January 19, 2010

Proposed Public Campaign Financing for Federal Elections

We have frequently highlighted “pay-to-play” restrictions on political giving that have been adopted by states and localities over the past several years. Often one hears contributors suggest that adoption of a generous public financing program would be a welcome relief, reducing the pressure on contributors to respond to funding appeals and perhaps even eliminating the need for restricting government contracting opportunities for large campaign contributors. Even when receptive, however, legislatures have not necessarily seen pay-to-play restrictions and public financing reforms as “either-or” alternatives. Rather, as shown by the recent examples of New Jersey, Connecticut and New York City, the menu of reform can be quite broad, resulting in selections from both “column A and column B.” Washington recently took a fresh look at “column B.” That isn’t surprising given President Obama’s historic grass roots fundraising success, in the course of opting out of the presidential public funding program, which underscored the apparent obsolescence of that post-Watergate reform. Congressional elections have never been publicly financed. The Fair Elections Now Act (H.R. 1826) would change that for candidates to the House of Representatives. H.R. 1826 shares some significant similarities with New York City’s campaign finance law, which is often cited as a model public financing program. For example, H.R. 1826 provides for a five-member, non-partisan Fair Elections Oversight Board, much like the five-member, non-partisan NYC Campaign Finance Board. Similar to NYC, federal employees, registered lobbyists and officers and employees of a political party or political campaign would be ineligible to serve. As in NYC, the federal board would be charged with issuing post-election findings and recommendations on how the law is working. The proposed federal oversight board would have quite limited authority, as the current six-member, bi-partisan Federal Election Commission (FEC) would be charged with issuing the public grants, assessing penalties for violations and making requests for public funds repayments. In contrast, the NYC Board is an independent agency and authorized to conduct enforcement proceedings. Under the federal bill, to qualify for public funding, participating candidates must collect 1,500 “qualifying contributions” totaling $50,000 to receive matching funds. These qualifying contributions would be in an amount between $5 and $100, raised from residents of the State in which the candidate is seeking election, and made during the “fair elections qualifying period.” New York City participating candidates qualify by raising a specified amount and number of matchable contributions (up to $175 per contributor counts as “matchable”). These “threshold” levels vary according to which one of five covered offices the candidate seeks. New York City sets comparatively generous limits on contributions (ranging from $2,750 - $4,950 per election cycle), but also limits contributions from persons deemed to be “doing business” with the City to between $250 and $400 per election cycle. Contributions from corporations, LLCs, and partnerships may not be accepted. H.R. 1826 places more restrictions on private fundraising. Participating candidates would be limited to raising qualifying contributions, described above, and qualified small dollar contributions (of up to $100 per election). A participating candidate’s leadership PAC could accept contributions that do not exceed $100 per person per calendar year. Under the proposed Fair Elections Now Act, participating candidates may make expenditures for campaign-related costs and are not subject to spending limits. The lack of a spending limit is perhaps the most significant contrast with the NYC program, which makes spending limits a central feature. The federal bill would restrict a candidate’s use of personal funds to the making of qualified small dollar contributions and qualifying contributions. The NYC law permits candidates to donate up to three times the regular contribution limit from personal funds. Whereas the federal bill would permit political party committees to make coordinated expenditures of up to $10,000 or 10 percent of the allocation from the public fund, whichever is less, New York City law treats such expenditures as in-kind contributions that are subject to the regular contribution limits. Under both H.R. 1826 and current NYC law participating candidates must participate in debates. Non-participants may also appear in debates, but are not required to do so. Under the federal bill, the public benefits to participating candidates come in three forms: allocations from the Fund, matching contributions and political advertising vouchers. The FEC would make allocations to certified participating candidates equal to 40 percent of the base amount in a primary election and 60 percent of the base amount in the general election. (The base amount is set at 80 percent of the national average spending by winning candidates in the last two election cycles.) In addition, subject to an additional overall cap, qualified small dollar contributions would be matched with public funds paid at a 4:1 rate. Further, the FEC would disburse vouchers to participating candidates for the purchase of airtime on broadcasting stations for political advertisements. There is less variety in the form of public financing under New York City law. Generally, public funds are paid at a 6:1 rate for matchable contributions up to a total set at 55 percent of the spending limit applicable to the recipient candidate. The total maximum payment is the same for primary and general elections. The matching rate and the total payable are increased if an opposing non-participant’s financing exceeds 50 percent of that spending limit, and increased again, if the non-participant exceeds 300 percent of that spending limit. Under both the federal bill and the NYC law, the amount of public funds to be paid may be reduced based on specified factors indicating the lack of a competitive opponent. Should a generous federal public financing bill, such as H.R. 1826, ever come to pass, will it influence state and local jurisdictions to go down the same path? If so, might that overtake the current trend toward pay-to-play restrictions, in effect replacing sticks with carrots? And could it also invite a move away from spending limits, even for long established programs such as New York City’s? Most recently, the Fair Elections Now Act had been assigned to the House’s Administration, Energy and Commerce and Ways and Means Committees and the Senate’s Rules and Administration Committee. On July 30, 2009, the House’s Administration Committee held a hearing on the bill. Currently, no immediate action on the bill is anticipated. For additional information, please contact Laurence D. Laufer. This alert is provided for educational and informational purposes only and is not intended and should not be construed as legal advice. It is recommended that readers not rely on this publication but that professional advice be sought for individual matters.