The committee met, pursuant to notice, at 9:30 a.m., in Room SR-301, Russell Senate Office Building, Hon. Mitch McConnell, Chairman of the Committee, presiding.

Present: Senators McConnell, Warner, Cochran and Dodd.

The CHAIRMAN. I think what I'm going to do, so that we can get started on time, is go ahead and make my opening statement. I assume Senator Hatch, who is our first witness, will be here momentarily.

I also want to thank Senator Cochran for coming by and giving us a chance to get started here. Under our rules, it takes two Senators to begin a hearing.

Good morning, everyone. Today's hearing is the fifth in the Committee's series of seven hearings on campaign reform, and it will focus on citizen participation in the political and policy debates.

Citizen participation in the national debate is the essence of democracy. Citizens participate in a variety of ways, including donating time and money to issue groups, political parties, political action committees, and candidates' campaigns.

The campaign finance battle in Congress has taken some amazing twists and turns over the years, but none has been more curious and ironic than the reformers decision to move away from targeting politicians to now targeting private citizens. For example, a decade ago the so-called reformers focused on limiting the speech of politicians through campaign spending limits. Today, however, the reformers obsess on limiting the speech of private citizens and groups, including the American Civil Liberties Union and the National Right to Life Committee. Over the past few months, the reformers have placed private citizen groups like the Sierra Club, who reportedly conduct activities under Section 527 of the Internal Revenue Code, in their cross-hairs.

Welcome, Senator Hatch. I decided to go on and start my opening statement.

Senator HATCH. I'm happy that you did.

The CHAIRMAN. The Sierra Club initially had agreed to testify at today's hearing, but unfortunately had to cancel because of scheduling difficulties.

Essentially, there are three main players in the national debate: the politicians, the press, and private citizens. The leading reform

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proposals in Congress ignore the politicians and the press but go after private citizens who make up issue groups and political parties.

Our hearing on April the 5th discussed government efforts to regulate political party soft money. Today we will discuss government efforts to regulate nonparty soft money; that is, money raised and spent by issue groups to influence the national debate.

Both sides of the debate agree that citizen participation is the key piece of the campaign finance puzzle. The League of Women Voters and others in the reform industry have argued persuasively that reform is meaningless if it does not include restrictions on issue groups. In a memorandum dated September 28, 1999, the League of Women Voters explained that regulating issue advocacy is the linchpin of reform, and that failure to do so in last fall's slimmed-down version of McCain-Feingold, which only banned party soft money, was a harmful exercise. The League of Women Voters opposed that legislation on the grounds that "sham issue ads are clearly part of the soft money problem. Because the modified McCain-Feingold legislation fails to deal with sham issue ads, it fails to fully address the soft money crisis."

Moreover, the League explained that a bill that bans only party soft money "will drive soft money into issue ads, expanding the current loophole."

I would like to insert the League of Women Voters memorandum into the record at this point.

[See Appendix 34.]

The CHAIRMAN. Although I disagree totally with this characterization of First Amendment freedom as a "loophole," I do agree with the League's assessment of a bill that only bans party soft money. On many occasions, I have noted that the reform efforts are akin to a "rock on jello”, that is, limits in one area will inevitably force money into other areas.

So today's hearing focuses on the fundamental question of reform. Does the First Amendment allow the government to regulate the issue speech of private citizens and groups? If not, then a party soft money ban is meaningless. To limit special interest influence and overall spending, the government must limit all avenues of participation, including nonparty soft money. Anything less than that is just a shell game.

Before I turn to our witnesses, I want to remind my colleagues on the Committee that we have already traveled down this deadend road. The Supreme Court and lower Federal Courts have already answered the fundamental question about regulating issue advocacy. Congress tried to force regulations, namely donor disclosure, on issue groups a quarter century ago, and failed miserably. As amended in 1974, the Federal Election Campaign Act required issue groups to disclose all contributions over $10 received by any organization which publicly referred to any candidate or any candidate's voting record, positions or official acts of candidates who were federal officeholders. This language sounds hauntingly familiar to the McCain-Feingold legislation.

This blatantly unconstitutional provision never even made it up the stairs to the Supreme Court. The D.C. Circuit Court of Appeals, in Buckley v. Valeo, struck down this issue advocacy disclosure pro

vision stating: "[the disclosure provision] might, of course, leave open one avenue for groups wishing to maintain the privacy of their contributor lists while discussing public issues: they could refrain from mentioning candidates' positions or listing incumbents' voting records. But, to do this, the group would have to be extremely careful about mentioning even the names of those who held a particular position on an issue...Such watered-down and cautious discussion is hardly the uninhibited, robust and wide-open debate, on public issues which the First Amendment was designed to foster." The D.C. Circuit Court concluded that "Congress intended a result which is unconstitutional..."

Even the reformers at the time recognized the constitutional impossibility of regulating issue advocacy. In fact, the invalidation of this disclosure provision was the only part of the D.C. Circuit's decision that was not appealed to the Supreme Court.

Nevertheless, the Supreme Court in Buckley was faced with another disclosure provision that did make it up on appeal. That disclosure provision required "every person who makes a contribution or expenditure aggregating over $100 in a calendar year to file a statement with the [FEC]." The Court was concerned that the term "expenditure", as used in this disclosure provision, posed constitutional problems because the definition of expenditure as used in this disclosure provision relied upon the phrase "for the purpose of...influencing" an election for federal office. The Court feared that this phrase could be read to encompass discussion of issues.

To avoid this constitutional problem, the Court held that the phrase "for the purpose of...influencing" an election could only be applied to express advocacy. Specifically, the Supreme Court held: "to insure the reach of [Federal Election Campaign Act's disclosure provision] is not impermissibly broad, we construe expenditure for purposes of that section...to reach only funds used for communications that expressly advocate the election or defeat of a clearly identified candidate."

Moreover, the Court stated that "funds used to propagate...views on issues without expressly calling for a candidate's election or defeat are...not covered.'

It is difficult for me to read the Supreme Court's seminal case of Buckley v. Valeo and understand how anyone could conclude that Congress has the power to regulate issue speech. Moreover, this bright-line distinction has been upheld repeatedly in federal courts across the country. The reformers continue to grapple with a thorny Catch-22, pass comprehensive but blatantly unconstitutional reform or pass narrow, ineffective and arguably less blatantly unconstitutional reform.

Of course, there is a third option: recognize the First Amendment as America's premier political reform and look upon all this issue advocacy and express advocacy as healthy indications of a vibrant democracy.

With that, let me see if my colleague, Senator Dodd, has any comments to make.

Senator DODD. Thank you very much, Mr. Chairman.

First of all, I would welcome our colleague and my good friend, Senator Hatch of Utah, and I'm pleased to see our colleague from Virginia, the former chairman of this Committee, Senator Warner,