author: Cooke, J. Gabrielli, J. (dissenting).

text:
    City School District of the City of Corning et al., Respondents, v County of Chemung, Appellant.
    Argued November 15, 1977;
    decided December 21, 1977

      POINTS OF COUNSEL

      Louis J. Mustico, County Attorney for appellant.
    I. The Corning Community College cannot arbitrarily charge back for each nonresident student the sum of $300 where no capital costs have been incurred beyond the amount already provided in the capital budget. II. The capital costs charge-back for nonresidents under the laws as amended applies. III. Effective date of the law passed by the State Legislature concerning nonresidents charge-back was September 1,1975.

      Harry Treinin for respondents.
    I. The limitation in the amount of charge-backs, pursuant to the amendment by chapter 646, does not apply to the fall semester of 1975. II. The interpretation given by the agency charged with the implementation of the amendment should be given great weight. (Matter of Union Free School Dist. No. 2 of Town of Cheektowaga v Nyquist, 38 NY2d 137; Matter of Howard v Wyman, 28 NY2d 434.) III. The changes resulting from the amendment were not applicable to the 1975 fall semester. (Matter of Public Serv. Comm, v Peyton Automotive Transp. Serv., 16 Misc 2d 1007; RKO-Keith-Orpheum Theatres v City of New York, 308 NY 493; Board v Hearst Pub., 322 US 111.) IV. The capital fund is an integral part of the financing of a community college.

      Walter J. Relihan, Jr., and Joyce Yaple Villa for State University of New York, amicus curiae.

    A capital charge of $300 per student was automatically collectible by community college sponsors from counties of residence of nonresident students until December 31, 1976. (Matter of Lockport Union-Sun & Journal v Preisch, 8 NY2d 54; RKO-Keith-Orpheum Theatres v City of New York, 308 NY 493; Matter of Public Serv. Comm, v Peyton Automotive Transp. Serv., 16 Misc 2d 1007; Johanns v Ficke, 224 NY 513.)
   OPINION OF THE COURT

Cooke, J.

Any city, county, intermediate school district, or school district approved by the State University trustees may, alone or in combination with other local sponsors, establish a community college (see, generally, Education Law, §§ 6301, 6302). Each college, in addition to admitting the residents of local sponsors, is required to admit students who live in other counties (§ 6305, subd 1). The college may, however, elect to charge the counties in which its nonresident students reside for an allocable portion of the operating costs of the college and a further sum for capital costs incurred to provide facilities in which such nonresident students can be accommodated (subd 2). This case concerns a dispute over a claim for capital costs.

Formerly, the capital charge-back allowed to community colleges was a flat $300 yearly per nonresident student. However, in 1975 the Legislature amended the Education Law to provide that the capital charge-back should be a sum "hot to exceed three hundred dollars each year to be determined and approved by the State University Trustees” (L 1975, ch 646, § 1; emphasis added). It had been commented that the inflexible $300 charge previously permitted had little relationship to the actual needs of the college which received the charge-back fee. Thus, the law was amended to enable the State University board of trustees to determine what the appropriate charge-back rate should be for each college, and thereby to correct the situation which allowed some institutions to accumulate unnecessarily high capital funds which could only be used for more construction (see NY Legis Ann, 1975, p 165).

The amendment requiring the board of trustees to determine and approve a capital charge-back rate became a law on August 5, 1975, but by its terms the law was not effective until the first day of September next succeeding the date on which it became a law (L 1975, ch 646, § 2), i.e., September 1, 1975. This controversy concerns the. period between the September 1 effective date of the law and the promulgation of regulations, which were filed on December 29, 1975, setting forth guidelines for determining a charge-back rate.

On October 15, 1975, Corning Community College billed the County of Chemung for the sum of $157,340 for Chemung residents who would attend the college for the fall 1975 semester. The county objected to the charge which was based on the flat $300 sum, and sought advice from the State University. The office of the university counsel advised that proposals for capital charge-back rates would be considered at the regularly scheduled November (1975) board of trustees meeting and that the former regulations providing for the $300 amount would control until the new regulations took effect. Further correspondence from the counsel’s office indicated that the new regulation became effective beginning after January 1, 1976, and hence that Chemung County would be liable for a capital charge-back for the fall 1975 semester even though, according to the State University’s data as applied against the new regulation, Corning would not be entitled to a charge-back for the 1976 spring semester.

The county persisted in its refusal to pay the capital cost charge-back and this action ensued in which the college seeks judgment against the county in the sum of $157,340, plus interest. The facts are not in dispute and the action was commenced on submitted facts pursuant to CPLR 3222. The State University, although not a party, has submitted a brief as amicus curiae.

By a divided court, the Appellate Division upheld the college’s claim. The majority concluded that it would be impossible for the trustees to institute the change immediately and reasoned that the Legislature must have intended the old law to remain in effect until the new law could be effectuated. It also rejected the county’s ancillary arguments that the college may only collect capital charge-backs for costs incurred during the academic year and that the existence of a surplus in a capital reserve account precludes the college from recovering any contribution from the defendant. The dissenters in that court urged that the defendant county should not be made to pay the maximum charge permitted merely because the State University trustees found it difficult or inconvenient to comply with the new law. For the reasons that follow, we would reverse the order of the Appellate Division.

The legal analysis of this issue must begin with a recognition that the amendment under consideration was not self-executing in the sense that it did not lower the capital charge-back rate from the set $300 amount to some other flat amount. Rather, the amended law authorized the State University board of trustees to determine and approve a sum not to exceed $300 per year for each nonresident student. As noted by the dissent in the Appellate Division, reliance on the old regulation is unwarranted since it was based on the former statute which simply provided for an unvarying amount. Moreover, a reading of the statute belies any suggestion that the $300 rate was to remain in effect until the trustees determined a lower amount. Thus, the issue to be resolved is what is the consequence of the failure of the trustees to determine and approve a charge-back rate for the period in question.

Considerable dependence has been placed on the impossibility of determining the appropriate rates by the middle of October, 1975. Neither the presumed difficulty nor the suggested date are supported in the record or by the statute. As noted by the Appellate Division dissent, the conclusion concerning the supposed inability to comply amounts to speculation. Moreover, contrary to the suggestion that the trustees had only until October 15, 1975 to determine a charge-back rate, compliance could have been accomplished at least as late as December 15, 1975. The statute as amended requires the State University to notify the county of the capital charge-back rate for each community college (Education Law, § 6305, subd 4). Nothing in the statute suggests that the charge-back rate had to be determined by the date of billing (Oct. 15) rather than the date of payment (Dec. 15), and hence the trustees would have had this further period in which to make their determination. Since the college was well aware that the new law authorized the trustees to limit the amount of the charge-back, it could no longer rely on receiving the full $300 rate and should not have been surprised to receive payment of less than the amount billed.

Significantly, there is no indication from the State University that the regulation, which was filed on December 29, 1975, could not have been filed a mere 14 days earlier, on December 15, 1975, which was the date payment was due from defendant county, and presumably from other counties to other colleges. In fact, the Chancellor sent the trustees a recommendation on October 22, 1975, suggesting that they adopt a regulation which provides the same basic guidelines for determining the charge-back rate contained in the regulation as filed in late December. Moreover, by at least mid-November, 1975, the university counsel was aware of the controversy leading to this litigation. Furthermore, it should not be forgotten that the statute was approved on August 5, 1975, and, according to the amicus curiae brief, the amendment was proposed after consultation with the State University.

There is nothing to suggest that the regulation and effectuation of the law could not have been accomplished sooner. As for the task of computing the resources and anticipated capital expenditures of the community colleges across the State, those supporting the new law contemplated that since the State University staff was already responsible for determining operating charge-backs, the further task of making capital charge-back computations would create only a minor increase in workload (see NY Legis Ann, 1975, p 165). Since a proposed regulation was circulated to the trustees in late October, 1975, it would appear that whatever computations were necéssary had been made prior to that time. With this in mind, it is manifestly unreasonable to speculate or infer that it was impossible to adopt a regulation prior to the December, 1975 payment date for the various colleges.

The question, in essence, is who should suffer the consequences of the fact that the trustees did not determine and approve a capital charge-back rate for the period involved. We conclude that the correct result is that the capital charge-back sought should not be allowed under the old regulation. The statute mandates a determination by an administrative body and, as noted, the old regulation cannot be relied on as a substitute for the required approval. While there may be instances where administrative difficulty may be a permissible basis for delaying implementation of a law, under the circumstances presented here the court should not speculate as to the impossibility of a timely fulfillment of this responsibility. To be sure, no deference should be given to an interpretation of a statute by an administrative agency, if that interpretation authorizes or permits it to act contrary to law so as to delay implementing a new law. It was incumbent on those charged with administration to devise whatever administrative plan was necessary to implement the law in a timely fashion. As a matter of policy, the court should not grant an extended life to a dead law simply to overcome a delay of this sort.

