Reviving and Improving Public Funding for Presidential

1900 M Street, NW, Suite 380 Washington, DC 20036 202-969-8890

TASK FORCE ON PRESIDENTIAL NOMINATION FINANCING Jeffrey Bell Ruth S. Jones J. Kenneth Blackwell Michael J. Malbin William E. Brock Charles T. Manatt Becky Cain Ross Clayton Mulford Anthony Corrado Phil Noble Carol Darr Richard Davis Research Director Donald J. Foley John C. Green

Acknowledgments

his report was drafted by Michael J. Malbin, CFI’s Executive Director, John C. Green of Akron University who was also the Task Force’s Research T Director, and Steve Weissman, CFI’s Associate Director for Policy. Background papers were written by Anthony Corrado (Colby College), Nathan Bigelow (University of Maryland) and Clyde Wilcox (Georgetown University). Corrado and Heitor Gouvêa also prepared a database of contributors used extensively in this report. Robert Boatright is the lead scholar for CFI’s tax credit project. Nicholas Turner, Jessica R. John, Alex DeMots and Lowell Schiller provided valuable research assistance. Systems Manager Brendan Glavin prepared the tables and figures with the help of Jonathan Vaupel. Sue Gift of SG Graphics designed the report cover and layout. The Presidential Task Force was supported by grants from The Joyce Foundation, Open Society Institute, The Pew Charitable Trusts and the Smith Richardson Foundation. Conclusions of the Task Force are not necessarily those of the supporting foundations or Trustees of the Campaign Finance Institute.

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Contents

Executive Summary ...... xi

Part I: Introduction ...... 1 Chapter 1. Participation, Competition, Engagement ...... 1

Part II: Improving the Basic Tradeoff – Spending Limits in Return for Public Funds ...... 11 Chapter 2. Spending Limits: Higher – And Prepared For Contingencies.... 13 Old Problems and New ...... 14 Recommendation for the Spending Limit Amount ...... 19 Supplementary Recommendations ...... 21 Chapter 3. Broadening The Base:Making $100 Worth $400 with a Three-for-One Match ...... 27 Assessing the 1974 System ...... 28 Fixing the Matching Fund: Recommendations ...... 33 Additional Recommendations ...... 43 Chapter 4. Replenishing The Public Fund ...... 47 The Balance Sheet’s Imbalance ...... 47 Recommendations for Replenishing the Fund ...... 54

Part III: Other Recommended Changes ...... 59 Chapter 5. Minor Party And Independent Candidates: A Fairer Approach ..... 61 Chapter 6. Replacing Soft Money at National Party Conventions ...... 65

Part IV: Additional Issue ...... 77 Chapter 7. An Idea for the Future: Federal Tax Credits for Small Contributions ...... 79

Epilogue: An Historic Opportunity ...... 89

Works Cited...... 93 Appendix – Tables ...... 101 Task Force Members...... 117

v List of Tables Table 2.1 Spending Limits and Spending Examples per Voting Age Population (VAP), 2000...... 20 Table 3.1 Winning Candidates’ Small and Large Donations as a Percentage of Individual Contributions, 1976-2000...... 30 Table 3.2 Thinning Out the Middle, 2000...... 31 Table 3.3 Impact BCRA and the Task Force’s Recommendations Would Have Had on Publicly Funded Candidates in 1996 and 2000 ...... 36 Table 4.1 Financial Status of the Presidential Election Campaign Fund: 1973-2002 ...... 48 Table 4.2 Disbursements from the Presidential Election Campaign Fund, 1976-2000 ..... 49 Table 4.3 Tax Checkoff Participation, 1975-2002 ...... 51 Table 6.1 Contributions to Major Party Presidential Nominating Conventions, Including Host Committees and Municipal Funds, 1980-2004 ...... 69 Table 6.2 2000 Host Committee Expenditures (By Category) ...... 72 Table 7.1 Likelihood of Giving in Response to the Tax Credit in Ohio ...... 84 Table 7.2 Ohio’s Contributors, Potential Contributors, and General Public...... 85 Appendix Table A.2.1 Spending Limits, 1974-2004 ...... 103 Table A.2.2 Spending by Selected Candidates as a Percentage of the Limit, 1976-2000 ..... 104 Table A.3.1 Number of Donors of Different Amounts, By Candidate, 1996-2000 ...... 105 Table A.3.2 Donor Characteristics: Individual Contributors, Tax Checkoff Participants, and the General Public ...... 106 Table A.3.3 Amount of Matching Funds under Various Scenarios ...... 107 Table A.3.4 Percentage Change in Matching Funds, under Various Scenarios, From Amount Actually Received ...... 108 Table A.3.5 Percentage of Adjusted Receipts from Matching Funds, under Various Scenarios ...... 109 Table A.3.6 Percentage of Adjusted Receipts from $1000+ Contributors under Various Scenarios ...... 110 Table A.3.7 Publicly Funded Candidates’ Total Receipts, Individual Contributions, and Matching Funds, 1976-2000 ...... 111 Table A.5.1 Ballot Access Requirements in the 50 States...... 114 vi List of Figures Figure 2.1 1980 GOP Primary Spending ...... 16 Figure 2.2 1980 Democratic Primary Spending...... 16

Figure 2.3 2000 GOP Primary Spending ...... 17

Figure 2.4 2000 Democratic Primary Spending...... 17 Figure 3.1 Winning Candidates’ Large and Small Contributions as a Percentage of All Individual Contributions ...... 30

Figure 3.2 Percentage of Donors and Percentage of Money from Donors Who Gave Varying Amounts ...... 31

Figure 4.1 Presidential Election Campaign Fund: Quadrennial Year End Balances, 1976-2000 ...... 48 Figure 4.2 Percentage of Federal Income Tax Returns With Checkoff, 1976-2002...... 51

Figure 6.1 Major Party Presidential Nominating Contributions: Private Contributions as a Percentage of Federal Grants, 1980-2004 ...... 69

Figure 7.1 Increased Political Contribution Tax Credit Claims in Canada and Decreased Average Contributions to Canadian Federal Parties, 1975-1996.... 81 Figure 7.2 Percentage of Contributors of Varying Amounts Who Would Have Given Less if They Had Not Known about the Tax Credit ...... 86

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Executive Summary

he current system for financing presidential nominating campaigns is in jeopardy. Since 1974, the federal government has matched the first $250 T that candidates raise from individual donors if the candidates agree, among other things, to limit their spending. But for many candidates, this tradeoff is no longer worthwhile. Accepting spending limits has become too risky and public funding has become less valuable. And to top it off, the whole public funding system faces the threat of insolvency by 2008. In light of these circumstances, the Campaign Finance Institute convened a distinguished Task Force on Presidential Nomination Financing to research the Losing the system system’s strengths and weaknesses and make recommendations for change. To prepare, the Task Force undertook new research to enable it to predict how a variety would be a loss of changes might affect candidates and donors and to estimate the costs of possible for democracy. changes. It also held public hearings in January 2003 to solicit ideas from a wide range of knowledgeable and concerned individuals and organizations. (See www.cfinst.org/presidential/index.html.) Both before and after the hearings, it held long working sessions to consider the issues facing the system and to sift through the evidence. This report is the unanimous result of the Task Force’s efforts The Task Force rejected a “do-nothing” approach out of hand. If the system is not worth returning to its proper functions, the public funds may as well go back to the Treasury. The Task Force did seriously think about whether the public funding system ought to continue at all. After reviewing the evidence, it concluded that losing the system would be a loss for democracy. The system has helped to support competition, restrain spending and enhance the value of small contributions. And it has done all of this at a reasonable cost to taxpayers. Nevertheless, the Task Force also concluded that after three decades of service, the system – like an old car –needs an overhaul. This report identifies how and why it has broken down, presents data for a wide range of options, and recommends how to adapt the system to a changing political world. Unless the system is changed, the presidential nominating process overwhelmingly will come to favor candidates who can afford to pass up public money and thus avoid spending limits. Competition will be reduced and the range of viable candidates in each party will be truncated. Moreover, the public fund will be bankrupt. Congress and the President need to address this situation shortly after the 2004 election if they are to enact a new system in time for the presidential season of 2007-2008. It is time not only to save the system but to improve it. This is an opportunity to make modest changes at a reasonable cost that can revive what the system does well, while dramatically improving the participation and engagement of small donors. For that to happen, the time to begin working is now.

xi Main Findings and Recommendations

Goals

The campaign finance system, like any financial system, is not an end in itself. Stated most directly, the main function of a healthy political finance system is to finance healthy politics. Campaign finance law is partly about preventing corruption and the appearance of corruption. But it is also about supporting the process through which candidates compete, citizens participate, and the two can engage each other.

I. Spending Limits

Main Finding: Candidate spending limits are too low and inflexible. American elections are among the most complex in the world. Primary elections, with no party labels to help inform voters, are more complicated than general elections, and presidential primaries are among the most complicated of all. It is expensive in this kind of a setting for candidates to become known to the voters. As a result, the spending limits have always pinched. But three recent developments have made the limits much more problematic for candidates than they once were. ◆ Frontloading: The nomination process used to meander through the states at a leisurely pace. In the first election under FECA, 1976, the Democratic contest was settled in mid-June and the Republican in August. In 2004, a majority of states, with two-thirds of each party’s convention delegates, will hold their primaries by mid-March. The compressed schedule forces candidates to run a national campaign early. Instead of spending most weeks in one or two states, they fly around frantically, barely visiting the main cities. As a result, they have to rely even more heavily than their predecessors did on the mass media. But free media coverage of the candidates has gone way down. As a result, the message has to be carried by advertising, the cost of which has escalated. Frontloading therefore has contributed to an increase in campaign costs in a way never contemplated by the 1974 law. The leading candidates need to spend more to be heard, and they tend to use up whatever money they can raise and spend to win the nomination, months before the national nominating convention.

xii ◆ Nonparticipating candidates: Added on top of the frontloading pressures, 1996 was the first year in which a serious contender for the nomination decided to forego public funding and exceed the spending limits. (Steve Forbes rejected the limits in 1996 and 2000 as did George W. Bush in 2000.) If a contest for the nomination lasts more than a few weeks, the spending limit (combined with a need for high spending) will create a huge disadvantage for a participating candidate who is running against someone who faces no limits. ◆ Outside spending: Finally, the participating candidates have to make themselves heard alongside interest groups, which are fully free to spend however much they can raise. The amount that such groups spent on the airwaves took a sharp upward turn in 1996 and 2000. The Bipartisan Campaign Reform Act of 2002 (BCRA) will restrict corporate and labor funding for broadcast advertising within the last thirty days before a primary, but groups can spend unlimited amounts for broadcast ads before thirty days, and for other forms of communication (mail, telephone, print, and so forth) right up to the primary.

RECOMMENDATIONS – SPENDING LIMITS:

◆ Amount: The spending limit for the nomination period should double to the same amount as the public grant for the general election. As under current law, the limit should go up with inflation. Reasoning: From the public’s perspective, the purpose of an election campaign is to help give prospective voters the information they need to choose among candidates. In principle, this task is at least as difficult during the primaries as it is during a general election. Therefore, the Task Force thought the two spending limits should be the same. This amount should also be enough for candidates to make themselves heard over outside groups. The Task Force did consider whether spending limits should be retained at all – whether public funding should be seen as a floor subsidy for competition without triggering ceilings. It concluded that a candidate who can raise and who wants to spend more than the limit does not need to spend the taxpayer’s money to do it. ◆ Exception: if a nomination opponent exceeds the spending limit a participating candidate should be able to spend as much as the highest spending nonparticipating opponent. Reasoning: Unless the law provides candidates with an escape hatch, candidates who are thinking about participating may feel, with justification, that they might be committing political suicide if they have to live within a limit while their opponent does not.

xiii ◆ Between the primaries and convention: Permit political parties to spend as much hard money before the convention, in coordination with their candidates, as they may now spend in the general election (about $15 million for the major parties in 2004). Reasoning: The top one or two participating candidates in each major party have spent nearly the limit by the time the nomination has in effect been decided. With the decision happening earlier because of frontloading, the candidates need a way to continue some kind of campaign presence in the months until the national party convention. During the recent past, political party soft money paid for much of this. With soft money prohibited, the Task Force looked for a hard money replacement. It chose not to raise the candidate limits more than it did because it thought candidates would just spend the money to win the nomination. It explored ways to codify and create separate limits for candidates to use during the “bridge period” but had problems with trying to provide a legal definition for a presumptive but not yet legal nominee. In the end, letting the parties handle the problem with coordinated hard money spending was the simplest effective solution. ◆ Additional Issue – Simplification: Eliminate separate state-by-state and fundraising limits.

II. Matching Funds

Main Findings: Public matching funds promote competition but do not adequately promote reliance on smaller donors. In addition, matching funds are of declining value to candidates. Public matching funds have provided from one-quarter to one-third of participating candidates’ total funds. They have helped provide many contenders (such as Jimmy Carter and Ronald Reagan in 1976, Gary Hart in 1984, Bill Clinton in 1992, and John McCain in 2000) with the essential means they needed to be competitive. Even though many of the candidates who were helped by public funding did not win, their presence in the race enhanced the choices and the power of the voters. But one of the stated goals of the public funding system was also to enhance the role of small donors. In this respect, the system has been less successful. While the great majority of private contributors to presidential primary candidates give less than $100 to a candidate (about 600,000 of the approximately 800,000 individuals who gave in 2000), the bulk of the private money comes from large donors. In 2000, 66% or more of Al Gore’s, George W. Bush’s and Bill Bradley’s contributions came in amounts of $750 or more. Contrast this with 1976 when xiv less than a quarter of Gerald Ford’s and Jimmy Carter’s private donations came in amounts of $750 or more. BCRA did not cause this problem but will exacerbate it. By raising the individual contribution limit to candidates from $1,000 to $2,000 it will shift the balance even more toward large donors. A matched $250 contribution used to be worth half as much as a maximum contribution to a candidate, but now is worth only one-fourth as much. The more candidates rely on $2,000 donors, the more this will push small donors further into the background.

RECOMMENDATIONS – MATCHING FUNDS:

◆ Multiple match: Match the first $100 raised by participating candidates from all individual contributors, on a three-for-one basis. Under this system, a $100 private contribution would be worth $400 to the candidate. Reasoning: The Task Force’s main objective when it considered matching funds was not simply to replace private with public money. The Task Force also sought to leverage reasonable amounts of public money to help revive The Task Force wants the connection between politicians and small donors who give less than to revive the connection $100 to a campaign. We seek to revive the incentive for politicians to pay between politicians and attention to these donors, and for the donors to feel that their participation will make a difference. small donors. The Task Force considered several matching formulas. (The Appendix contains data for nine.) Based on its analysis of the numbers, and its own campaign experience, and experience elsewhere, the campaign professionals on the Task Force believe that if fundraisers can tell a donor that $100 will be worth $400, this modest change could be enough by itself to alter the financial foundations of presidential nominating politics. This claim may seem visionary but gains credence from an analysis of donors in the 2000 election. If the 570,000 under-$100 donors who gave in 2000 were to increase their giving by only 50% (that is, if either 250,000 new donors came into the process – one-tenth of one percent of the voting age population – or old donors were to give $25 more each) then the under- $100 donors with a three-for-one match would have almost as much weight in presidential finance as the large donors who give $1000 or more. Instead of being outgunned by 333% as they are likely to be under BCRA, small donors would be worth 85%-90% as much to candidates as large ones. To put it mildly, this would be a very big change. One reason for our high expectations stems from the promise of new campaign technologies. The Internet makes the process of donating quick,

xv easy and cheap. But this innovation alone is not likely to motivate enough small donors to participate. Under the current system, some candidates have used the Internet more than others. This proposal would give all candidates a stronger incentive to solicit small donors, and for small donors to give. It is worth noting that this is not the only “multiple matching” proposal under public consideration. The Task Force favored this proposal over others The Internet makes the with higher matching levels because (1) the system needs to be changed process of donating quick, soon, (2) the proposal can be financed with only a modest increase in the checkoff, and (3) it is likely to bring many more small donors into the system. easy and cheap.... The The estimated additional cost for our three-for-one matching system (with Task Force’s proposal the cap described below) would be less than $50 million if all donors were would give all candidates exactly the same as in 1996 or 2000. If the number of donors were to increase an incentive to solicit by 50%, the added cost would still be less than $100 million. This is far less than the alternatives with comparable potential that we analyzed. small donors, and for ◆ small donors to give. Cap: No candidate should receive more than $20 million in matching funds. Reasoning: This is significantly more than any candidate has received under the current system, but less than what the top candidates might get with a three-for-one match. The Task Force expects that candidates who would get $20 million typically would be those who are left standing after the field has been winnowed. They are already competitive, and they should be able to raise sufficient private contributions to wage effective campaigns. The cap therefore permits us to concentrate scarce public funds, within a limited budget, on the candidates who most need it, early in the campaign. ◆ Additional Recommendations: ❑ Early money: Allow candidates to receive matching funds in the first reporting period after the candidate qualifies for and requests them. ❑ Threshold: To be eligible for public funds, candidates should have to raise at least $50,000 in each of ten states, for a total of $500,000. ❑ Self-financing: Candidates should be able to contribute up to $200,000 to their own campaigns. This amount should be indexed for inflation.

III. The Campaign Fund’s Insolvency

Main Finding: The Presidential Election Campaign Fund (PECF) is becoming insolvent. The PECF provides public financing for the general election, party conventions, and primaries, through a voluntary taxpayer checkoff. The fund is running out of money.

xvi According to our estimates, if both parties have contested nominations and all of the major contenders accept public funds, the PECF may not be able to provide matching fund payments to the 2008 nomination candidates until a year after the primaries. We estimate that the Fund may be as much as $20 million in the red by the end of 2008. The reasons for this shortfall are the failure of the tax checkoff amount to keep up with inflation and the declining percentage of taxpayer participation. (The number of checkoff participants was still eighteen times as large as the number of contributors.) Contributing to the decline have been the lack of public education about the workings and purposes of the system and electronic filing software that discourages participation.

RECOMMENDATIONS – INCOME TAX CHECKOFF:

◆ Increase the voluntary checkoff: Current public funds come from the Presidential Election Campaign Fund (PECF), which derives its revenue from a voluntary checkoff on the income tax return, and lets filers designate $3 of their taxes to the PECF ($6 for joint filers). The checkoff amount should go up to $5 ($10 for joint filers) and be indexed for inflation. Reasoning: We estimate that a $5/$10 checkoff, indexed for inflation, would have brought an additional $122.6 million into the fund if it had been in effect for 1997 through 2000. This would be more than enough to pay for all of the matching fund and other increases we recommend in this report. ◆ Public education: The Federal Election Commission and Internal Revenue Service should institute new educational programs about the checkoff aimed at professional tax preparation services and software providers, as well as at taxpayers.

Other Findings and Recommendations

Minor Parties and Independents

Main Finding: Some campaign finance rules treat minor parties and Independents unfairly. Minor parties and independent candidates contribute significantly to American political discourse. When they have gained footholds in the political process, they have eventually influenced the major parties’ positions on a wide variety of issues. In a sense, the “real primary” for non-major party candidates is the fight to obtain ballot access at the state level. This struggle determines whether voters will even

xvii have the chance to vote for non-major party candidates for President. Gaining access to the ballot is a precondition for gaining voter support – a step that logically precedes any that a major party candidate will have to satisfy. Yet acquiring ballot access places a heavy financial burden on non-major candidates because each state has its individual requirements, many of which are quite onerous. Unfortunately, current campaign finance law does not recognize these special burdens. Furthermore, if a minor party or independent candidate triumphs over all these obstacles and amasses enough support to gain widespread ballot access, he or she still cannot get any public general election funding until after the election – and then only upon receiving 5% of the general election vote.

RECOMMENDATIONS – MINOR PARTIES AND INDEPENDENTS:

◆ Ballot Access Fund: Minor party and independent candidates should be allowed to establish a ballot access fund – separate from the campaign committee, not subject to limits on the size of contributions and not eligible for matching funds. ◆ Continued matching funds: Qualified minor party and independent candidates who do not have access to a general election public grant should be eligible for matching funds – at the primary matching rate – during the general election.

National Nominating Conventions

Main Finding: National party conventions increasingly are financed by private, largely corporate, soft money. National political party convention financing has changed greatly over the past decade. The federal public grant progressively has paid for less of the convention, and corporate financing has come to play a major financial role. Private financing for the two major party conventions has increased from approximately $8 million in 1992 to a projected $100 million in 2004. Conventions are critical presidential campaign events. (Today they launch the general election campaign rather than choose the already determined candidate.) They are also major economic events for the host city and its surrounding area. But recent regulatory changes have essentially abolished previous restrictions on fundraising by committees supporting the political as opposed to the civic commerce promotion functions of the convention. As a result, current convention financing is at odds with BCRA’s goal of ending unlimited soft money contributions to political parties. Another problem is the increasing financial drain on host city governments of providing security for the nation’s political leaders in an age of terrorism. xviii RECOMMENDATIONS – PARTY CONVENTIONS:

◆ Convention expenses from hard money: Beginning in 2008, all convention expenses should be paid from federal grants, other state and local government sources, and money to be raised by the national party committees within federal election (“hard money”) contribution limits. ◆ Law enforcement and security needs should be supported by a grant from the U.S. Department of Homeland Security. This should begin in 2004. ◆ Host committees and municipal funds in 2008 should be able to continue using private local contributions to promote the city as a site for the convention, to facilitate commerce during the convention, and for similar activities.

