TO: All Concerned Persons

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1. On March 13, 2008, the Commissioner of Political Practices published MAR Notice No. 44-2-143 regarding the public hearing on the proposed amendment and adoption of the above-stated rules at page 474 of the 2008 Montana Administrative Register, issue number 5.

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2. This amended notice is being filed to provide more information in the reasonable necessity statement for the proposed amendments and adoptions, and to correct an error in paragraph 8 of the notice published on March 13, 2008, regarding the date upon which the sponsor of the legislation was notified.

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3. The commissioner believes the reasonable necessity statement published on March 13, 2008, in support of the proposed amendments and adoptions adequately identifies the necessity and rationale for each of the proposed new rules or rule changes. However, in order to provide a more detailed statement of necessity regarding proposed new Rules I through IX, the Commissioner of Political Practices provides the following supplemental statements of reasonable necessity.

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GENERAL STATEMENT OF REASONABLE NECESSITY: The 2007 Montana Legislature enacted HB 462, providing for the establishment of constituent services accounts, providing for funding and use of money in the accounts, and establishing reporting requirements for the accounts. The law requires the holder of a constituent services account to file reports disclosing the source of all money deposited into an account and enumerating any expenditures from the account. The law also amended 13-37-240, MCA, which restricts the use and disposition of surplus campaign funds. The commissioner is required to adopt rules to carry out the provisions of chapters 35 and 37 of Title 13, MCA. See 13-37-114, MCA.

The new rules proposed by the commissioner are reasonable and necessary to implement the provisions of HB 462 by establishing clear and consistent requirements for the provisions of the law, in a manner that is fully consistent with the surplus campaign funds restrictions of 13-37-240, MCA, as well as the standards of conduct set forth in Montana's Code of Ethics. Montana's Code of Ethics provides that "holding public office . . . is a public trust, created by the confidence that the electorate reposes in the integrity of public officers, legislators, and public employees" and states that elected officials and public employees "shall carry out the individual's duties for the benefit of the people of the state." 2-2-103(1), MCA.

The law provides that only surplus campaign funds may be deposited in a constituent services account, and the money in the account may only be used for constituent services. 13-37-240, MCA and 13-37-402(2)(a) and (b), MCA. "Constituent services" means travel, mailing, and other expenses incurred to represent and serve constituents "and authorized in rules adopted by the Commissioner" to implement the provisions of the law. 13-37-401(1), MCA.

To comply with the directive of the Montana Legislature as described above, the commissioner believes it is reasonable and necessary to propose rules clearly setting forth the procedure for opening and closing accounts, establishing recordkeeping and reporting requirements, and describing authorized expenditures from the accounts and prohibited activities related to the accounts. The commissioner has taken the particular approach of proposing a number of detailed rules to provide clarity and certainty for eligible elected officials who choose to establish constituent services accounts, so that they may comply fully with existing law and the intent of the Montana Legislature when it enacted HB 462.

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RULE I: The commissioner believes it is reasonable and necessary to adopt a rule that sets out definitions of pertinent terms used throughout the rules implementing the provisions of HB 462, to provide consistency and ease of understanding regarding application of the rules for those eligible elected officials subject to the provisions of the new law.

In enacting HB 462 the Montana Legislature left some terms undefined, such as "constituent" and "leaves public office." The commissioner therefore determined that it is reasonable and necessary to define those terms in the proposed new rules.

In particular, a definition of the term "constituent" is necessary because the Montana Legislature assigned to the commissioner the responsibility to adopt rules to describe eligible expenses incurred to represent constituents and to provide constituent services. "Constituent services," while generally defined in HB 462, is more specifically defined in New Rule V, again in compliance with the directive of the Montana Legislature to the commissioner in 13-37-401(1), MCA.

The definition of the term "compensation" in Rule I is based on the similar definition in ARM 44.12.102, regarding regulation of lobbying.

The definition of the term "in-kind donation" is patterned after the definition of "in-kind contribution" in ARM 44.10.321(1)(d), dealing with reporting of campaign contributions. This definition is included because of HB 462's absolute prohibition against using any funds other than surplus campaign funds to pay for constituent services provided by an elected official. See supplemental statement of reasonable necessity for Rule IV.

"Pre-existing account" is defined in the new rules because it is apparent the Montana Legislature chose to make the provisions of HB 462 applicable only to newly created accounts. The Montana Legislature considered and rejected language in the bill that would have required closure of pre-existing accounts. See page 5, lines 4-7 (interlineated Section 6) of the authorized print version of HB 462. It is therefore necessary to provide guidance regarding accounts that were created and in existence prior to the effective date of the law.

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RULE II: The commissioner believes it is reasonable and necessary to adopt a rule that provides guidance and clarity regarding the types of accounts to which the rules apply and do not apply. During deliberations on HB 462, the Montana Legislature considered and specifically rejected the option of applying the provisions of the law to existing accounts. See page 5, lines 4-7 (interlineated Section 6) of the authorized print version of HB 462.

