In the debates over campaign finance reform, one very appealing solution has been proposed to eliminate the corrosive effects of private money – replace it with public grants. There are, however, many obstacles impeding substantial progress on this issue. Not the least of these obstacles is the difficulty of convincing legislators to alter the system from within. Compounding the problem are the significant constitutional ramifications of eliminating private contributions. The debates and litigation continue to rage.
One of the most common criticisms leveled against public campaign financing is the perception that it is "welfare for politicians." There exists an equally effective alternative to public financing which overcomes this criticism – create a private endowment to fund campaigns. It is such an endowment, The Endowment for Campaign Finance, that we propose which will fund political races through an unbiased, non-partisan, well-defined method.
The endowment will finance campaigns according to a set of rules which encourage all participants of a race to use exclusively the "clean" funds available from the endowment. The system to promote the use of the endowment uses both a stick and a carrot. The carrot is simple: candidates will spend less time fund-raising and more time stumping; furthermore, once there is a clean source of money, the political advantages of using it exclusively are great.
The stick is financial. Those candidates who choose not to get their funding from the endowment will be automatically outspent by the endowment. For example, suppose candidate ‘Average Anne’ is granted $100,000 of endowment money. Her competitor ‘Sen. Buddy Billionaire’, who has refused the endowment’s grant offer, spends $300,000 of private funds. In this case, the endowment will automatically disperse an additional $400,000 to Anne; that is, double Buddy’s advantage. We believe that this financial incentive, along with the political benefit of having an unsullied source of campaign funds, will encourage all candidates to abandon the potentially corrupting influence of private funds and draw their funds exclusively from the endowment.
The rules governing the endowment are designed to give all serious candidates a fair grant without bias. The obvious problem to be solved is determining an equitable division of the funds between the serious candidates.
The endowment needs a metric to gauge the relative political support between the candidates. One solution, as enacted in Maine’s recent public finance laws, is to give a fixed amount of funds to anyone who raises more than a threshold amount of "seed money" from individual contributions with a very low limit ($5). We agree that small contributions from individuals are the simplest measure of support. However, we believe that public opinion is more accurately represented by dispersing the funds in proportion to the amount of seed money raised instead of giving uniform grants as Maine will.
To demonstrate support, all candidates vying for endowment funds will raise seed money from individual registered voters in sums of $25 or less. At the time the grants are made, the relative proportion of the candidates’ seed money will determine the division of the grant pool. However, in order to promote an equitable debate, the top two candidates’ seed money will be averaged, thus equalizing the grants they will receive. In other words, the top two candidates will always receive the same amount.
The total value of the pool will be equal to the typical cost of a successful race for the seat in question times 2˝. This is a rather arbitrary value which leaves room for third party candidates without overburdening the fund.
For example, ‘Sen. Oldtimer’ is running for his 8th term. He is being challenged by ‘Average Anne’ and ‘Radical Ronnie’. All have agreed to use endowment funding exclusively. The historical cost of winning Sen. Oldtimer’s seat is $1,000,000, so the available pool from the endowment will be $2,500,000. Sen. Oldtimer raised $50,000 in seed money. Anne raised $30,000 and Radical Ronnie raised $20,000. Because Anne and Sen. Oldtimer are the top two fund-raisers, they split the difference between their values giving them each 40% of the pool, or $1,000,000 each. Ronnie remains unchanged at 20%, or $500,000.
Grants from the endowment come with a set of very strict conditions which have the goal of eliminating the influence of private money. The grants will be paid in monthly installments so that their flow may be interrupted if any of these conditions is violated.
The foremost rule is that the value of the grant must equal the candidate’s expenditures, no more and no less. At the time the grant is made, the candidate donates all remaining funds to the endowment and in turn agrees not to accept any further donations from any source for any value. Candidates must agree to open their books to the endowment auditors to supply proof that they are abiding by this rule. Failure to comply disqualifies the grantee from any further checks and also disqualifies him or her from any future endowment grant. Failure to comply will also, presumably, expose the contestant to significant negative publicity.
