author: Fuld, J. Dye, J. (concurring). Froessel, J. (dissenting for modification). Chief Judge Desmond (dissenting). Burke, J. (dissenting).

text:
    In the Matter of Roosevelt Raceway, Inc., Respondent, v. George P. Monaghan, as Commissioner of Harness Racing, Appellant.
    Argued November 30, 1960;
    decided March 23, 1961.

      Louis J. Lefkowitz, Attorney-General {Paxton Blair and Edward Siegfried of counsel), for appellant.
    I. The Attorney-General has both the right and the duty to challenge the constitutionality of a statute which directs the disbursement of public moneys in a manner expressly forbidden by the State Constitution. (Palmer v. Board of Educ., 276 N. Y. 222; Coppell v. Hall, 7 Wall. [74 U. S.] 542; Central Branch U. P. R. R. Co. v. Smith, 23 Kan. 545; Bridge Proprietors v. Hoboken Co., 1 Wall. [68 U. S.] 116; People ex rel. McLaughlin v. Board of Police Comrs., 174 N. Y. 450; Rosalsky v. State of New York, 254 N. Y. 117; Gordon v. State of New York, 233 N. Y. 1; People v. Tremaine, 281 N. Y. 1.) II. Moneys held in the construction account set up pursuant to subdivision 10 of section 45-a of the PariMutuel Revenue Law are public moneys. Hence, the Pari-Mutuel Revenue Law is unconstitutional to the extent that it disregards constitutional prohibitions in the disposition of public funds which it purports to authorize. (City of New York v. Fox, 232 N. Y. 167; Matter of Mahon v. Board of Educ., 171 N. Y. 263; Fox v. Mohawk & Hudson Riv. Humane Soc., 165 N. Y. 517; People ex rel. Einsfeld v. Murray, 149 N. Y. 367; Richmond, F. & P. R. Co. v. McCarl, 62 F. 2d 203, 288 U. S. 615; Matter of Blaikie, 11 A D 2d 196; United States v. Jin Fuey Moy, 241 U. S. 394; Tauza v. Susquehanna Coal Co., 220 N. Y. 259.) III. Sufficient doubt as to the meaning and validity of the 1956 statute (L. 1956, ch. 837) existed in 1959 to warrant the clarifying amendment of that year and to prevent the amendment from being violative of the contracts clause (art. I,, § 10) of the United States Constitution. (Matter of Chatlos v. McGoldrick, 302 N. Y. 380; People ex rel. Mutual Life Ins. Co. v. Board of Supervisors, 16 N. Y. 424; People ex rel. Westchester Fire Ins. Co. v. Davenport, 91 N. Y. 574; Mosle v. Bidwell, 130 F. 334.)

      Samuel I. Rosenman, George Morton Levy, Max Freund, Robert A. Kirtland and Ernest A. Gleit for respondent.
    I. The 1956 law provides, in clear and unambiguous language, that a capital improvement track is entitled to retain construction account moneys until the amount thereof, less Federal income taxes paid by the track on such moneys, equals the cost of its improvements. (Farrington v. Pinckney, 1 N Y 2d 74; Matter of Smathers, 309 N. Y. 487; New York State Bridge Auth. v. Moore, 299 N. Y. 410; Matter of Tonis v. Board of Regents, 295 Y. Y. 286; Lawrence Constr. Corp. v. State of New York, 293 N. Y. 634.) II. The 1956 law is constitutional. Moneys in construction accounts are not the State’s moneys. (Matter of Good Humor Corp. v. McGoldrick, 289 N. Y. 452; People ex rel. Einsfeld v. Murray, 149 N. Y. 367; Matter of Clark v. Sheldon, 106 N. Y. 104; People ex rel. Eisman v. Ronner, 185 N. Y. 285; American Soc. for Prevention of Cruelty to Animals v. City of New York, 205 App. Div. 335.) III. Construction account moneys are not moneys in the control or management of the State and, therefore, sections 7 and 8 of article VII and section 1 of article V of the Constitution are inapplicable. (People ex rel. Evans v. Chapin, 101 N. Y. 682.) IV. The 1956 law does not violate section 1 of article XVI of the Constitution. (Helvering v. Lerner Stores Co., 314 U. S. 463; People v. Fire Assn. of Philadelphia, 92 N. Y. 311; People ex rel. Pratt v. Goldfogle, 242 N. Y. 277.) V. The 1939 amendment to section 9 of article I of the Constitution authorized the Legislature to enact the 1956 law and it is, therefore, constitutional. If other provisions of the Constitution, such as sections 7 and 8 of article VII, section 1 of article V and section 1 of article XVI, which preceded the 1939 amendment chronologically, are in conflict with what it authorizes, they must be deemed abrogated pro tanto and held inapplicable to pari-mutuel laws. (Matter of Ahern v. Elder, 195 N. Y. 493; People ex rel. Williams Eng. & Contr. Co. v. Metz, 193 N. Y. 148; Bareham v. City of Rochester, 246 N. Y. 140; People ex rel. Carter v. Rice, 135 N. Y. 473; City of Buffalo v. Lawley, 6 A D 2d 66.) VI. The Commission and the Attorney-General cannot challenge the constitutionality of the 1956 law under the circumstances here involved. (Black Riv. Regulating Dist. v. Adirondack League Club, 307 N. Y. 475, 351 U. S. 922; Shepherd v. Mount Vernon Trust Co., 269 N. Y. 234; Noyes v. Landel, 259 App. Div. 1108, 284 N. Y. 563, 285 N. Y. 749; Matter of Buffalo Lib. v. Wanamaker, 162 Misc. 26; Fahey v. Mallonee, 332 U. S. 245; St. Louis Co. v. Prendergast Co., 260 U. S. 469; Matter of City of Syracuse, 224 N. Y. 201; Matter of Hand, St., 55 Hun 132.) VII. The Attorney-General in the court below did not attack the constitutionality of the 1956 law insofar as it authorizes the retention by capital improvement tracks of construction account moneys in amount equal to the cost of the capital improvements. The Attorney-General in the court below contended only that the Federal income tax feature of the 1956 law was unconstitutional, but in so doing he relied only on sections 7 and 8 of article VII of the Constitution of this State. New constitutional questions cannot be raised here for the first time. (Nathan v. Equitable Trust Co., 250 N. Y. 250, 250 N. Y. 612; Nod-Away Co. v. Carroll, 240 N. Y. 252; Matter of Andersen, 178 N. Y. 416; Dodge v. Cornelius, 168 N. Y. 242; Fleming v. Larkin, 197 App. Div. 624; Dawe v. Silberman, 185 Misc. 335; Massachusetts v. Mellon, 262 U. S. 447; Doolittle v. Supervisors of Broome County, 18 N. Y. 155; Kilbourne v. St. John, 59 N. Y. 21; Schieffelin v. Komfort, 212 N. Y. 520; Bull v. Stichman, 273 App. Div. 311, 298 N. Y. 516; Dorsey v. Stuyvesant Town Corp., 299 N. Y. 512, 339 U. S. 981.) VIII. The declaration of the 1959 law as to the meaning of the 1956 law is erroneous and ineffectual. (Meltzer v. Koenigsberg, 302 N. Y. 523; Town of Putnam Val. v. Slutzky, 283 N. Y. 334; City of New York v. Village of Lawrence, 250 N. Y. 429; People ex rel. Mutual Life Ins. Co. v. Board of Supervisors, 16 N. Y. 424; Matter of Chatlos v. McGoldrick, 302 N. Y. 380.) IX. The 1959 law was not intended to deprive tracks with completed capital improvements of rights which they had acquired under the 1956 law and should not be so interpreted. (Western N. Y. & Pa. Ry. Co. v. City of Buffalo, 296 N. Y. 93; Shielcrawt v. Moffett, 294 N. Y. 180; Matthews v. Matthews, 240 N. Y. 28.) X. Under the 1956 law, Roosevelt has a right to retain construction account moneys until it has recovered an amount, net after Federal income taxes, equal to its expenditures for its capital improvements. If the 1959 law be construed to deprive Roosevelt of the right to retain construction account moneys until it has recovered Federal income taxes paid on such moneys, it is unconstitutional. (Central Sav. Bank v. City of New York, 280 N. Y. 9, 306 U. S. 661; People ex rel. Equitable Life Assur. Soc. v. Pierce, 104 Misc. 343, 187 App. Div. 437, 229 N. Y. 514; Rochester & Charlotte Turnpike Road Co. v. Joel, 41 App. Div. 43; Danolds v. State of New York, 89 N. Y. 36; Trustees of Dartmouth Coll. v. Woodward, 4 Wheat. [17 U. S.] 518; Troy Union R. R. Co. v. Mealy, 224 N. Y. 187, 254 U. S. 47.) XI. The Citizens Union’s contention that the 1956 law could not constitute a contract because it is not addressed to a specific corporation is completely lacking in merit and, in any event, cannot be raised here because it was not made below or here by appellant. (Russell v. Sebastian, 233 U. S. 195; New York Elec. Lines v. Empire City Subway, 235 U. S. 179; American Smelting Co. v. Colorado, 204 U. S. 103.) XII. Under sound principles of constitutional law, the general provisions of section 1 of article XVI of the Constitution cannot be deemed to have deprived the Legislature of specific power granted to it by section 9 of article I of the Constitution. Section 1 of article XVI of the Constitution bars the granting of exemptions only as to taxes general in their operation. Assuming that the 1956 law exempted tracks from taxes under the Pari-Mutuel Law, those taxes are not general in operation and section 1 of article XVI of the Constitution is inapplicable thereto. (People ex rel. Scott v. Supervisors of Chenango, 8 N. Y. 317; Matter of McPherson, 104 N. Y. 306; Philadelphia Fire Assn. v. New York, 92 N. Y. 311, 119 U. S. 110.)

