Which of the following currently pertains to the use of “soft money” in campaigns?

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Soft money is also known as non-federal funds and is raised outside the limitations imposed by the FEC regarding the source and size of contributions. Soft money cannot be used to finance federal election campaigns directly but loopholes allow it to be spent in influencing campaigns indirectly.

Party Building

In 1978 the Federal Election Commission (FEC), attempted to place limits on donations that political candidates in federal elections could receive. These limits, however, only apply to political campaigns (hard money) and not to activities that were considered "party building".

The term "party building" is loosely defined, allowing parties to run a campaign for elections that do not specify a certain candidate. For example, the Republican Party can run an advert "Vote Republican!" but would not be allowed to have paid for adverts that specify their candidate. Similarly, parties may run adverts raising awareness of certain issues such as economic, education or foreign policy etc.

See also: Hard Money, Our Vision, Digital Democracy

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Chapter 4 Evaluation of the Public Funding Program

The preceding chapters have described some of the administrative challenges associated with the public funding program, the steps the Commission has taken to address those challenges, and its recommendations for legislative action. This chapter offers a more analytical evaluation of whether the program has achieved its goals. It should be noted that the Commission sees itself as neither an advocate nor a critic of the public funding program. However, as the independent executive agency charged with administering and enforcing the program, it has become the repository for a considerable amount of information on the topic. Drawing upon that body of knowledge, it offers here a sampling of the opinions espoused by outside observers on both sides of the issues raised by the Presidential public funding program, including relevant statistical data. The discussion is not intended to be and is not exhaustive.

Problems and Solutions

Born of the Watergate era, the public funding program was designed to correct problems perceived in the Presidential electoral process. Those problems were believed to include:

• The disproportionate influence (or the appearance of influence) of wealthy contributors;
• The demands of fundraising that prevented some candidates from adequately presenting their views to the public; and
• The increasing cost of Presidential campaigns that effectively disqualified candidates who did not have access to large sums of money.1

To address these problems, Congress devised a program that combined public funding with limitations on contributions and expenditures. The following paragraphs describe how this Presidential funding system was intended to solve the alleged problems mentioned above.

Reduce the Influence of Wealthy Contributors

Congress sought "to reduce the deleterious influence" of wealthy donors by restricting the amount and source of private funds that enter the Presidential process and to substitute, in part, public funds for the lost private contributions.2

Private donations are permitted during the primary election period, but individuals may contribute only $1,000 per candidate. Of that, just $250 is matched with public funds.3 Consequently, primary candidates have an incentive to raise smaller contributions from a larger pool of contributors. Furthermore, the government matches only those contributions that come from individuals--not those from PACs or parties--thereby subordinating the possible influence of committees.

Restrictions are even greater when it comes to the nominating conventions and general election. Major party convention committees and general election nominees may not raise any private funds at all.4 Instead, they receive full public grants.

These grants--like the primary matching payments--come from the $1 checkoff that appears on federal income tax forms. The checkoff is another element of the public funding program that is designed to promote small individual donations as an alternative to large contributions from wealthy contributors.

Increase Communication with the Electorate

Many reformers believed that campaigns had become too costly, forcing some candidates "to devote too much time to endless fund raising at the expense of providing competitive debate of the issues for the electorate."5 By providing general election grants to major party nominees, Congress sought not only "to free candidates from the rigors of fundraising," but also "to facilitate communication by candidates with the electorate" at large.6

Level the Playing Field

The public funding program was also intended "to reduce financial barriers" so that candidates without access to large sums of money could, nonetheless, run viable campaigns.7

Congress sought to achieve this goal through a combination of public funding and expenditure limits. By providing public funds--either a base, as in the primary, or a full grant, as in the general--Congress wanted to ensure that qualified candidates had enough money to wage competitive campaigns. The spending limits, in turn, were intended to level the playing field, so that no candidate could win election solely on the basis of his or her financial standing.

