Electoral Insight - Reform of Election Financing: Canada, Great Britain and the United States

Electoral Insight – May 2002

Soft Money, Issue Advocacy and the U.S. Campaign Finance Law

Richard Briffault
Vice-Dean, Columbia Law School

On March 27, 2002, President George W. Bush signed into law the most significant and comprehensive changes in United States campaign finance regulation in more than a generation. Following almost six years of contentious debate, the Bipartisan Campaign Reform Act of 2002 addresses a broad range of campaign finance issues, including fundraising on federal property, contributions by foreign nationals, limitations on contributions to federal candidates, donations to the presidential inauguration committee, electronic filing of and Internet access to federal campaign finance reports, and penalties for the violation of federal campaign finance law. However, the heart of the Act is its regulation of "soft money" and "issue advocacy" – two campaign finance practices that blossomed in the 1990s and directly undermined the effectiveness of federal campaign finance law. The Act places new restrictions on these important developments. These restrictions, in turn, have already been challenged as unconstitutional.

This article reviews the emergence of soft money and issue advocacy in the American campaign finance system, and the new legislative response. It begins by providing a summary of the Federal Election Campaign Act (FECA), the Watergate era law that has regulated the financing of federal election campaigns in the United States since 1974. It then explains the development and significance of soft money and issue advocacy before considering the relevant provisions of the newly adopted federal statute. Finally, it assesses how the reform law may fare in court.

FECA's Contribution-Expenditure Squeeze

FECA requires the full disclosure of the sources of campaign money, places limits on contributions and expenditures, and offers optional public funding for presidential candidates.^{Footnote 1} In Buckley v. Valeo, decided in 1976, the United States Supreme Court invalidated many of FECA's spending caps, but sustained most of the rest of the Act.^{Footnote 2} The subsequent decades witnessed the emergence of a campaign finance regime marked by sharply rising campaign costs, contribution limits that have not been adjusted for inflation, and, due to the Buckley decision, no spending limits. The average cost of a race for the House of Representatives rose from $73 000 in 1976 to over $500 000 in 1998, and the average cost of a Senate race rose from $596 000 to $3.8 million over the same period. In 1998, there were 104 House campaigns that cost more than $1 million. This growth in spending is not simply a reflection of general inflation. During a period in which the consumer price index rose by 176 percent, congressional general election spending rose 667 percent. Sharply rising mass media expenses and the increasing role of new and costly campaign technologies have caused election costs to rise at a far faster rate than prices generally.^{Footnote 3}

The explosion of campaign costs occurred while limits on contributions to candidates were largely frozen at the levels set by Congress in 1974. The collision between the irresistible force of rising costs and the immovable object of frozen contribution limits has made fundraising an enormous burden for nearly all candidates. The only restrictions on financial support for candidates that have risen over the last three decades are the limits on party coordinated expenditures and public funding for presidential candidates – and even these limits have been adjusted only for inflation. With campaign expenses rising at more than three times the rate of inflation, the increases in coordinated expenditures and public funding have been inadequate to candidate needs.

The combination of sharply rising costs and fixed limits on contributions led directly to the principal campaign finance phenomena of the last three decades. In the 1970s and 1980s, political action committees (PACs) emerged as critical intermediaries for raising campaign funds and channelling them to candidates. The number of PACs rose from 608 in 1974 to 4 009 just 10 years later. More than 60 percent of PACs are sponsored by business interests; another 10 percent by labour unions. Approximately one quarter of PACs are not connected to any parent organization; these unconnected PACs generally are ideological organizations. Over the last two decades, PACs have consistently provided between one quarter and one third of the total contributions received by congressional candidates.^{Footnote 4}

The contribution-expenditure squeeze also led to the increased financing role of national party committees. Individuals and PACs may make larger donations to parties than to candidates, while the coordinated expenditure provision enables party committees to provide additional support to candidates. However, increasingly, the defining feature of party participation in the campaign finance system – and one of the most significant developments in American campaign financing – has been the rise of "soft money."

Soft Money

The term "soft money" is in contrast to "hard money," that is, money that complies with the dollar amount, source limitations, and reporting requirements of FECA. Contributions and expenditures that involve express support for or opposition to federal candidates must be made with hard money, but money that is arguably for some other purpose – even though it predictably and intentionally affects federal elections – is soft money, exempt from the Act's restrictions and requirements.

Soft money emerged out of the complications of political federalism. FECA regulates only federal elections, but federal and state elections typically occur concurrently, with candidates for both federal and state offices appearing on the same ballot. Political parties may undertake campaign efforts that assist their federal and state candidates simultaneously, but only spending with respect to federal candidates must satisfy FECA. Although states have their own campaign laws, many are less restrictive than FECA, with fewer restrictions on contributions by corporations, unions, PACs, and individuals.

