How Out-of-District FundraisingWeakens Democracy in North Carolina

Looking for Fundsin All the Wrong Places

EducationFundNCPIRG

Elizabeth Ridlington, Frontier GroupRob Thompson, NCPIRG Education Fund

Spring 2007

Looking for Fundsin All the Wrong Places

How Out-of-District FundraisingWeakens Democracy in North Carolina

Acknowledgments

The North Carolina Public Interest Research Group Education Fund thanks the followingindividuals for their review of this report: Chris Hagearty, Executive Director, North Caro-lina Center for Voter Education; Bob Hall, Executive Director, Democracy North Caro-lina; and Bob Phillips, Executive Director, Common Cause North Carolina. Thanks alsoto Tony Dutzik of Frontier Group for technical and editorial assistance.

This report is made possible with funding from the Z. Smith Reynolds Foundation.

The opinions expressed in this report are those of the authors and do not necessarily reflectthe views of our funders or those who provided editorial review. Any factual errors arestrictly the responsibility of the authors.

© 2007, NCPIRG Education Fund

With public debate around important issues often dominated by special interests pursuingtheir own narrow agendas, NCPIRG Education Fund offers an independent voice thatworks on behalf of the public interest. NCPIRG Education Fund, a 501(c)(3) organization,protects consumers and promotes good government in North Carolina. We investigateproblems, craft solutions, educate the public, and offer North Carolina residents meaning-ful opportunities for civic participation.

Frontier Group conducts independent research and policy analysis to support a cleaner,healthier and more democratic society. Our mission is to inject accurate information andcompelling ideas into public policy debates at the local, state and federal levels.

For additional copies of this report, please visit www.ncpirg.org, or send $20 to:NCPIRG Education Fund112 S. Blount St., Ste. 102Raleigh, NC 27601

Table of Contents

Executive Summary 5

Introduction 7

The Role of Money in Elections 8

Out-Of-District Contributions 9

Policy Recommendations 14

Methodology 16

Notes 18

4 Looking for Funds in All the Wrong Places

Executive Summary 5

Executive Summary

Out-of-district financial contributionsfrom special interests and wealthyindividuals undermine democracy in

North Carolina by reducing the influenceof citizens who live in a candidate’s district.North Carolina should adopt a public fi-nancing system for legislative campaigns toaddress this problem.

Campaign contributions influence whoruns for office and who wins.

• Before deciding whether to enter arace, candidates assess their ability toraise campaign funds. Those candi-dates who fear they will be badlyoutspent by their opponent—perhapsbecause of less willingness or ability toraise money from corporate interests,or less personal wealth or fewerwealthy friends who will contribute tothe campaign—may decide to forgo arun for office.

• Candidates give careful considerationto their fundraising ability becausemoney plays such a key role in deter-mining who will win. In North Caro-lina races, typically the candidate whoraises the most money wins the

election. In the state’s 2002 elections,only 11 percent of winning candidateswere outspent by their opponent.

Campaigns for seats in the North Caro-lina House and Senate are heavily fundedby donors from outside the candidates’ dis-tricts, and even from out of state.

We analyzed contributions to 10 pow-erful members of North Carolina’s Legis-lature during their 2006 campaigns todetermine how much funding came fromoutside the candidates’ districts.

• On average, 74 percent of fundingcame from outside the district, includ-ing 14 percent from outside the state.

• The average in-district contributionwas $312, while the average out-of-district contribution was $1,167.

Contributions from individuals weremore likely to come from within the dis-trict than were contributions from politi-cal action committees (PACs). However,candidates raised more money from com-mittees outside their districts than fromindividuals in their districts.

6 Looking for Funds in All the Wrong Places

• On average, 62 percent of funds fromindividual contributions came fromcitizens within the candidate’s district.In contrast, 1 percent of funds fromPAC contributions came from withinthe district.

• Together, the candidates raised$750,000 from individuals and $1.1million from PACs.

