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Editor’s Note: In this article, Schotland argues that BCRA is the latest in a line of "sham" efforts that claim to reform campaign finance, but hide provisions that protect incumbent lawmakers. He suggests the Supreme Court should look beyond the law's "façade." He notes in the first section of the article that the Court has been fooled before by "sham reform," strikingly so in its 2000 decision in Nixon v. Shrink Missouri Government PAC.

Shrink Missouri Government was surely one of the all-time best-named cases in the Supreme Court. Missouri set contribution limits for state officials that were attacked as unconstitutionally low, e.g., $525 for a State Senate candidate. The limits were lower than any previously upheld by the Court—but six Justices found them constitutional.1 As Justice Souter said for the Court, the State’s goal was to meet the “threat from politicians too compliant with the wishes of large contributors” and to “prevent corruption and the appearance of it that flows from munificent campaign contributions.” Or as Justice Breyer wrote in concurring, such restrictions “seek to protect the integrity of the electoral process” and “to democratize the influence that money itself may bring to bear upon the electoral process.” He went on: “I agree that the legislature understand[s] the problem—the threat to electoral integrity, the need for democratization—better than do we.”

Justice Breyer couldn’t have been more correct—but only ironically. In fact, the Court looked at only the provision they were sustaining, ignoring the rest of the statutory scheme. That scheme as a whole shows that this one provision was a sham—the appearance of reform to meet concern about the appearance of corruption.

The limits sustained in Shrink apparently satisfied the drive for reform in Missouri, but fooled the people and fooled the Court. 2

Perhaps Shrink exemplified what Justice O’Connor recently described wisely: “[R]are indeed is the legal victory—in court or legislature—that is not a careful byproduct of an emerging social consensus.”³Certainly the view of campaign finance reform as aimed at noble goals, is “an emerging social consensus.” Amici supporting Missouri included the Solicitor General, scores of Attorneys General, Members of Congress and political scientists, urging “the restoration and preservation of citizens’ faith in the democratic process.”⁴ The brief for 29 States said “The States aim … to increase the public’s confidence in their elected officials …. Campaign finance reforms … are the product of the public’s outrage at a government that appears to be slipping further away from the people it serves…. [C]ontribution limits [are set] in the justifiable belief that these limits are necessary to ferret out the potentially corrupting role of big dollars in political campaigns.”

For years and with remarkable frequency, editorial and Op-Ed pages have supported campaign finance reform, e.g., praising the Shrink decision for upholding “tight limits.”⁵ But while editorialists need not take the larger view, the Court certainly should. And in the larger view, not only of Missouri law but of campaign finance “reform” generally, it is naive to believe the Missouri legislators aimed at reform. Our history of campaign finance shows a parade, from the beginning, of sham reforms.⁶ Surely there is reason to explore whether, when legislators change the rules for their campaigns, they are pursuing “reform” or its opposite: incumbent protection.⁷

The Missouri law is a classic example of “reform” as mere façade, hiding potent incumbent protection.

Sham Reform: The Supreme Court, in Shrink Missouri, upheld the appearance of reform and missed the striking reality, a Potemkin statute.

The Missouri provision seems a simple limit on contributions, set at low levels to avoid corruption.

The Court missed how porous are Missouri’s limits. Missouri is one of the 11 States with the least regulation on party fundraising.⁸ That means that the statute at issue in Shrink suffers not mere loopholes—to borrow from the familiar image about laws like swiss cheese, this statute is only a crumb of cheese with funds flowing freely all around it.

The only moment of reality at the Court was in oral argument, when the Chief Justice asked the Solicitor General (an amicus) whether there were “alternate channels” for contributors.

Waxman replied: “[I]ndeed … it is even more true in Missouri than it is under Federal law, because, for example ... individuals can make unlimited contributions to political party committees, that is, political parties can create committees and, unlike the Federal law, which limits how much one can give to a political party or PAC, Missouri doesn’t apply any limits.” 9

Consider how many ways Missouri allows big contributors to get around the façade of contribution limits.

