Address by

DARRYL R. WOLD

Chairman

Federal Election Commission

to the

Practicing Law Institute

Washington, D.C.

September 21, 2000

            Before I begin let me acknowledge the three co-chairs of this conference:  Jan Baran, Ken Gross, and Chip Nielsen.  You are fortunate to have three  such knowledgeable and capable practitioners organizing this program, giving you the benefit of their many years of experience with the FECA and the FEC.  I am honored that my association with each goes back many years, in different ways.

            I am pleased to be part of this program and to have the opportunity to say a few words to you about a subject in which we have mutual professional interests.

            The title of my talk in the bulletin announcing this program is "Latest Developments at the Commission" -- but other panelists at the morning and afternoon sessions of this conference are leading you through an in-depth examination of various technical areas of campaign finance law — the state of the law as it is now — including the latest developments.   I couldn't add much to what they are telling you, and they are as well-qualified as I am to cover their respective subjects.

            Instead of telling you about the latest developments that have taken place, then, what I would like to do is tell you a little about four aspects of the law in which the Commission is considering the possibility of some changes by rulemaking in the not-too distant future. 

            After I cover those areas, I want to conclude with a couple of observations on the state of the FEC and the FECA in general.

            Let me start with the subject of “soft money.”  One of the major areas of controversy in campaign finance these days is over the use of soft money by the political parties -- donations of money in excess of the hard money contribution limits of the FECA, and made not only by individuals, but also by corporations and labor unions.

            The Commission's regulations currently recognize that political parties may accept these soft money donations, and may use these donations for a portion of the costs of certain activities, including two that have become the principal focus of advocates of additional regulation:  party building activity, such as voter registration and voter turnout; and issue advocacy — that is, communications to the general public concerning legislative or other issues that do not expressly advocate the election or defeat of a specific candidate.

            In each of these areas, however, the Commission’s current regulations require that the costs of these activities be allocated between hard money and soft money -- that is, that a portion of the costs -- the largest portion -- be paid with hard money, and that soft money be used for only a smaller portion of the costs.  In a Presidential election year, for instance, the national parties may use soft money for only 35% of the costs of these activities, and must pay for 65% of the costs with hard money. 

            Anyone who has looked at the trends in campaign contributions over the past several years is aware that the amount of soft money contributions to the political parties has grown substantially.  Those who are concerned with this trend have called for new controls on the use of soft money, and those calls have led to various legislative proposals in Congress.  The Shays-Meehan and McCain-Feingold proposals are the best known, but not the only examples, of such legislative proposals. 

            The advocates of new controls on soft money have not directed their efforts only at Congress, however, but have also urged the Commission to adopt new regulations to eliminate the use of soft money, on their theory that it is the Commission’s regulations that “created” or “permitted” the use of soft money in the first place, and what the Commission giveth it can take away.

            In response to two formal petitions to the Commission for rulemaking in this area, in 1998 the Commission published a notice of proposed rulemaking, received public comments, and held a hearing.   We have not taken any further steps since then in part because there has not been a clear consensus among the Commissioners as to what changes if any we should make in the existing regulations. 

            In my view, our consideration has to proceed in three stages, or steps:

            The first stage is the question of whether we can permissibly further restrict or prohibit the use of soft money, in light of the wording of the FECA and the constitutional limitations that the Supreme Court has placed on its application.  I have substantial concerns in this area, but much has already been written on this issue, so I won’t go into it further here.

            If we can act to further restrict the use of soft money, the second question is whether we should do so. 

            In addressing this question, the Commission has to recognize that one result of prohibiting the national parties from raising and spending soft money -- that is, of imposing the hard money limits on all money received by the national parties --  would be to reduce the amount of money that is available for political speech, and thereby reduce the amount of speech.  I think it is incumbent on the Commission to consider this effect, and whether it would be healthy for the political process for us to act in a way that would reduce the amount of speech in that process.

            In addition, the Commission should also consider that Congress would have more flexibility in dealing with the issue of soft money, and therefore would be the body more suited to make any changes.  Congress could, for instance, impose limits on the amount of donations of soft money, but set those limits at a level that would not be as restrictive as those the Act presently imposes on hard money contributions to the political parties.  The Commission, however, does not have this legislative flexibility.  For us it’s an either-or proposition:  We have to either impose the hard money limits as they are found in the Act, or not impose those limits.  We can’t choose different limits.

            Congress would also have the flexibility to compensate for the effect of reducing soft money donations to the political parties, by at the same time raising the 25-year-old hard money limits applicable to contributions to candidates.  Again, the Commission does not have that option.

            Further, the Commission must recognize that the same advocates that have urged the Commission to act to ban soft money have even more vigorously urged Congress to act to do so -- but Congress has not done so.  When the nation’s highest legislative body does not act to change the law, after repeatedly debating it and failing to adopt bills to do so, I have serious reservations about the propriety of a regulatory agency stepping in and doing so itself.

