Minnesota's Campaign Finance Law

Minnesota's Campaign Finance Law

Peter S. Wattson
Senate Counsel
State of Minnesota

Contents I. Historical Background 2

II. Contribution Limits 2

III. Political Contribution Refund Program 3

A. Tax Credit Becomes a Refund 3
B. Spending Limit Agreement 3
C. Official Receipt Form 4
D. Refund to Contributors 4
E. Attitude Toward the Program 4

IV. Income Tax Checkoff 5

A. Party Account 5
1. Paid after primary 5
2. Affidavit of contributions 5
3. In accordance with amounts checked off for the party 6
4. Not more than the candidate's spending limit 6
B. General Account 6
1. Major party candidates 6
2. Not more than 50 percent of spending limit 7

V. General Fund Appropriation 7

I. Historical Background

Minnesota has long been a leader in campaign finance reform. It had campaign reporting requirements and spending limits for decades before Watergate. In 1974, in response to Watergate, it enacted an ethics in government act, Laws 1974, ch. 470, including several campaign finance reforms. It imposed new contribution limits and spending limits, §§ 25, 27, codified as amended at Minn. Stat. §§ 10A.25 , 10A.27 . It provided public financing for candidates for statewide office and for legislators through an income tax checkoff. § 31, codified as amended at Minn. Stat. § 10A.31 . And it provided a tax credit of $12.50 per person for contributions to candidates for state office, or $5 for contributions to a political party. § 35, codified at Minn. Stat. § 290.06, subd. 11 (repealed 1987).

II. Contribution Limits

In 1974, Minnesota's contribution limits were set at ten percent of the spending limit. For example, the governor's spending limit was about $600,000, so the limit on contributions to a candidate for governor was about $60,000. The limit on contributions to a candidate for state representative was about $750. A political party could not contribute more than 50 percent of the spending limit to a candidate, or $300,000 to a candidate for governor. Laws 1974, ch. 470, § 27, codified as amended at Minn. Stat. § 10A.27 .

In 1977, following the U.S. Supreme Court's decision in Buckley v. Valeo, 424 U.S. 1 (1976) (per curiam), a federal district court in Minnesota struck down the expenditure limits, taking the contribution limits with them. Bang v. Chase, 442 F. Supp. 758 (D. Minn. 1977), aff'd mem. sub nom. Bang v. Noreen, 436 U.S. 941 (1978).

The 1978 Legislature responded by enacting contribution limits that were not tied to spending limits but were the same amounts as computed under the old system, i.e., $60,000 for governor and $750 for state representative in election years, with a separate limit for non-election years that was, for most candidates, 20 percent of their election-year limit. Laws 1978, ch. 463, § 76, amending Minn. Stat. § 10A.27.

In 1991, the Legislature passed a bill to reduce the governor's contribution limit from $60,000 to $20,000. Laws 1991, ch. 349, § 17, amending Minn. Stat. § 10A.27. Governor Carlson vetoed the bill, but returned the bill to the Senate after the three-day deadline, so the veto was declared invalid and the bill declared law by the Ramsey County District Court. Seventy-seventh Minnesota State Senate v. Carlson, No. C3-91-7547 (Aug. 2, 1991).

The present limits were set as part of the campaign finance reform act of 1993, Laws 1993, ch. 318, art. 2, § 26, amending Minn. Stat. § 10A.27 , subd. 1. For example:

Governor and Lieutenant Governor	$2,000
Attorney General	$1,000
State Senator	$ 500
State Representative	$ 500

Having learned the proper veto technique in 1991, Governor Carlson vetoed the first campaign finance reform bill presented to him in 1993, H.F. No. 163, Laws 1993, ch. 173, but signed a second one that added limits on independent expenditures, which he demanded in return for his signature. H.F. No. 201, Laws 1993, ch. 318. The limits on independent expenditures have now been thrown out by the federal courts, see, Day v. Holahan , 34 F.3d 1356 (8th Cir. 1994), and Republican Party of Minnesota v. Pauly , No. 98-1698 ADM/AJB (Sep. 17, 1999), but the $2,000 limit on contributions to a candidate for governor remains.

III. Political Contribution Refund Program

A. Tax Credit Becomes a Refund

The tax credit for political contributions was repealed in 1987, in an effort to simplify the income tax form following the enactment of the Internal Revenue Code of 1986. Laws 1987, ch. 268, art. 1, § 127. But it was reinstated in 1990, with the dollar amounts increased to $50 per person for contributions either to a state candidate or to a political party and a separate form was required to claim it. Laws 1990, ch. 608, art. 3, § 28, coded as amended at Minn. Stat. § 290.06 , subd. 23. In 1991, the tax credit was made a refund, so the amount a taxpayer may receive from the State is no longer limited by the amount of taxes owed. Laws 1991, ch. 291, art. 6, § 24.

