By Sabina Mollot
On Tuesday, three Democratic state legislators filed a lawsuit against the Board of Elections aimed at closing the “LLC Loophole.”
The so-called loophole, created by the board in 1996, came under scrutiny this year due to all the campaign cash that had been legally funneled to legislators through limited liability companies. Many of the LLCs were controlled by real estate interests, most infamously Leonard Litwin of Glenwood Management. The loophole has allowed them to give nearly limitless contributions — up to $60,800 in a single election year by allowing them to be considered individuals.
“It’s not just (Litwin),” said Brent Ferguson, an attorney with New York University’s Brennan Center for Justice, which helped prepare the lawsuit. “In the real estate industry, they can operate a separate LLC for every building they own.”
He added, “We think it’s an incorrect reading of the law.”
The Brennan Center got involved with a suit on the loophole, said Ferguson, because it’s “become very popular” in recent years. “The amount has skyrocketed.”
Since 2011, $54 million has been donated by LLCs through the loophole, and while those doing the giving are usually traceable, they aren’t always.
“We think it’s one of the biggest problems in New York’s campaign finance system and democracy in general,” said Ferguson.
The legislators who are plaintiffs in the suit include Assembly Member Brian Kavanagh and Senators Liz Krueger and Daniel Squadron who are all Democrats as well as
Republicans John R. Dunne, a former senator and former U.S. attorney general for the Civil Rights Division, and Maureen Koetz, who ran a campaign against Assembly Member Sheldon Silver last year.
Another plaintiff is SUNY New Paltz Professor Gerald Benjamin, an upstate Republican Party leader. The suit was filed with the Albany County Supreme Court with the help of the Brennan Center and the firm Emery Celli Brinckerhoff & Abady LLP.
In April the Brennan Center and Emery Celli asked the BOE to close the loophole, but the board, after a 2-2 vote, didn’t reverse its decision.
Prior to the rent laws being renewed last month, Kavanagh had introduced legislation that would cap contributions from corporations at $5,000 per calendar year. The bill made it through the Assembly but not the Senate.
In an official statement, Kavanagh said, “The individuals and businesses who give large contributions through LLCs have much more power than those who have not contributed or have contributed under the lower limits that apply to other entities and individuals. The result is that government does not adequately represent those New Yorkers who do not have the ability or desire to exploit the LLC Loophole.”
Krueger said that she’s encountered would-be candidates for public office who got turned off from running because they didn’t think they’d be able to compete with candidates raising more money.
“The prominence of LLC contributions has a significant effect on the willingness and ability of people to run for office,” she said.
Ferguson said the plaintiffs are hoping the litigation will be resolved before the 2016 elections. The fight is not a new one though, he said, noting that in 2007, some good government groups raised some of the points to the BOE raised in the suit.
The lawsuit argues that an LLC is not individual because: “An LLC cannot vote. It holds no political view separate of its members.” It also noted how LLCs had been looked at by the governor’s now disbanded anti-corruption panel, who believed they contributed to Albany’s “pay-to-play culture.”
A spokesperson for the Board of Elections did not respond to a request for comment.