In the Matter of County of Chemung, Respondent,v.Nirav R. Shah,, et al., Appellants.BriefN.Y.September 7, 2016APL-20 15-00089, APL-20 15-00088, APL-20 15-00115, APL-20 15-00116, APL-2015-00140, APL-2015-00141, APL-2015-00195, APL-2015-00196 @llltrt nf J\pp.eals STATE OF NEW YORK .... APL-2 015-00089 St. Lawrence County Clerk's Index Nos. 140712, 140998, & 141656 In the Matter of the Application of COUNTY OF ST. LAWRENCE, Petitioner-Plaintiff-Respondent, -against- NIRAV R. SHAH, as Commissioner ofthe New York State Department of Health and the NEW YORK STATE DEPARTMENT OF HEALTH, Respondents-Defendants-Appellants. (Caption continued on inside covers) BRIEF FOR AMICUS CURIAE NEW YORK STATE ASSOCIATION OF COUNTIES IN SUPPORT OF PETITIONERS-PLAINTIFFS-RESPONDENTS July 14, 2016 STEPHEN J. ACQUARIO NEW YORK STATE ASSOCIATION OF COUNTIES 540 Broadway, 5th Floor Albany, New York 12207 Telephone: (518) 465-1473 Facsimile: (518) 465-0506 Amicus Curiae KATHERINE L. PRINGLE REBECCA C. SERBIN FRIEDMAN KAPLAN SEILER & ADELMAN LLP 7 Times Square New York, New York 10036-6516 Telephone: (212) 833-11 00 Facsimile: (212) 833-125 0 Attorneys for Amicus Curiae APL-2015-00088 Chemung County Clerk’s Index No. 2013-1849 In the Matter of the Application of COUNTY OF CHEMUNG, Petitioner-Plaintiff-Respondent, —against— NIRAV R. SHAH, as Commissioner of the New York State Department of Health and the NEW YORK STATE DEPARTMENT OF HEALTH, Respondents-Defendants-Appellants. APL-2015-00115 Chautauqua County Clerk’s Index No. CV-2013-1266 In the Matter of the Application of COUNTY OF CHAUTAUQUA, Petitioner-Plaintiff-Respondent, —against— NIRAV R. SHAH, as Commissioner of the New York State Department of Health and the NEW YORK STATE DEPARTMENT OF HEALTH, Respondents-Defendants-Appellants. APL-2015-00116 Jefferson County Clerk’s Index No. CV-2013-1956 In the Matter of the Application of COUNTY OF JEFFERSON, Petitioner-Plaintiff-Respondent, —against— NIRAV R. SHAH, as Commissioner of the New York State Department of Health and the NEW YORK STATE DEPARTMENT OF HEALTH, Respondents-Defendants-Appellants. APL-2015-00140 Oneida County Clerk’s Index No. 2013-1788 In the Matter of the Application of COUNTY OF ONEIDA, Petitioner-Plaintiff-Respondent, —against— NIRAV R. SHAH, as Commissioner of the New York State Department of Health and the NEW YORK STATE DEPARTMENT OF HEALTH, Respondents-Defendants-Appellants. APL-2015-00141 Genesee County Clerk’s Index No. Index No. 63493 In the Matter of the Application of COUNTY OF GENESEE, Petitioner-Plaintiff-Respondent, —against— NIRAV R. SHAH, as Commissioner of the New York State Department of Health and the NEW YORK STATE DEPARTMENT OF HEALTH, Respondents-Defendants-Appellants. APL-2015-00195 Cayuga County Clerk’s Index No. 2014-00000261 In the Matter of the Application of COUNTY OF CAYUGA, Petitioner-Plaintiff-Respondent, —against— NIRAV R. SHAH, as Commissioner of the New York State Department of Health and the NEW YORK STATE DEPARTMENT OF HEALTH, Respondents-Defendants-Appellants. APL-2015-00196 Monroe County Clerk’s Index No. 14-3162 In the Matter of the Application of COUNTY OF MONROE, Petitioner-Plaintiff-Respondent, —against— NIRAV R. SHAH, as Commissioner of the New York State Department of Health and the NEW YORK STATE DEPARTMENT OF HEALTH, Respondents-Defendants-Appellants. TABLE OF CONTENTS Page Statement of Interest .................................................................................................. 1 Preliminary Statement ................................................................................................ 3 Background ................................................................................................................ 4 Argument.................................................................................................................... 7 I. The Counties May Challenge Section 61 .............................................. 7 A. The Counties Have Both Standing and Capacity to Challenge Section 61 .................................................................. 7 B. There Is No Reason to Create an Additional Facial Requirement ................................................................................ 8 1. Federal Precedent Does Not Support a New Criterion. .... 9 2. There Is No State Precedent Supporting a Separate, “Substantive Right” Criterion. ........................................ 11 C. Denying Municipalities All Due Process Rights Would Devastate Their Ability to Provide County Services. ............... 15 II. Section 61 Is Unconstitutional Because it Retroactively Extinguishes the Counties’ Vested Right to Reimbursement ............. 18 A. Section 61 is Unconstitutional Retroactive Legislation that Violates the Public Interest. ............................................... 18 B. The Court Should Consider the Interests of Counties Not Represented in this Action In Structuring a Remedy in this Case .................................................................................... 21 Conclusion ............................................................................................................... 