# Appendix — Buffalo Teachers Federation v. Tobe, 127 S. Ct. 2133 (2007) (No. 06-1168)

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 2007

## Text

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APPENDIX A

UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

August Term, 2005

Docket No. 05-4744-cv

(Argued March 7, 2006 Decided September 21, 2006)

BUFFALO TEACHERS FEDERATION, BUFFALO EDUCATIONAL
SUPPORT TEAM, NEA/NY, TRANSPORTATION AIDES OF
BUFFALO, NEA/NY, SUBSTITUTES UNITED BUFFALO
NEA/NY, BUFFALO COUNCIL OF SUPERVISORS AND
ADMINISTRATORS, AFSCME LOCAL 264, PROFESSIONAL
CLERICAL AND TECHNICAL EMPLOYEES’ ASSOCIATION and
LOCAL 409 INTERNATIONAL UNION OPERATING ENGINEERS,

Plaintiffs-Appellants,

Vv.

RICHARD TOBE, THOMAS E. BAKER, ALAIR TOWNSEND,
H. CARL MCCALL, JOHN J. FASO, JOEL A. GIAMBRA,
MAYOR ANTHONY MASIELLO, RICHARD A. STENHOUSE,
ROGER G. WILMERS, in their official capacities as
directors/members of the BUFFALO FISCAL STABILITY
AUTHORITY and GEORGE E. PATAKI,

Defendants-Appellees.

Before: CARDAMONE, CALABRESI, and HALL,
Circuit Judges.

CARDAMONE, Circuit Judge:

When a state is sued for allegedly impairing the contractual
obligations of one of its political subdivisions even though it

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is not a signatory to the contract, the state will not be held
liable for violating the Contracts Clause of the United States
Constitution unless plaintiffs produce evidence that the state’s
self-interest rather than the general welfare of the public
motivated the state’s conduct. On this issue, plaintiffs have
the burden of proof because the record of what and why the
state has acted is laid out in committee hearings, public
reports, and legislation, making what motivated the state not
difficult to discern. In the appeal before us, the record of
why the state acted is available, and plaintiffs have not met
their burden.

Plaintiffs are the Buffalo Teachers Union and a number of
other unions in Buffalo, New York (Buffalo or City), rep-
resenting public employees of the school district of the City
of Buffalo—including teachers, principals, bus drivers, cooks,
food service helpers, etc. (plaintiffs, unions, or appellants).
Defendants are the Buffalo Fiscal Stability Authority (Buffalo
Fiscal Authority, BFSA, or Board), its members, and New
York State Governor George E. Pataki (collectively defen-
dants). Plaintiffs, alleging that a wage freeze instituted by
defendant Buffalo Fiscal Authority violates the Contracts
Clause and the Takings Clause of the United States Consti-
tution, sued defendants and sought a declaratory judgment
with respect to the wage freeze’s constitutionality and also an
injunction against its enforcement.

Both sides moved for summary judgment. The United
States District Court for the Western District of New York
(Skretny, J.) granted summary judgment for defendants in a
judgment dated and entered August 19, 2005.

BACKGROUND
A. Buffalo's Fiscal Crisis & Comptroller's Report

When in 2003 the speaker of the New York State Assem-
bly became concerned by Buffalo’s declining financial health,
he requested the state comptroller’s office to conduct a re-

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view of the City’s finances. The resulting report detailed
Buffalo’s financial situation. The report recounted that the
City had been operating for several years with a structural
deficit and had been able to continue operations only with
state aid and the use of the City’s reserves. Buffalo had relied
increasingly on state aid to fund its budget increases (state aid
grew from $67 million in 1997-98 to $128 million in 2002-
03). The City faced exponential increases in its budget
deficits; the comptroller projected budget deficits of $7.5
million for 2002-03, $30-$46 million for 2004-05, $76-$107
million for 2005-06, and $93-$127 million for 2006-07.

Based on these and other bleak findings, the comptroller
concluded Buffalo was not in a position to resolve its fiscal
woes on its own. For example, the record on this appeal
shows that to remedy budgetary shortfalls, the City had
already laid off 800 teachers and 250 assistant teachers over a
four year period. The report therefore suggested legislative
intervention. Specifically, the comptroller recommended the
creation of a control board—namely the BFSA—to oversee
Buffalo’s finances. The board would have powers and duties
similar to those given to boards that already oversaw the
budgets of other fiscaily troubled municipalities in New York
State. The comptroller advised also that in the event of a
board-declared fiscal crisis the board should have the power
to freeze future wage increases.

B. Buffalo Fiscal Stability Authority Act

In light of the comptroller’s report, the state legislature
passed on July 3, 2003 the Buffalo fiscal stability authority
act (Act) to address the City’s financial crises. See N.Y. Pub.
Auth. Law § 3850-a (McKinney Supp. 2006). To explain
passage of the Act, the legislature stated,

It is hereby found and declared that the city [of Buffalo]
is in a state of fiscal crisis, and that the welfare of the
inhabitants of the city is seriously threatened. The city

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budget must be balanced and economic recovery en-
hanced. Actions should be undertaken which preserve
essential services to city residents, while also ensuring
that taxes remain affordable. Actions contrary to these
two essential goals jeopardize the city’s long-term fiscal
health and impede economic growth for the city, the
region, and the state.

See 2003 N.Y. Sess. Laws Ch. 122 § 5695 (McKinney)
(emphasis added); see also N.Y. Pub. Auth. Law § 3850-a
(McKinney Supp. 2006) (setting forth legislative declaration
of need for state intervention).

The aim of the Act is to have Buffalo achieve fiscal
stability by 2007-08. See N.Y. Pub. Auth. Law § 3857(1)

(McKinney Supp. 2006). To attain that goal, the Act created _

the Buffalo Fiscal Authority, a public benefit corporation. See
id. § 3852(1). Central to the Act is a requirement that the City
submit financial plans each year over a four year period to the
Buffalo Fiscal Authority for approval. See id. §§ 3856 &
3857. Under the terms of the Act, the Board is to review,
approve, and monitor implementation of the City’s financial
plans to ensure that the City is abiding by the fiscal limita-
tions and benchmarks imposed by the Act. See id. §§ 3856-
59. The Act also provides a means by which the Board may
modify the financial plans to bring them into compliance with
the Board’s strictures. /d. § 3857. If Buffalo fails or refuses to
modify its financial plans, the Board may take corrective
steps on its own. /d. § 3857(2), 3858(2). In particular, the
Board may impose a wage and/or hiring freeze upon a finding
that such a freeze is “essential to the adoption or maintenance
of a city budget or a financial plan” that is in compliance with
the Act. Jd. § 3858(2)(c)(i).

C. Imposition of the Wage Freeze

On October 21, 2003 the Buffalo Fiscal Authority ap-
proved the City’s first four-year financial plan under the Act.

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Prior to the submission of the plan, the Board had already
ordered the City to institute a hiring freeze and had also
instructed the City to exclude from the plan wage increases
that were not contractually required. The City approved a tax
increase for its 2004-05 budget and planned for another tax
increase in the last year of the four-year plan; together the
city tax increases amounted to $6.3 million.

Six months later, in reviewing how the plan’s implementa-
tion was proceeding, the Board realized the plan no longer
complied with the Act. The BFSA discovered that for the
2004-05 fiscal year Buffalo projected a budget gap $20
million greater than the $30 million gap previously estimated.
The Board was further troubled by the estimate that the
projected City budget gap for the next four years would
exceed $250 million.

As a result of these concerns, on April 21, 2004 the Buffalo
Fiscal Authority invoked its wage freeze power and deter-
mined “that a wage freeze, with respect to the City and all
Covered Organizations, is essential to the maintenance of the
Revised Financial Plan and to the adoption and maintenance
of future budgets and financial plans that are in compliance
with the Act.” The Board further resolved that “effective
immediately, there shall be a freeze with respect to all wages
. . . for all employees of the City [which] shall apply to
prevent and prohibit any increase in wage rates.” The wage
freeze took effect that day, and effectively prohibited mem-
bers of the plaintiff unions from enjoying a two percent wage
increase that the unions had negotiated as part of their labor
contracts with the City.

D. Prior Proceedings

Following the imposition of the wage freeze, plaintiffs
filed suit against the Board on June 17, 2004 in the district
court, seeking a judgment declaring the wage freeze un-
constitutional under the Contracts and Takings Clauses, and

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seeking an injunction to bar the wage freeze’s enforcement.
On February 28, 2005 the parties filed cross-motions for
summary judgment. After full briefing and oral argument, the
district court denied plaintiffs’ motion and granted summary
judgment in favor of the defendants. It held that as a matter
of law the wage freeze offended neither the Contracts or
Takings Clauses of the Constitution. From the district court’s
judgment, plaintiffs appeal. .

DISCUSSION
1. Standard of Review

Our standard of review here is well known. We review the
grant of summary judgment de novo, Virgin Atlantic Airways
Ltd. v. British Airways PLC, 257 F.3d 256, 262 (2d Cir. 2001),
viewing the facts in the light most favorable to plaintiffs and
resolving all factual ambiguities in their favor, Cioffi v. Averill
Park Cent. Sch. Dist. Bd. of Educ., 444 F.3d 158, 162 (2d
Cir. 2006). Under this standard, we are only to “determine
whether there is a genuine issue for trial.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 249 (1986). With this in mind, we
turn to plaintiffs’ claims.

ll. Contracts Clause

We begin with that part of the appeal relating to the Con-
tracts Clause, a provision of the Constitution that even prior
to its adoption was at the center of heated discourse. After 11
states had ratified the Constitution, James Madison lamented
privately to Thomas Jefferson that the articles relating to
treaties, paper money, and contracts “created more enemies
than all the errors in the System positive & negative put
together.” Akhil Reed Amar, America’s Constitution: A Biog-
raphy 124 (Random House 2005) (quoting letter from James
Madison to Thomas Jefferson, Oct. 17, 1788, in Madison,
Papers, \1:297).

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Our attention turns to this clause, which provides that no
state shall pass any law “impairing the Obligation of Con-
tracts.” U.S. Const. art. 1, § 10. Although facially absolute,
the Contracts Clause’s prohibition “is not the Draconian
provision that its words might seem to imply.” Allied Struc-
tural Steel Co. v. Spannaus (Spannaus), 438 U.S. 234, 240
(1978). It does not trump the police power of a state to protect
the general welfare of its citizens, a power which is “para-
mount to any rights under contracts between individuals.” /d.
at 241; see also W.B. Worthen Co. v. Thomas, 292 U.S. 426,
433 (1934) (“[L]iteralism in the construction of the contract
clause . . . would make it destructive of the pubic interest
by depriving the State of its prerogative of self-protection.”).
Rather, courts must accommodate the Contract Clause with
the inherent police power of the state “to safeguard the vital
interests of its people.” Home Bldg. & Loan Ass'n v. Blaisdell
(Blaisdell), 290 U.S. 398, 434 (1934); see also Energy
Reserves Group, Inc. v. Kan. Power & Light Co., 459 U.S.
400, 410 (1983); Sanitation & Recycling Indus., Inc. v. City
of New York, 107 F.3d 985, 992-93 (2d Cir. 1997). Thus, state
laws that impair an obligation under a contract do not nec-
essarily give rise to a viable Contracts Clause claim, see U.S.
Trust Co. v. New Jersey, 431 U.S. 1, 16 (1977).

To determine if a law trenches impermissibly on contract
rights, we pose three questions to be answered in succession:
(1) is the contractual impairment substantial and, if so,
(2) does the law serve a legitimate public purpose such as
remedying a general social or economic problem and, if such
purpose is demonstrated, (3) are the means chosen to accom-
plish this purpose reasonable and necessary. Energy Reserves
Group, 459 U.S. at 411-13; Sanitation & Recycling Indus.,
107 F.3d at 993. We also consider the level of deference to
give to a legislature’s determination that a law was reasonable
and necessary. We address each of these questions.

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A. Substantial Impairment and Legitimate Public Purpose

We discuss questions (1) and (2) together. First, we agree
with the district court that the wage freeze substantially
impairs the unions’ labor contracts with Buffalo. To assess
whether an impairment is substantial, we look at “the extent
to which reasonable expectations under the contract have
been disrupted.” Sanitation & Recycling Indus., 107 F.3d at
993. Contract provisions that set forth the levels at which
union employees are to be compensated are the most
important elements of a labor contract. The promise to pay a
sum certain constitutes not only the primary inducement for
employees to enter into a labor contract, but also the central
provision upon which it can be said they reasonably rely.
With that in mind, we may safely state the wage freeze so
disrupts the reasonable expectations of Buffalo’s municipal
school district workers that the freeze substantially impairs
the workers’ contracts with the City. See Ass’n of Surrogates
and Sup. Ct. Reporters v. New York (Surrogates), 940 F.2d
766, 772 (2d Cir. 1991) (noting that a statute affecting tim-
ing of payment of salary substantially impaired public em-
ployees’ contract).

Second, we next ask if the legislature had a legitimate
public purpose in passing the Act and providing for a wage
freeze. When a state law constitutes substantial impairment,
the state must show a significant and legitimate public pur-
pose behind the law. See Energy Reserves Group, 459 U.S. at
411-12; Sanitation & Recycling Indus., 107 F.3d at 993. A
legitimate public purpose is one “aimed at remedying an im-
portant general social or economic problem rather than pro-
viding a benefit to special interests.” Sanitation & Recycling
Indus., 107 F.3d at 993. And as discussed in a moment, the
purpose may not be simply the financial benefit of the
sovereign.

