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 The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.

BONDS AND NOTES -- Permissible uses (financing non-federal share of federally-aided city bridge project) -- Proceeds (payment to State Comptroller)
STREETS AND HIGHWAYS -- Improvements (issuance of obligations to finance non-federal share of federally-aided city bridge project)

HIGHWAY LAW, §§10(34-a), 80, 80-b; LOCAL FINANCE LAW, §§10.00(a), 11.00(a), 165.00; L 1991, ch 329, §15, as repealed and reenacted by L 1991, ch 330, §9: A city may deposit with the State Comptroller the proceeds of bonds and notes issued by the city to finance the non-federal share of a federally-aided city bridge project.

You ask whether Local Finance Law, §165.00 prohibits a city from depositing with the State the proceeds of bonds and notes issued by the city to finance the non-federal share of a federally-aided city bridge project.

Highway Law, §§10(34-a), 80 and 80-b authorize the State Commissioner of Transportation to undertake federally-aided projects on highways, roads, streets and bridges that are not on the State highway system, with the approval and consent of the governing board of the appropriate municipality, partly at the expense of the municipality. Section 80-b establishes the State's share of the cost of such a project as a portion of the total project cost in excess of the federal aid and provides that the State's share shall be payable from appropriations made to the State Department of Transportation. By implication, the municipal share under section 80-b is established as any portion of the total project cost in excess of the federal aid and the State's share of the cost. Both section 10(34-a) and section 80-b require the municipal share to be deposited with the State Comptroller, who is authorized to receive and accept the same for such purpose, subject to the draft or requisition of the Commissioner. Section 10(34-a) also requires the municipal share to be deposited with the Comptroller before the Commissioner proceeds with the construction of the project.

The foregoing provisions, however, must be read in conjunction with section 15 of chapter 329 of the Laws of 1991, as repealed and reenacted by section 9 of chapter 330 of the Laws of 1991. Section 15 provides that "[n]otwithstanding the provisions of any other general or special law", municipalities are eligible for "repayment" of specified percentages of the total project cost, or non-federal share of the cost, of federally-aided municipal street and highway projects. The repayment is made from the proceeds of obligations issued by the New York State Thruway Authority for the purpose of financing the capital costs of local highway and bridge projects (see L 1991, ch 329, §15[g], added L 1991, ch 330, §9; Public Authorities Law, §380, added L 1991, ch 329, §12, amended L 1991, ch 330, §8), and not with moneys of the State in the State treasury or any of its funds (see L 1991, ch 329, §16-b, added L 1991, ch 330, §9). Section 15 also provides that "[m]unicipal costs may be credited as all or a portion of the municipal share of the total project cost not eligible for repayment as specified herein" (L 1991, ch 329, §15[d], added L 1991, ch 330, §9).

Since section 15 of chapter 329 of the Laws of 1991 pertains to the financing of federally-aided municipal street and highway projects and applies notwithstanding any general or special law, it appears intended to supersede inconsistent provisions of Highway Law, §§10(34-a) and 80-b.  The reference in section 15 to the "municipal share of the total project cost not eligible for repayment" makes clear that the portion of the non-federal share of the total project cost in excess of the amount to be repaid by the Thruway Authority is a municipal charge. The use of the word "repayment" in section 15 also clearly implies that the municipality, in the first instance, must make an expenditure in the amount of the repayment. Therefore, notwithstanding the contrary provisions of section 80-b, section 15 implies that municipalities are required to pay the full non-federal share of the cost of federally-aided street and highway projects, subject to partial reimbursement by the Thruway Authority. Since section 15 contains no provision to the contrary, this amount must be paid to the Comptroller pursuant to sections 80-b and 10(34-a).

Local Finance Law, §10.00(a) generally authorizes a municipality to contract indebtedness for any municipal object or purpose set forth in Local Finance Law, §11.00(a), if the municipality is authorized by law to expend money for or to accomplish the object or purpose. Local Finance Law, §11.00(a) provides that:

[w]here a municipality is authorized by law to pay to the state or a county all or a part of the cost of a capital improvement, the period of probable usefulness determined in this paragraph for a like capital improvement shall be the period of probable usefulness for the municipality's share of the cost of such capital improvement.

