Library Line of Credit

A line of credit and a credit card are like a paint roller and a paint brush—they might perform the same basic function, but they work differently.

A line of credit or “revolving credit” gives a person or entity the ability to borrow money, without the borrowed money being tied to a particular purchase.

A credit card, on the other hand, is generally for the use of borrowed money to make particular purchases, with each purchase itemized on a borrowing record (i.e., the credit card bill).

This difference is why, generally, an entity subject to New York State’s Local Finance Law[1] must steer clear of the less controlled “roller” effect of a “line of credit,” but can—working with the more precise “brush” of making itemized purchases—use a credit card.

This difference is why some municipal entities can use credit cards but not a line of credit. As the New York State Comptroller put it, rather quaintly, in 1979:[2]

This Departments has expressed the opinion several times that a municipality may not use a multi-purpose credit card (such as VISA) issued by one of the major commercial credit card firms…

Our primary concern in those opinions was that the use of a credit card of this type involves the use of credit of a third party that is... not authorized by the Local Finance Law (Local Finance Law, §§ 20.00, 176.00).

Upon re-examination of this subject, this Department now takes the position that the provisions of section 20.00 and 176.00 of the Local Finance Law were not intended to apply to this type of credit situation. Accordingly, if a “multi-purpose” credit card company is able to comply with the certification of claim requirements… it may issue cards in the name of a town for the use of its employees and officers for, among other things, reimbursable travel expenses incurred in the performance of their duties, provided that claims submitted by such company are paid within a reasonable time to avoid incurring unnecessary service or interest charges. Anything to the contrary, in any prior opinions of this Department is hereby superseded.

So why might a library or municipality be under the impression they can’t use credit? The distinction between “line of credit” and “credit card” isn’t always drawn so clearly. Check out this Comptroller opinion from 1988:[3]

In our opinion, the “line of credit” transaction described above neither complies with the provisions of the Local Finance Law applicable to the issuance of capital notes nor with the provisions applicable to any other type of obligation authorized by section 20.00. Accordingly, we conclude that a line of credit is not an authorized type of municipal debt…

If there is any doubt about the ability of entities subject to the Local Finance Law using credit cards in 2024, we can dispel that doubt by visiting the State Comptroller’s web site, where it says:

Credit Cards

Your local government or school district may authorize designated employees to use a credit card issued in the name of the local government or school district to pay for certain travel and conference expenses.

... and here, where it says:

Cost-Saving Ideas: Credit Card Accountability - Minimizing the Risk of Error, Misuse and Fraud

When employees need to make small one-time purchases, it is often more convenient for them to pay with a credit card than to fill out a procurement request form and wait for it to be approved. This also saves time and energy for procurement staff.

As the member writes, use of credit cards is of course not without restrictions. More information on the “strong policy” entities who must follow local finance law can be found here.

Thank you for an interesting question!