Ethics board clears Schmetts' lobbying, approves fine for disclosure violations

Staff for the Iowa Ethics and Campaign Disclosure Board (IECDB) found no evidence Kim Schmett or Connie Schmett violated state laws on lobbying or conflicts of interest through their outside work as consultants, according to a document prepared by IECDB Executive Director Megan Tooker. However, a review found several omissions on the government officials’ annual personal financial disclosure forms, for which board members approved a reprimand and $250 fine for Connie Schmett. Although staff suggested that the board direct Connie Schmett to stop making campaign contributions under the surname she used during her previous marriage, after a lengthy discussion the board voted that Connie Schmett did not violate state law by donating to candidates and political committees as Connie Russell.

Governor Kim Reynolds requested the review of the Schmetts’ activities in November, following an Associated Press report on the state officials’ work as registered foreign agents lobbying for Saudi Arabia. The board discussed the matter for more than two hours during a January 25 meeting. Following minor revisions, IECDB chair James Albert will sign a letter to Reynolds outlining the board’s findings and recommendations. Tooker distributed a draft letter to reporters during the meeting; I will post the final version as soon as it is available. UPDATE: Enclosed below the letter to the governor, with supporting documents.

The IECDB “does not have authority to interpret or enforce federal law and we do not consider whether Kim or Connie complied with federal law,” the letter noted. The analysis examined compliance with five Iowa Code sections related to the ethics of state government officials. Kim Schmett chairs the Employment Appeal Board. Connie Schmett serves on the Health Facilities Council and Cultural Affairs Board.

Conflicts of interest

Tooker noted during the January 25 meeting that she did not delve into the tactics the Schmetts used to lobby for changes to the federal Justice Against Sponsors of Terrorism Act, such as encouraging veterans to travel to Washington, because that’s outside the IECDB’s jurisdiction and not relevant to this inquiry. Iowa law permits state officials to do outside work.

Tooker’s review found “no evidence” that the Schmetts’ outside employment or activities violate Iowa Code 68B.2A, outlining conflicts of interest for state employees. Specifically, she found “no evidence” the Schmetts used state resources for their lobbying work or were paid by anyone other than the state of Iowa for work related to their duties on state boards.

Tooker looked into whether Kim Schmett’s consulting activities and work as an adjunct professor at William Penn University violate state code on doing outside employment “during the hours which the person performs service or work for the state.” Unlike most state boards and commissions, the Employment Appeal Board is a full-time position, for which Schmett earns $80,000 a year. Schmett told Tooker that he and the other board members “do not keep regular office hours and frequently work from home” reviewing unemployment appeal claims. Most weekdays, they meet for about a half hour to hear those claims. Tooker found that Schmett “attended nearly every meeting” over a three-year period, and “the vast majority of the Board’s decisions were made within forty days. In short, it appears Kim is performing the essential duties of his position.” She found “no evidence” that Schmett “performed any official duty” while doing consulting work or teaching. According to Schmett, his wife did most of the lobbying related to their registration as foreign agents.

Iowa law does not prohibit state officials from doing work on behalf of foreign governments, the letter noted. Reynolds has said she favors changing the law to close that “loophole.” Democratic State Representative Brian Meyer introduced a one-sentence bill stating, “Officials and state employees shall not engage in any outside employment or activity that requires the person to register under the federal Foreign Agents Registration Act.” The bill has been assigned to a House State Government subcommittee.

Sales of goods or services by regulatory agency officials

Tooker’s review “found no evidence Schmett and Associates does consulting work for individuals or entities regulated by the Department of Public Health or the Department of Inspections and Appeals,” so they were not required to ask permission of either agency for their consulting work.

Lobbying activities

Tooker examined whether the Schmetts’ consulting work was consistent with Iowa Code 68B.5A, which bans “certain lobbying activities.” From the draft letter to Reynolds:

The Ethics Board found no evidence Kim has lobbied state employees or officials during his service on the Employment Appeal Board. Kim signed an affidavit to that effect (see attached) and his lobbying work through Schmitt and Associates appears to be limited to lobbying the federal government. […]

Connie serves on the Cultural Trust Board and the Health Facilities Council. The Supreme Court of Iowa has held the restrictions on lobbying in section 68B.5A do not apply to members of part-time boards or commissions. Thus, the restrictions in section 68A.5A do not apply to Connie. Nevertheless, the Ethics Board found no evidence she acted as a lobbyist before state government during her service on the Cultural Trust Board and the Health Facilities Council. She signed an affidavit to that effect as well (see attached).

Side note: Bleeding Heartland’s review of records from Governor Terry Branstad’s office did not turn up any sign that either Schmett contacted the governor’s staff regarding the law that allows 9/11 victims and relatives to sue foreign governments. However, Washington-based lobbyists retained by Saudi Arabia repeatedly urged the governor and the adjutant general of the Iowa National Guard to ask Congress to revise the Justice Against Sponsors of Terrorism Act.

Personal financial disclosure statements

Iowa Code 68B.35 requires that several hundred state officials file annual forms disclosing all sources of income exceeding $1,000. As first reported by the Associated Press, Connie Schmett did not list her consulting income on the disclosure covering income during 2016, despite having registered as a foreign agent in October of that year. She did not file any disclosure covering 2013, the first year she joined the Health Facilities Council. (Cultural Trust board members do not have to file personal financial disclosures.)

