The Case Against Lina Hidalgo and Why I Am Not Voting For Her

For my whole life I never have followed local politics closely. I was aware of who my local mayor was but never got into the weeds of who ran the city or county. What has changed over the past few years though is the crime, safety, and security. Although I haven't been robbed or a victim (yet) my concern is Harris County has gotten out of control and I no longer feel safe in a city I was raised in and have lived in since the early 1990's. 

In November 2022 there will be an election for Harris County Judge. The title is a little misleading since this isn't actually a judge that adjudicates cases it is more symbolic of an individual that can yield expansive power and takes part in a multi-billion-dollar budget and allocating resources for the city of Houston. The Harris County Judge also sits on a Commissioner's Court that creates the agenda items and budget for the city. Currently the Commissioner's Court has Adrian Garcia, Rodney Ellis, Tom Ramsey, Jack Cagle, and Lina Hidalgo). Hidalgo, Garcia, and Ellis are Democrats and Ramsey and Cagle are Republicans. Lina Hidalgo is currently the county judge and is running for a reelection in November 2022. Hidalgo was elected in 2018 in a close race with Ed Emmett. It is important to point out that the election was close with Hidalgo only beating Emmett by a little over 1.6% of the vote. Part of the reason for this was at the time it was possible for voters to perform a straight ballot vote (all Democratic/all Republican). Many people even within the Democratic party were unaware of Hidalgo since she didn't have any experience and at the time she was running was only in her late 20's when she ran. The following is an outline of what she has done since coming into office. 

COVID Alert System 

To be perfectly honest I had no favorable or unfavorable opinion of Hidalgo considering not much was known about her and she seemed fine with someone aspiring for higher political aspirations. However, this all changed with COVID. In June 2020 Harris county implemented a COVID alert system that was supposed to provide guidance on the danger of COVID. The multi colored system initially started out on Red (severe and stay home) with the exception of going out to get groceries. Before the color system was implemented in April 2020 Hidalgo signed an order (that would be in effect for 30 days) that would fine anyone who didn't wear a mask $1,000. Within a week Hidalgo had changed her mind on this and suspended the fine. In June 2020 Hidalgo signed an order that would require businesses to require their employees/customers to wear masks (unless eating or drinking because you know COVID takes breaks for that) and stay 6 feet apart with a potential $1,000 fine for the business owner (but not the customer). It is important to remember that during this time the number of COVID cases was actually declining!  Hidalgo responded to the fine that it's purpose was to "educate" people and businesses. After almost a year on being on red on May 18, 2021 Hidalgo finally lowered the COVID alert to orange. As I write this in September 2022 the current Harris County alert system shows the county at a Yellow (Medium) alert even though the Texas Medical Center in May 2022 decided to stop reporting the number of COVID cases (since they are so low). Hidalgo herself didn't even follow her own rules. As Bill King accurately pointed out in this article Hidalgo on January 11, 2022 Hidalgo held a press conference to announce that Harris County was in a red alert status however by February 9, 2022 (while still on a red alert status) Hidalgo held a rally were people weren't wearing marks or required that individuals be vaccinated. Apparently when you are fundraising you are in the Green alert status. 

COVID Medical Tent 

In April 2020 Harris County Commissioner's Court approved spending up to $60 million on a medical shelter structure at NRG Park. The site would have 250 beds and only be in operation for 60 days. Let's do that math on this. $60 million for 250 beds for 60 days would say that the cost would be $4,000 per day per bed! The last time I checked you could probably rent out the Four Seasons hotel cheaper (and hire multiple nurses to take care of you too). Ultimately Harris County had to pay $17 million for the medical facilities and there were 0 patients! The contract for the hospital paid a finance chief a day rate of $2,875/day. Judge Ed Emmett in an interview questioned if there would be a bank at the temporary hospital with that kind of rate. Also at this same time Houston Mayor Sylvester turned had stated that Houston city hospitals had the capacity to capacity to take additional COVID patients. 

