What is the Presidential Public Financing System?
In short, the presidential public financing system allows presidential candidates the option to receive public funds for their campaign if they can fulfill certain qualifications and abide by spending limits.
What is its purpose?
The primary purpose of the fund is to reduce the role of large amounts of private money raised in the presidential campaign and the obligations that are, or can appear to be, associated with those contributions.
The system was created in the 1970's in response to the Watergate scandals that surrounded the Nixon re-election campaign when his campaign committee was found to have illegally received hundreds of thousands of dollars from some of the country's largest corporations. Congress responded by passing sweeping campaign finance reform, which included the presidential public financing system designed to minimize a candidate's dependence on donations from wealthy special interests.
But the presidential public financing system isn't just designed to stop corruption, or the appearance of corruption. It is also designed to increase competition for candidates who may not have a broad network of large contributors or a large amount of personal wealth, as well as free up time to allow candidates to get their message out to voters instead of constantly raising money.
How does The Presidential Public Finance System work?
There are two separate systems for the primary and general election campaigns: a partial-public financing system for the primary elections, when the parties choose their nominee, and a full public financing system for the general election. A candidate may choose to opt in none, one, or -- if the candidate is their party's nominee -- both of the systems.
The Primaries (Partial Public Financing)
- Candidates who opt in may qualify to receive a dollar-for-dollar match for up to $250 dollars from each contributor. For example, if a contributor donates $100 to candidate Jane Smith's campaign, Jane Smith's campaign committee will receive an additional $100 in public funds for that contribution. If the contributor gives $1,000, then the candidate receives an additional $250 in public funds to match the first $250 given by the contributor.
- In order to qualify for public funds for the primaries however, the candidate must meet the following criteria
- They must prove to have a minimum amount of broad-based support by raising at least $5,000 in each of at least 20 different states. Only the first $250 donated by each contributor may count towards the $5,000 state threshold.
- Participants must abide by an overall spending limit for the primaries. This limit is subject to inflation is approximately $37 million in the 2004 election. However, since a candidate can spend an additional 20 percent of that limit on certain fundraising costs, the effective limit for the 2004 primaries will be an estimated $44 million.
- They must also abide by individual state limits (based on either a universal amount indexed to inflation or a different amount based on the voting age population of the state, whichever is greater).
- They must limit spending from personal funds to $50,000.
By providing matching funds at a level of only a fraction of the contribution limit, the system increases the leverage of supporters who donate in small amounts.
General Election (Full Public Financing)
- The presidential candidates of the major parties who opt in for public financing of general election receive a public grant to cover the entire cost of their campaign on the condition that they do not raise any private funds. In 2004, the general election grant for each of the two major party presidential candidates was about $75 million. In 2008, the grant is estimated to be about $85 million.
- Candidates may spend up to $50,000 of their personal funds for the general election without violating the spending limit.
- Minor or third party nominees may also be eligible for federal funding, but the process is a bit more complex. A minor party candidate's public funding grant is based on a formula subject to the percentage of votes the party received in the previous presidential general election. The candidate is only eligible for general election public funds if the party's candidate received at least 5 percent of the vote in the previous presidential election.
How is it funded?
The Presidential Election Campaign Fund consists of money that is voluntarily contributed by millions of taxpayers who check-off this option on their tax forms. For those that prepare their own federal taxes, this may look familiar:
Presidential Election Campaign ------ Note. Checking "yes" will not change your tax or
reduce your refund. Do you, or your spouse, if filing
a joint return, want $3 to go to this fund?
The donation was increased from the original $1 to $3 in 1993.
To emphasize the point and address a common misunderstanding: by checking yes, the filers do not decrease their refund or increase the amount in taxes that they may owe. The government simply redirects $3 of your tax payment to the Presidential Election Campaign Fund.
What role do the political parties play?
In 2004, national parties spent about $16 million each in coordination with their party's nominee – those funds can be spent regardless of whether or not the candidate receives public funds. This coordinated spending does not count against the spending limits of a publicly financed candidate. The party's limit on coordinated spending with a presidential candidate is calculated by a formula that takes into account the current voting age population of the
The parties also may spend an unlimited amount in independent expenditures. In 2004, the parties spent about $140 million total in independent expenditures on behalf of the presidential campaigns.
In addition, each party receives public funding for the party conventions in a presidential election year. In 2004, each party received about $15 million. The parties also raise significant funding from private sources for convention activities.
Has the system been successful?
