On the Cusp of Change: Party Finance in the United States

John C Green. Handbook of Party Politics. Editor: Richard S Katz & William Crotty. Sage Publications, 2006.

As the 21st century begins, American politics is experiencing another period of campaign finance reform, with a special focus on the major political parties (on the history of reform, see Corrado, 1997). After a decade of rapid innovation in party finance, the Bipartisan Campaign Reform Act of 2002 (BCRA, also known as ‘McCain-Feingold’ after its Senate co-sponsors) was enacted by Congress and signed by President Bush (Corrado, 2003). As with past reforms, this legislation prompted an immediate court challenge, and a little more than a year later, the US Supreme Court affirmed most of its provisions in McConnell v. Federal Election Commission (24 S. Ct. 619 [2003]).

BCRA prohibited the raising and spending of ‘soft money’ by national party committees, a major innovation of the 1990s, and included other changes designed to bolster this prohibition. From the perspective of the 2000 election, BCRA represented a major change in party finance. But from a slightly longer perspective, BCRA largely returned the campaign finance regime to the situation before soft money, which was based on the Federal Election Campaign Act (FECA) of 1971 as amended by Congress and interpreted by the courts (Corrado et al., 1997). The fundamental issue in BCRA was the size and source of campaign funds raised by national parties.

Of course, the more interesting timeframe is the future: how will the major parties and their allies adapt to BCRA? What follows is a brief discussion of American party finance on the eve of BCRA, the changes brought about by the new law, and a sketch of possible adaptations.

Parties and Marshalling Resources

Chief among the activities of party organizations is marshalling resources—collecting, organizing, and deploying people and things useful in seeking control of the personnel of government. Money is only one such resource, but an especially valuable one in an advanced industrial society. And marshalling money is of particular importance in the United States, where the ‘two-party’ system is nearly comprehensive but organizationally fragmented (Green, 2002). Even at the national level, separation of powers produces three separate organizations for the Democrats and Republicans—the national (or presidential), senatorial, and congressional committees. Meanwhile, federalism generates 50 state committees (typically linked to governors and other elected executives), not to mention legislative campaign committees (tied to the chambers of the state legislatures), and thousands of local party organizations (principally county and city committees). As if this fragmentation were not enough, nomination via the direct primary has encouraged a ‘candidate-centered’ politics with thousands of separate candidate committees. Finally, a wide variety of interest groups adds several thousand political action committees (PACs) and other organizations to the mix.

Scholars have long noted the usefulness of American parties in bringing cohesion to this fragmentation. Although more honored in the breach than in the observance (Sorauf, 2002), party organizations have from time to time played a significant role in marshalling money from these fragmented sources. The exact nature of these arrangements depended on the incentives and circumstances of the moment, including the relevant laws governing party finance. In the last thirty years, the advent of capital-intensive electioneering has provided new incentives for the parties to marshal money (Herrnson, 1988), reinforced by the increased competitiveness of federal and state elections in the 1990s (Green and Farmer, 2003). In response, the major parties and their allies found ways to greatly expand fundraising under FECA. These innovations were so successful that they substantially undermined the existing rules and inspired the passage of BCRA.

The Pre-BCRA Finance Regime

The 2000 campaign is a useful benchmark for assessing the situation BCRA sought to correct. Two parallel systems of party finance had developed, one involving ‘federal’ or ‘hard money’ (funds regulated under FECA) and the other ‘non-federal’ or ‘soft money’ (funds not regulated by FECA). Tables 12.1 and 12.2 summarize the legal dimension of the two systems from the perspective of party fundraising (these tables also identify the changes created by BCRA, which we will discuss presently).

Federal (Hard Money) Receipts

The federal or hard money system began with the 1974 amendment to FECA, which included a set of contribution limits upheld by the US Supreme Court in Buckley v. Valeo (424 U.S. 1 [1976]). With regard to parties, FECA set a maximum that any one individual or political committee could donate to each of the three major national party organizations (Biersack and Haskell, 1999). For example, individuals could give a maximum of $20,000 per year (or $40,000 per two-year election cycle) to any national committee. PACs (‘multicandidate committees’) could give a maximum of $15,000 per year (or $30,000 per election cycle). There were also limits on contributions to PACs and candidate campaign committees.

