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Campaign is support Democrats in battleground senate and gubernatorial races; eyes alternative energy payouts

This one is bound to get controversial: hedge fund billionaire Thomas Fahr "Tom" Steyer revealed this week that his "Super PAC", (PAC = political action committee) NextGen Climate, will spend $100M USD in federal election contributions in 2014 alone to try to boost politicians who consider increasing federal spending and regulatory commitments to "fight" climate change a top priority.
 
I. The Rise of the "Global Warming Billionaire Lobbyist"
 
Before digging into the comments of Mr. Steyer and his PAC organizers, it's both interesting and important to examine his wealth and what impact federal regulations might have on it.
 
After received his masters of business administration (MBA) from Stanford University's Business School, Mr. Steyer began his career at Morgan Stanley (MS) in 1979.  In 1983 as a rising star, he jumped to The Goldman Sachs Group, Inc. (GS).  Three years later in 1986, Mr. Steyer cast out on his own, securing $15M USD in seed capital.

Tom Steyer
Hedge-fund-manager-turned-lobbyist Tom Steyer. [Image Source: The Washington Post]
 
The result was the birth of Farallon Capital Management LLC.
 
Based in San Francisco, Calif., the firm slowly grew based on the success of Mr. Steyer's seemingly simple philosophy of "absolute returns" -- a strategy of aiming to provide a positive return on investment no matter what the market conditions.  To do that Farallon used historical factors and calculated risk to treat every investment like a bond with an implied rate of return.  In 1998 it opened its first overseas office in London.
 
Today, Farallon Capital has eight global offices including additional outposts in Singapore, Hong Kong, Tokyo, and São Paulo.  The twelfth largest hedge fund in the world in 2011, Farallon managed $21.5B USD in assets.
 
In 2010, Microsoft Corp. (MSFT) cofounder William Henry "Bill" Gates III announced a bold giving initiative.  A decade after his retirement from the CEO spot at Microsoft, he and his wife publicly pledged to give away virtually all of their massive fortune to charitable causes.  Perhaps America's most successful hedge fund manager, William Edward Buffett (known as "The Oracle of Omaha"), joined the effort pledging to give 99 percent of his fortune by the time he died.
 
Inspired by Mr. Gates and Mr. Buffett, Mr. Steyer and his wife -- Kathryn Ann Taylor -- were among the next 38 billionaires to commit in 2010 to giving away half of their wealth before they died.  The effort was dubbed "The Giving Pledge".  Since then dozens more billionaires also joined the pledge, swelling its ranks to 122 total billionaires or billionaire couples.  Those ranks today include Virgin Group CEO Sir Richard Branson, Microsoft co-founder Paul Allen, Oracle Corp. (ORCL) CEO Larry Ellison, Star Wars film director George Lucas, Facebook, Inc. (FB) CEO Mark Zuckerberg, and Tesla Motors Inc. (TSLA) CEO Elon Musk.
 
The pledge only requires the billionaires to give away half their wealth -- it doesn't tell them what to give to.  Mr. Steyer's giving plan is likely one of the most controversial, as he hopes to spend half his current $1.4B USD fortune lobbying to prod government actions on climate change.
 
II. A Hobby to Lobby; Supreme Court Paves Way for Billionaire "Charity Lobbyists"
 
It turns out that Mr. Steyer had long enjoyed playing the political field, donating to at least 40 political candidates on the federal, state, and local level since 1992.  Much of his political activism focused on "greening" the state of California.  Coincidentally his portfolio was greening as well.  To some extent these efforts allowed him to turn a profit on Farallon's alternative energy investments in California an elsewhere.  With California taxpayers footing the bill, success was virtually guaranteed, even as similar projects in other parts of the country posted losses and/or collapsed.
 
To Mr. Steyer there was no harm in that -- in his eyes (or so he clamed) he was just putting his money where his mouth (or more aptly his lobbying money) was, forcing the public to help itself.
 
But his lobbying efforts remained a side project until he saw the opportunity with the giving pledge to dive full on into them.  That decision was also enabled by the U.S. Supreme Court case Citizens United v. Federal Election Commission (Case No. 08-205), which was ruled on in 2010, opening the floodgates up to relatively large donations.
 
