Dollars & Democracy: A Blueprint for Federal Campaign Finance Reform – Part I

DOLLARS and DEMOCRACY
A Blueprint for Campaign Finance Reform

The Association of the Bar of the City of New York,
Commission on Campaign Finance Reform

RICHARD BRIFFAULT, Executive Director

Foreword by

JOHN D. FEERICK and ROBERT M. KAUFMAN
FORDHAM UNIVERSITY PRESS

New York 2000

Copyright 2000 by The Association of the Bar of the City of New York.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means–electronic, mechanical, photocopy, recording, or any other–except for brief quotations in printed reviews, without the prior permission of the publisher.

Library of Congress Cataloging-in-Publication Data

Association of the Bar of the City of New York Special Commission on

Campaign Finance Reform.

Dollars and democracy : blueprint for campaign finance reform / the Assoication of the Bar of the City of New York, Special Commission on Campaign Finance Reform ; introduction by John D. Feerick and Robert M. Kaufman ; Richard Briffault, executive director.–1st ed.

1. cm.

ISBN 0-8232-2095-8 (hc.)–ISBN 0-8232-2096-6 (pbk.)

1. Campaign funds–Law and legislation–United States.     I. Title.

KF4920.A97     2000

342.73’078–dc21     00-042676

Printed in the United States of America

00 01 02 03 04 5 4 3 2 1

First edition

CONTENTS

Special Commission on Campaign Finance Reform                       vii

Foreword by John D. Feerick and Robert M. Kaufman                xi

1.Introduction and Summary                                  1

A.The Collapse of the Watergate Era Campaign Finance System         1

B.The Role of the Special Commission on Campaign Finance Reform    5

C.Summary of Recommendations                                    7

2.The Federal Campaign Finance System                           17

A.The Statutory Framework                                          17

B.The Constitutional Law of Campaign Finance                    30

C.Federal Campaign Finance Activities Outside of FECA              44

D.Campaigning Under FECA                                         58

E.The Problem of Enforcement                                     74

3.Basic Principles of Campaign Finance Regulation                 83

A.Political Participation                                      84

B.Voter Information                                            86

C.Voter Equality                                            87

D.Competitive Elections                                          91

E.Prevention of Undue Influence of Campaign Financing on Government    92

F.Ameliorating the Burdens of Fundraising                          94

G.Effective Administration and Enforcement                     95

4.Recommendations                                           96

A.The Path to Reform                                             96

B.Public Funding                                            99

C.Adjusting Existing Contribution Limits                          118

D.Soft Money and the Political Parties                         124

E.Express Advocacy: The Definition of Electioneering Speech       140

F.The Federal Election Commission                               149

5.Conclusion                                                160

Sources                                                     163

Addendum: Separate Statements by Commission Members                171

Separate Statement                                              171

Mark Alcott, Andrea Berger, Richard Briffault, Marilyn Friedman,

Nicole A. Gordon, Lance Liebman

Statement of Dissenting Views                                    174

Joel Gora, Constantine Sidamon-Eristoff, Peter J. Wallison,

Michael S. Weinstock, Paul Windels III

Comment of Jerome S. Fortinsky                                     205

Additional Statement of Joel M. Gora                             209

Separate Statement of Nicole A. Gordon                          211

Dissent of Constantine Sidamon-Eristoff                        213

Additional Statement of Paul Windels III                        217

6. List of Recommendations

COMMISSION ON CAMPAIGN FINANCE REFORM

Co-Chairs

John D. Feerick

Dean, Fordham University School of Law

Chair, New York State Commission on Government Integrity

Former President, Citizens Union Foundation

Robert M. Kaufman

Partner, Proskauer Rose LLP

Former President, American Judicature Society

Former Legislative Counsel to Senator Jacob K. Javits

Hon. Cyrus R. Vance

Partner, Simpson Thacher & Bartlett

Former U.S. Secretary of State

Former Deputy Secretary of Defense

Executive Director

Richard Briffault

Vice-Dean and Joseph P. Chamberlain Professor of Legislation, and Executive Director, Legislative Drafting Research Fund, Columbia University School of Law

Members

Hon. Robert Abrams

Partner, Stroock & Stroock & Lavan

Former Attorney General of New York State

Mark Alcott

Partner, Paul, Weiss, Rifkind, Wharton & Garrison

Former Chair, Downstate New York Committee, American College of Trial Lawyers

Susan Cornick-Allen

Commission Secretary, 1997-1998

Joy Barson

Liaison, Committee on Federal Legislation

Andrea J. Berger

Assistant Corporation Counsel, Division of Legal Counsel, New York City Law Department

Former President, New York Women’s Bar Association

Former Vice Chair, Lawyers Alliance for New York

David M. Brodsky

Managing Director, General Counsel-Americas, Credit Suisse First Boston

Former Chair, New York Lawyers for the Public Interest

John W. Campo, Jr.

Transaction and Financial Counsel, General Electric Company

Former Council Member, Boston Bar Association

John R. Dunne

Of Counsel, Whiteman Osterman & Hanna

Former Assistant Attorney General, Civil Rights Division, U.S. Department of Justice

Former New York State Senator

Leonard A. Feiwus

Commission Secretary, 1998-2000

Alexander Forger

Special Counsel, Milbank, Tweed, Hadley & McCloy

Former President, Legal Services Corporation

Jerome S. Fortinsky

Partner, Shearman & Sterling

Former Assistant to the Governor for Regional Affairs, Office of Governor Mario M. Cuomo

Founder and Co-Chair, New York Young Lawyers for Clinton-Gore ’96

Marilyn F. Friedman

Former Partner, Patterson, Belknap, Webb & Tyler

Former Chair, Association of the Bar of the City of New York Committees on State Legislation and Election Law

Joel M. Gora

Associate Dean, Brooklyn Law School

Former General Counsel, New York Civil Liberties Union

Nicole A. Gordon

Executive Director, New York City Campaign Finance Board

Former President, Council on Governmental Ethics Laws

Former Counsel to the Chairman, New York State Commission on Government Integrity

Hon. Hugh R. Jones

Former Associate Judge, New York Court of Appeals

Former President, New York State Bar Association

Lance M. Liebman

Professor and Former Dean, Columbia University School of Law

President, American Law Institute

Carlos G. Ortiz

General Counsel, GOYA Foods, Inc.

Former National President, Hispanic National Bar Association

Constantine Sidamon-Eristoff

Of Counsel, Lacher & Lovell-Taylor PC

Vice Chairman, New York League of Conservation Voters

Former Regional Administrator, USEPA Region II

Peter J. Wallison

Partner, Gibson, Dunn & Crutcher

Former Counsel to the President of the United States

Former General Counsel of the Treasury

Paul Windels, III

Partner, Perry & Windels

Former Member, New York Republican State Committee

Former Chair and General Counsel, New York County Republican Committee

Michael Weinstock

Official in various political campaigns

Affiliations are listed for informational purposes, and the report does not necessarily reflect the views of the entities listed.

FOREWORD

The Special Commission on Campaign Finance Reform was formed by the Association of the Bar of the City of New York in 1997 on the initiative of its then president Michael Cardozo, and in the wake of the 1996 presidential and congressional elections. The Commission was directed to examine all aspects of the current system and recommend appropriate changes.

In selecting members for the Commission, the Association sought to have different and varied backgrounds and a broad spectrum of perspectives represented. In pursuing its work, the Commission met often and had its staff prepare comprehensive papers on the present system, proposals for change, and applicable constitutional and policy considerations. At its many meetings over the past three years, the Commission engaged in robust discussions, exchanges, and debates. The results of its deliberations were embodied in a series of papers that were then reviewed at meetings and changed to reflect the thinking of the group.

After its exhaustive work, the Commission reached a consensus as to a blueprint for campaign finance reform in America. This Report reflects that consensus. The recommendations reflect multiple and diverse goals and are interrelated. Not every member of the Commission subscribes to every recommendation. There were significant differences, as reflected in the separate statements in this Report. In the end, however, there was substantial agreement in the Commission that the present system was broken and badly in need of reform.

In this report the Commission submits its recommendations and dedicates its entire labor to Cyrus Vance, whose health did not permit him to serve during the latter part of our endeavor. His life in public service has been a model of the legal profession at its very best.

The work of the Commission could not have been accomplished without the dedication of those who selflessly devoted many hundreds of hours to its task. We express our gratitude to each member of the Commission and on behalf of every member to Professor Richard Briffault of Columbia University School of Law, our Executive Director and reporter. He did his work with distinction and an extraordinary commitment. Without Professor Briffault, this Report would not have been possible. We also extend special thanks to Leonard Feiwus for his outstanding efforts as secretary of the Commission, and to Miriam Jimenez and Claire Nee for their superb research and drafting assistance and their painstaking attention to detail.

Our Commission, research assistance, and this publication would not have been possible without the outstanding support we received in the form of grants from the following: the Ford Foundation; Open Society Institute; New York Community Trust (New York Critical Needs Fund, Lucille Gutman Trust, Robert M. Kaufman Fund, and General Charitable Fund); the Bauman Family Foundation; the J. M. Kaplan Fund, Inc.; the Joyce Foundation; Robert M. Kaufman; and the Fordham University School of Law. We thank Fordham University and its Press for publishing this Report.

Finally, the Commission would like to express its gratitude to Association President Michael Cooper for so generously supporting our work and to his predecessor, Michael Cardozo, for seeing a need for such a Commission–one that would build on a long and noble history of the Association in helping Congress deal with subjects of national import. We also thank the staff of the Association for their considerable help so vital to our work. We refer specifically and appreciatively to Barbara Berger Opotowsky and Alan Rothstein.

John D. Feerick and Robert M. Kaufman

April, 2000

Introduction and Summary

1. The Collapse of the Watergate-Era Campaign

Finance System

Our federal campaign finance system is in a state of disarray. In the early 1970s Congress adopted legislation aimed at achieving full disclosure of the sources of campaign money; limits on the size of campaign contributions by wealthy individuals and organized interest groups; public funding, with spending limits, for presidential candidates; and effective enforcement through a new administrative agency, the Federal Election Commission (FEC). The Watergate-Era legislation known as the Federal Election Campaign Act (FECA)¹–also carried forward longstanding prohibitions on the use of corporation and union treasury funds in federal elections.² These provisions of FECA were sustained by the Supreme Court in the leading case of Buckley v. Valeo,³ and in subsequent decisions.

Campaign finance activity in recent federal elections, however, has sharply departed from the framework adopted by Congress. A large and growing percentage of campaign funds is not subject to FECA’s disclosure requirements. Wealthy individuals, organized interest groups, corporations, and unions easily, massively, and legally disregard FECA’s dollar limitations and source restrictions on campaign funds. Publicly funded presidential candidates actively solicit and control the expenditure of millions of dollars of private contributions. The FEC has proven incapable of enforcing many of FECA’s requirements, restrictions, and prohibitions.

The problems with the current campaign finance system, however, run deeper than evasions of the legal framework, as serious as those evasions are. The parts of the system that work as Congress intended have come to cause problems as well. The dollar limits on the size of contributions to candidates and parties are exactly the same as those enacted in 1974, even as campaign costs have skyrocketed and inflation has eaten away at the value of the statutory limits. (See figures 1-A and 1-B.) The spending limits that are part of the presidential public funding system are adjusted for inflation but were initially set at such a low level that public funds are insufficient in light of the costs of contemporary campaigns. Many of the FEC’s problems were built into its structure by Congress.

Most importantly, the current statutory system does nothing to ensure that serious congressional candidates have the resources they need to mount effective campaigns. Nor does it attempt to level the electoral playing field by make it easier for challengers to compete fairly with incumbents. As a result, in many races, one candidate, typically the incumbent, has an enormous financial advantage over his or her opponents.

Figure 1-A:  Spending by dongressional Candidates 1974-1998

Source: 1974-1980, Citizens Research Foundation; 1982-1998, FEC.

The current campaign finance system has significant negative effects on our democracy.

Figure 1-b:  Spending by dongressional Candidates 1974-1998

(Adjusted for Inflation in January 2000 Dollars)

Source:  Spending 1974-1980.  Citizens’ REsearch Foundation; Spending 1982-1998, FEC.  Adjustment for inflation is based on U.S. Department of Labor, Bureau of Labor Statistics, “Consumer Price Index.  All Urban Consumers-(CPI-U) U.S. city Average,” ftp://ftp.bls.gov/pub/specialrequests/cpi/cpiai.txt

The system produces many elections in which the incumbent runs without serious competition. A tiny number of very wealthy individuals, organizations, and interest groups have enormous influence over the financing of election campaigns and, ultimately, on the elections themselves. Large campaign donations, and candidates’ dependence on these donations for the funds necessary to fuel their campaigns, provide major donors with opportunities for special access to elected officials. The enormous burdens of fundraising on elected officials and candidates discourage many potentially serious candidates from participating in elections, have led many seasoned officeholders to decline to seek reelection, and cause candidates and public officials to devote a disproportionate amount of their time and effort to the campaign money chase. The burden of fundraising also operates as a barrier to participation by women and minority candidates. The widespread and highly publicized evasions of the campaign finance laws insult the integrity of our legal system and contribute to the public’s deep and growing cynicism about the campaign finance process, and about the very legitimacy of our democracy itself.

The problems with our current campaign system ought not to come as a surprise. The basic statutory framework was adopted more than a quarter century ago. Tinkered with a few times in the 1970s, it is virtually unchanged over the last two decades. During that time, the political system has evolved, and new and expensive campaign technologies have developed. Candidates, contributors, and other participants in the political process have gained experience with the system, probed its weaknesses, found its loopholes, and exploited its shortcomings.

Campaign finance regulation needs to be a dynamic process that keeps pace with the changing nature of political campaigns. But our federal election laws remain frozen as they were written in the 1970s. Congress has frequently debated campaign finance regulation, and on occasion one house or the other has passed new measures. But the political process has been blocked.⁴ Despite growing public alarm and the mounting evidence of the inadequacies of the system under FECA, no significant federal campaign finance legislation has been adopted since 1979.

In addition to political gridlock on Capitol Hill, two significant factors further complicate the task of campaign finance reform. First, the Constitution, as interpreted by the Supreme Court, constrains the regulation of political campaigns. Campaign finance laws affect the communication of campaign messages and are, thus, subject to judicial review under the First Amendment. The Supreme Court has invalidated some campaign finance reforms and indicated that some campaign finance activities may not be regulated.

The limits imposed by the Supreme Court, however, should not be exaggerated. The Court has sustained the authority of Congress to limit contributions, to ban contributions by business corporations, to require the disclosure of campaign contributions and expenditures, to provide for public funding for candidates, and to make a candidate’s acceptance of spending limits a condition for public funding. Indeed, the Court has held that many of these reforms–disclosure, limits on contributions, public funding–actually promote constitutional values. In the Court’s most recent campaign finance case, decided in January of this year (see page 30), several of the justices signaled their willingness to revisit campaign finance doctrine in light of the new campaign finance stratagems that have emerged in recent years. The Supreme Court may have foreclosed certain regulatory options, but it has not prevented reform.

Second, campaign finance reform is difficult because of the inherent complexity of the problem. Campaign finance reform involves the consideration and reconciliation of multiple, diverse, and often conflicting goals. A well-functioning campaign finance system must protect freedom of speech, advance competitive elections, curtail special interest influence, and promote the equal political voice of all citizens, while minimizing the burdens of regulation on candidates, contributors, other participants in the process, and the FEC. Campaign finance reform requires respect for the open and dynamic character of the American political process, the evolving nature of campaigns, and the variety of circumstances and campaign styles across the country. Campaign finance reform must avoid burdening particular candidates or groups or providing advantages to their opponents. Reform must also take into account how candidates, contributors, and others will respond to particular efforts to regulate their behavior.

Campaign finance reform must be comprehensive. Limited approaches, targeting just one or another problem in the system, will have only a limited impact and are, in fact, likely simply to produce new forms of evasion and new loopholes. Only an integrated program of reforms can produce a strengthened democratic system. Yet given the range of conflicting values, the role of political interests, and the difficulties of designing reforms that can work in practice, comprehensive reform is by its very nature difficult to achieve.

1. The Role of the Commission on Campaign Finance Reform

The Association of the Bar of the City of New York believes that it can serve a constructive role in achieving comprehensive campaign finance reform. Formed in 1870 to combat corruption in the selection of judges, the Association has long played a leadership role in providing broad, in-depth, and nonpartisan analysis of major policy issues. The Association has always been particularly interested in questions of government integrity. It has produced landmark studies on conflicts of interest in the executive and legislative branches of the federal government, and on election-law reform in New York City and State.

