Can a New York public authority swap an existing easement for a new easement without putting it out for public bid, when the exchange is needed to relocate a gas pipeline for a thruway reconstruction project?

Plain-English summary

The New York State Department of Transportation was reconstructing Interstate 287, a highway under the jurisdiction of the New York State Thruway Authority. A natural gas pipeline owned by Tennessee Gas Pipeline Company sat in the project footprint and had to move. Tennessee Gas held a permanent easement over the right-of-way, granted by DOT in 1971 when Tennessee originally had to relocate its facilities for the construction of I-287. The Thruway Authority's plan was to take back the existing easement, give Tennessee a temporary easement during construction, and grant a new permanent easement on a different alignment once the work was done. The new permanent easement was about the same size and value as the old one. The exchange was essentially an easement-for-easement swap, with no money changing hands.

The Public Authorities Accountability Act of 2005 (PAAA) added detailed procedures for how state and local public authorities can dispose of property. As a rule, dispositions must be done at fair market value through publicly advertised competitive bids. Public Authorities Law § 2897 lists narrow exceptions. The Thruway Authority's general counsel asked whether the proposed easement swap was subject to § 2897, and if so, whether it fit within one of the exceptions.

The AG worked through both questions. First, was the exchange a "disposal" of "property" under the PAAA at all? Yes. Section 2895(2) defines "disposal" to include "transfer of title or any other beneficial interest in personal or real property," and § 2895(3) defines "property" to include "real property, and any inchoate or other interest in such property." An easement transfer fits squarely. The fact that DOT was carrying out the project on behalf of the Thruway Authority did not change that. Section 2897(4) of the PAAA expressly addresses the parallel situation where the Commissioner of General Services disposes of property for an authority, and applies the PAAA's rules to that case.

Second, did any exception apply? Section 2897(6)(c)(v) allows a public authority to dispose of property by negotiation or public auction without public bidding when the disposal is for less than fair market value but advances public health, safety, or welfare, or an economic-development interest of the state or a political subdivision. The list of qualifying purposes in the statute (prevention or remediation of a substantial threat to public health or safety, creation or retention of substantial job opportunities or revenue) is not exhaustive but signals that the exception is narrow.

The AG analyzed how the exception's narrow design fit the facts. The proposed transaction satisfied the underlying purposes of the PAAA's bidding regime, because (1) the Authority would receive the fair market value of the easement through the exchange (Tennessee Gas's existing easement, of comparable size and value); (2) public bidding does not work as a mechanism for an easement-for-easement exchange where the counterparty is fixed by physical geography; (3) the easement transfer was necessary for thruway reconstruction (a public-safety and economic project) and for continued gas distribution to New York customers; and (4) this was not the kind of property disposal (typically a sale at below-market prices to a favored buyer) that prompted the PAAA's enactment.

The AG also pointed to the bill's drafting history. An earlier version of the legislation included a specific exception for situations where "the character or condition of the real property, the nature of the interest to be conveyed or other unusual circumstances make it impractical to advertise publicly for competitive bids." That exception was replaced during the legislative process with the "public health, safety and welfare" exception ultimately enacted as § 2897(6)(c)(v). The AG read that history to support a flexible application of the enacted exception in situations, like easement swaps, where competitive bidding cannot realistically be used.

The AG was careful to flag the narrowness of the holding. The Thruway Authority's general counsel had represented that the new permanent easement would be approximately the same size and value as the old one. The AG's analysis depended on that. If the easements were of materially different value, the AG noted, the analysis "might be different." The opinion also reminded the Authority that even though the exchange could be done without public bidding, § 2897(6)(d) still required the preparation and transmission of an explanatory statement for negotiated real-property disposals by exchange to the Comptroller, the Director of the Budget, the Commissioner of General Services, and the Legislature.

Currency note

This opinion was issued in 2006. 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

Why is an easement swap even a "disposition" under the PAAA?
Because the PAAA defines "property" and "disposal" broadly. "Property" includes "any inchoate or other interest" in real property (§ 2895(3)), and "disposal" includes "transfer of title or any other beneficial interest" (§ 2895(2)). An easement is an interest in real property, and granting one is a transfer of a beneficial interest.

Couldn't the Authority just use eminent domain?
The Authority had condemnation power under Public Authorities Law § 358 and the Eminent Domain Procedure Law. The negotiated exchange was a substitute for an eminent-domain proceeding. EDPL §§ 301 and 303 establish a state policy of just compensation through negotiation and agreement and require an offer at 100% of the property's valuation. The negotiated exchange fit that policy.