The New York legislature had a legitimate public purpose
in passing the Act and its wage freeze power. It is not

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disputed that Buffalo was suffering at the time, and continues
to suffer, a fiscal crisis. The state legislature passed the Act to
address specifically the City’s financial problems. See N.Y.
Pub. Auth. Law § 3850-a (McKinney Supp. 2006) (declaring
that “the city of Buffalo is facing a severe fiscal crisis, and
that the crisis cannot be resolved absent assistance from the
state”). This is not a case in which the Act and wage freeze
were passed “for the mere advantage of particular individu-
als,” Blaisdell, 290 U.S. at 445; rather, the legislature passed
the law “for the protection of a basic interest of society,” id.
Further, courts have often held that the legislative interest in
addressing a fiscal emergency is a legitimate public interest.
See, e.g., id. at 444-48 (statute impairing mortgages found to
be constitutional in light of depression era exigencies); /n re
Subway-Surface Supervisors Ass'n v. New York City Transit
Auth. (Subway-Surface), 44 N.Y .2d 101, 112-14 (1978) (stat-
ute freezing municipal wages held to be constitutional given
fiscal emergency afflicting New York City). We find no rea-
son in the instant case to reach a conclusion contrary to that
reached in the cited cases.

B. Reasonableness and Necessity

That a contract-impairing law has a legitimate public
purpose does not mean there is no Contracts Clause violation.
The impairment must also be one where the means chosen are
reasonable and necessary to meet the stated legitimate public
purpose. U.S. Trust Co., 431 U.S. at 22-23; see Sanitation &
Recycling Indus., 107 F.3d at 993 (“A law that works sub-
stantial impairment of contractual relations must be specifi-
cally tailored to meet the societal ill it is supposedly designed
to ameliorate.”). If it is not, then the law offends the Contracts
Clause.

Unless the state itself is a party to the contract, courts
usually defer to a legislature's determination as to whether
a particular law was reasonable and necessary. See Energy
Reserves, 459 U.S. at 412-13. In this appeal, the parties

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committed the majority of their arguments in their briefs
to discussing the appropriate level of deference our court
owes to the legislature here. Therefore, before we can answer
the third question of reasonableness and necessity, we first
address the issue of deference.

1. Kinds of Deference

Since Dartmouth College v. Woodward, 17 U.S. (4 Wheat.)
518 (1819), it has been familiar law that the Contracts Clause
applies to public contracts as well as to private contracts. /d.
at 694 (recognizing that salary contracts of public officers are
entitled to Contracts Clause protection) (Marshall, C.J.); see
U.S. Trust Co., 431 U.S. at 17. However, in analyzing public
contracts courts use a different approach than that employed
in analyzing private ones. When a law impairs a private
contract, substantial deference is accorded, see Sal Tinnerello
& Sons, Inc. v. Town of Stonington, 141 F.3d 46, 54 (2d Cir.
1998), to the legislature’s “judgment[s] as to the necessity
and reasonableness of a particular measure,” U.S. Trust Co.,
431 U.S. at 23. Public contracts are examined through a more
discerning lens. When the state itself is a party to a contract,
“complete deference to a legislative assessment of reason-
ableness and necessity is not appropriate because the [s]tate’s
self-interest is at stake.” Jd. at 26. When a state’s legislation is
self-serving and impairs the obligations of its own contracts,
courts are less deferential to the state’s assessment of reason-
ableness and necessity. Condell v. Bress, 983 F.2d 415, 418
(2d Cir. 1993).

The parties disagree with respect to what level of deference
we should apply. Plaintiffs argue that we owe little deference
to the state’s decision because the Act is, in their view, self-
serving to the state, while defendants insist we owe sub-
stantial deference to the legislative judgment. Of particular
significance in the case at hand is the absence of a contract to
which New York State is a party. Defendants contend that
substantial deference is due because New York State is not a

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party to the contracts that are being impaired, that is, the state
did not impair the obligations of its own contracts. /d. at 418.
Plaintiffs concede that their contracts are with the City of
Buffalo and that no state contracts or obligations run to them
or to the City. But, they assert, that absence of a state contract
does not preclude heightened scrutiny. The plaintiff unions
urge us to focus on the alleged self-serving nature of the
Act and the wage freeze. They argue that a less deferential
standard applies because the wage freeze is in plaintiffs’
view, self-serving insofar as it may save the state money by
reducing future aid the state may feel obliged to give to the
City.

Our initial comment is that the presence or absence of a
State as a party to the contract is not determinative of the
deference issue. Defendants ignore that a public contract is in
fact being impaired albeit through state rather than local law.
Were we to adopt defendants’ reading, state legislatures could
delegate to an agency the power to impair a public contract of
a government subdivision that the subdivision itself would
have more difficulty impairing. Lawmakers could fashion
the powers delegated to the agency in a manner to insulate
the agency’s actions from constitutional attack. We decline
to open such an end-run around Contracts Clause law. The
better rule therefore calls for focusing on whether the contract-
impairing law is self-serving, where existence of a state con-
tract is some indicia of self-interest, but the absence of a state
contract does not lead to the converse conclusion.

In other words, the absence of a contract with the state does
not mean we thereby believe the wage freeze cannot be self-
serving to the state. To the contrary, it can be. But, in the end,
we do not think this is the sort of case in which the state
legislature “welches” on its obligations as a matter of “politi-
cal expediency,” see Surrogates, 940 F.2d at 773; Guido
Calabresi, Retroactivitv: Paramount Powers & Contractual
“aanges, 71 Yale L.J. 1191, 1201-02 (1962), but rather, the

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state was genuinely acting for the public good, see Blaisdell,
290 U.S. at 445; Calabresi, 71 Yale L.J. at 1202. For the
purposes of this appeal, we need not resolve what level of
deference to apply. Instead, we will assume that the lower
level of deference applies because, as discussed below, the
wage freeze is reasonable and necessary even under the less
deferential standard.

2. What Does Less Deference Mean?

As stated above, assuming the state’s legislation was self-
serving to the state, we are less deferential to the state’s
assessment of reasonableness and necessity than we would be
in a situation involving purely private contracts, but what
does giving less deference to the legislature actually mean?
We hasten to point out that less deference does not imply no
deference. See Local Div. 589, Amalgamated Transit Union v.
Massachusetts, 666 F.2d 618, 643 (ist Cir. 1981) (Breyer, J.)
(“[W]here economic or social legislation is at issue, some
deference to the legislature’s judgment is surely called for.”);
Subway-Surface, 44 N.Y.2d at 112 (noting that “the statement
of the principle [in U.S. Trust Co.] implies that some defer-
ence at least is appropriate”). Relatedly, we agree with the
First Circuit that U.S. Trust Co. does not require courts to
reexamine all of the factors underlying the legislation at issue
and to make a de novo determination whether another alterna-
tive would have constituted a better statutory solution to a
given problem. See Local Div. 589, 666 F.2d at 642. Nor is
the heightened scrutiny to be applied as exacting as that
commonly understood as strict scrutiny. Such a high level of
judicial scrutiny of the legislature’s actions would harken a
dangerous return to the days of Lochner v. New York, 198
U.S. 45 (1905), overruled, see DayBrite Lighting, Inc. v.
Missouri, 342 U.S. 421 (1952), in which courts would act as
superlegislatures, overturning laws as unconstitutional when
they “believe[d] the legislature [ ] acted unwisely,” Ferguson
v. Skrupa, 372 U.S. 726, 730 (1963); see Peick v. Pension

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Benefit Guar. Corp., 724 F.2d 1247, 1265 (7th Cir. 1983)
(“The danger of heightened scrutiny, and the reason it has
been as sparingly applied since its heyday in the Lochner era,
is that it can easily mask the imposition by a court of a
philosophical and economic straightjacket on the legislature.”);
see also Laurence H. Tribe, Constitutional Choices 182 (1985)
(equating heightened scrutiny under the Contracts Clause as
backdoor to Lochner-type jurisprudence). The Lochner doc-

trine, of course, “has long since been discarded.” Skrupa, 372
U.S. at 730.

Ultimately, for impairment to be reasonable and necessary
under Jess deference scrutiny, it must be shown that the state
did not (1) “consider impairing the . . . contracts on par with
other policy alternatives” or (2) “impose a drastic impair-
ment when an evident and more moderate course would serve
its purpose equally well,” nor (3) act unreasonably “in light
of the surrounding circumstances,” U.S. Trust Co., 431 U.S.
at 30-31.

3. The Wage Freeze is Reasonable and Necessary

With the above standard in mind, we hold the wage freeze
was reasonable and necessary. The legislature and Board did
not treat the wage freeze on par with other policy alternatives.
According to the Act, the Buffalo Fiscal Authority was em-
powered to enact the wage freeze provision only if it was
essential to maintenance of the City’s budget. N.Y. Pub. Auth.
Law § 3858(2)(c) (McKinney Supp. 2006). We read this to
mean the wage freeze must have been a last resort measure.
Indeed the Board imposed the freeze only after other alterna-
tives had been considered and tried. The Board first instituted
a hiring freeze pursuant to its powers under the Act. More-
over, the City had already taken other more drastic measures
including school closings and layoffs; in the four years prior
to the wage freeze Buffalo eliminated 800 teaching and 250
teaching assistant positions. Only after these more drastic

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steps were taken and a finding that the freeze was essential
was made, did the BFSA institute the wage freeze.

This discussion dovetails with the second question of
whether a more moderate course was available to remedy the
fiscal crisis. As noted, the alternatives to the wage freeze
consisted of elimination of more municipal jobs and school
closures, alternatives which clearly are more drastic than a
temporary wage freeze. Thus, in light of the surrounding cir-
cumstances, we cannot say the state or the Buffalo Fiscal
Authority acted unreasonably.

The temporary and prospective nature of the wage freeze
underscores further its reasonableness. The Supreme Court
instructs that the extent of the impairment is “a relevant factor
in determining its reasonableness.” U.S. Trust Co., 431 U.S.
at 27. Here the impairment is relatively minimal. Under the
terms of the Act, the temporary wage freeze must be revisited
by the Board on an on-going basis to assure the freeze’s
continued necessity. N.Y. Pub. Auth. Law § 3858(2)(d) (Mc-
Kinney Supp. 2006). Further, the wage freeze operates
prospectively. In this respect the present facts are dissimilar
to U.S. Trust Co., a case that represents the paradigm of the
type of protection that the Contracts Clause was designed to
offer: protection “to those who invested money, time and
effort against loss of their investment through explicit repu-
diation.” Local Div. 589, 666 F.2d at 642 (discussing U.S.
Trust Co.). The impairment here does not affect past salary
due for labor already rendered or money invested. It only
suspends temporarily the two percent increase in salary for
services fo be rendered.

In sum, the prospective and temporary quality of the wage
freeze convinces us of its reasonableness. See Blaisdell, 290
U.S. at 447 (finding temporary nature of an impairment to be
probative of reasonableness) accord Spannaus, 438 U.S. at
242-43; Subway-Surface, 44 N.Y .2d at 112-14 (attaching sig-
nificance to the prospective characteristic of a law impairing

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public contracts); cf Energy Reserves Group, 459 U.S. at
418-19 (finding as probative the temporary aspect of an
impairing regulation in a private contract case).

The unions argue the wage freeze was unnecessary because
other alternatives existed. Namely, taxes could have been
raised or other programs and services could have been
eliminated or burdened. We cannot adopt this position for at
least three reasons. First, it is always the case that to meet a
fiscal emergency taxes conceivably may be raised. It cannot
be the case, however, that a legislature’s only response to a
fiscal emergency is to raise taxes. Also, defendants have
shown that Buffalo had already increased City taxes to meet
its fiscal needs, and it is reasonable to believe that any addi-
tional increase would have further exacerbated Buffalo’s
financial condition. Second, even if the state could have
raised its taxes, appellants have not shown how any monies
so raised would flow to Buffalo. Finally, on the undisputed
facts of this case, we find no need to second-guess the wis-
dom of picking the wage freeze over other policy alternatives,
especially those that appcar more Draconian, such as further
layoffs or elimination of essential services. See Blaisdell, 290
U.S. at 447-48 (“Whether the legislation is wise or unwise as
a matter of policy is a question with which we are not con-
cered.”); Local Div. 589, 666 F.2d at 643 (noting that the
court could have balanced alternatives to impairment, but
concluding that “[a]nswering these sorts of questions .. . is a
task far better suited to legislators than to judges”); see also
Sal Tinnerello & Sons, 141 F.3d at 54 (“[I]t is not the prov-
ince of this Court to substitute its judgement for that of ...a
legislative body.”’).

4. Present Case Distinguishable From Surrogates and

Condell

We pause here to discuss why, contrary to the plaintiffs’
assertions, this case is distinguishable from Association of
Surrogates & Supreme Court Reporters v. New York and

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Condell v. Bress. In Surrogates, New York State had alleg-
edly impaired the labor contracts of certain judicial employ-
ees by instituting a payroll lag in which payment of their
salaries would be delayed. Surrogates, 940 F.2d at 769.
Condell involved a similar payroll lag that affected employ-
ees of the state executive branch. Condell, 983 F.2d at 417.
Applying heightened Contracts Clause scrutiny, we held both
payroll lag provisions unreasonable and unnecessary. See
Condell, 983 F.2d at 418, 419-20; Surrogates, 940 F.2d 773-
74.

