Senate Campaign Finance Reform and Ethics Committee
March 2, 2005

Thank you for holding this public hearing on campaign finance reform legislation. We thank the sponsors of 2005 Senate Bill 46 for starting the debate on campaign reform this session by putting forward this proposal.

As you know, the Wisconsin Democracy Campaign has been working for many years to get much-needed campaign finance reforms enacted. In past sessions, the Democracy Campaign endorsed reform bills sponsored by the chair of this committee - including last session's Senate Bill 12 and the previous session's Senate Bill 104.

This session's Senate Bill 46 contains many good elements of reform. It has much in common with 2003 SB 12 and 2001 SB 104. But there also are important differences. After carefully reviewing the bill's many provisions, the bill as it stands now creates a campaign finance system that would not work. As it is currently written, SB 46 is akin to a prototype of a new automobile that does not have a working engine. It looks good in the showroom but would not perform on the road.

Last session's Senate Bill 12 proposed providing public financing grants to qualified candidates that were equal to 45% of the spending limits established in the bill. This year's SB 46 scales back the percentage of public financing to 35%.

Most importantly, there is not an adequate funding source in SB 46 for even the more limited public grants promised in the new legislation. Last session's SB 12 included a guaranteed source of funds for the public financing program established in the legislation. SB 46 relies on a voluntary $5 income tax checkoff and the establishment of a "Public Integrity Endowment," to which the public could make donations that would make donors eligible for an individual income tax credit.

Just over 240,000 people designated $1 to the Wisconsin Election Campaign Fund on their 2003 state income tax returns. Even if a similar number of people were willing to designate the higher $5 amount under the new checkoff, only about $1.2 million per year would be raised. For each two-year election cycle, the $5 checkoff would therefore produce about $2.4 million that would be available for public financing grants to candidates.

To see just how woefully insufficient a $5 checkoff would be, assume that SB 46 is in effect for the 2006 election. Under SB 46, candidates for governor would be eligible for a $1.4 million grant. If just two candidates qualified for a grant, the cost to the system would be $2.8 million - more than a $5 checkoff could be expected to produce over two years.

In addition, candidates seeking other statewide constitutional offices in 2006 would be eligible under SB 46 to receive public grants that would collectively total $595,000. If just two candidates qualified for a grant in those races, the cost would be nearly $1.2 million.

Candidates in the 15 Senate races in 2006 would each be eligible for a grant of $52,500 under SB 46, while candidates in the 99 Assembly races would be eligible for a grant of $26,250. If two candidates qualified for grants in each legislative race, the cost would be nearly $6.8 million. If only half that many qualified for grants, the cost still would be almost $3.4 million.

The bottom line is that when the cost of public financing grants to candidates for statewide office is combined with the expense of grants to legislative candidates, the cost of SB 46 in the 2006 election would be well over $10.7 million - nearly four and a half times what a $5 checkoff is likely to produce. Even if two legislative candidates qualify for a grant in only half of the races, the total cost of SB 46 would be nearly $7.4 million - still more than three times what the checkoff in SB 46 could be reasonably expected to produce.

To think that citizen donations to a Public Integrity Endowment can fill a funding gap this wide - especially considering the state's experience with voluntary donations to the Rainy Day Fund, for example - is wishful thinking of the most extreme sort.

Keep in mind that this analysis is based on the generous assumption that two years' worth of checkoff designations would be available to finance the system. In reality, only one year's worth of $5 designations (from 2005 tax returns filed in early 2006) - or an estimated $1.2 million - would be available for the 2006 election, even though the bill as it is currently written, if enacted, would be in effect for the 2006 election.

Also keep in mind that the cost estimates for public financing grants do not include the cost of supplemental grants candidates would be eligible to receive under SB 46 if special interest groups run ads against them.

Given the gross inadequacy of the funding sources for the public financing program in SB 46, special interest groups can safely assume that the targets of their ads will never receive the supplemental grants they are entitled to receive under the bill in order to respond to special interest attacks. This undercuts the primary argument being advanced in defense of the decision to continue to allow interest groups to use unlimited and anonymous soft money donations to pay for campaign ads - namely that candidates will be able to effectively counter soft money-financed attacks thanks to the supplemental grants they would receive under SB 46. It has even been argued that special interest attack ads paid for with unregulated soft money donations will disappear altogether because groups will no longer believe it's worthwhile to sponsor such ads if they know their spending will be countered dollar for dollar by candidates armed with public funds. That too appears to be wildly wishful thinking in light of the insufficiency of funding for public grants in SB 46.

