The fine print of the novel payment-in-lieu-of-taxes agreement proposed for Galloo Island Wind Farm gives the developer stability in tax payments over 20 years, making it easier to attract investors.
But the bottom line means about $5.3 million less in taxes for the coffers of the town of Hounsfield, Sackets Harbor Central School District and Jefferson County.
The three taxing jurisdictions will receive base payments totaling about $54.7 million over the term of the proposed PILOT. If a normal 15-year PILOT were applied with five years of full taxation afterward, the jurisdictions would net about $60 million.
To ensure development, having a set amount in tax payments for the entire investment period "would be a big key" to attracting investors, William J. Walsh, director of the Joseph I. Lubin School of Accounting at the Whitman School of Management at Syracuse University.
"In New York, we have very, very high property taxes to begin with," he said. "If you combine that incentive — the ideal location for wind turbines — with the reduced taxes, and say, 'We'll match the low property taxes in other places,' that's an incentive that has worked in the past."
A standard PILOT agreement is 15 years and allows companies to pay in steps toward its full taxation. There are five years at 25 percent of full taxation, five years at 50 percent and five at 75 percent. Those payments fluctuate based on the tax rates in each jurisdiction, adding uncertainty for investors.
Granting the wind farm isn't the question — a project that size is entitled to a standard PILOT under the state's general municipal law. But the variations the proposed PILOT includes ensure the wind farm's financial feasibility by adding stability over the developer's 20-year investment term.
The proposed PILOT would last 20 years, while a standard PILOT lasts 15. And a standard PILOT divides the payments based on the proportional distribution of property taxes among the county, town of Hounsfield and Sackets Harbor Central School District. But under the proposed PILOT, the money would be divided with 15 percent going to the town, 50 percent to the school and 35 percent to the county.
In 2009, Hounsfield residents paid about 6.7 percent of their taxes to the town, 58.8 percent to the school and 34.6 percent to the county.
Estimates show that during the 20 years of the proposed PILOT, the town will collect about $8.2 million, the school will get $27.4 million and the county will gather about $19.2 million. The combined standard 15-year PILOT plus five years at full taxation would bring about $4 million to the town, $35.3 million to the school and $20.8 million to the county.
Under an estimated assessment of $400 million using 2010 rolls, the development would pay about $4.8 million in property taxes.
"The theory is that in order to encourage development, you give the developers a break from paying property taxes," Mr. Walsh, accounting professor, said. "If you give the upfront break to encourage development, the county may get more than its money back over a period of time."
The lost property taxes can be offset by more jobs — and therefore, income and taxes — in a region or high sales tax earnings from a development, he said.
The proposed PILOT covers just the turbines and infrastructure on Galloo Island plus the underwater transmission line that would inside the town of Hounsfield. The rest of the 50.6-mile line will pay full property taxes, but ask for a sale-leaseback agreement with JCIDA for a break on sales and mortgage recording taxes.
Representatives of Galloo Island Wind Farm developer Upstate NY Power Corp. and the Jefferson County Industrial Development Agency told county legislators Nov. 24 that without a PILOT, the project would not be built.
"They'll simply take their money and go away," JCIDA Chief Executive Officer Donald C. Alexander said. "Without the PILOT, we'll lose all the money."
Across the state, wind farm PILOTs have been based on a payment per megawatt of installed capacity. The payments usually range from about $6,000 to $8,000 per megawatt.
Under the proposed Galloo Island PILOT, Upstate NY Power would make a base payment of $8,500 per megawatt. On a 252-megawatt project, that totals $2.14 million. That increases 2.5 percent each year. But the developer would also pay a supplemental amount if wholesale electric power rates reach certain thresholds.
The supplemental payments would add $107,100 if the average annual price of power in the region exceeded $75 per megawatt, increase $214,200 if the average price exceeded $100 and add $321,300 if the price exceeded $125 per megawatt.
During development of the PILOT, JCIDA consultant Mark E. Quallen said projections for the next 15 years showed the prices could regularly beat the threshold, creating additional PILOT revenue.
Other IDAs are studying the Galloo Island PILOT.
"This is the richest PILOT they have encountered," Mr. Alexander said. "It is being used as the example in two or three other areas of the state."
The proposed PILOT would stretch over 20 years because that is the reported length of financing for the project. In year 21, the project enters the tax rolls.
"The project will be viable on its own to pay full taxes without paying on the large debt load," Mr. Alexander said.
If the county approves the departure from the standard PILOT, the JCIDA board will vote on the measure. But the negotiations on issues that could be related to the final PILOT agreement will continue. The JCIDA board will later approve the final agreement, but only if Upstate NY Power, JCIDA and taxing jurisdictions hammer out a decommissioning agreement, project development agreement and other issues.
"The IDA board will vote again on the final PILOT," Mr. Alexander said. "But we can only go so far without an enabling resolution."