Formally non-political organizations were prohibited from donating directly to party committees (or any federal campaign), including business corporations, labor unions, trade associations, and non-profit groups. With just a few exceptions (such as non-profit corporations organized for explicitly political purposes), any such organization had to form a PAC and participate in the hard money system.

Individuals, PACs, and candidate committees were limited to a maximum of $5000 per year (or $10,000 per election cycle) to state and local party committees for federal elections (treated in most instances as a unit). Non-political organizations were also prohibited from making donations to state/local parties for federal elections, but were often allowed to donate to parties under state laws for state elections (an important matter to which we will return below).

Some additional limitations also affected federal party finance: individual donors were limited to an aggregate of $25,000 to all federal committees per year (or $50,000 per election cycle) and full disclosure was required of individual donations over $200 and of all organizational contributions. Interestingly, none of these contribution limits were indexed for inflation, so that as time passed, the value of legal contributions declined steadily. For example, the $20,000 maximum national party donation was worth about $7600 by 2000. One area left unregulated was transfers among national, state, and local party committees, allowing for unlimited transfers between party committees and from candidate campaign committees to party committees (Bedlington and Malbin, 2003: 136).

Federal (Hard Money) Expenditures

FECA also set limits on contributions from party committees to PAC and candidate committees (Biersack and Haskell, 1999): national and state/local committees could each give a maximum of $5000 per year to a PAC, $5000 per election to a congressional candidate, a combined total of $17,500 per election to senatorial candidates, and nothing to presidential candidates who accepted public financing (also initiated by FECA in 1974 and 1976). FECA also allowed party committees to engage in limited ‘coordinated expenditures’ on behalf of their nominees. Based on a per eligible voter formula, coordinated expenditures were much higher than the direct contribution. Furthermore, coordinated expenditures were adjusted for inflation, but contributions were not.

The initial interpretation of the FECA contribution and coordinated expenditure limits in the 1976 campaign eliminated much traditional grassroots party activity, such as voter registration drives and get-out-the-vote (GOTV) efforts. In response, Congress amended FECA in 1979 to exempt such traditional grassroots activities from the hard money limits. In an earlier decision, the Federal Election Commission (FEC) allowed state/local parties to pay for such activities with funds raised under state law (Corrado, 2000: 20-1, 3). These changes gave national party committees access to non-federal funds for grassroots activities (a matter whose relevance we will consider momentarily).

Table 12.1 Political parties and the federal (hard money) system, before and after BCRA
Before BCRA After BCRA
Receipts

  • National committeesa
  • Individualsb
  • PACs
  • Non-political organizations
  • Party committees
  • $20,000 per yeare
  • $15,000 per yeare
  • Prohibited
  • Unlimited transfers
  • $25,000 per yearf
  • No change
  • No change
  • No change
State/local committeesc

  • Individualsb
  • PACs
  • Non-political organizations
  • Party committees
  • $5,000 per yeare
  • $5,000 per yeare
  • Prohibited
  • Unlimited transfers
  • $10,000 per yearf
  • No change
  • No change
  • No change
Expenditures

  • National, state/local committees
  • National, state/local committees
  • Direct donations:d
  • Senate candidates
  • House candidates
  • PACs
  • Coordinated expenditures
  • Grassroots party activities
  • Independent expenditures
  • Transfers:
  • Party committees
  • Non-political organizations
  • $17,500 per electione
  • $5,000 per electione
  • $5,000 per yeare
  • Formula varied by officef
  • Unlimited
  • Unlimited
  • Unlimited
  • Unlimited
  • $35,000 per electione
  • No change
  • No change
  • No changeg
  • No change
  • No changeg
  • No change
  • No change

Notesa Includes the national, senatorial, and congressional committees, the limits applied to each committee. b Before BCRA, individuals were subject to an overall limit of $25,000 per year in hard money donations; after BCRA, $97,500 per two-year period, with no more than $57,500 to all party committees combined. c Before BCRA state/local committees treated together; limits applied to all state/local committees in a given year. After BCRA, the limit applies to state and local committees separately, within the overall limit. d If presidential candidate accepts public financing of the general election, no direct contributions are allowed; national/state party senatorial limit combined. e Disclosure required, not indexed for inflation; jointly shared limit between national and state parties under FECA; jointly shared between national and senate committee under BCRA. f Disclosure required, indexed for inflation. Coordinated expenditures based on eligible voters formula and indexed for inflation. In 2000, presidential $13.7 million; for House candidates $33,780 from both national and state committees; for Senate candidates ranged from $67,560 to $1,636,438 depending on the state. g US Supreme Court struck down BCRA provision requiring parties to choose between coordinated or independent expenditures in a given race.