(1) As the Solicitor General noted, Missouri has no limit on how much a person (or any entity) can give to political party committees or PACs.

(2) Missouri has no “aggregate” limit on how much a contributor can give to all candidates and committees.

(3) Missouri has no limits on how much any committee can give to other committees.

(4) Missouri has no limits at all on contributions from or spending by corporations, unions, PACs or any regulated industry.

(5) On contributions to candidates, the low limit has one exception: a “party committee” (i.e., registered as such) can give to a candidate 10 times the limit on other contributors. E.g. for a gubernatorial candidate, a “party committee” can give $10,750 in funds and another $10,750 in-kind.10 That is entirely reasonable, considering that parties are our uniquely “big tent” organizations, the only ones with the mission of building consensus. But—

(6) The $21,500 limit is another facade: every party committee in the State can give that much to each state or local candidate.

How many party committees in Missouri? Currently, there are 110 Democratic committees, 125 Republican, eight Libertarian, two Green, and 11 other committees. During the 2002 election cycle, 58 Democratic, 64 Republican, and nine others reported receipts, contributions, and expenditures.

Of course, having every committee give to every candidate would need more money than is realistic—but below we see that in fact, surprisingly large sums do flow through the party committees. Unsurprisingly, since non-party committees are covered by the low limit on contributions to candidates but unlimited in what they can give to other committees, the major non-party committees give all or almost all their funds to the party committees.

In short, all Missouri does have are low limits on contributions directly to candidates—which Missouri makes so easy to avoid.[1]

Compare Missouri with the four States closest in population: Maryland, Tennessee, Washington and Wisconsin.[2]

There are States with less regulation than Missouri, but not many, and certainly not the most comparable States. The above data show the results of these five States’ very different regulatory schemes. The role of Missouri party committees has grown, in contrast to the other States where party committees are more limited and their role has shrunk. Missouri purported to reform with contribution limits, but the system merely shifts funds through party committees. The Court, however, missed it.

Justice Breyer is correct that Missouri’s “legislature understand[s] the problem”— but not as he meant it.

No way is BCRA a sham. Rather, the sham is the claim that it reforms campaign finance. To think that Congress in BCRA reformed campaign finance –either in the sense of reducing the role of big bucks and special interests, and/or reducing the incumbent-challenger gap, and/or reducing the extent to which we allow economic realities to drown our commitment to “one person one vote”—is naive. First, the history of campaign finance, from its beginning, is noted above.[3] Second, does anyone believe that Members of Congress are less interested in protecting their jobs and status than the state legislatures that in the past two years have enacted the most incumbent-protective redistricting ever, producing record noncompetitiveness in House races?[4]

Incumbent protection is anti-democratic, not merely not reform. Any reform element in BCRA is overwhelmed by four incumbent-protection provisions:

1) The “Millionaires’ Amendment”: Mortals fear God, but incumbents fear self-funding candidates. As John McCain put it, "Everyone is scared to death of waking up in the morning and reading in the newspaper that some Fortune 500 CEO or some heir or heiress is gonna run against them and spend $15 million of their own money."[5]

Self-funders usually lose– but win often enough. E.g., in 2000, two of the six successful Senate challengers were heavily self-financed. In 1998, of the three incumbents who lost, two were defeated by multi-millionaires.[6]

But BCRA protects incumbents against even mini-millionaires. When the “Millionaires’ Amendment” was on the floor, Sen. Levin said "the playing field will be less level for the challenger. For instance, the challenger, who might want to put $1 million into the campaign ... may mortgage a home to get the $1 million so that he or she is able to compete against the incumbent, where the incumbent has $5 million in a campaign account. We make that situation less level, not more level, because the incumbent is able to then raise money at the higher contribution levels."[7]

If this provision had been law for the 2000 elections, it would have come into operation in 35 elections (15 primaries, 20 general elections).[8] To see how the provision works, use a House race as an example rather than bogging down in the “very complicated … mind-boggling” calculations for Senate races.[9] If a House incumbent has a warchest of $500,000 (and as of 6/30/03, exactly 106 of the 435 Members already had that much) and the challenger mortgages her home –her only significant asset—for $1,000,000 and puts that sum into her campaign, then the incumbent (or other opponent) can get contributions of up to $6,000 instead of $2,000. In Senate races in 22 small States, donors to incumbents with warchests who face such mini-millionaires may be able to make contributions of up to $12,000. (Another benefit for opponents of self-funders: they’re freed from the ordinary limits on “coordinated spending” by their parties.)

