City Council Meeting: March 13, 2007

Agenda Item: 8-A

To: Mayor and City Council 

From: Maria M. Stewart, City Clerk

Subject: Public Financing of Campaigns

Recommended Action

Staff recommends that Council review the information contained in this report and provide direction to staff.

Executive Summary

At the November 28, 2006, City Council meeting, Council directed staff to return with information for a comprehensive and coordinated local campaign finance reform program for City elections, with a process that would invite public participation and would result in a measure being put to the voters towards the end of the year, or in the spring of 2008. In addition, staff was directed to return with clarification on Charter Article XXII (The Oaks Initiative), information on a possible broader application of contribution limits, and an analysis and recommendations for possible changes to the current $250 local contribution limit.

This report includes information on the law relating to contribution limits, an analysis of campaign contributions and expenditures of candidates for City Council and of independent expenditures from the November 2002 election to the present, a list of cities and states that currently supply public financing for election campaigns and a description of their programs, and options for a local program structure with a discussion of costs and funding sources.  The City Attorney will address clarification of the Oaks Initiative through a formal Opinion.

Discussion

LEGAL LIMITS ON THE CITY’S ABILITY TO REGULATE CONTRIBUTIONS AND EXPENDITURES

First Amendment guarantees limit the government’s ability to restrict both political contributions and expenditures.  In Buckley v. Valeo, 424 U.S. 1 (1976) the Supreme Court recognized that the state’s interest in restricting large contributions to combat both actual corruption and the appearance of impropriety justified burdening First Amendment rights through dollar limits on contributions to candidates or their committees.  Nonetheless, the state may not impose a greater burden than is necessary to achieve this purpose.  Ward v. Rock Against Racism, 491 U.S. 781, 799 (1989).  Thus, a contribution limit which is too low to permit candidates to engage in meaningful campaigns may be unconstitutional.  See California Prolife Council PAC v. Scully, 989 F. Supp 1282, 1297 (E.D.Cal. 1998), aff’d 164 F.3d 1189 (9^th Cir. 1999)[striking down $250 limit too low to allow candidates for state legislature to campaign meaningfully].  Restrictions on contributions to committees making independent expenditures in support of or opposition to candidates are even more strictly scrutinized.  See. Lincoln Club v. City of Irvine, 292 F.3d 934 (9^th Cir. 2002).  Moreover, in the context of ballot measures, the Supreme Court has invalidated municipal efforts to limit contributions to committees supporting or opposing local initiatives and referenda, finding no sufficiently important governmental interest.  Citizens Against Rent Control v. Berkeley, 454 U.S. 290 (1981).

Expenditure limits are also more strictly scrutinized than are limits on contributions to candidates because expenditure limits are a much more direct form of restraint on expression and association.  California Medical Assoc. v. Federal Election Commission, 453 U.S. 182, 194-97 (1981).  In Buckley, the Supreme Court noted that it is  unconstitutional to limit a candidates’ personal expenditures unless the limit is conditioned on acceptance of public funds.  424 U.S. at 57, n.65.    Likewise, the  state may not restrict independent expenditures made by individuals or committees which are not made at the behest of an affected candidate or committee.  McConnell v. Federal Election Commission, 540 U.S. 93 (2003).

Given this case law, the Council may wish to consider public financing as a means of curtailing expenditures and also may wish to consider raising the current $250 limit on contributions.  

LOCAL PUBLIC FINANCING OF ELECTORAL CAMPAIGNS

Under a full public financing program, candidates for local office (for purposes of this report, candidates for City Council) are eligible to receive sufficient public funds to run a viable campaign for City office if the participating candidates agree to abide by certain contribution and expenditure limits, and to limits on expenditure of personal funds. Candidates are also eligible to receive "matching funds." Matching funds are reserved funds that may be spent only when the initial grant amount has been exhausted, and then only to respond to over-the-grant-limit expenditures by non-participating candidates, or to respond to independent expenditures.

Some arguments in favor of such programs are that: real or apparent corruption will be reduced; the number and diversity of candidates will increase; elections will be more competitive; the costs of running a political campaign will be reduced; candidates may spend less time fundraising and more time communicating with the residents; public participation will increase; and there will be a general improvement in governance and legislation. Some arguments against these types of programs are that: taxpayers' money is used to promote certain political views; the independence of the political process may be compromised; programs do not limit non-participating candidate contributions and spending, do not limit independent expenditures, and do not limit the expenditure of personal funds by a non-participating candidate.

