Money in politics

• “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.

Overall 2010 expenditures

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

Increasing cost of federal elections in the U.S., 1998-2008

1998 2000 2002 2004 2006 2008 $-

$1,000,000,000.00

$2,000,000,000.00

$3,000,000,000.00

$4,000,000,000.00

$5,000,000,000.00

$6,000,000,000.00

Total cost of federal elections

Total cost of federal elections

Source: OpenSecrets.org

Costs of campaigning have risen sharply

$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

1990 1992 1994 1996 1998 2000 2002 2004 2006

House Winner House Loser Senate Winner Senate Loser

Source: Center for Responsive Politics /OpenSecrets.Org

Mean House campaign expenditures, 2008

Source: Campaign Finance Institute analysis of FEC data

The rising cost of winning a seat in Congress in constant 2008 dollars

Source: Campaign Finance Institute analysis of FEC data

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 cost of the 2010 election– OpenSecrets.org

– In Kentucky

2008 Presidential

• http://www.opensecrets.org/pres08/index.php

2010 congressional races

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

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

The dilemma

• To carry out an effective campaign for regional, statewide or national office, you need money—and lots of it

• You only have a few ways of getting it– Spend your own– Get it from the government– Get it from your political party– Get individuals to provide it– Get groups or organizations to provide it

However, each source presents a problem

• Spending your own is financially painful to you– For society, if all candidates must fund themselves,

we could quickly get to where only the rich can compete

• http://www.opensecrets.org/MT/mt-search.cgi?search=self+finance&IncludeBlogs=8

– Good candidates will not run because it is too expensive

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

• Getting it from the government– Tax checkoff/public funding– Instituted in 1976 for presidential contests

• However, expanding it to all contests leads to tremendous increase in costs

• Several states have instituted some form of public financing for their statewide offices

• People cannot direct the money to candidates they really like—just to parties

• Extremely unfair to minor parties/independents

• Limits set on funds from other sources candidates are allowed

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

Source: Public Citizen from FEC data

Individual donations

• Seeking support from people who want to see your views expressed in government– Like-minded individuals willing to support your

campaign because they believe in you• The downside, though, is that those with a lot

of money are in a much better position to do this– Instead of running themselves, rich people can

generate “the best government money can buy”

• The Obama campaign was known for having generated much of its funding through small donations--$200 or less– However, when we look at the overall numbers,

large donors continue to be the most significant source of funds

Small donors v large donors

Source: Campaign Finance Institute

Presidential contributions 2008

• http://www.fec.gov/DisclosureSearch/mapApp.do?cand_id=P80002801&searchType=&searchSQLType=&searchKeyword=

Kentucky District 6

• http://www.fec.gov/DisclosureSearch/HSRefreshCandList.do?category=disH&stateName=KY&congressId=06&election_yr=2010

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 drive up the need for donations

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

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

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.

• Bundling, used extremely effectively by George W. Bush’s campaign– Person soliciting and bundling donations gains

clout• Individuals often don’t like their name being

tied to a campaign donation– Especially if the candidate is controversial or

sleazy

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

• 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.

Bundling

Source: Campaign Finance Institute

PACs

• Massive growth since the development of campaign finance reform

• The growth of PACs has reduced the role of political parties significantly– However, we may be seeing a reversal of the trend

Political Action Committees (PACs)

• PACs are organizations set up to provide money to candidates for public office that is neither contributed directly to the candidate nor to a political party

• In U.S. politics, an organization whose purpose is to raise and distribute campaign funds to candidates seeking political office. PACs rose to prominence after the Federal Election Campaign Act (1971) limited the amount of money any corporation, union, or private individual could give to a candidate. PACs were able to circumvent these limits by soliciting smaller contributions from a much larger number of individuals. During the late 20th and early 21st centuries the vast amounts of money raised by PACs greatly increased the cost of running for office and led to efforts to reform this method of financing campaigns.

