Analysis of Brennan Center-Democracy 21 Federal Public Financing Plan

The impact of money continues to be felt in the U.S. political system. The principal complaint with “Citizens United” and “Speechnow.org” is that they ‘break’ government by creating an environment where elected individuals are beholden to special interests due to their financial donation power through both individual contributions and Super PACs. This fear is magnified by the polarization of politics in that there are apparently so few individuals who are undecided in a given election, capitalization for advertisement is essential to reach these individuals and attempt to convince them to vote for a given candidate. Therefore, some believe elected officials carry out the agenda of those who can provide sufficient monetary donations to increase the probability that elected officials retain their position largely ignoring the needs or desires of those individuals who cannot donate large sums of money to a re-election campaign.

There are three overall strategies to address the influence of money created by the above court rulings: 1) Remove money from the political system; 2) Neutralize the money by creating other fundraising opportunities; 3) Neutralize the utility of money in campaigns. Unfortunately due to the specifics of “Citizens United”, “Speechnow.org” and an uncooperative Congress removing money from the system does not appear to be a valid option at this time or in the near future. That leaves the option of neutralizing the influence of money. Brennan Center-Democracy 21 believes they have a solution, which attempts to create an augmented fundraising source.1 The idea is an expansion of the presidential financing system, which began in the 1974 Federal Election Campaign Act Amendments initiated by the Watergate scandal, to all Congressional candidates with a greater emphasis on small donations.

Since its establishment the presidential financing system has been regarded as a significant success theoretically opening the election process to numerous candidates from different backgrounds and financial standings, reducing the influence of individuals and groups and acting as a significant barrier to corruption. Unfortunately with the total money spent in elections dramatically increasing the presidential financing system is no longer able to provide an effective monetary substitute as witnessed by presidential candidates like Barrack Obama in 2008 and Barrack Obama and Mitt Romney in 2012 not accepting the matching funds and their restrictions. Also while 64% of eligible Americans voted in the 2008 Presidential election less than 0.5% were responsible for a vast majority of the funds that were donated by individual contributors.1 Therefore, the Brennan Center-Democracy 21 plan intends to increase the ability to fund federal candidates, not only presidential candidates, by augmenting funding through small denomination monetary donors.1 The crux of the plan breaks down as followed:

1) Individual state residents will have contributions of up to $250 matched with government funds on a 5 to 1 ratio. Basically if a voter donates $250 the federal government will add $1,250 to that donation for a total $1,500 donation;

2) The program is optional and candidates participating in this new program will only be allowed to accept a maximum of $1,250 from a single individual instead of the existing limit of $2,500. However, because of the multiplier a $1,250 donation in the program will equal a $2,500 donation to a candidate not participating in the program;

3) There is a cap on the amount of funds that government will provide. The suggested cap is $2 million for a House candidate and $10 million for a Senate candidate. However, while there is a cap for the amount of funds that will be matched by government there are no expenditure or total fundraising limits for participating candidates;

4) A donor floor must be achieved before the government funds are distributed. The purpose of this floor is to limit the number of uncompetitive or marginal/fringe candidates. The suggested floor is defined for House candidates as $40,000 from at least 400 donors and for Senate candidates as $40,000 from at least 400 donors multiplied by the number congressional districts in the given state. Note that only the $250 or lower donations from in-state residents count towards this dollar floor;

5) National Party committees can coordinate unlimited cash infusions to support a candidate, but these funds must be drawn from a donor pool that operates under the same rules as individual donations to the particular candidate (the pool the money is drawn from cannot have any individual donations that exceed $1,250). Also the candidate would only be able to contribute a maximum of $50,000 dollars to the campaign from personal assets;

6) Federal Election Commission (FEC) reform to ensure a non-partisan board of referees that can effectively administrate, regulate and enforce adherence to the rules of this program through disclosure and penalties;

7) Create an effective and reliable funding stream through legislation that guarantees solvency and sufficiently fast delivery of the funds;

One design of this idea is to increase the impact of small contributions in effort to make their significance more relevant in a large donor environment. This new significance will increase the incentive for individuals that are only able to give small amounts to donate with less of a mindset that such a donation is meaningless. This theoretical advantage has been demonstrated somewhat empirically by a similar program in New York City where in 2009 city electoral candidates participating in the program raised approximately 63 percent of their donated funds from individuals that contributed less than $250 and most contributors in the 2009 elections were first-time donors where more than 80 percent gave $175 or less.2,3 Unfortunately the overall influence of this effect is difficult to determine statistically because of various other controlling factors and a small sample size from which to draw from over the last decade.

