Buffalo attorney's lawsuit aims to halt government funds used in economic development

Buffalo attorney Jim Ostrowski lost the first round in his legal fight against New York State grants and government loans to businesses, but he's pushing forward with his crusade against "corporate welfare."

GCEDC's VP of marketing and communications, Chad Zambito is concerned that efforts such as Ostrolwski's could undermine economic development tools such as empire zones and damage efforts to bring business to Western New York.

"What it really does is it sends ends a message to site selectors nationwide that New York is really unfriendly to business," Zambito said. "It certainly sends a message to business people who might be looking at New York State that we might not be the most stable environment."

Zambito said Ostrowski's effort, if successful, would hurt the state because of New York's excessive tax burden.

Ostrowski doesn't buy it.

"That’s a really bad argument," Ostrowski said.  "If you look at Pennsylvania and Ohio, to reduce our taxes to their level, we would have to cut $40 billion out of the budget. Now corporate welfare only moves around about $1.5 billion per year, so it’s not an effective tool to compete with other states (with lower taxes)."

A lawsuit filed by Ostrowski on behalf of a number of people claims that New York's state Constitution forbids government loans and gifts to private enterprises, and for good reason.

Part of the lawsuit reads:

Prior to 1846, the State of New York provided large loans and grants to private
business allegedly for economic development.

When many of these projects failed, state taxpayers were left with a fiscally
unstable state government and much higher taxes to pay off loan guarantees.

To remedy this problem, the state constitution was amended in 1846 to ban loans
to private firms.

The voters approved the amendment, 221,528 to 92,436.

In 1874, the provision was expanded to include a ban on giving the money of the
state to private firms.

State lawmakers sought to amend the Constitution in 1967, but voters defeated the proposal by more than two million votes.

"In the years that have passed, state officials have acted as though the 1967 amendment had become law," the lawsuit reads.

Ostrowski lost his lawsuit, but the decision is now on appeal.

"There is no scientific or economic study that has ever shown these (economic development) policies to be effective," Ostrowski, adding later, "The main question is what gives these bureaucrats that run these agencies any expertise at all what business projects to pursue. Those decisions should be made by entrepreneurs in the market place."

The ECEDC has a number of promising projects on the board, however, has three major projects on the board, including Genesee Valley Agri-Business Park, Upstate Med & Tech Park and Commercialization Center, and the Science, Technology, Advanced Manufacturing Park in Alabama. There is also the possible revitalization of the Harvester Center area, which could also potentially use some extra government funds.

Zimbito doesn't think the lawsuit is any threat to these ongoing projects, but he does think it runs counter to the stimulus incentives being laid out by the Obama Administration.  The suit, if successful, could prevent New York from getting further stimulus aid, with that money going to other states instead.

"The stimulus money is taxpayer dollars to spur investiment and stimulate the economy," Zambito said. "That’s based on a lot of grants and a lot of low interest loans. So I’m not sure how that’s going to play with all this stimulus money that’s coming through state channels. I think that would put a damper on it, and by the sound of it it would put a halt to stimulus dollars as well."

Naturally, given that this is New York, Ostrowski may not even need to win the appeal to achieve the same effect. According to this Dave Catalfamo column, the governor is doing his best to kill of empire zones by making them uninteresting to migrating businesses.

Manufacturers, which are already in danger of joining New York’s Karner blue butterfly on the endangered species list, are now required to generate $10 in economic activity for every $1 in state tax breaks. And the state is ... demanding non-manufacturers to deliver a 20-to-1 return.

Finally, when thinking about government money going to private enterprise for large scale projects, it's always best to keep the downtown mall in mind.