Once upon a time (actually it was 1974), Congress passed a law providing for public financing of presidential campaigns. Now 33 years later, it’s about to become a fairy tale.

The law works like this: Private contributions during the nominating process are matched up to $250 each. In order to receive these matching funds, candidates must agree to state by state spending limits and to an aggregate spending limit for the entire primary and caucus season (this is called “opting in”).

There is a separate opportunity to “opt in” for the general election. Candidates who agree to adhere to a spending limit for the general election receive a lump sum (currently about $75 million) from the federal government to pay for the fall campaign.

So far, only three candidates have rejected the federal matching funds for the primary season (George W. Bush in 2000 and 2004 and John Kerry in 2004). To date, no candidate has refused federal funding for the general election.

The system, which was intended as a great reform of our campaign financing laws (ending reliance on big money contributions from private and special interests), is working as originally intended by Congress. Right? Wrong.

The entire house of cards is about to collapse as we enter the 2008 presidential cycle.

It is clear that every serious candidate in 2008 will reject federal matching funds (and the accompanying spending limits) during the primary season and that the two major party candidates may reject federal funding (and the spending limit) for the general election also.

How did we get to this point?

Actually, it’s quite simple. In 2000, President Bush made a very wise tactical decision to reject federal matching funds for the primaries. He was the first major presidential candidate to do so. Sen. John McCain, his chief challenger for the Republican nomination that year, accepted federal matching funds and the accompanying state by state spending limit.

McCain, running as a reformer, was surging as he and Bush entered the climactic South Carolina presidential primary. McCain was stuck with a low spending limit for South Carolina and Bush was free to spend whatever was needed. Bush beat McCain in South Carolina and the rest is history.

Not surprisingly, McCain will not fall into the same trap in 2008. He has already decided he will reject federal matching funds for the Republican primaries and caucuses. It is clear that Sen. Hillary Clinton, who has great fundraising capacity, will also reject federal matching funds for the nominating process and that all other major candidates in both parties will do the same. So much for the great reform of the financing of presidential campaigns.

That brings us to the general election. I believe that the nominees of both parties may well also reject federal funding for the general election, although this is not quite as clear cut.

President Bill Clinton seriously considered rejecting federal general election funding (and the spending limit) in 1996. A number of us in the Democratic Congressional leadership at the time (I was Chair of the Democratic Congressional Campaign Committee that year) urged the president not to take this step.

Our reasoning was quite simple: Had President Clinton rejected federal funding and spending limits, he would have raised an enormous amount of money and made it more difficult for the House and Senate campaign committees to raise the money necessary to run our races.

President Clinton ultimately took federal funds for the 1996 general election and we were not forced to compete with an incumbent president for the finite amount of Democratic money available for a general election. House Democrats picked up nine seats that year, although we did not win enough to get back into the majority. Our job would have been much harder had we been competing with an incumbent president for private funds.

Should Hillary Clinton win the Democratic nomination, she will have the opportunity to raise a very large warchest and certainly will be tempted to opt out of federal funding for the general election. Any Republican candidate facing her would not want to be limited in what he could spend either.

If someone other than Hillary wins the Democratic nomination, it is still possible that he would accept federal funding for the fall as long as the Republican nominee followed the same course.

There is certainly the prospect that the entire scheme of federal funding for the presidential campaign could become a fairy tale in 2008.

If this happens, Congress will have to decide whether is makes sense to try to bring the federal financial system back to life for future campaigns by significantly increasing spending limits and the ratio for matching private donations during the nominating process (increasing the one to one match to a four to one match as some have suggested) or just letting the noble experiment go the way of the dodo bird.

Tax payers have never been crazy about tax dollars being used for financing political campaigns. That’s why federal financing was never extended to Congressional races. Don’t be surprised if the entire federal financing system simply disappears after 2008.

Martin Frost served in Congress from 1979 to 2005, representing a diverse district in the Dallas-Ft. Worth area. He served two terms as chairman of the House Democratic Caucus, the third-ranking leadership position for House Democrats, and two terms as chairman of the Democratic Congressional Campaign Committee. Frost serves as a regular contributor to FOX News Channel and is a partner at the law firm of Polsinelli, Shalton, Welte and Suelthaus. He holds a Bachelor of Journalism degree from the University of Missouri and a law degree from the Georgetown Law Center.

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