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?