The majority ruled 5-4 that outside of "clear" quid-pro-quo ("this, for that"), money was "free speech" and lobbying shouldn't be limited.  In early arguments then-Chief Justice Antonin Gregory Scalia (nominated by President Ronald Wilson Reagan (R) in 1986) argued that removing restrictions to paying off politicians was necessary to prevent Congress from developing too much of a "self-interest", a remark that some have interpreted as a thinly veiled attack on collectivism.  
 
In his remarks, he stated:
 
Congress has a self-interest.  We are suspicious of congressional action in the First Amendment area precisely because we – at least I – I doubt that one can expect a body of incumbents to draw election restrictions that do not favor incumbents. Now is that excessively cynical of me? I don’t think so.
 
Justice John Paul Stevens (now retired, nominated by President Gerald Rudolph "Jerry" Ford, Jr. (R)) authored an impassioned and eloquent defense against that argument, writing:
 
All of the majority’s theoretical arguments turn on a proposition with undeniable surface appeal but little grounding in evidence or experience, “that there is no such thing as too much speech.”
 
If individuals in our society had infinite free time to listen to and contemplate every last bit of speech uttered by anyone, anywhere; and if broadcast advertisements had no special ability to influence elections apart from the merits of their arguments (to the extent they make any); and if legislators always operated with nothing less than perfect virtue; then I suppose the majority’s premise would be sound.
 
In the real world, we have seen, corporate domination of the airwaves prior to an election may decrease the average listener’s exposure to relevant viewpoints, and it may diminish citizens’ willingness and capacity to participate in the democratic process.
 
Indeed, what made the majority's argument rather baffling and specious was he also did little to set forth a clear standard of when a candidate deciding months or years later on decisions that financially benefited their lobbyist backers would count as quid quo pro.  His argument was essentially that as long as donations were made public, the public could sufficiently hold accountable any sort of clear bribery.  What made this argument laughable was that private limited liability entitles in the U.S. (corporations, LLCs, etc.) are not legally required to disclose their financial transactions.  So barring some kind of internal leak, the public can see who paid what candidate, but they can't see what the company got in return in the form of sealed contracts or subcontracts.  
 
By the same note, the decision stopped short of saying it would be wrong to give a contract to a company or investor who lobbied a politician and "coincidentally" turned out to be the only bidder on an almost unpublicized contract.  As the SpaceX case against top defense lobbying company Lockheed Martin Corp. (LMT) proves, such non-competitive contracts are not only common, they grossly inflate the state and federal budgets, wasting trillions in taxpayer money while increasing the national debt.
 
III. "Beta" Run of $100M USD Push, Brought Tom Steyer Key Wins in 2013
 
The situation further loosened this year with the Supreme Court ruling in the case McCutcheon v. Federal Election Commission (Case No. 12-536), which was ruled on in April.  In a 5-4 decision, the court decided to prohibit caps on individual donors' lobbyist spending.  Chief Justice John Glover Roberts, Jr., writing the majority opinion, made a perhaps ironic comparison between individual lobbying and lobbying by for-profit, corporate-owned media, writing:
 
The government may no more restrict how many candidates or causes a donor may support than it may tell a newspaper how many candidates it may endorse.
 
In the dissent, Justice, wrote [PDF]:
 
[The majority's ruling] creates a loophole that will allow a single individual to contribute millions of dollars to a political party or to a candidate’s campaign. Taken together with Citizens United v. FEC (2010), today’s decision eviscerates our Nation’s campaign finance laws, leaving a remnant incapable of dealing with the grave problems of democratic legitimacy that those laws were intended to resolve.
 
But like it or not, Americans now have to deal with the fact that campaign limits -- previously capped at around $110,000 USD -- have been thrown out by the nation's highest court.  To address one obvious item, before the ruling special interests like Mr. Steyer may have donated more than the aggregate limit, but they were forced to do so via proxy, which led to the so-called "campaign donation bundling" business.
 
By Jan. 1, 2013 Mr. Steyer had already stepped down from his day-to-day role as co-manager of Farallon to focus full-time on his new hobby -- lobbying.
 
