High Court’s Recent Decision on Public Matching Funds Renders New York City’s Campaign Finance System Ripe for Constitutional Attack

By Larry Levy & Andrew Rafalaf*

            In a 5-4 decision last week, the Supreme Court found unconstitutional, once again, campaign finance laws that award public matching funds to candidates based upon the spending of personally financed opponents.  Under the challenged law in Arizona Free Enterprise Club’s Freedom Club PAC v. Bennett,[1]  (“Arizona”), candidates opting to participate in Arizona’s public financing program received significantly increased public funding when an opponent, or any independent expenditure group supporting that opponent or attacking the candidate, reached a set spending threshold.  The Court determined that the statute violated the First Amendment because this “trigger” mechanism threatened to, without sufficient justification, limit the spending of opponents or independent groups seeking to avoid triggering the additional matching funds.[2]

The decision was not all that surprising.  As noted in the landmark campaign finance case Buckley v. Valeo, “restrict[ing] the speech of some elements of our society in order to enhance the relative voice of others” is wholly foreign to the First Amendment.[3]  Accordingly, under First Amendment jurisprudence, it is well settled that statutes which burden the speech of one candidate or independent speaker in order to “level the playing field” for other speakers must overcome strict scrutiny: the state must demonstrate a compelling state interest that trumps the otherwise substantial burden on political speech.[4]  Arizona was unable to overcome this threshold, despite its contention that the trigger provisions were necessary to promote fair and honest elections.

The Arizona Court relied heavily on its holding in Davis v. Federal Election Commission,[5] which addressed the constitutionality of the “The Millionaires Amendment” to the Bipartisan Campaign Reform Act of 2002 (known as the McCain-Feingold Act).[6]  The amendment eased contribution limits on candidates by allowing candidates to take donations at triple the normal limit when an opponent donated over $350,000 of her own funds to her campaign.  However, it did not raise such limits for the self-financed candidate.  Determining that the amendment violated the First Amendment, the Court found this asymmetrical funding scheme amounted to a penalty on self-financed candidates.[7]  Applying this analysis in Arizona, the Court found the Arizona trigger provisions exacted a similar penalty.[8]

Chief Justice Roberts, writing for the majority, found particularly troubling the aspect of Arizona’s public finance system that included the spending of independent groups – which by definition cannot coordinate the content or timing of their political message with a campaign –as expenditures that would trigger bonus payments to publicly financed candidates.[9]  Still, the Court noted that because every publicly financed candidate in the election would receive the greater financing, no matter how the trigger was activated, it had the potential of creating a “hydra” effect of multiple publicly funded speakers drowning out the voice of those candidates that opted out of the public financing system.[10]

Consequently, it would appear that New York City’s campaign finance program is ripe for constitutional challenge since it incorporates trigger provisions similar to those at issue in Arizona.  The current New York City program, which is highly regarded and vigorously enforced by the Campaign Finance Board (“CFB”), provides participating candidates for public office with an opportunity to qualify for matching funds.[11]  The system provides six dollars of public money for every one dollar of private funds raised from city donors, up to $175 per contributor once certain threshold requirements are met.[12]  In return, participating candidates must adhere to, among other restrictions, a strict spending cap and a limit on self-funding.[13]  While no such spending cap or self-funding limitation is imposed on non-participating candidates, they must adhere to the many other financial regulations of the program.[14]

A non-participant triggers additional public funding for participating opponents by spending or raising one-half of the established spending cap for that election.[15]  This “Tier I” trigger awards $7.14, rather than six dollars, for every dollar raised and increases the participant’s spending cap by 50%.  Then, pursuant to a “Tier II” trigger, if a non-participant spends or raises three times the cap, her opponents receive $8.57 for every dollar raised, and the spending cap is removed entirely.[16]  And, the bonus awards are made to each of the non-participant’s opponents.[17]  In each instance, the law establishes a maximum amount of public funds that can be awarded.[18]

