Opinion 95 - 5

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 The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.

COUNTIES -- Emergency (911) Telephone System (use of surplus surcharge revenue to pay principal and/or interest on serial bonds issued to finance purchase of emergency communication system)

COUNTY LAW, §§301(8), 307: Surplus surcharge revenues collected pursuant to County Law, article 6 may be used to pay debt service on serial bonds to the extent that the proceeds of those bonds were used to pay for the acquisition of telecommunication equipment and costs necessarily incidental thereto.

You ask whether a county which has implemented the enhanced emergency telephone system (E911) surcharge authorized by County Law, Article 6 (§§300-309 inclusive), may apply surplus surcharge monies toward the payment of interest and/or principal on serial bonds issued to finance the county's purchase of an emergency communication system, including equipment, apparatus, incidental improvements and expenses in connection therewith.

Article 6, enacted by chapter 756 of the Laws of 1989, relates to the establishment and administration by counties of enhanced emergency telephone service ("E911"). Generally, Article 6 provides that any county, except a county wholly contained within a city, and every city having a population of a million or more people, which has established an E911 system may by local law impose a surcharge not to exceed 35 cents per access line per month on the customers of every telephone corporation providing local exchange access service within such municipality (County Law, §303[1]). Further, section 307 provides as follows:

All surcharge monies remitted to the municipality by a service supplier and all other monies dedicated to the payment of system costs from whatever source derived or received by the municipality shall be expended only upon authorization of the board and only for payment of system costs as permitted by this article. The municipality shall separately account for and keep adequate books and records of the amount and source of all such revenues and of the amount and object or purpose of all expenditures thereof. If at the end of any fiscal year the total amount of all such revenues exceeds the amount necessary and expended for payment of system costs in such fiscal year, such unencumbered cash surplus shall be carried over for the payment of system costs in the following fiscal year ... [emphasis added].

Thus, surplus surcharge funds may be used only for the payment of "system costs".(1) These costs are defined to mean " ... the costs associated with obtaining and maintaining the telecommunication equipment and the telephone services costs necessary to establish and provide an E911 system" (County Law, §301[8]). Costs not included within the definition of "system costs" are municipal expenses which may not be funded with surcharge moneys (County Law, §308[4]).

Because the term "system costs" is defined to mean the costs "associated with" obtaining and maintaining telecommunication equipment, we have previously expressed the opinion that the definition encompasses the actual costs of both acquiring and maintaining equipment, as well as those costs necessarily incidental thereto (1990 Opns St Comp No. 90-51, p 116). For the same reason, we believe that the definition is not limited to expenditures to directly pay for obtaining equipment and incidental costs, but rather, also includes expenditures for the payment of debt service on bonds issued to finance such costs (cf. 1986 Opns St Comp No. 86-26, p 47, 1981 Opns St Comp No. 81-246, p 263, relating to expenditures from capital reserve funds to pay debt service). It is our opinion that the nexus between the purchase through the issuance of bonds, and the payment of the debt service on those bonds is sufficient to render the debt service a cost "associated with obtaining ... telecommunication equipment ... necessary to establish and provide an E911 system" [Emphasis added].

Accordingly, to the extent that the proceeds of the bonds are used to pay for the acquisition of telecommunication equipment and costs necessarily incidental thereto, then that proportionate amount of the debt service on those bonds qualifies as "system costs" and the county may expend surplus surcharge funds for that purpose.

March 1, 1995
Louis E. Wolfe, Esq., County Attorney
County of Clinton

1. Note that section 307 also states that "... if at the end of any fiscal year such unencumbered cash surplus exceeds an amount equal to five percent of that necessary for the payment of system costs in such fiscal year, the board shall by local law reduce the surcharge for the following fiscal year to a level which more adequately reflects the system cost requirements of its E911 system". Thus, if the county has an excessive amount of surplus, the board must reduce the surcharge for the next succeeding fiscal year.