Closure of the LLC loophole stalls, despite push by Democrats

Some legislators believe the increased scrutiny on corruption Albany makes now the time to close the so-called “LLC loophole,” but a bill that would do so remains stuck in committee.

The loophole, which treats limited liability companies as individuals under campaign finance laws, allows LLCs to anonymously contribute tens of thousands of dollars to campaigns, far exceeding how much an individual can give.

“The fact that we can have one person or one group of people with such outsized influence through the contributions of hundreds of thousands – if not more – dollars proves the system is broken and we can fix it,” state Sen. Daniel Squadron said during a press conference outside the Senate chambers on Monday morning. “So let’s do it. Today let’s start anew.”

Afterward, the state Senate Elections Committee on Monday afternoon ultimately voted to send the bill to the state Senate Codes Committee, rather than allow to it to the floor for a vote. Squadron had urged the committee not to send it the Codes Committee, since he said it is unlikely the bill would then be taken up before the end of session.

The renewed push for the ethics reform measure comes as potential conflicts of interest by public officials have dominated the headlines.

In recent weeks, U.S. Attorney Preet Bharara’s office has opened investigations into former Cuomo administration top aide Joe Percoco for potential improper lobbying efforts and Mayor Bill de Blasio’s campaign efforts to help the state Senate Democrats regain control of the majority during the 2014 elections.

Squadron’s office released a report last December, which found the median contribution for an LLC was six times higher than the median contribution for an individual, while some contributions used multiple LLCs to contribute more than $5,000 corporate contribution limit.

Squadron, a Democrat, has sponsored a bill to close the LLC loophole since June of 2010.

“We’ve been trying to do this a long time,” said Assemblyman Brian Kavanagh, a fellow Democrat who first sponsored a version of the bill in 2009. “It’s important to recognize that the Assembly took action almost immediately last year in the post-Shelly Silver reform to move this forward.”

Last year the Assembly successfully passed the bill to close the LLC loophole, and about three-quarters of Republicans also voted in favor of it. This year, nearly every Assembly Republican voted in favor for the bill as part of an ethics reform package, Kavanagh said.

“This need not be a partisan issue. I respect the fact that we often have principled differences with Republicans,” Kavanagh said. “This is not such an issue. There is no evidence that Republicans out there in the world favor unlimited, anonymous contributions coming through LLCs.”

Good government groups and lawmakers also criticized state Senate Republicans for repeatedly failing to vote in favor of the bill in committee.

A spokesperson for the state Senate Republican Conference fired back.

“Aren't these the same Senate Democrats who are reportedly being probed by the Manhattan DA and US Attorney for the shady and potentially criminal fundraising scheme they hatched with Mayor de Blasio?” Scott Reif, the Senate Republican spokesman, said in a statement. “When it comes to campaign finance reform, it would appear the Senate Democrats don't have a leg to stand on."

The bill has never been allowed to the state Senate floor for a vote or left committee. Republicans have held control of the state Senate since 2009.

“If they are able to vote it out of committee, they need to put it on the floor, so in the light of day, every New Yorker can see that they are not just getting lip service about from who object to the closure of the LLC loophole,” said Barbara Bartoletti, legislative director of the New York State League of Women Voters. “It needs to come to the floor and if it comes to the floor, I don’t think there’s a senator in that chamber that would not be embarrassed not to vote to have this legislation to pass.”