Opinion ID: 2234380
Heading Depth: 1
Heading Rank: 2

Heading: Local Government Assistance Corporation

Text: Plaintiff Local Government Assistance Corporation (LGAC) was charged with channeling the payments from a portion of state sales tax revenues. LGAC was established by chapter 220 of the Laws of 1990 as part of a state fiscal reform program. [1] As a public benefit corporation, it was authorized to issue $4.7 billion in bonds to provide funding for public services. LGAC bonds were issued pursuant to general bond resolutions adopted in 1991 and in 2002. The resolutions constitute contracts between LGAC and its bondholders and contain promises that the bondholders would have first priority on the tax dollars available to LGAC for debt service, and included a pledge that no equal or prior lien on these funds could be created. Additionally, pursuant to Public Authorities Law § 3241 (1), the State has pledged not to limit or alter LGAC's right to fulfill its agreements with its bondholders or to impair the bondholders' rights or remedies. The debt service on LGAC bonds is payable from revenues derived from state sales and compensating use taxes, one percentage point of which must be deposited in the Local Government Assistance Tax Fund (Tax Fund). The Tax Fund is held in the joint custody of the State Comptroller and the Commissioner of Taxation and Finance ( see State Finance Law § 92-r [1]). Pursuant to Public Authorities Law § 3240 (1), each year the Chairperson of LGAC must certify to the Governor and the Comptroller its debt service requirements and certain other required expenditures for the upcoming fiscal year. Upon annual appropriation by the Legislature, the funds needed are transferred by the Comptroller ( see Public Authorities Law § 3240 [3]; State Finance Law § 92-r [5]). Only after LGAC has received its funds in accordance with its certified request can the remaining revenues in the Tax Fund be distributed to the general fund of the State Treasury ( see State Finance Law § 92-r [5]). Although the State is not legally obligated to appropriate the funds that LGAC has sought in its certification ( see Public Authorities Law § 3240 [5]), [2] the State has a powerful incentive to make the requested appropriation because the Comptroller is prohibited from distributing any money in the Tax Fund to the state general fund unless and until LGAC receives the payments according to its certification ( see State Finance Law § 92-r [5] [a] [i]). This incentive has been referred to as the statute's trapping mechanism. Since the inception of LGAC, there has annually been a legislative appropriation and substantial excess funds have been transferred each year from the Tax Fund to the State Treasury.