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. 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.

(Photo: Think­stock)