THE FLOW OF MONEY IN CONGRESSIONAL ELECTIONS

C A M P A I G N F I N A N C E R E F O R M S E R I E S

THE FLOW OF MONEY INCONGRESSIONAL ELECTIONS

B Y K E N N E T H W E I N E

Copyright © 1998 by the Brennan Center for Justice at New York University School of Law.All rights reserved. No part of this book may be reproduced or transmitted without permissionin writing from the publisher, Brennan Center for Justice, 161 Avenue of the Americas, 5thFloor, New York, New York 10013.

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Brennan CenterBoard of Directors

Nancy BrennanExecutive Director, Plimouth Plantation

Murray H. BringVice Chairman & General Counsel,

Philip Morris Companies Inc.

David W. CarpenterSidley & Austin

Professor Peggy C. DavisNYU School of Law

Peter M. FishbeinKaye, Scholer, Fierman, Hays & Handler

Professor Martin GuggenheimNYU School of Law

Hon. A. Leon Higginbotham, Jr.Kennedy School of Government;

Paul, Weiss, Rifkind, Wharton & Garrison

Professor Thomas M. JordeUniversity of California, Berkeley

School of Law;President, LECG; Inc.

Edward J. Kelly, IIIManaging Director, J.P. Morgan & Co.

Professor Larry KramerNYU School of Law

Anthony LewisThe New York Times

Professor Nancy MorawetzNYU School of Law

Professor Burt NeuborneLegal Director, Brennan Center;

NYU School of Law

Ronald L. OlsonMunger, Tolles & Olson

Dwight D. OppermanChairman, Key Investment, Inc.

Daniel A. RezneckGeneral Counsel, District of Columbia Financial

Responsibility & Management Assistance Authority

Dean John E. SextonNYU School of Law

Walter J. Smith, S. J.President & C.E.O.,

The HealthCare Chaplaincy, Inc.

Clyde A. SzuchPitney, Hardin, Kipp & Szuch

Affiliations are for identification only.

Jeannemarie E. Smith, TreasurerC.F.O., NYU School of Law

Steven A. Reiss, General CounselWeil, Gotshal & Manges

William J. Brennan, III, ChairSmith, Stratton, Wise, Heher & Brennan

E. Joshua Rosenkranz, Executive Director

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The Brennan Center for Justice is a nonprofit institute devoted to discourse and action onissues of justice central to the jurisprudence of Justice William J. Brennan, Jr. The Centerwas founded in 1995 by Justice Brennan’s family, friends, former law clerks, and admirers, in

partnership with New York University School of Law. The Democracy Program is one of the Center’sprimary program areas. In keeping with its mission to enhance the openness of our democracy, theBrennan Center is a public education and litigation resource for campaign finance reform advocates, localand national public officials, and journalists. The Brennan Center has also worked on ballot access rules.In 1996 it participated in a successful lawsuit challenging New York’s Republican presidential primaryballot rules; and subsequently published Voter Choice ’96, a 50-state survey of state ballot access laws.

This paper is one of a series of papers issued by the Brennan Center exploring issues of moneyand politics. The following titles are part of the series:

Campaign Finance Reform and The Constitution: A Critical Look at Buckley v. ValeoBy Burt Neuborne

The Values of Campaign Finance ReformBy Burt Neuborne

A Survey of Existing Efforts to Reform the Campaign Finance SytemBy Burt Neuborne

The Flow of Money in Congressional ElectionsBy Kenneth Weine

For more information, or to order a Brennan Center publication, contact:

Brennan Center for Justice

161 Avenue of the Americas5th Floor

New York, New York 10013 (212) 998-6730

Fax: (212) 995-4550

About the Brennan Center for Justice

About the Campaign Finance Reform Series

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Cover design by Jennifer Eisenpresser

Kenneth Weine is a Staff Attorney at the Brennan Center for Justice. He has worked onpolitical campaigns and political fundraising at almost every level (city, congressional, andsenatorial) and for almost all players in the political process (candidates, PAC’s, and lobbyists).

Among the positions he has held are: political fundraiser, EMILY’s List (1994); political fundraiser, LanaPollack for U.S. Senate (1994); organizer, Neighbor to Neighbor, a grassroots lobbying organization(1991); and field organizer, Harvey Gantt for U.S. Senate (1990).

Mr. Weine graduated from Benjamin N. Cardozo Law School (1995) and the University of Michi-gan (1988). His reflections on fundraising and grass-roots organizing on political campaigns have beenpublished in the The New York Times and The Washington Post.

About the Author

This paper was funded by a generous grant from the Joyce Foundation, which is not re-sponsible for its content. The Center is grateful for the skillful editing of E. JoshuaRosenkranz, and for Frances Suazo’s layout expertise and Jennifer Eisenpresser’s cover design.

Weil, Gotshal & Manges provided proofreading services.

The following people and law firms contributed valuable background papers, many elements ofwhich were incorporated into this series: F. William Brownell and David S. Harlow of Hunton & Williams;Gregory E. Bylinsky and Dean Garfield of Kaye, Scholer, Fierman, Hays & Handler; Robert Maurielloand Elizabeth J. Sher of Pitney, Hardin, Kipp & Szuch; Steven M. Dunne and Roger Witten of Wilmer,Cutler & Pickering; Marc De Leeuw; C. Barr Flynn; and NYU law students Richard Brosnick and JanetMeissner Pritchard.

The following people also made helpful comments on earlier drafts of papers in this series, forwhich we are very grateful: Marsha Berzon; Lillian BeVier; Lawrence N. Hansen; Marty Jezer; David J.Leviss; Ellen S. Miller; Alan B. Morrison; Robert M. O’Neil; Trevor Potter; Lisa Rosenberg; Roy A.Schotland; and Bradley Smith.

The Brennan Center is grateful for the ongoing support of the following foundations, which fundthe Center’s Democracy Program:

Carnegie Corporation of New YorkDeer Creek Foundation

Ford FoundationJoyce Foundation

Open Society InstituteFlorence & John Schumann Foundation

Acknowledgments

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Table of Contents

Introduction ................................................................................................................................................................ 7

Definitions .................................................................................................................................................................. 9

The Proliferation of Political Funds ............................................................................................................ 10

The Six Pipelines of Federal Campaign Money ............................................................................... 12

Direct Contributions to Candidates .................................................................................................................................... 12

Funneling Money through Political Parties .................................................................................................................... 13

Funneling Money through Non-Party Sources .......................................................................................................... 17

Inside the Pipelines .............................................................................................................................................. 19

Campaign Spending .......................................................................................................................................... 23

The Incumbent�s Edge ................................................................................................................................................................ 23

Campaign Spending Deconstructed .................................................................................................................................. 24

Conclusion ................................................................................................................................................................ 28

THE FLOW OF MONEY IN CONGRESSIONAL ELECTIONS

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Introduction

Federal campaigns — races for the Houseof Representatives, Senate, and the presi-dency — cost over $2 billion in the 1996

political cycle. State and local races cost an es-timated $2 billion more. These spiraling costsoften inspire calls to diminish the role of moneyin politics. To respond to these calls reformersmust get behind these raw numbers and explorethe complexities of how and where money flowsin our political system. Understanding the vari-ous routes through which money travels is thenecessary first step of any effort to diminish therole of money in our political system and restoreintegrity to the political process.

Unless reformers understand the money flow,their efforts are bound to yield unintended con-sequences. Reformers may seek to address oneproblem only to create or exacerbate another. Forexample, the goal of capping contributions tocandidates is to prevent donors from having un-due influence over officeholders. But often theselimits merely send money to less accountableroutes that still present the dangers of undue in-fluence. While candidates must disclose thename, profession, and employer of their large do-nors, none of this information needs to be dis-closed for certain contributions to political or-ganizations (e.g., the Sierra Club or the Cham-ber of Commerce) which can spend unlimitedfunds supporting candidates. Accordingly, can-didates often respond to contribution limits byasking their supporters to donate to organizationsthey know will spend money supporting theircampaigns. This practice shields from publicdisclosure contributions that benefit candidates.

