The Federal Election Commission (FEC) is an independent U.S. regulatory agency responsible for administering and enforcing federal campaign finance laws. It was established in 1974 and is comprised of six commissioners — three Democratic and three Republican.

Q: Commissioner McDonald, could you briefly comment on the creation of the FEC and its role in the U.S. election process?

A: The Federal Election Commission was created in 1974 as an outgrowth of the Watergate scandal. Although much attention was given then to the break-in of the Democratic National Committee headquarters, the underlying issues in the 1972 presidential campaign were that large sums of money being used in the campaign were not reported to the general public. The theory behind the statute that created the FEC was that the public had a right to know where politicians were getting their money, how much money they were getting and when they were receiving their money.

The underlying theory of the law is that we need full disclosure in our political campaigns so the public may properly gauge who they may or may not want to support, based on the money that has been received by the candidates of their choice.

Disclosure is the number-one item under the 1971 Federal Election Campaign Act. The number-two item that came out of the creation of the Federal Election Commission was the matching fund program, under which eligible candidates in the presidential primaries may receive public funds to match the private contributions they raise. The 1976 presidential election was the first time we ever had public funding in this country, and it was initiated on the basis that there might be a level playing field created for candidates for the parties’ nominations.

Q: What are the key principles of campaign finance law, and why is there a need for such regulation?

A: I think the key principle is the relationship and correlation of money in the political process to politicians. The theory is that the public needs to have an understanding of where politicians get their money, so it can evaluate the kind of votes they make and the kind of interest groups they are supported by.

The law is like any statute. It is a barometer from which you can measure what is going on in your political system. Money clearly drives the political process in our country. It is an extremely necessary thing because it takes a great deal of money to participate. So without parameters on where money can come from and how much money a candidate may have and what kind of money he or she may utilize, voters would not have an opportunity to know who actually is participating in the process and trying to influence the outcome of the process.

Q: How does public funding work during a presidential election?

A: Public funding means that qualified candidates receive federal government funds to pay for the valid expenses in their primary and general elections. The national parties also receive funds for their nominating conventions. To qualify, the candidates and party committees must agree to limit their campaign spending to a specified amount, and they receive matching funds after establishing eligibility by showing broad-based public support.

Q: Do you feel the amount of money that individuals are allowed to contribute to a political candidate needs to be raised?

A: I think what is clear is that the $1,000 limit that was set when the process started is now worth only about $300. So you could certainly make an argument that these limits should be adjusted. But you could also make the counter argument, which is that the Congress really did intend for the process to be diluted over time and spread out for more people to become involved by making contributions.

But clearly on the basis of dollars and cents, we are going to see a problem in the public funding of the presidential campaign this year. We are going to have a shortfall, it appears, from the presidential checkoff system on income tax returns. So there is no question that the amounts are worth substantially less than they were when the act was created.

Q: You mentioned the taxpayer checkoff system. How does that work?

A: When the system was first created, it was designed so that you, as a taxpayer, could designate on your tax form that you wanted one dollar of U.S. Treasury money to go to the presidential campaign. Now, sadly, most people thought that meant they were paying a dollar more in tax, which they were not. The money is already set aside at the U.S. Treasury. What you are doing when you ask taxpayers if they want to participate is merely asking them if they, in fact, want a dollar to go to the fund. The dollar amount was changed a few years ago, and now it is three dollars per taxpayer.

The system is based on candidates’ abilities to raise their own money. That is to say, they don’t get money simply because they are candidates for president. They raise money based on their own ability, and the FEC will match the first $250 of an individual contribution made to a candidate. So the theory behind matching funds is that you must be able to meet threshold requirements to get the initial money, and then, we will match money based on your own performance. If you fail to get at least 10 percent of the vote in two successive primaries, we stop your funding. If you receive 20 percent of the vote in a subsequent primary, your eligibility can be reactivated.

Q: In the last 20 years, there has been a tremendous increase in the number of political action committees (PACs) that are active in making contributions to candidates and engaging in other election-related activities. Could you comment on their role in the political process?

A: Let’s take both the pro and the con. The con is that PACs represent special interests, and special interests dominate Washington politics.

On the other hand, you can certainly take just as strong a position that PACs represent nothing more than a group of individuals with like interests pooling their resources to try to have an impact on the political process. It seems pretty natural that most people get together with people who have like interests to support candidates of their choice.

You can also say that a lot of individuals do not have this opportunity to participate in a PAC and are not in an environment that affords it to them, so their influence is somewhat diluted.

In either case, you still have limits under which all individuals can participate. Obviously, the political action committees like to pool their resources because it makes them a much stronger voice in the political process.

Q: Please explain the difference between hard and soft money in an election campaign.

A: What we call “hard dollars” under the federal election campaign law are monies that are permissible to affect the outcome of a federal election. And that is to say that there are PAC limits. There are individual limits. Under federal election law you cannot take corporate money. You cannot take labor money. But you can take money from their respective political action committees.