      Samuel D. Smoleff and Earle K. Moore for Citizens Union of the City of New York, amicus curiæ.

    I. The act of 1956 is totally unconstitutional. (Palmer v. Board of Educ., 276 N. Y. 222; Matter of Burnham, 236 N. Y. 608; Matter of Guiteras, 122 Misc. 523, 214 App. Div. 722; People ex rel. Doctors Hosp. v. Sexton, 267 App. Div. 736, 295 N. Y. 553; Matter of Grumman Aircraft Eng. Corp. v. Board of Assessors of Town of Riverhead, 2 N Y 2d 500.) II. The 1959 law terminated the race track’s claim to tax reimbursement. (Wisconsin & Michigan Ry. Co. v. Powers, 191 U. S. 379; People v. Roper, 35 N. Y. 629;
      City of Rochester v. Rochester Ry. Co., 182 N. Y. 99; People ex rel. Gallatin Nat. Bank v. Commissioners, 67 N. Y. 516; Pratt Inst. v. City of New York, 183 N. Y. 151; Salt Co. v. City of Saginaw, 80 U. S. 373; People ex rel. New York Cent. & H. R. R. R. Co. v. Mealey, 224 N. Y. 187; People ex rel. Iroquois Door Co. v. Knapp, 186 App. Div. 172, 227 N. Y. 592.)

      J. Clement Johnston for Edward C. St. Clair, amicus curiae.

    I. The State has outlawed the giving of subsidies. (People v. Westchester County Nat. Bank, 231 N. Y. 465; People ex rel. Burby v. Howland, 155 N. Y. 270.) II. The State cannot give a subsidy of private moneys. (Matter of Hopper v. Britt, 203 N. Y. 144; Little Falls Fibre Co. v. Ford & Son, 223 App. Div. 559, 249 N. Y. 495, 280 U. S. 369.) III. Section 45-a violates section 22 of article III and section 1 of article XVI. (People ex rel. Hopkins v. Board of Supervisors, 52 N. Y. 556.) IV. Section 45-a violates section 11 of article I. V. The basic ambiguity of section 45-a requires a determination that it is invalid. VI. The efforts of Roosevelt to avoid the impact of section 8 of article VII are of no avail. Section 45-a is not immune from attack. Roosevelt’s alleged poverty has no relevancy. The State’s increased pari-mutuel revenue has no relevancy. VII. There was no enforcible contract between Roosevelt and the State, nor could one be created by reliance, estoppel, laches or otherwise. (Matter of Long Sault Development Co. v. Kennedy, 212 N. Y. 1, 242 U. S. 272; Van Antwerp v. State of New York, 218 N. Y. 422; Matter of Kesbec, Inc., v. Taylor, 253 App. Div. 353, 278 N. Y. 293, 278 N. Y. 716.)

      Samuel Gottlieb, Louis Haimoff and Frank A. Frits for Yonkers Raceway, Inc., amicus curiae.

    I. The State in fact intended that the augmented funds derived from the increased racing activities, due to the new capital improvements and placed in the construction account, be held by the raceway 1 ‘ in its own name ” and “ not as public moneys ” (L. 1956, ch. 837, subds. 5, 8). The State may not challenge its own acts designed to achieve that objective, particularly after having garnered the huge revenues flowing from the improved capital facilities, made by the raceway at its sole heavy cost and great financial risk. (Sweeney v. State of New York, 251 N. Y. 417; Black Riv. Regulating Dist. v. Adirondack League Club, 307 N. Y. 475; Mat

      ter of Blaikie, 11 A D 2d 196; Madden v. Queens County Jockey Club, 296 N. Y. 249, 332 U. S. 761.) II. The conclusion reached below on the undisputed facts that the funds in the construction account were not intended to be and were not in fact treated as ‘ ‘ State moneys ’ ’ will not be reviewed or disturbed by this court as a matter of law. (Canepa v. State of New York, 306 N. Y. 272; Le Roux v. State of New York, 307 N. Y. 397; Mayer v. Temple Props., 307 N. Y. 559; United States v. Maryland Jockey Club, 210 F. 2d 367, 347 U. S. 1014; Richmond, F. & P. R. Co. v. McCarl, 62 F. 2d 203, 288 U. S. 615.) III. The raceways’ right to retain and credit funds derived from the construction account against the cost of the authorized capital improvements, in accordance with the legislative formula, under which the expenditures and financial commitments were made, may not be altered or repudiated without unconstitutionally impairing existing contract obligations and depriving the raceways of their property without due process. The State was powerless to bring about a complete repudiation or a drastic modification of the statutory rights and obligations created under and pursuant to the 1956 law by subsequent legislation. (American Smelting Co. v. Colorado, 204 U. S. 103; City of New York v. Village of Lawrence, 250 N. Y. 429; People ex rel. Mutual Life Ins. Co. v. Board of Supervisors, 16 N. Y. 424.)
   Fuld, J.

The Constitution of this State was amended in 1939 to permit such “ pari-mutuel betting on horse races as may be prescribed by the legislature and from which the state shall derive a reasonable revenue for the support of government ” (art. I, § 9). And, in 1940, the Legislature enacted the Pari-Mutuel Revenue Law authorizing several types of horse racing under State supervision (L. 1940, ch. 254). This statute placed harness racing, which is here involved, under the supervision of the State Harness Racing Commission and, in order to protect the public and to derive “ reasonable revenue for the support of government ’ ’, it provided in section 45 for the following division of the betting pool at each harness track: the holders of winning tickets were to share in 85% of the proceeds, while the operator of the track was to pay the State as a privilege tax about 5% and retain approximately 10% for itself. The tax is declared by the statute to be “ for the privilege of conducting pari-mutuel betting on the races run at the harness horse race meetings By amendments in 1949 and 1954, the measure of the tax, representing the State’s portion of the 15%, was increased and there was introduced a system of graduated tax rates.

In 1956, section 45-a was added to the Pari-Mutuel Bevenue Law (L. 1956, ch. 837), and it is from this amendment that the present controversy stems. The section opens with a legislative finding that the state has lost substantial revenues and income ” as a result of the depreciation and inadequacy of the existing physical plant of some of the State’s harness race tracks and that “ enlargement and modernization of plant and structures of such tracks in this state would result in increased admissions and larger sums being deposited in parimutuel pools ”. In order to accomplish the enlargement and modernization desired, section 45-a provided for a reduction in the State’s tax or percentage of the betting pool and placed the difference in a “ construction account ’ ’ from which the tracks would be reimbursed for capital improvements.

More specifically, under section 45-a, the holders of the winning tickets at the tracks were to receive the same percentages of the betting pool as they had before, namely 85%, but the State’s share of the pool was to be reduced by the application of the following formula: the tax was to continue to be calculated at the then existing rates and the State was to receive, from any given track, in any year, an amount equal to that paid by that track in the year 1955. Any tax above this base tax ” was then to be divided, half to be paid to the State and the other half to be deposited by the track in its own name in a so-called construction account ”. Thus, in effect, 50% of the taxes due the State, above the amount it had collected in 1955, was to be segregated and placed into a construction account.

As to the use of the moneys thus placed in the construction accounts, subdivision 7 of section 45-a provided that any harness track might apply to the Harness Bacing Commission for permission to make capital improvements. And subdivisions 6 (par. [b]) and 10 prescribed that, at the end of each year, a harness track which had completed a capital improvement with the approval of the Commission'could transfer to its own general account the money in its construction account, “ until such date as the amounts paid to such harness race track from the construction account, less income taxes paid thereon to the United States by such harness race track, equals the cost of the capital improvement ”. And, the statute went on to recite, “ In determining the amount of taxes paid * * * in any calendar year it shall be deemed that said amounts were taxed at the highest rates actually paid to the United States by such harness race track for the particular year involved.”