The inconsistency between BCRA’s premises –and sales pitch– and the “Millionaires’ Amendment”, is captured well in one brief for the Supreme Court: “The Government has shown remarkable intellectual flexibility in defending strict contribution limits and limits on coordinated party expenditures as essential bulwarks against corruption, only to abandon those restrictions in the interest of aiding ... candidates facing wealthy opponents.”[10]

And hiding behind the complex part of the Millionaires' Amendment is a simple provision even more damaging to challengers: No more than $250,000 in candidate self-lending can be repaid after the election. No surprise, this. In House races, self-funding loans total 0.53% of incumbents' total funds but 24% of challengers' total funds; that's for 2002, but the highest figure in years for incumbents was 1.36% in 1992, contrasting with challengers' lowest figure of 18% in 1996.[11]

Don’t overlook the main role (of what obviously should be called the anti-Millionaires’ Amendment): helping incumbents by discouraging self-funders (even mini-millionaires and people willing to take on debt) from running at all.

2) BCRA hugely helps Mr. and Ms. Money so long as they know their place, i.e., to merely contribute. Replacing the long-standing $25,000 limit on an individual’s aggregate contributions each year, BCRA allows every individual to give up to $95,000 each cycle.[12] For a big donor who sympathizes with the opponents of self-funders, the aggregate rises (another boost to Sen. Levin’s hypothetical sad sack with only $5,000,000 in the warchest) as high as $285,500.[13]

Even with the modest $95,000 limit, BCRA satisfies the drive for reform only if the details stay hidden. Big donors will be taught the details.

3) Real reform would include some steps to reduce the unique, well-known hurdles facing women and minority candidates, and the incumbent-challenger gap; see n. 7 above. Instead, BCRA worsens the incumbent-challenger gap in several ways:

a) It puts parties at a disadvantage to single-interest and single-issue groups, even more than is generally realized.[14] To realize how anti-reform this is, consider how much parties and PACs differ in their support to incumbents and challengers. There can be no doubt that hurting parties will lead to hurting challengers, and helping special interest groups will lead to helping incumbents. In 2000 and 1998, parties gave three times as much to challengers as to incumbents. PACs in 2000 gave almost three times as much to incumbents as to challengers, and almost the same in 1998.[15]

b) BCRA allows federal candidates to appear at fund-raising events conducted by state and local parties, even for raising soft money– though, of course, the federal candidate cannot “solicit” soft money (§323(e)(3)). No need for the federal candidate to directly “solicit” soft money.[16] What the candidate will solicit is attendance, and the state party people will solicit the soft money –usually as the price for a closed-door, small group session with the federal candidate.

By appearing at such events, candidates energize support from the rest of the ticket. Who is more likely to be a “featured guest” at such a state party event, an incumbent or others?

“[W]hy was Congress more generous to candidates and officeholders than it was to the parties? A concrete example. A candidate for Federal office can make a speech at a fundraising event for a state or local candidate, if I read the statute correctly…,

QUESTION by [Ginsburg or Scalia]: I thought we were talking about corruption. Surely the possibility of corruption is much more direct when it's the candidate himself who was soliciting for this organization, which will then help him....

QUESTION by [Ginsburg or Scalia]: But [Congress] went out of its way to allow incumbents to do this. Went out of its way. It didn't leave a gap. It said we're not going to let the parties do this, but we will let the candidates do it….

