Op-Ed: Exposing the ‘Back-Taxes’ Charade

With a few days to go before the Huntington Town Board decides whether or not to accept LIPA’s settlement proposal, it’s worth reviewing the primary argument in favor of settlement to see if it still holds up, especially in light of all that we’ve learned about this settlement deal over the last month.

The pro-settlement position is almost entirely predicated on the fear that if we don’t settle and lose the lawsuit, each property owner in Huntington runs the risk of owing LIPA an immediate one-time back tax refund next year of $10,000 to $25,000 per residential property owner.

Admittedly, if this were true, then the pro-settlement position would hold more weight. But it’s not. It is based on a fundamental misunderstanding of the law concerning the payment of tax refunds in Suffolk County.

The Law

Under the Suffolk County Tax Act—the act that governs the repayment of back taxes awarded in a tax certiorari judgment—it is impossible for any property owner in Huntington to be liable to LIPA for a one-time back tax refund next year. It’s not how the law works.

That’s because the Suffolk County Tax Act requires, among other things, that Suffolk County pay all back-tax judgments awarded to any petitioner (like LIPA) against any township in Suffolk County (like Huntington, but also Babylon, Smithtown, Islip, Brookhaven, Riverhead, etc.).

And on this point, the law is clear: Article I, Section 3 of the Suffolk County Tax Act provides, in pertinent part:

“If in a final order in any proceeding under Article 7 of the Real Property Tax Law it is determined that the assessment reviewed was excessive, unequal or unlawful  . . . then any amount at any time unlawful, or which has been determined in such order shall, in the same manner as other county charges . . . be audited and paid by the county to the petitioner or other person paying such tax or other levy, including interest thereon as provided in article 7 of the real property tax law.” Town of Islip v. Long Island Power Auth., 301 A.D.2d 1, 7 (N.Y. App. Div. 2002). 

In other words, any tax refund imposed on a town, county special district, or school district must be charged to, and paid by, Suffolk County—not the town, county special district, or school district. Not Huntington, Smithtown, Babylon, Islip, Brookhaven, Riverhead, or any other township on Long Island. It must be paid back by Suffolk County.

If this sounds crazy to you, ask yourself: when you pay your property tax bill, does all of your money go to Huntington? Of course not; a large chunk of your property taxes goes to county taxes, especially Suffolk County police taxes.

The same is true for LIPA. When LIPA paid $86 million this year in property taxes on the Northport Power Station, Huntington didn’t receive all $86 million of that. Suffolk County received $15.5 million of it.

But if Huntington were responsible to repay 100% of LIPA’s back taxes, as is consistently implied when talking about this issue, then Huntington would effectively be responsible for bailing out Suffolk County.

Given that any tax refunds owed to LIPA consist of both Town and County refunds (LIPA has paid Suffolk County $139 million in property taxes since 2010), the state legislature saw fit to place the burden of initially paying back the total amount of any back tax judgment on the County, which has more leverage and better access to capital than any constituent Suffolk County township.

In this sense, the Suffolk County Tax Act serves as a protection for Suffolk’s townships—as Suffolk County not only has more leverage and bargaining power than any individual township in Suffolk, but it can also borrow money on much better terms than any township in Suffolk.

Incidentally, this is why the North Rockland County School District’s case is completely inapplicable to ours. Orange County, the county in which the North Rockland School District sits, does not have the protections we have under the Suffolk County Tax Act.

How Suffolk Pays for This

Now, if the tax judgment is $10,000 or less, then Suffolk County will immediately charge the amount of the full refund back to the town. If, however, the amount exceeds $10,000 (which in our case it obviously does), then Suffolk County will finance that amount in accordance with Local Finance Law.  

Under Local Finance Law, Suffolk County is permitted to issue a bond—a minimum of a 20-year bond, but likely a 20-to-30-year bond—to finance the payment of the total back tax judgment owed to LIPA.

Upon receipt of the proceeds of that bond issuance, Suffolk County will then pay back LIPA’s judgment in full. To pay off the bond for the next 30 years, Suffolk then looks to Huntington to recoup Huntington’s equitable share of the future bond payments.

The Charge-Back

Upon satisfying LIPA’s judgment, Suffolk will have 20 to 30 years to repay the bond in full until its maturity date. Under the Suffolk County Tax Act, Suffolk is permitted to enter into an agreement with Huntington whereby Suffolk will “charge back” to Huntington every year Huntington’s equitable share of the per annum principal and interest of the bond, with Suffolk paying the remainder. As provided under Article I, Section 3, of the Suffolk County Tax Act:

“The county may, with the consent and agreement of such town, special district or school district, finance, pursuant to the local finance law, for such period, or any lesser portion thereof, as shall be authorized by the local finance law, in whole or in part, the amount authorized hereunder to be charged by the county to such town or special district or by the town to such school district and provide, in such consent and agreement, for the annual repayment of a sum equal to the principal of, interest on and redemption premium, if any, together with a sum to be agreed upon as the share of the county’s costs and expenses incidental to the issuance of obligations to finance the aforedescribed amount, to be paid by the county in the next fiscal year with respect to the amortization and payment of such financed amount . . . .”