To divvy out the dough, Mr. Steyer has hired veteran Democratic strategist Chris Lehane.  The spending began last year, with Mr. Steyer's NextGen PAC contributing large sums to three candidates in tight races.  Among those was Terence Richard "Terry" McAuliffe (D), whom was given $11M USD to counter Kenneth Thomas "Ken" Cuccinelli II, a Republican who was known for criticizing gaps or errors in climate science.
 
The boost seemed to achieve its intended result.  Govenor McAuliffe obtained 56,435 more votes that Mr. Cuccinelli -- a razor thin margins of less than 3% of the total votes cast -- thanks in part to a massive advertising campaign.
 
Likewise he backed Rep. Edward John "Ed" Markey (D-Mass.) in a contentious race against primary challenger Rep. Stephen F. Lynch (D-Mass.) in a special Senate election to replace the late Sen. Ted Kennedy, paying for campaign workers to knock on 300,000 doors.  He even bought a banner to fly over Fennway Park decrying Rep. Lynch as a supporter of the "oil evil empire".  Rep. Markey won -- and is now Sen. Markey.
 
IV. Mr. Steyer's Battle Plan
 
The net impact of the McCutcheon v. FEC ruling was to grossly streamline the process of paying off politicians, allowing situations like we're now seeing with Mr. Steyer's "charitable efforts".  Mr. Steyer's lieutenant, Mr. Lehane promises giddily that we haven't seen anything like what he's about to unleash.  He comments to The New York Times:
 
The [win in the] race in 2013 in Virginia was a beta test for 2014.  It provided us the political paradigm to model our other races off of.  We want 2014 to be a pivot year for climate — the year we can demonstrate that you can use climate change as a wedge issue to win in political races.
 
This year alone Mr. Steyer is pouring $50M USD towards candidates, including large donations amounting to several million dollars in key races.  He's also pledging to use part of his "charitable gift" to raise $50M USD more in "charity" from like minded candidates -- who like him are likely invested in the alternative energy and carbon credits business.
 
Edward Maibach, the director of the Center for Climate Change Communication at George Mason University, suggests that the approach will work, as independents tend to be highly susceptible to large swings of opinion on the issue of federal legislation dealing with climate change.  He remarks:
 
Independent voters, with regard to the issue of climate change, track much more closely with Democrats than Republican.  Painting candidates as climate deniers stands a good chance of working in districts where the vote turns on independents.
 
The Steyer/NextGen Climate Super-PAC has already laid out its battle plan for 2014, for the most part:
  • Senate races
    • Iowa
      • Supports Rep. Bruce Lowell Braley (D-Iowa)
      • Is running for the seat of retiring Sen. Thomas Richard "Tom" Harkin (D-Iowa).
      • Will likely face either state Sen. Joni Ernst, a National Guard lieutenant colonel, or retired energy company executive Mark Jacobs -- both in close running in the Republican primary.
      • Polling indicates Rep. Braley enjoying a relatively healthy lead over the both rivals -- 6 percent in each case. [1][2]
      • However, Iowa could become a battleground once Republican support circles around a single challenger in the primary's aftermath.
      • Rep. Braley is already on the attack about the climate issue, airing ads attacking both Republican hopefuls' comments in opposition of climate change spending.
         
    • New Hampshire
      • Supports incumbent Sen. Jeanne Shaheen (D).
      • Was first woman to be elected to either U.S. Senate or as Governor in the State of New Hampshire.
      • Is facing political commentator Scott Philip Brown, who previous served in the U.S. Senate in his old home state of Mass.
      • A late comer in the race, Mr. Brown dominates his party rivals in polls, but trails Sen. Shaheen by a few percentage points.  That said the race is expected to be very tight once Republican voters fully circle around their candidate post-primary.
         
    • Colorado
      • Supports incumbent Senator Mark Emery Udall (D-Colo.)
      • Sen. Udall is facing a tough challenge from U.S. Rep. Cory Scott Gardner (R-Colo.) who won his party's primary in a landslide.
      • Rep. Gardner has criticized climate change initiatives while serving in the U.S. House of Representatives.
      • Polls show the incumbent Sen. Udall clinging to a 1.7 percent lead.
         
