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The State Constitution Actually Prohibits Corporate Welfare

Filed under: State Politics

corporate welfare

Billions of tax dollars are given aiding a select few businesses despite the fact that 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;”

In an effort to get around this clear restriction, an Amendment to the State Constitution was put up for a vote in 1967 and voters rejected amending the Constitution to allow tax dollars to be distributed to private businesses for economic development purposes. After voters wisely rejected using public tax dollars for private interests, state politicians one year later got creative and formed the New York State Urban Development Corporation in 1968. What was once known as the New York State Urban Development Corporation became today’s Empire State Development Corporation in 1995.

 Although the New York State Constitution prohibits utilizing state dollars to assist private businesses, the creation of public authorities like Empire State Development and the various Industrial Development Agencies have been used as vehicles to funnel tax dollars to favored business interests. The argument has been that public authorities are not the State and the Constitution does not prohibit them from dispensing funds to businesses. An absurd stretch in my opinion.

Ostrowski’s Important Lawsuit

In 2011 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 five Judges ruling against Ostrowski’s argument that the New York State Constitution is being violated based their decision on the basis that while it is against the Constitution for government officials to give or loan tax dollars to private corporations; it is not unconstitutional for government officials to provide tax dollars to state created Authority’s and for these agencies in turn to give or loan public dollars to private corporations. There’s that absurd stretch.

The two dissenting Judges led by Eugene Pigott from Western New York made some great points:

  • 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. 

  • The vast corruption in State government would be greatly reduced if the State Constitution was followed.

  • rastamaniac

    They should outlaw pot in there too…