How Will Clinton Resolve Campaign Debt?

New York Sen. Hillary Clinton handily won West Virginia's Democratic presidential primary on Tuesday, but the longer the race goes on, the deeper the Clinton campaign goes into debt.

Clinton owes money to printing companies, air charters, phone companies and political consultants. She even owes herself. And now, with Illinois Sen. Barack Obama still leading the race, an active discussion is developing as to how Clinton might settle those debts if she drops out.

Campaign spokesmen say the debts total about $20 million. But that appears to be a low-ball figure, based on a creditors list from the end of March. Since then, Clinton has run costly campaigns in Pennsylvania, North Carolina, Indiana and West Virginia. Primaries will be held in Kentucky and Oregon next week.

As of six weeks ago, the campaign owed $10.3 million to creditors. It currently owes $11.4 million to the candidate.

And only winners have an easy time dealing with debt, says Michael Toner, former chairman of the Federal Election Commission and former counsel to Republican Mitt Romney's presidential campaign.

"Debt retirement is the hardest task in American politics," says Toner. "A lot of donors are not excited to give money to retire debts from somebody who's not going to win the presidency."

Clinton's Options for Repaying Campaign Debt

Beyond that blanket statement, Clinton's situation gets murky, and quickly. If she were to drop out, the common practice would be to pay off creditors slowly, bargaining them down to settle for partial payments. Clinton would best protect her reputation, however, by paying off creditors first.

The 2002 McCain-Feingold campaign finance law, however, pushes her the other way — setting no deadline for paying creditors but giving her only until the August convention to repay herself. After that, all but $250,000 of her $11.4 million in loans would automatically be converted into unrecoverable campaign contributions. The Millionaires Amendment in McCain-Feingold sets that deadline to prevent self-financing candidates from collecting and pocketing contributions years after their campaigns have folded.

But Clinton also would have other options.

Her campaign says nobody is talking about it, but Obama could ask his 1.5 million donors to chip in: a gesture that would also promote Democratic Party unity. At the same time, Democrats might be more eager to channel all their money into the general-election showdown through Obama's own campaign; through the Democratic National Committee, which lags far behind its Republican counterpart in fundraising; and through congressional races.

One further option is especially creative.

Clinton raised roughly $22 million for the general election, mainly from donors who hit the legal limit for primary campaign contributions and wanted to give more money. Some lawyers say she could take that general-election money and the commercial debt and redirect them both to her 2012 Senate campaign.

Redirecting the general-election contributions would require each donor's consent. But Clinton could not keep that money for any other use. And according to some campaign finance attorneys, it could mean that some donors could give to her presidential primary effort three different times.

First, they gave by writing a check for the primary. Next, their general-election check would be redirected to the Senate campaign and used to pay down the old presidential primary debt. And finally, they could write a check directly to the Senate campaign — also to be used to pay off the debt.

This might sound like money laundering to some, and campaign finance lawyers in Washington are debating whether the regulations allow it or not. Toner, for one, says they do. "There is a long history of candidates transferring funds to future election cycles and then being able to go back to those same donors for the maximum contributions," he said.

The question may ultimately need an answer from the Federal Election Commission — which could be a long time coming, as the commission is crippled this year by a Senate deadlock and has no working quorum.

Historic Examples of Presidential Campaign Debts

Presidential campaigns have run up debts for generations. Political scientist Ray La Raja, author of a history of campaign finance laws, notes that whatever the situation Clinton finds herself in, she won't have the choices that were available in 1916, when Democrats went into the red re-electing Woodrow Wilson. After the party promised but failed to finance the campaign from a base of small contributors, La Raja said, "President Wilson's rich roommates from Princeton paid off the debt, equivalent to about $13 million in today's dollars."

But LaRaja also notes that if Clinton is unable to repay her personal loans, those dollars still might be well spent, building support in some states where she might campaign again in just a few years.

Clinton Easily Wins West Virginia's Primary

New York Sen. Hillary Clinton campaigns in W.Va.

New York Sen. Hillary Clinton celebrates her win in the West Virginia primary at the Charleston Civic Center, May 13, 2008. Chip Somodevilla/AFP/Getty Images hide caption

itoggle caption Chip Somodevilla/AFP/Getty Images
Illinois Sen. Barack Obama plays pool at a campaign stop in W. Va.

Illinois Sen. Barack Obama speaks during a rally Tuesday at suit maker Thorngate Ltd. Company, in Cape Girardeau, in the swing state of Missouri. Obama is increasingly focusing on a general election strategy. Mark Wilson/Getty Images hide caption

itoggle caption Mark Wilson/Getty Images
Two young women hold signs supporting New York Sen. Hillary Clinton.