21 ii TABLE OF AUTHORITIES Page(s) Cases Alliance of American Insurers v. Chu, 77 N.Y.2d 573 (1992) ......................................................................................... 18 Campaign for Fiscal Equity, Inc. v. State of New York, 205 A.D.2d 272 (1st Dept 1994) ........................................................................ 14 City of New York v. State, 86 N.Y.2d 286 (1995) ..................................................................................passim County of Albany v. Hooker, 204 N.Y. 1 (1912) ............................................................................................... 10 Matter of County of Chautauqua v. Shah 126 A.D.3d 1317 (4th Dept 2015) .................................................................... 6, 8 Herzog v. Board of Educ. of Lawrence Union Free Sch. Dist., 652 N.Y.S.2d 473 (Sup. Ct. Nassau County, 1996) ........................................... 14 Matter of Hodes v. Axelrod, 70 N.Y.2d 364 (1987) ......................................................................................... 19 Matter of Jeter v. Ellenville Central School District, 41 N.Y.2d 283 (1977) ....................................................................... 12, 13, 14, 16 N.Y. State. Ass’n of Nurse Anesthetists v. Novello, 2 N.Y.3d 207 (2004) ........................................................................................... 17 New York State Assoc. of Counties v. Axelrod, 78 N.Y.2d 158 (1991) ......................................................................................... 18 People ex rel. Rodgers v. Coler, 166 N.Y. 1 (1901) ............................................................................................... 10 Society of Plastics Industries, Inc. v. County of Suffolk, 77 N.Y.2d 761 (1991) ............................................................................... 7, 13, 17 Matter of St. Lawrence v. Shah, 124 A.D.3d 88 (3rd Dept 2014) ........................................................................ 6, 8 iii In re World Trade Center Lower Manhattan Disaster Site Litig., 66 F. Supp. 3d 466, 471 (S.D.N.Y. 2014) .......................................................... 14 Yonkers Commission on Human Rights v. The City of Yonkers, 654 F. Supp. 554 (S.D.N.Y. 1987) ..................................................................... 14 Statutes N.Y. Education Law § 4410(11)(b)(1) (McKinney 2015) ...................................... 20 STATEMENT OF INTEREST The New York State Association of Counties (“NYSAC”) was organized by county officials in 1925 and is the only statewide municipal association representing elected county executives, county supervisors, county clerks, legislators, representatives, commissioners, and administrators from all 62 counties of the state of New York, including the City of New York. The sole membership of NYSAC consists of the 62 New York counties.1 NYSAC submits this proposed amicus curiae brief because of the broad implications, for all counties, of the issues in this case. A decision upholding Section 61 or immunizing it from challenge would fundamentally alter the relationship between New York State and the counties. New York counties are responsible for providing a wide array of essential services subject to 1 Specifically, Albany County, Allegany County, Broome County, Cattaraugus County, Cayuga County, Chautauqua County, Chemung County, Chenango County, Clinton County, Columbia County, Cortland County, Delaware County, Dutchess County, Erie County, Essex County, Franklin County, Fulton County, Genesee County, Greene County, Hamilton County, Herkimer County, Jefferson County, Lewis County, Livingston County, Madison County, Monroe County, Montgomery County, Nassau County, the counties of New York City, Niagara County, Oneida County, Onondaga County, Ontario County, Orange County, Orleans County, Oswego County, Otsego County, Putnam County, Rensselaer County, Rockland County, St. Lawrence County, Saratoga County, Schenectady County, Schoharie County, Schuyler County, Seneca County, Steuben County, Suffolk County, Sullivan County, Tioga County, Tompkins County, Ulster County, Warren County, Washington County, Wayne County, Westchester County, Wyoming County, and Yates County. See generally “New York State Association of Counties: Who we are and what we do,” http://www.nysac.org/about/index.php (last visited Nov. 6, 2015). 2 reimbursement from the State.2 Counties own and maintain key infrastructure, prosecute crimes, provide indigent defense services, and coordinate disaster preparedness. Counties provide or coordinate programs for children living in foster care, children with special needs, senior citizens, at-risk youth, and other vulnerable populations. If New York counties cannot be certain that they will receive statutorily guaranteed reimbursement for the State’s share of some of these costs, it will have wide-ranging consequences for their ability to continue to provide these essential services for all New Yorkers. Further, a decision immunizing Section 61 from challenge would represent a significant departure from the established framework under which municipalities may challenge state statutes affecting their interests. This framework is already the product of a careful balance between the powers of the State and the municipalities. The Court should decline the State’s invitation to alter that framework in this case. Such a decision would also harm the ability of associations like NYSAC to challenge statutes affecting their members when their members are unable to bring a challenge themselves. 