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 The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.
CAPITAL IMPROVEMENTS -- Financing of (bank line of credit unauthorized)
LOCAL FINANCE LAW, §§20.00, 28.00, 176.00: Municipal corporations are not authorized by the Local Finance Law to borrow by the establishment of a line of credit with a bank but may issue capital notes to the extent authorized by that statute.
You state that a bank has offered to lend the county money pursuant to the following terms and conditions. Under the proposed plan, the bank would agree to make funds available to the county up to a predetermined amount. The county would be permitted to draw against the entire amount of the line all at once or in increments. Interest would be payable monthly and the entire principal balance could be paid on any payment date.
Although the bank has referred to its plan as "a simple line of credit", it has also advised the county that the program is permissible because it complies with those provisions of the Local Finance Law that relate to the issuance of capital notes. You ask whether, in our opinion, the proposed program is legal.
The Local Finance Law is the exclusive law governing the manner in which municipalities may incur debt (Local Finance Law, §176.00; N.Y.P.I.R.G. v City of Buffalo, 130 Misc 2d 448, 453, 496 NYS2d 208, 212; 1982 Opns St Comp No. 82-152, p 192). Local Finance Law, §20.00 enumerates the types of obligations a municipality is authorized to issue for any object or purpose. It further directs that the obligations shall be only of the kind listed and shall be denominated only as stated.
In our opinion, the "line of credit" transaction described above neither complies with the provisions of the Local Finance Law applicable to the issuance of capital notes nor with the provisions applicable to any other type of obligation authorized by section 20.00. We, accordingly, conclude that a line of credit is not an authorized type of municipal debt (see 1982 Opns St Comp No. 82-152, supra).
Local Finance Law, §28.00 provides that capital notes may be issued by any municipality, school district or district corporation to finance all or part of the cost of any object or purpose for which serial or sinking fund bonds may be issued. That section further provides that, while capital notes may be renewed, the notes, including all renewals, shall mature not later than the last day of the second fiscal year succeeding the fiscal year in which such notes are issued. Section 28.00 also provides that an installment of not less than fifty per centum of the amount of such notes shall mature in the first fiscal year succeeding the fiscal year in which such notes are issued unless such notes are authorized and issued during a fiscal year at a time subsequent to the date of the adoption of the annual budget for the next succeeding fiscal year. Finally, section 28.00 provides that capital notes shall be redeemed out of the taxes or assessments levied or to be levied for the fiscal year in which they mature or out of other revenues of that fiscal year available for that purpose.
Section 31.00 of the Local Finance Law requires that the issuance of capital notes be authorized by a "capital note resolution" or in certain instances, a bond resolution. Section 32.00 of that statute prescribes the form and content of such bond and note resolutions. Among other things, these resolutions must contain the estimated maximum cost of the improvements being financed and include or refer to a plan for financing the entire cost of the improvement. The Local Finance Law also contains requirements pertaining to the voting strength by which a bond or note resolution must be approved (Local Finance Law, §33.00).
Once the issuance of a capital note has been properly authorized, it must be issued in the form required by Local Finance Law, §51.00 and executed in the manner required by section 61.00. Section 51.00 requires that a bond or note contain certain specific information, including the type of obligation being issued, the amount of the obligation and the total amount of the issue of which the obligation is part, the date and maturity of the obligation and the rate of interest and the date or dates of payment thereof.
In examining the literature you have furnished, it does not appear that the financing offered as a "line of credit" contemplates the issuance of capital notes or otherwise complies with the requirements of section 28.00 and other applicable provisions of the Local Finance Law. Therefore, we conclude that the line of credit described in that literature is not the equivalent of a capital note. Moreover, since Local Finance Law, §20.00 requires that authorized obligations be denominated only by the terms stated in that section, the use of the term "line of credit" would, in any event, be improper.
October 19, 1988
Richard E. Siebert, County Treasurer