            Thirdly, and only if we decide that we can do something, and that we should do something, do we reach the question of what we will do.

            The range of possible Commission actions concerning the use of soft money that have been suggested include:

Doing nothing -- that is, not making any change in the existing rules.

            Or:  Prohibiting the national political parties from accepting soft money for any purpose whatsoever, except for the building funds that are specifically permitted by the FECA.

            Or:  Prohibiting the national political parties from accepting soft money for party building and for communication of issue and legislative advocacy, but not prohibiting the parties from accepting soft money for the purpose of supporting state and local candidates.

            And/or:  Requiring that transfers of funds from the national parties to the state parties include both hard money and soft money in the allocation ratio applicable to the national parties, to prevent them from skirting those limits by taking advantage of the more lenient allocation ratios applicable to the state parties.

            In any event, we do not expect to take any definitive action on this issue for some time yet. 

            It is true that the agenda for our open meeting on September 28 includes a discussion of the status of this rulemaking, but we do not expect to take any definitive vote on the matter at that time.   And, it is apparent from the calendar that even if we decide at some point to make some changes, we will not be making any changes that would go into effect for this current election cycle.

            Let me go on to deal briefly with three other subjects of pending rulemaking proposals.

            The concept of coordinated expenditures being treated as contributions, like soft money and issue advocacy, has a long and tortured history of Commission action and judicial reaction.  Others have laid out that history in detail in the materials for this conference, and I won’t repeat it here.

            As in the case of soft money, the Commission has promulgated a notice of proposed rulemaking, has held a hearing, and is now considering language for a revision to its current regulations that define when and under what circumstances an expenditure will be considered to have been coordinated with a candidate and therefore constitute a contribution to that candidate.

            It appears that a majority of at least four Commissioners may be ready to agree on a new definition that is roughly based on the approach recently used by Judge Green of the United States District Court for the District of Columbia in the Christian Coalition case. 

            I want to note only a few highlights of the definition we are considering:

            It would apply to general public political communications.

            It would not require express advocacy as an element necessary for the communication to constitute a coordinated expenditure, as Judge Green did not.

            It would require coordination as to the specific communication.

            And it would require either:  Some degree of control or decision-making by the candidate concerning that communication; or substantial discussion or negotiation between the producer of the communication and the candidate.

            Now let me caveat what I just said:  This is a very general description; and the elements could change.

            I will also add that probably no Commissioner is likely to be completely happy with all aspects of a new definition that a majority of us may agree on.  From my perspective, anyway, I feel that a revised definition along the lines outlined above would be better than the present regulation that has resulted in the Commission finding coordination from much more generalized contacts than would be required by this new language, but then repeatedly losing in enforcement actions in court.

            As far as the timing, we expect to consider a draft rule probably sometime in November, and would hope to have it in place well in advance of the 2002 election cycle.

            Another subject area of rulemaking currently awaiting further action concerns the Commission’s definition of “political committee”. 

            The Commission is acting on this subject in response to a request from one of our Commissioners, Karl Sandstrom, who some time ago proposed expanding the definition of political committee to include advocacy groups, membership organizations, and other entities if they met specified criteria indicating that they were making public communications for the purpose of influencing an election for federal office.  Commissioner Sandstrom’s proposal would have the effect of extending the coverage of the Act to include organizations which are not presently subject to the Act, if they meet the specified criteria in connection with their communications.

            The ostensible purpose of extending the coverage of the Act to additional organizations would be to at least require public disclosure of the identity of contributors and the nature of expenditures by such organizations.  Since Commissioner Sandstrom first made his proposal, Congress has in fact acted to impose such disclosure requirements on one category of organizations that would be included in Commissioner Sandstrom’s proposal:  Organizations that claim tax exempt status under section 527 of the Internal Revenue Code.  

            This proposal, however, also runs into the limited flexibility of the Commission.  While Congress could -- and did -- apply disclosure requirements to organizations not presently subject to the Act -- section 527 organizations -- it did so without imposing the hard money limits of the Act on donations made to those organizations.  The FEC generally does not have that flexibility to impose only one part of the requirements of the Act.   If we expand the definition of “political committee” to include additional organizations, that necessarily would apply not only the disclosure provisions of the Act to those organizations, but also the hard money limits.  In my mind, that is an important consideration for the Commission in deciding whether or not to proceed in this area.

            In the next few months, I expect that we may promulgate a request for comment on this subject.

            The fourth and last subject of rulemaking that I want to briefly mention is the application of the Act to the Internet.

            Late last year the Commission promulgated a notice of inquiry asking for public comment on the question of whether we should adopt additional rules to deal with this subject.  In response we received over 1200 comments -- which must be a record number on a rulemaking -- most of them telling us to keep our hands off of their Internet.   I would like to think that large number of comments means there is widespread public interest in what the FEC is doing, but I suspect that in this case it was rather an indication that we touched a nerve in a discreet segment of the public who want as little to do with us as possible.

