Democracy and Elections

Campaign Finance Lessons from the 2008 Campaign, So Far

Small and big donors increase as federal oversight creates loopholes.
As the country heads into the end game of the 2008 presidential primaries, and gets ready for an extended general election campaign, this is a good time to take stock of campaign finance lessons already learned from the 2008 election.

1. Senator Barack Obama Has Made an Extraordinary Breakthrough in Small Donor Internet Fundraising, But it's the Exception, Not the Rule; Larger Donations and Bundlers Continue to Play the Major Role in Funding the 2008 Presidential Primaries.

One of the most interesting developments in the financing of the 2008 presidential primaries has been the extraordinary success of Senator Barack Obama (D-IL) in raising small donations on the Internet.

As of March 31, 2008, Senator Obama had raised an unprecedented $101 million in small individual contributions of $200 or less, which represents 45 percent of his $225 million in total individual contributions raised for the primaries, according to the Campaign Finance Institute (CFI).

Furthermore, according to an article in The New York Times (May 19, 2008), Obama has received contributions from more that 1.5 million individual donors.

Successful small donor Internet fundraising provides a candidate with broad-based funding at virtually no cost to the candidate -- with almost no use of the candidate's time and without the danger of influence-buying that accompanies larger contributions and the bundlers who raise them.

The Obama Internet fundraising phenomenon, however, has been the exception not the rule in the 2008 presidential primary races, even though a few other candidates have had some success in fundraising on the Internet.

Overall, large donor fundraising continued to play the major role in financing the 2008 presidential primaries.

As of March 31, 2008, all presidential candidates combined had raised 51 percent, or $366 million, of their total individual contributions for the primaries in larger individual contributions of $1,000 or more. This included raising 30 percent, or $215 million, of their total individual contributions in maxed-out contributions of $2,300, according to CFI.

The presumptive Republican nominee, Senator John McCain (R-AZ), for example, raised 63 percent, or $45 million, of his total individual contributions for the primaries in larger donations of $1,000 or more, as of March 31, 2008, according to CFI.

The other Democratic candidate still in the race, Senator Hillary Clinton (D-NY), raised 55 percent, or $82 million, of her total individual contributions for the primaries in larger donations of $1,000 or more during the same period.

Even Senator Obama had raised 37 percent, or $83 million, of his total individual contributions for the primaries in larger donations of $1,000 or more, as of March 31, 2008.

And for the year 2007, when he was raising the funds critical to his ability to compete as a serious presidential candidate in 2008, Senator Obama raised 54 percent, or $52 million, of his total individual contributions for the primaries in larger donations of $1,000 or more, according to CFI.

Bundlers, furthermore, have played a key role in raising the larger donations for 2008 presidential candidates in both parties.

2. Internet Fundraising, If Combined With Multiple Public Matching Funds Could Make Small Donors the Principal Source of Private Funds in Future Presidential Primaries.

The Obama breakthrough in Internet small donor fundraising, if combined with a major innovation contained in legislation pending in Congress to repair the presidential public financing system, would open the door to Internet small donors becoming the principal source of private funding for future presidential primary candidates.

"Revitalizing the presidential funding system is essential to protecting the integrity and credibility of the presidency and the interests of citizens in fair government decisions," according to Democracy 21 President Fred Wertheimer. "The successful track record of the presidential public financing system for most of its thirty-four year existence provides powerful evidence for why the system should be repaired," Wertheimer said.

Under the legislation to repair the presidential system introduced in the Senate and House, a presidential primary candidate would receive multiple public matching funds of $4 for every $1 raised, up to $200 of an individual contribution. Under current law presidential primary candidates who accept public financing receive a $1 public match for every $1 raised, up to $250 of an individual contribution.

The 4 to 1 match in public funds would create enormous new incentives for presidential candidates to focus on raising smaller contributions on the Internet, since each contribution of $200 would provide a presidential candidate with a total of $1000.

This system could achieve several core "small d" democracy goals: making the individual small donor the most important private funder of presidential primary races; greatly diminishing the role and influence of bundlers and larger donors; and increasing citizen participation in presidential elections.

The pending reform legislation would also substantially increase the overall spending limits for presidential primary candidates who accept public financing to reflect the fact that the existing spending limits for such candidates simply have not kept pace with the current costs of running a competitive presidential primary campaign.

The combination of small Internet donations, a multiple match in public funds and realistic overall spending limits would leave little need or room for bundlers and large donors in presidential primary elections.

