Partial public funding is available to Presidential primary candidates in the form of federal matching payments. Candidates seeking their party's nomination to the Presidency can qualify to receive matching funds by raising over $5,000 in each of 20 states (i.e., over $100,000). Only contributions from individuals apply toward this threshold. Although an individual may contribute up to $1,000 to a candidate, only a maximum of $250 counts toward the threshold and is matchable.1
Primary election candidates seeking matching funds must also submit a letter of agreements and certifications. This document is a contract with the government. In exchange for public funding, the candidates promise to comply with the provisions of the Federal Election Campaign Act and the Presidential Primary Matching Payment Account Act. As part of this agreement, candidates pledge to limit national spending for all primary elections and to limit spending in each state based on its voting age population.2 Moreover, candidates must agree not to spend more than $50,000 of their personal funds in connection with the campaign.3 The candidates must also facilitate an audit of their campaigns and make any necessary repayments (see below).
Once the Commission determines that a candidate has met the eligibility criteria, he or she may submit contributions from individuals for matching. The Commission's audit staff reviews these submissions to see if the requests meet the standards for matchability. The contributions, for example, must be in the form of a check or other negotiable written instrument made payable to the candidate or his or her campaign committee. Once the Commission is satisfied that the submissions comply with the law, it certifies to the U.S. Treasury an amount due the candidate.4
Candidates may present documentation to establish their eligibility for matching funds and submit matchable contributions during the year before the election is held. The first payments, however, are not made until January of the election year. From that point forward, candidates may submit additional matching fund requests and receive payments on a monthly basis. Even if a candidate is no longer actively campaigning in primary elections, he or she may continue to request matching funds to pay off campaign debts and to wind down the campaign until early in the year following the election.5
The maximum amount of matching funds a candidate may receive is limited to half of the overall spending ceiling.6
After the campaign, the Commission audits each candidate's committee to ensure that funds were not misused and that the committee maintained proper records and filed accurate reports.7
At the conclusion of a fieldwork audit, FEC auditors hold an exit conference to discuss preliminary findings with the committee. Later, these findings are incorporated into an interim audit report. Interim reports are reviewed by the Office of General Counsel and approved by the Commission before being sent to the committee treasurer. The committee may dispute the findings contained in the interim audit report.8
The Commission considers final audit reports in open meetings and then releases the approved final report to the public. The final report may include an initial determination by the Commission that the committee repay funds.9
A repayment may be required if the Commission determines that a committee:
The committee must repay only the portion of nonqualified campaign expenses that were defrayed with public funds. A ratio formula is used to determine the amount of the repayment.11
A committee may dispute the Commission's initial repayment determination by submitting legal and factual materials to support its view. The committee may also request an oral presentation before the Commission.12
The Commission will take into account the committee's arguments when making its final repayment determination.13 The committee, however, must repay the amount specified in the final determination within the payment deadline unless it obtains a stay from the Commission pending an appeal of the agency's decision.14
The charts that appear in this section provide statistical information related to the Presidential primary election process. (NOTE: Charts will appear in a new window.)
The Commission has faced a myriad of challenges while administering the primary matching fund program. Having opened its doors after the 1976 campaign had already begun, the Commission had to establish administrative procedures and policies very quickly. Since that time, the Commission has refined these procedures and policies to address changing circumstances and to find more efficient ways of accomplishing its duties. The Commission has responded to questions regarding the eligibility requirements, the expenditure limits, the date a candidate becomes ineligible for payments and much more. This section describes some of the most difficult and persistent challenges the Commission has encountered, and the steps it has taken to address them.
In most cases, the Commission has had little difficulty determining whether candidates qualify for primary matching funds. But questions regarding the eligibility of certain minor party candidates and candidates who have violated the election laws in the past have proven difficult.
Under the Act, the Commission is required to determine whether candidates have met the eligibility criteria (described in the "How the Matching Fund System Works" section) and, if so, to certify the candidates eligible to receive matching funds. The Commission conducts a 100 percent, item-by-item review of each eligibility submission to ensure that the candidates have, in fact, met the $100,000 threshold. Despite the labor-intensive nature of this review, Commission regulations specify that these submissions be processed as quickly as possible, usually within 15 business days during the election year.15 The Commission has been consistently successful in meeting this deadline, frequently completing its review in less than 15 days.
