Political Fallout: Deregulation and the Decimation of the Energy Industry in Rockland

Part Four in our series

BY CHERYL SLAVIN

Bowline - stockThe New York State deregulation of the energy market, leading directly as it did to the two huge tax certiorari lawsuits brought by successive power plant owners, had as powerful and lasting an impact on the political landscape of North Rockland as it did on the economic. As each of the affected local governments struggled to cope with an unprecedented scenario, alliances were made, broken and reformed. To this day the results of those failures and successes continue to color the relationships between the towns, the school district and the taxpayers.

In 1999, in the absence of a regulated energy market that would guarantee a certain level of profit for its services, Orange and Rockland no longer had incentive to continue to pay, as it had for years, the inflated tax assessments on its two Rockland power plants, Bowline and Lovett. O&R (and its successor Southern Energy) brought its first tax certiorari suit against Haverstraw, seeking to reduce Bowline’s overall valuation and recoup overpayments for the five previous years. Faced with the massive lawsuit, Howard Phillips, then Haverstraw’s finance director, persuaded the North Rockland Central School District to get involved—and pay 75 percent of all the parties’ attorney’s fees. The first alliance was born.

“The town set the assessment rates,” retired Superintendent Dodge Watkins recently explained to the Rockland County Times recently, “but the school district stood to be the most affected by any reduction in assessment, since that’s what we rely on when we set our tax rates. So we joined in the lawsuit, and agreed to pay the lion’s share of the attorney’s fees.”

Jim Johnston, North Rockland Assistant Superintendent for Business Services, remembers, “Howie convinced the school district to come on board because the town didn’t have the funds to pay for the best defense possible, and the district had the most to lose,” referring to the difference the Bowline and Lovett assessments had on North Rockland school tax rates. At that time families were paying about half the school taxes their counterparts in the rest of the county paid, while still receiving a comparable quality of education.

Now joined in opposition to Southern Energy’s claims, the parties engaged as early as 2000 in settlement negotiations, and even reached an agreement which, according to the lawyers for Southern, would have reduced Bowline’s assessed value from $666 million to $200 million and include a refund of $28 million to Southern. All parties were on the verge of signing off when Haverstraw and North Rockland received word that the neighboring power plants in Newburgh, Roseton and Danskammer, were going to be sold for the sum of $903 million.

The town and the school district pulled out, believing that they could cut a better deal. Southern sued to enforce the agreement, further delaying any settlement, and prompting some criticism over the delay.

“Haverstraw politicians have successfully used the tactics of delay for years,” Ricky Sanchez, then a Haverstraw Village trustee, wrote in 2002, “(but) talking an issue to death doesn’t work as well when your adversary is maybe tougher than you.”

Watkins and Phillips, now Haverstraw supervisor, issued a joint statement defending their decision to fight enforcement of the proposed settlement. “It remains the firm commitment of the town and district to put the interests of the taxpayers of our community first,” they said. They were legally vindicated when the Rockland decision to pull out was upheld by the courts.

But by then, much time had passed, and the case remained unsettled. Moreover, in 2003, Mirant Energy (Southern’s successor) commenced a second tax certiorari case, this time against Stony Point to recover overpayments on Lovett. Despite distinctly different interests in the two cases, but perhaps because of the shared interest in the school district—or the mutual benefit of shared attorneys’ fees—Stony Point agreed to be represented by the same law firm that Haverstraw and the school district already had retained.

From that point forward the cases traveled together throughout the course of the litigation. A second alliance had been formed, but one that would be severely strained later by the conflicts of interest present from the start.

Five years had now passed since the original litigation had started, with a corresponding increase in the refund Mirant sought. Although the alliances were holding, cracks were starting to show. Throughout the entire time span of the lawsuit, the school district had continued to go forward with the construction of the new Fieldstone Middle School. This raised questions in Haverstraw about the district’s financial prudence, considering that they were embroiled in a high stakes lawsuit. There was perhaps some lingering bitterness on the part of the Haverstraw officials, as well, since the state had awarded the Letchworth property for the school, rather than for the Town to build a condominium complex there.

Watkins defends the decision to proceed with Fieldstone to this day: “The new schools were in the works even prior to my tenure as superintendent. $150 million had been earmarked for the construction long before the tax cert case, and I was able to bring the cost down to $60 million by negotiating with the state for the Letchworth property.”

But the seeds of discord had been sown, even as the parties continued together deep into settlement negotiations. At one point a judge sent everyone up to Massachusetts for mediation with then-Harvard professor—and now US Senator—Elizabeth Warren. As confirmed by a local news report of the time, the parties came to a tentative agreement. But by the time they reconvened in New York, not everyone was ready to sign on.

The deal in question would have included a repayment to Mirant of $120 million, tax payments from Mirant of $8 to 10 million over the next eight years, and the establishment of the $100 million account from which all the taxing jurisdictions could withdraw funds over the next eight years to mitigate the effect of lost tax revenue from the lowered valuations.

The sticking point for Stony Point was twofold, according to Dennis Lynch, at that time special counsel to the town. First, after analyzing the apportionment of the settlement payment among the parties, he determined that Stony Point would be carrying an undue proportion of the refund. Second, the proposed $100 million escrow account was of questionable legality. A review of New York State statutes seems to bear him out: there is no authority under New York law for municipalities to borrow money in order to create a fund for the purpose of prospectively keeping as-yet-to-be-determined tax rates low. Ultimately, after reviewing the agreement and counsel’s advice, the board voted 4 to 1 against the settlement.

The reaction was dramatic. Any hope of alliance between the towns was pretty well gone. Stony Point wouldn’t agree to the settlement with the escrow account; the other parties refused to agree to a settlement without it. The stress after of months—and years— of fruitless negotiations exploded into accusations from both sides of political grandstanding and election year manipulation.

Steven Cole-Hatchard, who as Stony Point Councilman voted against the settlement, vigorously defended the decision at the time as in Stony Point’s best interests, and attacked the alleged escrow account in particular as not only illegal but ill-conceived. He continues to point out today that the funds that would have comprised the account were to have come from a $100 million bond; thus, in eight years the taxpayers would have faced an increase in taxes as the money ran out and, he said, would also have had to start paying back the loan with interest.

Moreover, and perhaps not with the best timing, Dodge Watkins’ retirement as superintendent just after the settlement fell apart left many fuming. He states now that when the proposal he’d backed was no longer on the table, he felt he’d done all he could, and that he wouldn’t delay his long-planned retirement any more. Still, his departure, with a hefty pension in tow at a time when the towns were scrambling for money with which to pay Mirant, raised eyebrows among many.

The case ended up going to trial and, as anticipated, the court ultimately reduced the valuation of Bowline and Lovett to an amount far below that which would have resulted from the settlement, and ordered an almost $300 million refund. Taxes skyrocketed, and angry taxpayers looked to apportion blame. Some attacked Cole-Hatchard and the Stony Point Board majority for not settling. Others blame the school district for spending money in the face of a huge litigation.

Still others blame Supervisor Phillips and the Town of Haverstraw for insisting on an all or nothing settlement. Some even blame the lawyers on both sides for dragging out the litigation in order to increase their fees.

Ultimately, each party feels justified for making the decisions he did. What is undisputed is that relationships between the towns have been irrevocably altered, and taxpayers have lost forever the revenue cushion provided for decades by Bowline and Lovett.