The Price of Public Money

The Presidential Election Campaign Fund used to give political unknowns a fighting shot. Now $300 million sits in the fund—and no one wants anything to do with it. Can campaign spending be fixed?

Matthew King of suburban Tacoma, Washington, is a Democrat who believes the average American should donate to presidential candidates to thwart big money’s influence. Though he is looking for work, he feels so strongly about the issues that he makes small monthly contributions to Democratic candidates and causes. “It’s democracy in action,” King says, describing his hopes for a president who will combine leftist ideals with strong Christian values. “Right now, money is our voice in politics.”

Last fall, King, who is in his late 30s, was working at a local Taco Bell; he charged $20 to his credit card to support a presidential candidate, former Maryland Governor Martin O’Malley. King did not know it at the time, but his donation would help O’Malley’s campaign qualify for more than $1 million in matching funds thanks to a cumbersome bureaucratic process: a relic known as the Presidential Election Campaign Fund. O’Malley was the only one of 23 initial primary contenders in 2016 to seek public funds for his campaign. Only three candidates are still in the race, but more than $300 million remains in the fund—and no one wants to touch it.

In a presidential campaign awash in money, with anticipated spending of up to $10 billion this election year, the fund is a quaint throwback to an idealistic time, before Supreme Court decisions unleashed secretive outside-spending practices and before wealthy individuals dominated campaign fundraising. The Presidential Election Campaign Fund was conceived 40 years ago to level the presidential playing field and to give political unknowns a fighting chance. To a lesser extent, the fund also engaged average citizens by allowing them to voluntarily check off a fund donation on their income taxes. At its height, the fund allowed candidates to forgo frenetic cross-country fundraising. The program boosted outsiders like Democrat Jimmy Carter and Republican Ronald Reagan, and for years, it helped limit campaign costs. But with the explosion of campaign spending, fewer and fewer candidates have embraced the program. Today, it has become irrelevant.

In recent years, an ever-smaller percentage of taxpayers have checked off the box on their 1040 forms to authorize that $3 go into the fund. But, says Anthony Corrado, a Colby College professor who specializes in presidential campaigns, the fund now stands as “the last life raft of what was once the flagship of reform.” Everyone agrees the system is badly broken. Today, the question is whether it should be wheeled into the shop for a total remodeling or hauled off to the scrap yard.

Tacoma, Washington’s King is exactly the kind of voter the public-financing system set out to engage—smart, committed, and generous, even in trying times. But King says he did not check the box on his 2015 taxes and knows little about the public-financing program. He gave directly to O’Malley. King also donates regularly to Bernie Sanders, Hillary Clinton, and the Democratic National Committee.

Because O’Malley decided to pursue public funding, the support of voters like King helped him demonstrate to the Federal Election Commission that he had supporters backing him in 20 states. Under the system, a 2016 primary-election candidate who meets this threshold can qualify for matching funds up to $48 million. If that candidate makes it to the general election and raises no private money, he then qualifies for an additional lump-sum payment of $96 million. For O’Malley, the decision to work within the system was easy. “We needed the revenue, but it also philosophically meshed with our beliefs,” says David Hamrick, O’Malley’s campaign manager. “We felt from a message standpoint and a philosophy standpoint that we were comfortable taking matching funds because we believe in them.”

Yet, it took a while for the FEC to process O’Malley’s filing—leaving the campaign running on fumes. Since 2010, when demand dropped, a single employee spends about 10 hours a month—and substantially more when paperwork peaks during the primaries—managing the fund. While he waited, O’Malley’s campaign had to borrow $500,000.

O’Malley’s filing finally reached the full FEC, a bipartisan body that rarely agrees on anything, and some grumbling ensued, according to Ann M. Ravel, the former commission chairwoman and its most outspoken member. The complaint centered on why taxpayers should fund a candidate on the verge of leaving the race. Nevertheless, the commission is legally obligated to approve the funds, so—after kicking the filing back to the campaign to correct a math error—it finally did. O’Malley received $1,088,929 on January 20. But the infusion of taxpayer money came too late to rescue his run. After a bleak showing in Iowa, O’Malley suspended his campaign.

Over the years, candidates from both political parties have relied on public financing. The fund pumped more than $20 million each into the campaigns of Reagan, George H.W. Bush, Bill Clinton, Robert Dole, and Pat Buchanan.

Carter ranks as one of the program’s greatest success stories. The Democratic governor of Georgia had only $42,000 at the end of 1975 and was in debt by May 1976—when public money saved his candidacy. That same year, Reagan was “the most dramatic example of an underdog whose campaign needed public money,” according to an analysis by Michael Malbin, director of the Washington-based Campaign Finance Institute. In January 1976, the Republican governor of California had $43,497 to challenge incumbent President Gerald Ford, who had 15 times as much money. “If the challenger’s campaign had not received $1 million in public money in January, and another $1.2 million in February, he could not have continued,” Malbin wrote. Public funding kept Reagan viable all the way to the Republican Party convention in 1976 and paved the way for his 1980 election.

