Enron Mogul John Arnold Funds State Politics... And Now Journalism About Money in State Politics

One of the country’s most respected nonprofit journalism organizations recently received a $2.8 million donation from a hedge fund billionaire whose political spending could present a conflict as its reporters explore the power of money in state politics.

The Center for Public Integrity, which has long relied on foundation support for its reporting projects, received the donation last month from John Arnold, who made his fortune through natural gas trading. Fresh off CPI's first Pulitzer Prize, the grant will significantly expand the operations of an organization that describes itself as "one of the country's oldest and largest nonpartisan, nonprofit investigative news organizations."

But while these funds will help launch its new project focused on state campaign finance, Arnold’s donation also presents CPI with an awkward situation -- can it impartially probe his role among the campaign donors who wield outsize influence in state elections?

In addition to funding journalism, the former Enron trader has injected his own millions into state-level politics in pursuit of an assortment of goals, most prominently his crusade to roll back pension benefits for public workers. According to Reuters, Arnold has spent at least $10 million on that campaign in the form of donations to state politicians, state ballot initiative campaigns and state-based advocacy organizations.

Arnold's grant to CPI and his earlier grant to ProPublica makes him one of many political players now making significant investments in journalism. Proponents of the trend say it holds out the prospect of revitalizing investigative reporting at a time when traditional media outlets are under severe financial pressure. However, considering the political activism of some of these donors, it could also represent a return to an earlier era of Citizen Kanes using their media properties as tools to achieve their own political and economic goals.

Conservative activist Douglas Manchester, for example, recently purchased the San Diego Union-Tribune, and the paper has subsequently promoted Manchester's political ideology. Similarly, conservative activists and oil barons Charles and David Koch explored a plan to purchase the Tribune Media Company, whose many properties cover their political causes and their local business interests. They have also funded the conservative Franklin Center for Government and Public Integrity, which in turn has created a constellation of local conservative-leaning outlets. And, of course, media mogul Rupert Murdoch has built an empire of television, radio and newspaper properties that often echo his conservative beliefs.

Seemingly more apolitical media magnates may also have an interest in using their properties to advance their personal financial and ideological interests. For instance, investor Warren Buffett recently bought the Media General (NYSE:MEG) newspaper chain, which could serve as an instrument to promote his varied political interests. Buffett's firm Berkshire Hathaway (NYSE:BRK.A) owns a municipal bond insurance company, and he has been lately sounding the alarm about the ability of municipalities to pay back their debts.

Likewise, eBay (NASDAQ:EBAY) billionaire Pierre Omidyar has made philanthropic donations to various political causes and is now investing in a new journalism startup focused on national security and political corruption. And Jeff Bezos purchased the Washington Post at a time when his company, Amazon.com (NASDAQ:AMZN), has significant contracts with the federal government. Bezos has also funded a well-publicized campaign to promote privately run charter schools.

Even some corporations are involved in the trend - for example, in Richmond, California, Chevron Corp.(NYSE:CXV) has created a media outlet to shape news coverage in a city that is the site of one of its major refineries. The facility has been a flashpoint for controversy over environmental and safety regulations.

For its part, the Center for Public Integrity says its journalistic mission is “to serve democracy by revealing abuses of power, corruption and betrayal of public trust by powerful public and private institutions.” CPI officials insist that, though Arnold is a major source of money in state politics, his foundation’s grant to their organization will have no bearing on their reporting or their mission.

"There really is an editorial firewall," said CPI Executive Director Bill Buzenberg in an interview with IBTimes. "Our editorial team is very independent, and the development team has the relationship with the Arnold Foundation. We publicly disclose all of our funders, and our reporters will not kowtow to a funder. They guard their independence pretty strongly."

There will be ample opportunity to see if that pledge holds true, considering Arnold’s history and ubiquity in funding state politics.

According to its website, the Arnold Foundation has committed up to $4.8 million to a joint project with the Pew Center on the States to shape the terms of the legislative debate over pension policy. Over the last year, the joint project has produced reports and held briefings in state capitals promoting the idea that the primary way to deal with pension obligations is to reduce public workers’ benefits or move workers into 401(k) plans. Indeed, the Arnold Foundation has declared that "the way to create a sound, sustainable and fair retirement savings program is to stop promising a benefit."

The campaign has also downplayed other proposals to preserve traditional pension benefits and replenish pension funds depleted by the financial crisis and the chronic refusal of politicians to make actuarially required contributions. For example, while sounding the alarm about pension liabilities, Pew and Arnold have not aggressively pressed to raise taxes on wealthy Americans like Arnold or to reduce taxpayer-funded corporate subsidies that are typically far larger than pension fund shortfalls.