An Idea for the Future

Federal Tax Credits for Small Contributions

A primary goal of this Task Force’s recommended three-for-one matching fund system is to increase financial participation by small donors. In the course of weighing ideas to increase participation, it seriously considered a 100% tax credit for small contributions ($100 per individual or $200 per joint return) to candidates who participate in public funding, limited to individuals with less than $50,000 income or joint filers under $100,000. Evidence that such a credit could significantly increase the number of small donors came from CFI studies and from reviews of experience and opinion polls in Canada, Ohio and Minnesota. In the end, the Task Force decided not to recommend this idea now. The matching fund is broken and needs to be fixed. That issue should not be muddied. Nevertheless, the Task Force thought a tax credit was a worthy option to put on the table for future consideration.

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1900 M Street, NW, Suite 380 Washington, DC 20036 202-969-8890

Acknowledgments

iii

Contents

Executive Summary ...... xi

Part I: Introduction ...... 1 Chapter 1. Participation, Competition, Engagement ...... 1

Part III: Other Recommended Changes ...... 59 Chapter 5. Minor Party And Independent Candidates: A Fairer Approach ..... 61 Chapter 6. Replacing Soft Money at National Party Conventions ...... 65

Part IV: Additional Issue ...... 77 Chapter 7. An Idea for the Future: Federal Tax Credits for Small Contributions ...... 79

Epilogue: An Historic Opportunity ...... 89

Works Cited...... 93 Appendix – Tables ...... 101 Task Force Members...... 117

Figure 2.3 2000 GOP Primary Spending ...... 17

Figure 2.4 2000 Democratic Primary Spending...... 17 Figure 3.1 Winning Candidates’ Large and Small Contributions as a Percentage of All Individual Contributions ...... 30

Figure 3.2 Percentage of Donors and Percentage of Money from Donors Who Gave Varying Amounts ...... 31

Figure 4.1 Presidential Election Campaign Fund: Quadrennial Year End Balances, 1976-2000 ...... 48 Figure 4.2 Percentage of Federal Income Tax Returns With Checkoff, 1976-2002...... 51

Figure 6.1 Major Party Presidential Nominating Contributions: Private Contributions as a Percentage of Federal Grants, 1980-2004 ...... 69

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Part I Introduction

CHAPTER 1I Participation, Competition, Engagement

he system for financing presidential nominating campaigns is in jeopardy. Since 1974, the federal government has matched the first $250 T that candidates raise from individual donors if the candidates agree, among other things, to limit their spending. But for many candidates, this tradeoff is no longer worthwhile. Accepting spending limits has become too risky and public funding has become less valuable. And to top it all off, the whole public funding system faces the real threat of insolvency by 2008. A collapse of public funding would be a real loss for democracy. The system has helped to support competition, restrain costs and enhance the value of small contributions. If the system were to be lost, the only winners would be front running or wealthy candidates who can manage to get their own messages across without any help. The initial losers would be other candidates whose presence Campaign finance law is promotes competition and civic dialogue, but the real losers would be the partly about preventing American people. corruption. But it is also In light of these concerns, the Campaign Finance Institute convened the Task about supporting the process Force on Presidential Nomination Financing to study the public funding system’s through which candidates future. After a year of research, analysis, and deliberation, the Task Force concluded that the system should be preserved but must also change. compete, citizens participate, and the two can engage The campaign finance system, like any financial system, is not an end in itself. Stated most directly, the main function of a healthy political finance system is to each other. finance healthy politics. Campaign finance law is partly about preventing corruption and the appearance of corruption. But it is also about supporting the process through which candidates compete, citizens participate, and the two can engage each other. What needs to be preserved and revived, therefore, is a system that: ◆ Invites and promotes competition by using a modest amount of public money to help give candidates who pass a reasonable threshold of public support an enhanced opportunity to be heard; ◆ Gives candidates an incentive to restrain their campaign spending to balance the playing field; ◆ Supports and enhances the role of small donors; and ◆ Achieves its goals at reasonable public cost with funds generated by taxpayers who voluntarily earmark a very small part of their income taxes to the Presidential Election Campaign Fund.

3 What needs to be improved are the following: ◆ The system should have high enough spending limits to ensure participating candidates can be heard in their own voices, despite a system with earlier primaries and more expensive campaigns than prevailed when the current system was enacted in 1974. ◆ The system must be flexible enough so that a candidate who decides to participate in the system does not risk political suicide if facing an opponent who chooses not to accept public funding and the limit on spending. ◆ The system must contain enough positive incentives so that even a well-financed candidate will have a good reason to participate. ◆ And finally, and in some ways most importantly, the system should encourage broader financial participation by small donors of average means. The goal, we should be clear, is not simply to replace private money with public money. We believe that a check from the public treasury to a candidate is not enough by itself to promote broader civic participation. Our goal is to use public money in reasonable amounts to help revive the connection between politicians and small donors who give less than $100 to a campaign. We seek to revive the incentive for politicians to pay attention to small donors, and for the small donors to feel that their participation will make a difference. Before we further explain what we advocate, we must first address why the current system is about to implode. From a politician’s perspective, the current system’s central tradeoff – between public funding and a spending limit – is a choice among risks and rewards. Accepting public funding involves risk, especially if others opt out and are not constrained by a spending cap, or if spending by outside organizations outstrips the candidate’s ability to be heard. Because of the many changes in presidential politics explained in chapter 2, a wrong decision about risks can now kill a campaign. In contrast, the relative value of the rewards has declined. The amount of public matching funds has not been changed even as the cost of campaigning, and size of the top contribution, have gone up. This contrast – between high levels of risk and low rewards – creates a major incentive for candidates not to participate in the system. And unless most of the major candidates participate, the system cannot do its job.

Changing the Context, Increasing the Risks To understand why this has happened, some context is needed. The Federal Election Campaign Act Amendments of 1974 (FECA) passed as a reaction to President Nixon’s fundraising in the Watergate election of 1972, and his campaign’s dependence on a few large contributors (see chapter 3 below). Our

4 data suggest that the new law did broaden competition and participation. But elections have changed over three decades and so have the risks and rewards. The 1974 campaign finance law’s presidential financing provisions were designed for the elections of the 1970s. In 1976 a relatively unknown governor of Georgia, Jimmy Carter, won the New Hampshire primary against more established candidates. Using his new visibility to raise funds for the next round of contests, he was able to campaign through three and a half more months of primaries until he wrapped up the nomination in June. On the Republican side the former Governor of California, Ronald Reagan, took on a sitting President and came within a hair’s breadth of winning. Gerald Ford’s victory over Ronald Reagan was in doubt until the GOP convention in August. Small contributions and public matching funds substantially funded both the Carter and Reagan campaigns. Contrast this leisurely pace with the frenetic nomination process for 2004. A majority of states, with two-thirds of each party’s convention delegates, will hold their primaries by mid-March. This schedule will force candidates to run a national campaign – rather than a series of state campaigns – early, leaving almost no time to raise money between one primary and the next. Unlike 1976, the candidates from the beginning will have to run in large states with major media markets. Advertising costs are higher than in 1976 and free media coverage less available. These changes favor an establishment-backed front-runner (if there is one) who can raise enough money early to survive a defeat or two and keep going in a fast-paced campaign. Partial public funding has helped balance this trend by giving candidates other than the frontrunners a chance to be heard.

The 1976 campaign lasted until mid-June for the Democrats and August for the Republicans. The 1996 and 2000 contests were settled in March.

5 While the public financing system has many wrinkles and nuances, at its core is a simple, voluntary tradeoff for candidates. Qualified candidates may receive public matching funds equal to the first $250 they receive from every individual contributor, provided that they agree in return to abide by state-by-state and national spending limits for their campaigns. Candidates must also agree to limit The political dangers for the amount they and their families contribute to their campaigns if they take candidates who stay in the public funds. The $250 match per contributor has not changed since 1974, but the spending limits have been increased for inflation from an original $10 million system have gone up and in 1974 to more than $40 million in 2004. the benefits of staying in Until recent elections, the public financing system seemed to be working well. have gone down. Although voluntary, almost all viable candidates participated. But now the system seems to be breaking down on both sides of the core tradeoff. The political dangers for candidates who stay in the system have gone up and the benefits of staying in have gone down. Moreover, the system’s overall finances have become shaky. In some ways, the escalation in risks has driven the system even more sharply toward crisis than has the relative decline in rewards. Consider, for example, what happened in the two most recent presidential elections. In 1996, Republican Bob Dole accepted public funds. One of his opponents (Steve Forbes) was a self- financed multi-millionaire who chose not to be bound by the spending limits. This was the first time a candidate who opted out of the system had offered a serious challenge in the primaries. By the fifth week after the first primary in New Hampshire, Dole had run in 24 primaries and 13 caucuses that together selected 74% of the Republican Party’s convention delegates. By March 26, he had clinched his party’s nomination. Like most winners since 1976, Dole had used almost his full spending limit to gain the nomination. But because of the compressed primary season, he now faced a new problem. Past nominees could turn almost seamlessly from the nomination, to the convention, and then to the publicly funded general election. In contrast, because Dole had spent up to the prenomination limit to win the primaries, he could not spend more until he was nominated officially at the convention. The nomination contest may have been over in practical terms, but was not over legally. Meanwhile the incumbent Democratic President, Bill Clinton, was not opposed for the nomination. Already helped by political party soft money, the President could now spend his primary money running what amounted to a general election campaign. The GOP nominee’s only plausible financial response was to rely on Republican Party ads financed by soft money to counter the President’s campaign. In 1999–2000, George W. Bush was faced with the knowledge that he could also be running against the self-financed Forbes in the Republican primaries as well as an incumbent Vice-President in the general election. Bush opted out of public funding. “I’m mindful of what happened in 1996 and I’m not going to let it

6 happen to me,” the Texas governor said (Glover 1999). By avoiding spending limits, Bush was able to spend almost twice as much as a publicly funded candidate. Ironically this decision saved the system from financial collapse. If Bush had taken the money to which he would have been entitled, the Treasury might well not have met its financial obligations in 2000. Indeed, the barely solvent system proved crucial to the frontrunner’s principal challenger, Sen. John McCain, as it had to so many such candidates over the years. McCain ultimately lost to Bush during the first week of March and withdrew from the race. However, had McCain done better with the voters in early March, he still would not have been able to continue, because he had already spent as much money as the limits allowed. McCain had made something of a Faustian bargain: in return for the milk that nurtured his insurgent campaign in January and February, he had to limit himself to a diet that would starve the campaign by mid-March. The system offered him no escape, even though he was running against a candidate whose spending was not limited. Thus, candidates who are weighing their risks must seriously consider the possibility that spending limits could lead to their defeat – particularly if one or more of their opponents opts out of the system. But the public funding system The public funding system cannot remain viable if a decision to participate carries the risk of political suicide. cannot remain viable if a Some people have blamed the potential failure of the public funding system on decision to participate the Bipartisan Campaign Reform Act of 2002 (BCRA), which banned political carries the risk of political party “soft money” and doubled the maximum contribution an individual may suicide. make to a candidate, without increasing public matching funds. This is not a fair reading. The presidential system’s problems predate BCRA, although BCRA did exacerbate them. The new law’s role is particularly prominent on the benefit side of the tradeoff. In 2000, the last presidential election before BCRA, three of the leading candidates raised more than 60% of their individual contributions from $1000 donors (Al Gore, Bill Bradley, and George W. Bush). Since 1976, only one other leading presidential candidate, the elder George Bush, has ever depended so much on large contributions. Thus even before BCRA, public matching funds were not stimulating small contributions. For 2004, BCRA raised individual contribution limits from $1000 to $2000 but did not change public funding. This reduced the relative value of public funding. A matched $250 contribution used to be worth half as much as a top contribution. The same $250, matched, is now worth only one-fourth of $2000. The more candidates rely on $2000 donors, the more this will push small donors even further into the background. In short, the rewards of staying in the current system have gone down but the risks have gone up. The financial system no longer matches the process it is supposed to finance. There are three ways to respond. One is to let the system limp along, continuing to spend public money on a program that increasingly

7 fails to serve its public goals. This option is easy politically but irresponsible. A second is to kill the system outright, a proposal that the Task force discussed but rejected for reasons offered below. The third is to reform the system. The developments of the past few elections were not inevitable and need not be After three decades of eternal. Several candidates for the 2004 Democratic nomination have used the Internet successfully to attract small contributions, just as John McCain did in service, the system – 2000. This increases the prospect that a well-structured reform can reduce the like an old car – needs dependence on large donors. The Internet makes the process of donating quick, an overhaul. easy and cheap but is not likely by itself to motivate enough small donors to participate. Under the current system, some candidates have used the Internet more than others. A system that it designed well would give all candidates a strong incentive to solicit small donors, and for small donors to give.

CFI’s Task Force The three basic options – do nothing, kill the system, or improve it – help us to focus the issue. The system is perhaps one more election away from collapse. With this knowledge, CFI in July 2002 convened a distinguished Task Force on Presidential Nomination Financing to research the system’s strengths and weaknesses and make recommendations for change. To prepare, the Task Force undertook new research to enable it to predict how a variety of changes might affect candidates and donors and to estimate the costs of possible changes. It also held public hearings in January 2003 to solicit ideas from a wide range of knowledgeable and concerned individuals and organizations. (See www.cfinst.org/ presidential/index.html.) Both before and after the hearings, it held long working sessions to consider the issues facing the system and to sift through the evidence. Of the three basic options, the task force rejected the do-nothing approach out of hand. If the system is not worth returning to its proper functions, the public funds may as well go back to the Treasury. The Task Force did seriously think about whether the public funding system ought to continue at all. After reviewing the evidence, it concluded that the system has helped strengthen American democracy. Losing the system therefore would be a loss for the American people. Nevertheless, the Task Force concluded that after three decades of service, the system – like an old car – needs an overhaul. This report will identify how and why it has broken down and suggest some repairs. The problems are many, and most of the remedies affect more than one problem. The Task Force’s proposals balance multiple goals. We do not expect every reader of this report to accept all of our recommendations without change or challenge. So beyond offering our own recommendations, we aim to improve the quality of deliberation about

8 reforming the system. Therefore, this report includes data to help policy makers evaluate the costs and benefits of several alternative paths they might choose. We take this approach because one conclusion stands above the specifics: unless Congress, the President, and the public face up to the problem squarely, public financing will soon be a system in name only. By 2008, unless modified, the nominating process will overwhelmingly favor candidates who can afford to pass up public money and thus avoid spending limits. Competition will be reduced, the range of viable candidates in each party will be truncated, candidates will focus on large donors, and small donors will continue to be ignored. Moreover, the public funding system is likely to be bankrupt. Congress and the President need to address this situation shortly after the 2004 election to enact a new system in time for the presidential season of 2007-2008. It is time not only to revive the system but improve it. This is an opportunity to make modest, affordable changes that can dramatically affect the participation and engagement of small donors. For that to happen the time to begin working is now.

Part II Improving the Basic Tradeoff Spending Limits in Return for Public Funds

CHAPTER 2I Spending Limits: Higher – and Prepared for Contingencies

e begin this report with spending because of the central role current limits play in putting W the entire system at risk. When Congress Current Rules enacted the presidential funding system in 1974, after Watergate, campaign spending was publicly discussed Candidates who accept public funding in the primary season mostly in negative terms. Spending was described as must agree to an aggregate spending limit with the following being excessive or obscene. There was a real concern that parts: incumbents might raise so much that it would become ◆ A base campaign expenditure ceiling was set in 1974 impossible for a challenger to provide a meaningful at $10 million, with a quadrennial adjustment for inflation choice to American voters. Spending limits therefore using the Consumer Price Index. This will amount to an were often discussed in terms of leveling the playing field estimated $36.6 million in 2004. or equalizing the odds. If one were to listen only to the ◆ A fundraising exemption permits an additional 20% of surface rhetoric, money was simply an evil and the less the base ceiling to cover the costs of raising money. there was of it in politics, the better. ◆ Legal and accounting costs: Not limited under the The reality of equalizing competition is more original provisions of the FECA. For 2000, FEC regulations complicated. Consider the typical race in which one provided a “compliance” exemption of 15% of the overall candidate is well known and generally liked – as most ceiling while a campaign is active. Once the campaign is incumbents and frontrunners are – and another is a less over and is winding down, all salary and overhead is well known, but plausible challenger. If the law required considered exempt compliance spending and does not count against any limit. both candidates, hypothetically, to spend no more than an equal but very small amount of money, equality in ◆ 2004 limits: With all three of these limits added together, that situation would favor the candidate who started out the aggregate limit for 2004 is expected to be about $49.4 ahead. The voters need to learn about the second million. (See the Appendix, Table A.2.1 for the limits for all candidate and meaningfully compare him or her to the elections, 1976-2004.) front-runner before the front-runner can be said to face ◆ State-by-state spending limits: In addition to the national real competition. For this desirable situation to occur, spending limit, participating candidates must abide by the second candidate has to spend enough money on state-by-state limits, which vary by population. In 2000, communication to be heard by the voters. the state limits ranged from $675,600 in New Hampshire to $13.1 million in California. However the FEC has Of course, the $49 million aggregate spending limit for liberalized its rules for allocating expenses to state limits, presidential nominations in 2004 is not as small as the making these caps increasingly porous. one just hypothesized. In fact, for most candidates, the (Excerpted from Green and Corrado, 2003.) spending limit is high enough not to be an issue at all. Most candidates do not raise enough to come close to the limit. For them, public matching funds are a pure benefit – part of the money they need to launch their campaigns and compete early. But for the last one or two candidates who are left standing in a competitive field, the spending limits have been real constraints. Practically every winner since 1980 has spent nearly 100% of the limit. More tellingly, in the seven elections under the system, six losing candidates spent at least 90% of the limit and probably could have spent more. (See Appendix, Table A.2.2.) This does not count the candidates who did not participate in the public funding system and were able to exceed the limit (Forbes twice and George W. Bush). 13 Despite these constraints, most candidates so far have stayed in the system. They judged the public money to have been worth accepting the limit. They calculated that as long as all candidates played by the same rules, the ones who made it to the end would all more or less be in the same boat. They all would be struggling, looking for free media coverage, and looking for tactical advantages. In fact, if one wrote a history of primaries since 1976, each year would show at least one candidate capitalizing on a new technique for bending and straining the limits – beginning with Ronald Reagan’s universally imitated use of a leadership PAC to keep him active politically after 1976. But however much they might strain against the limits, the candidates for the most part only had to be concerned about other candidates who were also within the same limit.

Old Problems and New That situation has now changed, and candidates are more tempted to leave the system. But before we consider the new situation, it is worth pausing to reconsider the old one. Were the spending limits really high enough, even in the old situation in which all candidates stayed in the system, and the candidates were the main voices the voters heard? After review, the Task Force concludes that the spending limits were probably too low even then to serve the voters’ best interests. An Old Problem – Reaching Voters in a Primary: American elections are among the most complex in the world. Primary elections are even more complicated than general elections, and presidential primaries are among the most complicated of all. Presidential primary candidates typically need to differentiate themselves from a number of opponents. Party labels – normally the best sources of information for voters – are not useful in a primary. In addition, the presidential primary season is extremely long – as long as twenty months in reality – and lacks a single end date to focus the national media’s attention. It is not one election but dozens. As a result, survey data shows that voters typically know much less about the presidential candidates in a primary than they do in the general election. This pattern is true even for the candidates who make it past the early round and spend significant amounts of money (see Sapiro, et al. 2001; Patterson 2002; Busch and Mayer forthcoming). From this perspective alone, we would be prepared to argue that the spending limit for the nomination could usefully, from the beginning, have been set closer to the amount for the general election (currently $75 million), where major party presidential candidates have much less difficulty being heard by voters. But we do not need to make an historical case. The primary process has changed much in recent years to put new pressures on the spending limits. Three changes have been most important: the frontloaded delegate selection calendar, pressures created by candidates who opt out of the system, and unregulated spending by outside advocacy organizations. 14 The Problem of a “Frontloaded” Primary Season In recent years many states have moved their primary dates earlier, a phenomenon called “frontloading.” As mentioned, the outsider candidate Jimmy Carter won in New Hampshire on February 27, 1976, and then used the victory to raise money for the next round of primaries. He did not clinch the nomination until mid-June. On the Republican side, the incumbent President Ford did not clearly Frontloading has defeat Ronald Reagan until August. Compare these to the most recent contests. contributed to an Bob Dole clinched the 1996 Republican nomination by March 17. George W. increase in campaign Bush’s and Al Gore’s victories were settled a week before that in 2000. The 2004 contests could be settled even earlier. costs in a way never contemplated by the One significant effect of frontloading has been to concentrate campaign spending early in the race. Figures 2.1 through 2.4 illustrate spending by the major parties’ 1974 law. top two candidates as a percentage of the spending limits, month by month during the primary season. The curved lines show cumulative spending as a percentage of the base and aggregate limits (the horizontal lines). The vertical lines mark the Iowa caucus, the New Hampshire primary, the date when 50 percent of the delegates were chosen, and the effective end of the primaries (when one candidate has clinched the nomination). In 1980, Reagan and Bush were well below the spending limit when 50 percent of the delegates had been chosen, although they eventually did reach the limit by the time the nomination was settled (Figure 2.1). In 2000, John McCain reached the limit before the end of March (Figure 2.3). This meant that McCain could not have continued his campaign even if he had done better in the early March primaries. Figures 2.2 and 2.4 show a similar pattern for the Democrats. Carter’s and Kennedy’s spending stretched out in 1980; Gore and Bradley were approaching the limit in March 2000. If Bradley had won in New Hampshire, both he and Gore might have faced the same situation as McCain. By forcing candidates to run a national campaign from the beginning, the compressed schedule leads them to raise more money early. Instead of campaigning most weeks in one or two states, they fly around frantically, barely visiting the main cities. As a result, they have to rely even more heavily than their predecessors on the mass media. But free media coverage of the candidates has gone way down. As a result, the message has to be carried by advertising, the cost of which has escalated. Frontloading therefore has contributed to an increase in campaign costs in a way never contemplated by the 1974 law. The leading candidates need to spend more to be heard, and they tend to spend whatever they can raise to win the nomination, months before the convention.

