i

1900 M Street, NW, Suite 380Washington, DC 20036

202-969-8890

TASK FORCE ON PRESIDENTIAL NOMINATION FINANCING

Jeffrey BellJ. Kenneth BlackwellWilliam E. BrockBecky CainAnthony CorradoCarol DarrRichard DavisDonald J. Foley

Ruth S. JonesMichael J. MalbinCharles T. ManattRoss Clayton MulfordPhil Noble

Research DirectorJohn C. Green

iii

Acknowledgments

his report was drafted by Michael J. Malbin, CFI’s Executive Director,John C. Green of Akron University who was also the Task Force’s ResearchDirector, and Steve Weissman, CFI’s Associate Director for Policy.

Background papers were written by Anthony Corrado (Colby College), NathanBigelow (University of Maryland) and Clyde Wilcox (Georgetown University).Corrado and Heitor Gouvêa also prepared a database of contributors usedextensively in this report. Robert Boatright is the lead scholar for CFI’s tax creditproject. Nicholas Turner, Jessica R. John, Alex DeMots and Lowell Schillerprovided valuable research assistance. Systems Manager Brendan Glavin preparedthe tables and figures with the help of Jonathan Vaupel. Sue Gift of SG Graphicsdesigned the report cover and layout.

The Presidential Task Force was supported by grants from The Joyce Foundation,Open Society Institute, The Pew Charitable Trusts and the Smith RichardsonFoundation. Conclusions of the Task Force are not necessarily those of thesupporting foundations or Trustees of the Campaign Finance Institute.

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Contents

Executive Summary .................................................................................... xi

Part I: Introduction ..............................................................................1

Chapter 1. Participation, Competition, Engagement .................................... 1

Part II: Improving the Basic Tradeoff – Spending Limits inReturn for Public Funds ......................................................... 11

Chapter 2. Spending Limits: Higher – And Prepared For Contingencies .... 13

Old Problems and New ............................................................. 14

Recommendation for the Spending Limit Amount ................... 19

Supplementary Recommendations ............................................ 21

Chapter 3. Broadening The Base:Making $100 Worth $400 with a Three-for-One Match .......................................................... 27

Assessing the 1974 System ........................................................ 28

Fixing the Matching Fund: Recommendations ......................... 33

Additional Recommendations ................................................... 43

Chapter 4. Replenishing The Public Fund .................................................. 47

The Balance Sheet’s Imbalance .................................................. 47

Recommendations for Replenishing the Fund .......................... 54

Part III: Other Recommended Changes ............................................... 59

Chapter 5. Minor Party And Independent Candidates: A Fairer Approach ..... 61

Chapter 6. Replacing Soft Money at National Party Conventions ................ 65

Part IV: Additional Issue ...................................................................... 77

Chapter 7. An Idea for the Future: Federal Tax Credits for SmallContributions ........................................................................... 79

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

Works Cited ............................................................................................... 93

Appendix – Tables ................................................................................... 101

Task Force Members ................................................................................ 117

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List of TablesTable 2.1 Spending Limits and Spending Examples per Voting Age Population

(VAP), 2000 ................................................................................................. 20

Table 3.1 Winning Candidates’ Small and Large Donations as a Percentage ofIndividual Contributions, 1976-2000 .......................................................... 30

Table 3.2 Thinning Out the Middle, 2000.................................................................. 31

Table 3.3 Impact BCRA and the Task Force’s Recommendations WouldHave Had on Publicly Funded Candidates in 1996 and 2000 ..................... 36

Table 4.1 Financial Status of the Presidential Election Campaign Fund: 1973-2002 ........ 48

Table 4.2 Disbursements from the Presidential Election Campaign Fund, 1976-2000 ..... 49

Table 4.3 Tax Checkoff Participation, 1975-2002 ....................................................... 51

Table 6.1 Contributions to Major Party Presidential Nominating Conventions,Including Host Committees and Municipal Funds, 1980-2004 .................. 69

Table 6.2 2000 Host Committee Expenditures (By Category) .................................... 72

Table 7.1 Likelihood of Giving in Response to the Tax Credit in Ohio ....................... 84

Table 7.2 Ohio’s Contributors, Potential Contributors, and General Public ................ 85

AppendixTable A.2.1 Spending Limits, 1974-2004 ..................................................................... 103

Table A.2.2 Spending by Selected Candidates as a Percentage of the Limit, 1976-2000 ..... 104

Table A.3.1 Number of Donors of Different Amounts, By Candidate, 1996-2000 ...... 105

Table A.3.2 Donor Characteristics: Individual Contributors, Tax CheckoffParticipants, and the General Public .......................................................... 106

Table A.3.3 Amount of Matching Funds under Various Scenarios ................................ 107

Table A.3.4 Percentage Change in Matching Funds, under Various Scenarios,From Amount Actually Received ............................................................... 108

Table A.3.5 Percentage of Adjusted Receipts from Matching Funds,under Various Scenarios ............................................................................. 109

Table A.3.6 Percentage of Adjusted Receipts from $1000+ Contributorsunder Various Scenarios ............................................................................. 110

Table A.3.7 Publicly Funded Candidates’ Total Receipts, IndividualContributions, and Matching Funds, 1976-2000 ...................................... 111

Table A.5.1 Ballot Access Requirements in the 50 States ............................................... 114

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List of FiguresFigure 2.1 1980 GOP Primary Spending ........................................................................ 16

Figure 2.2 1980 Democratic Primary Spending ............................................................... 16

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

Figure 2.4 2000 Democratic Primary Spending ............................................................... 17

Figure 3.1 Winning Candidates’ Large and Small Contributions as aPercentage of All Individual Contributions .................................................... 30

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

Figure 4.1 Presidential Election Campaign Fund: Quadrennial Year End Balances,1976-2000 ...................................................................................................... 48

Figure 4.2 Percentage of Federal Income Tax Returns With Checkoff, 1976-2002 .......... 51

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

Figure 7.1 Increased Political Contribution Tax Credit Claims in Canada andDecreased Average Contributions to Canadian Federal Parties, 1975-1996 .... 81

Figure 7.2 Percentage of Contributors of Varying Amounts Who Would HaveGiven Less if They Had Not Known about the Tax Credit ............................. 86

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ExecutiveSummary

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Executive Summary

he current system for financing presidential nominating campaigns is injeopardy. Since 1974, the federal government has matched the first $250that candidates raise from individual donors if the candidates agree,

among other things, to limit their spending. But for many candidates, this tradeoffis no longer worthwhile. Accepting spending limits has become too risky andpublic funding has become less valuable. And to top it off, the whole publicfunding system faces the threat of insolvency by 2008.

In light of these circumstances, the Campaign Finance Institute convened adistinguished Task Force on Presidential Nomination Financing to research thesystem’s strengths and weaknesses and make recommendations for change. Toprepare, the Task Force undertook new research to enable it to predict how a varietyof changes might affect candidates and donors and to estimate the costs of possiblechanges. It also held public hearings in January 2003 to solicit ideas from a widerange of knowledgeable and concerned individuals and organizations. (Seewww.cfinst.org/presidential/index.html.) Both before and after the hearings, it heldlong working sessions to consider the issues facing the system and to sift throughthe evidence. This report is the unanimous result of the Task Force’s efforts

The Task Force rejected a “do-nothing” approach out of hand. If the system isnot worth returning to its proper functions, the public funds may as well goback to the Treasury. The Task Force did seriously think about whether the publicfunding system ought to continue at all. After reviewing the evidence, it concludedthat losing the system would be a loss for democracy. The system has helped tosupport competition, restrain spending and enhance the value of smallcontributions. And it has done all of this at a reasonable cost to taxpayers.

Nevertheless, the Task Force also concluded that after three decades of service,the system – like an old car –needs an overhaul. This report identifies how andwhy it has broken down, presents data for a wide range of options, andrecommends how to adapt the system to a changing political world.

Unless the system is changed, the presidential nominating processoverwhelmingly will come to favor candidates who can afford to pass uppublic money and thus avoid spending limits. Competition will be reducedand the range of viable candidates in each party will be truncated. Moreover,the public fund will be bankrupt.

Congress and the President need to address this situation shortly after the 2004election if they are to enact a new system in time for the presidential season of2007-2008. It is time not only to save the system but to improve it. This is anopportunity to make modest changes at a reasonable cost that can revive what thesystem does well, while dramatically improving the participation and engagementof small donors. For that to happen, the time to begin working is now.

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Losing the systemwould be a lossfor democracy.

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Main Findings and Recommendations

Goals

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

I. Spending Limits

Main Finding: Candidate spending limits are too low and inflexible.

American elections are among the most complex in the world. Primary elections,with no party labels to help inform voters, are more complicated than generalelections, and presidential primaries are among the most complicated of all. It isexpensive in this kind of a setting for candidates to become known to the voters.As a result, the spending limits have always pinched. But three recentdevelopments have made the limits much more problematic for candidates thanthey once were.

◆ Frontloading: The nomination process used to meander through the states at aleisurely pace. In the first election under FECA, 1976, the Democratic contestwas settled in mid-June and the Republican in August. In 2004, a majority ofstates, with two-thirds of each party’s convention delegates, will hold theirprimaries by mid-March. The compressed schedule forces candidates to run anational campaign early. Instead of spending most weeks in one or two states,they fly around frantically, barely visiting the main cities. As a result, they haveto rely even more heavily than their predecessors did on the mass media. But freemedia coverage of the candidates has gone way down. As a result, the messagehas to be carried by advertising, the cost of which has escalated. Frontloadingtherefore has contributed to an increase in campaign costs in a way nevercontemplated by the 1974 law. The leading candidates need to spend more to beheard, and they tend to use up whatever money they can raise and spend to winthe nomination, months before the national nominating convention.

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◆ Nonparticipating candidates: Added on top of the frontloading pressures, 1996was the first year in which a serious contender for the nomination decided toforego public funding and exceed the spending limits. (Steve Forbes rejected thelimits in 1996 and 2000 as did George W. Bush in 2000.) If a contest for thenomination lasts more than a few weeks, the spending limit (combined with aneed for high spending) will create a huge disadvantage for a participatingcandidate who is running against someone who faces no limits.

◆ Outside spending: Finally, the participating candidates have to make themselvesheard alongside interest groups, which are fully free to spend however muchthey can raise. The amount that such groups spent on the airwaves took a sharpupward turn in 1996 and 2000. The Bipartisan Campaign Reform Act of 2002(BCRA) will restrict corporate and labor funding for broadcast advertising withinthe last thirty days before a primary, but groups can spend unlimited amountsfor broadcast ads before thirty days, and for other forms of communication (mail,telephone, print, and so forth) right up to the primary.

RECOMMENDATIONS – SPENDING LIMITS:

◆ Amount: The spending limit for the nomination period should double tothe same amount as the public grant for the general election. As under currentlaw, the limit should go up with inflation.

Reasoning: From the public’s perspective, the purpose of an electioncampaign is to help give prospective voters the information they need tochoose among candidates. In principle, this task is at least as difficult duringthe primaries as it is during a general election. Therefore, the Task Forcethought the two spending limits should be the same. This amount shouldalso be enough for candidates to make themselves heard over outside groups.The Task Force did consider whether spending limits should be retained atall – whether public funding should be seen as a floor subsidy for competitionwithout triggering ceilings. It concluded that a candidate who can raise andwho wants to spend more than the limit does not need to spend the taxpayer’smoney to do it.

◆ Exception: if a nomination opponent exceeds the spending limit aparticipating candidate should be able to spend as much as the highest spendingnonparticipating opponent.

Reasoning: Unless the law provides candidates with an escape hatch,candidates who are thinking about participating may feel, with justification,that they might be committing political suicide if they have to live within alimit while their opponent does not.

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◆ Between the primaries and convention: Permit political parties to spend asmuch hard money before the convention, in coordination with their candidates,as they may now spend in the general election (about $15 million for the majorparties in 2004).

Reasoning: The top one or two participating candidates in each major partyhave spent nearly the limit by the time the nomination has in effect beendecided. With the decision happening earlier because of frontloading, thecandidates need a way to continue some kind of campaign presence in themonths until the national party convention. During the recent past, politicalparty soft money paid for much of this. With soft money prohibited, theTask Force looked for a hard money replacement. It chose not to raise thecandidate limits more than it did because it thought candidates would justspend the money to win the nomination. It explored ways to codify andcreate separate limits for candidates to use during the “bridge period” buthad problems with trying to provide a legal definition for a presumptive butnot yet legal nominee. In the end, letting the parties handle the problemwith coordinated hard money spending was the simplest effective solution.

◆ Additional Issue – Simplification: Eliminate separate state-by-state andfundraising limits.

II. Matching Funds

Main Findings: Public matching funds promote competition but do notadequately promote reliance on smaller donors. In addition, matching fundsare of declining value to candidates.

Public matching funds have provided from one-quarter to one-third ofparticipating candidates’ total funds. They have helped provide many contenders(such as Jimmy Carter and Ronald Reagan in 1976, Gary Hart in 1984, BillClinton in 1992, and John McCain in 2000) with the essential means they neededto be competitive. Even though many of the candidates who were helped bypublic funding did not win, their presence in the race enhanced the choices andthe power of the voters.

But one of the stated goals of the public funding system was also to enhance therole of small donors. In this respect, the system has been less successful. Whilethe great majority of private contributors to presidential primary candidates giveless than $100 to a candidate (about 600,000 of the approximately 800,000individuals who gave in 2000), the bulk of the private money comes from largedonors. In 2000, 66% or more of Al Gore’s, George W. Bush’s and Bill Bradley’scontributions came in amounts of $750 or more. Contrast this with 1976 when

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less than a quarter of Gerald Ford’s and Jimmy Carter’s private donations came inamounts of $750 or more.

BCRA did not cause this problem but will exacerbate it. By raising the individualcontribution limit to candidates from $1,000 to $2,000 it will shift the balanceeven more toward large donors. A matched $250 contribution used to be worthhalf as much as a maximum contribution to a candidate, but now is worth onlyone-fourth as much. The more candidates rely on $2,000 donors, the more thiswill push small donors further into the background.

RECOMMENDATIONS – MATCHING FUNDS:

◆ Multiple match: Match the first $100 raised by participating candidatesfrom all individual contributors, on a three-for-one basis. Under this system,a $100 private contribution would be worth $400 to the candidate.

Reasoning: The Task Force’s main objective when it considered matchingfunds was not simply to replace private with public money. The Task Forcealso sought to leverage reasonable amounts of public money to help revivethe connection between politicians and small donors who give less than$100 to a campaign. We seek to revive the incentive for politicians to payattention to these donors, and for the donors to feel that their participationwill make a difference.

The Task Force considered several matching formulas. (The Appendixcontains data for nine.) Based on its analysis of the numbers, and its owncampaign experience, and experience elsewhere, the campaign professionalson the Task Force believe that if fundraisers can tell a donor that $100will be worth $400, this modest change could be enough by itself toalter the financial foundations of presidential nominating politics.

This claim may seem visionary but gains credence from an analysis of donorsin the 2000 election. If the 570,000 under-$100 donors who gave in 2000were to increase their giving by only 50% (that is, if either 250,000 newdonors came into the process – one-tenth of one percent of the voting agepopulation – or old donors were to give $25 more each) then the under-$100 donors with a three-for-one match would have almost as much weightin presidential finance as the large donors who give $1000 or more. Insteadof being outgunned by 333% as they are likely to be under BCRA,small donors would be worth 85%-90% as much to candidates as largeones. To put it mildly, this would be a very big change.

One reason for our high expectations stems from the promise of newcampaign technologies. The Internet makes the process of donating quick,

The Task Force wantsto revive the connectionbetween politicians andsmall donors.

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easy and cheap. But this innovation alone is not likely to motivate enoughsmall donors to participate. Under the current system, some candidates haveused the Internet more than others. This proposal would give all candidatesa stronger incentive to solicit small donors, and for small donors to give.

It is worth noting that this is not the only “multiple matching” proposalunder public consideration. The Task Force favored this proposal over otherswith higher matching levels because (1) the system needs to be changedsoon, (2) the proposal can be financed with only a modest increase in thecheckoff, and (3) it is likely to bring many more small donors into the system.The estimated additional cost for our three-for-one matching system (withthe cap described below) would be less than $50 million if all donors wereexactly the same as in 1996 or 2000. If the number of donors were to increaseby 50%, the added cost would still be less than $100 million. This is far lessthan the alternatives with comparable potential that we analyzed.

◆ Cap: No candidate should receive more than $20 million in matching funds.

Reasoning: This is significantly more than any candidate has received underthe current system, but less than what the top candidates might get with athree-for-one match. The Task Force expects that candidates who would get$20 million typically would be those who are left standing after the field hasbeen winnowed. They are already competitive, and they should be able toraise sufficient private contributions to wage effective campaigns. The captherefore permits us to concentrate scarce public funds, within a limitedbudget, on the candidates who most need it, early in the campaign.

◆ Additional Recommendations:

❑ Early money: Allow candidates to receive matching funds in the firstreporting period after the candidate qualifies for and requests them.

❑ Threshold: To be eligible for public funds, candidates should have toraise at least $50,000 in each of ten states, for a total of $500,000.

❑ Self-financing: Candidates should be able to contribute up to $200,000to their own campaigns. This amount should be indexed for inflation.

III. The Campaign Fund’s Insolvency

Main Finding: The Presidential Election Campaign Fund (PECF) is becominginsolvent.

The PECF provides public financing for the general election, party conventions, andprimaries, through a voluntary taxpayer checkoff. The fund is running out of money.

The Internet makes theprocess of donating quick,easy and cheap.... TheTask Force’s proposalwould give all candidatesan incentive to solicitsmall donors, and forsmall donors to give.

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According to our estimates, if both parties have contested nominations and all ofthe major contenders accept public funds, the PECF may not be able to providematching fund payments to the 2008 nomination candidates until a year afterthe primaries. We estimate that the Fund may be as much as $20 million in thered by the end of 2008.

The reasons for this shortfall are the failure of the tax checkoff amount to keep upwith inflation and the declining percentage of taxpayer participation. (The numberof checkoff participants was still eighteen times as large as the number ofcontributors.) Contributing to the decline have been the lack of public educationabout the workings and purposes of the system and electronic filing software thatdiscourages participation.

RECOMMENDATIONS – INCOME TAX CHECKOFF:

◆ Increase the voluntary checkoff: Current public funds come from thePresidential Election Campaign Fund (PECF), which derives its revenue from avoluntary checkoff on the income tax return, and lets filers designate $3 of theirtaxes to the PECF ($6 for joint filers). The checkoff amount should go up to $5($10 for joint filers) and be indexed for inflation.

Reasoning: We estimate that a $5/$10 checkoff, indexed for inflation, wouldhave brought an additional $122.6 million into the fund if it had been ineffect for 1997 through 2000. This would be more than enough to pay forall of the matching fund and other increases we recommend in this report.

◆ Public education: The Federal Election Commission and Internal Revenue Serviceshould institute new educational programs about the checkoff aimed at professionaltax preparation services and software providers, as well as at taxpayers.

Other Findings and Recommendations

Minor Parties and Independents

Main Finding: Some campaign finance rules treat minor parties andIndependents unfairly.

Minor parties and independent candidates contribute significantly to Americanpolitical discourse. When they have gained footholds in the political process, theyhave eventually influenced the major parties’ positions on a wide variety of issues.

In a sense, the “real primary” for non-major party candidates is the fight to obtainballot access at the state level. This struggle determines whether voters will even

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have the chance to vote for non-major party candidates for President. Gainingaccess to the ballot is a precondition for gaining voter support – a step thatlogically precedes any that a major party candidate will have to satisfy.

