Clinton's Campaign Debt

However painful it must be for Hillary Rodham Clinton to suspend her presidential bid, the defeated candidate has even more to be sad about: Mrs. Clinton ended her campaign some $20 million in debt, with $11 million of that coming from her own pocket.

How could someone who raised a total of $214 million since she began her presidential bid, end it in such poor financial shape?

Part of that is answered by the fund-raising strategy that Mrs. Clinton employed. Part is answered by the fact that no matter how much Mrs. Clinton raised, she was continually outraised and outspent by Barack Obama, whose fund-raising prowess has shattered all records.

In terms of overall fund-raising, Mrs. Clinton’s $214 million is impressive on its own, and competitive with the $265 million raised by Mr. Obama. These numbers reflect money raised by April 30, the most recent totals available. When May fund-raising reports come out later this month, both campaigns are expected to announce even higher totals.

But where Mrs. Clinton ended her campaign in debt, Mr. Obama ended nearly debt free. Mrs. Clinton will now have to struggle to pay off her creditors, who include some of her most important campaign insiders, along with hotels, air charters, communications companies, pollsters and other vendors.

The reason for this imbalance in the two candidate’s finances is simple: Mrs. Clinton relied on a network of traditional Democratic donors who quickly wrote $2300 checks for her primary race and another $2300 for the general election. Once these donors gave the maximum $2300 allowed by law for each race, they could not give more. In the last months of her campaign, Mrs. Clinton was forced to find new pools of donors – which she did as she began to tap into the Internet. But much of this was too little, too late.

More frustrating for Mrs. Clinton is the fact that the money raised for her general election race – around $24 million – cannot, by law, be transferred to cover her primary debts. Instead, she is required to give that general election money back to the donors. So while Mrs. Clinton has primary debts of $20 million, she cannot tap any of the $24 million in her general election money to pay them off.

Mr. Obama adopted an entirely different fund-raising strategy. He did not have a network of big dollar donors. Instead, he relied on a large network of small donors to raise impressive sums. The average Obama donation is around $90. But, the Obama campaign claims they have some 1.5 million donors. When Mr. Obama needed more money, he easily went back to these small donors for additional money since few had “maxed out” and reached the $2300 maximum.

The Obama campaign also raised money mainly for his primary race and did little fund-raising for the general election. In fact, the Obama campaign has raised only $8.7 million for the general election – some $14 million less than Mrs. Clinton.

What options does Mrs. Clinton have to pay off her debt?

The most obvious is to try to raise money from people who have not already given the maximum $2300 for her primary race. But, since she has already withdrawn her Presidential bid, getting new donors to pay off her debts will be a tough sell. With Federal Election Commission approval, she might negotiate with some of her creditors to whittle down what they are owed. Then there is the $11 million that Mrs. Clinton lent her own campaign. If she does not raise money from new donors by the time of the August Democratic convention, she will have to absorb that loss herself. Since the Clinton’s have reported earning $109 million since leaving the White House, this loss is affordable.

There has been talk that, in the spirit of party unity, Mr. Obama might step in and appear at a fund-raiser to encourage donations to retire Mrs. Clinton’s debt. Given Mr. Obama’s prodigious fund-raising ability, this most likely would be seen by the Clinton campaign as a generous and gracious gesture.

Mr. Obama's Union Money

One of the best political friends Barack Obama has is the Service Employees International Union, the politically powerful union that has pledged to spend $75 million to get Mr. Obama and other Democrats elected.

When it comes to Democratic politics, there is no more potent player than the S.E.I.U., which has 1.9 million members across the country and a willingness to knock on doors, pour money into television ads and go flat out for its chosen candidate.

Their chosen candidate is Mr. Obama, who has benefited handsomely from their efforts in his primary battle with Hillary Rodham Clinton. Wherever Mr. Obama has campaigned, the S.E.I.U has been there – forming almost a shadow campaign on his behalf. Mr. Obama may have vastly out-raised and out-spent all other candidates in this election. But even having the biggest campaign war chest of his own has not stopped the S.E.I.U. from adding its own considerable resources to support Mr. Obama’s election effort.

The S.E.I.U. is just one of many independent groups that are active in this election year. Many are unions. Others are nonprofit groups, like the conservative Club for Growth. Still others are so-called 527 groups, like the liberal MoveOn.org. But, by any measure, the S.E.I.U. is the biggest, the richest and the boldest.