If, in any given year, the State’s tax revenue from all tracks was less than in 1955, it was provided that each construction account was to be assessed a prorata share to make up the difference. Furthermore, if by the end of a given year no capital improvements had been made, or if the improvements made had already been paid for from its construction account, the balance in such account was to be paid to the State. Finally, it should be noted, actual reimbursement depended upon the consent of the Harness Racing Commission for, by one of its rules, all withdrawals from the construction fund accounts required its countersignature.

This statutory scheme remained intact, in all its essentials, until 1959. In that year, the Legislature, at the behest of the Governor who called a special session for the purpose, amended section 45-a so as to prohibit the approval, by the Harness Racing Commission, of any new capital expenditures thereunder (L. 1959, ch. 881, § 7). Although it made no change in the provisions of section 45-a under which each harness track would be reimbursed from the construction account for the cost of capital improvements already made, the 1959 enactment expressly provided that no harness track “ shall be reimbursed” from the construction account for any income taxes paid to the United States ”, whether paid before or after the effective date of the amendment (L. 1959, ch. 881, § 7, amdg. § 45-a, subd. 10; see, also, L. 1959, ch. 881, § 10).

With this review of the statutory background, we turn to the facts of this case. Roosevelt Raceway, Inc., applied for and received approval to make capital improvements under section 45-a and they were completed in 1957 at a cost of $19,605,281. The amount in its construction account for that year was $2,858,495, and that sum was transferred to its general account with the permission and countersignature of the Harness Racing Commission.

Thereafter, Roosevelt notified the Commission that receipt of such sum had resulted in a Federal income tax of $1,404,665, and, accordingly, Roosevelt asked the Commission to note this amount in its records as a “ credit ’ ’ against future construction account funds. The Commission, relying upon an opinion of the Attorney-General, declined to do so and Roosevelt thereupon brought the present proceeding, pursuant to article 78 of the Civil Practice Act, to review the Commission’s decision.

Although the proceeding was instituted before the 1959 amendment to section 45-a, it was not heard or decided until after its effective date. The order sought by Roosevelt was granted at Special Term and was affirmed by a divided Appellate Division (11AD 2d 206). The appeal is in this court as of right.

The courts below were concerned principally with contentions, raised in a companion case which is not before us (Matter of Blaikie, 11 A D 2d 196; and see, for exposition of contrary views, dissenting opinions of Stevens and Valente, JJ., in present case), that section 45-a violates several provisions of the Mew York State Constitution and is void in its entirety. We are pressed to place our decision upon such constitutional grounds and declare the statute “totally unconstitutional”. It is, however, wise and settled policy to hold a statute unconstitutional “ only as a last resort ” (Matter of Ahern v. South Buffalo Ry. Co., 303 N. Y. 545, 555, affd. 344 U. S. 367; see, also, Ashwander v. Valley Auth., 297 U. S. 288, 346, 347, per Brandeis, J., concurring) and, since we have concluded that Roosevelt’s petition must be dismissed even if the serious constitutional questions presented by section 45-a were to be resolved in its favor, we do not now pass upon them.

In granting the relief sought by Roosevelt, the courts below rightly rejected the contention of the Attorney-General that the 1956 statute, properly construed, did not provide for inclusion of the Federal income tax in ascertaining and determining the amount of reimbursement. Payments to a harness track from the construction account are to be made, subdivision 10 of section 45-a provided before its amendment in 1959, ‘ ‘ until such date as the amounts paid to such harness race track * * *, less income taxes paid thereon to the United States by such harness race track, equals the cost of the capital improvement ”. And, in determining the amount of taxes paid, the statute further recited, 1 it shall be deemed that said amounts were taxed at the highest rates actually paid * * * for the particular year involved There can, therefore, be no doubt that this provision required reimbursement for Federal income taxes paid by the tracks on the amounts received from their respective construction accounts for capital improvements. Even supposing a fanciful construction might be found whereby “ less income taxes ” could be taken to mean “ ignoring income taxes ”, we could not overlook the fact that the Legislature provided that income taxes paid should be determined “ at the highest rates actually paid”. The specification of a method for determining the amount of income taxes precludes the possibility that reimbursement for taxes was not intended.

The formula provided in section 45-a was unquestionably designed to increase the profits of the track—by reducing its State taxes — to the point where the track would retain out of the increased profits, after paying its income taxes on such profits, the total cost of the new facilities. To be sure, under present tax rates this requires payments amounting to approximately twice the cost of any capital improvement and also fails to take into account the tax benefits which the track realizes from depreciation of the new facilities. This consequence, unfair though it might seem, does not, however, warrant disregard of the clear and unequivocal terms of the statute.

Nor may these terms be disregarded, as suggested by the Attorney-General, on the ground that the Legislature in 1959 clarified ” the 1956 statute by declaring that section 45-a, as written and enacted in 1956, was not intended to provide for the reimbursement of Federal income taxes (L. 1959, ch. 881, § 10). We have often held that, if the language of a statute is plain and unambiguous, there is neither need nor warrant to look elsewhere for its meaning. (See, e.g., Meltzer v. Koenigsberg, 302 N. Y. 523, 525; Town of Putnam Valley v. Slutzky, 283 N. Y. 334, 343; McCluskey v. Cromwell, 11 N. Y. 593, 601-602.) This principle is, of course, no less compelling because the other means of interpretation ” urged is a later so-called clarifying statute. The Legislature has no power to declare, retroactively, that an existing statute shall receive a given construction when such a construction is contrary to that which the statute would ordinarily have received. (See City of New York v. Village of Lawrence, 250 N. Y. 429, 447; People ex rel. Mutual Life Ins. Co. v. Board of Supervisors, 16 N. Y. 424, 431-432.)

As already noted, the Legislature, in addition to ‘ ‘ clarifying ” section 45-a, went on to provide in so many words that “No harness track shall be reimbursed for any income taxes paid to the United States ’ ’ whether paid before or after the effective date of the amendment (L. 1959, ch. 881, §§ 7, 10). This independent and affirmative enactment stands on a different footing from the attempted “clarification” of the earlier (1956) law and calls for separate consideration.

Roosevelt argues that the amendment was not intended to apply to improvements previously authorized and already constructed. And, Roosevelt contends, such a reading of the 1959 statute is supported by reference to its legislative history. Be that as it may, the same principle which forbids “ clarification ” of the 1956 act, since the language of the latter is unambiguous, also forbids resort to legislative history to construe the equally unambiguous language of the 1959 enactment. The statute plainly provides that there shall be no reimbursement of income taxes ‘ whether paid before or after the effective date of this section.” Since, under the original section 45-a, no reimbursement can take place until after a capital improvement has been completed, the question of reimbursement for income taxes can arise only as to a completed project. Accordingly, the reference made in the 1959 amendment to income taxes paid before the effective date of that amendment can relate only to projects, such as that of Roosevelt Raceway, completed prior to the effective date and not, as Roosevelt claims, to projects to be completed after the amendment became effective.

Any further doubt as to the Legislature’s design as to this issue is entirely dispelled by the other provisions of the 1959 act. These forbid the Harness Racing Commission to issue any further permits for capital improvements or even to certify to the completion of capital improvements previously approved. The 1956 formula for the reimbursement of capital outlays and taxes can only continue to operate with respect to improvements completed and certified before the effective date of the 1959 amendment. This being so, it is clear that the legislative decree that no reimbursement for income taxes shall take place can only have been intended to cover improvements such as those involved in this case, those, that is, which were completed and certified prior to the effective date of the amendment. It is evident, therefore, that the construction urged by Roosevelt would render this provision meaningless.

Moreover, contrary to Roosevelt’s contention, the legislative history (consisting almost entirely of statements attributed to the Governor) is not in conflict with the plain meaning of the statute itself. In discussing the proposed 1959 legislation, the Governor is reported to have said that the change ‘ ‘ will not be unfair” because “the tracks will get what the lawmakers intended them to get ”. This statement merely echoed an earlier opinion by the Attorney-General, and anticipated the later declaration by the Legislature itself, that section 45-a as originally enacted was not intended to provide for income tax reimbursement (N. Y. Legis. Annual, 1959, pp. 381-382).

In short, then, the 1959 amendment to section 45-a was designed to increase the tax imposed upon the tracks by providing, in essence, that reimbursement of expenditures incurred in making capital improvements would continue only until the cost of construction had been repaid and that there would be no reimbursement of, or credit for, Federal taxes.

Roosevelt insists, however, that the State was powerless to do this, that the amendment, insofar as it put an end to the State’s obligation to reimburse for Federal taxes, represents an unconstitutional impairment of a contractual obligation (U. S. Const., art. I, § 10). It is not entirely clear what Roosevelt claims to be the content of the contract which it asserts the State made with it. In resisting the contention that section 45-a violates the constitutional requirements relating to public funds, Roosevelt denied that the State had undertaken to employ its revenues for the construction of harness tracks. This position, sustained by the courts below (Matter of Blaikie, 11 A D 2d 196, supra), was manifestly necessary to overcome the impact of constitutional prohibitions (N. Y. Const., art. VII, § 8; art. VII, § 7; art. V, § 1) and to entitle Roosevelt to any reimbursement whatsoever from the construction account.

