In the Matter of J-P Group, LLC, Respondent,v.New York State Department of Economic Development, et al., Appellants, et al., Respondent.BriefN.Y.April 23, 2013 To be argued by: OWEN DEMUTH Time Requested: 20 minutes Court of Appeals of the State of New York In the Matter of the Application of J-P GROUP, LLC, Petitioner-Respondent, -AGAINST- NEW YORK STATE DEPARTMENT OF ECONOMIC DEVELOPMENT, EMPIRE STATE DEVELOPMENT CORPORATION, COMMISSIONER OF ECONOMIC DEVELOPMENT, DENNIS MULLEN, EMPIRE ZONE DESIGNATION BOARD, Respondents-Appellants. BRIEF FOR RESPONDENTS-APPELLANTS BARBARA D. UNDERWOOD Solicitor General ANDREW D. BING Deputy Solicitor General OWEN DEMUTH Assistant Solicitor General of Counsel ERIC T. SCHNEIDERMAN Attorney General of the State of New York Attorney for Respondents-Appellants The Capitol Albany, New York 12224 Telephone: (518) 474-6639 Facsimile: (518) 473-8963 Dated: May 30, 2012 Reproduced on Recycled Paper i TABLE OF CONTENTS PAGE TABLE OF AUTHORITIES ............................................................................... iii PRELIMINARY STATEMENT............................................................................1 ISSUE PRESENTED............................................................................................3 JURISDICTIONAL STATEMENT ......................................................................3 STATUTORY AND REGULATORY BACKGROUND........................................4 Overview of the Empire Zones Program....................................................4 Compliance With Program Requirements.................................................5 The April 2009 Amendments .....................................................................8 The Review Process Under the April 2009 Amendments.......................11 The August 2010 Amendments ................................................................12 The Decisions in James Square Associates..............................................12 STATEMENT OF THE CASE A. The Commissioner’s Revocation of Petitioner’s Certificate of Eligibility.....................................................................................16 B. The Instant C.P.L.R. Article 78 Proceeding ..................................18 C. Decision Below ................................................................................19 ARGUMENT THE LIMITED RETROACTIVE APPLICATION OF THE APRIL 2009 AMENDMENTS DOES NOT VIOLATE THE DUE PROCESS CLAUSE ........................................................................20 ii Table of Contents (cont’d) PAGE ARGUMENT (cont’d) A. Petitioner Had Sufficient Forewarning of Amendments to General Municipal Law § 959 ........................................................26 B. The Retroactivity Period Was Not Excessive ................................32 C. The Amendments Serve Valid Public Purposes ............................35 CONCLUSION....................................................................................................39 iii TABLE OF AUTHORITIES CASES PAGE Astoria Fed. Savings & Loan Ass’n v. State of New York, 222 A.D.2d 36 (2d Dep’t), appeal dismissed, 88 N.Y.2d 1064 (1996)...............................................................................34 Canisius Coll. v. United States of Am., 799 F.2d 18 (2d Cir. 1986), cert. denied, 481 U.S. 1014 (1987) .................................................................................34 Capital Fin. Corp., Matter of v. Commissioner of Tax. & Fin., 218 A.D.2d 230 (3d Dep’t), appeal dismissed, 88 N.Y.2d 874 (1996), lv. denied, 88 N.Y.2d 811 (1996)....................... 29n Clarendon Trust v. State Tax Commission, 43 N.Y.2d 933 (1978).................................................................................38 Furlong v. Commissioner of Internal Rev., 36 F.3d 25 (7th Cir. 1994)....................................................................31,37 Grace, Matter of v. New York State Tax Comm’n, 37 N.Y.2d 193 (1975).............................................................................. 29n James Square Associates LP v. Mullen, 91 A.D.3d 164 (4th Dep’t 2011) ........................................................passim J-P Group, LLC, Matter of v. New York State Dept. of Economic Development, 91 A.D.3d 1363 (4th Dep’t 2012) .........................................................19,20 Lacidem Realty Corp., Matter of v. Graves, 288 N.Y.354 (1942)....................................................................................33 Majewski v. Broadalbin Perth Cent. School Dist., 91 N.Y.2d 577 (1998).............................................................................. 20n Moran Towing Corp., Matter of v. Urbach, 1 A.D.3d 722 (3d Dep’t 2003)................................................................. 32n iv Table of Authorities (cont’d) CASES PAGE Neuner, Matter of v. Weyant, 63 A.D.2d 290 (2d Dep’t 1978), appeal dismissed, 48 N.Y.2d 975 (1979)............................................................................26,37 Outlet Embroidery Co. v. Derwent Mills, 254 N.Y. 179 (1930).................................................................................. 7n Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717 (1984) ..............................................................................22,28 People v. Brooklyn Garden Apts., 283 N.Y. 373 (1940)...................................................................................27 Replan Dev., Matter of v. Department of Hous. & Preservation of City of N.Y., 70 N.Y.2d 451 (1987).........................................................................passim Rocanova v. United States of Am., 955 F. Supp. 27 (S.D.N.Y. 1996), aff’d, 109 F.3d 127 (2d Cir. 1997), cert. denied, 522 U.S. 821 (1997)..............................................................37 Roosevelt Raceway, Inc., Matter of v. Monaghan, 9 N.Y.2d 293 (1961)...................................................................................26 St. Claire Nation, Matter of v. City of New York, 14 N.Y.3d 452 (2010).............................................................................. 20n State v. Green, 96 N.Y.2d 403 (2001)................................................................................ 7n Tate & Lyle, Inc. v. Commissioner of Internal Revenue, 87 F.3d 99 (3d Cir. 1996) ..........................................................................34 United States v. Carlton, 512 U.S. 26 (1994) .............................................................................passim v Table of Authorities (cont’d) CASES PAGE United States v. Darusmont, 449 U.S. 292 (1981) ........................................................................... 28n,32 Usery v. Turner Elkhorn Mining Co., 428 U.S. 1 (1976) .......................................................................................28 Varrington Corp., Matter of v. City of New York Dept. of Finance, 85 N.Y.2d 28 (1995).........................................................................23,26,33 Venable v. Commissioner of Internal Revenue, 2003 WL 21921052 (U.S. Tax Ct. 2003), aff’d, 110 Fed. Appx. 421, 2004 WL 2297334 (5th Cir. 2004)..........................................37 Welch v. Henry, 305 U.S. 134 (1938) ...........................................................................passim Wiggins v. Commissioner of Internal Rev., 904 F.2d 311 (5th Cir. 1990)...........................................................28n-29n WL, LLC v. Department of Economic Dev., __ A.D.3d __, 2012 WL 1537502 (3d Dep’t, May 3, 2012) .................... 