The Board of Elections meeting held on April 16 was set up with the intention to close the notorious “LLC loophole” by changing the board’s definition of limited-liability companies as individual entities.
A LLC is easy to set up using an online service and mainly serves as a subsidiary of larger business enterprises, particularly in the world of real estate. For decades the state’s most generous political sponsors used them to multiply their donations in ways no other individual, company, or corporation can.
Currently the board allows LLCs to donate up to $150,000 to a statewide candidate, while corporations have a $5,000 annual donation limit and partnership contributions cannot exceed $2,500.
The issue was raised earlier this week by the State Senator Daniel Squadron, a Democrat from the New York City.
“The loophole is based on a ruling that hasn’t been relevant since the last century. I would hope the board would act to remedy that,” Squadron told Gotham Gazette.
The decision to close the loophole was actively supported by a coalition of reform groups including the League of Women Voters, the New York Public Interest Research Group, Reinvent Albany, Common Cause, the Brennan Center and Citizens Union who wrote a collective letter to Governor Andrew Cuomo, urging the Board to consider implying three new provisions:
• Start treating LLCs as corporations or partnerships, depending on their tax status (as the Federal Elections Commission does);
• Rescind the 1996 opinion
• Once again clarify to the political donors that they are not allowed to make upend donations via LLCs.
Cuomo is known to have rather complicated relationships with the LLC loophole himself as his latest election campaign was financed by Leonard Litwin — a real estate mogul, who donated over $1 million using this method. However, he included a proposal to his budget that would impose the $5,000 corporate donation limit on LLCs. The proposal was rejected by the Legislature during budget negotiations. Advocates also noted that his proposal did not restrict individuals from donating via multiple LLCs.
On the subsequent Board of Elections meeting held on April 16, two Democratic Commissioners Douglas Kellner and Andrew Spano proposed to start treating LLCs like partnerships, thus requesting complete disclosure and setting up respective donation restrictions.
Republican Commissioners Peter Kosinski and Gregory Peterson voted against the decision appealing to the fact that the decision is outside of the authority of our legislation.
“Our role is to administer the law — not make the law, not change the law,” Kosinski told Times Union. He also mentioned that changing the definition of LLCs would raise additional First Amendment concerns.
While the tied vote appealed to numerous business groups, the decision significantly disappointed activist groups, advocates, and the general public.
“It is deeply disappointing that the Board of Elections squandered an opportunity to close the LLC loophole, which has made a mockery of New York’s campaign finance rules,” said Matt Mittenthal, the spokesmen for Attorney General Eric Schneiderman.
“They see the guys with the most money are just pouring an enormous amount of cash into the system and people are more aware of it than ever,” added Jess Wisneski of Citizen Action.
