Monday, July 1st, 2013
Koch Industries, one of the largest privately held corporations in the world and principally owned by billionaires Charles and David Koch, has developed what may be the best funded, multifaceted, public policy, political and educational presence in the nation today.
From direct political influence and robust lobbying to nonprofit policy research and advocacy, and even increasingly in academia and the broader public “marketplace of ideas,” this extensive, cross-sector Koch club or network appears to be unprecedented in size, scope and funding. And the relationship between these for-profit and nonprofit entities is often mutually reinforcing to the direct financial and political interests of the behemoth corporation — broadly characterized as deregulation, limited government and free markets.
The cumulative cost to Koch Industries and Charles and David Koch for this extraordinary alchemy of political and lobbying influence, nonprofit public policy underwriting and educational institutional support was $134 million over a recent five-year period. The global conglomerate has 60,000 employees and annual revenue of $115 billion and estimated pretax profit margins of 10 percent, according to Forbes.
An analysis by the Investigative Reporting Workshop found that from 2007 through 2011, Koch private foundations gave $41.2 million to 89 nonprofit organizations and an annual libertarian conference. Koch Industries and Charles and David Koch contributed $8.7 million to candidates and the Republican Party in the three election cycles between 2007 through 2012. In addition, Koch private foundations contributed $30.5 million to 221 U.S. colleges and universities and $46.3 million to the arts and other more traditionally charitable purposes during this period.
And while Koch Industries’ lobbyists were spending $53.9 million to further the giant corporation’s federal and state policy agenda, the nonprofits it funded were simultaneously “educating” the public and lawmakers about energy, the environment and other issues in public testimony on Capitol Hill.
For example, in 2011 and 2012, Koch Industries Public Sector LLC, the lobbying arm of Koch Industries, advocated for the Energy Tax Prevention Act, which would have rolled back the Supreme Court’s ruling that the Environmental Protection Agency (EPA) could regulate greenhouse gases. The bill was sponsored by Rep. Fred Upton, R-Mich., and co-signed by 92 Republicans (and three Democrats), 61 of whom signed an anti-climate tax “pledge.” An economist with the American Council for Capital Formation — a nonprofit group that receives Koch money — testified about that same bill before the House Energy and Commerce Committee. Margo Thorning told members of the House in February 2011 that regulation of greenhouse gas emissions “makes little economic or environmental sense,” according to her testimony.
There were similar confluences of interest, with Koch foundation-funded, tax-exempt nonprofits and Koch’s commercial lobbyists saying similar things about the same pending legislation on Capitol Hill — such as in 2007-2008 on the proposed America’s Climate Security Act. In 2011 and 2012, Koch Industries and one of its supported nonprofits, the Heritage Foundation, “educated” lawmakers and their staff in their respective ways regarding the proposed New Alternatives Transportation to Give Americans Solutions Act legislation.
Altogether, since 2007, Koch nonprofit organizations testified before U.S. Senate and House of Representatives committees or subcommittees at least 49 times, according to lobbying disclosure information compiled by the Center for Responsive Politics and testimony available from Congressional Quarterly/Roll Call.
Private foundations cannot by law “be organized or operated for the benefit of private interests,” and they are required by law to disclose their charitable contributions to the Internal Revenue Service. But enforcement of potential violations is generally regarded to be sporadic and somewhat mysterious. For example, even if the IRS actually decides to investigate a private foundation or tax-exempt organization grantees, initial communications between the government and the organization in question are private — no formal notice is available in any public record.
The Workshop did not find evidence of any pending publicly disclosed inquiry or action by the IRS against any of the five Koch-funded foundations.
Lawyer Gregory L. Colvin of Adler & Colvin in San Francisco, who has represented conservative and liberal IRS tax-exempt nonprofit organizations for 35 years, told Congress in April and the Workshop more broadly last week, “The tax rules are vague, unpredictable, and unevenly applied. Only the most flagrant violations could be knowing, willful, or deliberate and subject to criminal prosecution.” The scandal-ridden IRS, notoriously underfunded and operating under antiquated, decades-old laws and regulations, has another debilitating limitation. According to Marcus Owens, the former director of the Exempt Organizations Division of the IRS and now a tax lawyer in private practice at Caplin & Drysdale in Washington, “Congress has drafted the rules that the IRS must abide by [and the precise extent to which nonprofit, tax-exempt organizations can operate politically or legislatively or in the regulatory context of whether activities are for public or private benefit], and that allows a pretty wide array of activities.”
