A Second Hand Conjecture

In listening to Morning Edition on NPR today, I had the privilege to hear Renee Montagne and Juan Williams tut-tutting the latest fundraising figures for Fred Thompson. According to Williams, Fred is falling behind in only raising $3.5 Million so far, which is well behind the other candidates. That analysis might make sense if Fred had officially declared already, as have the other candidates. The proper comparison should be to the first month of exploratory activity. Instead, Montagne and Williams were making apples-to-oranges comparisons that leave a listener with the impression that Fred is not doing too well with supporters. In fact, they are wrong.

To understand why the Williams comparison is inapt, you just need to look at the FEC regulations regarding fundraising. Because I know you don’t want to do that, I’ll narrow it down for you. Campaign finance laws have very strict requirements about the reporting, spending and accounting of contributions. When a candidate is “testing the waters” (i.e. forming an exploratory committee), the funds raised also fall within those laws, but they are treated a little bit differently (pdf):

§ 100.72 Testing the waters.

(a) General exemption. Funds received solely for the purpose of determining whether an individual should become a candidate are not contributions. Examples of activities permissible under this exemption if they are conducted to determine whether an individual should become a candidate include, but are not limited to, conducting a poll, telephone calls, and travel. Only funds permissible under the Act may be used for such activities. The individual shall keep records of all such funds received. See 11 CFR 101.3. If the individual subsequently becomes a candidate, the funds received are contributions subject to the reporting requirements of the Act. Such contributions must be reported with the first report filed by the principal campaign committee of the candidate, regardless of the date the funds were received.

(b) Exemption not applicable to individuals who have decided to become candidates. This exemption does not apply to funds received for activities indicating that an individual has decided to become a candidate for a particular office or for activities relevant to conducting a campaign. Examples of activities that indicate that an individual has decided to become a candidate include, but are not limited to:

[...]

(2) The individual raises funds in excess of what could reasonably be expected to be used for exploratory activities or undertakes activities designed to amass campaign funds that would be spent after he or she becomes a candidate.

In short, a potential candidate for office is limited in how much money he or she can raise “for exploratory activities”, and if it is deemed too much, then the candidacy becomes official and the requirements of the Bipartisan Campaign Reform Act (aka the “McCain-Feingold Act”) kick in. Some of the effects were explained back in February when most other candidates were taking the plunge:

In FEC-speak, such activity is referred to as “testing the waters,” and “funds permissible under” FECA means funds raised subject to the candidate contribution limits ($2,300 from individuals / $5,000 from multicandidate PACs) and also subject to a ban on corporate and union treasury funds.

While funds used for “testing the waters” exploratory activities must be raised pursuant to the federal candidate “hard money” restrictions, an individual who is “testing the waters” is not required to register a federal political committee until such time as the individual decides to run for office.

[...]

It’s abundantly clear, therefore, that federal law requires the use of federal candidate hard money to conduct federal candidacy exploratory activities. It is simply illegal for an individual to pay for such exploratory activity using state committee soft money or federal leadership PAC money.

Regardless of the reason, however, if someone who has not yet declared their candidacy raises too much money, they can not take advantage of the exemption to the McCain-Feingold Act. Accordingly, comparing the fundraising activities of those already in the race with those who have not declared is, at best, inapt. Instead, the better comparison is to the amounts raised by other while their own exploratory, pre-declaration phase.

When we look at the numbers for the first month of such fundraising, we find that Fred’s $3.4 Million June was far more successful than Giuliani ($258,660 between 11/15 and 12/15 of 2006) and McCain ($1,130,351 between 11/15 and 12/15 of 2006). Mitt Romney raised more money his first month than Fred, but he has heavily funded his own campaign, and he is trailing non-candidate Fred in the polls. In other words, rather than signaling a weak campaign, Fred’s initial exploratory numbers look rather strong.

But are they too strong? Well that’s a fuzzy subject. The DNC has been pushing the meme that Fred was illegally campaigning in June based on his initial fundraising efforts:

He has collected millions of dollars. Aides go to work every day in a secret suite of offices in McLean, Va. He has policy briefings. He is preparing for nationally televised Republican debates. He just named a communications director and a political director.

But yet, Fred Thompson still says he’s not sure he’s going to run for president.

[...]

If he were to formalize his candidacy beyond its current “testing the waters” status, Friends of Fred Thompson Inc. would have to reveal its contributions and expenses this week.

Thompson’s aides say they will not file such a report, and the Democratic National Committee plans to argue aggressively in coming days that he should. Democratic aides argue that Thompson could be violating campaign finance laws by “ducking” a full filing.

[...]

Democrats point to an FEC regulation saying the “testing the waters” exemption does not apply to funds received for activities indicating that the individual has decided to become a candidate, refers to himself as a candidate, or is raising “funding in excess of what could reasonably be expected to be used for exploratory activities.”

Karen Finney, the DNC communications director, said: “There is an inherent hypocrisy given that Thompson campaigned as a reformer, called for broader disclosure and railed on the campaign finance problems of Democrats.”

A Thompson adviser said he is fully obeying the law. “We’re doing what we supposed to be doing, which is raising enough to build a team,” the adviser said.

Ahh, politics in summer time. Is anything else so juvenile?

The same theme shows up in The Hill:

Former Sen. Fred Thompson (R-Tenn.) may be violating Federal Election Commission (FEC) laws by failing to report funds raised in the second quarter, which ends tomorrow — giving his probable presidential campaign a one-month fundraising advantage over his rivals in the third quarter.

Republican or Democratic rivals could file a complaint against Thompson if he enters the 2008 presidential race and it becomes apparent that he spent the month of June campaigning rather than wrestling with the decision to run.

Thompson is operating under the “testing the waters” clause of FEC laws, allowing him to raise money, travel and conduct polling to determine whether a bid is feasible. If he were to start campaigning, he officially would become a candidate, subject to filing requirements.

[...]

Perhaps more importantly, the laws forbid such a person from “rais[ing] more money than what is reasonably needed to test the waters or amass funds (seed money) to be used after candidacy is established.”

[...]

One Republican strategist and attorney said Thompson has been “amassing a lot of money, hiring staff and traveling to primary states … all of which is indicative of an ongoing campaign, not deciding whether or not to run.”

The operative added that Thompson’s actions of the last month are “inconsistent with the testing-the-waters phase and more like a candidate.”

A spokeswoman for the watchdog group Common Cause said, “If he intends to run he ought to just announce and get it over with,” adding that Thompson is being “coy” and not adhering to the “spirit” of the testing-the-waters phase.

It would seem, contrary to the analysis of Juan Williams, that Fred’s fundraising was in reality quite robust. So much so that hit pieces are being shopped around to cast doubt upon his potential candidacy.

That being said, Fred does need to start defining himself (without breaking the M-F rules of course) so that his opponents don’t do it for him. If he can steady the pre-declaration jitters his campaign seems to be suffering, and get a clean jump from out of the starting blocks, he might just give Giuliani some real competition. For now, though, the limitations placed on his activities makes him a bit of sitting duck for the candidates who have already declared.

Technorati Tags: Fred Thompson, Election 2008, McCain-Feingold Act, BCRA, fundraising, exploratory committee

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