Small Donors, Big Democracy: New York City's Matching Funds As A

ELECTION LAW JOURNAL Volume 11, Number 1, 2012 Articles # Mary Ann Liebert, Inc. DOI: 10.1089/elj.2010.0099

Small Donors, Big Democracy: New York City’s Matching Funds as a Model for the Nation and States

Michael J. Malbin, Peter W. Brusoe, and Brendan Glavin

ABSTRACT

Restrictions on speech will not be accepted by the Supreme Court in the name of equality, but this does not rule out equality and participation as legitimate policy goals. It is both constitutional and appropriate to promote these goals without new constraints on speech by using incentives to increase the number and importance of low-dollar donors. The constitutional theory is straightforward. The empirical question is whether this could work. There are few examples of current policies with this specific purpose. One run by the City of New York gives participating candidates six dollars in matching funds for each of the first $175 that a city resident donates. This article asks whether a similar approach could become a model for others. The argument has three parts. The first is an empirical analysis of New York City’s campaign finance records since 1997, showing that (a) multiple matching funds do increase the proportional role of small donors; (b) they have also increased the number of small donors; and (c) they help shift the demographic and class profile of those who give. The second part applies a modeling method to the states to show these results could readily be obtained elsewhere. The third section presents broad theoretical, constitutional, and policy themes. After arguing the futility of using public financing to reduce spending, it urges participation-based public financing to broaden the base. In making this case, the article also presents reasons for preferring matching funds to flat grants or other forms of public financing.

he past few years have not been good for expenditures as do individuals1 and the U.S. Court T some of the assumptions and premises that of Appeals upheld the right of organizations that once underlay campaign finance policy. When the only make independent expenditures to accept U.S. Supreme Court said that corporations have unlimited contributions,2 the two decisions were the same right to make unlimited independent widely editorialized as skewing an already imbal- anced campaign finance system toward concentrat- ing power in the hands of large donors. Whatever Michael J. Malbin is Professor of Political Science at the Uni- one may think about the details of the two decisions, versity at Albany (SUNY) and Executive Director of The Cam- there can be no doubt that the system at least raises paign Finance Institute, a nonpartisan research institute in serious questions about what some have called a Washington D.C. Peter W. Brusoe is a Ph.D. candidate in Polit- 3 ical Science at The American University. Brendan Glavin is the larger equality problem in campaign finance. The Data and Systems Manager at The Campaign Finance Institute. The authors wish to thank the Joyce Foundation, Open Society Institute, Rockefeller Brothers Fund, and Smith Richardson Foundation for supporting the research in this paper, as well 1Citizens United v. Federal Election Commission, 558 U.S. as the journal editors and anonymous peer reviewers whose ___, 130 S. Ct. 876 (2010). questions and comments made this a better article. The title is 2SpeechNow.org v. FEC, 599 F.3d 686 (D.C. Cir. Mar. 26, derived from a forum co-sponsored by the Campaign Finance 2010), cert. denied, 131 S. Ct. 553 (2010). Institute and the City University of New York’s Baruch College 3Daniel P. Tokaji, The Obliteration of Equality in American School of Public Affairs, where some of these thoughts were Campaign Finance Law: A Trans-Border Comparison,5Jour- presented. nal of Parliamentary and Political Law 381 (2011).

3 4 MALBIN ET AL. bulk of the money spent on politics in the United city resident gives to their campaigns. (The match- States comes from a small number of people who ing ratio was four-for-one for the first $250 in can afford to give and spend large amounts. This 2001, 2003, and 2005.) The 2009 formula made a is not surprising. It takes money to give money. $175 donor as valuable to participating candidates But the problem in a democracy is that having the as a $1,225 donor was to non-participants. financial wherewithal produces unequal political This article asks whether a matching fund similar power. Campaign finance reformers in response to New York City’s could and should become a have tried to address this in the past by putting limits model for jurisdictions across the country. The argu- on contributions and spending. But the Supreme ment proceeds in three parts. The first is an empir- Court has cut off this approach. The Court has ical analysis of New York City’s campaign finance upheld contribution limits only for the purpose of system. It shows that (a) multiple matching funds preventing corruption. It has rejected any manda- sharply increase the proportional role of small tory limits on spending at all, including independent donors; (b) in addition to shifting the proportions, spending by corporations. Restrictions on speech the small-donor focus has also increased the number simply will not be accepted in the name of equality, of people who contribute; and (c) by increasing the or even in the name of a broad definition of ‘‘corrup- numbers of small donors, the system is also shifting tion.’’ But this does not rule out equality and citizen the demographic and class profile of those who participation as legitimate concerns of public pol- give, making the system more representative of icy. The requirement is to use policy methods that the population as a whole. do not restrict or inhibit speech. It is both constitu- The second part of the article’s argument tional and appropriate to promote participation and involves a hypothetical modeling exercise in equality by building up instead of squeezing down which matching funds are applied to the states. to increase the number and importance of low-dollar This presents an analysis of state campaign finance donors and volunteers.4 records that uses comparable definitions across The constitutional theory is straightforward. The all of the states—first to measure the current mix- empirical question is whether this is just wishful ture of donors and then to estimate the extent to thinking. Would an approach like this actually which a hypothetical matching funds system work? During the 2008 election, some saw techno- would alter the balance. The hypothetical system logical innovation as enough by itself to accomplish is simpler than New York City’s, but patterned this goal, but that has not been borne out. The Inter- after it. The section shows that in the median net lowers the cost of mobilizing small donors and state, candidates raise about 16 percent of their volunteers. But it is still easier for most candidates contributions from individuals who give them to raise money in large chunks, so they will try to $250 or less. Even without major new restrictions mobilize large donors first. Past students of partici- on large donors, a multiple matching fund system pation have argued that one cannot expect most peo- to stimulate small donors would dramatically ple to give or participate unless they are asked. Mobilization is a necessary, though not a sufficient, condition for participation.5 So the question is 4This point has been argued previously by one of the co- whether public policy can alter the incentives for authors: Michael J. Malbin, Rethinking the Campaign Finance Agenda, The Forum, Vol. 6, No. 1 (2008), available at http:// candidates to mobilize donors who give smaller www.bepress.com/forum/vol6/iss1/art3; Anthony J. Corrado, amounts. Michael J. Malbin, Thomas E. Mann, and Norman J. Ornstein, There are very few examples of jurisdictions with Reform in an Age of Networked Campaigns: How to Foster Citizen Participation through Small Donors and Volunteers functioning policies whose specific purpose is to (Washington DC: The Campaign Finance Institute, 2010), increase participation by small donors. One is the available at http://www.cfinst.org/about/events/2010_01_14 State of Minnesota, which until 2009 offered a .aspx; Michael J. Malbin, Campaign Finance After Citizens The American Interest rebate of up to $50 to donors contributing to politi- United: Expand Democracy, , July– August 2010, 54–57. Another recent article developing the cal parties, or to candidates who participate in the legal and policy theory is Spencer Overton, Matching Political state’s partial public funding system. Another is Contributions, Minnesota Law Review (forthcoming 2012). 5Sidney Verba, Kay Lehman Scholzman and Henry E. Brady, the City of New York, which in 2009 gave partici- Voice and Equality: Civic Voluntarism in American pating candidates six dollars in public matching Politics 15–16 (Cambridge MA: Harvard University Press, funds for each of the first $175 that an individual 1995). SMALL DONORS, BIG DEMOCRACY 5 increase their proportional importance, making elections. From the beginning, however, the city’s small donors the dominant force in most states’ Campaign Finance Board sought to persuade the campaign finance. Council to reconfigure the formula to favor small Finally, the third section of the article presents donors. By the election of 2001 the city had changed both constitutional and policy arguments. After to a four-for-one match for the first $250. This showing the futility of using public financing to allowed $250 donors to trigger the same $1,000 in reduce campaign spending, this section argues for public funds as once had been triggered only by the importance of participation-based policies to $1,000 donors. The election of 2001 was also the build up and broaden the base. In making this city’s first in which council members, in a system case, the article also presents reasons for prefer- in which incumbents were highly favored for reelec- ring matching funds to flat grants or other forms tion, were forced to leave office because of term lim- of public financing. To obtain the maximum bene- its. As a result, the multiple-matching funds of 2001 fits from public financing, it argues for a system were implemented in an election in which most of in which candidates are required to accept a the candidates were running for open seats. somewhat lower contribution limit than non- The city’s elections normally occur every four participating candidates, in return for receiving years. Once every twenty years, however, the city multiple-matching funds. Once candidates have holds an extra reapportionment-driven election for been awarded some maximum amount of public City Council in the middle of what would otherwise fundstobeestablishedbylaw,thecandidates be a four year term. The election of 2003 was such should be able to continue raising an unlimited an election. The four-for-one matching ratio of 2001 amount of additional money, but only under the and 2003 stayed in place for the election of 2005, lower contribution limit they accepted when they but two other changes that year were significant. decided to take public funds. City officials decided in 2004 (contrary to their previous legal opinion) that they could impose the same disclosure requirements and contribution lim- PUBLIC MATCHING FUNDS its on non-participating candidates as they did for IN NEW YORK CITY program participants. As a result, the election of 2005 is the first one for which we have useful History data for all city candidates, and not just for partici- New York City’s partial public financing system pants. For the election of 2009, the city changed the was enacted by the City Council in February matching ratios again—from a four-for-one match 1988.6 For three elections (1989, 1993, and 1997) for each donor’s first $250 to a six-for-one match the city provided a one-for-one matching amount for the first $175. of public funds for the first $1,000 contributed by One explicit reason offered for changing from a a city resident to a participating candidate. Those one-to-one match to multiple-matching ratios for who accepted the funds were obligated to adhere to lower contribution limits and to accept spending limits. The maximum amount of public funds a 6 candidate could receive would be 50 percent of For an overview of the history of campaign finance law in New York State and New York City, see Michael J. Malbin and Peter the spending limit. Because city officials at the W. Brusoe, Campaign Finance Policy in the State and City of time believed they did not have the authority to New York,inHandbook of New York State Politics set contribution limits for candidates who chose (New York: Oxford University Press, forthcoming). For an excellent history of the city’s law through 2001, see Paul S. not to accept public financing, the contribution lim- Ryan, A Statute of Liberty: How New York City’s Campaign its for non-participating candidates remained at Finance Law is Changing the Face of Local Elections (Los much higher levels set by state law. However, if a Angeles CA: Center for Governmental Studies, 2003), 9, avail- participating candidate was running against a able at http://cgs.org/images/publications/nycreport.pdf. See also New York City Campaign Finance Board, A Brief History high-spending, non-participating one, the public of the CFB, available at http://www.nyccfb.info/press/info/ matching grant would be increased and the spend- history.aspx. For a more skeptical view of the system, see Jef- ing limit would be removed. frey Kraus, Campaign Finance Reform Reconsidered: New York City’s Public Finance Program at Twenty,inPublic The one-for-one matching fund paralleled the sys- Financing in American Elections 147–75 (Philadelphia, tem used in the presidential primaries and some state PA: Temple University Press, 2011). 6 MALBIN ET AL.

