Money in political campaigns

•“Money is the mother’s milk of politics”– Jesse Unruh, Speaker of the California Assembly

from 1961 to 1968.

• Money is the root of all evil.

What are the issues?

• How much can candidates raise?• How much can various donors contribute?• What is the relationship between

independent political speakers and candidate campaigns?

• How much do candidates get from the government to campaign, and how do they qualify?

http://www.opensecrets.org/overview/index.php

http://elections.nytimes.com/2008/president/campaign-finance/map.html

http://www.usatoday.com/news/politics/election2008/campaign-finance-tracker.htm

Costs of campaigning have risen sharply

Source: Center for Responsive Politics /OpenSecrets.Org

2006 High and low spendersHouse Senate

Average winner spent $1,253,031 $9,635,370

Average loser spent $622,348 $7,406,678

Most expensive campaign $8,112,752 $40,828,991

Most expensive campaigner

Vernon Buchanan (R-FL) Hillary Clinton (D-NY)

Least expensive winning campaign

$182,375 $1,529,370

Least expensive winning campaigner

Wayne T. Gilchrest (R-MD) Craig Thomas (R-WY)

Most receipts from PACs $2,437,580 $5,433,898

Candidate with most PAC receipts

Deborah Pryce (R-OH) James M. Talent (R-MO)

Source: Center for Responsive Politics/OpenSecrets.Org

The effect of money

• The biggest spenders don’t necessarily win– Billionaires that have spent huge sums have often

failed to gain much support

• Most officials are at least fairly well to do and few are poor

Who raises what?• Federal candidate comm

– Only federal money• State candidate comm

– Only state money• National Parties

– Only federal money • State/Local parties

– Federal – Levin – State

• PACs – Federal– State

• 527s – Neither fed nor state money

Special Rules for Candidates

• Only federal funds• Same restrictions on fundraising• Restrictions on spending• Millionaire’s Amendment

History of money in politics

• Money has been involved in politics as long as the United States has existed

• Politics was tied to patronage throughout the 1800s– To get a government job you were expected to

contribute to a candidate’s campaign funds– Backing the right horse was important

Earliest politics

• During the early development of federal politics, coalitions formed around favored individuals, and around policies. No permanent parties of the sort we are used to existed. Campaigns consisted of supporters publishing tracts in favor of a candidate, holding political gatherings that supported him (and often providing liquor in the process).

Popular sovereignty

• As responsibility for nomination of presidential candidates gradually moved from congressional caucuses for the developing parties to popular vote, it became necessary to communicate with the wider public. That demanded money.

How to get the money?

• “The first targets in the quest for campaign funds were federal government employees, who were assessed a percentage of their salaries as a condition of continued employment.”– Center for Public Integrity

• Andrew Jackson developed the system, ‘reforming’ the civil service system by rewarding supporters with jobs. Bills in Congress to put an end to this system were regularly defeated.

Attempts at reform• 1867—solicitation of funds from workers at Navy

yards outlawed, and workers protected from being fired if they refused to give

• 1877—President Rutherford B. Hayes ordered all government officials to stay out of political activities beyond expressing their views on issues and voting

• 1883—Pendleton Act provided for selection of some federal employees through competitive examinations and shielded them from political assessments

Result?

• Political parties, now much more the professionalized organizations we know today, turned to wealthy donors for money– Begins in earnest with Ulysses S. Grant– 1896 Mark Hanna tapped corporate wealth for

William McKinley ($3 million)

More reform attempts

• 1901 Republican Senator William E. Chandler introduced a bill to bar federally chartered corporations from contributing to elections at any level– Unsuccessful– “Pitchfork Bill” Tillman induced to follow up

• 1907 “Tillman Act” barred corporate contributions to campaigns

• Teddy Roosevelt, criticized for his money collection, called for legislation to combat bribery, public disclosure of contributions and public financing of campaigns—but he was unsuccessful

New levels of money and Supreme Court action

• Henry Ford lost his bid for U.S. Senate from Michigan to Truman H. Newberry (R) who had spent ten times the federally mandated limit.– $180,000

• Newberry’s case led to a SCOTUS decision that Congress had overreached its powers regarding primaries

New Scandals• Teapot Dome• One of the oilmen implicated in the scandal had

made significant contributions to Republican Party to pay off their 1920 debt. Because they were made after the election, they did not need to be disclosed.