Accordingly, the order of the Appellate Division should be reversed, without costs, and judgment granted in defendant’s favor.

Gabrielli, J. (dissenting).

I respectfully dissent from today’s holding by the majority. It is abundantly clear that subdivision 2 of section 6305 of the Education Law, and the regulations promulgated thereunder prior to the 1975 amendment of the statute, authorized each community college to charge back an amount of $300 for each nonresident student per year against the student’s home county on account of the college’s capital costs. The effect of the 1975 amendment was simply to provide the trustees of the State University system with the authority to limit the amount each community college can charge back against a county, with a maximum of $300. Prior to the amendment the trustees lacked such authority, and each community college in the State was empowered to charge back the full $300 amount regardless of its needs.

The amendment was adopted by the Legislature in the summer of 1975, and was not approved by the Governor until August 5, 1975. Although it had an effective date of September 1, 1975 (a mere 27 days following its adoption), it was obviously impossible for the trustees to promulgate new regulations and create a functioning system for the processing of charge-back rate requests in time for the fall 1975 semester, for such a system would of necessity involve the complex task of initially assessing the resources and anticipated capital expenditures of each of the 30 community colleges within the State. It is inconceivable that the Legislature intended to foreclose all charge-backs until the new system could be made operational, in view of prior legislative recognition of the importance of the charge-backs to community colleges (see Memorandum of State Executive Department, McKinney’s 1971 Session Laws, p 2466). There is no evidence of such a legislative intent to effectively deny all the colleges the charge-back income and the language of the statute itself does not mandate such a result. The 1975 amendment was intended merely to grant the trustees the authority to regulate the charge-back amounts for each community college, so as to limit charge-backs to an amount reasonably related to the projected needs of each community college. To interpret the amendment as the majority does, to invalidate a charge-back on the grounds that it had not received specific trustee approval at a time when the mechanism for obtaining such approval did not, and indeed could not exist, is to reach an unnecessarily harsh result. The legislation was intended to result in a more careful computation of the charge-back amounts, and not in a complete abrogation of the charge-back system for a semester.

It must be emphasized that the amended statute merely gives the trustees the power to decrease the amount of charge-back funding to which each community college is entitled. It does not require the trustees to decrease the amount that can be charged back, and it does not preclude the trustees from simply approving the maximum charge-back for each and every community college via a mechanism such as the regulations existing prior to the 1975 amendment. The amended statute is obviously not self-effectuating in the sense that the charge-back would be automatically reduced upon the effective date of the amendment; it provides the trustees with a great deal of leeway, and leaves implementation of the statutory objectives to the trustees’ discretion. Faced with the impossibility of constructing the mechanism necessary for separate consideration of each community college’s charge-back request for the fall 1975 semester* the trustees embarked upon the only reasonable course of action open to them, and in effect continued the old regulations until new regulations could be promulgated and an appropriate system developed for handling charge-back requests for subsequent semesters. Thus, in December of 1975, the trustees for the first time issued new regulations pertaining to charge-backs commencing with the spring 1976 semester, and providing for individual consideration of each community college’s particularized needs. No attempt has been made by the State University system to apply these regulations retroactively, and, in fact, the State University has appeared in this case as amicus curiae and, as is recognized by the majority, maintains now, as it had previously ruled, that prior to the promulgation of the new regulations, the old regulations were still in force and were applicable to the fall 1975 semester charge-backs. The interpretation given the statute by the agency charged with implementing it is entitled to great deference (see, e.g., Matter of Howard v Wyman, 28 NY2d 434), and should not be disturbed if such an interpretation is reasonable. In the present case the State University’s interpretation of the statute appears quite reasonable, and I see no reason to discard such an interpretation in favor of one which will apparently call into question the validity of the charge-backs imposed by each of the State’s 30 community colleges for the fall 1975 semester. Such a result is extremely unfortunate and, in my opinion, unnecessary.

Accordingly, I would affirm the order appealed from.

Judges Jasen, Jones and Fuchsberg concur with Judge Cooke; Judge Gabrielli dissents and votes to affirm in a separate opinion in which Chief Judge' Breitel and Judge Wachtler concur.

Order reversed, etc.

       The amount sought represents the capital charge-back for the fall 1975 semester at the rate of $150 per student.


source: Caselaw Access Project

author: Wachtler, J. Jones, J. (dissenting).

license: Public Domain

text:
    George M. Howard, et al., Appellants, v William E. Murray, Respondent.
    Argued November 14, 1977;
    decided December 21, 1977

      POINTS OF COUNSEL

      Jerome R. Halperin, P. C., for appellants.
    I. Defendant attorney has failed to meet his burden of proving that the transaction of November 12, 1959, comprising the option, bond and mortgage and operating agreement, was just and fair. (Howard v Murray, 38 NY2d 695; Matter of Howell, 215 NY 466; Cowee v Cornell, 75 NY 91; Whitehead v Kennedy, 69 NY 462; Feiber v Copeland, 232 App Div 504; Nichols v Riley, 118 App Div 404; Matter of Smith, 11 Misc 2d 170; Reilly v Frias, 85 Misc 162; Ingersoll v Weld, 103 App Div 554; Bingham v Sheldon, 101 App Div 48.) II. Defendant attorney has failed in his burden of proof to establish that his agreement with plaintiffs was made by plaintiffs with full knowledge of all of the material circumstances known to defendant and in every respect free from fraud and that defendant made reasonable use of the confidence reposed in him by plaintiffs. (Whitehead v Kennedy, 69 NY 462; Wendt v Fischer, 243 NY 439; Matter of People [Bond & Mtge. Guar. Co.], 303 NY 423; Matter of Leopold v City of New York, 186 App Div 872.) III. This court under article 15 of the Real Property Actions and Proceedings Law has full equitable powers and discretion to reverse the trial court and enter judgment in favor of plaintiffs against defendant attorney canceling and rescinding all agreements and instruments between the parties dated November 12, 1959, including the bond and mortgage, the option agreement and the operating agreement and to restore the parties to their original status. (Niagara Falls Power Co. v White, 292 NY 472; Holden v Crolly, 153 App Div 254.) IV. The agreement of August 20, 1964 is invalid for lack of consideration from defendant to plaintiffs.

      Archibald A. Patterson for respondent.
    I. As to the 1959 agreements the courts below correctly held that respondent attorney met his burden of proving that he made full disclosure and acted properly in all respects. (Whitehead v Kennedy, 69 NY 462.) II. The 1959 agreements were not unfair as a matter of law. (Howard v Murray, 38 NY2d 695; Rudman v Cowles Communications, 30 NY2d 1, Mandel v Liebman, 303 NY 88.) III. The courts below correctly dismissed plaintiffs’ second cause of action to rescind and set aside the 1959 option. (Smith v Johannsen, 199 App Div 823; Rollin v Grand Store Fixture Co., 231 App Div 47.) IV. The August, 1964 agreement is valid. Therefore the courts below correctly dismissed plaintiffs’ third claim and gave defendant judgment on his first and second counterclaims.
   OPINION OF THE COURT

Wachtler, J.

This action to rescind a mortgage, bond and option arrangement is now before our court for the second time. In essence, the plaintiffs claim that the defendant, an attorney specializing in tax law, took unfair advantage of the attorney-client relationship in contriving the agreements now sought to be avoided.

On the first appeal, we were not directly presented with the trial court’s asserted error in upholding the over-all fairness of the transaction. The Appellate Division had yet to reach the merits, a divided court having found the plaintiffs’ action barred by the Statute of Limitations. We reversed that determination by concluding that article 15 of the Real Property Actions and Proceedings Law applied and that the statutory remedy was not time-barred.

Our initial review set forth the essential details of an intricate loan transaction (Howard v Murray, 38 NY2d 695, 697-699), and indicated that the defendant attorney at the very least "got the better of the bargain” (at p 699). The defendant had originally been consulted for tax advice on the plaintiffs’ desired sale or refinancing of their primary capital asset—a lot and commercial building. At the time the property was worth nearly $500,000; it yielded a net annual rental of approximately $15,000. Aided by the plaintiffs’ eagerness to increase this yield on a t&x-free basis during their retirement, coupled with their difficulties in accomplishing this goal through outside channels, the defendant in the end acquired for himself "the right to purchase the property at an amount considerably below its actual value” (at pp 698-699).

The bargain itself was patently one-sided. We could not say at that point and on that basis alone, however, that the underlying agreement was unfair as a matter of law. Instead we remitted the matter to the Appellate Division for appropriate review in light of our preliminary analysis. Having yet to review the merits, it was for that court to first respond to the essence of the fairness problem: "The crucial question is whether the defendant attorney established that the contract 'was made by the client with full knowledge of all material circumstances known to the attorney, * * * and that a reasonable use was made by the attorney of the confidence reposed in him’ ” (at p 699, quoting Whitehead v Kennedy, 69 NY 462, 466).

