McCain's Campaign Finance Trap

Feb. 23, 2008— -- Sen. John McCain is facing criticism from the government's top campaign finance regulator over his handling of an application for public financing last fall.

Early in the primary season, the Arizona Republican's campaign was almost broke and struggling to raise the type of money his competitors were. He applied for federal matching funds from the Federal Election Commission in order to continue with his campaign.

Now that McCain is the Republican front-runner and raising more money than he would be allowed to use if he took the public funds, he intends to use private donations to continue financing his campaign.

Taking the public financing would restrict him to campaign spending limits, severely affecting his ability to compete against the record fundraising of his Democratic opponents, Sen. Hillary Clinton of New York and Sen. Barack Obama of Illinois.

On Thursday, FEC chairman David Mason sent McCain a letter arguing that the candidate might be required to use the public funding until he answers questions about the loan he used to kickstart his campaign.

In his letter, Mason said McCain needs to assure the commission that he did not use the promise of public money to help secure a $4 million line of credit he obtained in November.

"Now he wants to withdraw from public financing. The Federal Election Commission said, 'not so fast,'" former FEC general counsel Lawrence Norton said.

In a statement to reporters on Friday, a McCain spokeswoman said that since the campaign never received any money from the federal government, it was free to opt out of the matching funds.

"The campaign has been paid no funds by the United States Treasury and never used the certificates issued by the FEC as collateral for its bank loan," wrote spokeswoman Jill Hazelbaker.

The senator himself, well-known for his campaign-finance reform efforts, expressed no concern about the letter.

"That's not a decision, it's an opinion by one of them. According to our people, we will proceed," McCain said Friday.

The FEC determined that McCain was entitled to at least $5.8 million. However, McCain did not obtain the money, and he notified the FEC earlier this month that he would bypass the system, freeing him from its spending limits.

Opting out of the federal funds would be crucially important to McCain's success, allowing him to spend however much he wants.

The Associated Press contributed reporting to this story.