ANALYSIS OF LOCAL CONTRIBUTIONS AND EXPENDITURES

Attached as Exhibit A is a spreadsheet that includes the total amount of contributions and expenditures reported by each candidate's controlled committee, and the amounts of independent expenditures reported for the 2002, 2004, and 2006 elections. The last page of Exhibit A reflects the overall total of contributions and independent expenditures for each election year. Please note that the Fair Political Practices Commission defines an independent expenditure as an "expenditure made by any person in connection with a communication which expressly advocates the election or defeat of a clearly identified candidate or the qualification, passage or defeat of a clearly identified measure, or taken as a whole and in context, unambiguously urges a particular result in an election but which is not made to or at the behest of the affected candidate or committee."

Below are average amounts for committee contributions received and expenditures made per candidate, and for independent expenditures per candidate, for the 2002, 2004 and the 2006 elections. These figures do not include candidates that did not establish campaign committees:

Contributions and Expenditures

Election Number of

Year Candidates Contributions Expenses

2002 08 $ 29,396.00 $ 28,708.00

2004 11 $ 68,920.00 $ 70,108.00

2004* 10 $ 40,531.00 $ 39,033.00

2006 07 $ 39,911.00 $ 42,974.00

Independent Expenditures

Election # of candidates

Year included in expenditure Total

2002 06 $ 16,167.00

2004 10 $ 62,045.00

*2004 09 $ 43,878.00

2006 05 $136,424.00

*Please note that two different numbers are reported for 2004. Under "Contributions and Expenditures" the first contribution amount reflects the average contributions for all the candidates that established committees. However, because of the wide gap between the highest and the second highest amount of contributions received by candidates in the 2004 election cycle (see exhibit A), the asterisked figures do not include the highest amount of contributions raised and spent by one particular candidate. Under Independent Expenditures, the first number reflects the total of all independent expenditures made; however, the asterisked figures do not include the highest amount spent in support of a particular candidate.

EXISTING PUBLIC FUNDING PROGRAMS

The cities of Albuquerque, New Mexico, and Portland, Oregon have enacted full public funding of campaigns. Albuquerque's program will be implemented in 2007. Portland's program went into effect in 2006. The states of Arizona, Maine and Vermont also have programs since 1998, 1996, and 1997, respectively. The City of Los Angeles currently has a matching funds only program, but the City Council is expected to review and receive public input for a proposed full public financing program in the near future. Attachment B is a matrix summarizing the structure of these programs.

It should be noted that at the time that Vermont implemented its public finance program, it also established limits on non-participating candidates' spending, and limits on contributions to PAC's. In June of last year, the State issued a press release advising that the U.S. Supreme Court issued an opinion in Randall v. Sorrell, a case challenging the constitutionality of some of the contribution limit provisions of the program. The press release states in part: "the court held that Vermont's limits on candidate spending in political races were unconstitutional restrictions on the candidates' first amendment rights to free speech." The press release also advised that, "The court also struck as unconstitutional Vermont's limits on contributions to political campaigns. Although the court acknowledged that some limitations on contributions were acceptable under the constitution, it determined that Vermont's limits on contributions to candidates were so restrictive that they were unconstitutional."

Vermont's program does not have a provision for matching funds to allow a participating candidate to respond to over-spending of the limits by non-participating opponents, or to counter independent expenditures. It appears that the lack of matching funds combined with the Court's opinion has made the program unappealing and unattractive. Vermont's Secretary of State's office advises that two candidates for Lt. Governor participated in the program in 2000, and no others have participated since that time.

FUNDING SOURCES FOR EXISTING PROGRAMS

The majority of funding for the program in the state of Arizona comes from a 10% surcharge on civil and criminal fines. In Maine the funding is derived from general funds approved by the State Legislature, and collected fines for violations of the "Clean Election Law." Vermont's program receives 95% of its funding from a percentage of the annual state fees charged to domestic corporations and fees charged to foreign corporations. Additional funding comes from fines and penalties collected for violations of the State's campaign finance laws.

The City of Albuquerque plans to fund its program from .01% of the approved general fund. In Portland the program is funded by .02% of the general fund.

In all the programs, qualifying contributions, remaining seed monies (which will be discussed later in this report), individual/private donations, and any unused grant funds remaining after the election are deposited into the program's account.

CITY OF LOS ANGELES PROPOSED PROGRAM AND STRUCTURE

On November 14, 2006, the City of Los Angeles Ethics Commission approved a draft proposal for a full public financing program and requested that the program be forwarded to the Los Angeles City Council in order to solicit input from neighborhood councils. The Ethics Commission further requested that after receiving input from all the interested parties, the City Council return the proposal to the Commission for another review before the City puts the charter amendment to the voters. As of the writing of this report, the draft proposal has not yet been presented to the City Council.

