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The next steps:
Options for campaign finance reform in Ohio

Dr. John C. Green, Director
Ray C. Bliss Institute of Applied Politics
University of Akron
(330) 972-5182

February 16, 2000

This paper lists a range of options for further campaign finance reform in Ohio, including key questions and issues relevant to each. The options presented are based on an analysis of the effects of the 1995 campaign finance reforms and the current situation with regard to the financing of Ohio campaigns. This list is not comprehensive, focusing instead on options that follow logically the 1995 reforms.

The author would like to acknowledge the help of the Citizens Policy Center and financial support from the Joyce Foundation. However, the options presented below do not necessarily reflect the views of the Citizens Policy Center or the Joyce Foundation. The author does not necessarily advocate any particular option listed below, but offers all of them with the view of generating debate and discussion about the next steps in campaign finance reform in Ohio.

The current state of Ohio campaign finance suggests two broad avenues for future reform:

  1. modifications of the current regulations; and
  2. adoption of a public financing system.
These avenues are not mutually exclusive and elements of both could be pursued at the same time.

Modification of the Current Regulations

The 1995 reforms imposed a set of standard regulations on Ohio campaign finance, aimed at limiting the size of contributions and channeling donations through parties. One avenue for future reform would be to modify existing regulations and/or add new ones. There are two advantages to such an approach: it can build on the successes of the 1995 reforms and it can be adopted in a incremental fashion. There are also two disadvantages to this approach: there are diminishing returns to regulation and regulation by itself does not significantly alter the sources of campaign funds.

  1. Set an aggregate limit on contributions.

    The 1995 reforms altered the distribution of donations, but left the distribution of donors largely intact. This pattern resulted from the fact that individual and organizational donors responded to the 1995 contribution limits by giving more, smaller donations to a wider variety of candidates and committees. While these results were desirable, they did not reduce the aggregate importance of wealthy and well-organized donors. Thus, it may make sense to set an aggregate limit on the amount of money any individual donor may donate in a given election. The logic of an aggregate limit is the same as for contribution limits: no one donor ought to contribute more than a certain amount in a given election. There is such a limit at the federal level ($25,000 per year to all federal candidates and committees) and in some states.

    Questions and Issues:

    1. A key question is: what is the appropriate level for an aggregate contribution limit? The federal standard for individual donors is twenty-five times the maximum donation of $1,000 to a candidate, or $25,000. If the same logic were used in Ohio, the aggregate maximum would be $62,500 (or twenty-five times the maximum donation of $2,500). In 1998, less than one-tenth of one percent of donors gave $62,500 or more in aggregate, so this limit would affect relatively few people and less than 5 percent of the funds raised.

    2. Should such a limit be imposed on organizational donors as well, such as PACs and campaign committees? And if so, how should such a limit be set, given that some organizations represent thousands of people and others only a few? Any organizational limitation needs to reflect the size of the membership of groups and this could present serious logistical problems in calculating and certifying membership. It is for this reason that most campaign finance regulation at the federal and state levels does not set aggregate limits on organizational giving.

    3. Should such an aggregate limit apply to gifts to candidates, or should it include donations to PACs and parties as well? There are good reasons for an aggregate limit to apply to PAC donations: PACs are primarily a mechanism by which individuals with a common interest pool their funds to support candidates. Thus, PAC donations and candidate donations can easily be thought of as part of the same stream of campaign contributions to candidates. The same logic does not apply as well to parties because of their special role in fostering competitive elections. Thus, it might make sense for donations to parties to be excluded from an aggregate limit. If so, it might also make sense to have a lower rather than higher aggregate contributions limit. The federal limit applies to all donations in a given year.

    4. If set too low, aggregate limits could face legal challenges on First Amendment grounds. Just as importantly, low aggregate limits can encourage donors to deploy their funds outside of the campaign finance regulations, as has happened at the federal level with soft money and issue advocacy spending.

  2. Revisit contribution limits.

    The system of contribution limits enacted in the 1995 reforms has had some desirable effects on Ohio campaign finance, especially reducing the largest donations. It could be that these limits are still too high and should be lowered further. Along these lines, it might make sense to have different contribution limits for different offices or types of organizations. For instance, there might be higher limits for state-wide races and lower limits for state legislative races. Likewise, PACs and campaign committees might have different limits than individual donors.

