author: Bellacosa, J.

text:
    [639 NE2d 1132, 616 NYS2d 335]
    Yvonne McCain et al., Respondents-Appellants, v David N. Dinkins, as Mayor of the City of New York, et al., Appellants-Respondents, et al., Defendant. In the Matter of Maria Lamboy et al., Respondents-Appellants, v Barbara J. Sabol, as Administrator of the Human Resources Administration of the City of New York and as Commissioner of the New York City Department of Social Services, et al., Appellants-Respondents, et al., Defendant. Karen Slade et al., Respondents-Appellants, v David N. Dinkins, as Mayor of the City of New York, et al., Appellants-Respondents, et al., Defendant.
    Argued March 15, 1994;
    decided May 10, 1994

      POINTS OF COUNSEL

      Paul A. Crotty, Corporation Counsel of New York City
      (Elizabeth Dvorkin, Leonard Koerner and George Gutwirth of counsel), for appellants-respondents in the three above-entitled actions and proceeding.
    I. The City’s extraordinary effort to comply with court orders regarding homeless families should be a complete defense to this contempt proceeding. (McCain v Koch, 70 NY2d 109; Matter of McCormick v Axelrod, 59 NY2d 574; Matter of Bonnie H. [Rose H.J 145 AD2d 830, 74 NY2d 650; Matter of Fishel v New York State Div. of Hous. & Community Renewal, 172 AD2d 835; Matter of Jackson v New York State Dept, of Correctional Servs., 173 AD2d 467; Matter of Benson Realty Corp. v Walsh, 54 AD2d 881, 43 NY2d 732; Matter of Department of Envtl. Protection v Department of Environmental Conservation, 70 NY2d 233; Pereira v Pereira, 35 NY2d 301; Matter of Bellman v McGuire, 176 AD2d 583; Housing Justice Campaign v Koch, 164 AD2d 656, 78 NY2d 858.) II. The individual officials should not have been found in contempt. (Matter of McCormick v Axelrod, 59 NY2d 574; Matter of Bonnie H. [Rose H.J 145 AD2d 830; Matter of Ward v Buric, 176 AD2d 571.) III. The sanction imposed on the City was an abuse of discretion as a matter of law because it violates the Supremacy Clause and the Judiciary Law. (Rodriguez v Swank, 496 F2d 1110, 419 US 885; St. Regis Mohawk Dev. Corp. v Cook, 181 AD2d 964; Labow v Labow, 133 AD2d 564; State of New York v Unique Ideas, 44 NY2d 345; Page v Cheung On Mansion, 138 AD2d 324.) IV. The contempt findings must be vacated because they violated defendants’ right to notice of the charges against them and to a hearing to present evidence in their defense. (Sommer v Hyman, 126 Misc 2d 903; Hansberry v Lee, 311 US 32; Murrin v Murrin, 93 AD2d 858; Bobko v Rohrberg, 85 AD2d 675; United States v Raddatz, 447 US 667; Mathews v Eldridge, 424 US 319; Gallant v Kanterman, 135 AD2d 480; Forman v Davidson, 74 AD2d 505; Daud v Forest & Garden Apts. Co., 178 AD2d 578.)

      Steven Banks, New York City, Kalman Finkel, Helaine Barnett, Jane Sujen Bock, Andrew W. Ko, Nancy Rosenbloom, Jane E. Booth, Scott A. Rosenberg and Richard Blum for respondents-appellants in the three above-entitled actions and proceeding.
    I. The Court below correctly affirmed the trial court’s civil contempt findings against all City defendants. (Matter of McCormick v Axelrod, 59 NY2d 574; Matter of Department of Envtl. Protection v Department of Envtl. Conservation, 70 NY2d 233; People v Beige, 41 NY2d 60.) II. As the Court below correctly held, there are no special defenses for the City defendants in this civil contempt proceeding. (Matter of Spinnenweber v New York State Dept. of Envtl. Conservation, 160 AD2d 1138; Matter of Balter v Regan, 63 NY2d 630, 469 US 934; Matter of Bonnie H. [Rose H.J 145 AD2d 830, 74 NY2d 650; Great Neck Pennysaver v Central Nassau Pubis., 65 AD2d 616; Frigidaire Div. v Sunset Appliance Stores, 46 AD2d 616; McComb v Jacksonville Paper Co., 336 US 187; National Labor Relations Bd. v Stevens & Co., 563 F2d 8, 434 US 1064; Morales-Feliciano v Parole Bd., 887 F2d 1, cert denied sub nom. Colon v Feliciano, 494 US 1046; United States v Rylander, 460 US 752; Maggio v Zeitz, 333 US 56.) III. The Court below’s holding that the City defendants had a full opportunity to present their defense should be affirmed. (Matter of Spinnenweber v New York State Dept. of Envtl. Conservation, 160 AD2d 1138; Pinto v Pinto, 120 AD2d 337; Quantum Heating Servs. v Austern, 100 AD2d 843; Sassower v Sheriff of Westchester County, 824 F2d 184.) IV. The Court below correctly upheld the trial court’s compensatory sanctions. (Rodriguez v Swank, 496 F2d 1110, 419 US 885; Alexander v Hill, 549 F Supp 1355, 707 F2d 780, cert denied sub nom. Syria v Alexander, 464 US 874.) V. The Court below erred in finding that alternative confinement in a City welfare office is not an appropriate form of coercive sanction. (Gregori v Ace 318 Corp., 134 Misc 2d 871, 142 Misc 2d 1028.)
   OPINION OF THE COURT

Bellacosa, J.

As if the seeming insolubility of society’s efforts to house the homeless were not a daunting enough problem, a collateral consequence takes center judicial stage arising out of a series of long-standing lawsuits culminating in contempt adjudications against the City of New York and four City officials.

The City and the four appointed City officers are held in contempt of judicial orders for disobeying mandates in the underlying cases. Appellants include the City of New York; the New York City Human Resources Administration (HRA); former First Deputy Mayor Norman Steisel; former Human Resources Administration Commissioner Barbara J. Sabol; former HRA Executive Deputy Commissioner Jeffrey Carples, who is currently Acting Commissioner of the New York City Department of Homeless Services (DHS); and former HRA Deputy Commissioner Kenneth Murphy, who is currently Deputy Commissioner of DHS.

By leave of the Appellate Division on the municipality’s and the officials’ main appeal, this Court affirms the portion of the Appellate Division order upholding Supreme Court’s findings of civil contempt, including the monetary fines payable by the City. The cross appeal by Legal Aid on behalf of the aggrieved homeless persons should also result in an affirmance. We find justified the modification by the Appellate Division striking, as unwarranted here, the sanction that would have incarcerated the four City officials in Emergency Assistance Units (EAUs). However, while the actions of the City’s four agents warrant affirmance of their adjudication of contempt, the Appellate Division’s remittal for imposing a new sanction as to them serves no remedial purpose in this case where those agents no longer hold office or pertinent offices. Therefore, to that extent only, we modify to strike the remittal. With this denouement of the collateral contempt features of the underlying lawsuits virtually ended, the parties and newly responsible public officials should return their full attention and humane efforts to solving or ameliorating the core, substantive problem itself.

L

The Appellate Division order acted on two orders of Supreme Court: (1) dated November 13, 1992, which adjudged New York City in civil contempt of judicial orders in specified cases; and (2) dated December 8, 1992 (a) directing New York City to pay fines to homeless families who stayed overnight in City EAU offices before being appropriately sheltered; (b) finding four City officials in contempt; and (c) directing the officials to stay overnight in EAUs.

The contempt adjudications stem from a trilogy of court orders in consolidated matters. The litigations, started in the early 1980’s, were brought on behalf of homeless persons in order to induce the City to comply with thé New York State Department of Social Services Administrative Directive, 83 ADM-47 of September 1983 (Directive), which states:

"Local districts must have procedures in place to ensure that homeless persons or persons in imminent danger of becoming homeless can apply for emergency housing whenever such emergency housing is needed * * *
"Emergency housing must * * * be provided immediately if a homeless person is determined eligible * * *
"When the individual is determined to be in immediate need and is not determined to be ineligible, an emergency placement shall be made and other needs met.” (83 ADM-47 [IV] [A] [1] [a], [b]; [2] [b].)

