The Battle Over Campaign Finance: Prospects for the New Reform Law

September 1, 2003

America’s reputation as the very model of a vibrant constitutional democracy has been tarnished of late by low voter turnout, uncompetitive elections, shoddy administration of elections, and the politicization of electoral rules. Making matters even worse have been recent campaign finance practices. Fundraising abuses in the Clinton White House ushered in an era of blatant disregard for federal campaign finance law. Longstanding prohibitions on corporate and union treasury financing of federal election activity were rendered obsolete. Elected and party officials avidly solicited “soft money” contributions from sources and in amounts proscribed by federal law. And parties and interest groups discovered that they could use “issue ads” to influence federal elections, thereby ecaping the disclosure requirements and contribution limits that govern election campaigns. By the 2000 election, parties and groups geared their fundraising efforts and campaign strategies to take full advantage of these loopholes in federal law.

The Reform Law and What It Does

The seven-year struggle to enact the Bipartisan Campaign Reform Act of 2002 was an extraordinary legislative odyssey. Overcoming the self-interest of incumbents, philosophical differences, partisan calculations, interest group opposition, low public salience, presidential indifference, constitutional limitations, and the inherent difficulty of regulating money in politics was a daunting challenge. Critical to eventual enactment were the tenacity of the chief congressional sponsors, the steadfast support of a small group of moderate Republicans, a decision by proponents to pursue a scaled-down reform agenda, the availability of new research that helped define specific regulatory approaches, Senator John McCain’s emphasis on reform during his quest for the Republican presidential nomination in 2000, Democratic gains in the Senate later that year, the surprising and consequential efforts by Democratic leaders Tom Daschle and Richard Gephardt to pass the legislation, and an unusual level of pragmatism within a reform community that had long since lost any illusions about what it was going to achieve. Ultimately, support for a filibuster against the bill in the Senate eroded to the point at which majority will prevailed and the bill was finally adopted.

The act bans the raising of soft money (funds subject only to state, not federal, restrictions) by national parties and federal officeholders and candidates. It restricts soft-money spending by state and local parties on what are defined as “federal election activities.” It also brings under regulation for the first time a class of issue advocacy broadcast ads, labeled “electioneering communications.” Although other issue advocacy ads remain unregulated, those that pass a three-point “bright-line test”—do the ads refer to a clearly identified candidate for federal office? are they targeted on the constituency of that candidate? are they broadcast within 30 days of a primary or 60 days of a general election?—must be financed and disclosed consistent with existing federal law. Corporations and unions are prohibited from spending treasury funds, directly or indirectly, for such electioneering communications. The reform act treats electioneering communications that are coordinated with a candidate or party as contributions to and expenditures by a candidate or party. It also increases the amount of “hard money” (funds subject to federal regulation) that individuals can contribute to candidates and parties, while raising limits on individual and party support of any candidate whose opponent exceeds certain levels of personal campaign spending (known as the Millionaires’ Amendment).

The Court Challenges

Proponents of the new law view it as a long-overdue package of reforms designed to restore the system of campaign finance envisioned by Congress when it adopted and amended the Federal Election Campaign Act in the 1970s. Its purpose, they argue, is to block the loopholes that increasingly allow violation of longstanding prohibitions on corporate and union treasury financing of federal elections and disclosure requirements for federal electioneering.

Opponents see the law as much more ambitious and ominous—a wholesale assault on protected First Amendment speech and rights of political association. They argue that the law’s restrictions would unconstitutionally limit the rights of individuals and groups to participate in federal elections and the ability of national, state, and local parties to work cooperatively to promote candidates and issues at all levels of the political process.

Given these widely divergent views of the new law, it was no surprise when a highly diverse set of individuals and groups (spanning the political spectrum from the Republican National Committee to the California Democratic party and ranging in political ideology from the National Rifle Association and various right-to-life groups to the AFL-CIO and American Civil Liberties Union) rushed to court to challenge the law as soon as it was signed. The law was defended by the Department of Justice, the Federal Election Commission, and the act’s principal congressional sponsors, who were accorded status as “intervenor-defendants” in the litigation, with the same legal prerogatives as the named defendants.

