N.Y. Comp. Codes R. & Regs. tit. 9 § 1640-2.2
The statutory requirement for the segregation of State moneys from Federal financial aid or assistance has been extended, by regulation of the commissioner and the terms of the various contracts for State aid, to require the segregation, both by project and by purpose, of all funds received or held by local agencies in connection with State-aided projects. The segregation, by project and by purpose, reflects the fact that funds advanced or to be advanced by the State, in the form of loans or subsidies, are earmarked for specific purposes and may not be used for other purposes. Such use would represent a mingling of funds, actual or constructive. This means, for example, that funds for the development or operation of a State-aided project must be set aside from all other funds and may not be used to pay development costs or operating expenses of another project. Similarly, with respect to a given State-aided project, funds representing revenues (rents and subsidies) of the project during the operating period must be segregated from funds received for the development of the project and may not be used to pay development costs, etc. The commissioner may, however, waive these requirements, and permit the mingling of funds (other than Federal funds) under certain circumstances. No mingling of funds, under any circumstances, shall, however, take place without the prior approval and authorization of the commissioner.
N.Y. Comp. Codes R. & Regs. Tit. 9 § 1640-2.2