The Directive established baseline standards of shelter, sanitation and safety by prohibiting the City of New York from holding families with children overnight in welfare offices while awaiting appropriate accommodations. The Directive was incorporated into court decrees after findings of violations by the City of the Directive (McCain v Koch, 117 AD2d 198, revd in part 70 NY2d 109 [1987], on remand 136 AD2d 473; Matter of Lamboy v Gross, 126 AD2d 265, affg 129 Misc 2d 564; Slade v Koch, 135 Misc 2d 283, mod 136 Misc 2d 119).

Broadly summarized, the McCain order directs the municipality to "[p]rovide lawful emergency housing to all eligible homeless families with children, such emergency housing not to include overnight accommodations at Emergency Assistance Units or Income Maintenance Centers”; the Lamboy order prohibited the same City practice of holding families overnight in welfare offices because it violates the 1983 Administrative Directive, which requires that emergency housing "be provided immediately” to eligible homeless families; and the Slade order relates to baseline standards for sheltering pregnant women and infants. The three court orders establish compliance goals.

The voluminous record before us documents that the City and the four cited officials repeatedly failed to measure up to the essential compliance goals of these court orders, with "promises by City defendants to take specific actions to remedy [these] violations hav[ing] repeatedly been broken” (Sup Ct, NY County, Nov. 20, 1992, Freedman, J., index No. 41023/ 83). These officials tolerated homeless families with children being held overnight in welfare offices. Appellants do not deny that they failed to provide sufficient permanent housing and to fund all the homeless prevention initiatives they committed themselves to before Supreme Court in the November 1990 plan. Instead, they tender legally inexcusable reasons.

Homeless persons begin their quest for emergency shelter by entering an EAU. In theory, they enter an EAU office, fill out forms and, if determined eligible, are immediately placed in emergency housing (see, 83 ADM-47; Matter of Lamboy v Gross, 126 AD2d, at 267, supra). In practice, the municipality, which is unable to predict or prepare the EAUs for fluctuating demands, has left families with children in the EAUs overnight and in documented instances for several days. EAUs are offices with desks, chairs and tables, and are not designed or suitable to serve as any kind of dwelling space. The consequences of the City’s practices include families sleeping on the chairs and on the floor, washing in the sinks of public restrooms, and suffering self-evidently unsanitary and unsafe traumas.

Appellants also do not dispute that homeless citizens were left to spend nights and days in the EAUs. They plead for the Court’s understanding of the seemingly insurmountable shortage of housing to meet the problem, the crisis and the emergencies. They note that the supply and the uncontrollable influx of families and the unmatched demand are the dominating societal forces driving the homeless problem and evading plenary solution. They argue that they acted in good faith and to the best of a municipal ability to fulfill the court orders. In support of this claim, appellants recite increased demand and a series of failed strategies. In effect, they throw up their hands and say they did all they humanly or officially could do.

In the early 1980’s, HRA found hotel rooms for approximately 800 homeless families. Most stayed just one or two months before moving into permanent housing. By 1983, when the McCain action began, there were 2,500 homeless families in hotels and shelters in New York City (see, HRA, Progress Report on the Five Year Plan for Housing and Assisting Homeless Families [Feb. 1989]). The number of families seeking emergency housing continued to rise as the 1980’s "progressed” and families began staying in shelter systems for longer periods. Five years after McCain was instituted, the number of families in emergency housing had burst to over 5,000. The increasing demand was met by the City drafting more and more hotels into its "system”. The use of hotels educed sharp criticism, especially for its effects on young mothers, single-parent families, and the children growing up in such settings and conditions.

In the late 1980’s, the City acquiesced in fundamental changes in the family shelter system. The City Council enacted Local Law No. 19 in 1988 to require the City to eliminate the use of welfare hotels by April 1993. In the spring and summer of 1990, the City put almost every low-cost apartment into the program for homeless families and dropped the requirements that families in emergency housing wait first in hotel units before being assigned to apartments. This accelerated placement of homeless families into permanent housing produced dramatic results. By August 1990, the 3,600 families in over 60 hotels in 1987 dropped to only 147 families in three hotels in the entire emergency housing system.

As the elimination of the use of hotels came within grasp, demands for emergency housing surged. Hundreds more families per month rushed to HRA for shelter. HRA had anticipated and planned for 2,732 families for June 30, 1990. The actual number needed turned out to be 3,196 and that number jumped to 4,120 by June of 1991.

Appellants emphasize a particular aspect of their quandary. Instead of the number of homeless families being reduced by accelerating their movement into permanent apartments, the numbers dramatically increased. According to the Mayor’s Commission on the Homeless, "[p]lacing thousands of homeless families, many of whom had only recently entered into the shelter system, into permanent housing appears to have contributed to an enormous surge of families entering the system in the latter part of 1990” (Report of NY City Commn on Homeless, at 73 [Feb. 1992]). The municipality and its cited officials claim that families began to see the shelter system as their best chance to acquire adequate dwellings and they, in turn, applied for emergency housing in greater numbers as word spread of the successful program — up to a point. Thus, the City fostered a greater demand and, ironically, a continuation or exacerbation of the crisis. By the end of the summer of 1990, the Department of Housing Preservation and Development ran out of apartments available for HRA to use. The supply of permanent housing apparently was exhausted from that source. The City seemed forced to return to the use of hotels or to keep the clients waiting in EAUs until there is an adequate opening. Neither constitutes an acceptable solution and certainly not compliance with the Directive or the extant "negotiated” judicial decrees. On the very morning of the issuance of contempt citations by Supreme Court Justice Freedman, the plaintiffs demonstrated ongoing violations with overnight stays of families at the EAUs.

II.

A.

The contempt phase of this litigation saga was renewed in earnest in November 1992. Plaintiffs complained that the City and the four officials failed to live up to the letter and promise of the Slade, McCain and Lamboy orders. The previous contempt proceedings in 1990, after extensive discussions, led to a negotiated resolution with plaintiffs foregoing relief in return for the official commitment to implement a specific remedial plan. The first exertion in June of 1990 required the City to maintain a supply of lawful emergency and permanent housing units sufficient to meet the needs of all homeless families for emergency housing, and to compensate for shortfalls in the number of emergency housing units by substituting permanent housing. Because implementation came to naught, contempt proceedings were revived and Supreme Court directed the City to submit a new remedial plan. A November 1990 mandated plan emerged and constitutes the template against which the contempt violations at issue here were adjudicated. By November of 1992, Justice Freedman found detailed and repeated violations of the 1990 plan.

Matter of McCormick v Axelrod (59 NY2d 574, 583) and Heard v Cuomo (80 NY2d 684) were invoked to frame the issue whether lawful orders were knowingly disobeyed. Both Courts concluded that they had been and imposed contempt findings because "[t]he overnight housing of homeless families at EAUs is intolerable and clearly violates the prior orders of the IAS and this Court in McCain v Koch * * * and Matter of Lamboy v Gross” (192 AD2d 217, 218). The notion of substantial compliance was rejected as "it is no defense that the municipal defendants were attempting to comply or acting in good faith” (id., at 219, citing Matter of Bonnie H. [Rose H.] 145 AD2d 830, lv dismissed 74 NY2d 650). Found equally unavailing was the City’s plight that total compliance in every instance was impossible.

Plaintiffs have sustained their burden for the courts to hold the City of New York and its four cited, appointed officials in contempt pursuant to section 753 (A) (3) of the Judiciary Law. It provides in relevant part:

"A court of record has power to punish, by fine and imprisonment, or either, a neglect or violation of duty, or other misconduct, by which a right or remedy of a party to a civil action or special proceeding, pending in the court may be defeated, impaired, impeded, or prejudiced, in any of the following cases * * *
"3. A party to the action or special proceeding * * * for any other disobedience to a lawful mandate of the court.”

Civil contempt has as its aim the vindication of a private party to litigation and any sanction imposed upon the contemnor is designed to compensate the injured private party for the loss of or interference with the benefits of the mandate (Matter of McCormick v Axelrod, 59 NY2d 574, 583, supra; State of New York v Unique Ideas, 44 NY2d 345).

Although the line between the civil and criminal contempt may be difficult to draw in a given case and the same act may be punishable as both a civil and a criminal contempt, the element which escalates a contempt to criminal status is the level of willfulness associated with the conduct (Matter of McCormick v Axelrod, 59 NY2d 574, 583, supra). In the matters at issue, criminal contempt was not sought and is not in issue (see, People ex rel. Stearns v Marr, 181 NY 463, 471).