Does this opinion let public authorities skip bidding whenever they think it's inconvenient?
No. The opinion repeatedly stresses the narrowness of § 2897(6)(c)(v). Bidding is the rule; the exception applies only when the disposal furthers public health, safety, or welfare or an economic-development interest, and is documented and approved by the authority's board. The AG also points out the safeguards that still apply, including the explanatory-statement requirement and required transmission to the Comptroller, DOB, OGS, and the Legislature.

Does this analysis apply to local public authorities too?
The PAAA applies to state and local authorities. See L. 2005, ch. 766, §§ 2, 15-20 (codified at Public Authorities Law §§ 2, 2800-2802, 2824-2825, 2895-2897). A local authority doing a comparable utility-relocation easement swap could analogize to this opinion, but it would have to make the same case for the public-health-safety-welfare exception and follow the same procedural safeguards.

What if the easements were of materially different value?
The opinion expressly flagged that case. If the new easement was materially smaller, larger, or otherwise of different value, the AG signaled the analysis "might be different," because the comparable-value assumption was load-bearing for fitting the exception.

Background and statutory framework

The New York State Thruway Authority was created to finance, construct, improve, maintain, and operate the thruway system. Public Authorities Law § 353. It has the power to acquire property by purchase or eminent domain (§§ 354, 358, 358-a) and to dispose of property not needed for its corporate purposes by sale, exchange, or otherwise when its board determines the disposition is in the Authority's interest (§ 354(4)). The Authority also has specific authority to grant easements for the construction and maintenance of utility infrastructure (wires, cables, pipelines, water mains) over, under, along, or across the thruway, where consistent with the thruway's use (§ 354(11)).

Highway Law § 347 parallels these powers for the State DOT in thruway operations. Section 10(24-b) governs the situation that produced Tennessee Gas's original 1971 easement: when interstate construction required relocation of pre-existing utility facilities. Section 347(19) authorizes the Commissioner of Transportation to sell or exchange property acquired by the State for thruway purposes.

The 2005 PAAA grafted accountability requirements onto these existing acquisition and disposition powers. Public Authorities Law § 2800 added annual-reporting requirements for property dispositions. Sections 2895-2897 added rules for adopting disposition guidelines, requiring fair-market-value dispositions through public bidding, and creating a closed list of exceptions. The PAAA's stated goal was to "ensure greater efficiency, openness and accountability for our State's public authorities."

Section 2897 sets the baseline: dispositions must be at fair market value and through public bidding. Section 2897(6)(c) lists exceptions to the bidding requirement; subsection (c)(v) is the public-health-safety-welfare-or-economic-development exception. Section 2897(6)(d) imposes the explanatory-statement requirement for negotiated disposals (notably including real-property exchanges, regardless of value).

The 2006 opinion is the AG's first substantive guidance on § 2897(6)(c)(v). It bounded the exception with three things: (1) careful textual focus on the listed examples (substantial public-safety threats, substantial job opportunities, substantial revenue creation or retention) as evidence of intended narrowness; (2) attention to the bill's drafting history showing that an "unusual circumstances" exception had been replaced with the "public health, safety and welfare" exception; and (3) reliance on the absence of the abuses (sales steered to particular buyers at below-market prices) that motivated the PAAA's enactment.

Citations

• Public Authorities Law §§ 2, 353, 354, 354(4), 354(11), 358, 358-a (Thruway Authority's powers).
• Public Authorities Law §§ 2800, 2801, 2802, 2824, 2825 (annual reporting and disposition guidelines under PAAA).
• Public Authorities Law § 2895(2) (disposal defined to include transfer of beneficial interest); § 2895(3) (property defined to include real-property interests).
• Public Authorities Law § 2896(3); § 2897(3) (fair-market-value rule); § 2897(4) (rules apply when OGS or another entity disposes for authority); § 2897(6)(a) (public-bidding requirement); § 2897(6)(c)(v) (public-health-safety-welfare exception); § 2897(6)(d)(i)(E) (explanatory statement required for negotiated real-property exchange); § 2897(6)(d)(ii) (transmittal of statement).
• Highway Law § 10(24-b) (utility relocation for interstate construction); § 347 (DOT thruway powers); § 347(2), (16), (19) (acquisition and exchange).
• Eminent Domain Procedure Law § 301 (policy of just compensation by negotiation); § 303 (offer at 100% of valuation).
• L. 1990, ch. 190, §§ 348, 350 (Thruway Authority's 1990 acquisition of I-287 and continuing DOT reconstruction responsibility).
• L. 2005, ch. 766 (Public Authorities Accountability Act of 2005).
• Senate Memorandum in Support for ch. 766, reprinted in 2005 McKinney's N.Y. Laws 2576 (legislative purpose); Memorandum from K. Bennett to R. Platkin (July 29, 2005) (purpose of disposition provisions); Assembly Memorandum in Support of A5626 (2005) (preventing undervalued sale of state assets); Office of the State Comptroller, Public Authorities in New York State: Accelerating Momentum to Achieve Reform (Feb. 2005) (background motivating reforms).

