Challenges in the Presidential Public Financing Program

July 26, 2007 -- The presidential public financing system, created in the wake of the Watergate scandal, was designed to reduce the corrupting influence of campaign contributions by providing candidates with infusions of public funds in exchange for abiding by spending caps. The system was also designed to give candidates incentives to seek large numbers of small contributions rather than a smaller number of large contributions.

The system worked reasonably well for several elections, but has unraveled in recent election cycles due to congressional inaction.

There are three major problems with the current system:

• It requires participating candidates to agree to spending limits that are dwarfed by the amount privately funded candidates are now able to raise – and further hampers participating candidates by imposing specific limits on how much they can spend in each state;
• Participating candidates receive their infusions of cash too late in the campaign; and
• The fund is becoming insolvent.

A new bill introduced by Sens. Russ Feingold (D-Wis.) and Barack Obama (D-Ill.), Rep. Christopher Shays (R-Conn.), and recently retired Rep. Marty Meehan (D-Mass.) would fix these problems.

1. New Contribution Limits Make Private Money Look More Attractive than Public Funds
2. Public Funds Are Given to Candidates Too Late in the Primary Season
3. The Fund Is Becoming Insolvent

1. New Contribution Limits Make Private Money Look More Attractive than Public Funds

The 2002 Bipartisan Campaign Reform Act (BCRA), which banned political parties from accepting soft money, also doubled the amount of money individuals could contribute to candidates. This change made it possible for privately funded candidates to amass ever larger war chests.

The law did not, however, increase the amount of money given to candidates who participate in the presidential public funding system. Candidates continued to receive a one-to-one match for contributions of up to $250. And the formula for determining the spending limits imposed on publicly funded candidates remained tied to inflation.[1]

The increase in contribution limits and lack of a corresponding increase in allotments and spending limits for participants in the presidential public funding system create a major advantage for non-participating candidates.

Consider this: In 2004, President Bush and Sen. John Kerry raised $259 million and $241 million, respectively, during the primary season.[2] Had they remained in the public financing system, they would have been restricted to spending $45 million.[3]

The presidential public funding system further constrains participating candidates by imposing limits on how much they can spend in individual states. These limits are calculated using the voting age population of the state, after a base level allotment. This means that the spending limits in a small state like New Hampshire, which has a key primary, remain unreasonably low. In 2004, for example, participating candidates could spend only $746,200 in New Hampshire, while the spending limit in Texas, not generally considered a key primary state, was $9,478,531.[4]

2. Public Funds Are Given to Candidates Too Late in the Primary Season

Presidential campaigns used to begin later than they do today, and the process used by parties to choose their nominee used to last longer. Now, presidential campaigns are beginning sooner and sooner, and parties’ primary and caucus schedules are front-loaded to ensure a quick selection of the nominees.

As late as July 1991, former Sen. Paul Tsongas (D-Mass.) was the only Democratic candidate who had shown up in the key primary state of New Hampshire. Bill Clinton, the eventual winner, did not announce his candidacy until October 1991.

In contrast, the 2008 presidential campaign was well underway more than 18 months before election day. Yet candidates who participate in the presidential public financing system will not be eligible to receive any public funds until Jan. 1, 2008.

Most experts expect the major parties' nominees to be selected by the end of voting on Feb. 5, 2008, when upwards of 20 states will hold their primaries. That “Super Tuesday” will fall barely a month after publicly funded candidates receive their initial infusions of cash.

3. The Fund Is Becoming Insolvent

The Presidential Election Campaign Fund, which provides funds to publicly funded presidential candidates, derives its revenues from the federal tax checkoff program. Taxpayers may choose to direct $3  from the U.S. Treasury to the fund without any cost to themselves. The rate of taxpayers choosing to direct money to the fund has been in decline, falling from a high of 28.7 percent in 1980 to about 9.1 percent in 2005.[5]

Despite predicted shortfalls in the Presidential Election Campaign Fund ever since 1996, the Fund has managed to scrape by, though it likely would have been exhausted in the 2004 election cycle had Bush and Kerry participated in the public financing program during the primary season.[6]

As of March 2007, the Fund was over $170 million.[7] If both major parties were to use public funds for their conventions — about $15 million for each — and both of the general election candidates from the major parties were to receive the estimated $84 million from opting into the system, then the Fund would need another $28 million dollars to remain solvent.[8]

While the fund has yet to become insolvent, there have been instances in which the FEC was unsure at the beginning of an election year whether that year’s checkoff would bring in enough money to cover the funds dispersed. When this uncertainty occurs, the FEC lessens the matching funds provided during the primaries, as the general election and the nominating conventions are higher priorities in the law. Thus far, the FEC has been able to pay the funds in full later to those candidates who were not given the full amount right away.[9]

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