To sustain a civil contempt, a lawful judicial order expressing an unequivocal mandate must have been in effect and disobeyed (see, e.g., Pereira v Pereira, 35 NY2d 301, 308; Matter of Spector v Allen, 281 NY 251, 259; Ketchum v Edwards, 153 NY 534, 539; Coan v Coan, 86 AD2d 640, 641, appeal dismissed 56 NY2d 804). Moreover, the party to be held in contempt must have had knowledge of the order, although it is not necessary that the order actually have been served upon the party (e.g., People ex rel. Stearns v Marr, 181 NY 463, 470, supra). In addition, prejudice to the rights of a party to the litigation must be demonstrated (see, Judiciary Law § 753 [A]; Matter of McCormick v Axelrod, 59 NY2d 574, supra). We are satisfied that the City itself was justifiably held in contempt on this record.

We reject the City’s argument that the 1983 Directive (83 ADM-47) that emergency housing be provided immediately could not be met. The record reflects that as many as 100 families were forced to stay in the EAU offices overnight on some days. The feasibility of obedience, however, is not before us at this time, nor are intractable or herculean municipal efforts of a financial or political variety. The case is before us with detailed and affirmed findings of a serious, significant and persisting failure to comply with judicial decrees framed and particularized in part by reluctant acquiescence and negotiation by the City itself. Matter of Bonnie H. (Rose H.) (145 AD2d 830, lv dismissed 74 NY2d 650, supra) is instructive:

"Judiciary Law § 753 (A) (1) provides that a court may punish for contempt the neglect or violation of a duty, or other misconduct, by disobedience to a lawful mandate of the court or a Judge thereof, as a result of which the right of a party in a civil action or special proceeding is defeated, impeded, impaired or prejudiced (see, Matter of McCormick v Axelrod, * * *). Respondent’s argument that he acted in good faith and in the best interests of the children is of no avail (see, Matter of Sentry Armored Courier Corp. v New York City Off-Track Betting Corp., 75 AD2d 344; Matter of Williams-ville Teachers Assn. v Hatch, 62 AD2d 1144). It is Family Court which makes the order of disposition of children found to be neglected (Family Ct Act § 115 [a] [i]; § 1013 [a]) and once the order is made, respondent has no discretion but to comply with that order” (145 AD2d 830, 831, supra).

Insurmountable proof of municipal noncompliance was assembled and no escape theories are available on this record. Courts are justified and enjoy few alternative options in such circumstances except to exercise their "inherent power to enforce compliance with their lawful orders through civil contempt” (Shillitani v United States, 384 US 364, 370). Since we agree that immediately means "immediately” (see, Matter of Ayers v Coughlin, 72 NY2d 346) and that overnight stays in the City EAUs are not permissible (see, McCain v Koch, 70 NY2d 109, supra), we should uphold the Appellate Division’s determination that Justice Freedman was ultimately left with no alternative but to find contempt and acted on a cogently documented record. Indeed, on the morning of November 20, 1992, she was faced with the harsh reminder of noncompliance as more than 30 families with children were shown to have slept the previous night on the floors, chairs and tabletops of City EAUs.

B.

The four City officials, however, argue that they should be judged differently from the City. We discern no basis in law or the record, however, to absolve the individual agents of the City who performed or failed to perform the ordered acts, while holding the abstract principal, the City, responsible and in contempt for the very same failure to comply. The individual defendants were sufficiently aware of the prior orders in McCain and Larnboy, the prior contempt proceedings, and the unacceptable and unauthorized circumstances and conditions surrounding the use of the EAUs (see, Sup Ct, NY County, Nov. 20, 1992, Freedman, J., at 23). The City and the individual contemnors had adequate and sufficient notice of decrees and the contempt proceedings against them for their individualized responsibility and noncompliance. The very agents invested by the City to administer the homeless shelter system can hardly be heard to complain that they were unaware of the court orders, which they had so directly and actively been attempting to comply with or avoid compliance with for over four years.

Furthermore, the individual officials were specifically responsible for fulfilling the City’s municipal obligations to take appropriate steps to comply. Therefore, these individuals were properly held responsible personally for their failure to act for the benefit of their municipal principal — which could act only through them — by taking appropriate steps necessary to comply with the prior court orders (see, Matter of McCormick v Axelrod, 59 NY2d, at 583, supra; Matter of Bonnie H. [Rose H.], 145 AD2d 830, supra; Matter of Ward v Buric, 176 AD2d 571; compare, Spallone v United States, 493 US 265, 276). To hold otherwise on this record would create an unwarranted precedential loophole and exception for public officials to escape appropriate public accountability in judicial forums for failure to comply with court orders. The sanction and availability of contempt in such circumstances on a properly presented evidentiary record must be maintained. Governmental entities and their agents should, like any other party, be held to compliance and sanctions for indifference, dereliction or defiance of judicial decrees.

Thus, because we hold that the finding of contempt against the City is well supported on this record, we likewise rule against the responsible agents of the City. By like analysis, we are satisfied that the imposition of remedial fines against the City should suffice as the entire remedy for the conduct of the City and its agents in the circumstances and eventuations of the case.

As to the imposition of civil contempt penalties imposed on the parties, we look to their remedial nature and effect (State of New York v Unique Ideas, 44 NY2d 345, supra). Supreme Court directed the City to pay fines to families not properly sheltered as required by the court orders during the period September 20, 1991 to November 20, 1992 in accordance with the denoted schedule (see, Sup Ct, NY County, Dec. 8, 1992, Freedman, J., at 7 [$50 for the first night, $100 awards per family per additional night]), which imposed fines to be directly paid to the aggrieved homeless families as "indemnification pursuant to Judiciary Law § 773” (id., at 7).

These fines against the City are as remedial as could be developed within the discretionary, equitable powers of the courts under the unusual circumstances of these matters. Thus, we affirm the Supreme Court’s imposition of these fine sanctions payable to those homeless families who were forced to spend nights at the EAUs with the confidence that these fines will serve as appropriate recompense for the failure to comply with the mandates of the courts (Matter of Department of Envtl. Protection v Department of Envtl. Conservation, 70 NY2d 233, 239).

IIL

On the plaintiffs’ cross appeal, seeking to reinstate the sanction of overnight "stays” imposed on the individual officials, we agree with the Appellate Division’s unanimous modification and we essentially affirm that portion of the order. While "remedial powers of an equity court must be adequate to the task * * * they are not unlimited” (Whitcomb v Chavis, 403 US 124, 161). Thus, in selecting contempt sanctions, a court is obliged to use the " ' "least possible power adequate to the end proposed” ’ ” (Spallone v United States, 493 US 265, 276, supra, quoting Anderson v Dunn, 6 Wheat [19 US] 204, 231). We agree with the Appellate Division that, in this case, the unusual circumstances of this municipal government problem of mammoth proportions and complexity do not warrant the imposition on appointed officials of overnight stays in EAUs (see, N. A. Dev. Co. v Jones, 99 AD2d 238, 240; see also, State of New York v Unique Ideas, 44 NY2d 345, supra; People ex rel. Stearns v Marr, 181 NY 463, 471, supra; Matter of Sentry Armored Courier Corp. v New York City Off-Track Betting Corp., 75 AD2d 344, 345). While this severe sanction may be within a court’s power to induce compliance or remedy noncompliance with a court’s mandate for particularly egregious conduct or willful inaction (see, Matter of Department of Envtl. Protection v Department of Envtl. Conservation, 70 NY2d 233, supra), this case, as against these municipal officials, does not qualify for that sanction.

The remittal to the trial court for imposition of a replacement sanction against the individual defendants is, however, unnecessary and inappropriate in this case. None of the four holds the same office and responsibility in City government and some are entirely gone from the new administration that took office at the beginning of 1994. Thus, imposition of replacement sanctions for the contempts of the former and different appointed officials would serve no judicial or party purpose appropriate to civil contempt sanctions, inasmuch as they acted solely in their official capacities in all events.

IV.

We close then with an echo of the words of the Appellate Division that "it can hardly be disputed that all the parties involved in this contempt proceeding, including defendants [and their successors in office and responsibility], have a vital interest in finding an operative solution to the City’s homeless crisis” (192 AD2d 217, 220, supra). While political solutions for complex societal problems like homelessness test the foundations of government, the adjudication of contempt is all that this record presents in the judicial process and sphere. We consider the precise issues in this case only and consider them closed and at an end. All other arguments and claims have been considered and are either without merit, without need for further discussion, or subsumed in the rest of this opinion.