13n STATE CONSTITUTION N.Y. Const. art. XVI, § 1 ................................................................................26,27 STATE STATUTES C.P.L.R. article 78 ..................................................................................................3 5601(b)(1) ..................................................................................................3 General Municipal Law vi Article 18-B .................................................................................................5 § 959 .....................................................................................8,9,26,39 § 959(a) ...............................................................................................5,6 Table of Authorities (cont’d) PAGE STATE STATUTES General Municipal Law (cont’d) § 959(a)(v)(5)................................................................................................9 § 959(a)(v)(6)................................................................................................9 § 959(w) ........................................................................................9,11,16 § 960 ................................................................................................11 Tax Law § 210(12-B) ..................................................................................................5 § 210(12-C) ..................................................................................................5 § 210(19) ..................................................................................................5 § 210(20) ..................................................................................................5 § 606(j-1) ..................................................................................................5 § 606(k) ..................................................................................................5 § 606(l) ..................................................................................................5 § 1456(d) ..................................................................................................5 § 1456(e) ..................................................................................................5 § 1511(g) ..................................................................................................5 § 1511(h) ..................................................................................................5 L. 2005, ch. 63, Part A, § 2..................................................................................30 L. 2005, ch. 63, Part A(w), § 2 ..............................................................................7 L. 2009, ch. 57, Part S-1 § 3 ..................................................................................................8 § 10 .............................................................................................. 7-8 §§ 11-22 ..................................................................................................9 § 44 ................................................................................................10 L. 2010, ch. 57, Part R § 1 ................................................................................................12 § 2 ................................................................................................12 vii Table of Authorities (cont’d) PAGE STATE RULES AND REGULATIONS 5 N.Y.C.R.R. § 11.9(c) .............................................................................................9,10 § 11.9(c)(1) ..................................................................................................9 MISCELLANEOUS Office of the State Comptroller, Assessing the Empire Zones Program-Reforms Needed to Improve Program Evaluation and Effectiveness, Report 3-2005 (April 2004), available at www.osc.state.ny.us/reports/empirezone3-2005.pdf ................... 4-5,35-36 Office of the State Comptroller-Division of Local Government and School Accountability, The Effectiveness of Empire Zones: Follow-up Report, 2007-MS-2(2007) available at www.osc.state.ny.us/localgov/audits/swr/empirezones.pdf..................6,35 Joint Budget Hearing of the Assembly Ways and Means Committee and the Senate Finance Committee on the Economic Development and Taxes Budget for Fiscal Year 2008-09 (attached as an addendum) ....7,31 Press Release, Governor Paterson submits legislation creating the Excelsior Jobs Program (June 18, 2010), available at: http://www.governor.ny.gov/archive/paterson/press/061810Excelsior JobsProgram.Html......................................................................................8 II Revised Record of the Constitutional Convention of the State of New York (1938)........................................................................................27 PRELIMINARY STATEMENT The Empire Zone Program is a set of legislatively created tax incentives for economic development in certain regions of New York. In April 2009, the Legislature amended the Empire Zone Program statutes in order to rein in long- documented abuses in the Empire Zone Program and to raise immediately much- needed revenue for the 2009-2010 fiscal year. The amendments added two criteria that businesses were required to meet as of January 2008 in order to claim state tax credits available to Program participants for 2008. Petitioner is a company that failed to meet those criteria and thus was decertified from the Program and denied its 2008 tax credits. Petitioner brought this proceeding claiming, among other things, that the retroactive revocation of its eligibility for the tax credits denied it due process of law. Supreme Court and the Appellate Division agreed, and respondents, all State entities, appealed as of right to this Court. This appeal follows the appeal that the relevant State entities recently perfected in this Court in James Square Associates v. Mullen, and raises the same issue: whether the limited retroactive application of the 2009 amendments offends the due process rights of a company that has been decertified from the Program pursuant to those amendments. The Fourth Department found that it did and adhered to its ruling in James Square, although it modified Supreme 2 Court’s order by dismissing petitioner’s other causes of action attacking, among other things, the rationality of respondents’ determinations and their compliance with the State Administrative Procedure Act. This Court should reverse the Fourth Department’s conclusion that the retroactive application of the 2009 amendments was unconstitutional. The Legislature’s limited retroactive denial of the Program tax credits did not violate petitioner’s due process rights. Both the Supreme Court of the United States and this Court have repeatedly upheld retroactive tax legislation against due process challenges, and this case fits squarely within the pattern the Courts have approved. In particular, this Court’s analysis in Matter of Replan Dev. v. Department of Hous. & Preservation of City of N.Y., 70 N.Y.2d 451 (1987), demonstrates that the April 2009 amendments are constitutional because (1) petitioner was forewarned of the possibility of Program changes and thus could not reasonably rely on the continued availability of the tax credits, (2) the period of retroactivity, slightly more than 15 months, to the beginning of the year before the year of enactment, has been routinely upheld and is not excessive, and (3) the amendments serve two legitimate public purposes by curing abuses of the Program and providing savings for the State and its taxpayers. Accordingly, the limited retroactive effect of the April 2009 amendments satisfies due process because the retroactive effect is supported by 3 legitimate legislative purposes furthered by rational means. This Court should reverse so much of the Fourth Department’s order as found retroactive application of the April 2009 amendments unconstitutional and dismiss the petition. ISSUE PRESENTED Whether the limited period of retroactivity of the April 2009 amendments, providing for the revocation of eligibility for Empire Zone Program tax credits for companies that failed to meet certain criteria during 2008, complied with the Due Process Clause. JURISDICTIONAL STATEMENT This Court has jurisdiction of this appeal pursuant to C.P.L.R. 5601(b)(1). This action originated in Supreme Court, Erie County, which granted petitioner’s C.P.L.R. article 78 petition and declared that the decertification of petitioner retroactive to January 1, 2008, was unconstitutional (7-9).1 Relying on its previous decision in James Square, the Fourth Department affirmed in an opinion and order, holding that the April 2009 amendments were unconstitutionally retroactive; that order finally determined this action (562- 1 Numbers in parentheses refer to pages in the Record on Appeal. 