This is the fourth installment of a five part series discussing the lawsuit seeking to prohibit the use of New York State funds in the construction of the Buffalo Bills’ new stadium. (Part I can be found here; Part II can be found here. Part III can be found here.) As the fourth segment of the series, this article will provide a summary of how New York courts have interpreted New York’s constitutional prohibition on gifts and loans. This article covers the legal history from 1994 until the present.
- Shultz v. State:
In 1994, the Court of Appeals heard a lawsuit in which taxpayers challenged a law committing over $20 billion in financing for the state’s transportation system. This funding included $10.47 billion for the Dedicated Highway and Bridge Trust Fund (Highway Fund) operated by the State Thruway Authority, and $ 9.56 billion for the Dedicated Mass Transportation Trust Fund (Mass Transportation Fund), operated by the Metropolitan Transportation Authority. [1] The taxpayers initiated the suit, arguing that this appropriation of Sstate funds was an unconstitutional lending of credit to public corporations. [2]
Finding that the state’s constitution bars the state from lending its “credit” to a public corporation, the court held that the state is free to give money to a public authority and to make a non-binding pledge to giving those entities future grants or gifts. [3] The Court of Appeals held that public benefit corporations are distinct from other companies because those entities do not bind future generations or create the same dangers of collapse, insolvency and crisis associated with the abuse of credit. [4] The Court of Appeals could come to this conclusion because the state legislature had not entered into a legally binding commitment to make future debt service payments. Instead, it was free to appropriate or not appropriate debt service payments each year as part of the budget process. Bond holders were assured the state would continue to make payments because it had a “moral obligation” [5] to do so. Failure to make a debt service payment would so rattle the financial system that New York State, its municipalities and authorities were likely to be shut out of the municipal bond market or pay a very high premium on any future body issuance that was successfully sold. Public benefit corporations—which include the Thruway Authority and the MTA—exist independently of the state and can therefore accept state funding without violating the New York’s prohibition on gifts and loan for private corporations.
- 1998 Legislative Session:
During its 1998 Legislative Session, the New York State Legislature clarified its stance that agreements with public benefit organizations and private, sports-related entities did not violate the state constitution. The legislature noted that it was the policy of New York State to “promote the economic welfare and prosperity of inhabitants of counties, andlto actively promote, attract, encourage and develop commerce through cooperative governmental action for the purpose of economic revival.” [6] Specifically citing the Bills Stadium in Erie County, the legislature found that the “refurbishment, renovation, improvement, operation, maintenance, repair, and financing of a sports and entertainment complex was declared to be for a public and government purpose and in the public interest.” [7] Citing the public benefits associated with the stadium, [8] the state legislature again clarified that Erie County has the power to appropriate its funds—and property—“to support the activities of and assist in funding the obligations” of public benefit corporations designed to help finance renovations of the Bills’ Stadium. [9]
- Bordeleau v. State:
In 2011, the Court of Appeals again considered whether portions of the New York State 2008–2009 budget violated the state constitution’s prohibition on gifts and loans. The lawsuit alleged that New York State Urban Development Corporation violated the constitutional ban on gifts of state monies to private firms because it was doing business with private companies in order to stimulate economic growth. [10] The court began by first discussing the Article VII of the New York Constitution. The court noted that the constitutional ban contained two separate prohibitions: first, it precludes the state from giving or loaning “money” to private recipients and, second, it more broadly forbids the state from giving or lending its “credit” to private recipients or public corporations. [11] The court therefore found that the state cannot lend its credit to a public corporation, but the constitution does not prohibit the legislature from appropriating funds directly to such public entities. [12] Finally, the court relied on its precent in Murphy, holding that any benefits assumed by a private corporation are merely incidental and are outweighed by the state’s overall interest in fostering economic growth and a competitive economy. [13]
- In Re Schulz:
The most recent iteration of lawsuit aimed at invalidating state funding under the constitution’s gifts and loan provision occurred in 2023. Here, the Third Department considered a challenge against the tate’s $600 million financing of the Buffalo Bills new stadium. [14] The lawsuit argued that the state’s contribution of $600 million in the 2022-2023 budget bill for capital projects, which appropriated the funds to the Urban Development Corporation for services and expenses related to the development of the proposed stadium, violated the state’s sconstitutional ban on gifts and loans. [15] Claiming that Bordeleau was wrongly decided, the plaintiffs argued that the Urban Development Corporation (DBA as Empire State Development)—a public benefit corporation—was barred from spending funds to help the Buffalo Bills construct the new stadium because the state is prohibited from appropriating public funds to aid a private undertaking. [16] Refusing to overturn Bordeleau, the Third Departmentfound that “sports stadiums serve a public purpose and, as recognized by the legislature [to] improve the quality of life for the state’s citizens, create and retain jobs, attract business investment and enhance the state’s reputation as a national or global destination.” [17] The Third Department concluded that the “predominantly public purpose” of the new stadium does not appear to be a “one-time, transfer of money or property to a private institution” but rather a long-term community oriented project. [18] The court therefore held that the funds appropriated for the stadium’s construction do not violate the New York State Constitution because the project’s predominant purpose was to aid the residents of Erie County.
Part V will discuss the arguments the plaintiffs have made against the Buffalo Bills’ stadium and will evaluate the likelihood of the Supreme Court hearing the case. Stay tuned!
[1] See Schulz v. State, 84 N.Y.2d 231, 237 (1994).
[2] See id. at 240.
[3] See id. at 246.
[4] See id. at 246.
[5] See generally Quirk & Wein, A Short Constitutional History of Entities Commonly Known as Authorities, 56 Cornell L. Rev. 521, 552–61 (1971).
[6] See 1998 N.Y. Sess. Laws ch. 387 (McKinney).
[7] See id.
[8] See id. These interests were: improvement of health, education, welfare, recreation, well-being and prosperity and for the advancement and improvement of recreation, trade, and commerce. See id.
[9] See id. Please note that this provision also permitted any subsidiary of a public benefit corporation to help finance the stadium renovations.
[10] See Bordeleau v. State of New York, 18 N.Y.3d 305, 315 (2011) (“The plaintiffs claim, and the dissent agrees, that the appropriations to the ESDC are unconstitutional because the State may not achieve indirectly that which cannot be done directly.”); see also Bordeleau v. State of New York, 18 N.Y.3d 305, 319 (2011) (Smith, J. and Pigott, J., dissenting). Judge Pigott argued that majority erred in its opinion because the Constitution’s gifts and loan provision was enacted in to order to “put an end to the use of credit of the state in fostering the growth of private enterprise and business.” See id. at 20. Moreover, Judge Pigott also noted that New York Voters in 1967 also rejected a proposed amendment to the State Constitution that would have allowed the distribution of State funds for the purpose of economic development in a manner similar to that of the state’s public benefit corporations. See id.
[11] See id. at 313.
[12] See id. at 313.
[13] See id. at 318.
[14] See In Re Schulz, 216 A.D.3d 21, 23 (3d Dep’t 2023).
[15] See id. at 23.
[16] See id. at 24.
[17] See id. at 28.
[18] See id. at 29.
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