McCain-Feingold changes state party spending

Fundraising dips, ad buys plummet in first election after campaign reform

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Campaign finance reform took a bite out of the bottom line for state parties in 2004 as overall fundraising dipped to slightly more than $735 million for the cycle, with an even split between Democrats and Republicans.

That is $65 million less than state parties pulled in during the 2000 presidential election and an $85 million decline from the 2002 mid-term elections, a Center for Public Integrity analysis of state and federal campaign finance reports shows.

The downturn is largely attributable to the Bipartisan Campaign Reform Act, also known as McCain-Feingold, which outlawed "soft money"—the unlimited, mostly unregulated campaign cash donated to national party committees by individuals, corporations and unions.

In elections before the reforms were enacted, large transfers from the "big six" Democratic and Republican national committees—most of it soft money—accounted for about 40 percent of all the money coming into state party coffers. Much of that money was funneled into broadcast advertisements. In 2004, with the law in place, the national parties transferred no soft money to their state counterparts.

Consequently, state parties on both sides of the aisle reported spending far less on television and radio advertising than before the law took effect in November 2002, according to the Center's six-year study. Also, state parties retooled their operations to focus more on direct voter contact.

The Center tracked contributions and expenditures for more than 200 state party and caucus committees over the three election cycles, making it possible to evaluate the impact of the McCain-Feingold legislation after the first full cycle under the new law. Because federal candidates appear on ballots alongside state-level candidates in the same election, state parties must conform to both state and federal regulations, usually by operating two different bank accounts: one federal and one state. The Center study includes both.

Throughout the course of this study, Center researchers ran across numerous reporting problems stemming from this complicated regulatory environment. Federal receipts and expenditures often appeared on state filings, and even federal transfers from the national parties to state committees did not balance on each side of the ledger. Center researchers spent months working to reconcile the discrepancies among various official filings and reduce duplication.

Radio silence

One of the major findings of the Center's analysis: state parties drastically reduced their investment in political advertising after the McCain-Feingold legislation eliminated transfers of soft money from the national committees to their state affiliates.

Television and radio ad buys declined from $180 million in the 2002 elections to $49 million—a drop of $133 million, or 74 percent.

During the 2000 and 2002 cycles, the national parties raised close to a billion dollars in soft money. They transferred significant amounts of that money to state affiliates, and the state parties in turn invested heavily in advertising on behalf of the national committees.

For example, during the 2002 election cycle state Democrats paid Media Strategies & Research $22 million for media consulting services, production and ad buys. In the 2004 cycle that amount dropped to $6 million.

Jon Hutchens, president of Media Strategies & Research, attributes the decline in media expenditures by state parties to the absence of soft money transfers from the national parties. The federal committees would "route these funds through a state party committee in order to pay for the advertising the federal committees wanted," he said.

But not anymore. Under the old rules, the national parties could finance political advertisements with a larger portion of soft money by using their state affiliates to finance ad buys. With the elimination of soft money, this is no longer an option.

While the role state parties played in media buys declined, "BCRA didn't reduce the amount of spending in media," said John Gautier, president of TenCapitol—a GOP media consulting firm formerly known as Murphy Pintak Gautier Hudome.

Though his firm received slightly more than $100,000 from Republican state parties in the 2004 cycle—down from $17 million in the 2002 cycle—Gautier suggested that media buys of 527 and 501(c)(4) non-profit organizations probably made up the difference.

In fact, a Center study released last year found that, during the 2004 presidential election, 527s spent a majority of their money on broadcast advertising. These committees accounted for more than $140 million in political advertising, an amount comparable to the gap left by state parties.

Still, according to some observers, advertising paid for by political non-profits did not simply replace the soft-money advertising of past elections. Rich Robinson of the non-partisan, non-profit Michigan Campaign Finance Network says that, in his state, "third-party groups sponsored only $3.5 million-worth out of $38 million spent for broadcast television advertising after the March Super Tuesday primaries." During the 2000 presidential election "national parties transferred more than $24 million in soft money to Michigan's state parties," which mainly paid for issue ads, he added.Some soft money donations previously given to the national parties may have shifted to the 527 committees that were so controversial last election. Media Strategies & Research is the top overall recipient of 527 money since 2000, and received more than $42 million from the Media Fund, which worked in conjunction with America Coming Together, during the 2004 election cycle. Operating outside of most state and federal election laws, 527 groups can carry out some of the activities that party committees may no longer engage in.

Voter contact

With media buys down, the state committees redirected a significant amount of funds to cover payroll and costs associated with maintaining a bigger staff.

Get-out-the-vote efforts became more of a focus, with spending on bringing people to the polls exceeding $1 million dollars in each of 20 states during the 2004 cycle. Voter turnout reached 60 percent—the highest it has been since 1968, according to the Committee for the Study of the American Electorate.

The ground game reached its peak in the presidential race's battleground states. Florida, California, Pennsylvania, Wisconsin and Ohio were among the top states that spent the most on get-out-the-vote work.

The Buckeye State saw a flurry of activity. "We spent twice as much money on the ground war in Ohio" as on broadcast advertising said Denny White, the Democrats' state party chair in Ohio. "Media buys don't really drive people to the polls. We actually had 250 people on the payroll. We had offices set up all around the state."