2 See generally New York State Association of Counties, “101 Ways Counties Serve New Yorkers and Strengthen the Quality of Our Communities,” http://nysac.org/documents/NYSAC101Ways.pdf. 3 PRELIMINARY STATEMENT NYSAC, on behalf of its 62 member counties, urges this Court to hold that the Petitioner-Plaintiff-Respondent counties in these actions (the “Counties”) may challenge Section 61, and further to hold that Section 61 violates the Counties’ right to due process under the New York Constitution. This Court should reverse the decision of the Fourth Department below, which imposed an additional requirement, beyond the established threshold requirements of standing and capacity, that Counties must have an undefined “substantive right” to challenge a State statute or must be “persons” to do so. Further, this Court should recognize that in purporting to retroactively extinguish the Counties’ vested right to reimbursement, Section 61 is unconstitutional and sets a dangerous precedent that threatens to harm the State-local government administrative partnership, and in turn, all New Yorkers. 4 BACKGROUND These cases involve New York State’s attempt to eliminate its obligation to repay counties for amounts that the counties advanced on the State’s behalf. New York State requires the counties to make substantial contributions to the cost of providing Medicaid to county residents. Prior to 2006, New York required the counties to advance certain costs on behalf of the State, which the State would then reimburse. Having now changed that structure, New York would like to eliminate its outstanding debt to the counties, by eliminating the counties’ right to reimbursements for pre-2006 payments. Under the old Medicaid cost-sharing structure, counties were responsible for paying a local share for each Medicaid recipient, with the exception of certain patients with mental disabilities, the so-called “overburden patients”. For overburden patients, the State was responsible for the entire Medicaid cost. The counties were required to advance the local share amount for every patient, and the State would then reimburse the counties for amounts related to overburden patients. To do this, the State would identify the Medicaid recipients who qualified as overburden patients and would make quarterly reimbursements to the counties for care associated with those patients. When the State omitted recipients who should have been qualified as overburden patients (as happened regularly), the counties were entitled to claim and receive the omitted reimbursement. But the 5 onus at all times was on the State, not the counties, to identify overburden patients. And the State at all times had the ability to determine the reimbursement owed. This old cost-sharing system was replaced in 2006 with the Medicaid Cap Statute, under which counties make a fixed contribution to Medicaid costs. This litigation is not about the wisdom or merits of the new system. Instead, the present disputes arise from the State’s decision to couple the adoption of the new system with Section 61, a provision that seeks to extinguish the counties’ vested rights to repayment. Amicus’s concerns extend beyond this present dispute because the effect of this case could extinguish a county’s right to challenge any future actions by the State, no matter how unjust or inequitable. Section 61 was enacted by the Legislature in 2012 specifically to terminate existing claims by counties. The plaintiff Counties, and other counties, had identified overburden patients not counted by the State in its pre-2006 reviews, and they sought payment of amounts to which they were entitled.3 The Legislature sought to terminate all such claims by amending the Medicaid Cap Statute to provide that “no reimbursement shall be made for social service districts’ claims 3 The State denied these claims, in part based on the argument that the claims were now barred by the new Medicaid Cap Statute. Both the Third and Fourth Departments, reviewing those denials, determined that the Department had erred in retroactively applying the Cap Statute to deny the claims. [State Br. 12-13.] In response, in 2010 the Legislature amended the Medicaid Cap Statute, purporting to extinguish the counties’ rights to pre-2006 overburden reimbursement. Both the Third and Fourth Departments found that the 2010 amendment did not clearly and unambiguously extinguish the Counties’ right to reimbursement. [Counties Br. 13-16.] The Legislature then enacted Section 61. 