The Collapse of the Public Financing System for U.S. Presidential Campaigns: Blame Congress, Not the Candidates

The voluntary public financing system for U.S. presidential candidates, established in the post-Watergate era, is in its last throes. As it collapses, presidential candidates have been calculating--and recalculating--the advantages of opting in or out.

Sen. John McCain, the presumptive Republican presidential nominee, has accused Sen. Barack Obama, the likely (though not certain) Democratic presidential nominee, of going back on his word; according to McCain, Obama had said he would participate in the public financing program in the general election. Democrats, meanwhile, have gone to federal court for permission to sue McCain for improperly trying to opt out of the public financing system during the primary season, after previously opting in.

It is true that both McCain and Obama have been trying to have it both ways on the public financing question. But the fault lays not so much with them as with Congress, which has failed to update the public financing system to make it a viable alternative to privately-run campaigns, and to the President and the members of the Senate, who have failed to break a deadlock over a controversial nominee to the Federal Election Commission.

The Public Financing System

As I've recently explained in greater detail, federal law establishes a voluntary presidential public financing system, which provides matching funds for participating candidates in the primary period (matching the first $250 donated per contributor), provided the candidate accepts spending limits.

There's both a national spending limit of around $54 million through the time of the candidate's nomination during the summer convention, and more easily-circumvented state-by state limits. In the general election, participating major party candidates receive a flat grant (expected to be about $85 million in the 2008 election) provided that they agree to raise no funds (except up to about $20 million for administrative and legal expenses) for themselves in the general election.

How Bush, Kerry, Clinton, Obama, and McCain Have Reacted to the Options the Current System Offers

In 2004, both George W. Bush and John Kerry opted out of the system for the primary season - during which Bush raised $258 million in contributions, and Kerry raised $241 million. Both opted in during the general election, though there was ample fundraising for the national parties to supplement the federal limits.

For the 2008 election, Obama and Clinton decided to opt out during the primary season. This turned out to be a smart decision, especially for Obama, who is breaking fundraising records. Obama has raised over $190 million so far in the primary season; Clinton has raised over $151 million. Indeed, given the strict spending limits that participating primary candidates must follow, the only 2008 presidential candidates who opted in were weak candidates having trouble collecting contributions, such as John Edwards.

McCain's decision whether to opt into or out of the primary public financing system has changed along with his electoral prospects. At first, McCain said he would not participate. But when his campaign appeared near death last summer, he decided to opt into the public financing system. But then McCain rebounded, and he sent a letter to the FEC withdrawing his decision to opt in. In so doing, he relied upon a 2003 FEC decision that allowed Richard Gephardt to withdraw from the system given that Gephardt had not yet received any federal funds yet. Meanwhile, McCain has secured some loans to keep his campaign afloat, and one "agreement with the bank required him to reapply for public funds if he lost early primary contests and to use that money as collateral." That agreement has since proven controversial - as it arguably shows him relying on the public financing system for the loan, which would prevent him from opting out of the system.

McCain sent a letter to the Federal Election Commission telling them he was withdrawing from the system for the primary. However, the Chairman of the FEC, Republican David Mason, sent a letter in response taking the position that McCain cannot withdraw from the system without FEC approval. The letter also said that the FEC needs to consider the propriety of the collateral pledge for the bank loan. McCain has responded by essentially ignoring Chairman Mason's letter: his argument is that, under FEC regulations, because he did not receive any public funds, he can now withdraw on his own, without FEC approval. Accordingly, he has been exceeding the spending limit applicable for candidates opting in to the system.

The easiest way to resolve this would be for the FEC to investigate and determine if McCain properly could withdraw from the system. But the FEC cannot vote on McCain's withdrawal request because it lacks a quorum, thanks to a fight over controversial nominees that has stalled the nomination process in the Senate.

With the FEC saying McCain needs to get approval and McCain saying he doesn't, the Democratic National Committee is asking a court for permission to sue McCain over the problem, since a complaint filed at the quorum-free FEC will just languish there, without resolution.