And against the backdrop of the current IRS scandal and the additional scrutiny of IRS tax enforcement, it now appears that the Koch brothers are moving toward even less transparency, beyond giving millions of dollars to such controversial “dark money” organizations as Donors Trust (whose secret money efforts have been exposed in the past year in detail by the Center for Public Integrity and other news outlets).
A few months ago, Koch strategists reportedly set up two new, even more secretive, 501(c)6 money-funneling organizations to further bolster and help underwrite their national network, mimicking the opaque approach of the U.S. Chamber of Commerce. According to NPR, now more of the Koch’s considerable largesse will be directed to support a “business league” that will push business-friendly legislation in the states, the Association for American Innovation (which does not yet appear to have a website), and a public “messaging niche” social welfare nonprofit group called American Commitment.
Charles Koch, David Koch and Koch Industries Executive Vice President Richard Fink declined to be interviewed for this report. In an email response to our request for these interviews, Melissa Cohlmia, director of corporate communication for Koch Industries Public Sector, LLC, wrote, “Your attempts to silence us and others with whom you disagree are troubling to all Americans who cherish free speech and the First Amendment. You have a right to engage in advocacy journalism and we respect that right. However, we choose to engage with journalists who are balanced, truthful, and fair-minded. We therefore decline your request for interviews.”
We contacted officials at some of the nonprofits receiving the most Koch foundation funding during this five-year period — the George Mason University Foundation ($16.3 million); the Institute for Humane Studies ($10.3 million) and the Mercatus Center ($3.7 million), both of which are affiliated with George Mason University; Americans for Prosperity Foundation ($3.6 million); Donors Trust ($3.3 million); and the Charles Koch Institute ($2.8 million).
Their sentiments were similar to those expressed by the chief financial officer of the pro-business, libertarian Institute for Humane Studies, Gary Leff, who told the Workshop, “We’re not a political organization. … We have no position on current legislation. We don’t do lobbying of any kind. Our work complies with our status as a 501(c)3. It would be illegal for us to get involved in politics of any kind.” When asked why the institute doesn’t disclose its donors on its website, he said, “I’m surprised you ask that. Nobody really ever asks us that. It is standard practice not to disclose donors on the Web. We have plaques in our office recognizing our contributors.” Others echoed similar sentiments, also stressing the politically innocuous nature of their respective enterprises.
Few of the 89 nonprofit organizations to which Koch private foundations gave contributions from 2007 through 2011 disclose the sources of their funding on their websites; we obtained the identities of which organizations received these contributions from Koch foundation annual IRS 990 forms. (To access the IRS 990 annual reports for 2007-2011, for both the funding foundations and the recipient nonprofit organizations, go here.)
From 2007 through 2011, the five major Koch-funded, private foundations contributed a reported total of $117.9 million. The breakdown by foundation and amount:
• Charles G. Koch Charitable Foundation, $52.7 million
• David H. Koch Charitable Foundation, $41.3 million (includes a non-public, policy-related donation to the Lincoln Center of $35 million)
• Claude R. Lambe Charitable Foundation, $12.7 million
• Fred C. and Mary R. Koch Foundation, $8 million
• Knowledge and Progress Fund, $3.3 million (all of which was given to Donors Trust, which distributes undisclosed “dark money” throughout the country).
The first time Koch Industries appeared on the national political radar was during the 1996 elections. The following year the Senate Governmental Affairs Committee investigated alleged campaign finance abuses by both political parties, including the political campaign activities of Koch Industries apparently involving both for-profit companies and nonprofit organizations in key congressional races across the country.
What is striking today is the extent to which the corporation has since grown and also exponentially increased its campaign and public policy-related activities nationwide. (For more about the extent of Koch Industries’ activities and the first evident use of third-party “cutout” organizations to elude transparency and disclosure in the 1996 elections, see our related story.)
The Koch Chorus, Singing in Concert
Besides the extraordinary net worth and substantial philanthropy overall of Koch Industries’ principal owners, billionaire brothers Charles and David Koch, what is it about them that makes them unusual and controversial? After all, there are millions of companies and, according to Forbes magazine, more than 1,400 billionaires in the world. The two brothers are sixth in worldwide wealth and tied for fourth among the wealthiest Americans, according to Forbes.
According to the company’s website, Koch businesses extend from refining, chemicals and biofuels, to forest and consumer products, fertilizers, polymers and fibers, commodity trading and investment services, minerals and ranching.
Some of its various far-flung enterprises have repeatedly violated environmental and other laws in the U.S. and around the world, and they have been fined hundreds of millions of dollars, documented most extensively by Bloomberg Markets Magazine (by Asjylyn Loder and David Evans and 14 other reporters around the world, “Koch Brothers Flout Law Getting Richer With Secret Iran Sales,” Oct. 3, 2011).
