Tuesday, October 21, 2008

McCain's financing loophole: NYTimes and WSJ finally catch up with p3

Late last month, I snagged a fundraising email from Sarah Palin to the dwindling GOP faithful. What caught my interest was the fine print:

Because the McCain-Palin Campaign is participating in the presidential public funding system, it may not receive contributions for any candidate's election. However, federal law allows the McCain-Palin Campaignís [sic] Compliance Fund to defray legal and accounting compliance costs and preserve the Campaign's public grant for media, mail, phones, and get-out-the-vote programs. Contributions to McCain-Palin Victory 2008 will go to the Compliance Fund, and to participating party committees for Victory 2008 programs.

So money going to the Victory 2008 fund is a complete end-run around the donation limits--which is to say zero--imposed on the McCain campaign when it accepted public financing to keep its campaign afloat back in 2007.

And how much cash can McCain drive through that loophole using the Victory 2008 fund? At the time, I did some quick back-of-the-envelope math and came up with $77K per individual donor, and $45K per PAC, the lion's share of that to be distributed to the RNC, the next-largest chunk going to the GOP in key swing states, and the smallest slice (up to $5K) going to their compliance fund.

And that's the key--the Times reports that, using the compliance fund gambit, McCain has been able to close some of the gap with Obama's fundraising, which is focused more (but by no means exclusively, alas) on small donors:

The joint fund-raising committees have been utilized far more heavily this presidential election than in the past. Mr. Obama’s campaign has leaned on wealthy benefactors to contribute up to $33,100 at a time to complement his army of small donors over the Internet as he bypassed public financing for the general election. More than 600 donors contributed $25,000 or more to him in September alone, roughly three times the number who did the same for Senator John McCain.

And Mr. McCain’s campaign, which had not disclosed most of these donors until last week, has taken the concept to new levels, encouraging deep-pocketed supporters to write checks of more than $70,000, by adding state parties as beneficiaries of his fund-raising.

And the stakes are considerable. The Wall Street Journal explains:

When he accepted $84.1 million in public funding for his campaign, Sen. McCain agreed to not raise or spend any other money. But the law allows him to create what's called a "compliance fund" to pay for legal fees associated with complying with campaign finance rules.

Both President George W. Bush and John Kerry created similar funds in 2004. But Sen. McCain is using his to an unprecedented degree. In 2004, Messrs. Bush and Kerry each spent about $2 million from their funds before Election Day.

On Monday night, Sen. McCain reported spending $2.4 million in September alone. In September 2004, both candidates spent less than $500,000.

The bulk of Sen. McCain's expenditures were to pick up part of the tab for television and radio ads -- the first time a candidate has been allowed to do that before an election.

Recalling Kinsley's Law of Scandals--the scandal isn't what's illegal, it's what's legal--it should be noted that using money raised in the name of this compliance fund for TV and radio ad buys may violate the spirit (or at least what you and I would suppose was the spirit) of the public campaign finance laws) is quite legal.

This loophole originally got on my radar screen from the Palin email humbly asking the recipient for a "contribution of any amount - whether it's $25 or $250." Peanuts.

The Times report goes on to list who's being escorted in through these campaign finance loopholes, and it isn't pretty:

All told, each candidate has had about 2,000 people give $25,000 or more to his various joint fund-raising committees through September.

“What we’re seeing is an emphasis on the high-end check that we have not seen since the days of soft money,” said Anthony J. Corrado Jr., a campaign finance expert at Colby College in Maine.

The Times examination of donors who wrote checks of $25,000 or more through September found some notable differences in the industries from which Mr. Obama and Mr. McCain drew their largest contributions.

Compared with Mr. Obama, Mr. McCain drew a slightly larger percentage of his big-donor money from the financial industry, about a fifth of his total. The next biggest amount in large checks for Mr. McCain came from real estate and then donors who identified themselves as retired. With his emphasis on offshore drilling, Mr. McCain has also enjoyed heavy support from generous benefactors in the oil and gas industry, a group Mr. Obama drew relatively little from.

After the financial arena, Mr. Obama drew the most in checks of $25,000 or more from retirees and lawyers — Mr. McCain collected significantly less in large donations from lawyers — followed by those in real estate.

Mr. Obama also drew a significant amount from big givers in the entertainment industry, who contributed relatively little to Mr. McCain. In contrast, donations from the private equity and hedge fund industries accounted for a significantly greater amount of the giving from Mr. McCain’s largest donors, compared with Mr. Obama’s.

Certain companies were especially generous to a particular candidate. Three top executives of Merrill Lynch, for example, wrote checks of $28,500 each to Mr. McCain; among them was the chief executive, John A. Thain. A dozen employees at Goldman Sachs wrote checks of $25,000 or more to Mr. Obama.

So Obama's skirts aren't clean in this matter; but having tapped an unprecedented pool of small donors (most of whom are nowhere near their donation limits), he's not under pressure to work the compliance-fund wheeze as hard as McCain. That, I suppose, is the silver lining.

In one sense, none of this is surprising: As long as campaigns rely on private and corporate money to fund themselves (a large portion of that money going to pay for use of publicly-owned airwaves at premium prices), campaign finance law will always be the site of an arms race between good-government types who craft new rules and campaign lawyers who find new ways to circumvent them (often by designing the loopholes into the original legislation themselves).

Although I'm a supporter of publicly owned elections, I was never that worried about Obama's decision to opt out--in fact I think that accepting McCain's cynical challenge to join him in public financing this cycle would have been a huge mistake. As a result, the Obama campaign has pioneered small-donor fundraising and taken no PAC money, both of which were aims of public financing.

But that's only going to be a patch on the problem as long as individual and corporate money can find its way back into the system so easily. Surely clean elections are as much a public good as safe bridges and drinkable water--although I suppose that's not a very compelling comparison these days, is it? I can't seriously imagine that we would ever have a zero-tolerance financing rule that would keep private money out completely--certainly not as long as money is legally equated with speech--but on the other hand, two months ago I wouldn't have suspected that the federal government would own equity in the country's largest banks.

(Hat tip to Americablog.)


Chuck Butcher said...

I do not now nor have I ever had any use for public financing of elections. I do not check the box, I'll be damned if a John McCain gets $0.02 of my money.

It is entirely reasonable to limit the entities that can contribute, it is even reasonable to limit the totals.

I do think public airwaves should be rented to political speech at their steepest discount rate as a form of public service with our airwaves.

I'm as convinced as ever that if people want an ideology they should support it - even if it is only $25 and that using government as a subsidy of ideology is both philosophically and practically a bad idea. It is proposed that this gives the rich a bigger voice, not so - they are entirely outnumbered and out gunned by the $25 IF people believe.

That is the crux, if we encourage people to abdicate to the government or to the rich they will get the results we have. If McCain had to compete - on the square, no loopholes - with Obama what would the results be? It won't make me popular with my own Party leaders to state that all political organizations should be held to the same limits.

Chuck Butcher said...

Ooops I am entirely in favor of such tax inducements as Oregon's $50 cut.