Accordingly, the order of the Appellate Division should be modified, without costs, by striking only the provision of the Appellate Division’s order directing remittal to Supreme Court and, as so modified, affirmed. Only because of the technical modification, the certified question should be answered in the negative.

Chief Judge Kaye and Judges Simons, Titone, Smith, Levine and Ciparick concur.

Order modified, without costs, in accordance with the opinion herein and, as so modified, affirmed, and certified question answered in the negative.


source: Caselaw Access Project

author: Chief Judge Kaye.

license: Public Domain

text:
    [639 NE2d 1140, 616 NYS2d 343]
    Robert L. Schulz et al., Appellants, v State of New York et al., Respondents.
    Argued June 7, 1994;
    decided June 30, 1994

      POINTS OF COUNSEL

      Robert L. Schulz, Glens Falls, and others, appellants pro se. I.

      Newell v People is dispositive with regard to NY Constitution, article VII, § 11. (Rodman v Munson, 13 Barb 63, 188, affd sub nom. Newell v People, 7 NY 9; Williamsburgh Sav. Bank v State of New York, 243 NY 231.) II. Wein v City of New York (36 NY2d 610) is not dispositive, neither is it on point. (Flushing Natl. Bank v Municipal Assistance Corp., 40 NY2d 731; McCabe v Gross, 274 NY 39.) III. This case is an absolute precedent with regard to the issuance of debt by a public corporation on behalf of the State, and where the State provides desirable credit to insure payment of debt service. IV. The Legislature has no power to interpret the Constitution: the Act’s disclaimers as to debt and obligation are nullities as is the Legislature’s declaration that the Act creates no moral obligation on part of the State. (Defiance Milk Prods. v Du Mond, 309 NY 537; Wiggins v Town of Somers, 4 NY2d 215; Matter of Van Berkel v Power, 16 NY2d 37; Montgomery v Daniels, 38 NY2d 41; Wein v Beame, 43 NY2d 326; Hotel Dorset Co. v Trust for Cultural Resources, 46 NY2d 358; Wein v City of New York, 36 NY2d 610; Marbury v Madison, 1 Cranch [5 US] 137; People v Allen, 301 NY 287; Newell v People, 7 NY 9.) V. The fundamental principle behind the debt referendum clause is the prevention of legislative burdening of future taxpayers through borrowings: the transactions authorized by the Act violate this principle. (Settle v Van Evrea, 49 NY 280; Matter of King v Cuomo, 81 NY2d 247; Matter of Schulz v State of New York, 81 NY2d 336; Smith v City of Newburgh, 77 NY 130; Marine Midland Trust Co. v Village of Waverly, 42 Misc 2d 704, 21 AD2d 753; Comereski v City of Elmira, 308 NY 248; Wein v City of New York, 36 NY2d 610; People ex rel. Metropolitan St. Ry. Co. v State Bd. of Tax Commrs., 174 NY 417; McCabe v Gross, 274 NY 39.) VI. The words of the debt referendum clause require its application to debts contracted by persons other than the State if they are in behalf of the State; bonds will be issuable under the Act in behalf of the State within the meaning of the clause. (People v Carroll, 3 NY2d 686; Matter of Clonan, 176 Misc 557.) VII. The adoptive and readoptive intent behind the debt referendum clause demonstrates its intended application to appropriation risk debt; the State agreements authorized by the Act involve the contracting of debt by the State within the meaning of the clause. (State Div. of Human Rights v New York State Dept. of Correctional Servs., 90 AD2d 51; Monaco v

      Mississippi, 292 US 313; Newell v People, 7 NY 9; People ex rel. Grannis v Roberts, 163 NY 70; Matter of Dick v Murphy, 219 App Div 141; People ex rel. City of New York v Nixon, 229 NY 356; Marbury v Madison, 1 Cranch [5 US] 137.) VIII. The Constitution directs the Comptroller to make principal and interest payments on debt created "on behalf of’ the State if the Legislature fails to make appropriations for same. IX. Defendants understate the need of the State to appropriate the necessary funds. (Matter of Congdon v Washington County, 130 AD2d 27, 70 NY2d 610.) X. The Thruway Authority and the Metropolitan Transportation Authority are the State; their obligations are State debt. (Sgaglione v Levitt, 37 NY2d 507.) XI. The Act is expressly forbidden; the Legislature acted in defiance of constitutional restraints. XII. The Act and the bonds issued pursuant thereto are patently unconstitutional. (Hotel Dorset Co. v Trust for Cultural Resources, 46 NY2d 358.) XIII. Defendants reliance on the special Fund doctrine is contrived and misplaced. XIV. Plaintiffs have standing to maintain all claims. (Wein v Comptroller of State of N. Y. 46 NY2d 394; Matter of Schulz v State of New York, 81 NY2d 336.) XV. This case involves a matter of State expenditures. XVI. Plaintiffs are not guilty of loches with respect to the third claim. XVII. Debt incurred under the Act would be void, invalid and unenforceable between the parties. (People v Westchester County Natl. Bank, 231 NY 465; Wilkes County v Coler, 190 US 107; County of Bates v Winters, 97 US 83; School Dist. v Insurance Co., 103 US 707; Brenham v German Am. Bank, 144 US 173; Northern Bank v Porter Twp., 110 US 608; Barnett v Denison, 145 US 135; Nesbit v Riverside Ind. Dist., 144 US 610; Brownell v Town of Greenwich, 114 NY 518.) XVIII. Constitutional debt-limiting and credit protection provisions need not specify all forms of debt. XIX. Both case law and generally accepted accounting principles require that the leases be treated as long-term debt. (Matter of Drobner v Chapman, 275 App Div 520; Smith v City of Newburgh, 77 NY 130; Marine Midland Trust Co. v Village of Waverly, 42 Misc 2d 704.) XX. The State’s own annual financial report identifies similar State leases as debt. XXI. The court should consider generally accepted accounting principles in reaching a decision. XXII. NY Constitution, article VII, § 11 is not limited to general obligation debt. XXIII. The Thruway Authority’s argument is specious and unavailing. XXIV. All State debt is "appropriation-risk” debt. XXV. This Court should look toward other States which have been more active in this area of law.

      G. Oliver Koppell, Attorney-General, Albany (Jerry Boone, Peter H. Schiff and Frank K. Walsh of counsel), for State of New York and others, respondents.
    I. Plaintiffs appeal should be dismissed on the ground that there is no substantial constitutional question directly involved. (Wein v City of New York, 36 NY2d 610; Board of Educ. v Wieder, 72 NY2d 174; Town of Hardenburgh v State of New York, 52 NY2d 536; Matter of Haydorn v Carroll, 225 NY 84.) II. The gift of funds to the Metropolitan Transportation Authority is in all respects lawful. (Wein v State of New York, 39 NY2d 136; Wein v City of New York, 36 NY2d 610; Comereski v City of Elmira, 308 NY 248.) III. The courts below correctly held that chapter 56 of the Laws of 1993 does not create a debt of the State in violation of article VII, § 11, provide for a gift or loan of the State’s credit in violation of article VII, §8 or assume the liability of a public corporation in violation of article X, § 5 of the State Constitution. (Wein v City of New York, 36 NY2d 610; Matter of Van Berkel v Power, 16 NY2d 37; Hotel Dorset Co. v Trust for Cultural Resources, 46 NY2d 358; Comereski v City of Elmira, 308 NY 248; Schulz v State of New York, 151 Misc 2d 594, 185 AD2d 596, 81 NY2d 336; Wein v State of New York, 39 NY2d 136; City of Rye v Metropolitan Transp. Auth., 24 NY2d 627; McCabe v Gross, 274 NY 39; Matter of Plumbing, Heating, Piping & Air Conditioning Contrs. Assn. v New York State Thruway Auth., 5 NY2d 420; Newell v People, 7 NY 9.) IV. The lower court correctly held that plaintiffs lack standing to raise any claims which do not concern the issuance of bonds which plaintiffs contend should be submitted to a referendum. (New York State Coalition for Criminal Justice v Coughlin, 64 NY2d 660; Wein v Comptroller of State of N. Y., 46 NY2d 394; Matter of Schulz v State of New York, 81 NY2d 336; Society of Plastics Indus, v County of Suffolk, 77 NY2d 761; Matter of Mobil Oil Corp. v Syracuse Indus. Dev. Agency, 76 NY2d 428; Matter of Messina v Sobol, 159 AD2d 916.) V. There is no merit to plaintiffs’ challenge to the Job Development Authority bond guarantee assistance program and the Urban Development Corporation loan capital assistance and loan programs. (Wein v City of New York, 36 NY2d 610; Wein v State of New York, 39 NY2d 136.) VI. The courts below correctly ruled that the third cause of action is barred by the doctrine of loches. (Matter of Schulz v State of New York, 81 NY2d 336.)

