Opinion 94-22

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 The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.

BUSINESS IMPROVEMENT DISTRICTS -- Assessments (custody, control and expenditure of) -- District Management Association (contract for services with)

MUNICIPAL FUNDS -- Custody of (turning over to not-for-profit association)

GENERAL MUNICIPAL LAW, §§980-j, 980-l: Charges imposed on behalf of a town business improvement district are under custody and control of, and are directly expended by, the town, not the district management association. The district management association, however, may be the recipient of district funds paid as fair and adequate consideration pursuant to a contract for services with the district, subject to audit of claims and competitive bidding requirements.

You ask whether the charges imposed on behalf of a business improvement district may be turned over to, and be controlled and directly expended by, the district management association.

Article 19-A of the General Municipal Law (§980 et seq.) governs the establishment, operation and financing of business improvement districts by cities, towns and villages. The establishment or extension of a business improvement district is based on a district plan prepared in accordance with General Municipal Law, §980-d. The plan must contain all items required by General Municipal Law, §980-a, including, among other things: a map of the district; a description of the boundaries of the district; the proposed source of financing; the proposed improvements and maximum cost thereof; the total annual amount proposed to be expended for improvements, maintenance and operation; a list of benefited properties; and a statement of the method by which the expenses of the district will be imposed upon benefited real property in proportion to the benefit received, to defray the cost of the district. General Municipal Law, §980-m provides for the establishment of a district management association, as a not-for-profit organization, for each business improvement district, for the purposes of carrying out such activities as may be prescribed in the district plan.

Pursuant to General Municipal Law, §980-j, the expense and cost of the district which is apportioned to benefited real property in accordance with the district plan is a charge upon each benefited parcel of real property within the district, subject to the limitation on the annual amount of the district charge set forth in section 980-k. With respect to the custody and control of district charges, General Municipal Law, §980-l provides as follows:

(a) The proceeds of any charge imposed pursuant to this article shall be held by the chief fiscal officer and shall be separately accounted for in the books and records of the municipality ... These funds may be paid out for district purposes in accordance with the general procedures for payment of other municipal expenditures.

(b) All contracts for improvements, goods or services to be provided in the district shall be subject to all applicable provisions of the law relating to the letting of contracts by the municipality.

It is clear from section 980-l that district charges, which are derived from assessments on benefited properties, constitute municipal moneys to be held in the custody of, and accounted for, by the chief fiscal officer of the municipality creating the business improvement district. Further, these moneys may be expended only in accordance with the procedures for spending other municipal moneys, including competitive bidding and audit of claims procedures. Accordingly, the municipality, and not the district management association, has custody and control of, and directly expends district charges.

The district management association, however, may be the recipient of district funds paid as fair and adequate consideration pursuant to a contract for services between the district and the association, subject, as noted, to audit of claim and competitive bidding requirements (see General Municipal Law, §§980-c, 980-d[e], 980-m[d]). To avoid contravening the gift and loan prohibition of article VIII, §1 of the State Constitution, the services provided under the contract must further the proper public purposes of the business improvement district, even though there may also be an incidental private benefit (see Murphy v Erie County, 28 NY2d 80, 320 NYS2d 29, reargument denied 29 NY2d 551, 324 NYS2d 1031). While the exact provisions of the contract is a matter to be determined by the parties to the contract, we believe that, at a minimum, the contract should describe the services to be provided by the district management association and the method of providing compensation therefor. In this regard, we note that, as a general rule, a municipality may not pay for services prior to the receipt thereof (see, e.g., Town Law, §118[1]; cf. 1987 Opns St Comp No. 87-50, p 77, pertaining to advance payment for the availability of a service).

November 28, 1994
Robert F. Kozakiewicz, Esq., Town Attorney
Town of Riverhead