf. 14 COMMISSIONER MASON: Is that consist 15 with the general principles of agency in a legal 16 term, this joint ventureship? 17 MR. HONG: It is. The joint venturers 18 in a business relationship do not become agents of 19 each other, and in the context of a vendor 20 relationship as well, when you enter into these 21 contracts, you--every contract you see involving a 22 vendor has a provision that says we're not agents 214 1 of each other; we can't obligate each other, and 2 that's the same situation here as well. 3 MR. GROSS: The fact that they're 4 competitors, none of that creates issues for this 5 specific purposes. 6 MR. CRONIN: I'd like to add one thing 7 to that. The reason why I actually don't believe 8 that this is a joint venture, normally in a joint 9 venture, two separate parties come together, really 10 driving towards the exact same goal. In this case, 11 while it is true that the host committee's 12 activities are driven in some way by the fact that 13 there's a national convention coming, of course the 14 focus of the convention committee is very much 15 those activities directly related to the 16 convention, and the focus of host committee is very 17 much all those he external activities that are much 18 more related to marketing the City of Boston and 19 the kinds of issues we've been talking about this 20 morning. 21 So I don't even think these are--this 22 could be fairly characterized as a joint venture. 215 1 COMMISSIONER MASON: I'll accept your 2 argument. I just thought Paul had a good case 3 there to the extent that, for instance, host 4 committees sometimes pay for things that are 5 integral to the convention, and you couldn't argue 6 that paying for the voting system in the convention 7 call, which is allowed, contributes directly to 8 commerce in the city other than, you know, 9 generally other than putting up the event. 10 But you've given me a sufficient 11 response on that. 12 I want to go also to the audit question, 13 because I agree there's some questions about the 14 audit, starting with Section 437 which requires 15 reports on convention financing for host committees 16 which says you have to report. It doesn't say 17 anything about audits. So there's no audit 18 authority there. 438 addresses political 19 committees, as has been suggested. So I don't 20 see--by analogy, I don't really see audit 21 authority, particularly when the reports are 22 required in a separate section, 437. I don't see 23 how we take 438 authority. 216 1 We have 9008 audit authority as to the 2 convention committees themselves, and then what I 3 think we may have overlooked is 9009(B), which is 4 the part of the overall section that provides for 5 general election and convention financing, which 6 says the Commission is authorized to conduct such 7 examinations and audits in addition to the 8 examinations and audits required by 9007, to 9 conduct such investigations and require the keeping 10 and submission of such books, records, and 11 information as it deems necessary to carry out the 12 functions and duties imposed on it by this chapter. 13 Fairly broad authority. If we can 14 construe it as related, and I assume, and I'll put 15 this in the context of myself having some questions 16 and doubts about it, that the argument has to have 17 been that there are this close relationships 18 between the host committee and the convention 19 committee. There are overlapping categories of 20 expenditures and that in order to assure ourselves 21 that the convention committee hasn't violated the 22 spending limit for impermissible contributions by 217 1 the host committee, that we need to conduct this 2 examination and audit under Section 9009. 3 Am I wrong? 4 MR. HONG: We would view this section as 5 providing--as relating back to 9008, the audit on 6 the Presidential campaigns and on the convention 7 committees, because the statute lays out specific 8 requirements for these automatic audits, and what 9 9009 does is essentially says, Well, you can go 10 outside of the stricture regarding Presidential campaigns and 11 the national parties, but we don't believe this 12 gives authority to audit third parties 13 just because there's a relationship to the event in 14 question. 15 COMMISSIONER MASON: I would agree with 16 you except that it specifically says in addition to 17 the examinations and audits required under 9007. 18 It doesn't mention 9008, but this expressly 19 advertises itself as an additional audit authority 20 beyond the audit authority which is specified as to 21 the recipients of public funding. I don't know who 22 else it could have been if it doesn't mean your 218 1 clients, because we're already auditing all the 2 candidates who receive public funding. We're 3 already auditing by statute the host 4 committee--excuse me--the convention committees who 5 receive public grants, and we have to do that. 6 We're mandated to do that. 7 Then, all of a sudden, here's this other 8 authority out there that say you can go out and do 9 whatever else you need to do--it's a pretty broad 10 grant--in order to assure compliance, and one of 11 the fundamental issues there is compliance with the 12 spending limits. 13 MR. GROSS: Well, we're not contesting 14 the authority of the Commission to conduct an audit 15 of the host committee. What we're saying is that 16 it is not mandated as the audit authority mandates 17 under 9008, and you have a corollary in the primary 18 regs and in, a public 19 funding statute in the general election public 20 funding statute, which I think has probably 21 theoretically been used to audit GELAC along with, 22 you know, the public fund funds; but the 219 1 Commission's audit authority, I would concede under 2 the circumstance. It's just not a mandate, and the 3 Commission has treated the host committee as part 4 of the public finance mandated audit program; and 5 in every other case where the Commission has the 6 authority to conduct audits in the Title II realm 7 and other non-publically financed campaigns, it's 8 been done on a for cause basis. 9 COMMISSIONER MASON: Well, it's done on 10 a for cause basis in Title II because we're 11 required to it on a for cause. 12 MR. GROSS: Well, this gives you the 13 authority--this is under the subheading 14 regulations, etc., which will also give you--if you 15 find a violation in the context of an enforcement 16 action or other such authority, it is your broad 17 authority to operate under that, but it's seems to 18 me it would be done in the fashion that you would 19 trigger other non-mandated audits. 20 COMMISSIONER MASON: Again, I don't see 21 that as necessarily following, because our 22 authority there is restricted by statute. 220 1 MR. GROSS: Perhaps you're right, but in 2 any event, it would be under some procedure other 3 than mandated procedure, and we don't--again, what 4 we're saying is you do have the authority under the 5 mandate audit provision. It would be under some 6 other construct under this provision. 7 COMMISSIONER MASON: If we conclude 8 either that we don't authority to do audits of 9 every host committee or that we don't need to and 10 shouldn't, how would we determine cause audits? 11 Because we have, as you know, well, this fairly 12 elaborate structure under Title II which doesn't 13 fit very well for the single reporting concept that 14 you have with the host committees, and I agree with 15 you that we have to distinguish this from, let's say a 16 particularly reported transactions or a particular 17 accusation that says this is an enforcement matter. 18 MR. GROSS: I don't know why you say it 19 doesn't fit well. What happens is 60 days after 20 the convention, the host committee reports--that's 21 the first disclosure to the Commission--it 22 encompasses all the activity. So instead of having 221 1 seriatim reports every six months or every quarter, 2 as you would with a normal political committee or a 3 candidates committee, you have, actually, a very 4 comprehensive report, and then the committee would 5 report periodically after that. The big kahuna 6 is that 60-day report, and if it is based on--if 7 that report, through criteria established by the 8 Commission, has an indication of systemic problems 9 through the disclosure process, that to me would a 10 rational basis to proceeding, and beyond that, it 11 seems to me if there's evidence of a violation or a 12 complaint filed, it would be handled in the 13 enforcement process. 14 MR. HONG: Also, 9009 is in--the 15 provision you cite from 9009 is in the context of 16 reporting to Congress the use of public moneys, 17 whether they were--the audit of the Presidential 18 campaigns, and so again, it ties back to those 19 committees in my view. It does not broaden it up 20 to the third parties. 21 COMMISSIONER MASON: I read it 22 differently. 222 1 CHAIR WEINTRAUB: Thank you, 2 Commissioner Mason. 3 Mr. General Counsel. 4 MR. NORTON: Thank you, Madam Chair. 5 I'll try to be brief again. 6 Mr. Hong, I wanted to follow up with you on 7 your opening remarks about expenditures the host 8 committees can make, and I think, as you know, in 9 the notice of proposed rulemaking, one of the 10 suggestions is, Well, let's do away with the 11 locality requirement, but the way we'll ensure that 12 the expenses are commercially motivated is we'll 13 tighten up the list and be a little bit more 14 specific about the dos and don'ts. 15 You have said that, no, what you really 16 ought to be doing is looking at totality of the 17 circumstances, and that's the way you determine 18 whether they've commercially motivated. And I'm 19 struggling as I was listening to you with some of 20 the examples. You argue in your submission that 21 it's appropriate to supply hotel rooms for 22 visitors, but in response, I think, to one of the 223 1 questions of the Vice Chairman, you said one 2 example of an expenditure that--or maybe 3 Commissioner Thomas--one example of an expenditure 4 that wouldn't commercially motivated is 5 transportation of the Federal candidate, you know, 6 of a Presidential candidate to the convention site. 7 And I'm wondering how we frame this test 8 in a way that makes it clear in terms of notice and 9 workable. If the test is is it going to make for a 10 successful convention, hotel rooms as much as the 11 transportation of the Presidential candidate would 12 help with that. If the test is offering to do what will 13 assist in attracting the convention to the city, it 14 seems to meet that test too. 15 So what is it in practice that 16 distinguishes the ability of the host committee pay 17 for one and not the other? 18 MR. HONG: First of all, I'd like to 19 separate the intake and the expense part, because I 20 don't want to confuse the two. When we're talking 21 about--what I'm talking about, that the expense 22 issue be allowed if they are for a commercial to 224 1 promote the city. We're talking about expenses, and 2 I don't think it really relates to the purpose of 3 the donors in giving to us, the whole locality 4 issue. 5 But setting that aside, the test is 6 whether the activity that is being paid for in any 7 way promotes the city, has a direct affect on 8 promoting the city. I think providing good hotels 9 is promoting the city, because as you all know, 10 it's not the convention. It's where you stay. You 11 know, if you have lousy hotels, you'll have an 12 awful experience and everybody, all the delegates 13 throughout the country goes back and says New York 14 is an awful place to go, which it is not; whereas, 15 if you're transporting the Presidential to the 16 convention itself, I just--there is no direct 17 promotional purpose that could be tied to that. 18 MR. NORTON: You talk about TV and 19 internet production would not be appropriate for 20 the host committee. 