This classic formulation of the legal standard to be applied on remission assumes a level of scrutiny far "stricter than the morals of the market place” (Meinhard v Salmon, 249 NY 458, 464). Recognition of the duty owed to a client may be strained "from human frailty when confronted with conflicting interests” (Matter of People [Bond & Mtge. Guar. Co.], 303 NY 423, 430), but may not later be demonstrated merely by assertions of good faith or the belief that the client obtained the best terms available at the moment (Wendt v Fischer, 243 NY 439, 443-444). The law "does not stop [merely] to inquire whether the contract or transaction was fair or unfair. It stops the inquiry when the relation is disclosed” (Munson v Syracuse, Geneva & Corning R. R. Co., 103 NY 58, 74).

When we remitted the case to the Appellate Division, our direction contemplated a meaningful review focusing on the adequacy of disclosure attending the attorney-client transaction. That court, by a divided vote, affirmed the trial court’s assessment, apparently presupposing that the trial court had a full grasp of the underlying agreement and the plaintiffs informed assent to its terms. As our initial analysis suggested, however, it was in this respect that the trial court in the first instance had gone astray.

Illustrative of this was the trial court’s assumption that the agreement was proposed by an attorney who, in attempting to resolve his clients’ financial problem, had himself taken a "calculated risk”. The defendant was presumed to have made a binding commitment to provide the plaintiffs with "a loan of $4,000 per year for life”. In addition, the trial court found that Mrs. Howard was to be entitled to a $9,000 yearly "annuity” if predeceased by her husband. The trial court apparently considered this "final net consideration after taxes” to be "the basis for the reasonableness of the proposal.”

As we noted on the prior appeal, however, these assumptions fail to account for the arsenal of contingencies and interrelating qualifications overflowing from the four documents which comprise the parties’ agreement. The defendant had in reality hedged any risk that the property might decline in value by including terms and cross references allowing him in effect to discontinue loan payments at will without material penalty. If he chose to back out at any point, all prior payments would remain secured under the bond and open-ended second mortgage, and the sums advanced would be repayable to him upon the death of George Howard. At that point, if the defendant chose to adhere to the payment schedule, he would acquire the right to purchase the property at an option price limited to actual advances made under the related bond and option agreements. Although the property would be subject to an outstanding first mortgage, any remaining risks were removed by a provision requiring the plaintiffs to annually reduce this debt by an amount at least equaling the advances made by the defendant.

In addition, if Mrs. Howard were still alive at that point and if the defendant exercised the option, an ostensible "annuity” was to be triggered. But as we previously discerned, "this amount was to be paid solely out of the net income of the property” (Howard v Murray, supra, at p 698). In no event would the presumed $9,000 yearly annuity become a general obligation of the defendant. This typifies the illusory nature of the "calculated risk” assumed to have been borne by the defendant and the benefits erroneously deemed to have been obtained by the plaintiffs.

Given the underlying imbalance of this agreement, it became incumbent upon the Trial Judge to require the defendant attorney to affirmatively demonstrate that his dealings with the plaintiff's were in all respects open, voluntary and fully understood (Matter of Howell, 215 NY 466; Cowee v Cornell, 75 NY 91, 99-101; Whitehead v Kennedy, 69 NY 462, 466, supra). Having apparently misperceived in the first instance the extent of this imbalance, the court’s failure to properly focus on the "crucial question” with the appropriate and necessary scrutiny is understandable. Of course, understanding the error and remedying its effects are altogether separate problems.

At trial, proper emphasis on the critical disclosure issue was obscured by a preliminary question: whether or not an attorney-client relationship existed. Any doubts on this point should readily have been resolved against the defendant, absent proof of a clear and forthright statement to his clients that he was no longer their attorney and that they should obtain outside counsel before continuing any negotiations. This much at least was established without ambiguity: The statement was never made, and any attempt to convey that message apparently fell short. As a result, the defendant could not presume to deal as a principal without fully disclosing the contingencies and over-all imbalance of his proposal.

In combination, these errors in focus and construction have created a record filled with dangling assertions and inconclusive rebuttals. These provide slight assistance in resolving, for instance, whether Mrs. Howard was in fact made aware that her so-called annuity would be unsecured and perhaps unenforceable. Similarly, the record does not adequately reveal whether or not the defendant in fact advised his clients that the second mortgage he was offering would not only secure any monetary advances he would make under a declining payment schedule but would in addition effectively deny the plaintiffs economic flexibility in dealing with their property in the future, even if the defendant were to discontinue the loan payments after the initial advance. And although the record shows preoccupation with the disputed attorney-client issue, documents and testimony bearing on the relevant disclosure problem fail to establish when, if at all, the plaintiffs were finally impressed with the fact that they were no longer dealing with disinterested counsel.

To the end that a record will be provided which will permit the adequate framing and scrutiny of the crucial question behind the plaintiffs’ claim of overreaching, the order of the Appellate Division should be reversed and the case remitted for a new trial.

Jones, J. (dissenting).

I cannot agree that this unusual case is entitled to further judicial vitality. When the case was first before us we concluded that we could not say "that the agreement is unfair as a matter of law. The crucial question is whether the defendant attorney established that the contract 'was made by the client with full knowledge of all material circumstances known to the attorney, and was in every respect free from fraud * * * and that a reasonable use was made by the attorney of the confidence reposed in him’ [citation omitted]. The trial court held that he did, and that factual determination is beyond review in this court since the findings of fact have not been thus far overturned by the Appellate Division” (38 NY2d 695, 699). Because the Appellate Division’s affirmance of the dismissal in Supreme Court had been grounded in a determination of law, we then remitted the case to that court as we were entitled to do for a review of the facts.

That review has now been made, and, rather than overturning the factual determinations of the trial court, a majority at the Appellate Division affirmed the judgment of the lower court "for the reasons set forth in the well considered and sound opinion of the trial court, arrived at after a lengthy trial during the course of which both parties had ample opportunity to present their proofs” (55 AD2d 181, 182).

In my analysis, confronted with affirmed determinations of fact, we are now powerless other than to affirm the dispositions below.

Chief Judge Breitel and Judges Gabrielli and Cooke concur with Judge Wachtler; Judge Jones dissents and votes to affirm in a separate opinion in which Judges Jasen and Fuchsberg concur.

Order reversed and the case remitted to Supreme Court, New York County, for a new trial, with costs to abide the event.


author: Fuchsberg, J. Jones, J. (dissenting).

text:
    Citibank, N. A., Appellant, v City of New York Finance Administration, Respondent. Chase Manhattan Bank, N. A., Appellant, v Finance Administration of the City of New York et al., Respondents.
    Argued September 6, 1977;
    decided December 21, 1977

      POINTS OF COUNSEL

      J. Paul McGrath, Bob D. Mannis, W. Foster Wollen and John T. Klug for appellants.
    I. Federal law accorded Citibank and Chase immunity from the commercial rent tax absent State legislation affirmatively imposing such tax on national banks. (Agricultural Bank v Tax Comm., 392 US 339; IowaDes Moines Bank v Bennett, 284 US 239; First Nat. Bank v Hartford, 273 US 548; Des Moines Bank v Fairweather, 263 US 103; Owensboro Nat. Bank v Owensboro, 173 US 664; Liberty Nat. Bank & Trust Co. v Buscaglia, 23 NY2d 933; Matter of First Nat. City Bank v City of New York Fin. Admin., 43 AD2d 823, 36 NY2d 87; Ely v Holton, 15 NY 595.) II. During the pertinent period, the State Legislature did not affirmatively authorize imposition of the commercial rent tax on national banks.

      W. Bernard Richland, Corporation Counsel (Samuel J. Warms of counsel), for respondents.
    I. The "affirmative [legislative] action” called for by the Federal legislation was not required for the taxes imposed on appellants because affirmative legislative action was required only for taxes authorized by "legislation in effect prior to the enactment” of Public Law No. 91-156 and the tax involved was imposed under authority of legislation which became effective in April of 1970, after the enactment of Public Law No. 91-156. (Ely v Holton, 15 NY 595; Moore v Mausert, 49 NY 332; Baylis v Van Nostrand, 176 App Div 396; Harwood v City of Rensselaer, 67 Misc 2d 504; Stefñer v Johnston, 121 F2d 447; McClure v United States, 95 F2d 744; Matter of Rochester Water Comrs., 66 NY 413; People v Wilmerding, 136 NY 363; People ex rel. Canajoharie Nat. Bank v Board of Supervisors of Montgomery County, 67 NY 109; Benton v Wickwire, 54 NY 226.) II. Assuming the taxes in issue were imposed pursuant to authority in effect before the Federal legislation, the enactment of chapter 166 of the Laws of 1970 constituted “affirmative action of the State legislature” within the meaning of section 3 of Public Law No. 91-156 (subd [a], par [2]; 83 US Stat 434), requiring authorization by such affirmative action. (Quotron Systems v Gallman, 39 NY2d 428; Matter of Colonial Liq. Distrs. v O’Connell, 295 NY 129.)
   OPINION OF THE COURT

Fuchsberg, J.