QUESTION by [Ginsburg or Scalia]: If we found that this law had the purpose or the effect of giving significant advantage to incumbents, would we have to strike it down under the First Amendment?[17]

c) BCRA allows federal candidates’ “agents” to solicit both hard money for the candidate’s campaign, and at the same time –if the “agent” is also acting for a state or local party-- to raise any funds allowable under that State’s law.[18] There goes the limit on federal candidates’ soliciting soft money.[19] “Ms. Money, all I can ask you to give the Senator/Congressman is $2,000, but I’m privileged to be working for our state/county party too, and I know that you can give far, far more than $2,000, you can really help our ticket of state/local candidates continue their work for what you and I really care about ....”

Again, will incumbents or others be more likely to have campaign agents who are also authorized to act for the state party?

All that needs adding is a prayer that with BCRA, the Court will get beyond the façade.

¹ Nixon v. Shrink Missouri Government PAC, 528 U.S. 377 (2000). The statute provided for adjusting the limits every two years to take inflation into account. This paragraph’s quotations are from, respectively, 528 U.S. at 389, 390, 401 and 403.

² As the Court noted, quoting Buckley: “’the prevention of corruption and the appearance of corruption’" is a “‘constitutionally sufficient justification’” for contribution regulation. Id. At 389. Fooling the voters is no justification.

Before Missouri’s 1994 enactment of contribution limits, party contributions were much less significant. In 1986-92, the major parties contributed an average of 3% to candidates’ total receipts, but averaged 14% in 1996-2002, hitting 21% in 2002. Washington State, which like Missouri does not limit contributions to parties but regulates other aspects more than Missouri does, started with an average 50% higher than Missouri’s but the two States were equal for 1996-2000.

Source of all data: The National Center on Money in State Politics, www.followthemoney.org.

³ O’Connor, The Majesty of the Law (2003), at 166.

⁴ This paragraph’s quotations are from, respectively: Brief of Senator John F. Reed et al, at 7; Brief of Ohio et al, at 2, 4; Brief of Paul Allen Beck et al, at 19; Brief for U.S., at 6, n.4.

⁵ Elizabeth Drew, Let's Destroy These Two Myths, Once And For All, Washington Post, 4/16/00, at B1.

⁶ The first federal campaign finance statute, enacted in 1907 and still law, bars corporations from making any contribution "in connection with" any election for federal office. (Since 1943, unions are subject to the same limitation.) But what of expenditures? It took only 38 years to discover, as a House Committee put it in 1945, "Of what avail would a law be to prohibit contributing to a candidate and yet permit the expenditure of large sums in his behalf?" And so in 1947, the limit was extended to cover expenditures. Why was the law so hollow, so long?

Our first contribution limits, a 63-year farce ended by the 1974 Federal Election Campaign Act, prohibited giving more than $5,000 to any candidate or single committee. Which allowed collecting a raft of checks from each large contributor: e.g., the 1972 Nixon campaign’s largest contributor, insurance executive W. Clement Stone, entirely legally gave $2.1 million, “almost all of it in amounts of $3,000 or less [lower than the contribution cap, in order to avoid federal gift tax], to literally hundreds of small committees ….” Herbert Alexander, Financing the 1972 Election, 358 (1976).

⁷ Real reform (for all of us who believe there is more to be done than disclosure, crucial as disclosure is) would reduce the notorious incumbent-challenger gap, which has constantly worsened: In 2002, US House incumbents outspent challengers almost 5:1; in 2000, over 2:1 but in 1980, incumbents had only 35% more than challengers. More telling: serious challengers (70 of the 273 running, who got 40% or more of the votes) in 2000 spent only 57% as much as incumbents; in 1980, it was 75%. Even winning challengers (6!) spent only 79% as much as their opponents, the weakest incumbents.

Real reform would get funds to challengers --rather than seeking barriers to stop fund flows we know, from 30 years of experience, are bound to run around the barriers. This can be done by empowering voters with vouchers, or empowering parties with funds for them to give only to challengers, or directly giving challengers in-kind support like several free mailings.

