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Where does all that campaign money go?

One way to think of the $26 million Sen. Hillary Clinton's campaign raised  in the first three  months of 2007 is as insurance against any mishap that might strike next winter when the presidential contest begins with the Iowa caucuses.
Hillary Clinton, Christie Vilsack, Debbie Batey
Sen. Hillary Rodham Clinton, left, talks to Debbie Batey, right, as Christie Vilsack, wife of former Iowa Gov. Tom Vilsack, center, listens during a breakfast Tuesday at the Vilsacks' home in Mount Pleasant, Iowa.Steve Pope / AP
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FedEx shipments, staff salaries, flights from Washington, D.C., to Des Moines to Las Vegas and back again — it all adds up.

A presidential campaign is a peculiar, short-lived kind of start-up business, and like other firms it has overhead: the costs of being in business.

The $26 million that Sen. Hillary Clinton’s campaign raised in the first three months of the year isn’t guaranteed to win her the 2008 Democratic presidential nomination, but it will pay for lots of FedEx deliveries.

Sen. Barack Obama, D-Ill., revealed Wednesday that his campaign raised $25 million in the first quarter of 2007; former vice presidential candidate John Edwards raised $14 million.

As a general rule, 75 percent of a campaign’s outlays will ultimately go to paid communication: direct mail, radio, television and Internet ads, said Craig Smith, the campaign manager for Sen. Joe Lieberman’s presidential effort in 2003-2004.

Right now, though, some of Clinton’s $26 million is likely headed to a vault somewhere. One way to think of that $26 million is as insurance against any mishap that might strike her campaign next winter when the contest begins with the Iowa caucuses.

Smith said, “You want to save it; you want to put as much money in the bank for later. One of the rules of politics is to raise it fast and spend it slow.”

(Smith’s firm is doing work for the Clinton campaign but he is not personally involved in her campaign.)

Lessons of Kerry's ordeal
Sen. John Kerry’s ordeal in 2003 is a reminder of how vital a cash reserve is.  At this point four years ago, Kerry was the Democratic front-runner, as measured by total money raised.

“The second you stumble, your money stops,” said Joe Trippi, the campaign manager for Howard Dean in 2003-2004. “I don’t care who you are. You can be Kerry, who was ahead last time at this point. He suddenly (in the autumn of 2003) looks like he can’t win and his campaign’s not working; he fires (campaign manager) Jim Jordan, etc., and all his money is gone and he has to write himself a $6.4 million check to keep going. But then he suddenly wins Iowa (on Jan. 19, 2004) and everything is back to hunky-dory.”

When the contenders file their first-quarter reports with the Federal Election Commission on April 15, you’ll see exactly how much each has been laying out for salaries, phones and the rest.

These reports aren’t light reading: The first-quarter 2003 FEC filing for Kerry’s campaign ran to 2,429 pages. Yet there are revealing nuggets in there. Like many other employers, the Kerry campaign had the burden of health insurance: In the first quarter of 2003, the campaign paid nearly $30,000 to CareFirst Blue Cross/Blue Shield for coverage for its staff.

“They’re spending some on staff and travel,” Smith said of the current contenders. “It costs money to raise money. The candidates are raising money at a furious clip; that’s a lot of flying people around and setting up events. They’re also putting staff in the key states.”

Clinton’s rivals will be scrutinizing how much she is spending on overhead, just as her staff will be eyeing her rivals’ FEC data.

“The rumor is the Clinton campaign has spent $10 million already; their overhead for the year could end up being $40 million,” said Steve Murphy, campaign manager for Dick Gephardt in 2004 who is now a consultant to New Mexico Gov. Bill Richardson’s campaign. “Noah had two of everything; they have 10 of everything.”

Diminishing returns
In some areas, more money can’t help. “At some point you hit diminishing returns,” said Trippi. “You couldn’t spend $20 million in Iowa and have it do much more than what you’d be able to do with $10 million.” Two field organizers in one county in Iowa with only 1,000 registered voters “would not do you any good,” he said.

“You can have all the field organizers you want. If your message isn’t working, you’re still going to take on water," Trippi said. "The Dean campaign was a good example. We had a lot of organization in Iowa, probably a bigger organization than anybody has ever seen in that state. We were taking on big water. It wouldn’t have mattered if we had doubled the size of our field staff, we wouldn’t have won Iowa.”

The big difference this year is that California, New Jersey and perhaps other big states such as Pennsylvania are moving their primaries to Feb. 5 — right after the opening contests in Iowa, Nevada and New Hampshire.

“Moving the ‘big state’ primaries up to February will clearly mean that each campaign will need more available resources to compete,” said Republican consultant Scott Howell. “Advertising in those states is extremely expensive, so targeting will play a key role. Even the most well funded candidates will not be able to compete in every market in all those early primary states.”

California's effect
“A huge percentage of the people in California vote early,” Smith said. “The ballots get mailed out 20 days beforehand. Therefore, while you’re fighting it out in Iowa and New Hampshire, you better be on television in California because of the people who get early ballots; a huge percentage of them vote as soon as they get the ballot and turn it back in the same day. Before you even know what’s going to happen in Iowa and New Hampshire, you’ve got to go up on television in California, which is not an inexpensive place to be on television.”

A 30-second TV ad on the 6 p.m. local news in an Iowa media market such as Waterloo will cost between $400 and $1,200. But to run the same ad on the local news in Los Angeles will cost about $4,000, according to campaign consultants and TV ad directors.

Among Kerry’s $1.9 million in spending for the first quarter of ‘03 was $22,572 in salary for Iowa field director John Norris, who proved to be well worth it in the end.

Once Kerry won the Iowa caucuses, his momentum carried him to victory on the night of Jan. 27, when he won the New Hampshire primary. His rivals never really threatened his lead after that.

Trippi said 2008 will be different. “This isn’t anymore about Iowa and New Hampshire and Nevada.” At this point Clinton, Obama and Edwards probably have enough money to compete in those three states, he said.

“What they’re really doing is building up the pool of funds so that if you’re Hillary Clinton and Obama beats you in Iowa, you can still keep going. If Hillary wins Iowa and New Hampshire, Obama has enough money to keep the fight going the whole way.”

“Enough” means between $50 million and $100 million for each candidate, Trippi said.