Schulz v. State

• Citation: 639 N.E.2d 1140,616 N.Y.S.2d 343,84 N.Y.2d 231
• Parties: , 639 N.E.2d 1140 Robert L. SCHULZ et al., Appellants, v. STATE of New York et al., Respondents.
• Decision Date: 30 June 1994
• Court: New York Court of Appeals Court of Appeals

Page 343

616 N.Y.S.2d 343

84 N.Y.2d 231, 639 N.E.2d 1140

Robert L. SCHULZ et al., Appellants, v. STATE of New York et al., Respondents.

Court of Appeals of New York.

June 30, 1994.

Robert L. Schulz, pro se.

G. Oliver Koppell, Atty. Gen., Albany (Jerry Boone, Peter H. Schiff and Frank K. Walsh, of counsel), for State of New York and others, respondents.

Helene Fromm, New York City, Michael A. Vaccari and Mudge Rose Guthrie Alexander & Ferdon (Douglas M. Parker, Arthur F. McMahon, Jr., and James Whelan, of counsel), 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 Hang C. Lee, of counsel), Ralph J. Vecchio, Albany, and Sharon P. O'Conor, for New York State Thruway Authority, respondent.

OPINION OF THE COURT

KAYE, Chief Judge.

This challenge to a 1993 statute authorizing a multibillion dollar bond issue for State and local transportation improvements continues a debate on financing public works projects that has engaged our State throughout its history. The instant litigation attacks the statute both as imprudent fiscal policy and as violative of debt-limiting provisions of the State Constitution. The wisdom of legislation, of course, is not a matter for the courts. As to legality, we conclude--as did both the trial court and Appellate Division--that the statute before us does not violate the State Constitution.

I

On April 15, 1993 Governor Mario Cuomo signed into law, as chapter 56 of the Laws of 1993 (the Act), a four-year, $20 billion financing plan for the State's transportation system.

The plan provides $10.47 billion for the Dedicated Highway and Bridge Trust Fund (Highway Fund) operated by the State Thruway Authority, and $9.56 billion for the Dedicated Mass Transportation Trust Fund (Mass Transportation Fund), operated by the Metropolitan Transportation Authority (MTA). ¹ Both Funds, created in 1991, would under the 1993 statute receive revenues--subject to annual appropriation by the Legislature--from taxes and fees derived from use of the Authorities' facilities: vehicle registration fees, the motor fuel tax, the petroleum and aviation fuel business tax, and miscellaneous highway use taxes (State Finance Law § 89-b[3]; § 89-c; Tax Law §§ 289-e, 515; Vehicle and Traffic Law § 401; L.1993, ch. 56, §§ 16, 31, 33).

The Thruway Authority

The Act authorizes the Thruway Authority to issue up to $4 billion in 30-year bonds for highway and bridge construction. ² Part of the Highway Fund, therefore, is a special reserve to be used by the Authority for debt service and administrative expenses on its bonds. The bond proceeds, in turn, finance improvements for highways, bridges, railways and aviation facilities. Some of the bonds are to be secured by service contracts and sale-and-leaseback agreements between the Authority and the State (L.1993, ch. 56, §§ 16, 33).

The Act sets forth several provisos relating to Thruway Authority bonds. Any bonds issued pursuant to authorizations contained in the Act do not constitute a debt of the State. In the words of the Act:

"The notes, bonds or other obligations of the authority authorized by this section shall not be a debt of the state and the state shall not be liable thereon, nor shall they be payable out of any funds other than those of the authority pledged therefor; and such bonds and notes shall contain on the face thereof a statement to such effect" (L.1993, ch. 56, § 34, adding Public Authorities Law § 385[1][d]; see also, L.1993, ch. 56, §§ 16, 33; Public Authorities Law § 386[4]; § 1269[8]; Highway Law § 10-e[5].

Moreover, the statute in the same section declares that the State has "no continuing legal or moral obligation to appropriate money for payments due" under any agreements entered into to effect the implementation of the goals of the Act.

Restrictions on State liability must be included in any cooperative agreements flowing from the Act:

"Each dedicated highway and bridge trust fund cooperative agreement or agreements pursuant to this section shall contain a clause that such agreement or agreements of the state thereunder are not a debt of the state and that such agreement or agreements shall be deemed executory only to the extent of the monies available to the state and no liability on account thereof shall be incurred by the state beyond the monies available for the purpose thereof" (L.1993, ch. 56, § 33, adding Highway Law § 10-e[5]; see also, L.1993, ch. 56, §§ 16, 19, 34; Public Authorities Law § 385[1][d]; § 386[2]; L.1991, ch. 329, § 11[d].