This analysis is not intended as a criti-cism of these ten individual office-holders,but rather as an illustration of a systemicproblem that affects all legislators. NorthCarolina’s current campaign finance systemencourages candidates to raise money fromwealthy individuals and powerful interests,wherever they are located. The result is thata small number of powerful out-of-district

interests and wealthy donors heavily influ-ence the outcome of North Carolina’s elec-tions, even if these contributors have littleconnection to a candidate’s home district.Thus, while the fundraising of the 10candidates included in this report is not in-appropriate, illegal or corrupt, it is symp-tomatic of a broken system for financingpolitical campaigns.

Establishing a public financing systemfor North Carolina’s legislative electionswould prevent special interest money fromoverwhelming the interests of ordinary citi-zens. Under a public financing system, can-didates who collect a requisite number ofqualifying small contributions from voterswould be eligible for public funding fortheir campaigns, reducing the role ofout-of-district contributions in the state’selections.

Introduction 7

Introduction

North Carolina election law states thatonly residents of an election districtmay vote there. When registering

to vote, a citizen must sign a statement con-firming that he or she has been a residentof the voting district for at least 30 daysbefore the coming election.1 Signing thisstatement falsely can be prosecuted as afelony. The law helps to ensure that anelected official will represent the interestsof people in that district.

In contrast, North Carolina’s campaignfinance law says nothing about the residencyof wealthy individuals and powerful intereststhat give money to campaigns. Individuals,corporate interests and political actioncommittees are allowed to give money to acandidate anywhere in the state, regardlessof whether they can vote for that candidate.

Though technically only voting deter-mines which candidate wins a race, moneyplays a very important role in determiningwho represents North Carolina voters inthe Legislature. Success in fundraising is adetermining factor in a candidate’s victoryor loss. In North Carolina’s 2002 elections,only 11 percent of winning candidates wereoutspent by their opponent. The other 89percent of successful candidates either

raised more money than the losing candi-date or ran without major opposition.2

Money does more than directly influencewho wins and who loses. It also influencespotential candidates’ decisions about run-ning for office. Candidates know that theymust raise hundreds of thousands of dol-lars if they are to run a competitive cam-paign. Individuals without personal andcorporate connections that enable them toraise large amounts of money may be dis-couraged from running for office. Yet, suchan individual could be the best person torepresent the district. Thus, the need toraise large amounts of campaign funds in-fluences who enters the race and the choiceof candidates available to voters.

North Carolina’s current system of cam-paign financing—in which campaigns arefunded by wealthy individuals and power-ful interests across the state or outside ofNorth Carolina entirely, rather than pri-marily by people within the district that thecandidates hope to represent—limits theinfluence of ordinary citizens and voters.By establishing public financing for cam-paigns, North Carolina can protect voters’influence over who will represent them inthe state Legislature.

8 The Role of Money in Elections

The Role of Money in Elections

C ampaign contributions influencewho runs for office and who wins.Before deciding whether to enter a

race, candidates assess their ability to raisecampaign funds. Those candidates who fearthey will be badly outspent by their oppo-nent—perhaps because of weaker ties tocorporate interests, less personal wealth orfewer wealthy friends who will contributeto the campaign—may decide to forego arun for office.

As discussed in the introduction, moneyplays a key role in determining who winselections. A national study of primary elec-tions—where gerrymandering of districtlines plays no role in determining who winsor loses—showed that the candidate whoraised the most money won 92 percent ofthe time.3 The need to raise so muchmoney discourages some candidates fromeven entering the race.

The fact that some candidates may notchoose to run for office because they can-

not raise enough money has been welldocumented for campaigns at the federallevel. Look Who’s Not Coming to Washing-ton, a report by the U.S. Public InterestResearch Group Education Fund in 2003,profiled numerous candidates who—de-spite being current office holders or other-wise qualified candidates—decided not torun for higher office because they lackedthe personal wealth or financial connectionsnecessary to raise hundreds of thousandsof dollars for a campaign.4

A candidate’s connection to the commu-nity and ability to represent the citizensthere thus can be overshadowed by con-cerns about fundraising. This is a loss forvoters, who are given fewer options at theballot box.

