1. Chair Lemon called the meeting to order at approximately 9:30 a.m.
    
   
2. Approval of Minutes of May 20, 2003 Meeting

   Commissioner McKay moved to accept the May 20, 2003 meeting minutes. Commissioner Detrick seconded. Motion carried.

3. Executive Director's Report
   • Autumn Southard, Voter Education Manager, is attending the Secretary of State's Office election official certification class. Paula Ortiz, Executive Assistant, Colleen McGee, Fiscal Services Manager, and Rebecca Hecksel, Campaign Finance Analyst will be attending the certification class in July. Executive Director Connor will be attending the re-certification class in August.
   • The fund balance at the end of May was $10,326, 393
   • May 2003 revenue from the $5 tax check-off was $3 million dollars.
   • The incoming phone call tracking system is complete and staff has implemented its usage. Staff will now be able to monitor telephone information.
   • Staff will be working on a new request for proposal (RFP) for a new accounting services contract. The contact with Sarvis, King, & Coleman has expired.
   • During today's executive session, Jay Zweig, Gallagher & Kennedy, and Charles Wirken, Gust Rosenfeld P.L.C., will update the Commission on the Matt Salmon and Matt Shaffer's matters.
   • The 3 Libertarian candidates from District 17 have requested an administrative hearing regarding the Commission's decision to request repayment of clean elections funding. The hearing will be held on July 24, 2003. Executive Director Connor and Assistant Attorney General, Todd Lang, will hold an informal settlement conference with the three candidates on June 26, 2003.
   • Autumn Southard, Voter Education Manager, continues her outreach/awareness tour throughout Arizona. In addition, Autumn produced a 2003/04 informational brochure regarding clean elections.
   • Staff continues to work on 2004 candidate debate RFP with the State Procurement Office.
   • Staff continues to work with L3 & Barclay Communications to establish the 2003-2004 Budget & Strategic plan. The public relation performance criteria is a discussion item on the today's agenda.
   • Staff has received numerous comments in response to the proposed rule on today's agenda regarding adjusting the matching funds for a participating candidate based on independent expenditures. Copies of the public responses are included with Item V on today's agenda.
   • The Federal Elections Commission extended the deadline for their response to Congressman Flake's regarding his request for an opinion on his participation in the ballot initiative to repel the Clean Elections Act.
   • The US Supreme Court will hear oral arguments regarding constitutional challenges to the Bipartisan Campaign Reform Act (BCRA) on September 8, 2003

4. Decision to Accept, Reject or Modify Recommendation of Administrative Law Judge in MUR No.: 02-0036, Matt Salmon

   Before discussing the Office of Administrative Hearings' decision on MUR No.: 02/0036 - Matt Salmon, Commissioner McKay proposed going into executive session to receive legal advice. Commissioner Detrick seconded. Motion carried.

   Commissioner Jolley reminded the Commission that she has recused herself from the Matt Salmon matter.

   After reviewing the decision of the Office of Administrative Hearings, Administrative Law Judge Brian B. Tulley on MUR No. 02/0036 - Matt Salmon, the Commission adopted the decision with the following modifications and rejections and imposed a civil penalty in the amount of $3,471.75.

