18 N.Y.3d 305 (2011)
The New York State Constitution permits the state to allocate funds to public benefit corporations for public purposes, even if those corporations then provide funds to private entities, as long as the primary purpose is public and any private benefit is incidental.
Summary
A group of New York taxpayers sued the State, the Urban Development Corporation (UDC), and several private companies, alleging that state appropriations for economic development, specifically loans and grants to private entities, violated the state constitution’s prohibition on gifts of state money to private firms. The plaintiffs challenged appropriations to the UDC and the Department of Agriculture and Markets. The Court of Appeals reversed the Appellate Division, holding that the appropriations were constitutional because funds given to public benefit corporations are permissible and funds used for promoting New York agricultural products serve a predominantly public purpose.
Facts
Plaintiffs, 50 New York taxpayers, filed suit challenging numerous loans and grants issued by the State to private entities, arguing these were unconstitutional gifts of state money. The challenged appropriations included funds allocated to the UDC for economic development projects, such as semiconductor manufacturing facilities and funds given to the Department of Agriculture and Markets to fund contracts with not-for-profit corporations promoting New York agricultural products, such as apples and grapes.
Procedural History
The Supreme Court granted the defendants’ motion to dismiss. The Appellate Division modified, reversing the dismissal of the first cause of action. The Court of Appeals granted the defendants leave to appeal and certified the question of whether the Appellate Division erred in reversing the dismissal. The Court of Appeals then reversed the Appellate Division, dismissing the first cause of action.
Issue(s)
1. Whether appropriations to the UDC, a public benefit corporation, to fund payments to private entities for public development purposes violate Article VII, § 8 (1) of the New York State Constitution, which prohibits gifts or loans of state money to private corporations?
2. Whether appropriations to the State Department of Agriculture and Markets to fund agreements with not-for-profit organizations for the promotion of New York agricultural products violate Article VII, § 8 (1) of the New York State Constitution?
Holding
1. No, because Article VII, § 8 (1) permits the granting of public funds to public benefit corporations for a public purpose, and public benefit corporations are considered separate from the State.
2. No, because such appropriations fulfill a predominantly public purpose, and any private benefit is merely incidental.
Court’s Reasoning
The Court reasoned that the State Constitution permits gifts and loans of money to public benefit corporations like the UDC. The Court noted, “It is well settled that ‘public benefit corporations exist[] independently of the State’” citing Schulz v State of New York, 84 NY2d 231, 246 (1994). The Court emphasized that public benefit corporations are separate from the State, so funds passed to them are not subject to the constitutional prohibition. As for the appropriations to the Department of Agriculture and Markets, the Court applied the principle from Murphy v Erie County, 28 NY2d 80 (1971), stating, “an incidental private benefit will not invalidate a project which has for its primary object a public purpose.” The Court found that promoting New York agriculture serves a public purpose, benefiting the state’s economy. The dissenting judges argued that the majority was undermining the Gift Clause of the New York State Constitution and that the legislature should not be able to do indirectly (through a public corporation) what it could not do directly (giving money to a private enterprise). Judge Smith in his dissent expressed concern over the large amounts of taxpayer money being given to private businesses.