“The bottom line is this system did exactly what it was supposed to do for more than two decades,” says Fred Wertheimer, a longtime campaign-finance-reform champion who now heads Democracy 21. “The system was not perfect, but it allowed candidates to run competitive races for office. It kept the candidates away from private-influence money. It worked.”

Yet debate over presidential public financing has always been wrapped in partisan politics and galvanized by scandal. Momentum is driven by whichever party is in power at the time. Republican Theodore Roosevelt kicked off what can be considered the modern debate. When his 1904 campaign came under attack for its corporate funding, Democrats in Congress spearheaded passage of the Tillman Act to outlaw corporate contributions. Roosevelt saw that he needed to be perceived “as a man who stood above politics.” He had never been known as a campaign-finance reformer, but he used his 1907 State of the Union address to Congress to float a “very radical measure.”

“The need for collecting large campaign funds would vanish if Congress provided an appropriation for the proper and legitimate expenses of each of the great national parties, an appropriation ample enough to meet the necessity for thorough organization and machinery, which requires a large expenditure of money,” he wrote. Roosevelt’s novel thinking did little more than plant a seed.

In 1960, Democrat John F. Kennedy spent $9.7 million and Republican Richard Nixon spent $10.1 million on their campaigns, breaking records in the first race driven by television advertising. Kennedy responded to criticism over high campaign spending by naming a commission to study the issue. Citing Roosevelt’s public-financing idea, Kennedy suggested examining the systems then in place in Puerto Rico and overseas. Kennedy’s commission recommended a matching-fund system in which individual contributions of up to $10 to major parties would be matched by public money, but the proposal languished in Congress.

Campaign-finance scandals during Lyndon Johnson’s administration resurrected the issue. In 1966, Johnson recommended incentives that would “make it possible for those without personal wealth to enter public life without being obligated to a few large contributors.” He left the legislative work to the longtime chair of the Senate Finance Committee, Russell Long, the son of populist Louisiana Governor Huey Long. In 1966, Russell Long introduced the Presidential Election Campaign Act, which included a voluntary $1 check-off on individual tax forms. The fund would allocate $30 million to each political party to finance the presidential general election. Over strong objection, Long’s legislation passed as a rider to the Foreign Investors Tax Act, and Johnson signed it into law.

Almost immediately, some of Long’s Democratic colleagues tried to overturn it. Senator Al Gore Sr. and Senator Robert Kennedy led a repeal effort in 1968, arguing that Long’s act “only supplemented private funds with public funds and would not effectively address the corrupting influence of private contributions.” Democratic Senate Majority Leader Mike Mansfield worked out a compromise: He recommended that the law be deactivated as the 1968 campaign season intensified, offering time for further study. Over the next couple years, growing fundraising disparities made the idea more palatable, and by 1971, Democratic Senator John Pastore sponsored legislation to revive the fund. The check-off was resurrected and set to start January 1, 1973.

The Presidential Election Campaign Fund was incorporated into a more sweeping campaign-finance measure in 1974—the Watergate-inspired Federal Elections Campaign Act. It called for public money to go directly to candidates, not to parties, and it extended the program to both primaries and general elections.

Still, passing a law was one thing; getting taxpayers to designate $1 on their taxes to fund campaigns was another. The first year, taxpayers couldn’t figure out how to participate. The IRS required a separate form to authorize the check-off. Only 3 percent of taxpayers participated in 1973. Long met with Nixon’s IRS commissioner, Donald Alexander, to work out a solution. He argued that the check-off box needed to be featured on the first page of the 1040 form. The fix worked, and in 1974, the IRS reported that “10.7 million or 13.6 percent” had checked the box. In fact, for a time, so many candidates tapped into the fund that regulators feared bankruptcy. Congress bumped up the check-off amount from $1 to $3, and by 1994, the balance jumped from $30.7 million to $101.6 million.

Yet the check-off system had structural flaws. The law dictated spending limits, including limits in each state, adjusted over time only for inflation. The rules failed to recognize that campaign dynamics themselves would change, with early states wielding outsized influence.

In 2000, Republican George W. Bush opted to raise private funds and to reject public financing for the primary. Bush did take public money for the general election, however, as did his Democratic opponent, Al Gore. At the time, concerns about campaign spending focused on “soft money,” large sums donated to parties that were then funneled to candidates, circumventing donation limits. Congress stepped in to address abuses again in 2002 but to little effect. The public-financing system sputtered along without mid-course corrections.