    Questions and Issues:

    1. It might make sense to apply the present contribution limit of $2,500 to donations to PACs. The present limit is $5,000 per year. There is a logic to reducing this figure to $2,500 per year--why should a person be able to give only $2,500 to a candidate and twice as much to a PAC? Allowing people to give $2,500 per year to a PAC makes the legal limit the same for PACs as for candidates in most cases--$5,000 per two-year election cycle.

    2. Lowering the current contribution limits could well face legal challenges on First Amendment grounds, since $2,500 is essentially equal to the federal limit of $1,000 set in 1974 in constant dollars. Also, further limits may encourage independent, in-kind spending by individuals and PACs. Any attempts to limit such spending is unlikely to face challenges on First Amendment grounds.

    3. If the 1998 experience is any guide, lowering the contribution limits will disperse donations further, but not alter the distribution of donors nor the sources of campaign funds. Differential limits for individuals and PACs may simply encourage funds to be shifted between these means of making donations.

    4. The present system of uniform contribution limits is easy to enforce and more complex contribution limits will be difficult to enforce.

  3. Revisit the Limits on Parties.

    The major political parties received special treatment in the 1995 reforms: they were allowed to accept larger donations than candidates, to give larger contributions to candidates than individuals or PACs, and to engage in unlimited in-kind spending on behalf of candidates. There are also special provisions regarding intra-party transfers. It may make sense to lower or modify these limits.

    Questions and Issues:

    1. Ohio political parties spend funds in a desirable way: they are a major source of funds in competitive races and for challenging candidates. In this regard, the parties differ substantially from individual donors, PACs and campaign committees, all of which tend to have a strong bias towards safe incumbents. Any reforms of party finance should be careful not to undermine this special role in fostering electoral competition.

    2. Lowering the limits on contributions to parties may simply lead large donors to disperse their funds via local parties, PACs, and other organizations. It is unclear that such a dispersal serves any useful purpose. Lower contribution limits may also harm the capacity of parties to support competitive candidates.

    3. Lowering the limits on intra-party transfers is attractive to the extent that party transfers are used by large contributors to funnel extra funds to state parties beyond the contribution limits. There is some anecdotal evidence that this kind of activity occurred in 1998, but very little hard evidence to this effect. There are dangers inherent in limiting intra-party transfers in any event. State parties might then compete for local party donors, thus undermining local party organizations--and vice versa. Limiting transfers might well inhibit the legitimate functions of party organizations.

      Perhaps the best solution would be to apply the $15,000 per year limit on donations to state party committees to all party organizations. For example, an individual would be limited to $15,000 per year to a state party committee, whether the donation came directly to that committee or via a local party committee. It might be made illegal for any one person to give to a local party with the intent to contribute more than $15,000 to a state party committee in a given year, or for a local party to make such a transfer. Such a provision would require considerable paperwork and would be difficult to enforce, but it would preserve legitimate intra-party transfers while preventing local parties from serving as mechanisms for evading contribution limits.

    4. Quite apart from intra-party transfers, there are persistent rumors that party organizations serve as conduits for individual and PACs donations to candidates above the contribution limits. Although there have been some well publicized examples of this kind of activity the past, there is very little evidence for it in 1998. However, it might make sense to outlaw such practices, imposing serious penalties on donors, party leaders, and candidates for using a party contribution as a means of exceeding contribution limits. As with many aspects of campaign finance regulation, such a provision will be difficult to enforce.

    5. It may be unproductive to reduce the size of contributions parties are allowed to make to candidates since the parties can simply shift such funds to in-kind spending on behalf of candidates. Moreover, attempts to limit such in-kind spending will face challenges on First Amendment grounds.

Adopting a Public Financing Regime

Adopting a public financing regime has one important advantage over other approaches to campaign finance reform: it can bring new sources of funds into the system. Public financing is often used for other, more controversial purposes, such as reducing the level of campaign spending, replacing private funds, or limiting the influence of individual and organizational donors.

