The Independent View: NY Board of Elections and the LLC Loophole

After New York Gov. Andrew Cuomo and the New York State legislature failed to pass the most needed ethics and campaign finance reforms this spring, the Board of Elections (BOE) must close a corporate loophole that allows wealthy donors to bypass campaign limits and donate millions of dollars in state elections, urged the Brennan Center for Justice at NYU School of Law and the law firm Emery Celli Brinckerhoff & Abady LLP in a letter Thursday.

They request that the Board rescind its 1996 Opinion #1, which created the LLC Loophole. Under that Opinion, LLCs (Limited Liability Companies) are treated as individuals rather than “corporations” or “partnerships” under the Election Law, entitling LLCs to a contribution limit that is more than eight times the corporate limit in statewide races, far higher than what the Legislature intended for artificial business entities. Moreover, the Board has permitted individuals who control multiple LLCs to use them to evade contribution limits entirely. In one of the starkest examples, one wealthy contributor used 27 LLCs to contribute at least $4.3 million to political committees in the state over the past two years.

The prevalence of such conduct is impossible to fully ascertain, because LLCs need not disclose the identities of their member s or officers in their corporate filings.

As an alternative to its current flawed approach, the Board should treat LLCs as corporations or partnerships, depending on the tax status they voluntarily elect, like the Federal Election Commission (“FEC”) has done since 1999. Treatment of LLCs as corporations or partnerships depending on their voluntary tax status is consistent with the text of both Article 14 and the LLC Law, and would better reflect the Legislature’s intent. 1996 Opinion #1 relied on the FEC’s prior rule, which treated LLCs as individuals, but the FEC itself has changed course. The Board should do so as well, and adopt current federal policy. To fully comply with state law, the Board must also forbid circumvention of contribution limits and disclosure requirements through the use of multiple LLCs controlled by a single source.

The Board’s current treatment of LLCs thwarts the underlying purpose of New York’s campaign finance system, making contribution limits and disclosure requirements extremely easy to evade. It is imperative that the Board close the LLC Loophole and faithfully adhere to New York’s Election Law.

In New York City, this problem occurs when we allow landlords with many buildings, to contribute for each building, as a separate entity.

UPDATE
On April 16, 2015, The state Board of Elections declined to reclassify limited liability companies when it deadlocked its vote between the two Republican and two Democratic commissioners.

The board’s two Republican commissioners voted against the reclassification, in part saying it was up to the Legislature to consider campaign finance regulations such as contribution limits. “The Legislature has created this very comprehensive system of campaign contribution limits in New York state,” said Republican Co-Chairman Peter Kosinski. “I feel we have to honor that. That’s there prerogative to do so. We administer it. We make sure it’s complied with. But we don’t create it.”

Democratic Co-Chairman Douglas Kellner, who had the LLC change added to the agenda this week, urged the board’s recently appointed enforcement counsel, Risa Sugarman, to probe political donations through LLCs. In particular, Kellner urged her to review contributions from entities that do not have any other apparent business purpose and mass donations from LLCs. “I would certainly urge the independent enforcement counsel to take a look at two classes of suspicious LLC contributions,” he said.