Financing 2006, Part II: The Candidates

In my last column, I looked at the overall fundraising picture for the two parties' national committees. I argued that, contrary to the conventional wisdom, the Democratic Party's fundraising receipts are not being enhanced by a positive political environment. Rather, DCCC and DSCC receipts are being enhanced at the expense of the DNC, whose chair, Howard Dean, has made some unconventional spending decisions.

In this column, I would like to explore how candidates for office are performing in their fundraising tasks — once again making use of FEC data. This can give us a sense of the size of the playing field for the House. This, I think, is particularly helpful. We all know the size of the playing field for the Senate. But, when it comes to the House, things become much murkier. So, some FEC-provided clarity is, I think, very welcome.

First, however, we need to frame the issue. Perhaps the best way to think about campaign financing is via a market analogy. Donors "sell" their campaign dollars to "buyers," candidates for office. Depending upon the political environment, we expect the buying and selling to proceed along different lines.

In a year where one party believes it will be in trouble, incumbent members of Congress stockpile cash for the upcoming political battle. Incumbents are very powerful buyers in that they are able to raise large quantities of cash if they so choose. They, therefore, have the capacity to "crowd" the market — so long as the supply of campaign cash is limited, which it is (believe it or not!).

In other words, when incumbent members start looking for campaign dollars, they are so able to collect those dollars that challengers in their party, those who lack the political connections and expertise to raise money as ably, have difficulty finding funds for their campaigns. On top of this, in a year when a party expects to lose seats, we further expect challengers from that party to be less appealing, and therefore, less able to attract cash anyway.

In a year where a party's fortunes seem good, we would expect the opposite. Incumbents will not engage in heavy fundraising because they do not face a serious challenge. This enables challengers, who in this scenario will be much more attractive, to raise more money.

Incumbents, moreover, will feel secure enough to look beyond their own seats, and begin to help challengers raise money. The buoyant party, therefore, will see less money flow to established candidates and more flow to the challengers.

In 2006, the GOP resembles the party on defense; the Democrats resemble the party on offense. What we are seeing on the Republican side are well-funded incumbents and challengers who are under-funded. On the Democratic side, we are seeing the opposite. Incumbent Democrats are not stockpiling cash and Democratic challengers have been able to raise large amounts of it.

But how much cash have these challengers been raising? A successful challenge is quite expensive. How many challengers are on track to raise enough?

We can get initial answers to these questions by examining the fundraising receipts for 2006 Democratic and Republican challengers and compare them to the receipts of 2004 challengers who were eventually successful. The expectation here is that the candidates who will eventually come to pose a strong challenge are those who are on track to raise the minimum amount of money it cost to win a seat in 2004.

This, of course, requires us to assume that 2004 serves as a proper baseline for 2006. This is a reasonable but not uncontroversial assumption. We will examine the potential controversies in a moment. In the meantime, let's get down to it. With 2004 as a baseline, how many challengers are on track in 2006? Campaign watcher Charlie Cook sees about 36 Republican-held seats being in jeopardy. The DCCC has been talking about putting 40 Republican seats in play. Brookings Institution scholar Thomas E. Mann thinks the Democrats can put more than 50 in play. All three estimates seem to me to be high.

In 2004, the minimum amount that every non-incumbent spent to defeat an incumbent was $1.55 million. This was the minimum cost to take an incumbent-held seat, and about 10 challengers raised this minimum amount. By July 1, the minimum amount, other than loans, raised among the challengers who were not late arrivers to the campaign was $542,000. Further, all of these challengers had several hundred thousand dollars on hand; the minimum amount in the bank was a net of $285,000.

Further, the minimum cost in 2004 to take an open-seat held by the other party was $1.37 million. Of the candidates who would eventually raise this amount and who were not late arrivers, all of them had raised at least a net of $504,000, other than loans, by now. They also all had at least a net of $330,000 in the bank at this point.