15 1980

Figure 2.1 1980 GOP Primary Spending

Figure 2.2 1980 Democratic Primary Spending

16 2000

Figure 2.3 2000 GOP Primary Spending

Figure 2.4 2000 Democratic Primary Spending

17 Two Additional Pressures Beginning in 1996, two additional developments put significant stress on candidates who chose to stay in the public funding system. ◆ First, top-tier candidates began to opt out of the matching funds program. ◆ Second, interest groups and advocacy groups became far more significant as sources for spending in nomination contests.

Running against opponents who opt out: In 1996, Republican Steve Forbes became the first candidate to refuse matching funds and do well enough to influence the outcome. Forbes spent $42.6 million, mostly his own money, in a year when the aggregate limit was $37.7 million. In the context of a frontloaded primary schedule, the Forbes campaign forced the eventual nominee Bob Dole, who had accepted matching funds, to reach the primary spending limit by March. In 2000, George W. Bush also opted out of the primary matching system, and became the first such candidate to win nomination and election. Bush raised an unprecedented $94 million during the primaries, all in hard dollar donations consistent with the law. By avoiding the limits, Bush was able to spend almost twice as much as the person who turned out to be his main opponent, John McCain. This financial advantage was one critical factor in Bush’s success. This lesson is not likely to be lost on other similarly positioned candidates. “Outside” money: The other strain on the system was the expanded importance of “outside” money: the campaigns of 1996 were the first to see significant amounts of corporate, labor union, and other interest group spending on candidate-specific media advertising outside the coverage of the FECA. This continued in 2000. For example, during the New York primary of 2000, an organization called Republicans for Clean Air (funded by two individuals) spent about $2.5 million on television ads to support Bush. During the South Carolina primary of 2000, religious conservatives sent about 500,000 pieces of mail criticizing John McCain toward the end of that state’s primary campaign. Al Gore received similar support from labor unions in Iowa and New Hampshire. In all of these cases, the amount spent by the outside campaigns represented a significant percentage of the amount spent by candidates (see Magleby 2002). Such spending outside the control of candidates is likely to continue in 2004. If upheld by the Supreme Court, BCRA would limit corporate or labor funded radio and television ads if aired within thirty days of a primary. This regulation is bound to increase the amount of corporate, labor and advocacy group advertising by direct mail and telephone. It will have no effect on ads funded by individuals.

18 Recommendation for the Spending Limit Amount Candidates who choose to stay within the system need to have higher spending limits to meet the challenge of a rapidly unfolding primary system, to stay competitive with candidates who opt out, and to respond to outside spending. An adequate spending limit will go a long way toward restoring the voluntary tradeoff at the heart of the system. But raising the limit today does not guarantee that a balance will be maintained tomorrow. After all, unexpected changes in the nominating process – like the development of frontloading – could well undermine the tradeoff once again. In order to prevent this situation from reoccurring, the spending limit should also allow for adjustments that would protect candidates who participate in the system from opponents who opt out of the system. Candidates who cannot respond to these situations will almost surely lose. As noted earlier, the public funding system cannot remain relevant if the decision to stay in it is equivalent to risking political suicide.

Recommendation Spending Limit Amount ◆ Amount: The spending limit for the nomination period should increase to an amount equal to the general election grant. As under current law, the limit should be indexed for inflation.

Reasoning: The Task force considered doing away with the spending limits while keeping public funds – the proverbial floor without a ceiling. In the end, we could not think of an adequate justification for giving public money to a well- funded candidate just to serve as a supplement for an unlimited campaign. As long as the spending ceiling is high enough, candidates who raise enough to go over the limit do not need public money to be heard. Of course, this assumes the spending limits are indeed high enough for candidates to be heard, even when interest groups are adding their voices into the mix. For all of the reasons outlined so far in this chapter, the Task Force has concluded that the spending limits for nomination contests should be at least the same as for the general election. The general election grant for major party candidates will be about $75 million in 2004. (Major party candidates will also be permitted

19 to raise private funds for a compliance account, which we have estimated at $10 million.) The following table shows how $75 million in spending would compare to spending limits in other public funding laws and to actual spending in several settings. To allow comparisons, the table presents spending per Voting Age Population (VAP).

Table 2.1 Spending Limits and Examples per Voting Age Population (VAP), 2000 Cents per VAP

Arizona Gubernatorial Limit – Primary .11 Maine Gubernatorial Limit – Primary .11 Arizona Gubernatorial Limit – General .16 Presidential Nominations: Current Base Limit (National) .16 Michigan Gubernatorial Limit – Primary or General .27 Wisconsin Gubernatorial Limit – General .27 Maine Gubernatorial Limit – General .29 Presidential General Election Public Grant for 2004 (est.) .36 Task Force Recommendation for the Nomination .36 U.S. Senate Primary Spending in 2000 (without NY and NJ) .39 George W. Bush, Net Operating Expenditures, 2000 Nomination .41 Florida Gubernatorial Limit .41 Minnesota Gubernatorial Limit .53 Sum of State-by-State Presidential Nomination Limits .55 Kentucky Gubernatorial Limit .59 U.S. Senate Primary Spending in 2000 (Including NY and NJ) .61

Hypothetical Bush Expenditure of $175 Million in 2004 .84

20 This table makes it clear that the current spending limit for presidential nominations is low. The only lower numbers are for campaigns in two states with simpler election contexts. The Task Force concludes that spending should increase if the public’s interests in competition and robust debate are to be served.

Supplementary Recommendations

Non-Participating Candidates and “Outside” Money

Recommendation Participating Candidates Facing a Non-Participating Opponent ◆ If an opponent for the nomination exceeds the spending limit: Participating candidates who are running against one who opts out should be able to spend as much as their highest spending nonparticipating opponent. ❑ Frequent electronic reporting: all candidates should be required to use software, to be distributed by the FEC, to provide frequent cumulative reports of their net total receipts and expenditures. These reports will determine the spending limits for participating candidates.

Reasoning: The Task Force was concerned that higher spending limits would not be sufficient to persuade candidates to accept public funding if doing so were to deprive them of their ability to run against a well funded candidate who does not participate. One of our later recommendations will be to give candidates matching funds earlier in the year, when it can be more useful to them as startup money. The absence of a spending limit escape hatch would be particularly problematic if a candidate made a decision to accept public funding in, say, June of the odd numbered year, only to find out the next January that an opponent plans to opt out to spend however much he or she can raise. The Task Force considered and rejected two additional ideas that others have considered. First, the Task Force decided not to recommend increased public funds for a candidate facing a non-participating opponent, for two reasons: (a) This benefit would be expensive in a multi-candidate field, and the amount of public money available for all purposes during the nomination season is finite. 21 (b) Among the possible uses for public funds, it is more important to increase the help for candidates early, when they most need it. The experienced campaign managers on the Task Force did not think that public money was the most urgent need for the kind of participating candidates who were actually constrained by the spending limit as they ran against nonparticipating candidates. For participating candidates to be poised to break through the ceiling, the candidates have to be well funded and well established. The Task Force thought these candidates’ most important need in this situation was to remove the regulatory shackles and let them fight it out with their opponents. Second, for outside spending: The Task Force rejected the idea of either raising the spending ceiling, or providing additional public funding to candidates, in response to advertising bought by non-candidates. The Task Force recognized this as a serious issue, but members with agency and/or legal experience thought compensation would be impossible to administer quickly and fairly, in the middle of a campaign. They also cited the lack of disclosure, even under BCRA, for a great deal of politically effective communication. In addition, they wondered whether everyone in a multi-candidate field, should benefit because one person had received an interest group’s support. What if the candidate did not consider the interest group’s “support” to have been helpful? Should the other candidates still get a bonus? The real solution, the Task Force said, was to make sure candidates had a high enough spending limit to respond to any such attacks, from whatever quarter.

The Bridge Period Problem

Recommendation Coordinated Party Funds for the Bridge Period ◆ Create a separate pre-nomination limit for coordinated party spending, equal and in addition to the current coordinated limit for the general election (about $15 million.) Parties may spend this at any time before the nomination.

Reasoning: Frontloading of the primaries and spending limits have combined to produce an additional problem for successful candidates. On the one hand, frontloading produces a long gap between the effective end of the primaries and the legal end, which occurs at national party conventions. On the other hand, 22 successful candidates tend to spend close to 100% of the spending limit to clinch the nomination, and they reach this limit earlier and earlier, as we have shown. As a result, presumptive nominees often lack the funds to campaign during this “bridge period,” after they have won the primaries but have not yet begun the general election. In 1996 and 2000, the winning candidates who had taken public funding (Clinton, Gore, and Dole) were able to use political party soft money to pay for millions of dollars worth of televised candidate-specific “issue advertising” that was not covered by the FECA’s contribution or spending limits. In effect, soft money paid for advertising during the bridge period between the effective end of the primaries and the conventions. BCRA puts an end to party soft money. If the Supreme Court upholds this part of BCRA, parties will either need to find substitute funding for the bridge period or else the spending ceiling will be a major burden on any nominee who stays within the public funding system. George W. Bush’s 2000 campaign points to one candidate’s solution to this problem: because he was not subject to spending limits, he was able to raise extra private funds and pay for a bridge period campaign himself. Unless the rules change, this is yet another major reason for candidates to consider opting out of the public financing system. Increasing the spending limit for participating candidates would not completely resolve this problem, since we suspect that candidates who can raise more money will still spend whatever they can to win the primaries and leave almost nothing for the bridge period. The Task Force considered solutions that would have created a special limit, to be triggered when a government agency, the Federal Election Commission (FEC), used some neutral basis for determining when a candidate had won enough pledged delegates to be considered a presumptive nominee. However, people with experience as party officials were concerned about declaring presumptive nominees. That might have worked well in recent years, but there are too many uncertainties in a nomination process to allow for such a determination. To mention just one example: many “pledged” delegates are not legally bound and could develop reasons for switching their allegiances. It seemed much simpler, and just as effective, to let the parties spend party money to help their presumptive nominees, whenever they felt ready to do it. Under current law and regulations, the parties may spend limited amounts of money “in coordination with” any of their federal candidates. In 2004, the major parties will be able to spend an estimated $15 million for such coordinated spending for the presidency at any time. This provides half of a solution to the “bridge period” problem. It is not a complete solution because the money comes out of a pool of money that parties had available to use in the general election. 23 Therefore, the Task Force recommends letting the parties, at their discretion, raise and spend an additional amount of coordinated money before the nomination, equal to the amount they may now spend afterwards. One legal issue might affect how important coordinated money might be as a solution to the bridge period problem. The Supreme Court in Colorado Republican Federal Campaign Committee v. Federal Election Commission (Colorado I) upheld the right of a political party to make unlimited independent expenditures in a Senate election before the party had an official nominee. In its rulemaking on the Bipartisan Campaign Reform Act, the Federal Election Commission decided that parties might have the same option for presidential candidates in the post- nomination period (11 CFR 109.35). However, it cautioned that difficulty in demonstrating that the national party committee is truly independent of its presidential candidate means this option may be “unlikely in practice” even if the rules “allow for such a possibility” (68 Federal Register 448, January 3, 2003). The same reservation might apply to a presumptive nominee. Furthermore, Justice Breyer’s opinion for the Court in the first Colorado case said specifically that the ruling did not decide whether independent expenditures would be permitting in connection with publicly funded presidential campaigns (518 US 604,612). Therefore, the relevance of our recommendation for coordinated party spending during the bridge period depends upon whether independent party spending is available for the same purpose. In either case, political party hard money – raised under BCRA’s contribution limits – is the appropriate replacement for the soft money that was used during the bridge period to support presidential candidates before BCRA.

Simplifying the Sub-Limits

Recommendation Simplify the Sub-Limits ◆ Abolish state-by-state limits and separate fundraising limits. Campaigns should have the flexibility to budget their resources within a unified limit. ◆ Retain separate legal, accounting and compliance fund, under current rules.

24 Reasoning: In addition to the national spending limits, the FECA also includes state-by-state spending limits, as well as separate limits for fundraising expenses. Because the state limits are based on a population formula, as well as being indexed for inflation, they have grown at a faster rate than the aggregate limits (indexed only for inflation) and cumulatively exceed the national limit. The sum of the state-by-state limits in 2000 ($113.8 million) was more than three times as much as the national limit. In 2000, the state limits ranged from a minimum of $675,600 in a low population state such as New Hampshire to $13.1 million in California. Campaign professionals have long complained that these limits bear no relationship to a state’s strategic importance. For example, New Hampshire’s first- in-the-nation primary has a low spending limit because of the state’s small population. Because of the state’s pivotal political role, many candidates want to spend more money there than the state’s limit allows. To do so they may make daily stops in nearby Massachusetts so time spent in New Hampshire would not all count against the New Hampshire limits. The state limits thus lead candidates into convoluted behavior that serves no rational purpose. As a result, the Federal Election Commission has steadily loosened the state limits and has advocated their abolition. Much the same can be said for the exempt fundraising expenditures, which campaigns tend to treat as additional spending authority. These sub-limits create an unnecessary degree of complexity for presidential campaigns and breed cynicism in the public. The system would be better served by having a single spending limit for all purposes, high enough to satisfy all of these needs.The one exception to this general rule is for legal, accounting and compliance funds. The Task Force was concerned that such expenditures may be prompted by factors outside of the campaign, such as lawsuits potentially filed for political purposes. They did not want to give opponents the chance to tie up a candidate’s campaign funds by filing a complaint that might lead to a compliance action. The Task Force anticipates that the compliance funds for the primary season under the higher spending limit could resemble the general election experience: in 2000, Al Gore raised $8.4 million for legal and compliance costs in 2000; George W. Bush raised $7.7 million.

CHAPTER 3I Broadening the Base: Making $100 Worth $400 with a Three-for-One Match

The heart of the presidential public finance system – as already said – is the tradeoff T between public funding and expenditure limits. Current rules Public matching funds were supposed to help foster competition and participation, but to understand how, Contribution limits and judge them fairly against their intended purposes, ◆ The Federal Election Campaign Act Amendments of 1974 one must see the law in historical context. limited individual contributions to a federal candidate to $1,000 per election. FECA also limited political action The 1974 campaign finance law was a direct reaction to committee (PAC) contributions to $5,000 to a candidate President Nixon’s reelection campaign. The most per election. Contribution limits were not indexed for important purposes of its main fundraising provisions inflation. If they had been, $1,000 would have been worth for presidential primaries were as follows: about $3,650 in 2002.

◆ Reduce the importance of the largest donors: FECA’s ◆ The Bipartisan Campaign Reform Act of 2002 raised the sponsors were concerned that unlimited contributions individual contribution limit to $2,000, and indexed it for were potentially corrupting – both because they could inflation, but left the PAC limits unchanged at $5,000, with give some contributors an undue level of influence over no indexing. some office holders, and because the ability to ask for Matching fund system unlimited contributions could put too much power in ◆ the hands of public officials to extract wealth from private Candidates who qualify for matching funds, and choose to participate in the system, receive a 1:1 match for the citizens with business before the government. In 1972, first $250 in contributions from an individual. The $250 for example, the Committee to Reelect the President matching fund amount has not been changed or indexed (CRP) raised about $62 million for President Nixon’s for inflation since 1974. campaign. About one-third of that, or $21.3 million, came from only 154 donors, who gave an average of ◆ The current cap on public funding is 50% of the base more than $138,000 each (Alexander 1976:279). FECA’s spending limit, or $18.3 million in 2004. To receive this amount, the candidate would have to raise half of the full sponsors thought the public record developed in the base spending limit, or $18.3 million, in amounts of $250 Watergate hearings about fundraising in 1972 gave ample or less. evidence of both kinds of potential corruption. They expected that the new law’s $1,000 contribution limits ◆ The first matching funds are made available to candidates would cut down the influence of the largest contributions on January 1 of the election year. from federal election financing. ◆ Provide a public subsidy to replace some private funds: Because it was doing away with a significant source of campaign money, the 1974 law tried to replace some of it with public money by providing matching funds for the first $250 given by every contributor to a presidential candidate participating in the system. ◆ Promote competition: Public matching funds were expected to help under-financed but potentially viable candidates, without giving too much to marginal ones; ◆ Encourage small donors: By matching the first $250 on a one-for-one basis, the FECA was trying to give candidates an incentive to solicit small to moderate sized contributions.

27 Assessing the 1974 System For some time, the system seemed to work more or less as hoped, supporting competition, increasing the role of small donors, decreasing the role of the largest ones, and replacing some of the lost private money with public funds. Matching funds have been important as a source of revenue for candidates. On average, between one-quarter and one-third of the money raised by participating candidates comes from public monies. Candidates who emphasize the solicitation of small contributions usually receive 35-40 percent of their resources from public funding. Those who emphasize the solicitation of larger gifts of $500 or more, such as incumbent presidents and well-established contenders, usually receive 25-30 percent of their total revenues from matching funds1.

Competition Matching funds have helped to provide lesser-known contenders with the revenues needed to mount a viable campaign, especially in the critical, early primary states. For these individuals, such as Jimmy Carter in 1976, Gary Hart in 1984, Bill Clinton and Paul Tsongas in 1992, and John McCain in 2000, public subsidies proved to be a sorely needed source of resources at crucial points in the delegate Ronald Reagan relied on small contributions selection process. Public funding has thus played a role in enhancing competition for his presidential campaigns. Because of in presidential primary campaigns. this, he became the only candidate ever to “max out” in his public funding. The availability of public money has been of particular benefit to ideological candidates. Liberal contenders such as Democrats Jesse Jackson (1984 and 1988) and Jerry Brown (1992) raised a substantial portion of their campaign revenues from matching funds. For example, Jackson solicited a combined $17.4 million from donors in his two bids for the presidency and earned $10.7 million in matching funds. Brown accepted only small contributions of $100 or less and matched his $5.2 million in individual gifts with $4.2 million in public money. Similarly, conservative candidates such as Pat Robertson in 1988 and Patrick Buchanan in 1992 capitalized on their small donor bases to generate significant sums of public money. Robertson raised $20.6 million in 1988 and accrued $9.7 million in matching funds. Buchanan solicited $7.2 million in 1992, which generated $5 million in match. Yet neither of these candidates reached the high water mark for reliance on public funds, which was established by Ronald Reagan in his 1984 reelection campaign. In that year Reagan received about 60 percent of his funding from small donors and earned $9.7 million in matching funds, which was the maximum amount permitted under the limits in effect at the time.

1 This paragraph and the next two are from a background paper written for the Task Force by Anthony Corrado. 28 Participation From this record, we see that the matching fund system has helped competition. But the record is more mixed if part of the purpose was also to broaden participation by small donors. Of course, one might argue that the public fund is itself a form of participation, since the money comes from the broadly based income tax checkoff. But checking off a box on is not as fully engaged a political action as is writing a $50 check to a candidate. If we look at the donor rolls, there is both good news and bad news about participation. The good news is that more than 70 percent of the people who gave contributions to presidential candidates in 2000 gave in amounts of less than $100. The bad news is that there were fewer than 600,000 such people, combined, for all candidates, and therefore the bulk of the money came from people who gave money in larger amounts. (See Appendix Table A.3.1.) The total number of donors in 2000 (some of whom gave to more than one candidate) was 774,000, which is less than four-tenths of one percent of the voting age population. For a comparative perspective, George McGovern and Richard Nixon each had about 600,000 general election contributors in 1972, according to political scientist Herbert E. Alexander. Nixon relied heavily on major contributors. McGovern relied on small contributions, much of it raised by direct mail. We do not know how many prenomination contributors Nixon had since much of his money was raised before disclosure was required on April 7, 1972 and then used in the general election. McGovern reportedly had about 200,000 contributors during the primaries. (See Alexander 1976:279; 293-94.) By comparison, subsequent nominees seem to have relied less on small donors. The publicly funded candidate with the largest number of contributors in 1996 or 2000 was Bob Dole, with 126,831 donors of $100 or less, and 164,983 donors in all. Al Gore and Bill Clinton were a close second and third. (Of course, any of these would have raised more if they still had room to do so within a higher spending limit.) George W. Bush, who did not accept public funds, had about 90,000 small contributors and 191,000 donors in total. Thus, the real story is not that small donors don’t give, or that the candidates do not ask for their money. The candidates do ask – on the telephone, over the Internet, and constantly by mail. However, as the nomination process has evolved, the small donors have not been the top candidates’ main concern. Consider the following table and figure (Table 3.1 and Figure 3.1), which show how winning candidates, over the years, increasingly have relied on large donations for their funding.

