John McCain‘s problems with respect to having his cake and eating it too when it comes to public financing are about to get worse.

To recap, the sainted election-reform straight-shooter wanted to lay claim to federal matching funds, but leave himself the option of backing out (and escaping associated spending-limit restrictions) if his presidential prospects came back to life, and the campaign thought fundraising might be possible again. He didn’t want to legally touch the funds till he was sure he had no choice but to accept public financing. But at the same time he desperately needed money to spend. And so he did what you might expect from a man who only pays lip-service to all that election reform stuff, who only talks the talk when it comes to honesty and integrity. He cooked up a convoluted shady deal that may or may not stand up to legal scrutiny:

While he’s busy this morning responding to this morning’s New York Times story, the AP reports that the head of the Federal Elections Commission is questioning whether McCain will be allowed to drop out of the public financing system.

The reason, of course, stems from McCain’s too-clever-by-half $4 million bank loan in December. We outlined the deal on Monday.

To review briefly: in December, McCain, who’d earlier opted in to the public financing system, needed cash. The FEC had already certified that he was owed $5.8 million in public matching funds — but he wouldn’t be getting that money until March. And he didn’t want to absolutely commit yet to using that system, because it would limit his campaign to spending only $54 million through the end of August. And FEC rules say that using public matching funds as collateral locks a candidate into the system.

So McCain struck a deal with the bank: he promised to only commit to using the system if he lost the primary. If he won, he would opt out of the program, and he’d be more than able to pay the bank back, because the funds would come flowing. McCain’s lawyers were evidently very pleased with the canniness of this arrangement.

McCain’s lawyers, having crafted this conditional collateral arrangement, apparently thought that all they needed to do to withdraw from the public financing system was to tell the FEC: “Hey, we’re withdrawing!” Last week, the FEC responded with a “Not so fast, guys!: Their letter gave two reasons why McCain might not be able to withdraw. In addition to the complicated question of whether McCain’s conditional collateral arrangement locked him into the public financing system, there is also a technical glitch:

Number one, it says, the FEC will need to vote on his request to withdraw. But the FEC has not had a quorum since New Year’s Day, when Congress deadlocked over four pending nominations from President Bush. Without a quorum to vote on his request, the letter says, he will have to remain within the system.

Opinions seem to differ whether the FEC’s headlessness helps or hurts McCain. FEC Chairman David Mason obviously feels that if the FEC cannot take the official action necessary to release McCain from public financing system, he remains locked into it. (I love the poetic justice inherent in that view — McCain gets shafted by George Bush‘s childishly petulant intransigence in refusing to appoint reasonable nominees to the FEC.) However, TPM‘s Paul Kiel has an opposite view; he seems to feel that a headless FEC allows McCain to do whatever he wants without any repercussions:

But there’s a major catch, of course. The FEC can’t take any official action, because it’s still shut down over the deadlock in the Senate. The FEC needs four commissioners to act; it currently only has two.

So all the FEC can do for now is send inquiries. But if by some miracle the impasse in the Senate were broken, it could mean trouble for McCain.

And now Democratic National Committee Chairman Howard Dean has just stepped into the middle of this complicated situation:

The DNC announced today that it will file a complaint with the FEC against John McCain’s campaign Monday, calling on the FEC to investigate whether the McCain campaign violated or is about to violate the law by ignoring the spending limit agreement and other conditions Senator McCain agreed to when he became eligible to receive federal matching funds. According to McCain’s latest campaign filing, he has already spent $49.6 million and given that a month has passed, he has exceeded or is about to exceed the approximately $56.8 million spending limit.

“The crucial issue here is John McCain’s integrity. John McCain poses as a reformer but seems to think reforms apply to everyone but him,” said Democratic National Committee Chairman Howard Dean. “He used taxpayer money to guarantee a loan so he could raise money from lobbyists and special interests — it’s the height of hypocrisy. This is just the latest example of his do as I say, not as I do double standard, and it’s unlikely to be the last. McCain financially benefited from this legally binding contract — he got free ballot access, saving him millions of dollars, and he secured a $4 million line of credit to keep his campaign afloat by using public financing as collateral. He should follow the law.”
[...]
In order to receive matching funds, John McCain signed a binding agreement with the FEC to accept spending limits and to abide by the conditions of receiving those funds. The FEC makes clear that any request to withdraw from the agreement must be granted by the FEC. In other words, McCain can’t just unilaterally withdraw. FEC Chairman David Mason made this clear in a letter to McCain advising him that the law requires the FEC to approve his request to withdraw from his contract.

Some of this, of course, is just transparent political posturing, to score points off McCain’s hypocrisy on the subject of one of his own so-called signature political issues, campaign finance reform. But by focusing attention on the McCain campaign as it is in the very act of unilaterally flouting election law, it also has the potential to precipitate all sorts of unwelcome legal consequences for the McCain campaign.

The trouble is that the DNC complaint calls on the FEC to take action:

In the complaint, the DNC says “the Commission should (1) find reason to believe, pursuant to 2 U.S.C. Section 437g(a)(2), that Senator John McCain and the McCain Campaign have committed, or are about to commit, a violation of Chapter 96 of Title 26 and of the Commission’s rules, and should conduct an investigation; and (2) pursuant to 26 U.S.C. Section 9040(c), petition the appropriate U.S. District Court for injunctive relief to implement and enforce the provisions of Chapter 96 against Senator McCain and the McCain Campaign.”

And the FEC, thanks to George Bush, can do nothing of the kind.