Under the public funding program, committees must agree to limit their spending as a condition for accepting public funds.8 During the primary election period, candidates are subject to both state-by-state and national spending limits.9 Major party convention committees and general election nominees cannot spend more than the amount of their public grants. In addition, publicly funded candidates cannot spend more than $50,000 of their personal funds on the campaign.10

Constitutional Challenge

Within a month of the enactment of the public funding law, its constitutionality was called into question. In the landmark Supreme Court case, Buckley v. Valeo,11 the plaintiffs argued that the program's limitations on contributions and expenditures violated First Amendment protection of free expression, since no significant political expression could be made without spending money. The Court concurred in part with the appellants' claim, finding that the restrictions on political contributions and expenditures "necessarily reduce[d] the quantity of expression by restricting the number of issues discussed, the depth of the exploration, and the size of the audience reached. This is because virtually every means of communicating ideas in today's mass society requires the expenditure of money." The Court determined, however, that such restrictions on political speech could be justified by an overriding governmental interest.

The Court upheld the contribution limits because they "serve[d] the basic governmental interest in safeguarding the integrity of the electoral process without directly impinging upon the rights of individual citizens and candidates to engage in political debate and discussion."

By contrast, the Court struck down all limits on expenditures, except those that applied to publicly funded committees. While ruling that "[t]he First Amendment denies government the power to determine that spending to promote one's political views is wasteful, excessive or unwise," the Court nevertheless upheld the limitations on spending by publicly funded Presidential candidates since their acceptance of public funds was voluntary. Spending limits were acceptable, the Court said, only under these circumstances.

The Court also rejected the appellants' claims that:

• Congress violated the First Amendment by not allowing taxpayers to earmark their $1 checkoff to any candidate or party of their choice (see Chapter 5);
• The First Amendment prohibits Congress from financing particular political campaigns;
• The program's eligibility requirements violate the Fifth Amendment's due process clause; and
• The program discriminates against minor and new party candidates, in violation of the Fifth Amendment.

Has Public Funding Solved the Problems?

While many observers agree that, in the past, big money had compromised the integrity of the Presidential process, they do not all agree that the current public funding program is a desirable or effective alternative. Proponents of public funding say that it has been effective, but acknowledge that, in its present form, it does not offer a complete solution to all of the problems. Opponents, on the other hand, assert that public funding has been largely ineffective and should be scrapped. This section attempts to evaluate whether the Presidential public funding program has met its goals, presenting some of the key arguments made by its supporters and critics.

Both sides of the debate acknowledge that public money is not--nor was it intended to be--the sole source of funding for Presidential campaigns, even during the general election period. The statutes and regulations specifically sanction certain types of private contributions and expenditures during both the primary and general election periods.12 Funds not subject to the federal election law ("soft money") may also play a role in Presidential elections.13

People disagree, however, over the significance of all of these supplemental sources of private funding. Critics contend that private money undermines the public funding program--buying access to the Presidential candidates and making a mockery of the program's spending limits. The program's supporters, on the other hand, say the significance of these private funds diminishes considerably when seen in the broader context of the total funding of Presidential campaigns. Still others, who generally support the concept of public funding, share the critics' concerns about the growing impact of private money on Presidential elections.

Chart 4-1 lists the funding sources for the 1988 and 1992 major party nominees, including primary contributions, public funds and some of the supplemental sources on which candidates may rely. The evaluation that follows focuses primarily on whether or not the supplemental funding sources undermine the public funding program. Additional statistical information is provided throughout this section to further illustrate the role supplemental sources may play in financing Presidential elections.

