FOLLOW THE MONEY

 

“Follow the money,” as some of you may recall, was the advice Deep Throat gave Bob Woodward as he attempted to unravel the Watergate scandal.  Though the scale of Watergate may have been dwarfed by more recent campaign finance capers, Watergate remains emblematic of the corrupting influence of money on politics.  Money, in Jesse Unruh’s immortal words, may be the mother’s milk of politics, but it is also its poisoned chalice.

Here’s a recent example.  Earlier this year the bankruptcy reform bill was pending in the Congress.  In a private session of Senate and House members negotiating resolution of differences in the bills passed by the two houses, Senator Sessions of Alabama, chairman of the Senate Judiciary subcommittee with jurisdiction of the bill, slipped in a provision that barred enforcement of foreign judgments against American investors in Lloyds if they could show that there had been misrepresentations.  Shortly before this, a small group of unhappy American investors from outside of Alabama had donated $8,500 to Sessions’ campaign chest. Similar examples abound.


Campaign finance has been the whipping boy of politics for many years.  It became a high profile issue during the 2000 presidential campaign when Senator McCain rode the issue to considerable success in the primaries.  At the same time politicians have been deeply conflicted about it, particularly incumbents intent on holding on to their offices with the help of generous contributors whose interests they may have at heart.  It is a subject rich with rhetoric, a subject about which nearly everyone has an opinion but also one about which there is much more heat than light.  Let’s begin with a look at the historical background.

HISTORICAL BACKGROUND


Interest in campaign finance regulation first arose in the late 19th century when reformers became alarmed over large contributions by corporations, railroads, banks and wealthy individuals that became the major source of political funds.  Mark Hanna, the powerful Republican political strategist said: “There are two things that are important in politics.  The first is money, and I can’t remember what the second is.”  Before big corporations entered the picture, party leaders paid most of the campaign costs. When Tammany Hall controlled New York City in the 1880s, the machine levied a tax of 6 percent on municipal office holders.  In addition candidates for office had to kick in money to help finance their own races.  But this all changed as wealthy and powerful industrialists entered the picture.   The prospect of William Jennings Bryan being elected president so frightened corporate interests that it enabled Hanna to raise an estimated $4 million, in 1896 dollars.  Theodore Roosevelt commented that Hannah sold McKinley “as if he were a patent medicine.”  Roosevelt himself ran with the financial support of railroads, oil companies and Wall Street.  When after the election he called for a tax on corporations, the oilman Henry Flagler said “I have no command of the English language that enables me to express my feelings regarding Mr. Roosevelt.”

Still Democrats complained that corporations were buying influence by making large contributions to the Roosevelt campaign.  This led to the adoption by Congress in 1907 of the Tillman act prohibiting contributions by corporations and national banks to political campaigns.  The act remains on the books but it has been rendered largely ineffective by PACs and soft money about which more later.

In 1910 Congress adopted the Corrupt Practices Act which required political parties, but not candidates, to report all receipts and expenditures but only after an election.  In 1911 Congress established the first spending limits but, without reporting requirements or enforcement, they had no practical effect.  Following the Teapot Dome scandal in 1925, Congress required all political committees to file quarterly reports and imposed spending limits of $25,000 for Senate campaigns and $5,000 for House campaigns.  But these laws too were ineffective for lack of enforcement machinery, and they were widely ignored.  In 1940 Congress again adopted new limits on campaign contributions and spending but they had no more practical effect than the earlier limits.


Congress did adopt one piece of significant legislation about this time. In 1939, fearing that the expanding federal workforce under the New Deal would greatly strengthen the Democrats’ ability to raise funds, it passed the Hatch Act, prohibiting political activity by federal Civil Service employees.  It prohibited Civil Service employees from soliciting political contributions and protected them from being forced to make campaign contributions. The Hatch Act remains on the books and last year nearly tripped up Vice President Gore’s campaign.

When in the 1940s labor unions became political players and the major source of funds for the Democratic Party, Congress included in the Taft-Hartley act a prohibition against the use of union treasury funds for political contributions.  This put unions on a par with corporations which since 1907 had been prohibited from using their funds for political campaigns.  However the CIO devised a way around this restriction.  In 1955 Walter Reuther created a PAC--the so-called COPE, the Committee on Political Education--which allowed it to solicit contributions from members and lump them into major political contributions.  More about PACs later.


