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McCain's Public Financing Flip-Flops


This week John McCain deployed a new set of advertisements and campaign literature attacking Barack Obama for his decision to forgo public financing in the general election. Of the decision, McCain told reporters on June 19, "He has completely reversed himself and gone back not on his word to me, but the commitment that he made to the American people. That's disturbing." But while much of the media attention remains focused on Obama's decision, few are pointing out the relevant fact that McCain himself has reversed course on this issue at least three times in the primaries, not only raising credibility questions but also leading to a federal investigation of his campaign fundraising practices.

In early 2007, McCain notified the FEC that while he was eligible for matching funds in the primaries, he planned on "opting-out" because the limitations imposed by the public financing system would restrict his fundraising, efforts he believed would produce more than the $54 million promised to candidates under the program. In other words, McCain "opted-out" initially because he felt that it was to his financial advantage to do so.

But by the fall of 2007, a general lack of enthusiasm for the McCain candidacy among Republican donors and overspending by the candidate himself led him to reconsider this position. Desperately needing cash to remain competitive in the upcoming primary contests, McCain reversed course and requested that the FEC reinstate his eligibility. He filed the necessary Candidate Agreement and Certifications form with the FEC, signaling his legal intent to accept and abide by public financing standards in the primaries. In other words, McCain changed positions this time because it was in his financial interest to do so.

Shortly thereafter, however, McCain changed course yet again on public financing, this time potentially in violation of federal election law. After the FEC approved McCain's application for matching funds in the fall of 2007 and awarded him $5.8 million, the candidate approached Fidelity & Trust Bank in Maryland for a series of private loans. This move seemed odd considering the FEC had just made a substantial allocation to the candidate on the belief that he was now firmly committed to public financing in the primaries. But pursuing these private loans was part of a broader strategy by the campaign to "game" the public financing system and keep their options open at least through the New Hampshire primary, a critical benchmark for McCain's candidacy.

The McCain campaign knew that if the candidate affirmatively spent the $5.8 million granted to him from the public account, there could be no turning back legally on his commitment to public financing. This would have severely limited his national and state spending options if he eventually became the Republican nominee. Anticipating a potential upset in New Hampshire, the McCain camp saw the private loans scheme as a way to buy time until the New Hampshire question could be settled and the longer-term fundraising picture become clearer. Not surprisingly, on Feb 6th after winning the New Hampshire primary McCain wrote another letter to the FEC, this time indicating that he now did not need public financing for the remainder of the primaries.

Setting aside for a moment the fact that no candidate in recent memory has changed positions this many times on public financing in a presidential primary, McCain at the same time also likely violated important FEC laws. The FEC is currently awaiting review of whether McCain used $5.8 million of public money granted to him in the fall of 2007 as short-term collateral to secure an alternative $4 million in "sweatheart" private loans from Fidelity & Trust bank. Both the bank and the McCain campaign have denied any wrongdoing, but a closer look at the situation indicates a few revealing points. First, that the terms and conditions of the loans were vague and unusual, even by political standards. Second, that the terms and conditions at least implicitly contemplated payback from the public financing system if McCain's fundraising did not improve after New Hampshire, indicating that the primary source of collateral for the loan was indeed public money. Third, that accepting such loans from a private bank required McCain to seek affirmative FEC review and consent so as to determine the relevant impact it might have on his public financing standing.

In a sternly worded response to McCain's campaign on these points, FEC Chairman David Mason, a Republican appointee, stated that "a candidate enters into a binding contract with the Commission when he executes the Candidate Agreements and Certifications form" and that a candidate can only withdraw from the system under a process of formal review. Part of this review, in the case of McCain would include the investigation of whether the certification of matching funds was used as "security for private financing." Mason also warned McCain not to raise and spend in excess of the public financing system limit of $54 million while the issue remained pending. McCain never submitted his final public financing decision for review before the Commission, and has since exceeded the spending limits allowed under public financing.

Bottom line, McCain's recent attack on Barack Obama is political hypocrisy at its worst. As a candidate he has been all over the map on the issue of public financing during the primaries giving him little standing to question the judgments of other candidates on this same issue. The real issue for voters to weigh now is not whether Obama changed his mind on public financing given the solid record he has built in democratizing the fund raising process, speaking out against the use of 527 attack ads, and rejecting PAC money. Instead, it is whether an Obama presidency will follow through on his promise of more fundamental reforms that make his the last candidacy that must face the practical realities that support his current pragmatic decision.

Daniel Burrell was a Senior Advisor to John Kerry in 2004. He is a Partner at Rosemont Capital in NY