An understanding of how money flows in ourpolitical system will also ensure that reformershave more realistic expectations of what they canaccomplish. Reformers must understand that no

matter how carefully one has planned an effortto reduce the role of money in politics, a cadreof campaign professionals is sure to find andexploit new loopholes to accomplish old tasks.

The recent growth in use of “issue advocacy”spending illustrates this phenomenon. To stopwealthy interests from exerting undue influenceover the political process, Congress limited thesize of campaign contributions and forbade cor-porations and labor unions from donating to orinfluencing campaigns. Candidates bypass thesecontribution limits by raising funds for adver-tisements that are clearly directed at influencingvoters for or against identified candidates butstop short of urging viewers to “vote for” or “de-feat” the candidates. In the 1996 elections, fed-eral contribution limits were virtually suspended,as candidates solicited huge contributions forpolitical parties from corporations, labor unions,and wealthy individuals. These contributionspaid for hundreds of millions of dollars of ad-vertisements for or against identified candidates.

Thus, whether the unrelenting money flowis driven by a genuine desire to engage in politi-cal speech or by economic self-interest, reform-ers must understand that funds will continue toflow through ever-changing routes and that mon-ied interests will respond almost instantaneouslyto new restrictions.

This paper maps the flow of money in con-nection with congressional campaigns. It beginsby describing the pipelines through which cam-paign money flows. Then it identifies the sourcesthat feed each pipeline and measures the flowthrough each. Finally, it sketches how cam-paigns spend their money. A hypothetical racefor Congress — between Rep. Ian Power and chal-lenger Charles Change — will be considered

BRENNAN CENTER FOR JUSTICE

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throughout this paper. Many features of the presi-dential system and of state and local systemsmirror congressional elections. But to regulateproperly the role of money in politics, reformersmust carefully map the money flow of specificpolitical environments.q


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Campaign finance discussions often sufferfrom imprecise terminology. To ensureprecision the most common terms are

defined below:

• Express Advocacy: A political commu-nication that directs an individual to votefor or against a candidate. Congress mayregulate express advocacy to protect theintegrity of the electoral process, but itmay not regulate generic political speech.There is much controversy over whereto draw the line between express advo-cacy and generic political speech. Poli-tical parties and organizations argue thatexpress advocacy constitutes only speechusing certain magic words, such as “votefor,” “vote against,” or “reelect.” Cam-paign reformers urge a broader definitionand the courts are split as to whether theConstitution permits one.

• Issue Advocacy: A political communi-cation that does not involve express ad-vocacy (see above).

• Hard Money: A political contributionthat is regulated under federal law. Onlyfunds used for express advocacy are regu-lated. To raise these funds, candidates,political parties, and organizations mustabide by restrictions on the sources andsizes of their contributions. A helpfulway to remember this term is, “Hard mo-ney is hard to raise.”

• Soft Money: Technically, this term ap-plies to any political contribution that isnot regulated under federal law. The typi-cal usage, however, limits the term to un-regulated contributions to political par-ties. Federal law allows political parties

to raise money in any amount and fromany source so long as these funds are notused for express advocacy. Soft moneyis supposed to be spent on “party build-ing” activities, which include voter regis-tration drives, voter education drives(campaigns to educate voters on theimportance of an issue), and get-out-the-vote drives. The use of soft moneyhas vastly expanded in recent years.Political parties formerly educated vot-ers by distributing flyers throughoutneighborhoods. Now, parties spend mil-lions on television advertisements. Po-litical fundraisers and candidates, ofcourse, treasure soft money because thereare no limits as to how much or fromwhom these funds can be raised.

• Coordination: Campaign activity thatis synchronized between separate politi-cal entities. The issue of coordinationmost often arises when a political partyor political action committee (PAC) shareresources or strategies with a candidate.If a PAC independently spends $10,000on an advertisement supporting a candi-date without consulting his campaign ithas not engaged in a coordinated activ-ity. This $10,000 expenditure does notcount against the amount the PAC cangive directly to the candidate. But if thesame PAC consults with the campaignabout its advertisement, federal law treatsthe $10,000 expenditure as a contribu-tion to his campaign.

• Independent Expenditure: An expressadvocacy communication benefiting acandidate that is not coordinated with hiscampaign.r

Definitions


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The Proliferation of Political Funds

In order to understand how money flows inpolitics today, it is helpful to ex-amine the forces that shaped it. Until the

1970s, federal campaign money was raised inunlimited amounts, and most funds ended up inthe accounts of candidates. In 1974, with thepassage of amendments to the Federal ElectionCampaign Act (FECA), Congress limited the sizeof these contributions and how much candidates,political parties, and organizations could spendon campaigns.

The Supreme Court drastically reshapedFECA’s integrated scheme of contribution andspending limits. In a 1976 decision, Buckley v.Valeo, 424 U.S. 1 (1976), the Court equated cam-paign spending with political speech and heldthat the First Amendment cannot tolerate limit-ing political expenditures. On the other hand,the Court upheld FECA’s contribution limits.The Court reasoned that the constitutional bur-dens imposed by contribution caps were justi-fied because these limits helped prevent the cor-ruption of officeholders. The Court feared thatwithout such limits officeholders might betempted to allow money to compromise the po-litical process.

FECA, as modified by Buckley, has had aprofound impact on the federal campaign financesystem. Before FECA, campaign fundraiserscould rely on political patrons to write big checksto candidates; and candidates could then spendas much money as they desired. If FECA hadnot been modified by Buckley, fundraisers wouldhave had to limit the size of the contributionsthey collected, and candidates would have hadto live within strict spending limits. The Buckleydecision, which controls campaign rules to thisday, undid half of FECA’s burdens. Candidates

are free to spend without limit, but fundraisersremain restricted by FECA’s contribution caps.Therefore, the demand for campaign money isunlimited — candidates are driven to exceed theiropponents’ spending — but these funds must beraised in small increments.

Political fundraisers responded to the com-bination of FECA and Buckley by developingnew ways to funnel money to candidates. For-merly, individuals had one principal outlet tofund campaigns — checks to candidates. Andcandidates had one principal pipeline from whichthey received funds — contributions from indi-viduals. Today, individuals can inject money intoelectoral politics through at least nine outlets,some of which are also open to corporations andunions, and candidates can benefit from at leastsix pipelines of political funds.

Consider the behavior of a hypothetical po-litical donor before and after FECA. SusanRhodes owns a construction company in the Stateof Moot. The financial livelihood of her corpo-ration, RhodeBuilder Inc., depends on Rep. IanPower’s delivery of a $20 million grant to ex-tend the local interstate. Rep. Power, a Republi-can incumbent, wants to deliver this grant butfirst he has to win reelection against a strong en-vironmental candidate, Charles Change.

Before FECA, Rhodes could have givenRep. Power’s campaign one large personal check.After FECA and Buckley, Power still needs toraise an enormous amount of money — as nospending limits apply — but Rhodes must findalternative routes to channel money to his cam-paign. There are at least nine outlets throughwhich Rhodes can direct money to Power.


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For certain outlets — marked below by an asterisk(*) — Rhodes cannot pump in more than anaggregate of $25,000 (in support of Power oranyone else). Apart from that restriction, Rhodesmay engage in the following activities:

• Write two $1,000 personal checks to Powerfor Congress, one for the primary election andone for the general election.

• Write a $20,000 check to the RepublicanParty and hope the party spends this moneyin coordination with Power’s campaign.

• Write a $20,000 check to the RepublicanParty and hope the party uses these fundson an independent expenditure benefittingPower.*

• Give an unlimited amount to the Repu-blican Party’s soft money account andhope the party spends this money onadvertisements that support Power (without expressly advocating for him).