6 submitted on and after the effective date of this paragraph, for district expenditures incurred prior to January 1, 2006.” L. 2012, ch. 56, § 1, part D, § 61. The Counties allege that Section 61 deprives them of vested property rights in violation of the due process clause of the New York Constitution. The trial courts below ruled in favor of the Counties. On appeal, the Fourth Department upheld Section 61, holding that counties are not persons entitled to due process protection. Matter of County of Chautauqua v. Shah 126 A.D.3d 1317, 1320-21 (4th Dept 2015). The Third Department also upheld the constitutionality of Section 61, but in a more limited way. It read the law as a statute of limitations on the submission of overburden reimbursement claims and, in order to avoid offending due process, imposed a six-month grace period from the date of its decision for the submission of pre-2006 claims. The Third Department affirmed the trial court’s grant of mandamus directing the Department to identify, calculate, and pay all outstanding reimbursement owed to St. Lawrence County. Matter of St. Lawrence v. Shah, 124 A.D.3d 88 (3rd Dept 2014). NYSAC supports the Counties’ position that the Third and Fourth Department decisions should both be overturned. The Court should confirm that, under long-established law, the Counties may challenge Section 61, and the Court should hold that Section 61 violates the Counties’ right to due process under the New York Constitution. 7 ARGUMENT I. THE COUNTIES MAY CHALLENGE SECTION 61 A decision immunizing Section 61 from challenge would represent an unprecedented shift in the framework under which municipalities and counties may challenge state statutes. New York’s capacity doctrine already represents a balance between the interests of the State in making its own policy decisions, and of the needs by municipalities and counties to protect their vested interests in funds granted by the State. A decision upholding the Fourth Department would disrupt this balance on the grounds that the counties may not challenge Section 61 because they lack a wholly undefined “substantive right” to do so. It would further limit NYSAC’s ability to bring constitutional challenges on behalf of its member counties. The cases cited by the State already have been incorporated into the capacity doctrine, and do not support any change to that longstanding doctrine. A. The Counties Have Both Standing and Capacity to Challenge Section 61 It has long been the rule in New York that a municipality may challenge a State statute so long as two criteria are satisfied: The municipality must have standing, meaning that it has suffered a sufficient injury as a direct result of the statute. See Society of Plastics Industries, Inc. v. County of Suffolk, 77 N.Y.2d 761 (1991). And, if the State invokes a capacity defense, the municipality must demonstrate that it fits one of four narrow categories under which a 8 municipality has capacity to bring constitutional challenges. City of New York v. State, 86 N.Y.2d 286, 290-92 (1995). There is no question that both criteria are satisfied here. The State has never disputed that the Counties have standing to sue. And, as the Third and Fourth Departments each held, the State waived any capacity defense. See County of Chautaqua, 126 A.D.3d at 1320; County of St. Lawrence, 124 A.D.3d at 91. If the State had raised a capacity defense, that defense would have been defeated. Counties and other municipalities, as subdivisions of the state created by the state, do not generally have capacity to mount constitutional challenges to state legislation. City of New York, 86 N.Y.2d at 289-90. But there are four established exceptions to that general rule, including an exception “where the State legislation adversely affects a municipality’s proprietary interest in a specific fund.” Id. at 291-92. The State has never disputed that the Counties have capacity under the proprietary-interest exception, which presumably is why the State never raised a capacity defense. Because the Counties have standing and capacity, there should be no question that they are entitled to challenge Section 61. B. There Is No Reason to Create an Additional Facial Requirement The State asks this Court to create, for the first time, a new, third criterion before a municipal challenge may be heard on the merits. The State 9 argues (and the Fourth Department erroneously held) that the Counties must also demonstrate a “substantive right” to bring a challenge under the due process clause of the New York Constitution. The State’s theory is that municipalities are not “persons” protected by the due process clause, and that they therefore lack a “substantive right” to mount a due process challenge. There is no precedent for such a criterion, and this Court should not create one. 1. Federal Precedent Does Not Support a New Criterion. The State relies primarily on federal cases, concerning the federal due process clause, which have no bearing on the Counties’ rights under the New York State Constitution. [State Br. at 30-31.] The State argues that New York should, by analogy, follow the reasoning in the federal cases. But that argument ignores the leading decision by this Court, in which this Court already held that the reasoning of those federal cases has only limited application in New York. In its 1995 City of New York decision, this Court analyzed the very same federal cases cited by the State today. The Court traced the “traditional principle throughout the United States . . . that municipalities . . . lack capacity to mount constitutional challenges to acts of the State,” flowing from the fact that municipalities are creations of the State. 