Schulz v. State
| Decision Date | 12 March 1992 |
| Parties | In the Matter of the Application of Robert L. SCHULZ, John Salvador, Jr., and Gilbert O. Boehm, Plaintiffs-Petitioners, For an Order pursuant to Article 3001 of the Civil Procedure Laws and Rules, and, Article 7A, Section 123-b of the State Finance Law, v. The STATE of New York, Mario M. Cuomo, Governor; the New York State Legislature, Saul Weprin, Assembly Speaker; Ralph Marino, Senate President; The New York State Local Government Assistance Corporation; Edward V. Regan, Director; Office of the Comptroller, Edward V. Regan, Comptroller, Defendants-Respondents. |
| Court | New York Supreme Court |
John Salvador, Jr., pro se.
Gilbert O. Boehm, pro se.
Robert Abrams, Atty. Gen. of State of N.Y., Albany (Lawrence L. Doolittle, Asst. Atty. Gen., of counsel), for defendants-respondents.
Plaintiffs, citizen-taxpayers, bring this proceeding for a declaratory judgment pursuant to Article 3001 of the Civil Practice Laws and Rules, and Article 7A, section 123-b(1) of the State Finance Law, seeking a judgment declaring unconstitutional, sections 1, 2, 3 and 10 of Chapter 220 of the Laws of 1990 (), which established, effective June 11, 1990, a New York Local Government Assistance Corporation (hereinafter referred to as "LGAC" or the "Corporation"), a public benefit corporation of the State of New York, for the purpose of providing certain assistance payments to units of local government within the State through issuance and sale of bonds of the Corporation, for alleged violation of the following provisions of the New York State Constitution: Article VII, section 11; Article VII, section 8; and Article X, section 5; and further declaring unconstitutional, that portion of Article 7A, section 123-b(1) of the State Finance Law that denies "standing" to a citizen-taxpayer respecting revenue measures. This proceeding was brought on by a complaint and an order to show cause dated February 6, 1992, returnable February 28, 1992.
Plaintiffs moved for a final judgment and a preliminary injunction. The preliminary injunction was denied after oral argument on the return date of the motion.
Defendants cross-moved to dismiss the complaint upon the following grounds: (1) That the bonds issued and to be issued by the Corporation are not state debt within Article VII, section 11, of the New York Constitution as a matter of law, and that accordingly the complaint fails to state a cause of action; (2) That the plaintiffs are guilty of laches by delaying their suit an inordinate period of time and after approximately half of the authorized bonds have been issued; (3) That plaintiffs lack "standing" to maintain this lawsuit both by virtue of section 123-b(1) of the State Finance Law and controlling case law; (4) That there is no constitutional right to "citizen-taxpayer standing", that section 123-b(1) of the State Finance Law is constitutional on its face, and accordingly, the complaint fails to state a cause of action respecting that prong of the plaintiffs' action.
All parties have agreed that all motions herein be converted to a motion for summary judgment under CPLR 3211(c), without any further submissions, and that all issues be resolved by summary judgment.
The New York Local Government Assistance Corporation is a corporate governmental agency constituting a public benefit corporation, created by Chapter 220 of the Laws of 1990, Chapter 946 of the Laws of 1990 and Chapter 2 of the Laws of 1991 (the "Act"), for the purpose of providing certain assistance payments to units of local government within the State. To fulfill that purpose, the Corporation was given the authority, among other things, to issue and sell its bonds and notes to fund local assistance payments for elementary and secondary education, community college aid and tuition assistance programs, payment of the non-Federal share of local Medicaid costs and other local assistance The bonds will be general obligations of the Corporation upon issuance, payable from (i) payments received by the Corporation from revenues derived from certain sales and compensating use taxes imposed by the State on a statewide basis at the rate of four percent pursuant to Sections 1105 and 1110 of the Tax Law (the "Sales Tax") and required to be deposited in the Local Government Assistance Tax Fund created by the Act (the "Tax Fund") at the rate of 1%, less amounts which the Commissioner of Taxation and Finance of the State may determine to be necessary for refunds (the "1% Sales Tax"), and (ii) other moneys pledged under the bonding Resolution, including amounts on deposit in, and earned on investment of, a Capital Reserve Fund established pursuant to the Act and the bonding Resolution (the "Capital Reserve Fund").
