Embarrassed by criticism over late budgets and secretive negotiations, state lawmakers this year have publicly embraced the idea of legislative reform. From open meetings to a new law that requires legislators to be present for floor votes, transparency has become fashionable at the Capitol.

Some of the most popular targets for reform are the public authorities that manage everything from highways to the Metropolitan Transit Authority. A recent report from the New York State comptroller, Alan Hevesi, found that 733 of these entities exist and operate largely free from legislative interference.

One such entity, Empire State Development Corporation, has come under particular scrutiny from Assemblyman Richard Brodsky, the chairman of the Assembly Committee on Corporations, Authorities and Commissions. Just last week, Mr. Brodsky gave a virtuoso performance in questioning ESDC chairman Charles Gargano on alleged abuses within the Empire Zone program.

Legislators reauthorized the program, which offers tax incentives to businesses that start or relocate in designated areas, last year on the condition of reforms. With reauthorization set to expire next month, Mr. Brodsky is now hinting that Empire Zones could be a key negotiating tool in coming budget talks. Governor Pataki’s budget calls for a five-year extension.

A recent court ruling in Ohio, however, could scuttle those plans. In September, the 6th Court of Appeals ruled that economic development tools that pit states against states violate the Interstate Commerce Clause of the U.S. Constitution. The ruling is currently on appeal to the U.S. Supreme Court, which could find all such programs similarly unconstitutional.

“Features built into a tax break that are premised on having a certain number of employees in a certain location in a state are put under a serious cloud by this decision,” said Peter Enrich, the Northeastern University law professor who argued the Ohio case. “The whole point of the commerce clause is to prevent states from discriminating in ways that favor in-state activity.”

How Mr. Enrich made it from his Boston classroom to a Toledo courtroom is noteworthy. As the author of a 1996 Harvard Law Review article on tax incentives, Mr. Enrich caught the eye of consumer advocate Ralph Nader. Mr. Nader had long hoped to bring a tax-breaks case to court and, after reading the 96-page law review piece, enlisted Mr. Enrich in the cause.

The right opportunity presented itself when Messrs. Nader and Enrich learned of a deal in Ohio whereby the state had agreed to give German automaker DaimlerChrysler $281 million in tax breaks to build a plant in Toledo rather than Michigan. Charging the state had unlawfully discriminated against Michigan, they won.

For Mr. Enrich, Cuno vs. DaimlerChrysler, was more than an academic exercise. Like Mr. Nader, he believes corporations are playing an economic shell game with states that could lead to the elimination of corporate income taxes altogether. Mr. Enrich describes the situation as America’s “Second Civil War.”

“These are the same problems we saw in the 1780s under the Articles of Confederation,” Mr. Enrich said. “States imposing tariffs to protect local economies. It was ruining the national economy and causing all sorts of internal friction and one reason they called the Constitutional Convention was to fix it.”

Particularly worrisome for proponents of the Empire Zone program is the fact that Mr. Enrich relied on legal precedents from New York to build his case against Ohio. He cited one case in which the state offered accelerated depreciation on in-state property and another in which it gave tax breaks to companies that exported from in-state ports. The U.S. Supreme Court ruled both practices unconstitutional.

So why do lawmakers continue to craft such programs? Mr. Enrich cites pressure from constituents in places that have suffered from the loss of manufacturing jobs. “Politically this is tough stuff for legislators,” he said. “The pressure they feel on this is enormous.”

But another reason could be that legislators are simply unaware of the precedents. Mr. Brodsky, for instance, said he is unfamiliar with the Cuno case. And Assemblyman Charles Nesbitt, a chief backer of Empire Zones, said he is only vaguely aware of it.

On the flip side, Mr. Nader said he is also unfamiliar with Empire Zones. But, he said, any state action that uses tax credits to lure new clients or relocate existing businesses from other states would be unconstitutional under the Cuno decision.

“Each state is racing to outdo the other state, so everybody loses,” Mr. Nader said. “The companies are playing the states against each other until all of them erode their tax base. It’s basically a violation of capitalist principles.”

Mr. Pataki has called Empire Zones the state’s most important development tool, crediting them with the creation of 71,000 jobs. A constitutional blow would be devastating to his economic development plans, including a new program that provides economic assistance to upstate businesses.

But a Supreme Court decision upholding the Cuno decision could also hurt Democrats, who are as eager as Republicans to allay the economic concerns of constituents and who see in the Empire Zone program a powerful bargaining tool against their pro-business opponents.

Some national Democrats are still grumbling over Mr. Nader’s impact on the 2000 presidential election. But his latest offensive appears capable of making him a spoiler to Democrats and Republicans in New York. And unlike his ill-fated run for the White House, this is a victory Mr. Nader could actually pull off.

Mr. McGuire is the Albany bureau man of The New York Sun.