In the 1960s media spending exploded.  For example, in 1956, total federal campaign spending was $155 million, of which $10 million was spent on radio and TV.  By 1968, spending had doubled to $300 million, but media spending had increased six fold to $60 million.  This caused Congress to worry, not only over how much members had to raise for reelection, but also about the threat from wealthy challengers who could use their own funds to finance a successful media campaign to unseat incumbents.  In response Congress adopted the 1971 Federal Election Campaign Act (FECA).  This was the first meaningful campaign finance reform. The act imposed limits on contributions, including how much a candidate could contribute to his own campaign, and it limited campaign expenditures, including putting a ceiling on media expenditures.  But even with this legislation on the books, campaign spending, both legal and illegal, rose dramatically, as demonstrated by the notorious 1972 Nixon reelection campaign which led to Watergate. 

Aroused by the reports of millions of dollars of illegal contributions to CREEP, the Nixon campaign committee, Congress passed the 1974 amendments to the FECA.  They mark the high water mark of campaign finance reform.  These amendments set limits on contributions by individuals, campaign committees and political parties to federal election campaigns, and they also set spending ceilings for presidential, Senate and House campaigns, and limited what parties could spend on behalf of candidates. Congress also provided public financing for presidential campaigns through the voluntary check-off on income tax returns enabling taxpayers to divert $1 (now $3) to a public fund; presidential candidates became eligible for public funding if they limited their overall spending.  And Congress established the first enforcement mechanism, the Federal Election Commission, whose powers, however, were severely circumscribed.

But the ink was hardly dry on the 1974 amendments when Senator James Buckley brought suit against Francis Valeo, the Secretary of the Senate, to have the law declared unconstitutional.  This suit eventually led to the Supreme Court decision in Buckley v Valeo which struck down much of this legislation as unconstitutional and established the legal framework that governs campaign finance regulation today.

THE SUPREME COURT’S RULING IN BUCKLEY v. VALEO


Needless to say the US Constitution says nothing about campaign contributions or expenditures.  Yet the Supreme Court has firmly planted the First Amendment in the arena of political spending.  The Buckley decision found a fundamental distinction between political contributions and political expenditures.  What is the difference between them?  A contribution is money completely given over to a candidate or a party or committee with the donor retaining no control over its use.  The recipient decides how to spend it.  In contrast, an expenditure is money controlled and spent by the spender; whether it is spent for the benefit of the spender or for someone else, the spender makes the decision.  In Buckley, the Court found these two forms of campaign spending implicated very different First Amendment concerns.  A contribution merely conveys the fact that the donor supports a candidate’s campaign, not the reason why he supports him or her.  The First Amendment therefore permits broad limits on contributions so long as regulations have a reasonable basis and do not starve campaigns or block out basic signals of support. Though limitations on individual contributions may somewhat burden political expression, they are supported by the interest in preventing corruption or the appearance of corruption spawned by the real or imagined coercive influence of large financial contributions on candidates’ positions or their actions if elected to office.


In contrast regulating expenditures, according to the Court, raises more serious First Amendment concerns.  Expenditures convey a message about why the spender supports or opposes a candidate, and limiting them would therefore restrict the quantity and quality of political discourse.  Regulation of campaign expenditures is therefore subject to strict First Amendment scrutiny and will be upheld only if supported by a compelling state interest.  The Court thought that because expenditures posed much less of a danger of quid pro quo corruption, there was no sufficient basis to justify limitations on expenditures.  The Court rejected the Congressional rationale that expenditure limitations were needed to equalize the relative ability of individuals and groups to affect the outcome of elections.  This goal of equalization of the ability to speak--though attractive to many--could not be squared with the First Amendment which does not permit government to restrict the speech of some in society to enhance the relative voice of others.  More about this later. 

The rationale of Buckley survived in the recent opinion in Nixon v. Shrink Missouri, in which a fractured Court upheld the validity of a state-imposed $1000 contribution limit.  But while Buckley was essentially unanimous, there are now three justices who would strike down contribution limitations altogether.  Thus the future of campaign finance regulation in the Supreme Court is uncertain.


