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GREENSBORO — Kay Hagan's re-entry into the U.S. Senate race sets up a showdown between the Democratic Party's moderate, business-oriented wing and liberal activists, who at least early on seem to favor Chapel Hill investment banker Jim Neal.

Both candidates have ties to Greensboro.

Hagan, 54, won a Greensboro-based state Senate seat in 1998 by ousting Republican John Blust, the incumbent. She has risen to the influential post of appropriation committee co-chairwoman, helping to craft the state's $21 billion budget.

She said this month that she would not run for the U.S. Senate seat held by Republican Elizabeth Dole. On Tuesday, Hagan said she changed her mind in part because she was angered by a recent decision in Washington not to expand a popular children's health insurance program.

Neal, 50, was born in Greensboro and grew up in the city through his early teens. However, he moved out of state after attending UNC-Chapel Hill and returned in 2006.

Fellow Democrats interviewed Tuesday said they expected a primary fight to help whoever emerges as the winner.

"It will help vault the Democratic nominee up to Elizabeth Dole's stage," said Brad Crone, a Democratic campaign consultant based in Raleigh who is working for neither candidate. A primary campaign, he said, would "toughen" the nominee and give them at least one statewide win going into the fall 2008 campaign.

Dole, 71, is running for re-election after the end of her first term as a U.S. senator. Democrats see her as vulnerable because she has closely tied herself to President Bush's position on the war in Iraq, which is increasingly unpopular in North Carolina. They also point to poll numbers that put her job approval rating under 50 percent and a less-than-successful tenure as head of the National Republican Senatorial Committee in 2006, when the GOP lost control of both houses of Congress.

Despite that, some national pundits, such as the National Journal's Charlie Cook, rate the race as likely to go to the Republican.

One reason those forecasts tilt toward the GOP is because until recently there haven't been any candidates ready to take on Dole.

Democrats have tried to recruit higher-profile figures such as Gov. Mike Easley and Congressman Brad Miller, to no avail.

Hagan and Neal are in a second tier of candidates, viewed as qualified but not as well-known.

Regardless, the North Carolina race is likely to attract national attention, both because of Dole's stature and because it will be an opportunity for Senate Democrats to expand their 51-49 majority. Of the 34 Senate seats up for election in 2008, 22 are held by Republicans.

A number of those Republicans seats are vulnerable because of retirements and other factors. Although it is a long shot, national Democrats would hope to build a Senate majority that could override presidential vetos or at least break procedural logjams that have stalled legislation this year.

Hagan and Neal will work on building name recognition, something a primary will help accomplish. Hagan and Neal said their campaigns would focus on running against Dole, rather than any other Democrat.

John Ross Hendrix, a Cary resident, has also filed the necessary paperwork to run for the Senate as a Democrat. He is a recent convert from the Republican Party and lost a 2006 congressional primary to Vernon Robinson, who went on to lose to Brad Miller in the general election.

Most political observers do not expect Hendrix will have much of an impact on the primary campaign.

"Hagan is going to be able to tap into the money network because she's got friends in high places," Crone said.

Most notably, Hagan is a close ally of Sen. Marc Basnight, the Democratic leader in the state Senate and a prolific fundraiser.

She also landed an endorsement from former Gov. Jim Hunt, a still-popular figure within the Democratic party. Hagan was Hunt's campaign manager for Guilford County in 1993 and was an ally of the governor during his last years in office.

Although such endorsements are not automatic paths to victory — Hunt endorsed Lt. Gov. Dennis Wicker over eventual winner Gov. Mike Easley in the 2000 gubernatorial campaign — it's a sign that party insiders are lining up behind Hagan.

Although none would be quoted for attribution, several Democrats said privately Tuesday that they expected the Democratic Senatorial Campaign Committee, a national political organization run by sitting senators, to openly back Hagan.

A spokeswoman for the committee did not return multiple phone calls Tuesday.

As for the state Democratic Party, Chairman Jerry Meek says the party will stay out of the campaign.

Hagan also is well-known and liked among business leaders who support the party, recently receiving an endorsement in a presumed state Senate campaign from N.C. FREE, a business-oriented political watchdog.

"I would imagine that Neal is going to have a strong
base with your liberal Democrats," Crone said, echoing an expectation from others in the party.

Although he has been a fundraiser for Democratic candidates, such as 2002 and 2004 Democratic Senate candidate Erskine Bowles, Neal has been an unknown to many party insiders and has never held public office.

As Neal was scheduling initial interviews with newspapers and other media outlets, he confirmed he was gay during an online discussion at BlueNC.com.

Hagan's re-entry into the race, after saying this month she would not run, prompted speculation there that party leaders feared an out candidate could not win a statewide election in North Carolina.

"That had absolutely no bearing on Kay Hagan's decision," Hagan said Tuesday.

As of late afternoon Tuesday, Neal had not offered his thoughts.

Still, Neal's biggest disadvantage will be that he's not as well-known to those with their hands on the traditional levers of power and campaign funding in the state.

Asked about the campaign today, Easley praised Hagan as "a real champion" for health care, education and economic development.

"She's as strong a candidate as you'll see running anywhere in the country," Easley said.

Asked about Neal, Easley said: "I don't know him. I don't know anything about him."

Contact Mark Binker at (919) 832-5549 or mbinker@news-record.com