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Appeals court sides with Northport schools in LIPA tax case

The stacks of the LIPA plant in Northport

The stacks of the LIPA plant in Northport are seen on the afternoon of October 28, 2010. Credit: Newsday Thomas A. Ferrara

A state appellate court Wednesday sided with the Northport-East Northport school district in a case challenging LIPA's efforts to significantly reduce the tax assessment of National Grid's Northport power plant.

In the ruling, which could have implications beyond the Northport case, the four-judge panel concurred with a state Supreme Court justice who found that former LIPA chairman Richard Kessel and former Gov. George M. Pataki had promised not to challenge taxes on the plant. The lower court ruling had allowed the school district's breach of contract lawsuit against LIPA to continue.

The district and others in May 2011 filed suit against LIPA and its predecessor, the Long Island Lighting Co., alleging breach of contract after the authority filed the tax challenges.

LIPA pays about $73 million annually in taxes on the Northport power plant, and is seeking to reduce the amount through its property tax challenge. LIPA has filed similar tax challenges against school districts, and municipalities including Island Park and Port Jefferson, for National Grid-owned power plants.

LIPA, the primary user of the plants, pays taxes under its long-term contract.

John Gross, senior managing partner at Ingerman Smith, which filed the case on behalf of the school district, said he expects the appellate court ruling to influence at least one other case his firm has filed -- a lawsuit on behalf of the North Shore School District related to the former Glenwood Landing power plant.

The appellate division's ruling means the Northport-East Northport district's case can proceed to trial in Supreme Court. The district could file a motion for summary judgment seeking a ruling in its favor before a trial. Both sides have been told by the court to attempt to settle the case before trial.

"We are extremely pleased the appellate division has sustained the board of education's position that LIPA promised to never file a lawsuit seeking to reduce the tax assessment of the Northport power plant," Gross said. "This decision allows the board's lawsuit to proceed asserting that LIPA may not seek such a reduction. There remains more litigation but this decision is very favorable to the board and its community."

In the ruling, the appellate judges took note of a May 2, 1997 letter from LIPA saying the authority would "immediately drop all tax certiorari cases against all municipalities and school districts" when LIPA signed a contract with the plant. The letter said that "neither LIPA nor LILCO will initiate any further tax certiorari cases on any of their respective properties at any time in the future unless a municipality abusively increases its assessment rate."

LIPA attempted to get the suit thrown out by challenging Northport's standing as an "intended third-party beneficiary" to LIPA's power supply agreement with LILCO. The agreement also disallowed tax assessment challenges.

LIPA spokesman Sid Nathan said the utility "respects the court's decision and is now assessing its best course of action."

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