21 MR. HONG: Yeah, the TV, subsidizing the 22 actual production of the convention, you know, 225 1 paying for the script writers and the like, that's 2 part of the political message, and I don't think we 3 can-- 4 MR. NORTON: I'm not talking about the 5 script writers, but the production, the internet 6 production, the television production, those kinds 7 of expenses. Is that appropriate? 8 MR. HONG: I think that's a close call. 9 I think that's close call. I think an argument 10 could be made that it does promote the city, but I 11 think the traditional, the historical view has been 12 that that's not a proper expense of the host 13 committee. 14 MR. GROSS: The truth is that there's 15 been almost complete permissibility on the 16 expenditure side, other than the actual show 17 itself, if you will, you know, the production of 18 show itself during the convention itself; but as 19 far as office space for the convention, employees, 20 local transportation for convention people in 21 preparation for the convention in the city, in the 22 host committee, all that activity has been 226 1 permitted as host committee activities. 2 MR. NORTON: Well, I know. I'm asking 3 you whether analytically if it passes the test. 4 MR. GROSS: Where to draw the line. 5 MR. NORTON: Where to draw the line. 6 MR. HONG: And, again, it's not a bright 7 line. I think that's why you're asking the 8 question. You have to look at what the purpose of 9 that expenditure was. 10 MR. NORTON: Given that it's not a 11 bright line, if we have kind of an open-ended list 12 of permissible host committee expenses, and we're 13 not permitted to audit host committees as a matter 14 of course, how is it that the Commission is to have 15 any confidence that the expenditures of the host 16 committee are commercially motivated or not politically motivated? 17 MR. HONG: Well, to the same extent, any 18 violation of the Federal election laws--you're 19 essentially arguing that we should--that the 20 Commission should audit every possible violator of 21 the election law, and I know we are in a unique 22 situation, but not legally. That's the point we're 227 1 trying to make. Legally, we are a third party from 2 the national party and from the Presidential 3 campaign, and I know it's tempting to say, Well, how 4 come we can't audit you, how are we sure you're 5 going to be in compliance with the law. That's a 6 good question, because that's the same question you 7 can ask of the IBMs of the world or the GMs of the 8 world. How are we sure they're in compliance with 9 the law? Well, the answer is in the enforcement 10 process. You have to bring it through an 11 enforcement procedure. 12 MR. NORTON: Thank you. 13 Thank you, Madam Chair. 14 CHAIR WEINTRAUB: Thank you, Mr. 15 General Counsel. 16 And Mr. Staff Director. 17 MR. PEHRKON: Madam Chair, thank you 18 very much. The beauty of going last is that my 19 area of concern, which was the audit authority, has 20 been thoroughly explored, and I want to thank 21 everyone for attending. 22 CHAIRWEINTRAUB: Well, excellent. 228 1 I want to add my thanks to the panel, 2 both for waiting around all morning, and I believe 3 that you can still make your 2:30 flight. 4 I'm going to ask those of us who are 5 coming back to take a quick lunch and come back at 6 2:15. 7 COMMISSIONER THOMAS: Madam Chair, the 8 only question I didn't get in, I should ask 9 Ms. Burns in light of the fact that you sat here 10 and listened to all these lawyers, are you pretty 11 comfortable that you made the right decision not to 12 become a lawyer? 13 MS. BURNS: Yes. 14 CHAIR WEINTRAUB: The hearing is 15 recessed. 16 (Whereupon, at 1:24 p.m., a lunch recess 17 was taken, to reconvene at 2:15 p.m. this same 18 day.) 19 20 21 22 229 1 A F T E R N O O N S E S S I O N 2 (2:20 p.m.) 3 CHAIR WEINTRAUB: Okay. We're back 4 in session. 5 III. PANEL NO. 3 6 CHAIR WEINTRAUB: I am especially 7 appreciative and somewhat amazed that having walked 8 outside on this beautiful day, anybody decided to 9 come back, but we're glad to have you here. 10 We have the National--the main event, 11 the RNC and the Democrat National Convention 12 Committee. 13 Who would like to start, Mr. Sandler or 14 Mr. Josefiak? 15 MR. SANDLER: I'll be happy to start. 16 Madam Chair and Members of the 17 Commission, we very much appreciate the opportunity 18 to appear been the Commission this afternoon with 19 respect to the notice of proposed rulemaking on 20 national convention financing. Rather than repeat 21 our written comments, I did want to address some of 22 the points that have been raised in the comments of 230 1 others and in the discussion earlier today. 2 It appeared that even representatives of 3 the reform community here this morning conceded 4 that BCRA really does not apply to this situation 5 and it doesn't mandate or require the Commission to 6 revisit its rules in any way. In Mr. Weissman's 7 words, reflecting his experience lobbying on behalf 8 of McCain-Feingold, Congress made a decision to 9 get into it. I think that's a very well-put 10 accurate statement of the fact that BCRA has 11 absolutely nothing to with do with convention 12 financing, which raises the question, in Admiral 13 Stockton's words, why are we here; what is the 14 occasion for the Commission to revisit these 15 regulations after 25 years? 16 The Campaign Finance Institute in its 17 so-called study suggests that the reason is a 18 change in the factual circumstances, that the 19 Commission's--the assumptions underlying the 20 original rules that donors were politically 21 motivated, rather than--that the donors were not 22 politically motivated; rather, the donations were 231 1 civically and commercially motivated to promote the 2 image and commerce of the city, that that 3 assumption is no longer valid. 4 There's two separate points that the 5 institute made on behalf of that. First of all, 6 they point to the--on page 3 and I guess also on 7 page 2 of their report, the great increase in the 8 amount of private funding, private contributions to 9 the host committee as a proportion of the overall 10 funding, and in particular, as a percentage, their 11 chart on page 3, by comparison to the Federal 12 grant. 13 And I have a chart relating to the 14 discussion this morning. If we take a look at the 15 contributions overall in connection with the last 16 three Olympic games held in the United States since 17 1980, roughly the same period that the convention 18 regulations have been in effect, but not--excluding 19 Salt Lake because of their unusual circumstance of 20 9-11, increasing the Federal grant, we see as, in 21 fact, whereas the--according to this CFI chart, the 22 private contributions as a percent of the Federal 232 1 grant went from 13 percent to 297 percent in 1980 2 to 2000. If I use the comparable numbers, I guess 3 it should be 13 percent to 155 percent. It went 4 from 67 percent in Lake Placid in 1980 to 1,036 5 percent for the 1996 summer games in Atlanta. 6 So the institute draws from its 7 conclusions that these increases were not based on 8 the company's change in calculations and benefits, 9 but on the evaluation of what would appeal to or 10 satisfy national and other political parties and 11 elected officials. Well, if these were politically 12 motivated, why wouldn't we draw exactly the same 13 inference from this data ? The fact of the matter 14 is that the reason behind the CFI data is that the 15 costs of putting on these events have gone up 16 dramatically and the willingness in the age of 17 privatization and tight public funding and so forth 18 of government entities to pay for it has gone down. 19 That's the most logical hypothesis that they didn't 20 even consider in this so-called study. 21 Now, the second point that they make in 22 terms of the alleged change in factual 233 1 circumstances is to suggest that--and, again, 2 turning to page 7, 6 and 7 of their study, that 3 most host committee fund-raising is conduct by 4 partisans associated with the convention party. 5 Mr. Weissman went over and over this, talked about 6 let's look at who raises it, let's look at who 7 raises it. Well, let's look at who raises it. 8 In their report, they suggest that, for 9 example, in Philadelphia in 2000, they talk about 10 David Gerard Dicarlo, former advisor to 11 Pennsylvanian Republican Governor Tom Ridge, 12 co-chair of the Philadelphia host committee. What 13 they conveniently leave out is the fact that the 14 host committee was chaired and all of the heavy 15 fund raising lifting was done for the Republican 16 convention by David L. Cohen, chief aide to now 17 Governor, then Mayor Rendell, one of the top 18 Democratic fund-raisers and activists in 19 Pennsylvania, if not in America, former Chairof 20 the Ballard, Farr law firm, and as a matter of 21 fact, he's the one who actually is the Chairof 22 Comcast now. 234 1 COMMISSIONER McDONALD: Wait a minute, 2 Joe. No wonder we lost that election. 3 MR. SANDLER: Yeah. 4 CHAIR WEINTRAUB: The red light is 5 on. 6 MR. SANDLER: And I'm not just talking 7 about co-chairing the host committee. This is 8 someone who actually raised a substantial amount of 9 money. Let me just finish by talking about Los 10 Angeles. You know, they talk about Eli Grove. CFI 11 talks about Eli Grove. Fails, conveniently fails 12 to mention the fact that the fund-raising effort 13 was largely led by Mayor Riordan, put a million 14 dollars of his own money into the host committee. 15 Because he liked Democrats? I mean, he runs the 16 next year for Governor of California and raised 17 money, of course, for many of his Republican 18 friends. It makes no sense. 19 The conclusions in the CFI study are 20 baseless, baseless, and I urge the Commission to 21 reach that the only logical conclusion is there's 22 no change in the factual circumstances and no basis 235 1 for revisiting its regulations. 2 Thank you, Madam Chairman, and I 3 apologize for going over. 4 CHAIR WEINTRAUB: I appreciate your 5 enthusiasm. The next time you bring a chart, 6 you're going to have to make the numbers a little 7 bit bigger. Maybe my younger colleague to my left 8 can read it, but I don't think I can even with my 9 glasses on. 10 COMMISSIONER McDONALD: Oh. Did he have 11 a chart? 12 CHAIR WEINTRAUB: Do you want to 13 submit your chart for the record in smaller form? 14 MR. SANDLER: Yes. 15 CHAIRWEINTRAUB: Hopefully in a 16 smaller format. 17 Mr. Josefiak. 18 MR. JOSEFIAK: Thank you, Madam 19 Chairman. Again, thank you for allowing me to be 20 here with Joe to hear his remarks, and for the 21 record, I would happy to yield some of my time to 22 Joe. 236 1 First of all, I think I should say for 2 the record that I'm here representing the 3 Republican National Committee and not any candidate 4 or office holder. So the remarks I have and the 5 questions that I answer today are from the 6 Republican National Committee and no one else. 7 As Joe alluded to, we're here today 8 based on some notion that BCRA somehow affected the 9 Commission's convention regulations, and I also 10 agree with my counterpart that it does not, that we 11 are dealing with a situation that is not regulated 12 under BCRA. It's regulated under the current 13 Federal Election Commission regulations, and then 14 the question becomes what sorts of regulation are 15 even authorized under the current statute as 16 amended by the BCRA, and if BCRA should fall, as we 17 are challenging in the courts today, what would be the 18 impact on the convention regulations. 19 And so even though I do not feel that 20 BCRA applies currently, even if it didn't apply, I 21 strongly believe that the Commission should leave 22 the regulations that are currently in place in 237 1 place. 