• Set up RhodePAC. This PAC must col-lect contributions from at least 50 indivi-duals possibly RhodeBuilder Inc.’s employ-ees and their spouses — and donate thesefunds to at least five candidates. Indi-viduals, including Rhodes, can writechecks of up to $5,000 per year to Power($5,000 per election, so $10,000 for theelection cycle).

Additionally, RhodePAC can spend unlimitedfunds for an independent expenditure effort thatexpressly urges voters to reelect Power, orvote against Change, so long as this spendingis not coordinated with Power’s cam-paign.*

• Contribute $5,000 to any other PAC witha history of supporting Power.*

• Set up the Rhode Education Fund, an organi-zation to educate voters on the importance ofbuilding roads (or any issue she chooses).Rhodes can contribute an unlimited amount ofpersonal or corporate money to this organization,which in turn can engage in issue advocacy. Forexample, the Rhode Education Fund can payfor advertisements that praise Power’s votingrecord or call Change an irre-sponsible liberal,but stop short of expressly advocating for Poweror against Change.

• Solicit two $1,000 checks from each ofher friends and bundle an unlimited num-ber of these checks in one envelope ad-dressed to Power.

• Spend an unlimited amount on an indepen-dent expenditure supporting Power, solong as she does not coordinate her effort with his campaign, and only her personal funds, not those of any other contributor, are used for this effort.q


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The Six Pipelines of Federal Campaign Money

The funds from the nine financial outletsdescribed above flow into six distinctpipelines that benefit candidates. These

six pipelines fall into three categories: one formoney that flows directly to candidates; a sec-ond for money that flows through political par-ties; and a third for money that flows throughentities that are independent of parties and can-didates.

Direct Contributions toCandidates

Pipeline #1: Candidate Committee Money

The candidate committee is the heart of theeffort to elect a House Member or Senator. Con-tributions to the candidate committee can comefrom three sources: individuals (Rhodes), PACs(RhodePAC), and the candidates themselves(Power).

Donations from individuals to candidates arethe most common form of political contribution.FECA allows individuals to give candidates$1,000 for each election. Therefore, an indi-vidual can give a candidate $2,000 each politi-cal cycle — $1,000 for the primary election and$1,000 for the general election — even if thecandidate faces no primary opponent. This capis why hard money is hard to raise. The $1,000limit has been in place since 1974, without anyadjustment for inflation. A contribution of$1,000 in 1974 dollars is worth roughly $300today.

One method individuals use to gain more in-fluence from their contributions is “bundling.”Bundling is a process by which a group of in-dividuals linked to a common entity or cause allwrite checks to one candidate, and then bundle

this money together and hand it off to the candi-date. Susan Rhodes can give Rep. Power hertwo $1,000 checks. But to enhance her clout,she can give Power 20 $1,000 checks — twofrom herself and two apiece from nineRhodeBuilder Inc. employees.

Bundling is an elastic term. Its most essen-tial component is an individual or organizationshepherding contributions for one or several can-didates. Contributions do not have to be simul-taneously delivered to a candidate for these con-tributions to be considered part of a bundle, aslong as the candidate associates all of the contri-butions with the same source.

The second source of the candidate commit-tee pipeline, PACs, can give candidates $5,000for each election ($10,000 each election cycle).FECA never actually uses the term PAC, refer-ring instead to “multi-candidate political com-mittees.” These committees can collect volun-tary contributions from individuals who share acommon purpose. Individuals can give PACsup to $5,000 annually. But as discussed above,these contributions count toward the $25,000annual limit for individuals.

The third source of this pipeline, the candi-date, can contribute through two routes: a directcontribution to his candidate committee or a loanto his candidate committee. Candidates favorloans rather than outright contributions to theircampaigns for the simple reason that if acandidate’s committee ever has a surplus, it canreimburse the candidate, even years after the elec-tion for which the loan was made.

Overall, Susan Rhodes can funnel moneyinto the candidate committee pipeline in two


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ways: a direct route, which involves writingchecks to Power for Congress ($1,000 for theprimary election and $1,000 for the general elec-tion, whether or not Power has a primary oppo-nent); and an indirect route, which involves writ-ing checks to a PAC ($5,000 to RhodePAC and$5,000 to any other PAC likely to support Power).Additionally, Rhodes can use her clout withinthe company to persuade her employees to con-tribute to Power and if she really wants to callattention to herself she can send these checks tothe Power campaign in one big bundle. She can-not, of course, funnel RhodeBuilder Inc.’s moneyinto Power’s campaign, either directly or througha PAC. She can, however, use corporate moneyto defray RhodePAC’s overhead expenses.

Funneling Money throughPolitical Parties

Political parties have three pipelines thatbenefit candidates: one for money the parties canspend in coordination with their nominees; asecond for funds the parties use for independentexpenditures supporting their nominees; and athird for money the parties use for “party-build-ing” activities that indirectly (or sometimes quitedirectly, though not expressly) benefit candidates.

Pipeline #2: Political Party CoordinatedExpenditures

Coordinated expenditures of political partiesare regulated by FECA. Although composed ofregulated funds — hard money — this pipelinecan be filled more easily than the candidate con-tribution pipeline. Individuals can donate$20,000 each year to political parties (subject tothe aggregate limit of $25,000 per year to candi-dates, PACs, and parties). Political parties canalso raise money from PACs, which can contrib-ute up to $15,000 annually. Corporations andunions are not allowed to contribute hard moneyto political parties.

FECA prescribes annually adjusted formu-

las, based on inflation and voting-age popula-tion, to determine how much political parties canspend in coordination with their nominees. In1996, a political party could make a coordinatedexpenditure of up to $30,910 on behalf of eachof its House nominees. The parties could spendbetween $61,820 and $1.4 million in coordina-tion with their Senate candidates, depending onthe size of the candidate’s state. For candidatesthis pipeline can function virtually as an extracheckbook. While political parties are not al-lowed to give the money from this pipeline tocandidates, they can spend these funds in anyway the candidate prefers.

Susan Rhodes’ or RhodePAC’s help forCongressman Power will be somewhat indirectif it comes through the political party coordinatedexpenditure pipeline. Rhodes can write a$20,000 check to the Republican Party(RhodePAC can contribute $15,000), but she canonly hope that the party will spend this moneyin coordination with Power’s campaign, asFECA does not allow individuals to earmarkwhich candidate should receive the benefit ofcontributions to the political party.

However, there is little doubt that if Powerwas the one who raised significant party contri-butions from Rhodes and several others, the partywould reward him with an expenditure from thispipeline.

Pipeline #3: Political Party IndependentExpenditures

The political party independent expenditurepipeline is the newest funding source, havingopened in 1996 with the Supreme Court deci-sion Colorado Republican Federal CampaignCommittee v. FEC, 116 S. Ct. 2309 (1996). UntilColorado Republican, the law had always treateda party and its candidates as if they acted as aninseparable unit. It was assumed that they nec-essarily coordinated all of their campaign efforts.


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Thus, when a party spent money supporting oropposing a candidate, this spending was thoughtof as a contribution directly to the candidate andwas counted against the amount of money theparty could spend in coordination with its nomi-nee (or eventual nominee). The Colorado Re-publican decision rejected this assumption.According to the Supreme Court, the ColoradoRepublican Party, which had yet to pick its Sen-ate nominee, could spend money attacking theexpected Democratic Party nominee, and thisspending did not count against the amount ofmoney the Republican Party could spend in co-ordination with its eventual nominee.

The facts of Colorado Republican were rela-tively unusual, as a political party rarely spendslarge amounts attacking an opponent before ithas chosen its own nominee. Narrowly read,Colorado Republican holds only that when apolitical party has yet to choose a nominee, itcan engage in independent expenditures becausethere is no danger that this spending is coordi-nated with a campaign. Political parties, how-ever, have read the decision much more broadly.The parties now behave as if they can spend un-limited amounts in independent expenditureseven if a nominee has been chosen, so long asthe party and the nominee do not coordinate theirefforts.