PAC contributions to congressional candidates (in $ millions) [CFI]

Source: Campaign Finance Institute

Top 2010 PACs

• http://www.opensecrets.org/pacs/toppacs.php

Political parties

• The goal of political parties is to promote party members to positions of power and to forward their issue agenda– Money is allocated according to the likelihood of

advancing those goals• Parties solicit contributions, engage in

campaigning and provide support for party members

Political parties

• A number of rules about party fundraising and spending exist– However, as with many of the rules, court

decisions are questioning restrictions

Soft money v. hard money

• Hard money more closely controlled– Donated directly to candidate for electioneering– Donated to political party for candidate support,

etc.– Donated to PACs for electioneering

• Soft money used to engage in issue campaigning, etc.– Cannot use ‘magic words’ “vote for xxxx”

Hard Money Fundraising

Source: Campaign Finance Institute

Soft money explosion

• Limits on hard money contributed to an explosion of soft money in 2000

Soft money

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

BCRAEliminated 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”)

After soft money

• When political parties were barred from raising soft money in 2002, fundraising and spending by independent groups grew rapidly

• PACs• 527s• 501(c)(3)s

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.

• What is a 527? A 527 is a non-profit organization formed under Section 527 of the Internal Revenue Code, which grants tax-exempt status to political committees at the national, state and local level. Over the past several years, the term has come to refer to a new form of political organization operating in a gray area of the law. These groups actively influence elections and policy debates at all levels of government, but do not advocate explicitly for election or defeat of candidates. – Center for Public Integrity

• How were 527s created? These groups are the result of a loophole which was opened more than 25 years ago when the IRS broadened its definition of the types of groups eligible for tax-exempt, non-profit status as political committees. That new definition was more expansive than the FEC's definition; and it allowed these groups to gain political committee status under tax law, while avoiding regulation under federal election law.

• Center for Public Integrity

• Do 527s have financial restrictions? Financial restrictions on 527s are very few: there are no upper limits on contributions to these committees, and no spending limits, either. Any type of donor may contribute, from individuals to unions to corporations, even other non-profits. There is no specific prohibition on foreign contributions.

• Can 527s help federal candidates? On the federal level, 527s cannot coordinate with or contribute to a federal candidate in any way. They also may not expressly advocate for the election or defeat of a specific federal candidate, although 527s are quite free to portray federal candidates in such a way that there is little doubt as to the message.

• Can 527s help state candidates? At the state level, the rules are different. Section 527 organizations generally can, and frequently do, give money directly to state and local candidates. In most cases, however, these groups must abide by state laws, which include registering with state elections authorities and filing financial reports disclosing the contributions to state candidates as well as the sources of those contributions. Of course, every state has different rules that govern committees like this.

• Center for Public Integrity

527s

• http://www.opensecrets.org/527s/index.php?filter2=R

• 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/

• Examples of 527s include American Solutions for Winning the Future, EMILY's List, Swift Boat Veterans for Truth, Texans for Truth, The Media Fund, America Coming Together, the Progress for America Voter Fund, Secretary of State Project, United American Technologies, American Right To Life Action and the November Fund. MoveOn.org was previously a 527, until they decided to shut down their 527 group as a result of "new politics offered by Barack Obama".[1]

• Federal Election Commission rulings after the 2004 election put advertisements which questioned a candidate’s character and fitness for office off limits to 527s specifically.[2]

2004 Election controversy

• On May 5, 2004, the Republican National Committee accused MoveOn.org, The Media Fund, America Coming Together and America Votes of coordinating their efforts with the John Kerry campaign.

• On August 20, 2004, John Kerry's campaign accused Swift Boat Veterans for Truth of coordinating their efforts with the George W. Bush campaign.

• 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.

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.

• http://www.publicintegrity.org/news/entry/2509/

Independent expenditures

• Individuals or organizations can 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

Corporate and union money

• Corporations have traditionally contributed much more than unions to candidates

• Recent Citizens United case has been interpreted to allow unlimited corporate spending

The current money climate

• Citizens United v. FEC– Removed limits on corporate/union spending

• Republicans prevented new requirements for disclosure from coming to a vote in Congress

• New levels of corporate spending in 2010

Contribution limits

• http://en.wikipedia.org/wiki/Campaign_finance_in_the_United_States

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

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

Citizens United v. FEC

• http://www.pbs.org/newshour/extra/video/blog/2010/01/high_court_overturns_limits_on.html

• http://www.pbs.org/wnet/need-to-know/video/as-election-season-begins-spending-on-campaigns-breaks-records/3319/