The campaign millions are already flowing freely in New Hampshire. Republican John McCain has spent more than $550,000 on radio and television ads there. Vice President Gore has no fewer than six offices in the tiny state, and Democratic rival Bill Bradley has more than 20 paid aides on his New Hampshire staff.

Federal law requires all three candidates to abide by a $660,000 spending limit for the first-in-the-nation primary Feb. 1. But the rules are so riddled with loopholes that a clever presidential campaign can easily transform that $660,000 limit into a $6 million spree. In Iowa, too, presidential candidates can spend vastly more than the supposed $1.1 million state cap.

It's the equivalent of political alchemy--a complicated, and legal, sleight of hand by which leading White House contenders can devote millions of dollars to winning the early contests while still claiming technical compliance with the rules.

At the same time that inventive presidential candidates have found numerous ways around the state-by-state limits, however, the rules do still have some bite--and could have particularly important strategic consequences in the GOP race. Betting his campaign on a strong showing in New Hampshire, Arizona Sen. McCain is running against two rivals--front-runner George W. Bush and millionaire publisher Steve Forbes--who have opted out of the public funding system and therefore face no spending restraints.

Massive New Hampshire spending requires campaigns to engage in a variety of contortions that often cost more than the candidates would otherwise spend, such as buying air time on Boston television because only a small share of the ad buy counts against the New Hampshire limit.

The Federal Election Commission--which has been trying for years to get Congress to abolish the state spending caps--also has paved the way for a new wave of spending. In response to an inquiry from the Bradley campaign, the commission said last month that campaigns may send unlimited amounts of direct mail into a state and not count it against that state's limit--as long as it is delivered more than 28 days before the primary.

Complying with the state spending limits is only the first challenge in this political chess game. Bradley, Gore and McCain may be able to spend millions in the first two states, but after Feb. 1 they will have to be conscious of the overall limit of about $40 million. With dozens of primaries scheduled in March in such high-dollar states as California and New York, the winner could emerge with no cash left to run a campaign until the start of public funding for the general election campaign.

But first, there is New Hampshire. Already, McCain has spent heavily in the state. As of Sept. 30, McCain reported spending $76,000 against the $660,000 New Hampshire limit. Since then, his TV and radio barrage has started in earnest. According to numbers compiled by a rival campaign, McCain through the end of November had spent $110,000 on New Hampshire radio ads, $333,000 on Boston television ads and $117,000 on ads on New Hampshire's lone commercial, network-affiliated broadcast TV station.

That would appear to put McCain in imminent danger of busting the $660,000 cap in a matter of weeks--not even counting spending on direct mail, headquarters and staff. Bush and Forbes, citing McCain's push for tighter campaign finance laws, suggest he may overspend even as they remain free to spend as much as they want.

"Without a question, he'll go over the cap for sure in New Hampshire," said Forbes campaign manager Bill Dal Col. Added a senior Bush adviser, "McCain's going to have enormous problems. . . . He's going to be right up against the edge."

But that is precisely where the FEC's tortured rules enter in, making spending as much a matter of clever budgeting as political imperative. In McCain's case, those rules likely mean he can spend large amounts without technically going over the cap.

The most important part of the formula for turning $660,000 into $6 million is the "fund-raising exemption," which enables candidates to claim that half of their expenditures in a state are fund-raising costs that don't count against the state limit--even if they have no relation to fund-raising. The only catch is that they are limited to taking an overall total of $6.5 million in such deductions, so spending claimed in an early state could cause problems later.

There is also a standard 10 percent deduction for overhead costs, such as rent and phones. Staff, even those hired exclusively for New Hampshire, mostly don't count against the state limit. With the FEC's new advisory opinion, it's also possible to flood the state with campaign literature without counting any of it toward the cap--as long as it is all mailed before Jan. 3.

And in New Hampshire, Boston television offers perhaps the best loophole of all. Because only 16.8 percent of the audience for Boston TV stations lives in New Hampshire, that is the portion that counts against the New Hampshire cap. So $1 million worth of Boston TV ads is only $168,000 in New Hampshire dollars. Bradley, for one, has embraced that strategy. He has spent $252,000 on Boston ads in the last two weeks, compared with $73,600 on WMUR-TV, the only New Hampshire commercial network affiliate.

Even that may not be necessary. McCain's campaign argues that TV ads bought on the New Hampshire station also are eligible for the Boston loophole--because A.C. Nielsen Co. considers Manchester part of the Boston media market. "It's counter-intuitive," said a lawyer for another campaign, "but it appears to be legal."