Yet acquiring ballot access places a heavy financial burden on non-major candidatesbecause each state has its individual requirements, many of which are quite onerous.Unfortunately, current campaign finance law does not recognize these specialburdens. Furthermore, if a minor party or independent candidate triumphs overall these obstacles and amasses enough support to gain widespread ballot access, heor she still cannot get any public general election funding until after the election –and then only upon receiving 5% of the general election vote.

RECOMMENDATIONS – MINOR PARTIES AND INDEPENDENTS:

◆ Ballot Access Fund: Minor party and independent candidates should be allowedto establish a ballot access fund – separate from the campaign committee, notsubject to limits on the size of contributions and not eligible for matching funds.

◆ Continued matching funds: Qualified minor party and independent candidateswho do not have access to a general election public grant should be eligible formatching funds – at the primary matching rate – during the general election.

National Nominating Conventions

Main Finding: National party conventions increasingly are financed byprivate, largely corporate, soft money.

National political party convention financing has changed greatly over the pastdecade. The federal public grant progressively has paid for less of the convention,and corporate financing has come to play a major financial role. Private financingfor the two major party conventions has increased from approximately $8 millionin 1992 to a projected $100 million in 2004.

Conventions are critical presidential campaign events. (Today they launch thegeneral election campaign rather than choose the already determined candidate.)They are also major economic events for the host city and its surrounding area.But recent regulatory changes have essentially abolished previous restrictions onfundraising by committees supporting the political as opposed to the civiccommerce promotion functions of the convention. As a result, current conventionfinancing is at odds with BCRA’s goal of ending unlimited soft moneycontributions to political parties. Another problem is the increasing financialdrain on host city governments of providing security for the nation’s politicalleaders in an age of terrorism.

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RECOMMENDATIONS – PARTY CONVENTIONS:

◆ Convention expenses from hard money: Beginning in 2008, all conventionexpenses should be paid from federal grants, other state and local governmentsources, and money to be raised by the national party committees within federalelection (“hard money”) contribution limits.

◆ Law enforcement and security needs should be supported by a grant from theU.S. Department of Homeland Security. This should begin in 2004.

◆ Host committees and municipal funds in 2008 should be able to continueusing private local contributions to promote the city as a site for the convention,to facilitate commerce during the convention, and for similar activities.

An Idea for the Future

Federal Tax Credits for Small Contributions

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

i

1900 M Street, NW, Suite 380Washington, DC 20036

202-969-8890

TASK FORCE ON PRESIDENTIAL NOMINATION FINANCING

Jeffrey BellJ. Kenneth BlackwellWilliam E. BrockBecky CainAnthony CorradoCarol DarrRichard DavisDonald J. Foley

Ruth S. JonesMichael J. MalbinCharles T. ManattRoss Clayton MulfordPhil Noble

Research DirectorJohn C. Green

iii

Acknowledgments

his report was drafted by Michael J. Malbin, CFI’s Executive Director,John C. Green of Akron University who was also the Task Force’s ResearchDirector, and Steve Weissman, CFI’s Associate Director for Policy.

Background papers were written by Anthony Corrado (Colby College), NathanBigelow (University of Maryland) and Clyde Wilcox (Georgetown University).Corrado and Heitor Gouvêa also prepared a database of contributors usedextensively in this report. Robert Boatright is the lead scholar for CFI’s tax creditproject. Nicholas Turner, Jessica R. John, Alex DeMots and Lowell Schillerprovided valuable research assistance. Systems Manager Brendan Glavin preparedthe tables and figures with the help of Jonathan Vaupel. Sue Gift of SG Graphicsdesigned the report cover and layout.

The Presidential Task Force was supported by grants from The Joyce Foundation,Open Society Institute, The Pew Charitable Trusts and the Smith RichardsonFoundation. Conclusions of the Task Force are not necessarily those of thesupporting foundations or Trustees of the Campaign Finance Institute.

T

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Contents

Executive Summary .................................................................................... xi

Part I: Introduction ..............................................................................1

Chapter 1. Participation, Competition, Engagement .................................... 1

Part II: Improving the Basic Tradeoff – Spending Limits inReturn for Public Funds ......................................................... 11

Chapter 2. Spending Limits: Higher – And Prepared For Contingencies .... 13

Old Problems and New ............................................................. 14

Recommendation for the Spending Limit Amount ................... 19

Supplementary Recommendations ............................................ 21

Chapter 3. Broadening The Base:Making $100 Worth $400 with a Three-for-One Match .......................................................... 27

Assessing the 1974 System ........................................................ 28

Fixing the Matching Fund: Recommendations ......................... 33

Additional Recommendations ................................................... 43

Chapter 4. Replenishing The Public Fund .................................................. 47

The Balance Sheet’s Imbalance .................................................. 47

Recommendations for Replenishing the Fund .......................... 54

Part III: Other Recommended Changes ............................................... 59

Chapter 5. Minor Party And Independent Candidates: A Fairer Approach ..... 61

Chapter 6. Replacing Soft Money at National Party Conventions ................ 65

Part IV: Additional Issue ...................................................................... 77

Chapter 7. An Idea for the Future: Federal Tax Credits for SmallContributions ........................................................................... 79

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

Works Cited ............................................................................................... 93

Appendix – Tables ................................................................................... 101

Task Force Members ................................................................................ 117

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List of TablesTable 2.1 Spending Limits and Spending Examples per Voting Age Population

(VAP), 2000 ................................................................................................. 20

Table 3.1 Winning Candidates’ Small and Large Donations as a Percentage ofIndividual Contributions, 1976-2000 .......................................................... 30

Table 3.2 Thinning Out the Middle, 2000.................................................................. 31

Table 3.3 Impact BCRA and the Task Force’s Recommendations WouldHave Had on Publicly Funded Candidates in 1996 and 2000 ..................... 36

Table 4.1 Financial Status of the Presidential Election Campaign Fund: 1973-2002 ........ 48

Table 4.2 Disbursements from the Presidential Election Campaign Fund, 1976-2000 ..... 49

Table 4.3 Tax Checkoff Participation, 1975-2002 ....................................................... 51

Table 6.1 Contributions to Major Party Presidential Nominating Conventions,Including Host Committees and Municipal Funds, 1980-2004 .................. 69

Table 6.2 2000 Host Committee Expenditures (By Category) .................................... 72

Table 7.1 Likelihood of Giving in Response to the Tax Credit in Ohio ....................... 84

Table 7.2 Ohio’s Contributors, Potential Contributors, and General Public ................ 85

AppendixTable A.2.1 Spending Limits, 1974-2004 ..................................................................... 103

Table A.2.2 Spending by Selected Candidates as a Percentage of the Limit, 1976-2000 ..... 104

Table A.3.1 Number of Donors of Different Amounts, By Candidate, 1996-2000 ...... 105

Table A.3.2 Donor Characteristics: Individual Contributors, Tax CheckoffParticipants, and the General Public .......................................................... 106

Table A.3.3 Amount of Matching Funds under Various Scenarios ................................ 107

Table A.3.4 Percentage Change in Matching Funds, under Various Scenarios,From Amount Actually Received ............................................................... 108

Table A.3.5 Percentage of Adjusted Receipts from Matching Funds,under Various Scenarios ............................................................................. 109

Table A.3.6 Percentage of Adjusted Receipts from $1000+ Contributorsunder Various Scenarios ............................................................................. 110

Table A.3.7 Publicly Funded Candidates’ Total Receipts, IndividualContributions, and Matching Funds, 1976-2000 ...................................... 111

Table A.5.1 Ballot Access Requirements in the 50 States ............................................... 114

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List of FiguresFigure 2.1 1980 GOP Primary Spending ........................................................................ 16

Figure 2.2 1980 Democratic Primary Spending ............................................................... 16

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

Figure 2.4 2000 Democratic Primary Spending ............................................................... 17

Figure 3.1 Winning Candidates’ Large and Small Contributions as aPercentage of All Individual Contributions .................................................... 30

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

Figure 4.1 Presidential Election Campaign Fund: Quadrennial Year End Balances,1976-2000 ...................................................................................................... 48

Figure 4.2 Percentage of Federal Income Tax Returns With Checkoff, 1976-2002 .......... 51

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

Figure 7.1 Increased Political Contribution Tax Credit Claims in Canada andDecreased Average Contributions to Canadian Federal Parties, 1975-1996 .... 81

Figure 7.2 Percentage of Contributors of Varying Amounts Who Would HaveGiven Less if They Had Not Known about the Tax Credit ............................. 86

1

Part I

Introduction

3

CHAPTER 1I

Participation, Competition,Engagement

he system for financing presidential nominating campaigns is injeopardy. Since 1974, the federal government has matched the first $250that candidates raise from individual donors if the candidates agree,

among other things, to limit their spending. But for many candidates, this tradeoffis no longer worthwhile. Accepting spending limits has become too risky andpublic funding has become less valuable. And to top it all off, the whole publicfunding system faces the real threat of insolvency by 2008.

A collapse of public funding would be a real loss for democracy. The system hashelped to support competition, restrain costs and enhance the value of smallcontributions. If the system were to be lost, the only winners would be frontrunning or wealthy candidates who can manage to get their own messages acrosswithout any help. The initial losers would be other candidates whose presencepromotes competition and civic dialogue, but the real losers would be theAmerican people.

In light of these concerns, the Campaign Finance Institute convened the TaskForce on Presidential Nomination Financing to study the public funding system’sfuture. After a year of research, analysis, and deliberation, the Task Forceconcluded that the system should be preserved but must also change.

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

What needs to be preserved and revived, therefore, is a system that:

◆ Invites and promotes competition by using a modest amount of public moneyto help give candidates who pass a reasonable threshold of public support anenhanced opportunity to be heard;

◆ Gives candidates an incentive to restrain their campaign spending to balancethe playing field;

◆ Supports and enhances the role of small donors; and

◆ Achieves its goals at reasonable public cost with funds generated by taxpayerswho voluntarily earmark a very small part of their income taxes to the PresidentialElection Campaign Fund.

T

Campaign finance law ispartly about preventingcorruption. But it is alsoabout supporting the processthrough which candidatescompete, citizens participate,and the two can engageeach other.

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What needs to be improved are the following:

◆ The system should have high enough spending limits to ensure participatingcandidates can be heard in their own voices, despite a system with earlier primariesand more expensive campaigns than prevailed when the current system wasenacted in 1974.

◆ The system must be flexible enough so that a candidate who decides to participatein the system does not risk political suicide if facing an opponent who choosesnot to accept public funding and the limit on spending.

◆ The system must contain enough positive incentives so that even a well-financedcandidate will have a good reason to participate.

◆ And finally, and in some ways most importantly, the system should encouragebroader financial participation by small donors of average means. The goal,we should be clear, is not simply to replace private money with public money.We believe that a check from the public treasury to a candidate is not enough byitself to promote broader civic participation. Our goal is to use public money inreasonable amounts to help revive the connection between politicians and small donorswho give less than $100 to a campaign. We seek to revive the incentive forpoliticians to pay attention to small donors, and for the small donors to feel thattheir participation will make a difference.

Before we further explain what we advocate, we must first address why the currentsystem is about to implode. From a politician’s perspective, the current system’scentral tradeoff – between public funding and a spending limit – is a choiceamong risks and rewards. Accepting public funding involves risk, especially ifothers opt out and are not constrained by a spending cap, or if spending byoutside organizations outstrips the candidate’s ability to be heard. Because of themany changes in presidential politics explained in chapter 2, a wrong decisionabout risks can now kill a campaign. In contrast, the relative value of the rewardshas declined. The amount of public matching funds has not been changed evenas the cost of campaigning, and size of the top contribution, have gone up. Thiscontrast – between high levels of risk and low rewards – creates a major incentivefor candidates not to participate in the system. And unless most of the majorcandidates participate, the system cannot do its job.

Changing the Context, Increasing the Risks

To understand why this has happened, some context is needed. The FederalElection Campaign Act Amendments of 1974 (FECA) passed as a reaction toPresident Nixon’s fundraising in the Watergate election of 1972, and hiscampaign’s dependence on a few large contributors (see chapter 3 below). Our

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data suggest that the new law did broaden competition and participation. Butelections have changed over three decades and so have the risks and rewards.

The 1974 campaign finance law’s presidential financing provisions were designedfor the elections of the 1970s. In 1976 a relatively unknown governor of Georgia,Jimmy Carter, won the New Hampshire primary against more establishedcandidates. Using his new visibility to raise funds for the next round of contests,he was able to campaign through three and a half more months of primaries untilhe wrapped up the nomination in June. On the Republican side the formerGovernor of California, Ronald Reagan, took on a sitting President and came withina hair’s breadth of winning. Gerald Ford’s victory over Ronald Reagan was in doubtuntil the GOP convention in August. Small contributions and public matchingfunds substantially funded both the Carter and Reagan campaigns.

Contrast this leisurely pace with the frenetic nomination process for 2004. Amajority of states, with two-thirds of each party’s convention delegates, will holdtheir primaries by mid-March. This schedule will force candidates to run a nationalcampaign – rather than a series of state campaigns – early, leaving almost notime to raise money between one primary and the next. Unlike 1976, thecandidates from the beginning will have to run in large states with major mediamarkets. Advertising costs are higher than in 1976 and free media coverage lessavailable. These changes favor an establishment-backed front-runner (if there isone) who can raise enough money early to survive a defeat or two and keepgoing in a fast-paced campaign. Partial public funding has helped balance thistrend by giving candidates other than the frontrunners a chance to be heard.

The 1976 campaign lasteduntil mid-June for theDemocrats and August forthe Republicans. The 1996and 2000 contests weresettled in March.

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While the public financing system has many wrinkles and nuances, at its core isa simple, voluntary tradeoff for candidates. Qualified candidates may receivepublic matching funds equal to the first $250 they receive from every individualcontributor, provided that they agree in return to abide by state-by-state andnational spending limits for their campaigns. Candidates must also agree to limitthe amount they and their families contribute to their campaigns if they takepublic funds. The $250 match per contributor has not changed since 1974, butthe spending limits have been increased for inflation from an original $10 millionin 1974 to more than $40 million in 2004.

Until recent elections, the public financing system seemed to be working well.Although voluntary, almost all viable candidates participated. But now the systemseems to be breaking down on both sides of the core tradeoff. The political dangersfor candidates who stay in the system have gone up and the benefits of staying inhave gone down. Moreover, the system’s overall finances have become shaky.

In some ways, the escalation in risks has driven the system even more sharplytoward crisis than has the relative decline in rewards. Consider, for example,what happened in the two most recent presidential elections. In 1996, RepublicanBob Dole accepted public funds. One of his opponents (Steve Forbes) was a self-financed multi-millionaire who chose not to be bound by the spending limits.This was the first time a candidate who opted out of the system had offered aserious challenge in the primaries. By the fifth week after the first primary inNew Hampshire, Dole had run in 24 primaries and 13 caucuses that togetherselected 74% of the Republican Party’s convention delegates. By March 26, hehad clinched his party’s nomination. Like most winners since 1976, Dole hadused almost his full spending limit to gain the nomination. But because of thecompressed primary season, he now faced a new problem. Past nominees couldturn almost seamlessly from the nomination, to the convention, and then to thepublicly funded general election. In contrast, because Dole had spent up to theprenomination limit to win the primaries, he could not spend more until he wasnominated officially at the convention. The nomination contest may have beenover in practical terms, but was not over legally. Meanwhile the incumbentDemocratic President, Bill Clinton, was not opposed for the nomination. Alreadyhelped by political party soft money, the President could now spend his primarymoney running what amounted to a general election campaign. The GOPnominee’s only plausible financial response was to rely on Republican Party adsfinanced by soft money to counter the President’s campaign.

In 1999–2000, George W. Bush was faced with the knowledge that he could alsobe running against the self-financed Forbes in the Republican primaries as wellas an incumbent Vice-President in the general election. Bush opted out of publicfunding. “I’m mindful of what happened in 1996 and I’m not going to let it

The political dangers forcandidates who stay in thesystem have gone up andthe benefits of staying inhave gone down.

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happen to me,” the Texas governor said (Glover 1999). By avoiding spendinglimits, Bush was able to spend almost twice as much as a publicly fundedcandidate. Ironically this decision saved the system from financial collapse. IfBush had taken the money to which he would have been entitled, the Treasurymight well not have met its financial obligations in 2000. Indeed, the barelysolvent system proved crucial to the frontrunner’s principal challenger, Sen. JohnMcCain, as it had to so many such candidates over the years. McCain ultimatelylost to Bush during the first week of March and withdrew from the race. However,had McCain done better with the voters in early March, he still would not havebeen able to continue, because he had already spent as much money as the limitsallowed. McCain had made something of a Faustian bargain: in return for themilk that nurtured his insurgent campaign in January and February, he had tolimit himself to a diet that would starve the campaign by mid-March. The systemoffered him no escape, even though he was running against a candidate whosespending was not limited.

Thus, candidates who are weighing their risks must seriously consider thepossibility that spending limits could lead to their defeat – particularly if one ormore of their opponents opts out of the system. But the public funding systemcannot remain viable if a decision to participate carries the risk of political suicide.

Some people have blamed the potential failure of the public funding system onthe Bipartisan Campaign Reform Act of 2002 (BCRA), which banned politicalparty “soft money” and doubled the maximum contribution an individual maymake to a candidate, without increasing public matching funds. This is not a fairreading. The presidential system’s problems predate BCRA, although BCRA didexacerbate them. The new law’s role is particularly prominent on the benefit sideof the tradeoff. In 2000, the last presidential election before BCRA, three of theleading candidates raised more than 60% of their individual contributions from$1000 donors (Al Gore, Bill Bradley, and George W. Bush). Since 1976, onlyone other leading presidential candidate, the elder George Bush, has ever dependedso much on large contributions. Thus even before BCRA, public matching fundswere not stimulating small contributions. For 2004, BCRA raised individualcontribution limits from $1000 to $2000 but did not change public funding.This reduced the relative value of public funding. A matched $250 contributionused to be worth half as much as a top contribution. The same $250, matched, isnow worth only one-fourth of $2000. The more candidates rely on $2000 donors,the more this will push small donors even further into the background.

In short, the rewards of staying in the current system have gone down but therisks have gone up. The financial system no longer matches the process it issupposed to finance. There are three ways to respond. One is to let the systemlimp along, continuing to spend public money on a program that increasingly

The public funding systemcannot remain viable if adecision to participatecarries the risk of politicalsuicide.

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fails to serve its public goals. This option is easy politically but irresponsible. Asecond is to kill the system outright, a proposal that the Task force discussed butrejected for reasons offered below. The third is to reform the system.

The developments of the past few elections were not inevitable and need not beeternal. Several candidates for the 2004 Democratic nomination have used theInternet successfully to attract small contributions, just as John McCain did in2000. This increases the prospect that a well-structured reform can reduce thedependence on large donors. The Internet makes the process of donating quick,easy and cheap but is not likely by itself to motivate enough small donors toparticipate. Under the current system, some candidates have used the Internetmore than others. A system that it designed well would give all candidates astrong incentive to solicit small donors, and for small donors to give.

CFI’s Task Force

The three basic options – do nothing, kill the system, or improve it – help us tofocus the issue. The system is perhaps one more election away from collapse.With this knowledge, CFI in July 2002 convened a distinguished Task Force onPresidential Nomination Financing to research the system’s strengths andweaknesses and make recommendations for change. To prepare, the Task Forceundertook new research to enable it to predict how a variety of changes mightaffect candidates and donors and to estimate the costs of possible changes. It alsoheld public hearings in January 2003 to solicit ideas from a wide range ofknowledgeable and concerned individuals and organizations. (See www.cfinst.org/presidential/index.html.) Both before and after the hearings, it held long workingsessions to consider the issues facing the system and to sift through the evidence.