The Commission on Campaign Finance Reform was created in February 1997, in response to the growing concerns within the membership of the Association about the large unregulated contributions, high levels of fundraising, and high costs of campaigns in the 1996 elections. The Commission is composed of a knowledgeable and diverse group of leaders of the Bar. It consists of men and women, people of different ethnic and racial groups and diverse ideological backgrounds. It includes Republicans, Democrats, and independents. Many members currently hold or previously held elected or appointed office, or ran for elected office, at the federal, state, or local levels. Many have participated in the management and financing of campaigns. Our numbers include three past presidents of the Association (one of whom was also Secretary of State of the United States), a former Counsel to the President of the United States, a former New York State Attorney General, the General Counsel to the New York Civil Liberties Union, the Executive Director of the New York City Campaign Finance Board, academics, and practitioners without direct experience in campaigns who are knowledgeable in the ways of the world, and especially the operations of the legal system.

Over the past three years, the Commission has closely examined the operations of the federal campaign finance system, considered the principles that ought to govern campaign finance regulation, and carefully reviewed many pending reform proposals.⁵ The Commission has spoken with people active in the field, and in cooperation with the New York City Campaign Finance Board it sponsored a conference that drew participants from across the country to discuss state and local innovations and their implications for reform at the federal level.⁶

The Commission has evaluated a broad range of reform options, including bills currently or recently before Congress; measures adopted or under consideration at the state and local level; and ideas put forward by numerous public policy and academic thinkers. We have extensively deliberated the strengths and weaknesses of a number of different ideas. Our recommendations draw from different, and conflicting, approaches to reform. Nevertheless, we believe that these proposals constitute a comprehensive package that, taken together, will protect free speech, promote competitive elections, curtail special-interest influence, reduce the burdens of fundraising, provide for a more open political process and more representative governance, improve administration, and produce a campaign finance system that is both more consistent with the system adopted by Congress nearly three decades ago and more faithful to our democratic political ideas than the system that is in place today.

1. Summary of Recommendations

Our recommendations draw from three different approaches to campaign finance reform. First, we would relax some of the restrictions in existing law that, due to the passage of time and the effects of inflation, have become unduly burdensome and unnecessary to advance the goals of campaign finance regulation. Thus, we would raise the current limits on individual contributions to candidates and parties, and we recommend that all contribution limits be, henceforth, indexed for inflation. Second, we would repair weaknesses in the current regulatory framework by addressing two problems that have emerged since FECA’s enactment–political party soft money and issue advocacy advertising–and we would strengthen the FEC so that it could be a more effective enforcement agency. Third, we would go forward to reduce the role of large, unequal private contributions in elections and governance, ameliorate the burdens of fundraising, and enhance candidate competitiveness by providing for a system of partial public funding for congressional elections.

These three approaches are reflected in five specific groups of recommendations:

(1) Public funding for congressional elections;

(2) Adjustment of existing contribution limits;

(3) Controls on soft money;

(4) Redefining electioneering speech to permit regulation of so-called issue advocacy advertising;

(5) Reforming the FEC.

(1) Public Funding

To promote voter equality and competitive elections, to ameliorate the burdens of fundraising, to facilitate political participation by new candidates, women, and minorities, to reduce the potentially corrupting effect of large contributions, and to increase the ability of candidates to get their messages to the voters, the Special Commission recommends that Congress add to the present system of public funding for presidential elections by enacting a system of public funding for elections to the House of Representatives and the Senate.

Candidates would become eligible for public funding by (i) raising a threshold amount of qualifying contributions, (ii) agreeing to limit the use of their personal or family funds in the election, and (iii) agreeing to limit their total campaign expenditures. Public funds would be provided on a matching-funds basis, with two dollars in public funds provided for every dollar in matchable private contributions of up to $250.

Public funding would be accompanied by a spending limit. The purpose of the spending limit is not primarily to limit or reduce the amount of money devoted to campaign activity. Election expenditures provide a valuable function in educating the public and mobilizing the electorate. Challengers, in particular, need to be free to spend enough money to offset the many advantages that incumbents enjoy. The purpose of spending limits is to eliminate the “arms race” mentality that causes candidates to embark on almost endless fundraising in order to be prepared for the possibility that they will be outspent by their opponents. Thus, the spending limit ought to be set high, so as not to interfere with the ability of candidates to mount competitive campaigns. But it needs to be firm to constrain the destructive effects of the current money chase. Consistent with the spending levels of competitive challengers in recent elections, we recommend that the limit in House elections be $1 million, indexed for inflation. The limit in Senate races will vary from state to state, reflecting differences in population and spending patterns. But as with the House, the limits are keyed to spending in competitive races and are not intended to reduce general levels of spending.

Candidates participating in the public-funding program need to be assured that by accepting a spending limit they have not denied themselves the ability to respond to a high-spending opponent who has opted not to participate in the public-funding program. Consequently, we recommend that the spending limit be raised when a publicly funded candidate’s opponent raises contributions that would enable him or her to spend over the limit, and that the limit be eliminated altogether when the opponent’s receipts are well above the limit.

In addition, we recommend that the public-funding program be financed out of the federal Treasury, not the income-tax checkoff currently used to provide the public funds for presidential campaigns. The checkoff does not provide enough funds to cover the costs of contemporary campaigns. Moreover, no other important public program depends on a checkoff. Public funding is too vital to the health of our democracy to depend on the ups and downs of the checkoff.

(2) Adjustment of Existing Contribution Limits

The Special Commission believes that contribution limits are necessary and appropriate to control the potential for undue influence by large donors and potential donors. But we believe that these limitations ought to be adjusted in light of changes in the cost of campaigns. As campaigns have become more expensive, the size of the maximum contribution an individual can make relative to the total funds the candidate must collect has grown smaller, thereby reducing the corruptive threat of contributions currently at the statutory ceiling. With the costs of campaigns rising but the size of the maximum contribution frozen at 1974 levels, the burdens of fundraising on candidates have grown. With individual contributions capped, candidates have become more dependent on intermediaries–such as PACs and bundlers–to help them raise the funds they need. So, too, the combination of 1974-level limits and 2000 campaign costs has provided both candidates and donors with a powerful incentive to engage in soft money financing. Thus, the current limits on private contributions have not so much limited the role of fat cats as they have enlarged the role of interest groups and contributed to the soft money evasion. Consequently, we recommend that FECA’s contribution restrictions be adjusted in light of changes in the costs of campaigns. The amount of money an individual can contribute to a candidate for federal office per election, thus, should be trebled from the 1974 level. This adjustment would be slightly less than the increase in the cost of living over that time. We also recommend that the current law, which provides for separate limits on contributions for primary and general elections, be changed. Realistically, candidates who make it to the general election are participating in one long campaign, not two, and moneys technically contributed for the primary election can be used for the general election. In practice, the current contribution limit is $2000 per election cycle, not the $1000 per election officially written into the statute book. FECA would be more consistent with campaign finance practices, and more honest with the public, if it set one overall limit for the entire election cycle. As a result, we recommend that an individual be permitted to contribute up to $6000 per candidate per election cycle, and that the contribution level be readjusted every two years in light of changes in the cost of living.

With respect to individual contributions to PACs, and contributions by PACs to candidates and party committees, we recommend that the current limits be continued and then indexed for inflation following the enactment of comprehensive campaign finance reform legislation. We see no persuasive basis for the statute’s current posture of permitting larger contributions to and by PACs than it permits individuals to give to candidates. By immediately raising the individual limit without raising the PAC limit, we would place individual and PAC donors on a more level playing field.

Consistent with trebling the limit on individual contributions to candidates, we would treble the limit on the aggregate contributions an individual can make for federal election purposes per calendar year, from the 1974 level of $25,000 to $75,000, with the limit again indexed for inflation in the future.

(3) Soft Money and the Political Parties

Soft money is money that, by definition, is not subject to the dollar limitations and source prohibitions of federal law. Soft money is outside of FECA’s regulation because it is technically used for purposes other than the support of federal candidates. But in practice, soft money has come to play an important role in federal elections. Soft money undermines the central goal of reducing the impact of special-interest influence on officeholders and the electoral process. Indeed, the very existence of soft money mocks campaign finance law.

We recommend that Congress ban the use of soft money in federal elections. We would prohibit federal officeholders and candidates for federal office from soliciting, receiving, directing, transferring, or spending any money that does not comply with the source and dollar limits applicable to federal campaign contributions. We also recommend that Congress prohibit the national committees, including the congressional campaign committees of the political parties, their officials, and their agents, from soliciting, receiving, directing, transferring, or spending any money that does not comply with the source and dollar limitations applicable to federal campaign contributions.

These proposals are not intended to reduce the role of the political parties in federal election campaigns. We recognize that parties are important participants in the financing of federal election campaigns. Party spending can have many benefits. Party money reflects a broader range of interests and concerns than money provided by PACs; party committees typically devote a greater share of their resources to competitive challengers and marginal incumbents than do other contributors; and parties give considerable attention to registering and mobilizing voters. But soft money permits unlimited participation by large donors, special interest groups, corporations, and unions. In so doing, soft money flouts the law and gives an excessive role to monetary influences within the parties. Soft money must be prohibited to restore the integrity of federal election law.

The prohibition of soft money, however, ought to be accompanied by a loosening of the rules governing hard money contributions to and by the parties. The Commission recommends that Congress raise the limit on individual hard money donations to political parties. An individual donor could give to party committees in total any amount up to the proposed aggregate ceiling on individual contributions of $75,000 per calendar year. We would also raise the limits on donations by parties to candidates, and on party spending that is coordinated with candidates. We would allow candidates who participate in the proposed congressional public-funding system to receive party financial support up to the public-funding spending limit.

The Commission would also restore the integrity of the limitations on party spending in support of candidates by clarifying when a party expenditure ought to be considered independent and when it ought to be considered coordinated with a candidate. Once a party committee has made a direct contribution to, or a coordinated contribution with, a candidate, then all subsequent expenditures by that committee and by all committees of that party with respect to that candidate are to be treated as coordinated with the candidate and as subject to the limits on party support for candidates. In addition, once a party has nominated a candidate, all party expenditures supporting that candidate are to be treated as coordinated.

(4) Express Advocacy

FECA’s rules and requirements apply only to campaign messages that constitute express advocacy of the election or defeat of federal candidates. The courts have generally defined express advocacy narrowly, by holding that only messages that contain literal words of electoral advocacy–such as “vote for,” “vote against,” “elect,” “defeat”–may be treated as express advocacy. Ads that praise or condemn clearly identified federal candidates but that carefully avoid using the magic words of express advocacy are labeled issue advocacy and are considered to be beyond the scope of regulation. Many so-called issue advocacy ads contain no discussion of issues at all. Most television viewers or radio listeners find these so-called issue ads indistinguishable from ads that contain the magic words of literal advocacy.

Electioneering ads that are deemed issue ads avoid federal reporting and disclosure requirements and may be funded by donations from corporate and union treasuries. Parties may pay for issue ads with corporate and union donations, and with individual donations that exceed FECA’s limits. Party spending on issue ads is not subject to FECA’s limits on coordinated expenditures, even when the ads benefit a candidate who has accepted public funding and spending limits.

The Commission recommends that FECA be amended to provide that:

(1) any advertisement that is coordinated with a candidate shall be treated as a contribution to that candidate even if the content of the advertisement avoids words of express advocacy;

(2) any communication by a committee of a major political party that mentions by name or includes the likeness of a clearly identified federal candidate shall be treated as express advocacy subject to the expenditure limitations and reporting and disclosure requirements applicable to such advocacy; and

(3) any communication that clearly identifies by name or likeness a candidate for federal office shall be presumed to be express advocacy if broadcast or published within the 30 days prior to a primary or general election; this presumption, however, may be rebutted by a showing that, based on the content and context of the speech, viewers, listeners, or readers are unlikely to treat the communication as election-related.

We recognize that these recommendations present important constitutional questions and that they depart from the current judicial definition of express advocacy. Nevertheless, for the reasons we lay out in the body of this Report, we believe that these proposals are constitutional and will withstand judicial scrutiny.

(5) Federal Election Commission

Effective enforcement is essential to any system of campaign finance law, but the current Federal Election Commission has failed to provide effective enforcement. Many of the problems with the FEC are built into its basic structure, including the even number of commissioners, the lack of a long-term chair, and the partisan appointments process, as well as congressionally imposed restrictions on the FEC’s investigatory and enforcement powers. As a result, the FEC is frequently incapable of taking effective action against the major parties or their candidates.

We recommend that the FEC be restructured, with an odd number of commissioners, a chair who is appointed to serve for at least two years, and at least one member who is not affiliated with any major political party. We also recommend simplifying the FEC’s cumbersome multistep enforcement process, increasing its ability to detect violations by empowering it to conduct random audits, and providing for enforcement during the real time of a contested election by allowing the FEC to go to court and seek expedited relief in appropriate cases.

Finally, we urge Congress and the President to take seriously their responsibility for effective enforcement of the campaign finance laws by depoliticizing the appointments process and by providing the FEC with the additional resources necessary for it to discharge its many tasks.

We emphasize that all the elements of this comprehensive program are closely intertwined and interdependent. Raising contribution limits is desirable only if the other steps are taken to eliminate soft money, strengthen FECA, and provide public funding, thereby balancing the effects of larger private donations with more effective enforcement of the new limits and with public money that can dilute the impact of special-interest influence. Banning soft money and regulating issue advocacy assume both an increase in the hard dollar contributions and the provision of public funding as well as effective enforcement of the new rules to ensure that these restrictions do not make it more difficult for candidates to fund their campaigns and do not create incentives for the future development of campaign finance techniques that would evade these desirable regulations. Public funding assumes effective and enforceable controls on soft money and issue advocacy, lest the public-funding system be overwhelmed by large and unregulated donations from outside the system. Higher, but effective, restrictions on private contributions may be desirable to ensure that the proposed public-funding system is, as the Supreme Court has said the Constitution requires, truly a voluntary option for participating candidates.

We believe that our package of proposals, taken together, can produce a campaign finance system that is more open and competitive, provides voters with greater information, reduces the burdens of fundraising, reduces the undue influence of large donors on governance, better respects the norm of voter equality, and is more effectively enforced than the current system. (See table 1.)

Table 1: Summary of Recommendations

Public Funding

Authorize voluntary, partial public funding in Congressional elections

� for primary and general elections

� for qualifying candidates

� $2:$1 match for each private donation up to $250 per individual donor

Qualifying by raising

� House–$25,000 (with only $250 per individual in-state donor counting)

� Senate–between $25,000 and $75,000, depending on state population (with only $250 per individual in-state donor counting)

Limit on candidate’s use of personal/family funds

Spending limit

� House–$1 million per election cycle, subject to cost of living adjustment

� Senate–in states with voting-age population (VAP) less than one million, limit of $1 million + $2.00 per voting-age person. In states with VAP greater than one million, limit of $1 million + $1.50 per voting-age person

[hi1e]Spending limit raised if participating candidate has high-spending non-participating opponent

Contribution Limits

Limit on individual donation to candidate raised from $2000 per election cycle to $6000 per election cycle.

� and adjusted for future inflation

Limit on individual donations to party committees removed, subject only to limit on total donations by an individual

Limit on total donations by an individual to candidates, PACs, and parties raised from $25,000 per calendar year to $75,000 per calendar year

� and adjusted for future inflation

Limits on donations to and by PACs unchanged, but in the future to be adjusted for inflation

Soft Money and the Political Parties

Federal officeholders and candidates forbidden from dealing with soft money

National party committees forbidden from dealing with soft money

State party committees forbidden from dealing with soft money for federal election activity

State party committees may use soft money for mixed federal-nonfederal activities subject to allocation,

� with approximately 60% of funds in hard money

Limits on party contribution/coordinated expenditures in support of candidates to be doubled

Party spending in support of a nominated candidate defined as a coordinated expenditure

All party spending in support of a candidate who has received a party contribution or benefited from a party coordinated expenditure is defined as coordinated

Issue Advocacy/Express Advocacy

All communications coordinated with a candidate are express advocacy

All communications by a political party that mention by name, or include the likeness of, a clearly identified federal candidate are express advocacy

Rebuttable presumption that all communications by any individual or organization that mention by name, or include the likeness of, a clearly identified federal candidate within 30 days of a federal election are express advocacy

Federal Election Commission

Seventh commissioner to be appointed; must not be affiliated with a political party

Strong chair to be appointed for a two-year term

Civil enforcement process to be simplified

Random audit authority to be restored

Power to seek expedited relief authorized

Additional resources to keep pace with level of federal campaign activity

¹ 2 U.S.C. �� 431-455. The provisions for public funding for presidential candidates are technically separate from the Federal Election Campaign Act and are found in the Presidential Campaign Fund Act, 26 U.S.C. �� 9001-9012, and the Presidential Primary Matching Payment Account Act, 26 U.S.C. �� 9031-9042. This Report will use the acronym FECA as a shorthand way of referring to both the Federal Election Campaign Act and the presidential public-funding legislation.

