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JOHN MCCAIN HAS AN EXIT STRATEGY.
Not from Iraq, sad to say. But from the public financing system for his presidential campaign.
Last week I noted a Politico story contending that for McCain "it could be tougher getting out than it was getting in" to the voluntary system of public financing for his primary campaign. While most of the major candidates other than John Edwards opted out of the system this year, because accepting public financing would have meant agreeing to a $50 million spending limit in the primaries, a desperate McCain last fall decided to take the public money, and $5.5 million has been certified in his name, but he hasn't seen the cash yet. Now that he's the front-runner, he would be infinitely better off refusing the public money, in order to ignore the spending limits, which he is approaching or has already hit.
The question was whether he could back out now. A couple of lawyers quoted in the Politico basically said he couldn't, unless the Federal Election Commission ruled otherwise, and the FEC can't make any rulings now, because they don't have enough commissioners to make a quorum. I pointed out that this would not only cause problems for McCain in the remainder of his campaign for the GOP nomination, but cripple him in the general election, as he would have no funds to campaign until the convention in September.
This led to a lengthy discussion among people who actually know what they're talking about -- former FEC commissioners and top election lawyers and law professors -- on a listserv. Eventually former FEC chair Michael Toner pointed to an advisory opinion issued to Rep. Dick Gephardt in 2003, which said that, since the public financing system was voluntary, he could change his mind until receiving the money. One key condition in that case was that Gephardt had not used the promise of public money as collateral for a loan. McCain seems to have followed this to the letter: McCain did take a large loan, and although one press account said he had borrowed against the matching funds, in fact the required disclosure of the loan is online and the section on collateral reads, "All Assets of Any Kind or Amount excluding certifications for federal matching funds." Instead, according to the Washington Post, he pledged future contributions, the future value of his mailing lists, and a large life insurance policy. So it appears McCain has navigated the letter of the law carefully.
The exception regarding loans is important for two reasons. First, you can't renounce an asset if it's entangled in another transaction. But more important, as another top lawyer pointed out, the matching system, while voluntary, is intended to present a binary choice: either accept the matching funds and the spending limit, or spend unlimited amounts, but give up the matching funds. By borrowing against the matching funds, you in effect get to have it both ways: if you do well, as McCain has, you later opt out of matching funds and are free of the limit. if you do poorly, you accept the public funds and pay off the loan. Borrowing allows a candidate to, in effect, spend the matching funds without formally accepting the funds. It's a clever way of avoiding the intended choice.
Thinking about this further, the issue of whether the matching funds are specifically pledged as collateral for the loan should be irrelevant. Consider what would have happened if McCain had lost New Hampshire and sunk under the waves: he would have accepted the public money and he would have used it to pay off the $3 million loan. Just because an asset was excluded from collateral doesn't mean it can't be used to pay off the loan. (Your mortgage is secured by your house, but you use your income to pay it.) And thus McCain is tricking the system exactly as the exception foresees: He effectively spent the public money without accepting it, and now that it has served its purpose, he can escape the limits.
The other question is whether the McCain campaign can rely on that advisory opinion to opt out of the public financing system, or needs an affirmative ruling from the FEC. This question seems to be even more abstruse than the first, but I'm not sure it matters: He obviously will declare himself free of the limits, and someday when the FEC is functioning again, it will rule on a complaint, and either penalize his campaign or not. Odds are this will be long after the election.
But whatever the FEC eventually decides, McCain's ju-jitsu move on the public financing system, effectively evading the choice between public financing and unlimited spending that the law intends, should surely end whatever credibility he has as a reformer of the political process.
-- Mark Schmitt
COMMENTS (19)
"McCain's ju-jitsu move on the public financing system, effectively evading the choice between public financing and unlimited spending that the law intends, should surely end whatever credibility he has as a reformer of the political process."
You wrote that whole post about legal hair-splitting to come to the above conclusion...? Credibility...? No one in the voting public gives a rats a** about that kind of stuff. What a useleass post.
Posted by: steveconga | February 5, 2008 10:20 AM
Didn't McCain promise his supporters he *WOULDN'T* use his mailing lists outside the campaign? And then pledge the lists as an asset?
Posted by: Randomfactor | February 5, 2008 10:48 AM
I'm unclear on this. Do you mean that McCain already hasmoved out of the public financing system, or that he would be advised to do so? If the latter, has he actually made any noises about doing this?
