Court Allows Economic Development Illusion To Continue
Buffalo lawyer James Ostrowski made a tremendous effort to end the insanity of politicians providing taxpayer dollars to corporations under the guise of creating jobs. Ostrowski’s lawsuit made it up to the Court of Appeals, the highest Court in New York State, where we all lost in a 5 to 2 decision.
The New York State Constitution clearly states:
“[t]he money of the state shall not be given or loaned to or in aid of any private corporation or association, or private undertaking;”
Despite this clear language politicians regularly funnel billions of tax dollars in grants and loans to private businesses. These same private businesses in turn provide significant campaign contributions to politicians in a process frequently referred to as “pay to play”. It is a well known fact that any private business looking for tax dollars to subsidize their efforts must play the game of making campaign contributions to politicians. The “pay to play” shell game costs taxpayers billions of dollars and in just about every instance the number of jobs promised at press conferences rarely matches the hype.
As pointed out in the Court opinion politicians desperate to show that they are doing something to create jobs are spending insane amounts of tax dollars to assist private businesses. For example:
- $140 million in tax dollars is being used to support the construction of a wafer packaging facility and continued research and development efforts to a joint venture of which International Business Machines Corporation is a member. This expenditure, it is said, will result in the creation of at least 675 jobs and the “retention” of 1400 others. That works out to roughly $60,000 of State money per job.
- $300 million in tax dollars is being utilized to help an “international consortium of semiconductor manufacturers” expand a research and development program. This,we are told, will result in the creation of 450 jobs and the saving of 250 others: more than $400,000 per job. And the brief of defendant Global Foundries, Inc. discloses that the Legislature has appropriated $650 million to subsidize that company’s semiconductor manufacturing (an appropriation distinct from the $300 million semiconductor subsidy described by the State). Global Foundries says that its manufacturing facility “is expected to employ more than 1,500 people, with an additional 5,000 jobs created by supplier firms”– implying a cost to the State of roughly $100,000 per job.
The five Judges ruling against Ostrowski’s argument that the New York State Constitution is being violated based their decision on the following:
- It is against the Constitution for government officials to give or loan tax dollars to private corporations. However, it is not unconstitutional for government officials to provide tax dollars to state created Authority’s such as the Empire State Development Corporation, the Buffalo Urban Renewal Agency and the Erie County Industrial Development Agency and for these agencies in turn to give or loan public dollars to private corporations.
The two dissenting Judges led by Eugene Pigott from Western New York stated:
- In 1967, state voters rejected a proposed amendment to the state constitution that would have allowed the distribution of funds to private businesses for the purpose of economic development in the same manner the Empire State Development Corporation is distributing funds now.
- “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 express intention of doing so”. “…the majority errs in holding that the Legislature may do indirectly, through a public corporation conduit, what the Constitution forbids it to do directly.” (Justice Pigott).
- “It is an illusion — one that seems to have the persistence of original sin — that prosperity can be attained by taking money from taxpayers and handing it to favored businesses.” (Justice Smith)
- “I seem to remember a time when IBM could make money by selling its products for more than it cost to produce them. I would have thought semiconductor manufacturers could do the same. If they cannot, a bail-out for their shareholders is not a prudent use of more than a billion dollars in taxpayer funds.” (Justice Smith)
I agree completely with the opinions of Justice Pigott and Smith that the State Constitution is in fact being violated by funneling tax dollars to favored politically connected private corporations at the expense of everyone else. This constitutional violation creates a “pay to play” environment of corruption, which impacts the operation of government in many ways.
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What do you think about this Court decision?
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A valiant effort and thanks to Jim and the other lawyers and plaintiffs involved in this effort!
Snowball’s chance in hell of Ostrowski winning. That said, the various New York State Authorities that get our money funneled to them are what’s holding us hostage. I blame Robert M. Moses; and he’s kinda dead currently…
So if the court had ruled the other way, would it have been BYE BYE BILLS., and every other pro sport team in the state.
Sports teams. Hell, If they had ruled the other way the only jobs created would be for the truck drivers hauling the businesses to another state.
