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How the Kochs launched Joni Ernst

2015-11-19

Joni Ernst was surprised to receive an invitation in the summer of 2013 that she later credited with starting her meteoric rise to the U.S. Senate.Ernst was then a little-known Iowa state senator and lieutenant colonel in the National Guard who was considering a long-shot campaign for the GOP nomination for U.S. Senate. <a href=”http://www.quinnipiac.edu/images/polling/ia/ia07222013.pdf” target=”_blank”>Polls showed</a> more than 90 percent of her state’s voters had no opinion of her. At least a half-dozen other Republicans ― some with better funding and connections and stronger establishment support ― also were positioning themselves to run against the presumptive Democratic nominee, Rep. Bruce Braley.But Ernst was being watched closely by allies of the billionaire brothers Charles and David Koch, who saw in her an advocate for their brand of free-market, libertarian-infused conservatism. Operatives affiliated with the Kochs’ political network invited Ernst to the network’s <a href=”http://www.politico.com/story/2013/08/eric-cantor-paul-ryan-koch-brothers-095294″ target=”_blank”>August 2013 gathering</a> of wealthy conservative donors at a posh resort in Albuquerque’s Santa Ana Pueblo.Ernst later told POLITICO she had no idea "how my name came through those channels." But her appearance at the event impressed donors and was followed by an infusion of support that helped Ernst win the GOP nomination and, eventually, a Senate seat. It also represented a new phase in the rapid expansion of the Koch-backed political network ― its willingness to become involved in primary fights among GOP candidates — potentially putting it on a collision course with the official Republican Party.Until now, little has been known about the secretive role played by the Kochs’ donors and operatives in boosting Ernst. The Koch network has focused primarily on policy fights, mostly leaving the spadework of recruiting and nurturing candidates to the party. But the network’s financial support for Ernst ― detailed here for the first time ― offers the first signs of a move into GOP primaries. The Kochs and their allies are investing in a pipeline to identify, cultivate and finance business-oriented candidates from the local school board all the way to the White House, and Koch operatives are already looking for opportunities to challenge GOP incumbents deemed insufficiently hard-line in their opposition to government spending and corporate subsidies. The ambitious effort, spearheaded partly by a for-profit consulting firm called Aegis Strategic that’s backed by the Koch network, is one of several ways in which the brothers and their allies are seeking to influence the types of candidates who carry the GOP banner. The network has taken on a vetting role in the GOP presidential primary, offering favored candidates <a href=”http://www.politico.com/story/2015/07/koch-brothers-wealthy-donors-gop-2016-freedom-partners-seminar-california-120663″ target=”_blank”>access to its donors</a> and activists. And some within the network have even advocated targeting from six to 12 GOP House members who have run afoul of the Koch orthodoxy on fiscal issues and who are facing 2016 primary challenges, sources told POLITICO.Tim Phillips, president of the most aggressive Koch-backed group, Americans for Prosperity, declined to comment on whether his group had any plans to spend money in GOP primaries. “We have not taken any options off the table. That’s the best way to put it,” he said. “We have not precluded the possibility of it. We’re looking at every option.”In the Ernst race, the Koch support included hundreds of thousands of dollars’ worth of television ads funded by undisclosed donors and tens of thousands of dollars in direct campaign contributions. The spending would have been difficult to trace back to the Koch network during Ernst’s campaign, but details are expected to emerge this week when the central Koch nonprofit, Freedom Partners Chamber of Commerce, files its tax disclosures. To date, the Koch network’s election-season spending has almost exclusively benefited Republicans. It has overwhelmingly targeted Democrats ― a trend that’s likely to continue in the run-up to 2016, when the network is planning to spend as much as <a href=”http://www.politico.com/story/2015/01/koch-2016-spending-goal-114604″ target=”_blank”>$889 million</a>. But the GOP establishment has been nervously watching the Kochs’ evolution from wonky libertarian think tank funders to political kingmakers, which comes as money and power are <a href=”http://www.politico.com/story/2011/10/the-partys-over-067046″ target=”_blank”>migrating away from the Republican Party</a>. There is a widespread, if mostly unspoken, concern that the brothers’ network is gradually encroaching on some of the party’s core functions, like candidate recruitment, voter registration and data.