2001 through 2009 was to heighten the importance per candidate. We can also make plausible assump- of small donors. Our analysis shows that the pro- tions from past survey and other research to esti- gram in fact has accomplished this objective. Before mate how many donors it probably took to we present the evidence, however, a brief discussion provide each candidate’s total of undisclosed contri- of method and data is useful. butions. However, there is no way to know which donors under the threshold have given to more than one candidate. Therefore, it is not possible to Contributions, donors, and years covered have an accurate count of donors in any jurisdiction Election agencies and others who write about that does not require disclosure of all contributions, small donors typically present information about no matter how small. Because of this, the donor-to- contributions as opposed to donors. That is, we candidate pair is the most reliable unit for compar- are told how much of a candidate’s money comes ative analysis across jurisdictions. in transactions of a certain amount. This is not a New York City requires all contributions to be bad rough-and-ready way to talk about the subject, reported, with no disclosure threshold. This would since most donors give only once to most candi- allow one to move away from donor-candidate dates in any given election. However, it also loses pairs to examine individual donors. We nevertheless a great deal. In the 2008 presidential election, Bar- retain the use of pairs so we can compare New York ack Obama received more than half of his money in City with other jurisdictions. Such comparisons give contributions (or transactions) of $200 or less, but these findings a stronger perspective. The following only one-quarter from donors whose contributions numberswillgivesomeideaofwhatmighthave over the course of two years aggregated to a total been lost by using pairs. In the 2009 election in of $200 or less.7 At the higher end of the donor New York City, we counted 91,779 unique donors. scale, a lobbyist might well prefer to buy $500 tick- Of these, 81,742 donors (89%) gave to only one can- ets to each of several events over the course of two didate, 6,760 (7%) gave to two candidates, and 1,766 years rather than giving everything at a single sit- (2%) gave to three. The remaining 2 percent of the ting. Therefore, we do not consider contributions donors gave to four or more candidates, with a to be the best unit of analysis for this study. For total of 58 giving ten or more times. The percentages one thing, the contribution is not the unit most in 2005 were almost the same, with 64,533 (88%) of relevant for policy analysis. When laws place limits that year’s 73,287 donors giving only to one candi- on contributions, they are restricting the total date. As a result, we are confident that the conclu- amount an individual may give to a recipient. It sions we draw from our information about donor- would make little sense to limit the size of a contri- to-candidate pairs in New York City also would bution if a person were permitted to write twenty apply directly to donors. checks for the maximum amount on the same day. To arrive at information about donor-to-candidate For this reason the law (and this study) is concerned pairs involves the following steps. We begin with the about what we are labeling the donor-candidate contribution records for the jurisdiction in question. pair: the total amount that each donor gives to If a donor gives more than one disclosed contribution, each candidate. those contributions are identified as coming from the For some purposes, it might make more sense to same donor by matching the names in public contri- make the donor the unit of analysis rather than the bution records (and indisputable variations of the donor-candidate pair, aggregating a donor’s contri- name) as well as considering their addresses. The butions across all candidates. While we agree that amount each donor gives to each candidate is it could be desirable to focus on the donor, as then tabulated by adding all of his or her combined opposed to the donor-candidate pair, it generally is contributions to that candidate in an election cycle. not possible to do so. In most jurisdictions, disclo- Under this method, a person who writes twenty sure is required only for donors whose contributions cross some threshold amount—usually $100 or less at the state level. That means one cannot trace 7Press Release, The Campaign Finance Institute, ‘‘All CFI donors whose contributions to a candidate do not Funding Statistics Revised And Updated For The 2008 Presi- dential Primary And General Election Candidates,’’ (Jan. 8, reach the threshold. We know that all undisclosed 2010) available at http://cfinst.org/Press/Releases_tags/10-01- money will be below the threshold for each donor 08/Revised_and_Updated_2008_Presidential_Statistics.aspx. SMALL DONORS, BIG DEMOCRACY 7 checks of $50 each to one candidate would be the public financing system, with separate infor- counted as a $1,000 donor to that candidate. This mation for non-participating candidates in 2005 procedure underlies all of the municipal, state, and 2009. The first set of rows under each year and federal data in this article. The larger project presents the percentage of the total funds that of which this article is part is the first to have participating candidates received from individuals, applied such a procedure to all of the states, as political parties, and non-party organizations, with well as to federal elections. The state records the individual donors divided into those who gave were supplied by the National Institute of Money the candidates an aggregate amount of $1–$250, in State Politics. The city’s records came from $251–$999, and $1,000 or more. Also shown are the New York City Campaign Finance Board. the number of candidates who participated in The elections to be covered in the next section of the public financing system and the percentage of this article are the 1997 through 2009 City Council all candidates who chose to participate. The second elections. This allows us to compare the final election set of rows repeats the first, but adds in public under the one-for-one matching fund system with the funds by allocating the matching money to the spe- multiple-matching fund elections of 2001 through cific donor who triggered it. The third set shows 2009, testing the claim that multiple-match funds the total number of donor pairs under each of the would increase the role of small donors over what categories of individual donors, as well as the aver- it had been in a one-for-one matching system. We age number of donor pairs per candidate. For 2005 did not have enough data at this time to include the and 2009, additional rows are added to present elections of 1989 or 1993, but 1997 should provide parallel information for the nonparticipating candi- an adequate baseline for 2001–2009. The public dates. Readers who are interested in greater detail records also make it impossible to gather data for may wish to see separate tables like these for non-participating candidates before 2005. As a result, incumbents, challengers and open seat candidates. it is not possible to establish a pre-1989 baseline Theyaremadeavailableasanappendixtothis describing a system with no public financing, or to article on the Web site of the Campaign Finance compare participants to nonparticipants before 2005. Institute.8 One final word about this article’s coverage: Impressionistically, it does look from this table Mayor Michael Bloomberg’s self-financed election as if there is a connection between multiple- campaigns dominated the city’s overall campaign matching funds and low-dollar donors. Participat- money picture in 2001, 2005, and 2009. Our analy- ing candidates in 1997 raised 28 percent of their sis therefore has focused on candidates running for private funds from individuals who gave $250 or the 51-member City Council, which is the legisla- less. This came from 23,999 donor-candidate tive branch of the municipal government. Each pairs, or an average of 240 small donors per can- member of the City Council represents a constitu- didate. The percentage role of small donors was ency of more than 160,000 people, which makes a higher in every election after 2000, with higher council district larger than most state legislative dis- absolute numbers of donor-pairs in every election tricts and therefore a valid comparison for elections but one. elsewhere. The city’s districts are mostly controlled However, it would not be satisfactory to let mat- by the same political party, but on a district-by- ters rest with this first impression. The five elections district basis the seats are not substantially safer in this series had substantially different mixes of for individual incumbents than the largely safe candidates driven largely by the introduction of seats in many state legislatures or, for that matter, term limits, which took effect with council members the U.S. House of Representatives. who were finishing their second terms in 2001. In 2001, only 11 incumbent council members ran for City Council candidates from 1997 through 2009 reelection, compared to 28 in 1997. In 2003, 45 We are now prepared to compare the sources of incumbents ran for the council’s 51 seats. Thirty- candidates’ campaign funds during the elections of eight ran in 2005 and 42 in 2009. To smooth out 1997 through 2009. Table 1 presents summary the effects of these differing electoral contexts, information for candidates who were on the primary or general election ballot each election. The table includes all candidates who participated in 8Available at http://www.cfinst.org/NYC/ELJ/Appendix.aspx. 8 MALBIN ET AL.

