Can a New York town spend public money to help repair a privately owned dam that controls flooding on private lake property?

Plain-English summary

The Town of Richfield wanted to contribute $30,000 toward reconstruction of a dam owned by the Canadarago Lake Association, a private not-for-profit. The Town of Otsego would chip in $12,000, the Lake Association $10,000, and grants from the state Department of Environmental Conservation and a legislative member item would cover the rest. The dam controlled the water level of Canadarago Lake. When the lake flooded, it covered lawns, sometimes flooded septic tanks, and produced sewage runoff into the lake when the waters receded. The lake also drew tourists who came to fish.

The town attorney asked the AG whether this expenditure was lawful. The AG said it could be, but only on a narrow basis.

The starting point was Town Law § 64(11-a), which authorizes towns to construct or improve drainage and flood-control infrastructure on lakes and streams. That statute supplied the affirmative authority for the spending. But it had to be read together with Article VIII, § 1 of the New York Constitution, which prohibits towns from making gifts of public money or property to private entities. The test from Murphy v. Erie Co. is that incidental private benefit does not invalidate an expenditure with a primary public purpose, but if the public purpose is incidental and the private benefit primary, the spending is unconstitutional.

The AG worked through the rationales the town offered. Tourism protection failed because, according to the town attorney's own account, neither low water nor flooding harmed the lake's fishing industry, so the dam reconstruction would not advance tourism. Protection of private property values along the lake also failed, because Smith v. Smythe had already rejected protecting private property as a town purpose. But protection of public health from sewage contamination passed, provided the town board made credible findings that the flooding caused septic overflow contaminating a public lake (where all residents had access through a public beach). On that basis only, the AG concluded the contribution could be a permissible expenditure of public funds.

Currency note

This opinion was issued in 2002. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: What's the Article VIII, § 1 gift-of-public-funds rule?
A: New York's constitution prohibits counties, cities, towns, villages, and school districts from giving or loaning money or property to private individuals or entities. The Court of Appeals reads this in conjunction with the "primary purpose" doctrine: spending is permitted if its primary purpose is public, even if a private party also benefits incidentally.

Q: Why did the tourism rationale fail?
A: The town attorney had told the AG that flooding did not affect the fishing industry on the lake. Without a causal connection between the dam reconstruction and tourism, the AG could not find that the expenditure served a tourism-related public purpose. The Froslid and Schulz cases would have supported tourism spending in other circumstances.

Q: Why did protecting private property values fail?
A: Smith v. Smythe ruled that maintenance of private streets and protection of private property values is not a municipal purpose, even when the property in question forms a large share of the town's tax base. The AG followed that rule and rejected protection of one-quarter of the town's assessable real property as a basis.

Q: What findings did the town board need to make for the public-health basis?
A: That the flooding caused private septic tanks to overflow; that the sewage seeped into the lake; and that residents (including those using the public beach) faced a public-health risk as a result. With those findings, the public-health rationale would justify the contribution.

Q: Could the town have used eminent domain or a different mechanism?
A: The opinion does not address that. The question was limited to whether a direct cash contribution to a private dam owner could be lawful. Direct municipal acquisition of the dam, or condemnation for public use under the Flood Abatement Commission line of cases, would be analyzed separately.

Q: What if the public-health findings can't be made?
A: Then the contribution would be an unconstitutional gift of public funds under Article VIII, § 1. The AG was emphatic that the public-purpose finding has to be supported by facts, not asserted as a label.

Background and statutory framework

Two statutes drove the analysis. Town Law § 64(11-a) authorizes town spending for drainage and flood prevention, including improvements to lakes and dams. Article VIII, § 1 of the state Constitution forbids gifts or loans of money or property by counties, cities, towns, villages, or school districts to individuals, private corporations, or associations.

The case law balances these two. Murphy v. Erie Co. established that incidental private benefit does not invalidate a primarily public-purpose expenditure. Schulz v. Warren Co. Bd. of Supervisors articulated the "necessary for the common good and general welfare" test for a municipal purpose. Denihan Enterprises set the limit: if the public benefit is only incidental to the private benefit, the spending is unconstitutional.