86 N.Y.2d at 289-90. It confirmed that New York has “long followed the Federal rationale for finding that municipalities lack the capacity to bring suit to invalidate State legislation.” Id. at 91. But the 10 Court at the same time made clear that New York has four exceptions to this general rule, including the exception by which a municipality may challenge a statute that affects the municipality’s proprietary interest in a particular sum of money. Id. This Court has never – in City of New York or any other decision – suggested that municipalities deserve no due process protection at all. Instead the capacity doctrine reflects a balanced approach, whereby municipalities’ rights against the State depend on the nature of their claim. A claim concerning political power will be dismissed, since a municipality has no vested interest against the State in the boundaries of its political power. But where the State has given the municipality a proprietary right to specific money, the municipality may bring a constitutional claim in its proprietary role, just as any other entity may. See id.at 289-91; accord County of Albany v. Hooker, 204 N.Y. 1 (1912) (finding that counties may not sue in their political capacity, but have sued and been sued in their capacity as quasi corporations); People ex rel. Rodgers v. Coler, 166 N.Y. 1 (1901) (“The city is a corporation possessing all the powers of corporations generally and cannot be deprived of its property without its consent or due process of law any more than a private corporation can.”). In short, the federal precedent on which the State relies is already reflected in New York’s capacity doctrine; it does not imply a new requirement 11 outside of that doctrine. Nor can the federal precedent support the State’s argument that municipalities have no due process rights at all, since this Court, in considering the federal precedent, specifically recognized the constitutional rights of municipalities, including their rights as proprietors. To decide otherwise would be devastating to New York counties and municipalities, jeopardizing their already narrow ability to challenge State decisions that affect them. 2. There Is No State Precedent Supporting a Separate, “Substantive Right” Criterion. The two New York cases cited by the State offer no more support than the federal ones. They neither create a new “substantive right” requirement nor justify creating one now. This Court’s 1954 decision in Black River Regulating District v. Adirondack League Club is nothing more than an early articulation of the capacity doctrine. The Court in that case held that a local regulating district could not challenge the constitutionality of a State law removing the district’s authority over a river project. The Court explained that as a creation of the State, the regulating district’s powers were “within the State’s absolute discretion and any alteration, impairment or destruction of those powers by the Legislature presents no question of constitutionality.” 307 N.Y. at 487-88. The Black River decision does not use the term “capacity,” but this Court in City of New York made clear that Black River articulates the New York 12 capacity doctrine. See City of New York, 86 N.Y.2d at 290-91 (citing Black River and quoting from decision to explain New York’s capacity doctrine). The district lost because its claim concerned only its political power, and neither the proprietary-interest exception nor any other exception to the general rule was claimed or discussed. See Black River, 307 N.Y. at 488 (“political power conferred by the Legislature confers no vested right as against the government itself”). Certainly Black River has never been interpreted to eliminate those exceptions or support the blanket denial of due process rights. The second New York case cited by the State, Matter of Jeter v. Ellenville Central School District, 41 N.Y.2d 283, 287 (1977), also is squarely within the capacity doctrine. In Jeter, this Court dismissed a constitutional challenge by departments of New York City and Yonkers to a state law imposing certain costs on school districts. The Court held that “[w]hile these units of municipal government have procedural standing to participate in the present litigation (and thus to be heard, for instance, on questions of statutory interpretation), they do not have the substantive right to raise these constitutional challenges.” Id. Seizing on this final phrase, the State argues that it created a requirement that the municipality have a “substantive right,” separate from capacity, to bring a constitutional challenge. 