Sons of Wichita: How the Koch Brothers Became America's Most Powerful and Private Dynasty (34 page)

To fund the Mother of All Wars, the Kochs and their advisors settled on a staggering budget of nearly $400 million. Arizona’s John McCain had not even raised that amount during his entire presidential campaign in 2008. The Vail conference alone netted more than $70 million’ worth of pledges. And Charles had vowed to his fellow donors to maximize the impact of their contributions. “I’ve pledged to all of you who’ve stepped forward and are partnering with us that we are absolutely going to do our utmost to invest this money wisely and get the best possible payoff for you in the future of the country,” he said.

Disenchanted with traditional Republican Party organs, members of the Kochs’ donor network had placed their faith in the Koch brothers. This was politics 2.0, a decentralization of party power caused by the gradual weakening of campaign finance laws and the rise of super-PACs and “dark money” nonprofits that allowed individuals and corporations to influence the political system as never before.

Characterizing donor sentiment, Charles’s friend Nestor Weigand, a regular attendee of the conferences, said: “What it amounts to is I’m not putting my money in a hole again. I have more confidence in this than I do in the Republican Senatorial Trust Committee” and similar GOP institutions.

“They bring real credibility,” said DuHaime, the Christie strategist and a former political director of the Republican National Committee. “I think other donors view them as smart donors. If the Kochs are behind something, then it has credibility. ‘We should get behind it too.’ ”

“They’re active, they’re engaged, they’re smart,” he continued. “It’s not just about television ads and things like that. They understand the evolution of data mining and all the different aspects that go into a long-term political operation. I’m hugely impressed with them.”

The Kochs commanded a sophisticated operation that had evolved over the years into a kind of shadow party, occupying its own center of gravity within the GOP universe. They controlled an extensive fund-raising network with the ability to drum up as much cash as the Republican National Committee itself. Through Americans for Prosperity, they had ground operations in all the competitive electoral states and a readymade corps of volunteers for get-out-the-vote efforts—what David called “a citizen’s army.” A web of other political and advocacy outfits, meanwhile, were under varying degrees of Koch control. The brothers had even spearheaded an effort to build a comprehensive database for voter microtargeting—an area where President Obama’s data-obsessed 2008 campaign had seriously outgunned the Republicans. Former Koch Industries executives ran the hush-hush operation, dubbed Themis after the Greek goddess of justice and divine order. It was a conscious effort to emulate the Democrats’ Catalist, a clearinghouse for voter data that was cofounded by former Bill Clinton aide Harold Ickes.

Observers of the Kochs’ political rise, from libertarian dilettantes to conservative powerbrokers, marvel at their ascent. “They were just gadflies; they had no political power,” the consultant who worked for Citizens for a Sound Economy in the 1990s said.
“It is amazing to me how they’ve morphed and gone from spending money, hoping to have influence, to a point where they’re perceived to have influence. It took them… years to get to that point.”

Even prominent Democrats can’t help admiring what the Koch brothers have achieved. “The Kochs—with the team of strategists and organizational leaders they’ve financed—have done something that no other Americans have ever accomplished,” said Rob Stein, founder of the Democracy Alliance (the Democratic equivalent of the network controlled by the Kochs). “They began by building a distinct, durable wing—libertarianism—of a major political party that over the course of 35 years has become a dominant political force within Republicanism, and therefore within the country.

“They have accomplished this with deliberate strategic forethought, money, and superb organizing skills,” he continued. “They have been opportunistic. They have seeded and built idea and people networks that control the politics of over thirty states and the U.S. House of Representatives. It’s a brilliant, extraordinary accomplishment, and an unprecedented political phenomenon.”

For all its growing influence within the Republican Party, the Koch faction nevertheless occupied a somewhat tenuous place in the GOP. The brothers had their own political agenda, which in some cases clashed with the party line. They often aligned with the Republicans on free-market issues and downsizing government, but they fell on the other side of the political spectrum when it came to the social issues that animated the party’s powerful religious-conservative wing. Nor could Republicans count on the Kochs to fall in step on issues such as immigration, civil liberties, or defense, where they held more liberal views. The brothers and their company also opposed subsidies across the board, a position GOP members didn’t always share. “The Republicans don’t trust us,” said one Koch political operative.