Reduce Influence of Wealthy Contributors

Proponents of public funding believe that the program has reduced the influence of wealthy contributors on Presidential candidates.14 As noted above, individuals cannot contribute directly to major party convention committees or to general election nominees, and may contribute a maximum of only $1,000 per candidate during the primaries. Of that, just $250 is matchable. As a result, supporters say, candidates are seeking smaller contributions from a larger, more diverse pool of contributors.15 In 1972, prior to the advent of public funding, the Nixon and McGovern campaigns raised a combined total of nearly $27 million in donations of at least $50,000 from fewer than 200 people.16 Under public funding, this is not possible.17

Critics of the public funding program contend, however, that wealthy contributors still have considerable influence over Presidential candidates, despite the law's limits and prohibitions on contributions. While the statute does restrict direct contributions to candidates, it does not limit independent spending, which can supplement a candidate's campaign treasury. Wealthy individuals and groups, for example, can make unlimited independent expenditures to support or oppose Presidential candidates. (See Chapter 2.) In upholding this provision, the Supreme Court stated:

In 1992, nearly $4 million worth of independent expenditures were made in connection with the Presidential election. These expenditures accounted for slightly more than 1 percent of the total funds spent to support the major party nominees during the entire election cycle. (See Chart 4-1.) 19

Supporters of public funding point out that independent expenditures may not be made in cooperation or consultation with any candidate or candidate's campaign. As noted by the Supreme Court in Buckley:

Soft money, some argue, is another potential supplement for candidates. As noted in Chapter 2, soft money often consists of large donations from individuals, corporations and labor unions. These funds, which are usually given to state and national party committees, cannot legally be raised or spent to influence federal elections, but are acceptable under some state election laws. While these funds are used primarily for grass-roots activity, critics contend that soft money is frequently spent in ways that indirectly benefit Presidential candidates. For example, party committees may use soft money to pay the nonfederal share of the costs associated with get-out-the-vote drives that benefit both federal (including Presidential) and nonfederal candidates.21 The major national party committees spent a combined $67.8 million worth of soft money during the 1992 Presidential campaign.

According to FEC statistics, however, if all of the soft money spent by the national party committees in 1992 had been spent to support Bush and Clinton, it would have represented 23 percent of the total funding available to the two candidates during the entire election cycle or 32 percent of the funding available in the general election period. (See Chart 4-1.) The fact that the percentages are not larger has led some to discount the importance of soft money spending. Moreover, they note that every two years, tens of thousands of state and local offices appear on state ballots while only 480 federal offices are up for election. Since, they assert, soft money is to be used to assist the nonfederal candidates and federally permissible funds are to be used to pay for federal candidate support, the Presidential race is, at most, only indirectly and partially affected by soft money spending.

Many observers, however, are concerned that large soft money donations may yield undue influence on Presidential candidates. Some have argued that "soft money opens the door for precisely the sort of influence-peddling and quid pro quo that Congress had in mind when it prohibited corporate, union, and excessive individual contributions to federal candidates. . . ."22 This perception is heightened when Presidential candidates and their associates help to raise soft money for their party's use. Some observers say that this type of active participation by the candidates, combined with the large sums of money involved, challenges the notion that, under the public funding system, the wealthy no longer exercise significant influence over Presidential candidates.23 In 1992, 43 percent of the soft money raised by the major national party committees came from donations of $50,000 or more. Many of the largest donations came from corporations and unions--entities that are specifically forbidden, by law, to contribute to any federal candidate.

According to some critics, another way private individuals buy access to Presidential candidates (or create that perception) is by contributing to the nominee's legal and accounting fund.24 Campaigns use this separate fund, which is subject to FEC regulations, to defray the costs related to complying with the federal election law. They may also accept loans from the compliance fund to defray qualified campaign expenses incurred before the candidate receives his or her general election grant.25 Critics contend that such loans result in private funding of the general election campaign for as long as the loans remain unpaid.26 It should be noted, however, that the Commission has required that these loans be repaid within 15 days of the campaign's receipt of the grant. Critics maintain that, regardless of how the funds are used, the contributor may exercise influence over the Presidential nominee. (See Charts 2-7 and 4-1).