During the 1980s, the parties discovered ways of using soft money to cover the non-federal share of joint federal-state campaign expenses, including administrative overhead, issues research and polling, computer and media facilities, voter registration, get-out-the-vote operations, and fundraising. Soft money exploded in the 1990s, accounting for as much as one third of the income of the national parties in the mid-90s and 40 percent of total national party income during the 1999–2000 election cycle. The size of soft money contributions also soared. In 1997–98, there were 390 individuals or organizations – including business corporations, labour unions, Native American tribes, and ideological groups – that gave $100 000 or more to the soft money accounts of the national political parties.^{Footnote 5} By 1999–2000, there were over one thousand $100 000+ soft money donors, and 50 donors of $1 million dollars or more in soft money.^{Footnote 6} With these huge donations, soft money substantially erodes the limits on donations to parties, the curbs on corporate and union treasury funds, and the limits on the use of privately provided funds in publicly funded presidential elections.

Part of the enormous growth in soft money in the mid- and late 1990s was due to the parties' discovery that they could use soft money to pay for electioneering communications. This involved a dramatic expansion of the campaign phenomenon known as "issue advocacy."

Issue Advocacy

When it upheld FECA, the Supreme Court emphasized the need to prevent campaign finance regulation from interfering with the discussion of political issues and ideas. The Court construed FECA to apply only to "expenditures for communications that in express terms advocate the election or defeat of a clearly identified candidate for federal office."^{Footnote 7} Such expenditures are known in campaign finance jargon as "express advocacy"; all other political communications are called "issue advocacy," although many so-called "issue ads" do not discuss issues at all.

Influenced by a critical footnote in the Buckley decision, most of the lower federal courts that have considered whether a particular ad constitutes express or issue advocacy have applied the so-called "magic words" test, limiting the definition of express advocacy – and the scope of FECA regulation – to communications that literally ask voters to "vote for," "elect," "cast your ballot for," "vote against," or "defeat" a candidate. Ads that praise or criticize a candidate, but do not use the magic words, are considered to be issue ads. Thus, an ad that blasts a candidate's voting record and concludes by asking the viewer to telephone the sponsor for more information – or to call the candidate criticized – are considered not to involve express advocacy. Corporate or union treasury funds may be used to pay for such ads, and FECA's reporting requirements do not apply.^{Footnote 8} As a result, both the size and the sources of the funds that pay for issue ads may be unknown.

Issue ads were originally the province of non-party groups, particularly ideological organizations. In the 1996 election, however, both major parties deployed issue ads to tout their party's presidential candidate and denounce his opponent. This enabled them to use unlimited individual, corporate and union soft money contributions to pay for electioneering ads in the ostensibly publicly funded presidential election. In the 2000 elections, an estimated – the numbers are necessarily estimates since issue ads are not subject to FECA's reporting requirements – $500 million was spent on issue advocacy. The two major parties accounted for one third of issue advocacy spending and for nearly two thirds of such spending in the months immediately preceding the election. Six major groups (three business groups, the AFL-CIO, the National Rifle Association, and a term limits organization) accounted for another third of total issue advocacy spending.^{Footnote 9}

The New Campaign Finance Law

The centrepiece of the new campaign finance law is a sharp restriction on soft money. Effectively after the November 2002 Congressional elections, the national committees of the political parties, federal candidates and federal officeholders will be prohibited from raising, receiving or spending soft money. The soft money ban also applies to the "federal election activity" of state and local party committees, which is defined to include: (i) voter registration activity during the period beginning four months before a regularly scheduled federal election and running until the election; (ii) get-out-the-vote activity conducted in connection with an election in which a candidate for federal office appears on the ballot; (iii) public communications that promote or oppose a clearly identified candidate for federal office regardless of whether the communication expressly advocates a vote for or against that candidate; and (iv) state or local party employee services in connection with a federal election.

In response to the concern that soft money has had positive effects in financing voter mobilization activity and thereby increasing the election day turnout of African-American and Latino voters, the law makes one important exception to the soft money ban. Individuals will still be allowed to donate up to $10 000 per calendar year to state and local political parties for use on voter mobilization.

