Economic Development is Unconstitutional

And apparently, there hasn’t been enough harping about it. Why are so many decisions most costly determined in a court room (as in the case of New York State below) when the power lies with the people?

Milton Friedman says that state and local economic development policies may be unconstitutional because they interfere in interstate commerce. By offering subsidies to businesses, states are, in effect, enacting a negative tariff against another state. On economic as well as legal grounds, such tariffs should be discouraged. Just as the federal government prohibits states from placing quotas and tariffs on interstate commerce, Congress should enact legislation prohibiting states from offering direct assistance to private firms to entice them to relocate or expand in their state.

Economic Development is unconstitutional in North Dakota

Copyright infringement prevents this information from being shared – shame on the Bismark Tribune (Copyright 2011 BismarckTribune.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)

At any rate, the President of the North Dakota Policy Council  (NDPC) Curly Haugland agrees it’s not constitutional. North Dakota Constitution, Article X, Section 18 – “neither the state nor any political subdivision thereof shall loan or give its credit or make donations to or in aid of any individual, association or corporation.”

Constitutional challenge of an Economic Development (similar to our LEDC) program in Ohio

From the Daily Record, a lawsuit was filed against Governor John Kasich. Two Democrat lawmakers, Mike Skindell from Cleveland, Rep. Dennis Murray, from Sandusky and a Liberal Policy group called Progress Ohio. The three are alleging a new private nonprofit established to run Ohio’s economic development programs is unconstitutional. I hope they take a close look at Ohio’s Constitution and determine if either of these scenario’s are governed by Constitutional principles. I doubt any of them are.

New York’s Supreme court upholds Economic Development illusion

Lee Bordeleau v. State of New York. Plaintiffs broadly alleged that certain grants to private entities violate the constitutional ban on gifts of state monies to private firms. More specifically, they challenge the State’s practice of designating state funds for the purpose of economic development as unconstitutional.

There were two strong dissents about the decision, dissenting judges noted “the per job cost of this funding was estimated as high as $400,000 per job.” That number (if totally inclusive of all incentives and investments) unwittingly gets added to the cost of doing business for the rest of New York, not to mention the monumental advantage each subsidized company has over its competition.

This New York battle is not dead in the water yet, a motion to re-argue the case has been filed by James M. Ostrowski, council for a group of 50 taxpayers of New York.

Massachusetts urged to violate US Constitution by favoring one developer over another.

SouthCoast Today’s article
By Dan McDonald
NEW BEDFORD — KG Urban Enterprises, the developer that hopes to turn a Cannon Street brownfield site into a casino, is raising hackles about the state’s gaming legislation, imploring Gov. Deval Patrick to amend the tribal provision for this region, saying it is unconstitutional and illegal and will put the area at a competitive disadvantage.

Andrew Stern, managing partner of KG, said through a statement Thursday that the “favoring of a tribal applicant over a non-tribal applicant in this region violates the U.S. Constitution.”

Is Economic Development a zero sum game?

Find out what the Federal Reserve Bank of Minneapolis thinks in this publication. The Minneapolis Fed’s director of research – Arthur J. Rolnick’s answer is NO, it’s not a zero sum game (meaning ones loss is exactly another’s gain). These policies actually result in a net loss to the economy.

Perhaps States should seriously look at the matter from the perspective of Idaho’s Attorney General Jim Jones office in 1990.

RE: CONSTITUTIONALITY OF A STATE ECONOMIC DEVELOPMENT FUND
Dear Senator Rydalch:
This is in response to your request that we review the proposal submitted by Allan Isen to establish a state economic development fund which would loan money to new businesses which are unable to obtain loans from banks.

In Village of Moyie Springs v. Aurora Mfa. Co., 82 Idaho 337, 353 P.2d 767 (J.960), the Idaho Supreme Court considered the constitutionality of a state statute authorizing municipalities to issue industrial revenue bonds. The court found the statute to be unconstitutional as a violation of several specific sections in the Idaho Constitution. The court also held the statute to be invalid on grounds that any incidental or indirect
benefits to the public derived from such bonds could not “transform a private industrial enterprise into a public one, or imbue it with a public purpose.” 82 Idaho at 346. The court went on to quote with approval from the language of a Florida case, State v. Town of North Miami, Fla., 59 S. 2d 779, as follows:

Our organic law prohibits the expenditure of public money for a private purpose. It does not matter whether the money is derived by ad valorem taxes, by gift, or otherwise. It is public money and under our organic law public money cannot be appropriated for a private purpose or used for the purpose of acquiring
property for the benefit of a private concern. It does not matter that such undertakings may be called or how
-worthwhile they may appear to be at the passing moment. The financing of private enterprises by means of public funds is entirely foreign to a proper concept of our constitutional system. Experience has shown that such encroachments will lead inevitably to the ultimate destruction of the private enterprise system.