• 1925 Federal Corrupt Practices Act– As much loophole as law– Spending limits applied only to party committees,

leading to the development of candidate campaign committees, political action committees (PACs)

Subsequent actions• Roosevelt New Deal

– Republicans saw this as a massive patronage system– Alben W. Barkley of Kentucky

• Said to have financed his campaign through the solicitation of thousands of relief workers

• 1939 Clean Politics Act (“Hatch Act”)—barred the solicitation of campaign money from all federal employees and specifically from workers on public works payrolls– Later amended to limit individual donations to federal

candidates ($5,000) or national party committee and limit to $3 million what any party committee operating in two or more states could receive or spend

Limiting the Unions• War Labor Disputes Act of 1943—prohibited

labor unions from contributing until six months after war’s end

• Labor Management Relations Act (“Taft-Hartley”) of 1946 made ban on union-treasury money permanent– Spurred the growth of PACs– Unions formed committees to collect voluntary

contributions from workers that paid for a wide range of political activity (voter education, GOTV, registration, etc.)

• 1943 CIO establishes CIO-PAC– Raises more than $1.4 million

• After AFL merger, AFL-CIO Committee on Political Education– By 1956, 17 labor PACs contributing $2.1 million in

federal elections– 1968 37 labor PACs contribute $7.1 million

• Business got started late– AMPAC (American Medical Association)– BIPAC (Business-Industry)

The need for money explodes• The 1968 presidential election vastly increased

the cost of presidential campaigns– Selling of the President– Senatorial campaigns would gradually follow suit

• Then House• Demand for money for television commercials

drove the need for donations• 1970—Congress passes legislation limiting total

spending on broadcast ads and requiring broadcasters to give lowest rates to candidates—Nixon vetoes

1972 Federal Election Campaign Act

• At the end of Nixon’s first term, the Federal Election Campaign Act was passed by Congress– Nixon reluctantly signed

• Watergate– 1974 Federal Election Campaign Act Amendments

• FECA with amendments was the most sweeping campaign finance reform in history– But before the ink was dry, campaign managers

were looking for loopholes

• The law was pretty much immediately challenged in the courts

• Eventually, Buckley v. Valeo, decided by the Supreme Court, would limit FECA considerably

Campaign Finance Reform and Buckley II

Original Provision Effect of Buckley v. Valeo

Contribution limits

Individual limits: $1k/candidate/election Affirmed

PAC limits: $5k/candidate/election Affirmed

Party committee limits: $5k/candidate/election Affirmed

Cap on total contributions individual can make to all candidates ($25k)

Struck down (freedom of speech)

Cap on spending “on behalf of candidates” by parties

Affirmed

www.mit.edu/~17.251/finance.ppt

Campaign Finance Reform and Buckley I

Original Provision Effect of Buckley v. Valeo

Expenditure limits

Overall spending limits (Congress and president)

Struck down partially (freedom of speech)

Limits on the use of candidates’ own resources Struck down entirely (freedom of speech)

Limits on media expenditures Struck down entirely (freedom of speech)

Independent expenditure limits Struck down entirely (freedom of speech)

www.mit.edu/~17.251/finance.ppt

Subsequent changes

• Congress amended FECA to try to deal with Buckley v. Valeo– 1976 Changes in limits (higher for PACs than

individuals)– Led to explosion of PACs and PAC money– 1979 reduction in paperwork burden

What is public funding?

• Public funding of Presidential elections means that qualified Presidential candidates receive federal government funds to pay for the valid expenses of their political campaigns in both the primary and general elections. National political parties also receive federal money for their national nominating conventions.– FEC

Primary matching funds

• Partial public funding is available to Presidential primary candidates in the form of matching payments. The federal government will match up to $250 of an individual's total contributions to an eligible candidate.

Candidates must qualify

• Only candidates seeking nomination by a political party to the office of President are eligible to receive primary matching funds.

• He or she must raise in excess of $5,000 in each of at least 20 states (i.e., over $100,000). – a maximum of $250 per individual applies toward

the $5,000 threshold in each state.

• Candidates also must agree to: • Limit campaign spending for all primary elections

to $10 million plus a cost-of-living adjustment (COLA).

• Limit campaign spending in each state to $200,000 plus COLA, or to a specified amount based on the number of voting age individuals in the state (plus COLA), whichever is greater.

• Limit spending from personal funds to $50,000.

Impact:

• More candidates can enter the primary election with a meaningful presence

• But: the limits are low enough that many major candidates opt out of the public finance system in the primaries

Public financing

• Major parties receive money for their nominating conventions– Probably the most controversial of all public financing

• Still, the great majority of convention money comes from PACs, lobbyists

• General election funds come in lump sum (all candidate is allowed to spend) if accepted– However, money flows to non-candidate committees

and is used in ways that support candidacy

Federal Election Commission

• Purpose– In 1975, Congress created the Federal Election

Commission (FEC) to administer and enforce the Federal Election Campaign Act (FECA)

• the statute that governs the financing of federal elections.

– The duties of the FEC, which is an independent regulatory agency, are to

• disclose campaign finance information • enforce the provisions of the law such as the limits and

prohibitions on contributions, • oversee the public funding of Presidential elections.

