The New York State Supreme Court's appellate division yesterday rejected an attempt by taxpayer activist Robert L. Schulz to block the use of appropriated debt to finance a multibillion-dollar transportation plan.

The decision by the five-judge panel supports the state's contention that the bonding plan, as well as the sale of all appropriated debt by the state, is based on firm legal precedent established in the so-called Wein cases of the late 1970s.

"It is now clear that there is no constitutional violation attendant to the fact that the revenue streams backing up the bonds derive from state appropriations," wrote appellate division judge A. Franklin Mahoney in the decision.

But Mahoney, in announcing the court's decision, also said "there is a certain intrinsic validity" to Schulz's argument. Schulz maintains that the state's four-year highway transportation plan is unconstitutional because it violates the voter approval clause in the state constitution.

Under the state's plan, the Thru-way Authority and Metropolitan Transportation Authority will sell $4 billion of appropriated debt to finance highway and mass transportation improvements throughout the state. The state will pay debt service by appropriating each year money from a pool of state petroleum-related taxes.

State officials rely on the sale of appropriated debt to avoid a voter referendum constitutionally required for the sale of general obligation bonds. New York voters have been reluctant to allow the state to sell GOs to finance state infrastructure needs. In November 1992, for example, voters rejected an $800 million bond act proposed by Gov. Mario M. Cuomo.

Lawyers representing the state and officials in the attorney general's office say that unlike general obligation debt, the state is not legally required to repay appropriated debt. As a result, these bond do not constitute debt of the state, and do not need voter approval.

But the appellate division, while agreeing with the state's legal arguments, said the sale of appropriated debt "has all the earmarks of a long-term state obligation."

The court added, "There is a disturbing correctness to [Schulz's] argument that while the state technically is under no legal obligation to appropriate moneys ... the state practically and economically is obligated to make payment."

Officials in the state attorney general's office would not comment directly on these remarks. "My response to that is the attorney general represents the state in a legal action," said Nancy Connell, a spokeswoman for the state attorney general's office. "We argued that legal precedent would be determinant, and that's what the court found. That's the bottom line."

But Schulz, who yesterday appealed the case to the state's highest court, the court of appeals, said in a press release that the appellate division "validated [my] central argument."

"Everybody knew that this case would not be decided until the court of appeals has spoken," Schulz said. "In a sense, we are grateful for the appellate division's comments validating our position on debt. These comments can only help us."

Cynthia Green, a deputy research director for the Citizen's Budget Commission, an independent watchdog group, said while the court upheld the state's use of appropriated debt, lawmakers must push to reform the state's borrowing practices. The state is at the moment considering a constitutional amendment to change the way it issues long-term debt.

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