Read more here: http://www.ag.idaho.gov/publications/op-guide-cert/1990/​g020790.pdf

The Michigan Constitution of 1850 had multiple conflicts with Economic Development as follows:

Lotteries.

Sec. 27. The Legislature shall not authorize any lottery, nor permit the sale of lottery tickets.

Appropriation for local or private purposes.

Sec. 45. The assent of two-thirds of the members elected to each house of the Legislature shall be requisite to every bill appropriating the public money or property for local or private purposes.

Appropriations.

Sec. 5. No money shall be paid out of the treasury except in pursuance of appropriations made by law.

State credit.

Sec. 6. The credit of the state shall not be granted to, or in aid of, any person, association or corporation.

State not to own stock.

Sec. 8. The state shall not subscribe to, or be interested in, the stock of any company, association, or corporation.

Works of internal improvements.

Sec. 9. The state shall not be a part to, nor interested in, any work or internal improvement, nor engaged in carrying on any such work, except in the improvement of or aiding in the improvement of the public wagon roads and in the expenditure of grants to the state of land or other property: Provided, however, That the legislature of the state, by appropriate legislation, may authorize the city of Grand Rapids to issue its bonds for the improvement of Grand River.

Taxation; collection; tax on corporations.

Sec. 10. The state may continue to collect all specific taxes accruing to the treasury under existing laws. The legislature may provide for the collection of specific taxes from corporations. The Legislature may provide for the assessment of the property of corporations, at its true cash value by a State Board of Assessors and for levying and collection of taxes thereon. All taxes hereafter levied on the property of such classes of corporations as are paying specific taxes under laws in force on November sixth, A. D. nineteen hundred, shall be applied as provided for specific State taxes in section one of this article.

Uniform rate of taxation.

Sec. 11. The Legislature shall provide a uniform rule of taxation, except on the property paying specific taxes, and taxes shall be levied on such property as shall be prescribed by law: Provided, That the Legislature shall provide an uniform rule of taxation for such property as shall be assessed by a State Board of Assessors, and the rate of taxation on such property shall be the rate which the State Board of Assessors shall ascertain and determine is the average rate levied upon other property upon which ad valoreum taxes are assessed for State, County, Township, school and municipal purposes.

Laws imposing taxes.

Sec. 14. Every law which imposes, continues or revives a tax shall distinctly state the tax, and the objects to which it is to be applied; and it shall not be sufficient to refer to any other law to fix such tax or object.

The Michigan Constitution of 1963

ARTICLE I
Declaration of Rights
§ 1 Political power.
Sec. 1. All political power is inherent in the people. Government is instituted for their equal benefit, security and protection.

Right off the bat, as if it lists the most important information first. It’s abundantly clear to me what it says, do we actually need a court  or a small group of Justices to tell us what this sentence really means? Judges are supposed to interpret how the constitution applies, not to legislate from the bench (which has occurred with more frequency).

Because renegade policies and precedents like these have been allowed to stand, under-challenged for decades, we have essentially advocated our own demise. Sadly, we have unwittingly been borrowing/funding our own misery.
Answer this and take the challenge: Name one thing another country has invented that substantially contributed to humanity as much as those inventions of the United States of America. Herein lies American exceptionalism.
The challenge: Since we have graciously been awarded the power, let’s champion and defend our Constitutions.

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2 Responses to Economic Development is Unconstitutional

  1. Tom says:

    Economic development is against the law in North Dakota? Surely they must be faring terribly with all those other states giving away taxpayer money to businesses to move to their state. Guess again.

    North Dakota has an unemployment rate of 3.3%, that’s about a third of the national rate, and even though some may say their oil boom accounts for this, 2/3 of ND’s unfilled 16,400 job openings come from areas outside the drilling counties. Here’s a link showing what’s happening in North Dakota– and all without any mention of government-backed economic development: http://www.commerce.nd.gov/news/detail.asp?newsID=1028

    • Robin says:

      It’s against the law if North Dakota’s Constitution is considered the law, it’s time Michigan takes ours seriously too. Instead, I have to wonder how many taxpayers we’ve lost to places like North Dakota and Texas. While we were losing population, these States were gaining. While they were capitalizing on their natural resources, we had CEO’s flying around the country in private jets begging for bailouts.

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