Another theoretical advantage to this small donor enhancement is that due to the volume requirements and advantages, candidates would be more likely to engage with numerous potential voters in their district/state instead of simply ‘wine-and-dine’ a small number of large contributors. There is some anecdotal evidence to support this idea in that some New York City candidates stated that the multiplier New York pays out for small contributors gives them an incentive to actually pay attention to their constituents over simply focusing their attention on wealthy donors through fundraisers, which may attract more diverse individuals to not only donate money, but participate in the political process.2 However, the significance of these interactions is still in question. For example a candidate can just continue to send fundraising emails requesting campaign donations and highlighting the benefits of donating $250 or less. How many people made small value donations to the Obama campaign in 2008 without actually ever going to a face-to-face town hall Q&A hosted by Obama, webchat or some other interactive event? How does this strategy change in a multiplier environment?

The authors of this proposal fail to mention the full public finance systems with much larger track records in Maine and Arizona (Clean Election Systems).1 While the design of the public financing was different, candidates would forgo the ability to privately raise funds to receive a set amount of matching funds relative to what was raised by their opponent plus an additional flat sum, the lessons learned do hold some merit. The design of this system was to increase electoral competition, increase voter choice, attempt to limit increasing campaign costs, reduce interest group influence and increase voter participation.

Unfortunately the public financing systems in both Arizona and Maine did not successfully achieve any of these goals as judged by the Government Accounting Office (GAO).4 Of the five goals the only noticeable change occurred in electoral competition, but that change was not deemed large enough to be statistically significant due to other factors. Insiders also reported that the political parties gamed the system in multiple ways. Fortunately due to the differences in the multiplier system and the matching system (used in Arizona and Maine), it is unlikely that similar gaming strategies can be used in the multiplier system. However, another problem is that the public did not know about this gaming and yet the percentages of races with viable third-party/independent candidates did not increase over time, voting-age citizens did not view public funding as an effective counter to special interest group influence and voting-age citizens did not demonstrate an increase in confidence in government.

Proposal proponents would argue that the ‘Clean Election’ system failed to live up to its hope largely because of the cap placed on the participating candidates. These caps allowed non-participants the ability to outspend their participating opponents. The addition of matching funds, designed to augment any significant imbalance in funding were added later through monetary triggers and alleviated the limitations of the initial flat sum cap, but this trigger-based matching fund structure was later judged unconstitutional by the U.S. Supreme Court in Arizona Free Enterprise Club’s Freedom Club PAC v. Bennett. Based on the long-term outcomes of Arizona and Maine it can be said that the goals of the Brennan Center-Democracy 21 proposal are not easily captured.

Overall there appear to be a number of concerns with the proposal. One immediate concern is the government caps at $2 million and $10 million for House and Senate candidates respectively. While having caps is theoretically appropriate because there must be some limit lest overall government costs for the program could result in unsustainable values, these caps may be inappropriate in efficiency relative to the multiplier. It only takes 1,600 individuals donating the maximum matching value of $250 to reach the House cap and 8,000 individuals to reach the Senate cap multiplied by the number of districts. Unfortunately the districts multiplier is somewhat irrelevant because the proportional population district determining formula tends to lessen the significance of the cap over increasing it. With such a small number of required donors it stands to reason that a vast majority of individuals participating in the program will attain these caps.

Assume that due to gerrymandering and other unscrupulous political behavior along with an increase in political demographical homogeneity only about 130 or so House seats are actually vulnerable with about 33 Senate seats available during each election cycle. With the average House seat winner spending $1.4 million and Senate winner spending $9.8 million in 2010, it is not unreasonable to assume that at least 95% of the House and Senate candidates will enter the program and attain the cap due to the small amount of donations that are actually required. If this is the case then the federal government will be responsible for paying out an additional $1.124 billion dollars in matching funds each election cycle.

Note that this value also assumes only a single Democrat and a single Republican in a general election; no costs are included for what is matched during primaries, there is no inclusion of third party candidates or the idea that previous ‘runaway’ House races would be meaninglessly contested solely on ego because of the available funds. It is reasonable to expect these elements to drive the costs even higher to at least double the above estimate. The authors suggest an estimate of $700 million per year for this program, but that suggestion seems rather small based on the above assumptions.

Based on these cost concerns there are three questions that need to be asked: 1) how is the government going to raise the necessary amount of money? 2) Will the public view this expenditure as a valuable service to society? 3) If the caps can be attained by interacting with so few individuals (0.056% to 0.07% of state populations for almost all Senate candidates) is the system really that useful in accomplishing its ‘interaction/small donors mean something’ goal?

