How rent regulation depends on closing the LLC loophole

Jeff Reed
Speaker Corey Johnson joins tenants and advocates to call for stronger rent regulations.

How rent regulation depends on closing the LLC loophole

Tenant advocates hope to land one-two punch against real estate interests.
January 7, 2019

As the party assumes unified control of state government, many Democrats in Albany have campaigned on two seemingly unrelated proposals: strengthening the hand of renters in rent regulation laws, which are due for renewal this year, and reducing the influence of large donors in the political process. Unlike many other progressive priorities – gun control and abortion rights, for example – advocates say that these two policies are inextricably linked. In fact, stricter rent regulation may only be possible if comprehensive campaign finance reform is enacted first.

The reason is that campaign finance reform may include eliminating one of the real estate industry’s most powerful tools to influence policymakers: the LLC loophole. State election law allows political donors to circumvent limits on individual campaign contributions if they make them through a limited liability company – a strategy that arose following a state Board of Elections ruling in 1996 that every LLC would be considered independent for the regulation of political spending, even if they have the same owners. Since 1999, LLCs have given more than $188 million in political donations, with activity increasing with each subsequent election, according to a September analysis by City Limits. And this money has been key for the industry’s efforts to stymie efforts to expand rent regulation statewide ever since.

But once the new Democratic majorities take power in the state Legislature this week, the real estate industry stands to lose. The industry heavily backed state Senate Republicans, who promoted the real estate lobby’s agenda of deregulation.

Now the politics are changing, perhaps opening space for the landlord lobby’s grip to loosen. Closing the LLC loophole has emerged as an early priority for lawmakers. Tenant advocates also say its demise will ease the way for a vast expansion of rent regulation before it expires in June. “It’s critical,” said Jeremy Saunders, co-executive director of VOCAL-NY, a grassroots organizations that advocates for low-income people. “The real estate industry is one of the wealthiest industries in New York City and New York state. Like all big corporate interests, they buy our democracy through campaign donations to try to protect their own bottom line with particular focus on the years that our rent laws are set to be renewed.”

VOCAL-NY is a member of both the Housing Justice for All coalition and the Fair Elections for New York coalition, underscoring the intersection of tenant rights and campaign finance reform advocacy. Dozens of organizations representing causes like housing, the environment, social services – even Ben & Jerry’s – have signed onto the latter effort, highlighting the pressure on lawmakers to act on the LLC loophole and other proposed reforms to campaign finance.

The big X-factor in the effort is Gov. Andrew Cuomo. While he has received large donations from real estate interests in the past, he has expressed a willingness to check their power now that the progressive wing of the Democratic Party is on the rise, including expressing support for closing the LLC loophole.

If that happens, it could give tenant advocates an opening to push for expansions to the state’s rent regulation laws that did not seem possible before – especially since legislators would not have to worry about the real estate industry using LLC contributions against them in the next round of elections. “If the LLC loophole stays on the books, it give real estate a huge advantage,” said Michael McKee, treasurer of Tenants Political Action Committee. “(Closing the loophole) takes a weapon away from the real estate lobby.” Implementing so-called universal rent control, ending vacancy decontrol, abolishing preferential rents, eliminating the vacancy bonus and expanding rent regulations beyond the New York City metropolitan area all appear to be on the table in 2019. But first the LLC loophole has to go, advocates say. “We have opportunities in this session we have never had before,” said state Sen.-elect Zellnor Myrie. “I think that closing the LLC loophole and closing it early would send a strong message that the Legislature is not beholden to the real estate industry, but beholden to the tenants of this state.”

Lawmakers and advocates are confident that legislation will pass the state Legislature in the coming weeks that would make it illegal for LLCs to give to political candidates at all. The Assembly has passed legislation in past years that would eliminate the loophole and state Senate Majority Leader Andrea Stewart-Cousins said in an email that the Senate would do the same now. But she was noncommittal about whether it should be done as stand-alone legislation or as part of a wider effort to shake up campaign financing statewide. One bill she sponsored last session, the Fair Elections Act, would close the loophole as part of instituting public campaign financing. A different bill proposed by Republican state Sen. Michael Ranzenhofer and Democratic Assemblywoman Amy Paulin would close the loophole while also limiting campaign contributions from other sources. While expressing preference for his own approach, Ranzenhofer did not rule out supporting the Democrats’ proposals. “There’s bipartisan support and it’s very important that legislation passes,” he told City & State.