4 565). Accordingly, the question whether the retroactivity of the April 2009 amendments unconstitutionally denied petitioner due process of law is directly involved in this appeal. The issues presented in this appeal are preserved for this Court’s review because, as reflected in the decisions of Supreme Court and the Appellate Division (8, 563), and in our briefs filed in those courts, respondents argued in both courts that the April 2009 amendments were constitutional. STATUTORY AND REGULATORY BACKGROUND Overview of the Empire Zones Program An overview of the Empire Zones Program and the April 2009 amendments giving rise to this case demonstrates that, from its inception, the Program has been subject to review and oversight by the Department of Economic Development (“DED”), the Legislature and the Comptroller to ensure that it was accomplishing its goals in a cost-effective manner. New York State adopted the Empire Zones Program in 2000 as a successor to the Economic Development Zones Program to encourage economic development in disadvantaged areas of the State. Benefits available to Program participants included, among other things, tax credits for investment and job creation. See generally Office of the State Comptroller, Assessing the Empire Zones Program- 5 Reforms Needed to Improve Program Evaluation and Effectiveness, Report 3- 2005 (April 2004), available at www.osc.state.ny.us/reports/empirezone3- 2005.pdf. The Commissioner of Economic Development (the “Commissioner”) administers the Program pursuant to General Municipal Law Article 18-B. Businesses that build in qualifying Empire Zone areas and otherwise meet the statute’s criteria may apply to the Commissioner for “Certificates of Eligibility,” which they may then submit to the Tax Department in support of their claim for tax credits. See General Municipal Law § 959(a). Among the tax credits generally available to qualified businesses are the Empire Zone Wage Tax Credit, permitting certified Program participants to claim a credit of $1,500 to $3,000 per new job created against their New York State tax liability. See Tax Law §§ 210(19), 606(k). For the wage tax credit and other tax credits, the Tax Law provided that certified Program participants may carry over unused portions of the credit to the following tax year. See Tax Law § 210(12-B), (12-C), (19), (20); § 606(j-1), (k), (l); § 1456(d), (e); § 1511(g), (h). Compliance With Program Requirements Since its creation in 2000, the Program has provided that a company’s continued eligibility for Program benefits requires it to meet the Program’s wage, employment, and investment goals. Before the Legislature’s enactment of 6 the April 2009 amendments involved here, the Commissioner was authorized to revoke the Program certification of any business that, among other things, made misrepresentations or failed to disclose information in its application for certification, “failed to construct, expand, rehabilitate or operate or invest in its facility substantially in accordance with the representations contained in its application for certification,” or that, for reasons not beyond its control, “failed to create new employment or prevent a loss of employment” in their designated Empire Zone. General Municipal Law § 959(a). The Commissioner was directed to decertify and remove from the Program any business that failed to satisfy these criteria; the decertification would take effect on “the date determined to be the earliest event constituting grounds for revoking certification.” Id. In reports issued in 2004 and 2007, the State Comptroller noted problems with verifying that Program participants were meeting the job creation and investment goals that were the reason for the Program's existence. See id.; see also Office of the State Comptroller-Division of Local Government and School Accountability, The Effectiveness of Empire Zones: Follow-up Report, 2007-MS-2 (2007), available at www.osc.state.ny.us/localgov/audits/swr/empirezones.pdf. In particular, there was growing concern that some firms participating in the Program had received more in tax benefits than the economic returns they were providing and that some firms were claiming benefits for existing jobs, and 7 counting them as new jobs (83). Recognizing these concerns, the Legislature and DED began to audit Program participants and to explore ways to the improve the Program’s effectiveness. See Joint Budget Hearing of the Assembly Ways and Means Committee and the Senate Finance Committee on the Economic Development and Taxes Budget for Fiscal Year 2008-09, at pp. 11-12, 55-56, 79- 82 (describing letters that were sent to Program participants in 2007, informing them that the Commissioner’s audits of these companies’ Program performance revealed that they were not meeting at least 60% of their job creation and investment goals under the Program, and that the companies might therefore be subject to Program decertification unless their performance improved).2 In 2005, the Legislature tightened the Program requirements, mandating that companies entering the Program meet a cost-benefit test in order to be certified, but this requirement was not applied to companies already in the Program. See L. 2005, ch. 63, Part A (sub-part W), § 2. And in April 2009, the Legislature adopted the amendments at issue here, which are described below, and made them applicable to all Program participants. Also in 2009, the Legislature closed the Program to new participants. L. 2009, ch. 57, Part S-1, 2 The transcript of this legislative hearing has been attached to our brief as an addendum. Although the transcript is not in the Record on Appeal, this Court may take judicial notice of it as a legislative proceeding. State v. Green, 96 N.Y.2d 403, 408 n.2 (2001); Outlet Embroidery Co. v. Derwent Mills, 254 N.Y. 179, 183 (1930). 8 § 10, effective as of June 30, 2010. In 2010, when Governor Paterson proposed legislation to replace the Empire Zones Program with a new economic development incentive, he explained, “[t]he Empire Zone program was continually hampered by abuses, lack of results and skyrocketing costs. Despite annual Empire Zone expenditures in excess of $550 million the State’s returns of investment have been difficult to quantify, and businesses participating in the programs have not been held accountable.” Press Release, Governor Paterson submits legislation creating the Excelsior Jobs Program (June 18, 2010), available at http://www. governor.ny.gov/archive/paterson/press/061810Excelsior JobsProgram.html (“Press Release”). The April 2009 Amendments On April 7, 2009, the Legislature enacted amendments to General Municipal Law § 959, L. 2009, ch. 57, part S-1, § 3, introducing two new criteria that businesses must meet to retain their certificates of eligibility (99-118). The impetus for the amendments was the Governor’s Enacted Budget Financial Plan, which identified a series of revenue-saving actions for the 2009-2010 fiscal year (98). The Governor’s plan stated that the new criteria and other reforms were necessary to “rein in long-documented abuses in the Empire Zone program” (98). The Governor projected that the amendments would “provide savings of $90 million in 2009-10” (98). 9 The April 2009 amendments required the Commissioner to verify during 2009 that Program participants met the following criteria: (1) the businesses must not have simply reincorporated or transferred employees or assets among related entities in order to appear have created new jobs or made new investments to maximize Program benefits, a practice known in agency parlance as “shirt-changing,” see General Municipal Law § 959(a)(v)(5); and (2) the businesses must have “provide[d] economic returns to the state . . . greater in value to the tax benefits the business enterprise used and had refunded to it,” also referred to as the “1:1 benefit-cost standard” (104-105). General Municipal Law § 959(a)(v)(6). A business that failed to meet either of these standards would be subject to Program decertification. Id.; see also 5 N.Y.C.R.R. § 11.9(c)(1), (2). The April 2009 amendments also amended twelve separate provisions of the Tax Law regarding Program tax credits. The amendments to each of these statutes was similar, directing that a carryover of the credit from a prior taxable year would not be allowed if the company was not issued a retention certificate pursuant to General Municipal Law § 959(w) (110-112). L. 2009, ch. 57, Part S- 1, §§ 11-22. The April 2009 amendments provided that the sections amending General Municipal Law § 959 would “take effect immediately, provided, however,” that the corresponding amendments to the Tax Law “shall apply to 10 taxable years beginning on and after January 1, 2008” (118). L. 2009, ch. 57, Part S-1, § 44. Both the Commissioner of Economic Development and the Department of Taxation and Finance (the “Tax Department”) announced that the amendments to the General Municipal Law regarding revocation of certification applied to tax years beginning on and after January 1, 2008. The Commissioner’s regulations mirror language from the 2009 amendments and provide that “[t]he effective date of decertification . . . shall be January 1, 2008” (261). 5 N.Y.C.R.R. § 11.9(c). Additionally, in a Technical Services Bureau Memorandum, the Tax Department advised Program participants that they must “obtain the [Empire Zone] retention certificate to receive any Empire Zone benefits for tax years beginning on or after January 1, 2008.” http://www.tax.ny.gov/pdf/memos/multitax/m09_5c_4i.pdf. The Tax Department further advised that "when filing a tax return claiming any [Program] credits (including carryovers) for a tax year that begins on or after January 1, 2008, you must attach an Empire Zone retention certificate to your tax return" (id.). Claims for such credits for this period without an accompanying retention certificate would be denied (id.). 