But, if we accept this position for the purposes of the present litigation, involving solely reimbursement of Federal income taxes, the only contract which may be said to have been made is a contract for tax relief — a promise by the' State to keep the reduction enacted in the 1956 tax formula intact and unchanged until the track has been made whole, under that formula, out of revenues that would otherwise go to the State as taxes. Such a contract, if not indeed void in its inception—and this is a question as to which ,we express no opinion—is at all times revocable by the State. This was proclaimed and established, beyond the power of the Legislature to alter, by section 1 of article XVI of our present Constitution; in so many words, it declares:

‘‘ The power of taxation shall never be surrendered, suspended or contracted away, except as to securities issued for public purposes pursuant to law.. * * *
" Exemptions from taxation may be granted only by general laws. Exemptions may be altered or repealed except those exempting real or personal property used exclusively for religious, education or charitable purposes ”.

Just as the reserved power ” to amend corporate charters, found in section 1 of article X of our Constitution, ‘ ‘ prevents the charter from becoming a contract between State and corporation protected from impairment by the [Federal] Constitution ” (Matter of Mount Sinai Hosp., 250 N. Y. 103, 110; see, also, Beloff v. Consolidated Edison Co., 300 N. Y. 11, 19), so section 1 of article XVI of our Constitution ‘ ‘ prevents ’ ’ the 1956 legislative promise to reduce the harness track’s .taxes ‘ ‘ from becoming a contract between State and corporation protected from impairment by the [Federal] Constitution.” (Cf. Troy Union R. R. Co. v. Mealy, 254 U. S. 47, 50, affg. People ex rel. New York Cent. & H. R. R. R. Co. v. Mealey, 224 N. Y. 187.) In other words, in view of the first sentence of section 1 of article XVI, the State may not be said to have breached any contract or agreement with Roosevelt to maintain its State tax at the level provided for in 1956 for the reason that no one was empowered to enter into such an agreement on behalf of the State.

Nor can it be assumed that, in undertaking capital improvements, Roosevelt and the other tracks relied on an assurance that they would receive Federal tax reimbursement which the 1959 Legislature has denied them. Whatever assurance they derived from the 1956 act was necessarily coupled with the knowledge not only that the 1956 Legislature was powerless to bind its successors, but that rates and levels of taxation are the staples of each legislative session. (See Revised Record of Constitutional Convention of 1938, Vol. 2, p. 1127.) Roosevelt and the other tracks must be deemed to have acted in the light of what the law presumes them to have known in this respect. And, since this is so, they can hardly urge that they undertook their capital improvements in consideration of an irrevocable promise or agreement that their taxes would continue to be computed in accordance with the formula set up by the 1956 Legislature and that such taxes would not thereafter be increased. (Cf. People ex rel. Cooper Union v. Gass, 190 N. Y. 323, 327-328, 330.)

Roosevelt attempts to avoid the constitutional mandate of section 1 of article XVT by focusing on its second paragraph — which affirms the Legislature’s power to alter or repeal exemptions from tax—and denying that section 45-a represents a form of tax exemption within its meaning. It asserts that “ It is difficult to see how it can be urged that [section 45-a] granted any tax exemption, when, by its very terms, it could only increase but could not decrease the State’s revenues.” The fact is that section 45-a provided that, in any given year, one half of any taxes due the State above the amount paid in 1955 would only become payable to the State if it were not paid over to the track as reimbursement of capital outlays and Federal taxation paid thereon. Although the tax money involved was only that above the amount collected in 1955, and although freedom from tax liability was made conditional, it is manifest that section 45-a “exempted” from taxation a certain portion of the track’s income. (Cf. Redevelopment Companies Law, L. 1942, ch. 845, particularly § 26, as amd. by L. 1943, ch. 234.)

In the present case, Roosevelt would not be aided even if we were to accept its concept of tax exemption. Section 1 of article XVI separately prohibits any attempt to contract away the power of taxation unless sanctioned by the people themselves. (Cf., e.g., as to Housing, N. Y. Const., art. XVIII, § 2.) A contract for a pre-established limit on tax liability, whether it be considered as conferring “tax exemption” or “tax savings ’ ’, or tax relief by any other label, is clearly barred by this sweeping prohibition. (See Troy Union R. R. Co. v. Mealy, 254 U. S. 47, 50, supra.) The 1959 Legislature was, therefore, free to increase the tax obligations of the harness tracks either by raising the rates of existing taxes or by imposing new taxes. There are limits on, as well as qualifications of, the power to tax, but these have not been disregarded. The asserted limit based on a contract with the State does not exist.

The Raceway places its chief reliance on American Smelting Co. v. Colorado (204 U. S. 103) in support of an argument that section 45-a did not represent a tax exemption. In that case, a foreign corporation was chartered in the State of Colorado under a statute subjecting the foreign corporation so chartered to 11 the liabilities, restrictions and duties which were or might thereafter be imposed upon domestic corporations of like character.” Subsequently, Colorado enacted a statute imposing a higher rate of tax on foreign corporations than on domestic corporations. The Smelting Company refused to pay the higher tax and the State brought a proceeding which resulted in a forfeiture of its corporate charter. On review of the state court’s decision, the United States Supreme Court struck down the tax statute on the ground that it ‘ impaired the obligation of the contract existing between the corporation and the State ’ ’ (204 U. S., at p. 115). In reaching this conclusion, the court met the argument that the Constitution of Colorado had a provision prohibiting the Legislature from making any contract of tax exemption by stating that ‘ ‘ This is not an exemption from taxation, it is simply a limitation of the power to tax beyond the rate of taxation imposed npon a domestic corporation” (204 U. S., at p. 114).

We need not now consider whether this 1907 decision by a closely divided court represents current constitutional doctrine for, in any event, its bearing on the present case is remote. The statute in the Smelting Go. case was nothing more than an act authorizing the chartering of foreign corporations. It was not directed at effecting a change in the Smelting Company’s tax status, in giving it a certain tax advantage, but rather at providing that it should be treated, in all respects, like any other corporation. Here, however, the statute which the Raceway relies on was enacted for no other purpose than to stimulate the building of tracks by providing tax advantages. Section 45-a, unlike the statute involved in the American Smelting Co. case, is a tax statute, designed for the very purpose of relieving or reducing a tax burden, and, as such, it falls within the very purview of the limitations of section 1 of article XVI of the Constitution.

One further point remains to be considered. It is suggested that, despite the general validity of the 1959 amendment, it offends constitutional requirements to deny reimbursement to Roosevelt for the Federal income taxes which it paid before the 1959 statute was enacted. As the State tax in question is a privilege tax (supra, pp. 300-301), a retroactive change affecting Roosevelt’s tax liability for years prior to 1959 might well be invalid. However, when considered in its context, the 1959 enactment will be seen to be entirely prospective in its operation.

A retroactive tax is one which is imposed on past transactions or for past periods. If the 1959 change in Roosevelt’s tax liability were retroactive, it would require Roosevelt to return to the State money which it has already withdrawn from the construction account. The statute will not have such an effect. It will not require Roosevelt to pay in taxes for the years 1957 and 1958 a penny more than it has already paid under section 45-a before its amendment. Under the 1959 statute — the constitutionality of the 1956 act aside—all the moneys in its construction account for those years, which it has already received, it may retain.

Roosevelt has spent over $19,000,000 on capital improvements, and its construction account accumulates (at the 1957 rate) roughly $3,000,000 annually. The only difference which results from giving full effect to the 1959 amendment is that, when, as a result of its annual withdrawals from the construction account, Roosevelt has received the entire amount which it spent for capital improvements — say, by 1965 — its taxes thereafter will no longer be subject to reduction. This is a purely prospective change in the measure of the tax; to be sure, Roosevelt’s tax for 1966 will then be higher than it would otherwise have been, but this is an exercise of the very power to alter and increase taxes which section 1 of article XVI has inviolably preserved.

The result might, perhaps, have been seen more clearly if the Legislature had said that there shall be no future reimbursement for any sum in excess of the amounts actually expended for capital improvements. This is what the Legislature did say, although in somewhat different words. Since the Legislature was free to make any prospective change in the measure of the tax imposed (N. Y. Const., art. XVI, § 1), it was free in 1959 to restore the 1954 tax rates in their entirety and ban any further reimbursement whether attributed to the payment of the Federal income taxes or the cost of the capital improvements themselves. This being so, we are unable to see any infirmity in the 1959 amendment that reimbursement shall cease when the full cost of the capital improvements shall have been repaid.