The two petitioners, who each lease and occupy premises in the City of New York, where they have their principal places of business, are banking associations chartered under the laws of the national Government. In separate proceedings, brought under CPLR article 78 and considered together, they challenge imposition upon them of the city’s commercial rent tax (Administrative Code of City of New York, ch 46, tit L) covering the period from June 1, 1970 through May 31, 1972.

The appeals to us are from judgments of the Appellate Division, which, one Justice dissenting, confirmed final determinations of the New York City Finance Administration adverse to the banks and dismissed their petitions.

The pivotal issue is whether, because of the provisions of applicable Federal law, the appellants, as national banks, were immune from the tax assessed for the period in question. In particular, the resolution of this case turns on an analysis of the effect on New York tax laws of the enactment of United States Public Law No. 91-156 (83 US Stat 434), which in essence permitted States and their subdivisions to tax national banks on an equal footing with State banks.

Adopted in 1969, United States Public Law No. 91-156 constituted the then latest exercise of the Federal Government’s authority, recognized since the historic decision in McCulloch v Maryland (17 US 316, 432, 439), to allow States to tax national banks (Agricultural Bank v Tax Comm., 392 US 339, 343, Owensboro Nat. Bank v Owensboro, 173 US 664; see, also, Liberty Nat. Bank & Trust Co. v Buscaglia, 26 AD2d 97, revd 21 NY2d 357, affd upon rearg 23 NY2d 933).

As its legislative history makes clear, the passage of the 1969 statute was precipitated by State reaction to the United States Supreme Court decision in the Agricultural Bank case (supra). In its holding that Massachusetts could not apply its sales tax to purchases made by national banks within its boundaries the court there reiterated that Federal statutory enumeration of the taxes States might levy on national banks carried with it a prohibition on the imposition of any others (see 115 Congressional Record 19909 [1969]; HR Rep No. 91-290, 91st Cong, 1st Sess, pp 6-7 [1969]). In the wake of that decision, a large number of States and localities found themselves deprived of tax sources on which they had come to rely; representatives of the overwhelming majority of these pressed Congress to relieve their plight (see Testimony Received in Consideration of HR 7491 and Related Bills: Hearings Before the House Committee on Banking and Currency, 91st Cong, 1st Sess 6-27 [1969]; for the effects in New York see Liberty Nat. Bank & Trust Co. v Buscaglia, supra).

Public Law No. 91-156 brought a two-stage change in section 5219 of the United States Revised Statutes (US Code, tit 12, § 548); it provided for "temporary” and "permanent” amendments. The "permanent” change eliminated the exemption of national banks from taxes to which State banks were subject in the State where the national banks’ principal offices were located; this change, to go into effect on January 1, 1972 (Public Law No. 91-156, § 2, subds [a], [b]), subsequently was delayed until January 1, 1973 (Public Law No. 92-213, § 4, subd [a]; 85 US Stat 775). The "temporary” one (Public Law No. 91-156, § 1) and a "saving provision” (§ 3) were (as amd by Public Law No. 92-213) to govern taxation of National banks during the transition period between December 24, 1969, the enactment date of the new law, and January 1, 1973.

It is on subdivision (a) of section 3 of the saving provision that appellants rely. They point out that, during the temporary period, that section protected national banks from losing any pre-existing immunity from State tax laws unless and until the Legislature of a State took "affirmative action” to apply such taxes to them. The banks also assert that the New York City commercial rent tax, which had been in force since 1963, when it was authorized by chapter 257 of the Laws of New York of that year, was neither newly enacted nor the object of the requisite "affirmative action” of the Legislature before the tax assessments in litigation here were levied. For its part, the city’s position is that its exercise of "affirmative action” is to be found in the passage by the New York State Legislature of chapter 166 of the Laws of 1970 which modified the original State law authorizing the rent tax, this though the 1970 enactment did not expressly refer to national banks.

Having fully considered these contentions, and, in the course of doing so, other pertinent provisions of Public Law No. 91-156 as well, we hold, on two independent grounds, that the rent tax was properly levied on the petitioners for the period in question.

Because the parties have preferred to focus on whether there was "affirmative action”, we initially discuss the effect of legislation by which the city’s commercial rent tax was amended to increase its rates significantly as of June, 1970 (L 1970, ch 166, amdg Administrative Code of City of New York, § L46-1.0, subd 3). 5*We conclude that its passage constituted such action.

The banks seek to read into the Federal statute a requirement that, before imposition of State taxes on national banks, even though the levying statute is a general one, a conscious and explicit decision had to be made to subject these banks to the tax. But the Federal statute contains no such requirement. And, since even legislative decisions to allow existing rules of law to stand may be dynamic in their effect, where they bring meaningful increases in the rates of a revenue measure it is difficult to perceive how they can be regarded as anything but permeated with "action”.

Moreover, the mode of enacting amendments is to reenact the statute as amended much as a codicil republishes a will. It is a well-established proposition of law that an amendment is a re-enactment of the statute amended, albeit without any break in the continuity between the statute before amendment and the statute after amendment (see Lyon v Manhattan Ry. Co., 142 NY 298, 303-304). In fact, draftsmen of bills and other interested members of Legislatures, in considering bills providing for amendments, read them against existing law. And an amendment is enacted exactly like a wholly new statute. Thus, the amendment to the tax statute heré, passed by the New York State Legislature and signed by the Governor, necessarily involved "affirmative” conduct.

From the point of view of Congress, it was the possibility that inequitable or double taxation might be imposed immediately on national banks that was the crux of its concern. There was certainly nothing in the legislative history to suggest an intention to postpone taxation on national banks under general statutes like New York City’s commercial rent tax law. To the contrary, the saving provision was designed to avoid upsetting sophisticated, delicately balanced State statutes enacted to equalize taxation between bank and nonbank entities; the Congressional Managers’ Conference Report makes that most evident (1969 US Code, Congressional and Administrative News, vol 2, pp 1594, 1598-1599, 1602). Since any State legislative attempt to amend such a statute unavoidably would alert the Legislature to enactment of the new Federal statute, the saving provision therefore could be effected without requiring the States to mention national banks explicitly in amendatory tax legislation.

We, therefore, turn now to the other, and at least equally dispositive ground for our determination. It derives from subdivision (b), rather than subdivision (a), of section 3 of Public Law No. 91-156. Subdivision (b) of section 3 expressly provides that the prohibition of (a) "does not apply to * * * any tax on tangible personal property * * * or for any license, registration, transfer, excise or other fee or tax imposed on the ownership, use or transfer of tangible personal property imposed by a State”. Such taxes are by its terms excused entirely from the requirement for either affirmative action or new enactment. For these excepted taxes, the "temporary” amendment of section 5219 allowed automatic imposition of nondiscriminatory State taxes without any further legislative input.

New York City’s commercial rent tax from its inception has been and continues to be regarded as one on tangible personal property. Judge (later Chief Judge) Fuld, in Ampco Printing-Advertisers’ Offset Corp. v City of New York (14 NY2d 11), spelled out the precise nature of the property interest of commercial tenants embraced by this local law. After describing the tax as one "imposed on a tenant of taxable premises according to his base rent for the tax year”, and noting that " 'tenant’ is defined as anyone who pays rent as lessee, sublessee, licensee or concessionaire”, he continues, more generally, " 'It is significant to note that nowhere in the Tax Law has the Legislature characterized a leasehold as taxable real property. Such omission is understandable, as a lease for years is deemed personalty [cases cited].’ * * * In any event, though, the tax could not be considered a tax on 'intangible’ personal property. A leasehold has consistently been regarded as tangible. (See, e.g., People ex rel. American Ice Co. v. State Bd. of Tax Comrs., 153 App. Div., 532, 539 [majority opinion], 541 [minority opinion], mod. 207 N. Y. 766 * * *.)” (Ampco Printing-Advertisers’ Offset Corp. v City of New York, 14 NY2d 11, 20, 21, 22, supra, app dsmd 379 US 5.)

The proposition that a leasehold constitutes tangible personal property for tax purposes has cut both ways. In the Ampco case, it resulted in validation of a tax liability; in Matter of Fort Hamilton Manor v Boyland (4 NY2d 192) and in Matter of Grumman Aircraft Eng. Corp. v Board of Assessors of Town of Riverhead (2 NY2d 500, 507, cert den 355 US 814) it led to mitigation or removal of a tax burden. Also pertinent, in light of subdivision (b) of section 3’s reference not only to "any tax on tangible personal property” but to an "excise * * * tax imposed on the ownership [or] use” of such property as well, is that, in Ampco (supra, at pp 21, 23), the court characterizes the tax here as an excise tax on the use of property. (See, also, Matter of Penney Co. v Lewisohn, 40 AD2d 67, affd 33 NY2d 528; 2 Powell, Real Property, par 221, subd [2].)

