Politics & Government

Billionaire Joe Craft may be Kentucky's most powerful non-elected individual

By 7:45 a.m. Sept. 18, a crowd had gathered under the white tent between the Joe Craft Center and the new Wildcat Coal Lodge at the University of Kentucky. Despite steady rain, the tent was filled with an assortment of UK movers, shakers and boosters, excited to see the unveiling of a statue of former Coach Joe B. Hall.

Joseph W. Craft III got out of his white Chevy Tahoe with a Friends of Coal license plate and made his way to the tent, greeting people with hellos and handshakes. He moved through the tent with little fanfare — a quiet conversation with Athletics Director Mitch Barnhart, a handshake with Board of Trustees Chairman Britt Brockman — displaying the low-key assuredness of a billionaire coal operator who makes things happen.

On that day, Craft's fingerprints were on everything: Craft gave $6 million to help build the neighboring state-of-the-art practice facility that carries his name. He coordinated the $8 million gift to build Wildcat Coal Lodge for the UK men's basketball team, donating $4.5 million himself. He stipulated the word coal be put into the name and required a tribute to coal in the front lobby. He even commissioned the artist who sculpted the statue of Hall.

Craft lives in Tulsa, Okla., where his company, Alliance Resource Partners is based. But he's here about 10 days a month, partly because most of his coal mines are in Kentucky, partly because he and his companion, Kelly Knight, are the state finance co-chairs of Mitt Romney's presidential campaign. Knight lives in Lexington and is a well-known Republican fund-raiser.

The night after the statue dedication, he and Knight co-hosted a Romney fund-raiser at Stonestreet Farm where guests paid $1,000 for a ticket and $50,000 to eat a private dinner with Ann Romney. Craft has made no secret of the fact he thinks the administration of President Barack Obama is bad for the coal business. Since the U.S. Supreme Court unleashed unlimited political spending in 2010, Craft and two of his affiliated groups have given at least $4.4 million to conservative and pro-Romney groups.

Craft's name is well-known in Kentucky, even if his face is not. He sits at the nexus of three things about which Kentuckians care a lot: UK basketball, coal and politics. In all three venues, as his business empire has grown, so have his donations, spending and influence, making Craft one of the most powerful non-elected individuals in the state.

Worth $1.4 billion

Craft, 62, was born in Hazard, in a coal county that was suffering from a decades-long industry slump. His father, Joe Craft Jr., was a lawyer whose own father, Joseph Craft, was mayor of Hazard in the 1920s. Craft's father was part of a law firm that represented numerous coal companies.

Craft attended Hazard schools, where he played on the high school baseball team, and was a regular at First Presbyterian Church of Hazard. He was quiet and conscientious, recalled several of his friends, including Bill Gorman Jr., whose father, Bill Sr., was the long-time mayor.

Gorman said Craft was so smart he never doubted he would be a success, but "I guess from the fact he was a rather reserved person, rather quiet and soft-spoken, I never dreamed he would do what he did. A lot of folks like that, I guess they're learning from other people by not talking so much," he said.

Gorman went to UK a year ahead of Craft, and made sure he joined the Sigma Alpha Epsilon fraternity, where Craft eventually became president. Craft got a degree in accounting in 1972, then returned to law school for an eventual career as a tax lawyer.

In an interview with Bill Goodman aired on Kentucky Educational Television in 2010, Craft said the energy crisis in the 1970s — the Arab oil embargo — was responsible for his career change. After a long hiatus, the coal business was suddenly booming, and companies were looking for educated young people to hire.

"That was a turning point in my career where I gave up my dream to be a tax attorney ... and then joined the coal business," Craft told Goodman. (Craft declined numerous requests from the Herald-Leader in recent months for an interview.)

He became a lawyer at Falcon Coal, a small company with mostly surface mines, where he said he did a little bit of everything — accounting, legal and administrative work, contracts and land deals.

In 1986, he was recruited to Mapco, a Tulsa, Okla.-based gas, oil and coal company. He became general counsel for the company and, eventually, president of its coal division. By 1996, Craft decided to lead a management buyout of the division, which became Alliance Resource Partners. The company went public in 1999. The new company stayed in Tulsa, where Craft and his then wife, Kathy, were raising their four children.

As Craft explained it to Goodman, he took a different strategy than many coal companies. In 1990, amendments to the federal Clean Air Act required coal-fired power plants to start cleaning up their emissions, including the use of scrubbers. The changes allowed them to use lower-quality, high-sulfur coal found in Western Kentucky, rather than the prized low-sulfur coal in Eastern Kentucky.

"Most of the longer-lived surface mining reserves in the east were depleted," Craft said. "We wanted to go underground because it gave us long-term, it also had a coal quality that would allow us to compete in this growing market."

Alliance continued to grow, opening more mines in Illinois and Western Kentucky, including a $260 million investment in opening the River View complex in Union County in 2009, which would eventually employ 600 people.

According to the National Mining Association, Alliance was the seventh-largest coal producing company in the country in 2011, mining 30.8 million tons. River View was the fourth-highest producing underground mine in the country with 7.6 million tons. Alliance is also the nation's seventh-largest holder of U.S. coal reserves, with just under a billion tons.

