- By Dan Veaner
Property taxes are an undulating beast with many parts. If one part pays less, the other parts pay more. If there are more people to pay, each pays less, or so the theory goes. This Fall Lansing homeowners are going to find themselves facing a more than 6% rise in school taxes because the largest taxpayer has lost $25 million in value due to a negotiated PILOT (Payment In Lieu Of Taxes) agreement between the Cayuga Operating Plant and the Tompkins County IDA (Industrial Development Agency). That translates to about a half million dollars in school revenue loss. Somebody has to pay it, and that someone is you.
"The $25 million dollar decrease is about a $500,000 decrease in tax revenue that we're going to see for next year's budget," said Lansing School Superintendent Chris Pettograsso at a public budget hearing Monday. "It was just finalized two weeks ago. So we have been planning for these things and hoped they wouldn't come to fruition. This year it's actually coming to fruition, so we have to look at how we're going to fund our program."
PILOT agreements are attractive both to companies and governments because it allows them to plan spending and revenues over a period of years, which helps keep the inflow and outgo of dollars stable. Companies can estimate the amount they have to put aside for taxes, and governments can count on a more or less known amount of revenue for the years covered by the agreement. Even though the power plant has lost over a million dollars of value over the past seven or eight years, it has been good for school officials, if only because they knew beforehand what they would be faced with in terms of funding school programs.
When the PILOT agreement was first negotiated in 2007 it looked like it would be a boon to the affected taxing authorities. At that time the plant was valued at $142,000,000 and was scheduled to go up incrementally over the years covered by the agreement. In 2009 the plant was valued at $160 million, but almost immediately was faced with a loss in value, in large part because it is a coal-fueled power plant that has become significantly less viable in the electricity provider market. By 2014 it had lost $100 million in value, and the company's attempt to obtain state approval for a rate-payer funded conversion to natural gas was dragged out for years. The uncertainty made it difficult for the impacted taxing authorities to plan, especially the school district, which had received close to $3 million at the peak of the plant's value.
Last Fall the district received $1,241,190 in revenue from the plant, and that will be reduced further this year to an estimated $724,028. By the end of the current PILOT school revenue will be down to $413,730. And the plant will be valued at only $25 million. After that nobody knows what will happen.
"If the plant closed we would lose approximately $724,000 in tax revenue," Pettograsso said. "It's likely it would have some value just by being there, and it would go onto the general tax roles. In our conversations today we realized that might actually reduce our state aid. "
Part of the school district's response has certainly to make up for some of the loss by raising the levy each year and applying fund balance or reserve funds to the budget each year. But it also made a significant number of cuts over the years, focusing on non-classroom expenditures as much as possible to try to preserve the programs that make Lansing one of the most desirable local districts.
"Over the course of the last ten years we have made some significant reductions in our budget and some huge efficiencies," Pettograsso said. "We have looked at how we are going to appropriate some of our reserves and those types of things to meet the need. We've been fortunate to not have to demolish our entire program. By taking a little bit from each area, we'll be able to continue."
Pettograsso noted that partnerships with the Town of Lansing and its Recreation Department, which has taken on some of the sports programs, staffing them with volunteer coaches, has helped the school district maintain those programs while cutting its own expenses. But the biggest reason school taxes have been as low as they have been -- and that is not saying they are low. It is just saying they could have been much higher -- is that district officials have squirreled away money in reserves and consistently under-spent their budgets so they could roll money into their budget calculations each year to keep the levy beneath the state-imposed tax cap.
As if the calculations for the tax cap weren't complicated enough, monies coming from the tax levy and funds coming from PILOTs impact state school aid differently. Three years from now the plant may stay opened or it may close. At that point a new PILOT might be negotiated, or the plant might revert to the regular tax roles.
"If it went onto the roles as taxable property it would increase our assessed value for total student wealth unit that is part of the measurement for our combined wealth ratio, which is central to our aid," said School Business Administrator Mary June King. "I think that if it were to go onto the assessed roles it would be a detriment to our revenue stream with the State. The reductions might have some marginal value, but relative to the initial drop it would give us I think it wouldn't be a good thing."