Through much of its history, the presidential public financing system has accomplished what its creators sought - to keep the presidency off the auction block. Writing in 1991, The New York Times editorialized: "The Presidential fund has collected and distributed $500 million for the four elections since 1974. That's half a billion of campaign financing with no special-interest strings. Far from being a flop, it's a clear win for the public interest." And Common Cause noted in 1995, "The public financing system has worked. Spending has been limited. Richard Nixon's 1972 reelection campaign raised and spent $60 million - the equivalent of more than $200 million today. That's less than both major party candidates combined spent in the 1992 campaigns. … Elections have been competitive. Under this system, four incumbents have sought reelection - three challengers have won. And special-interest contributions have been replaced by dollars designated by millions of taxpayers."
In 1996 however, public financing was overwhelmed by soft money - the unlimited contributions from unions, corporations and wealthy individuals to the political parties. Presidential candidates relied on ads paid for by the political parties and financed with soft money. This soft money spent by the political parties did not count against the spending limits of the parties or the candidates, making the candidates' agreement not to raise private funds a sham. When the enactment of the Bipartisan Campaign Reform Act in 2002 banned soft money and increased the hard money limits, the ability of presidential candidates to raise hard money has become more important than ever.
What's wrong with the system? How can it be fixed?
While the presidential public financing system has for the most part, functioned as it was intended, changes in campaigns for presidential candidacies have caused many aspects of the system to become outdated. Major candidates no longer believe they can run a competitive campaign under with the funding amounts and other constraints of the system. In 2004, three major candidates opted out of receiving public funds for the 2004 primary and in 2008 it appears most, if not all, leading candidates will opt out of the system in both the primary and general elections.
In order for the system to remain viable and functional, it needs to be reformed to address these problems:
Incentives not strong enough to compensate for spending limits against well-funded candidates
Candidates who opt into the system may find their fundraising efforts outmatched by opponents who opt out because they are self-financed or have a huge network of wealthy supporters. During the 2000 Republican primary campaign, then-presidential candidate George W. Bush opted out of receiving presidential public financing largely due to the threat of another Republican candidate, Steve Forbes, who had already stated he was opting out of the system in order to use his vast personal wealth to support his candidacy. (Forbes had also opted out during his run for the 1996 Republican nomination).
In 2004, Bush, the lone Republican candidate, again opted out of the system and raised over $200 million in private donations, far exceeding the $44 million spending limit for candidates that are accepting public financing. As a result, two Democratic candidates, Governor Howard Dean (VT) and Senator John Kerry (MA) also opted out of the system.
Already in 2007, the major candidates have raised record-breaking amounts of private money and most have said they will not participate in the public funding system because they cannot run a viable campaign under its limits.
Any reform package will need improve the system so that opting into that it is not a liability for a competitive candidate, especially against a well-funded opponent. Reforms may include an increase in the matching fund ratio, higher spending limits - particularly for the primaries, and additional mechanisms that will provide support for a publicly financed candidate when a non-participating candidate reaches a certain level of spending.
The recent trend of frontloading the primaries: the schedule for receiving public funds does not reflect the realities of current presidential campaigns.
Under the current rules, a candidate who opts into the system for both the primary and general elections does not begin to receive matching public funds until January 1 of the election year and their general election grant until after the party's nomination convention in the summer of the election year.
When the Presidential public financing system first went into effect in 1976, the parties were expected to produce a nominee in June prior to the election. Since then, however, primaries have been steadily moving earlier in the election year and now it is likely both party nominees will, in effect, be selected by February 2008.
With the trend towards frontloading the primary process, the campaigns begin and end earlier then ever. As a result, candidates who opt into the system aren't getting public funds soon enough for it to be used effectively. Primary candidates now start campaigning at the beginning of the year prior to the election and don't get their matching funds until January of the election year. Even more affected is a candidate who wins his or her party nomination in March and can't receive their general election grant until after the convention in late summer. This creates a gap of up to four months for a nominee who probably spent up to his or her limit in the primary fight and has no access to funds until the convention.
Candidates who choose to receive public funds for both the primary and general election need to receive public funds much earlier in the campaign season.
The System Needs More Funding
The revenue produced by the check off system has not kept up with the rising cost of presidential campaigns. As a result, if most candidates accepted public funds, the system could become insolvent. Any reforms to the presidential public financing system must include additional funds for the system.
To help preserve the long-term financial health of the system, additional funds should be made available to the Federal Election Commission or the Internal Revenue Service for them to initiate a public education program to teach the public about the fund and its purpose. Additional efforts should also be made to encourage professional tax accountants and manufacturers of computer tax preparation software to provide more information about the fund. Educating the public about the goals of the presidential public financing system would increase the participation rate among taxpayers and keep the fund sustainable in the future.