For years, Charles and David Koch have aggressively exercised their constitutional rights, participating in politics through their checkbook by helping to bankroll libertarian and conservative political organizations. Most recently they have helped to underwrite the tea party political movement, as well as support a large number of Republican candidates in national and state politics. Initially more hidden, the Koch brothers have increasingly emerged into the public spotlight, especially since publication of an extensively reported article in The New Yorker about “the billionaire brothers who are waging a war against Obama” (by staff writer Jane Mayer, “Covert Operations,” Aug. 30, 2010, and in subsequent articles).
Such discreet electoral mischief and even political maneuvering through others by the Kochs was first noticed two decades ago in Congress and elsewhere in Washington (by various news organizations, including the Center for Public Integrity in “The Buying of the President,” Avon Books/1996, pages 127-130, and since). For example, Koch Foundations contributed $19 million between 1988 and 1993 to the libertarian Cato Institute and Citizens for a Sound Economy, and with the help of a board officer of the latter organization, helped write and insert a passage in then-Senate Majority Leader Robert Dole’s regulatory reform bill. That bill would have essentially nullified a pending $54 million civil lawsuit against Koch Industries brought by the U.S. Justice Department, U.S. Customs and the Environmental Protection Agency for the company’s 300 oil spills in six states. The bill died. In 2000, Koch Industries agreed to pay a $30 million fine to the U.S. government and the state of Texas for “illegally discharged crude oil and petroleum products.”
In 1992, David Koch told National Journal that he viewed himself as an “opportunist," saying, “My overall concept is to minimize the role of government and to maximize the role of the private economy and to maximize personal freedoms. … By supporting all of these [nonprofit] organizations I am trying to support different approaches to achieve those objectives. It’s almost like an investor investing in a whole variety of companies.”
The “No Climate Tax Pledge”
Fast forward to 2011.
The House of Representatives voted to slash the EPA budget by 27 percent, one of the biggest cuts since President Richard Nixon and the Congress created the agency in 1970. The Senate subsequently modified the severity of these cuts, and the budget was ultimately cut by nearly 16 percent. What is less known is that more than 100 House members — all Republicans, many tea party members — signed a little-known “pledge” (similar to the Grover Norquist no tax increase pledge) backed by the Koch brothers promising to not spend any federal money to fight climate change without an equal amount of tax cuts.
Most of the pledge signers received campaign contributions from Charles or David Koch or Koch Industries. The Workshop has tracked the signing of the pledge by 411 current state and federal politicians nationwide (all Republicans except four Democrats and two Independents at the state level). Among them are such prominent state officials as Gov. Scott Walker of Wisconsin and Attorney General Ken Cuccinelli II, the Republican nominee for governor in Virginia.
The first person to sign the Koch-backed pledge was Republican Sen. Pat Roberts of Kansas, where Koch Industries is headquartered. Of the 85 conservative Republicans first elected to the House of Representatives in 2010, 76 signed the pledge and, of those, 57 received money from Koch Industries’ political action committee. The members of Congress who signed the pledge have also introduced several bills aimed at limiting EPA regulation of greenhouse gas emissions and limiting regulation of the nation’s biggest polluters. (For more about the “No Climate Tax Pledge,” see our related story.
Influencing the News Media
In recent months, The New York Times and other news organizations have reported that Charles and David Koch are taking an interest in possibly buying the Tribune Media Company, which owns several major newspapers, including the Los Angeles Times, Chicago Tribune, Baltimore Sun, Orlando Sentinel and Hartford Courant.
The billionaires’ interest in journalism began in 2009 with the creation of the Franklin Center for Government and Public Integrity. In 2011, according to the Columbia Journalism Review, 95 percent of the center’s income came from Donors Trust, bankrolled first and foremost by the Koch-funded foundations ($3.3 million since 2008, according to IRS records). The Franklin Center has created a project called Watchdog.org, which bills itself as “a collection of independent journalists covering state-specific and local government activity.” They are based in the same office in Alexandria, Va. With 40 bureaus or “partner” organizations in 40 states, Franklin Center and Watchdog.org told CJR that they “conform to the Society of Professional Journalists standards, follow AP style and are not partisan or political.” Others, including CJR, disagree, noting that they “occasionally blur reporting and opinion and go beyond the facts of [their] findings.”