programs, including revenue sharing assistance, and for health and the improvement of environmental quality, housing initiatives, mental health and drug abuse programs, mass transportation and highway and bridge programs. The Corporation is empowered by the Act to borrow money and issue its bonds and notes to achieve its corporate purposes in an amount not in excess of $4.7 billion (exclusive of certain refunding bonds) plus amounts required to fund a capital reserve fund, to provide for certain capitalized interest and to pay costs of issuance. However, the Act provides that the Corporation shall not issue its bonds or notes for those purposes unless the State Legislature has enacted an appropriation or appropriations providing for the amount and manner of such payments
The Resolution establishes the requirement of the Capital Reserve Fund as an amount equal to the maximum amount of principal, Sinking Fund Installments, if any, and interest on all Bonds Outstanding during the then current or any succeeding fiscal year (the "Capital Reserve Fund Requirement"). The additional requirement of the Capital Reserve Fund will be funded from a portion of the proceeds of additional series of Bonds. It is a condition to the issuance of Additional Bonds that the Capital Reserve Fund shall, upon the issuance of Additional Bonds, be funded at the Capital Reserve Fund Requirement. If there is a deficiency in the Capital Reserve Fund, the Chairperson of LGAC is required immediately to certify the amount needed to restore the Capital Reserve Fund to the Capital Reserve Fund Requirement, to the extent that the deficiency resulted from a failure by the State to pay any amounts previously certified by the Chairperson.
The Corporation has no taxing power. The Bonds, by specific mandate of the Act (see PAL, sec. 3242), do not constitute an enforceable obligation or a debt of the State or any unit of local government, and neither the State nor any unit of local government shall be liable thereon. Neither the faith and credit nor taxing power of the State or any unit of local government is pledged to the payment of the principal or Redemption Price of or interest on the Bonds. The Act specifically requires that this information be prominently displayed on all bonds and bond prospectuses (PAL, sec. 3242).
The bonds of the Corporation will be secured primarily by the "1% Sales Tax." Upon receipt, moneys from the 1% Sales Tax are required to be deposited in the Tax Fund, held jointly by the Commissioner of Taxation and Finance and the Comptroller separate and apart from all other moneys of the State. Moneys in the Tax Fund are required by the Act to be paid by the Comptroller to the Trustee for the Bonds, at the times and in the amounts certified by the Chairperson of the Corporation, subject to annual appropriation by the State Legislature.
The Act provides procedures for impounding the 1% Sales Tax in the Tax Fund which are designed to assure sufficient moneys will be on deposit in the Tax Fund to meet the Corporation's annual cash requirements, as certified by the Chairperson. Subject to the annual appropriation referred to above, the Comptroller is required to pay, directly into the Debt Service Fund held under the bonding Resolution, in the amount required for debt service on the Bonds, at least five days prior to a payment date, from amounts impounded in the Under the Act, no moneys on deposit in the Tax Fund may be disbursed from the fund until an appropriation has been made to the Corporation. If and to the extent that such an appropriation has been made, and subject to the impoundment procedures just described, excess moneys on deposit in the Tax Fund may be transferred to the General Fund to be applied to other purposes of the State. If, however, any payment for debt service is not made to the Corporation when due, then all moneys on deposit in, or deposited to, the Tax Fund are required by the Act to be retained in the Tax Fund, even if an appropriation has been made, until all required payments to the Corporation are current.
Tax Fund. If those amounts are insufficient, the Comptroller is required by the Act, without further appropriation, to transfer sufficient money from the General Fund of the State to the Tax Fund to pay the amount required for debt service
Under the State Constitution, the State is permitted to amend, modify or otherwise alter the Sales Tax and cannot be bound or obligated to continue the imposition of the 1% Sales Tax and may repeal the provisions thereof under the Act benefiting the Corporation. Further, under the State Constitution, the State may appropriate at least annually to the Corporation from the Tax Fund the amounts certified in the Chairperson's Certificate, but the...
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