McCain Has His Cake and Eats It, Too

Banking on public money exposes the absurdity of public financing of elections

Here's the Sen. John McCain (R-Ariz.) that everyone in Washington knows and loves (or hates, or loves to hate): red-faced and hollering about his favorite topic, campaign finance.

Last week, Sen. Barack Obama (D-Ill.) showed signs of backing off a semi-pledge to accept public financing for the general election. His original statement was not technically a promise. "If I am the Democratic nominee," said Obama, "I will aggressively pursue an agreement with the Republican nominee to preserve a publicly financed general election." This week, McCain went for the jugular, proclaiming, "I committed to public financing. He committed to public financing. It is not any more complicated than that. I hope he will keep his commitment to the American people."

It's just a coincidence, of course, that McCain is throwing down on this issue right after the Obama campaign raised a massive $35 million during the last month. And when the conventional wisdom says that Obama is positioned to outspend the senator from Arizona.

Candidates who accept public funding for the general election receive a grant of about $85 million from the federal government. In exchange for that pot of gold, candidates essentially forgo all private fundraising, limiting total spending to the government grant. The money comes from citizens who have checked "yes" to contribute $3 to the Presidential Election Campaign Fund on their tax return.

McCain accuses Obama of "Washington doublespeak." But on this particular issue, McCain is a master practitioner. Leaving aside previous legislative ducks and swerves, like his 1995 vote to abolish the public financing system at the presidential level altogether, McCain has had a complex relationship with the public financing of his own campaign in this cycle alone.

There was a midsummer moment last year, now distant in the fruit-fly memories of the political commentariat, when McCain's campaign was "broke and a total joke." To keep afloat, McCain cut staff positions and took out a $3 million loan, using his fundraising lists as collateral. The bank in question, Bethesda Fidelity & Trust, has made campaign loans to many politicians in the past, including Democrat Walter Mondale and Republican Bob Dole, but McCain's particular loan came with a special caveat. He was required to obtain a life insurance policy, lest he fail to survive the campaign, a turn of events that would have drastically hampered his fundraising abilities and thus his ability to repay.

Two weeks before the New Hampshire primary, McCain needed another million, and looked to extend his loan at the same bank. The bank said the previous collateral wasn't going to cut it, and asked for additional backing. "They said, 'You've explained how you can afford to borrow more, and how you can pay us back if things go well. What happens if things go badly?' " said Trevor Potter, a McCain attorney.

At that point, McCain had $5 million coming to him through the Federal Election Commission's (FEC) public financing system for the primaries, which matches a percentage of eligilble private contributions. But McCain didn't want to accept the money, since it would have restricted future spending. So in the loan agreement, the campaign assured the bank that it would drop out of the financing system, but that it could reapply for federal matching funds anytime if things really tanked. The federal money would be waiting for McCain—he'd just have to stay in the campaign long enough to collect and make good on his obligations to the bank.

According to The Washington Post, "Under FEC rules, a candidate who uses a certification for federal funds as collateral for a loan is obligated to remain within the public financing system." McCain's campaign denies that this is what it has done, and technically that's true—he promised to drop out of the system as collateral for the loan.

When public funds are used as a guarantee for a loan being taken explicitly so that the candidate can stay out of the public financing system, surely it is time to throw in the towel. The FEC rules, like most of the byzantine campaign-finance-reform legislation that bears McCain's name, just makes more work for clever lawyers, who can always figure out a workaround (remember 527s?).

And yet there's McCain, up on stage, demagoging campaign finance as usual. The whole thing has a feeling of inevitability. As campaigns get longer and longer and more and more expensive, candidates are reluctant to accept spending caps, which is essentially what public financing amounts to. Even if there is a temporary truce—Obama and McCain might escalate this squabble until both actually do have to accept public funding to save face—there are teams already figuring out the kind of workaround that will get private money into a "publicly financed" election. Public funding has always been a chimera, and, as his campaign's tactics reveal, no one knows that better than John McCain.

Katherine Mangu-Ward is an associate editor for reason.