COVID Rig Bidding Scandal 

However, all these issues during COVID were pedestrian compared to the bid rigging scandal Lina Hidalgo got involved with. Harris County placed a request for proposal (RFP) to bid on COVID outreach to the community. Generally, the way an RFP should work is you talk to various potential bidders to see what services they can provide, the history of their experience with the project, and what the potential cost might be. In a released document showing the potential winning bids shows Elevate Strategies as the "most qualified" even though staff members for Hidalgo had rated University of Texas (UT) Health Science Center higher by their own metrics. Additionally, Evaluate Strategies had a bid for $19,343,500 and UT Health Science Center had a bid for $7,508,040. So why would a bid be given to a firm that was more expensive and lower quality? Elevate Strategies was run by a woman who had previously worked on some Democratic campaigns for outreach. Elevate Strategies itself was a one person company. However, in large projects like this usually the company will subcontract out the work to other people. The actual proposal from Elevate doesn't mention any relevant experience within the healthcare area (which would be key in specifically a COVID outreach). Also if you look on page 33 of the proposal there are many blank names associated with the team that would make you wonder how could a bid be accepted without understanding the full details. It was discovered that three of Hidalgo's staffers communicated with Felicity Pereyra (founder of Elevate Strategies) in January 2021 and allowed Felicity to review and revise the scope of work before the proposals were made on February 19, 2021. One of the staffers (Mr. Alex Triantaphyllis) was quoted as saying "Take it away and don't let UT in".  In addition to this one of Hidalgo's staffers mentioned "This vaccine thing is getting ridiculous". Alex himself is a Rice University graduate and also graduated from Harvard Law School. Also it was reported that that Harris County Purchasing Office received instructions from Hidalgo's office to disqualify the bid since UT has been previously late on other bids.  Although, there is no evidence of this this doesn't even make sense. Anyone that has been involved in a RFP knows you start with potential candidates that can accomplish the request. No rational person starts with a list of vendors that don't provide work in a timely manner. 

What's even worse then the actual no bid contract is the contract. As Bill King describes in this article when Lina Hidalgo asked for the Elevate Strategies contract to be cancelled a payment $885,000 was sent to Elevate Strategies quickly (even though the invoices had been pending for two weeks). What is even more suspicious is some of the payment amounts exceeded the actual invoices to Elevate Strategies. For example the invoice on August 28, 2021 was for $590,193.94 however the actual amount paid on September 16, 2021 was $885,874 (which would say the amount paid is a 50% increase over what was billed!). When I actually add up all the amounts paid by Harris County I get roughly $2.3 million paid to Elevate Strategies. The contract specifically shows that the vendor can only be paid when services are performed which as Bill King points out would say the amount paid per employee was $100,000 for just one month of work. Hidalgo multiple times in Commissioner's Meetings claimed there was nothing improper over the Elevate Strategies contract and often went after any critics or anyone who would ask questions about the contract during meetings. In this Harris County Commissioner's Court Hidalgo in this video denies it and then says "bring it on". This reminds me of something elementary children say on the playground. Hidalgo also argued with Jack Cagle regarding Elevate Strategies being a one person operation and during the meeting quotes the Elevate Strategy has being a one person shop. As a side note I have watched multiple commissioner's meetings and Lina Hidalgo has a tendency when Jack Cagle or Tom Ramsey speak Lina is either checking her cell phone or looking at her computer (which to me is disrespectful). 

It is fairly obvious the Elevate Strategies contract was a rigged bid and then the staffers of Hidalgo tried to covered up what happened. As a result of this a grand jury indicted 3 staffers that worked Hidalgo in April 2022. It is also worth pointing out that two of Hidalgo's staffers are still on the job (even after being indicted). During this same time the Houston Chronicle (which has defended Hidalgo) wrote a puff piece of Hidalgo being a vegan. There is talk of Hidalgo of being indicted herself. Hidalgo's team claims that this is all just a misunderstanding the texts and e-mails that were leaked were all part of a another project Elevate Strategies was working on. If this were the case why isn't there an RFP (request for proposal) and second why would a staffer say to "slam the door on UT?". Generally the ways these work (since I have been involved in the process) is you first define what you are looking for in terms of the service/product, gather the data from various vendors, and then analyze the data to see what is the best fit. Also in any leadership position you are accountable for the actions of your employees. 

No Bid Security for Hidalgo 

Speaking of no bid contracts in April 2022 the Harris County Commissioner's Court decided to approve a no bid contract to XMiProtection for $121,524 to provide security to Hidalgo for 12 hours a day until July 25, 2022. This was only for a 12 week period. If the cost of the security was annualized it would be almost $500,000. Keep in mind that Lina Hidalgo makes a salary $190,861. Even though I am not a fan of Hidalgo I feel as if she should have security protection but with competitive bidding. 