In 2008, the issue came to a head as Democrat Barack Obama faced off against Republican John McCain. As senators, both were campaign-finance reformers, and Obama had pledged in November 2007 to accept presidential public funding. But Obama abruptly changed course in June 2008. His campaign had tapped into the Internet as a fundraising tool and was on track to raise $745 million in private contributions. Obama said he would forgo $84 million in general-election public funding, and he became the first president since Nixon to run for office without using public money in the general election. Obama outspent McCain, who took public money, four to one.

Once in office, reformers pressed Obama to stay true to his 2008 promise that if elected, he would tackle campaign-finance reform. Wertheimer went to the White House early in Obama’s first term to meet with policy adviser Norm Eisen and work out a campaign-finance proposal to take to Capitol Hill. But Obama’s stunning ability to raise far more alone than with public funds could not be ignored. Obama’s political team steered him away from fighting for reform—even though Obama had promised to pursue it, says Wertheimer. Obama’s decision did not bode well for the future of presidential public financing, yet money continued to trickle into the fund from the check-off boxes.

In 2011, House Republicans unexpectedly targeted the system itself, arguing that taxpayers could save $520 million over 10 years by killing it. Former House Majority Leader Eric Cantor argued that the effort was just “reflecting the reality. This check-off on your tax form is just going into a fund that is not really that relevant at this point.” Republicans partly succeeded; they eliminated use of the fund to pay for party conventions in 2014.

The 2016 primary campaign has been all about money—raising it, spending it, and condemning it. Candidates’ fundraising strategies ranged from Clinton’s star-studded soirees, to billionaire Donald Trump’s “self-financing,” to Ted Cruz’s and Marco Rubio’s corporate sugar daddies, to Bernie Sanders’s quest for small donations. All the while, these fiery candidates accused one another of super PAC abuses, being under the influence of special interests, and succumbing to outright corruption. And yet, despite all of these outrages that came with private fundraising, right from the start, whether a leading contender or a long shot, no one—except for O’Malley—wanted to dip into what had come to be derided as the “loser’s fund.”

“We would be putting ourselves at a huge strategic disadvantage taking the public financing and having to abide by spending restrictions that come with it,” explains Christian Ferry, the campaign manager for GOP Senator Lindsey Graham. “Betting on the potential for success, we didn’t even consider it.”

The system’s structural flaws had only grown more acute. The 2016 spending limit in the first two critical early states was $1.8 million in Iowa and $961,400 in New Hampshire based on the states’ populations. Candidates complained that the limits were too strict and that the system failed to recognize that a strong showing at the start of a campaign was critical in narrowing the field.

System architects also could not have anticipated the cataclysmic 2010 Supreme Court decision in Citizens United v. Federal Election Commission, which legalized unlimited spending by independent groups working in support of candidates. The ruling unleashed a deluge of undisclosed “dark money” and made it even less likely that candidates, facing this barrage of outside spending, would buy into the paltry public-financing system. The Citizens United decision appeared to give an edge to GOP early front-runner Jeb Bush, a savvy campaign fundraiser with a network of closely aligned, lucrative super PACs. Bush even delayed formally announcing his candidacy so that he could legally raise super PAC money for as long as possible. Bush’s campaign and its affiliates poured money into the primaries, spending about $150 million. Then, in a stunning turnabout, Bush crashed.

Enter Trump. The billionaire Republican’s jaw-dropping emergence as a leading candidate distorted predictions and up-ended conventional wisdom. Trump declared that he would keep his campaign “clean” by self-financing: By the end of March, he had loaned his campaign $36 million. (This decision also disqualified Trump from receiving any public money, since the law limits the amount of personal wealth candidates may invest in their campaigns.) As Trump heads toward the GOP convention, he is still touting his self-financing bona fides and now is calling Clinton “Crooked Hillary” because of her ties to Wall Street and history of financial controversies. Yet, Trump, in fact, has been accepting some private contributions—about $12 million by the end of March—and he benefited from a small amount of super PAC spending.

What’s more, with the nomination in sight, big-money Republican donors like Sheldon Adelson are looking at how they can support Trump most effectively without running afoul of his super PAC condemnations. By the end of April, Trump’s total campaign spending had reached just $47 million—compare that with Clinton’s $262.7 million. Of course, more than any candidate in American history, Trump is benefiting from an avalanche of unpaid news coverage spawned by his unceasing incendiary commentary.

Clinton, meanwhile, has made no apologies for her formidable fundraising juggernaut or for spending heavily in early states. By April, as her traditional fundraising tactics yielded more than $250 million, Clinton surpassed the collective small-donor contributions that Sanders had raked in. The Vermont senator and avowed democratic socialist had built a grassroots campaign partly based on condemning the “corrupt campaign-finance system undermining American democracy.” But he, too, wanted no part of public money. At one Democratic debate, after NBC’s Chuck Todd asked Sanders why he was not seeking public funds, Sanders called the system “a disaster.”