The correctness of this conceptualization of a leasehold interest as tangible personal property in the context of Public Law No. 91-156 is underscored upon further research of that statute’s legislative history. Thus, while our attention has not been directed to any report separately discussing a State-imposed rent tax on facilities used by a national bank in the State where its principal office is located, we find it significant that subdivision (a) of section 1 explicitly validates such taxes when imposed by a State on a national bank whose principal office is in another jurisdiction. It does so, inter alia, by authorizing a tax on "the occupancy of real property” of such out-of-State national banks (Public Law No. 91-156, § 1, subd [a], amdg US Rev Stat, § 5219, subd 5 par [b], cl [2]).

Furthermore, referring to this amendment, the Senate Committee on Banking and Currency minced no words in reporting that "the taxes listed in the new section 5 (b) * * * are not considered to be taxes on intangible personal property as that term is used in the new section 5 (a), and they could be imposed on national banks by the States during the peiod up to January 1, 1972, as well as after that date” (US Sen Rep No. 91-530, 91st Cong, 1st Sess 3 [1969]; 1969 US Code, Congressional and Administrative News, vol 2, pp 1595-1596).

We do not regard this comment as any the less telling because it occurred in the course of an explanation of the effect of the amendment on taxes on out-of-State national banks, since the undeniable over-all design of the amendments to the then existing Federal legislative scheme was to give States expanded power to subject national banks headquartered within their borders to all nondiscriminatory taxes rather than to a limited "laundry list” (115 Congressional Record 19912 [1969]). There is consequently no reason to believe that the express equating of "occupancy of real property” with "tangible personal property” did not apply.

Accordingly, we conclude that Public Law No. 91-156 did not immunize petitioners from liability for New York City commercial rent taxes during the years at issue. It follows that the judgments from which the appeals are taken should each be affirmed.

Jones, J. (dissenting).

I would reverse the judgment of the Appellate Division in each case and annul the determination of the City Finance Administration imposing the New York City commercial rent and occupancy tax on petitioners national banks for the period prior to January 1, 1973.

In 1969 the Congress amended section 5219 of the Revised Statutes of the United States (US Code, tit 12, § 548) specifically to authorize State taxation of national banks in prescribed ways. Broad authorization was granted on a permanent basis beginning in 1972 (later deferred to 1973); interim provisions were prescribed with respect to the transitional period prior to 1973. We are here concerned only with such interim provisions.

I read section 3 (subd [a], par [2]) of the amendatory Federal statute (US Public Law No. 91-156), authorizing State taxation in the period prior to January 1, 1973 in the event of "affirmative action of the State legislature”, as requiring a conscious and manifested determination on the part of the State legislature to subject national banks to the imposition of the permitted State taxes. The record of the deliberations of the Senate Committee on Banking and Currency supports this conclusion: "The committee realizes that for many years the tax structure within the States has been drawn in recognition of the different positions of State and National banks with respect to liability for State taxes. In effect, the States have adopted many different formulas in an attempt to equalize the total tax burden between State and National banks. If by congressional action banks were automatically subject to taxes which they had not been previously paying, in addition to the taxes which they are now paying, the effect may be to destroy the degree of equality that the State legislature, by conscious effort, attempted to achieve. Accordingly, the committee believes it wise to require positive State legislative action as a prerequisite to the imposition on banks of the additional taxes authorized by the bill.” (Sen Rep 91-530, 91st Cong, 1st Sess 6 [1969]; 1969 US Code, Congressional and Administrative News, vol 2, 1594, 1598-1599; emphasis supplied.) (See, also, the final conference report of the managers on the part of the House of Representatives: HR Rep No. 91-728, 91st Cong, 1st Sess 5 [1969]; 1969 US Code, Congressional and Administrative News, vol 2, pp 1602-1603.)

The enactment of chapter 166 of the Laws of 1970 by our State Legislature constituted no such "affirmative action”. It served only to increase the rates of the pre-existing tax. Nothing in the record before us reveals that the City of New York, the sole beneficiary of the increased rates, in seeking the amendment or the State Legislature in enacting it had extension of the tax to national banks even remotely in mind. The Governor’s message of necessity on which enactment of chapter 166 was predicated makes no reference to taxation of national banks. Notwithstanding particularized postargument requests to the city therefor, no statement of estimated revenue to be realized from the amendment or other document submitted by the city in support of the enactment of chapter 166 has been furnished in which any reference is made to estimated income to be derived from taxes to be paid by national banks or to any other aspect of taxation of national banks. No shred of contemporaneous proof suggests that either the city administration or the State Legislature was even aware that section 5219 had been amended or that thereby the Congress had granted authority for expanded State taxation of national banks.

In such circumstances I cannot conclude that legislative action, taken wholly without reference to the Federal statute, constitutes the "affirmative action” contemplated by the Congress when it authorized additional State taxation of national banks. Nor can I conclude that the enactment of the 1970 increase in rates may be so construed as to support the city’s alternative contention that the "saving provision” of the Federal statute had no application inasmuch as the taxes in question were not imposed under the authority of pre-existing State legislation but rather were imposed under the authority of the 1970 amendment only.

I must also disagree with respect to the second ground proffered by the majority to sustain imposition of the New York City commercial rent and occupancy tax on petitioners, viz., application of subdivision (b) of section 3 of Public Law No. 91-156. The decision in Ampco Printing-Advertisers’ Offset Corp. v City of New York (14 NY2d 11, app dsmd 379 US 5), heavily relied on, is by no means conclusive that in the present context the commercial rent tax is a tax on tangible personal property. What was necessarily decided by the court in Ampco, which dealt with the validity of the commercial rent and occupancy tax under our State Constitution, was that the tax there was not a prohibited ad valorem tax on intangible personal property. Even if that case be read, however, as characterizing the tax for State constitutional purposes as a tax on tangible personal property—which was not necessarily there determined—such a description could not and should not be binding for present purposes or classification within the contemplation of Congressional statutes. Nothing suggests that the opinion in Ampco was written with a Federal statute like Public Law No. 91-156 in mind. There was not then posed or considered the question now before this court—how the commercial rent and occupancy tax is to be regarded for purposes of Federal, not New York, law authorizing local taxation of national banks. Similarly Matter of Fort Hamilton Manor v Boyland (4 NY2d 192) and Matter of Grumman Aircraft Eng. Corp. v Board of Assessors of Town of Riverhead (2 NY2d 500, cert den 355 US 814) arose in a totally distinguishable context. Finally, even the City of New York itself has never asserted that authorization for the present tax is to be found in subdivision (b).

Chief Judge Breitel and Judges Gabrielli and Cooke concur with Judge Fuchsberg; Judge Jones dissents and votes to reverse in a separate opinion in which Judges Jasen and Wachtler concur.

In each case: Judgment affirmed, with costs.

      . Correctness of the amounts assessed ($2,702,909.84 in petitioner Citibank’s case and $3,097,732.94 in that of petitioner Chase) does not appear to be in dispute.

      . It is agreed that appellants have been subject to the New York City rent tax since that time and therefore this litigation encompasses no subsequent period.

      . The pertinent text of subdivision (a) of section 3 of the Public Law No. 91-156 reads as follows:
      "(a) * * * [P]rior to January 1, [1973], no tax may be imposed on any class of banks by or under authority of any State legislation in effect prior to the enactment of this Act unless
      "(1) the tax was imposed on that class of banks prior to the enactment of this Act, or
      "(2) the imposition of the tax is authorized by affirmative action of the State legislature after the enactment of this Act.”

      . In a graduated scale, the rates were increased up to a maximum of 50% over the immediately pre-existing ones.

      . While the city may not have gone through the formality of expressing an intent to regard the amendment to the tax law as "affirmative action”, it had already made known its ongoing concern with the question of the tax’s continued viability in a letter submitted to the relevant Congressional Committee by a Representative who had authored remedial legislation (Testimony [on] HR 7491, pp 14-15).


author: Jones, J. Gabrielli, J. (dissenting).

text:
    In the Matter of Betty Bernstein et al., on Behalf of Themselves and All Others Similarly Situated, Respondents, v Philip L. Toia, as Commissioner of the New York State Department of Social Services, Appellant, and J. Henry Smith, as Commissioner of the New York City Department of Social Services, Respondent.
    Argued November 9, 1977;
    decided December 21, 1977

      POINTS OF COUNSEL

      Louis J. Lefkowitz, Attorney-General (Amy Juviler, Samuel A. Hirshowitz, Herbert Wallenstein and Joseph F. Wagner of counsel), for appellant.
    I. Neither the Constitution nor the statutes of New York prohibit the establishment of ceilings on shelter allowances for public assistance recipients. II. The decision below must be reversed as premature because there had been no final administrative determinations. (People ex rel. Schick v Marvin, 271 NY 219; Young Men’s Christian Assn, v Rochester Pure Waters Dist., 37 NY2d 371; Elms v Lavine, 79 Misc 2d 1, 48 AD2d 751.)

