May fundraising: Obama and McCain raise similar amount while RNC crushes DNC, but Democrats shouldn't worry

Fundraising has received renewed attention ever since Barack Obama announced he would opt out of the public financing system last week. Over the past few days, two news items have attracted attention: (1) Obama and McCain raising roughly the same amount of money in May and (2) the RNC’s continued financial dominance over the DNC.

The first item has understandably led to more headlines, with some using it to question Obama’s decision to renounce public financing. But Democrats should not be worried about that bit of news. In fact, it is the second story that could prove more problematic -- though it confirms that the Illinois Senator’s decision to free himself from spending limits was strategically necessary.

First, then, came the two campaign’s financial disclosures for during the month of May. McCain announced he had raised $21.5 million, his best fundraising month yet and leaving him with a respectable $31 million in the bank to use until his early-September convention. Obama, meanwhile, raised $23.3 million, a strong sum as well but one that pales in comparison to the Democrat’s totals for March ($40 million) and April ($32 million). More surprisingly, this means that Obama has as much cash left in the bank as of the end of May to use in the primary season, $33 million (Obama has also already raised about $10 million to use in the general election, between September and November).

Why has Obama’s fundraising declined, and does this mean that his decision to opt out of public fundraising was a bad one? McCain devoted a lot of the month of May to fundraising. He certainly needed it and his respectable cash-on-hand totals are his reward, as he will surely have enough money to stay on air through the next few months. On the other hand, the Obama campaign was in surreal situation: They had effectively clinched the nomination on May 6^th by winning big in North Carolina but Hillary Clinton was staying in the race, making it impossible for Obama to switch to the general election (and ask for contributions accordingly) without making unity efforts more difficult. This means that Obama held off on major fundraising efforts designed in the perspective of facing McCain, and donation pitches framed as part of the primary campaign surely had a reduced effect since the race against Clinton no longer seemed competitive at the time.

In June, the Obama campaign has been in full fundraising mode this month. Not only did the days following June 3^rd surely boost his totals but the campaign launched a fundraising drive after its public financing decision to emphasize its determination to shatter records. After all, the campaign is aware that it has to make the choice to opt out of the system a worthy one. Also don’t forget that Obama will now start to tap into the vast network of Clinton fundraisers, and while some of them might be too bitter to donate to his campaign Hillary herself has encouraged her top donors to contribute to her former rival and is arranging a meeting between the Illinois Senators and her best fundraisers. That should lead to some very tangible benefits.

And all in all, the fact remains that McCain will be limited to $84 million between September and November -- a total Obama is sure to surpass even if he remains at such "low" totals as $23 million. And it goes without saying that the mere fact that $23 million is considering a disappointing result is a reflection of how much Obama has raised the bar.

Much more worrisome to Democrats is the financial disclosures of the national parties for the month of May. The RNC raised more than $24 million while the DNC raised less than $4 million. The disparity in cash-in-hand is huge: $53.5 million to $4 million. Most of this money will be used in the presidential race (though the RNC might be forced to somewhat help the RNCC), creating a big disadvantage for the Obama campaign to overcome. There are a number of reasons to this (the RNC is historically a very strong fundraising machine, while the DNC is hurt by the fact that Democrats are enthusiastic by Obama and donating their money directly to him), but the result is clear: Combined with McCain’s totals, Republicans will have enough money to operate a decent campaign over the next 5 months.

In fact, the difference between the RNC and DNC should make the Obama campaign much more confident that its decision was strategically necessary. If the Illinois Senator had opted in public financing, both he and McCain would have been limited to $84 million from September to November. But the fact that the RNC would have had millions more to spend would have put the Democrat in a huge financial hole, without even considering what effect 527s might have. With Obama opting out, however, he will have a lot more than McCain to spend during those few months and, given that some are predicting a $300 million budget, he looks almost certain to crush the McCain + RNC total as well.

(The non-presidential story in those fundraising numbers is of course the continued disparity between the NRCC and the DCCC. While the Republican branch managed to stay fairly close in May receipts, $6 million to $5 million, it remains at a stunning financial disadvantage: The DCCC has $47 million of cash-in-hand and the NRCC only has $6 million. This will have a huge impact in the fall given how much many House challengers depend on the national committees. The Senate's picture is less severe, with the DSCC having $17 million more.)