29 In the first three elections under the law, only one of the six winning major party nominees (Jimmy Carter as an incumbent) received more than 31 percent of his individual contributions from donors who could write a $750 check. In the four elections with eight winning candidates since then, only two received as little as 42 per cent! Al Gore was at the two-thirds mark. George W. Bush and his father each raised more than three-quarters of their private money in amounts of $750 or more.

Table 3.1 Winning Candidates’ Small and Large Donations as a Percentage of Individual Contributions, 1976-2000

Less than $200 $750 or more

2000 Figure 3.1 Bush (R) 11 % 75 % Winning Candidates Small and Gore (D) 16 66 Large. Donations as a Percentage of Individual Contributions 1996 Dole (R) 20 55 Clinton (D) 19 56

1992 Bush (R) 6 82 Clinton (D) 19 42

1988 Bush (R) 12 54 Dukakis (D) 21 42

1984 Reagan (R) 46 30 Mondale (D) 29 31 Source: Table 3.1 1980 Reagan (R) 47 30 Carter (D) 14 51

1976 Ford (R) 40 24 Carter (D) 38 18

Source: Derived from Federal Election Commission data.

30 The next table and figures (Table 3.2, Figure 3.2A and 3.2B) show the distribution of small, medium, and large donors for the major candidates who ran in 2000. Because we used our 2000 database for this table, instead of the FEC’s across- time categories, we were able to look at cumulative contributions given by individual donors.

Figure 3.2A Percentage of Donors Table 3.2 ( Top Four Candidates) Thinning Out the Middle: Individual Donors by Amount, 2000

Percentage of number of donors, or percentage of money from people whose total contributions amounted...

$100 or less $101-$250 $251-$500 $501-$999 $1,000

Democrats Gore % of Donors 70 12 4 1 13 % of Money 14 10 10 3 63 Bradley % of Donors 63 11 7 1 18 % of Money 11 9 12 2 66

Republicans Figure 3.2B Percentage of Money Bush (Top Four Candidates) % of Donors 47 11 10 2 31 % of Money 10 4 11 3 72 McCain % of Donors 74 12 5 1 8 % of Money 22 13 13 7 45 Bauer % of Donors 77 16 3 1 3 % of Money 29 25 11 9 25 Keyes % of Donors 86 12 1 * * % of Money 48 29 7 4 12

All percentages are for individual contributions and contributors only. Source: Table 3.2 Source: Derived from FEC Matching Fund Submissions files, and from a database derived from FEC records by A. Corrado and H. Gouvêa (described in Corrado and Gouvêa, forthcoming).

31 This table and these figures show clearly that even though most of the contributors are small donors, the bulk of the private money in 2000 came from $1,000 givers. Among the top candidates, this pattern was especially true for Bush, Gore, and Bradley, who relied on networks of fundraisers making personal phone calls. It was somewhat less true of John McCain, who received a surge of money from Internet fundraising after he did well in New Hampshire. For all candidates, it looks as if most of those who gave $501 or more were persuaded to go all the way up to $1,000. BCRA Exacerbates Preexisting Problems: The reliance on major donors is likely to increase under the Bipartisan Campaign Reform Act (BCRA) but began long before. We mentioned earlier that one purpose of the 1974 law was to use contribution limits to curb the influence of those who could write the largest checks, often in amounts that in 1972 exceeded $100,000. Contribution limits were undermined by the parties’ unlimited “soft money” fundraising, which took off after 1992. BCRA restored contribution limits by abolishing national party soft money. In the process, Congress doubled the limit on contributions from individuals to $2000, restoring some of the value that had been lost through inflation, and then indexed the maximum amount to protect against future inflation. It is reasonable to expect that candidates who once could raise a lot of money in $1000 contributions will now be able to turn at least some of those $1000 donors into $2000 donors. We assumed later, for purposes of analysis, that the former $1000 donors will give an average of 50% more in the future. Whether 50% is precisely the right number is not important: there will surely be some significant increase. This, in turn, will even further depress the financial importance of small donors. Major Donors Are Not Representative: One reason for concern about the reliance on major donors is that major donors are not a cross-section of the country. In the Appendix, we present a table (A.3.2) comparing major donors to small donors, checkoff participants and the general public. The major donors are a lot older, and richer, than the average person. For example, 35% of the $1,000 donors, and George W. Bush, shown here at a fundraising event, and ... 32 14% of the $200-$999 donors, have incomes of over $500,000 a year. Only 1% of donors who gave less than $200 and fewer than 1% of the checkoff participants or of the public at large, had incomes this high. (See the table in the Appendix A.3.2 and see Wilcox, et al. 2003.) Of course, we should not collapse the last three groups into one. Although under- $200 donors and checkoff participants are certainly more “like America” than major donors, they are not identical to each other. The under-$200 donors are still more affluent than the general public (32% versus 6% with incomes over $100,000).

Fixing The Matching Fund By giving a significant amount of money to all candidates, the matching fund system has been important to competition. It has helped keep candidates in the race, thereby improving the quality of voters’ choices. However, the system has not worked to stimulate the breadth of public participation that we think the system can and should inspire. The question is how to redress the imbalances. We tested many options for altering the public matching fund system to see whether different formulas would influence the mix of donors and candidates in different ways. We looked at single to multiple matches of $100, $250, and $500 under different rules. The comparisons were built from databases of 1996 and 2000 donors that told us how many discrete contributors gave how much to each candidate. We shall spare readers the task of wading though all of the options here, but the full sets are reproduced in the Appendix (Tables A.3.3 through A.3.6).

... Al Gore and Bill Bradley all raised more than 60% of their individual contributions from $1000 donors. 33 We were looking for options that would better serve the objective of the public matching system by: ◆ Increasing the amount of public money candidates would receive to leave them with an incentive to stay in the system; ◆ Maintaining or improving the current percentage of money coming from public funds, even if half of the current $1,000 donors increase their giving to $2,000; ◆ Providing some additional benefit to candidates who rely on small contributions; and ◆ Maintaining revenue neutrality, by keeping the cost to the Treasury within bounds that we would expect to cover through checkoff increases to be discussed below.

Making $100 Worth $400 Using these criteria, one set of changes in the matching system seemed to stand out as offering the best balance for meeting the goals the Task Force thought public funding should serve: a three-for-one match of the first $100 from every contributor.

Recommendations Public Matching Funds ◆ Match the first $100 from all individual contributors on a three-for-one basis instead of the current system’s one-for-one match of the first $250. Under this system, a $100 private contribution would be worth $400 to a participating candidate. ◆ No candidate should receive more than $20 million in public matching funds. ◆ Allow candidates to receive matching funds in the first regular reporting period after the candidate qualifies for and requests them.

34 Toexplain the reasoning that led to this recommendation, we draw the reader’s attention to the following table (Table 3.3). In it, we consider how much public money the actual candidates of 1996 and 2000 who took public funds received, or would have received, under three sets of conditions. The table shows four major groups of columns (receipts, amount of public money, percent of receipts coming from public money, and percent of receipts coming from $1000 contributions). Under each of these headings, we show three different conditions: ◆ The first column (“Actual”) shows what happened in 1996 and 2000. ◆ The middle (“BCRA Impact”) takes the existing pool of donors, and assumes only one change: that $1000 donors would have increased their contributions by 50% if BCRA’s higher contribution limit had been in effect. (For an explanation of why we used the 50% assumption, see Green and Corrado, 2003.) ◆ The third column (“CFI Task Force”) adds to the “BCRA Impact” scenario the Task Force’s recommendation of three-for-one matching funds for the first $100 as well as a $20 million cap on public funds. That is, it assumes candidates would have gotten more money from large donors because of BCRA, and asks how the Task Force’s matching rules would have affected the balance. (For the same information for nine different matching fund formulas, see the Appendix, Tables A.3.3 through A.3.6.) The table shows that if nothing changes except for BCRA’s increased contribution limit, the percentage of money coming from major donors of $1000 or more would be bound to have gone up for all candidates, while the percentage of public funds would have gone down. The changes would have been greatest, of course, for candidates who received the highest proportion of their money from the top donors: George W. Bush, Al Gore, Bill Bradley, Bill Clinton, Bob Dole, and Lamar Alexander. But now look at what happens if one changes the public funding formula to a three-for-one match for the first $100, and conservatively assumes that the higher match would produce no additional small donors. ◆ First, the amount and proportion of public money will increase significantly from BCRA and pre-BCRA levels. ◆ Second, the proportional importance of $1000+ contributions would be brought back toward pre-BCRA levels. ◆ Third, even though the money from $101-250 is no longer being matched, all candidates would have gotten more public money because almost three-fourths of all donors gave less than $100, and conservatively assumes that the higher match will produce no additional small donors. ◆ Fourth, most top-tier candidates – Gore, Bradley, McCain, Dole and Clinton – would have gotten roughly the same percentage of their money from public funds, or a few percentage points more, than they got before BCRA raised the 35 Table 3.3. Impact BCRA and the Task Force’s Recommendations…

All scenarios assume the same donors. *BCRA = 50% more from $1,000 donors; no change in public money. **CFI = BCRA +3-for-1 match of $100, with a $20 million cap.

36 Table 3.3. (cont.) ...Would Have Had on Publicly Funded Candidates in 1996 and 2000.

+ Other candidates include, in 2000: Patrick Buchanan, Ralph Nader, John Hagelin and Lyndon LaRouche and in 1996: Pete Wilson, Arlen Specter, John Hagelin and Lyndon LaRouche.

37 contribution limit. They all would have gotten more money than they actually did under the current system, but all would of them would also be capped by the Task Force’s recommended $20 million ceiling. ◆ Fifth, candidates who relied on small contributions (Bauer, Keyes, Buchanan, Lugar, and “others”) would have seen their percentages go up the most. The Task Force sees a These generally positive conclusions do not, however, reflect more positive three-for-one match as a assumptions that would further elevate the importance of small donors. They all powerful marketing tool assume that the three-for-one match will have no effect on the size of the donor to persuade small donors pool. That is not what the experienced campaign professionals on the Task Force to give money. expect. They see a three-for-one match as a powerful marketing tool for candidates to persuade small contributors to give money. The potential donors will hear “$100 will bring $400” and know that their contributions will be large enough to matter. There is some additional basis, beyond the Task Force’s campaign experience, for thinking this growth in participation could happen. In 2001, New York City shifted from its old one-for-one match for the first $1000 to a four-for-one match for the first $250. According to the New York City Campaign Finance Board’s report on the election, the number of contributors who gave up to the $250 matching level doubled from 1997 to 2001. While a number of other factors contributed to this doubling (new term limits increased the number of competitive races, corporate contributions were abolished, and contribution limits were lowered) the New York City Board concluded that: The most interesting trend in contributions to emerge from the 2001 election cycle was the enormous increase in contribution dollars from a record number of contributors.... Candidates responded to the new $4- to-$1 matching formula by reaching out to contributors of relatively modest means – and not just to more affluent donors. The higher Program participation levels, representing a more diverse group of candidates than ever before, helped to broaden the contributor base and introduce new contributors to the world of New York City politics. (New York City Campaign Finance Board, 2002, p.62.) Another reason for expecting a significant response to the three-for-one match of small donations is the success some presidential campaigns have had in tapping small donations through Internet organizing. A quantum step forward was taken in 2000 when John McCain raised more than $2 million in four days following his widely publicized win in the New Hampshire Republican primary. All told, the McCain campaign said it raised $6.4 million on the Internet. When combined with the matching funds it generated, this represented 27% of the campaign’s receipts (Cornfield and Seiger 2003). Furthermore, the general survey of 2000

38 presidential campaign donors cited earlier in this chapter found that 12.4% of the donors said they gave over the Internet. 57% of the Internet donors said they gave less than $200, as opposed to 40% of non-Internet donors. With 55% of Americans now using the Internet regularly (Cornfield and Seiger 2003), “every major presidential campaign is raising money on Sen. John McCain’s 2000 experience was a websites,” (Romano 2003). breakthrough for Internet campaigning. Therefore – based on the example of New York City, the possibilities for the Internet, and the experience of the campaign professionals on the Task Force – we think it is reasonable to expect a substantial increase in the number of small donors to presidential candidates. How much of an increase? We cannot be certain. In many respects, it is difficult to bring about basic shifts in levels of civic engagement. But it is also important to consider how little it would take in numerical terms to increase the presidential small donor pool by, say, 50%. The current donor pool is made up one only four-tenths of one percent of the voting age population in the country! More than three-quarters of the current donor pool is made up of small donors. Increasing the small donors by 50% means persuading only another 285,000 people to make a donation to a presidential candidate of their choice. Such a 50% increase in donor participation may seem small cause for civic celebration, but it would in fact be a major event. This is because of the way the numbers behind the proposal will work. (See Table A.3.1 for the number of donors at each level for candidates who ran in 1996 and 2000.) Consider these comparisons of large and small contributors in 2000 with their value under the Task Force proposal. ◆ Small donors in 2000 – actual: In the 2000 election, 570,000 individuals in 2000 gave $100 or less to each of one or more candidates. Their average contribution was slightly more than $50. Under the current one-for-one matching system for the first $250, these donations (if all were matched) would be worth $57 million to the candidates. (For the number of donors at each level, see Appendix Table A.3.1.) ◆ $1000 donors in 2000: In contrast, the approximately 112,000 donors who gave $1000 in 2000 were potentially worth about $140 million, including matching funds. (Not all were matched, of course, because almost 60,000 of these were Bush donors.)

39 ◆ Small donors and $1000 donors under BCRA: Under BCRA’s higher contribution limits, which will lead to higher contributions from the $1000 – $2000 donors, these top donors would be worth $190 million with matching funds, while the small donors of $100 or less would still yield only $57 million. The picture would be significantly different with a three-for-one match. ◆ Small versus large with the same donors: The same small donor group would be worth $114 million while the yield from the $1000 plus group would only go Instead of being outgunned up slightly, to $200 million. by 333% under BCRA, the ◆ Small versus large if the small donors increased: And if the new match meant small donors would be that you could persuade small donors to increase their giving by 50% (either by finding new donors, getting the old ones to increase their giving by $25, or some worth 85%-90% as much combination,) then the small donors collectively would be worth $170 million as the large ones. as opposed to $200 million for the large donors. The under-$100 donors would thus become almost as important a factor in presidential finance as the large donors. Instead of being outgunned by 333% under BCRA, the small donors would be worth 85%-90% as much as the large ones. To put it mildly, this would be a very big change. It is not a far-fetched scenario. It can be done, and it should be done. What is more, it can be done at a very reasonable cost. ◆ A three-for-one match for the first $100 would have cost an added $45 million in 1996 and $39 million in 2000, with existing donors. ◆ If the under-$100 donor pool were to increase by 50%, with an average contribution of $50, the cost would go up by about another $43 million. ◆ Joining this with the previous estimate for the current donor pool produces a total cost of about $82-88 million over current costs. As we shall see in the next chapter, this very big change to presidential financing can be handled with only a modest increase to the current tax checkoff.

Capping Public Funds at $20 Million per Candidate The Task Force’s proposed three-for-one match would require an increase in the maximum public subsidy allowed per candidate. Very few candidates have actually raised the maximum subsidy over the life of the system. Among Democrats, only Gore in 2000 and Clinton in 1992 raised more than 90% of the maximum public funds. The average for all winners and strong opponents was 57% and for all candidates 29%. Among the Republicans, Ronald Reagan was the only candidate to receive 100% of the maximum, and he did so in 1980 and 1984; Reagan and Ford in 1976 round out the Republicans with more than 90%.

40 The Task Force recommends a maximum subsidy of $20 million per candidate, indexed for inflation. This is significantly more than any candidate has gotten so far, so all candidates should feel a financial incentive to stay in the system. However, $20 million is less than the top candidates might get if they received a three-for-one match without a cap. The Task Forces expects that candidates who would be getting the $20 million typically would be those who are left standing after the field has been winnowed. They are already competitive, and they should be able to raise sufficient private contributions to wage effective campaigns given the higher spending limits proposed. The reason for a cap therefore is simple: we would like to concentrate scarce public funds, within a limited budget, on the candidates who most need it, early in the campaign.

Make Matching Funds Available Early At its origin, the public financing system assumed that primary campaigns would not begin in earnest until the election year itself. Hence, the law allowed candidates to receive public funding as of January 1 of that year. But with the advent of frontloaded primaries, serious campaigning begins much earlier, and candidates raise an increased amount of their funds prior to January of the election year. For example, in 2000 Al Gore raised 57% of his funds before January 1. In contrast, in 1976 Jimmy Carter raised 9% of his funds early. The contrast between George W. Bush in 2000 and Gerald Ford in 1976 is even starker: 72% of Bush’s funds versus 11% of Ford’s were raised early. The need for such “early money” has tended to benefit well-established and well- known candidates over less well-known candidates. Indeed, many less well-known candidates cannot raise a large amount of money early. Matching funds therefore should be made available as soon as candidates qualify for them. January 1 of the election year was once “early” in the nomination process but now is quite late. The date needs to change, therefore, if the goal is to help support competition. Making matching funds available early will help less well-known candidates compete more effectively.

Other Options Considered The Task Force seriously considered a number of proposals raised during its hearings, or by others since then, before settling on its three-for-one recommendation. One-for-one match for the first $500: Two Federal Election Commissioners, Michael Toner and Scott Thomas, have recommended keeping the one-for-one match, but doubling the amount to be matched to $500 instead of the current

41 $250 (Toner and Thomas, 2003). This proposal is part of a larger one that has some symmetry to it, since BCRA doubled the contribution limit and the Commissioners – like this Task Force – propose raising the spending limit to Improving participation $75 million, which is about double the current base limit. The Toner-Thomas is a vitally important goal proposal also has the virtue of being the least costly we have seen. (See the for a healthy democracy. Appendix, Tables A.3.3 through A.3.6, Scenario #7.) However, the effects of public money would be different under the Toner-Thomas proposal than under ours. Candidates would receive roughly the same percentage of public money under Toner-Thomas as they actually did in 1996 and 2000, but would receive less public money than under our proposal – particularly candidates who depend on small contributions. Our proposal would spend more money than theirs for the purpose of strengthening competition. There is also no reason to believe that a one-for-one match would change the size or character of the donor pool. The percentage of money coming from $1000+ donors under this proposal would be slightly higher than in 1996 and 2000, and more than under a static estimate of the effects of our recommendation. However, as discussed, our proposal would not leave the pool static. We consider the modest additional expense to be well worth it because stimulating participation is a vitally important goal for healthy democracy. Four-to-one match for the first $250: There have been proposals for other multiple matching ratios, including a four-for-one match for the first $250 suggested by Fred Wertheimer of Democracy 21 (Wertheimer 2003). A multiple match for the first $250 was also among the final two options the Task Force considered. Not surprisingly, it would cost more to match the first $250 on a 4-for-1 basis than it would to match the first $100 on a 3-for-1 basis. Under the current system, primary candidates received $56 million in matching funds in 1996 and $62 million in 2000. Assuming no change in donors or candidates, our 3-for-1 match for the first $100, with a $20 million cap, would have cost about $100 million each year (see Table 3.3). With no cap it would have cost $140 in 1996 and $114 million in 2000. In contrast, matching the first $250 at a 4-for- 1 rate would have cost $261 million in 1996 and $228 million in 2000. (See Appendix Table A3.3 for the comparison.) This level of expense could not be supported even with the significant increase in the checkoff that we are proposing. In all likelihood it would require new funding sources, which might be less reliable if subject to annual congressional approval. Interestingly, the extra money in the Democracy 21 proposal would not have helped the relative position of small donors any more than ours did. We saw earlier that our 3-for-1 matching ratio would increase the relative importance of a $100 donor (worth $400 instead of $200) compared to a $2000 donor (worth $2300 instead of $2250). With a 4-for-1 match of the first $250, the $100 donor 42 would be worth $500 but the $2000 donor would be worth $3000. Thus, the relative worth of small and large donors would be about the same. If more money were available, we would have considered raising the matching ratio to 4- for-1 or more, rather than increasing the amount to be matched. This would boost the relative importance of small donors more than either proposal, at a cost (without caps) that would be about midway between this proposal and ours. Matching Tied to a Lower Contribution Limit: Some have proposed tying matching funds to a requirement that participating candidates abide by a lower contribution limit than nonparticipants. This idea is included as part of a broader proposal being circulated jointly by Public Citizen, Public Campaign, and U.S. PIRG (Public Citizen, et al. 2003.) The remainder of their plan includes an initial bloc grant and 4-for-1 match for contributions of up to $250. We believe it would be counterproductive to tell participating candidates that they have to live with lower contribution limits than other candidates. That would become another incentive to forego public funding. New York City and Suffolk County, NY are the only jurisdictions that we know of in the country with such provisions, and the provisions exist there only because the limits for nonparticipating candidates are set by state instead of local law. The New York City Campaign Finance Board has recommended that state law be changed to make the limits uniform for participating and nonparticipating candidates. (New York City Campaign Finance Board 2002:158.) Of course, another approach might be to reduce the contribution limit for all candidates. We share the concern about the proportional role of major donors but do not want to discourage participation by those who give $2000 in hard money to a candidate. In any case, Congress just raised the limit and is not likely to revisit the issue. A better approach would be to stimulate participation by small donors rather than turning away those who participate now. That is the purpose of our recommendation for a three-for-one match for the first $100.