Since section 45-a, as originally enacted, was — quite apart from its constitutionality, which we are not considering on this appeal—subject to the power of the Legislature to alter or repeal it, and since the Legislature did validly alter it by its 1959 enactment, Roosevelt’s rights must be determined in the light of its provisions. In view of the explicit declaration of the 1959 statute that no harness track may be reimbursed from the construction account for any income taxes paid to the United States, ‘ whether paid before or after the effective date of this section ”, Roosevelt is not entitled to reimbursement for Federal taxes and its petition to compel the Commission to record a credit for such taxes must be dismissed.

The order of the Appellate Division should be reversed and the petition dismissed.

Dye, J. (concurring).

I am in complete agreement with Judge Fuld that the 1959 amendment (L. 1959, ch. 881) to section 45-a of the Pari-Mutuel Revenue Law (added by L. 1956. ch. 837, § 1) effectively excludes reimbursement to a race track operator for Federal taxes on the amounts received out of the so-called “ construction account ”, and that the order appealed from should be reversed and the petition dismissed. However, I would go further and deal with the challenge aimed at the validity of the 1956 act as a whole.

I do not overlook the judicial policy noted by Judge Fuld of avoiding constitutional issues whenever possible or that the respondents urge us not to reach the constitutional question, since it was not raised in the court below. However, the usual, reasons for avoiding such an issue are not available here. There is no surprise. All the parties filing briefs have dealt with the matter exhaustively. It is before us — we may not ignore it. In fact, constitutionality is mentioned in all the opinions filed herewith. In any event, there are times when a court-made policy must yield. This is such a time, for we are faced with a problem the answer to which will affect the tax revenues of the State and incidentally its millions of taxpayers, all of whom, though unnamed, are interested parties (cf. People ex rel. Unger v. Kennedy, 207 N. Y. 533; Palmer v. Board of Educ., 276 N. Y. 222). The avoidance of future, yet imminent, litigation is a major factor in my conclusion. The problem is basic, involving as it does the reach of constitutional safeguards surrounding the use of public funds.

When the People relaxed the long-standing constitutional ban ag-ainst gambling by excepting pari-mutuel betting on horse races (N. Y. Const., art. I, § 9, Nov. 7, 1939), no change was made in other fundamental concepts imbedded in other sections of the Constitution, and which are pertinent to our present problem. In substance, these regulate and restrict the use of public funds. They were designed to put an end to the use of the credit or property of the State for other than a public purpose, a mischief which in times past had become intolerable (2 Lincoln, Constitutional History of New York; 10 New York State Constitutional Convention Committee, 1938, Problems Eelating to Taxation and Finance). No longer may the money or credit of the State be given or loaned to or in aid of any private corporation, association or private undertaking (N. Y. Const., art. VII, § 8). The power of taxation can never be surrendered, suspended or contracted away except for securities issued for public purposes pursuant to law (art. XVI, § 1). Every law which imposes or continues a tax shall distinctly state the tax and the object to which it is to be applied (art. Ill, § 22). Funds belonging to the State or under its control can only be paid out by legislative appropriation (art. VII, § 7) and even then only upon the audit of the Comptroller (art. V, § !)•

As matter of law and clear intendment the moneys set aside in the “ construction account ” are in any sense of the words public funds Concededly, they are derived from the 15% set aside from the pari-mutuel betting pool from which taxes due the State are to be paid (L. 1949, ch. 341; L. 1954, ch. 513; L. 1956, ck. 837, adding Pari-Mutuel Revenue Law, § 45-a) and are not available to the track operators until the total taxes paid by all of the tracks for a given year exceed the totals for 1955. In the meantime the State has all the indicia and attributes of beneficial ownership. The funds are set aside in a special account subject to periodic audit, and such moneys may not be removed from the jurisdiction of the State, be invaded for any purpose, or any part thereof used except for the purposes provided in subdivision 10 of the 1956 law, and then only upon the prior approval and direction of the State. The track’s only interest in the “ construction account ” is to hold it subject to the State’s direction—at best, it is a mere nominee. The contention to the contrary is without substance and may not be sustained in face of our prior rulings that “No exaction can be lawfully made of a citizen by way of tax, impost, or excise, except under the authority of the legislature, and the product of such imposition is public money.” (People ex rel. Einsfeld v. Murray, 149 N. Y. 367, 374-375, quoted with approval in Fox v. Mohawk & Hudson Riv. Humane Soc., 165 N. Y. 517, 523.)

Nor does the fact that the moneys have not yet made their way into the State Treasury change the public character of the fund. We long ago said that money “ raised in any manner through the state as an exaction from the citizen by the taxing or licensing power of government”, whether yet collected or not, constitutes public funds and may not be diverted for private use (Fox v. Mohawk & Hudson Riv. Humane Soc., 165 N. Y. 517, 524, supra; cf. Matter of Guiteras, 122 Misc. 523, affd. 214 App. Div. 722).

In Ayers v. Lawrence (59 N. Y. 192, 198) we pointed out that 1 ‘ Municipal corporations seldom have property, funds or estates in possession to be wasted or injured save the taxes collected or in process of collection * * * The legislature have used several words for the sole purpose of embracing every right and interest which might need protection ” (emphasis supplied). (Cf. People v. Board of Educ., 269 App. Div. 456 [3d Dept.], per Foster, J.).

Again, in Samuel Adler, Inc., v. Noyes (285 N. Y. 34, 36) the plaintiff sought to recover a license fee, contending that title to the money remained in the plaintiff, and was not in the State, so that a suit in the Court of Claims would not be necessary. Our answer there is relevant here: ‘ ‘ The fee paid by this plaintiff was absorbed into the general fund and had thereafter no severable character.” (Cf. Psaty v. Duryea, 306 N. Y. 413.)

The petitioner, Roosevelt, is a private corporation, as are the other harness tracks in this State, organized for the purpose of making a profit for their shareholders. The fact that a portion of their income is paid to the State in the form of taxes in no way affects or changes that status. The “ construction account ” authorized by the 1956 enactment of section 45-a is, primarily, a carefully contrived device in aid of private enterprise.

In this State there are many individuals, associations and corporations who engage in business for profit and who pay taxes, but until now no one has assumed that this gives the State a proprietary interest in their undertaking justifying special treatment by way of tax exemption, or by direct subsidy.

We are told that the “ construction account ” serves a laudable purpose; that the State will be the ultimate beneficiary through increased tax revenue. Be that as it may, “ However important, however useful the objects designed by the legislature, they may not be accomplished by a gift or a loan of credit to an individual or to a corporation.” (People v. Westchester County Nat. Bank, 231 N. Y. 465, 475.)

Subdivision 8 of section 45-a provides that the moneys in the “ construction account shall be held * * * not as public moneys ”. This characterization neither inhibits nor prevents the court from reaching a contrary conclusion as matter of law. True, such labels frequently serve a useful purpose in ascertaining legislative intent. They may not, however, serve as a substitute for legislative power, which finds its source in the Constitution. If it were otherwise, the State would soon be divested of all its funds simply by labeling them as ‘ ‘ private ’ ’.

The petitioner’s reliance on United States v. Maryland Jockey Club (210 F. 2d 367, cert, denied 347 U. S. 1014), involving income tax litigation, is misplaced, for several reasons. First, the court there expressly declined to rule on where title to the “construction fund” lay (id., p. 371) basing its decision on other grounds. In view of our Constitution’s prohibitions, we, of course, cannot avoid that question. It is noteworthy, though, that the race track operator in that litigation adopted the very position to which the instant petitioner so vehemently objects, that title to the fund vested in the State. Secondly, the court held that the moneys paid from the account were not taxable to the track until received from the State {id., p. 369). That decision is in no way helpful to the petitioner.

Whenever the People have undertaken to give money or property of the State to individuals, associations or private corporations they have invariably done it by constitutional means. For instance, when the bonus for veterans was urged by popular demand, they adopted section 18 of article VII, as was also the case in the elimination of railroad grade crossings (art. VII, § 14), as well as the authorization in respect to public housing (art. XVIII, § 2). I see no reason why such an orderly procedure should not be adopted in this instance.

Under this view of the case, it necessarily follows that the “construction account ” may not be sustained in reliance on principles of contract law. In legal contemplation an unconstitutional legislative enactment is a nullity. It creates no rights, imposes no duties, protects no one and is no justification for conduct which is otherwise illegal. It is of no more effect that if it had not been passed (Matter of Long Sault Development Co. v. Kennedy, 212 N. Y. 1, writ of error dsmd. 242 U. S. 272; Van Antwerp v. State of New York, 218 N. Y. 422; Matter of Kesbec, Inc., v. Taylor, 253 App. Div. 353, mod. on other grounds 278 N. Y. 293, motion for rearg. denied 278 N. Y. 716; 16 C. J. S., Constitutional Law, § 101; 9 N. Y. Jur., Constitutional Law, § 259). Thus the State has breached no contractual obligation, nor has the track operator gained any rights that have been impaired (N. Y. Const., art. XVI, § 1).