Cuomo has received more than $23 million in contributions from LLCs in his career – more than the next 10 highest political candidates combined, according to City Limits. But with Democrats now in the majority in the state Senate, he no longer has Republicans to blame for inaction on the issue. “For years, the governor has fought to close the LLC loophole,” spokesman Jason Conwall wrote in an email. “And continues to do so, making it a priority of the first 100 days of his 2019 agenda.”

Even if the real estate industry’s power is blunted by campaign finance reform, it remains unknown how much the governor will want to expand rent regulation. A Dec. 17 speech in which he outlined his legislative agenda gave few details of his intentions other than ending vacancy decontrol. However, a later post on the governor’s website proposes a more expansive approach that would also include eliminating preferential rent and new limits on rent increases based on capital improvements. In a Jan. 2 interview with WAMC radio, he said that he would include in his upcoming budget proposal “all” of the legislative priorities that the Legislature had not passed by then. “More details will be released in the near future,” Conwall wrote in response to a request to clarify how rent regulation will fit into the budget.

Despite the rhetorical commitments to pass tenant-friendly legislation, some tenant advocates say they are not yet convinced that Cuomo will match his words with action. His commitment to progressive causes like rent regulation is suspect despite his assurances, according to McKee, especially considering the large amounts of campaign money he has received from real estate interests in the past. “Guilty until proven innocent,” said McKee, “because he has been our enemy for eight years.” If the governor runs for president in 2020 – despite repeated promised that he won’t – “he’s going to want his real estate donors to stay happy.”

For now, real estate developers recognize that, with Democrats controlling both houses of the Legislature, things have changed. The Real Estate Board of New York has increased donations to Democrats in recent months and it has signalled its willingness to accept closure of the LLC loophole and changes to rent regulations. Spokesman Jamie McShane said that the organization is not currently lobbying to keep the LLC loophole. There is also a willingness to examine changes to preferential rent, vacancy decontrol and the vacancy bonus in upcoming months. But REBNY President John Banks has said that reform efforts must take into account how they would affect investments in the preservation and construction of affordable housing. “New York City, undoubtedly, needs to provide more affordable units for its growing population,” Banks said in an email to City & State. “It’s important to note, since the changes to the rent laws in the 1990s, the quality of the city’s private sector rental housing has dramatically improved, a marked contrast to the city’s public housing stock. We look forward to working with our elected leaders on this and the other issues that are critical to our city’s future.”

Cuomo’s vow to use the state budget to enact his agenda could be interpreted as a commitment to accomplish big things in one dramatic swoop – or it could be read as an effort to leverage the budget process to his political advantage. The governor has extra leverage, especially this year, when negotiating the budget rather than separate legislation. A Pataki-era change to the state budget process means that essentially only the governor can add items to the budget. Secondly, lawmakers have to pass the state budget by April 1 in order to receive pay raises, assuming the recent recommendations of the state pay raise commission overcome legal challenges. By including campaign finance reforms – and possibly, expansions to rent regulations – into the budget, the governor defines what the budget ultimately says. “I think the governor is happy to put reform policy in his budget,” said John Kaehny, executive director of Reinvent Albany, “because then he controls the language and there’s much less negotiation.” This could allow Cuomo to carefully craft campaign finance rules that could offer enough reforms to keep progressives happy while not upsetting his political donors too much.

That means progressives may not get everything they want by the April 1 state budget deadline, but by then they will likely know where the battle lines are drawn. “The things that are not in the budget are going to be much more hard fought,” said Kaehny. But if the LLC loophole is eliminated by then, the real estate industry will have lost one of its best weapons to limit the influence of tenants.

 

Correction: A previous version of this story misstated the sources of campaign contributions that would be restricted by a bill proposed by state Sen. Michael Ranzenhofer and Assemblywoman Amy Paulin.

Zach Williams
is a staff reporter at City & State and its sister publication, New York Nonprofit Media.
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