Crime In Harris County 

Crime currently is a big issue not only in Harris County but around the country. Having lived in Houston since the early 1990's and remember the crime rate being high with specials on local news stations with names like City Under Siege. In more recent times 2019 to 2020 in Harris County violent crime increased 43%. Lina Hidalgo took office in 2018 so if you look at the crime rate since she took office crime has increased around 70%. Houston is one of the most dangerous cities in the country. The current criminal justice system in Harris County is more of a catch and release program. Hidalgo has direct influence over crime since the Harris County Commissioner's Court. Hidalgo repeatedly claims that 2/3's of the budget is spent on crime. The claim has been pointed out to be not accurate for multiple reasons. The first the excludes what Harris County spends on flood control, the toll road system, and public health. If you do the math even conservatively it comes out to less than 1/3 of the budget is spent on law enforcement. However, even this number is highly dubious as if you study this Safe Harris website and look at the bottom portions for "Community" and "Youth Safety and Justice". For instance $31 million is planned to be spent on workforce development programs when the Harris County unemployment rate is 4.8% (on the lower end of a historical low). Also teenage unemployment rates were 8.5% in the summer of 2022. Moreover to the point African American teenage unemployment was around 16%. Although this number sounds high from a historical African American teenage unemployment is near an all time low (since the data was tracked since the early 1970's). $27.1 million would be spent for health initiates, $50 million spent for community infrastructure, $8.4 million for new trails, and many other what late economist Walter Williams would refer to as midnight basketball programs. When I add up all the spending of these "programs" I get roughly about $155 million (this is about half of all the spending on the Safe Harris flyer) that could be directly spent on either hiring more police officers, more prosecutors, and more funding for the court systems to speed up the backlog of cases (recently is was reported there was a backlog 40,000 misdemeanor cases in Harris County). One estimate said it could take just up to 2 years to just make a dent in the criminal case backlog. The average percent of felony cases where a defendant posted bond from 2011 to 2018 (before Hidalgo) took office was about 46%. If you look at the average between 2019 and 2021 the percentage increases to 69% or about a 50% increase. In late 2021 it was reported over 27,000 defendants are currently out on a felony bond. From 2016-2021 over 900 accused felons had committed four or more serious crimes while out on a bond. For example a young man named Clayton Bryant was on bond for 8 felony charges and his criminal history had 36 felony charges. Some Judges in Harris County are worse than others. The average number of defendants was 61%. However Judge Natalia Cornelio was a superstar in this area with 72% of defendants posting bond. On her website for criminal justice she claims "we must acknowledge and work to address these disparities to restore the community's confidence that the system is fair, equitable, and just". Of course these are woke ideal principles and I wonder how far the closest defendant she has lives to her or Lina Hidalgo? 

Gun Buy Backs 

Harris County decided that it would be a great idea to buy back guns in an effort to reduce crime. In July 2022 Harris County offered up to $200 per gun. The funding for this was provided the American Rescue Plan (COVID stimulus). The total cost was around $1.1 million for the gun buyback program. It is important to point out that there was no ID required, nor would Harris County run any type of scan to see if the individual was a criminal. So let's think about this. Probably most law abiding citizens who were in need of cash would turn in there guns when criminals would still have the same amount of guns. Furthermore the ratio of criminals with guns to law abiding citizens increased as a result of this (again funded by Americans in other states). 

Toll Road Financing 

In September 2020 the Commissioner's Court voted to use money from the Harris County Toll Road System and divert that money to other uses (besides transportation). The deal created a new limited government entity and Harris County Toll Road System would provide the Commissioner's Court with an upfront $300 million and then an additional $90 million per year. It should be noted that the whole budget to the Harris County Toll Road System is roughly $900 million/year. Lina Hidalgo was quoted as saying this was a good idea because it will "maximize every dollar". Politicians can never outspend their needs or wants. 

Flood Bond

After Hurricane Harvey Harris County Commissioner's Court agreed to pass a $2.5 billion flood bond. However, the intended use would be based on the "social vulnerability index" which was actually created by the CDC. Some of the factors included in this index are poverty, educational attainment, car ownership and housing quality. This doesn't make any sense as it would assume clouds and rain literally only pours down on poor people. This is just redistributing money from wealthier individuals in Harris County to poorer people and also to gain political brownie points.

Newly Elected Harris County Elections Administrator

Also under Hidalgo's watch was the creation of a newly elected official of "Harris County Elections Administrator". The position was created in 2020 even though this function was already handled at the local level by the tax assessor and the county clerk (historically there were no issues with this either from either political side). The newly created position for Isabel Longoria. In her new position Isabel earned almost $200,000 of income (remember this position was created out of thin air). During her tenure during a primary runoff election 10,000 mail in ballots were left out. In addition to this Harris County was the last county in the state of Texas to count all their ballots (this was out of 254 counties). This disaster could have been avoided by not even creating this position in the first place since the tax assessor and county clerk have run elections for hundreds of years without major issues.  