This analytical framework under the First Amendment applies to and governs state campaign finance regulation, and the California Supreme Court and other courts have spoken on the subject. California itself has an extensive system of regulations, enforced by the Fair Political Practices Commission, which is in a constant state of flux as a result of various initiatives and recurrent litigation.  But that is beyond the scope of this paper.

 

CAMPAIGN FINANCE REGULATION AFTER BUCKLEY

In 1976 Congress amended the FECA again to comply with Buckley,  and established the contribution limits currently in effect

- An individual may give $1,000 per federal election (primary and       general) to a federal candidate, $5,000 per year to state and local            parties, $20,000 per year to national parties, with a maximum aggregate     annual contribution limit of $25,000 per individual.  Adult members of       a family are counted separately.

- A political party may contribute $5,000 per election to a candidate.

- A PAC may contribute $5,000 per election to a candidate; $15,000    per year to a national party committee, and $5,000 per year to a state     and local party.

- Finally candidates are required to disclose contributions frequently   and large contributions ($1,000 or more) within 48 hours if made     within 20 days of the election.  Candidates must also obtain donor          information.


There are four hot button issues under this scheme:  hard money, PACs, soft money and issue advocacy.  These are the concepts you need to understand to follow the ongoing debate about campaign finance reform.  I had thought that when I scheduled this paper for June, it would be resolved but it is not.  Though the Senate has passed a bill, it is stalled in the House and so it will probably be fall before the denouement is reached.

HARD MONEY

Hard money is money that has been contributed in conformity with the campaign contribution limitations. It differs from soft money which consists of contributions to the national parties outside of the limitations of federal campaign finance law.  As I have noted, the law limits hard money contributions by political party committees.  But hard money contributed to a party, i.e. contributions that conform to federal limitations, can in turn be contributed by the party to House and Senate candidates without limitation; once they pass muster under the law, they are free from restrictions.  Soft money, however, cannot, as we will see.

Because what candidates contribute to their own campaigns is like a campaign expenditure, those contributions are not limited, except that a presidential candidate who accepts public funds under the check-off system also accepts the $60 million spending limit. Recall that President Bush chose not to accept public funds and thus avoided the spending limit.

         PACS


Ironically the growth of PACs was the direct result of the campaign finance regulation adopted in the 1970s. But PACs had a history.  The first one was created by John L. Lewis in the 1930s--the Non-Partisan Political League--to enable the members of the United Mine Workers Union to contribute to political campaigns.  The second was COPE created in 1955--for a similar purpose.  But not until after the 1976 individual contribution limits went into effect did PACs become a major factor. What drove their growth was the explosive rise in the cost of campaigning, mostly due to the increasing reliance on media the cost of which also rose dramatically.  For example, between 1980 and 1998, the average campaign expenditures of House candidates rose from $150,000 to $500,000 and of Senate candidates from $1million to $3.5million.  These are averages, not the mean.  Even in a small state like Nevada with a population of 1.5 million,  the two Senate candidates together spent more than $20 million in their recent campaign.

The problem was aggravated by the fact that contribution limits adopted in 1974 rapidly  became quite unrealistic in relation to the cost of campaigning.  A $1,000 contribution in 1974 dollars is worth $380 in current dollars.  On top of that, relatively few individuals actually make political contributions. In 1996, only 630,000 individuals contributed, and only 230,000 gave $1,000 or more.  And most of these relatively small contributions go to Republican candidates creating an imbalance in hard money funds.  This is for two reasons: there are more Republicans among those who can afford to contribute and more importantly Republicans over the year have developed an effective direct mail money raising machine, such as the one run by Richard Vigery.


These circumstances generated relentless pressure to find other sources of legal funds, which led to the growth of PACs in the 1980s and early 1990s.   What you need to know about PACs is that there is no limit on contributions to PACs--the limits apply only to contributions by PACs--and there are no limits on the number of PACs nor is there a limit on the number of PACs from whom a candidate may receive contributions.  Ordinary PACs are limited to making contributions of $1,000 per candidate per election, but they can give $5,000 to another PAC and $15,000 to a national party committee.  If a PAC is a multicandidate PAC, i.e. if it contributes to five or more candidates and receives contributions from at least 51 individuals, it can give up to $5,000 per candidate per election..  The number of PACs rose from 600 in 1974 to nearly 4,000 in 1999.  PAC contributions rose from $50 million in 1980 to $200 million in 1998.  The four largest PACs are those operated by the Realtors, the Automobile Dealers, the UAW and the AFL-CIO.  Corporate and Labor Union contributions run about equal but are vastly exceeded by contributions from special interest PACs of all kinds, such as the Sierra Club, the NRA, the pharmaceutical industry, etc..