For these reasons, I am satisfied that section 45-a, in its entirety, is constitutionally invalid.

Froessel, J. (dissenting for modification).

I would modify the determination below for the reasons hereinafter stated. The facts and background of this litigation are adequately set forth in the opinion of Judge Ftjld.

When the Constitution of this State was amended in 1939 to permit “ pari-mutuel betting on horse races as may be prescribed by the legislature”, there was added to the provision this language: “ from which the state shall derive a reasonable revenue for the support of government”. It thus left to the Legislature the regulation of such betting and the “ reasonable revenue ” the State shall derive therefrom.

Because of the State’s interest in increasing said revenue, and pursuant to the constitutional provision, the 1956 statute made certain findings as to the inadequacy of the plants and structures of harness race tracks in the State by reason of which the State had lost substantial income, and to remedy this situation chapter 837 of the laws of that year was enacted.

No one denies the right of the Legislature to fix the amount of tax payable to the State on the 15% portion of the betting pool withheld from the bettors. In view of the State’s interest in increasing the amount it may derive from harness track racing, it surely had the right to reduce the rate of taxes from year to year so as to give the race track owners an opportunity to make needed capital improvements which would enhance State revenues. The State was quite willing in its own interest to give relief to the owners, but only to the extent of the cost of needed capital construction. No one could tell in advance how much that would be, and, therefore, a formula was worked out between the State and the track owners whereby the tax imposed was lowered, as the State had a perfect right to do. I see no difference whatsoever between lowering the rate of taxes by a fixed percentage and lowering it by this formula.

No provision of the Constitution impinges in the slightest upon this power to reduce these taxes by the formula adopted. When, therefore, the 1956 statute was enacted, the Legislature was acting entirely within its province. The formula as worked out by the 1956 legislation lowered the tax rate, instead of by a fixed percentage, by the cost of capital improvements (to the extent the moneys were available under the formula), “less income taxes paid thereon to the United States by such harness race track”. The language is crystal clear and the statute is entirely valid. Thus petitioner was entitled to the specific relief granted in subdivisions (1) and (2) of the second paragraph of Special Term’s order.

It is established law, however, that one Legislature may not bind another. A subsequent Legislature is not precluded from modifying a policy of a previous Legislature. “ With the Legislature resides the power and discretion to shape policy. This is so, even if, as claimed, one Legislature violently disagrees with its predecessor. * * * ‘ The power to enact necessarily implies the power to repeal, and one Legislature cannot be limited or bound by the actions of a previous one. Hence every Legislature may modify or abolish its predecessor’s acts, unless restricted by the Constitution, and the wisdom of doing so is a matter of legislative discretion. ’ ” (Farrington v. Pinckney, 1 N Y 2d 74, 82.)

A subsequent Legislature, therefore, had the right to increase the tax rate, and the 1959 Legislature did so by eliminating the words ‘ ‘ less income taxes paid thereon to the United States by such harness race track ”. It purported to do so by way of clarification, but in my judgment the conclusion is inescapable that it is nothing more nor less than a plain amendment of the 1956 statute, and cannot be given retroactive operation. The 1956 enactment, being valid when adopted, continued to be valid until amended and, while the 1959 statute could amend the 1956 legislation, it could do so only prospectively.

Under the mandate of the preamended statute, the race track is regarded as having received reimbursement from the construction account for the year in question, not in the amount it actually received, but only in such amount less the amount of income tax paid thereon. This was a completed transaction for that year, and petitioner must be deemed to have received only the lesser amount. The subsequent Legislature in amending the statute could not retroactively declare that petitioner had received for the year in question more than the preamended statute declared it to have received at that time. To have done so would have been an unlawful retroactive increase in taxes.

In light of the foregoing, there should be stricken the third subdivision of the second paragraph of Special Term’s order that, as to the “ future ”, petitioner should be credited with Federal income taxes paid by it on sums transferred after the enactment of the 1959 statute, and the orders below should be modified accordingly.

Chief Judge Desmond (dissenting).

I concur with Judge Burke for affirmance. The 1959 statute as interpreted and . upheld by this court is an unconstitutional impairment of petitioner’s contractual rights (U. S. Const., art. I, § 10).

The opinions of Judges Fuld and Froessel have narrowed the issues. Both assume the constitutionality of the 1956 statute. They agree that the 1959 statute is not a clarification but a change of the 1956 statute. The two opinions, however, give different grounds for holding the 1959 law valid.

Judge Fuld says that any contract created by the 1956 statute could lawfully be revoked by later legislation under the provision of section 1 of article XVI of the State Constitution: “ Exemptions may be altered or repealed ”.

Judge Fboessel says that, since one Legislature cannot bind another, the 1959 modification was valid as a mere change of a tax formula.

Judge Fuld’s position is untenable unless the 1956 act was one for a tax “ exemption ”. In my opinion it clearly was not. “Exemption from taxation” means immunity or freedom from tax (see Tax Law, § 4). It means the kind of “ exemption ” described in City of Rochester v. Rochester Ry. Co. (182 N. Y. 99, 113, and cases cited there). It is impossible to consider as granting a “ tax exemption ” the 1956 law which guaranteed that the State would get from petitioner taxes no lower than petitioner had paid in 1955 and which reduced petitioner’s taxes only when and if petitioner during any year paid taxes up to and beyond the 1955 level and then only if the amount of the reduction were applied by petitioner to an approved construction project which was intended to and did produce greatly increased taxes for the State. Nor, in any real or reasonable sense, did this violate our Constitution’s prohibition (art. XVT, § 1) against the State’s “ surrendering” or “ contracting away ” its taxing power. The purpose and effect of this carefully worked out statutory scheme was to increase the State’s tax receipts from harness tracks by means of increasing attendance and betting at the tracks.

Answering Judge Fboessel’s position, it cannot be literally true that “one Legislature cannot bind another” so as to create an irrevocable contract, otherwise there never would have been a Trustees of Dartmouth Coll. v. Woodward case (4 Wheat. [17 U. S.] 518). Contractual rights created by legislative charter or statute cannot be impaired unless the State has in advance reserved power so to impair them. There were no such reservations here.

As establishing that the 1956 statute created, when petitioner acted on it, a constitutionally irrevocable contract, I cite People ex rel. New York Cent. & H. R. R. R. Co. v. Mealey (224 N. Y. 187, 196-197, affd. sub nom. Troy Union R. R. Co. v. Mealy, 254 U. S. 47); American Smelting Co. v. Colorado (204 U. S. 103); New York Elec. Lines v. Empire City Subway (235 U. S. 179, 193); People ex rel. Davis v. Sturtevant (9 N. Y. 263, 273); People v. O’Brien (111 N. Y. 1); Suburban R. T. Co. v. Mayor of City of New York (128 N. Y. 510), and many other authorities.

Proof that the 1956 statutory plan Avas intended by the Legislature to create contractual rights is found in a provision inserted in 1956 and noAV part of the second sentence of section 40 of the Pari-Mutuel Revenue Law. Prior to 1956 the Harness Racing Commission Avas authorized to grant to a harness track corporation a license running for not more than a calendar year. In 1956, when the “ construction fund ” provisions were added, the statute was amended to say that when the Commission approves a capital improvement it shall, as an inducement for or in recognition of the making of such capital improvement, grant a capital improvement license, which may be conditioned on the completion of the capital improvement if not yet made ’ ’ for a period of not more than 25 years but in no event for a period longer than is necessary to amortize any loan for a capital improvement, there being a further provision that such capital improvement license shall automatically expire when the loan of funds upon which it has been issued has been paid off by the licensee. This was an express recognition by the State of the possibility that a capital improvement might be paid for out of borrowings and a direction that the track should have a license to run until the loan should be paid off by tax savings made available to petitioner by the 1956 ‘ ‘ construction fund ” formula.

If this 1956 statute and petitioner’s action in reliance thereon did not constitute an inviolable contract, it must be because the courts are abolishing an ancient rule of constitutional law which was founded on good morals and fair play and which has heretofore forbade the State’s breaching such contracts.

I vote for affirmance.

Burke, J. (dissenting).

The issues on this appeal involve determinations in regard to the nature and validity of the rights and obligations of the RaceAvay and the State of New York which stem from a relationship formed by them in connection with an enterprise undertaken by the Raceway pursuant to an amendment of the Pari-Mutuel Revenue Law enacted in 1956.

Until 1939 the Constitution of the State of New York prohibited gambling in this State. By a constitutional amendment, the Constitution was amended to except from the ban on gambling “ pari mutuel betting on horse races as may be prescribed by the legislature and from which the state shall derive a reasonable revenue for the support of government ’ ’.