Colorado Republican had an instant and pro-found impact on the 1996 elections. Immedi-ately after the decision, both political parties cre-ated independent expenditure units. In NewHampshire’s 1996 Senate campaign, for ex-ample, the Republican Party was limited tospending $61,820 on behalf of its nomineethrough the coordinated expenditure pipeline.But because of Colorado Republican, the Partywas able to use its newly created independentexpenditure unit to spend an additional $921,711on behalf of its nominee.

It is important to note that the ColoradoRepublican decision affects only how a party can

spend its money, not how it can raise the moneyit spends. Funds used for communications ex-pressly advocating the election or defeat of acandidate still must be raised the hard way — inannual increments up to $20,000 from individu-als and $15,000 from PACs. The RepublicanParty, therefore, can accept $20,000 from Rhodesand $15,000 from RhodePAC. Rhodes can hope,but can’t be sure, that these funds will be spenton independent expenditure advertisements di-rectly benefiting Congressman Power.

Pipeline #4: Political Party Soft Money

Unlike the prior pipeline, there are no limitson the amount or source of soft money contribu-tions that can be made to political parties. Indi-viduals, PACs, corporations, and labor unionscan each pour an unlimited amount of soft moneyinto political parties. The critical difference be-tween the party’s soft money pipeline and thetwo hard money pipelines described above is theuse of the funds. Soft money cannot be spent onmessages that expressly advocate the election ordefeat of an identified candidate. These fundsmay be used only for “party building” activities— efforts that help a party, not just one candi-date. Classic examples of such activities include“slate cards” (pamphlets listing all of a party’snominees), voter registration drives, get-out-the-vote drives, and issue advocacy advertisements(generic communications, such as “Vote Repub-lican,” which promote the message of a party,but not its specific candidates).

As noted in the definitions section, there ismuch controversy over the distinction betweenissue advocacy and express advocacy. In recentyears, many advertisements paid for with softmoney have been indistinguishable from candi-date advertisements. For example, in one 30-second attack advertisement used for a 1996Senate race, a candidate was mentioned 11 times,once every three seconds. The party justifiedthe soft money expenditure on the ground thatthe advertisement did not use the magic words


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of express advocacy (e.g., “vote for,” “voteagainst,” or “reelect”). It is this type of line-blurring between issue and express advocacy thatcritics fear has debilitated FECA’s contributionlimits. After all, soft money contributions topolitical parties are often solicited by the verycandidates whom the party helps out with thinlyveiled campaign advertisements.

Soft money has expanded greatly the role oflabor unions and corporations in the political pro-cess. In the 1988 campaigns, under pressure tocompete with the Republican Party’s hard moneyfundraising prowess, the Democratic Party be-gan raising and spending large sums of softmoney. The Republicans followed suit in thesame election cycle, and soft money has sincebecome the fastest growing funding pipeline.According to the Republican NationalCommittee’s finance director, “It’s taken people20 some years to figure out that there’s nothingwrong with giving a large soft money check.There was a lot of shyness about big checks af-ter Watergate, but now it doesn’t seem to matteranymore. The world doesn’t end with disclo-sure.”

Soft money is a convenient outlet for SusanRhodes. By writing a corporate or personal checkof unlimited size to the Republican Party’s softmoney account, she can bypass FECA’s indi-vidual contribution limits, fully aware that theparty will use her money to attack Change orpromote Power. This contribution will surelyendear her to Power, especially if Power was theone who solicited the contribution on the party’sbehalf.

Funneling Money throughNon-Party Sources

Non-party sources include individuals, po-litical organizations, PACs, labor unions, and cor-porations. These sources benefit candidatesthrough two pipelines.

The two pipelines are often conflated in thepopular press. For example, the AFL-CIO spent$35 million in the 1996 elections. The vast ma-jority of this money was drawn from the unionfederation’s treasury and spent on issue advo-cacy, but press reports repeatedly labeled thisas an independent expenditure. This confusionwas natural, since the ultimate product — ad-vertisements bitterly attacking candidates —were virtually indistinguishable from indepen-dent expenditure advertisements.

Pipeline #5: Non-Party Independent Ex-penditures

The non-party independent expenditurepipeline is made up of FECA-regulated funds(hard money) that are used to advocate ex-pressly for a candidate. There are two varietieswithin this pipeline: PAC spending and indi-vidual spending.

An individual is permitted (and constitu-tionally entitled) to spend any amount of hisown money on independent expenditures. Theonly restraint that FECA places on individualswho wish to spend independently is a prohibi-tion against coordination. An individualspender cannot coordinate her activities with acampaign or pool her money with any other in-dividual. If spending among individuals is co-ordinated, FECA treats this effort as a PAC,capping at $5,000 the amount that any indi-vidual can contribute to the pool. Thus, ifRhodes collects money from a RhodeBuilderInc. employee to help pay for an advertise-ment that she wants to place independently forPower, Rhodes can only contribute $5,000 tothis effort. But if she collects no money fromother sources, Rhodes can independently spendan unlimited amount supporting Power.

PACs, like individuals, are permitted not onlyto contribute money (to candidate committees


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sure rules do not apply to organizations involved in issue advocacy. The only restriction on thesefunds is they cannot be used for express advo-cacy. As discussed above, this restriction hasnot been particularly constraining lately. Orga-nizations have funded advertisements that arethinly veiled campaign communications.

Examine an issue advertisement paid for bythe AFL-CIO during the 1996 elections:

[L]ast fall, Congressman James Walshvoted with Newt Gingrich to cut $270billion from medicare to pay for tax cutsfor the wealthy . . . . Call James Walshand tell him not to destroy medicare.Tell him this time we’re watching.

No magic words of express advocacy (e.g., “votefor,” “vote against,” or “reelect”) were used , butsurely this communication was designed to in-fluence an election. Nonetheless, the sponsorsof this type of advertisement have successfullyavoided FECA’s contribution limits and disclo-sure requirements.q

and political parties, as described above) but alsoto spend money. The funds for such expendi-tures are subject to the same fundraising restric-tions as the money PACs contribute to candi-dates. In either context they can raise voluntarycontributions from individuals in increments ofno more than $5,000 a year. There is, however,no limit to how much hard money PACs canspend independently supporting a candidate.While RhodePAC can give Power only $5,000per election, it can spend an unlimited amountof hard money expressly advocating for him, aslong as this spending is not coordinated with hiscampaign.

Pipeline #6: Issue Advocacy Money

Not all political contributions are related toelections. Susan Rhodes can set up the RhodeEducation Fund — an organization dedicated toeducating voters on the importance of buildingroads, or any other issue Rhodes chooses. TheRhode Education Fund can collect contributionsfrom any source and in any size. Thus, Rhodescan pour in any amount of her own money orfunds from RhodeBuilder Inc. FECA’s disclo-


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According to the Center for Responsive Poli-tics, these funds are raised from “[t]he economicelite of the candidate’s home district or state, andexecutives of the same industries and interestgroups that supply PAC checks.” The Centerfurther notes that “most House Members’ largeindividual contributions come from within theirown district. Senators tend to get a much largershare from out of state.”

As for “bundling,” businesses traditionallyare the most successful at using this device. Thenation’s leading business bundler is MBNACorp., a Delaware-based securities firm. In 1994,employees of MBNA gave over $868,000 in can-didate contributions. Among the top 50 bundlersthere are 12 securities firms, 13 law firms, andalmost all of the nation’s largest telecommuni-cations and insurance companies.

In recent years, however, ideological orga-nizations have become prodigious bundlers.EMILY’s List — an organization supporting pro-choice women Democratic candidates — hasbecome the nation’s leading bundler just tenyears after its inception. Each election cycleEMILY’s List bundles millions of campaign dol-lars ($8.2 million in 1994) by sending its 34,000members a list of the candidates it has endorsed,along with an EMILY’s List return envelope.Checks are then written by members for indi-vidual candidates, mailed to EMILY’s List, andpromptly turned over to their recipient campaignsin bundles.

