January 13, 2009

RALEIGH — North Carolina should repeal its system of taxpayer-financed elections, since a 2008 U.S. Supreme Court ruling makes it clear the system is unconstitutional. That’s the conclusion a John Locke Foundation analyst reaches in a new Spotlight report.

Click here to listen to Daren Bakst discussing this Spotlight report.

“As Gov. Beverly Perdue pursues a new endowment fund for taxpayer funding of gubernatorial campaigns, she should be aware that North Carolina’s existing taxpayer-financed election systems face serious constitutional problems,” said report author Daren Bakst, JLF Legal and Regulatory Policy Analyst.

Rather than set up another taxpayer-financing scheme, lawmakers should scrap their current systems, Bakst said. “Legislators should not sit idly by and let North Carolinians’ First Amendment rights be trampled until a court ‘officially’ declares this taxpayer financing system to be unconstitutional,” he said. “Taxpayer-financed elections should be repealed immediately. At a minimum, there should be a moratorium on taxpayer financing systems until a final legal decision is made on a key element of taxpayer financing called ‘matching funds.'”

Last June, the U.S. Supreme Court’s ruling in Davis v. Federal Election Commission struck down a federal law that punished congressional candidates for spending too much of their own money on their campaigns, Bakst said.

“Once personal spending on a campaign exceeded a threshold level, the federal McCain-Feingold law gave opposing candidates fundraising advantages,” Bakst said. “This penalty on ‘self-financed candidates’ was called the Millionaire’s Amendment.”

“As the Supreme Court has made clear in its campaign finance cases, restrictions on spending money are equivalent to restricting a candidate’s speech because money is necessary for political communication,” he added. “The penalties in Davis were deemed to place a substantial burden on the free speech rights of these self-financed candidates. Justices also ruled there was no compelling interest for this type of speech regulation.”

The decision should have an impact in North Carolina, where state law authorizes taxpayer financing for selected races, Bakst said. Elections for the N.C. Supreme Court, Court of Appeals, Auditor, Commissioner of Insurance, and Superintendent of Public Instruction are all subject to taxpayer financing. Candidates in those races who accept taxpayer financing agree to limit spending in the general election. Bakst calls them subsidized candidates.

“Any reasonable interpretation of the Davis ruling would lead to the conclusion that North Carolina’s taxpayer financing systems also would be unconstitutional,” Bakst said. “As in the U.S. Supreme Court case, candidates in these North Carolina races are punished for spending too much.”

“Traditional candidates — the candidates who do not accept taxpayer dollars — will trigger what are called ‘matching funds’ to their subsidized opponents, if they spend beyond a threshold level,” Bakst aded. “For example, if the traditional candidate spends $5,000 more than the threshold level, the subsidized candidate sees his taxpayer subsidy grow by $5,000 in matching funds.”

Traditional candidates in North Carolina face an “even more significant burden” than the congressional candidates subject to the Davis ruling, Bakst said. “North Carolina’s traditional candidates have little control over whether matching funds are triggered,” he said. “That’s because the state’s law counts spending by independent groups, such as political action committees, against a traditional candidate’s spending threshold.”

This also means that North Carolina’s law punishes independent groups as well as traditional candidates, Bakst said. “A group wishing to exercise its free speech rights can end up triggering matching funds that support the subsidized candidate the group opposes,” he said. “The speech of independent groups that support traditional candidates is treated differently from independent groups that support subsidized candidates solely based on content, which likely is a violation of the First Amendment.”

Unlike the Millionaire’s Amendment, North Carolina’s system leads to immediate penalties for traditional candidates, Bakst said. “The federal law dealt with contribution limits, so the opposing candidate still had to raise additional funds,” he said. “In North Carolina’s system, matching funds automatically go to the subsidized candidate once the spending threshold is passed.”

Bakst dismisses arguments that a ruling from the Fourth U.S. Circuit Court of Appeals means North Carolina’s taxpayer financing systems and matching funds are constitutional. “It is hard to believe anyone would still make that argument,” Bakst said. “The Fourth Circuit decision was made before the Supreme Court ruled in the Davis case.”

After Davis, the Supreme Court declined to hear an appeal of the Fourth Circuit ruling. “As most people know, nothing can be read into this — it does not suggest one way or another how the Supreme Court would rule in the Fourth Circuit case,” Bakst said. “The court only hears about 80 cases a year out of the 8,000 or so requests it receives.” “

“It also is critical to note that the Supreme Court in Davis used the rationale of an Eighth Circuit Court of Appeals case called Day v. Holahan, which found matching funds to be unconstitutional, to support its conclusion that the Millionaire’s Amendment burdened free speech.”

“We already are starting to see the impact that the Davis case will have on taxpayer-financed systems,” Bakst said. “This past July, the New Jersey legislative counsel’s office warned that matching funds in a taxpayer financing bill would likely be unconstitutional as a result of Davis. In October, an Arizona federal district court found that it was very likely that a challenge to the state’s taxpayer financing system, based on Davis, would be successful.”

Davis points the way toward the proper stance the General Assembly should take in addressing taxpayer financing, Bakst said. “The ‘default’ position for the legislature should be to protect rights, not to protect some system that many legislators already opposed prior to the Davis decision,” he said. “This case should be the final straw for any legislators who were on the fence about taxpayer financing systems.”

Daren Bakst’s Spotlight report, “Taxpayer Financing of N.C. Elections: Clearly unconstitutional after the Supreme Court decision in Davis v. FEC,” is available at the JLF Web site. For more information, please contact Bakst at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].