The city of Lackawanna and its school system stand to benefit financially from an agreement with the company that eventually will erect 18 more windmills on the former Bethlehem Steel site.
But peace and harmony hardly describe the way the city and school district worked together to get to this point.
The developer, in this case BQ Energy, must either pay taxes to municipalities and school districts or sign agreements to pay a sum in lieu of taxes, or negotiate separate payment schedules.
At issue is an earlier agreement between BQ Energy and the city that leaves the schools out of a 15-year payment plan. That still does not sit well with Paul Hashem, superintendent of schools at the time the deal was negotiated.
He felt, and still feels, the district was deliberately left out of negotiations when Lackawanna Mayor Norman Polanski signed the original Steel Winds deal.
The controversy began with the eight wind turbines occupying the grounds of the abandoned steel mill. Steel Winds I generates up to 20 megawatts of electric power and per the original agreement, signed Dec. 19, 2005, developer BQ Energy pays Lackawanna – the only benefactor of the agreement – $100,000 tax-free every year for 15 years.
A second, tentative agreement signed by BQ this past spring with the city – and this time including the Lackawanna City School District – could pay the city an additional $162,000 a year, once construction begins. The school will get $130,000 annually.
The second agreement will not change any provisions of the first Steel Winds deal, leaving the city as sole benefactor of that contract.
David Bradley chairs the engineering committee for Wind Action Group, an education and advocacy group geared toward maximizing wind energy in Erie County. Of Polanski’s ability to negotiate wind deals for the city, Bradley said, “He did well for himself.”
Hashem, who retired Feb. 5, said Polanski could have done a better job negotiating for the community had the schools been a party in the talks. Steel Winds I would have benefited the school district, Hashem maintains.
“We could have gotten into an agreement where funds could have helped us get a reading or math teacher,” he said. “The problem was the school district had an interest in this, but was not made aware of the negotiations.
“I feel very strongly the city breached an ethical issue, not notifying all municipalities. The school district should have been made aware, to share in the agreement.”
Of the original agreement, Hashem said, “The Steel Winds people said they expected the city and the school district to be included, and were disappointed both were not.”
Paul Curran, managing director of BQ Energy, negotiated Steel Winds I and Steel Winds II payment agreements. He declined comment when asked to recall his or his company’s reaction to the school district being excluded from the first voluntary payment agreement.
“We negotiated an agreement with the city, honored that agreement and are happy with it,” he said.
Lackawanna mayor: ‘Nobody wanted in’
“The district has to express an interest,” said Polanski. “Our first deal with the eight windmills, nobody came and said they wanted in. So the deal I struck was for the city. Once construction started, the school and county were out of luck in demanding revenues.”
“The mayor is not being forthright,” said Hashem, when told of Polanski’s comments. “When they did that first set of negotiations, the school district didn’t know they were negotiating with Steel Winds. I believe they did that (to avoid sharing) money with the school district, and that was wrong. This was a really underhanded deal, a deliberate way of excluding one of the partners.
“My understanding when (then-district attorney Carl) Morgan looked at the real property law and researched it … there wasn’t anything we could do,” Hashem said. “It was a done deal. We were screwed and that was it.”
A call to interim school Superintendent Fred Wille was not returned.
According to Section 487 of the real property tax law, energy systems such as solar or wind are tax-exempt for 15 years. It also states local jurisdictions (such as school districts) may require solar or wind energy systems to enter a payment-in-lieu-of-taxes (PILOT) contract. When the district opted out of the exemption from taxation on Nov. 15, 2006, it legally secured its place in negotiations for Steel Winds II.
Said Hashem: “From the date of opting out, no one could leave the school district out of negotiations or any settlement agreement.” This includes the tentative one signed this past spring, a 15-year PILOT.
The first Steel Winds project pays Lackawanna $12,500 a year for each of the eight towers, totaling $100,000.
New deal pays highest rates in the state
According to Dan Spitzer, an attorney who represents the city on Steel Winds II, the tentative agreement will pay $10,000 per megawatt generated, or about $325,000 a year. The City of Lackawanna will get about half of that, around $162,000 a year. Forty percent, about $130,000, will go to the school district.
It’s unclear as to how the remaining 10 percent would be allocated. Curran and Polanski didn’t specify whether the county would benefit from the PILOT.
Spitzer, a partner in the municipal and energy law department at Hodgson Russ LLP, estimates he has worked on a dozen such payment agreements statewide the last few years. Of the proposed Steel Winds II payment structure, he said, “I believe the payments are the highest in the state.”
Lackawanna, Hamburg to cut property taxes
Polanski said the $262,000 per year from Steel Winds I and II will offset cost increases and be used to cut property taxes. The annual figures could increase or decrease, he said, per some accelerators or decelerators in the payment structure.
Polanski added the city has cut property taxes three years in a row, and the new PILOT could result in another decrease in 2009.
A timeline for Steel Winds II construction has not been established. It calls for 18 new windmills, with five on land in Hamburg. For those units, a separate PILOT is being worked on between BQ, the Town of Hamburg and Frontier Central School District. Once construction begins, Curran said, the new windmills could be up in six months.
While the agreement with Hamburg isn’t final, Town Supervisor Steven Walters said Hamburg stands to earn $125,000 annually from it. He said it might be used to cut taxes and boost the town’s general fund.
To negotiate a separate PILOT with BQ, Walters said the two municipalities created a united front, with Lackawanna leading the way.
by David Bertola
4 July 2008