There are also disadvantages to public financing: it can face First Amendment challenges, it requires a source of public revenues, and it is often unpopular with the public. Ohio already has some limited forms of public financing, including public subsidies of state and local party committees and a state income tax credit of small donors.

  1. Matching public funds for small donations.

    An attractive use of public financing is to encourage small donations by matching them with public money. Such matching funds encourages candidates to raise money in small amounts because the matching funds go directly to the candidate’s campaign. This approach is especially attractive in Ohio because the large number of small, occasional donors that could be encouraged to become regular donors. The most prominent example of this kind of public financing is in presidential primaries.

    Questions and Issues:

    1. One important question is the size of the donation to be matched. From the point of view of encouraging citizen participation, lower limits are better, such as $50 or $100. However, from the point of view of raising money for candidates, larger limits make sense, such as $200 to $500.

    2. Another question is the size of the match. The most common matching system is a one-for-one match: a dollar of public money for each dollar donated. But there are alternatives, such as two-to-one, three-to-one, or four-to-one matches. Smaller donations with larger matches might make the most sense in the Ohio context. For instance, a $50 limit plus a two-to-one match would convert each $50 donation into $150 worth of funds. In 1998, such a provision would have added some $5.1 million of new money to the system.

    3. To preserve the grassroots quality of a matching system, it is important that matching funds be limited to donations at or below the limit, and not be applied to the first increment of a larger donations (such as the first $200 of a $1,000 donation). Otherwise, public funds subsidize large givers. Similarly, it is probably wise to exclude PAC, party and campaign committee contributions from matching funds.

    4. Another form of public financing is tax credits for small donations, such as Ohio currently has in place. Tax credits can encourage people to give small donations, but they do not encourage candidates to seek small donations. Tax credits and matching funds can work together, however, to increase small donations. Ohio tax credit is for donations up to $50 per person. It has not been in operation long enough to tell what impact it has had on contributing. However, the state tax expenditure budget projects that the credit will cost about $4.6 million in the 2000 and 2001 fiscal years. This evidence suggests that the equivalent of 92,000 $50 donations to candidates are expected--considerably above the roughly 51,000 in 1998.

    5. Matching funds can encourage electoral competition if the system is sufficiently generous. If candidates can actually raise a significant amount of funds in this fashion, the parties are likely to target the race and provide additional funds to make the candidate competitive. Thus, public financing can be used to leverage party funds into otherwise under-funded races. To a lesser extent, matching funds could leverage PAC and individual donations in a similar fashion.

  2. Direct Public Subsidies.

    Another option is to provide direct subsidies to candidates to partially or completely cover the cost of campaigns. The most prominent example of the latter is the full public financing of presidential general election campaigns.

    Questions and Issues

    1. Direct subsidies to candidates raises a crucial question: how much should campaigns cost? Partial subsidies raise the question of the minimum amount a candidate needs to be competitive, or setting "floors" of campaign spending. In contrast, full public financing raises the question of the maximum campaigns should cost, or setting "ceilings" for spending. There is very little hard evidence on either the minimum or maximum amount of funds needed for a competitive campaign. One reason is that political conditions and the costs of campaign communication vary enormously across districts within a single state.

      It is imperative that any form of direct subsidy be based on good evidence of the real costs of campaigns. If not, then candidates and other political organizations will have strong incentives to evade the limits by engaging in spending beyond the subsidy. The experience of presidential campaign subsidies also suggests that evasion is likely unless the ceilings are reasonable. Evasion may be especially likely in Ohio because of the unlimited in-kind spending of party committees. In this regard, partial subsidies are less problematic, since it is assumed that there will be spending beyond the floor. Under certain circumstances, a matching system can resemble a campaign spending floor; it is difficult to use matching funds to produce spending ceilings.

    2. Another crucial question is how candidates qualify for public financing. There are few public financing systems that offer partial or full subsidies to all would-be candidates; most screen the candidates by some means. For instance, matching systems require some level of fundraising by the candidate before subsidies begin as well as when the subsidies apply. Other systems limit subsidies to major party candidates. It is important to set qualifications for public financing in a defensible fashion.

