New York state public-benefit corporations and authorities operate like quasi-private corporations, with boards of directors appointed by elected officials, overseeing both publicly operated and privately operated systems. Public-benefit nonprofit corporations share characteristics with government agencies, but they are exempt from many state and local regulations. Of particular importance, they can issue their own debt, allowing them to bypass limits on state-funded debt contained in the New York State Constitution. This allows public authorities to make potentially risky capital and infrastructure investments without directly putting the credit of New York State or its municipalities on the line. As a result, public authorities have become widely used for financing public works; more than 95 percent of all state-funded debt outstanding in New York has been issued by public authorities without voter approval.
The growing influence of public authorities over state and local financing, coupled with their ability to avoid regulations applicable to government agencies, has led to calls for reform. Some reforms were passed in the Public Authorities Accountability Act of 2005. The New York State Authorities Budget Office, in their 2018 annual report, noted that there were 47 state authorities and 531 local authorities, including 109 IDAs and 292 not-for-profit corporations created locally, that they provided oversight for in New York State. According to this same ABO report, the operating expenses in 2017 for the 47 state authorities was $34.82 billion. Additionally, the 47 state authorities carried a total of $160.4 billion in outstanding debt.
Origins Public benefit corporations in New York State have origins in mercantile capitalism. A shared tradition of English common law and Dutch law may explain their origins.
The New York Court of Appeals provided a thorough history of state laws regarding public authorities in the 1994 case Schulz v. State, 84 N.Y.2d 231. As the court explained, state debt limits were first enacted as a reaction to fiscal crises caused by the state's lending of its credit to "irresponsible" canal and railroad corporations in the early nineteenth century. The state was forced to assume these obligations, which amounted to more than three-fifths of the state's entire debt. In 1846, a referendum requirement was added to the state constitution, prohibiting the state from contracting long term debt without approval by the voters.
As early as 1851, the legislature began to search for ways to evade the constitutional debt limit in order to finance public works projects. Canal certificates, which would be repaid through canal revenues, and which by their terms were not state obligations, were nevertheless held to be unconstitutional in Newell v. People, 7 N.Y. 9 (1852).Newell v. People, 7 N.Y. 9 (1852). The court held that the state had a moral obligation to repay the debts if canal revenues proved insufficient, and thus the certificates were deemed "an evasion if not a direct violation of the constitution".
In 1921, the legislature chartered the first state public authority, the Port of New York Authority, as a new vehicle for financing public projects while insulating the state from long term debt obligations. In 1926, the Court of Appeals held in Williamsburgh Savings Bank v. State, 243 N.Y. 231, that the state could disclaim any moral obligation for public authority debts. However, amendments to the 1938 Constitution overruled this case and completely disclaimed the state's responsibility for any public authority debt.
The widespread use of public authorities in New York State was pioneered by Robert Moses in the 1930s and 40s. Much of Moses' power base resulted from his tight control of the Triborough Bridge Authority, which allowed him to earmark revenues from tolls on the bridge for other projects in New York City and around the state. He also served as president of the Jones Beach Parkway Authority (1933–1963), president of the Bethpage State Park Authority (1933–1963), and chairman of the New York Power Authority (1954–1962). Moses, through his control of these authorities, was able to build some of New York's most important public works projects, including the Cross Bronx Expressway, the Brooklyn-Queens Expressway, and various bridges and parkways. The public authority model allowed Moses to bypass many of the legal restrictions placed on state agencies, allowing him to expedite development but also allowing him to hide project financing, contracting and operational information from public scrutiny. Because of this, he has been criticized for wasteful spending, patronage, and refusing to consider public opposition to his projects.
The 1938 constitutional amendments attempted to limit the proliferation of public authorities by specifying that they could be created only by special act of the state legislature. By 1956, 53 public authorities had been created. In 1990, the Commission on Government Integrity concluded that "At present, so far as Commission staff has been able to determine, no one has even an approximate count of how many of these organizations exist, where they are, much less an accounting of what they do." By 2004, the Office of the State Comptroller had identified at least 640 state and local authorities. The current count stands at 1,098.
Some of the most well known major public benefit corporations in New York State include the Port Authority of New York and New Jersey (actually a bi-state authority created by interstate compact), the Metropolitan Transportation Authority, and the Empire State Development Corporation. New York has hundreds of lesser-known public benefit corporations, including industrial development agencies and local development corporations.