13 It would be surprising if this Court intended through such a brief comment to create an entirely new “substantive right” requirement. But a plain reading of Jeter makes clear that the quoted sentence marks no departure at all from established law. The Court found that the municipalities had “procedural standing,” so that they met the standing criterion.4 The Court then found that the municipalities lacked capacity, or using the Court’s language, they lacked a “substantive right to raise these constitutional challenges.” That the reference to a “substantive right” refers to capacity – and not some different, additional requirement – is reinforced by the very next sentence in the opinion, which finds that an exception to municipal incapacity was not alleged in that case. Id. (“This is not an instance in which the municipal challengers assert that if they are obliged to 4 The State argues that the Court of Appeals was confused, and that its reference to “procedural standing” was really a holding that the municipalities had capacity. [State Reply Br. at 9-10.] But there is no reason to think the Court of Appeals was confused. Its statement that the municipalities have “procedural standing to participate in the present litigation (and thus to be heard, for instance, on questions of statutory interpretation)” plainly refers to standing, which is the requirement that a party be sufficiently and directly aggrieved before it may participate in a case. See Society of Plastics, 77 N.Y.2d at 774-75. Capacity, on the other hand, refers to the authority to mount constitutional challenges (see City of New York, 86 N.Y.2d at 289-91), consistent with the Court’s statement that the municipalities lacked “the substantive right to raise these constitutional challenges.” The State’s other argument is that the Court of Appeals’ statement about “procedural standing” was an endorsement of a finding by the Appellate Division that the School Board had capacity under the proprietary-interest exception. [State Reply Br. at 9-10.] However, the School Board in Jeter sought only to protect future funding generally, and never alleged that it had a “proprietary interest in a specific fund of moneys” (City of New York, 86 N.Y.2d at 291-92) as would be required to establish capacity. 14 comply with the State statute they will by that very compliance be forced to violate a constitutional proscription.”). This Court, addressing Jeter twenty years later, placed it within the capacity doctrine. See City of New York, 86 N.Y.2d at 292. The lower courts have likewise, and unanimously, read Jeter as an expression of the capacity doctrine. See, e.g., Campaign for Fiscal Equity, Inc. v. State of New York, 205 A.D.2d 272, 277-78 (1st Dept 1994); Herzog v. Board of Educ. of Lawrence Union Free Sch. Dist., 652 N.Y.S.2d 473, 477 (Sup. Ct. Nassau County, 1996). The few judges who have used the “substantive right” phrase from Jeter have used it interchangeably with the word “capacity.” See City of New York, 86 N.Y.2d at 296 (dissenting opinion); In re World Trade Center Lower Manhattan Disaster Site Litig., 66 F. Supp. 3d 466, 471 (S.D.N.Y. 2014). No court, before the Fourth Department here, had ever read Jeter to refer to something other than capacity, or read it to create any additional requirement for municipal challenges to State legislation.5 And while this Court and the lower courts have heard many municipal cases in the nearly forty years since Jeter, not one has barred a municipality, which otherwise had standing and 5 While the State claims that “several courts” have recognized a distinction between capacity to sue and substantive due process rights [State Br. at 39], it cites only one case, Yonkers Commission on Human Rights v. The City of Yonkers, 654 F. Supp. 554 (S.D.N.Y. 1987). The federal court in that case cited Jeter only within its analysis of capacity, under the subheading “Capacity to Sue.” Id. at 551-53. The federal court did not find a separate criterion outside of the capacity doctrine, and the Yonkers Commission decision does not support any distinction between capacity to sue and due process rights. 15 capacity to bring a due process challenge, because of some third requirement that it have the “substantive right” to do so. There is no basis or need for this Court to create new doctrine. The precedents advanced by the State are already incorporated in New York’s capacity doctrine, under which a municipality’s constitutional rights against the State depend on the context of its claim. Counties have long relied on the balanced approach that is reflected in the capacity doctrine. And under that doctrine the Counties’ suit may be considered on the merits. C. Denying Municipalities All Due Process Rights Would Devastate Their Ability to Provide County Services. Although it is unnecessary to the resolution of this matter, the State urges this Court to declare, for the first time, that because municipalities are not “persons” they lack any due process rights at all. There is no precedent for such a holding, which would necessarily overrule the long line of cases recognizing the capacity of municipalities to challenge the withholding of funds in which the municipality has a proprietary interest.6 It is enshrined in the New York Constitution that corporations and other associations stand before the Courts on the same footing as “natural persons.” N.Y. CONST. art. 10, § 4. The Courts have 6 The Counties cite a long line of cases in which the Court has considered the merits of due process and other constitutional claims by municipalities acting as proprietors to protect vested interests in particular funds. [See Counties’ Brf. at 65-68 (listing cases).] The State dismisses these case, saying that they fail to address the “personhood issue.” [See State Reply Br. at 13-17.] But the “personhood issue” is a conceit created by the State for this case, not a concept of New York jurisprudence. 