Table 1. All Participating NYC Council Candidates: Sources of Funds and Numbers of Donors, 1997 through 2009

Percentage From Individuals Whose Contributions to the Percentage from Candidate Aggregated To. Organizations

$1,000 Non-Party Political $1–$250 $251–$999 or more Orgs Parties Total*

1997 NYC COUNCIL CANDIDATES Participating Candidates (Private funds only) (N = 100) (60%) 28% 16% 19% 34% 2% 100% Participating Candidates (Private + allocated public matching) 39% 18% 16% 25% 2% 100% Number of donor-to-candidate pairs 23,999 1,855 615 26,469 Average number of pairs per candidate 240 19 6 265 2001 NYC COUNCIL CANDIDATES Participating Candidates (Private funds only) (N = 231)(80%) 47% 18% 19% 5% 11% 100% Participating Candidates (Private + allocated public matching) 68% 16% 10% 2% 4% 100% Number of donor-to-candidate pairs 58,478 4,354 1,375 64,207 Average number of pairs per candidate 253 19 6 278 2003 NYC COUNCIL CANDIDATES Participating Candidates (Private funds only) (N = 98)(74%) 34% 17% 25% 23% 2% 100% Participating Candidates (Private + allocated public matching) 58% 16% 15% 10% 1% 100% Number of donor-to-candidate pairs 22,669 2,167 955 25,791 Average number of pairs per candidate 231 22 10 263 2005 NYC COUNCIL CANDIDATES Participating Candidates (Private funds only) (N = 123)(93%) 31% 16% 30% 20% 2% 100% Participating Candidates (Private + allocated public matching) 54% 16% 19% 10% 1% 100% Number of donor-to-candidate pairs 32,188 3,176 1,733 37,097 Average number of pairs per candidate 262 26 14 302 Non-Participants (Private funds) (N = 9)(7%) 9% 12% 52% 26% 1% 100% Number of donor-to-candidate pairs 1,320 405 455 2,180 Average number of pairs per candidate 132 41 46 219 2009 NYC COUNCIL CANDIDATES Participating Candidates (Private funds only) (N = 164)(93%) 37% 16% 31% 16% 1% 100% Participating Candidates (Private + allocated public matching) 64% 13% 16% 6% 0% 100% Number of donor-to-candidate pairs 47,719 3,509 1,798 53,026 Average number of pairs per candidate 289 21 11 321 Non-Participants (Private funds) (N = 12)(7%) 15% 16% 66% 2% 0% 100% Number of donor-to-candidate pairs 2,152 499 513 3,164 Average number of pairs per candidate 179 42 43 264 NB: Excludes self-financing. *Cells across may not add to 100% because of rounding. Source: Campaign Finance Institute, derived from data supplied by the NYC Campaign Finance Board. therefore, the following table (Table 2) combines umns. However, the claim that this would bring a the four elections with multiple-matching funds larger number of small donors into the system and then separates the incumbents, challengers, seems brought into question by the right-hand set and open seat candidates. of columns in Table 2. The table shows an apparent At first blush, the results seem quite negative for increase for incumbents and open seat candidates one of the two hypotheses put forward here. The but is negative for the challengers. table does seem to support the claim that multiple- To help interpret this finding, an additional control matching funds produced an increase in the propor- was introduced into the table. From Table 1, we had tional importance of small donors. The left-hand set noticed that the number of small donors had of columns shows that the proportion of private increased (from 23,999 in 1997 to an average of money that came from small donors went up by 40,264 in the 2000s) but there was also an increase 35 percent for incumbents, 62 percent for challeng- in the number of candidates (from 100 in 1997 to ers and 40 percent for open seat candidates, without 154). The large number of candidates helped bring even taking account of the multiplying role of the the average number of donors per candidate down, matching funds portrayed in the middle set of col- which was the number presented in Table 2. This SMALL DONORS, BIG DEMOCRACY 9

Table 2. Comparing the Fundraising Sources of Participating City Council Candidates in 1997 With 2001–2009, All Candidates

Percentage from Percentage from # of Donor-Candidate Number of $1–$250 Donors $1–$250 Donors Pairs per candidate, Candidates (Private $ only) (Private + Public) $1–$250 2001–2009 Avge. Percentage Avge. Percentage Avge. Percentage 1997 (total) 1997 2001–2009 Increase 1997 2001–2009 Increase 1997 2001–2009 Increase

All 100 617 28% 39% 40% 39% 63% 60% 240 261 9% Incumbents 28 136 22% 30% 35% 32% 48% 52% 240 304 27% Challengers 42 184 34% 55% 62% 45% 76% 74% 240 224 - 7% Open Seats 30 297 32% 45% 40% 43% 66% 46% 240 264 10%

opens the possibility that the mixture of candidates— While the data strongly support the claims com- particularly non-incumbents who raised little money paring the multiple-matching systems with the older and did not earn many votes—may help explain the one-for-one system, we find at best mixed support low percentage increase in Table 2’s third set of col- for the shift from one form of multiple-matching umns. To test this, the next table presents the same system (the 2001–2005 four-for-one match) to information as Table 2, but limits the candidates in another (the 2009 six-for-one match). Table 4 is all years to those who could reasonably be described similar to Table 3, with competitive candidates, as being viable or competitive. A candidate is defined but presents only the ‘‘percentage change’’ columns. as being competitive if he or she received at least half This table shows significant increases in the as many votes as the winning candidate in a primary incumbents’ percentage of money from small or general election (the equivalent of 66/33 in a two- donors as well as their numbers of small donors, candidate race). The results are shown in Table 3. but the conclusions are mixed for the challengers

This table shows a substantial increase not only and open seat candidates. From this information in the proportional role of small donors but in we cannot conclude that the 2009 change had a their absolute numbers per candidate. Incumbents strong impact beyond the one already introduced raised money from a 27 percent larger number of in 2001. To some extent, this may be an artifact. $1–$250 donors in the 2000s, competitive challeng- The 2001 election, with its extraordinary number ers went up by 56 percent and competitive open seat of open seats because of term limits, had very candidates went up by 20 percent. This, combined high rates of low-donor participation affecting the with the data in Table 1, provides strong support 2001–2005 average. Later tables showing only for the claim that multiple matching funds focused 2005 and 2009 suggest more positive results for on small donors brought more low-dollar donors 2009, but more elections under the new formula into the system, both more per similarly situated will be needed to establish the effects of the 2009 candidate as well as more overall. change with greater certainty.

