Marvin J. Rosenthal, Esq. General Counsel, Rochester Housing Authority

This is in response to your letter wherein you state that your office is General Counsel to the Rochester Housing Authority. You explain that the Authority received and invested funds from the Department of Housing and Urban Development to pay its employees pursuant to a submitted budget. Included in the funds received was an allocation for a pay raise for Authority employees. You further explain that it is the Authority's intention to pay the raises retroactively after certain appropriate action has been taken. You ask whether or not the retroactive pay raises can be paid with interest.

Before we reach the issue of interest, we must first establish the authority for the issuance of the retroactive pay raise. We do not believe that the Rochester Housing Authority, either by reason of a specific constitutional prohibition (NY Const, art VIII, § 1) or a lack of authorization in its enabling act (Public Housing Law, §463), can make a gift to, or in the aid of, any individual. Retroactive pay increases, however, have been held to be outside any constitutional or statutory prohibition against gifts if payment is made pursuant to a legal obligation on the part of the municipality or governing body (Matter of Antonopoulou v Beame, 32 N.Y.2d 126 [1973]; see also In ReAmer. Fed. of State, City and Mun. Emp. Loc. 788, 72 Misc.2d 744 [Supreme Ct, Clinton County, 1971], Timmerman v City of NY, 69 N.Y.S.2d 102 [Supreme Ct, New York County, 1946], affd 272 App. Div. 758). Therefore, assuming that the retroactive pay increase was part of the bargain contained in a negotiated contract, the Authority has the power to make such an expenditure.

It is our opinion that the same analysis would apply to the issue of interest. The Authority must again deal with the prohibition against making a gift and must, therefore, be under a legal obligation before its funds are paid. Unless payment of interest was negotiated and specifically agreed to as part of the retroactive pay increase, the Authority would not have the power to make such a discretionary payment.