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POLITICAL CAMPAIGNS. PUBLIC FINANCING. CORPORATE TAX INCREASE. CAMPAIGN CONTRIBUTIONS AND EXPENDITURE LIMITS.
Initiative Statute.

QUESTION

Should eligible candidates for state elective offices receive public campaign funding that is supported by new taxes on corporations and financial institutions, and should contribution limits be imposed on those candidates that do not receive public campaign funding?

BACKGROUND

Current limits on political contributions

Candidates for state office, that is, for governor and other statewide officials and the 120 members of the state Legislature, now collect private donations from individuals, corporations, political parties, and other organizations such as labor unions and nonprofit organizations, to pay for the costs of their political campaigns. State law determines the maximum amount of money that each person or group can give to a candidate. The limits were last changed by Prop. 34 in November 2000. Limits depend on the office being sought and the donor. For example, an individual can give a candidate for state Assembly a donation of up to $3,300. A political party can give that same candidate as much money as it chooses. A candidate can accept donations any time before an election and can spend without limit any money that is collected.

Role of Committees and Independent Expenditures

Rather than make donations directly to candidates, some individuals and groups choose to make political donations to "committees." These committees take donations and then decide which candidates to give money to. For example, one type of committee--a small contributor committee--accepts donations of up to $200 from more than 100 individuals and then distributes the funds to candidates.

Other individuals, groups, and committees choose to spend money on political campaigns without giving money directly to candidates. Instead, they make "independent expenditures" without coordinating with the candidate. These independent expenditures, such as television commercials or newspaper advertisements, may encourage voters to support or oppose a candidate. There are no limits on the amount of money that can be donated for or spent on independent expenditures.

Ballot measures

There are no limits on the amount of money that can be collected or spent for and against state ballot measures (propositions).

State Government's Responsibilities

The state's campaign finance laws are administered by the Secretary of State and the Fair Political Practices Commission (FPPC). Under state law, individuals and groups must report to the Secretary of State how much money has been given, received, and spent on political campaigns. This information is available to the public at http://cal-access.ss.ca.gov/Campaign/Candidates/

The FPPC is in charge of enforcing the laws to make sure candidates and donors obey the rules. The FPPC can assess fines on candidates violating the election laws.

Campaign Finance Reform in California

In June 1988, voters approved two separate campaign finance reform initiatives, Proposition 68 and Proposition 73. Proposition 68 proposed a system of public funding and expenditure limits for state legislative races, and passed with 53 percent of the vote. Proposition 73 prohibited public funding of campaigns and set contribution limits for state and local elections, and passed with 58 percent of the vote. Since Proposition 73 received more affirmative votes than Proposition 68, it became state law. In 1990, state and local elections were conducted under the Proposition 73 limits. Proposition 73 was challenged in court and the only provisions to survive were contribution limits for special elections, restrictions on certain mass mailings by officeholders, and the prohibition on the use of public money for campaign purposes.

In 1996 Proposition 208 was approved by the voters. It was sponsored by many of the same people and groups who had supported Proposition 68. Proposition 208 enacted a campaign finance reform plan consisting of variable contribution limits; that is, candidates who agree to a voluntary spending cap are rewarded with contribution limits higher than those imposed on candidates who refused the spending cap.

Proposition 208 was challenged in court and almost immediately enjoined from enforcement. The proponents of Proposition 208 were still pursuing appeals in federal court when Proposition 34, a legislative ballot measure approved by the voters in November 2000, largely repealed it. Proposition 34 imposed contribution limits, limited candidate-to-candidate transfers, prohibited certain lobbyist contributions, provided for voluntary spending limits in exchange for candidate access to ballot pamphlets, and enhanced on-line reporting of large contributions. The provisions of Proposition 34 remain intact today.

PROPOSAL

This measure makes significant changes to state laws on campaign financing for elected statewide officials and state ballot measures. The provisions for candidates generally affect only state elected officials.

Requirements to Receive Money

In order to receive public funding for a campaign, a candidate has to meet these requirements:

• $5 Donations and Signatures. A candidate must collect a number of $5 donations ("qualifying contributions") and signatures from residents prior to a primary election. As shown in the chart below, the required number of donations would range from $750 to $25,000 depending on the office sought. The measure requires that these donations be paid to the state.

• Private Contributions. To receive public funding, a candidate could not receive private campaign funding, with two main exceptions. First, beginning up to 18 months prior to a primary election, the measure allows candidates to collect and spend start-up contributions, or "seed money." These funds could be used to pay costs for collecting the qualifying contributions and signatures. The measure restricts this kind of donations to $100 each with a total limited to between $10,000 and $250,000 depending on the office (see chart above). These funds could only be spent within 90 days before a primary election.

  Second, candidates would continue to be able to receive donations from political parties. Donations from political parties would be subject to the same limits as for candidates choosing not to receive public funds (described below).