The Investigative Reporting Workshop tracked Charles and David Koch’s influence in elections by looking at the totality of their activity. The Kochs personally give money to candidates and campaigns. This is and has been a transparent process. Charles and David Koch and their wives have personally given $1.36 million to candidates since the 2006 election cycle, according to data provided by the Center for Responsive Politics. All but $200 went to Republicans. Employees of Koch Industries and its subsidiaries also give money to candidates and campaigns. Since 2006, those employees have contributed more than $2 million to candidates and campaigns, with the vast majority, all but $47,054, going to Republicans, according to data from the Center for Responsive Politics.
The Kochs also have a political action committee that can give a maximum of $5,000 to a candidate per campaign. That means that, typically, KochPAC can give $10,000 to a candidate during an election cycle: $5,000 during the primary campaign and $5,000 during the general election campaign. In 2010, their political action committee gave more than $1.3 million to 213 prospective senators and representatives, with most of that money, again, going to Republicans.
The Kochs also influence elections through their libertarian grass-roots organizing organization, Americans for Prosperity. Outside groups such as Americans for Prosperity have overtaken traditional means of spending, such as through the two parties’ committees. In the 2012 election cycle, outside groups spent approximately $1 billion, according to the Sunlight Foundation. The Republican National Committee wrote of the new political landscape, “The result is an illogical system where candidates and their parties no longer have the loudest voices in campaigns or even the ability to determine the issues debated in campaigns. Outside groups now play an expanded role affecting federal races and, in some ways, overshadow state parties in primary and general elections.”
In 2012, Americans for Prosperity ranked fifth among those outside groups, spending more than $36 million, according to the Center for Responsive Politics. Most of that money was spent on ads opposing President Barack Obama. The only other large ad buys made by Americans for Prosperity in the 2012 election cycle were $1.5 million to oppose Tammy Baldwin, the Wisconsin Democratic Senate candidate (she won anyway) and $142,000 to oppose Bob Kerrey, the former Democratic U.S. senator and governor who was running for the Senate from Nebraska (he lost).
When asked about the Americans for Prosperity television ads that ran on the airwaves in his race, Kerrey said, “They trashed the living shit out of me. … They turned [the public’s thinking] around.” When Kerrey entered the race, he said his approval ratings were around 58 percent favorable and 32 percent unfavorable, and when it was all over and he had lost, his approval ratings had dropped precipitously and the negatives had risen. “It was quite impressive, quite powerful. … They bought their way into political success.”
In addition to buying political advertisements, Americans for Prosperity succeeds because it has volunteers on the ground talking directly to voters. As the Republican National Committee explained in its post-mortem of the 2012 election, “Democrats had the clear edge on new media and ground game, in terms of both reach and effectiveness. Obama’s campaign knocked on twice as many doors as the Romney campaign, and Obama’s campaign had a ballot edge among those contacted by both campaigns.” By targeting key sets of voters and talking with them face to face, they were more likely to vote for that party. Americans for Prosperity’s organizational role is to talk to those volunteers and train them to effectively talk to voters.
Think tanks in Washington, D.C., and in state capitals across the country primarily serve three major functions: First, they write policy papers that analyze topics. Second, they suggest remedies in the form of new legislation to solve identified problems. These policy papers can be quoted by politicians to support their arguments and help set the “parameters of discourse,” as veteran journalist and author Bill Greider once described it, the intellectual groundwork preliminary to the later legislative maneuverings, bill draftsmanship and hearing process. The third major function of think tanks is that their experts regularly testify before Congress and can spend up to 20 percent of their time lobbying. They also make media appearances on television and radio news programs, especially on the 24-hour cable news networks, to make their ideas known to a wider audience and win over voters and lawmakers to their point of view.
The Investigative Reporting Workshop compiled a database of more than 4,000 entries to track the commonalities among people who work in the Koch ecosystem. We saw people move across multiple organizations that the Kochs donate to and discovered the same people serving on many of the boards of directors. For instance, Nicole Kurokawa Neily began as a Koch Summer Fellow, worked for the Cato Institute and FreedomWorks, wrote papers for Americans for Prosperity’s Illinois chapter and eventually became executive director of the Independent Women’s Forum. Until 2008, the forum was run by Nancy Pfotenhauer, a former lobbyist for Koch Industries.
In addition to funding the think tanks that curate libertarian ideas and policies, the Kochs influence Congress in a more traditional way by employing lobbyists to sculpt bills to their advantage. The Kochs lobby Congress on mostly environmental or energy issues through a variety of avenues. They lobby Congress through Koch Industries, but most of their lobbying activity goes through its government and public affairs arm, Koch Companies Public Sector LLC. Koch Companies Public Sector alone employed 26 lobbyists from seven firms who lobbied on more than 70 specific bills in the House and Senate in 2012. They employed 32 lobbyists in 2011, according to lobbying disclosure records. Koch Companies Public Sector spent nearly $19 million lobbying Congress in 2011 and 2012.
