1851 Center Threatens City Officials with Court Action
Columbus – The 1851 Center for Constitutional Law, a nonpartisan public interest law firm, yesterday notified Gahanna city officials it will file a court action if the city moves forward with a proposed $375,000 high-risk venture capital loan fund. The legal center will pursue the case on behalf of Gahanna taxpayers in the event the city council approves the proposed ordinance.
Gahanna City Council recently proposed an ordinance permitting the mayor to contract with the Economic and Community Development Institute (ECDI) for the creation of a venture capital loan fund. The fund would issue high-interest and interest-only loans to local businesses and individuals considered high-risk by conventional lenders.
1851 Center Executive Director Maurice Thompson advised Gahanna City Council against this constitutionally prohibited plan during Tuesday evening’s council meeting. After Thompson’s presentation, council members decided to postpone a vote on the ordinance by two weeks while they review the consequences of the impending legal challenge.
“Gahanna’s proposed ordinance is crafted to assist purely private interests, while placing public money that rightfully belongs to Gahanna residents and taxpayers very much at risk,” said Thompson. “The Ohio Constitution strictly forbids this type of reckless and irresponsible fiscal policy.”
Specifically, the Ohio Constitution (Section 6, Article VII) prohibits the city from “raising money for or loaning its credit to any private company, corporation or association.” According to Ohio Supreme Court precedent, this constitutional provision is intended to protect taxpayers from the risks associated with the failure of a private project.
Gahanna’s loan fund purports to:
- Use tax dollars to fund private enterprise;
- Issue loans to individuals who lack conventional collateral or pose a high risk and may have been turned down by conventional lenders;
- Issue loans at high interest rates of up to 12 percent; and
- Allow loans to be repaid on an interest-only basis.
In addition, the proposed ordinance would allow the city to recover funds from defaulted loans by seizing an individual’s personal property, including “vehicles, personal items, antiques, collectibles jewelry, or livestock.”
“The city would set up a system where it issues high interest loans to people who cannot afford to pay them back, and then attempt to confiscate personal assets –including homes – in the event of a default,” said Thompson. “This risky investment of taxpayer money in private enterprise is precisely what the Ohio Constitution was designed to prevent in 1851, after a rash of defaults upon government loans to railroad and canal companies.”
The proposed ordinance is the second time Gahanna city officials have run afoul of the Ohio Constitution through risking economic endeavors. In 1984, the Ohio Supreme Court rebuked Gahanna’s attempt to engage in a “joint enterprise” with private businesses, noting that the city’s loans to private entities amounted to an unconstitutional “pledge of tax revenue” to private business.
The 1851 Center for Constitutional Law is non-profit, non-partisan legal center dedicated to protecting the constitutional rights of Ohioans from government abuse. The 1851 Center litigates constitutional issues related to property rights, voting rights, regulation, taxation, and search and seizures. More information about the 1851 Center is available at http://www.ohioconstitution.org.
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