Of the three basic options, the task force rejected the do-nothing approach outof hand. If the system is not worth returning to its proper functions, the publicfunds may as well go back to the Treasury. The Task Force did seriously thinkabout whether the public funding system ought to continue at all. After reviewingthe evidence, it concluded that the system has helped strengthen Americandemocracy. Losing the system therefore would be a loss for the American people.

Nevertheless, the Task Force concluded that after three decades of service, thesystem – like an old car – needs an overhaul. This report will identify how andwhy it has broken down and suggest some repairs. The problems are many, andmost of the remedies affect more than one problem. The Task Force’s proposalsbalance multiple goals. We do not expect every reader of this report to accept allof our recommendations without change or challenge. So beyond offering ourown recommendations, we aim to improve the quality of deliberation about

After three decades ofservice, the system –like an old car – needsan overhaul.

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reforming the system. Therefore, this report includes data to help policy makersevaluate the costs and benefits of several alternative paths they might choose.

We take this approach because one conclusion stands above the specifics: unlessCongress, the President, and the public face up to the problem squarely, publicfinancing will soon be a system in name only. By 2008, unless modified, thenominating process will overwhelmingly favor candidates who can afford to passup public money and thus avoid spending limits. Competition will be reduced,the range of viable candidates in each party will be truncated, candidates willfocus on large donors, and small donors will continue to be ignored. Moreover,the public funding system is likely to be bankrupt.

Congress and the President need to address this situation shortly after the 2004election to enact a new system in time for the presidential season of 2007-2008. It istime not only to revive the system but improve it. This is an opportunity to makemodest, affordable changes that can dramatically affect the participation andengagement of small donors. For that to happen the time to begin working is now.

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Part II

Improving theBasic TradeoffSpending Limits inReturn for Public Funds

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CHAPTER 2I

Spending Limits: Higher – andPrepared for Contingencies

e begin this report with spending because ofthe central role current limits play in puttingthe entire system at risk. When Congress

enacted the presidential funding system in 1974, afterWatergate, campaign spending was publicly discussedmostly in negative terms. Spending was described asbeing excessive or obscene. There was a real concern thatincumbents might raise so much that it would becomeimpossible for a challenger to provide a meaningfulchoice to American voters. Spending limits thereforewere often discussed in terms of leveling the playing fieldor equalizing the odds. If one were to listen only to thesurface rhetoric, money was simply an evil and the lessthere was of it in politics, the better.

The reality of equalizing competition is morecomplicated. Consider the typical race in which onecandidate is well known and generally liked – as mostincumbents and frontrunners are – and another is a lesswell known, but plausible challenger. If the law requiredboth candidates, hypothetically, to spend no more thanan equal but very small amount of money, equality inthat situation would favor the candidate who started outahead. The voters need to learn about the secondcandidate and meaningfully compare him or her to thefront-runner before the front-runner can be said to facereal competition. For this desirable situation to occur,the second candidate has to spend enough money oncommunication to be heard by the voters.

Of course, the $49 million aggregate spending limit forpresidential nominations in 2004 is not as small as theone just hypothesized. In fact, for most candidates, thespending limit is high enough not to be an issue at all.Most candidates do not raise enough to come close tothe limit. For them, public matching funds are a pure benefit – part of the moneythey need to launch their campaigns and compete early. But for the last one ortwo candidates who are left standing in a competitive field, the spending limitshave been real constraints. Practically every winner since 1980 has spent nearly100% of the limit. More tellingly, in the seven elections under the system, sixlosing candidates spent at least 90% of the limit and probably could have spentmore. (See Appendix, Table A.2.2.) This does not count the candidates who didnot participate in the public funding system and were able to exceed the limit(Forbes twice and George W. Bush).

Current Rules

Candidates who accept public funding in the primary seasonmust agree to an aggregate spending limit with the followingparts:

◆ A base campaign expenditure ceiling was set in 1974at $10 million, with a quadrennial adjustment for inflationusing the Consumer Price Index. This will amount to anestimated $36.6 million in 2004.

◆ A fundraising exemption permits an additional 20% ofthe base ceiling to cover the costs of raising money.

◆ Legal and accounting costs: Not limited under theoriginal provisions of the FECA. For 2000, FEC regulationsprovided a “compliance” exemption of 15% of the overallceiling while a campaign is active. Once the campaign isover and is winding down, all salary and overhead isconsidered exempt compliance spending and does notcount against any limit.

◆ 2004 limits: With all three of these limits added together,the aggregate limit for 2004 is expected to be about $49.4million. (See the Appendix, Table A.2.1 for the limits for allelections, 1976-2004.)

◆ State-by-state spending limits: In addition to the nationalspending limit, participating candidates must abide bystate-by-state limits, which vary by population. In 2000,the state limits ranged from $675,600 in New Hampshireto $13.1 million in California. However the FEC hasliberalized its rules for allocating expenses to state limits,making these caps increasingly porous.

(Excerpted from Green and Corrado, 2003.)

W

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Despite these constraints, most candidates so far have stayed in the system. Theyjudged the public money to have been worth accepting the limit. They calculatedthat as long as all candidates played by the same rules, the ones who made it tothe end would all more or less be in the same boat. They all would be struggling,looking for free media coverage, and looking for tactical advantages. In fact, ifone wrote a history of primaries since 1976, each year would show at least onecandidate capitalizing on a new technique for bending and straining the limits –beginning with Ronald Reagan’s universally imitated use of a leadership PAC tokeep him active politically after 1976. But however much they might strain againstthe limits, the candidates for the most part only had to be concerned about othercandidates who were also within the same limit.

Old Problems and NewThat situation has now changed, and candidates are more tempted to leave thesystem. But before we consider the new situation, it is worth pausing to reconsiderthe old one. Were the spending limits really high enough, even in the old situationin which all candidates stayed in the system, and the candidates were the mainvoices the voters heard? After review, the Task Force concludes that the spendinglimits were probably too low even then to serve the voters’ best interests.

An Old Problem – Reaching Voters in a Primary: American elections are amongthe most complex in the world. Primary elections are even more complicatedthan general elections, and presidential primaries are among the most complicatedof all. Presidential primary candidates typically need to differentiate themselvesfrom a number of opponents. Party labels – normally the best sources ofinformation for voters – are not useful in a primary. In addition, the presidentialprimary season is extremely long – as long as twenty months in reality – andlacks a single end date to focus the national media’s attention. It is not one electionbut dozens. As a result, survey data shows that voters typically know much lessabout the presidential candidates in a primary than they do in the general election.This pattern is true even for the candidates who make it past the early round andspend significant amounts of money (see Sapiro, et al. 2001; Patterson 2002;Busch and Mayer forthcoming).

From this perspective alone, we would be prepared to argue that the spending limitfor the nomination could usefully, from the beginning, have been set closer to theamount for the general election (currently $75 million), where major party presidentialcandidates have much less difficulty being heard by voters. But we do not need tomake an historical case. The primary process has changed much in recent years toput new pressures on the spending limits. Three changes have been most important:the frontloaded delegate selection calendar, pressures created by candidates who optout of the system, and unregulated spending by outside advocacy organizations.

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The Problem of a “Frontloaded” Primary Season

In recent years many states have moved their primary dates earlier, a phenomenoncalled “frontloading.” As mentioned, the outsider candidate Jimmy Carter wonin New Hampshire on February 27, 1976, and then used the victory to raisemoney for the next round of primaries. He did not clinch the nomination untilmid-June. On the Republican side, the incumbent President Ford did not clearlydefeat Ronald Reagan until August. Compare these to the most recent contests.Bob Dole clinched the 1996 Republican nomination by March 17. George W.Bush’s and Al Gore’s victories were settled a week before that in 2000. The 2004contests could be settled even earlier.

One significant effect of frontloading has been to concentrate campaign spendingearly in the race. Figures 2.1 through 2.4 illustrate spending by the major parties’top two candidates as a percentage of the spending limits, month by monthduring the primary season. The curved lines show cumulative spending as apercentage of the base and aggregate limits (the horizontal lines). The verticallines mark the Iowa caucus, the New Hampshire primary, the date when 50percent of the delegates were chosen, and the effective end of the primaries (whenone candidate has clinched the nomination).

In 1980, Reagan and Bush were well below the spending limit when 50 percentof the delegates had been chosen, although they eventually did reach the limit bythe time the nomination was settled (Figure 2.1). In 2000, John McCain reachedthe limit before the end of March (Figure 2.3). This meant that McCain couldnot have continued his campaign even if he had done better in the early Marchprimaries. Figures 2.2 and 2.4 show a similar pattern for the Democrats. Carter’sand Kennedy’s spending stretched out in 1980; Gore and Bradley wereapproaching the limit in March 2000. If Bradley had won in New Hampshire,both he and Gore might have faced the same situation as McCain.

By forcing candidates to run a national campaign from the beginning, thecompressed schedule leads them to raise more money early. Instead of campaigningmost weeks in one or two states, they fly around frantically, barely visiting themain cities. As a result, they have to rely even more heavily than their predecessorson the mass media. But free media coverage of the candidates has gone waydown. As a result, the message has to be carried by advertising, the cost of whichhas escalated. Frontloading therefore has contributed to an increase in campaigncosts in a way never contemplated by the 1974 law. The leading candidates needto spend more to be heard, and they tend to spend whatever they can raise towin the nomination, months before the convention.

Frontloading hascontributed to anincrease in campaigncosts in a way nevercontemplated by the1974 law.

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Figure 2.21980 Democratic Primary Spending

Figure 2.11980 GOP Primary Spending

1980

17

Figure 2.42000 Democratic Primary Spending

Figure 2.32000 GOP Primary Spending

2000

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Two Additional Pressures

Beginning in 1996, two additional developments put significant stress oncandidates who chose to stay in the public funding system.

◆ First, top-tier candidates began to opt out of the matching funds program.

◆ Second, interest groups and advocacy groups became far more significant assources for spending in nomination contests.

Running against opponents who opt out: In 1996, Republican Steve Forbesbecame the first candidate to refuse matching funds and do well enough toinfluence the outcome. Forbes spent $42.6 million, mostly his own money, in ayear when the aggregate limit was $37.7 million. In the context of a frontloadedprimary schedule, the Forbes campaign forced the eventual nominee Bob Dole,who had accepted matching funds, to reach the primary spending limit by March.

In 2000, George W. Bush also opted out of the primary matching system, andbecame the first such candidate to win nomination and election. Bush raised anunprecedented $94 million during the primaries, all in hard dollar donationsconsistent with the law. By avoiding the limits, Bush was able to spend almosttwice as much as the person who turned out to be his main opponent, JohnMcCain. This financial advantage was one critical factor in Bush’s success. Thislesson is not likely to be lost on other similarly positioned candidates.

“Outside” money: The other strain on the system was the expanded importanceof “outside” money: the campaigns of 1996 were the first to see significantamounts of corporate, labor union, and other interest group spending oncandidate-specific media advertising outside the coverage of the FECA. Thiscontinued in 2000. For example, during the New York primary of 2000, anorganization called Republicans for Clean Air (funded by two individuals) spentabout $2.5 million on television ads to support Bush. During the South Carolinaprimary of 2000, religious conservatives sent about 500,000 pieces of mailcriticizing John McCain toward the end of that state’s primary campaign. AlGore received similar support from labor unions in Iowa and New Hampshire.In all of these cases, the amount spent by the outside campaigns represented asignificant percentage of the amount spent by candidates (see Magleby 2002).

Such spending outside the control of candidates is likely to continue in 2004. Ifupheld by the Supreme Court, BCRA would limit corporate or labor fundedradio and television ads if aired within thirty days of a primary. This regulationis bound to increase the amount of corporate, labor and advocacy groupadvertising by direct mail and telephone. It will have no effect on ads funded byindividuals.

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Recommendation for the Spending Limit AmountCandidates who choose to stay within the system need to have higher spendinglimits to meet the challenge of a rapidly unfolding primary system, to staycompetitive with candidates who opt out, and to respond to outside spending.An adequate spending limit will go a long way toward restoring the voluntarytradeoff at the heart of the system. But raising the limit today does not guaranteethat a balance will be maintained tomorrow. After all, unexpected changes in thenominating process – like the development of frontloading – could wellundermine the tradeoff once again.

In order to prevent this situation from reoccurring, the spending limit shouldalso allow for adjustments that would protect candidates who participate in thesystem from opponents who opt out of the system. Candidates who cannotrespond to these situations will almost surely lose. As noted earlier, the publicfunding system cannot remain relevant if the decision to stay in it is equivalentto risking political suicide.

RecommendationSpending Limit Amount

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

Reasoning: The Task force considered doing away with the spending limits whilekeeping public funds – the proverbial floor without a ceiling. In the end, wecould not think of an adequate justification for giving public money to a well-funded candidate just to serve as a supplement for an unlimited campaign. Aslong as the spending ceiling is high enough, candidates who raise enough to goover the limit do not need public money to be heard. Of course, this assumes thespending limits are indeed high enough for candidates to be heard, even wheninterest groups are adding their voices into the mix.

For all of the reasons outlined so far in this chapter, the Task Force has concludedthat the spending limits for nomination contests should be at least the same asfor the general election. The general election grant for major party candidateswill be about $75 million in 2004. (Major party candidates will also be permitted

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to raise private funds for a compliance account, which we have estimated at$10 million.)

The following table shows how $75 million in spending would compare tospending limits in other public funding laws and to actual spending in severalsettings. To allow comparisons, the table presents spending per Voting AgePopulation (VAP).

Table 2.1Spending Limits and Examples

per Voting Age Population (VAP), 2000Cents per

VAP

Arizona Gubernatorial Limit – Primary .11

Maine Gubernatorial Limit – Primary .11

Arizona Gubernatorial Limit – General .16

Presidential Nominations: Current Base Limit (National) .16

Michigan Gubernatorial Limit – Primary or General .27

Wisconsin Gubernatorial Limit – General .27

Maine Gubernatorial Limit – General .29

Presidential General Election Public Grant for 2004 (est.) .36

Task Force Recommendation for the Nomination .36

U.S. Senate Primary Spending in 2000 (without NY and NJ) .39

George W. Bush, Net Operating Expenditures, 2000 Nomination .41

Florida Gubernatorial Limit .41

Minnesota Gubernatorial Limit .53

Sum of State-by-State Presidential Nomination Limits .55

Kentucky Gubernatorial Limit .59

U.S. Senate Primary Spending in 2000 (Including NY and NJ) .61

Hypothetical Bush Expenditure of $175 Million in 2004 .84

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

Supplementary Recommendations

Non-Participating Candidates and “Outside” Money

RecommendationParticipating Candidates Facing a Non-Participating Opponent

◆ If an opponent for the nomination exceeds the spending limit:Participating candidates who are running against one who opts out shouldbe able to spend as much as their highest spending nonparticipatingopponent.

❑ Frequent electronic reporting: all candidates should be required touse software, to be distributed by the FEC, to provide frequentcumulative reports of their net total receipts and expenditures. Thesereports will determine the spending limits for participating candidates.

Reasoning: The Task Force was concerned that higher spending limits wouldnot be sufficient to persuade candidates to accept public funding if doing sowere to deprive them of their ability to run against a well funded candidate whodoes not participate. One of our later recommendations will be to give candidatesmatching funds earlier in the year, when it can be more useful to them as startupmoney. The absence of a spending limit escape hatch would be particularlyproblematic if a candidate made a decision to accept public funding in, say, Juneof the odd numbered year, only to find out the next January that an opponentplans to opt out to spend however much he or she can raise.

The Task Force considered and rejected two additional ideas that others haveconsidered.

First, the Task Force decided not to recommend increased public funds for acandidate facing a non-participating opponent, for two reasons:

(a) This benefit would be expensive in a multi-candidate field, and the amount ofpublic money available for all purposes during the nomination season is finite.

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(b) Among the possible uses for public funds, it is more important to increase thehelp for candidates early, when they most need it.

The experienced campaign managers on the Task Force did not think that publicmoney was the most urgent need for the kind of participating candidates whowere actually constrained by the spending limit as they ran againstnonparticipating candidates. For participating candidates to be poised to breakthrough the ceiling, the candidates have to be well funded and well established.The Task Force thought these candidates’ most important need in this situationwas to remove the regulatory shackles and let them fight it out with theiropponents.

Second, for outside spending: The Task Force rejected the idea of either raisingthe spending ceiling, or providing additional public funding to candidates, inresponse to advertising bought by non-candidates. The Task Force recognizedthis as a serious issue, but members with agency and/or legal experience thoughtcompensation would be impossible to administer quickly and fairly, in the middleof a campaign. They also cited the lack of disclosure, even under BCRA, for agreat deal of politically effective communication. In addition, they wonderedwhether everyone in a multi-candidate field, should benefit because one personhad received an interest group’s support. What if the candidate did not considerthe interest group’s “support” to have been helpful? Should the other candidatesstill get a bonus? The real solution, the Task Force said, was to make surecandidates had a high enough spending limit to respond to any such attacks,from whatever quarter.

The Bridge Period Problem

RecommendationCoordinated Party Funds for the Bridge Period

◆ Create a separate pre-nomination limit for coordinated party spending,equal and in addition to the current coordinated limit for the generalelection (about $15 million.) Parties may spend this at any time beforethe nomination.

Reasoning: Frontloading of the primaries and spending limits have combined toproduce an additional problem for successful candidates. On the one hand,frontloading produces a long gap between the effective end of the primaries andthe legal end, which occurs at national party conventions. On the other hand,

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successful candidates tend to spend close to 100% of the spending limit to clinchthe nomination, and they reach this limit earlier and earlier, as we have shown.As a result, presumptive nominees often lack the funds to campaign during this“bridge period,” after they have won the primaries but have not yet begun thegeneral election.

In 1996 and 2000, the winning candidates who had taken public funding(Clinton, Gore, and Dole) were able to use political party soft money to pay formillions of dollars worth of televised candidate-specific “issue advertising” thatwas not covered by the FECA’s contribution or spending limits. In effect, softmoney paid for advertising during the bridge period between the effective end ofthe primaries and the conventions. BCRA puts an end to party soft money. Ifthe Supreme Court upholds this part of BCRA, parties will either need to findsubstitute funding for the bridge period or else the spending ceiling will be amajor burden on any nominee who stays within the public funding system.

George W. Bush’s 2000 campaign points to one candidate’s solution to thisproblem: because he was not subject to spending limits, he was able to raise extraprivate funds and pay for a bridge period campaign himself. Unless the ruleschange, this is yet another major reason for candidates to consider opting out ofthe public financing system.

Increasing the spending limit for participating candidates would not completelyresolve this problem, since we suspect that candidates who can raise more moneywill still spend whatever they can to win the primaries and leave almost nothingfor the bridge period.

The Task Force considered solutions that would have created a special limit, tobe triggered when a government agency, the Federal Election Commission (FEC),used some neutral basis for determining when a candidate had won enoughpledged delegates to be considered a presumptive nominee. However, peoplewith experience as party officials were concerned about declaring presumptivenominees. That might have worked well in recent years, but there are too manyuncertainties in a nomination process to allow for such a determination. Tomention just one example: many “pledged” delegates are not legally bound andcould develop reasons for switching their allegiances. It seemed much simpler,and just as effective, to let the parties spend party money to help their presumptivenominees, whenever they felt ready to do it.

Under current law and regulations, the parties may spend limited amounts ofmoney “in coordination with” any of their federal candidates. In 2004, the majorparties will be able to spend an estimated $15 million for such coordinatedspending for the presidency at any time. This provides half of a solution to the“bridge period” problem. It is not a complete solution because the money comesout of a pool of money that parties had available to use in the general election.

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Therefore, the Task Force recommends letting the parties, at their discretion,raise and spend an additional amount of coordinated money before thenomination, equal to the amount they may now spend afterwards.

