Huffpost Politics

McCain Loan Raises FEC Questions

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WASHINGTON — The government's top campaign finance regulator says John McCain can't drop out of the primary election's public financing system until he answers questions about a loan he obtained to kickstart his once faltering presidential campaign.

Federal Election Commission Chairman David Mason, in a letter to McCain this week, said the all-but-certain Republican nominee 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.

McCain's lawyer, Trevor Potter, said Wednesday evening that McCain has withdrawn from the system and that the FEC can't stop him. Potter, who was FEC chairman in 1994, said the campaign did not encumber the public funds in any way.

"Well, it was done before in another campaign. ... We think it's perfectly legal. One of our advisers is a former chairman of the FEC, and we are confident that it was an appropriate thing to do," McCain told a news conference Thursday.

McCain, a longtime advocate of stricter limits on money in politics, was one of the few leading presidential candidates to seek FEC certification for public money during the primaries. The FEC determined that he was entitled to at least $5.8 million. But 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.

But just as McCain was beginning to turn his attention to a likely Democratic opponent, Mason, a Republican appointee to the commission, essentially said, "Not so fast."

By accepting the public money, McCain would be limited to spending about $54 million for the primaries, a ceiling his campaign is near. That would significantly hinder his ability to finance his campaign between now and the Republican National Convention in September.

Complicating the dispute is the FEC's current lack of a quorum. The six-member commission has four vacancies and Senate Democrats and Republicans are at loggerheads over how to fill them.

In his letter, Mason told McCain he would need the votes of four commissioners to accept his withdrawal from the system.

"The commission will consider your request at such a time as it has a quorum," Mason wrote.

Without action by the Senate, McCain could be waiting indefinitely.

"We believe that Senator McCain had a clear legal right to withdraw from the primary matching fund system and he has done so," Potter said. "No FEC action was or is required for withdrawal."

Potter said McCain will continue with his campaign and not adhere to the public financing system's limits on spending. Without a full commission, Mason has little enforcement power. Likewise, without an FEC, McCain has no way to appeal Mason's conclusion.

At issue is the fine print in the loan agreement between McCain and Fidelity & Trust Bank. McCain secured the loan using his list of contributors, his promise to use that list to raise money to pay off the loan and by taking out a life insurance policy.

But the agreement also said that if McCain were to withdraw from the public financing system before the end of 2007 and then were to lose the New Hampshire primary by more than 10 percentage points, he would have had to reapply to the FEC for public matching funds and provide the bank additional collateral for the loan.

In his letter to McCain, Mason said the commission would allow a candidate to withdraw from the public finance system as long as he had not received any public funds and had not pledged the certification of such funds "as security for private financing."

Citing the loan agreement, Mason wrote: "We note that in your letter, you state that neither you nor your (presidential campaign) committee has pledged the certification of matching payment funds as security for private financing. In preparation for commission consideration of your request upon establishment of a quorum, we invite you to expand on the rationale for that conclusion."

McCain has been an outspoken critic of the FEC and he and Mason have had ideological differences over campaign finance law for years.

"We will of course carefully review and respond to the questions asked about the collateral for the campaign's bank loan," Potter said Wednesday. "We very carefully negotiated that loan on the basis that the federal matching funds certification we held would not be security or collateral for that loan."

One former Republican FEC chairman, Michael Toner, said McCain should not need action by the FEC to pull out of public financing.

"If a candidate indicates he or she does not want the money and does so before payments are made and does not take advantage of the promise of future payments, then he or she is free to withdraw from the system," said Toner, who advised former GOP presidential contender Fred Thompson. "That's my understanding of exactly what happened here."

The dispute comes at an awkward time for McCain. While he has sought to bypass the public financing system for the primaries, he would like to participate in the system for the general election and he is attempting to hold Democrat Barack Obama to his offer to participate in the system too.

If McCain were to face Obama in the general election under public financing rules, each would get about $85 million to spend between September and Election Day in November. McCain would be the clear beneficiary because Obama has become the most prolific fundraiser in presidential politics and likely would be able to amass much more than $85 million from his donors.

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Federal Election Commission: http://www.fec.gov

(This version CORRECTS SUBS graf 3 to ADD background on Potter and SUBS graf 14 to correct name of bank.)

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