In Buckley v. Valeo, the US Supreme Court struck down limits on campaign expenditures by candidates and other political actors on First Amendment grounds (see Banks and Green, 2001). The High Court recognized, however, that at some point expenditures can become a method for circumventing the very contribution limits it also found constitutional. The resulting attempt to balance these competing values spawned two additional kinds of expenditures available to party committees: independent expenditures and issue advocacy.

An ‘independent expenditure’ is a campaign expenditure concerning a candidate that is not coordinated with candidate’s campaign (in the absence of such independence, such an expenditure would be an ‘in-kind’ contribution and subject to limitation). The case law defining ‘independence’ eventually expanded to include party committees. Independent expenditures are unlimited in size, but have to be paid for with hard money donations and disclosed (Corrado, 2000: 15-19).

Table 12.2 Political parties and the non-federal (soft money) system, before and after BCRA
Before BCRA After BCRA
Receipts

  • National committeesa
  • All sources (including non-political organizations)
  • State committees
  • All sources
  • Local committees
  • All sources
  • Unlimited
  • Varied with state law
  • Varied with state law
  • Prohibited in all
  • Prohibited in federal elections
  • Up to $10,000 for voter programs
  • (Levin committee rules)b
Expenditures

  • National committees
  • Direct expenditures:
  • Transfers:
  • State/local party committee
  • Non-political organizations
  • State committees
  • Local committees
  • Transfers:
  • National party committees
  • Unlimited, Formula for soft moneyc
  • Unlimited
  • Unlimited
  • Unlimited, Formula for soft moneyc
  • Unlimited, Formula for soft moneyc
  • Unlimited
  • Unlimited, 100% hard money
  • Prohibited
  • Prohibited
  • Unlimited, 100% hard money
  • Unlimited, (Levin committee rules)b
  • Prohibited

Notes: a Includes the national, senatorial, and congressional committees, the limits applied to each committee. b See text on Levin committees. c For national party committees, 65% hard money in presidential years; 60% in non-presidential years. For state/local committees, hard money reflected ratio of state and federal offices on the ballot. Typically, state formulae allowed for more soft money.

A second kind of expenditure arose from a distinction between ‘express advocacy’ (directly advocating the election or defeat of a candidate) and ‘issue advocacy’ (advocating on behalf of an issue) in Buckley v. Valeo. Contribution and coordinated expenditure limits were express advocacy and thus could be regulated (with independent expenditures representing a special case). However, issue advocacy could not be regulated because it did not apply to federal elections. The Court drew a ‘bright line’ distinction between express and issue advocacy by identifying particular words and phrases, such as ‘vote for’ and ‘vote against’ a specific candidate (Corrado, 2000: 24-5). In essence, this distinction defined expenditures outside the hard money system which could nevertheless influence election outcomes (an issue we will discuss momentarily).

Overall, the hard money system was problematic for the major parties, setting strict limits on past sources of party money, limiting party expenditures to and for party candidates, and giving candidate committees and PACs an enhanced role (Sorauf, 2002). However, the parties quickly adapted to the hard money system (Herrnson, 1988). Freed from the need to finance presidential campaigns (due to public financing), the national committees responded by broadening the financial base of individual contributors. Party committees turned to mass solicitation of small donations via direct mail and telemarketing, and developed cadres of solicitors to raise larger donations from many people. The parties also became adept at organizing donations from PACs and their own candidates. Despite the high costs of such fundraising efforts, the national parties developed extensive financial resources; many state and even local parties followed a similar path (Bibby, 1999). Republicans did a bit better in raising hard money, creating incentives for Democrats to push the boundaries of the system.

These robust party organizations turned increasingly from contributions to expenditures, including services to candidates, coordinated spending, grassroots activities in cooperation with state/local parties, and eventually independent and issue advocacy advertising. These practices led to the creation of a parallel non-federal or soft money system.

