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A fair deal ; Tax break for AES Corp. protects a crucial business and taxpayers

Niagara County Industrial Development Agency officials have come up with a creative way to satisfy the county's largest property taxpayer while protecting taxing jurisdictions and the citizens who support them.

Recently, Henry M. Sloma, chairman of the county IDA, announced the agreement at a board meeting.

AES Corp. had previously requested a reduction in total tax payments, citing financial trouble because electricity prices are falling at the same time the price of the coal it burns to produce electricity is rising. The company came to the IDA in January of last year along with the taxing jurisdictions with aPILOT plan, or payment-in-lieu-of-taxes, which everyone agreed upon.

The terms under which AES wanted to renegotiate were understandably unpalatable to the local municipalities dependent upon the company's tax dollars. This year, AES paid a total of $15.8 million to the county, the Town of Somerset and the Barker Central School District. The deal ultimately reached was not as generous as what the company wanted, but it proves that there is often a middle ground.

The agreed-upon terms reduced total tax payments by AES on its coal burning power plant in Somerset by $1.5 million in the 2011-12 school year and by another $1.5 million in 2012-13. There is a mechanism that would increase the company's payments again if the currently depressed wholesale electricity market has a resurgence. However, if they remain at the current level, the company would pay $14.3 million next year and $12.8 million in each of the three years following.

What this does is provide a safety valve for the taxing jurisdictions. The company was able to reopen the PILOT at any time, as it just did, but the taxing jurisdictions lacked that license. The new deal provides it.

The company wanted the tax burden lowered and the taxing jurisdictions want to help, but if the market changes, taxing jurisdictions don't want to be left holding the bag. It was up to the IDA to create a mechanism to protect the taxing jurisdictions if, for example, spiking energy prices make the company more profitable and stable.

Sloma recently indicated that he's confident any loss of tax dollars would be made up by new PILOT payments already approved for the proposed Verizon Communications data center, which will be built next door to AES, if Verizon can get over the hurdle of litigation over its environmental approvals.

AES is the county's largest taxpayer and represents 50 percent of the Barker Central School District's budget. An AES plant shut-down would be catastrophic, so officials had to be part of the solution in helping the company to remain in the area, employ people, buy goods and services and, most importantly, pay the PILOT.

The details on the plan have yet to be worked out but the concept is firm, so the IDA has scheduled a public hearing for 5 p.m. Feb. 1 in Somerset Town Hall, and a vote on the revised PILOT arrangement is expected at the IDA board's Feb. 9 meeting. Sloma hopes to finalize the deal before March 1, which is taxable status day in Somerset. Changes beyond that date would not take effect until the 2012-13 school year.

Of course, the company has its concerns over the methodology. AES has said there are other metrics in its business -- the cost of coal, transportation and labor. But this deal carves out a creative middle ground that hopefully will work for both the company and the taxing jurisdictions that depend upon it.

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