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Clinton’s Debt Reveals Flaws in Campaign Finance Laws

The latest FEC filings reveal that Hillary Clinton’s campaign owed more than $25 million in debt as of June 30. The problem is not quite as bad as that initial price tag would suggest, as about $13 million of the $25 million in debt is owed to Clinton herself. Under federal finance law, Clinton will not be able to recoup more than $250,000 of that money once the convention occurs and her campaign is officially terminated.

Nevertheless, the other half of the debt — about $12 million — takes the form of accounts payable owed to individual vendors. A substantial amount of that ($5.3 million) is owed to Mark Penn’s consulting firm, and another million-plus to other pollsters and consultants. But there are also more mundane sorts of expenses. Approximately $2.0 million is owed to event-staging companies such as caterers, equipment rental firms and lighting companies. Another $1.2 million is owed to printers, and $0.5 million to phone banking companies. Almost all of the companies in these categories are small businesses. The Clinton campaign also has about half a million dollars in unpaid phone bills owed to AT&T and Verizon, and $230,000 in uncompensated travel expenses to campaign staff.

Clinton’s obligations for paying off her debt are a little murky. In theory, all of her vendors — yes, even Mark Penn — are required to make a good-faith effort to collect their debts because otherwise this might constitute an illegal campaign contribution. Consider the following, for instance: Verizon allows the Clinton campaign to accumulate $300,000 in cellphone expenses, but lets the campaign know that it’s not going to worry about the bills being paid. This is tantamount to Verizon donating $300,000 directly to the campaign, which is illegal under campaign finance law.

In practice, however, as The Politico’s Ken Vogel reports, “Firms that do a lot of work for campaigns understand that complaining to the press or suing over lingering bills are big no-nos sure to get them blacklisted”.

The debt can be transfered to future campaign committees of that candidate (in fact, my understanding is that it must be transfered if the candidate runs for office again). Thus, the Hillary for Senate 2012 Committee may start off substantially in the hole. That might seem fair enough, but here too there is a problem. If someone who had already contributed $2,300 to Clinton’s primary election fund also contributes $2,300 to Hillary for Senate 2012 to help pay down her primary debt, what they’ve really done is to donate $4,600 to underwrite her primary campaign, violating the individual contribution limit.

The problem is made far worse if Clinton transfers funds from her general election fund — which is substantially solvent — to her next Senate committee, as she is reportedly considering doing. The vast bulk of funds in that pool were raised from high-value donors who had already maxed out their $2,300 limit in the primaries.

In the absence of adequate mechanisms for the repayment of debt without violating other core precepts of campaign finance law, the remedy would seem to be pretty simple: campaigns out not be allowed to accumulate such debts in the first place. A rule, for instance, that a campaign may not accrue obligations in excess of 120 percent of its current cash-on-hand less accounts payable might do the trick. And there need to be real teeth in the rules too: a candidate who commits a major violation of campaign finance law ought to be barred from running for public office for some probationary period thereafter.

EDIT: ‘Accounts payable’ had been incorrectly referred to as ‘accounts receivable’.

Nate Silver founded and was the editor in chief of FiveThirtyEight.