Source

• Landing page: https://ag.ny.gov/libraries-documents/opinions/opinions-year
• Original PDF: https://ag.ny.gov/sites/default/files/opinions/2006-F4_pw.pdf

Original opinion text

PUBLIC AUTHORITIES LAW §§ 2, 353, 354, 358, 2800, 2801, 2802, 2824, 2825, 2895, 2896, 2897; HIGHWAY LAW §§ 10(24-b), 347; EMINENT DOMAIN PROCEDURE LAW §§ 301, 303

The Public Authorities Accountability Act of 2005 permits an exchange of easements without public bidding to facilitate relocation of a gas pipeline in connection with a thruway reconstruction project.

September 20, 2006

Sharon P. O'Conor
General Counsel
New York State Thruway Authority
200 Southern Blvd.
P.O. Box 189
Albany, NY 12201-0189

Formal Opinion No. 2006-F4

Dear Ms. O'Conor:

You have asked whether an anticipated transaction involving the taking of an existing easement and, in exchange, the granting of a different easement without the public advertising of bids in connection with a thruway reconstruction project comports with the Public Authorities Accountability Act of 2005.

You have explained that the New York State Department of Transportation ("DOT") is undertaking a reconstruction of Interstate 287 ("I-287"), a highway under the jurisdiction of the Thruway Authority. You have advised that in order for the project to proceed, a gas pipeline owned by the Tennessee Gas Pipeline Company ("Tennessee") must be relocated. The relocation of the pipeline involves the taking of Tennessee Gas' existing easement, the granting to Tennessee Gas of a temporary easement for use during the reconstruction, and the granting of a permanent easement when the pipeline is relocated at the completion of the highway reconstruction. The property that is the subject of these easements is under the jurisdiction of the Thruway Authority. Your question is whether this proposed easement transfer is subject to and consistent with the provisions of the Public Authorities Accountability Act of 2005 that govern the disposition of property. In light of the unique circumstances presented here, we conclude that the proposed property exchange comports with the Act.

FACTUAL BACKGROUND

Pursuant to legislation enacted in 1990, the Thruway Authority acquired from the State I-287 and the lands necessary for its operation and maintenance. See Law 1990, ch. 190, §§ 348, 350. As part of the statutory transfer, the Thruway Authority and DOT entered into an agreement under which DOT remains responsible for future reconstruction projects of the highway. See id. § 350. DOT is presently undertaking the reconstruction project relevant to your inquiry. The property involved in the relocation of the pipeline is under the jurisdiction of the Thruway Authority. The property on which the pipeline is currently located is subject to a permanent easement granted by DOT to Tennessee Gas Pipeline in 1971. The Thruway Authority proposes to have Tennessee waive its rights to its existing permanent easement, move its pipeline subject to a temporary easement during the reconstruction, and relocate the pipeline on property subject to a permanent easement once the construction project is complete. You have advised us that the new permanent easement will be approximately the same size and value of the existing permanent easement. Thus, the proposed agreement is essentially an exchange of easements in lieu of monetary compensation for the taking of the existing easement.

STATUTORY BACKGROUND

The Thruway Authority was created to finance, construct, improve, maintain and operate a state thruway system. Public Authorities Law § 353. Its statutory powers include the authority to "acquire and hold in the name of the state by purchase or appropriation real property or rights or easements therein." Id. § 354(4). Thus, the Thruway Authority is authorized to acquire property through condemnation or purchase. Id. §§ 358, 358-a; see also Highway Law § 347(2),(16) (authorizing Commissioner of Transportation to acquire property for the construction, reconstruction and maintenance of the thruway system pursuant to the eminent domain procedure law, or by grant or purchase). With respect to property under its jurisdiction, the Thruway Authority is authorized "to sell, exchange, or otherwise dispose of any real property not necessary for its corporate purposes or whenever the [governing] board shall determine that it is in the interest of the authority." Public Authorities Law § 354(4); see also Highway Law § 347(19) (authorizing Commissioner of Transportation to sell or exchange property acquired by State for thruway purposes). The Authority also has the power to grant permits and easements for the construction and maintenance of wires, cables, pipelines, water mains and similar equipment over, under, along or across the thruway where not inconsistent with the use of the thruway. Public Authorities Law § 354(11).

