New York court says state can sell appropriated debt without voters' approval.

The New York State Court of Appeals yesterday underscored the constitutionality of the state's borrowing practices, ruling against a taxpayer activist who charged that the governor's multibillion dollar transportation bonding program is illegal.

In a unanimous decision, the Court of Appeals sided with the state's two lower courts, ruling that a 1993 law authorizing the sale of transportation debt does not violate the state constitution's voter approval clause.

Wall Street analysts and state officials say the decision affirms the state's use of so-called appropriated debt as legal and constitutional. Appropriated debt is sold by state bonding authorities to finance state needs and does not need to be approved by state voters.

Under the state's plan, the transportation bonds will be sold through the Thruway Authority and the Metropolitan Transportation Authority to finance state road, bridge, and mass transportation improvements.

By selling the bonds through the agencies, the state can circumvent the constitution's voter approval clause. State legal officials say voters need not approve state bond issues sold by authorities, under a precedent established in the 1970s.

Voters, however, must approve all issues of state general obligation bonds, which are sold directly by the state.

The ruling represents a crushing defeat for taxpayer activist Robert L. Schulz, who brought the suit against the state, its authorities, and legislative leaders. Schulz has unsuccessfully sued the state numerous times for similar reasons.

Last summer, Schulz finally won "standing" to sue the state under the charge that bond sales without voter approval are unconstitutional. Given his new-found standing on the issue, and the court's decision yesterday, legal experts say the constitutional questions surrounding state borrowing practices should cease.

"They dismissed him completely," said Eugene Harper, a partner at Mudge Rose Guthrie Alexander & Ferdon. "I believe any challenge in the future would be dismissed on the basis of this decision."

Schulz could not be reached for comment.

Writing for the majority, chief judge Judith S. Kaye said the Schulz suit attacks the state transportation statue "as imprudent fiscal policy and as violative of debt-limiting provisions of the state constitution."

"The wisdom of legislation, of course, is not a matter for the court," Kaye wrote. "As to the legality, we conclude -- as did both the trial court and the Appellate Division -- that the statute before us does not violate the state constitution."

The ruling also clears the way for a $400 million bond sale by the Thruway Authority. Wall Street sources say the sale has been postponed in part by the uncertainty surrounding the Schulz case. A time frame for the sale has yet to be determined.

Under the transportation financing plan, the Thruway Authority is authorized to issue up to $4 billion in bonds for highway and bridge improvements, and the MTA can sell up to $2 billion in debt for the state.

In her opinion, Kaye wrote that Schulz faced an uphill battle in proving his case. While the bond sales may violate the spirit of the constitution's voter approval clause, she said, enactments made by the state legislature "enjoy a strong presumption of constitutionality."

The court's affirmation of the state's borrowing practices did not appease all critics.

For example, the state's use of appropriated debt has been roundly criticized by Wall Street analysts as too costly. "The court is still violating the spirit of the constitution," said Michael Brooks, a senior municipal bond analyst for Sanford C. Bernstein & Co.

As part of the recently passed state budget, the state legislature agreed to change the way the state sells debt, and end the use of appropriated debt. The plan must be approved by the legislature next year before it is placed on the ballot for voter approval.

In a press release, state Comptroller H. Carl McCall said that despite the state's victory, the ruling "clearly shows the need for strong, meaningful debt reform in New York State."

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