Moreover, in response to the argument that the soft money ban will make it more difficult for candidates and parties to receive the funds they need to finance their campaigns, the law raises many of the hard money limits. Specifically, the law (i) increases the limit on hard money contributions by individuals to candidates from $1 000 to $2 000 per candidate per election; (ii) increases from $20 000 to $25 000 the amount an individual can donate to a national party committee in a calendar year; (iii) increases from $5 000 to $10 000 the amount an individual can donate to a state or local party committee for federal election activity per calendar year; and (iv) increases the aggregate limit on individual contributions from $25 000 to $95 000 over a two-year election cycle, although it also separately limits the total contributions an individual can make to candidates to $37 500 over two years. These limits will, for the first time, be indexed for inflation. The Act also contains an unusual provision relaxing the limits on contributions to Senate candidates for any candidate who is running against an opponent who spends more than a threshold amount of his own personal funds on behalf of his own campaign.

With respect to issue advocacy, the law prohibits business corporations, trade associations and labour organizations from financing what the law calls "electioneering communications." Other organizations and individuals can continue to finance electioneering communications, but any person or entity that spends in excess of $10 000 on electioneering communications during a calendar year must file reports that disclose the identities of their principal contributors. In addition, although the law generally exempts non-for-profit corporations from the restriction on corporate electioneering communications, it bars even non-for-profit corporations from spending more than a threshold amount on what it calls "targeted" electioneering communications; that is communications that refer to a particular legislator and are aired in the legislator's constituency.

The law makes two efforts to define "electioneering communication". The principal definition goes well beyond the current concept of express advocacy to include "any broadcast, cable or satellite communication" that refers to a clearly identified candidate for federal office and that is aired within 60 days of a general election or 30 days of a general election. The Act also provides a back-up definition, to take effect in case the primary definition is held unconstitutional, that drops the temporal component of the definition and focuses instead on whether the communication promotes or opposes a candidate for federal office, regardless of whether it constitutes "express advocacy", and "which is also suggestive of no plausible meaning other than an exhortation to vote for or against a specific candidate". The presence of these alternatives clearly reflects legislative concern that the broader approach will not pass constitutional muster and the hope that, in that event, the narrower approach will survive a constitutional attack.

Campaign Finance Reform and the Constitution

The new campaign finance law has already been hit with a constitutional challenge. In Buckley v. Valeo, the United States Supreme Court determined that campaign finance regulations bring into play the First Amendment's protections of political speech and association. The Court held that campaign finance activities may be restricted to prevent corruption or the appearance of corruption, but not to equalize the spending of candidates or to equalize the influence of different voters or groups. The Court held that contributions could be restricted, in part because contributions – which involve the transmission of money from a donor to a committee or a candidate – do not entail a direct expression of political views and are, thus, a lower order of speech, and because contributions raise the possibility of a quid pro quo between donor and recipient and thus the possibility of corruption or the appearance of corruption. Expenditures, by contrast, were held to be the highest form of campaign finance activity because they involve direct communications to the voters. Moreover, expenditures raised no danger of corruption. Thus, limitations on the expenditures of candidates and interest groups advocating the election or defeat of a candidate could not be limited – although they could be subject to reporting and disclosure. Finally, as previously noted, the Court held that to prevent campaign finance law from chilling other political activity, only the express advocacy of the election or defeat of a clearly identified candidate could be subject to regulation.

With one arguable exception, the Supreme Court has continued to adhere to the Buckley doctrine. The one exception involves the validation of pre-FECA restrictions on corporations. In 1990, the Court upheld a state law (which closely tracked a very old federal law) barring corporations from making any expenditures in support of or opposition to election candidates. The Court found that the "unique state-conferred" advantages that corporations enjoy, and the fact that corporate resources "have little or no correlation to the public's support for a corporation's political ideas," create a danger of corruption sufficient to justify an absolute ban on the expenditure of corporate treasury funds in connection with an election for public office.^{Footnote 10} Although the case sustained a restriction on expenditures, the Court claimed to fit it within the Buckley paradigm by focusing on the special corruption danger it said was inherent in corporate spending.

How are the soft money and issue advocacy restrictions likely to fare in court? The soft money restrictions have a reasonable chance of survival.

In a 1996 case, four members of the Court suggested that FECA's limitation on party coordinated expenditures is unconstitutional because party spending, including coordinated spending, presented no danger of a party corrupting its own candidates. Three members of the Court sidestepped the question, and the case was resolved on other grounds. When the issue returned to the Court in 2001, a five-member majority sustained the limitation on the theory that party-coordinated expenditures could serve as a conduit for donors to parties to channel support to candidates. The coordinated expenditure limit, thus, serves the purpose of preventing donors from using the parties to obtain quid pro quos from candidates. The same logic could be used to sustain limits on party soft money.