While the Commission has received high marks for its administration of this process, some observers have criticized the system for certifying so-called "fringe candidates."16 These critics contend that the eligibility threshold, which is not indexed to inflation, has become too easy for candidates to meet.17 This, they argue, subverts the legislative intent that only candidates who demonstrate broad-based support should qualify for public funding. The Commission, for its part, has recommended that Congress raise the eligibility threshold to correct the perceived inflationary distortions. (See Appendix 2.)
Some observers are concerned, however, that raising the eligibility threshold might discourage minor party candidates. This, they argue, would negate the legislative intent to open the process to a wide variety of candidates. Although the statute does require candidates to be "seeking nomination by a political party" for President, there is no statutory distinction drawn between various types of parties.18
Over the years, the Commission has been asked to determine whether various third party candidates would qualify for matching funds. To make such a determination, the Commission has examined whether the candidate's party qualified as a "political party" under FEC regulations.19 In Advisory Opinion (AO) 1983-47, for example, the Commission found that the Citizens Party qualified because it planned to hold a nominating convention and had a record of political activity. As a result, the Citizens Party candidate (Sonia Johnson), having met the other eligibility requirements, became the first third party candidate to qualify for primary matching funds. In AO 1984-11, the Commission determined that a candidate (Dennis Serrette) could also meet this eligibility requirement by seeking the nomination of several independent parties organized in different states.20
Critics contend that the Commission has been too lenient in granting "political party" status, exacerbating the "fringe candidate" problem, described above. Not only are more minor party "fringe candidates" qualifying for matching funds, but these candidates also are often able to maintain eligibility longer than some major party candidates. This occurs as a result of the application of the 10 percent rule: Candidates become ineligible for matching funds if they fail to receive 10 percent of the vote in two consecutive primaries.21 Since a minor party candidate is frequently unopposed for his or her party's Presidential nomination, the 10 percent rule does not apply. Thus, the argument goes, these "fringe candidates" maintain eligibility throughout the primary campaign season, while certain major party candidates soon become ineligible because they fail to receive 10 percent of the vote in two consecutive elections.
On the other hand, the statute does permit candidates facing opposition to notify the Commission that they would like to exclude particular primaries from the 10 percent requirement and thereby maintain eligibility, despite poor electoral performance.22 Some observers view this as a statutory loophole benefiting major party candidates.
In some cases, candidates have attempted to establish eligibility for matching funds after failing to receive more than 10 percent of the vote in two consecutive primaries. The Commission has, nevertheless, certified these candidates' eligibility, explaining that the 10 percent rule applies only to elections held after a candidate becomes eligible for matching funds.23
The timing of an eligibility submission was at issue again in 1992. The Commission certified John Hagelin's eligibility for matching funds, even though he had become ineligible prior to the certification date. Since Dr. Hagelin had made his threshold submission several weeks before his party had nominated him (the date of his ineligibility), the Commission concluded that he was eligible at the time of his submission and certified his eligibility for funds.
Another eligibility issue the Commission has faced involves the certification of candidates who have violated the law in the past. Although the statute does not specifically address this issue, the Commission does have an obligation to ensure that tax money is not misused.24 Recognizing this obligation, the Commission rejected Lyndon LaRouche's 1984 threshold submission, based on violations related to his 1980 publicly funded campaign. Mr. LaRouche subsequently paid an outstanding civil penalty and made the required repayments of public funds to clear his 1980 campaign. The Commission then certified his eligibility for 1984 matching funds.
Based on this experience, the Commission promulgated new regulations in 1987 codifying its intention to consider all relevant information in its possession, including a candidate's past actions in previous publicly funded campaigns, when determining a candidate's eligibility for matching funds.25
The Commission invoked this provision to reject Mr. LaRouche's 1992 threshold submission. The Commission cited the candidate's past abuses of the public funding law, his status as an imprisoned, convicted felon, and the agency's obligation to ensure that tax money is not misused, as the basis for its finding. Mr. LaRouche argued that the agency's actions were contrary to the statute and appealed the decision to the U.S. Court of Appeals.26
The FEC has encouraged Congress to clarify the eligibility requirements to ensure that candidates who have been convicted of a willful violation of the public funding laws will not be eligible for future funding. The Commission believes that public confidence in the system would be compromised if such candidates could receive public funding. (See Appendix 2.)
Matching Fund Submissions
Once the Commission certifies the eligibility of candidates, they may submit requests for matching funds. The agency's Audit Division staff reviews these submissions to ensure that the candidates receive only those funds to which they are entitled. This labor-intensive review process has strained agency resources, despite markedly improved Commission efficiency.
