Manhattan state Supreme Court Justice Arthur Engoron ruled that the plan violates the state constitution's "home rule" provisions, which protect cities from undue interference by state legislators. The taxi plan was enacted by the state Legislature after a failed attempt to get it through the City Council.
City lawyers said they would immediately appeal the ruling, which could leave officials scrambling to remake this year's budget. Officials have said 2,000 yellow-cab medallion sales included in the plan would earn the city $635 million this fiscal year and $825 million more over the following two years.
The plan, put temporarily on hold in June after owners of the city's signature yellow cabs sued, would let the city sell 18,000 permits allowing livery cabs to pick up passengers who hail them on streets in upper Manhattan and the other boroughs. Currently, only yellow cabs can do that.
City Taxi and Limousine Commissioner David Yassky said officials owe it to New Yorkers to appeal.
"The court's decision today is a great loss to millions of New Yorkers outside of Manhattan, as well as for the professional livery drivers whose ability to feed their families by providing a popular service their communities want and deserve is now in jeopardy," he said in a statement.
The Greater New York Taxi Association called the ruling "a win for democracy, due process of law and the right of New Yorkers to decide how their own city works." The group said in a statement it would work with city officials "to address these issues."
Mayor Michael Bloomberg has said the plan would make travel safer, easier and cheaper for millions of people and provide the city a much needed cash infusion in tight budget times. Yellow cab owners have argued it would cut their business.
Under the plan, the livery cab "street hail" permits would initially be sold by the city for $1,500; taxi medallions have gone for as much as $1 million on the open market. The 2,000 new yellow cab medallions would have been restricted to vehicles that are wheelchair-accessible.
After negotiations over the outer-borough taxi issue stalled in the City Council, Bloomberg took it to Albany, saying it was a goal that had eluded the city for three decades and would expand cab service in areas that are home to 7 million people. Gov. Andrew Cuomo and the state Legislature reached a deal on it in December.
The Metropolitan Taxicab Board of Trade sued in April, on the eve of a city Taxi and Limousine Commission vote to put the proposal into action. The commission voted to approve the plan anyway.
As the suit was filed, the Metropolitan Taxicab Board of Trade's president, Ron Sherman, called the plan "unconstitutional, irresponsible and unconscionable."
Yellow cab owners "are overwhelmed with anxiety, grief and worry over their future as a result of this devastating law, which will completely undermine their livelihood and lifetime investment," said Sherman, whose group represents the owners of 4,000 cabs leased to 16,000 drivers.
City lawyers said they were confident that the plan met legal requirements.
"A great deal of careful thought and consideration went into the adoption of this important new transportation initiative," city Law Department attorney Ave Maria Brennan said in April.
At a May hearing, Engoron mentioned that he's a former cabbie himself. He drove a yellow taxi for about a year while he was a Columbia University undergraduate in the 1960s.
The proposal would have let 18,000 livery drivers buy permits to pick up street hails above 96th Street in Manhattan and throughout the four other boroughs, but not at Kennedy and LaGuardia airports.
City officials said the medallion sales would generate $1.46 billion for the city, estimating each would sell for an average of $730,000 at auctions staggered over three years to keep from flooding the market. The taxi group's lawyer has said the influx of new medallions still would drive down the price below the city's estimate.
Some $635 million of the expected medallion money is built into the budget the city approved at the end of June. If it becomes clear the $635 million in sales won't happen before June 30, 2013, the city will have to make cuts or find other money to make up for it.
The city routinely adjusts its budget plan several times throughout the year to reflect changes in its finances.
Associated Press writer Samantha Gross contributed to this report.
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