BILL NUMBER:  S5690A

 TITLE OF BILL :  An act to amend the general municipal law, in
relation to audits by the state comptroller of certain organizations
controlled by municipal corporations and certain other government
entities

 PURPOSE :

To authorize the State Comptroller to audit private organizations
controlled by local government entities.

 SUMMARY OF PROVISIONS :

Section 1 of this bill amends section 34 of the General Municipal Law
to authorize the State Comptroller to examine the financial affairs of
any organization (other than a statewide association of local
governments or local government officials) that is under the control
of one or more local government entities, including municipal
corporations, school districts, fire districts and industrial
development agencies. An organization would be deemed "under the
control" of a local government entity when one or more individuals who
serve as officers or employees of the local government entity (a)
select either a majority of the organization's highest policy-making
body or the organization's chief executive officer; (b) constitute a
majority of the voting strength that selects either a majority of the
              

organization's highest policy-making body or the organization's chief
executive officer; or (c) serve as (i) a majority of the
organization's highest policy-making body; (ii) the organization's
chief executive officer in his or her official capacity; or (iii)a
partner in the organization in his or her official capacity. The
phrase "a majority of the organization's highest policy-making body"
would mean a majority of the whole number of positions comprising such
body, unless such body is allowed to act by a majority of a quorum, in
which case the term would mean a majority of the quorum. Subsidiaries
and other entities controlled by the organization would also be
covered.

Section 2 of this bill provides this act would take effect
immediately.

 JUSTIFICATION :

Local development corporations, as well as certain other types of
private organizations (e g, limited liability companies), has been
utilized by counties, cities, towns, villages, and other local
governments, such as fire districts, as a means to indirectly finance
local government operations and projects. Audits performed by the
State Comptroller's Office have found these private entities have been
used to avoid constitutional or statutory provisions that apply to
projects undertaken directly by a local government entity (e.g.  the
prohibition on gifts and loans to or in aid of private entities in
Article VIII, § 1 of the State Constitution; referendum requirements
such as those in the Local Finance Law applicable to certain municipal
bond resolutions; the competitive bidding requirements of Article 5-A
of the General Municipal Law; and limitations on the issuance of debt
such as those contained in Article VIII, § 4 of the State
Constitution).

Currently, the State Comptroller does not have the authority to audit
directly local development corporations and other similar types of
private organizations, even when they are controlled by a local
government entity. Instead, the Comptroller may only examine the
relationship between the local government entity and the private
organization as part of an audit of the local government entity. And
even in the context of such an audit, the Comptroller generally may
not look beyond the financial or business relationship to examine the
overall finances and operations of the private organization itself.
Thus, for example, the Comptroller may be unable to examine a private
organization's internal controls to assess whether moneys provided to
the organization by a local government entity are properly
safeguarded.

While local development corporations and other similar types of
private organizations are established to be legally separate from the
local government entity, as a practical matter, they often function as
if they are instrumentalities of local government entities. The bill
would recognize this reality and expand the Comptroller's audit
authority commensurately to include direct audits of private
organizations which are under the control of one or more local
government entities. Such audits would provide greater assurance that
these organizations are operating in the public interest.

The bill's definition of "under the control" is necessary to ensure
that the Comptroller's audit authority is based on the substance,
rather than the form, of the relationship between the local government
entity and the private organization. To avoid creating incentives or
disincentives to the use of any particular type of private
organization, this bill would apply to every type of organization
under the control of a municipal corporation or other local government
entity that is not already subject to audit by the Comptroller, except
a statewide association of local governments or local government
officials.

 LEGISLATIVE HISTORY :

S.7907 (Passed Senate) and A.11088 of 2009-2010
S.7540 and A. 9689 (Passed Assembly) of 2011-2012
S.4497 and A.3633 (Passed Assembly) of 2013-2014
S.5690 and A7056 (passed Assembly) of 2015

 FISCAL IMPLICATIONS :

This bill has no significant fiscal impact. The fiscal impact of the
bill is limited to organizations actually audited by the Comptroller
and confined to the staff time and other resources required to
cooperate with the auditors. Any such impact would be offset by
potential savings based upon the audit findings.

 EFFECTIVE DATE :
This act shall take effect immediately.