LIPA power lines in Calverton. Photo: Peter Blasl

The Riverhead Central School District has rejected a proposed agreement from Riverhead Town in an effort to collect approximately $2.9 million in payments-in-lieu-of-taxes (PILOTs) owed the school district for Long Island Power Authority properties for the 2021-2022 tax year.

The agreement would not resolve the dispute and would entangle the district into ongoing litigation between the town and LIPA, according to a letter from the school district’s attorney.

The district’s law firm, Guercio & Guercio, notified the town’s special counsel Scott DeSimone on Aug. 15, to say they advised the district against signing the agreement DeSimone drafted.

The agreement would authorize the town to collect the school district’s share of the PILOTs from LIPA and protect the town from liability in the event of a miscalculation.

LIPA owes Riverhead Town, the school district and fire districts in the town about $5 million in PILOTs for the current tax year, with some $2.9 million of that due to the school district.

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

The town’s proposed agreement “does not include the Long Island Power Authority as a party such that it would resolve the dispute,” the law firm’s letter states.

“Further, the Agreement does not contemplate an obligation or agreement by LIPA to issue a payment regardless of the Town’s action or inaction,” the letter says. The law firm drafted its own proposed agreement for the town’s consideration and forwarded it to DeSimone with the Aug. 15 letter, which refers to the attachment.

The town’s agreement would “obligate the district to join in the position the Town has taken in its ongoing litigation with LIPA” and “virtually ensure that the District will become entangled in the ongoing legal disputes between the Town and LIPA,” Guercio & Guercio wrote. 

“To date, the District has refrained from taking a position as between the Town and LIPA in order to avoid the time and expense associated with what appears to be protracted litigation,” the letter states. “This position is reasonable given that neither the Town, nor LIPA, disputes that the District is entitled to payment for the PILOTs owed by LIPA. It also cannot be disputed that the financial resources of the District are best utilized when allocated toward educating students rather than on the legal expenses associated with litigation of this nature,” the letter states.

“It is unfortunate the District continues to be collaterally damaged as the result of the Town and LIPA’s inability to reach an agreement to resolve these disputes.”

Pending litigation between the town and LIPA over PILOTs

Riverhead Town and the rest of the towns in Suffolk County were made parties to a lawsuit brought by LIPA In 2017, 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 county brought the towns into the suit because the outcome of the suit will affect the towns.

In a trial court decision last year, LIPA’s complaint was dismissed and the company was ordered to pay the county unpaid real property taxes for the tax years 2014/2015 through 2020/2021. The court dismissed the county’s third party complaint (making the towns parties to the suit) and ruled the towns’ counterclaims as moot. 

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

What the litigation is all about: One PILOT invoice or several?

Under state law, LIPA properties can no longer be on the tax rolls, but the authority is required to make payments in lieu of taxes in the same amounts as its tax liabilities, with an annual increase limited to 2%.

The Riverhead Board of Assessors in July 2021 sent a memo to the Town Board explaining the situation, which resulted in a reduction of nearly $27.7 million in taxable value for the town and highway department’s taxable value. The memo advised the board the town had to make arrangements to receive PILOT payments to replace the tax payments.

LIPA’s CEO twice wrote to Supervisor Yvette Aguiar asking the town to send a consolidated invoice for the total PILOT amount owed for the LIPA-owned parcels in the town. LIPA would then issue one check to the town and the town would in turn disburse the amounts owed to the various taxing districts within its borders. That is how tax payments are handled.

DeSimone advised the town against it. The town lacks statutory authority to collect and disburse PILOT payments the way it collects and disburses tax payments — which is authorized by state law.

Riverhead is the only town in Suffolk County that hasn’t sent a consolidated bill and collected its 2021-2022 PILOTs, according to LIPA.

DeSimone met with the Town Board via Zoom during its Aug. 11 work session on to discuss the situation. He said last year he prepared individual PILOT invoices for each taxing district in the town, for the individual districts to send to LIPA. But LIPA refused to pay the individual invoices, DeSimone said, and has insisted on a consolidated invoice covering all the taxing districts. DeSimone suggested suing LIPA to compel payment of individual PILOT invoices for each taxing jurisdiction. 

DeSimone told the board he has now prepared PILOT invoices and agreements between the town and each of the taxing districts. The agreement would allow the town to collect the PILOT payments from LIPA on behalf of the districts on a one-time basis and shield the town from liability should there be a dispute over the amounts collected.

[See prior coverage: Riverhead may sue LIPA to collect payments in lieu of taxes LIPA says it’s ready and willing to pay]

A copy of the letter from the school district’s attorneys was shared with RiverheadLOCAL by the school district via its public relations firm in response to a request for comment about the ongoing dispute. The proposed agreement from DeSimone on behalf of the town was not provided by the district, nor was the district’s proposed agreement; a request to obtain the proposed agreement from the town was denied by Town Attorney Erik Howard.

In a call Friday, Howard said the town sent a proposal to the school district and other taxing districts in the town that included a waiver to send an invoice to LIPA for the PILOT payments. The agreement “is basically structured to say, you know, we’re going to do this on a one-time basis. We don’t want it to be precedent-setting,” Howard said.

The town attorney said he could not explain why the district would be fearful of getting wrapped up in the ongoing litigation between LIPA and the town. “[I]n no way does it join them to the litigation that’s currently pending with the Appellate Division.”

The school district’s attorneys’ letter states the district is “prepared to sign an agreement whereby the legal issues between the Town and LIPA are preserved for resolution in the future, provided the District receives payment for the LIPA PILOTs it is owed from the 2021/2022 tax year.”

“That’s what we’re trying to accomplish,” Howard said in response. “I mean, I guess they’re not comfortable with, like, the language in it. But, I mean, really, it’s designed to accomplish precisely that.”

“Our position was that there’s no statutory authority for us to be invoicing this and collecting it and distributing it anyway. So we want you [the districts] to give us an agreement that says you’re okay with us doing it, despite the lack of the statute regulating it,” Howard said. “And that basically, you’re not going to hold us liable for you know, any miscalculations or whatever. They were all provided with a breakdown of what the amounts were that they should receive with respect to each parcel within that taxing jurisdiction.”

Howard said he talked to DeSimone the day after the work session, before the school district’s attorney’s sent their letter, and DeSimone said he would try to resolve the issue. Howard said he had requested an update from DeSimone early Friday, but had not yet received a response.

Howard said he and DeSimone had also discussed the special counsel’s recommendation to sue LIPA to require it to accept individual PILOT invoices. “We didn’t make a final decision on it,” Howard said.

“The problem with that is, is if we were to do that, we would really just be seeking you know what the town’s owed,” he said. “So, our position would be that all the other jurisdictions would need to, you know, either join that suit if we were to file it, [or] in their own name…sue separately.”

According to school Superintendent Augustine Tornatore, the district anticipated not receiving the $2.9 million and budgeted accordingly, due to the ongoing dispute between the town and LIPA.

“If in fact the District does receive these funds during this academic year, the Board will consider all options available as to how to account for the funds in this year’s budget as well as in developing a budget for the 2023-2024 school year,” Tornatore said in a written statement.

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