Table 3. Comparing the Fundraising Sources of Participating City Council Candidates in 1997 with 2001–2009, Competitive Candidates Only

All 64 325 27% 34% 26% 38% 56% 48% 249 321 29% Incumbents 28 136 22% 27% 23% 32% 48% 52% 240 304 27% Challengers 17 52 37% 45% 22% 47% 68% 44% 227 354 56% Open Seats 19 137 30% 40% 33% 43% 61% 43% 282 338 20% 10 MALBIN ET AL.

Table 4. Comparing the Fundraising Sources of Participating City Council Candidates in 2001–2005 with 2009, Competitive Candidates Only

Change in the Percentage Change in the Percentage Change in the Number of of Private Money Coming of Private + Public matching Money $1–$250 Donor-Candidate from $1–$250 Donors Coming from $1–$250 Donors Pairs

All Competitive, 10% 10% 8% Participating Candidates Incumbents 10% 13% 11% Challengers –7% –2% 17% Open Seats 2% 4% –11%

A brief word about non-participants in 2005 Testing two paths—Reshuffling versus and 2009, the only years for which non-participant increased participation data are available. Candidates who chose not to participate in the public financing system in the The data so far show that the shift to multiple 2005 election received only 9 percent of their money matching funds was associated with an increase in from donors who gave $250 or less; the non-participants the number of $1–$250 donor-candidate pairs as of 2009 received 15 percent. Both numbers are well as an increase in the percentage of money com- substantially below the 28 percent for participating ing from those pairs. Skeptics might counter that it candidates in 1997, which in turn is below any elec- makes little difference to politics if this is only a tion in the 2000s. The six non-participating in- big-donor shell game—that is, if rich donors who cumbents who ran in 2005, and the one who ran once gave larger amounts now divide the same in 2009, raised 8 percent and 9 percent of their money among several candidates. Consider the fol- money respectively from donors who gave $250 lowing hypothetical, using 2005’s four-to-one ratio. or less, and they had relatively few small donors. If a donor gave $1,000 to one candidate in 2005, the In contrast with the incumbents, four of the seven contribution would have had a value of $2,000 to the open-seat non-participants were in high-spending candidate ($1,000 in private funds, with the first competitive races and had a relatively large number $250 matched four to one). If the same donor of $250-or-less donors—enough to approach the gave $250 to each of four candidates, the same participating candidates’ average. But the propor- $1,000 in private funds would have generated tion of money they raised from small donors $4,000 in matching funds. So there would have looked more like the incumbent non-participants: been an incentive for potentially large donors to they raised between 6 percent and 15 percent. We spread their money around by giving each candidate therefore should not make too much of them $250 or less. This is one way in which the law could here. They form a small and skewed sample. stimulate the result we have seen, in which candi- They do show (as did Barack Obama) that public dates received more of their money on average financing is not a necessary condition for a few from donors who give them each $250 or less. candidates to persuade small donors to give. How- Another possibility is that the law does not simply ever, they do not negate the conclusion that for work on donors who spread their money around, most candidates matching funds alter the fundrais- but gives candidates an incentive to look for new ing landscape. donors. Piggy-backing on this is the possibility In sum, the information so far supports the claim that potential new donors’ knowledge of matching that multiple-matching fund systems focused on funds (generally transmitted by the candidate) small donors can have a significant effect. When increases their willingness to give. we consider the paths through which this might We can see evidence of both paths by comparing have occurred (about which more will be said) we the results of 2005 with 2009. In 2005, the city conclude that the law seems to have had a notice- matched each of the donor’s first $250 on a four- able structuring effect on the incentives of candi- for-one basis. In 2009, it matched each of the first dates, donors, or both. This structuring in turn has $175, six for one. We should expect some strategic affected the mixture of money in city elections. donors, therefore, to have given exactly $250 per SMALL DONORS, BIG DEMOCRACY 11 candidate in 2005, so they could spread their money pairs and an increase in their $175 ones. Participat- around. In 2009, similar considerations should lead ing candidates raised 7 percent of their funds from the highly strategic donor to give exactly $175 and 2,678 donor-to-candidate pairs of exactly $250 then save the remaining $75 for another candidate (down from 4,925 such pairs in 2005, when they or purpose. To test this theory, Table 5 breaks were responsible for 13 percent of the candidates’ down all of the donor-to-candidate pairs of $250 funds). But these same candidates in 2009 received or less into ones that gave less than $175, exactly another 5 percent from 3,055 donor-to-candidate $175, from $176 to $249, and exactly $250. pairs of exactly $175 (up from 0.2 percent of their In 2005, City Council candidates who participated money from 112 donor-to-candidate pairs in in the public financing system raised 13 percent of 2005). This is very strong evidence in support of their funds from 4,925 donor-candidate pairs who the claim that people who were knowledgeable gave exactly $250. Nonparticipating candidates about the law—most likely candidates—were educat- raised only 4 percent of their funds from 264 ing potential donors and influencing their behavior. donor-to-candidate pairs of exactly $250. This makes sense. Participating candidates had an incen- Second path—Increased participation tive to urge donors to get up to $250, and at least some of the donors who could afford to give more But Table 5 also suggests that the second mech- had reason to stop there (or divide their money anism was also at work and that new donors were between themselves and their spouses) to make being drawn into the system. Again looking only their money worth more for other candidates. Equally at the participating candidates for City Council, interesting as the difference in $250 donors between the donor-to-candidate pairs of $1–$174 make up the participants and non-participants is the fact that a large majority of the total number of donor-to- almost nobody (only 112 donor-to-candidate pairs) candidate pairs of any size in both 2005 and 2009: gave exactly $175 in 2005. That also should not be 69 percent in 2005 and 75 percent in 2009. These a surprise. In 2005, that dollar amount was essentially $1–$174 donor-to-candidate pairs were not likely a random number (or a random multiple of 25). to be made up of strategic givers who were spread- In 2009, non-participating candidates once again ing their money around, and there was a big jump in received very little from donor-to-candidate pairs of this group’s number, as well as its financial impor- exactly $175, and they received just about the same tance from one election to the next. percentage of their funds from donor-to-candidate pairs of exactly $250 as their counterparts had in In 2005, 11 percent of participating council 2005. However, participating City Council candi- candidates’ money came from 25,662 donor- dates saw a drop in their $250 donor-to-candidate to-candidate pairs of $1–$174.

Table 5. Breakdown of NYC Candidates’ Aggregate Individual Contributions of $250 or Less in the 2005 and 2009 Elections, as Percentages of Candidates’ Private Contributions

Percentage From Individuals Whose Contributions to the Candidate Aggregated to.

$1–$174 $175 $176–$249 $250 $1–$250 Subtotal*

2005 City Council Candidates Participating Candidates (N = 123) 15% 0.2% 3% 13% 31% Number of donor-to-candidate pairs 25,662 112 1,489 4,925 32,188 Non-Participating Candidates (N = 9) 4% 0% 1% 4% 9% Number of donor-to-candidate pairs 951 5 100 264 1320 2009 City Council Candidates Participating Candidates (N = 165) 21% 5% 4% 7% 37% Number of donor-to-candidate pairs 39,716 3,055 2,270 2,678 47,719 Non-Participating Candidates (N = 10) 7% 1% 5% 3% 15% Number of donor-to-candidate pairs 155 56 352 195 756 NB: Excludes self-financing. 12 MALBIN ET AL.