On balance, have PACs been a good or a bad thing?  Opinions differ.  The creation of so many PACs have diminished the effectiveness of the statutory limits on individual contributions-individuals can give unlimited amounts to many PACs and each PAC can contribute its statutory limit to many candidates.  PACs have enabled special interests to buy access and influence.  But PACs have also greatly increased public participation in the election process.  Individuals who have never contributed to a campaign have became contributors to PACs reflecting their particular interests.  Thus a gun owner would probably not send money to a presidential candidate but will give to the NRA PAC because he can be sure his money will be used to serve his interests.  But PAC contributions, although in theory voluntary, are not necessarily so--union members and corporate employees or associates come under pressure to contribute.  And another problem is that most PAC money--about 90%--went to incumbents and for the most part to members of the majority party.  PACs are thought to be a factor contributing to the 90% reelection rate of Congress incumbents.  Of course PACs have injected large amounts of corporate, special interest and labor money into the political process but because candidates must raise funds to run their campaigns, whether that in itself is a bad thing is debatable.       

SOFT MONEY


During the 1980s and early 1990s, PACs were seen as the political bogey man and  reform efforts focused on them.  But with the 1996 election a new and more threatening evil emerged: soft money.  The pressure of rising campaign costs--mostly media costs-- and the greater intensity of campaigning essentially broke down the established limits.  What was needed was really big money, and PACs, subject to contribution limits, could not deliver that. So soft money became the focus of campaign fund raising.  Soft money takes advantage of the loop hole which permits parties to collect and spend unlimited amounts for so called party building activities, such as voter registration, get out the vote efforts, polling, and overhead expenses. The prohibitions against contributions to campaigns by corporations and unions do not apply to soft money.  Soft money contributions come from such things as coffees in the Oval Office and Lincoln bedroom sleep-overs, from fund raising banquets and from people seeking presidential pardons.  They come from drug companies, tobacco companies, oil companies and song writers, among others.  Some call it sewer money.  In the 1998 cycle, Democrats spent $100 million in soft money, Republicans $120 million.  In the 2000 election, soft money contributions amounted to an estimated one half billion dollars.

Party building activity is regarded as enormously important by the parties.  It’s not just buttons and posters but it involves maintaining much of the tangible and intangible infrastructure that helps support political campaigns.  But the obvious problem is where to draw the line between party support and candidate support.  Soft money may only be spent by parties in certain ways.  Soft money cannot be used to contribute directly to a candidate’s election campaign or to finance other activities made on behalf of a candidate.  Soft money also cannot be used indirectly for independent expenditures by parties advocating the election or defeat of a candidate.  Money so used is considered express advocacy and is equivalent to a campaign contribution and therefore subject to the statutory limits. If the party could contribute, directly or indirectly, to its candidate’s campaign, the contribution limits would become meaningless.  This is the reason for issue advocacy.

ISSUE ADVOCACY


The distinction between issue advocacy and express advocacy goes back to Buckley where the Court ruled that individuals as well as political parties have the right to spend unlimited amounts of their own money to participate in the electoral process on an independent basis.  The key words here are independent basis. Issue advocacy, as opposed to express advocacy, is considered independent and as such is protected expression under the First Amendment.  But if an individual or a party expressly advocates the election defeat of a candidate--by using words such as elect or defeat-- or if it coordinates expenditures with a candidate, it is regarded a making a contribution and is subject to the contribution limits. So if one of you wanted to pay for an ad on your own behalf advocating the reelection, say, of Gray Davis, for example, that would count as a contribution and be subject to the FECA reporting requirements and limits.  On the other hand, if you paid for advertising blaming the Republicans for the energy crisis, that would be unregulated issue advocacy.  Because of the vast amounts of money in play here, it is obviously critical to know how to distinguish between issue advocacy and express advocacy and it is not always easy to distinguish.  As a lobbyist for the NRA said, what separates issue advocacy and express advocacy is a line in the sand drawn on a windy day.


