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How Big a Financial Disadvantage Will McCain Face?

By Brad Smith Posted in campagin finance | FEC | McCain | public funding — Comments (6) / Email this page » / Leave a comment »

Many Republicans have been worried that John McCain's decision to finance his general campaign by taking the federal subsidy, and thus subjecting himself to a mandatory spending cap, will leave McCain badly outspent in the fall, especially if Barack Obama is the Democratic nominee. Of course, we need to recognize that McCain probably didn't have a choice - it's not at all clear that he could raise more money in voluntary, private contributions than government is willing to give him. That said, how bad will he be outspent...

More after the jump.

The first thing to remember is that the government subsidy for the general election is a much better deal than the subsidy for the primaries. By taking the government subsidy in the general election, Senator McCain will get over $84 million to spend in the two month period from his formal nomination on the night of September 3 until election day on November 4. That's pretty good money - over $42 million a month, a number even Barack has only matched once.

Because it is a government earmarked subsidy for the campaign (I guess McCain doesn't really want to get rid of all earmarks) he'll have zero fundraising cost in raising it. Even Obama, who has a pretty low cost fundraising operation, probably has to deduct a minimum of 10% of his haul for fundraising costs. So Obama probably needs to raise over $90 million - probably closer to $95 million and maybe even more - in general election contributions to have the same spending cash as McCain in the general election.

Additionally, although the tax subsidy is supposed to cover the entire cost of the campaign, in fact the law allows campaigns can raise more private, voluntary contributions for a GELAC (General Election Legal, Accounting and Compliance) fund. This is used only for - you guessed it - legal accounting, and compliance expenses, but with some creativity campaigns can usually find a legit way to tuck several million in expenditures here, such as some computer expenses and the like. (By the way, McCain has very skilled campaign finance attorneys, who are very good at stretching the law). In 2004 President Bush raised over $12 million for his GELAC Fund, and John Kerry about $9 million. But wait - there's more... in 2007 the FEC ruled that campaigns can count up to 5% of television advertising costs against the GELAC (after all, more than 5% of a 30 second ad is lost to compliance - "paid for by...;" "I approved this message....," and the purpose of the GELAC account is to allow the entire tax subsidy to be spent on campaigning). That will allow another $3 million or so to be squeezed into the GELAC. Add in inflation from 2004, and GELAC totals may easily reach $20 million this year. Let's assume that even McCain can raise that much without too much difficulty over the next several months. (He currently has about $625,000 in his GELAC account).

Finally, because the Democratic convention comes before the Republican convention, Obama has to stretch his general election spending one more week. Even figuring that that will be a low cost week, he'll probably still spend another $1 or $2 million. Altogether, that means Obama will need to raise about $115 million for the two months of October and November, in addition to all that he has raised and will raise for the primaries, just to be even with McCain in general election spending. As of the end of March, Obama had raised about $7.5 million for the general election. This means he's got well over $100 million to raise, just to break even with McCain, in addition to continuing to raise money to battle Hillary and keep his primary campaign running through the Democratic convention in late August. (To give some perspective, including his GELAC spending, Bush/Cheney in 2004 spent about $85 million over the last two months of the campaign, and Kerry less than that.)

Can he do it? Definitely, I think he can, but can he raise enough to substantially outspend McCain in the general? Of that, I'm skeptical, especially if the fight with Senator Clinton drags on to the August Convention.

In any case, being outspent in the presidential race matter much less than it does in lower level races, because there is so much free media in the presidential race. So even if Obama got total spending up to say, $130 million in those two months, I doubt his spending advantage would much matter.

The bigger spending difference, if it comes, will probably come in spending by independent "527s." Here, Republicans have been shooting themselves in the foot for the past four years. In 2004, Ken Mehlman and Karl Rove actively discouraged Republican donors from supporting independent 527s, thus assuring that conservative 527s would be vastly outnumbered and outspent by liberal 527s. The same is occuring this year, with Senator McCain discouraging support for 527s. And all this has nothing to do with McCain's decision to accept the tax subsidy to run his campaign.

Bottom line is, McCain's general election campaign will be fine. What Republicans need to worry about is being vastly outspent in House and Senate races and in get-out-the-vote efforts by 527s.