Schulz v. State

Decision Date21 October 1993
Citation193 A.D.2d 171,606 N.Y.S.2d 916
PartiesRobert L. SCHULZ et al., Appellants, v. STATE of New York et al., Respondents.
CourtNew York Supreme Court — Appellate Division

Robert L. Schulz, pro se.

Robert Abrams, Atty. Gen., Albany (Frank K. Walsh and Peter H. Schiff of counsel), for State of New York and others, respondents.

Mudge, Rose, Guthrie Alexander & Ferdon, New York City (Douglas M. Parker and Arthur F. McMahon, Jr. of counsel), and Michael A. Vaccari, New York City, for Metropolitan Transp. Authority, respondent.

Paul, Weiss, Rifkind, Wharton & Garrison, New York City (Arthur L. Liman, Allan Blumstein, Gerard E. Harper, Helen B. Kim and John T. Hecht of counsel), and Ralph J. Vecchio, Albany (Sharon P. O'Connor of counsel), for New York State Thruway Authority, respondent.

Victoria A. Graffeo, Albany (Judith A. Hard and Robert T. Farley of counsel), for Clarence D. Rappleyea and others, amicus curiae.

Before WEISS, P.J., and MAHONEY, MERCURE, CARDONA and CASEY, JJ.

MAHONEY, Justice.

The principal issue in this appeal is whether certain moral obligation bonds constitute State debt within the meaning of N.Y. Constitution, article VII, § 11. 1 The facts are undisputed. On April 15, 1993, the Legislature enacted by Laws of 1993 (ch. 56 [hereinafter the Act] a comprehensive, four-year $20.9 billion plan for the improvement of the State's infrastructure, namely, the State and local highways and bridges, the metropolitan mass transportation system, and the railways and aviation facilities. While funding for the work was to come partially from Federal assistance and other sources, a large sum was to come from the proceeds of bonds issued by defendants State Thruway Authority and Metropolitan Transportation Authority (hereinafter MTA). In consequence thereof, the Legislature included now familiar mechanisms to ensure that the Thruway Authority and MTA had adequate assets to secure the bonds and a sufficient income stream to make subsequent debt service payments.

As regards the MTA bonds, the Act creates the MTA dedicated tax fund (hereinafter the MTA tax fund). It is funded by annual legislative appropriations from that portion of the dedicated mass transportation trust fund which represents tax revenues derived predominantly from supplemental petroleum and aviation fuel business taxes (see, Tax Law § 301-j[d]. The MTA tax fund moneys can be "pledged by [MTA] to secure and be applied to the payment of its bonds, notes or other obligations" and "used for payment of operating costs, and capital costs, including debt service" (Public Authorities Law § 1270-c[3], added by L.1993, ch. 56, § 7). While the legislation further provides it to be "the intent of the governor to submit and the legislature to enact" a budget bill for each fiscal year, up to and including the 1996-1997 fiscal year, containing appropriations from the dedicated mass transportation trust fund to the MTA tax fund (State Finance Law § 89-c[3], as amended by L.1993, ch. 56, § 10), the appropriation is in the form of a gift of certain tax revenues and is backed up by no legal obligation (State Finance Law § 89-c[3].

With respect to the Thruway Authority, the Act authorizes that entity to issue bonds at the State's request to finance three types of capital improvements: (1) local highways and bridges, (2) State highways and bridges, and (3) railway and aviation projects. The local highway and bridge bonds are to be secured by the moneys due and owing under service contracts to be entered into between defendant Director of the Division of the Budget and the Thruway Authority (Public Authorities Law § 380[1][a]. These service contracts, in turn, must "provide for state commitments to provide annually to the thruway authority a sum or sums * * * to fund, or fund the debt service requirements" of the local highway and bridge bonds (L.1993, ch. 56, § 14[e], [g]. While payments on the service contracts derive from legislative appropriation (L.1991, ch. 329, § 11[d], all contracts must provide that the obligation to make payment thereunder is not a debt of the State, that the contract is "executory only to the extent moneys are available", that "no liability shall be incurred by the state beyond the moneys available for the purpose", and that "such obligation is subject to annual appropriation by the legislature" (L.1991, ch. 329, § 11[d][ii]. The bonds themselves are expressly stated to be "special limited obligations" of the Thruway Authority secured by and payable only out of amounts appropriated by the Legislature and these bonds are to contain on their face a statement that they "shall not be deemed to be an obligation of the state and that the state shall not be liable thereon" (Public Authorities Law § 380[1][b], [c], added by L.1991, ch. 329, § 12).

