McCain caught in campaign finanace hell

Washington Post:

The nation's top federal election official told Sen. John McCain yesterday that he cannot immediately withdraw from the presidential public financing system as he had requested, a decision that threatens to dramatically restrict his spending until the general election campaign begins in the fall.

The prospect of being financially hamstrung by the very fundraising system he helped create is the latest in a series of bitter challenges for the presumed GOP nominee, who still faces a fractured conservative coalition as he assumes the mantle of party leadership.

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The Wall Street Journal explains the problem.

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Last week, we wrote about the $3 million loan his campaign took out to keep his campaign afloat in November, putting up its fund-raising lists and a life insurance policy as collateral. If the campaign had gone south, Mr. McCain would still have been able to tap into donors from his position as a powerful Senator on the Commerce Committee to make good on the debt. More cash started to come in, but now it turns out that Mr. McCain's campaign looked into borrowing another $1 million at its moment of peril before the New Hampshire primary, this time pledging its eligibility for federal matching campaign funds.

Here's where the explanation gets really lawyered up. The McCain campaign hurries to say it didn't actually surrender its public funding certification as collateral, oh no. The campaign applied to the Federal Election Commission for matching funds, and once that application was approved went to a bank and opened a line of credit based on the possibility that they might someday reapply for matching funds if the campaign faltered. "We never claimed that the matching funds were collateral for the loan," says McCain lawyer Trevor Potter. "This was all a hypothetical future transaction." (We wish we could get bank loans like that.)

So why does the distinction matter? Because under FEC rules, using the certification as collateral would have locked the candidate into accepting the matching funds and the federal spending limits that come with them. And Mr. McCain has declared he has no intention of accepting federal funds for the Republican primary season.

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While this looks like a hypothetical constructed by a law professor, I think it will probably be easier to resolve than is apparent from these stories. The issue will be whether the bank had a right to call on matching funds that had not been applied for. If I were representing the bank, I would tell them that such a letter was not something that they had a security interest in. What they were really doing is papering their file to show they had some expectation of a future security interest. At best it appears to be conditional.