Additional Recommendations

Qualifying Threshold The FECA established qualifying financial thresholds for Current Rule publicly funded candidates to prevent so-called “fringe candidates” from entering the race solely for the public To be eligible for matching funds, a candidate must raise funding. One component of the threshold was that $5,000 in each of twenty states, for a total of $100,000, in candidates raise money in twenty states. The purpose amounts of $250 or less. was to avoid using federal money to underwrite “favorite sons” or purely regional candidates. 43 However, the financial value of the threshold has been eroded by inflation. The qualifying amounts have not been adjusted at all since 1974. If the eligibility requirements had been adjusted for inflation, the threshold in 2000 would have been $16,900 in contributions of $250 or less in twenty states (for a total of $338,000). The current $100,000 threshold is lower than in many state public finance systems for governor. For example, in Florida the threshold is $150,000 in amounts of $250 or less, and in Kentucky it is $300,000 in contributions of $1,000 or less. (Some states do have lower thresholds: in Maine, for example, a gubernatorial candidate qualifies for a full public funding system with 2,500 $5 donations from registered voters.)

Recommendation ◆ To be eligible for public funds, candidates should have to raise at least $50,000 in each of ten states, for a total of $500,000. The contributions may be in any legal amount, but must come from individuals. The amounts required should be indexed for inflation.

In an open letter dated April 16, 2003, FEC Commissioners Thomas and Toner recommended increasing the threshold to one of three levels, all of which would be raised in amounts of $250 or less: ◆ $15,000 in each of 20 states, for a total of $300,000 (this would not quite make up for inflation since 1974); ◆ $25,000 in each of 20 states, for a total of $500,000; or ◆ $50,000 in each of 20 states, for a total of $1 million. We recommend a $500,000 threshold, but would require candidates to raise $50,000 in each of ten states. We also would let the money be raised with any legal contribution from individuals, up to $2000 per contribution. We think this rule is a reasonable compromise among the purposes one is trying to serve with a threshold. To raise $50,000 in ten states presupposes a significant political organization. This threshold would mean that very few of the candidates who have received public funds since 1974 would not have gotten them. We have not been able to look at the impact of the distribution requirement, but we have looked at the

44 requirement that candidates raise at least $500,000 from individuals. Because we would index the amounts for inflation, we looked at all candidates who have received public funding since 1976 and adjusted the hypothetical threshold amount for each year so it would have been worth the same as $500,000 in the year 2000, beginning with $162,000 in 1976. In the elections from 1976 through 2000, 28 Republicans, 46 Democrats and 8 minor party candidates received public funding. (See Appendix Table A.3.7 for the full list of candidates who have received pre-nomination funds since 1976.) Raising the threshold to the equivalent of today’s $500,000 would have disqualified only two candidates, Larry Agran, a Democrat, in 1992 and Sonia Johnson of the Citizens’ Party in 1984. Raising the threshold to the equivalent of $1 million would also have disqualified Terry Sanford (D) and Ellen McCormack (D) in 1976, Douglas Wilder (D) in 1992 and John Hagelin (Natural Law) in 1992, 1996 and 2000. Thus, when we look backwards we see that our proposal would have eliminated only two candidates of the 82 who have received public funds. However, we are concerned that if matching funds were increased as we have recommended, the presently low qualifying threshold might attract more non-serious candidates into the race. Since insurgent or “outsider” candidates would benefit significantly from a three-for-one match, we considered a higher threshold to be a reasonable tradeoff for getting more money. The principal goal of public funding is to foster competition and public dialogue. In return for this emphasis, candidates who receive public funds should show they can be meaningful participants before taxpayers are asked to help underwrite their campaigns.

Contributions to One’s Own Campaign When the public financing system was created, there was great concern that wealthy individuals would be able to use their funds to skew the process in an unfair fashion. Current Rule At the same time, the law recognized that a candidate’s own funds were an important source of “seed money” Candidates who participate in the public funding system may with which to launch a campaign. In order to reflect contribute no more than $50,000 to their own campaigns. both of these concerns, the law allowed candidates to This limit has not been changed since 1974. spend up to $50,000 of their own or family resources if they accepted public financing. By 2000, this limit had been severely eroded by inflation and some candidate representatives, especially from minor party and independent campaigns, complained in our public hearings that this limit restricted their ability to get their campaigns up and running.

45 Recommendation Candidates should be permitted to contribute up to $200,000 to their own campaigns. This amount should be indexed for inflation.

Reasoning: Given the circumstances, it is reasonable to allow candidates to spend up $200,000 of their own or family funds on their campaign if they accept public matching funds. If the original $50,000 had been indexed, it would have been worth more than $185,000 today. This increase would be particularly important for minor party or “outsider” candidates.

46 CHAPTER 4I Replenishing The Public Fund

he Presidential Election Campaign Fund (PECF) is running out of money. According T to our estimates, if both parties have contested Current Rules nominations and all of the major contenders accept public funds, the PECF probably will not be able to Under the Revenue Act of 1971, those taxpayers who choose provide matching fund payments to the candidates to check a box on their annual individual federal income tax during the 2008 nominating season. Even more alarming form directly finance the publicly funded presidential system. is the possibility that there will not be enough to cover The initial checkoff was for $1 ($2 for joint filers), and it was expanded to $3 ($6 for joint filers) in 1993. the Fund’s obligations to candidates by year’s end. We estimate that the Fund may be as much as $20 million Funds are designated for the Presidential Election Campaign in the red by the end of 2008. Without policy changes, Fund (PECF), a separate account maintained by the U.S. the cupboards will be completely bare within an election Treasury. Distribution of the money is in accordance with or two, and the public funding system will collapse due certifications made by the Federal Election Commission to insufficient funding. (FEC). The law provides the following priorities for distributing these funds: first, national convention subsidies; then, general The only ways to solve this problem are to cut spending election grants; and finally, matching funds for primaries and or raise more money. But our recommendations will cost caucuses. somewhat more money, not less. A three-for-one match for the first $100 would have cost an additional $39 million in 2000 and $45 million in 1996, assuming no change in the pool of donors. Moreover, we have recommended a higher spending limit, and we do expect the donor pool to grow. A 50% increase in small donors should mean a total cost of about $82-88 million above current costs. The system thus will need more cash to remain solvent.

The Balance Sheet’s Imbalance For most of the history of the public financing system, its finances were adequate. But for about a decade, the public fund has drifted toward insolvency. The next table (Table 4.1) shows the money that has come into and been spent out of the PECF since 1973. Income flows in every year, but most of the spending occurs during presidential election years. As the table and accompanying figure (Figure 4.1) show, the PECF had significant post-election surpluses through 1988. But after 1992, the balance was only $4.1 million and after 1996 it was $3.7 million. In 2000, $16.2 million remained, but only because George W. Bush decided not to accept public matching funds. Had Bush accepted this subsidy, he would have qualified for at least $14 million in matching funds, which would have left the PECF with a balance of about $2 million. As with all balance sheets, this one has two elements: spending and revenue.

47 Table 4.1 Financial Status of the Presidential Election Campaign Fund: 1973-2002 ($ millions)

Figure 4.1 Presidential Election Campaign Fund: Year End Balances

Source: Table 4.1

48 Table 4.2 Disbursements from the Presidential Election Campaign Fund, 1976-2000 ($ millions)

49 Spending Since 1992, spending has increased, reflecting in large part the fact that the law indexes spending for inflation. Table 4.2 shows spending from 1976 through 2000, by major spending categories. All told, the presidential public financing system has cost $1.1 billion dollars cumulatively since 1974. Democrats and Republicans have benefited equally. Unfortunately revenues The largest portion of funds has been spent on the general election grants, have not kept up with $689 million, or 61 percent of the total. The primary matching system cost expenditures. $315 million, or 28 percent, and the national convention subsidies consumed $122 million, or 11 percent. Overall, public expenditures have increased steadily, reflecting the inflation adjustment to primary spending limits, the general election grant, and convention subsidies. In 1976, for example, the cost of the entire public funding system was about $71 million. In 1996 and 2000, the cost was roughly $235 million.

Revenues Unfortunately, PECF revenues have not kept up with expenditures. As Table 4.3 and Figure 4.2 show, the revenue problem has two parts. First, the income tax checkoff is not pegged to inflation. Second, public participation in the tax checkoff is down. The checkoff amount has been increased only once since 1974. In 1993, tax forms were changed to let people designate $3 for the campaign fund ($6 on joint returns), instead of $1 ($2 on joint returns). By then, as we saw from the first table, the fund was nearly out of money. This 300% increase in the checkoff was not quite enough to make up for the 316% inflation that had occurred from the start of the program until then. More important, the 1993 provision was a one-shot change, still not indexed, and costs have continued to go up. They are now almost 400% of what they were in 1974. The participation problem is at least as serious. Although the early years were characterized by rising participation and substantial growth in revenues, these peaked in 1981. In that year, 28.7 percent of all individual tax returns designated a contribution to the program, for total revenue of $41 million. Between 1981 and 1993, participation fell to 18.9 percent which produced revenues of only $27.6 million. The checkoff, however, continued to yield enough money to meet the demands of the system – barely. By 1992 though, the system was straining. In 1993, the checkoff amount tripled (from $1 to $3 for single tax filer and from $2 to $6 for joint filers), but at the same time, there was a significant drop in the participation rate, from 18.9 to 14.5 and then 13.0 percent in 1995. The tripled checkoff amount has led to more income (despite the lower participation rate) but not enough. Since 1995, the actual number of tax returns with the appropriate

50 Table 4.3 The Federal Income Tax Checkoff 1975-2002

Figure 4.2 Percent of Federal Income Tax Returns with Checkoff, 1975-2002

Source: Table 4.3

51 box checked has remained steady, although the percentage participation has continued to slide to as low as 11%. The reasons for the decline are not entirely clear. We discuss the most common explanations later, together with recommendations for restoring the public fund.

Consequences: Bankruptcy by 2008? Failure to address the revenue shortfalls will lead to serious consequences for the public financing system. The presidential public funding system was able to meet its obligations in 2000 – though not in a timely way – only because of George W. Bush’s decision to forgo matching funds. While it is difficult to predict future competition or candidate behavior, current information suggests that the public funding system will face a crisis by 2008 unless even more candidates opt out of the system. This would save money for the program by defeating its purpose. The 2004 Election: If checkoff participation and annual revenue continue to decline at recent rates, the PECF will have about $183.5 million available on January 1, 2004. By the end of 2004, new checkoff deposits will bring this up to about $236.5 million.1 We assume that President Bush will not have a major challenger for the nomination and will opt out of the primary matching fund program, again relieving financial pressure on the PECF. We do expect a competitive race for the Democratic nomination. At least two major contenders probably will approach their spending ceilings and receive maximum matching subsidies. If all leading Democrats accept public funding, and a couple of non- major party candidates also earn matching funds, the total cost of primary subsidies is likely to be at least $30 million to $35 million. Therefore, it is highly unlikely that the fund will have enough money at the beginning of 2004 to provide payment in full to all of the candidates who accept matching funds. But by March, full funding should be available. At the end of 2004, the PECF is likely to have a balance of about $26 million.

1 Assuming continuation of an approximately 2 percent annual rate of inflation (average inflation from 1997-2002 was 2.2%) the general election subsidy will be about $73.1 million and the convention subsidy will be $14.6 million. A total of $175.5 million will be needed to subsidize the Democratic and Republican general election campaigns and national nominating convention. Once these funds are set aside, only about $8 million will be available for matching subsidies at the time of the first payments; this amount will eventually rise to $61 million when all calendar year 2004 tax forms (2003 tax year) are filed. 52 The 2008 Election: Once again assuming a continuation of current participation and revenue trends, the total amount in the PECF at the start of 2008 will be about $181 million. During the full 2008 election year, this should reach about $231 million available to be paid out. With a cost-of-living increase for convention and general election subsidies, it is possible that all of the $181 million in the fund on January 1 will be committed for just these two purposes.2 Since the Treasury sets aside general election and convention funding before letting out any money for the primaries – even though it knows that more tax revenues will be forthcoming when income taxes are due By 2008, the fund in April – this means that no money, or only a relatively minor sum, would be available for the primaries when the first payments are due. will be bankrupt. Many observers in the past, including the Federal Election Commission, have recommended that the Treasury make reasonable estimates to permit some January payment. That would be useful if the problem were only about timing. But by 2008, it will be more severe than that. If both parties have competitive primaries, no candidate is likely to receive full matching payments during the active phase of nomination campaigning. In all likelihood, no more than $45 million would even be available for retroactive matching funds by the end of the year in 2008. That is less than the amount received by candidates in three of the past four presidential races (1988, 1996 and 2000, when candidates received $66.3 million, $56.7 million and $61.6 million respectively). There would not be enough money in the fund to reimburse at these levels until early in 2009 – more than a year overdue. And such a late reimbursement would simply put the whole system into a deeper hole for 2012.

2 If we assume a 2 percent annual rate of inflation, the amount of the general election subsidy will rise to $78.1 million for each major party candidate, while the convention subsidy will reach $15.7 million for each major party, for a total of $186 million. 53 Recommendations for Replenishing the Fund Obviously, the fund is going to need more money just to continue meeting its current obligations. In addition, our proposed changes to the matching fund system will increase its expenditures. Therefore, we recommend the following:

Recommendations ◆ Voluntary checkoff amount: Increase the checkoff level to $5 for individuals and $10 for joint filers and index these amounts for inflation. We estimate that a $5/$10 checkoff would generate an additional $122.6 million over four years, without a major increase in participation rates. This should pay for all of the Task Force’s recommendations, while leaving a reserve for contingencies. ◆ Education: To increase participation, the FEC and IRS should institute new programs to ensure that taxpayers can make an informed choice about the checkoff. Such a program will have to be aimed at professional tax preparation services and software providers as well as at taxpayers.

Increasing the Checkoff to $5 and $10 Raising the checkoff level to $5 and $10 would increase revenues for the public fund significantly. We estimate that a $5/$10 checkoff, indexed for inflation, would have brought in an additional $122.6 million into the fund if it had been in effect for the four years of 1997 through 2000, without assuming any increase from the public education efforts described below. This estimate takes into account the potential decline in participation due to the increased checkoff amount. It is worth noting that a $5 and $10 checkoff would be only slightly larger than what would have been in place if the 1993 increase to $3 and $6 had included an inflation increase. Such an adjustment would have brought the checkoff to $4 and $8 by 2004. By failing to include a cost-of-living rider, the program dug itself into a financial hole and will have to go higher than $4 to make it up. A revenue increase of $122.6 million would be enough to accommodate everything we have recommended in this report. To pay for a three-for-one match of the first $100 with the existing donor pools of 1996 and 2000 would have cost an additional $48 million in 1996 or $41 million in 2000. Adding 50%

54 more from small donors brings the total to about $85-90 million above current costs. Subtracting this from new revenues of $122.6 million would still leave enough money to allow for contingencies.

Expanding Participation through Information and Education As mentioned earlier, the causes of the decline in checkoff participation are unclear. Some observers have presented it as evidence of a decline in public support for public funding, but the picture appears to be more complex. To keep the decline in perspective, eighteen times as many people participated in the checkoff Almost one-quarter (22%) in 2000 as contributed to all presidential candidates combined. of the voting age population Checkoff participation was at its peak in the seven years after Watergate, when of 2002 was not even born the reasons for the program were fresh in people’s memories. But even in the at the time of Watergate, peak years of participation, the level of knowledge was poor. In two national surveys conducted by Civic Services in 1979 and 1980, fewer than 15 percent of when the reasons for the a national sample responded to an open-ended question about how presidential program were fresh in people’s campaigns were funded with an answer that indicated an awareness of a memories. More than one- governmental role in funding presidential candidates. About half of that number half (54%) was less than showed an awareness of the tax checkoff. This clearly understates the level of fifteen years old. operational knowledge at the time, since, as we saw in an earlier table, more than a quarter of the tax returns used the checkoff. Nevertheless, the Civic Services surveys show the level of knowledge to have been spotty, even then (Civic Services 1979 and 1980). We could find no comparable national survey of the knowledge base since 1980. It would be useful to have one. But even without a survey, we have good reason to expect that even a basic awareness of the checkoff has gone down, if only for actuarial reasons. Almost one-quarter (22%) of the voting age population of 2002 was not even born at the time of Watergate, and more than one-half (54%) was less than fifteen years old. So, more than half of the country’s current voting age population and almost two-thirds of its full population have no basis for remembering the publicity surrounding the checkoff when it was new. With normal population turnover, there would have to be a public education effort, just to stay even. But the government, in fact, has made very little effort in this regard over the life of the public financing system. The most significant education effort occurred in 1990, when Market Decisions Corporation, acting as consultants to the FEC, convened six focus groups, with 7 to 11 members each, in Portland, Oregon, Fort Lee, New Jersey, and Chattanooga, Tennessee. The purpose of this study was to understand how participants and non-participants perceived the checkoff (Market Decisions Corporation, 1990). The report’s major conclusions were as follows:

55 ◆ “Knowledge displayed by group members lacked both breadth and depth.” ◆ “No one attending these groups knew all three ways in which funds were disbursed.” ◆ “No one could specify any of the benefits the program had produced that reflected its goals” even though some contributors were aware of such “equity” purposes as “even[s] things out,” “diminishes the influence of big money’s buying a candidate’”, and “gives poorer candidates a chance.” ◆ Both participants and non-participants expressed considerable “anger” at the time with “politicians.” And ◆ “A few” nonparticipants expressed openness to “being converted” if they knew more about the program. The consultants recommended an FEC public promotion program through newspapers, public service announcements, and informational brochures. They suggested that the advertising explain how the funds are allocated, as well as the program’s intentions and goals. The FEC did in fact conduct a program featuring radio and TV ads in 1991 and 1992, but the content of the ads did not explain how the program worked and seemed to focus more on rules for the candidates than on the intentions or goals of public funding. Therefore one might question whether the advertising spoke to potential motivations of the person who was being asked to consider the checkoff. But in any case, the program was not highly visible or long-lived, leaving tax instructions as the main sources of information for most people. Considering the importance of the checkoff and its large decline, it is imperative that the FEC conduct an in-depth national assessment and then develop a serious action plan for public education.

56 Professional tax preparation and computer programs: The current problem goes well beyond the FEC. The decision to check off or not is made in a context in which one has more direct contact with the Internal Revenue Service and professional tax preparers than with election officials. The IRS does offer useful explanatory language in its instructions for the 1040 tax form, if anyone looks at them: “The fund reduces candidates’ dependence on large contributions from individuals and groups and places candidates on an equal financial footing in the general election.” Unfortunately, the standard printed tax instruction booklet is not where most tax filers get their information. An increasing number of American rely on professional tax preparation services and electronic programs. For 2002 it is estimated that nearly 47 million of 131 million individual tax returns were filed electronically through the e-file system – nearly 36% of all returns. The IRS estimates that participation will increase at an annual rate of 8.8% to a projected 84 million returns in 2009, accounting for nearly 58% of all individual returns. Currently, almost a quarter of electronic filings are by individuals, and the rest by tax preparers (Internal Revenue Service 2002-2003). Almost all electronic filing uses software that must be approved every year by the IRS. Nevertheless, some of the most widely used filing software actively discourages participation in the checkoff. For example, CFI conducted a test trial of Intuit’s TurboTax, which accounts for 68% of the market in tax software purchased by individuals, and found that it automatically fills in (or defaults to) the “No” answer to the checkoff question. Moreover, the software gives no explanation for the checkoff– not even the one from the IRS. This is not the same program’s standard procedure for other deductions and credits. Other questions in TurboTax – such as those dealing with “dependents” offer both detailed definitions and links to more detailed explanations.

Turbo Tax defaults to the “No” answer for the checkoff question.

57 Since the IRS authorizes all e-file providers, it should mandate that participants not present a negative default on the checkoff, and use verbatim IRS questions and explanations. Since the IRS requires all e-file software to follow detailed procedures, including formatting, to remain authorized, such a requirement would not be overly burdensome. Tax preparers typically explain the meaning of their clients’ choices to them in private conversations. We know little about such discussions, but the IRS should also instruct professional tax preparation services and accountants not to assume a negative response to the checkoff question. This could be accomplished through IRS’ existing web resources, since the vast majority of tax preparation professionals (78% of e-file users and 61% of non-users) use the IRS’ Digital Daily Website. (Russell Marketing 2002). Tax preparation services and software developers need not become propagandists for the checkoff, but they at least should be neutral, and pass the IRS’s information on to their clients. We are convinced that a proper education program will increase participation in the checkoff. Although there is no good way to estimate the likely increase, even modest gains could make a difference. For example, if such a program simply regained just one-half the number of participants who were lost in 1993, it would generate 3.5 million more tax filings. Such a figure would have been about 2.5 percent of individual tax returns. Any increase in participation would, of course, generate more money for the system.3 But more importantly, such a program would be a powerful symbol of the value of political participation and would be good for its own sake.

