§ 99-b. Withholding of state aid for school purposes upon default in payment of obligations of the prospective recipient. Whenever a city, city school district or school district, as such terms are used and defined in the education law, or the public benefit corporation to which the city of New York has assigned payments pursuant to section twenty-seven hundred ninety-nine-tt of the public authorities law, shall default in the payment of the principal of its bonds or notes issued for school purposes or the payment of the interest on such bonds or notes or in the payment of both the principal of and interest on such bonds or notes, the allotment, apportionment and payment of state aid and assistance pursuant to the education law, or pursuant to any other law hereinafter enacted providing for state aid and assistance in lieu of or substitution for the state aid and assistance presently provided pursuant to the education law, to any such city, city school district or school district, or to the city of New York or its school district in the case of a default by such public benefit corporation, shall be withheld by the state upon the following terms and conditions. In the event a holder or owner of any such bond or note shall file with the state comptroller a verified statement describing such bond or note and alleging default in the payment thereof or the interest thereon or both such principal and interest, it shall be the duty of the state comptroller to immediately investigate the circumstances of the alleged default and prepare and file in his office a certificate setting forth his determinations with respect thereto and to serve a copy thereof by registered mail upon the chief fiscal officer, as such term is defined in the local finance law, of the city, city school district, or school district which issued such bond or note, or in the case of such public benefit corporation, upon the comptroller of the city of New York, the chancellor of the school district of the city of New York, and the chief fiscal officer of such public benefit corporation.

Such investigation by the state comptroller shall cover the current status with respect to the payment of principal of and interest on all such outstanding bonds and notes of such city, city school district, school district, or public benefit corporation and the statement prepared and filed by the state comptroller pursuant to the foregoing provision shall set forth a description of all such bonds and notes of such city, city school district school district, or public benefit corporation found to be in default and the amount of principal and interest thereon past due.

Upon the filing of such a certificate in the office of the state comptroller, the state comptroller shall thereafter deduct and withhold from the next succeeding allotment, apportionment or payment of such state aid or assistance due such city, city school district or school district, or due the city of New York or its school district in the case of a default by such public benefit corporation, such amount thereof as may be required to pay the principal of and interest on such bonds and notes of such city, city school district, school district, or public benefit corporation then in default. In the event such state aid or assistance initially so withheld shall be insufficient to pay all of the principal of and interest on such bonds or notes of such city, city school district school district, or public benefit corporation so in default, the state comptroller shall similarly deduct and withhold from each succeeding allotment, apportionment or payment of such state aid or assistance due such city, city school district, or school district, or due the city of New York or its school district in the case of a default by such public benefit corporation, such amount or amounts thereof as may be required to pay all of the principal of and interest on such bonds and notes then in default and to cure such default. Allotments, apportionments and payments of such state aid so deducted or withheld by the state comptroller shall be forwarded promptly to the paying agent or agents for the bonds and notes in default of such city, city school district school district, or public benefit corporation for the sole purpose of the payment of defaulted principal of and interest on such bonds or notes; provided, however, that in the event any such allotment, apportionment or payment of such state aid so deducted or withheld shall be less than the total amount of all principal and interest on the bonds and notes in default with respect to which the same was so deducted or withheld, then the state comptroller shall forward to each paying agent an amount in the proportion that the amount of such bonds and notes in default payable to such paying agent bears to the total amount of the principal of and interest then in default on such bonds and notes of such city, city school district, school district, or public benefit corporation. The state comptroller shall promptly notify the chief fiscal officer of such city, city school district or school district, or in the case of such public benefit corporation, the comptroller of the city of New York, the chancellor of the school district of the city of New York, and the chief fiscal officer of such public benefit corporation, of any payment or payments made to any paying agent or paying agents of defaulted bonds or notes pursuant to this provision.

The state of New York hereby covenants with the purchasers and holders and owners from time to time of bonds and notes issued by cities, city school districts, school districts, and such public benefit corporations for school purposes that it will not repeal, revoke or rescind the provisions of this section or amend or modify the same so as to limit, impair or impede the rights and remedies granted hereby; provided, however, that nothing herein contained shall be deemed or construed as requiring the state to continue the payment of state aid or assistance to any city, city school district or school district or as limiting or prohibiting the state from repealing or amending any law heretofore or hereafter enacted relating to state aid or assistance, the manner and time of payment or apportionment thereof, or the amount thereof.