Senate Bill S68014

                                BILL NUMBER:S68014

TITLE OF BILL:

An act to amend the public authorities law, in relation to the powers
and duties of the dormitory authority of the state of New York
relative to the establishment of subsidiaries for certain purposes

PURPOSE:

The bill would authorize the Dormitory Authority of the State of New
York ("DASNY") to form a subsidiary for the purpose of exercising
certain rights of DASNY, consistent with Public Authorities Law
§2827-a, in connection with taking title to certain real property on
which DASNY holds one or more mortgages to secure loans made by DASNY
to North General Hospital ("North General").

SUMMARY OF PROVISIONS:

Section 1 of the bill would add a new subdivision 25 to PAL § 1678 to
authorize DASNY to create a subsidiary for the purpose of limiting the
potential liability of DASNY when exercising its powers and duties in
connection with the exercise of remedies by DASNY against North
General, an eligible secured borrower (as defined in chapter 590 of
the laws of 2002) located in the borough of Manhattan, New York.
Among the powers that could be exercised by this subsidiary would be:
              

(i) bidding for, taking, holding, selling; conveying, assigning or
transferring title to the mortgaged property; (ii) entering into
leases, subleases, operating agreements, security agreements, loan
agreements or other encumbrances or arrangements with regard to such
property; or (iii) assuming any indebtedness or other liabilities
secured by the mortgaged property.

New subdivision 25 would also provide that, notwithstanding any other
provision of law to the contrary but in all instances subject to the
provisions of any contract with bondholders, the transfer of title to
such subsidiary or any other actions taken by DASNY or the subsidiary
to enforce DASNY's rights under the mortgage or other security
interest would not impair the validity of the bonds, notes or other
obligations to which the mortgage or other security interest relates.

New subdivision 25 would specify that the subsidiary be created as a
public benefit corporation. The creation of a subsidiary, and the
reporting required in connection therewith, would be in compliance
with PAL § 2827-a.

Section 2 of this bill would make it effective immediately.

LEGISLATIVE HISTORY:

This is a new bill.

EXISTING LAW:

PAL § 2827-a, enacted in Chapter 506 of the laws of 2009, severely
limits the ability of public authorities to create subsidiary


corporations without legislative approval.  That section further
provides that nothing contained therein grants an authority the power
to create a subsidiary where the authority does not otherwise have the
power to do so.  DASNY currently has no power to create subsidiaries.

STATEMENT IN SUPPORT:

On July 2, 2010 North General filed a petition for bankruptcy under
Chapter 11 of the Bankruptcy Code and has since ceased all healthcare
operations. The current Plan of Reorganization (Liquidation) filed by
North General (the "Plan") provides that DASNY shall receive fee
simple title to the property on which DASNY hold mortgages, subject to
two leases, in satisfaction of its secured claims against North
General. North General is currently in default under its loan
agreements with DASNY and an event of default has been declared. One
of the referenced leases is expected to be a long term lease with the
New York City Health and Hospitals Corporation ("HHC") under which HHC
will operate a long term acute care hospital in the former main
hospital building of North General. The other lease to be assigned to
DASNY under the Plan is with Institute for Family Health, which
currently operates a federally qualified health care center in part of
the former North General building.

The purpose of this bill is to enable DASNY to create a subsidiary for
the purpose of taking title to mortgaged property that is to be
conveyed to DASNY under the Plan, to insulate DASNY and its assets
from any potential liability that could arise from accepting title to
this property. Although DASNY will have no role in the ongoing health
care activities conducted there or the operation and maintenance of
the properties, there is the potential that that DASNY, as owner of
the property, could be subjected to lawsuits as the owner of the
property arising out of incidents occurring on the campus. In
addition, it is also possible that DASNY could be exposed to potential
liabilities from the presence of hazardous substances on the property.
DASNY could avoid these potential liabilities by having title to the
mortgaged property transferred to the subsidiary authorized to be
created under the bill instead of DASNY.

PAL § 2827-a provides that no state authority shall have the power to
organize any subsidiary corporation, except under certain limited
circumstances, unless the legislature shall have enacted a law
granting an authority that power. Consistent with this provision, the
bill would grant legislative authorization to DASNY to create a
subsidiary for the limited purpose of exercising DASNY's rights under
the mortgages granted to DASNY by North General.

BUDGET IMPLICATIONS:

The bill would have no fiscal impact on the State or localities,
except to the extent it would shield DASNY from potential liabilities.

EFFECTIVE DATE:

The bill would take effect immediately.