On the other hand, we have what are known as “soft dollars.” That is money that is not permissible in a federal election, but it is permissible in terms of what we call "generic" voter activity — for example, contributing to a party’s efforts to register voters. And that does allow corporate dollars and labor dollars to go into the political process.

This is clearly the most controversial aspect of the federal election campaign law. The opponents of soft dollars say that they create a major loophole. And you can certainly make a convincing argument that that is the case, because while you have limits on individuals, you may have large corporations or large labor unions giving a substantial amount of money, over and above the limit that they might be able to give for a federal election, that they may be able to utilize in non-federal activity, or generic voter activity.

Clearly it is an extremely controversial area — soft dollars in relationship to the political process. There have been a number of pieces of legislation to try to either curtail or abolish soft dollars. The fight will go on for some time, I believe.

Q: In recent years there have been many calls for campaign finance reform. What are the pros and cons of this debate?

A: We have had public funding for the presidential campaigns since 1976. The proponents of reform believe strongly that you need to take money away from private interest groups and make it a more detached sort of system, so that more individuals might participate and candidates would not be beholden to special interests.

Clearly, the other side of that argument is that many people ask, why should we use public money for politicians, why do they not have to go out and gather support on their own and stand on their own two feet in terms of their ability to participate in the political process?

The Supreme Court said in Buckley v. Valeo, which was the landmark case in relationship to the Federal Election Campaign Act of 1974, that there is a compelling interest for campaign spending limits for publicly funded presidential candidates.

But the court also recognized the free speech issue. What it basically said was that a candidate may raise and spend as much money as he or she wants. The court struck down limits on candidates’ own money being spent because it was felt that you could not corrupt yourself with your own money. The exception is that if candidates are using public funds, they can spend only $50,000 of their personal funds for that election. In other words, the court said there should be limits when you get your money elsewhere, because that is a different concern. So it is always a balancing act, and you can make very persuasive arguments, I think, on both sides about how the political process ought to be handled.

Q: Pertaining to the 2000 presidential election, what will be the scale of spending? And with that, would you explain the difference between candidates’ accepting or not accepting public funds?

A: Under the federal statute, the way we set aside our money is first for the national party nominating conventions, and second for the general election in the form of block grants to the party nominees for the Republicans and the Democrats, and for the Reform Party as well this year. And last comes the first part of the cycle, which is the presidential primaries.

All of this involves forecasting, and it is a little bit tricky because we are not sure how many candidates we have. If we estimate 15 candidates, we project about $100 million to be spent in the primary process. We are only going to be able to give candidates about 32 or 33 cents on the dollar up front, which means that for the first time, candidates may have to go into fairly substantial debt. We will be able to make up that money over time, but under the worst case scenario, we could have a shortfall into April of 2001. Candidates will get, for their block grants, around $67 million apiece, once they are the nominees of their political parties.

To the next critically important point, candidates do not have to take public money. Why would candidates not do that? A candidate might assess that it would not be in his or her interest to take public money in the primary season because the candidate may be facing an opponent who doesn’t need matching funds and can spend a lot more than the amount agreed to under this program. It is also conceivable that a candidate who would not want public money in the primary season would still like to receive it in the general election season.

If you are an independently wealthy candidate, you simply say you don’t think taxpayer money should be utilized. If you are not independently wealthy, you say you utilized the money based on public support you have gotten.

In either case, you still have to fulfill the reporting requirements to the general public, so it knows how much money is being utilized in the presidential campaign. The theory is that the presidency is such an important office that the public has a right to know where you get your money.

Q: Could you comment on the FEC ruling allowing political contributions to be made over the Internet?

A: I think it was just a realization by the commission that since the statute was written, a lot of new ways of making a financial commitment have come into existence. We are simply trying to get ourselves up to speed in an environment that is changing pretty dramatically. We are trying to be accommodating, as long as we have an affirmation from the contributors that they, in fact, are the ones who have made those contributions.

Q: There is a ban on contributions to candidates from foreign nationals. Why is that?

A: I think it is very strongly felt that it simply is not right for foreign nationals to be involved in the U.S. political process. Clearly it is a very sensitive area and one that, over time, people have felt very strongly about.

It is a complete ban. It even goes to state and local elections, which is unusual, because we normally do not regulate state and local elections. But the theory is very straightforward, which is that foreign nationals simply should not be determining American politics.

Q: Finally, Commissioner, we have been speaking primarily of federal elections, but I understand that the FEC also advises the states. Could you explain what that role is?

A: We have a national clearinghouse on election administration that works with all 50 states. And we try to work with them on a variety of topics in an advisory capacity because we know that the states are 50 independent states that take their independence pretty strongly.

We work with the states on the standards for voting equipment, on budgetary matters, on ballot access, any one of a number of things that, when we are able to pool all 50 states’ resources, we can give information to other states on what each one of them is doing. Hopefully we can help them consolidate their efforts and have an even more effective role than they normally have.