The only other lobbying records came from companies that are now subsidiaries to Koch Industries. Flint Hills Resources, which stopped lobbying in 2009, spent $3.3 million that year. Georgia-Pacific and INVISTA each stopped lobbying separately from Koch Industries in 2008.
Influencing the next generation
The Kochs have been involved in influencing higher education for more than 30 years, beginning with what is now called the Mercatus Center and the Institute for Humane Studies, both based at George Mason University in the Virginia suburbs of Washington. Between 2007 and 2011, the Kochs gave $30.5 million to 221 universities through their charitable foundations. More than half of that giving, roughly $16 million, has gone to George Mason University and its foundation. Recently, however, the Koch brothers’ influence has expanded outside Northern Virginia and created potential conflicts of interest for the universities accepting their donations.
The May-June 2012 issue of Academe, the magazine of the American Association of University Professors, focused on corporate influence in higher education. Kent Miller and Ray Bellamy wrote about the Koch influence in the Florida State University economics department. The Charles G. Koch Foundation offered to give the university $1.5 million to hire two assistant professors and fund fellowships and undergraduate curriculum on free-enterprise topics. The foundation appointed an advisory board that would award money to faculty and make sure that the work they completed fit with the foundation’s mission. Miller and Bellamy wrote, “In exchange for his ‘gift,’ the donor got to assign specific readings, select speakers brought to campus and instruct them with regard to the focus of their lectures, shape the curriculum with new courses and specify the number of students in the courses, name the program’s director, and initiate a student club.”
It’s not just at Florida State, which was a high-profile case, but also at other universities where the Kochs and John Allison, retired chairman and CEO of the financial institution BB&T, have donated money. Allison is on the board of directors at the Mercatus Center, which is funded by the Kochs, and following an intense fight in which the Kochs backed him, is now the president of the Cato Institute. BB&T sponsors chaired professors, typically in economics departments, and the universities where they sponsor a chaired professor often line up with where the Kochs donate.
An Investigative Reporting Workshop analysis found that the Kochs had donated to 10 universities where there were BB&T-chaired professors, including West Virginia University, Clemson University and smaller universities, such as Hampden-Sydney College and Barton College. According to Inside Higher Ed in 2011, Clemson “spent several years cultivating the Charles G. Koch Foundation to support its Clemson Institute for the Study of Capitalism, and has received $1 million thus far.”
At the core of the Kochs’ philosophy are the works of Ayn Rand, the objectivist philosopher and author of “The Fountainhead” and “Atlas Shrugged” (Rand’s writings are also emblematic of the readings recommended to students by the Institute for Humane Studies at George Mason University). The new course that the Charles G. Koch Foundation wanted approved at Florida State was called “Market Ethics: The Vices, Virtues, and Values of Capitalism,” featuring the work of Rand as required by the memorandum of understanding. Through their charitable foundations, the Kochs gave $100,000 to the Ayn Rand Institute from 2009 to 2011.
And in the interest of full disclosure, in the course of this investigation, we discovered that American University, where the Investigative Reporting Workshop is based (within the School of Communication), received $17,500 in two separate grants from the Charles G. Koch Foundation. The university’s Office of Special Programs (OSP) reports that both grants are for a program called “Lectures in Classical Liberalism,” which is under the direction of Tom Merrill and Alan Levine. Both professors are in the School of Public Affairs.
OSP said the following language describes the program that the grants supported:
“We seek to build on and expand the program of lectures in classical liberalism funded by the Koch Foundation to date. At least two of these lectures would be designated “Koch Lectures on Classical Liberalism”; all of the funded lectures, however, will discuss some aspect of classical liberalism whether in its theoretical and historical roots or in its contemporary applications. This series of lectures is primarily designed to encourage our students to have a sustained engagement with the ideas of classical liberalism, and secondarily at presenting an opportunity for classical liberal ideas to be heard in the larger university community and the D.C. policy conversation. To that end, we also require our speakers to meet and take questions from our students in an informal session separate from the public lecture, either in one of our classes or in a breakfast or lunch session during the speaker’s campus visit.”
This version of the story corrects the name of the person interviewed at The Institute for Humane Studies.
Photo of David Koch at top left, by Gary Gershoff, Wire Image/Getty; photo of Charles Koch by Bo Rader, Wichita Eagle/MCT