Non-Federal (Soft Money) Receipts

At the heart of the soft money system was the fact that party committees participate in both federal and non-federal elections. The hard money system applied only to the former and not the latter (nor, in fact, to non-electoral activities). Thus, parties could raise funds unregulated by FECA for purposes other than explicitly influencing federal elections.

The non-federal or ‘soft money’ system began around 1980, as the parties sought to raise non-federal funds for grassroots activities exempted from the hard money limits. Closely linked with presidential campaigns, the national parties and their state affiliates began to raise funds that would otherwise be illegal under FECA due to size (many donations were much larger than the hard dollar limits), source (such as corporate and union treasuries), and lack of disclosure. The Dukakis presidential campaign in 1988 was especially effective at raising this ‘soft money’, a pattern quickly copied by the Republicans. By 1991, soft money had become sufficiently large that the Federal Election Commission required the national parties to disclose their non-federal accounts, albeit in a less rigorous fashion than the hard money system (state parties disclosed a portion of the funds under state law, which varied enormously) (Corrado, 2000: 23-4).

From a fundraising perspective, the chief benefit of soft money was its relative efficiency: the costs of soliciting wealthy people, corporations, and unions were low and the amounts raised large (often greater than $100,000). Because the national parties could raise and spend such funds across the country, soft money was effectively unlimited. Indeed, a complex system developed to navigate the web of state rules so as to maximize soft money collections and disbursements (see for example, Barber, 2003: 19-21). Federal officeholders became central to soliciting soft money, with President Clinton’s well-known fundraising at the White House just the best-known example of a practice common in both parties.

What made soft money especially valuable, however, was the ways in which it could be spent. Initially, soft money was used largely for grassroots party activities. In an attempt to set some limit on these expenditures, the FEC mandated a mix of hard and soft money for ‘joint activities’ undertaken under federal and state law in 1991. If national parties engaged in such expenditures directly in a presidential year, 65% had to be hard money and 35% could be soft money (in a non-presidential year the relevant percentages were 60 and 40%, respectively). State party expenditures were subject to a different formula based on the ratio of state to federal candidates on the ballot. In many cases, this formula allowed for the proportion of soft money to be higher, and as a result the national parties began to make larger transfers of hard and soft money to the state committees to maximize expenditures (Corrado, 2000: 78-80).

By 1996 a new outlet for soft money expenditures had become common: issue advocacy. Recall that court rulings excluded issue advocacy expenditures from hard money regulations. Led by President Clinton, the Democratic National Committee began running broadcast advertisements in support of and opposition to candidates, carefully avoiding the language of expressed advocacy. The GOP quickly followed suit in support of its nominee, Bob Dole. However, analysis of the issue advocacy ads revealed that they differed little from express advocacy ads run by candidates’ own campaigns (Herrnson and Dwyre, 1999). Using the mechanism of transfers to state parties, party committees were able to engage in a very high level of campaign advertising, reaching saturation levels in competitive states and districts by 2000 (Dwyre and Kolodny 2002).

The party committees were not alone in pursuing issue advocacy. By the mid-1990s, labor unions, business corporations, and a host of non-profit groups were using funds outside the hard money system to pay for advertisements and other campaign activities. Some of these efforts were organized as tax-exempt entities under sections 501c(3), 501c(4), and 527 of the Internal Revenue Code. The law did not require disclosure of receipts or expenditures by these groups. The various 501c committees carried legal restrictions on the type and level of political activity, but the 527 committees had no such limitations (and were dubbed ‘stealth PACs’ by critics). In response to the proliferation of 527 committees, the Congress enacted disclosure requirements in 2000, but set no other limits on their activities (Cigler, 2002).

Table 12.3 Major party receipts in 2000 election cycle (in $millions)
Republicans Democrats
Federal (hard money):
National committees:a

  • Individuals:
  • Under $200
  • $200-$500
  • $501-$1,000
  • $1,001-$5,000
  • $5,001-$10,000
  • $10,001-$19,999
  • $20,000
  • Other committees
  • National subtotal
  • 167.9
  • 40.9
  • 21.4
  • 23.3
  • 16.3
  • 11.4
  • 13.4
  • 25.7
  • 320.3
  • 56.7
  • 12.2
  • 11.2
  • 25.3
  • 22.7
  • 9.5
  • 13.9
  • 19.6
  • 171.1
State/local committees:b