Personality

On the personal side Lina has demonstrated she can be disrespectful. During the funeral of Corporal Charles Galloway who was killed in an ambush in February 2022 when she was asked to move to her seat she responded "do you know who I am". To me regardless of what political you are in this behavior is disrespectful and childish. Moreover, especially trying to seek the limelight during the funeral of a killed officer is disgraceful. Over past few years and I have seen Lina Hidalgo give interviews. She rarely does an interview that doesn't put her in a positive light and recently whenever she is asked a question she gets highly defensive and goes after them as well. 

Summary and Conclusion

To recap Lina Hidalgo has only been in office since 2019 and since then has been involved in a COVID rig bidding scandal with three of her staffers indicted and tried to cover it up. She kept Harris County on a red alert system for COVID for over a year and she signed an order that would fine anyone that didn't wear a mask $1,000. She also had a no bid contract for her own private security detail. In addition to this she led Harris County to waste $17 million on boondoggle for a COVID medical tent that wasn't even needed or ever took care of any patients. Crime since she has taken office has increased 70% and she is making the problem even worse as she has voted for over $150 million to fight crime however this money is not being used for anything crime related as it goes for bike trails, health initiatives, infrastructure, and other pet projects. She has voted to redirect hundreds of millions of dollars from Harris County Toll Road to other non transportation projects. She voted for a $2.5 billion flood bond that will be based on a "socially vulnerable index" and not based on where the most amount of flooding is. She voted to create a newly position for an election's administrator that was late in reporting the ballots (to be accurate last out of all 254 counties in Texas) and in addition to that left out 10,000 mail in ballots. On top of all this Lina Hidalgo doesn't have a redeeming personality to save her and is not charismatic whatsoever.

The Case Against PTE 2020-02, The DOL Rollover Rule, and Government Agencies Gone Wild

In my regular day to day job, I work in the personal finance industry. I have been in this industry for over a decade. Over time I have worked with many different families, individuals, and people from all walks of life. Generally speaking, many financial advisors work with clients that are about to retire or in retirement and generally they charge an assets under management fee (as a percentage of the assets managed). When clients retire, they have often have different options regarding their retirement accounts (their 401k plan, pension plans, IRA accounts, and health savings accounts (HSA). A recent rule from the Department of Labor (DOL) will dictate the relationship between the advisor and the client of what the advisor can say or do. 

Recently the Department of Labor (DOL) put in force a rule (July 1, 2022) that would affect financial advisors ability to recommend rolling over a 401k, pension plan, or IRA account to another IRA account. The specific rule from the Department of Labor (DOL) is known as PTE 2020-02. The history of PTE 2020-02 has a long and windy road. Something I was completely unaware of is there is a whole website dedicated to the history and evolution of the rule here. The actual origins of the DOL rule started in October 2010 (Proposal 1.0). Later in April 2015 President Barack Obama in a speech mentioned it which then culminated in a April 2016 final rule which was supposed to have started June 9, 2017. The decision was then challenged 6 different times and was vacated in the Fifth Circuit Court in March 2018 (65 page decision is here). Currently there is a lawsuit in the Fifth Court in North Texas (more on this later). 

First it is important to understand what government agencies are involved here. You have the Department of Labor (DOL), the IRS, the Securities and Exchange Commission (SEC). Generally speaking only the SEC regulates financial advisors. To make things a little more complicated there is a law called Employee Retirement Income Security Act of 1974 (also known as ERISA) that is administered by the DOL. ERISA covers for example 401k plans, pension plans, and even health care plans that company offer employees (think of employee benefits). When ERISA was created Title II was the actual legislation that created IRA accounts within the Internal Revenue Code (also known as the tax code). Generally speaking the IRS enforces tax rules related to 401k/IRA accounts. For example if someone takes a distribution from their 401k or IRA account before they are 59 1/2 they potentially could have a 10% penalty (the Department of Labor does not enforce this). It is important to know that Title II "did not authorize the DOL to supervise financial providers over ERISA plans". Common sense would say ERISA has authority over 401k plans however once a transfer is made from a 401k to another investment account (IRA/HSA) the power of ERISA is not carried forward to the IRA account or other account type.  

The issue at stake is there is roughly $7.3 trillion dollars of assets in 401k plans and $13.2 trillion dollars of assets in IRA accounts. In 2016 the DOL tried to estimate the cost to comply with the fiduciary rule would be $31.5 billion over 10 years. The DOL goes on to have the breakthrough conclusion that the legislation would "save" $40 billion over a 10 year period. I tried to actually find a study of how the $40 billion was calculated. In a press release it is mentioned that consumers may be paying 1%/year more. By this what they are trying to say is that an individual who has a 401k plan who then rolls over that 401k plan to an IRA will end up paying 1% more. My favorite part of the whole press release is "Today, the DOL is finalizing rules retirement investment advisers to meet a "fiduciary" standard-putting their clients' best interest before their own profits". This is utterly foolish of course. This presumption is that a financial advisor provides little to no value. Studies from Vanguard show that an advisor actually adds about 3%/year of value. The main reason is financial advisor can often coach their clients against doing foolish things (like wanting to put all their money in cash when the stock declines). People are often not rational with their money. Also why would people work with someone that simply "steals" 1% of their money (real estate, agents, and recruiters take a far higher percentage yet I don't see any legislation for them). 