The facts and circumstances of those cases nonetheless are
dissimilar to those present here. In those cases we found the
legislature’s justifications of reasonableness and necessity to
be dubious at best. That there was an emergency or dire need
justifying the impairment was in doubt in those cases. See,
e.g., Surrogates, 940 F.2d at 773 (assuming for argument
sake only that expansion of the judiciary is an important
public purpose but holding payroll lag not to be necessary to
achieving that goal); Condell, 983 F.2d at 420 (implying that
a fiscal crisis could be grave enough where a state might
constitutionally impose a payroll lag but finding that the case
before the court did not present such an emergency). For
example, in Surrogates the state wanted to hire more judicial
employees to help reduce the courts’ back-log of cases. Sur-
rogates, 940 F.2d 768-69. To fund this endeavor it instituted
the payroll lag, rather than raise taxes to fund the additional
service. /d. at 773. We determined that the lawmakers had
impaired the state employees’ contracts improperly, in part,
on the basis of this political expediency. See id.; Condell, 983
F.2d at 420.

Here, no one questions the existence of a very real fiscal
emergency in Buffalo. Additionally, as noted, there is no
evidence in the record of an ill-motive of political expediency
or unjustified welching. Contracts Clause cases involve in-
dividual inquiries, for no two cases are necessarily alike. See

17a

Blaisdell, 290 U.S. at 430 (“Every case must be determined
upon its own circumstances.”). In the present case, we are
comfortable that the wage freeze is reasonable and necessary
to remedy the fiscal instability of Buffalo.

We point out that while the facts of Surrogates and Condell
are inapposite, we find the New York state case, In re
Subway-Surface Supervisors Association v. New York City
Transit Authority, to be persuasive and relevant. In Subway-
Surface, the New York Court of Appeals upheld the con-
stitutionality of the New York State Financial Emergency Act
for the City of New York, a state law which, like the wage
freeze here, suspended wage increases of municipal workers.
44 N.Y.2d at 107-08. At the time, New York City was in the
midst of a financial emergency, and to address the emer-
gency, the state froze New York City municipal wages. /d.
We find the instant case similar, especially because the fact of
an emergency is not contested. Our holding can be summaz-
rized simply: An emergency exists in Buffalo that furnishes a
proper occasion for the state and BFSA to impose a wage
freeze to “protect the vital interests of the community,” and
the existence of the emergency “cannot be regarded as a
subterfuge or as lacking in adequate basis.” Blaisdell, 290
U.S. at 444. Nor can the wage freeze be regarded as unrea-
sonable or unnecessary to achieve the important public pur-
pose of stabilizing Buffalo’s fiscal position.

Ill. Takings Clause .

Plaintiffs appeal also the district court’s denial of their
Takings Clause claim. While we hold that no takings viola-
tion has occurred, we do so on different grounds than those
relied on by the district court.

A. Physical Taking or Regulatory Taking

The Takings Clause of the Fifth Amendment provides that
no “private property shall be taken for public use, without just

18a

compensation.” U.S. Const. amend. V. The clause applies to
the states through the Fourteenth Amendment. See Kelo v.
New London, _ U.S. _, 125S. Ct. 2655, 2658 n.1 (2005).

The law recognizes two species of takings: physical takings
and regulatory takings. See Meriden Trust & Safe Deposit Co.
v. FDIC, 62 F.3d 449, 454 (2d Cir. 1995). Physical takings .
(or physical invasion or appropriation cases) occur when the
government physically takes possession of an interest in prop-
erty for some public purpose. Tahoe-Sierra Pres. Council v.
Tahoe Reg’! Planning Agency, 535 U.S. 302, 321 (2002). The
fact of a taking is fairly obvious in physical takings cases: for
example, the government might occupy or take over a lease-
hold interest for its own purposes, see United States v. Gen.
Motors Corp., 323 U.S. 373, 375, 380 (1945), or the govern-
ment might take over a part of a rooftop of an apartment
building so that cable access may be brought to residences
within, see Loretto v. Teleprompter Manhattan CATV Corp.,
458 U.S. 419, 421 (1982). But when the government acts in a
regulatory capacity, such as when it bans certain uses of
private property, see Village of Euclid v. Ambler Realty Co.,
272 U.S. 365, 384-85 (1926), or limits the rent a landlord
may charge tenants, see Fed. Home Loan Mortgage Corp. v.
New York State Div. of Hous. & Cmty. Renewal, 83 F.3d 45,
47-48 (2d Cir. 1996), or prohibits landlords from evicting
tenants for refusing to pay higher rents, see Block v. Hirsh,
256 U.S. 135, 154 (1921), the question of whether a taking
has occurred is more complex, Tahoe-Sierra Pres. Council,
535 U.S. at 323. Such cases are considered regulatory takings
because they do not involve a categorical assumption of
property. See id. The gravamen of a regulatory taking claim is
that the state regulation gocs too far and in essence “effects a
taking.” Meriden Trust & Safe Deposit Co., 62 F.3d at 454.

The district court analyzed the wage freeze as a physical
taking. We believe this was in error. The wage freeze “does
not present the ‘classic taking’ in which the government

19a

directly appropriates private property for its own use.”
Eastern Enters. v. Apfel, 524 U.S. 498, 522 (1998). Rather,
the interference with appellants’ contractual right to a wage
increase “arises from [a] public program adjusting the bene-
fits and burdens of economic life to promote the common
good.” Penn Cent. Transp. Co. v. City of New York, 438 U.S.
104, 124 (1978). The freeze therefore falls into the category
of a regulatory, not physical, taking, and should have been
analyzed as such. See Connolly v. Pension Benefit Guar.
Corp., 475 U.S. 211, 224-25 (1986) (analyzing Takings Clause
case involving “taking” of contracts rights under regulatory
takings jurisprudence); see also Tahoe-Sierra Pres. Council,
535 U.S. at 323-24 (noting that physical invasion line of cases
is inapplicable to regulatory takings analysis).

B. Protectable Property

In adjudging whether the Act constituted an unconstitu-
tional taking, we take a moment here to ask the threshold
question of whether a protectable property interest is even at
stake. Although the Supreme Court has held that valid con-
tracts constitute property under the Takings Clause, Lynch v.
United States, 292 U.S. 571, 579 (1934), this is neither a
blanket nor absolute rule, see Connolly, 475 U.S. at 224
(“[T]he fact that legislation disregards or destroys existing
contractual nghts does not always transform the regulation
into an illegal taking [but] [t}his is not to say that contractual
rights are never property rights ... .””), and further it is a rule
that has been called into question, Pro-Eco, Inc. v. Bd. of
Comm'rs, 57 F.3d 505, 510 n.2 (7th Cir. 1995) (“We read
Connolly . . . as effectively overruling, if it had not already
been overruled, Lynch v. United States, 292 U.S. 57]
[(1934)].”): see also Ohio Student Loan Comm'n v. Cavazos,
900 F.2d 894, 900-02 (6th Cir. 1990) (distinguishing Lynch
and holding that contract rights are not property); Peick, 724
F.2d 1247, 1274-76 (noting distinction between “property
rights” which are protected under Takings Clause and “con-

20a

tract mghts” which are not necessarily protected). Our mis-
givings, however, need not detain us. We will assume for
purposes of this appeal that the wage increase provisions of
appellants’ contracts constitute property under the Takings
Clause.

C. Regulatory Taking

Regulatory takings analysis requires an intensive ad hoc
inquiry into the circumstances of each particular case. See
Connolly, 475 U.S. at 224. We weigh three factors to deter-
mine whether the interference with property rises to the level
of a taking: “(1) the economic impact of the regulation on the
claimant; (2) the extent to which the regulation has interfered
with distinct investment-backed expectations; and (3) the
character of the governmental action.” /d. at 224-25. In con-
sidering these factors, we are not persuaded that plaintiffs
have met the heavy burden necessary to establish a regulatory
taking. Keystone Bituminous Coal Ass'n v. DeBenedictis, 480
U.S. 470, 493 (1987).

First, the severity of the economic impact of the freeze and
the extent to which it interferes with appellants’ investment-
backed expectations are relatively small. The wage freeze
is temporary and operates only during a control period. See
N.Y. Pub. Auth. Law § 3858(2)(d) (McKinney Supp. 2006).
What is more, this is not a case in which a law abrogates an
entire contract. The freeze affects only a small increase in
wages. As such plaintiffs continue to receive the same salary
they had been recciving prior to the freeze’s enactment. The
freeze’s prospective nature demonstrates also its limited eco-
nomic impact and interference with appellants’ investment-
backed expectations. It does not affect wages for which
services and labor have already been rendered.

Second, the nature of the state’s action is uncharacteristic
of a regulatory taking. The wage freeze is a negative restric-
tion rather than an affirmative exploitation by the state.

2la

Nothing is affirmatively taken by the government. Instead the
government annuls something—namely, the appellants’ con-
tractual right to a wage increase. The freeze is in this respect
like a temporary cap on how much plaintiffs may charge for
their services. See Fed. Home Loan Mortgage Corp., 83 F.3d
at 48 (upholding rent stabilization as not a taking); Garelick
v. Sullivan, 987 F.2d 913, 916 (2d Cir. 1993) (upholding price
regulations that limit how much medical providers may charge
Medicare patients).

Ultimately, and third, the temporary suspension of plain-
tiffs’ wage increase arises from a public program that un-
doubtedly burdens the plaintiffs in order to promote the
common good. Connolly, 475 U.S. at 225. Equally true is that
the public program to help Buffalo obtain fiscal stability is
one which the state had a right to initiate and regulate. We
recognize the possibility that the net effect of the wage freeze
may well be to take from Peter to pay Paul, but such burden
shifting does not, without more, amount to a regulatory tak-
ing. See id. at 223 (“Given the propriety of the governmental
power to regulate, it cannot be said that the Takings Clause is
violated whenever the legislation requires one person to use
his or her assets for the benefit of another.’’).

CONCLUSION

Accordingly, for the foregoing reasons, the state law con-
stitutes neither a Contracts Clause nor Takings Clause viola-
tion. We therefore affirm the district court’s order granting
summary judgment in favor of defendants and denying sum-
mary judgment to plaintiffs.

22a
APPENDIX B

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK

04-CV-457S

BUFFALO TEACHERS FEDERATION, BUFFALO EDUCATIONAL
SUPPORT TEAM-NEA/NY, TRANSPORTATION AIDES OF
BUFFALO, NEA/NY, SUBSTITUTES UNITED/BUFFALO-
NEA/NY, BUFFALO COUNCIL OF SUPERVISORS AND
ADMINISTRATORS, AFSCME LOCAL 264, PROFESSIONAL,
CLERICAL AND TECHNICAL EMPLOYEES’ ASSOCIATION
AND LOCAL 409 INTERNATIONAL UNION OF OPERATING
ENGINEERS,

Plaintiffs,
¥.

RICHARD TOBE, THOMAS E. BAKER, ALAIR TOWNSEND,
H. CARL MCCALL, JOHN J. FASO, JOEL A. GIAMBRA,
MAYOR ANTHONY MASIELLO, RICHARD A. STENHOUSE
AND ROBERT G. WILMERS, in their official capacities as
directors/members of the Buffalo Fiscal Stability Authority,

Defendants.

DECISION AND ORDER

], INTRODUCTION

On July 3, 2003, the legislature of the State of New York
created the Buffalo Fiscal Stability Authority (“the Control
Board’) to stabilize and improve the city of Buffalo’s failing
financial health.’ One of the powers the legislature vested in

' The Buffalo Fiscal Stability Authority Act created the Buffalo Fiscal
Stability Authority. To avoid confusion, this Court will refer to the Buffalo

23a

the Control Board is the discretion to freeze wages. On April
21, 2004, the Control Board exercised that discretion and
enacted a Wage Freeze Resolution, which for purposes of this
case, had the effect of eliminating contractual salary increases
that Plaintiffs had negotiated with the city of Buffalo school
district.

Plaintiffs filed suit in this court challenging the Buffalo
Fiscal Stability Authority Act (the “BFSA”) and the Wage
Freeze Resolution as violative of the Contract and Takings
Clauses of the United States Constitution. Presently before
me are the parties’ competing Motions for Summary Judg-
ment.” Having reviewed the motion papers and the applicable
law, | find that the Wage Freeze Resolution is not unconstitu-
tional. Rather, the state has acted properly within its police
power to address the city of Buffalo’s dire financial situation.
The Wage Freeze Resolution is a reasonable and necessary
means to remedy the city’s economic inviability and secure
the welfare of its residents. It serves the ultimate goal of
restoring the city’s fiscal independence. Accordingly, Plain-
tiffs’ motion will be denied and Defendants’ motion will be
granted.

Fiscal Stability Authority Act as the “BFSA” and the Buffalo Fiscal
Stability Authority as “the Control Board” throughout this decision.

* In support of their Motion for Summary Judgment, Plaintiffs filed the
following documents: a memorandum of law, a Rule 56 Statement of Un-
disputed Facts, with appendix, and a reply memorandum of law. In oppo-
sition, Defendants filed a memorandum of law with exhibits.

In support of their Motion for Summary Judgment, Defendants filed
the following: a memorandum of law, a Rule 56 Statement of Undisputed
Facts, the Declaration of Dorothy A. Johnson, with attached exhibits, and
a reply memorandum of law. In opposition, Plaintiffs filed a memoran-
dum of law and a response to Defendants’ Rule 56 Statement of Undis-
puted Facts,

24a
Il. BACKGROUND .

A. The Parties and the Collective Bargaining Agreements

Plaintiffs are employee organizations that serve as the
exclusive bargaining representatives for their respective em-
ployee units. (Plaintiffs’ Rule 56 Statement of Undisputed
Facts (“Plaintiffs’ Statement”), 4 1; Defendants’ Rule 56
Statement of Undisputed Facts (“Defendants’ Statement’),
| 1-8.) Defendants are directors/members of the Control
Board, which is a public benefit corporation. (Defendants’
Statement, 4] 9, 10.)