“What they’ve been able to do in terms of technology, in terms of creating infrastructure for the use of that technology is impressive and important. But it should also be concerning to the party,” said Michael Steele, who was chairman of the Republican National Committee during the 2010 midterm election, when the Koch network first began publicly flexing its political muscles. “This is the new universe that the current and the future chairmen of the party have to live with. And if they don’t find a way to adapt to it, there won’t be much for future chairmen to deal with in two cycles.”Former Mississippi Gov. Haley Barbour, who chaired the RNC when party committees were dominant forces in American politics, said "it would be very counterproductive" if the Kochs were to take on the Republican Party. "But I don’t see that as the case," he said. "One thing that I’m pleased of is, as far as I can tell, they don’t use their money to try to defeat Republicans in Republican primaries,” he said. But that’s precisely the type of direct challenge to the GOP being planned by Aegis Strategic, which was <a href=”http://images.politico.com/global/2014/01/22/aegis_delawareincorporation_061013.html” target=”_blank”>established in 2013</a> with the Kochs’ blessing after an analysis concluded that their network’s efforts in the run-up to the 2012 election suffered from <a href=”http://www.politico.com/blogs/burns-haberman/2012/11/rape-comments-bring-down-mourdock-akin-148730″ target=”_blank”>flawed GOP candidates</a>. Aegis, which is owned by a former Koch operative named Jeff Crank and staffed by fellow Koch network veterans, has an ongoing consulting contract with Freedom Partners and also has worked with other Koch-backed groups, network sources tell POLITICO.While the Kochs and their allies bristle at the suggestion that the network is a reliable part of the Republican establishment, they mostly try to project harmony with the organized GOP. “We’re not in competition with the RNC, we’re focused on advancing a free society and policies that help people improve their lives,” said Marc Short, president of Freedom Partners Chamber of Commerce, the nonprofit group that oversees the network. But those close to the network say the Kochs view their mission as transforming American politics from a present dominated by stifling over-regulation to a future of free-market prosperity ― and that means changing the Republican Party, which they believe has been guilty too often of growing government. To achieve that goal, the Kochs have increasingly concluded, it’s not enough to merely fund free enterprise research. Instead, they’re building a muscular political machine capable of electing the right politicians and ensuring they implement the right policies.A POLITICO investigation found they’re well on their way to achieving that goal.Growing Trees of LibertyAbout seven months after Ernst won over Koch allies during her appearance in Albuquerque ― with the candidate struggling to raise money and still <a href=”http://www.quinnipiac.edu/images/polling/ia/ia03132014_azrp47q.pdf” target=”_blank”>barely registering in polls</a> ― the Koch network sent in the cavalry, albeit stealthily. A low-profile operative named Karl Crow, who’d worked for years in the Koch network, created a nonprofit group called Trees of Liberty. Within weeks, the group launched an advertising blitz that included a $257,000 statewide <a href=”https://youtu.be/qQ_ztDvjijI” target=”_blank”>television ad buy</a> and a complementary Web campaign attacking Ernst’s most competitive GOP rival, Mark Jacobs, a retired energy executive. The ads swiped at Jacobs for supporting a proposal to limit carbon emissions years earlier. The measure was bitterly opposed by the Koch public policy network, as well as the brothers’ multinational industrial conglomerate, Koch Industries, which would have been adversely affected by the proposal.Little has been known about where Trees of Liberty got its cash or how it spent it. That’s because the group, like many in the Koch network, was created under a section of the tax code ― 501(c) ― that allows groups to shield donor identities and requires the disclosure of only limited information about spending to the Internal Revenue Service many months after an election in which the spending occurred. But sources tell POLITICO that