If Albany is the Himalayas of political corruption, then its Mount Everest is the “LLC Loophole.” But this mountain of legal political corruption maybe about to crumble thanks to separate July lawsuits by the Brennan Center for Justice, and the Board of Election’s own enforcement counsel. The LLC loophole is a bizarre legal fiction created in 1996 by a vote of the State Board of Election which decided to treat Limited Liability Companies more like human beings than corporations or business partnerships. Since “natural persons” can donate far more than corporations, this blew a giant hole in campaign finance rules intended to reduce the influence of money on New York State’s democracy. More so, one person can create dozens of LLCs and give $60,800 through every single one of them. According to the Brennan Center, one contributor “used 27 LLCs to contribute $4.3 million over two years.” Worse yet, LLCs are fairly easy to create, and are easy to “layer” or “stack” so that one LLC owns another. This can make it hard to figure out who is actually donating to politicians. LLCs are heavily used by real estate developers, including those like Glenwood Management, which is the state’s largest political contributor, which was implicated in both the Sheldon Silver and Dean Skelos corruption scandals.
It is no secret that the LLC loophole massively facilitates what amounts to legal corruption. Over its 19 year existence, the loophole has been blasted by dozens of editorials and excoriated by reform groups. Maddeningly, the loophole could be closed at any time by the state legislature. Indeed, the Democratic controlled Assembly passed a bill this session which closes the loophole. Unfortunately, Senate Republicans will not close the loophole because, in a Democratic state, they rely on a gusher of money from big NYC real estate owners steered through LLCs. These real estate interests essentially pay Republicans to block laws which favor tenants and to maintain gigantic real estate tax subsidies like the 421-a program. Where Governor Cuomo really stands on closing the LLC loophole is a mystery. Thanks to the GOP senate recalcitrance, he has not been forced to sign or veto any LLC reform legislation, so he can blame the Senate Republicans for inaction. This said, the governor is by far the single largest recipient of contributions steered through LLCs.
Because there is no realistic chance of passing a reform law as long as the GOP Senate believes their political lives depend on the LLC loophole, reformers have wasted a great deal of time yelling at the State Board of Elections to vote to close the loophole they have created. In April, the Board deadlocked 2-2 on a vote to close the loophole. The two Republicans voted to keep the loophole and the two Democrats to close it. Reformers were not happy, and Reinvent Albany joined other watchdog groups in a public letter which called the vote “Bad for Democracy.”
But there is some hope. In July, Risa, Sugerman, the State Board of Elections’ enforcement counsel, sued the campaign of failed Brooklyn assembly candidate Shirley Patterson because it coordinated donations via LLCs. If Sugerman wins it could result in a precedent which sharply reduce the amount of political contributions made via LLCs. Also in July, the Brennan Center for Justice sued the NY State Board of Elections for the utterly illogical way it interpreted election law. If either of these cases succeed, one of New York’s towering monuments to money in politics will come tumbling down.