² The prohibition on corporate contributions in federal elections dates back to the Tillman Act of 1907. The prohibition on the use of union treasury funds in federal elections dates back to the Smith-Connally Act of 1943.

³ 424 U.S. 1 (1976).

⁴ No campaign finance bill passed either house in the 1980s. In 1990, 1991, and 1992 the Senate and the House passed different campaign finance reform measures. In 1992 both houses of Congress adopted the Conference Committee’s report on the Senate proposal, S. 3, but President Bush vetoed the measure, and the Senate failed by nine votes to override his veto. Since then, the House passed the Shays-Meehan Bill, in 1998 and again in 1999. Action on Shays-Meehan’s Senate counterpart, McCain-Feingold, has been blocked by filibuster.

⁵  This report is focused exclusively on the federal campaign finance system, with particular attention to the funding of congressional campaigns. It does not address state or local campaign finance regulation. The Association of the Bar has addressed state and local campaign finance practices in previous reports. See, e.g., Committee on Election Law, “Towards a Level Playing Field–A Pragmatic Approach to Public Campaign Financing.” 52 The Record 660 (Oct. 1997).

⁶ The Conference was held at the Association of the Bar on Nov. 9, 1998. The conference was funded in part by grants from the New York Community Trust and the Joyce Foundation. The proceedings of the conference may be found at “From the Ground Up: Local Lessons for National Reform,” 27 Fordham Urban L. J. 5-166 (1999).

The Federal Campaign Finance System

1. The Statutory Framework

Federal campaign finance law has four principal elements:

(1) Contribution and expenditure restrictions in connection with elections for federal office

(2) Reporting and disclosure requirements for federal candidates and for organizations that raise and spend money in connection with federal election campaigns

(3) Enforcement by the Federal Election Commission

(4) Voluntary public funding for presidential candidates

(1) Contribution and Expenditure Restrictions

FECA imposes dollar limits on contributions to candidates, political committees, and political parties. It limits certain expenditures by political parties, as well as by candidates who choose to accept public funding. FECA also completely prohibits campaign contributions and expenditures by certain organizations and individuals, specifically corporations, labor unions, government contractors, and foreign nationals.

Limits on Contributions by Individuals     A person⁷ may contribute up to $1000 to a federal candidate per election. As the Act treats primaries and general elections as separate elections,⁸ the effective limit on contributions per election cycle is $2000.

A person may also give $5000 per calendar year to a “political committee,” that is, an organization that either receives more than $1000 in contributions to be used in federal election campaigns or spends more than $1000 in connection with federal election campaigns.

The Act treats party committees as political committees, but it permits individuals to make a total of $20,000 in contributions to the national committees of a political party per calendar year. This $20,000 limit covers a party’s Senate campaign committee and its House of Representatives campaign committee as well as the party National Committee itself.

The Act imposes an aggregate cap of $25,000 on the total contributions an individual can make to all candidates, political committees, and party committees for federal election purposes within a calendar year.

Limits on Contributions by Political Action Committees (PACs)     Contributions by a political committee to a candidate, another committee, or a political party are subject to the same limitations that apply to contributions by individuals,⁹ but a “multicandidate political committee”–that is, a political committee that receives contributions from 50 or more persons and makes contributions to five or more candidates for federal office–enjoys the benefit of a higher contribution limit. Such a PAC can contribute up to $5000 per candidate per election (or $10,000 per election cycle); $5000 in contributions per calendar year to any other political committee; and $15,000 per calendar year to a national political party committee. There is no aggregate limit on the amount of contributions a PAC can make to all candidates, committees, or parties in an election cycle. All PACs established, financed, maintained, or controlled by the same corporation, union, or other person are subject to one contribution limit, so that parent organizations cannot proliferate PACs to avoid the statutory ceiling.

Limits on Political Party Contributions and Expenditures     Party committees–including the national committees, the Senate and House campaign committees, and state and local party committees that make sufficient contributions or expenditures in connection with federal elections to fall within the Act–can contribute up to $5000 per election per candidate. In addition, each party’s national committee, or its Senate campaign committee, may contribute up to $17,500 to a candidate for election to the Senate.¹⁰

FECA offers the parties two additional opportunities, unavailable to individuals or PACs, for providing candidates with financial support:

1. Coordinated Expenditures: The parties may engage in “coordinated expenditures” in support of their candidates. Money that is not given to a candidate but is spent by an individual or organization in coordination with a candidate is treated as though it were a contribution to that candidate and is subject to the statutory contribution ceiling.¹¹ However, the Act authorizes party committees, and only party committees, to engage in coordinated expenditures with candidates that do not count against the contribution caps. Coordinated expenditures are subject to dollar limits, but these limits are much higher than the limits on contributions. Moreover, unlike the limits on contributions, the coordinated expenditure caps are adjusted for inflation.

A party national committee may spend two cents per voting age population, inflation-adjusted from a 1974 base, in support of the party’s presidential ticket.¹² Under this formula, each of the two major national parties will be able to spend $13.3 million in coordinated spending in support of its presidential ticket in 2000.¹³ The national and state parties may also each spend the greater of $20,000 in 1974 dollars, or two cents in 1974 prices times the voting-age population of the state, in coordinated expenditures in connection with the general election campaigns of party Senate candidates, or for the House of Representatives candidates in a state that has only one House seat.¹⁴ The coordinated spending limit for party spending in support of other House candidates is $10,000, inflation-adjusted from a 1974 base.¹⁵ In 1998 the coordinated spending limit for House races in states with one House district was $65,100, and $32,550 in states with two or more House districts. FECA permits both national and state party committees to undertake coordinated expenditures in congressional elections. The state committee typically designates a national party committee–such as the Senate campaign committee for Senate elections or the House campaign committee for elections to the House of Representatives–to act as its “agent” for coordinated expenditures.¹⁶ Such an “agency agreement” effectively doubles the national committee’s coordinated expenditure limit and enhances the overall impact of party spending. As a result, in 1998, limits on party coordinated spending for Senate races ranged from $130,200 in Alaska to $3,035,874 in California.¹⁷

2. Grassroots Expenditures: State and local party committees may undertake certain “grassroots” expenditures in support of federal candidates. These include payments for (i) campaign materials “such as pins, bumper stickers, handbills, brochures, posters, party tabloids, and yard signs” used in connection with volunteer activities on behalf of party nominees; (ii) voter-registration activities; and (iii) get-out-the-vote drives.¹⁸ These expenditures can be made only with contributions that comply with FECA’s dollar caps and source limits, but the amount state and local parties can spend on these activities is unlimited.

Corporations and Labor Unions     It is unlawful for any national bank or any corporation organized under federal law to engage in any campaign finance activities, and for any other corporation or any labor organization to make any contributions or expenditures in connection with an election for federal office. The ban on corporate contributions is our oldest federal campaign finance law. The ban was first enacted in 1907 in response to disclosures about the role of large corporate contributions in the 1904 presidential election campaign.¹⁹ The ban on union campaign finance activities dates back to 1943.²⁰

FECA, however, makes three exceptions from the ban on corporate and union contributions and expenditures. The first two–exemptions for “internal communications” and for nonpartisan registration and get-out-the-vote drives–track the Act’s general exemptions from the definitions of contribution and expenditure. Communications by a corporation to its stockholders and executive or administrative personnel and their families, and by a union to its members and their families, are not subject to restriction. Similarly, nonpartisan registration and get-out-the-vote campaigns by a corporation aimed at its stockholders and executive or administrative personnel and their families, or by a union aimed at its members and their families, are not subject to restriction.

Corporate and Union PACs: The third exemption authorizes corporations, unions, membership organizations, trade associations, and cooperatives to use their funds to establish, administer, and solicit contributions to “a separate segregated fund to be utilized for political purposes.”²¹ Although corporations and unions cannot use funds from their corporate or union treasuries to contribute directly to federal candidates or to spend in support of or opposition to federal candidates, the corporations and unions can use their funds to set up PACs and to enable their PACs to solicit funds from persons affiliated with the corporation (such as shareholders and executive and administrative personnel and their families) or the union (union members and their families). The PACs, in turn, can make contributions to candidates and spend money in support of or opposition to federal candidates.²²

Contributions to a PAC sponsored by a corporation or union must be voluntary. It is unlawful to obtain contributions by force, job discrimination, financial reprisal, or threats. Any person soliciting an employee for a contribution to a fund is required to inform the employee, at the time of solicitation, of the right to refuse to contribute.

Although a corporate or union PAC is required to keep its funds separate from the parent organization, that requirement is intended to ensure only that the funds actually given to candidates, or spent in support of or opposition to candidates, are actually the result of voluntary contributions. The parent corporation or union can determine how its PAC spends its money, which candidates it supports, and how large a contribution the candidate receives. The parent organization can also pay the administrative costs of the PAC, including its fundraising expenses.

Foreign Nationals and Federal Contractors     FECA prohibits federal contractors and foreign nationals from making contributions in connection with any election to any political office. Foreign citizens who have been lawfully admitted to permanent residency in the United States are not subject to the ban on contributions by foreign nationals.²³ Federal contractors, however, can establish, administer, and solicit contributions to PACs, which are governed by the general rules applicable to PACs.²⁴ The law does not permit foreign nationals to create PACs.

Limits on Spending by Candidates and Independent Committees     The 1974 amendments to FECA originally provided for limits on campaign spending by candidates and on spending by individuals or organizations operating independently of candidates’ committees in support of or opposition to candidates. These restrictions were held unconstitutional by the Supreme Court in Buckley v. Valeo two years later. The Court, however, upheld the spending limits that presidential candidates were required to accept as a condition for public funding.

(2) Reporting and Disclosure Requirements

FECA imposes detailed reporting requirements on candidates and on political committees that raise and spend money in connection with federal elections. Disclosure requirements have been a central feature of federal campaign finance law since 1911, but earlier laws were riddled with exceptions and poorly enforced. Under FECA, a candidate for federal office is required to designate a principal campaign committee within 15 days of becoming a candidate. All candidate campaign committees–indeed, all political committees–are required to keep detailed records of contributions and expenditures, including the name and address of any person who makes any contribution in excess of $50 or a total of $200 in contributions in a calendar year, and the name and address of every person to whom a disbursement greater than $200 is made.

Candidate Committees     Campaign committees of candidates for Congress have to file pre-election, post-election, and quarterly reports during an election year, and semiannual reports in non-election years. Campaign committees of candidates for President must file monthly, pre-election, and post-election reports in an election year, and monthly or quarterly reports in a non-election year. Other political committees must file periodic reports.

These reports must disclose total contributions from persons, from the candidate, from political party committees, and from other political committees, and they must identify: (i) any person who contributes more than $200 in the reporting period; (ii) any political committee that makes a contribution in the period; and (iii) any transfer of funds among affiliated committees. Candidate committee reports must also disclose all expenditures to meet candidate or committee operating expenses and must include the name and address of each person who received $200 in expenditures in a calendar year.

Political Committees     Political committees other than candidate committees must report contributions to other political committees and identify any person who receives a disbursement of $200 in connection with an independent expenditure by the reporting committee.

Party Committees     Party committees that make expenditures in connection with elections of candidates for federal office must report the name and address of each person who receives such an expenditure.

Other Participants in Federal Election Campaigns     Every person or organization other than a political committee that spends more than $250 in a calendar year in connection with a federal election campaign must also file a statement identifying any person who makes a contribution greater than $200, indicating whether an expenditure is in support of or opposition to a candidate, and a certification under penalty of perjury whether the independent expenditure was made in cooperation, consultation, or concert with a candidate. Any expenditure aggregating $1000 or more made after the 20th day, but more than 24 hours, before an election must be reported to the FEC within 24 hours after it was made. The FEC is required to develop a filing, coding, and cross-indexing system for these reports. Within 48 hours of the FEC’s receipt of reports and statements filed with it, the FEC must make them available for public inspection and copying.

(3) Enforcement

Although federal campaign finance laws have included disclosure requirements since 1911, prior to the enactment of FECA these laws were poorly enforced. Disclosure “meant nothing more than submitting reports of general election contributions and expenditures to the House clerk and Senate secretary; there were no regulations standardizing reporting forms or defining violations, and little provision for enforcement. . . . [T]he act made no provision for publicizing reported financial data. As candidates and committees ignored it, and attorneys general failed to enforce it, the law became a dead letter.”²⁵ A central feature of FECA is the creation of an independent agency to enforce the Act’s contribution restrictions and reporting requirements, and to disclose campaign finance information to the public.

Federal Election Commission     The FEC consists of six members appointed by the President, with the advice and consent of the Senate, for six-year terms. As a result of an amendment enacted in 1997, newly appointed or reappointed members are henceforth limited to a single term. No more than three of the members appointed by the President may be affiliated with the same political party. In practice, three members of the FEC are Democrats and three are Republicans, and despite the President’s formal power to nominate, the Democratic and Republican congressional leaders have “enormous influence” in selecting the appointees who “represent” their respective parties.²⁶

The FEC has exclusive jurisdiction with respect to the civil enforcement of FECA. The FEC has the power to initiate, defend, and appeal civil actions; render advisory opinions; make, amend, and repeal rules; subpoena the attendance and testimony of witnesses and compel the production of documents; and conduct audits and field investigations.

Civil Penalties     Penalties for violation of FECA’s requirements are a maximum of $5500 or the amount of the contribution or expenditure involved in the violation, whichever is greater. For knowing and willful violations, the penalty doubles to $11,000, or twice the amount of the contribution or expenditure involved in the violation, whichever is greater.

Criminal Penalties     Any person who knowingly and willfully commits a violation of the Act that involves the making, receiving, or reporting of any contribution or expenditure aggregating $2000 or more in a calendar year may be fined, imprisoned for not more than one year, or both. The fine shall not exceed the greater of $25,000 or 300 percent of the contribution or expenditure involved in the violation. In the case of a knowing and willful violation of the rules governing solicitations by the PACs of corporations, unions, and membership organizations–particularly the rules designed to ensure that contributions to such funds are voluntary–these penalties may apply to violations involving $250 or more in a calendar year.

Criminal enforcement falls within the exclusive jurisdiction of the Department of Justice. FECA’s criminal penalties are rarely invoked, however, because of the difficulty of proving a knowing and willful violation, as well as the statute’s short three-year statute of limitations.²⁷

(4) The Presidential Public Funding System

The presidential election campaign public funding system has three components: funding for the general election campaign, funding for pre-nomination campaigns, and funding for the nominating conventions of the national parties. All three components are funded by the voluntary income-tax checkoff established by 26 U.S.C. � 6096. The checkoff–originally $1 for an individual return and $2 for a joint return–was raised to $3 and $6 in 1993.

General Election Public Funding     The Act provides for a system of voluntary but, at least theoretically, full general election public funding for participating candidates. The candidates of major parties may receive public funds for their campaigns if they agree not to make campaign expenditures greater than the public funds they receive, furnish the FEC with a complete record of campaign expenses, and agree to audit and examination by the FEC.

Major party candidates–that is, candidates of those parties that received 25 percent or more of the vote in the prior presidential election–are entitled to receive $20 million, adjusted for inflation from a 1974 base. The public grant was $61.8 million in 1996 and is expected to be at least $66.12 million for the 2000 election.²⁸ Since the adoption of the public funding system, the only parties that have qualified as major parties are the Republican and Democratic parties.

A minor party candidate–that is, the candidate of party whose candidate for president received more than 5 percent but less than 25 percent of the popular vote in the preceding presidential election–is also eligible to receive public funds. Minor party candidates receive a fraction of the funds paid to the major party candidates. That fraction is based on the ratio of the number of popular votes the minor party’s candidate received in the last presidential election to the average number of popular votes received by the major party candidates in the preceding presidential election. Thus, Ross Perot, who received 19 percent of the total vote in 1992 as the candidate of the Reform Party (in an election in which the Republican and Democratic candidates received an average of about 40 percent of the vote each), received $29.1 million. In order to receive public funds, minor party candidates also have to agree to accept the spending cap and other conditions applicable to major party candidates. As the Reform Party received 8.4 percent of the popular presidential vote in the 1996 election, it will be eligible to receive approximately $11 million for the 2000 general election.