The most constitutionally vulnerable component of the new soft money restrictions is the provision limiting party electioneering communications that go beyond express advocacy. So, too, all of the new provisions dealing with electioneering communications are open to constitutional attack. Buckley stressed the need for a definition of election-related speech that is both clear and narrowly drawn to prevent regulation of non-election-related speech. However, elections throughout the 1990s have repeatedly demonstrated that candidates, parties, and interest groups alike can effectively engage in electioneering communication while avoiding Buckley's magic words of express advocacy. Several lower federal courts have rebuffed the FEC's efforts to promulgate an express advocacy regulation which, like the first Shays-Meehan alternative, looked to "unmistakable and unambiguous meaning" in context, rather than literal words of express advocacy. But these courts considered themselves bound by Buckley's brief attention to the issue a quarter century ago. The Supreme Court would not be so limited. Moreover, the Court in last year's Colorado Republican decision, as well as in a 2000 decision upholding a Missouri law limiting contributions in state elections, expressed increased concern about the ability of campaign finance law to effectively regulate campaign practices.^{Footnote 11} So, too, other Court decisions have indicated a greater willingness to sustain limitations on the campaign activities of business corporations – although those cases involved express advocacy and not the broader notion of "electioneering communications."

The definition of election-related activities is a fundamental question for any campaign finance system. It is impossible to determine, based on prior decisions, how the United States Supreme Court will react to Congress's effort to expand the definition and widen the scope of campaign finance regulation. What is certain is that the future of campaign finance regulation in the United States will turn on the outcome of the litigation.

The Future of Campaign Finance Law

The new restrictions on soft money and issue advocacy are not a panacea for the American political system. These reforms do nothing to address the crushing burdens of fundraising, the financial advantages enjoyed by incumbents, and the dominant role played by wealthy individuals and organized interests in the campaign finance system. Nevertheless, addressing soft money and issue advocacy is an important first step for reform. The new law defends the FECA disclosure requirements, contribution limitations, and public funding provisions already on the books and it vindicates the integrity of the federal campaign finance system. Whether the new law will pass constitutional muster, however, remains to be seen.

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Endnotes

Return to source of ^{Footnote 1} 2 U.S.C. §§431-455. The provisions for public funding for presidential candidates are technically separate from the Federal Election Campaign Act and are found in the Presidential Campaign Fund Act, 26 U.S.C. §§9001-9012, and the Presidential Primary Matching Account Act, 26 U.S.C. 9031-9042. This article will use the acronym FECA to refer to both the Federal Election Campaign Act and the presidential public funding legislation.

Return to source of ^{Footnote 2} 424 U.S. 1 (1976). In addition to striking down the expenditure limits, Buckley also held that FECA's provision enabling Congress to appoint some members of the new Federal Election Commission (FEC) was unconstitutional. Congress responded in 1976 by providing for a new FEC composed of six members appointed by the President, subject to the advice and consent of the Senate.

Return to source of ^{Footnote 3} Association of the Bar of the City of New York, Dollars and Democracy, 58-59 (2000).

Return to source of ^{Footnote 4} Ibid. at 61-65.

Return to source of ^{Footnote 5} Richard Briffault, "Political Parties and Campaign Finance Reform," 100 Colum. L. Rev. 630-31 (2000).

Return to source of ^{Footnote 6} "Top Soft Money Donors: 2000 Election Cycle," http://www.opensecrets.org/parties/ aspsofttop.asp?txtCycle=2000

Return to source of ^{Footnote 7} Buckley v. Valeo, 424 U.S. at 44.

Return to source of ^{Footnote 8} See generally Richard Briffault, "Issue Advocacy: Redrawing the Elections/Politics Line," 77 Tex. L. Rev. 1751 (1999).

Return to source of ^{Footnote 9} Annenberg Public Policy Center, Issue Advertising in the 1999-2000 Election Cycle.

Return to source of ^{Footnote 10} Austin v. Michigan Chamber of Commerce, 494 U.S. 652, 659-61 (1990). Austin applies only to expenditures in connection with an election for office. Corporate expenditures in connection with a referendum election may not be restricted. See First National Bank of Boston v. Bellotti, 435 U.S. 765 (1978). In addition, contributions and expenditures by entities that are corporate in form but are created for political or ideological purposes and do not receive funds from business activities are constitutionally protected. See FEC v. Massachusetts Citizens for Life, 479 U.S. 238 (1986).

Return to source of ^{Footnote 11} See Richard Briffault, "Nixon v. Shrink Missouri Government PAC: The Beginning of the End of the Buckley Era?" 85 Minn. L. Rev. 1729 (2001).

Note: 

The opinions expressed are those of the authors; they do not necessarily reflect those of the Chief Electoral Officer of Canada.