How McCain’s Public Financing Two-Step Helps Obama

Jun 22, 2008 3:33pm

Defending his broken promise to aggressively pursue an agreement with Sen. John McCain, R-Ariz., to enter into the public financing system, Sen. Barack Obama, D-Ill., during his Friday press conference argued that McCain "was all over the map on public financing, right? At the beginning of this process, when I think they were projecting raising enormous amounts of money, he said he’d consider opting out of the system. Later when his campaign had collapsed for awhile, he said he was definitely in the public financing system."

What’s the truth of that charge?

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Obama here is talking about McCain taking financing during the primary season.

At the beginning of 2007, McCain suggested that he would be interested in entering into the public financing system for the general election. But for the primaries, he was planning on raising $100 million of private funds and opting out.

That became a problem last summer, when his campaign all but disintegrated and had very little money.

In August 2007, McCain’s campaign prepared to enter into the public financing system — which would have capped how much he could spend in each state. On Aug. 10, McCain asked the Federal Election Commission for the authority to receive matching funds, and the FEC said he was eligible for $5.8 million.

But McCain did not collect any of the money. As McCain campaign spokeswoman Jill Hazelbaker put it at the time: "We have not made a final decision, but we are doing what’s necessary should we decide to opt into the matching fund system."

Towards the end of 2007, McCain took out a $4 million line of credit with Fidelity & Trust Bank. The contingencies of loan, which carried an 8.5 percent interest rate, required McCain to take out a $4 million life insurance policy.

At the end of January 2008, as McCain’s prospects grew brighter in the wake of victories in New Hampshire and South Carolina, his campaign began to reconsider taking the matching funds, along with the accompanying spending caps. As Politico reported at the time, "John McCain is considering backing out of public financing now that his presidential campaign is raking in the cash."

And he ultimately did so. Meanwhile he used $2,971,697 from his $4 million line of credit with Fidelity & Trust as his campaign struggled to regain its footing.

Democrats charged that McCain had used his ability to qualify for federal matching funds as collateral, but the bank and McCain’s lawyers said that was not true. What was true was that the agreement did require McCain to reapply for federal matching funds if he withdrew from public financing and lost early primary contests. The agreement also held as collateral his list of contributors and a pledge by McCain to seek further cash from those donors to pay of the loan.

McCain’s maneuvering seemed to irritate FEC Chairman David Mason, a Republican, who wrote a letter to McCain in February saying McCain could only withdraw from public financing if he received the permission of the FEC and answered questions about the loan.

"The Commission made clear that a candidate enters into a binding contract with the Commission when he executes the Candidate Agreements and Certification," Mason wrote. "The Commission stated that it would withdraw a candidate’s certifications upon written request, thus agreeing to rescind the contract, so long as the candidate: 1) had not received Matching Payment Program funds, and 2) had not pledged the certification of Matching Payment Program funds as ‘security for private financing.’"

The McCain campaign at the end of February told the FEC it did not need the commission’s approval to withdraw from the public financing system.

McCain lawyer Trevor Potter, a former FEC Chairman himself, told Mason that since the Supreme Court had ruled that public financing for campaigns is constitutional precisely because it is voluntary, "(a)s a result, candidates have a constitutional right to withdraw from the program." Potter clarified that "the campaign did not use its federal matching fund certifications as security for the campaign’s bank loan."

The six-member FEC only has two members; four nominees are awaiting Senate confirmation. Without a quorum, it cannot act.

So in addition to filing a complaint against McCain with the FEC, the Democratic National Committee filed a lawsuit against the FEC to force the commission to investigate whether McCain’s withdrawal from public financing was kosher.

"He used the matching funds to get the money when he needed it," said DNC counsel Joe Sandler. "That’s the reality of what happened here."

Republican National Committee chief counsel Sean Cairncross called the suit "meritless….Once again, the DNC has neither the law nor the facts on their side. It is a matter of public record that the U.S. Treasury never made any payments to the McCain campaign at any time during the primary.”

Incidentally, the Fidelity & Trust Bank loan has since been re-paid.

In April, a judge ruled against the DNC suit, calling it premature since the FEC has 120 days to act on a complaint. Those 120 days expire Tuesday.

The DNC and Sandler will file the suit again on Tuesday asking a U.S. District Court to compel the FEC to act on its original complaint.

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I cannot find any record of McCain saying "he was definitely in the public financing system," as Obama charged.

But while the loan appears to have been drafted to exclude as collateral the public matching funds, the fact that the bank would have required McCain to have reapplied for them if certain conditions had been met looks at the very least like a way to have those funds be a sort of theoretical, possible collateral while not fitting the legal definition of collateral.

Which is to say this messiness may be a big help for Obama in his attempt to make it look like neither he nor McCain were married purely to the public financing system.

- jpt

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