A previous analysis has determined that there are numerous potential strategies for raising a large amount of funds that could be designated for the presidential funding system or an enhanced public funding system like or similar to the proposed one.5 However, a problem with most of those strategies is that they are either some entirely new tax or some form of tax increase typically on businesses. Any attempt in this political environment to pass a new tax will face serious opposition. The tax credit or redirection of funds will probably be limited in usefulness because the current Presidential Matching system is struggling to maintain funding, which is drawn from simple redirection of tax revenue over actually creating more revenue, and this proposal dwarfs that matching system in expected required funds. Also with revenues lower than proportional historical averages, partially due to the Bush tax cuts, it is difficult to view the utility of revenue redirection.

One suggestion that should garner significant support is increasing fines for speeding and other traffic violations at the state level, but it may be difficult to get the states to ‘transfer’ those funds to a federally run system when they are having such financial problems themselves and those additional funds will not amount to much (assuming about $1 million in additional revenue per state only nets $50 million).5 One possibility may be to divert funds from the widely discussed ‘stock trade’ tax to such a program. This strategy may be easier to accomplish versus some of the other suggested taxes because it is a volume based tax with a one to two cent cap per interaction, thus individuals will not view it as ‘back-breaking’ or ‘blatantly unfair’ like most other taxes. Ironically Wall Street will actually be funding a program to enhance competition in federal elections. Another possibility may be to change the system where the government multiplier is only three times instead of five times, thus candidates have to interact with more people to meet the cap, but the overall caps could also be slightly increased in value as well to compensate for the reduced multiplier. Overall whether one wants to regard it as a logistical problem or a political problem, funding this system is a significant problem.

Another concern is the floor monetary caps for participation. The idea of the floor caps is to ensure that fringe candidates do not run on a whim and waste government money. A wise idea, but it appears to be executed improperly with this absolute monetary value. It stands to reason even the most fringe House candidates could find 400 residences in a given district to donate $100 to their campaigns and reaching the Senate requirement would probably be even easier, especially in a more populous and diverse state like California. Overall it would probably be better to change the floor from a hard $40,000 to a percentage. For example 2% of the district population would need to give between $100 and $250 to a given House candidate and 2% of the state population would need to give between $100 and $250 to a given Senate candidate for qualification. If one of the goals is to ‘filter’ out non-competitive candidates then such a requirement is more than appropriate because one cannot have a reasonable expectation of winning unless at least 2% of the voting population is willing to donate at least $100 to the campaign.

Another issue to study is the concept of the ‘repayment of funds’ at the end of the election. The proposal suggests that candidates who have a surplus of funds remaining after an election would be required to return those funds to the government equal to the amount they received through the program or return the entire surplus if received funds were greater than the surplus. The candidate could then use any remaining funds in that surplus after repayment in a future election cycle. There is no information pertaining to whether or not the candidate can transfer those funds to the national party coffers or to another candidate even if he/she elects not to run in a future election cycle. It seems reasonable to suggest that if the candidate does not elect to run in a future election the remaining funds can be donated.

The concern with this system is the point of running in an election is to win and if funds have to be repaid if they exist afterwards it stands to reason that very few candidates will retain any funds instead using that money to purchase last second advertisement on television, radio, Internet and in print publications, unless the race is a runaway. Unfortunately most of the races that are runaways are generally predicted as such long before the election date, thus most runaway winners will not participate in this system and their opponents will spend all their raised money if done so under the system. Overall this issue really is not a problem, but one should not expect much of a return of distributed funds, thus when estimating costs a return rate of less than 1% would be appropriate.

The final major issue is the argument the authors make in reference to donating money leading to an increase in political participation. Basically encouraging participation by small donors will not only increase the probability of neutralizing large donor contributions, but will also increase the probability that these individuals volunteer for given candidates increasing the level of social and political capital between candidates and their constituents, especially on a diversity level. While true, such a desire needs to be tempered with caution. Realistically this increased participation is only genuinely valuable if it leads a person who would not have otherwise voted to vote and if that individual votes he or she does so as an informed voter. If the individual is not an informed voter then it is better they don’t vote. Even if they do vote there is still two lingering problems.

First, the overall idea of the Brennan Center-Democracy 21 proposal is the neutralization of special interest money by countering it with volume funds from numerous small value donors. A problem is that this system has no ‘mind’. The authors oppose the money in the system now because most of it is attached to special interests, which they believe corrupt the system, a rational belief. However, their system does not really address that influence, it only adds more money to the pool. There is no focused mind to this issue because special interests have a single principal issue to promote, all of these multiple donations have numerous voices on given issues, which can drowned each other out.