One legal issue might affect how important coordinated money might be as asolution to the bridge period problem. The Supreme Court in Colorado RepublicanFederal Campaign Committee v. Federal Election Commission (Colorado I) upheldthe right of a political party to make unlimited independent expenditures in aSenate election before the party had an official nominee. In its rulemaking onthe Bipartisan Campaign Reform Act, the Federal Election Commission decidedthat parties might have the same option for presidential candidates in the post-nomination period (11 CFR 109.35). However, it cautioned that difficulty indemonstrating that the national party committee is truly independent of itspresidential candidate means this option may be “unlikely in practice” even ifthe rules “allow for such a possibility” (68 Federal Register 448, January 3, 2003).The same reservation might apply to a presumptive nominee. Furthermore, JusticeBreyer’s opinion for the Court in the first Colorado case said specifically that theruling did not decide whether independent expenditures would be permitting inconnection with publicly funded presidential campaigns (518 US 604,612).Therefore, the relevance of our recommendation for coordinated party spendingduring the bridge period depends upon whether independent party spending isavailable for the same purpose. In either case, political party hard money – raisedunder BCRA’s contribution limits – is the appropriate replacement for the softmoney that was used during the bridge period to support presidential candidatesbefore BCRA.

Simplifying the Sub-Limits

RecommendationSimplify the Sub-Limits

◆ Abolish state-by-state limits and separate fundraising limits. Campaignsshould have the flexibility to budget their resources within a unified limit.

◆ Retain separate legal, accounting and compliance fund, under current rules.

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Reasoning: In addition to the national spending limits, the FECA also includesstate-by-state spending limits, as well as separate limits for fundraising expenses.Because the state limits are based on a population formula, as well as being indexedfor inflation, they have grown at a faster rate than the aggregate limits (indexedonly for inflation) and cumulatively exceed the national limit. The sum of thestate-by-state limits in 2000 ($113.8 million) was more than three times as muchas the national limit. In 2000, the state limits ranged from a minimum of$675,600 in a low population state such as New Hampshire to $13.1 million inCalifornia.

Campaign professionals have long complained that these limits bear norelationship to a state’s strategic importance. For example, New Hampshire’s first-in-the-nation primary has a low spending limit because of the state’s smallpopulation. Because of the state’s pivotal political role, many candidates want tospend more money there than the state’s limit allows. To do so they may makedaily stops in nearby Massachusetts so time spent in New Hampshire would notall count against the New Hampshire limits. The state limits thus lead candidatesinto convoluted behavior that serves no rational purpose. As a result, the FederalElection Commission has steadily loosened the state limits and has advocatedtheir abolition.

Much the same can be said for the exempt fundraising expenditures, whichcampaigns tend to treat as additional spending authority. These sub-limits createan unnecessary degree of complexity for presidential campaigns and breedcynicism in the public. The system would be better served by having a singlespending limit for all purposes, high enough to satisfy all of these needs.The oneexception to this general rule is for legal, accounting and compliance funds. TheTask Force was concerned that such expenditures may be prompted by factorsoutside of the campaign, such as lawsuits potentially filed for political purposes.They did not want to give opponents the chance to tie up a candidate’s campaignfunds by filing a complaint that might lead to a compliance action. The TaskForce anticipates that the compliance funds for the primary season under thehigher spending limit could resemble the general election experience: in 2000,Al Gore raised $8.4 million for legal and compliance costs in 2000; George W.Bush raised $7.7 million.

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Current rules

Contribution limits

◆ The Federal Election Campaign Act Amendments of 1974limited individual contributions to a federal candidate to$1,000 per election. FECA also limited political actioncommittee (PAC) contributions to $5,000 to a candidateper election. Contribution limits were not indexed forinflation. If they had been, $1,000 would have been worthabout $3,650 in 2002.

◆ The Bipartisan Campaign Reform Act of 2002 raised theindividual contribution limit to $2,000, and indexed it forinflation, but left the PAC limits unchanged at $5,000, withno indexing.

Matching fund system

◆ Candidates who qualify for matching funds, and chooseto participate in the system, receive a 1:1 match for thefirst $250 in contributions from an individual. The $250matching fund amount has not been changed or indexedfor inflation since 1974.

◆ The current cap on public funding is 50% of the basespending limit, or $18.3 million in 2004. To receive thisamount, the candidate would have to raise half of the fullbase spending limit, or $18.3 million, in amounts of $250or less.

◆ The first matching funds are made available to candidateson January 1 of the election year.

CHAPTER 3I

Broadening the Base:Making $100 Worth $400 witha Three-for-One Match

The heart of the presidential public financesystem – as already said – is the tradeoffbetween public funding and expenditure limits.

Public matching funds were supposed to help fostercompetition and participation, but to understand how,and judge them fairly against their intended purposes,one must see the law in historical context.

The 1974 campaign finance law was a direct reaction toPresident Nixon’s reelection campaign. The mostimportant purposes of its main fundraising provisionsfor presidential primaries were as follows:

◆ Reduce the importance of the largest donors: FECA’ssponsors were concerned that unlimited contributionswere potentially corrupting – both because they couldgive some contributors an undue level of influence oversome office holders, and because the ability to ask forunlimited contributions could put too much power inthe hands of public officials to extract wealth from privatecitizens with business before the government. In 1972,for example, the Committee to Reelect the President(CRP) raised about $62 million for President Nixon’scampaign. About one-third of that, or $21.3 million,came from only 154 donors, who gave an average ofmore than $138,000 each (Alexander 1976:279). FECA’ssponsors thought the public record developed in theWatergate hearings about fundraising in 1972 gave ampleevidence of both kinds of potential corruption. Theyexpected that the new law’s $1,000 contribution limitswould cut down the influence of the largest contributionsfrom federal election financing.

◆ Provide a public subsidy to replace some private funds: Because it was doingaway with a significant source of campaign money, the 1974 law tried to replacesome of it with public money by providing matching funds for the first $250given by every contributor to a presidential candidate participating in the system.

◆ Promote competition: Public matching funds were expected to help under-financedbut 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 moderatesized contributions.

T

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Assessing the 1974 SystemFor some time, the system seemed to work more or less as hoped, supportingcompetition, increasing the role of small donors, decreasing the role of the largestones, and replacing some of the lost private money with public funds.

Matching funds have been important as a source of revenue for candidates. Onaverage, between one-quarter and one-third of the money raised by participatingcandidates comes from public monies. Candidates who emphasize the solicitationof small contributions usually receive 35-40 percent of their resources from publicfunding. Those who emphasize the solicitation of larger gifts of $500 or more,such as incumbent presidents and well-established contenders, usually receive25-30 percent of their total revenues from matching funds1.

Competition

Matching funds have helped to provide lesser-known contenders with the revenuesneeded 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, BillClinton and Paul Tsongas in 1992, and John McCain in 2000, public subsidiesproved to be a sorely needed source of resources at crucial points in the delegateselection process. Public funding has thus played a role in enhancing competitionin presidential primary campaigns.

The availability of public money has been of particular benefit to ideologicalcandidates. Liberal contenders such as Democrats Jesse Jackson (1984 and 1988)and Jerry Brown (1992) raised a substantial portion of their campaign revenuesfrom matching funds. For example, Jackson solicited a combined $17.4 millionfrom donors in his two bids for the presidency and earned $10.7 million in matchingfunds. 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 in1992 capitalized on their small donor bases to generate significant sums of publicmoney. Robertson raised $20.6 million in 1988 and accrued $9.7 million inmatching funds. Buchanan solicited $7.2 million in 1992, which generated $5million in match. Yet neither of these candidates reached the high water mark forreliance on public funds, which was established by Ronald Reagan in his 1984reelection campaign. In that year Reagan received about 60 percent of his fundingfrom small donors and earned $9.7 million in matching funds, which was themaximum 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 TaskForce by Anthony Corrado.

Ronald Reagan relied on small contributionsfor his presidential campaigns. Because ofthis, he became the only candidate ever to“max out” in his public funding.

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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 broadenparticipation by small donors. Of course, one might argue that the public fundis itself a form of participation, since the money comes from the broadly basedincome tax checkoff. But checking off a box on is not as fully engaged a politicalaction as is writing a $50 check to a candidate.

If we look at the donor rolls, there is both good news and bad news aboutparticipation. The good news is that more than 70 percent of the people whogave contributions to presidential candidates in 2000 gave in amounts of lessthan $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 frompeople who gave money in larger amounts. (See Appendix Table A.3.1.) Thetotal 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 agepopulation.

For a comparative perspective, George McGovern and Richard Nixon each hadabout 600,000 general election contributors in 1972, according to politicalscientist Herbert E. Alexander. Nixon relied heavily on major contributors.McGovern relied on small contributions, much of it raised by direct mail. We donot know how many prenomination contributors Nixon had since much of hismoney was raised before disclosure was required on April 7, 1972 and then usedin the general election. McGovern reportedly had about 200,000 contributorsduring the primaries. (See Alexander 1976:279; 293-94.) By comparison,subsequent nominees seem to have relied less on small donors. The publiclyfunded candidate with the largest number of contributors in 1996 or 2000 wasBob Dole, with 126,831 donors of $100 or less, and 164,983 donors in all. AlGore and Bill Clinton were a close second and third. (Of course, any of thesewould have raised more if they still had room to do so within a higher spendinglimit.) George W. Bush, who did not accept public funds, had about 90,000small contributors and 191,000 donors in total.

Thus, the real story is not that small donors don’t give, or that the candidates donot ask for their money. The candidates do ask – on the telephone, over theInternet, and constantly by mail. However, as the nomination process has evolved,the small donors have not been the top candidates’ main concern. Consider thefollowing table and figure (Table 3.1 and Figure 3.1), which show how winningcandidates, over the years, increasingly have relied on large donations for theirfunding.

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In the first three elections under the law, only one of the six winning major partynominees (Jimmy Carter as an incumbent) received more than 31 percent of hisindividual contributions from donors who could write a $750 check. In the fourelections with eight winning candidates since then, only two received as little as42 per cent! Al Gore was at the two-thirds mark. George W. Bush and his fathereach raised more than three-quarters of their private money in amounts of $750or more.

Table 3.1Winning Candidates’ Small and Large Donations

as a Percentage of Individual Contributions, 1976-2000

Less than $200 $750 or more

2000

Bush (R) 11 % 75 %

Gore (D) 16 66

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

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.

Figure 3.1Winning Candidates Small and

Large. Donations as a Percentageof Individual Contributions

Source: Table 3.1

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The next table and figures (Table 3.2, Figure 3.2A and 3.2B) show the distributionof 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 byindividual donors.

Table 3.2Thinning 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

Bush % 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: 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).

Figure 3.2APercentage of Donors( Top Four Candidates)

Figure 3.2BPercentage of Money(Top Four Candidates)

Source: Table 3.2

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This table and these figures show clearly that even though most of the contributorsare 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, andBradley, who relied on networks of fundraisers making personal phone calls. Itwas somewhat less true of John McCain, who received a surge of money fromInternet fundraising after he did well in New Hampshire. For all candidates, itlooks as if most of those who gave $501 or more were persuaded to go all the wayup to $1,000.

BCRA Exacerbates Preexisting Problems: The reliance on major donors is likelyto increase under the Bipartisan Campaign Reform Act (BCRA) but began longbefore. We mentioned earlier that one purpose of the 1974 law was to usecontribution limits to curb the influence of those who could write the largestchecks, often in amounts that in 1972 exceeded $100,000. Contribution limitswere undermined by the parties’ unlimited “soft money” fundraising, which tookoff after 1992. BCRA restored contribution limits by abolishing national partysoft money. In the process, Congress doubled the limit on contributions fromindividuals to $2000, restoring some of the value that had been lost throughinflation, and then indexed the maximum amount to protect against futureinflation.

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 donorsinto $2000 donors. We assumed later, for purposes of analysis, that the former $1000donors will give an average of 50% more in the future. Whether 50% is precisely theright number is not important: there will surely be some significant increase. This, inturn, will even further depress the financial importance of small donors.

Major Donors Are NotRepresentative: One reasonfor concern about thereliance on major donors isthat major donors are not across-section of the country.In the Appendix, we presenta table (A.3.2) comparingmajor donors to smalldonors, checkoff participantsand the general public. Themajor donors are a lot older,and richer, than the averageperson. For example, 35%of the $1,000 donors, and

George W. Bush, shown here at a fundraising event, and ...

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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 participantsor of the public at large, had incomes this high. (See the table in the AppendixA.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 majordonors, they are not identical to each other. The under-$200 donors are still moreaffluent than the general public (32% versus 6% with incomes over $100,000).

Fixing The Matching FundBy giving a significant amount of money to all candidates, the matching fundsystem has been important to competition. It has helped keep candidates in therace, thereby improving the quality of voters’ choices. However, the system hasnot worked to stimulate the breadth of public participation that we think thesystem can and should inspire.

The question is how to redress the imbalances. We tested many options for alteringthe public matching fund system to see whether different formulas wouldinfluence the mix of donors and candidates in different ways. We looked at singleto multiple matches of $100, $250, and $500 under different rules. Thecomparisons were built from databases of 1996 and 2000 donors that told ushow many discrete contributors gave how much to each candidate. We shallspare readers the task of wading though all of the options here, but the full setsare reproduced in the Appendix (Tables A.3.3 through A.3.6).

... Al Gore and Bill Bradley all raised more than 60% of theirindividual contributions from $1000 donors.

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We were looking for options that would better serve the objective of the publicmatching system by:

◆ Increasing the amount of public money candidates would receive to leave themwith an incentive to stay in the system;

◆ Maintaining or improving the current percentage of money coming from publicfunds, 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 boundsthat 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 asoffering the best balance for meeting the goals the Task Force thought public fundingshould serve: a three-for-one match of the first $100 from every contributor.

RecommendationsPublic Matching Funds

◆ Match the first $100 from all individual contributors on a three-for-onebasis 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 aparticipating candidate.

◆ No candidate should receive more than $20 million in public matching funds.

◆ Allow candidates to receive matching funds in the first regular reportingperiod after the candidate qualifies for and requests them.

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To explain the reasoning that led to this recommendation, we draw the reader’s attention tothe following table (Table 3.3). In it, we consider how much public money the actualcandidates 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 ofreceipts coming from $1000 contributions). Under each of these headings, we show threedifferent conditions:

◆ The first column (“Actual”) shows what happened in 1996 and 2000.

◆ The middle (“BCRA Impact”) takes the existing pool of donors, and assumesonly one change: that $1000 donors would have increased their contributionsby 50% if BCRA’s higher contribution limit had been in effect. (For anexplanation 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 TaskForce’s recommendation of three-for-one matching funds for the first $100 as well asa $20 million cap on public funds. That is, it assumes candidates would have gottenmore money from large donors because of BCRA, and asks how the Task Force’smatching rules would have affected the balance. (For the same information for ninedifferent 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 contributionlimit, the percentage of money coming from major donors of $1000 or more wouldbe bound to have gone up for all candidates, while the percentage of public fundswould have gone down. The changes would have been greatest, of course, forcandidates 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 athree-for-one match for the first $100, and conservatively assumes that the highermatch would produce no additional small donors.

◆ First, the amount and proportion of public money will increase significantlyfrom BCRA and pre-BCRA levels.

◆ Second, the proportional importance of $1000+ contributions would be broughtback toward pre-BCRA levels.

◆ Third, even though the money from $101-250 is no longer being matched, allcandidates would have gotten more public money because almost three-fourthsof all donors gave less than $100, and conservatively assumes that the highermatch 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 publicfunds, or a few percentage points more, than they got before BCRA raised the

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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.

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

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

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contribution limit. They all would have gotten more money than they actuallydid under the current system, but all would of them would also be capped by theTask 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.

These generally positive conclusions do not, however, reflect more positiveassumptions that would further elevate the importance of small donors. They allassume that the three-for-one match will have no effect on the size of the donorpool. That is not what the experienced campaign professionals on the Task Forceexpect. They see a three-for-one match as a powerful marketing tool for candidatesto persuade small contributors to give money. The potential donors will hear“$100 will bring $400” and know that their contributions will be large enoughto matter.

There is some additional basis, beyond the Task Force’s campaign experience, forthinking this growth in participation could happen. In 2001, New York Cityshifted from its old one-for-one match for the first $1000 to a four-for-one matchfor the first $250. According to the New York City Campaign Finance Board’sreport on the election, the number of contributors who gave up to the $250matching level doubled from 1997 to 2001. While a number of other factorscontributed to this doubling (new term limits increased the number of competitiveraces, corporate contributions were abolished, and contribution limits werelowered) the New York City Board concluded that:

The most interesting trend in contributions to emerge from the 2001election cycle was the enormous increase in contribution dollars from arecord number of contributors.... Candidates responded to the new $4-to-$1 matching formula by reaching out to contributors of relatively modestmeans – and not just to more affluent donors. The higher Programparticipation levels, representing a more diverse group of candidates thanever before, helped to broaden the contributor base and introduce newcontributors to the world of New York City politics. (New York CityCampaign Finance Board, 2002, p.62.)

Another reason for expecting a significant response to the three-for-one matchof small donations is the success some presidential campaigns have had in tappingsmall donations through Internet organizing. A quantum step forward was takenin 2000 when John McCain raised more than $2 million in four days followinghis widely publicized win in the New Hampshire Republican primary. All told,the McCain campaign said it raised $6.4 million on the Internet. When combinedwith the matching funds it generated, this represented 27% of the campaign’sreceipts (Cornfield and Seiger 2003). Furthermore, the general survey of 2000

The Task Force sees athree-for-one match as apowerful marketing toolto persuade small donorsto give money.

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presidential campaign donors citedearlier in this chapter found that12.4% of the donors said they gaveover the Internet. 57% of theInternet donors said they gave lessthan $200, as opposed to 40% ofnon-Internet donors. With 55% ofAmericans now using the Internetregularly (Cornfield and Seiger2003), “every major presidentialcampaign is raising money onwebsites,” (Romano 2003).

Therefore – based on the example of New York City, the possibilities for theInternet, 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 smalldonors 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 toincrease the presidential small donor pool by, say, 50%. The current donor pool ismade up one only four-tenths of one percent of the voting age population in thecountry! More than three-quarters of the current donor pool is made up of smalldonors. Increasing the small donors by 50% means persuading only another285,000 people to make a donation to a presidential candidate of their choice.

Such a 50% increase in donor participation may seem small cause for civiccelebration, but it would in fact be a major event. This is because of the way thenumbers behind the proposal will work. (See Table A.3.1 for the number ofdonors at each level for candidates who ran in 1996 and 2000.) Consider thesecomparisons of large and small contributors in 2000 with their value under theTask Force proposal.

◆ Small donors in 2000 – actual: In the 2000 election, 570,000 individuals in2000 gave $100 or less to each of one or more candidates. Their averagecontribution was slightly more than $50. Under the current one-for-one matchingsystem 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, seeAppendix Table A.3.1.)

◆ $1000 donors in 2000: In contrast, the approximately 112,000 donors whogave $1000 in 2000 were potentially worth about $140 million, includingmatching funds. (Not all were matched, of course, because almost 60,000 ofthese were Bush donors.)

Sen. John McCain’s 2000 experience was abreakthrough for Internet campaigning.

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◆ Small donors and $1000 donors under BCRA: Under BCRA’s highercontribution limits, which will lead to higher contributions from the $1000 –$2000 donors, these top donors would be worth $190 million with matchingfunds, 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 wouldbe worth $114 million while the yield from the $1000 plus group would only goup slightly, to $200 million.

◆ Small versus large if the small donors increased: And if the new match meantthat you could persuade small donors to increase their giving by 50% (either byfinding new donors, getting the old ones to increase their giving by $25, or somecombination,) then the small donors collectively would be worth $170 millionas opposed to $200 million for the large donors.

