POLITICS
05/22/2013 09:28 am ET | Updated May 22, 2013

Club For Growth Directors Fight To Cut Federal Spending, Seek Millions In Taxpayer Money

WASHINGTON -- Chris Chocola, president of the Club for Growth, recently said his conservative advocacy group's "effectiveness lies in our uncompromising adherence to our mission," which is to promote lower government spending, lower taxes and less regulation. "Our job is not to elect Republicans; that's not what we do," he said.

But as the Club for Growth prepares to spend millions of dollars in the coming months -- much of it from a relatively small group of ultra-wealthy donors -- attacking Republicans who fail its ideological purity exam, several of the club's leaders would fail a similar test.

A number of its board members have sought millions of dollars in government spending for the companies they control, while advocating for policies, like ultra-low taxes, that help them keep more of the fortunes they have made. Despite the group's free-market rhetoric, three of the seven directors of the Club for Growth, who are also some of its biggest donors, have profited from federal contracts and special earmarks in recent years, according to public records.

Indeed, the reliance on government largesse says less about the purity of the principles of the group's leaders than it does about a central truth of American and global capitalism: Trying to separate the government from the free market is a fool's errand. Markets, and the companies and executives that operate within them, depend on the state for their very existence. Recognizing government's central role in facilitating well-functioning markets flips the Club for Growth's ideology upside down, but it helps explain why the group's top officials have such a close relationship with the government.

In April, Chocola singled out the Export-Import Bank of the United States for criticism, calling the independent agency "a slush fund for market-distorting subsidies that pick winners and losers in the private sector." Chocola's family business, however, was one of those winners.

CTB International, the Indiana-based agricultural equipment company founded by Chocola's grandfather, relied on the Ex-Im Bank to make loans to its customers overseas in Kazakhstan and Venezuela so they could buy its products, according to congressional testimony from a private bank president in 2001. "Without Ex-Im Bank, that transaction would not have gone through," said the executive, Darin Narayana.

The following year, CTB was purchased by Warren Buffett's Berkshire Hathaway in a deal worth an estimated $180 million, of which the Chocola family pocketed more than $75 million. Chocola used part of his fortune to finance a successful run for Congress in 2002. In 2006, he lost that House seat to Indiana Democrat Joe Donnelly, who went on to defeat the Club for Growth-backed Republican candidate, Richard Mourdock, for the Senate in 2012.

Club for Growth spokesman Barney Keller dismissed questions from The Huffington Post about the perception of federal contracts and earmarks obtained by its directors. "This doesn't change the simple fact that the Club for Growth is an organization that has always opposed earmarks and corporate welfare and always will," he said.

Like Chocola, the Club for Growth's chairman of the board, Arkansas billionaire Jackson T. "Steve" Stephens Jr., also sought government funds for his company. Between 2003 and 2007, Stephens' Little Rock, Ark.-based biotech company, Exoxemis Inc., successfully lobbied President George W. Bush's appointees for government contracts worth nearly $3 million.

In 2003, Stephens hired a uniquely well-positioned lobbyist, former Arkansas Sen. Tim Hutchinson (R), to help Exoxemis pitch its products to officials at the newly created Department of Homeland Security. At the time, Hutchinson's brother, Asa Hutchinson, was the undersecretary for border and transportation security at DHS, and it didn't take long for Stephens to get a face-to-face meeting. Over the next five years, Stephens paid Tim Hutchinson's lobbying firm $700,000 to help Exoxemis win federal earmarks.

The lobbying expenses paid off in 2005, when Exoxemis was awarded a $1.3 million contract with the Department of Defense. Two years later, in 2007, Stephens' company got another chunk of DOD money, $1.6 million, for the ongoing research project.

Asked about the contract, Stephens said, "to not offer this potentially life saving technology to the U.S. Armed forces would have been unethical, therefore, no inconsistency or inherent conflict exists." He added, "the U.S. Constitution specifically authorizes in Article I Section 8, expenditures of tax money for the U.S. Army. Therefore, that contract was not a government expenditure of the kind that you imply."

