THE BLOG
12/31/2012 06:32 pm ET | Updated Mar 02, 2013

The Flow of Money in New York State Politics

In February 2011, the New York State Democratic Committee received a cheque for $100,000 from a company called the Improvement Fund, LLC, according to financial disclosure reports. A few months later the same company gave $15,000 to the New York State Senate Republican Campaign Committee. In fact, between January 2010 and now, Improvement Fund, LLC has been a major player the financing of campaigns.

Contributing to a wide range of parties, political groups, and candidates -- including independents, Republicans, Democrats, and the Real Estate Board PAC -- the company has injected nearly $500,000 into New York State politics since 2010. Most recently, the Improvement Fund gave $40,000 each to both the Real Estate Board PAC and the Independence Party of New York.

However, for a company with such an appetite for politics and the financial means to satisfy it, there is very little information about what Improvement Fund LLC actually is and does. Financial disclosure reports list the company's address as 60 Columbus Ave., but a visit to this location provides no indication of this entity actually being located here.

Another major political donor, AGS Ventures II, LLC, also gives its address as 60 Columbus Ave., but a visit to this address shows that the company is not listed here. AGS Ventures contributed a total of $100,000 to the New York State Democratic Committee in 2011. A search for this company turns up no results.

RMLC LLC The Related Co., also listed its location as 60 Columbus Ave. and also contributed $100,000 to the committee in 2011. As with Improvement Fund LLC and AGS Ventures II, LLC, no information on this company is available.

One donor which does operate out of 60 Columbus Ave. is The Related Companies LP, a major real estate developer in New York headed by billionaire Stephen M. Ross. Related Companies LP gave $25,000 earlier this year to New York State Senate Republican Committee. Ross is also the former head of a now defunct company called AGS Ventures, Inc.

A New York Times article from 2009 by David H. Halbfinger linked Ross to the Improvement Fund LLC, saying that Ross contributed $25,000 to then-Gov. David A. Paterson's campaign through "an entity called the Improvement Fund."

Joanna Rose, a media relations representative for Ross' firm, Related Companies, declined to comment, saying that "we don't comment on contributions." Rose did not respond to inquiries about whether Related is connected to the Improvement Fund, AGS Ventures, and RMLC LLC.

Other companies operating out of 60 Columbus Ave. made no political donations in the past six years, according to campaign financial disclosure reports.

But 60 Columbus Ave. is not the only thing AGS Ventures II, LLC and Improvement Fund LLC have in common. In their filings with the New York State Department of State Division of Corporations, these two companies listed Corporation Service Company at 80 State Street, Albany under entity address information. Corporation Services Companies, which provides statutory representation services, declined to provide any information for the companies, citing client privilege as a reason.

As for RMLC LLC, The Related CO., this company is not listed with the State Division of Corporations at all.

Forming a Limited Liability Company in New York State is no complicated matter. The state requires organizers to file Articles of Organization, which is a two-page document where the only address required is the address to which the state can mail legal documents, and the address of the filing agent, which in the case of AGS Ventures II, LLC and Improvement Fund LLC is the Corporation Services Company. An organizer must sign the Articles of Organization but he or she does not need to be a member of the LLC. The cost of filing Articles of Organization is $200.

Since 2010, the Improvement Fund LLC, AGS Ventures II, LLC and RMLC LLC the Related Co. have contributed a combined total of over $700,000 to New York State political groups. But the original source of this money and the motives behind the contributions are unknown.

Real estate companies are traditionally major contributors to political parties and campaigns across the country, and with financial disclosure laws it is generally possible to track where contributions come from. But according to a briefing paper by the League of Women Voters of New York State Education Foundation and the League of Women Voters of New York State, there is a trend among firms to create Limited Liability Companies which allow them to bypass the lower contribution limits imposed on corporations. Under New York State campaign finance law, LLCs have the same status as individuals and are therefore allowed to contribute up to $102,300 per year to political parties. Corporations are only allowed to contribute $5,000.

Mark Mullaney, a researcher at the Center for Responsive Politics, says these companies are referred to as 'shell' groups -- companies that don't really exist as a business, but contribute money to political groups. This is a fairly common occurrence, says Mullaney, but it is very difficult to determine whether these companies exist for the sole purpose of giving political contributions. Another difficulty with these entities, says Mullaney, is with tracing their original source. Oftentimes contributors will transfer funds to a lawyer who will establish the LLC, thereby making it impossible to trace the original source of the funds. Mullaney adds that many of these shell companies are established in Delaware because this state has very low disclosure requirements for the establishment of LLCs.

According to a study by the Citizens Union of the City of New York, individuals can "avoid contribution limits by setting up shell limited liability corporations (LLCs) or using commonly controlled LLCs or partnerships (LLPs) to make multiple over‐the‐limit, but allowable, contributions."

In effect, LLCs and LLPs provide donors with a mechanism to both evade contributions limits and to remain anonymous.

But with limited information available about some companies it is difficult to pinpoint who these individuals are.