The candidate of a new party–that is, a party that failed to receive 5 percent of the vote in the preceding presidential election–may also receive public funds. The payment to new party candidates will be made only after the election and only if the candidate receives more than 5 percent of the popular vote. The payment to a new party candidate is based on the ratio of the candidate’s votes to the average vote for the candidates of the major parties. Under this provision, John Anderson received public funds after the 1980 election. In order to be eligible for public funds, a new party candidate must abide by the spending cap and agree to the other conditions applicable to the major party candidates during the election.

Spending Limits     The public grant comes with a spending limit. The presidential ticket may not spend more than the public grant. There are two exceptions to this rule.

First, the public funding law provides that candidates can raise and spend without limitation funds for general election legal and accounting compliance (GELAC). These funds must comply with FECA’s contribution restrictions and reporting requirements, but they are not subject to spending limits. In 1996 the two major and one minor party candidates eligible for public funds supplemented their combined $152.7 million in public grants with $13.6 million in GELAC funds.²⁹

Second, the law authorizes the parties to engage in coordinated expenditures in support of their presidential tickets. The coordinated spending limit is two cents per voting-age population adjusted from a 1974 base. In 1996 the coordinated spending limit was $12.1 million for each of the major parties. Interestingly, neither party actually spent at the limit level. The Republican Party, at $11.6 million, came close, but the Democratic Party, at $6.7 million, spent only a little more than half its permitted coordinated expenditures.³⁰

The decision of a presidential candidate to accept public funding and a spending limit cannot operate to limit the spending by independent organizations in support of that candidate or in opposition to that candidate’s opponent. Provided the organization is truly operating independently of the publicly funded presidential candidate, its spending cannot be limited.³¹

Nominating Conventions     The parties can receive public funds to defray the costs of their nominating conventions. Provided they agree not to make expenditures greater than the payments from public funds, major parties may receive the inflation-adjusted equivalent of $4 million in 1974 dollars.³² In 1996 each of the major parties received $12.4 million for its convention costs. They will each receive $13.2 million in 2000.³³ A minor party may receive a fraction, based on the same ratio used for calculating payments to the minor party presidential candidate, provided the minor party also agrees to a convention spending cap. The Reform Party is scheduled to receive $2.5 million for its 2000 convention.³⁴

Presidential Primary Campaigns     For the presidential general election, the public grant is largely intended to replace private funding for major party candidates. For the primaries, public funding is intended to cover only part of a candidate’s costs. A candidate is eligible for presidential primary public funds if he or she raises at least $5000 in contributions from residents of each of at least 20 states, although no more than $250 from any one donor can be counted toward the qualification threshold. A candidate ceases to be eligible for payments 30 days after the second consecutive primary election in which he or she receives less than 10 percent of the votes cast for all the candidates of the candidate’s party in that primary. The candidate may become reeligible if he or she receives 20 percent or more of the total vote for candidates of his or her party in a subsequent primary.

Public funds are provided as a dollar-for-dollar match for each private contribution the candidate receives, up to $250 from each donor. Total matching payments to a candidate are capped at 50 percent of the limitation on total prenomination spending imposed as a condition for participation in the primary matching program. The prenomination spending ceiling, originally set at $10 million subject to inflation adjustment, is one-half the ceiling on general election spending for major parties. Thus, in 1996 the prenomination spending cap was $30.9 million, and the most public funds a candidate could receive was $15.45 million. In 2000, the prenomination spending cap is likely to be a little above $33 million. In addition, primary candidates may raise an amount equivalent to 20 percent of the spending cap to cover fundraising costs in the preconvention period. That effectively raises the 2000 spending limit to about $39.7 million. Moreover, like general election candidates, primary candidates may spend unlimited amounts for legal and accounting costs they incur to comply with the law.

The primary matching program also limits the amount a candidate can spend in each state. A presidential candidate can spend no more than the greater of 16 cents multiplied by the voting-age population of the state, or $200,000, adjusted for inflation from a 1974 base.

For both primary and general election public funding, a candidate who accepts public funding may not spend more than a total of $50,000 in funds that come from the candidate’s personal resources or from the resources of members of the candidate’s immediate family.

1. The Constitutional Law of Campaign Finance

Federal campaign finance law and the possibilities of reform are shaped and constrained by constitutional law. The constitutional law of campaign finance first emerged with the Supreme Court’s landmark 1976 decision of Buckley v. Valeo.³⁵ The Buckley case involved a wide-ranging challenge to the key provisions of the Federal Election Campaign Act of 1971 and the 1974 amendments. Buckley and its progeny have dominated judicial review of campaign finance regulation for a quarter century. The Supreme Court’s recent decision in Nixon v. Shrink Missouri Government PAC³⁶underscores Buckley’s continuing significance to campaign regulation.

The basic elements of the Buckley doctrine are³⁷:

Campaign finance regulations implicate the First Amendment’s protections of political speech and association.

Campaign finance may be regulated to prevent corruption or the appearance of corruption but not to equalize the spending of competing candidates or the influence of different voters or groups, or to limit the resources devoted to campaigns.

Contributions and expenditures are to be treated differently; expenditures enjoy the highest level of constitutional protection, while contributions are less protected and, because they more clearly raise the danger of corruption, are more easily limited.

Reporting and disclosure requirements are generally constitutional because they perform the valuable role of informing voters about the sources of the funds financing campaign activity.

Contribution and expenditure limits and reporting and disclosure requirements can be applied only to those activities that expressly advocate the election or defeat of federal candidates, and not to general political speech.

Public funding of candidates is constitutional; indeed, public funding furthers First Amendment values by facilitating public discussion and electoral communication and reducing the influence of large private contributions; and candidates can be required to accept spending limits, which would otherwise be unconstitutional, as a condition for receiving public funds.

One significant component of FECA not considered in Buckley is the ban on the use of corporation and union treasury funds for contributions and expenditures in federal elections. That ban was upheld in later cases.

Applicability of the First Amendment to Campaign Finance Regulation

Buckley determined that campaign finance regulations impinge on the values of political expression and freedom of association protected by the First Amendment. Buckley did not conclude that “money is speech,” but it did find that in our large, complex, and heterogeneous society money is often essential for the dissemination of political speech:

The distribution of the humblest handbill or leaflet entails printing, paper, and circulation costs. Speeches and rallies generally necessitate hiring a hall and publicizing the event. The electorate’s increasing dependence on television, radio, and other mass media for news and information has made these expensive modes of communication indispensable instruments of effective political speech.³⁸

Justice Breyer recently restated the point in his concurring opinion in Nixon v. Shrink Missouri Government PAC, when he observed that campaign finance restrictions are a “matter of First Amendment concern not because money is speech (it is not), but because it enables speech.”³⁹

Having situated campaign finance regulation within the domain of the First Amendment, however, Buckley did not consider all campaign finance activities exempt from regulation, nor did it apply a uniform standard of review to campaign restrictions and requirements.

Justifications for Regulating Campaign Finance Activities

Buckley rejected three proposed justifications for restrictions on campaign finance activities. First, the Court determined that campaign contributions or expenditures could not be limited in order to promote equality of political influence among individuals or groups supporting or opposing different candidates. Second, the Court found that campaign contributions or expenditures could not be restricted in order to equalize the financial resources of candidates competing for federal office. The Court did not challenge the importance of these concerns but held that they could not be advanced by the imposition of limits on the use of campaign money. Third, the Court rejected the argument that restricting the cost of campaigns could justify limits on spending. Indeed, the Court denied there was any constitutional interest in limiting campaign spending: “[T]he mere growth in the cost of federal election campaigns in and of itself provides no basis for governmental restrictions on the quantity of campaign spending and the resulting limitation on the scope of federal campaigns. The First Amendment denies government the power to determine that spending to promote one’s political views is wasteful, excessive, or unwise.”⁴⁰

The Court, however, found that campaign finance activities could be limited to prevent “corruption and the appearance of corruption spawned by the real or imagined coercive influence of large financial contributions on candidate’s positions and on their actions if elected to office.”⁴¹ As the Court acknowledged, “[t]o the extent that large contributions are given to secure political quid pro quos from current and potential officeholders, the integrity of our system of representative government is undermined.” Moreover, “[o]f almost equal concern as the danger of actual quid pro quo arrangements is the impact of the appearance of corruption stemming from public awareness of the opportunities for abuse inherent in a regime of large individual financial contributions.” Congress could act to stem the erosion in public “confidence in the system of representative government” by imposing some restrictions on campaign finances.

The Contribution/Expenditure Distinction

Closely related to its rejection of political equality and its endorsement of preventing corruption as justifications for campaign finance limits, the Buckley Court distinguished between two different forms of regulatory techniques: restrictions on expenditures–that is, spending by candidates, organizations, and individuals on communications to the voters–and restrictions on contributions–that is, payments by an individual or organization to a candidate, which the candidate then uses to fund political communications with the voters.

Expenditures were given the greatest degree of constitutional protection. Expenditures were held to be the highest form of campaign finance activity because they involve direct communication to the voters. The Court rejected the egalitarian arguments for limiting campaign spending and determined that limits on candidates’ expenditures could not be justified as necessary to limit the danger of corruption. As a result, Buckley invalidated dollar limitations on expenditures by candidates.

Contributions were given less constitutional protection. First, the Court viewed contributions as a lesser form of political speech. Unlike an expenditure, a contribution does not entail an expression of political views; “it serves as a general expression of support for the candidate and his views but does not communicate the underlying basis for the support.” In a sense, a contribution is “speech by proxy”: “While contributions may result in political expression if spent by a candidate or an association to present views to the voters, the transformation of contributions into political debate involves speech by someone other than the contributor.”⁴²

Second, contributions, unlike expenditures, raise the specter of corruption. The transmission of money from a donor to a candidate raises both the danger and the appearance of a quid pro quo. Contributions can undermine the integrity of the public process in a way that expenditures, which are simply the communication of political ideas, do not.

Consequently, Buckley upheld FECA’s limits on individual contributions to candidates, on contributions by PACs to candidates, and on aggregate campaign contributions by an individual.

Buckley’s contribution/expenditure distinction is central to the jurisprudence of campaign finance. The distinction has been controversial. Three members of the Buckley Court rejected the distinction: Chief Justice Burger and Justice Blackmun would have invalidated contribution limits as well as expenditure limits. Justice White, who found that promoting equality and limiting campaign costs could justify restrictions on campaign spending, would have upheld both sets of limits. Justice Marshall, who supported the distinction in Buckley, subsequently rejected it and indicated he would uphold limits on campaign expenditures as well as contributions.⁴³

In 1996, in Colorado Republican Federal Campaign Committee v. FEC,⁴⁴ three justices broke with the distinction: Justices Stevens and Ginsburg determined that the important interest in leveling the electoral playing field could justify expenditure limitations, while Justice Thomas indicated he would invalidate restrictions on contributions as well as on expenditures. In Shrink Missouri Government PAC, Justice Scalia joined Justice Thomas in condemning contribution restrictions, while Justice Kennedy, articulating deep dissatisfaction with the basic Buckley framework, indicated both sympathy with Justice Thomas’s criticism of contribution restrictions and a willingness to support some limits on expenditures as well as contributions. Justice Breyer, joined by Justice Ginsburg, suggested that Buckley might be reinterpreted in light of the post-Buckley experience to make less absolute the contribution/expenditure line and permit some limitations on expenditures. Justice Stevens went further, implicitly questioning the First Amendment basis forBuckley’s invalidation of spending limits.

Nevertheless, in these two recent cases, majorities reaffirmed the basic elements of the contribution/expenditure distinction that expenditures enjoy the highest level of constitutional protection and may not be limited in order to equalize candidate spending or to equalize the influence of the different groups supporting different candidates, but that contributions are less protected and may be subject to dollar limits in order to ameliorate the dangers of corruption.

Shrink Missouri Government PAC, in particular, reiterated Buckley’s conclusion that contribution restrictions are much less of a burden on First Amendment interests than expenditure restrictions, and reemphasized the importance of contribution limitations in avoiding both corruption and the perception of corruption. As Justice Souter wrote, “there is little reason to doubt that sometimes large contributions will work actual corruption of our political system, and no reason to question the existence of a corresponding suspicion among voters.”⁴⁵ The Court treated voter concerns about corruption as a powerful justification for contribution limitations: “Leave the perception of impropriety unanswered, and the cynical assumption that large donors call the tune could jeopardize the willingness of voters to take part in democratic governance.”⁴⁶

Applying the Contribution/Expenditure Distinction

The contribution/expenditure distinction is not always easy to apply. Some forms of campaign money have elements of both contributions and expenditures.

Candidates’ Personal Funds: A candidate’s use of his or her personal funds or family funds in his or her own campaign is in form a contribution, but since these fund the candidate’s own speech they also resemble an expenditure. Buckley treated a candidate’s contribution of personal funds to his or her own campaign as an expenditure and invalidated FECA’s limits on a candidate’s use of personal or family funds.⁴⁷ Justice Marshall, who joined all other aspects of Buckley, dissented from this point.⁴⁸ Justice Breyer, in Shrink Missouri Government PAC, hinted that candidates’ expenditures from personal funds “might be considered contributions to their own campaigns.”

Independent Expenditures: Expenditures by individuals or organizations not affiliated with a candidate that expressly support or oppose a candidate for federal office are formally expenditures, but since they benefit a candidate they raise the possibility that the candidate who is benefited thereby will feel an obligation to the spender comparable to that created by a contribution. Buckley concluded that independent expenditures ought to be treated like candidate expenditures, rather than as contributions to a candidate. The Court discounted the likelihood that such expenditures pose the dangers of corruption, finding that “the absence of prearrangement and coordination of the expenditure with the candidate or his agent not only undermines the value of the expenditure to the candidate, but also alleviates the danger that expenditures will be given as a quid pro quo for improper commitments from the candidate.”⁴⁹ Consequently, Buckley invalidated a FECA provision that would have limited spending by an independent committee in support of or opposition to a federal candidate. Subsequently, in 1984, in FEC v. National Conservative Political Action Committee,⁵⁰ the Court invalidated the provision of the presidential public funding law that would have imposed a $1000 limit on spending by an independent committee supporting a publicly funded presidential candidate. In 1996, in Colorado Republican, a plurality of the Court held that a political party may engage in spending that is independent of that party’s candidate, and when it does so, such spending cannot be subject to limitation.

Contributions to Political Committees: Many of FECA’s contribution restrictions apply not simply to contributions to a candidate but to organizations that in turn make contributions to a candidate. Such donations are not expenditures as they do not entail direct communications with the voters, but they are not direct contributions to candidates either. Buckley did not address this question, but the Court subsequently upheld restrictions on donations to PACs on the theory that such restrictions prevent the donor from using the PAC as a conduit for donations to a candidate and thus prevent circumvention of FECA’s limits on donations to candidates.⁵¹

Defining and Proving Corruption: The prevention of corruption and the appearance of corruption is a central concern of campaign finance doctrine, but the Court has never precisely defined corruption. Buckley focused on the “quid pro quo” quality of corruption, but it declined to limit the notion of corruption to outright vote-buying. As the Court recently explained in Shrink Missouri Government PAC, “We recognized a concern not confined to bribery of public officials, but extending to the broader threat of politicians too compliant with the wishes of large contributors.”⁵² Buckley held that Congress could use contribution restrictions to curtail the power of money “to influence governmental action” in ways less “blatant and specific” than bribery.⁵³ The Court emphasized the significance of public concern about the effects of large donations on government in its assessment of the dangers posed by large contributions. Acknowledging that most large contributors “do not seek improper influence over a candidate’s position or an officeholder’s action,” the Court held that limits on large contributions are still constitutionally valid: “Not only is it difficult to isolate suspect contributions, but more importantly, Congress was justified in concluding that the interest in safeguarding against the appearance of impropriety requires that the opportunity for abuse inherent in the process of raising large monetary contributions be eliminated.”⁵⁴ Buckley was relatively deferential to Congress’s judgment concerning the size of the contributions that raise the danger of corruption. Quoting the opinion of the court of appeals, Buckley concluded, “`[i]f it is satisfied that some limit on contributions is necessary, a court has no scalpel to probe, whether, say, a $2000 ceiling might not serve as well as $1000.’ . . . Such distinctions in degree become significant only when they can be said to be differences in kind.”⁵⁵

Shrink Missouri Government PAC reiterated this relatively deferential approach in the context of limits imposed by a state legislature on state candidates: “The quantum of empirical evidence needed to satisfy heightened judicial scrutiny of legislative judgments will vary up or down with the novelty and plausibility of the justification raised. Buckleydemonstrates that the dangers of large, corrupt contributions and the suspicion that large contributions are corrupt are neither novel nor implausible.”