For flood control specifically, the Flood Abatement Commission of Olean v. Merritt case from 1916 mapped out three categories: control of waters to protect public property is a public purpose; control of waters to protect individual private property is a private purpose; and control of waters to protect public health (e.g., from filth and dangerous substances deposited by flooding) is a public purpose. The AG's opinion follows that framework.

Public-health protection has been treated as quintessentially public since at least In re Application of Ryers (1878). Promotion of tourism has been recognized as a public purpose in Froslid and Schulz, but only when the expenditure actually advances tourism. The opinion treats Smith v. Smythe as the limit on using private-property-value protection as a municipal justification.

Citations and references

Statutes and constitutional provisions:

• N.Y. Const. art. VIII, § 1 (gift of public funds prohibition)
• Town Law § 64(11-a) (drainage and flood control authority)

Cases:

• Murphy v. Erie Co., 28 N.Y.2d 80 (1971) (incidental private benefit doctrine)
• Schulz v. Warren Co. Bd. of Supervisors, 179 A.D.2d 118 (3d Dep't 1992) (definition of municipal purpose)
• Sun Printing & Publ'g Ass'n v. Mayor of New York, 152 N.Y. 257 (1897) (origin of the test)
• Denihan Enters., Inc. v. O'Dwyer, 302 N.Y. 451 (1951) (incidental public benefit insufficient)
• Flood Abatement Comm'n of Olean v. Merritt, 94 Misc. 388 (Sup. Ct. 1916) (flood-control public purpose categories)
• In re Application of Ryers, 72 N.Y. 1 (1878) (public health as public purpose)
• Froslid v. Hults, 20 A.D.2d 498 (2d Dep't 1964) (tourism promotion)
• Schulz v. New York, 160 Misc. 2d 741 (Sup. Ct. 1994) (grant to private tourism organization)
• Smith v. Smythe, 197 N.Y. 457 (1910) (private street maintenance not a municipal purpose)

Prior AG and Comptroller opinions:

• Op. Atty. Gen. (Inf.) No. 94-35 (incidental private benefit)
• Op. Atty. Gen. (Inf.) No. 99-17 (village funds for private street paving as unconstitutional gift)
• Op. St. Compt. No. 89-50 (flood abatement and private property)

Source

• Landing page: https://ag.ny.gov/libraries-documents/opinions/opinions-year
• Original PDF: https://ag.ny.gov/sites/default/files/opinions/I_2002-17_pw.pdf

Original opinion text

N.Y. CONST., ART. VIII, § 1; TOWN LAW § 64(11-a).

A town may contribute funds to a project to reconstruct a privately-owned dam if the town credibly finds that protection of the public health would be served.

November 12, 2002

Paul W. Elkan, Esq.
Town Attorney
Town of Richfield
Box 207
43 Pioneer Street
Cooperstown, New York 13326

Informal Opinion
No. 2002-17

Dear Mr. Elkan:

You have requested an opinion as to whether the Town of Richfield may contribute to a project to reconstruct a dam owned by a private not-for-profit entity.

Based upon your letter requesting an opinion and a subsequent letter clarifying the proposed funding of the project, we understand the details of the reconstruction project to be as follows: The existing dam is located on Canadarago Lake, of which approximately two-thirds of the shoreline lies within the Town of Richfield. The reconstruction project is proposed to be financed by funds from a number of sources. The Canadarago Lake Association, the not-for-profit entity that owns the dam, would contribute $10,000. The Town of Otsego, one of the two towns other than Richfield within which the lake's shoreline lies, would contribute $12,000. Richfield would contribute $30,000. You have indicated that these funds would be matched by a grant from the state Department of Environmental Conservation, available in an amount up to $78,000. An additional $40,000 is available through a legislative initiative member item from Senator James Seward. You further state in your letter that the goal of the reconstruction project is to facilitate control of the water level of the lake, which currently floods periodically despite the presence of the existing dam.

Pursuant to a telephone conversation, you presented the following additional facts: When the lake floods, the lawns of some of the residences on the lake are flooded. Not all of the homes on the lake are affected, nor are any of the businesses on the lake affected. Property owned by the Town on and near the lake, including a public beach, is not affected by the flooding. When lawns flood, some private septic tanks are also flooded; in the past, when the water receded, some sewage has flowed into the lake. The lake attracts tourists, who come to Richfield to fish on the lake.

