43 N.Y.2d 326 | NY | 1977
OPINION OF THE COURT
In this case, we are called upon to determine whether
The Commodore Hotel, owned by a subsidiary of the insolvent Penn Central Transportation Company, has itself fallen on evil times. The building, located near Grand Central Terminal in the very heart of the city, has deteriorated so greatly that it has been closed, and it is well on its way to becoming yet another boarded-up illustration of the grim realities of urban decay. Tax arrears on the building, including interest and penalties, amount to over 10 million dollars, and the possibilities of the city’s recovering the arrears from Penn Central in the foreseeable future are problematic at best. Indeed, due to certain protective orders of the bankruptcy court, the city is precluded from foreclosing during the pendency of the bankruptcy proceedings, which may well prove to be of long duration; and even, in fact, were the city to foreclose on the premises, there would apparently be considerable. difficulty in obtaining a purchaser willing to pay an amount commensurate with the tax arrearages alone. Penn Central itself is obviously in no position to renovate the hotel, and unless some action be taken, the building will simply disintegrate altogether, thus further contributing to the urban blight against which both the city and the State are struggling.
Faced with this problem, the city, UDC, Penn Central, and a private developer, Wembley Realty, Inc. (Wembley), formulated a complex plan which is intended to result in the reconstruction of the hotel by Wembley and ultimately restore it as a functionally integrated part of the business community of the city. It is hoped that this will have a beneficial effect on the midtown area as a whole, and will encourage continuing private investments in the area. Stripped to its essentials, the plan is as follows: Wembley will purchase the hotel from Penn Central for 10 million dollars;*
Following the acceptance of this plan by the city council, plaintiff commenced this action, seeking a judgment declaring
In proffering this argument, plaintiff is, of course, presented with an insurmountable obstacle in the fact that the property will obtain tax exempt status not by any claimed or alleged invalid legislation enacted by the city council, but rather by virtue of the purchase of the hotel by the UDC. Plaintiff seeks to overcome this difficulty by characterizing the UDC as a "straw man”, with no real interest in or connection with the project, which has been brought into the plan solely as a means of providing a tax exemption which the city could not grant directly. Plaintiffs attempt to so easily avoid the inconvenient fact of UDC participation in the plan is of no avail. It is not for us to speculate as to the motive for the UDC’s participation, nor to delineate the amount of active participation which is necessary to denominate a particular project a UDC project. Here, UDC will be the owner of the building, and it is enough that UDC has chosen to participate in a project which is designed to combat otherwise inevitable urban blight, and which is thus clearly in accordance with the benign purposes of the Legislature in creating UDC (see L 1968, ch 174, § 2).
Turning then to the basic question of the plan’s validity, it should be noted initially that there exists a strong presumption of constitutionality which accompanies legislative actions (see, e.g., Montgomery v Daniels, 38 NY2d 41, 54), especially in the area of municipal financing (see, e.g., Wein v City of New York, 36 NY2d 610, 619-620). This is not to say, of course, that such actions must always be sustained without question (cf. Flushing Nat. Bank v Municipal Assistance Corp. for City of N. Y., 40 NY2d 731); they are, however, entitled to the benefit of the presumption, and will be sustained absent a clear showing of unconstitutionality (see, also, Wiggins v Town of Somers, 4 NY2d 215, 218-219). In the case before us, the purchase of the hotel by UDC will result in a valid tax exemption by operation of law, regardless of any action or inaction upon the part of the city. This is true whether the
Plaintiff also claims that the plan is unconstitutional in that it improperly calls for a waiver by the city of its right to payment by the State, pursuant to section 26 of the UDC Act (L 1970, ch 1041), of an amount equal to the tax revenues which would have been derived from the property absent the exemption which will be created by the UDC purchase. It is argued with some force that since the tax exemption which will be created by virtue of the purchase of the hotel by UDC is an essential element of the project, and since it is possible that UDC might not have chosen to participate without the waiver by the city of its right to reimbursement, the waiver is the equivalent of an attempt by the city to provide an invalid special exemption. However, it should be noted that the constitutional prohibition against special exemptions is not to be automatically applied whenever a municipality is engaged in a business transaction which will of necessity have tax consequences upon another party to the transaction. The constitutional limitation on exemptions operates only to prevent the city in its sovereign role as tax gatherer from directly granting an exemption to a taxpayer (see City of New York v Long Is. R. R. Co., 49 AD2d 540, affd 43 NY2d 780 [decided herewith]). Moreover, in the present case, proper classification of the right which the city has waived obviates any potential difficulty.
We note that although the State has elected to provide funds to reimburse municipalities for the loss in tax revenues which would otherwise result from a purchase by UDC of previously taxable property, it is clear that these payments from the State cannot be classified as taxes, and thus waiving the right to receive such funds is not the equivalent of granting a special tax exemption. To consider these payments as taxes would be to ignore the realities of the relationship between the State and its subdivisions, and the essentially voluntary nature of these payments. Absent the statute, the State is under no obligation to make such payments, and a
Accordingly, the order appealed from should be affirmed, without costs.
Chief Judge Breitel and Judges Jasen, Jones, Wachtler, Fuchsberg and Cooke concur.
Order affirmed.
. Of considerable interest here are certain of the legislative findings which accompany the statutory provisions governing UDC: "It is further found and declared that there exist in many municipalities within this state residential, nonresidential, commercial, industrial or vacant areas, and combinations thereof, which are slum or blighted, or which are becoming slum or blighted areas because of substandard, insanitary, deteriorated or deteriorating conditions, including obsolete and dilapidated buildings and structures, defective construction, outmoded design, lack of proper sanitary facilities or adequate fire or safety protection, excessive land coverage,
. Although the city consented to the sale free of lien for tax arrears, it reserved its rights against Penn Central for these tax arrears. Viewed realistically, the city may well have improved its position, since the 10 million dollars are to be placed in escrow for several years, and the city is granted the option of settling its claim against Penn Central during that period for an amount equal to at least 50% of the arrears to be paid directly from that fund.