LIPA faces $70M Suffolk County tax bill after judge rejects lawsuit

LIPA faces a potential tax bill of more than $70 million in tax liens, penalties and interest against its large portfolio of Suffolk properties after a judge threw out the utility's suit contending the liens were invalid.

The case, which LIPA originally filed against Suffolk County and the county comptroller in 2017, centered on a series of tax liens the county imposed on LIPA properties. The liens, which LIPA says aren't valid, were imposed after the electric utility began limiting its tax payments on Suffolk properties to a 2% cap over the prior year's taxes, arguing that a 2013 state law enacted the cap.

In some cases, town tax receivers faced with LIPA’s partially unpaid tax bills simply passed along the bill to Suffolk County, which under Suffolk tax law automatically makes up the difference to pay the towns.

But those unpaid tax bills began to accumulate to around 1,700 delinquencies — $58 million in delinquent taxes plus penalties and interest that total more than $70 million, according to Suffolk Comptroller John Kennedy. So he said he took the position that LIPA was no different from any other property owner with unpaid taxes, and he filed for liens on the LIPA properties.

"Everyone said there’s nothing you can do about it," Kennedy said Monday of LIPA’s unpaid tax bills. "I said I’ll file a lien on their properties and foreclose."

State law bars foreclosing on government properties such as LIPA's, a state authority, but Kennedy said he plans to use the recent judgment to force LIPA to pay.

LIPA’s suit sought to declare the liens held by Suffolk "illegal and void," and "canceled immediately."

But Acting Supreme Court Justice John Rouse disagreed, dismissing the suit, ruling that LIPA must pay the county tax bill, and ruling that it didn’t file tax challenges for the properties on time. The judge said the utility began applying the cap six months too early, starting in the 2014-2015 tax year, before the law took effect.

Rouse’s April 1 order says LIPA’s transmission and distribution properties, including substations, electrical towers and power line rights-of-way throughout the county, "are not exempt from real-property taxation" for the tax years 2014 through 2020, in part because LIPA failed to "challenge their unlawful assessment as nonexempt, taxable properties by the town assessors during those years."

LIPA chief executive Tom Falcone said the authority will appeal Rouse's decision, which "we don't believe it's a proper reading of the law."

Jon Ward, an outside attorney for the county at the Uniondale law firm Sahn Ward, said one of the problems for LIPA in the case was that "there’s a procedure where you’re supposed to challenge the assessments" of the properties for which the tax bills are issued, "and LIPA never did. Since they never challenged they can’t invalidate the liens for the unpaid taxes," which are time-barred.

Falcone said LIPA will file paperwork to remove thousands of its properties from towns' tax rolls to reclassify them as PILOT-paying (payments in lieu of taxes) properties so that the state-mandated 2% tax cap applies to them, a move to bring them into compliance with the judge's ruling.

LIPA, since its takeover of the Long Island Lighting Co. in 1998, has been making PILOT payments, since the state authority is exempt from taxes.

Rouse, a former Suffolk assistant district attorney who previously served as Brookhaven’s superintendent of highways, ordered LIPA to pay the county all unpaid real-property taxes for the properties for those years, plus interest and penalties.

LIPA's suit argues that provisions of the LIPA Reform Act of 2013, a state law that revamped the utility, allowed LIPA to limit its payments in lieu of taxes on LIPA properties to 2% above the prior year’s taxes.

During its early imposition the new law left towns scrambling, forcing Suffolk towns to look to the county to make up the difference when local budgets exceeded the tax cap.

LIPA began notifying taxing districts of its refusal to pay tax bills above the cap in 2015. As Newsday reported at the time, it left districts scrambling with unpaid bills of $1,102 at Shelter Island to $1.07 million at Brookhaven Town. Nassau County and its 56 school districts reached a settlement of their separate lawsuit in 2016 on the tax-cap matter, abiding by the 2% cap.

Falcone said most of the overcharges beyond the cap in Suffolk are coming from four of Suffolk's 10 towns. "They send a bad bill to Suffolk, Suffolk pays it, it doesn't affect the towns and they have no incentive to fix it," he said. "Meanwhile they are overcharging us."

He said the Reform Act makes clear that the 2% cap is a "statutory," noting that Nassau County and New York City already are complying.

Kennedy said it's ultimately going to be LIPA, and perhaps its 1.1 million ratepayers who pay the tax bill. "It exposes their cavalier attitude and their unwillingness to abide by any of the normal processes that everybody else has to go through in their taxes," he said. "They've just turned a blind eye to it. It's arrogance."

By Mark Harrington

mark.harrington@newsday.comMHarringtonNews

Mark Harrington, a Newsday reporter since 1999, covers energy, wineries, Indian affairs and fisheries.