Anticipating such litigation, Congress had made provision in the law for expedited judicial review of any constitutional challenges, beginning with a trial before a three-judge panel in the federal district court of the District of Columbia and then allowing a direct appeal to the Supreme Court. The trial court consolidated all the separate complaints brought by plaintiffs into a single case, McConnell v. FEC, and decided to dispense with live testimony and cross-examination in court and instead rely on a paper trial. As a consequence, plaintiffs and defendants assembled a voluminous body of evidence and argumentation—many thousands of pages of fact and expert reports, depositions, cross-examinations, documents, and legal briefs.

The trial court panel, after a December 2002 hearing, was widely expected to issue its opinion by the end of January. Instead, it struggled—for the most part unsuccessfully—for months to reach consensus on findings of fact and conclusions of law. Finally, on May 1, the panel disgorged more than 1,600 pages of opinions and orders, featuring a limited per curiam opinion signed by two judges and lengthy separate opinions by all three. The opinions revealed a fractious and personally contentious panel, one able to present the Supreme Court with neither an agreed-on summary of the facts of the case nor a clear and consistent exposition of the constitutional issues.

The panel upheld parts of the two pillars of the act—the soft-money ban and the regulation of electioneering communications—but ruled other parts unconstitutional. Two judges accepted the characterization of recent campaign finance practice presented by the defendants, namely, in Judge Richard Leon’s words, “the use of corporate and union treasury funds, either directly or through soft money donations to political parties, to finance electioneering communications masquerading, predominantly, as issue ads.” They also agreed that the defendants had demonstrated the constitutionally necessary case for Congress to remedy this problem. Disagreeing on the basis for judging whether specific remedies are legitimate, however, they labored to produce what both probably regard as suboptimal compromises. The third member of the panel, Judge Karen Henderson, largely took herself out of the panel’s opinion by characterizing the entire statute as a wholesale assault on the First Amendment. Surprisingly, the one exception was her conclusion that the prohibition on soft-money fundraising by federal officeholders is constitutional.

Had this fractured opinion been allowed to stand until the Supreme Court issued its decision, the 2004 election cycle would have been shrouded in legal uncertainty. But the district court panel’s decision was stayed, and the Supreme Court announced an expedited briefing schedule over the summer and a hearing on September 8, a month before the formal start to its fall term. The decision is expected by December, just before the official kickoff of the presidential nominating process.

It is extremely difficult to calculate how, if at all, the work of the three-judge panel will influence the Supreme Court. The district court panel’s limited findings of fact and idiosyncratic conclusions of law suggest the justices may well begin from scratch. In fact, by directing the plaintiffs to submit the initial brief on the full range of their challenges to the new law, the Court has signaled that it is likely to consider the case de novo and not have its agenda set by the district court opinion. There is no way of knowing whether the Court will give special weight to the fact that a conservative member of the district court panel, Judge Leon, found an adequate basis for Congress to regulate party soft money and issue advocacy. It seems unlikely that a majority of justices will facially dismiss the reform act in the fashion of Judge Henderson. The critical question is whether they will find compelling the rationale used by Congress to prevent circumvention of federal election law and uphold provisions of the reform law that Judge Leon could not.

The Research Wars

A fascinating dimension of this legal battle is the public campaign to support or discredit the evidence used by the contending parties to buttress their legal arguments. Joseph Sandler and Robert Bauer, prominent Democratic election law lawyers who serve as counsel to the Democratic National Committee and the House and Senate Democratic campaign committees, are among the most outspoken critics of the new law, which passed with the nearly unanimous support of congressional Democrats. Like their Republican counterparts, Sandler and Bauer argue that the new law tramples on the speech and associational rights of political parties and improperly extends the reach of federal law into nonfederal election activities.

These arguments are part of a disagreement over whether the rise of party soft money and issue advocacy has strengthened or weakened political parties. The dispute centers on such questions as whether state parties are independent actors and genuine partners or mere instruments and funding conduits of national parties and federal officeholders; how much soft money has been used for party-building and grassroots activities and how much for broadcast advertising on behalf of specific federal candidates; and whether parties dilute the influence of large donors or facilitate their access to policymakers.

Answers to these questions, in turn, shape assessments of the provisions of the reform act directly affecting party finance and forecasts of how parties will fare in this new regulatory environment. Will national party committees be able to compensate for the abolition of soft money by raising substantially more hard money? Will the new restrictions on state parties dealing with federal election activities constrain their efforts on behalf of state and local candidates? Will parties be put at a disadvantage in comparison with interest groups? Will large soft-money donors (corporations, unions, and individuals) find indirect and less accountable ways of financing federal campaign activities? These questions will ultimately determine the practical impact of the ban on party soft money. They are also shaping the public debate surrounding the litigation that will decide the provision’s constitutionality.

