Opinion 96 - 22


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 The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.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 -- Capital Reserve Fund (transfer of moneys to contingency and tax stabilization reserve fund); (use of moneys in fund following abandonment of purpose for which fund established)

GENERAL MUNICIPAL LAW, §6-c(9), (9-a): Moneys in a capital reserve fund may not be transferred to a contingency and tax stabilization reserve fund. Following the abandonment of the purpose for which a capital reserve fund has been established, the unexpended balance in the fund may be transferred only to another capital reserve fund, subject to permissive referendum requirements. Permissive referendum procedures are required if the creation of the fund from which the moneys would be transferred was itself subject to permissive referendum.

You ask whether moneys remaining in a capital reserve fund established for the specific purpose of closing a town landfill may be transferred into a contingency and tax stabilization reserve fund if the town no longer needs to proceed with the landfill closure. It is anticipated that the moneys in the contingency and tax stabilization reserve fund would be used to pay tax certiorari judgments or settlements.

Section 6-e of the General Municipal Law authorizes counties, cities, towns, villages and fire districts to establish a contingency and tax stabilization reserve fund for the purpose of financing "unanticipated revenue losses" and "unanticipated expenditures", and reducing projected increases in excess of five percent in the real property tax levy. A contingency and tax stabilization reserve fund may be established by resolution of the governing board subject to permissive referendum (General Municipal Law, §6-e[2]). Towns may establish tax stabilization reserve funds for both townwide and town outside village purposes (id.).

Subdivision 3 of section 6-e provides that there may be paid into the fund "such amounts as may be provided therefor by budgetary appropriation, unappropriated cash surplus in the eligible portion of the annual budget, and such revenues as are not required by law to be paid into any other fund or account ...". There is a limit on the amount which may be paid into the fund. No amount may be appropriated for payment into the fund if it would cause the balance of the fund to exceed ten percent of the "eligible portion of the annual budget"; that is, the townwide or town outside village general fund and highway fund portions of the budget in the case of a town.

General Municipal Law, §§6-c(9) and 6-c(9-a), however, prescribe limitations on the use of moneys remaining in capital reserve funds established for a specific capital improvement. These provisions distinguish between capital reserve funds established for a specific capital improvement which has been completed or acquired, and those established for a specific capital improvement which has not been completed or acquired, such as when plans to undertake a capital improvement have been abandoned (see, e.g. 1986 Opns St Comp, No 86-21, p 36; 21 Opns St Comp, 1965, p 185; 6 Opns St Comp, 1950, p 317; 5 Opns St Comp, 1949, p 482).

With respect to a capital reserve fund for a specific improvement which has been completed or acquired, the governing board may: (a) authorize the transfer of all or part of the unexpended balance to another capital reserve fund; (b) appropriate all or part of the unexpended balance for an object or purpose for which bonds may be issued; or (c) appropriate all or part of the unexpended balance to pay certain debt service (General Municipal Law, §§6-c[9][a]; 6-c[9-a]). In each instance, there must first be deducted from the amount transferred or appropriated a sum sufficient to satisfy all outstanding claims arising from the construction, reconstruction or acquisition of the improvement (id.). In the case of a reserve fund established for a specific improvement which has not been completed or acquired, such as in this instance, the governing board may authorize the transfer of all or part of the unexpended balance only to the credit of another capital reserve fund, subject to permissive referendum requirements (General Municipal Law, §6-c[9][b]). Permissive referendum procedures are required if the authorization to create the fund from which the moneys would be transferred was itself subject to permissive referendum (id.; see also General Municipal Law, §6-c[4]). There is no authority in section 6-c, however, to transfer unexpended balances of any capital reserve fund into a contingency and tax stabilization reserve fund.

Accordingly, since section 6-c requires that unexpended balances in capital reserve funds be used only for the purposes set forth in section 6-c, and since section 6-c does not permit transfer into a contingency and tax stabilization reserve fund, the moneys in a capital reserve fund established for a specific improvement may not be transferred into a contingency and tax stabilization reserve fund. Further, since the plans for the capital improvement for which the reserve fund in question was established have been abandoned, section 6-c authorizes the unexpended balance in the fund to be transferred, subject to the above-described permissive referendum requirements, only to another capital reserve fund.(1)

November 25, 1996
Andrus J. LaBarge, Supervisor
Town of Ulster

1. In view of our conclusion, we need not address the circumstances in which moneys in a contingency and tax stabilization reserve could be expended to fund tax certiorari judgments or settlements (see General Municipal Law, §6-e[1][k], [4][c]). Further, although not at issue here, we note that while a municipal corporation may not establish a capital reserve fund for the purpose of paying tax certiorari judgments or settlements (see General Municipal Law, §6-c[1][b], [c],[2]; cf. Education Law, §3651[1-a], pertaining to the establishment of tax certiorari reserve funds by school districts), pursuant to General Municipal Law, §6-c[9-a], moneys in a capital reserve fund established for a specific capital improvement which has been completed or acquired could be used to fund tax certiorari judgments or settlements since these are objects or purposes for which bonds may be issued (see Local Finance Law, §§10.00; 11.00[a][33], [33-a]).