A New York State Supreme Court judge yesterday temporarily blocked the state's multibillion-dollar, plans to finance its transportation needs in a case that could settle the legality of New York's bonding practices.
Albany Supreme Court Justice Lawrence E. Kahn issued a temporary restraining order against the state, the Thruway Authority, and the Metropolitan Transportation Authority in reaction to a lawsuit filed by Robert L. Schulz, president of the All-County Taxpayers Association.
In the lawsuit, Schulz challenges plans by the Thruway Authority and the MTA to sell bonds using revenues of several state taxes, including the petroleum business tax. The suit, filed yesterday in Albany County Supreme Court, says the bonding proposals are illegal because they violate the voter approval clause of the state constitution required for the sale of state debt.
The Legislature approved the debt issuance by the authorities, but the state, as in many other so-called appropriated bond offerings, did not ask voters to approve the plan.
In the past, the state has said that bonding transactions where the authorities issue debt for the state are legal because the securities are not technically bonds of the state, so they do not require voter approval.
Schulz, in the suit, said the bonds are state debt because they are supported by state taxes to pay debt service. As a result, they must be placed on the ballot for voter approval.
But a spokesman for the MTA said the authority's bonds are constitutional because the taxes used to support the debt are not gleaned from the state's general fund. He said these taxes are part of a dedicated highway trust fund, and as a result, are not state taxes.
Schulz has frequently challenged the state's long-term borrowing practices, including the legality of the state's use of the Local Government Assistance Corp. to help finance local aid payments, and other bond sales that he says violate the state constitution.
Neither the Thruway Authority nor the MTA have immediate plans to issue the bonds, which were part of a comprehensive transportation capital plan signed into law on April 15 by Gov. Mario M. Cuomo.
The Thruway Authority plans to sell $6 billion in bonds during the next four years, with about $1 billion of that beginning in the fall. The MTA plans to sell $3 billion in debt through 1996. It will launch its first deal sometime in 1994, a spokesman said.
But analysts who follow the state's fiscal practices say the ruling is significant in that it represents the first legal challenge of the state's bonding plans since a May 11 state Court of Appeals decision, which for the first time gave taxpayers the legal authority to sue the state over its borrowing practices.
"The question has always been, ~Is the debt of the authorities legally state debt?'" said Michael Brooks, a senior municipal analyst for Sanford C. Bernstein & Co. "That's what we're about to find out."
As part of his decision, Kahn ordered attorneys representing the state, the Thruway Authority, and the MTA to return to court on June 4 to challenge the order. The lawsuit names as defendants Cuomo, leaders of the Legislature, state Comptroller H. Carl McCall, and various state officials representing the MTA and the Thruway Authority.
The suit also challenges the constitutionality of bond deals in several state school districts and the actions of James W. Wetzler, commissioner of the New York Department of Taxation and Finance.
The suit calls for Wetzler to pay $1,000 "from his personal account" to the state treasury for expenses incurred while he attempted to stop taxpayers from avoiding state sales taxes by purchasing goods in New Jersey.
A Cuomo administration spokesman said the decision has no real impact because the Thruway Authority has no plans to issue bonds until after June. The spokesman said that the administration is confident that the authority's bonding plans are constitutional.
Several analysts interviewed said that the arguments used by the state and its authorities to evade the constitution may be wearing thin with the courts, and that the state must move ahead with plans begun during the last fiscal year to reform its long-term borrowing practices.
"Debt reform was a good and necessary idea before this suit. And today's ruling and prior ones simply make it more urgent," said Cynthia Green, a senior research associate with the Citizens Budget Commission.