The under-$100 donors would thus become almost as important a factor inpresidential 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 largeones. To put it mildly, this would be a very big change. It is not a far-fetchedscenario. It can be done, and it should be done. What is more, it can be done ata very reasonable cost.

◆ A three-for-one match for the first $100 would have cost an added $45 millionin 1996 and $39 million in 2000, with existing donors.

◆ If the under-$100 donor pool were to increase by 50%, with an averagecontribution of $50, the cost would go up by about another $43 million.

◆ Joining this with the previous estimate for the current donor pool produces atotal cost of about $82-88 million over current costs.

As we shall see in the next chapter, this very big change to presidential financingcan 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 themaximum public subsidy allowed per candidate. Very few candidates have actuallyraised the maximum subsidy over the life of the system. Among Democrats, onlyGore in 2000 and Clinton in 1992 raised more than 90% of the maximum publicfunds. The average for all winners and strong opponents was 57% and for allcandidates 29%. Among the Republicans, Ronald Reagan was the only candidateto receive 100% of the maximum, and he did so in 1980 and 1984; Reagan andFord in 1976 round out the Republicans with more than 90%.

Instead of being outgunnedby 333% under BCRA, thesmall donors would beworth 85%-90% as muchas the large ones.

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The Task Force recommends a maximum subsidy of $20 million per candidate,indexed for inflation. This is significantly more than any candidate has gotten sofar, 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 athree-for-one match without a cap. The Task Forces expects that candidates whowould be getting the $20 million typically would be those who are left standingafter the field has been winnowed. They are already competitive, and they shouldbe able to raise sufficient private contributions to wage effective campaigns giventhe higher spending limits proposed. The reason for a cap therefore is simple: wewould like to concentrate scarce public funds, within a limited budget, on thecandidates who most need it, early in the campaign.

Make Matching Funds Available Early

At its origin, the public financing system assumed that primary campaigns wouldnot begin in earnest until the election year itself. Hence, the law allowed candidatesto receive public funding as of January 1 of that year. But with the advent offrontloaded primaries, serious campaigning begins much earlier, and candidatesraise an increased amount of their funds prior to January of the election year. Forexample, 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 GeorgeW. Bush in 2000 and Gerald Ford in 1976 is even starker: 72% of Bush’s fundsversus 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-knowncandidates cannot raise a large amount of money early.

Matching funds therefore should be made available as soon as candidates qualifyfor them. January 1 of the election year was once “early” in the nominationprocess but now is quite late. The date needs to change, therefore, if the goal isto help support competition. Making matching funds available early will helpless well-known candidates compete more effectively.

Other Options Considered

The Task Force seriously considered a number of proposals raised during itshearings, or by others since then, before settling on its three-for-onerecommendation.

One-for-one match for the first $500: Two Federal Election Commissioners,Michael Toner and Scott Thomas, have recommended keeping the one-for-onematch, but doubling the amount to be matched to $500 instead of the current

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$250 (Toner and Thomas, 2003). This proposal is part of a larger one that hassome symmetry to it, since BCRA doubled the contribution limit and theCommissioners – like this Task Force – propose raising the spending limit to$75 million, which is about double the current base limit. The Toner-Thomasproposal also has the virtue of being the least costly we have seen. (See theAppendix, Tables A.3.3 through A.3.6, Scenario #7.)

However, the effects of public money would be different under the Toner-Thomasproposal than under ours. Candidates would receive roughly the same percentageof public money under Toner-Thomas as they actually did in 1996 and 2000,but would receive less public money than under our proposal – particularlycandidates who depend on small contributions. Our proposal would spend moremoney than theirs for the purpose of strengthening competition.

There is also no reason to believe that a one-for-one match would change thesize 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, andmore 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 modestadditional expense to be well worth it because stimulating participation is a vitallyimportant goal for healthy democracy.

Four-to-one match for the first $250: There have been proposals for other multiplematching ratios, including a four-for-one match for the first $250 suggested byFred Wertheimer of Democracy 21 (Wertheimer 2003). A multiple match for thefirst $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 basisthan it would to match the first $100 on a 3-for-1 basis. Under the currentsystem, 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-1match 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 in1996 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. (SeeAppendix Table A3.3 for the comparison.) This level of expense could not besupported 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 reliableif subject to annual congressional approval.

Interestingly, the extra money in the Democracy 21 proposal would not havehelped the relative position of small donors any more than ours did. We sawearlier that our 3-for-1 matching ratio would increase the relative importance ofa $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

Improving participationis a vitally important goalfor a healthy democracy.

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would be worth $500 but the $2000 donor would be worth $3000. Thus, therelative worth of small and large donors would be about the same. If moremoney 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 wouldboost the relative importance of small donors more than either proposal, at acost (without caps) that would be about midway between this proposal and ours.

Matching Tied to a Lower Contribution Limit: Some have proposed tyingmatching funds to a requirement that participating candidates abide by a lowercontribution limit than nonparticipants. This idea is included as part of a broaderproposal being circulated jointly by Public Citizen, Public Campaign, and U.S.PIRG (Public Citizen, et al. 2003.) The remainder of their plan includes aninitial bloc grant and 4-for-1 match for contributions of up to $250.

We believe it would be counterproductive to tell participating candidates thatthey have to live with lower contribution limits than other candidates. Thatwould become another incentive to forego public funding. New York City andSuffolk County, NY are the only jurisdictions that we know of in the countrywith such provisions, and the provisions exist there only because the limits fornonparticipating candidates are set by state instead of local law. The New YorkCity Campaign Finance Board has recommended that state law be changed tomake the limits uniform for participating and nonparticipating candidates. (NewYork City Campaign Finance Board 2002:158.)

Of course, another approach might be to reduce the contribution limit for allcandidates. We share the concern about the proportional role of major donorsbut do not want to discourage participation by those who give $2000 in hardmoney to a candidate. In any case, Congress just raised the limit and is not likelyto revisit the issue. A better approach would be to stimulate participation bysmall donors rather than turning away those who participate now. That is thepurpose of our recommendation for a three-for-one match for the first $100.

Additional Recommendations

Qualifying Threshold

The FECA established qualifying financial thresholds forpublicly funded candidates to prevent so-called “fringecandidates” from entering the race solely for the publicfunding. One component of the threshold was thatcandidates raise money in twenty states. The purposewas to avoid using federal money to underwrite “favoritesons” or purely regional candidates.

Current Rule

To be eligible for matching funds, a candidate must raise$5,000 in each of twenty states, for a total of $100,000, inamounts of $250 or less.

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However, the financial value of the threshold has been eroded by inflation. Thequalifying amounts have not been adjusted at all since 1974. If the eligibilityrequirements had been adjusted for inflation, the threshold in 2000 would havebeen $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 systemsfor 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 gubernatorialcandidate qualifies for a full public funding system with 2,500 $5 donationsfrom 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 contributionsmay be in any legal amount, but must come from individuals. Theamounts required should be indexed for inflation.

In an open letter dated April 16, 2003, FEC Commissioners Thomas and Tonerrecommended increasing the threshold to one of three levels, all of which wouldbe raised in amounts of $250 or less:

◆ $15,000 in each of 20 states, for a total of $300,000 (this would not quite makeup 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 anylegal contribution from individuals, up to $2000 per contribution. We thinkthis rule is a reasonable compromise among the purposes one is trying to servewith a threshold. To raise $50,000 in ten states presupposes a significant politicalorganization.

This threshold would mean that very few of the candidates who have receivedpublic funds since 1974 would not have gotten them. We have not been able tolook at the impact of the distribution requirement, but we have looked at the

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requirement that candidates raise at least $500,000 from individuals. Becausewe would index the amounts for inflation, we looked at all candidates who havereceived public funding since 1976 and adjusted the hypothetical thresholdamount for each year so it would have been worth the same as $500,000 in theyear 2000, beginning with $162,000 in 1976.

In the elections from 1976 through 2000, 28 Republicans, 46 Democrats and 8minor party candidates received public funding. (See Appendix Table A.3.7 forthe full list of candidates who have received pre-nomination funds since 1976.)Raising the threshold to the equivalent of today’s $500,000 would havedisqualified only two candidates, Larry Agran, a Democrat, in 1992 and SoniaJohnson of the Citizens’ Party in 1984. Raising the threshold to the equivalentof $1 million would also have disqualified Terry Sanford (D) and EllenMcCormack (D) in 1976, Douglas Wilder (D) in 1992 and John Hagelin (NaturalLaw) in 1992, 1996 and 2000.

Thus, when we look backwards we see that our proposal would have eliminatedonly two candidates of the 82 who have received public funds. However, we areconcerned that if matching funds were increased as we have recommended, thepresently low qualifying threshold might attract more non-serious candidatesinto the race. Since insurgent or “outsider” candidates would benefit significantlyfrom a three-for-one match, we considered a higher threshold to be a reasonabletradeoff for getting more money. The principal goal of public funding is to fostercompetition and public dialogue. In return for this emphasis, candidates whoreceive public funds should show they can be meaningful participants beforetaxpayers are asked to help underwrite their campaigns.

Contributions to One’s Own Campaign

When the public financing system was created, there wasgreat concern that wealthy individuals would be able touse their funds to skew the process in an unfair fashion.At the same time, the law recognized that a candidate’sown funds were an important source of “seed money”with which to launch a campaign. In order to reflectboth of these concerns, the law allowed candidates tospend up to $50,000 of their own or family resources ifthey accepted public financing.

By 2000, this limit had been severely eroded by inflation and some candidaterepresentatives, especially from minor party and independent campaigns,complained in our public hearings that this limit restricted their ability to gettheir campaigns up and running.

Current Rule

Candidates who participate in the public funding system maycontribute no more than $50,000 to their own campaigns.This limit has not been changed since 1974.

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RecommendationCandidates should be permitted to contribute up to $200,000 to theirown campaigns. This amount should be indexed for inflation.

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

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Current Rules

Under the Revenue Act of 1971, those taxpayers who chooseto check a box on their annual individual federal income taxform directly finance the publicly funded presidential system.The initial checkoff was for $1 ($2 for joint filers), and it wasexpanded to $3 ($6 for joint filers) in 1993.

Funds are designated for the Presidential Election CampaignFund (PECF), a separate account maintained by the U.S.Treasury. Distribution of the money is in accordance withcertifications made by the Federal Election Commission(FEC). The law provides the following priorities for distributingthese funds: first, national convention subsidies; then, generalelection grants; and finally, matching funds for primaries andcaucuses.

CHAPTER 4I

Replenishing The Public Fund

he Presidential Election Campaign Fund(PECF) is running out of money. Accordingto our estimates, if both parties have contested

nominations and all of the major contenders acceptpublic funds, the PECF probably will not be able toprovide matching fund payments to the candidatesduring the 2008 nominating season. Even more alarmingis the possibility that there will not be enough to coverthe Fund’s obligations to candidates by year’s end. Weestimate that the Fund may be as much as $20 millionin the red by the end of 2008. Without policy changes,the cupboards will be completely bare within an electionor two, and the public funding system will collapse dueto insufficient funding.

The only ways to solve this problem are to cut spendingor raise more money. But our recommendations will costsomewhat more money, not less. A three-for-one matchfor the first $100 would have cost an additional$39 million in 2000 and $45 million in 1996, assuming no change in the poolof donors. Moreover, we have recommended a higher spending limit, and we doexpect the donor pool to grow. A 50% increase in small donors should mean atotal cost of about $82-88 million above current costs. The system thus willneed more cash to remain solvent.

The Balance Sheet’s ImbalanceFor most of the history of the public financing system, its finances were adequate.But for about a decade, the public fund has drifted toward insolvency. The nexttable (Table 4.1) shows the money that has come into and been spent out of thePECF since 1973. Income flows in every year, but most of the spending occursduring presidential election years.

As the table and accompanying figure (Figure 4.1) show, the PECF had significantpost-election surpluses through 1988. But after 1992, the balance was only$4.1 million and after 1996 it was $3.7 million. In 2000, $16.2 million remained,but only because George W. Bush decided not to accept public matching funds.Had Bush accepted this subsidy, he would have qualified for at least $14 millionin matching funds, which would have left the PECF with a balance of about$2 million. As with all balance sheets, this one has two elements: spending andrevenue.

T

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Table 4.1Financial Status of the Presidential Election

Campaign Fund: 1973-2002($ millions)

Figure 4.1Presidential Election Campaign

Fund: Year End Balances

Source: Table 4.1

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Table 4.2Disbursements from the Presidential Election

Campaign Fund, 1976-2000($ millions)

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Spending

Since 1992, spending has increased, reflecting in large part the fact that the lawindexes spending for inflation. Table 4.2 shows spending from 1976 through2000, by major spending categories.

All told, the presidential public financing system has cost $1.1 billion dollarscumulatively since 1974. Democrats and Republicans have benefited equally.The largest portion of funds has been spent on the general election grants,$689 million, or 61 percent of the total. The primary matching system cost$315 million, or 28 percent, and the national convention subsidies consumed$122 million, or 11 percent. Overall, public expenditures have increased steadily,reflecting the inflation adjustment to primary spending limits, the general electiongrant, and convention subsidies. In 1976, for example, the cost of the entirepublic funding system was about $71 million. In 1996 and 2000, the cost wasroughly $235 million.

Revenues

Unfortunately, PECF revenues have not kept up with expenditures. As Table 4.3 andFigure 4.2 show, the revenue problem has two parts. First, the income tax checkoff isnot pegged to inflation. Second, public participation in the tax checkoff is down.

The checkoff amount has been increased only once since 1974. In 1993, taxforms were changed to let people designate $3 for the campaign fund ($6 onjoint returns), instead of $1 ($2 on joint returns). By then, as we saw from thefirst table, the fund was nearly out of money. This 300% increase in the checkoffwas not quite enough to make up for the 316% inflation that had occurred fromthe start of the program until then. More important, the 1993 provision was aone-shot change, still not indexed, and costs have continued to go up. They arenow almost 400% of what they were in 1974.

The participation problem is at least as serious. Although the early years werecharacterized by rising participation and substantial growth in revenues, thesepeaked in 1981. In that year, 28.7 percent of all individual tax returns designateda contribution to the program, for total revenue of $41 million. Between 1981and 1993, participation fell to 18.9 percent which produced revenues of only$27.6 million. The checkoff, however, continued to yield enough money to meetthe demands of the system – barely. By 1992 though, the system was straining.In 1993, the checkoff amount tripled (from $1 to $3 for single tax filer and from$2 to $6 for joint filers), but at the same time, there was a significant drop in theparticipation rate, from 18.9 to 14.5 and then 13.0 percent in 1995. The tripledcheckoff amount has led to more income (despite the lower participation rate)but not enough. Since 1995, the actual number of tax returns with the appropriate

Unfortunately revenueshave not kept up withexpenditures.

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Table 4.3The Federal Income Tax Checkoff 1975-2002

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

Source: Table 4.3

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box checked has remained steady, although the percentage participation hascontinued to slide to as low as 11%. The reasons for the decline are not entirelyclear. We discuss the most common explanations later, together withrecommendations for restoring the public fund.

Consequences: Bankruptcy by 2008?

Failure to address the revenue shortfalls will lead to serious consequences for thepublic financing system. The presidential public funding system was able to meetits obligations in 2000 – though not in a timely way – only because of George W.Bush’s decision to forgo matching funds. While it is difficult to predict futurecompetition or candidate behavior, current information suggests that the publicfunding system will face a crisis by 2008 unless even more candidates opt out ofthe system. This would save money for the program by defeating its purpose.

The 2004 Election: If checkoff participation and annual revenue continue todecline at recent rates, the PECF will have about $183.5 million available onJanuary 1, 2004. By the end of 2004, new checkoff deposits will bring this up toabout $236.5 million.1 We assume that President Bush will not have a majorchallenger for the nomination and will opt out of the primary matching fundprogram, again relieving financial pressure on the PECF. We do expect acompetitive race for the Democratic nomination. At least two major contendersprobably will approach their spending ceilings and receive maximum matchingsubsidies. If all leading Democrats accept public funding, and a couple of non-major party candidates also earn matching funds, the total cost of primarysubsidies is likely to be at least $30 million to $35 million. Therefore, it is highlyunlikely that the fund will have enough money at the beginning of 2004 toprovide payment in full to all of the candidates who accept matching funds. Butby March, full funding should be available. At the end of 2004, the PECF islikely to have a balance of about $26 million.

1 Assuming continuation of an approximately 2 percent annual rate of inflation (averageinflation from 1997-2002 was 2.2%) the general election subsidy will be about $73.1million and the convention subsidy will be $14.6 million. A total of $175.5 million willbe needed to subsidize the Democratic and Republican general election campaigns andnational nominating convention. Once these funds are set aside, only about $8 millionwill be available for matching subsidies at the time of the first payments; this amountwill eventually rise to $61 million when all calendar year 2004 tax forms (2003 tax year)are filed.

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The 2008 Election: Once again assuming a continuation of current participationand revenue trends, the total amount in the PECF at the start of 2008 will beabout $181 million. During the full 2008 election year, this should reach about$231 million available to be paid out.

With a cost-of-living increase for convention and general election subsidies, it ispossible that all of the $181 million in the fund on January 1 will be committedfor just these two purposes.2 Since the Treasury sets aside general election andconvention funding before letting out any money for the primaries – even thoughit knows that more tax revenues will be forthcoming when income taxes are duein April – this means that no money, or only a relatively minor sum, would beavailable for the primaries when the first payments are due.

Many observers in the past, including the Federal Election Commission, haverecommended that the Treasury make reasonable estimates to permit some Januarypayment. That would be useful if the problem were only about timing. But by2008, it will be more severe than that. If both parties have competitive primaries,no candidate is likely to receive full matching payments during the active phaseof nomination campaigning. In all likelihood, no more than $45 million wouldeven be available for retroactive matching funds by the end of the year in 2008.That is less than the amount received by candidates in three of the past fourpresidential races (1988, 1996 and 2000, when candidates received $66.3 million,$56.7 million and $61.6 million respectively). There would not be enough moneyin the fund to reimburse at these levels until early in 2009 – more than a yearoverdue. And such a late reimbursement would simply put the whole systeminto a deeper hole for 2012.

2 If we assume a 2 percent annual rate of inflation, the amount of the general electionsubsidy will rise to $78.1 million for each major party candidate, while the conventionsubsidy will reach $15.7 million for each major party, for a total of $186 million.

By 2008, the fundwill be bankrupt.

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Recommendations for Replenishing the FundObviously, the fund is going to need more money just to continue meeting itscurrent obligations. In addition, our proposed changes to the matching fundsystem will increase its expenditures. Therefore, we recommend the following:

Recommendations◆ Voluntary checkoff amount: Increase the checkoff level to $5 for

individuals and $10 for joint filers and index these amounts for inflation.We estimate that a $5/$10 checkoff would generate an additional $122.6million over four years, without a major increase in participation rates.This should pay for all of the Task Force’s recommendations, while leavinga reserve for contingencies.

◆ Education: To increase participation, the FEC and IRS should institutenew programs to ensure that taxpayers can make an informed choiceabout the checkoff. Such a program will have to be aimed at professionaltax preparation services and software providers as well as at taxpayers.

Increasing the Checkoff to $5 and $10

Raising the checkoff level to $5 and $10 would increase revenues for the publicfund significantly. We estimate that a $5/$10 checkoff, indexed for inflation,would have brought in an additional $122.6 million into the fund if it had beenin effect for the four years of 1997 through 2000, without assuming any increasefrom the public education efforts described below. This estimate takes into accountthe potential decline in participation due to the increased checkoff amount.