B. Spending Limit Agreement

To be eligible to participate in the political contribution refund program, a candidate must sign a spending limit agreement. Minn. Stat. § 290.06 , subd. 23. The spending limit agreement binds the candidate to spend no more than a certain amount, which varies by office, in the election year and 20 percent of that amount in non-election years. Minn. Stat. §§ 10A.322 , 10A.25 . The spending limits have been adjusted periodically by the Legislature to keep them high enough to run a legitimate campaign, and are further adjusted each election year in accordance with changes in the consumer price index. Minn. Stat. § 10A.255 . For example, the spending limits for the 2002 election year were as follows:

Governor and Lieutenant Governor	$2,188,090
Attorney General	$ 364,690
State Representative	$ 27,380

The spending limits allow for two significant upward adjustments. First, any candidate running for the office the first time receives a ten-percent increase in the spending limit. Second, any candidate involved in a contested primary, i.e., one who received less than twice as many votes as any opponent, is given a 20 percent increase in spending limit.

The spending limits are high enough, and the public subsidy generous enough, that almost all candidates who may participate in the program choose to sign a spending limit agreement. In every election since 1990, over 90 percent of all candidates have signed a spending limit agreement. In 2000, the participation rate for legislative candidates who filed for office and raised or spent more than $100 on their campaign was 98 percent. Campaign Finance and Public Disclosure Board, "2000 Campaign Finance Summary" (visited Sept. 12, 2002) <http://www.cfboard.state.mn.us/summary00/index.html>.

In 2002, the Legislature added a requirement that the principal campaign committee of a candidate who signs a spending limit agreement must not make independent expenditures. Laws 2002, ch. 363 , § 23, coded as Minn. Stat. § 10A.25, subd. 3a.

C. Official Receipt Form

Once the candidate has signed a spending limit agreement and filed it with the Campaign Finance and Public Disclosure Board, the board provides the candidate with a supply of official political contribution receipt forms. Minn. Stat. § 10A.322 , subd. 4. Upon receipt of a private contribution, the candidate gives a form to the contributor, who files it with the Commissioner of Revenue. Minn. Stat. § 290.06 , subd. 23. The contributor may file only one form per year, to cover all the contributions made that year, but it may be filed at any time during the year and up to April 15 in the year after the contribution was made. Id.

D. Refund to Contributors

The Commissioner of Revenue then refunds the amount of the contribution, up to $50 for an individual or $100 for a married couple filing jointly. Id. The refund applications are processed throughout the year, so that a contributor may expect to receive the refund within about eight weeks after filing it. The refunds are paid out under an open appropriation from the general fund.

E. Attitude Toward the Program

Even though the program has now been in place for over ten years, people still find it hard to believe. "You mean, if I make a contribution of up to $50, I can get all my money back?" Yes, you can. In 1998, the State paid over $2.2 million in political contribution refunds. The program provides public money to fund political campaigns, but who gets the money is decided by each individual contributor, $50 at a time.

The program was designed to, and does, provide candidates with the early money they need to get their campaign started. But no public money is spent until a candidate has first received the same amount from an individual contributor.

IV. Income Tax Checkoff

A. Party Account

1. Paid after primary

The second major source of public money for Minnesota candidates is the income tax checkoff. Immediately following the state primary in September, all candidates who have signed a spending limit agreement, filed an affidavit of private contributions, have an opponent in either the primary or the general election, and whose names will appear on the ballot in the general election receive a payment from the State. Minn. Stat. § 10A.31 , subd. 6. The payment comes from money checked off on the individual income tax form. Minn. Stat. § 10A.31 , subds. 1-5.

2. Affidavit of contributions

The private contributions a candidate must raise in order to be eligible to receive a public subsidy are not really "matching" contributions. The amount the candidate receives from the State does not vary depending on the amount raised privately. Rather, the private contributions are a threshold the candidate must raise to prove the candidate is viable. All viable candidates are treated the same, regardless of the amounts they raise privately.

The amount of contributions required depends on the office. For example:

Governor and Lieutenant Governor	$35,000
Attorney General	$15,000
State Senator	$ 3,000
State Representative	$ 1,500

Minn. Stat. § 10A.323 .

The contributions must be from individuals eligible to vote in the state, counting only the first $50 received from each contributor. An individual may contribute more, up to $500 to a candidate for the legislature or $2,000 to a candidate for governor. But only the first $50 from each individual counts toward the threshold requirement. Each contributor must be eligible to vote in the state, but contributors to a candidate for the Legislature need not be residents of the legislative district.

3. In accordance with amounts checked off for the party

The payment after the primary comes from the party account in the state elections campaign fund. The party account consists of the amounts designated by taxpayers for a particular political party. The amount of the checkoff is $5 per taxpayer. Its cost is paid by a transfer from the general fund to the state elections campaign fund, so checking off does not increase the amount the taxpayer pays or reduce the amount of the taxpayer's refund. The amounts checked off for each party are credited to the party's account and allocated among the various statewide and legislative offices in accordance with a statutory formula.