2 And how does this affect the host 3 committee's status both pre-BCRA and post-BRCA? 4 Well, first of all, under this whole scheme in the 5 Commission's regulations, the host committees have 6 been some sort of a 501(C) entity. Some of them 7 started off as 501(C)4s. For example, the 1996 San 8 Diego Republican host committee was a 501(C)4. In 9 Chicago and also in Philadelphia, the Republicans 10 were a 501(C)3. Currently, the New York host 11 committee, as I'm sure they testified this morning, 12 you understand they're a 501(C)3, a charity under 13 IRS terms. 14 BCRA does not regulate 501(C)3 15 charities. It regulates only 501(C) only to the 16 point of whether Federal office holders contribute 17 or can solicit monies from those organizations 18 subject to a specific activity, Federal election 19 activity, basically get-out-the-vote activity by 20 these groups. 21 So I don't think any of this is 22 affected, because the IRS has already given, for 238 1 example, the New York host committee its status as 2 a 501(C) charity. So then the question is if it is 3 a charity, are any of its funds restricted; can the 4 Commission restrict the funding of a 501(C)3 that 5 that is not involved electioneering activity, and I 6 strongly suggest the answer to that question is no and 7 that the current rules should be in place that they 8 can get unlimited corporate and individual monies 9 from the appropriate sources. 10 Now, the question before the Commission 11 is what is the appropriate source. Under the 12 current regulations, you have for businesses an MSA 13 qualification that you have to be in a the MSA in 14 order to be presumed to be benefitting or promoting 15 the city as opposed to promoting a party, and that 16 has been the rule for a long time; but quite 17 honestly, since 1996, 2000, those conventions, if 18 you were a corporation, there is going to be some 19 sort of a nexus within that city to allow most 20 corporations to be able to contribute, even though 21 there is not a natural presence in that city. Over 22 the years, that has been the case. 239 1 What really is, I guess, my gripe in 2 this area is how the individual are treated, 3 because prior to the 1996 convention, individuals 4 from wherever could contribute to the host 5 committee. It is going to be a 501(C) organization 6 of some sort. They always have been, and so there 7 had never been a restriction on what individuals 8 could do; however, post the 1996 convention in San 9 Diego, the Commission changed its policy and said 10 an individual had to be a resident within that MSA 11 to contribute. And so right now the Commission has 12 under consideration whether that MSA should be 13 eliminated, and I think from in practical terms, it 14 should be. 15 So the raising of the money should be 16 left alone. Who can solicit, again, can Federal 17 office holders solicit? The answer to that 18 question is yes. It's a charity. It doesn't 19 involve an election activity. I don't think BCRA 20 implicates that. Should national committee members 21 be able to solicit for a host committee? I don't 22 know where I got this notion, but ever since I have 240 1 been around, and in goes back quite a while, that 2 we have not from a Republican National Committee 3 standpoint as a practical matter been involved in 4 fund-raising for host committees, because it was 5 the Commission position, whether formally or 6 informally, that you couldn't do that. 7 Having said that and having no intention 8 for national committee officers to raise money for 9 a host committee, I would like to say for the 10 record on principle that when an organization is a 11 501(C)3 charity organization, whether it's the 12 American Red Cross or a host committee that doesn't 13 get involved in election activity, that there 14 should be no restriction on an officer of the 15 Republican National Committee or the Democratic 16 National Committee from raising money from those 17 organizations, and hopefully the Commission will 18 take that into consideration. 19 On the spending side, however, it's 20 always been a qualified campaign 21 expense. The Commission has gone into deep detail, 22 and I just want to say for the record that this 241 1 notion that somehow the '96 audits changed the lay 2 of the land is not true. The Commission had a 3 wonderful debate at that time that lasted for days 4 and months and years as to what would be considered 5 a convention expenditure. Whether it was something 6 the host committee could pay for or whether it's 7 something that the COA had to pay for, the bottom 8 line and the message I'd like to leave you with 9 this afternoon, if it's the message, it's the COA; 10 if it's the ability to deliver the message, it the 11 host committee. In other words, the message is the 12 political side of the equation. How that message 13 gets across should be allowed to be paid for by the 14 host committee, providing the screen, the 15 convention hall, the podium, the sound, the lights, 16 but not the script, not the show, so we won't get 17 into this nuance of coming up with a list that's 18 restricted. The list that's there now is a list to 19 be considered, but there's a catchall provision 20 right now that allows other kinds of similar 21 activities by the host committee to be paid for by 22 the host committee if it's convention related. 242 1 I would strongly urge the Commission to 2 take that position and have a clean line that if 3 it's the message, is a COA; if it's the structure 4 or the ability to put out that message to the 5 American people, it should be an expense that can 6 be absorbed, if desired, by the host committee. 7 Thank you, Madam Chair. 8 CHAIR WEINTRAUB: Thank you, Mr. 9 Josefiak. I guess we'll assume that Mr. Spies gave 10 you some of his minutes since he's not even sitting 11 at the table, and we expected him there. We were 12 looking forward to it. 13 Mr. Reiff, do you have an opening 14 statement? 15 MR. REIFF: No. 16 CHAIR WEINTRAUB: We going to just 17 rocket through here. 18 Commission McDonald. 19 COMMISSIONER McDONALD: Am I first? 20 This says Commissioner Toner. I'm ready to go. I 21 can go. 22 COMMISSIONER TONER: I impersonate you. 243 1 You can do the same. 2 CHAIR WEINTRAUB: I may have misread 3 my list. 4 COMMISSIONER McDONALD: I don't want to 5 hurt your career. 6 Who is up? Is it me? 7 CHAIR WEINTRAUB: No. Actually, I'm 8 wrong. Toner was first on the list. I apologize. 9 I misread. 10 COMMISSIONER TONER: Thank you, Madam 11 Chairman. 12 I first want to thank all of the 13 panelists for being here today. I appreciate your 14 comments very much, and I want to begin, Mr. 15 Sandler, with you. 16 In the CFI study, it sort of laid out 17 this argument that there's been an explosion of 18 host committee spending, and I guess they really 19 viewed it as beginning in 1988 and in each of the 20 successive years. As I understand your testimony, 21 you're basically making the point that we have to 22 look at what states and municipalities are 244 1 spending, the resources they're bringing to bear. 2 Is it your view and your experience that states and 3 municipalities are, for whatever reason, not 4 providing as much resources for convention 5 infrastructure, convention security, other 6 activities, and therefore one reason the host 7 committees may be spending more is sort of they're 8 filling the void there? Is that basically your 9 point? 10 MR. SANDLER: Yes. It's a combination 11 of the fact that the expenses they're putting on 12 these events have increased and, of course, they're 13 now going to increase dramatically because of 14 security considerations even more, and the 15 willingness and ability of state and local 16 governments to put resources into these events has 17 effectively decreased, and it is not that 18 dissimilar, I think as Mr. Bauer pointed out and I 19 think Commissioner Smith mentioned, to other 20 events, the trend that we've see with the Super Bowl 21 host committees, with the Olympics, of course, as I 22 think is demonstrated by this chart and similar 245 1 events. 2 COMMISSIONER TONER: Mr. Josefiak. 3 MR. JOSEFIAK: I agree with that, but 4 also when I looked at the study and the breakdown 5 of the Philadelphia convention and the big chunk of 6 money of that money, $24 million, and what was 7 lumped into that category, some of that was a 8 decision made by the City of Philadelphia and the 9 host committee to promote the city for its 10 citizens. There was a big chunk of money for 11 something called Political Fest, which was 12 basically an attempt to bring into a convention 13 center, not where we were holding our convention, 14 but the Philadelphia Convention Center downtown, a 15 massive display of Presidential memorabilia from 16 all of the Presidents, including a mock-up of the 17 fuselage of Air Force One where people could go in 18 and walk through this, and it was a selling point 19 for the city, and they would charge people to go to 20 that event, and it was a big thing they were 21 promoting in the city. 22 They had a boat parade that was there 246 1 for not only the delegates, but for people who 2 lived in the area to come out and be part of the 3 whole process of a political event. It was 4 non-partisan event. They had a Mummers Day Parade. 5 It was an attempt to show what the city has to 6 offer. That happens in all of the cities, and 7 Philadelphia under David Cohen, were really pushing 8 this as something they wanted to do to promote the 9 City of Philadelphia as a major convention city. 10 And so they did things that were not part of 11 anything that we required from a convention 12 standpoint, but what they wanted to do to promote 13 their city to show what kind of a city Philadelphia 14 was for other conventions as well. 15 And so it's a combination of things, and 16 those decisions are going to be made on a 17 city-by-city basis, based on the uniqueness of the 18 city and based also on the financial structure of 19 those cities. There are some cities where it would 20 be an issue legally for a city to pay for certain 21 things, so the host committee has to come up to the 22 plate and reimburse the city for typical city 247 1 services. 2 So every city and every state is going 3 to be unique, and I think the biggest concern I 4 have, there are only right now a very limited 5 number of cities that can really host a convention, 6 and anything that the Commission does to lessen the 7 ability of other kinds of cities to be 8 participants, I think would be detrimental to the 9 political process in the country. It would be 10 nice, for example, to get an up and coming city to 11 be able to compete with some of these other cities, 12 and I think that's one of the reasons an MSA 13 concept of elimination would be helpful to some of 14 those cities as well. 15 COMMISSIONER TONER: In your judgment, 16 if the Commission were to interpret BCRA to bar 17 host committees from raising and spending soft 18 money, what impact would that have, in your view, 19 on the convention process? 20 MR. JOSEFIAK: I think it would 21 seriously undermine the ability of both parties, 22 major parties, to have the kinds of conventions 248 1 that they had in the past. When you look at the 2 public funding and you look at the cost of a 3 convention based on Joe's chart, it would be 4 virtually impossible to do that same kind of 5 convention in my mind. And, you know, the 6 philosophical question of whether or not there 7 should be those types of conventions is another 8 issue, but from the party perspective of how they 9 nominate and the party's right to associate and to 10 deal with their own processes, I think is a 11 fundamental right of the parties that the courts 12 have been very accommodating on, and hopefully they 13 will continue to be accommodating on in the future. 14 COMMISSION TONER: Mr. Sandler? Mr. 15 Reiff? 16 MR. SANDLER: I think that, if anything, 17 it's characteristically understated in Tom's usual 18 very dignified and calm way. The fact of the 19 matter is what we are talking about is shutting 20 down the national conventions after, you know, 150 21 or 180 years. That's all there is to it. There's 22 no possibility, none, that a national convention 249 1 could be put on in the amount of a Federal grant. 