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, and 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 (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. 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 . 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, , 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, (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.

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