  • Individuals
  • Under $200
  • $200-$500
  • $501-$1,000
  • $1,001-$4,999
  • $5,000
  • Other committees
  • State/local subtotal
  • 55.3
  • 25.2
  • 12.0
  • 4.0
  • 4.0
  • 3.2
  • 103.7
  • 16.4
  • 9.7
  • 7.5
  • 4.7
  • 5.0
  • 12.0
  • 55.3
Hard money total 424.0 226.4
Non-federal (soft money):c

  • National committees
  • State committees
  • 249.9
  • 98.1
  • 245.2
  • 116.2
Soft money total 348.0 361.4
Grand Total 772.0 587.8

Notes: a Includes the national, senatorial, and congressional committees. Figures include only 1999-2000 receipts from individuals, candidate committees and PACs. Party transfers, cash on hand and other sources of funds excluded. Figures derived from Federal Election Commission. b Includes all state and local committees reporting federal activity. Figures include only 1999-2000 receipts from individuals, candidate committees and PACs. Party transfers, cash on hand and other sources of funds excluded. Figures derived from Federal Election Commission. c National soft money figures come from Federal Election Commission. State figures from Barber (2003) and exclude transfers from national committees.

Table 12.3 reports the major sources of party receipts in the 2000 election cycle, revealing the dimensions of the hard and soft money systems—see Magleby (2003) and Corrado (2001) for good overviews of 2000 finances. These figures exclude other sources of party money, such as transfers, cash on hand, and loans.

Federal or hard money was still a significant source of receipts in 2000, accounting for 57 percent of the total of national party receipts. Non-federal or soft money accounted for the rest. However, if state-level ‘soft money’ is included, hard money falls to just 48 percent of the total. These state-level funds must be viewed with some caution, since some might well have met hard money requirements and a large proportion was used in state-level campaigns (Morehouse and Jewell, 2003). However, these funds were potentially available to the parties in the 2000 campaign and thus represent the furthest extent of the soft money system.

An important partisan difference appears in these figures. For the Republicans, hard money receipts accounted for nearly 55 percent of the total, but for the Democrats, soft money made up 61 percent. The principal reason for this pattern was the Republican ability to raise contributions under $200 in hard money. In 2000, the GOP national committees raised $167.9 million in this category and the state affiliates raised another $55.3 million. In contrast, the Democrats raised only about one-third as much, $56.7 and $16.4 million, respectively. In fact, the Republican advantage extended to individual donations of $1000 or less. The Democrats performed roughly as well and sometimes better among donations of over $1000, especially at the maximum levels.

The substantial Republican hard dollar advantage was not new in 2000, having existed since the origins of FECA. But the essential parity between the major parties in soft money represented an important change. At the national level, the Republicans had only a very tiny advantage in soft money, and if state-level funds are included, the Democrats were modestly ahead. In essence, soft money allowed the Democrats to make up for some of the deficit in hard money. Near parity in the funding of each party’s federal candidates also helped offset the GOP hard money advantage (Herrnson and Patterson, 2002).

PACs and candidate committees accounted for only a small portion of party hard money in 2000. When the receipts of federal and state/local committees were combined, the parties were nearly even (although such donations were twice as important in relative terms for the Democrats, 14 to 7 percent). Here it is worth mentioning the importance of candidate contributions, especially from members of Congress. In 2000, Republican members provided some $14.7 million to their national committees by one means or another and the Democrats $7.8 million (Bedlington and Malbin, 2003: 134).

Direct campaign spending by interest groups allied with the major parties is not included in Table 12.3, but was clearly important in the 2000 campaign. PACs spent at least $38.9 million in hard money in the form of independent expenditures and internal communications with their members (Cigler, 2002: 174-5). Issue advocacy was very difficult to assess due to the lack of disclosure, but one study found $91 million in non-party issue advocacy television ads during the 2000 general election campaign (Annenberg Public Policy Center, 2001: 6-7). There are no good estimates for non-broadcast expenditures on such things as direct mail, voter registration, and GOTV efforts by 501c(3), 501c(4) and 527 committees, but such expenditures could easily have equaled the hard money campaign expenditures of PACs (Magleby 2000). All told, such ‘outside spending’ may have equaled about one-third of the soft money raised by the national parties.