3 Assuming the 3.5 million new tax checkoffs were evenly divided between single and joint filers, and the checkoff were raised to $5 and $10, the program would produce $26.2 million in additional revenue. 58 Part III Other Recommended Changes

CHAPTER 5I Minor Party and Independent Candidates: A Fairer Approach

inor party and insurgent candidates contribute something important to American political M discourse. When they have gained footholds Current Rules in the political process, they have eventually influenced the major parties’ positions on a wide range of issues For the purposes of the presidential public financing system, from the need for Social Security to reducing budget the FECA defines a “major party” as one whose presidential deficits. candidate received at least 25 percent of the votes cast in the previous presidential election. The law allows candidates Several minor party and independent candidates have who do not meet this qualification, be they independents or received public funds under the FECA: from minor parties, to apply for public funds as well. Candidates who compete within parties that do not hold state ◆ National Unity, Campaign (John Anderson) (1980, primaries or caucuses may still be eligible for matching pre- post-general election); nomination funds by meeting the basic eligibility requirements ◆ Citizens Party (Sonia Johnson) (1984, nomination); and agreeing to abide by the other regulations of the system. ◆ Non-major party nominees can also qualify for general Natural Law Party (John Hagelin) (1992, 1996 and election funding in two ways: 2000 nomination); ◆ Candidates can receive public subsidies based on their ◆ Reform Party (Ross Perot in 1996; Pat Buchanan in party’s share of the vote in the previous election as a 2000) (1996 general election; 2000 nomination, proportion of the major party average, and raise additional convention and general election); and private contributions up to the spending limit. ◆ Green Party (Ralph Nader) (2000 nomination). ◆ Candidates can receive such a proportional subsidy after the election if they get at least 5 percent of the vote, and The high points financially were the general election only raise private contributions up to the spending limit funds received by John Anderson of the National Unity during the campaign. Campaign in 1980 ($4.2 million), the Reform Party in The latter alternative is the one most frequently available to 1996 ($29.1 million), and the Reform Party 2000 candidates. It has the disadvantage of providing no timely ($12.6 million). public funding that could help make a new candidate or Minor party and independent candidates, as well as a resuscitated party more competitive. number of scholars (see Herrnson and Green 1997), have long complained that public financing system does not treat them fairly. Indeed, this complaint provoked a federal lawsuit by Eugene McCarthy in 1976 at the very beginning of the public financing system (see Alexander 1979:434-438) and the criticism continues (see Lowi 2003). Many of these critics see the public financing system as yet another example of widespread political bias against minor party and independent candidates. In our view, minor party and independent candidates are treated unfairly by two aspects of the finance system: the financial implications of ballot access requirements and the rules – designed for the situations of major parties – that set off the nomination from the general election season.

61 Ballot Access Representatives of minor party and independent candidates maintain that the “real primary” for non-major party candidates is the fight to obtain ballot access at the state level, typically by mass petition drives. This struggle occurs during the pre-nomination period, and the outcome determines whether voters will even have the chance to vote for non-major party candidates for President. Gaining access to the ballot is a precondition for gaining voter support – a step that logically precedes any that a major party candidate will have to satisfy. Yet acquiring ballot access places a heavy financial burden on non-major candidates because each state has its individual requirements, many of which are quite onerous. States typically confer automatic ballot access to parties and/or candidates The Perot campaign obtaining five percent or more of the vote cast for governor in the previous spent millions on ballot access lawsuits gubernatorial election. The Democratic and Republican Parties meet this standard in 1992. regularly. But the great majority of non-major party presidential candidates do not, so they – or their successors – must re-qualify for the ballot after every election. Unfortunately, the FECA does not recognize these special burdens minority party candidates must face. The task is enormous – requiring a large number of signatures (for example, an estimated 100,000 for an independent in North Carolina) complicated by additional rules, separate deadlines, and other special features in each state. It takes serious resources just to get enough signatures in the required fashion and by the legal deadline. Some candidates and parties use volunteers to collect the signatures; others pay solicitors; and still others use a mix of methods. And apart from petition costs, there are often extensive legal costs involved with ballot access efforts. (See Appendix Table A.5.1 for a list of the requirements, by state.) The exact amounts spent for ballot access efforts are hard to determine. One study by the Brennan Center in 1996 estimated that the total cost for obtaining ballot access in all 50 states was $2.4 million per candidate (Rosenkranz 1996). However, this represents an estimate of what the activity is likely to cost, not what the candidates actually spend. For something closer to a candidate figure, CFI interviewed campaign officials with each of the campaigns in 1992, 1996 and 2000 that obtained access to ballots in enough states to have potentially won the Electoral College victory. The campaign officials’ estimates must be viewed cautiously, since they are general estimates of a very complex process and not all of the people interviewed may have included the same expenses. Nevertheless, it is clear that the amounts varied widely. Ralph Nader’s Green Party, for example, relied on volunteers and spent only about $150,000 (or about 2% of his $7.7 million total budget) to get on the ballot in 44 states. In contrast, John Hagelin spent more than nine of every ten dollars on ballot access. And Ross Perot’s 1992

62 campaign spent some millions of dollars to get on the ballot in a short period of time, much of it on lawsuits. While the FEC recognizes that these expenditures are part of a candidate’s campaign, and could be paid for by any matching funds, it makes no special provision to ease the extra financial burden that gaining ballot access puts on minority candidates. To help the situation, we recommend the following:

Recommendation Ballot Access Fund Non-major party and independent candidates should be allowed to establish a ballot access fund that is separate from the campaign committee for the purpose of obtaining presidential ballot access in the states. Only individuals would be permitted to contribute to this fund, but with no contribution limits. These funds would be used only for purposes of ballot access, would not be publicly matched since they would have no contribution limits, and would not be transferable to the campaign committee. However, privately raised funds from the campaign committee could be transferred to the ballot access committee.

General Election Campaigns Unlike major party candidates, the prenomination calendar for minor party and independent candidates often extends into the fall of the election year. In part, this reflects the state deadlines for ballot access, but it also reflects the lack of formal party organization for many of these candidates. Thus, it is more difficult to draw a bright line between prenomination and general election campaigns. Moreover, if a minor party or independent candidate triumphs over all these obstacles and amasses enough support to gain widespread ballot access, he or she still cannot get any general election funding until after the election – and then only upon receiving 5% of the general election vote. Although this Taskforce has not reviewed general election public financing, and is thus reluctant to make recommendations, it nevertheless believes that equity concerns require a change in the treatment of minor party and independent candidates.

63 Recommendation General Election Minor party and independent candidates who are on the ballot in states with at least half of the nation’s electoral votes, who meet the fundraising threshold for public matching, and do not have access to a general election public grant, should continue to be eligible for public matching funds – at the primary matching rate – during the general election. Any such funds should be counted against post-election public funds to which the candidate might be entitled due to performance at the polls.

We estimate that this provision would have cost an additional $7.6 million in 2000.

The Impact of Other Recommendations It is worth noting the impact of our earlier recommendations on minor party and independent candidates. On a positive note, our recommendation would increase the amount of money available to minor party and independent candidates, by using a three-for-one match that rewards candidates who raise money in smaller contributions – as do most insurgents. The increase in the amount of money candidates may spend on their own campaigns would also be beneficial. One negative note for minor party candidates would be the increase in the threshold for candidates to qualify for matching funds. However, we believe that the impact of the increased threshold would be more than offset by the benefits of our recommendations individually or as a whole.

64 CHAPTER 6I Replacing Soft Money at National Party Conventions

olitical party convention financing has changed greatly over the last decade, raising questions as P to whether it remains consistent with the Current Rules underlying goals of federal campaign finance policy. The party conventions are financed under law exclusively by Under the FECA, the major parties receive a federal grant federal grants that are adjusted for inflation. The original grant for their conventions. In its early years, the grant was level was $2 million. Congress increased the grant to $4 expected to cover much of the conventions’ cost, with million in 1979. With cost of living increases, it will approximate the remainder covered primarily by local and state public $15 million in 2004. By law, parties may make no expenditures funds. A lesser role was assigned to largely privately exceeding the federal payment. financed host committees and municipal funds. The Under current FEC regulations, parties may benefit from parties’ convention committees themselves were not expenditures to defray convention expenditures by private supposed to supplement the federal grant with privately civic “host committees,” by city government organized and raised contributions, even if those contributions were business-financed “municipal funds,” and by local and state raised under federal contribution limits. Within these public agencies. Such benefits, which are considered “in-kind guidelines, private financing stayed relatively small contributions” to the party convention committee, are through 1992. In recent conventions, however, corporate permitted because they are, in the FEC’s words, “presumably financing has come to play a major financial role – much not politically motivated but are undertaken chiefly to promote greater than that played by either the federal grant or economic activity and good will of the host city.” Predominantly local and state government contributions. private host committee and municipal fund spending on party convention costs is said to be “a very narrow exception” to The role of corporate contributions led Task Force the expenditure limits accompanying federal convention members at one point seriously to ask whether there subsidies. [68 Fed Reg. 18501] remained any purpose for the federal grant. Since nominations no longer are settled at the conventions, and private money seemed plentiful, they wondered whether the $29 million could not be put to better use supporting competition during the primaries. In the end, some members of the Task Force continue to question public convention funds but a majority recommend that they continue.

Reconciling BCRA’s Goals with Convention Needs and Local Development. The Task Force is unanimous about the growing importance of corporate funding to recent conventions. The Bipartisan Campaign Reform Act of 2002 (BCRA) prohibited soft money contributions to the political parties because these contributions – unlimited as to source or amount – were seen as end runs around the purpose of contribution limits. Office holders and their agents were raising the soft money, much of which was then spent on candidate-specific advertising clearly intended to influence voters. When Congress passed BCRA, it was in effect saying that soft money contributions had come to circumvent the purposes of pre-existing campaign law.

65 The relevance of this to national nominating conventions stems from the way conventions have developed in recent years. In large part, the conventions have lost their nominating function and turned into advertisements for the parties’ nominees. When corporations make unlimited contributions to help underwrite a convention’s core political functions, these potentially can raise the same problems as did soft money contributions to the parties. We acknowledge as a legal point that host committees are not the same as party committees (indeed they usually include at least some civic leaders from the opposing party), but host committees are permitted under current rules to provide things of value donated by corporations and others to party committees. To insure that the two kinds of committee maintain the point of their legal distinction we think it is crucial, after BCRA, to revisit their respective functions. The Federal Election Commission declined to do this on July 24, 2003, when it decided that BCRA does not cover contributions to political party host committees. We will not be making a legal argument here about what BCRA requires. We are saying that the two ought to be made more consistent before too much of the planning for the 2008 conventions takes place. Our rationale will question some of the FEC’s decisions about conventions before BCRA and The conventions have therefore does not turn on the issues the commission decided in 2003. turned into advertisements Our concerns raise difficult questions. If one simply were to ban corporate for the parties’ nominees. funding without providing a substitute, the conventions might not be able to carry out their political functions. Hence, the Task Force recommends that the parties should be allowed to spend as much of their hard money as they want to spend on convention activity to supplement the federal grant. (Current law prohibits party committees from spending any money for the convention except for the grant.) In addition, the Task Force recognizes that the conventions are not merely expensive political productions. They are also exceptionally large urban events attended by hordes of media. A contemporary convention’s logistics, with its diffuse locations, and the “star quality” of its attendees, typically requires numerous facilities, special transportation requirements, and a major police presence. And, unfortunately, security costs will be substantially higher beginning

66 with the 2004 convention, the first after the World Trade Center attack of September 11, 2001. The Task Force also recognizes that conventions serve important economic functions for a metropolitan area. Cities are willing to spend significant public money to attract these events, and not only because of the retail business the convention will create during the week of the event itself. Conventions can also give a lasting boost to the city’s image among political leaders and convey a favorable impression of the city to others who watch the event on national television. The Task Force believes that historic FEC practices provide sound guidance for finding a way out of this thicket. The original problem the FEC confronted was that the FECA treated the public funding grant as the sole source of convention spending (without even allowing a role for the party to spend money it raised under FECA’s contribution limits) but apparently did not account for (and probably did not mean to exclude) the local spending related to conventions that had occurred in the years before the FECA. The FEC’s original solution was to establish different funding restrictions for activities that mainly advance the convention’s political purpose from those chiefly designed to further local commerce. The former have historically been defined as “convention expenses” by the FEC. This label was explicit in regulations until 1994. These activities, the most important of which are listed below, also significantly overlap with certain permitted activities of federally funded party convention committees: ◆ Use of the auditorium or convention center, and construction of convention- related services there, such as podium construction, press tables, camera platforms, additional seating, lighting, electrical, air conditioning, speaker systems; offices, office equipment, decorations; ◆ Law enforcement services necessary for orderly conventions; and ◆ Local transportation services In contrast, the following host committee economic-oriented activities have never been defined as convention expenses by the FEC and are considered distinct from the activities described for party committees: ◆ Promoting the suitability of the city as a convention site; ◆ Welcoming the convention attendees to the city, information booths, tours; ◆ Facilitating commerce, via shopping guides, samples, etc.; and ◆ Host committee administrative expenses. Recognizing that the first group of activities, labeled convention expenses, were more likely to attract donors with political motives, the FEC in 1979 declared 67 such host committee expenditures to be “a very narrow exception” to the limit on federally funded party committees’ spending. The FEC also severely limited fundraising for these purposes. It said that host committees could raise money for convention expenses only from local retail businesses, whose contributions “must be proportionate to the commercial return reasonably expected by the business, corporation, or agency, during the life of the convention.” For the remaining local economic development expenses – such as promoting the suitability of the city, Private money rose from welcoming attendees, and so forth – any local business or organization in the metropolitan area would be allowed to contribute unlimited funds. being 38% as large as the In 1994, the FEC decided that distinct fundraising restrictions had become federal grant in 1992 to outmoded. The definition of “local” business had grown to encompass a lone 208% in 2000 and is employee in a city telecommuting from a home office. In a national and global projected to reach 333% economy, serious questions were raised as to whether only “retail” businesses in 2004. benefited from the presence of a convention and whether the long-term benefits of a convention to a city could be estimated precisely. As a result, the FEC applied the same “local business” restrictions to host committee fundraising for convention expenses as those for civic promotion expenses. This recent FEC decision, as well as the concomitant explosion of party soft money fundraising, helped lead to the dramatic expansion of host committee spending that poses the central problem confronting the Task Force. What until 1994 had been labeled “convention expenses” now make up a substantial portion of what the host committees’ now spend. The FEC’s July 2003 decision removing what remained of the requirement that donors be “local” may give a further boost to host committee spending in the future.

Private and Public Funding of Conventions – Amounts and Sources Total convention-related private and public contributions have tripled in the two conventions since the FEC decision of 1994. Along with larger amounts has come a change in the funding sources. Private financing through host committees and, to a lesser extent, municipal funds, became the principal source of convention funding. Private money rose from being 38% as large as the federal grant in 1992 to 208% in 2000 and is projected to reach 333% in 2004 (see Figure 6.1). As a result, public funding now serves simply as a partial subsidy, rather than the prime source of convention money. Table 6.1 shows local and state government, private, federal, and total contributions to the major party presidential nominating conventions from 1980 through 2004. As the table indicates, local and state governments contribute either directly or through private civic host committees; private contributors mainly give to host committees but may also give to special municipal funds.

68 Figure 6.1 Major Party Presidential Nominating Conventions: Private Contributions as a Percent of the Federal Grants by Convention Year, 1980-2004

Source: Table 6.1

Table 6.1 Contributions to Major Party Presidential Nominating Conventions, Including Host Committees and Municipal Funds, 1980-2004 (in millions of dollars)

Sources: Except where otherwise noted, the contributions data above is derived from the 60-day post- convention reports (as amended) filed by the host committees with the FEC and excludes any refund or loan receipts. Federal grant information is based on FEC data. Other sources are indicated on page 76.

69 Three important conclusions emerge: First, as Column 1 on state and local government spending shows, there have always been substantial contributions to conventions from the public treasuries of host cities and of related state and local agencies. Donations have generally increased over the years, especially from 1996 on, and larger cities have normally been more generous. At times – particularly in the early part of the period – these donations have accounted for more than half of the total contributions. They constituted nearly half of all contributions for the 2000 conventions, but The jump in private only a quarter of the projected total contributions in 2004. contributions raises a Second, as Column 2 shows, private (overwhelmingly corporate) donations have serious question about taken off in recent years. Never exceeding $6.2 million for a single convention through the 1992 election (mostly hovering around $2 million), private the FEC’s historical contributions went up to approximately $20 million for each of the 1996 assumption that the conventions and the Republican 2000 convention, and hit $36 million at the privately funded portion 2000 Democratic conclave. Private financing planned for the 2004 conventions amounts to $64 million for the Republicans and $36 million for the Democrats. of host committee and Overall, private contributions have increased from $8.4 million in 1992 to municipal fund $59 million in 2000 and a projected $100 million in 2004. As a percentage of spending is “a very the federal grant to the major parties, private contributions have risen steadily from 13% in 1980 to a projected 333% in 2004. (See Column 5.) Although narrow exception”. private donations accounted for an average of only 12% of total convention- related income before 1996, they averaged 37% in 1996 and 2000, and are projected to average 59% in 2004. Third, combining annual data for both parties’ conventions from Column 4 shows that total contributions to fund the major party conventions nearly tripled between 1992 and 2000, from $59 million to $161 million. Column 3 makes clear that increases in the federal grant (which is adjusted for inflation only) accounted for little of this financial explosion. Thus, the parties themselves have hiked the level of non-federal private and public convention funding. By soliciting higher and higher host city bids for private and public support of their conventions, the parties have been able to expand their convention activities vastly. The jump in private contributions raises a serious question about the FEC’s historical assumption that the privately funded portion of host committee and municipal fund spending is “a very narrow exception” to the limit on direct party spending for conventions. If such large private funds are supporting “convention expenses” rather than promoting civic commerce, they no longer constitute a “narrow exception” to the party spending limit.

70 How the Money Is Spent In fact, there is strong evidence that this growth in private contributions has largely gone to pay for items that are essentially the same as ones that historically have been considered as “convention expenses” by the FEC. This can be shown by looking at what host committees actually spend their money on, since they have received all of the private contributions since 1994. (Local government funds are sometimes channeled through host committees as well.) CFI examined the reports of the two 2000 host committees’ disbursement reports, and then grouped the expenses by categories (Table 6.2). The decisions about which The growth of private expenses to assign to which categories were CFI’s. Because the committees did not use standardized reporting categories consistent with the FEC’s descriptions contributions has largely of expenditures in its regulations, the results are not exactly comparable. However, paid for items that are it is reasonably clear that the overwhelming majority of host committee funds in essentially the same as 2000 were used to defray expenses the FEC has historically considered as advancing the convention’s main political business, rather than promoting the ones historically considered host city and its commerce. convention expenses by In each city, convention facility and production related expenses comprised the the FEC. largest category of host committee spending ($21 and $26 million). The money paid for the basic physical infrastructure for the meetings themselves: construction, utilities, communications, TV and other productions, signs, credentialing, arrival/departure ceremonies, and so on. (Much of the substantial $1.9 to 4.0 million for “computers” may well fall under this rubric as well, but we reported it separately.) Both cities’ committees also spent significant amounts – $2.3 and $3.1 million – on media/public relations and delegate parties/ receptions. Philadelphia’s host committee spent its second largest amount – $13.6 million – on security (reflecting the city government’s decision to channel such spending through the host committee) and its third largest – $7 million – on convention transportation. (The City of Los Angeles accounted for these services directly in governmental budgets.) With the exception of administrative expenses – in the $6.5 to $8.1 million range – and lesser miscellaneous costs, nearly all of the host committees’ spending appears to have been directed toward what the FEC used to consider “convention expenses.” Clearly, the main dynamic behind the explosion in convention spending has not been an escalation in how much it costs to promote the local economy to convention attendees. The parties are competing to present their presidential candidates in as attractive a production as possible to overcome lagging media and public attention to the conventions. With an increasingly “front loaded” presidential primary system, the convention has lost its function and allure as a theater for choosing candidates or fighting over divisive issues. As a result, coverage by the major television networks has declined from 12 hours per week in 1984

71 Table 6.2 2000 Host Committee Expenditures (By Category)

Philadelphia Host Committee Los Angeles Host Committees (Republican) (Democratic)

$ 21.0 Convention Facility and Production $ 26.2 Convention facility Electricity Production, Consulting, Labor, Rental Technical goods/services Construction Signs / Decorations Credentialing Arena TV Production, Media Guide Communications equipment / support Radio system Production infrastructure Arrival/Departure ceremonies TV engineering / design, videos, transcripts Comcast Spectacor (Arena) Construction services Telecommunications infrastructure Equipment rental

4.0 Computer Equipment, Consulting, Software 1.9

0.8 Volunteer Expenses 0.1

13.4 Security 0.1

7.0 Convention Transportation 0.03

0.7 Parties / Receptions 1.0

1.6 Media / Public Relations 2.1

6.5 Administrative 8.1 Host committee meetings, transportation, Airfare, Travel Expenses golf venue deposits Printing, Mail Staff housing, salaries Office Space, Supplies, Phones, Photocopying, printing Furniture Office expenses Staff salaries, Exec. on loan, Fundraising expenses Payroll taxes Legal/Accounting consulting services Consulting, fundraising, Legal/ Postage / overnight delivery Administrative, Fees/Services Bid preparation, site selection Expenses (Employees) Employee insurance Food and beverages (generic)

4.0 Miscellaneous 1.0 Lighted Boat Parade and PoliticalFest Insurance Insurance Welcome Buttons Youth Convention Visitors’ Guide Other Merchandise Products

59.1 Total 40.5

Sources: Philadelphia 2000 60-day post-convention report (as amended). LA Convention 2000 and LA Host 2000 60-day post-convention reports (as amended).