• Other Requirements. By accepting public funding, a candidate would be subject to some additional requirements. For example, candidates would be required to participate in public debates before each election. In addition, candidates could not use their personal funds to pay for campaign costs.
• Public Funding Provided. Those candidates meeting the requirements described above would become eligible to receive public funds. As shown in the chart above, the amount of funding would vary based on: (1) the office sought; and (2) whether it is a primary or general election. Thus a candidate for Assembly could receive $250,000 for a primary election and additional $400,000 for the general election (if successful in the primary election). A candidate for Governor could receive $10 million for the primary election and an additional $15 million for the general election. The FPPC would administer the funds and make disbursements using a debit card system.
• Additional Public Funds. In cases where a candidate's opponent chose not to participate in the public financing system, the measure allows a participating candidate to receive additional funds in some cases. Specifically, if an opponent spent more in private funds than the amount of public funds available, additional public funds would be provided to the candidate on a dollar-for-dollar basis. Similarly, a participating candidate would receive additional public funds if independent expenditures were made in support of an opponent. The maximum amount of additional public funds that a candidate could receive is capped under the measure (generally five times the original amount provided to a candidate and four times the amount for a candidate for Governor). Thus the maximum an Assembly candidate could get in a primary election would be $1.25 million.
• Funds for Expenses While in Office. Under current law, state elected officials generally may use leftover campaign funds to pay for some expenses while in office. Under the measure, those candidates who accept public financing and win their election would be eligible to receive annual payments to cover similar expenses. Members of the Legislature would receive $50,000 a year while in office and other state officials would receive $100,000 each year.

Minor Party and Independent Candidates

The amounts shown in the figure above [LAO figure 3] are for candidates representing major parties (generally, parties whose nominee for Governor in the last election received at least 10 percent of the vote). Under the measure, candidates from minor parties and independent candidates are eligible to receive smaller amounts of public funds. Depending on the situation, a minor party or independent candidate could receive as much as one-half of the amount that a major party candidate receives.

Lower Contribution Amounts for Privately Funded Candidates

• Lower Campaign Contributions. For those candidates who choose not to participate in public financing of campaigns, the measure imposes new limits for campaign donations to candidates. The measure's limits generally are much more restricting than is now the case. Individuals, corporations, and other groups who can now donate $3,300 per candidate for the Legislature would be restricted to $500 for legislative candidates. Political parties who now can give any amount would be restricted to $20,000 for a privately funded candidate for Assembly in a general election. The new limits are summarized in the chart below.

• Other Restrictions on Campaign Contributions. The measure also adds other types of restrictions on campaign contributions related to privately funded candidates, which are summarized in the chart below.

• Independent Expenditure Contribution Limit. The measure restricts donations to $1,000 each year to a committee for independent expenditures. As under current law, individuals could make unlimited independent expenditures if they spent their own money on their own, without the use of a committee.
• Overall Donation Limit. The measure adds new limits on the overall amount of political contributions that a person or group can make to candidates and committees in a year. The total amount that could be donated to all types of committees to support or oppose state candidates would be limited to $15,000. Of this total, however, any contributions over $7,500 would be required to go for independent expenditures.
• Lower Political Party Contribution Limit. The measure lowers an existing limit on annual contributions to political parties from $27,900 to $7,500.
• Lobbyist Restrictions. Under existing law, lobbyists are prohibited from making contributions to candidates. The measure also forbids lobbyists from making donations to political parties and committees.
• State Contractor Restrictions. Under existing law, those individuals and entities receiving state contracts are not subject to any special restrictions on political contributions. The measure forbids, in some instance, those receiving state contracts from making donations to candidates, political parties, and committees.

Contribution Restrictions for State Ballot Measures

Unlike donations for candidates, the amount of money donated by entities to support or oppose state ballot measures currently is not subject to contribution limits. This measure places two new restrictions on donations for ballot measures:

1. When a candidate for state office is significantly involved with a committee that supports or opposes a ballot measure, individuals, corporations, and other groups could be limited to a $10,000 contribution to that committee.
2. Corporations would be prohibited from making contributions or spending more than $10,000 to support or oppose a ballot measure. (Non-profit corporations meeting certain requirements would not be subject to this restriction.) Corporations, however, could establish special committees to collect voluntary donations from employees for additional expenditures.

Fiscal Provisions

Higher Corporate Taxes. In order to pay for the measure's provisions for the public financing of campaigns, the measure increases taxes on corporations and financial institutions by 0.2 percent. Corporation taxes would go from 8.84 percent to 9.04 percent. Taxes on financial institutions would go from 10.84 percent to 11.04 percent.

Other Revenues. In addition, the measure would result in other, small sources of revenues: the candidates' $5 contributions and fines on candidates violating election laws.

Total Amount of Funds. The total amount of funds that could be held by the state at any time for the measure's purposes would be limited to about $900 million by means of a formula adjusted for inflation every two years. Any amount over this limit would be transferred to the state's General Fund. If there were not enough money to fund the measure's provisions, the measure authorizes the FPPC to reduce proportionately the amount of funds available to each candidate.

Administration Costs. The measure provides that a minimum of $3 million, adjusted for inflation every two years, go to the FPPC to administer the public financing program. The Secretary of State would be required to use some of the funds for a voter education campaign.

