Former Rep. John Thune (R-S.D.) has set up a 527 political organization and begun to raise money to fund its activities, stoking speculation that he is laying the groundwork for a challenge to Sen. Thomas Daschle (D) in 2004.

Known as South Dakotans for a Responsible Government, the group is designed to “promote our prairie values — in South Dakota and across the country,” according to a direct-mail fundraising appeal sent out late last month.

As a 527 — so named because of its status under the Internal Revenue Service tax code — the organization can not only accept unlimited donations but also does not have to disclose its donors.

“After the election John heard from thousands of people asking him to stay involved in the political process,” said the organization’s executive director, Ryan Nelson. “This is the best way to continue to get his message and that of his supporters out.”

Another South Dakota Republican observer explained that “there is no longer a strong conservative voice in South Dakota” and “a number of people approached John to step forward and fill that void.”

The state has two Democratic Senators and its lone House Member — Rep. Bill Janklow (R) — is a former four-term governor who developed a reputation as a maverick not particularly concerned with his party’s ideology.

The group is currently pondering its options to reach like-minded citizens including the use of more direct-mail efforts and television commercials, one GOP source said.

Nelson dismissed suggestions that the formation of the 527 signals that Thune is moving toward a Senate bid.

“It is way too early,” he said. “[Thune] is not even discussing it right now.

Steve Hildebrand, Daschle’s campaign manager, disagreed. “This is John Thune’s small way of staying politically active,” he said. “It is his way of trying to set up a race between [him] and Tom Daschle.”

The letter seems to lay the groundwork for a potential line of attack on Daschle as an obstructionist.

It hits Senate Democrats for their failure to pass a budget and their threatened filibuster of the judicial nomination of Miguel Estrada.

“[Democrats] seem almost emboldened by their minority status,” Thune writes. Daschle, the Senate Minority Leader, is not mentioned by name, however.

After losing a 2002 challenge to Sen. Tim Johnson (D) by 528 votes — the smallest margin of the 34 Senate races last cycle — Thune is being heavily courted to challenge Daschle next November.

An official with the National Republican Senatorial Committee met with Thune last week in South Dakota to discuss the race, according to an in-state source.

“John Thune ran a tremendous campaign in 2002 and would certainly be an excellent candidate for Republicans in 2004,” said NRSC Communications Director Dan Allen. “We will continue to talk to him.”

Just two weeks after Thune’s defeat, the Republican National Committee sponsored a poll that showed Daschle with a narrow 48 percent to 43 percent edge, a lead within the survey’s 4.3 percent margin of error.

Thune has also started a consulting firm —The Thune Group — specializing in health care, agriculture and transportation issues, and located in South Dakota, although it has a professional relationship with the D.C. law firm Arent Fox.

In 2002, the White House and NRSC played a major role in convincing Thune to abandon a sure-thing gubernatorial bid to challenge Johnson.

President Bush himself met privately with Thune and his wife during the courting process and made a number of appearances in the state during the campaign’s final days.

Daschle is no easy target, having held federal office since 1978 and rarely facing serious challenges in that time.

He was widely expected to vacate his seat in 2004 to pursue a run for the Democratic presidential nomination, but decided against a national campaign in January and announced he would run for a fourth Senate term.

Hildebrand said that Daschle is entirely committed to his re-election race.

“We are aggressively raising money, hiring staff and setting up a new headquarters in Sioux Falls,” Hildebrand said.

Daschle has proved to be a prolific fundraiser both for his own campaigns and for the Democratic Senatorial Campaign Committee since his ascension to leadership. He ended 2002 with $1.5 million in the bank after raising $540,000 over the final six months of the year.

Thune proved himself an able fundraiser last cycle, raising $5.2 million. Despite Daschle’s obvious electoral strengths, national Republicans believe the dynamics of the state in 2004 will be ripe for an upset.

The strongest argument forwarded by GOP strategists is the state’s clear Republican tilt, especially in presidential elections. Bush carried a 22-point margin in the 2000 presidential election; six of the seven statewide office are held by Republicans, and they enjoy solid majorities in both the state House and Senate.

Republicans believe Daschle has emerged as the prime obstructionist to the Bush agenda and voters will begin to see him more and more through that lens as the cycle continues.

The seeds of this effort were sown in the Johnson-Thune race when a number of special interest groups led by the Club For Growth spent significant sums hitting Daschle for his leadership of Senate Democrats.