In your letter requesting an opinion, you asked about the circumstances under which the towns lying within the shoreline of the lake may contribute funds to the reconstruction project. During a telephone conversation, you clarified that your question was whether the Town of Richfield could, under these circumstances, contribute to the reconstruction project. We conclude that the proposed contribution by the Town under the circumstances as presented may be a permissible expenditure of public funds.

State law generally authorizes a town to contribute public funds to a reconstruction project such as the one you describe. Pursuant to Town Law § 64(11-a),

[u]pon the adoption of a resolution, the town board . . . may, for the purpose of drainage and to protect the property within the town from floods, freshets, and high waters, construct drains, culverts, ditches, sluices, and other channels for the passage of water, and may deepen, straighten, alter, pipe, or otherwise improve any of the lakes, ponds, streams, ditches, drains, or water courses in any part or section of the town in order to prevent the same from overflowing . . . .

This statute clearly authorizes the expenditure of town funds for the reconstruction of a dam for the purposes of drainage and flood prevention.

This authorization must, however, be read in conjunction with the prohibition on gifts of public property contained in Article VIII, section 1 of the State Constitution, which provides, in relevant part, that

[n]o county, city, town, village or school district shall give or loan any money or property to or in aid of any individual, or private corporation or association, or private undertaking, or become directly or indirectly the owner of stock in, or bonds of, any private corporation or association; nor shall any county, city, town, village or school district give or loan its credit to or in aid of any individual, or public or private corporation or association, or private undertaking . . . .

An incidental private benefit, however, will not invalidate a project which has as its primary purpose a municipal purpose. See Murphy v. Erie Co., 28 N.Y.2d 80, 88 (1971); see also Op. Atty. Gen. (Inf.) No. 94-35. In the circumstances described, both the non-profit owner of the dam and the individuals living on the shoreline whose property is at times flooded, residents of the Town as well as possibly residents of the neighboring towns, will directly benefit from the Town's proposed contribution.

The question, then, is whether the Town's proposed contribution to reconstruct the dam primarily serves a municipal purpose. A "municipal purpose" has been defined as "something 'necessary for the common good and general welfare of the people of the municipality, sanctioned by its citizens [and] public in character.'" Schulz v. Warren Co. Bd. of Supervisors, 179 A.D.2d 118, 122 (3d Dep't 1992) (quoting Sun Printing & Publ'g Ass'n v. Mayor of New York, 152 N.Y. 257 (1897)). A purpose is not public, however, where the public benefit is only incidental to the private benefit. Denihan Enters., Inc. v. O'Dwyer, 302 N.Y. 451, 458 (1951).

We note that prevention of flooding may or may not constitute a public purpose, depending on what consequences of flooding the municipality is attempting to avoid. As the court in Flood Abatement Comm'n of Olean v. Merritt, 94 Misc. 388 (Sup. Ct. 1916), stated:

The control of the waters . . . may or may not be a public use. If it is designed to control the waters so as to prevent a flood and its inferential damage to the streets, highways, public property or public rights and easements, that is one thing, a public purpose. If it is designed to control the waters so as to prevent injury to lands of individuals lying adjacent to the [water], that is another thing, a private purpose. If it is designed to so control the waters to prevent flood and the usual incidental deposit of filth and dangerous substances on lands in the city injurious to health and thus conserve and protect the public health, that would be a public purpose and use.

Id., at 393-94. While holding that the challenged condemnation petition did not clearly state the public use for which the land at issue was needed, the court in Merritt determined that the statute authorizing condemnation proceedings for flood abatement projects served the valid municipal purposes of protecting public health and municipal property. Id. at 399. Furthermore, the court determined that these municipal purposes could only be achieved through abatement measures that would result in direct private benefits. Id. In so finding, however, the court recognized that although flood abatement would "benefit . . . and serve the interests of private owners of real estate, numerous individual owners of homes and household effects and be greatly productive of conveniences and comforts of purely a private nature, that could not be considered a [municipal] purpose." Id.