In the 1976 election cycle, the newly formed Commission's 28 auditors worked nights and weekends to meet their deadlines. At times, the Commission pulled all available staff from other agency projects to help review matching fund submissions. In addition, the Commission enlisted the services of six staff employees of the General Accounting Office and an average of eight temporary employees.
These measures became necessary, in part, because staff were conducting 100 percent, item-by-item reviews of all matching fund submissions. Although the agency met its statutory obligations during this period, the Commission soon recognized that a 100 percent review of each submission was unworkable and, as a result, began to use statistical sampling procedures.
In 1979, the Commission asked the accounting firm Ernst & Whinney to review the agency's certification procedures. Based on the firm's findings, the Commission adopted a Probability Proportional to Size (PPS) statistical sampling method and increased its use of computers to process submissions more efficiently.27
To be eligible for matching funds, candidates must agree to limit their spending to specified amounts (discussed in the "How the Matching Fund System Works" section of this chapter). Primary candidates are subject to both state-by-state limits and to an overall, national ceiling. These limits have presented challenges both for the Commission and for the Presidential campaigns.
Although the limits are indexed to inflation, some campaigns have argued that the ceilings are too low. Since 1980, many potential Presidential candidates have established political action committees (sometimes referred to as Presidential leadership PACs), ostensibly to support various federal and nonfederal candidates.28 While these committees have, in fact, contributed to such candidates, many observers contend that these PACs are actually formed to benefit the Presidential aspirants who sponsor them.29 They argue that the PACs often incur expenses that lay the foundation for a subsequent campaign and build the potential candidate's name recognition and support base. A PAC might, for example, pay the potential candidate's travel expenses or help compile a donor list that could later be used in the campaign. In addition, the PAC might employ key political personnel who later move to the Presidential campaign staff. Critics maintain that these PAC expenditures represent one way of circumventing the spending limits. If the PAC's sponsor becomes a candidate, however, such expenditures may be considered "testing the waters" activity and, as such, count against the limits.30
Some critics also contend that potential candidates have used "draft committees" (independent groups formed to encourage an individual to seek office) to raise and spend funds outside the law's limitations and prohibitions.31 Several courts have held that such pre-candidacy activity is permissible and does not count against the spending limits because the draft committees are not raising or spending funds to support a "candidate" for federal office. Instead, they are spending funds to support an individual who may or may not become a candidate in the future. As a result, they are not "political committees" within the scope of the statute.32 The Commission has recommended, however, that Congress amend the statute to bring these committees within the agency's regulatory purview to ensure public disclosure and to avoid possible circumvention of the spending limits. (See Appendix 2.)
Spending by delegate committees (groups formed to support individuals campaigning to become delegates to their party's Presidential nominating convention) has generated similar concerns regarding the expenditure limits. Commission regulations permit a delegate committee to spend unlimited amounts to prepare and distribute certain campaign materials (such as pins, bumper stickers and yard signs) that refer to a Presidential candidate.33 These expenditures are not attributable to the Presidential spending limits unless the delegate committee is controlled by or otherwise affiliated with the Presidential campaign. If a delegate committee is affiliated with a Presidential campaign, its expenditures do count against the spending limits. In 1984, for example, the Mondale campaign did not count expenditures made by several delegate committees against the spending limits. A Commission investigation, however, revealed that the delegate committees were affiliated with the Mondale campaign, and that their spending caused the campaign to exceed the expenditure limits. As a result, the campaign was required to pay a total of $398,140 in payments and penalties related to delegate activity.34 The Commission subsequently revised its regulations to clarify the criteria used to determine affiliation between a delegate committee and a Presidential campaign. Since that time, delegate spending has generated considerably less controversy.
While some campaigns may have sought legal ways to spend beyond the campaign limits, the essential administrative and enforcement problem for the Commission has been to monitor the state-by-state limits. These limits, based on each state's voting age population, were intended to prevent candidates from focusing only on large, delegate-rich states. Over the years, however, the timing of elections has become at least as important to campaigns as the number of delegates at stake. Iowa and New Hampshire, the first two states to hold elections, have relatively small populations and, consequently, low spending limits. Presidential campaigns, however, typically view these states as important momentum-builders and thus want to spend heavily. To avoid the restriction of the state limits, campaigns have often devised complex schemes to reduce amounts allocated to the Iowa and New Hampshire limits. Some, for example, have established campaign offices in neighboring states in hopes of excluding the related expenditures from the Iowa or New Hampshire limit. The Commission, in turn, has had to devote considerable resources to monitoring these kinds of activities in order to determine whether campaigns have exceeded state limits and to enforce any violations discovered.
