Testimony Before the Senate Public and Municipal Affairs Committee with Respect to House Bill 519

January 24, 2017

Rick Bourdon, Open Democracy Action

Background

In September and October of 2015 the Joint Legislative Study Committee created by SB 92/HB 304 (2015) met "to study issues relative to public access to political campaign information." The Committee soon identified as the central element of its charge: to provide complete, timely, accurate disclosure of campaign finance data in a meaningful, easy-to-understand format. Over the course of seven meetings, the Committee reviewed two technologies: (1) a new online system for reporting campaign receipts and expenditures being developed by Secretary of State's Office, and (2) Open Democracy's "clearinghouse" model for tracking campaign receipts and expenditures in real time (as they occur). The bipartisan Study Committee voted unanimously in favor of several bills, one of which, SB 351, would create a commission to study the feasibility of implementing the clearinghouse model. That bill, unfortunately, was laid on the table in the 2016 session. HB 519 is an updated version, the only substantive changes being deadline dates.

The model

The clearinghouse concept represents a significant departure from conventional models for handling campaign finance data. The clearinghouse itself is an online bank-like structure through which all campaign transactions flow. Campaigns, PACs, and donors all have their own "accounts" at the clearinghouse, and receipts and expenditures appear as transfers between accounts.

Advantages of the clearinghouse system

(1) Complete disclosure. With a fully implemented clearinghouse, disclosure is assured.

(2) Timely disclosure. Data are captured in real time (virtually instantaneously).

(3) Accurate disclosure. Because contributions and expenditures flow through the clearinghouse electronically, there is no after-the-fact transcription process, hence minimal risk of errors.

(4) Enforcement of contribution limits. The clearinghouse model prevents violations by returning to the donor any excess created by a donation.

(5) Reduction of campaign workloads. The clearinghouse completely eliminates the need for campaigns and PACs to report donations and expenditures, and provides them with a ready-made accounting system.

The Study Committee found the clearinghouse idea intriguing, one member going so far as to describe it as the "way of the future." At this point, however, it is little more than a concept. To the best of our knowledge there are no working examples to follow. There are many questions still to be answered before a campaign finance clearinghouse can be tested. Here are some:

What version of the clearinghouse is optimal from a technical, political, and cost standpoint?

Where will the clearinghouse be housed? The SOS office? Treasury? Elsewhere?

Who writes any needed custom software?

What technical issues must be addressed in interfacing the clearinghouse with the SOS database?

What commercial vendors will be involved? An online bank? A money-transmitter? Both?

How much will they charge and who pays them?

How much will creation and maintenance of the system cost?

How will revenues to meet all costs be generated?

If account balances are to be invested, who does that and under what rules?

Are there legal issues and, if so, how can they be resolved?

How will cyber security be ensured?

What workarounds are needed to make it easier for campaigns and PACs to transition from the current way of doing things to a clearinghouse approach?

In addition, it is important that all those with a stake in the system⎯candidates, campaign professionals, PACs, campaign donors, commercial vendors, and government departments⎯have their desires and concerns heard.

In short there is a lot of work to be done before a pilot model for the clearinghouse can be implemented. A commission such as the one described in HB 519 is necessary piece of that process.