Moreover, HB 462 only applies to certain elected officials -- those "elected to a statewide or legislative office or as a public service commissioner". Elected district court judges and elected local and tribal officials are not authorized to create constituent services accounts under HB 462 and are not subject to the terms of the law.

The commissioner also believes it is important to direct the attention of account holders to other provisions of Montana law, such as the Montana Code of Ethics, that may also apply to the receipt or use of funds by a candidate or elected official. The applicability of other Montana laws may be an issue for candidates and elected officials who are not eligible to create constituent accounts under HB 462, but are not prohibited from creating accounts related to their official duties by HB 462 or any other provision of Montana law.

These "ineligible" elected officials are still subject to the personal benefit and campaign use prohibitions of 13-37-240, MCA if surplus campaign funds are spent or used to fund activities related to their public offices. If these "ineligible" elected officials are also soliciting "donations" to constituent accounts or other accounts related to an "ineligible" elected official's public office, such "donations" could subject the "ineligible" official to complaints under the Ethics Act or the other laws identified in the rule.

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RULE III: The commissioner believes it is reasonable and necessary to specifically identify the public offices for which a HB 462 constituent services account may be established. As noted above, HB 462 only applies to elected statewide or legislative offices and public service commissioners. It is important to provide clarity regarding the applicability of the law and the rules.

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RULE IV: This rule is reasonable and necessary based on the legislative history of HB 462 and the final language enacted into law. The plain language of HB 462 shows that the provisions of the bill are prospective only. 13-37-402(3), MCA, provides that an eligible elected official "may not establish any account related to the public official's office other than a constituent services account." The Montana Legislature considered and rejected language in the bill that would have required closure of pre-existing accounts. See page 5, lines 4-7 (interlineated Section 6) of the authorized print version of HB 462. In addition, the commissioner believes it is important to clearly set forth specific prohibitions regarding funding and the use of funds from authorized constituent services accounts, in light of the provisions of HB 462 and the prohibitions and restrictions related to surplus campaign funds, as set forth in 13-37-240, MCA. For example, the prohibition against receiving in-kind donations of services in subsection (1)(b)(iii) is necessary to make it clear that eligible elected officials may only use surplus campaign funds to pay for constituent services, and therefore may not seek assistance from lobbyists and principals in providing services to constituents.

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RULE V: HB 462 provides that eligible elected officials may establish and fund a constituent services account using only surplus campaign funds, and that funds in the account may only be used for constituent services. 13-37-402(2)(a) and (b), MCA. "Constituent services" means travel, mailing, and other expenses incurred to represent and serve constituents "and authorized in rules adopted by the Commissioner" to implement the provisions of the law. 13-37-401(1), MCA. The commissioner believes Rule V is reasonable and necessary to fulfill the commissioner's responsibilities as directed by the Montana Legislature. The rule provides in specific detail what types of expenditures are authorized, based on the provisions of HB 462 and the prohibitions and restrictions on the use of surplus campaign funds provided in 13-37-240, MCA. That statute prohibits the use of surplus campaign funds for political campaigns or for personal benefit.�

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RULE VI: 13-37-402(1), MCA, provides that a constituent services account may be established by filing an appropriate form with the commissioner. The commissioner believes it is reasonable and necessary to adopt a rule that sets forth a procedure and specific requirements for establishing an account, including specification of the information that must be provided.

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RULE VII: 13-37-402(4), MCA, requires the holder of a constituent services account to file quarterly reports with the commissioner disclosing the source of all money deposited into the account and enumerating the expenditures from the account. Based on this statutory requirement, the commissioner believes it is reasonable and necessary to adopt a rule setting forth specific requirements, including the dates on which reports are due and the content of each report. In addition, it is reasonable and necessary to provide for record-keeping requirements for holders of accounts.

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RULE VIII: The commissioner believes it is reasonable and necessary to adopt a rule to provide for the receipt and disposition of interest paid on constituent services accounts. The accounts may only be funded using surplus campaign funds, and funds in the accounts may only be used to provide constituent services. The commissioner believes it is therefore reasonable and necessary to provide specific requirements for the receipt and use of interest on the accounts, since these funds are subject to the same requirements and restrictions as the funds used to create the accounts.

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RULE IX: 13-37-402(5), MCA, states that the holder of a constituent services account shall close the account within 120 days of leaving public office. The commissioner believes it is reasonable and necessary to adopt a rule to establish disclosure requirements for the disposition of funds in a constituent services account, consistent with the prohibitions and restrictions on the disposition of surplus campaign funds in 13-37-240, MCA.

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4. All rule changes and proposals as set forth in MAR Notice No. 44-2-143 remain as proposed.

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5. The statements of reasonable necessity remain as proposed with the additions as set forth in this notice.

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6. Paragraph 8 of MAR Notice No. 44-2-143 is corrected to reflect the actual date upon which the sponsor of the legislation was notified, which was February 1, 2008, via e-mail.

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By: /s/ Dennis Unsworth

DENNIS UNSWORTH

Commissioner

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By: /s/ Jim Scheier

JIM SCHEIER

Assistant Attorney General

Rule Reviewer

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Certified to the Secretary of State June 2, 2008.