Each Plaintiff employee organization is a party to a collec-
tive bargaining agreement with the city of Buffalo school
district. (Plaintiffs’ Statement, § 2; Defendants’ Statement,
qf] 1-8; 11, 13, 15, 17, 19, 21, 23, 25.) These agreements pro-
vide for periodic step increases and/or other types of salary
increases, such as longevity payments, to be paid to the cov-
ered employees.* (Plaintiffs’ Statement, 9 3-4; Defendants’
Statement, {| 27, 29.) On average, the covered employees are
contractually entitled to receive salary increases of roughly
2% per year. (Plaintiffs’ Statement, 4] 5.)

* Plaintiffs represent individuals employed by the city of Buffalo school
district in the following capacities: teachers; certain teachers’ aides and
health care aides; bus aides; substitute teachers; principals, assistant prin-
cipals, directors, supervisors, project administrators and assistant superin-
tendents; service center employees, cook managers and cafeteria employ-
ees; professional, clerical and technical personnel; and engineering per-
sonnel. (Defendants’ Statement, {¥ 1-8.)

* This Court notes that the agreements between Plaintiffs and the school
district have all expired and that successor agreements have not been
entered. (Defendants’ Statement, {9 13-26.) Hlowever, under New York’s
Civil Service Law, the terms of the expired agreements remain in force
until new agreements are reached. See N.Y. Civ. SERV. LAW § 209-a(1)(e)
(McKinney 1999); Ass'n of Surrogates & Supreme Court Reporters v.
State of New York, S88 N.E.2d $1, 53 (N.Y. 1992).

25a
B. The City of Buffalo’s Fiscal Crisis

In May of 2003, the Speaker of the New York State As-
sembly requested that the State Comptroller’s Office conduct
a review of the city of Buffalo’s finances. (Defendants’ State-
ment, § 58; Johnson Declaration, Exhibit D.) This review was
intended to assist lawmakers in determining whether the city
would need financial assistance from the state to close current
and future budget gaps. (Defendants’ Statement, §] 59; Johnson
Decl., Exhibit C, p. 1.)

The State Comptroller’s ensuing report detailed the city of
Buffalo’s desperate fiscal straits. (Johnson Decl., Exhibit C.)
Among others, the State Comptroller made the following
findings:

e The city of Buffalo had been operating with a struc-
tural deficit for several years, and was only able to
fund its operations with increasing state aid and the
use of its reserves. (Johnson Decl., Exhibit C, p. 1.)

e The city of Buffalo’s budget increases since 1997-
1998 were funded through increasing state aid, which
grew from $67 million in 1997-1998 to $123 million
in the city’s 2002-2003 fiscal year. (Johnson Decl.,

_ Exhibit C, p. 12.)

e The city had a combined deficit for the fiscal years
2000-2001 and 2001- 2002 of $23.8 million, and the
2002-2003 budget as initially adopted was balanced
only by exhausting the city’s reserves. (Johnson Decl.,
Exhibit C, pp. 1, 12.)

e The city of Buffalo’s estimated budget deficit for
2002-2003 was $7.5 million. The city also faced a
2004-2005 estimated budget deficit ranging from $30-
$48 million up to $60-$78 million, depending on the
Board of Education’s budget. The city faced increased
estimated deficits of $76-$107 and $93-$127 million

26a

in 2005-2006 and 2006-2007, respectively. (Johnson
Decl., Exhibit C, pp. 1-2, 12, 20-22.)

The State Comptroller concluded that due to these continu-
ing and serious structural imbalances, the city of Buffalo was
not in a position to rectify its budget on its own. (Defendants’
Statement, 4] 62; Johnson Decl., Exhibit C, pp. 2, 30.) He also
concluded that a new approach must be adopted by the city to
restore its fiscal integrity. (Johnson Decl., Exhibit C, p. 30.)
In the State Comptroller's view, it was incumbent upon the
city to adopt financial plans and practices that would bring its
recurring expenses in line with its recurring revenue. (John-
son Decl., Exhibit C, p. 30.) To that end, one of the State
Comptroller’s recommendations was that the state legislature
create a control board to oversee and administer Buffalo’s
finances “to ensure that effective long-term restructuring
takes place in Buffalo.” (Defendants’ Statement, § 60; John-
son Decl., Exhibit C, p. 2.) The State Comptroller also recom-
mended that the control board be given the power to freeze
wages in the event of a declared fiscal crisis. (Johnson Decl.,
Exhibit C, p. 31.) The state legislature accepted both recom-
mendations.

C. Enactment of the BFSA

On July 3, 2003, the New York State legislature enacted
the BFSA. See N.Y. PUB. AUTH. LAW § 3850, et seq.
(McKinney Supp. 2005). As indicated in the legislative decla-
ration of need, the impetus of the BFSA was the city of
Buffalo’s crumbling finances, as evidenced in the State
Comptroller’s report:

The Icgislature hereby finds and declares that the city of
Buffalo is facing a severe fiscal crisis, and that the crisis
cannot be resolved absent assistance from the state. The
legislature finds that the city has repeatedly relied on
annual extraordinary increases in state aid to balance its
budget, and that the state cannot continue to take such

27a

extraordinary actions on the city’s behalf. The legislature
further finds and declares the maintenance of a balanced
budget by the city of Buffalo is a matter of overriding
state concern, requiring the legislature to intervene to
provide a means whereby: the longterm fiscal stability of
the city will be assured, the confidence of investors in
the city’s bonds and notes is preserved, and the economy
of both the region and the state as a whole is protected.

N.Y. PUB. AUTH. LAW § 3850-a.

In general, the BFSA requires the Control Board to monitor
the city of Buffalo’s financial plans on an ongoing basis to
ensure that the city is adhering to the detailed fiscal require-
ments set forth in the BFSA. (Defendants’ Statement, 4] 56.)
For example, the BFSA requires that the city prepare and
submit to the Control Board a four-year (2004-2007) financial
plan demonstrating, among other things, that annual operating
expenses will not exceed annual operating revenues. N.Y.
PuB. AUTH. LAW § 3857(1). The goal is for the city to
steadily balance its budget gaps with less and less outside
financial assistance until it can independently balance its
budget in 2008-2009. N.Y. PuB. AUTH. LAW § 3857(1).

The city’s financial plans must be approved by the Control
Board. N.Y. PuB. AUTH. LAW §§ 3858(2)(a). The BFSA pro-
vides a mechanism by which the Control Board may review
and modify the city’s financial plans. N.Y. PUB. AUTH. LAW
§ 3857. If the city fails to modify its financial plans or fails to
demonstrate that it is closing its budget gaps according to the
requirements of the BFSA, the Control Board is vested with
the authority to act to ensure that the city takes all necessary
corrective actions. N.Y. PUB. AUTH. LAW §§ 3857(2), 3858(2).
For example, the BFSA specifically authorizes the Control
Board to impose a “wage and/or hiring freeze” upon a finding
that such a freeze is “essential to the adoption or maintenance
of a city budget or a financial plan that is in compliance with

28a

[the BFSA].” N.Y. PuB. AUTH. LAW § 3858(2)(c)(i). The
BFSA specifically provides that

the [Control Board] shall be empowered to order that all
increases in salary or wages of employees of the city and
the employees of covered organizations which will take
effect after the date of the order pursuant to collective
bargaining agreements, other analogous contracts, or in-
terest arbitration awards, now in existence or hereafter
entered into, requiring such salary or wage increases as
of any date thereafter are suspended.

N.Y. PuB. AUTH. LAW § 3858(2)(c)(i).

The BFSA further provides that the frozen wages shall not
be paid retroactively:

no retroactive pay adjustments of any kind shall accrue
or be deemed to accrue during the period of wage freeze,
and no such additional amounts shall be paid at the time
a wage freeze is lifted, or at any time thereafter.

N.Y. PuB. AUTH. LAW § 3858(2)(c)(iii).
D. Implementation of the Wage Freeze

On October 21, 2003, the Control Board approved a four-
year financial plan for the city. (Johnson Decl., Exh. A.) The
Control Board continued to review and monitor the economic
conditions of the city and the viability of the four-year plan as
it is required to do under the BFSA. (Johnson Decl., Exh. A.)
In doing so, the Control Board discovered that the immediate
financial plan was out of balance, and that the city was pro-
jecting multiple increases in recurring expenditures, primarily
related to personnel costs. (Johnson Decl., Exh. A.) Specifi-
cally, the Control Board determined that the city was pro-
jecting an increase in the 2004-2005 budget gap of more than
$20 million above the $26 million gap projected in the finan-
cial plan, and that the projected cumulative gap over the next

29a

financial plan would exceed $250 million. (Johnson Decl.,
Exh. A.)

Consequently, on April 21, 2004, the Control Board en-
acted Resolution No. 04-35, otherwise known as the Wage
Freeze Resolution. (Defendants’ Statement, 4 37; Johnson
Decl., Exh. A.) This resolution was enacted based on the
Control Board’s finding that a wage freeze was “essential
to the maintenance of the Revised Financial Plan and to the
adoption and maintenance of future financial plans and budg-
ets that are now in compliance with the [BFSA].” (Johnson
Decl., Exh. A.) In pertinent part, the Control Board resolved
as follows:

RESOLVED AND ORDERED, that a wage freeze, with
respect to the City and all Covered Organizations, is
essential to the maintenance of the Revised Financial
Plan and to the adoption and maintenance of future

budgets and financial plans that are in compliance with
the Act; and be it further

RESOLVED AND ORDERED, that effective immedi-
ately, there shall be a freeze with respect to all wages,
wage rates, and salary amounts for all employees of the
City and all Nonexempt Covered Organizations, to the
full extent authorized by the Act (the “Wage Freeze’),
and be it further

RESOLVED AND ORDERED, that this Wage Freeze
shall apply to prevent and prohibit any increase in wage
rates, wages or salarics for any employee of the City or
a Nonexempt Covered Organization, including, but not
limited to, any increased payments for holiday and vaca-
tion differentials, shift differentials, salary adjustments
according to plan and step-ups or increments; and in-
cluding increases in wage rates, wages or salaries
pursuant to any plan or schedule for advancement or
promotion; and including any increases in wage rates,

30a

wages or salaries provided for under collective bargain-
ing agreements, interest arbitration awards, employment
agreements, or discretionary increases to non-repre-
sented employees, provided that such suspended salary
or wage increase shall not be considered as part of com-
pensation or final compensation or annual salary earned
or earnable for the purpose of computing the pension
base of any retirement allowances; and be it further

ORDERED AND RESOLVED, that the foregoing Wage
Freeze shall apply to prevent and prohibit any increase
in wage rates, wages or salaries that is scheduled to
commence or otherwise take effect on or after the
effective date of the Wage Freeze, notwithstanding that
(a) the increase was bargained for, provided for in an
existing collective bargaining agreement, or otherwise
planned prior to the effective date of the Wage Freeze,
and/or; (b) the increase is designated as retroactive, or
otherwise purports to relate to work performed prior to
the effective date of the Wage Freeze.

The wage freeze took effect immediately, on April 21,
2004. (Johnson Decl., Exh. A.)

E. Procedural History

On June 17, 2004, Plaintiffs commenced this action by
filing a Complaint in the United States District Court for the
Western District of New York. Defendants filed their Answer
on July 27, 2004. On February 28, 2005, the parties filed
Cross-Motions for Summary Judgment. After full briefing on
the motions, this Court held oral argument on May 24, 2005,
and reserved decision at that time.

Ill. DISCUSSION
A. Summary Judgment Standard

Rule 56 of the Federal Rules of Civil Procedure provides
that summary judgment is warranted where the “pleadings,

3la

depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving
party is entitled to judgment as a matter of law.” FED. R. CIv.
P. 56(c). A “genuine issue” exists “if the evidence is such that
a reasonable jury could return a verdict for the non-moving
party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248,
106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). A fact is
“material” if it “might affect the outcome of the suit under
governing law.” /d.

In deciding a motion for summary judgment, the evidence
and the inferences drawn from the evidence must be “viewed
in the light most favorable to the party opposing the motion.”
Addickes v. S.H. Kress and Co., 398 U.S. 144, 158-59, 90
S. Ct. 1598, 1609, 26 L.Ed.2d 142 (1970). “Only when rea-
sonable minds could not differ as to the import of evidence is
summary judgment proper.” Bryant v. Maffucci, 923 F.2d
979, 982 (2d Cir. 1991). The function of the court is not
“to weigh the evidence and determine the truth of the matter
but to determine whether there is a genuine issue for trial.”
Anderson, 477 U.S. at 249.

B. Nature of Plaintiffs’ Challenge

Plaintiffs’ Complaint contains two causes of action under
42 U.S.C. § 1983. First, Plaintiffs assert that the State of New
York, acting by and through the Defendants, has impaired
their contractual rights by imposing the wage freeze in
violation of the Contract Clause of the United States Consti-
tution. See U.S. Const. art. I, § 10, cl. 1. Second, Plaintiffs
contend that the state, acting by and through Defendants, has
taken their private property without just compensation in
violation of the Takings Clause of the Constitution. See U.S.
CONST. amend. V.

Generally, a legislative Act may be challenged in two
ways: (1) by establishing that it is wholly or facially, uncon-

32a

stitutional or (2) by demonstrating that it is unconstitutional
as applied in a particular way or as applied to a particular
person or group. Here, Plaintiffs are limited to “as applied”
challenges. This is because the BFSA itself does not diminish
or eliminate Plaintiffs’ contractual rights, nor does it alter or
affect i any way Plaintiffs’ collective bargaining agreements
with the city of Buffalo school district.” Thus, the BFSA,
standing on its own, does not substantially impair Plaintiffs’
contractual rights. See Cranley v. Nat'l Life Ins. Co. of Vt.,
144 F.Supp.2d 291, 302 (D.Vt. 2001) (rejecting a facial
challenge to a state statute under the Contract Clause where
the statute itself did not affect the plaintiffs’ contractual rights).
Similarly, the enactment of the BFSA, in and of itself, has not
deprived Plaintiffs of any property. It is only the Control
Board’s exercise of its remedial authority that arguably impli-
cates the taking of a property interest. As such, any facial
challenge to the BFSA under the Takings Clause would also
fail.