Looking at actual data shows that for individuals who have under $250k in assets (you know the people the Department of Labor claims are being harmed) the cost that an advisor charges for managing the assets is 1.25%/year. Data from the 401k world shows that 401k plan fees are about .88%-1.19%/year (the fee depends on the size of the 401k plan as usually larger plans aren't as expensive since they have economies of scale). To make the math simple just rounding the average 401k plan fee to 1%/year and comparing it to a cost of 1.25%/year for what a financial advisor charges. This would say the difference is .25%/year or about a 75% less than what the DOL claims! Even being conservative and taking the all in fee of what a financial advisor charges (both the financial planning fee and investment fee) is still less than what the DOL claims. For instance for people that have assets of up to $250,000 their all in fee (financial planning plus underlying investment fees)  is 1.85/year%. Again going back to the logic of the DOL if you take the average 401k plan fee of 1%/year and add the DOL's calculation of an extra 1%/year that financial advisors charge would get 2%. However, over time as individuals build wealth their assets under management fee (as a percentage) will decline. For example for individuals that have $500,000 to $1 million their all in fee (financial planning plus underlying investment fees) would be 1.5%/year. Again this is 25% less than what the DOL calculated. The only limitation to this study was this only focused on independent financial advisors and didn't for example include brokers, insurance agents, or people who just sell investment/insurance products. However, there has been a shift towards independent fee only financial advisor. 

However, consumers over the years have been moving more to advisors who work as an independent fee only financial advisor. In addition to this the data shows that advisors are moving from working away from broker dealers/insurance agents who just sell investment products and shifting more towards independent financial planning firms (who sell advice and not products). The number of broker dealer firms has been declining rapidly. In 2002 there were 5,374 broker dealer firms. In 2021 there 3,394 broker dealer firms. This would say in almost a 20 year period the number there has been almost a 40% decline in the number of broker dealer firms.

Meanwhile at the same time the number of broker dealer firms has declined the number of registered investment advisor firms (RIA) has increased. In 2008 there were 25,073 registered investment advisor firms. In 2017 the number of RIA firms increased to 30,193 (a 20% increase). Given this is some old data I would be willing to say the number would be even greater today. There is a good reason for the growth in RIA firms. RIA firms have to put their clients needs ahead of their own and have to act as a fiduciary (broker/dealers only have to meet a suitability standard which is very vague and broad). As someone who has worked in the industry financial advisors who work for RIA firms are very client focused and are very transparent with how they charge (either an assets under management fee, hourly rate, or some other type of fee arrangement. Also it is important to note that the number of RIA firms increased without any government regulation (consumers choose this). 

The new rules under PTE 2020-02 requires that financial advisors either make a recommendation (with analysis) of why it makes sense to rollover a 401k to IRA, a defined pension to an IRA, an IRA to an IRA, or health savings account (HSA) to an IRA. The alternative is financial advisors can just provide education to their clients on the advantages or disadvantages of making a recommendation. However if an advisor provides the education the advisor can in no way advise/influence/recommend what the client should do (even saying "if it were me I would do this" is prohibited). Each approach is filled with flaws that potentially get an advisor in trouble. If the advisor decides to make a recommendation they have to identify the reasons for the rollover along with the costs associated of doing so. For example when looking at the cost of holding the monies in a 401k plan should the lowest cost investment be used-even if the client doesn't currently doesn't own that investment?  Also the advisor has to calculate the cost rollover of the 401k, pension plan, IRA, or HSA. Although the vast majority of financial advisors charge a percentage of assets they manage what if a advisor charges an annual retainer fee or an hourly fee. How is this analysis performed correctly? Also I am skeptical the DOL even would understand the nuance of this math since as I mentioned before they were completely off the mark on calculating the 1%/year long term cost of how much consumers would be paying in the long run. Also it is up to the advisor to ask the client to try to obtain information on fees/costs associated with the 401k plan/pension plan/HSA which in my experience is not only hard to obtain but more importantly even if you obtain the documentation from the plan it is almost impossible to decipher. Also another issue is that this cost benefit analysis has to be done for each 401k plan/IRA/HSA that is recommended which can be burdensome if a client has a dozen different accounts. Given the fact that people may have 12 different employers in their working career. Each individual account/plan has to be evaluated and analyzed for the total amount of fees based and services offered which could turn into a paper compliance hurricane for an advisor. 