      Robert J. Anderson, Ralph Murphy, Nancy E. Le Blanc and K. Wade Eaton for respondents.
    I. The regulation, insofar as it establishes ceilings on rent grants without a mechanism for providing higher amounts in case of exceptional need, violates the Social Services Law. (Matter of Small v Moss, 279 NY 288; Matter of Jones v Berman, 37 NY2d 42; Lascaris v Wyman, 31 NY2d 386; Rosado v Wyman, 304 F Supp 1350, 1354, 1356, 414 F2d 170, 397 US 397; Matter of Seitelman v Lavine, 36 NY2d 165; Matter of Corr v Westchester County Dept, of Social Servs., 33 NY2d 111; Fuller v Nassau County Dept, of Social Servs., 77 Misc 2d 677; Shapiro v Thompson, 394 US 618; Sgaglione v Levitt, 37 NY2d 507; Flushing Nat. Bank v Municipal Assistance Corp. of City of N. Y, 40 NY2d 731.) II. The regulation violates the mandate of section 1 of article XVII of the State Constitution. (Fuller v Nassau County Dept, of Social Servs., 77 Misc 2d 677; Lascaris v Wyman, 31 NY2d 386; Tucker v Toia, 89 Misc 2d 116; Matter of Levy, 38 NY2d 653; Matter of Atkin v Onondaga County Bd. of Elections, 30 NY2d 401; O’Brien v Skinner, 31 NY2d 317, 414 US 524.) III. The rent maximum regulation deprives petitioners of their rights to due process and equal protection of the laws. (Alevy v Downstate Med. Center of State of N. Y, 39 NY2d 326; Sherbert v Verner, 374 US 398; Dandridge v Williams, 397 US 471; Shapiro v Thompson, 394 US 618; Skinner v Oklahoma, 316 US 535; Roe v Wade, 410 US 113; Vlandis v Kline, 412 US 441; Stanley v Illinois, 405 US 645; Cleveland Bd. of Educ. v La Fleur, 414 US 632; Matter of Jones v Berman, 37 NY2d 42.) IV. Appellant may not now raise a ground for denying exceptions to the maximum rent schedules which he did not use in making his original determination. Even if he could, the ground is inapplicable. (Matter of Seitelman v Lavine, 36 NY2d 165; Kaplan v Nassau County Dept, of Social Servs., 34 AD2d 575; Matter of Borders v Nassau County Dept, of Social Servs., 34 AD2d 805; Lutsky v Shuart, 74 Misc 2d 436, 43 AD2d 1016.)
   OPINION OF THE COURT

Jones, J.

We find no sufficient basis to disturb a regulation adopted by the Department of Social Services that fixes maximum shelter allowances for recipients of public assistance without at the same time making provision for exceptions due to circumstances peculiar to individual recipients. The flat grant concept in the administration of shelter allowances is neither unconstitutional nor in conflict with section 131-a of the Social Services Law.

Section 131-a of the Social Services Law contains the basic legislative authorization for monthly grants and allowances of public assistance. Subdivision 1 states the general authorization therefor; subdivision 2 prescribes the standard of monthly need for determining eligibility; subdivision 3 provides the maximum monthly grants for basic needs of eligible recipients; and subdivision 6 makes provision for special items and services. To be more specific, subdivision 1 provides that eligible recipients shall receive grants and allowances within the limits of the schedule set forth in subdivision 3 "except for additional amounts which shall be included therein for shelter, fuel for heating, additional cost of meals for persons who are unable to prepare meals at home and for other items for which specific provision is otherwise made”. In this CPLR article 78 proceeding, petitioners recipients challenge the regulation promulgated by respondent Commissioner of Social Services which prescribes the method for determining the amounts payable for shelter. That regulation—18 NYCRR 352.3 (a)—provides: "Rent allowances, (a) (1) Each social services district shall provide * * * a monthly allowance for rent in the amount actually paid, but not in excess of the appropriate maximum of such district for each family size, in accordance with the following schedules:” There then follows a schedule establishing a maximum shelter allowance for each district within the State with variations from district to district and for family size within each district. The regulation was made effective October 1, 1975 except that for persons who had been receiving shelter grants prior to its adoption— under a practice by which local social services commissioners were authorized to establish shelter allowance maxima for their own districts and in some areas were approving payment of grants in excess of the local maxima in individual cases— the regulation’s effective date was October 1, 1976. Prior to the latter date petitioners, two recipients of and one applicant for social services benefits, instituted this proceeding to challenge the validity of the regulation contending that, insofar as it permits no payments of shelter allowances in excess of the scheduled maxima and thus precludes recognition of special circumstances in individual cases, the regulation is in violation of State statute and both State and Federal Constitutions.

On appeal by respondents (the State and local commissioners of social services) from an order of the Appellate Division affirming the denial of their motion to dismiss the petition we assume, as we must, the truth of the factual allegations set forth in petitioners’ pleading (cf. Rovello v Orofino Realty Co., 40 NY2d 633). On the basis of that assumption it appears that all three petitioners reside in New York City where the applicable rent ceiling is fixed at $152 per month. Petitioner Bernstein, a recipient of social services benefits in the amount of $40.80 a month, is a 64-year-old widow living alone in a building with elevator service. For her accommodations she pays a monthly rental of $198.90. Because of two previous heart attacks, seizures and a diabetic condition, her physician has issued a letter stating that she needs to remain in the building in which she resides, where she also receives assistance from neighbors. Under the practice which had existed before promulgation of the challenged regulation Mrs. Bernstein’s rent had been approved by the Social Services Commissioner by reason of her special circumstances; however, inasmuch as under the new regulation the maximum monthly shelter allowance for a single-member family in the City of New York is $152, she was advised that as of October 1, 1976 her benefits would cease because the local social services agency would no longer consider the rent paid by her in excess of $152 a month in determining her eligibility for benefits. The resulting disallowance of benefits would prevent Mrs. Bernstein from continuing to reside at her present location because she would "find it nearly impossible to find an apartment in an elevator building in her neighborhood for $152 per month.”

Petitioner Banister, a recipient of home relief public assistance, also resides alone. The rent on his ground floor apartment of $160 a month had been approved by the local Social Services Department because of physical and emotional limitations which made it "unhealthy” for him to climb stairs and which require him to be near his brother, who lives a block away and is thus able to look in on him from time to time. Mr. Banister was advised that, as of October 1, 1976, his benefit for shelter would be reduced from $160 to $152, the scheduled maximum allowance. He asserts that if he is evicted from his present residence it will be "nearly impossible” for him to locate an apartment on a ground floor or with elevator service in the neighborhood near his brother.

Petitioner Piotrowicz, a severely disabled veteran existing on Social Security and veteran’s disability benefits, resides alone in an apartment for which he pays monthly rent of $180. Friends residing in the apartment building assist him when he has a seizure, an occurrence to which he is subject from time to time. His application for medical assistance filed on March 2, 1976 was rejected by the local Department of Social Services when, in determining his eligibility for benefits, his standard of need was computed on the basis of the maximum $152 shelter allowance rather than the rental of $180 actually paid by him.

Petitioners joined together in this proceeding which they sought to maintain as a class action on behalf of all those receiving or eligible to receive home relief, veteran’s assistance or medical assistance who are paying rents higher than the ceiling set forth in 18 NYCRR 352.3 (a) and whose public assistance grant for rent accordingly is or is about to become lower than the amount of rent they actually pay, or who have been ruled ineligible to receive home relief or medical assistance solely on the basis that their standard of need is determined by the maxima in the regulation rather than by taking into account rents actually paid. In addition to a declaration of invalidity of 18 NYCRR 352.3 (a), petitioners sought a permanent injunction against enforcement of the regulation and a direction that respondents commissioners provide petitioners and other members of the class with a shelter grant for rent actually paid (up to a reasonable amount to be determined on a case-by-case basis) and determine eligibility for social services benefits on a standard of need determined on the same basis, without respect to the maximum shelter allowances set forth in the regulation.

Special Term denied the application for class action status but held that the imposition of maximum shelter allowances by the regulation was invalid as a failure to comply with the State’s constitutional and statutory provisions with respect to public care of the needy, denied respondents’ motion to dismiss and directed them to answer the petition. Pending determination of the proceeding, the court stayed any reduction of shelter allowances to petitioners below the level they were receiving on August 31, 1976. With its affirmance of the disposition at Special Term, the Appellate Division granted leave to appeal to this court on a certified question. We now reverse the determination below and uphold the departmental regulation.