The Thruway Authority's acquisition and disposition of real property is also governed by provisions of the recently enacted Public Authorities Accountability Act of 2005 ("the Act"). This Act was intended to "ensure greater efficiency, openness and accountability for our State's public authorities." Senate Memorandum in Support for ch. 766, reprinted in 2005 McKinney's N.Y. Laws 2576. The Act includes a number of provisions governing real property dispositions, including requirements for the disclosure of such dispositions in annual reports, Law 2005, ch. 766, § 15 (codified at Public Authorities Law § 2800), the adoption of guidelines governing property dispositions, and the procedures governing the disposition of authority property, id. § 20 (codified at Public Authorities Law §§ 2895-2897).

ANALYSIS

Your question concerns Public Authorities Law § 2897, which specifies the method for disposing of real property and requires the use of publicly advertised bids except in enumerated circumstances. See id. § 2897(6). Because the proposed easement transfer would not involve a public bidding process, your question is whether the transfer is subject to section 2897, and if so, whether it falls within one of the enumerated exceptions.

For purposes of these provisions, disposal includes a "transfer of title or any other beneficial interest in personal or real property," and property is defined as "personal property in excess of five thousand dollars in value, real property, and any inchoate or other interest in such property, to the extent that such interest may be conveyed to any other person for any purposes, excluding an interest securing a loan or other financial obligation of another party." Id. § 2895(2),(3). Any disposal that falls within the scope of this provision must be in accordance with section 2897 of the Public Authorities Law. See id. § 2895(2).

The transfer of a temporary and permanent easement in property belonging to the Authority clearly falls within these expansive definitions. Nor does the fact that the Department of Transportation is acting on behalf of the Thruway Authority in the property transfer remove it from the statute's purview. Cf. Public Authorities Law § 2897(4) (where Commissioner of General Services is authorized by agreement to dispose of property for an authority, provisions of Act governing disposals apply). Thus, we conclude that the proposed easement transfer is subject to the provisions of the Public Authorities Act of 2005 governing the disposition of property.

Public Authorities Law § 2897 authorizes any public authority to dispose of property "for not less than the fair market value of such property by sale, exchange or transfer, for cash, credit or other property, . . . upon such terms and conditions as the contracting officer [of the authority] deems proper." Id. § 2897(3). However, as noted, the statute also requires a public bidding process for all such disposals. Id. § 2897(6)(a). Only if one of the enumerated exceptions apply may the authority forego the public bidding process and dispose of the property through negotiation or public auction. Id. § 2897(6)(c).

In our view, one of these exemptions applies to the proposed easement transfer. Section 2897 exempts disposal of authority property for an amount less than fair market value through negotiation or auction without public bidding where disposal of the property is intended to further the public health, safety or welfare or economic development of the State or a political subdivision. Public Authorities Law § 2897(6)(c)(v). Purposes that satisfy these criteria include the prevention or remediation of a substantial threat to public health or safety, the creation or retention of a substantial number of job opportunities or substantial source of revenues, or where the authority's enabling legislation so permits. Id.

The Legislature's reasons for enacting the disposition requirements and the Act as a whole provide useful guidance in interpreting the scope of this exception. The requirements that authority property be disposed of at no less than fair market value and that such disposals result from publicly advertised bids were intended to "promote increased accountability, ethics and public confidence" in the disposition of property by public authorities. Remarks of Sen. Leibell, NYS Senate Debate (June 24, 2005), at 5778-79. The detailed procedures governing the disposal of property were proposed "to ensure that [property owned by an authority] is not transferred for lower than fair market value." Memorandum from K. Bennett, Legislative Bureau Chief of the Office of the Attorney General to R. Platkin, Counsel to the Governor (July 29, 2005), at 1; see also Assembly Memorandum in Support of A5626 (2005), at 10 (describing proposal containing disposition provisions identical to those ultimately enacted as "establish[ing] rules for the disposition of property by public authorities to prevent undervalued sale of State assets"). Indeed, the disposition provisions were prompted in part by specific authority transactions that were the subject of audits by the State Comptroller and investigations by legislative committees. See Office of the State Comptroller, Public Authorities in New York State: Accelerating Momentum to Achieve Reform (Feb. 2005); Assembly Memorandum in Support of Assembly Bill A.9010-C (2004), at 2-3; Assembly Memorandum in Support of Assembly Bill A.5626 (2005), at 9.

