Op-Ed: Newsday’s Editorial on LIPA Is Flat-Out Wrong

The Newsday Editorial Board recently published a piece titled “LIPA Legislation in Albany Won’t Save Local Taxpayers” that attacked Senator Gaughran’s legislation (S5512A) to prevent LIPA from recovering any back taxes from Huntington, which passed the Senate unanimously last month and is now being pushed through the Assembly by Assemblyman Steve Stern.

According to the Newsday Editorial Board, the legislation is “clearly unconstitutional because it would deprive ratepayers and utilities of all contract, property and procedural guarantees under state and federal law to prevent overtaxation.” The board also claims that it is “dangerous because it would allow municipal assessors—LIPA deals with 13 assessing jurisdictions—to put any value they want on properties without fear of legal challenges seeking repayment.” Finally, they called the legislation “counterproductive to the goal of those trying to stymie the revaluation of the Northport plant.”

Each of these three claims—that the legislation is unconstitutional, that it is dangerous and that it will ultimately prove counterproductive—is demonstrably wrong. As the original author of the legislation who has spent significant time researching and drafting the bill, I would like to take this opportunity to respond to each of these three claims and set the record straight for our community.

  1. The Bill is Not Unconstitutional.

S5122A amends 1020-q(3) of the Public Utilities Law, which prevented LIPA from recovering back taxes from Shoreham originally assessed on the Shoreham Nuclear Power Plant. Had the Newsday Editorial Board taken even a cursory glance at some of the case law surrounding §1020-q(3), they would know that the courts have clearly and consistently upheld the constitutionality of this provision as applied to LIPA, including in Long Island Power Authority v. Shoreham-Wading River Central School District, 88 N.Y.2d 503 (1996) and Suffolk County v. Long Island Power Authority, 258 A.D.2d 266 (1999).

The constitutionality of §1020-q(3) was first challenged in 1990 as applied to LILCO in Matter of Long Island Lighting Co. v. Assessor of Town of Brookhaven, 154 A.D.2d 188 (1990). In that case, LILCO had sued Shoreham for a reduction in its taxes on the Shoreham Nuclear Plant, and sought back taxes for prior years of overtaxation. Shoreham, by contrast, argued that LILCO was barred from recovering back taxes on the plant under §1020-q(3), which in its original form applied to LIPA and LILCO.

The Appellate Division held that §1020-q(3) was unconstitutional as applied to LILCO, because LILCO was a private company entitled to certain constitutional protections, including the right to seek judicial review. This makes complete sense: just like a state government couldn’t pass a law barring you, a private citizen, from grieving your taxes, it similarly can’t pass a law barring LILCO, a private company, from grieving its taxes. As a side note, this has no implications on S5122A or Huntington’s current situation, as National Grid, a private company, does not pay taxes on the Northport plant like LILCO paid on the Shoreham plant. National Grid’s taxes are passed through to LIPA, which pays them.

In 1989, a year before the conclusion of the case, LILCO sold the Shoreham Nuclear Plant to LIPA for $1. Because LIPA is exempt from paying taxes as a governmental entity, LIPA’s takeover of the Shoreham plant threatened to deprive Shoreham of vital tax revenue. Recognizing the dramatic fiscal impact this exemption would have on Shoreham’s local property tax revenues, §1020-q(1) was included in the LIPA Act and required LIPA to compensate municipalities and school districts affected by any LIPA acquisition of a LILCO property with “payments in lieu of taxes” (known as “PILOTs”) in amounts equal to what LILCO would have paid had LIPA not acquired the property. As a result of this provision, beginning in 1989, LIPA paid Shoreham PILOTs in the exact amount that LILCO had paid in property taxes right before LIPA took over the Shoreham plant.

But that amount—the amount LILCO had paid in taxes right before LIPA’s takeover—was itself the subject of ongoing litigation. Where a tax rate is disputed, the rate that was paid at the initiation of the litigation is the rate that is required to be paid during the pendency of the litigation until a court issues a final determination. As a result, LIPA’s initial PILOT payments were pegged to the rate LILCO paid at the initiation of its tax certiorari litigation.

