A dangerous game in LIPA tax case

Long Islanders pay high property taxes. To lighten this burden, our tax assessors have historically shifted a portion of the taxes to the rest of the Island by overtaxing power plants. These plant taxes are paid by all Long Island residents and businesses through electric bills. If your community has a power plant, you’ve benefited by paying disproportionally lower property taxes, but as in a game of musical chairs, local officials must plan for when the music stops, and the music is about to stop.

In 1996, I saw a tax case unfold against the Shoreham nuclear plant. After years of wishful thinking and lawyer double-talk on behalf of municipalities, the State Supreme Court revalued the taxes on Shoreham based on the plant’s value and ordered a $1.3 billion tax refund to LILCO customers. The case was settled in 2000, and Suffolk residents are still paying the tax refund, plus interest, through a special charge on electric bills. Maybe that’s why Brookhaven Town Supervisor Ed Romaine has announced his willingness to settle the Port Jefferson power plant tax case with LIPA. He has learned from history.

I live in Huntington, and a similar tax trial is set to start in June for the Northport power plant. LIPA has offered to settle its challenge of the town’s assessment of the plant and as town officials consider what to do, I’d like to share what I learned from the Shoreham case.

First, be skeptical of no-pain solutions. In the Shoreham case, several arguments were made on why it was OK to overtax power plants. None panned out. I hear the same arguments today.

Some say then-Gov. George E. Pataki and LIPA chairman Richard Kessel promised Huntington the right to overtax the Northport plant indefinitely. Are we willing to roll the dice on such a promise?

Second, do the math and know the facts. LIPA’s proposed settlement, if it’s the same as the one offered to Brookhaven, would reduce the taxes on the Northport plant by 50 percent over nine years and waive an estimated $500 million tax refund. This would create a 2 percent per year tax increase for the residents of the Northport-East Northport school district. The plant would be valued at 10 times its worth at the end of the settlement. But a negative court judgment would mean a revaluation of the plant to its fair value, precipitating a 32 percent increase in Northport-East Northport school taxes. Under state law, all town residents would pay one-half of a tax refund.

Third, a court ruling would change the politics. Overtaxing the Northport plant has allowed Huntington to spread the cost of its local government to the rest of Long Island’s utility customers. After the $1.3 billion Shoreham judgment, taxes went up and people noticed. The Northport plant’s proposed settlement is more favorable than the Shoreham settlement. Don’t assume it will be available once the case goes to trial. Long Island’s other LIPA customers might lobby hard to receive money awarded in a court judgment.

Fourth, Huntington will need a long-term plan. The Northport plant is almost 50 years old, and power plants are worth less with time. Northport’s production has declined by 66 percent since 1999. With solar panels and wind farms being added to the electric grid, the plant is obsolete. While the taxes assessed on the Northport plant are $81 million a year, the Caithness plant built in 2009 produces the same amount of electricity, uses less fuel, and pays a $9.7 million tax bill. The excessive taxes on the Northport plant aren’t sustainable, and if needed, new plants would be built elsewhere on Long Island where the taxes are lower.

Common sense and the historical record must prevail over wishful thinking and small-minded political calculations. For Shoreham, local officials chose to ignore a problem until it was too late. History doesn’t have to repeat itself.

Paul J. Tonna served as a Suffolk County legislator from 1994 to 2005.