Skip Navigation

Close New York’s Biggest Campaign Finance Loophole

In the New York Daily News, Lawrence Norden writes that the Board of Elections must make one simple fix to curb unlimited campaign giving and bring more disclosure to New York politics.

April 9, 2015

Crossposted from The Daily News

Amid a never-ending parade of scandals, the state Legislature and governor recently agreed to the third set of ethics reforms in four years.

Yet again, this package barely touched the single biggest conflict of interest in Albany: Our loophole-ridden campaign finance system, which allows special interests to dominate political discourse through nearly unlimited and often secret contributions to officeholders and their challengers.

This isn’t something the Legislature wants to give up. Albany’s culture of corruption feeds on big-money donations.

But that doesn’t mean nothing can be done. With one stroke of the pen, three commissioners on New York’s Board of Elections can help fix the problem.

For years, good government groups and editorial boards have complained about the so-called “LLC loophole,” which allows special interests to funnel millions of dollars into campaigns anonymously. Just a few weeks ago, upstate Assemblyman Bill Nojay called it “the mothership of Albany corruption.”

Here’s how it works: The Board of Elections currently classifies limited liability companies (LLCs) as individuals rather than “corporations” or “partnerships,” as they are treated under federal law. While most corporations can give no more than $5,000 every year, each LLC can give hundreds of thousands of dollars

Worse still, individuals with multiple LLCs use them to evade contribution limits entirely. And since LLCs need not disclose the identities of their members or officers, we often don’t know who is behind these sums of money.

And those sums are huge. In one of the starkest examples, a prominent real-estate developer reportedly used 27 LLCs to contribute at least $4.3 million to political committees in the last election cycle. In recent years, he used these and other LLCs to give over $1 million to both the New York State Senate Republican Campaign Committee and Gov. Cuomo, as well as substantial amounts to recently indicted former Assembly Speaker Sheldon Silver.

If you think that kind of money doesn’t buy results, you haven’t been paying attention. “Follow the money of any of the top LLC donors,” Common Cause New York noted in 2013, “and you are likely to find a trail of special favors won and bills unfavorable to the donor killed on arrival in the Legislature.”

This loophole makes a mockery of New York’s entire campaign finance system and allows a few special interests to side-step contribution limits and disclosure rules that were supposed to limit corruption.

How did the Legislature get away with creating this kind of loophole? It didn’t. The Board of Elections did — and it got it terribly wrong.

In a 1996 opinion, the Board reasoned that because the statute creating LLCs called them “unincorporated organization[s],” they were not corporations or partnerships and not bound by the corporate contribution or partnership limits. This ignored the rest of the statute and past precedent.

Worse, in making its decision, the Board relied on a Federal Election Commission rule that was changed just three years later. But New York’s law remains in place. It’s time to change it.

Cuomo and the Legislature failed to bring the most needed ethics and campaign finance reform to Albany. With one simple vote, the Board of Elections can close the LLC loophole, curb unlimited campaign giving and bring more disclosure to New York politics.

For the state agency charged with administering and enforcing of our campaign finance laws, this should be an easy call.

(Photo: New York State Capitol/Flickr)