Opinion 2002 - 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 The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.

BONDS AND NOTES -- Permissible Uses (financing acquisition of development rights for open space preservation) -- Referendum Requirements (financing acquisition of development rights for open space preservation)
MUNICIPAL FUNDS-- Capital Reserve Fund (authority to establish for acquisition of development rights for open space preservation); (referendum requirements in connection with establishment for acquisition of development rights for open space preservation); (investment of monies held in) -- Deposits and Investments (of monies in capital reserve fund)
REAL PROPERTY -- Purchases (of development rights for open space preservation)

GENERAL MUNICIPAL LAW 6-c, 11, 247; LOCAL FINANCE LAW 11.00(a): A town may provide in its proposed budget an appropriation of an amount to be funded by real property tax and to be paid into a capital reserve fund for the purpose of accumulating monies for the future purchase of development rights for open space preservation. If the reserve fund is established for the purchase of development rights of a specific parcel, the establishment of the fund is subject to permissive referendum requirements. If the fund is established generally for acquisitions of rights in land for open space preservation, no referendum is required upon establishment of the reserve fund, but expenditures from the fund to acquire development rights would be subject to permissive referendum requirements. Monies in the fund may be invested in accordance with General Municipal Law 11. A town also may issue bonds to finance the acquisition of permanent development rights in land for open space preservation. A bond resolution to authorize the issuance of such obligations would be subject to permissive referendum if the proposed maturity of the bonds is more than five years. Finally, in addition to other procedural requirements, the expenditure of public funds for the preservation of open spaces and areas may be made only after due notice and a public hearing.

You ask whether a town may provide in its proposed budget for the next fiscal year an appropriation, to be funded by real property tax monies, for the purchase of development rights of certain area farms. The monies would be accumulated with monies from similar appropriations in subsequent fiscal years and invested for several years until the purchases of the development rights are made. If this proposal is permissible, you ask whether a referendum would be required. You also ask whether a town may issue bonds to purchase such development rights.

General Municipal Law 247(2) provides that the acquisition of interests or rights in real property for the preservation of "open spaces" and "areas" constitutes a public purpose for which public funds may be expended. It further provides that any county, city, town or village, after due notice and a public hearing, may acquire the fee or any lesser interest, "development right", easement, covenant or other contractual right to land within the municipality, necessary to achieve the purposes of this statute. For this purpose, "open space" or "open area" is defined as any space characterized by natural scenic beauty or "whose existing openness, natural condition, or present state of use, if retained, would enhance the present or potential value of abutting or surrounding urban development, or would maintain or enhance the conservation of natural or scenic resources" (General Municipal Law 247[1]). The statute expressly provides that "natural resources" includes "agricultural lands defined as open lands actually used in bona fide agricultural production" (id.).1 The purpose of section 247 is to provide a means whereby municipalities may acquire the fee, or lesser interests or rights in real property "in order to preserve, through limitation of their future use, open spaces and areas for public use and enjoyment." (L 1960, ch 945, 1). Pursuant to this authorization, it is clear that a town, subject to due notice and a public hearing, may expend monies to acquire development rights for purposes of "open space" and "open area" preservation (see also Environmental Conservation Law, article 49; Agriculture and Markets Law, article 25-aaa).

A reserve fund is a device that permits a local government to finance certain local government expenditures by accumulating monies over a period of more than one fiscal year (1998 Opns St Comp No. 98-7, p 17). General Municipal Law 6-c authorizes a town board to establish capital reserve funds to finance, among other things, all or part of the cost of the acquisition of a specific capital improvement or a type of capital improvement (General Municipal Law 6-c[2]). Insofar as here relevant, section 6-c defines the term "capital improvement" to include "land or rights in land" (General Municipal Law 6-c[1][b][2]). Section 6-c provides that there may be paid into a capital reserve fund, "[s]uch an amount as may be provided therefor by budgetary appropriation or raised by tax therefore," as well as such revenues as are not required by law to be paid into any other fund or account (General Municipal Law 6-c[5][a],[b]). Thus, in our opinion, a town may establish a capital reserve fund for the acquisition, for open space preservation, of development rights of land, and pay into such fund monies provided annually by budgetary appropriation.

A resolution for the establishment of a capital reserve fund to finance the acquisition of a specific capital improvement, such as development rights of a specific parcel, must set forth the estimated cost thereof and is subject to permissive referendum requirements (General Municipal Law 6-c[4]; see also Local Finance Law 11.00[a][21][a], 35.00). Expenditures from such a fund would not be subject to referendum requirements (General Municipal Law 6-c[8]). On the other hand, there are no referendum requirements for the establishment of a capital reserve fund for a "type" of capital improvement, such as the general acquisition of development rights for open space preservation. Expenditures from such a fund to acquire development rights, however, would be subject to permissive referendum requirements (id.; see also 1989 Opns St Comp No. 89-36, p 87).

Monies in a capital reserve fund must be deposited and secured in the manner provided by General Municipal Law 10 and may be invested in the manner provided by General Municipal Law 11 (General Municipal Law 6-c[7]). Any interest earned or capital gains realized on the monies so deposited or invested accrue to and become part of the fund (id.). 

With respect to the issuance of bonds for acquisition of development rights for "open space" or "open area" preservation, Local Finance Law 10.00(a) generally provides that a municipality may contract indebtedness for any municipal object or purpose set forth in Local Finance Law 11.00(a) if the municipality is authorized by law to expend monies for or to accomplish the object or purpose. Local Finance Law 21.00(a) generally provides that a municipality may issue serial bonds for any object or purpose having a period of probable usefulness set forth in Local Finance Law 11.00(a). Local Finance Law 11.00(a)(21)(a) provides for a thirty-year period of probable usefulness for the acquisition of land or "permanent rights in land" not otherwise provided for in any other subdivision in section 11.00(a).2 Based on these provisions, it is our opinion that a town may issue serial bonds to acquire permanent development rights for open space preservation and that a bond resolution to finance the acquisition of such rights would be subject to permissive referendum requirements if the proposed maturity is more than five years (Local Finance Law 35.00[b][1]).

Accordingly, a town may provide in its proposed budget an appropriation of an amount to be funded by real property tax and to be paid into a capital reserve fund for the purpose of accumulating monies for the future purchase of development rights for open space preservation. If the reserve fund is established for the purchase of development rights of a specific parcel, the establishment of the fund is subject to permissive referendum requirements. If the fund is established generally for acquisitions of rights in land for open space preservation, no referendum is required upon establishment of the reserve fund, but expenditures from the fund to acquire development rights would be subject to permissive referendum requirements. Monies in the fund may be invested in accordance with General Municipal Law 11. A town also may issue bonds to finance the acquisition of permanent development rights in land for open space preservation. A bond resolution to authorize the issuance of such obligations would be subject to permissive referendum if the proposed maturity of the bonds is more than five years. Finally, in addition to other procedural requirements, the expenditure of public funds for the preservation of open spaces and areas may be made only after due notice and a public hearing.

May 15, 2002

Albert C. Valk, Supervisor
Town of Montgomery

1. For purposes of this opinion, we assume the land in question meets the statutory description of "open space" or "open area" and that the purpose of the acquisition is for the preservation of "open spaces" or "open areas", within the meaning of section 247.

2. Although apparently not at issue here, we note that section 11.00(a)(19) of the Local Finance Law provides a period of probable usefulness of twenty years for a new recreational area of not less than 50 acres or an addition of not less than 25 acres to an existing recreational area, and a 15 year period of probable usefulness for any other recreational area.