Under the proposal, candidates for each of the 15 council offices as well as candidates for mayor, for city attorney, and for city controller are eligible to apply for the program if candidates raise the required amount of qualifying contributions. The purpose for requiring qualifying contributions is so that the candidate demonstrates there is enough public support for his/her candidacy. In order to qualify for the program, candidates for City Council must raise $25,000 in qualifying contributions, candidates for City Attorney or Controller $75,000, and candidates for Mayor $150,000 within a recommended three-month window of time beginning 12 months before the primary election. In return, participating candidates may receive grant funding for the primary and general elections, plus matching funds that can be used once the initial grant has been spent to respond to above-the-grant-limit expenditures by non-participating candidates, or to respond to independent expenditures. The amount of the grants and of the matching funds are as follows:

Office Primary General Matching Funds Reserve

Councilmembers $ 350,000 $ 300,000 $ 100,000

Controller $ 1,000,000 $ 750,000 $ 250,000

Attorney $ 1,500,000 $ 1,200,000 $ 400,000

Mayor $ 3,500,000 $ 3,000,000 $ 1,000,000

To put in perspective the amount of funding, please note the following demographics in the City of Los Angeles based on the 2000 Census. The average population of each of the 15 City Council districts is 246,321, with the highest population of 258,789 being in District 3 and the lowest population of 234,870 in District 1. The average registered voter population in each district is 94,432, with District 5 the highest at 152,953, and District 1 the lowest at 49,667. The total population in Los Angeles is approximately 3,694,820, with 1,416,477 registered voters - 38% of the population. This being the case, the grant funding amounts per resident for the primary election are as follows:

Office Per Resident Per Registered Voter

Councilmember $ 1.42 $ 3.70 (per district)

Controller $ 0.27 $ 0.70 (citywide)

City Attorney $ 0.40 $ 1.05 (citywide)

Mayor $ 0.94 $ 2.47 (citywide)

In addition, participating candidates are limited to spending $10,000 in personal funds for City Council, and to $25,000 for citywide offices.

The proposal for funding the program initially included consideration of several sources of revenue including possible increases in sales tax, parking meter fees, business tax, documentary transfer tax, utility user's tax, transient occupancy tax, parking fines, court fines and traffic fines. A subsequent proposal called for the appropriation of $2,600,000 per fiscal year from the general fund, plus approximately $9,000,000 to be generated by a proposed parcel tax of $0.407 per 100 square feet of improvements. At its meeting of November 14, the Ethics Commission turned down the parcel tax proposal, recommending instead that the full funding come from the City's General Fund. Attached as Exhibit C is the report the Los Angeles Ethics Commission sent on December 14, 2006, to the City Council for consideration.

SEED MONEY

Portland, Albuquerque and Maine have a provision in their programs that allows candidates to accept "seed" contributions. These contributions are in addition to the qualifying contributions, but may only be used to offset the costs incurred in the gathering of qualifying contributions. The City of Los Angeles' initial proposal contained a provision for seed money that was subsequently dropped. The proposal instead will allow candidates to use qualifying contributions to offset costs incurred in gathering the contributions. The rationale for this decision, as stated in Los Angeles City staff's October 18, 2006, report to the Ethics Commission, is that, "Having both qualifying contributions and seed money contributions is confusing. Because candidates may spend qualifying contributions on start-up costs, seed money contributions are no longer required."

OPTIONS FOR A LOCAL PUBLIC FINANCING PROGRAM STRUCTURE

Staff considered all the data provided in the preceding pages and more specifically, the City of Los Angeles' data because Los Angeles is a neighboring city and operates under the same County and State laws as the City of Santa Monica. Based on this analysis, staff presents the following option to open discussion for a possible program for the City:

Proposed Program: A full public financing program with matching funds to be implemented in the City of Santa Monica in time to be available to City Council candidates for the November 4, 2008, general election.

Qualifying Contributions: In order to prove adequate public support and qualify for the program, participating candidates must raise $3,000 in qualifying contributions, with a minimum of $5 per contribution and a maximum of $30 per individual contribution. In order to collect this amount, candidates would need to have the support of between a minimum of 100 individuals with $30 individual contributions and a maximum of 600 individuals at $5. The minimum number of 100 individuals is the same as the number of registered voter signatures currently required for a candidate to be nominated by, and to qualify for office.