Posted by: matt | February 5, 2008 11:04 AM
Didn't McCain promise his supporters he *WOULDN'T* use his mailing lists outside the campaign? And then pledge the lists as an asset?
Posted by: Randomfactor | February 5, 2008 10:48 AM
---------------------------
Well, we all know the effective range of a promise from a Republican politician, don't we?
Posted by: Steaming Pile | February 5, 2008 11:04 AM
If this were Clinton, she'd be a lying whore.
But since it's not...
IOKIYAR
Posted by: Anonymous | February 5, 2008 11:23 AM
So how does this jive with the whole story about McCain and Obama agreeing to both accept public financing if they both win their respective nominations?
Posted by: SDinIA | February 5, 2008 11:57 AM
Thinking about this further, the issue of whether the matching funds are specifically pledged as collateral for the loan should be irrelevant.
No, not true.
It is mostly irrelevant from McCain's perspective, but it is a very important difference from the perspective of the lender and a huge difference from a legal perspective.
Wit the Fed funds pledged as collateral, the lender owns a claim to a very reliable source of funds for repayment. McCain could no longer opt out of the system, because he would already be in.
Without the pledge, McCain controls how any Fed funds he receives are spent. He could use them to repay the loan, but he can choose not to, even if it meant stiffing the lender.
Posted by: ottnott | February 5, 2008 12:01 PM
SDinIA: It's not really relevant -- that only comes up after the party convention and they are (or are not) the official nominees. Anything spent before that is "primary".
Posted by: dbt | February 5, 2008 12:12 PM
If Edwards were doing this I'd be cheering him on. I don't think the purpose of public funding is to choke off the options of the candidates with the least corporate cash.
Posted by: Frank | February 5, 2008 12:19 PM
>No one in the voting public gives a rats a** about that kind of stuff.
And that, Mr. "steveconga", you mindless tool, is why the voting public keeps electing crooks who rob them blind.
Posted by: obsessed | February 5, 2008 12:21 PM
Point of information: Why hasn't McCain received the matching funds yet? When do they come in? If they're not delivered until after the primaries are over, then they're useless promises -- except as collateral for a loan.
Posted by: dbomp | February 5, 2008 12:36 PM
Excellent! Now Obama doesn't need to keep his March 2007 promise with McCain because McCain broke the agreement.
Indian-Giver.... (In the pejorative to whites sense)
Posted by: MNPundit | February 5, 2008 12:50 PM
dbomp: In March, says the FEC. Basically, not enough people checked off the $3 last year on their tax returns, so it'll be until March when the fund will have enough money to make these disbursements.
Posted by: Adam B | February 5, 2008 1:07 PM
To Ottnot:
Yes, as I wrote, the distinction between collateral and not-collateral is relevant for one rationale (you can't renounce an asset that you've pledged to a loan) but not for the other point of the logic of the system, which is preventing candidates from gaming the system.
Posted by: Mark Schmitt | February 5, 2008 2:58 PM
I think when you look at the amounts of Wall Street cash carried away by Clinton and Obama, and the self funded campaign of Mitt Romney, it's a little insipid to look at McCain and screech "oooh, oooh, he gamed the system" when he pulls what Gephardt (D, if I recall) pulled first.
More compelling, once he's president, he's unlikely to fix the system unless someone else forces him. And who, amongst our elected officials, is that likely to be?
Posted by: Anonymous | February 5, 2008 6:25 PM
but he's a straight-talking maverick!
Posted by: /b | February 5, 2008 9:59 PM
While I'm no fan of the influence of corporate dollars in any political campaigns, D or R, the reason the Republicans aren't raising cash from Wall Street as much as their opponents is down to their complete mismanagement of foreign policy and domestic economy.
When you mess everything up so broadly, even Wall Street turns you away, even if you're the Grand Old Party.
Posted by: Arthur Dental | February 8, 2008 3:49 PM
McCain is a hypocrite and a sneaky one.
He's flipflopped on torture, taxes and now immigration.
No wonder he's sneaky on financing too.
Posted by: Duane | February 16, 2008 12:15 PM
I wonder if Obama will use this apparent sneakiness to get out of the public financing agreement, questioning McCain's actual willingness to follow through. I hope he doesn't but I prolly would.
Posted by: Will | February 16, 2008 3:05 PM