Supporters cheer as Clinton is announced as the projected winner of the West Virginia primary. Robyn Beck/AFP/Getty Images hide caption

itoggle caption Robyn Beck/AFP/Getty Images

New York Sen. Hillary Clinton won a landslide victory in West Virginia's Democratic primary Tuesday, defeating Illinois Sen. Barack Obama by a margin of more than 2 to 1.

The state's demographics favored Clinton: West Virginia voters are older, less educated and overwhelmingly white, groups which have flocked to her in past voting. But the results will do little to change the course of the race for the Democratic nomination for president.

In her victory speech, Clinton seemed to be addressing Democratic Party superdelegates and voters in the five upcoming contests, more than the cheering throng of supporters in front of her in Charleston, W. Va.

"I want to send a message to everyone still making up their mind," she said. "I am in this race because I believe I am the strongest candidate. ... I can win this nomination if you decide I should, and I can lead this party to victory in the general election, if you lead me to victory now."

But Clinton also was conciliatory toward Obama. She said she admired the Illinois senator and that they shared "a commitment to bring America new leadership."

Obama all but conceded the state the day before the election. His dramatic loss to Clinton in West Virginia is likely to revive lingering doubts about his lack of appeal for white, working class voters and his electability in November.

Clinton campaign chairman Terry McAuliffe told NPR that the New York senator would "absolutely" continue to campaign through the final primaries on June 3.

"We're winning this," McAuliffe said. "We will be ahead in the popular vote by the end of it. We will be very close on delegates. ... And then the superdelegates will have to make up their minds."

Delegate Math Favors Obama

But increasingly, the superdelegates are moving into the Obama camp. He gained 30 in just the past week, negating any advantage Clinton might have had from the 16 or more pledged delegates she won in West Virginia.

So while the drubbing in West Virginia may be embarrassing for Obama, he still leads Clinton by any tangible measurement: pledged delegates, superdelegates and the popular vote, and there just aren't enough contests left for her to catch up.

And while Obama is setting new fundraising records, Clinton's campaign debt is estimated to be more than $20 million and rising.

In a conference call Tuesday, Roy Romer, a superdelegate and former chair of the Democratic Party, announced his support for Obama, saying, "This race, I believe, is over." It's up to Clinton, he said, to decide when to drop out.

Obama Looks to General Election

Obama is increasingly focusing on the general election and courting the white, blue-collar voters who have tended to favor Clinton. He visited the swing state of Missouri on Tuesday, holding a town hall meeting on the economy at a clothing factory in Cape Girardeau. There he went after the presumptive Republican nominee, Arizona Sen. John McCain, saying, "A vote for John McCain is a vote for George Bush's third term."

On Wednesday, Obama campaigns in Michigan. He'll stop by a Chrysler plant and hold another economic town hall. A rally in Republican-dominated Grand Rapids is planned for the evening.

Over the next week, Obama also plans to visit politically neglected Florida and Michigan, which were stripped of their delegates to the Democratic National Convention after they broke party rules by moving their primaries up to January. Both will be important swing states in November.

Clinton has no campaign appearances for Wednesday. Thursday she campaigns in South Dakota which, along with Montana, closes out the primary season with a vote on June 3.

The Demographic Story

West Virginia's voters are typical of those that have been drawn to Clinton from the beginning. The state is 96 percent white. Only Florida has a higher percentage of seniors. A mere 16 percent of West Virginians hold a college degree, the lowest percentage in the nation, and 25 percent lack a high school diploma. West Virginia also ranks near the bottom nationally in median household income.

According to Associated Press exit polls, about 60 percent of voters picked the economy as the most important issue. Clinton voters were more likely than those who supported Obama to say the economy had significantly hurt their families. Seventy percent of Clinton voters supported her proposal for a summer gas tax holiday. Obama has called the idea a gimmick. Only about a fifth of voters picked the war in Iraq as their top issue.

About half of West Virginia voters told pollsters that they believe Obama shares the views of his controversial former pastor, the Rev. Jeremiah Wright, either "a lot" or "somewhat," though Obama has repudiated Wright's inflammatory statements. And about one fifth of Clinton's supporters said race was a factor in their vote, a higher percentage than in most of the states that have voted so far. About 60 percent of whites who said race didn't matter also voted for Clinton.

The Associated Press contributed to this report.

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