The constitutional amendment thus delegated to the Legislature constitutional power to prescribe pari-mutuel betting with only one specific direction, viz., to raise therefrom a reasonable revenue.

Since its enactment in 1940 the Harness Horse Racing Act has required (Pari-Mutuel Revenue Law, § 45) that 85% of the pari-mutuel betting total be distributed to the holders of winning tickets. The remaining 15%, which has always been deposited in the corporation’s own name in a bank of its own choosing in this State, constituted business income of the corporations operating the race tracks. Out of their 15% the corporations have been required by the statutes to pay certain percentages (graduated as to amounts and changed from time to time by amendments to the act) to the State “'as a reasonable tax by the state for the privilege of conducting pari-mutuel betting”. In 1956 the Legislature, recognizing that the then existing tax rates had made it uneconomic for tracks to modernize and expand (§ 45-a, subd. 1), and exercising a right delegated to it by the constitutional amendment, offered to reduce any of the then seven harness tracks’ rate of taxes by providing, subject to certain conditions, that, as to betting receipts in any year in excess of the total for 1955, the tax rate should be reduced by one half.

The reduction effected by the 1956 law (Pari-Mutuel Revenue Law, § 45-a) was subjected as we said to two conditions subsequent: first, that it would not be available to any corporation unless and until the total taxes held by all the track operators for a given year exceeded the totals for 1955; and, second, that the harness racing corporation could receive the benefit of the reduction only if it expended amounts for capital improvements which were approved by the Racing Commissioner. Both those conditions were, of course, for the benefit of the State. Inasmuch, as it was impossible to determine until the end of each calendar year whether the amount of the State’s taxes from all tracks equalled those of the base year 1955, as the tracks conduct their race meetings through the year, the new statute required that each corporation hold in a separate bank account in its own name till the end of the calendar year an amount equal to half the excess over 1955 levels of taxes at the old rate (§ 45-a, subd. 5, par. [a]). The. 1956 law does not provide for the deposit of any part of the State’s taxes in the special account. At the end of each year any such corporation which had completed improvement to the satisfaction of the Commissioner (if at that time the State’s revenue from all tracks equalled that of 1955) was permitted to take over this bank account and to continue in each year when the revenue exceeded 1955 to do the same, until the amounts received by it from those special accounts, less Federal income taxes thereon, should equal the cost of the improvements. The moneys which a track is not required to pay to the Tax Commission was to be held for its own use and purposes ” and, unless and until the track is required to make a payment to the Tax Commission, no tax is levied (§ 45-a, subd. 9, par. [a]). Since the construction account funds were federally taxed income to the track corporation, the latter actually benefited to the extent only of the reduction amount net after Federal income taxes. Accordingly, the credit of construction account funds, which could be retained by the tracks, less Federal income taxes thereon, was to continue till the total therefrom equalled the cost of its improvement. In opinions given to the Legislature and the Governor, the then Attorney-General declared that the moneys in the construction account were not State moneys and that the bill as passed by the Legislature was constitutional.

Respondent .thereafter in 1956-1957, with the approval of the Commission, expended $19,517,469.92. Ten million dollars was borrowed from banks. In three years respondent’s new plant yielded over $7,000,000 more in taxes than the State had received at the 1955 level. "When, however, the respondent, pursuant to the law, sought the credit for the payment of Federal income taxes paid by it on the construction account moneys received by it, the Harness Racing Commission disallowed it in accordance with an opinion of a new Attorney-General, but continued to authorize the making of capital improvements.

In 1959, after the commencement of this proceeding, the State Legislature, at a one-day extraordinary session, attempted to cancel unilaterally the ‘1 income tax ’ ’ provision of the 1956 law through a “ clarifying ” act (L. 1959, ch. 881, § 7, amdg. § 45-a, subd. 10; § 10) to the effect that the Legislature had not intended that the tracks should be “ reimbursed ” for income taxes and that thereafter there should be no such ££ reimbursements ”,

In the present proceeding we are concerned only with those construction moneys which according to both the laws are not payable to the Tax Commission but are to be retained by the tracks.

The courts below found that the 1956 law provided in clear and unambiguous language that the respondent is entitled to retain such construction account moneys until the amount thereof, less Federal income taxes paid by the track on such moneys, equals the cost of the improvements. The contention is now made that this interpretation ignores the <£ clarification” of the 1956 statute by the terms of the 1959 law which forbids the credit of income tax moneys. The respondent in its reply to the answer alleges that the 1959 law is ineffectual and, if it is construed to forbid such credits, is void.

The dispute between the Commission and the respondent concerned the interpretation of language in subdivision 10 of the 1956 law that each capital improvement track should retain such construction account moneys in each calendar year in which the State’s taxes from the track and .all tracks equal those received by the State therefrom in 1955 “until such date as the amounts paid to such harness race track from the construction account, less income taooes paid thereon to the United States by such harness race track, equals the cost of the capital improvement as determined by the state harness racing commission. The capital cost of improvements shall not be deemed to include interest on indebtedness, real estate taxes or insurance premiums. In determining the amount of taxes paid by any such harness race track to the United States in any calendar year it shall be deemed that said accounts were taxed at the highest rates actually paid to the United States by-such harness race track for the particular year involved ” (emphasis added).

In appellant’s view the meaning of this provision would limit the respondent to the payment of such extra portion of the withheld moneys from the over-1955 bets only until the date when the amount of all moneys so retained by respondent from such extra portion equals the cost of its capital improvements.

The language of subdivision 10 of the 1956 law is plain and unequivocal and it does not mean what the Attorney-General stated it does. The Legislature has not used language which is difficult to understand. The provisions as to income taxes meant exactly what it said: that the track could continue to use its construction fund to pay for the improvements until the total dollars recaptured, less income taxes, was equal to the total in dollars expended for the improvements. In other words, the reimbursement was not to cease until the full cost of the capital improvements to the tracks shall have been repaid. This full cost was not just the amount in dollars expended for capital improvements, but that amount plus the income taxes paid at the time of the acquisition of the dollars needed to pay the construction or to repay the banks for the loans necessary for the completion of the project.

Such a construction of the statute, it is argued, is in conflict with the terms of the 1959 law which is said to be either a clarification or amendment of the earlier statute. The purported clarification of the 1956 statute even if it could be deemed valid cannot be given retroactively the effect expressed by the Attorney-General (City of New York v. Village of Lawrence, 250 N. Y. 429; People ex rel. Mutual Life Ins. Co. v. Board of Supervisors, 16 N. Y. 424, 431, 432). Since the language of the statute is plain, and the intent clear, there is no power in the Legislature to impose on the courts its interpretation which in the guise of a clarification is set forth in the later statute. The excising of language from the 1956 law and the insertion of provisions in the 1959 law which radically changed the prior legislation, the language of which was perfectly clear, can hardly be characterized as a clarification. People ex rel. Westchester Fire Ins. Co. v. Davenport (91 N. Y. 574, 592) and Matter of Chatlos v. McGoldrick (302 N. Y. 380) do not assist the appellant. In those cases the clarifying amendment did not change unambiguous language of the original statute in order to cut out a purpose clearly expressed in the original statute.

If, moreover, the 1959 statute is regarded as involving a prospective change of respondent’s rights under the 1956 statute, it would be invalid as it represents an unconstitutional impairment of the State’s contractual obligation.

The 1956 legislative enactment contained provisions which when accepted as a basis of action by a track became a contract between it and the State which was constitutionally protected from impairment by subsequent legislation.

In New Jersey v. Yard (95 U. S. 104) the Supreme Court said (p. 114):

“ The difficulty in this class of cases has always been to distinguish what is intended by the legislature to be an exercise of its ordinary legislative function in making laws, which, like other laws, are subject to its full control by future amendments and repeals, from what is intended to become a contract between the State and other parties when the terms of the statute have been accepted and acted upon by those parties. This has always been a very nice point; and, when the supposed contract exists only in the form óf a general statute, doubts still recur, after all our decisions on that class of questions.

These doubts are increased when the terms of the statute relate to a matter which is in its essential nature one of exclusive legislative cognizance, and which at the same time requires money or labor to be expended by individuals or corporations. In such cases, the legislature may be supposed to be merely exercising its power of regulating the burdens which are to be borne for the public service, in which case it could be modified from time to time as legislative discretion might determine; or it might be a contract founded on a fair consideration moving from the party concerned to the State, and which in that case would be beyond the power of the State to impair.”

