Published: May 02, 2009 01:53 am      

AES SUIT: Judge invalidates payment-in-lieu-of-taxes agreement

AES Somerset’s $43 million tax break has been canceled.

A Friday ruling by the State Supreme Court Appellate Division, Fourth Judicial Department, invalidated the 12-year payment-in-lieu-of-taxes deal given to the power generator by the Niagara County Industrial Development Agency in October 2006.

“The AES tax exemption agreement is out the window,” said Robert Roberson, a former attorney for the Town of Somerset. “It is a complete reversal of the decision of Judge (Richard) Kloch. It will save the town, the county and the school district somewhere around $40 million in taxes they won’t have to pay to avoid AES paying them. That’s a lot of money.”

Since the PILOT is invalidated, however, AES Somerset’s multiple lawsuits against the town, all challenging the plant’s assessed value, can be reactivated. Town Supervisor Richard Meyers said he’s eager to try settling those claims out of court.

“I’d love to have the opportunity to sit down and really negotiate this with AES, and put it behind us once and for all,” Meyers said. “We’re well past this litigation cycle that we’ve been in for so long.”

Neither AES Somerset plant manager Kevin Pierce nor the special attorneys for AES and the IDA could be reached for comment late Friday.

The town, Barker School District and Niagara County all sued the IDA and AES in early 2007 seeking to have the PILOT rescinded. When Kloch, a state Supreme Court justice in Niagara County, threw out their petitions later that year, the county Legislature declined to proceed with an appeal. The school district and the town proceeded.

The IDA had granted the power company a 12-year, $192 million PILOT in exchange for the company’s promise to pursue a shot at building a state-subsidized clean coal plant under former Gov. George Pataki’s Advanced Clean Coal Initiative. The company also promised it would drop a series of pending lawsuits against the town challenging its annual assessment. AES later lost out on the clean-coal deal but the PILOT remained.

By taking AES property off the tax rolls and letting it make less-than-tax value payments for 12 years, the school district, the town and the county together stood to lose an estimated $43 million in revenue. The plant came off the assessment rolls in mid-2007, costing Barker School District alone nearly $3 million in two tax cycles since then. Before the removal from the rolls, the town listed AES Somerset’s value as $705 million. The company claimed its market value was $100 million.

The taxing entities argued the PILOT was improper because AES supplied the IDA with incomplete financial information and the IDA didn’t follow its own rules for granting tax breaks.

The four-judge appellate panel out of Rochester sided with the taxing entities and ruled unanimously that Kloch shouldn’t have dismissed the suits.

The ruling, posted online about 3 p.m. Friday, cites multiple flaws in the IDA’s stated justifications for granting the tax break, including:

• AES did not present Somerset plant-specific financial information from which the IDA could fairly decide a tax break was necessary.

• The IDA did not have any evidence supporting its claim that by granting the break, and getting AES to drop the assessment lawsuits, the taxing entities would benefit.

• The IDA did not, in its deliberations on the break, prove that deviation from its uniform tax exemption policy was warranted.

The panel also said the PILOT agreement improperly gave the IDA the power to determine the assessed value of any future additions to the Somerset generating station.

Kloch should have ruled in favor of the school district and the town, “thereby annulling the ... PILOT agreement” and he “erred” in dismissing AES Somerset’s assessment relief petitions, the panel said.

Deputy Town Supervisor Daniel Engert hailed the decision. The IDA was out of line when it tried imposing a settlement of AES’ outstanding assessment complaints without the consent of the affected taxing entities, he said.

“It was never up to them,” he said. “We’re happy to have it back in our court.”

Contact reporter Joyce Miles at 439-9222, ext. 6245.