More from the file in the case challenging economic development grants: the influence of politics, the legacy of AY eminent domain litigation

A few more pieces from the file in the case (as I described November 28) unsuccessfully challenging the state's practice of economic development grants as violating the state Constitution's ban on gifts to private undertakings.

The corruption of state politics

From the initial plaintiffs' brief, 9/15/08:

Complaints about state politics being dominated by “Three Men in a Room,” the Governor, Speaker and Majority Leader, are legion. What makes this corrupt regime possible is the flagrant disregard of the Constitution, both in appropriating grants to favored corporations and in allowing those three officials to secretly choose the recipients of the illegal largesse. As pointed out in the complaint, many recipients of grants return the favor by making campaign contributions to influential legislators. This further increases their power over the rank and file legislators who need this money at election time.

From the 8/4/08 complaint:

38. There are well over 100 grants to chambers of commerce, groups that supposedly espouse the principles of free private enterprise.
39. On information and belief, recently a candidate for state legislature in Upstate New York approached a chamber of commerce official for support and was told the group could not support him as they were getting state money from the incumbent.
40. This anecdote illustrates the corrupting influence of corporate welfare in our extraordinarily non-competitive political system.

The influence of eminent domain litigation

The Atlantic Yards eminent domain case, known as Goldstein, played a key role in the 1/10/11 brief from the state as defendant:

B. Appropriations For The Purpose Of Fostering Economic Development Are For A Public Purpose. 

This Court has recognized that promotion of economic development is a valid objective of governmental action. The issue has presented itself primarily in cases involving condemnation of real property, where the Court has confirmed that “removal of urban blight” is a “recognized public purpose or ‘use’ ” and therefore “a proper, and, indeed, constitutionally sanctioned, predicate for the exercise of the power of eminent domain.” Matter of Goldstein v. New York State Urban Dev. Corp.... The determination that economic development in the form of the removal of urban blight is a public purpose sufficient to justify a taking of private property necessarily implies that economic development is a also sufficiently public purpose to justify an expenditure of public funds. Indeed, a “public purpose” requirement supporting a taking of private property should be at least as stringent as a public purpose requirement supporting the expenditure of public funds.

In the Goldstein and Kaur cases, this Court also made clear that the determination of whether a governmental action serves a public purpose is a legislative rather than a judicial task.

Of course, the "legislative" task in the case of Atlantic Yards was determined not by the legislature but by a purportedly (to the defense) independent public benefit corporation, the Empire State Development Corporation.

Some reformers think that the burden should be higher when eminent domain is conducted by such an unelected body, compared to an elected one.

The burden on the plaintiffs

Also from the defense brief:

In this case, the Legislature made a determination that the appropriations challenged by plaintiffs served a public purpose. The purposes of the appropriations included the retention of 1,400 jobs at IBM’s semiconductor facility in East Fishkill , the creation of 450 new jobs and the retention of 250 jobs at the University of Albany Nanotech Complex, and the retention of 215 jobs by West Genesee Hotel Associates in at the Hyatt Regency Hotel in Buffalo. Although plaintiffs submitted an affidavit of a purported expert disputing the effectiveness of such economic development programs, the policy disagreement of a single economist does not establish that the Legislature’s determination was “irrational and baseless.” See Matter of Goldstein. Therefore, the Legislature’s determination that the appropriations at issue here serve economic development and other public purposes satisfies the public purpose test of article VII, § 8 and should not be disturbed.

The plaintiffs' response

The plaintiffs' response brief charged that the state was changing the subject:

If, based on no clear appellate holding, the defendants asked the trial court to ignore the plain language and plain history of the Constitution, what authority did they cite? Eminent domain cases... Obviously, this case is not about condemnation of private property. There are explicit constitutional provisions that govern litigation over eminent domain. Both the state and federal constitutions require that the courts find a “public use” before allowing a taking of private property. U. S. Constitution, 5th and 14th Amendments; N. Y. Constitution, Article 1, § 7, (a). Thus, it is no surprise that in condemnation cases, courts determine whether a public purpose exists. They must do so by explicit constitutional direction!

Here, the opposite condition prevails. Not only is there no constitutional mandate to find a public use or purpose, but the provision in question bars grants whether or not there is a public purpose behind the grant. By its plain language, the constitution implicitly forbids the superimposition of such an exception as that would constitute amendment of the constitution by judicial fiat.

Picking winners

The brief asked:

Why, for instance, should the Hyatt Hotel in Buffalo owned by West Genesee Hotel Associates receive $5.1 million in cash while the rest of the business firms in Erie County do not and cannot? Since public funds, like all funds, are scarce, it can never be the case that all business firms get subsidies. Rather, all unsubsidized firms subsidize through their taxes a necessarily small number of politically favored firms. Why should IBM get $44,000,000 and other business firms nothing but the privilege of paying for IBM’s windfall?

The importance of opportunity cost

The brief makes the crucial point that the promises made by the private firms for jobs need to be considered in light of alternative use of the state money:

The defendants have made many assertions about the value of the consideration that private firms give in exchange for large cash grants. However, they are based on nothing but air. They are utter nonsense because they fail to take account of opportunity cost, the fundamental principle of economics that the defendants wish to ignore. However, the framers of the ban on subsidies were fully familiar with the concept and drafted a clause that encapsulated their insight. To quote [former New York City Mayor George Opdyke, who was also a member of the Constitutional Commission of 1872]:

“In the first place, whence came that money? It came from the pockets of the tax payers. Into whose pockets has it gone? If it has gone into the pockets of any one it has either gone into the pockets of the shareholders of that railroad, or into the pockets of the owners of the land in the district of the State through which it passes; but not a dollar has been returned to the pockets of the tax payers from whom it came. In other words, it is an act of legal robbery. It taxes the whole people for the benefit of a favored few.”