LIPA’s fiscal gain could mean Island Park credit pain: Wall Street ratings agency analyzes tax-cert case

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The result of the Long Island Power Authority’s ongoing tax certiorari case focusing on four of its power plants could hurt the borrowing ability of affected municipalities — including the Island Park School District — should the utility receive the property-tax reductions it seeks, according to a recent report by the financial service agency Standard & Poor’s.

Researchers at S&P Global Ratings analyzed LIPA and the property-tax grievances it filed with Nassau County on the plants, including the E.F. Barrett power plant in Island Park, and published their research on July 26 in a report titled “Is Long Island Power Authority’s Fiscal Gain Local Governments’ Credit Pain?” The study highlighted potential concerns if LIPA were to receive the tax payment reductions, and the negative impact that could have on the credit ratings of the affected municipalities, constraining their ability to borrow for construction projects.

S&P analysts Rahul Jain, David Bodek and Nora Wittstruck said they anticipated resolutions in the case to roll out in the next few months, and that “the outcome could strain credit quality if property tax base growth or state aid does not materialize in the long term to offset reduced assessments,” when it comes to small municipalities and school districts on Long Island, such as Island Park.

The results of the E.F. Barrett Power Plant case will impact Nassau County, the Town of Hempstead and the Island Park School District, which have credit ratings of A+, AA- and AA+, respectively. While the plant constitutes less than 1 percent of Nassau County’s property-tax base and 3 percent of the Town of Hempstead’s, it makes up 47 percent of the Island Park School District’s. To put that in perspective, the Northport Power Plant in Suffolk County, which comprises roughly 55 percent of the Northport-East Northport School District’s property-tax base, is the largest property taxpayer in the United States, according to the report.

S&P further indicated that school districts such as Island Park, which “derive significant revenue” from their power plants, might go through tough times fiscally if LIPA were to win the case. The ratings agency suggested that expenditure cuts should be made to offset property-tax revenue losses, particularly if the state chose not to offer relief.

Currently, no legislation has been adopted, but last June the State Senate passed a resolution that could offer relief to homeowners facing steep property-tax hikes. It would allow the creation of tax-stabilization reserve funds by school districts and municipalities where LIPA won tax reductions, and broaden the use of an existing $30 million state power plant cessation mitigation fund to lessen the hit to communities facing potential losses to their tax bases as a result of LIPA’s ongoing tax-certiorari proceedings. The Assembly version of the bill, however, stalled in committee.

The researchers concluded that they see major potential credit rating pressure in local governments such as Island Park, and predict that taxpayers might be responsible when it comes to closing the property-tax revenue gap. It is unknown how large the lowered property-tax assessment might be, but the agency said, “We will continue monitoring the outcome of the proceedings and assess the scope and magnitude of the potential credit quality impact.”

Island Park Schools Superintendent Dr. Rosmarie Bovino declined to comment on the contents of the report, but she touted the school district’s bond rating, which is the highest possible at AA+. Additionally, she said, the district has no debt as of this month, after making its last bond payment. School officials said they plan to take out a bond-anticipation note at both schools for roof repairs.

“Obviously, if LIPA’s tax certiorari appeal is successful and its tax rate is reduced, this will likely result in a shift of the tax burden to our property owners,” said Bovino, who added that without significant commercial property in Island Park, “most of the burden would be on the shoulders of homeowners.”

Nonetheless, she said that residential properties are considered “dependable” and “stable” components of the tax base, so the more they are relied on, the higher the bond rating will be.

Island Park Board of Educataion President Jack Vobis said that bonds are typically used only when necessary for the school district, and that only two have been used in the past decade.

“If our credit rating went down and we needed to borrow more money on the bond, I would imagine it would result in a higher interest rate,” Vobis said. “But I don’t know for certain.”

Island Park resident and school board meeting attendee Richard Schurin said that S&P’s report was “another reminder of the importance of the tax-certiorari issue to every resident and taxpayer in Island Park.”

Schurin is concerned, he said, not only about increasing taxes, but also declining school services. He believes that local elected leaders need to “wake up and recognize that we are in an emergency situation.

“Not enough is being done to stop this,” Schurin said, “and soon it will be too late.”