At the outset it is to be observed that what is provided by 18 NYCRR 352.3 (a) is a shelter allowance equal to rent actually paid by a benefits recipient, subject however to a fixed ceiling, the amount of which varies from district to district and then with the number of persons in a family unit; to the extent that the scheduled maximum restricts the allowance payable—the feature challenged by petitioners—it is in the nature of a flat grant, rather than a special grant, the entitlement to and the amount of which would be determined on an individual basis taking into account the particular circumstances of each recipient. Petitioners assert that the challenged regulation, by failing to treat the shelter allowance as a special grant, violates and is inconsistent with section 131-a of the Social Services Law, violates the mandate of section 1 of article XVII of the New York State Constitution and deprives them of equal protection and due process of law under Federal and State Constitutions.

We note that, while petitioners purport to disclaim any challenge to the "use of maximum rent schedules”, assertedly limiting their attack to respondents’ failure "to make exceptions to those schedules when warranted”, their assault is in truth one on the flat grant concept, for the quintessence of that concept is the unavailability of ad hoc exceptions. Thus, if petitioners were to succeed in the present case on their constitutional objections, every benefit provided by flat grant —including even the basic needs flat grant contained in subdivision 3 of section 131-a—would be open to adjustment in favor of individual applicants on appropriate showings, and the stated grants or allowable maxima provided by statute or regulation would remain only as points of departure for unsatisfied recipients. In short, the flat grant concept would be a dead letter.

In the provisions of public assistance grants, at different times New York State has chosen to follow two different concepts. For many years prior to 1969 our Legislature required individually constructed assistance grants, determined on the basis of a careful case consultation and evaluation of individual need measured against generally applicable guidelines. In 1969 the Legislature consciously and explicitly discarded the individualized grant concept in favor of a uniform flat grant concept. Under the latter concept, after statistical and qualitative analysis of a fair sampling of individual grants, a uniform figure is fixed that is determined to be adequate in general to meet the needs in question; it must be recognized, however, as is generally the consequence of any similar uniformity, that if grants were to be individually constructed, some such grants might be expected to exceed the uniform figure and others would fall below that figure. The Legislature’s decision to change from individualized to flat grants was manifested in the enactment of chapter 184 of the Laws of 1969. The legislative findings and purpose are set forth in section 1 of chapter 184:

"Section 1. Legislative findings and purpose. The spiraling rise of public assistance rolls and the expenditures therefor, despite a high level of general prosperity and an unprecedented high rate of employment, have become matters of primary social and economic concern to the people of the state of New York. The escalation continues, both in numbers of people requesting assistance and in the costs thereof, despite predicted continuance of general prosperity and high employment.

"The present procedure for establishing the monthly grant and allowance, based upon various factors, has been criticized as arbitrary, confusing, complicated and time-consuming for social services personnel and allegedly resulting in a lack of uniformity and uneven treatment of the recipients of public assistance throughout the state.

"A uniform schedule of monthly grants and allowances will promote greater uniformity and equality of treatment of the recipients of public assistance, meet the needs of our less fortunate citizens and simplify and reduce the administrative detail. This will release caseworkers for the more important task of providing casework services to restore recipients to the dignity of self-sufficiency.

"The legislature therefore finds and declares that it is necessary and in the best interests of the people of the state to establish a schedule of maximum monthly grants and allowances of public assistance for the city of New York social services district and a schedule of maximum monthly grants and allowances of public assistance for all other local social services districts in the state, based upon the costs of delivering the needs of public assistance recipients in the respective social services districts of the state, and to make other remedial changes provided for in this chapter.”

The amendments effected by chapter 184 were soon challenged in the courts. The Supreme Court of the United States held that those portions of the chapter relating to recipients under the aid to families with dependent children program were invalid as violating the Social Security Act (US Code, tit 42, § 602, subd [a], par [23]) because of failure to include all mandated items of need. That court, however, gave explicit approval to the concept of the flat grant based on a statistical average as a permissible method of distributing public assistance, despite the fact that decreases would inevitably result to some recipients. "We do not, of course, hold that New York may not, consistently with the federal statutes, consolidate items on the basis of statistical averages. Obviously such averaging may affect some families adversely and benefit others. * * * What is at the heart of this dispute is the elimination of special grants in the New York program * * * Lest there be uncertainty we also reiterate that New York is not foreclosed from accounting for basic and recurring items of need formerly subsumed in the special grant category by an averaging system like that adopted in the 1968 New York City experiment with cyclical grants.” (Rosado v Wyman, 397 US 397, 419-420.)

The adaptation in the New York social services distribution system of the flat grant principle represented the adoption by the Legislature of a legitimate approach to the problems posed by the increasing needs and demands for public assistance. The flat grant concept had previously been employed by the Congress of the United States for public assistance programs (cf. US Code, tit 42, § 1381 et seq.) and wak encouraged by the Federal Department of Health, Education and Welfare (20 CFR 416.110 [f]). The ongoing experience within the social services districts of the State gave evidence that a continuation of the practice of tailoring grants to the needs of individual recipients, in the face of ever-increasing numbers of recipients, would result in an ever greater proportion of the resources allocated to help the needy being devoted to grant and allowance determination with a corresponding decrease in benefits available for distribution to those for whom aid was intended. Motivated to make optimum responsible use of the not unlimited funds appropriated and likely to be appropriated for social services, the Legislature elected to change from a system of individualized grants to one of uniform grants. We cannot say that, under the constraints of fiscal trimming and in the light of administrative experience, the Legislature’s recourse to the flat grant concept was without a reasonable basis or lacked a rational relationship to the legitimate State interest of seeking to assure optimum realized benefits from available public assistance moneys. The Supreme Court of the United States has said: "A statutory classification in the area of social welfare is consistent with the Equal Protection Clause of the Fourteenth Amendment if it is 'rationally based and free from invidious discrimination.’ Dandridge v. Williams; 397 U.S. 471, 487. While the present case, involving as it does a federal statute, does not directly implicate the Fourteenth Amendment’s Equal Protection Clause, a classification that meets the test articulated in Dandridge is perforce consistent with the due process requirement of the Fifth Amendment.” (Richardson v Belcher, 404 US 78, 81.) Inasmuch as there is not—and indeed could not be —any claim here of "invidious discrimination”, and there is a rational basis for the flat grant concept which underlies section 131-a, we reject the challenge of petitioners predicated on constitutional claims of denial of equal protection and due process (cf. Montgomery v Daniels, 38 NY2d 41).

We turn then to consideration of the maximum ceiling rent reimbursement regulation promulgated by the Commissioner of Social Services. Although the enactment of section 131-a signaled the legislative preference for the flat grant concept, the statute itself left to the commissioner the implementation of the shelter component of public assistance grants and allowances. Quite understandably the commissioner similarly chose to fashion his implementing regulation on flat grant principles. Experience had long taught that while many components of a public assistance grant did not vary significantly from one social services district in the State to another, there was a wide variation in shelter costs in different parts of the State. Fairly to meet the needs of the recipients under the flat grant concept would call for implementation on a district-by-district rather than a State-wide basis. This would reflect a greater sensitivity to individual need, but without return to the legislatively rejected system of individual special grants. Accordingly the commissioner promulgated the present regulation—constructed after detailed studies on the basis of a methodical sampling of actual costs of shelter in each local social services district and then the adoption of the 95th percentile of actual allowances, leading to a realistic result much more favorable to the recipients than had there been a straight statistical averaging. The resulting district-by-district schedule of rental ceilings displays the substantial variations in shelter costs—from $81 per month in Jefferson County to $205 per month in Suffolk County.

Petitioners argue that the failure of the Legislature itself to specify a flat grant formula in section 131-a should be taken to manifest an intention to leave undisturbed the former special grant approach to provision of shelter costs. Support for this conclusion is purportedly found in the association of shelter costs with costs for fuel for heating, for meals for persons unable to prepare their meals at home and for other items for which specific provision is concededly made. We do not say that section 131-a mandates recourse to flat rather than special grants or that, had the commissioner chosen to continue to employ special grants for shelter needs, he would have been precluded from doing so by the language of the section. We do say that by similar token the section does not mandate retention of the system of special grants, and that flat grants on a district-by-district basis was entirely consistent with the legislative preference for flat grants on a State-wide basis to meet the basic needs of the recipients. The very considerable variation in shelter costs suggests why the Legislature chose not to impose a State-wide shelter standard.

Then, to have adapted the flat grant concept to a maximum principle rather than to promulgate it as a categorical standard—thereby limiting reimbursement to amounts actually paid for shelter if below the ceiling—similarly manifests an intention to realize the optimum use of available funds and to limit assistance grants and allowances to actual individual need.

