Wein v. State of New York, 39 N.Y.2d 610 (1976)
A state’s creation of a public corporation to provide financial assistance to a city does not violate the state constitution’s debt limitations or prohibition on lending credit, provided the state’s obligation is not a legally binding guarantee of the corporation’s debt.
Summary
This case concerns the constitutionality of the Stabilization Reserve Corporation (SRC), created by New York State to provide financial aid to New York City. The plaintiff argued the SRC violated the state constitution by circumventing debt limits and lending the state’s credit to a public corporation. The Court of Appeals upheld the SRC, finding that the state’s obligation to replenish the SRC’s capital reserve fund was a moral, not legal, obligation and therefore did not constitute a prohibited debt or loan of credit. The dissent argued that the scheme was a thinly veiled attempt to evade constitutional debt restrictions.
Facts
In 1974, New York State established the Stabilization Reserve Corporation (SRC) to provide financial assistance to New York City during a fiscal crisis. The SRC was authorized to issue bonds and notes, with the proceeds going to the city’s general fund. The SRC’s revenues came from voluntary payments from the city to its capital reserve fund. If the city could not make these payments, the state would divert funds owed to the city (Stock Transfer Tax Funds and per capita aid) to the SRC. The statute expressly stated that neither the city nor the state was liable for the SRC’s debt.
Procedural History
The case originated as a challenge to the constitutionality of the act creating the SRC. The lower court upheld the act. This appeal followed, directly challenging the decision before the New York Court of Appeals.
Issue(s)
Whether the Stabilization Reserve Corporation Act violates Article VIII of the New York State Constitution, which restricts the state’s ability to contract debt and lend its credit to public corporations.
Holding
No, because the state’s obligation to replenish the SRC’s capital reserve fund is a moral obligation, not a legally binding one, and therefore does not constitute a prohibited debt or loan of credit under the state constitution.
Court’s Reasoning
The court reasoned that the constitutional debt limitations are aimed at preventing the state from incurring legally binding obligations that pledge its credit. The court distinguished between a moral obligation and a legal one. Because the statute explicitly stated that neither the city nor the state was legally liable for the SRC’s debt, the court found that the state’s commitment to replenish the capital reserve fund was only a moral obligation. The court emphasized that the legislature’s explicit disavowal of legal liability was crucial to its determination. The court distinguished Comereski v. City of Elmira, noting that the public authority in that case had an independent purpose beyond mere financing. The dissent argued that the SRC was a