Inside the Pipelines

In order to reform campaign finance law ef-fectively, it is important to understand notjust the routes through which money travels

in the political process, but also the amounts thatflow from each source through each route. Thedata for this section come from the Center forResponsive Politics (see Larry Makinson &Joshua Goldstein, Open Secrets: The Encyclo-pedia of Congressional Money and Politics(1996)); several reports issued by CommonCause; and Federal Election Commission (FEC)data from the 1996 elections. The totals accom-panying the headings of this section reflect theamount of money that flowed through each pipe-line in the 1996 election cycle.

Pipeline #1: Candidate Committee Money($626 million)

As discussed above, congressional candidatecommittees receive money from individuals,PACs, and the candidates themselves.

Individual Contributions ($330 million). Sen-ate candidates receive 63% of their funds fromindividuals. House candidates receive 55%. In1994, 81% of the money that individuals con-tributed to congressional candidates was inamounts of $200 or more.

Who writes checks to candidates? In 1994,fewer than 900,000 individuals — one third of1% of the nation’s population — wrote campaignchecks of $200 or more to congressional candi-dates. 94% of all adults have never made anypolitical contribution of any size to any candi-date for any office. The residents of one zip codeon New York’s Upper East Side (10021) con-tributed more money to congressional candidatesduring the 1994 elections than did all the resi-dents of each of 21 states.

As for contributors’ professions, in 1994 law-yers were the largest political donors, contribut-ing over $34 million, followed by physicians($13 million), securities brokers ($9.6 million),and insurance agents ($9 million).


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In 1994, 21 Senators and 29 House Mem-bers each had at least one bundler who collectedmore than $20,000, and four Senators each hada $100,000 bundler. Senator William Roth ofDelaware in 1994 set the record for the largestbusiness bundle with $143,339 from MBNA.

PAC Contributions ($201 million). The roleof PACs has exponentially increased since theirproliferation in 1974. PACs contributed $12.5million to candidates in 1974 and $201 millionin 1996, an increase of over 400% after adjust-ing for inflation. The number of PACs has alsoincreased dramatically. 608 PACs were regis-tered with the FEC in 1974, compared to 4,033in 1996.

It is convenient to divide PACs into three va-rieties: business, labor, and ideological. Busi-ness PACs are far and away the biggest contribu-tors to candidates ($131 million in 1994), fol-lowed by labor PACs ($42 million), and ideo-logical PACs ($26 million). In 1996, 200 PACscontributed more than $230,000 each to candi-dates, and 36 each gave away more than $1 mil-lion. The National Education Association gavecandidates $2.3 million in 1996, making it thenation’s largest contributing PAC.

PACs are risk averse. In 1996, 68% of PACcontributions went to incumbents: House incum-bents received seven times more than challeng-ers and Senate incumbents held a 5:1 advantageover challengers. Press reports critical of PACshave had some effect. 24 House Members andthree Senators refuse PAC contributions. On theother side of the spectrum, two House Membersand seven Senators received more than $1 mil-lion each from PACs in 1994.

Candidate Contributions ($95 million). Theincreased cost of running for Congress (between1976 and 1996 campaign expendituresincreased 300% after inflation) and the decreasedvalue of FECA-regulated contributions (as dis-

cussed above, a $1,000 contribution in 1974 isworth approximately $300 today) have signifi-cantly lessened the pool of individuals able torun for Congress. Unless a candidate is extraor-dinarily proficient at raising $1,000 contribu-tions, he can wage a competitive campaign onlyif he is wealthy.

In 1996, 12 Senate candidates each spent over$1 million of their personal money on their cam-paigns. For the House, 10 candidates each spentmore than $500,000 of their own money.Wealthy candidates produce wealthy officehold-ers. While millionaires make up less than 1% ofthe U.S. population, they made up 14% of HouseMembers and nearly 30% of Senators in the104th Congress.

Pipeline #2: Political Party CoordinatedExpenditures ($25 million)

In the 1996 elections, the Democratic andRepublican Parties spent over $25 million in co-ordinated expenditures for their House and Sen-ate nominees. The Republican Party spent over$7 million ($300,000 on Senate candidates and$7 million on House candidates). The Demo-cratic Party spent $18 million (over $12 millionon Senate candidates and over $5.7 million onHouse candidates).

While the next section will explain in detailhow campaign expenditures have sharply in-creased, it is important to note here how this es-calation has diminished the role of the politicalparty coordinated expenditure pipeline. BecauseFECA’s formula for how much parties can spendin coordination with candidates is based on in-flation, and campaign spending has escalated atmore than three times the rate of inflation, thedegree to which parties can help candidatesthrough this pipeline has been severely dimin-ished. In 1976, the amount parties could spendrepresented 12.5 % of the average cost of a win-ning House campaign. In 1996 it equaled only


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4.7%. Accordingly, if campaign expendituregrowth continues to outpace inflation, the helppolitical parties can provide candidatesthrough this pipeline will continue to suffer aproportional decline.

Pipeline #3: Political Party Soft Money($272 million)

One reason the soft money spending ofthe 1996 elections is receiving unprecedentedattention is because it has expanded enor-mously. The Democratic and RepublicanParties raised $45 million in soft money in1988 and $92 million in 1992. 1996 softmoney contributions reached $272 million:$150 million for the GOP and $122 millionfor the Democrats. Soft money spending isnow almost half the size of candidate com-mittee spending, and it is more than seventimes larger than the regulated money partiesspend for their nominees. The role of softmoney may soon eclipse that of funds raisedaccording to FECA’s contribution limits.

Soft money contributors tend to donatein very large sums. 126 contributions over$250,000 were gathered in 1996 — 56 by theDemocratic Party and 70 by the GOP. Eachparty received two contributions over $1 mil-lion. The largest soft money contributor wasPhilip Morris Inc., which overall donated al-most $3 million: The Republicans received$2.5 million of this contribution, an amounttwice the size of any other contribution to ei-ther party.

Pipeline #4: Political Party IndependentExpenditures ($11.3 million)

The newest money pipeline, created byColorado Republican in 1996, is small in sizebut large in impact.

For the most part, only the Republican Party

In effect, the premier Senate campaigns of1996 were nationalized. The increased expen-ditures of the Republican Party in NewHampshire’s 1996 Senate race discussed earlierillustrate this phenomenon. Other examples in-clude the 1996 Senate campaigns in Wyomingand Louisiana. Using the coordinated expendi-ture pipeline, the Republican Party could spend$61,820 on behalf of their Wyoming nomineeand $191,827 for their Louisiana candidate.Through the independent expenditure pipeline,the Party spent an additional $1 million in Wyo-ming and $1.4 million in Louisiana. Not sur-prisingly, reformers fear that the targeted use ofindependent expenditure funds will escalate thereal and perceived costs of running for Congress.

Pipeline #5: Non-Party IndependentExpenditures ($11 million)

Because only hard money flows through it,

used this new funding mechanism. The GOP’sSenate committee had $9.9 million in indepen-dent expenditures, compared to $1.4 millionfrom the Democrat’s Senate committee. Observ-ers offer two reasons, both discussed above, toexplain why this pipeline might not expand rap-idly. The hard money used to fund independentexpenditures is hard to raise. Further, the par-ties have no pressing need to make independentexpenditures for advertisements expressly advo-cating their candidates as long as they can usesoft money to pay for advertisements that con-vey essentially the same message.

Nonetheless, this was an enormously impor-tant pipeline in the 1996 elections. In each elec-tion cycle the balance of power for Congress isdetermined by a handful of competitive elections.By using this pipeline only for those Senate cam-paigns within their reach, the national politicalparties greatly expanded their role in determin-ing which party would control the Senate.


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this pipeline is a genuine financial outlet onlyfor organizations that were able to raise over $1million in hard money in 1996 — National Rightto Life ($2.5 million), the National Rifle Asso-ciation ($1.7 million), and the League of Con-servation Voters ($1.2 million) — and only 14organizations raised more than $100,000.