These provisions, absent a compelling state interest, may no longer survive constitutional scrutiny because they have the potential to inhibit the speech of non-participating candidates and, consequently, place an untenable and unconstitutional burden on the speaker.  However, it appears that such a compelling state interest may be hard to come by.  According to a 2006 report issued by the CFB, the city’s primary goal for the public finance system is to limit the influence of money in citywide elections.[19]   Pursuant to Buckley and its progeny, such an objective is unlikely sufficient justification for regulations that have the potential to substantially inhibit political speech.  This is especially true where, as here, evidence suggests that the trigger provisions do not appear to be fundamental to that objective.  According to the CFB report, since the inception of the matching program through the 2005 election cycle, over ninety percent of candidates for city office have participated in the program, yet only four percent of all public funding has derived from the bonus payments (with about two-thirds of that from mayoral candidates seeking to keep pace with Mayor Bloomberg’s unprecedented spending).[20]   In short, candidates are participating in the program regardless of the bonus payments.  Thus, the program’s success does not hinge on utilization of the trigger mechanisms.

Additionally, the CFB would be hard-pressed to argue, as did the government supporters in Arizona, that the bonus schema is integral to combating corruption in campaigns.  As noted in both Buckley and Davis, in the case of the wealthy, self-funded candidate, there can be little fear of another entity corruptly buying political favor.  Indeed, this fact was loudly trumpeted by Mayor Bloomberg during each of his campaigns for mayor.  Further, the CFB has already in its arsenal a wealth of regulations aimed at preventing quid pro quo corruption in election campaigns, including: strict donation limits[21]; mandatory public reporting[22]; stricter limits on donations and campaign activities by lobbyists and those that do business with the city[23]; a ban on donations from corporations, LLC and foreign citizens[24]; a ban on donations from PACs, unless the PAC is registered with the CFB[25]; and audits.[26] At best, then, the trigger mechanisms are redundant; at worst, they are ineffective.

Consequently, the City bonus program appears to lack the sufficient justification required by Supreme Court precedent to overcome what is an otherwise significant burden on political speech.

* Mr. Levy specializes in election law and campaign finance law as counsel at Bracewell & Giuliani.  He was chief counsel for Rudy Giuliani’s Presidential campaign and has represented candidates for the U.S. Senate, U.S. House and New York State offices.  He also represents PACs, not-for profit groups and corporations interested in participating in public discourse.  Mr. Rafalaf is a fifth-year litigation associate who also works on election law and campaign finance matters.

[1] 2011 U.S. LEXIS 4992 (June 27, 2011).

[2] Notably, the Arizona Court did not question the constitutionality of public financing systems.  In fact, public finance law received another vote of confidence only a day after the Arizona decision was rendered when the Court denied certiorari to the Green Party of Connecticut, which was seeking to have the Connecticut public financing system found unconstitutional, premised on the argument that it discriminates against minor party candidates. See Green Party of Conn. v. Garfield, 616 F.3d 213, 221 (2d Cir. 2010), cert. denied, 2011 U.S. Lexis 5002 (June 28, 2011).

[3] 424 U.S. 1, 48-49 (1976).

[4] See Davis v. FEC, 554 U.S. 724, 730 742 (2008).

[5] Id.

[6] 116 Stat. 81 (2002).

[7] 554 U.S. at 730, 742.

[8] 2011 U.S. LEXIS 4992, at *47–51 (June 27, 2011).

[9] Id. at *57–59.

[10] Id. at *29.

[11] N.Y. City Admin. Code §§ 3-70 to 3-720 (2011).

[12] Id. § 3-705(2)(a).

[13] Id. § 3-706.

[14] Id. § 3-719.

[15] Id. § 3-706(3)(a).

[16] § 3-706(3)(b).

[17] § 3-706(3)(a), (b).

[18]  Id.

[19] The Impact of High-Spending Non-participants on the Campaign Finance Program, N.Y. City Campaign Finance Board (2006), available at http://www.nyccfb.info/PDF/issue_reports/High-Spending-White-Paper.pdf.

[20] Id at 8.

[21] N.Y. City Admin. Code § 3-703(f).

[22] Id. § 3-703(6).

[23] Id. § 3-703(1)(k).

[24] Id. § 3-703(1-b); 11 C.F.R § 110.20(b).

[25] N.Y. City Admin. Code § 3-703(1)(l).

[26] Id. § 3-710.

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