Riverhead Town, school and fire districts are owed millions in payments in lieu of taxes from LIPA —which LIPA has been trying to pay

Riverhead Town and the school and fire districts in the town have not been paid more than $5 million in payments in lieu of taxes by the Long Island Power Authority for the current tax year.

But it’s not for lack of trying by LIPA.

In fact, the power authority’s CEO has twice written to Supervisor Yvette Aguiar asking her for a meeting so that the LIPA could work out “a process to allow LIPA to make its PILOTs” (payments in lieu of taxes) for the current year.

“I note that all of the other Towns in Suffolk County that have similarly exempted LIPA’s parcels from the tax rolls have provided the necessary information on behalf of their taxing jurisdictions and LIPA has made its PILOT payments.,” LIPA CEO Thomas Falcone wrote in a May 26 letter to Aguiar.

When he had no response to that letter, Falcone wrote to Aguiar again on June 29, again asking for an invoice so LIPA could pay the PILOTs.

Town officials said they did not know the total amount of PILOTs LIPA will have to pay, but the amount due the town for the current tax year is almost $1.5 million, according to Riverhead Financial Administrator William Rothaar.

School Superintendent Augustine Tornatore also said he could not provide a number for LIPA’s PILOT obligation to the school district. School district taxes represent about 60% of a property tax bill in Riverhead Town.

According to a document filed in a court case LIPA brought against Suffolk County in 2017, LIPA’s tax bills for its properties in the Town of Riverhead totaled more than $5 million in the 2018/2019 tax year.

With that number as a guide, the Riverhead school district would be due about $3 million in LIPA PILOTs.

The fire districts are owed much smaller amounts, but the amounts they are owed are significant to each district’s budget, Jamesport Fire Commissioner Chuck Thomas, who serves as president of the Riverhead Fire Districts Association, said in a phone interview Tuesday.

Jamesport Fire District is owed about $30,000, Thomas said.

Riverhead Fire District expects about $100,000, according to Riverhead Fire District legal counsel Jonathan Brown.

The PILOTs were included in 2022 budgeted revenues by all the fire districts, said Thomas, expressing frustration that Riverhead Town’s fire districts are in this position.

Riverhead Town and LIPA are in a standoff over who will invoice LIPA for the PILOTs it owes.

LIPA wants one consolidated invoice from the town, indicating the PILOT amounts due to the taxing districts within the town. LIPA would then issue one check to the town and the town would in turn disburse it to the various taxing districts within its borders. This is how tax revenues are collected and disbursed.

Riverhead has refused to issue LIPA a consolidated invoice. Town officials say their outside counsel has advised against it. Instead, the town has asked the individual taxing districts to bill LIPA directly.

LIPA told RiverheadLOCAL in a statement that every other town in Suffolk County that has recorded LIPA properties as tax exempt, has issued a consolidated invoice that “contains, for each parcel, the assessed value, the applicable tax rates, and includes all taxing jurisdictions.”

And each town has collected its PILOTs, LIPA said.

Southold Supervisor Scott Russell confirmed yesterday that with respect to Southold Town, LIPA has paid in full for the current tax year, Russell said.

It’s not entirely clear why Riverhead is the outlier. Aguiar did not seem to understand the problem last week when she put the subject of LIPA’s PILOTs on the Town Board work session agenda.

The supervisor had Thomas come before the board along with Assessor Laverne Tennenberg, whom Aguiar asked to fix the problem.

“All we need is a letter from the assessor,” Aguiar said. “How hard is to get that letter, Laverne? Is it complicated?”

“We don’t do that,” Tennenberg replied. “That’s not an assessor’s responsibility.”

“OK,” answered Aguiar, incredulous.

“That’s why I’m here,” Thomas interjected.

“This is very interesting,” Aguiar said.

Tennenberg explained that the assessors handle assessments, not issuing tax bills or invoicing PILOT payments. Tax bills are issued by the tax receiver, who is authorized by legislation to send out bills to collect the town’s certified tax warrant. But the tax receiver has no inherent authority to collect PILOTs either, Tennenberg explained.