2 The Boston budget, which Ms. Cronin alluded, the 3 grant is, what, $15 million give or take, $10 4 million just for security this time, and that's 5 just the city's share. I mean the committee's 6 share. It's not even--there's not a remote possibility 7 that the conventions could be given if the 8 Commission changes its rules, period, end of story 9 from my perspective. 10 MR. JOSEFIAK: And you look at, again, 11 the city perspective. Would the RNC even consider 12 a city like New York if it couldn't be assured that 13 a host committee was available to be able to absorb 14 the cost like the Democrats had when there were 15 there in 1992, for a lot of cost, because New York 16 City is an expensive city. Other cities are 17 different. Everybody has got their uniqueness, and 18 so you look at a host committee to give you that 19 comfort level that you can bring people there, have 20 your convention, because they are willing from a 21 city perspective to promote their city and to be 22 good hosts and good sponsors of those kinds of 250 1 events. 2 COMMISSIONER TONER: Mr. Reiff, there's 3 been, as you know, for a long time the ability of 4 corporations to provide items for promotional 5 consideration, and as I understand it, the theory 6 in the regulations has been that there's no 7 in-kind contribution flowing to the convention 8 committee because the corporations are getting 9 promotional value out of that sort of bargain for 10 exchange. The issue, obviously, is whether BCRA 11 changes the equation in the that regard. I just 12 wanted to get our thought on that. 13 MR. REIFF: We don't believe it does at 14 all. We believe that these items were provided for 15 promotional consideration and they will continue to be. 16 COMMISSIONER TONER: Do you think that 17 it's a fair reading of FECA of even setting aside 18 BCRA, that the rationale the Commission used for 19 permitting promotional items, do you think it's a 20 sound one? 21 MR. REIFF: We do believe it was a sound 22 assessment by the Commission to permit such items 251 1 to be provided, and we believe that they should 2 still be, continue to be provided. 3 COMMISSIONER TONER: There's another 4 item mentioned in the NPRM, and that's--it was 5 discussed a little bit this morning. I just wanted 6 to get your thoughts. Corporate hospitality events 7 and events put on by labor organizations and 8 corporation that are in the convention city and 9 clearly members of Congress have historically gone 10 to them. Do you see any issue under BCRA in terms 11 of those kinds of events? 12 MR. REIFF: We don't believe so. The 13 FEC has an advisory opinion that has regulated 14 these types of events for 20 years, not just for 15 conventions, but all types of corporate events, and 16 believe that the advisory committee has a lot of 17 safeguards built into it. 18 COMMISSIONER TONER: Is sort of the 19 dividing line those kinds of events versus events 20 that have a fund-raising element for a political 21 committee? Is that sort of how you would demarcate 22 our jurisdiction? 252 1 MR. REIFF: Well, that's one way of 2 demarcating it, but there's even more elements to 3 that advisory thing in terms of the control events, 4 way persons are invited to those events, that 5 provide even further safeguards, not just the 6 fund-raising concept. 7 COMMISSIONER TONER: Thank you. 8 Thank you, Madam Chair. 9 CHAIR WEINTRAUB: Thank you, 10 Commission Toner. I'm sorry that I mistook 11 you for Commissioner McDOnald 12 Commissioner McDonald, now it really is 13 your turn. 14 COMMISSIONER McDONALD: Madam Chair, 15 thank you. I bet you're not nearly as sorry as 16 Michael is. 17 Well, first of all, let me just say it's 18 great to see three long-time friends. I won't say 19 old friends, because I've reached that point in 20 life that I'm a little sensitive to that term 21 "old", as you might imagine. 22 The issues are actually pretty straight forward, 23 I think. In Joe's case, it appears to me if he just 253 1 had more enthusiasm. Mr. Josefiak, I think it's 2 far to say he's always both extremely well prepared 3 and understated. In Neil's terms, not only--first 4 of all, I didn't recognize him. He had on a tie. 5 Secondly, he may be the greatest sign holder that 6 I've seen. 7 MR. REIFF: I've been practicing that 8 for a week now. 9 COMMISSIONER McDONALD: In recent memory 10 or as good as anybody I've seen here today. 11 I think, really, that we've kind of 12 covered a great deal of the ground in terms of the 13 debates, and I suppose, going back to Joe's opening 14 remarks for just a minute, I couldn't help but 15 think--I thought, and I apologize for coming in a 16 couple minutes late, but I was fully briefed. It is 17 interesting. I was thinking about this lady from 18 Boston this morning in terms of her experience. 19 What has happened in some of these 20 conventions, whether they're political conventions 21 or maybe they're sporting events? I think the City 22 of Montreal can explain to you just how much it 254 1 really did cost them to succeed. You know, they 2 basically just went broke in terms of landing the 3 Olympics. I think Atlanta's experience wasn't 4 decidedly better, although I think it was better than 5 maybe Montreal's was. 6 What I really want to ask is not the 7 argument about, you know, which position people 8 ought to take. The one thing that's irrefutable is 9 that it costs more. Everything costs more, and the 10 real issue, I gather, before us is what sort of 11 impact does it really have on the decision-making 12 and the ability to be elected process. 13 This morning, we were told that--and I 14 have no reason to doubt it--that about 13 percent 15 of the American public watches the conventions, 16 which is both an interesting and alarming figure to 17 me. Maybe that's good news. I don't know. It 18 depends on one's perspective, but any of 19 the three of you, because you've been through it 20 all, you know how it works--I think Joe's 21 assessment is right if we, as a practical matter, 22 shut off the ability to raise soft money in these 255 1 matters, it's going to have an unbelievable impact 2 in the process. 3 But my question is so why have 4 conventions at this point? Somebody tell me. 5 We've heard why the--and I ask because I think it 6 will ultimately come back to what Congress thinks 7 or doesn't think, but if you're getting 13 percent, 8 I mean, is the rest of America right that those of 9 us that are in the political arena are out of touch 10 with reality? I don't think we are, by the way. 11 Let's just say you get 13 percent of the American 12 public watching the convention at one time or another. 13 It's just a general philosophical 14 question, Joe. I'm just trying to get--if we're 15 sitting around saying to the people, you know, we 16 need to got to Boston or to New York or wherever, 17 and I said to you so why; we're going to spend all 18 this time raising money; we may run afoul of the 19 law; the American public is not going to watch the 20 process anyhow; what would be the best answer for 21 that? I mean, how could we have better experts 22 than you guys, for gosh sakes. What would you say? 256 1 MR. SANDLER: It's basically the 2 in-gathering of party activists from all levels 3 from all over the country to, first of all, 4 deal with governing business of the national party 5 since the convention is the ultimate governing 6 authority of the party, adopt the party's platform, 7 to basically energize the party as a whole for the 8 general election, as well as obviously do the 9 business of formally nominating and showcasing to 10 not necessarily the elected, but to the party 11 itself, of course also the elector to the extent 12 that they choose. 13 And 13 percent, I don't know where that 14 13 percent comes from. 15 COMMISSIONER McDONALD: I don't know 16 either, but they alluded to that this morning. 17 MR. SANDLER: It's a lot more 18 complicated than that, but even assuming that the 19 coverage is down, it just serves as an absolutely 20 critical function for the party. There are young 21 people who are 18 and 19 years old that work their 22 hearts out to go to the convention. They work for 257 1 the delegate or work for the state party or maybe 2 go and volunteer, and it is a hugely important 3 central defining event for our party activists, workers, 4 volunteers, and elected officials. 5 MR. JOSEFIAK: I think, Mr. 6 Commissioner, I think Joe has laid what actually 7 goes on there, but the reason for having it, the 8 reason that we have it is that the collective 9 wisdom of the delegates from the last convention 10 adopt rules that create the convening of the 11 convention in four years as the best mechanism to 12 deal with party issues and to select their nominees 13 after the primary and convention system to be in one 14 place at one time, to have that kind of grass roots 15 enthusiasm, and that's a decision that the 16 delegates make at the convention. 17 That is from the party side of it. 18 While a city would bid for it, in my experience has 19 been not at all a political decision. It has 20 always been, whether it's San Diego, whether it's 21 New York this time, whether it's Philadelphia, it 22 was attempt by San Diego and Philadelphia in 258 1 particular to show that they now could be a Class A 2 convention city that could host an event this 3 large, and they reaped the economic benefits, or 4 they tell you that at least publically, to persuade 5 others over a period of time to, in fact, come to 6 that city for conventions. 7 There are a lot of conventions that are 8 bigger than these national conventions, but they're 9 much shorter. They don't take the same kind of 10 drama and enthusiasm, and quite frankly, resources 11 of a city like a national nominating convention 12 does. This is much more like an Olympics rather 13 than a major convention with a hundred thousand 14 people that are representing some association. 15 So that is the first thing I think most 16 of these cities recognize. They think in those 17 terms, but realize it's a lot more complicated than 18 that. And so there's always that kind of city 19 motivation. New York want to prove it's back. It 20 really was for this. It really was pushing for 21 this from a city perspective because this is 22 another step for them towards perhaps the Olympic 259 1 world. 2 So it is an attempt and it's totally 3 motivated by a business economic community 4 standpoint, and so when you couple those things 5 together, I think the Commission should be 6 sensitive to the fact that really this does not in 7 the sense of other kinds of election influencing 8 activities do the same kinds of things that other 9 kinds of organization and meetings do with regard 10 to campaigns. This is a very different animal and 11 a very small part of what goes on in these cities 12 during convention week. 13 COMMISSIONER McDONALD: Let me just ask 14 one more question, and that's--Mr. Josefiak knows 15 that's the thing about being able to ask questions 16 off the wall like this if you want to. When I got 17 here, I was the youngest commission at the time, as 18 Tom knows and now as he also knows, I'm the oldest, 19 I'm sorry to report. 