A spirited public debate has also enveloped the new law’s treatment of issue ads and electioneering communications. One element of this debate centers on a legal disagreement. When the Supreme Court in Buckley v. Valeo (1976) limited disclosure requirements and prohibitions on corporate and union funding of independent expenditures to communications that “expressly advocate the election or defeat of a candidate for federal office,” did it leave any constitutional space for Congress to define and regulate a category of electioneering communications separate from express advocacy? If not, Congress would be unable to regulate an increasingly important class of campaign activities designed to influence federal elections.

Supporters of the reform act have rested much of their case for regulating electioneering communications—and for the specific bright-line test to define such communications—on a body of new research on television ads sponsored by candidates, parties, and groups. Opponents have challenged the methodological underpinnings of the research, going so far as to accuse analysts at the Brennan Center for Justice, at the New York University School of Law, of manipulating the data to produce the desired results. Conservative columnists have railed against “the debasement of scholarship for partisan purposes” and the deliberate faking of evidence underlying the constitutional justification of a key provision of the act.

Opponents of the new law, however, have not reanalyzed these studies (although the data are publicly available) or offered their own findings and conclusions based on alternative research. They have not even challenged many of the findings from this research, including the ever-increasing concentration, as election day approaches, of party and interest group “issue ads” mentioning or depicting a federal candidate in hotly contested races. Nor have they offered any counter to the scores of pages of testimony by politicians, party officials, political consultants, interest group leaders, and donors who corroborate the findings of the Brennan Center research.

One legitimate issue did arise in this contretemps. How would the bright-line test for electioneering communications affect pure issue ads? According to a measure formulated by Jonathan Krasno, the share of pure issue ads that would be drawn into the net of regulation by the bright-line test was 6 percent in 1998, 3 percent in 2000. The Court will have available alternative measures and their rationales as well as a fully transparent data set with which to consider the possible impact of the new law. One hopes the justices will not be distracted by the public campaign to vilify the researchers.

What’s Ahead?

Despite the uncertainty over which provisions of the act will be upheld or reversed by the Supreme Court, the law has already prompted a set of administrative rulings by the Federal Election Commission and strategic adjustments by various political actors. Some of the FEC’s initial decisions have themselves been controversial, prompting legal challenges by individuals and groups supporting the new law. The next critical stages will materialize if and when the FEC adjusts and applies these rules in response to the Supreme Court’s decision and as enforcement issues arise under the new law.

President Bush is widely viewed as a primary beneficiary of the new law. His decision to forgo public matching funds in the 2000 presidential nominating process freed him from expenditure limits and allowed him to outspend his Democratic opponent in the months before the party conventions. With the contribution limit raised from $1,000 to $2,000, Bush may well raise and spend $200 million in 2004, compared with the roughly $50 million that can be spent by candidates accepting public matching funds. Unfortunately, the new law made no adjustments in the spending limits or matching formula for the presidential public finance system.

In the contests for the House and Senate, Democrats are also thought to be at a disadvantage, at least in the short term. In recent elections they have relied much more on soft money than have the Republicans. Initial fundraising reports in the 2004 cycle confirm that Republican party organizations retain a substantial hard-money fundraising advantage over their Democratic counterparts. But parties furnish a modest share of the funding in congressional elections, particularly under the new law’s rules. They can no longer pump millions of dollars of soft money into issue ads in a handful of competitive races. They are likely to spread their resources more widely, invest additional funds in grassroots activity, steer funds raised by safe incumbents to competitive contests more aggressively, broker PAC contributions for key races, and mobilize voter identification and turnout activities of allied groups. Democrats need not be badly outclassed in this altered arena of competition.

The demise of soft money is not likely to diminish the importance of political parties. Parties are remarkably adaptive organizations absolutely essential to the functioning of democracy. Critical roles and ample resources remain for them in this new regulatory environment if they will seize the opportunity, as they almost surely will.

Even if the new campaign finance law survives the hurdles of constitutional challenge, administrative rulings, enforcement, and the strategic adaptation of political actors, substantial problems with money and politics remain. The new law was designed to plug the most glaring loopholes in federal election law. Now reformers must turn to other measures to enhance electoral competition, increase broadcast time available to candidates and parties, repair the presidential public finance system, and strengthen the enforcement process.

The realities of American politics still fall well short of our reputation as a democratic exemplar.