16 always treated municipalities on the same footing as natural persons, limiting only their right to bring political challenges, as described above. Neither Black River nor Jeter – the only New York precedents cited by the State – suggest that counties are not “persons.” They simply found that the regulating district (in Black River) and school district (in Jeter) lacked capacity to challenge state statutes that eroded the plaintiff’s political power. In neither case did the Court suggest that the plaintiffs would not be entitled to due process rights under other circumstances. A decision denying all due process rights to municipalities would radically alter the relationship between the State and each of the counties, and could devastate the counties’ ability to fulfill their obligations to the people of New York. The capacity doctrine already reflects a careful balance between the State and the counties: The State may unilaterally expand or contract the obligations placed on the counties. But if the State induces the counties to rely on authorized funds, the counties may enforce their right to the funds. That balance makes sense given the broad mandate of the New York counties. The counties provide a host of essential services to New York citizens, including food and housing support for families in need, medical and mental health services, prosecution of crime, provision of public defense services, and provision of foster care, public education, traffic, fire and safety services, to name just a few. The counties operate numerous institutions, from courthouses and prisons to 17 recreational sites, and the DMV.7 The Counties’ ability to fulfill their responsibilities – to pay workers, lease buildings, contract for services, purchase supplies, etc. – depends on their ability to count on the funds granted to them, and their ability to access the courts when those funds are denied. The State’s position would topple that balance and leave the counties entirely at the State’s mercy. The State would remain free to unilaterally impose obligations on counties, and free to require counties to front payments. But the State could then withdraw funds or deny reimbursements, for any reason and at any time, without any recourse by the counties. County budgets would be at constant risk, subject to raiding by Albany lawmakers to bridge budget shortfalls or fund pet projects. Such a decision would leave counties without any ability to depend on or enforce promises made by the State. The State’s position would further threaten NYSAC’s role as representative of counties that may not, individually, be in a position to represent themselves. NYSAC’s ability to appear in Court to advance the rights of member counties follows from the rights of those associated member.8 A finding that public entities may not bring a due process challenge against the State would deprive 7 See New York State Association of Counties, “101 Ways Counties Serve New Yorkers and Strengthen the Quality of our Communities” http://nysac.org/documents/ NYSAC101Ways. Pdf. 8 See, e.g., N.Y. State. Ass’n of Nurse Anesthetists v. Novello, 2 N.Y.3d 207, 211 (2004); Society of the Plastics Indus., Inc. v. County of Suffolk, 77 N.Y.2d 761, 775 (1991). 18 NYSAC of its role as representative, and would undermine NYSAC’s fundamental mission of representing the interests of its member counties. Its effects could impact as well the many other associations that are similarly situated. This Court has long recognized the important role that associations play in challenging statutes that affect their members when their members are not in a position to bring such a challenge. NYSAC has played that role before this Court in the past, and should be permitted to do so in the future. See, e.g., New York State Assoc. of Counties v. Axelrod, 78 N.Y.2d 158 (1991) (reversing the Appellate Division and granting NYSAC’s motion for summary judgment in its challenge to Medicaid reimbursement recalibration regulation on behalf of its member counties). II. SECTION 61 IS UNCONSTITUTIONAL BECAUSE IT RETROACTIVELY EXTINGUISHES THE COUNTIES’ VESTED RIGHT TO REIMBURSEMENT A. Section 61 is Unconstitutional Retroactive Legislation that Violates the Public Interest. Section 61 is unconstitutional because it is expressly retroactive. Its very purpose is to extinguish the Counties’ vested right to reimbursement for pre- 2006 overburden expenses. When a party asserts a constitutional challenge to legislation with retroactive effects, “the courts must balance a number of factors, including ‘fairness to the parties, reliance on pre-existing law, the extent of retroactivity and the nature of the public interest to be served by the law.’” Alliance 19 of American Insurers v. Chu, 77 N.Y.2d 573, 586 (1992) (quoting Matter of Hodes v. Axelrod, 70 N.Y.2d 364, 