Storm clouds gather over LIPA revamp – By George J. Marlin

The following appears in the June 7-13, 2013 issue of the Long Island Business News:

Since Gov. Andrew Cuomo unveiled his LIPA reorganization proposal last month there has been plenty of public weeping and gnashing of teeth, much of it justified.

The lowering of LIPA’s bond rating by Moody’s Investor Services to borderline junk, BAA1 from A3, did not help the governor’s cause. LIPA, Moody pointed out, has “little, if any, cushion for the unforeseen events that seem to occur every year.”

Political interference, Moody concluded, could make it “increasingly challenging for the board to take steps to systematically enhance the long-term financial and operational stability of the utilities, particularly if those actions would lead to rate increases.”

The feasibility of the governor’s pledge to freeze rates for three years has also been challenged.

The Director of Evercore Wealth Management’s municipal research department, Howard Cure, observed, “To start off with saying we’re not going to have any rate increases for three years when there’s a lot of capital needs – the math doesn’t work for me.”

The loudest complaints have been over the political decision to continue the $586 million in annual PILOT payments to local municipalities and school districts. Many commercial real estate proprietors and homeowners are tired of subsidizing municipal entities in which they do not own property or reside.

I, for instance, live in the New Hyde Park school district and paid about $9,000 in taxes this past school year. Because 15 percent of my monthly LIPA payments go to PILOTs, I also contribute year in and year out to the operating budgets of other school districts where LIPA owns land. That is truly “taxation without representation.”

Eliminating these egregious PILOTs could lower rates or at the very least freeze rates. Also, the revenues could be used to finance much needed capital improvements.

Another concern is the review and oversight of LIPA contracts over $50,000. Cuomo’s plan would amend Public Authority Law Section 1020-CC to eliminate the present requirement that “all contracts of the Authority shall be subject to the provisions of the state finance law relating to contracts made by the state.”

Such a change in the LIPA statute would cut the office of the State Comptroller out of the process to review and approve contracts. This in turn could open a new era in crony capitalism.

Finally, there is the issue of the proposed “advise and recommend” role of the Department of Public Service. Many are fearful that DPS will be a toothless tiger permitting the new five-member board to run wild.

The Cuomo administration has defended this structure, pointing out that LIPA bond covenants prohibit direct DPS control over rates and management.

This claim is substantially true. The rating agencies prefer public utilities to be free from crawling through state bureaucratic mazes to get approval for rate increases in order to meet principal and interest payments on outstanding debt.

Nevertheless, the DPS will not be opening an office in Long Island merely to take in the sights. Hovering over the LIPA board, scrutinizing budgets and capital project plans, utilizing the bully pulpit and issuing critical public edicts of board practices or policies, will most likely keep the trustees on the path of righteousness.

The clock is ticking. The governor has only a month to get a LIPA reorganization plan through the state Legislature and hurricane season is rapidly approaching. This may mean Cuomo will have to put aside his pride and address some of the issues raised here and by other critics.

If Cuomo fails and Long Island gets hit with another Sandy debacle, he will not be able to evade responsibility for the miserable response of one of his state agencies as he did last year. The finger he will be able to point will only be at himself.