11 The Review Process Under the April 2009 Amendments The 2009 amendments directed the Commissioner to “[c]onduct a review during [2009] of all business enterprises to determine whether the business enterprises should be decertified pursuant to [General Municipal Law § 959(a)(v)(5) and (6)]” (108). General Municipal Law § 959(w). In applying the 1:1 benefit-cost standard criterion, the Commissioner was directed to analyze data “contained in at least three business annual reports [“BARs”] filed by the business enterprise.” Id. Businesses that demonstrated their continuing eligibility under this statute would receive an “empire zone retention certificate”; businesses that did not would be notified that their Program certificates of eligibility would be revoked. Id. The Commissioner was required to provide the company with written notice of the revocation and the reasons for it, together with notice that the company may administratively appeal the revocation to the Empire Zones Designation Board (“Board”). Id. The Board is a different entity from the Commissioner’s office and it finally determines whether or not a company’s certificate of Program eligibility should be revoked. Compare General Municipal Law § 959 with General Municipal Law § 960. The Board is authorized to reverse the Commissioner’s notice of revocation only if the Board unanimously finds that there was sufficient evidence presented that the Commissioner’s decision was in error. See General Municipal Law § 960. 12 The August 2010 Amendments In August 2010, in response to Supreme Court’s first decision in James Square Associates, described below, the Legislature amended the Program statutes to confirm that decertifications pursuant to the April 2009 amendments were effective as of January 1, 2008. As relevant here, the August 2010 amendments stated: [i]t is the intent of the legislature to clarify and confirm that the [April 2009] amendments . . . are deemed to be in effect for the taxable year commencing on or after January 1, 2008 and before January 1,2009. See L. 2010, ch. 57, Part R, § 1. The Legislature additionally amended General Municipal Law § 959(a) to provide that “with respect to any business enterprise whose certification has been revoked pursuant to subparagraph five or six of this paragraph . . . revocation . . . will be effective for a taxable year beginning on or after January first, two thousand eight and before January first, two thousand nine and for subsequent taxable years, unless the business enterprise is subsequently re- certified.” See id at § 2. The Decisions in James Square Associates James Square Associates et al. v. Mullen et al., was the first appellate court decision to review the Commissioner’s construction of the April 2009 13 amendments; as noted previously, that decision is now on appeal to this Court. See James Square Assoc. et al. v. Mullen et al., 4th Dep’t Docket Nos. CA 11- 00673/CA 11-00675.3 The plaintiffs in that case were five private companies who brought an action for declaratory judgment against the Commissioner and the Commissioner of the Department of Taxation and Finance to challenge their Program decertifications pursuant to the April 2009 amendments. Plaintiffs argued that the Legislature could not have intended for these amendments to operate retroactively as of January 1, 2008, but even if such operation was intended, it was unconstitutional because it effected a deprivation of property without due process of law, namely, their right to claim Program tax credits for the 2008 tax year. In its first decision, Supreme Court, Onondaga County (Cherundolo, J.) granted plaintiffs’ motion for summary judgment and denied defendants’ cross-motion for summary judgment, holding that there was insufficient evidence in the language and legislative history of the April 2009 3 After respondents filed their opening brief in James Square in this Court, the Third Department issued two decisions addressing the issues presented here. See WL, LLC v. Department of Economic Dev., __ A.D.3d __, 2012 WL 1537502 (3d Dep’t, May 3, 2012), and Morris Builders, LP v. Empire Zone Designation Bd., __ A.D.3d __, 2012 WL 1537452 (3d Dep’t May 3, 2012). In both cases, the Third Department departed from the Fourth Department’s analysis by concluding, without explanation, that the Legislature did not make the April 2009 amendments retroactive until August 2010. The Third Department further held that this period of retroactivity was unconstitutional. The relevant State officials are reviewing these decisions, and time to seek further judicial review has not yet expired. 14 amendments to indicate that the Legislature intended for Program decertification to take effect as of January 1, 2008 (541-549). Defendants subsequently moved to renew their cross-motion, citing the August 2010 amendments that were enacted after the court’s first decision in James Square Associates, and that clarified that the April 2009 amendments were indeed effective as of January 1, 2008. In its second decision, Supreme Court granted defendants’ motion to renew, but again denied them summary judgment on the ground that the Legislature had not indicated its intent to make the April 2009 amendments retroactive until the August 2010 amendments. In the court’s view, the period of retroactivity between the amendment’s enactment in August 2010 and January 1, 2008 caused an unconstitutional deprivation of plaintiffs’ property interest in the 2008 Program tax credits they might have otherwise been able to claim. Accordingly, Supreme Court declared that the amendments were null and void to the extent they made plaintiffs’ decertification effective as of January 1, 2008. By opinion and order entered November 18, 2011, the Fourth Department affirmed. See James Square Associates LP v. Mullen, 91 A.D.3d 164 (4th Dep’t 2011). The court disagreed with Supreme Court that the April 2009 amendments were not meant to be retroactive to January 1, 2008. Id. at 171-72. Instead, the court held that the legislative history of the April 2009 amendments 15 and the related Tax Law provisions that were expressly given retroactive effect supported the State’s construction of the statute. See id. However, the court found that the retroactivity of the April 2009 amendments was unconstitutional. See id. at 172-74. In the court’s view, the retroactive denial of the Program tax credits for 2008 violated plaintiffs’ due process rights. Id. Citing this Court’s decision in Matter of Replan Development v. Department of Housing Preservation and Development of City of New York, 70 N.Y.2d 451 (1987), the Fourth Department concluded that retroactive application of the April 2009 amendments was unconstitutional because (1) “[t]here is no indication in the record that plaintiffs had any warning that the criteria [for Program certification] were going to change, prospectively or retroactively, prior to April 2009”; (2) plaintiffs “were induced to conduct their businesses in a particular way in specified disadvantaged areas in reliance upon the availability of [Program] tax credits”; and (3) defendants failed to provide a “legitimate public purpose” for retroactive application of the April 2009 amendments. Id. at 173-74. Accordingly, the Fourth Department held that “the revocations of plaintiffs’ certifications, to the extent they were made retroactive to January 1, 2008, are null and void” Id. at 174. 