"There's largely no information because they don't truly exist," said Denise Roth-Barber, managing director of research at the National Institute on Money in State Politics, adding that this has a "darkening effect on disclosure because you don't know who these entities are."

A study by Suzanne Novak and Seema Shah at the Brennan Center for Justice, stated that "New York's treatment of limited liability companies (LLCs) under its campaign finance law is a loophole that allows individuals and business entities legally to circumvent contribution limits placed on corporations."

The study goes on to recommend that, in order to curb the influence of money in politics, "contributions from non‐political accounts of affiliated unions, LLCs, LLPs, and corporations should be treated as coming from a single source, and the enforcement body should produce a list of related sources for candidates to check contributions against."

Since the Citizen United ruling, money has flowed much more freely to political parties and candidates. But Mullaney says that establishment of shell companies "flies in the face" of one of the cornerstones of the Citizen's United ruling, which is that allowing unlimited money from corporations is not damaging because of disclosure requirements. However, with the loophole of shell companies it is possible to entirely obscure the source of contributions.

"People who have money are going to find ways to give it to politicians and try to get involved in politics," said Mullaney.

The logic behind the Citizen's United ruling was that people, corporations, and organizations have the right to free speech, and one way in which free speech expressed is through the expression of political opinions. However, disclosure reports indicate that donors often contribute to such a wide range of political candidates and parties that their money goes to contradicting ideologies.

Roth-Barber said that many businesses donate to various political parties in an attempt to guarantee a seat at the table regardless of who is in power. She said the Institute of Money in State Politics can track what type of businesses are donating but cannot determine how they benefit from their contributions.

But if businesses and special interest groups are donating across the entire political spectrum, it is unlikely that the donations are ideologically motivated, so contributors must be benefiting from them in some way.

Contributors to the New York State Democratic Committee include many real estate developers whose desire to be involved in the political process may be easy to speculate about. But other donors, like the Empire Dental PAC, which donated $25,000 to the New York State Democratic Committee in 2012, are a good example of how money may play a role in other less obvious aspects of the political process.

Overall, Empire Dental PAC contributed over $568,000 to various New York Democratic party groups since the start of 2011, including $130,000 to the state party, $226,000 to the Democratic Assembly Committee, $112,000 to the Democratic State Senate Committee, not to mention $55,900 to the Cuomo '14 committee.

During the same period, the PAC also contributed $370,800 to Republican groups in New York State, including $320,300 to the Republican State Senate Committee, and $50,500 to the Republican Assembly Committee.

According to website, "Empire Dental Political Action Committee (EDPAC) is a bipartisan political action committee of New York State dentists that serves and protects the interests of NYSDA members." One of these interests may be tort law reform, which would protect medical practitioners, including dentists, from exorbitant insurance and lawyer's fees for malpractice lawsuits.

New York is an extremely litigious state when it comes to malpractice suits. According to a Daily News article, hospitals in the state spent $1.6 billion in lawsuit related costs in 2009, and "the typical Bronx obstetrician pays an astronomical $190,000 a year for malpractice insurance."

In 2011, Gov. Cuomo's Medicaid Redesign Team proposed a plan that would cut the state Medicaid budget by $2.3 billion. One of the 79 changes the plan suggested was a $250,000 cap on non-economic damages awarded to victims in malpractice suits.

According to a Legal As She Is Spoke article, "proposed cuts to the healthcare industry's budget are usually met with strong opposition from hospital workers unions and lobbying groups," but this reform received wide support from those sectors. Citing the New York Times, the article said the Greater New York Hospital Association projected tort reform could save the healthcare industry $700 million a year, but opponents of the law said tort reform was thrown into the Medicaid-reform package as part of a deal with the healthcare industry in order to get them on Cuomo's side as far as the rest of the cuts to Medicaid were concerned.

Although Cuomo's suggested cap on non-economic damages did not garner the support it needed to pass, the governor's willingness to push forward tort reform may be part of the reason Empire Dental Political Action Committee donated to his party. That said, whatever the motivation for EDPAC's contribution was, the group's existence is a good example of how anyone who has a stake in politics will spend money trying to get a seat at the table; even dentists have PACs now.

The effects of money on politics may be hard to measure, but it's clear that groups with money and a stake in government decisions have taken a keen interest in political contributions. Even groups with seemingly limited interests have donated large sums to various political committees and candidates. In recent years, the Ultimate Fighting Championship organization, a mix-martial arts promotion company, has been fighting to get its fights legalized in New York State. Since 2009, Zuffa, LLC, the Ultimate Fighting Championship's parent company, has contributed over $300,000 to various candidates and committees in New York State. Ultimate Fighting Productions donated over $50,000 in the same time period.

Establishing a direct link between donations and political favors is difficult, but the frequency of contributions to competing parties, especially through shell companies, leaves little doubt that political contributions are an important strategy for businesses and special interest groups. This inevitably raises the question of whether private interests are being put ahead of the public interest and whether campaign finance disclosure laws are doing enough to make the flow of money in politics transparent.