The Public Authorities Accountability Act of 2005 created the Authority Budget Office in order "to provide the governor and the legislator with conclusions and opinions concerning the performance of public authorities and to study, review and report on the operations, practices and finances of public authorities...." The ABO is intended to promote transparency and accountability and to improve authority governance.
Incorporation and dissolution The New York State Constitution, Art. X, sec. 5, provides that public benefit corporations may only be created by special act of the legislature. In City of Rye v. MTA, 24 N.Y.2d 627 (1969), the court of appeals explained that "The debates of the 1938 Convention indicate that the proliferation of public authorities after 1927 was the reason for the enactment of section 5 of article X.... Abbott Low Moffat, who supported this proposal, told the convention that its purpose was 'to require the Legislature to pass directly itself upon the establishment of each new authority, and to prevent the enactment of general laws pursuant to which a municipal corporation can itself create a corporation of the authority type.
While major public authorities can only be created by special legislation, many local development corporations have been created under the general Not-For-Profit Corporation Law. These LDCs function in much the same way as other public benefit corporations and public authorities, but do not need to be established by specific state legislation. Additionally, many public authorities have the power to create subsidiary authorities without additional legislative authorization. An example is the Empire State Development Corporation, which decided in 2007 to dissolve 13 subsidiaries and merge 25 others into a single holding company. ESDC still encompasses many subsidiary organizations.
Public authority financing The 1938 Constitution "expressly empowered public authorities to contract debt independently of the State". Because of this, the Court of Appeals has repeatedly affirmed that public authorities are distinct from the state and that the state carries no moral obligation to repay their debts. Although the Constitution prohibits the state from lending its credit to public authorities, it does allow the state to make gifts of money to authorities. As a practical result, this has resulted in some authorities receiving annual funding from the state on a consistent basis. The Court of Appeals stated in Schulz v. State, 84 N.Y.2d 231 (1994) that, if "modern ingenuity, even gimmickry, have in fact stretched the words of the Constitution beyond the point of prudence, that plea for reform in State borrowing practices and policy is appropriately directed to the public arena". See also Wein v. State, 39 N.Y.2d 136 (1976); Wein v. Levitt, 42 N.Y.2d 300 (1977).
Financing public projects through public authorities is also attractive because their independent corporate structure theoretically makes them more flexible and efficient than state agencies. Many restrictions placed on state agencies do not apply to public authorities, including, for example, general public bidding requirements (some public bidding requirements do apply under the Public Authorities Law). See Plumbing, Heating, Piping & Air Conditioning Contr. Ass'n v. N.Y.S. Thruway Auth., 5 N.Y.2d 420 (1959). Most public authorities may also make contracts, and because of public authorities' corporate status, there is generally, no remedy against the state for the breach of such contracts. John Grace & Co. v. State University Constr. Fund, 44 N.Y.2d 84 (1978). Many public authorities, such as industrial development agencies and the Empire State Development Corporation, can also condemn property.
The New York State Public Authorities Control Board was created in 1976 to provide oversight for some of the state's most powerful authorities. Sections 50 and 51 of the Public Authorities Law currently require 11 authorities to receive approval from the PACB prior to entering into contracts for project-related financing. There are five members on the PACB board, all of whom are appointed by the governor and serve year-long terms.
Public authorities are currently responsible for more than 90% of the state's debt and 80% of the state's infrastructure, leading some to refer to them as the "shadow government".
Public authority governance Public benefit corporations and public authorities are controlled by boards of directors made up of political appointees. Board members have fixed terms and are, at least in theory, considered to be more independent of political influence than elected politicians and appointed agency heads.
Board members and employees of public authorities usually are not considered to be state employees, but are rather employees of the authority. Ciulla v. State, 77 N.Y.S.2d 545 (N.Y. Ct. Cl. 1948). However, public authority employees are covered by the ethics regulations included in section 74 of the Public Officers Law, and the Public Authorities Accountability Act of 2005 imposed additional ethics requirements on board members of some public authorities. Authority board members are required to attend training sessions on ethics and governance issues.
Types of public authorities The New York State Comptroller's Office lists four types of public benefit corporations and authorities: Class A — these authorities and public benefit corporations have regional or statewide significance Class B — according to the Comptroller's office, these "[e]ntities affiliated [are] with a State agency, or entities created by the State that have limited jurisdiction but a majority of Board appointments made by the Governor or other State officials; entities that would not exist but for their relationship with the State". Class C — these public authorities have local application. Class D — these authorities and public benefit corporations have interstate or international jurisdiction.
List of New York state public-benefit corporations For a more complete list, see a list of New York State public-benefit corporations