Update: Ben Smith reports that the Obama campaign is worried about the RNC/DNC disparity and has released this chart to pressure Clinton supporters into donating to the DNC:

Obama opts out of public financing, strengthening his ability to carry national campaign

In a video message released this morning, Barack Obama announced he is opting out of public financing. This makes him the first candidate ever to rely on private donations to finance his general election campaign, and it will give him a giant advantage over John McCain. While the Republican will be limited to spending $85 million between the convention and Election Day, Obama will be able to spend as much money as he raises -- and some estimate that could be as high as $300 million.

The McCain campaign has long been pressuring Obama to respect what they call as his pledge to take public financing if McCain does. Obama had taken no such pledge but had said that he would "aggressively pursue an agreement". To justify his decision today, Obama argued that the RNC's fundraising advantage over the DNC coupled with the possibility that independent groups air attack ads in the next few months would have put him at a disadvantage had he accepted to limit his general election spending. Democrats also argue that the huge size of their small-donor list means that they have found an "alternative" public financing system.

(I for one find that this second point unconvincing because what is appealing about the campaign finance is that it maintains some equity between different candidates' spending and prevents the highest spender to simply buy his way into office. I agree that the sytem is so messed up that it makes little sense to blame Obama, that it makes no sense for the McCain campaign to say they "believe in public financing" when they did not take it for the primary, and that it would have been politically suiscidal for Obama to reject it. But in a hopefully not-too-distant future we can hope for a better European-style campaign finance system that also puts stringent limits on RNC/DNC/outside-group spending and in which candidates do opt in. TPM reports that some reform activists have a similar take on the "alternative system" argument. And Senator Russ Feingold also criticized Obama, saying that the general election system was not broken.)

The McCain campaign believes they have an opportunity to hurt Obama with this issue. They are now insisting that Obama broke his words and are blasting him as just another "typical politician who will do and say whatever is most expedient for Barack Obama." McCain insisted today that this is a "big, big deal." The goal is clear: Hurt Obama's posing as a "change" candidate and the reform image that the Democrat has tried to embody. The problem for McCain's campaign is that... this is a deeply hypocritical reaction. Given the financing problems the Republican candidate has himself, it's difficult for me to understand how he is hoping to claim the reform mantle on this one.

Not only did McCain reverse his position on whether to take public financing in the primary (the period that ends at the conventions at the end of the summer), but he opted out after using the promise of matching funds to secure loans in the fall of 2007. There is a possibility that doing so should have locked McCain in the public financing system and the head of the FEC said as much a few months ago. (more background on this controversy here). Taking advantage of the FEC's lacking a quorum to take action against him and rule on whether he was forced to respect the limits that come with public financing, McCain broke those spending limits. The DNC has filed lawsuits against this but they have little chance of getting anywhere until the Senate resolves its stalemate over FEC nominees. Given this reversal whose very legality is under question, does McCain have any legitimacy to accuse Obama of breaking his word and abandoning the reform mantle?

Even if McCain was clean on the issue and could unproblematically present himself as the reform candidate here, another problem remains: such issues very rarely have any resonance with the electorate, and while the GOP might try to put this in relation with whatever other talking points it has to demonstrate that Obama is just a "typical politician," it's unlikely to do much for them. After all, none of the Clinton campaign's accusations of Obama engaging in negative attacks despite preaching "new politics" hurt the Illinois Senator -- and campaign finance is not something that arouses voter passion.

Ultimately, Obama's prodigious fundraising ability terrifies Republicans, who are worried about being swamped under the Senator's machine. Opting out of public finance allows Obama to outspend McCain in key swing states, but it is in more marginally competitive races that the difference could be the most significant. Indeed, both campaigns need to spend a large portion of their resources in states like Florida, Ohio and Wisconsin. Once all of that is accounted for, how much more of his $84 million will McCain retain to invest in New Jersey, Connecticut and California and to defend states like Alaska and Georgia? Obama, on the other hand, will have millions to run ads and send staffers to states that are not high-priority. That will allow him to develop an alternative electoral map in states like Nevada, Colorado and Virginia while also contesting Ohio and Florida and testing GOP vulnerabilities in third-tier statses.