   • Finding of Fact 5 is modified because it incorrectly lists the Commissioners serving in 2003 by including Ruth S. Jones and Carl E. Lopez, and omitting Ermila Jolley and Marcia Busching. Finding of Fact 5 is modified as follows: The Commission consists of five members. From February 1, 2002, through January 31, 2003, the Commission was comprised of Ruth S. Jones, who served as Chairperson, L. Gene Lemon, David G. McKay, Ermila Jolley, and Kathleen S. Detrick. From February 1, 2003, the Commission is comprised of L. Gene Lemon, who serves as Chairperson, David G. McKay, Ermila Jolley, Kathleen S. Detrick, and Marcia Busching. Commissioner Busching moved to approve the revisions. Commissioner Detrick seconded. Motion carried.
   • Finding of Fact 11 the first sentence is accepted. The second sentence, however, is rejected because is contains information regarding the sources of public funding that was not in evidence. Pursuant to A.R.S. § 41-1092.07(F)(6), the findings of fact shall be based exclusively on the evidence and on matters officially noticed during the hearing. The second sentence also incorrectly lists the fee imposed on lobbyists as a funding source. In 2001, an Arizona Superior Court found the lobbyist fee imposed by the Act pursuant to A.R.S. § 16-944 to be unconstitutional. Lavis v. Bayless (CV 2001-006078). Commissioner Busching moved to approve the revisions. Commissioner Detrick seconded. Motion carried.
   • Finding of Fact 20 is modified to comport with the evidence. The last statute cited is incorrectly identified as A.R.S. § 16-915(A)(16). The correct statutory citation is A.R.S. § 16-915(A)(6). Commissioner Busching moved to approve the revisions. Commissioner McKay seconded. Motion carried.
   • Finding of Fact 42, the first sentence is rejected and the second sentence is modified to comport with the evidence as follows: State Elections Director Jessica Funkhouser recused herself on August 23, 2002, citing the appearance of a conflict of interest based on her then-employment with Secretary of State Betsey Bayless. At issue at this time was whether there was reasonable cause to believe that a campaign finance reporting violation within the Secretary of State's jurisdiction occurred based upon SFG's August 21, 2002, amended report. Finding of Fact 42 is modified also because it incorrectly states that "Jessica Funkhouser would have rendered a determination on" a Clean Elections matter. Commissioner Busching moved to approve the revisions. Commissioner McKay seconded. Motion carried.
   • Finding of Fact 47 is modified to comport with the evidence as follows: On August 27, 2002, the Commission met in a public meeting and received staff's report on MUR No.02-0035. Mr. Shaffer presented the staff's analysis of the accounting methodology used by SFG and the reasonableness and legal propriety of using either the "cash" or "accrual" accounting methods in the election law reporting context. Finding of Fact 47 is modified also because it incorrectly states that the Commission "received Ms. Connor's report," when Findings of Fact 45 & 46 clearly provide that Mr. Shaffer performed the analysis and gave the report to the Commission. Commissioner Busching moved to approve the revisions. Commissioner McKay seconded. Motion carried.
   • Finding of Fact 51 is modified to comport with the evidence as follows: Later that same day after the Commission meeting, Ms. Connor met with the recused Secretary of State employee Jessica Funkhouser. This meeting was for the purported purpose of providing Ms. Connor with "technical assistance to accurately read the information generated by the electronic filing spreadsheet for this matter." Finding of Fact 51 is modified also because it incorrectly states that Ms. Connor met with Ms. Funkhouser privately after the August 27, 2002 Commission meeting to discuss the campaign finance reports. Commissioner Busching moved to approve the revisions. Commissioner McKay seconded. Motion carried.
   • Finding of Fact 52 is modified to comport with the evidence as follows: Following the August 27, 2003 Commission meeting, Ms. Funkhouser gave Ms. Connor her working papers for Article 1, and indicated that Mr. Shaffer's statement that both accounting methods were acceptable was inaccurate. Ms. Connor acknowledged that Mr. Shaffer's statements were incorrect and made a copy of the papers Ms. Funkhouser brought with her. Finding of fact 52 is modified also because it incorrectly asserts that the Article 1 violations were being addressed at the August 27, 2002 Commission meeting. The Article 1 inquiry was a separate inquiry with different filing deadlines than that of MUR No. 02-0035. Commissioner Busching moved to approve the revisions. Commissioner McKay seconded. Motion carried.
   • Finding of Fact 53 is modified to comport with the evidence as follows: Almost immediately after Ms. Connor's meeting with Ms. Funkhouser, Ms. Connor confronted Mr. Shaffer concerning his investigation and analysis on MUR No.: 02-0035. Ms. Connor rejected the prior staff analysis submitted to the Commission, and told Mr. Shaffer that the Commission would open a new investigation (MUR No. 02-0036) on the very same subject of the Appellant's campaign finance reporting. Finding of Fact 53 is modified also because it is incorrect and there was no evidence or testimony during the hearing to support the finding. Commissioner Busching moved to approve the revisions. Commissioner Detrick seconded. Motion carried.
   • Finding of Fact 56 is rejected because it is based on hearsay evidence, which is not reliable evidence, and the Commission did not have the opportunity to cross-examine Ms. Daggs. In addition, Finding of Fact 56 is rejected because there was no evidence admitted during the hearing to support the finding that participating candidates were not provided with matching funds until August 27, 2002 for outstanding debts of their nonparticipating opponents. Pursuant to A.R.S. § 41-1092.07(F)(6), the findings of fact shall be based exclusively on the evidence and on matters officially noticed during the hearing. Commissioner Busching moved to approve the revisions. Commissioner Detrick seconded. Motion carried.
   • Finding of Fact 57 is rejected because there was no evidence admitted at the hearing to support the finding. Pursuant to A.R.S. § 41-1092.07(F)(6), the findings of fact shall be based exclusively on the evidence and on matters officially noticed during the hearing. Commissioner Busching moved to approve the rejection. Commissioner Detrick seconded. Motion carried