If SB 46 is enacted as proposed, soft money groups will continue to flourish at the state level because they would remain at a distinct competitive advantage. Unlike candidates and regulated committees, soft money-fueled front groups would not have to disclose their funding sources. Hence there would be no limit on the size of donations they could accept, while candidates and regulated committees would have to continue to abide by campaign contribution limits. And the soft money groups would be free to accept corporate donations while candidates and other regulated committees could not.

It should be remembered that the lack of a reliable funding source was a chief cause of the demise of Wisconsin's old public financing system, which worked well for years after its adoption in 1977 but eventually was abandoned by candidates who no longer received the public grants promised in the law. Once the revenue generated by the $1 checkoff was not sufficient to fully fund the public financing grants, candidates started receiving pro-rated grants that provided them little financial incentive to agree to the spending limits in the law. Candidates then began to privately finance their campaigns and were no longer subject to spending limits, and a campaign arms race ensued. The next thing we knew six of the most powerful politicians in Wisconsin faced nearly four dozen felony charges for alleged activity such as extortion, money laundering, kickbacks, bid rigging, illegal campaign contributions and criminal misconduct in public office.

It seems extremely unwise to seek to cure what ails Wisconsin's campaign finance system with a legislative remedy that contains the very same flaw that caused the old system's health to fail.

It also is a major mistake to abandon the idea of full disclosure and leave the soft money loophole intact. Disclosure is the backbone of campaign finance reform, and the public's right to know is worth fighting for.

Under the proposed legislation, special interests and phony front groups will continue to be able to avoid disclosing their political donations and skirt campaign contribution limits in state law. Last session's SB 12 required full disclosure of campaign finances and closed the loophole that currently enables special interests to make undisclosed and unlimited contributions known as "soft money" donations.

The soft money loophole that remains intact in this session's SB 46 also allows groups to get around Wisconsin's century-old ban on corporate campaign contributions. In recent years, it has become common practice for groups to pay for electioneering activities with corporate donations. (For more information, see a 2004 WDC study available online at: www.wisdc.org/suntodark.html)

SB 46 as it is currently written would allow All Children Matter, a right-wing group based in Michigan, to continue to conceal the sources of money used to influence Wisconsin elections. All Children Matter is thought to have spent well over $500,000 in 2004 to influence state legislative elections here. The group is headed by Michigan multimillionaire Dick DeVos, whose family founded Amway Corporation.

Another group that would not have to disclose where it gets its money under SB 46 is Americans for a Brighter Tomorrow, a left-wing group that ran some of the nastiest political ads of the 2004 campaign, including one that called a Republican candidate a "right wing zombie." It is not known who is funding Americans for a Brighter Tomorrow, but it is known that an ex-staffer of indicted former Senate leader Chuck Chvala is connected to the group.

The new reform proposal also would leave Citizens for Wisconsin's Future free to continue concealing how it pays for campaign ads such as several it sponsored in 2004 attacking Assembly Speaker John Gard. This group is thought to be a front for the Ho-Chunk tribe and its gambling interests.

Exploitation of the soft money loophole is at the center of the corruption scandal that has produced criminal charges against former legislative leaders. Fundraising done for a front group run by Chvala is the subject of extortion and money laundering charges filed against the former Senate Democratic leader.

The group, Independent Citizens for Democracy, secretly solicited corporate contributions from Alliant Energy, Madison Gas & Electric, MG&E subsidiary Central Wisconsin Development Corporation, Oneida Tribe of Indians of Wisconsin, Dairyland Greyhound Park, Mathy Construction, Air Wisconsin Airlines Corporation, Badger Liquor Company, General Beer Distributors Company, building contractor J.F. Ahern Company, Racine road builder James Cape & Sons Company, Black River Falls road builder Lunda Construction Company, Elkhorn road builder Mann Bros. Inc. and over 20 other Wisconsin corporations.

The premise of SB 46 is that the soft money-financed front groups would be effectively neutralized by public matching grants candidates would receive to counter campaigns run against them by the groups. Unfortunately, SB 46 as it is currently written does not create an adequate funding source for these matching grants. Consequently, soft money group activity would continue unabated. And the public would be kept in the dark about who is paying for their campaign ads.
This runs counter to the clear message voters sent in a 2000 referendum, when 90 percent supported "full and prompt disclosure of election-related activities."
With two simple repairs - the inclusion of an adequate funding source to fully finance the public grants the bill promises candidates and a requirement that interest groups disclose the source of funds they use to pay for campaign ads - Senate Bill 46 would become a highly effective remedy to runaway campaign fundraising and spending as well as the political corruption this campaign arms race promotes.

Return to TonyPalmeri.com