Counsel argued at length about the true nature of Plaintiffs’
challenge in this case. (See, e.g., Tr. at 7-33°). Plaintiffs main-
tain that they are challenging both the BFSA and the Wage
Freeze Resolution. They challenge the BFSA in the sense that
it is the source of the Control Board’s authority to freeze
wages, but they ultimately challenge the Wage Freeze Reso-
lution because it is the act that caused them injury.

Defendants interpret Plaintiffs’ Complaint as challenging
only the Control Board’s decision to impose the wage freeze,
to the exclusion of a constitutional challenge to the Control
Board’s authority to do so. Defendants’ conclusion in this re-
gard is supported by the text of the Complaint. For example,

* At oral argument, Plaintiffs’ counsel conceded that “the [BFSA] did
nothing to our clients. The statute was not self-executing ... .” (Tr. at 21.)

* Referring to the transcript of the oral argument before this Court on
May 24, 2005.

33a

the very first paragraph of the Complaint characterizes this
action as a “challenge [to] a recently-adopted resolution by
the Buffalo Fiscal Stability Authority (“BFSA”)—Resolution
No. 04-35.” (Complaint, 4 1.) In the second paragraph, Plain-
tiffs identify the Wage Freeze Resolution, not the BFSA,
as impairing their rights under the Contract and Takings
Clauses. (Complaint, {| 2.) In fact, Plaintiffs’ prayers for relief
seek (1) a declaration that the Wage Freeze Resolution
violates the Contract and Takings Clauses, (2) a declaration
that the Wage Freeze Resolution is unconstitutional and all
actions taken pursuant to it are void ab initio, and (3) an
Order enjoining Defendants from further implementing the
Wage Freeze Resolution. (Complaint, p. 12 (emphasis added).)
As such, Defendants argue that this Court should not reach
the constitutional issues presented by Plaintiffs. ’

As Plaintiffs’ counsel conceded at oral argument, the Com-
plaint could indeed have been more artfully drafted to make
clear the nature of Plaintiffs’ constitutional claims and theo-
ries. (Tr. at 10, 11.) However, this Court will not exalt form
over substance in this important case, and finds that Plain-

” Defendants also argue that this Court should not entertain Plaintiff's
challenge to the BFSA because the Attorney General of the State of New
York was not properly notified that this action involves a constitutional
chalenge to a state statute. Without commenting on whether notification
was mitially proper, this Court notes that the State Attorney General failed
to intervene or otherwise involve himself in this case even after the
Honorable Leslie G. Foschio, the United States Magistrate Judge assigned
to this case, filed a Certification of Action Challenging the Constitutional-
ity of a New York State Statute pursuant to 28 U.S.C. § 2403(b). By this
Certification, notice was given that “Plaintiffs request for declaratory re-
lief may also draw into question New York State’s legislation creating and
authorizing the [Control Board] to adopt the Wage Freeze Resolution.”
(Certification of Action, Docket No. 20, p. 1-2.) Accordingly, due to his
inaction after the issuance of this Certification, this Court concludes that
the State Attorney General would have declined to appear even if he had
been notified of the nature of this action sooner. As such, Defendants have
suffered no prejudice on this basis.

34a

tiffs’ Complaint meets the minimum requirements of notice
pleading under Rule &(a) of the Federal Rules of Civil Proce-
dure. See FED. R. Civ. P. 8(a) (requiring only “a short and
plain statement of the claim showing that the pleader is enti-
tled to relief”). Given the history and nature of this litigation,
it would be a veiled fiction to conclude that Defendants were
unaware that Plaintiffs intended to challenge the constitu-
tionality of the state’s action. Moreover, the parties have pre-
sented complete written and oral arguments on the constitu-
tional issues. As such, this Court detects no prejudice to
Defendants by entertaining Plaintiffs’ constitutional challenge
and will therefore proceed accordingly.

C. Contract Clause

The Contract Clause bars states from passing any “Law
impairing the Obligation of Contracts.” U.S. CONST. art. I,
§ 10, cl. 1. However, this prohibition is not absolute. See, e.g.,
United States Trust Co. v. New Jersey, 431 U.S. 1, 21, 97
S.Ct. 1505, 1517, 52 L.Ed.2d 92 (1977) (“Although the Con-
tract Clause appears literally to proscribe any impairment,
this court [has] observed that the prohibition is not an abso-
lute one and is not to be read with literal exactness like a
mathematical formula.” (quotation omitted)); Sanitation &
Recycling Indus. v. City of New York, 107 F.3d 985, 992-93
(2d Cir. 1997) (Contract Clause limits the power of the state
to abridge contractual relationships, but is not an absolute
bar).

The Supreme Court has interpreted the Contract Clause as
preserving “the inherent police power of the State ‘to safe-
guard the vital interests of its people.”” Energy Reserves
Group, Inc. v. Kan. Power & Light Co., 459 U.S. 400, 410,
103 S.Ct. 697, 74 L.Ed.2d 569 (1983) (quoting Home Bldg. &
Loan Ass'n v. Blaisdell, 290 U.S. 398, 434, 54 S.Ct. 231, 78
L.Ed. 413 (1934)); see also United States Trust, 431 U.S. at
21; Sanitation & Recycling Indus., 107 F.3d at 993 (“Contract
Clause must be accommodated to the police power a state

35a

exercises to protects its citizens”). The police power is de-
scribed as “an exercise of the sovereign right of the Govern-
ment to protect the lives, health, morals, comfort and general
welfare of the people, [which] is paramount to any rights
under contracts between individuals.” Allied Structural Steel
Co. v. Spannaus, 438 U.S. 234, 241, 98 S.Ct. 2716, 2721, 57
L.Ed.2d 727 (1978).

It is well settled that not all state impairments of contracts
violate the Contract Clause; rather “the Clause is not violated
unless the impairment is a substantial one.” Sal Tinnerello &
Sons, Inc. v. Town of Stonington, 141 F.3d 46, 52 (2d Cir.
1998) (citing Gen. Motors Corp. v. Romein, 503 U.S. 181,
186, 112 S.Ct. 1105, 1109-10, 117 L.Ed.2d 328 (1992)). This
circuit employs a three-part test to determine whether a piece
of legislation violates the Contract Clause:

(1) whether the contractual impairment is in fact sub-
stantial; if so, (2) whether the law serves a significant
public purpose, such as remedying a general social or
economic problem; and, if such a public purpose is dem-
onstrated, (3) whether the means chosen to accomplish
this purpose are reasonable and appropriate.

Tinnerello, 141 F.3d at 52-53 (quoting Sanitation & Recy-
cling Indus., 107 F.3d at 993); see also Cranley, 144
F.Supp.2d at 302.

1. Substantial Impairment

The first step is to determine whether the state law at issue
has resulted in an impairment that is substantial. “The pri-
mary consideration in determining whether the impairment ts
substantial is the extent to which reasonable expectations
under the contract have been disrupted.” Sanitation & Recy-
cling Indus., 107 F.2d at 993 (citing Energy Reserves, 459
U.S. at 411).

Here, Plaintiffs argue that the elimination of their contrac-
tual rights to annual salary increases of roughly 2% per year

36a

for an indeterminate amount of time constitutes a substantial
impairment. Defendants do not persuasively challenge this
assertion.® Indeed, lesser impairments in a similar context
have been found by the circuit court to be substantial impair-
ments. See, e.g., Condell v. Bress, 983 F.2d 415, 417-19 (2d
Cir. 1993) (indefinite postponement of five days’ pay under a
lag payroll system found to be substantial impairment); Ass'n
of Surrogates & Supreme Court Reporters v. State of New
York, 940 F.2d 766, 772 (2d Cir. 1991) (indefinite postpone-
ment of ten days’ pay under a lag payroll system found to be
substantial impairment). This is because

[t]he affected employees have surely relied on full pay-
checks to pay for such essentials as food and housing.
Many have undoubtedly committed themselves to per-
sonal long-term obligations such as mortgages, credit
cards, car payments, and the like—obligations which
might go unpaid in the months that the lag payroll has its
immediate impact.

Surrogates, 940 F.2d at 772.

The Wage Freeze Resolution in the instant case impacts
affected employees in the same manner. Plaintiffs’ contracts
call for 2% annual salary increases. Certainly a vast majority
of Plaintiffs reasonably relied on receiving salary increases
when making financial decisions, particularly whether to enter
long-term financial commitments. Accordingly, this Court
finds that the permanent cancellation of Plaintiffs’ 2% annual
salary increases is an impairment of contract that is substan-
tial. This, of course, does not end the inquiry. The more
difficult question is whether this substantial impairment is

*This Court is not persuaded by Defendant’s argument that a sub-
stantial impairment has not occurred because the wage freeze in this case
is prospective. Such was also the case in Condell v. Bress, 983 F.2d 415,
417-19 (2d Cir. 1993) and Ass'n of Surrogates & Supreme Court Report-
ers v. State of New York, 940 F.2d 766, 772 (2d Cir. 1991).

37a

constitutionally permissible. See Surrogates, 940 F.2d at 771
(“finding an impairment of contract is merely a threshold
step toward resolving the more difficult question whether that
impairment is permitted under the Constitution” (internal
quotation and citation omitted)).

2. Significant Social or Economic Purpose

The next inquiry tests the validity of the legislative pur-
pose. To pass constitutional muster, the law at issue must
have a “legitimate public purpose” and should be aimed at
remedying an important “general social or economic prob-
lem.” Energy Reserves, 459 U.S. at 411.

The parties offer somewhat different viewpoints on the
purpose of the BFSA and by extension, the Wage Freeze
Resolution. Plaintiffs contend that while the BFSA may have
been primarily aimed at solving the city of Buffalo’s fiscal
crisis, it was also enacted to decrease or eliminate the amount
of extraordinary financial aid the state had been providing to
the city of Buffalo.’ Defendants counter that the state enacted
the BFSA not out of a desire to lessen its contributions to the
city, but rather, to provide the city a framework within which
it could work to regain its financial independence.

This Court is not persuaded by Plaintiffs’ suggestion that
part of the state’s motivation in enacting the BFSA was to
save itself money. In Plaintiffs’ view, the state made a con-
scious decision to provide for a wage freeze so that it would
not have to remit further aid to the city to cover the cost of the
contractual salary increases. Plaintiffs seize on the legisla-
ture’s finding that “the city has repeatedly relied on annual
extraordinary increases in state aid to balance its budget, and

” At oral argument, however, Plaintiffs’ counsel appeared to concede
that the BFSA was enacted to address the city of Buffalo's fiscal crisis.
(See Tr. at 56 (“the [BFSA] as a whole is certainly devoted mostly to the
interest of the citizens of Buffalo.~): Tr. at 88 (conceding that the impetus
of the BFSA was the financial crisis in the city of Buffalo).)

38a

that the state cannot continue to take such extraordinary
actions on the city’s behalf,” N.Y. PuB. AUTH. LAW § 3850-a,
as dispositive evidence that the state’s motivation in enacting
the BFSA was, at least in part, financial. This legislative
finding, however, cannot be considered in isolation. It comes
in the context of the state’s concern that one of its major
municipalities is unable to balance its own budget. Read as
such, this statement is not indicative of an underlying motiva-
tion to save money. Plaintiffs’ narrow interpretation is simply
not supported by the text of the BFSA, nor the legislative
findings in support thereof.

A fair reading of the BFSA demonstrates that the state’s
motivation for enacting the BFSA was to rectify the city’s
inability to manage its own finances. For example, the state
provided a detailed framework with very specific parameters
and deadlines for the city of Buffalo to follow in order to get
back on its feet and regain fiscal independence; it did not
simply cease sending financial assistance to the city, which it
could have done at any time. To the contrary, the BFSA
contemplates and provides for continuing state aid to the city.
See, e.g., N.Y. PUB. AUTH. LAW §§ 3857, 3861.

Moreover, the legislative declaration of need for state inter-
vention indicates that the city of Buffalo is facing “a severe
fiscal crisis, and that the crisis cannot be resolved absent
assistance from the state.” N.Y. PUB. AUTH. LAW § 3850-a.
The reference to “assistance” can surely be read as suggesting
financial assistance, as Plaintiffs would advocate, but reading
the BFSA in its totality, it is more reasonable that the term
“assistance” be read broadly. The BFSA on its face, ivr ex-
ample, provides assistance in the form of a detailed financial
recovery plan and an oversight commission—the Control
Board. In fact, the legislature specifically found that

maintenance of a balanced budget by the city of Buffalo
is a matter of overriding state concern, requiring the leg-
islature to intervene to provide a means whereby: the

39a

long-term fiscal stability of the city will be assured, the
confidence of investors in the city’s bonds and notes is
preserved, and the economy of both the region and the
state as a whole is protected.

N.Y. PuB. AUTH. LAW § 3850-a. As such, the purpose of the
BFSA was to provide assistance to the city of Buffalo in the
form of long-term solutions to the rampant budgetary prob-
lems that threatened the city’s fiscal viability and endangered
the welfare of its residents. This Court is convinced that the
reason for the state’s intervention was to assist the city in
ameliorating and solving its financial crisis, not to simply
reduce future state expenditures.