To date, the union has spent $9.7 million supporting Mr. Obama – the largest amount spent by any outside group on any candidate. The next largest amount is the $2.3 million spent by the American Federation of State Local and Municipal Employees to support Mrs. Clinton. In addition, the S.E.I.U. has also spent $1.5 million in efforts attacking Mr. McCain. And, the union’s leadership has been loud in its calls for Mrs. Clinton to exit the race and cede the party’s nomination to Mr. Obama.

Federal election rules prevent the union from coordinating its efforts with the Obama campaign. But, when voters see television ads sponsored by the S.E.I.U., it’s hard to tell the difference between an official Obama ad and one paid for by the union.

The union also has more to offer than money. It has foot soldiers. In the recent Oregon primary, for instance, the union said it made 150,000 phone calls, knocked on 22,000 doors, sent out 200,000 pieces of mail and lead a massive get-out-the-vote drive headed by 500 union volunteers. In Indiana, where Mr. Obama lost to Mrs. Clinton, it led a similar effort. A television ad there called “New Building” focused on money being spent to rebuild the infrastructure of Iraq, rather than that of the United States, and pointed out that Mr. Obama opposed the war.

One central campaign theme for Mr. Obama has been his denunciations of special interest money and his refusal to take money from lobbyists. In fact, during the Iowa caucuses, Mr. Obama went out of his way to criticize independent groups that had been supporting John Edwards.

But, when it comes to the S.E.I.U., which has its own political agenda in Washington, Mr. Obama has been silent. And many voters, especially those not schooled in the nuances of campaign finance rules, may not notice the difference when watching a television ad paid for by the Obama campaign versus one paid for by the union.

Public Financing: To Use or Not to Use

One would think that if the government were offering free money – no strings attached – to mount a race for the White House, Presidential candidates would eagerly take the cash.

But that may not be the case this year.

Ever since 1976, when public funding for the Presidential election was started, every Presidential nominee has accepted these funds for the general election. This year, John McCain and the Democratic nominee are each eligible for $84 million in cash from the Presidential Election Campaign Fund. The money comes courtesy of taxpayers who voluntarily checked off the $3 donation on their federal income tax returns and is given to the candidates from the U.S. Treasury.

For his part, Mr. McCain is giving indications that he will take the money. But Barack Obama, who had earlier pledged to accept public financing if the Republican nominee did the same, appears to be backing away from that pledge. (Hillary Rodham Clinton has not yet said whether she would take part in the system.)

Sparks are flying between the McCain and Obama camps on this point. Both men have staked themselves out as campaign finance reformers, and have loudly denounced special interest money in politics. But, since Mr. Obama has shown to be such a formidable fund-raiser to date – he’s raised $234 million compared to Mr. McCain’s $77 million – he is now rethinking his pledge. This, of course, has caused the McCain camp to accuse Mr. Obama of backpedaling on a fundamental belief and not living up to his own words.

What it all comes down to is a matter of pragmatism against principles. By any count, $84 million is ample money for what will amount to a two-month general election campaign – roughly the time between each party’s convention and the November 2nd election. But Mr. Obama has shown he can easily top that sum. Last March alone, his campaign raised $40 million, after having raised $55 million the previous month.

The Obama campaign argues that they have developed what amounts to a “parallel public financing” system because of Mr. Obama’s ability to raise large sums of money from small donors via the Internet. These small donors, the campaign has said, offset the influence of special interest money.

Mr. McCain, by actions more than words, looks like he will take the free cash. His campaign is not actively fund-raising for the general election. In fact, Mr. McCain has returned contributions for his general election and asked donors to instead give it to a special legal and accounting fund that candidates can set up outside the public financing system.

For Mr. McCain, besides making a stand on principle, there are practical reasons for wanting the federal money. Last March was his best single fund-raising month. Still, he took in only $12 million, around one-third of Mr. Obama’s receipts that month. Against the Democratic financial juggernaut, Mr. McCain has always trailed.

Should Mr. McCain accept the public money and should Mr. Obama, if he becomes the Democratic nominee, not take it, Mr. McCain could be at a severe disadvantage.

But, fear not for Mr. McCain. The Republican National Committee, with some restrictions, can spend lavishly on his behalf, just as the Democratic National Committee can to promote its Presidential nominee. And, on this score, the Republicans come out ahead: The R.N.C. had $31 million in cash on hand at the end of March compared to only $5.3 million for the D.N.C.

This means there is still plenty of room for special interests – whether supporting the Democrats or the Republicans – to open their wallets and have their voices heard, whether the candidates accept public financing or not.