This offers us a rough estimate of which challengers are on track to raise the minimum level of cash needed to take a House seat in 2004. Today, there are 25 Democratic challengers of Republican incumbents and seven Democratic challengers in Republican-held open seats that have this minimum amount. There are six Republican challengers of Democratic incumbents, and one Republican challenger in a Democrat-held open seat that have this minimum amount. That yields a gross of 32 Republican and seven Democratic seats on the table — a net of 25 Republican seats.

This standard, of course, is the minimum. Most 2004 challengers who were eventually successful had much more by this point. Many who eventually did not raise enough had at least this amount by this point. So, it might be valuable to see how many seats are on the table with a more stringent standard. In 2004, the average net amount that these challengers of incumbents had raised by this point was $834,000. The average amount of money they had in the bank was $418,000. The average amount that the open seat challengers raised by this point was $777,000. The average amount they had in the bank was $492,000.

By this standard, there are 16 Democratic challengers of Republican incumbents and five Democratic challengers in Republican-held open seats who are on track to raise enough by November. There are five Republican challengers of Democratic incumbents and zero Republican challengers in Democratic-held open seats who are on track. That yields a gross of 21 Republican and five Democratic seats on the table — a net of 16 Republican seats.

Of course, I determined these numbers based only upon challenger financial standings; district partisanship, incumbent appeal, and other factors have not been included. A list of serious challenges that includes other factors would probably exclude some races. I think, though, that an application of other factors to each list, one that is commensurate with the stringency that we respectively applied the fundraising factor, would produce two lists of roughly the same size. In both - some races would drop out, others would come in.

Which estimate, then, is more reasonable? Both have drawbacks. Based upon the 2004 numbers alone, we can probably say that the first standard (32 R and seven D seats on the table) probably overestimates the number of seats. There were many who had raised this amount by July 1, but failed to ultimately raise the minimum. On the other hand, the second standard (21 R and five D) likely excludes some candidates who will get to the minimum amount required in 2004. We could split the difference and say that there are 26-27 Democrats and six Republicans candidates on track to offer a serious challenge.

I think, though, that we can do a little better than splitting the difference. Let us think about the 2004 standard, which is, as I mentioned, reasonable but not uncontroversial. The controversy stems from whether the campaign price tag has increased, decreased or stayed the same. There seems to me to be good reason to expect that it will cost more than ever to switch a House seat from one party to another, which would shift our estimate toward the more conservative 21 R, five D.

What might have increased the cost of a challenge is the fact that there is inflation inherent to congressional campaigns that ebbs and flows in every year and for every party. A $1 million campaign in 1996 would cost more than $1 million in 2006. Will inflation be a factor this year? If it is a significant factor, several of these 39 challengers are probably not on track to raise enough.

In addition to inflation, there might be a shifting of the campaign burden from parties to candidates that is increasing the cost to the candidate. Prior to the passage of the Bipartisan Campaign Reform Act (BCRA, a.k.a. McCain-Feingold), the parties were able to raise unlimited quantities of soft dollars (money meant for party building) and find ways to make them effectively hard dollars (money meant for candidate support).

With soft dollars out of the picture, the parties are less able to offer their candidates the sort of support that they used to offer. BCRA seems to have significantly slowed the rate of growth in party receipts in 2004 and 2006. This, in turn, might mean that candidates must now bear a larger-than-normal share of the overall cost to mount a successful challenge.

This phenomenon might not have had as much of an impact in 2004 because Bush/Cheney and Kerry/Edwards were able to raise and spend large amounts of hard dollars — and spend them in ways that indirectly benefited congressional candidates. With the new financing regime BCRA imposes, but without the indirect support of a presidential campaign, the cost to the candidate might be larger than ever in 2006.