Even if raising hard money were not diffi-cult, organizations have few incentives to usethis pipeline. As noted in the context of partyindependent expenditures, it is easier for orga-nizations to gather large contributions for issueadvocacy advertisements (discussed below) thanto toil gathering hard money contributions just sothat their advertisements can say “vote for” or “voteagainst” a candidate.

Pipeline #6: Issue Advocacy Money($200?? million)

“Third party money,” “issue ads,” and “in-dependent expenditures” are among the namesthe popular press uses for the most rapidly bur-geoning pipeline of political money. It is notpossible to calculate precisely the size of issueadvocacy spending because organizations thatare not engaged in express advocacy are not re-

quired to report their activities to the FEC.

Only through boasts of organizations can theissue advocacy pipeline be monitored. In 1996,for example, the leading interest groups favor-ing the Democratic Party declared it their inten-tion to return the House to Democratic controland subsequently each of these organizationsheld a press conference announcing how manymillions they were ready to spend for this effort.Leading spenders included the AFL-CIO ($35million) and the Sierra Club ($7.5 million).

This spending introduced a new epicenter forcompetitive House campaigns. No longer didthe candidate committee pipeline play the pri-mary role. In many competitive House electionsthe issue advocacy pipeline put as much moneyinto the political process as did the candidatecommittee pipeline. In Arizona, for example,the AFL-CIO spent more money attacking aRepublican House incumbent, approximately $1million, than either candidate spent on his owncampaign. This rise in influence of Washingtonorganizations has been roundly criticized by edi-torial boards, political scientists, and, of course,candidates whose campaigns have been hurt bynegative issue advocacy commercials.q


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A comprehensive understanding of the role of money in campaigns demands more than a profile of aggregate spend-

ing patterns. It is also critical to look at candi-date expenditures. By analyzing how much can-didates spend, and where their money goes, re-formers will be able to navigate better the pit-falls of regulating the electoral process.

Unfortunately, federal campaign spending isextremely difficult to analyze. The FEC main-tains a computer database for contributions, butnot for expenditures. Analyzing campaignspending comprehensively involves collectingthe receipts of candidates from the FEC, callingindividual candidates for explanations of theirspending practices, and creating a database sothat this information can be manipulated. Notsurprisingly, while contribution data generatesextensive press and scholarly analysis, only onepublication comprehensively reviews how cam-paign money is spent --- Handbook of CampaignSpending by Dwight Morris and MurielleGamache (Congressional Quarterly 1994). Com-piling this information is so labor-intensive thatthis book is published over three years after theelection cycle it covers, and the authors analyzeonly the candidate committee pipeline. Accord-ingly, most of the statistics from this section comefrom the 1992 congressional elections.

Campaigns expenditures are increasing rap-idly. Since 1976 the aggregate costs of Houseand Senate general election campaigns increasedmore than sixfold (from $99 million in 1976 to$626 million in 1996) while the cost of livingwent up less than three times. The average win-ning House candidate spent $87,200 in 1976 and$661,000 in 1996. The average winning Senatecandidate spent $609,100 in 1976 and $3.6 mil-lion in 1996.

The Incumbent�s EdgeAs a group, incumbents vastly outspend chal-

lengers. In 1992 House campaigns, the averageincumbent spent $571,000, while the averagechallenger spent $173,000. A similar disparityis evident in competitive House campaigns. Inraces where the incumbent received 60% or lessof the vote, challengers spent an average of$289,000, compared to $717,000 for incumbents.Even in the 19 campaigns in which incumbentslost in 1992, challengers were outspent by in-cumbents, on average $436,000 to $841,000.

In large part because of the spending differ-ential, only a small proportion of congressionalraces are genuinely competitive. In the 1992elections, characterized by the popular press as“revolutionary,” more than half of House Mem-bers (199 Representatives) had no serious com-petition in their primary or general elections.Nevertheless, House candidates in safe districtscontinuously spend enormous sums of money todefeat their opponents. Over 46% of the $600million in candidate expenditures in 1992 camefrom candidates whose elections were never inany doubt. For example, Rep. John Dingell (D-Mich.) was a 36-year incumbent in 1992. Hisfather represented the district for 24 years be-fore him, and his son sat in the state legislatureawaiting patrilineal succession. In his prior elec-tions, Rep. Dingell rarely collected less than 60%of the vote. Nonetheless, in 1992 he spent over$1 million to defeat his opponent’s $5,402 cam-paign. Similarly, Rep. Jack Fields (R-Tex.) spent$746,361 for 77% of the vote against a Demo-crat who spent less than $5,000.

Obviously, incumbents who engage in suchspending have motives beyond simply winningtheir election. One common motive is to insulate

Campaign Spending


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incumbents from redistricting that could hurttheir chances of winning the next election. Whena state gains or loses a congressional district, thestate legislators re-draw the congressional dis-tricts. They tend to leave alone districts that areconsidered “safe” for either party. If a state islosing or gaining a seat, it is easiest to draw outof existence a district that does not comfortablyrest with either party. According to the cam-paign manager of a safe-seated House Memberfrom North Carolina, “We wanted to make abig push in 1990 to drive up the margin of vic-tory [because] we didn’t want to give Democratsin the state legislature a reason to split up thedistrict.”

A second reason safe incumbents grosslyoutspend uncompetitive challengers is to helptheir parties. In 1996, Michigan’s Rep. Dingellspent enormously for a get-out-the-vote opera-tion in a portion of his district that he was sureof winning. The balance of control of Michigan’sHouse of Representatives hinged on one seat,and Dingell took it upon himself to win this seatfor the Democratic Party. Hiring one of thenation’s best get-out-the-vote specialists, Dingelldirected his war chest at the relevant part of hisdistrict, which raised Democratic voter turnouthigh enough to deliver Michigan’s House of Rep-resentatives to Democratic leadership.

A third reason incumbents outspenduncompetitive challengers has nothing to do withdistrict, or even state, politics. Leaders of bothparties in both houses of Congress assume re-sponsibility for providing financial and politicalassistance to more junior Members and Sena-tors. In 1994, for example, Majority Leader Ri-chard Gephardt (D-Mo.) outspent his rival $2.6million to $197,000. But Rep. Gephardt had nofear of losing his election; his seat was safer thanever. He spent his money outside Missouri tohelp congressional colleagues at public campaignevents and private fundraising affairs all over the

country. Hundreds of plane tickets and a full-time campaign office in Washington, D.C. wereamong his leading campaign expenditures.

The final explanation for the incumbent-challenger expenditure gap, has to do with a re-structuring of our national politics. In the daysof Boss Tweed, political machines selected can-didates, sent them to Congress, and made sureto deliver voters on election day. With the deathof political patronage, candidates have been leftto create their own life-support systems. Build-ing such structures is laborious and expensive,and typically a task only incumbents can under-take.

Campaign SpendingDeconstructed

To understand fully the campaign financesystem one must know the costs of each elementof a congressional campaign. Identifying thesenumbers requires looking at only those races thatwere truly competitive. Nothing is learned fromexamining the spending patterns of candidateswho trounced their opponents. By understand-ing the costs of running a competitive campaign,reformers will be better equipped to propose andanalyze contribution and expenditure reforms.

The table on the next page presents the aver-age expenditures of 1992 House candidates in“hot races,” which the Handbook of CampaignSpending defines as races in which incumbentsgarnered 60% or less of the vote.

As discussed above, the Handbook is the onlysource that breaks campaign spending down intospecific categories, such as legal and account-ing services. While the following section drawsheavily from the Handbook, the reader shouldbear in mind one methodological criticism of thissource. All available statistics confirm that com-petitive races spend money differently fromuncompetitive races. While the Handbook de-


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fines a “hot race” as one in which the incumbentgarnered 60% or less of the votes, some criticsargue that a race in which the winner won by 20percentage points is not competitive, and that anarrower definition should be used. Unfortu-nately, no critic has actually conducted a surveyusing a narrower definition of a competitive elec-tion, with the exception of a report, reviewedbelow, that focuses only on advertising expen-ditures.