            We are presently in what I refer to as a “study” period on this subject.  We are watching to see what issues concerning the Internet arise during this election cycle, including the Advisory Opinion requests that we receive, as an indication of whether we even need any new rules in this area, and if so, what they need to cover.

            In my mind, the difficulty of deciding whether and how to apply the Act to the use of the Internet arises in part because of a question of valuation.  The Act’s thresholds for reporting and for political committee status are based in part on the dollar value of activity.  A difficult issue we encounter in the use of the Internet for advocacy, however, is measuring the dollar value of that use -- the dollar value of a Web site, the dollar value of a link added to an existing Web site, the dollar value of spam email expressly advocating the election or defeat of an identified candidate.  I don’t predict what answers the Commission will come up with.

            Before concluding, I want to add a few remarks about the state of the FEC and the FECA. 

            The current public debate about the appropriate level and scope of regulation of money in the political process is a legitimate one, concerning which reasonable people can differ.   But I do want to challenge the contentions by some participants in that debate that additional regulation is needed because the existing statutory scheme has become ineffective.  The Washington Post has editorialized that the regulatory system “has been thoroughly circumvented,”   it “has been a failure” and “as a practical matter . . . has ceased to exist”.  The New York Times calls the existing system of campaign finance “corrupt”.  Tom Mann with the Brookings Institution describes “the collapse of the regulatory regime for campaign finance” and says that “we are now in a situation where almost anything goes.”  Others have been quoted in USA Today as saying that the Commission “is not breathing.  It’s dead.”  “You can put a tag on the toe of the FEC” --  “it is laid out on the slab.”

            That kind of rhetorical hype and hyperbole may be seen as an effective emotional appeal for increased regulation, but it gives a misleading impression of the present state of the matter.  The provisions that are at the heart of the FECA – the disclosure requirements and the hard money limits – the limits on contributions to candidates for their campaigns, and on contributions to political parties, PACs, and advocacy groups to make contributions to candidates, or to expressly advocate the election or defeat of candidates – that is, the provisions concerning campaign finance – are in place, are being enforced, and are being complied with, just as they always have been.  The provisions requiring disclosure of contributions to candidates, and imposing the hard money limits on those contributions, have not been eroded, circumvented, or removed from the law.  To paraphrase Mark Twain, the death of the Act has been greatly exaggerated.

            To illustrate my point, let me give you a few statistics -- always a good way to finish a speech after lunch -- to indicate the substantial vigor of the FECA.

            Thus far in the current election cycle, 7,300 committees have filed 49,000 reports with the Commission.  These reports have publicly disclosed approximately 1.7 million transactions -- contributions and expenditures -- that affect federal elections. 

            It is also worth noting that although the number of transactions has grown by almost one-third from the 1996 presidential election cycle to the 2000 election cycle, the level of scrutiny of those transactions has also increased.  The FEC’s web site, along with numerous private sites, allows any individual, and the media, to closely examine a campaign’s financial reports and contributor data.  Mandatory electronic filing that will begin next year will enhance this scrutiny.

            All this new sunlight shining onto the system should presumably make it easier both for “watchdog groups” and for the FEC to catch violations of the Act.  Interestingly, however, despite the increased number of transactions - and increased scrutiny - the number of complaints filed in the 2000 cycle  --213 thus far -- near the end of the cycle -- is substantially lower than the total number of complaints -- 462 -- filed in the last presidential election cycle. 

            This indicates to me that the level of voluntary compliance with the requirements of the Act is very high.   I think we can safely say that the overwhelming majority of committees that are subject to the FECA obey the law, and are making the FECA’s core reporting and disclosure provisions as relevant and effective as they ever have been.  In short, the FECA is not “dead” but instead is alive and well.

            I take the time to say this because I recognize that you are here because you -- and your clients -- are interested in compliance with the requirements of the Act, and I want to encourage that interest.  I don’t want you to have the impression that compliance is not important, or that the regulatory system itself is irrelevant to the election process -- that it is much ado about nothing.

            Compliance with the regulatory scheme is important because the regulation of campaign finance has become as much a part of our system of elections as the voting system itself -- the rules governing registration of qualified voters, the secret ballot, the accurate counting of the votes, and the honest announcement of the result.

            Compliance with all of these rules -- the rules of the game -- the rules that are an integral part of our system of elections -- is important, because compliance with the rules gives us confidence in the process, and confidence in the process -- whether our candidates win or lose -- gives us respect for the results.  And respect for the results is important because this is more than a game -- this is our system of self-governance -- these are the  rules of our democracy by which we provide the government for this great Republic. 

            I respect your interest in participating in this process, and thank you again for the opportunity to talk to you about some issues that are of mutual interest to us.