The money factor: How big will Obama's advantage be?

The conventional wisdom of the general election campaign has long been that Barack Obama would massively outraise John McCain and bury him under advertisements seeking to define him. This financial advantage could also be used for Obama to expand the electoral map and test McCain's vulnerability in states like Texas, Montana and Georgia that are not expected to fall to the Democratic side, potentially forcing McCain to defend his turf with resources he could have spent elsewhere.

Indeed, Obama's prodigious fundraising ability terrifies Republicans, who are worried about being swamped under the Senator's machine. If the more than 1.5 million donors who have contributed to Obama's primary campaign give just $100 to his general election effort, that already represents more than $150 million -- and you can be sure that many will donate much more. Some are already mentioning the possibility of Obama raising more than $300 million just for the general election, a stunning sum to be able to spend in just over two months. With McCain assured of choosing public financing, he will only have $85 million to spend in the same time period, a significant difference that would make it hard for him to survive the Democratic onslaught in key swing states.

But as the general election is kicking into high gear, it is unclear just how significant Obama's advantage will be. In fact, there are a number of question marks about both campaigns' fundraising, plans and abilities. (Keep in mind that this discussion concerns only the general election campaign, i.e. the two-month period between the conventions and the general election. Up until the end of August, the campaigns will use primary funds and Obama has a clear advantage there although McCain has been picking up the fundraising pace.)

McCain and the FEC: The Republican's fundraising has been at times too anemic and the GOP base is too disgruntled for him to take the risk of forgoing public financing -- and keep in mind that no candidate has done so until now, underscoring the extent of the gamble. But here there is the first question mark: Will McCain be able to receive these funds? The FEC needs to approve his request and for now that committee still does not have a quorum to take any such decision. The Senate stalemate over new appointments that was at the origin of this situation got partly resolved mid-May, but there still have been no new votes on appointments.

Another question is whether the FEC might attempt to punish the McCain campaign for not using public funds in the primary despite using the promise of these funds to secure grants from banks at the end of 2007 (more details about this controversy here). The FEC was not able to rule on this matter because it lacked a quorum and McCain used the opportunity to spend money over the limits that are allowed for candidates who accept public financing.

The RNC: The money that McCain should be able to raise but is not is flooding to the RNC. Keeping up with tradition, the national Republican party is massively outraising its Democratic counterpart. The RNC finished the month of May with more than $40 million in the bank compared to more than $4 million for the DNC. Since most of the RNC's funds help the Republican nominee in a presidential year, this is giving the Republicans hope that they will remain roughly on par with the Obama campaign. Their calculation is that the current cash-in-hand of the respective campaigns added to that of the DNC and RNC has the two parties at the same level.

Of course, there are a few problems with this analysis. For one, the reason Obama does not have that significant a cash-in-hand advantage over McCain is that he has been spending massively to distance Clinton (spending that will come in handy in the fall since a lot of it consists of ads in states like PA, OR and even MT, which the campaign seems interested in contesting). As we saw in our analysis of Obama's general election potential, we are not talking about a $35 million deficit (which would not be that dramatic compared to historical precedents) but one that would surpass $100 million -- potentially even $200 million. There is very little the RNC could do to keep the McCain campaign afloat under this scenario.

Obama and public financing: The final question mark might be the biggest one of all: Is Obama really still considering taking public financing? The McCain campaign has long been pressuring the Democrat to respect what they call as his pledge to take public financing if McCain does. Obama had taken no such pledge but had said that he would "aggressively pursue an agreement" though the GOP believed it could make him look bad. Ever since it became obvious how big a financial advantage Obama would have, public financing seems to have been taken off the table.

Yet, news broke this week-end that Obama left the door open to accepting public funds and thus spending only $85 million from the end of August to Election Day. Obama said he will accept public financing if a deal can be struck in which the RNC would curb its spending. "I won't disarm unilaterally," he added. As we saw above, the RNC's massive financial advantage over the DNC would mean that Republicans would have much more money to spend if both campaigns limited themselves to $85 million. But given that Obama is looking into a massive financial advantage if he opts out of public financing, entering a binding agreement to not spend more than his opponent would constitute a wasted opportunity, however much he convinces the RNC of curbing its spending.