Overhead. In descending order the majorelements of overhead costs are salaries, travel,rent, office supplies, and legal and accountingservices. Observers call the aggregate of theseitems “America’s permanent campaign.”

Not surprisingly, incumbents on “hot races”far outspend challengers on staff salaries, morethan 2.5:1, although no serious challenger runswithout a professional campaign staff. In addi-tion to using their checkbooks, incumbents lev-erage their electoral power by whom they hire.Although the staff members of legislators are not al-lowed to work for candidates on office time, they canreceive a separate campaign salary for off-hours work.

For example, in 1992 a caseworker in SenatorArlen Specter’s Pittsburgh office received a gov-ernment salary, plus $64,362 for campaign work.This type of arrangement allows incumbents toretain campaign employees that understand whothe political players are in their districts and howbest to gain their support. Furthermore, incum-bents can use campaign salaries to reward loyaland hard-working members of their governmentstaffs.

Many incumbents incur extraordinary travelexpenses. In 1992 the average House incumbentin a hot race outspent his challenger $24,311 to$5,627 for travel costs. Critics allege that candi-dates use campaign funds to subsidize fancylifestyles, including flights on corporate jets andstays at luxury hotels. The national political con-ventions are also occasions for candidates to in-cur travel expenses. In 1992, House candidatesbilled their campaigns $479,940 while attendingthe conventions, including a $25,000 hotel billfor Speaker Thomas Foley (D-Wash.) and over$1,000 in theater tickets for Rep. AlbertBustamante (D-Tex.).

Campaign Expenditures of 1992 House Candidates in “Hot Races”

Incumbent Challenger

Overhead $168,468 (23.5%) $ 62,273 (21.6%)Fundraising $100,575 (14.0%) $ 24,631 (8.5%)Advertising $224,048 (31.3%) $112,076 (38.8%)Other Campaign Activity $152,296 (21.3%) $ 73,602 (25.5%)Gifts and Donations $ 26,515 (3.7%) $ 703 (0.3%)Miscellaneous $ 44,790 (6.2%) $ 15,342 (5.4%)

TOTAL $716,692 $288,654


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Member survives his first reelection, he is virtuallyguaranteed reelection in perpetuity. Therefore, newMembers aggressively raise funds, to get over theirfirst reelection hump. Rep. Ramstadt arrived in Con-gress with $122,580 in campaign debts. He soonhired a campaign manager and two part-time em-ployees to help raise money. By the end of 1991,Ramstadt lowered his debt to $21,793 and had$317,719 in the bank for the 1992 campaign. Butthe costs were high; 41% of the money he raisedwas spent on fundraising costs.

Advertising. According to the Handbook, in-cumbents in “hot races” spent twice as much as chal-lengers on average on television and radio adver-tisements, $224,048 versus $112,076. This spend-ing represented 31% of the average incumbent’sbudget and 39% of the average challenger’s bud-get.

As stated above, critics allege that the Hand-book fails to capture the spending of genuinely com-petitive candidates. The Committee for the Studyof the American Electorate (CSAE) offers an alter-native analysis of candidate advertisement expendi-tures. CSAE analyzed races in “competitive” races— districts in which between 1976 and 1992 therewere at least three races with a margin of victory of8% or less. In 1992, candidates in “competitive”districts spent an average of $272,286, or 45.5%of their funds, on television and radio advertisements.

A final noteworthy, although not surprising, as-pect to advertising expenditures comes from theHandbook: Advertising is the only spending cat-egory that is significantly affected by the competi-tiveness of a race. That is, the budget percentagedevoted to advertising rose by 10% if a candidate’scampaign was competitive, while the remainingspending categories declined slightly in percentageterms.

Fundraising. To have met average 1992 ex-penditures, competitive House incumbents neededto have raised $982 each day of their two-year terms; Senate candidates needed to have raised$15,668 each week of their six-year terms. Be-cause FECA’s contribution limits demand that can-didates raise lots of relatively small contributions,candidates must build sophisticated fundraising op-erations. These operations demand high overheadcosts.

In 1992, incumbents in “hot races” outspent theirchallengers $100,575 to $14,882 in fundraisingcosts. To understand the scope of these operationsconsider our hypothetical campaign. If Congress-man Power hopes to raise $500,000 overall, 60%from individuals and 40% from PAC’s, hisfundraising plan might look as follows:

Individual Contributions$ 1,000 x 200 = $200,000$ 500 x 100 = $ 50,000$ 250 x 50 = $ 12,500$ 100 x 125 = $ 12,500$ 50 x 500 = $ 25,000

PAC Contributions$5,000 x 40 = $200,000

This fundraising plan would generate 975indvidual and 40 PAC contributions. Now con-sider response rates. Even if Power hopes for a10% response rate (an overly optimistic figure), hiscampaign would have to solicit 9,750 individual and400 PAC contributions.

Candidates choose among many methods of so-licitation. Most have several fundraising programs— personal candidate calls, fundraising events inWashington to raise PAC money, and events in theirdistricts for large and small contributors.

The fundraising expenditures of Rep. JimRamstadt (D -Minn.) provide a typical case studyof how Members spend money in this category.Rep. Ramstadt was first elected to Congress in 1990,winning 67% of the vote. As a general rule, if a


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Other Campaign Activity. This categorycovers the costs of direct-mail and grass-rootscampaigning. While incumbents do not grosslyoutspend challengers in this category, $86,906to $73,602 for “hot races,” they quite often areable to outsmart them. For example, targetingabsentee voters is a complex exercise, and onethat becomes more important each political cycleas voters increasingly cast their ballots beforeelection day. To run an effective absentee pro-gram a campaign must identify the constituen-cies likely to vote absentee (e.g., seniors, stu-dents), research when city clerks mail these bal-lots, and send targeted mailings to these constitu-encies during the brief window in which mostballots are cast. There is no reason why chal-lengers cannot master these small “other cam-paign activity” maneuvers. However, becauseincumbents usually have seasoned campaignemployees, they are more likely to run efficient,comprehensive campaigns.

Gifts and Donations. The least conventionalcampaign spending category is gifts and dona-tions. While challengers spend little money inthis category, gifts and donations allow incum-

bents to build their individual political machinesby currying favor with neighborhood groups andpolitical clubs. In “hot races” in 1992, incum-bents gave away an average of $26,515, com-pared to $730 for challengers.

There is a casualty to asking for money con-stantly — candidates constantly receivefundraising requests. By classifying these con-tributions as campaign expenditures, incumbentscan be generous without digging into their per-sonal checkbooks. The peculiar result of thisprocess is that contributions often become cir-cular. For example, Susan Rhodes might have acharity, to which Congressman Power donates,which of course provides Rhodes one more rea-son to be loyal to Power.

Incumbents also like to bestow gifts on con-stituents — the size and kind of which dependon a Member’s personality. In 1992 Rep. CharlesWilson (D-Tex.) held his annual dominoes tour-nament, Michigan’s Rep. Dingell spent over$34,000 on holiday cards, and Rep. Ike Skelton(D-Mo.) spent over $5,000 taking voters out todinner, including $1,414 for a Turkish feast.q


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Conclusion

As we have seen, the routes through whichmoney travels into our elections are var-ied and interconnected. Every change

in the flow of one route inevitably affects theflow in the others, or yields new routes. Expertsoften disagree on the likely effects of any par-ticular change, but they all agree that reformerscannot hope to accomplish their goals by tinker-ing with one pipeline at a time.

Below is a partial list of reform proposalsbefore Congress. Each is followed by a predic-tion of its likely impact if the provision were tobe adopted in isolation. As discussed above,however, predicting the effects of campaign re-forms is a highly imprecise exercise.

