Buyer Beware: Financing Presidential Campaigns

1. Buyer Beware: Financing Presidential Campaigns Artemus Ward Dept. of Political Science Northern Illinois University aeward@niu.edu

2. Introduction • In America, money equals political speech. Therefore, contributions to campaigns and spending by campaigns are a form of expression protected by the First Amendment. • However, some regulations are allowable—specifically those that prevent corruption or the appearance of corruption. • In the following lecture we will cover how expensive it has become to run for president, how fundraising takes place, and the limits that congress has imposed on the process. • Do campaign contributions necessarily corrupt the political process?

3. The Rising Costs of Campaigns • Modern campaigns are expensive • Large sums must be raised to be competitive • -- House races: roughly $1,000,000 • -- Senate races: often several million $ • -- Presidency: hundreds of millions $

4. In 2008, Barack Obama raised $779 million while John McCain raised $384 million.

5. Contributors • Individuals • Political Action Committees (PACs) • Political Party Committees • RNC and DNC • House and Senate Campaign Committees • State party committees • Non-profit advocacy groups – 527, 501(c)3, and 501(c)4 groups

6. Hard Money v. Soft Money 1. “Hard Money” = regulated money -- comes via individual small contributions directly to campaigns -- must be reported to FEC -- corporations and unions may not contribute hard money. 2. “Soft Money”= unregulated money spent by individuals or groups who want to voice their opinions

7. 1974 Federal Election Campaign Act (FECA) • Passed, in part, in reaction to the 1972 election and Watergate scandal. • Goals: • Limit “fat cat” donors • Encourage small donors • Encourage disclosure of sources

8. Major Provisions of FECA • Public funding of presidential elections • Taxpayers contribute voluntarily. Currently $3 but less than 10% of taxpayers contribute • Matching funds system for primaries and general election • Problem? Not enough to run a winning campaign. • John McCain in 2008 last major candidate to participate. • Limits on campaign spending • only for presidential candidates who accept public funding • as a result, more campaigns are declining public support believing they can raise more on their own

9. Major Provisions of FECA • Limits on direct contributions to candidates • For individuals: $2,500 per candidate • For PACs: $5,000 per candidate • For parties: $5,000 per House candidate and $43,100 per Senate candidate • Allows for coordinated expenditures • expenditures for campaign services like polling, issue research, producing ads • Parties spend considerable $ this way

10. Major Provisions of FECA • Independent expenditures • Expenditures for campaign ads and get-out-vote drives not coordinated with campaigns • Parties and PACs must use hard money for this • Under the old rules, 527s and 501Cs could use soft money, but ads couldn’t be run within 60 days of general election. This was struck down by the Supreme Court in Citizens United vs. FEC (2010). • Ad sponsors must be identified • Disclosure Requirements • contributions and expenditures of $200 or more must be reported to FEC • information is available to public

11. Individual Donors • Small donations—anything from $1-$10 can also have a huge effect. • In 2008, President Obama raised tens of millions of dollars via the internet through small donations by individuals. • His campaign regularly sends out e-mails to supporters such as this one from March 31, 2012: • Dear _________. This is important: Thank you.You're why I decided to do this five years ago -- and why we have the chance to finish it.The next three months will be tough.Can you pitch in $10 so we're ready for them?https://donate.barackobama.com/TodayThank you,Barack

12. Individual Donors • Should candidates cultivate many small donations or fewer large donations? • Consider the October 2007 totals for the 2008 Democratic presidential nomination. • Obama’s strategy of targeting small, individual donors via the internet and social media allowed him to keep pace with the far-better, well-connected former First Lady and Senator from New York Hillary Clinton. • Obama’s success among small donors transformed campaign fundraising and every candidate that came after him employed technology to reach small donors.

13. Location, Location, Location • Through the end of July, 2008, Sen. Barack Obama had raised most of his money from individuals in Chicago, New York, San Francisco, Los Angeles and other major cities.

14. Bundling • Since the 1970s, there have been strict limits on how much money an individual can donate to a presidential candidate in a given election—$2,500. • But there’s no limit to how much they can “bundle” by soliciting donations from friends and business connections. As a result, the top bundlers hold fundraising dinners and events where they raise anywhere from half-a-million to a million dollars in return for unique access to the candidate. • So the McCain-Feingold campaign-finance law that went into effect in 2002, which banned a variety of “soft money” loopholes that allowed donors to circumvent these limits, made bundlers a much bigger part of the money-in-politics story. • Whether contributed via a bundle or a one-off donation, such “hard money” goes straight to a candidate’s coffers, to be used however the campaign sees fit. • And it’s the hard money that matters most. Why? Because candidates and their campaigns do not have direct control over Super PAC money—and that can lead to real problems. • For example, the famous “swift-boating”campaign against John Kerry in 2004 shows the importance of hard money. When the anti-Kerry ads hit the air, Kerry’s campaign was cash-strapped, so the fact that the independent political action committees supporting the Mass. senator—known as 527s—were lead-footed in their response may have doomed his campaign. If the campaign had had more hard cash on hand, things could have gone differently. 

