Editor’s Note: The views expressed in MoCo Politics are the writer’s and do not reflect those of Bethesda Beat staff.
Of all the legislation passed by the General Assembly over the last five years, one of the most meaningful new laws has been the Campaign Finance Reform Act of 2013. That is the law that allowed counties to establish voluntary public financing systems, something that MoCo first used this year and which may spread to other counties in the next cycle. If public financing was the only accomplishment of this law, it would be long remembered, but it did one more important thing that is now impacting the Montgomery County executive race.
It has changed the law on corporate contributions to campaigns.
Maryland is one of 22 states that allow direct corporate contributions to political campaigns. Through the 2014 cycle, corporate entities could each contribute up to the maximum amount allowed by state law to political committees. (They were subject to an aggregate limit on total contributions that was struck down by the U.S. Supreme Court in 2014.) The practice of regarding corporate entities as separate donors was enormously helpful to owners of large numbers of corporations and limited liability companies (LLCs), who could bundle lots of big checks for favored candidates. This came to be known as the “LLC loophole.” I have previously written about an apartment building owner and a casino owner who used the loophole to send hundreds of thousands of dollars to candidates, an option not available to donors lacking large corporate networks.
The 2013 reform law changed that by limiting the application of the loophole. The law defined a “business entity” as a corporation, sole proprietorship, general partnership, limited partnership, limited liability company, real estate investment trust or “other entity.” The law then stated:
Contributions by two or more business entities shall be considered as being made by one contributor if:
(I) One business entity is a wholly owned subsidiary of another; or
(II) The business entities are owned or controlled by at least 80 percent of the same individuals or business entities.
This was a game changer. Now if 20 business entities share at least 80 percent ownership, they may not write 20 maximum checks (now set at $6,000) to the same candidate. They could only write up to $6,000 in checks to that candidate combined. This change took effect on Jan. 1, 2015, meaning that it first applied to the 2018 cycle.
This issue showed up in Nancy Floreen’s first campaign finance report in the county executive race. In four instances, groups of corporate contributions coming from the same address (including the same suite number) and written on the same date cumulatively exceeded the $6,000 limit. In another instance, the corporate names were similar and the combined limit was exceeded but the addresses were different. Are these violations of the new law? It’s impossible for a member of the public to tell because corporate filings with the State Department of Assessments and Taxation almost never show ownership distributions. The law is difficult to enforce and that problem may extend to the agency charged with overseeing it—the State Board of Elections.
Here’s a prediction. The campaign of Marc Elrich, Floreen’s principal rival in the general election, is watching these reports very closely. If multiple checks from the same address keep showing up and cumulatively exceed the $6,000 limit, the Elrich campaign or one of its supporters will file a complaint with the State Board of Elections. And if the board cannot determine whether a violation occurred, it might just refer the complaint to the state prosecutor responsible for investigating campaign finance issues. The state prosecutor reached a settlement with a major corporate contributor on a similar issue to this one as recently as two years ago.
So if you intend to send corporate contributions to political campaigns in the future, do yourself a favor: Get a lawyer, analyze your ownership structure and figure out how to contribute without running afoul of the new law. Or you could find yourself the subject of a newspaper story that no one would frame for the wall.
Adam Pagnucco is a writer, researcher and consultant who is a former chief of staff at the County Council. He has worked in the labor movement and has had clients in labor, business and politics.