"There is strong, bipartisan leadership sponsoring companion bills in the Senate and House to repair the presidential public financing system," Wertheimer stated. The Senate bill is S.2412 and the House bill is H.R. 4294.

"The leading Democratic presidential candidate and the presumptive Republican presidential nominee both have taken strong positions in support of repairing the presidential public financing system," Wertheimer said.

"An all-out effort will be made in 2009 to enact legislation to fix the presidential public financing system," Wertheimer stated.

3. Spending by 527 Groups Continues in 2008 Presidential Race, Flying in the Face of FEC Findings of Illegal Spending by 527 Groups in 2004 Presidential Election.

As of January 31, 2008, federally-focused 527 groups had raised $77 million for the 2008 election, according to CFI.

This represents less than 10 percent of the $792 million total amount raised by presidential candidates for the 2008 presidential race during the same period and less than 5 percent of the $1.6 billion total amount raised by all federal candidates for the 2008 election for the same period.

527 groups have been making expenditures to influence the 2008 presidential primary races despite FEC enforcement actions which found that similar kinds of expenditures by 527 groups to influence the 2004 presidential election were illegal.

These FEC enforcement actions found that four 527 groups alone made massive illegal expenditures totally more than $200 million to influence the 2004 presidential election. The FEC actions were taken in response to FEC complaints filed in 2004 by Democracy 21, the Campaign Legal Center and the Center for Responsive Politics.

In addition, 501(c)(4) groups, including newly formed, or "pop-up" 501(c)(4) groups, appear to be planning to play a more active role in influencing the 2008 elections than they did in the 2004 races. Recent reports indicate that the IRS is planning to take a close look at the political activities of these groups in the 2008 elections.

The FEC findings of illegal spending by 527 groups in the 2004 election came more than two years after the 2004 election was over, and involved fines for the groups that were a miniscule fraction of the size of the violations that occurred.

Nevertheless, these FEC rulings established a body of law that sets out the campaign finance rules that apply to 527 groups which spend money to influence the 2008 federal elections.

"The FEC enforcement actions arising from the 2004 election have established rules for 527 groups which set the stage for treating the same kind of illegal spending by 527 groups in the 2008 federal elections as 'knowing and willful violations' of the law," according to Wertheimer.

"Knowing and willful violations" have far more serious consequences under the campaign finance laws. Those who engage in "knowing and willful" violations are subject to criminal prosecution and are also subject to civil penalties of as much as 200 percent of the violations involved.

Despite these important developments, however, a number of 527 groups appear to be acting as if the FEC findings of illegal activity by 527 groups in the 2004 election had never happened.

527 groups have been further emboldened to ignore the campaign finance laws by the fact that since January 1, 2008, the Federal Election Commission has been functionally inoperative. [See discussion below of the FEC].

"Democracy 21 is closely monitoring independent spending groups in the 2008 election and will be prepared to request investigations and file complaints, as appropriate, with the FEC, the IRS and the Justice Department, to challenge illegal spending by 527 groups and 501(c)(4) groups to influence the 2008 federal elections," Wertheimer stated.

Recent reports have indicated that we may not see the same levels of spending by 527 groups to influence the 2008 presidential general election that occurred in the 2004 general election.

A Washington Post article on May 14, 2008, for example, reported that Senator Obama's top fundraisers had asked his campaign donors not to contribute to pro-Democratic 527 groups. A Post article on May 15, 2008 further reported that, "Progressive Media USA, the group organized to be the main soft-money advertising vehicle for Democrats in the fall, will dramatically scale back its efforts in deference to the wishes of the party's presumptive nominee."

According to a New York Times article on May 19, 2008, "Mr. McCain rebuked an independent group that financed television advertisements on his behalf last year before the South Carolina primary. Lately, however, his campaign has been saying that Mr. McCain cannot be expected to "referee" advertisements by outside groups beyond his control."

"It is too early too tell just how much total spending will occur by 527 groups and 501(c)(4) groups to influence the 2008 presidential general election," Wertheimer stated."

The two groups expected to be the biggest independent spenders in the 2008 presidential election -- the pro-Democratic 527 group, Fund for America, and the pro-Republican 501(c)(4) group, Freedom's Watch -- potentially may end up spending very large amounts of soft money to influence the 2008 presidential elections.

And the pro-Republican 527 group, Club for Growth.net, already is making substantial soft money expenditures to influence the 2008 congressional elections.

