Published January 21, 2016 by Robert Maguire and Anna Massoglia (OpenSecrets)
In the world of campaign finance, this is becoming a familiar story: A nonprofit group is launched by individuals with political connections; has no physical office, volunteers or employees; and spends much of its money on political consultants, some of whom are linked to the operatives running the group.
Also, it does little or no spending on what might be called social welfare — a requirement of the nonprofit 501(c)(4) tax status it claims. IRS rules require (c)(4) groups, which don’t have to disclose the names of their donors, to keep political work to under 50 percent of their activity.
Oklahomans for a Conservative Future, though, stands apart from most other dark money groups in a couple of ways. The first: its dedication to backing just one candidate, former Oklahoma House Speaker T.W. Shannon, a Republican who made an ultimately failed 2014 bid for a U.S. Senate seat.
OCF told the IRS that it had spent $1.4 million boosting Shannon, but totals reported elsewhere in the group’s annual tax filings show that the sum is likely much higher, possibly even the entirety of the group’s $2.1 million in outlays. At a minimum, OCF’s political support came close to matching the $1.9 million that Shannon’s own campaign spent leading up to his primary.
The other twist? OCF owned up to spending too large a share of its resources on politics — and promised to do better next time around. In effect, it gave the IRS a dark money IOU.
All indications, though, are that the group will be reneging on that commitment.
Candidate-specific super PACs have been around since at least 2012, but dark money groups supporting a single candidate — like the pro-Marco Rubio (R-Fla.) Conservative Solutions Project, which has pumped more than $8 million into ads supporting his White House bid — were brand new in the 2014 midterms. OCF was one of just three that existed that cycle.
Three of Shannon’s closest political allies — Chad Alexander, Xavier Neira and Stephanie Milligan — incorporated the group mere days after Shannon announced his candidacy and just months before the state’s Republican primary.
Alexander was a partner at two political consulting firms, A.H. Strategies and its sister company, Majority Designs; both contracted to run components of the Shannon campaign itself. He had another firm as well, Alexander Companies.
Neira was a vice president of a major building company, Manhattan Construction, and a member of Shannon’s exploratory steering committee for the Senate race. He was helping Shannon bring in cash for his run, too, signing on as one of the “hosts and sponsors” of a March 2014 fundraiser in Oklahoma City. Neira was also chairman of a second, state-level committee that paid most of the money it raised to Alexander’s firms. Alexander Companies received $33,000 from the group in rent and for contract services while Alexander was also running OCF, the pro-Shannon (c)(4), and was a partner at firms under contract to Shannon’s campaign.
And Milligan, who is currently the state director of Trump’s campaign team in Oklahoma, was in on the action, too. She lists herself as having been vice president of Alexander Companies from May 2010 through December 2014.
Overlapping personnel doesn’t necessarily compromise the independence of outside spending groups like OCF, in the eyes of the law. Still, the picture became even more complex when Alexander, who was also a former lobbyist and onetime chair of the Oklahoma Republican Party, was arrested in May 2014 for possession of cocaine and prescription drugs (he later pleaded guilty). The affidavit attached to the search warrant for his cell phones suggests that officials at OCF and A.H. Strategies may have been coordinating with Shannon’s campaign. According to the document, interviews conducted by the district attorney’s office indicated that Alexander operated OCF “at the same time he is or was actively involved with the campaigns of individual candidates being represented by…A.H. Strategies” and its founder and leader, Fount Holland.
Alexander was a consultant at A.H. Strategies for months after the firm began helping run Shannon’s campaign. But Holland told Oklahoma Watch at the time that “there was absolutely and unequivocally no coordination” between OCF and the campaign, which would be prohibited by federal election law.
The affidavit also implicates Neira, saying that some of the witnesses interviewed claimed he and other A.H. Strategies operatives “demanded they donate to both [OCF] and to the candidates being promoted by A.H. Strategies.” Neither Oklahoma nor Department of Justice officials contacted by OpenSecrets Blog would say whether there was an ongoing investigation of either coordination or coerced contributions, and Neira didn’t respond to multiple calls seeking comment.
Shannon isn’t mentioned by name in the affidavit, but he is the only candidate OCF ever supported, and his campaign paid A.H. Strategies and Majority Designs more than $87,000, according to FEC data.