It is worth noting that a $5 and $10 checkoff would be only slightly larger thanwhat would have been in place if the 1993 increase to $3 and $6 had included aninflation increase. Such an adjustment would have brought the checkoff to $4and $8 by 2004. By failing to include a cost-of-living rider, the program dugitself into a financial hole and will have to go higher than $4 to make it up.

A revenue increase of $122.6 million would be enough to accommodateeverything we have recommended in this report. To pay for a three-for-one matchof the first $100 with the existing donor pools of 1996 and 2000 would havecost an additional $48 million in 1996 or $41 million in 2000. Adding 50%

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

Expanding Participation through Information and Education

As mentioned earlier, the causes of the decline in checkoff participation areunclear. Some observers have presented it as evidence of a decline in public supportfor public funding, but the picture appears to be more complex. To keep thedecline in perspective, eighteen times as many people participated in the checkoffin 2000 as contributed to all presidential candidates combined.

Checkoff participation was at its peak in the seven years after Watergate, whenthe reasons for the program were fresh in people’s memories. But even in thepeak years of participation, the level of knowledge was poor. In two nationalsurveys conducted by Civic Services in 1979 and 1980, fewer than 15 percent ofa national sample responded to an open-ended question about how presidentialcampaigns were funded with an answer that indicated an awareness of agovernmental role in funding presidential candidates. About half of that numbershowed an awareness of the tax checkoff. This clearly understates the level ofoperational knowledge at the time, since, as we saw in an earlier table, more thana quarter of the tax returns used the checkoff. Nevertheless, the Civic Servicessurveys show the level of knowledge to have been spotty, even then (Civic Services1979 and 1980).

We could find no comparable national survey of the knowledge base since 1980.It would be useful to have one. But even without a survey, we have good reasonto expect that even a basic awareness of the checkoff has gone down, if only foractuarial reasons. Almost one-quarter (22%) of the voting age population of 2002was not even born at the time of Watergate, and more than one-half (54%) wasless than fifteen years old. So, more than half of the country’s current voting agepopulation and almost two-thirds of its full population have no basis forremembering the publicity surrounding the checkoff when it was new. Withnormal population turnover, there would have to be a public education effort,just to stay even. But the government, in fact, has made very little effort in thisregard over the life of the public financing system.

The most significant education effort occurred in 1990, when Market DecisionsCorporation, acting as consultants to the FEC, convened six focus groups, with7 to 11 members each, in Portland, Oregon, Fort Lee, New Jersey, andChattanooga, Tennessee. The purpose of this study was to understand howparticipants and non-participants perceived the checkoff (Market DecisionsCorporation, 1990). The report’s major conclusions were as follows:

Almost one-quarter (22%)of the voting age populationof 2002 was not even bornat the time of Watergate,when the reasons for theprogram were fresh in people’smemories. More than one-half (54%) was less thanfifteen years old.

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◆ “Knowledge displayed by group members lacked both breadth and depth.”

◆ “No one attending these groups knew all three ways in which funds weredisbursed.”

◆ “No one could specify any of the benefits the program had produced that reflectedits goals” even though some contributors were aware of such “equity” purposesas “even[s] things out,” “diminishes the influence of big money’s buying acandidate’”, and “gives poorer candidates a chance.”

◆ Both participants and non-participants expressed considerable “anger” at thetime with “politicians.” And

◆ “A few” nonparticipants expressed openness to “being converted” if they knewmore about the program.

The consultants recommended an FEC public promotion program throughnewspapers, public service announcements, and informational brochures. Theysuggested that the advertising explain how the funds are allocated, as well as theprogram’s intentions and goals. The FEC did in fact conduct a program featuringradio and TV ads in 1991 and 1992, but the content of the ads did not explainhow the program worked and seemed to focus more on rules for the candidatesthan on the intentions or goals of public funding. Therefore one might questionwhether the advertising spoke to potential motivations of the person who wasbeing asked to consider the checkoff. But in any case, the program was not highlyvisible or long-lived, leaving tax instructions as the main sources of informationfor most people. Considering the importance of the checkoff and its large decline,it is imperative that the FEC conduct an in-depth national assessment and thendevelop a serious action plan for public education.

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Professional tax preparation and computer programs: The current problem goeswell beyond the FEC. The decision to check off or not is made in a context inwhich one has more direct contact with the Internal Revenue Service andprofessional tax preparers than with election officials. The IRS does offer usefulexplanatory language in its instructions for the 1040 tax form, if anyone looks atthem: “The fund reduces candidates’ dependence on large contributions fromindividuals and groups and places candidates on an equal financial footing inthe general election.” Unfortunately, the standard printed tax instruction bookletis not where most tax filers get their information. An increasing number ofAmerican rely on professional tax preparation services and electronic programs.

For 2002 it is estimated that nearly 47 million of 131 million individual taxreturns were filed electronically through the e-file system – nearly 36% of allreturns. The IRS estimates that participation will increase at an annual rate of8.8% to a projected 84 million returns in 2009, accounting for nearly 58% of allindividual returns. Currently, almost a quarter of electronic filings are byindividuals, and the rest by tax preparers (Internal Revenue Service 2002-2003).

Almost all electronic filing uses software that must be approved every year by theIRS. Nevertheless, some of the most widely used filing software activelydiscourages participation in the checkoff. For example, CFI conducted a testtrial of Intuit’s TurboTax, which accounts for 68% of the market in tax softwarepurchased by individuals, and found that it automatically fills in (or defaults to)the “No” answer to the checkoff question. Moreover, the software gives noexplanation for the checkoff– not even the one from the IRS. This is not thesame program’s standard procedure for other deductions and credits. Otherquestions in TurboTax – such as those dealing with “dependents” offer bothdetailed definitions and links to more detailed explanations.

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

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Since the IRS authorizes all e-file providers, it should mandate that participantsnot present a negative default on the checkoff, and use verbatim IRS questionsand explanations. Since the IRS requires all e-file software to follow detailedprocedures, including formatting, to remain authorized, such a requirement wouldnot be overly burdensome.

Tax preparers typically explain the meaning of their clients’ choices to them inprivate conversations. We know little about such discussions, but the IRS shouldalso instruct professional tax preparation services and accountants not to assumea negative response to the checkoff question. This could be accomplished throughIRS’ existing web resources, since the vast majority of tax preparation professionals(78% of e-file users and 61% of non-users) use the IRS’ Digital Daily Website.(Russell Marketing 2002). Tax preparation services and software developers neednot become propagandists for the checkoff, but they at least should be neutral,and pass the IRS’s information on to their clients.

We are convinced that a proper education program will increase participation inthe checkoff. Although there is no good way to estimate the likely increase, evenmodest gains could make a difference. For example, if such a program simplyregained just one-half the number of participants who were lost in 1993, it wouldgenerate 3.5 million more tax filings. Such a figure would have been about 2.5percent of individual tax returns. Any increase in participation would, of course,generate more money for the system.3 But more importantly, such a programwould be a powerful symbol of the value of political participation and would begood for its own sake.

3 Assuming the 3.5 million new tax checkoffs were evenly divided between single andjoint filers, and the checkoff were raised to $5 and $10, the program would produce$26.2 million in additional revenue.

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Part III

OtherRecommendedChanges

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CHAPTER 5I

Minor Party and IndependentCandidates: A Fairer Approach

inor party and insurgent candidates contributesomething important to American politicaldiscourse. When they have gained footholds

in the political process, they have eventually influencedthe major parties’ positions on a wide range of issuesfrom the need for Social Security to reducing budgetdeficits.

Several minor party and independent candidates havereceived public funds under the FECA:

◆ National Unity, Campaign (John Anderson) (1980,post-general election);

◆ Citizens Party (Sonia Johnson) (1984, nomination);

◆ Natural Law Party (John Hagelin) (1992, 1996 and2000 nomination);

◆ Reform Party (Ross Perot in 1996; Pat Buchanan in2000) (1996 general election; 2000 nomination,convention and general election); and

◆ Green Party (Ralph Nader) (2000 nomination).

The high points financially were the general electionfunds received by John Anderson of the National UnityCampaign in 1980 ($4.2 million), the Reform Party in1996 ($29.1 million), and the Reform Party 2000($12.6 million).

Minor party and independent candidates, as well as anumber of scholars (see Herrnson and Green 1997), havelong complained that public financing system does nottreat them fairly. Indeed, this complaint provoked a federal lawsuit by EugeneMcCarthy in 1976 at the very beginning of the public financing system (seeAlexander 1979:434-438) and the criticism continues (see Lowi 2003). Many ofthese critics see the public financing system as yet another example of widespreadpolitical bias against minor party and independent candidates.

In our view, minor party and independent candidates are treated unfairly by twoaspects of the finance system: the financial implications of ballot accessrequirements and the rules – designed for the situations of major parties – thatset off the nomination from the general election season.

Current Rules

For the purposes of the presidential public financing system,the FECA defines a “major party” as one whose presidentialcandidate received at least 25 percent of the votes cast inthe previous presidential election. The law allows candidateswho do not meet this qualification, be they independents orfrom minor parties, to apply for public funds as well.Candidates who compete within parties that do not hold stateprimaries or caucuses may still be eligible for matching pre-nomination funds by meeting the basic eligibility requirementsand agreeing to abide by the other regulations of the system.

Non-major party nominees can also qualify for generalelection funding in two ways:

◆ Candidates can receive public subsidies based on theirparty’s share of the vote in the previous election as aproportion of the major party average, and raise additionalprivate contributions up to the spending limit.

◆ Candidates can receive such a proportional subsidy afterthe election if they get at least 5 percent of the vote, andonly raise private contributions up to the spending limitduring the campaign.

The latter alternative is the one most frequently available tocandidates. It has the disadvantage of providing no timelypublic funding that could help make a new candidate orresuscitated party more competitive.

M

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Ballot AccessRepresentatives of minor party and independent candidates maintain that the“real primary” for non-major party candidates is the fight to obtain ballot accessat the state level, typically by mass petition drives. This struggle occurs duringthe pre-nomination period, and the outcome determines whether voters will evenhave the chance to vote for non-major party candidates for President. Gainingaccess to the ballot is a precondition for gaining voter support – a step that logicallyprecedes any that a major party candidate will have to satisfy.

Yet acquiring ballot access places a heavy financial burden on non-major candidatesbecause each state has its individual requirements, many of which are quiteonerous. States typically confer automatic ballot access to parties and/or candidatesobtaining five percent or more of the vote cast for governor in the previousgubernatorial election. The Democratic and Republican Parties meet this standardregularly. But the great majority of non-major party presidential candidates donot, so they – or their successors – must re-qualify for the ballot after everyelection. Unfortunately, the FECA does not recognize these special burdensminority party candidates must face.

The task is enormous – requiring a large number of signatures (for example, anestimated 100,000 for an independent in North Carolina) complicated byadditional rules, separate deadlines, and other special features in each state. Ittakes serious resources just to get enough signatures in the required fashion andby the legal deadline. Some candidates and parties use volunteers to collect thesignatures; others pay solicitors; and still others use a mix of methods. And apartfrom petition costs, there are often extensive legal costs involved with ballot accessefforts. (See Appendix Table A.5.1 for a list of the requirements, by state.)

The exact amounts spent for ballot access efforts are hard to determine. Onestudy by the Brennan Center in 1996 estimated that the total cost for obtainingballot access in all 50 states was $2.4 million per candidate (Rosenkranz 1996).However, this represents an estimate of what the activity is likely to cost, notwhat the candidates actually spend. For something closer to a candidate figure,CFI interviewed campaign officials with each of the campaigns in 1992, 1996and 2000 that obtained access to ballots in enough states to have potentially wonthe Electoral College victory. The campaign officials’ estimates must be viewedcautiously, since they are general estimates of a very complex process and not allof the people interviewed may have included the same expenses. Nevertheless, itis clear that the amounts varied widely. Ralph Nader’s Green Party, for example,relied on volunteers and spent only about $150,000 (or about 2% of his $7.7million total budget) to get on the ballot in 44 states. In contrast, John Hagelinspent more than nine of every ten dollars on ballot access. And Ross Perot’s 1992

The Perot campaignspent millions onballot access lawsuitsin 1992.

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campaign spent some millions of dollars to get on the ballot in a short period oftime, much of it on lawsuits.

While the FEC recognizes that these expenditures are part of a candidate’scampaign, and could be paid for by any matching funds, it makes no specialprovision to ease the extra financial burden that gaining ballot access puts onminority candidates. To help the situation, we recommend the following:

RecommendationBallot Access Fund

Non-major party and independent candidates should be allowed toestablish a ballot access fund that is separate from the campaign committeefor the purpose of obtaining presidential ballot access in the states. Onlyindividuals would be permitted to contribute to this fund, but with nocontribution limits. These funds would be used only for purposes ofballot access, would not be publicly matched since they would have nocontribution limits, and would not be transferable to the campaigncommittee. However, privately raised funds from the campaign committeecould be transferred to the ballot access committee.

General Election CampaignsUnlike major party candidates, the prenomination calendar for minor party andindependent candidates often extends into the fall of the election year. In part,this reflects the state deadlines for ballot access, but it also reflects the lack offormal party organization for many of these candidates. Thus, it is more difficultto draw a bright line between prenomination and general election campaigns.

Moreover, if a minor party or independent candidate triumphs over all theseobstacles and amasses enough support to gain widespread ballot access, he or shestill cannot get any general election funding until after the election – and thenonly upon receiving 5% of the general election vote. Although this Taskforce hasnot reviewed general election public financing, and is thus reluctant to makerecommendations, it nevertheless believes that equity concerns require a changein the treatment of minor party and independent candidates.

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RecommendationGeneral Election

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

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

The Impact of Other Recommendations

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

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CHAPTER 6I

Replacing Soft Money atNational Party Conventions

olitical party convention financing has changedgreatly over the last decade, raising questions asto whether it remains consistent with the

underlying goals of federal campaign finance policy.

Under the FECA, the major parties receive a federal grantfor their conventions. In its early years, the grant wasexpected to cover much of the conventions’ cost, withthe remainder covered primarily by local and state publicfunds. A lesser role was assigned to largely privatelyfinanced host committees and municipal funds. Theparties’ convention committees themselves were notsupposed to supplement the federal grant with privatelyraised contributions, even if those contributions wereraised under federal contribution limits. Within theseguidelines, private financing stayed relatively smallthrough 1992. In recent conventions, however, corporatefinancing has come to play a major financial role – muchgreater than that played by either the federal grant orlocal and state government contributions.

The role of corporate contributions led Task Forcemembers at one point seriously to ask whether thereremained any purpose for the federal grant. Sincenominations no longer are settled at the conventions,and private money seemed plentiful, they wondered whether the $29 millioncould not be put to better use supporting competition during the primaries. Inthe end, some members of the Task Force continue to question public conventionfunds but a majority recommend that they continue.

Reconciling BCRA’s Goals with ConventionNeeds and Local Development.

The Task Force is unanimous about the growing importance of corporate fundingto recent conventions. The Bipartisan Campaign Reform Act of 2002 (BCRA)prohibited soft money contributions to the political parties because thesecontributions – unlimited as to source or amount – were seen as end runs aroundthe purpose of contribution limits. Office holders and their agents were raisingthe soft money, much of which was then spent on candidate-specific advertisingclearly intended to influence voters. When Congress passed BCRA, it was ineffect saying that soft money contributions had come to circumvent the purposesof pre-existing campaign law.

Current Rules

The party conventions are financed under law exclusively byfederal grants that are adjusted for inflation. The original grantlevel was $2 million. Congress increased the grant to $4million in 1979. With cost of living increases, it will approximate$15 million in 2004. By law, parties may make no expendituresexceeding the federal payment.

Under current FEC regulations, parties may benefit fromexpenditures to defray convention expenditures by privatecivic “host committees,” by city government organized andbusiness-financed “municipal funds,” and by local and statepublic agencies. Such benefits, which are considered “in-kindcontributions” to the party convention committee, arepermitted because they are, in the FEC’s words, “presumablynot politically motivated but are undertaken chiefly to promoteeconomic activity and good will of the host city.” Predominantlyprivate host committee and municipal fund spending on partyconvention costs is said to be “a very narrow exception” tothe expenditure limits accompanying federal conventionsubsidies. [68 Fed Reg. 18501]

P

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The relevance of this to national nominating conventions stems from the wayconventions have developed in recent years. In large part, the conventions havelost their nominating function and turned into advertisements for the parties’nominees. When corporations make unlimited contributions to help underwritea convention’s core political functions, these potentially can raise the sameproblems as did soft money contributions to the parties. We acknowledge as alegal point that host committees are not the same as party committees (indeedthey usually include at least some civic leaders from the opposing party), buthost committees are permitted under current rules to provide things of valuedonated by corporations and others to party committees. To insure that the twokinds of committee maintain the point of their legal distinction we think it iscrucial, after BCRA, to revisit their respective functions.

The Federal Election Commission declined to do this on July 24, 2003, when itdecided that BCRA does not cover contributions to political party hostcommittees. We will not be making a legal argument here about what BCRArequires. We are saying that the two ought to be made more consistent before toomuch of the planning for the 2008 conventions takes place. Our rationale willquestion some of the FEC’s decisions about conventions before BCRA andtherefore does not turn on the issues the commission decided in 2003.

Our concerns raise difficult questions. If one simply were to ban corporatefunding without providing a substitute, the conventions might not be able tocarry out their political functions. Hence, the Task Force recommends that theparties should be allowed to spend as much of their hard money as they wantto spend on convention activity to supplement the federal grant. (Current lawprohibits party committees from spending any money for the convention exceptfor the grant.)

In addition, the Task Force recognizes that the conventions are not merelyexpensive political productions. They are also exceptionally large urban eventsattended by hordes of media. A contemporary convention’s logistics, with itsdiffuse locations, and the “star quality” of its attendees, typically requiresnumerous facilities, special transportation requirements, and a major policepresence. And, unfortunately, security costs will be substantially higher beginning

The conventions haveturned into advertisementsfor the parties’ nominees.

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with the 2004 convention, the first after the World Trade Center attack ofSeptember 11, 2001.

The Task Force also recognizes that conventions serve important economicfunctions for a metropolitan area. Cities are willing to spend significant publicmoney to attract these events, and not only because of the retail business theconvention will create during the week of the event itself. Conventions can alsogive a lasting boost to the city’s image among political leaders and convey afavorable impression of the city to others who watch the event on nationaltelevision.

The Task Force believes that historic FEC practices provide sound guidance forfinding a way out of this thicket. The original problem the FEC confronted wasthat the FECA treated the public funding grant as the sole source of conventionspending (without even allowing a role for the party to spend money it raisedunder FECA’s contribution limits) but apparently did not account for (andprobably did not mean to exclude) the local spending related to conventionsthat had occurred in the years before the FECA. The FEC’s original solution wasto establish different funding restrictions for activities that mainly advance theconvention’s political purpose from those chiefly designed to further localcommerce. The former have historically been defined as “convention expenses”by the FEC. This label was explicit in regulations until 1994. These activities,the most important of which are listed below, also significantly overlap withcertain permitted activities of federally funded party convention committees:

◆ Use of the auditorium or convention center, and construction of convention-related services there, such as podium construction, press tables, camera platforms,additional seating, lighting, electrical, air conditioning, speaker systems; offices,office equipment, decorations;

◆ Law enforcement services necessary for orderly conventions; and

◆ Local transportation services

In contrast, the following host committee economic-oriented activities have neverbeen defined as convention expenses by the FEC and are considered distinctfrom the activities described for party committees:

◆ Promoting the suitability of the city as a convention site;

◆ Welcoming the convention attendees to the city, information booths, tours;

◆ Facilitating commerce, via shopping guides, samples, etc.; and

◆ Host committee administrative expenses.