Real reform would also include some steps to reduce the unique, well-known hurdles facing women and minority candidates—“The Forgotten Few”. They sorely need “seed money” to show whether their campaigns are viable. BCRA, instead of protecting incumbents with the “Millionaires’ Amendment” (see below), should allow challengers to raise a limited amount of contributions above the $2,000 limit (like the Millionaires’ Amendment provision that helps incumbents (and others) opposed by self-funders).. See empirical studies cited in Conti, The Forgotten Few: Campaign Finance Reform and its Impact on Minority and Female Candidates, 22 Bos.Coll.TCWLJ 99 (2002).

⁸ Raymond La Raja, State Political Parties After BCRA, a chapter in Michael J. Malbin (ed.), Life After Reform: When The Bipartisan Campaign Reform Act Meets Politics, at 107 (2003).

Preferential treatment of parties is, I believe, not deplorable but commendable. What is deplorable is perpetrating or naively supporting sham—in Shrink, the exclusive focus on the low cap on contributions, lauded as preventing corruption, democratizing, etc. Such charades, which hide reality only for awhile, are bound to reduce confidence in government.

⁹ No Justice followed up on that at argument or in the opinions. However, Justice Kennedy, in his dissent, discussed soft money, noting that “The Court has forced a substantial amount of political speech underground, as contributors and candidates devise ever more elaborate methods of avoiding contribution limits, limits which take no account of rising campaign costs.” At p. 406.

And all briefs were unaware of the contribution limit’s hollowness except for a footnote in plaintiff’s brief.

¹⁰ Using the dollar figures at the time of the Supreme Court decision; as noted earlier, the statute provides for biennial adjustment for inflation.

[1] The other four States compared here allow somewhat higher direct contributions to candidates, but: corporate and union activity is tightly limited in two and prohibited in Wisconsin; and in Tennessee, corporate is prohibited and labor is tightly limited.

[2] Comparison with other States is necessary to support statements about Missouri. The most neutral, objective comparison is with the States closest in population: Maryland, Tennessee, Washington and Wisconsin. These five States are roughly similar in political competitiveness. See La Raja, n. 8 above, at 107, 118.

[3] See above, n. 6.

[4] The leading scholar on Congressional elections wrote this: “Usually, the shakeup set in motion by redistricting produces a bumper crop of competitive races in years ending in `2.’ Not in 2002 .... Redistricting patterns are a major reason for the dearth of competitive races in 2002 and help to explain why 2002 produced the smallest number of successful House challenges (four) of any general election in U.S. history.... The pattern of House election results in 2002 reflects redistricting patterns with remarkable fidelity....” Gary Jacobson, Terror, Terrain, and Turnout: Explaining the 2002 Midterm Elections, 118 Poli.Sci.Q. 5, 10-11 (2003).

[5] Jill Zuckman, Senate Votes to Level Election Playing Fields, Chicago Tribune (3/21/01), 10.

Senator Chris Dodd (D-Conn.) noted the extreme irony in “the idea that somehow we [incumbents] are sort of impoverished candidates…. [W]e are talking about incumbents who have treasuries of significant amounts and the power of the office which allows us to be in the press every day, if we want. We can send franked mail to our constituents at no cost to us. . . . We do radio and television shows. We can go back to our States with subsidized airfares.... The idea that somehow we are sort of impoverished candidates .... I am worried that we are going in the absolute opposite direction of what the McCain-Feingold bill is designed to do.” Congressional Record S2542, 3/20/01.

[6] Jennifer Steen, The “Millionaires’ Amendment”, in Malbin, n. 8 above, at 159.

[7] Cong.Rec. S2548, 3/20/01. An amendment was made to meet some of Levin’s concern, but that amendment drew continued opposition from Sen. Dodd: “[T]his so-called fix is not a fix at all. [In Dodd’s example,] the incumbent has a warchest of $1,000,000, but only $500,000 of that is considered. So when the wealthy candidate spends $500,000 of his or her own money, no benefits are triggered. But as soon as that wealthy candidate spends $1,000,000, the triple limits apply.” S3195, 3/30/01.

