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Campaign Gold

The Recent Electoral Reform Could Pour Nearly $50 Million Into The Economy In 2004. Gubernatorial Candidates Can Now Spend Up To $33 Million, Eight Times More Than Was Spent In 2000.


June 26, 2003
Copyright © 2003 CARIBBEAN BUSINESS. All Rights Reserved.

Campaign clutter: Now that candidates and parties have more money than ever to spend on advertising, media clutter and prices will rise, especially in the first months of 2004.

Puerto Rico’s three political parties could spend up to $33 million on gubernatorial campaigns in the 10 months leading to the 2004 elections as a result of the Clean Money for Electoral Campaigns law approved in May.

Add to that the approximately $16 million that the more than 400 candidates for other elective offices (including mayor and legislator) could invest in their campaigns, and the new law could easily turn election years into engines of economic activity for commercial media companies and advertising agencies in Puerto Rico.

The approval of the law has reshuffled the way electoral campaigns are conducted. It has substantially increased the amount of money that gubernatorial candidates and political parties will have available for their campaigns, effectively decreased the timeframe during which they can spend it, and imposed strict guidelines to ensure that campaign funds are spent legally. It remains to be seen how political parties and candidates will adjust to the changes come the 2004 election year.

Before the proposed amendments to the Electoral Law became official, they were conceived, rejected, rehashed, and finally approved amid controversy and clashing opinions. The legislative minority was and remains staunchly opposed to the campaign-financing system in the law, claiming it increases the chances of dirty money making its way into the coffers of political parties and their candidates.

The minority also believes the approval process undermined the principle of consensus that has historically governed legislative decisions regarding electoral law. What’s more, many in the minority feel that the much higher spending limits favor the incumbent party because it is always in a better position to raise matching funds.

The long, winding road

Before the new law was passed, each party received $3 million from the government and up to $3 million in private donations for their gubernatorial campaigns. Each gubernatorial candidate had a $3 million spending limit on mass-media placements; the rest of the money raised in an election year would go to cover other campaign expenses. In addition, each party was given $600,000 to spend on campaigning during an election year, while the candidates for other elective posts were allowed to raise and spend as many private funds as they could. Many observers had charged that this campaign-financing system provided safe haven to so-called political investors who would contribute generous amounts of campaign money in return for favorable treatment if their party should land in power. As political campaigns became bigger and more expensive, the clout of political investors was augmented, critics charged.

One of Gov. Sila Calderon’s campaign promises was to rid the electoral process of political investors. To that end, Calderon proposed late in 2002 a version of the Electoral Law that eliminated all private donations to electoral campaigns, thus moving to a fully public campaign-financing system.

"The philosophical concept behind that proposal was that we had to rid the democratic electoral process of the influence of private interests," said Roberto Prats, Popular Democratic Party (PDP) senator and candidate for resident commissioner. "But the governor’s proposal posed inconveniences. First, there was the matter of cost, which we conservatively estimated would reach $100 million. Then there was the lack of political will of those on the inside to push the project forward. Incumbents asked why they should support a bill that would put them on financially equal terms with their opponents. Third, there was the public’s rejection of the proposed measure. People just didn’t buy into it." The governor’s bill was defeated in the Legislature.

Undeterred, Calderon created a committee to evaluate electoral reform and propose recommendations in 90 days. Former San Juan Mayor Hector Luis Acevedo, former Senate President Miguel Hernandez Agosto, Pontifical Catholic University Law School Dean Charles Cuprill, former Secretary of State Reynaldo Paniagua, Inter American University President Manuel Fernos, and attorney Damaris Mangual were invited to join the committee.

The six-member Special Committee for the Financing of Electoral Campaigns presented a report with 18 recommendations, at the core of which was a campaign-financing scheme that combined public and private financing. Other recommendations included eliminating the public financing of primary campaigns; creating the post of general auditor for campaigns, designated by the president of the State Elections Commission (SEC); and adopting mechanisms to facilitate the investigation of political action committees (PACs).

"Our work was based on a practical principle: We wanted to clean up the electoral process," said Paniagua. "It is everyone’s wish, and there should be consensus about it. We want to avoid political investments, to dissuade people from believing that they have a right to preferential treatment because they made generous donations to a political campaign."

