Voters Challenge New York’s LLC Loophole

ALBANY, N.Y. (CN) - A law school clinic, lawmakers and voters challenged a New York loophole that lets businesses form multiple LLCs to duck limits on campaign contributions.

Under the so-called LLC loophole, limited liability companies steered more than $19 million to candidates, parties and political action committees last year, 300 percent more than they gave in 2002, according to the July 14 complaint in Albany County Supreme Court.

"Donors have also routinely filtered money through multiple LLCs, bypassing existing contribution limits altogether to give millions of dollars and secure influence over state government," according to the lead plaintiff, the Brennan Center for Justice at New York University's School of Law.

The law school and bipartisan elected officials want the state Board of Elections opinion that created the loophole rescinded, calling it "urgently needed" as the 2016 election cycle has already begun.

The loophole lets LLCs give as much as $60,800 per candidate per statewide race - the same as the maximum individual donation.

Election law sets the individual cap at $150,000 in a calendar year. Corporations are limited to $5,000 annually.

One real estate developer created 27 LLCs to donate more than $4.3 million in 2013 and 2014, and a telecommunications provider contributed $1.5 million between 2005 and 2013 using eight LLCs, according to the complaint.

Until the 1970s, corporations were banned from contributing to political campaigns. In 1974, the state lifted the ban but put the $5,000 limit in place. At the same time, individual donations to statewide races were set at $41,100 for the general election and $19,700 for a primary.

The changes were meant to "increase transparency in campaign financing" and "discourage corporations from evading the rules by directing their officers to make contributions" individually, according to the complaint.

When the changes occurred, LLCs did not even exist. They came into being in 1994 when the Legislature, interested in improving the state business climate, allowed their creation to keep pace with other states, the Brennan Center says.

Limited liability companies are a hybrid, with characteristics of corporations and partnerships; they usually hew to one or the other structure for tax purposes.

It fell to the Board of Elections to set the rules for political donations by LLCs.

In 1996, the board decided that LLCs "should be treated as separate and distinct individuals for purposes of campaign contributions," the Brennan Center says.

But LLCs have "virtually none of the characteristics of individual people acting in the political arena," such as voting or joining political parties, according to the complaint.

It says LLCs are "an administratively created and perpetuated error that undermines the New York State Legislature's intent to control campaign contributions by limiting the donations permitted and mandating full disclosure of donors."

The Brennan Center asked the Board of Elections in April to close the LLC loophole, but the four-member body split 2-2, which kept the loophole in place. That sparked this lawsuit.

Joining as plaintiffs are two sitting state senators: Liz Krueger, D-New York County; and Daniel Squadron, D-Kings County. Other plaintiffs include Assemblyman Brian Kavanagh, D-Kings County; Gerald Benjamin, a registered Republican and political science professor at the State University at New Paltz; John Dunne, a former Republican state senator from Long Island and onetime deputy majority leader; and Maureen Koetz, a Republican who ran unsuccessfully against former Assembly Speaker Sheldon Silver in 2014.

Squadron and Kavanagh sponsored bills this year to close the loophole, but the measure never made it to the floor. Each plaintiff claims harm from the loophole as an elected official or future candidate who may have to fight opponents backed by LLC money, or as a voter who may not be able to discern who is financially backing candidates.

They "all aver that their own confidence in New York's democracy has been shaken by the rampant use of LLCs to circumvent campaign finance laws," according to the complaint.

They want the Board of Elections' April decision vacated and the original 1996 opinion scratched. They also seek attorney's fees and costs.

They are represented by attorneys with the Brennan Center, and by Elizabeth Saylor with Emery Celli Brinckerhoff & Abady of Manhattan.

A spokesman for the Board of Elections said Wednesday the agency received the lawsuit and is "reviewing the information."

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