In sum, the statute itself is not explicit as to whether grants for shelter shall be fixed by the employment of flat grants or by special grants. In that circumstance it is the responsibility of the Department of Social Services, as the body charged with the administration of all forms of social services and empowered to establish rules, regulations and policies to carry out its duties (Social Services Law, § 20, subd 2, par [a]; subd 3, par [d]), to implement the provisions of section 131-a. The regulation reflecting the choice made by the department, employing what is effectively a flat grant concept for shelter allowances, is beyond our power to disturb unless it is "so lacking in reason for its promulgation that it is essentially arbitrary.” (Matter of Marburg v Cole, 286 NY 202, 212.) As we so often have occasion to say, "[i]t is well settled that the construction given statutes and regulations by the agency responsible for their administration, if not irrational or unreasonable, should be upheld.” (Matter of Howard v Wyman, 28 NY2d 434, 438; Ostrer v Schenck, 41 NY2d 782, 786.) We are persuaded that the means chosen by the commissioner in this instance to effectuate the statutory provision is rational and consistent with the manifestation of legislative intent; accordingly we uphold his administrative regulation. We scarcely need add that for the reasons stated above the regulation is not subject to successful attack on constitutional due process or equal protection grounds.

There remains only petitioners’ contention that the regulation in question by failing to provide them with the shelter allowance each deems necessary, having in regard his or her individual circumstances, violated section 1 of article XVII of the State Constitution. That section provides: "The aid, care and support of the needy are public concerns and shall be provided by the state and by such of its subdivisions, and in such manner and by such means, as the legislature may from time to time determine.” We do not read this declaration and precept as a mandate that public assistance must be granted on an individual basis in every instance, thus precluding recourse to the flat grant concept, or indeed as commanding that, in carrying out the constitutional duty to provide aid, care and support of the needy, the State must always meet in full measure all the legitimate needs of each recipient. When, as here, the over-all consequence of the method of distribution of aid to the needy adopted initially by the Legislature, and subsequently by the department charged with executing the social services program, is reasonably expected to be in furtherance of the optimum utilization of public assistance funds, there has been no violation of the constitutional command. As this court has recently observed, "[s]ection 1 of article XVII of the New York State Constitution mandates only that the 'needy’ and those unable to care for themselves be afforded aid and support 'in such manner and by such means, as the Legislature may from time to time determine’.” (Matter of Barie v Lavine, 40 NY2d 565, 570.) "In New York State, the provision for assistance to the needy is not a matter of legislative grace; rather, it is specifically mandated by our Constitution.” (Tucker v Toia, 43 NY2d 1, 7.) This principle relates, however, to questions of impermissible exclusion of the needy from eligibility for benefits, not to the absolute sufficiency of the benefits distributed to each eligible recipient. We explicitly recognized in Tucker that the Legislature is vested with discretion to determine the amount of aid; what we there held prohibited was the Legislature’s "simply refusing to aid those whom it has classified as needy” (p 8).

For the reasons stated, the order of the Appellate Division should be reversed, without costs, and the petition dismissed.

Gabrielli, J. (dissenting).

Although section 131-a of the

Social Services Law established a flat grant system, it is not an exclusive, closed application of that concept. The statute itself provides for specific, special grants as an intricate, discrete but significant part of the New York system and a general recitation of the flat grant concept cannot erase the statutory language mandating consideration of "individual case circumstances” in the distribution of these special grants.

As noted by the majority, prior to 1969 recipients of public assistance in New York State had been eligible for a substantial number of special grants, each grant being based on an evaluation of individual need in a particular case. The compilation of all such grants to an individual constituted the total allowance awarded to that person. But in 1969, due to the need for uniformity and for a reduction in administrative burdens, the Legislature chose to consolidate into a flat monthly grant nearly all items of need issued previously as special grants. Significantly, however, the Legislature chose to exclude from the flat grant items of need such as shelter and fuel. Thus, subdivision 1 of section 131-a of the Social Services Law directs general grants be made in accordance with the schedule provided in subdivision 3 "except for additional amounts which shall be included therein for shelter, fuel for heating, additional costs of meals for persons who are unable to prepare meals at home and for other items for which specific provision is otherwise made in article five” (emphasis added).

Subdivision 2 of section 131-a of the Social Services Law sets forth a schedule for the standard of monthly need for determining eligibility. Subdivision 2 was amended in 1971 (L 1971, ch 298) by re-emphasizing that the standard of need requires inclusion of the special grants for shelter and fuel. That amendment added the following language: "In addition to the above, the standard of need shall include amounts for shelter and fuel for heating, amounts for additional cost of meals for persons who are unable to prepare meals at home and amounts for other items when required by individual case circumstances for which specific provision is otherwise made in article five of this chapter” (emphasis added). This language expressly mandates consideration of "individual case circumstances” when establishing the special grants referred to in subdivision 1.

The promulgation of 18 NYCRR 352.3 (a) created a schedule of maximum shelter allowances thereby effectively setting a flat grant for any recipient whose rent equals or exceeds the maximum. The regulation makes no provision for "individual case circumstances”, adopting the flat grant concept in toto without regard for the statutory direction and in this respect it improperly ignores the statutory special exception for shelter allowances.

Prior to the promulgation of this regulation the commissioner maintained the shelter allowance as a special grant. Thus, for years after the adoption of the flat grant concept the commissioner continued special grant allowances for shelter. Indeed, a bill was introduced in the 1973-1974 legislative session to convert the shelter grant into a flat grant but it failed of passage (Assembly Bill A-7376).

In a comparable matter the commissioner has recognized the statutory requirement to consider individual circumstances in determining the special fuel grant. Like shelter, fuel is a special exception to the flat grant concept and the regulations properly provide for allowances above the monthly schedule of rates where conditions warrant. The Social Services Regulations (18 NYCRR 352.5 [c]) direct that "[a]n additional allowance for fuel shall be granted when made necessary by exceptionally severe weather, overly exposed location or unusually poor construction of a dwelling, or by reasons of poor health”. This regulation is a clear recognition of the individual need concept applicable to specific exceptions to the flat grant as mandated by the statute. The great bulk of grants are issued without individual determination, according to the general schedule, but a recipient in need is given an opportunity to show that an exception should be made. The regulation is precisely drafted to take into account both the legitimate concern of the commissioner for administrative efficiency and the duty under section 131-a to insure that the grant is issued in the amount actually required.

Like the fuel grant regulation, shelter allowances must provide for some consideration of individualized need. As to the special grants for shelter and fuel the statute mandates that grants be provided as "required by individual case circumstances”. This requirement does not destroy the flat grant concept but demonstrates an understandable legislative concern that in specific areas special exceptions may exist. The Department of Social Services, in an affidavit in support of its cross motion to dismiss, acknowledged that less than 5% of the public assistance recipients might be eligible for special consideration. Thus, no destructive force will be unleashed by compliance with the statutory mandate.

In the case of petitioner Bernstein, she is a 64-year-old widow who lives alone, suffers from diabetes and has had two heart attacks. She has neighbors who care for her and her doctor has certified that her health would be endangered if she had to move. The New York City Department of Social Services approved her rent even though it was at a level higher than the amount ordinarily granted to single individuals under the prior schedule for maximum shelter grants. Under the new regulation her shelter allowance will be cut in spite of clear indications of special need, and the loss of benefits will prevent her from continuing to reside at her present location.

Petitioner William Banister suffers from a severe emotional and nervous condition for which he receives care from Roosevelt Hospital. He is blind in one eye, has gout, arthritis and is severely overweight. Mr. Banister lives in a ground floor apartment, since his condition makes it unhealthy for him to climb stairs, and on a block near his brother who looks in on him from time to time. As with Mrs. Bernstein, the department had approved a shelter grant above the established maximum, the loss of which may well place his health in serious jeopardy.

Petitioner Piotrowicz suffers from an uncontrollable seizure disorder which strikes without warning and as a result of this disorder he has been declared permanently disabled, thereby receiving Social Security and veteran’s disability benefits. Friends in his present apartment building care for him when he has a seizure. His application for special consideration on his shelter allowance was denied and this will necessitate relocating in another area, with the consequent loss of this required help.

These petitioners demonstrate precisely why the Legislature included special grant exceptions to the flat grant concept and why consideration must be given to "individual case circumstances”.

The primary issue in this appeal is whether the maximum shelter allowance regulation (18 NYCRR 352.3 [a]), as applied to these petitioners, conflicts with section 131-a of the Social Services Law in that it fails to provide for "individual case circumstances”. For the reasons stated above a conflict does exist. As we noted in Matter of Jones v Berman (37 NY2d 42, 53), "[administrative agencies can only promulgate rules to further the implementation of the law as it exists; they have no authority to create a rule out of harmony with the statute”. This regulation, as applied to these petitioners, is out of harmony with the statute and therefore the petition should not be dismissed. The petitioners have stated a valid cause of action and the matter should proceed to trial.

Accordingly, the order of the Appellate Division should be affirmed.

Chief Judge Breitel and Judges Jasen, Fuchsberg and Cooke concur with Judge Jones; Judge Gabrielli, dissents and votes to affirm in a separate opinion in which Judge Wachtler concurs.

Order reversed, without costs, and the petition dismissed. Question certified answered in the negative.

       A practice which we are informed was disapproved by the Department of Health, Education and Welfare, and was discontinued when challenged in Nero v Lavine (United States Dist Ct, Southern Dist of NY, 75 Civ 1024).