But in 2009, participating candidates received would reduce candidates’ dependence on the narrow 21 percent of their money from 39,716 circle of donors who have an incentive to give reg- donor-to-candidate pairs of $1–$174. ularly in large amounts. Some major donors act out of concerns about policy or ideology—especially in The 2009 election thus saw a 55 percent increase in highly visible national races for the presidency. But the number of donor-to-candidate pairs below $175. in state and city politics, and often in congressional This clearly was a substantial increase in participa- politics, the donors who give $1,000 often have con- tion and not simply a reshuffling of old money. cerns about issues that will affect their particular As noted earlier, we are not comfortable claiming economic interests.10 Moreover, surveys in which from the evidence we have that the change in the we have participated have shown that the major law between 2005 and 2009 fully explains the donors in state elections are far more likely than increase in small donor participation across those small donors to work after the election to lobby two elections. Nevertheless, we take note of the elected officials to further their particularistic inter- fact that the increased donor participation of 2009 ests through public policy.11 Creating alternative was occurring during the same election as voter pools of donors therefore will make office holders turnout in the city declined to a record low of 26 less dependent upon the previous sets of major giv- 9 percent, down from 33 percent in 2005. Typically, ers who come to them with special pleading in the number of small donors will go up with the level mind. This will be true even if the new donors of excitement about an election. In this situation, the have personal backgrounds not all that different number of donor-to-candidate pairs went up during from the old ones. an election when voting rates went down. This is But let us now suppose the new donors bring a another indication that the law may have been inde- different set of political experiences to the table. pendently effective in helping to structure the incentives for candidates and donors. And whatever the difference between 2005 and 2009, it seems clear 9Ray Katz, As Voter Turnout Dwindles, Some Look to a Tiny that the law in both years stimulated participating Agency for Help, Gotham Gazette, July 9, 2010, available candidates to bring proportionally more small at http://www.gothamgazette.com/article/governing/20100709/ 17/3309. donors into the system than their non-participating 10Clifford Brown, Lynda Power and Clyde Wilcox, Serious counterparts did in those two years, or than partici- Money: Fundraising and Contributing in Presidential pating candidates under the one-for-one system. Nomination Campaigns (New York: Cambridge University Press, 1995); Peter Francia, John Green, Paul Herrnson, Lynda Powell, and Clyde Wilcox, The Financiers of Con- More of the same, or more and different? gressional Elections: Investors, Ideologues and Inti- mates (New York: Columbia University Press, 2003); Clyde We turn next to ask why one should care whether Wilcox, Alexandra Cooper, Peter Francia, John Green, Paul more small donors participate. Let us consider two Herrnson, Lynda Powell, Jason Reifler, Mark J. Rozell, and possibilities. The first is that the matching funds Benjamin A. Webster, With Limits Raised, Who Will Give More? The Impact of BCRA on Individual Donors, Life bring in more donors, but the donors are essentially after Reform: When the Bipartisan Campaign Reform the same kinds of people as always have given to elec- Act Meets Politics (Lanham, MD: Rowman & Littlefield, tion campaigns—people of well above average wealth 2003); Wesley Y. Joe, Michael J. Malbin, Clyde Wilcox, and education, mostly white, with life experiences not Peter W. Brusoe, and Jamie P. Pimlott, ‘‘Who Are the Individual Donors to Gubernatorial and State Legislative Elections,’’ paper all that different from the major donors. The second presented at the Annual Meeting of the Midwest Political Sci- possibility is that matching funds give candidates an ence Association, April 3–6, 2008; revised version presented incentive to look for new and different kinds of people May 30, 2008 at the State Politics and Policy Conference at Temple University, Philadelphia, PA, available at http://cfinst to become active in politics as donors, as well as an .org/smallDonors.aspx; Wesley Y. Joe, Michael J. Malbin, incentive for the potential donors to become involved. Clyde Wilcox, Peter W. Brusoe, and Jamie P. Pimlott, ‘‘Do There are policy arguments in favor of both of these Small Donors Improve Representation? Some Answers from objectives, but they are different. Recent Gubernatorial and State Legislative Elections,’’ paper presented at the Annual Meeting of the American Political Sci- If the matching funds provide incentives for ence Association, Boston, MA, August 30, 2008, available at essentially the same kind of donors as were previ- http://cfinst.org/smallDonors.aspx. 11 ously participating, then the mere presence of Wesley Y. Joe et al., ‘‘Who Are the Individual Donors to Gubernatorial and State Legislative Elections,’’ supra note 10; more donors would have one kind of value. At a Wesley Y. Joe et al., ‘‘Do Small Donors Improve Representa- minimum, having more small donors in the system tion?,’’ supra note 10. SMALL DONORS, BIG DEMOCRACY 13

Table 6. Characteristics of New York City Census Block Groups with 2009 Donors

Block Groups with Donors Whose Contributions to a Candidate Aggregated To.

Characteristics of the block groups $1–250 $251–$999 $1000 or more

Number of block groups with donors giving these amounts 5,267 1,651 809 Percentage of city’s block groups with donors giving these amounts 92% 29% 14% Average aggregate contribution of the donors $76 $453 $1,729 Median household income in block groups with donors $45,115 $58,218 $70,346 Percentage living in poverty 19% 13% 11% Percentage of the population who are non-white 52% 32% 25% Percentage over age 25 who did not complete high school 25% 18% 14% Percentage over age 25 with Bachelor’s degree or beyond 31% 43% 52% Source: Campaign Finance Institute, based on data from the New York City Campaign Finance Board and U.S. Bureau of the Census data provided by GeoLytics, Inc.

For this to have happened, the candidate raising the They also had higher levels of poverty, higher per- money will have to make a point of reaching out to centages of non-whites, higher percentages of new people. That candidate will be spending time adult residents who did not complete high school, with a more diverse set of constituents than he or and lower percentages of adult residents with a she would if all of his or her fundraising engaged bachelor’s degree or beyond. And on every one of the upper middle class and rich. To test this possibil- these measures, the block groups with mid-range ity, we placed the residence of each donor to New donor-to-candidate pairs fell between the small- York City’s 2009 candidates whose address was donor donor-to-candidate-pair block-groups and listed in the disclosure records within his or her the high-donor ones. There can be little doubt that Census Block Group (BG). According to the U.S. bringing more small donors into the system in Bureau of the Census, a block group ‘‘will generally New York City equates to a greater diversity in contain between 600 and 3,000 people.with an neighborhood experience in the donor pool. Increas- optimal size of 1,500.’’12 This is about the equiva- ing the number of small donors has been more than lent of one city block with apartment houses. New a means to dilute the power of the major givers. It York City’s five boroughs have a total of 5,733 cen- has also led candidates to reach out to and engage sus block groups. The above table (Table 6) a more representative set of constituents as they describes the block groups in which New York’s raise their campaign funds. small, medium, and large donors reside. The table uses data from the 2000 census (provided by Geo- Lytics, Inc.13), but the results are strong enough as WOULD NEW YORK CITY’S to be unlikely to change much when 2010 data RESULTS TRANSFER? become available. Of the city’s 5,733 census block groups, only 809 The impact of New York City’s matching funds (14 percent) had one or more donor-to-candidate on participation by small donors is impressive. pairs of people who gave $1,000 or more to a candi- But could these policies produce similar results date. Mid-range donor-to-candidate pairs of people elsewhere? The answer is yes. To set a baseline who gave $251–$999 to a candidate lived in 1,651 for explaining this answer, the following table (29 percent) of the census block groups. Donor-to- (Table 7) shows the sources of 2005–2006 cam- candidate pairs giving $250 or less lived in 5,267 paign contributions to all of the major party, general- (92 percent) of the city’s block groups. In fact, election candidates for governor and state legislature 5,128 block groups (89 percent) were home to at least one donor-to-candidate pair of $100 or less. These block groups were not at all random in their 12 variation. The census blocks with small donor-to- U.S. Bureau of the Census, Cartographic Boundary Files: Census Block Group, available at http://www.census.gov/geo/ candidate pairs had lower median incomes than www/cob/bg_metadata.html. the block groups with mid-range donor pairs. 13GeoLytics, Inc., ‘‘Census 2000 Package’’ (2002). 14 MALBIN ET AL.

Table 7. State Candidates’ Funding in 2006, with NYC and Federal Elections Interpolated

% from Individuals Who Gave % from Aggregates per Candidate of. Organizations

Jurisdiction $1–$250 $251–$999 $1,000 or more Non-Party Orgs. Party Total

AL 4% 4% 17% 73% 2% 100% CA 5% 3% 47% 34% 11% 100% OR 5% 1% 47% 41% 6% 100% NY State 7% 5% 33% 45% 10% 100% U.S. House of Reps, 2008* 8% 11% 35% 36% 10%* 100% NV 9% 4% 14% 63% 10% 100% FL 10% 28% 5% 37% 20% 100% WY 11% 9% 29% 48% 3% 100% OH 11% 7% 37% 19% 27% 100% IL 11% 3% 10% 61% 15% 100% IA 12% 7% 37% 28% 16% 100% NM 12% 6% 38% 11% 32% 100% SC 13% 7% 39% 36% 4% 100% GA 13% 6% 38% 38% 4% 100% MI 13% 9% 45% 22% 10% 100% PA 14% 7% 43% 25% 10% 100% NYC: 2009 Non-participants 14% 17% 67% 3% 0% 100% U.S. Senate, 2008* 14% 9% 40% 20% 17%* 100% AR 15% 13% 39% 29% 4% 100% TN 16% 11% 37% 29% 8% 100% MD 17% 12% 35% 35% 1% 100% ID 17% 9% 25% 43% 6% 100% KS 17% 8% 28% 46% 1% 100% OK 18% 11% 49% 0% 22% 100% RI 20% 24% 36% 18% 3% 100% CT 21% 19% 41% 14% 5% 100% AK 21% 19% 28% 21% 11% 100%