The purpose of this provision is to clarify the period of probable usefulness for a municipality's share of the cost of a capital improvement undertaken by the State or a county (see Governor's Bill Jacket for L 1951, ch 142, Memorandum of Department of Audit and Control). Thus, reading sections 10.00(a) and 11.00(a) together, when a municipality is authorized to contract indebtedness to finance a capital improvement and to pay to the State all or a portion of the cost of the improvement, the municipality may contract indebtedness for the purpose of financing its share of the cost of the improvement for a period not to exceed the period of probable usefulness established for a like capital improvement.

A city is authorized to contract indebtedness to finance bridge improvements (see General City Law, §20[9]; Local Finance Law, §11.00[a][10]). Further, to obtain federal aid for such improvements, section 15 of Chapter 329 and Highway Law, §§10(34-a) and 80-b require a municipality to prepay to the Comptroller the full amount of the non-federal share of the total project cost. Under these circumstances, we believe that, for purposes of Local Finance Law, §11.00(a), the municipal share for which the city may issue obligations is the full amount of the non-federal share (cf. L 1992, ch 53, §6[a][i], as proposed in S.6753A/A.9153A, referring to ". . . any bonds, notes, or other obligations issued by such municipalities to provide for the non-federal share of the cost of . . . " federally-aided street and highway projects [emphasis supplied]). Although the city will ultimately be reimbursed for a portion of the non-federal share, we nonetheless believe that the prepayment requirement of section 15 of Chapter 329 and Highway Law, §§10(34-a) and 80-b clearly indicates that the municipal share, in the first instance, is the entire non-federal share.

Local Finance Law, §165.00, inter alia, governs the deposit and use of proceeds from the sale of bonds, bond anticipation notes and capital notes. It generally requires the proceeds of bonds, bond anticipation notes and capital notes to be: deposited or invested in an account in a bank or trust company located and authorized to do business in this State or invested in certain enumerated securities; kept separate from other funds of the issuer except as expressly provided in that statute; and used only for the object or purpose for which the obligations were issued. The purpose of these requirements is ". . . to prevent the diversion of the proceeds of obligations issued for capital improvements to the payment of current operating expenses" (1944 Legislative Document No. 67, Fifth Report of the Temporary State Commission for the Study, Revision and Recodification of the Laws Relating to Municipal Finance, pp 22-23).

As discussed above, when the Commissioner of Transportation undertakes a federally-aided city bridge project, the city is required to "deposit" the full non-federal share of the project cost with the State Comptroller. The question, therefore, is whether the deposit of the proceeds with the Comptroller is an expenditure for the purpose for which the obligations were issued. In this regard, Local Finance Law, §11.00(a) authorizes a municipality to contract indebtedness to finance the municipal share of a capital improvement in instances "[w]here a municipality is authorized by law to pay to the State ... all or a part of the cost of a capital improvement ..." (emphasis supplied). Thus, section 11.00(a) clearly contemplates payment to the State of the proceeds of obligations issued to finance the municipal share of a capital improvement pursuant to the statute authorizing the municipality to pay its share to the State.  We do not believe that section 165.00 of the Local Finance Law was intended to preclude the use of bond proceeds in a manner which is otherwise permitted under section 11.00(a). Therefore, in our opinion, section 165.00 does not prohibit a city from depositing with the State Comptroller the proceeds of obligations issued to finance the non-federal share of a federally-aided city bridge project.

We note, however, that Local Finance Law, §165.00 also provides that the proceeds of obligations not used for the purpose for which the obligations were issued may only be used to pay debt service on the obligations. Thus, to be consistent with the purpose and intent of section 165.00, we believe that where the municipal share of the cost of a capital project being undertaken by the State is to be reduced by a subsequent reimbursement, the reimbursement must be used only to pay debt service on the obligations issued to make the first-instance payment to the State. For this reason, and to minimize the city's long term debt, we believe that instead of initially issuing bonds, the city should issue bond anticipation notes, use the repayments from the Thruway Authority toward the redemption of the notes, and then issue bonds only to the extent that the repayment is insufficient to redeem the notes (see Local Finance Law, §23.00).

In reaching the above conclusions, we express no opinion as to the federal tax consequences of the proposed arrangement to either the city or the Thruway Authority (cf. L 1992, ch 53, §6[a][i], as proposed in S.6753A/A.9153A, requiring the Department of Transportation to provide municipalities with information necessary to maintain the federal tax exempt status of any municipal bonds, notes or other obligations issued to finance the non-federal share of federally-aided street and highway projects).

April 3, 1992
Donald E. Freed, Director of Finance
City of Binghamton