72 to 5 hours per week in 2000. And since 1988, average prime time ratings have declined from 19% to 13% of television households. (Patterson 2002: 118-19.) And the parties have responded. “The convention has become a four-day testimonial designed to cast the winner in the strongest possible light,” writes one noted political scientist (Patterson 2002). Former Democratic National Committee Chairman Don Fowler observed in an interview: “Conventions used to be a way of selecting, inspiring enthusiasm about, and defining the candidate. Now directors, speechwriters, coaches, makeup, lighting, and design people are used to build the candidate politically and put an American flag behind it.” And veteran Republican campaign official Richard Davis noted in another interview: In 1996, the single top “You spend $10 million to build out a hall to accommodate the networks, pay donor to each party gave for other things outside the halls, put up huge tents, press support, corporate parks.” Fowler and Davis emphasize that in addition to the aspects of the spending as much as the top ten directed toward communicating a message to the general public, much is focused donors combined in 1992. on major donors including those to the host committee. This includes creating and renovating comfortable skyboxes in the convention hall, helping finance elaborate delegate receptions, and entertaining donors. The growth in corporate support of convention activities can be illustrated by comparing the number and size of major donations before and immediately after the FEC’s policy shift in 1994: ◆ In 1988, the top ten donors to the New Orleans host committee (Republicans) contributed a combined total of $417,000. The top ten donors to the Atlanta host committee (Democrats) gave a combined total of $682,000. ◆ In 1992, the top ten donors to the New York host committee (Democrats) gave a combined total of $2.5 million. The top ten donors to the Houston host committee (Republicans) gave $1.4 million. ◆ In 1996 Ameritech, the top single donor to the Chicago host committee (Democrats) gave $2.4 million. AT&T gave the San Diego host committee (Republicans) $2.7 million. AT&T also gave the Chicago committee (Democrats) another $500,000. [Source: CFI review of 60-day post-convention FEC reports by host committees (as amended).] The donors’ willingness to give these amounts in 1996 undoubtedly was fueled, in part, by the explosion in soft money contributions to the party committees at exactly the same time. As long as corporations and labor unions could give soft money to the national parties’ non-federal accounts, it hardly seemed to matter that corporations also were helping to pay for conventions. But if the Supreme Court upholds the constitutionality of the Bipartisan Campaign Reform Act’s restrictions on soft money, these contributions will be an anomaly.

73 Recommendations

Recommendations ◆ Convention expenses – hard money only: Beginning in 2008, all convention expenses should be paid from federal government grants, other state and local government sources, and money to be raised by the national party committees within federal election (“hard money”) contribution limits. (Parties are currently prohibited from spending hard money on their conventions.) ❑ Convention expenses should include use of an auditorium or convention center, and other related facilities, and construction and convention-related services in and around the hall(s), including communications resources, media facilities, and all other items listed in the past by the FEC as a convention expense, whether done by convention or host committees. ◆ Law enforcement and security needs should be supported by a grant from the U.S. Department of Homeland Security. This should begin in 2004. ◆ Host committees and municipal funds: Beginning with the 2008 conventions, unlimited private local contributions should only be used to promote the city as a site for the convention, facilitate commerce during the convention, and similar activities. Host committee funds should not be available for convention expenses.

Reasoning: It seems to this Task Force that the best policy approach would be to go back to the sound insights of the original FEC approach of 1979 and adapt it to contemporary reality. There is a real difference between the examples the FEC gave of convention expenses and all of the other expenses surrounding a convention. We do not see any substantive basis for distinguishing between two sets of similar, overlapping convention activities currently performed by convention committees and host committees. Moreover, we agree with the FEC that its pre-1996 approach to distinguishing the funding for the two kinds of host committee activities ultimately proved to lack a firm economic basis. The commission was right to abandon its efforts to decide which businesses were local enough to fund convention expenses and to attempt to calculate the economic benefits justifying particular contributions. 74 Therefore, we recommend that all convention expenses be placed together into a single category. Any such item should be paid not with soft money but either with the federal grant to the convention committees, or by “hard money” contributions to the political parties appropriate for presidential primary and most other federal election spending, or by other sources of government money, including state and local government money. We note that until now, the parties have not been allowed to supplement the federal grant with hard money. They should be permitted to do so. Based on the historic FEC definition of “convention expenses,” this would mean that hard money or governmental funding should support the following activity currently funded by host committees. ◆ Use of an auditorium or convention center for the convention and the costs of construction and convention-related services for that venue; ◆ Transportation for use by convention delegates and attendees; and ◆ Law enforcement services necessary for orderly conventions. We discuss law enforcement and security issues further below. In contrast, the following (and any similar) host committee and municipal fund expenditure categories are not convention expenses and could continue to be financed with unlimited contributions through host committees or municipal funds: ◆ Promoting the suitability of the city as a convention site (including providing accommodations and hospitality to members of the party site selection committee); ◆ Welcoming convention attendees to the city, such as expenses for information booths, receptions and tours; ◆ Facilitating commerce such as providing shopping and entertainment guides and distributing promotional materials; and ◆ Administrative expenses related to the above. The Task Force emphasizes that none of its recommendations affect the First Amendment rights of private groups to entertain and meet with convention attendees, in a manner consistent with existing public ethics rules.

Security and Law Enforcement One expense listed by the FEC as a convention expense strikes us as being different from the others. Law enforcement for convention security is an inherently governmental expense that should be paid out of governmental resources. Local governments have typically absorbed the cost of extra policing in the past. However, after the terrorist attacks of September 11, 2001, the country can no

75 longer afford to think of security at a national political convention, with much of the government’s leadership in attendance, as if it were mainly a local affair. Under the new Homeland Security Act, Boston has applied for federal funding to help support its $10 million security budget for the 2004 Democratic Convention and has already obtained the necessary designation for a “National Special Security Event” (Greenberger 2003). The 2004 Republican conclave in New York has received the same designation, and city officials also anticipate The country can no negotiating for federal funds to offset all or part of its planned $22 million in- kind expenditure for security for convention facilities (Archibold 2003). (See longer think of security also, City of New York and Republican National Committee 2003.) at a national convention, Federal assistance is not unprecedented. Under Presidential Decision Directive with much of the 62 issued in 1998, the Secret Service is the “lead federal agency for the design government’s leadership and implementation of the operational security plan and Federal resources are in attendance, as if it deployed to maintain the level of security needed for the event and the area” including partnerships with state and local law enforcement (see U.S. Department were mainly a local affair. of Homeland Security 2003). The Secret Service spent relatively modest funds on past conventions – reportedly less than $4 million for each in 2000 – but a broader effort is warranted now. Years earlier, the federal Law Enforcement Assistance Administration gave $3.5 million each to Detroit and New York for the 1980 conventions (Alexander 1983:272-73). Another relevant precedent is the help the federal government has long given in assuring security for the Olympics in the U.S. The federal government provided an estimated $250 million of the $310 million for the 2002 Winter Olympic Games in Salt Lake City (Archibold 2003). If it is in the national interest to help states and localities protect our own and foreign athletes in a major national and international sports event, it surely is also in the country’s best interest to protect our political leadership, which also performs on a world stage.

Notes to Table 6.1, page 69.

76 Part IV Additional Issue

CHAPTER 7I An Idea for the Future: Federal Tax Credits for Small Contributions

primary goal of this Task Force’s recommended three-for-one matching fund system is to A increase financial participation by small donors. Current Tax Credit Systems In the course of weighing alternatives to increase participation, it seriously considered a 100% tax credit Federal: Currently, the federal government does not provide for small contributions to candidates who participate in a tax credit or tax deduction for political contributions. The the public funding system. In the end, the Task Force U.S. Government had such a program from 1972 until 1986, decided not to recommend this idea now. The matching when it was eliminated as part of an overall simplification of the tax system. At that time the credit provided a 50% tax fund is broken and needs to be fixed. That issue should credit, up to $50 for individuals and $100 for joint returns, for not be muddied. Nevertheless, the Task Force thought a contributions to federal, state or local campaigns. An average tax credit was a worthy option to put on the table for of 4.9% of taxpayers filed for the credit in its final years, with consideration – not as a substitute for the matching fund an annual cost of $170-270 million. but as a supplement for the future. States: Six states presently have versions of contribution The assumption behind a tax credit is that people will refund or tax credit programs: Arizona, Arkansas, Minnesota, be more likely to participate financially in politics if they Ohio, Oregon, and Virginia. Oregon established a 100% tax can do it for nothing. Logically, the incentive should credit in 1969 for contributions to candidates, parties, and work most strongly for people for whom a small credit PACs up to $50 for individuals and $100 for joint returns. of $100 or $200 is more meaningful economically. The Five states introduced variations on this program in the 1990s. logic would be bolstered if a tax credit were made The Arkansas tax credit is the same in size but applies only to contributions to candidates and parties, Ohio’s also is the available only to people with incomes of less than same in size but applies only to contributions to candidates. $50,000 or $100,000 if filing jointly. That would include Virginia’s is a 50% credit for contributions up to $25 for 95% of the general population and 68% of those who individuals and $50 for joint filers. Arizona gives a credit of gave $200 or less, but only 16% of those who gave $200-$999 up to $530 for contributions to the state’s nonpartisan Clean and 5% of those who gave $1,000 (see Wilcox et al., Elections Fund. Minnesota provides a full refund within six 2003). Such mechanisms would make it easier for people weeks on contributions up to $50 to candidates or parties, who earn less money than today’s average donor to give separate from the tax system. Participation in these programs to a presidential candidate. ranges from less than one percent to six percent. This chain of reasoning is plausible, but so is another Canada: Canada has had tax credits at both the federal and chain that leads in the opposite direction. First, there is provincial level for parties and candidates since 1974. The no reason to think that a tax credit will persuade a person federal system currently credits 75% of federal contributions under $200 Canadian (about $150 U.S.), and a lower to give unless potential givers know about the credit percentage of larger contributions with a total cap of $500. during the election season, long before tax forms are Under recently passed legislation, this will change to a 75% prepared. So public education is a prerequisite for the credit for contributions under $400 Canadian, and then a lower program’s success. Second, low and moderate income percentage, with a total cap of $650. people may be less likely to be moved by a promise that if you give $50 or $100 now, you can have it back in six months. The very people who seem to be the most likely economically to be influenced by a small credit are also the ones most likely to be skeptical. Finally, if skeptical new donors do not come into the system, the people who end up claiming the credit on their tax forms would be ones who gave anyway, costing the public tax money without doing any good.

79 Tax Credit Research These contrary impulses complicate the task of predicting a tax credit’s potential impact. In addition, there is a shortage of properly designed research on the subject. Nevertheless, there is some useful work. In the following pages, we first summarize the experience in Minnesota and Canada, and then present preliminary findings from an extensive research project the Campaign Finance Institute has under way to study tax credits in the State of Ohio.

Minnesota Minnesota has a “Political Contribution Refund Program”, rather than a tax credit. Donors may apply for a $50 refund immediately, rather than as part of a tax return, for contributions either to a political party or to a candidate who agrees to limit campaign spending. According to a study published by the American Enterprise Institute, about 3.5% of Minnesotans participate in the program (Rosenberg 2002). The program has had a partisan tilt in recent years, but in a way that shows the importance of educating donors. ◆ In 2000, the Minnesota Department of Revenue issued three times as many “political contribution refunds” to donors to the Republican Party as it did to the Democratic Farmer Labor Party donors. ◆ In contrast, the Democratic Farmer Labor Party got slightly more funds than the Republicans from a second source of funds, an income tax checkoff that lets the taxpayer choose the destination of the funds. According to a Republican Party leader cited in the AEI study, the party works to inform its supporters about the tax credit. (Democrats did not appear to make a similarly systematic effort.) Prescreened potential donors were told to look for the mailing that includes the tax refund form. Unscreened potential donors who responded to a fundraising pitch were also more likely to give more after being informed of the credit. Thus the availability of a refund and its promotion by interested parties together appear to have an important effect in generating participation.

Canada Canada gives a 75% tax credit for small contributions to political parties. In Canada, “Party officials and academics have generally agreed that the tax credit has ‘stimulated contributions by individuals [to parties and candidates] by lowering the net after-tax cost of such contributions” (Young 1998). Before the credit was adopted in 1974, two of the three major parties, the Progressive Conservatives and Liberals, were financed by contributions “from at most a few 80 Figure 7.1 Increased Political Contribution Tax Credit Claims In Canada and Decreased Average Contributions to Canadian Federal Parties, 1975-1996

Sources: For all data for 1975-1990, see Lortie 1991:308,313. Data for average party contribution for 1995-1996 obtained from Lisa Young, Political Science Professor, University of Calgary.

Data for number of tax credits claimed 1995-1996 obtained from Wei Huang, Research Mathematical Statistician, Statistics Canada.

Note: Election year findings are omitted due to the lack of separate data on tax credits for contributions to candidates, which augment party credits in those years. Only “major” political parties were included in this analysis. For 1975-1989 these are the Liberal, New Democrat and Progressive Conservative parties only. During these years these three parties won between 94-97% of the popular vote and received over 90% of all individual contributions. For 1990-1992 the Reform Party was added. These four parties received over 95% of the vote in the 1988 General Election. For 1994-96 Bloc Québécois was also added. These five parties accounted for 96-98% of the popular vote. See “Electoral Results by Party: 1867 to Date”. Canadian Parliament WebPage— http://www.parl.gc.ca.

81 hundred corporations” (Lortie 1991). From 1975-1997 however, individual contributions generally comprised 35-65% of their donations. Moreover, other leading parties (New Democratic, Bloc Québécois, Reform) during this period have generally drawn 60-90% of their contributions from individuals (Carty 2000). Canadian parties advertise the benefits of the small donor-oriented tax credit in appealing for contributions, their websites reveal. Even more relevant for our purposes has been the distributive effect of the Canadian tax credits. A new CFI analysis of the Canadian experience strongly suggests that offering tax credits for smaller political contributions fosters small donations. Figure 7.1 shows that the average value of individual contributions to political parties in non-election years generally declined from 1975 to 1996, as the number of individual tax credit claims for party donations rose. (The number of individual contributors to parties also increased, as one would expect from the rise in claims). The diagonal line portrays the strong relationship between increasing use of the small donor tax credit and the decreasing size of an average contribution. This relationship is very strong through 1982. Afterwards, the number of tax credits plateaus, stabilizing at an average of 123,118 (compared to a 68,508 average for the early years). The average party contribution also remains relatively constant at $106.82 (lower to the early years’ average of $122.17). The availability and utilization of the small donor political tax credit thus appear to be plausible explanations for the increased role of small donors in financing Canadian parties. The evidence from Minnesota and from Canada emphasizes the ability of ongoing party organizations to capitalize on political contribution tax credits. Yet the presidential primary contests are waged by individual candidates. Question: can tax credits targeted to small donors also expand the donor pool for candidates?

CFI’s Ohio Tax Credit Study Because there have been virtually no useful studies of the effect of tax credits on individual contributions to candidates, the Campaign Finance Institute in 2002 began a major two-year study of the tax credit in the State of Ohio. Since 1995, Ohio has offered a 100% tax credit for contributions of up to $50 ($100 for joint filers) to candidates for state office. Participation in the program was very modest in its early years: no more than 0.5% of filers took the credit (compared with 3.4% of Minnesotans who took the refund). Because Ohio’s program was relatively new and there was some reason to believe that such programs take a while to become established, CFI used a controlled experimental procedure to see whether a repetitive program of voter education in randomly chosen districts would have the effect of increasing use of the tax credit in those districts. (The

82 experimental procedures followed those in Gerber and Green, 2000a, 2000b. Donald Green was a consultant on this project.) CFI also commissioned two parallel surveys shortly before the 2002 election whose results are relevant for this task force. One was a survey of the general Ohio population and the other a survey of contributors, chosen randomly from the state’s public records of donors.1 The most directly relevant threshold questions in the general population survey first asked people whether they had contributed to state candidates in 2002. For those who did not contribute (96% of the sample), we asked whether they knew about the tax credit. Slightly more than a quarter of the full population said they knew but did not contribute. Of the group that did not know of the credit, we asked whether knowledge of the credit would have made them very likely to give, somewhat likely to give, or whether they would have been unlikely to give, even if they had known. The results are reported in Table 7.1. This survey, like all similar surveys, must be read with caution. For one thing, the size of the sample indicates that the results have a plus or minus three percentage point range of error. In addition, 3.9% of the respondents said they contributed to candidates, which is about eight times as many as the number of contributors listed in the states’ disclosure records for contributors of $25 or CFI’s research experiment more. (The disclosure records show a number of donors equal to about 0.5% of in Ohio tested whether the state’s voting age population.) There are several possible explanations for this inflated response. First, the question asked respondents whether they had given people would use the to candidates for state office in 2002. Some people may have said “yes” if they tax credit more after they gave to any candidate for any office (state, local or federal) in any year. Second, received nonpartisan respondents in surveys often will say they behave as they think a good citizen should behave, whether or not they did. Similarly, the 4.7% who said they would mailings. have been “very likely” to give, and the 17.5% who said they would be “somewhat likely” to give, are probably much higher than would give in a real political campaign, as are virtually all of the rest of the numbers in this table. Nevertheless, the responses do give some basis for optimism. Even though the numbers are inflated, they apparently are inflated for both the givers and likely givers. Therefore, whatever the actual percentages, we consider it reasonable to predict that a tax credit program, combined with vigorous education efforts, would boost the actual rate of financial participation substantially above where it is now. We next wanted to know how the potential new donors would compare to existing donors. The results appear in Table 7.2.

1 The full results – with the questions, response rate and other data – appear in a separate paper (Boatright and Malbin 2003). Here we report the results that are most relevant for considering the potential effects of a small tax credit for presidential donors. 83 Table 7.1 Likelihood of Giving in Response to the Tax Credit in Ohio

84 Table 7.2 Ohio’s Contributors, Potential Contributors, and General Public

Clearly, expanding the donor base through a well-publicized tax credit would also make the donor pool more representative. If the “very likely” group were added to the existing donor pool, the donor pool would be much younger (age was the strongest variable in our survey in a multivariate analysis), it would have fewer college graduates, more people with lower incomes, more non-whites and would be about evenly divided between men and women. In short, the new donor pool (column 3 in Table 7.2) would be more like the public at large (column 1). Moreover, as was true in Table 7.1, the new level of demographic representation would be achieved without a strongly partisan or ideological effect.

85 Small Donor Impact: The potential new donor pool has one additional feature that is important for presidential politics. In our separate survey of campaign contributors, we asked current contributors whether they knew about the tax credit, and whether they would have given less if they had not known. We then arrayed the responses by the size of the donors’ actual contributions to statewide candidates in 2002, as Figure 7.2 shows.

Figure 7.2 Percentage of Contributors of Varying Amounts Who Would Have Given Less if They Had Not Known about the Tax Credit

86 The people who said they were most affected by the tax credit were those who gave $100 or less and who would therefore be refunded the full amount of their contribution. The benefit thus seems to target the donors we most want to attract into the process: small donors of average means. In addition, we learned from other questions on our survey that the tax credit seems more likely to attract new The benefit thus seems to contributors than to prompt current contributors to give more. target the donors we most One final piece of evidence from Ohio reinforces the lesson from Minnesota and want to attract into the Canada about the importance of outreach to the public. In CFI’s survey of process: small donors of contributors to state candidates, two-thirds of donors gave money after being average means. directly contacted by a campaign or candidate or attending a fundraiser. And of those donors who were aware of the tax credit (60% of the sample), nearly 40% learned about the credit from a candidate or political party. Research Summarized: In sum, both the need to diversify the presidential primary donor base and research findings indicate the potential value of a 100% tax credit of up to $100 for presidential primary donations, and $200 for joint filers.

A Proposal and Cost Estimate Among the objections frequently made to tax credit proposals are that they will cost too much, or that we have no idea what they will cost. We were able to control these uncertainties by discussing a proposal whose goals were targeted to the presidential public funding system. The basic outline of the proposal we discussed was the following: ◆ Contributors to presidential candidates who participate in the public financing system (but not to candidates for other office or to non-participating candidates) would be eligible for a 100% federal tax credit on contributions, up to $100 per individual filer or $200 per joint return. ◆ In return for this benefit targeted to their small donors, publicly funded candidates should agree to publicize the tax credit in their fundraising solicitations. ◆ The credit would be available to individuals with less than $50,000 and households under $100,000 federal adjusted gross income. ◆ The credit, and maximum eligible income, would be indexed for inflation. Without dwelling on the details, we estimated the cost as follows. Giving the tax credit to the donors who actually gave to presidential candidates in 2000 would have cost about $41 million in lost tax revenue from all donors, or $32 million for donors who gave to publicly funded candidates. (This is a high estimate, since most of the eligible donors were less-than-$100 givers, who gave an average of about $50 each in 2000. We estimated each at $100 to cover the possibility 87 that they would increase their giving in response to the credit, as many of the Ohio donors apparently did.) Interestingly, it seems clear from our data that putting an income limitation on the tax credit would have the effect of targeting almost all of the credit to small donors. One objection may be that If the tax credit were to increase the donor pool by 50%, the cost would range the program will be wildly from $125 million to $165 million, depending upon various assumptions (all of which still assume, unrealistically, that every new donor would use and claim the successful, costing more full $100 credit). The cost would be made up of two major components. About than we expect. More $48 million to $88 million would the loss in tax revenue from both old and new participation should be a donors.2 The remaining $77 million would be the cost of new matching funds. This assumes a 3-for-1 match for the first $100 contributed by each new donor, cause for celebration. or $300 in matching funds for each of 257,000 new donors to publicly funded candidates. There are two kinds of objections to these estimates. One is that the program will not produce the number of new donors we have assumed. A program such as this one is bound to require public education, and build slowly – especially since our survey suggests the most fertile results will be among young people. Of course if participation is low, so would be the cost. The other objection is that the program will be wildly successful, costing more than we expect. One could respond simply by saying that more participation should be a cause for celebration.