As provided here, Suffolk cannot ‘chargeback’ to Huntington more than its equitable share of the amortized per annum principal and interest in any single year. Suffolk can’t, for example, turn around and tell Huntington next year that it needs to pay Suffolk back the full amount of back taxes right away.    

And it is for this reason why it’s impossible that anyone next year will be asked to pay a $10,000 to $25,000 back tax charge to LIPA should we lose the lawsuit.

The most Huntington will be obligated to pay is Huntington’s portion of the 30 year amortized amount of the total back tax judgment, which is undoubtedly, for residents outside of Northport and East Northport, no more than the amounts being asked to pay under the settlement agreement (and therefore obviously much less than what the settlement would require for Northport and East Northport residents).  

Perhaps this is why, after weeks of telling everyone that losing the lawsuit will obligate each Huntington taxpayer to fork over a one-time back tax payment of $10,000 to $25,000 next year, last Friday Supervisor Lupinacci was forced to admit to the Northport Observer that he was completely wrong about the back taxes:

“Although they are on opposite sides of the settlement, Mr. Lupinacci and Mr. Marcantonio concur that it is the obligation of the county to initially pay the back taxes. ‘The Suffolk County Tax Act governs all refund liability, not the town, so in a worst-case scenario the county would have some very difficult decisions to make. It is their responsibility to pay any judgment first . . .’ Mr. Lupinacci said.” Page 22, The Observer, August 27, 2020.

This is truly a stunning admission, exposing that the Town completely misled us on this. They went from telling us that each taxpayer would owe $10,000 to $25,000 should we lose the lawsuit, to telling us that, actually, Suffolk County is responsible for all refund liability under the Suffolk County Tax Act.

With this comment, the entire case for the necessity to settle right now has gone out the window.

But it’s not just Lupinacci; it’s also the School Board and their lawyer, John Gross. This is what Mr. Gross said to the entire public on the July 15th public school board vote on this issue:

“Under the Suffolk County Tax Act, as I said, the entities that pay back that $800 million if LIPA were successful is every taxpayer in the Town of Huntington. And depending on assessed valuation, immediately, if the judgment is issued by the court in LIPA’s favor, which we would expect there’s going to be some reduction, everyone will have to pay between $10 [thousand] and $25 [thousand] dollars. Immediately.”

No mention from Gross of the fact that Suffolk County—not “every taxpayer in the Town of Huntington”—is responsible for paying back the judgment. No mention from Gross that Suffolk County is not permitted to charge back to Huntington more than its equitable share of the per annum principal and interest over the life of the bond. The fact that Mr. Gross references the Suffolk County Tax Act, then misleads the public on what the Suffolk County Tax Act actually provides, is very troubling. There is no plausible interpretation of the Suffolk County Tax Act that could justify his reading of it, to such an extent that I question whether or not he actually has read it.   

The Reality

This piece throws a lot at you, but here’s the ultimate takeaway. The reason why LIPA is demanding we settle this month is because LIPA doesn’t want the judge to issue a ruling on this case. If she does, LIPA loses even if it wins. If the judge sides with us, LIPA loses. If the judge sides with LIPA, LIPA loses, because now our problems are Steve Bellone’s problems.

It’s one thing for LIPA to extort Huntington into willingly handing over our money to them. It’s a whole other thing for LIPA to demand that from Suffolk County.

LIPA might be able to take the political hit from Huntington; it can’t take a hit from Suffolk County, especially right now with the fallout from Tropical Storm Isaias and the Governor threatening to disband LIPA.

And so, if we keep fighting this, what we may find is that, even if we lose in court, we win—because under such circumstances the obligation to pay LIPA’s back taxes falls on County Executive Bellone, who would be required under the law to issue a bond for $825 million in the midst of a pandemic and a financial crisis.

Knowing this, ask yourself: do you actually think the County is going to borrow $825 million to pay back LIPA right now? Of course not! The County Executive will immediately call up Governor Cuomo and let him know that, despite the fact that the County is required to pay this back, the County can’t afford to put this on its balance sheet right now.

What do you think the Governor is going to do when he hears this? A safe bet is that LIPA will drop the back taxes. And you know how we know that? Because that’s exactly what happened when the courts hit Shoreham with $1.5 billion in back taxes the last time LIPA extorted an entire township. The judgment fell on Suffolk County to pay back, which it couldn’t do. Faced with this reality, LIPA dropped the back taxes.

The same could be true for us here—if we summon the strength and courage to continue this fight.

Michael Marcantonio is a candidate for the 12th Assembly District and an opponent of the LIPA tax settlement proposal.

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