What is Public Financing?

The Federal Election Commission, the agency that oversees federal election financing, defines public financing as the receipt of "federal government funds to pay for the valid expenses of [candidates’] political campaigns in both the primary and general elections."  

In plain English, this means if campaigns play by the FEC’s rules, they may use U.S. Treasury dollars to fund their primary and general elections. The amount of Treasury money available is determined by the American people. When we file our taxes, we can choose to check a box to set aside $3 from our taxes to be distributed to qualified candidates. This does not increase anyone’s tax bill or decrease the amount of a refund. The money is taken from the taxes you’re already paying and set aside in the Presidential Election Campaign Fund. 

The concept of public financing dates back to 1907, when President Theodore Roosevelt proposed it in his State of the Union Address. But legislation stalled repeatedly from the time of his proposal until the eventual enactment of a 1971 law allowing candidates to directly receive public funds. Congress also passed the Federal Elections Campaign Act that year – a parallel measure, which outlined federal candidate reporting requirements; the law was amended in 1974. 

Primary Money

To qualify for public financing in a primary election, a candidate has to abide by the following big three rules:

• Have broad public support. This means a candidate has to raise more than $5,000 in each of at least 20 states before he or she qualifies.

• Limit expenditures to $10 million (as of 2008). That $10 million does not include a Cost of Living Adjustment, which has been accumulating since the base year of 1974. The COLA, plus the $10 million, is called "the national spending limit." This election year, the national spending limit for each candidate in primary elections is $42.05 million. Candidates can also spend up to 20 percent of the total limit on fundraising, and another 15 percent for legal and compliance fees. These spending exemptions raise the total limit to approximately $54 million. 

• Don’t spend more than $50,000 of personal funds. This is money from the candidate’s personal bank account(s) and does not count toward the national spending limit.

If he or she meets the criteria, the candidate can receive public financing from the Treasury in the form of matching funds – up to a point, of course. For every individual contribution of at least $250 to a candidate, the candidate also receives a $250 match from the government. Only the first $250 of any contribution is matched, however; individuals can give as much as $2,300 to a candidate in the primary. And contributions received in the form of services or loans, or those received from organizations, are not matched. Given these rules, candidates usually raise quite a bit more money than they receive in matching funds.

Keep in mind that money spent on legal fees and accounting expenses to ensure compliance with the federal election law, as well as some fundraising expenses, is not subject to the national spending limit.

On to the General

If a candidate strikes pay-dirt and wins the party’s nomination, he or she can get public financing to run the general election campaign. But the money comes in a different form – an outright grant of $84.1 million for 2008 (it was $74.6 million in 2004), rather than matching funds. To qualify for public financing during the general election a candidate has to:

• Refuse all private donations. Candidates may accept private donations only for their campaigns’ legal and accounting expenditures; the money must be segregated in separate accounts.

• Limit spending of personal cash to $50,000. Same as with primaries, this expenditure does not count toward the national spending limit. In general elections the spending limit is $84.1 million for the 2008 general election. 

The FEC audits all public financing receipts, and a campaign can be required to return all or some of the money if it receives more than it is entitled to, spends more than it is allowed, fails to adequately report receipts, earns interest on public funds, spends public funds on anything other than approved campaign expenses, or has a surplus of public funds after all expenses and debts are paid.

Who Uses Public Financing?

According to FEC spokesman Bob Biersack, "Every major party nominee since 1976 has accepted public financing." But when a candidate can raise as much as $55 million in one month from private donations in a primary season, like Sen. Barack Obama did in February, and when there are estimates that the 2008 general election could cost as much as $500 million per nominee – or $1 billion overall – a grant of $84.1 million in public financing may not look so attractive.

The 2008 presidential candidates are in the midst of confronting this issue. In late February, Sen. John McCain accused Sen. Obama of hinting in a USA Today op-ed that he would renege on his pledge to accept public financing in the general election. In the op-ed, Obama wrote that if he was tapped to be the Democratic nominee he would push for an "agreement in good faith that results in real spending limits." Presumably, the "real spending limits" Obama mentioned would be different from the $84.1 million the FEC is offering. Meanwhile, Clinton, unlike Obama, has not pledged to use public financing in the general election. 

But Obama isn’t alone when it comes to campaign finance conundrums. Also in February, McCain requested to withdraw from the primary election public matching funds system. But the FEC responded that, without a quorum (four of the six FEC seats are vacant), it could not issue a formal decision. The FEC’s chairman also had questions about the McCain campaign’s promise, as a condition of receiving a bank loan, to reapply for future matching funds and use that money as collateral against the loan under certain circumstances.

McCain’s situation was further complicated when, as The Washington Post reported, he exceeded the $54 million spending limit for candidates who participate in the matching funds program. McCain’s campaign and his lawyers insist he formally withdrew from the matching funds program and is no longer subject to its spending limits. However, the FEC, lacking a quorum, has not been able to make a final decision on McCain’s status and whether or not he violated campaign finance rules.

– Emi Kolawole