The historical and statutory notes underlying the enactment
of the BFSA, the pertinent portion of which is set out in the
margin, also supports this Court’s conclusion.” It is clear

' The historical and statutory notes provide, in relevant part, as
follows:

Legislative findings. The legislature hereby finds and declares that a
condition of fiscal difficulty has existed for several years in the city
of Buffalo, as a result of a weakened economy, population declines,
and job losses. In recent months, the city’s fiscal condition has been
further weakened by the impact of the national economic recession,
which has had a greater negative impact in Buffalo than in many
other areas of the state. These factors have led to a structural imbal-
ance between revenues and expenditures which, when combined
with the city’s limited ability to increase taxes on its residents, has
resulted in a downgrade of Buffalo’s bonds by independent bond
rating services,

It is hereby found and declared that the city is in a state of fiscal
crisis, and that the welfare of the inhabitants of the city is seriously
threatened. The city budget must be balanced and economic recov-
ery enhanced. Actions should be undertaken which preserve essen-
tial services to city residents, while also ensuring that taxes remain
affordable. Actions contrary to these two essential goals jeopardize
the city’s long-term fiscal health and impede economic growth for
the city, the region, and the state.

40a

that the thrust of the state’s concern was with rebuilding the
city of Buffalo’s economic foundation. See 2003 N.Y. LAws
Ch. 122, S. 5695 (McKinney’s). The legislature recognized
the city’s weakened economy and the fact that the city was in
a state of fiscal crisis. See id. It therefore determined that the
correct remedy would be a combination of enhanced budget-
ary discipline and short-term budgetary relief as set out in the
BFSA, thus the imposition of the financial plan requirement
and outside oversight. See N.Y. PUB. AUTH. LAW §§ 3856,
3857. The Wage Freeze Resolution itself is a direct response
to the city’s continued inability to properly manage its finan-
cial affairs and follow the approved four-year plan. (Johnson
Decl., Exh. A.)

In sum, this Court finds that the BFSA and Wage Freeze
Resolution have a legitimate public purpose, that being the
stabilization of the city of Buffalo’s budgetary problems and
the resurrection of its fiscal independence. The purpose is not
to save the state money. This Court further finds that the
BFSA and Wage Freeze Resolution are aimed at remedying
an important social problem, that being the economic invi-
ability of the city and the threatened welfare of the city’s
residents. /d. The state is therefore acting within the proper
scope of its police power. See Energy Reserves, 459 U.S. at
412 (“The requirement of a legitimate public purpose guaran-
tees that the State is exercising its police power. . . .”’).

3. Reasonable and Necessary Means

Having found the existence of a substantial impairment and
a legitimate legislative purpose, the state’s action can with-

It is, therefore, further found and declared that a combination of en-
hanced budgetary discipline and short-term budgetary discipline and
short-term budgetary relief is necessary to assist the city in returning
to fiscal and economic stability, while ensuring adequate funding for
the provision of essential services and for the maintenance, expan-
sion, and rebuilding of the infrastructure of the city.

2003 N.Y. LAWS Ch. 122, S. 5695 (McKinney’s).

4la

stand scrutiny “only if it is ‘reasonable and necessary’” to
serve the purposes of the BFSA. Surrogates, 940 F.2d at 772
(quoting United States Trust Co., 431 U.S. at 25); see also
Sanitation & Recycling Indus., 107 F.3d at 302. The law must
be “specifically tailored to meet the societal ill it is suppos-
edly designed to ameliorate.” Sanitation & Recycling Indus.,
107 F.3d at 302 (citing Spannaus, 438 U.S. at 243). Deter-
mining whether the means are reasonable and necessary is a
difficult task, which must be “resolved by balancing the
contractual rights of the individual against ‘the essential
attributes of sovereign power necessarily reserved by the
States to safeguard the welfare of their citizens.”” Surrogates,
940 F.2d at 771 (quoting Home Building & Loan, 290 U.S. at
435 (internal quotation and citation omitted)). An important
component of conducting this inquiry is identifying the scope
of deference due the state’s action.

In the ordinary course involving private contracts, courts
“defer to legislative judgment as to the necessity and reason-
ableness of a particular measure.” United States Trust, 431
U.S. at 23. However, in cases where the state is self-interested
and seeks to avoid or impair its own contractual obligations,
deference to legislative judgment as to reasonableness and
necessity is not appropriate:

The Contract Clause is not an absolute bar to subsequent
modification of a State’s own financial obligations. As
with laws impairing, the obligations of private contracts,
an impairment may be constitutional if it is reasonable
and necessary te serve an important public purpose. In
applying this standard, however, complete deference to
a legislative assessment of reasonableness and necessity
is not appropriate because the State’s self-interest is at-
stake. A governmental entity can always find a use for
extra money, especially when taxes do not have to be
raised. If a State could reduce its financial obligations
whenever it wanted to spend the money for what it re-

42a

garded as an important public purpose, the Contract
Clause would provide no protection at all.

Id. at 26; see also County of Suffolk v. Long Island Lighting
Co., 14 F.Supp.2d 260, 268 (E.D.N.Y. 1998) (“where the
state seeks to evade its financial contractual obligations, the
Supreme Court has indicated that the courts must apply some-
thing higher than the rational basis standard”) (citing United
States Trust, 431 U.S. at 26).

Plaintiffs argue that this Court should not defer to the state
legislature in this case because the state’s self-interest is at
stake. They rest their argument on the Second Circuit’s
decisions in Surrogates and Condell. In Surrogates, the court
faced a challenge to a lag payroll system enacted by the New
York state legislature to fund the creation of new judgeships
and court positions in the state’s Unified Court System. At
that time, New York was facing a fiscal crisis. To save money
and to help finance the new positions, the legislature enacted
a law imposing a lag payroll system for nonjudicial employ-
ees of the Unified Court System. The effect of the lag pay-
roll was to delay payment of the affected employees’ salaries
until two weeks after the salaries were earned. Prior to this
system, employees were paid their bi-weekly salaries imme-
diately after the two weeks were worked. The ten days’ pay
that was withheld under the system was eventually payable to
the employees at the termination of their employment with
the state at the rate of pay applicable to them on the date of
their separation.

The affected employees challenged the lag payroll system
under the Contract Clause. In considering the plaintiffs’ chal-
lenge, the court eschewed the deference typically afforded
legislative judgment because it found that the lag payroll
system was self-serving. See Surrogates, 940 F.2d at 771. In
particular, the court found that the legislation was self-serving
because it “impairs obligations of its own contracts.” Surro-
gates, 940 F.2d at 771 (emphasis in original). Applying

43a

heightened scrutiny, the court found that the lag payroll sys-
tem was not necessary to achieve the state’s goal of expand-
ing the court system. See id. at 773.

It cannot be said that a lag payroll for only judicial
employees was essential in order to finance the expan-
sion of the court system. The state could have shifted the
seven million dollars from another government program,
or it could have raised taxes. We recognize that neither
alternative would have been popular among politician-
legislators, but that is precisely the reasons that the con-
ract clause exists—as a ‘constitutional check on state
legislation.’

Id. (quoting Spannaus, 438 U.S. at 241).

In essence, the court found that the existence of available
alternatives to impairing the state’s own contracts, albeit not
as appealing, rendered the lag payroll system unconstitu-
tional. See Surrogates, 940 F.2d at 774 (“The contract clause,
if it is to mean anything, must prohibit New York from
dishonoring its existing contractual obligations when other
policy alternatives are available.”). The Court reiterated the
Supreme Court’s admonition that ‘‘a State is not completely
free to consider impairing the obligations of its own contracts
on par with other policy alternatives.” United States Trust,
431 US. at 30-31; see Surrogates, 940 F.2d at 773.

Approximately a year and a half later, the Second Circuit
decided Condell. In Condell, the court was again faced with a
lag payroll measure enacted by the State of New York, this
one imposing a one week lag payroll on executive branch
employees. The five days’ of withheld salary was payable to
the employees at the termination of their employment with
the state, as it was in Surrogates.

The impetus of this system was a budget deficit estimated
to be $1.005 billion in November 1990. The Governor had
made public his desire to eliminate the budget deficit without

44a

issuing Tax and Revenue Anticipation Notes, levying new
taxes, raising rates on existing taxes or laying off additional
executive branch employees. These options were considered,
but rejected as unwise fiscal policy. The expected bounty from
the lagged wages was $128 million. Following Surrogates,
the court again found that the state was self-interested and
struck down the legislation as unconstitutional under the Con-
tract Clause because alternatives to the lag payroll measure
were available. See Condell, 983 F.2d at 420.

Defendants argue that this case is distinguishable from
Surrogates and Condell, and this Court agrees. Unlike the
case at bar, Surrogates and Condell undisputedly involve
self-serving legislation. Self-serving legislation, as the cases
describe it, consists of two principal components: a direct
financial benefit to the state, and the abrogation of the state’s
own contracts. See United States Trust, 431 U.S. at 25-26;
Surrogates, 940 F.2d at 771-73, Condell, 983 F.2d at 418; see
also McDermott v. Cuomo, No. 91-CV-57, 1992 WL 133900
(N.D.N.Y. June 11, 2002). In Surrogates, the state’s purpose
in enacting the lag payroll system was to gain a direct
financial benefit of upwards of $7 million to devote to court
expansion; in Condell, the state’s purpose was to raise an
estimated $128 million to apply to deficit reduction. In both
cases, the state blatantly and directly impaired its own con-
tractual obligations to raise revenue.

The BFSA and Wage Freeze Resolution, however, involve
neither a direct financial benefit to the state, nor a direct
abrogation of the state’s own contracts. Because of this, the
BFSA and Wage Freeze Resolution are not self-serving like
the legislation considered in Surrogates and Condell. As pre-
viously discussed herein at length, the state legislature did not
enact this legislation as a money saving measure. Its purpose,
rather, was to stabilize the city of Buffalo’s budgetary prob-
lems and resurrect its fiscal independence.

45a

It is undisputed that no direct revenue to the state is gener-
ated by the wage freeze. Plaintiffs’ nonetheless contend that
the state gains a benefit by not having to provide the city with
additional financial assistance to cover the cost of Plaintiffs’
wage increases. This argument is purely theoretical. At first
blush, it is obvious that the city of Buffalo is the entity that
immediately benefits by not having to pay the cost of the
salary increases. After all, it is the city, not the state, that is
party to the underlying contracts and responsible for making
payment. More important, there is no evidence supporting
Plaintiffs argument that there is a direct correlation between
the cost of Plaintiffs’ salary increases and the amount of addi-
tional assistance the state would have to provide to the city.
That is, if the cost of Plaintiffs’ salary increases is “x,” there
is no evidence that the city would require corresponding state
aid in the amount of “x” to cover those salary increases.

A myriad number of factors play into the city’s need for
financial assistance from the state. Plaintiffs have presented
no evidence that the city would require additional state aid for
the specific purpose of paying Plaintiffs’ salary increases. As
such, Plaintiffs have not demonstrated that the implementa-
tion of their salary increases would necessarily increase the
city’s need from the state.

Plaintiffs’ theory contains an additional flaw. Plaintiffs
concede that the state has no legal duty to provide financial
assistance to the city. (Tr. at 36.) Indeed, there is complete
agreement that the state’s past aid to the city of Buffalo has
not come as the result of any legal compulsion. While Plain-
tiffs argue that the state may have a moral or political motiva-
tion to assist the city, the fact remains that t%ere is no legal
requirement that it do so. In the absence of such a require-
ment, it cannot be said that the state gains anything from the
wage freeze. For if there is no duty to provide funds in the
first place, the state receives nothing from a_ possible
reduction in the amount of its benevolent giving. At the end

46a

of the day, the state does not receive a direct financial benefit
as a result of the wage freeze.

As to the second component, Surrogates and Condell in-
volved the state directly abrogating its own contracts. It
relieved itself of a financial obligation by reneging on its
promise to pay its employees immediately upon the comple-
tion of their work. The state was, in essence, forcibly borrow-
ing money directly from the affected employees to fund court
expansion and debt reduction. The Second Circuit specifically
emphasized that the reason that state action in both cases was
impermissible was because the state had violated its own
contract. See, e.g., Surrogates, 940 F.2d at 771 (lag payroll
system was self-serving because it “impairs obligations of its
own contracts” (emphasis in original)); see also McDermott,
1992 WL 133900, at *2 -*5 (lag payroll system struck down
where state was impairing its own contracts). In stark con-
trast, the state here is not a party to the contracts at issue and
gains nothing from the implementation of the wage freeze.
The contracts are between Plaintiffs and the city of Buffalo’s
school district. The state is therefore not impairing its own
contract. There is no redistribution of funds from Plaintiffs to
the state as there was in Surrogates and Condell.

Accordingly, this Court finds that this case falls outside of
Surrogates and Condell because it does not involve “self-
serving” legislation. While this finding insulates the legis-
lation in this case from the “searching analysis” performed in
Surrogates and Condell, it does not comp'etely answer the
question of how much deference should be paid to the
legislature’s action.

As stated previously, when private contracts are at issue,
courts ordinarily “defer to legislative judgment as to the
necessity and reasonableness of a particular measure.” United
States Trust, 431 U.S. at 23. And when the state impairs its
own contracts for its own financial gain, courts review the act
with more searching scrutiny, but nonetheless afford the state

47a

“some” deference. See United States Trust, 431 U.S. at 26;
Long Island Lighting Co., 14 F.Supp.2d at 268; see also
Baltimore Teachers Union, Am. Fed. of Teachers Local 340,
AFL-CIO v. Mayor & City Council of Baltimore, 6 F.3d 1012,
1019 and n. 10 (4th Cir. 1993) (discussing United States Trust
and concluding that “some” deference remains due to self-
serving legislative policy decisions). This case falls some-
where in between.