20 The Dea Beard matter is really--I'm not 21 saying the conventions weren't criticized before, 22 and certainly there are some stories throughout 260 1 history about conventions and back room politics, 2 and so on, but the issue there was the ability of 3 particular a group to have a great deal of 4 influence because of the large amount of money that 5 was given. In the generic sense about the 6 criticism and why we're here having the discussion 7 at all, quite frankly, is that, is whether or 8 not--I mean, you know, we can cite all the 9 regulations and if we find somebody said something, 10 we'll prove that. That's great too, but why we are here 11 and what it all kind of emanated from was that. 12 MS. SANDLER: I think that is it reaches 13 part of the heart of the matter here. What 14 evidence of abuse in the 25 years of the 15 Commission's current convention regulations for the 16 host committees take place, what evidence of abuse 17 like in 1972 and so forth or anything relating to 18 all the other evidence that's come out in that 19 supposed justifies the enactment of BCRA? What of 20 that relates to contributions to host committees? 21 Where is any reference to that in the record of 22 McConnell, in the Thompson report? It's not there. 261 1 If it's not broke, don't fix it, as we 2 said in our written comments. That's precisely the 3 point. 4 COMMISSIONER McDONALD: Well, I think it 5 is a good point, and that's why I asked it this 6 morning, and I asked the gentleman this, or I guess 7 I asked Paul, another gentleman I should say, the 8 same thing. I mean, the question is since it's, 9 you know, on the one side, not on the host side, but on 10 the other side. Matters have been fully disclosed. We 11 have to accept at some level that these matters are an 12 arms-length transaction; if not, we can obviously 13 pursue it. 14 I wanted just wanted to get your sense 15 of it. That's what the issue really is. The issue 16 is about whether or not somebody is going to be 17 able to give enough money to have a policy impact, if you 18 will, on government, and I think that's front and 19 center. 20 Does anybody else have anything? 21 Neil, it's your turn. I should have 22 called on you first. 262 1 MR. REIFF: Thanks. Well, it's hard to 2 add to such incredibly scholarly comments of the 3 two gentleman to my right, but I guess I would just 4 close out by saying that national conventions are a 5 great part of American politics and American 6 political history, and as everyone here has said, 7 if we do re-interpret these rules, we'd be stuck 8 with a small enough pot of money that the conventions 9 would go away and it would be a real shame that 10 conventions would go away only because there is a 11 reinterpretation of the way they've been financed. 12 That would be a real sad comment in history. 13 COMMISSIONER McDONALD: Well, I thank, 14 the there of you, it's great to see you. I think 15 we have said, not only me, but a number of my 16 colleagues have said or implied otherwise, but I 17 think first and foremost, of course, we have a 18 staggering notice problem. I mean, it is June, I 19 think. It's a bit of stretch to reach out and get 20 into these matters in 2003. 21 Thank you all. 22 CHAIR WEINTRAUB: Thank you, 263 1 Commissioner McDonald. 2 Mr. Vice Chairman. 3 VICE CHAIRMAN SMITH: I have a few 4 comments, I guess first. I appreciated, Mr. 5 Sandler, your comments on the CFI study. I was thinking 6 about it at the lunch break a bit, and it struck me 7 that it's a classic sort of situation. Looking at 8 how much spending has grown is sort of an 9 interesting thing, and there's just a sort of leap 10 to a conclusion, Well, what other reason could 11 there be for this than corruption. This is sort of 12 the standard guilt by innuendo that we hear far too 13 much, why else could they do it, and I think the 14 kind of information you point out or that my staff 15 brought up earlier on the New Orleans host 16 committee, the comments of that host committee 17 relating back to, gee, how things were a few years 18 before when they were much smaller are indicative, 19 I think, of the failure and that sort of guilt by 20 innuendo, and then you quote one guy or two 21 guys, and he thinks that's the case, and there you 22 go. That's your proof. 264 1 It's an interesting hypothesis. I think 2 they've laid out the data that would give us a 3 working hypothesis that maybe the assumptions no 4 longer apply, but it's no more than that, and we 5 just kind of from there jump to a conclusion. 6 In defense of the study, so far as we 7 know, they were not standing on a cell phone in the 8 airport in Miami changing data in order to make it 9 fit their conclusions so they would have it to 10 present to us today. So in that respect, it's 11 better than some of the studies that we've seen 12 from that side. 13 So I appreciate your comments. I did, 14 though, have a question about one thing in your 15 testimony, Mr. Sandler. You suggest that a host 16 committee should be declared to be per se, not 17 affiliates of the party committees. I wonder if 18 that's no a bit strong. Are you suggesting that in 19 your experience, there's no case where a host 20 committee could be deemed affiliated with a 21 national party? 22 MR. SANDLER: I'm not saying that there 265 1 can't be a situation where there's a violation of 2 law to be investigated in an Commission 3 enforcement proceeding, you know, that would 4 implicate those kinds of issues, but the idea that 5 there is some kind of--I mean, I don't think that 6 in order to apply the regulation to know whether 7 the host committee can exist and function, there 8 has to be some kind of factual analysis or advisory 9 opinion or pre-investigation by OGC or something to 10 determine whether all these factors are met, I 11 think that there should be a--maybe per se isn't right. 12 Presumption. There's no need to--in general, 13 they're not remotely affiliated, that is host 14 committees are not remotely affiliated with the 15 national party committee. Clearly if there was 16 some kind of abusive situation in a particular 17 case, an enforcement proceeding would be in order. 18 VICE CHAIRMAN SMITH: I guess you're 19 saying that, yes, per se, the host committee is not 20 affiliated; if it is affiliated, then it's not a 21 legally operating host committee. 22 MR. SANDLER: That's true. 266 1 VICE CHAIRMAN SMITH: That would be the 2 way to look at it. So it would be a question of 3 simply looking at it as a violation of the 4 act rather than saying the host committee is 5 affiliated so it's simply not actually a host 6 committee. 7 MR. SANDLER: Exactly. 8 VICE CHAIRMAN SMITH: Okay. It gets us 9 to about where I think it does clarify how far we 10 go, what we mean. 11 A couple other questions, I guess. Mr. 12 Josefiak, I don't know if you wanted to speak a 13 little bit about something I don't think we touched 14 on today that was in your testimony regarding funds 15 that remain in a GELAC, in particular a primary 16 candidate with funds in a GELAC stored away for the 17 general election but is then unsuccessful, and 18 what would your preferred course of action with 19 primary GELAC funds, whether one wins or whether 20 one doesn't win? 21 MR. JOSEFIAK: When you have GELAC 22 funds--again, I'm speaking on behalf of the 267 1 Republican National Committee, not any candidate or 2 candidate's committee or office holder. With 3 regard to GELAC funds, our position is that if they 4 were raised in accordance with the rules of the 5 Commission, that once they were excess GELAC funds, 6 they should be treated like any other excess 7 campaign fund that can be used for any other lawful 8 purpose under the statute, whether that be for 9 another campaign, whether that be to pay for debts from a 10 primary, whether that would be to give to a 11 charity; but I think that that was the position 12 that we were talking about. 13 VICE CHAIRMAN SMITH: If you're a 14 primary candidate and you have GELAC funds sitting 15 out and you're out in primaries, would you allow 16 those to be used to for winding-costs or 17 administrative costs, or would you say those should 18 be otherwise disposed of? 19 MR. JOSEFIAK: It goes back, I think to 20 a number of issues. It's tough to answer to that 21 question, Commissioner, without knowing what the 22 scheme of the Commission will be. Right now, for 268 1 example, you cannot raise money for GELAC until 2 June 1st of the election year, and by that time, 3 the historical process the way it is in the 4 primaries, you already know who it is. What you're 5 talking about, however, is the ability for under 6 current regs to take--to have a GELAC fund in a 7 primary, and if you get excess campaign funds for 8 the primary--well, under either scheme, you can 9 either get it redesignated under the current regs, 10 or under the proposal, you could make the same 11 presumption that you can with a normal contribution 12 in excess and attribute that to the GELAC fund. 13 Under those circumstances, I think that 14 that becomes the fundamental issue, and then the 15 question there becomes, I think, just like if 16 you're in a primary in general, you can raise 17 general funds. I would take the position that in 18 that situation, you should be able--you should have 19 to return those funds, because you are accepting money 20 for a process that is not going to occur, and you 21 don't have the ability to take additional funds because 22 you're not in the general election. 269 1 VICE CHAIRMAN SMITH: You anticipated my 2 next question. That's great. It saves us bit of 3 time, but you said something that raised in my mind 4 another thought, and bear with me on this. 5 You mentioned that now the nominations 6 are usually sewed up long before June 1st. So if as 7 the Commission we said we think Paul Sanford is 8 right; for the past 25 years, we've been violating 9 the law, and Congress really wanted to change that; 10 they just were a little too busy during 2002, but 11 we should go ahead and do it on our own and dried 12 up host committees funding. Is there anything in 13 the law that would prevent the parties, for 14 example, from having a very small little 15 convention. The platform committee might show up 16 on Monday, have a quick meeting. The delegates come 17 in Tuesday morning, nominate the candidate then 18 Tuesday afternoon or something like that, or 19 actually do it at the end of the week, and then you 20 could attach either before or after this small 21 little gathering another group that would come in 270 1 that would be unaffiliated with the party but as soon as 2 the party had made its arrangements in a particular 3 city, say New York or Boston. They would 4 immediately go to the convention bureau there and 5 say we want to have a big gathering for the 6 Republic Majority Committee or the Democratic 7 Majority. In other words--and say we're going to 8 have all kinds of people invited to speak, and 9 we're going to have lots of parties surrounding it 10 and receptions and big affairs and stuff like that. 11 Nothing in the act would prohibit that, would it? 12 MR. JOSEFIAK: I think that you probably 13 would that an affiliated with a national committee 14 would say we're raising soft monies for that 15 purpose and we're committing a felony. 16 VICE CHAIRMAN SMITH: Would we be 17 correct in making that determination? 18 MR. JOSEFIAK: Well, I think-- 19 CHAIR WEINTRAUB: I hear at least one 20 vote against that. 21 MR. JOSEFIAK: For one thing, you're 22 trying to assume the role of making that 271 1 determination, which in my mind is the right of a 2 political party to decide if they're going to have 3 a convention. You're talking about the gather of 4 at least 5,000 delegates and alternates. You're 5 talking about the ability to have subcommittee 6 meetings that you're talking about beforehand where 7 then the subcommittee reports are given to the full 8 committee and a full convention. The convention 9 has an opportunity to deal with those issues. 10 But your raising points that there's a 11 lot of the activities that occur at a convention 12 where you certainly wouldn't want the taxpayers to pay 13 for, and that is another way I think the Commission 14 has reached where it is today with all these other 15 events, because it is really not involving the 16 process, but it is something that is part and 17 parcel of political scheme of things where the 18 parties have these events and people come, and 19 there is an activism going on. There's a 20 nomination that goes on. There is a process that 21 goes on for a rulemaking to somehow control and to 22 administer a political party, both the Democrats 272 1 and the Republicans, for the next four years. 