It is a complete myth that public subsidies create jobs. You have to understand the pay to play shell came being played by politicians and typically large politically connected corporations.
According to the Kauffman Foundation, which is dedicated to studying and encouraging entrepreneurship, job growth in the U.S. is driven entirely by small start-up companies. Larger companies typically lose jobs as they age as they are not as agile in responding to changing market conditions. Start-up companies typically do not throw around campaign cash to politicians, whereas the big companies do, which is why large companies are typically subsidized and smaller ones are not.
If the Court would have ruled the other way, taxes could have been lowered by a billion dollars for all businesses in New York State instead of spending those dollars subsidizing companies selected by politicians. I personally have no faith in politicians picking the right companies to invest public tax dollars. A better approach would be to eliminate subsidies all together and improve the state business climate by lowering taxes for everyone.
http://www.kauffman.org/newsroom/u-s-job-growth-driven-entirely-by-startups.aspx
Close but not quite. Taxes would not have been lowered. Money would have gone to correct the deficit, then somewhere else. the state would not have lowered taxes. Nice thought though. Now look at the statement about jobs driven by small start-ups. Remember that with the exception of family owned (and populated) businesses, jobs are an expense, a necessary evil if you will.You employ the minimum. If you are breaking even, you can’t afford anymore. If you are making a nice profit, why hire more? Unless you are certain that your profits will far outweigh the expenses of additional manpower, why bother? As for the Kaufman Foundation, of course they are making those claims. Bolsters their cause. But how many start ups will we need? And where will they get the finances they need? Banks aren’t lending. Maybe some of that sweet, sweet government grant type cash or maybe a deal with an IDA? But that would be subsidizing.
Subsidies kill competition and efficiency, leaving us all with more expensive products/services, both through the cost of the subsidy and the cost of goods sold.
@Mike – to certain point – no shit! I agree that the current process is seriously broken and needs to be fixed. But I feel the answer is somewhere between throwing buckets of money at large companies and shutting the process down outright. Face it. Businesses are just like you. They will take the deal that is the best for them. If Ohio offers a sweetheart deal, that’s where they go.
The movement to end economic development incentives was long on idealism but woefully short on pragmatism. If this were a perfect world and NYS existed in a vacuum, it would be the right thing to do to keep the public out of the business of attracting jobs.
Unfortunately, NY has to compete with other states that aggressively employ similar tactics. If we don’t provide incentives to companies like Geico, Lockheed Martin, Moog etc, they will simply locate in a state that does.
Locally, these incentives help offset the negative impact county, federal, and other indirect state subsidy programs have on the region. These programs help level the playing field previously obsolete properties and far-flung greenfields that enjoy a variety of other publicly funded advantages. That can keep the city and older suburban areas competitive with newer areas on the outskirts of town.
The previous comment is exactly and totally wrong. Corporate welfare is an instance of pragmatism and that’s why it has failed except for the very small number of beneficiaries. Bank robbery is also bad for the economy but great for the thieves. CW provides an excuse for not lowering spending which is the reason why firms flee WNY. Our excess spending is many times greater than the total amount of corporate welfare. Also, the commentator has apparently never heard of opportunity cost. Where’s the money coming from? Other business firms and taxpayers whose own ventures are harmed by this theft. Add the fact that these programs allocate capital based on political considerations and donations, not market factors.
There is zero evidence that any of these programs work and vast evidence that they don’t. I would invite the pragmatists to just take a look at WNY which has been “helped” by these programs for 45 years. That’s the thing I love about pragmatists–they always deny the obvious bad consequences of their policies. And I thought there is no truth but consequences.
Ask the employess at Geico if the programs work.
Well, I still don’t see an answer to my question. If the court had ruled the other way, would Buffalo lose the Bills.?
@12 – The second the current lease ran out. Goodell and Wilson would be interviewing prospective owners as soon as the ruling took effect.
Pauldub–ask the bank robber if bank robbery works. Is that all you have? Yikes!
