"Mother of All Taxpayer Lawsuits"

3 Aug

Jim Ostrowski is representing a large group of plaintiffs who are suing the state, state leadership, and several companies who have (or may) receive state economic development incentives. The defendants include Delphi, American Axle, IBM, and Bass Pro.

Ostrowski argues that this provision of the state constitution prohibits “corporate welfare”:

“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.”

The Bass Pro example wouldn’t apply because there isn’t a loan or donation being given by the state (or any state-controlled entity) to Bass Pro. The incentive package has to do with tax reduction or elimination – not a handout. But other examples do involve outright grants from the Empire State Development Corporation to private firms to enable some form of expansion with corresponding pledges of job creation.

The Empire State Development Corporation, however, is not named as a defendant in the lawsuit despite the fact that it is the entity that makes the incentives.

By way of a guess, I’d suspect that the creation of the ESDC is the workaround this constitutional prohibition. By using the ESDC, it is not the “state” per se which is giving out the money, but a public benefit corporation (a.k.a. Authority). As we all know, Authorities in New York have been carved out and created in such a way as to best avoid public oversight and scrutiny, so the counterargument will most likely be that the ESDC is a legal creation, and it – not the state – hands out the pork.

But it’ll be interesting to see what happens. Also, as far as I’m aware, the Wendt Foundation is not funding this lawsuit.

8 Responses to “"Mother of All Taxpayer Lawsuits"”

  1. Jim Ostrowski August 3, 2008 at 7:19 am #

    Empire is a dba for UDC but you got me worried so I added Empire too.

    Hey, I’m no a corporate lawyer.

  2. Mike In WNY August 3, 2008 at 7:22 am #

    The New York State Urban Development Corporation, dba Empire State Development Corporation, is a named defendant in the lawsuit.

  3. mark August 3, 2008 at 6:54 pm #

    unless the state finds ways to lower taxes significantly/cut a lot of the red tape it provides handouts are the only way to get those companies to stay/set-up shop here.

    im conflicted as to whether or not i agree with this lawsuit

  4. Mike In WNY August 3, 2008 at 9:46 pm #

    Mark, the handouts are responsible to a large degree for the high taxes.

  5. mark August 4, 2008 at 4:45 pm #

    lets say empire zone and general NYS handouts are stopped completely…long term probably a good thing and potentially gives the state the chance to lower taxes but wouldn’t it create a short term severe crisis? not to mention i doubt the state would lower taxes especially with its current conditions. i would assume it would be a very complex and fragile adjustment period

    im not an expert on this…just thinking out loud

  6. Mike In WNY August 4, 2008 at 10:41 pm #

    Mark, you are right. Unfortunately there is no way to reverse the out of control spending without a period of adjustment. Government has been hell-bent on trying to hide the period of adjustment, but it can’t be done forever. That is why we are seeing a pronounced economic downturn now. It is not for lack of government action, it is because of it. Economies can be manipulated, but the price is always paid in the long run. The longer a market solution is postponed by government action, the worse it will be in the end.

  7. Arkangel August 6, 2008 at 11:42 am #

    New York State has done itself a disservice through continuation of “Corporate” Welfare. However, there is [yet] an even greater situation contributing to New York State fiscal irresponsibility.

    The NYS Office or Real Property Services (ORPS) has allowed local assessors to manipulate real property assessment to favor Commercial properties and too, those politically connected whose homes are “high-end” while assessing middle-income or less than middle-income higher assessment rates.

    One only need go to the above website to see just how bad the Town of New Hartford’s Assessment Database is. Local politicans, (i.e. Earle Reed and his band of followers – Republicans) who are not only guilty of bad government and failure to allow local citizens the benefit of Open Government but too, the use of local school tax revenue (TIF) (which is currently before the NYS Legislature) for the New Hartford Town Business Park. There is a local business person Larry Adler whose donation(s) to the Town Highway Superintendent (Roger Cleveland) becomes highly suspect? Is this conjecture? Read the above blog and then go to Google and put in: Concerned Citizens for Honest & Open Government.

    The above Group has single-handedly exposed corruption and allegations of misuse of Town monies and too, their present course on using Bond Anticipation Notes (BAN’s) plus their outstanding long-term debit (i.e. Bonded indebtedness) has, for all intents and purposes brought this Town to the edge of BANKRUPTCY!

    Local Citizen Groups NEED to stand-up for their rights to include DEMANDING local Assessors be fair and reasonable in residential assessments and certainly not cater to Commercial Corporate Welfare through ridiculously lower Assessments.

    Enjoy the reading because this reader has seen the light!

    Incidentally, the NEW YORK STATE, OFFICE OF COMPTROLLER has done nothing to date to investigate the Town of New Hartford, New York’s finances and improper spending.

    Where are these people? Another Group of bureaucratic personnel? These people are part of the problem, if not the cause for this runaway spending by towns and villages, wherever situated.

    Governor Paterson, when will you ask your Attorney General to prosecute local Politicians for their illegal actions? The people await your response and actions.

  8. Arkangel August 6, 2008 at 2:42 pm #

    Do take the time to visit the websites below. They are an example of the fiasco that exists in both Town Governments and the New Hartford School District whose runaway spending habits recently contributed to a $5 million dollar cost overrun. Yes, I said $5 million dollars.

    Interestingly, the next Superintendent will be the New Hartford Business Officer, Robert Nole who currently is the New Hartford School District Business Administrator. Now, how is the School Board going to explain this one?






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