Reporting and Disclosure Requirements

Buckley sustained all of FECA’s reporting and disclosure requirements. It found that disclosure serves three substantial interests: (i) providing the electorate with information concerning the sources of a candidate’s financial support and, thus, helping the electorate to evaluate the candidate; (ii) deterring corruption and the appearance of corruption “by exposing large contributions and expenditures to the light of publicity”; and (iii) gathering the data necessary to detect violations of the contribution limits.⁵⁶

Buckley also upheld the requirement that independent committees disclose contributions and expenditures in excess of $100. Although independent expenditures may not be limited, disclosure serves an “informational interest” and “increases the fund of information concerning those who support candidates.” Even for independent spending, this “informational interest can be as strong as it is in coordinated spending, for disclosure helps voters to define more of the candidates’ constituencies.”⁵⁷

Finally, the Court upheld FECA’s very low reporting thresholds. At the time of the Buckley decision, FECA required political committees to keep the names and addresses of those who made contributions in excess of just $10 and to obtain and report the occupations and principal places of business of those who contributed more than $100. The Court acknowledged these thresholds “are indeed low. Contributors of relatively small amounts are likely to be especially sensitive to recording or disclosure of their political preferences. These strict requirements may well discourage participation . . . in the political process.” Nevertheless, as in its consideration of contribution limits, the Court deferred to Congress on the question of the precise reporting thresholds. “We cannot require Congress to establish that it has chosen the highest reasonable threshold. The line is necessarily a judgmental decision, best left in the context of this complex legislation to congressional discretion.” That particular line Congress drew was not “wholly without rationality”⁵⁸ and, hence, constitutional.

The Definition of Election-Related Activity

The importance of the prevention of corruption and the appearance of corruption, and the significance of the information that the disclosure of the sources of campaign funds provides to the voters, led the Court to uphold regulations in the election context that it most likely would have invalidated if applied to political speech generally. As a result, Buckleycreated a need to distinguish between election-related activity and other forms of political activity.

Congress sought to have FECA apply to expenditures “relative to a clearly identified candidate.” The Court concluded that “relative to” is “so indefinite” that it “fails to clearly mark the boundary between permissible and impermissible speech.”⁵⁹Looking to other language in the statute and to the legislative history, the Court determined that to save “relative to” from the charge of unconstitutional vagueness, the provision could apply “only to expenditures that in express terms advocate the election or defeat of a clearly identified candidate for federal office.” In a footnote, the Court stated that under this construction the statute would apply to “communications containing express words of advocacy of election or defeat, such as `vote for,’ `elect,’ `support,’ `cast your ballot for,’ `Smith for Congress,’ `vote against,’ `defeat,’ `reject.”‘⁶⁰

The Court’s narrowing construction of “relating to” failed to save FECA’s dollar limit on independent expenditures but played a critical role in saving the reporting and disclosure requirements for independent expenditures. As drafted by Congress, FECA required the disclosure of expenditures “for the purpose of . . . influencing” nomination or election of candidates to federal office. This definition posed the danger of “encompassing both issue discussion and advocacy of a political result.” Although the requirement could be safely imposed on candidates and on organizations whose “major purpose . . . is the nomination or election of a candidate,” when applied to other individuals or organizations, it raised the possibility of requiring disclosure concerning the sources or expenditure of funds used in connection with issue discussions “remote” from the purposes of the Act. To avoid that possibility, the Court read the expenditure disclosure provision to reach “only funds used for communications that expressly advocate the election or defeat of a clearly identified candidate.” That would ensure that the spending subject to disclosure “is unambiguously related to the campaign of a particular federal candidate.”⁶¹ On that reading, the Court upheld the disclosure requirement.

The Court subsequently broadened slightly its definition of “express advocacy.” In FEC v. Massachusetts Citizens for Life, Inc. (MCFL),⁶² the Court considered a “Special Edition” of a right-to-life organization’s newsletter that listed all the candidates for state and federal office in Massachusetts and identified each one as either supporting or opposing the organization’s position on three issues. The publication generally exhorted voters to vote for “pro-life” candidates and provided photographs of only those candidates whose records consistently favored MCFL’s positions. The Court found that this constituted “express advocacy”: “The Edition cannot be regarded as a mere discussion of public issues that by their nature raise the names of certain politicians. Rather, it provides in effect an explicit directive: vote for these (named) candidates. The fact that this message is marginally less direct that `Vote for Smith’ does not change its essential nature. The Edition goes beyond issue discussion to express electoral advocacy.”⁶³

Presidential Public Funding System

Buckley sustained presidential public funding without reservation. Public funding was held to fall within the scope of Congress’s power to promote the general welfare and did not constitute an “establishment” of any political views. In the Court’s view, “to use public money to facilitate and enlarge public discussion and participation in the electoral process, goals vital to a self-governing people, . . . furthers . . . pertinent First Amendment values.” Indeed, “public financing as a means of eliminating the improper influence of large private contributions furthers a significant governmental interest.” The Act’s provision of greater funding to major parties than to minor or new parties was not invidious discrimination as “the Constitution does not require Congress to treat all declared candidates the same for public financing purposes.” Congress could choose to tie funding to electoral strength and to rely on the vote in past elections in order to determine eligibility.⁶⁴

The Court also held that Congress could condition the provision of public funds on a candidate’s agreement to abide by expenditure limits, so long as the candidate’s agreement is voluntary: “Just as a candidate may voluntarily limit the size of the contributions he chooses to accept, he may decide to forgo private fund-raising and accept public funding.”⁶⁵ In a later case, the Republican National Committee challenged the ancillary restriction on political party coordinated expenditures in support of its presidential ticket, contending that, as a practical matter, candidates had no choice but to accept public funding and that conditioning public funding on the waiver of the First Amendment right to engage in unlimited expenditures constituted an unconstitutional condition. The district court rejected these arguments, and the Supreme Court summarily affirmed.⁶⁶

On the other hand, as previously noted, the Court invalidated limits on independent spending in support of a candidate who chose to accept public funding. A candidate cannot waive the rights of others to engage in independent expenditures on behalf of the candidate.

Special Restrictions on Corporations and Unions

Buckley did not consider the provisions of FECA that prohibit corporations and unions from making contributions and expenditures in connection with federal elections, but provide that corporations and unions may participate in federal elections only by creating “separate, segregated funds” that may solicit voluntary contributions that may be used for federal election contributions and expenditures.

In FEC v. National Right to Work Committee (NRWC),⁶⁷ the Court upheld the provision of FECA that provides that a corporation without capital stock may solicit contributions to its separate, segregated fund only from “members” of the corporation. In so doing, NRWC more broadly validated FECA’s restrictions on corporate campaign activities.

NRWC found that the restrictions on corporate and union activities have two purposes: (i) “to ensure that substantial aggregations of wealth amassed by the special advantages which go with the corporate form of organization should not be converted into political `war chests’ which could be used to incur political debts,” and (ii) to protect the individuals who have paid money into a corporation or union for purposes other than the support of candidates from having that money used to support candidates to whom they may be opposed. These purposes were deemed “sufficient to justify the regulation at issue.” Acknowledging that the National Right to Work Committee, although corporate in form, did not exactly fit the stereotype of the wealthy corporation, the Court emphasized that FECA’s restriction “reflects a legislative judgment that the special characteristics of the corporate structure require particularly careful regulation.” Although FECA “restricts the solicitation of corporations and labor unions without great financial resources, as well as those more fortunately situated, we accept Congress’ judgment that it is the potential for such influence that demands regulation.”⁶⁸

Subsequently, MCFL reiterated that “concern over the corrosive influence of concentrated corporate wealth reflects the conviction that it is important to protect the integrity of the marketplace of political ideas.”⁶⁹ Corporate spending is problematic because it “raises the prospect that resources amassed in the economic marketplace may be used to provide an unfair advantage in the political marketplace.” “Political `free trade”‘ does not require that competing candidates or interests possess equal resources as “relative availability of funds is . . . a rough barometer of public support.” But a business corporation’s resources “are not an indication of popular support for the corporation’s political ideas. They reflect instead the economically motivated decisions of investors and customers. The availability of these resources may make a corporation a formidable political presence, even though the power of the corporation may be no reflection of the power of its ideas.”

MCFL created a limited exception from the ban on the use of corporate treasury funds for the expenditures of organizations that, although corporate in form, do not present the dangers of political activity of corporations organized for economic gain. When an organization is formed for the express purpose of promoting political ideas, cannot engage in business activities, has no shareholders or other persons with claims on corporate earnings, and does not accept contributions from corporations or unions, then its resources reflect political support for the organization’s political positions, not success in the economic marketplace. Consequently, FECA’s prohibition on corporate spending could not be constitutionally applied to ideological corporations.⁷⁰

In 1990, in Austin v. Michigan Chamber of Commerce,⁷¹ the Court upheld a state law, comparable to FECA, that banned the use of corporate treasury funds to pay for independent expenditures in support of or opposition to a candidate. Tracking NRWC and MCFL, the Court determined that the “unique state-conferred” advantages that corporations enjoy, and the fact that corporate resources “have little or no correlation to the public’s support for the corporation’s political ideas,” created a danger of corruption sufficient to justify a prohibition on the expenditure of corporate treasury funds in support of or opposition to candidates.⁷² Austin refused to extend MCFL’s exemption for non-business corporations to the Michigan Chamber of Commerce, which described itself as a “non-profit ideological corporation.” Unlike the MCFL, the Chamber engaged in business promotion as well as political activities, and the Chamber was largely funded by contributions from for-profit business corporations, raising the danger that it could “serve as a conduit for corporate political spending.”⁷³

1. Federal Campaign Finance Activities Outside of FECA

In recent years two major new forms of campaign finance activity have emerged that are largely beyond the scope of federal regulation. These are known as soft money and issue advocacy. Soft money and issue advocacy are often intertwined, and soft money pays for much of the issue advocacy undertaken by political parties. The explosive growth of soft money and issue advocacy has eroded the Act’s reporting and disclosure requirements, the dollar limitations on contribution levels, the prohibitions on corporate and union donations, and the spending limits applicable to publicly funded presidential candidates.

Soft Money

The term “soft money” emerged in contrast to “hard money,” that is, money that complies with the dollar amount and source limitations of FECA. Contributions and expenditures that are subject to FECA’s restrictions, such as those that involve express support for or opposition to federal candidates, must be made with “hard money.” But money that is arguably for some other purpose–even though it predictably and intentionally affects federal elections–is soft money exempt from the Act’s requirements.

Soft money emerged out of the complications of political federalism. FECA regulates only federal elections, but federal and state elections typically occur concurrently, with candidates for federal and state elections appearing on one state ballot. Political party committees may undertake campaign efforts that assist their federal and state candidates simultaneously. Spending with respect to federal candidates must satisfy FECA, but assistance to state candidates is subject only to state law. Many state campaign finance laws are less restrictive than FECA: some permit corporations or unions to support candidates; some do not limit individual or PAC contributions.⁷⁴ Following the enactment of FECA, some state party committees began to press the FEC to allow them to use funds that do not comply with FECA to finance part of the cost of campaign efforts that help the party ticket as a whole, including both federal and state candidates. In 1976 the FEC considered a request for an advisory opinion from the Illinois Republican State Central Committee concerning the allocation of party expenditures for overhead (rent, utilities, office supplies, salaries) and for general campaign activities like voter-registration drives and precinct training courses intended to benefit the entire state Republican ticket. The FEC determined that expenditures for general expenses should be allocated one-third to candidates for federal office, two-thirds to candidates for state office. This allocation reflected the 25/188 (or 15 percent/85 percent) split in the number of federal/nonfederal candidates, modified by the FEC’s view that the federal offices “should be given proportionately more weight.” The FEC required the state committee to set up separate federal and nonfederal accounts to accept separately contributions for the federal and nonfederal components of the shared programs. The FEC, however, also determined that the party could not permit corporate and union treasury contributions (lawful under Illinois law) to defray the nonfederal portion of voter-registration drives. Only contributions lawful under FECA could be used for the nonfederal portion of party-supported voter-registration activity.⁷⁵

Two years later, the FEC abandoned the effort to prevent the use of corporate funds for party activities that support both federal and nonfederal candidates. In response to a request from the Republican State Committee of Kansas concerning party expenditures for voter registration and get-out-the-vote drives aimed at helping both federal and nonfederal candidates, the FEC advised the state party that it could use corporate and union funds (lawful for political activity under Kansas law) for the nonfederal share of the voter drives, provided the party allocated its costs into separate federal and nonfederal accounts and limited the corporate and union funds to the nonfederal share of the program.⁷⁶

Subsequently, in 1979 the FEC determined that national party committees could establish nonfederal accounts to be used “for the deposit and disbursement of funds designated specifically and exclusively to finance national party activity limited to influencing the nomination or election of candidates for public office other than elective `federal office.”‘ National party committees could accept corporate contributions–and other contributions ordinarily barred by FECA–“for the exclusive and limited purpose of influencing the nomination or election of candidates for nonfederal office.”⁷⁷ National party committees could finance expenses that benefit both federal and state candidates–such as administrative overhead, voter registration, voter targeting and get-out-the-vote drives, production and distribution of sample ballots, fundraising expenses–by setting up separate federal and nonfederal accounts, allocating expenses between the accounts, and accepting funds prohibited by FECA in the nonfederal accounts, provided those funds were lawful in the states in which, or for the purposes for which, they were used. Soft money was born.

Soft money took on a quiet but growing importance during the 1980s. It is estimated that soft money spending rose from $19 million in 1980 to $45 million in 1988,⁷⁸ but because the FEC treated soft money as outside the scope of FECA, there is little hard data concerning the amount of soft money raised and spent by the parties in that decade. In 1990 the FEC responded to years of prodding by Common Cause and the courts and issued rules, which became effective in 1991, requiring party committees to report their soft money receipts, expenditures, and transfers and regulating the allocation of expenses for shared activities between federal and nonfederal accounts.⁷⁹ The rules limited the ability of party committees to shelter funds for shared expenses in nonfederal accounts, but “[t]he general effect of the guidelines was . . . to give party organizations a clearer sense of how to spend soft money legally, and, at least in some instances, to permit them . . . to pay a greater share of their costs with soft money than they had been before.”⁸⁰

A central issue with soft money has been the allocation of expenses for shared activities between federal and nonfederal accounts. The 1991 rules replaced the FEC’s prior practice of permitting party committees to use “any reasonable basis” for allocating expenses. Now the national party committees are required to allocate at least 60 percent of their administrative expenses and costs for generic voter drives to their federal accounts in most years, and 65 percent to their federal accounts in presidential election years.⁸¹

Senate and House campaign committees are required to allocate their administrative and generic voter drive expenditures on a “funds expended” basis–that is, administrative and generic expenses are allocated to federal and nonfederal accounts in the same ratio as a committee’s expenditures for specific federal and nonfederal candidates–except that at least 65 percent of shared expenditures must be allocated to federal candidates.⁸²

State and local party committees must also allocate administrative and generic voter-drive costs, but they may use the “ballot composition” method, that is, the percentage allocated to the federal account must reflect the proportion of federal offices to the total offices on the general election ballot. Direct candidate support activities are allocated according to the time or space devoted to federal and nonfederal candidates in the communication.⁸³

Soft money exploded in the 1990s. In 1991-92 the two national parties raised $86 million in soft money, or double the amount for 1987-88. Soft money accounted for approximately 17 percent of total national party receipts in the 1992 election cycle.⁸⁴ By 1995-96, national party soft money receipts had trebled to $263.5 million and accounted for 30 percent of total national party income. In 1996 the national party committees’ “nonfederal accounts received nearly 1000 individual contributions in excess of $20,000, and also received approximately 27,000 contributions from FECA-prohibited sources”⁸⁵–presumably corporations, unions, and federal contractors.

