A Chance to Finally Close the LLC Loophole

An appellate court in Albany is set to hear oral argument in the Brennan Center’s long-running challenge to the state’s LLC Loophole.

January 12, 2018

An appellate court in Albany is set to hear oral argument in the Brennan Center’s long-running challenge to the state’s LLC Loophole. The Center brought action against the much-reviled loophole in partnership with the law firm Emery Celli Brinckerhoff & Abady on behalf of a bipartisan group of officeholders, candidates, and voters. This case could strike a major blow against New York’s culture of corruption, if only the court steps up to the plate and fulfills its role to enforce the law as written.

The LLC Loophole, which treats LLCs like individual donors under campaign finance law, has allowed wealthy donors to spend virtually unlimited sums – often in secret – to influence New York elections. It dates back to 1996, when the state’s Board of Elections created the loophole through a misinterpretation of Election and LLC Laws.

LLCs  are  hybrids of a corporations and  partnerships. But while corporations and partnerships can only give up to $5,000 and $2,500 total in political contribution per year, respectively an LLC can give up to $65,100 per candidate in statewide races. It is also quite easy for wealthy donors to create multiple LLCs, each of which is entitled to that limit. In one of the most egregious examples, in the 2014 election cycle a single real-estate developer created 27 LLCs to give $4.3 million. In many other instances, the true source of contributions through LLCs remains unknown, since the law does not require who owns or controls an LLC to be publicly disclosed.

It is pretty clear that when the Legislature passed the Election Law, it did not intend to make room for wealthy donors to funnel millions of dollars into New York elections in secret. Treating LLCs as individual donors rather than corporations or partnerships is also at odds with the text of the LLC Law itself. Remarkably, despite the Board’s unwillingness to correct its mistake, it has also declined to substantively defend the loophole – offering instead  a bevy of procedural arguments.

And those who stand to lose the most from the Board’s intransigence? The people of New York. The LLC loophole shields a powerful cluster of donors, many from the real estate industry, who wield disproportionate behind-the-scenes influence in Albany. As the Moreland Commission found – and as shown by the prominent role LLCs like Glenwood Management played in the Silver and Skelos scandals – the loophole has been central to New York’s corruption problem.  

The appellate court in Albany has both the power and duty to fix this mess by correcting the Board’s legal error. New York's campaign contribution limits and disclosure requirements were intended to protect the integrity of the political process in the state, and reinforce New Yorkers' confidence in their government. To fulfill the promise of these important safeguards, the loophole must be closed.

For more details, visit the LLC Loophole case page here, and learn more about the Brennan Center’s work on getting money out of politics here.


 

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