## Facts

- New York enacted a 1993 statute authorizing a four-year, approximately $20 billion transportation financing program.
- The plan allocated funding to two trust funds: a highway and bridge fund operated by the New York State Thruway Authority and a mass transportation fund operated by the Metropolitan Transportation Authority (MTA).
- The statute directed certain taxes and fees (including vehicle registration fees and fuel-related taxes) into the trust funds, but made the revenues subject to annual legislative appropriation.
- The Thruway Authority was authorized to issue up to $4 billion in long-term bonds; portions of the highway fund were used for debt service and related expenses.
- The statute stated that the bonds were not debts of the State and disclaimed any State legal or moral obligation to pay bondholders or to appropriate funds.
- Taxpayer plaintiffs challenged the statute as a device to evade constitutional debt limits and referendum requirements by creating State debt or an effective moral obligation to support authority bonds.

## Issues

1. Whether a statute authorizing public authorities to issue bonds supported by dedicated taxes and fees subject to annual appropriation creates “State debt” under New York’s constitutional debt limits, triggering a referendum requirement.
2. Whether statutory financing that disclaims State liability nonetheless creates an unconstitutional State “moral obligation” to appropriate funds to prevent authority bond default.

## Decision

- The New York Court of Appeals affirmed the lower courts and upheld the statute.
- The Court held the bonds were obligations of the Thruway Authority and MTA, not the State, and the statute’s disclaimer prevented any State legal liability.
- The Court held the “subject to annual appropriation” design preserved legislative discretion and did not bind future Legislatures to fund debt service.
- The Court rejected the claim that the statute imposed a legally cognizable State moral obligation; any expectation of future appropriations was political rather than enforceable.
- The Court stated that evaluating the fiscal wisdom of the plan was not a judicial function; the question was constitutionality.

## Legal Principles

- Constitutional “State debt” is not created where bonds are issued by legally distinct public authorities and the State assumes no legal liability for repayment.
- Revenues designated for authority financing that remain subject to annual legislative appropriation do not constitute an irrevocable pledge of the State’s credit or binding commitment of future Legislatures.
- Express statutory disclaimers of State liability and of any moral obligation support a conclusion that bondholders lack enforceable recourse against the State.
- Courts review compliance with constitutional debt limits but do not assess the prudence of legislative fiscal policy choices.

## Conclusion

The Court of Appeals upheld New York’s transportation financing statute, ruling that appropriation-backed bonds issued by separate public authorities—paired with clear disclaimers of State liability and moral obligation—did not create unconstitutional State debt and therefore did not require voter approval by referendum.


Schulz v. State, 84 N.Y.2d 231, 639 N.E.2d 1140 (N.Y. 1994)