In this Court’s view, this case presents circumstances closer
to the impairment of a private contract than to self-serving
impairment of a public contract. The State is impairing a
contract that it is not a party to, yet the contract is a public
contract. Accordingly, this Court will not completely defer to
the state legislature’s determinations, but will afford the legis-
lature more than “some” deference.

In judging whether the state’s determinations in this case
are reasonable and necessary, this Court is mindful that “the
inherent police power of the State ‘to safeguard the vital in-
terests of its people’ must be preserved. Energy Reserves,
459 U.S. at 410 (quoting Home Bldg. & Loan, 290 U.S. at
434). As the Second Circuit has noted, the “Contract Clause
must be accommodated to the police power a state exercises
to protect its citizens.” Sanitation & Recycling Indus., 107
F.3d at 993. The intersection of the state’s police power and
the protections of the Contract Clause therefore presents
difficult terrain. It requires a carcful balancing of the contrac-
tual rights of the individual with the state’s inherent power to
ensure the welfare of its citizenry. See Spannaus, 438 U.S. at
241; see also Home Building & Loan, 290 U.S. at 435;
Surrogates, 940 F.2d at 77).

This Court first finds that the state’s enactment of the
BFSA and imposition of the wage freeze resolution is reason-
able. Under the BFSA, a wage freeze can only be imposed
under certain circumstances and for a limited duration. First,
a wage freeze can only be imposed during a “control period.”

48a

N.Y. Pus. AUTH. LAW § 3858(2). A “control period” consists
of that period of time when the city is working toward com-
pliance with the requirements of the BFSA. See N.Y. Pus.
AUTH. LAW §§ 3851(10), 3858(1). The Control Board is not
authorized to impose a wage freeze while serving in an
advisory capacity. See N.Y. PUB. AUTH. LAW §§ 3851(1),
3858(2). Second, a wage freeze can only be imposed if the
Control Board finds that it is “essential to the adoption or
maintenance of a city budget or a financial plan [under the
BFSA].” N.Y. PuB. AUTH. LAW § 3858(2)(c). Absent such a
finding, no wage freeze can be imposed. Third, any imposi-
tion of a wage freeze must be periodically reviewed by the
Control Board. N.Y. PUB. AUTH. LAW § 3858(2)(d). Finally,
the wage freeze will only remain in place until the Control
Board determines that the fiscal crisis warranting the wage
freeze has abated. N.Y. PUB. AUTH. LAW § 3858(2)(d).

Further, this Court finds that the BFSA and Wage Freeze
Resolution are necessary to address the city of Buffalo’s
financial predicament. It is undisputed that the city of Buffalo
was drowning year after year in a fiscal crisis. Plaintiffs have
not challenged any of the findings regarding the city’s on-
going financial predicament. Plaintiffs nonetheless argue that
imposition of the wage freeze is not necessary because the
state has other alternatives. Again. Plaintiffs rely on Surro-
gates and Condell.

Again, however, these cases are distinguishable. In Surro-
gates and Condell, the Second Circuit applied searching scru-
tiny when determining whether the state’s decision to impair
its Own contracts was necessary. This level of scrutiny
applied, of course, because the state was acting in its own
self-interest. Under heightened scrutiny, the court looked to
whether the state had exhausted all of its available alterna-
tives, no matter how politically unpopular, before resorting to
abrogating or modifying its own contracts. Because the state
had not done so, the Court found that the impairment of its

49a

own contracts was not necessary or essential to achieve its
stated goals.

Such heightened level of scrutiny does not apply in this
case because the state, as discussed above, is not acting in its
own self-interest. Under the circumstances presented here,
where the state is validly exercising its police power, the level
of searching scrutiny performed in Surrogates and Condell
does not apply. Rather, this Court affords considerable defer-
ence (less than complete deference, but greater than some
deference) to the state’s decision that a wage freeze is neces-
sary to achieve the goals of the BFSA. In doing so, this Court
finds that the wage freeze is both reasonable and necessary to
remedy the dire financial situation facing the city of Buffalo.
At bottom, this Court finds that the state validly exercised its
legitimate police power by specifically tailoring this legisla-
tion to the social ill it was designed to ameliorate. See
Sanitation & Recycling Indus., 107 F.3d at 302. As such, no
violation of the Contract Clause has occurred."

D. Takings Clause

The Takings Clause of the Fifth Amendment provides that
“nor shall private property be taken for public use, without
just compensation.” U.S. CONST. amend. V. This clause ts
made applicable to the states through the Fourteenth Amend-
ment. See Kelo v. City of New London, Connecticut, — US.
__, 125 S.Ct. 2655, 2658 n. 1, L.Ed.2d — (2005) (citing
B.R. Co. v. Chicago, 166 U.S. 226, 17 S.Ct. 581, 41 L.Ed.
979 (1897)). The Takings Clause imposes two conditions on a
state’s authority to take private property: “the taking must be

' This Court notes, as did Defendants, that the constitutionality of
similar wage freezes has been upheld in other jurisdictions. See, e.g.,
Baltimore Teachers Union, Am. Fed. of Teachers Local 340, AFL-CIO v.
Mayor & City Council of Baltimore, 6 F.3d 1012 (4th Cir, 1993); Subway
Surface Supervisors Ass'n. v. New York City Transit Auth., 375 N.E.2d
384 (N.Y. 1978).

50a

for a public use and just compensation must be paid to the
owner.” Brown v. Legal Found. of Wash., 538 U.S. 216, 231,
123 S.Ct. 1406, 1417, 155 L.Ed.2d 376 (2003) (internal
quotations omitted); see First English Evangelical Lutheran
Church of Glendale v. County of Los Angeles, 482 U.S. 304,
314, 107 S.Ct. 2378, 96 L.Ed.2d 250 (1987) (Takings Clause
“does not prohibit the taking of private property, but instead
places a condition on the exercise of that power”). The
purpose of the Takings Clause is to prevent the government
“from forcing some people alone to bear public burdens
which, in all fairness and justice, should be borne by the
public as a whole.’” Armstrong v. United States, 364 U.S. 40,
49, 80 S.Ct. 1563, 4 L.Ed.2d 1554 (1960); see also Mejia v.
City of New York, No. 01 Civ. 3381, 2004 WL 2884407, at *4
(S.D.N.Y. Dec. 10, 2004) (citing Armstrong).

Generally speaking, there are two types of takings. The
quintessential taking is one where “a direct government ap-
propriation or physical invasion of private property” occurs.
Lingle v. Chevron U.S.A., Inc., __ U.S. __, 125 S.Ct. 2074,
2081, _.L.Ed.2d (2005); see Palazzolo v. Rhode Island,
533 U.S. 606, 617, 121 S.Ct. 2448, 2457, 150 L.Ed.2d 592
(2001) (“The clearest sort of taking occurs when the govern-
ment encroaches upon or occupies private land for its own
proposed use.”); see also Tahoe-Sierra Pres. Council, Inc. v.
Tahoe Reg'l Planning Agency, 535 U.S. 302, 321-323, 122
S.Ct. 1465, 152 L.Ed.2d 517 (2002) (describing the Supreme
Court’s jurisprudence involving physical takings to be “as old
as the Republic”).

The other type of taking is one first recognized in Pennsyl-
vania Coal Co. v. Mahon, 260 U.S. 393, 43 S.Ct. 158, 67
L.Ed. 322 (1922), where “the Court recognized that there will
be instances when government actions do not encroach upon
or occupy the property yet still affect and limit its use to such
an €xten? that a taking occurs.” Palazzolo, 533 U.S. at 617
(discussveg Pennsylvania Coal). This type of taking is com-

Sla

monly referred to as a “regulatory taking.” “Regulatory tak-
ings are based on the principle that ‘while property may be
regulated to a certain extent, if a regulation goes too far it will
be recognized as a taking.”” Ganci v. New York City Transit
Auth., No. 04 Civ. 1346, 2005 WL 850915, at *4 (S.D.NLY.
April 13, 2005) (citing Pennsylvania Coal, 260 U.S. at 415).

To establish a violation of the Takings Clause, Plaintiffs
must first demonstrate that they possess a property interest
that is protected by the constitution. See Mejia, 2004 WL
2884407, at *4 (citing Ruckelshaus v. Monsanto Co., 467
U.S. 986, 1000-01, 104 S.Ct. 2862, 81 L.Ed.2d 815 (1984)).
Second, they must establish that the government deprived
them of that interest for pubtic purposes. See Ganci, 2005 WL
850915, at *4. Third, Plaintiffs must prove that the govern-
ment did no »rovide just compensation. See id.

Here, Plaintiffs argue that the first type of taking has oc-
curred, that is a physical taking. In fact, Plaintiffs expressly
deny that the state’s action constitutes a regulatory taking,
and this Court offers no opinion on that issue.'* (See, e.g.,
Plaintiffs’ Memorandum of Law in Opposition to Defen-
dants’ Motion for Summary Judgment, p. 14 (“this is not a
‘regulatory takings’ case . . . it is rather a ‘categorical takings’
case”); Tr. at 78 (indicating that no regulatory taking has oc-
curred).

The first and third inquiries present no problem. The Su-
preme Court has stated that contract rights are a form of
property for purposes of the Takings Clause. United States
Trust, 431 U.S. at 19 n. 16 (“Contract rights are a form of
property and as such may be taken for a public purpose

" For the sake of completeness, this Court notes that Defendants argue
that Plaintiffs’ Takings claim should be analyzed under the “regulatory
takings” line of authority. However, because Plaintiffs have made clear
that they are not asserting a regulatory taking claim, that line of authority
iS not instructive here.

52a

provided that just compensation is paid.”); Lynch v. United
States, 292 U.S. 571, 579, 545 S.Ct. 840, 843, 78 L.Ed. 1434
(1934) (finding that valid contracts are property within the
meaning of the Takings Clause). Accordingly, for purposes of
this stage of the analysis, this Court iinds that as to the first
inquiry, Plaintiffs’ contractual rights to salary increases war-
rant constitutional protection. Moreover, as to the third in-
quiry, it is agreed that Plaintiffs have not received any com-
pensation related to the wage freeze.

The second inquiry is whether the state has taken Plain-
tiffs’ property for its own proposed use. This is where Plain-
tiffs’ physical taking claim fails. Just compensation is re-
quired when the government directly acquires private prop-
erty for a public purpose. Brown, 538 U.S at 233. Here, as
discussed at length above, the state has not itself taken any
private property for a public purpose.

Physical takings cases involve the government directly ap-
propriating private property for its own use. See, e.g., Loretto
v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 102
S.Ct. 3164, 73 L.Ed.2d 868 (1982) (Government appropria-
tion of rooftop to provide cable television access constituted a
taking); United States v. Pewee Coal Co., 341 U.S. 114, 71
S.Ct. 670, 95 L.Ed. 809 (1951) (Government’s seizure and
operation of a coal mine to prevent national strike of coal
miners effected a taking); United States v. Causby, 328 U.S.
256, 66 S.Ct. 1062, 90 L.Ed. 1206 (1946) (Government’s use
of private airspace to approach government airport required
compensation), United States v. Gen. Motors Corp., 323 U.S.
373, 65 S.Ct. 357, 89 L.Ed.311 (1945) (Government’s occu-
pation of private warehouse effected a taking).

Plaintiffs argue that the state enacted the BFSA and im-
posed the wage freeze in order to eliminate the need for it to
provide the city of Buffalo with extraordinary financial aid.
To that end, Plaintiffs argue that the state, through the Control
Board, has permanently taken their contract rights for the

53a

public purpose of reducing the amount of state aid that must
be paid to the city of Buffalo. This Court has already rejected
this line of argument in the context of Plaintiffs’ Contract
Clause claim. There simply is no evidence in the record
supporting the claim that the state made a purposeful decision
to take Plaintiffs’ salary increases to offset future aid to the
city. Here, the state has not directly appropriated property for
its own use.

Finally, Plaintiffs have not provided this Court with any
cases holding that a wage freeze constitutes an unconstitu-
tional physical taking under the Takings Clause, and this
Court’s research did not reveal any. Indeed, none of the
principal cases relied upon by the parties presented Takings
claims or otherwise applied a Takings analysis to wage modi-
fication legislation.

Accordingly, this Court finds that the state has not appro-
priated or physically taken Plaintiffs’ property to fulfill a
public purpose. Therefore, no violation of the Fifth Amend-
ment has occurred. Lingle, 125 S.Ct. at 2081 (describing the
“classic taking” as one where “the government directly
appropriates private property”); Palazzolo, 533 U.S. at 617
(“The clearest sort of taking occurs when the government
encroaches upon or occupies private land for its own
proposed use.”).

IV. CONCLUSION

For the reasons discussed above, this Court finds that the
BFSA and the Wage Freeze Resolution are not unconstitu-
tional as either violative of the Contracts Clause or the Tak-
ings Clause. Rather, this Court finds that the state has acted
properly within its police power to address a significant social
and economic problem—the city of Buffalo’s dire financial
situation. Accordingly, Plaintiffs’ motion will be denied and
Defendants’ motion will be granted.

54a
V. ORDERS

IT HEREBY IS ORDERED, that Plaintiffs’ Motion for
Summary Judgment (Docket No. 22) is DENIED.

FURTHER, that Defendants’ Motion for Summary Judg-
ment (Docket No. 23) is GRANTED.

FURTHER, that the Clerk of the Court is directed to close
this case.

SO ORDERED.

Dated: August 18, 2005
Buffalo, New York

/s/ William M. Skretny
WILLIAM M. SKRETNY
United States District Judge

5Sa
APPENDIX C

UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

[Filed NOV 27, 2006]
Thurgood Marshall U.S. Court House

40 Foley Square
New York 10007

Docket Number 05-4744-cv
DC Docket Number: 04-cv-457
DC: WDNY (BUFFALO)
DC Judge: Honorable William Skretny

BUFFALO TEACHERS FEDERATION,
Vv.