The money, he said, went mostly to third-party science labs, not to Exoxemis. When the company learned that "the military brass did not want the product," he added, "Exoxemis informed [the military] that it would not spend the remaining $1.8 million." According to Stephens, "Exoxemis spent six months attempting to exit [the contract] which it did without spending any more taxpayer money."

Also in 2007, the Club for Growth launched a new scoring system, a "Re-PORK Card," which graded members of Congress based on how many pet projects they secured funding for. The group's report complained that "most congressmen" only care about "lining their buddies' pockets" and featured a list of proposed projects the group had targeted for defeat.

Exoxemis' contract wasn't among the club's targeted projects, but renovations to a firefighters hall in Ohio made the list, and were defeated.

Stephens' government business and lobbying ended soon after, according to federal records, but his personal investment in politics continued unabated.

As part of the core group of about a dozen Club for Growth members who gave more than $100,000 to the organization last year, Stephens and others like him are largely responsible for securing the club's position as one of the most potent political forces on the far right today.

Over the course of the 2012 election cycle, donors like Stephens helped the Club for Growth and its affiliates raise and spend more than $16.5 million. Of that, more than $9 million funded attacks on moderate Republicans, like Indiana Sen. Richard Lugar, who lost to Mourdock in the 2012 GOP primary. According to its website, the Club for Growth Action super PAC has only one mission: "Beating Big Government Politicians."

While Stephens' big federal contract may have dried up during the Obama years, for another one of the club's board members, John W. Childs, government business is booming.

Childs' Boston-based private equity firm, JW Childs Associates, specializes in leveraged buyouts, or the purchase of controlling stakes in companies using equity and debt. A "notoriously media shy" billionaire, according to Boston Magazine, Childs has personally donated more than $5 million to the Club for Growth and other Republican political groups since 2006, according to campaign finance records.

But as Childs' millions were helping to pay for attack ads against staunch conservatives who the Club for Growth argued were not conservative enough -- like former Arkansas Gov. Mike Huckabee in 2007, and Alaska Rep. Don Young in 2008 -- two of JW Childs Associates' companies, CHG Healthcare and SimCom, were aggressively slicing off larger pieces of the federal budgetary pie.

In 2005, SimCom, a flight simulation and training company, received a mere $4,830 of federal money, according to public records. By 2012, SimCom's government contracts topped $710,000, approximately 140 times what they had been just eight years earlier.

But not even SimCom's spike in federal dollars can match what Childs and his partners have done with CHG Healthcare.

When Childs' private equity firm bought CHG Healthcare in 2006, the medical staffing company's government contracts hovered at or below $20 million a year. But soon after Childs and his partners took over, the federal dollars began to pour in, averaging about $40 million a year for the next six years. The private equity firm sold CHG late last year, by which point the company had won more than $230 million in federal health care spending over a six year period. Although the exact sale price of CHG was never released, insiders reportedly said it was around five times what the firm initially paid for it.

Childs was unavailable for comment, but a spokesman defended his pursuit of government money, arguing that if more federal spending directly benefits Childs' bottom line, then his advocacy for small government and lower taxes should be viewed more as a selfless act than a hypocritical one.

"Here's a man who, on his own time and money, is advocating views that are contrary to his own economic interests," said Adolfo Garcia, counsel to Childs. "I would argue that he is a selfless American voter."

For the Club for Growth, the debate over what constitutes a worthwhile use of taxpayer funds is poised to heat up later this year, when economists anticipate the U.S. debt ceiling will need to be raised again. The looming vote in Congress offers conservative advocacy groups another opportunity to flex their muscles and remind congressional Republicans that the 2014 elections are a scant 12 months away. The Club for Growth has already named 10 House Republicans whom it intends to challenge in the primaries, but there are likely more to come.

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