    • Michigan
      • Supports Rep. Gary Peters (D-Mich.)
      • Running for the seat of retiring U.S. Senator Carl Milton Levin (D-Mich.)
      • Faces Terri Lynn Land (R), currently Michigan's Secretary of State
      • Tight race; two polls put Secretary Land up, four put Rep. Peters up.
      • Current estimates indicate Rep. Peters is clinging to a 1.6 percent lead.
      • Claims government should spend and regulate aggressively to prevent global warming's "threat" to Michigan's Great Lakes and Agriculture business:

        "It's important to frame the issue in terms of potential threats to our state."
         
  • Governors’ races.
    • Pennsylvania
      • Supporting Thomas W. "Tom" Wolf owner of a housing good corporation, which specialized in cabinetry
      • Mr. Wolf run by a landslide in the primary defeating his closet competitor by more than 40 percent.
      • Is facing incumbent Gov. Thomas W. "Tom" Corbett (R).
      • Polling is highly inconsistent, but suggests a tight race.  Polls in November and February suggested a double digit lead for Mr. Wolf.  A poll in Dec., though, suggested a double digit lead for Gov. Corbett.  A poll in March suggested a perfect tie.
      • Gov. Corbett drew Mr. Steyer's ire after refusing to back climate initiatives such as spending on solar tax credits.  He and other critics blasted Gov. Corbett's statements in a recent interview in which the Governor stated that climate change was a "a subject of debate."
         
    • Florida
      • Supporting challenger Charles Joseph "Charlie" Crist, Jr. (D)
      • Faces incumbent Gov. Richard Lynn "Rick" Scott (R)
      • Mr. Crist ran as a Republican for Senate in Florida in 2009, but lost to Tea Party Republican Sen. Marco Antonio Rubio (R).
      • In 2010 Mr. Crist became an "independent".
      • In 2012 Mr. Crist announced his conversion to the Democratic National Party, citing climate skepticism with the RNP as a reason for his defection.
      • Three polls put Mr. Crist ahead, one suggests a tie, a fifth puts Gov. Scott ahead.
      • Mr. Crist has a narrow 3.4 percent composite lead in the polls.
      • Sen. Rubio has been critical about alleged manipulations, exagerration, or politicization of climate science reports; Mr. Crist could be the anti-Rubio, so to speak.
         
    • Maine
      • Supports Rep. Michael Herman "Mike" Michaud (D-Maine), leading Democrat in the primary.
      • Faces incumbent Gov. Paul Richard LePage (R)
      • Latest poll places Rep. Michaud and Gov. LePage in a virtual dead heat with 1 percent advantage going to the challenger.
      • Mr. Steyer may also opt to support Eliot Cutler (I) to try to pull votes away from the Republicans.  Mr. Cutler was a founding partner of Cutler & Stanfield LLP, which became the nation's second largest environmental law firm.
      • Mr. Cutler ran in 2010, losing by less than 2 percent to Gov. LePage.
      • Gov. LePage appears to believe in global warming, but suggested climate change would be "good for" Maine's economy, opening shipping routes blocked by ice in the winter.
One thing is clear from the battle plan, at least.  Mr. Steyer is treating his lobbying much like his investing, approaching it in a very strategic way, targeting battleground states.

IV. Hypocrite? Idealist? Shrewd Opportunist?  All of the Above? You Pick

So far Mr. Steyer's critics have largely blasted the fact that he had gained much of his wealth by investing in fossil fuels and was continuing to profit off them.  Indeed, as of 2013, roughly at Farallon Capital $440M USD -- or roughly 10 percent of the total portfolio -- was placed in fossil fuel investments.  The National Review writes:

Tom Steyer, a billionaire investor and creator of the environmentalist super PAC NextGen Climate Action, is planning to spend $100 million in the 2014 election in order to topple elected officials who do not agree with his climate agenda... Ironically, Steyer has made millions off of the very industries he claims are destroying the environment.

One of the reasons Steyer reportedly left Farallon was because he had been uncomfortable with the company’s investment in fossil fuels; but he is comfortable using the money from fossil fuel investments to campaign against oil... If Steyer is truly divesting from fossil fuels, critics may largely suspend claims that Steyer continues to be hypocritical in his environmental activism.