      Helene Fromm, New York City, Michael A. Vaccari and Mudge Rose Guthrie Alexander & Ferdon (Douglas M. Parker, Arthur F. McMahon, Jr., and James Whelan of counsel), for Metropolitan Transportation Authority, respondent. I. Chapter 56 of the Laws of 1993 is constitutional; it does not create State debt. (Hotel Dorset Co. v Trust for Cultural Resources, 46 NY2d 358; Matter of Van Berkel v Power, 16 NY2d 37; Wein v City of New York, 36 NY2d 610; Comereski v City of Elmira, 308 NY 248.) II. Chapter 56 provides State assistance. III. Wein v City of New York (36 NY2d 610) cannot be distinguished. (Newell v People, 7 NY 9; Matter of Plumbing, Heating, Piping & Air Conditioning Contrs. Assn. v New York State Thruway Auth., 5 NY2d 420; McCabe v Gross, 274 NY 39.) IV. The constitutionality of chapter 56 is further supported by Wein v City of New York’s progeny. (Wein v State of New York, 39 NY2d 136; Wein v Levitt, 42 NY2d 300; New York State Coalition for Criminal Justice v Coughlin, 103 AD2d 40, 64 NY2d 660; Burns v Egan, 117 AD2d 38; Matter of Congdon v Washington County, 130 AD2d 27, 70 NY2d 610; Schulz v State of New York, 151 Misc 2d 594, 185 AD2d 596, 81 NY2d 336.) V. Chapter 56 is grounded in the principles of the 1938 Constitutional Convention. VI. A proper regard for judicial precedent in New York and other jurisdictions requires that chapter 56 be held constitutional. (People v Wesley, 73 NY2d 351; Grace Plaza of Great Neck v Elbaum, 82 NY2d 10; People v Hobson, 39 NY2d 479.) VII. The proposed constitutional amendment makes judicial action inappropriate. VIII. The court below’s decision rejecting plaintiffs’ due process and standing arguments was correct in all respects. (Wein v City of New York, 36 NY2d 610; Quirk v Municipal Assistance Corp., 41 NY2d 644; Wein v Comptroller of State of N. Y, 46 NY2d 394; New York State Coalition for Criminal Justice v Coughlin, 64 NY2d 660.)

      Paul, Weiss, Rifkind, Wharton & Garrison, New York City (Arthur L. Liman, Allan Blumstein, Gerard E. Harper, Helen B. Kim and Hang C. Lee of counsel), Ralph J. Vecchio, Albany, and Sharon P. O’Conor for New York State Thruway Authority, respondent.
    I. Chapter 56 of the Laws of 1993 does not create constitutionally restricted debt. (Oswego & Syracuse R. R. Co. v State of New York, 226 NY 351; People v Scalza, 76 NY2d 604; People ex rel. Simpson v Wells, 181 NY 252; Maresca v Cuomo, 64 NY2d 242, 474 US 802; Matter of Van Berkel v Power, 16 NY2d 37; People v Epton, 19 NY2d 496, 390

      US 29; Wein v City of New York, 36 NY2d 610; Comereski v City of Elmira, 308 NY 248; Union Free School Dist. No. 3 v Town of Rye, 280 NY 469; Wein v State of New York, 39 NY2d 136.) II. Laches bars appellants’ challenge to chapter 56’s bonding for local aid programs. (Matter of Schulz v State of New York, 81 NY2d 336.) HI. Appellants lack standing to challenge chapter 56 other than under article VII, § 11 of the NY Constitution. (Matter of Schulz v State of New York, 81 NY2d 336; Wein v Comptroller of State of N. Y, 46 NY2d 394.)
   OPINION OF THE COURT

Chief Judge Kaye.

This challenge to a 1993 statute authorizing a multibillion dollar bond issue for State and local transportation improvements continues a debate on financing public works projects that has engaged our State throughout its history. The instant litigation attacks the statute both as imprudent fiscal policy and as violative of debt-limiting provisions of the State Constitution. The wisdom of legislation, of course, is not a matter for the courts. As to legality, we conclude — as did both the trial court and Appellate Division — that the statute before us does not violate the State Constitution.

I

On April 15, 1993 Governor Mario Cuomo signed into law, as chapter 56 of the Laws of 1993 (the Act), a four-year, $20 billion financing plan for the State’s transportation system.

The plan provides $10.47 billion for the Dedicated Highway and Bridge Trust Fund (Highway Fund) operated by the State Thruway Authority, and $9.56 billion for the Dedicated Mass Transportation Trust Fund (Mass Transportation Fund), operated by the Metropolitan Transportation Authority (MTA). Both Funds, created in 1991, would under the 1993 statute receive revenues — subject to annual appropriation by the Legislature — from taxes and fees derived from use of the Authorities’ facilities: vehicle registration fees, the motor fuel tax, the petroleum and aviation fuel business tax, and miscellaneous highway use taxes (State Finance Law § 89-b [3]; § 89-c; Tax Law §§ 289-e, 515; Vehicle and Traffic Law § 401; L 1993, ch 56, §§ 16, 31, 33).

The Thruway Authority

The Act authorizes the Thruway Authority to issue up to $4 billion in 30-year bonds for highway and bridge construction. Part of the Highway Fund, therefore, is a special reserve to be used by the Authority for debt service and administrative expenses on its bonds. The bond proceeds, in turn, finance improvements for highways, bridges, railways and aviation facilities. Some of the bonds are to be secured by service contracts and sale-and-leaseback agreements between the Authority and the State (L 1993, ch 56, §§ 16, 33).

The Act sets forth several provisos relating to Thruway Authority bonds. Any bonds issued pursuant to authorizations contained in the Act do not constitute a debt of the State. In the words of the Act:

"The notes, bonds or other obligations of the authority authorized by this section shall not be a debt of the state and the state shall not be liable thereon, nor shall they be payable out of any funds other than those of the authority pledged therefor; and such bonds and notes shall contain on the face thereof a statement to such effect” (L 1993, ch 56, § 34, adding Public Authorities Law §385 [1] [d]; see also, L 1993, ch 56, §§16, 33; Public Authorities Law § 386 [4]; § 1269 [8]; Highway Law § 10-e [5]).

Moreover, the statute in the same section declares that the State has "no continuing legal or moral obligation to appropriate money for payments due” under any agreements entered into to effect the implementation of the goals of the Act.

Restrictions on State liability must be included in any cooperative agreements flowing from the Act:

"Each dedicated highway and bridge trust fund cooperative agreement or agreements pursuant to this section shall contain a clause that such agreement or agreements of the state thereunder are not a debt of the state and that such agreement or agreements shall be deemed executory only to the extent of the monies available to the state and no liability on account thereof shall be incurred by the state beyond the monies available for the purpose thereof’ (L 1993, ch 56, § 33, adding Highway Law § 10-e [5]; see also, L 1993, ch 56, §§ 16, 19, 34; Public Authorities Law § 385 [1] [dj; § 386 [2]; L 1991, ch 329, § 11 [d]).

Further, Thruway Authority bonds issued pursuant to the Act are payable only by legislative appropriations from the Highway Fund and no other source:

"Such obligations * * * shall be special obligations of the authority secured by and payable solely out of amounts appropriated by the legislature as authorized pursuant to section eight-nine-b of the state finance law without recourse against any other assets, revenues or funds of or other payments due to the authority” (Public Authorities Law § 385 [1] [c], added by L 1993, ch 56, § 34; see also, Public Authorities Law § 385 [1] [d]).

Finally, the Act specifies that the State may assume the obligations of the Authority or substitute State security for the obligations of the Authority only upon constitutional amendment (L 1993, ch 56, § 34, adding Public Authorities Law § 385 [10]).

