February 2, 2017
NYS Senate and Assembly
Long Island Delegation
Re: New York State and NYS Public Service Commission allowing Taxing Jurisdictions to Levy Taxes on Water Utility Properties
Dear Elected Officials:
LI Clean Air Water and Soil ("CAWS") is a not-for-profit organization dedicated to the protection and preservation of Long Island's environment.
In CAWS' activities with respect to our water supply and quality issues, CAWS is party to the water rate increase proposal by New York American Water ("NYAW"). As you know, NYAW is a private company supplying water to about 10% of Nassau County residents in parts of the Towns of Hempstead and Oyster Bay. NYAW rates are four times the rates charged by town water districts; the average NYAW ratepayer paying $1000 per year for water while the average public water district ratepayer paying less than $200. Moreover, rates paid to NYAW are not tax deductible, whereas water district maintenance and operations tax is tax deductible.
Forty percent of NYAW's revenue is for property taxes paid to the county, towns and school districts. The state, through the Public Service Commission ("PSC"), not only allows the local districts to charge these property taxes, but allows NYAW ratepayers to pass 100% of the burden to the ratepayers. The result is 10% of Nassau County residents, who are NYAW ratepayers, pay a property tax for their water utility property, while the 90% of residents who receive public water service don't pay that tax. For residents within a municipality to be paying different tax rates is unconstitutional and illegal.
In the current rate increase proposal, CAWS requested information regarding the legality of these taxes as well as recent changes in the number of school districts to whom NYAW (i.e., its ratepayers) pay school taxes. PSC Staff refuses to explain the basis for which it allows NYAW to be subject to property taxes and pass 100% of that burden to the ratepayers. That is, the New York State PSC refuses to explain the basis for ratepayers paying property taxes which accounts for 40% of NYAW rates and 25% of the current proposed rate increase. Since the PSC, which supposedly protects residents from municipal service monopolies, refuses to protect, much less even explain why the ratepayers are subject to a property tax burden that benefits all county residents, yet no other county residents have such a burden.
Therefore, we demand our state officials acknowledge this constitutional issue and find all water utilities, or at least Nassau County's, to be tax exempt. Indeed, in any county where some water utilities are property tax exempt, it is unfair that other water utilities and, therefore, its ratepayers, are not.
Just last year, our town officials, through a water authority formed in 1992 (Water Authority of Southeast Nassau County), studied the public takeover of NYAW. That study ASSUMED that the public authority, which would take over NYAW, would still pay property taxes. Therefore, it's clear that county and town officials have allowed this unconstitutional tax levy to continue and will not even consider allowing NYAW ratepayers to be tax exempt for property its water utility utilizes in the future. County and town officials should have condemned that study because of its property tax assumption. However, as our state officials, it is state law that exempts 90% of Nassau residents from property taxes for water utility property, but forces the 10% of Nassau residents who are served by NYAW to pay those taxes.
It is noted that the PSC fails to protect ratepayers in tax refund proceedings brought by NYAW. When NYAW secures a tax refund through tax grievance processes, the PSC allows up to 40% of the refund to go to NYAW's attorneys, who are paid hourly as opposed to customary contingency rates, and allow 12-18% of the refund to go to their shareholders. The result is NYAW ratepayers pay 100% of the property taxes and then get less than 50% of a refund. The PSC justifies this inequitable distribution for the refund as an incentive for NYAW to secure the refunds. We respectfully submit that this underlies the very problem with allowing property taxes to be charged for water utility properties.
We, therefore, respectfully request that you end the illegal and unconstitutional policy in which New York State allows taxing jurisdictions to levy taxes on water utility properties, essentially taxing one resident within a municipality to be taxed differently from others within the same municipality.
Very truly yours,
Claudia Borecky Donald Davidson Dave Denenberg
LI Clean Air Water and Soil, Ltd.