The analysis below focuses on one prob-lem of North Carolina’s current campaignfinance system—the large percentage offunds that candidates raise from outsidetheir districts.

Out-of-District Contributions 9

I n the 2006 election, 170 seats in theNorth Carolina Legislature were up forelection: 50 in the Senate and 120 in the

House. To illustrate the problem of out-of-district financing of North Carolina’slegislative elections, we examined the cam-paign finance records of 10 members of theLegislature, selecting six Democrats andfour Republicans in keeping with the over-all partisan balance in the Legislature. (SeeTable 1, p. 10.) We chose to focus on someof the most powerful members of the Leg-islature and selected candidates who werechairs or ranking minority members of theAppropriations Committees during thiselection cycle. These senators and repre-sentatives allocate millions of dollars in statespending each year.

Fundraising by these candidates may notbe typical of the fundraising by all mem-bers of the North Carolina Legislature.Because of their power, these legislators aremore difficult to challenge in an electionand thus may not have to campaign—orfundraise—as much as other candidates. Atthe same time, their influence within theLegislature may induce more special inter-ests to contribute to their campaigns in thehopes of better access.

This report is not intended as a criticismof these particular officials. Rather, theirfundraising merely illustrates broader prob-lems. Under North Carolina’s current cam-paign finance rules, candidates for publicoffice must raise large sums of money. Themost successful candidates—such as thoseincluded in this report—are those whomanage to raise the most money underthese rules, often by turning to wealthyindividuals and powerful interests. Whilethe fundraising of these candidates is notinappropriate, illegal or corrupt, it is symp-tomatic of a broken system for financingpolitical campaigns.

These candidates raised an average of$187,000 from January 2005 through De-cember 2006, ranging from a low of$62,000 for Representative Beverly Earleto a high of $422,000 for Senator WalterDalton. Non-party committees, or politi-cal action committees (PACs), contributed,on average, 59 percent of funds. Contribu-tions from individuals accounted for 40percent of funds. Support from other can-didates provided the rest. (We excludedcontributions from political parties in ouranalysis.) (See Table 2, p. 10.)

Out-of-District Contributions

10 The Role of Money in Elections

Table 1. Candidates Included in this Study

Candidate Chamber District Party Leadership Position

Bill Owens House 1 Democratic Chair, Appropriations Committee

James Crawford House 32 Democratic Chair, Appropriations Committee

Joe Kiser House 97 Republican Former Minority Leader; Chair,Appropriations Subcommittee

Beverly Earle House 101 Democratic Chair, Appropriations Committee

Debbie Clary House 110 Republican Chair, Appropriations Committee

Philip Berger Senate 26 Republican Minority Leader;Appropriations Committee

Kay Hagan Senate 27 Democratic Chair, Appropriations Committee

Linda Garrou Senate 32 Democratic Chair, Appropriations Committee

Walter Dalton Senate 46 Democratic Chair, Appropriations Committee

Thomas Apodaca Senate 48 Republican Deputy Minority Leader; Memberof Appropriations Committee

Table 2. Total Fundraising and Major Sources*

Candidate Total Percent from Percent PercentIndividuals from PACs from Other

Candidates

Walter Dalton $422,460 55% 45% 0%

Kay Hagan $295,116 63% 37% 0%

Philip Berger $284,065 25% 73% 1%

Thomas Apodaca $215,180 24% 73% 2%

Linda Garrou $195,406 52% 48% 0%

James Crawford $149,850 23% 77% 0%

Bill Owens $98,225 20% 80% 0%

Debbie Clary $77,281 41% 59% 0%

Joe Kiser $66,150 10% 90% 0%

Beverly Earle $62,305 21% 79% 0%

Total $1,866,038 40% 59% 0%

Note: Totals may not equal 100 percent due to rounding.* Excludes receipts from political parties.

