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ALBANY — New York City’s financial stability apparently hinges on the Court of Appeals’ willingness to salvage a flawed piece of legislation.

At oral arguments yesterday on a bond bailout bill of immense importance to the city, the judges seemed to focus on whether they should shore up a blemished bill and help relieve the city of the daunting debt it carried out of the 1970s fiscal crisis.

Under the 2003 legislation, New York City would receive — in a complicated, round-about and possibly unconstitutional manner — $170 million annually through 2034.

Local Government Assistance Corp. v. Sales Tax Asset Receivable Corp., 90, is a peculiar case where legislative intent is clear while the statute is not.

Under the state Constitution, so-called “revenue sharing,” or trading future state revenues for immediate aid, is prohibited. Appropriations generally must be made every year. One provision in the bailout bill clearly exempts the payments from an annual appropriation of the Legislature. Another, however, requires an annual appropriation.

The fundamental question is whether the judiciary should essentially edit the work of the Legislature — a concept lawmakers usually consider repulsive but which many would embrace here — or ship the statute back to the Capitol.

Corporation Counsel Michael A. Cardozo, the city’s top lawyer, yesterday urged the Court to facilitate legislative intent by following the Appellate Division, Third Department, and excising the troublesome provision.

But Guy Miller Struve of Davis Polk & Wardwell in Manhattan said the Court should not engage in the sort of “major surgery” that would result in judicial rewriting of the statute.

The case came to the Court of Appeals on an expedited basis due to its immediate budgetary implications. A decision is likely before the July 1 start of the city’s fiscal year.

The case centers on dead-of-night legislation passed last June that would shift $2.5 billion in Municipal Assistance Corp. (MAC) bonds to taxpayers statewide.

To achieve that result, the Legislature assigned to an obscure state board, the Local Government Assistance Corp. (LGAC), the job of transferring annual sales tax payments to the city for the next 30 years. Those payments would cover the MAC refunding bonds that would be issued by a new issuer, the Sales Tax Asset Receivables Corp. (STARC).

Governor George E. Pataki, who controls LGAC, vetoed the legislation, objecting to burdening taxpayers statewide in that manner. But in a rare act of defiance the Legislature overrode the veto.

However, the Legislature quickly realized the legislation was infirm and both houses passed clean-up bills to address the potential constitutional problems. Since those bills differed, the original legislation stood, and the matter came to court when the governor sued to block the initial bond sales.

Yesterday, Mr. Struve was representing the Local Government Assistance Corp. against the legislation.

He argued that the law is unconstitutional because it establishes a multi-year payment obligation without an annual appropriation by the Legislature or a referendum.

He also contended that the measure illegally impairs the rights of existing Local Government Assistance Corp. bondholders, in violation of the U.S. Constitution.

Mr. Cardozo countered that any infirmity is easily repaired by the Court. He also said there is no question that if the annual aid was not forthcoming, current bondholders would be paid first.

Judge George Bundy Smith asked about the “practical consequences” of shooting down the statute.

“It would mean there would be a $1 billion hole in the budget [New York City] Mayor [Michael R.] Bloomberg announced earlier this week,” Mr. Cardozo responded.

Mr. Cardozo suggested that a court loss for New York City would jeopardize financial aid packages in place for Buffalo, Yonkers, Troy and Nassau County. Judge Victoria A. Graffeo pointed out that those other aid plans specifically require annual appropriations and do not result in an assignment of bondholder interests.

Chief Judge Judith S. Kaye questioned whether it is the Court’s role to repair a constitutionally suspect statute to effect legislative intent.

“You have to do a lot of stitchery here with these statutes, don’t we, to reach the conclusion you are urging?” she asked Mr. Cardozo.

The corporation counsel — in sharp contrast to Mr. Struve — said there is not an unreasonable amount of repair work necessary and urged the Court to undertake that task.

Judge Carmen Beauchamp Ciparick observed that the Court has often reworked statutes to accommodate the Legislature and asked why the judiciary should not, in this case, “attempt to harmonize” the provisions.

“We have had many instances of poor legislative drafting, and maybe this is a good example of poor legislative drafting where we have stepped in and we’ve been able to harmonize, looking at the language, looking at the intent, etc. Why can’t we do that here?” Judge Ciparick said.

Mr. Struve said the failed legislative clean-up bills — lengthy and complicated measures where the two houses could not come to terms — demonstrates that the problem here cannot be resolved through a gentle massaging of the legislation.

“For you as a Court to rewrite it is asking you to do something that a Court should not have to do,” Mr. Struve said.

The case was argued before a six-judge panel. Judge Robert S. Smith, who previously represented the Local Government Assistance Corp., recused himself.

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