16 STATEMENT OF THE CASE A. The Commissioner’s Revocation of Petitioner’s Certificate of Eligibility Petitioner is a private company that was issued a certificate of Program eligibility by the Commissioner, effective March 19, 2002 (31). Petitioner’s certificate provides that it “shall continue in effect until terminated by operation of law or by action taken pursuant to such laws, rules and regulations as may be applicable” (id.) As directed by General Municipal Law § 959(w), the Commissioner conducted a review of its Program accounts in 2009 and subsequently decertified petitioner for its failure to meet the 1:1 benefit-cost standard (128-129). The Commissioner notified petitioner of the revocation by letter dated June 29, 2009 (id.). The Commissioner’s notification explained to petitioner that it was revoking its certificate of eligibility because it had failed the 1:1 criterion, that is, it had “failed to provide economic returns to the state in the form of total remuneration to its employees (i.e. wages and benefits) and investments greater in value to the tax benefits [petitioner] used and had refunded to it” (id.). The Commissioner’s letter also informed petitioner that it “may appeal this determination by sending a written notice of such appeal to [the Board] no later than 15 business days from the date of this Notice of Revocation of 17 Certification” (id.). The letters provided further instructions to petitioner regarding how to prosecute the appeal, and cautioned it that if such appeal was not made, the Commissioner’s “revocation determination will be implemented at the end of the 15 business day period noted above,” effective January 1, 2008 (id.). Petitioner pursued an administrative appeal to the Board (133-154). The Board met on March 11, 2010 to review and consider the administrative appeals (86, 275-276). The Board considered the documents petitioner submitted on administrative appeal and information provided by DED staff, which indicated that petitioner did not satisfy the 1:1 benefit-cost standard (161). Among the documents considered by the Board was a document summarizing petitioner’s BARs, called a “Summary Memo” (161). The Summary Memo, which considered revisions petitioner made to the information contained in its BARs, indicated that petitioner could not meet the 1:1 test because it had received $1,473,765 in Program tax credits and returned only $1,172,115 in the form of wages and investments (id.). In other words, for every dollar petitioner received in Program tax credits, it put approximately 80 cents back into the community (id.). The Board accordingly unanimously upheld the revocation of petitioner’s Program certification in Resolution No. 3 of 2010 (157-159). The determination, which was separately provided to petitioner by letter dated March 24, 2010 and 18 enclosed the resolution (156), stated that the Board had reviewed petitioner’s appeal and determined that it company had “failed to provide sufficient evidence to demonstrate that the Commissioner’s finding which resulted in the revocation of [petitioner’s] business certification under General Municipal Law § 959(a)(v)(6), was in error” (id.). Similarly, the resolution stated that petitioner had “not provided sufficient evidence to demonstrate that the Commissioner’s finding with regard to revocation under [General Municipal Law] § 959(a)(v)(6) was in error and therefore the Commissioner’s determination to revoke the [Program] certification of [petitioner] is upheld” (157). B. The Instant C.P.L.R. Article 78 Proceeding Petitioner commenced this proceeding in the nature of mandamus to review in May 2010, arguing, as relevant to this appeal, that respondents’ retroactive application of the April 2009 amendments was “impermissible” and “extremely prejudicial” to petitioner because it “justifiably relied on [its 2002 Program certificate of eligibility” and, “[h]ad Petitioner been forewarned, it would have had the opportunity to restructure the operations of its business whether to hire additional employees or increase in investments” (24-27). Respondents answered and opposed the petition, defending the amendments and their application as constitutional and rational (78-228). Before rendering its decision, Supreme Court directed the parties to submit 19 additional briefing on the impact of Justice Cherundolo’s first decision in James Square Associates, which had been issued shortly after petitioner commenced the instant proceeding (539-554). C. Decision Below Supreme Court issued an order that “ordered, declared and adjudged that the Petition is in all respects granted” (7-9). The order contained no findings of fact or conclusions of law, but stated without further elaboration that the April 2009 amendments were “not retroactive” (8). The court’s order further declared that the June 29, 2009 decertification of petitioner was “arbitrary and capricious” and “null and void,” and directed respondents to “take any and all action(s) necessary to ensure Petitioner is deemed certified as a qualified empire zone enterprise continuously from its original date of certification, March 19, 2002” (9). On respondents’ appeal, the Fourth Department affirmed Supreme Court only “to the extent that it determined that the amendments to General Municipal Law § 959 are prospective only,” citing, without further discussion, its previous ruling in James Square Associates (563). Matter of J-P Group, LLC v. New York State Dept. of Economic Development, 91 A.D.3d 1363, 1364 (4th Dep’t 2012). The Appellate Division modified Supreme Court’s order by otherwise rejecting petitioner's arguments and dismissing its non-constitutional causes of 20 action. In particular, affording "great deference" to the Board's determination (563), id. at 1364, the court held that there was a rational basis for the revocation of petitioner’s certification based on the BARs that it had filed and that the Board had explained that it had relied on that data. Moreover, the court held that petitioner was not entitled to a hearing and that the emergency regulations were validly promulgated (565). Id. at 1366. ARGUMENT THE LIMITED RETROACTIVE APPLICATION OF THE APRIL 2009 AMENDMENTS DOES NOT VIOLATE THE DUE PROCESS CLAUSE In both James Square and this case, the Fourth Department erred in holding that the retroactive operation of the April 2009 amendments was unconstitutional.4 The effect of the amendments was to deny companies their 4 Preliminarily, the Fourth Department correctly held in both James Square, 91 A.D.3d at 171-72, and this case (563) that the Legislature intended the April 2009 amendments to be retroactive to January 1, 2008, based on the language of the statute and its legislative history. Legislation is retroactive where “the language expressly or by necessary implication requires it.” Matter of St. Clair Nation v. City of New York, 14 N.Y.3d 452, 457 (2010), quoting Majewski v. Broadalbin Perth Cent. School Dist., 91 N.Y.2d 577, 584 (1998). The Fourth Department’s decision in James Square succinctly summarized the reasons supporting its holding that the Legislature intended retroactive application all along. First, the legislative history demonstrates that the 2009 amendments “were intended, at least in part, to generate revenue during 2009-2010, revenue that would not be generated if those amendments were to be applied prospectively.” 91 A.D.3d at 172. Second, the 2009 Tax Law amendments affecting carryover Empire Zone credits were linked to the new eligibility criteria, and those Tax Law amendments “were expressly effective retroactive to January 1, 2008.” Id. at 172 Third, the Legislature acted swiftly in 21 Program tax credits for the preceding year if they did not satisfy the 1:1 and shirt-changer criteria. Petitioner’s claim, which concerns the retroactive removal of tax credits, is properly analyzed under the due process standards for retroactive amendment of tax statutes provided by United States v. Carlton, 512 U.S. 26 (1994), Matter of Replan Dev. v. Department of Hous. Preservation and Dev. of City of N.Y., 70 N.Y.2d 451 (1987), and other cases. Under those standards, the limited retroactive denial of the tax credits involved here was constitutional and did not violate petitioner’s due process rights. The Supreme Court of the United States has repeatedly upheld retroactive tax legislation against due process challenges. See Carlton, 512 U.S. at 30 (collecting cases). Carlton upheld a retroactive tax law change, and the decision illustrates the judicial deference accorded to legislative judgments in this area. In that case, Congress retroactively limited eligibility for an estate tax deduction by adding a new requirement 14 months after the deduction was enacted. In the interim, the taxpayer, to qualify for the pre-amendment version of the deduction, had engaged in a stock transaction that cost it over $600,000 but would have allowed the taxpayer to save over $2,500,000 in estate tax. The transaction did not qualify for the deduction under the statute as amended, and Congress made August 2010 to correct Supreme Court’s mistaken first decision in James Square holding that the 2009 amendments were not retroactive. Id. 22 the amended statute effective back to the date of its original enactment, with the result that the taxpayer lost its eligibility for the deduction. The Court found that the retroactive amendment satisfied the requirements of due process. See id. at 32-34. The Court explained that, although some of its precedents had stated that due process prohibits retroactive tax statutes that are “harsh and oppressive,” that standard is the same due process standard applicable to retroactive economic legislation generally, namely, whether “the retroactive application of a statute is supported by a legitimate legislative purpose furthered by rational means.” Id. at 30-31 (quoting Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 729-730 (1984)). Applying that standard, the Court observed that the purpose of the amendment, to correct a mistake in the original deduction statute, “was neither illegitimate nor arbitrary.” Id. at 32. In addition, the Court found that the 14- month-period between the enactment of the deduction and its amendment was “only a modest period of retroactivity.” Id. The Court explained, id. at 33, that in Welch v. Henry, 305 U.S. 134 (1938), it had upheld a Wisconsin income tax adopted in 1935 on dividends received in 1933, concluding in Welch that a permissible period of retroactivity included “the receipt of income during the year of the legislative session preceding that of its enactment.” Welch, 305 U.S. at 150 (emphasis added). Finally, the Carlton Court held that neither the 23 taxpayer’s reliance on the deduction as in effect before its amendment (at a cost of over $600,000 in addition to the loss of the deduction) nor the taxpayer’s lack of notice regarding the amendment, established a due process violation. Carlton, 512 U.S. at 33-34. This Court’s decisions are in accord with Carlton and Welch. “Retroactive tax legislation may be treated as valid, unless it reaches so far into the past or so unfairly as to constitute a deprivation of property without due process.” Matter of Varrington Corp. v. City of New York Dept. of Finance, 85 N.Y.2d 28, 32 (1995). Such legislation will be upheld unless its retroactivity is “so harsh and oppressive as to transgress the constitutional limitation.” Replan, 70 N.Y.2d at 455, quoting Welch, 305 U.S. at 147. And, as noted above, Carlton confirms that the “harsh and oppressive” standard is simply another way of phrasing due process rational basis review. See Carlton, 512 U.S. at 30-31. As the Appellate Division recognized in James Square Associates, 91 A.D.3d at 173, Replan is this Court’s leading decision regarding retroactive tax amendments. In Replan, this Court upheld the retroactive repeal of a real property tax exemption after the taxpayer, a developer, had incurred significant expenses in reliance on the availability of the exemption. The taxpayer purchased and began to restore two buildings formerly used for single room occupancy (SRO). The taxpayer planned to use the buildings for non-SRO 24 multiple occupancy, and at the time it purchased the buildings and began renovation, a provision of the city code exempted from taxation increases in value resulting from the conversion of a building from SRO to non-SRO multiple occupancy. The city code provided that this program would be in effect until 1984. See Replan, 70 N.Y.2d at 454. Thereafter, pursuant to a repeal of the enabling provision of state law, the city code exemption was repealed, effective retroactively to conversions, including the taxpayer’s, commenced in the year before the repeal. Id. Relying in part on United States Supreme Court decisions including Welch v. Henry, this Court in Replan rejected the taxpayer’s due process challenge to the retroactive repeal of the tax exemption. This Court explained that the determination of whether a retroactively applied tax statute is “harsh and oppressive” requires a balancing of three factors: (1) the taxpayer’s forewarning of a change in the legislation and the reasonableness of his reliance on the old statute “under all the circumstances”; (2) the length of the retroactive period, and (3) the public purpose advanced by the retroactive legislation. Id. at 456 (citation omitted). Applying those factors in Replan, this Court first noted that the taxpayer agreed “that the period of retroactivity - one year - is not excessive” and that the purposes of the retroactive application - to forestall the loss of SRO housing and 25 discourage the eviction of tenants - were valid public purposes. Id. at 457. The Court concluded that the taxpayer could not have justifiably relied on the tax exemption as in effect when it bought the buildings, because the city code provision was subject to changes in the state enabling legislation which authorized the exemption in the first instance. Id. In the present case, the analyses in Replan and Carlton compel the conclusion that the limited retroactive effect of the April 2009 amendments satisfies due process because it is supported by legitimate legislative purposes furthered by rational means and thus is not harsh and oppressive. Replan and Carlton upheld retroactive revocations of tax benefits that taxpayers indisputably relied on to their substantial financial detriment, because, as here, the revocation was reasonably foreseeable, was of limited duration (there, 12 and 14 months, respectively, compared to just over 15 months here), and was justified by legitimate governmental purposes, which in this case included ensuring that the Program served its intended economic development purposes at a reasonable cost and raising the revenues necessary to address the State’s 2009 budget shortfalls. The Appellate Division misapplied Replan’s three factors and came to the erroneous conclusion that the 2009 amendments were unconstitutional. We demonstrate below that the retroactivity here is well within due process limits. 26 A. Petitioner Had Sufficient Forewarning of Amendments to General Municipal Law § 959. The mere fact of petitioner’s reliance is not sufficient to establish a constitutional violation, because “[t]ax legislation is not a promise, and a taxpayer has no vested right in the” Tax Law. Carlton, 512 U.S. at 33; see also Matter of Varrington Corp., 85 N.Y.2d at 33 (same); Matter of Neuner v. Weyant, 63 A.D.2d 290, 300 (2d Dep’t 1978) (“almost all new laws upset some expectations, and frequently changes are made in the legal consequence of prior conduct”). Petitioner could not reasonably rely on the pre-April 2009 version of General Municipal Law § 959 as an assurance that their tax credit eligibility could never be altered, and thus, their expectations as to taxation have not been unreasonably disappointed. Replan, 70 N.Y.2d at 456-57. As an initial matter, it is settled that New York’s constitutional restrictions on tax exemptions preclude taxpayers from claiming any vested right in the continuation of tax credits, exemptions or beneficial rates. Under article XVI, § 1, subject to narrow exceptions not relevant here, “[t]he power of taxation shall never be surrendered, suspended or contracted away” and “[e]xemptions may be altered or repealed.” N.Y. Const., art. XVI, § 1. As this Court held in Matter of Roosevelt Raceway, Inc. v. Monaghan, 9 N.Y.2d 293, 307 (1961), under article XVI, § 1, “the State may not be said to have breached any 27 contract or agreement with Roosevelt to maintain its state tax at the level provided for in 1956 for the reason that no one was empowered to enter into such an agreement on behalf of the State” (emphasis added). Accordingly, the Appellate Division erred in this case and in James Square Associates by concluding that petitioner had a stronger reliance claim here because they “did not merely rely on” existing tax law but were induced by the State’s promises of tax credits to make investments and incur employment expenses in order to participate in the Program, and for that reason the tax credits “‘may not be invalidated by subsequent legislation.’” James Square Assoc., 91 A.D.3d at 174 (quoting this Court’s decision in People v. Brooklyn Garden Apts., 283 N.Y. 373, 380 (1940)). As explained above, the New York Constitution adopted in 1938 made tax exemptions freely repealable and thus undermined the reasoning of the decision in Brooklyn Garden Apts., which involved pre-1938 housing tax benefits. See N.Y. Const., Art. XVI, § 1 (adopted Nov. 8, 1938, effective January 1, 1939); see also II Revised Record of the Constitutional Convention of the State of New York 1127 (1938) (citing housing tax exemptions that under pre-1938 law could not be repealed as an example of the law to be reversed by the new provision). More generally, an Empire Zone Program recertification did not entitle petitioner to greater protection than that accorded to other taxpayers who relied 28 on the continuing benefit of a tax statute. Program certification was simply a pre-requisite to the right to claim the tax benefits, and was explicitly subject to termination “by operation of law” (63). The due process claim petitioner asserts here is no different from the taxpayer’s argument in Replan that it “acted in reliance on the inducement” of the tax exemption to participate in the SRO conversion program, 70 N.Y.2d at 455, or in Carlton that it “specifically and detrimentally relied on the preamendment version” of the estate tax deduction statute when it engaged in the stock transaction. 