Tooker determined that because the Iowa Department of Public Health did not inform IECDB in 2013 that Connie Schmett had been appointed to Health Facilities Council, IECDB staff didn’t notify her that she needed to file for 2013: “Therefore, we don’t fault her for not filing one.”

Connie Schmett’s disclosures covering 2015 and 2016 omitted not only her work for Schmett and Associates, but also her Social Security income for both years, her state pension (IPERS) income for 2016, and 2016 income “from an investment account that she inherited.” The letter noted,

Connie has amended her 2015 and 2016 reports and the Ethics Board’s staff has reviewed the Schmetts’ tax returns to ensure their personal financial disclosure statements are now complete. Connie claims her omissions were merely an oversight.

Tooker learned that Kim Schmett’s “statements were consistent with his tax returns except that he failed to disclose income from an annuity he inherited in 2016. He amended his statement to include the annuity.”

During the January 25 meeting, Tooker observed that the IECDB doesn’t have jurisdiction to do routine audits of these disclosure forms. There may be other state officials who don’t disclose all sources of income, but she doesn’t have a way of checking unless someone brings the issue to her attention.

The five board members quickly agreed that no further consequences were warranted for Kim Schmett. They discussed at length the appropriate sanctions for Connie Schmett, whose omissions were more extensive and serious. The options were: reprimand, remedial action (already done), and/or civil penalty up to $500. (For a contested case, the penalty could go up to $2,000, but IECDB was making an administrative resolution.)

In the past, the board has not penalized people for failing to file complete disclosure forms, Tooker said. In one case, the person involved resigned from the state body. The board dismissed a complaint related to Iowa Board of Regents member Bruce Rastetter, who had listed “farming” as his sole source of income exceeding $1,000, after Rastetter filed an amended personal financial disclosure listing his various companies.

Two IECDB members, Carole Tillotson and John Walsh, favored a reprimand alone for Connie Schmett. They noted she had listed her consulting firm on the personal financial disclosure covering 2014, suggesting she had been merely “sloppy” the other years, not intending to conceal sources of income. Jonathan Roos countered that failing to mention the consulting work was “a serious omission.” He favored a more severe penalty, because he suspects “these forms aren’t taken seriously” by state officials. Albert added that this was “crucial information,” being paid to lobby for the Saudi government. Roos moved for a $500 fine; Albert agreed but as board chair was unable to second the motion. There was no second. The fifth board member, Mary Rueter, indicated she favored a fine of $250 in addition to a reprimand. A motion to impose that penalty carried by a 3-2 vote.

Campaign contributions

The letter noted the Schmetts’ extensive political activism over the years, adding that most executive branch officials are allowed to engage in political activities. Iowa law bans political activity for some state government positions, including members of the Public Employment Relations Board. “Given the fact the Employment Appeal Board is a full-time quasi-judicial board, the Iowa legislature may want to consider banning the Board’s members from engaging in political activity,” the letter commented. Board members agreed with that language, but they asked Tooker to strike a sentence from the draft urging state lawmakers to make that change.

Ironically, a new state Code of Administrative Judicial Conduct gives Schmett more leeway to engage in partisan politics. The Department of Inspections and Appeals used administrative rule making to enact that code late last year; it went into effect just yesterday. The new language states that agency heads or members of multimember agency heads are not administrative law judges (see page 9). That definition excludes Employment Appeal Board members. By extension, Schmett appears not to be bound by judicial Canon 4, which restricts political activity by administrative law judges (see pages 7 and 8). Albert told me he was unaware the code of administrative judicial conduct had been revised until I mentioned it following the IECDB’s meeting.

After Bleeding Heartland reported in November that Kim Schmett had not disclosed political contributions made while registered as a foreign agent, both Schmetts submitted new paperwork to comply with the Foreign Agents Registration Act. During my review of those documents, I learned that Connie Schmett has made most of her political contributions over the years under the name Connie Russell.

The draft letter to Reynolds noted,

Connie’s legal surname is Schmett and it has been since 1994 when she and Kim married. However, Connie has maintained a checking account under the name Connie Russell throughout her marriage and has given campaign contributions from this checking account, causing campaign committees to report contributions from Connie Russell instead of Connie Schmett. Connie provided an affidavit to the Board explaining she uses this checking account for her household expenses as well as campaign contributions. The Ethics Board’s staff reviewed examples of several months’ worth of bank statements and confirmed this is an active checking account, which is used for everyday expenses. Connie denies any intend [sic] to misrepresent her identity.

Tooker argued for directing all committees that have received funds from “Connie Russell” to amend their reports, and for directing her to refrain from making political gifts under that name in the future. She pointed out that Iowa Code section 68A.501 requires Iowans to provide a name and address along with any political contribution in excess of $25. Another extensive discussion ensued. A consensus emerged that Connie Schmett had displayed no intent to deceive, nor had she given a large amount of money as Connie Russell ($3,300 to state candidates or committees over a 15-year period). Furthermore, state law does not specify that donors must provide their legal names. So while there was general agreement that donors should ideally list their legal names, and that giving under another name subverts the purpose of campaign finance disclosure rules, board members agreed that Schmett had not technically broken the law.

After further debate, the IECDB agreed not to direct Schmett to cease making political gifts as “Connie Russell,” on the grounds that it is illogical to tell someone to stop doing something that you’ve determined was not a violation of the law. The board will consider recommending that state lawmakers amend Iowa Code to require that political donors provide their legal names.

UPDATE: Tooker provided a copy of the final letter sent to Reynolds.

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