When LILCO ultimately won its tax certiorari case against Shoreham, its tax rate was lowered on the Shoreham plant. By that time, however, LIPA owned the Shoreham plant, not LILCO. Because LIPA was only required to pay PILOTs in the amount that LILCO would have paid had LIPA not acquired the plant, LIPA subsequently sought a refund from Shoreham for past PILOT overpayments, arguing that because the first year PILOT is “equal to one hundred percent of the taxes and assessments which would have been received by [Shoreham] taxing jurisdictions had the takeover not occurred, and the PILOTs for subsequent years are calculated off of that initial figure, a reduction in Shoreham’s assessed valuation for the first PILOT year would reduce the taxes that would have been received but for the takeover and, thus, directly reduce the statutorily required PILOT payments.” Shoreham objected, arguing that per §1020-q(3), LIPA was prohibited from recovering back taxes already paid, and those PILOTs were a form of back taxes. Litigation ensued.

By 1996, the dispute over the scope of §1020-q(3) as applied to LIPA had reached the Court of Appeals, the highest court in New York, in a case called Long Island Power Authority v. Shoreham-Wading River Central School District, 88 N.Y.2d 503 (1996). In that case, LIPA argued that just as §1020-q(3) is unconstitutional as applied to LILCO, it was similarly unconstitutional as applied to LIPA. The court rejected this argument, holding that “[Shoreham is] correct in noting that, as a State governmental entity, LIPA does not enjoy the constitutional protection afforded a privately owned utility such as LILCO.” And this also makes complete sense: government entities, as extensions of the government, are not entitled to constitutional protections like persons and private companies. Governments don’t have “rights” like we do; they have powers, and those powers can be expanded, modified, or completely rescinded depending on what the legislature decrees.

The Court of Appeals then went on to affirm that §1020-q(3) as applied to LIPA was valid, but that the scope of this provision was limited only to prohibiting LIPA’s recovery of back taxes for years prior to the enactment of the statute, not for years after its enactment. Because LIPA’s “liability for PILOT refunds was, as of the effective date of the [LIPA] Act, wholly prospective,” the Court of Appeals determined that “[t]he plain language of  Public Authorities Law §1020-q(3) does not prohibit an action by LIPA to recover PILOT overpayments.” Instead, the court went on to say, “§1020-q(3) bespeaks of a legislative intent limited to relieving the local taxing jurisdictions from the drastic impact of substantial refund liability for past taxes and assessments…not PILOTs prospectively imposed following LIPA’s acquisition of the Shoreham plant. Thus, §1020-q(3) prevents refund liability for property taxes originally assessed against the Shoreham plant, or for refund[s] of taxes based upon a judicial determination of overassessed evaluation for any of the years from [1976] to the effective date of this title.”

Notice what the Court of Appeals did not say. It didn’t say that §1020-q(3) as applied to LIPA is unconstitutional. Nor did it say, as Newsday’s opinion piece claimed, that LIPA cannot be prohibited from recovering past taxes or PILOT overpayments because such a prohibition would “deprive ratepayers or utilities of all contractual, property or procedural guarantees under state and federal law to prevent overtaxation.” Newsday just made this up. Instead, what the Court of Appeals said was that §1020-q(3) as applied to LIPA is lawful and affirmed that it “prevents refund liability for property taxes originally assessed against the Shoreham plant, or for refund[s] of taxes based upon a judicial determination of overassessed evaluation,” but then went on to clarify that because the case at bar did not concern a refund of past taxes, Shoreham couldn’t rely on the protections afforded by §1020-q(3) in that instance.

In other words, when the highest court in New York was confronted with the question over whether a law prohibiting LIPA from suing and recovering back taxes on the Shoreham plant was constitutional, it held that it was. No subsequent case has overturned this judgment. And perhaps it’s for this reason why Senator Gaughran’s legislation passed the Senate unanimously: because after a thorough review by the Senate’s legislative lawyers—whose fulltime job is to determine whether drafts of legislation proposed by Senators is constitutional—they approved of S5122A. Had there been any doubts, you can be sure that at least one Senator would have voiced them, or voted against the bill.

They didn’t, and for good reason: because the legislation is clearly constitutional.

  1. The Bill is Not Dangerous.

After completely exposing its rank ignorance on the constitutionality of S5122A, Newsday then goes on to reveal its profound confusion over what the legislation actually does. By saying that the legislation is “dangerous” because it would allow municipal assessors “to put any value they want on properties without fear of legal challenges seeking repayment,” it’s clear Newsday simply doesn’t understand what this legislation does.

If S5122A is passed, it will prevent LIPA from recovering back taxes for years preceding the enactment of the legislation. For any year after the enactment of this legislation, LIPA can still sue for back taxes.