The City of Los Angeles' proposal does not require that the contributor be a registered voter, only that the contributor be a resident of the city. The rationale cited in the Ethics Commission's report is in part that "all city residents are affected by city policies, and they should have a say in the electoral process, regardless of whether they are registered to vote." The Santa Monica City Council can do likewise and only require that the contributor be a resident of the city; or, Council may choose to require that the contributor be a registered voter of the city. For the November 2006 election, there were 57,455 registered voters in the City of Santa Monica. The total population in the City as of 2004, based on the 2000 census, is approximately 86,391. Thus, approximately 66% of the City's residents are registered to vote.

Qualifying Period. The proposed structure will include a window of time for collecting the qualifying contributions. In reviewing other existing programs, staff believes that for a November 2008 election a three-month window of time beginning on April 1, 2008, may be the most practical for the City. Potential candidates would have from April 1st through June 30th to gather qualifying contributions.

Seed money. There will be no provision for candidates to raise seed money to offset the costs of gathering the qualifying contributions. Qualifying contributions may be used by candidates for start-up costs only.

Grant Limits: Participating candidates will receive $50,000 in funds for the general election. A portion will be disbursed after the three-month qualifying period ends and the candidates file required documents confirming receipt of qualifying contributions. The second portion will be disbursed when there is a certified final list of qualified candidates that are to appear on the ballot following the closing of the nomination period.

Matching Funds: Participating candidates may also receive an additional maximum amount of $50,000 that may be used only to respond to non-participating opposing candidates that have spent over the amount of the grant limit ($50,000), or to respond to independent expenditures, and only when the original grant amount has been exhausted. Council may also consider the option of limiting the expenditure of matching funds to the period of time prior to the election when most independent expenditures are made.

For comparison purposes with the City of Los Angeles, the grant funding amounts per resident, including the initial grant and the matching funds grant are as follows:

Office Per Resident Per Registered Voter

L.A. City Council $ 1.42 $ 3.70

S.M. City Council $ 1.15 $ 1.73

In considering these amounts, please note that, as pointed out earlier, 38% of the population of the City of Los Angeles are registered voters. In comparison, the City of Santa Monica has a 66% registered voter population.

Funding for Program: There were 13 council candidates in the November 2000 election, 9 in 2002, 16 in 2004, and 10 in 2006. Based on these numbers, the initial funding amount could be based on the average number of 12 participating candidates per election since 2000. The total amount of the initial grant pool required would be $600,000, plus $600,000 for matching funds, for a total of $1,200,000. However, anticipating an increase of participants once the program is implemented and publicized, it may be practical to anticipate half as many more candidates. In that case, for 18 potential candidates, the amounts would change to $900,000 and $900,000, respectively for a total of $1,800,000.

Funding sources: As the City of Los Angeles did, the City Council could consider increasing a local tax(es) or fee(s), or consider a special parcel tax to fund the program. Albuquerque and Portland's programs are being funded mainly from the general fund. The L.A. Ethics Commission is also recommending full funding from the general fund. The L.A. City Council will be reviewing The Ethics Commission's recommendation and its impact, if approved. Were the City of Santa Monica to consider adopting a program to be funded solely by the general fund, discussion would be needed to determine the impact of the amount of funding on existing services.

In addition to the initial appropriation of funds, unspent qualifying contributions and any remaining funds left in participating candidates' accounts after an election will be returned to the program account, as well as any interest earned from the account.

Other costs: There will be an on-going, and as yet undetermined, cost for administration and monitoring of the program. Administration of the program will include but not be limited to assuring that the funds are appropriated prior to each election, establishing and maintaining a program fund account, determining the amounts of the grants depending on the number of candidates that gather qualifying contributions within the allowable proposed window of time and planning a disbursement schedule; adjusting the amounts once candidates have been nominated and have qualified; making disbursements as planned, monitoring of expenditures of participating candidates; monitoring expenditures of non-participating candidates and independent expenditures; and, disbursement of matching funds if such funds are provided. Given the size of the city's population, as compared to other entities, rather than creating a new independent unit to administer the program, for purposes of practicality and cost effectiveness, staff proposes that initially Council may consider creating a new division under the Elections Official's department that would be staffed with one individual full-time for one year, every other year, to handle the technical portion of the process, and Council may also direct staff to assign a member of the Finance Department to handle the financial, accounting, and auditing aspects of the program. Council can revisit this arrangement and modify it as needed, after the 2008 election cycle.