Finally, critics of the current system allege that wealthy donors continue to finance Presidential nominating conventions, despite the restrictions imposed by the public funding program. In some cases, they say, corporations and labor unions donate funds, goods and/or services to help finance the conventions. Host cities raise large sums from private sources as well. (See Chapter 3.)

Increase Communication with the Electorate

As noted above, Congress hoped to help candidates get their message to the voters by providing public funds. With a reduction in the demands of fundraising, candidates could devote more time to communicating with the public at large.

Proponents say that the general election grants have reduced the amount of fundraising done by major party nominees, since they cannot raise private funds for their campaigns.

Some critics contend, however, that the program has actually increased the fundraising burden for primary candidates because they must try to raise funds in matchable $250 increments and may not accept more than $1,000 from an individual contributor. As a result, fundraising requires more time and more resources. They further point out that, although fundraising for the candidate's own campaign treasury has been eliminated in the general election phase, Presidential nominees now devote their time to raising soft money for the national and state party committees (see above).27

Apart from whether or not the current system reduces the fundraising burden, evaluating the program's success in "facilitating communication with the electorate" is difficult, particularly since the objective is at least partially qualitative: Is the electorate better informed as a result of public funding? Proponents say, "Yes." The public funding program imposes discipline on candidates, forcing them to spend their limited resources in ways that best convey their message to the public. Further, they argue, primary election candidates must reach out to all Americans (not just the wealthy), and in the general election, major party nominees are free to devote all of their time to communications. Opponents, however, counter that expenditure limits force campaigns to reduce the amount of information they give to the public, resulting in a less informed electorate. The limits also "encourage candidates to favor mass media advertising, which may be more cost effective than grass-roots campaigning but may not be as informative."28

Level the Playing Field

Through a combination of public funding and expenditure limits, described above, Congress hoped to control campaign costs and thereby "reduce [the] financial barriers" that had prevented some candidates from running for President.29

Most observers acknowledge that the expenditure limits have kept spending under control, at least in relative terms. For example, Congressional spending, which is not subject to limits, increased 248 percent from 1978 to 1992, while Presidential spending increased 174 percent from 1976 to 1992. (See Chart 4-2.) (NOTE: Chart will appear in a new window.)

Critics point out, however, that while the overall limits may have held Presidential spending down, a number of primary candidates have exceeded the state-by-state expenditure limits in Iowa and New Hampshire. (See Chapter 1.)

As with the contribution limits, critics have argued that supplemental spending has compromised the expenditure ceilings. Along with independent expenditures and soft money spending, described above, candidates have relied on pre-candidacy leadership PACs, partisan communications by corporations and labor unions and coordinated party expenditures to supplement their limited resources. (See Chapters 1 and 2.)30 The importance of each of these sources has varied from one election cycle to the next. For example, corporations and labor unions spent nearly $5 million on partisan communications in 1984, but less than $2.5 million in 1992.31

Some observers have argued that the root of the excessive and supplemental spending, described above, lies in the expenditure limits themselves. They note that, while the limits are indexed to inflation, many of the costs associated with campaigning (particularly media costs) have increased more rapidly than the overall rate of inflation. As a result, they say, candidates have exceeded the state-by-state limits and have looked to alternate sources to supplement their spending.32

Despite the conflicting views on expenditure limits, observers on both sides of the public funding debate agree that the combination of expenditure limits and public funding has opened the Presidential process to more candidates.33 They do not agree, however, on whether that objective is desirable. Pointing to Jimmy Carter's successful candidacy in 1976, proponents say that public funding helped a relative unknown reach the White House.34 Opponents, however, focus on the number of so-called "fringe candidates" who have received public funds to finance their campaigns. These critics contend that tax money should not be spent on "a political welfare program for fringe and extremist candidates with limited appeal."35

Supporters of public funding, however, caution against refusing to fund qualified candidates on the basis of their political views. (See Chapter 1.) They point out that identifying "fringe" or "mainstream" candidates is a subjective process which defies simple objective criteria.36

Nevertheless, it is clear that the framers of the public funding statute intended to avoid "funding hopeless candidacies with large sums of public money."37 Consequently, they established what was considered in 1974 to be a rigorous test for primary election candidates. In order to qualify for matching funds, they had to demonstrate broad based support by raising a minimum of $5,000 in increments of not more than $250 from each individual contributor, in each of 20 states.