512 U.S. at 33. Indeed, similar inducements and reliance are the hallmarks of all tax incentives, which exist to encourage taxpayers to engage in the tax-favored transactions. The Legislature’s retroactive readjustment of the qualifications necessary for the continued tax credits “is not unlawful solely because it upsets otherwise settled expectations.” Pension Benefit Buar. Corp., 467 U.S. at 729, quoting Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 15-16 (1976). In any event, as the Appellate Division recognized in James Square Associates, the April 2009 amendments “alter [the decertified company’s] eligibility for tax credits, and the cases addressing the retroactive application of tax statutes are therefore instructive.” James Square Assoc., 91 A.D.3d at 173.5 Accordingly, the reliance 5 In addition, retroactive tax credit legislation presents fewer constitutional notice and reliance issues than legislation that “create[s] a new tax” and seeks to apply it retroactively. United States v. Darusmont, 449 U.S. 292, 300 (1981); cf. Wiggins v. 29 claim here is the same as those the taxpayers advanced in Carlton and Replan, and it should be similarly rejected. Thus, petitioner knew that the Legislature could repeal the Empire Zone Program tax credits at any time, and that petitioner could have no claim against the State for continued tax benefits, regardless of the extent of any investment that they might have been induced to make by the Program. Indeed, petitioner’s certificate of eligibility explicitly provided that eligibility would continue “until terminated by operation of law or by action taken pursuant to such laws, rules and regulations as may be applicable” (113-117). Similarly, in Replan, this Court relied specifically on the fact that the city code provision “was subject to such changes as may have been made in the State enabling legislation itself.” 70 N.Y. 2d at 457. Here too, the likelihood of further statutory amendments was manifest. Commissioner of Internal Rev., 904 F.2d 311, 314 (5th Cir. 1990) (“[t]here is no new tax here” because the taxpayers “were already subject to tax from recapture of the investment tax credit and to the alternative minimum tax”); Matter of Capital Fin. Corp. v. Commissioner of Tax. & Fin., 218 A.D.2d 230, 233 (3d Dep’t), appeal dismissed, 88 N.Y.2d 874 (1996) (rejecting taxpayer’s argument that it had a vested property right to carryovers of mortgage recording tax credits it had earned prior to the disputed amendment). And tax credits are, like exemptions, “a matter of legislative grace.” Matter of Grace v. New York State Tax Comm’n, 37 N.Y.2d 193, 196 (1975) (tax exemptions “are allowed only as a matter of legislative grace”). 30 Accordingly, the Fourth Department was wrong to hold in James Square that “[t]here is no indication . . . that plaintiffs had any warning that the criteria for certification of Empire zone[] businesses were going to change, prospectively or retroactively, prior to April 2009.” James Square Assoc., 91 A.D.3d at 174. Since the Program’s inception in 2001, petitioner and all other businesses that were enrolled in the Program were on notice that their eligibility for tax benefits depended on their ability to create new jobs and investment opportunities in the State, the paramount reason for the Program’s existence. Indeed, the Legislature amended the statutory eligibility requirements several times prior to April 2009, including in 2005, when it enacted a cost-benefit standard similar to the one at issue and directed that it would apply to new Program participants. See L. 2005, ch. 63, Part A, § 2. As Mr. Coburn explained, the April 2009 amendments did not appear without warning, but resulted from “increasing scrutiny” over “several years,” based on concerns that “some firms participating in the Program have received more in tax benefits than economic returns they are returning in the form of wages paid to workers and capital investment in their facilities” (83). The April 2009 amendments were also foreshadowed by legislative hearings held several years before their enactment, during which legislators and agency officials publicly discussed efforts to audit companies who were not meeting Program 31 goals, see Joint Budget Hearing of the Assembly Ways and Means Committee and the Senate Finance Committee on the Economic Development and Taxes Budget for Fiscal Year 2008-09, at pp. 11-12, 55-56, 79-82, and by the 2004 and 2007 public reports of the Comptroller, who found that the Program, based on the then-existing statutory eligibility criteria, was not meeting its job creation and investment objectives. Thus, it was “reasonably foreseeable” that the Program’s eligibility criteria would change to address these concerns, particularly since petitioner’s own certificates of eligibility warned it that this could happen. See, e.g., Furlong v. Commissioner of Internal Rev., 36 F.3d 25, 28 (7th Cir. 1994) (tax on loans from certain pension plans was reasonably foreseeable because it was not a “wholly new tax”). Petitioner’s reliance claim is further undermined by the fact that it did not demonstrate that it engaged in any particular activities during 2008, the period of retroactivity, in reliance on the Program tax credits they expected to claim for 2008. Instead, petitioner alleged only that it “detrimentally relied on certification” because “[s]olely as a result of the invitation by respondents and the promises attached thereto did petitioner make the decision to invest in the empire zone areas” (27, 239). Nor did petitioner present any proof that it had already completed and filed its 2009 returns claiming the credits before the April 2009 amendments were enacted. In the absence of any evidence that petitioner 32 would have “altered [its] behavior to avoid the [loss of tax credits for 2008],” United States v. Darusmont, 449 U.S. 292, 299 (1981), and in light of petitioner’s burden to demonstrate its entitlement to the tax credits at issue, there is no basis to presume that that petitioner was “induced to conduct [its] business[ ] in a particular way . . . in reliance upon the availability of [Program] tax credits.” James Square Assoc., 91 A.D.3d at 174. For all of these reasons, the Appellate Division mistakenly concluded that petitioner did not have any warning before April 2009 that the eligibility criteria could change. The likelihood of such changes was inherent in the Program, as expressed in petitioner’s certificate. Thus, the first Replan factor favors the constitutionality of the limited period of retroactivity here. B. The Retroactivity Period Was Not Excessive. Consistent with the second factor considered in Replan, the 15-month retroactivity period of the April 2009 amendments is not constitutionally excessive.6 The Fourth Department did not discuss this factor, but held in 6 Even if measured from the enactment of the August 2010 amendment (rather than from April 2009, as the Fourth Department correctly held), the resulting retroactivity period is nevertheless constitutional for the reasons stated in this section and because the August 2010 amendment was a “curative measure.” United States v. Carlton, 512 U.S. at 31-32 (upholding retroactive application of statute limiting estate tax deductions because the amendment was rationally adopted in order to stem “a significant and unanticipated revenue loss”); Matter of Moran Towing Corp. v. Urbach 1 A.D.3d 722, 724 (3d Dep’t 2003) (“when legislation is 33 James Square Associates, that “[w]hether that period is excessive . . . cannot be resolved in the abstract, but only in light of the other factors, i.e., notice and reliance.” James Square Assoc., 91 A.D.3d at 173. But both the United State Supreme Court and the New York Court of Appeals have declared that even tax legislation that imposes new tax liabilities (rather than simply limiting credits for existing taxes) may constitutionally be applied to the beginning of the year preceding the legislation’s enactment, as the Legislature did here with the disputed tax credit amendments. See United States v. Carlton, 512 U.S. at 33 (tax laws may be retroactively applied “to include the receipt of income during the year of the legislative session preceding that of its enactment” (quoting Welch, 305 U.S. at 150); Matter of Lacidem Realty Corp. v. Graves, 288 N.Y. 354, 357 (1942) (invoking tax legislation’s saving clause to uphold 14-month retroactive period to the beginning of the year before enactment for statute imposing tax on sales of sub-metered electric current); see also Matter of Varrington Corp., 85 N.Y.2d at 33 (retroactive period of nearly two years for tax regulation that required the taxpayer to return a refund previously issued was not unconstitutional). curative, retroactivity may be liberally construed”). Accordingly, the 2009 amendments are constitutional whether their period of retroactivity is measured from April 2009 or August 2010. 