Opinion 92-48


This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.


MUNICIPAL FUNDS -- Mandatory Reserve Fund (need to establish); (use of entire proceeds to retire debt even when part of improvement sold)

GENERAL MUNICIPAL LAW, §6-l: Until July 1, 1993, a municipal corporation, fire district or school district which sells a capital improvement financed by the issuance of outstanding obligations need not establish a mandatory reserve fund if the proceeds of the sale of the improvement are used to pay or provide for the construction, reconstruction, acquisition or installation of another capital improvement or equipment, or to pay debt service on outstanding obligations issued to finance any capital improvement or equipment, subject to the limitations in section 6-l as amended by 413 of the Laws of 1991. This conclusion applies without regard to whether all or a portion of the capital improvement is sold. 1987 Opns St Comp No. 87-71, p 107 is superseded to the extent inconsistent.

You ask whether 1987 Opns St Comp No. 87-71, p 107 still represents the views of this Office in light of the subsequent amendment of 6-l of the General Municipal Law by section 32 of chapter 413 of the Laws of 1991.

General Municipal Law, §6-l relates, inter alia, to the establishment of mandatory reserve funds by municipal corporations, fire districts and school districts in connection with the cash sale of capital improvements financed by obligations which are outstanding at the time of the sale. Prior to the enactment of chapter 413 of the Laws of 1991, section 6-l(2) required that, upon the cash sale of such a capital improvement, the entire proceeds of the sale be deposited to the credit of a mandatory reserve fund in an amount sufficient to pay the total amount of debt service due or to become due on the outstanding obligations. Section 6-l also provided that moneys in excess of the sum of all installments of principal and interest due on the indebtedness could be used for any lawful municipal purpose. Based on the requirement in section 6-l that the "entire proceeds of the sale" be deposited, we concluded in Opn No. 87-71, supra, that when a parcel of real property is purchased with the proceeds of obligations authorized to be issued for a single object or purpose and only a portion of the parcel is sold, the entire proceeds of the sale must be deposited in a mandatory reserve fund to the extent necessary to retire the outstanding indebtedness issued to acquire the whole parcel.

Section 32 of chapter 413 amended section 6-l(2) in several respects. Section 6-l now provides that the entire proceeds of the sale of a capital improvement must be deposited to the credit of a mandatory reserve fund, but if the aggregate amount of the proceeds exceeds the principal due on the indebtedness issued to finance the capital improvement, without regard to interest, the excess may be used for any lawful municipal purpose. Further, section 6-l temporarily provides limited exceptions to the requirement that a mandatory reserve fund be established.

During the two-year period beginning July 1, 1991, municipal corporations, fire districts and school districts generally need not establish a mandatory reserve fund if they use or set aside to be used the proceeds from the sale: (1) to pay or provide for the construction, reconstruction, acquisition or installation of capital improvements or equipment, or (2) to pay principal or interest on any outstanding obligations issued to finance improvements or equipment, in an amount not less than the lesser of the proceeds of the sale or the principal amount of the indebtedness on the capital improvement sold. If, however, the proceeds to be used for the above-listed two purposes, together with any other amounts derived from the sale of an improvement subject to indebtedness so used, would exceed one percent of the local government's statutory debt limit prescribed by Local Finance Law, §104.00, then a mandatory reserve fund must nonetheless be established. Further, use of the proceeds to pay or provide for capital improvements or equipment must be reported to the State Comptroller within 30 days thereafter. The report must identify the asset sold, the amount of net proceeds from the sale, the amount to be paid or provided for capital improvements or equipment, and the capital improvements or equipment to be so paid for or provided.

Accordingly, until July 1, 1993, a municipal corporation, fire district or school district which sells a capital improvement financed by the issuance of outstanding obligations need not establish a mandatory reserve fund if the proceeds of the sale of the improvement are used to pay or provide for the construction, reconstruction, acquisition or installation of another capital improvement or equipment, or to pay debt service on outstanding obligations issued to finance any capital improvement or equipment, subject to the limitations in section 6-l as amended by chapter 413 of the Laws of 1991. This conclusion applies without regard to whether all or a portion of the capital improvement is sold. Opn No. 87-71, supra, is superseded to the extent inconsistent herewith.

December 31, 1992
Roberta Penchina, Clerk-Treasurer
Village of Great Neck