The committee hit a snag when Mangual resigned because she disagreed with the proposed campaign-financing system. The remaining members, however, charged ahead with the

report, which eventually made its way to the Legislature. The Legislature reached consensus on 17 of the committee’s 18 recommendations, but the New Progressive Party (NPP) and Puerto Rican Independence Party (PIP) members disagreed with the recommendation regarding campaign financing.

According to the committee’s report, its members recommended a system of shared responsibility whereby citizens would help to finance campaigns according to the government’s fiscal situation, meaning that campaigns would be financed in part with taxpayers’ money and in part by private individual contributions. The government would grant each party $3 million at the beginning of an election year to finance gubernatorial campaigns. In addition, each party would be allowed to raise up to $4 million in private donations, which the government would match, effectively giving each party the potential to spend as much as $11 million on the campaigns of candidates for the governorship.

Adherence to the financing system is voluntary, but a candidate who signs up for it must agree to the $11 million cap on campaign expenses in the election year. According to the committee’s report, it became evident after meetings and consultations that the voluntary $3 million cap on mass-media placements for gubernatorial candidates was four times less than the actual amount spent by candidates in past election years. "The inflationary spiral in the cost of communications media has made the caps stipulated by law unrealistic," said the committee, which noted that a conservative estimate of real media-placement costs would reach $14 million.

"The imposition of unrealistic limits on expenditures promotes the flow of money and the operation of campaign financing outside the limits of the law," reported the committee. "Ironically, the fictitious limits contained in the existing regulations foster and invite breaking the law."

Interestingly, SEC files indicate that candidates for the governorship spent much less than $11 million each on their campaigns in the 2000 elections. PDP candidate Calderon spent $2.8 million; NPP candidate Carlos Pesquera spent $1.3 million; and PIP candidate Ruben Berrios spent nothing. Additionally, the PDP reported spending $2.8 million, the PNP $3.9 million, and the PIP $231,362 on their 2000 campaigns, for a combined total of approximately $11 million.

The Association of Advertising Agencies of Puerto Rico, however, presented a report based on information from local media companies that revealed that in 2003 gubernatorial candidates, political parties, and PACs altogether actually spent $16.2 million, which suggests that reports sent to the SEC aren’t accurate. A source close to the special committee said that campaign managers admitted off the record to having spent more money on the 2000 elections than was allowed by law.

PNP Sen. Kenneth McClintock explained that, even though it was reasonable to take inflation into account, the $11 million cap per candidate is too high. "Although the $3 million cap [before the new law was passed] could be somewhat tight for 2004, given the 20% to 30% increase in advertising costs from 2000 to 2004, nothing justifies such a big cap increase," he said.

PIP Rep. Victor Garcia San Inocencio is also against the new campaign-financing system. "When the governor proposed the original bill, the PIP supported it. Calderon’s willingness to sacrifice her political advantage as an incumbent was courageous," he said. "What seems inexplicable is that she opted to support this hybrid formula that has the highest potential for corruption. We vehemently objected to her 180-degree turn."

Garcia San Inocencio is mystified that the law was approved despite the lack of consensus in the Legislature. He noted that there was only one day of hearings, at which three of the four witnesses recommended not approving the bill without consensus. "The worst consequence was the destruction of the principle of consensus," said Garcia San Inocencio. He said this marked the first time that changes were made to the Electoral Law without it.

Prats, however, said the law’s approval puts Puerto Rico at the forefront of electoral creativity and sets an example for other jurisdictions. "Think tanks that have studied the subject of campaign financing agree that public financing is the way campaigns ought to be run," he said.

Economic boom?

The minority’s opposition notwithstanding, electoral reform is now a reality. According to a top source in the advertising industry, the $33 million in campaign funds that could become available to the three parties’ gubernatorial candidates, combined with the campaign expenses of the more than 400 possible candidates for other elective offices, should turn an election year into a seasonal economic bonanza for the industry comparable to the Olympics.

How the campaign funds are disbursed will play an important role in bringing about the boom in the advertising industry. According to the law, the Treasury Department will manage the parties’ campaign monies, setting up accounts from which each party will withdraw funds.

A provision was incorporated into the law mandating that parties may only use 50% of the initial $3 million government grant for campaign expenses from Jan. 1 through June 30 of an election year. The remaining 50% can be used to cover their operational and administrative costs during that period. Prats proposed the amendment to avoid the barrage of political messages that typically occurs from January to November of an election year.