The penalties for violating PTE 2020-02 can be severe as well. Since the DOL considers advice related to rolling a 401k plan over to an IRA or an IRA to IRA as a prohibited transaction (thus the advisor has to receive permission from the government to receive compensation from the client). If it is found that a prohibited transaction has occurred the financial advisor can face penalties of up to 100% of the amount involved and penalties from the IRS as well. This is somewhat insane considering the financial advisor is taking a large risk to in essence just fill out paperwork to inform a client of their rollover options. Also I would point out that clients even before this were asking the questions of the advantages and disadvantages of rolling over their 401k/pension plan/or HSA to an IRA account. Also if a client has been working with an advisor for many years it could easily assumed that the client would trust the advisor and their recommendations (however if the advisor decides to go the education route of providing the advantages and disadvantages to rolling over the 401k/pension plan/IRA or HSA account would be legally barred from making any type of recommendation. 

The last time I checked doctors/attorneys/or any other profession don't face a similar position of giving a patient/client information and the provider not being able to make a recommendation. Also doctors and attorneys deal with matters of life and death. As a result of these new rules some financial advisors will cease to give advice on 401k rollovers due the compliance burden faced.  Also more importantly when I go out to a restaurant and consume food I am not required to sign any type of paperwork or be informed about the advantages or disadvantages to eating a nice steak (as the steak is a rollover from the restaurant to my stomach-the steak could kill me but the last time I checked a 401k has never been the cause of any death). 

Once possible silver lining in this new DOL rollover rule is a recent court case decision. Recently the Supreme Court case West Virginia vs. EPA ruled the the EPA had overstepped it's regulatory authority. Since there was a large economic and political significance to what the EPA was trying to achieve (that was not legislated by Congress) the Supreme Court found the EPA didn't have the authority to act as a de facto Congress and make their own rules. The outcome of the West Virginia vs. EPA decision could have an impact on the DOL rollover rule. Fiduciary responsibility is under the purview of ERISA and ERISA was never given authority from Congress to apply this to IRA accounts. Currently there is a lawsuit in the Fifth Circuit Court challenging the DOL Rollover rule. The recent lawsuit includes arguments from the the EPA decision with Supreme Court Justice Neil Gorsuch making the comment "But the Constitution does not authorize agencies to use pen-and-phone regulations as substitutes for laws passed by the people's representatives". 

The DOL has overstepped it's regulatory authority by trying to figure out how to creatively work around the legal system to draft rules that will as a result cause advisors to not want to work with clients that are about to retire, currently have 401k plans, IRA plans, pension plans, or HSAs, given they could possibly be subjected to penalties. The penalties include having to reimburse clients for the fees paid on these accounts, a penalty of 100% of the amount involved, and in the extreme case the advisor could be barred from advising on these type of accounts for 10 years! Current and future court cases will ultimately determine the outcome of PTE 2020-02 but the sheer overreach of the DOL should be a warning of government agencies gone wild. 

Chase Koch (son of Charles Koch) and His Wife Annie Breitenbach Koch Divorce

For many years I have covered this Koch family on this blog. Within the past few years it appears that Chase Koch and his wife Annie have been divorced. Someone had made a comment in one of my recent posts about them being divorced. I looked into it and found very scant evidence at first with only one credible article from Inside Philanthropy from September 2020 referring to Annie as the "ex-wife". However, I know recently Chase Koch has been interviewed for many different things and it is noticeable that he is not wearing his wedding ring in the videos for a couple of years. Recently I did notice Chase looked visibly tired when being interviewed with severe dark bags under his eyes both in this June 2021 interview, a Koch industries promotional video in June 2021, at the 2021 TPI Aspen Forum from September 2021.

I can't ascertain the timeline of the divorce. An article from the Wichita Business Journal discusses Annie and Chase talking about the school that they started together in October 2019. In a video with Youth Entrepreneurs in August 2020 Chase is noticeably not wearing a wedding ring. My best guess would be that Chase and his wife Annie separated between late 2019 to early 2020. It is worth pointing out that Liz Koch (mother of Chase Koch) was divorced before she met Charles Koch. 