Small Donors Play a Big Role

Aided by the ease of the Internet, small donors are playing a big role in the 2008 Presidential primary, especially among Democrats. While campaign fund-raising usually conjures up images of rubber-chicken banquets and deep-pocketed donors writing big checks to wield influence, there’s been a revolution in fund-raising this year.

The Presidential candidates have been able to raise sums in staggering numbers – some $900 million through the end of March by all candidates combined. But the big news comes at the smaller end, where the amount raised by small donors is almost equal, and for some candidates, exceeds the amount raised by major givers. Federal Election Commission data shows that $269 million has been raised so far from donors giving $200 or less to candidates. This compares to $288 million from those giving $2000 or more.(The maximum donation is $2,300 in a primary race and the same amount to the general election.)

The Barack Obama campaign is following in the footsteps of Howard Dean in exploiting the power of small donors and Web-based donations. Mr. Obama, who has generated excitement among many new voters, has raised 45 percent of his money so far in donations under $200. This compares to 20 percent raised from those giving the $2,300 maximum, according to data from the Campaign Finance Institute. In dollar terms, small donors gave Mr. Obama $101 million, compared to $46 million raised from those giving the maximum.

Small donors are important to campaigns simply because they are small. A $25 donation can turn into a $50 donation as small donors are encouraged to give again and again. Once a big donor gives the maximum $2,300, they can give no more – and become, in effect, no longer useful to a campaign.

A greater reliance on big donors is one reason why Hillary Rodham Clinton has so much less cash for her primary race than Mr. Obama. Mrs. Clinton depended, initially, on a large network of major donors for her campaign cash. Soon, she had exhausted this network of big givers. As a result, as cash kept rolling into the Obama war chest – at the end of March, Mr. Obama had $43 million in cash available for the upcoming primaries, compared to $9.5 million for Mrs. Clinton – the Clinton campaign took steps to become more Internet savvy.

On the day after Mrs. Clinton won the Pennsylvania primary, her campaign raised $10 million online, which was the campaign’s best one-day haul. Campaign officials said this included 70,000 new donors.

The most creative use of the Internet came from Ron Paul, the 10-term Republican Congressman from Texas with a Libertarian message. Mr. Paul kept a large ticker on his Web site, recording each donation in real time, no matter how small. This catchy Web gimmick spurred his supporters to join together in one-day “money bombs,” raising millions in quick bursts.

Last November 5, to celebrate Guy Fawkes Day – the British rebel who tried to blow up Parliament and became a model for the main character in the movie “V for Vendetta” -- supporters of Mr. Paul donated more than $4 million online, then a campaign record. This was followed up by another online event, in which Mr. Paul took in over $5 million on the 234th anniversary of the Boston Tea Party.

While Mr. Paul’s chances of winning his party’s nomination ranged from slim to none, his fund-raising prowess could not be dismissed. As the Republican race tightened in the last quarter of 2007, Mr. Paul raised $20 million from his Internet followers. This was more than frontrunners Mitt Romney and John McCain combined.

Harnessing the Internet seems to be more of a Democratic skill than a Republican one. John McCain, the party’s presumptive nominee has raised only $16 million online for his primary bid. Even more, groups like ActBlue, an online political action committee, have sprung up to match small donors with a broad range of Democratic donors, from state house races to the Presidential race. The goal of ActBlue is to make fund-raising cheap and as simple as the click of a mouse. Since it was started, ActBlue has raised $43.7 million, with a goal of raising $100 million for Democratic candidates in the current election.

One of the big concerns of campaign finance reformers has been that too much money has flowed into politics – making politicians vulnerable to the interests of their major donors. But Internet fund-raising turns that concern on its head. By showing how much money can be raised online in small amounts, politicians in need of campaign cash now have another way of getting it, with far fewer strings attached or rubber-chicken dinners to attend.

Outside Expenditures in the Democratic Primary

While both Hillary Rodham Clinton and Barack Obama break fund-raising records, independent groups outside of the official parties, but with strong points of view and deep pockets, are also pouring money into the races, trying to sway the outcome, especially among Democrats.

Labor unions, so-called “527” groups and politically-oriented nonprofit groups have been playing an increasingly important role as the Democratic primaries grind on. The Campaign Finance Institute, a nonpartisan organization that studies campaign finance, estimates that these 527s’s – so named for the part of the Internal Revenue Service code that governs them – spent $424 million in the 2004 election cycle.