Trees of Liberty got its cash from Freedom Partners Chamber of Commerce. That grant likely will be revealed in Freedom Partners 2014 tax form, due to be filed with the IRS in coming days ― more than 1½ years after Trees aired ads in the Iowa Senate primary. According to a source who reviewed Trees of Liberty’s 2014 tax documents, they show that it spent $347,000 ― about 80 percent of all the cash it brought in ― on “advertising,” all of which went through i360, a data analytics and ad buying company owned by Freedom Partners.Trees of Liberty carefully tailored its ad campaign to avoid triggering rules that would have required more financial disclosure during the campaign. It pulled down the television ads just before the calendar reached the one-month election countdown. Had the ad aired within that month, Trees of Liberty would have been required to report its spending ― but not its donors ― to the Federal Election Commission.Groups registered under section 501(c)4 are required to spend the majority of their money on “social welfare” purposes. And according to the source who reviewed Trees of Liberty’s 2014 tax filing, Trees of Liberty indicated that the group did not “engage in direct or indirect political campaign activities on behalf of or in opposition to candidates for public office.” It listed a mission statement that would fit the IRS’s social welfare definition — "to advance the principles of limited government, fiscal solvency and economic freedom by educating the public." From a lay perspective ― as opposed to a legal one ― Trees of Liberty’s anti-Jacobs ads certainly looked like political campaign activity. And some of the <a href=”http://www.politico.com/f/?id=00000150-abb4-dc97-a15d-abf56a210000″ target=”_blank”>contracts for advertising buys</a> placed by the group with local television stations seem to acknowledge as much, indicating that the anti-Jacobs ads dealt with a “political matter of national importance.” Nonetheless, partisan finger-pointing has <a href=”http://www.politico.com/story/2014/05/irs-rewrite-nonprofit-rules-amid-criticism-107015″ target=”_blank”>stymied efforts</a> by the IRS and the FEC to more rigorously police groups like Trees of Liberty ― or to update <a href=”http://www.politico.com/story/2012/10/the-irss-feeble-grip-on-big-political-cash-082387″ target=”_blank”>outdated rules</a> governing so-called 501(c) groups ― even as those groups have spent ever-larger sums of cash in recent election cycles.Around the same time that Trees of Liberty launched its ad campaign hitting Jacobs, Freedom Partners began a $1 million-plus ad campaign attacking Braley, the Democrat waiting to take on the winner of the GOP primary. Ernst ran a savvy campaign, including <a href=”http://www.politico.com/story/2014/03/joni-ernst-iowa-government-spending-105005″ target=”_blank”>ads that won plaudits</a> as among the cycle’s <a href=”http://www.nydailynews.com/news/politics/2014-midterm-elections-7-wackiest-political-ads-year-campaign-season-article-1.1985024″ target=”_blank”>most notable</a>, but she saw the boost from the Koch network as crucial. She cruised to a lopsided primary victory in the June 2014 primary and headed into the general election in strong position against Braley. Two weeks after her primary victory, she paid another visit to the Koch network, thanking its donors for their help during a closed-door speech at the network’s summer 2014 summit at the St. Regis in Dana Point, Calif.“The first time I was introduced to this group was a year ago, August, in New Mexico, and I was not known at that time,” she told donors, according to a <a href=”http://ladylibertine.net/2014/08/26/u-s-senate-candidates-speak-at-koch-donor-summit/” target=”_blank”>secret recording</a> obtained by a liberal blogger. “The exposure to this group and to this network and the opportunity to meet so many of you — that really started my trajectory,” she said during a panel of GOP Senate candidates.Fellow GOP Senate candidates Tom Cotton of Arkansas and Cory Gardner of Colorado also sat on the panel, which was moderated by Crank, the veteran Koch operative who owns Aegis Strategic. He praised each candidate, and asked them to discuss how “third party groups in this network” were making “a big difference” in the campaign.The three left Dana Point with a boost. Each <a href=”http://docquery.fec.gov/pdf/388/14978077388/14978077388.pdf” target=”_blank”>collected about $60,000</a> or more from a little-noticed fundraising committee, Victory Trust 2014, that hosted a reception to raise money from network donors for <a href=”http://politico.com/f/?id=00000150-9675-d18a-a7d2-bef74e1b0000″ target=”_blank”>candidates favored</a> by the network, according to documents reviewed by POLITICO. They show that the <a href=”http://politico.com/f/?id=00000150-960f-d2a4-aff0-de2f66850000″ target=”_blank”>committee and the reception</a> were organized by Aegis Strategic, which employs Crow and shares an address with Trees of Liberty. Asked this month about the support Ernst received from the Koch network, her spokeswoman pointed out that Ernst had "broad support from Iowans across the state," and noted that a <a href=”http://www.politico.com/story/2014/08/tom-steyer-ads-election-2014-110056″ target=”_blank”>billionaire-backed liberal group</a> spent heavily to try to defeat her. “Regardless of the fact that millions were spent against her, Iowans overwhelming sided with Sen. Ernst and her message of cutting government spending, ensuring veterans have the care they deserve and putting Iowans first,” Ernst spokeswoman Brook Hougesen told POLITICO.Testing the primary watersThe quiet Koch synergy behind Ernst only hints at the network’s ability to sway primary elections. The network has made known its intentions to spend as much as $889 million in the run-up to the 2016 elections. Charles Koch recently reduced the estimate to $750 million, a downgrade that was seen by some in the network as an effort to manage expectations. They say the network is still on pace to raise $889 million.Some network groups― including Freedom Partners, Americans for Prosperity, Concerned Veterans for America and the LIBRE Initiative ― have sought to influence the debate in GOP primaries by inviting select candidates to forums. They’ve <a href=”http://www.politico.com/story/2015/07/koch-brothers-wealthy-donors-gop-2016-freedom-partners-seminar-california-120663″ target=”_blank”>hosted several presidential aspirants</a> favored by the Kochs ― such as Jeb Bush, Ted Cruz, Rand Paul and Marco Rubio ― but have <a href=”http://www.politico.com/story/2015/07/kochs-freeze-out-trump-120752″ target=”_blank”>conspicuously excluded</a> others deemed big government Republicans, such as Donald Trump and Lindsey Graham.In their drive for political influence, most of the Koch-backed groups have been reluctant to wade fully into GOP primaries. That’s due to their preference for policy over politics, the groups’ tax status as social welfare groups and the divided loyalties of the network’s donors, who have been known to favor competing primary candidates. And Charles Koch on Wednesday said he had "<a href=”http://www.usatoday.com/story/news/politics/elections/2015/11/11/charles-koch-no-backing-candidate-republican-primary/75576772/” target=”_blank”>no plans</a>" to support any of the GOP presidential candidates during the primaries ― the latest sign that he’s not particularly enamored with any of the contenders.But Aegis Strategic was created with the Koch network’s blessing partly to cultivate candidates who share the Kochs’ commitment to free-market conservatism, and could be in line for the network’s support in GOP primaries.It’s helping a New Hampshire state legislator named Pam Tucker explore a potential primary challenge against embattled Republican Rep. Frank Guinta if he runs for reelection in his swing congressional district. During a September trip to Washington to prepare for her race, Tucker received assistance from Aegis in setting up meetings with a number of different groups, including the Mercatus Center, a Koch-funded libertarian think tank at George Mason University. If Tucker decides to run, Aegis Strategic said, it hopes to sign her as a client. Tucker told POLITICO she had been put in touch with the firm “through mutual acquaintances," but hadn’t decided whether to contract with it and would not base her decision on its connections to the Koch network.Crank said his firm is seeking more candidates to take on big government Republicans.“I can’t stress enough — we do look for opportunities and we relish opportunities to find unprincipled incumbents who aren’t adhering to free market principles who could be challenged and who we could replace with a better vote,” said Crank. “We’re not going to run in there like wild-eyed crazies and charge up the hill without guns. We’re going to pick opportunities that are wise ― candidates who are both principled and electable. It’s all going to be well thought-out,” said Crank.