• 1978 FEC rules that FECA allowed for money to be used in grassroots organizing, voter registration, GOTV, without regard to limitations on contributions

• PAC growth– 1974—1,146 PACs– 1986—4,157 PACs

• Congress applied ruling to parties• Contributions for these activities came to be

known as “soft money”

• How was it exploited?– Candidate campaign raises money for party

committee, then party committee spends it on activities that support the candidate

Soft money growth($ in millions)

Source: Center for Public Integrity

Independent expenditures

• Individuals or organizations could make independent expenditures as long as they were independent of a candidate or official campaign committee.– NRA– MoveOn.Org– Willie Horton– Swift Boat Veterans

Issue advocacy

• Committees paid for ads professing to push or oppose issues associated with a candidate without expressly calling for people to vote for or against that candidate

• Source: Center for Public Integrity

– SCOTUS’ “magic words” • Vote for XXXX• Vote against XXXX

Public finance

• By the 1990s, public finance money drying up• Too many candidates getting too much money• Increase in check-off to $3, but fewer checking

off– Decline in public support for parties

Source: Public Citizen from FEC data

Still more reform

• Clinton/Gore fundraising scandals• McCain-Feingold

– Very controversial• First Amendment• Bias toward major parties

– Opposed by diverse coalition• Mitch McConnell

Bipartisan Campaign Reform Act(McCain-Feingold 2002)

• Meant to close loopholes that allowed soft money to flow into campaign committees and to control advertising said to be aimed at issues but actually performing as campaign promotion

BCRA

Eliminated all soft money contributions to national party committeesIncreased individual limit from $1,000 to $2,000 with index for inflation ($2,300 in 2008)Banned the use of certain political communications by corporate, union or incorporated non-profit committees within 30 days of primary or convention, or 60 days of general (political communications)Millionaire’s amendment“Stand by your ad” (“I’m Bruce Lunsford and I endorsed this message”)

Challenged in McConnell v FEC

• SCOTUS allowed the great majority of BCRA to stand

527s and 501s• Groups that are not tied to campaigns but engage in

political speech• United States tax code, 26 U.S.C. § 527

– 527s were the target of McCain-Feingold• Short decline, but SCOTUS decision may lead to resurgence

– A 527 group is created primarily to influence the nomination, election, appointment or defeat of candidates for public office. The term is generally used to refer to political organizations that are not regulated by the Federal Election Commission or by a state elections commission, and are not subject to the same contribution limits as PACs.

– In 2004, the FEC decided that the law did not cover these independent 527 organizations unless they directly advocated the election or defeat of a candidate.

• In 2006 and 2007 the FEC fined a number of organizations, including MoveOn and Swift Boat Veterans for Truth, for violations arising from the 2004 campaign. The FEC's rationale was that these groups had specifically advocated the election or defeat of candidates, thus making them subject to federal regulation and its limits on contributions to the organizations.

• In 2004, a total of $439,709,105 was spent by these organizations alone, $307,324,096 of which was spent by Democratic/liberal groups and $132,385,009 of which was spent by Republican/conservative groups.

• http://www.opensecrets.org/527s/

501(c)(3)

• Charitable Organizations• All 501(c)(3) organizations are permitted to

educate individuals about issues, or fund research that supports their political position without overtly advocating for a position on a specific bill. They are not supposed to directly promote a candidate or engage in electoral activities. However, recent actions that come close have been accepted by the SCOTUS.

• A major portion of BCRA was diluted in FEC v. Wisconsin Right To Life (2007) when the SCOTUS decided that the group could not be refused the right to advertise during the 60-day window if their commercials could reasonably be seen as a political appeal other than support for or opposition to a political candidate

• More recently, millionaire’s amendment found unconstitutional

George W. Bush’s innovation

• Bundling– Large donors tap their friends for maximum

individual donations then give in a ‘bundle’ to the candidate committee

• $500K bundles used to support Bush’s primary campaign

– $100K plus “Pioneers”

• Primary funding total $95.5 million

– Took federal dollars for general election

Bundling

Source: Campaign Finance Institute

Bundling

• While there are disclosure requirements for bundling, they only go into effect when a bundler personally hands over checks. Most campaigns get around the disclosure provision by not having the bundler ever touch the checks.

• The Bush and Kerry campaigns evaded the disclosure regulation for earmarked contributions through the new style of bundling activity in which identification numbers are assigned to each bundler, who in turn ask contributors to write the bundler’s ID number on the checks and then give the checks to the campaign on their own. This allowed the bundler to get credit from the campaign for the contributions, while sidestepping the FEC’s official disclosure requirements.

Source: Campaign Finance Institute

Internet innovations in finance

• Howard Dean developed new means to expand funding through small individual donations collected via the Internet

• Barack Obama expanded on the idea and has generated huge sums through small donations on the Internet– $150 million in September 2008

• Ron Paul extremely successful fundraiser during Republican primaries