“Nobody can become president based on that system,” he said. Sanders said he decided the best strategy was to reject super PACs and “to ask working families and the middle class to help out in a transformational campaign. And you know what? We got 3.5 million individual contributions, $27 a piece.” Ironically, Sanders’s strategy validates the concept behind public financing. Small donations from many contributors—bringing in steady revenue and encouraging wide participation—offer an alternative to big-money donors.

But candidates’ refusal to take public funding further dampens reform prospects, even as public outrage festers. Harvard Law School’s Lawrence Lessig was among those arrested in Washington last month at a Democracy Spring protest of campaign-finance abuses. Lessig himself, of course, briefly ran for president on a platform of campaign-finance reform, and he said he also advised Sanders to hone in on the issue. Lessig dropped out of the presidential race in November 2015 before qualifying with the FEC. Although he supports presidential public financing in principle, he really favors a more systemic reform to address special-interest influence, particularly in Congress. “It’s a triage, like the patient’s got cancer and is bleeding out on the operating table,” he says. “Which do you do first? I’m going to worry about the bleeding out.”

On Capitol Hill, Representative David Price believes presidential public financing should be salvaged. He believes that some have forgotten the fund’s importance over the years. “It kind of stands out as a uniquely successful experiment in public financing in American elections,” he says. Working with a reform coalition, Price and his cosponsor, Chris Van Hollen, introduced the Empower Act as a step in “taking our elections back from billionaires and corporations.” Senator Tom Udall—nephew of the late Representative Morris Udall, a reform champion who ran for president in 1976—introduced a Senate version of the bill.  “It’s not just a matter of exhorting candidates to accept public financing,” says Price. “It is also a matter of fixing the statute so that it is more in line with what a candidate, even a candidate like Bernie Sanders, is going to need.”

The Empower Act would increase the check-off to $20 per individual and give candidates $6 in public funds for every $1 they raised in small donations. Participants would have to agree to limit individual donations to $1,000, down from the current limit of $2,700 per person, and would have to show significant support in 20 states to qualify. The state-by-state spending restrictions would be lifted.

But Price’s bill is stalled in a Republican-controlled House. His principal opponent is Representative Tom Cole, a conservative who wants the law repealed and the unspent funds plowed back into the Treasury. Cole argues that the system is “so radioactive that Republicans, at least, won’t use it all.” To Cole, the fund is money that’s being spent on lost causes and that doesn’t reflect the realities on the ground. “It is up to candidates to raise their own money and disclose and play by the rules,” he says. “But I don’t think the taxpayers need to subsidize them as they go about it. And in this case, it is money that literally ought to just go for deficit reduction or redirect it for some other purpose. It is doing absolutely nothing. Nobody that has a remote chance of becoming president is using it.”

Reformers like Wertheimer say they have been fighting for years to keep the Republicans from repealing the system. “Go back to the beginning of this story and what happened with Russell Long and Mansfield,” he says, “and you will know why it is very, very important not to have this system repealed because it provides a framework for fixing the system.”

Even with fixes, though, more clarity is needed from the U.S. Supreme Court. Calls have mounted for the Court to reconsider Citizens United, but other decisions have added to confusion over how to move forward. In 2011, for example, the Court outlawed an Arizona public-financing provision known as the “fair-fight fund,” which allowed publicly funded candidates to get additional money to counter unexpected spending by privately funded opponents or third parties. So now publicly funded candidates are firmly locked into a threshold that their privately funded opponents can exceed a hundredfold—cementing big money’s role in campaigns. “Until that ruling is undone, it makes it very difficult to design a public-financing system that works with Citizens United,” says Ciara Torres-Spelliscy, a law professor at Stetson University who specializes in election law.

Ravel, for one, says that by year’s end, she intends to propose a solution for the money left sitting in the Presidential Election Campaign Fund to the FEC. But given her history with the commission—last year, she publicly blasted the FEC for its ineffectiveness—Ravel has little hope that members would agree on a path forward, let alone accept her suggestions.

In theory, additional primary claims for public funding could still trickle in. In April, the FEC approved $100,000 in matching funds for Green Party candidate Jill Stein. But none of the front-runners are using public money, so it’s unlikely any more major claims will be made this season. That means the fund could have as much as $450 million in it by 2020, when the next presidential contest rolls around. And a lone employee in the FEC’s audit division will wait patiently for some primary candidate to file the stack of paperwork required to get a dose of public money.

If history is any guide, that candidate will almost certainly be a loser.

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This article is adapted from Marilyn W. Thompson’s research, which she conducted as a fellow at the Shorenstein Center on Media, Politics, and Public Policy at the Harvard Kennedy School with assistance from Andrew Levine.