Recognizing that the first group of activities, labeled convention expenses, weremore likely to attract donors with political motives, the FEC in 1979 declared

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such host committee expenditures to be “a very narrow exception” to the limit onfederally funded party committees’ spending. The FEC also severely limitedfundraising for these purposes. It said that host committees could raise money forconvention expenses only from local retail businesses, whose contributions “mustbe proportionate to the commercial return reasonably expected by the business,corporation, or agency, during the life of the convention.” For the remaining localeconomic development expenses – such as promoting the suitability of the city,welcoming attendees, and so forth – any local business or organization in themetropolitan area would be allowed to contribute unlimited funds.

In 1994, the FEC decided that distinct fundraising restrictions had becomeoutmoded. The definition of “local” business had grown to encompass a loneemployee in a city telecommuting from a home office. In a national and globaleconomy, serious questions were raised as to whether only “retail” businessesbenefited from the presence of a convention and whether the long-term benefitsof a convention to a city could be estimated precisely. As a result, the FEC appliedthe same “local business” restrictions to host committee fundraising for conventionexpenses as those for civic promotion expenses. This recent FEC decision, aswell as the concomitant explosion of party soft money fundraising, helped leadto the dramatic expansion of host committee spending that poses the centralproblem confronting the Task Force. What until 1994 had been labeled“convention expenses” now make up a substantial portion of what the hostcommittees’ now spend. The FEC’s July 2003 decision removing what remainedof the requirement that donors be “local” may give a further boost to hostcommittee spending in the future.

Private and Public Funding of Conventions –Amounts and Sources

Total convention-related private and public contributions have tripled in thetwo conventions since the FEC decision of 1994. Along with larger amounts hascome a change in the funding sources. Private financing through host committeesand, to a lesser extent, municipal funds, became the principal source of conventionfunding. Private money rose from being 38% as large as the federal grant in1992 to 208% in 2000 and is projected to reach 333% in 2004 (see Figure 6.1).As a result, public funding now serves simply as a partial subsidy, rather than theprime source of convention money.

Table 6.1 shows local and state government, private, federal, and totalcontributions to the major party presidential nominating conventions from 1980through 2004. As the table indicates, local and state governments contributeeither directly or through private civic host committees; private contributorsmainly give to host committees but may also give to special municipal funds.

Private money rose frombeing 38% as large as thefederal grant in 1992 to208% in 2000 and isprojected to reach 333%in 2004.

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Figure 6.1Major Party Presidential Nominating Conventions: Private Contributions

as a Percent of the Federal Grants by Convention Year, 1980-2004

Source: Table 6.1

Table 6.1Contributions to Major Party Presidential Nominating Conventions,

Including Host Committees and Municipal Funds, 1980-2004(in millions of dollars)

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

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Three important conclusions emerge:

First, as Column 1 on state and local government spending shows, there havealways been substantial contributions to conventions from the public treasuriesof host cities and of related state and local agencies. Donations have generallyincreased over the years, especially from 1996 on, and larger cities have normallybeen more generous. At times – particularly in the early part of the period –these donations have accounted for more than half of the total contributions.They constituted nearly half of all contributions for the 2000 conventions, butonly a quarter of the projected total contributions in 2004.

Second, as Column 2 shows, private (overwhelmingly corporate) donations havetaken off in recent years. Never exceeding $6.2 million for a single conventionthrough the 1992 election (mostly hovering around $2 million), privatecontributions went up to approximately $20 million for each of the 1996conventions and the Republican 2000 convention, and hit $36 million at the2000 Democratic conclave. Private financing planned for the 2004 conventionsamounts to $64 million for the Republicans and $36 million for the Democrats.Overall, private contributions have increased from $8.4 million in 1992 to$59 million in 2000 and a projected $100 million in 2004. As a percentage ofthe federal grant to the major parties, private contributions have risen steadilyfrom 13% in 1980 to a projected 333% in 2004. (See Column 5.) Althoughprivate donations accounted for an average of only 12% of total convention-related income before 1996, they averaged 37% in 1996 and 2000, and areprojected to average 59% in 2004.

Third, combining annual data for both parties’ conventions from Column 4 showsthat total contributions to fund the major party conventions nearly tripled between1992 and 2000, from $59 million to $161 million. Column 3 makes clear thatincreases in the federal grant (which is adjusted for inflation only) accounted forlittle of this financial explosion. Thus, the parties themselves have hiked the levelof non-federal private and public convention funding. By soliciting higher andhigher host city bids for private and public support of their conventions, the partieshave been able to expand their convention activities vastly.

The jump in private contributions raises a serious question about the FEC’shistorical assumption that the privately funded portion of host committee andmunicipal fund spending is “a very narrow exception” to the limit on direct partyspending for conventions. If such large private funds are supporting “conventionexpenses” rather than promoting civic commerce, they no longer constitute a“narrow exception” to the party spending limit.

The jump in privatecontributions raises aserious question aboutthe FEC’s historicalassumption that theprivately funded portionof host committee andmunicipal fundspending is “a verynarrow exception”.

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How the Money Is Spent

In fact, there is strong evidence that this growth in private contributions haslargely gone to pay for items that are essentially the same as ones that historicallyhave been considered as “convention expenses” by the FEC. This can be shownby looking at what host committees actually spend their money on, since theyhave received all of the private contributions since 1994. (Local governmentfunds are sometimes channeled through host committees as well.) CFI examinedthe reports of the two 2000 host committees’ disbursement reports, and thengrouped the expenses by categories (Table 6.2). The decisions about whichexpenses to assign to which categories were CFI’s. Because the committees didnot use standardized reporting categories consistent with the FEC’s descriptionsof expenditures in its regulations, the results are not exactly comparable. However,it is reasonably clear that the overwhelming majority of host committee funds in2000 were used to defray expenses the FEC has historically considered asadvancing the convention’s main political business, rather than promoting thehost city and its commerce.

In each city, convention facility and production related expenses comprised thelargest category of host committee spending ($21 and $26 million). The moneypaid for the basic physical infrastructure for the meetings themselves:construction, utilities, communications, TV and other productions, signs,credentialing, arrival/departure ceremonies, and so on. (Much of the substantial$1.9 to 4.0 million for “computers” may well fall under this rubric as well, butwe reported it separately.) Both cities’ committees also spent significant amounts– $2.3 and $3.1 million – on media/public relations and delegate parties/receptions. Philadelphia’s host committee spent its second largest amount – $13.6million – on security (reflecting the city government’s decision to channel suchspending through the host committee) and its third largest – $7 million – onconvention transportation. (The City of Los Angeles accounted for these servicesdirectly in governmental budgets.) With the exception of administrative expenses– in the $6.5 to $8.1 million range – and lesser miscellaneous costs, nearly all ofthe host committees’ spending appears to have been directed toward what theFEC used to consider “convention expenses.”

Clearly, the main dynamic behind the explosion in convention spending has notbeen an escalation in how much it costs to promote the local economy toconvention attendees. The parties are competing to present their presidentialcandidates in as attractive a production as possible to overcome lagging mediaand public attention to the conventions. With an increasingly “front loaded”presidential primary system, the convention has lost its function and allure as atheater for choosing candidates or fighting over divisive issues. As a result, coverageby the major television networks has declined from 12 hours per week in 1984

The growth of privatecontributions has largelypaid for items that areessentially the same asones historically consideredconvention expenses bythe FEC.

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Table 6.22000 Host Committee Expenditures

(By Category)

Philadelphia Host Committee (Republican)

Los Angeles Host Committees (Democratic)

$ 21.0 Convention Facility and Production $ 26.2Convention facility Production, Consulting, Labor, Rental ConstructionCredentialingTV Production, Media Guide Radio system Arrival/Departure ceremonies Comcast Spectacor (Arena) Telecommunications infrastructure

Electricity Technical goods/services Signs / Decorations ArenaCommunications equipment / support Production infrastructure TV engineering / design, videos, transcripts Construction services Equipment rental

4.0 Computer Equipment, Consulting, Software 1.9

0.8 Volunteer Expenses 0.1

13.4 Security 0.1

7.0 Convention Transportation 0.03

0.7 Parties / Receptions 1.0

1.6 Media / Public Relations 2.1

6.5 Administrative 8.1Host committee meetings, transportation, golf venue deposits Staff housing, salariesPhotocopying, printing Office expenses Fundraising expenses Legal/Accounting consulting services Postage / overnight delivery Bid preparation, site selection

Airfare, Travel Expenses Printing, Mail Office Space, Supplies, Phones, Furniture Staff salaries, Exec. on loan, Payroll taxes Consulting, fundraising, Legal/ Administrative, Fees/Services Expenses (Employees) Employee insurance Food and beverages (generic)

4.0 Miscellaneous 1.0Lighted Boat Parade and PoliticalFest InsuranceYouth Convention Other

InsuranceWelcome Buttons Visitors’ Guide Merchandise Products

59.1 Total 40.5

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

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to 5 hours per week in 2000. And since 1988, average prime time ratings havedeclined from 19% to 13% of television households. (Patterson 2002: 118-19.)

And the parties have responded. “The convention has become a four-daytestimonial designed to cast the winner in the strongest possible light,” writesone noted political scientist (Patterson 2002). Former Democratic NationalCommittee Chairman Don Fowler observed in an interview: “Conventions usedto be a way of selecting, inspiring enthusiasm about, and defining the candidate.Now directors, speechwriters, coaches, makeup, lighting, and design people areused to build the candidate politically and put an American flag behind it.” Andveteran Republican campaign official Richard Davis noted in another interview:“You spend $10 million to build out a hall to accommodate the networks, payfor other things outside the halls, put up huge tents, press support, corporateparks.” Fowler and Davis emphasize that in addition to the aspects of the spendingdirected toward communicating a message to the general public, much is focusedon major donors including those to the host committee. This includes creatingand renovating comfortable skyboxes in the convention hall, helping financeelaborate delegate receptions, and entertaining donors.

The growth in corporate support of convention activities can be illustrated bycomparing the number and size of major donations before and immediately afterthe FEC’s policy shift in 1994:

◆ In 1988, the top ten donors to the New Orleans host committee (Republicans)contributed a combined total of $417,000. The top ten donors to the Atlantahost committee (Democrats) gave a combined total of $682,000.

◆ In 1992, the top ten donors to the New York host committee (Democrats) gavea combined total of $2.5 million. The top ten donors to the Houston hostcommittee (Republicans) gave $1.4 million.

◆ In 1996 Ameritech, the top single donor to the Chicago host committee(Democrats) gave $2.4 million. AT&T gave the San Diego host committee(Republicans) $2.7 million. AT&T also gave the Chicago committee (Democrats)another $500,000. [Source: CFI review of 60-day post-convention FEC reportsby host committees (as amended).]

The donors’ willingness to give these amounts in 1996 undoubtedly was fueled,in part, by the explosion in soft money contributions to the party committees atexactly the same time. As long as corporations and labor unions could give softmoney to the national parties’ non-federal accounts, it hardly seemed to matterthat corporations also were helping to pay for conventions. But if the SupremeCourt upholds the constitutionality of the Bipartisan Campaign Reform Act’srestrictions on soft money, these contributions will be an anomaly.

In 1996, the single topdonor to each party gaveas much as the top tendonors combined in 1992.

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Recommendations

Recommendations◆ Convention expenses – hard money only: Beginning in 2008, all

convention expenses should be paid from federal government grants,other state and local government sources, and money to be raised by thenational party committees within federal election (“hard money”)contribution limits. (Parties are currently prohibited from spending hardmoney on their conventions.)

❑ Convention expenses should include use of an auditorium orconvention center, and other related facilities, and construction andconvention-related services in and around the hall(s), includingcommunications resources, media facilities, and all other items listedin the past by the FEC as a convention expense, whether done byconvention or host committees.

◆ Law enforcement and security needs should be supported by a grantfrom the U.S. Department of Homeland Security. This should begin in2004.

◆ Host committees and municipal funds: Beginning with the 2008conventions, unlimited private local contributions should only be usedto promote the city as a site for the convention, facilitate commerceduring the convention, and similar activities. Host committee fundsshould not be available for convention expenses.

Reasoning: It seems to this Task Force that the best policy approach would be togo back to the sound insights of the original FEC approach of 1979 and adapt itto contemporary reality. There is a real difference between the examples the FECgave of convention expenses and all of the other expenses surrounding aconvention. We do not see any substantive basis for distinguishing between twosets of similar, overlapping convention activities currently performed byconvention committees and host committees. Moreover, we agree with the FECthat its pre-1996 approach to distinguishing the funding for the two kinds ofhost committee activities ultimately proved to lack a firm economic basis. Thecommission was right to abandon its efforts to decide which businesses werelocal enough to fund convention expenses and to attempt to calculate theeconomic benefits justifying particular contributions.

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Therefore, we recommend that all convention expenses be placed together into asingle category. Any such item should be paid not with soft money but eitherwith the federal grant to the convention committees, or by “hard money”contributions to the political parties appropriate for presidential primary andmost other federal election spending, or by other sources of government money,including state and local government money. We note that until now, the partieshave not been allowed to supplement the federal grant with hard money. Theyshould be permitted to do so.

Based on the historic FEC definition of “convention expenses,” this would meanthat hard money or governmental funding should support the following activitycurrently funded by host committees.

◆ Use of an auditorium or convention center for the convention and the costs ofconstruction and convention-related services for that venue;

◆ Transportation for use by convention delegates and attendees; and

◆ Law enforcement services necessary for orderly conventions. We discuss lawenforcement and security issues further below.

In contrast, the following (and any similar) host committee and municipal fundexpenditure categories are not convention expenses and could continue to befinanced with unlimited contributions through host committees or municipal funds:

◆ Promoting the suitability of the city as a convention site (including providingaccommodations and hospitality to members of the party site selection committee);

◆ Welcoming convention attendees to the city, such as expenses for informationbooths, receptions and tours;

◆ Facilitating commerce such as providing shopping and entertainment guidesand distributing promotional materials; and

◆ Administrative expenses related to the above.

The Task Force emphasizes that none of its recommendations affect the FirstAmendment rights of private groups to entertain and meet with conventionattendees, in a manner consistent with existing public ethics rules.

Security and Law Enforcement

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

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longer afford to think of security at a national political convention, with muchof the government’s leadership in attendance, as if it were mainly a local affair.

Under the new Homeland Security Act, Boston has applied for federal fundingto help support its $10 million security budget for the 2004 DemocraticConvention and has already obtained the necessary designation for a “NationalSpecial Security Event” (Greenberger 2003). The 2004 Republican conclave inNew York has received the same designation, and city officials also anticipatenegotiating for federal funds to offset all or part of its planned $22 million in-kind expenditure for security for convention facilities (Archibold 2003). (Seealso, City of New York and Republican National Committee 2003.)

Federal assistance is not unprecedented. Under Presidential Decision Directive62 issued in 1998, the Secret Service is the “lead federal agency for the designand implementation of the operational security plan and Federal resources aredeployed to maintain the level of security needed for the event and the area”including partnerships with state and local law enforcement (see U.S. Departmentof Homeland Security 2003). The Secret Service spent relatively modest fundson past conventions – reportedly less than $4 million for each in 2000 – but abroader effort is warranted now. Years earlier, the federal Law EnforcementAssistance Administration gave $3.5 million each to Detroit and New York forthe 1980 conventions (Alexander 1983:272-73).

Another relevant precedent is the help the federal government has long given inassuring security for the Olympics in the U.S. The federal government providedan estimated $250 million of the $310 million for the 2002 Winter OlympicGames in Salt Lake City (Archibold 2003). If it is in the national interest to helpstates and localities protect our own and foreign athletes in a major national andinternational sports event, it surely is also in the country’s best interest to protectour political leadership, which also performs on a world stage.

The country can nolonger think of securityat a national convention,with much of thegovernment’s leadershipin attendance, as if itwere mainly a local affair.

Notes to Table 6.1, page 69.

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Part IV

Additional Issue

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CHAPTER 7I

An Idea for the Future:Federal Tax Credits forSmall Contributions

primary goal of this Task Force’s recommendedthree-for-one matching fund system is toincrease financial participation by small donors.

In the course of weighing alternatives to increaseparticipation, it seriously considered a 100% tax creditfor small contributions to candidates who participate inthe public funding system. In the end, the Task Forcedecided not to recommend this idea now. The matchingfund is broken and needs to be fixed. That issue shouldnot be muddied. Nevertheless, the Task Force thought atax credit was a worthy option to put on the table forconsideration – not as a substitute for the matching fundbut as a supplement for the future.

The assumption behind a tax credit is that people willbe more likely to participate financially in politics if theycan do it for nothing. Logically, the incentive shouldwork most strongly for people for whom a small creditof $100 or $200 is more meaningful economically. Thelogic would be bolstered if a tax credit were madeavailable only to people with incomes of less than$50,000 or $100,000 if filing jointly. That would include95% of the general population and 68% of those whogave $200 or less, but only 16% of those who gave $200-$999and 5% of those who gave $1,000 (see Wilcox et al.,2003). Such mechanisms would make it easier for peoplewho earn less money than today’s average donor to giveto a presidential candidate.

This chain of reasoning is plausible, but so is anotherchain that leads in the opposite direction. First, there isno reason to think that a tax credit will persuade a personto give unless potential givers know about the creditduring the election season, long before tax forms areprepared. So public education is a prerequisite for theprogram’s success. Second, low and moderate incomepeople may be less likely to be moved by a promise thatif you give $50 or $100 now, you can have it back in sixmonths. The very people who seem to be the most likelyeconomically to be influenced by a small credit are also the ones most likely tobe skeptical. Finally, if skeptical new donors do not come into the system, thepeople who end up claiming the credit on their tax forms would be ones whogave anyway, costing the public tax money without doing any good.

Current Tax Credit Systems

Federal: Currently, the federal government does not providea tax credit or tax deduction for political contributions. TheU.S. Government had such a program from 1972 until 1986,when it was eliminated as part of an overall simplification ofthe tax system. At that time the credit provided a 50% taxcredit, up to $50 for individuals and $100 for joint returns, forcontributions to federal, state or local campaigns. An averageof 4.9% of taxpayers filed for the credit in its final years, withan annual cost of $170-270 million.

States: Six states presently have versions of contributionrefund or tax credit programs: Arizona, Arkansas, Minnesota,Ohio, Oregon, and Virginia. Oregon established a 100% taxcredit in 1969 for contributions to candidates, parties, andPACs up to $50 for individuals and $100 for joint returns.Five states introduced variations on this program in the 1990s.The Arkansas tax credit is the same in size but applies onlyto contributions to candidates and parties, Ohio’s also is thesame in size but applies only to contributions to candidates.Virginia’s is a 50% credit for contributions up to $25 forindividuals and $50 for joint filers. Arizona gives a credit ofup to $530 for contributions to the state’s nonpartisan CleanElections Fund. Minnesota provides a full refund within sixweeks on contributions up to $50 to candidates or parties,separate from the tax system. Participation in these programsranges from less than one percent to six percent.

Canada: Canada has had tax credits at both the federal andprovincial level for parties and candidates since 1974. Thefederal system currently credits 75% of federal contributionsunder $200 Canadian (about $150 U.S.), and a lowerpercentage of larger contributions with a total cap of $500.Under recently passed legislation, this will change to a 75%credit for contributions under $400 Canadian, and then a lowerpercentage, with a total cap of $650.

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Tax Credit ResearchThese contrary impulses complicate the task of predicting a tax credit’s potentialimpact. In addition, there is a shortage of properly designed research on thesubject. Nevertheless, there is some useful work. In the following pages, we firstsummarize the experience in Minnesota and Canada, and then present preliminaryfindings from an extensive research project the Campaign Finance Institute hasunder way to study tax credits in the State of Ohio.

