Nader to Pataki/Giuliani: Stop NYSE Giveaway

Governor George Pataki
State Capitol
Albany, NY 12224

Mayor Rudolph Giuliani
City Hall
New York, NY 10007

Dear Governor Pataki and Mayor Giuliani:

The New York State and City decision to grant a series of subsidies, now expected to total more than $1 billion, to the New York Stock Exchange (NYSE) ranks as one of the most foolish and cruelly ironic urban public policy decisions in recent memory.

Tragi-comedy may play well on Broadway, but it doesn’t belong on Wall

Street, at least not with City Hall and Albany as the underwriters.

I am writing to urge you to pull the plug on the deal before the City

invests hundreds of millions of dollars in property acquisition and the

City and State’s commitment to the outrageous subsidy becomes truly

irrevocable.

In December, the City entered into a Letter of Intent to assist the NYSE

in constructing a new trading floor — or, more precisely, the NYSE agreed

to accept a gift of a new building and other benefits from the City and

State. The arrangement commits the City to acquire a plot of land for the

new exchange, and for the City and State to construct a new luxurious

trading floor for the NYSE, grant substantial tax benefits to the NYSE and

make discount energy available to the NYSE.

This boondoggle is likely to cost taxpayers nearly $1.1 billion or more

($450 million for land acquisition, $480 million for construction of the

trading floor, $160 million in tax and utility cost breaks).

By any definition, this package is, pure and simple, corporate welfare.

You are making a more than $1 billion gift to a private entity. You are

not paying the NYSE for any services rendered or to be rendered. You are

not investing in or making a loan to the NYSE, with an expectation of

repayment or recoupment of the investment from the exchange (but for $10

million annual rent which will never come close to reimbursing the City

and State for their costs). What you are doing is conferring staggering

taxpayer benefits on a private entity without any conceivable public

benefit. No one can possibly believe that the NYSE, if in fact it needs a

new trading floor, could not raise sufficient funds, including from its

member firms.

The sole purported rationale for the corporate welfare bonanza, of course,

is to retain the New York Stock Exchange in New York City. If one were to

credit this rationale, the gift of more than a billion dollars for the

purpose of retaining fewer than 5,000 jobs — while not even ostensibly

creating new ones — would, even by the corrupt standards of job-retention

blackmail deals, set a highwater mark for ransom payments among

arrangements of this scale.

However, the City and State are in fact receiving nothing in return for

the billion-dollar-plus windfall they are bestowing on the NYSE. Although

it is true that NYSE Chairman Richard Grasso has blustered a threat to

move to New Jersey, there is no chance — none, zero — that the stock

exchange would leave New York City.

It is hard to believe that you don’t know this. The Jersey City Stock

Exchange? Be serious. When I went on the NYSE floor last year and asked

veteran traders about the possibility of the NYSE moving to New Jersey,

they literally laughed as they dismissed the possibility out of hand. In

addition to the institutional identity and reputation of the NYSE, the

exchange’s connections to the Wall Street firms — committed to New York

City by history, the Manhattan residences of many of their principals and

employees and long-term office rental commitments, increasingly sealed by

yet other city subsidies — preclude the possibility of a move across the

river. The New Jersey ploy is nothing more than a NYSE ruse to provide a

pretext for covering public officials using what Justice Louis Brandeis

once called “other people’s money.”

Almost every aspect of the deal looks worse the closer it is scrutinized.

The Empire State Development Corporation has initiated condemnation

proceedings to take property by eminent domain for conveyance to the NYSE.

You may recall that the U.S. Constitution specifies that eminent domain

can only be exercised for “public use.” Although that provision has been

interpreted as meaning “public purpose,” there is no plausibly legitimate

public purpose in the gift to the stock exchange. Even if the judiciary

has at times seen fit to render the public use requirement practically

meaningless by deferring to legislative and executive determination of

what constitutes a public purpose — and this case certainly will test the

outer limits of what the judiciary is willing to countenance — elected

officials should recognize why the public use provision is included in the

Constitution and honor its wise directive of restraint. Eminent domain

authority is one of the government’s most far-reaching powers and one

that, though necessary, is prone to abuse. It is a misuse of government

power to take the property of one private party simply for the purpose of

conveying it to another private party, made worse where taxpayers foot the

bill for the taking and then convey the property without obtaining

reciprocal benefits from the beneficiary. That is exactly what is proposed

in the NYSE deal, a stunning abuse of government power and grant of

corporate welfare enabled by a supposedly free-market-oriented governor

and a mayor who once famously explained his plans to sell community

gardens to private developers with the remark, “This is a free-market

economy. Welcome to the era after Communism.”

Not surprisingly, pushing through such a grotesque deal has required you

to circumvent democratic norms. The City refuses to make available to us

or to the public generally a copy of the Letter of Intent it signed with

the NYSE to proceed with the deal. The Governor asked the state

legislature to consider legislation authorizing the deal to go forward on

a super-expedited basis, invoking an emergency provision to waive the

state constitutional requirement that legislators be given three days to

consider legislation before voting on it. That the Governor waited more

than a year after the deal was first announced to introduce the bill, and

another five months to sign the bill after passage, mocks the claim of

emergency and makes clear that the overriding concern was to inhibit

informed legislative debate.

Finally, it is important to apply some perspective to the proposed deal

and assess the opportunity costs of a $1.1 billion donation to the NYSE.

The flagrant giveaway of tax dollars to the NYSE is exacerbated

by the glaring unmet needs in New York. Nearly one in four children in New

York live in poverty, well over the disgracefully high national rate.

Fifteen percent of children in the state go without health insurance,

according to the Children’s Defense Fund. Genuine community development

projects report that they have lost government funding. Major

infrastructural investments are needed in transportation, schools, sewers,

community health clinics, drinking water systems and more.

Surely some residual sense of shame must persist in New York politics. In

a state with one of the nation’s worst child poverty rates, and one of the

largest gaps between rich and poor, is a billion dollar subsidy for the

emblematic bastion of global capitalism not beyond the pale?

Sincerely,

Ralph Nader

P.S. Enclosed is a copy of Cutting Corporate Welfare and Time magazine’s

award-winning issue on corporate welfare to further inform you.