By: Dan Carroll

As detailed in a recent State of Elections post, a misguided 1996 New York State Board of Elections (BOE) decision treating limited liability companies (LLCs) as individual people rather than corporate entities. The decision allows LLCs to directly contribute up to $60,800 to an individual candidate for statewide office while traditional corporate entities are limited to $5,000 in aggregate contributions to all candidates in a year. LLCs need not disclose the identities of their founders, membership or officers, so their political activities are difficult to link to their funders.

Although the loophole has existed since the 1996 BOE decision, money contributed by LLCs exploded in the last two years. From 2000-2012, LLC’s spent $3 million on campaign contributions, averaging $250,000 per year. But from 2013-2014, LLC’s contributed $25 million, an increase over the average in the previous twelve-year period of 1,000 percent.

Governor Andrew Cuomo, who was elected on an ethics and reform platform, has been the largest beneficiary of LLC contributions. In 2014, Cuomo raised $20 million, 20 percent of which ($4 million) came from LLCs. Of that $4 million, which was the most any candidate raised from LLCs in 2014, $1 million came from LLCs held by real-estate magnate Leonard Litwin of Glenwood Management Corp. Over a two-year period beginning in 2013, Litwin and Glenwood utilized 27 LLCs to contribute no less than $4.3 million to New York state candidates and committees.

Reformers and good government groups have over the years pressed legislators in Albany to fix the loophole. In 2013, Governor Cuomo created the Moreland Commission to investigate public corruption and recommend changes to clean up Albany shortly after the legislature concluded its session without passing any new laws to address corruption scandals. But in March 2013, Cuomo abruptly shut down the commission as part of a budget deal with the State Legislature. Cuomo justified the move claiming that as part of the agreement, legislators would support tougher laws on bribery and corruption, and improved enforcement of election law, which would eliminate the need for the panel. The legislature did enact ethics reforms as part of the agreement, but closing the LLC loophole, viewed by many as the most important reform, was not included.

After the Moreland Commission was shutdown, federal prosecutors picked up where the commission left off, but in the form of a criminal inquiry. Since then, federal prosecutors have indicted two of New York’s “three men in a room” that control the state’s policy and budget levers: (now former) Speaker Sheldon Silver, a Democrat and (now former) Senate Majority Leader Dean Skelos, a Republican. Silver was convicted of fraud, extortion, and money laundering on November 30, 2015,  while Skelos is charged with fraud, extortion, and bribe solicitation. And what is the common thread in the two prosecutions? Glenwood Management, which benefits immensely from state tax breaks and government financing to build and operate luxury real estate in New York City. While the criminal charges against Silver and Skelos involve a range of illicit activity, prosecutors allege that much of this activity was facilitated through LLC donations. The trials promise significant exposure that may help efforts to close the loophole.

Clearly the arrests of Silver and Skelos were not enough to push legislators to make the change on their own. In the wake of Skelos’s arrest in May (Silver was arrested in January), legislation to close the loophole passed the State Assembly by an overwhelming vote of 120-8 in May but was quietly disposed of by Senate Republicans only days later in “a bit of behind-the-scenes maneuvering.” Perhaps it should come as no surprise that GOP Sen. Michael Ranezhofer, chair of the committee where the LLC legislation died, has received roughly $94,000 through Glenwood LLCs.

 

In light of repeated legislative failures to close the LLC loophole, the Brennan Center for Justice is pursuing a new legal strategy. Joined by a bipartisan group of current and former lawmakers, the Brennan Center in July brought suit against the New York State BOE. In April, the BOE deadlocked 2-2 along party lines on whether to rescind the 1996 rule that created the loophole. According to briefs filed by the Brennan Center, a BOE tie is eligible for judicial review. The suit urges the state supreme court in Albany (the Court of Appeals is the highest court in New York) to rescind the 1996 rule due to a “clear misinterpretation” of the state’s campaign finance laws.

 

As the Brennan Center suit goes forward with the Silver and Skelos criminal trials continuing in the backdrop, the public can only learn more about the unsavory role of LLCs in state politics, and reformers have reason for optimism that either the judicial or legislative branches could finally close the LLC loophole in the near future.

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