The disposition procedures seek to promote accountability and protect against abuses by requiring that disposals of authority property be made for not less than the fair market value of the property and only after publicly advertising for bids. Public Authorities Law § 2897(3),(6). As outlined in the legislative history, these requirements were intended to help ensure that authority property would be disposed of fairly, at an appropriate value and without being steered toward particular purchasers.

The statutory examples of the types of purposes that satisfy the public health, safety and welfare exception are also instructive as to the intended scope of this exception. The specific examples listed (the prevention or remediation of a substantial threat to public health or safety, the creation or retention of a substantial number of job opportunities or substantial source of revenues) indicate that this exception was intended to be narrowly construed. Moreover, unlike the other enumerated exceptions to the public bidding requirement, the "public health, safety and welfare" exception applies to dispositions for less than fair market value, and thus this exception must necessarily be carefully limited in its application so that it does not undermine the primary goal of the provision: to require that authorities dispose of property for its fair market value.

In this case, the State Department of Transportation is undertaking on behalf of the Thruway Authority a major reconstruction project to provide safer and more efficient travel on an integral portion of the thruway system. As noted, the Thruway Authority is authorized by its enabling act to dispose of, including by exchange, real property that is not necessary for its corporate purposes. You have advised that relocation of Tennessee's gas pipeline is necessary for reconstruction of the highway, and that the proposed easement transfer facilitates this relocation. The Authority is specially authorized to grant easements for the placement of gas lines and similar equipment where such easements are consistent with the use of the thruway. See Public Authorities Law § 354(11). You have indicated that where, as here, reconstruction of the thruway necessitates the relocation of a pipeline located on property subject to an easement, the Authority generally seeks to enter an agreement with the property owner for the granting of a new easement in exchange for the taking of the existing easement. See Eminent Domain Procedure Law § 301 (establishing policy of just compensation through negotiation and agreement); id. § 303 (offer of just compensation by condemnor shall be 100% of valuation of the property). You have further advised that the new permanent easement is approximately the same size and value of the existing permanent easement held by Tennessee Gas.

We find application of the exception contained in section 2987(6)(c)(v) is appropriate under the unique circumstances presented here, where (1) the Authority has determined that the easement transfer is necessary for the needed reconstruction of the thruway and the continued distribution of gas to New York customers, both of which are important to public health, safety, job creation, and revenues; (2) public bidding would not effectuate the twin purposes of the proposed easement transfer, which involves not only a taking of a private property interest needed by the Authority to further its primary purposes (thruway construction and maintenance), but also the granting of a new easement to accommodate another statutory power of the Authority (the granting of easements for utility transport); (3) the Authority will receive the fair market value of the easement through the property exchange; and (4) this is not the type of property disposal that was previously found subject to abuse by public authorities or that prompted enactment of the stringent disposition procedures.

Based upon the combination of all of these factors, we therefore conclude that the proposed easement transfer may be effectuated pursuant to the terms of this statutory provision.

Finally, we note that although the proposed transaction may fall within an exception to the public bidding requirements of the 2005 Act, the easement exchange is subject to other procedural safeguards of the Act. Specifically, section 2897(6)(d) of the Public Authorities Law requires the preparation of an explanatory statement for specified disposals by negotiation, including the negotiated disposal of real property by exchange, regardless of the value of the real property. Public Authorities Law § 2897(6)(d)(i)(E). This explanatory statement, which indicates the circumstances of the negotiated disposal, must be transmitted to the Comptroller, the Director of the Budget, the Commissioner of General Services, and the Legislature. Id. §§ 2896(3), 2897(6)(d)(ii).

CONCLUSION

We conclude that the proposed transfer of an easement to facilitate the relocation of a gas pipeline necessitated by a major thruway reconstruction project is subject to the Public Authorities Accountability Act of 2005. We further conclude that such transfer may be accomplished without public bidding pursuant to the exception in Public Authorities Law § 2897(6)(c)(v).

Very truly yours,

ELIOT SPITZER
Attorney General