Executive Summary

The current system of financing Presidential elections will all but collapse in 1996, unless Congress takes action.

I. Background

Every Presidential election since 1976 has been financed with public funds. While the concept of public funding dates back to the turn of the century, a public funding program was not implemented until the early 1970's. The Watergate scandal--replete with allegations of political misdeeds--provided much of the impetus for the program's enactment.

The program was designed to correct the problems perceived in the Presidential electoral process. Those problems were believed to include:

To address these problems, Congress devised a program that combines public funding with limitations on contributions and expenditures. The program consists of three parts:

All recipients of public funds must agree not only to abide by the limits on contributions and expenditures, but also to comply with an FEC audit and to make any necessary repayments to the U.S. Treasury.

The program is funded by the one dollar checkoff that appears on federal income tax forms.

II. Issues

During the seventeen years that the Federal Election Commission has administered the public funding program, the agency has had to deal with a variety of issues. While the Commission has often resolved these matters, some issues ultimately require legislative resolution. This section focuses on some of the key issues that have not been fully resolved through Commission action and offers the Commission's suggestions for legislative remedies.2

A. The Projected Shortfall for 1996

Clearly, the most pressing issue at the moment is the projected funding deficit for 1996. The Commission estimates the shortfall will be $75-100 million. As a result, only the nominating conventions (the highest funding priority) will be fully funded. General election nominees (the second priority) will not receive their full entitlements and primary candidates (the third priority) will not receive any public funds at all.

The principal explanation for the projected deficit lies in a structural flaw in the system itself: disbursements from the Presidential Election Campaign Fund are indexed to inflation, but deposits from the $1 tax checkoff are not. Had deposits been indexed to inflation over the years, a shortfall would not occur in 1996.

Under the existing system, as the consumer price index (CPI) increases, more and more taxpayers must designate dollars to keep pace with the increasing demand for funds. Checkoff participation, however, has gradually declined, hastening the program's inevitable slide toward insolvency. According to the IRS, the percentage of tax forms on which the taxpayer(s) checked yes has fallen from a high of 28 percent in 1980 to below 18 percent in 1992.

Commission Action. Since 1988, the Commission has predicted a shortfall in the Presidential Election Campaign Fund, and has repeatedly notified Congress and the President of its forecast.

In 1989, the agency conducted focus groups around the country to assess public understanding of the tax checkoff and the program it finances. Based on the results of this study, the Commission undertook a nationwide public information program in 1991 and 1992 to encourage taxpayers to make "an informed choice" when deciding whether to designate one dollar of their taxes to the Presidential public funding program.

Recommendation. Again in 1993, the Commission asked Congress to enact legislation that would ensure the financial viability of the public funding program.

B. Soft Money

Money raised and spent outside the limitations and prohibitions of the federal election law is commonly called "soft money." It often consists of large donations from individuals, corporations and labor unions. These funds, which are usually given to state and national party committees, cannot legally be raised or spent to influence federal elections, but are acceptable under some state election laws. In recent years, however, critics have argued that soft money is being raised and spent in ways that may affect federal candidates, including those running for President.

Commission Action. The Commission promulgated new regulations in 1991 that address the soft money spending problem. The regulations, in part, specify the minimum percentage of federal funds required to be spent for any activity that benefits both federal and nonfederal candidates. The rules also require expanded reporting of soft money receipts and disbursements.

Recommendation.The Commission has asked Congress to consider whether legislation is needed to deal not only with the the way soft money is spent, but also with the way it is raised. The Commission has offered a broad range of specific suggestions, including:

C. State Expenditure Limits

To be eligible for matching funds, candidates must agree to limit their spending to specified amounts in each state and nationwide. Many campaigns have attempted to circumvent state limits, particularly in Iowa and New Hampshire. The Commission, in turn, has had to devote considerable resources to determine whether campaigns have exceeded the limits and to enforce any violations discovered.

Commission Action. In 1991, the Commission amended its regulations to simplify and liberalize the process of allocating expenses to the state spending limits.

Recommendation. The Commission recommends that Congress eliminate the state expenditure limits. Based on the Commission's experience, such a change would have little material impact on the electoral process. Candidates would still be subject to the national expenditure limit, which, incidentally, is less than the sum of all state limits combined.

D. Eligibility for Primary Matching Funds

Under the Act, the Commission is required to determine whether candidates have met certain eligibility criteria and, if so, to certify the candidates eligible to receive matching funds. Some critics contend that the eligibility criteria have become too easy for candidates to meet, permitting "fringe candidates" to qualify for public funds.

Commission Action. The Commission has certified every candidate that has met the eligibility criteria, except when the candidate has abused the system by repeatedly violating the law.

Recommendations. The Commission recommends that Congress raise the current $100,000 eligibility threshold in order to sustain the original legislative intent that only candidates demonstrating broad national support would receive matching funds.

The Commission also asks Congress to clarify the eligibility criteria to ensure that candidates who have been convicted of a willful violation of the public funding laws will not be eligible for future funding.

E. Eligibility for General Election Funding

To qualify for general election funding, candidates must be the nominee of a major, minor or new political party. In some instances, candidates who are listed as "independents" on some state ballots--or who identify themselves as such--have asked the Commission to determine whether they also could qualify for general election funding.3

Commission Action. Based on the statute, the Commission has had to determine whether these "independent" candidates were, in fact, nominees of a political party. The Commission has found that these candidates could qualify as nominees of a political party--even if they were listed as independents on some state election ballots--if their campaign organization(s) met the statutory definition of political party.4

Recommendation. The Commission has asked Congress to consider clarifying whether an independent candidate, without any party affiliation, could qualify for general election funding.

F. Audits and Enforcement

The Commission audits every committee that receives public funding to ensure that the funds are not misused. If an apparent violation is discovered, it may become an enforcement matter (Matter Under Review or MUR). Some have criticized the Commission for taking too long to complete Presidential audits and enforcement matters, particularly those of primary campaigns. It should be noted, however, that the Commission must grant due process of law to committees involved in audits and enforcement matters and that audit and enforcement issues--particularly for primary campaigns--tend to be very complex.

Commission Action. Over the years, the Commission has introduced a variety of innovations to increase the efficiency of the audit and enforcement processes. Most recently, in 1991, the agency revised its regulations, amended its audit procedures, expanded its use of technology and increased staffing to hasten the completion and disclosure of Presidential audits and MURs.

Recommendations. The Commission has proposed a number of legislative recommendations that could further hasten completion of audits and enforcement matters. They include:

1. See S. Rep. No. 93-689, pp. 1-10 (1974).

2. This summary offers only a broad outline of the issues discussed. The text of this report offers a more complete discussion. (The Commission's 1993 legislative recommendations are included in this report as Appendix 2.)

3. In Buckley v. Valeo, the circuit court opinion suggested that failure to fund independent candidates could raise constitutional questions. 519 F.2d 821, 887 (D.C. Cir. 1975). The Supreme Court, in its subsequent decision, did not explicitly rule on this issue.

4. Title 26 does not define the term "political party." Consequently, the Commission has relied on the definition found at 2 U.S.C. Sec.431(16).