HI 22% 9% 40% 26% 3% 100% NH 22% 11% 37% 25% 4% 100% Obama, 2008* 24% 28% 28% – – 100% MA 27% 32% 34% 4% 3% 100% CO 28% 21% 25% 19% 7% 100% NYC: 1997 Participants—private money only 28% 16% 19% 34% 2% 100% SD 29% 2% 32% 19% 18% 100% WI 36% 14% 39% 7% 3% 100% NYC: 2009 Participants—private money only 38% 17% 32% 11% 1% 100% NE 38% 8% 28% 25% 2% 100% VT 40% 14% 17% 19% 10% 100% NYC: 1997 Participants—Private money + Matching 39% 18% 16% 25% 2% 100% MN 60% 11% 17% 6% 6% 100% NYC: 2009 Participants—Private money + Matching 63% 15% 17% 4% 0% 100% NB: State totals exclude candidate self-financing and public financing (except two NYC lines). The table also excludes two states with full public funding systems (AZ, ME) and one whose disclosure records do not permit comparable analysis (TX). The federal lines (asterisked) are different in the following ways: (1) the donors categories are $1–200, $201–$999, and $1,000 or above. The col- umn labeled here as ‘‘party’’ is used for U.S. House and Senate elections to include all ‘‘other’’ sources of funds, which (unlike the state and city lines) includes self-financing. Source: Campaign Finance Institute, based on data from the National Institute on Money in State Politics, New York City Campaign Finance Board and U.S. Federal Election Commission. in thirty-three states. (Preliminary results for 2010 used for New York City. The table does not include show a general consistency across the two election state candidates’ self-financing, support from a can- years.) The table lists the thirty-three states in didate’s immediate family, or public funding in the increasing order of the percentage of money that states (where it exists). For comparative purposes, came in 2005–2006 in donor-to-candidate pairs of the table also interlineates five rows for New York $250 or less, using the same methodology as we City Council elections: non-participating candidates SMALL DONORS, BIG DEMOCRACY 15 in 2009, participating candidates (private funds scenarios, the Institute identified donor-to-candidate only) for 1997 and 2009, and participating candi- pairs in each of the states where disclosure records dates (private funds plus allocated matching made the pairs possible. From these, it produced funds) for 1997 and 2009. Also interlineated are ‘‘status quo’’ charts for 2006 based on numbers sim- the comparable percentages for U.S. Senate and ilar to the ones in Table 7 above, as well as another House candidates in 2008 and for Barack Obama’s set for the elections of 2008. It then imagined a ser- 2008 election campaign. Obviously the different ies of policy options, based on mixing and matching years, offices, and contexts do not allow strict com- any of the following three changes in policy: parisons between jurisdictions. Nevertheless, lining them up in this way does offer a broad sense of (1) Lower contribution limits (two different limits perspective. were offered); As is shown, candidates in the various states (2) Instituting a three-for-one or a five-for-one received anywhere from 4 percent to 40 percent of multiple matching grant system for the first their money from donor-to-candidate pairs of $250 $50 each donor gives to a candidate, and or less, with one outlier state (Minnesota) at 60 per- then assuming (unrealistically) that only the cent. The median state was Tennessee with 16 per- same donors gave the same amounts as they cent. Non-participants in New York City’s 2009 did under the status quo; and City Council election raised 14 percent of their (3) Assuming that either the matching fund or some money from small donors, which is roughly the other contextual force were to bring enough same as the median state and U.S. Senate candi- new $50 donors into the system to add about dates. It was about double the level for New York two percentage points to the state’s donor par- State’s candidates or U.S. House candidates. Barack ticipation rate. Obama’s 2008 small-donor fundraising (24 percent) would have put him in the top quartile of the state in What follows is a description of what would hap- percentage terms (although higher in dollars), but pen in most states under these assumptions. First, lower than the percentage of private money raised reducing the contribution limit would have only a by participating New York City council candidates modest effect on the impact of small donors and in 1997 (28 percent) or 2009 (38 percent). The therefore would give little incentive for candidates 2009 private-money percentage was below that of to change their recruitment behavior. Even this only two states in this chart. When the value of pub- modest effect was based on the assumption that lic matching money is added to the New York City the amount that donors contributed above the council candidates’ mix, small donors were respon- assumed limit in 2006 or 2008 would be retained sible for 39 percent of the candidates’ money in by the contributor, when we know there is every 1997 and a massive 63 percent in 2009. The 63 per- possibility that major donors will redirect their cent figure is literally the highest number on the political money. Of course, the fact that lowering chart. The only other jurisdiction that comes close the contribution limit might not have a strong effect is Minnesota, which is a state whose public policy on small donors is not an argument against contribu- also puts money behind small donor participation. tion limits. There are other good and sufficient rea- Until mid-2009, Minnesota gave $50 cash rebates sons that relate to the potential for corruption or to donors who contributed to candidates for state undue influence. If a contribution limit gives large office who accept partial public funding. donors a reason to distribute their contributions to The question to be considered here is whether a more candidates, this probably serves the anti- multiple-matching fund system could produce corruption rationale. Contribution limits may also results elsewhere that would be similar to ones seen in New York City. As a partial answer, the