The problem, many point out, is that, while inflation has more than doubled (increasing 176 percent), the eligibility threshold has remained unchanged. They contend that it is possible to open the election process to qualified candidates yet avoid the proliferation of so-called "fringe candidates" by raising the threshold.

Cost to Administer Public Funding

Any evaluation of the benefits of the Presidential public funding program must take into account the cost to the taxpayer. The FEC estimates that the 1988 Presidential election cycle, which was the most expensive cycle to date, cost the Commission about $5 million to administer. Combining that figure with the total 1988 payments from the Presidential Election Campaign Fund brings the approximate cost of the program for that cycle to $182 million.38

There is no hard data on the cost of administering the public funding program, in part because the program utilizes FEC resources throughout the agency, at various times and to varying degrees. Nevertheless, as a case study, we have examined the costs for the 1988 Presidential cycle, using two different methods. While each method is imperfect, together they provide some insight into the cost of administering the public funding program. It should be noted, however, that administering the public funding program is only one of the Commission's primary functions. (The agency is also responsible for the public disclosure of all campaign finance data and for the civil enforcement of the disclosure requirements and the contribution and expenditure limits affecting all federal elections. In FY 1993, the Commission's full budget was $21 million and the Commission had an FTE of 276 to carry out all of its functions.)

The first glimpse at the costs of administering the 1988 public funding program is found in an internal memo of February 1991. In that memo, Commission staff estimated that the cost of administering the 1988 Presidential funding program was $5,643,357 over roughly 5 years (October 1985 through January 1991) or $1,058,791 per year.39 This span of time encompassed the regulatory and certification work done in the two years before the election year and the advisory opinion, continued certification, audit and enforcement activity of the succeeding three years. The estimate was reached by, first, determining the actual cost of staff time (FTE) spent on the 1988 Presidential program (over 5.33 years), based on monthly time reports. Next, it was determined that this staff time represented 8.12 percent of the Commission's total staff resources (FTE). That percentage was then applied to nonpersonnel costs--over the same 5.33-year period.

Another way of evaluating the cost of administering the 1988 election program is to examine the audit staff resources consumed between January 1987 and January 31, 1993. The following chart lists the FTE for the various Audit Division functions that pertained specifically to the 1988 Presidential program, spread over those six years.

CHART 4-3
Audit Division FTE for 1988 Cycle

We have examined the 1988 cycle because it was the most recent, completed cycle. It should be noted, however, that the 1988 cycle was the most costly in the Commission's 17-year experience. That year, the Commission certified funds to a total of 17 candidates (15 in the primaries and 2 in the general election)-- more Presidential candidates than had run in any election since 1980. In addition, the 1988 audits encountered far more complex issues than had been seen before, and the Audit Division was understaffed. The changes in audit procedures for the 1992 elections are expected to reduce audit costs. (See Chapter 1.)

Summary

While most observers acknowledge that the Presidential public funding program has achieved at least some of its stated goals, they also recognize that the program is imperfect. Some cite these imperfections as a reason to end the program. Others, focusing on the program's successes, want to correct the imperfections. This chapter has highlighted both points of view. It has touched on the arguments offered by both those who seek improvements in the program and those who seek its end. It is Congress who will decide the fate of the public funding program.

As the next chapter illustrates, unless Congress soon takes action on the funding mechanism (the tax checkoff), the program will all but collapse in 1996.

1. See S. Rep. No. 93-689, pp. 1-10 (1974).

2. Buckley v. Valeo, 424 U.S. 1, at 91.

3. 26 U.S.C. Sec.9033(b)(3), (4) and 9034(a).