A typical issue ad would say Congressman X voted to raise your taxes.  Tell him he is wrong. An express advocacy ad would say vote against Congressman X.  A court held that a newsletter published by the Massachusetts Citizens for Life before a primary election accompanied by a flyer listing candidates and identifying the pro-life candidates was express advocacy.   On the other hand, it held that the publication of a voting guide by the Maine Right to Life Committee which specifically disavowed endorsement of any candidate was not express advocacy.  Recent cases have taken a narrow view of what constitutes express advocacy, requiring words like vote for, elect, support, defeat or reject, thereby leaving a broad unregulated area of political spending.  Issue advocacy exploded in 1996.  You will recall the intensive fundraising by President Clinton which financed a huge issue oriented TV campaign at the beginning of 1996. This gave him a decided edge which Dole could never overcome.  The ads were carefully scripted to focus on his agenda and accomplishments, avoiding direct endorsement of the Clinton candidacy and thereby passing as  unregulated issue advocacy though they had of course a powerful effect on the election.  Similarly the large sums spent by the party committees to encourage voter registration and voting on election day, obviously targeted to maximize support for their particular candidates, are issue advocacy.  It is estimated that in the 1996 cycle, about $300 million was spent on issue advertising.


Another problem is whether advertising by a political party can ever be considered independent issue advocacy as opposed to express advocacy which would be treated as a regulated contribution.  The Supreme Court, in a splintered decision, opened the door to permitting parties to establish separate political organizations to make campaign contributions independent of and uncoordinated with candidates.  This surely stretches the notion of independent but it could also be a mixed blessing when a state party takes a position on a controversial issue, such as abortion, which diverges from the candidate’s.

Political parties are not alone in running issue advocacy. Although contributions by PACs to campaigns are regulated, as we have seen, their support of issue advocacy is not. Thus PACs are free to run ads like the famous Harry and Louise Campaign against health care reform.  There was no doubt where the sponsors stood on the candidates but it clearly passed as issue advocacy and thus fell outside the limits on contributions.  Also PACs that don’t finance election campaigns do not need to register and are not regulated at all; they are able to engage in legislative lobbying and grass roots organizing.  To the extent they spend money to support candidates, i.e. make their own independent uncoordinated expenditures, those expenditures are protected by the First Amendment and not regulated.  The potency of PACs is their ability to aggregate contributions into large sums with heavy impact.  PACs may be connected with parent organizations, such as corporations and unions (which themselves could not contribute funds), environmental, or other special interest organizations.  Or they may be issue oriented, soliciting the general public.   Then there are the so-called leadership PACs, established by some individual to support his own political ambitions or purposes.

MCCAIN-FINEGOLD BILL


Over the years numerous reforms have been proposed, none of which got to first base.  Although members of Congress have declared their support, they have always done so confident that no bill would ever get past a Republican filibuster.  But by the year 2000 the political climate had changed and to the surprise of most observers, the Senate, after two weeks of debate, on April 2, 2001, passed the modified McCain-Finegold bill by a vote of 59-41.  It would principally do these things:

-ban soft money contributions to and expenditures by the national        parties and by candidates and incumbents of federal office;

- treats funds spent on electioneering broadcasts by any individual       coordinated with a candidate as a contribution subject to contribution   limits;

- increase the aggregate limit on individual contributions to candidates         from $25,000 to $30,000.

Although substantially watered down from the original McCain-Finegold proposal, the bill would have a major impact on political parties which depend heavily on soft money for their operations.  Opponents argue that it would seriously weaken political parties--some estimate the loss at $200 million.   And it raises potential First Amendment concerns by restricting the ability of individuals to pay for broadcast advertising if it is coordinated with a candidate or his committee.  Although the House previously passed the similar Shays-Meehan bill, its fate in the House is uncertain.