In 1997-98 the soft money share of national party income rose to 33 percent, although actual party soft money receipts declined to $224.4 million with the cyclical drop in fundraising from a presidential to a nonpresidential election.⁸⁶National party soft money receipts in 1997-98, however, were nearly five times the $45 million in soft money receipts in 1993-94, the prior nonpresidential election, and more than treble the 10 percent soft money share of party receipts in 1993-94.⁸⁷ (See figure 2.) The 1997-98 election marked the first time in which soft money played a critical role in congressional elections; in previous years, the primary use of soft money was to enable presidential candidates participating in the public funding system to evade the spending limits that are a condition for the provision of public funds. Preliminary figures for the 1999-2000 election cycle indicate the dollar volume of soft money is continuing to grow.⁸⁸

The growth in soft money and its expansion into congressional races reflect three developments. First, there is now a substantial number of donors of very large soft money contributions. In 1997-98 there were 390 individuals or organizations–including business corporations, labor unions, American Indian tribes, and ideological groups–that gave $100,000 or more to the soft money accounts of the national political parties. This reflected a 113 percent increase in the number of $100,000+ donors from 1993-94, the prior nonpresidential election cycle.

Figure 2:  National Party Non-federal Activity (Soft Money)

Source: FEC, “National Party Non-federal activity through the complete two year election cycle, “http://www.fec.gov/press/sftlong.htm

Twenty-six donors gave $500,000 or more; the top four donors gave more than $1 million each. Corporate contributions–prohibited by FECA–dominated the soft money growth, with 218 corporations giving more than $100,000 in 1997-98 and 16 corporations giving more than $500,000 in that period. In the prior nonpresidential election cycle, only 96 corporations broke the $100,000 mark, and only four gave more than $250,000. Thirty-five trade associations also broke the $100,000 mark in 1997-98. Wealthy individuals or couples provided most of the other large soft money donations, with 114 individuals or husband-and-wife pairs giving $100,000 or more, 26 individuals or couples giving $250,000 or more, and four giving $500,000 or more.⁸⁹

Second, public officials have become far more aggressive in pursuing soft money contributions for their parties. “Federal officeholders, in particular, appear to be directly involved in soliciting contributions for the party committees’ soft money accounts.”⁹⁰ President Clinton and Vice President Gore were prominently involved in raising money for the Democratic Party’s soft money operations, and Bob Dole raised soft money in connection with his 1996 presidential bid. Democrats offered their $50,000+ donors intimate dinners with the president and small-group coffees in the White House Map Room.⁹¹ Republicans provided members of their Team 100–those who gave $100,000–with a three-day opportunity to golf with Senate Majority Leader Lott, Speaker Gingrich, and then-House Appropriations Committee Chair (and briefly Speaker-designate) Livingston at The Breakers at Palm Beach.⁹² As the Wall Street Journal recently reported, “Cash-for-access confabs on pending bills are business as usual in Washington.”⁹³

Third, the parties have developed new and more ambitious ways of using soft money in their campaigns. “Generally speaking, it is easier to raise soft money than hard money,”⁹⁴ since restrictions on corporations and unions and FECA’s dollar limitations do not apply. As a result, the parties seek to use soft money whenever possible, to free up the hard money that must be used for direct support of federal candidates. In addition to using soft money to cover a portion of overhead, voter identification, or turnout expenses, the national parties can stretch their soft dollars by transferring funds to state and local committees and instructing them to use the funds for a particular shared activity. The FEC’s allocation rules usually permit a state or local party committee to pay a higher percentage of its mixed activity costs with soft dollars than a national party is able to when conducting the same activity.⁹⁵ Roughly half the soft money raised by the Democrats and nearly one-third of the soft money raised by Republicans in 1995-96 was transferred to state and local parties. Even after the money is transferred to a state or local organization, the national party is often able to control its use.

The Democratic National Committee (DNC) was particularly effective at raising substantial sums of soft money, transferring that money to state and local parties and then directing how state party officials could use the money. Thus, it has been reported that in the 1996 campaign, the DNC directed state parties to use soft money funds transferred by the DNC to make payments to media consultants hired by the national party or the Clinton-Gore staff to produce generic party advertising.⁹⁶ Because of the FEC’s ballot-allocation rules, the state parties could use soft money to pay for a higher percentage of these costs than could the national party.⁹⁷

Of the new uses for soft money the most significant is so-called issue advocacy advertising–that is, advertising that evades the judicial definition of electioneering speech.

The Definition of Electioneering Speech

Buckley sought to limit FECA to electioneering speech and to prevent FECA from unconstitutionally curtailing the discussion of political ideas and issues. The Court construed FECA to apply only to “expenditures for communications that in express terms advocate the election or defeat of a clearly identified candidate.”⁹⁸ Such expenditures became known in campaign finance jargon as “express advocacy”; all other political communications are now called “issue advocacy,” including many advertisements that do not discuss issues at all.⁹⁹

Buckley’s express advocacy test reflects two concerns. First, despite–or perhaps because of–the close connection between elections and politics, the Supreme Court sought a standard that clearly distinguished election-related spending from other political spending. To avoid vagueness and the chilling effect on political speech that can result from vague regulation,Buckley requires the definition of election-related speech to be sharply drawn. Second, the Court seemed worried about unwelcome administrative or judicial probing of the intentions of speakers. Extensive intrusion into the internal communications of an organization or the inner workings of a speaker’s mind to determine whether the speaker intended to influence an election would raise serious First Amendment problems.

The Supreme Court has considered the distinction between election-related speech only twice–in Buckley and in MCFL. Most of the lower federal courts that have considered whether a particular communication is engaged in express or issue advocacy have applied the so-called “magic words” test, limiting the definition of express advocacy –and the scope of FECA regulation–to communications that literally ask voters to “vote for,” “elect,” “cast your ballot for,” “vote against,” or “defeat” a candidate. As a result, ads that effectively advocate or oppose the cause of a candidate but stop short of the use of the magic words avoid FECA’s restrictions and requirements.

This tendency is clearly illustrated by the decisions in Federal Election Commission v. Christian Action Network.¹⁰⁰ That case considered a 1992 television advertisement that (as described by the district court) referred to Bill Clinton’s support for “`radical’ homosexual causes,” presented a “series of pictures depicting advocates of homosexual rights, apparently gay men and lesbians, demonstrating at a political march,” and combined “the visual degrading of candidate Clinton’s picture into a black and white negative,” “ominous music,” and “unfavorable coloring” in a manner that “raised strong emotions” among viewers. Both the district court and the court of appeals concluded that the message did not constitute express advocacy. Although the advertising named Clinton and used his picture, was broadcast in the weeks immediately preceding the November general election, and was “openly hostile” to the gay-rights positions it attributed to Clinton, the ad was “devoid of any language that directly exhorted the public to vote.”¹⁰¹ Indeed, the court of appeals subsequently determined that the message fell so far short of express advocacy that it slapped the FEC with fees and costs under the Equal Access to Justice Act for bringing the case at all.¹⁰²

Only the Ninth Circuit has taken a somewhat more expansive approach to the determination of whether a communication is express advocacy. In FEC v. Furgatch,¹⁰³ the court found that a newspaper advertisement, published on the eve of the 1980 presidential election, that combined heated criticism of President Carter’s record with the caption and exhortation “Don’t Let Him Do It” constituted express advocacy. The ad made no reference to voting against Carter, but the court found that “`Don’t let him’ is a command. The words `expressly advocate’ action of some kind.” Voting against Carter in the upcoming election “was the only action open to those who would not `let him do it.”‘ Furgatch emphasized the need to look at the communication “as a whole . . . with limited reference to external events,” such as the timing of the ad, in determining whether the message constituted an exhortation to vote for or against a candidate. But Furgatch constituted only a modest expansion of the definition of express advocacy. A message could constitute express advocacy only so long as it is “susceptible of no other reasonable interpretation but as an exhortation to vote.” It must be “unmistakable and unambiguous, suggestive of only one plausible meaning.” If “reasonable minds could differ as to whether it encourages a vote for or against a candidate or encourages the reader to take some other kind of action,” it is not express advocacy.¹⁰⁴

Other federal courts that have considered the issue have rejected Furgatch’s slight broadening of express advocacy and, especially, its call to assess whether the message as a whole, with some reference to its timing, constitutes an exhortation to vote. They have, instead, rigidly insisted on the presence of words that explicitly call for the election or defeat of a candidate.¹⁰⁵ The Fourth Circuit, in Christian Action Network, sharply chastised the FEC for attempting to find express advocacy in “the combined message of words and dramatic moving images, sounds and other non-verbal cues such as film editing, photographic techniques, and music, involving highly charged rhetoric and provocative images . . . taken as a whole” rather than in explicit words of advocacy.¹⁰⁶ These courts have recognized that the magic words approach will exempt much election-related spending from regulation. Even as it punished the FEC with fees and costs for its effort to look to the message as a whole rather than for explicit words of advocacy, the Fourth Circuit in Christian Action Networkacknowledged, quoting from the FEC’s brief, that “metaphorical and figurative speech can be more pointed and compelling, and can thus more successfully express advocacy, than a plain, literal recommendation to `vote’ for a particular person.”¹⁰⁷ The federal district court in Maine agreed that “language . . . is an elusive thing” and that communication depends “heavily on context”; yet in the same breath, it held that the FEC’s effort to define express advocacy with some reference to context was unconstitutional. The court found the result “not very satisfying from a realistic communications point of view and does not give much recognition to the policy of the election statute to keep corporate money from influencing elections” but concluded that such an unrealistic “express advocacy” standard was constitutionally required.¹⁰⁸

The current definition of “express advocacy” is a standing invitation to evasion of FECA’s reporting and disclosure requirements and its prohibitions on the use of corporate and union treasury funds in connection with federal elections. It has proven to be child’s play for political advertisers and campaign professionals to develop ads that effectively advocate or oppose the cause of a candidate but stop short of the formal express advocacy that the courts have made a prerequisite for regulation. The most common tactic for political advertisers is to include some language calling for the reader, viewer, or listener to respond to the ad by doing something other than voting. In Christian Action Network, for example, the ad called on viewers to telephone the sponsor “for more information on traditional family values.” Other ads have urged voters to telephone the candidate and ask him why he or she opposes tax cuts or term limits.¹⁰⁹ The Annenberg Public Policy Center’s survey of 107 issue advocacy advertisements that aired on television or radio during the 1996 election cycle found that 70.1 percent urged the viewer or listener to either contact a public official or the advocacy organization sponsoring the ad about their views concerning a particular policy position.¹¹⁰ By combining sharp criticism of a candidate with an exhortation to call the sponsor or the candidate criticized, these ads can inoculate themselves from the charge that they constitute express advocacy. (See table 2.)

Table 2: Express Advocacy and Issue Advocacy Compared

The combination of a crabbed legal definition of express advocacy and the skill of political advertisers in developing electioneering messages that effectively advocate the cause of a candidate while carefully refraining from explicit exhortations to vote has led to an explosion of issue advocacy. In the 1996 elections, between $135 million and $150 million was spent on issue advocacy.¹¹¹ The numbers are necessarily imprecise, and the identities of the sources of funds unknown, because issue ads are not subject to reporting and disclosure requirements. The Annenberg Center estimates that between $275 million and $340 million was spent on issue advertising in connection with the 1998 congressional elections–roughly a doubling from 1996 and a remarkable increase in spending from a presidential to a nonpresidential election year.

Issue ads were initially the province of independent organizations, with distinctive ideological or economic agendas. By the 1996 election cycle, however, the major political parties had become actively involved in issue advocacy in support of their candidates or in opposition to the candidates of the other party. The Democratic National Committee undertook an extensive advertising program to trumpet the accomplishments of the Clinton administration and criticize the Republican Congress without explicitly calling for the election or defeat of particular candidates. In addition, in response to a request from the Republican National Committee (RNC), the FEC determined that the RNC could use soft money to defray a portion of the costs of advertising that combined discussion of issues with criticism of President Clinton by name.¹¹² One early study of the 1996 election cycle estimated that the parties spent an estimated $68 million on issue ads, thereby accounting for nearly half of all issue ad spending in that election.¹¹³ Another, more recent, study estimated major party issue ad spending in 1995-96 at nearly $110 million, or more than two-thirds of the issue ad spending in that cycle.¹¹⁴ In 1996 party issue ad spending was comparable to–and if the higher estimates of party issue ad spending are accurate, actually greater than–the total of party spending in direct contributions to candidates, coordinated expenditures, and independent expenditures.¹¹⁵ In 1998 party issue ad spending far exceeded party contributions to candidates, coordinated expenditures with candidates, and independent expenditures expressly supporting or opposing candidates.¹¹⁶

Issue advocacy advertising has, thus, become an important means of enabling corporations and unions to use treasury funds to participate in federal elections. It has also enhanced the appeal of soft money for the parties, since, according to an FEC advisory opinion, issue ads can be paid partially from soft money. A pending lawsuit would make it even easier for the parties to engage in issue advocacy. The FEC’s 1995 advisory opinion on the use of soft money to fund issue advocacy provided that party issue advocacy costs are subject to the FEC’s rules for allocating mixed federal-nonfederal activity between hard and soft money. As a result, national party issue advocacy spending must be funded 60 percent by hard money and 40 percent by soft money in nonpresidential election years, and 65 percent by hard money and 35 percent by soft money in presidential election years.¹¹⁷ The FEC’s rules are more generous to state and local parties. For those parties, the hard/soft allocation is based on the number of federal offices as a share of the total number of offices on the ballot in the state in the next election. As there are, typically, far more state than federal offices on the ballot, the state parties may fund most issue advocacy with soft money.¹¹⁸ This explains the large numbers of multimillion dollar transfers of soft money by the national party committees to state committees that so struck election observers in 1996, as the national parties tried to direct soft money to those states where it could defray the greatest share of issue advocacy and other joint federal-nonfederal expenses.¹¹⁹ In 1998, however, the Ohio Democratic Party and the RNC sued the FEC, asserting that any limit on the use of soft money to fund issue advocacy is unconstitutional. In their view, party issue advocacy–including advocacy that mentions candidates for federal office–is beyond the scope of FECA so that the FEC cannot force them to use any hard money to fund issue ads. The parties failed to obtain injunctive relief in time for the 1998 elections,¹²⁰ but the suit is still pending. If the parties prevail, party issue advocacy is likely to surge.

1. Campaigning under FECA

FECA and its principal amendments have now been in place for more than a quarter of a century. The campaign finance regime created together by Congress, in FECA, and the Supreme Court in Buckley and its progeny has six salient characteristics:

Sharply rising congressional candidate campaign costs

An increasingly burdensome fundraising process

A dominant role for PACs and individual donors who make large donations

In many elections, an extreme imbalance in the campaign funds available to competing candidates, especially in races involving incumbents and challengers

An increasing role for political parties in financing campaigns, with a growing share of that attributable to soft money

A growing portion of campaign costs, particularly the costs of challengers, financed by the candidates’ personal resources

Rising Costs

The average cost of congressional races has risen dramatically over the last quarter century. According to the Committee for Economic Development (CED), the average cost of a House race rose from $73,000 in 1976 to over $500,000 in 1998, and the average cost of a Senate race rose from $596,000 to $3.8 million in the same period. In 1976 no House campaign cost more than $500,000, but in 1998 there were 309 campaigns in which expenditures broke the half million mark. Indeed, there were 104 House campaigns in 1998 that cost more than $1 million.¹²¹ These averages, moreover, included the spending of losers as well as winners. As we explain below, average spending by candidates who manage to win elections is much higher than the overall average.

Total congressional campaign spending has risen steadily over the last two decades. House and Senate candidates in the aggregate spent $342 million in the 1982 elections, $451 million in the 1986 elections, $680 million in the 1992 elections, and $765 million in the 1996 elections. Total spending dropped slightly in 1998–to $740 million–but that appears to reflect a drop in the total number of candidates¹²² rather than any reduction in the costs incurred by active candidates.

This sharp growth in spending is not simply a reflection of inflation. The publicly funded portion of the presidential general election campaign, which is tied to the consumer price index, rose by 176 percent from 1976 to 1996, but the spending of all congressional general election candidates rose 667 percent in the same period.¹²³

Nor do these figures take into account soft money and nonparty issue advocacy spending in connection with congressional elections. Before the 1990s, soft money and issue advocacy were negligible factors in congressional elections, but in 1997-98 the national committees of the two major parties collected $224 million in soft money, which is equal to about 30 percent of the total spending by candidates, not counting soft money. The amount of issue advocacy spending targeted on federal races is simply not knowable since issue advocacy is not subject to FECA’s reporting and disclosure requirements, but it has been estimated at more than $200 million.

Burdens of Fundraising

The explosion of congressional campaign costs has occurred during an era when limits on contributions to candidates were largely frozen at the levels set by Congress in 1974–$1000 from an individual per election ($2000 per election cycle); $5000 from a PAC or party political committee per election ($10,000 per election cycle); and $17,500 from a national political party to a U.S. Senate candidate per election cycle. Only the limits on party coordinated expenditures have risen with inflation.