4. 26 U.S.C. Sec.9003(b) and 9008(d)(1). Cities hosting conventions, however, may provide certain services to convention committees. (See Chapter 3.)

5. See S. Rep No. 93-689, p. 6.

6. Buckley at 91.

7. Buckley at 107.

8. Following the Buckley decision (424 U.S. 1, (1976)), public funds came to be seen as a legal prerequisite for imposing spending limits. The Buckley court had ruled that spending limits were constitutional only if candidates voluntarily agreed to them in order to qualify for public funds. (Robert E. Mutch, Campaigns, Congress, and Courts: The Making of Federal Campaign Finance Law, p. 135.)

9. 2 U.S.C. Sec.441a(b).

10. 26 U.S.C. Sec.9004(d) and 9035(a).

11. 424 U.S. 1 (1976).

12. See the various sources of spending listed in Chart 4-1.

13. Soft money is not subject to the limits and prohibitions of federal law. Until the 1992 election cycle, soft money was disclosed at the state level only.

14. Frank J. Sorauf, Inside Campaign Finance: Myths and Realities, p. 159.

15. Proponents are also quick to point out that contributions from political action committees (PACs) to Presidential candidates have declined under the public funding system. (See Chart 4-1.)

16. Herbert E. Alexander and Brian A. Haggerty, Financing the 1984 Election, p. 148.

17. See, however, the discussion of "soft money" below.

18. Buckley at 43.

19. Nearly 95 percent of these expenditures were made by political action committees (PACs).

20. Buckley at 42.

21. During a Presidential election year, national party committees must pay at least 65 percent of these costs with federal funds. 11 CFR 106.5(b)(2).

22. Common Cause testimony (before the Federal Election Commission) regarding petition for rulemaking on "soft money," February 4, 1985, pp. 38-39.

23. See, for example, Herbert E. Alexander and Monica Bauer, Financing the 1988 Election, p. 74.

24. 11 CFR 9003.3(a). See 2 U.S.C. Sec.431(9)(B)(vii), which excludes from the definition of expenditure the costs of services rendered solely to ensure the candidate's compliance with the law, as long as those services are paid for by the regular employer or the candidate's committee. See Advisory Opinion 1979-22.

25. 11 CFR 9003.3(a)(2). See also AO 1992-38.

26. Center for Responsive Politics, "Compliance Funds: The Use of Private Money in Presidential Campaigns," June 1992, p. 7.

27. Herbert E. Alexander and Monica Bauer, Financing the 1988 Election, p. 38.

28. Herbert E. Alexander and Monica Bauer, Financing the 1988 Election, p. 47.

29. Buckley at 107.

30. Chart 4-1 lists the total spending from each source in connection with the 1988 and 1992 Presidential nominees' campaigns.

31. For more complete statistics, see Chapters 1 and 2.

32. See, for example, Anthony Corrado, Creative Campaigning: PACs and the Presidential Selection Process, p. 5.

33. The growth of primaries as the means of delegate selection and changes to delegate selection rules may also have encouraged candidates to run.

34. Herbert E. Alexander, Financing the 1976 Election (Los Angeles: Congressional Quarterly Press, 1979), p. 5.

35. Stephen Green, "Public Funds Misdirected to Low-appeal Candidates,"Houston Post, Mar. 27, 1992.

36. Readers attempting to formulate their own definition of "fringe candidate" may wish to consult Appendix 3. It lists all of the candidates who have received public funding, their party affiliation and the amounts they received.

37. Buckley at 96.

38. This figure does not include administrative costs incurred by the Department of Treasury.

39. Excluded from these figures were: audit and enforcement costs incurred in 1991 and 1992; review and compliance costs incurred by the Reports Analysis Division; costs incurred by the Press Office, the Public Disclosure Division and the Information Division; and costs incurred by Commissioners' offices.

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