With rising costs, may of them imposed by state mandates, school districts are between the proverbial rock and a hard place. The rock is increasing expenses, and the hard place is that it is harder to increase its revenue. School budgets are the only budgets in New York State that the taxpayers get to vote on. School officials have to walk a treacherous line between maintaining quality programs and asking for more than taxpayers are able or willing to pay. Ironically it seems as if the tax cap provides an incentive to increase the levy as much as possible each year, because it is, in part, based on the size of the previous year's levy. Not, of course, that school districts feel they can afford to collect less.
"If I went back and showed you all the reductions we've made since 2007 you'd be pretty surprised, because we have a great program now," Pettograsso said. "We had a great program then, but we were able to make some reductions and maintain our program."
State Assemblywoman Barbara Lifton has made a point of advocating state transition aid for communities like Lansing that lose large tax contributors. But the aid is for a limited period, and one of the requirements for Lansing would be that the plant be entirely closed. Pettograsso, Lansing Supervisor Ed LaVigne, and County Legislator Mike Sigler have all pointed out that while transition funds are a nice idea, Lansing probably doesn't qualify for them
"We're not sure about that," she said. "We're working closely with our Town and County legislators. There is a fund established for all municipalities that suffer a loss due to energy related concerns, especially plants closing. However, the plant has to actually close for us to actually get any support."
The school district can't do much to soften the impact of the plant's decline, but theoretically the Town government can by facilitating new development that will increase the tax rolls and thus, spread the tax obligation. The power plant is not the only challenge, however. Recently the Shops At Ithaca Mall saw a $10 million reduction in it's assessed value. The mall is not within the Lansing school district, but the drop in value does impact Village and Town of Lansing, Ithaca City School District, and County tax revenues. A moratorium on new natural gas customers in the town and Village of Lansing has held up some development, and threatens to slow new growth. An escalating debate on the cost and efficacy of alternatives such as heat pumps has entered into the mix. Gas pipeline proponents say natural gas is a transition fuel needed for development now until heat pumps and other, greener technologies can realistically replace it in the future. Proponents of the alternatives say the future is now, so more natural gas is not needed for most new development.
County Legislator Martha Robertson organized a phone conference Monday with NYS Senator Pam Helming, that included Robertson, King, Pettograsso, County Legislators Mike Sigler and Mike Lane, County Administrator Joe Mareane, Lansing Supervisor Ed LaVigne, Lansing Planning Consultant Mike Long, and Helming Chief of Staff Will Backes. The point of the call was to bring Helming up to date with the concerns of the community, especially in regard to transition aid. Pettograsso and King have expressed doubt that transition aid is a possibility unless the plant closes entirely. But Robertson says it might be possible if Helming and Assemblywoman Barbara Lifton joined together to change the law governing the aid. She says that Mareane and County Assessor Jay Franklin are working on the language of tweaks to the law that could make transition aid possible.
"I also hoped - and hope - this will lead to action," she says. "The Transition Fund is a reasonable vehicle to help Lansing - and the state just added $15 million to the $30 million fund in the new budget. The problem is there are 2 basic criteria to be eligible: The plant has to have closed completely, and the drop in PILOT payments has to exceed 20%. We certainly qualify on the latter, with a 41.6% drop in payments for next year. On the former criterion, our argument is that these plants lose value over a period of years. They don't drop off a cliff from one year to the next, so communities are facing longer term decline."
Robertson had also reached out to Lifton, who has long argued that transition aid could be a solution for communities like Lansing that are losing power plants.
Most Lansing officials say the sustainable remedy in the long term is to replace the plant's property value with new development that will increase the tax roles. That is not a pipe dream. Recent development in Lansing has been on the rise, with nearly 900 residential units and 30 projects currently under construction or in the planning phase. But restoring $100 million worth of tax base takes time, and with some projects seeking tax incentives to build here, it may take more time. Good in the long term, challenging in the short term.
In the short term, at least, the 'shifting' of the tax obligation lands square in the laps of individual property owners. In the past two years the State has sent checks to qualifying property taxpayers to make up for the rise in taxes in taxing districts that have stayed below the allowed tax cap. This year that changes to a flat $185 check, and in future years it is estimated that the amount will simply be deducted from tax bills. But in the long term, more and more residents will be challenged to stay in their homes as taxes exceed their means, especially for property owners on fixed incomes, unless the Town is successful in not only restoring the overall business tax base to levels at and above the drop suffered by the power plant.
That is certainly a good strategy, rather than having so many eggs in the proverbial one basket. The question, in the short term, is will it be enough until there can be relief either from the State or from new development?