By the time the primary rolled around, OCF had reported to the FEC spending nearly $1.3 million on communications blasting Shannon’s opponent, two-term Rep. James Lankford, and supporting Shannon. Retiring Sen. Tom Coburn (R), whose seat the two GOP candidates were trying to win, bashed the ads, saying they “simply aren’t truthful.”
Ultimately, OCF’s involvement may have hurt Shannon more than it helped him. On June 24, 2014, Lankford bested him with 57 percent of the vote — helped in part by a dark money group of his own, the Foundation for Economic Prosperity. He credited his win, in part, to the negativity of OCF and other pro-Shannon efforts.
Oklahomans for a consultant’s paycheck
Neira said that OCF’s “supporters come from different business interests and industries.” Those supporters, however, were not many.
Tax filings show that nearly 85 percent of the $2.2 million the group brought in came from just three donations, one of which was for $1 million. The remaining 15 gifts ranged from $5,000 to $50,000, including a $30,000 contribution from tobacco giant — and former Alexander lobbying client — Reynolds American.
As for outflow, OCF tax documents show that nearly $1.6 million, more than 73 percent of its overall spending in 2014, was paid to two political media firms, Media Ad Ventures and Majority Strategies; FEC data indicates these were the main firms contracted to produce OCF’s pro-Shannon ads. FEC filings also show at least an additional $83,136 was paid to five firms for things like pro-Shannon web ads and pro-Shannon polling.
None of OCF’s three board members drew a salary there. That’s not to say they didn’t get paid, though. Alexander Companies received $88,000 for “strategic consulting services, while the Kozlow Group — a consulting firm run by Evan Kozlow, who became OCF’s secretary after the original board left — was paid $45,000 for similar work.
Taken together, the known payments to media firms and to companies connected to the group’s board members — as well as $55,812 paid to a fundraising company — make up at least 86 percent of the $2.1 million the group spent in its first year. That number creeps close to 100 percent when coupled with the $250,359 in expenditures it characterized as “legal” and “other.”
Hard to find much social welfare there.
OCF knew the totals would raise eyebrows, so it did something novel. It included what amounts to an IOU to the IRS — a note affirming that it spent enough on “social welfare” in the following fiscal year, 2015 (for which no return is yet available) to balance out the group’s political spending in 2014.
To that end, the group explained that in 2015 it “spent approximately $1,059,432 on issue advocacy and education initiatives consistent with the organization’s primary purpose.”
A look at OCF’s activities since Shannon’s loss, though, casts some doubt on that statement.
Educating the public by hiding from it
Following Alexander’s departure, along with that of the rest of the original board, two former staffers to Rep. Tom Cole (R-Okla.) — himself a former political consultant with deep ties to Alexander — took over OCF, along with Kozlow.
The changeover happened just before Shannon’s defeat. Two months after the primary, OCF rechristened itself Heartland Principles. With the new name, apparently, came an invisibility cloak.
Heartland Principles’ website was registered anonymously in July 2015 and is located in what’s known as the “deep web” — a part of the online world that is hidden from the “surface web” and conventional search engines. Only individuals with prior knowledge of the group’s, and the site’s, existence can access it easily.
What’s worthy of such secrecy? An assortment of short white papers on broad issues like energy and the economy, a policy questionnaire and a polished one-minute video full of platitudes like “The heartland has always taken care of its own.” There’s no mention of who runs the organization, and the group’s only social media presence is a Facebook page with four posts dated Nov. 6, 2015, containing only the group’s logo and a cover photo.
It’s unlikely that maintaining the site or its social media accounts for much to the $1 million Heartland Principles claims to have spent in 2015, which brings us to another twist in the OCF saga: its ad buys on behalf of a small trade association representing the interests of “domestic onshore oil and natural gas exploration and production.”
FCC filings indicate that Heartland Principles has been airing an ad that appears to have been created and produced by the Domestic Energy Producers Alliance as a part of an “education campaign” to get Congress to scrap the longstanding ban on exports of U.S. crude oil. DEPA was running an identical ad starting in August 2015, with airtime purchased by the same media buyer.
The two groups never aired the ad in the same state.