15. Obama Bundlers: One Year Out • Consider that over one year before the 2012 general election, President Obama had already raised $56 million from bundling. • The biggest bundlers? Lawyers and investment bankers.

16. Who are the Bundlers? Some of the top 2012 Obama Bundlers: • Roger Altman, Founder and Chairman, Evercore Partners • Fred Eychaner, CEO, Newsweb • Jeffrey Katzenberg, CEO, Dreamworks • Steve Spinner, former Energy Dept. official • Jonathan Lavine, Managing Director and Chief Investment Officer, Sankaty Advisors, an affiliate of Bain Capital • Penny Pritzker, Founder, Chairman, and CEO of PSP Capital Partners and its affiliate • Andy Spahn, Founder and President of Andy Spahn & Associates, Inc.

17. Bundling = Access, Spoils • Overall, 184 of 556, or about one-third, of 2008 Obama bundlers or their spouses joined the administration in some role. But the percentages are much higher for the big-dollar bundlers. Nearly 80 percent of those who collected more than $500,000 for Obama took “key administration posts,” as defined by the White House. More than half the ambassador nominees who were bundlers raised more than half a million. • The big bundlers had broad access to the White House for meetings with top administration officials and glitzy social events. In all, campaign bundlers and their family members account for more than 3,000 White House meetings and visits. Half of them raised $200,000 or more. • Some Obama bundlers have ties to companies that stand to gain financially from the president’s policy agenda, particularly in clean energy and telecommunications, and some already have done so. Level 3 Communications, for instance, snared $13.8 million in stimulus money. At least 18 other bundlers have ties to businesses poised to profit from government spending to promote clean energy, telecommunications and other key administration priorities.

18. PACs • Political Action Committees (PACs) raise money to support candidates and issues. They solicit donations and then give the money directly to candidates. • In 1947, as part of the Taft-Hartley Act, the U.S. Congress prohibited labor unions or corporations from spending money to influence federal elections, and prohibited labor unions from contributing to candidate campaigns (an earlier law, the 1907 Tillman Act, had prohibited corporations from contributing to campaigns). • Labor unions moved to work around these limitations by establishing political action committees, to which members could contribute. • There are limits to the amount of money individuals and groups can contribute to PACs.

19. Super PACs • The 2010 election marked the rise of the Super PAC -- officially known as "independent-expenditure only committees". • Super PACs raise unlimited funds from corporations, unions, other groups, and individuals -- a practice upheld by the U.S. Supreme Court in its 2010 decision in Citizens United v. Federal Election Commission. • But unlike PACs, which can give money directly to candidates, Super PACs cannot. • They instead, spend their money in support of specific candidates and issues but are not supposed to coordinate that spending with campaign staff.

20. Citizens United v. FEC (2010) • In Buckley v. Valeo (1976) the Supreme Court struck down government restrictions on campaign spending by candidates, groups, or individuals but upheld restrictions on campaign contributions reasoning that the latter can give rise to corruption or the appearance of corruption. • In Citizens United, the justices struck down a federal law that prohibited corporations and unions from using their general treasury to fund "electioneering communications" (broadcast advertisements mentioning a candidate) within 30 days before a primary or 60 days before a general election. • The justices relied on the principle that money is a form of political speech, protected by the First Amendment. • Justice Anthony Kennedy wrote for the 5-4 majority: “If the First Amendment has any force, it prohibits Congress from fining or jailing citizens, or associations of citizens, for simply engaging in political speech.” • In dissent, Justice John Paul Stevens wrote: “A democracy cannot function effectively when its constituent members believe laws are being bought and sold.”

21. The 2012 Election • With both campaigns opting our of public financing and lifting of restrictions via the Citizens United decision, the 2012 election has easily been the most expensive in history. • The Obama and Romney campaigns have raised $2 billion – about $1 billion each. • Yet outside groups have raised an additional $1 billion.

22. Conclusion • Money has always played an important role in campaigns and elections and is increasingly crucial in the modern era of media-driven elections where campaign advertising costs a significant amount of money. • Watergate-era reforms were put in place to stop the influence that campaign donations bought with officeholders. • Yet the Supreme Court has struck down attempts by Congress to limit money in campaigns under the rationale that money equals political speech. • While candidates are able to spend freely and there are limits to direct contributions to candidates, individuals and groups continue to find creative ways to indirectly spend money on advertising to influence voters. • Should/will the Supreme Court overturn Buckley v. Valeo and allow unlimited direct contributions to candidates?

23. Sources • Lichtblau, Eric, “Obama Backers Tied to Lobbies Raise Millions,” New York Times, October 27, 2011. http://www.nytimes.com/2011/10/28/us/politics/obama-bundlers-have-ties-to-lobbying.html?_r=1 • Schulte, Fred, John Aloysius Farrell, Jeremy Borden, “Obama Rewards Bib Bundlers with Jobs, Commissions, Stimulus Money, Government Contracts, and More,” iWatch News, June 15, 2011. http://www.iwatchnews.org/node/4880/ • “Seven Big Obama Bundlers,” The Daily Beast, August 2, 2012. http://www.thedailybeast.com/galleries/2012/08/02/seven-big-obama-bundlers.html