Minnesota

Minnesota has a “Political Contribution Refund Program”, rather than a taxcredit. Donors may apply for a $50 refund immediately, rather than as part of atax return, for contributions either to a political party or to a candidate whoagrees to limit campaign spending. According to a study published by theAmerican Enterprise Institute, about 3.5% of Minnesotans participate in theprogram (Rosenberg 2002). The program has had a partisan tilt in recent years,but in a way that shows the importance of educating donors.

◆ In 2000, the Minnesota Department of Revenue issued three times as many“political contribution refunds” to donors to the Republican Party as it did tothe Democratic Farmer Labor Party donors.

◆ In contrast, the Democratic Farmer Labor Party got slightly more funds thanthe Republicans from a second source of funds, an income tax checkoff that letsthe taxpayer choose the destination of the funds.

According to a Republican Party leader cited in the AEI study, the party worksto inform its supporters about the tax credit. (Democrats did not appear to makea similarly systematic effort.) Prescreened potential donors were told to look forthe mailing that includes the tax refund form. Unscreened potential donors whoresponded to a fundraising pitch were also more likely to give more after beinginformed of the credit. Thus the availability of a refund and its promotion byinterested parties together appear to have an important effect in generatingparticipation.

Canada

Canada gives a 75% tax credit for small contributions to political parties. InCanada, “Party officials and academics have generally agreed that the tax credithas ‘stimulated contributions by individuals [to parties and candidates] bylowering the net after-tax cost of such contributions” (Young 1998). Before thecredit was adopted in 1974, two of the three major parties, the ProgressiveConservatives and Liberals, were financed by contributions “from at most a few

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Figure 7.1Increased Political Contribution Tax Credit Claims In Canada

and Decreased Average Contributions toCanadian Federal Parties, 1975-1996

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

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

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

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hundred corporations” (Lortie 1991). From 1975-1997 however, individualcontributions generally comprised 35-65% of their donations. Moreover, otherleading parties (New Democratic, Bloc Québécois, Reform) during this periodhave generally drawn 60-90% of their contributions from individuals (Carty2000). Canadian parties advertise the benefits of the small donor-oriented taxcredit in appealing for contributions, their websites reveal.

Even more relevant for our purposes has been the distributive effect of theCanadian tax credits. A new CFI analysis of the Canadian experience stronglysuggests that offering tax credits for smaller political contributions fosters smalldonations. Figure 7.1 shows that the average value of individual contributionsto political parties in non-election years generally declined from 1975 to 1996,as the number of individual tax credit claims for party donations rose. (Thenumber of individual contributors to parties also increased, as one would expectfrom the rise in claims). The diagonal line portrays the strong relationship betweenincreasing use of the small donor tax credit and the decreasing size of an averagecontribution. This relationship is very strong through 1982. Afterwards, thenumber of tax credits plateaus, stabilizing at an average of 123,118 (comparedto a 68,508 average for the early years). The average party contribution alsoremains relatively constant at $106.82 (lower to the early years’ average of$122.17). The availability and utilization of the small donor political tax creditthus appear to be plausible explanations for the increased role of small donors infinancing Canadian parties.

The evidence from Minnesota and from Canada emphasizes the ability of ongoingparty organizations to capitalize on political contribution tax credits. Yet thepresidential primary contests are waged by individual candidates. Question: cantax credits targeted to small donors also expand the donor pool for candidates?

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

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experimental procedures followed those in Gerber and Green, 2000a, 2000b.Donald Green was a consultant on this project.)

CFI also commissioned two parallel surveys shortly before the 2002 electionwhose results are relevant for this task force. One was a survey of the generalOhio population and the other a survey of contributors, chosen randomly fromthe state’s public records of donors.1 The most directly relevant thresholdquestions in the general population survey first asked people whether they hadcontributed to state candidates in 2002. For those who did not contribute (96%of the sample), we asked whether they knew about the tax credit. Slightly morethan a quarter of the full population said they knew but did not contribute. Ofthe group that did not know of the credit, we asked whether knowledge of thecredit would have made them very likely to give, somewhat likely to give, orwhether they would have been unlikely to give, even if they had known. Theresults are reported in Table 7.1.

This survey, like all similar surveys, must be read with caution. For one thing,the size of the sample indicates that the results have a plus or minus threepercentage point range of error. In addition, 3.9% of the respondents said theycontributed to candidates, which is about eight times as many as the number ofcontributors listed in the states’ disclosure records for contributors of $25 ormore. (The disclosure records show a number of donors equal to about 0.5% ofthe state’s voting age population.) There are several possible explanations for thisinflated response. First, the question asked respondents whether they had givento candidates for state office in 2002. Some people may have said “yes” if theygave to any candidate for any office (state, local or federal) in any year. Second,respondents in surveys often will say they behave as they think a good citizenshould behave, whether or not they did. Similarly, the 4.7% who said they wouldhave been “very likely” to give, and the 17.5% who said they would be “somewhatlikely” to give, are probably much higher than would give in a real politicalcampaign, as are virtually all of the rest of the numbers in this table. Nevertheless,the responses do give some basis for optimism. Even though the numbers areinflated, they apparently are inflated for both the givers and likely givers. Therefore,whatever the actual percentages, we consider it reasonable to predict that a taxcredit program, combined with vigorous education efforts, would boost the actualrate of financial participation substantially above where it is now.

We next wanted to know how the potential new donors would compare to existingdonors. The results appear in Table 7.2.

1 The full results – with the questions, response rate and other data – appear in a separatepaper (Boatright and Malbin 2003). Here we report the results that are most relevant forconsidering the potential effects of a small tax credit for presidential donors.

CFI’s research experimentin Ohio tested whetherpeople would use thetax credit more after theyreceived nonpartisanmailings.

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Table 7.1Likelihood of Giving in Response to the Tax Credit in Ohio

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

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

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Small Donor Impact: The potential new donor pool has one additional featurethat is important for presidential politics. In our separate survey of campaigncontributors, we asked current contributors whether they knew about the taxcredit, and whether they would have given less if they had not known. We thenarrayed the responses by the size of the donors’ actual contributions to statewidecandidates in 2002, as Figure 7.2 shows.

Figure 7.2Percentage of Contributors of Varying Amounts Who Would

Have Given Less if They Had Not Known about the Tax Credit

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The people who said they were most affected by the tax credit were those whogave $100 or less and who would therefore be refunded the full amount of theircontribution. The benefit thus seems to target the donors we most want to attractinto the process: small donors of average means. In addition, we learned fromother questions on our survey that the tax credit seems more likely to attract newcontributors than to prompt current contributors to give more.

One final piece of evidence from Ohio reinforces the lesson from Minnesota andCanada about the importance of outreach to the public. In CFI’s survey ofcontributors to state candidates, two-thirds of donors gave money after beingdirectly contacted by a campaign or candidate or attending a fundraiser. And ofthose donors who were aware of the tax credit (60% of the sample), nearly 40%learned about the credit from a candidate or political party.

Research Summarized: In sum, both the need to diversify the presidential primarydonor base and research findings indicate the potential value of a 100% tax creditof up to $100 for presidential primary donations, and $200 for joint filers.

A Proposal and Cost EstimateAmong the objections frequently made to tax credit proposals are that they willcost too much, or that we have no idea what they will cost. We were able tocontrol these uncertainties by discussing a proposal whose goals were targeted tothe presidential public funding system.

The basic outline of the proposal we discussed was the following:

◆ Contributors to presidential candidates who participate in the public financingsystem (but not to candidates for other office or to non-participating candidates)would be eligible for a 100% federal tax credit on contributions, up to $100 perindividual filer or $200 per joint return.

◆ In return for this benefit targeted to their small donors, publicly funded candidatesshould agree to publicize the tax credit in their fundraising solicitations.

◆ The credit would be available to individuals with less than $50,000 andhouseholds under $100,000 federal adjusted gross income.

◆ The credit, and maximum eligible income, would be indexed for inflation.

Without dwelling on the details, we estimated the cost as follows. Giving the taxcredit to the donors who actually gave to presidential candidates in 2000 wouldhave cost about $41 million in lost tax revenue from all donors, or $32 millionfor donors who gave to publicly funded candidates. (This is a high estimate,since most of the eligible donors were less-than-$100 givers, who gave an averageof about $50 each in 2000. We estimated each at $100 to cover the possibility

The benefit thus seems totarget the donors we mostwant to attract into theprocess: small donors ofaverage means.

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that they would increase their giving in response to the credit, as many of theOhio donors apparently did.) Interestingly, it seems clear from our data thatputting an income limitation on the tax credit would have the effect of targetingalmost all of the credit to small donors.

If the tax credit were to increase the donor pool by 50%, the cost would rangefrom $125 million to $165 million, depending upon various assumptions (all ofwhich still assume, unrealistically, that every new donor would use and claim thefull $100 credit). The cost would be made up of two major components. About$48 million to $88 million would the loss in tax revenue from both old and newdonors.2 The remaining $77 million would be the cost of new matching funds.This assumes a 3-for-1 match for the first $100 contributed by each new donor,or $300 in matching funds for each of 257,000 new donors to publicly fundedcandidates.

There are two kinds of objections to these estimates. One is that the programwill not produce the number of new donors we have assumed. A program suchas this one is bound to require public education, and build slowly – especiallysince our survey suggests the most fertile results will be among young people. Ofcourse if participation is low, so would be the cost. The other objection is thatthe program will be wildly successful, costing more than we expect. One couldrespond simply by saying that more participation should be a cause for celebration.

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

One objection may be thatthe program will be wildlysuccessful, costing morethan we expect. Moreparticipation should be acause for celebration.

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Epilogue

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Epilogue:An Historic Opportunity

t the beginning of this report we said that campaign finance law is partly– but only partly – about preventing corruption and the appearance ofcorruption. The presidential public funding system over the years has

also enhanced competition, helping to provide voters with more meaningfulchoices. That program is in jeopardy and deserves to be saved. With foresight,the coming crisis for the system can become an historic opportunity.

The key to saving the system is to reduce the risks it creates for candidates whoparticipate in it. We recommend increasing the spending limit to a level that ishigh enough to let candidates be heard in their own voices in an expensive,frontloaded, nationalized, primary system, above the clatter of interest groupswhose independent spending cannot be limited by law. That spending limit mustalso include an escape hatch for candidates who run against an opponent whochooses not to take public funding so as to be free of the limit.

But this report urges Congress to do more than just save the existing program. Itshould improve the system and the health of the country’s democracy by makinga few modest changes. Using public matching funds to turn every $100contribution into $400 would profoundly change the financial foundations ofpresidential politics in the United States. It would bring more donors into thesystem, making financial participation more democratic. At least as important,it would strengthen the bonds between citizens and their government. Candidateswill alter their behavior to reconnect with small donors whom they now take forgranted. And citizens – having been asked – will feel more strongly connected tothe process they are supposed to control. That is a noble goal. The next stepshould be to make it a reality.

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AppendixAdditional Tables

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Table A.2.1Spending Limits, 1974-2004

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

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

$100 or less

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Table A.3.2Donor Characteristics: Individual Contributors,

Tax Checkoff Participants, and the General Public

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Table A.3.3Amount of Matching Funds under Various Scenariosg ( )

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

First $100 First $250 First $500

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

Benchmark: Current $

From Public Funds

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

TotalPublic $ 75.7 113.6 151.1 113.8 170.7 227.8 77.1 154.2 231.2 61.7

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

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

TotalPublic $ 92.8 139.2 185.8 130.6 195.9 261.3 85.2 170.4 255.5 58.5

Added Public $ 26.8 81.3 124.3 72.5 136.2 199.9 24.9 102.0 179.1

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

108

Table A.3.4Percentage Change in Matching Funds, under Various Scenarios,

From Amount Actually Received

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

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

AmountMatched

First $100 First $250 First $500

Ratio 2-to-1 3-to-1 4-to-1 2-to-1 3-to-1 4-to-1 1-to-1 2-to-1 3-to-1 2000 % % % % % % % % % Bauer 12 68 124 56 133 211 -7 86 180 Keyes 41 111 181 73 160 247 -6 88 182 McCain 14 71 128 71 156 241 15 131 246 Bradley 11 66 121 94 192 289 49 198 347 Gore 16 74 132 88 182 276 37 174 310 Quayle 41 112 182 103 204 305 27 154 281 Buchanan 90 185 280 127 241 354 24 148 272 Nader 90 184 279 154 281 408 30 161 291 Hagelin 26 89 153 91 187 283 10 120 230 LaRouche -12 32 76 51 127 202 7 114 222

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

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

109

Table A.3.5Percentage of Adjusted Receipts from Matching

Funds under Various Scenarios

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

g j g

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

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

AmountMatched

First $100 First $250 First $500

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

Benchmark: CurrentPercent From Public Funds

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

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

110

Table A.3.6Percentage of Adjusted Receipts from $1000+ Contributors

under Various Scenarios

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

111

Table A.3.7Publicly Funded Candidates’ Total Receipts, Individual

Contributions, and Matching Funds, 1976-2000(millions of nominal dollars)

112

Table A.3.7 Cont.Publicly Funded Candidates’ Total Receipts, Individual

Contributions, and Matching Funds, 1976-2000(millions of nominal dollars)

113

Table A.3.7 Cont.Publicly Funded Candidates’ Total Receipts, Individual

Contributions, and Matching Funds, 1976-2000(millions of nominal dollars)

114

Tab

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th

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115

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117

Task ForceMembers

119

Task Force on PresidentialNomination Financing

Jeffrey Bell, a principal at Capital City Partners, has held key roles in thecampaigns of Presidents Nixon and Reagan, as well as the candidacies of JackKemp and Gary Bauer. Mr. Bell has served as president of the Manhattan Institute,and as a Fellow of the Institute of Politics at the Kennedy School of Government,Harvard University. He was a candidate for U.S. Senate from New Jersey in1978 and 1982, and serves on the board of directors of the American ConservativeUnion. [*]

J. Kenneth Blackwell is Secretary of State of Ohio. As such, he is Ohio’s chiefelections officer and responsible for the State’s campaign finance disclosure system.Previously, he was Mayor of Cincinnati, undersecretary of Housing and UrbanDevelopment during George H.W. Bush’s Administration, Ohio’s Treasurer, andco-chair of the U.S. Census Monitoring Board. He served as the NationalChairman of Steve Forbes’ presidential campaign in 2000. Currently, Mr.Blackwell is a member of the Advisory Panel of the Federal Election Commission,and a member of the Board of Directors of the National Taxpayers Union. WithAnthony Corrado, he is also co-chair of the Campaign Finance Institute’s Boardof Trustees. [*]

William E. Brock is founder and chairman of Intellectual Development Systems/Bridges Learning Systems, Inc., which provides educational programs for schools.He previously served as U.S. Secretary of Labor (1985-87) in the ReaganAdministration, as U.S. Trade Representative (1981-85) and Chairman of theRepublican National Committee (1977-80). He also represented the people ofTennessee as a U.S. Senator (1971-76) and a Member of Congress (1963-70).

Becky Cain is the president and CEO of The Greater Kanawha Valley Foundationin Charleston, West Virginia. Ms. Cain was President of the League of WomenVoters of the United States from 1992 through 1998. She is a former member ofthe Executive Committee of the Leadership Conference on Civil Rights and theAdvisory Committee on Election Law to the American Bar Association, and theWest Virginia Election Commission. [*]

Anthony Corrado is a Professor of Government at Colby College and one of thenation’s leading experts on political finance. He is the author or co-author ofnumerous studies in this field, including Campaign Finance Reform: A Sourcebook;Paying for Presidents: Public Financing in National Elections; Financing the 1992Election; and The Elections of 1996: Reports and Interpretations. He previouslyheld senior positions in the Mondale, Dukakis and Kerrey presidential campaigns.With Kenneth Blackwell, he is also co-chair of the Campaign Finance Institute’sBoard of Trustees. [*]

120

Carol Darr is the director of the Institute for Politics, Democracy & the Internetat the Graduate School of Political Management at The George WashingtonUniversity. Ms. Darr served as acting general counsel to the U.S. Department ofCommerce under President Clinton and was general counsel to the DemocraticNational Committee in 1992. She was also chief counsel to the 1988 Dukakis/Bentsen Presidential Committee, and as the deputy counsel to the 1980 Carter/Mondale Presidential Committee.

Richard Davis is a Managing Partner of Davis Manafort, specializing ininternational and national political affairs. Mr. Davis was National CampaignManager for Senator John S. McCain’s 2000 presidential campaign and currentlyserves as Chairman of Senator McCain’s political action committee, Straight TalkAmerica. He was recently a Fellow of the Institute of Politics at the KennedySchool of Government, Harvard University. He also served as Deputy ConventionManager for the 1996 National Republican Convention and Deputy CampaignManager for the 1996 Presidential Campaign of Senator Bob Dole. Mr. Daviswas the National Convention Director for the Reagan/Bush Re-ElectionCampaign in 1984, and the 1988 Presidential Debate Coordinator for the Bush/Quayle 1988 Presidential Campaign.

Donald J. Foley is a principal at Prism Public Affairs, a firm that specializes inpublic affairs and communications. He previously served as RepresentativeRichard A. Gephardt’s press secretary for twelve years, with an extended leave toserve as Walter F. Mondale’s deputy press secretary in the 1984 presidentialcampaign. Mr. Foley was Executive Director of the Democratic SenatorialCampaign Committee. In 1996, he served as Convention Manager for theDemocratic Party in Chicago and as a communications consultant to the Clinton/Gore campaign.

Ruth S. Jones, Vice Provost for Academic Affairs at Arizona State University, isone of the leading political scientists in the area of campaign financing at thestate level. She has also been a Commissioner and Chair of the Arizona CitizensClean Elections Commission. [*]

Michael J. Malbin, the Campaign Finance Institute’s Executive Director, also is aProfessor of Political Science at the University at Albany, State University of NewYork. Before going to SUNY in 1990, he was a reporter for National Journal, residentscholar at the American Enterprise Institute, and worked for Richard B. Cheneyon the Iran-Contra Committee, in the House Republican leadership and in thePentagon. His books include Life After Reform: What Happens When the BipartisanCampaign Reform Act Meets Politics (editor and co-author); The Day After Reform:Sobering Campaign Finance Lessons from the American States; (with T. Gais) andVital Statistics on Congress, (with N. Ornstein and T. Mann). [*]

121

Charles T. Manatt is the founder of Manatt, Phelps & Phillips, a law firmspecializing in government services and strategies, international and corporatelaw. Mr. Manatt was the U.S. Ambassador to the Dominican Republic from1999 to March 2001. He is a former Chairman of the Democratic NationalCommittee and was Co-Chairman of the 1992 Clinton/Gore campaign. He iscurrently Chairman of the Board of Trustees of The George WashingtonUniversity.

Ross Clayton Mulford is a partner of the Texas based law firm Hughes & Luce,specializing in securities law and complex corporate transactions. Mr. Mulford wasgeneral counsel and campaign manager of Ross Perot’s 1992 presidential campaign,and in 1996 was general counsel to the Reform Party and Perot ’96. He has servedon the American Bar Association National Advisory Commission on Election Law(1993-1995, 1999-2001), and the ABA Standing Committee on Election Law (1995-1999). He has also served as a Fellow of the Institute of Politics, Harvard Universityand resident lecturer at the Kennedy School of Government.

Phil Noble, is founder of Phil Noble and Associates, an international politicaland public affairs consulting firm, and President of PoliticsOnline. PoliticsOnline,founded in 1996, is a company that provides fundraising and Internet tools forpolitics as well as publications that cover Internet politics. Noble was namedInternational Political Consultant of the Year in 1997 by the American Associationof Political Consultants, and in 2001 was a Fellow of the Institute of Politics atthe Kennedy School of Government, Harvard University. [*]

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

* Member of the CFI Board of Trustees.