Out-of-District Contributions 11

Most Funds Come fromOut-of-DistrictThese ten successful candidates raised themajority of their funds from sources out-side the districts they represent. (See Table3.) On average, just 26 percent of theirfunds came from donors residing in theirdistricts. Senator Kay Hagan had the high-est percentage of in-district contributions,with 48 percent of her funds coming fromindividuals and businesses within the dis-trict. Senator Linda Garrou was next, with41 percent of contributions from in-districtsources. At the low end, Representative JoeKiser raised no money from within his dis-trict and Representative Beverly Earleraised just 8 percent locally.

The remainder of the funds raised bycandidates came from other locations inNorth Carolina and around the country.Forty-five to 78 percent of contributionscame from individuals and PACs elsewhere

in North Carolina, and 7 to 27 percent ofcontributions were from people and orga-nizations outside the state. The 10 candi-dates received an average of 14 percent oftheir funds from individuals and PACs inother states. (See Table 3.)

Out-of-District FundsTypically Come from PACsThe majority of individuals who donate toa candidate live within the candidate’s dis-trict. In contrast, most PAC funds comefrom outside the district. (See Table 4,p. 12.) On average, 62 percent of the fundsraised from individuals come from peoplewithin the district, whereas only 1 percentof funds raised from PACs come fromwithin the district.

There is substantial variation betweencandidates as to the percentage of individual

Table 3. Geographical Source of Contributions

PercentPercent In State but Percent

Candidate Total In-District Out-of-District Out-of-State

Joe Kiser $66,150 0% 78% 22%

Beverly Earle $62,305 8% 66% 27%

Philip Berger $284,065 11% 71% 18%

Bill Owens $98,225 13% 74% 14%

Thomas Apodaca $215,180 13% 69% 18%

James Crawford $149,850 20% 69% 11%

Debbie Clary $77,281 21% 66% 12%

Walter Dalton $422,460 33% 54% 14%

Linda Garrou $195,406 41% 52% 7%

Kay Hagan $295,116 48% 45% 7%

Total/Average $1,866,038 26% 60% 14%

Note: Totals may not equal 100 percent due to rounding.

12 The Role of Money in Elections

contributions that came from within theirdistricts. None of Representative Joe Kiser’sindividual contributions came from withinhis district, but 85 percent of the individualcontributions that Representative JamesCrawford received were from people withinhis district.5 No candidate received morethan 6 percent of PAC contributions fromwithin the district. (See Table 4.)

Because PACs give more money in to-tal, contributions given by citizens withinthe district are overshadowed by out-of-district funds. The average in-district con-tribution was $312, compared to $1,167

average for out-of-district contributions.(See Table 5.) Even for RepresentativeCrawford, whose individual contributionswere predominantly from within his dis-trict, out-of-district PAC funds provided amuch larger share of his campaignfundraising.

The end result is that, for these 10 can-didates, the majority of their campaignfunds came from sources outside the dis-trict in which they sought election. Moneycontributed by individual residents andvoters within the district was overshadowedby money given by other interests.

