Opinion 97 - 10
PUBLIC CONTRACTS -- Installment Purchase Contracts (authority to use for construction of firehouse)
GENERAL MUNICIPAL LAW, §109-b: A fire district may not enter into a lease-purchase agreement under which a contractor would build a firehouse on a concrete slab on fire district property and the fire district would make annual payments to the contractor during the term of the agreement, with title to the structure passing to the fire district for nominal consideration at the end of the term.
You ask whether a fire district, pursuant to General Municipal Law, §109-b, may enter into a lease-purchase agreement under which a contractor would build a structure to be used as a firehouse on real property owned by the fire district and, if so, whether the project would be subject to competitive bidding requirements. During the term of the agreement, the fire district would make annual payments to the contractor and title to the structure would pass to the fire district for nominal consideration at the end of the term. We are informed that the structure would be constructed on and affixed to a concrete slab. You state that it has been argued that, because the building may be removed after it is constructed, it may be considered to be "equipment" for purposes of section 109-b.
General Municipal Law, §109-b authorizes political subdivisions, including fire districts, to enter into "installment purchase contracts" in accordance with the provisions of that section (see General Municipal Law, §109-b[a], ). Pursuant to section 109-b(3)(d), this Office has promulgated regulations governing, among other things, the procedures for entering into installment purchase contracts (see 2 NYCRR Part 39).
For this purpose, an "installment purchase contract" is defined in section 109-b, as amended by chapter 258 of the Laws of 1994, as "any lease purchase agreement, installment sales agreement or other similar agreement providing for periodic payments between a corporation, person or other entity and a political subdivision which has as its purpose the financing of equipment, machinery or apparatus" (emphasis added). This definition generally would include lease-purchase agreements providing for periodic payments over a term of years, followed by a buy out for a nominal amount (see 1991 Opns St Comp No. 91-13, p 33).
From 1991 until its amendment in 1994, section 109-b authorized installment purchase contracts for the financing of "capital improvements". This term was defined to include both equipment, machinery and apparatus, and "the acquisition, erection, construction, reconstruction, alteration or renovation of buildings or any physical public betterment, including any land or rights to land reasonably related or incidental thereto" (former General Municipal Law, §109-b[d], as added by L 1991, ch 413, §35). The 1994 amendment to section 109-b, however, eliminated the definition of "capital improvement", and authorized installment purchase contracts only for "equipment, machinery and apparatus"(1). The express purpose of this change was to discontinue "municipal authority to enter lease purchase contracts ... for real property" (see Memorandum of State Executive Department, McKinney's 1994 Session Laws of New York, p 2658, at 2661). Accordingly, it is clear that section 109-b no longer authorizes a fire district to enter into a lease-purchase agreement to finance the erection or construction of a building or any "physical public betterment".
Based on the facts presented, it is evident in the instant case that the fire district would not be acquiring equipment, machinery or apparatus, but rather the contractor would be utilizing materials to erect and construct a building for the fire district (see, 1984 Opns St Comp No. 84-7, p 8; see gen., Warren's Weed, New York Real Property, Vol 1, Part 2, "Buildings"; 14 Opns St Comp, 1958, p 374). The mere fact that the building, once constructed, may be removed does not, in our opinion, alter the nature of the transaction for this purpose (cf. Opn No. 84-7, supra).
Therefore, it is our opinion that the proposed lease-purchase transaction is not authorized by section 109-b. Further, there is no other statutory authority for a fire district to enter into such a lease-financing arrangement (see Opn No. 91-13, supra, at p 40; General Municipal Law, §109-b; cf. Local Finance Law, §29.10)(2)
May 6, 1997
1. Chapter 413 of the Laws of 1991 had suspended the effectiveness of an earlier version of section 109-b (L 1979, ch 699, as amended by L 1983, ch 704) which also had authorized installment purchase contracts for "equipment, machinery and apparatus". This earlier version of section 109-b was repealed by chapter 258 of the Laws of 1994.
2. Because of the conclusion reached herein, we need not address whether competitive bidding would be required. We note, nonetheless, that when section 109-b did authorize installment purchase contracts for the erection of buildings, the statute expressly stated that such installment purchase contracts constituted contracts for public work for competitive bidding purposes and were subject to the public bidding requirements of General Municipal Law, §§101 and 103 to the extent applicable by law (former General Municipal Law, §109-b[a], as added by L 1991, ch 413, §35). Current section 109-b(3)(a) similarly declares installment purchase contracts for equipment, machinery and apparatus to be purchase contracts for competitive bidding purposes.