Long Island Power Authority v. Shoreham Wading River Cent. School Dist.

• Decision Date: 13 June 1996
• Docket Number: SHOREHAM-WADING
• Citation: 670 N.E.2d 419,647 N.Y.S.2d 135,88 N.Y.2d 503
• Parties: , 670 N.E.2d 419 LONG ISLAND POWER AUTHORITY et al., Respondents-Appellants, v.RIVER CENTRAL SCHOOL DISTRICT et al., Appellants-Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 135

647 N.Y.S.2d 135

88 N.Y.2d 503, 670 N.E.2d 419

LONG ISLAND POWER AUTHORITY et al., Respondents-Appellants, v. SHOREHAM-WADING RIVER CENTRAL SCHOOL DISTRICT et al.,

Appellants-Respondents.

Court of Appeals of New York.

June 13, 1996.

Murphy, Bartol & O'Brien, L.L.P., Mineola (Ernest T. Bartol and Jeffrey P. Sharkey, of counsel); Lewis & Greer, P.C., Poughkeepsie (Lou Lewis and Michael J. Englert, of counsel); Emily Pines, Town Attorney of Town of Brookhaven, Medford; Sapienza & Frank, Mineola (Salvatore Sapienza, of counsel); and Robert Cimino, County Attorney of County of Suffolk, Hauppauge (Robert L. Garfinkle, of counsel), for Shoreham-Wading River Central School District and others, appellants-respondents.

Richard Charles Hamburger, P.C., Melville (Richard Hamburger and David N. Yaffee, of counsel), for Shoreham-Wading River Public Library District and another, appellants-respondents.

Rivkin, Radler & Kremer, Uniondale (Arthur J. Kremer, Evan H. Krinick, Merril Schapiro Biscone and Christine M. Metzner, of counsel), and Stanley Klimberg, Garden City, for Long Island Power Authority, respondent-appellant.

LeBoeuf Lamb Greene & MacRae, LLP, New York City (Michael Lesch and John G. Nicolich, of counsel), Leonard P. Novello, Hicksville, and Ronald J. Macklin for Long Island Lighting Company, respondent-appellant.

OPINION OF THE COURT

LEVINE, Judge.

These cross appeals involve the construction of provisions of the Long Island Power Authority Act (Public Authorities Law §§ 1020--1020-hh [L.1986, ch. 517 (eff. Jan. 15, 1987) ], dealing with the obligation of plaintiff Long Island Power Authority (LIPA) to make payments in lieu of taxes (PILOTs) to the defendant local governmental taxing jurisdictions which otherwise would have been due from intervenor plaintiff Long Island Lighting Company (LILCO) except for LIPA's acquisition of LILCO's Shoreham Nuclear Power Plant. At issue are: (1) the effective date for substitution of LIPA's PILOT obligation for LILCO's real property tax liability on the Shoreham plant; (2) whether and at what level, if any, PILOTs on Shoreham are to continue in perpetuity; and (3) whether LIPA may seek refunds on past PILOTs based upon court challenges to existing assessed valuations of the Shoreham plant.

Enacted in 1986, the LIPA Act created a public power authority having the prerogative to acquire all or part of LILCO's assets through a negotiated settlement, tender offer for LILCO's capital stock or the exercise of eminent domain (Public Authorities Law § 1020-h). The Act further stipulated, however, that upon acquisition of the Shoreham plant, LIPA was to close and decommission the plant "forthwith" (Public Authorities Law § 1020-h[9].

The LIPA Act gave LIPA tax-exempt status, as a public authority, respecting any property it acquired from LILCO (Public Authorities Law § 1020-p). In recognition of the potentially drastic fiscal impact of the loss of local property tax revenues because of the exemption, the LIPA Act provided for LIPA's payment of PILOTs to the municipalities and school districts affected by any such acquisition of LILCO property (Public Authorities Law § 1020-q[1]. However, in the case of the Shoreham plant, the Act provided for reduction in the amount of PILOTs over time. Thus, Public Authorities Law § 1020-q(1) provides:

" § 1020-q. Payments in lieu of taxes

"1. Each year after property theretofore owned by LILCO is acquired by the authority by any means authorized by this title and, as a consequence, is removed from the tax rolls, the authority shall make payments in lieu of taxes to municipalities and school districts equal to the taxes and assessments which would have been received from year to year by each such jurisdiction if such acquisition had not occurred, except for such taxing jurisdictions which tax the Shoreham plant, in which case the in lieu of tax payments shall in the first year after the acquisition be equal to one hundred percent of the taxes and assessments which would have been received by such taxing jurisdictions. In each succeeding year such in lieu of tax payments shall be decreased by ten percent until such time as such payments equal taxes and assessments which would have been levied on such plant in a nonoperative state."