In 2011, Sean Williams of the Motley Fool named Craft the eighth-best CEO in the country for consistently rewarding stockholders with 14 straight quarters of rising dividends. Since that time, the dividend has risen three more times.

Forbes Magazine reports Craft's worth as $1.4 billion.

Craft is a great spokesman for the entire coal industry, said Bill Bissett of the Kentucky Coal Association.

"He is considered a leader, not just in coal, but as a person who has created literally thousands of jobs," Bissett said.

Statistics kept by the U.S. Mine Safety and Health Administration show that Alliance's mines in Kentucky generally have safety records that are at or better than national standards. A big exception was 2010, when miner James Falk died at River View after being struck by a shuttle car, and miners Michael Carter and Justin Travis were killed in a roof fall at the Dotiki mine in Hopkins County.

The MSHA report on Falk's death cited the River View mine operators for not properly training Falk in safety procedures. In the Dotiki incident, federal investigators concluded the roof fall was caused by hidden "slips" or breaks in the shale bed overhead.

"The absence of any sign of 'slips' in the immediate roof gave no warning for the need to install supplemental or additional support," the report concluded, but officials did cite Dotiki operators for not adequately supporting the roof.

A judge has dismissed civil lawsuits filed by the widows of Carter and Travis; those cases have been appealed to the Kentucky Court of Appeals.

Political pragmatism

In an old industry, Alliance is a relatively new player, now reaping the benefits of the booming Illinois basin coalfields in Western Kentucky. But in a short amount of time, its influence has reached across the state.

Craft's statewide political donations show the usual pragmatism of many coal operators who have provided largesse to coal-supporting candidates, regardless of party.

For example, he's given $28,500 to candidates for state offices since 2008, with a bigger share going to Democrats, according to the Kentucky Registry for Election Finance.

Craft and other Alliance employees have given Democratic Gov. Steve Beshear nearly $13,000 for his gubernatorial campaigns. In addition, Alliance employees have given more than $83,000 to state candidates in both parties.

Alliance has become a major player in Kentucky politics during the past decade, said Tom FitzGerald, director of the Kentucky Resources Council.

"The role they have played in terms of being one of the faces of coal around the legislature has become much more prominent," FitzGerald said.

In 2009, Ron Mills, director of the state's Division of Mine Permits, was fired after he declined to approve permits for Alliance using the controversial 331⁄3 rule, which allows mining to start under private land even if the operator doesn't have permission from all landowners.

On Nov. 13 of that year, at roughly the same time Mills was informed of his termination, Alliance's manager of environmental affairs, Raymond "Rusty" Ashcraft, sent an email to several industry supporters to inform them of the act. The permits were then approved by Mills' replacement.

After Mills sued the state for wrongful termination, Ashcraft said in a deposition that he was told about the firing by an aide to the governor, although he couldn't remember who.

Ashcraft's deposition provided testimony about the political sway of companies like Alliance. He said he successfully lobbied Gov. Ernie Fletcher's administration in 2007 to enact the 331⁄3 rule, and that he successfully lobbied the Beshear administration in 2008 to reinstate the rule over Mills' objections.

Mills declined to comment because of his ongoing litigation. Beshear officials have said they are trying to settle the matter out of court.

"Why they (the governor's office) would call Rusty, and why they would think that was something they needed to share with him, is kind of fascinating," FitzGerald said. "That kind of reflects ascendancy of that particular company."

Also in Ashcraft's deposition, he said that in 2009 he gave the governor's office the names of three men Alliance Coal wanted the governor to nominate to a federal panel to study "the ecological impacts associated with" mountaintop removal mining. Beshear went on to nominate two of the three men, Ashcraft said.

In March, Beshear's administration named Jerry F. "Freddie" Lewis, Sr., a former safety director at Alliance, as the new executive director of the Office of Mine Safety and Licensing.

Beshear also appointed Craft to his Kentucky Climate Action Plan Council, which was designed to help Kentucky work toward "energy independence" and a smaller carbon footprint. Craft sent an email to the council before its February, 2010 meeting, saying he would vote against the group's final report.

"I do not believe it is appropriate or in the best interest of Kentucky to recommend policies that would move Kentucky from low-cost energy options to high-cost energy options," Craft wrote. "Such policies threaten to undermine Kentucky's competitive advantage of having the third lowest electricity rates in the United States."

The final report was issued, although one participant said it was clear representatives of the major utilities and coal would win out.

"A lot of the hard work that went into crafting the positions got overturned right at the end by a few votes here and there," said David Brown Kinloch, president of Soft Energy Associates, which focuses on small hydro-electric projects. "We recognized going in that the whole thing was stacked against the environmental community."

Craft has expressed doubts about the danger of climate change and the best solution. He told KET's Goodman "there is significant debate about the science, and the gravity of the issues we're facing.

"As we think about jobs and the economy of America, how do you balance that with the harm?" he said. "That's where there's a big debate in my mind to where we're focused on going to the highest cost solution without really understanding the benefit we're getting."