Chase Koch and Annie Breitenbach were married November 1, 2010. The wedding was covered in a Koch Industries Discovery magazine that all employees receive. Annie at the time was roughly 25 years old and Chase was 33 years old at the time. Annie attended the University of Kansas and had become an RN and worked in the Wichita area. The couple the same year they were married purchased 70 acres of land and a house for $3 million according to this article. The couple have three children together including their first child Charles Gerard Koch who was baptized in June 2012. Annie Koch is media shy and the only video I have seen of her from 2013 when she was the host of a breakfast interview between Chase and his mother Liz Koch. Annie listed all Chase's household duties of being a diaper changer, trash man, and in charge of dog do removal services. She then mentions his professional career and duties and at the end says "Wow babe no wonder you barely make it home for dinner on time". 

There currently can be only speculation as to what happened that led to the divorce. One potential issue that could have put a strain on the marriage was Chase Koch and the hours he worked. Chase would have a very busy day and according to Kochland and his day "started around 6:30 and proceeded-"wall to wall" until 6 or 7 at night" and Chase admitted in this video that he wasn't spending enough of time with his family. Part of the issue was Chase was not delegating and President of Koch Industries Dave Robertson explained to Chase that he was in charge of his own calendar and had to say no to things. Chase felt as if he had to be involved with every little detail and to the point that was almost micromanaging (Charles would admit to micromanaging himself as well). Chase was Executive Vice President of Koch Ag and Energy Solutions from 2014 to 2017. After 2017 Chase became President of Koch Disruptive Technologies which is an subsidiary of Koch Industries that looks at promising technology companies that Koch Industries can invest in to grow and enhance their own business. You can almost think of this division as a venture capital firm within Koch Industries.  

It was reported within the past few years that Charles Koch continues to work weekends (despite being in his 80's) and is a workaholic. People forget that being a workaholic is a type of addiction just like drugs or alcohol that perhaps could be inherited. At one point Liz Koch pointed out that Chase worked to hard and resembled the tendencies of his father (Charles Koch). Charles Koch himself was a workaholic. According to this article in the 1997 from Fortune magazine Charles would put in 12 hours a day at the office and then go home and work some more. Charles would have executives meeting on Saturday mornings and sometimes meetings would last until Saturday evening. and would ask folks to come in on a Saturday or Sunday to the Wichita office. One Sunday in August 1968 Charles Koch called a meeting that started at 4 P.M. and went until midnight! Charles would admit in this interview that Saturday and Sunday are more fun to work anywhere and he would drive employees crazy day or night leaving them voice messages. 

It is important to remember that Chase Koch is a shareholder of Koch Industries stock (he has been on the board of Koch Industries since 2013). My understanding is that various trusts hold the actual Koch Industries Inc. stock and with Kansas being a separate property state as long as Chase can show the assets were his to begin with and weren't commingled with other assets there shouldn't be any issues of him retaining Koch Industries stock. Usually assets in trusts are protected both from creditors and divorce. Of course he will have to provide some type of support for his wife Annie and three children. Also I would think given the many legal battles the Koch family faced in the 1990's and early 2000's that Annie Koch would have signed some type of prenuptial agreement as well. Former Koch shareholder J. Howard Marshall (yes the one married to Anna Nicole Smith) had a prenuptial agreement that would pay Anna Nicole $100,000 for each month they were married and $5 million if they had a child together. It would be interesting to know if Chase Koch had some type of prenuptial agreement with Annie. Also the other issue will be the custody of the children as well in terms of going between Chase and Annie (which won't be easy emotionally).

Another issue is given the couple created the Chase and Annie Foundation (which I covered here) it will be interesting to see if they still work together on this project. Annie herself is involved with the Wonder School (a non traditional school that teaches more of the Socrates method). Currently Annie is the oldest person at the Wonder School and on her about me page is currently reading "Untamed", enjoys running, reading, and kombucha, and has been a vegan since 2016. The initial cost of the school was $1.5 million and the school would pay Wichita State $90,000 per year to use a building on the campus of Wichita State. 

It will be interesting to see how this divorce between Chase and Annie Koch affects the future. Like I said I really haven't seen any news articles directly discussing the issue. Personally I am curious what the cause of the divorce was. Also given Chase has three children and is busy at work is if he will get married again at all. The statistics on divorce are interesting with about 50% of people getting remarried within 5 years of their divorce. It will also be interesting if ultimately the divorce will hurt the career of Chase at Koch Industries too. More importantly it would be interesting down the road given Chase has third children and his aunt Julia Koch has three children as well (to my knowledge Elizabeth Koch doesn't have any children) creating 6 new potential shareholders of Koch Industries. 

Chase Koch Foundation and How Chase Koch Spends His Charity Dollars

Well it has been many years since I have blogged about Chase Koch (son of Charles and Liz Koch). It appears within the past few years (March 15, 2019) has established the Chase and Annie Koch Foundation Inc. Annie is the wife of Chase Koch and I actually blogged about her here. 

