[Originally appeared in City Journal, Autumn 1993]
One of the less edifying reactions to the Ruth Bader Ginsburg nomination came when a New York Post columnist lambasted the Brooklyn-born judge for having spent a good bit of effort trying to straighten out the tangled law of "standing" -- the law on who, if anyone, can sue when the government or someone else misbehaves. A nominee with a truly Big Heart, writer Sidney Zion seemed to think, would not have wasted her time on such a purely technical area. Which calls to mind the definition of a loophole as a feature of the tax code 1) whose function is not apparent at first glance, and 2) which benefits someone else. At law, it's usually the technical concepts like standing that make all the difference.
Take the issue of who can sue to challenge allegedly improper state fiscal practices. On May 11, 1993, New York's highest court casually broadened citizens' standing to file such suits -- and sent state financiers scrambling in panic. The result could be a long-overdue reform of state budgeting. But in this case, as in so many, one should not hope for too much public benefit from even well-intentioned lawsuits.
New York's borrowing methods have long insulted the spirit (at least) of the state's constitution, which prohibits Albany from borrowing money without voter approval. The state does that all the time, by channeling debt through its sprawling network of public authorities. The excuse is that since the state is not formally obligated to pay interest on the bonds of its authorities, they don't count as actual borrowing which voters would have to approve.
The theory is bad enough, but the practice is worse. Backdoor borrowing now accounts for no less than $17 billion of state debt, compared with $5 billion obtained through the front door. And since investors demand higher yields on unguaranteed authority bonds than on direct state bonds (to compensate for the lack of formal obligation) officials wind up paying many millions of taxpayer dollars in added interest for the privilege of evading voter scrutiny.
State officials more or less openly admit that they resort to authority bonding to get money for purposes voters would probably turn down if put on the ballot. In one famous deal, the Urban Development Corporation raised $230 million in bonds without voter approval, which it slipped into the state's hands by buying Attica prison and leasing it back to the state. "The Thruway Authority is doing canals," points out analyst Michael Brooks of Sanford C. Bernstein & Co. "These things have lives of their own."
Officials argue that such practices are lawful under existing precedent. In the 1970s, a Brooklyn Law School professor named Leon Wein filed and lost a number of suits challenging backdoor financing. The Wein cases are still good law, say the agencies. On top of that, until May, New York courts had maintained a restrictive attitude toward standing in cases of this sort -- meaning that it was hard for anyone to get into court to challenge the state in the first place.
None of which discouraged taxpayer activist Robert L. Schulz. Filing on his own behalf without a lawyer, the 53-year-old semiretired engineer has launched more than twenty challenges to the state's bonding practices. At first, like many of his pro se brethren, Schulz seemed a mere nuisance. Indeed, in 1992 a lawyer representing the state Democratic party and Governor Cuomo's campaign committee sought a permanent injunction barring the Glens Falls resident from filing any more of his putatively frivolous lawsuits.
But the do-it-yourself litigant -- who gained experience as he lost early cases -- was beginning to score some victories. Among them was a challenge to the state's practice of spending tax money to publish brochures touting the merits of bond issues pending before the voters. And last year he secured a ruling, overturned on appeal, that $531 million in deficit notes were unconstitutional.
Schulz is not planning to join the Establishment any time soon. One of his suits demanded that Tax Commissioner James Wetzler be mulcted to the tune of $1,000 "from his personal account" for having led a dubious foray into New Jersey to catch sales-tax evaders. And along with "prospective" relief restraining the state from issuing new bonds without voter approval, Schulz has also asked courts to unravel done deals, which would force the recall of already-sold bonds. By frightening investors, tactics of this sort have already backfired against the interests of taxpayers. Schulz's temporary victory last year on the deficit notes is said to have nicked the state's reputation badly in credit markets, forcing interest payments higher. "As investors demand higher yields, the state and taxpayers lose millions of dollars," former Comptroller Regan told The Bond Buyer.
Which is why even many who sympathize with Schulz's aims stop short of endorsing his banzai litigation campaign. Regan, who calls New York's borrowing practices the worst in the country, has said Schulz "should get moral support from anyone who cares about debt reform," but "one of these days, he's going to win one...and that would be a disaster for this state."
This May, with his standing victory, Schulz came a giant step closer. The Court of Appeals threw out the two claims under consideration as having been made too late, but declared that Schulz (and anyone else) would enjoy liberal standing to pursue such claims in the future. Only weeks later an Albany judge handed down a temporary order in a Schulz case, restraining the Metropolitan Transit Authority and Thruway Authority from proceeding with a multibillion-dollar financing plan. The move was more symbolic than anything else, since the two agencies weren't planning to issue bonds right away, but the symbolism was noticed.
The case for liberal standing is clear enough: without it, a good deal of misconduct in government would be unreachable by judicial review and would have to be corrected by other means, if at all. "When the courts make it impossible for people to challenge the behavior of government, you have despotism in the extreme," as Schulz puts it.
The problems with liberal standing are less obvious but just as real. It places the power to litigate issues of general interest -- which often amounts to the power to set the public agenda -- in the hands of whoever is most dissatisfied with current policy, even if that person's views are shared by few others. "We lawyers know well," wrote one of the great ones, Frederick Pollock, "and may find high authority for it if required, that life would be intolerable if every man insisted on his legal rights to the full." Skillful politicians can hammer out, say, a redistricting plan that satisfies nearly all participants; but it winds up in court anyway, and whoever stayed out of the original compromise gets the visibility and leverage of being the plaintiff with citizen standing.
There is a wider paradox: if the vast body of voters or taxpayers are imperfectly represented by the state's elected governor and legislature -- as they inevitably are -- how much more imperfectly will they be represented by Schulz, who, for all his evident zeal and sincerity, has never had to face the voters? Is there some way to preserve the corrective promise of taxpayer suits while making sure they serve actual taxpayer interests? Perhaps Justice Ginsburg can return to her home state one of these days and offer some advice.