THE REFORM DEBATE


In the end the question remains, putting aside the obvious political dimensions of the matter, what is the wise policy choice.  Is it a good government issue, as many have argued, or is it an exercise in legislative sandcastle building. Vast amounts are spent on political contributions, yet they are modest compared to what pharmaceutical companies spend to promote their products or what Philip Morris and Procter and Gamble spend on cigarette and toothpaste advertising.  And as Senator Mitch McConnell from Kentucky, the leading opponent has said, the American people spend less on political campaigns than they do on cat food.  But cat food does not have the same impact on our society as political contributions.  This is what Charles Keating had to say to a Congressional investigating committee: “In answer to the question whether my financial support in any way influenced several political figures to take up my cause, I want to say in the most forceful way I can: I certainly hope so.”  But Senator Alan Cranston, one of the recipients of Keating’s generosity, explained, testifying under oath: “Why would Keating, a conservative Republican contribute to a liberal Democrat?  He believes in participation.  He is a patriot--you can’t know what is in the mind of everyone who is contributing.”


Traditionally there has been a liberal-conservative divide on this issue.  Conservatives say that the total of approximately $2 billion or so spent on federal elections last year is insignificant compared to sums spent on commercial advertising; Ford, for example, spent $800 million just to introduce the Taurus. They see the media as generally aligned against conservative causes and candidates and argue that finance reform would merely reinforce the great advantage of the media in pressing their favored presumably liberal causes.  They see campaign finance restrictions as an infringement of the right of free expression guaranteed by the First Amendment and they find the equalizing rationale, i.e. the neutralizing of the advantage of wealth, particularly obnoxious to the idea that this is a republic, not a social democracy. And even if campaign finance reform were adopted, they say, people would find a way around it to broadcast their opinions.

The pro-reform position is that Buckley should be overruled and the notion that the First Amendment prohibits regulation of money rejected.  Money is not like speech because it has insidious effects, at least when it exceeds the minimal amounts necessary to support political activity.  Vast amounts of money can operate to drown out the speech of others less well endowed. Although some argue that campaign finance regulation may favor incumbents, it is clear that by far the most money is raised by incumbents, giving them an undoubted advantage and discouraging challengers. Proponents see the demands of money raising distracting and undermining the effectiveness of office holders.  They see the huge flow of money to incumbents undermining public trust and confidence in their work.  They see the outcomes of elections skewed by the effect of massive spending.  Thus there are compelling justifications for regulating money flowing into politic and regulation is not inconsistent with free speech--Roberts Rules of Order, after all, are accepted as appropriate limitations on debate.


But it is no longer a simple conservative vs. liberal issue.  Since Democrats have pulled even with Republicans in raising soft money, many feel that restrictions will weaken the party.  Hillary Clinton, for example, raised $10 million in soft money for her Senate race. Recently minority caucuses in the Congress objected that soft money restrictions will hamper their ability to register voters and build up minority participation in elections. And some Republicans now look with more favor on these restrictions as a way to contain the financial muscle of labor unions.

The fact is that, whether we like it or not, money is the mother’s milk of politics.  It costs money to run for office, and it gets more expensive all the time.  In the 1996 federal election cycle, candidates raised some $2 billion.  Costs go up and one way or another, candidates will have to find the money to run.  Restricting their access to money will not necessarily serve the interest of democratic government.  That money buys access and influence is a fact of life, but it is the price of having democratic elections. Whatever restrictions are adopted, while they may make us feel good, circumstances and ambition will force candidates and parties to find ways to raise the money they need to campaign successfully. After the 1974 reforms, PACs came along to meet the need for money. As the need for money increased, soft money came along.  The McCain-Finegold restrictions on soft money are likely to shift power from parties to wealthy individuals or groups intent on influencing elections.   


The real problem lies not so much in the amount of money in politics but in the staggering amount of time and effort candidates and incumbents must devote to fund raising.  Barbara Boxer said that to run for the Senate in California, she must raise $10,000 each and every day, 365 days a year. Former Senator Nancy Kessebaum said that we have to raise money all the time so we don’t have much time for other things.  Limits on campaign contributions don’t make fund raising easier, they probably make it more difficult.  The ideal of a campaign financed with small individual contributions has about as much of a future as the family farm.  Is there an answer?  Obviously, in the long run the only answer is some form of public financing, perhaps publicly subsidized access to TV time, but this would raise about as many problems as it would solve and is not likely to be politically acceptable.

The chances of McCain-Finegold passing the House are not good, but if it does I would not break out the champagne, and if it does not, I would not shed tears.

 

WWS   6/2001