Campaign Finance Institute produced a series of 14 Campaign Finance Institute, Interactive Tool for Citizen Pol- hypothetical policy scenarios for all fifty states, icy Analysts, available at http://www.cfinst.org/state/Citizen using simpler policies than New York’s, but keeping PolicyTool.aspx. Careful readers may notice that the numbers the essence of a multiple matching fund system on the Web site are different from those in Table 1 because the Web site and table use slightly different dividing points aimed at small donors. (These scenarios are avail- for the contribution ranges. These differences have no effect able on the Institute’s Web site.)14 To produce the on the points being made here. 16 MALBIN ET AL. have an indirect effect on small donor participation such a middling result, however, would put the pro- by helping to reassure potential small donors that portional role of small donors in our hypothetical their gifts will be meaningful. But the direct effect state at or above that of Vermont, which is currently on the role of small donors would not be great. in second place. Introducing a simple five-for-one match for each The cost of the matching funds for achieving this of the first $50 would have a more direct and pre- result in 2009 was about $25 million in New York dictable effect. Under the assumption of a static City. Introducing a five-for-one match for the first donor pool, this would make each contribution of $50 from each donor in New York State would be $50 (or less) worth six times its current value. It more expensive. Assuming that all candidates for would also add $250 to the value of all other contri- all eligible state offices were to participate (gover- butions. Since the proportional impact of the $250 nor, attorney general, comptroller, and legislature), match decreases as the size of a contribution goes the public matching fund cost would have been up, the proportional importance of small donors $39.7 million with the exact same donors as partic- increases with the match. The following numbers ipated in 2006 and about $79 million if an additional allocate matching funds to the donors responsible 2 percent of the population gave $50 each. The for them, since that is how candidates will see the Campaign Finance Institute has also estimated the financial value of the donors to their campaigns. cost of public matching funds for some additional They also assume a static donor pool, which we states, assuming a static giving population. It know to be unrealistic. Using these assumptions, would have been about $13 million in Illinois, $8 states with low levels of donor participation, such million in Indiana, $19 million in Ohio, $12 million as New York and Illinois, would see the propor- in Michigan and $24 million in Wisconsin (which tional role of small donors increase from low single already has high participation by small donors).16 digits into the teens. In states with participation Estimating the public cost with a larger pool of rates closer to the national average the effect small donors is sensitive to two considerations. would be roughly to double or triple the importance The first is how large of an increase in participation of small donors, making their contributions worth should one estimate? Second, does one assume between a quarter and a third of the candidates’ some form of a cap on the maximum amount of pub- total funds. lic funds that may go to any one candidate? The $79 The biggest impact would come if a five-for-one million offered above for New York State assumed matching fund provided incentives for candidates to no such cap. The cost obviously would be reduced mobilize small donors, and for donors to respond. if the program included a cap. This is what we believe has happened in New York City. (In addition to the statistical information provided above, anecdotal support for this belief POLICY DISCUSSION AND SPECULATION: can be found in recent interviews of New York PUBLIC FINANCING VARIETIES UNDER City candidates conducted by the Brennan Center CURRENT CONSTITUTIONAL LAW for Justice.15) For the sake of analysis, let us assume that enough new donors come into the system to From the analysis so far, we have concluded as increase the participation rate by about two percent- follows: First, New York City’s multiple matching age points of the state’s Voting Age Population fund system has increased the extent to which (VAP), and that each of the new donors gives participating candidates rely on small donors exactly $50. That would bring the value of small donors up to about the 60 percent mark in most states, including those currently on the low end of 15Angela Migally and Susan Liss, Small Donor Matching the low-donor scale. This would be roughly the Funds: The NYC Election Experience 12–14 (New York: Brennan Center for Justice, 2010). same as the current level in Minnesota and New 16 Michael J. Malbin, Peter W. Brusoe and Brendan Glavin, York City and well above the second-place state. Public Financing of Elections after Citizens United and Ari- Of course, this assumption about new participation zona Free Enterprise: An Analysis of Six Midwestern States may be overly optimistic, just as assuming no new Based on the Elections of 2006–2010. (Washington DC: Cam- paign Finance Institute, 2011), available at http://www.cfinst donors would be overly pessimistic. The most likely .org/pdf/state/CFI_Report_Small-Donors-in-Six-Midwestern- result would fall somewhere between the two. Even States-2July2011.pdf. SMALL DONORS, BIG DEMOCRACY 17 financially. In addition, the incentive for candidates Court of Appeals held in light of Citizens United to recruit small donors has increased the number of that it is not permissible to limit contributions to a donors who give, as well as the diversity of the cen- committee that only makes independent expendi- sus block groups in which they reside. Finally, we tures.17 Finally (or finally, as of this writing) the conclude from the hypothetical models that other Federal Election Commission issued an Advisory jurisdictions can achieve many of the same results Opinion on June 30, 2011 in which it said that a fed- by adopting similar policies. eral candidate or officeholder may be the featured None of this fully addresses the policy questions, guest speaker at an independent expenditure com- since we know there are objections to any form of mittee’s event during which the committee is public financing of elections as a matter both of expected to make a pitch for unlimited contribu- principle and prudence. This final section of the tions. The only restriction is that the officeholder/ article introduces some of the main policy issues candidate may not personally ask the donors to in two segments. The first presents a brief overview give more than $5,000.18 With this $5,000 fig of reasons offered by supporters of public financing leaf, it seems as if it may now be legal for a in general, with comments. The second compares candidate—such as the well-known presidential forms of public financing against the goals being candidate whose former finance director formed analyzed here. an independent spending committee to support the candidate—to give a rousing speech praising the independent expenditure PAC and then sit down, Public financing in general or leave the event, so the former finance director Arguments in favor of public financing programs can ask for unlimited contributions to help the com- typically rest on two kinds of foundations. For the mittee buy independent ads—presumably to help sake of simplicity, we shall refer to them as positive the featured speaker. But even if future develop- and negative. Negative justifications emphasize ments rein in the role of single-candidate indepen- what a policy is trying to prevent; positive ones dent expenditure PACs, it is hard to justify public emphasize what the policy is supposed to accom- financing today in terms of holding down spending, plish. Because most public financing programs substituting public money for private, or the other have been coupled with various kinds of restrictions underpinnings that typically have supported the and limits (in addition to contribution limits, which negative justifications. rest on their own justification), the legal arguments The positive goals are a different matter. They on their behalf have tended to emphasize the nega- are both constitutionally acceptable and plausible. tive goals. These include reducing corruption or the Political scientists typically write about three: fos- appearance of corruption by replacing large-donor tering competition, enabling a broader and more money with public funds. diverse range of candidates to run for office, and pro- Whatever one may have thought ten years ago moting citizen participation. If a policy restricted about such negative justifications, they have become speech, then the positive effects would have to be implausible under contemporary constitutional law presented under constitutional law as side benefits and political practice. Under Buckley v. Valeo to primary goals that relate to corruption. But if a (1976) it is permissible to ask candidates to restrict policy is based on positive incentives rather than their own spending voluntarily in return for partial or restrictions, then it should be acceptable for compe- full public funding, but not to restrict independent tition, candidate recruitment, or citizen participation spending or spending by non-participating candi- to be the primary goal. dates. Independent spending has always raised prob- lematic questions for spending limits, but these have been brought to a head by recent court decisions. As noted earlier, the Supreme Court’s January 2010 17 Buckley v. Valeo 424 U.S. 1 (1976); Citizens United v. Fed- decision in Citizens United v. FEC held that it is eral Election Commission 558 U.S. ___, 130 S. Ct. 876 unconstitutional to treat unlimited independent (2010); SpeechNow.org v. FEC, 599 F.3d 686 (D.C. Cir. spending by corporations differently from constitu- 2010), cert. denied, 131 S. Ct. 553 (2010). 18U.S. Fed. Election Comm’n, Advisory Opinion 2011–12 tionally protected independent spending by individ- (June 30, 2011), issued in response to an Advisory Opinion uals. Two months later the District of Columbia Request filed by Majority PAC and House Majority PAC. 18 MALBIN ET AL.

