LIPA can't pay Suffolk town taxes that exceed 2 percent tax cap

LIPA this week drew a line in the sand over the amount it pays in taxes on thousands of local properties, telling eight Suffolk towns that it cannot legally pay the portion of 2015 tax charges that exceed a new state tax cap.

All told, the Long Island Power Authority has declined to pay just over $2 million of $63 million in recent Suffolk town taxes because the smaller amount exceeded the 2 percent tax cap instituted as part of Gov. Andrew M. Cuomo's LIPA Reform Act of 2013. LIPA has yet to receive tax bills from Nassau municipalities and districts, to which the same standard of law will be applied, an official said.

"It's crystal clear, we're not permitted to pay more than 2 percent a year" in increases from the prior year, said Jon Mostel, general counsel at LIPA.

LIPA each year pays more than $280 million in "payments in lieu of taxes" on properties it owns across the Island, including substations, switching yards and rights of way for power lines. In all, LIPA owns about 3,000 properties that are levied payments in lieu of taxes.

For nine of 10 Suffolk towns, the charges exceeded the cap by a range of 39 cents to more than $1 million. Brookhaven Town exceeded the cap by the largest amount, $1.07 million, according to LIPA. Islip Town's tax bill was over by $681,080, Huntington's by $197,336, Smithtown's by $63,979, Babylon's by $30,288, Southampton's by $20,225, Southold's by $3,884 and Riverhead's by $1,102. Shelter Island didn't exceed the cap, and East Hampton was just 39 cents over.

LIPA is communicating the excess charges and its position on the law through PSEG Long Island, which began calling more than two dozen municipalities this week to inform them of the policy.

LIPA tax payments mailed out by PSEG to towns this week include a letter from an outside tax lawyer for the authority stating, in part, that PSEG is "directed by LIPA to only remit payments that represent an amount that is no greater than 2 percent of the amount stated on the corresponding bill for the same tax parcel in the immediately preceding calendar year."

Mostel emphasized, "We're not trying to harm anybody, but we've got to get this under control so that the electric customer is not paying more than they should be."

The LIPA law went into effect in 2013, but application of the cap required a base year (2014) upon which to measure future increases. For Suffolk towns, tax bills for the first half of 2015 were to be paid by June 1.

Nassau County tax bills are due in November, Mostel said, so LIPA will know then if Nassau towns exceed the cap.

About 15 percent of all LIPA costs go to pay taxes, including separate tax payments on power plants owned by National Grid amounting to $192 million a year.

LIPA has filed separate tax challenges to those payments, cases that Mostel said were moving "forward as swiftly as the courts will allow us," but he acknowledged progress was "slow." (LIPA has separately filed tax grievances on many of its own properties, claiming overassessments, in cases unrelated to the tax-cap billings.)

News of the cap's 2015 application took some towns by surprise. Huntington spokesman A.J. Carter said Thursday the town was "only made aware of LIPA's contention this morning. We are going to have our attorneys look into it."

Brookhaven spokesman Kevin Molloy said the town was also reviewing the matter. Tax receivers in other Suffolk towns declined to comment or could not be reached Thursday night.

Southold Town Supervisor Scott Russell said while word of the town exceeding the LIPA cap was "news to me," he was "confident that PSEG looked at this very thoroughly and I have no reason to doubt its conclusions." He noted PSEG was the town's single largest taxpayer, calling the $3,884 overcharge "inconsequential."

By Mark Harrington

mark.harrington@newsday.comMHarringtonNews

Mark Harrington, a Newsday reporter since 1999, covers energy, wineries, Indian affairs and fisheries.