Indeed letters made public Mr. Steyer has urged several college endowments who are clients of Farallon Capital to reconsider the fossil fuel stakes, which he must get permission to sell.  While the criticism that Mr. Steyer "made millions" off fossil fuels is absolutely technically accurate, the rush to label him a hypocrite based on historical record has led to a far more interesting possibility being overlooked.

Mr. Steyer actually has ever reason to follow through on his promise to divest.  If he can shift key battleground states toward his camp on the climate change issue, he could stand to make a large profit.
 
The truth could be that Mr. Steyer truly believes in what he is doing and any profit he makes is only accident.  But his history and late turn towards environmentalism suggests its very possible that the entire charitable giving is a ploy being used to gain the upper hand, securing state and federal incentives for his hedge fund's growing capital investments.
 
Spending $50M USD on lobbying sounds risky, but the federal government in recent years has regularly handed out hundreds of millions of dollars in loans, grants, and other incentives to alternative energy firms.  In that light it would not be surprising if Mr. Steyer's "investment" yields "absolute gains".
 
Even just keeping the issue in the media can be a ticket to profits.  Just ask former Vice President-turned-media mogul Albert Arnold "Al" Gore, Jr. who leveraged a variety of government-subsidized green investments to multiply the money he had made off global warming speaking tours, books, and the movie An Inconvenient Truth.  Currently Mr. Gore is worth over $300M USD, more than fifty times his wealth when he became Vice President in the 1990s.  Mr. Gore has also made millions on the side off carbon credits and alternative energy investments.
 
V. Fossil Fuel's Special Interest Defenders -- the Koch Brothers
 
Of course Mr. Steyer's push to regulate fossil fuels to extinction and boost alternative energy with special interest payouts is not going unopposed.  While some hedge fund managers -- like Mr. Steyer -- have seized on either public sentiment or the slowly improving economics of solar and wind energy as an opportunity to distance themselves from the pack -- which once almost wholesale embraced fossil fuels -- many traditionalists are still solidly opposed to that rebellion.
 
On the opposing side perhaps the biggest power player are the Koch brothers -- industrialists Charles de Ganahl Koch ($40.6B USD) and David Hamilton Koch ($40.6B USD).  The brothers co-own Koch Industries, Inc. a massive industrial corporation that is America's second largest privately owned company.  (David Koch is EVP; Charles Koch is head of the company.)

Koch Brothers
Koch Industries executive VP David Koch, left and Charles Koch, head of Koch Industries, right [Image Source: AP/Getty Images]

The Koch brothers eclipse Mr. Steyer's substantial fortune by almost two orders of magnitude, but have fumbled at times during the past decade in terms of securing payouts for their interests.  Still they have managed to get substantial tax breaks and incentives in place for the oil industry, a crucial pillar of their business.
 
In that regard the battle between Mr. Steyer and the Koch Brothers is not so much as whose proposed technology is the fitter competitor on the free market (a topic which would provoke a lively, but valid debate).  Rather the debate appears largely oriented around in which money the federal and state governments should spend the trillions they collect from taxpayers, and which corporate special interests should get tax breaks.
 
From a neutral perspective, Mr. Steyer is in the weaker position financially, but is perhaps the shrewder strategist.  He's gotten a jump on the Koch brothers in pouring obscene amounts of cash into key battleground states.  While in the 80s and 90s such efforts often failed -- largely because cash was less of a factor back then -- today Mr. Steyer stands a good chance of successfully breaking the back of the Republican party in key battleground states.
 
But expect the Koch brothers to bring their full resources to bear as the fight heats up.
 
In layman's terms you can think of this political war over American's energy future, special interests, and global warming somewhat as Aliens vs. Predators' slogan -- "Whoever wins we [in this case, the taxpayer] lose" -- from a financial perspective, at least.
 
In other words, as the old adage goes it takes money to make money.  And today in America's new gilded age of limit-free legal lobbying; America's wealthiest elite are willing to spend a fortune in order to get an even bigger fortune back, on the backs of taxpayers.

Sources: The New York Times, The National Review, The Washington Post





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