The New BCRA Regime

How did BCRA and its validation in McConnell v. FEC change the campaign finance regime? By far the most important change is a direct assault on soft money: national party committees are prohibited from raising or spending soft money in any form or for any purpose (Table 12.2). In addition, state and local party committees are prohibited from using soft money for most ‘federal election activity’, including voter registration activities within 120 days of an election, GOTV activity of any kind in connection with a federal election, and communications that promote or attack a named federal candidate.

BCRA did include a modest exception to the soft money ban at the subnational level, the so-called ‘Levin committees’ (Table 12.2). Up to $10,000 in soft money per year from any source legal under state law may be raised by a local party committee for the purpose of voter registration and GOTV activities. Such funds must meet special criteria: (i) the soft money must be matched with hard money as per FEC allocation rules; (ii) federal office-holders, candidates, national parties, their affiliates or agents may not raise such funds; (iii) the funds may not be used for federal candidate-specific or generic advertising; (iv) party committees may not jointly raise these funds; (v) such funds may not be transferred between party committees and may not be raised for use in other states; and (vi) all receipts and expenditures must be disclosed under federal law.

These extensive limitations were placed on the Levin committees in the hope that they would not become a means of reconstituting a version of the soft money system. In addition, BCRA contained additional prohibitions to achieve this purpose. For example, federal office-holders, candidates, national party committees, their affiliates or agents may not solicit, receive, direct, transfer, or spend any soft money in connection with a federal election (including Levin committees). National party committees are prohibited from soliciting or transferring soft money to 527 committees as well.

Here, too, BCRA includes modest exceptions. Federal office-holders and candidates may solicit funds without limit for the general treasury of a 501c tax-exempt organization if the principal purpose of the organization is not to conduct federal election activity. Such fundraising is limited to hard money if the funds are earmarked for voter registration and GOTV programs. Also, federal office-holders may attend state/local fundraising events as long as they do not participate in soft money fundraising for federal purposes.

By far the most controversial provision of BCRA was a limit on issue advocacy expenditures by formally non-political organizations. The act bans corporations (of all types, not just businesses) and labor unions from directly or indirectly making or financing ‘electioneering communication’ with soft money. ‘Electioneering communication’ is defined as a broadcast, cable or satellite communication that identifies a specific federal candidate within 60 days of a general election or 30 days of a primary, and that is ‘targeted’ (received by 50,000 or more persons in a district or state where the election is held).

Any entity not engaged in electioneering communication, or which is funded by sources other than corporate or union treasury funds, is not subject to the BCRA restrictions. However, the act did require disclosure of electioneering communications by individuals or organization entities within 24 hours once an aggregate of $10,000 was spent and thereafter after each time $10,000 was spent. These provisions cover 527 committees and other tax-exempt groups.

BCRA also sought to tighten the meaning of ‘coordination’ between candidates and expenditures by individuals or organizations. ‘Coordination’ was defined as payment made in cooperation with, at the request or suggestion of, a candidate, a candidate’s agent, campaign, or party. Neither explicit agreement nor formal collaboration between actors was needed to establish coordination. All such coordinated expenditures count as in-kind contributions to a candidate under the hard money limits.

One of the few provisions of BCRA struck down by the High Court was a requirement that party committees choose between coordinated and independent expenditures on behalf of their nominees. FEC regulations allowing parties to engage in coordinated expenditures before a candidate was formally nominated were also allowed to stand pending further litigation. So, hard money independent expenditures are still legal for party committees as long as the new standard of coordination is not violated.

Finally, BCRA increased some hard money contribution limits to parties (Table 12.1). Individual contributions to each national party committee were increased to $25,000 and contributions to state or local party committees were increased to $10,000 (that could be spent in conjunction with Levin committee funds). Indeed, the recognition of local committees as separate hard money fundraisers is a potentially important change. Maximum individual contributions to candidates were also increased from $1000 to $2000. The aggregate limits for an individual’s contributions were altered as well. Individuals were allowed to give up to $97,500 per two-year election cycle consistent with the following sublimits: (i) a maximum of $37,500 to federal candidates; (ii) a maximum of $57,500 to all party committees and PACs combined, with no more than $37,500 to all PACs (if no PAC donations are made, a maximum of $57,500 could be contributed to all party committees combined). These increases do not completely restore the loss due to inflation of the original 1974 hard money limits. But BCRA did index the new limits in the same fashion as party coordinated expenditures.