These federally-focused 527 groups raised around $77 million in 2007, and are well on their way to breaking the 2004 record in this election year.

While the rules vary, these outside groups do not face the same restrictions that limit supporters of Mr. Obama or Mrs. Clinton to a $2300 donation in their primary campaigns. Rather, so long as these groups do not coordinate their activities with the official campaigns, they can spend almost unlimited amounts on behalf of the candidates of their choice.

Outside groups act as almost “shadow campaigns.” They mobilize get-out-the-vote efforts, pay for expensive television ads, and buy t-shirts, posters, yard signs and other political paraphernalia. So long as a group simply states its support for a given candidate or talks about why he or she is a worthy candidate — without actually using the words “vote for” or “vote against” — they can operate independent of strict federal campaign finance limitations.

In Pennsylvania, the Service Employees International Union is spending lavishly to support Mr. Obama, just as the union did in Ohio and Texas. The union has spent more than $1 million in the last few days on phone banks, direct mail and door-to-door canvassers to help Mr. Obama’s bid in the April 22 primary.

In fact, Mr. Obama has benefited more from outside groups than any other candidate this year. So far, the politically-active SEIU has spent $6 million to support Mr. Obama, more than what other unions have spent on other candidates.

For Mr. Obama this outside help presents a sticky political problem. He has spent months denouncing the influence of special-money in politics, yet he has benefited from the millions that these outside special interest groups have spent on him. Even more, during the Iowa Caucuses, when many unions came out to support John Edwards, Mr. Obama criticized these outside efforts, calling them “underhanded.”

Mrs. Clinton has benefited from heavy spending by two unions — the American Federation of Teachers and the American Federation of State County and Municipal Employees. Together, the unions have spent a combined total of $4 million supporting the Clinton campaign in primary states.

Mrs. Clinton has also benefited from the work of Emily’s List, a group that supports pro-choice women Democratic candidates. That group has spent $1.4 million so far on behalf of Mrs. Clinton. But, even more, Emily’s List has used a targeted strategy — making its pitch on behalf of Mrs. Clinton to older women. This effort has paid off handsomely at the polls as older women have been one of Mrs. Clinton’s core sources of votes.

Of course, just as the Democratic candidates are benefiting from outside spending, they are also the target of attacks from outside groups on the right. In the Pennsylvania primary, for instance, Republican groups that oppose the two Democrats have jumped into the fray. Federal filings show that the Republican Majority Campaign just spent $62,000 on phone banks and a direct mail campaign in Pennsylvania to oppose the two Democrats, while RightMarch.com has spent $16,000 to denounce them.

McCain's Public Funding Debacle

Senator John McCain has long been a champion of campaign finance reform – in fact, he spearheaded the effort that drove soft dollars – unrestricted donations to party committees – from politics. But, in this presidential year, his commitment to campaign finance integrity is running up against some of the realities of practical politics.

Mr. McCain has gotten caught in a sticky situation involving his effort, now dropped, to seek public matching funds for his primary bid. Last year, when his campaign was cash-short, it wanted public funds. Now, as cash is rolling in, it says it does not. And somewhere between those two views is a complicated political – and potentially legal – problem for Mr. McCain.

Last summer, overspending by the McCain campaign nearly bankrupted it and Mr. McCain applied, and was certified, to accept public matching funds for his primary bid. This is money raised by the $3 check off on federal income tax returns, and it is made available to presidential candidates in return for their accepting strict limits on their primary campaign spending. Mr. McCain was the first candidate to apply for this money, which would limit his campaign spending during the primary to around $50 million. He was then followed by cash-strapped John Edwards. Other major candidates did not apply for the money, largely because they wanted to raise and spend in much bigger amounts.

But, before Mr. McCain began to draw down on this federal money, his political fortunes brightened, winning in New Hampshire and South Carolina. Donations rolled in – lots of them. Flush with this new cash, Mr. McCain now decided he did not want the federal money nor did he want the $50 million restriction in place until the September convention, when he officially would become the Republican nominee.

So, on February 6^th, he wrote to the Federal Election Commission, saying, in effect, “no thanks” to the federal dollars.

But leaving the federal system may not be so easy. Complicating his desire to withdraw from the federal program are the terms of a loan McCain took out late last year from a Maryland bank.

The bank documents show that Mr. McCain used his eligibility in the public financing program to help obtain the loan. And that section of the loan is now a bone of contention.

