An Associated Press article this past week states Robert Hale, a lawyer, businessman and conservative political activist, filed the lawsuit in South Central District Court in Bismarck. The AP story states Hale’s suit claims the North Dakota Department of Commerce, the city of Minot and the Minot Area Development Corporation have provided grants, loans and other aid to private people and businesses and have taken ownership stakes in business ventures.
The AP states the North Dakota Constitution allows the state, counties and cities to “engage in any industry, enterprise or business” the constitution doesn’t prohibit. The state of North Dakota operates its own bank in Bismarck and a mill and elevator in Grand Forks.
The AP reports the state constitution in Article 10, Section 18, bars state and local governments from loaning money, extending credit or making donations to “any individual, association or corporation except for reasonable support of the poor.” State and local governments also may not own stock in corporations or associations.
Bismarck attorney Lynn Boughey is representing Hale and said the lawsuit is targeting a government practice of establishing nonprofit organizations, such as the Minot Area Development Corp., to funnel tax dollars to private businesses. “The economic development system that is presently being used in North Dakota by the state and its many political subdivisions is, No. 1, unconstitutional, and No. 2, lacks appropriate accountability,” Boughey told the AP.
The city of Minot levies a 1 percent sales tax for its “Magic Fund,” which is earmarked for job creation projects, the AP reports. It also reports Hale has been critical of the fund’s management by the Minot Area Development Corp., saying it has not held businesses to the promises made regarding job creation.
Minot is not unique in its method for passing on sales tax dollars. Many North Dakota cities and counties have similar or identical organizations, including Dickinson, Williston and surrounding counties.
Voters in the city of Williston this June reapproved a 1 percent city sales tax through June 30, 2020. The proceeds of this tax are dedicated 75 percent to property tax relief, including special assessment bond debt reduction and infrastructure replacement and 25 percent to a job creation fund called the Williston STAR Fund. Of the 25 percent dedicated to the job creation fund, up to 20 percent and not to exceed $50,000 per year, would go toward community enhancement and marketing projects to improve the quality of life in the region.
Attorney General Wayne Stenehjem is defending the Commerce Department and its director, Shane Goettle, in the lawsuit. The AP states the lawsuit asks for a judicial affirmation of the state constitution’s prohibition of providing public money to private companies. It also asks for a declaration that state and local governments may “expend public funds only for public purposes and only where that public purpose is met.”
As is the case in Williston, voters elsewhere had to approve the sales taxes that fund these economic development programs. The fact that these programs exist, tells you how the voters in these respective cities feel about using their sales tax dollars.
Whether there is a constitutional technicality in this method is what this lawsuit is addressing. We will keep you posted as this matter works its way through the court system.
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