July 14, 2013

Koch Brothers’ Influence Spans Nonprofits, Government, and Business

David Koch’s photo by Anthony Behar/Sipa USA/Newscom

David and Charles Koch.
  • Where is the line between millions of dollars in charitable contributions given to nonprofit public-policy groups by a wealthy family’s foundations, and millions of dollars spent annually by its privately owned corporation to influence issues in Washington and the states?
  • What if the private foundation’s charitable contributions to politically active nonprofit organizations sometimes appear to be allied with the legislative and regulatory interests of that corporation?
  • How often and how aggressively does the IRS enforce the law that says private foundations making charitable gifts in the United States cannot “be organized or operated for the benefit of private interests”?

Those were among the intriguing policy questions that emerged from a two-year investigation by over 20 reporters and researchers at the Investigative Reporting Workshop, in Washington.

We examined how over the past nearly two decades, Koch Industries, principally owned by the conservative billionaires Charles and David Koch, has developed what may be the largest and most extensive public policy, political, and educational presence in the nation today.

The unusually aggressive political activities first attracted notice nationally during the 1995-96 federal elections. A probe by the Senate Committee on Governmental Affairs a year later found that the Koch brothers and their corporation had used companies and nonprofits to disguise millions of dollars in political-campaign advertising and other election activities in over two dozen states, including five where the corporation had oil-refining and other operations.

But perhaps more eyebrow-raising was what they were up to in Washington in 1996.

Koch Foundations had given $19-million from 1988 to 1993 to the libertarian Cato Institute and Citizens for a Sound Economy, and a board member of the latter organization helped draft a little-noticed passage inserted into the “regulatory reform” bill of Robert Dole, then the Senate majority leader and a GOP presidential candidate.

If passed, it 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 despite Senator Dole’s best efforts: After all, the Koch brothers and their company had given him campaign contributions of $465,000 over the years and had made philanthropic contributions to a nonprofit Mr. Dole created, called the Better America Foundation. And 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.”

That was then. Today, the extensive Koch network of organizations that influence public policy appears to be unprecedented in size, scope, and budget. And the relationship among these for-profit and nonprofit entities often mutually reinforces the direct financial and political interests of the behemoth corporation—broadly characterized as deregulation, limited government, and free markets.

We studied the nonprofits’ mission statements for the words that were most frequently used and also compiled a comprehensive list of Koch foundation donations from IRS 990-PF forms for the years 2007 through 2011, as well as a detailed description of our methodology. We also made an effort to talk with Charles and David Koch, among others involved in their companies, but they declined to comment. Koch Industries and the Koch brothers cumulatively paid $134-million from 2007 to 2011 to support colleges and other nonprofits that sometimes promote its public-policy goals, in addition to spending on lobbying and political contributions. Of that total, $41.2-million was given by Koch private foundations 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 from 2007 through 2012. In addition, through 2011, the Kochs gave $30.5-million to 221 universities through their charitable foundations, roughly $16-million of that going to George Mason University and its foundation. And Koch private foundations also contributed $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 multinational corporation’s federal and state policy agendas, the nonprofit policy groups it supported were simultaneously “educating” the public and lawmakers about energy, the environment, and other issues in public testimony on Capitol Hill.

In 2011 and 2012, for instance, 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 could regulate greenhouse gases.

The bill was introduced by Rep. Fred Upton, Republican of Michigan, and co-sponsored by 92 Republicans (and three Democrats), two-thirds of whom (all Republicans) also signed a “No Climate Tax Pledge.”

Around the same time, an economist at the American Council for Capital Formation—a nonprofit group that received $300,000 in 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.”

There were similar confluences of interest, with nonprofits that receive Koch money and Koch’s commercial lobbyists saying similar things about the same pending legislation on Capitol Hill—such as in 2007-8 on the proposed America’s Climate Security Act. In 2011 and 2012, Koch Industries and the Heritage Foundation (which received $1.8-million from the Koch brothers from 2007 to 2011) “educated” lawmakers and their staff members about the proposed New Alternative Transportation to Give Americans Solutions Act legislation.

Cumulatively, from 2007 to 2011, Koch-supported nonprofits testified at least 49 times before committees or subcommittees of the U.S. Senate and House of Representatives, according to lobbying-disclosure information compiled by the Center for Responsive Politics and testimony available from Congressional Quarterly/Roll Call.

What most got our attention, though, was the apparent cumulative impact of such efforts.

In 2011, the House of Representatives voted to slash the budget of the Environmental Protection Agency by 27 percent, one of the biggest cuts since President Richard Nixon and 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 of them Tea Party members—signed a little-known “pledge” promoted by the Koch brothers promising not to spend any federal money to fight climate change without an equal amount in tax cuts.

Most of the pledge signers received campaign contributions from Charles or David Koch or Koch Industries.

Although foundations cannot by law “be organized or operated for the benefit of private interests,” federal enforcement is infrequent and mysterious.

For example, even if the IRS actually decides to investigate a private foundation or its grantees, initial communications between the government and the organization in question are private—no formal notice is available in any public record.

There is no public evidence of any pending IRS actions or probe of the Koch-financed foundations, but there are formal, separate pending complaints by the advocacy organization Common Cause and another group, Clergy Voice, against the American Legislative Council, a controversial nonprofit organization that received $525,858 from the Koch foundations from 2007 through 2011.

Both groups allege that the council functions mostly to aid its corporate members and therefore violates its charity status, which the council denies.

Meanwhile, against the backdrop of the current IRS scandal and the additional scrutiny of IRS tax-enforcement efforts, it now appears that the Koch brothers are moving to create more tax-exempt groups.

A few months ago, Koch strategists reportedly set up two new 501(c)(6) organizations to further bolster and help underwrite their national network.

According to NPR, now more of the Koch brothers’ considerable largess will be directed to support two groups. One is a “business league” called the Association for American Innovation (it does not yet appear to have a Web site), which will push business-friendly legislation in the states. The other is a social-welfare nonprofit group called American Commitment.

Ultimately, the scandal-ridden IRS, notoriously underfinanced and operating under antiquated 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 Washington tax lawyer, “Congress has drafted the rules that the IRS must abide by ... and that allows a pretty wide array of activities.”

And the chances of easily influenced members of Congress alienating their financial sponsors and of the addled IRS overcoming its inertia and tightening and actually enforcing federal rules regulating the activities of nonprofits are remote.

Charles Lewis, founder of the Center for Public Integrity and other organizations, is a professor and executive editor of the Investigative Reporting Workshop at American University.