Further, Thruway Authority bonds issued pursuant to the Act are payable only by legislative appropriations from the Highway Fund and no other source:

"Such obligations * * * shall be special obligations of the authority secured by and payable solely out of amounts appropriated by the legislature as authorized pursuant to section eight-nine-b of the state finance law without recourse against any other assets, revenues or funds of or other payments due to the authority" (Public Authorities Law § 385[1][c], added by L.1993, ch. 56, § 34; see also, Public Authorities Law § 385[1][d].

Finally, the Act specifies that the State may assume the obligations of the Authority or substitute State security for the obligations of the Authority only upon constitutional amendment (L.1993, ch. 56, § 34, adding Public Authorities Law § 385[10].

The MTA

With regard to the MTA, the Act sets up a $9.56 billion capital funding program for the five-year period ending December 31, 1996. The existing--but not previously funded--Mass Transportation Trust Fund and the Metropolitan Mass Transportation Operating Assistance Fund would receive appropriations from user-derived taxes and fees and, in turn, would pay into a newly created MTA Dedicated Tax Fund (L.1993, ch. 56, § 7, adding Public Authorities Law § 1270-c). Appropriated under the Aid to Localities law as financial assistance for the operations and programs of the MTA, those expenditures are not subject to any restrictions.

The Act does not require the MTA to issue bonds, but if it chooses to do so, it may use the Tax Fund for security and debt service. Any bonds issued by the MTA are subject to the same statutory provisos on State liability as the Thruway Authority bonds. Tax Fund money not used in connection with issuance of bonds can be applied to operating and capital costs of MTA subsidiaries (L.1993, ch. 56, §§ 6, 7, 10; Public Authorities Law § 1269[12]; § 1270-c; State Finance Law § 89-c).

Asserting voter standing, plaintiffs commenced this action on May 24, 1993, alleging that the Act misuses public authorities to circumvent constitutional limitations on contracting debt, including the prohibitions against contracting State debt without a public referendum (N.Y. Const., art. VII, § 11), the lending of credit to public corporations (N.Y. Const., art. VII, § 8), and assumption of liability of debt obligation of public corporations (N.Y. Const., art. X, § 5).

On cross motions for summary judgment, Supreme Court 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 article VII, § 11 and, on the strength of Wein v. City of New York, 36 N.Y.2d 610, 370 N.Y.S.2d 550, 331 N.E.2d 514 (Wein I ), upheld the statute as constitutional, 156 Misc.2d 169, 601 N.Y.S.2d 239. The Appellate Division affirmed those conclusions, 193 A.D.2d 171, 606 N.Y.S.2d 916, as do we.

II

Because plaintiffs assert voter standing, Supreme Court correctly held that the only cognizable challenge to the Act is under article VII, § 11, the constitutional mandate that State contracts for debt be submitted for public referendum. Plaintiffs contend first that debt contracted by the public authorities is indistinguishable from debt contracted by the State and thus within the referendum requirement. Alternatively, they argue that the Act--by pledging appropriation of public revenues--compromises the legal independence of the public authorities involved, subjecting them to the debt-limiting provisions imposed on the State. They urge moreover, that as a practical matter the Legislature always will appropriate money for the Funds rather than risk damaging the State's credit rating. The effect of long-term appropriation-risk bonds, they say, is to "contract debt" within the meaning of article VII, § 11, and the failure to submit the proposed law to a public referendum renders the enactment unconstitutional.

Before proceeding to an examination of each claim, we note that plaintiffs' burden is a heavy one. It is true that when the main purpose of a statute is to effect " 'indirectly that which cannot be done directly, the act is to that extent void, because it violates the spirit of the fundamental law' " (Wein v. State of New York, 39 N.Y.2d 136, 145, 383 N.Y.S.2d 225, 347 N.E.2d 586 [Wein II], quoting People ex rel. Burby v. Howland, 155 N.Y. 270, 280, 49 N.E. 775). It is also true, however, that enactments of the Legislature--a coequal branch of government--enjoy a strong presumption of constitutionality. In particular, we give deference to public funding programs essential to addressing the problems of modern life, unless such programs are "patently illegal" (see, Hotel Dorset Co. v. Trust for Cultural Resources, 46 N.Y.2d 358, 369-370, 413 N.Y.S.2d 357, 385 N.E.2d 1284, quoting Comereski v. City of Elmira, 308 N.Y. 248, 254, 125 N.E.2d 241).

Plaintiffs have not satisfied their burden of proving unconstitutionality beyond a reasonable doubt.

III

In considering plaintiffs' first contention--that the debt of the Authorities is debt of the State--we begin analysis with a history of the referendum requirement and the origin of public authorities.

The State Constitution of 1777, our first, provided...