Op-Ed: Close the LLC Loophole


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Since I was elected to the New York State Democratic Committee last September, I’ve tried to schedule regular meetings with East Siders. Over coffee, over breakfast, you name it – if you live here I want to talk to you. And whenever I meet someone new I always ask this question: What single local government issue do you think is the most worrying?

Time and again I hear the same answer: money in politics. Just this Monday a new friend who’s lived on 50th and 2nd for over 20 years put it simply and elegantly by asking: “Bessie, why does every single political e-mail I get ask for money?”

Sadly, we all know the answer. There is no public financing system in New York state. So, if you want to run for state office you either have to raise the money from donors, or put it up yourself.

That makes it hard to run if you don’t have money. And it means that if you’re willing to give a lot of money, you get a lot of attention. It’s a huge problem, and reformers have been trying to make it better for years.

Recently, reform efforts have focused on a particularly silly rule, called the LLC loophole. The LLC loophole was created by the Board of Elections in 1996, and has allowed special interests to spend tens of millions of dollars since. That’s money spent in secret and above contribution limits. It’s possible because the board treats LLCs – limited liability corporations – as human beings, rather than as corporations or partnerships.

In a city council campaign, if a candidate has broad support, he or she can raise money really fast. If 50 neighbors give $50 each, the public financing system adds a 6-to-1 match that makes it $16,500! Small donations can really add up.

But for state office, a single donor can overwhelm that easily. In a state assembly race one big donor can give $4,100 dollars - already 150% more than what you can raise from 50 neighbors giving $50.

Of course, that one donor can just as easily create 10 LLCs and max out with each one. Now one donor has contributed nearly $50,000! That’s 20 times more than all of those small donors put together! And this isn’t just a hypothetical - LLCs have donated a shocking $25 million to state candidates over the past two years alone.

Real reform would require a publicly funded state-wide campaign finance system. But for now, an easy step to more democratic elections would be closing the LLC loophole. It wouldn’t even take a bill – the board can decide by majority vote to treat LLC contributions as partnerships, the same way the FEC does. LLCs could still contribute, but sham LLCs that just exist to get around contribution limits would be locked out.

Our elected officials on the East Side have been spot on. Senator Squadron and Assembly Member Kavanaugh sponsored legislation to close the LLC loophole, and they have been vigorously backed by Senators Liz Krueger, Brad Hoylman and Jose M. Serrano. Further, a coalition of six good-government groups wrote to the board demanding a revision to the 1996 opinion – they were the Brennan Center for Justice, Common Cause, the League of Women Voters, Citizens Union, the New York Public Interest Research Group and Reinvent Albany. All of these groups do great work and their websites are a great source of further information. But the loophole still exists, and that means we community activists still have our work cut out for us.

It’s common sense solving a lot of government’s problems. By working together, by holding government accountable, and by combining our voices, I know that we can make a difference. And that’s what I’m going to keep doing, until the LLC loophole is closed.

Bessie Schachter is the Democratic State Committeewoman for the 73rd Assembly District, which includes the Upper East Side, Midtown East, Turtle Bay and Sutton Place.


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