[8] Steen, n. 16 above, at 165. For Senate races, the applicable limits depend on population; also, the figures vary depending on when in the campaign the calculation is made, and how much has already been raised as of that date. See 11 CFR 499 (20 pages).

Steen, noting the difficulty of predicting how the new law might have impacted 2000's elections, found it “conceivable that increased fundraising under the Millionaires’ Amendment” could have changed the outcome [in] three Senate elections and three House elections, all general election match-ups. In each case the loser’s receipts would have increased by as much as 25% and the loser’s party would have been allowed to make unlimited coordinated expenditures. In five of the six the margin of victory was less than five percent, and one election (the 15th district of Illinois) the margin was under seven percent.” At 220.

[9] “Very complicated ... a mind-boggling task” for federal regulators and candidates, said Senator Durbin’s spokesman. (Rick Pearson and Ray Gibson, “Campaign Fund Law has Giant Loophole: “Millionaire's Amendment may Unleash Spending,” Chicago Tribune, February 5, 2003, at 1.)

Brevity precludes describing the complexity of calculating the “opposition personal funds amount” (which must be done repeatedly) and the “proportionality”, let alone other aspects like what happens if the self-funder withdraws. Note that for donors, any permissible over-$2000 contribution does not count against the donor’s aggregate limit on contributions.

Complexity helps incumbents with their experienced staffers. For aid on this, I am indebted to two friends whose patience matches their expertise.

[10] Political Parties’ Brief, at 31, n.17. In the Supreme Court, these parties did not challenge this provision.

[11] In 2002's congressional races, 56 candidates had self-lending that exceeded $250,000. Steen, at 164.

[12] Up to $37,500 to candidates, up to $37,500 to non-party committees and state/local parties, and $20,000-$57,500 to national party committees.

[13] The ordinary limit of $37,500 to candidates allows $2,000 contributions to 18 candidates, and $1,500 to a 19^th. If one contributed to 19 opponents of self-funded candidates in 22 States, the aggregate for giving to candidates would rise to $12,000 x 19 = $228,000. To that, add the $57,500 aggregate cap on giving to non-candidate committees for the total of $285,500.

[14] On the one hand, e.g., state and local campaigns can use only FECA-regulated funds for “public communications” if they include reference to a clearly identified federal candidate, not only in ads but even in mailings or phone-bank efforts that involve more than 500 recipients.

On the other hand, already in place are non-party groups swimming in deeper-than-ever resources. E.g., one expects at least $75 million, Americans Coming Together, headed by Ellen Malcolm (founder of Emily’s List) and Steve Rosenthal (long-time AFL-CIO political director; they start with $10,000,000 from George Soros, $12,000,000 from other philanthropists, and $8,000,000 from unions. (Thomas B. Edsall, Liberals Form Fund To Defeat President, Washington Post, 8/8/03, A3.) Steve Rosenthal also heads the union-affiliated Partnership for America’s Families, with $20,000,000. (Edsall, Labor Group Names New Directors, Washington Post, 6/6/02, A13.)

[15] From Norman J. Ornstein et al., Vital Statistics on Congress 2001 - 2002, Table 3-8 (2002). The party amounts are for contributions plus supportive spending. See also above, n. 7.

[16] In fact, the FEC regulation provides that “Candidates and individuals holding Federal office may speak at such events without restriction or regulation”, 11 CFR 300.64. Query whether that blanket permission is consistent with the statute. But no candidate need test this.

[17] Transcript of oral argument, at 64-68.

[18] Advisory Opinion 2003-10.

[19] 11 CFR 300.2. True, this is partly the statute, partly FEC action. But there will be many such rulings and regulations, as the FEC creates what BCRA supporters will call loopholes– created mostly by necessity, given the realities that the Panglossian statute tries to gloss over.

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Special Report: Analysis & Opinion

Shrink Missouri: How Sham Reform Fooled the Voters and the Court And What It Means for BCRA

By Roy Schotland, Professor of Law, Georgetown University Law Center