The State highway and bridge bonds work in a similar fashion, the only difference being the substitution of sale/leaseback arrangements in place of service contracts. Under these agreements, called dedicated highway and bridge trust fund cooperative agreements, in return for the bond proceeds the State transfers title to the land and improvements upon which the work is to be done to the Thruway Authority by quitclaim deed. The Thruway Authority then leases the property back to the State via a long-term capital lease and uses the "rent" payments it receives from the State to pay debt service and other related expenses. The "rent" payments are payable solely out of moneys appropriated by the Legislature from the dedicated highway and bridge trust fund (which consists of fuel and highway use tax revenues along with the proceeds of motor vehicle registration fees), and such funds may be pledged by the Thruway Authority to secure the bonds (Public Authorities Law § 385[1][c], added by L.1993, ch. 56, § 34). Like the service contracts, the dedicated highway and bridge trust fund cooperative agreements must contain debt and liability disclaimer provisions (Highway Law § 10-e[5], added by L.1993, ch. 56, § 33), and like the local highway and bridge bonds these bonds also must contain a statement that they are not a debt of the State, the State is not liable thereon and payment cannot come from any funds other than those the Thruway Authority pledged for them (Public Authorities Law § 385[1][d], added by L.1993, ch. 56, § 34).

The railway and aviation bonds are likewise secured and funded by the moneys provided pursuant to a service contract, lease or agreement between the Thruway Authority and various State agencies or municipalities (Public Authorities Law § 386, added by L.1993, ch. 56, § 16). The content and terms of service contracts and leases and bonds are the same as those prescribed in connection with State and local highway and bridge financing (L.1993, ch. 56, § 19; see, Public Authorities Law § 386).

Finally, in an ostensible effort to insure that a portion of the transportation-related construction projects were obtainable by small, minority-owned and women-owned businesses, Urban Development Corporation Act (L.1968, ch. 174, § 1) § 38 was enacted to permit the Urban Development Corporation to establish a revolving loan fund to provide loans or guarantees to these enterprises (L.1993, ch. 56, § 40), and Public Authorities Law § 1838 was enacted creating a State bonding guarantee assistance program to assist the businesses in meeting the payment and/or performance bonding requirements by providing the financial backing needed to induce a surety company to issue construction project bonds (L.1993, ch. 56, § 39).

Contending that the foregoing, because it all involves use of legislative appropriations from the general fund or other funds comprised predominantly, if not exclusively, of taxpayer revenue to secure debt, pay debt and provide financial backing to private business violates (1) the N.Y. Constitution, article VII, § 11 proscription against the State contracting debt without voter approval, (2) the N.Y. Constitution, article VII, § 8 prohibition against giving or loaning the State's credit in aid of a public corporation or private enterprise, and (3) the N.Y. Constitution, article X, § 5 prohibition against the State assuming liability for the payment of obligations issued by a public corporation and that the use of State taxes for debt service on bonds issued without voter approval constitutes a violation of due process under the State and Federal Constitutions, plaintiffs, all citizen taxpayers and registered voters in the State, commenced the instant action to declare the challenged provisions null and void. Following joinder of issue, all parties moved for summary judgment.

Supreme Court initially concluded that under Matter of Schulz v. State of New York, 81 N.Y.2d 336, 599 N.Y.S.2d 469, 615 N.E.2d 953, plaintiffs lacked standing to challenge the legislation as violative of any constitutional provision other than N.Y. Constitution, article VII, § 11. Moreover, of the six challenges under article VII, § 11, the court further found that plaintiffs' third cause of action, challenging as unconstitutional the additional bonding for local highway and bridge improvements, was barred by laches inasmuch as the funding mechanism itself was established in 1991 (L.1991, ch. 329, § 11). The remaining challenges were addressed on the merits and, upon review, found to be constitutionally sound. Supreme Court reasoned that the financing mechanisms involved were meaningfully indistinguishable from those upheld by the Court of Appeals in Wein v. City of New York, 36 N.Y.2d 610, 370 N.Y.S.2d 550, 331 N.E.2d 514. Accordingly, the court granted defendants' motions for summary judgment. This appeal by plaintiffs ensued.

PLAINTIFFS' STANDING TO SUE

As a threshold issue, plaintiffs contend that Supreme Court erred in concluding that they lacked standing to challenge the subject financing provisions as violative of N.Y. Constitution, article VII, § 8 and article X,...

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6 cases
  • Schulz v. State
    • United States
    • New York Court of Appeals Court of Appeals
    • 30 Junio 1994
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