The MTA

With regard to the MTA, the Act sets up a $9.56 billion capital funding program for the five-year period ending December 31, 1996. The existing — but not previously funded— Mass Transportation Trust Fund and the Metropolitan Mass Transportation Operating Assistance Fund would receive appropriations from user-derived taxes and fees and, in turn, would pay into a newly created MTA Dedicated Tax Fund (L 1993, ch 56, § 7, adding Public Authorities Law § 1270-c). Appropriated under the Aid to Localities law as financial assistance for the operations and programs of the MTA, those expenditures are not subject to any restrictions.

The Act does not require the MTA to issue bonds, but if it chooses to do so, it may use the Tax Fund for security and debt service. Any bonds issued by the MTA are subject to the same statutory provisos on State liability as the Thruway Authority bonds. Tax Fund money not used in connection with issuance of bonds can be applied to operating and capital costs of MTA subsidiaries (L 1993, ch 56, §§ 6, 7, 10; Public Authorities Law § 1269 [12]; § 1270-c; State Finance Law § 89-c).

Asserting voter standing, plaintiffs commenced this action on May 24, 1993, alleging that the Act misuses public authorities to circumvent constitutional limitations on contracting debt, including the prohibitions against contracting State debt without a public referendum (NY Const, art VII, § 11), the lending of credit to public corporations (NY Const, art VII, § 8), and assumption of liability of debt obligation of public corporations (NY Const, art X, § 5).

On cross motions for summary judgment, Supreme Court concluded that under Matter of Schulz v State of New York (81 NY2d 336), plaintiffs lacked standing to challenge the legislation as violative of any constitutional provision other than article VII, § 11 and, on the strength of Wein v City of New York (36 NY2d 610 [Wein I]), upheld the statute as constitutional. The Appellate Division affirmed those conclusions, as do we.

II

Because plaintiffs assert voter standing, Supreme Court correctly held that the only cognizable challenge to the Act is under article VII, § 11, the constitutional mandate that State contracts for debt be submitted for public referendum. Plaintiffs contend first that debt contracted by the public authorities is indistinguishable from debt contracted by the State and thus within the referendum requirement. Alternatively, they argue that the Act — by pledging appropriation of public revenues — compromises the legal independence of the public authorities involved, subjecting them to the debt-limiting provisions imposed on the State. They urge moreover, that as a practical matter the Legislature always will appropriate money for the Funds rather than risk damaging the State’s credit rating. The effect of long-term appropriation-risk bonds, they say, is to "contract debt” within the meaning of article VII, § 11, and the failure to submit the proposed law to a public referendum renders the enactment unconstitutional.

Before proceeding to an examination of each claim, we note that plaintiffs’ burden is a heavy one. It is true that when the main purpose of a statute is to effect " 'indirectly that which cannot be done directly, the act is to that extent void, because it violates the spirit of the fundamental law’ ” (Wein v State of New York, 39 NY2d 136, 145 [Wein II], quoting People ex rel. Burby v Howland, 155 NY 270, 280). It is also true, however, that enactments of the Legislature — a coequal branch of government — enjoy a strong presumption of constitutionality. In particular, we give deference to public funding programs essential to addressing the problems of modern life, unless such programs are "patently illegal” (see, Hotel Dorset Co. v Trust for Cultural Resources, 46 NY2d 358, 369-370, quoting Comereski v City of Elmira, 308 NY 248, 254).

Plaintiffs have not satisfied their burden of proving unconstitutionality beyond a reasonable doubt.

Ill

In considering plaintiffs’ first contention — that the debt of the Authorities is debt of the State — we begin analysis with a history of the referendum requirement and the origin of public authorities.

The State Constitution of 1777, our first, provided that the legislative power of this State is to be vested in the Senate and Assembly (art II). The unlimited grant of legislative authority — when exercised in the arena of borrowing and spending — led to abuses and prompted a movement for reform of State borrowing practices (see, Matter of Schulz v State of New York, 81 NY2d 336, 346; People v Westchester County Natl. Bank, 231 NY 465, 471-473). Of particular concern, and the impetus for change, was the lending of public credit to private, "irresponsible” corporations. Following the onset of economic depression in 1837, private railroad corporations defaulted on obligations that had been assumed on the strength of liberally granted State credit. The State assumed the liabilities, with no hope of reimbursement, and by 1845 more than three fifths of the entire State debt was the result of such loans. Public works were suspended in response to the debt crisis (see, Wein II, 39 NY2d, at 142-143, supra; 2 Lincoln, Constitutional History of New York, at 87, 100 [1906]).

The precursor to the referendum requirement of article VII, § 11, proposed in 1841 by Assembly Member Arphaxed Loomis of Herkimer County, was adopted under the Constitution of 1846 (former art VII, § 12) as part of a sweeping reform of public borrowing practices, in an effort to protect the State from the uncertain and possibly disastrous consequences of incurring future liabilities — "liabilities easy for a current generation to project but a burden on future generations” (Wein II, 39 NY2d, at 144, supra). Known as "the people’s resolution,” the amendment reserved to voters the power to determine, by referendum, whether a proposed law creating debt would take effect (2 Lincoln, op. cit, at 73-83). In its present form, the Constitution provides:

"Except the debts specified in sections 9 and 10 of this article, no debt shall be hereafter contracted by or in behalf of the state, unless such debt shall be authorized by law, for some single work or purpose, to be distinctly specified therein. No such law shall take effect until it shall, at a general election, have been submitted to the people, and have received a majority of all the votes cast for it and against it at such election nor shall it be submitted to be voted on within three months after its passage nor at any general election when any other law or any bill shall be submitted to be voted for or against.
"The legislature may, at any time after the approval of such law by the people, if no debt shall have been contracted in pursuance thereof, repeal the same; and may at any time, by law, forbid the contracting of any further debt or liability under such law” (art VII, § 11).

Long-term State obligations are the concern of article VII, §11 (Wein v Levitt, 42 NY2d 300, 304 [Wein III]). By article VII, §9, the State may validly contract short-term debt in authentic anticipation of the receipt of taxes and revenues, for the purposes and within the amounts of appropriations previously made, if repaid within one year (NY Const, art VII, § 9; Wein II, 39 NY2d, at 146, supra). State debt that extends beyond one year, therefore, is subject to the referendum requirement of article VII, § 11. Simultaneously, a provision was adopted forbidding gifts or loans of State credit to "any individual, association, or corporation” (NY Const of 1846, art VII, § 9).

The referendum requirement is not simply a limit on discretion. In People ex rel. Hopkins v Board of Supervisors (52 NY 556), we observed that it was legally impossible for the Legislature to contract debt in the absence of approval by the people through referendum: such approval is a condition precedent to the creation of debt. Any purported long-term debt created in the absence of a public referendum is simply not legally binding on the State.

Following adoption of the referendum requirement, the Legislature sought ways to provide long-term funding for public works projects that would not require public referendum. In 1851, without public referendum, the Legislature authorized issuance of canal certificates, to be paid from canal revenues, which by their terms were not to be deemed to create a debt against the State. While we struck down the statute because it failed to comply with a constitutional mandate as to application of canal revenues (see, Newell v People, 7 NY 9, 92), we noted in passing that even though purchasers of the canal certificates may have no legal remedy against the State if canal revenues proved insufficient to pay the certificates, the State would no doubt make good on them by reason of moral obligation. Moreover, canal revenues paid out to certificate holders represented money that would be diverted from public coffers. The declaration that the certificates were not to be deemed debt was therefore "an evasion, if not a direct violation, of the constitution” (Newell, 7 NY, at 93, supra).

The Legislature then passed a series of town bonding acts that authorized — and later compelled — cities to borrow money to invest in railroad company stock. The question whether the State could authorize one of its instrumentalities to undertake commitments the Constitution prohibited the State itself from undertaking reached this Court in Bank of Rome v Village of Rome (18 NY 38). We upheld the scheme, leading to ratificatian of constitutional restrictions on municipal debt in 1874, 1884 and 1894.

Shortly after the turn of the century, the Legislature devised a new vehicle for funding public works projects that appeared to insulate the State from the burden of long-term debt: legislative creation of legally separate public benefit corporations, known as public authorities, to discharge particular functions. The first such entity was the Port of New York Authority, created in 1921 (see, Collins v Manhattan & Bronx Surface Tr. Operating Auth., 62 NY2d 361, 367). In theory, a public authority would be self-supporting, able to meet debt obligations through revenues obtained from its own valuable assets, such as fares and user fees. Such public benefit corporations would separate their administrative and fiscal functions from those of the State (1929 Opns Atty Gen 223, 224), to " 'protect the State from liability and enable public projects to be carried on free from restrictions otherwise applicable’ ” (Matter of Plumbing, Heating, Piping & Air Conditioning Contrs. Assn. v New York State Thruway Auth., 5 NY2d 420, 423, citing 1951 Opns Atty Gen 130, 132).