   • Finding of Fact 64, the first sentence is accepted, but the remaining portion of the finding is modified to comport with the evidence as follows: In the Preliminary Audit Report, the Auditors stated: "The Commission requested FSKC [the Auditors] to review specific expenditures reported by the Committee in the total amount of $147,511.49 to determine whether they were reported timely under the accrual basis of accounting." The Appellant's original assertion that the accrual accounting methodology was required by Arizona law for reporting campaign expenditures was confirmed by the Auditors as the appropriate method for reporting expenditures as explained in the Preliminary Audit Report: We reviewed the applicable Arizona election laws relative to the reporting of campaign expenditures, disbursements and debts. Arizona Revised Statute ("A.R.S.") 16-901(8) defines an expenditure (emphasis added) as 'any purchase, payment, distribution, loan, advance, deposit or gift of money or anything else of value made by a person for the purpose of influencing an election … and a contract, promise or agreement to make an expenditure resulting in an extension of credit and the value of any in-kind contribution received.' Based on our interpretation of the above statute, a campaign committee must report all expenditures including those that have not yet been paid and those received as in-kind contributions. This methodology is consistent with the accrual basis of accounting." Exhibit 22. (Emphasis added) Finding of Fact 64 is modified also because the Commission's direction to the Auditors was based on the Auditor's expertise in accounting methodologies and the advice the Auditor provided to the Commission's staff as referred to in Finding of Fact 53. Commissioner Busching moved to approve the revisions. Commissioner McKay seconded. Motion carried
   • Finding of Fact 68 is rejected because it is a conclusion of law, not a finding of fact. Commissioner Busching moved to approve the rejection. Commissioner Detrick seconded. Motion carried
   • Finding of Fact 75 is accepted, except for the last sentence. The last sentence is rejected because there was no evidence admitted at the hearing to support the finding. Both the Preliminary and Final Audit Reports explain how the statutory accounting method is most consistent with the accrual method for reporting expenditures. Pursuant to A.R.S. § 41-1092.07(F)(6), the findings of fact shall be based exclusively on the evidence and on matters officially noticed during the hearing. Commissioner Busching moved to approve the revisions. Commissioner McKay seconded. Motion carried
   • Finding of Fact 76 is modified to comport with the evidence presented at the hearing: The Auditors "conducted the investigation in accordance with the applicable Arizona election laws relative to the reporting of campaign expenditures, disbursements and debts, which do not make specific reference to either the accrual basis or cash basis of accounting." Exhibit 25. Finding of Fact 76 is also modified because both the Preliminary and Final Audit Reports explain how the statutory accounting method is most consistent with the accrual method for reporting expenditures, and provided the Auditor's interpretation of the campaign finance law reporting requirements in performing the audit. Commissioner Busching moved to approve the revisions. Commissioner Detrick seconded. Motion carried
   • Finding of Fact 77 is accepted, except for the last sentence, which is rejected, because there was no evidence admitted at the hearing to support the finding. Pursuant to A.R.S. § 41-1092.07(F)(6), the findings of fact shall be based exclusively on the evidence and on matters officially noticed during the hearing. Commissioner Busching moved to approve the revision. Commissioner McKay seconded. Motion carried
   • Finding of Fact 86 is rejected because the first two sentences repeat the finding in the modified Finding of Fact 81. The last sentence of Finding of Fact 86 is rejected because it is a conclusion of law, not a finding of fact. Commissioner Busching moved to approve the rejections. Commissioner Detrick seconded. Motion carried
   • Finding of Fact 88 is modified to comport with the evidence as follows: Of the $147,511.49 reviewed, the Auditors determined in its Preliminary Audit Report that Appellant reported campaign expenditures totaling $98,529.46 late, which includes the $31,358.63 referred to in Finding of Fact 81 plus another $67,170.83 in campaign expenditures. Finding of Fact 88 is modified also because there was no evidence to support the assertion that the cash basis of accounting applies for reporting of expenditures. Instead, the application of the cash basis of accounting conflicts with Finding of Fact 20 (calculation of expenditures by the campaign finance software); Finding of Fact 30 (Commission procedure for calculating expenditures); Finding of Fact 47 (SFG Report to Commission); Findings of Fact 53 and 64 (Preliminary Audit Report); Finding of Fact 75 (statutes, software and training specify accounting methodology); and Findings of Fact 76 & 77 (Final Audit Report). Commissioner Busching moved to approve the revisions. Commissioner Detrick seconded. Motion carried
   • Finding of Fact 89 is modified to comport with the evidence as follows: The Auditors found no evidence to suggest that SFG engaged in activities designed to deliberately not report its expenditures in the correct reporting period. The Auditors also noted in the Final Audit Report that: The [SFG] Committee initially cooperated with [the Auditors] SKC in our investigation and made requested documentation available to us. However, subsequent to the preparation [of] the schedule summarizing our preliminary findings, we attempted on numerous occasions to schedule a meeting with Committee personnel to review additional documentation which would show when the Committee first had knowledge of the expenditures included in the scope of our investigation. We also requested that Committee personnel review in detail our preliminary findings and provide us with any explanations, comments or documentation which they believed were pertinent to the investigation. Ultimately, we were informed by Lisa T. Hauser, that due to the demands of the campaign, the Committee would be unable to perform a detailed review of our preliminary findings prior to the preparation of our investigative report. Finding of Fact 89 is also modified because it incorrectly states "Appellant and SFG were very cooperative with the Commission and the Commission staff" despite the Final Audit Report's description of SFG's lack of cooperation. Commissioner Busching moved to approve the revisions. Commissioner Detrick seconded. Motion carried.
   • Finding of Fact 90 is rejected because it is a conclusion of law, not a finding of fact. Commissioner Busching moved to approve the rejection. Commissioner Detrick seconded. Motion carried.
   • Conclusion of Law 2 is rejected. The evidence e of record is adequate to establish Appellant violated the provisions of A.R.S. §§ 16-941(B)(2) and 16-958(A) as described in the above-provided Findings of Facts. Commissioner Busching moved to approve the rejection. Commissioner McKay seconded. Motion carried
   • Conclusion of Law 7 is accepted in part as follows: It is concluded by the administrative Law Judge that there are strong matter in mitigation to be considered when contemplating the assessment of a civil penalty against Appellant. Commissioner Busching moved to approve the revisions. Commissioner Detrick seconded. Motion carried.
   • Conclusion of Law 8 is rejected. Commissioner Busching moved to approve the rejection. Commissioner Detrick seconded. Motion carried