Table 4. Relative Size of In-District Contributions from Individuals versus PACs

James Crawford $35,050 $29,850 85% $114,800 $100 0%

Kay Hagan $185,754 $138,367 74% $109,363 $4,250 1%

Linda Garrou $102,406 $73,714 72% $93,000 $6,000 3%

Bill Owens $20,025 $12,500 62% $78,200 $0 0%

Walter Dalton $233,860 $137,890 59% $188,600 $0 0%

Debbie Clary $31,573 $16,713 53% $45,650 $0 0%

Thomas Apodaca $52,610 $24,352 46% $158,070 $3,970 3%

Philip Berger $71,465 $31,340 44% $208,600 $1,250 1%

Beverly Earle $12,955 $2,011 16% $49,350 $2,750 6%

Joe Kiser $6,750 $0 0% $59,400 $0 0%

Total/Average $752,448 $466,737 62% $1,105,033 $18,320 1%

Candidate

TotalContributionsfromIndividuals

TotalContributionsfrom In-DistrictIndividuals

Percent ofIndividualContributionsfrom In-District

TotalContributionsfromPACs

TotalContributionsfromIn-District PACs

Percent of PACContributionsfromIn-District

Out-of-District Contributions 13

Table 5. Average Size of In-District versus Out-of-District Contributions

Candidate Average AverageIn-District Out-of-DistrictContribution Contribution

Joe Kiser $0 $1,084

James Crawford $138 $1,103

Debbie Clary $235 $924

Philip Berger $265 $1,592

Bill Owens $278 $1,207

Thomas Apodaca $303 $1,494

Kay Hagan $323 $874

Beverly Earle $373 $590

Walter Dalton $385 $1,239

Linda Garrou $438 $1,256

Average $312 $1,167

14 Looking for Funds in All the Wrong Places

Policy Recommendations

This analysis of fundraising by 10 leg-islative candidates in the 2006 elec-tion shows that elections in North

Carolina are highly influenced by wealthyindividuals and powerful interests who liveoutside the candidates’ districts. This less-ens the influence of citizens over their rep-resentation in the state Legislature. It alsocreates a potential conflict of interest forofficeholders. A candidate who raises largeamounts of money from outside his or herdistrict may feel beholden to special inter-ests who want a different policy outcomethan do voters in the district.

North Carolina should adopt full publicfinancing of campaigns to prevent thevoices and interests of ordinary citizensfrom being overwhelmed by outside interests.

A public financing system might worklike this: candidates who want to receivepublic funds for their campaign would needto demonstrate genuine public support fortheir candidacy by raising a requisite num-ber of small contributions from NorthCarolina registered voters in their districts.Public money—from a designated fund,perhaps supported by a tax return check-off—would then be available to the candidate

for campaigning. If both major candidatesin a race have accepted public financing,funds would be capped at a certain level. Ifone candidate chooses to raise privatefunds, the publicly financed candidatewould receive adequate public funds tomaintain a level playing field. Because apublicly financed system of elections wouldeliminate the need for candidates to lookoutside of their districts for funding, can-didates would have more time to spend lis-tening to the concerns of voters.

North Carolina already has a public fi-nancing system for judicial elections. Since2004, candidates for judicial positions havebeen able to choose to receive public financ-ing instead of raising all their funds fromprivate contributors. Candidates who wishto receive public funds must first receive$10 to $500 donations from 350 registeredvoters in North Carolina.6

A comparison between judicialfundraising for North Carolina SupremeCourt seats in 2002 versus 2004 shows asignificant decline in private fundraising asmany candidates opted for public financ-ing. Contributions from business groups,special interests and lawyers—parties who

Policy Recommendations 15

might have a significant interest decided byelected judges—dropped from 73 percentof the funds judicial candidates raised fromoutside their immediate family in 2002 tojust 14 percent in 2004.7

Receiving public financing has notplaced candidates at a financial disadvan-tage. Publicly financed candidates whoseopponents opt for a privately financed cam-paign receive public funds to match theamount raised by the opponents. The out-come of the 2006 election shows that publicly

financed candidates are competitive: five ofthe six winners of judicial races were can-didates who chose public financing insteadof traditional campaign financing.8

Public financing of campaigns wouldlessen the importance of funds from spe-cial interests and wealthy donors, whetherthey reside within or outside of a district.North Carolina has already demonstratedthat publicly financed campaigns can besuccessful, and should pursue publicfinancing for all candidates.