2 The tax credit components of these numbers are substantially lower than ones attached to other tax credit proposals. This is primarily because the other proposals would allow tax credits for candidates to all federal offices, and only about one-fifth of all contributions in a presidential cycle go to presidential candidates. In addition, no other tax credit estimate that we know of has been based on actual donors. 88 Epilogue

Epilogue: An Historic Opportunity

t the beginning of this report we said that campaign finance law is partly – but only partly – about preventing corruption and the appearance of A corruption. The presidential public funding system over the years has also enhanced competition, helping to provide voters with more meaningful choices. That program is in jeopardy and deserves to be saved. With foresight, the coming crisis for the system can become an historic opportunity. The key to saving the system is to reduce the risks it creates for candidates who participate in it. We recommend increasing the spending limit to a level that is high enough to let candidates be heard in their own voices in an expensive, frontloaded, nationalized, primary system, above the clatter of interest groups whose independent spending cannot be limited by law. That spending limit must also include an escape hatch for candidates who run against an opponent who chooses not to take public funding so as to be free of the limit. But this report urges Congress to do more than just save the existing program. It should improve the system and the health of the country’s democracy by making a few modest changes. Using public matching funds to turn every $100 contribution into $400 would profoundly change the financial foundations of presidential politics in the United States. It would bring more donors into the system, making financial participation more democratic. At least as important, it would strengthen the bonds between citizens and their government. Candidates will alter their behavior to reconnect with small donors whom they now take for granted. And citizens – having been asked – will feel more strongly connected to the process they are supposed to control. That is a noble goal. The next step should be to make it a reality.

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100 Appendix Additional Tables

101

Table A.2.1 Spending Limits, 1974-2004

103 Table A.2.2 Spending by Selected Candidates as a Percentage of the Limit, 1976-2000

104 Table A.3.1 Number of Donors of Different Amounts, By Candidate, 1996 and 2000

$100 or less

105 Table A.3.2 Donor Characteristics: Individual Contributors, Tax Checkoff Participants, and the General Public

106 Table A.3.3 Amountg() of Matching Funds under Various Scenarios

Scenario # #1 #2 #3 #4 #5 #6 #7 #8 #9 Benchmark: Amount Current $ First $100 First $250 First $500 Matched From Public Funds Ratio 2-to-1 3-to-1 4-to-1 2-to-1 3-to-1 4-to-1 1-to-1 2-to-1 3-to-1

2000 Bauer 5.5 8.3 11.0 7.7 11.5 15.3 4.6 9.2 13.8 4.9 Keyes 6.9 10.3 13.7 8.5 12.7 16.9 4.6 9.2 13.7 4.9 McCain 16.7 25.1 33.4 25.0 37.4 49.9 16.9 33.8 50.6 14.6 Bradley 13.8 20.7 27.6 24.2 36.3 48.5 18.6 37.1 55.7 12.5 Gore 17.9 26.9 35.8 29.0 43.5 58.1 21.1 42.3 63.4 15.5 Quayle 2.9 4.4 5.9 4.2 6.3 8.5 2.6 5.3 7.9 2.1 Buchanan 8.4 12.6 16.8 10.0 15.0 20.0 5.5 10.9 16.4 4.4 Nader 1.4 2.1 2.7 1.8 2.8 3.7 0.9 1.9 2.8 0.7 Hagelin 0.9 1.3 1.7 1.3 2.0 2.6 0.8 1.5 2.3 0.7 LaRouche 1.3 1.9 2.5 2.1 3.2 4.3 1.5 3.0 4.6 1.4

Total Public $ 75.7 113.6 151.1 113.8 170.7 227.8 77.1 154.2 231.2 61.7

Added Public $ 17.7 55.5 93.3 56.0 112.9 169.8 15.4 81.1 146.9

1996 Alexander 4.4 6.6 8.9 9.6 14.4 19.2 7.8 15.6 23.4 4.6 Buchanan 20.7 31.1 41.4 22.8 34.3 45.7 12.0 24.0 36.0 11.0 Dole 22.6 33.9 45.2 31.5 47.2 63.0 20.9 41.7 62.6 13.5 Gramm 10.7 16.1 21.5 16.3 24.5 32.6 11.2 22.5 33.7 7.4 Keyes 3.8 5.7 7.7 4.4 6.6 8.8 2.2 4.5 6.7 2.1 Lugar 4.0 5.9 7.9 5.9 8.8 11.8 3.8 7.5 11.3 2.7 Clinton 20.5 30.7 41.0 28.6 42.9 57.3 19.2 38.4 57.6 13.4 Specter 1.8 2.7 3.6 3.1 4.6 6.1 2.0 3.9 5.9 1.0 Wilson 2.3 3.5 4.6 5.2 7.8 10.4 4.0 8.0 12.0 1.7 Hagelin 0.8 1.3 1.7 1.3 1.9 2.5 0.7 1.5 2.2 0.5 LaRouche 1.2 1.7 2.3 1.9 2.9 3.9 1.4 2.8 4.1 0.6

Total Public $ 92.8 139.2 185.8 130.6 195.9 261.3 85.2 170.4 255.5 58.5

Added Public $ 26.8 81.3 124.3 72.5 136.2 199.9 24.9 102.0 179.1 Note: None of the numbers in Tables A.3.3 through A.3.6 assumes a cap on public funds. In this respect, they differ from Table 3.3 in chapter 3.

107 Table A.3.4 Percentage Change in Matching Funds, under Various Scenarios, From Amount Actually Received

If the matching formula had been the one in the heading, the candidate would have received __% more (or less) in public funds than under current rules.

Scenario # #1 #2 #3 #4 #5 #6 #7 #8 #9

Amount First $100 First $250 First $500 Matched

Ratio 2-to-1 3-to-1 4-to-1 2-to-1 3-to-1 4-to-1 1-to-1 2-to-1 3-to-1

2000 % % % % % % % % % Bauer 12 68 124 56 133 211 -7 86 180 Keyes 41 111 181 73 160 247 -6 88 182 McCain 14 71 128 71 156 241 15 131 246 Bradley 11 66 121 94 192 289 49 198 347 Gore 16 74 132 88 182 276 37 174 310 Quayle 41 112 182 103 204 305 27 154 281 Buchanan 90 185 280 127 241 354 24 148 272 Nader 90 184 279 154 281 408 30 161 291 Hagelin 26 89 153 91 187 283 10 120 230 LaRouche -12 32 76 51 127 202 7 114 222

1996 Alexander -3 45 94 110 215 320 71 241 412 Buchanan 88 183 277 108 212 316 9 119 228 Dole 67 150 234 132 249 365 54 208 362 Gramm 46 118 191 121 232 343 53 205 358 Keyes 79 168 257 105 208 311 4 109 213 Lugar 49 123 198 122 233 343 41 183 324 Clinton 53 129 205 113 220 327 43 186 329 Wilson 34 101 168 203 354 506 132 365 597 Specter 78 168 257 203 354 505 93 287 480 Hagelin 68 152 236 151 277 403 45 189 334 LaRouche 86 178 271 209 364 519 121 341 562

Note: None of the numbers in Tables A.3.3 through A.3.6 assumes a cap on public funds. In this respect, they differ from Table 3.3 in chapter 3.

108 Table A.3.5 Percentage of Adjusted Receipts from Matching Funds under Various Scenarios gj g

If the matching formula had been the one in the heading, the candidate would have received __% of his/her adjusted receipts from public funds.

Scenario # #1 #2 #3 #4 #5 #6 #7 #8 #9 Benchmark: Amount First $100 First $250 First $500 Current Matched Percent From

Public Funds Ratio 2-to-1 3-to-1 4-to-1 2-to-1 3-to-1 4-to-1 1-to-1 2-to-1 3-to-1

2000 % % % % % % % % % % Bauer 39 49 56 47 57 64 35 52 62 39 Keyes 47 57 64 52 62 68 37 54 64 39 McCain 32 41 48 41 51 58 32 49 59 32 Bradley 26 35 41 38 48 55 32 49 59 30 Gore 29 38 45 40 50 57 32 49 59 31 Quayle 37 47 54 46 56 63 35 52 61 33 Buchanan 55 65 71 59 69 75 44 62 71 42 Nader 59 68 74 66 74 79 50 66 75 49 Hagelin 60 69 75 69 77 82 57 72 80 59 LaRouche 26 35 42 38 48 55 31 47 57 32

1996 Alexander 20 28 34 36 45 53 31 47 57 26 Buchanan 58 67 73 60 69 75 44 61 70 43 Dole 37 47 54 45 55 62 35 52 62 30 Gramm 29 38 45 39 49 56 30 47 57 26 Keyes 56 66 72 60 69 75 43 60 69 42 Lugar 39 49 57 49 59 66 38 55 65 34 Clinton 36 45 53 44 54 61 34 51 61 32 Wilson 23 31 38 41 51 58 34 51 61 23 Specter 37 47 54 50 60 67 39 56 66 29 Hagelin 54 64 71 64 73 78 51 67 76 45 LaRouche 26 34 41 36 46 53 29 45 55 17

Notes: (1) Adjusted Receipts = Actual Receipts + Estimated Additional (or Decreased) Public Funds +estimated 50% more from $1000+ contributors. (2) None of the numbers in Tables A.3.3 through A.3.6 assumes a cap on public funds. In this respect, they differ from Table 3.3 in chapter 3.

109 Table A.3.6 Percentage of Adjusted Receipts from $1000+ Contributors under Various Scenarios

110 Table A.3.7 Publicly Funded Candidates’ Total Receipts, Individual Contributions, and Matching Funds, 1976-2000 (millions of nominal dollars)

111 Table A.3.7 Cont. Publicly Funded Candidates’ Total Receipts, Individual Contributions, and Matching Funds, 1976-2000 (millions of nominal dollars)

112 Table A.3.7 Cont. Publicly Funded Candidates’ Total Receipts, Individual Contributions, and Matching Funds, 1976-2000 (millions of nominal dollars)

113 1-Jul

2-Aug

26-Jul

31-Aug

13-Aug

0000

Table A.5.1 Table

00000

Ballot Access Requirements in the 50 States

Full Party Candidate Libertarian Green Natural Law Constitutional Reform

Alaska (reg) 6,937 #2,845 already on *reg 4,776 0 0 0 4-Aug Arizona 16,348 est #10,000 already on *1,000 0 0 0 9-Jun Arkansas 10,000 1,000

Kansas 16,714 5,000 already on 0 0 0 already on 2-Aug Kentucky no procedure #5,000 can’t start can’t start can’t start can’t start can’t start 26-Aug Louisiana est. (reg) 140,000 pay fee 1,170 667 22 37 2,806 7-Sep Maine 25,260 #4,000 0 already on 0 0 0 9-Aug State Requirements Signatures CollectedDeadlineState Requirements Signatures Maryland 10,000Montana est. 28,000 5,000 5,000 already on #5,000 already on 0 already on already on 0 0 0 already on 2-Aug 28-Jul Iowa no procedure #1,500 California (reg) 77,389 157,073 already on already on already onMass. already on est. (reg) 38,000Nebraska #10,000 58,731 already on 4,810 6-Aug already on 2,500 *already on 0 *3,500 0 0 0 0 27-Jul 0 24-Aug Colorado (reg) 1,000 pay fee already on already onMichigan already on already on 31,776Nevada already on 31,776 5-Jul 4,805 already on already on 4,805 already on already on already on already on already on already on already on 15-Jul 0 9-Jul Alabama 41,012Connecticut no procedure 5,000 #7,500 600 0 already onMinnesota 112,557 0 #2,000 0 0 0 already on 7-Aug 0 0 0 14-Sep Delaware est. (reg) 270 est. 5,400 already on already on already onMississippi be organized 240 #1,000 253 already on already on 21-Aug already on already on already on 3-Sep D.C. no procedure est. #3,600 can’t start already onMissouri can’t start can’t start 10,000 can’t start 10,000 17-Aug already on Florida be organized 93,024 already on already on already on already on already on 1-Sep Georgia 37,153 #37,153 already on can’t start can’t start can’t start can’t start 13-Jul Hawaii 677 3,711 already on already on already on 0 0 3-Sep Idaho 10,033 5,017 already on 0 already on already on 0 31-Aug Illinois no procedure #25,000 can’t start can’t start can’t start can’t start can’t start 21-Jun Indiana no procedure #29,553 already on

114 3-Aug 2-Aug 26-Jul 15-Jul 11-Aug 19-Aug 16-Sep

orkers World, in Fla. “Est.” means orkers World,

orkers, Southern, & W 0000 0000 0000

Table A.5.1 Table 00000 00000 00000 00000

Ballot Access Requirements in the 50 States (cont.) Full Party Candidate Libertarian Green Natural Law Constitutional Reform

Ballot Access News, Apri1, 2003. Vol. 18, No. 12. Apri1, 2003. Vol. Access News, Ballot

# Candidate procedure allows partisan label. Other nationally-organized parties on statewide are Socialist, Soc. W “estimated.” “(reg.)” means the state requires a party to have a certain number of registered voters, as opposed to a petition. Source: * means entry changed since the December 1, 2002 petitioning chart. State Requirements Signatures CollectedDeadlineStateNew Hamp. 13,260 Requirements Signatures #3,000 New Jersey no procedure #800 Oklahoma 51,781 37,027 New MexicoNew YorkN. CarolinaN. DakotaOhio no procedure 2,422 58,842 #15,000 7,000 14,527 est 100,000 32,290 can’t start already on already on 4,000 can’t start already on 5,000 can’t start 6,000 can’t start *21,000 can’t start 0 can’t start 0 can’t start can’t start can’t start 0 17-Aug 0 can’t start 0 3-Sep 0 7-Sep 25-Jun OregonPenn.Rhode IslandS. CarolinaS. Dakota no procedure 18,864 16,592 10,000 est. 23,000Virginia 8,364Washington 15,306 #1,000West Va. can’t start 10,000 no procedure no procedure already on can’t start #3,346 no procedure can’t start already on already on #10,000 already on #200 *2,600 #12,963 can’t start can’t start can’t start already on 0 can’t start 0 can’t start can’t start can’t start already on can’t start already on can’t start can’t start can’t start already on 2-Aug can’t start already on can’t start 3-Sep 0 can’t start can’t start 15-Jul 24-Aug 20-Aug 25-Aug TennesseeTexasUtahVermont 41,322 be organized 45,540 2,000 25 #1,000 64,077 #1,000 already on can’t start 0 already on can’t start already on can’t start 0 already on can’t start can’t start 0 0 24-May 2,200 0 31-Aug 0 19-Aug WisconsinWyomingTotal States On: 10,000 3,644 #2,000 3,644 already on already on already on can’t start *27 can’t start 0 can’t start already on 20 can’t start can’t start 12 17-Aug 14-Sep 10 7

115

Task Force Members

117

Task Force on Presidential Nomination Financing

Jeffrey Bell, a principal at Capital City Partners, has held key roles in the campaigns of Presidents Nixon and Reagan, as well as the candidacies of Jack Kemp and Gary Bauer. Mr. Bell has served as president of the Manhattan Institute, and as a Fellow of the Institute of Politics at the Kennedy School of Government, Harvard University. He was a candidate for U.S. Senate from New Jersey in 1978 and 1982, and serves on the board of directors of the American Conservative Union. [*] J. Kenneth Blackwell is Secretary of State of Ohio. As such, he is Ohio’s chief elections officer and responsible for the State’s campaign finance disclosure system. Previously, he was Mayor of Cincinnati, undersecretary of Housing and Urban Development during George H.W. Bush’s Administration, Ohio’s Treasurer, and co-chair of the U.S. Census Monitoring Board. He served as the National Chairman of Steve Forbes’ presidential campaign in 2000. Currently, Mr. Blackwell is a member of the Advisory Panel of the Federal Election Commission, and a member of the Board of Directors of the National Taxpayers Union. With Anthony Corrado, he is also co-chair of the Campaign Finance Institute’s Board of Trustees. [*] William E. Brock is founder and chairman of Intellectual Development Systems/ Bridges Learning Systems, Inc., which provides educational programs for schools. He previously served as U.S. Secretary of Labor (1985-87) in the Reagan Administration, as U.S. Trade Representative (1981-85) and Chairman of the Republican National Committee (1977-80). He also represented the people of Tennessee as a U.S. Senator (1971-76) and a Member of Congress (1963-70). Becky Cain is the president and CEO of The Greater Kanawha Valley Foundation in Charleston, West Virginia. Ms. Cain was President of the League of Women Voters of the United States from 1992 through 1998. She is a former member of the Executive Committee of the Leadership Conference on Civil Rights and the Advisory Committee on Election Law to the American Bar Association, and the West Virginia Election Commission. [*] Anthony Corrado is a Professor of Government at Colby College and one of the nation’s leading experts on political finance. He is the author or co-author of numerous studies in this field, including Campaign Finance Reform: A Sourcebook; Paying for Presidents: Public Financing in National Elections; Financing the 1992 Election; and The Elections of 1996: Reports and Interpretations. He previously held senior positions in the Mondale, Dukakis and Kerrey presidential campaigns. With Kenneth Blackwell, he is also co-chair of the Campaign Finance Institute’s Board of Trustees. [*]

119 Carol Darr is the director of the Institute for Politics, Democracy & the Internet at the Graduate School of Political Management at The George Washington University. Ms. Darr served as acting general counsel to the U.S. Department of Commerce under President Clinton and was general counsel to the Democratic National Committee in 1992. She was also chief counsel to the 1988 Dukakis/ Bentsen Presidential Committee, and as the deputy counsel to the 1980 Carter/ Mondale Presidential Committee. Richard Davis is a Managing Partner of Davis Manafort, specializing in international and national political affairs. Mr. Davis was National Campaign Manager for Senator John S. McCain’s 2000 presidential campaign and currently serves as Chairman of Senator McCain’s political action committee, Straight Talk America. He was recently a Fellow of the Institute of Politics at the Kennedy School of Government, Harvard University. He also served as Deputy Convention Manager for the 1996 National Republican Convention and Deputy Campaign Manager for the 1996 Presidential Campaign of Senator Bob Dole. Mr. Davis was the National Convention Director for the Reagan/Bush Re-Election Campaign in 1984, and the 1988 Presidential Debate Coordinator for the Bush/ Quayle 1988 Presidential Campaign. Donald J. Foley is a principal at Prism Public Affairs, a firm that specializes in public affairs and communications. He previously served as Representative Richard A. Gephardt’s press secretary for twelve years, with an extended leave to serve as Walter F. Mondale’s deputy press secretary in the 1984 presidential campaign. Mr. Foley was Executive Director of the Democratic Senatorial Campaign Committee. In 1996, he served as Convention Manager for the Democratic Party in Chicago and as a communications consultant to the Clinton/ Gore campaign. Ruth S. Jones, Vice Provost for Academic Affairs at Arizona State University, is one of the leading political scientists in the area of campaign financing at the state level. She has also been a Commissioner and Chair of the Arizona Citizens Clean Elections Commission. [*] Michael J. Malbin, the Campaign Finance Institute’s Executive Director, also is a Professor of Political Science at the University at Albany, State University of New York. Before going to SUNY in 1990, he was a reporter for National Journal, resident scholar at the American Enterprise Institute, and worked for Richard B. Cheney on the Iran-Contra Committee, in the House Republican leadership and in the Pentagon. His books include Life After Reform: What Happens When the Bipartisan Campaign Reform Act Meets Politics (editor and co-author); The Day After Reform: Sobering Campaign Finance Lessons from the American States; (with T. Gais) and Vital Statistics on Congress, (with N. Ornstein and T. Mann). [*]

120 Charles T. Manatt is the founder of Manatt, Phelps & Phillips, a law firm specializing in government services and strategies, international and corporate law. Mr. Manatt was the U.S. Ambassador to the Dominican Republic from 1999 to March 2001. He is a former Chairman of the Democratic National Committee and was Co-Chairman of the 1992 Clinton/Gore campaign. He is currently Chairman of the Board of Trustees of The George Washington University. Ross Clayton Mulford is a partner of the Texas based law firm Hughes & Luce, specializing in securities law and complex corporate transactions. Mr. Mulford was general counsel and campaign manager of Ross Perot’s 1992 presidential campaign, and in 1996 was general counsel to the Reform Party and Perot ’96. He has served on the American Bar Association National Advisory Commission on Election Law (1993-1995, 1999-2001), and the ABA Standing Committee on Election Law (1995- 1999). He has also served as a Fellow of the Institute of Politics, Harvard University and resident lecturer at the Kennedy School of Government. Phil Noble, is founder of Phil Noble and Associates, an international political and public affairs consulting firm, and President of PoliticsOnline. PoliticsOnline, founded in 1996, is a company that provides fundraising and Internet tools for politics as well as publications that cover Internet politics. Noble was named International Political Consultant of the Year in 1997 by the American Association of Political Consultants, and in 2001 was a Fellow of the Institute of Politics at the Kennedy School of Government, Harvard University. [*]

Research Director John C. Green is Professor of Political Science and director of the Ray C. Bliss Institute of Applied Politics at the University of Akron, a research and teaching institute dedicated to the “nuts and bolts” of practical politics. He is editor of the Citizens’ Research Foundation’s book, Financing the 1996 Election, and co- author of The State of Parties, which is now in its fourth edition.

* Member of the CFI Board of Trustees.

121