The Bills is a tricky question because the county owns the stadium and there’s an old case which is liberal on lease terms for government-owned stadiums.
I’m not well versed on this issue but over the years I’ve learned as a rule of thumb, whatever way Mr Ostrowski leans, go the other way.
Well, the opposite of libertarianism is fascism so, if the shoe fits, wear it.
@ Mr Ostrowski, I sincerely doubt that taking development subsidies away will amount to much of a tax reduction for the general public. I base that on the sheer enormity of NY’s budget, a ballpark idea of what companies are granted based on media releases, and the fact that a lot of what is given to these employers wouldn’t be collected anyway if they were not here (a reduced tax bill is better than no tax bill).
Since you have been following this issue more intently than most, I’ll assume you have a better handle on what the public is losing/gaining as a result of these subsidies. Without resorting to the “bank robbery” or “fascism” hyperbole, can you say specifically what sort of tax savings the general public would receive if these programs were discontinued? In other words what will the public have to gain, or what will we lose for the sake of chasing this Libertarian ideal of yours?
@Mr Ostrowski. Well you are at a bit of a disadvantage since I hear you bloviate on the radio all too often and you don’t know me from a bag of assholes. So…I am a registered Republican since the mid 70′s. I am self employed for over 30 years. I have no employees so if I am sick or hurt or lazy I do not get paid. Therefore I do my best to be none of those. I have never taken a dime of government money. Ever. Does that make me a fascist? I do not like you because you are a religious zealot posing as a libertarian. You and your ilk have infested the Republican party for over 30 years and like a bad rash, you are really hard to get rid of. So I find myself voting for Democrats with the hope that someday people like you will be purged from my party.
Well as usual what started out as a good discussion has now strayed from the issue at hand and has sadly turned into personal attacks.
Well, we lost the case but my intention was to have a bill introduced that would have reduced the state gas tax by the money saved by banning corporate welfare. We could have cut five to ten cents from each gallon of gas.
The last comment’s author is an obvious moron as I have never based a policy proposal on a religious view. My statement was clear–if you claim to be my opposite, you are probably a fascist since I’m a libertarian. Look it up.
Paul, sorry, didn’t see your comment. Thanks for posting this. But when I attacked, I respond. Hate to just swiftboated.
@Jim – C’mon, that was begging to be said. I just took the bait. For every argument you attempt, there will be someone that is working due to one of those subsidies that will tell you to kiss their ass. There will be a local politician. saying their local economy has improved. Companies stating the only reason they are here is because of the deals they received. You’ve a tough row to hoe there. Tighter controls are needed, the entire process needs to be revamped. But outright elimination? I don’t see that in the near future.
Actually libertarianism and fascism are both strands of extreme right-wing ideology. And they’re both more problem than solution.
http://en.wikipedia.org/wiki/Right-wing_politics
If you’re going to name-call, at least label those who disagree with your ideas “communists” or “marxists” as your Bircher predecessors did when you people screamed about interstate highways and water fluoridation.
I go by the same general rule of thumb as jimd. If the Glenn Beck crowd is for it, it’s bad, and vice versa.
Why do people fear labels? Labels are words that stand for concepts that stand for facts if they are used correctly. I do not complain when someone calls me a libertarian though I wish the old term for my views, “liberal” was still in currency. The old liberals were the original left. My predecessors were th old British Whigs (not the bad American Whigs), Jefferson and company, Thoreau, not the Birchers. I do agree with them on highways and poisoned water though. Fascism is the opposite of libertarianism but so is communism. The real political spectrum is based on the centralization of power. Libertarians are extreme decentralists. Fascists and communists are extreme centralists. Modern liberals are moderate to strong centralists.
@ JO: I’m skeptical, but for the sake of this discussion, I’ll give you the benefit of the doubt that eliminating ED incentives will produce a savings that will offset the disinvestment that would result from other states’ luring NY companies with their own ED programs.