BCRA and the Party Finances

The most immediate effect of BCRA will be to substantially reduce the funds available to national party committees. If the 2000 numbers are any guide, it will cost the national parties approximately $250 million dollars in soft money (and if state non-federal funds are counted, the loss will be roughly $350 million). Such a decline in funds can only hurt party campaign efforts, and it is likely to hurt the Democrats more than the Republicans. The long-standing hard money disparity between the parties may well remain in 2004, a forecast supported by the fundraising reports in 2003 (Edsall, 2004a). A clearer effect is the likely decentralization of party decision-making: in the absence of the soft money, national party leaders may be less able to secure the cooperation of their state and local counterparts (Dwyre and Kolodny 2003; La Raja, 2003).

Although the parties will still have substantial hard money resources with which to influence federal elections, they will face strong incentives to replace the lost soft money (see Green and Farmer, 2003). BCRA suggests three major avenues for replacing these funds: an increase in hard money, an expansion of fundraising by state and local party committees, and a shift of funds to tax-exempt groups, such as 527 and 501c committees. No single avenue is likely to replace the lost soft money in the short run, but, taken together, each might contribute to the goal.

An increase in hard money is the easiest avenue to follow (Dwyre and Kolodny 2003), and here the best opportunity lies with the increased individual contribution limits to the national parties. If all of the roughly 700 maximum donors in 2000 gave the full aggregate amount of $57,500, it would generate an additional $26 million for each party. If the parties could double the number of maximum givers from among their soft money donors (another 700 people), $40 million more would be available. The sum of these figures, $66 million, is about one-quarter of the soft money raised by the national parties in 2000 (see Fred, 2004, for early evidence on this point).

The major parties will have strong incentives to maximize their smaller donations as well. If Howard Dean’s 2003 success at raising internet donors could be duplicated by the national party committees, then tens of millions of dollars could be added (see Farhi, 2004). Such an innovation might be especially valuable for the Democrats, who could reduce the small-donor gap with the GOP. Likewise, if George W. Bush’s success at high-dollar networking with ‘Pioneers’ and ‘Rangers’ could be emulated, each party could expand its base of larger donors (see Campaign Finance Institute, 2004, on the 2004 primary fundraising).

Yet another possibility is for each party to further tap their candidates for funds. After all, the maximum individual donation doubled from $1000 to $2000, making it easier for candidates to raise funds and pass them on to the party committees. In this regard, presidential politics might be a source of new funds as well. For reasons largely unrelated to BCRA, the major presidential candidates in 2004 opted out of the public financing system in the primaries and could raise large amounts of money (Green and Corrado, 2003). If such circumstances persisted in the future, the presidential candidates might be able to provide their national party committees with a large sum of money on the eve of the general election. Indeed, the unprecedented primary fundraising by presidential candidates George W. Bush and John Kerry (more than $200 and $180 million, respectively) revealed the value of candidate fundraising under the BCRA regime. Thanks to Kerry’s efforts, the Democratic National Committee laid ambitious plans to fund a $100 million independent expenditure campaign in the 2004 campaign based on resoliciting Kerry donors for the national party; the Republican National Committee may well follow suit (Edsall, 2004d). It is unclear what proportion of the presidential primary donors might provide new funds to the national parties, but $50 million in additional funds would represent a significant achievement.

It would surely be counted a great success if all these sources of hard money generated $110 million in new money for each party—a little more than two-fifths of the 2000 soft money at the national level. Initial indications from 2003 are encouraging on this score (Ornstein and Corrado, 2003).

Another promising avenue for additional funds is at the state and local level (La Raja, 2003). Some portion of the state-level soft money could be converted into hard money so it could be spent in support for federal elections. It is unclear how much money this would involve, but judging from the 2000 numbers it could be substantial. In addition, BCRA allows state committees to double the maximum individual contributions from $5000 to $10,000. And local committees are allowed to operate independently of state committees in the hard money system, creating a new forum for raising funds. Local parties can also set up Levin committees, tapping soft money directly, albeit in just $10,000 amounts. Suppose, for instance, that 500 local committees in each major party raised $50,000 in hard money and $50,000 in soft money. Such figures may seem daunting in the short run, but none are especially unrealistic. After all, 500 committees is less than one-sixth of the counties in the United States. Under these assumptions, the Levin committees would raise $50 million -or about one-fifth of the 2000 national soft money in each party.