In Colorado, Democrats outspent Republicans on voter turnout, and they reaped significant returns on their investment. Colorado Democrats picked up open House and Senate seats in federal races, and wrested control of the state legislature from Republicans. "Voter contact and the ground game played a much larger role in Colorado than it has in a very long time," said Spencer Ross, political director of the Colorado Democratic Party.

North Carolina Democrats also spent significantly more money than their Republican counterparts to turn out the vote, and their efforts succeeded in electing Mike Easley governor of the state, but failed to retain the U.S. Senate seat vacated by John Edwards or to win the state for the Kerry-Edwards national ticket.

Winners and losers

With the new McCain-Feingold fundraising restrictions weaning them from their national counterparts, state parties honed their own fundraising efforts—some more successful than others.

Unable to rely on large transfers of money from the national committees, state parties collected $445 million in campaign cash directly from donors, an amount greater than either of the two previous election cycles. That money partly offset the large drop in funds transferred to state parties by the national committees.

This direct fundraising by state parties increased in 2004 by more than $128 million compared to 2000, although a handful of parties were somewhat less successful. A total of 40 state parties increased their campaign cash intake in 2004 by $1 million or more over 2000, while nine committees' income decreased by at least that amount.

Missouri saw a hotly contested gubernatorial election in 2004 and the Democratic and Republican parties raised a combined $27 million—double what they brought in during either the 2002 or 2000 cycles.

Indiana's very close gubernatorial election spurred both parties' fundraising efforts in 2004, for a combined total of $20 million, almost doubling the $11 million raised for 2002.

California's state parties saw the largest absolute increase in dollars—a $19 million jump over 2000 and a $9 million rise over 2002—despite having no high-profile state or federal races in 2004. All told, the two parties raised $49 million for 2004.

When the money parties raised themselves is combined with the transfers they received from the national parties and other political committees, Florida, California and Pennsylvania parties top the list, taking in a combined total of $171 million.

Origin of money

Despite the many changes brought on by the McCain-Feingold campaign finance law, familiar faces donated large amounts of money to help sustain the parties.

Among those at the top of the list of individual donors were two state party chairs, who donated the bulk of their money to their own party committees. Elisabeth DeVos, who was Michigan Republican Party Chairwoman until she stepped down in early 2005, and her husband Richard gave $1 million* to Republican Party committees. Arizona Democratic Party Chair James Pedersondonated $2.2 million to the Arizona State Democratic Committee. The second largest donor, Jay Van Andel, who died in December 2004, co-founded Amway with Richard DeVos' father.

Democratic political committees and unions topped the list of organizational donors in the 2004 election cycle, with John Kerry's presidential committee transferring more than $11 million to the states, and the Democratic Governors' Association—a 527 political committee—funneling $9 million to state parties. The American Federation of State, County and Municipal Employeesand the Service Employees International Union gave $5 million each.

As a bloc, attorneys and law firms gave $28 million, mostly to Democrats, while real estate interests split $7 million between Democratic and Republican committees. Arizona real estate magnate James Pederson accounted for the bulk of the contributions from this industry to Democrats.

Future of state parties

While state parties operated more independently from the national parties, federal regulations played a bigger role in regulating their activities during the 2004 cycle. Throughout the previous two election cycles state committees routed less than one of every four dollars raised into federal accounts, but during the 2004 cycle state parties deposited 40 percent of their money in federal accounts.

That means that more of the total money going directly to state committees is conforming to federal election laws regardless of the particular regulations in place at the state level. This is rather remarkable considering that Florida and twelve other states do not limit the source or amount of contributions at the state level. In 2002, Florida committees raised 85 percent of their money through state accounts, but in 2004 almost half the funds were raised through the federal accounts.

With soft money out of the picture, state organizations in 2004 were forced to withdraw themselves from national party money—a process that experts say may have long-term repercussions for a small number of state parties that had become dependent on national party handouts.

In a book published in 2003, Ray La Raja, a political science professor at the University of Massachusetts at Amherst, predicted that party organizations in states like Oregon, South Dakota, Pennsylvania, Ohio and Wisconsin might be among the particularly hard-hit. But after just one election "it is still too soon to tell how [reform] affected state parties," he told the Center.

The true result of McCain-Feingold will not be known until future elections, particularly mid-terms, according to Jack Oliver, who was chief fundraiser for the Republican National Committee during the 2004 election.

"It's going to be interesting to see what happens in 2006 when you don't have a presidential candidate on the ballot on either side, when you don't have a national fundraising apparatus up and running through an 18-month cycle," Oliver told a forum sponsored by the Campaign Finance Institute in January.

This project was funded by the Pew Charitable Trusts and the Ford Foundation.

Correction: When this report was embargoed for release on May 24, 2005, $850,000 of contributions to state party and caucus committees were misattributed to Richard (Dick) & Elisabeth (Betsy) DeVos, Jr. That money should have been attributed to Dick's father and mother, Richard (Rich) & Helen DeVos, Sr. The couples often report contributions originating from the same address.

Update: After publication of this report, the Florida Republican Party notified the Center that reports they had filed with the Florida secretary of state contained errors misattributing $500,000 in contributions from Richard DeVos, Sr., to his son Richard DeVos, Jr. The numbers in our database and the overall rankings have been updated to reflect this amendment by the party.