We rejected an early challenge to the effectiveness of language disclaiming the State’s liability for public authority debts, where bonds were secured solely by the revenues of the issuing authority (see, Robertson v Zimmermann, 268 NY 52, 62). Although public authority debt was not legally binding on the State, we nevertheless recognized in Williamsburgh Sav. Bank v State of New York (243 NY 231) that the State might choose to honor a liability as a moral obligation. We stated, however, that whether to recognize a moral obligation is within the discretion of the State:

"[I]t rests solely with the State through its Legislature to determine whether it will recognize a claim even though founded upon equity and justice and allow it to be developed into a legal demand and * * * the exercise of this choice cannot be delegated to any one else[.] * * * Practically the sole power of the courts in this respect is to determine whether all of the facts established in a given case and presumably within the knowledge of the Legislature do establish such a foundation of equity and justice that the Legislature within the rules established by the courts was authorized, if it saw fit so to do, to recognize the justice of the claim” (243 NY, at 244-245, supra [emphasis added]).

In Williamsburgh> the State had indicated its intent to allow enforcement of a moral obligation, permitting judicial determination of a claim (id.; see also, Board of Supervisors v State of New York, 153 NY 279, 293 [unenforceable moral obligation paid by the State]).

To prevent the State from assuming public authority debt as a moral obligation — and to overrule constitutionally the effect of Williamsburgh — the 1938 Constitution (our present Constitution) explicitly empowered public authorities to issue bonds and incur debt but prevented the State from assuming that liability:

"Neither the state nor any political subdivision thereof shall at any time be liable for the payment of any obligations issued by such a public corporation heretofore or hereafter created, nor may the legislature accept, authorize acceptance of or impose such liability upon the state or any political subdivision thereof; but the state or a political subdivision thereof may, if authorized by the legislature, acquire the properties of any such corporation and pay the indebtedness thereof’ (NY Const, art X, § 5; see, 3 Revised Record of 1938 Constitutional Convention of State of NY, at 2259-2283; Galie, New York State Constitution, at 226-228).

To limit proliferation of public authorities, the new Constitution specified that only the Legislature, through special act, could create them (see, City of Rye v Metropolitan Transp. Auth., 24 NY2d 627).

Those who spoke in opposition to allowing public authorities expansive discretion in performing formerly State functions were in the minority. Debate at the Constitutional Convention included discussion of whether the State would be liable in the event an authority were unable to meet its obligations, and the language of the amendment was tailored to make clear that it would not. The Chair of the Committee on the Legislature and its Powers, George Fearon, supported the new provision, stating, " T believe that when people buy [authority] bonds they should know definitely and certainly that the credit of the State of New York and that the credit of the municipality is not behind those bonds. There should not be any question about it’ ” (Quirk and Wein, A Short Constitu tional History of Entities Commonly Known as Authorities, 56 Cornell L Rev 521, 573 [1971], quoting 3 Revised Record of 1938 Constitutional Convention, op. cit., at 2276).

By article VII, § 8 and article VIII, § 1 of the 1938 Constitution, the prohibition against gifts or loans of State credit was made applicable to public corporations (see, Wein II, 39 NY2d, at 144, supra). While the provision bars the State from lending its "credit” to a public corporation, the State is nonetheless free to give money to a public authority and to commit itself to giving future gifts (see, Comereski v City of Elmira, 308 NY 248). The distinction is rooted in the fact that the granting of State money — while depleting current State coffers and making those funds unavailable for other purposes — nevertheless does not bind future generations or create the same dangers of collapse, insolvency and crisis associated with the abuse of credit. Such a distinction presumes, of course, that the State has adequate funds to support a gift (Wein II, 39 NY2d, at 154, supra [Jasen, J., dissenting]).

The Constitution was adopted by the people on November 8, 1938 at a general election, giving full recognition to the existence of public benefit corporations, their independent capacity to contract debt, and the continued power of the State to make gifts of money to those authorities. Thus, contrary to plaintiffs’ contention, there can be no question that — for the purpose of contracting their own legally binding obligations — the Thruway Authority and the MTA are public benefit corporations existing independently of the State (NY Const, art X, § 5; Matter of Plumbing, Heating, Piping & Air Conditioning Contrs. Assn, v New York State Thruway Auth., 5 NY2d 420, 424-425, supra; Metropolitan Transp. Auth. v County of Nassau, 28 NY2d 385, 390). Moreover, contracting of debt by public authorities was unquestionably not the aim of the referendum requirement, adopted in 1846, since those entities did not exist at the time.

That the 1938 Constitution expressly empowered public authorities to contract debt independently of the State lends further support to the conclusion that the Act, by authorizing the Thruway Authority and the MTA to issue bonds, does not contract legally binding debt upon the State. The power of the State and these Authorities to engage in this practice has been secured by vote of the people, through article X, § 5 of the Constitution, and any change must come by constitutional amendment. The courts have not made the Constitution and they cannot unmake it (see, Sgaglione v Levitt, 37 NY2d 507, 514).

IV

Though the debt of the Thruway Authority and MTA are not a legal obligation of the State, plaintiffs also contend that the Act contracts debt of the State by imposing a moral obligation on the Legislature to continue appropriating revenue to the special Funds. A moral obligation, however, is not in and of itself "debt” (see, Firestone Tire & Rubber Co. v Agnew, 194 NY 165, 170) — although it may constitute sufficient consideration to support a promise to pay (see, Meyer v Price, 250 NY 370, 376). Debt, within the contemplation of the State constitutional debt-limiting provisions, has a settled meaning (see, Wein I, 36 NY2d 610, supra), and we are not persuaded that plaintiffs’ argument for an expanded definition has merit.

To bring themselves within article VII, § 11, plaintiffs characterize the Act as creating "moral obligation” debt — a term apparently coined in the 1960’s to describe appropriation-risk bonds that could not legally bind the Legislature beyond a session but would create a "moral obligation” to appropriate money should a public authority be unable to redeem its bonds (see, Quirk and Wein, Rockefeller’s Constitutional Sleight of Hand, Empire State Report, at 430 [Nov. 1975]; see also, Tyler, The Steady Growth of Backdoor Financing, Empire State Report, at 213, 222 [June 1975]). The existence of such a moral obligation would provide some assurance (though not an enforceable legal obligation) to bondholders that the bonds would retain their value.

The bonds authorized by the Act were not labelled "moral obligation bonds” by the Legislature, and entirely apart from nomenclature the Act does not create such an obligation. The Act requires a statement on the face of the bonds that they are not a debt of the State and are payable only out of the Authorities’ funds. Moreover, the Act disavows existence of a moral obligation on the part of the State to appropriate revenues in the future. These disclaimers — particularly when read in light of the constitutional prohibition against State assumption of authority debt (NY Const, art X, § 5) — are sufficient to remove any reasonable expectation on the part of bondholders that the State will guarantee return in the event of default on the part of the Authority or that the bonds place them in privity with the State (see, Matter of Mullane v McKenzie, 269 NY 369, 376, rearg denied 270 NY 563, supra [no moral obligation arises where State acting in accordance with its legal rights]).

Plaintiffs’ heavy reliance on Williamsburgh (243 NY 231, supra) as establishing the possibility that the State could be held liable on a moral obligation is unavailing. First — unlike the Act — the statute at issue in Williamsburgh expressly recognized the possibility of a moral obligation. Second, article X, § 5 was adopted after Williamsburgh precisely to overrule constitutionally the possibility of the State assuming a moral obligation as to debt of a public authority.

Most critically, a moral obligation cannot be judicially imposed upon the State in the absence of its consent to be so bound (see, Williamsburgh, 243 NY, at 247, supra). Even where a moral obligation exists, that circumstance creates no enforceable right on behalf of the aggrieved party. Rather, where circumstances support a determination that the State has a valid moral obligation to honor a private claim, we will permit the State to waive immunity from liability. But that is a unilateral right (Ruotolo, 83 NY2d 248, supra; People v Westchester County Natl. Bank, 231 NY 465, supra), and the effect is simply to permit adjudication of a claim.