2 You can take the position maybe they 3 should have more of these. Maybe we shouldn't wait 4 every years for these kinds of events to bring 5 everybody together and deal with these issues. 6 And, you know, when I made the presumption that 7 everything was done by June 1st, that's under the 8 current scheme. If Joe and I and our principals 9 can get together and come up with a different 10 system that doesn't so much front-load the process, 11 we may have it much later, but, you know, that is 12 something that's always in the back of everyone's 13 mind, are we doing this too early; should we do it 14 much later. 15 VICE CHAIRMAN SMITH: I think those are 16 helpful comments. I guess my sort of thought was 17 there are certain people now who are just livid 18 that people who are prominent Republicans or 19 prominent Democrats are saying parties no longer 20 can do the get-out-to vote stuff they used to do in 21 quite the same way because they don't have soft 22 money; I really want Republicans to win or I want 273 1 Democrats to win; I think I'll start a committee 2 that will do that stuff. And, of course, they're 3 prominent people who have been active in their 4 party in the past, but now they're operating 5 independently of the party. They don't ask for the 6 party's okay or clearance. The go out. They know 7 who the big donors are. They start contacting 8 them. They now who the activist are from their 9 prior experience, and they do that, and then, of 10 course, that has some people livid, but I don't see 11 anything in the law that prohibits that. 12 I just wonder if we wouldn't end up in 13 the same situation on the convention side of 14 things. In other words, I'm kind suggesting that 15 maybe, you know, the sort of effort that was 16 suggested by some of the people this morning that 17 we should try to limit this activity is just kind 18 of chasing a tail here, you know, that if it's a 19 valuable activity, someone will do it, and it may, 20 then, not be done under party auspices, but people 21 who have been active and who want to bring party 22 activists together, as Mr. Sandler said, that hear 274 1 party speakers and get to see one another and get 2 fired up to start the campaign will do that anyway. 3 There might be certain logistical problems 4 that kind of raise the transaction costs, perhaps, 5 but something just tells me that that would be the 6 likely end result. 7 Well, I thank all you for coming. It's 8 always a pleasure to have a former Chairof the 9 Commission here with us, and I appreciate all your 10 time. Thank you. 11 CHAIR WEINTRAUB: Thank you, Mr. Vice 12 Chairman. 13 Commissioner Thomas. 14 COMMISSIONER THOMAS: Thank you, Madam 15 Chair. 16 Welcome. Could I try the same question 17 I have worked the other panelists with? As a 18 matter of legal interpretation, I'm trying to 19 figure out whether the Commission has any wiggle 20 room, if you will, to interpret the statute in a 21 way that would allow national party operatives to 22 be involved in soliciting funds for a 501(C) 275 1 organization, say a host committee, because this 2 goes back to my concern that the very broad 3 language in 441(I)A seems to contemplate that national 4 party operatives are only to be involved in 5 soliciting money up to the limits, prohibitions, 6 and reporting requirements of the law. Later you 7 get to 441(I)D, and it seems to contemplate that the 8 national party operatives are not to raise money 9 for the 501(C) organization unless it's an 10 organization that does not undertake activity in 11 connection with the Federal election. 12 I wonder if the only plausible 13 interpretation is that not only can the national 14 party operatives not be involved in raising any 15 soft money for such an entity, but they perhaps 16 can't even raise--make donations of hard money to 17 those kinds of entities, or are we to read the 18 statute, that latter provisions to simply say as if 19 read notwithstanding the broad prohibition in 441(I)A, 20 national party operatives can go into some 21 fund-raising for 501(C) organizations. 22 MR. SANDLER: I think, Commissioner--I 276 1 do not think it is a permissible interpretation to 2 read 441(I)A to mean that national party officers, 3 employees, agents cannot raise funds outside the 4 limits and prohibitions in the act on behalf of 5 their parties for entities that do not engage in 6 Federal election activities, for two reasons. Well, 7 the principal reason is that it would read 441(I)D 8 out of the act. I have heard this argument made 9 that 441(I)A is so broad, it just prohibits 10 national party operatives from raising money 11 outside of the limits of the act regardless of the 12 nature of the entity that they're raising it for. 13 That is not the position that this 14 Commission took before the three-judge court. In 15 the--if I may cite from the reply brief of the 16 defendant submitted on behalf of the United States 17 and the FEC and the intervening defendants, the 18 government, meaning you, said that-- 19 CHAIRWEINTRAUB: Thanks for the 20 clarification. 21 COMMISSIONER McDONALD: You mean Scott 22 Thomas. 277 1 COMMISSIONER THOMAS: We take that as a 2 compliment. 3 MR. SANDLER: On page 26 of the redacted 4 reply brief, contrary to Plaintiff's 5 characterization, BCRA's restriction on 6 solicitation are narrowly targeted, and I'll go 7 down later in the page: "BCRA does not apply to all 8 Section 501(C) organizations", talking about the 9 restrictions specifically on party, national party 10 soliciting funds. "BCRA does not apply to all 11 501(C) organizations. It applies only if the 12 organizations make expenditures or disbursements in 13 connection with a Federal election." 14 So, and again, with respect to Federal 15 office holders, and we talk a lot about Senator 16 Kerry, Kennedy, and so forth as if there's some 17 doubt about their ability to do this, but with 18 respect to Federal officer holders, the Government 19 in its opening brief for the defendants stated 20 specifically that--let me just--that 441(I)E was 21 specifically intended to permit, quote, Federal 22 candidates and office holders to continue to 278 1 engage in civic fund-raising activities for 2 non-profit organizations, but restricts the 3 solicitations that can be made support certain 4 types of Federal election activities. 5 I do not believe that the Commission, 6 with all due respect, can take a position 7 inconsistent with its representations to the court. 8 COMMISSIONER THOMAS: Thank you. That's 9 helpful. You could still take the construction 10 that what we said there was consistent with some 11 stricter constructions as I've sort of hypothesized 12 in that even to the extent we're talking just about 13 441(I)D and the ability to in essence solicit or 14 send money to a 501(C)3, organization, for example, 15 it would have to be hard money, but it would only 16 be permissible if it's a certain kind of 501(C) 17 organization. You could sort take that 18 construction. All you're talking about in 441(I)D 19 is all that's left for the national party 20 operatives, which is the ability to solicit 21 hard money. 22 I'm trying to explore with you in terms 279 1 of the construction of this statute if you think we 2 had the leeway to go the way you were suggesting, 3 and obviously. 4 MR. SANDLER: No. I don't think the 5 statute provision can be interpreted that way, and 6 I think it's apparent that the United States and 7 the FEC have not, in fact, interpreted it that way. 8 COMMISSIONER THOMAS: The next area 9 concerns the items for promotional consideration. 10 This have been a very controversial issue at the agency over the 11 years, but the proposed rulemaking was heading down 12 the road of suggesting that we were going to, in 13 essence, take away the ability of the convention 14 committees to be the ones, in essence, receiving 15 items of promotional consideration, but we would 16 leave the host committees free to get themselves 17 involved in receiving items of promotional 18 consideration. 19 I thought maybe you could help us with 20 the background on the concept of organizations 21 offering up items or services for promotional 22 consideration. It's my vague understanding that 280 1 this is something that the party committee itself 2 pretty much has to control. That is what these 3 folks are trying to gain, if you will, is the 4 promotional consideration benefit derived from 5 being labeled as the official provider for the 6 Democratic National Convention as opposed to being 7 the official provider of the host committee. 8 Is there some logic? Am I on the right 9 track there? 10 MR. SANDLER: You are, Commissioner. 11 That's exactly why I strongly, strongly proposed 12 precluding, changing the ability of the convention 13 committees themselves to accept items, goods and 14 services in exchange for promotional consideration, 15 usually official provider status, and again, for 25 16 years this has been considered not to be 17 in--properly considered not be an in-kind to these 18 Federal political committees, and nothing has 19 changed in our view, that should lead to any 20 other conclusion. That would greatly complicate, 21 again, the ability and disrupt the ability to put 22 on conventions. 281 1 MR. JOSEFIAK: It basically boils down, 2 as the Commissioner knows, as the genesis of all 3 this when there were some very difficult debates on 4 this, you know, whether it was golf tournament 5 where GM provides the cars. It's the same kind of 6 concept, or whether it's the airline--one airline 7 wanted to get both just to be able to show that 8 they had both conventions and plus everyone else in 9 the western world that year. 10 So it is really, for some reason, a 11 benefit that they want to have, and it is customary 12 in their business to do so. That was the key in 13 all of this, that they do provide these kinds of 14 things to other types of organizations, whether 15 they're political, especially non political. 16 MR. REIFF: Exactly. The existing FEC 17 regulations already have sufficient safeguards to 18 ensure that these types of deals are in the 19 ordinary course of business and they are provided 20 to their non-political clients. 21 COMMISSIONER THOMAS: Last question--oh. 22 You have pointed out, I guess, Joe, in your 282 1 comments the somewhat confused state of affairs 2 regarding office equipment, slash, office expenses. 3 Do you want to give us some sense as to where you 4 think the lines actually ought to be if they are not 5 clear right now? 6 MR. SANDLER: We thought that the--and 7 again coming under the category of if it's not 8 broke, don't fix it, the issue was thoroughly 9 addressed and analyzed by the Commission in 10 connection with the audits of 1996 conventions, or 11 at least our convention in Chicago where the issue 12 of telephone charges had come up. It was the 13 conclusion of the Commission that it was proper for 14 host committees to pay for that as part of the 15 infrastructure and the office space and so forth 16 for the convention, and we believe that's where it 17 should be left. The NPRM indeed indicates that it 18 the was intent of the NPRM to codify the results of 19 those audits, but the language of the rules at the end 20 of notice in one part, not another, that's actually 21 contradicted, and that's what we are pointing out in our comments. 