Any doubts that the undertaking joined in by the State and the respondent under the terms of the 1956 statute was contractual in nature are dissipated by the acknowledgment by the . 1959 Legislature that an obligation subsisted for the reimbursement of the cost of the capital improvements borne by the tracks. The 1959 Legislature did not repudiate the obligation, it reaffirmed it. Capital improvement tracks would not be “ entitled ” to reimbursements unless a legal obligation binding on the State had been created by the 1956 law. The 1959 legislation confirms a conclusion that the 1956 legislation was not a general tax statute. The law in appearance and substance has all the elements of a contract. An offer was addressed to a specific party and a promise made to that party that, if it was approved by the State and if it completed improvements which had to receive a State certification, it would be reimbursed. In this case the elements of a contract are clearer than they were in Russell v. Sebastian (233 U. S. 195) and New York Elec. Lines v. Empire City Subway (235 U. S. 179). In Russell (supra) the gas company prevailed in its contention that its commencement of a pipeline construction gave rise to a contractual right. Here, respondent’s construction of a capital improvement at a cost of $19,000,000 under the 1956 law has been fully completed. In New York Elec. Lines (supra) Mr. Justice Hughes stated (p. 193): “These municipal consents are intended to afford the basis of enterprise with reciprocal advantages. * * * They are made and received with the understanding that the recipient is protected by a contractual right from the moment the grant is accepted and during the course of performance as contemplated, as well as after that performance.”

In these similar circumstances, the consent and certification obtained by the respondent from the State acting by the Commissioner pursuant to the 1956 law has the same legal effect of establishing respondent’s contractual rights. The 1956 law was not addressed indiscriminately to a large group of corporations. The State offer in the 1956 law was addressed only to those of the seven licensed harness race tracks of this State which, with the approval of the Commission, completed improvements. Thus the 1956 law singled out the persons to receive rights thereunder by the performance of certain acts. Under the 1956 law not only was the consideration to be received by the track closely related to what was done by it for the State, but the approval of the construction of capital improvements by a State agency, the Commission, was required before a track could qualify to receive such consideration. Paragraphs (a) (el. [1]) and (b) of subdivision 6 of the 1956 law show that legal obligations were being imposed on the State. In those provisions the 1956 Legislature has stated that capital improvement tracks are “entitled” to their construction account moneys.

Wisconsin & Michigan Ry. Co. v. Powers (191 U. S. 379), People ex rel. Gallatin Nat. Bank v. Commissioners (67 N. Y. 516) and People v. Roper (35 N. Y. 629) are not applicable under circumstances comparable to those here present. In this instance the terms of the 1956 law and the circumstances surrounding its enactment evidence a purpose on the part of the Legislature to bargain with the track for a fair consideration for the benefit of the State of New York.

Section 1 of article XVI of the New York State Constitution which authorizes the Legislature to repeal tax exemptions and the deliberations of the 1938 Constitutional Convention which were directed to tax exemptions such as that which had been granted to the owner of the land under the Chrysler Building in New York City are equally irrelevant. “ The question is as to the existence and nature of the contract and not as to the construction of the law which is supposed to impair it.” (Indiana ex rel. Anderson v. Brand, 303 U. S. 95, 100.) In any event, appellant’s interpretation of the law is inadmissible. The argument in support of the validity of the 1959 amendment of the 1956 law assumes (contrary to a legislative finding that the State prior to its enactment had ‘1 lost substantial revenues and income ” because of the limited facilities of the tracks) that section 45-a, added by the 1956 law, had the effect of relieving the race tracks from a given portion of tax they otherwise would have had to pay under the then existing tax schedules and, as such, it was a tax exemption. The assumption is, of course, baseless. The then existing tax schedules applied to the “ inadequate ” tracks at which “ the number of admissions ” and the sum a deposited in pari-mutuel pools ” were limited to the detriment of the State revenues. A track cannot under section 45-a reduce its taxes by making improvements. On the contrary, the track by making improvements creates the possibility that it will have to pay additional, not less, taxes. The Legislature did not promise lesser taxes, what the State did was to promise the tracks that they would be reimbursed for the cost of the capital improvements out of a portion of the moneys withheld from the over-1955 bets which, if it materialized, obviously was money which had never been subject to the existing tax schedule. Indeed, there is no language in the 1956 law which promises tax exemption to the tracks or yields a taxing power. Under the 1956 law the State was left free to raise its rate of tax in the future. The fact that the 1956 law provides for the retention by capital improvement tracks of a portion of the moneys withheld from the over-1955 bets cannot be regarded as tax exemption. What was accomplished was an adjustment in tax rates which the Legislature could have made unconditionally but for which it chose to bargain and attach conditions so as to assure the State benefits through increased betting at improved, larger race tracks. Where there is an unconditional reduction the Legislature is free to alter the rates. Where, however, the State’s bargain provides that the maximum amount of the construction account moneys which may be retained by a capital improvement track in any one year in reimbursement for its improvement costs shall be exactly equal to the additional amount over the base tax which a track pays the State in that year, the State has specifically invited a quid pro quo. It has not granted a tax exemption.

In Indiana ex rel. Anderson v. Brand (303 U. S. 95,100, supra) the court described such an arrangement in this manner: “ If the people’s representatives deem it in the public interest they may adopt a policy of contracting in respect to public business for a term longer than the life of the current session of the legislature.”

The 1939 pari-mutuel amendment to the State Constitution (art. I, § 9) specifically vested the Legislature with power to do what it deemed desirable in order to raise revenue from pari-mutuel betting. It thereby empowered the Legislature to contract with the tracks as it did pursuant to the 1956 law. This contract, unlike a tax exemption, was intended to and did produce more revenue for the State. By its terms it could only increase but could not decrease the State’s revenue. Section 1 of article XVI of the New York State Constitution is not, therefore, applicable.

The 1959 law did not, as appellant would have us believe, impose a tax. It makes no attempt to exercise the taxing power. It seeks to change the promise made by the 1956 Legislature to the capital improvement tracks that, if they qualified for construction moneys by investing their own money and completing improvements founded by the Commission to be such as 1 ‘ will ultimately add to the revenues of the State ”, the tracks would be reimbursed for the full cost to the tracks of the improvements from moneys withheld from the over-1955 bets (see Pari-Mutuel Revenue Law, § 40). This promise recognized that each dollar of income of the tracks out of the portion of the over-1955 bets would not be sufficient, for instance, to repay a dollar of a bank loan used to pay for the construction. Hence, an allowance, in equity, had to be made for the income tax imposed on each dollar of earnings. The 1959 legislation did not raise the rate of existing taxes or impose new taxes. It does try to rewrite a contract. This alteration in the terms of the contract would authorize the State, after accepting the benefits of respondent’s investment, to pay the acknowledged debt in a “ coin ” different in kind to the “coin” the respondent had expended and the “ coin ’’which the State specifically stipulated would be restored. In brief, the State, which had agreed that the respondent would be repaid in full dollars, unilaterally decreed, in effect, that it would be charged with full dollars but repaid in half dollars. According to the reasoning of the appellant the amendment could have validly required the respondent to accept worthless currency for the discharge of an obligation the existence of which the 1959 law affirmed. Such a change in the consideration is manifestly an unconstitutional impairment of a legislative agreement.

The 1959 statute is, therefore, invalid, breaching what is under all these circumstances not a general tax statute, but the terms of a contract offered to a small group of tracks in whose business the State has an unusually large interest, and which exist by State license only, and on the faith of which this respondent borrowed and expended large sums for capital improvement approved by the State itself (U. S. Const., art. I, § 10; Danolds v. State of New York, 89 N. Y. 36, 45; New York Elec. Lines v. Empire City Subway, 235 U. S. 179, supra; Russell v. Sebastian, 233 U. S. 195, supra; American Smelting Co. v. Colorado, 204 U. S. 103; Brooklyn Bus Corp. v. City of New York, 274 N. Y. 140). “ When the state through its legislature grants a franchise, privilege or exemption to a corporation either in the act incorporating it, or by other legislation followed by action of the corporation under or in reliance upon the grant so made, it constitutes a contract, based on a valuable consideration, the obligation of which cannot be impaired by subsequent legislation.” (People ex rel. New York Cent. & H. R. R. R. Co. v. Mealey, 224 N. Y. 187, 196-197, affd. 254 U. S. 47.) That rule is directly applicable here. The principle — that subsequent legislation cannot take away rights promised by prior legislation, especially after the promisee has acted in reliance upon the promise — protects respondent. Legislation by the State which violates section 10 of article I of the United States Constitution is violative of the due process clause of section 6 of article I of the State Constitution (Central Sav. Bank v. City of New York, 280 N. Y. 9, cert. denied 306 U. S. 661).

Hence the offer, accepted and acted upon, brought into existence an irrevocable contract. The inviolability of contracts, and substantive due process, require the enforcement of the contract.

The order of the Appellate Division should be affirmed.

Judges Van Voorhis and Foster concur with Judge Fuld ; Judge Dye concurs in a separate opinion; Judge Frobssel dissents in a separate opinion for modification; Chief Judge Desmond and Judge Burke dissent in separate opinions for affirmance.

Order reversed and matter remitted to Special Term for further proceedings in accordance with the opinion herein, without costs.