We focused on participation in this article. Some groups and the Bush-Cheney 2004 campaign of the goals that relate to participation look toward recruited donors to volunteer.21 If the purported citizens; others look toward candidates and office- connection holds up under scrutiny, it would mean holders. For citizens, the objectives are both to that encouraging participation by small donors engage a larger number of them and to engage a might help to encourage volunteering and therefore more representative set. For candidates and office- help build up the stock of social and political capi- holders, the objective is to encourage greater and tal. This is particularly important if encouraging more direct engagement with a broader range of small donors brings a more diverse set of partici- constituents. With respect to citizens: we know pants into the system who come from neighbor- that involving more people in the process as small hoods not typically represented in the traditional donors can have the effect of diluting the impor- class of large donors. This is exactly what we tance of large donors. This is the simplest goal of found in New York City. small donor democracy. However, it is also essen- With respect to the second set of positive goals— tially a negative one: it describes having more altering the incentives for politicians to engage small donors not as being good for its own sake more directly with citizens—we would make two but as a preventive cure. points. First, any successful program must attract On a more positive note, one might simply assert political figures to participate in the system volun- that more participation in a democracy is good. tarily. Second, we would expect that a system However, there is some question about the extent using direct incentives would be more likely to pro- to which making a contribution is associated with duce the desired engagement than a system which other forms of political activity. Sidney Verba, simply frees up the politician’s time from fundrais- Kay Lehman Schlozman, and Henry Brady found ing and then hopes for the same result. We therefore in their 1989–90 surveys that the act of contributing look next at some of the major varieties of public (‘‘checkbook participation’’) typically was not asso- financing systems currently in use in the United ciated with other, more meaningful forms of politi- States. cal engagement. In fact, they found that more than two-thirds of their respondents limited their Full public financing or matching funds involvement to check writing (69 percent of their sample) compared to only 12 percent who gave From 1974 until the 1990s, public financing sys- only time and 19 percent who give both time and tems tended to follow the presidential example: money. Robert Putnam in Bowling Alone expressed executive officials were typically offered full public a similar concern in 2000 about whether contribut- funding for the general election while primary can- ing to a political cause or interest group was a shal- didates were offered one-for-one matching funds. In low form of participation.19 We cannot respond to this issue fully in this article. Earlier work one of us co-authored about small donors in the 2004 elec- 19 The phrase ‘‘checkbook participation’’ is from Verba, Scholz- tion indicated that small donors were also quite man, and Brady, Voice and Equality, supra note 5, at 67. See active in face-to-face political activities.20 They also Robert D. Putnam, Bowling Alone: The Collapse appear not to have been merely checkbook partici- and Revival of American Community 40 (New York: Simon & Schuster, 2000). pants. However, we are not yet able to draw conclu- 20Joseph A. Graf, Grant Reeher, Michael J. Malbin, and Costas sions about sequencing—whether contributing drew Panagopoulos. Small Donors and Online Giving: A Study of people to become more active than they otherwise Donors to the 2004 Presidential Campaigns (Washington DC: Institute for Politics, Democracy and the Internet and the Cam- would be. The Campaign Finance Institute con- paign Finance Institute, 2006), available at http://www.cfinst ducted a major survey of presidential donors in .org/president/pdf/IPDI_SmallDonors.pdf. 2008. This survey included questions that asked 21Michael J. Malbin, Peter W. Brusoe, Wesley Y. Joe, Jamie P. whether giving preceded a donor’s engagement in Pimlott, and Clyde Wilcox, ‘‘The CFI Small Donor Project: An Overview of the Project and a Preliminary Report on State nonfinancial forms of campaign activism. The Legislative Candidates’ Perspectives on Donors and Volun- results are still being analyzed, but there is reason teers,’’ Paper prepared for delivery at the 2007 Annual Meeting to believe that at least some volunteers began their of the American Political ScienceAssociation, August 29– September 2, Chicago, IL, available at http://www.cfinst.org/ campaign activism with a donation. In earlier pdf/books-reports/CFI_Small-Donor_APSA-paper_2007.pdf, research, we found anecdotally that some interest at 5–6. SMALL DONORS, BIG DEMOCRACY 19 the 1990s, advocates began applying the presiden- dates more money. This would respond to the con- tial full-public-funding model for the general elec- stitutional problem with triggers but not to other tion to state legislative elections in both primaries problems intrinsic to flat grants. One of those and general elections. Often called ‘‘Clean Elec- other problems relates directly to the goal of encour- tion’’ systems, these were adopted by an initiative aging participation. Because the amount of the flat process in Maine (1996) and Arizona (1998) and grant and spending limit are identical in full public by legislative action in Connecticut (2005). Under funding systems, they do away with (or strongly these systems, participating candidates raise small weaken) the possibility of using small-donor fund- contributions to qualify for a flat grant and are raising as a lever for bringing new donors into the allowed to spend only up to the amount of the process. A recent paper two of us co-authored grant once they qualify. However, the sponsors of with Wesley Y. Joe, Clyde Wilcox, and Henrik the new systems were well aware of a significant Schatzinger found that in the state of Connecticut, design problem with existing programs. publicly funded candidates were raising money Gubernatorial candidates in several states, as from enough donors to qualify for the grant and well as presidential candidates, have become less then stopping. While many Connecticut legislative likely to participate because they perceive the candidates had more donors in 2008 than in the pri- spending limits as being too low and too rigid to vately funded election of 2006, the number of let them contend with opponents who opt out and donors was capped. Most appear to have raised who, therefore, can spend whatever they can raise. the needed qualifying funds by staying within For them, the price of accepting public money is their old circles of friends and supporters. As a the suicidal bargain that they have to agree to result, the contributions did not bring many new keep their spending too low to win. One way to people into the system or more economic and racial address this problem might be to increase the spend- diversity among donor-participants, which were ing limit enough to cope with high spending oppo- said to be among the goals.23 nents. With a flat grant, however, increasing the In light of both the desire to encourage more par- spending limit also increases the public cost. This ticipation by small donors, and the constitutional might be easy to implement in a gubernatorial or problem with triggers (which had been anticipated presidential general election with only two or since the Court had overturned differential contribu- three major candidates. However, it could become tion limits in the so-called ‘‘millionaire’s’’ provision prohibitively expensive to give every primary candi- in the federal Bipartisan Campaign Reform Act24), date for every legislative seat the same amount of several major organizations that once advocated money as a candidate would need in the minority full public financing began shifting their position of competitive contests. To contend with the finan- toward supporting a ‘‘hybrid’’ system in which flat cial issue, the newer Clean Election systems (and grants would be a ‘‘floor’’ rather than a ‘‘ceiling.’’ New York City’s multiple-matching system) all For example, in the versions of the ‘‘Fair Elections kept a basic amount of funding for all participating Now Act’’ introduced in 2009 and 2011, participat- candidates, but then incorporated the idea that high ing candidates for the U.S. Senate and House would spending by a non-participating opponent would be able to raise private funds after the flat grant. trigger additional public funds above the base. Contributions would be subject to a low contribu- (These took the form of extra grants in the Clean tion limit (such as $100) and would be available Election states and extra matching funds in New for multiple matching. Once a candidate had York City.) In some jurisdictions, the extra funds received a predetermined maximum amount of were also made available if the participating candidate became a target of independent spending. The ‘‘triggers’’ seemed to help candidates decide to par- 22Arizona Free Enterprise Club’s Freedom Club PAC v. Ben- nett, 564 U.S. ___, 131 S. Ct. 2806 (2011). ticipate in public financing systems, but that 23 Wesley Y. Joe, Michael J. Malbin, Clyde Wilcox, Peter. W. approach ran up against an insuperable barrier on Brusoe and Henrik Schatzinger, Individual Donors in Connect- June 27, 2011, when the U.S Supreme Court icut’s Public Financing Program: A Look at the First Election declared them to be unconstitutional.22 under the New System. Paper presented at the Annual Meeting of the American Political Science Association, Toronto, In theory, states could respond to the Supreme Ontario, Canada, September 3–6, 2009. Court’s decision by giving all participating candi- 24Davis v. Federal Election Commission, 554 U.S. 724 (2008). 20 MALBIN ET AL. public money, the matching funds would stop, but develop significant constituencies are not likely to the candidate could continue to raise an unlimited get enough in matching funds to raise a fiscal con- amount of private money under the same low contri- cern anyway. bution limit.25 Some major reform organizations For all of these reasons, we do see New York that once backed full public financing are now sup- City’s multiple matching fund system as a model porting this federal bill, including Public Campaign for jurisdictions nationally. We suggest, however, and Common Cause. They were also working with that the New York model be modified to resolve legislators in Connecticut on a similar system as a the intertwined problems of spending limits, thresh- possible replacement for triggers.26 The entire prob- olds, and triggers. With that important caveat, the lem that had led to triggers can be avoided by not evidence from New York City in this article sug- having a spending limit. What is the problem with gests that multiple-matching funds can stimulate spending, these advocates ask, if all of the money participation by small donors in a manner that is comes from small contributions? healthy for democracy. The proposed hybrid system responds to two of There will be objection to this conclusion, of the problems with full public funding, but not with course, by those who simply believe it inappropri- a third. Because the initial lump-sum payment to can- ate to spend public funds in this manner. This is not didates are typically large, flat grant systems tend to the place for an extended consideration of the set high qualifying thresholds for receiving public issue. We would argue, however, that extending funds. One of the stated advantages of full public political and civic participation are public goods, funding is that it can provide candidates, including benefiting the civil society as a whole. To those challengers, with enough money to run a competitive who are concerned about the justice of ‘‘forcing’’ race. However, supporters (and legislators, and tax- a taxpayer to support political speech she or he payers) are not interested in giving what could be a abhors, we disagree because we do not see the substantial sum to every minor candidate who issue any differently from otherwise neutral and decides to run. To prevent a drain on the public permissible school voucher funds making their purse, the systems all require candidates to cross a way into religious schools, or a host of other public significant threshold to qualify for a grant. Where programs that receive less than unanimous support to put the threshold is a sensitive question. If the from the taxpayers. If anything, this concern about threshold is set too low, public money will be wasted. forcing taxpayers is another reason for preferring If too high, the threshold will effectively become a matching funds to other forms of public financing: barrier, defeating the goal of bringing new and poten- no public money would go to any candidate unless tially viable candidates into the system. it is matching a specific contribution from an iden- We do not see a way out of this dilemma with flat tifiable individual. Everyone is free to disagree grants. The qualifying test for a grant will either be with a previous donor. Just give a small amount made too easy or too hard. It will either keep some and then see that gift multiplied, too. The more potentially worthy people out or let too many frivo- who give, the better it is. Elections are, after all, lous candidates in. It is almost impossible to cali- the public’s business. brate a qualification threshold that would be ‘‘just right’’ and stay that way. In contrast, a system Address correspondence to: based completely on matching funds does not pres- Michael J. Malbin ent the same dilemma. To avoid setting the barrier Campaign Finance Institute too high, and keeping deserving candidates out, 1425 K St. NW, Suite 350 the qualification threshold can be set fairly low. Washington, DC 20005 Candidates may then prove themselves as the campaign season wears on. Candidates who do not E-mail: [email protected]

25S.752 H.R.1826, H.R.6116, 111th Congress; S. 749, H.R. 1404, 112th Congress, ‘‘Fair Elections Now Act’’. 26Conversation and emails with Karen Hobert Flynn, Vice Pres- ident of State Operations, Common Cause, June 27–28, 2011.