TOBE,

At a stated term of the United States Court of Appeals for
the Second Circuit, held at the Daniel Patrick Moynihan
United States Courthouse, 500 Pearl Street, in the City of
New York, on the 27th day of November two thousand six.

Buffalo Teachers Federation, Buffalo Educational Support
Team NEA/NY, Transportation Aides of Buffalo, NEA/NY,
Substitutes United Buffalo NEA/NY, Buffalo Council of
Supervisors and Administrators, AFSCME Local 264, Profes-
sional Clerical and Technical Employees’ Association and
Local 409 International Union Operating Engineers,

Plaintiffs-Appeilants,
v.

Richard Tobe, Thomas FE. Baker, Alair Townsend, H. Carl
McCall, John J. Faso, Joel A. Giambra, Mayor Anthony

56a

Masiello, Richard A. Stenhouse, Roger G. Wilmers, in their
official ca[p]acities as directors/members of the Buffalo Fiscal
and George E. Pataki,

Defendants-Appellees.

A petition for panel rehearing and a petition for rehearing en
banc having been filed herein by the appellant Appellant
Buffalo Teachers Federation, et al. Upon consideration by the
panel that decided the appeal, it is Ordered that said petition
for rehearing is DENIED.

It is further noted that the petition for rehearing en banc has
been transmitted to the judges for the court in regular active
service and to any other judge that heard the appeal and that
no such judge has requested that a vote be taken thereon.

For the Court,
Thomas Asreen, Acting Clerk

By: [Illegible]
Motion Staff Attorney

S7a
APPENDIX D

TITLE 2—BUFFALO FISCAL STABILITY AUTHORITY

Section
3850.
3850-a.
3851.
3852.
3853.
3854.
3855.

3856.

3857.
3857-a.
3858.
3859.
3860.
3861.

3862.
3863.
3864.

3865.
3866.
3866-a.
3867.
3868.

3869.
3870.
3871.
3872.
3873.

Short title. |

Legislative declaration of need for state intervention.
Definitions.

Buffalo fiscal stability authority.

Administration of the authority.

General powers of the authority.

Assistance to the authority; employees of the au-
thority.

City fiscal year two thousand three—two thousand
four budget modification and four-year financial
plan.

City financial plans.

Efficiency incentive grants.

Control period.

Advisory period.

Additional provisions.

Declaration of need for financing assistance to the
city.

Bonds, notes or other obligations of the authority.
Remedies of bondholders.

Intercept of city tax revenues, school district tax
revenues and state aid revenues.

Resources of the authority.

Agreement with the state.

Agreement with the county.

Agreement with the city.

Bonds, notes or other obligations legal for invest-
ment and deposit.

Tax exemption.

Actions against the autority.

Audits.

Effect of inconsistent provisions.

Separability; construction.

58a
Historical and Statutory Notes

L.2003, c. 122 legislation
L.2003, c. 122, § 1, provides:

Ҥ 1. Legislative findings. The legislature hereby finds and
declares that a condition of fiscal difficulty has existed for
several years in the city of Buffalo, as a result of a weakened
economy, population declines, and job losses. In recent
months, the city’s fiscal condition has been further weakened
by the impact of the national economic recession, which has
had a greater negative impact in Buffalo than in many other
areas of the state. These factors have led to a structural
imbalance between revenues and expenditures which, when
combined with the city’s limited ability to increase taxes on
its residents, has resulted in a downgrade of Buffalo’s bonds
by independent bond rating services.

“It is hereby found and declared that the city is in a state of
fiscal crisis, and that the welfare of the inhabitants of the city
is seriously threatened. The city budget must be balanced and
economic recovery enhanced. Actions should be undertaken
which preserve essential services to city residents, while also
ensuring that taxes remain affordable. Actions contrary to
these two essential goals jeopardize the city’s long-term fiscal
health and impede economic growth for the city, the region,
and the state.

“It is, therefore, further found and declared that a combina-
tion of enhanced budgetary discipline and short-term bud-
getary relief is necessary to assist the city in returning to
fiscal and economic stability, while ensuring adequate fund-
ing for the provision of essential services and for the mainte-
nance, expansion, and rebuilding of the infrastructure of the
city. lf the city financial plan incorporates the annual targets
required by this act for .recurring cost-saving measures, the
Buffalo fiscal stability authority shall make savings available
to the city through a restructuring of a portion of the city’s

59a

outstanding debt, and/or through limited borrowing for oper-
ating costs, in either case, secured by an intercept of sales tax
net collections as well as state aid.

“It is hereby further found and declared that a control and
advisory finance authority should be established to oversee
the city’s budget, financial and capital plans; to issue bonds,
notes or other obligations to achieve budgetary savings through
debt restructuring; to finance short-term cash flow or capital
needs; and, if necessary, to develop financial plans on behalf
of the city if the city is unwilling or unable to take the
required steps toward fiscal stability.

“Based upon the fiscal crisis in the city of Buffalo, the
legislature through this act creates a Buffalo fiscal stability
authority with certain control, advisory and borrowing pow-
ers, and imposes on the city of Buffalo certain requirements
as to budgetary operations and fiscal management, including
minimum annual requirements to produce recurring budget
Savings in increasing amounts over the next four years. The
agreements for financial and budgetary discipline between the
authority and the city shall be for such period as is necessary
under the standards set forth in this act to restore the city of
Buffalo to fiscal integrity, with a control or advisory role for
the authority continuing until June 30, 2037.”

§ 3850. Short title

This title shall be known and may be cited as the “Buffalo
fiscal stability authority act.”

§ 3850-a. Legislative declaration of need for state
intervention

The legislature hereby finds and declares that the city of
Buffalo is facing a severe fiscal crisis, and that the crisis
cannot be resolved absent assistance from the state. The
legislature finds that the city has repeatedly relicd on annual
extraordinary increases in state aid to balance its budget, and

60a

that the state cannot continue to take such extraordinary
actions on the city’s behalf. The legislature further finds and
declares that maintenance of a balanced budget by the city of
Buffalo is a matter of overriding state concern, requiring the
legislature to intervene to provide a means whereby: the long-
term fiscal stability of the city will be assured, the confidence
of investors in the city’s bonds and notes is preserved, and the
economy of both the region and the state as a whole is
protected.

§ 3851. Definitions

For the purposes of this title, unless the context otherwise
requires: 1. “Advisory period” means that period no earlier
than July first, two thousand six, after which the authority has
determined that (a) for each of the three immediately pre-
ceding city fiscal years, the city has adopted and adhered to
budgets covering all expenditures, other than capital items,
the results of which did not show a deficit, without the use
of any authority assistance, as provided for under section
thirty-eight hundred fifty-seven of this title, when reported in
accordance with generally accepted accounting principles and
(b) the comptroller and the state comptroller jointly certify
that securities were sold by the city during the immediately
preceding city fiscal year in the general public market and
that there is a substantial likelihood that such securities can be
sold by the city in the general public market from such date
through the end of the next succeeding city fiscal year in
amounts that will satisfy substantially all of the capital and
cash flow requirements of the city during that period in accor-
dance with the financial plan then in existence. The joint
certification made by the comptroller and the state comptrol-
ler shall be based on their separate written determinations
which may take into account a report and opinion of an
independent expert in the marketing of securities selected by
the authority as well as other information available to the
comptrollers. Once begun, an advisory period shall continue

6la

through June thirtieth, two thousand thirty-seven unless a
control period is imposed.

2. “Authority” or “Buffalo fiscal stability authority” or
“BFSA” means the public benefit corporation created by this
title.

3. “BFSA assistance” means: (a) the amount of debt ser-
vice savings in a given city fiscal year generated from the
proceeds of bonds, notes or other obligations made available
to or for the benefit of the city or any covered organization as
determined by the authority; or (b) the proceeds of any deficit
financing authorized by the authority, or some combination
thereof pursuant to the provisions of section thirty-eight hun-
dred fifty-seven of this title. Such assistance shall be made
available only upon a declaration of need by the city pursuant
to section thirty-eight hundred sixty-one of this title and the
approval of the BFSA board.

4. “Bonds, notes or other obligations” means bonds, notes
and other evidences of indebtedness, issued or incurred by the
authority.

5. “Chief fiscal officer” means the chief fiscal officer of
the city as defined in section 2.00 of the local finance law.

6. “City” means the city of Buffalo.

7. “City charter” means the city government law of the
city of Buffalo, as amended.

8. “City tax revenues” means the portion of the county's
“net collections’, as defined in section twelve hundred sixty-
two of the tax law, payable to the city under the agreement
among the county, the city and the cities of Lackawanna and
Tonawanda entered into pursuant to the authority of sub-
division (c) of section twelve hundred sixty-two of the tax
law. In the event that the city imposes sales and compensat-
ing use taxes pursuant to the authority of section twelve

62a

hundred ten of the tax law, “city tax revenues” shall also
include net collections from such city taxes.

9. “Comptrolier” means the comptroller of the city.

10. “Control period” means that period of time from the
effective date of this title, continuing until the authority deter-
mines that conditions have been met as provided in sub-
division one of this section and the city qualifies for the onset
of an advisory period. A control period may be reimposed as
determined by the authority in accordance with section thirty-
eight hundred fifty-eight of this title.

11. “Council” means the city council of the city of
Buffalo.

12. “County” means the county of Erie.

13. “Covered organization” means the city school district,
the joint schools construction board of the city, as described
in chapter six hundred five of the laws of two thousand, as
amended, and the Buffalo municipal housing authority and
any governmental agency, public authority or public benefit
corporation which receives or may receive moneys directly,
indirectly or contingently from the city, but excluding the
authority and (a) any other governmental agency, public
authority or public benefit corporation specifically exempted
from the provisions of this title by order of the authority upon
application of such agency, public authority, or corporation to
the authority or on the authority’s own motion upon a finding
by the authority that such exemption does not materially
affect the ability of the city to adopt and maintain a budget
pursuant to the provisions of this title, or (b) any state public
authority defined in section two hundred one of the civil
service law, unless specifically named above; provided, how-
ever, that the authority may terminate any exemption granted
by order of the authority pursuant to this subdivision upon a
determination that the circumstances upon which such ex-
emption was granted are no longer applicable.

63a

14. “Director of the budget” means the director of the
budget of the state.

15. “Financeable costs” or “costs” means costs to finance
(a) amounts necessary to accomplish a refunding, repayment
or restructuring of a portion of the city’s outstanding indebt-
edness or that of any covered organization, (b) cash flow
needs of the city or any covered organization, (c) any object
or purpose of the city or any covered organization, for which
a period of probable usefulness is prescribed in section 11.00
of the local finance law, including the costs of any prelimi-
nary studies, surveys, maps, plans, estimates and hearings,
(d) amounts necessary to finance a portion of the operating
costs of the city or any covered organization as provided in
section thirty-eight hundred fifty- seven of this title, to the
extent approved by the authority, or (e) incidental costs,
including, but not limited to, legal fees, printing or engraving,
publication of notices, taking of title, apportionment of costs,
and capitalized interest, insurance premiums, costs related to
items authorized in subdivisions seven through nine of
section thirty-eight hundred fifty-four of this title or any
underwriting or other costs incurred in connection with the
financing thereof; provided however that, to the maximum
extent practicable, all financeable costs shall not adversely
affect the requirements of subdivision two of section thirty-
eight hundred sixty-nine of this title.

16. “Financial plan” means the financial plan of the city
and the covered organizations to be developed pursuant to
section thirty-eight hundred fifty-seven of this title, as from
time to time amended.

17. “Major operating funds” means the city general fund,
the board of education general fund, the city enterprise funds,
the board of education special project funds, together with
any other funds of the city or a covered organization from
time to time designated by the authority.

64a
18. “Mayor” means the mayor of the city.

19. “Presiding officer” means the presiding officer of the
council elected pursuant to the rules of the council.

20. “Projected gap” means the excess, if any, of annual
aggregate projected expenditures over annual aggregate pro-
jected revenues for the major operating funds in each year of
a financial plan as determined by the city and certified by the
authority. For purposes of determining the projected gap in
each fiscal year, annual aggregate projected revenues shall
not include the amount of BFSA assistance expected to be
available for such fiscal year.

2i. “Revenues” means revenues of the authority consisting
of city tax revenues, school district tax revenues, state aid
revenues, and all other aid, rents, fees, charges, gifts, pay-
ments and other income and receipts paid or payable to the
authority or a trustee for the account of the authority, to the
extent such amounts are pledged to bondholders.

22. “State” means the state of New York.

23. “State aid” means: all general purpose local govern-
ment aid; emergency financial assistance to certain cities;
emergency financiai assistance to eligible municipalities; sup-
plemental municipal aid; and any successor type of aid and
any new aid appropriated by the state as local government
assistance for the benefit of the city.

24. “State aid revenues” means state aid paid by the state
comptroller to the authority pursuant to this title.

25. “State comptroller” means the comptroller of the state.

26. “School district tax revenues” means the portion of the
county’s “net collections,” as defined in section twelve hun-
dred sixty-two of the tax law, payable to the city’s dependent
school district by the county pursuant to the authority of sub-
division (a) of section twelve hundred sixty-two of the tax
law.

65a
27. “Cash flow borrowings” means:

(a) notes issued by the authority on behalf of the city,
the city’s dependent school district or any other covered or-
ganization, the proceeds of which are used to address tempo-
rary cash flow needs of the city, the city’s dependent school
district or the applicable covered organization; and

(b) bonds, notes and other obligations issued by the

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386016_2211%3A2. Public record. Not legal advice.