The assessors have determined the assessments on the LIPA properties for the current tax year, “and it was up to the town to determine how to go about collecting it,” Tennenberg told the Town Board during last week’s discussion.

The Board of Assessors more than a year ago sent a memo to the Town Board detailing how LIPA’s properties had to come off the tax rolls because the authority is a tax-exempt entity. As a result, the taxable value for the town and highway department had decreased by nearly $27.7 million, the assessors wrote.

The town had to make arrangements to receive PILOT payments to replace the tax payments, the July 2, 2021 memo advised.

“As you know, attorneys for the ten towns in Suffolk County have been hammering out the details on how the owner of these properties will be making payments in lieu of taxes,” the Board of Assessors wrote.

Tennenberg distributed copies of the memo to board members again last week. RiverheadLOCAL obtained a copy of the memo through a Freedom of Information Law request.

Councilman Robert Kern, the Town Board liaison to the assessor’s office, asked Tennenberg last week for her recommendation on whether the town should do a consolidated bill.

“That’s a legal question,” Tennenberg told him, and “I really think outside counsel should be consulted.”

Ongoing lawsuit seen as a complication in collecting PILOTs from LIPA

The town hired Peconic attorney Scott DeSimone, a real property tax law expert, to represent it in litigation brought by LIPA against Suffolk County in 2017. The county counter-sued and named every town in Suffolk as third-party defendants.

DeSimone was not invited to the work session. When Councilman Ken Rothwell asked why he was not asked to attend, Aguiar said it was because he would charge the town for attending the meeting.

In 2017, LIPA sued to stop the county from filing tax liens against LIPA-owned properties and to prevent the county from taking tax deeds to the authority’s properties for unpaid taxes.

The 1986 LIPA Act established the power authority as a nonprofit entity exempt from property taxes. The LIPA Act required the authority to make payments in lieu of taxes — PILOTs — to municipalities and school districts on properties previously owned by the for-profit Long Island Lighting Company in amounts equal to the taxes and assessments that LILCO would have paid had it continued to own the properties.

LIPA became the owner of properties formerly owned by the for-profit Long Island Lighting Company in 1998.

The 2014 LIPA Reform Act limited PILOT increases to 2% per year beginning in January 2015.

Since then, LIPA has limited its PILOTs to 2% increases, according to the complaint filed against the county.

In August 2017, LIPA received 1,765 notices from the county’s finance and taxation division, alleging LIPA had not paid its property taxes in full for the 2015/2016 tax year and LIPA found itself threatened with tax sales, the complaint states. That was the origin of the pending lawsuit.

In its answer, the county said, among other things, that LIPA had no legal right to withhold payment of taxes and that its remedy for a tax grievance is to commence a judicial proceeding challenging the tax assessments — but it must still pay the taxes when due.

The county also argued that the properties are not exempt from taxation because LIPA failed to challenge, in a timely manner, the non-exempt classification.

The county also filed a third-party complaint naming each of the 10 towns because, it said, they are necessary parties to the action, since the county had to make the towns whole for LIPA’s unpaid taxes as required by the Suffolk County Tax Act — and if LIPA’s lawsuit were successful, the towns would have to reimburse the county for those amounts. It would hurt the towns, the county argued, so they are necessary parties to the action.

The county also challenged LIPA’s method of calculating the 2% cap on PILOTs, arguing that the cap had to be calculated on each individual taxing district’s prior year amount, not on the total amount payable for all the districts in a given town.

The trial court in a decision entered Oct. 8 last year, dismissed LIPA’s complaint and ordered LIPA to pay the county unpaid real property taxes for the tax years 2014/2015 through 2020/2021.

The court also dismissed the county’s third party complaint and the towns’ counterclaims as moot.

LIPA, the county and all 10 towns have filed appeals to the State Supreme Court’s Appellate Division.

Kern said in an interview yesterday he has a meeting scheduled next week with DeSimone to discuss the issues, in the hope of finding a way to accept PILOTs from LIPA for distribution to the affected districts without hurting the town’s case going forward. He declined further comment.

“I hope to have some clarity next week,” he said, “and will be able to discuss it then.”

Alek Lewis contributed reporting.