22 The audit which we 283 1 assume were codified in the 2 Commission's current regulation. It should simply 3 be left in place in our view. 4 MR. JOSEFIAK: You're looking at the 5 people who have to interpret that, and 6 unfortunately I can probably regurgitate to you 7 verbatim the discussion that took place between 8 paper clips and office equipment and paper that 9 came with the Xerox machine and paper that didn't 10 come with the Xerox machine. I think we have a 11 pretty good idea of what the rules of the game are, 12 and to codify something, I think would be dangerous 13 because of the exceptions that you're going find to 14 the general rules as you go through these audits, 15 but so you don't get into the nuances of, yes, if 16 the balloons are on the walls, they're decorations, 17 but if they're coming from the ceiling, they're 18 part of the show and it's COA versus a host 19 committee expenditure. I think you want to avoid 20 codifying that, for all due respect, in regulations 21 and actually have maybe a session where no one is 22 paying attention to it and you get into those kinds 284 1 of nuances. 2 But you're looking at the people who 3 have gone through that process and who will 4 probably be going through that process again, and I 5 would support Joe's position that you don't codify 6 those kinds of nitty-gritty things in regulations. 7 MR. REIFF: I can speak for the DNC and 8 Tom can speak for the RNC, but the 2000 convention 9 process, and the audits of the 2000 convention went rather 10 smoothly. We took the lessons from '96 and we 11 applied them, and I think they went very well. 12 MR. JOSEFIAK: By the way, they did, but 13 the host committees had no idea what we were 14 talking about when you say yes, you can do this, 15 but you can't do this, and they just were baffled 16 by this sort of line of demarcation whether it's 17 balloons or paper clips or whatever; but, you know, 18 we do stand by these host committees to try to walk 19 them through because it is such an arcane process 20 that a host committee has no clue of what we're 21 talking about. 22 COMMISSIONER THOMAS: Thanks. Maybe 285 1 some day you can explain the message versus 2 delivery system. 3 MR. JOSEFIAK: Maybe the best word is 4 message versus the means. The host committee can 5 provide the microphone, but what comes out of the 6 microphone, the speaker, the show has to be paid 7 for by the COA. 8 COMMISSIONER THOMAS: Help me with the 9 balloons. 10 MR. JOSEFIAK: Well, the balloons is 11 something that you came up with, Commissioner. 12 I'll be happy to go through it and get the 13 transcript. 14 COMMISSIONER THOMAS: I can safely say 15 I've forgotten that. 16 MR. JOSEFIAK: Balloons on the wall are 17 decorations and the host committee can pay, but 18 balloons hanging from the ceiling are part of the show 19 and, therefore, the host committee has to pay. 20 COMMISSIONER THOMAS: If I came up with 21 it, I think it's brilliant 22 CHAIR WEINTRAUB: I'm glad somebody 286 1 understands that. 2 COMMISSIONER McDONALD: No hot air jokes 3 CHAIR WEINTRAUB: Commission Mason. 4 COMMISSIONER MASON: I wanted to explore 5 a little bit the issue of what we say about the 6 affiliation issue of the host committees and 7 convention committees and/or national parties, 8 because it seems to me if we are agreeing, and I 9 think that the Commission may be there or get 10 there, that no, they're not affiliated per se, that 11 BCRA doesn't really change that, but under one 12 construct, or another we all agree yes, an 13 ill-advised host committee along with an 14 ill-advised national committee could conduct their 15 business in such a way that they did become 16 affiliated. In other words, that's not impossible 17 as a structure. It would be a mistake, but so I'm 18 just sort of wondering how we express that. 19 One of the things I would like to come 20 out of this is not leaving things in a confused 21 state. If the Commission concludes that the way 22 arrangements have been in the past is not 287 1 affiliation, and so if host committees and 2 convention committees in 2004 and on in the future 3 conduct their business pretty much as they have in 4 the past, relationships are set in the way they 5 have been in the past, those committees are not at 6 risk that the Commission is going to come in 7 and find that they're affiliated. 8 Do you understand what I'm reaching for? 9 Because now that the issue has been raised, I'm 10 afraid if we just drop it and don't change our 11 affiliation rules and don't say anything about the 12 status, that we would still have some people 13 running around out there saying, Oh, the Commission 14 didn't say they per se weren't and so, you know, 15 they're left in this possibility, and then we get a 16 complaint filed or something and at least have some 17 people unsure about how to proceed. 18 So I'm just wondering if you have 19 thoughts about how we express that as a regulatory 20 conclusion, that arrangements that we've seen in 21 prior audits in '92, '96, 2000, haven't constituted 22 affiliation, and so while we might find affiliation 288 1 in the future if someone conducts themselves 2 differently, those past arrangements don't raise 3 concerns. How do we say that? 4 MR. JOSEFIAK: I guess I am sort of 5 baffled why you would say anything, because I think 6 the facts would speak for themselves. You have a 7 definition that says when you are affiliated with a 8 political organization, established, financed, 9 maintained, or controlled, and that is the criteria 10 you would put into place if you were going to be 11 examining the relationship between a host committee 12 and a national party committee, and from my 13 experiences in trying to negotiate with host 14 committees and cities, and I am sure Joe would feel 15 the same way, it is virtually impossible in the 16 scheme of things with legitimate host committees 17 and cities to be able to do this, because even in a 18 city--I mean, to be a part of the negotiating 19 process, it is the city and host committee versus 20 the national committee. It is a real negotiating. 21 This isn't some sort of a light-hearted thing. This 22 a real negotiation that goes on and is very difficult, 289 1 very complex. 2 There are rules cities where if the city 3 is going to be involved in anything similar to this 4 or establish a host committee, there are rules 5 there. There may be even requirements for 6 disclosure, and there are rules and ethics rules a 7 mayor, for example, has to go through before they 8 can get involved in something like this, and they 9 get approval by city councils. The host committee 10 itself, the way they've been established as 11 501(C)3s have to meet a certain standard. They 12 have boards. 13 It is almost impossible, and they have a 14 view and a very strong view. 15 COMMISSIONER MASON: I understand all 16 that, and I don't disagree, and I don't think the 17 Commission collectively is likely to come to a 18 different judgment, but let me express the reason 19 that I think it may be important for us to express 20 that in some fashion, because the specter has now 21 been raised, rightly or wrongly, with the passage 22 of BCRA and a lot of attention that, gee, these may 290 1 be affiliated, and we have all acknowledged that as 2 a theoretical prospect yes, that it may be 3 difficult to get there with city procurement 4 rules and ethics rules and a lot of other reasons, 5 but yes, it could happen. 6 And so for that very reason, to 7 avoid--you know, we've seen too many examples of people 8 running off with what BCRA means and creating a lot 9 of smoke and problems that I just think we don't 10 need. And so if we're pretty sure that prior 11 arrangements don't amount to affiliation, I think 12 we need to say that, and I think it might help in 13 this environment, not for your understanding, but 14 for the understanding of people who might be contemplating filing 15 litigation or complaints or petitions. We have not 16 only our own rulemaking, but a petition for 17 rulemaking, you know, that we have to respond to 18 here, and presumably we need to annunciate a 19 reason, and if one of our conclusions is, Well, we 20 don't see a reason for a new rule here because in the 21 past, we've never seen affiliation, then we have 22 now 20 years of experience or whatever. 291 1 For those reasons, I think we need to 2 say something about it that gives people some 3 assurance that nothing has changed, if, in fact, 4 that's what we believe. 5 MR. REIFF: I would just point out to 6 the Commission that in our written comments on page 7 5 and 6, we attempted to apply the Commission's 8 definition of affiliation at 300.2, and it wasn't 9 even a close call in terms of Joe's and my 10 experience in the last two conventions. 11 MR. SANDLER: I do think--I mean, our 12 position is that just that there's no 13 misunderstanding that this rulemaking should be 14 terminated, and the petition for rulemaking should 15 be denied outright, and if in a preamble to a 16 notice denying the petition for rulemaking there 17 were obviously reasons given and one of the reasons 18 are as you articulated, that certainly would be 19 useful and constructive to the regulated community. 20 MR. JOSEFIAK: Simply a statement that 21 the host committees as they're constituted, if 22 they're legitimate organizations, established as 292 1 501(C) anythings, because there are multiple 2 versions of that, that they are not considered to 3 be under this rule unless they meet the standards of 4 affiliation under the regs or something if you have 5 to go that way, but I don't--my concern is that 6 you're raising the specter and that there is that 7 potential--you know, I know Joe and I have had just 8 the opposite experience. It's just contrary to 9 that. 10 COMMISSIONER MASON: Thank you. 11 CHAIR WEINTRAUB: Thank you, 12 Commission Mason. 13 Well, I just have a couple questions. 14 Mr. Josefiak, you've alluded a couple of 15 times to the right of the local parties to run 16 their conventions and to choose how they're going 17 to run their conventions, and you've suggested that 18 you can't do it the way you want to do it unless 19 you can have host committees help you out by 20 raising gobs of soft money. Aren't you sort of 21 undercutting the argument that the host committees 22 were making earlier that they're not acting as your 293 1 agents; their doing it for their own reasons. I 2 mean, you're sort of suggesting that they are 3 acting as your agents. 4 MR. JOSEFIAK: No. What we're saying is 5 that we're going to the city because the city is 6 interested in promoting their city. That is the 7 primary purpose under the regulations. The host 8 committee is allowed to, obviously, use that money 9 to promote the city and then to provide certain 10 kinds of services for the convention like the hall, 11 like the podium, and that sort of thing to entice 12 the convention to come there in the first place in 13 order to have this. 14 I don't think I'm undercutting the 15 argument. I think I'm just indicating the 16 practical realities of the cost of the convention, 17 and the host committees now are the main sponsor of 18 being able to host a convention in the city that 19 they negotiate with. Having an event, whether it's 20 one day or four days, in Madison Square Garden, to 21 rent Madison Square Garden, the public fund just 22 wouldn't be able to come close just to pay the rent 294 1 for that. 2 So if that's what we're talking about, 3 the ability to even function, not the message--the 4 message still has to be the party message--the 5 ability to even have a venue where you get 5,000 6 people for four days to come in an atmosphere 7 that--and, quite frankly, the 15,000 media 8 representatives that come it and their requirements 9 that have nothing to do with the stuff that you 10 like to spend the money on, but what you need to do 11 to make them comfortable and be able to do whatever 12 they're going do is very awesome process that 13 unless you go through it, most people have no idea 14 what goes into this kind of an operation to be able 15 to pull this off in this short period of time with the 16 kinds of infrastructure that goes into place. 