With the Democratic primary just three weeks away, Gray is trying to convince voters in the nation's capital that he didn't do anything wrong during his campaign in 2010 and that he is still the best choice to lead the city.
On Monday, his previous campaign's benefactor, Jeffrey Thompson, who asked Gray to refer to him as "Uncle Earl," pleaded guilty to two conspiracy charges. Prosecutors alleged in court documents detailing Thompson's activities that Gray knew about the off-the-books campaign, but the mayor has not been charged with any crime.
Gray's opponents called him corrupt and pledged to restore integrity to the office. Barbara Wells, the wife of D.C. Councilmember and mayoral candidate Tommy Wells, mocked the mayor in an email to supporters, with "Uncle Earl" as the subject line.
"I've spent most of this mayoral campaign waiting for federal prosecutor Ron Machen to blow this race apart," Barbara Wells wrote, adding that the details in Thompson's plea agreement "did not disappoint."
Thompson admitted to setting up a $668,000 slush fund to aid Gray's 2010 campaign when Gray defeated then-Mayor Adrian Fenty by 10 percentage points.
The district's Democratic primary is April 1, and early voting begins next Monday.
The mayor used his State of the District speech Tuesday night to reiterate his claim of innocence, receiving a partial standing ovation from a crowd of a few hundred supporters in a middle school auditorium as he told them, "I didn't break the law."
Gray asked residents to look at his "clean and unblemished" record of public service, saying it doesn't make sense that he'd turn on that record.
"So I ask you, who do you believe?" the mayor said to cheers and applause. "A greedy man attempting to save himself, or me, a public servant, who has dedicated my entire career and my entire life to giving back to our communities in the District of Columbia?"
In an interview earlier Tuesday, Gray told The Associated Press that Thompson—an influential businessman and government contractor—lied to investigators, possibly to get a reduced sentence. Prosecutors have agreed to seek a six-month prison term for Thompson provided that he continues to cooperate.
"I can only speculate, but I know that for all of the things that were listed in that document," Gray said, "six months is pretty light."
Machen, the U.S. attorney for the district, said the charges against Thompson were "the tip of the iceberg."
Gray's supporters, and even some of his detractors, say he's done a good job as mayor, pointing to the city's robust finances, swelling population and booming real estate market. But the allegations led some voters to reconsider their support.
"I voted for him the last time. But now I have to rethink that," said Muhammad Jallow, 44, who works in security. "If what they said about Gray is true, then he's no better than Fenty."
Gray campaigned in 2010 on a pledge to restore integrity to the mayor's office, criticizing Fenty for, among other things, giving city contracts to his fraternity brothers.
Gray spent Tuesday in his office, defending himself in a series of interviews and working on revisions to the State of the District speech.
While he initially characterized Thompson's allegations as "all lies," the mayor clarified that he was only referring to allegations that he knew about or participated in illegal activity. It's true that Thompson asked Gray to refer to him as "Uncle Earl," the mayor said. And it's true that Thompson didn't want his support for Gray to be made public.
"I said, 'If that's what you want, fine,'" Gray said, adding he did not think it was an unusual request. "He was fearful of retribution from the Fenty administration. They had already been after him."
Political observers said the revelations have damaged Gray, but they're not writing him off. Two polls taken before the latest allegations showed him leading his seven challengers, albeit with no more than 28 percent support. However, the divided field could help Gray in the winner-take-all primary.
"There will be some voters who will lose trust in the mayor, who will be disappointed," Democratic political consultant Donna Brazile said. "But many of these allegations have been known. I don't see it impacting him completely."
In addition to Wells, Gray's challengers include D.C. councilmembers Muriel Bowser, Jack Evans and Vincent Orange; restaurateur Andy Shallal, and former State Department official Reta Lewis. Bowser, who was endorsed by The Washington Post, said the Thompson plea deal "detailed the worst kind of corruption: trading illegal, under-the-table campaign cash for political contracts and favors for the mayor's family and friends."
And while general elections historically haven't been competitive in the overwhelmingly Democratic city, a credible challenger awaits this year. David Catania, an independent, at-large councilmember will formally announce his bid later this week.
Catania can be expected to court the new residents who have fueled an economic boom in the district—as well as the city's 75,000 independents. But longtime voters in the city can be forgiving of homegrown politicians, most notably Marion Barry, who was elected to a fourth term in 1994 after serving a prison sentence for smoking crack cocaine.
"I think his base will stay with him, and, I think, will even be energized by this," said Mark Plotkin, a political analyst and contributor to BBC News. And if Gray gets through the primary, Plotkin said, "this is still a Democratic town, and it's very difficult, especially for African-Americans, to abandon a Democratic candidate."
Follow Ben Nuckols on Twitter at https://twitter.com/APBenNuckols.