"In order to address the continuing problem of independent groups spending unlimited soft money to influence federal elections, Democracy 21 will press for new legislation next year to help ensure that any such group whose major purpose is to influence federal elections complies with federal campaign finance laws, including the federal limits on the contributions they can receive," Wertheimer stated.

4. An Inoperative FEC in 2008 and a Republican FEC Commissioner Dumped For Raising Questions Regarding the Presumptive Republican Presidential Nominee Provide Further Proof of the Need for New Campaign Finance Enforcement Body.

The six-member Federal Election Commission became inoperative on January 1, 2008, after the FEC was reduced to two sitting Commissioners, following the refusal of Senate Republican Leader Mitch McConnell (R-KY), in December 2007, to allow an up-or-down majority vote on each of the pending nominees to serve on the Commission.

The campaign finance law requires the affirmative votes of four FEC Commissioners to take any formal action, including issuing regulations and advisory opinions, opening investigations, bringing enforcement actions, appealing court decisions and certifying public funds for presidential candidates.

With only two Commissioners sitting on the FEC since January 1, 2008, the agency has been unable to function and make any decisions for more than four months, including the entire period of the presidential caucus and primary elections.

"The failure to have a functioning campaign finance enforcement agency in the middle of a presidential election is irresponsible and inexcusable," Wertheimer stated. "This is just further proof of why it is essential to replace the FEC with a new effective campaign finance enforcement body."

In a further illustration of the fundamental problems with the FEC, President Bush recently dumped Republican David Mason, a "holdover" FEC Commissioner whose re-nomination had been previously submitted by President Bush for Senate confirmation to serve another term. The White House gave no explanation for why Mason, a previously acceptable nominee, had suddenly been withdrawn.

"It appears clear why the White House got rid of Commissioner Mason," Wertheimer said. "On behalf of the FEC, Commissioner Mason dared to raise some campaign finance questions regarding the presumptive Republican presidential nominee, Senator John McCain (R-AZ), according to Wertheimer."

"Merely raising questions about a campaign finance matter involving Senator McCain's presidential campaign was enough to seal Mason's fate and get him fired," Wertheimer stated.

5. FEC Has Caused Major Campaign Finance Problems in the Past.

The FEC has been directly responsible for some of the biggest campaign finance problems that have arisen in the past.

"It was the FEC that established the political party soft money system in the first place by issuing regulations to establish an allocation regime," Wertheimer stated. "This allocation system allowed soft money to flow directly into federal elections and had turned into a $500 million national scandal by 2002, when the system was finally shut down by Congress."

In the McConnell case upholding the constitutionality of the soft money ban enacted in 2002, the Supreme Court noted that the ban, "simply effects a return to the [campaign finance] scheme that was approved in Buckley and that was subverted by the creation of the FEC's allocation regime." The Supreme Court further stated:

[T]he FEC's allocation regime has invited widespread circumvention of FECA's limits on contributions to parties for the purpose of influencing federal elections. Under this system, corporate, union, and wealthy individual donors have been free to contribute substantial sums of soft money to the national parties, which the parties can spend for the specific purpose of influencing a particular candidate's federal election.

It was also the FEC that opened the door wide for 527 groups to make massive illegal expenditures in the 2004 presidential election," Wertheimer said.

"The refusal of the FEC to adopt regulations in 2004 to ensure that 527 groups spending money to influence federal elections registered as federal political committees and complied with federal limits on the contributions they could receive, signaled to these groups that they could ignore the laws," Wertheimer said.

"The fact that the FEC finally held a number of the 527 groups accountable for violating the campaign finance laws -- more than two years after the 2004 election and with small fines relative to the massive illegal expenditures they had made -- did little to deal with the reality that hundreds of millions of dollars in illegal expenditures were allowed by the FEC to occur during the 2004 presidential election," Wertheimer stated.

Companion bills to replace the FEC with a new campaign finance enforcement agency have been introduced in the Senate (S.478) by Senators McCain and Russell Feingold (D-WI) and in the House (H.R.421) by Representative Christopher Shays (R-CT) and former Representative Marty Meehan (D-MA).

"The goal of this legislation is to remove the oversight and enforcement of campaign finance laws from the control of partisans in both parties and to provide the country with a real means for enforcing the campaign finance laws." Wertheimer stated.

"Citizens are entitled to the same kind of law enforcement for campaign finance laws covering federal officeholders that applies to laws covering the rest of us," Wertheimer said.
Democracy 21 is a Washington-based nonprofit, nonpartisan organization dedicated to making democracy work for all Americans.