Critics: No limits on companies' political donations, despite law

Moreland Commission co-chair Benjamin Lawsky, left, superintendent of Moreland Commission co-chair Benjamin Lawsky, left, superintendent of the New York Department of Financial Services, executive director of the Commission Regina Calcaterra and Nassau County District Attorney Kathleen Rice at a meeting in Far Rockaway on Jan. 17, 2013. Photo Credit: Steven Sunshine

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ALBANY -- In theory, state law says companies are limited to donating $5,000 per year to candidates in New York.

In practice, there's no limit whatsoever, critics say.

Thanks to generous loopholes in state election laws, companies and well-heeled donors can use an unlimited number of subsidiaries, formed as limited liability companies (LLCs), to drive as much cash as they want to any candidate or political party they choose.

As a result, some entities have given millions of dollars in campaign contributions in just the past few years. In the first six months of 2013 alone, 21 donors who primarily used LLCs to make political contributions gave $4.6 million to candidates and political parties, according to an analysis by the New York Public Interest Research Group.

Companies also send millions of dollars in "soft money" donations -- contributions to party committees rather than individual candidates. There are no limits on such contributions.

"This is one of the most glaring loopholes," said Susan Lerner of Common Cause, a group that monitors campaign contributions. "It guarantees that certain entities can give on an unlimited basis."

Common Cause and others are calling on the Moreland Commission to Investigate Public Corruption to home in on the issue when the panel begins hearings Tuesday in Manhattan. The commission, launched by Gov. Andrew M. Cuomo, is charged with investigating potential violations of state election laws and making recommendations to change the system. It recently sent subpoenas to a handful of large New York City real estate developers, including Extell Development Co., Silverstein Properties Inc. and Thor Equities.

State law limits individual contributions to political campaigns to $150,000 a year. Businesses, unions and other groups, including political action committees, are supposed to be limited to $5,000 a year.

However, there are ways around the limits. First, the New York State Board of Elections -- unlike its federal counterpart -- treats limited liability companies as individuals, not companies, meaning each would have a $150,000 limit, not $5,000. Second, there are no limits on how many LLCs a corporation or an individual can form.

The loopholes render the limits almost meaningless, experts say.

 

No rule reversal for NY

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For example, Glenwood Management, a New Hyde Park-based developer headed by Leonard Litwin, has doled out $611,600 in campaign contributions to various candidates in 2013 alone, according to NYPIRG. Litwin and affiliates have been Cuomo's biggest donor since December 2010, contributing $625,000 to the Democrat, according to NYPIRG.

Contributions from Glenwood Management and dozens of affiliated LLCs have totaled more than $10 million since 2005, according to Common Cause.

A Glenwood official didn't return a call to comment.

Almost 20 years ago, the Federal Elections Commission ruled that LLCs should be treated as individuals. New York State's Board of Elections followed suit in 1996.

Citing the FEC rule, the state board justified its ruling in an opinion that said: "The definition of limited liability companies very clearly states that they are 'unincorporated organizations,' therefore they are not corporations and are not subject to the contribution limits placed on corporations."

But when the FEC reversed itself and said LLCs should be treated as corporations, New York didn't change. Lawmakers have introduced several bills over the years to force the board to change its ruling on LLCs, but failed to get them passed, Board of Elections spokesman Tom Connelly said. He didn't comment on why the board, since it followed the FEC's initial lead in 1996, didn't revisit the LLC rule when the federal government did.

NYPIRG's Bill Mahoney noted the board isn't independent but jointly controlled by Republican and Democrat employees whose parties benefit from loose contribution limits.

 

Developers and LLCs

Real estate companies, perhaps more than any other sector of donors, have utilized the LLC rule to drive contributions, watchdogs said. For example, Common Cause reported that:

The Durst Organization contributed nearly $3 million to various candidates and parties since 2005 with the help of 61 LLCs and subsidiaries. Durst spokesman Jordan Barowitz declined to comment.

Newmark Grubb Knight Frank contributed nearly $1.7 million since 2005 with the help of 35 LLCs and subsidiaries.

Jack Resnick and Sons contributed nearly $1.4 million since 2005 with the help of 27 LLCs and subsidiaries.

Lerner noted that developers routinely form separate limited liability corporations for every building or large-scale development. By treating LLCs as individuals, state election law is almost "designed to benefit" real estate businesses that form multiple subsidiaries.

But it's not just real estate LLCs that contribute.

Manhattan Beer Distributors LLC gave $78,000 during the first six months of 2013, according to NYPIRG. Zuffa LLC, which is trying to persuade lawmakers to legalize "ultimate fighting," gave $34,000.

"The limits have no real effect," said Karen Scharff of Citizen Action, a group that lobbied strongly this year to enact public financing of political campaigns, an effort that ultimately failed. "You can always form another LLC. You can create as many as you want to give as much as you want."

Cuomo has said the commission has free rein to look at the entire campaign-finance system. The governor, who has amassed a $28 million campaign chest, hasn't singled out a particular focus for the panel.

"Anything they want to look at, they can look at," Cuomo said during a recent stop in the Mohawk Valley to assess flood damage. "Me, the lieutenant governor, the attorney general, the comptroller, any senator, any assemblyman. They have total ability look at whatever they want to look at."

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