Opinion 88-7

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 The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.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 - Proceeds (use of surplus proceeds to pay debt service)

MUNICIPAL FUNDS - Appropriations and Expenditures (need to use debt service appropriation where surplus bond proceeds available)

TOWN LAW, §112(1); GENERAL MUNICIPAL LAW, §9; LOCAL FINANCE LAW, §165.00: Where surplus bond proceeds are available to pay debt service for purposes of a town improvement district and current assessments also have been raised and appropriated for the purpose, the debt service need not be paid from the assessments. 4 Opns St Comp, 1948, p 315 superseded.

You ask whether 4 Opns St Comp, 1948, p 315 (File No. 3046) reflects the current position of this Office. That opinion concluded that, where surplus bond proceeds are available to pay debt service on bonds issued for the purposes of a town improvement district but, pursuant to budgetary appropriation, the amount of the debt service has already been raised by assessments, the current fiscal year's debt service should be paid from the moneys raised therefor and not from the surplus bond proceeds.

File No. 3046 relied in part on section 165.00 of the Local Finance Law relative to the use of bond proceeds that are not required for the object or purpose for which the bonds were issued. The opinion also relied upon former Town Law, §115, which provided that the unexpended balance of an appropriation for district purposes, except as otherwise provided by law, could, in the board's discretion, either be kept upon deposit and included as a revenue for the succeeding year, or together with the funds already appropriated, applied for the purposes of such district during the current year. Based upon these provisions, File No. 3046 concluded that:

". . . there is grave doubt that the current debt service of $7,000 (for which there was a specific appropriation) may be paid from the $15,000 bond surplus and that the $7,000 raised for debt service can be used for current purposes on the basis that it is an unexpended balance of an appropriation."

We note that 4 Opns St Comp, 1948, p 315 failed to consider that Local Finance Law, §165.00 mandates that surplus bond proceeds be used for the sole purpose of paying debt service on the bonds. Further, there is nothing in section 165.00 which restricts the use of such moneys for debt service in the event an appropriation from other moneys is made for that purpose (cf. General Municipal Law, §6-h[5] which provides that moneys in a reserve fund for bonded indebtedness may not be used to pay debt service where provision has been made in the budget to pay debt service from funds other than funds from the reserve fund).

We also note that, while article VIII, §2 of the State Constitution requires that appropriations be made annually for the payment of outstanding indebtedness, there is nothing in that provision or the Town Law which suggests that an appropriation for debt service must be used to make the debt service payments even though surplus bond proceeds are also available for that purpose. In this regard, we point out that Town Law, §112(1), which is the successor to former Town Law, §115 and which authorizes a town board to make additional appropriations or to increase existing appropriations, provides that such appropriations may be provided from, among other sources, "the unexpended balance of an appropriation." As was suggested above, this statute contains no limitation on the use of excess appropriations made for debt service payments. Therefore, based on the mandatory nature of section 165.00 and the lack of any requirement that taxes and assessments raised and appropriated for debt service be used only for that purpose, we now conclude that where surplus bond proceeds are available to pay debt service on bonds issued for purposes of a town improvement district and an appropriation of current funds has also been made for such purpose, the current funds need not be utilized to pay debt service.

It should be noted, however, that in the case of counties, cities other than the City of New York, villages and city school districts, General Municipal Law, §9 provides that if tax moneys raised and appropriated to pay debt service are excluded from the municipality's constitutional tax limit (NY Const, art VIII, §10), but are not used to pay debt service, such moneys must be utilized only for one of the purposes set forth in subdivision two of that section. Specifically, subdivision two provides that any such unexpended balance may be used for only (a) an object or purpose for which bonds may be issued, (b) a reserve fund established for a purpose for which bonds may be issued, (c) the payment of principal and interest on certain debt, or (d) any combination of such purposes.

4 Opns St Comp, 1948, p. 315, to the extent it is inconsistent herewith, is hereby superseded.

February 17, 1988
Cornelius F. Healy
Deputy State Comptroller