    3. There is one special kind of public subsidy that is offered to all candidates: some states publish an official "voter guide" with basic information about the candidates and then distribute the guide to all potential voters. Voter guides are relatively inexpensive and can include all candidates that qualify for the ballot. For challenging candidates, this kind of information can be very valuable. Given today's computer technology, such a voter guide could be placed online as well as distributed through the mail. Newspapers and other media outlets might be persuaded to publicize such official voter guides as well.

    4. Most public subsidy systems require candidates to accept restrictions on their behavior, the most common being to abide by spending limits (which we will discuss below). Other requirements include not accepting PAC money or contributions above a certain size. Such requirements can be self-defeating. For example, one reason for public financing is to provide enough funds to make challenging candidates competitive. However, requiring such candidates to avoid PAC or individual donations can prevent candidates from raising enough money to be successful. It is important that the features of the campaign finance system be consistent with one another.

      However, it is not unreasonable to require candidates who receive public subsidies to behave in an acceptable fashion. For example, candidates could be required to participate in public debates or sign a campaign conduct pledge as a condition of receiving public funds.

  3. Setting spending limits.

    Limiting campaign spending is a popular approach to campaign finance reform. However, the courts have ruled that such limits are a violation of the First Amendment, unless candidates voluntarily agree. Hence, most attempts to limit spending arise as part of public financing: in return for public subsidies, candidates agree to abide by spending limits. To some reformers, reducing the level of spending is an important goal in of itself, but to others it is a means to replace private funds and reduce the influence of large donors and PACs.

    Questions and Issues

    1. Spending limits also raise the question of how much campaigns should cost. As we noted above, there is no consensus on this matter, and if the costs of campaigns are not reflected in spending limitations, there will be strong incentives for candidates and other political organizations to find ways to spend money beyond the limits.

    2. One of the common problems with spending limits and public financing is the under funding of campaigns. This problem is most severe when it comes to challenging candidates. Limits are often set too low for challengers to compete effectively against well entrenched incumbents. It is important that any spending limit proposal increase rather than decrease electoral competition.

    3. It is not clear that spending limits in and of themselves reduce the influence of large donors or PACs. In fact, some public financing systems probably increase such influence by allowing candidates who agree to spending limits to accept larger contributions from individuals and PACs, while those who do not agree to spending limits can only raise funds in smaller amounts. It makes little sense to use public money to increase the influence of wealthy interests.

    4. Spending limits do not in and of themselves increase citizen participation. In fact, they can often reduce the level of participation by replacing individual donations with public funds. Indeed, candidates with public financing and strict limits have little incentive to pursue grassroots politics. It is important that public financing provisions increase rather than decrease the level of grassroots politics.

    5. Under most circumstances, spending limits resemble contribution limits in that they do not bring new sources of money into politics. In contrast, one of the most valuable attributes of public financing is bringing a new source of campaign money into the political system.

  4. Funding Public Financing Systems.

    Another problem with public financing systems is finding a source of public revenues to pay for them. Indeed, many public financing systems are under funded precisely because the revenue source is inadequate. Using general tax revenue is an option used in some systems, but it is often quite unpopular. The most common method is an income tax "check-off" (letting taxpayers designate funds for public financing). Whatever the system, public financing proposals of all kinds must identify a source of revenues that will be sufficient to pay for the program.

Summary and Conclusions

Within each of the two avenues for reform, several options seem especially promising given the current state of Ohio campaign finance. While no panacea, these options build on the 1995 reforms, reflect the realities of Ohio campaign finance, and probably can be accomplished in the short run.

Under the rubric of further regulation, one can imagine a series of measures aimed at reducing the influence of "fat cats":

  1. an aggregate limit on individual donations;
  2. reducing the annual donation to PACs to the uniform $2,500;
  3. anti-conduit proposals for intra-party transfer and party donations.
These provisions would help reduce the relative influence of large donors in the context of current regulations.

Under the rubric of public financing, two provisions seem most promising:

  1. a four-to-one match of donations of $50 or less: and
  2. the production and distribution to all citizens of a state "voter guide" containing information on all candidates.

In the present context, these provisions would bring a new source of money into elections, encourage citizen participation, foster electoral competition, and counter-balance the influence of wealthy individuals and organizations.