Litigation As A Tool of Economic Development

Government at all levels is cash-strapped and mired in debt. In response, state and local governments often initiate a series of “economic development” measures, which largely involve heavily-lobbied public officials favoring targeted businesses with special incentives – tax abatements, subsidies, free land and other benefits — and pitting businesses against each other, cities, states, or even their neighbors.

One short-term financial fix is privatization, in which state or local government units sell services or assets – airports, parking, toll roads, and even state Medicaid programs and commerce departments – to private companies. When Chicago “leased” its parking meters to a Morgan Stanley-affiliated entity, and its parking lot operations to another entity, the City received cash payments that helped resolve existing budget crises. But it also endured a public bashing in the press as a result of the ensuing price increases and operational challenges, plus a series of legal challenges both in court and in arbitration over the programs. While the ultimate success of these efforts will not be ascertained for decades, early returns from a municipal perspective are not promising.

Lawsuits have been filed contesting inducements and other forms of economic development. They allege that direct aid to businesses violates state constitutions, and they cite various statutory restrictions on how a state or political subdivision may spend funds. In other instances, antitrust cases have been threatened by states in the face of corporate relocation, thus making litigation a central part of economic development strategy.