This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.

MUNICIPAL FUNDS--Capital Reserve Fund (creation of by town for construction of water improvements)
WATER IMPROVEMENT--Construction (use of capital reserve fund)

GENERAL MUNICIPAL LAW, §6-c; TOWN LAW, §209-q: Where a town provides water improvements pursuant to Article 12-C of the Town Law, a capital reserve fund may be established and moneys expended therefrom for the construction of any improvements the town board determines to finance by a charge upon the area of the town outside of any villages.

You ask whether a capital reserve fund may be established for the construction of a type of improvement provided pursuant to Article 12-C of the Town Law.

Under Article 12-C of the Town Law (§209-q, et seq.), a town may provide water improvements as a town function in the area of the town outside of any villages or in any portion of that area. Subdivision 8 of section 209-q provides that the cost of constructing such an improvement shall, as the town board in its discretion determines, be borne either (1) partly by the area of the town outside of any villages and partly by the lands benefited thereby; (2) wholly by the area of the town outside of any villages; or (3) wholly by the lands benefited thereby.

If the town board determines that some or all of the cost of an improvement is to be borne by the area of the town outside of any villages, that portion of the cost to be borne by the area of the town outside of any villages must be raised as part of the general levy for town outside village purposes or, if there are no villages within the town, as a part of the general levy for town purposes (see 1986 Opns St Comp No. 86-45, p 74). Your inquiry does not indicate whether the town board has determined how the costs of the proposed water main extensions are to be apportioned.

General Municipal Law (GML), §6-c authorizes a town board to establish capital reserve funds for the purpose of financing all or part of the cost of the "construction, reconstruction or acquisition" of a specific or type of "capital improvement" (GML, §6-c[2]). The term "capital improvement" is defined to include "any physical public betterment or improvement or any preliminary studies and surveys relative thereto" (GML, §6-c[1][b][1]).

The procedures for establishing and expending moneys from a capital reserve fund vary depending on whether the fund is established to finance the cost of a specific or type of capital improvement (GML,§6-c[2],[4],[8]). Where a town establishes a capital reserve fund to finance a specific capital improvement, the creation of the fund may be subject to permissive referendum requirements, but expenditures from the fund are not subject to referendum. However, where a town establishes a capital reserve fund to finance a type of capital improvement, the creation of the fund is not subject to a referendum, but expenditures from the fund may be subject to permissive referendum requirements (see GML, §6-c[4],[8]; Local Finance Law, §§11.00, 35.00; see also 1989 Opns St Comp No. 89-25, p 56; 1988 Opns St Comp No 88-62, p 123; 1988 Opns St Comp No. 88-58. p 117; 1979 Opns St Comp No. 79-42, p 7).

The town's authority to establish capital reserve funds is subject to certain limitations. General Municipal Law, § 6-c(3)(b), as amended by chapter 323 of the Laws of 1989, provides that the provisions authorizing the establishment of capital reserve funds shall not apply to:

[c]apital improvements or equipment, all or part of the cost of which is to be borne by assessments for benefit or ad valorem taxes upon the real property within an area of benefit within such municipality other than a sewer and/or water improvement district. [Emphasis added]

It is clear, from the above-quoted provision, that, with the exception of capital reserve funds established on behalf of sewer and/or water improvement districts, a town may not establish a capital reserve fund for an improvement, all or any part of the cost of the which is to be borne by a special ad valorem levy or a special assessment upon a benefited area (18 Opns St Comp, 1962, p 178; 4 Opns St Comp, 1948, p 87). There appears to be no similar restriction, however, on the establishment of a capital reserve fund for an improvement, the cost of which is to be financed as a general part-town charge or as a general town charge (see 1970 Opns St Comp No. 70-571, unreported; 23 Opns St Comp, 1967, p 505; cf. Town Law, §55[3][c], prohibiting a suburban town from expending moneys from a general reserve fund for the cost of an object or purpose to be borne by "ad valorem taxes upon the real property within an area of the town less than the entire area.").

As noted above, Article 12-C of Town Law provides that a town board, in determining to provide water improvements, is authorized to determine that the costs of the improvement shall be borne entirely by the area of the town outside of any villages or entirely by the lands benefited by the improvement, or to apportion the costs between the two areas. The method of apportioning the costs is not determined until after the public hearing on the improvement (Town Law, §209-q[6][c]). To the extent that any particular water improvement is entirely financed by a charge upon the area of the town outside of any villages, it is our opinion that the town board may establish a capital reserve fund for a type of water improvement and may authorize expenditures from the fund for those water improvements that are to be financed by a charge upon the area of the town outside of any villages. On the other hand, if the cost of the improvement is to be apportioned between the area of the town outside of any village and the benefited property, it is our opinion that the General Municipal Law, §6-c(3)(6) would preclude using the proceeds of a capital reserve fund for that purpose.

December 29, 1989
Ms. Mary Ann Bliek, Supervisor
Town of Williamson