More About Corporate Taxes

In 2003, 589,310 California corporations filed tax returns. Only 1.7 percent of them had taxable incomes of $1 million or more. These firms paid 82 percent of the corporation tax. Most small businesses are organized in a way which exempts them from the corporation tax, e.g., sole proprietorships (2.4 million firms), partnerships (183,000 firms), and limited liability corporations (135,000 firms).

Over the past two decades state revenue has shifted from corporate to personal income taxpayers. According to the California Budget Project, the personal income tax is expected to provide 53.2 percent of General Fund revenues in 2006-07, up from 35.4 percent in 1980-81. Corporate tax is expected to provide 10.9 percent of General Fund revenues in 2006-07, down from 14.6 percent in 1980-81.

FISCAL EFFECT

New revenues. The Legislative Analyst estimates that the measure would raise over $200 million each year, almost all of it coming from the new 0.2 percent tax on corporations and financial institutions.

New spending. The new funds would pay for costs to administer the measure including one-time startup costs. The remaining funds would be available for candidates who choose to receive public funds for their political campaigns. The amount spent would depend on factors that would vary from election to election.

These factors include:

• The number of candidates accepting public funds
• The amount of money spent by candidates not receiving public financing, which would determine the level of any additional public funds.

Adequacy of revenues. The Legislative Analyst believes that, assuming that the number of candidates in each election does not increase significantly from current levels, there probably would be sufficient funds available to provide all candidates with the amounts allowed under the measure.

WHAT A YES OR NO VOTE MEANS

A YES vote means that candidates for state offices could choose to receive public funds to pay for the costs of campaigns if they meet certain requirements. Candidates not accepting public funds would be subject to lower contribution limits than currently. The tax rate on corporations and financial institutions would be increased by 0.2 percent to pay for the public financing of political campaigns.

A NO vote means that candidates for public office would continue to pay for their campaigns with private funds subject to current contribution limits. The tax rate on corporations and financial institutions would not change.

SUPPORTERS SAY

Prop. 89:

• Makes politicians accountable to the public rather than to big money campaign contributors.
• Provides public financing to candidates who stick to strict spending limits and reject contributions from corporations, other organizations and individuals who now make big contributions.
• Allows candidates to focus on issues rather than spending their time asking for contributions from special interests and wealthy individuals.
• Sets limits on campaign committees created by big contributors outside a candidate's official campaign.
• Provides funds for public financing by a modest increase in the corporate income tax, raising it from 8.84 percent to 9.04 percent. The resulting tax would be less than it was from1980 to 1996. Corporations should pay their fair share in taxes.
• Saves taxpayers money by ending the incentive for legislative giveaways on lobbyist-driven projects. The $3.5 billion in corporate tax loopholes today cost each California household $275 every year.
• Limits to $10,000 the amount corporations can spend directly on ballot measure campaigns. This a first ever limit on ballot measure campaign spending.
• Is modeled after successful and popular public financing programs in Maine and Arizona.

OPPONENTS SAY

Prop. 89

• Increases taxes to give politicians public money to produce negative TV ads and junk mail.
• Sets no limits on how politicians can spend taxpayer money.
• Sets no limits on wealthy candidates who try to buy California elections.
• Provides a publicly-funded candidate running against a wealthy candidate up to ten times the normal amount of taxpayer money to run a campaign. A candidate for governor could spend $200 million of taxpayer money.
• Limits the ability of many small businesses to back candidates or have a say about ballot measures.
• Allows unions to make unlimited contributions to ballot measure campaigns while shutting out small businesses.
• Sets such restriction on participation in the political process that many unions-firefighters, teachers, law enforcement-oppose it.
• Is unconstitutional because it sets contribution and expenditure limits which courts in other states have found too low.

SUPPORT AND OPPOSITION

Official ballot arguments in support are signed by: Deborah Burger, RN, President, California Nurses Association; Harvey Rosenfield, Founder, Foundation for Taxpayer and Consumer Rights; Susan Lerner, Executive Director, California Clean Money Campaign; Jacqueline Jacobberger, President, League of Women Voters of California; Richard L. Hasen, JD, Ph.D., Constitutional Election Law Professor; Kathay Feng, Executive Director, California Common Cause

Official ballot arguments in opposition are signed by: Allan Zaremberg, President, California Chamber of Commerce; Tony Quinn, Former Commissioner, California Fair Political Practices Commission; Larry McCarthy, President, California Taxpayers' Association; Betty Jo Toccoli, Chair, California Small Business Roundtable; James M. Hall, Former Chair, California Fair Political Practices Commission

FOR MORE INFORMATION

Supporters

Clean Money Now - Yes on 89, 1-310- 481-0816, info@89now.org, www.89now.org

Californians for Clean Elections, Yes on 89, 1-800-440-6877, info@yeson89.org, www.yeson89.org

Opponents

Californians to Stop 89, 916-708-7824, info@noprop89.org, www.noprop89.org

Citizens for Responsible Elections, 619- 233-0011

Web Resources

Analysis by the Legislative Analyst's office

Voter Information Guide (ballot pamphlet)

Reports of campaign expenditures for ballot measures