The Commission has grappled with this problem for many years. In 1991, the Commission amended its regulations to simplify and liberalize the process of allocating expenses to the state spending limits. Under the revised rules, expenses are allocable only if they fall within one of five specific categories: media expenses, mass mailings, overhead expenses, special telephone programs and public opinion polls.35 By contrast, previous rules had required allocation of all expenses unless an expense was covered by a specific exemption. The rules also permit primary campaign committees to treat up to 50 percent of their allocable expenditures for a particular state as exempt fundraising costs and thus exclude them from the state spending limit.36
Despite the benefits these regulatory changes may yield, the Commission recommends that Congress eliminate the state-by-state limits. The Commission believes that this change would benefit all parties concerned: relieving a significant accounting burden for campaigns and an equally difficult audit and enforcement task for the Commission. Moreover, based on the agency's experience, the change would have little material impact on the electoral process. Candidates would still be subject to the national expenditure limit, which, incidentally, is less than the sum of all state limits combined. (See Appendix 2.)
Ineligibility: Winding Down the Campaign
Once declared eligible for matching funds, a candidate may continue to receive payments until his or her date of ineligibility. Thereafter, a candidate may receive additional funds only to pay off campaign debts and to wind down the campaign.
Under the statute and Commission regulations, primary candidates become ineligible to receive matching funds on the earliest of the following dates:
Once candidates become ineligible, they may, nonetheless, continue to receive matching fund payments to retire debts incurred prior to their date of ineligibility.39 Such matching payments are made only if the sum of private contributions plus matching funds does not equal or exceed the qualified debt reported on the candidate's date of ineligibility.
Commission regulations also permit campaigns to receive additional matching funds to pay "winding down" expenses incurred after the date of ineligibility.40 These expenses include the costs associated with FEC audits and fundraising to retire debts. Some observers believe that the prospect of additional matching funds encourages campaign lawyers and accountants to contest the Commission's audit and enforcement findings. This practice has been criticized as providing a monetary disincentive for campaigns to conclude business and terminate their committees.
Others, however, see this as part of the Commission's obligation to grant due process of law to the committees it audits. By providing public funds to pay "winding down" expenses, the Commission ensures that committees will have ample opportunity to present their arguments without financial impediment.
Audits and Enforcement
The Commission has faced persistent criticism regarding the timeliness of its Presidential audits and related enforcement matters (Matters Under Review or MURs). Despite the agency's efforts to improve, audits have often taken two to four years to complete, and related MURs, sometimes longer.
Primary election audits and MURs have typically taken the longest to complete, because they are the most complex. Ensuring compliance with all of the requirements of the matching fund program--in effect, protecting the public purse--is a particularly time consuming task.
Added to this problem is the Commission's obligation to grant due process of law to the committees it audits and to ensure their right to confidentiality. Meeting this obligation invariably delays the processing of both audits and MURs. In the audit process, for example, the Commission must give committees an opportunity to respond both to the interim audit report and to the final audit report. (See page 8.) Similarly, in enforcement, the Commission must provide respondent campaigns with an opportunity to present their case, and attempt to reach a conciliation agreement with them, before releasing MUR findings to the public.
Balancing all of these responsibilities-- protecting the public purse, ensuring due process of law for campaigns and executing timely disclosure of audit and MUR findings-has proven to be one of the most difficult challenges to the Commission. Nevertheless, the agency has sought ways to accelerate the release of audits while still ensuring compliance with the law and protection of campaigns' legal rights. In 1979, for example, the Commission asked Arthur Andersen and Company and Accountants for the Public Interest (API) to assess the agency's audit procedures. Based on their findings, the Commission revised many of its procedures, substantially reducing the time needed to complete audits and release them to the public.41 More recently, in 1991, the agency revised its regulations, adjusted its audit procedures, expanded its use of technology and increased staffing to further hasten the completion and disclosure of Presidential audits and MURs. Some of the most significant changes:
More timely disclosure of audit findings will enhance compliance with the law. Enforcement of the statute relies, in part, on public disclosure. Negative publicity can be a strong deterrent. Without timely disclosure, however, the impact of negative publicity and the incentive to comply with the law diminish. Thus, the Commission believes its efforts to expedite the release of Presidential audit reports will add "bite" to the enforcement process and, in turn, encourage compliance.