A third alternative lies with tax-exempt groups and the possibility of shifting large amounts of soft money into such entities. In 2003, labor unions, liberal and Democratic activists organized half a dozen 527 committees for exactly this purpose (dubbed the ‘shadow Democratic Party’—see Meyerson, 2003; Edsall, 2004b; Drinkard, 2004). The most prominent of these groups was Americans Coming Together (ACT), which received a $12 million pledge from financier George Soros to finance GOTV programs in key states. All together these groups projected raising a little over $300 million for grassroots activities and campaign advertising. If successful, this goal would roughly equal the national soft money and allied group issue advocacy in 2000. This goal is certainly ambitious: in 2003 these Democratic ‘shadow’ committees raised $22 million; all similar groups raised $72 million (including ideological groups such as http://moveon.org); and the universe of 527 committees (more than 300) raised a combined total of $102 million (see Center for Responsive Politics, 2004, for early evidence).

Republican activists had a similar idea, but met with less success. Indeed, one of these committees, Americans for a Better Country, asked and received an advisory opinion from the FEC in early 2004, aimed at restricting the Democratic ‘shadow’ committees. In essence, the FEC advisory opinion would apply BCRA to 527 committees, treating them as PACs if their activities ‘promote, support, attack or oppose one or more clearly identified candidates’. This rule would have severely restricted the ability of such committees to raise soft money (Theimer, 2004), but it was put on hold until after the 2004 election (Edsall, 2004c). Earlier, the Internal Revenue Service applied the BCRA standard to the political activities of 501c tax-exempt committees (Chappie, 2004). So, at this writing, the legal status of shifting soft money into ‘shadow’ party committees is unclear.

However, if each party’s allied tax-exempt groups were able to raise $100 million in new funds, it would account for about two-fifths of the soft money raised by the national parties in 2000. (On the broader question of how interest groups will respond to BCRA apart from party finance, see Boatright et al., 2003.)

Thus, if all three avenues were exploited simultaneously, the major parties might be able to replace the soft money lost to BCRA, and perhaps even exceed it. And in the longer term, one or another of these avenues might prove especially fruitful for party finance. But to be successful, all of these options require extensive engagement of the parties in marshalling money. Here BCRA creates some major stumbling blocks: national parties, elected officials and their agents cannot be directly involved in the mechanics of such innovations. This fact does not mean, however, that such innovations cannot take place within the limits of the law.

Post-BCRA fundraising of these sorts will surely require a new cadre of fundraisers. Local party leaders, wealthy contributors, interest group leaders, and/or political consultants are likely candidates to fill this role. The organizing of these fundraisers would also require a new set of intermediaries apart from the national parties or public officials. In addition, the requirements of BCRA may well require stark divisions of labor. For instance, much fundraising may need to operate at arm’s length from campaigns and candidates, strategists and operatives. Also, different funding streams may need to be dedicated to particular tasks. For instance, grassroots activities may be undertaken by some organizations (local committees and allied 501c groups), issue advertising by others (PACs and 527 committees), and formal campaigns by yet others (national party committees and the candidates). None of these features are unprecedented in American party politics.

Such specialization would give the component organizations strong incentives to cooperate with one another. Indeed, under such a system, the various specialties would need each other in order to finance winning campaigns. Cohesion would also be fostered by extensive information about politics and campaigns, information that is becoming widely available anyway, especially via the Internet. In addition, common interests and ideology could weld together such a decentralized system, a prospect enhanced by the recent polarization of American politics. Indeed, if one thinks of political parties less as the hired staffs of national bureaucracies and more as collections of ‘like-minded men’ (and women) on the hustings, then such a system is quite plausible—and the very thing American parties have been about historically.

Of course, if these kinds of innovations were to occur, American party finance would change in important ways, much as it changed after the 1974 amendments to FECA. BCRA might not limit the aggregate level of party finance, but could profoundly alter the way money is raised and spent. It would be ironic indeed if the financial demands of capital-intensive, media-driven politics produced a highly decentralized and ideological fundraising structure. In any event, American party finance stands on the cusp of major changes.