Some could argue that these donation groups have similar viewpoints, but unless they formalize themselves, they don’t. Numerous people identify themselves as Democrats or Republicans, but they have different views on various subjects despite this party affiliation. This lack of focus is a significant hindrance to this strategy because candidates can still do what the special interests want within their platform because the money from the small donors lacks that potentially counteracting ability due to a lack of clear focus.

The second problem is that while the idea is that augmented small donor money will increase voter excitement because of the greater role any single individual can play, how will this excitement be maintained if nothing changes? One of the biggest problems with this system, and modern politics in general, is that it does not effectively address the issue of the ‘forsaken voter’. One of the complaints of blacks and environmentalists is that the Democratic Party does not respect their opinions because the Democratic leadership believes that these groups have nowhere else to go if they want to exercise their right to vote; they can’t vote for a Republican because that would be self-defeating, if they are real Democrats, and they can’t vote for a Green party member or other third party member because of the infinitesimal probability that the person would actually win.

There is little reason to believe that this proposal will change the probability that a third party candidate is elected because of the ‘wasted vote’ philosophy that burdens third party alternatives along with party loyalties. Adding a medium amount of additional money to the coffers of an alternative party candidate will do little because these parties are already established, thus a lack of publicity is not a crippling problem restricting their ability to get party members elected. Unfortunately without creating another alternative third option for disheartened Republican and Democrat voters their elected officials can continue to ignore their desires and continue to pander to special interests.

With the idea of removing dependence on large donors by augmenting small donors giving an elected candidate the financial firepower to win elections without feeling beholden to anyone, there is an important philosophical point to this issue in that the authors seem to have one of two beliefs. First, that at their core most politicians are moral individuals that are ‘corrupted’ by the rich and other large value donors. Increasing the ability of small donors to fund their campaigns removes them from this corrupting influence. However, this philosophy seems flawed because these individuals feel beholden to these large corporations in the first place. If these individuals were moral they would ‘fight’ for their personal beliefs even if they conflicted with the beliefs of the high value donors. If these actions matched with the beliefs of the electorate then they would be re-elected because the opponents, no matter how much advertising they could buy could not sell a story that would convince the electorate not to vote for this first individual. Unfortunately this does not appear to be the case for a number of politicians.

Second, that there are moral candidates that simply cannot get elected because immoral incumbents use money to saturate the electorate and preserve their election; unfortunately the monetary issue is not the central problem in such a situation; if the challenger is from one of the two major parties (Dem or Rep) then money is not an issue and if it is an independent/third party candidate then voter psychology is far more damaging than lack of money. Therefore, within this philosophy money does not appear to be the principal problem, but similar to the forsaken voter issue, the problem is getting voters to dictate candidate characteristics not the other way around if money is acting as a corrupting influence in that particular region.

The side issue is the matter of voter disapproval of Congress. Most people do not genuinely disapprove of Congress because of the influx of money and the perception of bribery. The disapproval of Congress comes from conflict and intractability; basically Congress is viewed negatively because they are viewed as not doing anything due to in-fighting. Ironically voters want their elected officials to do something, even if it is the wrong thing, more than for them to do nothing. If Congress were doing something, regardless of what that something was, then it would have a significantly higher approval rating.

Overall money is clearly a negative influence in politics and while the attempt to expand the New York City multiplier program to a federal level is admirable there are some important questions that the initial proposal left unanswered. The issue of both the total general cost of the system and how this money will be collected are still unknown and what is estimated does not instill much confidence that it will be affordable relative to what will be delivered. Also the minimum floor to qualify for the system appears better suited as a percentage of the population over a fixed donor number and value in order to more effectively eliminate candidates that have no genuine opportunity for victory and would otherwise waste federal multiplier funds. However, the biggest problem for this program is the lack of viable victory choices (i.e. forsaken voter) and the lack of focus. Unless these two problems are addressed either directly or indirectly there appears very little probability that this program will create significant change in the political system.

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Citations:

1. Skaggs, A, and Wertheimer, F. “Empowering Small Donors in Federal Elections.” Brennan Center for Justice and Democracy 21. 2012.

2. Genn, E, et Al. “Donor Diversity Through Public Matching Funds.” Brennan Center for Justice and Democracy 21. 2012.

3. Malbin, M, Brusoe, P, and Glavin, B. “Small Donors, Big Democracy: New York City’s Matching Funds as a Model for the Nation and States.” Election Law Journal. 2012. 11(1):3-20.

4. Campaign Finance Reform: Experiences of Two States That Offered Full Public Funding for Political Candidates. Government Accountability Office. May 2010. GAO-10-390.

5. Public Financing of Elections: Where to Get the Money. Center for Governmental Studies. 2003. http://www.policyarchive.org/handle/10207/bitstreams/232.pdf