The brothers’ government-spending zealotry also set them apart from the Republican mainstream. During the fight over raising the national debt ceiling that erupted in the summer of 2011, the Kochs’ Americans for Prosperity (and other groups aligned with the insurgent Tea Party) leaned on Republican lawmakers to hold firm in their opposition to raising the debt limit, while more pragmatic GOP organizations, including those associated with strategist Karl Rove, supported efforts by House Speaker John Boehner to broker a debt deal.

Occasionally, the Kochs seemed to work at cross-purposes with presumed allies. Their microtargeting operation, for instance, competed directly with a similar effort underwritten by the Republican National Committee called Data Trust; the brothers’ fund-raisers even canvassed some of the same donors Data Trust was soliciting, diluting the resources available for the party’s official effort. And the Kochs angered Mitt Romney’s campaign by holding one of their donor summits on the very same weekend when the candidate had scheduled a retreat for would-be campaign contributors.

In service of their larger goals, however, Charles and David’s network forged an uneasy alliance with groups across the GOP spectrum, including Rove’s American Crossroads super-PAC and its sister nonprofit, Crossroads GPS. In the lead-up to the midterms and again during the general election, emissaries of the Koch network attended meetings convened by Rove, where representatives of the GOP’s major outside political groups strategized. This informal coalition was known as the Weaver Terrace Group, because Rove first convened these meetings at his Weaver Terrace home in the tony Palisades neighborhood of Northwest Washington DC.

One of the Koch network’s liaisons to this ad hoc coordinating committee was a Phoenix-based political strategist named Sean Noble. A longtime congressional aide to Arizona Representative John Shadegg, Noble had flirted briefly with the idea of running
for his boss’s seat when the Republican lawmaker announced his retirement in 2008. Instead, he followed the path of many Hill alums, opening a political consulting shop, DC London. Randy Kendrick, wife of Arizona Diamondbacks owner, Ken Kendrick, brought Noble into the Koch network.

Before the midterms, Noble, who was hired as a consultant to manage the network’s political spending, established a mysterious nonprofit called the Center to Protect Patient Rights. In documents filed with the Internal Revenue Service seeking tax-exempt status, Noble claimed the purpose of the organization was “building a coalition of like-minded organizations and individuals… to educate the public on issues related to health care with an emphasis on patients’ rights.”

In reality, the group acted as an ATM machine for dozens of conservative advocacy organizations. More than $200 million gushed into the nonprofit between late October 2009 (when Noble filed the paperwork to form it) and the fall of 2012; Noble dispensed this cash just as quickly as it arrived. The nonprofit formed one link in a daisy chain of trusts, LLCs, and nonprofits through which Koch network cash circulated en route to its final destination—one of any number of conservative political groups that included Americans for Prosperity, the Tea Party Patriots, the 60 Plus Association (a kind of right-wing counterpoint to the AARP), and many others. This elaborate system was designed to make it nearly impossible to trace contributions to their source. That’s what Kevin Gentry, Charles and David’s chief fund-raiser, had meant when he assured donors at the Vail meeting, “There is anonymity we can protect.”

The Kochs’ system for routing donor cash was more ingenious still. They created a 501(c)(6) nonprofit—typically used for business leagues and chambers of commerce—whose tax status could technically allow the Kochs and their donors to pour money into the political system and then write it off as a business expense.
Originally headed by an ex-Koch lobbyist named Wayne Gable, this operation routed more than a quarter-billion dollars to Noble’s Center to Protect Patient Rights ($115 million), Americans for Prosperity ($32.3 million), and other groups in the year leading up to the 2012 election alone. The Kochs called their chamber of commerce the Association for American Innovation (it was later renamed Freedom Partners).