At the same time, Arnold has spent his personal wealth on particular state politicians and initiatives that aim to slash pension benefits. These expenditures include:

* In 2011, he funded a Rhode Island group backing Democratic State Treasurer Gina Raimondo’s efforts to reduce public workers’ benefits, and he made a personal contribution to Raimondo's campaign. In February of this year, Arnold followed that up with a $100,000 contribution to a Super PAC backing Raimondo’s 2014 campaign for governor. The Arnold Foundation also helped finance a Brookings Institution report and an Urban Institute report trumpeting Raimondo's pension cuts.

* In California, Arnold has funded an advocacy group pushing to convert the state's pension fund into a 401(k) system. He has also funded a group that spent $200,000 backing a ballot initiative to permit pension benefit cuts. An Arnold-funded group most recently donated $150,000 to a Ventura County pension initiative, which a Superior Court this week threw off the ballot.

* In Florida, the Arnold Foundation has donated more than $265,000 to a local think tank to promote pension changes. The Chronicle of Philanthropy reports that Arnold also financed Florida radio ads to push such legislation.

* Institutional Investor reports that the Arnold-funded pension project with Pew has "given advice and assistance in 24 jurisdictions, and the Arnold Foundation has spent around $7 million on pension reform efforts in states such as Arizona, Colorado, Illinois, Montana, Nevada, Rhode Island and Kentucky."

That history ultimately played a role in convincing WNET, the public television station in New York, to return its recent $3.5 million Arnold Foundation grant for pension-related programming on public television. That grant had been used to finance the station’s nationally broadcast coverage of pension politics, which often echoed Arnold’s views yet did not explicitly mention his own pension activism. In one Arnold-funded segment about California’s pension system, the station failed to disclose that the prospective pension-slashing ballot initiative it was covering was partially financed by Arnold. When Arnold’s financing was exposed, other PBS member stations complained, ultimately leading WNET to return the money on the grounds that it violated PBS’s conflict of interest standards.

CPI declined IBTimes' request to view its money-in-politics grant agreement with the Arnold Foundation. Buzenberg asserted that the agreement came with no strings attached, adding, "if in our reporting on money in state politics we find Arnold money to report, we will report it."

That principle certainly held true in March, when CPI published a hard-hitting investigative report about the people funding groups that mount campaigns against lawmakers who oppose privatizing the public school system. The report noted that Arnold has spent $7 million to support these groups.

Yet, more recently as CPI was negotiating the Arnold grant, Arnold’s name was absent from a CPI report on pension politics. That report documented how wealthy political activists financed a seminar aimed at convincing state and federal judges to invalidate constitutional protections for public workers’ pensions. Though the documents referenced showed that the Arnold Foundation was a sponsor of the seminar and though Arnold has been one of the largest funders of the state-based campaign to cut pension benefits, there was no mention of Arnold in the CPI article.

Buzenberg told IBTimes that Arnold's name was cut due to space constraints. He also said CPI's track record of accepting money from George Soros's Open Society Funds and yet also reporting on political expenditures by Soros -- who funds liberal causes -- proves that the organization has "a clear record of reporting the facts no matter who is involved."

In an interview with Current.org about the CPI grant, a spokeswoman for the Arnold Foundation said: “We fund organizations that are working to ensure that nonpartisan, unbiased and accurate information is disseminated to support effective decision-making and government accountability.” She added that the foundation is “concerned about the lack of statehouse news coverage.”

There is reason for such concern. According to a recent study by the Pew Research Center's Journalism Project, newspapers reduced their statehouse staffs by 35 percent in the last decade, leaving fewer than a third of newspapers with any presence in state legislatures. The same study found that 86 percent of local television stations have no reporters assigned to the statehouse.

Will such a vacuum create opportunities for political philanthropists to fill the void with coverage that promotes their ideology? It is certainly possible, though Buzenberg says one way that news organizations can guard against that risk is by emulating CPI, which he says accepts general grants but rejects what he calls "investigations for hire."

"It used to be foundations gave a lot of general support, but funders have lately moved more and more toward project support," he said. "The problem is then they don’t necessarily have independent editorial judgment and they are doing what lots of other people want them to do. There’s a danger that it can become a slippery slope toward advocacy for funders."

John Arnold and the Laura and John Arnold Foundation did not return several requests for comment.