Candidates who choose not to use endowment funding will be automatically outspent by the endowment to encourage forgoing private financing. This poses the problem of determining exactly who are the competition and how much they are spending. This will be resolved with periodic polls from reputable polling firms. For example, halfway into a race, Buddy Billionaire, who doesn’t receive money from the endowment, manages to show 20% support in the polls. This percentage triggers the endowment to begin tracking Buddy’s expenditures. For every dollar that Buddy spends, two dollars of endowment money will be granted to the endowment participants, divided in proportion to their existing allocations.
Similarly, money spent in support of a candidate by "external" sources will trigger retaliatory measures by the endowment. The definition of this is critical as "issue ads" are not considered "support." Any ad which favorably uses the candidate’s name, image, or party affiliation will be considered an expenditure for that candidate and will trigger retaliatory grants to the opposition within the endowment. "Issue ads", on the other hand, those that do not mention the name, image, or affiliations of a particular candidate are considered fair and do not trigger any additional grants. Thus, anyone with an opinion is free to express it. However, those who do so are wise to consider the ramifications of their speech – an ad explicitly in favor of one candidate automatically creates more ads in favor of the opposition, and thus private advocacy is likely to backfire.
Externally funded ads which attack a candidate will also generate retaliatory measures. For example, if Average Anne is attacked by an ad funded externally, she will be granted twice the estimated cost of the ad. Again, everyone is free to express their opinion, but they are wise to consider the likely adverse consequences.
We recognize that there are weaknesses in the implementation details of this system, especially in the definitions of "external expenditures," "issue ads," and "negative advertisement." Under any system, no matter how well devised, financial pressure will always cause money to flow through the cracks. However, we believe, as do many others, that the status quo is seriously flawed and that therefore any improvement is worthwhile, even it fails to fix every possible abuse. The objective of the endowment’s rules is to stop external campaign money from polluting politics. Recognizing that the money will flow, our goal is to establish a democratic system which can respond to these problems faster and more flexibly than the politicians can police themselves.
The endowment will be organized as a non-profit organization headed by a board of directors whose primary purpose will be to implement and interpret the endowment’s charter. The charter will be amendable by a vote of the members. Although anyone can contribute to the endowment, only registered U.S. voters will be voting members of the endowment. Each voting member will have only a single vote regardless of the amount they contributed.
There are several major obstacles to creating this endowment. The first and most obvious is money. The Center for Responsive Politics found that House and Senate candidates spent around $840 million in the 1996 elections, which were the most expensive ever. For the endowment to pay that cost in interest, it would have to earn $420 million annually. If we assume that it can earn 5% after inflation, then the fund would need to be in neighborhood of $8 billion to fully fund congressional campaigns, forever.
Of course, the endowment doesn’t need all this money to prove its usefulness. To fund a single House campaign, the pool would need to be 2.5 times the historical cost of winning that seat. Assuming that the seat is average, the pool would be about $1,400,000. In order to ensure that the endowment can meet its obligation to outspend non-participants, it would be safest to have ten times this value, i.e. around $14,000,000. If there’s no major challenge, the annual interest on this would be roughly $700,000 which is just enough to fund another race two years later.
The second major obstacle to creating this organization is that the expenditures required of the endowment would be illegal under current federal law which prohibits a single organization from giving more than $5,000 to any candidate. Of course, this law was created to address precisely the problem we are attempting to solve. This endowment clearly violates the letter of the law, but not the spirit. In order to operate as proposed, the endowment will have to seek a federal exemption to the contribution limit laws. The endowment will also seek an exemption from the federal tax laws which prohibit non-profit 501(c)(3) corporations from making political contributions, although without this exemption the endowment will still be able to operate albeit with a higher capitalization.
Of all the complex and emotionally charged problems of our society, there are a scant few that can be solved purely with money. This is one of them. The endowment is a straightforward, pragmatic, monetary solution to a problem that has frustrated all three branches of the federal government.
The $8 billion needed for nationwide coverage is a staggering sum of money. It is worth pointing out, however, that this is not a cost to our society in the same sense that a $2 billion dollar space station is, since the money is already being spent. Also, $8 billion isn't terribly much in the world of corporate finance. Starbuck's Coffee has a market capitalization of over $3 billion. Nike is worth more than $16 billion. Which is most valuable to our society: Starbuck's, Nike, or cleaner politics?
Now is the time for the public to take independent action and allow our representatives to get back to the business of governing. The Endowment for Campaign Finance is a great step in the right direction.