“Oftentimes, there are party entities that go in and they try to find the most electable — or the candidate who can write the biggest check — and they really don’t care sometimes about principle,” said Crank. While Aegis Strategic doesn’t have a formal legal relationship with the Koch network, its consulting contract with Freedom Partners provides much of its revenue, sources familiar with the arrangement say. The ActBlue of the Koch networkIt’s not clear whether Aegis Strategic or other arms of the Koch network will continue the practice of setting up secretive 501(c)4 groups like Trees of Liberty to knock down rivals of favored candidates. Aegis officials were involved in another 501(c)4 group called Citizens for a Sound Government that supported Republicans in <a href=”https://www.washingtonpost.com/politics/groups-funded-by-secret-donors-buffeted-two-dozen-house-races-in-2014/2014/11/28/ad0dd774-7584-11e4-bd1b-03009bd3e984_story.html” target=”_blank”>2014 congressional elections</a> and this year waded into Kentucky’s GOP primary for governor, <a href=”http://mycn2.com/politics/bluegrass-action-fund-drops-anti-bevin-ad-focusing-on-mit-claims-and-bailouts-bevin-denies-he-ever-listed-mit-graduation-on-linkedin-page” target=”_blank”>funding ads backing</a> a business-friendly candidate who ultimately lost to tea party-backed Gov.-elect Matt Bevin.Aegis also is exploring other models. In June, it quietly <a href=”http://docquery.fec.gov/pdf/716/15971211716/15971211716.pdf” target=”_blank”>created a political action committee</a> called Aegis PAC to help raise money for candidates it judges to be solid on fiscal conservative issues. Crank envisions it as a potential counterweight to ActBlue, the liberal fundraising juggernaut that has helped raise $840 million for liberal candidates since 2004. The PAC is currently raising money for about 10 handpicked candidates and prospects ― including several that Aegis is seeking to represent, such as Tucker. Aegis PAC’s website calls her “a leading voice for liberty in the New Hampshire House of Representatives since she was first elected in 2008.” While it’s barely started operations, Aegis PAC in the third quarter steered $13,200 to one of its endorsed candidates, Indiana state Sen. Jim Banks, accounting for nearly one-tenth of his haul in that period. Aegis PAC’s website predicts he would be “an advocate for freedom in the U.S. House,” though it also notes he “will have a competitive primary.”And, while Banks said he’s talked with Aegis Strategic about hiring them to work on the race, he stressed that the firm’s connections to the Koch network were “not a consideration of why we would consider working with them.”Crank, though, acknowledged that some candidates seek out his firm “thinking ‘if I can do this, it means that the Koch network is going to come in and help,’” In fact, he said, Aegis tries to “undersell” its Koch connections. “If there’s that expectation and a client comes in, and that doesn’t happen, then that’s a liability to us, because they came in with an expectation that ‘oh, wow, money is going to rain from the heavens.’"Yet, Aegis ― which has only seven employees and a relatively shallow track record and portfolio ― is attracting interest disproportionate to a firm of its size and experience precisely because of its Koch connections.As Charles Koch was secretly recorded explaining to donors in 2014, “most of the many, many years and decades I’ve been involved in this struggle, I thought ‘principled politician’ was an oxymoron. And I still think that’s largely the case. But we see a few now and then, and when I think about it, that’s what we’re about: to find and get elected some politicians with principles.” While RNC chairman Reince Priebus has expressed misgivings about the growth of the Koch network to donors, according to sources familiar with those conversations, RNC Communications Director Sean Spicer last week rejected the idea of any tension between the Kochs and the party.But Steele, the former RNC chairman, said the committee would be well advised to make peace with the Kochs and try to find ways to work together within their legal confines and philosophical differences. He pointed out that there are certain roles that legally only a party can play, including coordinated spending with campaigns, but he said the Koch network and other deep-pocketed outside groups have found legal ways to do most of the other things that were once the party’s sole province.Ultimately, Steele said, the growth of the Koch network raises questions about “the relevance of the parties. And a lot of people answer by saying they’re not relevant anymore, which is why you’re seeing a lot of this activity outside of them. These organizations have the ability to raise unlimited money that the parties can’t. And at the end of the day, the party can’t compete with that.”Theodoric Meyer contributed to this report. 

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