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Railroads, given their rollicking, land-grabbing past, don't get a lot of sympathy.

But when it comes to the property taxes they pay in New York, a little sympathy is in order, the rail lines say.

In fact, they are demanding it. And if a solution isn't found soon at the state Capitol, they intend to head to federal court to sue hundreds of communities around the state -- including dozens in Western New York.

How bad is it? Conrail, whose routes have been taken over by CSX Transportation and Norfolk Southern, in 1999 paid $5.1 million in property taxes to municipalities in Erie County -- double the total tax levy it paid to hundreds of towns and cities in all of Pennsylvania.

Gov. George E. Pataki proposes slashing railroad property taxes to prevent what freight carriers estimate will be a one-year doubling or more of their tax bills.

Tax relief for the railroads, though, means that some school districts and town and village governments could be caught short. They are being asked to eventually cover the cost of an estimated $40 million tax break.

But if the tax burden isn't dealt with quickly, state and railroad officials predict an early court resolution that will be even more devastating to local communities. And if that doesn't work, then railroads warn that they will move their railheads out of New York, a potentially devastating impact on the already struggling upstate economy.

"The danger for losing rail distribution points in New York State is substantial. That's the downside if we don't find a solution," said Assembly Majority Leader Paul A. Tokasz, D-Cheektowaga.

Tokasz has taken the railroads' side, even
though one of the school districts in his own town, Cheektowaga-Sloan, stands to lose $200,000 a year in railroad property taxes if Pataki's plan is adopted.

The numbers for other districts also represent big money. Schools in Erie County, for instance, would lose $1.2 million a year if the railroads have their way; Buffalo would lose $236,000 and Evans-Brant would lose $197,000, according to documents supplied by a state schools group.

For most districts, it would represent a loss of less than 1 percent of their total tax levy; for others with big railroad properties in their communities, the drop would be more substantial -- such as Cheektowaga-Sloan, which would see its school levy drop 2.4 percent, or tiny Ripley in Chautauqua County, which would see a 5.7 percent drop.

But Tokasz and others say rail towns could lose far more if the matter goes to court, because there may be no state aid to help ease the burden.

Pataki's legislative solution promises to cover the lost railroad property taxes for the next two years. In the following eight years, as communities are weaned from the rail tax money, the state will cover half the lost revenues.

Deal less risky than court

Though many school officials don't believe Pataki's offer is fair, the school superintendent in Cheektowaga-Sloan agreed that a legislative deal, with its state reimbursement, poses a better solution than a risky court fight.

"We'd prefer a legislative settlement rather than it ending up in court, where we'd probably lose, which is the most likely scenario, and then the court could order us to make an immediate payment (to the railroads), which could be a tremendous hit," said Superintendent James P. Mazgajewski.

He called the offer on the table in Albany "a decent compromise."

"The potential loss to school districts is substantial if they lose in court, which everyone seems to think is going to happen," Tokasz added.

But the group representing school boards across New York disagrees. The New York State School Boards Association believes schools, which do not set tax assessment levels, would be the victims in a situation they did not create.

"If the problem in the past was over the way railroad property was assessed, it wasn't our doing, and we, the school districts and the children, shouldn't be made to pay the consequences," said the group's spokesman, David Ernst. "There are not grounds for a lawsuit."

If there is a deal to be crafted in Albany, Ernst said, it should hold the schools 100 percent harmless, not the 50 percent Pataki and lawmakers have proposed over the next 10 years before schools are left on their own to shoulder the lost revenues.

Expansion project at risk

The matter centers on a federal law that bans state tax policies that discriminate against railroads. Railroads in New York, however, are taxed differently than other businesses and end up paying, they claim, far more in property taxes than other landowners. That situation led Conrail to court in 1973.

Four years later, Conrail and the state and municipalities settled out of court, and a settlement was made to freeze the railroad tax rates. But that settlement expired Jan. 1, and railroads say they are now facing tax bills in New York this year at least 40 percent higher than last year.

There are consequences to all this. CSX says the tax situation is making New York so uncompetitive that it will not guarantee to move ahead with a multimillion-dollar project to expand a distribution facility on William Street in Buffalo. The Pataki 2001 budget includes $4 million for the site that officials say will bring more rail business -- and therefore jobs -- to the Buffalo CSX yard.

CSX officials say the state money will complement up to $16 million more they would spend to expand the site, a move backers say could lure railroad clients, such as chain stores, to set up major distribution centers in the area. CSX says the site would also lower the cost of getting raw goods delivered to local companies, such as manufacturers, in turn lowering production costs.

"We've got situations where there are capital projects we want to do -- that we have to say no to now because the tax burden is so onerous we can't afford to take on those projects even with partners," said John Casellini, CSX's senior lobbyist.

Railroad belt-tightening

Tokasz said the proposed expansion of the CSX site at William Street would allow the railroad to double or triple the amount of goods handled at the facility.

CSX moves goods both through a "transflow" system, which moves anything that flows, from plastic pellets to syrup, and a multimodal system, which takes trailers off a train and places them onto trucks for shipping to their final destination.

"It's economic development," Tokasz said of the rail expansion plans. "It would increase employment not only in the railroad industry, but would allow us to become a warehousing hub."

The situation comes amid belt-tightening for the railroad industry. Norfolk Southern, the region's other big freight carrier, last month announced up to 2,000 job cuts nationwide and the loss of up to 4,000 miles of track it now operates. How much of that will be in New York is not yet resolved, according to company spokesman Rudy Husband.

"We would certainly have to factor the amount of property tax we pay versus the revenue being generated," he said.

Ernst, the school board spokesman, said his group is skeptical about claims of new rail development helping to add new tax revenues -- and in turn offsetting the rail tax cut being considered in Albany.

"We wouldn't be surprised if six years from now they try to negotiate further agreements for new properties," he said.

Last year, a last-minute deal to resolve the tax matter fell apart in the waning hours of the legislative session in Albany. Now, however, a real deadline is facing the parties. The railroads have a limited time, by law, in which to challenge property tax assessments by the municipalities. If nothing is resolved, CSX says Feb. 8 looms as a date to begin the court process to sue not only the state, but also the hundreds of other communities, from Cheektowaga and Lackawanna, that plan big railroad tax increases.

The Pataki administration does not reject taking the rail issue from the budget and resolving it now, before court action begins.

"If the Legislature is interested in discussing the need for railroad tax reform outside the context of the budget, it's certainly something that we would consider," said Joseph Conway, a Pataki spokesman.

CSX could sue first

CSX runs mostly along the same route as the Thruway, going along the Hudson and Mohawk rivers to Buffalo and west along Lake Erie. Norfolk Southern serves mostly the Southern Tier and into Buffalo. Because they serve different areas and tax rates of the towns are set differently, CSX will likely sue first if the matter isn't resolved.

Norfolk Southern's lobbyist, James Ryan, said his railroad would join the suit by early spring if it isn't resolved.

"If we're going to have a resolution, I think everybody would like to avoid litigation," Ryan said.

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