Relates to the powers and duties of the dormitory authority relative to the establishment of subsidiaries for certain purposes

Summary of provisions

Section 1 of the bill would amend Public Authorities Law ("PAL") §1678(25), which specifically authorizes the Authority to form a subsidiary in connection with the exercise of its remedies as a mortgagee against mortgagor North General Hospital, to authorize the Authority to create one or more subsidiaries for the purpose of limiting its potential liability when exercising its powers and duties in pursuit of remedies against any borrower that has defaulted in its obligations under a loan agreement or mortgage with the Authority.

Section 1 of the bill would authorize each such subsidiary to perform one or more of the purposes, powers, duties, functions, rights and responsibilities of the Authority, other than the issuance of indebtedness, including: (i) bidding for, taking, holding, selling, conveying, assigning or transferring title to the mortgaged property; (ii) entering into leases, subleases, operating agreements, security agreements, loan agreements or other encumbrances or arrangements with regard to such property; or (iii) assuming any indebtedness or other liabilities secured by the mortgaged property.

Section 2 of this bill would make it effective immediately.

Existing law

Chapter 561 of the Laws of 2010 ("Chapter 561") added subdivision 25 to PAL § 1678 to authorize the Authority to form a subsidiary in connection with the exercise of remedies against North General Hospital ("North General"), a borrower that had defaulted on a loan from the Authority. Chapter 561 was necessary because PAL § 2827-a, enacted in Chapter 506 of the laws of 2009, severely limits the ability of public authorities to create subsidiary corporations without legislative approval. Prior to Chapter 561, the Authority had no power to create subsidiaries.

Prior legislative history

This is a new bill.

Statement in support

PAL § 2827-a provides that, except under certain limited circumstances, no state authority will have the power to organize any subsidiary corporation unless the legislature has enacted a law granting an authority that power.

Consistent with this provision, the legislature enacted Chapter 561 of the laws of 2010 to grant legislative authorization to the Authority to create a subsidiary for the limited purpose of exercising its remedies against North General Hospital ("North General"), a borrower that had defaulted on a loan from the Authority and filed for bankruptcy under Chapter 11 of the Bankruptcy Code. Chapter 561 enabled the Authority to create a subsidiary for the purpose of taking title to North General's mortgaged property, in satisfaction of the Authority's security interest therein, to insulate the Authority and its assets from any potential liability that could arise from accepting title to this property.

The purpose of the bill is to provide the Authority a general authorization to form similarly purposed subsidiaries in the future. Where the Authority acquires title to property as a remedy when a borrower defaults in its obligations under a loan agreement or mortgage with the Authority, the potential exists for the Authority, as the owner of the property, to be sued in connection with incidents occurring thereon. In addition, it is possible that the Authority could be exposed to potential liabilities from the presence of hazardous substances on any such property. The Authority can avoid these and certain other potential liabilities by having title to the mortgaged property transferred to a subsidiary that the Authority would be authorized to create under this bill.

This bill would sunset on July 1,2012. This would ensure that the Legislature retain oversight DASNY's creation of such subsidiaries, and could review the manner in which this was accomplished prior to any reauthorization of such authority.

Budget implications

There are no budget implications from this bill, but it may shield the Authority from certain liabilities.

Effective date

The bill would take effect immediately upon enactment, and expire and be deemed repealed on July 1, 2012; with provisions.