At least one television station believed DEPA to be the true funder of the”Lift the Ban” ad that was supposedly being run by Heartland Principles, inserting the names of board members of DEPA under those of Heartland’s principles.
The web address listed in the ad, LiftTheExportBan.com, redirect to DEPA’s website, which makes no mention of Heartland Principles. In fact, the only mention of the shared sponsorship between the groups exists in slide 41 of a DEPA PowerPoint presentation from August. Any mention of Heartland Principles disappeared from the same slide by December.
So, did a nonprofit formed by Oklahoma political operatives help carry the water of a trade association of independent oil producers — and if so, why?
The answer may be found in a former professional football player and member of Congress. As it happens, Chad Alexander was a longtime aide to former Rep. Julius Caesar “J.C.” Watts, Jr. (R-Okla.) — who is the longtime lobbyist for the DEPA. The two have remained close; when Alexander was given a radio show last year, Watts appeared as a guest twice in the first month.
Watts was also a mentor to candidate Shannon, who had worked for him in Congress. Shannon received Watt’s endorsement in the 2014 GOP primary. Another tie: When Alexander left OCF, Watts’ former campaign manager, John Woods, did a brief stint on OCF’s board, according to FCC filings.
Watts says he doesn’t remember whether he’s responsible for the strange partnership.
“I don’t recall making the connection” between OCF/Heartland Principles and DEPA, he told OpenSecrets Blog in an email. But there’s little question that Heartland helped share the cost of airing the ad nationwide and keeping the pressure on federal lawmakers to end the export prohibition.
In a major coup for US oil producers, the ban was lifted as a part of the omnibus package passed by Congress last December.
One remaining question is whether Heartland Principles’ airings of DEPA’s ads last year will add up to enough social welfare to make up for its political activity on behalf of Shannon in 2014.
Experts think it’s unlikely.
For one thing, in its IOU to the IRS, Heartland Principles counted only the direct costs of its pro-Shannon advocacy as political spending. That implies that everything else — payments to fundraisers, lawyers and companies linked to its board — amounted to expenditures for social welfare purposes. But the group didn’t spearhead major social welfare programs, only vague activities like “promoting conservative principles and policies within the meaning of Internal Revenue Code 501(c)(4)” and “general consulting related to public policy advocacy and initiatives.” And there’s no concrete evidence of even that.
That won’t hold water, according to Lloyd Mayer, a specialist in tax and election law at Notre Dame University’s law school. OCF, like any other not-for-profit organization filing a 990, “has to allocate any overhead expenditures — fundraising, legal, administrative, etc. — between its political and social welfare activities,” Mayer told OpenSecrets Blog.
“The IOU strategy will not work either,” Mayer said. “Tax-exempt status is determined on a year-by-year basis, so if this group’s primary purpose was political in 2014 then it was not tax-exempt under 501(c)(4) in that year even if in 2015 it did qualify under 501(c)(4).”
His view is shared by Marc Owens, a Washington lawyer and former head of the IRS’ exempt organizations division, who calls Heartland’s 2014 filing a “contender for a Pulitzer in the category of ‘fictional form 990s.’” According to Owens, “the IRS would require the organization to establish, via contemporaneous evidence, the link between any particular expenditure and furthering social welfare — in other words, [the agency won’t accept] assumptions that everything not tied explicitly to the referenced Senate race is automatically a good (c)(4) expenditure.”
If the past is any guide, though, chances are slim that the IRS will take action. There’s only a seven in 1,000 chance that anyone at the IRS will look at the report, and an even smaller possibility that it will be set aside for additional scrutiny. Even if that happens, it will be years before the the agency decides what, if anything, to do about OCF’s activity.
The same is generally true at the Federal Election Commission, which can take years to look into allegations of improper campaign finance activity and even then seldom agrees to take action.
Nobody affiliated with the group responded to questions we submitted. We received only an email from OCF spokesperson Julie Shutley:
“Thank you for your interest in Heartland Principles. As a general policy we do not release additional information on the organization’s internal operations outside of what is required by law. Please note that we take seriously our compliance obligations and have fully complied with all IRS rules and regulations.”
Heartland Principles’ next 990, which will cover the 2015 activities that it claimed would make up for its 2014 politicking, likely won’t be filed until November.