   Commissioner Busching requested that the Commission review the revisions made before making a final decision on MUR No. 02/0036. The Commission agreed to hold a special meeting on June 30, 2003 to review the final revisions.

5. Consideration of Rule for Matching Funds for Independent Expenditures

   The proposed rule addressed the adjustment to matching funds for independent expenditures against a nonparticipating candidate.

   Commissioner Detrick moved to discontinue efforts on adopting a rule for matching funds for independent expenditures. Commissioner McKay seconded. Motion carried.

6. Discussion and Consideration of Scope of Work for Candidate Debates in 2004

   Executive Director Connor explained the following modifications to the "scope of work" for the 2004 candidate debate request for proposal (RFP).

   • Purpose
   • Evaluation Criteria
   • Goals and Objectives
   • Budget
   • Contractor Requirements
   • Language Translation Procedure

   Commissioner McKay moved to accept the proposed scope of work . Commissioner Jolley seconded. Motion carried.

   Public Comment: Ann Eschinger, League of Women Voters of AZ, commented that the League believes it's important for voter participation to hold the debates in the candidates' districts.

7. Discussion Regarding Performance Criteria for Advertising and Public Relations

   Bill Mayhill, Barclay Communications, explained to the Commission the methodology used for their public relations and grass roots marketing plan that they developed with L3. Their goal is to increase the overall level of awareness of clean elections. Their timeline is through the end of 2003 and their activities include:

   • Media relations - 2 press releases per month over the remainder of 2003
   • Scheduled interviews with Arizona media - expect to schedule 20 interviews throughout the remainder of 2003
   • Media placements - expect to generate 5 media placements per month
   • Speaking engagements - rotary clubs, chambers of commerce, Lions clubs, Republican/Democrat clubs, mom clubs, senior centers, Kiwanis and Soroptomists
   • Civic Events - the Fabulous Phoenix Fourth in downtown Phoenix and the Downtown Cool Down on July 19, 2003 in Tempe
   • Implementing grass roots marketing/promotions - libraries, grocery stores, pizza chain, car wash

   Public Comment: Wes Gullett, President of Clean Elections Institute, commented that from the strategic standpoint, the Institute would encourage the Commission to educate the public about participation and how to get the public involved in the process. Ann Eschinger, League of Women Voters of AZ, commented that the League agrees with Mr. Gullett and would encourage the Commission to use the findings and declarations in the Act as the basis for the public relations campaign.

8. Legal Report from Assistant Attorney General Todd Lang

   Assistant Attorney General Todd Lang reported that the two challenges to express advocacy statute are still pending. In addition, Mr. Lang conducted a presentation regarding clean elections at the CLE with over 100 people attending.

9. Adjournment

   Commissioner McKay moved to adjourn the meeting. Commissioner Jolley seconded. Motion carried.

   Next Meeting: June 30, 2003 at 3:00 p.m.
   Citizens Clean Elections Commission,
   1616 W. Adams, Suite 110, Phoenix AZ 85007.
   

Dated this 26^th day of June, 2003

Citizens Clean Elections Commission