ALBANY -- New York State's practice of awarding economic development grants to businesses looking to locate or expand in the state has stood up to a constitutional challenge.
Court of Appeals judges on Monday ruled 5-2 that grants to enterprises -- such as the University at Albany's nanotechnology research complex, the Global Foundries microchip plant as well as a hotel in western New York and other initiatives -- do not violate a constitutional ban on the state's giving of gifts to private companies.
Citing a clause written into the state constitution, a financial planner from Erie County had argued in a lawsuit that the state cannot give money to private businesses. According to the suit filed by Lee Bordeleau and including the names of some 50 other taxpayers, that law was written to prevent "gifts" to railroad companies and should still apply today.
The case was argued before the Court of Appeals in October. In that hearing, plaintiffs attorney James Ostrowski noted that these vast grants, which critics say amount to corporate welfare, continued even as the state was grappling with fiscal distress.
The initial suit also had support from members of New York's Tea Party movement who oppose what they say is too much government spending and indebtedness.
Supporters of the current system say the grants are needed to help New York compete with other states that are also holding out incentives to woo businesses.
The majority decision, written by Judge Theodore Jones, goes deep into the history of the state's relations with businesses, from the development of the railroad in the early 19th Century to the more recent proliferation of public benefit corporations such as ESDC to dole out government support.
"In sum, we find no constitutional infirmity to the challenged appropriations," Jones wrote.
Two dissents were included in the decision, with judges noting among other concerns that the per-job cost of the funding of certain ESCD-aided projects was estimated as high as $400,000.
"Unconstitutional acts do not become constitutional by virtue of repetition, custom or passage of time," wrote Judge Eugene Piggott. "But that is what the majority opinion holds today. The arguments made by these defendants are precisely the kind of claims that sully taxpayers' view of our State government."
Ostrowski, reached by phone, conceded that this marked the end of the line for this lawsuit.
"We're dead," he said, adding, "It's a sad day for taxpayers."
Representatives for Attorney General Eric Schneiderman, who defended the state, declined comment.
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