34 Indeed, courts regularly uphold tax legislation and regulations with far greater retroactive periods of operation than the 15 months here. See, e.g., Welch, 305 U.S. at 144-49 (retroactivity period of two years for statute levying emergency tax relief on dividends did not violate taxpayer’s due process or equal protection rights); Tate & Lyle, Inc. v. Commissioner of Internal Revenue, 87 F.3d 99, 107 (3d Cir. 1996) (upholding six-year retroactivity period of a Treasury Regulation requiring the taxpayer to use a cash method of accounting); Canisius Coll. v. United States of Am., 799 F.2d 18, 27 (2d Cir. 1986) (holding that four-year retroactivity period for a FICA tax amendment did not violate due process in light of its curative purpose); Astoria Fed. Savings & Loan Ass’n v. State of N.Y., 222 A.D.2d 36, 46 (2d Dep’t) (retroactivity period of more than six years for amendment changing tax exemption eligibility was not harsh and oppressive), appeal dismissed, 88 N.Y.2d 1064 (1996). These decisions have even greater force here because, as explained above at note 5, the Legislature did not impose a new tax but simply limited the use of credits against existing taxes. Thus, the second Replan factor also supports the validity of the modest period of retroactivity provided by the 2009 amendments. 35 C. The Amendments Serve Valid Public Purposes. Finally, the Fourth Department mistakenly concluded in James Square Associates and here that “defendants offer no justification for retroactive application of the 2009 amendments apart from the additional revenue that the State would realize by retroactively eliminating tax credits for certain participants in the Empire Zones Program,” and that this reason was “insufficient.” James Square Assoc., 91 A.D.3d at 174. In fact, the April 2009 amendments furthered two valid public purposes: to correct “long-documented abuses” by Program participants who were not making good on their promises to create new investments and jobs in New York in return for Program tax credits, and to provide the State approximately $90 million in much needed savings for the 2009-2010 fiscal year (98). See Office of the State Comptroller-Division of Local Government and School Accountability, The Effectiveness of Empire Zones: Follow-up Report, 2007-MS-2 (2007), available at www.osc.state.ny.us/localgov/audits/swr/empirezones.pdf. (noting the difficulty of obtaining reliable data to confirm whether the benefits of the Program outweigh its costs, and the lack of progress in getting municipalities to identify performance shortfalls within their respective Empire Zones); Office of the State Comptroller, Assessing Empire Zones Program-Reforms Needed to Improve Program Evaluation and Effectiveness, Report 3-2005 (2004), available at 36 www.osc.state.ny.us/reports/empirezone3-2005.pdf. (same). The Governor specifically criticized the Program’s “abuses, lack of results and skyrocketing costs,” as well as its lack of accountability. Press Release, available at http://www/governor.ny.gov/archive/paterson/press/061810ExcelsiorJobsProgram .html. The Fourth Department improperly disregarded the legitimate and uncontested remedial purpose of the April 2009 amendments, namely, to increase “its cost-effectiveness, strategic focus and accountability” by ensuring that Program participants return more to the community “in the form of wages paid to workers and capital investments in their facilities” than they received in tax benefits (83). Petitioner does not dispute that it was not meeting these Program goals based on all of its applicable BARs and thus, could not satisfy the 1:1 benefit-cost test (18-21, 161, 235-236). Accordingly, the Fourth Department should have taken this valid legislative goal into account when considering the third Replan factor. In addition to the Fourth Department’s failure to consider the remedial goals of the April 2009 amendments, that court erred in holding that the revenue-raising purpose of the April 2009 amendments was not a valid public purpose. The Legislature may rationally retroactively amend a statute to stem “a significant and unanticipated revenue loss.” Carlton, 512 U.S. at 32; accord 37 Furlong, 36 F.3d at 28; see Rocanova v. United State of Am., 955 F. Supp. 27, 29- 30 (S.D.N.Y. 1996), aff’d, 109 F.3d 127 (2d Cir. 1997), cert. denied, 522 U.S. 821 (1997) (Congress’s intent in enacting a retroactive amendment to the Internal Revenue Code -- “to raise revenue without raising taxes or imposing a new tax” -- was “rational and reasonable”); Venable v. Commissioner of Internal Revenue, 2003 WL 21921052, *7 (U.S. Tax Ct. 2003), aff’d, 110 Fed. Appx. 421, 2004 WL 2297334 (5th Cir. 2004) (Congress’s retroactive application of statute that narrowed income tax exclusion was “rationally linked to the legitimate objective of raising revenue”). Here, the Legislature recognized that the State was losing a substantial sum of money from the Program in its current state, and reasonably acted “to provide savings of $90 million” that the State and its taxpayers could realize during fiscal year 2009-2010 (98). Each of these purposes amply justifies the short retroactive period of the April 2009 amendments and outweighs petitioner’s limited claim to the 2008 Program tax credits it might have claimed had it not been decertified. See Matter of Neuner v. Weyant, 63 A.D.2d 290, 304 (2d Dep’t 1978), appeal dismissed, 48 N.Y.2d 975 (1979) (retroactive application of tax legislation “served an important public purpose by delaying the effective date of a ‘loosely drawn’ tax exemption which would, in all probability, have permitted large-scale tax avoidance by land owners who were not intended to be benefitted”). For these 38 reasons, the Appellate Division’s reliance, James Square Assoc., 91 A.D.3d at 174, on this Court’s pre-Replan decision in Clarendon Trust v. State Tax Commission, 43 N.Y.2d 933 (1978), is misplaced; in that case, unlike this one, there was no “persuasive reason for retroactivity.” Id. at 935. In conclusion, all three of the factors identified by this Court in Replan support the constitutionality of the retroactive tax statutes at issue here. Accordingly, the limited retroactive effect of the April 2009 amendments satisfies due process because it is supported by legitimate legislative purposes furthered by rational means. This Court should reverse that portion of the order of the Appellate Division that adhered to its holding in James Square Associates and the petition should be dismissed. 39 CONCLUSION The Fourth Department’s opinion and order should be reversed insofar as it held that retroactive application of the April 2009 amendments to General Municipal Law § 959 to January 1, 2008, violated petitioner’s due process rights, and the petition should be dismissed in its entirety. Dated: Albany, New York May 30, 2012 Respectfully submitted, ERIC T. SCHNEIDERMAN Attorney General of the State of New York Attorney for Defendants-Appellants By: _________________________ OWEN DEMUTH Assistant Solicitor General Office of the Attorney General The Capitol Albany, New York 12224 (518) 474-6639 BARBARA D. UNDERWOOD Solicitor General ANDREW D. BING Deputy Solicitor General OWEN DEMUTH Assistant Solicitor General of Counsel Reproduced on Recycled Paper A D D E N D U M A1 A2 A3 A4 A5 A6 A7 A8 A9 A10 A11 A12 A13 A14 A15 A16 A17 A18 A19 A20 A21 A22 A23 A24 A25 A26 A27 A28 A29 A30 A31 A32 A33 A34 A35 A36 A37 A38 A39 A40 A41 A42 A43 A44 A45 A46 A47 A48 A49 A50 A51 A52 A53 A54 A55 A56 A57 A58 A59 A60 A61 A62 A63 A64 A65 A66 A67 A68 A69 A70 A71 A72 A73 A74 A75 A76 A77 A78 A79 A80 A81 A82 A83 A84 A85 A86 A87 A88 A89 A90 A91 A92 A93 A94 A95 A96 A97 A98 A99 A100 A101 A102 A103 A104 A105 A106 A107 A108 A109 A110 A111 A112 A113 A114 A115 A116 A117 A118 A119 A120 A121 A122 A123 A124 A125 A126 A127 A128 A129 A130 A131 A132 A133 A134 A135 A136 A137 A138 A139 A140 A141 A142 A143 A144 A145 A146 A147 A148 A149 A150 A151 A152 A153 A154 A155 A156 A157 A158 A159 A160 A161 A162 A163 A164 A165 A166 A167 A168 A169 A170 A171 A172 A173 A174 A175 A176 A177 A178 A179 A180 A181 A182 A183 A184 A185 A186 A187 A188 A189 A190 A191 A192 A193 A194 A195 A196 A197 A198 A199 A200 A201 A202 A203 A204 A205 A206 A207 A208 A209 A210 A211 A212 A213 A214 A215 A216 A217 A218 A219 A220 A221 A222 A223 A224 A225 A226 A227 A228 A229 A230 A231 A232 A233 A234 A235 A236 A237 A238 A239 A240 A241 A242 A243 A244 A245 A246 A247 A248 A249 A250 A251 A252 A253 A254 A255 A256 A257 A258 A259 A260