Section 1174-N. Exemption from taxes, assessments and certain fees; payments in lieu of taxes

1. It is hereby determined that the creation of the  authority and the carrying out of  its  corporate  purposes  is  in  all
  respects  for  the  benefit  of  the people of the state and is a public
  purpose,  and  the  authority  shall  be  regarded   as   performing   a
  governmental function in the exercise of the powers conferred upon it by
  this  title  and  shall  not  be  required  to pay any taxes, special ad
  valorem levies or special assessments upon any real property owned by it
  or any filing, recording or  transfer  fees  or  taxes  in  relation  to
  instruments filed, recorded or transferred by it or on its behalf.
    2.  The  authority  may  pay,  or  may  enter into agreements with any
  municipality to pay, a sum or sums annually or otherwise or  to  provide
  other  considerations to such municipality with respect to real property
  owned by the authority located within such municipality and constituting
  a part of its water system.
    3. Any bonds issued pursuant to this title together  with  the  income
  therefrom  shall  be  exempt from taxation. The revenues, moneys and all
  other property and all activities of the authority shall be exempt  from
  all taxes and governmental fees or charges, whether imposed by the state
  or  any  municipality,  including  without limitation real estate taxes,
  franchise taxes, sales taxes or other excise taxes. For purposes of this
  subdivision, the phrase "exempt from taxation" means exempt from  direct
  taxation  in  conformity with established judicial interpretation of the
  tax exempt status of the obligations of  the  state  and  its  agencies,
  entities,  authorities  and political subdivisions and thus, the meaning
  of such phrase is in conformity with the legislative intent expressed by
  section twenty-two of chapter one  hundred  sixty-six  of  the  laws  of
  nineteen   hundred   ninety-one  regarding  the  tax  exempt  status  of
  obligations of the state and its agencies.
    4. The state  hereby  covenants  with  the  purchasers  and  with  all
  subsequent  holders  and  transferees  of  bonds issued by the authority
  pursuant to this title that the interest thereon shall  be  exempt  from
  taxation.  The  state  further  covenants with the holders of such bonds
  that all revenues, moneys, and other  property  pledged  to  secure  the
  payment  of  such  bonds shall at all times be free from such taxes. For
  purposes of this subdivision, the phrase "exempt  from  taxation"  means
  exempt  from  direct  taxation  in  conformity with established judicial
  interpretation of the tax exempt status of the obligations of the  state
  and  its  agencies, entities, authorities and political subdivisions and
  thus, the meaning of such phrase is in conformity with  the  legislative
  intent  expressed by section twenty-two of chapter one hundred sixty-six
  of the laws of nineteen hundred  ninety-one  regarding  the  tax  exempt
  status of obligations of the state and its agencies.
    5.  Notwithstanding  the above, nothing herein shall prevent the state
  from assessing a tax or surcharge against the water customers  based  on
  their  water  consumption,  provided,  however,  that all such taxes and
  surcharges and the authority's obligation to collect and pay such  taxes
  and  surcharges  shall be subordinate to the rights of holders of all of
  the authority's bonds  and  notes  and  to  the  payment  of  principal,
  premiums if any, and interest thereon.