The Association for American Innovation was a cheeky moniker for a group bent on defeating the president, borrowing its name from an Obama administration economic policy called the “Strategy for American Innovation.” The Association for American Innovation’s founding documents, filed with the IRS, quoted the president and his strategy at length and suggested the group’s mission centered on advancing key aspects of the president’s policy. “This government policy and strategy is especially important today, when businesses, corporations, and even business innovation itself are under assault in the media and in the streets,” its mission statement read.

What the group didn’t say is that it planned to channel hundreds of millions of dollars into the 2012 elections in a bid to take down Obama and consolidate control of Congress. In fact, the Association for American Innovation told the IRS that it didn’t expect to play in politics at all: “Though it does not presently intend to do so, AAI may, to an
insubstantial
extent, also conduct activities that might be viewed as supporting or opposing candidates for elective office.”

The Koch faction’s money, said the leader of one conservative nonprofit, always came with strings attached. “Nobody really works with them—they work for them, or they don’t work with them at all,” he said. “They are kind of creating a monopoly” and seeking to “make the conservative movement theirs.”

The brothers’ political advisors, including Kevin Gentry and Sean Noble, micromanaged the expenditure of donor funds,
according to Republican operatives who have worked with them. “Sean Noble was down to editing direct mail copy,” said a conservative strategist. Along with designing mailers, Koch operatives supplied political ads and approved messaging to recipients of Koch network cash. “If you want the money, here’s what you’re going to do with it,” was the message from the brothers’ political adjutants, said the leader of the conservative nonprofit. “These are the scripts you’ll use.” A GOP activist, who was employed by a group that received Koch donor cash, called contributions from the Koch network “directed grants.”

Charles and David’s top-down control, a Republican operative pointed out, conflicted with the decentralized, Market-Based Management practices of their company. “I joke with people that Obama, OFA [Obama for America], these guys operate from very much an entrepreneurial approach to politics, to advance more government, more of a state. Then you have these guys on the other side who are claiming they want to see less government, less spending, more diversified control, power, and they come from very much a command and control [perspective] to supposedly advance free-market entrepreneurism. It’s ironic. It’s centralized power to promote decentralized power.”

The brothers closely monitored the groups they bankrolled. David, in particular, was known for asking probing questions of the leaders of these organizations. “You don’t talk broad brush with David,” said Nancy Pfotenhauer, the former Koch lobbyist who is a veteran of both Citizens for a Sound Economy and Americans for Prosperity. “You lose all credibility.”

Americans for Prosperity board member James Miller said David “really raises questions, and if he doesn’t get answers, he keeps boring in.” Miller said the brothers have succeeded in their public policy philanthropy “because they’ve really gone about this in a businesslike manner” and because “they are hardheaded about making sure that the organizations are managed effectively.”

But the brothers’ “managerial approach to the movement,” as Richard Wilcke, who headed the Koch-funded Council for a Competitive Economy, put it, has often caused friction. In the fall of 2011, Charles and David’s effort to assert their authority over one of the cornerstones of their ideological empire ignited a civil war on the Right.

On October 26, 2011, seventy-eight-year-old William Niskanen, a former economic advisor to Ronald Reagan and the chairman emeritus of the Cato Institute, died after suffering a major stroke. His death brought a long-running (and secret) dispute between the Kochs and the leadership of the Cato Institute to an unavoidable head.

At issue was the unusual corporate structure of Cato, which had shareholders, unlike most nonprofits. (Before Charles excommunicated Murray Rothbard from the think tank in 1981, the libertarian economist had been one of them.)

Cato presently had four shareholders, including the Koch brothers and Ed Crane, Cato’s cofounder and president. Niskanen was the fourth—and the question now was what would become of his stock. Would it pass to his widow, Kathryn Washburn, along with the rest of his estate? Or would it be handed back to Cato, leaving the Koch brothers in majority control? Ed Crane and Bob Levy, Cato’s current board chairman, supported the former scenario. The Kochs and their advisors took the position that the shares were nontransferable, meaning the brothers controlled two-thirds of Cato and had the power to appoint the majority of the board.