Who's Really Flip-Flopping - McCain, Obama, or Both?

You might think that McCain's troubles would lead him to avoid talking about the public financing system on the campaign trail. Instead he's now trying, with great chutzpah, to accuse Obama of breaking a pledge to participate in public financing during the general election. To some extent, McCain is correct on this score. However, Obama should not be blamed for his reversal in light of the circumstances.

Earlier in the campaign, presidential candidates were asked by the Midwest Democracy Network the following question: "If you are nominated for President in 2008 and your major opponents agree to forgo private funding in the general election campaign, will you participate in the presidential public financing system?"

McCain did not respond to the question but Obama answered as follows: "Yes….. In February 2007, I proposed a novel way to preserve the strength of the public financing system in the 2008 election. My plan requires both major party candidates to agree on a fundraising truce, return excess money from donors, and stay within the public financing system for the general election. My proposal followed announcements by some presidential candidates that they would forgo public financing so they could raise unlimited funds in the general election. The Federal Election Commission ruled the proposal legal, and Senator John McCain (R-AZ) has already pledged to accept this fundraising pledge. If I am the Democratic nominee, I will aggressively pursue an agreement with the Republican nominee to preserve a publicly financed general election."

Obama has since imposed some new conditions for such an agreement, conditions that make it much less likely he will reach an agreement to participate in the system in the general election: "The candidates will have to commit to discouraging cheating by their supporters; to refusing fundraising help to outside groups; and to limiting their own parties to legal forms of involvement. And the agreement may have to address the amounts that Senator McCain, the presumptive nominee of his party, will spend for the general election while the Democratic primary contest continues."

One can argue that these new conditions don't technically amount to a flip-flop, but it is clear that Obama, who earlier in the campaign made a much broader pledge to enter into an agreement with his Republican counterpart, is now laying the groundwork for opting out in the general election. He's begun talking about his unprecedented ability to raise small donations for his campaign through the Internet as a kind of "parallel public financing," "where the American people decide if they want to support a campaign they can get on the Internet and finance it."

It is hard to blame Obama for making this move. Recall that candidates who opt in during the general election get an $85 million grant and can raise no additional funds. If Obama opted in he would likely be cutting in half or more the funds he would have available, making it politically irrational for him to opt in. Moreover, as I've argued, there's something very egalitarian about substantial funding of a presidential campaign with micro-donors giving $200 or less. Obama has raised over $76 million, 41% of his donations, from these small donors. Even his "bundling" activity is rather paltry; according to a recent Washington Post report, Obama has relied upon bundlers raising at least $200,000 for less than $16 million of his funds.

Still, despite Obama's rhetoric, Obama's "parallel public financing" is not "public" financing in the sense of financing paid for with public funds, and his "parallel system" does not take candidates out of the fundraising business during the general election period. (To be fair however, that doesn't happen under the current process either, as participating candidates simply direct donors to support their political parties' efforts on their behalf - a major circumvention of the financing system, as money pours into the parties.)

Neither McCain Nor Obama Can Claim the Moral High Ground Here

Where does this leave us? Thanks to their gyrations, neither candidate has the moral high ground on this issue, despite the fact that both candidates have long track records supporting campaign finance reform. Of course, each candidate can try to make political hay out of the other's opt in/out out flip-flops. Yet it would be far more productive for each to pledge to rescue the public financing system when he becomes president -- perhaps even extending it to congressional elections, and doing so in a way that harnesses the power of the Internet and small donors who have been so energized by the current campaign. Voucher-based campaign finance reform could do just that.

In the meantime, Congress and the President need to break the logjam over the FEC, so that there is a functioning FEC by the fall. Will that really happen? There's a political reason for Republicans to break the logjam now: Without approval from an FEC with a quorum, it is not clear how McCain can even get his $85 million in public funds should he choose to opt in. But in this politicized atmosphere, that also might be a reason for Senate Democrats to keep the impasse going through November.