The rest of the campaign funds, composed of private donations (up to $4 million) matched dollar-for-dollar by the government, are to be used for expenses from July 1 to Election Day, which in 2004 falls on Nov. 2. Accordingly, the bulk of the campaign funds will go out to suppliers, agencies, and media companies over a four-month period. Each party’s gubernatorial candidate could have $8 million left of his $11 million cap to spend between July 1 and Nov. 2, for a combined $24 million. The Association of Advertising Agencies of Puerto Rico, meanwhile, has estimated that the political parties combined could spend some $33 million in TV, print, and radio ad placements in the upcoming elections. That figure is based on the three parties’ media investments during the 1996 and 2000 elections, adjusted for inflation.

However, the Federal Communications Commission requires TV stations to offer candidates the lowest rate negotiated with any client on Jan. 1 of an election year. This means that bargain rates negotiated with large companies such as Procter & Gamble (P&G) would have to be extended to candidates as well, effectively giving them more money to place more ads on TV.

The so-called P&G rule increases the probability of clutter, or excessive volume of commercials per hour. Because TV stations also have to provide advertising airtime to their commercial clients, trying to fit political campaign ads into their rotation could drive stations to extend commercial breaks beyond acceptable parameters. Such clutter will result in viewers tuning out the onslaught of political advertisements, diminishing their intended effect of informing viewers so that they might make educated decisions at the voting booth.

The top industry source also predicted that in the months leading to the 2004 elections, demand for commercial airtime will certainly exceed supply, which could prove beneficial to other media outlets. Radio stations, newspapers, billboards, and other alternative media could absorb the spillover from a saturated TV market. "There will be a positive effect on the media industry in that revenue will be distributed equally across the board," said the source.

Another industry source said that advertising agencies that claim the law will have no effect on the industry’s coffers are kidding themselves. Although the largest portion of campaign expenses will go to media outlets, agencies should be grateful for a system that guarantees they will get paid—and get paid on time.

Candidates for Elective Office

2000 General Elections

Office: No. of Candidates

Governor: 1 per party

Resident commissioner: 1 per party

Senator at-large: 6 per party**

Senator by district: 16 per party

Representative at-large: 6 per party**

Representative by district: 40 per party

Mayor: 78 per party

Total No. of Candidates: 434*

Total Spending: $24,570,417.82

*Independent candidates have not been included.<BR>**PIP nominated only one candidate for this office.

Source: State Elections Committee website

The ‘Fajardo System’

For many in Puerto Rico, former Education Secretary Victor Fajardo became the poster child for campaign-finance reform.

In 2002, Fajardo was convicted on several federal charges that included interfering with interstate commerce by extortion and conspiring to launder money through a scheme of kickbacks from contractors to the tune of $4.3 million.

Despite widespread allegations, to this day it hasn’t been proved in court that any of the misappropriated money in the Fajardo case, or in any other case, has actually made it into the coffers of any political party.

Rather, the convictions that have been obtained mostly involve illegal kickbacks by contractors to government officials to influence their decisions in the granting of contracts and such.

Although government corruption is nothing new and most of the cases prosecuted recently, including Fajardo’s, involved kickbacks to public officials in office—rather than illegal donations to politicians for electoral campaigns—these government corruption cases created mounting public interest in reforming the way political campaigns are financed.

Supporters of electoral reform argued that unfettered contributions by private donors to political campaigns put the donors in a powerful position to demand favorable treatment for their companies or other economic interests from government bureaucrats.

Despite Fajardo’s high profile in the press and in the court of public opinion, there are many others who stand convicted or accused of illegally diverting funds to influence politicians or government officials.

In 1999, for example, the San Juan AIDS Institute dominated the headlines when the organization’s management was accused of deviating federal funds and laundering money.

Political careers, including that of former House Speaker Edison Misla Aldarondo, became tarnished and eventually came to a screeching halt when Misla Aldarondo was found to have accepted money in exchange for his influence in the sale of a government hospital.

Developer Jose Ventura Asilis also made headlines for his "political investments," for which he was convicted and served time in prison. Money spent by Ventura Asilis to buy influence has allegedly benefited both the Popular Democratic Party and the New Progressive Party.

There have also been a number of cases involving alleged violations of the Electoral Law’s spending limits on political campaigns. For example, a Special Independent Prosecutor has been appointed to investigate former PDP Rep. Alida Arizmendi for, among other things, illegally using campaign funds to place advertisements in support of Sila Calderon’s candidacy for governor during the 2000 elections. Arizmendi is just one of a considerable number of candidates in the 2000 elections who allegedly spent funds in excess of the amount allowed by law to support Calderon’s candidacy under the pretense of conducting an "integrated campaign."

