Fallon Faces Campaign Finance Questions

Former State Rep. Ed Fallon is quick to note his support of campaign finance reform in his primary campaign against U.S. Rep. Leonard Boswell, but his political advocacy organization raises complicated campaign finance questions of its own.Fallon founded the organization, known under the acronym I’M For Iowa (an “Independence Movement For Iowa”), months after losing a bid for the Democratic party’s gubernatorial nomination in 2006.

Although I’M For Iowa participates in political advocacy and relies on contributions to stay afloat, its financial status does not fit the typical mold for this type of organization. Rather than registering it as a nonprofit organization with the Internal Revenue Service under sections 501(c)(3), 501(c)(4) or 527, Fallon runs the organization as a for-profit general partnership, making its tax status no different from most home businesses. He and his current campaign manager, Lynn Heuss, co-own the business.

But there is a difference between I’M For Iowa and most typical businesses: Rather than sell products and services to customers, it accepts donations for its political advocacy work. While the donations are not tax-deductible, the business can accept unlimited amounts of money. And because of its tax status, it is not required to disclose information about its sources of funding.

Although Fallon continued to receive paychecks from his gubernatorial campaign account through the end of 2006 and earned a nominal amount of money for consulting on former Sen. John Edwards’ presidential campaign during the Iowa caucuses, he said that he also earned some money from I’M For Iowa during 2007. “I think both Lynn and I took a small draw on the business, but again, it was just getting going,” he said. Currently the business is Fallon’s only apparent source of income.

But I’M For Iowa is not just a source of income for Fallon. It is also an outlet to promote his congressional campaign through e-mails to its long list of subscribers. Fallon denies that the business has been used for campaign purposes, claiming that “there has been no connection between I’M For Iowa and the campaign. I have been very meticulous about that.”

But aside from the organization’s political advocacy work on local and statewide political issues, Iowa Independent has uncovered two I’M For Iowa e-mails promoting Fallon’s congressional bid.

On Feb. 29 an e-mail Fallon wrote to his I’M For Iowa group invited readers to visit his campaign Web site and participate in campaign activities to coincide with his 50th birthday. And on Jan. 12 he sent an I’M For Iowa e-mail announcing his candidacy for Congress and providing a lengthy critique of his primary opponent’s voting record.

The result is a complicated question involving the nuances of campaign finance law. Can an unincorporated business accept unlimited contributions without the requirement to disclose its contributors and then use contributed funds to promote a congressional campaign?

Although Fallon may not have violated the letter of current campaign finance laws, even the appearance of impropriety could damage his campaign, which is founded on proposals for campaign finance reform and clean elections.

Confronted about the situation, Fallon claimed that I’M For Iowa is no different from any other business for campaign finance purposes. “Well, that’s no different than Jeff Lamberti making a living off of the proceeds of Casey’s,” he said, referring to Boswell’s 2006 Republican opponent, whose family founded the well-known chain of gas stations.

But Casey’s corporate e-mail accounts were not used to promote Lamberti’s congressional campaign. Because Casey’s is an incorporated entity, in-kind contributions like promotional campaign e-mails on behalf of the company would have been illegal. Casey’s also does not solicit donations to generate revenue.

Although Fallon wrote an email to I’M For Iowa’s e-mail list on March 7 asking each member for “a donation of $100, $50, $25 or more if possible,” he now admits that using the term “donation” may have been a mistake.

“If the e-mail described it as donations, it’s probably the wrong technical language,” Fallon said. He likened contributors to I’M For Iowa to “investors” rather than donors, although contributions are not made in exchange for a financial stake in the company.

The fact that a candidate can form a business entity, accept unlimited, undisclosed contributions to the business, and then use the business for campaign purposes, might raise questions among many advocates of increased transparency in politics. But Fallon, himself an outspoken advocate for cleaner elections, does not see the issue.

“It’s not getting around any rules,” he said.

The candidate resisted Iowa Independent’s request for I’M For Iowa’s tax return and other documentation of its contributors or “investors.” “I’m not sure whether that’s public knowledge or not,” he said, implying that he would not release the information unless required to by campaign laws.

A representative of the Federal Elections Commission would not comment on any matters that regulators may have to rule on, but FEC regulations do not seem to explicitly prohibit coordination between a campaign and an unincorporated business entity owned by a candidate.

But Fallon, who imposed stricter fund-raising limitations on himself than were required by state law during his campaign for governor, has generally held himself to higher campaign finance standards than what the letter of the law requires. A major part of his 2008 campaign message is that he refuses money from any political action committee (PAC), which many of his supporters see as corruptive influences in politics. But even PACs are required to disclose certain information about their donors, while I’M For Iowa is not.

How supporters of stricter campaign finance laws will react to these revelations about Fallon’s I’M For Iowa entity remains to be seen.