“This is illegal right?” a contact asked this morning after reading Pat Rynard’s scoop about the Iowa Farm Bureau Federation soliciting agribusiness dollars to help Republican Mike Naig win the secretary of agriculture election.

You’d think so, since Iowa law prohibits corporations from donating to candidate committees or state PACs.

However, the Farm Bureau appears to have found a legal way to boost Naig with Big Ag cash while concealing the sources of those funds until after November 6.

The scheme is a case study of how Iowa’s campaign finance laws fail to limit corporate influence effectively or even provide transparency when companies try to buy elections.

“A ONE-TIME INVESTMENT OF CORPORATE FUNDS…COULD RETURN DIVIDENDS FOR A DECADE OR MORE”

In a memo Rynard published today at Iowa Starting Line, the Farm Bureau’s director of government relations Don Petersen solicited donors “for a comprehensive plan to build positive name ID and improve voter information” about Naig through television, radio, and digital advertising. “Iowans for Agriculture,” a front group the Farm Bureau established in September 2006, will spend the money promoting Naig.

Peterson stated that “Iowa Farm Bureau has committed significant resources to ensure the success” of this campaign, and Naig’s race against Democrat Tim Gannon “is dead even, with low name ID for both candidates.” Although Naig is the incumbent, he has never appeared on a general election ballot. Governor Kim Reynolds appointed him in March after three-term incumbent Bill Northey moved on to a senior position in the U.S. Department of Agriculture. Petersen told potential donors,

Iowa farmers and agribusiness will benefit for years to come if a campaign is successful. True incumbents win most of the time. A one-time investment of corporate funds for this cause could return dividends for a decade or more to come

The memo suggests donating around October 20, “but no later than October 26 to enable deployment of our messaging.” Petersen explained that the group must file a report with the Internal Revenue Service by October 25 disclosing “contributions received before or on October 17th.” That filing will be linked on the Iowa Ethics and Campaign Disclosure Board’s website. In contrast, money that comes in after October 17 won’t need to be disclosed until after the election.

A CORPORATE FRONT GROUP’S PAST ADVOCACY

Iowans for Agriculture funded extensive negative messaging about Democratic secretary of agriculture nominee Denise O’Brien in the closing days of the 2006 campaign. Petersen boasted in the memo that the late spending “clearly impacted the outcome of that race.” I did not find reports on the ethics board’s website listing Iowans for Agriculture’s 2006 contributions or expenditures. Most Iowa politics watchers would agree that without a corporate-funded smear campaign, Northey would not have narrowly defeated O’Brien in a Democratic wave year.

Iowa Farm Bureau officials reorganized Iowans for Agriculture in 2008 as a 527, a tax-exempt political committee subject to IRS regulations. Paperwork filed with Iowa’s campaign regulator at that time defined the group’s purpose as follows: “attempting to influence the selection, nomination, election or appointment of individuals to state or local public office when the decisions, actions or policy within the influence of such public office affects agriculture in the state of Iowa.”

Filings archived on the ethics board’s website show the front group for agribusiness spent $74,750 on media buys during the 2010 campaign, when Northey was running for re-election against Democrat Francis Thicke. Donors that year (see here and here):

Monsanto Company ($5,000)
Iowa Farm Bureau Federation ($40,000)
Iowa Select Farms ($10,000)
Agribusiness Association of Iowa ($2,500)
Ag Processing Inc ($5,000)
Iowa Corn Growers Association ($12,500)

During the 2014 election cycle, when Northey faced an under-funded Democratic challenger in Sherrie Taha, Iowans for Agriculture did not fund advocacy related to the secretary of agriculture race. Instead, the group collected $25,000 from the Iowa Farm Bureau Federation and spent it on a breakfast with New Jersey Governor Chris Christie. At the time, Christie was preparing to run for president, and New Jersey’s legislature was considering a bill to ban gestation crates for pigs, which the governor eventually vetoed.

Later in 2014, the Farm Bureau gave $15,000 to Iowans for Agriculture, which donated the same amount to “Protect the Harvest.” That group advocates against the Humane Society and animal welfare laws across the country.

NO APPARENT PROBLEMS WITH STATE OR FEDERAL LAW

Can the Farm Bureau and like-minded corporations bankroll extensive statewide advertising on Naig’s behalf, despite Iowa’s ban on corporate financing of candidates for statewide office? The unfortunate answer is yes.

Larry Noble, senior director and general counsel for the Campaign Legal Center, commented by e-mail that federal campaign finance law does not apply to spending in a state race.

The Internal Revenue Code does does apply. As a 527 organization, they are registered with the IRS as an organization that undertakes political activity, which can include expressly advocating the election of a candidate. They can suggest contributions not be made unil after the reporting date. So, it appears the only question is whether any of this violates Iowa law.

Paul S. Ryan, vice president of policy and litigation for Common Cause, agreed. He told me,

Section 527 of the federal tax code creates federal tax exemption for groups with the primary activity of influencing the election, nomination or appointment of people to public office. Every candidate and political party committee at the municipal, state and federal level is exempt from federal income tax under this section of federal law. An organization exempt from federal tax under section 527 can spend every penny it raises on express candidate advocacy—i.e., “Elect Naig Secretary of Agriculture.”

And I suspect that the Iowa Farm Bureau is exempt from federal income tax under section 501(c)(5) of the federal tax code, which provides exemption for labor, agricultural or horticultural organizations. Such organizations are permitted to engage in express candidate advocacy—and to solicit contributions for political organizations—so long as such candidate election-influencing work is not the organization’s primary activity.

Because this is a state office election, state campaign finance law governs whether the Iowa Farm Bureau and/or the 527 group it created, Iowans for Agriculture, is subject to any requirements or restrictions. […] Federal court decisions, including the U.S. Supreme Court decision in Citizens United, establish that corporations can make unlimited independent expenditures and that groups making only independent expenditures can accept unlimited contributions from corporations and individuals. So, at most, Iowans for Agriculture would be required to register with the state as a political committee and file disclosure reports—and would NOT be subject to any limits on fundraising or spending.

Petersen’s memo stated, “This is not an express advocacy campaign.” Iowa Code defines an independent expenditure as “one or more expenditures in excess of one thousand dollars in the aggregate for a communication that expressly advocates the nomination, election, or defeat of a clearly identified candidate […].”

Obviously, the sole purpose of this effort is to elect Naig. But courts and regulators have narrowly defined “express advocacy.” So as long as Iowans for Agriculture does not explicitly call on Iowans to vote for Naig, the group can spend unlimited sums on positive advertising about the Republican without triggering extra disclosure requirements. Groups making independent expenditures in Iowa races are required by law to file reports within 48 hours of spending $1,000 or within 48 hours of “disseminating the communication to its intended audience, whichever is earlier.”

Ryan noted that reporting donors to the IRS

is required of all groups claiming tax exemption under section 527 of the tax code but NOT registered with any local or state government or with the FEC as a political committee. This is sort-of a backstop provision in federal tax law. The overwhelming majority of groups claiming tax exemption under section 527 of the federal tax code are required by federal, state or local law to also register as political committees—so they report/disclose to the FEC or state or local campaign finance agency. […]

Bottom line, this Iowa Farm Bureau letter suggests to me that the group has a competent attorney and the group has figured out a way to legally raise corporate funds to influence the election with no donor disclosure until after the election.

If Naig wins on November 6, he will owe his victory to corporations that funded advertising far beyond what his campaign could afford. And it will all be legal.