That being said, using this savings to reduce or eliminate the State’s gas tax is a prime of the un-pragmatic thinking behind this movement that I referred to earlier. It will tug on the heartstrings of anybody with a drivers licence until you remind them those taxes pay for the roads and bridges they use on a daily basis. Cutting or eliminating the fuel tax, which already needs to be supplemented with other taxes, and replacing it with a yet to be determined (and highly questionable) source of revenue, will devastate an already strained transportation network.
Then there is the issue of unfairness that comes with shifting the burden of our infrastructure away from its primary users. Though the gas tax is currently too low to support our needs, at least it partially puts the burden of road costs on the people who buy gas. The more you dive, the more you pay (at least in theory). Replacing the gas tax with money from the general fund rewards those who drive the most at the expense of those who drive the least. Call it welfare for gas guzzlers, or bank robbery of pedestrians, cyclists, and those who otherwise moderate their diving.
In effect, replacing ED subsidies with elimination of the gas tax is just government picking a different set of winners and losers.
” Libertarians are extreme decentralists. Fascists and communists are extreme centralists. Modern liberals are moderate to strong centralists.”
I can live with this.
Where would you put the Republican party with its current platform? On one hand it seems to be decentralist, yet at the same time seems to swing the other way with the attempts to control abortion rights and other issue with federal legislation.
Well, the GOP has presided over many decades of growth in the size and scope of the federal government so they are centralizers.
I favor reducing the gas tax with the savings from abolishing corp wel so it’s “paid for.” The gas tax is “regressive” but also is paid for by the middle class and wealthy since they use more gas. It raises the price of virtually everything and hurts the tourism industry in Upstate which relies heavily on day trips. Hurts small business people who rely heavily on their cars. Giving people their money back would stimulate the economy as people choose to spend it on their most urgent wants and needs. Also, so-called dedicated funds are raided whenever Albany gets greedy.
I agree with Paul W., Jim, and Mike about the idea to fully end corporate welfare. I’d support ending it either all at once or through piece by piece opportunities as they ever happen. I’d prefer cutting the state sales tax instead of gas tax but that’s a different debate.
That said, as I commented at Pundit’s new place, trying to accomplish it constitutionally through NYS courts looks like a hopeless tactic. As long as governors and legislators from both parties continue favoring it so strongly, the courts will find ways to let it continue.
Btw @Jim
Didn’t you write or say somewhere recently that you won’t ever endorse candidates who favor corporate welfare? Yet shortly after that you bragged about having endorsed mainstream Republicans Jacobs, Walter, and Fudoli. None of those three are consistently against CW, are they? (Haven’t they all favored IDAs for example?) Welcome to pragmatism!
I said of Chris Collins, who based his campaign on the joys of corporate welfare, that I wouldn’t vote for any candidate who supported corporate welfare. I am not aware that Jacobs, Walter and Fudoli based their campaigns on supporting corporate welfare. They are all in my view libertarians who have supported the Free New York agenda in the past.
@Jim, isn’t “supported CW” (your 1st quote, re Collins) vs. “based their campaigns on CW” (your 2nd quote, re. Fudoli-Walter-Jacobs) a big move of your goal post?
A quick Google search finds last month’s debate transcript which quotes Fudoli supporting IDA corporate welfare.
He says IDA corporate welfare should be continued to “create higher paying jobs”, although he notes there’s a need to “keep an eye on” it.
If Collins said the same thing, wouldn’t you say it’s an instance of being a big government liberal who doesn’t deserve votes no matter who the opponent is? When Fudoli said it, you say he’s in your view a libertarian and deserves votes because…. why? Just curious. I’m not against Fudoli or the others mentioned at all, but your criteria looks very unclear.
Fudoli was unable to attend our candidates’ night. We endorsed him based on his prior support of the tax revolt. Since he’s a libertarian, I think we would be open to abolishing all IDAs. Again, my comments were prompted by a candidate who made love of corporate welfare a centerpiece of his campaign as opposed to Fudoli who made tax and spending cuts his key issues. Fudoli’s comments suggest doubts about IDAs, not unqualified support. He said “should” but the truth is, they create zero jobs and actually kill jobs. So, if Dino looked at the studies, he would oppose all IDAs.