While the Commission anticipates that the steps it has taken will speed up the audit and enforcement process, the agency believes that legislative action could improve the situation even more. For example, eliminating the state-by-state spending limits and combining the current "fundraising limit" with the overall spending limit would greatly reduce the time and resources the Commission devotes to primary election audits. (See Appendix 2.)
1. 26 U.S.C. Sec.9033(b) and 9034(a).
2. The national spending limit is $10 million increased each election cycle by a cost-of-living adjustment (COLA). In 1992, that limit was $27.62 million. Each state's spending limit is the greater of $200,000 plus COLA or $.16 times the state's voting age population. In 1992, the lowest state limit was $552,400. 2 U.S.C. Sec.441a(b)(1)(A).
3. 26 U.S.C. Sec.9033(a) and 9035(a).
4. 26 U.S.C. Sec.9036 and 9037(b).
5. All money raised during the year before the election and during the election year is potentially matchable.
6. 26 U.S.C. Sec.9034, 9036 and 9037(b).
7. In order to be eligible for public funds, candidates must agree to keep certain records and furnish them to Commission auditors. 26 U.S.C. Sec.9033(a).
8. 11 CFR 9038.1.
9. The Commission may issue addenda to final audit reports based on follow-up fieldwork.
10. 26 U.S.C. Sec.9038.
11. 11 CFR 9038.2(b)(2). Amounts received in excess of a candidate's entitlement must be fully repaid.
12. 11 CFR 9038.2(c)(2) and (3).
13. The basis for the Commission's final determination is set forth in a statement of reasons prepared by the Office of General Counsel.
14. 11 CFR 9038.2(c)(4), (d) and (h).
15. 11 CFR 9033.4(c).
16. See, for example, testimony of Representative Bob Livingston: House Subcommittee on Elections, Hearing on Presidential Election Campaign Fund, May 1, 1991, p. 54.
17. In 1974 dollars, the original $100,000 threshold would have been only $36,205 in 1992.
18. The requirement that candidates be affiliated with a political party has raised constitutional questions. Some have argued that it discriminates against independent candidates. For a discussion of this issue, see Chapter 2.
19. For purposes of 11 CFR Sec.9033.2(b)(1), "political party" means an association or organization that nominates a candidate for President, and has "a procedure for holding a primary election...for nomination to that office."
20. The Commission has applied these same criteria to other third party candidates. In 1992, for example, Lenora Fulani (New Alliance Party) and John Hagelin (Natural Law Party) qualified for matching funds.
21. 26 U.S.C. Sec.9033(c)(1)(B).
22. It should be noted that the 10 percent rule applies only to primaries, not to caucuses.
23. Lyndon LaRouche, 1988, and Larry Agran, 1992.
24. See, for example, Committee to Elect Lyndon LaRouche v. FEC, 613 F.2d 834 (D.C. Cir. 1979).
25. 11 CFR 9033.4(b).
26. LaRouche v. FEC (Civil Action No. 92-1100, March 3, 1992.) is pending.
27. For a more complete discussion of the staffing and budgetary demands associated with this and other aspects of the public funding program, see Chapter 4.
28. See Advisory Opinions 1985-40 and 1986-6.
29. Anthony Corrado, Creative Campaigning: PACs and the Presidential Selection Process (Boulder: Westview Press, 1992), p. 10.
30. Commission regulations define testing the waters expenditures as "[p]ayments made solely for the purpose of determining whether an individual should become a candidate. . . . If the individual subsequently becomes a candidate, the payments made are subject to the reporting requirements of the Act." 11 CFR 100.8(b)(1).
31. See, for example, Anthony Corrado, Creative Campaigning: PACs and the Presidential Selection Process, p. 75.
32. See FEC v. Florida for Kennedy Committee, 492 F. Supp. 587 (S.D. Fl. 1979), rev'd, 681 F.2d 1281 (11th Cir. 1982).
33. 11 CFR 110.14(h)(2).
34. See Matter Under Review (MUR) 1704.
35. 11 CFR 106.2.
36. The statute exempts a percentage of a campaign's fundraising expenses from the definition of "expenditure." 2 U.S.C. Sec.431(9) (B)(vi). Amounts excluded as exempt fundraising costs at the state level, when added to amounts excluded at the national level, may not exceed 20 percent of the national spending limit.
37. A candidate may re-establish eligibility by resuming active campaigning in more than one state.
38. 26 U.S.C. Sec.9033(c) and 11 CFR 9033.5.
39. 26 U.S.C. Sec.9033(c)(2).
40. 11 CFR 9034.4(b)(3).
41. As part of these changes, the Commission separated the audit and enforcement processes.