16 Looking for Funds in All the Wrong Places

Methodology

Candidate selectionWe selected five members from both theHouse and Senate Appropriations commit-tees, choosing the three most powerfulDemocrats and the two most powerful Re-publicans in keeping with the overall par-tisan balance in North Carolina’sLegislature. Generally, some of the mostsenior and influential legislators serve onthe Appropriations committees because ofthe committees’ power. Within the com-mittees, we focused on the chairs and oth-ers who held party leadership positionsduring this election cycle.

Data SourcePartial campaign finance data were pro-vided by the North Carolina State Boardof Elections in database format. The Boardof Elections’ database was complete onlyfor Sen. Garrou. The database for Sen.Apodaca and Representatives Clary andCrawford was complete through October21, 2006. For the six other candidates, thedatabase was complete through June 30,2006. We hand-entered campaign financereports—as submitted by candidates to theState Board of Elections and posted on theBoard of Elections’ website—that were

needed to complete the data for all of 2005and 2006 so that we could analyze contri-butions from the entire 2006 election cycle.

No address was provided for some con-tributors. We entered addresses for as manycontributors as possible, using addresseslisted next to other contributions from thesame contributor. In cases where a PAC orcompany operates from multiple offices andwe could not determine which office a con-tribution came from, we did not insert anyaddress. We calculated the in-district orout-of-district percentage of those contri-butions as described below.

We excluded a loan made by Sen.Apodaca to his own campaign. We also ex-cluded contributions and other receiptsfrom political party committees.

In-District versus Out-of-DistrictContributionsEach contribution from an individual wasidentified as in-district or out-of-districtbased on the donor’s zip code. If any por-tion of the zip code was contained in thecandidate’s district, the contribution wasassumed to be in-district, even when themajority of a zip code lies in another district.The figures in this report thus likely un-

Methodology 17

derstate out-of-district percentages to someextent. Contributions from individuals forwhich the only mailing address was a postoffice box were assumed to be in-districtor out-of-district based on the zip code ofthe post office box.

Individual donors with no reported zipcodes were assumed to be out-of-districtin the same proportion as the contributionsto each candidate which had reported zipcodes. This affected only $200 in contri-butions for Representative Earle, $250 forSenator Apodaca, $500 for Senator Garrou,and $1,000 each for Representative Clary

and Senator Hagan. In some cases, themissing address information may be the re-sult of an error in data received from theBoard of Elections.

All contributions reported as “aggre-gated individual contributions” of $100 orless were assumed to be in-district. The$640 that Senator Dalton received at a BBQfundraiser was assumed to be from smalldonors and therefore was treated as in-district.

Contributions from political action com-mittees were coded as in-district or out-of-district based on the location of thecompany’s or PAC’s mailing address.

18 Looking for Funds in All the Wrong Places

1 North Carolina State Board of Elections, North Carolina Voter Registration Application/Update Form,August 2005.2 Democracy North Carolina, 2002: Big Money in Legislative Races, 4 April 2003.3 Adam Lioz and Gary Kalman, U.S. Public Interest Research Group Education Fund, The WealthPrimary: The Role of Big Money in the 2006 Congressional Primaries, November 2006.4 Adam Lioz, U.S. Public Interest Research Group Education Fund, Look Who’s Not Coming toWashington: Qualified Candidates Shut Out By Big Money, January 2003.5 Representative Kiser received no small contributions from unidentified individuals and $6,750 fromidentified individuals, none of whom live in his district.6 North Carolina Center for Voter Education, The Public Campaign Fund, downloaded fromwww.ncjudges.org/jcra/pcf.html, 6 March 2007.7 Democracy North Carolina, A Profile of the Judicial Public Financing Program, June 2006.8 Common Cause North Carolina, Public Financing Wins Big in North Carolina, downloaded fromwww.commoncause.org/site/pp.asp?c=dkLNK1MQIwG&b=1739113, 6 March 2007.

Notes

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