17 CHAIR WEINTRAUB: Did you want to 18 comment on that, Mr. Sandler. 19 MR. SANDLER: Just I'm very troubled in 20 this whole discussion throughout the day in the use 21 of the term "soft money" in this context. If I--if 22 a corporation, you, the individual gives a hundred 295 1 thousand dollar check to a church, synagogue, 2 American Red Cross, Amnesty International, it's not 3 subject to the limitations and reporting 4 requirements of the act. Is everything in the 5 world now soft money? These are contributions to a 6 501(C)3 or 501(C)6 organization, which is in the 7 case of a C(3) has to win recognition of the 8 exemption, as you know, from the IRS and is subject 9 to scrutiny not only from the service, but also 10 from the city authorities because of use of public 11 and funds and sometimes state funds as well; and 12 the idea that contributions to a 501(C) that 13 engages in legitimate 501(C) functions is soft 14 money because it has something to do--we're really 15 not sure what and how or how we're going to 16 characterize it--with a political convention is not 17 really logical to us. It is not the question. We 18 are not talking about soft money. 19 We're talking about donations to host 20 committees that are set up for certain purposes 21 entirely apart from the Commission's regulations, 22 although, you know, were the Commission to change 296 1 its regulation, of course all of this would be 2 implicated and have to be fought out in the courts, 3 but the fact of matter is these are 501(C) 4 organizations that as far as the FECA is concerned 5 and BCRA, are no different than Amnesty 6 International or the American Red Cross, or the 7 United Jewish Federation. I don't think the use of 8 the term "soft money" to describe these 9 contributions is appropriate. 10 MR. JOSEFIAK: Madam Chair, and only in 11 the context that they are non-Federally regulated 12 monies. 13 CHAIR WEINTRAUB: You guys are good. 14 We'll have to come up new words. 15 Let me ask another devil's 16 advocates-type question, because I asked the guys 17 this. I gave them a hard time and suggested they 18 were prudes because they just didn't want people to 19 have a good time. 20 MR. JOSEFIAK: Which is true. 21 CHAIRWEINTRAUB: Well, maybe it is, 22 but let me sort of ask the flip side of that 297 1 question, because there are people like them out 2 there who think that the conventions have become 3 much too elaborate and much too expensive and much 4 too much fun, and it;s not just the two folks that 5 showed up here this morning. We got 1100 identical 6 E-mails. 7 MR. JOSEFIAK: I wonder where they came 8 from. 9 CHAIR WEINTRAUB: I can't imagine, 10 but, you know, there are 1100 people out there who 11 cared enough. I mean, you couldn't muster up 1100 12 E-mails on your side of the issue. They mustered 13 up 1100 E-mails on their side of the issue. 14 COMMISSIONER McDONALD: Oh, yes, they 15 could. 16 MR. SANDLER: We'll make this a bit of 17 an occasion to span the Federal Election 18 Commission. We'll be happy to beat that part of 19 1100. 20 CHAIR WEINTRAUB: That's right. I'll 21 have to look into that with the FCC. No. Maybe 22 not. We've got enough problems with the FCC these 298 1 days. 2 In any event, there is some sentiment 3 out there, perhaps a majority view, perhaps a 4 minority view, but there are people who care about this 5 who think that for us to allow the host committees 6 and the municipal funds to continue to raise 7 non-Federally regulated funds that may be used in 8 some way in connection with or in or around 9 convention is a huge loophole in the new soft money 10 regulations--I'm quoting here from the E-mail--that 11 were explicitly intended to break the link between 12 office holders and large contributions. And this 13 person as well as the other 1099 says: "I support 14 the use of my tax dollars to fund party conventions 15 precisely so that parties may turn away other 16 sources of inappropriate funds." 17 That's sort of conclusory, but suppose 18 we were to say no more--host committees--I'm trying 19 to avoid using "soft money"--host committees and 20 municipal funds can only use hard dollars in 21 connection with anything that's remotely close to 22 these conventions, putting aside the security issues, 299 1 because you're going to get some help for the 2 Homeland Defense--I forget what we call this new 3 agency. 4 What would happen is you would have to 5 run a much simpler, much less elaborate convention. 6 There would fewer balloons and fewer parties, and I 7 guess--and some would say it would be cleaner and 8 it look better and it would eliminate the 9 appearance of corruption and impropriety, and even 10 if there isn't any actual corruption, just 11 eliminating the appearance of impropriety would be a 12 step in the right direction. 13 I guess my question is tell me why we 14 should care if you have to run a cheaper 15 convention? 16 MR. SANDLER: First of all, it is not 17 the question of running a cheaper convention. The 18 idea that host committees could exist and raise 19 hard monies subject to the two-year aggregate 20 57,500 cycle, i frankly just makes no sense. Host 21 committees would disappear and conventions would 22 disappear. There's no possibility of putting on a 300 1 convention with the amount of the Federal grant 2 anyway and get 5,000 delegates in a facility with 3 every, you know, office holder, Federal, state, and 4 local from every party gathered in one place and 5 move them around and so forth with in the amount 6 of this Federal grant. 7 Now, what puzzles me about the analysis 8 you just put forth, if the host committee is to be 9 limited to Federal money on the theory that it's a 10 Federal political committee and everything it does 11 is an in-kind, then why shouldn't its net expenses 12 be limited to $5,000, the back to back limit? I 13 mean, after all, an in-kind contribution is an 14 in-kind of contribution. The fact that it's all 15 hard money makes no difference. It would exceed 16 the limitation of the act to hold a convention for 17 more than $5,000 above the amount of the Federal 18 grant under that analysis. 19 MR. JOSEFIAK: Joe is exactly right. It 20 doesn't fit into the scheme of any sort of, 21 quote-unquote, Federally-regulated money, because of 22 the aggregate because of the individual limits because 301 1 of if you're not affiliated PAC-to-PAC limits. 2 If you are affiliated, then you're still subject to 3 one limit anyway, and again, because this whole 4 thing is based on a concept of businesses in the 5 MSA, at least at this point in time, to be able to 6 promote their city within that, it makes all of the 7 business money go away. You'd have individual 8 money which is not necessarily a large part of the 9 whole operation to begin with. 10 And so under that kind of theory, you 11 only have two options, I think. One is that the 12 Federal Government is going to give the 50 million 13 or R60 million to do this, or you take the taxpayer 14 dollar out of it altogether, and you say, Okay, 15 this is an entire host committee operation because 16 it's not Federal election activity. You only have 17 those two choices, I think, if you go under that 18 scheme, because under that scheme, a hard dollar 19 host committee doesn't exist. What you're saying 20 there is if the committees aren't going to do it at 21 all, it's the Republican National Committee and 22 Democratic National Committee taking its share of 302 1 the $25,000 per person per year under the 57 2 aggregate and spending that money to put on a 3 convention versus giving it to the Presidential 4 candidate and coordinate it versus giving it to 5 state and Federal candidate versus having an 6 institution at all, because under BCRA, everything 7 is Federal money, whether it's rent, utilities, or 8 building. 9 So you're basically forcing, I think, 10 under that scheme the elimination of the national 11 party structure and organization, because you can't 12 do it all with 25,000 per year. 13 CHAIR WEINTRAUB: So just to push 14 this devil's advocate argument one step further, 15 why shouldn't we do that? Why shouldn't we then 16 just submit a legislation recommendation to 17 Congress saying we think you ought to either give a 18 whole lot more money to the convention committees 19 so that they can run it all on public funds and 20 eliminate this unseemingly chase for dollar of 21 whatever hardness or softness, or just, you know, 22 keep your money and let them do it all privately? 303 1 MR. SANDLER: The question, either of 2 those options have a lot to recommend, and the real 3 question is whether the Congress continues to take 4 out of the system the private contributions, the 5 funds that go directly to communicate, as Tom says, 6 the political message, the actual costs of 7 showcasing the nominee, putting on the program 8 and so forth, that they are directly related to a 9 Federal election and that, therefore, the 10 disbursements for which have to be made at least 11 under the Commission's current rules a Federal 12 political committee, namely the committee on 13 arrangements or in our case, the Democratic 14 National Convention Committee, and whether they 15 want to replace that with private contributions, we 16 can visit the judgment made in the post-Watergate 17 legislation. 18 MR. JOSEFIAK: And to be honest, Madam 19 Chairman, I would have a real philosophical problem 20 with taking 100 percent of taxpayer dollars, $50 21 million to put on a convention like this. I think 22 that is a benefit of the host committee where there 304 1 is a motivation by a city, not for political 2 reasons, but to promote their city to want this 3 kind of event taking place because of it's historic 4 value and the economic impact on that particular 5 city and state. So I think that's the incentive 6 that these cities have to do it, and why should the 7 taxpayer have to be burdened with that? I would 8 rather go the other way and say this really does 9 not have that--it's in connection. If it's a 10 501(C)3, it's a charity, and if they raise the 11 money and it's motivated by what these cities have 12 been motivated by in my experience, then that's the 13 way I would go rather than the other. 14 CHAIR WEINTRAUB: I thank you 15 engaging with me on this. I actually agree with 16 you that there are, gee, a whole lot of things I 17 would rather see $50 million in taxpayer dollars 18 going to support rather than giving more money for 19 the balloons. 20 COMMISSIONER McDONALD: The FEC budget? 21 CHAIR WEINTRAUB: Yeah. 22 MR. JOSEFIAK: Especially if they're one 305 1 that are falling down. 2 CHAIR WEINTRAUB: That's right. 3 Well, maybe we could ask the Congress to send some 4 of the money over here. We could do a roof deck so 5 that we could have our next hearing outside in this 6 gorgeous nice weather. 7 Mr. General Counsel, do you have any 8 questions? 9 MR. NORTON: Thank you, Madam Chair. I 10 think the testimony has been very helpful. The 11 subject has been thoroughly addressed. So, no, I 12 don't have any questions. 13 CHAIR WEINTRAUB: You just get 14 pithier and pithier, and I like that about you, Mr. 15 General Counsel. 16 Mr. Staff Director. 17 MR. PEHRKON: Madam Chair, I have 18 nothing. 19 CHAIR WEINTRAUB: I think that's just 20 wonderful. Let me thank you, yet again, for 21 coming, and--it's Friday afternoon and the weather is 22 nice--and for waiting around while this morning's 306 1 ran late and for submitting both your written 2 comments and testimony, and you will be hearing 3 what we do with this. 4 Thanks very much. This meeting is 5 adjourned. 6 (Whereupon, at 3:42 p.m., the hearing 7 was adjourned.) 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22