Power lines are seen in Centereach. (Dec. 11, 2012)

Power lines are seen in Centereach. (Dec. 11, 2012) Credit: Newsday/Thomas A. Ferrara

The State Legislature's passage early Friday of Gov. Andrew M. Cuomo's plan to overhaul the Long Island Power Authority was the biggest but not the last hurdle to clear before the changes can begin.

The Assembly passed the bill around 1 a.m. by a vote of 103-34, with seven Republican Assembly members voting in favor of the measure and two Democrats opposed. The bill passed unanimously in the Republican-controlled Senate, by a 63-0 vote, just before 2 a.m.

The bill sets in motion the eventual downsizing of LIPA from 100 staff members to a minimal level, as nearly all major functions will be transferred to PSEG of New Jersey under a 12-year contract. It also would freeze rates for two years, refinance some of LIPA's $7 billion debt, and establish a new branch of the Department of Public Service on Long Island to monitor LIPA operations.

Assemb. Robert Sweeney (D-Lindenhurst), who sponsored Cuomo's measure, said key approvals remain. One major one: The Internal Revenue Service must OK the continuation of LIPA as a tax-exempt entity for issuing bonds and avoiding income taxes.

Cuomo administration officials have said they are confident the approval is forthcoming. Sweeney said a negative ruling from the IRS would undo the expanded PSEG contract and the legislation, which depends on refinancing LIPA bonds to create savings and hold down rates.

LIPA trustees also must approve the expanded contract with PSEG, which will take the reins of LIPA in January. Some trustees have said they want an independent financial analysis of the bill before they'd support it. A trustee vote on the contract is expected in December.

Friday, according to legislators, LIPA sent letters to local taxing districts to settle the property tax grievances it has filed against the assessments on four National Grid power plants during the past five years. At the same time, a letter was sent to the districts from Larry Schwartz, secretary to the governor; Robert Mujica, counsel to the Senate; and Matthew Howard, counsel to the Assembly, saying they agreed the proposed settlement was "fair and reasonable."

The settlement offers to forgive a total of $400 million in past claims against overassessments of the plants, which are located in Northport, Port Jefferson, Island Park, and a retired unit in Glenwood Landing.

Starting in the 2015-16 tax year, LIPA would cut the taxes it pays to the districts by 10 percent each year for 10 years. For example, the $27.5 million that's paid to the Three Village Central school district and Port Jefferson school district would be reduced to $9 million, declining an average of $1.8 million a year in the 10-year period.

"It resolves what has clearly been a sticking point for many people for a long time," Sweeney said. Loss of the tax cases in court could have devastated local school districts in plant communities that have thrived on the tax payments.

The level of cross-party voting on the LIPA bill wasn't a surprise to Sweeney, who himself was once a critic of the bill. "LIPA and its predecessor have always been difficult and emotional topics," he said. "I think people were evaluating the proposal on a substantive not a political basis."

Sweeney, who defended the proposal against sometimes withering criticism on the Assembly floor, said supporting the bill was made easier once the administration altered it with Assembly concessions in the days before passage.

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