To explain how this works by way of an example: suppose S5122A passes on, say, June 15, 2019. What this will do is preclude LIPA from recovering back taxes for any years prior to June 15, 2019. Now, suppose in 2023, Huntington decides to increase LIPA’s taxes on the Northport Power Station by, say, 150 percent. LIPA initiates another tax certiorari suit against Huntington and the case takes five years to resolve in court. We’re now in the year 2028. Under S5122A, can LIPA recover back taxes for years 2023 to 2028? Of course! The years 2023 to 2028 fall after 2019, and are therefore fair game for LIPA to grieve its taxes and collect back taxes. By contrast, however, can LIPA in the year 2028 sue for back taxes for years 2013 to 2018? No, it can’t—those years fall before 2019 and therefore protected by S5122A.

It is for this reason why this legislation poses no danger of incentivizing municipal tax assessors to put any value they want on properties without fear of legal challenges seeking repayment. If tax assessors raise the value of properties above their lawful value after 2019, LIPA can still sue those taxing jurisdictions for back taxes for any years after 2019. Because of this, tax assessors are not free to put any value they want on properties; they will still fear legal challenges seeking repayment because LIPA will still have the right to initiate such challenges.

  1. The Bill is Not Counterproductive.

Newsday’s last attempt to scare Huntington away from mobilizing behind S5122A is to try to convince us that we’re better off allowing LIPA to double our taxes, torpedo our property values and crush our schools on a brand new theory that if LIPA saves money in taxes on the Northport plant, this will somehow incentive National Grid to invest in upgrades to the Northport plant, thereby extending the longevity of the property and thus securing future tax revenue from the plant. “Reducing assessments on the National Grid plants,” Newsday claims, “would make upgrading them more attractive, and mean continued local tax revenue.” This line of reasoning is so farcical I’m tempted to not even respond, but since I’ve gotten this far I might as well finish strong.

First off, National Grid doesn’t pay taxes on the Northport plant. Even though National Grid owns the property, all taxes assessed and levied on the plant are passed through to LIPA, which pays the taxes on the plant. And so, we can say with absolute certainty that reducing assessments on the Northport plant would not make upgrading it any more (or, for that matter, any less) attractive, because the amount National Grid currently pays in taxes on the Northport plant is $0.00.

Newsday knows this, which is why I’m scratching my head over how it came to the conclusion that “[i]f [S5122A] passes, National Grid…would likely look to shut [the Northport plant] down when its power-supply agreement with LIPA ends in eight years.” That makes no sense. Why would National Grid shut down a plant over taxes it doesn’t pay? Even if National Grid had the right to shut down the Northport plant—which, by the way, it doesn’t have; LIPA has a right of first refusal over that decision and would never allow National Grid to unilaterally shut the plant down even if it wanted to—National Grid certainly wouldn’t shut the plant down over taxes it doesn’t pay.

The tax rate on the Northport plant is completely irrelevant to National Grid; it doesn’t care what the rate is, because it’s not paying it—LIPA is. And LIPA will continue to pay it, because LIPA needs the Northport plant to continue its entire operation. As I’ve written elsewhere, without the Northport plant, LIPA can’t access the NYISO and therefore can’t sell discounted electricity to its 1.1 million customers on Long Island. Without access to the NYISO, the entire justification for LIPA’s monopoly goes out the window.

Perhaps what Newsday meant to say was that reducing assessments on the plant will incentive LIPA, not National Grid, to make upgrades to the plant. The reasoning here is that if LIPA pays less money in taxes on the plant, and receives a giant windfall of $650 million in back taxes from Huntington, it will have more money to invest in upgrading the plant.

But wait a second. I thought the entire justification for LIPA’s malicious tax certiorari crusade was to lower our electricity rates? Does Newsday know something we don’t? Is Newsday arguing that LIPA wants to steal money from our schools and our property values, not to lower our electricity rates, but instead to divert that money into upgrading the Northport plant?

Of course not. Any tax savings that LIPA recoups from a successful tax certiorari on the plant will neither go towards a reduction in our rates nor towards upgrading the plant. That’s because before LIPA can do either of these things, it must first service its monstrous, ever-growing debt burden—a debt that today is higher than it was when it first bailed out LILCO and which legally takes priority over any other LIPA capital expenditures.

Michael Marcantonio is a Northport resident, lawyer, and former candidate for New York State Assembly.

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