370 (1987) (citation omitted)). Each of these factors weighs overwhelmingly against Section 61. It is unfair to the parties to eliminate reimbursements after the State required the Counties to expend resources on the State’s behalf. The Counties reasonably relied on the pre-existing law and paid money they did not owe to cover the cost of overburden care, doing so because they were guaranteed reimbursement for those costs. Section 61 is expressly retroactive and unfairly would eliminate the promised reimbursements. The public interest is served by invalidating Section 61, because the instability that is created by this law, and by similar enactments that could follow, will harm the public that depends on county services. County services and activities impact the lives of every New York resident. The most vulnerable New Yorkers particularly depend on county services, such as food stamps, public housing, foster care, mental health services and veterans’ care. Many of the counties’ important activities involve state-mandated programs and services, where the counties advance local tax dollars before collecting State reimbursement. For example, counties initially pay the cost of pre-school special education services with local tax dollars and then are reimbursed by the State for 69.5 percent of those 20 costs.9 If Section 61 is upheld, the State could be empowered to make similar retroactive changes extinguishing the right to reimbursement for this and other programs. This possibility would leave the counties uncertain about whether they can depend on statutorily-guaranteed reimbursement when they fund essential services. If counties are not reimbursed for providing essential services, they will be left with a number of bad choices. They do not have the choice to not provide these services because they are required to do so by statute, just as they were required to cover the costs of overburden care. The counties could cut back on the extent or quality of services, but such changes would harm the recipients, including members of many vulnerable populations. Such cutbacks would also leave the counties open to lawsuits brought by recipients seeking to enforce their rights to these services under State law. Or counties could deplete savings or draw on other assets, but their funds are already strained and expending these resources could harm their ability to borrow money. Counties could theoretically raise property taxes, but New York property taxes are already among the highest in the nation, and under the State-imposed property tax cap they can do so only with a politically impossible override. 9 N.Y. Education Law § 4410(11)(b)(1) (McKinney 2015). As described in the statute, this rate of reimbursement varies based on the year the services were provided. 69.5 percent reflects the rate for services provided after July 1, 1994. 21 This uncertainty about future reimbursement, in combination with any depletion of a county’s reserves, could also affect the county’s credit ratings and ability to obtain financing. Counties require financing to pay short-term operating costs and to fund long-term capital debt to build and maintain important infrastructure. They may be unable to secure necessary financing if their resources are at the constant mercy of Albany’s shifting political winds. In short, all factors support the conclusion that Section 61 is unconstitutional and should be overturned. B. The Court Should Consider the Interests of Counties Not Represented in this Action In Structuring a Remedy in this Case Finally, NYSAC asks the Court to consider that most of its member counties are not represented in the present appeals, but are nonetheless impacted by Section 61. Some counties lack the staff or resources necessary to bring an action against the State. These counties may also have greater difficulty processing the data and complex subject matter relating to overburden reimbursement within a very limited time period. If the Court were to follow the Third Department in imposing a deadline for submitting claims, it should consider how such a remedy would impact all New York counties, including those with more limited resources. CONCLUSION For the foregoing reasons, the Third and Fourth Department’s decisions not only disrupt the careful balance between State and county power, but 22 also jeopardize the important responsibilities of counties and other municipal organizations, limiting their longstanding rights to the detriment of all New Yorkers who depend on their services. The Third and Fourth Department decisions should be overturned. The Court should confirm that, under long-established law, the Counties may challenge Section 61, and the Court should hold that Section 61 violates the Counties’ right to due process under the New York Constitution. 23 Dated: New York, New York July 14, 2016 Respectfully Submitted, NEW YORK STATE ASSOCIATION OF COUNTIES /s/ Stephen J. Acquario Stephen J. Acquario Executive Director and General Counsel 540 Broadway, 5th Floor Albany, NY 12207 (518) 465-1473 Katherine L. Pringle Rebecca C. Serbin FRIEDMAN KAPLAN SEILER & ADELMAN LLP 7 Times Square New York, New York 10036-6516 (212) 833-1100