After the election, each participating candidate's committee should be audited to assure that funds were spent in accordance to the program's requirements, that any unspent funds are returned to the program account, to balance the account, and to present a status report to Council with any appropriate suggestions and recommendations for the next election cycle.

TIMING FOR ELECTION FOR PROPOSAL BEFORE NOVEMBER 2008

In order to have the program ready to implement and be available to City candidates during the November 2008 election, and in order to provide the window of time required for gathering qualifying contributions, the special election to put the question to the voters should take place preferably on November 6, 2007, if consolidation of the election with the County is possible. If not, the election should take place no later than early March 2008. Enough lead time should be allowed for staff to prepare and to organize implementation of the program, have funds appropriated, and have the underlying technical process, necessary documents and forms, and support staff ready and in place.

Elections for Unscheduled Vacancies: An accelerated schedule for gathering qualifying contributions and for the disbursements of funds will be required for a special election to fill an unscheduled Council vacancy.

If Council makes a decision on the framework of the preferred program, other issues that will be discussed in a future report include but are not limited to:

· The option of setting a limit to the amount of funding that may aggregate in the program's account, so that if the limit is reached a new appropriation for the following election will not be required.

· Setting an automatic biannual adjustment of the total amount of the fund by linking to the Consumer Price Index.

· Establishing certain requirements that Council may deem appropriate in exchange for the funding (L.A. requires participation in a certain number of debates).

· Setting a provision to address a situation of there not being enough funding to provide the full amount of the grant due to an unexpected large number of participating candidates.

· Setting guidelines on the permitted uses for funds and prohibition of use of funds for certain activities or uses.

· Setting an enforcement process and establishing fees for violations of the program's requirements.

· Setting limits on expenditures of personal funds by participating candidates.

· Discussion of the applicability of the program to candidates for City Rent Control Board.

PUBLIC PROCESS AND TIMELINE

Once Council reviews the information provided in this report and if Council opts to give direction to staff to return with a specific structure, staff proposes to notify all active campaign committees, civic organizations, neighborhood groups, business groups, known individuals knowledgeable in the field, and members of the public, inviting and encouraging public oral and written comment and suggestions on the proposal and inviting them to attend the meeting(s) at which Council will consider approval of a specific structure.

The timeline recommended is as follows:

February 27, 2007 Council meeting - review of existing programs, local campaign contributions and expenditures, discussion of possible program structure, process, timing, and Council direction to staff.

April 17, 2007 - staff to hold workshop on draft proposal, invite public comment, and discussion of potential funding sources.

May 8, 2007 - Council meeting to report on public comment and any changes made to draft program structure.

May 9, 2007 to June 7, 2007 - distribution of proposal to various groups and interested parties for public comment, and invitation to attend the June 26, 2007, Council meeting.

June 12, 2007 - Council meeting to report comment and input from groups and interested parties; Council to fine tune and make final changes to proposed program structure.

June 26, 2007 Council Meeting - Hold hearing for public comment on recommended program structure and funding method for FY 2008/2009. Approve a preliminary program structure, and appropriate estimated cost of funding.

July 23, 2007 Council Meeting - Council approves wording for the question and calls a special consolidated election for November 6, 2007, if appropriate, or sets date for a special election.

Budget/Financial Impact

Should Council, at the end of the above proposed process, approve a program structure and call a special election to put the question to the voters, there will be costs associated with the administration of a special election and with public outreach and education efforts.

Costs for a special election will vary depending on whether the election is consolidated with the County on November 2007, or it is a stand-alone election. The cost of a consolidated election will vary depending on whether there are any County or State-wide issues on the November ballot that affect Santa Monica. At the present time, there are no such issues scheduled on the November 2007 ballot. The cost of a stand-alone election will vary depending on whether it is an all-mail election, a regular election with polling sites, or another variation of a stand-alone election. The approximate cost of the election is expected to be between $100,000 and $125,000.

Outreach efforts to notify the public of a special election may be similar to those incurred for the special 2-day, weekend election in 1999, held to fill an unscheduled Council vacancy. The approximate outreach costs were $10,000.

Attachments: Exhibit A - Santa Monica Election Campaigns Contributions and Expenditures Spreadsheets

Exhibit B - Other participating Cities and States Matrix

Exhibit C - City of Los Angeles Ethics Commission Proposal

Exhibit D - San Francisco Chronicle Article dated 12/19/06 -

The Way Forward for Political Reform

Exhibit E – City Attorney Memorandum

Prepared by:

Approved:	Forwarded to Council:
Maria M. Stewart, City Clerk (Director, Department of Records and Election Services)	P. Lamont Ewell City Manager