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Associated Press, Published September 02 2009

Minot man says econ development grants violate law

BISMARCK, N.D. - A Minot businessman is asking a judge to rule that the North Dakota Constitution forbids using taxpayer money to support private companies, which has been a common strategy used by state and local agencies to promote job growth.

North Dakota's Commerce Department, the city of Minot and the Minot Area Development Corp. have provided grants, loans and other aid to private people and businesses and have taken ownership stakes in business ventures, Robert Hale's lawsuit says.

The constitution allows the state, counties and cities to "engage in any industry, enterprise or business" that the constitution does not prohibit. Two state-owned industries, the Bank of North Dakota in Bismarck and the Mill and Elevator, a flour mill in Grand Forks, operate under that provision.

However, the same provision - Article 10, Section 18 of the North Dakota Constitution - says the state and local governments are barred from loaning money, extending credit or making donations to "any individual, association or corporation except for reasonable support of the poor."

The state and local governments also may not own stock in corporations or associations, it says.

Hale, a lawyer, businessman and conservative political activist, has supported efforts to put a constitutional initiative on North Dakota's statewide ballot to limit the growth of state and local government spending. He could not be reached for comment Wednesday.

Lynn Boughey, a Bismarck attorney who is representing Hale, said one of the lawsuit's targets is 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 said.

A spokeswoman for Attorney General Wayne Stenehjem declined comment on the lawsuit, which was filed last week in South Central District Court in Bismarck. Stenehjem will be defending the Commerce Department and its director, Shane Goettle, who also is named as a defendant.

Attorneys for the city of Minot and the Minot Area Development Corp. did not respond Wednesday to requests for comment.

The city of Minot levies a 1 percent sales tax for its "Magic Fund," which is earmarked for job creation projects. The Minot Area Development Corp. says it has provided more than $25 million to support more than 180 projects.

But Hale has been critical of the fund's management, saying it has not held businesses to the promises they made about creating jobs.

Other cities also levy sales taxes for economic development and provide grants and loans for projects, the Commerce Department said.

Hale's lawsuit has not yet been assigned to a judge. It asks for a judicial affirmation of the state constitution's prohibition of providing public money to private companies and a declaration that state and local governments may "expend public funds only for public purposes, and only where that public purpose is met."

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