The amount allocated for legislative offices is further allocated to legislative districts in accordance with the amounts checked off for that party by taxpayers living in the district. Allocating the amounts back to the legislative districts from which it came was the result of a decision by the federal district court in the case of Bang v. Chase , 442 F. Supp. 758 (D. Minn. 1977), aff'd mem. sub nom. Bang v. Noreen , 436 U.S. 941 (1978). The court threw out the original allocation formula, which allocated the checkoff money back to legislative districts based on the political party's strength statewide. The court said the original formula discriminated against certain candidates based on their party affiliation, since the support for a particular party statewide had "no rational relation to the support for particular parties or for particular candidates within legislative districts." 442 F. Supp. at 768. The result of this court-mandated change in the formula was to provide the most public money to candidates where it was least needed, i.e., the most money goes to Democratic candidates in strong Democratic districts and to Republican candidates in strong Republican districts.

4. Not more than the candidate's spending limit

There is a limit on how much party account money a candidate may receive. Since the money only goes to candidates who have signed a spending limit agreement, they may not be paid from the party account more than their spending limit. Minn. Stat. § 10A.31 , subd. 6.

B. General Account
1. Major party candidates

Most of the candidates who receive money from the party account also receive a payment of income tax checkoff money from the general account. The general account consists of amounts checked off by taxpayers who chose to distribute their money equally among all eligible candidates, rather than only to the candidates of one party. As with the checkoff to the party account, the checkoff to the general account is financed by an appropriation transfer from the general fund to the state elections campaign fund and has no impact on the amount paid by the taxpayer. To receive a payment from the general account a candidate must have signed a spending limit agreement, filed an affidavit of contributions, and had an opponent in either the primary or the general election. Minn. Stat. § 10A.31 , subd. 7(a)(1)-(3).

For elections from 1974 to 2000, the general account money was paid after the general election only to candidates who had received at least a certain number of votes in the general election. A candidate running statewide had to receive at least five percent of the votes cast in the general election for that office. Minn. Stat. § 10A.31 , subd. 7(a)(4). A candidate for the Legislature had to receive at least ten percent of the votes cast for that seat. Id. The timing of the payment meant that candidates did not have the general account money at the time when they needed to spend it -- before the election. They often borrowed money in anticipation of receiving the general account money after the election. This was a particular problem for Jesse Ventura in the election of 1998. He would be eligible to receive about $310,000 from the general account if he received at least five percent of the vote. His polling numbers were good, but as a first-time candidate, he had no track record. The major banks would not loan him the money. Finally, in mid-October, he found a small neighborhood bank willing to loan him the money. He spent it before the election, and won. In 2001, he persuaded the Legislature to change the payment of the general account money so that candidates would receive it immediately following the primary. Laws 2001, 1Sp. ch. 10, art. 18, § 2, coded as Minn. Stat. § 10A.31 , subd. 7. Rather than require that the candidate have received a certain number of votes, the law now requires only that the candidate be from one of the major parties. There is also a new requirement that the candidate spend or become obligated to spend at least half the general account money no later than the end of the final reporting period (17 days) before the general election. Id.

2. Not more than 50 percent of spending limit

The money in the general account is divided equally among all eligible candidates, except that no candidate may be paid an amount from the general account that would cause the sum of the money from the party account plus the money from the general account to exceed 50 percent of the candidate's spending limit. Minn. Stat. § 10A.31 , subd. 7(b). Money not paid to a candidate because of the 50-percent limit is allocated back to all the other candidates until all have reached the 50-percent limit or the balance in the account is exhausted.

V. General Fund Appropriation

The income tax checkoff program began in 1974. It hit its peak in participation in 1977 at 27 percent of all taxpayers. It has been in decline ever since, down to 9 percent in 1998, as shown on the following chart:

The amounts provided by the checkoff program have increased from time to time, in spite of the declining participation rate, because the Legislature has increased the dollar amount. The dollar amount began at $1, was increased to $2 in 1980, Laws 1980, ch. 587, art. 3, §§ 4-6, and increased to $5 in 1987. Laws 1987, ch. 268, art. 1, §§ 1-3.

By the 1990s, it was obvious that the checkoff alone, even if it were increased again at regular intervals, would not provide the public money needed to level the playing field in political campaigns. Another source was needed.

In 1993, as part of the negotiations over a major overhaul of the campaign finance system, Governor Carlson insisted on supplementing the general account with a permanent appropriation from the general fund. The amount agreed to was $1.5 million for each election. It was written into the statutes as a standing appropriation, so the Legislature would not need to reauthorize it every two years. Minn. Stat. § 10A.31 , subd. 4. Likewise, it was Governor Carlson who insisted on adding the 50-percent limit, so that this new public money would not be wasted on races that were not competitive.

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Update: September 16, 2002 (psw)
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