Also under fire has been the political parties’ practice of laundering cash donations that exceed legal limits by holding fund-raising drives such as radio marathons. Critics charge that it defies imagination to believe that the exorbitant sums raised could have been collected nickel by nickel at traffic lights or through other legitimate individual contributions.

Supporters of public campaign financing used these cases of political investments to justify their efforts. Roberto Prats, Popular Democratic Party (PDP) senator and candidate for resident commissioner, said Puerto Rico’s electoral system collapsed when the series of convictions in federal court proved it had cracks.

"Private campaign financing is intimately linked to corruption," said Puerto Rican Independence Party (PIP) Rep. Victor Garcia San Inocencio. "Few people donate large amounts of money to political parties for altruistic reasons. Wherever there are generous donations, there are economic interests wanting to maintain levels of influence."

According to San Inocencio, the most putrid manifestations of these political investments are the improper awarding of contracts and preferential treatment given to generous donors, which ultimately cost taxpayers millions of dollars.

Amendments to the Electoral Law were proposed, among other reasons, to weaken the influence of political investors. "It is necessary to move toward the public financing of political campaigns to avoid the generous contributions of a small group determining the government’s path," reads the bill presented in the Legislature.

After much consultation and discussion in public forums and behind closed doors, the new Electoral Law was passed. It establishes a campaign-financing system that combines public and private financing tied to spending limits that are considerably higher than before. The original intention to enact a fully public campaign-financing system was lost in the process.

The law’s detractors say that it should be called the Dirty-Money Law because it fails to clean up the electoral process. One critic said that the new law means the Fajardo System remains in place, albeit with some improvements.

PRHTA backs allowing Tourism Co. to advertise in an election year

Puerto Rico’s Electoral Law prohibits government agencies and the legislative and judicial branches from advertising their programs, projects, achievements, projections, or plans in the mass media from Jan. 1 of an election year until Election Day. Excluded from the prohibition are public announcements that the various agencies are required by law to make, such as announcements of public bids.

According to the Electoral Law, advertisements not covered by this exception but deemed necessary for the purposes of broadcasting information of public interest, public urgency, or public emergency must be approved by the Securities & Exchange Commission (SEC) on a case-by-case basis before airing or printing.

Rep. Sylvia Rodriguez Corujo has proposed amending the law to exempt the Puerto Rico Tourism Co. from the provision requiring individual approval by the SEC.

The Puerto Rico Hotel & Tourism Association (PRHTA) supports the legislator’s bill. "Our product, Puerto Rico, requires constant promotion in the domestic and international markets," said Rick Newman, president of the PRHTA. He added that in this highly competitive market, any lapse in marketing and promotion gives rival tourist destinations an advantage.

Erin Benitez, executive vice president of the PRHTA, said that approving the bill would allow Puerto Rico to provide a full and immediate response to any situation. "We were witnesses to how important it was for the island to be able to react promptly to 9/11 and to the imminence of war in Iraq," she said. "Had either of those events happened in an election year, we wouldn’t have been able to adjust our marketing strategies to the reality of the moment. We wouldn’t have been able to confront these crises effectively."

New Progressive Party (NPP) Reps. Edwin Mundo and Epifanio Jimenez opposed the bill because they said they believed it was an attempt to favor the Popular Democratic Party (PDP). The legislators said there was no proof that tourist activity has slowed down in past election years.

According to NPP Sen. Kenneth McClintock, who also opposes the measure, the process of case-by-case approval by the SEC has been efficient and speedy in past election years.

"If it ain’t broke, don’t fix it," said McClintock. "The governor has been prone to project images of herself and her government in advertisements. I don’t know if she would allow the use of Tourism Co. funds for those purposes, and I certainly don’t trust her administration’s good judgment in that respect."

McClintock added that audiences in Puerto Rico are exposed to television programming and print media from the U.S. mainland, which wouldn’t preclude them from exposure to local government ads in national media. If those ads were to contain subliminal messages supporting the current administration, they would be in violation of the Electoral Law.

The senator believes the law should provide an escape valve for emergencies, allowing the government a one-week period to place ads in response to a crisis without the approval of the SEC. That should be enough time for the government to react quickly to an emergency before having to engage in the SEC approval process.

This Caribbean Business article appears courtesy of Casiano Communications.
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