In February 1989, then Governor Cuomo, LIPA and LILCO entered into a "Settlement Agreement" for the acquisition by LIPA of only the Shoreham plant, for $1 (see, Matter of Citizens For An Orderly Energy Policy v. Cuomo, 78 N.Y.2d 398, 408, 576 N.Y.S.2d 185, 582 N.E.2d 568, rearg. denied 79 N.Y.2d 851, 852, 580 N.Y.S.2d 202, 203, 588 N.E.2d 100, 101). The settlement agreement was immediately the subject of a legal challenge in the Matter of Citizens For An Orderly Energy Policy case. Transfer of Shoreham was blocked until the final disposition of that suit by this Court's decision upholding the settlement; therefore, the actual transfer of title to LIPA did not occur until February 29, 1992. Nonetheless, the closing and decommissioning of Shoreham proceeded in anticipation of the eventual settlement takeover, to the point where, after authorization from the Federal Nuclear Regulatory Commission, the plant was rendered permanently and irreversibly nonoperative in 1991.

Beginning in 1976, LILCO had challenged overassessment of the Shoreham plant through tax certiorari proceedings under RPTL article 7 against the assessor of the Town of Brookhaven. A joint trial of seven such certiorari proceedings, for the tax years 1976-1977 through 1983-1984 (excluding 1979-1980), known as the "Phase I" tax years, was held in Supreme Court, Suffolk County. The Phase I litigation resulted in a substantial reduction in the assessed valuations of the Shoreham plant and a total tax refund to LILCO of some $34 million plus interest. The judgment was affirmed and is now final (see, Matter of Long Is. Light. Co. v. Assessor for Town of Brookhaven, 202 A.D.2d 32, 616 N.Y.S.2d 375, lv. denied 85 N.Y.2d 809, 628 N.Y.S.2d 52, 651 N.E.2d 920). A second ("Phase II") consolidated certiorari trial for the tax years 1984-1985 through 1991-1992 has also been concluded and a decision is pending. The annual assessed valuations of Shoreham had grown in amount with corresponding increases in property taxes of from $60,501,343 in 1987 when the LIPA Act became effective, to $82,066,699 in 1992 when transfer of Shoreham to LIPA was finally achieved. Under a transfer agreement between LILCO and LIPA, LILCO assumed the obligation to fund the PILOTs on Shoreham required under the LIPA Act.

Prior to the transfer of the Shoreham plant to LIPA on February 29, 1992, LILCO had made a payment of one half of the approximately $82 million in taxes due on Shoreham for the tax year 1991-1992, before the statutory deadline of January 10, 1992. Under tax legislation for Suffolk County, the tax year for real property taxes runs from December 1 to November 30 (Suffolk County Tax Act § 13[b], and by annual resolution of the Town of Brookhaven the tax liability may be paid without penalty in two equal installments on January 10 and May 31 of each tax year (see, id., § 13[c].

Disputes between LIPA, LILCO and the defendant local governmental units continued to exist, however, including litigation delaying the final decommissioning of the plant and disagreement over the effective date when PILOTs were to supersede LILCO's tax obligation. Before the May 31, 1992 tax payment was due, the parties entered into an interim agreement providing for the end of litigation involving the decommissioning of the Shoreham plant, for the payment by LIPA (from LILCO sources) of some $41 million to the Town of Brookhaven, without prejudice to the respective positions of the parties, and for two additional payments.

Shortly after the interim agreement was signed, the instant action was commenced. Plaintiffs' primary claims for relief were a declaration that: (1) LILCO's responsibility for tax payments attributable to the Shoreham plant terminated upon transfer on February 29, 1992; (2) LIPA's PILOT responsibility commenced the next day; (3) the plant was "nonoperative" prior to transfer; (4) no further PILOTs were owed because the plant was transferred in a "nonoperative" state; and (5) LILCO and LIPA were entitled to contest the assessments of the Shoreham plant after takeover upon which PILOTs were based and to seek refunds for overpayments of PILOTs made pending such determination. The defendants' answers asserted counterclaims seeking declarations that: (1) LILCO was responsible for tax payments through the end of the 1991-1992 tax year, November 30, 1992; (2) LIPA's PILOT responsibility commenced on December 1, 1992, and each succeeding year the PILOT would decrease by 10% of the preceding year's payment; (3) LIPA was obligated to make PILOTs in perpetuity of approximately $56 million based upon the tax assessment on the Shoreham plant for the 1985-1986 tax year when it was completely constructed and "nonoperative"; and (4) defendants could use all remedies provided by the Real Property Tax Law and the Suffolk County Tax Act to collect the PILOTs owed by LIPA.

On cross motions for summary judgment, Supreme Court declared, inter alia, that: (1) LILCO's tax liability ceased, and LIPA's PILOTs began upon the February 29, 1992 transfer of the Shoreham plant; (2) any excess PILOTs based upon a determination reducing the assessed valuation of the Shoreham plant in pending or future tax certiorari proceedings would be subject to full refunds to LIPA and LILCO; (3) the Shoreham plant was nonoperative (i.e., incapable of generating electricity) prior to and on the day of transfer; and (4) Shoreham PILOTs for the first year would be 100% of the taxes and assessments LILCO would have been required to pay had the transfer not occurred, after which PILOTs would be reduced by 10% of the previous year's amount until the PILOTs equal the taxes and assessments LILCO would have been...