STATE CONSTITUTION, ARTICLE VIII, §4; LOCAL FINANCE LAW,
§106.00(b); VILLAGE LAW, §17-1726: A town may not issue
indebtedness after the incorporation of a village which is
coterminous with the town. Indebtedness of the town which was
outstanding when the coterminous village was incorporated
should be treated as debt of the village for purposes of
calculating the village's constitutional debt limit if the debt
was issued for a purpose enumerated in Village Law, §17-1726.
If the debt was not issued for such a purpose, the town debt
remains debt of the town.
You ask whether a town may issue indebtedness after the incorporation of a village which is coterminous with the town. You also ask what portion, if any, of the town indebtedness outstanding at the time of incorporation is chargeable to the village's constitutional debt limit.
The general provisions of law applicable to villages incorporated to be coterminous with a town, and towns created to be coterminous with a village, are set forth in Article 17 of the Village Law (§17-1700 et seq.). Although the village is ordinarily the predominant governmental entity in a coterminous town-village (cf. Village Law, §17-1703-a, applicable to a village in which a town is created to be coterminous with such village), the town government continues to have a separate corporate existence (1979 Opns St Comp No. 79-124, unreported; 1976 Opns St Comp No. 76-385, unreported). Thus, for example, both the town and the village continue to prepare separate budgets (Village Law, §17-1728) and each must file an annual report of its financial condition with the State Comptroller as required of every municipal corporation by General Municipal Law, §30 (Opn No. 79-124, supra). Similarly, town local laws, ordinances, resolutions, rules and regulations in effect at the time of incorporation of the village remain in effect, and new local legislation may be enacted thereafter by the town board (Village Law, §17-1735).
In regard to indebtedness of these towns, however, Local Finance Law, §106.00(b) provides that "[w]henever the boundaries of any village are the same as those of a town, ...the power of [the] town which is wholly included within such village to contract indebtedness shall cease". Therefore, once the coterminous village has been incorporated, the town no longer has authority to issue indebtedness (Opn No. 76-385, supra).
With respect to pre-existing indebtedness of the town, Village Law, §17-1726 provides that any "outstanding obligations ... and bonds of [the] town or of any district therein" issued for certain enumerated purposes therein "shall devolve upon and be assumed" by the village, and that it shall be the duty of the village board of trustees "to provide for the payment and discharge of such obligations". The particular debt to be assumed by the village includes debt which was issued for: improving the town highways; constructing overhead or undergrade crossings; constructing sidewalks; sewers or sewer district purposes; and water or water district purposes.
Article 8, §4 of the State Constitution establishes limitations on local indebtedness. That section provides, in pertinent part, that, except as otherwise provided in the constitution, no village "shall be allowed to contract indebtedness for any purpose or in any manner which, including existing indebtedness, shall exceed an amount equal to" seven per centum of average full valuation of taxable real property of the village. The purpose of this limitation is to prevent "the creation of an excessive debt, the carrying charges of which would fall upon current revenues, and the principal upon posterity" (McCabe v Gross, 274 NY 39, 46). Article 8, §5 provides for the exclusion of certain indebtedness from the debt limitation prescribed in section 4 of article 8.
As noted, town indebtedness issued for purposes listed in Village Law, §17-1726 is assumed by the village, which is then responsible for payment of this indebtedness. Therefore, consistent with the purpose of the constitutional debt limitation, in our opinion, this indebtedness should be treated as existing indebtedness of this village for the purpose of calculating the village's constitutional debt limitation (see People ex rel. Haight v Brown, 169 AD 695, 155 NYS 564, affd 216 NY 674, mot for rearg den 216 NY 743; cf. NY Const, art 8, §9, which provides that the power of a county which is coterminous with a city to contract indebtedness "shall cease, but the indebtedness of such county shall not, for purposes of this article, be included as part of the city indebtedness"). We note, however, that certain of the indebtedness assumed by the village may be excluded from the village's debt limit (see NY Const, art 8, §5[B],[E]; Local Finance Law, §124.10).
Finally, as previously noted, a town in which a coterminous village has been created continues to have a separate corporate existence. Therefore, although Local Finance Law, §106.00(b) prohibits the town from incurring any further indebtedness, outstanding town debt issued for purposes other than those enumerated in Village Law, §17-1726, would continue to be considered as debt of the town, and would not count against the village's constitutional debt limit.
March 27, 1991