There is indeed some initial evidence of campaign inflation and/or transferring of the financial burden to candidates. The first is the size of candidates Francine Busby's and Brian Bilbray's fundraising receipts for the California 50th Congressional District special election. They were stratospherically high. Bilbray raised $1.7 million dollars in a condensed campaign season — and he was criticized for not raising enough. Busby raised nearly $3 million, a full $500,000 more than South Dakota Democratic Rep. Stephanie Herseth spent in her 2004 special election bid. What is more, the most competitive races — in Connecticut, in the Philadelphia suburbs, etc. — feature challengers who have already raised as much as challengers did in all of 2004. These challengers, further, show no signs of slowing their fundraising activities.

Further, for all the money that challengers like Ron Klein in Florida's 22nd Congressional District or Joe Courtney in Connecticut's 2nd have raised, most incumbent Republicans are raising even more. In the aggregate, the average candidate — Republican or Democrat, incumbent or challenger — has raised 8 percent more in 2006 than he did by this point in 2004. He has spent 7 percent more than he did by this point in 2004.

What is more, this money seems to be concentrated in just a few races. For instance, less than 8 percent of Democratic challengers of incumbents have more than 34 percent of the money that all Democratic challengers of incumbents have. Top-tier Democratic challengers and endangered Republican incumbents are acting as if they know that a fully funded campaign will cost more than ever. If that is the case nationwide, then the number of races where candidates are in a position to gain their party a seat will be smaller than 39.

What might keep costs to candidates down would be a salient appeal to the electorate. What I mean by this is a campaign that really resonates with the average voter. Such a campaign would probably not cost as much: one good advertisement is worth 10 mediocre advertisements.

The best chance for such a campaign is definitely with the Democrats this year. What they need to do is find a way to connect, in a clear and compelling way, voter anxiety with the state of the nation and voter frustration with President George W. Bush to individual Republican incumbents. The Republicans did this in 1994 by attaching individual Democratic incumbents to Bill Clinton via roll call votes on gun control and taxes. So far, there is no evidence that the Democrats have hit upon such a message. If they had, we would have seen it during the California 50th District race. Their attempts to frame the 2006 midterm have been, to say the least, tepid. The "We're not the Republicans!" pitch will win them seats in November — but it is the kind of campaign strategy that, thanks to its vagueness, will cost a lot of money to be moderately successful against Republican incumbents.

All in all, I see a successful 2006 challenge of an incumbent costing more than minimum figures I have listed. To recapitulate, the reasons for this are (a) there were many challengers who did this by July 1, 2004, who eventually did not raise enough, (b) campaign inflation, (c) the shifting of the financial burden of campaigns to candidates, (d) the fact that the Democrats do not yet seem to have hit upon a very efficient, money saving campaign theme, (e) the evidence of candidates stockpiling more cash than ever before. Thirty-one Republican seats being on the table seems to me to be extremely optimistic, from the Democrats' perspective. The second figure — the one that estimates a net of 16 Republican seats — seems to me to be much more reasonable.

This is disappointing news for the Democrats, who would certainly like to have more than a net of 16 challengers on track to get to this amount. If the goal is to take the House, this leaves little room for error.

What I think is much more likely than the cost of a campaign having dropped, and therefore what should give Democrats hope, is the possibility of a strong third quarter fundraising period for the challengers who are not in this group.

There are about a half dozen Democratic challengers who are "on the bubble" — who are not on track, but with a very strong third quarter, could get on track. Much of this will depend upon the national political environment. Contrary to the belief of most pundits, the national political environment is not known to directly influence vote choice. Its effect is indirect — through candidate recruitment, incumbent retirement and candidate fundraising.

If the national environment becomes more favorable to the Democrats, we will probably see more Democratic candidates get themselves on track. The national environment can be approximated by Bush's job approval. If it softens, Democratic donors will probably be more excited about the party's chances and therefore more inclined to donate to candidates who today are under-funded. On the other hand, if Bush can bring his job approval number up, a few of these Democratic challengers will probably fall off track, and some Republican challengers can get on track.

There is, in other words, still a great deal of fluidity to the 2006 battleground. Nevertheless, the second quarter fundraising data gives us an excellent sense of its size and partisan composition.