In short, a moral obligation does not create "debt,” since it creates no enforceable right on the part of the one to whom the obligation is owed. Moreover, the Act could not make plainer that the State recognizes no moral obligation on its part to continue appropriations. Plaintiffs’ claim that the Act creates a moral obligation to pay which falls within the constitutional definition of "debt” therefore also must fail.

V

Plaintiffs point as well to the State’s need to protect our economy as binding future Legislatures to continue with annual appropriations to the Funds for the life of the bonds. They claim that, in reality, the bonds are backed by the State’s full faith and credit because the consequences of default would be ruinous, assuring that appropriations will be made. Indeed, plaintiffs document instances where State officials appear to have characterized the future appropriations as legal obligations of the State, despite the Act’s disclaimers. Thus, in plaintiffs’ view, the Act obligates the State to continue appropriations for the life of the bonds — some 30 years —creating long-term State "debt.”

We have previously held that a proposal to fund in a subsequent year, subject to legislative appropriation and explicit disclaimer, does not create legally binding debt (Levy v McClellan, 196 NY 178, 195-196; see also, Public Util. Dist. No. 1 v Washington Pub. Power Supply Sys., 104 Wash 2d 353, 370, 705 P2d 1195, 1207 [WPPS bonds do not constitute legal or equitable pledge upon State]). In People ex rel. Hopkins v Board of Supervisors (52 NY 556, 564, supra), we observed that while the Legislature might endeavor to incur future liabilities, to be appropriated on a year-to-year basis without submitting the spending plan to the people, "[n]o harm or loss has or can come from this practice.” Such spending plans are effectual only to the extent subsequent Legislatures indeed do "give effect to them by providing the means and directing their payment, but the discretion and responsibility is with them as if no former appropriations had been made. No duty or obligation is devolved upon them by the acts of their predecessors” (id., at 565). If uneffected by future Legislatures, the laws will simply "remain upon the statute books, but * * * only * * * as monuments of the extravagance, recklessness or folly of those by whom they were enacted,” creating no legally binding debt or liability upon the State (id., at 565).

Our constitutional limitations, however, have consistently been construed as addressing legally binding debt. As in Wein I, where we upheld subsidies for debt service on bonds issued by the Stabilization Reserve Corporation contingent on annual appropriation, indebtedness is precluded by the very terms of chapter 56, as well as the prohibition of article X, § 5 against State assumption of authority debt (36 NY2d, at 617). We rejected in Wein I the suggestion that a gift of money to a public authority — upheld in Comereski (308 NY, at 253-254)— violated the letter or spirit of the constitutional limitations on contracting debt (Wein I, 36 NY2d, at 616, supra).

Next, in Wein II (39 NY2d 136, supra), we upheld a plan giving aid to New York City and the Municipal Assistance Corporation that would be funded through borrowing pursuant to the short-term debt provision of article VII, § 9 as not violating the constitutional prohibition against giving or lending credit of the State. In Wein III (42 NY2d 300, supra), a law promising to indemnify State officers from any claims arising from purchase of risky authority bonds was not "borrowing” of any kind, but rather "a contingent cost of doing State business payable routinely out of the general fund” (42 NY2d, at 305).

Apart from constituting a line of precedents upon which reliance has been placed in the financial marketplace, these cases established that a contractual obligation on the part of government to make future "gifts” to a special fund created to retire debt of an independent public authority is not offensive to article VII, § 8; article VIII, § 1; or article X, § 5 of the Constitution.

We define "debt” no differently for purposes of article VII, § 11. While the Legislature might make the appropriations to the Funds, to be used in turn to service the Authorities’ debt, it is not bound to do so. Should it fail to do so, and the Authority default, the State is not liable to the bondholders under the provisions of the Act. Because the State does not become indebted, the financing subject to appropriation does not constitute the lending of credit or assumption of the liability of a public corporation, or indebtedness of the State for purposes of the constitutional limits on such debt (Wein I, 36 NY2d, at 618, supra). Instead, the funds — if appropriated— constitute a permissible gift of money to a public corporation out of existing revenues, creating no debt (NY Const, art VII, § 8; Comereski v City of Elmira, 308 NY 248, supra). Laws making annual appropriations from a special fund do not and cannot create debts within the meaning of the referendum requirement (Rockaway Pac. Corp. v Stotesbury, 255 F 345, 348 [ND NY]).

Plaintiffs’ third argument therefore must fail as well.

VI

In sum, neutral principles of law and consistent precedents of this Court, upon which decades of commercial transactions have been premised, lead us to uphold the validity of the particular legislation before us. If (as plaintiffs urge) modern ingenuity, even gimmickry, have in fact stretched the words of the Constitution beyond the point of prudence, that plea for reform in State borrowing practices and policy is appropriately directed to the public arena, where indeed it is now under serious consideration (see, NY Senate Bill S 4359, replacing Assembly Bill A 7586 [Apr. 4, 1993]; Joint Press Release of Governor and Comptroller [Mar. 15, 1994]; Opn of Atty Gen to Legislature re NY Senate Bill S 4359 [May 11, 1993]).

We have reviewed plaintiffs’ remaining claims, and conclude they lack merit.

Accordingly, the order of the Appellate Division should be affirmed, without costs.

Judges Simons, Titone, Bellacosa, Smith and Ciparick concur; Judge Levine taking no part.

Order affirmed, without costs.

      . The Thruway Authority was created in 1950 by the New York State Thruway Authority Act (Public Authorities Law §352). It operates and maintains the 641-mile New York State Thruway, as well as New York’s 524-mile canal system. In addition, it finances and performs economic development and transportation projects, and since 1972 has through bonds financed State and local highway capital projects.
      The MTA was created in 1967 by Public Authorities Law § 1263 (City of Rye v Metropolitan Transp. Auth., 24 NY2d 627). Through its affiliates and subsidiaries — the New York City Transit Authority, Manhattan and Bronx Surface Transit Operating Authority, the Long Island Rail Road Company, Metro-North Commuter Railroad Company, and the Triborough Bridge and Tunnel Authority — MTA is charged with implementing and operating a unified mass transportation system in New York City and the nearby suburban counties.

      . Sections 13 and 14 of the Act authorize the Thruway Authority to issue bonds to finance $1.01 billion over the next four years for local highways and bridges through three programs: (a) the Consolidated Local Highway Assistance Program for local highway and bridge projects; (b) the Municipal Streets and Highways Program; and (c) the Suburban Highway Improvement Program for improvements on local and State highways and bridges in the Hudson Valley and on Long Island.

      . This prohibition was made binding on cities and other local governments by article VIII, § 11 of the 1874 amendments.

      . We have consistently recognized public authorities as legal entities separate from the State, enjoying an existence separate and apart from the State, its agencies and political subdivisions (see, e.g., Matter of New York Pub. Interest Research Group v New York State Thruway Auth., 77 NY2d 86, 92-93; Methodist Hosp. v State Ins. Fund, 64 NY2d 365; Collins, 62 NY2d 361, 367, supra; Grace & Co. v State Univ. Constr. Fund, 44 NY2d 84, 88; Patterson v Carey, 41 NY2d 714; Matter of Dormitory Auth. [Span Elec. Corp.J, 18 NY2d 114; Matter of Plumbing, Heating, Piping & Air Conditioning Contrs. Assn, v New York State Thruway Auth., 5 NY2d 420, 423-424).

      . McCabe v Gross (274 NY 39), holding unlawful the City of Troy’s effort to issue bonds through a school district "authority” is not to the contrary. There, we construed the effect of a constitutional provision limiting city debt as extending to debt of city school districts, which are subdivisions of the city. By contrast, the Constitution, through article X, § 5, separates debt of public benefit corporations and that of the State. Public authority bonds are —by constitutional mandate — not legal liabilities of the State.

      . A moral obligation cognizable by the State generally falls into one of two classifications. The first are claims involving benefits conferred by private persons upon the State which the State has continued to enjoy without the return of quid pro quo. The second are claims involving injuries and damages wrongfully inflicted upon individuals by those in State service or others for whose acts the State might justly be regarded as responsible (Farrington v State of New York, 248 NY 112, 116). Where a moral obligation exists, the Legislature may use public money to remedy an injustice in cases even though no legal obligation to do so exists, so long as some higher obligation of honor, fairness or broad public responsibility is recognized (Matter of Mullane v McKenzie, 269 NY 369). As we recently stated in Matter of Ruotolo v State of New York, moral obligation is properly found where legislative failure to act would be a "travesty of justice” (83 NY2d 248, 259).