Millions to defeat Obama

On the federal level, it's clear from Craft's words and political donations that he believes the coal industry has been under attack since Obama was elected.

Craft, along with his holding companies, employees and other affiliated entities, has spent about $6.1 million on federal elections since 2007, the vast majority in the past two years.

According to the Federal Election Commission, Craft has personally donated $507,100 since 2007 to federal candidates, political action committees and political parties. The Alliance Coal PAC has donated $340,000 in that same time frame, while Alliance employees gave $900,000.

In addition, Craft has personally given $3.1 million to so-called Super PACs trying to influence the presidential race. He gave $1.25 million to American Crossroads, a Super PAC started by Karl Rove, whom he was pictured with at the Kentucky Derby this year, and in January and August of this year gave two $500,000 donations to Restore our Future, a pro-Romney Super PAC, according to the Federal Election Commission.

Meanwhile, Alliance Management Holdings, the privately-held LLC of which Craft is president, contributed a total of $850,000 to American Crossroads through two donations, one in December 2011 and the other on May 31, 2012, according to the Center for Responsive Politics, which tracks Super PAC donations. Last week, the FEC released records showing that in August, the Joseph W. Craft III Revocable Trust gave $1.25 million to American Crossroads as well.

In July of this year, Craft defended his spending to the Tulsa World. "Like the vast majority of Americans, I believe our country is headed in the wrong direction," Craft said in a statement to the paper. "Increased spending, growing government debt and overreaching regulations are stifling job creation and economic growth."

Craft told the newspaper that his donations counter spending by liberal groups.

"There is no perfect campaign finance system," Craft said. "However, the current approach protects free speech and allows voters to judge the merits of political expression."

This kind of spending on political races, however, has alarmed groups who support campaign finance reform because they believe the super-wealthy have been given too much power.

"This is a return on investment, a direct financial incentive at play," said Tom Perriello, a former Virginia congressman now with the Center for American Progress in Washington, D.C. "This is about getting back literally millions of dollars that he (Craft) will make back on loopholes in Romney's tax plan. Democracy is supposed to be something that represents all Americans and not just those who can write the biggest checks."

'I'm a giver'

Craft clearly sees himself as a supporter and protector of the coal industry, and nowhere has that become more evident than at his alma mater, the University of Kentucky. While always a supporter of UK, Craft became one of basketball's biggest boosters after the arrival of Coach Tubby Smith, whom Craft had known in Tulsa.

In 2009, UK announced that Craft had gathered together a group of "Difference Makers," who would give $8 million to build a new dorm for the men's basketball team. However, the gift stipulated that the name be changed from Wildcat Lodge to Wildcat Coal Lodge. The gift also required a "tribute to coal" showing the importance of coal to Kentucky in the building's lobby. The tribute had to be approved by Craft, who put in $4.5 million himself.

The gift resulted in famed author Wendell Berry, a UK alum, pulling his papers from UK because he said it indicated the university was in a "manifest alliance" with the coal industry, which he believes has harmed Kentucky's environment and its people.

Sometimes, Craft's political, business and sporting lives intersect.

In 2009, he brought UK men's basketball coach John Calipari to the dedication of Alliance's River View mine in Union County, and in 2011 showed Calipari around his two mines in Pike and Martin counties. In 2011, Craft co-hosted a Romney fund-raiser in Lexington with two celebrity guests — former UK basketball players DeMarcus Cousins and Josh Harrellson.

The relationship between UK and Craft "speaks to a long pattern in Kentucky history of money influencing both politics and the university for many, many years," said Ron Eller, a professor and former director of the UK Appalachian Center.

Craft's athletic giving dwarfs his donations to academics. Since 2008, he has donated or pledged about $500,000 to an array of non-sports causes on campus, including more than $400,000 to a mining engineering endowed chair and scholarship fund. Other gifts range from $7,000 to SAE, his former fraternity, for its housing fund to $2,000 for the UK Police Christmas Party Gift Fund. He also gave $100,000 to Hoops for Haiti, a Calipari fund-raiser after the 2010 earthquake there.

Rick Honaker, chairman of the mining engineering department, said Craft has been accessible to both students and faculty.

"He's an open person and anyone can talk to him," Honaker said. "I deal with a lot of CEOs, and he's probably the most laid back."

David Adkisson, president of the Kentucky Chamber of Commerce, said Craft recently joined his board of directors. When he told Craft about a scholarship training program for school principals, Craft offered to cover Henderson, Union and Webster counties at $9,000 per county.

"He covered where he does business," Adkisson said. "He's obviously a very passionate champion of domestic energy, and recently joined our board, which is testimony to his loyalty to his home state."

On KET, Craft said he's not trying to influence politics or UK's policies.

"I'll tell you where my heart is — my heart is just to try to give back," he said. "I'm a giver. What I want to try to do is try to make the University of Kentucky successful. I want the state of Kentucky to be the best it can be; I want America to be the best it can be. ... I'm not trying to make political statements. I'm not trying to influence anybody in a way that I don't think is in the best interest of the University of Kentucky, the state of Kentucky and America. And that's what I would say."

Reporter John Cheves contributed to this story.