Ostrowski’s Anti-Pork Lawsuit Dismissed

Libertarian activist and attorney Jim Ostrowski had been spearheading a lawsuit brought against several corporations, Empire State Development, and the state of New York, alleging that state business development incentives were violative of the state constitution. The New York State Court of Appeals put an end to that suit in a decision released today.

§8. 1. The money of the state shall not be given or loaned to or in aid of any private corporation or association, or private undertaking; nor shall the credit of the state be given or loaned to or in aid of any individual, or public or private corporation or association, or private undertaking, but the foregoing provisions shall not apply to any fund or property now held or which may hereafter be held by the state for educational, mental health or mental retardation purposes.

Ostrowski filed suit, and the defendants won a motion to dismiss, which was then reversed on appeal to the Appellate Division. At issue in the fight was whether state would continue to have a right to grant money and incentives to various private entities in order to help businesses and create jobs – it goes to the very heart of contemporary state business development strategies.

The Court explains how constitutionality is not only presumed, but that a violation must be found “beyond reasonable doubt”, because the Court had found as far back as 1976 that it will uphold “public funding programs essential to addressing the problems of modern life, unless such programs are ‘patently illegal'” The current prohibition was devised throughout the 19th century to prevent the state from being required to bail out and insure businesses who have received public monies, and to “insulate the state from the burden of long-term debt”. This is why the state created public benefit corporations and authorities. Case law has repeatedly found that public benefit corporations operate independently from the state, and that the state can grant money to them for lawful public purposes.

Because public benefit corporations are independent from the state, the Court finds that Article VII Section 8(1) does not apply to them gifting or loaning money the state has provided to them.

The Court also affirmed grants of public money to benefit things like stadiums, which may provide a private entity with a monetary benefit but also serves a public purpose. As such, county subsidies to the Bills and Rich Stadium may continue unimpeded by constitutional uncertainty. Justices Pigott and Smith offer dissenting opinions, arguing that longstanding practice does not magically render the unconstitutional, constitutional, and that the system merely rewards the well-connected at society’s expense.

It’s quite an interesting read (if you’re used to reading legal opinions) and, absent a constitutional convention, the end of the road for this particular argument.

Bordeleau v. Statehttp://www.scribd.com/embeds/73363162/content?start_page=1&view_mode=list&access_key=key-o6ro7p2n4oqko2zn2xe//

10 comments

  • All I can think of is this after seeing he header pic: http://www.youtube.com/watch?v=2T_obaO46Bo

  • “absent a constitutional convention, the end of the road for this particular argument.”

    What difference could a convention make if an appellate judge majority stills want it to be allowed? If the constitution already says it’s prohibited, what would a modification have to be? Write that passage twice, or style it in bold? Maybe put it in CAPS to shout it? That might look undignified.

    • What difference could a convention make if an appellate judge majority stills want it to be allowed? If the constitution already says it’s prohibited, what would a modification have to be? Write that passage twice, or style it in bold? Maybe put it in CAPS to shout it? That might look undignified.

      Taking a look at what I wrote, there’s nowhere left for Ostrowski to go with this now, except for – absent – a constitutional change. I suppose it could be made by amendment rather than full-blown convention, but as we lawyers like to say, the Court’s opinion speaks for itself. If the legislature decided that public benefit corporations were not to be used as conduits to funnel public money to benefit private entities in furtherance of some public interest, then it would need to abolish them and codify that.

  • The dissenting opinion says it all:

    e industry, which defendants call
    “economic development.” Defendants make the specious assertion
    that the appropriations here do not violate the Gift Clause
    because the monies are not made “directly” to private companies
    but, rather, are first funneled though public corporations, which
    then distribute the funds to private entities. In other words,
    because the state distributes taxpayer funds through an
    intermediary like the ESDC, it is not the state that is loaning
    money to a private corporation or undertaking, but rather a
    public corporation that is loaning money to private enterprise.
    But we have cautioned on more than one occasion that “[w]hen the
    main purpose of a statute, or part of a statute, is to evade the
    Constitution by effecting indirectly that which cannot be done
    directly, the act is to that extent void, because it violates the
    spirit of the fundamental law” (People ex rel. Burby v Howland,
    155 NY 270, 280 [1898]; see also Wein v State, 39 NY2d 136, 145
    [1976]).
    Here, plaintiffs state a valid claim that the
    disbursement of funds through intermediaries constitutes gifts of
    money “in aid of” private corporations and that the disbursements
    are not cloaked in validity and constitutionality merely because
    the state may not have “directly” given the monies to these
    private entities. There seems to me no fundamental difference
    between the State directly giving monies to such private
    enterprises and the State creating a public corporation with the
    – 5 –
    – 6 – No. 190
    express intention of doing so.3 For these reasons, the majority
    errs in holding that the Legislature may do indirectly, through a
    public corporation conduit, what the Constitution forbids it to
    do directly. But this error is apparently of only academic
    importance, because the majority, after discussing the indirect
    appropriations at length, goes on to hold that the Legislature
    may also do directly what the Constitution forbids.

  • Interesting that Alan doesn’t seem to have a dog in the fight. Maybe he knows the way the state funnels money to private industry is corrupt, but because it’s serves some “greater purpose” we’ll just look past the slime just this one time…

    • My position is that I agree fundamentally that selective incentives are stupid when we have a high-tax, high-regulation climate that makes it difficult for New York (and especially WNY) to compete with other places to attract & retain businesses, the reality is that even low-tax, low-regulation places down south offer incentives in much the same way. I don’t think the Court is wrong here, for starters, but practically I don’t think it’s savvy to further hamstring our business development efforts until something better is proposed and enacted.

  • What I meant was if NYS judges want it to be constitutional, it will be. Since the practice is so favored in the legislature which funds courts and with governors who appoint judges, I don’t see how any tactics involving court rulings on constitutionality could succeed.

    Even if state-owned public benefit corporations are abolished in the constitution for instance, if the court is willing to consider those to be not covered by clear words banning the state from funding businesses, then they’d find another justification no matter what the text says.  Perhaps they’d interpret another part of it as canceling out the ban, or say because it’s gone on for so long it has to be legal. Illogical, but there’s no consequences to them.

    The only way to stop it would be electing governors and legislature majorities who decide to stop allocating money for it. That’s incredibly unlikely to happen, but I think it would be the only way.

  • As a small business owner in NY I seek to make my own way in the market without government assistance. My hard work and dedication is punished by politicians who wish to pick the winners with my most un-voluntary taxation. Political action becomes our only recourse. Those prospects are always dim in a stacked field of play. I do come across folks who seem happy to be taxed.

  • Jonathan Wellinton-Fidrych III

    Hooray for the Court of Appeals! The very idea that giving public funds to the excessively rich and powerful is illegal is preposterous. The Court wisely decided that silly constitutional prohibitions can easily be evaded by creating super corporations (OUR people) who aren’t required to obey the crippling mandates of obsolete old pieces of paper like the New York State Constitution. Such essential government expenditures are the very foundation of the greatness of America.

  • I thought changes to the NYS Consitution needed to be approved by the people? Yes/No?

Leave a Reply