The collision between the irresistible force of rising costs and the immovable object of frozen contribution limits has made fundraising an enormous burden for many candidates. As political scientist Thomas E. Mann has pointed out, “The cost of mounting a major campaign is a huge disincentive to candidacy for people of ordinary means who lack the stomach for nonstop fund-raising.”¹²⁴The burdens of fundraising affect not only potential challengers but incumbents exhausted by the process. As the CED notes, “In recent years, a growing number of retiring senators and representatives have cited the demands of fund-raising as one of the factors in their decisions to leave office. They have noted that fund-raising has become too arduous and demeaning, has taken too much time and energy away from the work they were elected to do, and has diminished the quality of their representation.”¹²⁵

The ever-present need to raise huge sums of money in donations that qualify under FECA “structures how elected officials spend their time, where they travel, with whom they speak, and how they focus their legislative energies.”¹²⁶ The campaign money chase drives party agendas, scheduling, committee assignments, and the allocation of personal time and staff resources. The burdens are especially acute in the House of Representatives, since members have just two years to collect the $500,000 to $1 million or more they may need for their next election campaign. “Some legislators have reported spending hours every day seeking contributions.”¹²⁷ But senators are also heavily burdened. Although senators have six years, rather than two, to raise their funds, the average Senate race costs seven to ten times the cost of the average House race–and individual and PAC contributions to Senate candidates are subject to the same limits as apply to House candidates.

Dominant Role of Large Individual Donors and PACs

The single largest source of funds for the war chests of congressional candidates is donations from individuals. In 1996 contributions from individuals constituted 53 percent of the funds received by all candidates for the House of Representatives, 65 percent received by Senate incumbents, 60 percent received by Senate challengers, and 52 percent received by Senate candidates for open seats.¹²⁸ In 1998 individual contributions accounted for an estimated 54 percent of total congressional election spending and 64 percent of hard money spending.¹²⁹

Within the category of individual donations, large contributions tend to play a bigger role than smaller ones. In 1996 House candidates raised two-thirds of their individual donations in large donations, defined as those between $200 and $1000, and one-third in donations of less than $200.¹³⁰ In 1996 Senate races, incumbents received 60 percent of their individual donations in large contributions; challengers received 65 percent of their individual donations in large contributions; and open-seat candidates received 75 percent of their individual donations in large contributions.¹³¹ In 1998 total large individual donations to candidates and parties came to $464 million, compared with $351 million in small individual donations to candidates and parties.¹³² Overall, large individual donations account for roughly two-fifths of the funding for Senate candidates, one-third of the funding for House candidates, and one-third of the total amount provided to all candidates and party committees.

After large individual donors, the principal participants in federal congressional election finance are PACs. (See figures 3 and 4.) Over the last two decades, PACs have consistently provided between one-quarter and one-third of the total contributions received by congressional candidates.¹³³ In 1996 PACs provided 19 percent of the funding for House challengers, 24 percent of the funding of candidates for open House seats, and 39 percent of the funding for House incumbents. PACs were the largest single source of funds for House incumbents and the second largest source (after large individual donors) for open-seat candidates that year. PACs loomed a little less large in Senate races in 1996, providing just 9 percent of the funds for challengers, 18 percent of the funds for open-seat candidates, and 22 percent of the funds for

Figure 3:  House:  Contributions by source (1998)

Source: FEC, “Financial activity of all senate and house campaigns”, http://www.fec.gov/press/allsu,98.htm

*Coordinated expenditures are included under “Party”.

Figure 4:  Senate:  Contributions by source (1998)

Source: FEC, “Financial activity of all senate and house campaigns”, http://www.fec.gov/press/allsu,98.htm

*Coordinated expenditures are included under “Party”.

incumbents. As in the House, PACs were the second largest source, after large individual donors, of funds for open-seat Senate candidates. In 1998 PACs spent $269 million in connection with congressional elections, including over $200 million in contributions to candidates. PACs provided 41 percent of the average winning House candidate’s total receipts and 23 percent of the average winner’s funds in Senate races.¹³⁴

The rise of PACs is a direct consequence of FECA. Although the PAC device predated the Act, the number of PACs was relatively limited, and the legal status of corporate and labor PACs relative to their parent organizations uncertain. FECA clarified that parent corporations could cover the administrative and fundraising expenses of their PACs and could control PAC contribution decisions. FECA allows a PAC to make five times the contribution that an individual can make, and FECA imposes no limit on the total contributions a PAC can make to all candidates and parties in the aggregate.

Most importantly, while FECA limited the size of individual contributions, the Supreme Court held that Congress could not limit the total of candidates’ expenditures. With contributions limited but expenditures unlimited, FECA created a new and significant need for intermediary organizations that could help carry the burden of raising campaign funds. PACs, along with political party committees, have filled this niche.

From just 608 PACs in 1974, when PACs were first required to register with the FEC, the number of PACs rapidly grew to 1653 in 1978, 2551 in 1980, 3371 in 1982, and 4009 in 1984.¹³⁵ Total PAC contributions to congressional candidates rose rapidly in the same period, too, from $22.6 million in 1976 to $111.5 million in 1984. Since 1984 the number of PACs has plateaued; as of December 31, 1999, there were 3835 PACs registered with the FEC.¹³⁶ (See table 3.) Again since about 1984, the level of PAC contributions has stabilized, growing at roughly the same rate as total congressional campaign costs.

Table 3: Number of PACs

Source: Center for Responsive Politics. The Big Picture: Who Paid for this Election?

http://www.opensecrets.org/pubs/bigpicture2000/overview/who–paid.html

PACs are not homogeneous. There are corporate PACs, labor PACs, trade association PACs, membership organization PACs, and PACs not connected to any parent organization. In 1996, 64 percent of all PACs were sponsored by business interests, 8 percent by labor unions, and 28 percent were not connected to any parent organizations. The unconnected PACs are generally ideological organizations. Business PACs also account for most PAC contributions, about 68 percent. Labor PACs provide a larger fraction of PAC contributions than the number of labor PACs would suggest–about 22 percent. Conversely, ideological PACs account for 11 percent of total PAC dollars.¹³⁷

A relative handful of PACs appear to dominate PAC giving. Of the PACs registered in the 1997-98 election cycle, 35 percent made no contributions at all, 20 percent made total contributions of less than $5000, and 27 percent made contributions of between $5000 and $50,000.¹³⁸ In other words, 82 percent of PACs gave collectively just $25 million, which is a very small fraction of total PAC giving. At the other end of the spectrum, there were 34 PACs that each made contributions of $1 million or more. These 34 PACs (less than 1 percent of all registered PACs) contributed a total of $52.6 million, or just shy of one-quarter of spending by all registered PACs. An additional 51 PACs made contributions ranging from $500,000 to $1 million, for a total of $35.7 million. The next 94 PACs made contributions in the range of $250,000 to $500,000, for a total of $33.2 million. In other words, the top 179 PACs (3.8 percent of all PACs) made $118.5 million in contributions, or 56.1 percent of all PAC contributions.¹³⁹ To make $1 million in legal contributions, a PAC has to contribute to at least 200 candidates (or taking into account separate $5000 contributions for a primary and for a general election, at least 100 candidates).

Unequal Resources for Competing Candidates

The rise of PACs has contributed to a central feature of the current campaign finance system: the existence of dramatically unequal campaign resources for competitors. In many campaigns, one candidate, usually the incumbent, significantly outspends his or her opponent. In 1998 the average House incumbent spent $657,000 and the average House challenger spent $265,000, so that, on average, incumbents outspent challengers by 2.4 to 1.¹⁴⁰ Similarly, in 1996 the average incumbent spent $750,000 and the average House challenger spent just $279,000, for an imbalance of 2.7 to 1.¹⁴¹ (See figures 5, 6, and 7.)

Figure 5:  Expenditure Gap Winners-Losers, 1982-1998 (All Congressional Races)

Source: FEC

Figure 6:  House:  Winners’ and Losers Average Spending 1996-98 (Major Parties)

Source:  FEC.  Data includes spending for the entire election cycle (primary and general election) for all candidates who appeared on the general election ballot.  It does not include date for those candidates who lost in the primary and did not appear on the general election ballot.

*Major parties are those whose candidates obtained more than 5% of the general election vote.

Figure 7:  Senate:  Winners’ and Losers Average Spending 1990-98 (Major Parties)

Source:  FEC.  Data includes spending for the entire election cycle (primary and general election) for all candidates who appeared on the general election ballot.  It does not include date for those candidates who lost in the primary and did not appear on the general election ballot.

*Major parties are those whose candidates obtained more than 5% of the general election vote.

More importantly, in 1998 half of all House challengers raised less than $100,000 and only one-third raised as much as $200,000. Altogether 60 percent of House incumbents either had no significant opposition or outspent their opponents by a margin of ten to one or more. As the Research and Policy Committee of the Committee for Economic Development recently observed, “The majority of House challengers now raise and spend so little that they cannot wage a viable campaign. . . . As a result, most House elections were financially uncompetitive.”¹⁴²

Absolute funding parity is not essential for competitive elections. A challenger may do well if she or he can muster a critical mass of funds.¹⁴³ Nor are campaign finances the sole determinant of election results. Partisan gerrymandering, the issues of the day, the personalities and records of the candidates are all critical variables. But it appears to be the case that if an election is financially noncompetitive, it is likely to be politically noncompetitive, too. The House challengers who spent less than $200,000 generally received less than 40 percent of the two-party vote.¹⁴⁴

Overall, in the last three congressional election cycles the average winner (including successful open-seat candidates and the rare successful challenger, as well as winning incumbents) outspent the average loser by between 2.5 to 1 and 3 to 1; in 1998 the average winner spent $650,000 while the average loser spent just $211,000.¹⁴⁵ In 95 percent of House races, the biggest spender won.

Conversely, politically competitive elections are marked by financially competitive challengers. In 1998 the relatively small number of House challengers who managed to obtain as much as 40 percent of the major party vote spent an average of $639,000, or approximately the median level of spending by all House incumbents. These unusually well-funded challengers, however, faced incumbents who spent an average of almost $1 million.¹⁴⁶ Still, challengers in that range had a more realistic opportunity to win. In 22 of the 25 races where the biggest spender lost, neither candidate had more than a 2-to-1 edge over the other.¹⁴⁷

In the Senate, incumbents also tend to benefit from a financial advantage, albeit one less lopsided than that enjoyed by their House counterparts. In 1996 and 1998 Senate incumbents outspent challengers by a ratio of approximately 1.5 to 1.¹⁴⁸Overall, in 1996 Senate winners outspent their major party opponents by 1.7 to 1, and in 1998 Senate winners outspent their major party opponents 1.8 to 1.¹⁴⁹

The dominant role of PACs and large donations by individuals contribute to the fiscal edge of incumbency. (See figures 8 and 9 and table 4.) Most PACs make contributions in order to obtain or secure access to elected officials

Figure 8: PAC Contributions to Candidates, 1998 Election.

Source: FEC, “FEC Releases Information on PAC Activity for 1997-1998, June 8, 1999.

who are in a position to influence regulations, appropriations, or treaties that affect the environment in which the PAC’s industry or workforce operates. These groups consider campaign contributions an important tool for reaffirming or strengthening their relationships with influential lawmakers. They recognize that contributions can create good will with representatives and senators, thereby making it easier for the group’s lobbyists to influence the legislative process.¹⁵⁰

PACs that follow access strategies overwhelmingly favor incumbents with their contributions. In 1996, for example, 88 percent of contributions by corporate PACs in House elections went to incumbents, with 52 percent of total corporate PAC contributions going to incumbents considered shoo-ins. Another 9 percent went to candidates in open-seat contests; just 7 percent went to challengers. Similarly, 81 percent of trade and membership association PAC contributions went to incumbents (with 45 percent of total contributions going to incumbents considered shoo-ins), 12 percent went to candidates in open-seat races, and just 8 percent went to challengers.

Figure 9:  Percentage of PAC Contributions According to Candidate Status, 1985-86 to 1997-98

Source: FEC, “FEC Releases Information on PAC Activity for 1997-1998, June 8, 1999.

The pro-incumbent bias of corporate and trade association PAC giving in 1996 Senate elections was less dramatic but still substantial, particularly when compared with contributions to challengers: 53 percent of corporate contributions went to incumbents, 38 percent to open-seat candidates, and just 10 percent to challengers; and 48 percent of trade association contributions went to incumbents, 41 percent to open-seat candidates, and just 10 percent to challengers.¹⁵¹ The large proportion of contributions in open-seat races may reflect the unusually large number of open seats (14 out of 34 Senate seats up for election) in 1996.

Table 4: Amount and Percentage of PAC Contributions According to Candidate Status (House and Senate)

Incumbents              Challengers             Open Seats

Election Cycle               Amount        %        Amount        %        Amount        %

1997-98                         170.9         78%     22.1         10%         27.0         12%

1995-96                         146.4         67%     31.6         15%         39.8         18%

1993-94                         137.2         72%     19.0         10%         33.4         18%

1991-92                         135.3         72%     22.9         12%         30.7         16%

1989-90                         125.8         79%     16.2         10%         17.1         11%

1987-88                         118.2         74%     18.9         12%         22.2         14%

1985-86                         96.2           69%     19.9         14%         23.8         17%

Source: FEC, “FEC Releases Information on PAC Activity for 1997-98,” June 8, 1999.

The primacy of access over ideology in patterns of business PAC giving is also reflected in the shift in the partisan distribution of PAC money after the Republican Party captured control of Congress in 1994. Going into the 1994 elections, with the Democrats in control of both houses of Congress, Democratic candidates received 57 percent of corporate PAC contributions and 59 percent of trade association PAC contributions in House races, and Democratic candidates received 42 percent of corporate PAC and 43 percent of trade association PAC contributions in Senate races. In 1996, with Republicans in power in Congress, Democratic candidates received just 30 percent of corporate PAC contributions and 37 percent of trade association contributions in House races, and only 20 percent of corporate PAC contributions and 28 percent of trade association PAC contributions in Senate races.

Many large individual contributors also appear to be motivated by business-related access concerns, albeit to a lesser degree than PACs. In 1996 donors who gave between $750 and $1000 to House candidates distributed their money 62 percent to incumbents, 20 percent to challengers, and 18 percent to open-seat candidates. The allocations by large donors in Senate races were closer but still reflected a pro-incumbent tilt relative to challengers: 34 percent to incumbents, 25 percent to challengers, and 41 percent in open-seat races.

Looking back over the last quarter century, according to campaign finance scholar Frank Sorauf, “the years of FECA have been years of incumbent riches. For more than a majority of election cycles they enjoyed more than three to one ratios.” This is not due to the restrictions or requirements of FECA itself. Incumbents benefited “from the aggressive use of office and access in raising money, but their chief asset was the overwhelming odds of reelection, more than nine to one in House races.”¹⁵² The preferences of PACs and large individual donors for incumbents over challengers and for likely winners in general reflect the built-in advantages of incumbency. By the same token, however, these donors’ actions reinforce the incumbents’ edge.

FECA did not produce this system. But it does nothing to offset it. As Sorauf has put it, “the campaign finance system offers challengers no weapons with which to overcome the advantages of incumbency.”¹⁵³

The Growing Role of Party Committees

The national political parties have done well under FECA. The Act’s limits on donations to candidates, coupled with the rising costs of political campaigns, place a premium on organizations that can help candidates obtain funds and defray some of their campaign costs. Aided by the coordinated expenditure provision, in the 1980s party committees emerged as key financial intermediaries in the federal elections, providing candidates with funds and valuable campaign services and working with them to obtain funds from other donors. For the first time, the national party committees built up a mass financial base, accumulating large aggregates of money through relatively small donations from a large number of donors.¹⁵⁴ The congressional campaign committees, in particular, have become significant players in congressional races. These committees are now involved in recruiting candidates, managing campaigns, producing and placing candidate ads, mobilizing voters, and both providing funds to candidates and assisting candidates in raising funds from PACs and other donors.