The issue of whether flood abatement serves a valid municipal purpose has been addressed more recently in opinions of the Office of the State Comptroller. The State Comptroller has concluded that alleviating flood conditions on private property may serve a public purpose if the project primarily serves to reduce the risk of flooding to the municipality generally; where, however, flooding on private property is caused by a pre-existing condition, only that property is affected, and the flooding is caused by a problem unique to that property, the Comptroller has concluded that municipal funds cannot be used to alleviate the flooding. See Op. St. Compt. No. 89-50 (summarizing prior opinions).

You indicated that when the lake floods onto residents' lawns, some septic tanks also are flooded, and some seepage of sewage into the lake may occur when the waters recede. Because the Town has a public beach on the lake through which all of its residents may access the lake, all of the residents may be affected by this condition. This suggests that protection of the public health may be a purpose to be served by the Town's contribution to the reconstruction project. Protection of the health of a municipality's inhabitants is well-established as a public purpose. See, e.g., In re Application of Ryers, 72 N.Y. 1, 12 (1878) ("That the promotion and preservation of the public health is a public purpose, cannot be doubted."); Flood Abatement Comm'n of Olean v. Merritt, supra. Municipal funding of the privately-owned dam for this purpose, however, would require credible findings by the Town Board that the public health is at risk due to the introduction of sewage into the lake after the lake floods private lawns and that reconstruction of the dam would primarily serve the purpose of protecting the public from this risk.

You have also indicated that a purpose supporting the Town's proposed expenditure is the protection of the lake, an attraction for tourists. Promotion of tourism to a region has been found to be a purpose for which public funds may properly be given to private associations. See Froslid v. Hults, 20 A.D.2d 498 (2d Dep't 1964) (promoting World Fair served public purpose of exhibiting resources and progress of New York and was calculated to benefit entire State; benefit to individuals in increased receipts incidental to primary purpose of promoting public good); Schulz v. New York, 160 Misc. 2d 741 (Sup. Ct. 1994) (grant of public funds through lump-sum appropriation to private not-for-profit organization involved in local tourism served public purpose and thus was not unconstitutional gift to private entity). We are unclear, however, as to how the stated purpose of protecting the Town's tourism industry will be served if the Town contributes to the dam reconstruction project. You indicated that the Town's tourism industry relates to fishing on the lake. You further indicated that, while the level of the lake sometimes gets too low, neither the low levels nor the flood conditions affect the fishing industry on the lake. We therefore conclude that, if the Town were to contribute to the dam reconstruction project on the grounds that doing so would protect the Town's tourism industry, the contribution would be an unconstitutional gift of public funds. Thus, we are of the opinion that the promotion of tourism in the Town does not support this expenditure.

You have indicated that another purpose behind the Town's desire to contribute to the reconstruction project is to protect the one-quarter of its assessable real property that lies on the lake's shoreline. You were uncertain of what portion of this was affected by the flooding of the lake, although from the facts presented, it is evident that not all of the property is. In any event, we are of the opinion that protecting one-quarter of the Town's assessable real property from flood damage by contributing to the dam reconstruction project would be an unconstitutional gift of public funds. In Smith v. Smythe, 197 N.Y. 457 (1910), the Court of Appeals indicated that the care and maintenance of private streets within a residential subdivision in which one-third of the village's population resided and more than 40 percent of the total assessed value of real property within the village lay could not be considered a village purpose. Furthermore, if protection of the assessed value of real property within the Town were a valid purpose for spending municipal funds, few, if any, improvements to private property would be unconstitutional gifts. See, e.g., Op. Atty. Gen. (Inf.) No. 99-17 (village re-paving private street or filling in dangerous potholes on same street at request of residents who own street would be unconstitutional gift of public funds or property).

Under the facts you have outlined, we have identified one municipal purpose that may be primarily served by the Town's proposed contribution. We therefore conclude that, under the circumstances presented, and depending on the Town Board's findings regarding the public health risk, the Town's contribution to the project to reconstruct the privately-owned dam may be a permissible expenditure of public funds.

The Attorney General renders formal opinions only to officers and departments of the State government. This perforce is an informal and unofficial expression of the views of this office.

Very truly yours,

KATHRYN SHEINGOLD
Assistant Solicitor General
In Charge of Opinions