That game plan doesn't work in Iowa, where the major media market is Des Moines, so virtually all television spending counts against the state's $1.1 million limit. For that reason, Democratic strategists said Gore and Bradley will feel the pinch of the state limits most in Iowa. McCain recently announced he will not compete in the Jan. 24 Iowa caucuses.

For the record, all three candidates insist they will abide by the letter of the rules. Responding to a question on state spending, Gore said on ABC, "We're going to abide by all of the campaign laws."

"Bill Bradley's committed to spend within the limits," said his campaign manager, Gina Glantz. Said McCain spokesman Howard Opinsky, "We're encumbered by the rules, no doubt, whereas our competitors are not necessarily so. But we're going to live by the rules."

Indeed, Bush and Forbes are able to spend lavishly while paying less for accounting. "It gives you flexibility," said one Bush adviser. "We did phoning very early. We've begun our mail early. We've gone up on TV and we will never come down. With limits, you can't spend $80,000 a week on TV in New Hampshire. You'd be out of money by December 15."

Before 1991, when the FEC put the current rules into effect, the loopholes were even wider. And campaigns, faced with difficult spending choices, often opted to violate the rules, reckoning that the worst that could happen was a years-after-the-fact fine from the FEC.

Tad Devine, a Gore adviser who was Democrat Michael Dukakis's field director in 1988, recalled that the Dukakis campaign managed to spend $3 million in Iowa at a time when the state limit was $664,000.

Most infamous was the "five-day rule," under which campaign aides who spent more than five consecutive nights working in a state were counted as local staff. That meant many aides were bused out of New Hampshire to spend their fifth night in motels just over the state line in Massachusetts or Vermont.

Responding to the gamesmanship, the FEC came up with a new set of rules that greatly expanded the state limits. Trevor Potter, a former FEC chairman who is McCain's campaign counsel, said there had never been "any public policy rationale" for the state limits and so the commission, faced with a Congress unwilling to "open up the whole can of worms," decided to make the limits easier to abide by. "It is now much more aboveboard and relatively more straightforward," he said. "But when you reach the limit, it's more real."

Indeed, the McCain, Gore and Bradley campaigns all acknowledge feeling pressured by the caps. "From the beginning, the limits have shaped what we do," said Bradley manager Glantz. "It's still an important issue," agreed Gore strategist Devine. "It's just not nearly as rigorous."

Early state spending is considered so politically necessary that Gore's campaign has already debated--and rejected--the idea that it could be attacked for apparently spending more than what is allowed in New Hampshire.

When Gore advisers were plotting an early wave of advertising in October, several strategists argued against it, saying, as one put it, "It's so clear that we're busting the caps, and we'll get rained on for it."

But that was before it was explained that $660,000 doesn't really mean $660,000. Said Devine, "The ultimate consensus was that we could do it and not suffer any consequences."

How to Spend $6 Million in New Hampshire (And Still Comply With a $660,000 Limit)

Presidential candidates who take public funds must live by an overall primary spending limit of about $40 million, as well as state-by-state limits based on population. In Iowa and New Hampshire -- states with few residents but outsized political importance -- those limits force campaigns to play a clever game of political budgeting, although some choices may hamper them later, when the overall limits begin to pinch.

Here is a scenario for how to turn New Hampshire's $660,000 limit for its primary into a $6 million effort -- entirely legally:


First, flood the state with direct mail.

A Federal Election Commission ruling said unlimited amounts can be spent on direct mail in a state without counting against state limits -- as long as the mail reaches voters more than 28 days before the primary. Assume $2 million in mail is sent before the deadline, and an extra $200,000 worth of mail goes out in January. Even the January mail will not count fully against the limit because campaigns can take a standard 50 percent deduction for fund-raising costs, even if the mailing has nothing to do with raising money. The charge against the limit for $2.2 million worth of mail is $100,000.

Cost: $2.2 million

Counted against

New Hampshire limit: $100,000


Advertise heavily. Boston television is watched by many New Hampshire residents because the state has just one network-affiliated commercial station. Perhaps the biggest loophole of all, spending on Boston TV counts only 16.8 percent against the New Hampshire limit since that is the proportion of state viewers. So $4 million becomes $672,000 in New Hampshire dollars. Add in the 50 percent fund-raising exemption, and the total spent against the limit is just $336,000.

Cost:$4 million

Counted against New Hampshire limit:$336,000


All that spending still leaves money to spare for the ground war. Campaigns get an automatic 10 percent deduction for overhead expenses such as phones, rent and the like, and they can also apply the fund-raising deduction. Staff members hired exclusively to work in New Hampshire don't count against the limit.


Counted against New Hampshire limit:$180,000

Total cost: $6.6 million

Total counted against New Hampshire limit: $616,000