Capping Campaign Expenditures. A capon campaign expenditures will presumably af-fect only those candidates who could have ex-ceeded the cap by raising funds or by contribut-ing their own funds. If candidates, in essence,have to turn away donors, monied interests whowish to buy access with direct contributions tocandidates will need to send their money throughother routes and candidates will seek to find otherless direct mechanisms by which to promote theircandidacies.

Once a candidate approaches the expendi-ture limit, he would almost inevitably seek toconvince his political party to increase the flowof party money into his race. The coordinatedexpenditure pipeline offers the candidate thegreatest amount of control, since he is legallypermitted to participate in shaping the spendingproduct. The political party independent expen-diture pipeline and the soft money pipeline of-fers the candidate less control. But one can ex-pect that if a candidate helps raise money forthese pipelines the party will make sure that thecandidate is happy with how this money is spent.

The best way a candidate can raise the moneyfor these three indirect spending routes is by so-liciting the very same donors who would be shutout of contributing to his race because of the ex-penditure caps. And the donors, who becauseof the candidate spending limit cannot purchaseas much influence directly, are likely to oblige.

It is also possible that a cap on campaign ex-penditures will send more money flowingthrough the non-party independent expenditurepipeline and the issue advocacy pipeline. Do-nors who cannot give directly to the candidateafter the candidate reaches the spending limitmight wish to curry favor with him by openlyspending money to influence his election. Ofcourse, the candidate cannot control this spend-ing, which makes it less likely to materialize thana contribution to a political party.

Experts disagree vehemently on the likelypolitical impact of candidate expenditure caps.Some argue that spending caps will disadvan-tage challengers who need to spend more in or-der to overcome the advantages of incumbency,such as name recognition and greater exposureto free media. Others argue that since incum-bents so vastly outspend challengers anyway, ex-penditure caps are more likely to disadvantageincumbents as a group. Adherents to this viewoften argue that the ratio of spending is far moresignificant a determinant of electoral outcomethan the actual amount spent by each candidate.If this is true, then an expenditure cap, whichprevents one candidate from vastly outspendingthe other, is more likely to hurt incumbents. Afterall, it is a rare challenger who can outspend anincumbent by a significant ratio.

Lowering Candidate Contribution Caps.Lowering caps on contributions to candidateswould have many of the same effects as capping


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candidate expenditures. Monied interests seek-ing influence over candidates, and candidatesseeking to raise campaign funds, would be forcedto look beyond the candidate contribution pipe-line. For the reasons discussed above, the mostlikely alternative is the political party coordinatedexpenditure pipeline, followed by the party in-dependent expenditure and soft money pipelines.And just like for the spending limits, candidatesand contributors would prefer these pipelines fordifferent reasons: Candidates would seek to havethe greatest possible control over funds that ben-efit their campaigns, and contributors would seekto have the greatest possible influence over can-didates with their donations. Accordingly, low-ering the candidate contribution limits wouldcause candidates to ask those individuals fromwhom they received the maximum contributionto make donations to their political parties.

Abolishing or Constricting the Ability ofPACs to Contribute to Candidates. Diminish-ing the role of PACs would change the relativeabilities of business interests, labor unions, andideological organizations to influence the politi-cal process. Specifically, business interestswould be greatly advantaged by the decreasedpower of unions and ideological organizations.

Labor unions and ideological organizationscontribute money to candidates through theirPACs which, in general, raise small contributionsfrom lots of individuals. In contrast, businessesusually fund their PACs by collecting largechecks from a small group of executives. Orga-nizationally, it is easier for a corporation’s fewexecutives to write checks directly to a candi-date than it is for a union or ideological organi-zation to have thousands of its members writesmall checks directly to a candidate. Most ex-perts agree that the relative influence of busi-ness interests would be greatly enhanced by di-minishing the role of PACs.

Broadening the Definition of Express Ad-vocacy. Experts disagree on the impact of broad-ening the definition of express advocacy. As re-viewed above, federal campaign law currentlyconsiders a communication to be express advo-cacy if it includes so-called magic words (e.g.,“vote for,” “vote against,” or “reelect”). Severalreform proposals seek to expand this definitionto encompass thinly veiled campaign advertise-ments. One approach is to define as expressadvocacy any communication that a reasonableperson would understand as encouraging votersto support or oppose a candidate. Another ap-proach is to define as express advocacy an ad-vertisement that refers to a clearly identified can-didate within a prescribed period before the elec-tion.

Either way most experts agree on the short-term impact of such a reform. The demand forpolitical party soft money and issue advocacyfunds would decrease dramatically. There wouldbe less reason for candidates to raise soft moneyfunds from which they could not benefit. Andorganizations that are truly interested in influ-encing the election are less likely to do so if theyare unable to identify particular candidates intheir advertisements.

The long-term impact is less clear. Someexperts believe an expanded definition would re-duce drastically the quantity of political discourseas candidates and political parties would be un-able to replace the funds lost by slowing the flowwithin the soft money and issue advocacy pipe-lines. The reason these pipelines grew, it is ar-gued, is that candidates had contributors whowanted to exceed the candidate committee con-tribution caps. If these individuals could not helpcandidates through the soft money and issue ad-vocacy pipelines, the political discourse fundedby these pipelines, approximately $470 millionin 1996, would disappear.


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This analysis fails to appreciate the elastic-ity of the political system, a second group ofexperts respond. Candidates send funds to thesoft money and issue advocacy pipelines becauseit is the most efficient way to raise campaignmoney. If candidates were forced to raise onlyregulated funds their behavior would change. In-dividual contributors, no longer able to make softmoney or issue advocacy contributions, wouldbe asked to reach out to their friends to bundlecandidate and political party hard money contri-butions. Accordingly, the amount of money inthe political system would not decrease and dis-course would suffer no decline.

Closing the Soft Money Loophole. Barringcorporations, labor unions, and wealthy individu-als from giving political parties large contribu-tions would send this money to the issue advo-cacy pipeline. Political scientists argue that thisreform would significantly decrease the powerof political parties. When candidates circum-vent hard money contribution limits by raisingfunds for their political parties they must main-tain close relationships with party leaders to en-sure that these funds are spent in the manner can-didates prefer. By closing the soft money loop-hole, it is argued, issue advocacy spen-ders — labor unions, corporations, and ideologi-cal organizations — would replace the role ofpolitical parties.

One predictable result is that special inter-ests with strong ties to the parties would aban-don their formal affiliations with the parties andset up shop down the street as independent organi-zations. They would raise large contributions fromall sources and spend the money on the samethinly veiled issue advertisements that the par-

ties would have produced with soft money.These organizations could not legally coordinatetheir spending with the parties, but their employ-ees and advisors would be so attuned to the par-ties and the candidates that they could readilyadvance the interests of the parties and the can-didates.

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The preceding analysis considers only the im-pact of changing one rule at a time. But mostlegislative proposals for campaign finance re-form include several changes. Including mul-tiple reforms acknowledges the jello-like aspectof campaign-finance regimes: Touching one endof the system causes an immediate reactionthroughout the entire system. For example, if alegislator seeks to lower contribution limits tocandidates, his proposal must also include regu-lations that close the soft money loophole. Thatis, the legislator must anticipate that the contri-bution limit will send funds to the soft moneypipeline. Accordingly, evaluating legislative pro-posals for campaign finance reform is a difficultprocess. Reformers must anticipate the simul-taneous reactions, and reactions from reactions,created by each legislative package.

While this paper offers reformers cautionsinstead of prescriptions, it should not be inter-preted as being hostile to changing our campaignfinance laws. Rather, reformers should feelemboldened that if the complexities of our cam-paign finance system are appreciated it is pos-sible to avoid the pitfalls that have plagued priorefforts to diminish the role of money in politicsand restore integrity to the electoral process.q

THE FLOW OF MONEY IN CONGRESSIONAL ELECTIONS

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