Wein v. State

• Decision Date: 15 October 1975
• Parties: Leon Edward WEIN, Plaintiff, v. The STATE of New York et al., Defendants.
• Court: New York Supreme Court

Page 509

375 N.Y.S.2d 509

84 Misc.2d 453

Leon Edward WEIN, Plaintiff, v. The STATE of New York et al., Defendants.

Supreme Court, Special Term, New York County, Part I.

Oct. 15, 1975.

Leon Edward Wein in pro. per.

Louis J. Lefkowitz, Atty. Gen. (Shirley Adelson Siegal, N.Y.S. Dept. of Law, New York City, of counsel), for defendant.

NATHANIEL T. HELMAN, Justice:

Motions numbered 223, 287 and 299 of the calendar of October 10, 1975 are consolidated for disposition.

The Attorney-General has moved to dismiss the complaint in this proceeding on the ground that it fails to state a cause of action, or, in the alternative, for summary judgment pursuant to CPLR 3212, declaring that Sections 22 and 23 of Chapter 868 of the Laws of 1975 as amended by Chapter 870 thereof are constitutional and valid.

It is the theory of plaintiff's complaint that Secs. 22 and 23 of the Omnibus Bill adopted at the Extraordinary Session of the Legislature convened on September 4, 1975, violated Article VII, Sec. 8 of the Constitution, which provides that the credit of the State shall not 'be given or loaned to or in aid of any individual, or public or private corporation'.

The challenged legislation consists of 2 bills in identical language, one referring to an appropriation of $250 million (Sec. 22) and the other to $500 million (Sec. 23) such sums to be appropriated (Sec. 22) 'in the first instance from the local assistance fund as an advance to the city of New York, for its city purposes'. (Emphasis added.) It is to be noted that nothing in these enactments requires the State to borrow monies in order to meet the specified appropriations.

It is the contention of the plaintiff that the Emergency Act of 1975 violates the provisions of Article VII, Sec. 8 of the State Constitution which provides in pertinent part as follows:

'The Money of the state shall not be given or loaned to or in aid of any Private corporation or association, or Private undertaking; nor shall the Credit of the state be given or loaned to or in aid of any individual, or Public or private corporation or association, or private undertaking, . . .' (emphasis added)

A clear distinction is made in the quoted section between gifts or loans of 'money' to a public corporation, which are authorized, and gifts or loans of 'credit' which are prohibited. The Local Assistance Fund is a budget fund by which the state distributes monies to various governmental agencies as well as to municipalities. It is conceivable that the funds needed for distribution will be derived from taxes and other revenues, and sums withdrawn from this fund for distribution fall exclusively within the classification of 'money' as that term is referred to in Article VII, Section 8 of the Constitution. It must be emphasized that nothing in Secs. 22 and 23 made provision for the source of the funds to be used to effectuate the purposes of the legislation, and no suggestion was made that the State use its credit in order to perform its obligation to make appropriations out of the Capital Local Assistance Fund.

A.

In September of 1975 the State entered into a program of short term borrowing which included the amount of $250 million used to pay a portion of the appropriation provided for in Sec. 23 of the Emergency Act. Similar procedures will be involved in carrying out the requirements of Sec. 22. It is the plaintiff's contention that these short term borrowings violate Article VII, Sec. 8 of the Constitution. In order to meets its temporary cash needs the State has traditionally borrowed against revenues and expected tax collections, particularly during the early part of the fiscal year. These borrowings are always based on the assurance that revenues from fixed sources will be forthcoming, and the practice is constitutionally approved. Article VII, Sec. 9 of the Constitution provides:

'The State may contract debts in anticipation of the receipt of taxes and Revenues, direct or indirect, For the purposes and within the amounts of appropriations theretofore made. Notes or other obligations for the moneys so borrowed shall . . . be paid from such taxes and revenues within one year from the date of issue.' (emphasis added)

The State Finance Laws Sec. 55 adds to the quoted language 'and so much of such taxes and revenues as will be sufficient to pay the amount borrowed are pledged to that object'. In further demonstration of the distinction to be drawn between short term and long term borrowing Article VII, Sec. 11 requires referendum where the State is to contract debts, Excepting, however, short term borrowing as described in Sec. 9. Similar provision is made in Sec. 16 for such an exception and in Article 8, Sec. 5 subd. A a temporary debt is excluded in determining a Local Government's debt-incurring power. The use of short-term borrowing against revenues to obtain funds for transfer to New York City under Secs. 22 and 23 therefore involved a gift or loan of Money and not of the credit of the State. To hold otherwise would endanger all of the State's short-term borrowing, notwithstanding the specific authorizations of Article VII, Sec. 9. Monies received by the Local Assistance Fund from these short term borrowings, when used for appropriations for state services or in carrying out programs such as those specified in Secs. 22 and 23, clearly are an appropriation of 'money' and not a gift or loan of the State's credit. The Funds are not earmarked or identified and the proceeds are distributable for the general purposes of the Fund.

B.

The prohibition against a gift or loan to a public corporation first appeared in the New York State Constitution in 1938. The reports of the Convention indicate that concern was expressed as to the nature of Guarantees that had been previously employed, particularly where 'Authorities' were concerned. As the chairman of the Legislative Committee in his criticism of State guarantees put it: 'they are relying on the proposition that if the revenues of the enterprise are not sufficient to meet the interest and amortization, they can always go to the Legislature and ask for an Enabling Act and get the Legislature to say in effect that the full faith and credit of the State is in back of it'.

It is apparent that the prohibition in Article VII, Sec. 8 of a loan of 'credit' was concerned with the assumption of a Secondary liability for the obligations of another public corporation. Here, the State has not undertaken to guarantee obligations of the municipality. Two transactions are involved:

a) the first instance appropriation of money by the State to the City;

b) a short term borrowing by the State which at best subjects the State to liability to its own lenders, so that no loan or credit is extended to the municipality.

The subject matter of a loan of credit has been considered in several litigations both in New York and elsewhere, and the range of decisional law on this subject supports the conclusion that the transactions here involved did not violate the proscriptions of the constitutional provisions. An interesting analysis of the subject is contained in the case of Grout v. Kendall, 195 Iowa 467, 192 N.W. 529 (1923). There, the Court said:

'What is meant herein by a loan of credit? . . . This particular section of our Constitution was taken bodily from the Constitution of New York . . . The corporate body in each case was the primary debtor; the state became the underwriter; it loaned its credit always with the assurance and belief that the primary debtor would pay . . . The ultimate cry of the Surety is: I would not have become Surety if I had known or believed that I should have to pay the debt. This is as true of states as of individuals. It was to remove this delusion of Suretyship with its snare of temptation that this section of the Constitution was adopted. It withheld from the constituted authorities of the state all power or function of suretyship.' (emphasis added)

In Union Free School District v. Town of Rye, 280 N.Y. 469, 21 N.E.2d 681, the statute required the Town to pay over tax collections to a school district with a proviso that if the taxes so collected did not meet assessments the Town could borrow the difference. The Court of Appeals was asked to review the contention of the Town that the requirement that it borrow under those circumstances violated the 'no loan of credit' prohibition. The Court held that this was a statutory obligation of the Town itself, and the...