In the 1997-98 election cycle, the national committees of the two major parties raised nearly $630 million, or not much less than the $780 million raised in the aggregate by all the candidates for Congress. Although the parties spent most of that money for their own activities or transferred it to state and local party committees, the parties reported providing individual federal candidates with approximately $40 million in hard dollar support, mostly in coordinated expenditures. Although this is less than a fifth of the more than $200 million in PAC contributions to Senate and House candidates, the benefits from party support are probably greater than the value of the reported contributions. Most coordinated expenditures consist of in-kind services: polling data, mailing lists, assistance with fundraising, campaign management, opposition research, and preparation and placement of advertising. These services are often obtained from consultants who provide them to the parties, as repeat participants in the political process, at a discount, so their value to the candidate is likely to exceed the cost to the party.¹⁵⁵

Most importantly, the $40 million figure does not count soft money spending, which is ostensibly for purposes other than the direct support of federal candidates but in fact provides substantial benefits to party candidates. In 1997-98 the national committees of the major parties collected $224 million in soft money, or about one-third of the combined total of hard and soft money. Much of that money aids federal candidates although it is not so reported. Party assistance to candidates is, thus, much greater than the sum of direct contributions to candidates and coordinated expenditures with candidates.

To be sure, the parties are still secondary players in the campaign finance system. The financing of election campaigns remains candidate-centered, with candidates responsible for raising and spending their own funds. The candidates, in turn, raise far more of their money from individuals, from PACs, and from their own personal resources than they do from parties.¹⁵⁶ Nevertheless, the national party committees are much better funded and better organized than before FECA’s enactment and are no longer dependent on state parties for financing. Instead, they now provide state parties with financial assistance. Party funds typically account for 7 percent of House candidate funds and 10 percent of Senate candidate funds.¹⁵⁷ But due to the higher limits on party coordinated expenditures than on PAC or individual donations, party committee donations “currently compose the largest single source of campaign money for most candidates.”¹⁵⁸ Moreover, more than PACs and individual donors, parties are willing to dedicate a significant portion of their financial support to challengers–at least to challengers who appear to have a decent shot at ousting the incumbent.¹⁵⁹ So party money is likely to loom especially large in the funding of competitive challengers.

Self-Funded Candidates

The combination of FECA’s limits on contributions to candidates and Buckley’s invalidation of limitations on candidate spending and on a candidate’s contributions to his or her own campaign has led to an increase in the portion of campaign costs covered by a candidate’s personal resources and to a rise in the number of very wealthy individuals who run for office by funding their own campaigns. This is particularly true in Senate races, where self-financing has risen from 5 percent in 1988 to 11 percent in 1998. In 1998, 18 Senate candidates and 69 House candidates put $100,000 or more of their own money into their campaigns.¹⁶⁰

Self-funding is particularly characteristic of challengers and open-seat candidates. In 1996 House challengers paid one-sixth of their campaign costs (or an average of more than $40,000) out of their own money, and House open-seat candidates spent, on average, more than $90,000 of their own money on their campaigns. In the Senate, the average challenger had to pay nearly one-quarter of the costs of his or her campaign, or approximately $645,000, out of his or her own pocket, and the average Senate open-seat candidate contributed $470,000 to his or her own campaign.¹⁶¹

Given the reluctance of large individual donors and PACs to contribute to challengers, the opportunity for self-funding can be crucial for challengers. Nevertheless, the growing dependence of challengers on their own money underscores the limits the current system places on political participation by individuals of ordinary means. Political newcomers unable to self-fund a substantial portion of their campaigns are effectively excluded from the process. In addition, the political parties and other organizations active in elections may treat personal wealth as a factor determining which candidates they will support. As the Research and Policy Committee for the Committee for Economic Development observed:

The increasing reliance on self-financing also makes personal wealth a more important qualification for seeking public office. National party leaders naturally seek out wealthy candidates to run against better-known, better-financed incumbents. This trend further discourages less-affluent individuals from becoming candidates, since they would now face two major financial hurdles–a primary opponent with a substantial financial advantage and a well-financed incumbent. Indeed, the prospect of challengers with large financial resources may also discourage some incumbents from seeking reelection.¹⁶²

1. The Problem of Enforcement

Even the best campaign finance laws will have little impact unless they are effectively enforced. The FEC has long been subject to criticism from journalists, academics, public-interest groups, and election-law practitioners as weak and ineffective. It has been called a “toothless tiger”¹⁶³ and a “wobbly watchdog”¹⁶⁴ that has “neither the will nor the means to deter wanton violators.”¹⁶⁵ According to these critics, the FEC catches few election law violations; fails to penalize most of those it catches; and imposes penalties that are so small, and come so long after the election, that they do not have a meaningful deterrent effect.

Some commentators have praised the FEC for its work in processing disclosure reports, disseminating campaign finance information, and administering the presidential public funding system.¹⁶⁶ A recent external audit, required by Congress in 1997, performed by PricewaterhouseCoopers LLP, concluded that the “FEC is basically a competently managed organization with a skilled and motivated staff,” which “accomplishes its disclosure responsibilities” and “operates in a fair, impartial manner, maintaining strict confidentiality and a low tolerance for error.” “Productivity has increased in the processing, review, and dissemination of campaign finance transactions in the face of increasing workloads,” and deadlines for public release of campaign finance reports are “routinely met.”¹⁶⁷ But even the PricewaterhouseCoopers study noted that the FEC was unable to ensure compliance with FECA’s contribution restrictions and disclosure requirements.

The FEC’s problems appear to result from a combination of structural, political, and legal factors. Enforcement is hobbled by the provisions of FECA, limited staff and political resources, the increasing complexity of campaign finance practices, and the inherently difficult mission of regulating the very politicians who appoint the FEC’s members, determine its powers, and control its budget.¹⁶⁸

FEC’s Structure

The FEC consists of six commissioners, appointed by the President, with the advice and consent of the Senate, for six-year terms. As a result of an amendment adopted in 1997, FEC commissioners will henceforth be limited to a single term. Previously, there had been no limit on the number of terms a commissioner might serve. Indeed, at the end of 1997, one of the original members of the Commission first appointed in 1975 was still a member, and three others had been initially appointed by or before 1981.¹⁶⁹

No more than three members of the FEC may be affiliated with the same political party. In fact, the Commission is always composed of three Democrats and three Republicans. Commissioners’ terms are staggered, with two terms expiring every other year. This has led to the practice of the President’s nominating commissioners in Democrat-and-Republican pairs, and with the Senate considering the nominees in pairs rather than as individuals. It also appears to be the practice that the President defers to the political parties and congressional leaders in selecting FEC nominees.

The FEC’s even-numbered membership is unusual among federal agencies. Only the International Trade Commission (ITC) also has an even number of members, but the ITC is empowered to act on the affirmative vote of three out of six commissioners. The FEC, by contrast, is required to act by majority vote, with an affirmative vote of four members required for most enforcement actions.¹⁷⁰ This membership structure is also unusual for election-law-enforcement agencies. According to the Center for Responsive Politics, 26 out of 34 federal, state, and local election regulatory structures consist of an odd-numbered commission.¹⁷¹

Also departing from the usual practice of federal agencies, the FEC does not have a presidentially appointed chair who serves as such for a full term. Instead, the Commission elects its own chair and vice-chair, who each serve in those capacities for one year. In effect, the positions of chair and vice-chair rotate around the membership of the FEC. The lack of a strong chair may hamper the ability of the Commission to focus its resources; set investigative, enforcement, or policy priorities; and establish an effective and visible public presence that would encourage compliance with legal requirements.

Resources and Workload

The FEC appoints a staff Director, a General Counsel, and a staff. In 1998 the Commission had a full-time-equivalent staff of 313. Of those, one-third were assigned to work on FECA disclosure; another third worked on FECA compliance; about 10 percent administered the presidential public funding program; and the remainder were involved in election administration, data processing and electronic filing projects, and FEC policy-making.¹⁷²

The FEC was hard hit by budget cuts in 1995-96, and the 1998 staff was actually slightly smaller than the staff in 1994 despite the sharp growth in FEC filings and federal election spending generally. The agency has been adding staff in the last two years and is projected to grow modestly in the near future. Although there has been growth in the agency’s staff and budget since the 1970s, that growth has been much less than the increase in federal campaign spending subject to regulation.

The agency’s budget has also lagged behind the increase in campaign spending, although the budget has grown more than staffing levels. The appropriation for the FEC was $6 million in 1976 and $26.5 million in 1996. As a result, the ratio of campaign finance dollars subject to regulation relative to the agency’s budget went from about $48:$1 in 1976 to $86:$1 in 1996.¹⁷³ In recent years, some of the cutbacks have been restored, and the FEC’s budget was grown relative to the rate of inflation.

The increase in federal campaign spending and the growing complexity of campaign finance practices has had a direct impact on the FEC’s workload. During Fiscal Year (FY) 1997 through FY 1998, the FEC coded and entered roughly 1.9 million transactions, compared with 800,000 transactions entered during the FY 1990-91 period. More than 8000 committees filed approximately 82,000 reports. To clarify reported transactions, approximately 17,000 requests for additional information were sent to committees during this period.¹⁷⁴ The activities of 200 committees were referred for “for cause” audits, compared with roughly 100 referrals each made after the 1994 and 1992 cycles, and the activities of 70 committees were referred for enforcement action.¹⁷⁵

In addition, there were 18 publicly funded primary and general election presidential candidates subject to audit. In 1995-96 the FEC received more than 300 external complaints alleging violations of FECA by individuals, organizations, and political committees. With these complaints added to pending cases at the beginning of the election cycle, and the 70 referrals from the audit analysis division, the enforcement docket grew to 566 cases.

Due to a lack of enforcement staff and resources, however, only 260 cases were “activated,” that is, assigned to enforcement attorneys. Three hundred and six cases were held as ” inactive”; of these, 206 were dismissed with no action taken. Similarly, of the 200 referrals for consideration for “for cause” audits, only 15 such audits were actually conducted, and of the 18 presidential candidates subject to audit, only 15 were actually audited.¹⁷⁶ As the PricewaterhouseCoopers audit found, “with its current level of resources and escalating workloads, the FEC accomplishes its disclosure responsibilities, but struggles to meet its compliance mission.”¹⁷⁷

The Enforcement Process

Campaign finance law enforcement is hampered by the FEC’s cumbersome multistep enforcement process, the requirement that a majority of the commissioners approve advancing a case from one step to the next, the requirement that the Commission offer respondents the opportunity to engage in a time-consuming conciliation process in all cases, and the FEC’s lack of authority to impose sanctions.

The enforcement process begins either by the receipt of a complaint from an external source or a referral to the enforcement staff from another arm of the agency, such as the audit division. Such a complaint or referral triggers the opening of a “matter under review” (MUR). Once an MUR is activated, the enforcement staff prepares an initial legal and factual analysis. Based on that initial analysis, the Office of General Counsel may decide either to close the case or to find that there is a “reason to believe” (RTB) a violation has occurred. If, based on this preliminary analysis, the staff concludes there is an RTB, the complaint, the staff analysis, and the recommendation are submitted to the commissioners, who must decide, with four affirmative votes,¹⁷⁸ that an RTB exists. If the FEC finds an RTB, an investigation of the MUR is formally initiated. If not, the matter is closed.

If the FEC finds an RTB, the respondent is notified and provided with the basis for the finding. The Commission’s regulations provide that at this point the respondent and the staff may enter into what is known as “pre-probable cause conciliation.” If that occurs, the result is an agreement that includes an admission of violation by the respondent, remedial steps the respondent must take, and provisions for the payment of a civil penalty. If the FEC approves the agreement, the MUR is resolved.

If the case is not resolved by pre-probable cause conciliation, the FEC may undertake a full investigation. The Commission has subpoena power and can order production of documents, depositions, and interrogatories. The exercise of each of these formal discovery powers requires a vote of the FEC. Ultimately, the Commission’s General Counsel submits a brief to the FEC contending there is “probable cause to believe” (PCTB) that a violation was committed, and the respondent submits a response brief. The Commission must decide, with the affirmative vote of at least four commissioners required, whether there is PCTB that a violation occurred.

If the FEC finds PCTB, it must once again attempt to conciliate the violation. The statute requires that the conciliation effort last at least 30, but not more than 90, days,¹⁷⁹ but in practice the conciliation period may run well beyond 90 days. Many respondents are skilled at protracting the negotiation process. As with pre-probable cause conciliation, any conciliation agreement must include an admission of violation, a civil penalty, and, where appropriate, corrective measures. Any agreement must be approved by the affirmative votes of at least four commissioners.

If the FEC fails to secure a conciliation agreement, it may authorize the filing of a civil action for relief in federal district court. Again, the decision to go to court requires the affirmative votes of at least four Commission members. A judicial proceeding is a de novo action. The burden is on the FEC, through its General Counsel, to prove its case. The Commission’s finding of PCTB receives no deference.

Caseload

The FEC considered nearly 1200 enforcement cases in 1994-98. Of these, 59 percent were dismissed before reaching the Reason to Believe stage; 3 percent resulted in a finding of No Reason to Believe; 12 percent (140 cases) produced a finding of RTB, but no further action was taken; 1 percent produced a finding of Probable Cause to Believe, but no further action was taken; 22 percent were resolved by conciliation; and 2 percent (or 29 cases) resulted in the authorization of a civil suit.¹⁸⁰

It is difficult to assess the significance of the large number of cases dismissed before the RTB. Many may have been trivial or frivolous, brought by opponents or political enemies of a candidate or committee with the intention to embarrass but without adequate legal or factual foundation. On the other hand, many may have been dismissed simply due to the FEC’s lack of resources. In the late 1980s and early 1990s the Commission developed an enormous backlog. To address that backlog, in 1993 the FEC implemented a new “Enforcement Priority System,” which rated cases according to a variety of factors, including “impact on the process,” “intrinsic seriousness of the violation,” “development of the law,” and the amount of time that had passed since the initial complaint/referral.¹⁸¹ Although this has allowed the FEC to target its scarce resources on more significant cases, it has also led to the dismissal of many cases simply because they were stale or involved smaller sums of money, not because of the lack of merit. Indeed, due to resource constraints, many cases are never actively pursued. In three of the last four calendar years fewer than half of the FEC’s enforcement cases were considered “active”–in 1997 only one-third were “active.”¹⁸²

Private Suits

There is no private right of action under FECA. That is, an individual aggrieved by a candidate’s or committee’s violation of federal election finance law may only complain to the FEC and may not sue directly under the Act. To be sure, the agency’s failure to take action on an externally generated case may be challenged, as may its dismissal of a complaint. If the Commission does not take final action on a complaint within 120 days after it was filed, the complainant may seek judicial review in the federal district court of the District of Columbia.¹⁸³ Similarly, a complainant may petition for judicial review of the dismissal of a complaint. The complainant, however, will have to show that the FEC’s failure to act, or its dismissal of a complaint, was contrary to law and arbitrary and capricious. Few complainants have succeeded in challenging the agency’s failure to act or dismissal of a case, although in some cases the reviewing court may require the Commission to submit periodic reports concerning its progress in handling an MUR.

Penalties

Penalties for violations of FECA are a maximum of $5500 or the amount of the contribution or expenditure involved in the violation, whichever is greater. For knowing and willful violations, the penalty doubles to $11,000, or twice the amount of the contribution or expenditure involved in the violation, whichever is greater. Median civil penalties resulting from negotiated conciliation agreements have risen sharply in recent years, from around $1000 in the 1990-92 period, to more than $7000 in 1995 and 1996, to $9000 in 1997. However, the total penalties from conciliation agreements in 1997 was $863,000, or about half the sum collected in 1994.¹⁸⁴ This may suggest that the agency is concentrating on fewer but more important cases.

Detecting Violations

Due to legislation adopted in 1979, the FEC is banned from undertaking random audits. The FEC initially had random-audit authority, and following the 1976 election it undertook random audits of 10 percent of House and Senate candidates. Those audits “turned up minor but embarrassing inaccuracies in the reports of many incumbents.”¹⁸⁵ As a result, Congress stripped the FEC of the authority to conduct audits other than (i) “for cause” or (ii) of candidates who accept presidential public funding.

With respect to audits “for cause”–that is, because of gaps, mistakes, or violations apparent on the face of a report–the FEC lacks the resources to audit more than a fraction of the reports considered for audit. Of the 194 committee reports filed in the 1995-96 election cycle that were considered for a for-cause audit, the Commission referred just 15 (and only one filed by an incumbent candidate) for such an audit.¹⁸⁶ According to PricewaterhouseCoopers, the FEC “does not appear to have enough resources to conduct a sufficient number of audits for cause to have a deterrent effect throughout the filing community.”¹⁸⁷ Typically, only about 8 to 10 percent of the reports considered for audit are actually subject to audit. From 1990 through 1997 only 71 for-cause audits were completed, or only about 9 per year.¹⁸⁸

^{Go to Part II of “Dollars and Democracy”}