The Democratic National Committee has said this shows that Mr. McCain used the promise of federal matching funds as collateral for the loan. If that is the case, then the McCain campaign would be obligated to accept the matching funds and cannot withdraw from the program. The McCain campaign has denied that the promise of federal matching funds was collateral – even more, it says that since Mr. McCain never got a dime from the federal program, he can withdraw from it, regardless of what the bank documents say.

In the middle is the Federal Election Commission. On February 19, FEC chairman David Mason basically told the McCain campaign that it could not withdraw from the public financing system until it had answered questions about the terms of the loan.

Time may be on McCain’s side.

Because of a political stalemate in Congress, the FEC lacks enough commissioners to conduct business. That’s a stroke of good fortune for Mr. McCain, who has already spent $58 million on his primary bid – in excess of what he would be allowed under the public financing system. And he plans to spend a lot more between now and September.

In the worst case – for Mr. McCain – a re-constituted FEC could rule that Mr. McCain violated the terms of the public financing agreement that he entered into. In that case, he would face civil penalties and would have to repay to the government anything spent on his primary race in excess of the spending cap. If so, with his spending on the primary expected to increase, perhaps into the hundreds of millions, this summer, Mr. McCain could be forced to write one very big check.

http://www.fec.gov/press/press2008/20080226notice.shtml

Recent Reports Reveal Startling Finance Trends

The most recent campaign finance reports just issued by the Federal Election Commission show a number of startling trends in the world of money and politics. They show that big money can be raised from small donors. They show how the richest candidates aren’t necessarily the most successful. And, they show that the general campaign assumption – that Republicans out-raise and out-spend Democrats – is being turned on its head.

What is particularly striking about the financial reports, which were filed by the candidates late Thursday night, is the sheer volume of money pouring in the 2008 race. All candidates combined, Democrat and Republican, have raised $790 million so far in the primary races – a record-setting amount. Barack Obama raised $55.5 million in February alone, which is almost equal to what John McCain has raised for his entire primary effort since beginning to campaign 14 months ago.

If there is any breakout star when it comes to campaign money-raising, it has been Mr. Obama, who has amassed more political cash than any other candidate, Democrat or Republican. Mr. Obama’s own money-raising records are continually being broken – by himself. So far, Mr. Obama has raised a record $197.3 million and spent $151.6 million. The $42.8 million he spent in February alone was equal to what he spent in the last three months of 2007 combined.

Even more, he has harnessed the power of the Internet and small donors. To date, 41 percent of Mr. Obama’s money – or $76.3 million – has come from donors giving $200 or less. This is almost twice as much as what he has raised from donors giving the $2300 maximum to the campaign. That group of big-ticket donors has provided him with $43 million.

Hillary Clinton has been equally impressive in her money-raising, trailing just slightly. But she has been aggressive in her spending, and is now on less solid financial footing. She has raised $173 million – with $34 million coming in February, her biggest month. But, she has only $11.7 million left in cash on hand for her primary race – and she is facing $8.7 million in unpaid bills to vendors. In January, Mrs. Clinton lent her campaign $5 million, which lead to an uptick in small donors for her as well. A total of 52 percent of her February donations – or $17.2 million – came from donors who gave $200 or less.

As the two Democratic candidates head off to the Pennsylvania primary, Mr. Obama has the advantage of a war chest three times the size of Mrs. Clinton’s. He has $31.5 million in cash for the upcoming primary races and virtually no debt. Of course, money doesn’t always translate into victory. In the weeks leading up to the March 4^th primaries, Mr. Obama outraised and outspent Mrs. Clinton – yet Mrs. Clinton prevailed in the two biggest prizes of that contest, winning decisive victories in Texas and Ohio, which gave new energy to her campaign.

On the Republican side, John McCain, who ran a shoestring campaign and whose finances in 2007 took a serious nosedive, ended up as his party’s standard-bearer. By the enormous fund-raising standards of the Democrats, Mr. McCain’s campaign finances look pretty pale. He became the presumptive nominee on March 4^th, and in the month leading up to that victory, he raised a mere $11 million. His campaign expenditures of $58 million nearly equal the amount that donors gave him.

By contrast, the big loser financially was Mitt Romney, who spent $109 million, including $44 million of his own money. A graduate of Harvard Business School and a founder of Bain Capital, Mr. Romney has a personal fortune estimated at over $200 million. Yet, if Harvard were ever to do a case study on campaign finance, Mr. Romney would hardly be an example of how to win using other people’s money.