The 2018 Chase Koch Foundation tax return (990-PF) shows a $5 million contribution made. This contribution appears it was solely made by Chase Koch himself. The 2019 return for the Chase Koch foundation shows $15 million of contributions. Of the $15 million gift $1 million came from the "KC 2009 Gift Trust" and $14 million "KC 2009 Family Trust". These were trusts that were established back in 2009 from my guess would be Charles Koch (his initials backwards). 

Chase Koch has mentioned before that he is a shareholder of Koch Industries (he is on record saying this on video-see at the 30:14 mark. It is hard if not impossible to figure out how much ownership he has. His father Charles Koch back in 2012 told Daniel Fisher of Forbes magazine that he has been estate planning for "many, many years". 

Uncle David Koch mentioned in a 1999 article that he regularly gave away 50% of his income every year. This is an interesting dynamic if Koch Industries reinvests 90% of their profits back into the business leaving only 10% of the profit available to be distributed to Koch Industries owners and in actuality only around 7% of the profits (based on historical data has been distributed in the form of dividends) and then between federal and city taxes for New York city and New York state is 50% and assuming 50% was given to charity would say that David Koch was living on less than 2% of Koch's profits for his living needs! 

In terms of what charities Chase Koch has supported it appears the largest charity he contributed to in 2019 was the Phoenix Multisport ($1.1 million just to this). Chase Koch has talked about the positive impacts of Phoenix and how the charity has been able to transform lives as a result. Phoenix Multisport is a community that allows individuals who battle addiction to use physical fitness as an outlet for coping with their addiction. You can think of the Phoenix as a sober gym. From their 2020 report the Phoenix has 54% of members who lived in poverty, 61% who were involved with the criminal justice system, and 15% who identified being part of the LBTGQ+  community. The results of the Phoenix have been amazing though. Roughly 87% of individuals report being sober after 3 months (this is impressive compared to the statistic that 40-60% of individuals relapse after 30 days of leaving a rehab program and the percentage of relapse increases to 85% within 1 year. There is no question that this program seems to have a positive impact by improving the lives of not only many people but their families and communities. 

Another large beneficiary ($350,000) of the Chase Koch Foundation is Wonder Inc. Wonder Inc is a private school that is primarily funded by Chase and Annie Koch that will offer K-12 education on the Wichita State University campus. The school is trying to break the mold of traditional educational by allowing children to be more curious (as opposed to a teaching from a top down approach and "put into practice by solving complex real-world problems using critical thinking, creation, collaboration, and innovation". Annie Koch on the Wonder website lists herself as a "mother since 2012, vegan since 2016" and enjoys "reading, running, and Kombucha (tea)" and she is currently reading "Untamed" 

What is crazy is even though the Chase Koch Foundation is a charity it still pays an excise tax (1%) on investment income. Although this was a de minims amount the Chase Koch foundation paid $433 of tax in 2019. Chase's father Charles Koch (who has his own foundation) in 2020 paid over $1 million in excise taxes). Charles Koch appears to have done estate planning at least in 1997 and 2009. As far back as 2016 the Charles Koch Foundation received gifts from the Charles G. Koch 1997 Trust ($30 million), the KC 2009 Family Trust $27.5 million, and the KE 2009 Family Trust $27.5 million, and smaller gifts from the KC 2009 Gift Trust $7.5 million, and the KE 2009 Gift Trust $9.5 million. My guess would be the names of the trusts represent the initials (KC for Charles Koch and KE for Elizabeth Koch). These trusts have continued to provided funding for the Charles Koch foundation over the years. It is hard even as a billionaire to give away money fast enough to overcome estate taxes. However, Charles Koch years ago stated that he planned to give the main bulk of his estate to Stand Together. 

What is interesting is how the Koch family has set up all these private foundations over the years to give money to various charities. To me it becomes too complicated as you have many different organizations that ultimately are trying to achieve a similar objective. One option is to convert the private foundations into a donor advised fund. The benefit of doing this is tax returns don't have to be filled. Also the donations from the donor advised fund can be contributed to various charities without anyone knowing the source. The 990-PF tax return allows the whole world to see who you are giving to and how much. 

I would predict that over time Chase Koch will be given more ownership of Koch Industries given it seems that currently he is the only one of the Koch family working for the company. David Koch has children however they are too young. Fred Koch himself was charitably inclined as back in 1966 and 1967 set up trusts that would pay income for 20 years to charity and then the remainder after the 20 years would be given to his sons. There is no doubt that Charles and Liz Koch will continue to give away substantial sums of money away and Chase Koch will have access to give away a multiple of what his parents were able to give away if Koch Industries shares transfer to him over time.